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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
 REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
OR
to
 SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report:
Commission File number: 001-16174
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
ISRAEL
(Jurisdiction of incorporation or organization)
5 Basel Street
P.O. Box 3190
Petach Tikva 4951033, Israel
(Address of principal executive offices)
Eyal Desheh
Group Executive Vice President, Chief Financial Officer
Teva Pharmaceutical Industries Limited
5 Basel Street
P.O. Box 3190
Petach Tikva 4951033, Israel
Tel: 972-3-914-8171
Fax: 972-3-914-8678
(Name, telephone, e-mail and/or facsimile number and address of Company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
American Depositary Shares, each representing one Ordinary Share
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Name of each exchange on which registered
New York Stock Exchange
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
851,871,888 Ordinary Shares
729,850,138 American Depositary Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934. Yes  No 
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer 
Accelerated filer 
Non-accelerated filer 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 US GAAP
 International Financial Reporting Standards as issued by the International Accounting Standards Board
 Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
 Item 17
 Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  No 
Table of Contents
INDEX
Page
Introduction and Use of Certain Terms
Forward-Looking Statements
Part I
Item 1:
Item 2:
Item 3:
Item 4:
Item 4A:
Item 5:
Identity of Directors, Senior Management and Advisers
Offer Statistics and Expected Timetable
Key Information
Selected Financial Data
Operating Data
Balance Sheet Data
Dividends
Risk Factors
Information on the Company
Introduction
Strategy
Our Segments
Generic Medicines
United States
Europe
Rest of the World Markets
Specialty Medicines
Central Nervous System
Respiratory
Oncology
Women’s Health
Other Activities
Research and Development
Operations
Environment
Quality
Organizational Structure
Properties and Facilities
Regulation
United States
Europe
Rest of the World Markets
Miscellaneous Regulatory Matters
Unresolved Staff Comments
Operating and Financial Review and Prospects
Introduction
Highlights
Results of Operations
Segment Information
Generic Medicines
Specialty Medicines
Other Activities
Teva Consolidated Results
Liquidity and Capital Resources
Supplemental Non-GAAP Income Data
Trend Information
Off-Balance Sheet Arrangements
1
1
2
2
2
2
3
3
4
5
17
17
18
19
19
20
21
22
23
24
27
28
29
29
30
36
38
38
39
40
42
42
45
47
48
48
49
49
50
51
51
51
57
62
63
67
71
74
75
Table of Contents
Page
Item 12D:
Item 13:
Item 14:
Aggregated Contractual Obligations
Critical Accounting Policies
Recently Issued Accounting Pronouncements
Directors, Senior Management and Employees
Directors and Senior Management
Compensation of Executive Officers and Directors
Board Practices
Statutory Independent Directors, Designated Independent Directors and Financial Experts
Committees of the Board
Employees
Share Ownership
Major Shareholders and Related Party Transactions
Financial Information
The Offer and Listing
ADSs
Ordinary Shares
Additional Information
Memorandum and Articles of Association
Taxation
U.S. Taxation Applicable to Holders of Our Ordinary Shares and ADSs
Israeli Taxation Applicable to Holders of Our Ordinary Shares and ADSs
Taxation Applicable to the Company
Documents on Display
Quantitative and Qualitative Disclosures about Market Risk
General
Exchange Rate Risk Management
Interest Rate Risk Management
Description of Teva American Depositary Shares
Defaults, Dividend Arrearages and Delinquencies.
Material Modifications to the Rights of Security Holders and Use of Proceeds
75
76
81
82
82
88
98
99
99
102
103
104
105
106
106
106
108
108
113
113
115
116
118
118
118
119
121
122
123
123
Part II
Item 15:
Item 16:
Item 16A:
Item 16B:
Item 16C:
Item 16D:
Item 16E:
Item 16F:
Item 16G:
Item 16H:
Controls and Procedures
[Reserved]
Audit Committee Financial Experts
Code of Ethics
Principal Accountant Fees and Services
Exemptions from the Listing Standards for Audit Committees
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Change in Registrant’s Certifying Accountant
Corporate Governance
Mine Safety Disclosure
123
124
124
124
124
125
125
126
126
126
Part III
Item 17:
Item 18:
Item 19:
Financial Statements
Financial Statements
Exhibits
127
127
128
Consolidated Financial Statements
Financial Statements Schedule
F-1
S-1
Item 6:
Item 7:
Item 8:
Item 9:
Item 10:
Item 11:
Table of Contents
INTRODUCTION AND USE OF CERTAIN TERMS
Unless otherwise indicated, all references to the “Company,” “we,” “our” and “Teva” refer to Teva Pharmaceutical Industries Limited and its subsidiaries, and
references to “revenues” refer to “net revenues.” References to “U.S. dollars,” “U.S.$” and “$” are to the lawful currency of the United States of America, and
references to “NIS” are to new Israeli shekels. References to “MS” are to Multiple Sclerosis. Market data, including both sales and share data, is based on information
provided by IMS Health Inc., a provider of market research to the pharmaceutical industry (“IMS”), unless otherwise stated. References to “ROW” are to Rest of the
World markets. References to “P&G” are to The Procter & Gamble Company and references to “PGT” are to PGT Healthcare, the joint venture we formed with P&G.
References to “R&D” are to Research and Development. References to “S&M” are to Selling and Marketing. References to “G&A” are to General and Administrative.
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements, which express management’s current beliefs or expectations with regard to future events. You can
identify these statements by the fact that they do not relate strictly to historical or current facts. Such statements may include words such as “anticipate,” “estimate,”
“expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of future operating or financial
performance. In particular, these statements relate to, among other things:
•
our business strategy;
•
the development and launch of our products, including product approvals and results of clinical trials;
•
projected markets and market size;
•
anticipated results of litigation;
•
our projected revenues, market share, expenses, net income margins and capital expenditures; and
•
our liquidity.
The forward-looking statements contained herein involve a number of known and unknown risks and uncertainties that could cause our future results,
performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements.
You should understand that many important factors, in addition to those discussed or incorporated by reference in this report, could cause our results to differ
materially from those expressed in the forward-looking statements. Potential factors that could affect our results include, in addition to others not described in this
report, those described under “Item 3- Key Information—Risk Factors.” These are factors that we think could cause our actual results to differ materially from expected
results.
Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statements or other
information contained in this report, whether as a result of new information, future events or otherwise. You are advised, however, to consult any additional disclosures
we make in our reports on Form 6-K filed with the U.S. Securities and Exchange Commission (“SEC”). Please also see the cautionary discussion of risks and
uncertainties under “Item 3—Key Information—Risk Factors” starting on page 5 of this report. This discussion is provided as permitted by the Private Securities
Litigation Reform Act of 1995.
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PART I
ITEM 1:
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not Applicable.
ITEM 2:
OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3:
KEY INFORMATION
SELECTED FINANCIAL DATA
The Israeli Securities Law allows Israeli companies, such as Teva, whose securities are listed both on the Tel Aviv Stock Exchange and on certain stock
exchanges in the U.S. (including the New York Stock Exchange), to report exclusively under the rules of the SEC and generally accepted accounting principles in the
United States (“U.S. GAAP”). Except as otherwise indicated, all financial statements and other financial information included in this annual report are presented solely
under U.S. GAAP.
The following selected operating data for each of the years in the three-year period ended December 31, 2014 and selected balance sheet data at December 31,
2014 and 2013 are derived from our audited consolidated financial statements set forth elsewhere in this report, which have been prepared in accordance with U.S.
GAAP. The selected operating data for each of the years in the two-year period ended December 31, 2011 and selected balance sheet data at December 31, 2012, 2011
and 2010 are derived from our audited financial statements not appearing in this report, which have also been prepared in accordance with U.S. GAAP.
The selected financial data should be read in conjunction with our consolidated financial statements, related notes and other financial information included in
this report.
The currency of the primary economic environment in which our operations in Israel and the United States are conducted is the U.S. dollar. The functional
currency of some subsidiaries and associated companies is their local currency.
2
Table of Contents
Operating Data
2014
For the year ended December 31,
2013
2012
2011
U.S. dollars in millions (except per share amounts)
2010
Net revenues
Cost of sales
20,272
9,216
20,314
9,607
20,317
9,665
18,312
8,797
16,121
7,056
Gross profit
Research and development expenses
Selling and marketing expenses
General and administrative expenses
Impairments, restructuring and others
Legal settlements and loss contingencies
11,056
1,488
3,861
1,217
650
(111)
10,707
1,427
4,080
1,239
788
1,524
10,652
1,356
3,879
1,238
1,259
715
9,515
1,095
3,478
932
430
471
9,065
951
2,968
865
408
2
Operating income
Financial expenses—net
3,951
313
1,649
399
2,205
386
3,109
153
3,871
225
Income before income taxes
Income taxes
Share in losses of associated companies—net
3,638
591
5
1,250
(43)
40
1,819
(137)
46
2,956
127
61
3,646
283
24
Net income
Net income (loss) attributable to non-controlling interests
3,042
(13)
1,253
(16)
1,910
(53)
2,768
9
3,339
8
Net income attributable to Teva
3,055
1,269
1,963
2,759
3,331
3.58
1.49
2.25
3.10
3.72
3.56
1.49
2.25
3.09
3.67
853
849
872
890
896
858
850
873
893
921
2014
2013
Financial assets (cash, cash equivalents and marketable securities)
Working capital (operating assets minus liabilities)
Total assets
Short-term debt, including current maturities
Long-term debt, net of current maturities
2,601
1,642
46,420
1,761
8,566
1,245
2,493
47,508
1,804
10,387
3,089
3,589
50,609
3,006
11,712
1,748
3,937
50,142
4,280
10,236
1,549
3,835
38,152
2,771
4,110
Total debt
Total equity
10,327
23,355
12,191
22,636
14,718
22,867
14,516
22,343
6,881
22,002
Earnings per share attributable to Teva:
Basic ($)
Diluted ($)
Weighted average number of shares (in millions):
Basic
Diluted
Balance Sheet Data
3
As at December 31,
2012
2011
(U.S. dollars in millions)
2010
Table of Contents
Dividends
We have paid dividends on a regular quarterly basis since 1986. Our dividend policy is regularly reviewed by the Board of Directors based upon conditions then
existing, including our earnings, financial condition, capital requirements and other factors. Our ability to pay cash dividends may be restricted by instruments
governing our debt obligations. Dividends are declared and paid in NIS. Dividends are converted into U.S. dollars and paid by the depositary of our American
Depositary Shares (“ADSs”) for the benefit of owners of ADSs, and are subject to exchange rate fluctuations between the NIS and the U.S. dollar between the
declaration date and the date of actual payment. Commencing in April 2015, our dividends will be declared and paid in U.S. dollars.
Dividends paid by an Israeli company to non-Israeli residents are generally subject to withholding of Israeli income tax at a rate of up to 25%. Such tax rates
apply unless a lower rate is provided in a treaty between Israel and the shareholder’s country of residence. In our case, the applicable withholding tax rate will depend
on the particular Israeli production facilities that have generated the earnings that are the source of the specific dividend and, accordingly, the applicable rate may
change from time to time. A 15% tax will be withheld on the dividend declared and distributed for the fourth quarter of 2014.
The following table sets forth the amounts of the dividends declared in respect of each period indicated prior to deductions for applicable Israeli withholding
taxes (in cents per share).
2014
1st interim
2nd interim
3rd interim
4th interim
34.7
35.3
32.1
33.8
4
2013
32.0
32.2
32.6
34.3
2012
2011
In cents per share
26.3
25.0
25.7
31.1
23.2
23.5
21.9
26.8
2010
18.8
18.1
19.3
21.8
Table of Contents
RISK FACTORS
Our business faces significant risks. You should carefully consider all of the information set forth in this annual report and in our other filings with the SEC,
including the following risk factors which we face and which are faced by our industry. Our business, financial condition and results of operations could be materially
adversely affected by any of these risks. This report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ
from those anticipated in these forward-looking statements, as a result of certain factors including the risks described below and elsewhere in this report and our other
SEC filings. See “Forward-Looking Statements” on page 1.
Our success depends on our ability to develop and commercialize additional pharmaceutical products.
Our financial results depend upon our ability to develop and commercialize additional generic and specialty pharmaceutical products, particularly after the
expiration of our U.S. Orange Book patents covering our leading specialty medicine, Copaxone ® . Commercialization requires that we successfully develop, test and
manufacture both generic and specialty products. All of our products must receive regulatory approval and meet (and continue to comply with) regulatory and safety
standards; if health or safety concerns arise with respect to a product, we may be forced to withdraw it from the market.
The development and commercialization process, particularly with respect to specialty medicines as well as the complex generic medicines that we are
increasingly focusing on, is both time-consuming and costly and involves a high degree of business risk. Our products currently under development, if and when fully
developed and tested, may not perform as we expect. Necessary regulatory approvals may not be obtained in a timely manner, if at all, and we may not be able to
produce and market such products successfully and profitably. Delays in any part of the process or our inability to obtain regulatory approval of our products could
adversely affect our operating results by restricting or delaying our introduction of new products.
Our leading specialty medicine, Copaxone®, faces increasing competition, including from orally-administered therapies and potential generic versions.
Any substantial decrease in the revenues derived from our specialty medicines would have an adverse effect on our results of operations, several of which
currently face, or will soon face, intense competition. Our multiple sclerosis franchise includes our Copaxone ® products and laquinimod (a developmental compound
for the treatment of MS). The profitability of our multiple sclerosis franchise is comprised of Copaxone ® revenues and cost of goods sold as well as S&M and R&D
expenses related to our MS franchise. It does not include G&A expenses, amortization and non-recurring items. Our MS franchise profitability was $3.2 billion, $3.3
billion, and $3.0 billion in 2014, 2013 and 2012, respectively. Profitability of our multiple sclerosis franchise as a percentage of Copaxone ® revenues was 75%, 76%,
and 74% in 2014, 2013 and 2012, respectively.
Although Copaxone® remains the leading therapy for multiple sclerosis to date, the market for MS treatments continues to change significantly as a result of new
and emerging therapies. In particular, the increasing number of oral treatments, such as Tecfidera ® by Biogen, Gilenya ® by Novartis, and Aubagio ® by Genzyme,
continue to present significant and increasing competition. Copaxone ® also faces competition from existing injectable products, such as the four beta-interferons
Avonex ® , Betaseron ® , Extavia ® and Rebif ® , as well as from the two monoclonal antibodies Tysabri ® and Lemtrada ® . The new oral treatments provide especially
intense competition in light of their substantial convenience in comparison to injectables such as Copaxone ® . Also, our U.S. Orange Book patents on Copaxone
®
expired in May 2014 and, subject to further judicial review, in September 2015. As a result, a generic version of our 20mg/20mL product could be sold in the United
States if FDA approval is obtained. In addition, our business strategy for Copaxone ® relies heavily on the continued migration of a substantial percentage of current
daily Copaxone ® patients to a new three-times-a-week version and the maintenance of patients on this new version. The failure to achieve our objectives for the new
version would likely have a material adverse effect on our financial results and cash flow.
5
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We may be subject to material fines, penalties and other sanctions and other adverse consequences arising out of our ongoing FCPA investigations and related
matters.
We are required to comply with the U.S. Foreign Corrupt Practices Act (the “FCPA”) and similar anti-corruption laws in other jurisdictions around the world
where we do business. Compliance with these laws has been subject to increasing focus and activity by regulatory authorities in recent years. Actions by our employees,
or third-party intermediaries acting on our behalf, in violation of such laws, whether carried out in the United States or elsewhere in connection with the conduct of our
business (including our business practices currently under investigation, as described below) may expose us to liability for violations of the FCPA or other
anti-corruption laws and accordingly may have a material adverse effect on our reputation and our business, financial condition or results of operations.
For several years, we have been conducting a voluntary worldwide investigation into business practices that may have implications under the FCPA. We have
engaged outside counsel to assist in the investigation, which was prompted by the receipt, beginning in 2012, of subpoenas and informal document requests from the
SEC and the Department of Justice (“DOJ”) to produce documents with respect to compliance with the FCPA in certain countries. We have provided, and will continue
to provide, documents and other information to the SEC and the DOJ, and are cooperating with these agencies in their investigations of these matters. In the course of
our investigation, which is continuing, we have identified certain business practices and transactions in Russia, certain Eastern European countries, certain Latin
American countries and other countries in which we conduct business, which likely constitute violations of the FCPA and/or local law. In connection with our
investigation, we have also become aware that affiliates in certain countries under investigation provided to local authorities inaccurate or altered information relating to
marketing or promotional practices. We have brought and continue to bring these issues to the attention of the SEC and the DOJ.
Our internal investigation is not complete and additional issues or facts could become known to management as the investigation continues, which may expand
the scope or severity of the potential violations and/or extend to additional jurisdictions. Our investigation is expected to continue through the end of 2015, and may
continue beyond that date.
We cannot predict at this time the impact on the Company as a result of these matters and accordingly cannot assure you that we will not be materially and
adversely affected. The DOJ, SEC and other agencies and authorities have a broad range of civil and criminal penalties they may seek to impose (on the Company
and/or individuals) for violations of the FCPA and other similar laws. We may be required to pay material fines and/or penalties and/or disgorge any profits earned from
improper conduct. Our operations in the affected countries may be negatively impacted, and we may be subject to injunctions or limitations on future conduct, be
required to modify our business practices and compliance programs and/or have a compliance monitor imposed on us, or suffer other criminal or civil penalties or
adverse impacts, including lawsuits by private litigants or investigations and fines imposed by local authorities. In addition, there can be no assurance that the remedial
measures we have taken and will take in the future will be effective or that there will not be a finding of a material weakness in our internal controls. Any one or more
of the foregoing could have a material adverse effect on our reputation and our business, financial condition or results of operations.
Research and development efforts invested in our pipeline of specialty and other products may not achieve expected results.
We must invest increasingly significant resources to develop specialty medicines (including our strategic focus on developing new therapeutic entities, as well as
the development of complex generics), both through our own efforts and through collaborations and in-licensing or acquisition of products from or with third parties.
The development of specialty medicines involves processes and expertise different from those used in the development of generic medicines, which increases the risks
of failure that we face. For example, the time from discovery to commercial launch of a specialty medicine can be 15 years or even longer, and involves multiple stages:
not only intensive preclinical and clinical testing, but also highly complex, lengthy and expensive approval processes which can vary from country to country. The
longer it takes to develop a product, the less time there will be for us to recover our development costs and generate profits.
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During each stage, we may encounter obstacles that delay the development process and increase expenses, leading to significant risks that we will not achieve
our goals and may be forced to abandon a potential product in which we have invested substantial amounts of time and money. These obstacles may include: preclinical
failures; difficulty enrolling patients in clinical trials; delays in completing formulation and other work needed to support an application for approval; adverse reactions
or other safety concerns arising during clinical testing; insufficient clinical trial data to support the safety or efficacy of the product candidate; and failure to obtain, or
delays in obtaining, the required regulatory approvals for the product candidate or the facilities in which it is manufactured.
Because of the amounts required to be invested in augmenting our pipeline of specialty and other products, we are reliant on partnerships and joint ventures with
third parties, and consequently face the risk that some of these third parties may fail to perform their obligations, or fail to reach the levels of success that we are relying
on to meet our revenue and profit goals. There is a trend in the specialty pharmaceutical industry of seeking to “outsource” drug development by acquiring companies
with promising drug candidates, and we face substantial competition from historically innovative companies for such acquisition targets.
We may not be able to reduce operating expenses to the extent and during the timeframe intended by our cost reduction program.
In October 2013, we accelerated the goals of our previously announced cost reduction program to $2.0 billion by the end of 2017, with half of that to be
achieved by the end of 2014 and 70% by the end of 2015. As part of the acceleration, we planned to reduce our employee headcount by approximately 10% by the end
of 2014. This program, the first of its magnitude in our history, is a significant pillar of our strategy, with much of the expected savings targeted for reinvestment in our
business. The announced plan for headcount reductions has generated intense governmental and union opposition in Israel and may generate similar opposition in
European countries and other locations where we have significant numbers of unionized employees. If such opposition limits our ability to carry out workforce-related
aspects of our cost savings program or causes us to grant significant financial concessions, our ability to achieve planned cost reductions will be further impacted. If we
are unable to achieve our cost reduction targets during the expected timeframes, our results of operations will be negatively affected and our ability to execute other
aspects of our strategy may be slowed or undermined.
We may not be able to find or successfully bid for suitable acquisition targets or licensing opportunities, or consummate and integrate future acquisitions.
As a key part of our strategy, we continue to be engaged in various stages of evaluating or pursuing potential acquisitions, collaborations and licenses, among
other transactions. Our reliance on acquisitions and other transactions as sources of new specialty and other products, or a means of growth, involves risks that could
adversely affect our future revenues and operating results. For example:
•
We may fail to identify transactions that would enable us to execute our business strategy.
•
Competition in the pharmaceutical industry for target companies and development programs has intensified and may result in decreased availability
of, or increased prices for, suitable transactions.
•
We may not be able to obtain necessary regulatory approvals, including those of competition authorities, and as a result, or for other reasons, we may
fail to consummate an announced acquisition.
•
The negotiation of increasing numbers of transactions may divert management’s attention from our existing business operations, resulting in the loss
of key customers and/or personnel and exposing us to unanticipated liabilities.
•
We may fail to integrate acquisitions successfully in accordance with our business strategy or achieve expected synergies and other results.
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•
We may not be able to retain experienced management and skilled employees from the businesses we acquire and, if we cannot retain such
personnel, we may not be able to attract new skilled employees and experienced management to replace them.
•
We may purchase a company that has excessive known or unknown contingent liabilities, including, among others, patent infringement or product
liability claims.
Manufacturing or quality control problems may damage our reputation for quality production, demand costly remedial activities and negatively impact our
financial results.
As a pharmaceutical company, we are subject to substantial regulation by various governmental authorities. For instance, we must comply with requirements of
the U.S. Food and Drug Administration (“FDA”), European Medicines Agency and other healthcare regulators with respect to the manufacture, labeling, sale,
distribution, marketing, advertising, promotion and development of pharmaceutical products. Failure to comply strictly with these regulations and requirements may
damage our reputation and lead to financial penalties, compliance expenditures, the recall or seizure of products, total or partial suspension of production and/or
distribution, suspension of the applicable regulator’s review of our submissions, enforcement actions, injunctions and criminal prosecution. We must register our
facilities, whether located in the United States or elsewhere, with the FDA as well as regulators outside the United States, and our products must be made in a manner
consistent with current good manufacturing practices (“cGMP”), or similar standards in each territory in which we manufacture. In addition, the FDA and other
agencies periodically inspect our manufacturing facilities. Following an inspection, an agency may issue a notice listing conditions that are believed to violate cGMP or
other regulations, or a warning letter for violations of “regulatory significance” that may result in enforcement action if not promptly and adequately corrected.
In recent years, there has been increasing regulatory scrutiny of pharmaceutical manufacturers, resulting in product recalls, plant shutdowns and other required
remedial actions. We have been subject to increasing scrutiny of our manufacturing operations, and several of our facilities have been the subject of significant
regulatory actions requiring substantial expenditures of resources to ensure compliance with more stringently applied production and quality control regulations. These
regulatory actions also adversely affected our ability to supply various products worldwide and to obtain new product approvals at such facilities. If any regulatory body
were to require one or more of our significant manufacturing facilities to cease or limit production, our business could be adversely affected. In addition, because
regulatory approval to manufacture a drug is site-specific, the delay and cost of remedial actions, or obtaining approval to manufacture at a different facility also could
have a material adverse effect on our business, financial position and results of operations.
Our patent settlement agreements, which are important to our business, are facing increased government scrutiny in both the U.S. and Europe, and may expose us
to significant damages.
We have been involved in numerous litigations involving challenges to the validity or enforceability of listed patents (including our own), and therefore settling
patent litigations has been and is likely to continue to be an important part of our business. Parties to such settlement agreements in the U.S., including us, are required
by law to file them with the Federal Trade Commission (“FTC”) and the Antitrust Division of the DOJ for review. The FTC has publicly stated that, in its view, some of
the brand-generic settlement agreements violate the antitrust laws and has brought actions against some brand and generic companies, including us, that have entered
into such agreements. Accordingly, we may receive formal or informal requests from the FTC for information about a particular settlement agreement, and there is a
risk that the FTC may commence an action against us alleging violations of the antitrust laws. See “Competition Matters” in note 14 to our consolidated financial
statements.
Such settlement agreements may further expose us to claims by purchasers of the products for unlawfully inhibiting competition. We are currently defendants in
private antitrust actions involving numerous settlement agreements.
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Similarly, the European Commission (“EU Commission”) has placed our European operations, as well as those of several brand and generic companies, under
intense scrutiny in connection with its inquiry into possible anticompetitive conditions in the European pharmaceutical sector. The EU Commission has initiated
proceedings against us in connection with one settlement agreement, and is investigating another agreement. Although we have argued that those agreements did not
restrict competition, the EU Commission may rule against us, possibly imposing fines. It is also possible that the EU Commission would open investigations relating to
subsequent agreements we have entered into. More generally, there is a risk that the increased scrutiny of the European pharmaceutical sector may lead to changes in
the regulation of our business that would have an adverse impact on our results of operations in Europe.
Because we have substantial international operations, our sales and profits may be adversely affected by currency fluctuations and restrictions as well as credit
risks.
In 2014, approximately 48% of our revenues came from sales outside the United States. As a result, we are currently subject to significant foreign currency risks,
including repatriation restrictions in certain countries, and may face heightened risks as we enter new markets. An increasing proportion of our sales, particularly in
Latin America, Central and Eastern European countries and Asia, is recorded in local currencies, which exposes us to the direct risk of devaluations, hyperinflation or
exchange rate fluctuations. For example, in 2014, decreases in the value of the Russian ruble resulted in a negative effect of approximately $122 million on our
revenues. We may also be exposed to credit risks in some of these markets. The imposition of price controls or restrictions on the conversion of foreign currencies could
also have a material adverse effect on our financial results.
In particular, although the majority of our net sales and operating costs is recorded in, or linked to, the U.S. dollar, our reporting currency, in 2014 we recorded
sales and expenses in 40 other currencies. Approximately 59% of our operating costs in 2014 were incurred in currencies other than the U.S. dollar, particularly in
euros, Israeli shekels, Hungarian forints, Canadian dollars, Japanese yen and the British pound. As a result, fluctuations in exchange rates between the currencies in
which such costs are incurred and the U.S. dollar may have a material adverse effect on our results of operations, the value of balance sheet items denominated in
foreign currencies and our financial condition.
We use derivative financial instruments and “hedging” techniques to manage some of our net exposure to currency exchange rate fluctuations in the major
foreign currencies in which we operate. However, not all of our potential exposure is covered, and some elements of our consolidated financial statements, such as our
equity position or operating profit, are not fully protected against foreign currency exposures. Therefore, our exposure to exchange rate fluctuations could have a
material adverse effect on our financial results.
The success of our specialty medicines depends on the effectiveness of our patents, confidentiality agreements and other measures to protect our intellectual
property rights.
The success of our specialty medicines depends substantially on our ability to obtain patents and to defend our intellectual property rights. If we fail to protect
our intellectual property adequately, competitors may manufacture and market products identical or similar to ours. We have been issued numerous patents covering our
specialty medicines, and have filed, and expect to continue to file, patent applications seeking to protect newly developed technologies and products in various
countries, including the United States. Currently pending patent applications may not result in issued patents or be approved on a timely basis or at all. Any existing or
future patents issued to or licensed by us may not provide us with any competitive advantages for our products or may be challenged or circumvented by competitors.
We are currently engaged in lawsuits challenging the validity and/or enforceability of the U.S. patents covering Copaxone ®, Fentora® and Treanda ® . For
example, Treanda ® faces patent challenges from 17 ANDA filers and one 505(b)(2) filer, and if we are unable to enforce our patents, which expire between 2026 and
2031, generic competition could commence as early as September 2015. While we intend to defend the validity of these
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patents vigorously, and will seek to use all appropriate methods to prevent their infringement, such efforts are expensive and time consuming. Due to the nature of
litigation, there can be no assurance that such efforts will be successful. Our ability to enforce our patents also depends on the laws of individual countries and each
country’s practices regarding the enforcement of intellectual property rights. The loss of patent protection or regulatory exclusivity on these or other specialty medicines
could materially impact our business, results of operations, financial conditions or prospects.
We also rely on trade secrets, unpatented proprietary know-how, trademarks, regulatory exclusivity and continuing technological innovation that we seek to
protect, in part by confidentiality agreements with licensees, suppliers, employees and consultants. If these agreements are breached, it is possible that we will not have
adequate remedies. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Furthermore, our trade
secrets and proprietary technology may otherwise become known or be independently developed by our competitors or we may not be able to maintain the
confidentiality of information relating to such products.
Healthcare reforms, and related reductions in pharmaceutical pricing, reimbursement and coverage, by governmental authorities and third-party payors may
adversely affect our business.
The continuing increase in expenditures for healthcare has been the subject of considerable government attention almost everywhere we conduct business,
particularly as public resources have been stretched by financial and economic crises in the United States, Western Europe and elsewhere. Both private health insurance
funds and government health authorities continue to seek ways to reduce or contain healthcare costs, including by reducing or eliminating coverage for certain products
and lowering reimbursement levels. In most of the countries and regions where we operate, including the United States, Western Europe, Israel, Russia, certain
countries in Central and Eastern Europe and several countries in Latin America, pharmaceutical prices are subject to new government policies designed to reduce
healthcare costs. These changes frequently adversely affect pricing and profitability and may cause delays in market entry. We cannot predict which additional
measures may be adopted or the impact of current and additional measures on the marketing, pricing and demand for our products.
Significant developments that may affect pricing in the United States include (i) the enactment of federal healthcare reform laws and regulations, including the
Medicare Prescription Drug Improvement and Modernization Act of 2003 and the Patient Protection and Affordable Care Act of 2010, and (ii) trends in the practices of
managed care groups and institutional and governmental purchasers. Changes to the healthcare system enacted as part of healthcare reform in the United States, as well
as the increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, may result in increased pricing pressure
by influencing, for instance, the reimbursement policies of third-party payors. Healthcare reform legislation has increased the number of patients who have insurance
coverage for our products, but provisions such as the assessment of a branded pharmaceutical manufacturer fee and an increase in the amount of rebates that
manufacturers pay for coverage of their drugs by Medicaid programs may have an adverse effect on us. It is uncertain how current and future reforms in these areas will
influence the future of our business operations and financial condition.
In addition, “tender systems” for generic pharmaceuticals have been implemented (by both public and private entities) in a number of significant markets in
which we operate, including Germany and Russia, in an effort to lower prices. Under such tender systems, manufacturers submit bids that establish prices for generic
pharmaceutical products. These measures impact marketing practices and reimbursement of drugs and may further increase pressure on reimbursement margins. Certain
other countries may consider the implementation of a tender system. Failing to win tenders, or the implementation of similar systems in other markets leading to further
price declines, could have a material adverse effect on our business, financial position and results of operations.
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Governmental investigations into sales and marketing practices, particularly for our specialty pharmaceutical products, may result in substantial penalties.
We operate around the world in complex legal and regulatory environments, and any failure to comply with applicable laws, rules and regulations may result in
civil and/or criminal legal proceedings. As those rules and regulations change or as interpretations of those rules and regulations evolve, our prior conduct or that of
companies we have acquired may be called into question. In the United States, we are currently responding to federal investigations into our marketing practices with
regard to several of our specialty pharmaceutical products, which could result in civil litigation brought on behalf of the federal government. Responding to such
investigations is costly and involves a significant diversion of management’s attention. Such proceedings are unpredictable and may develop over lengthy periods of
time. Future settlements may involve large cash penalties. In addition, government authorities have significant leverage to persuade pharmaceutical companies to enter
into corporate integrity agreements, which can be expensive and disruptive to operations. See “Government Investigations, Pricing and Other Investigations” in note 14
to our consolidated financial statements.
We have significant operations in countries that may be adversely affected by political or economic instability, major hostilities or acts of terrorism.
We are a global pharmaceutical company with worldwide operations. Although over 80% of our sales are in the United States and Europe, we expect to derive
an increasing portion of our sales and future growth from other regions such as Latin America, Central and Eastern Europe and Asia, which may be more susceptible to
political and economic instability.
Significant portions of our operations are conducted outside the markets in which our products are sold, and accordingly we often import a substantial number of
products into such markets. We may, therefore, be denied access to our customers or suppliers or denied the ability to ship products from any of our sites as a result of a
closing of the borders of the countries in which we sell our products, or in which our operations are located, due to economic, legislative, political and military
conditions, including hostilities and acts of terror, in such countries.
Our executive offices and a substantial percentage of our manufacturing capabilities are located in Israel. Our Israeli operations are dependent upon materials
imported from outside Israel. We also export significant amounts of products from Israel. Accordingly, our operations could be materially and adversely affected by
acts of terrorism or if major hostilities were to occur in the Middle East or trade between Israel and its present trading partners were curtailed, including as a result of
acts of terrorism in the U.S. or elsewhere.
The manufacture of our products is highly complex, and an interruption in our supply chain or problems with internal or third party information technology
systems could adversely affect our results of operations.
Our products are either manufactured at our own facilities or obtained through supply agreements with third parties. Many of our products are the result of
complex manufacturing processes, and some require highly specialized raw materials. For some of our key raw materials, we have only a single, external source of
supply, and alternate sources of supply may not be readily available. For example, we purchase raw materials for most of our oral contraceptive products, which make
up a substantial portion of our women’s health business, exclusively or primarily from the same external source. If our supply of certain raw materials or finished
products is interrupted from time to time, or proves insufficient to meet demand, our results of operations could be adversely impacted. Moreover, as we streamline our
production capacity, we may become more dependent on certain plants and operations for our supply.
We also rely on complex shipping arrangements to and from the various facilities of our supply chain. Customs clearance and shipping by land, air or sea routes
rely on and may be affected by factors that are not in our full control or are hard to predict.
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In addition, we rely on complex information technology systems, including Internet-based systems, to support our supply-chain processes as well as internal and
external communications. The size and complexity of our systems make them potentially vulnerable to breakdown or interruption, whether due to computer viruses or
other causes that may result in the loss of key information or the impairment of production and other supply chain processes. Such disruptions and breaches of security
could adversely affect our business.
Significant disruptions of our information technology systems or breaches of our data security could adversely affect our business.
A significant invasion, interruption, destruction or breakdown of our information technology systems and/or infrastructure by persons with authorized or
unauthorized access could negatively impact our business and operations. We could also experience business interruption, information theft and/or reputational damage
from cyber attacks, which may compromise our systems and lead to data leakage either internally or at our third party providers. Our systems have been, and are
expected to continue to be, the target of malware and other cyber attacks. Although we have invested in measures to reduce these risks, we cannot assure you that these
measures will be successful in preventing compromise and/or disruption of our information technology systems and related data.
Our revenues and profits from generic pharmaceutical products typically decline as a result of competition, both from other pharmaceutical companies and as a
result of increased governmental pricing pressure.
Our generic drugs face intense competition. Prices of generic drugs typically decline, often dramatically, especially as additional generic pharmaceutical
companies (including low-cost generic producers based in China and India) receive approvals and enter the market for a given product and competition intensifies.
Consequently, our ability to sustain our sales and profitability on any given product over time is affected by the number of new companies selling such product and the
timing of their approvals.
In addition, intense pressure from government healthcare authorities, particularly in highly regulated European markets, to reduce their expenditures on
prescription drugs has resulted in lower pharmaceutical pricing, causing decreases in revenues and profits.
Furthermore, brand pharmaceutical companies continue to defend their products vigorously. For example, brand companies often sell or license their own
generic versions of their products, either directly or through other generic pharmaceutical companies (so-called “authorized generics”). No significant regulatory
approvals are required for authorized generics, and brand companies do not face any other significant barriers to entry into such market. Brand companies may seek to
delay introductions of generic equivalents through a variety of commercial and regulatory tactics. These actions may increase the costs and risks of our efforts to
introduce generic products and may delay or prevent such introduction altogether.
Our specialty pharmaceuticals business faces intense competition from companies that have greater resources and capabilities.
We face intense competition in our specialty pharmaceutical business. Many of our competitors are larger and/or have substantially longer experience in the
development and marketing of branded, innovative and consumer-oriented products. They may be able to respond more quickly to new or emerging market preferences
or to devote greater resources to the development and marketing of new products and/or technologies than we can. As a result, any products and/or innovations that we
develop may become obsolete or noncompetitive before we can recover the expenses incurred in connection with their development. In addition, for these product
categories we must demonstrate to physicians, patients and third-party payors the benefits of our products relative to competing products that are often more familiar or
otherwise better established. If competitors introduce new products or new variations on their existing products, our marketed products, even those protected by patents,
may be replaced in the marketplace or we may be required to lower our prices.
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In addition, our increased focus on innovative and specialty pharmaceuticals requires much greater use of a direct sales force than does our core generic
business. Our ability to realize significant revenues from direct marketing and sales activities depends on our ability to attract and retain qualified sales personnel.
Competition for qualified sales personnel is intense. We may also need to enter into co-promotion, contract sales force or other such arrangements with third parties, for
example, where our own direct sales force is not large enough or sufficiently well-aligned to achieve maximum penetration in the market. Any failure to attract or retain
qualified sales personnel or to enter into third-party arrangements on favorable terms could prevent us from successfully maintaining current sales levels or
commercializing new innovative and specialty products.
Sales of our products may be adversely affected by the continuing consolidation of our customer base.
A significant proportion of our sales is made to relatively few U.S. retail drug chains, wholesalers, managed care purchasing organizations, mail order
distributors and hospitals. These customers are continuing to undergo significant consolidation. Net sales to one such customer in 2014 accounted for 18% of our total
consolidated sales. Such consolidation has provided and may continue to provide them with additional purchasing leverage, and consequently may increase the pricing
pressures that we face. Additionally, the emergence of large buying groups representing independent retail pharmacies, and the prevalence and influence of managed
care organizations and similar institutions, enable those groups to extract price discounts on our products.
Our net sales and quarterly growth comparisons may also be affected by fluctuations in the buying patterns of retail chains, major distributors and other trade
buyers, whether resulting from seasonality, pricing, wholesaler buying decisions or other factors. In addition, since such a significant portion of our U.S. revenues is
derived from relatively few customers, any financial difficulties experienced by a single customer, or any delay in receiving payments from a single customer, could
have a material adverse effect on our business, financial condition and results of operations.
Decreased opportunities to obtain U.S. market exclusivity for generic versions of significant products may adversely affect our revenues and profits.
Our ability to achieve continued growth and profitability through sales of generic pharmaceuticals is dependent on our success in challenging patents, developing
non-infringing products or developing products with increased complexity to provide opportunities with U.S. market exclusivity or limited competition. The failure to
continue to develop such opportunities could adversely affect our sales and profitability.
To the extent that we succeed in being the first to market a generic version of a product, and particularly if we are the only company authorized to sell during the
180-day period of exclusivity in the U.S. market, as provided under the Hatch-Waxman Act, our sales, profits and profitability can be substantially increased in the
period following the introduction of such product and prior to a competitor’s introduction of an equivalent product. Even after the exclusivity period ends, there is often
continuing benefit from being the first generic product in the market.
However, the number of significant new generic products for which Hatch-Waxman exclusivity is available, and the size of those product opportunities, has
decreased in recent years, and patent challenges have become more difficult. Additionally, increasingly we share the 180-day exclusivity period with other generic
competitors, which diminishes the commercial value of the exclusivity.
The 180-day market exclusivity period is triggered by commercial marketing of the generic product or, in certain cases, can be triggered by a final court decision
that is no longer subject to appeal holding the applicable patents to be invalid, unenforceable or not infringed. However, the exclusivity period can be forfeited by our
failure to obtain tentative approval of our product within a specified statutory period or to launch a product following such a court decision. The Hatch-Waxman Act
also contains other forfeiture provisions that may deprive the first “Paragraph IV” filer of exclusivity if certain conditions are met, some of which may be outside
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our control. Accordingly, we may face the risk that our exclusivity period is triggered or forfeited before we are able to commercialize a product and therefore may not
be able to exploit a given exclusivity period for specific products.
We have sold and may in the future elect to sell generic products prior to the final resolution of outstanding patent litigation, and, as a result, we could be subject
to liability for damages in the U.S., Europe and other markets where we do business.
Our ability to introduce new products depends in large part upon the success of our challenges to patent rights held by third parties or our ability to develop
non-infringing products. Based upon a variety of legal and commercial factors, we may elect to sell a generic product even though patent litigation is still pending,
either before any court decision is rendered or while an appeal of a lower court decision is pending. The outcome of such patent litigation could, in certain cases,
materially adversely affect our business. For example, we launched a generic version of Protonix ® (pantoprazole), despite the fact that litigation with the company that
sells the brand versions was still pending at the time. In 2013, we settled the pantoprazole litigation and recorded aggregate charges of
$1.6 billion in 2012 and 2013 related to this matter.
If we sell products prior to a final court decision, whether in the United States, Europe or elsewhere, and such decision is adverse to us, we could be required to
cease selling the infringing products, causing us to lose future sales revenue from such products and to face substantial liabilities for patent infringement, in the form of
either payment for the innovator’s lost profits or a royalty on our sales of the infringing products. These damages may be significant, and could materially adversely
affect our business. In the United States, in the event of a finding of willful infringement, the damages assessed may be up to three times the profits lost by the patent
owner. Because of the discount pricing typically involved with generic pharmaceutical products, patented brand products generally realize a significantly higher profit
margin than generic pharmaceutical products. As a result, the damages assessed may be significantly more than our profits. In addition, even if we do not suffer
damages, we may incur significant legal and related expenses in the course of successfully defending against infringement claims.
We may be susceptible to significant product liability claims that are not covered by insurance.
Our business inherently exposes us to claims for injuries allegedly resulting from the use of our products. As our portfolio of available products expands, we
may experience increases in product liability claims asserted against us. The potential for product liability claims may increase further upon the implementation of
proposed regulations in the U.S. that would permit companies to change the labeling of their generic products.
With respect to product liability exposure for products we sell outside of the United States, we have limited insurance coverage, which is subject to varying
levels of deductibles and/or self-insured retentions. For product liability exposure in the United States, although in the past we have had limited coverage, with very
high deductibles and/or self-insured retentions, we are no longer buying coverage for product liability claims arising in the United States. Product liability coverage for
pharmaceutical companies, including us, is increasingly expensive and difficult to obtain on reasonable terms. In addition, where claims are made under insurance
policies, insurers may reserve the right to deny coverage on various grounds.
The failure to recruit or retain key personnel, or to attract additional executive and managerial talent, could adversely affect our business.
Given the increasing size, complexity and global reach of our business and our multiple areas of focus, each of which would be a significant stand-alone
company, we are especially reliant upon our ability to recruit and retain highly qualified management and other employees. In addition, the success of our research and
development activities depends on our ability to attract and retain sufficient numbers of skilled scientific personnel. Any loss of service of key members of our
organization, or any diminution in our ability to continue to attract high-quality employees, may delay or prevent the achievement of major business objectives. In
addition, there is a risk that we will not strike the appropriate balance between retaining existing managerial talent and achieving the targets of the cost reduction
program mentioned above.
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Any failure to comply with the complex reporting and payment obligations under the Medicare and Medicaid programs may result in further litigation or
sanctions, in addition to those that we have announced in previous years.
The U.S. laws and regulations regarding Medicare and/or Medicaid reimbursement and rebates and other governmental programs are complex. Some of the
applicable laws may impose liability even in the absence of specific intent to defraud. The subjective decisions and complex methodologies used in making calculations
under these programs are subject to review and challenge, and it is possible that such reviews could result in material changes. A number of state attorneys general and
others have filed lawsuits alleging that we and other pharmaceutical companies reported inflated average wholesale prices, leading to excessive payments by Medicare
and/or Medicaid for prescription drugs. Such allegations could, if proven or settled, result in additional monetary penalties (beyond the lawsuits we have already settled)
and possible exclusion from Medicare, Medicaid and other programs. In addition, we are notified from time to time of governmental investigations regarding drug
reimbursement or pricing issues. See “Government Investigations and Litigation Relating to Pricing and Marketing” in note 14 to our consolidated financial statements.
The large amount of long lived assets recorded on our balance sheet may continue to lead to significant impairment charges in the future.
We regularly review our long-lived assets, including identifiable intangible assets, goodwill and property, plant and equipment, for impairment. Goodwill and
acquired indefinite life intangible assets are subject to impairment review on an annual basis and whenever potential impairment indicators are present. Other long-lived
assets are reviewed when there is an indication that an impairment may have occurred. The amount of goodwill, identifiable intangible assets and property, plant and
equipment on our consolidated balance sheet has increased approximately 50% in the past five years to $30.5 billion as a result of our acquisitions, and may increase
further following future acquisitions. For example, in 2014 we recorded impairment charges on long-lived assets of $387 million. Changes in market conditions or other
changes in the future outlook of value may lead to further impairment charges in the future. In addition, we may from time to time sell assets that we determine are not
critical to our strategy or execution. Future events or decisions may lead to asset impairments and/or related charges. Certain non-cash impairments may result from a
change in our strategic goals, business direction or other factors relating to the overall business environment. Any significant impairment charges could have a material
adverse effect on our results of operations.
We have significantly increased our leverage in recent years and more frequently engage in refinancing activities, making us increasingly reliant on access to the
capital markets at favorable terms.
Our short- and long-term indebtedness has approximately doubled over the past five years. As a result, our principal and interest payment obligations have
increased, as have our costs relating to financing activities. The degree to which we are leveraged could affect our ability to obtain additional financing for acquisitions,
refinancing of existing debt, working capital, or other purposes and could make us more vulnerable to industry downturns and competitive pressures as well as interest
rate and other refinancing risks. In addition, capital markets have been more volatile in recent years. Such volatility may adversely affect our ability to obtain financing
on favorable terms at a time when we need to access the capital markets regularly. Our ability to refinance existing debt and meet our debt service obligations will be
dependent upon our future performance and access to the capital markets, which will be subject to financial, business and other factors affecting our operations
(including our long-term unsecured credit ratings), many of which are beyond our control.
Our tax liabilities could be larger than anticipated.
We are subject to tax in many jurisdictions, and significant judgment is required in determining our provision for income taxes. Likewise, we are subject to audit
by tax authorities in many jurisdictions. In such audits, our interpretation of tax legislation may be challenged and tax authorities in various jurisdictions may disagree
with, and subsequently challenge, the amount of profits taxed in such jurisdictions under our inter-company agreements.
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For example, in 2013, we paid the Israeli tax authorities approximately $790 million in additional income taxes, applying the provisions of Amendment 69 to the Israeli
Law for the Encouragement of Capital Investments, 1959 to certain previously tax-exempt profits, as well as to settle tax assessments for the years 2005 to 2007.
Although we believe our estimates are reasonable, the ultimate outcome of such audits and related litigation could be different from our provision for taxes and may
have a material adverse effect on our consolidated financial statements.
The termination or expiration of governmental programs or tax benefits, or a change in our business, could adversely affect our overall effective tax rate.
Our tax expenses and the resulting effective tax rate reflected in our consolidated financial statements are likely to increase over time as a result of changes in
corporate income tax rates, other changes in the tax laws of the various countries in which we operate or changes in our product mix or the mix of countries where we
generate profit. We have benefited, and currently benefit, from a variety of Israeli and other government programs and tax benefits that generally carry conditions that
we must meet in order to be eligible to obtain such benefits. If we fail to meet the conditions upon which certain favorable tax treatment is based, we would not be able
to claim future tax benefits and could be required to refund tax benefits already received. Additionally, some of these programs and the related tax benefits are available
to us for a limited number of years, and these benefits expire from time to time.
Any of the following could have a material effect on our overall effective tax rate:
•
some government programs may be discontinued, or, as is the case in Israel from 2014 and on, the applicable tax rates may increase;
•
we may be unable to meet the requirements for continuing to qualify for some programs;
•
these programs and tax benefits may be unavailable at their current levels;
•
upon expiration of a particular benefit, we may not be eligible to participate in a new program or qualify for a new tax benefit that would offset the
loss of the expiring tax benefit; or
•
we may be required to refund previously recognized tax benefits if we are found to be in violation of the stipulated conditions.
Because our facilities are located throughout the world, we are subject to varying patent laws that may adversely affect our ability to manufacture our products.
We are subject to patent legislation in all countries where we have manufacturing facilities. Modifications of such legislation or court decisions regarding such
legislation may adversely affect us and may impact our ability to produce and export products manufactured in any such country in a timely fashion. Additionally, the
existence of third-party patents in such countries, with the attendant risk of litigation, may cause us to move production to a different country (with potentially serious
timing delays) or otherwise adversely affect our ability to export certain products from such countries.
Our failure to comply with applicable environmental laws and regulations worldwide could adversely impact our business and results of operations.
We are subject to laws and regulations concerning the environment, safety matters, regulation of chemicals and product safety in the countries where we
manufacture and sell our products or otherwise operate our business. These requirements include regulation of the handling, manufacture, transportation, storage, use
and disposal of materials, including the discharge of pollutants into the environment. In the normal course of our business, we are exposed to risks relating to possible
releases of hazardous substances into the environment, which could cause environmental or property damage or personal injuries, and which could require remediation
of contaminated soil and groundwater. Under certain laws, we may be required to remediate contamination at certain of our properties, regardless of whether the
contamination was caused by us or by previous occupants of the property.
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ITEM 4:
INFORMATION ON THE COMPANY
Introduction
Teva Pharmaceutical Industries Limited is a global pharmaceutical company, committed to increasing access to high-quality healthcare by developing,
producing and marketing affordable generic medicines and a focused portfolio of specialty pharmaceutical products. As the world’s leading generic medicines company
with a strong specialty medicines portfolio, we are strategically positioned to benefit from ongoing changes in the global healthcare environment.
We operate our business in two segments:
•
Generic medicines, which include chemical and therapeutic equivalents of originator medicines in a variety of dosage forms, including tablets,
capsules, injectables, inhalants, liquids, ointments and creams. We are the leading generic drug company in the United States and Europe, and we
have a significant or growing presence in our ROW markets. We are also one of the world’s leading manufacturers of Active Pharmaceutical
Ingredients (“APIs”).
•
Specialty medicines, which include several franchises, most significantly our core therapeutic areas of CNS medicines such as Copaxone ® , Azilect ®
and Nuvigil ® and of respiratory medicines such as ProAir ® HFA and QVAR ® . Our specialty medicines segment includes other therapeutic areas,
such as oncology, women’s health and selected other areas.
In addition to these two segments, we have other activities, primarily PGT Healthcare, our over-the-counter (“OTC”) joint venture with P&G.
We seek to address unmet patient needs while capitalizing on evolving market, economic and legislative dynamics in global healthcare. These dynamics include
the aging population, increased spending on pharmaceuticals in emerging markets, economic pressure on governments and private payors to provide accessible
healthcare solutions, legislative and regulatory reforms, an increase in patient awareness and the growing importance of OTC medicines.
We believe that our dedicated leadership and employees, world-leading generics expertise and portfolio, focused specialty portfolio, global reach, integrated
R&D capabilities and global infrastructure and scale position us to take advantage of opportunities created by these dynamics. Our global strengths include the
following:
•
As the world’s leading generic medicines manufacturer, with a global portfolio of more than 1,000 molecules, we provide medicines that treat
millions of patients every day, around the world.
•
Our generics business is ranked in leading positions in the United States and Europe. We also have a significant presence in Canada and Japan
and a growing presence in Russia and certain Latin American countries.
•
Our broad portfolio of generic products covers almost every major therapeutic area.
•
Our extensive technological capabilities enable us to provide a very wide array of generic products, in a variety of dosage forms, including
oral solid doses, injectables, inhalations and other delivery devices.
•
We are one of the world’s leading manufacturers of APIs, with operations around the globe. We produce APIs not only for our own use but
also for many other pharmaceutical companies.
•
We are a recognized leader in innovative and specialty pharmaceuticals, from drug development and delivery to monitoring and support services.
•
In specialty pharmaceuticals, we have a leading presence in central nervous system (“CNS”) and a significant presence in respiratory, which is
supported by a strong pipeline of innovative products in these therapeutic areas.
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•
We have a strong commercial presence in certain other therapeutic areas, including women’s health and oncology.
•
We are leveraging our strength in integrated generic and specialty R&D, our scalable production network, market access and knowledge to create
opportunities for further sustainable growth.
•
We have a global OTC business, primarily through our joint venture with P&G, combining our production capabilities and market reach with P&G’s
marketing expertise and expansive global platform.
In 2014, 48% of our revenues were generated from generic medicines, including APIs sold to third parties, and 42% of our revenues were generated from
specialty medicines.
In 2014, we generated 45% of our generic revenues in the United States, 32% in Europe (which for the purpose of this report includes all European Union
(“EU”) member states, Norway, Switzerland, Albania and the countries of former Yugoslavia) and 23% in our ROW markets (primarily Japan, Canada and Russia).
For a three year breakdown of our revenues and profitability by segment and by geography, see “Item 5—Operating and Financial Review and
Prospects—Results of Operations.”
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
executive offices are located at 5 Basel Street, P.O. Box 3190, Petach Tikva 4951033, Israel, and our telephone number is +972-3-926-7267. Our website is
www.tevapharm.com.
Strategy
In 2014, we began a process of re-defining and re-focusing our business strategy to better leverage our strengths and differentiate ourselves in the pharmaceutical
market. We seek to capitalize on our advantages—including the largest generic medicines business in the world, a focused specialty business, a unique OTC business
and our integrated R&D and API capabilities—to provide patients with integrated, outcome-focused solutions. Underlying our strategy is our heightened focus on
profitable and sustainable business.
The key elements of our strategy consist of the following:
•
Solidifying our foundation and driving organic growth. We are solidifying the core foundations of our generics and specialty businesses to create
additional value from our existing operations. In 2014, we implemented organizational and leadership changes, such as the creation of the Global
Generics Medicines group, designed to achieve global integration and improve focus and effectiveness. We seek to drive organic growth in our
generics business by emphasizing markets where we have or are pursuing leadership positions, and by shifting our generic pipeline and portfolio to
include a larger proportion of complex products, with high barriers to entry.
•
Focusing on key growth markets. While we currently operate in numerous markets throughout the world, in 2015 we intend to concentrate our
efforts on a smaller number of large growth markets where we believe we can establish or expand leadership positions. We are exploring both
organic and inorganic initiatives to achieve leadership in these markets.
•
Maintaining Copaxone® and other key specialty products. We have enhanced our multiple sclerosis (“MS”) franchise through the introduction of
our three-times-a-week Copaxone ® 40 mg/mL product in the United States, and will launch Copaxone ® 40 mg/mL in Europe and other countries
in 2015. For many of our other specialty products, we are expanding into new markets, improving the products and taking further steps to protect the
franchise while creating value for patients and payors.
•
Solidifying leadership positions in our core therapeutic areas. We plan to focus on our core therapeutic areas of CNS (including MS,
neurodegenerative diseases and pain) and respiratory
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(including asthma and chronic obstructive pulmonary disease), establishing leadership positions in such areas. In so doing, we will leverage our
focused R&D efforts, new product submissions and strong execution of product launches. In addition, in women’s health and oncology, where
we have a significant commercial presence, we strive to maintain the existing franchises and may consider business development opportunities to
maximize sustainable profitability.
•
Pursuing strategic business development initiatives. We continue to pursue business development initiatives across all our activities. As part of
these initiatives, we will continue to evaluate opportunities for joint ventures, collaborations and other commercially-oriented activities.
•
Executing on our cost reduction program. We are focused on the continued execution of our sustainable efficiency program, which includes
improvements in the operational efficiency of our production plants, in our global procurement activities, and others.
Our Segments
Generic Medicines
Generic medicines are the chemical and therapeutic equivalents of originator medicines and are typically more affordable in comparison to the originator’s
product. Generics are required to meet similar governmental regulations as their brand-name equivalents offered or sold by the originator, such as those relating to
manufacturing processes and health authorities inspections, and must receive regulatory approval prior to their sale in any given country. Generic medicines may be
manufactured and marketed if relevant patents on their brand-name equivalents (and any additional government-mandated market exclusivity periods) have expired or
have been challenged or otherwise circumvented.
We develop, manufacture and sell generic medicines in a variety of dosage forms, including tablets, capsules, injectables, inhalants, liquids, ointments and
creams. We offer a broad range of basic chemical entities, as well as specialized product families such as sterile products, hormones, narcotics, high-potency drugs and
cytotoxic substances, in both parenteral and solid dosage forms.
Sales of generic medicines have benefitted from increasing awareness and acceptance on the part of healthcare insurers and institutions, consumers, physicians
and pharmacists globally. Factors contributing to this increased awareness are the passage of legislation permitting or encouraging generic substitution and the
publication by regulatory authorities of lists of equivalent pharmaceuticals, which provide physicians and pharmacists with generic alternatives. In addition, various
government agencies and many private managed care or insurance programs encourage the substitution of generics for brand-name pharmaceuticals as a cost-savings
measure in the purchase of, or reimbursement for, prescription pharmaceuticals. Further, in countries as diverse as France, Japan and Brazil, governments have issued
regulations designed to increase generic penetration. These conditions also result in intense competition in the generic market, with generic companies competing for
advantage based on pricing, time to market, reputation, customer service and breadth of product line. We believe that these factors, together with an aging population,
an increase in global spending on healthcare, economic pressure on governments to provide less expensive healthcare solutions, legislative and regulatory reforms and a
shift of decision-making power to payors, will lead to continued expansion in the global generic market, as well as increased competition in this market.
In markets such as the United States, the United Kingdom, Canada, the Netherlands and Israel, generic medicines may be substituted by the pharmacist for their
brand name equivalent or prescribed by International Nonproprietary Name (“INN”). In these so-called “pure generic” markets, physicians or patients have little control
over the choice of generic manufacturer, and consequently generic medicines are not actively marketed or promoted to physicians. Instead, the relationship between the
manufacturer and pharmacy chains and distributors, health funds, and other health insurers is critical. In contrast, in Russia, Ukraine, Kazakhstan, some Asian and Latin
American countries as well as certain European markets, generic medicines are sold under brand names
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alongside the originator brand. In many of these “branded generic” markets, pharmacists dispense the specific medicine prescribed by the physician, and substitution
between originator brand, branded generic and/or generic manufacturers is often limited without the physician’s consent. In some of these markets, branded generic
products are actively promoted and a sales force is necessary. Other markets, such as Germany, Japan, France, Italy and Spain, are hybrid markets with elements of both
approaches.
Through coordination between our global portfolio, business development and global R&D teams, we seek to achieve and maintain market leadership in all
markets where we strategically choose to operate. In particular, we seek to establish a leadership position in high-barrier, complex products, while continuing to pursue
patent challenge opportunities and early launches globally.
When considering whether to develop a generic medicine, we take into account a number of factors, including our overall strategy, regional and local patient and
customer needs, R&D recommendations, manufacturing capabilities, regulatory considerations, commercial factors and the intellectual property landscape. We will
challenge patents, if we believe they are either invalid or would not be infringed by a generic version. We may seek alliances to acquire rights to products we do not
have in our portfolio or to otherwise share development costs or litigation risks, or to resolve patent and regulatory barriers to entry.
Our position in the generics market is supported by our integrated global R&D function, as well as our API R&D and manufacturing activities, which provide
significant vertical integration for our own products. APIs used in pharmaceutical products are subject to regulatory oversight by national health authorities. We
produce approximately 300 APIs for our own use and for sale to third parties in many therapeutic areas. We utilize a variety of production technologies, including
chemical synthesis, semi-synthetic fermentation, enzymatic synthesis, high potency manufacturing, plant extract technology and peptides synthesis. Our advanced
technology and expertise in the field of solid state particle technology enable us to meet specifications for particle size distribution, bulk density, specific surface area,
polymorphism, as well as other characteristics.
In most markets in which we operate, we use an integrated and comprehensive marketing model, offering a range of generic, specialty and OTC products.
Below is a description of our generic medicine business by the main geographic areas in which we operate.
United States
We are the leading generic drug company in the United States. We market approximately 375 generic products in more than 1,100 dosage strengths and
packaging sizes, including oral, injectables and inhaled products. We believe that the breadth of our product portfolio provides us with a strategic advantage,
particularly as consolidation continues among purchasers, including large drugstore chains, wholesaling organizations and buying groups. Our growth strategy focuses
on a carefully selected portfolio of products that will provide added value to our customers, payors and patients, utilizing new and advanced technologies.
In the United States, we are subject to intense competition in the generic drug market from domestic and international generic drug manufacturers, brand-name
pharmaceutical companies through lifecycle management initiatives, authorized generics, existing brand equivalents and manufacturers of therapeutically similar drugs.
Price competition from additional generic versions of the same product typically results in margin pressures. We believe that our primary competitive advantages are
our ability to continually introduce new and complex generic equivalents for brand-name drug products on a timely basis, our quality, our customer service and the
breadth of our product portfolio. We believe we have a focused and competitive pricing strategy.
A substantial majority of our U.S. generic sales are made to retail drug chains and wholesalers, which continue to undergo significant consolidation and
globalization. Our portfolio selection, breadth of products offerings and our global network capabilities, have provided mutual strategic advantages to our customers.
We are committed to the success of our customers and work closely with them as important business partners.
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In the United States, our wholesale and retail selling efforts are supported by advertising in professional journals and on leading pharmacy websites, as well as
participating in key medical and pharmaceutical conferences. We continue to strengthen consumer awareness of the benefits of generics through partnerships and digital
marketing programs.
Europe
Europe, which we define as the 28 countries in the European Union, Norway, Iceland, Switzerland, Albania and the countries of former Yugoslavia, is a diverse
region with a population of over 500 million people.
We are the leading generic pharmaceutical company in Europe. We are among the top three companies in 20 markets, serving patients across Europe. No single
market in Europe represents more than 25% of our total European generic revenues, and as a result we are not dependent on any single market that could be affected by
pricing reforms or changes in public policy.
Despite their diversity and highly fragmented nature, the European markets share many characteristics that allow us to leverage our pan-European presence and
broad portfolio. Global customers are crucial partners in our generic business and are expanding gradually across Europe, although customer consolidation is lower than
it is in the U.S. market. Teva is one of few companies with a pan-European footprint. Most competitors focus on a select few markets or business lines.
Our strategy for generics medicines in Europe is to maintain sustainable and profitable growth by differentiated investment levels in different countries. While
building on our global knowledge and resources, we are able to understand and adapt to the local needs of our patients, customers and payors. In parallel, we are
continuously enhancing the efficiency of our operations by selectively investing in markets, optimizing our existing portfolio and pricing, and rigorously controlling
cost. We closely monitor the disciplined execution of our strategy to further increase the value realized by our European generic business while maintaining our market
leadership position in key countries.
The European market continues to be ever more competitive, especially in terms of pricing, higher quality standards, customer service and portfolio relevance.
Our leadership position provides us a solid base to be reliable partners to fulfill the needs of patients, physicians, pharmacies, customers and payors.
Key markets highlights:
Germany is the largest European pharmaceutical market. We are the second largest provider in the overall generic market, and our “ratiopharm” brand
continues to be a leader in the retail generics segment. The German market has a hybrid nature, partially driven by prescriptions of physicians and partially by tenders
with increasing price pressure. Teva is present and strong in both segments; however, we compete on tenders only if they can generate sustainable value to the business.
We believe that our balanced presence and strong track record with new launches are competitive advantages for us over most companies in Germany.
In the United Kingdom, we are the largest supplier by volume to the National Health Service, supplying one in every six prescriptions dispensed, focusing on
independent retail pharmacies.
The United Kingdom is a ‘pure’ generic market with low barriers to entry and very high generic penetration. In general, retail pricing of generics to the
pharmacy is unregulated (thus prices can increase or decrease), leading to very strong price competition. Pricing is heavily influenced by government regulations, such
as ‘Scheme M’ that limit pharmacies’ reimbursement profit.
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Customers and wholesalers are highly vertically integrated, which further drives competition in terms of pricing. Pharmaceutical companies seek differentiation
strategies to maximize value in a market where prices are already among the lowest in Europe, while quality and reliability of medicine has become the driver of
competitive advantage.
In Italy, we continue to be a generic market leader, supplying about 20% of the country’s generic medicines. The market is concentrated with the top five
players holding approximately 86% of market share. Generic penetration is low compared to most other European countries and is currently growing at a slow pace,
although the pharmacist has an increasing level of influence and ability to substitute.
We aim to benefit from any increases in the total value of the generic market in Italy as we seek to further strengthen our leadership position and our presence in
pharmacies. The Teva brand is increasingly recognized among patients, pharmacists and physicians alike.
In France, we continue to see strong pricing pressures and increased generic penetration due to government measures. We are focused on a selective approach to
generate sustainable and profitable business that is customer centered.
The market in Spain was characterized in 2014 by further government pricing and reimbursement reforms which increased generic utilization. Our strategy in
Spain is to compete for sustainable and profitable business in this market.
In Switzerland we are the largest supplier in the generics market. We offer a comprehensive portfolio and own the leading brand in the generic retail segment.
Generic penetration is comparably low in Switzerland, and the generic market is concentrated with the top two suppliers holding about 70% of the market share. Pricing
measures of the government for originator products are increasing the pressure on prices also for generic pharmaceuticals. We aim to further strengthen our leadership
in the generic market and in addition to achieve number two position in the overall retail pharmaceutical market, by leveraging our brand power, using quality and
service as competitive advantage, being the preferred partner in the generic market and promoting generic substitution in pharmacies.
Rest of the World Markets
Our ROW markets include all countries other than the United States and those included under Europe. Our key ROW markets are Russia, Japan and Canada. The
countries in this category range from highly regulated, pure generic markets such as Canada, to hybrid markets such as Japan and Brazil, to branded generics markets
such as certain Commonwealth of Independent States and Latin American markets. Russia is characterized by rapid growth and relatively high sales of branded generics
and OTC products. Some countries such as Canada and Israel have higher generic penetration rates and therefore lower growth rates.
Our ROW strategy is to be selective as to where we do business, focusing on the countries and segments where we can achieve a significant position. Over time
and with the right opportunities, we intend to expand our presence in markets such as Russia, China, Brazil and India. We intend to further focus our entry to new
markets such as Indonesia and significantly enhance our existing presence in other high growth markets such as Mexico, South Korea, Australia and Turkey. In other
markets, we will optimize our existing assets and minimize or divest our generic operations.
Key markets highlights
In Russia, which is primarily a branded generic market, we market a diverse portfolio of products. We are currently one of the largest pharmaceutical companies
in Russia, playing a role in the commercial, retail, hospital and state funded segments.
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The Russian government seeks to encourage the use of generic products in order to reduce the cost of pharmaceuticals and increase patient access, which is
influencing our portfolio strategy. The government is further seeking to encourage local pharmaceutical production by providing incentives, and we have recently
established a manufacturing facility in Yaroslavl, Russia.
Our presence in Japan was established and strengthened through the acquisition of several generic companies. In April 2012, we integrated our generic
operations into a single entity, Teva Seiyaku (Teva Pharma Japan, Inc.).
Japan is one of the largest pharmaceutical markets in the world. The generic pharmaceutical market constitutes approximately 40% of the total market in volume
and about 10% of the total market value. The generic market is expected to continue growing due to government incentive programs targeted at both physicians and
dispensing channels, and due to patent expirations of major drugs.
The Japanese pharmaceutical market is transforming from a branded generics market, driven by physicians’ choice of brands, to a pharmacy substitution market
with an increased proportion of generic prescriptions. In addition, pharmacy chains are slowly emerging, which we expect will result in increased generic penetration.
We continue to establish strategic partnerships with key national and regional wholesalers and top hanshas in order to ensure distribution to all customer segments.
In Canada, we are one of the two leading generic pharmaceutical companies in terms of prescriptions and sales, offering a broad portfolio of medicines.
We market generic products to retail chains, retail buying groups and independent pharmacies, reaching approximately 8,800 outlets across Canada. We continue
to see consolidation of independent retail pharmacies and increased expansion of retail chains and buying groups: the top five retail chains in Canada now represent
approximately half the market (in terms of value). These larger corporate retailers work closely with selected suppliers, listing products as part of a chain-wide
formulary. We continue to experience increased government regulation on pricing, selling and marketing. Customers look to generic suppliers to timely launch cost
effective generic products, maintain high levels of product availability and provide increased levels of overall customer value and service.
In Canada, the competitive landscape continues to intensify with the increasing presence of multinational companies. The top five manufacturers satisfy
approximately 80% of the Canadian demand for generic pharmaceuticals. In addition, the major branded pharmaceutical companies have intensified their efforts to
compete with the generic players, and are now offering incentives to patients and customers to offset generic cost savings. In addition, several of our customers continue
to intensify their efforts to provide private label products, which have the potential to compete with our products.
Specialty Medicines
Our specialty medicines business, which is focused on delivering innovative solutions to patients and providers via medicines, devices and services in key
regions and markets around the world, includes our core therapeutic areas of CNS (with a strong emphasis on MS, neurodegenerative disorders, and pain care) and
respiratory medicines (with a focus on asthma and chronic obstructive pulmonary disease). We also have specialty products in oncology, women’s health and selected
other areas. Our specialty business also includes our New Therapeutic Entity (“NTE”) activity, which focuses on enhancing known molecules through new delivery
methods, unique combinations or device innovations to address specific patient needs.
Our specialty medicines business faces intense competition from both specialty and generic pharmaceutical companies. We believe that our primary competitive
advantage is our integrated global R&D function, the body of scientific evidence substantiating the safety and efficacy of our various medicines, our patient-centric
solutions, physician and patient experience with our medicines, and our medical and marketing capabilities, which are tailored to our product offerings and to our
market and stakeholders’ needs.
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Our specialty medicines organization focuses on our key therapeutic areas and selected local opportunities, with medical and sales and marketing professionals
within each area who seek to address the needs of patients and healthcare professionals. We tailor our patient support, payor relations and medical affairs activities to
the distinct characteristics of each therapeutic area and medicine.
In the United States, our specialty medicines revenues in 2014 amounted to $6.1 billion, comprising the most significant part of our specialty business. In 2014
specialty medicines revenues in Europe amounted to $1.9 billion and in ROW amounted to $552 million. Our specialty presence in ROW markets is mainly built on our
CNS franchise, with gradual development in other therapeutic areas closely related to our branded generics portfolios in those countries. In Europe and in ROW
markets, we leverage existing synergies with our generics and OTC businesses through integrated in-market structures.
We have built a specialized capability in the United States to help patients adhere to their treatments, improve patient outcomes, ensure timely delivery of
medicines and assist in securing reimbursement. These programs, known as “Patient Services and Solutions,” reflect the importance we place on supporting patients and
are a critical part of our success in this market. We have begun expanding this capability to other regions and therapeutic areas. We believe that we can provide a range
of services and solutions appropriately tailored to meet the needs of patients according to their specific condition and local market requirements. We believe this
capability provides us with an important competitive advantage in the specialty medicines market.
Below is a description of our key therapeutic areas and products:
Central Nervous System
Our CNS portfolio, one of our two core therapeutic areas, includes Copaxone® for the treatment of multiple sclerosis, Azilect® for the treatment of the symptoms
of Parkinson’s disease and Nuvigil ® for the treatment of sleep disorders, as well as several novel therapies for the treatment of pain care.
Copaxone® (glatiramer acetate injection 20 mg/mL and 40 mg/mL), is the leading multiple sclerosis therapy in the United States and worldwide. Copaxone ® is
indicated for the reduction of the frequency of relapses in relapsing-remitting multiple sclerosis (“RRMS”), including in patients who have experienced a first clinical
episode and have MRI features consistent with multiple sclerosis.
Multiple sclerosis is the most common cause of neurological disability in young adults and affects more than 2.5 million people worldwide. In the majority of
patients, the disease is of the relapsing-remitting form, which is manifested by relapses and slow progression of the disease that can affect the functioning of multiple
systems. Our MS portfolio consists of Copaxone ® as well as laquinimod, a Phase 3 investigational compound currently under development.
Copaxone®, the first non-interferon immunomodulator approved for the treatment of RRMS, is believed to have a unique mechanism of action that works with
the immune system, unlike many therapies that are believed to rely on general immune suppression or cell sequestration to exert their effect. Both preclinical and
clinical research indicates that Copaxone ® may reduce brain volume loss and increase the production of factors that enhance neuronal repair. Copaxone ® provides a
proven mix of efficacy, safety and tolerability.
Our U.S. Orange Book patents covering Copaxone® 20 mg/mL expired in May 2014 and, subject to further judicial review, in September 2015. As a result, a
generic version of our 20 mg/mL product in the United States could be sold in the United States if FDA approval is obtained. We have patents on Copaxone ® 20
mg/ml expiring in May 2015 in most of the rest of the world. In 2013, we entered into an agreement with Takeda to market this product in Japan and Takeda has
submitted an NDA pursuant to this agreement.
In January 2014, we launched Copaxone® 40 mg/mL, a higher dose of Copaxone® with a three times a week dosing regimen for patients with RRMS, in the
United States following approval by the FDA. This formulation
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allows for a less frequent dosing regimen administered subcutaneously for patients with relapsing forms of MS. In December 2014, we received European Medicines
Agency (“EMA”) approval in a decentralized procedure for Copaxone ® 40 mg/mL in Europe and we received a positive outcome in the decentralized procedure for
Copaxone ® 40 mg/mL following a Positive Assessment Report from the United Kingdom’s Medicines and Healthcare Products Regulatory Agency (MHRA), the
Reference Member State (RMS), and all Concerned Member States (CMS) in Europe who were involved in the procedure. We expect to begin launching Copaxone ®
40 mg/mL in certain European countries during 2015.
We also filed and are in discussions with marketing authorities in Russia, Australia and other markets globally, with approvals expected over the next several
months.
Since the launch of Copaxone® 40 mg/mL three times a week in the United States, over 60% of the total Copaxone® prescriptions are now filled with the 40
mg/mL version. This was driven by patient and physician choice of the 40 mg/mL version supported by payor access and patient support activities.
Our strategy for Copaxone® includes:
•
Patients’ ongoing switch from current daily Copaxone® 20 mg/mL to the new Copaxone® 40 mg/mL version;
•
Our specialized “Patient Services and Solutions” program in the United States, which helps patients comply with their treatments, ensures timely
delivery of medicines and assists them in securing reimbursement;
•
The GLatiramer Acetate low frequenCy safety and patIent ExpeRience (GLACIER) study, which assessed the safety, tolerability and patient
experience of Copaxone ® 40 mg/mL compared to Copaxone ® 20 mg/mL. This study showed that Copaxone ® 40 mg/mL achieved a 50%
reduction in injection related adverse events as compared to Copaxone ® 20 mg/mL, highlighting the patient benefit of taking Copaxone ® 40
mg/mL three times a week relative to 20 mg/mL injected daily;
•
In addition to the Orange Book patents, we asserted U.S. Patent No. 5,800,808, which is set to expire on September 1, 2015, against
Momenta/Sandoz, Mylan/Natco, and Synthon. In March 2014, the U.S. Supreme Court granted our petition for certiorari, and oral argument took
place on October 15, 2014. On September 18, 2014, we dismissed the complaint against Synthon without prejudice with respect to the ‘808
patent. On January 20, 2015, the Supreme Court issued an opinion vacating the Federal Circuit Court’s judgment of invalidity of the ‘808 patent and
remanding the case to the Federal Circuit for further review. On January 22, 2015, we filed new complaints against Dr. Reddy’s and Synthon with
respect to their ANDAs for glatiramer acetate, 20 mg, alleging infringement of the ‘808 patent. On January 23, 2015, we filed a request that the lower
court restore the original injunction against Momenta/Sandoz and Mylan/Natco that should expire on September 1, 2015.
•
In 2013, we filed an application for reissue of the ‘808 patent with the United States Patent and Trademark Office, adding a new claim. The Patent
Office has issued a final rejection of the two claims, which we have appealed to the Patent Trial and Appeal Board of the Patent Office.
•
Given the inability of state-of-the-art analytical techniques to fully characterize the active ingredients of Copaxone®, as well as published results
showing significant differences in gene expression between Copaxone ® and a purported generic version, the regulatory pathway for their approval is
uncertain. We believe that any purported generic version should be studied in pre-clinical testing and full-scale, placebo-controlled clinical trials with
measured clinical endpoints (such as relapse rate) in RRMS patients to establish safety, efficacy and immunogenicity. Furthermore, because of the
chemical complexity of Copaxone ® , we believe that it can only be safely manufactured using a series of proprietary methods that have been
perfected by Teva for more than 20 years.
•
We have filed a series of citizen’s petitions in the United States requesting that the FDA refuse to approve any ANDA for a purported generic version
of Copaxone ® without sufficient scientific data.
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Our most recent citizen’s petition, filed in July 2014, included the results of a new gene expression analysis demonstrating significant differences between
the biological impact of Copaxone ® and purported generic versions of Copaxone ® , which may have unknown safety and efficacy ramifications for
patients.
Copaxone® was responsible for $4.2 billion (including $3.1 billion in the U.S.), or 21% of our revenues in 2014, and contributed a significantly higher percentage
to our profits and cash flow from operations during such period.
The market for MS treatments continues to change significantly as a result of new and emerging therapies. In particular, the increasing number of oral
treatments, such as Tecfidera ® by Biogen, Gilenya ® by Novartis, and Aubagio ® by Genzyme, continue to present significant and increasing competition. Copaxone ®
also faces competition from existing injectable products, such as the four beta-interferons Avonex ® , Betaseron ® , Extavia ® and Rebif ® , as well as from the two
monoclonal antibodies Tysabri ® and Lemtrada ® .
Azilect® (rasagiline tablets) is indicated as initial monotherapy and as an adjunct to levodopa for the treatment of the signs and symptoms of Parkinson’s disease,
the second most common neurodegenerative disorder.
Azilect® is a second-generation, irreversible monoamine oxidase type B (MAO-B) inhibitor. Although other symptom-reducing therapies are available, many of
them have efficacy, safety and tolerability concerns.
Azilect® was launched in Israel in March 2005, followed by a rolling launch in various European markets, and became available in the United States in 2006. We
market Azilect ® jointly with Lundbeck in certain key European countries. We exclusively market Azilect ® in the United States, Germany and certain other markets,
while Lundbeck exclusively markets Azilect ® in the remaining European countries and certain other international markets. By the end of 2015, the initial period of our
agreement with Lundbeck ends for all European markets and all marketing rights will revert to us. In 2014, we signed an agreement with Takeda to market this product
in Japan.
Azilect® is protected in the United States by several patents that will expire between 2016 and 2027. We hold European patents covering Azilect ® which are
protected by Supplementary Protection Certificates in a number of European countries until 2019. Azilect ® has data exclusivity protection in EU countries until 2015.
Azilect ® has been subject to various patent challenges mainly in the United States in which certain generic competitors are permitted under a settlement agreement to
launch their generic versions just prior to expiry of the patent expiring in February 2017.
Azilect®’s competitors include both specialty and generic versions of the newer non-ergot dopamine agonists class, including Mirapex ® /Sifrol ® (pramipexole),
Requip ® (ropinirole) and Neupro ® (rotigotine), which are indicated for all stages of Parkinson’s disease, as well as Comtan ® , a COMT inhibitor, indicated only for
adjunct therapy in moderate to advanced stages of the disease.
Nuvigil® (armodafinil), the R-isomer of modafinil, is indicated for the treatment of excessive sleepiness associated with narcolepsy and certain other disorders.
Several products, including methylphenidate products, compete with Nuvigil®.
In early 2012, we reached an agreement with Mylan Pharmaceuticals, providing Mylan the ability to sell its generic version of Nuvigil® in the United States
beginning in June 2016, or earlier under certain circumstances. Nuvigil ® is protected by several patents, with a pediatric extension. We have entered into other
agreements to permit the other generic filers to enter the market under license 180 days after Mylan’s entry.
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Fentora®/Effentora® (fentanyl buccal tablet) is indicated for the treatment of breakthrough pain in opioid-tolerant adult patients with cancer. Fentora ® /Effentora
®
is protected by patents expiring between 2019 and 2028.
Provigil® (modafinil) is indicated for the treatment of excessive sleepiness associated with narcolepsy, obstructive sleep apnea and shift work disorder in the
United States. Provigil ® began to face generic competition in the United States in March 2012 and, as a result, sales decreased substantially.
Zecuity® is a prescription transdermal system approved by the FDA for the acute treatment of migraine with or without aura in adults. Zecuity ® is a disposable,
single-use, iontophoretic transdermal system that actively delivers sumatriptan, the most widely prescribed migraine medication, through the skin. We plan to launch
Zecuity ® in the United States in 2015.
Our CNS portfolio also includes: Actiq® (fentanyl oral transmucosal lozenge) for the treatment of breakthrough pain in opioid-tolerant adult patients with cancer;
and Amrix ® (cyclobenzaprine hydrochloride extended-release capsules) in the United States, for relief of muscle spasm in acute, painful, musculoskeletal conditions.
Respiratory
We are committed to maintaining a leading presence in the respiratory market, a core therapeutic area, by delivering a range of medicines for the treatment of
asthma and chronic obstructive pulmonary disease (“COPD”). Our portfolio is centered on optimizing respiratory therapies for patients through novel delivery systems
and therapies that address unmet needs.
In recent years, we have continued to build upon our experience in the development, manufacture and marketing of inhaled respiratory drugs delivered by
metered-dose and dry powder inhalers, primarily for bronchial asthma and COPD. In addition, we have invested in high quality manufacturing capability for press and
breathe metered-dose inhalers, multi dose powder inhalers, nasal sprays and nebulized therapy.
In 2013, we acquired MicroDose Therapeutx and its proprietary inhalation technology “tidal inhaler.” This technology allows people suffering from asthma and
COPD to inhale their medication by breathing normally into the tidal inhaler device. We are developing a range of inhaled medicines for use in the tidal inhaler.
Below is a description of our main respiratory medicines:
ProAir® hydrofluoroalkane (“HFA”) inhalation aerosol with dose counter (albuterol sulfate) is indicated in patients four years of age and older for the treatment
or prevention of bronchospasm with reversible obstructive airway disease and for the prevention of exercise-induced bronchospasm. In March 2012, the FDA approved
the addition of a dose counter, an innovation designed to help patients, as well as their caregivers, keep track of the number of doses remaining in the inhaler. The
efficacy and safety profile of albuterol, which is used by millions of patients every day around the world, is well established, while HFA is an environmentally friendly
propellant. ProAir ® HFA, which is marketed only in the United States and is the leading quick relief inhaler. It is protected by various patents expiring between 2017
and 2028. In June 2014, we settled a patent challenge to ProAir ® HFA with Perrigo Pharmaceuticals permitting Perrigo to launch its generic product in limited
quantities beginning on December 19, 2016 and after June 2018, after which the quantity limitations cease.
Three major brands compete with ProAir® HFA in the United States in the short-acting beta agonist market: Ventolin® HFA (albuterol) by GlaxoSmithKline,
Proventil ® HFA (albuterol) by Merck and Xopenex ® HFA (levalbuterol) by Sunovion.
QVAR® (beclomethasone dipropionate HFA) is indicated as a maintenance treatment for asthma as a prophylactic therapy in patients five years of age or older.
QVAR ® is also indicated for asthma patients who require systemic corticosteroid administration, where adding QVAR ® may reduce or eliminate the need for
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systemic corticosteroids. QVAR® is the fastest growing inhaled corticosteroid in the United States. We market QVAR ®, which is manufactured by 3M, in the United
States and in major European markets. QVAR ® is protected by various Orange Book listed patents in the United States expiring in 2015 and 2017.
Four major brands compete with QVAR® in the mono inhaled corticosteroid segment: Flixotide/Flovent ® (fluticasone) by GlaxoSmithKline, Pulmicort Flexhaler ®
(budesonide) by AstraZeneca, Asmanex ® (mometasone) by Merck and Alvesco ® (ciclesonide) by Sunovion.
Duoresp Spiromax® (budesonide/formoterol) is a combination of an inhaled corticosteroid and a long acting ß-agonist bronchodilator, and was approved for
treatment of asthma and COPD in adults in the EU by the EMA in a centralized procedure. In the second half of 2014, we launched Duoresp Spiromax ® in several EU
countries, including Germany, the U.K. and Spain.
The main competitors for Duoresp Spiromax® are Symbicort® Turbuhaler® (Budesonide/Formoterol) by AstraZeneca, Seretide® (fluticasone
propionate/salmeterol) by GlaxoSmithKline and Foster ® (beclomathasone/formoterol) by Chiesi.
Our respiratory portfolio also includes Qnasl® Nasal Aerosol (beclomethasone dipropionate HFA in a nasal actuator), for the treatment of seasonal and
year-round nasal allergy symptoms in the United States, which was also approved by the FDA for a pediatric indication in December 2014.
Oncology
Our oncology portfolio includes Treanda®, Trisenox®, Granix® Synribo® in the United States and Lonquex®, Tevagrastim ® /Ratiograstim ® , Myocet ® , Trisenox ®
and Eporatio ® outside the United States.
Treanda® (bendamustine hydrochloride for injection) is approved in the United States for the treatment of patients with chronic lymphocytic leukemia (“CLL”)
and patients with indolent B-cell non-Hodgkin’s lymphoma (“NHL”) that has progressed during or within six months of treatment with rituximab or a
rituximab-containing regimen. In 2014, we launched a new, easier to use, liquid formulation of Treanda ® . While we currently market the product only in the United
States, we also hold rights to Treanda ® in certain other countries.
Treanda®’s competitors include combination therapies such as R-CHOP (a combination of cyclophosphamide, vincristine, doxorubicin and prednisone in
combination with rituximab) and CVP-R (a combination of cyclophosphamide, vincristine and prednisolone in combination with rituximab) for the treatment of NHL,
as well as a combination of fludarabine, doxorubicin and rituximab for the treatment of CLL.
In November 2013, the FDA granted orphan drug exclusivity for Treanda ®, for the NHL indication through October 2015. With the previously granted six
months of pediatric exclusivity, regulatory exclusivity for this indication is now extended through April 2016. Treanda ® also has orphan drug exclusivity for the CLL
indication through March 2015, extended to September 20, 2015 based on the previously granted pediatric exclusivity. We have Orange Book patents for Treanda ®
expiring between 2026 and 2031.
To date, one company has filed a 505(b)(2) NDA for a liquid version of bendamustine, and 17 others have filed ANDAs for a generic version of the lyophilized
form of Treanda ® . All of these filings included patent challenges, which we are contesting. The 30-month stays against the ANDA filers will expire beginning in May
2016 and continuing into 2017, unless there are court decisions adverse to Teva before that date.
Filgrastim (branded as Tevagrastim® (in the EU) and Granix® (in the U.S.)) and Lonquex® (lipegfilgrastim) are Granulocyte Colony Stimulating Factor
(“G-CSF”) medicines that stimulate the production of white blood cells and are primarily used to reduce the risk of infections in oncology patients receiving
chemotherapy.
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Tevagrastim® (short-acting G-CSF) was the first biosimilar G-CSF to be approved by the EU in September 2008. Based on clinical trials, Tevagrastim ® has
been approved in the EU for multiple indications and is available in most European countries. Tevagrastim ® is also marketed as Ratiograstim ® and Biograstim ® in
the EU.
Granix® (short-acting G-CSF) was the first new G-CSF to be approved in the United States in more than ten years and was approved via a Biologics License
Application by the FDA in 2012 and launched in November 2013. Granix ® is not considered a biosimilar in the United States. The product is also approved and
available in Japan and certain other ROW markets. In December 2014, the FDA also approved Granix ® injection for self-administration by patients and caregivers.
Lonquex® (long-acting G-CSF) is a G-CSF with the active ingredient lipegfilgrastim, a novel glycoPEGylated (PEG; polyethylene glycol) filgrastim molecule.
This is the first long-acting G-CSF to be approved in Europe in more than ten years and offers a new alternative in G-CSF therapy. Lonquex ® was launched in
November 2013 in Germany and has since been launched in 22 additional European countries. It was approved in Russia in July 2014 and is in registration in other
countries around the world. Lonquex ® is protected by patents expiring in 2024 in Europe, with the potential for patent term extensions.
Competitors to Teva’s filgrastim include Neupogen®, and in Europe, also Zarzio® and Nivestim®, which are also G-CSF products.
Women’s Health
Our women’s health portfolio includes ParaGard®, Plan B One-Step® OTC/Rx (levonorgestrel), and Zoely® along with a number of other local products that are
marketed in the United States, Europe and ROW.
Plan B One-Step® OTC/Rx (levonorgestrel) is an emergency oral contraceptive which consists of a single tablet dose of levonorgestrel for emergency
contraception. Plan B One-Step ® is intended to prevent pregnancy when taken within 72 hours after unprotected intercourse or contraceptive failure. Plan B One-Step ®
has several generic competitors on the market. However, in June 2013, it became the first FDA-approved emergency contraceptive to be available without age or point
of sales restrictions. Teva is the only company that has conducted actual use and label comprehension studies required by the FDA, demonstrating that adolescents can
understand how to use Plan B One-Step ® just as well as adults.
ParaGard® T380 A (intrauterine copper contraceptive) is a non-hormonal intrauterine contraceptive marketed in the United States. ParaGard ® provides women
with a highly effective, long-term, reversible, non-hormonal contraceptive option. It is the only intrauterine contraceptive approved for up to ten years of continuous use
and is more than 99% effective at preventing pregnancy. ParaGard ® faces competition from other oral contraceptives, as well as intrauterine devices like Mirena ® ,
Jaydess ® in Europe and Skyla ® in the United States by Bayer and patches and vaginal hormonal contraceptive rings like NuvaRing ® by Merck.
Other Activities
Our other activities are comprised of our OTC business and other sources of revenues, which are not included in our generics and specialty segments described
above.
Consumer Healthcare Joint Venture
PGT is our consumer healthcare joint venture with P&G. The joint venture includes our OTC medicines and vitamins, minerals and food supplements (“VMS”).
PGT manufactures and markets more than 200 consumer healthcare brands in more than 70 countries around the world. Its portfolio includes leading cough and cold
brand Vicks ® , Germany’s leading OTC brand ratiopharm, and other leading brands.
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We own 49% and P&G owns 51% of the joint venture, which incorporates the two companies’ OTC businesses outside of North America and benefits from both
companies’ core strengths and capabilities. The joint venture combines the consumer brand building capabilities of P&G, along with the pharmaceutical supply,
regulatory and development capabilities of Teva. This facilitates expansion into new countries and categories, which enables PGT to quickly reach a significant number
of consumers. PGT’s strategy builds on improving and finding innovative ways to expand on its existing business.
PGT is focused on expanding in the following categories:
•
Building on the Vicks® franchise and other leading multi-country respiratory brands where we have a strong presence, to increase our presence in the
areas of cough, cold and nasal decongestion.
•
Leveraging our generic capabilities under brands like ratiopharm, which offers quality, affordable OTC healthcare in Germany, to broaden our
portfolio and expand to new markets.
•
Expanding our VMS products globally, in collaboration with Swisse Wellness, Australia’s market-leading wellness brand.
•
Expanding PGT’s digestive product brands, such as Metamucil®, to markets outside the United States, such as Australia, Latin America and Europe.
Others
We have other sources of revenues, primarily sales of third-party products for which we act as distributor, mostly in Israel and Hungary, as well as sales of
medical devices and other miscellaneous items.
Research and Development
Our research and development activities span the breadth of our business, including generic medicines (finished goods and API), specialty pharmaceuticals,
NTEs and OTC medicines. All research and development activities, except for API, are integrated into a single unit, Teva Global R&D.
Generics and Technologies
A major area of focus is the development of new generic medicines. We develop generic products in all therapeutic areas. Our emphasis is on developing
high-value products, such as those with complex technologies and formulations which thus have higher barriers to entry. Generic R&D activities, which are carried out
in development centers located in the United States, Israel, Europe, Latin America, Mexico, Japan and India, include product formulation, analytical method
development, stability testing, management of bioequivalence and other clinical studies, and registration of generic drugs in all of the markets where we operate. We
have more than one thousand generic products in our pipeline.
In addition, our generic R&D supports PGT in developing OTC products, as well as in overseeing the work performed by contract developers of products
selected by PGT.
In recent years, we have built additional R&D capabilities beyond tablets, capsules, liquids, ointments and creams to other dosage forms and delivery systems,
such as matrix systems, special coating systems for sustained release products, orally disintegrating systems, sterile systems such as vials, syringes and blow-fill-seal
systems and more recently, capability build-up in long-acting release injectables, transdermal patches, oral thin film, drug device combinations and nasal delivery
systems. We have also started the development of multiple AB-rated respiratory programs.
Our API R&D division operates independently from Teva Global R&D, and focuses on the development of processes for the manufacturing of API, including
intermediates, chemicals and biologicals (fermentation), for
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both our generic drugs and our proprietary drugs. Our facilities include a large center in Israel focusing on synthetic products and peptides, a large center in Hungary
specializing in fermentation and semi-synthetic products, a facility in India and additional sites in Italy, Croatia, Mexico and the Czech Republic for development of
high-potency APIs. Our substantial investment in API R&D generates a steady flow of API products, enabling the timely introduction of generic products to market.
The API R&D division also seeks methods to continuously reduce API production costs, enabling us to improve our cost structure.
New Therapeutic Entities
A strategic area of focus of Teva Global R&D is the development of new therapeutic entities with a focus on our key therapeutic areas. NTEs are known
molecules that are formulated, delivered or used in a novel way to address unmet patient needs. Examples of NTEs include fixed-dose-combinations that improve
adherence and therefore efficacy, drugs with prolonged half-lives to reduce frequency of administration, drugs with modified pharmacokinetic profiles to reduce side
effects, drugs that are administered orally instead of by injection, drugs that are delivered in ways that address the needs of special patient populations (for example,
children and the elderly), and drugs that are approved for new indications.
Because NTEs involve proven targets with known efficacy and safety profiles, we expect their development to involve reduced risks and costs, and shorter
timelines compared to novel drugs. On the other hand, there are multiple avenues to exclusivity for NTEs, leveraging both regulatory and patent exclusivity to protect
novel formulations, combinations and indications. At the end of 2014, 15 NTE products are part of the Teva pipeline. These products incorporate various technological
abilities and formulation specialties such as tamper-deterrence, delayed release and rapid release, which form the basis for future development of NTEs. The programs
are in various stages of development, including formulation development, preclinical and clinical.
Specialty
Another major area of focus for Teva Global R&D is the development of novel specialty products in our key therapeutic areas of CNS and respiratory, with
select projects in additional areas. These specialty R&D activities include the discovery of new compounds, preclinical studies (including toxicology, pharmacokinetics,
pharmacodynamics and pharmacology studies), process development, clinical pharmacology and the design, execution and analysis of clinical trials, as well as the
regulatory work to develop and register the products from our pipeline. We conduct these activities for both small molecules and biologics.
During 2014, we conducted a strategic review of our core therapeutic areas. We defined the core therapeutic areas on which we will focus as CNS (including
multiple sclerosis, neurodegenerative diseases and pain care) and respiratory (including asthma and chronic obstructive pulmonary disease). In other therapeutic areas,
such as women’s health and oncology, where we have a significant commercial presence, we will focus on market-ready or close-to-market assets to maximize
sustainable profitability. In addition, we will continue to evaluate opportunities for commercially-oriented activities and collaborations. In parallel, we continue to
extend our existing pipeline to additional ROW markets. We intend to continue to supplement our specialty pipeline, by in-licensing or acquiring products including
small molecules and biologics, to create a robust and sustainable pipeline.
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CNS and Pain
Our clinical pipeline of CNS and pain projects is described below:
Development Phase
(month and year
entering Phase 3)
Route of
Administration
CNS and Pain Projects
Potential Indication
CEP-33237 ER Hydrocodone (potential abuse deterrent
properties)
Chronic Pain
Oral
Submitted U.S. (October
2014)
Multiple Sclerosis (Relapsing Remitting and
Progressive Forms)
Oral
3 (RRMS, February 2013)
2 (PFMS)
Huntington’s Disease
Huntington’s Disease
Osteoarthritis & Neuropathic pain
Chronic and episodic migraine
Pain
Pain
Oral
Oral
Topical
Subcutaneous
Oral
Oral
2
2
2
2
1
1
Laquinimod
Pridopidine
TV-45070 Topical
TEV-48125 (CGRP MAb)
TV-46763 (abuse deterrent)
TV-46139 (abuse deterrent)
CEP-33237 ER Hydrocodone is our formulation of hydrocodone, an opioid analgesic, utilizing our OraGuard ® technology, with potential abuse-deterrent
properties that has been evaluated for resistance to physical manipulations, chemical extractions and multi-step chemical extractions methods. A Phase 3 study was
completed in August 2011, but did not demonstrate a statistically significant difference between the hydrocodone and placebo treatment groups. A newly designed
Phase 3 study was initiated in March 2013 and positive results were received in April 2014 which demonstrated a significant improvement in the treatment of patients’
chronic low back pain as measured by both weekly average Worst Pain Intensity (primary endpoint) and weekly Average Pain Intensity scores.
We initiated a rolling submission of the U.S. NDA in October 2014. Full submission was completed in December 2014.
Laquinimod is a once-daily, orally administered immunomodulatory compound being developed for treatment of relapsing-remitting and progressive forms of
multiple sclerosis. We acquired the exclusive rights to develop, register, manufacture and commercialize laquinimod worldwide from Active Biotech, in return for an
upfront payment and possible future milestone payments and royalties.
In 2011, we conducted two Phase 3 studies, in both of which the observed safety and tolerability profile of laquinimod was considered favorable. A third Phase 3
study of laquinimod, CONCERTO, was initiated in February 2013, with the primary endpoint of impact on disability progression. Further clinical studies of laquinimod
as add-on therapy in patients with relapsing-remitting multiple sclerosis and as monotherapy in patients with progressive forms of MS are in progress.
In 2012, we submitted a Marketing Authorization Application to the EMA and a New Drug Submission to Health Canada. In January 2014, EMA announced
that the risk-benefit profile of laquinimod is not favorable. This decision was re-examined and confirmed by EMA in May 2014. The ongoing Phase 3 CONCERTO
trial, testing 0.6 and 1.2 mg laquinimod versus placebo using confirmed disability progression as the primary endpoint, is intended to further address the risk-benefit
profile of laquinimod. In addition, studies are ongoing to address nonclinical findings noted by the Committee for Medicinal Products for Human Use (“CHMP”) and
elucidation of the molecular mechanism of action.
Laquinimod is also being evaluated in an ongoing Phase 2 clinical trial for Huntington’s disease.
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Laquinimod is protected by patents expiring in 2019 worldwide, with potential for extensions in various markets.
Pridopidine is an oral small molecule dopamine stabilizer being developed for the symptomatic treatment of motor disorders (including Huntington’s disease),
which we licensed from Neurosearch A/S in 2012. Phase 2 clinical development was initiated in February 2014.
Pridopidine is protected by patents worldwide that expire in 2020.
TV-45070 Topical is a small molecule intended to treat pain locally at its source through blocking of Nav1.7 and Nav1.8 sodium channels, which are found in
sensory nerve endings that can increase in chronic painful conditions. TV-45070 was licensed from Xenon Pharmaceuticals Inc. in December 2012. TV-45070 has been
studied in human subjects in both oral and topical forms in neuropathic and inflammatory diseases. In an early study, oral TV-45070 was shown to be effective at
relieving the pain associated with the rare neuropathic pain condition, erythromelalgia. In a Phase 2 trial to evaluate effectiveness in alleviating the pain of post-herpetic
neuralgia, topical TV-45070 led to significantly more meaningful reductions in pain than placebo.
TV-45070 is currently in Phase 2 development for pain-related indications including osteoarthritis and neuropathic pain. The first Phase 2 study of the topical
product for osteoarthritis was initiated in March 2014.
TV-45070 is protected by patents in Europe that expire in 2026 and in the United States that expire in 2028.
TEV-48125 (CGRP MAb) is a fully humanized monoclonal antibody that binds to calcitonin gene-related peptide (CGRP). The product was obtained through
the acquisition of Labrys Biologics, Inc. in June 2014. TEV-48125 (CGRP MAb) is being developed for the prevention of chronic and high frequency episodic migraine
and is currently in Phase 2 clinical development.
TEV-48125 (CGRP MAb) is protected by patents expiring in 2026 in Europe and in 2027 in the United States.
TV-46763 and TV-46139 are two pain products with potential abuse-deterrent properties, developed using our OraGuard ® technology. The Phase 1 clinical
program for TV-46763 was initiated in April 2014 and will be initiated for TV-46139 in early 2015.
Respiratory
The primary area of focus of our respiratory R&D is the development of products that are based on our proprietary delivery systems, which include:
•
An advanced breath-actuated inhaler (“BAI”);
•
Spiromax® EU / mDPI US, a novel inhalation-driven multi-dose powder inhaler (“mDPI”);
•
Tidal Inhaler (formerly Teva MicroDose), a unique nebulization device; and
•
Steri-Neb®, our advanced sterile formulations for nebulizers.
This strategy is intended to result in “device consistency,” allowing physicians to choose which device best matches a patient’s needs both in terms of ease of
use and effectiveness of delivery of the prescribed molecule.
The Easi-Breathe BAI device is protected by patents and applications expiring between June 2021 and June 2030. Our Spiromax ® EU / mDPI US device is
protected by patents and applications expiring between June 2021 and October 2034. The actuator with dose counter used in connection with ProAir ® HFA and QVAR
®
is protected by patents and applications expiring between December 2017 and July 2030.
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Our clinical pipeline of respiratory projects is described below:
Route of
Administration
Development Phase
(month and year
entering Phase 3)
Respiratory Projects
Potential Indication
ProAir® mDPI US
Asthma, exercise induced
bronchospasm
Oral Inhalation
Submitted US (May 2014)
Reslizumab
Severe Asthma with eosinophilia
QVAR® BAI US
Fluticasone Propionate mDPI US
Fluticasone Salmeterol mDPI US
Fluticasone Salmeterol Spiromax® EU
Fluticasone Salmeterol (MDI) EU
Asthma/COPD
Asthma
Asthma
Asthma, COPD
Asthma, COPD
Intravenous
Subcutaneous
Oral Inhalation
Oral Inhalation
Oral Inhalation
Oral Inhalation
Oral Inhalation
3 (February 2010)
1
3 (December 2013)
3 (June 2014)
3 (June 2014)
1
1
ProAir® mDPI US is a dry-powder inhaler formulation of albuterol in our multi-dose powder inhaler device that is designed to be an improvement to our ProAir
HFA. The clinical development program has demonstrated the safety and efficacy of ProAir ® mDPI US in adults and adolescents (12 years of age and older) with
asthma and exercise-induced bronchospasm. The NDA was submitted in May 2014.
®
Reslizumab is an investigational humanized monoclonal antibody (MAb) against interleukin-5 (IL-5). IL-5 has been shown to play a crucial role in the
maturation, growth and chemotaxis (movement) of eosinophils, inflammatory white blood cells implicated in a number of allergic diseases.
Phase 3 study results from August 2014 for the IV product met the primary endpoint of reduction in the frequency of clinical asthma exacerbations compared to
placebo. We also statistically demonstrated success in secondary efficacy measures associated with improvements in lung function (Forced Expiratory Volume or
FEV1), asthma specific quality of life, and symptoms assessed using Asthma Control Questionnaire and symptom utility index. We expect to submit an NDA for the
product in early 2015.
Reslizumab is delivered intravenously, and a Phase 3 clinical program for the subcutaneous product will be initiated in early 2015.
Reslizumab is protected by patents in Europe that expire in 2015 and in the United States that expire in 2017. We expect the product to be entitled to 10 years
regulatory exclusivity in Europe and 12 years biological exclusivity in the United States, beginning on the date of approval.
QVAR® BAI (beclomethasone) is an oral aerosol corticosteroid in development for the treatment of asthma delivered using our advanced breath-actuated inhaler.
The Phase 3 clinical program was initiated in December 2013 and will be completed in early 2015. NDA submission is planned for 2015.
Fluticasone Propionate mDPI US is a new formulation of this combination using our multi-dose powder inhaler device, with an enhanced lung delivery that is
designed to allow lower doses to achieve the same clinical outcomes as Flovent ® Diskus. Phase 2 trials were completed in 2013. The Phase 3 clinical program was
initiated in June 2014.
Fluticasone Salmeterol mDPI US is a new formulation of this combination using our multi dose powder inhaler device, with an enhanced lung delivery that is
designed to allow lower doses to achieve the same clinical outcomes as Advair ® Diskus. Phase 2 trials were completed in 2013. The Phase 3 clinical program was
initiated in June 2014.
Fluticasone Salmeterol Spiromax® EU is being developed per EU guidance to achieve the same clinical outcomes as Seretide® Accuhaler ® . Bioequivalence has
been demonstrated for the high strength product. A middle strength study was initiated in August 2014 and results are expected in early 2015.
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Fluticasone & Salmeterol MDI EU is designed to be comparable to Advair®/Seretide® HFA, delivered in a well-established press-and-breath device. Clinical
studies were completed and the MAA submission is planned for 2015.
Other Specialty Projects
Our clinical pipeline of other specialty projects is described below:
Other Specialty Projects
Potential Indication
(per Ext. Pipeline)
CEP-41750 (Mesenchymal Precursor
Cell, Revascor ® )
Albutropin
Laquinimod for Crohn’s Disease (CD)
TEV-90110
TEV-90112
Seasonique® EU
Chronic Heart Failure
Acute Myocardial Infraction
Growth Hormone Deficiency
Crohn’s Disease
HIV
HIV
Contraception
Route of
Administration
Intracardiac Injection
Subcutaneous
Oral
Oral
Oral
Oral
Development Phase
(month and year
entering Phase 3)
3 (January 2015)
2
2
2
1
1
Submitted EU (March
2013)
CEP-41750 (Mesenchymal Precursor Cell, Revascor®) consists of human stem cells, the immature cells that give rise to different types of mature cells that
make up the organs and tissues of the human body. In December 2010, we entered into a strategic alliance with Mesoblast Ltd. to develop and commercialize
Mesoblast’s mesenchymal precursor cell therapeutics for hematopoietic stem cell transplantation in cancer patients, certain central nervous system disorders, as well as
certain cardiovascular conditions, including congestive heart failure and acute myocardial infarction.
In January 2011, interim results from the ongoing multi-center Phase 2 trial of Revascor® for patients with congestive heart failure were announced. The first of
two Phase 3 pivotal studies was initiated in March 2014. Interim analysis results, expected in early 2016, will follow the initial cohort, completing six months of
follow-up.
CEP-41750 is protected by patents in the United States that expire in 2021 with potential for patent term extension of up to 5 years.
Albutropin is a long-acting Somatropin being evaluated for the treatment of Growth Hormone Deficiency in Adults and Adolescents. The Phase 2 clinical
program was initiated in March 2013 and will be completed in 2015.
Albutropin is protected by patents worldwide that expire in 2015.
Laquinimod is also being evaluated for Crohn’s Disease. A Phase 2 study showed laquinimod may have benefit for patients with Crohn’s. We are exploring
options for further development.
TEV-90110 & TEV-90112 are two fixed dose combination products containing antiretrovirals for the treatment of HIV in Phase 1 clinical development.
Seasonique® EU is a 91-day oral contraceptive with an 84-day regimen of levonorgestrel and ethinyl estradiol followed by a
7-day regimen of ethinyl estradiol alone. The ethinyl estradiol tablets are used during the seven days, instead of a placebo interval, allowing women to have four
scheduled menstrual periods a year and potentially lessening the withdrawal symptoms that result from a sudden, sharp decrease in hormones. Seasonique ® is backed
by extensive clinical trials and has been available in the United States since 2006.
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Seasonique® was submitted in Europe in March 2013 and received a positive opinion from the CHMP in July 2014.
Seasonique® is protected by patents expiring in Europe in 2022.
Changes to Other Projects During 2014
During 2014, the following projects underwent changes to their status due to either clinical results or reprioritization within the Teva pipeline:
•
Balugrastim for neutropenia—no further development is planned;
•
LAMA Breath Actuated Inhaler for the treatment of chronic obstructive pulmonary disease, has been terminated;
•
LeCette® (Desogestrel and Ethinyl Estradiol) for contraception, has been terminated;
•
Milprosa® (Progesterone Vaginal Ring) for luteal support for in vitro fertilization—no further development or commercialization is planned;
•
MDT-637 (Tidal inhaler)—The tidal inhaler platform device proof of concept study was successful in confirming the functionality of the device as a
product delivery platform. However, MDT-637 for respiratory syncytial virus infection did not reach statistically significant positive results for the
primary end point in the Phase 2a study. We are currently evaluating the potential for further development;
•
Custirsen/TV-1011 (OGX-011), an antisense drug. Teva and Oncogenex have agreed to return the rights for this asset to Oncogenex; and
•
Our once-a-day fixed combination of a prostaglandin agonist and a beta blocker, for the treatment of glaucoma, has been terminated.
Operations
We operate our business globally and believe that our global infrastructure provides us with the following capabilities and advantages:
•
global research and development facilities that enable us to have a leading global generic pipeline, as well as the broadest generic product line in the
United States;
•
pharmaceutical manufacturing facilities approved by the FDA, EMA and other regulatory authorities located around the world, which offer a broad
range of production technologies and the ability to concentrate production in order to achieve economies of scale;
•
API manufacturing capabilities that offer a stable, high-quality supply of key active ingredients, as well as vertical integration efficiencies; and
•
high-volume, technologically advanced distribution facilities that allow us to deliver new products to our customers quickly and efficiently,
providing a cost-effective, safe and reliable supply.
These capabilities provide us with the means to respond on a global scale to a wide range of therapeutic and commercial requirements of patients, customers and
healthcare providers.
Pharmaceutical Production
We operate over 40 finished dosage pharmaceutical plants in North America, Europe, Latin America, Asia and Israel. These plants manufacture solid dosage
forms, sterile injectables, liquids, semi-solids, inhalers and medical devices. In 2014, Teva produced approximately 69 billion tablets and capsules and over 650 million
sterile units. 20 of our plants are FDA approved, and 31 of our plants are EMA approved.
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Our two primary manufacturing technologies, solid dosage forms and injectables, are available in North America, Latin America, Europe and Israel. The main
manufacturing site for respiratory inhaler products is located in Ireland. The manufacturing sites located in Israel, Germany, Hungary, Croatia and the Czech Republic
comprise a significant percentage of our production capacity.
We have established a global Operational Excellence program to optimize our manufacturing efficiency, and in order to maintain our goal of supplying high
quality, cost-competitive products on a timely basis to our customers globally. As part of our efficiency improvement effort, we sold a number of manufacturing sites
and facilities this year, including our two U.S. OTC manufacturing sites in Greensboro and in Phoenix and closed our Settimo (Italy) API facility. We are in process of
closing additional facilities and are reviewing other potential sites for restructuring. Our network restructuring plan aims at further optimizing and consolidating our
manufacturing footprint, yielding higher efficiency and reducing costs and capital expenditures.
We use several external contract manufacturers to achieve operational and cost benefits. We have established a third party operations unit to strategically work
with our supplier base in order to meet cost supply security and quality targets on a sustainable base in alignment with our global procurement organization.
During 2014, we continued to invest in our manufacturing capabilities, focusing on strategic growth areas, including the construction of a new oral solid dosage
facility in Russia and a new OTC manufacturing facility in India. We invested in expanding our manufacturing facility in Japan, our inhaler activities in Israel and
Ireland, and our global sterile manufacturing centers in Hungary and Croatia. We constantly review these capabilities and our capacity utilization to ensure efficient
alignment with our ability to timely deliver the highest quality products.
Our policy is to maintain multiple supply sources for our strategic products and APIs to the extent possible, so that we are not dependent on a single supply
source. However, our ability to do so may be limited by regulatory or other requirements.
Our principal pharmaceutical manufacturing facilities in terms of number of employees in Teva Global Operations (“TGO”) are listed below:
Location
Total Number of
TGO Employees (1)
India (5 sites)
Debrecen, Hungary (including one other site)
Zagreb, Croatia (including one other site)
Ulm, Germany
Kfar Saba, Israel
Opava, Czech Republic
Takayama, Japan
Neot Hovav, Israel
Jerusalem, Israel
Canada (3 sites)
Godollo, Hungary
Krakow, Poland
Forest, VA, U.S.
Haarlem, Netherlands
Waterford, Ireland
Runcorn, U.K.
Cincinnati, OH, U.S.
Irvine, CA, U.S.
Hangzhou, China
(1)
1,775
1,612
1,370
1,340
1,327
1,266
1,132
1,010
955
909
711
550
475
448
405
378
320
305
227
Principal Market(s) Served
Europe and other non-U.S. markets
Europe and other non-U.S. markets
North America, Europe and other markets
Europe and other non-U.S. markets
North America, Europe and other markets
North America, Europe and other markets
Asia
North America, Europe and other markets
North America and Europe
North America, Europe and other markets
North America, Europe and other markets
North America and Europe
North America, Europe and other markets
North America, Europe and other markets
North America, Europe and other markets
North America, Europe and other markets
North America
North America
North America, Europe and other markets
Figures refer to operations employees as of December 31, 2014 (pharmaceutical manufacturing, API manufacturing and API R&D).
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Raw Materials for Pharmaceutical Production
We source a large portion of our APIs from our own manufacturing facilities. Additional APIs are purchased from suppliers located in Europe, Asia and the
United States. We have implemented a supplier audit program to ensure that our suppliers meet our high standards, and take a global approach to managing our
commercial relations with these suppliers.
We currently have 20 API production facilities all over the world. We produce approximately 300 APIs in various therapeutic areas. Our API intellectual
property portfolio includes approximately 600 granted patents and pending applications worldwide.
We have expertise in a variety of production technologies, including chemical synthesis, semi-synthetic fermentation, enzymatic synthesis, high-potency
manufacturing, plant extract technology, and peptides synthesis, vitamin D derivatives synthesis and prostaglandins synthesis. Our advanced technology and expertise
in the field of solid state particle technology enable us to meet specifications for particle size distribution, bulk density, specific surface area and polymorphism, as well
as other characteristics.
Our API facilities meet all applicable current Good Manufacturing Practices (“cGMP”) requirements under U.S., European, Japanese, and other applicable
quality standards. Our API plants are regularly inspected by the FDA, European agencies or other authorities as applicable. During 2014, inspections of our API
facilities worldwide found our manufacturing practices to be in compliance.
Environment
Teva is committed to business practices that promote socially and environmentally responsible economic growth. In 2014, we continued to restructure and
strengthen our environment, health and safety (“EHS”) efforts. We are developing and implementing a global EHS management system to align, streamline and
enhance our EHS performance, while integrating our program into the business. The Corporate EHS Committee consisting of global senior executives meets on a
routine basis and provides oversight of all material EHS matters in Teva.
We have a global environment and sustainability plan which is built on three pillars:
•
Zero incidents: we strive for zero releases to the environment;
•
100% compliance: we are putting systems in place that are aligned with internationally recognized standards to assure full compliance; and
•
Reduce impact: we are working to optimize our operations, to streamline processes and to reduce our environmental footprint through efficient use
of resources.
In order to assure compliance in an ever-changing business and regulatory environment, we continuously update and advance our environmental control systems.
We believe that we are in substantial compliance with all applicable environment, health and safety requirements.
Quality
Teva is committed to not just complying with quality requirements but to develop and leverage quality as a competitive advantage in the future. Throughout
2014, we successfully completed numerous inspections of our facilities by regulatory agencies without any critical observations. We were in continuous dialogue with
authorities about drug shortages and participated in several industry-wide task forces. Internally, we promoted a quality mindset across all of Teva’s business functions.
We strengthened our quality organization and improved its alignment with other functions. In the coming years, our quality organization will focus on further elevating
and enhancing the consistency of our quality processes, integrating quality systems, and fostering our engagement with regulatory authorities and industry groups.
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Organizational Structure
In July 2014, we announced our new commercial structure, which is aligned with our strategy to ensure an integrated Teva.
Teva is led by two commercial business units that work in full synchronization with each other: the Global Specialty Medicines group, formed in April 2013,
and the Global Generic Medicines group, formed in July 2014.
The Global Generic Medicines group is responsible globally for all generic commercial activities. This includes portfolio management and selection, product
launch and commercial execution. Bringing all of our regional generic businesses under one roof highlights our strong focus on, and commitment to, our generic
business.
The Global Specialty Medicines group continues to drive organic growth with a strong pipeline of patient-centric solutions and by introducing new brands
through focused business initiatives. Building on existing expertise and incorporating innovative technology, the group works to continue to enhance patient experience
in our leading therapeutic areas.
In addition, our activities are conducted by three global divisions: Teva Global Operations, Teva Global R&D and Teva Global Quality, and by global support
functions including Finance, Legal, Information Technology, the Corporate Development, Strategy and Innovation Group, Human Resources and the Corporate
Marketing Excellence and Communications Group.
TGO’s responsibilities include development, manufacturing and commercialization of APIs, manufacturing of pharmaceuticals, quality assurance, procurement
and supply chain.
Teva Global R&D is responsible for research and development of generic medications, NTEs and specialty products and includes regulatory affairs and
pharmacovigilance.
Teva Global Quality is charged with ensuring the reliable supply of quality, cost-effective medicines from our global network of sites in compliance with all
relevant standards.
Our worldwide operations are conducted through a network of global subsidiaries. We have direct operations in many countries around the world, as well as over
40 finished dosage pharmaceutical manufacturing sites, in 25 countries, 20 API sites and more than 20 pharmaceutical R&D centers. The following sets forth by
geography, as of December 31, 2014, our principal operating subsidiaries in terms of aggregate total revenues:
Name of Subsidiary*
Country
Teva Pharmaceuticals USA, Inc.
Teva Santé SAS
Teva UK Limited
ratiopharm GmbH
Teva Pharmaceutical Works Private Limited Company
Teva Gmbh
Teva Italia S.r.l.
Teva Pharma S.L.
Teva Israel
Teva Canada Limited
Teva Limited Liability Company
Teva Seiyaku
United States
France
United Kingdom
Germany
Hungary
Germany
Italy
Spain
Israel
Canada
Russia
Japan
* All listed subsidiaries are 100% held by Teva, except for Teva Pharmaceutical Works Private Limited Company, which has a very small minority interest.
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Properties and Facilities
Listed below are our principal facilities and properties in various regions of the world and their size in square feet as of December 31, 2014:
Facility Location
Israel
Ramat Hovav
Kfar Saba
Jerusalem (3 sites)
Shoham Logistics Center
Netanya (3 sites)
Square Feet
(in thousands)
1,448
738
591
538
503
Main Function
Petach Tikva
Ashdod
Assia, Petach Tikva
United States
North Wales area, PA (4 sites)
Forest, VA
Cincinnati, OH
Irvine, CA (8 sites)
Miami, FL (3 sites)
Kutztown, PA
Sellersville, PA
Frazer, PA
Salt Lake City, UT
Pomona, NY
Guayama, Puerto Rico
West Chester, PA
Overland Park, KS
Mexico, MO
Montvale, NJ
Canada
Toronto, Ontario
371
153
118
API manufacturing and R&D
Pharmaceutical manufacturing, research laboratories, warehousing, and offices
Pharmaceutical manufacturing, research laboratories and offices
Distribution center
API manufacturing, pharmaceutical warehousing, laboratories, distribution center and
offices
Corporate headquarters
Manufacturing of hospital supplies
R&D laboratories
850
450
305
290
240
211
206
194
188
181
170
165
154
144
142
Teva USA headquarters, warehousing and distribution center
Manufacturing, packaging and offices
Pharmaceutical manufacturing, R&D laboratories and packaging
Pharmaceutical manufacturing and R&D laboratories
Manufacturing, R&D laboratories, warehousing and offices
Warehousing
Pharmaceutical manufacturing, packaging and R&D laboratories
Offices
Offices, manufacturing and R&D laboratories
Pharmaceutical manufacturing and R&D laboratories
API manufacturing
Laboratories
Offices
API manufacturing
Offices
Stouffville, Ontario
Markham, Ontario
Europe
Debrecen, Hungary (3 sites)
180
122
335
Offices, pharmaceutical packaging, warehousing, distribution center and laboratories
Pharmaceutical manufacturing and R&D laboratories
Pharmaceutical manufacturing and warehousing
2,549
Pharmaceutical manufacturing, API manufacturing, R&D laboratories and warehousing
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Facility Location
Ulm, Germany (2 sites)
Opava, Czech Republic
Krakow, Poland
Zagreb, Croatia (5 sites)
Square Feet
(in thousands)
1,740
1,466
939
869
Savski Marof, Croatia
Weiler, Germany
Waterford, Ireland (3 sites)
Sajababony, Hungary
Zaragoza, Spain (3 sites)
Kutno, Poland
Runcorn, England (2 sites)
Glasshoughton, England
Haarlem, The Netherlands
Gödöllơ, Hungary
577
425
413
374
325
290
275
247
232
211
Santhiâ, Italy
Amsterdam, The Netherlands
Eastbourne, England
Asia
Gajraula (U.P.), India
Takayama, Japan
Hangzhou, China
Malanpur, India
Goa, India
Ahmedabad, India
Kasukabe, Japan
Koka, Japan
Nagoya, Japan (2 sites)
Latin America
Santiago, Chile (2 sites)
Lima, Peru (3 sites)
Mexico City, Mexico
Munro, Argentina
Ramos Arizpe, Mexico
177
176
163
1,200
1,009
609
302
285
183
169
151
141
368
245
240
179
109
Main Function
Pharmaceutical manufacturing, warehousing and offices
Pharmaceutical and API manufacturing, warehousing and distribution center
Pharmaceutical manufacturing and warehousing
Pharmaceutical manufacturing, packaging and warehousing, API manufacturing and
R&D laboratories
API manufacturing
Pharmaceutical manufacturing and packaging
Pharmaceutical manufacturing, warehousing and packaging
Mixed use
Pharmaceutical manufacturing, R&D laboratories
Pharmaceutical manufacturing, warehousing and packaging
Pharmaceutical manufacturing, warehousing, laboratories and offices
Warehousing and distribution center
Laboratories
Pharmaceutical manufacturing, hospital supplies manufacturing, R&D laboratories,
distribution center, packaging and warehousing
API manufacturing, R&D laboratories and warehousing
Distribution center
Warehousing and packaging
API manufacturing
Pharmaceutical manufacturing
API manufacturing
API manufacturing
Pharmaceutical manufacturing and R&D laboratories
OTC manufacturing, packaging, warehousing and laboratories
Pharmaceutical manufacturing
Pharmaceutical manufacturing
Offices
Pharmaceutical manufacturing, warehousing and R&D laboratories
Pharmaceutical manufacturing, warehousing and R&D laboratories
Pharmaceutical manufacturing, warehousing and R&D laboratories
Pharmaceutical manufacturing, warehousing, R&D laboratories and packaging
Pharmaceutical manufacturing
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We lease certain of our facilities. In Israel, our principal executive offices and corporate headquarters in Petach Tikva are leased until December 2018. In North
America, our principal leased properties are the facilities in North Wales and Frazer, Pennsylvania, which have lease terms expiring between 2016 and 2022. We own
and lease various other facilities worldwide.
Regulation
United States
Food and Drug Administration and the Drug Enforcement Administration
All pharmaceutical manufacturers selling products in the United States are subject to extensive regulation by the United States federal government, principally
by the FDA and the Drug Enforcement Administration (“DEA”), and, to a lesser extent, by state and local governments. The federal Food, Drug, and Cosmetic Act, the
Controlled Substances Act (“CSA”) and other federal statutes and regulations govern or influence the development, manufacture, testing, safety, efficacy, labeling,
approval, storage, distribution, recordkeeping, advertising, promotion, sale, import and export of our products. Our facilities are periodically inspected by the FDA,
which has extensive enforcement powers over the activities of pharmaceutical manufacturers. Noncompliance with applicable requirements may result in fines, criminal
penalties, civil injunction against shipment of products, recall and seizure of products, total or partial suspension of production, sale or import of products, refusal of the
government to enter into supply contracts or to approve NDAs, ANDAs, or BLAs and criminal prosecution by the Department of Justice. The FDA also has the
authority to deny or revoke approvals of marketing applications and the power to halt the operations of non-complying manufacturers. Any failure to comply with
applicable FDA policies and regulations could have a material adverse effect on our operations.
FDA approval is required before any “new drug” (including generic versions of previously approved drugs) may be marketed, including new strengths, dosage
forms and formulations of previously approved drugs. Applications for FDA approval must contain information relating to bioequivalence (for generics), safety,
toxicity and efficacy (for new drugs), product formulation, raw material suppliers, stability, manufacturing processes, packaging, labeling and quality control. FDA
procedures generally require that commercial manufacturing equipment be used to produce test batches for FDA approval. The FDA also requires validation of
manufacturing processes so that a company may market new products. The FDA conducts pre-approval and post-approval reviews and plant inspections to implement
these requirements.
The federal CSA and its implementing regulations establish a closed system of controlled substance distribution for legitimate handlers. The CSA imposes
registration, security, recordkeeping and reporting, storage, manufacturing, distribution, importation and other requirements upon legitimate handlers under the
oversight of the DEA. The DEA categorizes controlled substances into one of five schedules—Schedule I, II, III, IV, or V—with varying qualifications for listing in
each schedule. Facilities that manufacture, distribute, import or export any controlled substance must register annually with the DEA. The DEA inspects manufacturing
facilities to review security, record keeping and reporting and handling prior to issuing a controlled substance registration. Failure to maintain compliance with
applicable requirements, particularly as manifested in the loss or diversion of controlled substances, can result in enforcement action, such as civil penalties, refusal to
renew necessary registrations, or the initiation of proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal prosecution.
The Drug Price Competition and Patent Term Restoration Act (the “Hatch-Waxman Act”) established the procedures for obtaining FDA approval for generic
forms of brand-name drugs. This act also provides market exclusivity provisions that can delay the approval of certain NDAs and ANDAs. One such provision allows a
five-year period of data exclusivity for NDAs containing new chemical entities and a three-year period of market exclusivity for NDAs (including different dosage
forms) containing new clinical trial(s) essential to the approval of the application. The Orphan Drug Act grants seven years of exclusive marketing rights to a specific
drug for a
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specific orphan indication. The term “orphan drug” refers, generally, to a drug that treats a rare disease affecting fewer than 200,000 Americans. Market exclusivity
provisions are distinct from patent protections and apply equally to patented and non-patented drug products. Another provision of the Hatch-Waxman Act extends
certain patents for up to five years as compensation for the reduction of effective life of the patent which resulted from time spent in clinical trials and time spent by the
FDA reviewing a drug application.
Under the Hatch-Waxman Act, any company submitting an ANDA or an NDA under Section 505(b)(2) of the Food, Drug, and Cosmetic Act (i.e., an NDA that,
similar to an ANDA, relies, in whole or in part, on FDA’s prior approval of another company’s drug product; also known as a “505(b)(2) application”) must make
certain certifications with respect to the patent status of the drug for which it is seeking approval. In the event that such applicant plans to challenge the validity or
enforceability of an existing listed patent or asserts that the proposed product does not infringe an existing listed patent, it files a “Paragraph IV” certification. In the
case of ANDAs, the Hatch-Waxman Act provides for a potential 180-day period of generic exclusivity for the first company to submit an ANDA with a Paragraph IV
certification. This filing triggers a regulatory process in which the FDA is required to delay the final approval of subsequently filed ANDAs containing Paragraph IV
certifications until 180-days after the first commercial marketing. For both ANDAs and 505(b)(2) applications, when litigation is brought by the patent holder, in
response to this Paragraph IV certification, the FDA generally may not approve the ANDA or 505(b)(2) application until the earlier of 30 months or a court decision
finding the patent invalid, not infringed or unenforceable. Submission of an ANDA or a 505(b)(2) application with a Paragraph IV certification can result in protracted
and expensive patent litigation.
The Best Pharmaceuticals for Children Act, signed into law in 2002, continues the so-called “pediatric exclusivity” program established by the FDA
Modernization Act of 1997. This pediatric exclusivity program provides a six-month period of extended exclusivity, applicable to certain listed patents and to other
regulatory exclusivities for all formulations of an active ingredient, if the sponsor performs and submits pediatric studies requested by the FDA within specified
timeframes. An effect of this program has been to delay the launch of numerous generic products by an additional six months.
The Medicare Prescription Drug, Improvement and Modernization Act (the “Medicare Modernization Act”) of 2003 modified certain provisions of the
Hatch-Waxman Act. Under the Medicare Modernization Act, the 180-day period of generic exclusivity rights may be forfeited under certain specified circumstances. In
2012, Congress passed legislation to create a generic drug user fee program (GDUFA) in order to augment the FDA’s congressional appropriations. User fee funding is
anticipated to be sufficient to eliminate the backlog of ANDAs pending with the FDA by the end of Fiscal Year 2017 as well as provide for improved review
performance over the statute’s five-year period. Additionally, generic drug user fees are intended to bring parity between the U.S. and foreign inspections by 2017 in
order to ensure a consistent standard of quality for all drugs intended for the U.S. market. Implementation of the program began on October 1, 2012. In July 2012,
Congress also passed legislation that allowed the FDA to continue to collect user fees for brand products and new user fee programs for biosimilar products. As part of
this legislation, Congress included a provision that extended the period of time that a generic applicant has to receive tentative approval of its ANDA to preserve
eligibility for 180-day exclusivity and avoid forfeiture under the Medicare Modernization Act. Applications that were submitted during the 30-month period preceding
the signing of the bill (January 9, 2010 to July 9, 2012) are entitled to a 40-month period to receive tentative approval before triggering a forfeiture.
The passage of the Food and Drug Administration Amendments Act (FDAAA) in 2007 strengthened the FDA’s regulatory authority on post-marketing safety
and granted the agency greater authority to control drug marketing and labeling, to require post-approval studies, to establish active surveillance systems, and to make
clinical trial opportunities and results more available to the public. Another provision provides for a 180-day period for the FDA to respond to citizen petitions
submitted to the FDA that could delay the approval of generic applications. That 180-day period was reduced to 150 days as part of legislation passed in July 2012. A
key provision also allows the FDA to require a risk evaluation and mitigation strategy for drugs associated with greater safety risks.
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The Generic Drug Enforcement Act of 1992 established penalties for wrongdoing in connection with the development or submission of an ANDA by authorizing
the FDA to permanently or temporarily debar such companies or individuals from submitting or assisting in the submission of an ANDA, and to temporarily deny
approval and suspend applications to market generic drugs. The FDA may suspend the distribution of all drugs approved or developed in connection with wrongful
conduct and also has authority to withdraw approval of an ANDA under certain circumstances. The FDA may also significantly delay the approval of a pending NDA
or ANDA under its “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities Policy.” Manufacturers of generic drugs must also comply with the
FDA’s cGMP regulations or risk sanctions such as the suspension of manufacturing or the seizure of drug products and the FDA’s refusal to approve additional
ANDAs.
On November 13, 2013, the FDA proposed a rule that would require generic manufacturers to participate in the “Changes Being Effected” process to initiate
labeling changes for generic medicines without prior FDA approval. If adopted, the rule would allow different labels to be in use at the same time. Currently, generic
and brand drug labeling must be the same except for exceptions explicitly designated by statute. If the rule were to become final as proposed, Teva’s potential product
liability exposure could increase.
Products manufactured outside the United States and marketed in the United States are subject to all of the above regulations, as well as to FDA and United
States customs regulations at the port of entry. Products marketed outside the United States that are manufactured in the United States are additionally subject to various
export statutes and regulations, as well as regulation by the country in which the products are to be sold.
Our products also include biopharmaceutical products that are comparable to brand-name biologics, but that are not approved as biosimilar versions of such
brand-name products. Of this portfolio, Tev-Tropin ® and Granix ® are sold in the United States, while others are distributed outside of the United States. As part of
these efforts we filed a BLA for our G-CSF product (Granix ® ) in 2009, which was approved by the FDA in 2012, and was launched in November 2013. While
regulations are still being developed by the FDA relating to the Biologics Price Competition and Innovation Act of 2009, which created a statutory pathway for the
approval of biosimilar versions of brand-name biological products and a process to resolve patent disputes, the FDA issued three substantial draft guidance documents
in February 2012 that are intended to provide a roadmap for development of biosimilar products. These draft guidance documents address quality considerations,
scientific considerations and questions and answers regarding commonly posed issues.
Healthcare Reform and Certain Government Programs
In early 2010, the United States Congress enacted the Patient Protection and Affordable Care Act (the “PPACA”). The PPACA seeks to reduce the federal
deficit and the rate of growth in health care spending through, among other things, stronger prevention and wellness measures, increased access to primary care,
changes in healthcare delivery systems and the creation of health insurance exchanges. Enrollment in the health insurance exchanges began in October 2013. The
PPACA requires the pharmaceutical industry to share in the costs of reform, by, among other things, increasing Medicaid rebates and expanding Medicaid rebates to
cover Medicaid managed care programs. Other components of healthcare reform include funding of pharmaceutical costs for Medicare patients in excess of the
prescription drug coverage limit and below the catastrophic coverage threshold. Under the PPACA, pharmaceutical companies are now obligated to fund 50% of the
patient obligation for branded prescription pharmaceuticals in this gap, or “donut hole.” Additionally, commencing in 2011, an excise tax was levied against certain
branded pharmaceutical products. The tax is specified by statute to be approximately $3 billion in 2012 through 2016, $3.5 billion in 2017, $4.2 billion in 2018, and
$2.8 billion each year thereafter. The tax is to be apportioned to qualifying pharmaceutical companies based on an allocation of their governmental programs as a
portion of total pharmaceutical government programs.
The Centers for Medicare & Medicaid Services (“CMS”) administer the Medicaid drug rebate program, in which pharmaceutical manufacturers pay quarterly
rebates to each state Medicaid agency. Generally, for generic
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drugs marketed under ANDAs, manufacturers (including Teva) are required to rebate 13% of the average manufacturer price, and for products marketed under NDAs or
BLAs, manufacturers are required to rebate the greater of 23.1% of the average manufacturer price or the difference between such price and the best price during a
specified period. An additional rebate for products marketed under NDAs or BLAs is payable if the average manufacturer price increases at a rate higher than inflation,
and other methodologies apply to new formulations of existing drugs.
In addition, the PPACA revised certain definitions used for purposes of calculating the rebates, including the definition of “average manufacturer price.” CMS
has proposed, but not yet finalized, a regulation implementing aspects of the PPACA in the Medicaid drug rebate program.
Various state Medicaid programs have implemented voluntary supplemental drug rebate programs that may provide states with additional manufacturer rebates
in exchange for preferred status on a state’s formulary or for patient populations that are not included in the traditional Medicaid drug benefit coverage.
Europe
General
In Europe, marketing authorizations for pharmaceutical products may be obtained either through a centralized procedure involving the EMA, or a mutual
recognition procedure which requires submission of applications in other member states following approval by a so-called reference member state, or a decentralized
procedure that entails simultaneous submission of applications to chosen member states.
During 2014, we continued to register products in the EU, using both the mutual recognition procedure and the decentralized procedure. We continue to use the
centralized procedure to register our generic equivalent version of reference products that originally used this procedure.
The European pharmaceutical industry is highly regulated and much of the legislative and regulatory framework is driven by the European Parliament and the
European Commission. This has many benefits, including the potential to harmonize standards across the complex European market, but it also has the potential to
create difficulties affecting the whole of the European market.
Some elements of the European Falsified Medicines Directive were enacted into national laws during 2013. The provisions of the Directive are intended to
reduce the risk of counterfeit medicines entering the supply chain and also to ensure the quality of API manufactured outside of the EU. Teva worked diligently at the
European and country levels to ensure there was no disruption to the supply chain and safeguarded supplies of medicines to the patients who depend on them.
The requirements deriving from European pharmacovigilance legislation are constantly expanding due to an increasing number of guidances on Good Vigilance
Practices and increased communication on inspectors’ expectations. While these new requirements are in the interest of patient safety and transparency, they are an
increasing administrative burden, which drives our costs and headcount to be higher. In the fourth quarter of 2014, pharmacovigilance fee legislation became effective,
which includes (i) a per license fee that is intended for the maintenance of the European Pharmacovigilance System; and (ii) a per activity fee, for the assessment of
pharmacovigilance safety evaluation reports, study protocols for post authorization safety studies and referrals.
The procurement model in parts of Europe for the supply of important secondary care products such as oncology injectable medicines creates a challenge for
governments and the pharmaceutical industry. We do everything we can to supply medicines for life-threatening conditions, while at the same time the market creates
few incentives for us to do so. Until the procurement model recognizes that stability and sustainability, and the need to allow manufacturers to earn a return on their
investment, are important components in purchasing
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decisions, shortages will be almost impossible to avoid. In 2014, we declined to participate in certain tenders and ended our supply in others since the procurement
model for this segment was not sustainable. If the situation remains unchanged, we may withdraw certain products from the market because they are commercially
nonviable. We continue to work with governments and our customers on ensuring that the patient’s needs are protected, but we believe that governments can do more to
ensure security of supply by creating adequate incentives for manufacturers to maintain manufacturing capacity.
European Union
The medicines regulatory framework of the EU requires that medicinal products, including generic versions of previously approved products and new strengths,
dosage forms and formulations of previously approved products, receive a marketing authorization before they can be placed on the market in the EU. Authorizations
are granted after a favorable assessment of quality, safety and efficacy by the respective health authorities. In order to obtain authorization, application must be made to
the EMA or to the competent authority of the member state concerned. Besides various formal requirements, the application must contain the results of pharmaceutical
(physico-chemical, biological or microbiological) tests, pre-clinical (toxicological and pharmacological) tests and clinical trials. All of these tests must have been
conducted in accordance with relevant European regulations and must allow the reviewer to evaluate the quality, safety and efficacy of the medicinal product.
During 2014, we continued to register products in the EU, using both the mutual recognition procedure (submission of applications in other member states
following approval by a so-called reference member state) and the decentralized procedure (simultaneous submission of applications to chosen member states). We
continue to use the centralized procedure to register our generic equivalent version of reference products that originally used this procedure.
In 2005, a legal pathway was established to allow approval of Similar Biological Medicinal Products (“biosimilars”) using abbreviated marketing applications.
Appropriate tests for demonstration of safety and efficacy include preclinical or clinical testing or both. The reference product for this testing is the brand-name drug,
and the scientific principles and regulatory requirements for comparability are followed. Guidelines have been issued providing a more detailed interpretation of the
data requirements for specific products, and further guidance is being developed by the respective authorities in conjunction with the pharmaceutical industry.
In order to control expenditures on pharmaceuticals, most member states of the EU regulate the pricing of such products and in some cases limit the range of
different forms of a drug available for prescription by national health services. These controls can result in considerable price differences among member states.
In addition to patent protection, exclusivity provisions in the EU may prevent companies from applying for marketing approval for a generic product for six,
eight or ten years from the date of the first market authorization of the original product in the EU. The new legislation, applicable to all members of the EU, changes
and harmonizes the exclusivity period for new products where the application for marketing approval was submitted after October 2005 for products filed via the
national pathway or November 2005 for products filed via the centralized procedure. The period before marketing approval for a generic product can be pursued
(known as data exclusivity) is eight years (from either six or ten years before) following approval of the reference product in the EU. Further, the generic product will
be barred from market entry (marketing exclusivity) for a further two years, with the possibility of extending the market exclusivity by one additional year under certain
circumstances for novel indications. Given that reference products submitted after October or November 2005 will take at least one year to be assessed and approved,
the 2005 exclusivity provisions of “8+2+1” years will affect only generic submissions for marketing approval in late 2014 onwards.
The term of certain pharmaceutical patents may be extended in the EU by up to five years upon grant of Supplementary Patent Certificates (“SPC”). The purpose
of this extension is to increase effective patent life (i.e., the period between grant of a marketing authorization and patent expiry) to 15 years.
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Subject to the respective pediatric regulation, the holder of an SPC may obtain a further patent term extension of up to six months under certain conditions. This
six-month period cannot be claimed if the license holder claims a one-year extension of the period of marketing exclusivity based on the grounds that a new pediatric
indication brings a significant clinical benefit in comparison with other existing therapies.
Orphan designated products, which receive, under certain conditions, a blanket period of ten years of market exclusivity, may receive an additional two years of
market exclusivity instead of an extension of the SPC if the requirements of the pediatric regulation are met.
The legislation also allows for research and development work during the patent term for the purpose of developing and submitting registration dossiers.
Rest of the World Markets
Russia
Implementation of the 2020 pharmaceutical sector strategy continues to be a priority task of the Russian government. The strategy emphasizes localization of
production and aims to harmonize the Russian pharmaceutical regulations with international principles and standards.
Russia’s pricing regulations, which took effect in 2010, impose price restrictions and mark-up regulation on pharmaceuticals listed on the Essential Drug List
(“EDL”). In accordance with this legislation, EDL manufacturers cannot sell pharmaceuticals listed on the EDL unless their prices have been registered with the
healthcare regulator. Prices are registered in Russian rubles. Local manufacturers are entitled to annual price reviews; however there is currently no procedure for
adjusting the prices of foreign manufacturers to inflation or other cost increases.
As part of the sector strategy, prescription of pharmaceuticals based on INN has been mandatory since 2013, and cGMP requirements became effective in
January 2014.
Various proposals for incentives to support local manufacturing are currently being considered by the Russian government. In particular, it is expected that
starting from 2015, foreign-made products may be deemed ineligible under the Russian procurement system if at least two locally manufactured analogous products are
available. Amendments to the healthcare legislation, including with respect to obtaining marketing authorizations and compliance rules on interaction with healthcare
professionals, are also expected in 2015.
Japan
The registration of existing or new generic drugs in Japan is subject to Pharmaceutical and Medical Device Agency approval and requires carrying out local
bioequivalence studies, as well as upholding stringent quality, stability and stable supply requirements. Generic prices are regulated by the Ministry of Health, Labor
and Welfare and are set at 50%-60% of the equivalent branded drug prices (which was revised in April 2014 from 60%-70%), depending on the number of competitors.
Generic drug prices are company specific, reflecting the actual net selling price by a company and are subject to ongoing price reductions of approximately 8-10%
every two years.
The Japanese government provides comprehensive healthcare coverage, and the majority of healthcare expenditure is funded by the government. In order to
control growing healthcare costs, beginning in 2008 the Japanese regulator adopted a coordinated policy to promote the use of generic drugs by utilizing a series of
targeted incentive programs. The government’s stated goal is to reach at least 60% generic penetration in 2018. In April 2010 and 2012, new financial incentive
schemes were established, encouraging pharmacies to substitute generic drugs for branded ones and doctors to prescribe generic drugs. The next reform, which is
currently scheduled for April 2016, is likely to further increase generic penetration.
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Canada
The Canadian Federal Government, under the Food and Drugs Act and the Controlled Drug and Substances Act, regulates the therapeutic products that may be
sold in Canada and the applicable level of control. The Therapeutic Products Directorate (“TPD”) is the national authority that evaluates and monitors the safety,
effectiveness and quality of drugs, medical devices and other therapeutic products. The TPD requires companies to make an abbreviated new drug submission in order
to receive approval to manufacture and market generic pharmaceuticals.
The issuance of a market authorization or “Notice of Compliance” is subject to the Food and Drug Regulations, which provide, among other things, up to eight
and one-half years of data exclusivity for innovative new drugs not previously approved for sale in Canada. Issuance of a Notice of Compliance for generic drug
products is also subject to the Patented Medicines (Notice of Compliance) Regulations under the Patent Act. The TPD will not issue a Notice of Compliance if there are
any relevant patents listed on the Patent Register maintained by Health Canada, which were listed prior to the filing of the generic submission. Generic pharmaceutical
manufacturers can serve a Notice of Allegation (“NOA”) upon the brand company and, as is frequently the case, the brand company may commence litigation in
response to the NOA. In such cases a Notice of Compliance will not be issued until the earlier of the expiration of the automatic 24-month stay or resolution of the
litigation in the generic company’s favor.
Every province in Canada offers a comprehensive public drug program for seniors, persons on social assistance, low-income-earners, and those with certain
specified conditions or diseases, and regulates the reimbursement price of drugs listed on their formularies. Formulary listings are also used by private payors to
reimburse generic products. To be listed in a provincial formulary, drug products must have been issued an NOC and must comply with each jurisdiction’s individual
review process. Most provinces in Canada have implemented price reforms aimed at reducing the reimbursement price of generic products. Canadian provinces have
been working separately and collectively to effect price reforms on a select number of high volume generic products. Ontario and Quebec which represent 60% of the
Canadian market, have implemented regulations limiting trade allowances paid to pharmacy customers and Quebec requires generic companies to report the details of
all such transactions.
Facilities, procedures, operations and/or testing of products are subject to periodic inspection by Health Canada and the Health Products and Food Branch
Inspectorate. In addition, Health Canada conducts pre-approval and post-approval reviews and plant inspections to determine whether systems are in compliance with
the good manufacturing practices in Canada, Drug Establishment Licensing requirements and other provisions of the Food and Drug Regulations. Competitors are
subject to similar regulations and inspections.
Miscellaneous Regulatory Matters
We are subject to various national, regional and local laws of general applicability, such as laws regulating working conditions. In addition, we are subject to
various national, regional and local environmental protection laws and regulations, including those governing the emission of material into the environment.
Data exclusivity provisions exist in many countries worldwide and may be introduced in additional countries in the future, although their application is not
uniform. In general, these exclusivity provisions prevent the approval and/or submission of generic drug applications to the health authorities for a fixed period of time
following the first approval of the brand-name product in that country. As these exclusivity provisions operate independently of patent exclusivity, they may prevent the
submission of generic drug applications for some products even after the patent protection has expired.
ITEM 4A:
UNRESOLVED STAFF COMMENTS
None.
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ITEM 5:
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Introduction
Overview
We are a global pharmaceutical company, committed to increasing access to high-quality healthcare by developing, producing and marketing affordable generic
medicines and a focused portfolio of specialty pharmaceutical products. We operate in pharmaceutical markets worldwide, with major operations in the United States,
Europe and other markets. As the world’s leading generic medicines company with a strong specialty medicines portfolio, we are strategically positioned to benefit
from ongoing changes in the global healthcare environment.
We seek to address unmet patient needs while capitalizing on evolving market, economic and legislative dynamics in global healthcare. These dynamics include
the aging population, increased spending on pharmaceuticals in emerging markets, economic pressure on governments and private payors to provide accessible
healthcare solutions, legislative and regulatory reforms, an increase in patient awareness and the growing importance of OTC medicines.
We believe that our dedicated leadership and employees, world-leading generics expertise and portfolio, focused specialty portfolio, OTC joint venture with
P&G, global reach, API production capability, integrated R&D capabilities and global infrastructure and scale position us to take advantage of opportunities created by
these dynamics.
Segments
We operate our business in two segments:
•
Generic medicines, which include chemical and therapeutic equivalents of originator medicines in a variety of dosage forms, including tablets,
capsules, injectables, inhalants, liquids, ointments and creams. We are the leading generic drug company in the United States and Europe, and we
have a significant or growing presence in our ROW markets. We are also one of the world’s leading manufacturers of APIs.
•
Specialty medicines, which include several franchises, most significantly our core therapeutic areas of CNS medicines such as Copaxone ® , Azilect ®
and Nuvigil ® and of respiratory medicines such as ProAir ® HFA and QVAR ® . Our specialty medicines segment includes other therapeutic areas,
such as oncology, women’s health and selected other areas.
In addition to these two segments, we have other activities, primarily PGT Healthcare, our OTC joint venture with P&G.
Strategy
In 2014, we began a process of re-defining and re-focusing our business strategy to better leverage our strengths and differentiate ourselves in the pharmaceutical
market. We seek to capitalize on our advantages—including the largest generic medicines business in the world, a focused specialty business, a unique OTC business
and our integrated R&D and API capabilities—to provide patients with comprehensive, outcome-focused solutions. Underlying our strategy is our heightened focus on
profitable and sustainable business.
The key elements of our strategy consist of:
•
Solidifying our foundation and driving organic growth. We are solidifying the core foundations of our generics and specialty businesses to create
additional value from our existing operations. We seek to drive organic growth in our generics business by emphasizing markets where we have or
are pursuing leadership positions, and by shifting our generic pipeline and portfolio to include a larger proportion of complex products, with high
barriers to entry.
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•
Focusing on key growth markets. While we currently operate in numerous markets throughout the world, in 2015 we intend to concentrate our
efforts on a smaller number of large growth markets where we believe we can establish leadership positions. We are exploring both organic and
corporate development initiatives to achieve leadership position in these markets.
•
Maintaining Copaxone® and other key specialty products. We have enhanced our MS franchise through the introduction of our
three-times-a-week Copaxone ® 40 mg/mL product in the United States, and expect to launch Copaxone ® 40 mg/mL in certain European and other
countries in 2015. For many of our other specialty products, we are expanding into new markets, improving the products and taking further steps to
protect the franchise while creating value for patients and payors.
•
Solidifying leadership positions in our core therapeutic areas. We plan to focus on our core therapeutic areas of CNS (including MS,
neurodegenerative diseases and pain) and respiratory (including asthma and chronic obstructive pulmonary disease), establishing leadership positions
in such areas. In so doing, we will leverage our focused R&D efforts, new product submissions and strong execution of product launches. In addition,
in women’s health and oncology, where we have a significant commercial presence, we strive to maintain the existing franchises and may consider
business development opportunities to maximize sustainable profitability.
•
Pursuing strategic business development initiatives. We continue to pursue business development initiatives across all our activities. As part of
these initiatives, we will continue to evaluate opportunities for joint ventures, collaborations and other commercially-oriented activities.
•
Executing on our cost reduction program. We are focused on the continued execution of our sustainable efficiency program, which includes
improvements in the operational efficiency of our production plants, in our global procurement activities, and others.
Highlights
Significant highlights of 2014 included:
•
Our revenues amounted to $20.3 billion, flat compared to 2013, as the decline in sales of OTC as well as generic medicines was offset by higher
revenues of our specialty medicines. Excluding the impact of the sale of our U.S. OTC plants and of foreign exchange fluctuations, revenues grew
2%.
•
Our generic medicines segment generated revenues of $9.8 billion and profit of $2.1 billion, down 1% and up 29%, respectively. The decline in
revenues was due to lower sales in the European and ROW markets, largely offset by higher sales in the United States. The increase in profit resulted
from lower S&M expenses and higher gross profit.
•
Our specialty medicines segment generated revenues of $8.6 billion and profit of $4.6 billion, up 2% and 1%, respectively. Specialty revenues were
up mainly due to higher sales of Nuvigil ® , Treanda ® and Azilect ® , which were partially offset by the decline in Copaxone ® and QVAR ® sales.
Profit was impacted by higher S&M expenses in support of product launches.
•
According to December 2014 IMS data, Copaxone® 40 mg/mL accounted for over 60% of total Copaxone® prescriptions in the United States. We
expect to begin launching Copaxone ® 40 mg/mL in certain European and other countries during 2015.
•
G&A expenses amounted to $1.2 billion, down 2% compared to 2013, and net financial expenses amounted to
$313 million, down 22% compared to 2013.
•
Impairments, restructuring and others amounted to $650 million for the year, compared to $788 million in 2013. Legal settlements and loss
contingencies for the year amounted to a gain of $111 million, compared to an expense of $1.5 billion in 2013, which was mainly due to the
pantoprazole settlement.
•
Operating income amounted to $4.0 billion, an increase of 140% compared to 2013, mainly due to the change in legal settlements and loss
contingencies.
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•
Net income attributable to Teva in 2014 amounted to $3.1 billion, compared to $1.3 billion in 2013.
•
Cash flow from operating activities amounted to $5.1 billion, an increase of $1.9 billion compared to 2013.
For information regarding certain transactions, see note 2 of our consolidated financial statements.
Results of Operations
The following table sets forth, for the periods indicated, certain financial data derived from our U.S. GAAP financial statements, presented as percentages of net
revenues, and the percentage change for each item as compared to the previous year.
Percentage of Net Revenues
Year Ended December 31,
2014
2013
2012
%
%
%
Net revenues
Gross profit
Research and development expenses
Selling and marketing expenses
General and administrative expenses
Impairments, restructuring and others
Legal settlements and loss contingencies
Operating income
Financial expenses—net
Income before income taxes
Income taxes
Share in losses of associated companies—net
Net loss attributable to non-controlling interests
Net income attributable to Teva
100.0
54.5
7.3
19.0
6.0
3.2
(0.5)
19.5
1.6
17.9
2.9
*
(0.1)
15.1
100.0
52.7
7.0
20.1
6.1
3.9
7.5
8.1
2.0
6.1
(0.2)
0.2
(0.1)
6.2
Percentage Change
Comparison
2014-2013
2013-2012
%
%
100.0
52.4
6.7
19.1
6.1
6.2
3.5
10.8
1.9
8.9
(0.7)
0.2
(0.3)
9.7
**
3
4
(5)
(2)
(18)
n/a
140
(22)
191
n/a
(88)
(19)
141
**
1
5
5
**
(37)
112
(25)
3
(31)
(69)
(13)
(70)
(35)
* Represents an amount of less than 0.05%.
** Represents an amount of less than 0.5%.
Segment Information
Generic Medicines Segment
The following table presents revenues, expenses and profit for our generic medicines segment for the past three years:
2014
Generic Medicines
Year Ended December 31,
2013
U.S.$ in millions / % of Segment Revenues
2012
Revenues
Gross profit
R&D expenses
S&M expenses
$ 9,814
4,247
517
1,582
100.0%
43.3%
5.3%
16.1%
$ 9,902
4,079
492
1,919
100.0%
41.2%
5.0%
19.4%
$ 10,385
4,518
485
1,971
100.0%
43.5%
4.7%
19.0%
Segment profit*
$ 2,148
21.9%
$ 1,668
16.8%
$ 2,062
19.9%
* Segment profit is comprised of gross profit for the segment, less R&D and S&M expenses related to the segment. Segment profit does not include G&A expenses,
amortization and certain other items. See note 21 of our consolidated financial statements and “Operating Income” below for additional information.
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The data presented have been conformed to reflect the revised classification of certain of our products for all periods.
Revenues
Our generic medicines segment includes sales of generic medicines as well as API sales to third parties. Revenues from our generic medicines in 2014 amounted
to $9.8 billion, a decline of $88 million, or 1%, compared to 2013. In local currency terms, sales increased 1%.
Revenues of generic medicines in the United States, our largest generic market, amounted to $4.4 billion, an increase of $246 million, or 6%, compared to 2013,
representing 45% of total generics revenues in 2014. Revenues of generic medicines in Europe amounted to $3.1 billion, a decrease of $214 million, or 6%, compared
to 2013. In local currency terms, European sales decreased 7%. Revenues of generic medicines in Europe represented 32% of total generics revenues in 2014. In our
ROW markets, revenues from generic medicines in 2013 amounted to $2.2 billion, a decrease of 5% compared to 2013. In local currency terms, ROW sales increased
4%. Revenues from generic medicines in ROW markets represented 23% of total generics revenues in 2014.
API sales to third parties in 2014 amounted to $724 million, flat compared to 2013 in both U.S. dollar and local currency terms, mainly due to a decrease in sales
in Europe and in the United States, partially offset by an increase in Japan and in other ROW markets.
Comparison of 2013 to 2012. In 2013, revenues from generic medicines amounted to $9.9 billion, a decrease of 5% compared to $10.4 billion in 2012. In local
currency terms, revenues decreased 3%.
The following table presents generic segment revenues by geographic area for the past three years:
2014
Year Ended December 31,
2013
U.S. $ in millions
2012
Percentage Change
2014-2013
2013-2012
United States
Europe*
Rest of the World
$ 4,418
3,148
2,248
$ 4,172
3,362
2,368
$
4,381
3,482
2,522
6%
(6%)
(5%)
(5%)
(3%)
(6%)
Total Generic Medicines
$ 9,814
$ 9,902
$ 10,385
(1%)
(5%)
* All members of the European Union, Switzerland, Norway, Albania and the countries of former Yugoslavia.
United States Generic Medicines Revenues
In 2014, we led the U.S. generic market in total prescriptions and new prescriptions, with total prescriptions of approximately 500 million, representing 14.2% of
total U.S. generic prescriptions. We intend to continue our U.S. market leadership based on our ability to introduce new generic equivalents for brand-name products on
a timely basis, with a focus on complex generics and other high-barrier products that we believe will create more value for patients and customers, our strong emphasis
on customer service, the breadth of our product line, our commitment to quality and regulatory compliance and our cost-effective production.
Revenues from generic medicines in the United States in 2014 amounted to $4.4 billion, up 6% compared to $4.2 billion in 2013. The increase resulted mainly
from the 2014 exclusive launch of capecitabine (the generic equivalent of Xeloda ® ), the launch of omega-3-acid ethyl esters (the generic equivalent of Lovaza ® ) for
which we were first to market, and the launch of raloxifene (the generic equivalent of Evista ® ), as well as products that were sold in 2014 that were not sold in 2013.
These increases were partially offset by lower sales of the generic versions of Adderall IR ® (amphetamine salts IR), Pulmicort ® (budesonide inhalation) and Niaspan ®
(niacin ER).
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Among the most significant generic products we sold in the United States in 2014 were generic versions of Pulmicort ® (budesonide inhalation), Xeloda ®
(capecitabine), Lovaza ® (omega-3-acid ethyl esters), Niaspan ® (niacin ER), Adderall XR ® (mixed amphetamine salts ER), Evista ® (raloxifene), Pravachol ®
(pravastatin), Tobi ® (tobramycin) and Adderall ® (mixed amphetamine salts).
Comparison of 2013 to 2012. Total generic sales in the United States in 2013 amounted to $4.2 billion, down from $4.4 billion in 2012. This decrease was
mainly due to a decrease in sales of products for which we had exclusive rights in 2012 and the cessation of royalties of atorvastatin under our agreement with Ranbaxy.
Products. In 2014, we launched generic versions of the following branded products in the United States (listed by date of launch):
Generic Name
Brand Name
Metoclopramide for injection, USP 5 mg/mL, 10 mg **
Tolterodine tartrate ER capsules 2 & 4 mg
Fludarabine phosphate for injection 50mg/vial**
Moxifloxacin HCl tablets 400 mg
Capecitabine tablets 150 & 500 mg
Raloxifene HCl tablets 60 mg
Omega-3-acid ethyl esters capsules 1 g
Sulfamethoxazole and trimethoprim injection 80 mg/16 mg/mL**
Eszopiclone tablets 1, 2, & 3 mg
Dexmethylphenidate HCl extended release capsules 15 & 30 mg***
Estradiol and norethindrone acetate tablets (Mimvey Lo®) 0.5/0.1 mg
Fludarabine phosphate for injection 50 mg/2 mL**
Entecavir tablets 0.5 mg & 1 mg
Carboplatin for injection 10 mg/mL, 600 mg**
Dexmethylphenidate HCl ER capsules 5 mg***
Enoxaparin sodium for injection 100 mg/mL & 150 mg/mL
Amlodipine/valsartan/HCTZ tablets 5/160/12.5, 5/160/25 & 10/320/25 mg
Buprenorphine/naloxone sublingual tablets 2/0.5 & 8/2 mg
Celecoxib capsules 50, 100, 200 & 400 mg
Levalbuterol inhalation solution 0.25%
Nafcillin for injection 1 & 2 gm
*
**
***
Reglan®
Detrol®
—
Avelox®
Xeloda®
Evista®
Lovaza®
—
Lunesta®
Focalin XR®
Activella®
—
Baraclude®
Paraplatin®
Focalin XR®
Lovenox®
Exforge HCT®
Suboxone®
Celebrex ®
Xopenex®
—
Total Annual U.S.
Market at Time of
Launch
$ millions (IMS)*
Launch
Date
Jan-2014
Jan-2014
Jan-2014
Feb-2014
Mar-2014
Mar-2014
Apr-2014
Apr-2014
Apr-2014
May-2014
Jun-2014
Jul-2014
Sep-2014
Oct-2014
Nov-2014
Nov-2014
Dec-2014
Dec-2014
Dec-2014
Dec-2014
Dec-2014
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12
549
—
195
754
824
1,067
7
928
169
48
4
328
3
75
1,337
157
310
2,583
14
31
The figures given are for the twelve months ended in the calendar quarter closest to our launch or re-launch.
Products were re-launched.
Additional strengths.
We expect that our generic medicines revenues in the U.S. will continue to benefit from our strong generic pipeline, which, as of January 22, 2015, had 120
product registrations awaiting FDA approval, including 29 tentative approvals. Collectively, these 120 products had U.S. sales in 2014 exceeding $86 billion. Of these
applications, 87 were “Paragraph IV” applications challenging patents of branded products. We believe we are first to file with respect to 42 of these products, the
branded versions of which had U.S. sales of more than $31 billion in 2014. IMS 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.
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The FDA requires companies to submit abbreviated new drug applications (ANDAs) for approval to manufacture and market generic forms of brand-name
drugs. In most instances, FDA approval is granted upon the expiration of the underlying patents. However, companies may be rewarded with a 180-day period of
marketing exclusivity, as provided by law, for being the first generic applicant to successfully challenge these patents. As part of our strategy, we actively review
pharmaceutical patents and seek opportunities to challenge patents that we believe are either invalid or not infringed by our generic version. In addition to the
commercial benefit of obtaining marketing exclusivity, we believe that our patent challenges ultimately improve healthcare by allowing consumers earlier access to
more affordable, high-quality medications.
In 2014 we received, in addition to 22 final generic drug approvals, seven tentative approvals which remain tentative at December 31, 2014. A “tentative
approval” letter 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. The outstanding
tentative approvals received are for generic equivalents of the following products:
Generic Name
Brand Name
Amlodipine besylate/valsartan tablets 5/160, 10/160, 5/320 &
10 mg /320 mg
Olmesartan medoxomil/HCTZ tablets 20/12.5, 20/12.5 & 40 mg /25 mg
Rosuvastatin calcium tablets 5, 10, 20 & 40 mg
Fexofenadine/pseudoephedrine ER tablets 180 mg /240 mg
Eletriptan HB® tablets 20 & 40 mg
Abacavir/lamivudine tablets 600 mg / 300 mg
Olmesartan medoxomil tablets 5, 20 & 40 mg
Exforge®
Benicar HCT®
Crestor®
Allegra D®
Relpax®
Epzicom®
Benicar®
Total U.S. Annual Branded
Market $ millions (IMS)*
$
$
$
$
$
$
$
398
681
5,311
14
295
576
922
* The figures given are for the twelve months ended in the calendar quarter closest to the receipt of tentative approval.
Europe Generic Medicines Revenues
Teva defines its European region as the 28 countries in the European Union, Norway, Switzerland and Albania and the countries of the former Yugoslavia. It is a
diverse region that has a population of over 500 million people. Revenues presented include those from all 36 countries currently in our European region.
Revenues from generic medicines in Europe in 2014 amounted to $3.1 billion, a decrease of 6% compared to 2013. In local currency terms, revenues decreased
7%, mainly due to our focus on profitable business as well as market dynamics in certain countries including Germany, France and Spain. During 2014, the British
pound strengthened against the U.S. dollar, while the euro weakened towards the end of the year, and the Hungarian forint weakened against the U.S. dollar.
As in previous years, European regulatory measures aimed at reducing healthcare and drug expenditures have led to slower growth in the generic medicines
market, and have adversely affected our revenues in some markets. In Germany, Italy, France, Spain and Poland, governmental measures (such as tenders and
price-referencing) have reduced prices. We have adjusted our strategy to address these changes, shifting from a market share-driven approach to a model emphasizing
profitable and sustainable growth. Despite the decrease in revenues, the selective approach to our portfolio and price structuring, as well as our strong focus on cost
reduction, contributed to significantly improved segment profitability.
As of December 31, 2014, Teva had received 840 generic approvals in Europe relating to 132 compounds in 265 formulations, including three EMA approvals
valid in all EU member states. In addition, Teva had 2,072
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marketing authorization applications pending approval in 31 European countries, relating to 199 compounds in 408 formulations, including one application pending
with the EMA.
Listed below are generic revenues highlights for 2014 in our most significant European operations in terms of size:
•
Germany: Generic revenues in 2014 decreased 13% in U.S. dollar and in local currency terms. This decrease was due to our strategic focus on
sustainable and profitable business, leading to lower participation in the tender market, and due to the increasing pressure on prices in the retail
generics segment, mainly in the second half of 2014.
•
United Kingdom: Generic revenues in 2014 increased 1%, but decreased 4% in local currency terms, compared to 2013. The decrease in local
currency terms was primarily due to our focus on profitable business and our lower market share on some products that were impacted by supply
issues in the first half of the year. We maintained our position as the largest generic pharmaceutical company in the U.K.
•
Italy: Generic revenues in 2014 increased 12%, or 13% in local currency terms. The increase was primarily due to improvements in our supply
management during the year.
•
France: Generic revenues in 2014 decreased 12%. In local currency terms, generic revenues decreased 13% compared to 2013, due primarily to
increasing competition, the impact of regulatory changes in pharmacy discounting rules and our focus on profitable business.
•
Spain: Generic revenues in 2014 decreased 13% in U.S. dollars and local currency terms. The decrease was due mainly to the impact of the
implementation of new commercial policies, and the increasing scope of the tendering system in the Andalucía region, in which we chose not to
participate.
•
Switzerland: Generic revenues in 2014 increased 4%, or 2% in local currency terms. The increase was primarily due to higher volume in connection
with new product launches, partially offset by pricing pressure driven by increasing competition.
Comparison of 2013 to 2012. Total generic sales in Europe in 2013 amounted to $3.4 billion, down from $3.5 billion in 2012. In local currency terms, revenues
decreased 6%. The decrease was mainly due to lower revenues of both generic medicines and API.
ROW Generic Medicines Revenues
ROW markets include all countries other than the United States and those in our European region. Our key ROW markets are Japan, Russia and Canada. The
countries in this category range from highly regulated, pure generic markets such as Canada, to hybrid markets such as Japan and Brazil, to branded generics markets
such as Russia, certain Commonwealth of Independent States markets and Latin American markets.
In our ROW markets, generics revenues amounted to $2.2 billion, a decrease of 5% compared to 2013. In local currency terms, revenues increased 4%. The
increase in local currency terms was mainly due to higher revenues in certain Latin American markets and Canada, partially offset by lower revenues in Japan.
Listed below are generic revenues highlights for 2014 in our main ROW markets:
•
In Japan, our generic revenues in 2014 decreased 10%, or 3% in local currency terms, compared to 2013. Our results in Japan, in local currency
terms, mainly reflect the ongoing effects of certain quality and supply issues, which we experienced during 2013, as well as the impact of price
revisions by the National Health Insurance in April 2014. The Japanese generics market is expected to continue to grow, bolstered by new
government incentives to increase generic penetration.
•
Our generic medicines revenues in Russia in 2014 decreased 14%, but increased 3% in local currency terms, compared to 2013. The growth in local
currency terms was mainly attributable to higher sales of
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branded generics, partially offset by lower revenues from governmental tenders for generic products. We maintained our leading position in the
Russian generic pharmaceutical market.
•
In Canada, where we are one of the two leading generic pharmaceutical companies, generic revenues increased 5% in 2014, or 12% in local
currency terms, compared to 2013. The increase was primarily due to the reversal of a pricing reserve for a product sold in previous years, partially
offset by lower prices due to price reforms.
Comparison of 2013 to 2012. In 2013, generic medicines revenues in the ROW markets in 2013 were $2.4 billion, a decrease of 6% compared to 2012. In local
currency terms, revenues increased 4%. The increase in local currency terms was mainly due to higher revenues in several ROW markets, including Russia, partially
offset by lower revenues in Canada and Japan.
Generic Medicines Gross Profit
In 2014, gross profit from our generic medicines segment amounted to $4.2 billion, an increase of $168 million, or 4%, compared to $4.1 billion in 2013. The
higher gross profit was mainly a result of higher revenues in the United States, specifically of products launched during 2014 and in the second half of 2013, and higher
revenues in Canada, which led to higher gross profits, as well as higher gross profit from API sales to third parties. These increases were partially offset by lower
revenues in Europe and certain ROW markets, which led to lower gross profits.
Gross profit margin for our generic medicines segment in 2014 increased to 43.3%, from 41.2% in 2013. This increase in gross margin was mainly the result of
higher revenues, which led to higher gross profits in the United States and Canada (an aggregate increase of 2.5 points) as well as higher profitability of our European
markets and of our API sales to third parties (an aggregate increase of 0.7 points), partially offset by lower revenues, which led to lower gross profits in certain ROW
markets (a decrease of 0.8 points).
Comparison of 2013 to 2012. Generic medicines segment gross profit amounted to $4.1 billion in 2013, compared to $4.5 billion in 2012. Gross profit margin
was 41.2% in 2013, compared to 43.5% in 2012.
Generic Medicines R&D Expenses
Research and development expenses relating to our generic medicines in 2014 amounted to $517 million, an increase of 5% compared to $492 million in 2013.
The increase is mainly the result of higher investment in our U.S. portfolio and of development of complex generics for various markets. As a percentage of segment
revenues, R&D expenses were 5.3% in 2014, compared to 5.0% in 2013.
Our R&D activities for the generic medicines segment include both (a) direct expenses relating to product formulation, analytical method development, stability
testing, management of bioequivalence and other clinical studies, regulatory filings and other expenses relating to patent review and challenges prior to obtaining
tentative approval, and (b) indirect expenses such as costs of internal administration, infrastructure and personnel involved in generic R&D.
Generic Medicines S&M Expenses
Selling and marketing expenses related to our generic medicines in 2014 amounted to $1.6 billion, a decrease of 18% compared to $1.9 billion in 2013, mainly
due to lower expenses in Europe and certain ROW markets (including as a result of currency fluctuations), as well as lower royalty payments in the United States
mainly related to lower sales of our generic version of Pulmicort ® (budesonide inhalation).
As a percentage of segment revenues, selling and marketing expenses decreased to 16.1% in 2014 from 19.4% in 2013.
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Comparison of 2013 to 2012. Generic medicines S&M expenses in 2013 amounted to $1.9 billion, compared to $2.0 billion in 2012.
Generic Medicines Profit
The profit of our generic medicines segment is comprised of the gross profit for the segment, less selling and marketing expenses and research and development
expenses related to this segment. Segment profit does not include general and administrative expenses, amortization and certain other items. See note 21 of our
consolidated financial statements and “Operating Income” below for additional information.
Profit of our generic medicines segment amounted to $2.1 billion in 2014, compared to $1.7 billion in 2013. The increase was due to factors previously
discussed, primarily lower S&M expenses and higher gross profit, which were partially offset by an increase in R&D expenses.
Generic medicines profit as a percentage of generic medicines revenues was 21.9% in 2014, up from 16.8% in 2013. The increase was mainly due to lower S&M
expenses as a percentage of generic medicines revenues (increase of 3.3 points) as well as higher gross margin (increase of 2.1 points), partially offset by higher R&D
expenses as a percentage of generic medicines revenues (decrease of 0.3 points).
Comparison of 2013 to 2012. Generic medicines profit amounted to $1.7 billion in 2013, a decrease compared to $2.1 billion in 2012. In 2013, segment profit as
a percentage of revenues amounted to 16.8%, down from 19.9% in 2012.
Specialty Medicines Segment
The following table presents revenues, expenses and profit for our specialty medicines segment for the past three years:
2014
Specialty Medicines
Year Ended December 31,
2013
U.S.$ in millions / % of Segment Revenues
2012
Revenues
Gross profit
R&D expenses
S&M expenses
$ 8,560
7,457
881
2,001
100.0%
87.1%
10.3%
23.4%
$ 8,388
7,274
883
1,864
100.0%
86.7%
10.5%
22.2%
$ 8,150
7,173
793
1,686
100.0%
88.0%
9.7%
20.7%
Segment profit*
$ 4,575
53.4%
$ 4,527
54.0%
$ 4,694
57.6%
* Segment profit is comprised of gross profit for the segment, less R&D and S&M expenses related to the segment. Segment profit does not include G&A expenses,
amortization and certain other items. See note 21 of our consolidated financial statements and “Operating Income” below for additional information.
The data presented have been conformed to reflect the revised classification of certain of our products for all periods.
Revenues
Specialty medicines revenues in 2014 amounted to $8.6 billion, an increase of 2% compared to 2013. In the United States our specialty medicines revenues
amounted to $6.1 billion, an increase of 1% from 2013. Specialty medicines revenues in Europe amounted to $1.9 billion, an increase of 2% from 2013 in both U.S.
dollar and local currency terms. ROW revenues were
$552 million, an increase of 8%, or 23% in local currency terms, compared to 2013. Our specialty medicines segment also includes our NTE development program.
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Comparison of 2013 to 2012. In 2013, specialty medicines revenues amounted to $8.4 billion compared to $8.2 billion in 2012. United States revenues amounted
to $6.0 billion, an increase of 3% from 2012. Specialty medicines revenues in Europe amounted to $1.9 billion, an increase of 18%, or 15% in local currency terms,
over 2012. Specialty medicines revenues in our ROW markets in 2013 amounted to $509 million, a decrease of 29%, or 26% in local currency terms, over 2012.
The following table presents revenues by therapeutic area and key products for our specialty medicines segment for the past three years:
Specialty Medicines Revenues Breakdown
Percentage
Change
2014
Year Ended December 31,
2013
U.S. $ in millions
2012
Copaxone®
Azilect®
Nuvigil®
Oncology
Treanda®
Respiratory
ProAir®
QVAR®
Women’s Health
Other Specialty
$ 5,575
4,237
428
388
1,180
767
957
478
286
504
344
$ 5,545
4,328
371
320
1,005
709
964
429
328
510
364
$ 5,464
3,996
330
347
860
608
856
406
297
448
522
1%
(2%)
15%
21%
17%
8%
(1%)
11%
(13%)
(1%)
(5%)
1%
8%
12%
(8%)
17%
17%
13%
6%
10%
14%
(30%)
Total Specialty Medicines
$ 8,560
$ 8,388
$ 8,150
2%
3%
CNS
2014-2013
2013-2012
The data presented have been conformed to reflect the revised classification of certain of our products for all periods.
Central Nervous System (“CNS”)
Our CNS specialty product line includes Copaxone®, Azilect®, Nuvigil®, Fentora®, Amrix® and several other medicines. In 2014, our CNS sales amounted to $5.6
billion, an increase of 1% over 2013, primarily due to higher Azilect ® , Nuvigil ® , and Amrix ® revenues, partially offset by a decrease in revenues from Copaxone ®
and Fentora ® .
Copaxone®. In 2014, Copaxone® (glatiramer acetate injection) continued to be the leading multiple sclerosis therapy in the U.S. and globally, as we launched
Copaxone ® 40 mg/mL three times a week in the United States and migrated daily Copaxone ® 20 mg/mL users to this new version. As a result, over 60% of the total
Copaxone ® prescriptions are now filled with the 40 mg/mL version. Our sales of Copaxone ® amounted to $4.2 billion, a 2% decrease compared to 2013.
Copaxone® revenues in the United States in 2014 decreased 4% to $3.1 billion due to volume erosion attributable to oral competition, partially offset by price
increases during 2014. Our U.S. market shares in terms of new and total prescriptions were 25.9% and 31.5%, respectively, according to December 2014 IMS data.
Revenues in the United States accounted for 73% of global Copaxone® revenues in 2014, a decrease from 75% of global sales in 2013.
Our Copaxone® revenues outside the United States amounted to $1.1 billion during the year, 2% higher than 2013. In local currency terms, revenues grew 7%,
primarily due to the timing of tenders in Russia.
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Copaxone® was responsible for 21% of our revenues in 2014, and a significantly higher percentage contribution to our profits and cash flow from operations
during such period.
For further discussion on Copaxone®, see “Item 4- Specialty Medicines—Central Nervous System—Copaxone®.”
Comparison of 2013 to 2012. In 2013, global sales of Copaxone® were approximately $4.3 billion, an increase of 7% compared to global in-market sales in 2012.
U.S. revenues in 2013 accounted for 75% of global in-market sales of Copaxone ® . Until February 2012, global in-market sales included sales of Copaxone ® by both
Sanofi and Teva. In February 2012, we completed the assumption from Sanofi of the marketing and distribution rights of Copaxone ® . Therefore, commencing with the
second quarter of 2012, all global sales were made and recorded by Teva.
Azilect® global in-market sales, which represent sales by Teva and Lundbeck to third parties, amounted to $549 million in 2014 compared to $493 million in
2013, an increase of 11%. Our sales of Azilect ® amounted to $428 million in 2014, an increase of 15% compared to 2013. The increase in sales reflects both price
increases and volume growth in the United States, as well as volume growth in Europe.
Comparison of 2013 to 2012. In 2013, global in-market sales of Azilect amounted to $493 million, an increase of 17% compared to 2012. Our sales of Azilect ®
in 2013 amounted to $371 million, an increase of 12% compared to 2012.
Nuvigil® global sales in 2014 amounted to $388 million, compared to $320 million in 2013, mainly due to pricing fluctuations. Nuvigil ® ’s market share in terms
of total prescriptions of the U.S. wake category was 42.5% at the end of 2014.
Comparison of 2013 to 2012. In 2013, sales of Nuvigil® amounted to $320 million, a decrease of 8% compared to 2012.
Provigil® sales in 2014 amounted to $70 million, compared to $91 million in 2013.
Comparison of 2013 to 2012. In 2013, sales of Provigil® amounted to $91 million, a decrease of 78% compared to 2012. Provigil® began to face generic
competition in the United States in March 2012, which resulted in substantially decreased sales.
Respiratory
Our respiratory portfolio includes ProAir®, QVAR®, DuoResp Spiromax® and Qnasl®. Revenues from our specialty respiratory products decreased 1% in 2014 to
$1.0 billion, primarily due to lower sales of QVAR ® in Europe.
ProAir® HFA revenues in 2014 amounted to $478 million, an increase of 11% compared to 2013, mainly due to volume growth. ProAir ® maintained its
leadership in the Short Acting Beta Agonist market, with a market share of 57.0% in terms of total number of prescriptions during the fourth quarter of 2014, an
increase of 3.1 points compared to the fourth quarter of 2013.
QVAR® global revenues in 2014 amounted to $286 million, a decrease of 13% compared to 2013, due to pricing variances. QVAR ® maintained its second-place
position in the inhaled corticosteroids category in the United States, with a market share of 36.0% in terms of total number of prescriptions during the fourth quarter of
2014, an increase of 4.1 points compared to the fourth quarter of 2013.
Comparison of 2013 to 2012. In 2013, revenues of our respiratory products amounted to approximately $1.0 billion, compared to $856 million in 2012. This
increase was mainly due to increased sales in the United States and volume growth globally.
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Oncology
Our oncology portfolio includes Treanda®, Trisenox®, Granix® and Synribo® in the United States and Lonquex®, Tevagrastim ® /Ratiograstim ® , Myocet ® ,
Trisenox ® and Eporatio ® outside the United States. Sales of these products amounted to
$1.2 billion in 2014, compared to $1.0 billion in 2013. The increase resulted primarily due to our recently launched G-CSF products, Granix ® and Lonquex ® in the
United States and Europe as well as higher sales of Treanda ® .
Sales of Treanda® amounted to $767 million in 2014, compared to $709 million in 2013, primarily due to price increases in 2014.
Comparison of 2013 to 2012. In 2013, sales of our oncology product line reached $1.0 billion, an increase of 17% from
$860 million in 2012, primarily due to the increase in Treanda ® sales.
Women’s Health
Our women’s health portfolio includes ParaGard®, Plan B One-Step® OTC/Rx (levonorgestrel), and Zoely® along with a number of other local products that are
marketed in the United States, Europe and ROW. Women’s health results do not include generic women’s health products, sales of which are reported as part of our
generic medicines revenues.
Revenues from our global women’s health products amounted to $504 million in 2014, a decrease of 1% from $510 million in 2013. The effect of foreign
exchange fluctuations on revenues was negligible. The decrease in revenues is mainly due to lower U.S. sales of several women’s health products in the United States,
largely offset by higher U.S. sales of Paragard ® and Plan B One-Step ® .
Comparison of 2013 to 2012. In 2013, sales of our women’s health products amounted to $510 million, an increase of 14% from $448 million in 2012.
Specialty Medicines Gross Profit
In 2014, gross profit from our specialty medicines segment amounted to $7.5 billion, an increase of 3% compared to $7.3 billion in 2013. The higher gross profit
was mainly a result of higher sales.
Gross profit margin for our specialty medicines segment in 2014 was 87.1% compared to 86.7% in 2013. The slight increase in gross margin was mainly a result
of the higher sales of Treanda ® (an increase of 0.4 points) and improved margins of Copaxone ® (an increase of 0.2 points), partially offset by lower margins of some
of our respiratory products.
Comparison of 2013 to 2012. Specialty medicines segment gross profit amounted to $7.3 billion in 2013, compared to
$7.2 billion in 2012. Specialty medicines segment gross profit margin was 86.7% in 2013, compared to 88.0% in 2012.
Specialty Medicines R&D Expenses
Our specialty R&D activities focus primarily on product candidates in the CNS and respiratory therapeutic areas, with additional activities in specific areas that
fit our strategy. Research and development expenses relating to our specialty medicines in 2014 were $881 million, similar to $883 million in 2013, as higher
participation of third parties in R&D expenses and lower investments in our non-core therapeutic areas were offset by higher expenses related to our CNS pipeline. As a
percentage of segment revenues, R&D spending was 10.3% in 2014, compared to 10.5% in 2013.
Specialty R&D expenditures include upfront and milestone payments for products in the development phase, the costs of discovery research, preclinical
development, early- and late-clinical development and drug
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formulation, clinical trials, product registration costs, changes in contingent consideration resulting from acquisitions and other costs, and are reported net of
contributions received from collaboration partners. Our specialty R&D spending takes place throughout the development process, including (a) early-stage projects in
both discovery and preclinical phases; (b) middle-stage projects in clinical programs up to phase 3; (c) late-stage projects in phase 3 programs, including where an NDA
is currently pending approval; and (d) life cycle management and other studies for marketed products. Furthermore, our NTE R&D activities are managed and reported
as part of our specialty R&D expenses.
We consider phase 3, or late-stage development, to be our most significant R&D programs, as they could potentially affect revenues and earnings in the
relatively near future. In addition, we incur indirect expenses that support our overall specialty R&D efforts but are not allocated by product or to specific R&D
projects, such as the costs of internal administration, infrastructure and personnel. Our specialty segment R&D expenses include such unallocated expenses.
The following table presents the composition of our specialty R&D expenditures and the number of projects by stage of development:
2014
Expenditure
U.S.$ in
millions
Early stage*: discovery and pre-clinical
Middle stage: clinical up to phase 3
Late stage: phase 3, registration and
post-approval regulatory requirements
Unallocated R&D**
Total gross R&D expenses***
Total net R&D expenses
*
**
***
$
No. of
Projects as
of Dec. 31, 2014
71
130
N/A
21
420
311
27
932
881
2013
Expenditure
U.S.$ in
millions
$
No. of
Projects as
of Dec. 31, 2013
57
148
N/A
16
415
282
16
902
883
2012
Expenditure
U.S.$ in
millions
$
No. of
Projects as of
Dec. 31, 2012
77
228
N/A
18
324
254
19
883
793
Including early stage NTEs.
Unallocated R&D expenses are indirect expenses that support our overall specialty R&D efforts but are not allocated by product or to specific R&D projects,
such as the costs of internal administration, infrastructure and personnel.
Gross R&D expenses include the full cost of programs that are partially funded by third parties.
We recently changed the classification of certain of our products, which impacted the classification of related expenses. The data presented have been conformed
to reflect the revised classification.
Specialty Medicines S&M Expenses
S&M expenses related to our specialty medicines in 2014 amounted to $2.0 billion, compared to $1.9 billion in 2013.
As a percentage of segment revenues, selling and marketing expenses increased to 23.4% in 2014 from 22.2% in 2013.
The increase was primarily due to higher expenditures related to launches of new products such as DuoResp Spiromax ®, Lonquex® and Granix ® during 2014, as
well as preparation for additional product launches planned for 2015.
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Comparison of 2013 to 2012. Specialty medicines S&M expenses in 2013 amounted to $1.9 billion, compared to $1.7 billion in 2012. The increase was mainly
due to higher expenditures related to launches of new products.
Specialty Medicines Profit
The profit of our specialty medicines segment is comprised of the gross profit for the segment, less selling and marketing expenses and research and
development expenses related to this segment. Segment profit does not include general and administrative expenses, amortization and certain other items. See note 21 of
our consolidated financial statements and “Teva Consolidated Results—Operating Income” below for additional information.
Profit of our specialty medicines segment amounted to $4.6 billion in 2014, compared to $4.5 billion in 2013, an increase of 1%. This is a result of the factors
discussed above, namely higher gross profit, partially offset by higher S&M expenses.
Specialty medicines profit as a percentage of segment revenues was 53.4% in 2014, down from 54.0% in 2013, a decrease of 0.6 points. The decline was mainly
attributed to higher S&M expenses as a percentage of specialty medicines revenues (1.2 points), partially offset by higher gross profit (0.4 points) and by slightly lower
R&D expenses as a percentage of specialty medicines revenues (0.2 points), as discussed above.
Comparison of 2013 to 2012. Specialty medicines profit amounted to $4.5 billion in 2013, compared to $4.7 billion in 2012, a decrease of 4%. Specialty
medicines profit as a percentage of segment revenues was 54.0%, compared to 57.6% in 2012.
Our multiple sclerosis franchise includes our Copaxone® products and laquinimod (a developmental compound for the treatment of MS). The profit of our
multiple sclerosis franchise is comprised of Copaxone ® revenues and cost of goods sold as well as S&M and R&D expenses related to our MS franchise. It does not
include G&A expenses, amortization and certain other items. Our MS franchise profit was $3.2 billion, $3.3 billion and $3.0 billion in 2014, 2013 and 2012,
respectively. Profit of our multiple sclerosis franchise as a percentage of Copaxone ® revenues was 75.1%, 75.6% and 74.5% in 2014, 2013 and 2012, respectively.
Other Activities
In addition to our generic and specialty medicines segments, we have other activities, primarily PGT Healthcare, our OTC joint venture with P&G, distribution
services, primarily in Israel and Hungary, and sales of medical devices.
OTC
Our revenues from OTC products in 2014 amounted to $996 million, a decrease of 15%, compared to $1.2 billion in 2013, mainly due to the sale of our U.S.
OTC plants, previously purchased from P&G, back to P&G in July 2014. Our revenues related to PGT amounted to $897 million, a decrease of 1%, compared to
$910 million in the previous year. In local currency terms, revenues grew 5%. Revenues grew in all regions, except for a small decline in a few countries in Eastern
Europe.
PGT’s in-market sales in 2014 amounted to $1.5 billion. This amount represents sales of the combined OTC portfolios of Teva and P&G outside North America.
Revenues from the sales of OTC products in the United States to P&G, amounted to $99 million in 2014, compared to $254 million in 2013. The decrease was
due to the sale of the U.S. OTC plants noted above.
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Comparison of 2013 to 2012. In 2013, our OTC revenues were $1.2 billion, an increase of 24% over 2012 primarily due to increased commercial activities and
price increases.
Others
Other sources of revenue include sales of third party products for which we act as distributors (mostly in Israel and Hungary) and medical products, as well as
miscellaneous items.
In 2014, we recorded sales of $902 million, an increase of 5% compared to sales of $859 million in 2013.
Comparison of 2013 to 2012. In 2013, we recorded sales of $859 million, an increase compared to sales of $846 million in 2012.
Teva Consolidated Results
Revenues
Revenues in 2014 amounted to $20.3 billion, flat compared to 2013. In local currency terms, revenues increased 1%. Our revenues were positively affected by
higher sales of our specialty medicines, offset by lower revenues of our OTC and generic medicines. Please see “Specialty Medicines Revenues,” “Other
Activities—OTC” and “Generic Medicines Revenues” above. Exchange rate movements during 2014 in comparison to 2013 negatively impacted overall revenues by
approximately $346 million.
Comparison of 2013 to 2012. Revenues in 2013 amounted to $20.3 billion, flat compared to 2012 as higher revenues of our specialty medicines and OTC
products were offset by the decline in sales of generic medicines.
Gross Profit
In 2014, gross profit amounted to $11.1 billion, an increase of 3% compared to 2013.
The higher gross profit was mainly a result of factors previously discussed under “Generic Medicines Gross Profit” and “Specialty Medicines Gross Profit”
above. Gross profit was further affected by lower charges related to the amortization of purchased intangible assets, which were partially offset by higher costs related
to regulatory actions taken in facilities.
Gross profit as a percentage of revenues was 54.5% in 2014, compared to 52.7% in 2013.
The increase in gross profit as a percentage of revenues primarily reflects the higher profitability of our generic medicines segment (an increase of 1.1 points),
the lower amortization of purchased intangible assets (an increase of 0.7 points), the cessation of U.S. OTC manufacturing (an increase of 0.5 points) and the higher
profitability of our specialty medicines segment (an increase of 0.4 points), partially offset by lower income from other activities (a decrease of 0.4 points), lower sales
of OTC products (a decrease of 0.3 points), and costs related to regulatory actions taken in facilities (a decrease of 0.2 points).
Comparison of 2013 to 2012. Gross profit amounted in 2013 to $10.7 billion, an increase of 1% compared to 2012. Gross profit as a percentage of revenues was
52.7% in 2013, compared to 52.4% in 2012.
Research and Development (R&D) Expenses
Net research and development expenses for 2014, including the purchase of in-process R&D, were $1.5 billion, an increase of 4% compared to 2013. Specialty
R&D expenses were $881 million and generic R&D
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expenses were $517 million in 2014, compared to $883 million and $492 million, respectively, in 2013. As a percentage of revenues, R&D spending was 7.3% in 2014,
compared to 7.0% in 2013.
In 2014, our R&D expenses were primarily the result of the factors previously discussed under “Generic Medicines—R&D Expenses” and “Specialty
Medicines—R&D Expenses” above.
Comparison of 2013 to 2012. In 2013, R&D expenses amounted to $1.4 billion, an increase of 5% compared to 2012.
Selling and Marketing (S&M) Expenses
S&M expenses in 2014 amounted to $3.9 billion, a decrease of 5% over 2013. As a percentage of revenues, S&M expenses were 19.0% in 2014, compared to
20.1% in 2013.
In 2014, we decreased our S&M spending, primarily as a result of the factors discussed under “Generic Medicines S&M Expenses” and “Specialty Medicines
S&M Expenses” above.
Comparison of 2013 to 2012. S&M expenses in 2013 amounted to $4.1 billion, an increase of 5% over 2012. As a percentage of revenues, S&M expenses
increased from 19.1% in 2012 to 20.1% in 2013.
General and Administrative (G&A) Expenses
G&A expenses in 2014 amounted to $1.2 billion, a decrease of $22 million compared to 2013. As a percentage of revenues, G&A expenses were 6.0%,
compared to 6.1% in 2013.
Comparison of 2013 to 2012. G&A expenses in 2013 amounted to $1.2 billion, similar to 2012. As a percentage of revenues, G&A expenses were 6.1% in both
2013 and 2012.
Legal Settlements and Loss Contingencies
Legal settlements and loss contingencies for 2014 amounted to a gain of $111 million, compared to an expense of $1.5 billion in 2013. The 2014 amount is
comprised mainly of insurance proceeds relating to the settlement of the pantoprazole patent litigation.
Comparison of 2013 to 2012. Legal settlements and loss contingencies expenses in 2013 amounted to $1.5 billion, compared to $715 million in 2012. The
increase is mainly related to expenses in connection with the settlements of the pantoprazole and modafinil litigations.
Impairments, Restructuring and Others
Charges for impairments, restructuring and others amounted to $650 million in 2014, compared to $788 million for 2013.
Impairments
Impairment of long-lived assets in 2014 amounted to $387 million, comprised of:
1.
Property, plant and equipment—$163 million, based on management decisions regarding their expected use as a result of our planned network
rationalization program, which triggered a reassessment of fair value. In 2013, impairment of property, plant and equipment amounted to $61 million.
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2.
Identifiable intangible assets—$224 million:
a.
Product rights impairments of $116 million were recorded due to current market conditions and supply chain challenges in various markets.
Impairments of product rights for 2013 amounted to $227 million.
b.
In-process R&D impairments of $108 million are comprised mainly of a $102 million impairment of the MDT-637 development project following
the negative results of a Phase 2 trial. Impairment of in-process R&D for 2013 amounted to $166 million.
The carrying value as of December 31, 2014 of Teva’s in-process R&D asset Revascor® (mesynchymal precursor cells) is $258 million. This drug candidate is in
a Phase 3 trial for congestive heart failure. Adverse trial results may lead us to reevaluate the fair value of the asset, which may lead to impairment. Such a loss may also
lead us to reassess the current carrying value of our equity interest in Mesoblast Ltd., which is $295 million.
Restructuring
For the year ended December 31, 2014, Teva recorded $246 million of restructuring expenses, compared to $201 million in 2013. These expenses were primarily
incurred following various initiatives which are part of our cost reduction program.
In October 2013, management announced the acceleration of its company-wide multi-year cost-savings plan, which includes several initiatives, including a
reduction in the number of employees. Costs will continue to be incurred as the details of the plan are finalized and accounting criteria for expense recognition are met.
Comparison of 2013 to 2012. Impairments, restructuring and other expenses in 2013 amounted to $788 million, compared to $1.3 billion in 2012. The decrease
is mainly due to lower impairment expenses.
Operating Income
Operating income was $4.0 billion in 2014, up from $1.6 billion in 2013. As a percentage of revenues, operating income was 19.5% compared to 8.1% in 2013.
The increase in operating income was due to factors previously discussed, primarily income in 2014 compared to expenses in 2013 in connection with legal
settlements and loss contingencies, higher profit of all activities, lower amortization expenses, lower impairments, restructuring and others expenses as well as lower
G&A expenses.
The increase of 11.4 points in operating income as a percentage of revenues was mainly due to income in 2014 compared to expenses in 2013 in connection with
legal settlements (8.0 points), higher profit of all activities (2.6 points), lower amortization expenses (0.7 points), lower impairments, restructuring and others expenses
(0.7 points) as well as lower G&A expenses (0.1 points), partially offset by higher other unallocated expenses (0.7 points).
Comparison of 2013 to 2012. Operating income in 2013 amounted to $1.6 billion, compared to $2.2 billion in 2012. As a percentage of revenues, operating
income decreased to 8.1% in 2013 from 10.8% in 2012.
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The following table presents a reconciliation of our segments’ profits to Teva’s consolidated operating income for the past three years:
2014
Year Ended December 31,
2013
(U.S.$ in millions)
2012
$ 2,148
4,575
$ 1,668
4,527
$ 2,062
4,694
Total segment profit
Profit of other activities
6,723
226
6,195
242
6,756
197
Total profit
Amortization
General and administrative expenses
Impairments, restructuring and others
Legal settlements and loss contingencies
Other unallocated amounts
6,949
1,036
1,217
650
(111)
206
6,437
1,180
1,239
788
1,524
57
6,953
1,272
1,238
1,259
715
264
$ 1,649
$ 2,205
Generic medicines profit
Specialty medicines profit
Consolidated operating income
$ 3,951
Financial Expenses-Net
In 2014, financial expenses amounted to $313 million, compared to $399 million in 2013. The decrease is mainly due to prepayments of high interest rate debt
facilities in March 2013.
Comparison of 2013 to 2012. In 2013, financial expenses amounted to $399 million, compared to $386 million in 2012.
Teva operates in certain territories where the official exchange rates deviate significantly from unofficial market rates and remittance of cash outside the country
is limited. As a result, Teva is exposed to a potential income statement devaluation loss on its total monetary balances in these territories, which, as of December 31,
2014, amounted to approximately $274 million.
Tax Rate
In 2014, the provision for taxes amounted to $591 million, or 16% of pre-tax income of $3.6 billion. In 2013, the tax benefit amounted to $43 million, on pre-tax
income of $1.3 billion. In 2012, the tax benefit amounted to $137 million, on pre-tax income of $1.8 billion. The increase in our annual effective tax rate for 2014
resulted primarily from the expiration of the tax exemption we benefited from through the end of 2013, under the previous Israeli incentive regime, as further detailed
below. Furthermore, our tax rates for 2013 and 2012 were affected by the impact of impairment, restructuring and legal settlements charges, as well as mergers, on
non-Israeli subsidiaries that have tax rates above our average tax rate.
The statutory Israeli corporate tax rate is 26.5% in 2014, however, our effective consolidated tax rates have historically been, and continue to be this year, lower
than the statutory rate because of tax incentives we benefit from in Israel and other countries. Most of our investments in Israel were granted Approved Enterprise
status, which confers certain tax benefits. These benefits included a long-term tax exemption for undistributed income generated by such projects, effective until 2013,
and lower tax rates in 2014 and onwards, as described in “Item 10—Additional Information—Israeli Taxation.” We also benefit from other investment-related and
R&D-related tax incentives in many of our facilities around the world.
In the future, our effective tax rate is expected to fluctuate as a result of various factors, including changes in the product mix and geographical distribution of
our income, the effect of mergers and acquisitions, and the effects of statutes of limitations and legal settlements which may affect provisions for uncertain tax
positions.
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Net Income
Net income attributable to Teva in 2014 was $3.1 billion, compared to $1.3 billion in 2013. This increase was due to the factors previously discussed, primarily
our higher operating income, partially offset by higher tax expenses compared to tax benefits in 2013.
Comparison of 2013 to 2012. Net income attributable to Teva in 2013 amounted to $1.3 billion, compared to $2.0 billion in 2012. This decrease was primarily
due to our lower operating income as well as lower tax benefits.
Diluted Shares Outstanding and Earnings Per Share
During 2014, we repurchased approximately nine million shares at a weighted average price of $57.43 per share, for an aggregate purchase price of $0.5 billion.
These purchases were made pursuant to our share repurchase program, which was increased in October 2014 by $1.7 billion to $3 billion, with no time limits.
The average weighted diluted shares outstanding used for the fully diluted share calculation for 2014, 2013 and 2012 was 858 million, 850 million and
873 million shares, respectively.
The increase in number of shares outstanding compared to 2013 was mainly due to the issuance of shares for employee options exercised, in addition to higher
amounts of dilutive options, RSUs and convertible senior debentures, following an increase in share price. The increase was partially offset by the impact of the shares
repurchased during the fourth quarter of 2014. For additional information, see “Item 16E–Purchases of Equity Securities by the Issuer and Affiliated Purchasers” below.
At December 31, 2014, 2013 and 2012, the share count for calculating Teva’s market capitalization was approximately 852 million, 848 million and 857 million
shares, respectively.
Diluted earnings per share amounted to $3.56 in 2014, an increase of 139% compared to diluted earnings per share of $1.49 in 2013. Diluted earnings per share
amounted to $2.25 in 2012.
Impact of Currency Fluctuations on Results of Operations
Because our results are reported in U.S. dollars, changes in the rate of exchange between the U.S. dollar and the local currencies in the markets in which we
operate (primarily the euro, Israeli shekel, Russian ruble, Canadian dollar, British pound, Japanese yen and Hungarian forint) impact our results. During 2014, the
following main currencies relevant to our operations decreased in value against the U.S. dollar: the Russian ruble by 18%, the Canadian dollar by 7%, the Hungarian
forint by 3% and the Japanese yen by 9%, while the following currencies increased in value against the U.S. dollar: the British pound by 5% and the Israeli shekel by
2% (each on an annual average compared to annual average basis).
As a result, exchange rate movements during 2014 in comparison with 2013 negatively impacted overall revenues by approximately $346 million and reduced
our operating income by $114 million.
Comparison of 2013 to 2012. Exchange rate movements during 2013 in comparison with 2012 negatively impacted 2013 revenues by approximately $166
million and reduced our operating income for the year by $126 million.
Liquidity and Capital Resources
Total balance sheet assets amounted to $46.4 billion at December 31, 2014, compared to $47.5 billion at December 31, 2013. The decrease resulted mainly from
a decline in intangible assets due to amortization of
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product rights and impairments, lower inventory balances and a decrease in goodwill resulting mainly from foreign exchange fluctuations. This decrease was partially
offset by an increase in cash and financial assets.
Inventory balances at December 31, 2014 amounted to $4.4 billion, compared to $5.1 billion at December 31, 2013. The decrease resulted from foreign
exchange fluctuations as well as from lower inventory balances mainly in Israel, Japan, France and Canada.
Accounts receivable at December 31, 2014, net of sales reserves and allowances (“SR&A”), amounted to negative $0.4 billion, compared to $0.4 billion at
December 31, 2013. The negative balance is due to increases in sales reserves and allowances, primarily payments to be made to Medicaid.
We monitor macro-economic risks in certain emerging markets that are experiencing economic stress, focusing on Eastern Europe and Latin America, and are
taking action to limit our exposure in these regions.
Accounts payables and accruals decreased to $3.2 billion at December 31, 2014 compared to $3.3 billion at December 31, 2013.
Our working capital balance, which includes accounts receivable, inventories, deferred taxes and other current assets net of SR&A, accounts payable and other
current liabilities, was $1.6 billion at December 31, 2014, compared to $2.5 billion at December 31, 2013. The decrease in working capital is mainly due to the increase
in SR&A and a decrease in inventory, partially offset by a decrease in other accounts payable and accruals.
Investment in property, plant and equipment in 2014 amounted to $0.9 billion, compared to $1.0 billion in 2013. Depreciation amounted to $464 million in 2014,
compared to $458 million in 2013.
Cash and cash equivalents and short term and long term investments at December 31, 2014 amounted to $2.6 billion, compared to $1.2 billion at December 31,
2013. The increase was mainly due to cash flow generated from operating activities in 2014 net of cash used for capital investments of $4.3 billion and $0.5 billion of
proceeds from employee stock option exercises, partially offset by $1.2 billion of dividends paid, $1.2 billion debt repayment, $0.5 billion of share repurchases, as well
as $0.4 billion paid in connection with the Labrys and Nupathe acquisitions.
2014 Debt Movements
At December 31, 2014, our debt was $10.3 billion, a decrease of $1.9 billion compared to $12.2 billion at December 31, 2013, mainly due to debt repayments.
In March 2014, we repaid $750 million comprised of $500 million of LIBOR + 0.5% floating rate senior notes and $250 million of 1.7% senior notes, both
issued in March 2011.
In January 2014, we repaid $205 million of our revolving credit line. As of December 31, 2014, the credit line was unutilized.
2013 Debt Movements
In December 2013, we entered into a five-year Japanese yen 35 billion term loan credit agreement at Japanese LIBOR+0.3%.
In November 2013, we repaid $1.1 billion of the floating rate senior notes issued in November 2011 as part of the financing of the Cephalon acquisition.
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In May 2013, we repaid $200 million of the floating rate senior notes issued in November 2011 as part of the financing of the Cephalon acquisition.
In March 2013, we repaid an aggregate amount of approximately $750 million of debt, comprised of $500 million principal amount of 5.55% senior notes due
2016 and $248 million of the European Investment Bank floating rate loan due 2015.
In addition, in January 2013, we repaid $1 billion principal amount of our 1.7% senior notes due 2014.
Aggregate Debt
Our debt at December 31, 2014 is effectively denominated in the following currencies: 52% in U.S. dollars, 31% in euros, 13% in Japanese yen and 4% in Swiss
francs.
The portion of total debt classified as short term at December 31, 2014 was 17%, up from 15% at December 31, 2013. The increase is mainly due to
reclassification of the $1.0 billion principal amount of 3.0% fixed rate senior note, maturing in June 2015.
Our financial leverage decreased to 31% at December 31, 2014 from 35% at December 31, 2013.
Our average debt maturity increased from 6 years at December 31, 2013 to 6.4 years at December 31, 2014, as a result of short term debt repayment.
In December 2012, we entered into a five-year $3.0 billion unsecured syndicated credit facility. As of December 31, 2014, the credit facility remained unutilized.
In January 2014, we entered into a term loan facility agreement under which we could have drawn up to $1.0 billion with a term of five years. We did not utilize
the facility and the agreement was terminated in December 2014.
In January 2015, we repaid at maturity a €122 million European Investment Bank loan. The loan bore interest determined on the basis of 3 months EURIBOR
+1.0%.
Shareholders’ Equity
Our shareholders’ equity was $23.3 billion at December 31, 2014, compared to $22.6 billion at December 31, 2013. The increase resulted primarily from net
income attributed to Teva of $3.1 billion, $0.5 billion of proceeds from exercise of options and $0.2 billion of unrealized gain from derivative financial instruments,
partially offset by the negative impact of foreign exchange fluctuations of $1.4 billion, dividend payments of $1.2 billion, as well as share repurchases of $0.5 billion.
Exchange rates also had a significant impact on our balance sheet, as approximately 33% of our net assets (including both non-monetary and monetary assets)
were in currencies other than the U.S. dollar. When compared with the end of 2013, changes in currency rates had a negative impact of $1.4 billion on our equity as of
December 31, 2014, mainly due to the decrease in value against the U.S. dollar of: the Euro by 12%, the Russian ruble by 41%, the Polish zloty by 15%, the Hungarian
forint by 17%, the Chilean peso by 13%, the Ukrainian hryvnia by 48%, and the Canadian dollar by 8%. All comparisons are on the basis of end of year rates.
Cash Flow
Cash flow generated from operating activities for 2014 amounted to $5.1 billion, an increase of $1.9 billion compared to 2013. The increase was mainly due to
lower payments for legal settlements and Israeli tax
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settlements, insurance proceeds related to the pantoprazole settlement, and a decrease in accounts receivable net of SR&A, which were partially offset by lower income
from the securitization of certain accounts receivable.
During 2014, we paid the remaining $800 million related to our pantoprazole settlement.
Cash flow generated from operating activities in 2014, net of cash used for capital investments, amounted to $4.3 billion, compared to $2.3 billion in 2013. The
increase resulted mainly from higher cash flow generated from operating activities, along with lower capital expenditures.
In Europe, a significant portion of our profits is at risk due to the potential depreciation of the euro. We hedge part of the exposure resulting from the
strengthening of the U.S. dollar against the euro.
Dividends
We announced a dividend for the fourth quarter of 2014 of NIS 1.33 (33.8 cents according to the rate of exchange on February 3, 2015) per share, an increase of
10% from NIS 1.21, which was the dividend declared for the third quarter of 2014. The dividend payment for the fourth quarter of 2014, which is expected to take place
on March 3, 2015, will be made with respect to ADSs on the basis of the then current U.S. dollar-NIS exchange rate.
Commencing in April 2015, our dividends will be declared and paid in U.S. dollars.
Commitments
In addition to financing obligations under short-term debt and long-term senior notes and loans, debentures and convertible debentures, our major contractual
obligations and commercial commitments include leases, royalty payments, contingent payments pursuant to acquisition agreements and participation in joint ventures
associated with research and development activities.
We are committed to pay royalties to owners of know-how, partners in alliances and certain other arrangements and to parties that financed research and
development, 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 (1) infringement or violation of intellectual property or other rights of such
third party; or (2) 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.
Certain of our loan agreements and debentures contain restrictive covenants, mainly the requirement to maintain certain financial ratios. We are currently in
compliance with all applicable financial ratios.
Our principal sources of short-term liquidity are our existing cash investments, liquid securities, and available credit facilities; primarily our $3 billion
syndicated revolving line of credit, as well as internally generated funds, which we believe are sufficient to meet our on-going operating needs. Our cash in hand is
generally invested in bank deposits as well as liquid securities that bear fixed and floating rates.
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Supplemental Non-GAAP Income Data
The tables on the following pages present supplemental non-GAAP data, in U.S. dollar terms and as a percentage of revenues, which we believe facilitates an
understanding of the factors affecting our business. In these tables, we exclude the following amounts:
2014
Amortization of purchased intangible assets
Legal settlements and loss contingencies
Impairment of long-lived assets
Restructuring expenses
Costs associated with cancellation of R&D projects
Costs related to regulatory actions taken in facilities
Branded prescription drug fee
Other non-GAAP items
Accelerated depreciation
Purchase of research and development in process
Inventory step-up
Financial expense
Corresponding tax effect
Minority interest changes related to impairments of co-owned assets
1,036
(111)
387
246
79
75
40
17
12
—
—
7
(492)
—
Year Ended December 31,
2013
U.S. dollars in millions
1,180
1,524
524
201
—
43
—
63
9
5
—
110
(673)
—
2012
1,272
715
1,071
221
—
128
—
(33)
—
73
63
32
(798)
(36)
The data so presented—after these exclusions—are the results used by management and our board of directors to evaluate our operational performance, to
compare against work plans and budgets, and ultimately to evaluate the performance of management. For example, each year we prepare a detailed work plan for the
next fiscal year. This work plan is used to manage the business and is the plan against which management’s performance is measured. All such plans are prepared on a
basis comparable to the presentation below, in that none of the plans take into account those elements that are factored out in our non-GAAP presentations. In addition,
at quarterly meetings of the Board at which management provides financial updates to the Board, presentations are made comparing the current fiscal quarterly results
against: (a) the comparable quarter of the prior year, (b) the immediately preceding fiscal quarter and (c) the work plan. Such presentations are based upon the
non-GAAP approach reflected in the table below. Moreover, while there are always qualitative factors and elements of judgment involved in the granting of annual cash
bonuses, the principal quantitative element in the determination of such bonuses is performance targets tied to the work plan, and thus tied to the same non-GAAP
presentation as is set forth below.
In arriving at our non-GAAP presentation, we have in the past factored out items, and would expect in the future to continue to factor out items, that either have
a non-recurring impact on the income statement or which, in the judgment of our management, are items that, either as a result of their nature or size, could, were they
not singled out, potentially cause investors to extrapolate future performance from an improper base. While not all inclusive, examples of these items include: legal
settlements and reserves, purchase accounting expense adjustments related to acquisitions, including adjustments for write-offs of R&D in-process, amortization of
intangible assets and inventory “step-ups” following acquisitions; changes in the fair value of contingent consideration related to business combination; restructuring
expenses related to efforts to rationalize and integrate operations on a global basis; material tax and other awards or settlements—both in terms of amounts paid or
amounts received; impairment charges related to intangible and other assets such as intellectual property, product rights or goodwill; the income tax effects of the
foregoing types of items when they occur; and costs related to regulatory actions taken at our facilities (such as uncapitalized production costs, consulting expenses or
write-offs of inventory related to remediation). Included in restructuring expenses are severance, shut down costs, contract termination costs and other costs that we
believe are sufficiently large that their exclusion is important to understanding trends in our financial results.
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These data are non-GAAP financial measures and should not be considered replacements for GAAP results. We provide such non-GAAP data because
management believes that such data provide useful information to investors. However, investors are cautioned that, unlike financial measures prepared in accordance
with 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 these 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, such as the effects of acquisition,
merger-related, restructuring and other charges, and may not provide a comparable view of our performance to other companies in the pharmaceutical industry.
Investors should consider non-GAAP financial measures in addition to, and not as replacements for, or superior to, measures of financial performance
prepared in accordance with GAAP.
The following table presents the GAAP measures, related non-GAAP adjustments and the corresponding non-GAAP amounts for the applicable periods:
Year Ended
December 31, 2014
U.S. dollars and shares in millions
(except per share amounts)
GAAP
Gross profit1
Operating income1,2
Net income attributable to Teva1,2,3
Earnings per share attributable to Teva—diluted4
(1)
(2)
11,056
3,951
3,055
3.56
Non-GAAP
Adjustments
1,087
1,781
1,296
1.51
Amortization of purchased intangible assets
Costs related to regulatory actions taken in facilities
Accelerated depreciation
1,000
75
12
Gross profit adjustments
1,087
Legal settlements and loss contingencies
Impairment of long-lived assets
Restructuring and other expenses
Amortization of purchased intangible assets
(111)
387
382
36
694
Operating income adjustments
(3)
1,781
Tax effect and other items
Financial expense
(492)
7
Net income adjustments
(4)
1,296
The weighted average number of shares was 858 million for the year ended
December 31, 2014. Non-GAAP earnings per share can be reconciled with GAAP
earnings per share by dividing each of the amounts included in footnotes 1-3 above
by the applicable weighted average share number.
72
Non-GAAP
12,143
5,732
4,351
5.07
% of Net
Revenues
60%
28%
21%
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Year Ended
December 31, 2013
U.S. dollars and shares in millions
(except per share amounts)
GAAP
Gross profit1
Operating income1,2
Net income attributable to Teva1,2,3
Earnings per share attributable to Teva—diluted4
(1)
(2)
10,707
1,649
1,269
1.49
Non-GAAP
Adjustments
1,188
3,549
2,986
3.52
Amortization of purchased intangible assets
Costs related to regulatory actions taken in facilities
Accelerated depreciation
1,136
43
9
Gross profit adjustments
1,188
Legal settlements and loss contingencies
Impairment of long-lived assets
Restructuring and other expenses
Amortization of purchased intangible assets
1,524
524
269
44
2,361
Operating income adjustments
(3)
3,549
Tax effect and other items
Financial expense
(673)
110
Net income adjustments
(4)
2,986
The weighted average number of shares was 850 million for the year ended
December 31, 2013. Non-GAAP earnings per share can be reconciled with GAAP
earnings per share by dividing each of the amounts included in footnotes 1-3 above
by the applicable weighted average share number.
73
Non-GAAP
11,895
5,198
4,255
5.01
% of Net
Revenues
59%
26%
21%
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Year Ended
December 31, 2012
U.S. dollars and shares in millions
(except per share amounts)
GAAP
Gross profit1
Operating income1,2
Net income attributable to Teva1,2,3
Earnings per share attributable to Teva—diluted4
(1)
(2)
Non-GAAP
Adjustments
Non-GAAP
% of Net
Revenues
10,652
2,205
1,419
3,510
12,071
5,715
59%
28%
1,963
2.25
2,708
3.10
4,671
5.35
23%
Amortization of purchased intangible assets
Costs related to regulatory actions taken in facilities
Inventory step-up
1,228
128
63
Gross profit adjustments
1,419
Impairment of long-lived assets
Legal settlements and loss contingencies
Restructuring and other expenses
Amortization of purchased intangible assets
1,071
715
261
44
2,091
Operating income adjustments
(3)
3,510
Tax effect and other items
Financial expense
(834)
32
Net income adjustments
(4)
2,708
The weighted average number of shares was 873 million for the year ended
December 31, 2012. Non-GAAP earnings per share can be reconciled with GAAP
earnings per share by dividing each of the amounts included in footnotes 1-3 above
by the applicable weighted average share number.
Non-GAAP Effective Tax Rate
The provision for non-GAAP taxes for 2014 amounted to $1.1 billion on pre-tax non-GAAP income of $5.4 billion. The provision for taxes in the comparable
period of 2013 was $630 million on pre-tax income of $4.9 billion, and in 2012 was $661 million on pre-tax income of $5.4 billion. The non-GAAP tax rate for 2014
was 20%, compared to 13% in 2013 and 12% in 2012. The increase in our annual non-GAAP effective tax rate for 2014 resulted primarily from the expiration of the tax
exemption we benefited from through the end of 2013, under the previous Israeli incentive regime.
In the future, the effective tax rate is expected to fluctuate as a result of various factors, including changes in the products and geographical distribution of our
income, the effect of any mergers and acquisitions, and the effects of statutes of limitations and legal settlements which may affect provisions for uncertain tax
positions.
Trend Information
The following factors are expected to have an effect on our 2015 results:
•
the impact of currency fluctuations on revenues and net income, as well as on various balance sheet line items;
•
our continued focus on profit and profitability will continue to impact revenues;
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•
a decrease in sales of Copaxone® as a result of changes in the competitive landscape, including competition from oral medicines and the potential
introduction of a purported generic version in the United States;
•
a decrease in U.S. generic medicines revenues following the introduction of additional generic competition to Pulmicort ® in the U.S. market; and
•
substantial restructuring and impairment expenses relating to improvements in our production network, supply chain and resource deployment
processes.
For additional information please see “Item 4—Information on the Company” and elsewhere in this Item 5.
Off-Balance Sheet Arrangements
Except for securitization transactions, which are disclosed in note 17c to our consolidated financial statements, we do not have any material off-balance sheet
arrangements as defined in Item 5.E of Form 20-F.
Aggregated Contractual Obligations
The following table summarizes our material contractual obligations and commitments as of December 31, 2014:
Payments Due by Period
Total
Less than
1 year
1-3 years
More than
5 years
3-5 years
Long-term debt obligations, including estimated interest*
Operating lease obligations
Purchase obligations (including purchase orders)
$ 12,528
642
1,777
$
1,956
139
1,763
$
1,975
210
14
$
2,661
148
—
$
5,936
145
—
Total
$ 14,947
$
3,858
$
2,199
$
2,809
$
6,081
* Long term debt obligations mainly include senior notes and convertible senior debentures as disclosed in notes 12 and 13 to our consolidated financial statements.
The total gross amount of unrecognized tax benefits for uncertain tax positions was $713 million at December 31, 2014. 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 above
table. Correspondingly, it is hard to ascertain whether we will pay any significant amount related to these obligations within the next year.
We have committed to future expenditures relating to joint ventures in accordance with the terms of the applicable agreements, mainly our PGT venture.
However, the amounts of these future expenditures have not been predetermined, and are further subject to management approval.
We have committed to make potential future “milestone” payments to third parties under various agreements. Such payments are contingent upon the
achievement of certain regulatory milestones and sales targets. As of December 31, 2014, were all milestones and targets, for compounds in Phase 2 and more advanced
stages of development, to be achieved, the total contingent payments could reach an aggregate of up to approximately $2.4 billion. Such amount does not include
additional sales-based milestone payments or royalties. 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 above table.
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Critical Accounting Policies
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. To facilitate the understanding of our business activities, certain accounting policies that are more important to the portrayal of our financial condition and
results of operations and that require management’s subjective judgments are described below. We base our judgments on our experience and on various assumptions
that we believe to be reasonable under the circumstances. Please refer to note 1 to our consolidated financial statements for a summary of all of our significant
accounting policies.
Revenue Recognition and SR&A
Revenue is recognized from product sales, including sales to distributors when persuasive evidence of an arrangement exists, delivery has occurred, the selling
price is fixed or determinable and collectability is reasonably assured. This generally occurs when products are shipped and title risk and rewards for the products are
transferred to the customer.
Revenues from product sales are recorded net of provisions for estimated chargebacks, rebates, returns, cash discounts and other deductions, such as shelf stock
adjustments, which can be reasonably estimated. When sales provisions are not considered reasonably estimable by Teva, the revenue is deferred to a future period
when more information is available to evaluate the impact. These provisions primarily relate to sales of pharmaceutical products in the U.S.
Revenue resulting from the achievement of milestone events stipulated in agreements is recognized when the milestone is achieved. Milestones are based upon
the occurrence of a substantive element specified in the contract or as a measure of substantive progress towards completion under the contract.
Provisions for chargebacks, rebates including Medicaid and other governmental program discounts, and other promotional items, such as shelf stock
adjustments, are included in “SR&A” under “current liabilities.” These provisions are recognized concurrently with the sales of products. Provisions for doubtful debts
and prompt payment discounts are netted against “accounts receivable.”
We adjust these provisions in the event that it appears that the actual amounts may differ from the estimated provisions. The following briefly describes the
nature of each deduction and how provisions are estimated in our financial statements.
Rebates and Other Sales Reserves and Allowances:
Rebates and Other Sales Reserves and Allowances includes rebates for customer programs and government, shelf stock adjustments and other promotional
programs. Rebates represent the majority of the reserve.
Customer Volume Rebates. Rebates are primarily related to volume incentives and are offered to key customers to promote loyalty. These rebate programs
provide that, upon the attainment of pre-established volumes or the attainment of revenue milestones for a specified period, the customer receives a rebate. Since
rebates are contractually agreed upon, they are estimated based on the specific terms in each agreement. Externally obtained inventory levels are evaluated in relation
to estimates made for rebates payable to indirect customers.
Medicaid and Other Governmental Rebates. Pharmaceutical manufacturers whose products are covered by the Medicaid program are required to rebate to each
state a percentage of their average manufacturer’s price for the products dispensed. Many states have also implemented supplemental rebate programs that obligate
manufacturers to pay rebates in excess of those required under federal law. We
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estimate these rebates based on historical trends of rebates paid as well as on changes in wholesaler inventory levels and increases or decreases in sales. Included in the
2014 and 2013 provisions are estimates for the impact of changes to Medicaid rebates and associated programs related to U.S. healthcare reform.
Shelf Stock Adjustments. The custom in the pharmaceutical industry is generally to grant customers a shelf stock adjustment based on the customers’ existing
inventory contemporaneously with decreases in the market price of the related product. The most significant of these relate to products for which an exclusive or
semi-exclusive period exists. Provisions for price reductions depend on future events, including price competition, new competitive launches and the level of customer
inventories at the time of the price decline. We regularly monitor the competitive factors that influence the pricing of our products and customer inventory levels and
adjust these estimates where appropriate.
Other Promotional Arrangements. Other promotional or incentive arrangements are periodically offered to customers specifically related to the launch of
products or other targeted promotions. Provisions are made or expenses recorded in the period for which the customer earns the incentive in accordance with the
contractual terms.
Prompt Pay Discounts. Prompt pay discounts are offered to most customers to encourage timely payment. Discounts are estimated at the time of invoice based
on historical discounts in relation to sales. Prompt pay discounts are almost always utilized by customers. As a result, the actual discounts do not vary significantly
from the estimated amount.
Chargebacks. We have arrangements with various third parties, such as managed care organizations and drug store chains, establishing prices for certain of our
products. While these arrangements are made between us and the customers, the customers independently select a wholesaler from which they purchase the products.
Alternatively, certain wholesalers may enter into agreements with the customers, with our concurrence, which establishes the pricing for certain products which the
wholesalers provide. Under either arrangement, we will issue a credit (referred to as a “chargeback”) to the wholesaler for the difference between the invoice price to
the wholesaler and the customer’s contract price.
Provisions for chargebacks are the largest single component of our SR&A process, involving estimates of contract prices of over 1,300 products and multiple
contracts with multiple wholesalers. The provision for chargebacks varies in relation to changes in product mix, pricing and the level of inventory at the wholesalers
and therefore will not necessarily fluctuate in proportion to an increase or decrease in sales.
Provisions for estimating chargebacks are calculated using historical chargeback experience, or expected chargeback levels for new products. Chargeback
provisions are compared to externally obtained distribution channel reports for reasonableness. We regularly monitor the provision for chargebacks and make
adjustments when we believe that actual chargebacks may differ from estimated provisions. In addition, we consider current and expected price competition when
evaluating the provision for chargebacks.
Returns. Returns primarily relate to customer returns for expired products which the customer has the right to return up to one year following the expiration
date. Such returned products are destroyed, and credits and/or refunds are issued to the customer for the value of the returns. We record a reserve for estimated sales
returns in accordance with the “Revenue Recognition When Right of Return Exists” FASB pronouncement. The returns provision is estimated by applying a historical
return rate to the amounts of revenue estimated to be subject to returns. Revenue subject to returns is estimated based on the lag time from time of sale to date of
return. The estimated lag time is developed by analyzing historical experience. Lag times during 2014 and 2013 were estimated at approximately 24 months from the
date of sale. Additionally, we consider specific factors such as levels of inventory in the distribution channel, product dating and expiration, size and maturity of
launch, entrance of new competitors, changes in formularies or packaging and any changes to customer terms for determining the overall expected levels of returns.
SR&A for third-party sales of pharmaceutical products to U.S. customers at December 31, 2014 and 2013 were as set forth in the below table. Such sales
reserves and allowances to U.S. customers comprised over 80% of our total sales reserves and allowances as of December 31, 2014, with the balance primarily in
Canada and Germany.
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Sales Reserves and Allowances
Reserves
included in
Accounts
Receivable,
net
Balance at December 31, 2012
Provisions related to sales made in current year period
$
96
$
342
—
(342)
Provisions related to sales made in prior periods
Credits and payments
Balance at December 31, 2013
Chargebacks
$
96
Returns
(U.S. dollars in millions)
1,235
$
2,895
(9)
(3,091)
$
1,030
432
Rebates &
Other Sales
Reserves and
Allowances
$
210
63
(199)
$
506
2,195
Total
$
4,156
(54)
(3,854)
$
2,443
3,958
7,603
—
(7,486)
$
4,075
Provisions related to sales made in current year period
411
2
(393)
Provisions related to sales made in prior periods
Credits and payments
Balance at December 31, 2014
$
116
4,544
(7)
(4,503)
$
1,064
217
1
(203)
$
521
5,693
(91)
(4,636)
$
3,409
10,865
(95)
(9,735)
$
5,110
Reserves at December 31, 2014 increased by approximately $1,035 million compared to December 31, 2013. The most significant variance was an increase in
rebates and other sales reserves of approximately $965 million primarily related to an increase in customer rebates as a result of the shift in direct sales from the large
retailers to the wholesalers, as well as an increase in managed care rebates, and additional Medicaid and other governmental rebates related to the U.S. healthcare
reform and invoicing lags.
Actual inventory on hand with our customers may be higher or lower due to differences between actual and projected demand. We monitor inventory levels to
minimize risk of excess quantities. As is customary in the industry, we may provide additional incentives to wholesalers for the purchase of certain inventory items or in
relation to wholesale trade shows.
Expenses in Connection with Collaboration Agreements
Expenses incurred in relation to third party cooperation arrangements are recorded and generally included in cost of sales where the third party is a supplier of
product or related product components. In other cases, payments are generally considered marketing costs and are included in selling and marketing expenses. When
payments or royalties are received, they are included in revenue.
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 tax benefits recognized in the financial statements must be at least more likely than not of being
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
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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.
In future years we expect to have sufficient sources to fund our dividend distributions (from Approved Enterprise income available for distribution as a result of
the application of Amendment 69 and from other sources). Accordingly, deferred taxes have not been provided for tax-exempt income, as the Company intends to
permanently reinvest these profits and does not currently foresee a need to distribute dividends out of these earnings. Furthermore, we do not expect our non-Israeli
subsidiaries to distribute taxable dividends in the foreseeable future, as their earnings are needed to fund their growth, while we expect to have sufficient resources in
the Israeli companies to fund our 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.
Contingencies
The Company and its subsidiaries are involved in various patent, product liability, commercial, government investigations, environmental claims and other legal
proceedings that arise from time to time in the ordinary course of business. Except for income tax contingencies or contingent consideration acquired in a business
combination, Teva records accruals for these types of contingencies to the extent that Teva concludes their occurrence is probable and that the related liabilities are
estimable. When accruing these costs, the Company will recognize an accrual in the amount within a range of loss that is the best estimate within the range. When no
amount within the range is a better estimate than any other amount, the Company accrues for the minimum amount within the range. Teva records anticipated
recoveries under existing insurance contracts that are virtually certain of occurring at the gross amount that is expected to be collected. Legal costs are expensed as
incurred.
Inventories
Inventories are valued at the lower of cost or market. Cost of raw and packaging materials and purchased products is determined mainly on a “moving average”
basis; cost of finished products and products in process is calculated assuming normal manufacturing capacity of the production facilities and determined as follows: the
raw material and packaging component—mainly on a “moving average” basis; the capitalized production costs component—mainly on an average basis over the
production period.
Our inventories generally have a limited shelf life and are subject to impairment as they approach their expiration dates. We regularly evaluate the carrying value
of our inventories and when, in our opinion, factors indicate that impairment has occurred, we establish a reserve against the inventories’ carrying value. Our
determination that a valuation reserve might be required, in addition to the quantification of such reserve, requires us to utilize significant judgment. Although we make
every effort to ensure the accuracy of forecasts of future product demand, any significant unanticipated decreases in demand could have a material impact on the
carrying value of our inventories and reported operating results.
Our policy is to capitalize saleable product for unapproved inventory items when economic benefits are probable. We evaluate expiry, legal risk and likelihood
of regulatory approval on a regular basis. If at any time approval is deemed not to be probable, the inventory is written down to its net realizable value. To date,
inventory allowance adjustments in the normal course of business have not been material. However, from time to time, due to a regulatory action or lack of approval or
delay in approval of a product, we may experience a more significant impact.
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Long Lived Assets
Teva’s long-lived, non-current assets are comprised mainly of goodwill, identifiable intangible assets and property, plant and equipment. Teva reviews its
long-lived assets and performs detailed testing whenever potential impairment indicators are present. In addition, the Company performs impairment testing at the end
of each year for goodwill and identifiable indefinite life intangible assets.
Starting in 2015, the Company will change its annual goodwill impairment testing date from December 31 to October 1 of each year. This change will allow
Teva to complete the annual goodwill impairment test prior to the end of the annual reporting period, and thereby better align impairment testing procedures with the
Company’s budget and forecasting processes and with year-end financial reporting. Accordingly, management considers this accounting change preferable. We do not
expect this change to have a material effect on our valuation, nor to accelerate, delay, avoid, or trigger an impairment charge or result in adjustments to previously
issued financial statements.
Goodwill
Goodwill reflects the excess of the consideration paid or transferred plus the fair value of contingent consideration and any non-controlling interest in the
acquiree at the acquisition date over the fair values of the identifiable net assets acquired. The goodwill impairment test is performed according to the following
principles:
•
An initial qualitative assessment of the likelihood of impairment may be performed. If this step does not result in a more likely than not indication of
impairment, no further impairment testing is required. If it does result in a more likely than not indication of impairment, the impairment test is
performed.
•
In step one of the impairment test, Teva compares the fair value of the reporting units to the carrying value of net assets allocated to the reporting
units. If the fair value of the reporting unit exceeds the carrying value of the net assets allocated to that unit, goodwill is not impaired, and no further
testing is required. Otherwise, Teva must perform the second step of the impairment test to measure the amount of the impairment.
•
In the second step, the reporting unit’s fair value is allocated to all the assets and liabilities of the reporting unit, including any unrecognized
intangible assets, in a hypothetical analysis that simulates the business combination principles to derive an implied goodwill value. If the implied fair
value of the reporting unit’s goodwill is less than its carrying value, the difference is recorded as an impairment.
Identifiable intangible assets
Identifiable intangible assets are comprised of definite life intangible assets and indefinite life intangible assets.
Definite life intangible assets consist mainly of acquired product rights and other rights relating to products for which marketing approval was received from the
FDA or the equivalent agencies in other countries. These assets are amortized using mainly the straight-line method over their estimated period of useful life, or based
on economic effect models, if more appropriate, which is determined by identifying the period 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.
For definite life intangibles, whenever impairment indicators are identified, Teva reconsiders the asset’s estimated life, calculates the undiscounted value of the
asset’s cash flows and compares such value against the asset’s carrying amount. If the carrying amount is greater, Teva records an impairment loss for the excess of
book value over fair value based on the discounted cash flows.
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Indefinite life intangible assets are mainly comprised of research and development in-process. Teva monitors development for any triggering events. Annually or
when triggering events are present, Teva determines the fair value of the asset based on discounted cash flows on and records an impairment loss if book value exceeds
fair value.
Research and development in-process acquired in a business combination is capitalized as an indefinite life intangible asset until the related research and
development efforts are either completed or abandoned. In the reporting period where they are treated as indefinite life intangible assets, they are not amortized but
rather are monitored and tested for impairment. Upon completion of the related research and development efforts, management determines the useful life of the
intangible assets and amortizes them accordingly. In case of abandonment, the related research and development assets are impaired.
Property, plant and equipment
Property, plant and equipment are stated at cost, after deduction of the related investment grants, and depreciated using the straight-line method over the
estimated useful life of the assets: buildings, mainly 40 years; machinery and equipment, mainly between 15 to 20 years; and other assets, between 5 to 10 years.
For property, plant and equipment, whenever impairment indicators are identified, Teva reconsiders the asset’s estimated life, calculates the undiscounted value
of the asset’s cash flows and compares such value against the asset’s carrying amount. If the carrying amount is greater, Teva records an impairment loss for the excess
of book value over fair value.
Recently Issued Accounting Pronouncements
See note 1 to our consolidated financial statements.
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ITEM
6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors and Senior Management
The following tables set forth information regarding the executive officers and directors of Teva as of February 9, 2015:
Executive Officers
Name(1)
Age
Executive
Officer Since
Erez Vigodman
Iris Beck-Codner
55
49
2014
2014
Eyal Desheh
Richard S. Egosi
Dr. Michael Hayden
Dr. Rob Koremans
Dr. Carlo de Notaristefani
Sigurdur (Siggi) Olafsson
62
52
63
52
57
46
2008
2010
2012
2012
2012
2014
President and Chief Executive Officer
Group Executive Vice President, Corporate Marketing Excellence and
Communication
Group Executive Vice President, Chief Financial Officer
Group Executive Vice President, Chief Legal Officer
President of Global R&D and Chief Scientific Officer
President and Chief Executive Officer, Global Specialty Medicines
President and Chief Executive Officer—Global Operations
President and Chief Executive Officer, Global Generic Medicines Group
Mark Sabag
44
2013
Group Executive Vice President, Human Resources
(1)
Position
In July 2014, we reorganized our management structure by consolidating our executive management to nine executive officers.
Directors
Name
Age
Director Since
Term Ends
Prof. Yitzhak Peterburg—Chairman
Roger Abravanel
Dr. Sol J. Barer
Dr. Arie Belldegrun
Amir Elstein
Jean-Michel Halfon(1)
Prof. Richard A. Lerner
Prof. Moshe Many
Galia Maor
Joseph Nitzani(1)
Dan Propper
Ory Slonim
Erez Vigodman(2)
63
68
67
65
59
63
76
86
71
68
73
72
55
2012
2007
2015
2013
2009
2014
2012
1987
2012
2008
2012
2008
2009
2016
2015
2017
2016
2016
2017
2015
2016
2015
2017
2017
2017
2015
(1)
(2)
Statutory independent director elected in accordance with the Israeli Companies Law.
Mr. Vigodman also serves as Teva’s President and Chief Executive Officer.
On February 4, 2015, Dr. Philip Frost resigned from the Board of Directors. Dr. Frost served as Chairman of the Board of Directors of Teva from March 2010
until December 2014, after serving as Vice Chairman of the Board of Directors since January 2006 and as Chairman of the Board and Chief Executive Officer of IVAX
Corporation from 1987 until 2006, when it was acquired by Teva.
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Executive Officers
Erez Vigodman became Teva’s President and Chief Executive Officer in February 2014 after joining Teva’s Board of Directors in 2009. From 2010 to 2014, he
served as President and Chief Executive Officer of Adama Agricultural Solutions Ltd. (formerly Makhteshim Agan Industries Ltd.), the world’s leading generic crop
protection (agrochemical) company. From 2001 to 2009, he served as President and Chief Executive Officer of Strauss Group Ltd. Mr. Vigodman is a member of the
Advisory Committee to the Israel National Economic Council and the International Advisory Board of the Israel Science Technology & Innovation Policy Institute.
Mr. Vigodman received a B.A. in accounting and economics from Tel Aviv University in 1987 and is a graduate of the program of Management Development at
Harvard Graduate School of Business Administration. Mr. Vigodman is a certified public accountant.
Iris Beck-Codner became Group Executive Vice President, Corporate Marketing Excellence and Communication in 2014. From 2013 to 2014, Ms. Beck-Codner
served as Senior Vice President, Chief Communications Officer. From 2009 to 2012, she served as Group CEO of McCann Erickson Israel, IPG and from 2002 to 2008,
as Vice President Marketing & Content at Partner Communications Company Ltd. From 1999 to 2000, she served as General Manager of Lever Israel, a wholly-owned
subsidiary of Unilever Israel. Ms. Beck-Codner received a B.A. in economic sciences from Haifa University and an M.B.A. with distinction from Bar-Ilan University.
Eyal Desheh became Group Executive Vice President, Chief Financial Officer in 2012. From October 2013 to February 2014, Mr. Desheh served as Acting
President and Chief Executive Officer. From 2008 to 2012, he served as Teva’s Chief Financial Officer. From 2000 to 2008, he served as Executive Vice President and
Chief Financial Officer of Check Point Software Technologies Ltd. From 1996 to 2000, he was Chief Financial Officer of Scitex Ltd. From 1989 to 1996, he served as
Deputy Chief Financial Officer at Teva. Mr. Desheh received a B.A. in economics in 1978 and an M.B.A. in finance in 1981, both from the Hebrew University.
Richard S. Egosi became Group Executive Vice President, Chief Legal Officer in 2012. From 2010 to 2012, Mr. Egosi served as Teva’s Corporate Vice
President, Chief Legal Officer and Company Secretary. Mr. Egosi has been with Teva since 1995, previously serving as Teva’s Deputy Chief Legal Officer and as
Senior Vice President and General Counsel of Teva Americas. Mr. Egosi received a B.S. in economics from Clemson University in 1984 and a J.D. and M.B.A. from
Emory University in 1988.
Dr. Michael Hayden joined Teva as President of Global R&D and Chief Scientific Officer in May 2012. He is also currently the Killam Professor of Medical
Genetics at the University of British Columbia and Canada Research Chair in Human Genetics and Molecular Medicine. He is also the founder and Senior Scientist of
the Centre for Molecular Medicine and Therapeutics at the University of British Columbia. Prior to joining Teva, he founded three biotechnology companies (NeuroVir,
Aspreva Pharmaceuticals and Xenon Pharmaceuticals Inc.) and served as Chief Scientific Officer of Xenon from 2000 to 2012. He also served as a director of Med
Biogene Inc. from 2010 to 2011. He has received numerous awards, including the Canada Gairdner Wightman Award in 2011, the Order of Canada Award in 2010, the
highest honor that Canada can give its citizens for exceptional achievement and the Distinguished Scientist Award of the Canadian Society of Clinical Investigation in
1998, and in 2008 he was named Canada’s Health Researcher of the Year. Dr. Hayden received his MB ChB in Medicine in 1975, Ph.D. in Genetics in 1979 and DCH
Diploma in Child Health in 1979 from the University of Cape Town. He received his American Board Certification in both internal medicine and clinical genetics from
Harvard Medical School in 1982 and an FRCPC in internal medicine from the University of British Columbia in 1984.
Dr. Rob Koremans became President and CEO, Global Specialty Medicines in 2013. From 2012 to 2013, Dr. Koremans served as President and CEO of Teva
Pharmaceuticals Europe. Prior to joining Teva, from 2009 to 2012, Dr. Koremans was a member of the Global Leadership Team of Sanofi and served as CEO of
Zentiva and as Senior Vice President Generics, Strategy and Development at Sanofi. Before joining Sanofi, Dr. Koremans served as CEO of Cryo-Save, as a member of
the Executive Board in charge of Global Commercial Operations for Grunenthal GmbH and as Vice President Europe, Middle-East and Africa for Serono.
Dr. Koremans received a medical degree from the Erasmus University of Rotterdam in 1988.
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Dr. Carlo de Notaristefani joined Teva as President and Chief Executive Officer, Global Operations in August 2012. Prior to joining Teva, from 2004 to 2011,
Dr. de Notaristefani was a member of the senior management team at Bristol-Myers Squibb, where he served as President Technical Operations and Global Support
Functions, with responsibility for global supply chain operations, quality and compliance, procurement and information technology. Before joining Bristol-Myers
Squibb, Dr. de Notaristefani held several senior positions of increasing responsibility in the areas of global operations and supply chain management with Aventis,
Hoechst Marion Roussell and Marion Merrell Dow. Dr. de Notaristefani holds a Ph.D. in chemical engineering from the University of Naples.
Sigurdur (Siggi) Olafsson joined Teva as President and Chief Executive Officer, Global Generic Medicines Group in 2014. Mr. Olafsson served as President of
Actavis Pharma from 2012 to 2014, Executive Vice President, Global Generics, at Actavis plc (Watson) from 2010 to 2012 and CEO of the Actavis Group from 2008 to
2010. From 2003 to 2008, he held positions of increasing responsibility within the Actavis Group, including Deputy CEO, Vice President of Corporate Development
and CEO of Actavis Inc. U.S. From 1998 to 2003, he held positions of increasing responsibility with Pfizer’s Global R&D organization in the U.K. and U.S. From 1994
to 1998, he served as Head of Drug Development for Omega Farma in Iceland. Mr. Olafsson received a M.S. in pharmacy (Cand Pharm) from the University of Iceland,
Reykjavik.
Mark Sabag became Group Executive Vice President, Human Resources in August 2013. From 2012 to 2013, Mr. Sabag served as Global Deputy Vice
President, Human Resources. From 2010 to 2012, he served as Vice President, Human Resources for Teva’s International Group. From 2006 to 2010, he served as Vice
President, Human Resources International Group and Corporate Human Capital. Prior to joining Teva, Mr. Sabag held senior human resources roles with Intel
Corporation. Mr. Sabag received a B.A. in Economics and Business Management from Haifa University in 1995.
Directors
Prof. Yitzhak Peterburg became Teva’s Chairman of the Board of Directors on January 1, 2015, after rejoining Teva’s Board of Directors in 2012. Prof.
Peterburg was Teva’s Group Vice President—Global Branded Products from October 2010 until October 2011, after serving on Teva’s Board of Directors from 2009
until July 2010. Previously, he served as President and CEO of Cellcom Israel Ltd. from 2003 to 2005, Director General of Clalit Health Services, the leading
healthcare provider in Israel, from 1997 to 2002 and CEO of Soroka University Medical Center, Beer-Sheva, from 1995 to 1997. Prof. Peterburg currently serves as a
director on the board of Rosetta Genomics Ltd. and is also the Chairman of Regenera Pharma Ltd. Prof. Peterburg received an M.D. degree from Hadassah Medical
School in 1977 and is board-certified in Pediatrics and Health Services Management. Prof. Peterburg received a doctoral degree in Health Administration from
Columbia University in 1987 and an M.Sc. degree in Information Systems from the London School of Economics in 1990. Prof. Peterburg is a professor at the School
of Business, Ben-Gurion University. With his experience as a leader in Israeli healthcare and as a former executive officer of Teva, expertise in health information
technology and knowledge transfer within large-scale, fragmented networks, as well as his leadership of large Israeli companies, Prof. Peterburg provides healthcare,
management and operational expertise as well as knowledge about Teva and its global operations .
Roger Abravanel joined Teva’s Board of Directors in 2007. In 2006, Mr. Abravanel retired from McKinsey & Company, which he joined in 1972 and where he
had become a principal in 1979 and a director in 1984. Mr. Abravanel has provided consulting services to Israeli and Italian private and venture capital funds.
Mr. Abravanel served as a director of COFIDE—Gruppo De Benedetti SpA. from 2008 until 2013 and as a director of Luxottica Group SpA. from 2006 to 2014.
Mr. Abravanel currently serves as a director of Admiral Group plc and of Banca Nazionale del Lavoro (a subsidiary of BNP Paribas), and as Chairman of INSEAD’s
Advisory Group in Italy. Mr. Abravanel received a bachelor’s degree in chemical engineering from the Polytechnic University in Milan in 1968 and an M.B.A. from
INSEAD (with distinction) in 1972. Mr. Abravanel’s years of service as an international business consultant, together with his service as a director at leading firms in
Europe, provides a broad business and management perspective.
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Dr. Sol J. Barer joined Teva’s Board of Directors in January 2015. Dr. Barer is Managing Partner at SJ Barer Consulting. From 1987 to 2011, he served in top
leadership roles at Celgene Corporation, including as Executive Chairman from 2010 to 2011, Chairman and CEO from 2007 to 2010, CEO from 2006 to 2010,
President and Chief Operating Officer from 1994 to 2006 and President from 1993 to 1994. Prior to that, he was a founder of the biotechnology group at the chemical
company Celanese Corporation, which was later spun off as Celgene. Dr. Barer currently serves on the board of directors of Amicus Therapeutics and Aegerion
Pharmaceuticals. Dr. Barer is Chairman of the Board of InspireMD and Medgenics. Dr. Barer received his Ph.D. in organic and physical chemistry from Rutgers
University in 1974 and his B.S. in Chemistry from Brooklyn College of the City University of New York in 1968. With his long career as a senior pharmaceutical
executive and leadership roles in various biopharmaceutical companies, Dr. Barer provides broad and experienced knowledge of the global pharmaceutical business and
industry as well as extensive scientific expertise.
Dr. Arie Belldegrun joined Teva’s Board of Directors in 2013. Dr. Belldegrun is the Director of the Institute of Urologic Oncology and Professor and Chief of
Urologic Oncology at the David Geffen School of Medicine at the University of California, Los Angeles (UCLA), where he has held the Roy and Carol Doumani Chair
in Urologic Oncology since 2000. Dr. Belldegrun also serves as Chairman, President, CEO and Founder of Kite Pharma, Inc., Chairman of Arno Therapeutics, Inc.,
Chairman of TheraCoat Ltd., a director of SonaCare Medical LLC and until 2013 he served as a director of Nile Therapeutics Inc. Dr. Belldegrun was the founder and
founding Chairman of Agensys, Inc. and the co-founder and founding Vice Chairman of the Board and Chairman of the Scientific Advisory Board of Cougar
Biotechnology (which was acquired by Johnson & Johnson in 2009). Dr. Belldegrun is Chairman and Partner of Two River Consulting, LLC. Dr. Belldegrun has also
held the positions of Chairman of the Molecular and Biological Technology Committee of the American Urological Association and member of its Technology
Assessment Council; member of the Governor’s Council on Bioscience for the State of California; biotechnology group leader of the Mayor of Los Angeles’ Economy
and Jobs Committee; and is the author of more than 450 scientific publications. Dr. Belldegrun received his medical degree at the Hebrew University Hadassah Medical
School and conducted his post-doctoral studies in immunology at the Weizmann Institute of Science in Israel. He completed his urologic surgery residency at Harvard
Medical School and his fellowship at the National Cancer Institute/National Institutes of Health. Dr. Belldegrun’s career as a leading medical researcher and his
entrepreneurial activities in various pharmaceutical ventures provide scientific expertise and pharmaceutical development experience.
Amir Elstein rejoined Teva’s Board of Directors in 2009. From January 2014 to July 2014, he served as Vice Chairman of the Board of Directors of Teva.
Mr. Elstein serves as Chairman of the Board of Tower Semiconductor Ltd., Chairman of the Board of Governors of the Jerusalem College of Engineering and Chairman
of the Board of the Israel Democracy Institute. Mr. Elstein also serves as Chairman and/or as a member of the board of directors of several academic, scientific,
educational, social and cultural institutions. Mr. Elstein served as the Chairman of the Board of Directors of Israel Corporation from 2010 to 2013. From 2004 to 2008,
Mr. Elstein was a member of Teva’s senior management, where most recently he held the position of Executive Vice President, Global Pharmaceutical Resources. From
1995 to 2004, Mr. Elstein served on Teva’s Board of Directors. Prior to joining Teva as an executive in 2004, Mr. Elstein held a number of executive positions at Intel
Corporation, most recently as General Manager of Intel Electronics Ltd., an Israeli subsidiary of Intel Corporation. Mr. Elstein received a B.Sc. in physics and
mathematics from the Hebrew University in Jerusalem in 1980, an M.Sc. in solid state physics from the Hebrew University in 1982 and a diploma of Senior Business
Management from the Hebrew University in 1992. Mr. Elstein’s leadership positions in various international corporations, including his experience as a chairman in
international public companies and his service as an executive officer at Teva and other companies, provides global business management and pharmaceutical expertise.
Jean-Michel Halfon joined Teva’s Board of Directors in 2014. He currently serves as an independent consultant, providing consulting services to
pharmaceutical, distribution, healthcare IT and R&D companies. From 2008 until 2010, Mr. Halfon served as President and General Manager of Emerging Markets at
Pfizer Inc., after having served in various senior management positions since 1989. From 1987 until 1989, Mr. Halfon served
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as Director of Marketing in France for Merck & Co., Inc. Mr. Halfon received a B.S. from Ecole Centrale des Arts et Manufactures in 1974 and an M.B.A. from Institut
Supérieur des Affaires in 1977. Mr. Halfon’s years of experience in senior management at leading pharmaceutical companies, particularly his experience with emerging
markets, provides expertise in international pharmaceutical operations and marketing.
Prof. Richard Alan Lerner, M.D. joined Teva’s Board of Directors in 2012. Prof. Lerner served as President of The Scripps Research Institute from 1987 until
January 2012, and is currently a member of its Skaggs Institute for Chemical Biology, where he is an Institute Professor and the Lita Annenberg Hazen Professor of
Immunochemistry. Prof. Lerner served as a director of Kraft Foods, Inc. from 2005 until 2012. He currently serves as a director of Opko Health, Inc., Sequenom, Inc.
and Intra-Cellular Therapies Inc. Prof. Lerner has been the recipient of numerous honors and prizes, including the Parke-Davis Award in 1978, the San Marino Prize in
1990 and the Wolf Prize in Chemistry for 1995. Prof. Lerner was awarded the California Scientist of the Year Award in 1996 and the University of California
Presidential Medal in 2002. Prof. Lerner is a member of the Royal Swedish Academy of Sciences and the United States National Academy of Sciences, and holds
honorary doctorates from esteemed academic institutions including the Technion-Israel Institute of Technology and Oxford University. Prof. Lerner did undergraduate
work at Northwestern University, received B.M.S and M.D. degrees from Stanford University Medical School in 1964 and interned at Palo Alto Stanford Hospital from
1964 to 1965. With his long tenure as president of a major biomedical research organization, and experience as a physician and a scientist, Prof. Lerner provides
valuable business, scientific and management expertise.
Prof. Moshe Many, M.D., Ph.D. joined Teva’s Board of Directors in 1987, and served as Vice Chairman of the Board of Directors of Teva from March 2010 to
January 2014. Prof. Many has served as president of the Ashkelon Academic College from January 2002 until July 2012 and was previously President of Tel Aviv
University. He served as Chief of Urology from 1976 until 1987 and as Chairman of Surgery from 1983 until 1987 at Sheba Medical Center. Prof. Many serves as a
director of BiondVax Pharmaceuticals Ltd. He also served as a director of Rosetta Genomics from 2002 to 2011 and as Chairman of the Board of Real Imaging Ltd.
from 2010 to 2013. In January 2010, he received the Israel Ministry of Health Lifetime Achievement Award in recognition of his outstanding contributions to the
promotion and support of health matters in Israel. Prof. Many received his M.D. degree from Geneva University in 1952 and his Ph.D. in renal physiology from Tufts
University in 1969. With his experience as a doctor and hospital administrator, service as president of academic institutions, many years as a Teva director and his
service and directorships at other pharmaceutical companies, Prof. Many provides leadership, management, healthcare and governance expertise, as well as extensive
knowledge regarding the Company’s operations and culture.
Galia Maor joined Teva’s Board of Directors in 2012. Ms. Maor served as President and Chief Executive Officer of the Bank Leumi le-Israel B.M. Group from
1995 until 2012 after serving as Deputy General Manager of Bank Leumi from 1991 to 1995. She began her professional career at Bank of Israel, serving in several
senior management positions from 1963 to 1989, including Supervisor of Banks and Chairperson of the Advisory Committee on Banking Issues from 1982 to 1987.
Ms. Maor serves as a director on the board of Equity One, Inc. and of Strauss Group Ltd. Over the years, Ms. Maor has contributed to various committees on matters of
legislation, structure and financial reporting within the Israeli capital markets and the banking system. Ms. Maor holds honorary doctorates from the Technion-Israel
Institute of Technology, Ben Gurion University and Bar Ilan University. She received a B.A. in economics and statistics from the Hebrew University in 1964 and an
M.B.A. from the Hebrew University in 1967. Ms. Maor’s experience in the private sector as one of Israel’s leading banking executives, as well as her experience as a
senior executive at Bank of Israel, provides financial, capital markets, accounting and regulatory expertise.
Joseph Nitzani joined Teva’s Board of Directors in 2008, serving as a statutory independent director under Israeli law. From 2008 until 2010, Mr. Nitzani served
as Chairman of Hadassah Medical Center, after serving as a director there from 1996 until 2008. Between 2001 and 2007, Mr. Nitzani held various management
positions at Mizrahi-Tefachot Bank Ltd., most recently as Head of the Client Assets Private Banking and Consulting Division. Previously, he served as Managing
Director of the Government Companies Authority from 1991 to
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1995 and CEO of the Tel-Aviv Stock Exchange from 1980 to 1991. Mr. Nitzani served as a director in three subsidiaries of Migdal Capital Markets Group from
December 2009 (and as a Chairman of one of them from 2010) to 2013. Mr. Nitzani also served as a director of the Tel-Aviv Stock Exchange and of S&P Maalot, both
from 2001 to 2007, and of Adanim Mortgage Bank from 2006 to 2008. Mr. Nitzani serves as chairman of the endowment fund and as a member of the investment funds
committee of Tel Aviv University since 2012. Mr. Nitzani received a B.A. in economics from Bar-Ilan University in 1971 and an M.B.A. (with distinction) from Tel
Aviv University in 1974. Mr. Nitzani’s years as an executive in the banking, finance and insurance industries, as well as his governmental, regulatory and hospital
administration experience, provides broad business, capital markets, financial, accounting, healthcare and regulatory expertise.
Dan Propper rejoined Teva’s Board of Directors in 2012. Mr. Propper had previously been a director of Teva from 2007 until February 2011. Mr. Propper is the
Chairman of the Board of Osem Investments Ltd., a leading Israeli manufacturer of food products and a part of the Nestle Group. Mr. Propper served as the Chief
Executive Officer of Osem for 25 years until April 2006. In addition to his role at Osem, from 1993 until 1999, Mr. Propper served as President of the Manufacturers
Association of Israel, an independent umbrella organization representing industrial enterprises in Israel, and as Chairman of the Federation of Economic Organizations
in Israel. Mr. Propper has received awards for his contributions to Israeli industry and its economy, including an honorary doctorate from the Technion-Israel Institute
of Technology in 1999. From 2011 until 2014, Mr. Propper served as Chairman of the Supervisory Council of the Bank of Israel. He is a director of Check Point
Software Technologies Ltd. and a member of the Boards of Trustees of the Technion-Israel Institute of Technology, Ben-Gurion University and Weizmann Institute of
Science. Mr. Propper received a B.S. ( summa cum laude ) in Chemical Engineering and Food Technology from the Technion-Israel Institute of Technology. As a
leader of Israeli industry, including as chief executive officer and chairman of a large, industrial food corporation, Mr. Propper provides business, industrial, operational
and commercial expertise.
Ory Slonim rejoined Teva’s Board of Directors in 2008. Mr. Slonim is an attorney who has been in private practice since 1970. Mr. Slonim previously served on
Teva’s Board of Directors from 1998 to 2003 as a statutory independent director. He served as a director and Chairman of the audit committee of U. Dori Group Ltd.
from 1993 to 2011, as a director of Oil Refineries Ltd. from 2007 to 2012 and as Vice Chairman of Harel Insurance Investments and Financial Services Ltd. from 2008
to 2013. From 1988 to 2007, he served as Vice Chairman of the Board of Migdal Insurance and Financial Holdings Ltd. Mr. Slonim has served as Chairman of the
Variety Club in Israel since 2006 and as Chairman of the Ethics Tribunal of the Israeli Press Council since 1994. Mr. Slonim is also a lecturer at Tel Aviv University
(Lahav Plan) in Executives and Directors Risk Management Plans since 2005. Mr. Slonim received the Presidential Volunteer Medal in 1992 and the Presidential
Medal of Distinction in 2012. Mr. Slonim received an LL.B degree from the Hebrew University in 1968. Mr. Slonim’s legal background and many years of service on
boards of leading firms in Israel provides expertise in risk management, governance and regulatory matters.
The biography of Erez Vigodman, our President and Chief Executive Officer, and one of our directors, appears under “—Executive Officers” above.
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Compensation of Executive Officers and Directors
Certain Compensation-Related Requirements of the Israeli Companies Law
As required by the Israeli Companies Law, 1999 (the “Israeli Companies Law”) Teva has adopted a compensation policy regarding the terms of office and
employment of its office holders, including compensation, equity-based awards, releases from liability, indemnification and insurance, severance and other benefits
(“Terms of Office and Employment”). The term “office holder,” as defined in the Israeli Companies Law, includes directors, the chief executive officer, other executive
officers and any other manager directly subordinate to the chief executive officer. Our Compensation Policy for Executive Officers and Directors (the “Compensation
Policy”) was approved by our shareholders at the 2013 annual general meeting of shareholders, following the favorable recommendation of our human resources and
compensation committee (the “Compensation Committee”) and approval by the Board of Directors, and took effect thereafter.
Our Compensation Policy is designed to encourage pay for performance and align our executive officers’ interests with those of Teva and our shareholders. Its
structure allows us to provide meaningful incentives that reflect both Teva’s short and long-term goals and performance, as well as the executive officer’s individual
performance and impact on shareholder value, while providing compensation that is competitive in the global marketplace in which we recruit talent and providing for
measures designed to reduce incentives to take excessive risks.
Pursuant to the Israeli Companies Law, arrangements between the Company and its office holders must generally be consistent with the Compensation Policy.
However, under certain circumstances, the Company may approve an arrangement that is not consistent with the Compensation Policy, if such arrangement is approved
by a majority of the Company’s shareholders, provided that (i) such majority includes a majority of the votes cast by shareholders who are not controlling shareholders
and who do not have a personal interest in the matter, present and voting (abstentions are disregarded), or (ii) the votes cast by shareholders who are not controlling
shareholders and who do not have a personal interest in the matter who were present and voted against the arrangement constitute two percent or less of the voting
power of the company.
In addition, pursuant to the Israeli Companies Law, the Terms of Office and Employment of Teva’s office holders require the approval of the Compensation
Committee and the Board of Directors. The Terms of Office and Employment of directors (including those of a chief executive officer who is a director) further require
the approval of the shareholders by a simple majority; with respect to a chief executive officer who is not a director, the approval of the shareholders by the special
majority mentioned above is also required.
Under certain circumstances, if the Terms of Office and Employment of office holders who are not directors are not approved by the shareholders, the
Compensation Committee and the Board of Directors may nonetheless approve such terms. In addition, amendment of Terms of Office and Employment of office
holders who are not directors requires the approval of the Compensation Committee only, if the Compensation Committee determines that the amendment is not
material.
Aggregate Executive Compensation
The aggregate compensation granted to our nine current executive officers during or with respect to 2014 was $18,792,522, and with respect to our executive
officers whose service as executive officers ended during 2014 was $17,958,029 (all as reflected in our financial statements for the year ended December 31, 2014,
including the cash bonuses with respect to 2014, but excluding equity-based compensation) .
For a discussion of the compensation granted to our five most highly compensated office holders during or with respect to 2014, see “Individual Covered
Executive Compensation” below, and for a discussion of the compensation paid to our directors during or with respect to 2014, see “Compensation of Directors” below.
In 2014, our nine current executive officers had a cash gain of $7,286,348 as a result of the sale of exercised share options and vested restricted share units, and
the cash gain of the executive officers whose service as executive officers ended during 2014 was $11,353,821.
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In 2014, options to purchase an aggregate of 949,825 Company shares were awarded to our current executive officers at a weighted average exercise price of
$46.97 per option and a weighted average grant date fair value of $9.92 per option, with expiration dates in 2024, as well as 131,380 performance share units with a
weighted average grant date fair value of $45.57 per unit and 20,610 restricted share units with a weighted average grant date fair value of $44.74 per unit. In 2014,
options to purchase an aggregate of 298,834 Company shares were awarded to executive officers whose service as executive officers ended during 2014 at a weighted
average exercise price of $48.76 per option and a weighted average grant date fair value of $9.13 per option, with expiration dates in 2024, as well as 55,740
performance share units with a grant date fair value of $44.85 per unit and 4,950 restricted share units with a grant date fair value of $46.13 per unit. Accordingly, the
aggregate grant date fair value of this equity-based compensation granted in 2014 is approximately $21.8 million. For general information regarding our equity-based
incentive plan, see “Equity-Based Plans” below.
Individual Covered Executive Compensation
The table and summary below outline the compensation granted to our five most highly compensated office holders as part of their Terms of Office and
Employment during or with respect to the year ended December 31, 2014, as recognized in our financial statements for the year ended December 31, 2014. We refer to
the five individuals for whom disclosure is provided herein as our “Covered Executives.” The summary below also contains information with respect to compensation
provided to our Covered Executives after December 31, 2014 and prior to the date of this report with respect to 2014.
Summary Compensation Table(1)
Information Regarding the Covered
Executive
Name and Principal Position(2)
Other
Compensation
Compensation for Services
Holdings
in the
Company
(%) (3)
Base
Salary
($)
Benefits
and
Perquisites
($) (4)
Cash Bonuses
($) (5)
Equity-Based
Compensation
($) (6)
Rent
($) (7)
Total
($)
Other
($) (8)
—
—
4,485,859
1,630,527
72,000
—
5,225,079
1,165,309
1,337,348
—
—
3,733,672
1,477,348
409,458
1,270,607
211,777
—
3,802,318
207,490
1,194,435
546,221
75,344
4,464,171
7,337,661
Erez Vigodman(9)
President and Chief Executive
Officer
*
1,183,888
593,449
2,105,878
602,644
Dr. Michael Hayden(10)
President of Global R&D and
Chief Scientific Officer
*
1,000,000
1,010,056
1,512,496
Richard S. Egosi(11)
Group Executive Vice President,
Chief Legal Officer
*
800,000
431,015
Prof. Itzhak Krinsky(12)
Chairman of Teva Japan,
Chairman of Teva South Korea
and Head of Business
Development Asia Pacific
*
433,128
Allan Oberman(13)
Former President and Chief
Executive Officer of Teva
Americas Generics
*
850,000
*
Less than 0.1%.
(1) All amounts reported in the table are in terms of cost to the Company.
(2) All current executive officers listed in the table are full-time employees of the Company. Cash compensation amounts denominated in currencies other than the
U.S. dollar were converted into U.S. dollars at a monthly average conversion rate for 2014.
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(3) The percentage reported in this column reflects the number of ordinary shares or ADSs as well as vested equity-based awards held by the Covered Executive on
January 31, 2015, based on information available to the Company.
(4) Amounts reported in this column include benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites may include, to the
extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds, pension, severance, vacation, travel and accommodation,
car or car allowance, medical insurances and benefits, risk insurances (e.g., life, disability, accidents), phone, convalescence pay, relocation, payments for social
security, tax gross-up payments and other benefits and perquisites consistent with Teva’s guidelines.
With respect to Dr. Hayden, these amounts also include payments and benefits associated with his presence in Israel, with respect to Prof. Krinsky, with his presence in
Japan (generally to compensate for the high cost of living in Japan), and with respect to Mr. Oberman, with his presence in the U.S. Such associated payments may
include payments such as family visitation travel expenses and medical insurance reimbursement for the Covered Executive and members of his family.
(5) Amounts reported in this column refer to cash bonuses with respect to 2014 as approved to be paid to our Covered Executives by our Compensation Committee
and Board of Directors (other than a one-time cash bonus in an amount of $237,401 approved to be paid to Mr. Vigodman for significant achievements and effort
that produced exceptional results, which will be brought for shareholder approval at our upcoming general meeting). For further information regarding the annual
cash bonuses for our Covered Executives for 2014 included herein, see discussion below under “Annual Cash Bonuses for 2014.”
(6) Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2014, with respect to equity-based
compensation. Assumptions and key variables used in the calculation of such amounts are discussed in note 15 to our audited consolidated financial statements set
forth elsewhere in this report .
(7) Amounts reported in this column refer to payment or reimbursement for rent and the cost of utilities for a family residence. For Dr. Hayden, such costs are
associated with his presence in Israel, for Prof. Krinsky, such costs are associated with his presence in Japan, and for Mr. Oberman, such costs are associated with
his presence in the U.S.
(8) Amounts reported in this column with respect to Mr. Oberman include payments made during 2014 and the value of payments and benefits recorded in our
financial statements for the year ended December 31, 2014, in accordance with U.S. GAAP relating to termination of his employment, as well as catch-up
payments due to an increase of his base salary on account of November 2012 to December 2013.
(9) Mr. Vigodman
Mr. Vigodman became Teva’s President and Chief Executive Officer on February 11, 2014, while remaining on our Board of Directors, which he joined in 2009.
Mr. Vigodman has waived his entitlement to any additional compensation due to him in his capacity as a member of the Board of Directors.
In 2014, Mr. Vigodman was granted options to purchase 280,702 Company shares (with an exercise price of $41.05 per share) and 15,660 restricted share units under
the Company’s 2010 Long-Term Equity-Based Incentive Plan (as amended, the “2010 Plan”), none of which have vested as of the date of this report. The fair value of
such equity-based compensation recorded in our financial statements for the year ended December 31, 2014, in accordance with U.S. GAAP is $602,644. For
additional information with respect to the 2010 Plan, see “Equity-Based Plans” below.
Mr. Vigodman’s employment terms generally require the parties to provide nine months’ notice of termination of employment, other than in connection with a
termination for cause. The Company may waive Mr. Vigodman’s services as President and Chief Executive Officer during such period or any part thereof, on the
condition that the Company pay him the monthly salary and all additional compensation and benefits in respect of such waived period.
Upon termination as President and Chief Executive Officer, Mr. Vigodman will generally be entitled to receive payments associated with termination as required
pursuant to applicable law and certain accrued obligations, a make-up payment that, together with severance amounts accumulated in his pension insurance funds,
equals twice his monthly base salary multiplied by the number of his years of service. Mr. Vigodman is also entitled to receive an amount equal to eighteen times his
monthly base salary to be paid in twelve equal installments, in consideration for and conditioned upon his non-compete undertaking of one year following termination.
In the event of termination in circumstances such as death, disability, resignation, retirement or termination for cause, Mr. Vigodman may not be entitled to one or
more of the above termination payments, or may be entitled to reduced payments . In the event of a termination without cause or a resignation with good reason
within one year following certain mergers and as a result thereof, Mr. Vigodman will be entitled to an additional lump sum payment equal to twelve monthly base
salaries.
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If Mr. Vigodman’s employment as President and Chief Executive Officer is terminated by the Company without cause or if he resigns for good reason, he will be
entitled to continued vesting of equity-based awards for twelve months following termination and to exercise outstanding options for a period of ninety days after such
twelve month period. In the event he retires or resigns without good reason, he will be entitled to continued vesting of equity-based awards for nine months following
termination and to exercise outstanding options for a period of sixty days after such nine month period. In the event of termination for cause, all equity-based awards
(whether or not vested) shall expire or be immediately forfeited as of the date of termination. In addition, as described in the 2010 Plan, in the event of termination due
to death, disability or qualifying retirement, equity-based awards will continue to vest and remain exercisable in accordance with their original schedule .
All termination payments and benefits in excess of those required to be paid pursuant to applicable law are subject to the execution of a release of claims, and shall
immediately terminate, and the Company shall have no further obligations to Mr. Vigodman as President and Chief Executive Officer with respect thereto, in the event
that he breaches his non-compete obligations (which apply until the twelve month anniversary of his termination date), confidentiality obligations (which apply
indefinitely) and other restrictive covenants.
(10) Dr. Hayden
Pursuant to his employment agreement, Dr. Hayden is entitled to two $500,000 cash bonuses, to be paid in May 2015 and May 2016, respectively, subject to his
continuous employment with the Company through such dates.
Upon his joining the Company in 2012, Dr. Hayden received an option to purchase 275,000 Company shares (with an exercise price of $42.19 per share) and 54,455
restricted share units under the 2010 Plan, of which approximately 33% have vested as of the date of this report. The fair value of such equity-based compensation
recorded in our financial statements for the year ended December 31, 2014, in accordance with U.S. GAAP is $1,272,687. For additional information with respect to
the 2010 Plan, see “Equity-Based Plans” below.
In 2014, Dr. Hayden was granted options to purchase 98,581 Company shares (with an exercise price of $48.76 per share) and 20,066 performance share units under
the 2010 Plan, none of which have vested as of the date of this report. The fair value of such equity-based compensation recorded in our financial statements for the
year ended December 31, 2014, in accordance with U.S. GAAP is $357,840. For additional information with respect to the 2010 Plan, see “Equity-Based Plans”
below. For information regarding the performance share units granted to our Covered Executives during 2014, see discussion below under “2014 Performance Share
Units.”
Dr. Hayden’s employment terms generally require the parties to provide nine months’ notice of termination of employment other than in connection with a termination
for cause. The Company may waive Mr. Hayden’s services during such period or any part thereof, on the condition that the Company pay him the monthly salary and
all additional compensation and benefits in respect of such waived period.
Upon termination, Dr. Hayden will generally be entitled to receive payments associated with termination as required pursuant to applicable law as well as certain
accrued obligations, cash severance equal to his annual base salary, a make-up payment that, together with severance amounts accumulated in his pension insurance
funds, equals twice his monthly base salary multiplied by the number of his years of service, certain relocation benefits for him and his wife should he choose to move
back to Canada within one year following termination, a payment of $35,000 which he may use to purchase medical insurance, continued vesting of his equity-based
awards generally until the first anniversary of the termination date and the extension of the exercise period for outstanding share options generally for an additional
twelve month period following the first anniversary of the termination date. The extended vesting and exercisability of equity-based awards may be longer in certain
circumstances. In the event of termination in circumstances such as death, disability, resignation, retirement or termination for cause, Dr. Hayden may not be entitled
to one or more of the above termination payments, or may be entitled to reduced payments. In the event of termination without cause or resignation with good reason
within one year following a merger (and as a result of such merger), Dr. Hayden will be entitled to an additional payment of six times his monthly base salary and to a
six month extension of the aforementioned continued vesting and exercisability of his equity-based awards. All termination payments and benefits in excess of those
required to be paid pursuant to applicable Israeli law are subject to the execution of a release of claims and shall immediately terminate, and Teva shall have no further
obligations to Dr. Hayden with respect thereto, in the event that Dr. Hayden breaches his non-compete obligations (which apply for a period of twelve months
following termination) or his confidentiality obligations (which apply indefinitely) and other restrictive covenants.
Teva has agreed to support certain academic and research activities associated with Dr. Hayden, by contributing up to $1 million in each of the first three years of his
employment, subject to his continuous employment. Teva will be entitled to
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information rights and a right of first offer with respect to the results of such research activities. These research activities will be supported by Teva following
Dr. Hayden’s recommendations.
(11) Mr. Egosi
In November 2011, Mr. Egosi was granted options to purchase 198,003 Company shares (with an exercise price of $41.72 per share) and 31,428 restricted share units
under the 2010 Plan, of which approximately 67% have vested as of the date of this report. The fair value of such equity-based compensation recorded in our financial
statements for the year ended December 31, 2014, in accordance with U.S. GAAP is $1,022,105. For additional information with respect to the 2010 Plan, see
“Equity-Based Plans” below.
In 2014, Mr. Egosi was granted options to purchase 87,625 Company shares (with an exercise price of $48.76 per share) and 17,837 performance share units under the
2010 Plan, none of which have vested as of the date of this report. The fair value of such equity-based compensation recorded in our financial statements for the year
ended December 31, 2014 in accordance with U.S. GAAP is $315,243. For additional information with respect to the 2010 Plan, see “Equity-Based Plans” below. For
information regarding the performance share units granted to our Covered Executives during 2014, see discussion below under “2014 Performance Share Units.”
Mr. Egosi’s employment terms generally require the parties to provide ninety days’ notice of termination of employment, other than in connection with a termination
for cause.
Upon termination, Mr. Egosi will generally be entitled to receive payments associated with termination as required pursuant to applicable law and certain accrued
obligations, including a partial bonus to be calculated in accordance with the provisions of his employment terms, cash severance equal to twice his annual base salary
plus an amount equal to the last paid annual cash bonus, and payment of certain costs associated with medical insurance for eighteen months. In the event of
termination in circumstances such as death, disability, resignation without good reason, retirement or termination for cause, Mr. Egosi may not be entitled to one or
more of the above termination payments, or may be entitled to reduced payments. In addition, Mr. Egosi may in the event of termination in certain circumstances be
entitled to medical insurance for a longer period. In the event of termination without cause within one year following a change in control, Mr. Egosi will be entitled to
an additional payment of $1.5 million.
In the event of a termination by the Company without cause or a resignation by Mr. Egosi with or without good reason, in each case prior to his reaching age 55, we
are obligated to offer him suitable full-time non-executive employment in a legal advisory capacity, at our offices in North Wales, Pennsylvania, at his principal
residence or at such other mutually agreed location, until Mr. Egosi reaches age 55, on terms and conditions to be agreed upon at such time. In such a circumstance,
Mr. Egosi will generally be entitled to receive the payments and benefits upon termination described above, following termination of such non-executive employment.
All termination payments and benefits in excess of those required to be paid pursuant to applicable law are subject to the execution of a release of claims, and a portion
of such payments is in consideration for Mr. Egosi’s non-compete obligations (which generally apply until the twelve month anniversary of his termination date),
confidentiality obligations (which apply indefinitely) and other restrictive covenants. In the event Mr. Egosi’s employment is terminated for cause, the Company will
have the discretion to determine whether he will receive a payment in consideration for his non-compete obligations.
(12) Prof. Krinsky
Prof. Krinsky was a member of the Company’s executive committee from 2005 until July 1, 2014, when the Company’s new organizational structure came into effect.
In November 2011, Prof. Krinsky was granted options to purchase 198,000 Company shares (with an exercise price of $41.72 per share) and 31,428 restricted share
units under the 2010 Plan, of which approximately 67% have vested as of the date of this report. The fair value of such equity-based compensation recorded in our
financial statements for the year ended December 31, 2014, in accordance with U.S. GAAP is $1,022,105. For additional information with respect to the 2010 Plan, see
“Equity-Based Plans” below.
In 2014, Prof. Krinsky was granted options to purchase 68,458 Company shares (with an exercise price of $48.76 per share) and 13,935 performance share units under
the 2010 Plan, none of which have vested as of the date of this report. The fair value of such equity-based compensation recorded in our financial statements for the
year ended December 31, 2014, in accordance with U.S. GAAP is $248,502. For additional information with respect to the 2010 Plan, see “Equity-Based Plans”
below. For information regarding the performance share units granted to our Covered Executives during 2014, see discussion below under “2014 Performance Share
Units.”
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Prof. Krinsky’s employment terms generally require the parties to provide three months’ notice of termination of employment, other than in connection with a
termination for cause. The Company may waive Prof. Krinsky’s services during such period or any part thereof on the condition that the Company pay him the
monthly salary and all additional compensation and benefits with respect of such waived period.
Upon termination, Prof. Krinsky will generally be entitled to receive payments associated with termination as required pursuant to applicable law and a make-up
payment that, together with severance amounts accumulated in his pension insurance funds, equals twice his monthly base salary multiplied by the number of his years
of service. Prof. Krinsky is also entitled to receive an amount equal to twelve times his monthly base salary in consideration for, and conditioned upon, his
non-compete obligations (which apply for a period of twelve months following termination). In the event of termination in circumstances such as resignation,
retirement or termination for cause, Prof. Krinsky may not be entitled to one or more of the above termination payments, or may be entitled to reduced payments. In
the event of termination without cause within one year following certain mergers and as a result thereof, Prof. Krinsky will be entitled to an additional payment of $1.5
million.
(13) Mr. Oberman
Mr. Oberman served in various positions in Teva, most recently as President and Chief Executive Officer of Teva Americas Generics. Mr. Oberman’s employment
with the Company ceased on December 31, 2014.
Pursuant to his employment terms, Mr. Oberman was entitled, during the term of his employment in 2014, to an annual base salary of $850,000.
In February and December 2010, Mr. Oberman was granted options to purchase 22,550 Company shares (with an exercise price of $59.92 per share) and options to
purchase 50,000 Company shares (with an exercise price of $49.11 per share) under the 2010 Plan, all of which have vested as of the date of this report. The fair value
of such equity-based compensation recorded in our financial statements for the year ended December 31, 2014, in accordance with U.S. GAAP is $50,224. For
additional information with respect to the 2010 Plan, see “Equity-Based Plans” below.
In 2011, Mr. Oberman was granted options to purchase 33,001 Company shares (with an exercise price of $41.72 per share) and 5,238 restricted share units under the
2010 Plan, of which approximately 67% have vested as of the date of this report. The fair value of such equity-based compensation recorded in our financial
statements for the year ended December 31, 2014 in accordance with U.S. GAAP is $170,351. For additional information with respect to the 2010 Plan, see
“Equity-Based Plans” below.
In 2012, Mr. Oberman was granted options to purchase 17,879 Company shares (with an exercise price of $44.59 per share) and 3,525 restricted share units under the
2010 Plan, of which approximately 33% have vested as of the date of this report. The fair value of such equity-based compensation recorded in our financial
statements for the year ended December 31, 2014, in accordance with U.S. GAAP is $97,632. For additional information with respect to the 2010 Plan, see
“Equity-Based Plans” below.
In 2013, Mr. Oberman was granted options to purchase 100,002 Company shares (with an exercise price of $37.26 per share) and 20,161 restricted share units under
the 2010 Plan, none of which have vested as of the date of this report. The fair value of such equity-based compensation recorded in our financial statements for the
year ended December 31, 2014, in accordance with U.S. GAAP is $228,014. For additional information with respect to the 2010 Plan, see “Equity-Based Plans”
below.
Pursuant to Mr. Oberman’s employment terms, in connection with his termination of employment on December 31, 2014, Mr. Oberman became entitled to receive
certain accrued obligations, cash severance equal to his annual base salary, an amount equal to the average of his annual bonuses paid with respect to fiscal years 2012,
2013 and 2014, a payment representing the value of certain benefits he was entitled to, payments associated with his repatriation to Canada, medical and certain
customary benefits. Pursuant to his employment terms, Mr. Oberman’s equity-based awards will continue to vest in accordance with their original schedule, and his
options shall remain exercisable in accordance with their original schedule.
The amounts in the table above represent termination payments recognized in our financial statements for the year ended December 31, 2014, and do not include
amounts recognized in previous years with respect to such termination payments.
Mr. Oberman is also entitled to receive an amount equal to his annual base salary in consideration for his release and waiver of claims as well as in consideration of,
and conditioned upon, his non-compete obligations (which apply for a period of twelve months following his termination date).
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Annual Cash Bonuses for 2014
As provided in our Compensation Policy, annual cash bonuses are aimed to ensure that our executive officers are aligned in reaching Teva’s short- and
long-term goals. Annual cash bonuses are therefore a strictly pay-for-performance element, as payout eligibility and levels are determined based on actual financial and
operational results, as well as individual performance.
The Compensation Committee and the Board of Directors have approved the following annual cash bonus objectives and payout terms for 2014 for our Covered
Executives (other than to our President and Chief Executive Officer, which is described below), consistent with the annual operating plan and the long-range plan
approved by the Board of Directors, as well as our Compensation Policy:
•
60% of the 2014 annual cash bonus objectives were based on overall company performance measures, using key performance indicators. These key
performance indicators are comprised of: 25% non-GAAP operating profit; 15% non-GAAP net revenue; 10% cash flow from operations; 5%
quality; and 5% compliance.
•
20% of the 2014 annual cash bonus objectives were based on business unit/cluster/regional performance measures. These performance measures are
tailored to the specific characteristics of each unit and are aligned with the goals set forth in Teva’s annual operating plan and long-range plan.
•
20% of the 2014 annual cash bonus objectives were based on an evaluation of each Covered Executive’s performance in 2014 by the Compensation
Committee and the Board of Directors.
The payout terms for the annual cash bonus for 2014 are as follows:
(*)
Level of Achievement of
Performance Criteria*
% Achievement of
Performance Criteria
Potential Annual Incentive
as a % of Annual Base Salary
Threshold
Target
Maximum Bonus
80% or Less
100%
120%
No annual bonus payment
100%
200%
Payouts for performance between threshold and maximum are determined linearly based on a straight-line interpolation of the applicable payout range (i.e., 5%
for each percentile change in performance).
No additional payout is made for performance in excess of 120% achievement of the performance criteria.
Further to our shareholders’ approval at our 2014 general meetings, the Compensation Committee and the Board of Directors have approved the following
annual cash bonus objectives and payout terms for 2014 for our President and Chief Executive Officer, consistent with the annual operating plan and the long-range
plan approved by the Board of Directors, as well as our Compensation Policy:
•
85% of the President and Chief Executive Officer’s annual cash bonus objectives for 2014 were based on overall Company performance measures,
similar to those determined for other executive officers, using key performance indicators. These key performance indicators are comprised of:
35.4% non-GAAP operating profit; 21.2% non-GAAP net revenue; 14.2% cash flow from operations; 7.1% quality; and 7.1% compliance.
•
15% of the President and Chief Executive Officer’s annual cash bonus objectives for 2014 were based on an evaluation of his overall performance by
the Compensation Committee and the Board of Directors, including, establishing and implementing the Company’s strategy and leadership.
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The payout terms for Mr. Vigodman’s annual cash bonus for 2014 are as follows:
(*)
Level of Achievement of
Objectives(*)
% Achievement of Objectives
Potential Annual Cash Incentive
as a % of Annual Base Salary
Below Threshold
Threshold
Target
Maximum Bonus
Less than 85%
85%
100%
125%
No annual cash bonus payment
8.75%
140%
200%
Payouts for performance between the threshold and target are determined linearly based on a straight line interpolation of the applicable payout range (8.75% for
each percentile change in performance). Payouts for performance between the target and maximum bonus are determined linearly based on a straight line
interpolation of the applicable payout range (i.e., 2.4% for each percentile change in performance).
No additional payout is made for performance in excess of 125% achievement of the performance criteria.
Equity-Based Plans
As provided in our Compensation Policy, equity-based compensation is intended to reward future performance, as reflected by the market price of Teva’s
ordinary shares or ADSs and/or other performance criteria, and is used to align our executive officers’ long-term interests with those of Teva and its shareholders, as
well as to attract, motivate and retain executive officers for the long term.
2010 Long-Term Equity-Based Incentive Plan
The 2010 Plan was approved by our shareholders at our 2010 annual meeting of shareholders. The 2010 Plan allows for the grant of share options, as well as
restricted shares, restricted share units and other share-based awards. The 2010 Plan replaced the Company’s 2005 Long-Term Equity-Based Incentive Plan, and will
terminate on June 28, 2015 (except with respect to awards outstanding on that date). The purpose of the 2010 Plan is to assist the Company in (a) attracting, retaining,
motivating, and rewarding certain key employees, officers and directors of and consultants to the Company and its affiliates, and (b) promoting the creation of
long-term value for shareholders of the Company by closely aligning the interests of such individuals with those of such shareholders.
Under the 2010 Plan, 70 million ordinary shares or ADSs were reserved for issuance. As of December 31, 2014, 23.5 million Company shares remain available
for future awards. Over any three-year period, the average annual number of Company shares underlying awards granted under the 2010 Plan may not exceed 2% of the
Company’s then outstanding shares.
The 2010 Plan generally provides that (i) the exercise price of each option may not be less than the fair market value of one share on the date of grant; (ii) the
term of each option may not exceed ten years from the date of grant; (iii) subject to any acceleration of vesting in connection with a change in control of the Company
(as defined in the 2010 Plan) or certain similar corporate transactions, no options, restricted shares or restricted share units granted under the 2010 Plan may vest or
become exercisable—if subject to exercise—earlier than the first anniversary of the date of grant (or, in the case of directors, the second anniversary); (iv) any share
underlying an award granted under the 2010 Plan that is not purchased or issued may be used for the grant of additional awards under the 2010 Plan (provided that
shares withheld in consideration for the payment of the exercise price or taxes relating thereto will constitute shares delivered); and (v) unless determined otherwise in a
sub-plan or an award agreement, if a participant ceases to be employed by the Company or an affiliate, as applicable, for any reason other than death, disability, a
qualifying retirement, or by the Company or such affiliate for cause, such participant’s vested options will remain exercisable for a period not extending beyond 90 days
after the date of cessation of employment, and in no event beyond the option’s original expiration date,
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unvested restricted shares and unvested restricted share units will be forfeited for no consideration, and vested restricted share units will be settled in accordance with
the settlement schedule set forth in the applicable award agreement. If a participant’s employment is terminated for cause, or the participant resigns in circumstances
where the Company or an affiliate, as applicable, is entitled to terminate such participant’s employment for cause, such participant’s options (both vested and unvested)
will terminate immediately as of the termination date, unless prohibited by applicable law, and unvested restricted shares and restricted share units (both vested and
unvested) will be forfeited for no consideration. In the event of termination due to death, disability or a qualifying retirement, the participant’s options, restricted shares
and restricted share units will continue to vest, as if no termination had occurred, and, if applicable, will remain exercisable or settle in accordance with the schedule set
forth in the applicable award agreement.
The options and restricted share units granted to our Covered Executives under the 2010 Plan vest in three equal annual installments commencing on the first or
second anniversary of the grant date, and are generally subject to continued employment of the executive officer with the Company. For information regarding the
performance shares units granted to our Covered Executives during 2014, see discussion below under “2014 Performance Share Units.” According to the Compensation
Policy, equity-based awards shall generally be granted on an annual basis.
For information regarding aggregate equity-based compensation awarded in 2014 to current executive officers, see “Aggregate Executive Compensation” above.
2014 Performance Share Units
The Compensation Committee and the Board have determined that the performance goals for the performance share units (“PSUs”) granted to three of our
Covered Executives during 2014 be based on our long-range plan approved by the Board. PSUs cliff vest three years from grant.
The Compensation Committee and the Board further approved that the number of PSUs earned subject to vesting (“Earned PSUs”) be based on the achievement
of the PSU performance goals comprised of our cumulative non-GAAP operating profit and cumulative non-GAAP net revenue, for the years 2014-2016 in accordance
with the following table:
(*)
Level of Achievement of
Performance Goals*
% Achievement of
Performance Goals
Potential Earned PSUs
Threshold
Target
Maximum
90% or less
100%
120%
—
100%
150%
Payouts for performance between threshold and target are determined linearly based on a straight-line interpolation of the applicable payout range (i.e., 10% for
each percentile change in performance). Payouts for performance between target and maximum are determined linearly based on a straight-line interpolation of
the applicable payout range (i.e., 2.5% for each percentile change in performance).
Under certain circumstances set forth in the award agreements, the Compensation Committee and the Board shall have the discretion to adjust (increase or
decrease) the PSU performance goals and their relative weights.
Unless determined otherwise in an award agreement, (i) if a participant ceases to be employed by the Company or an affiliate, as applicable, for any reason other
than death, disability, a qualifying retirement, or by the Company or such affiliate for cause, prior to the time that such participant’s Earned PSUs have vested, such
participant’s unvested PSUs will expire as of the date of such termination and all vesting of PSUs shall cease, (ii) if a participant’s employment is terminated for cause,
or the participant resigns in circumstances where the Company or an affiliate, as applicable, is entitled to terminate such participant’s employment for cause, prior to
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the time such Earned PSUs have settled, such participant’s PSUs (whether or not vested and whether or not Earned PSUs) will be forfeited as of the date of such
termination, (iii) in the event of termination due to death, disability or a qualifying retirement prior to the time that the Earned PSUs have vested, the participant’s PSUs
shall be earned based on actual performance during the three-year period and continue to vest in accordance with their original vesting schedule as if no such
termination had occurred.
Compensation of Directors
As approved by our shareholders at our 2012 annual meeting, except as provided below, each of our directors from time to time, including statutory independent
directors, is entitled to an annual fee in the NIS equivalent of $190,000, plus a per meeting fee in the NIS equivalent of $2,000, in each case based on an exchange rate
on the date of the approval by shareholders, plus VAT, as applicable. These payments were adjusted based on the Israeli Consumer Price Index (“CPI”).
As approved by our shareholders, Dr. Phillip Frost, our Chairman of the Board of Directors until December 31, 2014 and a director until February 4, 2015,
received an annual fee in the NIS equivalent of $900,000 (based on an exchange rate on the date of the approval by shareholders) plus VAT (as applicable) for such
time as Dr. Frost served as Chairman of the Board. This payment was also adjusted based on the CPI. Dr. Frost did not receive any per meeting fees. Dr. Frost was also
entitled to reimbursement for his out-of-pocket transportation costs related to the use of his airplane in connection with his participation in meetings of the Board of
Directors and committees of the Board of Directors and other Company activities, up to an annual amount of $700,000, for such time as Dr. Frost served as Chairman of
the Board of Directors. In addition, Dr. Frost was provided with an office and secretarial services.
Prof. Yitzhak Peterburg, our Chairman of the Board since January 1, 2015, is currently paid the same annual and meeting fees paid to other directors, as
described above. However, it is the intention of the Company to bring to shareholder approval at its upcoming general meeting the compensation to be paid to Prof.
Peterburg in connection with his service as Chairman of the Board.
Following Mr. Vigodman’s appointment as Teva’s President and Chief Executive Officer, he waived the fees due in his capacity as a member of the Board of
Directors.
None of our directors have agreements with us relating to their service as directors that provide for benefits upon termination of service.
Israeli law sets minimum and maximum amounts and other rules regarding compensation that may be paid to the statutory independent directors and the
designated independent directors. Israeli law further provides that the remuneration of these independent directors may be determined relative to that of other directors
of the company, as is the case with our statutory independent directors and our designated independent directors. Accordingly, if we change the remuneration payable,
whether the annual fee or the per meeting fee, to other directors, the remuneration for each statutory independent director and designated independent director will be
adjusted, without further approval, so that it will be equivalent to the average remuneration payable to such other directors, all subject to Israeli law.
Director Remuneration for 2014
The aggregate compensation paid to our directors (including the directors whose service ended during the year and our Chairman during 2014, but excluding the
payments for our President and Chief Executive Officer, in such capacity) as a group during or with respect to 2014 was $4,620,015.
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Insurance, Indemnification and Release
As approved by our shareholders, and consistent with the Compensation Policy, Teva purchases directors’ and officers’ liability insurance for its directors and
executive officers. In addition, Teva releases its directors from liability and indemnifies them to the fullest extent permitted by law and its Articles of Association, and
provides them with indemnification and release agreements for this purpose. For additional information, see “Item 10—Memorandum and Articles of
Association—Insurance, Exemption and Indemnification of Directors and Executive Officers” below.
Board Practices
Our Board of Directors currently consists of 13 persons, including our President and Chief Executive Officer, of whom 12 have been determined to be
independent within the meaning of applicable NYSE regulations, including our two statutory independent directors and our two designated independent directors (as
further described below). See “Statutory Independent Directors, Designated Independent Directors and Financial Experts” below. The directors’ terms are set forth in
the table above. We do not consider Erez Vigodman, our President and Chief Executive Officer, to be independent under the NYSE regulations.
Our directors are generally entitled to review and retain copies of our documentation and examine our assets, as required to perform their duties as directors and
to receive assistance, in special cases, from outside experts at our expense (subject to approval by the Board of Directors or by court).
Principles of Corporate Governance. We have adopted a set of corporate governance principles, which is available on our website at www.tevapharm.com.
Annual Meetings. We encourage our directors to attend annual shareholder meetings. Ten of our directors attended our last annual shareholder meeting, held on
July 30, 2014.
Director Terms and Education. Our directors are generally elected in classes for terms of approximately three years. We believe that overlapping multi-year
terms allow our directors to acquire and provide us with the benefit of a high level of expertise with respect to our complex business. We provide an orientation
program and a continuing education process for our directors, which include business briefings, provision of materials, meetings with key management, and visits to
Company facilities.
Board Meetings. At least six meetings of the Board of Directors are held throughout the year to review significant developments affecting Teva and to consider
matters requiring approval of the Board of Directors, with additional meetings scheduled when important matters require Board action between scheduled meetings. A
majority of the meetings convened, but not fewer than four, must be in Israel. Members of senior management regularly attend Board meetings to report on and discuss
their areas of responsibility. In 2014, each director attended at least 75% of the meetings of the Board of Directors and Board committees on which he or she served.
Executive Sessions of the Board. Selected members of management are typically invited by the Board of Directors to attend regularly scheduled Board meetings
(or portions thereof). Our directors meet in executive session (i.e., without the presence of management) generally after each regularly scheduled Board meeting and
additionally as needed. In addition, our independent directors meet separately in executive session at least once per year and as needed. Executive sessions are chaired
by Prof. Yitzhak Peterburg.
Director Service Contracts. We do not have any contracts with any of our non-employee directors that provide for benefits upon termination of services.
Information regarding director compensation can be found under “Compensation of Directors” above.
Communications with the Board. Shareholders, employees and other interested parties can contact any director or committee of the Board of Directors by
writing to them care of Teva Pharmaceutical Industries
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Limited, 5 Basel Street, Petach Tikva, Israel, Attn: Company Secretary or Internal Auditor. Comments or complaints relating to Teva’s accounting, internal controls or
auditing matters will also be referred to members of the audit committee, as well as other appropriate Teva bodies. The Board of Directors has adopted a global
“whistleblower” policy, which provides employees and others with an anonymous means of communicating with the audit committee.
Nominees for Directors. In accordance with the Israeli Companies Law, a nominee for service as a director must submit a declaration to Teva, prior to his or her
election, specifying that he or she has the requisite qualifications to serve as a director and the ability to devote the appropriate time to performing his or her duties as
such. All of our directors have provided such a declaration. A director who ceases to meet the statutory requirements to serve as a director (including as a statutory
independent director or a designated independent director) must notify Teva to that effect immediately and his or her service as a director will terminate upon
submission of such notice.
Statutory Independent Directors, Designated Independent Directors and Financial Experts
Under Israeli law, publicly held Israeli companies such as Teva are required to appoint at least two statutory independent directors, who must also serve on the
audit and compensation committees. All other committees exercising powers delegated by the board of directors must include at least one such statutory independent
director.
Statutory independent directors are appointed at the general meeting of shareholders and must meet certain independence criteria, all as provided under Israeli
law. A statutory independent director is appointed for an initial term of three consecutive years, and may be reappointed for additional three-year terms, subject to
certain conditions (including approval by our shareholders at a general meeting) as provided under the Israeli Companies Law and the regulations thereunder.
Jean-Michel Halfon and Joseph Nitzani currently serve in this capacity, with terms ending on July 30, 2017 and September 25, 2017, respectively.
Israeli law further requires that a statutory independent director have either financial and accounting expertise or professional competence, as determined by the
company’s board of directors according to criteria set forth under Israeli law, and generally at least one statutory independent director is required to have financial and
accounting expertise. Teva has adopted a policy requiring that at least two directors qualify as, and be determined, financial and accounting experts, in addition to the
statutory independent director holding such expertise. In accordance with Israeli law and this policy, the Board of Directors has determined that Galia Maor, Joseph
Nitzani and Erez Vigodman are financial and accounting experts under Israeli law.
In addition to the statutory independent directors, a director in a company such as Teva, who qualifies as an independent director under the relevant non-Israeli
rules relating to independence standards, may be considered a designated independent director pursuant to the Israeli Companies Law if such director meets certain
conditions listed in the Israeli Companies Law and regulations thereunder, provided such director has been designated as such by the audit committee. The audit
committee has designated Galia Maor and Ory Slonim as designated independent directors under the Israeli Companies Law.
Committees of the Board
Our Articles of Association provide that the Board of Directors may delegate its powers to one or more committees as it deems appropriate to the extent such
delegation is permitted under the Israeli Companies Law. Each committee exercising powers delegated by the Board must be comprised only of members of the Board
and include at least one statutory independent director, and the audit and compensation committees must include all statutory independent directors. The Board of
Directors has appointed the standing committees listed below, as well as committees appointed from time to time for specific purposes determined by the Board.
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We have adopted charters for all of our standing committees, formalizing the committees’ procedures and duties. These committee charters are available on our
website at www.tevapharm.com.
Audit Committee
Members:
J. Nitzani (Chairman)
A. Elstein
J.-M. Halfon (Vice Chairman)
G. Maor
O. Slonim
The Israeli Companies Law mandates the appointment of an audit committee comprising at least three directors. Under the Israeli Companies Law, the audit
committee must include all of the statutory independent directors, one of which shall serve as the chairman of the committee, must be comprised of a majority of
directors meeting certain independence criteria and may not include certain directors. As a NYSE-listed company, Teva’s audit committee must be comprised solely of
independent directors, as defined by the SEC and NYSE regulations.
The responsibilities of our audit committee include, among others: (a) identifying flaws in the management of our business and making recommendations to the
Board of Directors as to how to correct them and providing for arrangements regarding employee complaints with respect thereto; (b) making determinations and
considering providing approvals concerning certain related party transactions and certain actions involving conflicts of interest; (c) reviewing the internal auditor’s
performance and approving the internal audit work program and examining our internal control structure and processes and (d) examining the independent auditor’s
scope of work and fees and providing the corporate body responsible for determining the independent auditor’s fees with its recommendations; Furthermore, the audit
committee discusses the financial statements and presents to the Board of Directors its recommendations with respect to the proposed financial statements.
In accordance with the Sarbanes-Oxley Act and NYSE requirements, the audit committee is directly responsible for the appointment, compensation and
oversight of the work of Teva’s independent auditors. In addition, the audit committee is responsible for assisting the Board of Directors in monitoring Teva’s financial
statements, the effectiveness of Teva’s internal controls and Teva’s compliance with legal and regulatory requirements. The audit committee also discusses Teva
policies with respect to risk assessment and risk management, including any off-balance sheet arrangements, and reviews contingent liabilities and risks that may be
material to Teva and major legislative and regulatory developments that could materially impact Teva’s contingent liabilities and risks.
The audit committee charter sets forth the scope of the committee’s responsibilities, including its structure, processes and membership requirements; the
committee’s purpose; its specific responsibilities and authority with respect to registered public accounting firms, complaints relating to accounting, internal accounting
controls or auditing matters, and its authority to engage advisors as determined by the audit committee.
All of the audit committee members have been determined to be independent as defined by the applicable NYSE and SEC rules, and Galia Maor and Ory
Slonim, current members of the audit committee, have been designated by the audit committee as designated independent directors under the Israeli Companies Law.
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The Board of Directors has determined that, of the current directors, Galia Maor and Joseph Nitzani are “audit committee financial experts” as defined by
applicable SEC regulations. See “Item 16A—Audit Committee Financial Expert” below.
Human Resources and Compensation Committee
Members:
J.-M. Halfon (Chairman)
R. Abravanel
J. Nitzani (Vice Chairman)
Prof. R. Lerner
Publicly held Israeli companies are required to appoint a compensation committee comprising at least three directors. The compensation committee must include
all of the statutory independent directors, one of whom must serve as the chairman of the committee, and must include only additional members who satisfy the criteria
for remuneration applicable to the statutory independent directors. Teva’s Compensation Committee includes only independent directors, as defined by the SEC and
NYSE regulations.
The responsibilities of our Compensation Committee include, among others: (i) reviewing and making recommendations to the Board of Directors with respect
to the approval of a policy regarding the terms of office and employment of the company’s directors and executive officers; (ii) reviewing and resolving whether or not
to approve arrangements with respect to the terms of office and employment of directors and executive officers; (iii) overseeing the management of our compensation
and other human resources-related issues and otherwise carrying out its responsibilities, and assisting the Board of Directors in carrying out its responsibilities, relating
to these issues; and (iv) establishing annual and long-term performance goals and objectives for our executive officers, as well as reviewing our overall compensation
philosophy and policies.
Corporate Governance and Nominating Committee
Members:
A. Elstein (Chairman)
R. Abravanel
O. Slonim (Vice Chairman)
G. Maor
J. Nitzani
The role of our corporate governance and nominating committee is to (i) identify individuals who are qualified to become directors; (ii) recommend to the Board
of Directors director nominees for each annual meeting of shareholders; and (iii) assist the Board of Directors in establishing and reviewing corporate governance
principles and promoting good corporate governance at Teva.
All of the committee members must be determined to be independent as defined by the applicable NYSE rules.
Finance and Investment Committee
Members:
G. Maor (Chairperson)
R. Abravanel
A. Elstein (Vice Chairman)
J. Nitzani
The role of our finance and investment committee is to assist the Board of Directors in fulfilling its responsibilities with respect to our financial and investment
strategies and policies, including determining policies on these matters and monitoring implementation. It is also authorized to approve certain financial
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transactions and review Teva’s financial risk management policies, as well as various other finance-related matters, including our global tax structure and allocation
policies. According to the committee’s charter, at least one of the committee’s members must be qualified as a financial and accounting expert under applicable SEC
regulations and/or the Israeli Companies Law.
The Board of Directors has determined that, of the current directors, Galia Maor and Joseph Nitzani are financial and accounting experts under Israeli law.
Corporate Responsibility Committee
Members:
O. Slonim (Chairman)
Dr. S. Barer
J.-M. Halfon (Vice Chairman)
J. Nitzani
The role of our corporate responsibility committee is to oversee, on behalf of the Board of Directors Teva’s: (i) commitment to being a responsible corporate
citizen; (ii) policies and practices for complying with laws, regulations and internal procedures; (iii) policies and practices regarding issues that have the potential to
seriously impact Teva’s business and reputation; (iv) global public policy positions; and (v) community outreach.
A majority of committee members must be determined to be independent as defined by the applicable NYSE rules. The Chairperson of the audit committee must
serve as a member of the committee.
Science and Technology Committee
Members:
Dr. S. Barer (Chairman)
J.-M. Halfon
Dr. A. Belldegrun (Vice Chairman)
Prof. R. Lerner
Prof. Y. Peterburg
Our science and technology committee advises and assists the Board of Directors in the oversight of Teva’s research and development programs and technology.
The committee’s authority includes reviewing and advising the Board of Directors on Teva’s overall strategy, direction and effectiveness of its research and
development programs and reviewing and making recommendations to the Board of Directors and management with respect to Teva’s pipeline and intellectual property
portfolio. The science and technology committee also reviews and makes recommendations to the Board of Directors regarding the scientific, medical and research and
development aspects of certain transactions including acquisitions, licenses, investments, collaborations and grants, in accordance with Teva’s policies and procedures.
All members of the committee (other than the statutory independent director whose membership is required by Israeli Companies law) must be determined to
have scientific, medical or other related expertise. A majority of committee members must be determined to be independent as defined by the applicable NYSE rules.
Employees
As of December 31, 2014, we employed approximately 43,000 full-time-equivalent employees. In certain countries, we are party to collective bargaining
agreements with certain groups of employees. We consider our labor relations with our employees around the world to be good.
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The following table presents our employees by geographic area:
December 31,
2014
2013
2012
United States
Europe
Rest of the World (excluding Israel)
Israel
6,608
18,232
11,202
6,967
7,372
19,811
10,599
7,163
8,011
19,749
10,791
7,397
Total
43,009
44,945
45,948
Share Ownership
As of December 31, 2014, our directors and executive officers as a group beneficially held 19,579,637 Company shares (representing approximately 2.3% of the
outstanding shares as of such date). These figures include options to purchase Company shares that were vested on such date or that were scheduled to vest within the
following 60 days. These figures also include 14,596,504 shares beneficially owned by Dr. Phillip Frost, a member of our Board of Directors until February 4, 2015,
representing approximately 1.7% of the outstanding shares. Dr. Frost was the only director or officer who held 1% or more of our outstanding shares as of
December 31, 2014.
For information regarding equity awards granted to our executive officers, see “Compensation” above and, with respect to our stock-based compensation plans
in general, see note 15 to our consolidated financial statements.
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ITEM 7:
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
Based on information known to us, as of January 27, 2015, FMR LLC (Fidelity) beneficially owned 47,862,763 Teva shares, representing approximately 5.6%
of Teva’s outstanding shares. To the best knowledge of Teva, as of February 9, 2015, no other shareholder beneficially owned 5% or more of Teva’s ordinary shares.
All holders of Teva ordinary shares have one vote per share.
As of December 31, 2014, there were approximately 3,423 record holders of ADSs, whose holdings represented approximately 85.7% of the total outstanding
ordinary shares. Substantially all of the record holders are residents of or domiciled in the U.S.
Related Party Transactions
In December 2012, Teva entered into a collaborative development and exclusive worldwide license agreement with Xenon for its compound XEN402. XEN402
(now designated TV-45070 by Teva) targets sodium channels found in sensory nerve endings that can increase in chronic painful conditions, and is currently in Phase II
clinical development for a variety of pain-related disorders. Under the agreement, Teva paid Xenon an upfront fee of $41 million. In addition, Teva may be required to
pay development, regulatory and sales-based milestones of up to $335 million. Xenon is also entitled to royalties on sales and has an option to participate in
commercialization in the United States. As required by the agreement, in November 2014, Teva invested an additional $10 million in Xenon in connection with its
initial public offering. Dr. Michael Hayden, Teva’s President of Global R&D and Chief Scientific Officer, is the founder, a minority shareholder and a member of the
board of directors of Xenon. In order to avoid potential conflicts of interest, Teva has established certain procedures to exclude Dr. Hayden from involvement in Teva’s
decision-making related to Xenon.
In September 2011, Teva entered into an agreement with CoCrystal Discovery, Inc. (now CoCrystal Pharmaceuticals, Inc.), a company focusing on the
discovery and development of novel therapeutics, utilizing an innovative drug discovery technology. Under the agreement, Teva agreed to fund the company’s R&D by
investing up to two tranches of $7.5 million each per target (the latter one being discretionary). The first tranche was invested by Teva in 2011. We terminated this
agreement effective as of November 2014. Dr. Phillip Frost, our Chairman of the Board of Directors until December 2014 and a member of our Board of Directors until
February 4, 2015, and Prof. Roger Kornberg, who was a member of our Board of Directors until August 2013, are both direct and indirect shareholders in and members
of the board of directors of CoCrystal Pharmaceuticals. Prof. Roger Kornberg is also Chief Scientific Officer of CoCrystal Pharmaceuticals.
CTG Weld Limited, a privately owned contract research organization, has rendered services to Teva in connection with clinical trials since 2002. In 2011, Chaim
Hurvitz, a member of our Board of Directors until July 2014, invested in, and became a member of the board of directors of CTG Weld. In 2014, 2013 and 2012, Teva
paid CTG Weld approximately €0.6 million, €0.8 million and €1.3 million, respectively, in connection with various clinical studies.
Teva leases 13,500 square feet of office space located in Miami, Florida from an entity controlled by Dr. Frost, Teva’s Chairman of the Board until December
2014 and a director until February 4, 2015. The term of the lease extends until April 2015, with Teva options to renew for two additional three-year terms. Annual rent
was $305,000 until April 1, 2012, $412,000 until March 31, 2013, $431,442 until March 31, 2014 and is currently $448,700 until March 31, 2015, increasing 4% per
year, for each renewal term. The office space includes offices Teva provided Dr. Frost in his capacity as Chairman of the Board.
All of the related party transactions described above were reviewed and approved in accordance with the provisions of the Israeli Companies Law, Teva’s
Articles of Association and Teva policy, as described in “Item 10—Conflicts of Interest—Approval of Related Party Transactions.”
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ITEM 8:
FINANCIAL INFORMATION
Consolidated Statements and Other Financial Information
See “Item 18—Financial Statements.”
Legal Proceedings
Teva is subject to various litigation and other legal proceedings. For a discussion of these matters, see “Contingencies” included in note 14b to our consolidated
financial statements.
Dividend Policy
See “Item 3—Key Information—Selected Financial Data—Dividends.”
Significant Changes
No significant changes have occurred since December 31, 2014, except as otherwise disclosed in this annual report and in our consolidated financial statements.
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ITEM 9:
THE OFFER AND LISTING
ADSs
Teva’s American Depositary Shares (“ADSs”), which have been traded in the United States since 1982, were admitted to trade on the Nasdaq National Market in
October 1987 and were subsequently traded on the Nasdaq Global Select Market. On May 30, 2012, Teva transferred the listing of its ADSs to the New York Stock
Exchange (the “NYSE”). The ADSs are quoted under the symbol “TEVA.” JPMorgan Chase Bank, N.A. serves as depositary for the shares. As of December 31, 2014,
Teva had 729,850,138 ADSs outstanding. Each ADS represents one ordinary share.
The following table sets forth, for the periods indicated, the high and low intraday prices of our ADSs on the NYSE, in U.S. dollars.
Period
High
Low
Last six months:
January 2015
December 2014
November 2014
October 2014
September 2014
August 2014
61.90
58.95
58.87
57.10
54.25
54.75
54.53
54.48
55.67
47.36
50.39
50.64
Last nine quarters:
Q1 2015 (until January 31)
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
61.90
58.95
55.70
54.70
52.94
41.74
41.65
40.48
41.16
54.53
47.36
50.39
48.35
39.64
36.26
37.36
37.42
36.97
Last five years:
2014
2013
2012
2011
2010
58.95
41.74
46.65
57.08
64.95
39.64
36.26
36.63
35.00
46.99
On January 31, 2015, the last reported sale price for our ADSs on the NYSE was $56.86 per ADS.
Various other stock exchanges quote derivatives and options on our ADSs under the symbol “TEVA”.
Ordinary Shares
Teva’s ordinary shares have been listed on the Tel Aviv Stock Exchange (“TASE”) since 1951. As of December 31, 2014, Teva had 851,871,888 ordinary shares
outstanding, including ordinary shares underlying outstanding ADSs.
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The following table sets forth, for the periods indicated, the high and low intraday sale prices of our ordinary shares on the TASE, in NIS and U.S. dollars. The
translation into dollars is based on the daily representative rate of exchange published by the Bank of Israel.
On January 31, 2015, the last reported sale price of our ordinary shares on the TASE was NIS 223.90 per share. The TASE also quotes options on our ordinary
shares.
Period
High
NIS
Low
$
NIS
$
Last six months:
January 2015
December 2014
November 2014
October 2014
September 2014
August 2014
237.70
230.90
225.10
210.00
199.50
190.70
59.00
58.90
58.84
55.94
54.22
53.93
217.80
213.20
211.00
187.00
182.70
175.80
55.13
54.32
55.49
50.04
50.52
50.63
Last nine quarters:
Q1 2015 (until January 31)
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
237.70
230.90
199.50
187.30
181.30
146.80
148.30
147.90
152.30
59.00
58.90
54.22
53.76
51.76
41.53
41.49
40.30
41.26
217.80
187.00
175.80
168.60
138.70
128.00
131.90
135.10
136.60
55.13
50.04
50.63
48.44
39.88
36.20
37.60
37.68
36.99
Last five years:
2014
2013
2012
2011
2010
230.90
152.30
174.30
205.90
242.70
58.90
41.26
46.05
55.70
64.95
138.70
128.00
137.10
129.80
176.90
39.88
36.20
36.70
34.99
48.82
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ITEM 10:
ADDITIONAL INFORMATION
Memorandum and Articles of Association
Set forth below is a summary of certain provisions of Teva’s Memorandum of Association (the “Memorandum”) and Articles of Association (the “Articles”) and
the Israeli Companies Law. This description does not purport to be complete and is qualified in its entirety by reference to the full text of the Memorandum and Articles,
which are filed as exhibits to this report and incorporated by reference herein, and by Israeli law.
Register
Teva’s registration number at the Israeli registrar of companies is 52-001395-4.
Objectives and Purposes
Our Articles and Memorandum provide that our purpose is to engage in any lawful endeavor, including, without limitation, to carry on the business of chemists,
drugs, manufacturer of, and dealership in pharmaceuticals.
Board of Directors
Teva’s board of directors consists of three classes of directors (not including the two statutory independent directors, who do not form part of any class). One of
the classes is elected each year by the shareholders at Teva’s annual meeting for a term of approximately three years. Directors so elected cannot be removed from
office by the shareholders until the expiration of their term of office, unless they violate their duties of care or loyalty.
Pursuant to the Israeli Companies Law, Teva is required to appoint at least two statutory independent directors. Such appointment is for an initial term of three
years, which may be extended for additional three-year terms subject to certain conditions.
The holders of Teva’s ordinary shares representing a majority of the voting power represented at a shareholders’ meeting and voting at the meeting have the
power to elect all of the directors up for election, provided that statutory independent directors must also receive the approval of a certain majority of the votes of the
shareholders who are not controlling shareholders and do not have a personal interest in the matter (other than a personal interest which is not the result of an affiliation
with a controlling shareholder).
In general, the Board formulates company policy and supervises the performance of the duties and operations of the chief executive officer. Subject to the
provisions of the Israeli Companies Law and the Articles, any Teva power that has not been conferred upon another body may be exercised by the Board.
Neither Teva’s Memorandum or Articles, nor Israeli law, mandate retirement of directors at a certain age, or share ownership for a director’s qualification.
Conflicts of Interest
Approval of Related Party Transactions
The Israeli Companies Law requires that an “office holder” (as defined in the Israeli Companies Law) of a company promptly disclose any personal interest that
he or she may have and all related material information known to him or her, in connection with any existing or proposed transaction of the company.
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Pursuant to the Israeli Companies Law, any transaction with an office holder or in which the office holder has a personal interest must be brought before the
audit committee, in order to determine whether such transaction is an “extraordinary transaction” (defined as a transaction not in the ordinary course of business, not on
market terms or likely to have a material impact on the company’s profitability, assets or liabilities).
Pursuant to the Articles and Teva policy, in the event the audit committee determines that the transaction is not an extraordinary transaction, the transaction will
require only audit committee approval; if, however, it is determined to be an extraordinary transaction, Board approval is also required, and in some circumstances
shareholder approval may also be required. Such a transaction may only be approved by the Board if it is determined to be in the best interests of Teva.
A person with a personal interest in the matter generally may not be present at meetings of the Board or certain committees where the matter is being considered
and, if a member of the Board or a committee, may not vote on the matter.
Transactions with Controlling Shareholders
Under Israeli law, extraordinary transactions with a controlling shareholder or in which the controlling shareholder has a personal interest and any engagement
with a controlling shareholder or a controlling shareholder’s relative with respect to the provision of services to the company or with their Terms of Office and
Employment as an office holder or as another employee generally require the approval of the audit committee (or with respect to Terms of Office and Employment, the
Compensation Committee), the board of directors and the shareholders. If required, shareholder approval must include at least a majority of the shareholders who do not
have a personal interest in the transaction and are present and voting at the meeting (abstentions are disregarded), or that the total shareholdings of the disinterested
shareholders who vote against the transaction must not represent more than two percent of the voting rights in the company. Transactions for a period of more than three
years generally need to be brought for approval in accordance with the above procedures every three years.
A shareholder that holds 25% or more of the voting rights in a company is considered a controlling shareholder for these purposes if no other shareholder holds
more than 50% of the voting rights. If two or more shareholders are interested parties in the same transaction, their shareholdings are combined for the purposes of
calculating percentages.
Approval of Director and Executive Officer Compensation
The Terms of Office and Employment of office holders, other than the chief executive officer and directors, require the approval of both Teva’s Compensation
Committee and the Board. The Terms of Office and Employment of the chief executive officer and the directors require the approval of the Compensation Committee,
the Board and shareholders. See “Item 6—Directors, Senior Management and Employees—Compensation.”
Insurance, Exemption and Indemnification of Directors and Executive Officers
Teva releases its directors and executive officers from liability and indemnifies them to the fullest extent permitted by law and its Articles, and provides them
with indemnification and release agreements for this purpose, in the form approved at the 2012 annual general meeting of shareholders. Under the indemnification and
release agreements, Teva’s undertaking to indemnify each director and executive officer for monetary liabilities imposed by a court judgment (including a settlement or
an arbitrator’s award that was approved by a court) (i) shall be limited to matters that are connected or otherwise related to those events or circumstances set forth
therein, and (ii) shall not exceed $200 million in the aggregate per director or executive officer. Under Israeli law, indemnification is subject to other limitations,
including those described below. Subject to applicable law, the Company may also indemnify its directors and officers following specific events.
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Teva’s directors and executive officers are also covered by directors’ and officers’ liability insurance.
The Israeli Companies Law provides that a company may not exempt or indemnify a director or an executive officer, or enter into an insurance contract, which
would provide coverage for any liability incurred as a result of any of the following: (i) a breach by the director and/or executive officer of his or her duty of loyalty
except, with respect to insurance coverage or indemnification, due to a breach of his or her duty of loyalty to the company committed in good faith and with reasonable
grounds to believe that such act would not prejudice the interests of the company; (ii) a breach by the director and/or the executive officer of his or her duty of care to
the company committed intentionally or recklessly (other than if solely done in negligence); (iii) any act or omission done with the intent of unlawfully realizing
personal gain; or (iv) a fine, monetary sanction, forfeit or penalty imposed upon a director and/or executive officer. In addition, the Israeli Companies Law provides that
directors and executive officers can only be exempted in advance with respect to liability for damages caused as a result of a breach of their duty of care to the company
(but not for such breaches committed intentionally or recklessly, as noted above, or in connection with a distribution (as defined in the Israeli Companies Law)).
CEO and Center of Management
Under Teva’s Articles, Teva’s chief executive officer as well as the majority of the members of the Board are required to be residents of Israel, unless Teva’s
center of management has been transferred to another country in accordance with the Articles. The Articles require that Teva’s center of management be in Israel,
unless the Board otherwise resolves, with a supermajority of three-quarters of the participating votes.
Dividends
Dividends may only be distributed out of profits, provided that there is no reasonable concern that the distribution will prevent Teva from satisfying its existing
and anticipated obligations when they become due. In accordance with the Israeli Companies Law and the Articles, the decision to distribute dividends and the amount
to be distributed is made by the board of directors.
Description of Ordinary Shares
The par value of Teva’s ordinary shares is NIS 0.10 per share, and all issued and outstanding ordinary shares are fully paid and non-assessable. Holders of
ordinary shares are entitled to participate equally in the payment of dividends and other distributions and, in the event of liquidation, in the distributions after the
discharge of liabilities to creditors. All ordinary shares represented by the ADSs will be issued in registered form only. Ordinary shares do not entitle their holders to
preemptive rights. Voting is on the basis of one vote per share.
Neither the Memorandum, nor the Articles or the laws of the State of Israel restrict the ownership or voting of Teva’s ordinary shares or ADSs by non-residents
or persons who are not citizens of Israel, except with respect to citizens or residents of countries that are in a state of war with Israel.
Meetings of Shareholders
Under the Israeli Companies Law and the Articles, Teva is required to hold an annual meeting every year, no later than
15 months after the previous annual meeting. In addition, the Board is required to convene a special meeting of shareholders:
(i)
upon the demand of two directors or one-quarter of the serving directors;
(ii)
upon the demand of one or more shareholders holding not less than 5% of Teva’s issued share capital and 1% or more of its voting rights; and
(iii)
upon the demand of one or more shareholders holding at least 5% of Teva’s voting rights;
provided that a demand by a shareholder to convene a special shareholders meeting must set forth the items to be considered at that meeting and comply with all other
requirements of applicable law and the Articles.
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Pursuant to the Articles, such requirements to be included in the demand include, among others:
(i)
the number of shares held by the demanding shareholder, directly or indirectly, and, if any of such shares are held indirectly, an explanation of how they
are held and by whom;
(ii)
if such demanding shareholder is not the holder of record of any such shares, a written statement from the holder of record or authorized bank, broker,
depository or other nominee, as the case may be, indicating the number of shares the demanding shareholder is entitled to vote;
(iii)
the demanding shareholder’s purpose in making the request;
(iv)
any agreements, arrangements, understandings or relationships between the demanding shareholder and any other person with respect to any securities of
Teva or the subject matter of the request;
(v)
the complete text of the resolution that the demanding shareholder proposes to be voted upon; and
(vi)
if the demanding shareholder wishes to include a statement in support of his or her proposal in Teva’s proxy statement, if provided or published, a copy of
such statement.
If the board of directors receives a demand to convene a special meeting, it must announce the scheduling of the meeting within 21 days after the demand was
delivered.
The agenda at a general meeting is determined by the Board. The agenda must also include proposals for which the convening of a special meeting was
demanded, as well as any proposal requested by one or more shareholders who hold at least 1% of Teva’s voting rights. Pursuant to a recent amendment to Israeli law,
such a proposal requested by a shareholder needs to be submitted within seven days of publication of the notice with respect to the company’s general meeting of
shareholders, or, if the company publishes a preliminary notice stating its intention to convene such meeting and the agenda thereof, within 14 days of such preliminary
notice. Under Teva’s Articles, such a proposal requested by a shareholder to include a matter on the agenda of a general meeting must be submitted in writing to the
Company no later than 14 days after the date of first publication by the Company of its annual consolidated financial statements preceding the annual meeting at which
the shareholders are to receive the consolidated financial statements for such year. Any such demands must comply with the requirements of applicable law and the
Articles. Pursuant to the Articles, these requirements include requirements similar to those mentioned above with respect to a demand by a shareholder for a special
shareholders meeting.
Pursuant to the Israeli Companies Law, the regulations thereunder and our Articles, Teva is generally required to announce the convening of shareholder
meetings at least 35 days in advance. Pursuant to the Articles, Teva is not required to deliver personal notices of a general meeting or of any adjournment thereof to any
shareholder. However, Teva will publish its decision to convene a general meeting in a manner reasonably determined by Teva, including by publishing a notice in one
or more daily newspapers in Israel or in one or more international wire services, and such notice will be deemed to have been duly given on the date of such publication.
The shareholders entitled to participate and vote at the meeting are the shareholders as of the record date set forth in the decision to convene the meeting. Under Israeli
regulations, in certain circumstances public companies may be required to send voting cards and position papers to their shareholders. Under our Articles, shareholder
meetings are required to be convened in Israel, unless the Company’s center of management has been transferred to another country in accordance with the Articles.
The quorum required for a meeting of shareholders consists of at least two shareholders present in person or by proxy or represented by an authorized
representative, who jointly hold 25% or more of Teva’s paid-up share capital. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the
following week at the same time and place or at another date, time and place as shall be set forth by the Board in a notice to all persons who are entitled to receive
notice of general meetings. Should no legal quorum be present at such reconvened meeting a half hour following the time set for such meeting, the required quorum
consists of any two shareholders present, in person or by proxy, who jointly hold 20% or more of Teva’s paid-up share capital.
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A shareholder who intends to vote at a meeting must demonstrate ownership of shares in accordance with the Israeli Companies Law and the regulations
thereunder. Under these regulations, a shareholder whose shares are registered with a member of the Tel Aviv Stock Exchange must provide Teva with an authorization
from such member regarding his ownership as of the record date.
The Israeli Companies Law provides that resolutions on certain matters, such as amending a company’s articles of association, exercising the authority of the
board of directors in certain circumstances, appointing auditors, appointing statutory independent directors, approving certain transactions, increasing or decreasing the
registered share capital and approving certain mergers, must be made by the shareholders at a general meeting. A company may determine in its articles of association
certain additional matters in respect of which resolutions by the shareholders at a general meeting will be required.
Generally, under the Articles, shareholder resolutions (for example, a resolution for the appointment of auditors) are deemed adopted if approved by the holders
of a simple majority of the voting rights represented at a general meeting in person or by proxy and voting, unless a different majority is required by law or pursuant to
the Articles. Pursuant to the Israeli Companies Law and the Articles, certain resolutions (for example, resolutions amending many of the provisions of the Articles)
require the affirmative vote of at least 75% of the shares voting in person or by proxy, and certain amendments of the Articles require the affirmative vote of at least
85% of the shares voting in person or by proxy, unless a lower percentage shall have been established by the Board by a majority of three-quarters of those directors
voting at a meeting of the Board held prior to that general meeting.
Change of Control
Subject to certain exceptions, the Israeli Companies Law provides that a merger requires approval both by the board of directors and by the shareholders of each
of the merging companies. Similarly, unless an Israeli court determines otherwise, a merger will not be approved if it is objected to by shareholders holding a majority
of the voting rights participating and voting at the meeting (abstentions are disregarded), after excluding the shares held by the other party to the merger, by any person
who holds 25% or more of the other party to the merger or by anyone on their behalf, including the relatives of or corporations controlled by these persons.
In approving a merger, the board of directors of both merging companies must determine that there is no reasonable concern that, as a result of the merger, the
surviving company will not be able to satisfy its obligations to its creditors. Similarly, upon the request of a creditor of either party to the proposed merger, an Israeli
court may prevent or delay the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will not be able to
satisfy the obligations of the merging parties. A court may also issue other instructions for the protection of the creditors’ rights in connection with a merger. Further, a
merger may not be completed unless at least (i) 50 days have passed from the time that the requisite proposals for the approval of the merger were filed with the Israeli
registrar of companies; and (ii) 30 days have passed since the merger was approved by the shareholders of each party.
Under the Israeli Companies Law, subject to certain exceptions, an acquisition of shares in a public company must be made by means of a tender offer if, as a
result of the acquisition, the purchaser would hold (i) 25% or more of the voting rights of the company if there is no other holder of 25% or more of the company’s
voting rights; or (ii) more than 45% of the voting rights of the company if there is no other holder of more than 45% of the company’s voting rights. This rule does not
apply to a purchase of shares in a “private placement” by the company that receives shareholder approval. The board of directors must provide the shareholders with its
opinion as to the advisability of the tender offer, or if it is unable to do so, may refrain from providing such opinion, provided that it reports the reasons for not so doing.
The board of directors must also disclose any personal interest of any of its members in the proposed acquisition. The tender offer may be consummated only if (i) at
least 5% of the company’s voting rights will be acquired; and (ii) the majority of the offerees who responded to the offer accepted the offer, excluding offerees who are
controlling shareholders of the offerer, offerees who hold 25% or more of the voting rights in the company or who have a personal interest in accepting the tender offer,
or anyone on their behalf or on behalf of the offerer including the relatives of or corporations controlled by these persons.
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Exchange Controls
Non-residents of Israel who purchase ADSs with U.S. dollars or other non-Israeli currency will be able to receive dividends, if any, and any amounts payable
upon the dissolution, liquidation or winding up of the affairs of Teva, in U.S. dollars at the rate of exchange prevailing at the time of conversion. Dividends to
non-Israeli residents are subject to withholding. See “Israeli Taxation-Withholding Taxes on Dividends Distributed by Teva to Non-Israeli Residents” below.
Taxation
U.S. Taxation Applicable to Holders of Our Ordinary Shares and ADSs
U.S. Federal Income Tax Considerations
The following is a summary of material U.S. federal income tax consequences to U.S. Holders of ADSs who hold such securities as capital assets. For purposes
of this summary, a “U.S. Holder” means a beneficial owner of an ADS that is for U.S. federal income tax purposes:
•
a citizen or resident of the United States;
•
a corporation (or another entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United States or
under the laws of the United States or any political subdivision thereof;
•
an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
•
a trust, if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust, or if the trust was in existence on August 20, 1996 and has elected to continue to be treated as a U.S.
person.
If an entity that is classified as a partnership for U.S. federal tax purposes holds ADSs, the U.S. federal income tax treatment of its partners will generally depend
upon the status of the partners and the activities of the partnership. Entities that are classified as partnerships for U.S. federal tax purposes and persons holding ADSs
through such entities should consult their own tax advisors.
This summary is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), existing final, temporary and proposed regulations thereunder,
judicial decisions and published positions of the Internal Revenue Service, and the treaty between the U.S. and Israel relating to income taxes, all as of the date of this
annual report and all of which are subject to change (including changes in interpretation), possibly with retroactive effect. It is also based in part on representations by
the depositary and assumes that each obligation under the deposit agreement and any related agreement will be performed in accordance with its terms.
This summary does not purport to be a complete analysis of all potential tax consequences of owning ADSs. In particular, this discussion does not take into
account the specific circumstances of any particular investor (such as tax-exempt entities, certain insurance companies, broker-dealers, investors subject to the
alternative minimum tax, investors that actually or constructively own 10% or more of Teva’s voting securities, investors that hold ordinary shares or ADSs as part of a
straddle or hedging or conversion transaction, traders in securities that elect to mark to market, banks or other financial institutions, partnerships or other entities
classified as partnerships for U.S. federal income tax purposes or investors whose functional currency is not the U.S. dollar), some or all of which may be subject to
special rules. Investors are advised to consult their own tax advisors with respect to the tax consequences of the ownership of ADSs, including the consequences under
applicable state and local law and federal estate tax law, and the application of foreign laws or the effect of nonresident status on U.S. taxation.
U.S. Holders of ADSs will be treated as owners of the ordinary shares underlying their ADSs. Accordingly, deposits and withdrawals of ordinary shares in
exchange for ADSs will not be taxable events for U.S. federal income tax purposes.
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The U.S. Treasury has expressed concerns that parties to whom ADSs are released may be taking actions that are inconsistent with the claiming of foreign tax
credits for U.S. Holders of ADSs. Such actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends
received by certain non-corporate U.S. Holders. Accordingly, the analysis of the availability of foreign tax credits and the reduced tax rate for dividends received by
certain non-corporate U.S. Holders, described below, could be affected by actions taken by parties to whom the ADSs are released.
Taxation of Distributions to U.S. Holders
The amount of any distribution paid to a U.S. Holder, including any Israeli taxes withheld from the amount of such distribution, will be subject to U.S. federal
income taxation as ordinary income from sources outside the U.S. to the extent paid out of current or accumulated earnings and profits, as determined for U.S. federal
income tax purposes. Subject to applicable limitations, dividends paid to non-corporate U.S. Holders are generally subject to tax at a maximum rate of 15%, or 20% in
the case of taxpayers with annual taxable income that exceeds certain thresholds. To the extent that an amount received by a U.S. Holder exceeds that U.S. Holder’s
allocable share of current and accumulated earnings and profits, such excess will be applied first to reduce that U.S. Holder’s tax basis in the shares and then, to the
extent the distribution exceeds that U.S. Holder’s tax basis, will be treated as a capital gain. Any dividend received will not be eligible for the dividends-received
deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations.
Dividends paid in NIS will be included in a U.S. Holder’s income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of the
U.S. Holder’s (or, in the case of ADSs, the depositary’s) receipt of the dividend, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend
is converted into U.S. dollars on the date of receipt, a U.S. Holder should generally not be required to recognize foreign currency gain or loss in respect of the dividend
income. A U.S. Holder may have foreign currency gain or loss, which will be treated as income from sources within the U.S., if he or she does not convert the amount
of such dividend into U.S. dollars on the date of receipt.
Subject to applicable limitations that may vary depending on a U.S. Holder’s circumstances, Israeli taxes withheld from dividends on Teva ADSs at the rate
provided by the U.S.-Israel tax treaty will be creditable against a U.S. Holder’s U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is
calculated separately with respect to specific classes of income. The rules governing foreign tax credits are complex, and, therefore, U.S. Holders should consult their
own tax advisor regarding the availability of foreign tax credits in their particular circumstances. Instead of claiming a credit, a U.S. Holder may elect to deduct such
otherwise creditable Israeli taxes in computing taxable income, subject to generally applicable limitations.
Taxation of the Disposition of ADSs
Upon the sale or exchange of ADSs, a U.S. Holder will generally recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the
difference between the amount realized and the U.S. Holder’s tax basis determined in U.S. dollars in the ADSs. The gain or loss will generally be gain or loss from
sources within the U.S. for foreign tax credit limitation purposes. In general, a capital gain realized by a non-corporate U.S. Holder is subject to tax at ordinary rates for
ADSs held for one year or less and at the long-term capital gains rate (of up to 15% or 20%, as applicable) for ADSs held for more than one year. A U.S. Holder’s
ability to deduct capital losses is subject to limitations.
The surrender of ADSs in exchange for ordinary shares, or vice versa, will not be a taxable event for U.S. federal income tax purposes, and U.S. Holders will not
recognize any gain or loss upon such an exchange.
Under the Patient Protection and Affordable Care Act, certain U.S. Holders (individuals, estates or trusts) having income above certain threshold amounts are
subject to additional tax at a rate of 3.8% on their “net investment income,” which includes dividends and capital gains from ordinary shares and ADSs.
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U.S. Information Reporting and Backup Withholding
A U.S. Holder generally will be subject to information reporting with respect to dividends paid on, or proceeds from the sale or other disposition of, an ADS
unless the U.S. Holder is a corporation or is included in another category of exempt recipients. If it is not exempt, a U.S. Holder may also be subject to backup
withholding with respect to dividends or proceeds from the sale or disposition of an ADS unless a taxpayer identification number is provided and the other applicable
requirements of the backup withholding rules are complied with. Any amount withheld under these rules will be creditable against the U.S. Holder’s U.S. federal
income tax liability or refundable to the extent that it exceeds such liability, provided that the required information is timely furnished to the Internal Revenue Service.
U.S. Holders should review the summary below under “Israeli Taxation” for a discussion of the Israeli taxes which may be applicable to them.
Israeli Taxation Applicable to Holders of Our Ordinary Shares and ADSs
Withholding Taxes on Dividends Distributed by Teva to Non-Israeli Residents
Dividends distributed by an Israeli company to non-Israeli residents are generally subject to 25% withholding tax, unless a lower rate is provided in a treaty
between Israel and the shareholder’s country of residence. In the case of dividends distributed from taxable income under the Approved Enterprise regime, the rate
applied is 15% or 20%. When the dividends are distributed from income attributed to the Strategic Investment Track, the rate applied is 0%.
Under the U.S.-Israel tax treaty, the maximum Israeli tax and withholding tax on dividends paid to a holder of ordinary shares or ADSs who is a resident of the
U.S. is generally 25%, but is reduced to 12.5% if the dividends are paid to a corporation that holds in excess of 10% of the voting rights of Teva, under certain
circumstances. Dividends of an Israeli company derived from income under the Approved Enterprise regime will still be subject to a 15% or 20% dividend withholding
tax; provided that, if the dividend is attributable partly to income derived from an Approved Enterprise, and partly to other sources of income, the withholding rate will
be a blended rate reflecting the relative portions of the two types of income. The withheld tax is the final tax in Israel on dividends paid to non-residents who do not
conduct business in Israel. The rate of tax to be withheld on Teva’s dividends for the fourth quarter of 2014 is 15%.
A non-resident of Israel who has interest or dividend income derived from or accrued in Israel, from which tax was withheld, is generally exempt from the duty
to file tax returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by the taxpayer.
Capital Gains and Income Taxes Applicable to Non-Israeli Shareholders
Israeli law generally imposes a capital gains tax on the sale of securities and any other capital asset.
Gains on the sale of ordinary shares traded on a recognized stock exchange (including the Tel Aviv Stock Exchange and the NYSE) by non-Israeli tax resident
investors will generally be exempt from Israeli capital gains tax.
In addition, the U.S.-Israel tax treaty exempts U.S. residents who hold an interest of less than 10% in an Israeli company, including Teva, and who did not hold
an interest of 10% or more in the company at any time during the 12 months prior to a sale of their shares, from Israeli capital gains tax in connection with such sale.
Certain other tax treaties to which Israel is a party also grant exemptions from Israeli capital gains taxes.
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Taxation Applicable to the Company
Corporate Tax Rate
The regular corporate tax rate in Israel effective as of January 1, 2014 is 26.5% (and 25% in 2013). However, Teva’s effective consolidated tax rate for 2014 was
16% and effective consolidated tax benefit rates (tax benefit as a percentage of pre-tax income) for the years 2013 and 2012 were 3% and 8%, respectively. Teva’s
effective tax rate is lower than the Israeli statutory rate, since a major portion of Teva’s income is derived from “Approved Enterprises,” which have a lower tax rate
than the statutory rate. Consolidated tax rates are also affected by operations outside of Israel, in countries where Teva has benefited from lower tax rates and expenses
incurred in countries with a higher tax burden (mostly the U.S.). The increase in 2014 effective tax rate compared to previous years is mainly attributed to the expiration
of the tax exemption we benefited from through the end of 2013, under the previous Israeli incentives regime, as further detailed below.
The Company elected to compute its taxable income in accordance with the Israeli Income Tax Regulations (Rules for Accounting for Foreign Investors
Companies and Certain Partnerships and Setting their Taxable Income), 1986. Accordingly, the Company’s taxable income or loss is calculated in U.S. dollar terms.
Applying these regulations reduces the effect of U.S. dollar-to-NIS exchange rate fluctuations on the Company’s Israeli taxable income.
Law for the Encouragement of Industry (Taxes), 1969 (the “Industry Encouragement Law”)
Teva and certain of its Israeli subsidiaries currently qualify as “Industrial Companies” pursuant to the Industry Encouragement Law. As such, Teva and these
subsidiaries qualify for certain tax benefits, including amortization of the purchase price of a good-faith acquisition of a patent or of certain other intangible property
rights at a rate of 12.5% per annum and the right to file consolidated tax returns. Currently, Teva files consolidated tax returns together with certain Israeli subsidiaries.
The tax laws and regulations provide that industrial enterprises such as those of Teva and its subsidiaries which qualify as “Industrial Companies” can claim special
rates of depreciation of up to 40% on a linear basis for industrial equipment.
Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any government authority. There can be no
assurance that Teva or any of its Israeli subsidiaries that presently qualify as Industrial Companies will continue to qualify as such in the future, or that the benefits will
be granted in the future.
Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”)
Incentives Applicable until 2013
Under the incentives regime applicable to the Company until 2013, industrial projects of Teva and certain of its Israeli subsidiaries were eligible for “Approved
Enterprise” status. The tax benefits derived from any such Approved Enterprise related only to taxable profits attributable to the specific program of investment to
which the status was granted. In the event that Teva and its subsidiaries that have been granted Approved Enterprise status were operating under more than one
approval, or in the event that their capital investments were only partly approved, their effective corporate tax rate was the result of a weighted combination of the
various rates applicable.
Most of Teva’s projects in Israel have been granted Approved Enterprise status. The vast majority of those Approved Enterprises elected to apply for alternative
tax benefits—the waiver of government grants in return for tax exemptions on undistributed income or reduced tax rates. Upon distribution of such exempt income, the
distributing company is subject to corporate tax at the rate ordinarily applicable to the Approved Enterprise’s income. Such tax exemption on undistributed income
applied for a limited period of between two to ten years, depending upon the location of the enterprise. During the remainder of the benefits period (generally until the
expiration of a ten-year period), a corporate tax rate not exceeding 25% applied.
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Teva qualified as a foreign investors company, or FIC, under the incentives regime applicable until 2013. FICs were entitled to further reductions in the tax rate
normally applicable to Approved Enterprises, depending on the level of foreign ownership. Depending on the foreign ownership in each tax year, the tax rate ranged
between 10% (when foreign ownership is 90% or more) to 25% (when the foreign ownership was below 49%).
Dividends paid by a company, the source of which is income derived from the Approved Enterprise accrued during the benefits period, are generally taxed at a
rate of 15% (which is withheld and paid by the company paying the dividend) if such dividends were paid during the benefits period or at any time up to 12 years
thereafter. The 12-year limitation does not apply to a FIC.
Starting in April 2005, under amendment 60 to the Investment Law (“Amendment 60”), with a view to simplifying the bureaucratic process, an industrial project
was automatically qualified for Approved Enterprise status and benefits if it met all of the eligibility criteria under the Investment Law, with no need for prior approval
from the Investment Center. Eligibility for the tax benefits is examined by the tax authorities as part of the tax audit of the Company’s annual tax returns.
Amendment 60 introduced the Strategic Investment Track, applicable to companies that had an Approved Enterprise in Development Zone A that met certain
investment and revenue thresholds. Income accrued under this track during the benefits period was exempt from corporate tax. In addition, dividends distributed from
such income are also exempt from Israeli tax. Teva has one approved program under this track.
Amendment 69 to the Investment Law
Pursuant to amendment 69 to the Investment Law (“Amendment 69”), a company that elected by November 11, 2013, to pay a corporate tax rate as set forth in
that amendment (rather than the tax rate applicable to Approved Enterprise income) with respect to undistributed exempt income accumulated by the company up until
December 31, 2011, is entitled to distribute a dividend from such income without being required to pay additional corporate tax with respect to such dividend. A
company that has so elected must make certain qualified investments in Israel over the five-year period commencing in 2013. The election is irrevocable.
During 2013, we applied the provisions of Amendment 69 to certain exempt profits we accrued prior to 2012. Consequently, we paid $577 million in corporate
tax on exempt income of $9.4 billion. Part of this income was distributed as dividends during 2013, while the remainder is available to be distributed as dividends in
future years with no additional corporate tax liability.
The application of Amendment 69 to its tax exempt profits requires Teva to invest $286 million in its industrial enterprises in Israel over a five-year period
ending in 2017, either in the acquisition of industrial assets (excluding real estate assets); investment in R&D in Israel; or salaries paid to new employees who joined the
enterprise, relative to the number of employees employed in the enterprise at the end of the 2011 fiscal year, excluding payroll payment to “office holders” (as such
term is defined in the Israeli Companies Law). Teva has already invested the entire required amount during 2013.
The New Incentives Regime—Amendment 68 to the Investment Law
Under amendment 68 to the Investment Law (“Amendment 68”), which Teva started applying in 2014, upon an irrevocable election made by a company, a
uniform corporate tax rate will apply to all qualifying industrial income of such company (“Industrial Company”), as opposed to the previous law’s incentives, which
were limited to income from Approved Enterprises during the benefits period. Under the law, when the election is made, the uniform tax rate for 2014 and onwards is
9% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel. The profits of these “Industrial Companies” will be freely distributable as
dividends, subject to a 20% withholding tax or lower, under an applicable tax treaty. Certain “Special Industrial Companies” that meet more stringent criteria
(significant investment, R&D or employment thresholds) will
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enjoy further reduced tax rates of 5% in Zone A and 8% elsewhere. In order to be classified as a “Special Industrial Company,” the approval of three governmental
authorities in Israel is required.
Teva is currently examining its eligibility to be regarded as a “Special Industrial Company” under the new law.
Taxation of Non-Israeli Subsidiaries
Non-Israeli subsidiaries are generally taxed based upon tax laws applicable in their countries of residence. In accordance with the provisions of Israeli-controlled
foreign corporation rules, certain income of a non-Israeli subsidiary, if the subsidiary’s primary source of income is passive income (such as interest, dividends,
royalties, rental income or income from capital gains), may be deemed distributed as a dividend to the Israeli parent company and consequently is subject to Israeli
taxation. Once a dividend is actually distributed, the dividend income would be reduced in the amount of the deemed dividend on which tax was already paid.
Documents on Display
Teva files annual and special reports and other information with the SEC. You may inspect and copy such material at the public reference facilities maintained
by the SEC, 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of such material from the SEC at prescribed rates by writing to the Public
Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference
room.
The SEC maintains an Internet website at http://www.sec.gov that contains reports, proxy statements, information statements and other material that are filed
through the SEC’s Electronic Data Gathering, Analysis and Retrieval (“EDGAR”) system. Teva began filing through the EDGAR system beginning on October 31,
2002.
Teva also files annual and special reports and other information with the Israeli Securities Authority through its fair disclosure electronic system called
MAGNA. You may review these filings on the website of the MAGNA system operated by the Israeli Securities Authority at www.magna.isa.gov.il or on the website
of the TASE at www.tase.co.il.
Teva’s ADSs are quoted on the New York Stock Exchange. Information about Teva is also available on its website at http://www.tevapharm.com. Such
information on its website is not part of this annual report.
ITEM 11:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
A significant portion of our revenues are from sales outside the United States and are recorded in local currencies. Similarly, much of our operating costs are
incurred in currencies other than the U.S. dollar. We are also exposed to interest rate risk from our financial assets and liabilities.
We take various measures to compensate for the effects of fluctuations in both exchange and interest rates. These measures include traditional currency hedging
transactions as well as transactions intended to maintain a balance between monetary assets and liabilities in each of our principal operating currencies, mainly the U.S.
dollar (where the U.S. dollar is not the functional currency), the new Israeli shekel (NIS), the euro (EUR), the Swiss franc (CHF), the Canadian dollar (CAD), the
British pound (GBP), the Hungarian forint (HUF), the Russian ruble (RUB), the Croatian kuna (HRK), the Czech koruna (CZK), other European currencies and Latin
American currencies such as the Brazilian real (BRL) and the Mexican peso (MXN). The costs and gains resulting from such instruments, to the extent they do not
qualify for hedge accounting, are included under the caption “financial expenses—net.”
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Although we are typically able to borrow funds in U.S. dollars, NIS or any other major currency, we generally prefer to borrow in U.S. dollars. However, loans
are generally subject to the functional currency of the borrowing subsidiary in order to reduce the volatility of financial expenses.
We use financial instruments and derivatives in order to limit our exposure to risks deriving from changes in exchange and interest rates. The use of such
instruments does not expose us to additional exchange or interest rate risks because the derivatives are covered in the corresponding underlying asset or liability. No
derivative instruments are entered into for trading purposes.
Our derivative transactions during 2014 were executed through international as well as local Israeli and Hungarian banks and other financial institutions. In the
opinion of management, in light of our diversified derivative transaction portfolio, any credit risk associated with any of these banks or financial institutions is minimal.
Exchange Rate Risk Management
Balance Sheet Exposure
We hedge against exposures arising from the gap between current assets and current liabilities that are recorded in various currencies (“balance sheet exposure”)
in subsidiaries whose functional currency is different than the exposure denominated currency. The majority of the balance sheet exposures in such subsidiaries are in
European currencies, Canadian dollars and NIS. In our European and Latin American subsidiaries, we protect against balance sheet exposures that are generally in U.S.
dollars and European currencies. We strive to limit our exposure through “natural” hedging, i.e., by matching levels of assets and liabilities in any given currency. The
remaining exposure is substantially covered by the use of derivative instruments. To the extent possible, this is done on a consolidated basis.
The table below presents all exposures above $50 million. Most of the functional currencies are the local currencies and do not include shareholders equity
exposure:
Net exposure as of December 31, 2014
Liability/Asset
(in USD, millions)
HUF/USD
CHF/USD
USD/ CAD
EUR/CHF
USD/GBP
USD/ILS
USD/EUR
USD/MXN
EUR/JPY
AUD/USD
USD/JPY
USD/BRL
USD/HRK
425
293
197
155
113
103
100
82
58
56
52
52
50
Total
1,736
Cash Flow Exposure
Total revenues amounted to $20.3 billion in 2014. Of these revenues, 55% were in U.S. dollars, 19% in euros and the rest in other currencies, none of which
accounted for more than 3% of total revenues in 2014. In most currencies, we record corresponding expenses.
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In certain currencies, primarily the euro, our expected revenues exceed our expected expenses. Conversely, in other currencies, primarily the new Israeli shekel
and the Hungarian forint, our expected expenses are higher than our expected revenues. For those currencies which do not have a sufficient natural hedge within our
operations, we may choose to hedge in order to reduce the impact of currency fluctuations on our operating results.
In 2014, we entered into hedging transactions to protect our new Israeli shekel-denominated expenses in 2014 and 2015 new Israeli shekel exchange rate
fluctuations against the U.S. dollar.
In Europe, a significant portion of our profits is at risk due to the potential depreciation of the euro. We hedge part of the exposure resulting from the
strengthening of the U.S. dollar against the euro. In 2014, we entered into hedging transactions to protect our European subsidiaries from potential exposure resulting
from the strengthening of the U.S. dollar against the euro in 2014 and 2015.
Specific Transaction Exposure
In certain cases, we protect in whole or in part against exposure arising from a specific transaction, such as an acquisition of a company or assets effected in a
currency other than the relevant functional currency, by entering into forward contracts and by using the “cylinder strategy” (purchasing call or put options on the U.S.
dollar, often together with writing put or call options on the U.S. dollar at a lower exchange rate). In order to reduce costs, Teva also uses “knock-in” strategies as well
as writing put options. Teva usually limits hedging transactions to three-month terms.
Foreign Exchange Hedging
At December 31, 2014, we had long and short forwards and currency option contracts with corresponding value of approximately $3 billion and $310 million,
respectively. At December 31, 2013, we had long and short forwards and currency option contracts with corresponding values of $2.6 billion and $465 million,
respectively.
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The table below presents derivative instruments purchased to limit exposures to foreign exchange rate fluctuations for all exposure types, as of December 31,
2014.
Cross
Currency
(bought)
Currency (sold)
Net Notional Value*
2014
2014 Weighted
Average Cross
Currency
Prices or
Strike Prices
Fair Value
2013
2014
2013
(U.S. dollars in millions)
Forward:
USD
USD
CAD
CHF
NIS
GBP
EUR
JPY
GBP
MXN
HRK
EUR
USD
BRL
RON
RUB
HUF
CHF
USD
EUR
USD
USD
USD
EUR
EUR
USD
USD
CAD
AUD
USD
EUR
USD
415
300
196
163
144
103
94
79
78
74
71
57
56
52
**
**
441
258
229
152
**
142
102
**
67
**
68
**
55
**
63
165
(23.0)
(6.5)
2.0
—
3.0
1.0
3.0
(0.5)
(1.0)
4.5
1.0
2.0
(1.5)
1.0
—
—
13.0
4.5
1.0
(1.0)
—
(1.5)
(0.5)
—
—
—
(0.5)
—
(0.5)
—
0.5
(1.0)
246.95
0.97
1.15
1.20
3.83
1.57
1.26
146.7
0.79
13.9
6.21
1.46
0.84
2.62
—
—
Options:
EUR
USD
USD
USD
NIS
CHF
180
100
—
374
—
63
14.0
(1.0)
—
(5.5)
—
0.5
1.32
3.75
—
2,162
2,179
(2.0)
9.0
Total
*
**
The table presents only currency pairs with hedged net notional values of more than $50 million at December 31, 2014.
Represents amounts of less than $50 million.
Interest Rate Risk Management
We raise capital through various debt instruments, including straight notes that bear a fixed or variable interest rate, syndicated bank loans bearing floating
interest rates, securitizations and convertible debentures that bear a fixed interest rate. In some cases, as described below, we have swapped from a fixed interest rate to
a floating interest rate (“fair value hedge”), from a floating interest rate to a fixed interest rate and from a fixed interest rate to a fixed interest rate with an exchange
from a currency other than the functional currency (“cash flow hedge”), thereby reducing overall interest expenses or hedging risks associated with interest rate
fluctuations.
The below table presents the aggregate outstanding notes amounts which are subject to interest rate swaps, with and without a currency exchange element, as of
December 31, 2014 and 2013.
December 31,
2014
2013
U.S. $ in millions
Interest rate swap—fair value hedge
Cross currency swap—cash flow hedge
$ 1,750
1,875
$ 2,500
1,875
Total
$ 3,625
$ 4,375
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Our cash is invested in bank deposits and money market funds bearing an interest rate which is mostly dependent on floating rates. The bank deposits are spread
among several banks, primarily international, U.S. and European banks. We also hold long term investments in the amount of $0.1 billion.
We currently hold two range accrual notes with a total face value of $100 million that pay high interest as long as LIBOR remains below a certain threshold.
The counterparties are comprised mainly of major banks and, in light of the current financial environment, we are monitoring the associated inherent credit risks.
Our indebtedness, the interest rate range it bears and its repayment schedule by currency as at December 31, 2014 are set forth in the table below in U.S. dollar
equivalent terms, taking into account the above-described swap transactions.
Total
Amount
Currency
Interest Rate
Range
Fixed Rate:
USD straight bonds
EUR
JPY
USD convertible debentures*
CHF
3,512
3,086
957
530
455
2.25%
2.36%
0.98%
0.25%
Floating Rate:
USD
EUR
JPY
Others
1,298
148
339
2
1.48%
Total:
0.41%
2015
2016
2017
(U.S. dollars in millions)
7.20%
3.85%
2.50%
0.25%
1.50%
1,000
37
530
1.48%
1.08%
0.45%
0.50%
148
46
10,327
950
28
2018
2019
2020 &
thereafter
15
568
16
1,213
304
455
1,298
293
2
1,761
978
568
779
1,517
* 0.25% $530 million principal amount of convertible senior debentures were classified under short term debt.
ITEM
12D: DESCRIPTION OF TEVA AMERICAN DEPOSITARY SHARES
Fees and Charges Payable by ADS Holders
JPMorgan Chase Bank, N.A. serves as the depositary (the “depositary”) for Teva’s American Depositary Share (“ADS”) program. Pursuant to a deposit
agreement among Teva, the depositary and the holders from time to time of ADSs, ADS holders may be required to pay the following fees to the depositary:
•
any applicable taxes and other governmental charges;
•
any applicable transfer or registration fees;
•
certain cable, telex and facsimile transmission charges as provided in the deposit agreement;
•
any expenses incurred in the conversion of foreign currency;
•
a fee of $5.00 or less per 100 ADSs (or a portion of such amount of ADSs) for the delivery of ADSs in connection with the deposit of ordinary
shares, distributions in ordinary shares on the surrender of ADSs or the distribution of rights on the ordinary shares;
•
a fee of $0.02 or less per ADS for any cash distributions on the ordinary shares;
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•
a fee of $5.00 or less per 100 ADSs (or a portion of such amount of ADSs) for the distribution of securities on the ordinary shares (other than
ordinary shares or rights thereon);
•
a fee of $0.02 or less per ADS annually for depositary services performed by the depositary and/or the custodian (which may be charged directly to
the owners or which may be withheld from cash distributions, at the sole discretion of the depositary); and
•
a fee for the reimbursement of other expenses incurred by the depositary in connection with the ADS program (which fee shall be assessed on a
proportionate basis to the holders of the ADSs).
Fees Payable by the Depositary to Teva
Pursuant to an agreement with the Company, the depositary has agreed to pay Teva, on an annual basis per contract year, (i) up to $1.3 million of certain
reimbursable expenses related to the ADS program (including listing fees, legal, audit and accounting fees, costs relating to investor relations activities and broker
reimbursement expenses), (ii) 90% of the net issuance and cancellation fees collected by the depositary (i.e., net of custodian allocations and custody fees related to the
depositary program) in excess of $1.7 million and (iii) 85% of any cash dividend fee or annual administrative servicing fee collected under the deposit agreement. As a
result, the depositary paid Teva an aggregate of approximately $1.3 million with respect to 2014, including fees waived.
ITEM 13:
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14:
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
PART II
ITEM 15:
CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. Teva’s chief executive officer and chief financial officer, after evaluating the effectiveness of Teva’s disclosure
controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this annual report, have concluded that, as of such date,
Teva’s disclosure controls and procedures were effective to ensure that the information required in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and such information is accumulated and communicated
to its management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Report of Teva Management on Internal Control over Financial Reporting. Teva’s board of directors and management are responsible for establishing and
maintaining adequate internal control over financial reporting. Teva’s internal control system was designed to provide reasonable assurance to Teva’s management and
board of directors regarding the reliability of financial reporting and the preparation and fair presentation of its published consolidated 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.
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Teva’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making this assessment, it
used the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on such assessment, management has concluded that, as of December 31, 2014, Teva’s internal control over financial reporting is effective based on
those criteria.
(c) Attestation Report of the Registered Public Accounting Firm. Teva’s internal control over financial reporting as of December 31, 2014 has been audited by
Kesselman & Kesselman, an independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited (“PwC”), as stated
in their report which is included under “Item 18—Financial Statements” on page F-2 of this annual report.
(d) Changes in Internal Control over Financial Reporting. There were no changes to Teva’s internal control over financial reporting that occurred during the
period covered by this annual report that have materially affected, or are reasonably likely to materially affect, Teva’s internal control over financial reporting.
ITEM 16:
ITEM 16A:
[RESERVED]
AUDIT COMMITTEE FINANCIAL EXPERTS
Teva’s Board of Directors has determined that Joseph Nitzani and Galia Maor, members of its audit committee, are “audit committee financial experts,” as
defined by applicable SEC regulations, and are independent in accordance with applicable SEC and NYSE regulations.
ITEM 16B:
CODE OF ETHICS
Teva has adopted a code of business conduct applicable to its directors, executive officers, and all other employees. A copy of the code is available to every Teva
employee on Teva’s intranet site, upon request to its human resources department, and to investors and others on Teva’s website at http://www.tevapharm.com or by
contacting Teva’s investor relations department, legal department or the internal auditor. Any waivers of this code for executive officers or directors will be disclosed
through the filing of a Form 6-K or on Teva’s website. The Board of Directors has approved a whistleblower policy which functions in coordination with Teva’s code
of business conduct and provides an anonymous means for employees and others to communicate with various bodies of Teva, including the audit committee. Teva has
also implemented a training program for new and existing employees concerning the code of business conduct and whistleblower policy.
ITEM 16C:
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Policy on Pre-Approval of Audit and Non-Audit Services of Independent Auditors
Teva’s audit committee is responsible for the oversight of its independent auditors’ work. The audit committee’s policy is to pre-approve all audit and non-audit
services provided by PwC and other members of PricewaterhouseCoopers International Limited. These services may include audit services, audit-related services, tax
services and other services, as further described below. The audit committee sets forth the basis for its pre-approval in detail, listing the particular services or categories
of services which are pre-approved, and setting forth a specific budget for such services. Additional services may be pre-approved by the audit committee on an
individual basis. Once services have been pre-approved, PwC and management then report to the audit committee on a periodic basis regarding the extent of services
actually provided in accordance with the applicable pre-approval, and regarding the fees for the services performed. Such fees for 2014 and 2013 were pre-approved by
the audit committee in accordance with these procedures.
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Principal Accountant Fees and Services
Teva paid the following fees for professional services rendered by PwC and other members of PricewaterhouseCoopers International Limited, for the years
ended December 31:
2014
2013
(U.S. $ in thousands)
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
$ 11,936
1,078
5,356
549
$ 11,946
917
6,703
1,256
$ 18,919
$ 20,822
The audit fees for the years ended December 31, 2014 and 2013 were for professional services rendered for the integrated audit of Teva’s annual consolidated
financial statements and its internal control over financial reporting as of December 31, 2014 and 2013, review of consolidated quarterly financial statements, statutory
audits of Teva and its subsidiaries, issuance of comfort letters, consents and assistance with review of documents filed with the SEC.
The audit-related fees for the years ended December 31, 2014 and 2013 were for services in respect of due diligence related to mergers and acquisitions,
accounting consultations and audits in connection with acquisitions, employee benefit plan audits, internal control reviews, attest services that are not required by
statute or regulation and consultations concerning financial accounting and reporting standards.
Tax fees for the years ended December 31, 2014 and 2013 were for services related to tax compliance, including the preparation of tax returns and claims for
refund, and tax planning and tax advice, including assistance with tax audits and appeals, advice related to mergers and acquisitions, tax services for employee benefit
plans and assistance with respect to requests for rulings from tax authorities.
All other fees for the years ended December 31, 2014 and 2013 were for providing assistance in respect of a risk management program relating to one of the
Company’s products, review services relating to a corporate integrity agreement, the purchase of accounting research tools and training regarding general financial
reporting developments.
ITEM 16D:
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not Applicable.
ITEM 16E:
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
On December 21, 2011, our Board of Directors authorized us to repurchase up to an aggregate amount of $3 billion of our ordinary shares/ADSs, of which $1.3
billion remained available for purchase. In October 2014, the Board of Directors authorized us to increase our share repurchase program by $1.7 billion to $3 billion.
The repurchase program has no time limit. As of the end of 2014, we repurchased shares and ADSs for an amount of $0.5 billion, so that the outstanding amount
available for purchase under this program is $2.5 billion.
During 2014, we repurchased approximately 8.7 million shares at a weighted average price of $57.43 per share, for an aggregate purchase price of $500 million.
125
Table of Contents
Set forth below is a summary of the shares repurchased by us during 2014 and the approximate dollar value of securities that may yet be purchased under this
program:
Number of shares
purchased during
the month
(in thousands)
As of December 31, 2013
October 2014
November 2014
December 2014
Total
ITEM 16F:
Average price paid per
share (U.S. dollars)
Total number of
shares purchased
(in thousands)
Approximate
dollar value of
securities remaining
that may be purchased
(in millions)
40,898
354
5,997
2,355
$
$
$
$
40.77
56.53
57.72
56.82
40,898
41,252
47,249
49,604
$
$
$
$
1,332
2,980
2,634
2,500
49,604
$
43.70
49,604
$
2,500
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not Applicable.
ITEM 16G:
CORPORATE GOVERNANCE
Teva is in compliance with corporate governance standards as currently applicable to Teva under Israeli and U.S. laws, SEC regulations and NYSE listing
standards.
ITEM 16H:
MINE SAFETY DISCLOSURE
Not Applicable.
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PART III
ITEM 17:
FINANCIAL STATEMENTS
See “Item 18: Financial Statements.”
ITEM 18:
FINANCIAL STATEMENTS
The following financial statements are filed as part of this annual report on Form 20-F:
page
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Balance sheets
Statements of income
Statements of comprehensive income
Statements of changes in equity
Statements of cash flows
Notes to consolidated financial statements
F-2
F-3
F-4
F-5
F-6
F-7
F-9
Financial Statement Schedule:
Report of Independent Registered Public Accounting Firm
Schedule II—Valuation and Qualifying Accounts
S-1
S-2
127
Table of Contents
ITEM 19:
EXHIBITS
1.1
Memorandum of Association (1)(2)
1.2
Amendment to Memorandum of Association (1)(3)
1.3
Articles of Association (1)(4)
2.1
Amended and Restated Deposit Agreement, dated November 5, 2012, among Teva Pharmaceutical Industries Limited, JPMorgan Chase Bank N.A., as
depositary, and the holders from time to time of shares (5)
2.2
Form of American Depositary Receipt (5)
2.3
Senior Indenture, dated as of January 31, 2006, by and among Teva Pharmaceutical Finance Company LLC, Teva Pharmaceutical Industries Limited
and The Bank of New York, as Trustee (6)
2.4
First Supplemental Senior Indenture, dated as of January 31, 2006, by and among Teva Pharmaceutical Finance Company LLC, Teva Pharmaceutical
Industries Limited and The Bank of New York, as Trustee (6)
2.5
Second Supplemental Senior Indenture, dated as of January 31, 2006, by and among Teva Pharmaceutical Finance Company LLC, Teva Pharmaceutical
Industries Limited and The Bank of New York, as Trustee (6)
2.6
Form of Global Debentures (included in Exhibits 2.4 and 2.5)
2.7
Senior Indenture, dated as of June 18, 2010, by and among Teva Pharmaceutical Finance II B.V., Teva Pharmaceutical Industries Limited and The Bank
of New York Mellon, as Trustee (7)
2.8
First Supplemental Senior Indenture, dated as of June 18, 2010, by and among Teva Pharmaceutical Finance II B.V., Teva Pharmaceutical Industries
Limited and The Bank of New York Mellon, as Trustee (7)
2.9
Form of Global Notes (included in Exhibit 2.8)
2.10
Senior Indenture, dated as of November 10, 2011, by and among Teva Pharmaceutical Finance IV, LLC, Teva Pharmaceutical Industries Limited and
The Bank of New York Mellon (8)
2.11
Second Supplemental Senior Indenture, dated as of December 18, 2012, by and among Teva Pharmaceutical Finance IV, LLC, Teva Pharmaceutical
Industries Limited and The Bank of New York Mellon (9)
2.12
Form of Global Notes (Included in Exhibit 2.11)
2.13
Senior Indenture, dated as of November 10, 2011, by and among Teva Pharmaceutical Finance Company B.V., Teva Pharmaceutical Industries Limited
and The Bank of New York Mellon (8)
2.14
First Supplemental Senior Indenture, dated as of November 10, 2011, by and among Teva Pharmaceutical Finance Company B.V., Teva Pharmaceutical
Industries Limited and The Bank of New York Mellon (8)
2.15
Forms of Global Notes (included in Exhibit 2.14)
2.16
Second Supplemental Senior Indenture, dated as of December 18, 2012, by and among Teva Pharmaceutical Finance Company B.V., Teva
Pharmaceutical Industries Limited and The Bank of New York Mellon (9)
2.17
Forms of Global Notes (included in Exhibit 2.16)
2.18
Senior Indenture, dated as of November 10, 2011, by and among Teva Pharmaceutical Finance IV B.V., Teva Pharmaceutical Industries Limited and
The Bank of New York Mellon (8)
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Table of Contents
2.19
First Supplemental Senior Indenture, dated as of November 10, 2011, by and among Teva Pharmaceutical Finance IV B.V., Teva Pharmaceutical
Industries Limited and The Bank of New York Mellon (8)
2.20
Form of Global Notes (included in Exhibit 2.19)
2.21
Second Supplemental Senior Indenture, dated as of April 4, 2012, by and among Teva Pharmaceutical Finance IV B.V., Teva Pharmaceutical Industries
Limited and The Bank of New York Mellon (10)
2.22
Form of Global Notes (included in Exhibit 2.21)
2.23
Permanent Global Certificate, dated as of April 25, 2012 and the Terms of the CHF 450,000,000 1.5 per cent Notes due 2018 (11)
2.24
Guarantee, dated as of April 25, 2012, by Teva Pharmaceutical Industries Limited (11)
2.25
Senior Unsecured Fixed Rate Japanese Yen Term Loan Credit Agreement dated as of March 28, 2012 among Teva Pharmaceutical Industries Limited,
as guarantor, Teva Holdings GK, as initial borrower, Sumitomo Mitsui Banking Corporation, as administrative agent and the Lenders party thereto (12)
2.26
Senior Unsecured Revolving Credit Agreement dated as of December 18, 2012 among Teva Pharmaceutical Industries Limited, Teva Pharmaceuticals
USA, Inc., Teva Finance Services B.V., Teva Finance Services II B.V. and Teva Capital Services Switzerland GMBH, as borrowers, Citibank, N.A., as
administrative agent and HSBC Bank PLC, as documentation agent and the Lenders party thereto (13)
2.27
Senior Unsecured Japanese Yen Term Loan Credit Agreement dated as of December 17, 2013 among Teva Pharmaceutical Industries Limited, as
guarantor, Teva Holdings GK, as initial borrower, Mizuho Bank LTD., as administrative agent and the Lenders party thereto
2.28
Other long-term debt instruments: The registrant hereby undertakes to provide the Securities and Exchange Commission with copies upon request
8
Subsidiaries of the Registrant
10
Consent of Kesselman & Kesselman
12(i)
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12(ii)
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
101
The following financial information from Teva Pharmaceutical Industries Limited’s Annual Report on Form 20-F for the fiscal year ended December
31, 2014 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income for the years ended December 31,
2014, 2013 and 2012; (ii) Consolidated Balance Sheets at December 31, 2014 and 2013; (iii) Consolidated Statements of Changes in Equity for the
years ended December 31, 2014, 2013 and 2012; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012;
and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.
1.
2.
English translation or summary from Hebrew original, which is the official version.
Incorporated by reference to Exhibit 3.1 to Teva’s Registration Statement on Form F-1 (Reg. No. 33-15736).
129
Table of Contents
3.
Incorporated by reference to Teva’s Form 6-K filed on July 28, 2011.
4.
Incorporated by reference to Teva’s Form 6-K filed on November 1, 2012.
5.
Incorporated by reference to Teva’s Registration Statement on Form F-6 (Reg. No. 333-184652).
6.
Incorporated by reference to Teva’s Registration Statement on Form 6-K filed on January 31, 2006.
7.
Incorporated by reference to Teva’s Form 6-K filed on June 18, 2010.
8.
Incorporated by reference to Teva’s Form 6-K filed on November 10, 2011.
9.
Incorporated by reference to Teva’s Form 6-K filed on December 18, 2012.
10. Incorporated by reference to Teva’s Form 6-K filed on April 4, 2012.
11. Incorporated by reference to Teva’s Form 6-K filed on April 25, 2012.
12. Incorporated by reference to Teva’s Form 6-K filed on May 9, 2012.
13. Incorporated by reference to Teva’s Form 6-K filed on December 20, 2012.
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this
annual report on its behalf.
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
By:
Name:
Title:
/s/ EYAL DESHEH
Eyal Desheh
Group Executive Vice President, Chief Financial Officer
Date: February 9, 2015
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2014
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets
F-3
Statements of income
F-4
Statements of comprehensive income
F-5
Statements of changes in equity
F-6
Statements of cash flows
F-7
Notes to consolidated financial statements
F-9
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of comprehensive income, of changes in equity
and of cash flows present fairly, in all material respects, the financial position of Teva Pharmaceutical Industries Limited and its subsidiaries at December 31, 2014 and
2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 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, 2014 , based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management and Board of Directors are responsible for these 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 ‘‘Report
of Teva Management on Internal Control Over Financial Reporting’’ appearing under Item 15(b). Our responsibility is to express opinions on these financial statements
and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits
of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management and Board of Directors and evaluating the overall financial statement presentation. 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.
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.
Tel-Aviv, Israel
February 9, 2015
/s/ Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member of PricewaterhouseCoopers
International Limited
F-2
Table of Contents
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in millions)
December 31,
2014
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable
Inventories
Deferred income taxes
Other current assets
$
Total current assets
Other non-current assets
Property, plant and equipment, net
Identifiable intangible assets, net
Goodwill
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt
Sales reserves and allowances
Accounts payable and accruals
Other current liabilities
2013
2,226
5,408
4,371
993
1,398
$
1,038
5,338
5,053
1,084
1,207
14,396
1,569
6,535
5,512
18,408
13,720
1,696
6,635
6,476
18,981
$ 46,420
$ 47,508
$
$
1,761
5,849
3,171
1,508
1,804
4,918
3,317
1,926
Total current liabilities
Long-term liabilities:
Deferred income taxes
Other taxes and long-term liabilities
Senior notes and loans
12,289
11,965
1,101
1,109
8,566
1,247
1,273
10,387
Total long-term liabilities
10,776
12,907
Commitments and contingencies, see note 14
Total liabilities
23,065
24,872
50
14,121
14,436
(1,343)
50
13,628
12,535
(91)
(3,951)
(3,557)
23,313
22,565
42
71
23,355
22,636
$ 46,420
$ 47,508
Equity:
Teva shareholders’ equity:
Ordinary shares of NIS 0.10 par value per share; December 31, 2014 and December 31, 2013: authorized 2,500 million shares; issued
957 million shares and 947 million shares, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury shares as of December 31, 2014 and December 31, 2013—105 million ordinary shares and 99 million ordinary shares,
respectively
Non-controlling interests
Total equity
Total liabilities and equity
/S/ E. VIGODMAN
/S/ E. DESHEH
E. Vigodman
President and Chief Executive Officer
E. Desheh
Group Executive Vice President, Chief Financial Officer
The accompanying notes are an integral part of the financial statements.
F-3
Table of Contents
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(U.S. dollars in millions, except share and per share data)
2014
Net revenues
Cost of sales
Year ended December 31,
2013
$ 20,272
9,216
2012
$ 20,314
9,607
$ 20,317
9,665
11,056
1,488
3,861
1,217
650
(111)
10,707
1,427
4,080
1,239
788
1,524
10,652
1,356
3,879
1,238
1,259
715
Operating income
Financial expenses—net
3,951
313
1,649
399
2,205
386
Income before income taxes
Income taxes
Share in losses of associated companies—net
3,638
591
5
1,250
(43)
40
1,819
(137)
46
Net income
Net loss attributable to non-controlling interests
3,042
(13)
1,253
(16)
1,910
(53)
Gross profit
Research and development expenses
Selling and marketing expenses
General and administrative expenses
Impairments, restructuring and others
Legal settlements and loss contingencies
Net income attributable to Teva
$
3,055
$
1,269
$
1,963
Earnings per share attributable to Teva:
Basic
$
3.58
$
1.49
$
2.25
$
3.56
$
1.49
$
2.25
Diluted
Weighted average number of shares (in millions):
Basic
Diluted
The accompanying notes are an integral part of the financial statements.
F-4
853
849
872
858
850
873
Table of Contents
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(U.S. dollars in millions)
2014
Net income
Other comprehensive income (loss), net of tax:
Currency translation adjustment
Unrealized gain (loss) on derivative financial instruments, net
Unrealized gain (loss) from available-for-sale securities, net
Unrealized gain (loss) on defined benefit plans, net
Year ended December 31,
2013
2012
$ 3,042
Total other comprehensive income (loss)
Total comprehensive income
Comprehensive loss attributable to the non-controlling interests
Comprehensive income attributable to Teva
F-5
$ 1,910
(1,440)
237
(12)
(43)
(22)
(104)
12
42
632
(63)
65
(60)
(1,258)
(72)
574
1,784
(19)
1,181
(14)
$ 1,803
The accompanying notes are an integral part of the financial statements.
$ 1,253
$ 1,195
2,484
(51)
$ 2,535
Table of Contents
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Teva shareholders’ equity
Ordinary shares
Number of
shares
(in millions)
Additional
paid-in
capital
Stated
value
Accumulated
other
comprehensive
income
Treasury
(loss)
shares
(U.S. dollars in millions)
Retained
earnings
Total
Teva
shareholders’
equity
Noncontrolling
interests
Total
equity
Balance at January 1, 2012
942
$
50
$
13,374
$
11,284
$
(589)
$
(1,924)
$
22,195
$
148
$
22,343
Changes during 2012:
Comprehensive income (loss)
1,963
Exercise of options and RSUs
by employees
Stock-based compensation
expense
Dividends
Purchase of treasury shares
Other
Balance at December 31,
2012
2
*
572
2,535
14
(901)
(1,161)
*
4
944
50
13,474
2,484
14
82
*
(51)
12,346
(17)
1,269
(74)
(3,085)
14
82
(901)
(1,161)
4
2
82
(901)
(1,161)
6
22,768
99
22,867
1,195
(14)
1,181
Changes during 2013:
Comprehensive income (loss)
Exercise of options and RSUs
by employees
Stock-based compensation
expense
Dividends
Purchase of treasury shares
Disposition of non-controlling
interests
Other
Balance at December 31,
2013
3
*
73
18
91
64
64
(1,080)
(497)
(1,080)
(497)
*
*
17
947
50
13,628
7
12,535
(91)
3,055
(1,252)
91
64
(1,080)
(497)
(12)
(2)
24
(3,557)
(12)
22
22,565
71
22,636
1,803
(19)
1,784
Changes during 2014:
Comprehensive income (loss)
Exercise of options and RSUs
by employees
Stock-based compensation
expense
Dividends
Purchase of treasury shares
Disposition of non-controlling
interests
Other
Balance at December 31,
2014
10
*
408
106
514
95
95
(1,156)
(500)
(1,156)
(500)
*
957
*
$
50
(10)
$
14,121
14,436
95
(1,156)
(500)
—
(8)
2
$
514
$
(1,343)
$
(3,951)
$
* Represents an amount of less than 0.5 million.
The accompanying notes are an integral part of the financial statements.
23,313
(14)
4
$
42
(14)
(4)
$
23,355
F-6
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in millions)
2014
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization
Impairment of long-lived assets
Net change in operating assets and liabilities
Deferred income taxes—net and uncertain tax positions
Stock-based compensation
Other items
Loss (gain) from sale of long-lived assets and investments
Research and development in process
$
3,042
Year ended December 31,
2013
$
1,253
2012
$
1,910
1,508
387
290
(226)
95
30
1
—
1,642
524
968
(1,380)
64
143
18
5
1,708
1,071
414
(690)
82
7
(3)
73
5,127
3,237
4,572
(929)
(363)
(324)
196
(30)
(1,031)
(39)
(160)
187
(104)
(1,104)
—
(201)
264
(93)
Net cash used in investing activities
(1,450)
(1,147)
(1,134)
Financing activities:
Dividends paid
Repayment of long-term loans and other long-term liabilities
Proceeds from exercise of options by employees
Purchases of treasury shares
Net change in short-term debt
Other financing activities
Proceeds from long-term loans and other long-term liabilities
Proceeds from senior notes—net
(1,156)
(839)
514
(500)
(385)
(9)
—
—
(1,089)
(3,133)
91
(497)
384
23
338
—
(855)
(2,213)
14
(1,161)
(2,492)
5
1,241
3,783
Net cash used in financing activities
(2,375)
(3,883)
(1,678)
(114)
(48)
23
(1,841)
2,879
1,783
1,096
Net cash provided by operating activities
Investing activities:
Purchases of property, plant and equipment
Acquisitions of subsidiaries, net of cash acquired
Purchases of investments and other assets
Proceeds from sales of long-lived assets and investments
Other investing activities
Translation adjustment on cash and cash equivalents
Net change in cash and cash equivalents
Balance of cash and cash equivalents at beginning of year
Balance of cash and cash equivalents at end of year
1,188
1,038
$
2,226
F-7
The accompanying notes are an integral part of the financial statements.
$
1,038
$
2,879
Table of Contents
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(U.S. dollars in millions)
Supplemental disclosure of cash flow information:
2014
Year ended December 31,
2013
Interest paid
$
294
$
Income taxes paid, net of refunds
$
675
$ 1,298*
*
331
2012
$
297
$
614
Including, for 2013, payments amounting to $790 million for Amendment 69 and settlements with the Israeli tax authorities. See note 16.
Net change in operating assets and liabilities:
Year ended December 31,
2013
2014
Accounts receivable net of sales reserves and allowances
Accounts payable and accruals and other current liabilities
Inventories
Other current assets
Inventory step-up
710
(614)
230
(36)
—
$
85
378
399
106
—
$
936
(19)
(511)
(54)
62
$
290
$
968
$
414
The accompanying notes are an integral part of the financial statements.
F-8
2012
$
Table of Contents
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES:
a.
General:
Operations
Teva Pharmaceutical Industries Limited (the “Parent Company”), headquartered in Israel, together with its subsidiaries and associated companies (the
“Company”, “Teva” or the “Group”), is engaged in the development, manufacturing, marketing and distribution of generic, specialty, and other pharmaceutical
products. The majority of the Group’s revenues are in the United States and Europe. The Group’s main manufacturing facilities are located in Israel, Hungary, United
States, Germany, Canada, Japan, Ireland, the United Kingdom, the Czech Republic, Croatia, Italy and India.
Accounting principles
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”).
Functional currency
A major part of the Group’s operations is carried out by the Company and its subsidiaries in the United States, Israel and certain other countries. The functional
currency of these entities is the U.S. dollar (“dollar” or “$”).
The functional currency of certain subsidiaries and associated companies is their local currency. The financial statements of those companies are included in the
consolidated financial statements, translated into U.S. dollars. Assets and liabilities are translated at year-end exchange rates, while revenues and expenses are translated
at monthly average exchange rates during the year. Differences resulting from translation are presented as other comprehensive income in the consolidated statements
of comprehensive income.
The financial statements of subsidiaries in a highly inflationary economy are remeasured as if the functional currency was the U.S. dollar, Teva’s reporting
currency, using a translation rate determined by the country’s official rate. A highly inflationary economy is one that has cumulative inflation of approximately 100
percent or more over a 3-year period.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the
reported years. Actual results could differ from those estimates.
As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to uncertain tax positions, valuation allowances,
assessment of impairment of intangible assets and goodwill, purchase price allocation on acquisitions, contingencies, restructuring and sales and reserves allowances.
b.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries and Variable Interest Entities (“VIEs”) for which
the Company is considered the primary
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beneficiary. For VIEs, the Company performs an analysis to determine whether the variable interests give a controlling financial interest in a VIE; the Company
periodically reassesses whether it controls its VIEs.
Intercompany transactions and balances are eliminated in consolidation; profits from intercompany sales, not yet realized outside the Group, are also eliminated.
The Company includes the results of operations of an acquired business from the date of acquisition.
c.
Investee companies:
Investments in entities in which the Company has a significant influence are accounted for using the equity method and included within “other non-current
assets.” Under the equity method, the Company generally recognizes its proportionate share of comprehensive income or loss of the entity. Other non-marketable equity
investments are carried at cost. The Company also reviews these investments for impairment whenever events indicate the carrying amount may not be recoverable.
d.
Cash and cash equivalents:
All highly liquid investments, which include short-term bank deposits and money market instruments, that are not restricted as to withdrawal or use, and
investment in short-term debentures, the period to maturity of which did not exceed three months at the time of investment, are considered to be cash equivalents.
e.
Inventories:
Inventories are valued at the lower of cost or market. Cost of raw and packaging materials and purchased products is determined mainly on a “moving average”
basis. Cost of finished products and products in process is calculated assuming normal manufacturing capacity of the production facilities and determined as follows:
the raw and packaging materials component—mainly on a “moving average” basis; the capitalized production costs component—mainly on an average basis over the
production period.
Inventories acquired in a business combination are stepped-up to their estimated fair value and amortized to cost of sales as that inventory is sold.
f.
Investment in securities:
Investment in securities consists mainly of debt and equity securities classified as available-for-sale and recorded at fair value. The fair value of quoted securities
is based on current market value. When debt securities do not have an active market, fair value is determined using a valuation model. This model is based on reference
to other instruments with similar characteristics, or a discounted cash flow analysis, or other pricing models making use of market inputs and relying as little as possible
on entity-specific inputs.
Unrealized gains of available for sale securities, net of taxes, are reflected in other comprehensive income. Unrealized losses considered to be temporary are
reflected in other comprehensive income; unrealized losses that are considered to be other-than-temporary are charged to income as an impairment charge. Realized
gains and losses for both debt and equity securities are included in financial expense, net.
The Company considers available evidence in evaluating potential impairments of its investments, including the duration and extent to which fair value is less
than cost, and for equity securities, the Company’s ability and intent to hold the investment for the length of time necessary to allow for the recovery of the market
value. For
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debt securities, an other-than-temporary impairment has occurred if the Company does not expect to recover the entire amortized cost basis of the debt security. If the
Company does not intend to sell the impaired debt security, and it is not more likely than not it will be required to sell the debt security before the recovery of its
amortized cost basis, the amount of the other-than-temporary impairment recognized in earnings, recorded in financial expense, net, is limited to the portion attributed
to credit loss. The remaining portion of the other-than-temporary impairment related to other factors is recognized in other comprehensive income.
g.
Long-lived assets:
Teva’s long-lived, non-current assets are comprised mainly of goodwill, identifiable intangible assets and property, plant and equipment. Teva reviews its
long-lived assets and performs detailed testing whenever potential impairment indicators are present. In addition, the Company performs impairment testing at the end
of each year for goodwill and identifiable indefinite life intangible assets.
Starting in 2015, the Company will change its annual goodwill impairment testing date from December 31 to October 1 of each year. This change will allow
Teva to complete the annual goodwill impairment test prior to the end of the annual reporting period, and thereby better align impairment testing procedures with the
Company’s budget and forecasting processes and with year-end financial reporting. Accordingly, management considers this accounting change preferable. We do not
expect this change to have a material effect on our valuation, nor to accelerate, delay, avoid, or trigger an impairment charge or result in adjustments to previously
issued financial statements.
Goodwill
Goodwill reflects the excess of the consideration paid or transferred plus the fair value of contingent consideration and any non-controlling interest in the
acquiree at the acquisition date over the fair values of the identifiable net assets acquired. The goodwill impairment test is performed according to the following
principles:
•
An initial qualitative assessment of the likelihood of impairment may be performed. If this step does not result in a more likely than not indication of
impairment, no further impairment testing is required. If it does result in a more likely than not indication of impairment, the impairment test is
performed.
•
In step one of the impairment test, Teva compares the fair value of the reporting units to the carrying value of net assets allocated to the reporting
units. If the fair value of the reporting unit exceeds the carrying value of the net assets allocated to that unit, goodwill is not impaired, and no further
testing is required. Otherwise, Teva must perform the second step of the impairment test to measure the amount of the impairment.
•
In the second step, the reporting unit’s fair value is allocated to all the assets and liabilities of the reporting unit, including any unrecognized
intangible assets, in a hypothetical analysis that simulates the business combination principles to derive an implied goodwill value. If the implied fair
value of the reporting unit’s goodwill is less than its carrying value, the difference is recorded as an impairment.
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
U.S. Food and Drug Administration (“FDA”) or the
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equivalent agencies in other countries. These assets are amortized using mainly the straight-line method over their estimated period of useful life, or based on economic
effect models, if more appropriate, which is determined by identifying the period 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.
For definite life intangibles, whenever impairment indicators are identified, Teva reconsiders the asset’s estimated life, calculates the undiscounted value of the
asset’s cash flows and compares such value against the asset’s carrying amount. If the carrying amount is greater, Teva records an impairment loss for the excess of
book value over fair value based on the discounted cash flows.
Indefinite life intangible assets are mainly comprised of research and development in-process. Teva monitors development for any triggering events. Annually or
when triggering events are present, Teva determines the fair value of the asset based on discounted cash flows on and records an impairment loss if book value exceeds
fair value.
Research and development in-process acquired in a business combination is capitalized as an indefinite life intangible asset until the related research and
development efforts are either completed or abandoned. In the reporting period where they are treated as indefinite life intangible assets, they are not amortized but
rather are monitored and tested for impairment. Upon completion of the related research and development efforts, management determines the useful life of the
intangible assets and amortizes them accordingly. In case of abandonment, the related research and development assets are impaired.
Property, plant and equipment
Property, plant and equipment are stated at cost, after deduction of the related investment grants, and depreciated using the straight-line method over the
estimated useful life of the assets: buildings, mainly 40 years; machinery and equipment, mainly between 15 to 20 years; and other assets, between 5 to 10 years.
For property, plant and equipment, whenever impairment indicators are identified, Teva reconsiders the asset’s estimated life, calculates the undiscounted value
of the asset’s cash flows and compares such value against the asset’s carrying amount. If the carrying amount is greater, Teva records an impairment loss for the excess
of book value over fair value.
h.
Contingencies:
The Company and its subsidiaries are involved in various patent, product liability, commercial, government investigations, environmental claims and other legal
proceedings that arise from time to time in the ordinary course of business. Except for income tax contingencies or contingent consideration acquired in a business
combination, Teva records accruals for these types of contingencies to the extent that Teva concludes their occurrence is probable and that the related liabilities are
estimable. When accruing these costs, the Company will recognize an accrual in the amount within a range of loss that is the best estimate within the range. When no
amount within the range is a better estimate than any other amount, the Company accrues for the minimum amount within the range. Teva records anticipated
recoveries under existing insurance contracts that are virtually certain of occurring at the gross amount that is expected to be collected. Legal costs are expensed as
incurred.
i.
Uncertain tax positions:
Teva recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the
taxing authorities based on the technical merits of the position.
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Notes to Consolidated Financial Statements
The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized. We regularly
re-evaluate our tax positions based on developments in our tax audits, statute of limitations expirations, changes in tax laws and new information that can affect the
technical merits and change the assessment of our ability to sustain the tax benefit. In addition, the Company classifies interest and penalties recognized in the financial
statements relating to uncertain tax position under the income taxes line item.
j.
Treasury shares:
Treasury shares are held by Teva’s subsidiaries and presented as a reduction of Teva shareholders’ equity and carried at their cost to Teva, under “treasury
shares.”
k.
Stock-based compensation:
Teva recognizes the estimated fair value of share-based awards, restricted share units (“RSUs”) and performance share units (“PSUs”), net of estimated
forfeitures, under stock-based compensation costs. The compensation expense for PSUs is recognized only if it is probable that the performance condition will be
achieved.
Teva measures compensation expense for share-based awards based on estimated fair values on the date of grant using the Black-Scholes option-pricing model.
This option pricing model requires estimates as to the option’s expected term and the price volatility of the underlying stock.
Teva measures compensation expense for the RSUs and PSUs based on the market value of the underlying stock at the date of grant, less an estimate of
dividends that will not accrue to the RSU and PSU holders prior to vesting.
l.
Revenue recognition:
The Company recognizes revenues from product sales, including sales to distributors when persuasive evidence of an arrangement exists, delivery has occurred,
the selling price is fixed or determinable and collectability is reasonably assured. This generally occurs when products are shipped and title and risk and rewards for the
products are transferred to the customer.
Revenues from product sales are recorded net of provisions for estimated chargebacks, rebates, returns, prompt pay discounts and other deductions, such as shelf
stock adjustments, which can be reasonably estimated. When sales provisions are not considered reasonably estimable by Teva, the revenue is deferred to a future
period when more information is available to evaluate the impact.
Provisions for chargebacks, rebates including Medicaid and other governmental program discounts and other promotional items, such as shelf stock adjustments,
are included in “SR&A” under “current liabilities.” These provisions are recognized concurrently with the sales of products. Prompt payment discounts are netted
against “accounts receivable.”
Calculations for these deductions from sales are based on historical experience and the specific terms in the individual agreements. Chargebacks and rebates are
the largest components of sales reserves and allowances. Provisions for chargebacks are determined using historical chargeback experience and expected chargeback
levels and wholesaler sales information for new products, which are compared to externally obtained distribution channel reports for reasonableness. Rebates are
recognized based on contractual obligations in place at the time
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Notes to Consolidated Financial Statements
of sales with consideration given to relevant factors that may affect the payment as well as historical experience for estimated market activity. Shelf-stock adjustments
are granted to customers based on the existing inventory of a customer following decreases in the invoice or contract price of the related product and are estimated
based on expected market performance. Teva records a reserve for estimated sales returns by applying historical experience of customer returns to the amounts invoiced
and the amount of returned products to be destroyed versus products that can be placed back in inventory for resale.
Revenue resulting from the achievement of milestone events stipulated in agreements is recognized when the milestone is achieved. Milestones are based upon
the occurrence of a substantive element specified in the contract or as a measure of substantive progress towards completion under the contract.
Revenues from licensees, sales of licensed products and technology are recorded in accordance with the contract terms, when third-party sales can be reliably
measured and collection of the funds is reasonably assured.
Revenues include royalty income and income from services, which amounted to $167 million, $182 million and $438 million in the years ended December 31,
2014, 2013 and 2012, respectively.
m.
Research and development:
Research and development expenses are charged as incurred. Participations and grants in respect of research and development expenses are recognized as a
reduction of research and development expenses as the related costs are incurred, or as the related milestone is met. Upfront fees received in connection with
cooperation agreements are deferred and recognized over the period of the applicable agreements as a reduction of research and development expenses.
Advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts
are recognized as an expense as the related goods are delivered or the services are performed.
Research and development in-process acquired as part of an asset purchase, which has not reached technological feasibility and has no alternative future use, is
expensed as incurred.
n.
Shipping and handling costs:
Shipping and handling costs, which are included in selling and marketing expenses, amounted to $151 million, $232 million and $230 million for the years
ended December 31, 2014, 2013 and 2012, respectively.
o.
Advertising expenses:
Advertising expenses are charged to income as incurred. Advertising expenses for the years ended December 31, 2014, 2013 and 2012 were $302 million, $321
million and $337 million, respectively.
p.
Deferred income taxes:
Deferred income taxes are determined utilizing the “asset and liability” method based on the estimated future tax effects of temporary differences between the
financial accounting and tax basis of assets and liabilities under the applicable tax laws, and on tax rates anticipated to be in effect when the deferred income taxes are
expected to be paid or realized. A valuation allowance is provided if, based upon the weight of available
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Notes to Consolidated Financial Statements
evidence, it is more likely than not that a portion of the deferred income tax assets will not be realized. In determining whether a valuation allowance is needed, we
consider all available evidence, including historical information, long range forecast of future taxable income and evaluation of tax planning strategies. Amounts
recorded for valuation allowance can result from a complex series of judgments about future events and can rely on estimates and assumptions. Deferred income tax
liabilities and assets are classified as current or non-current based on the classification of the related asset or liability for financial reporting, or according to the
expected reversal dates of the specific temporary differences where appropriate.
Deferred tax has not been provided on the following items:
(1) Taxes that would apply in the event of disposal of investments in subsidiaries, as it is generally the Company’s intention to hold these investments, not to
realize them.
(2) Amounts of tax-exempt income generated from the Company’s current Approved Enterprises and unremitted earnings from foreign subsidiaries retained for
reinvestment in the Group. See note 16f.
q.
Earnings per share:
Basic earnings per share are computed by dividing the net income attributable to Teva by the weighted average number of ordinary shares (including fully vested
RSUs) outstanding during the year, net of treasury shares.
In computing diluted earnings per share, basic earnings per share are adjusted to take into account the potential dilution that could occur upon: (i) the exercise of
options and non-vested RSUs and PSUs granted under employee stock compensation plans and one series of convertible senior debentures, using the treasury stock
method; and (ii) the conversion of the remaining convertible senior debentures using the “if-converted” method, by adding to net income interest expense on the
debentures and amortization of issuance costs, net of tax benefits, and by adding the weighted average number of shares issuable upon assumed conversion of the
debentures.
r.
Concentration of credit risks:
Most of Teva’s cash and cash equivalents (which along with investment in securities amounted to $2.6 billion at December 31, 2014) were deposited with
financially sound European, U.S. and Israeli banks and financial institutions and were comprised mainly of cash deposits.
The pharmaceutical industry, particularly in the U.S., has been significantly affected by consolidation among managed care providers, large pharmacy chains,
wholesaling organizations and other buyer groups. The U.S. market constitutes approximately 52.5% of Teva’s consolidated revenues and a relatively small portion of
total trade accounts after netting amounts in “SR&A”. The exposure of credit risks relating to other trade receivables is limited, due to the relatively large number of
group customers and their wide geographic distribution. Teva performs ongoing credit evaluations of its customers for the purpose of determining the appropriate
allowance for doubtful accounts and generally does not require collateral. An appropriate allowance for doubtful accounts is included in the accounts and netted against
accounts receivable.
s.
Derivatives and hedging:
The Group carries out transactions involving derivative financial instruments (mainly forward exchange contracts, written and purchased currency options,
cross-currency swap contracts and interest rate swap contracts). The transactions are designed to hedge the Company’s currency and interest rate exposures.
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Notes to Consolidated Financial Statements
The Company does not enter into derivative transactions for trading purposes.
Derivatives that do not qualify for hedge accounting are recognized on the balance sheet at their fair value, with changes in the fair value recognized as a
component of “financial expenses—net” in the statements of income. The cash flows associated with these derivatives are reflected as cash flows from operating
activities in the consolidated statements of cash flows.
Derivatives that qualify as a fair value hedge are recognized on the balance sheet at their fair value, with changes in the fair value reported with the carrying
amount of the hedged asset or liability.
For derivatives that qualify as cash-flow hedge, the effective portion of these derivatives’ fair value is initially reported as a component of other comprehensive
income.
For derivatives that qualify for hedge accounting, the cash flows associated with these derivatives are reported in the consolidated statements of cash flows
consistently with the classification of cash flows from the underlying hedged items that these derivatives are hedging.
t.
Fair value measurement:
The Company measures fair value and discloses fair value measurements for financial assets and liabilities. Fair value is based on the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels,
which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the
highest priority to Level 1 inputs.
Level 2: Observable inputs that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to
the extent possible and considers credit risk in its assessment of fair value.
u.
Collaborative arrangements:
A Collaborative agreements are contractual arrangements in which the parties are active participants to the arrangement and are exposed to the significant risks
and rewards that are dependent on the ultimate commercial success of the endeavor. See note 2.
The Company recognizes revenue generated and costs incurred on sales to third parties as it relates to a collaborative agreement as gross or net. If the company
is the principal participant in a transaction, revenues are recorded on a gross basis; otherwise, revenues are recorded on a net basis.
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Notes to Consolidated Financial Statements
v.
Segment reporting:
The Company’s business includes two reporting segments: generic and specialty medicines. The generics segment develops, manufactures, sells and distributes
generic or branded generic medicines as well as active pharmaceutical ingredients (“API”). The specialty segment engages in the development, manufacture, sale and
distribution of branded specialty medicines such as those for central nervous system and respiratory indications, as well as those marketed in the women’s health,
oncology and other specialty businesses. See note 21.
w.
Restructuring:
Restructuring charges are initially recorded at fair value, and recognized in connection with restructuring programs designed to reduce the cost structure,
increase efficiency and enhance competitiveness. Judgment is used when estimating the impact of restructuring plans, including future termination benefits and other
exit costs to be incurred when the actions take place. Costs for one-time termination benefits in which the employee is required to render service until termination in
order to receive the benefits are recognized ratably over the future service period. Actual results could vary from these estimates.
x.
Reclassifications:
Certain comparative figures have been reclassified to conform to the current year presentation.
y.
Recently issued accounting pronouncements:
In August 2014, the Financial Accounting Standards Board (“FASB”) issued amended guidance related to disclosure of uncertainties about an entity’s ability to
continue as a going concern. The new guidance requires management to evaluate whether there is substantial doubt about the entity’s ability to continue as a going
concern and, as necessary, to provide related footnote disclosures. The guidance has an effective date of December 31, 2016. Teva believes that the adoption of this new
standard will not have a material impact on its consolidated financial statements.
In May 2014, the FASB issued guidance on revenue from contracts with customers that will supersede most current revenue recognition guidance, including
industry-specific guidance. The underlying principle is that an entity will recognize revenue upon the transfer of goods or services to customers in an amount that the
entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is
recognized. Other major provisions include capitalization of certain contract costs, consideration of the time value of money in the transaction price, and allowing
estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures
regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance is effective for the
interim and annual periods beginning on or after December 15, 2016 (early adoption is not permitted). The guidance permits the use of either a retrospective or
cumulative effect transition method. Teva is currently evaluating the potential effect of the amended guidance on its consolidated financial statements.
In April 2014, the FASB issued amended guidance related to discontinued operations. The new guidance limits the presentation of discontinued operations to
business circumstances when the disposal of the business operation represents a strategic shift that has had or will have a major effect on operations and financial
results. This guidance is effective for fiscal years beginning January 1, 2015. Teva believes that the adoption of this new standard will not materially impact its
consolidated financial statements.
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Notes to Consolidated Financial Statements
NOTE 2—CERTAIN TRANSACTIONS:
a.
Business transactions:
Labrys Biologics, Inc.:
On July 17, 2014, Teva fully acquired Labrys Biologics, Inc. (“Labrys”) for an upfront cash payment of $207 million and up to $625 million in contingent
payments upon achievement of certain milestones. Labrys is a development stage biotechnology company focused on treatments for chronic migraine and episodic
migraine.
At the time of the acquisition, the potential additional payments were evaluated and recorded at a fair value of $251 million. Additionally, as part of the
transaction, $125 million were placed in an escrow fund and booked as a current asset, as funds will be disbursed once a milestone event is reached.
Pro forma information giving effect to the acquisition has not been provided as the results would not be material.
NuPathe Inc.:
On February 21, 2014, Teva completed the acquisition of NuPathe Inc. (“NuPathe”). NuPathe’s leading product is Zecuity®, a prescription migraine patch
approved by the FDA for the acute treatment of migraine with or without aura in adults.
Teva purchased all of NuPathe’s shares for consideration of $163 million and up to $130 million in contingent payments upon the achievement of sales-based
milestones for Zecuity ® . At the time of the acquisition, these potential additional payments were evaluated and recorded at a fair value of $106 million, based on the
probability of achieving these milestones.
Pro forma information giving effect to the acquisition has not been provided as the results would not be material.
b.
Significant collaborative agreements:
The Company has entered into alliances and other arrangements with third parties to acquire rights to products it does not have, to access markets it does not
operate in and to otherwise share development costs or business risks. The Company’s most significant agreements of this nature are summarized below.
With Takeda:
Teva and Takeda Pharmaceutical Company Limited (“Takeda”) have entered into agreements allowing Takeda to commercialize Teva’s innovative treatments
for Parkinson’s disease and multiple scleroses (marketed globally under the product names “Copaxone ® ” and “Azilect ® ”) in Japan. Under these agreements, Teva may
be entitled to certain development, regulatory and sales-based milestones or royalty payments. The financial effects of these agreements were not material to our
consolidated financial results.
With The Procter & Gamble Company (“P&G”):
In November 2011, Teva formed PGT Healthcare, a consumer healthcare joint venture with The Procter & Gamble Company (“P&G”). Headquartered in
Geneva, Switzerland, the joint venture focuses on branded OTC medicines in categories such as cough/cold and allergy, digestive wellness, vitamins, minerals and
supplements,
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Notes to Consolidated Financial Statements
analgesics and skin medications, and operates in all markets outside North America. Its leading brands are Vicks ®, Metamucil®, Pepto-Bismol ® , and ratiopharm. PGT
Healthcare’s strengths include P&G’s strong brand-building, consumer-led innovation and go-to-market capabilities; Teva’s broad geographic reach, experience in
R&D, regulatory and manufacturing expertise and extensive portfolio of products, and each company’s scale and operational efficiencies.
Teva owns 49% of the joint venture, and P&G holds a controlling financial interest of 51%. The Company recognizes profits of the joint venture based on
Teva’s ownership percentage. The joint venture has certain independent operations and contracts for other services from its two partners in an effort to leverage their
scale and capabilities and thereby maximize efficiencies. Such services include research and development, manufacturing, sales and distribution, administration and
other services, provided under agreements with the joint venture. The partners have certain rights to terminate the joint venture after seven years and earlier under other
circumstances.
In July 2014, Teva sold its U.S. OTC plants, which were purchased as part of the agreement, back to P&G.
c.
Agreements with related parties:
In December 2012, Teva entered into a collaborative development and exclusive worldwide license agreement with Xenon for its compound XEN402. XEN402
is currently in clinical development for a variety of painful disorders. Under the agreement, Teva paid Xenon an upfront fee of $41 million. In addition, Teva may be
required to pay development, regulatory and sales-based milestones of up to $335 million. Xenon is also entitled to royalties on sales and has an option to participate in
commercialization in the United States. As required by the agreement, in November 2014, Teva invested an additional $10 million in Xenon in connection with its
initial public offering. Dr. Michael Hayden, Teva’s President of Global R&D and Chief Scientific Officer, is the founder, a minority shareholder and a member of the
board of directors of Xenon. In order to avoid potential conflicts of interest, Teva has established certain procedures to exclude Dr. Hayden from any involvement in
Teva’s decision-making related to Xenon.
In September 2011, Teva entered into an agreement with CoCrystal Discovery, Inc. (now CoCrystal Pharmaceuticals, Inc.), a company focusing on the
discovery and development of novel therapeutics, utilizing an innovative drug discovery technology. Under the agreement, Teva agreed to fund the company’s R&D by
investing up to two tranches of $7.5 million each per target (the latter one being discretionary). The first tranche was invested by Teva in 2011. We terminated this
agreement effective as of November 2014. Dr. Phillip Frost, our Chairman of the Board of Directors until December 2014 and a member of our Board of Directors until
February 4, 2015, and Prof. Roger Kornberg, who was a member of Teva’s Board of Directors until August 2013, are both direct and indirect shareholders in and
members of the board of directors of CoCrystal Pharmaceuticals. Prof. Roger Kornberg is also Chief Scientific Officer of CoCrystal Pharmaceuticals.
CTG Weld Limited, a privately owned contract research organization, has rendered services to Teva in connection with clinical trials since 2002. In 2011, Chaim
Hurvitz, a member of our Board of Directors until July 2014, invested in, and became a member of the board of directors of CTG Weld. In 2014, 2013 and 2012, Teva
paid CTG Weld approximately €0.6 million, €0.8 million and €1.3 million, respectively, in connection with various clinical studies.
Teva leases 13,500 square feet of office space located in Miami, Florida from an entity controlled by Dr. Frost Teva’s Chairman of the Board until December
2014 and a director until February 4, 2015. The term of the lease extends until April 2015, with Teva options to renew for two additional three-year terms. Annual rent
was $305,000 until April 1, 2012, $412,000 until March 31, 2013, $431,442 until March 31, 2014 and is currently $448,700 until March 31, 2015, increasing 4% per
year for each renewal term. The office space includes offices Teva provided Dr. Frost in his capacity as Chairman of the Board.
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
NOTE 3—FAIR VALUE MEASUREMENT:
Financial items carried at fair value as of December 31, 2014 and 2013 are classified in the tables below in one of the three categories described in note 1t:
December 31, 2014
(U.S. $ in millions)
Level 2
Level 3
Level 1
Cash and cash equivalents:
Money markets
Cash deposits and other
Escrow fund
Investment in securities:
Auction rate securities
Equity securities
Structured investment vehicles
Other, mainly debt securities
Derivatives:
Asset derivatives—options and forward contracts
Asset derivatives—cross-currency swaps
Liabilities derivatives—options and forward contracts
Liabilities derivatives—interest rate swaps
Contingent consideration*
$
Total
$
10
2,216
125
$
$
Total
$
—
—
—
$
$
10
2,216
125
—
66
—
73
—
—
96
—
13
—
—
1
13
66
96
74
—
—
—
—
—
82
20
(54)
(43)
—
—
—
—
—
(630)
82
20
(54)
(43)
(630)
2,490
$
9
1,029
101
$
(616)
$ 1,975
December 31, 2013
(U.S. $ in millions)
Level 2
Level 3
Level 1
Cash and cash equivalents:
Money markets
Cash deposits and other
Investment in securities:
Auction rate securities
Equity securities
Structured investment vehicles
Other
Derivatives:
Asset derivatives—options and forward contracts
Asset derivatives—interest rate swaps
Liability derivatives—options and forward contracts
Liability derivatives—interest rate and cross-currency swaps
Contingent consideration*
—
—
—
Total
$
—
—
$
Total
—
—
$
9
1,029
—
70
—
29
—
—
89
—
18
—
—
1
18
70
89
30
—
—
—
—
—
28
2
(17)
(436)
—
—
—
—
—
(366)
28
2
(17)
(436)
(366)
1,137
$
(334)
$
(347)
$
456
* Contingent consideration represents either liabilities or assets recorded at fair value in connection with acquisitions and the sale of our animal health unit.
Teva determined the fair value of the liability or asset of contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value
measurement is based on significant unobservable inputs
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration is based on several factors, such
as: the cash flows projected from the success of unapproved product candidates; the probability of success for product candidates including risks associated with
uncertainty regarding achievement and payment of milestone events; the time and resources needed to complete the development and approval of product candidates;
the life of the potential commercialized products and associated risks of obtaining regulatory approvals in the U.S. and Europe and the discount rate for fair value
measurement.
The contingent consideration is evaluated quarterly or more frequently if circumstances dictate. Changes in the fair value of contingent consideration are
recorded in earnings under impairments, restructuring and others.
Significant changes in unobservable inputs, mainly the probability of success and cash flows projected, could result in material changes to the contingent
consideration liability.
The following table summarizes the activity for those financial assets and liabilities where fair value measurements are estimated utilizing Level 3 inputs.
December 31,
2014
2013
(U.S. $ in millions)
Fair value at the beginning of the period
Amount realized
Changes in contingent consideration:
Cephalon acquisition
MicroDose acquisition
Sale of animal health unit
Contingent consideration resulting from:
NuPathe acquisition
Labrys acquisition
Other net change to fair value:
Included in earnings—financial expense—net
Included in accumulated other comprehensive loss
$
Fair value at the end of the period
$
(347)
(5)
$
(98)
(16)
(35)
140
(5)
(12)
(232)
8
(112)
(252)
—
—
—
—
(616)
1
2
$
(347)
Financial instruments not measured at fair value
Teva’s financial instruments consist mainly of cash and cash equivalents, investments in securities, current and non-current receivables, short-term credit,
accounts payable and accruals, long-term loans and other long-term senior notes and loans, convertible senior debentures and derivatives.
The fair value of the financial instruments included in working capital and non-current receivables approximates their carrying value. The fair value of long-term
bank loans mostly approximates their carrying value, since they bear interest at rates close to the prevailing market rates.
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
Financial instruments measured on a basis other than fair value are mostly comprised of senior notes and convertible senior debentures, and are presented in the
below table in terms of fair value:
Estimated fair value*
December 31,
2014
2013
(U.S. $ in millions)
Senior notes included under long-term liabilities
Senior notes and convertible senior debentures included under short-term liabilities
$
(7,776)
$
(8,656)
(1,731)
Fair value at the end of the period
$
(1,308)
(9,507)
$
(9,964)
* The fair value was estimated based on quoted market prices, where available.
NOTE 4—INVESTMENT IN SECURITIES:
a.
Available-for-sale securities:
Available-for-sale securities are comprised mainly of debt securities and equity securities.
At December 31, 2014 and 2013, the fair value, amortized cost and gross unrealized holding gains and losses of such securities are as follows:
Fair value
December 31, 2014
December 31, 2013
$
$
259
216
Gross
unrealized
Amortized
holding
cost
gains
(U.S. $ in millions)
Gross
unrealized
holding
losses
$
$
$
$
266
213
$
$
19
25
Investments in securities are classified based on the initial maturity as well as the intended time of realization.
Investments in securities are presented in the balance sheet as follows:
December 31,
2014
2013
(U.S. $ in millions)
Other non-current assets
Other current assets
Cash and cash equivalents, mainly money market funds
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$
176
73
10
$
179
28
9
$
259
$
216
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
b.
Contractual maturities:
The contractual maturities of debt securities are as follows:
December 31,
2014
(U.S. $ in millions)
2015
2016
2017
2018
2019
2020 and thereafter
$
83
1
—
—
—
109
$
193
NOTE 5—INVENTORIES:
Inventories, net of reserves, consisted of the following:
December 31,
2014
2013
(U.S. $ in millions)
Finished products
Raw and packaging materials
Products in process
Materials in transit and payments on account
$
2,268
1,279
638
186
$
2,567
1,576
715
195
$
4,371
$
5,053
NOTE 6—PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, net, consisted of the following:
December 31,
2014
2013
(U.S. $ in millions)
Machinery and equipment
Buildings
Computer equipment and other assets
Payments on account
Land*
$
4,893
2,653
1,391
571
372
$
9,880
3,345
Less—accumulated depreciation
$
6,535
4,633
2,635
1,310
716
446
9,740
3,105
$
6,635
* Land includes long-term leasehold rights in various locations, with useful lives of between 30 and 99 years.
Depreciation expenses were $464 million, $458 million and $428 million in the years ended December 31, 2014, 2013 and 2012, respectively. During the years
ended December 31, 2014, 2013 and 2012, Teva had impairments of property, plant and equipment in the amount of $163 million, $61 million and $190 million,
respectively. See note 19.
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
NOTE 7—GOODWILL:
The changes in the carrying amount of goodwill for the year ended December 31, 2014 was as follows:
Generics
Balance as of January 1, 2014
Changes during year:
Goodwill acquired
Translation differences and other
$
Balance as of December 31, 2014
$
9,088
Specialty
Other
(U.S. $ in millions)
$
—
(358)
8,730
8,668
$
1,225
8,502
$ 18,981
—
(49)
183
(349)
$
Total
$
1,176
183
(756)
$ 18,408
As of December 31, 2014, 2013 and 2012, the Company determined that there was no impairment with respect to goodwill.
NOTE 8—IDENTIFIABLE INTANGIBLE ASSETS:
Identifiable intangible assets consisted of the following:
Original amount net
of impairment
2014
Accumulated
amortization
December 31,
2014
2013
(U.S. $ in millions)
2013
Amortized balance
2014
2013
Product rights
Trade names
Research and development in process
$
9,606
243
1,060
$
10,037
270
825
$
5,343
54
—
$
4,601
55
—
$ 4,263
189
1,060
$ 5,436
215
825
Total
$
10,909
$
11,132
$
5,397
$
4,656
$ 5,512
$ 6,476
Product rights and trade names are assets presented at amortized cost. These assets represent a portfolio of pharmaceutical products from various categories with
a weighted average life of approximately 10 years. Amortization of intangible assets amounted to $1,036 million, $1,180 million and $1,272 million in the years ended
December 31, 2014, 2013 and 2012, respectively.
Teva’s in process research and development are assets that have not yet been approved in major markets. Teva’s in process research and development is
comprised mainly of the following assets: LBR-101 (Labrys)—$439 million; Revascor ® (Cephalon)—$258 million; Reslizumab (formerly known as Cinquil ® ,
Cephalon)—$215 million; and LAMA/LABA (MicroDose)—$62 million. In-process research and development carry intrinsic risks that the asset might not succeed in
advanced phases and will be impaired in future periods.
Impairment of identifiable intangible assets amounted to $224 million, $393 million and $858 million in the years ended December 31, 2014, 2013 and 2012,
respectively, and are recorded in earnings under impairments, restructuring and others. See note 19.
As of December 31, 2014, the estimated aggregate amortization of intangible assets for the years 2015 to 2019 is as follows: 2015—$796 million; 2016—$677
million; 2017—$650 million; 2018—$609 million and 2019—$489 million.
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
NOTE 9—SHORT-TERM DEBT:
a.
Short-term debt:
December 31,
2014
2013
(U.S. $ in millions)
Banks and financial institutions
Convertible debentures (see note 13)
Current maturities of long-term liabilities
$
Total
$ 1,761
46
530
1,185
$
458
530
816
$ 1,804
Short-term debt has an earliest date of repayment within 12 months.
Bank loans had a weighted average interest rate of 1.1% and 0.9% at December 31, 2014 and 2013, respectively.
b.
Line of credit:
In December 2012, the Company entered into a five-year $3.0 billion unsecured syndicated credit facility, which replaced the previous $2.5 billion facility. As of
December 31, 2014, the credit facility remained unutilized.
NOTE 10—SALES RESERVES AND ALLOWANCES:
Sales reserves and allowances consisted of the following:
December 31,
2014
2013
(U.S. $ in millions)
Rebates
Chargebacks
Medicaid
Returns
Other
$ 2,842
1,129
1,099
593
186
$ 2,242
1,114
848
573
141
$ 5,849
$ 4,918
NOTE 11—LONG-TERM EMPLOYEE-RELATED OBLIGATIONS:
a.
Long-term employee-related obligations consisted of the following:
December 31,
2014
2013
(U.S. $ in millions)
Accrued severance obligations
Defined benefit plans
$ 146
188
$ 132
149
Total
$ 334
$ 281
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
As of December 31, 2014 and 2013, the Group had $146 million and $156 million, respectively, deposited in funds managed by financial institutions that are
earmarked by management to cover severance pay liability mainly in respect of Israeli employees. Such deposits are not considered to be “plan assets” and are therefore
included in long-term investments and receivables.
Most of the change resulted from actuarial updates, as well as from exiting from several defined benefit plans in several countries.
The Company expects to contribute approximately $126 million in 2015 to the pension funds and insurance companies in respect of its severance and pension
pay obligations.
The main terms of the different arrangements with employees are described in b. below.
b.
Terms of arrangements:
Israel
Israeli law generally requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. The
Parent Company and its Israeli subsidiaries make ongoing deposits into employee pension plans to fund their severance liabilities. According to the general collective
pension agreement in Israel, Company deposits with respect to employees who were employed by the Company after the agreement took effect are made in lieu of the
Company’s severance liability, therefore no obligation is provided for in the financial statements. Severance pay liabilities with respect to employees who were
employed by the Parent Company and its Israeli subsidiaries prior to the collective pension agreement effective date, as well as employees who have special
contractual arrangements, are provided for in the financial statements based upon the number of years of service and the latest monthly salary.
Europe
Many of the employees in the Company’s European subsidiaries are entitled to a retirement grant when they leave. In the consolidated financial statements, the
liability of the subsidiaries is accrued, based on the length of service and remuneration of each employee at the balance sheet date. Other employees in Europe are
entitled to a pension according to a defined benefit scheme providing benefits based on final or average pensionable pay or according to a hybrid pension scheme that
provides retirement benefits on a defined benefit and a defined contribution basis. Independent certified actuaries value these schemes and determine the rates of
contribution payable. Pension costs for the defined benefit section of the scheme are accounted for on the basis of charging the expected cost of providing pensions
over the period during which the subsidiaries benefit from the employees’ services. The Company uses December 31 as the measurement date for defined benefit
plans.
North America
The Company’s North American subsidiaries mainly provide various defined contribution plans for the benefit of their employees. Under these plans,
contributions are based on specified percentages of pay. Additionally, a multi-employer plan is maintained in accordance with various union agreements.
Latin America
The majority of the employees in Latin America are entitled to severance under local law. The severance payments are calculated based on service term and
employee remuneration, and accruals are
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
maintained to reflect these amounts. In some Latin American countries it is Teva practice to offer retirement health benefits to employees who met the service term
requirements. Based on the specific plan requirements and benefits accruals are maintained to reflect the estimated amounts or if future plans are modified.
The Company expects to pay the following future minimum benefits to its employees: $8 million in 2015; $10 million in 2016; $10 million in 2017; $12 million
in 2018; $10 million in 2019 and $57 million between 2020 to 2024. These amounts do not include amounts that might be paid to employees who cease working with
the Company before their normal retirement age.
NOTE 12—SENIOR NOTES AND LOANS:
a.
Senior notes and loans consisted of the following:
Weighted average
interest rate as
of December 31,
2014
%
Senior notes (1)(2)(3)
Loans, mainly from banks (4)(5)
Debentures (5)
2.9
1.2
7.2
December 31,
2014
2013
(U.S. $ in millions)
$ 8,335
1,401
15
9,751
$
9,517
1,671
15
11,203
Less—current portion (included under “short-term debt”)
(1,185)
$ 8,566
(816)
$ 10,387
1.
Senior notes as of December 31, 2014 are effectively denominated (taking into consideration cross currency swap agreements) in the following currencies: U.S.
dollar 58%, euro 37% and Swiss franc 5%. The senior notes bear floating and fixed interest ranging from 1.5% to 6.15%.
2.
In March 2014, the Company repaid at maturity $750 million principal amount comprised of $500 million of LIBOR + 0.5% floating rate senior notes and $250
million of 1.7% senior notes, both issued in March 2011.
3.
The above includes derivative instruments defined as hedge accounting- see note 17.
4.
The balance as of December 31, 2014 and 2013 is mainly comprised of:
•
A ¥100.5 billion senior unsecured fixed rate term loan agreement for five and seven years, bearing interest of 0.99% and 1.42%, respectively
(approximately $0.8 billion).
•
A ¥35 billion senior unsecured floating rate term loan agreement for five years, borrowed in December 2013, bearing interest of JPY LIBOR + 0.3%
(approximately $0.3 billion).
•
Loan from the European Investment Bank (EIB) in the amount of $148 million and $168 million, respectively (denominated in Euro). The loan bears
interest determined on the basis of EURIBOR + 1%. The loan was fully repaid in January 2015.
•
Debt raised in Japan in the amount of $118 million and $207 million, respectively, mainly related to the Taiyo acquisition comprised of bank loans,
capital leases and other loans.
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
5.
Certain loan agreements and debentures contain restrictive covenants, mainly the requirement to maintain certain financial ratios. As of December 31, 2014, the
Company met all financial covenants.
6.
In January 2014, Teva entered into a term loan facility agreement under which Teva can draw up to $1.0 billion with a term of five years. Teva did not utilize the
facility and the agreement was terminated in December 2014.
b.
The Company and certain subsidiaries entered into negative pledge agreements with certain banks and institutional investors. Under the agreements, the
Company and such subsidiaries have undertaken not to register floating charges on assets in favor of any third parties without the prior consent of the banks, to
maintain certain financial ratios and to fulfill other restrictions, as stipulated by the agreements.
c.
The required annual principal payments of long-term debt as of December 31, 2014, starting with the year 2016, are as follows:
December 31,
2014
(U.S. $ in millions)
2016
2017
2018
2019
2020 and thereafter
$
978
568
779
1,517
4,724
$
8,566
NOTE 13—CONVERTIBLE SENIOR DEBENTURES:
Convertible senior debentures amounted to $530 million principal amount at both December 31, 2014 and 2013.
The convertible debentures at December 31, 2014 consist of the 0.25% convertible senior debentures due 2026. These convertible senior debentures include a
“net share settlement” feature according to which the principal amount will be paid in cash and in case of conversion, only the residual conversion value above the
principal amount will be paid in Teva shares. Due to the “net share settlement” feature, exercisable at any time, these convertible senior debentures are classified in the
balance sheet under short-term debt. The earliest redemption by its holders is February 1, 2016.
NOTE 14—COMMITMENTS AND CONTINGENCIES:
a.
Commitments:
Operating leases:
As of December 31, 2014, minimum future rentals under operating leases of buildings, machinery and equipment for periods in excess of one year were as
follows: 2015—$139 million; 2016—$114 million; 2017—$96 million; 2018—$79 million; 2019—$69 million; 2020 and thereafter—$145 million.
The lease fees expensed in each of the years ended December 31, 2014, 2013 and 2012 were $153 million, $117 million and $132 million, respectively, of which
less than $0.5 million was to related parties in each of the years ended December 31, 2014, 2013 and 2012.
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
Royalty commitments:
The Company is committed to paying 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.
Milestone commitments:
The Company is committed to paying milestone payments, usually as part of business transactions. Such payments are contingent upon the achievement of
certain regulatory milestones and sales targets. As of December 31, 2014, were all milestones and targets, for compounds in Phase II and more advanced stages of
development, to be achieved, the total contingent payments could reach an aggregate of up to approximately $2.4 billion.
b.
Contingencies:
General
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, as
described below, in large part as a result of the nature of its business, Teva is frequently subject to litigation. Teva believes that it has meritorious defenses to all actions
brought against it and vigorously pursues the defense or settlement of each such action. Except as described below, Teva does not currently have a reasonable basis to
estimate the loss, or range of loss, that is reasonably possible with respect to matters disclosed in this note.
Teva records a provision in its financial statements to the extent that it concludes that a contingent liability is probable and the amount thereof is estimable.
Based upon the status of these cases, management’s assessments of the likelihood of damages, and the advice of counsel, no provisions have been made regarding the
matters disclosed in this note, except as noted below. Litigation outcomes and contingencies are unpredictable, and excessive verdicts can occur. Accordingly,
management’s assessments involve complex judgments about future events and often rely heavily on estimates and assumptions.
Based on currently available information, Teva believes that none of the proceedings brought against it described below is likely to have a material adverse
effect on its financial condition. However, if one or more of such proceedings were to result in final judgments against Teva, such judgments could be material to its
results of operations and cash flow in a given period. In addition, Teva incurs significant legal fees and related expenses in the course of defending its positions even if
the facts and circumstances of a particular litigation do not give rise to a provision in the financial statements.
In connection with third-party agreements, Teva may under certain circumstances be required to indemnify, and may be indemnified by, in unspecified amounts,
the parties to such agreements against third-party claims. Teva’s agreements with third parties may require Teva to indemnify them, or require them to indemnify Teva,
for the costs and damages incurred in connection with product liability claims, in specified or unspecified amounts.
Except as otherwise noted, all of the litigation matters disclosed below involve claims arising in the United States. All third-party sales figures given below are
based on IMS data.
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
Intellectual Property Litigation
From time to time, Teva seeks to develop generic versions of patent-protected pharmaceuticals for sale prior to patent expiration in various markets. In the
United States, to obtain approval for most generics prior to the expiration of the originator’s patents, Teva must challenge the patents under the procedures set forth in
the Hatch-Waxman Act of 1984, as amended. To the extent that Teva seeks to utilize such patent challenge procedures, Teva is and expects to be involved in patent
litigation regarding the validity, enforceability or infringement of the originator’s patents. Teva may also be involved in patent litigation involving the extent to which
its product or manufacturing process techniques may infringe other originator or third-party patents.
Additionally, depending upon a complex analysis of a variety of legal and commercial factors, Teva may, in certain circumstances, elect to market a generic
version even though litigation is still pending. This could be before any court decision is rendered or while an appeal of a lower court decision is pending. To the extent
Teva elects to proceed in this manner, it could face substantial liability for patent infringement if the final court decision is adverse to Teva.
The general rule for damages in patent infringement cases in the United States is that the patentee should be compensated by no less than a reasonable royalty,
and it may also be able in certain circumstances to be compensated for its lost profits. The amount of a reasonable royalty award would be calculated based on the sales
of Teva’s generic product. The amount of lost profits would be based on the lost sales of the branded product. The launch of an authorized generic and other generic
competition may be relevant to the damages calculation. In addition, the patentee may seek consequential damages as well as enhanced damages of up to three times the
profits lost by the patent holder for willful infringement, although courts have typically awarded much lower multiples.
Teva is also involved in litigation regarding patents in other countries where it does business, particularly in Europe, where Teva has in recent years increased
the number of launches of its generic versions of branded pharmaceuticals prior to the expiration of the innovator’s patents. The laws concerning generic
pharmaceuticals and patents differ from country to country. Damages for patent infringement in Europe may include lost profits or a reasonable royalty, but enhanced
damages for willful infringement are generally not available.
In June 2013, Teva settled its pantoprazole patent litigation with Wyeth and agreed to pay $1.6 billion, which was completed on October 1, 2014. Teva has
sought insurance coverage to defray such amount, and in 2014, Teva recovered approximately $200 million from certain of its insurance carriers. Management believes
it may have up to approximately $250 million in additional coverage, subject to recovery from the other insurance carriers, which are currently disputing both their
obligation to cover and the claimed limits of coverage.
In September 2012, Teva launched its 10, 20, 30, 40, 50, and 60 mg methylphenidate ER products, which are the AB-rated generic versions of UCB’s Metadate
CD ® capsules, which had annual sales of approximately $154 million for the twelve months ended September 2012. In December 2012, UCB sued Teva in the United
States District Court for the Northern District of Georgia for infringement of UCB’s formulation patent, which expires in October 2020. No trial date has been
scheduled. Teva’s motion for summary judgment of non-infringement is pending before the Court. Were UCB ultimately to be successful in its allegation of patent
infringement, Teva could be required to pay damages relating to past sales of its methylphenidate ER products and enjoined from selling its methylphenidate ER
products until patent expiry.
Product Liability Litigation
Teva’s business inherently exposes it to potential product liability claims, and in recent years the number of product liability claims asserted against Teva has
increased. Teva maintains a program of insurance, which may
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
include commercial insurance, self-insurance (including direct risk retention), or a combination of both approaches, in amounts and on terms that it believes are
reasonable and prudent in light of its business and related risks. However, Teva sells, and will continue to sell, pharmaceuticals that are not covered by insurance; in
addition, it may be subject to claims for which insurance coverage is denied as well as claims that exceed its policy limits. Product liability coverage for pharmaceutical
companies is becoming more expensive and increasingly difficult to obtain. As a result, Teva may not be able to obtain the type and amount of commercial insurance it
desires, or any commercial insurance on reasonable terms, in all of its markets.
Teva and/or its subsidiaries have been named as defendants in approximately 4,000 product liability lawsuits brought against them and other manufacturers by
approximately 4,400 plaintiffs claiming injuries (including allegations of neurological disorders, such as tardive dyskinesia) from the use of metoclopramide (the
generic form of Reglan ® ). Certain of these claims are covered by insurance. For over 20 years, the FDA-approved label for metoclopramide has contained warning
language about the risk of tardive dyskinesia, and that the risk of developing the disorder increases with duration of treatment and total cumulative dose. In February
2009, the FDA announced that manufacturers of metoclopramide would be required to revise the label, including the addition of a “black box” warning about the risk of
tardive dyskinesia resulting from long-term usage. The cases of approximately 500 of the plaintiffs have been dismissed or otherwise resolved to date. Teva expects to
be dismissed from at least some of the remaining cases on the basis that some plaintiffs cannot demonstrate that they used a Teva product.
Approximately 40% of the plaintiffs are parties to cases against Teva that are part of a mass tort proceeding in the Philadelphia Court of Common Pleas. These
cases have been stayed pending resolution of Teva’s petition for certiorari , which was filed with the United States Supreme Court on December 16, 2014.
In addition, there are mass tort proceedings under way in state courts in California and New Jersey. In the California litigation, which now includes about half of
the total plaintiffs, the defendants’ motion to dismiss has been denied. In the New Jersey proceeding, the trial court granted the defendants’ motion to dismiss, on
federal preemption grounds, all claims other than those based on an alleged failure to timely update the label. The appellate court affirmed that decision, and Teva has
sought leave to appeal to the New Jersey Supreme Court. All of the cases in the New Jersey proceeding with respect to the generic defendants have been stayed pending
resolution of the appeal. Four or five cases outside the mass tort jurisdictions in which Pliva, Inc. is a defendant are or may be scheduled for trial in 2015.
Competition Matters
As part of its generic pharmaceuticals business, Teva has challenged a number of patents covering branded pharmaceuticals, some of which are among the most
widely-prescribed and well-known drugs on the market. Many of Teva’s patent challenges have resulted in litigation relating to Teva’s attempts to market generic
versions of such pharmaceuticals under the federal Hatch-Waxman Act. Some of this litigation has been resolved through settlement agreements in which Teva
obtained a license to market a generic version of the drug, often years before the patents expire. Occasionally, Teva and its subsidiaries have been named as defendants
in cases that allege antitrust violations arising from such settlement agreements. Teva believes that its settlement agreements are lawful and serve to increase
competition, and intends to defend them vigorously. However, the plaintiffs in these cases typically allege (1) that Teva received something of value from the innovator
in exchange for an agreement to delay generic entry, and (2) that they would have realized significant savings if there had been no settlement and competition had
commenced earlier. These cases seek various forms of injunctive and monetary relief, including damages based on the difference between the brand price and what the
generic price allegedly would have been, and disgorgement of profits, trebled under the relevant statutes, plus attorneys’ fees
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and costs. The damages allegedly caused by the alleged delays in generic entry generally depend on the size of the branded market and the length of the alleged delay,
and can be substantial, particularly where the alleged delays are lengthy or branded drugs with sales in the billions of dollars are involved. Nonetheless, as in the
modafinil opt-out case described below, many such cases may be resolved through settlement for amounts considerably less than the damages initially alleged.
On June 17, 2013, the United States Supreme Court held, in Federal Trade Commission v. Actavis, Inc. (the “AndroGel case”), that a rule of reason test should
be applied in analyzing whether such settlements potentially violate the federal antitrust laws. The Supreme Court held that a trial court must analyze each agreement in
its entirety in order to determine whether it violates the antitrust laws. This new test may lead to increased scrutiny of Teva’s patent settlements, additional
administrative action by the Federal Trade Commission (“FTC”), and an increased risk of liability in Teva’s currently pending antitrust litigations.
In April 2006, certain subsidiaries of Teva were named in a class action lawsuit filed in the United States District Court for the Eastern District of Pennsylvania.
The case alleges that the settlement agreements involving finished modafinil products (the generic version of Provigil ® ) that Cephalon, Inc., a Teva subsidiary
(“Cephalon”), entered into with various generic pharmaceutical companies in late 2005 and early 2006 were unlawful because they had the effect of excluding generic
competition. The first lawsuit was brought by King Drug Company of Florence, Inc. on behalf of itself and as a proposed class action on behalf of any other person or
entity that purchased Provigil ® directly from Cephalon from January 2006 until the alleged unlawful conduct ceases. The first generic modafinil product was launched
in March 2012. Similar allegations have been made in a number of additional complaints, including those filed on behalf of proposed classes of direct and indirect
purchasers, by an individual indirect purchaser, by certain retail chain pharmacies and by Apotex, Inc. Annual sales of Provigil ® were approximately $500 million at
the time of the settlement agreements, and approximately $1 billion when the first generic modafinil product was launched in March 2012.
In February 2008, following an investigation, the FTC sued Cephalon, alleging that Cephalon violated Section 5 of the Federal Trade Commission Act, which
prohibits unfair or deceptive acts or practices in the marketplace, by unlawfully maintaining a monopoly in the sale of Provigil ® and improperly excluding generic
competition. In March 2010, the District Court denied defendants’ motions to dismiss the federal antitrust claims and some of the related state law claims. No fines or
penalties have been asserted against Cephalon to date and no provision has been recorded for this matter. The FTC has indicated that it intends to seek disgorgement of
profits as an equitable remedy.
Teva has settled with certain of the retail chain pharmacies (representing approximately half of the direct purchases of Provigil® from Cephalon) and, given the
significant similarities in the claims asserted and damages claimed by certain other purchaser plaintiffs, has concluded that a provision for certain other parts of the
litigation is warranted. Accordingly, in 2013 management recorded a charge of $495 million in the financial statements covering both the settlement and the litigation
with other parties. Management expects that the settlement demands of the remaining parties could be significantly higher, and there can be no assurance that Teva will
be able to reach settlements on terms comparable to the initial settlement.
In October 2011, the District Court hearing the antitrust cases described above, as well as patent claims brought by plaintiff Apotex, issued its decision regarding
Apotex’s invalidity claims, finding a Cephalon patent to be invalid based on obviousness, among other things, and unenforceable based on inequitable conduct. In
March 2012, the District Court ruled that Apotex’s product does not infringe Cephalon’s patent. On April 8, 2013, the United States Court of Appeals for the Federal
Circuit affirmed the District Court’s rulings of invalidity and inequitable conduct. The plaintiffs in the antitrust case filed motions for summary judgment asking the
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District Court (1) to apply the inequitable conduct and invalidity findings to the antitrust cases in an effort to establish antitrust liability, and (2) to find a conspiracy
between and among Cephalon and the generic companies. Teva opposed those motions and moved for summary judgment, asserting that the FTC’s case against
Cephalon is moot and that the conspiracy claims should be dismissed. In addition, all defendants moved for summary judgment on the grounds that there were no
impermissible payments from Cephalon to the generic defendants. On March 13, 2014, the District Court denied, in part, plaintiffs’ motion for summary judgment to
apply the inequitable conduct and invalidity findings to the antitrust case to establish antitrust liability. On July 29, 2014, the District Court denied Cephalon’s motion to
dismiss the FTC’s case as moot, and granted the FTC’s motion that Cephalon is precluded from raising arguments about the merits of the patent case or the strength of
the patent in the FTC case. This ruling applies only in the FTC’s case. On June 23, 2014, the District Court granted defendants’ summary judgment motion that there
was no conspiracy between and among Cephalon and the generic defendants. On August 19, 2014, the District Court denied Apotex’s motion for partial summary
judgment seeking a ruling that Cephalon possessed monopoly power, holding that the motion raised fact issues that must be resolved at trial. Defendants’ summary
judgment motion that none of the settlement agreements contained an impermissible reverse payment was denied on January 28, 2015. Management has recorded a
provision in the financial statements for the Apotex litigation.
In April 2011, the European Commission opened a formal investigation against both Cephalon and Teva to assess whether the 2005 settlement agreement
between the parties might have had the object or effect of hindering the entry of generic modafinil. The opening of proceedings indicates that the Commission will
investigate the case as a matter of priority, but does not mean that there has been a definitive finding of violation of law.
Barr Laboratories, Inc., a subsidiary of Teva (“Barr”), is a defendant in actions in California, Florida and Kansas alleging that a January 1997 patent litigation
settlement agreement between Barr and Bayer Corporation was anticompetitive and violated state antitrust and consumer protection laws. In the California case, the trial
court granted defendants’ summary judgment motions, and the California Court of Appeal affirmed in October 2011. The trial court approved a $74 million class
settlement with Bayer, and the California Supreme Court has received supplemental briefs addressing the effect of the AndroGel case on plaintiffs’ appeal of the grant
of summary judgment for the remaining defendants in this case. Based on the plaintiffs’ expert testimony in a prior federal multidistrict litigation, estimated sales of
ciprofloxacin in California were approximately $500 million during the alleged damages period. In the Kansas action, class certification briefing concluded on
August 22, 2014 and the court heard oral argument on plaintiffs’ class certification motion on December 15, 2014 before taking it under advisement; no schedule has
been set in the Florida action.
In December 2011, three groups of plaintiffs sued Wyeth and Teva for alleged violations of the antitrust laws in connection with their settlement of patent
litigation involving extended release venlafaxine (generic Effexor ® XR) entered into in November 2005. The cases were filed by a purported class of direct purchasers,
by a purported class of indirect purchasers and by certain chain pharmacies. The plaintiffs claim that the settlement agreement between Wyeth and Teva unlawfully
delayed generic entry. On October 7, 2014, the court granted Teva’s motion to dismiss in the direct purchaser cases and requested briefing on the impact of its ruling for
the indirect purchaser cases. The parties have submitted proposed orders that would dismiss all claims against Teva so that all plaintiffs can proceed to appeal. Certain
plaintiffs have filed notices of appeal. Annual sales of Effexor ® XR were approximately $2.6 billion at the time of settlement and at the time generic versions were
launched in July 2010.
In February 2012, two purported classes of direct-purchaser plaintiffs sued GlaxoSmithKline (“GSK”) and Teva for alleged violations of the antitrust laws in
connection with their settlement of patent litigation involving
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lamotrigine (generic Lamictal®) entered into in February 2005. In August 2012, a purported class of indirect purchaser plaintiffs filed a nearly identical complaint
against GSK and Teva. The plaintiffs claim that the settlement agreement unlawfully delayed generic entry and seek unspecified damages. In December 2012, the
District Court dismissed the cases. On January 24, 2014, the District Court denied the direct purchaser plaintiffs’ motion for reconsideration and affirmed its original
dismissal of the cases. The direct purchaser plaintiffs have appealed this ruling. Oral argument for the appeal was held on November 20, 2014. Annual sales of Lamictal
®
were approximately $950 million at the time of the settlement, and approximately $2.3 billion at the time generic competition commenced in July 2008.
Starting in September 2012, plaintiffs in numerous cases, including overlapping purported class actions, sued AstraZeneca and Teva, as well as Ranbaxy and
Dr. Reddy’s, for violating the antitrust laws by entering into settlement agreements to resolve the esomeprazole (generic Nexium ® ) patent litigation. Teva entered into
its settlement agreement in January 2010. These cases were consolidated and transferred to the United States District Court for the District of Massachusetts. On
November 24, 2014, Teva agreed to settle with all plaintiffs on all claims. On December 5, 2014, the jury returned a verdict in favor of AstraZeneca and Ranbaxy,
finding that their settlement agreement was not the cause of delay for the entry of generic Nexium ® .
On June 18, 2014, two groups of end payors who opted out of the action in the District of Massachusetts filed complaints in the Philadelphia Court of Common
Pleas (the “Philadelphia Actions”) with allegations nearly identical to those in the District of Massachusetts action. Proceedings in the Philadelphia Actions are stayed
pending resolution of the action in the District of Massachusetts. Annual sales of Nexium ® were approximately $6.3 billion at the time the Teva settlement agreement
was entered into, and annual sales are currently approximately $6 billion.
In April 2013, purported classes of direct purchasers of and end payors for Niaspan ® (extended release niacin) sued Teva and Abbott for violating the antitrust
laws by entering into a settlement agreement in April 2005 to resolve patent litigation over the product. A multidistrict litigation has been established in the United
States District Court for the Eastern District of Pennsylvania. Teva and Abbott’s motion to dismiss was denied on September 8, 2014. Annual sales of Niaspan ® were
approximately $416 million at the time of the settlement and approximately $1.1 billion at the time generic competition commenced in September 2013.
Since July 2013, numerous lawsuits have been filed in several federal courts by purported classes of end payors for, and direct purchasers of, Solodyn ® ER
(minocycline hydrochloride) against Medicis, the innovator, and several generic manufacturers, including Teva. The lawsuits allege, among other things, that the
settlement agreements between Medicis and the generic manufacturers violated the antitrust laws. Teva entered into its agreement with Medicis in March 2009. A
multidistrict litigation has been established in the United States District Court for the District of Massachusetts. On September 12, 2014, plaintiffs filed an amended
complaint that did not name Teva as a defendant. Annual sales of Solodyn ® ER were approximately $380 million at the time Teva settled, and approximately $765
million at the time generic competition entered the market on a permanent basis in November 2011.
Since November 2013, numerous lawsuits have been filed in several federal courts by purported classes of end payors for, and direct purchasers of, Aggrenox ®
(dipyridamole/aspirin tablets) against Boehringer Ingelheim (“BI”), the innovator, and several Teva entities. The lawsuits allege, among other things, that the settlement
agreement between BI and Barr entered into in August 2008 violated the antitrust laws. A multidistrict litigation has been established in the United States District Court
for the District of Connecticut. Oral argument on Teva and BI’s motion to dismiss was held on October 27, 2014. Annual sales of Aggrenox ® were approximately
$340 million at the time of the settlement, and are approximately $470 million at the current time.
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Since January 2014, numerous lawsuits have been filed in the United States District Court for the Southern District of New York by purported classes of end
payors for ACTOS ® and ACTO plus Met ® (pioglitazone and pioglitazone plus metformin) against Takeda, the innovator, and several generic manufacturers,
including Teva. The lawsuits allege, among other things, that the settlement agreements between Takeda and the generic manufacturers violated the antitrust laws. Teva
entered into its agreement with Takeda in December 2010. Defendants’ motions to dismiss are pending, and argument has been set for early February. At the time of the
settlement, annual sales of ACTOS ® were approximately $3.7 billion and annual sales of ACTO plus Met ® were approximately $500 million. At the time generic
competition commenced in August 2012, annual sales of ACTOS ® were approximately $2.8 billion and annual sales of ACTO plus Met ® were approximately $430
million.
On September 8, 2014, the FTC sued AbbVie Inc. and certain of its affiliates (“AbbVie”) and Teva in the United States District Court for the Eastern District of
Pennsylvania alleging that they violated the antitrust laws when they entered into a settlement agreement to resolve the AndroGel ® patent litigation and a supply
agreement under which AbbVie would supply authorized generic product for TriCor ® to Teva. The FTC alleges that Teva agreed to delay the entry of its generic
testosterone gel product in exchange for entering into the TriCor supply agreement. Defendants’ motions to dismiss, which were filed on November 12, 2014, are
pending.
Government Investigations and Litigation Relating to Pricing and Marketing
Teva is involved in government investigations and litigation arising from the marketing and promotion of its specialty pharmaceutical products in the United
States. Many of these investigations originate through what are known as qui tam complaints, in which the government reviews a complaint filed under seal by a
whistleblower (a “relator”) that alleges violations of the federal False Claims Act. The government considers whether to investigate the allegations and will, in many
cases, issue subpoenas requesting documents and other information, including conducting witness interviews. The government must decide whether to intervene and
pursue the claims as the plaintiff. Once a decision is made by the government, the complaint is unsealed. If the government decides not to intervene, then the relator
may decide to pursue the lawsuit on his own without the active participation of the government.
Under the federal False Claims Act, the government (or relators who pursue the claims without the participation of the government in the case) may seek to
recover up to three times the amount of damages in addition to a civil penalty of $5,500 to $11,000 for each allegedly false claim submitted to the government for
payment. Generally speaking, these cases take several years for the investigation to be completed and, ultimately, to be resolved (either through litigation or settlement)
after the complaint is unsealed. In addition, some states have pursued investigations under state false claims statutes or consumer protection laws, either in conjunction
with a government investigation or separately. There is often collateral litigation that arises from public disclosures of government investigations, including the filing of
class action lawsuits by third party payors alleging fraud-based claims or by shareholders alleging violations of the securities laws.
A number of state attorneys general and others have filed various actions against Teva and/or certain of its subsidiaries in the United States relating to
reimbursements or drug price reporting under Medicaid or other programs. Such price reporting is alleged to have caused governments and others to pay inflated
reimbursements for covered drugs. Teva and its subsidiaries have reached settlements in most of these cases, and remain parties to litigation in Illinois. A provision for
the cases has been included in the financial statements. Trial in the Illinois case concluded in the fourth quarter of 2013, and post-trial briefing has been submitted and is
under consideration. The State of Illinois is seeking approximately $100 million in compensatory damages. Any such damages ultimately awarded by the court are
subject to automatic trebling. In addition, the state is seeking
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unspecified statutory penalties that could range, depending on the method used for calculation, from a de minimis amount to well over $100 million. Teva denies any
liability, and will argue that even if the court finds liability, compensatory damages and penalties should be significantly less than the amount sought by the state.
Several qui tam complaints have been unsealed in recent years as a result of government decisions not to participate in the cases. The following is a summary of
certain government investigations, qui tam actions and related matters.
In December 2009, the United States District Court for the District of Massachusetts unsealed a complaint alleging that numerous drug manufacturers, including
certain Teva subsidiaries, violated the federal False Claims Act in connection with Medicaid reimbursement for certain vitamins, dietary supplements and DESI
products that were allegedly ineligible for reimbursement. The Department of Justice declined to join in the matter. The defendants, including Teva, filed a motion to
dismiss, which was granted on February 25, 2013. The plaintiffs’ deadline to appeal the dismissal has not yet expired.
In September 2013, the State of Louisiana filed a complaint seeking unspecified damages against 54 pharmaceutical companies, including several Teva
subsidiaries. The complaint asserts that each of the defendants allegedly defrauded the state by falsely representing that its products were FDA-approved drugs, which
allegedly caused the state Medicaid program to pay millions of dollars in reimbursement claims for products that it would not otherwise have covered.
Cephalon has received and responded to subpoenas related to Treanda ®, Nuvigil® and Fentora®. In March 2013, a federal False Claims Act complaint filed against
Cephalon in the United States District Court for the Southern District of New York was unsealed. The case was transferred to the Eastern District of Pennsylvania. The
complaint alleges off-label promotion of Treanda ® and Fentora ® . On October 9, 2014, the District Court granted Cephalon’s motion to dismiss the Fentora claims;
Cephalon’s motion to dismiss the Treanda claims remains pending. In January 2014, a separate federal False Claims Act complaint that had been filed in the United
States District Court for the Eastern District of Pennsylvania was served on Cephalon. The complaint alleges off-label promotion of Fentora ® , Nuvigil ® and Provigil ® .
Cephalon filed motions to dismiss, and on October 9, 2014, the District Court dismissed the Fentora claims, stayed its decision on the Provigil claims, and denied
Cephalon’s motion to dismiss as to two of the Nuvigil claims. Cephalon’s motion to dismiss the Nuvigil and Provigil claims remain pending.
Cephalon is a defendant in a putative class action filed in the United States District Court for the Eastern District of Pennsylvania in which plaintiffs, third party
payors, allege approximately $700 million in losses resulting from the promotion and prescription of Actiq ® for uses not approved by the FDA despite the availability
of allegedly less expensive pain management drugs that were more appropriate for patients’ conditions. A hearing on the plaintiffs’ motion for class certification was
held in July 2013. If the court grants certification, a jury trial will be scheduled. Cephalon is defending a separate putative class action law suit with similar off-label
claims involving Provigil ® and Gabitril ® brought by the American Federation of State, County and Municipal Employees, District Council 47 Health and Welfare
Fund.
In July 2014, the court granted Cephalon and Teva’s motion to dismiss an action brought by certain Travelers entities that was filed in the Eastern District of
Pennsylvania alleging off-label marketing of Actiq ® and Fentora ® . The plaintiffs’ motion to amend the judgment and file a second amended complaint was denied on
September 24, 2014, and the plaintiffs are currently appealing. Cephalon is also a defendant in a lawsuit filed by the State of South Carolina alleging violations of the
state’s unfair trade practices law and common law in connection with the alleged off-label promotion of Actiq ® , Provigil ® and Gabitril ® .
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On May 21, 2014, counsel for Santa Clara County and Orange County, purportedly on behalf of the People of California, filed a complaint in the Superior Court
for Orange County, California against Teva and Cephalon, along with several other pharmaceutical companies, contending that defendants allegedly engaged in
off-label promotion in the sale of opioids, including Actiq ® and Fentora ® . On June 2, 2014, the City of Chicago filed a similar complaint against Teva and Cephalon in
the Circuit Court of Cook County, Illinois, which has been removed to the Northern District of Illinois. Both complaints assert claims under state law based upon
alleged off-label promotion in the sale of opioids, and both seek a variety of damages, including restitution, civil penalties, disgorgement of profits, treble damages,
attorneys’ fees and injunctive relief. Neither complaint specifies the exact amount of damages at issue. Teva and Cephalon have not yet responded to the complaint in
the California action and have filed a motion to dismiss in the Chicago action.
On January 8, 2014, Teva received a civil investigative demand from the United States Attorney for the Southern District of New York seeking documents and
information from January 1, 2006 related to sales, marketing and promotion of Copaxone ® and Azilect ® . The demand states that the government is investigating
possible civil violations of the federal False Claims Act. Teva is complying with the subpoena.
For several years, Teva has been conducting a voluntary worldwide investigation into business practices that may have implications under the U.S. Foreign
Corrupt Practices Act (“FCPA”). Teva has engaged outside counsel to assist in its investigation, which was prompted by the receipt, beginning in 2012, of subpoenas
and informal document requests from the SEC and the Department of Justice (“DOJ”) to produce documents with respect to compliance with the FCPA in certain
countries. Teva has provided and will continue to provide documents and other information to the SEC and the DOJ, and is cooperating with these agencies in their
investigations of these matters. In the course of its investigation, which is continuing, Teva has identified certain business practices and transactions in Russia, certain
European countries, certain Latin American countries and other countries in which it conducts business, which likely constitute violations of the FCPA and/or local law.
In connection with its investigation, Teva has also become aware that Teva affiliates in certain countries under investigation provided to local authorities inaccurate or
altered information relating to marketing or promotional practices. Teva has brought and continues to bring these issues to the attention of the SEC and the DOJ. Teva
cannot predict at this time the impact on the Company as a result of these matters, which may include material fines in amounts that are not currently estimable,
limitations on the Company’s conduct, the imposition of a compliance monitor and/or other civil and criminal penalties.
Shareholder Litigation
On December 18, 2013, a putative class action securities lawsuit was filed in the United States District Court for the Southern District of New York on behalf of
purchasers of Teva’s securities between January 1, 2012 and October 29, 2013. The complaint alleges that Teva and certain directors and officers violated Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and that the individual defendants violated Section 20 of the Exchange Act, by making false and
misleading statements that failed to disclose the existence of significant internal discord between Teva’s board of directors and senior management concerning
execution of Teva’s strategies, including implementation of a cost reduction program. On July 8, 2014, an amended complaint was filed, changing the starting date of
the alleged class period to August 1, 2013. On October 17, 2014, Teva filed a motion to dismiss the complaint. The plaintiff is seeking unspecified compensatory
damages and reimbursement for litigation expenses.
Other Litigation
In January 2013, GSK filed a lawsuit against Teva for violations of the Lanham Act in the marketing of its Budeprion XL 300 mg product. The lawsuit alleges
that Teva made false representations in claiming that
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Notes to Consolidated Financial Statements
Budeprion XL 300 mg was bioequivalent to GSK’s Wellbutrin® XL 300 mg and “implicitly communicated” that the product was as safe and efficacious as GSK’s
product. At the time Teva began selling Budeprion XL 300 mg, annual sales of Wellbutrin ® XL 300 mg were approximately $1 billion. In April 2013, Teva filed a
motion to dismiss the complaint on the grounds that GSK cannot retroactively challenge through the Lanham Act a determination of bioequivalence made by the FDA,
and that Teva’s alleged statements were not false or misleading as a matter of law. On March 10, 2014, the motion was denied, and Teva’s motion for reconsideration
was denied on July 18, 2014.
Environmental Matters
Teva is party to a number of environmental proceedings, or has received claims, including some brought pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act (commonly known as the Superfund law) or other national, federal, provincial or state and local laws imposing liability for
alleged noncompliance with various environmental laws and regulations or for the investigation and remediation of releases of hazardous substances and for natural
resource damages. Many of these proceedings and claims seek to require the generators of hazardous wastes disposed of at a third-party-owned site, or the party
responsible for a release of hazardous substances into the environment that impacted a site, to investigate and clean up the site or to pay for such activities, including for
oversight by governmental authorities, the response costs associated with such oversight and any related damages to natural resources. Teva has received claims, or has
been made a party to these proceedings, along with other potentially responsible parties, as an alleged generator of wastes that were disposed of or treated at third-party
waste disposal sites, or as a result of an alleged release from one of Teva’s facilities or former facilities that may have adversely impacted the environment.
In many of these cases, the government or private litigants allege that the responsible parties are jointly and severally liable for the investigation and cleanup
costs. Although the liability among the responsible parties, under certain circumstances, may be joint and several, these proceedings are frequently resolved so that the
allocation of cleanup and other costs among the parties reflects the relative contributions of the parties to the site conditions and takes into account other pertinent
factors. Teva’s potential liability varies greatly at each of the sites in the proceedings or for which claims have been asserted; for some sites the costs of the
investigation, cleanup and natural resource damages have not yet been determined, and for others Teva’s allocable share of liability has not been determined. At other
sites, Teva has been paying a share of the costs, the amounts of which have not been, and are not expected to be, material. Teva has taken an active role in identifying
those costs, to the extent they are identifiable and estimable, which do not include reductions for potential recoveries of cleanup costs from insurers, indemnitors, former
site owners or operators or other potentially responsible parties. In addition, enforcement proceedings relating to alleged federal and state regulatory violations at some
of Teva’s facilities have resulted, or may result, in the imposition of significant penalties (in amounts not expected to materially adversely affect Teva’s results of
operations) and the recovery of certain state costs and natural resource damages, and have required, or may require, that corrective measures and enhanced compliance
measures be implemented.
NOTE 15—EQUITY:
a.
Share capital:
As of December 31, 2014, there were 957 million ordinary shares issued (December 31, 2013—947 million). Teva shares are traded on the Tel-Aviv Stock
Exchange (“TASE”) and, in the form of American Depositary Shares, each of which represents one ordinary share, on the New York Stock Exchange (“NYSE”) in the
United States.
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Notes to Consolidated Financial Statements
Share repurchase program
In October 2014, Teva’s board of directors authorized the Company to increase its share repurchase program up to $3 billion of its ordinary shares and American
Depositary Shares. As of December 31, 2014, $2.5 billion remain available for repurchases. This repurchase authorization has no time limit. Repurchases may be
commenced or suspended at any time or from time to time.
The following table summarizes the shares repurchased and the amount Teva spent on these repurchases:
2014
Amount spent on shares repurchased
Number of shares repurchased
b.
Year ended December 31,
2013
2012
(in millions)
$ 500
$ 497
$ 1,161
8.7
12.8
28.1
Stock-based compensation plans:
Stock-based compensation plans are comprised of employee stock option plans, RSUs, PSUs, and other equity-based awards to employees, officers and
directors. The purpose of the plans is to enable the Company to attract and retain qualified personnel and to motivate such persons by providing them with equity
participation in the Company.
On June 29, 2010, the Teva Long-Term Equity-Based Incentive Plan was approved by the shareholders, under which 70 million equivalent share units, including
options exercisable into ordinary shares, RSUs and PSUs, were approved for grant. As of December 31, 2014, 23 million equivalent share units remained available for
future awards.
In the past, Teva had various employee stock and incentive plans under which stock options and other share-based awards were granted. Stock options and other
share-based awards granted under such prior plans continue in accordance with the terms of the respective plans.
The vesting period of the outstanding options, RSUs and PSUs is generally from 1 to 4 years from the date of grant. The rights of the ordinary shares obtained
from the exercise of options, RSUs or PSUs are identical to those of the other ordinary shares of the Company. The contractual term of these options is primarily for
seven years in prior plans and ten years for options granted under the 2010 plan described above.
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Notes to Consolidated Financial Statements
Status of options
A summary of the status of the options as of December 31, 2014, 2013 and 2012, and changes during the years ended on those dates, is presented below (the
number of options represents ordinary shares exercisable in respect thereof).
Year ended December 31,
2013
2014
Number
(in thousands)
Balance outstanding at beginning of year
Changes during the year:
Granted
Exercised
Forfeited
32,481
Weighted
average
exercise price
$
Number
(in thousands)
45.05
36,580
6,935
(11,423)
(1,260)
48.60
45.05
46.11
Balance outstanding at end of year
26,733
Balance exercisable at end of year
12,632
2012
Weighted
average
exercise price
$
Weighted
average
exercise price
Number
(in thousands)
44.40
33,298
$
44.92
1,701
(2,797)
(3,003)
38.37
32.17
45.51
7,231
(704)
(3,245)
40.50
33.36
44.76
45.91
32,481
45.05
36,580
44.40
47.16
17,082
47.30
14,230
44.30
The weighted average fair value of options granted during the years was estimated by using the Black-Scholes option-pricing model:
Year ended December 31,
2013
2014
Weighted average fair value
$
9.3
$
6.6
2012
$
7.4
The fair value of these options was estimated on the date of grant, based on the following weighted average assumptions:
2014
Dividend yield
Expected volatility
Risk-free interest rate
Expected term
2.9%
25%
1.9%
6 years
Year ended December 31,
2013
3.3%
23%
2.1%
9 years
2012
2.6%
24%
1.3%
8 years
The expected term was estimated based on the weighted average period the options granted are expected to be outstanding taking into consideration the current
vesting of options and the historical exercise patterns of existing options. The expected volatility assumption used is based on a blend of the historical and implied
volatility of the Company’s stock. The risk-free interest rate used is based on the yield of U.S. Treasuries with a maturity closest to the expected term of the options
granted. The dividend yield assumption reflects the expected dividend yield based on historical dividends and expected dividend growth.
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
The following tables summarize information at December 31, 2014 regarding the number of ordinary shares issuable upon (1) outstanding options and (2) vested
options:
(1) Number of ordinary shares issuable upon exercise of outstanding options
Range of exercise prices
$35.11
$40.11
$45.11
$50.11
$55.11
$60.11
-
$40.10
$45.10
$50.10
$55.10
$60.10
$65.00
Total
Balance at end of
period (in thousands)
Number of shares
Weighted average
exercise price
$
Weighted average
remaining life
Years
Aggregate intrinsic
value (in thousands)
$
4,686
7,365
9,909
4,134
475
164
38.65
41.96
48.60
52.42
59.48
64.31
8.07
6.11
7.98
2.73
2.99
2.15
88,370
114,519
88,293
21,042
—
—
26,733
45.91
6.54
312,224
(2) Number of ordinary shares issuable upon exercise of vested options
Range of exercise prices
$35.11
$40.11
$45.11
$50.11
$55.11
$60.11
-
$40.10
$45.10
$50.10
$55.10
$60.10
$65.00
Total
Balance at end of
period (in thousands)
Number of shares
Weighted average
exercise price
$
Weighted average
remaining life
Years
Aggregate intrinsic
value (in thousands)
$
1,896
3,267
3,170
3,711
425
163
38.81
41.87
48.72
52.57
59.74
64.31
7.98
4.78
5.76
2.18
2.15
2.15
35,460
51,093
27,869
18,331
—
—
12,632
47.16
4.62
132,753
The aggregate intrinsic value in the above tables represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $57.51 on
December 31, 2014, less the weighted average exercise price in each range. This represents the potential amount receivable by the option holders had all option holders
exercised their options as of such date. The total number of in-the-money options exercisable as of December 31, 2014 was 12 million.
The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $74 million, $19 million and $6 million,
respectively, based on the Company’s average stock price of $51.57, $38.99 and $41.63 during the years then ended, respectively.
Status of non-vested RSUs
The fair value of RSUs and PSUs is estimated based on the market value of the Company’s stock on the date of award, less an estimate of dividends that will not
accrue to RSU and PSU holders prior to vesting.
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
The following table summarizes information about the number of RSUs and PSUs issued and outstanding:
Year ended December 31,
2013
2014
Number
(in thousands)
Balance outstanding at beginning
of year
Granted
Vested
Forfeited
2,512
1,342
(1,146)
(242)
Weighted
average grant
date fair
value
$
Number
(in thousands)
40.48
46.09
41.55
40.05
3,744
289
(1,222)
(299)
43.05
2,512
2012
Weighted
average grant
date fair
value
$
Weighted
average grant
date fair
value
Number
(in thousands)
41.04
35.80
41.04
40.98
3,093
1,320
(519)
(150)
40.48
3,744
$
43.23
38.00
45.65
43.97
Balance outstanding at end of year
2,466
41.04
The Company has expensed compensation costs, net of estimated forfeitures, based on the grant-date fair value. For the years ended December 31, 2014, 2013
and 2012, the Company recorded stock-based compensation costs as follows:
Employee stock options
RSUs and PSUs
Total stock-based compensation expense
Tax effect on stock-based compensation expense
Net effect
2014
Year ended December 31,
2013
(U.S. $ in millions)
2012
$ 47
38
$ 40
24
$ 58
24
85
14
64
14
82
13
$ 71
$ 50
$ 69
The total unrecognized compensation cost before tax on employee stock options and RSUs (along with PSUs) amounted to $87 million and $77 million,
respectively, at December 31, 2014, and is expected to be recognized over a weighted average period of approximately 1 year.
c.
Dividends and accumulated other comprehensive income (loss):
1.
Dividends are declared in New Israeli Shekels (“NIS”), and paid in NIS and USD. Dividends paid per share in the years ended December 31,
2014, 2013 and 2012 were $1.34, $1.28 and $1.03, respectively. Subsequent to December 31, 2014, the Company declared an additional dividend
of 1.33 NIS per share in respect of the fourth quarter of 2014.
Commencing in April 2015, Teva’s dividends will be declared and paid in U.S. dollars.
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
2.
The components of accumulated other comprehensive loss attributable to Teva are presented in the table below:
December 31,
2013
(U.S. $ in millions)
2014
2012
Currency translation adjustment
Unrealized loss on defined benefit plans, net
Unrealized gain (loss) on derivative financial instruments, net
Unrealized gain (loss) from available-for-sale securities, net
$ (1,283)
(93)
40
(7)
$ 151
(50)
(197)
5
$ 175
(92)
(93)
(7)
Accumulated other comprehensive loss attributable to Teva
$ (1,343)
$
$ (17)
(91)
The following tables present the changes in the components of accumulated other comprehensive loss for the year ended December 31, 2014 and 2013:
Year ended December 31, 2014
Components of
accumulated other
comprehensive loss
Currency translation
adjustment
Unrealized gain (loss) from
available-for-sale
securities
Unrealized gain (loss) from
derivative financial
instruments
Unrealized gain (loss) on
defined benefit plans
Total accumulated other
comprehensive income
(loss)
Description of the
reclassification to the
statement of income
Currency translation
adjustment, reclassified to
general and administrative
expenses
Other
comprehensive
income (loss)
before
reclassifications
Amounts
reclassified
to the
statement
of income
Net other
comprehensive
income (loss)
before tax
$
$
$
Loss on marketable
securities, reclassified to
financial expenses—net
Gain on derivative financial
instruments, reclassified to
net revenues
Gain on defined benefit
plans, reclassified to various
statement of income items**
$
(1,429)
(5)
(1,434)
(12)
2
(10)
240
(3)
237
(55)
(2)
(57)
(1,256)
F-43
$
(8)
$
(1,264)
Net other
comprehensive
income (loss)
after tax
Corresponding
income tax
$
—
$
(2)
(12)
—
237
14
$
12
(1,434)
(43)
$
(1,252)
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
Year ended December 31, 2013
Components of
accumulated other
comprehensive loss
Currency translation
adjustment
Description of the
reclassification to the
statement of income
Currency translation
adjustment, reclassified to
financial expenses—net
Unrealized gain (loss) from
available-for-sale
securities
Gain on marketable
securities, reclassified to
financial expenses—net
Unrealized gain (loss) from
derivative financial
instruments
Loss on derivative financial
instruments, reclassified to
net revenues
Unrealized gain (loss) on
defined benefit plans
Amounts
reclassified to
the
statement
of income
Net other
comprehensive
income (loss)
before tax
Corresponding
income tax
$
$
$
$
Loss on defined benefit
plans, reclassified to
various statement of
income items**
Total accumulated other
comprehensive income
(loss)
*
**
Other
comprehensive
income (loss)
before
reclassifications
$
(46)
17
(29)
Net other
comprehensive
income (loss)
after tax
5
$
18
(6)
12
*
12
(111)
7
(104)
*
(104)
20
24
44
(2)
42
(119)
$
42
$
(77)
$
3
$
Represents an amount of less than $0.5 million.
Affected cost of sales, research and development expenses, selling and marketing expenses and general and administrative expenses.
NOTE 16—INCOME TAXES:
a.
(24)
Income before income taxes is comprised of the following:
The Parent Company and its Israeli subsidiaries
Non-Israeli subsidiaries
F-44
2014
Year ended December 31,
2013
(U.S. $ in millions)
2012
$ 2,139
1,499
$ 1,303
(53)
$ 1,660
159
$ 3,638
$ 1,250
$ 1,819
(74)
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
b.
Income taxes:
Year ended December 31,
2013
(U.S. $ in millions)
2014
In Israel
Outside Israel
Current
Deferred
$
147
444
$
197
(240)
$
5
(142)
$
591
$
(43)
$
(137)
$
879
(288)
$ 1,096
(1,139)
$
564
(701)
$
591
$
$
(137)
Income before income taxes
Statutory tax rate in Israel
$
3,638
26.5%
Theoretical provision for income taxes
Increase (decrease) in effective tax rate due to:
The Parent Company and its Israeli subsidiaries—
Mainly tax benefits arising from reduced tax rates under
benefit programs
Amendment 69 payments and finalization of prior years’ tax
audits, net of decrease of related uncertain tax positions
$
964
Effective consolidated income taxes
$
(43)
Year ended December 31,
2013
(U.S. $ in millions)
2014
Non-Israeli subsidiaries
Increase in other uncertain tax positions—net
2012
2012
$ 1,250
25%
$
1,819
25%
$
$
455
313
(524)
(535)
(520)
—
88
63
248
(275)
206
—
(83)
11
591
$
(43)
$
(137)
The effective tax rate is the result of a variety of factors, including the geographic mix and type of products sold during the year, different effective tax rates
applicable to non-Israeli subsidiaries that have tax rates above Teva’s average tax rates, the impact of impairment, restructuring and legal settlement charges and
adjustments to valuation allowances on deferred tax assets on such subsidiaries.
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
c.
Deferred income taxes:
Year ended December 31,
2014
2013
(U.S. $ in millions)
Short-term deferred tax assets—net:
Inventory related
Sales reserves and allowances
Provision for legal settlements
Provisions for employee-related obligations
Carryforward losses and deductions (*)
Other
$
383
357
229
66
59
78
$
405
321
235
81
179
75
1,172
Valuation allowance—in respect of carryforward losses and deductions that may not be
utilized
(213)
$
*
1,296
(249)
959
$
1,047
The amount in 2014 is shown after reduction for unrecognized tax benefits of $143 million, where we have net operating loss carryforwards, similar tax losses,
and/or tax credit carryforwards that are available, under the tax law of the applicable jurisdiction, to offset any additional income taxes that would result from the
settlement of a tax position. For additional information, see below.
Year ended December 31,
2014
2013
(U.S. $ in millions)
Long-term deferred tax assets (liabilities)—net:
Intangible assets
Carryforward losses and deductions(*)(**)
Property, plant and equipment
Provisions for employee related obligations
Other
$
(1,098)
1,043
(218)
39
(21)
$
(1,412)
1,415
(181)
19
60
(255)
(99)
(458)
(542)
Valuation allowance—in respect of carryforward losses and deductions that may not be utilized
*
**
$
(713)
$
(641)
$
246
$
406
The amount in 2014 is shown after reduction for unrecognized tax benefits of $150 million, see above.
This amount represents the tax effect of gross carryforward losses and deductions with the following expirations: 2016-2017—$192 million; 2018-2024—$302
million; 2025 and thereafter—$194 million. The remaining balance—$505 million—can be utilized with no expiration date.
The deferred income taxes are reflected in the balance sheets among:
December 31,
2014
2013
(U.S. $ in millions)
Current assets—deferred income taxes
Current liabilities—other current liabilities
Other non-current assets
Long-term liabilities—deferred income taxes
$
$
F-46
993
(34)
388
(1,101)
246
$ 1,084
(37)
606
(1,247)
$
406
Table of Contents
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
Deferred taxes have not been provided for tax-exempt profits earned by the Company from Approved Enterprises through December 31, 2014 (except to the
extent released due to payments made in 2013 under Amendment 69 of the Investment Law, as described below), as the Company intends to permanently reinvest these
profits and does not currently foresee a need to distribute dividends out of these earnings. For the same reason, deferred taxes have not been provided for distributions
of income from the Company’s foreign subsidiaries. See Note 16g.
d.
Adoption of new accounting standard
The Company adopted ASU 2013-11 on January 1, 2014. As a result, we changed the presentation of certain unrecognized tax benefits, where Teva has net
operating loss carryforwards, similar tax losses, and/or a tax credit carryforwards that are available, under the tax law of the applicable jurisdiction, to offset any
additional income taxes that would result from the settlement of the tax position. Those unrecognized tax benefits are now presented as a reduction of the deferred tax
assets for such net operating loss/tax credit carryforwards. Accordingly, the Company reduced its reserve for uncertain tax positions and deferred tax assets by $293
million as of December 31, 2014 in accordance with ASU 2013-11.
e.
Uncertain tax positions:
The following table summarizes the activity of Teva’s gross unrecognized tax benefits:
2014
Year ended December 31,
2013
(U.S. $ in millions)
Balance at the beginning of the year
Increase (decrease) related to prior year tax positions, net
Increase related to current year tax positions
Decrease related to settlements with tax authorities and lapse of applicable statutes of
limitations
Other
$ 665
38
51
$ 903
29
176
Balance at the end of the year
$ 713
(38)
(3)
2012
$
(461)
18
$ 665
907
(10)
151
(146)
1
$
903
Uncertain tax positions, mainly of a long-term nature, included accrued potential penalties and interest of $87 million, $75 million and $144 million, at
December 31, 2014, 2013 and 2012, respectively. The total amount of interest and penalties in the consolidated statements of income was a net increase of $12 million
for the year ended December 31, 2014, a net release of $69 million for the year ended December 31, 2013 and a net increase of $29 million for the year ended
December 31, 2012. Substantially all the above uncertain tax benefits, if recognized, would reduce Teva’s annual effective tax rate. Teva does not expect uncertain tax
positions to change significantly over the next 12 months, except in the case of settlements with tax authorities, the likelihood and timing of which is difficult to
estimate.
f.
Tax assessments:
We file income tax returns in various jurisdictions with varying statutes of limitations. The Parent Company and its subsidiaries in Israel have received final tax
assessments through tax year 2007.
In 2013, Teva settled the 2005-2007 income tax assessments with the Israeli tax authorities, paying $213 million. No further taxes are due in relation to these
years. Certain guidelines which were set pursuant to the
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
agreement reached in relation to the 2005-2007 assessment will also be implemented in the audit of tax years 2008-2011, and are reflected in the provisions.
Following the audit of Teva’s 2008 Israeli corporate tax returns, the Israeli tax authorities issued a tax assessment decree for 2008 and tax assessment for
2009-2010, challenging the Company’s positions on several issues. Teva has protested the assessment. The Company believes it has adequately provided for these items
and that any adverse results would have an immaterial impact on Teva’s financial statements.
The Company’s subsidiaries in North America and Europe have received final tax assessments mainly through tax year 2005.
g.
Basis of taxation:
The Company and its subsidiaries are subject to tax in many jurisdictions, and a certain degree of estimation is required in recording the assets and liabilities
related to income taxes. The Company believes that its accruals for tax liabilities are adequate for all open years. The Company considers various factors in making
these assessments, including past history, recent interpretations of tax law, and the specifics of each matter. Because tax regulations are subject to interpretation and tax
litigation is inherently uncertain, these assessments can involve a series of complex judgments regarding future events.
Most of the Parent Company’s industrial projects and those of several of its Israeli subsidiaries have been granted “Approved Enterprise” status under the Israeli
Law for the Encouragement of Capital Investments (“Investment Law”). For the vast majority of such Approved Enterprises, the companies elected to apply for
alternative tax benefits—i.e., the waiver of government grants in return for tax exemptions on undistributed income. Upon distribution of such exempt income, the
distributing company will be subject to corporate tax at the rate ordinarily applicable to the Approved Enterprise’s income. Such tax exemption on undistributed income
applies for a limited period of between two to ten years, depending upon the location of the enterprise. During the remainder of the benefits period (generally until the
expiration of ten years), a corporate tax rate not exceeding 25% is applied. One Approved Enterprise of an Israeli subsidiary enjoyed special benefits under the
“Strategic Investment Track”; income accrued under this track during the benefits period was exempt from tax, and dividends distributed from such income are also
exempt from Israeli tax.
Teva is a foreign investors company, or FIC, as defined by the Israeli Investment Law. Under the incentives regime that applied to Teva until 2013, FICs were
entitled to further reductions in the tax rate normally applicable to Approved Enterprises. Depending on the foreign ownership in each tax year, the tax rate ranged
between 10% (when foreign ownership exceeded 90%) to 25% (when the foreign ownership was below 49%).
Pursuant to Amendment 69 to the Israeli Investment Law (“Amendment 69”), a company that elected by November 11, 2013 to pay a reduced corporate tax rate
as set forth in that amendment (rather than the tax rate applicable to Approved Enterprise income) with respect to undistributed exempt income accumulated by the
company until December 31, 2011 is entitled to distribute a dividend from such income without being required to pay additional corporate tax with respect to such
dividend. A company that has so elected must make certain qualified investments in Israel over the five-year period commencing in 2013. A company that has elected
to apply the amendment cannot withdraw from its election.
During 2013, Teva applied the provisions of Amendment 69 to certain exempt profits accrued prior to 2012 by Teva and one of its Israeli subsidiaries.
Consequently, the Company paid $577 million corporate tax on exempt income of $9.4 billion. Part of this income was distributed as dividends during 2013, while the
remainder is available to be distributed as dividends in future years with no additional corporate tax liability. As a result,
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
Teva was required to invest $286 million in its industrial enterprises in Israel over a five year period. Such investment may be in the form of the acquisition of industrial
assets (excluding real estate assets), investment in R&D in Israel, or payroll payments to new employees to be hired by the enterprise. Teva already fully invested the
required amount in 2013.
The amount of tax-exempt profits earned by the Company from Approved Enterprises through December 31, 2013 that were not released under Amendment 69
is approximately $9.7 billion, and the tax that would have been payable had the Company distributed dividends out of that income is approximately $1.5 billion.
However, deferred taxes have not been provided for such tax-exempt income, as the Company intends to permanently reinvest these profits and does not currently
foresee a need to distribute dividends out of these earnings (see note 1p).
Likewise, the Company intends to reinvest, rather than distribute, the income of its foreign subsidiaries. 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.
Income not eligible for Approved Enterprise benefits is taxed at a regular rate, which was 26.5% in 2014.
Under Amendment 68 to the Israeli Investment Law (“Amendment 68”), which Teva started applying in 2014, upon an irrevocable election made by a company,
a uniform corporate tax rate will apply to all qualifying industrial income of such company (“Industrial Company”), as opposed to the previous law’s incentives, which
were limited to income from Approved Enterprises during their benefits period. Under the law, when the election is made, the uniform tax rate (for 2014 and on) will be
9% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel. The profits of these Industrial Companies will be freely distributable as
dividends, subject to a withholding tax of 20% or lower, under an applicable tax treaty. “Special Industrial Companies” that meet more stringent criteria (significant
investment, R&D or employment thresholds) will enjoy further reduced tax rates of 5% in Zone A and 8% elsewhere. In order to be classified as a “Special Industrial
Company”, the approval of three governmental authorities in Israel is required.
Teva is currently examining its eligibility to be regarded as a “Special Industrial Company” under the new law.
The Parent Company and its Israeli subsidiaries elected to compute their taxable income in accordance with Income Tax Regulations (Rules for Accounting for
Foreign Investors Companies and Certain Partnerships and Setting their Taxable Income), 1986. Accordingly, the taxable income or loss is calculated in U.S. dollars.
Applying these regulations reduces the effect of U.S. dollar—NIS exchange rate on the Company’s Israeli taxable income.
Non-Israeli subsidiaries are taxed according to the tax laws in their respective country of residence. Certain manufacturing subsidiaries operate in several
jurisdictions outside Israel, some of which benefit from tax incentives such as reduced tax rates, investment tax credits and accelerated deductions.
NOTE 17—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
a.
Foreign exchange risk management:
The Company enters into forward exchange contracts in non-functional currencies and purchases and writes non-functional currency options in order to hedge
the currency exposure on identifiable balance sheet items. In
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
addition, the Company takes steps to reduce exposure by using “natural” hedging. The Company also acts to offset risks in opposite directions among the companies in
the Group. The currency hedged items are usually denominated in the following main currencies: the euro (EUR), Hungarian forint (HUF), British pound (GBP), new
Israeli shekel (NIS), Canadian dollar (CAD), Croatian kuna (HRK), Russian ruble (RUB), Czech koruna (CZK), Swiss franc (CHF) and Japanese yen (JPY). The
writing of options is part of a comprehensive currency hedging strategy.
The counterparties to the derivatives are comprised mainly of major banks and, in light of the current financial environment, the Company is monitoring the
associated inherent credit risks. The Company does not enter into derivative transactions for trading purposes.
Teva operates in certain territories where the official exchange rates deviate significantly from unofficial market rates and remittance of cash outside the country
is limited. As a result, Teva is exposed to a potential income statement devaluation loss on its total monetary balances in these territories, which, as of December 31,
2014, amounted to approximately $274 million.
b.
Derivative instrument disclosure:
The following table summarizes the notional amounts for hedged items, when transactions are designated as hedge accounting:
December 31,
2014
2013
(U.S. $ in millions)
Interest rate swap—fair value hedge*
Cross currency swap—cash flow hedge
Forecasted transactions—cash flow hedge
$ 1,750
1,875
280
$ 2,500
1,875
300
* In October 2014, Teva terminated an interest rate swap agreement, designated as a fair value hedge, with respect to $500 million notional amount.
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
The following table summarizes the classification and fair values of derivative instruments:
Fair value
Designated as hedging
instruments
December 31,
2014
Reported under
Asset derivatives:
Other current assets:
Cross currency swaps—cash flow hedge
Interest rate swaps—fair value hedge
Option and forward contracts—cash flow hedge
$
Not designated as hedging
instruments
December 31,
December 31,
2013
2014
U.S. $ in millions
14
—
$
—
$
6
(1)
Option and forward contracts
Senior notes and loans:
Cross currency swaps—cash flow hedge
Interest rate swaps—fair value hedge
—
(43)
$
2
14
Option and forward contracts
Other non-current assets:
Cross currency swaps—cash flow hedge
Liability derivatives:
Other current liabilities:
Option and forward contracts—cash flow hedge
December 31,
2013
3
68
25
(53)
(9)
—
(8)
(203)
(233)
Derivatives on foreign exchange contracts hedge Teva’s balance sheet items from currency exposure but are not designated as hedging instruments for
accounting purposes. With respect to such derivatives, gains of $85 million, gains of $76 million and losses of $45 million were recognized under financial
expenses—net for the years ended December 31, 2014, 2013 and 2012, respectively. Such gains and losses offset the revaluation of the balance sheet items also booked
under financial expenses—net.
With respect to the interest rate and cross-currency swap agreements, gains of $41 million, $35 million and $18 million were recognized under financial
expenses—net for the years ended December 31, 2014, 2013 and 2012, respectively. Such gains mainly reflect the differences between the fixed interest rate and the
floating interest rate.
c.
Securitization:
In April 2011, Teva established an accounts receivable securitization program with BNP Paribas Bank (“BNP Paribas”). Under the program, Teva sells, on an
ongoing basis, certain accounts receivable and the right to the collections on those accounts receivable to BNP Paribas.
Once sold to BNP Paribas, the accounts receivable and rights to collection are separate and distinct from Teva’s own assets. These assets are unavailable to
Teva’s creditors should Teva become insolvent. BNP Paribas has all the rights ensuing from the sale of the securitized accounts receivable, including the right to pledge
or exchange the assets it received. Consequently, the accounts receivable in Teva’s consolidated balance sheets is presented net of the securitized receivables.
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
As of December 31, 2014 and 2013, the balance of Teva’s securitized assets sold amounted to $585 million and $590 million, respectively. Gains and losses
related to these transactions were immaterial for the three years ended December 31, 2014.
The following table summarizes the net balance outstanding due to outstanding securitization programs:
As of and for the year ended December 31,
2014
2013
(U.S. $ in millions)
Sold receivables at the beginning of the year
Proceeds from sale of receivables
Cash collections (remitted to the owner of the receivables)
Effect of currency exchange rate changes
$
Sold receivables at the end of the year
$
590
4,287
(4,202)
(90)
$
585
$
535
3,662
(3,635)
28
590
NOTE 18—FINANCIAL EXPENSES- NET:
2014
Year ended December 31,
2013
2012
(U.S. $ in millions)
Interest expenses and other bank charges
Foreign exchange losses—net
Income from investments
Other
$ 300
30
(24)
7
$ 314
8
(32)
109
$ 355
25
(26)
32
Total finance expense—net
$ 313
$ 399
$ 386
NOTE 19—IMPAIRMENTS, RESTRUCTURING AND OTHERS:
Impairments, restructuring and others consisted of the following:
2014
Year ended December 31,
2013
2012
(U.S. $ in millions)
Impairment of long-lived assets (see also notes 6 and 8)
Restructuring
Other
$ 387
246
17
$ 524
201
63
$ 1,071
221
(33)
Total
$ 650
$ 788
$ 1,259
Impairments
In determining the estimated fair value of the long-lived assets, Teva utilized a discounted cash flow model. The key assumptions within the model related to
forecasting future revenue and operating income, an appropriate weighted average cost of capital, and an appropriate terminal value based on the nature of the
long-lived asset. The Company’s updated forecasts of net cash flows for the impaired assets reflect, among other things, the following: (i) for research and development
in-process assets, the impact of changes to the development programs, the projected development and regulatory timeframes and the risks associated with these assets;
and
F-52
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
(ii) for product rights, pricing and volume projections as well as patent life and any significant changes to the competitive environment.
Impairment of long-lived assets in 2014 amounted to $387 million, comprised of:
1.
Property, plant and equipment—$163 million, based on management decisions regarding their expected use as a result of our planned plant rationalization,
which triggered a reassessment of fair value. In 2013 and 2012, property, plant and equipment impairment was $61 million and $190 million, respectively.
2.
Identifiable intangible assets—$224 million:
a.
Product rights impairments of $116 million were recorded due to current market conditions and supply chain challenges in various Teva markets.
Impairments of product rights for the year ended December 31, 2013 were $227 million and $233 million for 2012.
b.
In-process R&D impairments of $108 million are comprised mainly of a $102 million impairment of MDT-637 development project following the
negative results of Phase II trial. Impairment of in-process R&D for the year ended December 31, 2013 amounted to $166 million and $625
million for 2012.
Restructuring
For the year ended December 31, 2014, Teva recorded $246 million of restructuring expenses, compared to $201 million for the year ended December 31, 2013
and $221 million for 2012. These expenses are primarily incurred in various initiatives as part of cost saving efforts.
NOTE 20—LEGAL SETTLEMENTS AND LOSS CONTINGENCIES:
Legal settlements and loss contingencies for 2014 amounted to a gain of $111 million, compared to an expense of $1.5 billion in 2013. The 2014 balance is
comprised mainly of insurance proceeds relating to the settlement of the pantoprazole patent litigation. The 2013 expenses are composed mainly of additional charges
of $930 million relating to the settlement of the pantoprazole patent litigation and $495 million relating to the modafinil antitrust litigation.
NOTE 21 – SEGMENTS:
Teva has two reportable segments: generic and specialty medicines. The generics segment develops, manufactures, sells and distributes generic or branded
generic medicines as well as active pharmaceutical ingredients (“API”). The specialty segment engages in the development, manufacture, sale and distribution of
branded specialty medicines such as those for central nervous system and respiratory indications, as well as those marketed in the women’s health, oncology and other
specialty businesses.
Teva’s other activities include the over-the-counter (“OTC”) medicines business, distribution activity mainly in Israel and Hungary and medical devices. The
OTC activity is primarily conducted through a joint venture with P&G, which combines Teva’s production capabilities and market reach with P&G’s marketing
expertise and expansive global platform.
Teva’s chief executive officer, who is the chief operating decision maker (“CODM”), reviews financial information prepared on a consolidated basis,
accompanied by disaggregated information about revenues and contributed profit by the two identified reportable segments, namely generic and specialty medicines,
and revenues by geographical markets.
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
The accounting policies of the individual segments are the same as those described in the summary of significant accounting policies in note 1 to the
consolidated financial statements.
Segment profit is comprised of gross profit for the segment, less S&M and R&D expenses related to the segment. Segment profit does not include G&A
expenses, amortization and certain other items.
Teva manages its assets on a total company basis, not by segments, as many of its assets are shared or commingled. Teva’s CODM does not regularly review
asset information by reportable segment, and therefore Teva does not report asset information by reportable segment.
During 2014, the classification of certain of our products was changed, in line with the Company’s strategy. The comparable figures have been conformed to
reflect the revised classification for all periods.
Teva’s chief executive officer is reviewing the Company’s strategy and organizational structure on a continuing basis. Any changes in strategy may lead to a
reevaluation of Teva’s current segments and goodwill assignment. In connection with such organizational changes, effective July 1, 2014, Teva appointed a new
President of Global Generic Medicines to lead all of its generic and OTC businesses. Going forward, Teva will continue to evaluate the impact of management changes
on its segment reporting.
a.
Segment information:
Generics
Year ended December 31,
2014
2013
2012
(U.S.$ in millions)
Specialty
Year ended December 31,
2014
2013
2012
(U.S.$ in millions)
Revenues
Gross profit
R&D expenses
S&M expenses
$ 9,814
4,247
517
1,582
$ 9,902
4,079
492
1,919
$ 10,385
4,518
485
1,971
$ 8,560
7,457
881
2,001
$ 8,388
7,274
883
1,864
$ 8,150
7,173
793
1,686
Segment profit
$ 2,148
$ 1,668
$
$ 4,575
$ 4,527
$ 4,694
2,062
2014
2013
U.S.$ in millions
2012
$ 2,148
4,575
$ 1,668
4,527
$ 2,062
4,694
Total segment profit
Profit of other activities
6,723
226
6,195
242
6,756
197
Total profit
Amounts not allocated to segments:
Amortization
General and administrative expenses
Impairments, restructuring and others
Legal settlements and loss contingencies
Other unallocated amounts
6,949
6,437
6,953
1,036
1,217
650
(111)
206
1,180
1,239
788
1,524
57
1,272
1,238
1,259
715
264
Consolidated operating income
3,951
1,649
2,205
313
399
386
$ 3,638
$ 1,250
$ 1,819
Generic medicines profit
Specialty medicines profit
Financial expenses—net
Consolidated income before income taxes
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
b.
Segment revenues by geographic area:
2014
Generic Medicine
United States
Europe*
Rest of the World
$
Year ended December 31,
2013
(U.S.$ in millions)
4,418
3,148
2,248
$
4,172
3,362
2,368
2012
$
4,381
3,482
2,522
Total Generic Medicine
Specialty Medicine
United States
Europe*
Rest of the World
9,814
9,902
10,385
6,110
1,898
552
6,025
1,854
509
5,857
1,575
718
Total Specialty Medicine
Other Revenues
United States
Europe*
Rest of the World
8,560
8,388
8,150
106
777
1,015
264
772
988
200
741
841
Total Other Revenues
1,898
2,024
1,782
$ 20,272
$ 20,314
$ 20,317
Total Revenues
* All members of the European Union, Switzerland, Norway, Albania and the countries of former Yugoslavia.
c.
Net revenues from specialty medicines were as follows:
2014
Year ended December 31,
2013
(U.S. $ in millions)
2012
Copaxone®
Azilect®
Nuvigil®
Respiratory
ProAir®
Qvar®
Oncology
Treanda®
Women’s health
Other Specialty
$ 5,575
4,237
428
388
957
478
286
1,180
767
504
344
$ 5,545
4,328
371
320
964
429
328
1,005
709
510
364
$ 5,464
3,996
330
347
856
406
297
860
608
448
522
Total Specialty Medicines
$ 8,560
$ 8,388
$ 8,150
CNS
The data presented have been conformed to reflect the revised classification of certain of our products for all periods.
A significant portion of our revenues, and a higher proportion of our profits, come from the manufacture and sale of patent-protected pharmaceuticals. Many of
our specialty medicines are covered by several patents that expire at different times. Nevertheless, once patent protection has expired, or has been lost prior to the
expiration
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
date as a result of a legal challenge, we no longer have patent exclusivity on these products, and subject to regulatory approval, generic pharmaceutical manufacturers
are able to produce similar (or purportedly similar) products and sell them for a lower price. The commencement of generic competition, even in the form of
non-equivalent products, can result in a substantial decrease in revenues for a particular specialty medicine in a very short time. Any such expiration or loss of
intellectual property rights could therefore significantly adversely affect our results of operations and financial condition.
In particular, we rely heavily on sales of Copaxone®, our leading specialty medicine. A key element of our business strategy for Copaxone® is the continued
migration of current daily Copaxone ® 20 mg/mL patients to the three-times-a-week 40 mg/mL version introduced in 2014, and the maintenance of patients on that new
version. Any substantial reduction in the number of patients taking Copaxone ® , whether due to the introduction of generic competition or to the increased use of oral
medicines or other competing products, would likely have a material adverse effect on our financial results and cash flow.
In 2014, Copaxone® revenues in the United States, which include revenues from both Copaxone® 20 mg/mL and the new Copaxone® 40 mg/mL product,
amounted to $3.1 billion in the U.S. (approximately 29% of our total 2014 U.S. revenues) and approximately $1.1 billion in markets outside the U.S. (approximately
12% of our total 2014 non-U.S. revenues).
Our multiple sclerosis franchise includes our Copaxone® products and laquinimod (a developmental compound for the treatment of multiple sclerosis). The
profitability of our multiple sclerosis franchise is comprised of Copaxone ® revenues and cost of goods sold as well as S&M and R&D expenses related to our MS
franchise. It does not include G&A expenses, amortization and non-recurring items. Our MS franchise profitability was 75.1%, 75.6% and 74.5% in 2014, 2013 and
2012, respectively.
d.
Supplemental data—major customers:
The percentages of total consolidated revenues for the years ended December 31, 2014, 2013 and 2012 to one customer were 18%, 17% and 16%, respectively.
The percentage of total consolidated revenues for another customer accounted for 17% and 13% for the years ended December 31, 2014 and 2013, respectively. Most of
Teva’s revenues from these customers were made in the United States. The balance due from the Company’s largest customer accounted for 31% of the gross trade
accounts receivable at December 31, 2014. Sales reserves and allowances on these balances are recorded in current liabilities (refer to note 1l).
e.
Property, plant and equipment—by geographical location were as follows:
2014
December 31,
2013
(U.S. $ in millions)
2012
Israel
United States
Hungary
Croatia
Japan
Germany
Other
$ 1,949
691
520
515
446
367
2,047
$ 1,834
852
526
479
492
403
2,049
$ 1,649
896
498
415
644
367
1,846
Total property, plant and equipment
$ 6,535
$ 6,635
$ 6,315
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TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Notes to Consolidated Financial Statements
NOTE 22—EARNINGS PER SHARE:
The net income attributable to Teva and the weighted average number of shares used in computation of basic and diluted earnings per share for the years ended
December 31, 2014, 2013 and 2012 are as follows:
2014
2013
2012
(U.S. $ in millions, except
share data)
Net income attributable to Teva
Interest expense on convertible senior debentures, and issuance costs, net of tax benefits
$ 3,055
*
$ 1,269
*
$ 1,963
*
Net income used for the computation of diluted earnings per share
$ 3,055
$ 1,269
$ 1,963
853
849
872
3
1
1
2
*
*
858
850
873
Weighted average number of shares used in the computation of basic earnings per share
Add:
Additional shares from the assumed exercise of employee stock options and unvested RSUs and PSUs
Weighted average number of additional shares issued upon the assumed conversion of convertible senior debentures
Weighted average number of shares used in the computation of diluted earnings per share
* Represents an amount of less than 0.5 million.
In computing dilutive earnings per share for the years ended December 31, 2014, 2013 and 2012, no account was taken of the potential dilution of the assumed
exercise of employee stock options, amounting to 1 million, 7 million and 6 million weighted average shares, respectively, since they had an anti-dilutive effect on
earnings per share.
F-57
Table of Contents
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule
To the Shareholders of
Teva Pharmaceutical Industries Limited
Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated February 9,
2015 appearing in the 2014 Annual Report to the Shareholders of Teva Pharmaceutical Industries Limited also included an audit of Financial Statement Schedule
II—Valuation and Qualifying Accounts—listed in Item 18 of this Form 20-F. In our opinion, the schedule presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial statements.
Tel-Aviv, Israel
February 9, 2015
Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member of PricewaterhouseCoopers
International Limited
S-1
Table of Contents
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended December 31, 2014
(U.S. $ in millions)
Column A
Column B
Column C
Column D
Column E
Deductions
Balance at end
of period
(18)
$
(42)
$
149
$
3
$
(5)
$
187
32
$
5
$
(8)
$
145
$
128
$
—
$
(248)
$
671
726
$
182
$
—
$
(117)
$
791
452
$
384
$
$
(112)
$
726
Balance at
beginning of
period
Charged to
costs and
expenses
Allowance for doubtful accounts:
Year ended December 31, 2014
$
187
$
22
$
Year ended December 31, 2013
$
145
$
44
Year ended December 31, 2012
$
116
$
$
791
Year ended December 31, 2013
$
Year ended December 31, 2012
$
Allowance in respect of carryforward tax losses:
Year ended December 31, 2014
S-2
Charged to
other accounts
2
Exhibit 2.27
SENIOR UNSECURED
JAPANESE YEN TERM LOAN
CREDIT AGREEMENT
dated as of
December 17, 2013
among
TEVA PHARMACEUTICAL INDUSTRIES LIMITED,
as Guarantor,
TEVA HOLDINGS K.K.,
as Borrower,
THE LENDERS PARTY HERETO FROM TIME TO TIME,
and
MIZUHO BANK, LTD.,
as Administrative Agent
MIZUHO BANK, LTD.,
SUMITOMO MITSUI BANKING CORPORATION
and
THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,
as Mandated Lead Arrangers and as Bookrunners
White & Case LLP
5 Old Broad Street
London EC2N 1DW
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
Section 1.
01
Defined Terms
Section 1.
02
Terms Generally
Section 1.
03
Accounting Terms; GAAP
Section 1.
04
Resolution of Drafting Ambiguities
Section 1.
05
Execution of the Agreement
Section 1.
06
Agreement on Bank Transactions
1
1
17
18
18
18
ARTICLE II THE CREDITS
Section 2.
01
Commitments
Section 2.
02
Loans.
Section 2.
03
Requests for Loans
Section 2.
04
Funding of Loans.
Section 2.
05
Interest Periods.
Section 2.
06
Term Loan
Section 2.
07
Repayment of Loans; Evidence of Debt.
Section 2.
08
Prepayment of Loans
Section 2.
09
Fees
Section 2.
10
Interest
Section 2.
11
Alternate Rate of Interest
Section 2.
12
Increased Costs
Section 2.
13
Illegality
Section 2.
14
Break Funding Payments
Section 2.
15
Taxes
Section 2.
16
Payments Generally; Pro Rata Treatment; Sharing of Set-offs
Section 2.
17
Mitigation Obligations; Replacement of Lenders
Section 2.
18
Defaulting Lenders
19
ARTICLE III REPRESENTATIONS AND WARRANTIES
Section 3.
01
Organization; Powers
Section 3.
02
Authorization; Enforceability
Section 3.
03
Approvals; No Conflicts
Section 3.
04
Financial Condition; No Material Adverse Change
31
19
19
19
19
20
20
20
21
21
22
22
23
24
25
26
27
29
30
31
31
31
32
Section 3.
05
Section 3.
06
Section 3.
07
Section 3.
08
Section 3.
09
Section 3.
10
Section 3.
11
Section 3.
12
Section 3.
13
Section 3.
14
Section 3.
15
Section 3.
16
Section 3.
17
Section 3.
18
Litigation
32
Environmental Matters
33
Disclosure
33
Solvency
33
ERISA
33
Investment Company Status
33
Margin Securities
33
Properties
33
Compliance with Laws and Agreements
34
Taxes
34
Pari Passu Ranking
34
Permits, Etc.
34
Insurance
34
No Filing or Stamp Tax
34
i
Page
Section 3.
19
No Anti-Social Forces.
35
ARTICLE IV CONDITIONS
Section 4.
01
Effective Date
Section 4.
02
Each Credit Event
36
ARTICLE V AFFIRMATIVE COVENANTS
Section 5.
01
Financial Statements and Other Information
Section 5.
02
Notices of Material Events
Section 5.
03
Existence; Conduct of Business
Section 5.
04
Payment of Taxes
Section 5.
05
Maintenance of Properties; Insurance
Section 5.
06
Books and Records; Inspection Rights
Section 5.
07
Compliance with Laws
Section 5.
08
Use of Proceeds
Section 5.
09
Environmental Laws, Etc.
37
ARTICLE VI NEGATIVE COVENANTS
Section 6.
01
Fundamental Changes and Asset Sales
Section 6.
02
Fiscal Year and Accounting
Section 6.
03
Negative Pledge
Section 6.
04
Financial Covenants
Section 6.
05
No Anti-Social Forces.
41
ARTICLE VII EVENTS OF DEFAULT
Section 7.
01
Events of Default
45
ARTICLE VIII THE ADMINISTRATIVE AGENT
Section 8.
01
Appointment and Authority
Section 8.
02
Administrative Agent Individually
Section 8.
03
Duties of Administrative Agent; Exculpatory Provisions
Section 8.
04
Reliance by Administrative Agent
Section 8.
05
Delegation of Duties
Section 8.
06
Resignation of Administrative Agent
Section 8.
07
Non-Reliance on Administrative Agent and Other Lender Parties
Section 8.
08
[Reserved]
Section 8.
09
Certain Titles
48
ARTICLE IX GUARANTY
54
36
37
37
39
39
39
40
40
40
40
40
41
42
43
45
45
45
48
48
50
50
51
51
52
53
53
Section 9.
01
Section 9.
02
Section 9.
03
Section 9.
04
Section 9.
05
Section 9.
06
Guaranty
54
Guaranty Absolute
54
Waivers and Acknowledgments
55
Subrogation
56
Subordination
56
Continuing Guaranty
57
ARTICLE X [RESERVED]
Section 10
.01
[Reserved]
57
ARTICLE XI MISCELLANEOUS
Section 11
.01
Notices
Section 11
.02
[Reserved]
Section 11
.03
Waivers; Amendments
Section 11
.04
Expenses; Indemnity; Damage Waiver
Section 11
.05
Successors and Assigns
57
57
57
58
58
59
61
ii
Page
Section 11
.06
Section 11
.07
Section 11
.08
Section 11
.09
Section 11
.10
Section 11
.11
Section 11
.12
Section 11
.13
Section 11
.14
Section 11
.15
Section 11
.16
Section 11
.17
Section 11
.18
Section 11
.19
Section 11
.20
Section 11
.21
Section 11
.22
Survival
64
Counterparts; Integration; Effectiveness
64
Severability
64
Right of Setoff
64
Governing Law; Jurisdiction; Consent to Service of Process
65
Waiver of Jury Trial
66
Headings
66
Confidentiality
66
Treatment of Information
67
Interest Rate Limitation
69
No Waiver; Remedies
69
USA Patriot Act Notice and “Know Your Customer” and OFAC Provisions
70
Preparation of Notarized Deed (kousei shosho)
71
Judgment Currency
71
Language.
72
No Fiduciary Duty
72
Money Lending Business Act of Japan
72
SCHEDULES:
Schedule 2.01
Schedule 3.18
Schedule 6.03
-
Commitments
Stamp Taxes
Existing Liens
80
81
82
-
Form of Assignment and Assumption
[Reserved]
[Reserved]
Form of Compliance Certificate
83
88
89
90
EXHIBITS:
Exhibit A
Exhibit B
Exhibit C
Exhibit D
iii
CREDIT AGREEMENT
This Credit Agreement (this “Agreement”), dated as of December 17, 2013, is among TEVA PHARMACEUTICAL
INDUSTRIES LIMITED , an Israeli company registered under no 52-0013-954, the registered address of which is at Har Hozvim,
Jerusalem, ISRAEL (the “ Company ”, “ Guarantor ” or “ Parent ”), TEVA HOLDINGS K.K., a Kabushiki Kaisha organized
under the laws of Japan registered under no 0104-03-008857, the registered address of which is at 1-5, Toranomon 5-chome,
Minato-ku, Tokyo, Japan, and a Subsidiary of the Company (“ Teva Japan ” or the “ Borrower ”), the Lenders party hereto from
time to time, and MIZUHO BANK, LTD. (the “ Administrative Agent ”).
The parties here to agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01 Defined Terms. As used in this Agreement, the following terms have the meanings specified below:
“Administrative Agent” has the meaning specified in the preamble hereto.
“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Agent’s Group” has the meaning specified in Section 8.02(b).
“Aggregate Commitments” means the aggregate amount of all of the Lenders’ Commitments.
“Agreement” has the meaning specified in the preamble hereto.
“Anti-Social Force” means any of the Persons, groups or individuals described in Sections 3.19(a) through (n) .
“Applicable Margin” means 0.30 per cent. per annum.
“Applicable Percentage” means with respect to any Lender, the percentage of the total Aggregate Commitments of all Lenders
represented by such Lender’s Commitments. If the Aggregate Commitments have terminated or expired, the Applicable Percentages
shall be determined based upon the Commitments most recently in effect, giving effect to any assignments.
“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing
in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a
Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
1
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee
(with the consent of any party whose consent is required by Section 11.05 ), and accepted by the Administrative Agent,
substantially in the form attached hereto as Exhibit A or any other form approved by the Administrative Agent and Parent.
“Bankruptcy Event” has the meaning set forth in Section 7.01(g).
“Bankruptcy Law” has the meaning set forth in Section 7.01(g).
“Basel III” means “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems”, “Basel III:
International Framework for Liquidity Risk Measurement, Standards and Monitoring” and “Guidance for National Authorities
Operating the Countercyclical Capital Buffer” published by the Basel Committee on 16 December 2010, each as amended,
supplemental or restated, the “Global systemically important banks: assessment methodology and the additional loss absorbency
requirement—Rules text” published by the Basel Committee on Banking Supervision in November 2011, as amended, supplemented
or restated, and any other finalised form of further guidance or standards published by the Basel Committee that addresses such
proposals.
“Basel Committee” means the Basel Committee on Banking Supervision.
“Bookrunners” has the meaning set forth on the cover hereof.
“Bookrunners Fee Letter” means that certain Bookrunners Fee Letter dated as of December 17, 2013 among the Parent and the
Bookrunners.
“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in London or Tokyo are
authorized or required by law to remain closed.
“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking
effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation,
adoption or application thereof by any Governmental Authority or (c) the making or issuance of, and compliance by the relevant
Lender with, any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority.
Notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act, and all
requests, rules, guidelines and directives promulgated thereunder and (y) all requests, rules, guidelines or directives promulgated by
the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the
United States, Japan or any other foreign regulatory authorities, in each case pursuant to Basel III, are deemed to have been introduced
or adopted after the date hereof, regardless of the date enacted or adopted.
“Change of Control” shall be deemed to occur upon the occurrence of any one or more of the following:
(a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) shall become, or obtain
rights (whether by means of warrants, options or otherwise) to become, the “beneficial owner” (as defined in Rules 13(d)-3 and
13(d)-5 under the Exchange Act), directly or indirectly, of 35% or more of the voting power or economic interests of the Parent,
2
(b) during any period of 12 consecutive months, a majority of the members of the board of directors or other equivalent
governing body of the Parent ceases to be composed of individuals (i) who were members of that board or equivalent governing
body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved
by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that
board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was
approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at
least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii) , any
individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs
as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by
any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors), or
(c) the Parent shall cease to directly or indirectly beneficially own and control 100% of the equity interests in the Borrower.
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
“Commitment” means, with respect to any Lender, the commitment of such Lender to make Loans hereunder, expressed as an
amount representing the maximum aggregate amount of such Lender’s Credit Exposure hereunder in respect of the Loans, as such
commitment may be increased or reduced from time to time pursuant to assignments by or to such Lender pursuant to Section 11.05 .
The initial amount of each Lender’s Commitment is set forth on Schedule 2.01 , or in the Assignment and Assumption pursuant to
which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Lenders’ Commitments is
JPY 35,000,000,000.
“Communications” means each notice, demand, communication, information, document and other material provided for
hereunder or under any other Loan Document or otherwise transmitted between the parties hereto relating to this Agreement, the other
Loan Documents, or the transactions contemplated by this Agreement or the other Loan Documents.
“Company” has the meaning specified in the preamble hereto.
“Consolidated Cash and Cash Equivalents” means, with respect to any Person, the:
(a) cash on hand or on deposit with any bank of such Person; plus
(b) all other assets held by such Person that should be classified as “cash equivalents” in accordance with GAAP,
included in the cash and cash equivalents accounts listed on the consolidated balance sheet of Parent and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP (excluding any such cash or cash equivalents subject to an
Encumbrance, other than non-consensual Permitted Encumbrances).
3
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “ Controlling ” and “
Controlled ” have meanings correlative thereto.
“Credit Exposure” means, with respect to any Lender at any time, the sum of the outstanding principal amount of such
Lender’s Loans at such time.
“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both
would, unless cured or waived, become an Event of Default.
“Defaulting Lender” means any Lender with respect to which a Lender Default then exists.
“Dispute” has the meaning set forth in Section 11.10(b).
“Disruption Event” means either or both of:
(a) a material disruption to those payment or communications systems or to those financial markets which are, in each case,
required to operate in order for payments to be made in connection with this Agreement (or otherwise in order for the transactions
contemplated by the Loan Documents to be carried out) which disruption is not caused by, and is beyond the control of, any of the
parties hereto; or
(b) the occurrence of any other event which results in a disruption (of a technical or systems-related nature) to the treasury or
payments operations of a party hereto preventing that, or any other party hereto:
(i) from performing its payment obligations under the Loan Documents; or
(ii) from communicating with other Loan Parties in accordance with the terms of the Loan Documents,
and which (in either such case of clause (i) or (ii) above) is not caused by, and is beyond the control of, the party whose operations are
disrupted.
“Dollars,” “dollars,” “$” or “US$” refers to lawful money of the United States of America.
“Drawdown Date” means December 20, 2013.
“EBITDA” means, for any Test Period, the consolidated income before income taxes of Parent and its Subsidiaries for such Test
Period, determined on a consolidated basis in accordance with GAAP:
(a) adding thereto (without duplication) the income before income taxes of any Subsidiary or business or assets acquired during
that Test Period for the part of that Test Period when it is not a Subsidiary and/or the business or assets were not owned by Parent or
its Subsidiaries, but
4
(b) excluding the income before income taxes attributable to any Subsidiary or to any business or assets sold during the
Test Period,
(c) all as adjusted by (without duplication):
(i) adding back Net Interest Payable;
(ii) excluding from such income before taxes any extraordinary, unusual or non-recurring expense or loss (including any
extraordinary litigation or claim settlement charges or expenses) or gain (together with the tax consequences of such expense or loss
or gain, as the case may be), recorded or recognized by the Parent or any Subsidiary during such Test Period;
(iii) excluding any amount attributed to minority interests to the extent reflected in income before income taxes;
(iv) adding back depreciation and amortization expenses;
(v) adding back any non-cash restructuring and non-cash integration costs incurred in respect of restructurings, plant closings,
headcount reductions, cost reductions or any other similar action (including, without limitation, with respect to any acquisition) and
any other non-cash charges and expenses of the Parent or its Subsidiaries reducing such consolidated income (including, without
limitation, compensation expenses realized for the grants of performance shares, stock options, stock purchase rights or other rights
to officers, directors and employees of the Parent or any Subsidiary) (but excluding any non-cash charge, expense or loss that results
in an accrual of a reserve for cash charges in any future period and any non-cash charge, expense or loss relating to write-offs,
write-downs or reserves with respect to accounts or inventory);
(vi) adding back any write-off of deferred financing costs in connection with the prepayment or repurchase of Indebtedness
prior to the maturity thereof);
(vii) adding back any fees, costs and expenses incurred by Parent or any Subsidiary in connection with the making of any
acquisition (including, without limitation, any severance or restructuring costs or expenses, whether or not payable in cash, related to
such acquisition), the incurrence of Indebtedness or the issuance of capital stock, whether or not the applicable transaction is
consummated;
(viii) adding back any fees, costs and expenses in connection with the negotiation, execution and/or original syndication of this
Agreement;
(ix) adding back any acquisition related costs, restructuring reserves, adjustments to acquired contingent liabilities and assets,
adjustments made for earn-outs and other forms of contingent consideration and adjustments made to acquisition related deferred tax
asset and income tax reserves incurred by the Parent or its Subsidiaries in connection with the acquisition of, merger, amalgamation
or consolidation with, any Person expensed in computing such consolidated net income to the extent the same would have been
capitalized prior to the adoption of Statement of Financial Accounting Standards No. 141R, Business Combinations; and
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(x) taking no account of any revaluation of an asset or any loss or gain over book value arising on the disposal of an asset
(otherwise than in the ordinary course of trading) by Parent or a Subsidiary during the Test Period, and
(d) subtracting from such consolidated income before income taxes the aggregate amount of all non-cash items increasing such
consolidated income before income taxes (other than accrual of revenue or recording of receivables in the ordinary course of business)
for such Test Period.
For purposes of this definition, a gain, expense or loss shall only be deemed as being “extraordinary,” “ unusual ” or “
non-recurring ” if either (x) it is classified (in accordance with GAAP) as “extraordinary” or “unusual” on the face of the annual or
quarterly consolidated financial statements of the Parent or (y) (i) it is a gain, expense or loss realized during the Test Period that in
the good faith judgment of senior management of the Parent is not reasonably likely to recur within the two years following such
period and (ii) there has not been another gain, expense or loss identical or similar to such gain, expense or loss realized within the
preceding two years.
With respect to any period during which an acquisition or asset sale has occurred (each, a “Subject Transaction ”), for purposes
of determining the Interest Cover Ratio and the Total Consolidated Net Debt to EBITDA ratio, without duplication of clauses (a) and
(b) above, EBITDA shall be calculated with respect to such period on a pro forma basis using the historical audited financial
statements of any business so acquired (as if such acquisition had been effected on the first day of such Test Period) or sold (as if such
sale had been effected immediately prior to the beginning of such Test Period).
“Effective Date” means the first Business Day on which the conditions precedent of Section 4.01 are each satisfied in full or
waived.
“Eligible Assignee” means any Person to whom a Loan, Commitment and other rights and obligations under this Agreement
may be assigned in accordance with Section 11.05(b) .
“Embargoed Person” means any party that (i) is publicly identified on the most current list of “Specially Designated Nationals
and Blocked Persons” published by the U.S. Treasury Department’s (the “ Treasury ”) Office of Foreign Assets Control (“ OFAC ”)
or resides, is organized or chartered, or has a place of business in a country or territory subject to OFAC sanctions or embargo
programs or (ii) is publicly identified as prohibited from doing business with the United States under the International Emergency
Economic Powers Act, the Trading With the Enemy Act, or any other requirement of law.
“Encumbrance” means mortgage, charge, pledge, lien, assignment by way of security, hypothecation, security interest, title
retention, preferential right or trust arrangement or any other security agreement or arrangement having a similar effect.
“Environmental Law” means any statutory or common law, treaty, convention, directive or regulation having legal or judicial
effect whether of a criminal or civil nature, concerning the environment, the preservation or reclamation of natural resources, or the
management, release or threatened release of any Hazardous Materials or to health and safety matters.
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“ERISA” means the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time.
“ERISA Affiliate” means, with respect to any Person, any trade or business (whether or not incorporated) that, together with
such Person, is treated as a single employer under Section 414 of the Code.
“ERISA Event” means (a) any “reportable event,” as defined in Section 4043 of ERISA or the regulations issued thereunder,
with respect to a Plan (other than an event for which the 30-day notice period is waived by regulation); (b) with respect to a Plan, the
failure to satisfy the minimum funding standard of Section 412 of the Code and Section 302 of ERISA, whether or not waived; (c) the
failure to make by its due date a required installment under Section 430(j) of the Code, as amended by the Pension Protection Act of
2006, with respect to any Plan or the failure to make any required contribution to a Multiemployer Plan; (d) the filing pursuant to
Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect
to any Plan; (e) the incurrence by Parent or any Subsidiary or any of its ERISA Affiliates of any liability under Title IV of ERISA
with respect to the termination of any Plan; (f) the receipt by Parent, any Subsidiary or any of their ERISA Affiliates from the Pension
Benefit Guaranty Corporation (or any successor entity performing similar functions) or a plan administrator of any notice relating to
the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan, or the occurrence of any event or condition
which could reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to
administer, any Plan; (g) the incurrence by any of Parent, any of its Subsidiaries or any of their ERISA Affiliates of any liability with
respect to the withdrawal from any Plan or Multiemployer Plan; (h) the receipt by any of Parent, any of its Subsidiaries or their ERISA
Affiliates of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is
expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (i) the “substantial cessation of operations”
within the meaning of Section 4062(e) of ERISA with respect to a Plan; (j) the making of any amendment to any Plan which could
result in the imposition of a lien or the posting of a bond or other security or the conditions for imposition of a lien under
Section 302(f) of ERISA shall have been met with respect to any Plan; (k) the occurrence of a nonexempt prohibited transaction
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) which could reasonably be expected to result in liability to
any of Parent or any of its Subsidiaries; and (l) any event similar to any event described in (a) through (k) above but with respect to
a Non-US Plan.
“Event of Default” has the meaning assigned to such term in Article VII.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Excluded Taxes” means, with respect to the Administrative Agent or any Lender or other recipient of any payment to be made
by or on account of any obligation of any Loan Party hereunder, (a) income or franchise taxes imposed on (or measured by) its net
income by the United States of America, by Japan, by any state or prefecture of any of the foregoing (including any locality or
subdivision thereof) or the District of Columbia or by the jurisdiction under the laws of which such recipient is organized or in which
its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes
imposed by the United States of America, Japan or any state or prefecture of any of the foregoing or the District of Columbia or any
similar tax
7
imposed by any other jurisdiction in which the Administrative Agent, such Lender or such other recipient is located, (c) in the case of
a Lender (other than an assignee pursuant to a request by the Borrower under Section 2.17(b) ), any withholding tax that is
attributable to such Lender’s failure to comply with Section 2.15(e) , except to the extent that such Lender (or its assignor, if any)
was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with
respect to such withholding tax pursuant to Section 2.15(a) , (d) any tax that is attributable solely to the Administrative Agent, such
Lender, or such other recipient’s (as the case may be) failure to comply with sections 1471 or 1472 of the Code and/or any Treasury
regulations promulgated thereunder or other official interpretations thereof and (e) in the case of a Non-Qualifying Lender, any
Japanese withholding tax that is imposed on amounts payable hereunder to such Non-Qualifying Lender at the time such
Non-Qualifying Lender becomes a party hereto (or designates a new lending office), it being understood and agreed with respect to
this subclause (e) that (x) if a Lender was a Qualifying Lender at the time such Lender became party to this Agreement and as a
result of a Change in Law or a treaty change which went into effect after such Lender became a party hereto such Lender would no
longer have otherwise been a Qualifying Lender, then such Lender shall none-the-less be deemed to be a Qualifying Lender and if
such Lender transfers or assigns or participates out its Loan or interest therein to a different Lender (which assignee is in the same tax
jurisdiction (for purposes of Japanese withholding tax) as the assigning Lender or is a branch of a financial institution based in the
same tax jurisdiction as the assigning Lender (even if the branch is in another jurisdiction)) or re-books such Loan in a different
booking office, such Loan shall at all times be deemed to be lent by a Qualifying Lender (even if the assignee, transferee or participant
would not have otherwise been deemed a Qualifying Lender) and such Loan or interest therein shall be subject to the gross-up
provisions of this Agreement, (y) if a Lender is assigned a Loan or portion thereof at the pursuant to a request by Borrower under
Section 2.17 that Loan or portion thereof so assigned shall at all times be deemed lent by a Qualifying Lender and shall be subject to
the gross-up provisions of this Agreement and (z) this subclause (e) shall not apply to any Taxes imposed on a Lender in connection
with an interest or participation in any Loan or other obligation that such Lender was required to acquire pursuant to Section 2.16(c) .
“Fee Letter” means each of (x) the Bookrunners Fee Letter and (y) the Agency Fee Letter, dated as of December 17, 2013
among the Parent and the Administrative Agent, in each case, as the same may be amended from time to time.
“Finance Parties” means any of the Administrative Agent and/or any Lender.
“Financial Officer” means with respect to any Loan Party, the chief financial officer, principal accounting officer, treasurer or
controller of such Loan Party.
“Financing Arrangement” means with respect to Parent and its Subsidiaries the (i) sale, transfer or other disposition of any of
the assets or property owned by Parent or its Subsidiaries on terms whereby they are leased or re-acquired by Parent or its
Subsidiaries, (ii) sale, transfer or other disposition of any of its receivables on recourse terms, (iii) entering into any arrangement under
which money or the benefit of a bank or other account may be applied, set-off or made subject to a combination of accounts, or
(iv) entering into any other preferential arrangement having a similar effect, in each case in circumstances where the arrangement or
transaction is entered into primarily as a method of raising Indebtedness or of financing or refinancing all or part of the acquisition of
assets or property or the cost of installation, construction or improvement thereof, in each case which results in an Encumbrance on
such assets or property.
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“GAAP” means generally accepted accounting principles in the United States of America. Subject to the provisions of
Section 6.02(b) , the Parent may elect to apply IFRS accounting principles in lieu of GAAP and, upon any such election,
references herein to GAAP shall thereafter be construed to mean IFRS (except as otherwise provided in this Agreement);
provided that any calculation or determination in this Agreement that requires the application of GAAP for periods that include
fiscal quarters ended prior to the Borrower’s election to apply IFRS shall remain as previously calculated or determined in
accordance with GAAP (subject to Section 6.02(b) ). The Parent shall give prompt notice of any such election made in
accordance with this definition to the Administrative Agent and the Lenders.
“Governmental Authority” means the government of the United States of America, Japan or Israel or any other nation, or of
any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body (including
self-regulatory body), court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative
powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European
Central Bank).
“Guarantor” means the Parent.
“Guaranty” means the Guaranty issued by Parent pursuant to Article IX hereof.
“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes
or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls,
radon gas, infectious or medical wastes and all other substances or wastes of any nature, in each case regulated pursuant to any
Environmental Law.
“IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board.
“Indebtedness” of a Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect
to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments,
(c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under
conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in
respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of
business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed ( provided that the amount of such Indebtedness shall be the lesser of (x) the fair market value of
such property at such date of determination (as determined in good faith by the Borrower) and (y) the aggregate principal amount of
such Indebtedness of such other Person), (g) all guarantees by such Person of Indebtedness of others, (h) all capital lease obligations
of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters
of guaranty, and (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances.
9
The indebtedness of any Person shall include the indebtedness of any other entity (including any partnership in which such
person is a general partner) to the extent such Person is liable therefore as a result of such person’s ownership interest in or other
relationship with such entity, except (other than in the case of general partner liability) to the extent that terms of such
indebtedness expressly provide that such Person is not liable therefor, provided however, that Indebtedness of any Person shall
not include (A) trade payables; (B) any contingent obligations incurred in connection with letters of credit, letters of guaranty or
similar instruments obtained or created in the ordinary course of business to support obligations of such Person that do not
constitute Indebtedness; or (C) endorsements of checks, bills of exchange and other instruments for deposit or collection in the
ordinary course of business.
“Indemnified Taxes” means Taxes (other than Excluded Taxes) imposed on or with respect to any payment made by or on
account of any obligation of any Loan Party hereunder or under any other Loan Document.
“Interest Cover Ratio” means, with respect to any Test Period, the ratio of (i) EBITDA for such Test Period to (ii) Net Interest
Payable during such Test Period.
“Interest Payable” means all interest, acceptance commission and any other continuing, regular or periodic costs and expenses
in the nature of interest and amortization of debt discount (whether paid, payable or capitalized), incurred by Parent and its
consolidated Subsidiaries in effecting, servicing or maintaining Total Consolidated Debt during a Test Period but excluding exchange
differentials; provided , that , with respect to any period during which a Subject Transaction has occurred, for purposes of
determining the Interest Cover Ratio, Interest Payable shall be calculated with respect to such period on a pro forma basis using the
consolidated financial statements of the Parent and its Subsidiaries which shall be reformulated as if such Subject Transaction, and any
Indebtedness incurred or repaid in connection therewith, had been consummated or incurred or repaid at the beginning of such period.
“Interest Payment Date” means, each January 28, April 28, July 28 and October 28, provided that the first Interest Payment
Date after the Drawdown Date shall be April 28, 2014 and the last Interest Payment Date shall be the Maturity Date; provided further
that whenever an Interest Payment Date would otherwise occur on a day other than a Business Day, such Interest Payment Date shall
be extended to occur on the next succeeding Business Day; provided , that if such extension would cause such Interest Payment Date
to occur in the next succeeding calendar month, such Interest Payment Date shall occur on the immediately preceding Business Day.
“Interest Period” means, for each Loan, the period from the Drawdown Date to the next succeeding Interest Payment Date and
thereafter, each subsequent period from the most recent Interest Payment Date to the next succeeding Interest Payment Date; provided
that in no event shall an Interest Period extend beyond the Maturity Date. For purposes of this definition, the date of a Loan initially
shall be the date on which such Loan is made and thereafter shall be the effective date of the most recent continuation of such Loan.
For any Interest Period for which there is no Yen LIBO Screen Rate that corresponds exactly to such Interest Period, then the
Administrative Agent shall determine the applicable Yen LIBO Screen Rate using the weighted average of the offered Yen LIBO
Screen Rates for the two terms most nearly corresponding (ending before and after the applicable Interest Period) to such Interest
Period.
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“Interest Receivable” means, in respect of any Test Period, interest and amounts in the nature of interest received during
that period by Parent and its consolidated Subsidiaries, calculated on a pro forma basis (as set forth in the proviso of the
definition of Interest Payable) to the extent a Subject Transaction occurred during such Test Period.
“IRRA” shall have the meaning assigned to such term in Section 11.15.
“Japanese Borrower” means the Borrower incorporated or organized under the laws of Japan.
“Japanese GAAP” means generally accepted accounting principles in Japan.
“Japanese Material Subsidiary” means any Material Subsidiary incorporated or organized under the laws of Japan.
“JPY”, “Yen” or “¥” means the lawful currency of Japan.
“Judgment Currency” shall have the meaning assigned to such term in Section 11.19.
“Judgment Currency Conversion Date” shall have the meaning assigned to such term in Section 11.19.
“Lender Default” means, as to any Lender, (i) the refusal (which has not been retracted) of such Lender or the failure of such
Lender to make available its portion of any Loan (unless (x) such refusal or failure is a result of an administrative or technical error or
a Disruption Event and payment is made within two Business Days of its due date or (y) such Lender is reasonably disputing in good
faith as to whether it is required to make the payment in question, which it shall do in writing to the Administrative Agent in
reasonable detail), (ii) such Lender has (or has a direct or indirect parent company that has) been deemed insolvent or having become
the subject of a bankruptcy or insolvency proceeding or a takeover by a regulatory authority (provided that as to any Lender, a Lender
Default shall not be deemed to have occurred solely by virtue of the ownership or acquisition of any equity interest in that Lender or
any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or
provide such Lender with immunity from the jurisdiction of courts within the United States or any other jurisdiction of such
Governmental Authority, or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such
Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender), or (iii) such
Lender having notified the Administrative Agent and/or any Loan Party (x) that it does not intend to comply with its obligations under
Sections 2.01 or 2.04 in circumstances where such non-compliance would constitute a breach of such Lender’s obligations under
the respective Section, or having made a public statement to that effect (unless such Lender is reasonably disputing in good faith as to
whether it is required to comply with its obligations in question, which it shall do in writing to the Administrative Agent in reasonable
detail) or (y) of the events described in preceding clause (ii).
“Lender Party” means any Lender.
“Lender Party Appointment Period” has the meaning assigned in Section 8.06.
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“Lenders” means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto as a
Lender pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party as a Lender hereto
pursuant to an Assignment and Assumption.
“Loan Documents” means this Agreement, each Fee Letter, the Mandate Letter and all other agreements, certificates,
documents, instruments and writings at any time delivered in connection herewith or therewith (exclusive of term sheets and
commitment letters).
“Loan Parties” means the Borrower and Guarantor.
“Loans” means the loans made by the Lenders to the Borrower pursuant to this Agreement.
“London Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in London are
authorized or required by law to remain closed.
“Mandate Letter” means the Mandate Letter with respect to this Agreement between the Parent and the Mandated Lead
Arrangers dated December 16, 2013.
“Mandated Lead Arrangers” has the meaning set forth on the cover hereof.
“Material Adverse Effect” means any event or circumstance which:
(a) is materially adverse to:
(i) the business, operations or financial condition of the Loan Parties and their Subsidiaries, taken as a whole; or
(ii) the ability of the Loan Parties to perform their financial obligations (including both payment obligations and compliance
with financial covenants) under any Loan Document; or
(b) affects the validity or the enforceability against any Loan Party of any Loan Document.
“Material Indebtedness” means, Indebtedness (other than the Loans), of any one or more of Parent and its Subsidiaries in an
aggregate principal amount exceeding US$150,000,000 (or its equivalent in another currency or currencies).
“Material Subsidiary” means at any date, (a) the Borrower, (b) any Subsidiary of the Parent that would be a “significant
subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X (as in effect on the Effective Date) promulgated by the United States
Securities and Exchange Commission ( provided that references therein to 10% shall for purposes hereof be 5%) as of the last day of
the then most recently ended fiscal year, and (c) for the purpose of ascertaining whether an Event of Default has occurred only, any
Subsidiary which, when aggregated with all other Subsidiaries that are not otherwise Material Subsidiaries and as to which any event
described in the Events of Default clause has occurred and is continuing, would constitute a Material Subsidiary in accordance with
the criteria in clause (b) above.
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“Maturity Date” means the date that occurs on the fifth anniversary of the Drawdown Date, and if such date is not a
Business Day, then the next succeeding Business Day.
“Multiemployer Plan” means a multiemployer plan within the meaning of Section 4001(a)(3) or Section 3(37) of ERISA (a) to
which any of Parent, its Subsidiaries or any of their ERISA Affiliates is then making or accruing an obligation to make contributions;
(b) to which any of Parent, its Subsidiaries or their ERISA Affiliates has within the preceding five plan years made contributions; or
(c) with respect to which any of Parent or its Subsidiaries could incur liability.
“Net Interest Payable” means Interest Payable less Interest Receivable.
“Non-Bank Lender” means any Lender who comes under the definition of “money lender” under Item 2 of Article 2 of the
Money Lending Business Act of Japan (Act No. 32 of 1983, as amended); provided that if any Person has become a Lender
hereunder and if some or all the provisions of the Money Lending Business Act of Japan will be applicable to such Person in relation
thereto, such Lender shall be deemed to be a Non-Bank Lender even if such Lender is not a “money lender” under Item 2 of Article 2
of the Money Lending Business Act of Japan.
“Non-Defaulting Lender” means and includes each Lender other than a Defaulting Lender.
“Non-Qualifying Lender” means any Lender other than a Qualifying Lender.
“Non-US Plan” means any employee benefit plan, program, policy, arrangement or agreement maintained or contributed to by
any of Parent or its Subsidiaries with respect to employees employed outside the United States.
“Obligation Currency” shall have the meaning assigned to such term in Section 11.19.
“Organized Crime Group” means a group that would likely encourage its members (including members of its sub-group) to
collectively or frequently engage in violent illegal acts.
“Organized Crime Group Member” means a member or associate of an Organized Crime Group.
“Organized Crime Group Quasi-Member” means a non-member of an Organized Crime Group who is related to such group
and is likely to engage in violent illegal acts or financially supports an Organized Crime Group or its members, supplies weapons to
such group, participates or is involved in the management of such group.
“Other Taxes” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement or any other Loan Document.
“Parent” has the meaning specified in the preamble hereto.
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“Participant” has the meaning set forth in Section 11.05(d).
“Permitted Encumbrances” has the meaning set forth in Section 6.03.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company,
partnership, Governmental Authority or other entity.
“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of
ERISA or Section 412 of the Code or Section 302 of ERISA which is maintained or contributed to by any of Parent, its Subsidiaries or
any of their ERISA Affiliates or with respect to which any of Parent or its Subsidiaries could incur liability (including under
Section 4069 of ERISA).
“Prepayment Notice” has the meaning set forth in Section 2.08(b).
“Qualified Securitization Transaction” means any transaction or series of transactions entered into by the Parent or any of its
Subsidiaries pursuant to which the Parent or such Subsidiary sells, conveys or otherwise transfers to a Securitization Entity, or grants a
security interest in for the benefit of a Securitization Entity, any Receivable Assets (whether now existing or arising or acquired in the
future), or otherwise contributes to the capital of such Securitization Entity, in a transaction in which such Securitization Entity
finances its acquisition of or interest in such Receivable Assets by selling or borrowing against such Receivable Assets; provided
that such transaction is non-recourse to the Parent and its Subsidiaries (except for Standard Securitization Undertakings).
“Quotation Day” means, in relation to any period for which an interest rate is to be determined, two London Business Days
before the first day of that period, unless market practice differs in the Relevant Interbank Market for a currency, in which case the
Quotation Day for that currency will be reasonably determined by the Lender in accordance with market practice in the Relevant
Interbank Market (and if quotations would normally be given by leading banks in the Relevant Interbank Market on more than one
day, the Quotation Day will be the last of those days).
“Qualifying Lender” means:
(a)
a Lender that exists, is created or is organised under the laws of Japan and is either lending from an office in Japan or a
branch office outside of Japan;
(b) a Lender that is not created or organised under the laws of Japan but is acting through a branch or other permanent
establishment located in Japan and holds a valid Certificate of Exemption for Withholding Tax for Foreign Corporations
issued by the relevant Tax authorities in Japan; or
(c)
a Treaty Lender.
“Receivable Assets” means ordinary course of business accounts receivable of the Parent or any of its Subsidiaries, and any
assets related thereto, including, without limitation, all collateral securing such accounts receivable, all contracts and contract rights
and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets
(including contract rights) which are customarily transferred or in respect of which security interests are customarily granted in
connection with asset securitization transactions involving accounts receivable and/or receivables-discount-without-recourse schemes.
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“Reference Bank” has the meaning set forth in Section 2.11.
“Reference Bank Rate” has the meaning set forth in Section 2.11.
“Register” has the meaning set forth in Section 11.05(c).
“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers,
employees, agents and advisors of such Person and such Person’s Affiliates.
“Relevant Interbank Market” means the London interbank market.
“Required Lenders” means, at any time, Non-Defaulting Lenders having Credit Exposures and unused Commitments
representing at least 67% of the sum of the total Credit Exposures and unused Commitments of all Non Defaulting Lenders at such
time.
“Responsible Officer” means a chief financial officer, treasurer or assistant treasurer of the Parent.
“SEC” means the U.S. Securities and Exchange Commission.
“Securitization Entity” means a Person (which may include a special purpose vehicle and/or a financial institution) to which
the Parent or any Subsidiary transfers Receivable Assets for purposes of a securitization financing, and with respect to which:
(1) no portion of the Indebtedness or any other obligations (contingent or otherwise) of such entity (a) is guaranteed by the
Parent or any Subsidiary of the Parent (other than the Securitization Entity) (excluding guarantees of obligations (other than the
principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (b) is recourse to or obligates the
Parent or any Subsidiary of the Parent (other than the Securitization Entity) in any way other than pursuant to Standard Securitization
Undertakings or (c) subjects any asset of the Parent or any Subsidiary of the Parent (other than the Securitization Entity), directly or
indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings and
other than any interest in the Receivable Assets (whether in the form of an equity interest in such assets or subordinated indebtedness
payable primarily from such financed assets) retained or acquired by the Parent or any Subsidiary of the Parent,
(2) neither the Parent nor any Subsidiary of the Parent has any material contract, agreement, arrangement or understanding
other than on terms no less favorable to the Parent or such Subsidiary than those that might be obtained at the time from Persons that
are not Affiliates of the Parent, other than fees payable in the ordinary course of business in connection with servicing receivables of
such entity, and
(3) neither the Parent nor any Subsidiary of the Parent has any obligation to maintain or preserve such entity’s financial
condition or cause such entity to achieve certain levels of operating results (it being understood that (i) obligations of the Parent or
other Subsidiaries to transfer Receivable Assets to the Securitization Entity, (ii) obligations of the Parent or any other Subsidiary to
procure such transfers of Receivable Assets to the Securitization Entity, and (iii) Receivable Asset
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performance measures or credit enhancement measures shall not constitute an obligation to preserve the Securitization Entity’s
financial condition or to cause it to achieve certain levels of operating results).
“Signing Date” means December 17, 2013.
“Solvent” and “Solvency” means, with respect to any Person on a particular date, that on such date (a) the fair value of the
property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present
fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in
business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an
unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the
facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured
liability.
“Standard Securitization Undertakings” means representations, warranties, covenants and indemnities reasonably customary
(as determined by the Parent acting in good faith) in accounts receivable securitization transactions and/or
receivables-discount-without-recourse schemes in the applicable jurisdictions, including, to the extent applicable, in a manner
consistent with the delivery of a “true sale”/“absolute transfer” opinion with respect to any transfer by the Parent or any Subsidiary.
“Subject Transaction” has the meaning specified in the definition of “EBITDA.”
“Subsidiary” means, with respect to any Person (the “parent”) at any date, (i) any Person the accounts of which would be
consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in
accordance with GAAP as of such date, (ii) any other corporation, limited liability company, association or other business entity of
which securities or other ownership interests representing more than 50% of the voting power of all such ownership interests entitled
(without regard to the occurrence of any contingency) to vote in the election of the board of directors thereof are, as of such date,
owned, controlled or held by the parent and/or one or more subsidiaries of the parent, (iii) any partnership (a) the sole general partner
or the managing general partner of which is the parent and/or one or more subsidiaries of the parent or (b) the only general partners of
which are the parent and/or one or more subsidiaries of the parent and (iv) any other Person that is otherwise Controlled by the parent
and/or one or more subsidiaries of the parent. Unless the context requires otherwise, “ Subsidiary ” refers to a Subsidiary of Parent.
“Subsidiary Borrower” means Teva Japan.
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges
imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Test Period” in effect at any time means the period of four consecutive financial quarters of Parent ended on or prior to such
time (taken as one accounting period) in respect of which quarterly or annual financial statements are required to be delivered pursuant
to Section 5.01 (without giving effect to any grace periods applicable thereto).
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“Teva Japan” has the meaning specified in the preamble hereto.
“Total Consolidated Debt” means, as of any date of determination, the aggregate amount of all Indebtedness of Parent and its
Subsidiaries, as determined on a consolidated basis in accordance with GAAP.
“Total Consolidated Net Debt” means, at any date of determination, the Total Consolidated Debt less Consolidated Cash and
Cash Equivalents of Parent and its Subsidiaries, as determined on a consolidated basis in accordance with GAAP.
“Transactions” means the execution, delivery and performance by the Borrower of this Agreement and the borrowing of Loans.
“Treaty Lender” means a Lender which is treated as an eligible resident of a jurisdiction having entered into a double taxation
treaty with Japan which double taxation treaty is in effect as of the date such Lender becomes a Lender hereunder and which provides
for exemption from Japanese withholding tax imposed on all interest and other payments hereunder.
“VAT” means value added tax, consumption tax and/or sales tax as provided for by Israel or Japan and any other tax of a similar
nature in any jurisdiction.
“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such
Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
“Yen LIBO Rate” means, with respect to any Interest Period, the rate per annum at approximately 11:00 a.m., London time, on
the Quotation Day for such Interest Period quoted as the applicable Yen LIBO Rate Screen Rate for a period equal to such Interest
Period.
“Yen LIBO Rate Screen Rate” means the British Bankers’ Association Interest Settlement Rate for Yen for the relevant period,
displayed on LIBOR01 page of the Reuters screen (or on any successor or substitute therefor provided by another page or service
providing rate quotations comparable to those currently provided on such page, as reasonably determined by the Administrative Agent
from time to time for purposes of providing quotations of interest rates applicable to Yen deposits in the Relevant Interbank Market).
Section 1.02 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the
terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.
The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will”
shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise (a) any definition of
or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or
other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments,
supplements or modifications set forth herein), (b) any reference herein to any Person shall be
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construed to include such Person’s successors and assigns, (c) the words “herein,” “hereof” and “hereunder,” and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein
to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this
Agreement, (e) any reference to any law or regulation herein shall, unless otherwise specified, refer to such law or regulation as
amended, modified or supplemented from time to time, and, unless the context requires otherwise, shall include without limitation
(x) any applicable Israeli or foreign statute, law (including any rules or regulations promulgated under any such statute or law),
regulation, treaty, rule, official directive, request or guideline of any of the Israeli or foreign national, state, local, municipal, or other
governmental, fiscal, monetary or regulatory body, agency, department or regulatory, self-regulatory or other authority or
organization, whether or not having the force of law (but if not having the force of law, one which applies generally to the class or
category of financial institutions of which any Lender or the Administrative Agent forms a part and compliance with which is in
accordance with the general practice of those financial institutions), including the instructions of Israeli Supervisor of Banks with
respect to proper conduct of banking affairs (“ Hora’ot Nihul Bankai Takin ”) if applicable to any such Person and (y) any applicable
decision of any competent court or other judicial body, (f) the words “asset” and “property” shall be construed to have the same
meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and
contract rights, (g) as used herein, the obligation of any Loan Party under this Agreement or any other Loan Document in respect of
interest accruing under this Agreement or the other Loan Documents shall be deemed to include without limitation any interest
accruing during the pendency of, or after the filing of any petition in respect of, any bankruptcy, insolvency, receivership or other
similar proceeding, regardless of whether allowable or allowed in such proceeding, and (h) in this Agreement, when it relates to a
Japanese Borrower or a Japanese Material Subsidiary, a Bankruptcy Event shall include, without limitation, appointment of a
conservator ( hozen kanrinin ), trustee ( kanzai nin ), supervisor ( kantoku i’in ), inspector ( chosa i’in ) or receiver, or similar debtor
relief effecting, including hasan, minji saisei, kaisha kosei, tokubetsu seisan and tokutei chotei .
Section 1.03 Accounting Terms; GAAP. All accounting terms not specifically defined shall be construed in accordance
with GAAP. Except as otherwise expressly provided herein, all financial statements to be delivered pursuant to this Agreement shall
be prepared in accordance with GAAP as in effect from time to time and all terms of an accounting or financial nature shall be
construed and interpreted in accordance with GAAP, as in effect on the date hereof, subject to Section 6.02 .
Section 1.04 Resolution of Drafting Ambiguities. Each Loan Party acknowledges and agrees that it was represented by
counsel in connection with the execution and delivery of the Loan Documents to which it is a party, that it and its counsel reviewed
and participated in the preparation and negotiation hereof and thereof and that any rule of construction to the effect that ambiguities
are to be resolved against the drafting party shall not be employed in the interpretation hereof or thereof.
Section 1.05 Agreement on Bank Transactions. Any Agreement on Bank Transactions (Ginko-Torihiki-Yakujosho) entered
into between any Loan Party and any Finance Party at any time shall not be applicable to any of the transactions contemplated and
effected under and by this Agreement or the other Loan Documents.
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ARTICLE II
THE CREDITS
Section 2.01 Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Loans
(denominated in Yen) to the Borrower on the Drawdown Date in an aggregate principal amount of such Lender’s Commitment.
Section 2.02 Loans. (a) Each Loan shall be made by the Lenders ratably in accordance with their respective Commitments
for Loans. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations
hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender’s
failure to make Loans as required.
(b) Each Lender at its option may make any Loan by causing any domestic or foreign branch or Affiliate of such Lender to make
such Loan; provided that any exercise of such options shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of this Agreement.
(c) The borrowing of Loans hereunder shall be in the full amount of the then outstanding Commitment.
Section 2.03 Requests for Loans. By executing this Agreement on the Signing Date, the Borrower hereby irrevocably
notifies the Administrative Agent and the Lenders of its request to borrow the full aggregate amount of the Commitments on the
Drawdown Date. The Borrower and the Guarantor hereby represent and warrant to the Administrative Agent and the Lender that the
conditions set forth in Section 4.01 and Section 4.02 have been satisfied in full as of Signing Date. The Borrower hereby requests
that the funds from the Loan be disbursed to the following bank account:
Bank/Branch: Mizuho Bank, Ltd., Nagoya-Chuo Branch
Account Type: Ordinary Deposits “Futsuyokin”
Account Name: TEVA HOLDINGS K.K. “TEVA HOLDINGS KABUSHIKI KAISHA”
Account Number: 1370976.
There shall not be more than one borrowing under this Agreement.
Section 2.04 Funding of Loans.
(a) Each Lender shall make each Loan (which shall be funded net of the Up-Front Fees owed to such Lender under the
Bookrunners Fee Letter) to be made by it hereunder on the Drawdown Date thereof by wire transfer of immediately available funds by
11:00 a.m., Tokyo time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the
Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in
like funds, to an account designated in Section 2.03 . The Lenders shall make such Loan to an account to be notified by the
Administrative Agent to the Lenders prior to the Drawdown Date.
(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Loan that such
Lender will not make available to the Administrative Agent such Lender’s share of such Loan, the Administrative Agent may
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assume that such Lender has made such share available on such date in accordance with this Section 2.04 and may, in reliance upon
such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of
the applicable Loan available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date
such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of a
payment to be made by such Lender, a rate determined by the Administrative Agent in accordance with banking industry rules on
interbank compensation and (ii) in the case of a payment to be made by the Borrower, the interest rate applicable to Loans. If the
Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the
Administrative Agent shall promptly remit to such Borrower the amount of such interest paid by such Borrower for such period. If
such Lender pays its share of the applicable Loan to the Administrative Agent, then the amount so paid shall constitute such Lender’s
Loan included in such Loan. Any payment by such Borrower shall be without prejudice to any claim such Borrower may have against
a Lender that shall have failed to make such payment to the Administrative Agent.
Section 2.05 Interest Periods.
Each Loan hereunder shall have the Interest Period (subject to the provisions of the definition of Interest Period). Upon the
conclusion of each Interest Period (other than the final Interest Period prior to the Maturity Date) each Loan hereunder shall be
deemed continued into a new Interest Period (subject to the provisions of the definition of Interest Period). All Loans shall
automatically continue at the end of each Interest Period for another successive Interest Period until the Maturity Date unless the
Borrower has terminated or repaid the amounts of such Loan prior thereto or the Administrative Agent or the Lenders have terminated
this facility, in each case in accordance with the terms of this Agreement.
Section 2.06 Term Loan.
(a) Amounts repaid or prepaid in respect of a Loan may not be reborrowed.
Section 2.07 Repayment of Loans; Evidence of Debt.
(a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the ratable account of each Lender,
the then unpaid principal amount of Loans made to it (and all accrued and unpaid interest thereon) on the Maturity Date. All payments
or repayments of Loans made pursuant to this Section 2.07(a) shall be made in JPY.
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the
Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and
paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder and
the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from
the Borrowers to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the
account of the Lenders and each Lender’s share thereof.
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(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be primafacie
evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the
Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the
Borrowers to repay the Loans in accordance with the terms of this Agreement.
Section 2.08 Prepayment of Loans.
(a) The Borrowers shall have the right at any time and from time to time to prepay any Loan in whole or in part, subject to prior
notice in accordance with paragraph (b) of this Section 2.08 .
(b) The Borrower shall notify the Administrative Agent in writing of the proposed date and the principal amount of any
prepayment hereunder not later than 10:00 a.m., Tokyo time, at least five Business Days prior to the date of prepayment (each such
notice, a “ Prepayment Notice ”). Each such Prepayment Notice shall be irrevocable and shall specify the prepayment date (which
shall be a Business Day) and the principal amount of each Loan or portion thereof to be prepaid. Each partial voluntary prepayment of
any Loan shall be in an amount that is an integral multiple of JPY 100,000,000 and not less than JPY 1,000,000,000. Each prepayment
of a Loan shall be applied ratably to the Loans included in the prepaid Loan. Prepayments shall be accompanied by accrued interest to
the extent required by Section 2.10 .
(c) If a Change of Control occurs:
(i) the Parent shall promptly notify the Administrative Agent upon becoming aware of that event;
(ii) no Lender shall be obliged to fund any Loans; and
(iii) if a Lender so requires and notifies the Administrative Agent and the Parent within 30 days of the Parent notifying the
Administrative Agent of the event, the Administrative Agent shall, by not less than thirty days’ notice to the Parent, cancel the
Commitment of that Lender and declare the participation of that Lender in all outstanding Loans, together with accrued interest, and
all other amounts accrued under the Loan Documents immediately due and payable.
(d) All payments or repayments of Loans made pursuant to this Section 2.08 shall be made in JPY.
Section 2.09 Fees.
(a) Parent agrees to pay to the Administrative Agent and each Bookrunner, the fees set forth in each Fee Letter, in accordance
with the terms thereof.
(b) All fees payable hereunder shall be paid on the dates due, in immediately available funds in JPY (unless expressly specified
otherwise in any Loan Document), to the Administrative Agent and, in the case of the fees under the Bookrunners Fee Letter, for
distribution, if and as appropriate, among the Lenders or the applicable Lenders. Once paid, none of the fees shall be refundable under
any circumstances.
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Section 2.10 Interest.
(a) The Borrower shall pay interest on the unpaid principal amount of each Loan owing by such Borrower to the Lenders from
the date of such Loan until such principal amount shall be paid in full at a rate per annum equal at all times during each Interest Period
for such Loan to the sum of (x) the Yen LIBO Rate for such Interest Period for such Loan plus (y) the Applicable Margin.
(b) Notwithstanding the foregoing, upon the occurrence and during the continuance of any Event of Default, if any principal of
or interest on any Loan or any fee or other amount payable by the Borrowers hereunder is not paid when due, whether at stated
maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per
annum equal to (i) in the case of overdue principal of or interest on any Loan, 2% plus the rate otherwise applicable to such Loan as
provided in paragraph (a) of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to Loans as provided in
paragraph (a) of this Section.
(c) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and upon termination
of the Commitment; provided that (i) interest accrued pursuant to paragraph (b) of this Section shall be payable on demand and
(ii) in the event of any repayment or prepayment of any Loan accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment. For the avoidance of doubt, it is understood and agreed that interest will not be
double counted in respect of any additional days included at the end of an Interest Period as a result of an extension thereof due to the
operation of the proviso contained in the definition of “Interest Payment Date” contained in Section 1.01, such that interest for such
extended days will accrue only in the Interest Period to which such extended days have been added and not any subsequent Interest
Period.
(d) All interest hereunder shall be computed on the basis of a year of 360 days for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such interest is payable. The applicable Yen LIBO Rate shall be
reasonably determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. In calculating
interest owed hereunder, the Administrative Agent shall calculate the interest owed to each Lender individually (based on the then
current outstanding principal amount of Loan owed to such Lender), rounded down to the nearest whole Yen (on a Lender by Lender
basis), which will then be aggregated and provided to the Borrower.
(e) All interest paid or payable pursuant to this Section shall be paid in JPY.
Section 2.11 Alternate Rate of Interest. If prior to the commencement of any Interest Period:
(a) the Administrative Agent reasonably determines (which determination shall be conclusive absent manifest error) that
adequate and reasonable means do not exist for ascertaining the applicable Yen LIBO Rate, for such Interest Period (including the
applicable screen rate referred to in the definition of Yen LIBO Rate not being available or ascertainable for the relevant currency on
the applicable Quotation Day); or
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(b) the Administrative Agent is advised by the Required Lenders that the applicable Yen LIBO Rate for such Interest Period
will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included
in such borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Parent and the Lenders by telephone or telecopy as promptly as
practicable thereafter and, until the Administrative Agent notifies the Parent and the Lenders that the circumstances giving rise to such
notice no longer exist, (i) to the extent the borrowing of the Loan has not yet occurred, the request set forth in Section 2.03 for the
Loan will be effective only if all Lenders are making loans generally at such time (provided that any Lender that chooses in its
discretion to nonetheless extend the Loan pursuant to such request, may do so in its pro rata portion) and (ii) the applicable Yen LIBO
Rate shall be the Reference Bank Rate or, if not available, the rate notified to the Parent by the Administrative Agent, in the case of
clause (a) above, or by such Lenders (or Lender), in the case of clause (b) above, as soon as practicable and in any event before
interest is due to be paid in respect of the applicable Interest Period, to be that which expresses as a percentage rate per annum the all
in cost of funds to the applicable Lenders (or Lender) of funding such outstanding Loans from whatever source such Lenders (or
Lender) may reasonably select.
The “Reference Bank Rate” shall be determined as follows: the Administrative Agent shall, as soon as practicable after the
occurrence of any event described in clauses (a) or (b) of the preceding paragraph , request each of the Reference Banks to
supply to the Administrative Agent the rate at which that Reference Bank could have borrowed funds in the applicable currency of the
applicable Loans and for the relevant period in the Relevant Interbank Market at or about 11:00 a.m. London time on the Quotation
Day for the Interest Period of that Loan, were it to have done so by asking for and then accepting interbank offers for deposits in
reasonable market size in Yen and for a period comparable to the Interest Period of that Loan. As soon as is practicable after receipt of
the rates supplied by at least three of the Reference Banks, the Administrative Agent shall notify the Parent of the arithmetic mean of
the rates supplied by such Reference Banks to it in accordance with this paragraph (rounded upwards to four decimal places), and such
arithmetic mean as so rounded shall at such point be the “Reference Bank Rate”.
As used in this Agreement, the term “Reference Bank” means the respective primary London lending office of each of the
following (or London Affiliates thereof): (i) Mizuho Bank, Ltd., (ii) Sumitomo Mitsui Banking Corporation, and (iii) The Bank of
Tokyo-Mitsubishi UFJ, Ltd. and (iv) Citi N.A. (and any other bank or banks agreed between the Parent and the Administrative Agent).
Section 2.12 Increased Costs.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement
against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender;
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(ii) subject any Lender to any tax of any kind whatsoever with respect to this Agreement or any Loan made by it, or change the
basis of taxation of payments to such Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by
Section 2.15 ) and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender); or
(iii) impose on any Lender or any relevant interbank market any other condition, cost or expense affecting this Agreement or
Loans made by such Lender;
and the direct result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Loan, or to
reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or any other amount)
then, upon request of such Lender, the Parent will pay to such Lender such additional amount or amounts as will compensate such
Lender for such additional costs incurred or reduction suffered. A certificate of such Lender setting forth the amount or amounts
necessary to compensate such Lender shall be delivered to the Parent and shall be conclusive absent manifest error. Such Lender shall
use commercially reasonable efforts to deliver such certificate promptly after such additional costs are incurred or reduction suffered.
The Parent shall pay such Lender the amount shown as due on any such certificate within 15 days after receipt thereof.
(b) The Parent shall pay (or cause the Borrower to pay) to any Lender, as long as such Lender or its holding company shall be
required to comply with any reserve ratio requirement or analogous requirement of any central banking or financial regulatory
authority imposed in respect of the maintenance of the Commitments or the funding of Loans, such additional costs or reduced rate of
return (expressed as a percentage per annum and rounded upwards, if necessary, to the nearest five decimal places) equal to the actual
costs or reduced rate of return allocated to such Commitment or Loan by such Lender or its holding company (as determined by the
Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is
payable on such Loan, provided the Parent shall have received at least 15 days’ prior notice of such additional costs from such
Lender. If such Lender fails to give notice 15 days prior to the relevant Interest Payment Date, such additional costs shall be due and
payable 15 days from receipt of such notice.
(c) Delay in Requests. Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not
constitute a waiver of such Lender’s right to demand such compensation; provided that the Parent and the Borrower shall not be
required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to
the date that such Lender notifies the Parent of the Change in Law giving rise to such increased costs or reductions and of such
Lender’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or
reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.
Section 2.13 Illegality. Notwithstanding any other provision of this Agreement, (a) if the introduction of or any change in
or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other governmental authority shall assert
that it is unlawful, for any Lender to perform its obligations hereunder or to fund any Loans or (b) if as a result of any merger,
consolidation, amalgamation or acquisition by or of Parent or any Subsidiary with, into or of another Person it is or becomes unlawful
due to group or company lending limitations or other similar limitations under Israeli law (or rule,
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regulation or interpretation thereof or any rules, regulations or interpretations of the Bank of Israel) for any Lender to perform its
obligations hereunder or to fund any Loans (each of clauses (a) and (b) , an “ Illegality ”), then (x) such Lender shall promptly
notify the Parent upon becoming aware of that event and the Commitment of such Lender will be immediately cancelled and (y) the
Borrower shall repay the Loans granted to it by such Lender on the last day of the Interest Period for each Loan occurring after such
Lender has notified such Borrower or, if earlier, the date specified by such Lender in the notice delivered to such Borrower (being no
earlier than the last day of any applicable grace period permitted by law).
Section 2.14 Break Funding Payments. In the event of (a) the payment of any principal of any Loan other than on the last
day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the failure to borrow or prepay any Loan
on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.08(b)
and is revoked in accordance therewith), or (c) the assignment of any Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by the Borrower pursuant to Section 2.17 , then, in any such event, the Borrower shall compensate
each Lender for Break Costs attributable to such event. A certificate of any Lender setting forth, in reasonable detail showing the
computation thereof, any Break Costs that such Lender is entitled to receive pursuant to this Section shall be delivered to the Parent
and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate
within 10 days after receipt, if such certificate complies herewith.
If at any point the Borrower contemplates delivering a Prepayment Notice for a date other than the end of an Interest Period, it
shall be entitled (but not obligated) to request from each Lender (by submitting such request in writing to the Administrative Agent,
which will notify the applicable Lenders of receipt of such request), and each Lender so requested, acting on its own behalf, shall use
commercially reasonably efforts to work with the Borrower in good faith to provide the Borrower with an indicative estimate of any
Break Costs that would be incurred were the Borrower to deliver a Prepayment Notice. Borrower shall not be required to deliver a
Prepayment Notice simply as a result of Borrower’s request for an estimate. The parties hereto agree and understand that any such
estimate provided by any Lender shall be a non-binding indicative estimate based on then existing market conditions (which are
subject to fluctuation) and actual Break Costs, if any, shall be calculated by each individual Lender in accordance with the terms of
this Section 2.14.
For the purposes of this Section:
“Break Costs” means the amount (if any, excluding loss of anticipated profits) by which (x) the interest which a Lender should
have received for the period from the date of receipt of all or any part of its participation in a Loan or any Unpaid Sum to the last day
of the current Interest Period in respect of that Loan or Unpaid Sum, had the principal amount or Unpaid Sum received been paid on
the last day of that Interest Period, exceeds (y) the amount which that Lender would be able to obtain by placing an amount equal to
the principal amount or Unpaid Sum received by it on deposit with a leading bank in the Relevant Interbank Market for a period
starting on the Business Day following receipt or recovery and ending on the last day of the current Interest Period.
“Unpaid Sum” means any sum (including without limitation principal) due and payable but unpaid by any Loan Party under the
Loan Documents.
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Section 2.15 Taxes.
(a) Payments Free of Taxes. Any and all payments by or on account of any obligation of any Loan Party hereunder or under any
other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes (including any
Other Taxes). If any Loan Party shall be required to deduct any Indemnified Taxes (including any Other Taxes) from or in respect of
any sum payable hereunder or under any other Loan Document, if any, to the Administrative Agent or any Lender, (i) the sum payable
shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional
sums payable under this Section 2.15 ) the Administrative Agent or such Lender, as the case may be, receives an amount equal to the
sum it would have received had no such deductions been made, (ii) such Loan Party shall make such deductions and (iii) such Loan
Party shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.
(b) Payment of Other Taxes by the Loan Parties. Without limiting the provisions of paragraph (a) above, each Loan Party shall
timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(c) Indemnification by Loan Parties. The applicable Loan Party shall indemnify the Administrative Agent and each Lender,
within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or
Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or such
Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or
not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A
certificate as to the amount of such payment or liability delivered to a Loan Party by a Lender (with a copy to the Administrative
Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(d) Evidence of Payments. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the applicable
Loan Party to a Governmental Authority, such Loan Party shall deliver to the Administrative Agent the original or a certified copy of
a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other
evidence of such payment reasonably satisfactory to the Administrative Agent.
(e) Status of Lenders. Any Lender, if requested by the Borrower or the Administrative Agent, in writing, shall deliver such
documentation prescribed by applicable law or reasonably requested by such Borrower or the Administrative Agent as will enable
such Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding, deduction at
source or information reporting requirements or as would be necessary for such Borrower to obtain or apply for an authorization or
exemption to make a payment hereunder without a tax deduction or withholding (or at a reduced rate), including the provision of a
residency certificate, if reasonably requested by such Borrower.
(f) Treatment of Certain Refunds. If the Administrative Agent, or a Lender determines in its sole discretion that it has received a
refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has
paid additional amounts pursuant to this Section, it shall promptly after such determination
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pay to such Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid,
by such Borrower under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket
expenses of the Administrative Agent, or such Lender, as the case may be, and without interest (other than any interest paid by the
relevant Governmental Authority with respect to such refund), provided that such Borrower, upon the request of the Administrative
Agent or such Lender, agrees to repay the amount paid over to such Borrower (plus any penalties, interest or other charges imposed by
the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the Administrative Agent or such
Lender is later required to repay such refund to such Governmental Authority. This paragraph shall not be construed to require the
Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes that it deems
confidential) to such Borrower or any other Person.
(g) Value Added Tax.
(i) All consideration or other payments or amounts expressed to be payable under a Loan Document by any Loan Party to a
Lender or Administrative Agent shall be deemed to be exclusive of any VAT. If VAT is to be added or imposed under applicable law
to any consideration or other payments or amounts to be paid by any Loan Party in connection with a Loan Document, that Loan
Party shall pay to the Lender or Administrative Agent or the relevant tax authority, as the case may be (in addition to and at the same
time as paying the consideration or other payments or amounts), an amount equal to the amount of the VAT.
(ii) Where a Loan Document requires any Loan Party to reimburse a Lender or Administrative Agent for any costs or expenses,
that Loan Party shall also at the same time pay and indemnify the Lender or the Administrative Agent, as the case may be, against all
VAT incurred by the Lender or the Administrative Agent, as the case may be, in respect of the costs or expenses to the extent that the
Lender or the Administrative Agent, as the case may be, is not entitled to credit or repayment of the VAT.
(iii) If any Loan Party shall be required to deduct VAT from or in respect of any sum payable hereunder or under any other
Loan Documents, if any, to the Administrative Agent or any Lender, (i) the sum payable shall be increased as may be necessary so
that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.15(g) ) the
Administrative Agent or such Lender receives an amount equal to the sum it would have received had no such deductions been made,
(ii) such Loan Party shall make such deductions and (iii) such Loan Party shall pay the full amount deducted to the relevant
Governmental Authority in accordance with the applicable law.
Section 2.16 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
(a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or of
amounts payable under Section 2.12 , 2.13 , 2.14 , 2.15 or 11.04 or otherwise) prior to 11:00 a.m., Tokyo time, on the date
when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in
the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of
calculating interest
27
thereon. All such payments shall be made to the Administrative Agent in accordance with account instructions as provided to
Borrower from time to time by the Administrative Agent, except that payments pursuant to Sections 2.12 , 2.13 , 2.14 , 2.15
and 11.04 shall be made indirectly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments
received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof; provided that at
the Parent’s election in connection with any prepayment of any Loans pursuant to Section 2.08 , such prepayment shall not, so long
as no Default or Event of Default then exists, be applied to any Loan of a Defaulting Lender. If any payment hereunder shall be due on
a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any
payment accruing interest, interest thereon shall be payable at such rate of accrual for the period of such extension. All payments
hereunder shall be made in JPY.
(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of
principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due
hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and
(ii) second, towards payment of principal then due (or being prepaid) hereunder, ratably among the parties entitled thereto in
accordance with the amounts of principal then due to such parties (rounded down to the nearest whole Yen per Lender, and to the
extent that any Lender would otherwise be entitled to a fraction of a whole Yen, such excess amounts shall be paid to the Lender that
is an Affiliate of the Administrative Agent, if any). In all cases, the Administrative Agent’s determination in respect of pro rata
treatment among Lenders (and rounding if any) shall be conclusive.
(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any
principal of or interest or fees on any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate
amount of its Loans and accrued interest and fees thereon than the proportion received by any other Lender, then the Lender receiving
such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so
that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of
and accrued interest and fees on their respective Loans; provided that (i) if any such participations are purchased and all or any
portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the
extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made
by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as
consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the
Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to
the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation
pursuant to this subsection (c) may exercise against such Borrower rights of set-off and counterclaim with respect to such
participation as fully as if such Lender were a direct creditor of such Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due
to the Administrative Agent for the account of the Lenders hereunder that such Borrower will not make such payment, the
Administrative Agent may assume that such Borrower has made such payment on such date in accordance
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herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not
in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the
amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to
but excluding the date of payment to the Administrative Agent, at a rate determined by the Administrative Agent in accordance with
banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(b), 2.16(d) or 11.04(c), then
the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter
received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such Sections until all
such unsatisfied obligations are fully paid.
(f) Notwithstanding anything to the contrary contained herein, the provisions of the preceding Sections 2.16(a) and (c) shall be
subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Non-Defaulting
Lenders as opposed to Defaulting Lenders.
Section 2.17 Mitigation Obligations; Replacement of Lenders.
(a) If (x) any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any additional amount to
any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15 (other than in respect of the
original Lenders set forth on Schedule 2.01 as of the Effective Date and their respective Affiliates and Approved Funds), or (y) any
Lender provides notice of the occurrence of an Illegality in accordance with Section 2.13 , then such Lender shall use reasonable
efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 2.12 or 2.15 , as the case may be, in the future (or eliminate such
Illegality in the case of (y) above) and (ii) would not subject such Lender to any unreimbursed cost or expense and would not
otherwise be disadvantageous to such Lender. The Borrowers hereby agree to pay all reasonable costs and expenses incurred by any
Lender in connection with any such designation or assignment.
(b) If:
(i)
any Lender requests compensation under Section 2.12,
(ii)
any Lender becomes a Defaulting Lender, or
(iii)
any Lender fails to approve an amendment, waiver or other modification to this Agreement that requires the approval
of all Lenders and at least the Required Lenders have approved such amendment, waiver or other modification,
then the Parent may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to
assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 11.05 ), all its interests,
rights and obligations under this Agreement to an Eligible Assignee that shall assume such
29
obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that, in all cases under this
Section 2.17(b) , (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not
unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans,
accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including
any amounts under Section 2.14 ), from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the
Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under
Section 2.12 , such assignment or termination will result in a reduction in such compensation or payments. A Lender shall not be
required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation cease to apply.
Section 2.18 Defaulting Lenders.
(a) Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the
following provisions shall apply for so long as such Lender is a Defaulting Lender, any amount payable to such Defaulting Lender
hereunder or under any other Loan Document (whether on account of principal, interest, fees or otherwise and including any amount
that would otherwise be payable to such Defaulting Lender) shall, in lieu of being distributed to such Defaulting Lender, subject to
any applicable requirements of law, be applied by the Administrative Agent, in the following order of priority: first , to the payment of
any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second , as the Parent may request (so long as
no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its
portion thereof as required by this Agreement, as determined by the Administrative Agent; third , if so determined by the
Administrative Agent and the Parent, to be held in a non-interest bearing deposit account and released in order to satisfy obligations of
such Defaulting Lender to fund Loans under this Agreement; fourth , to the payment of any amounts owing to the Lenders as a result
of any judgment of a court of competent jurisdiction obtained by any of the foregoing against such Defaulting Lender as a result of
such Defaulting Lender’s breach of its obligations under this Agreement (pro rata among all such amounts owed and only to the extent
the applicable Lenders have provided written notice to the Administrative Agent of such judgment (with sufficient evidence thereof)
(and written request to apply amounts otherwise payable to such Defaulting Lender in accordance with this sub-clause) at least 10
Business Days prior to the Administrative Agent having otherwise applied such amounts pursuant to any of the subsequent provisions
of this paragraph (or such shorter time as may be acceptable to the Administrative Agent in its sole discretion)); fifth , so long as no
Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of
competent jurisdiction obtained by such Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its
obligations under this Agreement (only to the extent such Borrower has provided written notice to the Administrative Agent of such
judgment (with sufficient evidence thereof) (and written request to apply amounts otherwise payable to such Defaulting Lender in
accordance with this clause) at least 10 Business Days prior to the Administrative Agent having otherwise applied such amounts
pursuant to any of the subsequent provisions of this paragraph (or such shorter time as may be acceptable to the Administrative Agent
in its sole discretion)); and sixth , to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction. Any
payments, prepayments or other
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amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post cash
collateral pursuant to this paragraph shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably
consents hereto.
(b) The rights and remedies against a Defaulting Lender under this Section 2.18 are in addition to other rights and remedies that
the Borrower, the Administrative Agent or any Lender may have against such Defaulting Lender.
(c) In the event that the Administrative Agent and the Parent agree that a Defaulting Lender has adequately remedied all matters
that caused such Lender to be a Defaulting Lender, then such Lender shall purchase at par such of the Loans of the other Lenders as
the Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans ratably in accordance with its
Commitment (or, if the applicable Aggregate Commitments have terminated, as last in effect) and such Lender shall no longer be a
Defaulting Lender.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Loan Party represents and warrants to the Administrative Agent and the Lenders that:
Section 3.01 Organization; Powers. It (a) is validly existing and (if applicable) in good standing under the laws of the
jurisdiction of its organization, (b) has all requisite power and authority to carry on its business as now conducted and (c) except
where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, is
qualified to do business in, and (if applicable) is in good standing in, every jurisdiction where such qualification is required.
Section 3.02 Authorization; Enforceability. The Transactions are within such Loan Party’s powers and have been duly
authorized by all necessary corporate and, if required, shareholder action. This Agreement has been duly executed and delivered by
such Loan Party and constitutes a legal, valid and binding obligation thereof, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject
to general principles of equity, regardless of whether considered in a proceeding in equity or at law. All corporate and shareholder
action required to make each Loan Document to which it is a party admissible in evidence in its jurisdiction of incorporation or
organization have been obtained or effected and are in full force and effect. The choice of Japanese law as the governing law of the
Loan Documents will be recognized and enforced in Japan and any judgment obtained in Japan in relation to a Loan Document will be
recognized and enforced in Japan.
Section 3.03 Approvals; No Conflicts. No authorization or approval or other action by, and no notice to or filing with, any
Governmental Authority or any other third party is required for the due execution, delivery and performance by such Loan Party of
any Loan Document to which it is a party, or the consummation of the transactions contemplated thereby, except (x) such as have been
obtained or made and are in full force and effect. The
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execution, delivery and performance by such Loan Party of the Loan Documents to which it is a party and the consummation of the
transactions contemplated thereby (a) do not contravene (i) such Loan Party’s organizational documents or (ii) any law applicable to
such Loan Party, (b) will not violate or result in a default or require any consent or approval under any indenture, agreement or other
instrument binding upon such Loan Party or its property or Subsidiaries, or give rise to a right thereunder to require any payment to be
made by such Loan Party, except for violations, defaults or the creation of such rights that could not reasonably be expected to result
in a Material Adverse Effect, and (c) will not result in the creation or imposition of any Encumbrance on any property of such Loan
Party, except Encumbrances expressly permitted by this Agreement.
Section 3.04 Financial Condition; No Material Adverse Change.
(a) To the extent not available on the website www.tevapharm.com the Parent has heretofore furnished to the Lenders the
Parent’s consolidated balance sheet and statements of income, shareholder’s equity and cash flows (i) as of and for the fiscal years
ended December 31, 2010, 2011 and 2012, audited by and accompanied by an unqualified opinion of Kesselman & Kesselman,
certified public accountants (Isr.) and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended September 30, 2013.
Such financial statements, and all financial statements delivered pursuant to Section 5.01(a) or (b) , (A) have been prepared in
accordance with GAAP and (B) present fairly and accurately in all material respects the financial position and results of operations
and cash flows of the businesses of the Parent and its consolidated subsidiaries as of such dates and for such periods in accordance
with GAAP, subject, in the case of (ii), to the absence of footnotes.
(b) The Borrower has heretofore furnished to the Lenders (x) (i) the unaudited balance sheet and statement of income of the
Borrower as of and for the period from its formation to December 31, 2011 and, (ii) the audited balance sheet and statement of income
of the Borrower as of and for the fiscal year ended December 31, 2012. Such financial statements referred to in subclause (x) above,
and all financial statements delivered pursuant to Section 5.01(c) , (A) have been prepared in accordance with Japanese GAAP and
(B) present fairly and accurately in all material respects the financial position and results of operations and cash flows of the
businesses of the Borrower (in the case of the financial statements referred to in clause (x) above or Section 5.01(c) ) as of such
dates and for such periods in accordance with Japanese GAAP, subject, in the case of the financial statements referred to in clauses
(x) (i) above, to the absence of footnotes.
(c) Except with respect to any event or circumstance disclosed in the Parent’s public filings with the United States Securities and
Exchange Commission prior to the Signing Date or in the Parent’s FY 2014 Financial Outlook and Guidance Call which occurred on
10 December 2013, on and as of the Signing Date, since December 31, 2012, there has been no event, change, circumstance or
occurrence that individually or in the aggregate has had or could reasonably be expected to result in a Material Adverse Effect.
Section 3.05 Litigation. Except as disclosed in the “Commitments and Contingencies—Contingent Liabilities” note (or
similarly titled notes) to (x) the Parent’s annual financial statements filed with or furnished to the SEC on Form 20-F for the year
ended December 31, 2012 or (y) the Parent’s quarterly financial statements filed with or furnished to the SEC on Form 6-K for each of
the first fiscal quarters of 2013 prior to the Signing Date, there are no actions, suits or proceedings by or before any arbitrator or
Governmental Authority pending against or, to the knowledge of the Parent, threatened
32
against or affecting the Parent or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination
and that would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that purport to
adversely affect the legality, validity and enforceability of the Loan Documents. The representation contained in clause (i) of the
preceding sentence is made on and as of the Signing Date only.
Section 3.06 Environmental Matters. It is not subject to any judicial, administrative, government, regulatory or arbitration
proceeding alleging the violation of any applicable Environmental Laws, except to the extent that any such proceeding would not
reasonably be expected to have a Material Adverse Effect.
Section 3.07 Disclosure. No written report, financial statement, certificate, exhibit, schedule or other written document
furnished by or on behalf of such Loan Party to the Administrative Agent or any Lender in connection with the negotiation of any
Loan Document or included therein or delivered pursuant thereto, taken as a whole, contained or contains any material misstatement
of fact or omitted or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under
which they were or are made, not misleading as of the date such information is dated or certified; provided that to the extent any such
written report, financial statement, exhibit, schedule or document was based upon or constitutes a forecast or projection, each Loan
Party represents only that it acted in good faith and utilized reasonable assumptions and due care in the preparation of such written
report, financial statement, exhibit, schedule or document.
Section 3.08 Solvency. Such Loan Party is, and immediately after giving effect to the Transactions (including each Loan
hereunder) will be, together with its consolidated Subsidiaries, Solvent.
Section 3.09 ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all
other such ERISA Events for which liability is reasonably expected to occur, would reasonably be expected to result in a Material
Adverse Effect.
Section 3.10 Investment Company Status. Neither such Loan Party nor any of its Subsidiaries is an “investment company”
as defined in, or subject to regulation under, the Investment Company Act of 1940.
Section 3.11 Margin Securities. Such Loan Party is not engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T, U or X of
the Board of Governors of the Federal Reserve System of the United States of America), and no part of the proceeds of any Loan will
be used to purchase or carry any margin stock in violation of said Regulations T, U or X or to extend credit to others for the purpose of
purchasing or carrying margin stock in violation of said Regulations T, U or X.
Section 3.12 Properties. (a) Such Loan Party has good title to, or valid leasehold interests in, all of its real and personal
property material to its business, except for defects in title that do not interfere with its ability to conduct its business as currently
conducted or to utilize such properties for their intended purposes and except, in each case, where failure to have such title or interest,
individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
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(b) It owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to
its business, and the use thereof by such Person does not infringe upon the rights of any other Person, except for any such
infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
Section 3.13 Compliance with Laws and Agreements. Such Loan Party is in compliance with all laws, regulations, orders,
writs, injunctions and decrees of any Governmental Authority applicable to it or its property and all indentures, agreements and other
instruments binding upon it or its property, except, in each case, where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
Section 3.14 Taxes. Such Loan Party has timely filed or caused to be filed all Tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in
good faith by appropriate proceedings and for which such Person has set aside on its books adequate reserves in accordance with
GAAP or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect.
Section 3.15 Pari Passu Ranking. Such Loan Party’s payment obligations under the Loan Documents rank at least pari
passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law
applying to companies generally.
Section 3.16 Permits, Etc. Except to the extent that any of the following, either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect, (i) such Loan Party has all permits, consents, licenses, authorizations,
approvals, entitlements and accreditations required for it lawfully to own, lease, manage or operate, or to acquire each business owned
on the date hereof, leased, managed or operated, or to be acquired, by it, and (ii) no condition exists or event has occurred which, in
itself or with the giving of notice or lapse of time or both, would result in the suspension, revocation, impairment, forfeiture or
non-renewal of any such permit, consent, license, authorization, approval, entitlement or accreditation, and, to the knowledge of such
Loan Party, there is no claim that any such permit, consent, license, authorization, approval, entitlement or accreditation is not in full
force and effect.
Section 3.17 Insurance. All material policies of insurance of any kind or nature owned by or issued to such Loan Party are
in full force and effect.
Section 3.18 No Filing or Stamp Tax. Under the law of such Loan Party’s jurisdiction of incorporation it is not necessary
that the Loan Documents be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp,
registration or similar tax be paid on or in relation to the Loan Documents or the transactions contemplated by the Loan Documents
(including the Transactions) (other than any such stamp, registration or similar tax that has been paid as of the Effective Date or such
later date when due, in each case, to the extent referenced on Schedule 3.18 ).
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Section 3.19 No Anti-Social Forces.
No Loan Party, nor any of its directors or officers, falls under any of the following:
(a) an Organized Crime Group;
(b) an Organized Crime Group Member;
(c) was an Organized Crime Group Member at any point within the last five years;
(d) an Organized Crime Group Quasi-Member;
(e) a company affiliated with or association of an Organized Crime Group (means a corporation in effect managed by Organized
Crime Group Members, a corporation managed by Organized Crime Group Quasi-Members or former Organized Crime Group
Members that provide financial support and actively assists with the maintenance and management of or is involved with an
Organized Crime Group or a corporation that uses an Organized Crime Group it its business and assists with the maintenance and
management of an Organized Crime Group);
(f) a corporate racketeer (a corporate racketeer, hoodlum, or blackmailer who would likely engage in violent illegal acts against
companies seeking illegal profit and pose a threat to the public safety);
(g) a blackmailer disguising as a supporter of a social movement (blackmailer disguising as a supporter of a social or political
movement who would likely engage in violent illegal acts seeking illegal profit and pose a threat to the public safety);
(h) a white-collar crime group or member of another similar special intellectual violence group or such groups or members (a
group or an individual other than listed in paragraphs (a) through (f) above who are connected with an Organized Crime Group,
uses such connection, are linked to an Organized Crime Group financially and forms a core of illegal acts);
(i) any other Person who conforms to any of those listed in paragraphs (a) through (g) above (collectively, the “ Organized
Crime Group Member Person ”);
(j) a company whose operations are controlled by one or more Organized Crime Group Member Persons;
(k) a company in which an Organized Crime Group Member Person substantially engages in its operations;
(l) a person who unjustly uses an Organized Crime Group Member Person for the purpose of unfair profit or causing a third
party to profit unfairly or damaging to a third party or other;
(m) a company which engages with an Organized Crime Group Member Person by, for example, providing funds or facilities for
an Organized Crime Group Member Person; or
(n) a company of which an officer or a person who engages in its operations has a socially accusable relationship with an
Organized Crime Group Member Person.
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ARTICLE IV
CONDITIONS
Section 4.01 Effective Date. The obligations of the Lenders to make Loans on the Effective Date shall be subject to the
prior or concurrent satisfaction or waiver of the conditions precedent set forth in this Section 4.01 :
(a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this
Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include fax or
email pdf transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received written opinions (addressed to the Administrative Agent and the Lenders and
dated the Effective Date) of (x) (i) Tulchinsky Stern Marciano Cohen Levitski & Co., Israeli counsel to Parent, and (ii) Herzog, Fox
and Neeman, Israeli counsel to the Administrative Agent (with respect to certain Israeli tax matters) and (y) Nishimura & Asahi,
Japanese counsel to the Loan Parties, with respect to this Agreement, each in form and substance reasonably satisfactory to the
Administrative Agent.
(c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent may reasonably
request relating to (i) the organization and existence of each Loan Party, and (ii) the authorization of any relevant Transactions
(including without limitation certified secretary or board certificates (or the functional equivalent thereof) containing a copy or extract
of the relevant resolutions of each Loan Party approving and authorizing the execution of this Agreement) and any other legal matters
relating to each Loan Party, and this Agreement, all in form and substance reasonably satisfactory to the Administrative Agent.
(d) [Reserved].
(e) The Administrative Agent shall have received a certificate of the Secretary or Assistant Secretary or the managing board of
the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign this Agreement and the other
documents to be delivered hereunder.
(f) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the Chief Financial Officer
of the Parent, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02 .
(g) The Administrative Agent shall have received (i) evidence that each Fee Letter has been signed by each party thereto and
(ii) all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or
payment of all out-of-pocket expenses (including the legal fees and expenses of one special counsel to the Administrative Agent and
the Lenders, and the fees and expenses of one Israeli counsel and one Japanese counsel) required to be reimbursed or paid by Parent
hereunder or under any other Loan Document as of the Effective Date.
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(h) The Mandated Lead Arrangers, the Administrative Agent and the Lenders shall have received documentation and
information satisfactory to the Administrative Agent, as required by bank regulatory authorities under applicable “know your
customer” and anti-money laundering rules and regulations, including the U.S. Patriot Act.
(i) The Administrative Agent shall have received copies of any consents or approvals required pursuant to Section 3.03 of this
Agreement (reasonably satisfactory to the Mandated Lead Arrangers and the Administrative Agent).
(j) To the extent applicable, the Administrative Agent shall have received evidence of payment of the appropriate stamp tax and
the applicable Loan Documents shall have been appropriately stamped.
Section 4.02 Each Credit Event. The obligation of each Lender to make any Loan to the Borrower on the Drawdown Date
is subject to the satisfaction of the following conditions with respect to said Borrower and the Parent:
(a) No Default or Event of Default shall have occurred and be continuing on such date nor will result from the making of such
Loan.
(b) Each of the representations and warranties made by any Loan Party set forth in Article III hereof or in any other Loan
Document shall be true and correct on and as of the date of such Loan with the same effect as though made on and as of such date,
except to the extent such representations and warranties expressly relate to an earlier date, in which case they shall be true and correct
as of such earlier date.
(c) Prior to, or substantially concurrently with (or immediately after giving effect to) the Borrowing on the Drawdown Date, the
Borrower shall repay all outstanding principal amounts on borrowings that the Borrower owes to Teva Capital Services Switzerland
GmbH in full and the Administrative Agent shall receive evidence reasonably satisfactory to it of such repayment in the form of an
email sent to the Agent from an officer of the Borrower containing a screen shot (or pdf copy) of the wire payment instructions to the
account bank instructed such transfer of funding to Teva Capital Services Switzerland GmbH.
The borrowing on the Drawdown Date shall be deemed to constitute a representation and warranty by the relevant Borrower on
the date thereof as to the matters specified in paragraphs (a), (b) and (c) of this Section.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees, expenses
and other amounts payable hereunder shall have been paid in full the Loan Parties covenant and agree with the Administrative Agent
and the Lenders that:
Section 5.01 Financial Statements and Other Information. The Parent will furnish, or cause to be furnished, to the
Administrative Agent:
(a) within 90 days after the end of each fiscal year of the Parent, the Parent’s audited consolidated balance sheet and related
statements of income, shareholders’ equity and
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cash flows of the Parent and its consolidated Subsidiaries as of the end of and for such year of the Parent, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on by the Parent’s independent public accountants of recognized
national standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the
scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial
condition and results of operations of the Parent and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied;
(b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Parent, the Parent’s
consolidated balance sheet and related statements of income, shareholders’ equity and cash flows of the Parent and its consolidated
Subsidiaries as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year of the Parent, setting forth in
each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end
of) the previous fiscal year, all certified by a Financial Officer of the Parent as presenting fairly in all material respects the financial
condition and results of operations and cash flows of the Parent and its consolidated Subsidiaries on a consolidated basis in accordance
with GAAP consistently applied, subject to normal year-end audit adjustments;
(c) within 120 days after the end of each fiscal year of the Borrower (which fiscal year ends at December 31 (the “ KK Fiscal
Year ), the Borrower’s audited balance sheet and related statements of income, changes in equity and cash flows of the Borrower as of
the end of and for such year of the Borrower presented on a consolidated basis reflecting the results on the Borrower and each of its
consolidated Subsidiaries, setting forth in each case in comparative form the figures for the previous fiscal year (to the extent
applicable), all reported on by the Borrower’s independent public accountants of recognized national standing (without a “going
concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that
such financial statements present fairly in all material respects the financial condition and results of operations of the Borrower (and
its consolidated Subsidiaries on a consolidated basis) in accordance with Japanese GAAP consistently applied;
(d) [Reserved];
(e) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the
Parent substantially in the form of Exhibit D attached hereto, (i) certifying as to whether a Default or Event of Default or, to the
knowledge of the Parent, any investigation, circumstance, development or other matter that has resulted in, or could reasonably be
expected to result in, a Material Adverse Effect has occurred and, if such a Default, Event of Default, investigation, circumstance,
development or other matter has occurred, specifying the details thereof and the action taken or proposed to be taken with respect
thereto, (ii) setting forth in reasonable detail calculations demonstrating compliance with Section 6.04 and (iii) stating whether any
change in the application of GAAP (FOR Japanese GAAP, as applicable) has occurred since the date of the fiscal year 2012 audited
financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate (or, in the case of any change in the application of Japanese GAAP, the financial
statements delivered pursuant to clauses (c) above);
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(f) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other
materials filed by the Parent or any of its Subsidiaries with the SEC, or any Governmental Authority succeeding to any or all of
the functions of said SEC, or with any national or foreign securities exchange, or distributed by the Parent to its equity holders
generally, as the case may be; provided , however , that the Parent shall not be required to deliver to the Administrative Agent
(and shall be deemed to have furnished to the Administrative Agent) such financial statement or other materials referred to in
sub-clauses (a) or (b) or any other report, proxy statement and other materials if such financial statement, report, proxy
statement and any other material is posted on the SEC’s website at www.sec.gov or on the Parent’s website at
www.tevapharm.com (provided that in the case of financial statements referred to in (a) and/or (b) above, the Parent provides
written notice to the Administrative Agent that the same has been posted on such website);
(g) promptly following any request therefor, such other information regarding the operations, business affairs and financial
condition of the Borrower, that may reasonably affect any such Borrower’s compliance with the terms of this Agreement, as the
Administrative Agent or any Lender may reasonably request, provided , however , that the Parent shall not be required to deliver
such information to the extent such information is posted on the SEC’s website at www.sec.gov or on the Parent’s website at
www.tevapharm.com (provided that if so requested, Parent advises such Administrative Agent or Lender where such information can
be accessed on such website); and
(h) promptly upon receipt by any Loan Party of any order of provisional attachment (kari-sashiosae), preservative attachment (
hozen-sashiosae ) or attachment ( sashiosae ) regarding loan receivables under this Agreement, a written notice detailing such order.
Section 5.02 Notices of Material Events. The Parent will furnish (or cause to be furnished) to the Administrative Agent
prompt written notice of the occurrence of any Default or Event of Default, which notice shall be provided to the Administrative
Agent and each Lender no later than 3 Business Days after any officer of such Person becomes aware or should have become aware of
the same, specifying the details thereof and any action taken or proposed to be taken with respect thereto. Each notice delivered under
this Section shall be accompanied by a statement of a Responsible Officer of Parent setting forth the details of the Default or Event of
Default requiring such notice and any action taken or proposed to be taken with respect thereto.
Section 5.03 Existence; Conduct of Business. Each Loan Party will, and will cause each of its Subsidiaries to, do or cause
to be done all things necessary to (i) preserve, renew and keep in full force and effect its existence, and (ii) except where the failure to
do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, preserve, renew and
keep in full force and effect its rights and privileges and the rights, licenses, permits, approvals, privileges and franchises applicable to
the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution
expressly permitted under Section 6.01 .
Section 5.04 Payment of Taxes. Each Loan Party will, and will cause each of its Subsidiaries to, pay its Tax liabilities,
that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the
validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Loan Party or such Subsidiary has set
aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such
contest could not reasonably be expected to result in a Material Adverse Effect.
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Section 5.05 Maintenance of Properties; Insurance. Each Loan Party will, and will cause each of its Subsidiaries
to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary
wear and tear excepted, and (b) maintain, with responsible, financially sound and reputable insurance companies, insurance
with respect to its properties and business.
Section 5.06 Books and Records; Inspection Rights. Each Loan Party will keep proper books of record and account in
which full, true and correct entries are made of all dealings and transactions in relation to its business and activities in accordance with
GAAP or in accordance with the accounting standards applicable in such entity’s jurisdiction. Each Loan Party will permit any
representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice and subject to signing by such
representative of customary confidentiality undertakings, at the Lenders’ expense so long as no Event of Default exists and at the
Borrowers’ expense during the continuance of an Event of Default, to visit and inspect its properties, to examine and make extracts
from its books and records relating to financial and other similar matters (other than materials protected by the attorney-client
privilege and materials which such Person may not disclose without violation of any applicable law or a confidentiality obligation
binding upon it), and to discuss its affairs, finances and condition with its directors, officers, employees, accountants or other
representatives, all at such reasonable times and as often as reasonably requested. As long as no Default exists, the Lenders and/or the
Administrative Agent shall use reasonable efforts to minimize the disruption of such Person’s business resulting from any such visit or
inspection and shall limit any such visits or inspections under this Section 5.06 to once per fiscal year. A representative of the
applicable Loan Party shall be provided a reasonable opportunity to be present at any such visit or inspection, but the actual attendance
of any such representative shall not be required.
Section 5.07 Compliance with Laws. Each Loan Party will, and will cause each of its Subsidiaries to, comply with all
requirements of law applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
Section 5.08 Use of Proceeds. The proceeds of the Loans will be used by the Borrowers to repay the principal amount of
all outstanding borrowings that the Borrower owes to Teva Capital Services Switzerland GmbH and the payment of fees and expenses
in relation thereto and for general corporate purposes of the Parent and/or its Subsidiaries (including, without limitation, acquisitions).
No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the
regulations of the Board of Governors of the Federal Reserve System of the United States of America, including Regulations T, U and
X.
Section 5.09 Environmental Laws, Etc. Each Loan Party will, and will cause each of its Subsidiaries to, comply with all
applicable Environmental Laws and governmental authorizations issued pursuant thereto, the non-compliance with which could
reasonably be expected to have a Material Adverse Effect. In the event any Loan Party or any of its Subsidiaries undertakes any
remedial action with respect to any Hazardous Materials, such Loan Party will, and will cause each of its Subsidiaries to, conduct and
complete such remedial action in material compliance with all applicable Environmental
40
Laws, and in accordance with the policies, orders, directions and other requirements of law of all federal, state and local Governmental
Authorities of the United States, Japan or any other applicable jurisdiction, except when, and only to the extent that, the liability of the
applicable Loan Party and its Subsidiaries for such presence, storage, use, disposal, transportation or discharge of any Hazardous
Materials is being contested in good faith by such Person or such liability could not reasonably be expected to result in a Material
Adverse Effect.
ARTICLE VI
NEGATIVE COVENANTS
Until the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Loan Parties covenant
and agree with the Administrative Agent and the Lenders that:
Section 6.01 Fundamental Changes and Asset Sales. No Loan Party or Subsidiary will merge into or consolidate or
amalgamate with (or engage in any other substantially similar transaction) any other Person, or permit any other Person to merge into
or consolidate or amalgamate with (or engage in any other substantially similar transaction) it, or sell, transfer, lease or otherwise
dispose (each, a “ disposal ” or “ disposition ”) of (in one transaction or in a series of transactions) of any assets (whether now owned
or hereafter acquired) to any Person, or liquidate or dissolve. Notwithstanding the foregoing the following, shall be permitted:
(i) if at the time thereof and immediately after giving effect thereto no Default or Event of Default shall have occurred and be
continuing, any Person may merge, consolidate or amalgamate (or engage in a substantially similar transaction) with the Borrower in a
transaction in which the Borrower is the surviving entity ( provided that if a Subsidiary Borrower merges or consolidates with or into
Parent, Parent is the surviving corporation and Parent has assumed such Borrower’s obligations hereunder as the Borrower),
(ii) any Subsidiary may merge, consolidate or amalgamate (or engage in a substantially similar transaction) with any other
Subsidiary in a transaction in which the surviving entity is a wholly-owned Subsidiary (in the case of a Loan Party, subject to
preceding clause (i)),
(iii) assets or equity interests of any Subsidiary may be disposed of to any other wholly-owned Subsidiary or to the Parent or by
the Borrower to another Borrower or by the Borrower to a wholly-owned Subsidiary,
(iv) the Parent or any Subsidiary may dispose of assets or property to any other Person; provided, that, the aggregate book or fair
market value of all assets disposed (to a Person other than the Parent, the Borrower or any other wholly-owned Subsidiary) under this
clause (iv) during any fiscal year of Parent shall not exceed 15% of the total consolidated assets of the Parent and its consolidated
Subsidiaries, determined in accordance with GAAP, measured as of the last day of the immediately preceding fiscal year for which
financial statements have been or were required to be delivered pursuant to this Agreement,
(v) the Parent and its Subsidiaries may dispose of inventory in the ordinary course of business,
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(vi) Parent and its Subsidiaries may transfer assets in connection with a Financing Arrangement permitted under
Section 6.03 ,
(vii) the Parent or any Subsidiary may lease, as lessor or sublessor, or license, as licensor or sub licensor, real or personal
property (other than any intellectual property) in the ordinary course of business, provided that no such lease or license shall
materially interfere with the ordinary course of business of the Parent or any Subsidiary,
(viii) the Parent or any Subsidiary may liquidate or sell Cash Equivalents,
(ix) the Parent or any Subsidiary may, in the ordinary course of business, licence or sublicense intellectual property owned or
held by the Parent or such Subsidiary,
(x) the Parent or any Subsidiary may dispose of obsolete or worn out property, whether now owned or hereafter acquired, in the
ordinary course of business and may dispose of property no longer used or useful in the conduct of the business of the Parent or any
Subsidiary,
(xi) the Parent or any Subsidiary may sell Receivable Assets to a Securitization Entity in a Qualified Securitization Transaction
for the fair market value thereof; provided that at no time shall more than US$1,000,000,000 (or its equivalent in another currency
or currencies) in fair market value of assets be subject to such Qualified Securitization Transaction,
(xii) any Subsidiary may pay dividends or make any other distribution,
(xiii) the Parent may pay cash dividends (or dividends paid in the form of common equity of the Parent) to its shareholders, to
the extent lawful, and
(xiv) any Subsidiary may liquidate or dissolve (with any residual assets being applied in accordance with one of the other
clauses of this Section 6.01 ).
Section 6.02 Fiscal Year and Accounting. (a) Parent shall not change its fiscal year-end to a date other than December 31
and shall not make or permit any changes in accounting policies or practices which would have an effect on whether or not the Parent
is in compliance with Section 6.04 , without the consent of the Required Lenders, which consent shall not be unreasonably withheld
or delayed, except: (i) changes that are required or permitted by GAAP, or (ii) changes permitted under sub-paragraph (b) of this
Section 6.02 .
(b) If at any time any change in GAAP (including without limitation as a result of the adoption of IFRS) would affect the
computation of any financial ratio or requirement set forth in any Loan Document, and either the Parent or the Required Lenders shall
so request, the Administrative Agent, the Lenders and the Parent shall negotiate in good faith to amend such ratio or requirement to
preserve the original intent thereof in light of such change in GAAP; provided that, until so amended, (i) such ratio or requirement
shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Parent shall provide to the
Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably
requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect
to such change in GAAP.
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Section 6.03 Negative Pledge No Loan Party will, nor will any Loan Party permit any of its Subsidiaries to,
(x) create or permit to subsist any Encumbrance over all or any of its present or future revenues or assets or (y) enter into a
Financing Arrangement, except for the following (“ Permitted Encumbrances ”):
(a) Encumbrances imposed by law, including, without limitation, for taxes that are not yet due or, if due, are being contested in
good faith and for which adequate reserves have been established in accordance with GAAP;
(b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and similar liens imposed by law arising in the ordinary
course of business that do not materially detract from the value of the affected property or interfere with the ordinary conduct of
business of the Parent or its Subsidiaries and, if securing obligations that are overdue by more than 90 days, are being contested in
good faith and for which adequate reserves have been established in accordance with GAAP;
(c) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment
insurance and other social security laws or regulations or to obtain letters of credit to post for such purposes;
(d) deposits or Encumbrances to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;
(e) judgment liens in respect of judgments that do not constitute an Event of Default under Section 7.01(j);
(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the
ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected
property or interfere with the ordinary conduct of business of the Parent or its Subsidiaries;
(g) other liens incidental to the conduct of the business of the Parent or any Subsidiary or the ownership of the property or assets
of the Parent or such Subsidiary that are not in respect of Indebtedness and do not in the aggregate materially detract from the value of
such properties or assets or materially impair the use thereof in the operation of the business of the Parent or such Subsidiary;
(h) Encumbrances existing on the date hereof in connection with any Indebtedness outstanding on the date hereof and disclosed
in the public filings of the Parent or on Schedule 6.03 hereof (and any Encumbrance granted as collateral for any refinancing or
replacement of such Indebtedness, provided that such Encumbrance secures a principal amount of Indebtedness not in excess of the
amount so disclosed (plus reasonable refinancing costs) and does not encumber any property or assets other than the property or assets
to the original Encumbrance as so disclosed or improvements thereon or replacements thereof);
(i) any netting or set-off arrangement entered into by Parent or any Subsidiary in the ordinary course of its banking arrangements
for the purpose of netting debit and credit balances;
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(j) any Encumbrance arising out of conditional sale, title retention, consignment or similar arrangements for the sale of
goods entered into by Parent or any Subsidiary in the ordinary course of business;
(k) any Encumbrance securing any hedging obligation of Parent or any Subsidiary in respect of interest rate, currency exchange
rates or commodity pricing hedging, swaps or similar transactions entered into in the ordinary course of business for bona fide
business purposes;
(l) Encumbrances on property of a Person existing at the time such Person is merged into or consolidated with any Loan Party or
any Subsidiary; ( provided that such Encumbrances were not created in contemplation of such merger, consolidation or acquisition
and do not extend to any assets other than those of the Person so merged into or consolidated with such Loan Party or Subsidiary or
acquired by such Loan Party or Subsidiary) and extensions, replacements and renewals thereof that do not increase the outstanding
principal amount thereof that is secured by such Encumbrance as of such date and do not result in such Encumbrance extending to
additional assets (other than improvements thereon or replacements thereof);
(m) Encumbrances in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods in the ordinary course of business;
(n) purchase money Encumbrances upon or in any real property or equipment acquired by any Loan Party or any Subsidiary in
the ordinary course of business to secure the purchase price of such property or equipment, or Encumbrances existing on such
property or equipment at the time of its acquisition (other than any such Encumbrances created in contemplation of such acquisition
that were not incurred to finance the acquisition of such property) or extensions, renewals or replacements of any of the foregoing for
the same or a lesser amount, provided , however , that no such Encumbrances shall extend to or cover any properties of any
character other than the real property or equipment being acquired, and no such extension, renewal or replacement shall extend to or
cover any property not theretofore subject to the Encumbrance being extended, renewed or replaced;
(o) Encumbrances securing capital lease obligations in respect of property acquired; provided that no such Encumbrance shall
extend to or cover any assets other than the assets subject to such capitalized leases;
(p) any other Encumbrances securing obligations and other Financing Arrangements; provided that (x) the aggregate amount of
obligations secured and (y) the fair market value of the assets subject to Financing Arrangements or obligations in accordance with
this subclause (p) shall not exceed US$1,000,000,000 (or its equivalent in another currency or currencies) at any time outstanding;
(q) any Encumbrance entered into pursuant to any Loan Document; and
(r) Encumbrances over any Receivable Assets subject to a Qualified Securitization Transaction; provided that the aggregate fair
market value of all Receivable Assets secured in accordance with this subclause (r) shall not exceed US$1,000,000,000 (or its
equivalent in another currency or currencies) at any one time outstanding.
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Section 6.04 Financial Covenants.
Parent shall procure that:
(a) Total Consolidated Net Debt to EBITDA
As of the end of each Test Period, the ratio of Total
Consolidated Net Debt to EBITDA for such four-quarter
period shall not exceed 3.50:1.
(b) Interest Cover Ratio
The Interest Cover Ratio for any Test Period shall be not less
than 3.50:1.
All the terms used in this Section 6.04 shall be calculated in accordance with the accounting principles applied in connection
with the latest consolidated financial statements of the Parent required to be delivered pursuant to Section 5.01(a) or (b) .
Section 6.05 No Anti-Social Forces.
(a) No Loan Party shall become an Anti-Social Force.
(b) No Loan Party has conducted or will conduct, either by itself or through the use of third parties, any actions that fall under
any of the following:
(i) a demand with violence;
(ii) an unreasonable demand beyond legal responsibility;
(iii) an action with the use of intimidating words or actions in relation to transactions;
(iv) an action to defame the reputation or interfere with the business of any Mandated Lead Arranger, the Administrative Agent,
or any Lender by spreading rumour, using fraudulent means or resorting to force; or
(v) other actions similar to the foregoing.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.01 Events of Default. If any of the following events (“Events of Default”) shall occur:
(a) default shall be made in the payment of any principal of any Loan when and as the same shall become due and payable,
whether at the due date thereof or at a date fixed for prepayment thereof or otherwise except if such failure to pay is due to an
administrative or technical error, Loan Party shall have three (3) days to cure such failure;
(b) default shall be made in the payment of any interest on any Loan or other fee payable under the Loan Documents, when and
as the same shall become due and payable, and such failure shall continue unremedied for a period of five (5) days;
45
(c)(i) any representation or warranty made or deemed made by the Loan Parties in Article III hereof or in any other Loan
Document shall prove to have been incorrect in any material respect when made or deemed made,
(ii) No Event of Default under paragraph (c)(i) above will occur if the failure to comply is capable of remedy and is remedied
within 15 days of the Administrative Agent giving notice to a Loan Party or a Loan Party becoming aware of the failure to comply (it
being understood that any materially incorrect or misleading information contained in any financial statements delivered in
accordance with this Agreement or referred to in Section 3.04 cannot be so remedied);
(d) the Loan Parties shall fail to observe or perform any covenant, condition or agreement contained Section 5.03(i) (with respect
to the Loan Parties) or in Article VI ;
(e) the Loan Parties shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other
than those specified in clause (a) , (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days
after written notice thereof from the Administrative Agent or a Lender to the Borrower;
(f) any Loan Party or Material Subsidiary shall (i) fail to pay any principal of or premium or interest due in respect of Material
Indebtedness when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to
such Material Indebtedness; or (ii) default in the observance or performance of any covenant or obligation contained in any agreement
of such Material Indebtedness that is a default (in each case, other than a failure to pay specified in clause (i) of this subsection (f)
) and such default shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect
thereof is to accelerate the maturity of such Material Indebtedness or require such Material Indebtedness to be prepaid prior to the
stated maturity thereof;
(g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation,
reorganization, stay of proceedings, freeze order (“ Hakpa’at Halichim ”), civil rehabilitation under the Civil Rehabilitation Act (
Minji Saisei Ho ), reorganisation under the Corporate Reorganisation Act ( Kaisha Kosei Ho ), bankruptcy under the Bankruptcy Act (
Hasan Ho ), special liquidation ( tokubetsu seisan ) under the Companies Act ( Kaisha Ho ) or special mediation ( tokutei chotei )
under the Special Mediation Act ( Tokutei Saimu to no Chosei no Sokushin no Tame no Tokutei Chotei ni Kansuru Horitsu ) or other
relief in respect of any Loan Party or any Material Subsidiary or its debts, or of a substantial part of its assets (each a “ Bankruptcy
Event ”), under any Japanese, United States federal or state, or any other foreign bankruptcy, insolvency, receivership or similar law
now or hereafter in effect (“ Bankruptcy Law ”) or (ii) the appointment of a receiver, liquidator, trustee, custodian, sequestrator,
conservator, compulsory manager or similar official for any Loan Party or any Material Subsidiary or for a substantial part of its
assets, and, in any such case, such proceeding or petition shall continue undismissed for 30 days or a final, not temporary or interim,
unappealable order or decree approving or ordering any of the foregoing shall be entered;
(h) any Loan Party or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking a
Bankruptcy Event or other relief under any Bankruptcy Law, (ii) consent to the institution of, or fail to contest in a timely and
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appropriate manner, any proceeding or petition described in clause (g) of this Article, (iii) apply for or consent to the appointment of a
receiver, liquidator, trustee, custodian, sequestrator, conservator, compulsory manager or similar official for any Loan Party or any
Material Subsidiary or for a substantial part of its assets, (iv) make a general assignment for the benefit of creditors or (v) take any
action for the purpose of effecting any of the foregoing;
(i) any Loan Party or any Material Subsidiary shall admit in writing its inability to pay its debts generally;
(j) one or more judgments for the payment of money in an aggregate uninsured amount equal to or greater than US$150,000,000
(or its equivalent in another currency or currencies) in excess of the amount of insurance coverage shall be rendered against any Loan
Party or any Material Subsidiary or any combination thereof and the same shall remain undischarged for a period of 45 consecutive
days during which execution shall not be effectively stayed, vacated or bonded pending appeal or any action shall be legally taken by
a judgment creditor to attach or levy upon any assets of any Loan Party or any such Material Subsidiary to enforce any such judgment
for the payment of money in an aggregate uninsured amount in excess of US$150,000,000 (or its equivalent in another currency or
currencies);
(k) one or more ERISA Events shall have occurred, which individually or in the aggregate results in liability of any Loan Party,
any of its subsidiaries, or any of their respective ERISA Affiliates in excess of US$150,000,000 (or its equivalent in another currency
or currencies) during the term hereof;
(l) this Agreement shall at any time and for any reason be declared by a court of competent jurisdiction to be null and void, or a
proceeding shall be commenced by any Loan Party or any other person, or by any Governmental Authority, seeking to establish the
invalidity or unenforceability thereof (exclusive of questions or interpretation of any provision thereof), or any Loan Party shall
repudiate or deny any portion of its financial obligation under this Agreement;
(m) any order or notice of provisional attachment (kari-sashiosae), preservative attachment (hozen-sashiosae), or attachment (
sashiosae ) (or any analogous procedure) has been issued, or any adjudication that orders an enforcement of preservative attachment (
hozen-sashiosae ) or attachment ( sashiosae ) has been rendered (or any analogous procedure taken), with respect to deposits, deposit
receivables or other receivables held in any account of any Loan Party or any Material Subsidiary against any Lender, and (in the case
of provisional attachment ( kari-sashiosae )) such procedure is not discharged within 30 Business Days; or
(n) if transactions of any Loan Party or Material Subsidiary have been suspended by central promissory note clearinghouse (
tegata-koukanjo ) in Japan, transactions of any Loan Party or Material Subsidiary have been suspended by densai.net Co., Ltd., or
equivalent procedures have been taken by other electric monetary claim recording institutions;
then, (x) and in every such event (other than an event with respect to a Loan Party described in clause (g) (other than with respect to
special mediation ( tokutei chotei ) under the Special Mediation Act ( Tokutei Saimu to no Chosei no Sokushin no Tame no Tokutei
Chotei ni Kansuru Horitsu )), (h) or (m) of this Article), and at any time thereafter during the continuance of such event, the
Administrative Agent at the request of the Required Lenders
47
shall, by notice to the Parent, take any of the following actions, at the same or different times: (i) terminate the Commitments, and
thereupon the Commitments shall terminate immediately, (ii) declare the Loans then outstanding to be due and payable in whole (or in
part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and
thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower; and (y) in case of any event with respect to a Loan Party
described in clause (g) (other than with respect to special mediation ( tokutei chotei ) under the Special Mediation Act ( Tokutei
Saimu to no Chosei no Sokushin no Tame no Tokutei Chotei ni Kansuru Horitsu )), (h) or (m) of this Article, the Commitments
shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and
other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the Borrower, and (iii) exercise on behalf of itself and the
Lenders all rights and remedies available to it and the Lenders under the Loan Documents. For the avoidance of doubt, an acceleration
of the obligations hereunder pursuant to an occurrence of a special mediation ( tokutei chotei ) under the Special Mediation Act (
Tokutei Saimu to no Chosei no Sokushin no Tame no Tokutei Chotei ni Kansuru Horitsu ) as described in clause (g) above shall
occur only at the request of the Required Lenders as described in (x) above. In the case of an Event of Default arising from breach of
Section 6.05, the Loan Parties hereby each expressly indemnify each of the Administrative Agent and each Lender from and against
all losses due to or resulting from such breach (or any alleged breach thereof) and no Loan Parties shall claim any indemnity from the
Administrative Agent or any Lender for any loss to any Loan Parties due to or arising from such breach (or alleged breach).
ARTICLE VIII
THE ADMINISTRATIVE AGENT
Section 8.01 Appointment and Authority. Each Lender Party hereby irrevocably appoints MIZUHO BANK, LTD. to act
on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof,
together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of
the Administrative Agent and the Lender Parties, and no Loan Party shall have rights as a third party beneficiary of any of such
provisions. It is understood that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with
reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under
agency doctrine of any applicable law. Instead such term is used as a matter of market custom, and is intended to create or reflect only
an administrative relationship between contracting parties.
Section 8.02 Administrative Agent Individually.
(a) The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender
Party as any other Lender Party and may exercise the same as though it were not the Administrative Agent and the term “ Lender
Party ” or “ Lender Parties ” shall, unless otherwise expressly indicated or unless the context
48
otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its
Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally
engage in any kind of business with the Parent or any Subsidiary or other Affiliate thereof as if such Person were not the
Administrative Agent hereunder and without any duty to account therefor to the Lender Parties.
(b) Each Lender Party understands that the Person serving as Administrative Agent, acting in its individual capacity, and its
Affiliates (collectively, the “ Agent’s Group ”) are engaged in a wide range of financial services and businesses (including investment
management, financing, securities trading, corporate and investment banking and research) (such services and businesses are
collectively referred to in this Article VIII as “ Activities ”) and may engage in the Activities with or on behalf of one or more of
the Parent or its Affiliates. Furthermore, the Agent’s Group may, in undertaking the Activities, engage in trading in financial products
or undertake other investment businesses for its own account or on behalf of others (including the Parent and its Affiliates and
including holding, for its own account or on behalf of others, equity, debt and similar positions in the Parent or its respective
Affiliates), including trading in or holding long, short or derivative positions in securities, loans or other financial products of one or
more of the Parent or its Affiliates. Each Lender Party understands and agrees that in engaging in the Activities, the Agent’s Group
may receive or otherwise obtain information concerning the Parent or its Affiliates (including information concerning the ability of the
Parent to perform its obligations hereunder and under the other Loan Documents) which information may not be available to any of
the Lender Parties that are not members of the Agent’s Group. None of the Administrative Agent nor any member of the Agent’s
Group shall have any duty to disclose to any Lender Party or use on behalf of the Lender Parties, and shall not be liable for the failure
to so disclose or use, any information whatsoever about or derived from the Activities or otherwise (including any information
concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Parent or any
Affiliate thereof) or to account for any revenue or profits obtained in connection with the Activities, except that the Administrative
Agent shall deliver or otherwise make available to each Lender Party such documents as are expressly required by any Loan
Document to be transmitted by the Administrative Agent to the Lender Parties.
(c) Each Lender Party further understands that there may be situations where members of the Agent’s Group or their respective
customers (including the Parent and its Affiliates) either now have or may in the future have interests or take actions that may conflict
with the interests of any one or more of the Lender Parties (including the interests of the Lender Parties hereunder and under the other
Loan Documents). Each Lender Party agrees that no member of the Agent’s Group is or shall be required to restrict its activities as a
result of the Person serving as Administrative Agent being a member of the Agent’s Group, and that each member of the Agent’s
Group may undertake any Activities without further consultation with or notification to any Lender Party. None of (i) this Agreement
nor any other Loan Document, (ii) the receipt by the Agent’s Group of information (including Information) concerning the Parent or
its Affiliates (including information concerning the ability of the Parent to perform its obligations hereunder and under the other Loan
Documents) or (iii) any other matter shall give rise to any fiduciary, equitable or contractual duties (including, without limitation, any
duty of trust or confidence) owing by the Administrative Agent or any member of the Agent’s Group to any Lender Party including
any such duty that would prevent or restrict the Agent’s Group from acting on behalf of customers (including the Parent or its
Affiliates) or for its own account.
49
Section 8.03 Duties of Administrative Agent; Exculpatory Provisions.
(a) The Administrative Agent’s duties hereunder and under the other Loan Documents are solely ministerial and administrative
in nature and the Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other
Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent shall not be subject to any fiduciary or
other implied duty, whether or not a Default or Event of Default has occurred or is continuing and shall not have any duty to take any
discretionary action or exercise any discretionary powers, but shall be required to act or refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the written direction of the Required Lenders (or such other number or
percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the
Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the
Administrative Agent or any of its Affiliates to liability or that is contrary to any Loan Document or applicable law.
(b) The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of
the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall
believe in good faith shall be necessary, under the circumstances as provided in Section 11.03 or Article VII ) or (ii) in the absence
of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default or
the event or events that give or may give rise to any Default unless and until the Borrower or any Lender Party shall have given notice
to the Administrative Agent describing such Default and such event or events.
(c) Neither the Administrative Agent nor any member of the Agent’s Group shall be responsible for or have any duty to ascertain
or inquire into (i) any statement, warranty, representation or other information made or supplied in or in connection with this
Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or
thereunder or in connection herewith or therewith or the adequacy, accuracy and/or completeness of the information contained therein,
(iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the
occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document
or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein,
other than (but subject to the foregoing clause (ii) ) to confirm receipt of items expressly required to be delivered to the
Administrative Agent.
(d) Nothing in this Agreement or any other Loan Document shall require the Administrative Agent or any of its Related Parties
to carry out any “know your customer” or other checks in relation to any person on behalf of any Lender Party and each Lender Party
confirms to the Administrative Agent that it is solely responsible for any such checks it is required to carry out and that it may not rely
on any statement in relation to such checks made by the Administrative Agent or any of its Related Parties.
Section 8.04 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice,
50
request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet
website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the
proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to
have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any
condition hereunder to the making of a Loan that by its terms must be fulfilled to the satisfaction of a Lender Party, the Administrative
Agent may presume that such condition is satisfactory to such Lender Party unless an officer of the Administrative Agent responsible
for the transactions contemplated hereby shall have received notice to the contrary from such Lender Party prior to the making of such
Loan, and in the case of a Loan, such Lender Party shall not have made available to the Administrative Agent such Lender Party’s
ratable portion of such Loan. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower),
independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance
with the advice of any such counsel, accountants or experts.
Section 8.05 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights
and powers hereunder or under any other Loan Document by or through any one or more sub agents appointed by the Administrative
Agent. The Administrative Agent shall use reasonable care in its selection of any such sub-agent, the standard of such care not to be
below that which it would use for its own affairs and in performing its duties in respect hereof, such sub-agent shall use reasonable
care in the performance of such duties, the standard of such care not to be below that which it would use for its own affairs. The
Administrative Agent and any such sub agent may perform any and all of its duties and exercise its rights and powers by or through
their respective Related Parties. Each such sub agent and the Related Parties of the Administrative Agent and each such sub agent
shall be entitled to the benefits of all provisions of this Article VIII and Section 11.04 (as though such sub agents were the
“Administrative Agent” under the Loan Documents) as if set forth in full herein with respect thereto.
Section 8.06 Resignation of Administrative Agent. The Administrative Agent may at any time give notice of its
resignation to the Lender Parties and the Parent (such notice not to be effective until 30 days have lapsed). Upon receipt of any such
notice of resignation, the Required Lenders shall have the right (which, unless an Event of Default under subsection (a) , (g) ,
(h) or (m) of Section 7.01 has occurred and is continuing, shall be with the consent of the Borrower (such consent not to be
unreasonably withheld or delayed)), to appoint a successor. If no such successor shall have been so appointed by the Required Lenders
and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation (such
30-day period, the “ Lender Party Appointment Period ”), then the retiring Administrative Agent may on behalf of the Lender
Parties, appoint a successor Administrative Agent, which shall be a commercial bank or a trust company with an office in Japan, the
United States of America, the United Kingdom or any member state of the European Union (provided it was a member state as of
January 1, 2004), or an affiliate of such a bank or trust company; provided that if the Administrative Agent shall notify the Parent
and the Lender Parties that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become
effective in accordance with such notice and (1) the retiring Administrative Agent shall be discharged from its duties and obligations
hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on
behalf of any Lender Party under
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any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a
successor Administrative Agent is appointed) and (2) all payments, communications and determinations provided to be made by, to or
through the Administrative Agent shall instead be made by or to each applicable Lender Party, directly, until such time as the
Required Lenders appoint a successor Administrative Agent as provided for above in this paragraph; provided further that so long
as no such successor Administrative Agent shall have accepted such appointment the Parent shall have the right to appoint, at its own
cost and expense, a successor Administrative Agent, which successor Administrative Agent shall be a commercial bank or a trust
company with an office in the United States of America, the United Kingdom, any member state of the European Union (provided it
was a member state as of January 1, 2004), or Japan, and which shall have a combined capital and surplus of at least $250,000,000 (or
foreign currency equivalent thereof) (an “ Interim Administrative Agent ”), which Interim Administrative Agent shall serve as
Administrative Agent in all respects (with the rights, privileges and obligations thereof, including without limitation the right to resign
(and appoint a successor) as set forth above in this Section 8.06 ) until such time as the Required Lenders appoint a successor thereto
in accordance with the provisions described above in this Section 8.06 ). Upon the acceptance of a successor’s appointment as
Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and
duties of the retiring (or retired) Administrative Agent, and (i) the retiring Administrative Agent shall be discharged from its duties
and obligations as Administrative Agent hereunder and under the other Loan Documents and (ii) all payments, communications and
determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender Party
directly, until such time as a successor Administrative Agent or Interim Administrative Agent has been appointed as provided for
above in this paragraph. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall
succeed to and become vested with all of the rights, powers, privileges and duties as Administrative Agent of the retiring (or retired)
Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations as
Administrative Agent hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this
paragraph). The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its
predecessor unless otherwise agreed between the Borrowers and such successor. After the retiring Administrative Agent’s resignation
hereunder and under the other Loan Documents, the provisions of this Article and Section 11.04 shall continue in effect for the
benefit of such retiring Administrative Agent, its sub agents and their respective Related Parties in respect of any actions taken or
omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.
Section 8.07 Non-Reliance on Administrative Agent and Other Lender Parties.
(a) Each Lender Party confirms to the Administrative Agent, each other Lender Party and each of their respective Related Parties
that it (i) possesses (individually or through its Related Parties) such knowledge and experience in financial and business matters that
it is capable, without reliance on the Administrative Agent, any other Lender Party or any of their respective Related Parties, of
evaluating the merits and risks (including tax, legal, regulatory, credit, accounting and other financial matters) of (x) entering into this
Agreement, (y) making Loans and other extensions of credit hereunder and under the other Loan Documents and (z) taking or not
taking actions hereunder and thereunder, (ii) is financially able to bear such
52
risks and (iii) has determined that entering into this Agreement and making Loans and other extensions of credit hereunder and under
the other Loan Documents is suitable and appropriate for it.
(b) Each Lender Party acknowledges that (i) it is solely responsible for making its own independent appraisal and investigation
of all risks arising under or in connection with this Agreement and the other Loan Documents, (ii) it has, independently and without
reliance upon the Administrative Agent, any other Lender Party or any of their respective Related Parties, made its own appraisal and
investigation of all risks associated with, and its own credit analysis and decision to enter into, this Agreement based on such
documents and information as it has deemed appropriate and (iii) it will, independently and without reliance upon the Administrative
Agent, any other Lender Party or any of their respective Related Parties, continue to be solely responsible for making its own appraisal
and investigation of all risks arising under or in connection with, and its own credit analysis and decision to take or not take action
under, this Agreement and the other Loan Documents based on such documents and information as it shall from time to time deem
appropriate, which may include, in each case:
(i) the financial condition, status and capitalization of the Borrowers;
(ii) the legality, validity, effectiveness, adequacy or enforceability of this Agreement and each other Loan Document and any
other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Loan
Document;
(iii) determining compliance or non-compliance with any condition hereunder to the making of a Loan and the form and
substance of all evidence delivered in connection with establishing the satisfaction of each such condition; and
(iv) the adequacy, accuracy and/or completeness of and any information delivered by the Administrative Agent, any other
Lender Party or by any of their respective Related Parties under or in connection with this Agreement or any other Loan Document,
the transactions contemplated hereby and thereby or any other agreement, arrangement or document entered into, made or executed
in anticipation of, under or in connection with any Loan Document.
Section 8.08 [Reserved]
Section 8.09 Certain Titles. Notwithstanding any other provision of this Agreement or any provision of any other Loan
Document, each Mandated Lead Arranger and Bookrunner is named as such for recognition purposes only, and in its capacity as such
shall have no powers, duties, responsibilities or liabilities with respect to this Agreement or the other Loan Documents or the
transactions contemplated hereby and thereby; it being understood and agreed that such Persons shall be entitled to all indemnification
and reimbursement rights in favor of the Administrative Agent as, and to the extent, provided for under Section 11.04 . Without
limitation of the foregoing, none of the Mandated Lead Arrangers and Bookrunners shall, solely by reason of this Agreement or any
other Loan Documents, have any fiduciary relationship in respect of any Lender or any other Person.
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ARTICLE IX
GUARANTY
Section 9.01 Guaranty. Parent hereby absolutely, unconditionally and irrevocably guarantees, jointly with the Borrower
and severally, guarantees ( rentai hosho ) as a primary obligor and not as a surety, to the Administrative Agent and the Lenders, the
punctual payment when due, whether at scheduled maturity or on any date of a required prepayment or by acceleration, demand or
otherwise, of all obligations of each Subsidiary Borrower now or hereafter existing under this Agreement and the Loan Documents
(including, without limitation, any extensions, modifications, substitutions, amendments or renewals of any or all of the foregoing
obligations), whether direct or indirect, absolute or contingent, and whether for principal, interest, premiums, fees, indemnities,
contract causes of action, costs, expenses or otherwise (such obligations being the “ Guaranteed Obligations ”), and agrees to pay
any and all expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the Administrative Agent or
any Lender in enforcing any rights under this Agreement. Without limiting the generality of the foregoing, the Guarantor’s liability
shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by the Borrower to the
Administrative Agent or any Lender under or in respect of this Agreement and the Loan Documents but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Borrower.
Section 9.02 Guaranty Absolute. Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance
with the terms of this Agreement and the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the Administrative Agent or any Lender with respect thereto. The obligations
of Guarantor under or in respect of this Guaranty are independent of the Guaranteed Obligations or any other obligations of the
Borrower under or in respect of this Agreement and the Loan Documents, and a separate action or actions may be brought and
prosecuted against Guarantor to enforce this Guaranty, irrespective of whether any action is brought against the Borrower or whether
the Borrower is joined in any such action or actions. To the extent permitted under applicable laws, the liability of Guarantor under
this Guaranty shall be irrevocable, absolute and unconditional irrespective of, and the Guarantor hereby irrevocably waives any
defenses it may now have or hereafter acquire in any way relating to, any or all of the following:
(a) any lack of validity or enforceability of this Agreement, any Loan Document or any agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations or
any other obligations of the Borrower under or in respect of this Agreement and the Loan Documents, or any other amendment or
waiver of or any consent to departure from this Agreement or any Loan Documents, including, without limitation, any increase in the
Guaranteed Obligations resulting from the extension of additional credit to the Borrower or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of, or
consent to departure from, any other guaranty, for all or any of the Guaranteed Obligations;
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(d) any manner of application of any collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any
manner of sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other obligations of the
Borrower under this Agreement and the Loan Documents or any other assets of the Borrower or any of its Subsidiaries;
(e) any change, restructuring or termination of the corporate structure or existence of the Borrower or any of its Subsidiaries;
(f) any failure of the Administrative Agent or any Lender to disclose to the Guarantor any information relating to the business,
condition (financial or otherwise), operations, performance, properties or prospects of the Borrower now or hereafter known to the
Administrative Agent or such Lender (the Guarantor waiving any duty on the part of the Administrative Agent and the Lenders to
disclose such information); or
(g) any other circumstance that might constitute a defense of the Borrower or the Guarantor.
This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed
Obligations is rescinded or must otherwise be returned by the Administrative Agent or any Lender or any other Person upon the
insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been made.
Section 9.03 Waivers and Acknowledgments. (a) Guarantor hereby unconditionally and irrevocably waives promptness,
diligence, notice of acceptance, presentment, demand for performance, notice of nonperformance, default, acceleration, protest or
dishonor and any other notice with respect to any of the Guaranteed Obligations and this Guaranty and any requirement that the
Administrative Agent or any Lender protect, secure, perfect or insure any Encumbrance or any property subject thereto or exhaust any
right or take any action against the Borrower or any other Person or any collateral.
(b) Guarantor hereby unconditionally and irrevocably waives any right to revoke this Guaranty and acknowledges that this
Guaranty is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future.
(c) Guarantor hereby unconditionally and irrevocably waives (i) any defense arising by reason of any claim or defense based
upon an election of remedies by the Administrative Agent or any Lender that in any manner impairs, reduces, releases or otherwise
adversely affects the subrogation, reimbursement, exoneration, contribution or indemnification rights of Guarantor or other rights of
Guarantor to proceed against the Borrower or any other Person or any collateral and (ii) any defense based on any right of set-off or
counterclaim against or in respect of the obligations of the Guarantor hereunder.
(d) Guarantor hereby unconditionally and irrevocably waives any duty on the part of the Administrative Agent or any Lender to
disclose to the Guarantor any matter, fact or thing relating to the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower or any of its Subsidiaries now or hereafter known by the Administrative Agent or such Lender.
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(e) Guarantor acknowledges that it will receive substantial direct and indirect benefits from the financing arrangements
contemplated by this Agreement and that the waivers set forth in Section 9.02 and this Section 9.03 are knowingly made in
contemplation of such benefits.
Section 9.04 Subrogation. Guarantor hereby unconditionally and irrevocably agrees not to exercise any rights that it may
now have or hereafter acquire against the Borrower that arise from the existence, payment, performance or enforcement of the
Guarantor’s obligations under or in respect of this Guaranty, including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Administrative Agent or any
Lender against the Borrower or any collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or
common law, including, without limitation, the right to take or receive from such Borrower, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security on account of such claim, remedy or right, unless and until all of the
Guaranteed Obligations shall have been indefeasibly paid in full in cash and the Commitments shall have expired or been terminated.
If any amount shall be paid to the Guarantor in violation of the immediately preceding sentence at any time prior to the payment in full
in cash of the Guaranteed Obligations and all other amounts payable under this Guaranty, such amount shall be received and held in
trust for the benefit of the Administrative Agent and the Lenders, shall be segregated from other property and funds of the Parent and
shall forthwith be paid or delivered to the Administrative Agent in the same form as so received (with any necessary endorsement or
assignment) to be credited and applied to the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of
this Agreement and the Notes, or to be held as collateral for any Guaranteed Obligations or other amounts payable under this Guaranty
thereafter arising.
Section 9.05 Subordination. The Guarantor hereby subordinates any and all debts for borrowed money owed to the
Guarantor by any Subsidiary Borrower (the “ Subordinated Obligations ”) to the Guaranteed Obligations to the extent and in the
manner hereinafter set forth in this Section 9.05 :
(a) Prohibited Payments, Etc. Except during the continuance of any Specified Event of Default (including the commencement
and continuation of any proceeding under any Bankruptcy Law relating to such Subsidiary Borrower), the Parent may receive
regularly scheduled payments from such Borrower on account of the Subordinated Obligations. After the occurrence and during the
continuance of any Specified Event of Default (including the commencement and continuation of any proceeding under any
Bankruptcy Law relating to such Subsidiary Borrower), however, unless the Required Lenders otherwise agree, the Guarantor shall
not demand, accept or take any action to collect any payment on account of the Subordinated Obligations.
(b) Prior Payment of Guaranteed Obligations. In any proceeding under any Bankruptcy Law relating to such Subsidiary
Borrower, the Guarantor agrees that the Administrative Agent and the Lenders shall be entitled to receive payment in full in cash of all
Guaranteed Obligations (including all interest and expenses accruing after the commencement of a proceeding under any Bankruptcy
Law, whether or not constituting an allowed claim in such proceeding (“ Post Petition Interest ”)) before the Guarantor receives
payment of any Subordinated Obligations. In the event the Guarantor receives payment of any Subordinated Obligations in any
proceeding under any Bankruptcy Law relating to such Subsidiary Borrower contrary to the immediately preceding sentence, the
Guarantor shall immediately pay such amount to the Administrative Agent for the benefit of the Lenders.
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(c) Turn Over. After the occurrence and during the continuance of any Specified Event of Default (including the
commencement and continuation of any proceeding under any Bankruptcy Law relating to such Subsidiary Borrower), the
Guarantor shall, if the Administrative Agent so requests, collect, enforce and receive payments on account of the Subordinated
Obligations as trustee for the Administrative Agent and the Lenders and deliver such payments to the Administrative Agent on
account of the Guaranteed Obligations (including all Post Petition Interest), together with any necessary endorsements or other
instruments of transfer, but without reducing or affecting in any manner the liability of the Guarantor under the other provisions
of this Guaranty.
(d) Agent Authorization. After the occurrence and during the continuance of any Specified Event of Default, the Administrative
Agent is authorized and empowered (but without any obligation to so do), in its discretion, (i) in the name of the Guarantor, to collect
and enforce, and to submit claims in respect of, Subordinated Obligations and to apply any amounts received thereon to the
Guaranteed Obligations (including any and all Post Petition Interest), and (ii) to require the Guarantor (A) to collect and enforce, and
to submit claims in respect of, Subordinated Obligations and (B) to pay any amounts received on such obligations to the
Administrative Agent for application to the Guaranteed Obligations (including any and all Post Petition Interest).
For purposes of this Section 9.05, a “Specified Event of Default” means an event described in clause (a), (g) , (h) , (i) ,
(l) or (m) of Section 7.01 of this Agreement.
Section 9.06 Continuing Guaranty. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect
until the payment in full in cash of the Guaranteed Obligations and all other amounts payable under this Guaranty, (b) be binding upon
the Guarantor, its successors and assigns and (c) inure to the benefit of and be enforceable by the Administrative Agent and the
Lenders and their successors, transferees and assigns.
ARTICLE X
[RESERVED]
Section 10.01 [Reserved]
ARTICLE XI
MISCELLANEOUS
Section 11.01 Notices.
(a) Except in the case of notices and other communications expressly permitted to be given by telephone, all notices, demands,
requests, consents and other communications provided for in this Agreement shall be given in writing, or by any telecommunication
device capable of creating a written record (including electronic mail at an address provided by the applicable Person), and addressed
to the party to be notified as follows:
(i) if to any Loan Party:
Teva Pharmaceutical Industries Limited
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Attention:
Address:
Telephone:
Fax:
Corporate Treasurer and General Counsel—International Banking
5 Basel Street, Petah Tiqva 49131, Israel
+972-3-926-7289
+972-3-906-2501;
(ii) if to the Administrative Agent:
Mizuho Bank, Ltd.
Attention:
Agent Services Division
Address (if prior to December 24 2013): 2-5-1, Marunouchi, Chiyodaku, Tokyo 100-8333, Japan
Address (if on or after December 24 2013): 1-5-5, Otemachi, Chiyodaku, Tokyo 100-8176, Japan
Telephone:
81-(0)3-5252-8303
Fax:
81-(0)3-3201-0704;
(iii) if to any other Lender, to it at its address (or fax number) set forth in its Administrative Questionnaire;
or at such other address as shall be notified in writing (x) in the case of the Borrower, the Administrative Agent, to the other parties
and (y) in the case of all other parties, to the Parent and the Administrative Agent.
(b) All notices, demands, requests, consents and other communications described in clause (a) shall be effective (i) if delivered
by hand, including any overnight courier service, upon personal delivery, (ii) if delivered by registered mail, ten Business Days after
being deposited in the mails and (iii) if delivered by electronic mail or any other telecommunications device, when transmitted to an
electronic mail address (or by another means of electronic delivery) as provided in clause (a) ; provided , however , that notices and
communications pursuant to Article II or Article VIII shall not be effective until received by the addressee.
Section 11.02 [Reserved].
Section 11.03 Waivers; Amendments.
(a) No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only
in the specific instance and for the purpose for which given.
(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by the Parent and the Required Lenders or by the Parent and the Administrative Agent with the
consent of the Required Lenders; provided that no such agreement shall (i) increase or extend the Commitment of any Lender
(including for the avoidance of doubt by amending the definition of “Drawdown Date” or any provision of Section 2.06) without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees
or other amounts payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment of the principal amount
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of any Loan, or any interest thereon, or any fees or other amounts payable hereunder, or reduce the amount of, waive or excuse any
such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected
thereby (other than a Defaulting Lender), (iv) change Section 2.08 or Section 2.16(b) or (c) in a manner that would alter the
pro rata sharing of payments required thereby (or the pro rata provisions of Section 2.01 ), without the written consent of each
Lender affected thereby (other than a Defaulting Lender), (v) change the duration provided for in the definition of “Interest Period”
hereunder, without the written consent of each Lender affected thereby (other than a Defaulting Lender), (vi) after the occurrence of a
Change of Control, amend the rights of any or all Lenders (in a manner detrimental to such Lender) under Section 2.08(c) in respect
of such Change of Control (including postponing the date on which amounts thereunder are payable or reducing the amounts so
payable or terminable) (it being understood that prior to the occurrence of such Change of Control, the Required Lenders, the
Administrative Agent and the Parent may amend or waive any provision of Section 2.08(c) or the definition of “Change of
Control”), (vii) release the Parent from the Guaranty, or limit the Parent’s liability in respect of such Guaranty, without the written
consent of each Lender (other than a Defaulting Lender), (viii) change any of the provisions of this Section 11.03 or the definition
of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or
modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender
(in each case, other than a Defaulting Lender), (ix) amend any substantive provisions of Section 2.12 or 2.13 in a manner adverse
to any Lender without the consent of Lenders having Credit Exposures and unused Commitments representing the total Credit
Exposures and unused Commitments of all Lenders at such time, (x) permit any change to the Borrowers or the Guarantor (other than
as specified in this Agreement) or (xi) amend any provision of Section 5.08 without the consent of each Lender; provided further ,
that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or any Mandated Lead
Arranger hereunder or under any other Loan Document without the prior written consent of the Administrative Agent or such
Mandated Lead Arranger, as the case may be.
(c) Notwithstanding the foregoing, any provision of this Agreement may be amended by an agreement in writing entered into by
the Parent, the other Borrowers, the Required Lenders and the Administrative Agent if (i) by the terms of such agreement the
Commitment of each Lender not consenting to the amendment provided for therein shall terminate upon the effectiveness of such
amendment and (ii) at the time such amendment becomes effective, each Lender not consenting thereto receives payment (including
pursuant to an assignment to a replacement Lender in accordance with Section 11.05 ) in full of the principal of and interest accrued
on each Loan made by it and all other amounts owing to it or accrued for its account under this Agreement.
Section 11.04 Expenses; Indemnity; Damage Waiver.
(a) The Loan Parties shall pay (i) all reasonable invoiced out-of-pocket expenses incurred by the Administrative Agent and the
Lenders, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and the Lenders, in
connection with the administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether
or not the transactions contemplated thereby shall be consummated) and (ii) all out-of-pocket expenses invoiced to and incurred by the
Administrative Agent and/or any Lender, including the fees, charges and disbursements of
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any counsel for the Administrative Agent and the Lenders, in connection with the enforcement or protection of their rights in
connection with this Agreement, including its rights under this Section, or in connection with the Loans made, including all such
out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.
(b) The Parent agrees to the fullest extent permitted by law, to indemnify and hold harmless each Mandated Lead Arranger, the
Administrative Agent and each Lender and each Related Party of any of the foregoing Persons (the “ Indemnified Parties ”) from and
against any and all claims, damages, losses, liabilities, costs, penalties, fees and expenses (including reasonable fees and
disbursements of counsel) of any kind or nature whatsoever for which any of them may become liable or which may be incurred by or
asserted against any of the Indemnified Parties (other than claims and related damages, losses, liabilities, costs, penalties, fees and
expenses made by one Lender (or its successors or assignees) against another Lender) arising out of, related to or in connection with
or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense
in connection therewith) (i) any Loan Document or any other document or instrument delivered in connection herewith, (ii) any
violation by the Borrower or any Subsidiary of the Borrower of any Environmental Law or any other law, rule, regulation or order,
(iii) the actual or proposed use of the proceeds of any Loan, or (iv) any transaction in which any proceeds of any Loan are applied
(EXCLUDING ANY SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, PENALTY, FEE OR EXPENSE SOUGHT TO
BE RECOVERED BY ANY INDEMNIFIED PARTY TO THE EXTENT SUCH CLAIM, DAMAGE, LOSS, LIABILITY,
COST, PENALTY, FEE OR EXPENSE HAS BEEN DETERMINED BY A FINAL NON-APPEALABLE JUDGMENT OF A
COURT OF COMPETENT JURISDICTION TO HAVE SOLELY RESULTED BY REASON OF THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY). IT IS THE INTENT OF THE
PARTIES HERETO THAT EACH INDEMNIFIED PARTY SHALL, TO THE EXTENT PROVIDED IN THIS
SECTION 11.04(b) , BE INDEMNIFIED FOR ITS OWN ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE. In
the case of an investigation, litigation or other proceeding to which the indemnity in this Section 11.04(b) applies, such indemnity
shall be effective whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors, shareholders
or creditors, any Indemnified Party or any other Person, whether or not any Indemnified Party is otherwise a party thereto and whether
or not the Transaction is consummated.
(c) To the extent that any Loan Party fails to pay any amount required to be paid by it to the Administrative Agent or any
Mandated Lead Arranger under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to such Person such
Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought
and determined without giving effect to the Applicable Percentage of any applicable Defaulting Lender) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage, liability, cost, penalty, fee or related expense, as the
case may be, was incurred by or asserted against such Person in its respective capacity as such.
(d) To the fullest extent permitted by applicable law, no Loan Party shall assert, and hereby waives, any claim against any
Indemnified Party, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual
damages)
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arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument
contemplated hereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof. No Indemnified
Party referred to in paragraph (b) above shall be liable for any damages arising from the use by unintended recipients of any
information or other materials distributed by it through telecommunications, electronic or other information transmission systems in
connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
(e) All amounts due under this Section shall be payable not later than 3 Business Days after written demand therefor, such
demand to be in reasonable detail setting forth the basis for and method of calculation of such amounts.
Section 11.05 Successors and Assigns.
(a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns permitted hereby, except that neither the Parent nor the other Borrowers may
assign or otherwise transfer any of their rights or obligations hereunder without the prior written consent of the Administrative Agent
and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in
accordance with the provisions of paragraph (b) of this Section, (ii) by way of participation in accordance with the provisions of
paragraph (d) of this Section or (iii) by way of pledge or assignment of a security interest subject to the restrictions of paragraph (f)
of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement,
expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and
assigns permitted hereby, Participants to the extent provided in paragraph (d) of this Section and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or
claim under or by reason of this Agreement.
(b) Assignments by Lenders. Any Lender may at any time assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of any of its Commitments and Loans at the time owing to it); provided
that any such assignment shall be subject to the following conditions:
(i) Minimum Amounts.
(A) in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the
time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount
need be assigned; and
(B) in any case not described in paragraph (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this
purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding
balance of the Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and
Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the
Assignment and Assumption, as of the Trade Date) shall not be less than JPY 500,000,000 and shall be an integral multiple of JPY
100,000,000, unless each of the Administrative Agent
61
and, so long as no Event of Default under Section 7.01(a), (b), (g), (h), (i) or (m) has occurred and is continuing, the Parent
otherwise consents (each such consent not to be unreasonably withheld or delayed) (provided that the Parent shall be deemed to
have consented thereto unless it shall object thereto by written notice to the Administrative Agent within 5 Business Days after
having received notice or request for such consent).
(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning
Lender’s rights and obligations under this Agreement with respect to the Loan or the Commitment assigned.
(iii) Required Consents. No consent shall be required for any assignment except to the extent required by paragraph (b)(i)(B)
of this Section and, in addition the consent of the Parent (such consent not to be unreasonably withheld or delayed) shall be required
unless (x) an Event of Default under Section 7.01(a) , (b) , (g) , (h) , (i) or (m) has occurred and is continuing at the time of
such assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided that the consent of
Parent to an assignment must not be withheld solely because the assignment or transfer may result in increased obligations under
Sections 2.15 ; provided further that the Parent shall be deemed to have consented to any such assignment unless it shall object
thereto by written notice to the Administrative Agent within 5 Business Days after having received notice or request for such
consent.
(iv) Assignment and Assumption. The parties to each assignment shall execute and deliver to the Administrative Agent an
Assignment and Assumption, together with a processing and recordation fee of JPY 500,000 (plus VAT (or consumption tax, as the
case may be), if any), and the assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire.
(v) No Assignment to Parent or its Affiliates. No such assignment shall be made to the Parent or any of the Parent’s Affiliates
or Subsidiaries.
(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural person.
(vii) Perfection The assignor shall promptly send the notification with date-certification (kakutei-hizuke) to the Borrower and
the Guarantor in relation to the assignment to the assignee pursuant to the law of Japan including the Civil Code of Japan (Act No. 89
of 1896).
Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section, from and
after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and,
to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this
Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be
released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning
Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to
the benefits of Sections 2.12 , 2.15 and
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11.04 with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this
Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (d) of this
Section.
(c) Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrowers, shall maintain at one of its
offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the
Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms hereof from time
to time (the “ Register ”). The entries in the Register shall be conclusive, and the Borrowers, the Administrative Agent and the
Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all
purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Parent and
any Lender as to its own Commitments and amounts owing to it, at any reasonable time and from time to time upon reasonable prior
notice.
(d) Participations. Any Lender may at any time, without the consent of, or notice to, Parent, the Borrower or the Administrative
Agent, sell participations to any Person (other than a natural person or the Parent or any of the Parent’s Affiliates or Subsidiaries)
(each, a “ Participant ”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion
of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and
(iii) the Borrowers, the Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this Agreement.
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the
sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement;
provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to
any amendment, modification or waiver described in Section 11.03 that affects such Participant. Subject to paragraph (e) of this
Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.12 and 2.15 to the same extent as
if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by
law, each Participant also shall be entitled to the benefits of Section 11.09 as though it were a Lender, provided such Participant
agrees to be subject to Section 2.16(c) as though it were a Lender.
(e) Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater payment under Section 2.12 or
2.15 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Parent’s prior written consent. A Participant that would be a
Non-Qualifying Lender if it were a Lender shall not be entitled to the benefits of Section 2.15 unless the Borrower is notified of the
participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers, to comply with Section 2.15(e)
as though it were a Lender.
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(f) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights to
repayment of Loans made under this Agreement to secure obligations of such Lender, including any pledge or assignment to
secure obligations, including, to a Federal Reserve Bank, the European Central Bank, the Bank of Japan or any other central
bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute
any such pledgee or assignee for such Lender as a party hereto.
Section 11.06 Survival. All covenants, agreements, representations and warranties made by the Loan Parties herein and in
the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied
upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans,
regardless of any investigation made by any such other party or on its behalf, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and
unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.12 , 2.14 and 2.15 ,
Article VIII and Sections 11.04 and 11.13 (and the obligations under Article IX , to the extent relating to any of the foregoing)
shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the
repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision
hereof.
Section 11.07 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall
constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative
Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter hereof. This Agreement shall become effective on the
Effective Date, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and
assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or other electronic transmission shall
be effective as delivery of a manually executed counterpart of this Agreement.
Section 11.08 Severability. Any provision of this Agreement or the Loan Documents held to be invalid, illegal or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a
particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
Section 11.09 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever
currency) at any time owing by such Lender to or for the credit or the account of the Borrower or the Guarantor against any and all of
the obligations of any such Borrower or the Guarantor existing under this Agreement or any other Loan Document to such Lender,
irrespective of whether or not such obligations of such Borrower or Guarantor may be owed to a branch or
64
office of such Lender different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each
Lender under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender may have.
Each Lender agrees to notify the Parent and the Administrative Agent promptly after any such setoff and application, provided that the
failure to give such notice shall not affect the validity of such setoff and application.
Section 11.10 Governing Law; Jurisdiction; Consent to Service of Process.
(a) This Agreement and any non-contractual obligations arising out of or in connection with it shall be construed in accordance
with and governed by Japanese law (without regard to conflicts of laws principles).
(b) Each party hereto hereby irrevocably and unconditionally submits to the exclusive jurisdiction of (i) the Supreme Court of
the State of New York sitting in New York County, (ii) the United States District Court of the Southern District of New York, (iii) the
Tokyo District Court and (iv) any appellate court from any thereof, in any suit, action or proceeding arising out of or relating to this
Agreement (including any non-contractual obligations arising out of or relating to this Agreement) and each of the parties hereto
hereby irrevocably and unconditionally agrees that any such suit, action or proceeding (“ Proceedings ”) may be heard and
determined in such courts. Each party hereto hereby further irrevocably waives any claim that any such courts lack personal
jurisdiction over it and agrees not to plead or claim in any Proceedings that any such courts lack personal jurisdiction over it. To the
extent that any Loan Party in any jurisdiction has, may claim or hereafter may acquire any immunity from jurisdiction, suit,
enforcement, execution, attachment (whether through prior to judgment, in aid of execution, or otherwise) or any other legal process
with respect to itself or its property, such Loan Party hereby agrees not to claim and irrevocably waives such immunity to the full
extent permitted by law. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement
shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to
this Agreement against the Borrower or the Guarantor or any of their respective properties in the courts of any jurisdiction to enforce a
judgment obtained in accordance with this Section. Each Loan Party agrees that, if the Administrative Agent or any Lender has
brought or initiated Proceedings in any jurisdiction referred to in this paragraph (the “ Original Proceedings ”), no Loan Party may
bring Proceedings which relate to the Original Proceedings or concern dispute(s) which are the same as or related to any dispute(s)
which are the subject of the Original Proceedings in any other jurisdiction, including, for the avoidance of doubt, any other jurisdiction
referred to in this paragraph. Nothing in this Section shall (or shall be construed so as to) limit the right of the Administrative Agent or
any Lender to take Proceedings in any of the courts referred to in this paragraph, nor shall the taking of Proceedings in any such
jurisdiction by any Loan Party preclude the taking of Proceedings by the Administrative Agent or any Lender in any other such
jurisdiction (whether concurrently or not) if and to the extent permitted by law.
(c) Each Loan Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any Proceedings in any court referred to in paragraph (b) of
this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of any Proceedings in any
65
such court, including, without limitation, with respect to enforcement and/or proceedings for breach claims, and agrees not to plead
that any such action or proceeding brought in any such court has been brought in an inconvenient forum.
(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 11.01 .
Such service may be made by mailing (by registered or certified mail, postage prepaid or any other method which generates a receipt
or proof of delivery) or delivering a copy of such process to such Person at the address provided in Section 11.01 (and in the case of
service to be delivered to any Loan Party, each Loan Party hereby acknowledges that, to the extent required, the address for delivery
of a copy of such service to counsel for such Loan Party shall be: Office of the General Counsel, Teva Pharmaceutical Industries
Limited, 5 Basel Street Petah Tiqva 49131, Israel, Attention: General Counsel); each party hereto hereby irrevocably waives any
objection to such service of process and agrees not to plead or claim in any Proceedings that any such service was in any way invalid
or ineffective. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner
permitted by applicable relevant law.
Section 11.11 Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
IN ANY APPLICABLE JURISDICTION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY
OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND
THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 11.12 Headings. Article and Section headings and the Table of Contents used herein are for convenience of
reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting,
this Agreement.
Section 11.13 Confidentiality. Each of the Administrative Agent and the Lender Parties agrees to maintain the
confidentiality of the Information (as defined below) and not to disclose or permit its disclosure to any Person, for a period of at least
1 year following the termination of this Agreement, except that Information may be disclosed (a) to its Related Parties (it being
understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential) on a need-to-know basis to the extent used in connection with the administration of
this Agreement and/or credit examination or credit monitoring , (b) to the extent requested by or legally obligated to disclose it
pursuant to a request of any regulatory authority or Governmental Authority purporting to have jurisdiction over it (including any
self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws
or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any
remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan
Document or the enforcement of
66
rights hereunder or thereunder, (f) subject to an agreement containing provisions no less restrictive than those of this Section, to
(i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this
Agreement or (ii) any actual or prospective party (or its managers, administrators, trustees, partners, directors, officers, employees,
agents, advisors and other representatives) to any swap, derivative or other similar transaction under which payments are to be made
by reference to the Borrowers and its obligations, this Agreement or payments hereunder, (iii) any rating agency, or (iv) the CUSIP
Service Bureau or any similar organization, (g) with the consent of the Borrowers or (h) to the extent such Information (x) becomes
publicly available other than as a result of a breach of this Section or (y) becomes available to the Lender or any of their respective
Affiliates lawfully from a source other than the Borrower. It is agreed that in case of the Lender becoming aware of a requirement to
disclose Information in accordance with sub- Sections (b) or (c) above, it will notify Parent and the relevant Borrower of such
requirement as soon as reasonably practicable, to the extent it is lawfully permitted to so notify (as determined in its sole discretion).
For purposes of this Section, “Information” means all information received in connection with the administration of this
Agreement at any time prior to the date hereof and afterwards from the Parent or any of its Subsidiaries relating to the Parent or any of
its Subsidiaries or any of their respective businesses, other than any such information that is available to the Administrative Agent or
any Lender lawfully prior to disclosure by the Parent or any of its Subsidiaries, provided that, in the case of information received
from the Parent or any of its Subsidiaries after the date hereof, such information is clearly identified at the time of delivery as
confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have
complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information, and at least reasonable care.
Each Lender undertakes not to make use of any Information without the prior written consent of the Parent including, for the
avoidance of doubt, the issuance of any public announcement, press release or other similar communication, which consent shall not
be unreasonably withheld; provided that , such Lender shall be permitted to (i) make use of such information as permitted by the
preceding paragraphs of this Section 11.13 and (ii) disclose the existence of the business relationship hereunder and this
Agreement’s signing in connection with the Lender’s marketing efforts following the Effective Date, each without the consent of the
Parent.
Section 11.14 Treatment of Information.
(a) Certain of the Lenders may enter into this Agreement and take or not take action hereunder or under the other Loan
Documents on the basis of information that does not contain material non-public information with respect to the Parent or its securities
(“ Restricting Information ”). Other Lenders may enter into this Agreement and take or not take action hereunder or under the other
Loan Documents on the basis of information that may contain Restricting Information. Each Lender Party acknowledges that United
States federal and state securities laws prohibit any person from purchasing or selling securities on the basis of material, non-public
information concerning such issuer of such securities or, subject to certain limited exceptions, from communicating such information
to any other Person. Neither the Administrative Agent nor any of its Related Parties shall, by making any Communications (including
Restricting Information) available to a Lender Party, by
67
participating in any conversations or other interactions with a Lender Party or otherwise, make or be deemed to make any statement
with regard to or otherwise warrant that any such information or Communication does or does not contain Restricting Information nor
shall the Administrative Agent or any of its Related Parties be responsible or liable in any way for any decision a Lender Party may
make to limit or to not limit its access to Restricting Information. In particular, none of the Administrative Agent nor any of its
Related Parties (i) shall have, and the Administrative Agent, on behalf of itself and each of its Related Parties, hereby disclaims, any
duty to ascertain or inquire as to whether or not a Lender Party has or has not limited its access to Restricting Information, such
Lender Party’s policies or procedures regarding the safeguarding of material, nonpublic information or such Lender Party’s
compliance with applicable laws related thereto or (ii) shall have, or incur, any liability to the Borrowers or Lender Party or any of
their respective Related Parties arising out of or relating to the Administrative Agent or any of its Related Parties providing or not
providing Restricting Information to any Lender Party.
(b) The Borrower agrees that (i) all Communications it provides to the Administrative Agent intended for delivery to the Lender
Parties shall be clearly and conspicuously marked “PUBLIC” if such Communications do not contain Restricting Information which,
at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof, (ii) by marking
Communications “PUBLIC,” the Borrowers shall be deemed to have authorized the Administrative Agent and the Lender Parties to
treat such Communications as either publicly available information or not material information (although, in the latter case, such
Communications may contain sensitive business information and, therefore, remain subject to the confidentiality undertakings of this
Section 11.14 ) with respect to the Parent or its securities for purposes of United States federal and state securities laws, (iii) all
Communications marked “PUBLIC” may be delivered to all Lender Parties and (iv) the Administrative Agent shall be entitled to treat
any Communications that are not marked “PUBLIC” as Restricting Information. Neither the Administrative Agent nor any of its
Affiliates shall be responsible for any statement or other designation by the Borrowers regarding whether a Communication contains
or does not contain material non-public information with respect to the Parent or its securities nor shall the Administrative Agent or
any of its Affiliates incur any liability to the Borrower, any Lender Party or any other Person for any action taken by the
Administrative Agent or any of its Affiliates based upon such statement or designation, including any action as a result of which
Restricting Information is provided to a Lender Party that may decide not to take access to Restricting Information. Nothing in this
Section 11.14 shall modify or limit a Lender Party’s obligations under Section 11.13 with regard to Communications and the
maintenance of the confidentiality of or other treatment of Information.
(c) Each Lender Party acknowledges that circumstances may arise that require it to refer to Communications that might contain
Restricting Information. Accordingly, each Lender Party agrees that it will nominate at least one designee to receive Communications
(including Restricting Information) on its behalf and identify such designee (including such designee’s contact information) on such
Lender Party’s Administrative Questionnaire. Each Lender Party agrees to notify the Administrative Agent from time to time of such
Lender Party’s designee’s e-mail address to which notice of the availability of Restricting Information may be sent by electronic
transmission.
(d) Each Lender Party acknowledges that Communications delivered hereunder and under the other Loan Documents may
contain Restricting Information and that such
68
Communications are available to all Lender Parties generally. Each Lender Party that elects not to take access to Restricting
Information does so voluntarily and, by such election, acknowledges and agrees that the Administrative Agent and other Lender
Parties may have access to Restricting Information that is not available to such electing Lender Party. None of the Administrative
Agent nor any Lender Party with access to Restricting Information shall have any duty to disclose such Restricting Information to
such electing Lender Party or to use such Restricting Information on behalf of such electing Lender Party, and shall not be liable for
the failure to so disclose or use, such Restricting Information.
(e) The provisions of the foregoing clauses of this Section 11.14 are designed to assist the Administrative Agent, the Lender
Parties and the Borrowers in complying with their respective contractual obligations and applicable law in circumstances where
certain Lender Parties express a desire not to receive Restricting Information notwithstanding that certain Communications hereunder
or under the other Loan Documents or other information provided to the Lender Parties hereunder or thereunder may contain
Restricting Information. Neither the Administrative Agent or any of its Related Parties warrants or makes any other statements with
respect to the adequacy of such provisions to achieve such purpose nor does the Administrative Agent or any of its Related Parties
warrant or make any other statement to the effect that the Borrowers’ or Lender Party’s adherence to such provisions will be sufficient
to ensure compliance by the Borrower or Lender Party with its contractual obligations or its duties under applicable law in respect of
Restricting Information and each of the Lender Parties and the Borrowers assumes the risks associated therewith.
(f) Any Lender Party may disclose to any Person to whom or for whose benefit such Lender Party charges, assigns or otherwise
creates an Encumbrance (or may do so) pursuant to Section 11.05(f) .
Section 11.15 Interest Rate Limitation.
Notwithstanding anything herein to the contrary, if at any time the interest rate and default interest applicable to any Loan,
together with all fees, charges including Break Costs and other amounts which are treated as interest on such Loan under applicable
law (including, without limitation, the Interest Rate Restriction Act of Japan (Act No. 100 of 1954, as amended) (the “ IRRA ”))
(collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged,
taken, received or reserved by the Administrative Agent or any Lender holding such Loan in accordance with applicable law
(including the IRRA), the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect
thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in
respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges
payable to such Administrative Agent or Lender (as applicable), in respect of other Loans or periods shall be increased (but not above
the Maximum Rate therefor) until such cumulated amount, together (to the extent lawful) with interest thereon at a rate determined by
the Administrative Agent in accordance with banking industry practice to the date of repayment, shall have been received by such
Lender.
Section 11.16 No Waiver; Remedies. No failure on the part of any party hereto to exercise, and no delay in exercising, any
right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise of any other right.
69
The remedies of the Administrative Agent and the Lenders provided in this Agreement are cumulative and not exclusive of any
remedies that they would otherwise have. Without limiting the generality of the foregoing, the making of a Loan shall not be
construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or
knowledge of such Default at the time.
Section 11.17 USA Patriot Act Notice and “Know Your Customer” and OFAC Provisions. Each Lender and the
Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrowers that pursuant to the requirements of
the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2003)) (the “ Act ”) and pursuant to other applicable
“know your customer” and anti-money laundering rules and regulations, it is required to obtain, verify and record information that
identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such
Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act. The Borrower shall, following
a request by the Administrative Agent or any Lender, provide all documentation and other information that the Administrative Agent
or such Lender reasonably requests in order to comply with its ongoing obligations under applicable “know your customer” and
anti-money laundering rules and regulations, including the Act.
Without limiting the foregoing, if:
(a) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made
after the date of this Agreement; or
(b) any change in the status or composition of shareholders of a Loan Party after the date of this Agreement; or
(c) a proposed assignment or transfer by any Lender or Administrative Agent of its rights and obligations under this Agreement,
obliges the Administrative Agent or any Lender or, in the case of paragraph (c) above, any prospective new Lender or Administrative
Agent to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is
not already available to it, each Loan Party shall promptly upon the request of the Administrative Agent or any Lender supply, or
procure the supply of, such documentation and other evidence as is reasonably requested by the Lender (for itself or, in the case of the
event described in paragraph (c) above, any prospective new Lender) to carry out and be satisfied it has complied with all necessary
“know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in
the Loan Documents.
Each Lender shall promptly upon the request of the Administrative Agent supply, or procure the supply of, such documentation
and other evidence as is reasonably requested by the Administrative Agent (for itself) in order for the Administrative Agent to carry
out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and
regulations pursuant to the transactions contemplated in the Loan Documents.
Each Loan Party represents, warrants, agrees and covenants that (a) neither it nor any of its Subsidiaries is an Embargoed Person
or listed on the Consolidated List of Financial
70
Sanctions Targets in the UK administered by HM Treasury (a “Listed Person”) and (b) neither it, nor any of its Subsidiaries and to
the best of its knowledge none of its respective officers, directors, brokers or agents of such Loan Party or such Subsidiary acting or
benefiting it in any capacity in connection with Loans (x) is an Embargoed Person or a Listed Person or (y) conducts any business or
engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Embargoed Person or Listed
Person in violation of applicable law, except where such conduct or transactions would not reasonably be likely to expose the
Administrative Agent, or any Lenders to any material liability or material detriment (which for the avoidance of doubt, would include
reputational harm) (it being understood that should any such harm result therefrom, the indemnity provisions of Section 11.04 shall
apply in respect thereof in accordance with the terms and provisions of such Section).
Section 11.18 Preparation of Notarized Deed (kousei shosho). At any time upon request of the Administrative Agent or the
Required Lenders, each Loan Party shall do all things reasonably necessary to retain a notary public to execute a notarized deed (
kousei shosho ) in which such Loan Party acknowledges its obligations under this Agreement and agrees to be subject to compulsory
enforcement procedure ( kyousei shikkou ) with regard thereto.
Section 11.19 Judgment Currency. (a) The Loan Parties’ obligations hereunder and under the other Loan Documents to
make payments in JPY (pursuant to such obligation, the “ Obligation Currency ”) shall not be discharged or satisfied by any tender
or recovery pursuant to any judgment expressed in or converted into any currency other than the Obligation Currency, except to the
extent that such tender or recovery results in the effective receipt by the Administrative Agent or the respective Lender of the full
amount of the Obligation Currency expressed to be payable to the Administrative Agent or such Lender under this Agreement or the
other Loan Documents. If, for the purpose of obtaining or enforcing judgment against any Loan Party in any court or in any
jurisdiction, it becomes necessary to convert into or from any currency other than the Obligation Currency (such other currency being
hereinafter referred to as the “ Judgment Currency ”) an amount due in the Obligation Currency, the conversion shall be made at the
rate of exchange (as quoted by the Administrative Agent or if the Administrative Agent does not quote a rate of exchange on such
currency, by a known dealer in such currency designated by the Administrative Agent) determined, in each case, as of the Business
Day immediately preceding the day on which the judgment is given (such Business Day being hereinafter referred to as the “
Judgment Currency Conversion Date ”).
(b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual
payment of the amount due, the Loan Parties covenant and agree to pay, or cause to be paid, either (i) such additional amounts, if any
(but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the Judgment Currency, when converted
at the rate of exchange prevailing on the date of payment, will produce the amount of the Obligation Currency which could have been
purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on
the Judgment Currency Conversion Date, or (ii) such amount, in the Obligation Currency, equal to the amount of the applicable
judgment denominated in Judgment currency, converted to the Obligation Currency in accordance with the Judgment Currency
Conversion Date.
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(c) For purposes of determining the rate of exchange for this Section 11.19, such amounts shall include any premium and
costs payable in connection with the purchase of the Obligation Currency.
Section 11.20 Language.
(a) Any notice given to or by a Loan Party under or in connection with any Loan Document must be in English, it being
understood that certain constitutional, statutory or other official document which is required to be prepared in Japanese delivered by a
Loan Party hereunder may be in Japanese, provided that, if so required by the Administrative Agent, the applicable Loan Party shall
promptly prepare and provide to the Administrative Agent a certified English translation and, in this case (and only in this case), the
Japanese version will prevail.
(b) If requested by any Lenders, the Administrative Agent may choose to deliver Japanese translations of certain notices
hereunder to such Lenders (it being understood that the provisions of clause (a) above shall apply to such translations).
Section 11.21 No Fiduciary Duty. Each Mandated Lead Arranger, each Bookrunner, the Administrative Agent and each
Lender and their respective Affiliates (collectively, solely for purposes of this paragraph, the “ Banks ”), may have economic interests
that conflict with those of the Borrowers. The Borrower agrees that nothing in the Loan Documents or otherwise will be deemed to
create an advisory, fiduciary or agency relationship or fiduciary or other implied duty between the Banks and the Borrowers, their
stockholders or their affiliates. The Borrower acknowledges and agrees that (i) the transactions contemplated by the Loan Documents
are arm’s-length commercial transactions between the Banks, on the one hand, and the Borrowers, on the other, (ii) in connection
therewith and with the process leading to such transaction each of the Banks is acting solely as a principal and not the agent or
fiduciary of the Borrower, its management, stockholders, creditors or any other person, (iii) no Bank has assumed an advisory or
fiduciary responsibility in favor of the Borrowers with respect to the transactions contemplated hereby or the process leading thereto
(irrespective of whether any Bank or any of its affiliates has advised or is currently advising the Borrower on other matters) or any
other obligation to the Borrowers except the obligations expressly set forth in the Loan Documents and (iv) each of the Borrowers has
consulted its own legal and financial advisors to the extent it deemed appropriate. The Borrower further acknowledges and agrees that
it is responsible for making its own independent judgment with respect to such transactions and the process leading thereto. The
Borrower agrees that it will not claim that any Bank has rendered advisory services of any nature or respect, or owes a fiduciary or
similar duty to the Borrowers, in connection with such transaction or the process leading thereto.
Section 11.22 Money Lending Business Act of Japan.
(a) Each Non-Bank Lender entering into this Agreement or becoming a party hereto prior to the entering into this Agreement
shall promptly deliver to the Borrowers and the Guarantor the document provided for in Article 16-2 of the Money Lending Business
Act of Japan in accordance with its terms and prior to the Drawdown Date shall promptly deliver to the Borrowers and the Guarantor
the document provided for in Article 17 of the Money Lending Business Act of Japan in accordance with its terms.
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(b) Each Non-Bank Lender shall promptly deliver to the Borrowers the document provided for in Article 18 of the Money
Lending Business Act of Japan as necessary upon each repayment of all or part of a Loan.
(c) If a Non-Bank Lender assigns or transfers all or any part of a Loan, it shall send the notification provided for in Article 24 of
the Money Lending Business Act of Japan in accordance with its terms.
(d) Each Non-Bank Lender shall perform all of such Non-Bank Lender’s obligations pursuant to clauses (a) through (c) above
and all the other obligations of such Non-Bank Lender under the Money Lending Business Act of Japan, and neither the
Administrative Agent nor any other Lender shall have any responsibility for any such obligations.
(e) Any Lender who has been assigned all or part of a Loan from a Non-Bank Lender shall perform the obligation pursuant to
Item 2 of Article 24 of the Money Lending Business Act of Japan in accordance with its terms, and the neither the Administrative
Agent nor any other Lender shall have any responsibility for any such obligations.
(f) Each Non-Bank Lender shall, promptly after the execution of this Agreement, notify the Administrative Agent in writing of
the matters to be notified or disclosed to the Borrowers by the Administrative Agent in accordance with the Money Lending Business
Act of Japan (including, but not limited to, those under Article 21 thereunder). If there are any amendments to any such matters, the
Non-Bank Lender shall immediately notify the Administrative Agent in writing thereof.
(g) Notwithstanding anything to the contrary herein, all expenses arising from the performance by a Non-Bank Lender of its
duties under the Money Lending Business Act of Japan (including, but not limited to, the duties as set out in this Section 11.22 )
shall be borne by such Non-Bank Lender.
[Signature Pages to Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.
TEVA PHARMACEUTICAL INDUSTRIES
LIMITED
By:
/s/ Yaacov Altman
Name: Yaacov Altman
Title: Acting Chief Financial Officer
By:
/s/ Eran Ezra
Name: Eran Ezra
Title: Global Treasurer
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TEVA HOLDINGS K.K.
By:
/s/ Itzhak Krinsky
Name: Itzhak Krinsky
Title: Representative Director
By:
/s/ Kimio Nishimura
Name: Kimio Nishimura
Title: Representative Director
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MIZUHO BANK, LTD., as Administrative Agent
By:
/s/ Yasuhiro Sato
Name: Yasuhiro Sato
Title:
76
MIZUHO BANK, LTD., as Lender
By:
/s/ Yasuhiro Sato
Name: Yasuhiro Sato
Title:
77
SUMITOMO MITSUI BANKING
CORPORATION, as Lender
By:
/s/ Takaaki Baba
Name: Takaaki Baba
Title:
78
THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,
as Lender
By:
/s/ Takeshi Ogasawara
Name: Takeshi Ogasawara
Title:
79
SCHEDULE 2.01
COMMITMENTS
Lender
Commitment (JPY)
Mizuho Bank, Ltd.
Sumitomo Mitsui Banking Corporation
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
12,000,000,000
12,000,000,000
11,000,000,000
Total
JPY 35,000,000,000
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SCHEDULE 3.18
STAMP TAXES
Credit Agreement
This Agreement is executed in Japan and is subject to the stamp tax in the amount of JPY 600,000. If such stamp tax is not paid, three
times the amount of such stamp tax would need to be paid as delinquent tax for such default. If, however, a taxpayer voluntarily
reports that it did not pay stamp tax and had no expectation that such stamp tax would be determined delinquent, 110% of such stamp
tax would need to be paid. In any event, failure to pay the aforementioned stamp will not render the Credit Agreement or any other
Loan Document unenforceable.
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SCHEDULE 6.03
EXISTING LIENS
None.
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EXHIBIT A
FORM OF
ASSIGNMENT AND ASSUMPTION
Reference is made to the Credit Agreement dated as of December 17, 2013 (as restated, amended, modified, supplemented and
in effect from time to time, the “ Credit Agreement ”), among Teva Pharmaceutical Industries Limited, Teva Holdings K.K., the
Lenders named therein and Mizuho Bank, Ltd., as Administrative Agent for the Lenders. Terms defined in the Credit Agreement are
used herein with the same meanings. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to
and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
The Assignor named herein hereby sells and assigns, without recourse, to the Assignee named herein, and the Assignee hereby
purchases and assumes, without recourse, from the Assignor, effective as of the Assignment Date set forth herein the interests set forth
herein (the “ Assigned Interest ”) in the Assignor’s rights and obligations under the Credit Agreement, including, without limitation,
the interests set forth herein in the Commitment of the Assignor on the Assignment Date and Loans owing to the Assignor which are
outstanding on the Assignment Date (and, to the extent permitted to be assigned under applicable law, including all claims, suits,
causes of action and any other right of the Assignor (in its capacity as a Lender) against any person, whether known or unknown,
arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan
transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims,
tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and
assigned under the Credit Agreement), but excluding accrued interest and fees to and excluding the Assignment Date. The Assignee
hereby acknowledges receipt of a copy of the Credit Agreement. From and after the Assignment Date (i) the Assignee shall be a party
to and be bound by the provisions of the Credit Agreement and, to the extent of the Assigned Interest, have the rights and obligations
of a Lender thereunder and (ii) the Assignor shall, to the extent of the Assigned Interest, relinquish its rights and be released from its
obligations under the Credit Agreement.
This Assignment and Assumption is being delivered to the Administrative Agent together with (i) any documentation required to
be delivered by the Assignee pursuant to Section 2.15(e) of the Credit Agreement, duly completed and executed by the Assignee,
and (ii) if the Assignee is not already a Lender under the Credit Agreement, an Administrative Questionnaire in the form supplied by
the Administrative Agent, duly completed by the Assignee. The [Assignee/Assignor] shall pay the fee payable to the Administrative
Agent pursuant to Section 11.05(b) of the Credit Agreement.
This Assignment and Assumption shall be governed by and construed in accordance with the laws of Japan.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee’s Address for Notices:
Effective Date of Assignment
83
(“Assignment Date”):
Facility
[Commitment]:
[Loans]:
Principal Amount
Assigned
JPY
The terms set forth above are hereby agreed to:
[Name of Assignor], as Assignor
By:
Name:
Title:
[Name of Assignee], as Assignee
By:
Name:
Title:
84
Percentage Assigned of
Loan/Commitment (set
forth, to at least 8
decimals, as a
percentage of the Loan
and the aggregate
Commitments of all
Lenders thereunder)
%
The undersigned hereby consent to the within assignment:
Mizuho Bank, Ltd.,
as Administrative Agent
[Teva Pharmaceutical Industries Limited]1
By:
By:
Name:
Title:
Name:
Title:
By:
Name:
Title:
1
To the extent Parent consent is required under the Credit Agreement in connection with such Assignment.
85
ANNEX 1 to Assignment and Assumption
TEVA HOLDINGS K.K.
CREDIT AGREEMENT
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties.
1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the
Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has
taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated
hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection
with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Loan Documents, (iii) the financial condition of any of the Loan Parties, any of their Subsidiaries or Affiliates or any
other person obligated in respect of any Loan Document or (iv) the performance or observance by any Loan Party, any of their
Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.
1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action
necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to
become a Lender under the Credit Agreement, (ii) it meets all requirements of an Eligible Assignee under the Credit Agreement
(subject to receipt of such consents as may be required under the Credit Agreement), (iii) from and after the Assignment Date, it shall
be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the
obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by the
Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire the Assigned Interest, is
experienced in acquiring assets of such type and (v) it has received a copy of the Credit Agreement, together with copies of the most
recent financial statements referred to in Section 3.04(a) and (b) of the Credit Agreement or delivered pursuant to Section 5.01
thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such
analysis and decision independently and without reliance on the Administrative Agent or any other Lender; and (b) agrees that (i) it
will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under
the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations that by the terms of the Loan
Documents are required to be performed by it as a Lender.
2. Payments. From and after the Assignment Date, the Administrative Agent shall make all payments in respect of the Assigned
Interest (including payments of principal, interest,
86
fees and other amounts) to the Assignor for amounts that have accrued to but excluding the Assignment Date and to the Assignee for
amounts that have accrued from and after the Assignment Date.
3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together
shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by
telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and
Assumption shall be construed in accordance with and governed by, the law of Japan without regard to conflicts of principles of law
that would require the application of the laws of another jurisdiction.
87
EXHIBIT B
[RESERVED]
88
EXHIBIT C
[Reserved]
89
EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he is the
of TEVA PHARMACEUTICAL INDUSTRIES LIMITED (the “ Parent
”), and that as such he is authorized to execute this certificate on behalf of the Parent. With reference to the Credit Agreement dated as
of December 17, 2013 (as restated, amended, modified, supplemented and in effect from time to time, the “ Credit Agreement ”),
among the Parent, Teva Holdings K.K. and Mizuho Bank, Ltd., as Administrative Agent (the “ Administrative Agent ”) for the
lenders (the “ Lenders ”), which are or become a party thereto, and such Lenders, the undersigned represents and warrants as follows
(each capitalized term used herein having the same meaning given to it in the Agreement unless otherwise specified);
(a) [There currently does not exist any Default or Event of Default under the Agreement.] [Attached hereto is a schedule
specifying the details of [a] certain Default[s] [Event[s] of Default] which exist under the Agreement and the action taken or proposed
to be taken with respect thereto.]
(b) Attached hereto are the detailed computations necessary to determine whether the Parent is in compliance with Section 6.04
of the Credit Agreement as of the end of the [fiscal quarter][fiscal year] ending
.
EXECUTED AND DELIVERED this
day of
, 20
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
By:
Name:
Title:
90
.
EXHIBIT E
[RESERVED]
91
Exhibit 8
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
Subsidiaries
At December 31, 2014
Name of Subsidiary*
Teva Pharmaceuticals USA, Inc.
Teva Santé SAS
Teva UK Limited
ratiopharm GmbH
Teva Pharmaceutical Works Private Limited Company
Teva Gmbh
Teva Italia S.r.l.
Teva Pharma S.L.
Teva Israel
Teva Canada Limited
Teva Limited Liability Company
Teva Seiyaku
*
Country
United States
France
United Kingdom
Germany
Hungary
Germany
Italy
Spain
Israel
Canada
Russia
Japan
All listed subsidiaries are 100% held by Teva, except for Teva Pharmaceutical Works Private Limited Company, which has a very small minority interest.
Exhibit 10
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form F-3 (No. 333–131387) and on Form S-8 (No. 333-168331) of Teva
Pharmaceutical Industries Limited of our report dated February 9, 2015 relating to the consolidated financial statements and the effectiveness of internal control over
financial reporting, which appears in this Form 20-F. We also consent to the incorporation by reference of our report dated February 9, 2015 relating to the Financial
Statement Schedule, which appears in this Form 20-F.
Tel-Aviv, Israel
February 9, 2015
/s/ Kesselman & Kesselman
Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member firm of PricewaterhouseCoopers
International Limited
Exhibit 12(i)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
CERTIFICATIONS
I, Erez Vigodman, certify that:
1. I have reviewed this annual report on Form 20-F of Teva Pharmaceutical Industries Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c. evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has
materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s
auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the company’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial
reporting.
Date: February 9, 2015
/s/ Erez Vigodman
Erez Vigodman
President and Chief Executive Officer
Exhibit 12(ii)
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
CERTIFICATIONS
I, Eyal Desheh, certify that:
1.
I have reviewed this annual report on Form 20-F of Teva Pharmaceutical Industries Limited;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4.
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and
have:
5.
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c.
evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report
that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s
auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the company’s ability to record, process, summarize and report financial information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over
financial reporting.
Date: February 9, 2015
/s/ EYAL DESHEH
Eyal Desheh
Group Executive Vice President, Chief Financial Officer
Exhibit 13
CERTIFICATION OF THE CEO AND CFO PURSUANT TO SECTION 906
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Teva Pharmaceutical Industries Limited (the “Company”) on Form 20-F for the period ended December 31, 2014, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), we, Erez Vigodman, President and Chief Executive Officer of the Company, and Eyal
Desheh, Group Executive Vice President, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the
Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: February 9, 2015
/s/ Erez Vigodman
Erez Vigodman
President and Chief Executive Officer
/s/ Eyal Desheh
Eyal Desheh
Group Executive Vice President, Chief Financial Officer