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Fair value measurement
 12 Months Ended
Dec. 31, 2020
Fair value measurement
NOTE 20 —Fair value measurement:
Financial items carried at fair value as of December 31, 2020 and 2019 are classified in the tables below in one of the three categories described in note 1f:
 
    
December 31, 2020
  
    
Level 1
     
Level 2
     
Level 3
     
Total
  
    
(U.S. $ in millions)
  
Cash and cash equivalents:
                                  
Money markets
    $ 367      $
—  
     $
—  
     $ 367  
Cash, deposits and other
      1,810       
—  
      
—  
       1,810  
Investment in securities:
                                  
Equity securities*
      25       
259
      
—
 
 
       284  
Other, mainly debt securities
      5       
—  
       10       15  
Derivatives:
                                  
Asset derivatives—options and forward contracts
     
—  
        24      
—  
       24  
Liabilities derivatives—options and forward contracts
     
—  
        (79 )     
—  
       (79 ) 
Contingent consideration**
     
—  
       
—  
       (268 )      (268 ) 
    
 
 
     
 
 
    
 
 
    
 
 
  
Total
    $ 2,207      $ 204     $ (258 )    $ 2,153  
    
 
 
     
 
 
    
 
 
    
 
 
  
 
    
December 31, 2019
  
    
Level 1
     
Level 2
    
Level 3
    
Total
  
    
(U.S. $ in millions)
  
Cash and cash equivalents:
                                  
Money markets
    $ 577      $ —       $ —       $ 577  
Cash, deposits and other
      1,398        —         —         1,398  
Investment in securities:
                                  
Equity securities
      42        —         —         42  
Other, mainly debt securities
      2        —         12       14  
Derivatives:
                                  
Asset derivatives—options and forward contracts
      —          32       —         32  
Liability derivatives—options and forward contracts
      —          (41 )      —         (41 ) 
Liabilities derivatives—interest rate and cross-currency swaps
      —          (22 )      —         (22 ) 
Contingent consideration**
      —          —         (460 )      (460 ) 
    
 
 
     
 
 
    
 
 
    
 
 
  
Total
    $ 2,019      $
(31
)
   $ (448 )    $ 1,540  
    
 
 
     
 
 
    
 
 
    
 
 
  
 
*
During the third quarter of 2020, Teva recorded a gain of $134 million under share in profits of associated companies, net, reflecting the difference between the book value of Teva’s investment in American Well and its fair value as of the date it completed its initial public offering in September 2020. The investment was reclassified from “investment in associated companies” to “investment in marketable securities,” since Teva no longer ha
d
 significant influence in American Well.
This represented a transfer into Level 3 measurement within fair value hierarchy. By 
December 31, 2020, Teva recorded an additional gain of $80 
million under financial expenses, net, reflecting the revaluation gain of this security as of December 31, 2020 and transferred it to Level 2 measurement within fair value hierarchy due to a change in discount rate. 
 
 
Due to management’s intention and ability to sell this security in the next twelve months, the balance as of December 31, 2020 was reclassified to short term investments.
**
Contingent consideration represents liabilities recorded at fair value in connection with acquisitions.
Teva determined the fair value of the liabilities for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant unobservable inputs 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 of 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 United States and Europe, and the risk adjusted discount rate for fair value measurement. A probability of success factor ranging from 80% to 100% was used in the fair value calculation to reflect inherent regulatory and commercial risk of the contingent payments and IPR&D. The discount rate applied ranged from 7.5% to 8.0%. The weighted average discount rate, calculated based on the relative fair value of Teva’s contingent consideration liabilities, was 7.7%.
The contingent consideration is evaluated quarterly, or more frequently, if circumstances dictate. Changes in the fair value of contingent consideration are recorded in consolidated statements of income. Significant changes in unobservable inputs, mainly the probability of success and cash flows projected, could result in material changes to the contingent consideration liabilities. 
 
 
The fair value measurement of the investment in equity securities is based on a discount rate for fair value measurement, related to restriction of sale of shares, and thus represents a Level 2 measurement within the fair value hierarchy. The discount rate applied for the fair value measurement at December 31, 2020 was
 4%.
The following table summarizes the activity for those financial assets and liabilities where fair value measurements are estimated utilizing Level 3 inputs.
 
    
December 31,
2020
     
December 31,
2019
  
    
(U.S. $ in millions)
  
Fair value at the beginning of the period
    $ (448 )     $ (497 ) 
Transfer into Level 3- equity securities
      179           
Revaluation of equity securities
     
80
           
Revaluation of debt securities
      (2 )      
2
  
Reclassification to Level 2- equity securities
 
 
(259
 ) 
 
 
 
 
Adjustments to provisions for contingent consideration:
                  
Actavis Generics transaction
      156        92  
Eagle transactio
n
     
(75
)
 		     
(151
 ) 
Settlement of contingent consideration:
                  
Eagle transaction
      111        106  
    
 
 
     
 
 
  
Fair value at the end of the period
    $ (258 )     $ (448 ) 
    
 
 
     
 
 
  
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, loans and senior notes, 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.
Financial instruments not measured at fair value
Financial instruments measured on a basis other than fair value consist of senior notes and convertible senior debentures (see note 9), and are presented in the below table in terms of fair value:    
 
    
Estimated fair value*
  
    
December 31,
  
    
2020
     
2019
  
    
(U.S. $ in millions)
  
Senior notes included under long-term liabilities
    $ 22,684      $ 22,686  
Senior notes and convertible senior debentures included under short-term liabilities
      3,207        2,318  
    
 
 
     
 
 
  
Fair value at the end of the period
    $ 25,891      $ 25,004  
    
 
 
     
 
 
  
 
  *
The fair value was estimated based on quoted market prices.