Novartis Annual Report 2022

Annual Report

2022

Annual Report

2022

Chair’s letter

Medical progress and innovation are evolving with impres-

sive speed even in aworld of increasing volatility and

uncertainty. In 2022, we initiated a major transformation

of our organization to further improve our innovation capa-

bilities and align with our growth strategy as a pure-play

medicines company.

We expect these changes to simplify our business,

enhance accountabilities and strengthen our commer-

cial activities by enabling us to better focus on our in-mar-

ket products and high-value pipeline assets. Overall, our

eorts are set to support our long-term sales and proﬁt

growth and help us create sustainable shareholder value.

As part of this transformation, which includes our inten-

tion to spin o our Sandoz generics and biosimilars Divi-

sion, we merged our Oncology and Pharmaceuticals com-

mercial organizations and created a new Operations

organization that combines our manufacturing and ser-

vices activities. Besides sub stantial cost savings, we

expect these steps to increase our operational agility and

strengthen our business in key markets such as the

United States and China.

The organizational changes, which we expect to ﬁnalize

in 2023, complete the portfolio shift we started in 2014.

Over this time, we have divested several non-core busi-

nesses and spun o our eye-care division Alcon. With a

view to boosting our innovation power, we have also made

substantial investments in cutting-edge technology plat-

forms, including gene andcell therapy, radioligand ther-

apy and RNAtechnology.

Novartis delivered on its sales and operating proﬁt tar-

gets in 2022 despite the challenges of a volatile macro-

economic environment and while executing on our ongo-

ing transformation, which entailed jobreductions due to

structural changes. This performance was supported by

cost discipline and continued operational streamlining,

as well as the strong uptake of recently launched

medicines, such as multiple sclerosis treatment Kes i

mpta, and continued strong demand for our cardiovas-

cular medicine Entresto and psoriasis treatment

Cosentyx.

Last year also saw new leadership at the Novartis Insti-

tutes for BioMedical Research and our Global Drug

Development organization, the research and develop

ment (R&D) engines of Novartis, and a renewed focus on

improving governance and speeding up the transition

between early drug discovery and clinical development.

These measures should help further strengthen our port-

folio of medicines, which we have consistently broadened

in recent years with launches including cancer treat-

ments Pluvicto andScemblix.

We have also further intensiﬁed our eorts to integrate

our environmental, social and governance (ESG) activi-

ties into our daily business, which we believe is vital for

the success of Novartis. Among a variety of steps aimed

at reaching as many patients as possible, we renewed

our commitment to continue our R&D eorts in neglected

tropical diseases and to work further toward the elimi-

nation of malaria. In addition, we are partnering with the

American Society of Hematology to deepen our eorts

to ﬁght against sickle cell disease in Africa.

The Board of Directors also remained vigilant in its gov-

ernance oversight eorts by putting added emphasis on

values such as integrity as Novartis pivots towards

becoming a high-performance, pure-play medicines

company. Likewise, the Executive Committee and the

Board of Directors are keeping up the intensive dialogue

with stake holder groups and working towards achieving

our vision to be the most valued and trusted medicines

companies in the world.

I thank you for the conﬁdence you have placed in our

company and am pleased to be able to propose a divi-

dend increase of 3.2% to CHF 3.20 at the next Annual

General Meeting.

Sincerely,

Joerg Reinhardt

Chair of the Board of Directors

CEO’s letter

2022 was a year of transformation for Novartis. After more

than USD 100 billion in acquisitions and divestures over

the last several years, our structural transformation from

a diversiﬁed healthcare conglomerate into a focused,

innovative medicines company will be largely complete

after the planned spin-o of Sandoz in 2023.

We also begin 2023 with a simpliﬁed organizational struc-

ture that will spur innovation and give us a stronger foun-

dation for growth in a rapidly changing global business

environment.

While Novartis has pursued bold portfolio change, core

elements of our company remain the same. Our vision is

to become the most trusted and valued medicines com-

pany in the world – valued not only for our business per-

formance, but also for the dierence our innovation makes

for patients and society.

The world is counting on us to succeed. Fewer than 10%

of diseases known to aect humans are currently treat-

able, and globally, people live an average of 10 years with

a disease or disability. Yet new treatments broadly still

reach only a fraction of eligible patients, and manageable

conditions like heart disease cause millions of avoidable

deaths each year.

Our performance in 2022 showed that we are making

progress in addressing society’s greatest disease bur-

dens. Our focus on cardiovascular disease, for example,

gives countries and healthcare systems solutions to

address the world’s leading cause of death and disability.

Entresto, our medicine for heart failure and hypertension,

is estimated to be treating around 10 million patients

worldwide, while our cholesterol-lowering siRNA treat-

ment Leqvio is now approved in 70 countries.

We saw robust growth momentum across our in-market

medicines. This includes stronger-than-expected uptake

in the US for Pluvicto, our novel radioligand therapy for

advanced prostate cancer, highlighting our ability to turn

the promise of next-generation medicines into a reality for

patients.

Despite challenging macroeconomic conditions and an

unstable geopolitical environment, we delivered a solid

ﬁnancial performance that underscores the progress we

are making, with 4% growth in net sales in constant cur-

rencies (cc) and 8% growth (cc) in core operating income

compared with the previous year. Looking ahead, we aim

to generate sales growth of 4% CAGR over the next ﬁve

years, and grow above peer median beyond 2027.

Our investments in R&D are key to achieving these ambi-

tions. In 2022, we saw a positive Phase III readout for ipta

copan, which was discovered at NIBR, in a rare and deadly

blood disorder. We saw an important positive Phase III

result for Pluvicto in earlier lines of prostate cancer. And

we also reported positive Phase III results for Cosentyx in

hidradenitis suppurativa, oering the potential to expand

one of our most successful medicines and bring a new

treatment option to patients with this painful skin disease.

As we continue innovating for patients, millions around the

world are still without proper access to healthcare. Trans-

lating the latest science into lasting progress requires us

to work with healthcare systems and other stakeholders to

advance access for underserved patients in low- and mid-

dle-income countries, while also tackling access barriers

in some of the wealthiest countries in the world.

In the US, for example, we expanded our 10-year Beacon

of Hope initiative, which seeks to address racial dispari-

ties in healthcare, including by increasing diversity among

clinical trial participants and investigators. We also pledged

to invest USD 250 million in R&D for the treatment of

malaria and neglected tropical diseases, building on our

decades-long commitment to global health priorities. We

continue to make progress in other aspects of our ESG

agenda, including reducing greenhouse gas emissions

from our own operations by nearly half since 2016.

As we look to the future as a focused medicines company,

our dedication to innovation and excellence will drive us

forward. We have set clear growth ambitions and we are

conﬁdent we will meet them. Through reshaping Novartis,

we are set to reimagine medicine for decades to come.

Sincerely,

Vas Narasimhan

Chief Executive Ocer

Table of contents

Introduction and use of certain terms .................................................................................................................................................................

Forward-looking statements ...................................................................................................................................................................................

PART I 7

Item . Identity of Directors, Senior Management and Advisers ...................................................................................................

Item . Oer Statistics and Expected Timetable ...................................................................................................................................

Item . Key Information ........................................................................................................................................................................................

.A [Reserved] ..................................................................................................................................................................................................

.B Capitalization and indebtedness .....................................................................................................................................................

.C Reasons for the oer and use of proceeds ..............................................................................................................................

.D Risk factors ................................................................................................................................................................................................

Item . Information on the Company .......................................................................................................................................................... 

.A History and development of Novartis ........................................................................................................................................

.B Business overview ...............................................................................................................................................................................

Innovative Medicines ..........................................................................................................................................................................

Sandoz ...................................................................................................................................................................................................... 

.C Organizational structure ...................................................................................................................................................................

.D Property, plants and equipment ...................................................................................................................................................

Item A. Unresolved Sta Comments ......................................................................................................................................................... 

Item . Operating and Financial Review and Prospects ..................................................................................................................

.A Operating results..................................................................................................................................................................................

.B Liquidity and capital resources .....................................................................................................................................................

.C Research and development, patents and licenses .............................................................................................................

.D Trend information .................................................................................................................................................................................

.E Critical accounting estimates ........................................................................................................................................................

Item . Directors, Senior Management and Employees ..................................................................................................................

.A Directors and senior management .............................................................................................................................................

.B Compensation .......................................................................................................................................................................................

.C Board practices..................................................................................................................................................................................

.D Employees ............................................................................................................................................................................................

.E Share ownership................................................................................................................................................................................

Item . Major Shareholders and Related Party Transactions ....................................................................................................

.A Major shareholders ..........................................................................................................................................................................

.B Related party transactions ........................................................................................................................................................... 

.C Interests of experts and counsel ..............................................................................................................................................

Item . Financial Information ....................................................................................................................................................................... 

.A Consolidated statements and other ﬁnancial information ...........................................................................................

.B Signiﬁcant changes .........................................................................................................................................................................

Item . The Oer and Listing ......................................................................................................................................................................

.A Oer and listing details ..................................................................................................................................................................

.B Plan of distribution ............................................................................................................................................................................ 

.C Markets ...................................................................................................................................................................................................

.D Selling shareholders ........................................................................................................................................................................

.E Dilution .................................................................................................................................................................................................... 

.F Expenses of the issue ....................................................................................................................................................................

Item . Additional Information .....................................................................................................................................................................

.A Share capital ........................................................................................................................................................................................ 

.B Memorandum and articles of association ............................................................................................................................ 

.C Material contracts .............................................................................................................................................................................

.D Exchange controls............................................................................................................................................................................

.E Taxation ..................................................................................................................................................................................................

.F Dividends and paying agents ...................................................................................................................................................... 

.G Statement by experts ..................................................................................................................................................................... 

* “Item 5. Operating and Financial Review and Prospects,” together with the sections on compounds in development and selected development projects of our divisions

(see“Item 4. Information on the Company—Item 4.B Business overview”), constitute the Operating and Financial Review (“Lagebericht”), as deﬁned by the Swiss Code of

Obligations.

Table of contents

.H Documents on display .................................................................................................................................................................... 

.I Subsidiary information ....................................................................................................................................................................

Item . Quantitative and Qualitative Disclosures About Market Risk .................................................................................... 

Item . Description of Securities Other Than Equity Securities............................................................................................... 

.A Debt securities ................................................................................................................................................................................... 

.B Warrants and rights.......................................................................................................................................................................... 

.C Other securities ................................................................................................................................................................................. 

.D American Depositary Shares ...................................................................................................................................................... 

PART II 176

Item . Defaults, Dividend Arrearages and Delinquencies .......................................................................................................... 

Item . Material Modiﬁcations to the Rights of Security Holders and Use of Proceeds .............................................

Item . Controls and Procedures ..............................................................................................................................................................

Item A. Audit Committee Financial Expert ........................................................................................................................................... 

Item B. Code of Ethics ....................................................................................................................................................................................

Item C. Principal Accountant Fees and Services ..............................................................................................................................

Item D. Exemptions from the Listing Standards for Audit Committees ................................................................................ 

Item E. Purchases of Equity Securities by the Issuer and Aliated Purchasers ............................................................. 

Item F. Change in Registrant’s Certifying Accountant ..................................................................................................................

Item G. Corporate Governance ..................................................................................................................................................................

Item H. Mine Safety Disclosure ..................................................................................................................................................................

Item I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ................................................................. 

PART III 188

Item . Financial Statements.......................................................................................................................................................................

Item . Financial Statements.......................................................................................................................................................................

Item . Exhibits ................................................................................................................................................................................................... 



Introduction and use of certain terms

Novartis AG and its consolidated aliates publish consolidated ﬁnancial statements expressed in US dollars. Our

consolidated ﬁnancial statements responsive to Item 18 of this Annual Report on Form20-F (Annual Report) are

prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International

Accounting Standards Board (IASB). “Item 5. Operating and Financial Review and Prospects,” together with the

sections on products in development and key development projects of our businesses (see “Item 4. Information on

the Company—Item 4.B. Business overview”), constitute the Operating and Financial Review (“Lagebericht”), as

deﬁned by the Swiss Code of Obligations.

Unless the context requires otherwise, the words “we,” “our,” “us,” “Novartis,” “Group,” “Company,” and similar

words or phrases in this Annual Report refer to Novartis AG and its consolidated aliates. However, each Group

company is legally separate from all other Group companies and manages its business independently through its

respective board of directors or similar supervisory body or other top local management body, if applicable. Each

executive identiﬁed in this Annual Report reports directly to other executives of the Group company that employs

the executive, or to that Group company’s board of directors.

In this Annual Report, references to “US dollars,” “USD” or “$” are to the lawful currency of the United States of

America, references to “CHF” are to Swiss francs, and references to “euro” or “EUR” are to the lawful currency of

27 member states participating in the European Union; references to the “United States” or to “US” are to the United

States of America, references to the “European Union” or to “EU” are to the European Union and its 27 member

states, references to “Latin America” are to Central and South America, including the Caribbean, and references

to “Australasia” are to Australia, New Zealand, Melanesia, Micronesia and Polynesia, unless the context otherwise

requires; references to the “EC” are to the European Commission; references to “associates” are to employees of

our aliates; references to the “SEC” are to the US Securities and Exchange Commission; references to the “FDA”

are to the US Food and Drug Administration; references to the “EMA” are to the European Medicines Agency, an

agency of the EU, and references to the “CHMP” are to the Committee for Medicinal Products for Human Use of

the EMA; references to “ADR” or “ADRs” are to Novartis American Depositary Receipts, and references to “ADS”

or “ADSs” are to Novartis American Depositary Shares; references to the “NYSE” are to the New York Stock

Exchange, and references to “SIX” are to the SIX Swiss Exchange; references to “ECN” are to the Executive Com-

mittee of Novartis; references to “GSK” are to GlaxoSmithKline plc; references to “Roche” are to Roche Holding

AG; references to “Gyroscope Therapeutics” are to Gyroscope Therapeutics Holdings plc; references to “AAA” are

to Advanced Accelerator Applications S.A., references to “Novartis Gene Therapies” are to Novartis Gene Thera-

pies, Inc., and references to “Endocyte” are to Endocyte, Inc.

All product names appearing in italics are trademarks owned by or licensed to Group companies. Product names

identiﬁed by a “

” or a “™” are trademarks that are not owned by or licensed to Group companies and are the prop-

erty of their respective owners.

Forward-looking statements

This Annual Report contains certain forward-looking statements within the meaning of Section 27A of the Securi-

ties Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange

Act”), and the United States Private Securities Litigation Reform Act of 1995, as amended. Other written materials

ﬁled with or furnished to the SEC by Novartis, as well as other written and oral statements made to the public, may

also contain forward-looking statements. Forward-looking statements can be identiﬁed by words such as “poten-

tial,” “expected,” “will,” “planned,” “pipeline,” “outlook,” “may,” “could,” “would,” “anticipate,” “seek,” or similar terms,

or by express or implied discussions regarding potential new products, potential new indications for existing prod-

ucts, or regarding potential future revenues from any such products; or regarding the potential outcome, or ﬁnan-

cial or other impact on Novartis, of any of the transactions described; or regarding the potential impact of share

buybacks; or regarding potential future sales or earnings of the Group or any of its divisions or potential share-

holder returns; or regarding potential future credit ratings of the Group; or by discussions of strategy, plans, expec-

tations or intentions. Such forward-looking statements are based on the current beliefs and expectations of man-

agement regarding future events, and are subject to signiﬁcant known and unknown risks and uncertainties. Should

one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual

results may vary materially from those set forth in the forward-looking statements. You should not place undue reli-

ance on these statements.

In particular, our expectations could be aected by, among other things:

• Uncertainties regarding the success of key products and commercial priorities;

• Uncertainties in the research and development of new healthcare products, including clinical trial results and

additional analysis of existing clinical data;

• Global trends toward healthcare cost-containment, including ongoing government, payer and general public pric-

ing and reimbursement pressures and requirements for increased pricing transparency;

• The potential that the strategic beneﬁts, operational eciencies or opportunities expected from our external busi-

ness opportunities, our intention to separate our Sandoz Division into a new publicly traded standalone company

by way of a 100% spin-o, or the implementation of our new organizational structure and operating model, may

not be realized or may take longer to realize than expected;

• Our ability to obtain or maintain proprietary intellectual property protection, including the ultimate extent of the

impact on Novartis of the loss of patent protection and exclusivity on key products that commenced in prior years

and is expected to continue this year;

• Our performance on environmental, social and governance matters;

• Uncertainties in the development or adoption of potentially transformational digital technologies and business

models;

• Uncertainties regarding potential signiﬁcant breaches of information security or disruptions of our information

technology systems;

• Uncertainties surrounding the implementation of our new Enterprise Resource Planning system and other IT proj-

ects;

• Our reliance on outsourcing key business functions to third parties;

• Uncertainties regarding actual or potential legal proceedings, including, among others, litigation and other legal

disputes with respect to our recent transactions, product liability litigation, litigation and investigations regarding

sales and marketing practices, intellectual property disputes and government investigations generally;

• Safety, quality, data integrity or manufacturing issues;

• Our ability to attract, integrate and retain key personnel and qualiﬁed individuals;

• Regulatory actions or delays or government regulation generally, including potential regulatory actions or delays

with respect to the development of the products described in this Annual Report;

Forward-looking statements

• Our ability to comply with data privacy laws and regulations, and uncertainties regarding potential signiﬁcant

breaches of data privacy;

• Our ability to adapt to major geopolitical and macroeconomic developments, including the eects of and eorts

to mitigate pandemic diseases such as COVID-19, and the impact of the war in Ukraine;

• Uncertainties involved in predicting shareholder returns;

• Uncertainties regarding the eects of recent and anticipated future changes in tax laws and their application to

us;

• Uncertainties regarding future global exchange rates; and

• Uncertainties regarding future demand for our products.

Some of these factors are discussed in more detail in this Annual Report, including under “Item 3. Key Information—

Item 3.D. Risk factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and

Prospects.” Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove

incorrect, actual results may vary materially from those described in this Annual Report as anticipated, believed,

estimated or expected. We provide the information in this Annual Report as of the date of its ﬁling. We do not intend,

and do not assume any obligation, to update any information or forward-looking statements set out in this Annual

Report as a result of new information, future events or otherwise.

Item 1. Identity of Directors, SeniorManagement and Advisers

PART I

Item 1. Identity of Directors,

SeniorManagement and Advisers

Not applicable.

Item 2. Oer Statistics and Expected Timetable

Item 2. Oer Statistics and Expected

Timetable

Not applicable.

Item 3. Key Information

3.A [Reserved]

3.B Capitalization and indebtedness

Not applicable.

3.C Reasons for the oer and use of proceeds

Not applicable.

3.D Risk factors

Our businesses face signiﬁcant risks and uncertainties.

You should carefully consider all of the information set

forth in this Annual Report and in other documents we

ﬁle with or furnish to the SEC, including the following risk

factors, before deciding to invest in or to maintain an

investment in any Novartis securities. Our business, as

well as our reputation, ﬁnancial condition, results of oper-

ations, and share price, could be materially adversely

aected by any of these risks, as well as other risks and

uncertainties not currently known to us or not currently

considered material.

Strategic risks

Key products and commercial priorities

Risk description

Failure to deliver key commercial priorities and success-

fully launch new products

Context and potential impact

Our ability to maintain and grow our business and to

replace revenue and income lost to generic, biosimilar

and other competition depends heavily on the commer-

cial success of our new or existing key products. The

commercial success of these products could be impacted

at any time by a number of factors, including pressure

from new or existing competitive products, changes in

the prescribing habits of healthcare professionals, unex

pected side eects or safety signals, supply chain issues

or other product shortages, pricing pressure, regulatory

proceedings, changes in labeling, loss of intellectual

property protection, and global pandemics. In addition,

our revenue and margins could be signiﬁcantly impacted

by the timing and rate of commercial acceptance of new

products.

Healthcare professionals, patients and payers may

choose competitor products instead of ours for various

reasons, including if they perceive them to be better in

terms of ecacy, safety, cost, convenience or other rea-

sons. The commercial success of our key products and

launches in the face of increasing competition requires

signiﬁcant attention and management focus. Such com-

petition could signiﬁcantly aect the revenue from our

products and our results of operations. This impact could

also be compounded to the extent that such competi-

tion results in us making signiﬁcant additional invest-

ments in research and development, marketing or sales.

Research and development

Risk description

Failure to successfully prioritize, integrate and execute

our research and development programs for new prod-

ucts or new indications for existing products, given our

focus on innovative medicines

Context and potential impact

We engage in extensive and costly research and devel-

opment activities, both through our own internal

resources and through collaborations with third parties,

in an eort to identify and develop new products and

new indications for existing products that address unmet

and changing medical needs, and that are commercially

successful. Our ability to grow our business and our

product pipeline; to replace sales lost due to branded

competition, entry of generics, or other reasons; and to

bring to market products that take advantage of new and

potentially disruptive technologies, including cell, gene

and radioligand therapies, depends in signiﬁcant part on

the success of these eorts.

Failure to successfully develop our pipeline products

is typically the result of the inherent uncertainty of sci-

ence, suboptimal internal execution, or both. Key ele-

ments of internal execution include our ability to priori-

tize our investments on our highest potential value assets,

optimize the transition of assets from research to

Item 3. Key Information

development, integrate externally acquired assets in an

ecient way, and execute the steps in our drug develop-

ment process that enable our assets to be approved and

reimbursed in a timely manner to positively impact clin-

ical practice. See also “Item 4. Information on the Com-

pany— Item 4.B Business overview—Innovative

Medicines—Research and development” with regards to

the research and development eorts of our Innovative

Medicines Division.

Our new products must undergo intensive preclinical

and clinical testing and are approved by means of a highly

complex, lengthy, and expensive approval process that

varies substantially from country to country and may

have very speciﬁc requirements for the recruitment of

patients for clinical trials. We face increasing and evolv-

ing regulatory approval and reimbursement require-

ments. If we fail to successfully progress late-stage

assets and the core elements of drug development for

key programs, this could have a negative impact on the

development of our product pipeline, and ultimately on

the success of our business and our ﬁnancial results.

In addition, in the US it is becoming increasingly chal-

lenging to adequately recruit a sucient number of US

patients in clinical trials due to new and changing require-

ments for recruitment of patients into such trials. As a

result, we may be unable to develop the necessary clin-

ical evidence to support the desired indications and

product proﬁle for a particular disease that is needed to

drive clinical adoption of our new products, and thereby

achieve the full potential of our assets (also known as

the “target product proﬁle”). Similarly, the post-approval

regulatory burden has also increased. These require-

ments make the maintenance of regulatory approvals for

our products increasingly expensive, and further heighten

the risk of recalls, product withdrawals, change to prod-

uct speciﬁcations, loss of market share, and loss of rev-

enue and proﬁtability.

The clinical testing, regulatory processes and

post-approval activities described above become more

dicult during pandemics, such as the COVID-19 pan-

demic, as well as during periods of geopolitical and eco-

nomic uncertainty. This is due to challenges related to

recruiting, enrolling and treating patients in clinical trials,

as well as ensuring the supply of trial materials. For a fur-

ther description of the research and development of, and

approval processes for, the products of our Innovative

Medicines Division, see the sections headed “Research

and development” and “Regulation” included in the

description of our Innovative Medicines Division under

“Item 4. Information on the Company—Item 4.B Business

overview—Innovative Medicines.”

Our Sandoz Division has made, and expects to

continue to make, signiﬁcant investments in the devel-

opment of biotechnology-based, “biologic” medicines

that are intended for sale as bioequivalent or “biosimilar”

versions of currently marketed biotechnology products.

While the development of such products is typically

signiﬁcantly less costly and complex than the develop-

ment of the equivalent originator medicines, it is

nonetheless signiﬁcantly more costly and complex than

that for typical small-molecule generic products.

Formore information about the research and develop-

ment eorts of our Sandoz Division, see “Item 4.

Information on the Company—Item 4.B Business

overview— Sandoz—Development and registration.” In

addition, many countries do not yet have fully developed

legislative or regulatory pathways to facilitate the devel-

opment of biosimilars, and to permit their sale in such a

way that they are readily substitutable alternatives to the

originator product. Further delays or diculties in the

development or marketing of biosimilars could put at risk

the signiﬁcant investments that Sandoz has made, and

will continue to make, in its Biopharmaceuticals business.

Failure to successfully develop and market biosimilars

could have a material adverse eect on the success of

the Sandoz Division and the Group as a whole. For more

information about the approval processes that must be

followed to market Sandoz Division products, see “Item

4. Information on the Company—Item 4.B Business over-

view—Sandoz—Regulation.”

Furthermore, our research and development activi-

ties must be conducted in an ethical and compliant man-

ner. Among other things, we are concerned with patient

safety (both pre- and post-product approval), data pri-

vacy, current Good Clinical Practices (cGCP) require-

ments, data integrity, the fair treatment of patients, diver-

sity and inclusion in the recruitment of patients to clinical

trials, and animal welfare. Should we fail to properly man-

age such issues, we risk injury to third parties, damage

to our reputation, negative ﬁnancial consequences as a

result of potential claims for damages, sanctions and

ﬁnes, and the potential that investments in research and

development activities may not bring the expected ben-

eﬁts to the Group.

Pricing, reimbursement and access

Risk description

Pricing and reimbursement pressure, including pricing

transparency and access to healthcare

Context and potential impact

Our business has continuously experienced signiﬁcant

pressures on the pricing of our products and on our abil-

ity to obtain and maintain satisfactory rates of reimburse-

ment for our products by governments, insurers and

other payers. These pressures have many sources,

including growth of healthcare costs as a percentage of

gross domestic product; funding restrictions and policy

changes; and public controversies, political debate,

investigations and legal proceedings regarding pharma-

ceutical pricing. Pressures on pricing may negatively

impact both our product pricing and the availability of

our products.

In addition, we face numerous cost-containment

measures imposed by governments and other payers.

These include government-imposed industrywide price

reductions, mandatory pricing systems, reference pric-

ing systems, payers limiting access to treatments based

on cost-beneﬁt analyses, the importation of drugs from

lower-cost countries to higher-cost countries, the shift-

ing of the payment burden to patients through higher

co-payments and co-pay accumulator programs, the lim

iting of physicians’ ability to choose among competing

medicines, the mandatory substitution of generic drugs

for the patented equivalent, pressure on physicians to

reduce the prescribing of patented prescription

medicines, increasing pressure on intellectual property

Item 3. Key Information

protections, and growing requirements for increased

transparency on pricing. For more information on price

controls, see “Item 4. Information on the Company—Item

4.B Business overview—Innovative Medicines—Price

controls.”

Recent trends in the external environment may have

an impact on the likelihood of these pricing and reim-

bursement pressures occurring. A worldwide slowdown

in economic growth following the COVID-19 pandemic

and the war in Ukraine (contributing to challenges such

as high energy costs and inﬂation) has led to increased

strain on ﬁscal budgets in many major economies. In

addition, legislative developments such as those in the

US (e.g., the Inﬂation Reduction Act) and in Europe (e.g.,

the EU Joint Health Technology Assessment) pose

potential further pressures on pricing and timelines for

reimbursement in these countries. These external fac-

tors may materially aect our ability to achieve val-

ue-based prices; to achieve and maintain an acceptable

return on our investments in the research and develop-

ment of our products; and may impact our ability to

research and develop new products.

In addition, our Sandoz Division has faced and may

continue to face intense competition from other generic

and biosimilar pharmaceutical companies that aggres-

sively compete for market share, including through sig-

niﬁcant price competition. Such competitive actions may

increase the costs and risks associated with our eorts

to introduce and market generic and biosimilar products,

may delay the introduction or marketing of such prod-

ucts, and may further limit the prices at which we are

able to sell these products. In particular, in the US in past

years, industrywide price competition among generic

pharmaceutical companies and consolidation of buyers

caused signiﬁcant declines in sales and proﬁts of Sandoz.

Alliances, acquisitions and divestments

Risk description

Failure to identify, execute, and/or realize the expected

beneﬁts from our external business opportunities

Context and potential impact

As part of our strategy, from time to time we acquire and

divest products or entire businesses and enter into stra-

tegic alliances and collaborations. For example, in Feb-

ruary 2022, we closed the acquisition of Gyroscope

Therapeutics. This strategy is partly dependent on our

ability to identify strategic external business opportuni-

ties and to close transactions with third parties on

acceptable terms.

Once the terms of a strategic transaction have been

agreed with a third party, we may not be able to com-

plete the transaction in a timely manner or at all, nor can

we be sure that pre-transaction due diligence will iden-

tify all possible issues that might arise during and after

the transaction. Our eorts on such transactions can

also divert management’s attention from our existing

businesses.

After a transaction is closed, eorts to develop and

market acquired or licensed products, to integrate the

acquired business or to achieve expected synergies may

fail or may not fully meet expectations. This may occur

due to diculties in retaining key personnel, customers

and suppliers; failure to obtain marketing approval or

reimbursement within expected time frames or at all; dif-

ferences in corporate culture, standards, controls, pro-

cesses and policies; or other factors. Transactions can

also result in liabilities being incurred that were not

known at the time of acquisition, or the creation of tax

or accounting issues. Acquired businesses are not

always in full compliance with legal, regulatory or Novartis

standards, including, for example, Current Good Manu-

facturing Practices (cGMP) or cGCP standards, which

can be costly and time-consuming to remediate. Further-

more, our strategic alliances and collaborations with third

parties may not achieve their intended goals and objec-

tives within expected time frames, or at all.

Similarly, we cannot ensure that we will be able to

successfully divest or spin o businesses or other assets

that we have identiﬁed for this purpose, or that any com-

pleted divestment or spin-o will achieve the expected

strategic beneﬁts, operational eciencies or opportuni-

ties, or that the divestment or spin-o will ultimately max-

imize shareholder value.

Intellectual property

Risk description

Expiry, assertion or loss of intellectual property protec-

tion

Context and potential impact

Many products of our Innovative Medicines Division are

protected by intellectual property rights, which may pro-

vide us with exclusive rights to market those products

for a limited time, and to enable our purpose of reimag-

ining medicine by sustainably ﬁnancing our research and

development. However, the strength and duration of

those rights can vary signiﬁcantly from product to prod-

uct and from country to country, and they may be suc-

cessfully challenged by third parties or governmental

authorities.

Loss of intellectual property protection and the intro-

duction of generic or biosimilar competition for a pat-

ented branded medicine in a country typically result in a

signiﬁcant and rapid reduction in net sales and operat-

ing income for the branded product. Such competition

can occur after successful challenges to intellectual

property rights or the regular expiration of the patent

term or other intellectual property rights. Such compe-

tition can also result from the entry of generic or biosim-

ilar versions of another medicine in the same therapeu-

tic class as one of our drugs or in a competing

therapeutic class, from a Declaration of Public Interest

or the compulsory licensing of our intellectual property

by governmental authorities, or as a result of a general

weakening of intellectual property and governing laws in

certain countries around the world. In addition, generic

or biosimilar manufacturers may sometimes conduct

so-called “launches at risk” of products that are still

under legal challenge for infringement, or whose patents

are still under legal challenge for validity, before ﬁnal res-

olution of legal proceedings.

We also rely in all aspects of our businesses on unpat-

ented proprietary technology, know-how, trade secrets,

Item 3. Key Information

and other conﬁdential information, which we seek to pro-

tect through various measures, including conﬁdentiality

agreements with licensees, employees, third-party col-

laborators and consultants who may have had access to

such information. If these agreements are breached or

our other protective measures should fail, then our con-

tractual or other remedies may not be adequate to cover

our losses.

We may also be subject to assertions of intellectual

property rights against our innovative medicines by third

parties. If successful, these actions may involve payment

of future royalties or damages, for example for patent

infringement, and may also involve injunctive relief requir-

ing the removal of one or more dosage strengths of a

product from the market (or removal of a therapeutic

indication from the product’s approved labeling) for some

period of time or throughout the life of the asserted intel-

lectual property right. Such damages or such an injunc-

tion may have a material impact on our operating income

and net sales.

In any given year, we may experience a potentially

signiﬁcant impact on our net sales from products that

have already lost intellectual property protections, as

well as products that may lose protection during the year.

Because we may have substantially reduced marketing

and research and development expenses related to

products that are in their ﬁnal years of exclusivity, the

initial loss of protection for a product during a given year

could also have an impact on our operating income for

that year in an amount corresponding to a signiﬁcant

portion of the product’s lost sales. The magnitude of the

impact of generic or biosimilar competition on our income

could depend on a number of factors. These include,

with respect to income in a given year, the time of year

at which the generic or biosimilar competitor is launched;

the ease or diculty of manufacturing a competitor prod

uct and obtaining regulatory approval to market it; the

number of generic or biosimilar competitor products

approved, including whether, in the US, a single compet-

itor is granted an exclusive marketing period; whether an

authorized generic is launched; the geographies in which

generic or biosimilar competitor products are approved,

including the strength of the market for generic or bio-

similar pharmaceutical products in such geographies,

and the comparative proﬁtability of branded pharmaceu-

tical products in such geographies; and our ability to suc-

cessfully develop and launch new products for patients

that may also oset the income lost to generic or bio-

similar competition. For more information on the patent

and generic competition status of our Innovative

Medicines Division products, see “Item 4. Information on

the Company—Item 4.B Business overview—Innovative

Medicines—Intellectual property.”

Strategic transformations

Risk description

Failure to meet organizational transformation programs

objectives and/or unintended adverse impacts on our

business

Context and potential impact

From time to time, we reassess our business organiza-

tion to ensure we have the optimal structure with which

to execute our strategy. In April 2022, we announced a

new organizational structure and operating model

designed to support our innovation, growth, and produc-

tivity ambitions as a focused medicines company. See

“Item 4. Information on the Company—Item 4.B Over-

view.”

In addition, in October 2021 we announced the com-

mencement of a strategic review of our Sandoz Division.

After exploring all options, ranging from retaining the

business to separation, on August 25, 2022, we

announced our intention to separate our Sandoz Division

into a new publicly traded standalone company, by way

of a 100% spin-o in order to maximize shareholder

value. See “Item 4. Information on the Company—Item

4.B Sandoz.”

Our inability to successfully implement our new orga

nizational structure and operating model or to success-

fully complete the spin-o of our Sandoz Division could

have a material adverse eect on the success of the

Group as a whole, and could have a material adverse

eect on our results of operations and ﬁnancial condi-

tion. The overall extent and pace of these organizational

changes, and the additional workload and complexity for

our employees in some areas, could trigger uncertainty,

stress and fatigue among employees, potentially result-

ing in instability within the organization that could lead

to failure of these organizational changes to succeed or

to achieve the desired beneﬁts. As a result, the expected

beneﬁts of these organizational changes may never be

fully realized or may take longer to realize than expected.

Environmental, social and governance matters

Risk description

Failure to meet environmental, social and governance

expectations

Context and potential impact

Increasingly, in addition to ﬁnancial results, companies

are being judged by performance on a variety of envi-

ronmental, social and governance (ESG) matters, which

can contribute to the long-term sustainability of our com-

pany’s performance. An inability to successfully perform

on ESG matters and to meet societal expectations can

result in negative impacts on our recruitment, retention,

operations, ﬁnancial results, reputation, and share price.

Topics related to large societal changes such as

social inequity, access to medicines and climate change

are increasingly important to a wide range of our stake-

holders. For example, a variety of organizations measure

the performance of companies on ESG topics, and the

results of these assessments are widely publicized. In

addition, investments in funds that specialize in compa-

nies that perform well in such assessments are increas-

ingly popular, and major institutional investors have pub-

licly emphasized the importance of such ESG measures

in making their investment decisions. Our actions related

Item 3. Key Information

to ESG topics may in the long-term therefore impact our

operations and ability to achieve our strategic goals, and

ultimately could have a potential negative impact on the

value of Novartis. For this reason, the role of our Board

of Directors and executive ocers in supervising various

sustainability issues is becoming increasingly important.

We actively manage a broad range of ESG matters,

taking into consideration their expected impact on the

sustainability of our business over time, and the poten-

tial impact of our business on society and the environ-

ment. We have created a Sustainability & ESG Oce,

which, in coordination with the ESG Committee of the

Executive Committee of Novartis, is tasked with devel-

oping our ESG strategy and tracking our performance

against our ESG targets. However, considering investors’

increasing focus on ESG matters, the fast pace of change

of external expectations, and a range of upcoming reg-

ulations, there can be no certainty that we will manage

such issues successfully, that the ESG standards we cur

rently use to measure our performance against will

remain the same, or that we will successfully meet soci-

ety or investors’ expectations.

Operational risks

Cybersecurity and IT systems

Risk description

Cybersecurity breaches, data loss and catastrophic loss

of IT systems

Context and potential impact

We are heavily dependent on critical, complex and inter-

dependent information technology (IT) systems, includ-

ing internet-based systems to support our business pro-

cesses. We have also outsourced signiﬁcant parts of our

IT infrastructure to third-party providers, and we cur-

rently use these providers to perform business-critical

IT services for us. We are therefore vulnerable to cyber-

security attacks and incidents on such networks and

systems, whether our own or those of the third-party

providers we contract, and we have experienced and

may in the future experience such cybersecurity threats

and attacks. Cybersecurity threats and attacks take

many forms, and the size, age and complexity of our IT

systems make them potentially vulnerable to external

and internal security threats; outages; malicious intru-

sions and attacks; cybercrimes, including state-spon-

sored cybercrimes; malware; misplaced data, lost data

or data errors; programming or human errors; or other

similar events. In the context of the COVID-19 pandemic,

the risk of such threats and attacks has increased, as

virtual and remote working has become more widely

used, and sensitive data is accessed by employees work-

ing in less secure, home-based environments. In addi-

tion, due to our reliance on third-party providers, we have

experienced and may in the future experience interrup-

tions, delays or outages in IT service availability due to

a variety of factors outside of our control, including tech-

nical failures, natural disasters, fraud, or security attacks

experienced by or caused by third-party providers. Inter-

ruptions in the service provided by these third parties

could aect our ability to perform critical tasks.

A signiﬁcant information security or other event, such

as a disruption or loss of availability of one or more of

our IT systems, whether managed by us or a third-party

service provider, has previously and could in the future

negatively impact important business processes, such

as the conduct of scientiﬁc research and clinical trials,

the submission of data and information to health author-

ities, our manufacturing and supply chain processes, our

shipments to customers, our compliance with legal obli-

gations, and communication between employees and

with third parties. IT issues have previously led to, and

could in the future lead to, the compromise of trade

secrets or other intellectual property that could be sold

and used by competitors to accelerate the development

or manufacturing of competing products; to the compro-

mise of personal ﬁnancial and health information; and to

the compromise of IT security data such as usernames,

passwords and encryption keys, as well as security strat-

egies and information about network infrastructure,

which could allow unauthorized parties to gain access

to additional systems or data. In addition, malfunctions

in software or medical devices that make signiﬁcant use

of IT could lead to a risk of direct harm to patients.

Although we have experienced some of the events

described above, to date they have not had a material

impact on our operations. Nonetheless, the occurrence

of any of the events described above in the future could

disrupt our business operations and result in enforce-

ment actions or liability, including potential government

ﬁnes and penalties, claims for damages, and shareholder

litigation or allegations that the public health, or the

health of individuals, has been harmed.

Any signiﬁcant events of this type could require us to

expend signiﬁcant resources beyond those we already

invest to remediate any damage, to further modify or

enhance our protective measures, and to enable the con-

tinuity of our business.

Fragmented IT landscape and strategic technology

programs implementation

Risk description

Failure to address fragmented business processes,

unclear data ownership, and IT applications and infra-

structure nearing their end-of-life, may disrupt our core

business processes

Context and potential impact

We rely on various IT systems to operate our complex

global business. Historically, while highly overlapping

data strategy and architectural needs exist across our

businesses, in the past we built distinct solutions across

both prior business units and our various geographies,

which have led to a fragmented and complex landscape

of IT systems. Additionally, several of our current IT sys-

tems are reaching the end of their useful life, which,

together with our fragmented IT landscape, may cause

disruptions to our operational stability. As a result, we

started to implement several companywide IT programs

with a view toward replacing and consolidating outdated

IT systems. For example, we have completed the con-

ceptual design phase and started to build a new global

Enterprise Resource Planning (ERP) system that seeks

to simplify, standardize and digitize processes in our

Item 3. Key Information

commercial, ﬁnance and operations functions, thereby

helping to ensure ecient and compliant business oper-

ations across our businesses and geographies, as well

as the availability of high-quality data necessary to aid

our decision-making. We expect the ﬁrst implementation

of our new ERP system to begin in the ﬁrst quarter of

2024, with full implementation by 2028. In addition, we

are also implementing other IT projects, seeking to sim-

plify and standardize our processes, systems and tools,

and create a uniﬁed data marketplace. Implementation

and operation of the new ERP system and other IT proj-

ects involves certain risks, including a failure of the new

ERP system and other IT projects to operate as expected,

a failure to properly integrate with other systems we use,

potential loss of data or information, compliance issues,

or cost overruns and delays. Any disruptions or malfunc-

tions of the new ERP system and other IT projects could

cause critical information to be delayed, lost, defective,

corrupted, or rendered inadequate or inaccessible,

which could negatively impact our operations and the

eectiveness of our internal controls.

Talent management

Risk description

Inability to attract, retain and motivate qualiﬁed individ-

uals in key roles and markets

Context and potential impact

We rely on attracting and retaining a diverse, highly

skilled workforce across our businesses and functions

to achieve our business objectives. If we are unable to

sustain our supply of key personnel – including senior

members of our scientiﬁc and management teams,

high-quality researchers and development specialists

and skilled employees in key markets – our ability to

achieve our major business objectives may be adversely

aected. In addition, our brand and reputation could be

negatively impacted, and the diversity of our workforce

may decline.

The market for skilled talent has become increasingly

competitive, and we anticipate this trend will persist long-

term. We face a challenge to attract and retain top tal-

ent in several areas, including biology, chemistry, clinical

development, drug manufacturing, IT, oncology, and

advanced therapy platforms (i.e., gene and cell therapy,

radioligand therapy and “xRNA”). In addition, many bio-

technology companies have received signiﬁcant inﬂows

of capital and are not only competing with us to attract

the same skilled talent but are also aggressively pursu-

ing our experienced talent.

In recent years, we have adopted new ways of work-

ing that include location ﬂexibility and increasingly

recruiting from a global pool of talent. However, the suc-

cess of our business continues to depend on having

employees who possess local knowledge of, and expe-

rience in, our key markets. The external talent supply is

especially limited in many of the geographies that are

expected to be sources of growth for Novartis. In the

United States, China and several other markets, the geo-

graphic mobility of talent is decreasing, as they ﬁnd

ample career opportunities available closer to home.

In addition, in April 2022 we announced a new, inte-

grated organizational structure and operating model. The

corporate reorganization undertaken to implement this

new organizational structure has resulted in signiﬁcant

redundancies and senior leadership changes that may

reduce morale, increase employee distraction and

prompt higher voluntary turnover, any of which could

negatively impact our competitiveness and ability to

achieve strategic objectives. For more information on

this new organizational structure see “Item 4. Informa-

tion on the Company—Item 4.B Overview.”

The risks associated with the challenging external

talent market and the implementation of our new orga-

nizational structure will be exacerbated if we are unable

to retain and eectively develop employees and main-

tain an internal pipeline with critical skills, experiences,

and leadership to deliver our business priorities. As a

result, development, engagement, motivation, succes-

sion planning and performance rewards for our critical

talent are essential to achieve our business priorities.

Third-party management

Risk description

Failure to maintain adequate governance and oversight

over third-party relationships, and failure of third parties

to meet their contractual, regulatory or other obligations

Context and potential impact

We outsource the performance of certain key business

functions and services to third parties. Such activities

include research and development collaborations, man-

ufacturing operations, warehousing and distribution, cer-

tain ﬁnance functions, sales and marketing activities,

data management and others. Some third parties, par-

ticularly those in developing countries, do not have inter-

nal compliance systems or resources comparable to

those of Novartis. As a result, our investment and eorts

in relation to third party management include focusing

on risk management and the oversight of such third par-

ties.

Our reliance on third parties poses certain risks,

including the misappropriation of our intellectual prop-

erty, the failure of the third party to comply with regula-

tory and quality assurance requirements, the failure of

the third party to comply with environmental, anti-brib-

ery and human rights standards and regulations, unex-

pected supply disruptions, breach of our agreement by

the third party, and the unexpected termination or non-

renewal of our agreement by the third party.

In addition, governments require, and the public

expects, Novartis to take responsibility for and report on

compliance with various human rights, responsible

sourcing and environmental practices, as well as other

actions of our third-party contractors around the world.

Ultimately, if third parties fail to meet their obligations

to us, we may lose our investment in the relationship with

the third parties or fail to receive the expected beneﬁts

of our agreements with such third parties. In addition,

should any of these third parties fail to comply with the

law or our standards, or should they otherwise act inap-

propriately while performing services for us, there is a

risk that we could be held responsible for their acts, that

our reputation may suer, and that penalties may be

imposed on us.

Item 3. Key Information

Legal, ethics and compliance

Risk description

Challenges posed by evolving legal and regulatory

requirements and societal expectations regarding ethi-

cal behavior

Context and potential impact

We must comply with the laws of all countries in which

we operate, and we sell products with respect to a wide

and growing range of activities. Such legal requirements

are extensive and complex.

The laws and regulations relevant to the healthcare

industry and applicable to us are broad in scope, are sub

ject to change, and have evolving interpretations, which

could require us to incur substantial costs associated

with compliance or to alter one or more of our business

practices. For example, we have been, are currently, and

may in the future be, subject to various signiﬁcant legal

proceedings, such as private party litigation, government

investigations and law enforcement actions worldwide.

These types of matters may take various forms based

on evolving government enforcement and private party

litigation priorities, and could include, for example, mat-

ters pertaining to pricing; bribery and corruption; trade

regulation and embargo legislation; product liability;

commercial disputes; employment and wrongful dis

charge; antitrust and competition; securities; govern-

ment beneﬁt programs; reimbursement; rebates; health-

care fraud; sales and marketing practices; insider trading;

occupational health and safety; environmental regula-

tions; tax; cybersecurity; data privacy; regulatory inter-

actions; and intellectual property. Such matters can

involve civil and/or criminal proceedings and can retro-

actively challenge practices previously considered to be

legal.

There is also a risk that governance for our medical

and patient support activities, and our interactions with

governments, public ocials/institutions, healthcare

professionals, healthcare organizations and patient

organizations may be inadequate or fail, or that we may

undertake activities based on improper or inadequate

scientiﬁc justiﬁcation.

Our Sandoz Division may from time to time seek

approval to market a generic version of a product before

the expiration of patents claimed by the marketer of the

patented product. We do this in cases in which we believe

the relevant patents are invalid or unenforceable, or

would not be infringed by our generic product. As a result,

aliates of our Sandoz Division frequently face patent

litigation, and in certain circumstances we may make the

business decision to market a generic product even

though patent infringement actions are still pending.

Should we elect to do so and conduct a so-called “launch

at risk,” we could face substantial damages if the ﬁnal

court decision is adverse to us.

Legal proceedings and investigations are inherently

unpredictable, and large judgments sometimes occur.

Consequently, we may in the future incur judgments that

could involve large payments, including the potential

repayment of amounts allegedly obtained improperly,

and other penalties, including treble damages. In addi-

tion, such legal proceedings and investigations, even if

meritless, may aect our reputation, may create a risk of

potential exclusion from government reimbursement

programs in the US and other countries, and may lead

to civil litigation and/or criminal exposure. As a result,

having considered all relevant factors, we have in the

past and may again in the future enter into major settle-

ments of such claims without bringing them to ﬁnal legal

adjudication by courts or other such bodies, despite hav-

ing potentially signiﬁcant defenses against them, to limit

the risks they pose to our business and reputation. Such

settlements may require us to pay signiﬁcant sums of

money and to enter into corporate integrity or similar

agreements, which are intended to regulate company

behavior for extended periods.

For information on signiﬁcant legal matters pending

against us, see “Item 18. Financial Statements—Note 20.

Provisions and other non-current liabilities” and “Item 18.

Financial Statements—Note 28. Commitments and con-

tingent liabilities.”

New requirements may also be imposed on us due

to changing government and societal expectations

regarding the healthcare industry, and acceptable cor-

porate behavior generally. For example, we are faced

with laws and regulations requiring changes in how we

do business, including with respect to disclosures con-

cerning our interactions with healthcare professionals,

healthcare organizations and patient organizations.

These laws and regulations include requirements that

we disclose payments or other transfers of value made

to healthcare professionals and organizations, as well as

information relating to the costs and prices for our prod-

ucts, which represent evolving standards of acceptable

corporate behavior. These requirements may incur sig-

niﬁcant costs, including substantial time and additional

resources, that are necessary to bring our interactions

with healthcare professionals and organizations into

compliance with these evolving standards.

In addition to legal and regulatory requirements, we

aim to meet the evolving societal expectations of the

public and our investors regarding ethical behavior and

the increasing importance placed on ESG matters.

To support our eorts to comply with the many

requirements that impact us, we have a signiﬁcant global

ethics and compliance program in place, and we devote

substantial time and resources to eorts to ensure that

we conduct business in a lawful manner, and in line with

society’s expectations. Despite our eorts, an actual or

alleged failure to comply with the law or with heightened

public expectations could lead to substantial liabilities

that may not be covered by insurance, or to other signif-

icant losses.

Manufacturing and product quality

Risk description

Inability to ensure proper controls in product develop-

ment and product manufacturing, and failure to comply

with applicable regulations and standards

Context and potential impact

The development and manufacture of our products is

complex and heavily regulated by governmental health

authorities around the world. Whether or not our prod-

ucts and the related raw materials are developed and

manufactured at our own manufacturing sites or by third

Item 3. Key Information

parties, we must ensure that all development and man-

ufacturing processes comply with regulatory require-

ments, as well as our own quality standards in order to

deliver novel therapies to patients with unmet needs

while ensuring patient safety. Failure to comply with reg-

ulatory requirements has resulted in, and may in the

future result in, warning letters, suspension of manufac-

turing, seizure of products, injunctions, product recalls,

failure to secure product approvals, or debarment.

In recent years, global health authorities have sub-

stantially intensiﬁed their scrutiny of manufacturers’

compliance with regulatory requirements. Any signiﬁcant

failure by us or our third-party suppliers to comply with

regulatory requirements, or with health authorities’

expectations, may create the need to suspend clinical

trials, shut down production facilities or production lines,

and recall commercial products. A failure to fully comply

with regulatory requirements could also lead to a delay

in the approval of new products, an inability to ship or

import our products, and signiﬁcant penalties and repu-

tational harm.

In addition, the technically complex manufacturing

processes required to manufacture many of our prod-

ucts increase the risk of both production failures and

product recalls and can increase the cost of producing

our goods. Some of our products require a supply of

highly specialized raw materials, such as cell lines, tis-

sue samples, bacteria, viral strains and radioisotopes. In

addition, we manufacture and sell a number of sterile

products, biologic products and products that involve

advanced therapy platforms, such as CART therapies,

gene therapies and radioligand therapy products, all of

which are particularly complex and involve highly spe-

cialized manufacturing technologies. As a result, even

slight deviations at any point in their production pro-

cesses or in material used have led to, and may in the

future lead to, production failures or recalls. See “Item

4. Information on the Company—Item 4.B. Business over-

view—Sandoz—Production.”

Supply chain

Risk description

Inability to maintain continuity of product supply

Context and potential impact

Many of our products are produced using technically

complex manufacturing processes and require a supply

of highly specialized raw materials. For some of our prod-

ucts and raw materials, we may rely on a single source

of supply. In addition, we manufacture and sell a number

of sterile products, biologic products, and products that

involve advanced therapy platforms, such as gene and

cell therapy, radioligand therapy, and “xRNA”, all of which

are particularly complex and involve highly specialized

manufacturing technologies. Due to this complexity,

there is a risk of production and supply of critical raw

materials failures, which may result in supply interrup-

tions or product recalls due to manufactured products

not meeting required speciﬁcations.

In addition, due to the inherent complexities of our

manufacturing processes and the supply chains for

advanced therapy platforms, we are required to plan our

production activities and purchase of materials well in

advance. If we suer from third-party raw material short-

ages, underestimate market demand for a product, or

fail to accurately predict when a new product will be

approved for sale, then we may not be able to produce

sucient product to meet demand. These issues could

be made worse during a pandemic, such as the COVID-

19 pandemic, or geopolitical events, such as the war in

Ukraine, and could lead to (i) a sudden increase in

demand for selected medicinal products, resulting in the

short-term unavailability of critical materials; (ii) logisti-

cal and supply challenges that may lead to our inability

to ship products from one place to another due to restric-

tions imposed as a result of a pandemic or geopolitical

events and any related sanctions, which can also impact

transportation and warehousing costs; or (iii) our inabil-

ity to properly operate a manufacturing site due to restric-

tions imposed as the result of a pandemic or any issues

arising from geopolitical events.

Our or our third-party suppliers’ inability to manage

such issues could lead to shutdowns, product shortages,

or to us being entirely unable to supply products to

patients for an extended period of time. Furthermore, as

our products are intended to promote the health of

patients, such shortages or shutdowns could endanger

our reputation and have led to, and could continue to lead

to, signiﬁcant losses of sales revenue, potential litigation

or allegations that the public health, or the health of indi-

viduals, has been harmed.

Data privacy

Risk description

Noncompliance with personal data protection laws and

regulations

Context and potential impact

We operate in an environment that relies on the collec-

tion, processing, analysis and interpretation of large sets

of patients and other individuals’ personal information,

including via social media and mobile technologies. In

addition, the operation of our business requires data to

ﬂow across the borders of numerous countries in which

there are dierent, potentially conﬂicting, and frequently

changing, data privacy laws in eect. Examples of such

laws include: the EU General Data Protection Regulation

(GDPR), which took eect in May 2018; the California

Consumer Privacy Act, which took eect in January

2020; Brazil’s General Personal Data Protection Law,

which entered into force in September 2020; and the

Personal Information Protection Law in China, which took

eect in November 2021. Such laws impose stringent

requirements on how we and third parties with whom we

contract collect, share, export or otherwise process per

sonal information, and provide for signiﬁcant penalties

for noncompliance. Breaches of our systems or those of

our third-party contractors, or other failures to protect

the data we collect from misuse or breach by third par-

ties, could expose such personal information to unau-

thorized persons.

Events involving the substantial loss of personal infor-

mation, use of personal information without a legal basis,

or other privacy violations could give rise to signiﬁcant

liability, reputational harm, damaged relationships with

business partners, and potentially substantial monetary

Item 3. Key Information

penalties and other sanctions under laws enacted or

being enacted around the world. Such events could also

lead to restrictions on our ability to use personal infor-

mation and/or transfer personal information across

country borders. In addition, there is a trend of increas-

ing divergence of data privacy legal frameworks, not only

across these frameworks but also within individual legal

frameworks themselves. This divergence may constrain

the implementation of global business processes and

may lead to dierent approaches on the use of health

data for scientiﬁc research, which may have a negative

impact on our business and operations.

Falsiﬁed medicines

Risk description

Impact of falsiﬁed medicines on patient safety, and rep-

utational and ﬁnancial harm to Novartis and our products

Context and potential impact

We continue to be challenged by the vulnerability of dis-

tribution channels to falsiﬁed medicines, which include

counterfeit, stolen, tampered and illegally diverted

medicines as deﬁned by the World Health Organization.

Falsiﬁed medicines pose patient safety risks and can

be seriously harmful or life-threatening. Reports of

adverse events related to falsiﬁed medicines and

increased levels of falsiﬁed medicines in the healthcare

system aect patient conﬁdence in genuine medicines

and in healthcare systems in general. These events could

also cause us substantial reputational and ﬁnancial harm,

and potentially lead to litigation if the adverse event from

the falsiﬁed medicine is mistakenly attributed to the gen-

uine one. Stolen or illegally diverted medicines that are

not properly stored and later sold through unauthorized

channels, could adversely impact patient safety, our rep

utation and our business. Furthermore, there is a direct

ﬁnancial loss when, for example, falsiﬁed medicines

replace sales of genuine medicines, or genuine medicines

are recalled following the discovery of falsiﬁed products.

Emerging risks

Geopolitical developments

Risk description

Impact of geo- and socio-political threats

Context and potential impact

Challenging political conditions currently exist in various

parts of the world, including an economic downturn; risk

of direct conﬂicts between nations, such as the war in

Ukraine; a global pandemic; resistance in certain areas

against free trade; anti-corporate sentiment; and social

unrest.

The imposition of taris, including those imposed by

the US and China, and the possibility of additional taris

or other trade restrictions relating to trade could have a

material negative impact on our business. Given that the

outcome of ongoing trade negotiations remains uncer-

tain, we cannot yet determine the nature or extent of the

potential impact on our business. For example, if taris

on pharmaceutical products or active pharmaceutical

ingredients (APIs) were increased, this could impact the

proﬁtability of our products and disrupt our supply chain.

Increasing opposition to free trade may increase the

risks we face in our eorts to improve and harmonize

standards in regulation and intellectual property.

Furthermore, signiﬁcant conﬂicts continue in certain

parts of the world. Collectively, such unstable conditions

could, among other things, disturb the international ﬂow

of goods and increase the costs and diculties of inter-

national transactions, which could in turn signiﬁcantly

impact time to market and our ability to supply our prod-

ucts to patients in an undisrupted fashion, and further

erode reimbursement levels for innovative therapies.

Macroeconomic developments

Risk description

Impact of macroeconomic developments

Context and potential impact

Our business may be impacted by deteriorating macro-

economic and ﬁnancial conditions directly aecting con-

sumers. Given that patients, in many countries, directly

pay a sizable portion of their own healthcare costs, there

is a risk that consumers may cut back on prescription

drugs due to ﬁnancial constraints.

Negative macroeconomic developments may also

adversely aect the ability of payers, as well as our dis-

tributors, customers, suppliers, and service providers, to

pay for our products, or otherwise to buy necessary

inventory or raw materials, and to perform their obliga-

tions under agreements with us. Although we make

eorts to monitor the ﬁnancial condition and liquidity of

these third parties, our ability to do so is limited, and some

of them may become unable to pay their bills in a timely

manner or may even become insolvent. These risks may

be elevated with respect to our interactions with ﬁscally

challenged government payers, or with third parties with

substantial exposure to such payers.

At the same time, signiﬁcant changes, and potential

future volatility in ﬁnancial markets, the consumer and

business environment, the competitive landscape, and

the global political and security landscape make it

increasingly dicult for us to predict our revenues and

earnings. As a result, any revenue or earnings guidance

or outlook that we have given or might give may be over-

taken by events or may otherwise prove to be inaccu-

rate. Although we endeavor to give reasonable estimates

of future revenues and earnings at the time at which we

give such guidance, based on then-current knowledge

and conditions, there is a risk that such guidance or out-

look will prove to be incorrect.

Asset price corrections in ﬁnancial markets may also

result in lower returns on our ﬁnancial investments. In

addition, pricing pressures in developed markets result-

ing from eorts to reduce the cost of healthcare (e.g.,

the Inﬂation Reduction Act in the US, which targets drug

prices) may have a negative impact on our revenue and

our net sales. In addition, inﬂation has an impact on our

operating costs due to the increased cost of supplies.

Higher costs for energy, raw materials, wages, and cap-

ital will increase our operating costs, potentially reduc-

ing our net sales.

Item 3. Key Information

Uncertainties around future central bank and other

economic policies in the US and EU, as well as high debt

levels in some countries could also impact world trade.

Sudden increases in economic, currency or ﬁnancial

market volatility in dierent countries, such as the recent

appreciation of the US dollar, have also impacted, and

may continue to have an unpredictable impact on our

business, or results of operations, including the conver-

sion of our operating results into our reporting currency,

the US dollar, as well as the value of our investments in

our pension plans.

For a discussion on the eect of price controls on

our business, see “Item 4. Information on the Company—

Item 4.BBusiness overview—Innovative Medicines—

Price controls.” See also “Item 5. Operating and Finan-

cial Review and Prospects—Item 5.B Liquidity and

capital resources—Eects of currency ﬂuctuations,”

“Item 5. Operating and Financial Review and Prospects—

Item 5.B Liquidity and capital resources—Condensed

consolidated balance sheets,” “Item 18. Financial State-

ments—Note 15. Trade receivables” and “Item 18. Finan-

cial Statements—Note 29. Financial instruments – addi-

tional disclosures.”

Climate change

Risk description

Impact of climate change and increased risk of major

natural disasters

Context and potential impact

Novartis is exposed to a broad range of climate risks

such as transition risks (e.g., regulatory frameworks, car-

bon pricing, and the cost of and access to capital) and

physical risks (e.g., heat, water scarcity, sea level rise,

and ﬂooding from severe weather events), which could

vary in magnitude and impact across dierent countries.

Climate change has triggered, and may continue to

trigger, the adoption of new regulatory requirements

across the globe. To comply with such legislation, we

may be required to increase our investment in technol-

ogy to reduce our energy use, water use and greenhouse

gas emissions. In addition, legislative and regulatory

action, both current and in the future, includes or could

include carbon pricing, climate risk related disclosures,

and changes in zoning or building codes to increase cli-

mate resilience. As a result, the combined impact of

these transition risks could increase our direct operat-

ing costs and impact our supply chain. We have also com-

mitted to incorporating the recommendations of the Task

Force on Climate-related Financial Disclosures (TCFD)

framework into our business, which includes providing

qualitative and quantitative disclosures on climate-re-

lated topics on a recurring basis. As a result of these

transition risks, we are committed to becoming carbon

neutral in our own operations by 2025, and carbon neu-

tral across our value chain by 2030. In addition, we are

committed to achieving net zero across our value chain

by 2040. Any failure to achieve these commitments in

the expected time frame, or at all, could result in nega-

tive impacts on our reputation, our operations, and the

price of our shares.

Climate change has created, and will continue to

create, physical risks to our business. Some of our

production facilities that depend on the availability of sig-

niﬁcant water supplies are located in areas where water

is increasingly scarce. Other facilities are located in

areas that, due to increasingly violent weather events,

rising sea levels, or both, are increasingly at risk of sub-

stantial ﬂooding. In regions where such a risk is present,

this has an impact not only on our own operations but

also our distributed supply chain. Such events may result

in the loss of life, increased costs, business interruptions,

destruction of facilities, and disruption to healthcare sys-

tems that patients use to access our medicines.

Furthermore, our corporate headquarters, the head-

quarters of our Innovative Medicines and Sandoz Divi-

sions, and a number of major Innovative Medicines Divi-

sion production and research facilities are located near

earthquake fault lines in Basel, Switzerland. Other major

facilities are located near major earthquake fault lines in

various locations around the world. A major earthquake

could result in loss of life, business interruptions and the

destruction of our facilities.

Tax laws and developments

Risk description

Changes in tax laws or their application

Context and potential impact

Our multinational operations are taxed under the laws

of the countries and other jurisdictions in which we oper-

ate. Changes in tax laws or in their application could lead

to an increased risk of international tax disputes and an

increase in our eective tax rate, which could adversely

aect our ﬁnancial results. The integrated nature of our

worldwide operations can produce conﬂicting claims

from revenue authorities in dierent countries as to the

proﬁts to be taxed in the individual countries, including

potential disputes relating to the prices our subsidiaries

charge one another for intercompany transactions,

known as transfer pricing. Most of the jurisdictions in

which we operate have double tax treaties with other

foreign jurisdictions, which provide a framework for mit-

igating the impact of double taxation on our revenues

and capital gains. However, mechanisms developed to

resolve such conﬂicting claims are largely untried and

can be expected to be very lengthy. Accruals for tax con-

tingencies are made based on experience, interpreta-

tions of tax law, and judgments about potential actions

by tax authorities. However, due to the complexity of tax

contingencies, the ultimate resolution of any tax matter

may result in payments materially dierent from the

amounts accrued.

In 2019, the Organization for Economic Co-operation

and Development (OECD) launched a new initiative on

behalf of the G20 to minimize proﬁt shifting by working

toward a global tax framework that ensures that corpo-

rate income taxes are paid where consumption takes

place, in addition to introducing a global standard on min-

imum taxation combined with new tax dispute resolution

processes. This project achieved OECD political con-

sensus in October 2021, and the detailed principles are

still under discussion by the OECD and political leaders.

The OECD expects that the implementation of these new

principles will begin globally in 2024. Once changes to

the tax laws in any jurisdiction in which the Group

Item 3. Key Information

operates are enacted or substantially enacted, the Group

may be subject to the OECD top-up tax, the aim of which

is to bring the total amount of taxes paid on our proﬁt in

a jurisdiction up to a minimum rate of 15%. In 2020, the

EU announced that it would introduce new centralized

taxation powers (which have not yet been introduced) to

address the ﬁnancial impact of the COVID-19 pandemic.

In addition, the European Commission continues to

extend the application of its policies seeking to limit ﬁs-

cal aid by member states to particular companies,

together with the related investigation into member

states’ practices regarding the issuance of rulings on tax

matters relating to individual companies. Although we

have taken steps to comply with evolving initiatives such

as these of the OECD and the EU, and we will continue

to do so, signiﬁcant uncertainties remain as to the out-

come of our eorts. For more information, see “Item 18.

Financial Statements—Note 6. Income taxes” and “Item

18. Financial Statements—Note 12. Deferred tax assets

and liabilities.”

General risks

Indebtedness

Risk description

Our indebtedness could adversely aect our operations

Context and potential impact

As of December 31, 2022, we had USD 20.2 billion of

non-current ﬁnancial debt, and USD 5.9 billion of current

ﬁnancial debt. Our current and long-term debt requires

us to dedicate a portion of our cash ﬂow to service inter-

est and principal payments and, if interest rates rise, this

amount may increase. As a result, our existing debt may

limit our ability to use our cash ﬂow to fund capital expen-

ditures, to engage in transactions, or to meet other cap-

ital needs, or otherwise may place us at a competitive

disadvantage relative to competitors that have less debt.

Our debt could also limit our ﬂexibility to plan for and

react to changes in our business or industry, and increase

our vulnerability to general adverse economic and indus-

try conditions, including changes in interest rates or a

downturn in our business or the economy. We may also

have diculty reﬁnancing our existing debt or incurring

new debt on terms that we would consider to be com-

mercially reasonable, if at all.

Goodwill and intangible assets

Risk description

Goodwill and intangible assets resulting in signiﬁcant

impairment charges

Context and potential impact

We carry a signiﬁcant amount of goodwill and other

intangible assets on our consolidated balance sheet,

including, in particular, substantial goodwill and other

intangible assets obtained through acquisitions, includ-

ing most recently through our acquisitions of Gyroscope

Therapeutics, The Medicines Company, Xiidra, Endo-

cyte, Novartis Gene Therapies, and AAA. As a result, we

may incur signiﬁcant impairment charges in the future if

the fair value of the intangible assets and the groupings

of cash-generating units containing goodwill would be

less than their carrying value on the Group’s consolidated

balance sheet at any point in time.

We regularly review our intangible and tangible assets

for impairment, including identiﬁable intangible assets

and goodwill. Any signiﬁcant impairment charges could

have a material adverse eect on our results of opera-

tions and ﬁnancial condition. In 2022, for example, we

recorded intangible asset impairment charges of USD

1.3 billion.

For a detailed discussion of how we determine

whether an impairment has occurred, what factors could

result in an impairment, and the impact of impairment

charges on our results of operations, see Item 18. Finan-

cial Statements—Note 1. Signiﬁcant accounting policies”

and “Item 18. Financial Statements—Note 11. Goodwill

and intangible assets.”

Foreign currency exchange rates

Risk description

Negative eect on ﬁnancial results due to foreign cur-

rency exchange rate ﬂuctuations

Context and potential impact

Changes in exchange rates between the US dollar, our

reporting currency, and other currencies can result in

signiﬁcant increases or decreases in our reported sales,

costs and earnings as expressed in US dollars, and in

the reported value of our assets, liabilities and cash ﬂows.

In addition to ordinary market risk, there is a risk that

countries could take armative steps that could signiﬁ-

cantly impact the value of their currencies. Such steps

could include “quantitative easing” measures and poten-

tial withdrawals by countries from common currencies.

In addition, countries facing local ﬁnancial diculties,

including countries experiencing high inﬂation rates, and

highly indebted countries facing large capital outﬂows,

may impose controls on the exchange of foreign cur-

rency. Currency exchange controls and sanctions could

limit our ability to distribute retained earnings from our

local aliates, or to pay intercompany payables due from

those countries.

Despite measures undertaken to reduce or hedge

against foreign currency exchange risks, as a signiﬁcant

portion of our earnings and expenditures are in curren-

cies other than the US dollar, including expenditures in

Swiss francs that are signiﬁcantly higher than our reve-

nue in Swiss francs, any such exchange rate volatility

may negatively and materially impact our results of oper-

ations and ﬁnancial condition, and may impact the

reported value of our net sales, earnings, assets and lia-

bilities. In addition, the timing and extent of such volatil-

ity can be dicult to predict. Furthermore, depending on

the movements of particular foreign exchange rates, we

may be materially adversely aected at a time when the

same currency movements are beneﬁting some of our

competitors.

For more information on the eects of currency ﬂuc-

tuations on our consolidated ﬁnancial statements and

on how we manage currency risk, see “Item 5. Operat-

ing and Financial Review and Prospects—Item 5.B Liquid-

ity and capital resources—Effects of currency

Item 3. Key Information

ﬂuctuations” and “Item 18. Financial Statements—Note

29. Financial instruments – additional disclosures.”

Key customers

Risk description

Ongoing consolidation among our distributors and retail-

ers, and the concentration of credit risk

Context and potential impact

A signiﬁcant portion of our global sales is made to a rel-

atively small number of drug wholesalers, retail chains

and other purchasing organizations. For example, our

three most important customers globally accounted for

approximately 16%, 11% and 7%, respectively, of net sales

in 2022. The largest trade receivables outstanding were

for these three customers, amounting to 16%, 14% and

7%, respectively, of the Group’s trade receivables at

December 31, 2022. The trend has been toward further

consolidation among some distributors and retailers. As

a result, we may be aected by ﬂuctuations in the buy-

ing patterns of such customers. Furthermore, these cus-

tomers are gaining additional purchasing leverage,

increasing the pricing pressures facing our businesses.

These pressures can impact our Sandoz Division in par-

ticular, the generic products of which can often be

obtained from numerous competitors. Moreover, we are

exposed to a concentration of credit risk as a result of

this concentration among our customers. If one or more

of our major customers experienced ﬁnancial diculties,

the eect on us would be substantial, and could include

a substantial loss of sales and an inability to collect

amounts owed to us.

Environmental matters

Risk description

Impact of environmental liabilities

Context and potential impact

The environmental laws of various jurisdictions impose

actual and potential obligations on us to investigate and

remediate contaminated sites, including in connection

with activities in the past by businesses that are no lon-

ger part of Novartis. In some cases, these remediation

eorts may take many years. While we have set aside

provisions for known worldwide environmental liabilities

that are probable and estimable, there is no guarantee

that additional costs will not be incurred beyond the

amounts for which we have provided in the Group

consolidated ﬁnancial statements. If environmental con-

tamination resulting from our facility operations, busi-

ness activities or products adversely impacts third par-

ties or if we fail to properly manage the safety of our

facilities, including the safety of our employees and con-

tractors, and the environmental risks, we may face sub-

stantial one-time and recurring costs and other penal-

ties, and be required to increase our provisions for

environmental liabilities.

See also “Item 4. Information on the Company—Item

4.D Property, plants and equipment” and “Item 18. Finan-

cial Statements—Note 20. Provisions and other non-cur-

rent liabilities.”

Pension plans

Risk description

Inaccuracies in the assumptions and estimates used to

calculate our pension plan and other post-employment

obligations

Context and potential impact

We sponsor pension and other post-employment bene-

ﬁt plans in various forms that cover a signiﬁcant portion

of our current and former employees. For post-employ-

ment plans with deﬁned beneﬁt obligations, we are

required to make signiﬁcant assumptions and estimates

about future events in calculating the expense and the

present value of the liability related to these plans. These

include assumptions about the discount rates we apply

to estimate future deﬁned beneﬁt obligations and net

periodic pension expense, as well as rates of future pen-

sion increases. In addition, our actuarial consultants pro-

vide our management with historical statistical informa-

tion, such as withdrawal and mortality rates in connection

with these estimates.

Assumptions and estimates that we use may dier

materially from the actual results we experience due to

changing market and economic conditions, higher or

lower withdrawal rates, and longer or shorter life spans

of participants, among other factors. Depending on

events, such dierences could have a material eect on

our total equity, and may require us to make additional

contributions to our pension funds.

For more information on obligations under retirement

and other post-employment beneﬁt plans and underly-

ing actuarial assumptions, see “Item 18. Financial State-

ments—Note 25. Post-employment beneﬁts for employ-

ees.”

Item4. Information on the Company

4.A History and development of Novartis

Novartis AG

Novartis AG was incorporated on February29, 1996,

under the laws of Switzerland as a stock corporation

(“Aktiengesellschaft”) with an indeﬁnite duration. On

December 20, 1996, our predecessor companies,

Ciba-Geigy AG and Sandoz AG, merged into this new

entity, creating Novartis. We are domiciled in and gov-

erned by the laws of Switzerland. Our registered oce

is located at the following address:

Novartis AG

Lichtstrasse 35

CH-4056 Basel, Switzerland

Telephone: +41-61-324-1111

Web: www.novartis.com

Novartis is a multinational group of companies special-

izing in the research, development, manufacturing and

marketing of a broad range of innovative pharmaceuticals

and cost-saving generic medicines. Novartis AG, our

Swiss holding company, owns, directly or indirectly, all

of our signiﬁcant operating companies. For a list of our

signiﬁcant operating subsidiaries, see “Item 18. Financial

Statements—Note 31. Principal Group subsidiaries and

associated companies.”

For a description of important corporate developments

since January 1, 2020, see “Item 18. Financial State-

ments—Note 2. Signiﬁcant transactions.” For information

regarding the Company’s material commitments for cap-

ital expenditures, see “Item 5. Operating and Financial

Review and Prospects—Liquidity and Capital Resources—

Material short- and long-term cash requirements.”

The SEC maintains an internet site at http://www.sec.

gov that contains reports, information statements, and

other information regarding issuers that ﬁle electroni-

cally with the SEC.

4.B Business overview

Overview

Our purpose is to reimagine medicine to improve and

extend people’s lives. We use innovative science and

technology to address some of society’s most challeng-

ing healthcare issues. We discover and develop break-

through treatments and ﬁnd new ways to deliver them to

as many people as possible. We also aim to reward those

who invest their money, time and ideas in our Company.

Our vision is to become the most valued and trusted

medicines company in the world. Our strategy is to

deliver high-value medicines that alleviate society’s

greatest disease burdens through technology leadership

in research and development (R&D) and novel access

approaches. To support this strategy, we have clear

focus areas and priorities, ensuring we deliver on our

purpose and continue to create value for both stakehold-

ers and society. See, “Item 5. Operating and Financial

Review and Prospects—Item 5.A Operating Results—

Overview—Our strategy.”

In 2022, Novartis achieved net sales from continuing

operations of USD 50.5 billion, and total net income

amounted to USD 7.0 billion. Headquartered in Basel,

Switzerland, our Group companies employed approxi-

mately 102 000 full-time equivalent employees as of

December31, 2022. Our products are sold in approxi-

mately 140 countries around the world.

The Group comprises two global operating divisions:



• Innovative Medicines: innovative patent-protected pre-

scription medicines

For a description of our Innovative Medicines Division,

see “—Innovative Medicines—Overview” below.

• Sandoz: generic pharmaceuticals and biosimilars

For a description of our Sandoz Division, see “—

Sandoz” below.

In April 2022, we announced a new, integrated organi-

zational structure and operating model designed to sup-

port our innovation, growth, and productivity ambitions

as a focused medicines company. As part of this new

organizational structure, we have integrated our former

Pharmaceuticals and Oncology business units and cre-

ated two separate commercial organizations—Innovative

Medicines US and Innovative Medicines International.

The Innovative Medicines Division focuses on ﬁve core

therapeutic areas—cardiovascular, immunology, neuro-

science, solid tumor, and hematology—as well as other

promoted brands (in the therapeutic areas of ophthal-

mology and respiratory) and established brands. For

more information, see “Item 4. Information on the Com-

pany—Item 4.B Innovative Medicines.” We have also cre-

ated a new Strategy and Growth function that combines

corporate strategy, R&D portfolio strategy and business

development. The purpose of our Strategy and Growth

function is to help drive the company’s growth strategy

Item4. Information on the Company

end-to-end and look across internal and external oppor-

tunities to strengthen the Novartis pipeline with medicines

that are both transformational and can make signiﬁcant

contributions to growth. Finally, we have combined our

former Novartis Technical Operations and Customer &

Technology Solutions units to create a new operations

unit called Operations. This new unit seeks to provide a

stronger and simpler operational backbone that can

accelerate multiple technology transformation initiatives

more eciently, create novel digital solutions at scale,

and increase productivity, while maintaining indus-

try-leading quality and service levels.

Under this new organizational structure, our divisions

are supported by the following organizational units: the

Novartis Institutes for BioMedical Research (NIBR),

Global Drug Development (GDD), and Operations. The

ﬁnancial results of these organizational units are included

in the results of the divisions for which their work is per-

formed. For more information about NIBR, see “—

Innovative Medicines—Research and development—

Research program” below. For more information about

GDD, see “—Innovative Medicines—Research and devel-

opment—Development program” below. For more infor-

mation about Operations, see “—Item 4.D Property,

plants and equipment” and “Item 18. Financial State

ments—Note 3. Segmentation of key ﬁgures 2022, 2021

and 2020.”

Corporate activities

We separately report the results of Corporate activities.

The ﬁnancial results of our Corporate activities include

the costs of the Group headquarters and those of cor-

porate coordination functions in major countries. In addi-

tion, Corporate includes other items of income and

expense that are not attributable to speciﬁc segments,

such as certain revenues from intellectual property

rights and certain expenses related to post-employment

beneﬁts, environmental remediation liabilities, charita-

ble activities, donations and sponsorships.

Innovative Medicines

Overview

Our Innovative Medicines Division is a world leader in

oering patent-protected medicines to patients and phy-

sicians. The Innovative Medicines Division researches,

develops, manufactures, distributes and sells patented

pharmaceuticals. The Innovative Medicines Division is

organized into two commercial organizational units—

Innovative Medicines US and Innovative Medicines Inter-

national. These units were created in April 2022 as part

of our new, integrated organizational structure. Prior to

April 2022, the Innovative Medicines Division was orga-

nized into two global business units: Novartis Oncology

and Novartis Pharmaceuticals. See “Item 4. Information

on the Company—Item 4.B Overview.”

The Innovative Medicines Division focuses on core

therapeutic areas—cardiovascular, immunology, neuro-

science, solid tumor, and hematology—as well as other

promoted brands (in the therapeutic areas of ophthal-

mology and respiratory) and established brands.

The Innovative Medicines Division is the larger of our

two divisions in terms of consolidated net sales. It

reported consolidated net sales of USD 41.3 billion in

2022, which represented 81.7% of the Group’s net sales.

The product portfolio of the Innovative Medicines Division

includes a signiﬁcant number of key marketed products,

many of which are among the leaders in their respective

therapeutic areas.

Innovative Medicines Division

products

The following summaries describe certain key marketed

products in our Innovative Medicines Division, listed

according to year-end net sales within each therapeutic

area or reporting category. Some of the products

described below have lost patent protection or are oth-

erwise subject to generic competition. Others are sub-

ject to patent challenges by potential generic competi-

tors. Please see “—Intellectual property” for general

information on intellectual property and regulatory data

protection, and for more information on the status of pat-

ents and exclusivity for Innovative Medicines Division

products.

While we typically seek to sell our marketed products

throughout the world, not all products and indications

are available in every country. The indications described

in these summaries may therefore vary by country. In

addition, a product may be available under dierent

brand names depending on country and indication.

Key marketed products

Cardiovascular

• Entresto (sacubitril/valsartan) is an oral, ﬁrst-in-class

angiotensin receptor neprilysin inhibitor. Entresto

enhances the protective eects of a hormone system

called the natriuretic peptide system, and simultane-

ously suppresses the harmful eects of a hormone sys-

tem called the renin-angiotensin-aldosterone system.

It is approved:

• In the US, the EU and other countries to treat adults

who have symptomatic heart failure with reduced

ejection fraction (HFrEF). HFrEF is a disease in which

the heart cannot pump enough blood.

• In the US and other countries to treat most heart fail-

ure patients with preserved ejection fraction (HFpEF).

HFpEF is another disease in which the heart cannot

pump enough blood.

• In the US and other countries to treat children aged

1 year and older who have symptomatic heart failure

with systemic left ventricular systolic dysfunction

Item4. Information on the Company

• In China and Japan to treat patients with essential

hypertension (a type of high blood pressure)

• Leqvio (inclisiran) is the ﬁrst and only small-interfering

RNA therapy to reduce LDL cholesterol, a risk factor

for atherosclerotic cardiovascular disease (ASCVD),

which is caused by plaque buildup in the arteries.

Leqvio is administered by a healthcare professional

twice a year as an injection, following an initial dose

and a dose at three months. It is approved:

• In the EU and other countries to treat adults with pri-

mary hypercholesterolemia (heterozygous familial

and non-familial) or mixed dyslipidemia. In patients

unable to reach LDL cholesterol goals, Leqvio is used

in combination with the maximum tolerated dose of

a statin, or alone or in combination with other lip-

id-lowering therapies in patients who are statin-in-

tolerant or for whom a statin is contraindicated. Pri-

mary hypercholesterolemia and mixed dyslipidemia

are disorders characterized by high levels of fats in

the blood.

• In the US to treat adults with clinical ASCVD or het-

erozygous familial hypercholesterolemia (HeFH), as

an adjunct to diet and maximally tolerated statin ther-

apy, who require additional lowering of LDL choles-

terol. HeFH is an inherited disorder that causes dan-

gerously high levels of LDL cholesterol. (The eect

of Leqvio on cardiovascular morbidity and mortality

has not yet been determined).

Novartis obtained global rights to develop, manufac-

ture and commercialize Leqvio under a license and col-

laboration agreement with Alnylam Pharma ceuticals,

Inc.

Immunology

• Cosentyx (secukinumab) is an injectable, fully human

monoclonal antibody that selectively inhibits interleu-

kin-17A (IL-17A), a cytokine involved in several immuno-

logical diseases. It is approved in the US, the EU and

other countries to treat:

• Adults and children aged 6 years and older with mod-

erate-to-severe plaque psoriasis. Psoriasis is a debil-

itating systemic inﬂammatory disease that is charac

terized by the appearance of raised, red patches on

the skin.

• Adults with active ankylosing spondylitis (AS). AS is

a progressive inﬂammatory disease that is charac-

terized by chronic back pain, is generally visible on

X-rays, and can cause structural damage to the

bones and joints.

• Adults with active non-radiographic axial spondy-

loarthritis (nr-axSpA). This is a long-term inﬂamma-

tory disease that is characterized by chronic back

pain and is not visible on X-rays.

• Adults and children (aged 2 years and older in the

US and 6 years and older in the EU) with active pso-

riatic arthritis (PsA). PsA is a type of progressive

inﬂammatory arthritis that results in swollen and pain-

ful joints and tendons, which can cause structural

damage to the bones and joints.

• Children (aged 4 years and older in the US and 6

years and older in the EU) with enthesitis-related

arthritis (ERA) and children (aged 2 years and older

in the US and 6 years and older in the EU) with juve-

nile psoriatic arthritis (JPsA). ERA and JPsA are sub-

types of juvenile idiopathic arthritis. If left untreated,

they can lead to high levels of pain and disability.

• Xolair (omalizumab) is an injectable prescription med-

icine and the only approved antibody designed to tar-

get and block immunoglobulin E (IgE). It is approved in

the US, the EU and other countries to treat:

• Adults and children aged 6 years and older with mod-

erate-to-severe, or severe, persistent allergic asthma

• Adults and children aged 12 years and older with

chronic spontaneous urticaria/chronic idiopathic

urticaria (hives)

• Adults with nasal polyps or severe chronic rhinosi-

nusitis with nasal polyps (CRSwNP). CRSwNP is a

chronic inﬂammation of the nose and the sinuses

with the presence of benign lesions (nasal polyps)

on the lining of the nasal sinuses or nasal cavity.

Approved indications vary by country. Xolair is provided

as lyophilized powder for reconstitution, and as liquid

formulation in a pre-ﬁlled syringe. Novartis co-pro-

motes Xolair with Genentech in the US and shares a

portion of operating income, but Novartis does not

record any US sales. Novartis records all sales of Xolair

outside the US. For more information, see “Item 18.

Financial Statements—Note 27. Transactions with

related parties—Roche Holding AG.”

• Ilaris (canakinumab) is an injectable, selective, high-af-

ﬁnity, fully human monoclonal antibody that inhibits

interleukin-1 beta (IL-1 beta), a key cytokine in the

inﬂammatory pathway. It is approved in the US, the EU

and other countries to treat patients with certain debil-

itating autoinﬂammatory disorders, including:

• Adults and children with periodic fever syndromes.

Periodic fever syndromes are a set of rare disorders

characterized by recurrent episodes of illness, with

fever as the main symptom.

• Patients with Still’s disease, including systemic juve-

nile idiopathic arthritis and adult-onset Still’s disease.

Still’s disease is a disorder that causes fevers, rash

and joint pain.

• Adults with acute gouty arthritis. Gouty arthritis is a

type of arthritis characterized by pain, redness, ten-

derness and swelling in one or more joints.

Approved indications vary by country.

Neuroscience

• Gilenya (ﬁngolimod) is an oral sphingosine-1-phos-

phate (S1P) receptor modulator that inhibits the move-

ment of lymphocytes (a type of white blood cell) out of

the lymph nodes into the central nervous system,

thereby preventing nerve inﬂammation and nervous tis-

sue damage. It is approved:

• In the US to treat adults and children aged 10 years

and older with relapsing forms of multiple sclerosis,

including clinically isolated syndrome, relapsing-re-

mitting multiple sclerosis (RRMS) and active second-

ary progressive multiple sclerosis (SPMS). Multiple

Item4. Information on the Company

sclerosis is a disease in which the immune system

attacks the protective covering of nerves (known as

myelin).

• In the EU to treat adults and children aged 10 years

and older who have highly active RRMS despite treat-

ment with at least one disease-modifying agent, or

who have rapidly evolving severe RRMS

Gilenya is licensed from Mitsubishi Tanabe Pharma

Corporation.

• Zolgensma (onasemnogene abeparvovec) is a one-

time intravenous gene therapy designed to address the

genetic root cause of spinal muscular atrophy (SMA)

by replacing the function of the missing or nonworking

SMN1 gene. Zolgensma delivers a new working copy

of the SMN1 gene into a patient’s cells. It is approved

in the US, the EU and other countries to treat:

• Babies and young children who have SMA with bial-

lelic mutations in the SMN1 gene. SMA is a rare,

genetic neuromuscular disease resulting in the pro-

gressive and irreversible loss of motor neurons,

which causes muscle weakness and atrophy.

• Kesimpta (ofatumumab) is an anti-CD20 monoclonal

antibody that enables the targeted depletion of B-cells,

speciﬁcally in lymph nodes. Kesimpta is self-adminis-

tered as a once-monthly injection via the Sensoready

autoinjector pen. It is approved:

• In the US to treat adults with relapsing forms of mul-

tiple sclerosis, including clinically isolated syndrome,

relapsing-remitting multiple sclerosis (RRMS) and

active secondary progressive multiple sclerosis

(SPMS). Multiple sclerosis is a disease in which the

immune system attacks the protective covering of

nerves (known as myelin).

• In the EU to treat adults with relapsing forms of mul-

tiple sclerosis with active disease deﬁned by clinical

or imaging features (i.e., relapse, disability, or lesions

detected by MRI scans)

Approved indications vary across other countries. Ofa-

tumumab was originally developed by Genmab and

licensed to GlaxoSmithKline (GSK). Novartis obtained

the rights to ofatumumab from GSK across all indica-

tions.

Solid Tumor

• Taﬁnlar + Mekinist (dabrafenib + trametinib) is an oral

combination therapy. Taﬁnlar and Mekinist are kinase

inhibitors of the BRAF and MEK1/2 proteins, respec-

tively, approved in combination in the US, the EU and

other countries to treat patients who have certain types

of cancer with a change in the BRAF gene (called a

BRAF V600 mutation), including:

• Adults with unresectable or metastatic melanoma

with a BRAF V600 mutation. Melanoma is a form of

skin cancer; unresectable melanoma cannot be

removed with surgery and metastatic melanoma has

spread to other parts of the body. Taﬁnlar and

Mekinist are also approved as single agents for this

indication.

• Adults with stage III melanoma with a BRAF V600

mutation as an adjuvant treatment (following surgery)

• Adults with advanced non-small cell lung cancer

(NSCLC) with a BRAF V600 mutation. NSCLC is the

most common type of lung cancer.

• Adults with locally advanced or metastatic anaplas-

tic thyroid cancer (ATC) with a BRAF V600 mutation

whose cancer has progressed following treatment,

and who have no satisfactory alternative treatment

options (US). ATC is a rare and aggressive form of

thyroid cancer.

Approved indications vary by country. Novartis has

worldwide exclusive rights to develop, manufacture and

commercialize trametinib granted by Japan Tobacco

Inc.

• Kisqali (ribociclib) is a selective oral cyclin-dependent

inhibitor of kinases 4 and 6 (CDK4/6) with somewhat

greater inhibitory activity against CDK4 vs CDK6 – the

two enzymes involved in the control of cell cycle pro-

gression. Kisqali is approved in the US, the EU and other

countries to treat:

• Pre-, peri- and postmenopausal women, and men

(US), with hormone receptor-positive (HR+)/human

epidermal growth factor receptor 2-negative (HER2-)

locally advanced or metastatic breast cancer, in com-

bination with an aromatase inhibitor as initial endo-

crine-based therapy. HR+/HER2- breast cancer is

the most common subtype of breast cancer.

• Pre-, peri- (EU) and postmenopausal women, and

men (US), with HR+/HER2- locally advanced or met-

astatic breast cancer, in combination with fulvestrant,

as ﬁrst- or second-line therapy

Kisqali was developed by the Novartis Institutes for

BioMedical Research under a research collaboration

with Astex Pharmaceuticals.

• Piqray (alpelisib) is an oral kinase inhibitor that specif-

ically targets the PIK3CA gene. This is the most com-

monly mutated gene in HR+/HER2- breast cancer, the

most common subtype of breast cancer. Piqray is

approved in the US, the EU and other countries to treat:

• Postmenopausal women, and men, with hormone

receptor-positive (HR+)/human epidermal growth

factor receptor 2-negative (HER2-) locally advanced

or metastatic breast cancer with a PIK3CA mutation.

It is used in combination with fulvestrant after dis-

ease progression while on or following an endo-

crine-based regimen (US), or after disease progres-

sion following endocrine therapy as monotherapy

(EU).

• Pluvicto (lutetium (

177

Lu) vipivotide tetraxetan) is an

intravenous radioligand therapy combining a targeting

compound (a ligand) with a therapeutic radionuclide (a

radioactive particle, in this case lutetium-177). Pluvicto

delivers radiation selectively to PSMA-positive cells

and the surrounding cells. It is approved in the US, the

EU and other countries to treat:

• Adults with a type of advanced cancer that has

spread to other parts of the body (metastatic) called

prostate-specific membrane antigen–positive

Item4. Information on the Company

metastatic castration-resistant prostate cancer

(PSMA-positive mCRPC) who have already been

treated with other anticancer treatments (androgen

receptor pathway inhibition and taxane-based che-

motherapy)

Hematology

• Promacta/Revolade (eltrombopag) is a once-daily oral

thrombopoietin receptor agonist that works by stimu-

lating bone marrow cells to produce platelets. It is

approved in the US, the EU and other countries to treat:

• Immune thrombocytopenia (ITP) in patients who have

had an insucient response to or have failed previ-

ous therapies. ITP is a bleeding disorder caused by

an unusually low number of platelets.

• Thrombocytopenia in patients with chronic hepatitis

C to allow them to initiate and maintain interfer-

on-based therapy

• Patients with severe aplastic anemia (SAA). SAA is

a condition in which the body does not produce

enough blood cells

Promacta/Revolade is marketed under a research,

development and license agreement between Novartis

and RPI Finance Trust (dba Royalty Pharma), as

assignee of Ligand Pharmaceuticals.

• Tasigna (nilotinib) is a twice-daily oral tyrosine kinase

inhibitor that acts by blocking the BCRABL protein. It

is approved in the US, the EU and other countries to

treat:

• Patients with Philadelphia chromosome-positive

chronic myeloid leukemia (Ph+ CML) in the chronic

and/or accelerated phase who are resistant or intol-

erant to existing treatment. Ph+ CML is a cancer that

starts in the blood-forming cells of bone marrow.

• Newly diagnosed adults and children with Ph+ CML

in the chronic phase

• Jakavi (ruxolitinib) is an oral inhibitor of the JAK1 and

JAK2 tyrosine kinases. It is the ﬁrst therapy approved

in the EU and other countries to treat:

• Adults with myeloﬁbrosis (MF), including primary

myeloﬁbrosis, post-polycythemia vera myeloﬁbrosis

and post-essential thrombocythemia myeloﬁbrosis.

MF is a rare blood cancer characterized by abnor-

mal blood cell production and scarring in the bone

marrow, which can lead to an enlarged spleen.

• Adults with polycythemia vera (PV) who are resistant

or intolerant to a medication called hydroxyurea. PV

is a rare blood cancer in which the bone marrow pro-

duces too many red blood cells, resulting in serious

problems like clots.

• Patients aged 12 years and older with acute or chronic

graft-versus-host disease (GvHD) and who have had

an inadequate response to corticosteroids or other

systemic therapies. GvHD occurs in stem-cell trans-

plant patients when donor cells see the recipient’s

healthy cells as foreign and attack them.

Novartis licensed ruxolitinib from Incyte Corporation

for development and commercialization in the

indications of oncology, hematology and graft-versus-

host disease outside the US. Incyte Corporation mar-

kets ruxolitinib as Jakaﬁ

in the US.

• Scemblix (asciminib) is an oral kinase inhibitor that

works by binding to the ABL myristoyl pocket. It is

approved:

• In the US, the EU and other countries to treat adults

with Philadelphia chromosome-positive chronic

myeloid leukemia (Ph+ CML) in chronic phase who

have previously been treated with two or more tyro-

sine kinase inhibitors (TKIs). CML is a type of cancer

that starts in the blood-forming cells of the bone mar-

row and invades the blood. There are three phases

of CML: chronic phase, accelerated phase and blast

phase.

• In the US and other countries to treat adults with Ph+

CML in chronic phase with the T315I mutation. Some

patients with CML develop mutations that cause

resistance to TKI therapy, including the T315I muta-

tion, which confers resistance to most available TKIs.

As a result, patients with this mutation have limited

treatment options.

Other Promoted Brands

• Lucentis (ranibizumab) is a humanized, high-anity

antibody fragment that binds to vascular endothelial

growth factor A (VEGFA), a protein that can cause the

growth of blood vessels in the eye, potentially leading

to vision loss. Lucentis is an anti-VEGF therapy that is

injected into the eye. It is approved in the EU and other

countries to treat patients with certain eye conditions,

including:

• Adults with neovascular (wet) age-related macular

degeneration (AMD). Wet AMD develops when

abnormal blood vessels grow under the macula and

leak blood and other ﬂuids in the back of the eye,

which damages the macula.

• Adults with proliferative diabetic retinopathy, moder-

ately severe to severe non-proliferative diabetic ret-

inopathy, and/or diabetic macular edema. These con-

ditions are complications of diabetes.

• Adults with visual impairment due to macular edema

secondary to retinal vein occlusion (branch RVO or

central RVO). Retinal vein occlusionis a blockage of

the branch or central retinal veins, which carry blood

away from the retina.

Approved indications vary by country. Lucentis is

licensed from Genentech, and Novartis holds the rights

to commercialize the product outside the US. Genen-

tech holds the rights to commercialize Lucentis in the

US. For more information, see “Item 18. Financial State-

ments—Note 27. Transactions with related parties—

Roche Holding AG.”

• Xiidra (liﬁtegrast 0.5%), an LFA-1 antagonist, is a pre-

scription eye drop designed to block the interaction of

two key proteins called ICAM-1 and LFA-1, thereby

reducing inﬂammation. It is approved in the US and

other countries to treat:

• The signs and symptoms of dry eye disease in adults

Item4. Information on the Company

Established Brands

• Sandostatin SC (octreotide acetate for injection) and

Sandostatin LAR (octreotide acetate for injectable sus-

pension) are somatostatin analogs approved in the US,

the EU and other countries to treat:

• Adults with acromegaly that is inadequately con-

trolled by surgery or radiotherapy. Acromegaly is a

chronic disease caused by the oversecretion of

growth hormone.

• Patients with certain symptoms associated with car-

cinoid tumors and other types of functional gastro-

intestinal and pancreatic neuroendocrine tumors

Sandostatin LAR is also approved in the EU and other

countries to treat patients with advanced neuroendo-

crine tumors of the midgut or of unknown primary

tumor origin.

Compounds in development

The following table provides an overview of the key

Innovative Medicines Division projects currently in the

Conﬁrmatory Development stage and may also describe

certain projects in the Exploratory Development stage.

Projects typically enter Conﬁrmatory Development and

become the responsibility of our Global Drug Develop-

ment organization during Phase II testing. (For more

information about our drug development program, see

“—Research and development—Development program.”)

Projects are listed in alphabetical order by compound

code, or by product name where applicable. Projects

include those seeking to develop potential uses of new

molecular entities as well as potential additional indica-

tions or new formulations for already marketed products.

The table below, entitled “Projects removed from the

development table since 2021,” highlights changes to the

table entitled “Selected development projects” from the

previous year.

The year that each project entered the current phase

of development refers to the year of the ﬁrst patient’s

ﬁrst visit in the ﬁrst clinical trial of that phase. For proj-

ects in Phase II, the year refers to the ﬁrst patient’s ﬁrst

visit in the ﬁrst Phase II trial, which can occur before the

Conﬁrmatory Development stage. Prior to 2020, we

reported the current phase based on the year in which

the decision to enter the phase was made. To maintain

continuity, we have included certain previously disclosed

projects, noted below, that have not yet achieved “ﬁrst

patient, ﬁrst visit” in any Phase IIII study for the reported

indication and route of administration. We have disclosed

these projects using our previous reporting criteria.

A reference to a project being in registration means

that an application has been submitted to a health author-

ity for marketing approval. Compounds and new indica-

tions in development are subject to required regulatory

approvals and, in certain instances, contractual limita-

tions. These compounds and indications are in various

stages of development throughout the world. It may not

be possible to obtain regulatory approval for any or all

of the new compounds and new indications referred to

in this Form20-F in any country or in every country. See

“—Regulation” for more information on the approval pro-

cess.

Item4. Information on the Company

Selected development projects

Year project

entered

Formulation/ current Planned ﬁling

Compound/ Common Mechanism route of development dates/current

product name of action Potential indication Category administration phase phase

AVXS- onasemno- Survival motor neuron Spinal muscular atrophy Neuroscience Intrathecal injection  /III

(OAV) gene abepar- (SMN) gene therapy (IT formulation)

vovec

Beovu brolucizumab VEGF inhibitor Diabetic retinopathy Ophthalmology Intravitreal injection  /III

CFZ iscalimab CD inhibitor Sjögren’s syndrome Immunology Subcutaneous injection  /II

Coartem artemether + PGH- (artemisinin Malaria, Global Health Oral  /III

lumefantrine combination therapy) uncomplicated

( kg patients)

Cosentyx secukinumab IL-A inhibitor Hidradenitis suppurativa Immunology Subcutaneous injection  US/EU

registration

Giant cell arteritis Immunology Subcutaneous injection  /III

Lupus nephritis Immunology Subcutaneous injection  /III

Psoriatic arthritis (IV formulation) Immunology Intravenous infusion  US registration

Ankylosing spondylitis (IV formulation) Immunology Intravenous infusion  US registration

JDQ TBD KRAS inhibitor Non-small cell lung cancer, /L



Solid Tumor Oral  /III

KAE cipargamin PfATP inhibitor Malaria, uncomplicated Global Health Oral  /II

Malaria, severe Global Health Oral  /II

KAF ganaplacide Non-artemisinin Malaria, uncomplicated Global Health Oral  /II

plasmodium

falciparum inhibitor

Kisqali ribociclib CDK inhibitor Hormone receptor-positive Solid Tumor Oral  /III

(HR+)/human epidermal growth

factor receptor -negative (HER-)

early breast cancer (adjuvant)

Leqvio inclisiran siRNA Secondary prevention of cardiovascular Cardiovascular Subcutaneous injection  /III

(regulation of LDLC) events in patients with elevated levels

of LDLC

LNA TBD ANGPTL agonist Knee osteoarthritis Immunology Intra-articular  /II

LNP iptacopan CFB inhibitor IgA nephropathy Cardiovascular Oral  /III

C glomerulopathy Cardiovascular Oral  /III

Paroxysmal nocturnal hemoglobinuria Hematology Oral  /III

Atypical hemolytic uremic syndrome Hematology Oral  /III

LOU remibrutinib BTK inhibitor Chronic spontaneous urticaria Immunology Oral  /III

Sjögren’s syndrome Immunology Oral  /II

Multiple sclerosis Neuroscience Oral  /III

Lutathera lutetium Radioligand therapy Gastroenteropancreatic Solid Tumor Intravenous infusion  /III

Lu  targeting SSTR neuroendocrine tumors,

dotatate/ 

line in G/ tumors

lutetium

(



Lu)

oxodotreotide

LXE TBD Proteasome inhibitor Visceral leishmaniasis Global Health Oral  /II

MBG sabatolimab TIM- antagonist Myelodysplastic syndrome Hematology Intravenous infusion  /III

Unﬁt acute myeloid leukemia Hematology Intravenous infusion  /II

MIJ onfasprodil NRB negative Major depressive disorder Neuroscience Intravenous infusion  /II

allosteric modulator

NIS TBD TGF-beta  inhibitor Pancreatic cancer, 

line Solid Tumor Intravenous infusion  /III

Piqray alpelisib PIK-alpha inhibitor Ovarian cancer Solid Tumor Oral  /III

Pluvicto lutetium Radioligand therapy Metastatic castration-resistant Solid Tumor Intravenous infusion  /III

Lu  targeting PSMA prostate cancer, pre-taxane

vipivotide

tetraxetan/

lutetium

(



Lu)

vipivotide

tetraxetan

Metastatic hormone-sensitive Solid Tumor Intravenous infusion  /III

prostate cancer

Project added to selected development projects table in 2022 – entered Conﬁrmatory Development

Item4. Information on the Company

Year project

entered

Formulation/ current Planned ﬁling

Compound/ Common Mechanism route of development dates/current

product name of action Potential indication Category administration phase phase

PPY



TBD Gene therapy - Geographic atrophy Ophthalmology Subretinal injection  /II

complement

factor I modulation

QGE ligelizumab IgE inhibitor Food allergy Immunology Subcutaneous injection  /III

SAF libvatrep TRPV antagonist Chronic ocular surface pain Ophthalmology Topical  /II

Scemblix asciminib BCRABL inhibitor Chronic myeloid Hematology Oral  /III

leukemia, 

line

SKO



ensovibep Multispeciﬁc DARPin Coronavirus infection Global Health Intravenous infusion Not applicable TBD



/II

(N/A)

TQJ pelacarsen ASO targeting Secondary prevention of cardiovascular Cardiovascular Subcutaneous injection  /III

lipoprotein(a) events in patients with elevated levels

of lipoprotein(a)

VAY ianalumab BAFFR inhibitor Autoimmune hepatitis Immunology Subcutaneous injection  /II

Lupus nephritis



Immunology Subcutaneous injection  /III

Sjögren’s syndrome Immunology Subcutaneous injection  /III

Warm autoimmune hemolytic anemia



Hematology Intravenous infusion  /III

(wAIHA)

VDT tislelizumab Anti-PD- monoclonal Esophageal cancer, 

line Solid Tumor Intravenous infusion N/A US/EU

antibody registration

Non-small cell lung cancer Solid Tumor Intravenous infusion N/A EU registration

Nasopharyngeal carcinoma, 

line Solid Tumor Intravenous infusion N/A /III

Gastric cancer, 

line Solid Tumor Intravenous infusion N/A /III

Esophageal cancer, 

line Solid Tumor Intravenous infusion N/A /III

Localized esophageal cancer Solid Tumor Intravenous infusion N/A /III

Hepatocellular carcinoma, 

line Solid Tumor Intravenous infusion N/A /III

Small cell lung cancer, 

line Solid Tumor Intravenous infusion N/A /III

Urothelial cell carcinoma, 

line



Solid Tumor Intravenous infusion N/A /III

VPM gevokizumab IL- beta antagonist Colorectal cancer, 

line Solid Tumor Intravenous infusion  /I

Xolair omalizumab IgE inhibitor Food allergy Immunology Subcutaneous injection  /III

XXB



TBD NPR agonist Hypertension Cardiovascular Subcutaneous injection  /II

Entered conﬁrmatory development following the acquisition of Gyroscope Thereapeutics.

In-licensed from Molecular Partners in 2021 (option deal)

No deﬁnite submission date can be provided at this time

Project added to selected development projects table in 2022 – entered Conﬁrmatory Development

Formerly “bladder urothelial cell carcinoma”. Indication language updated in 2022 to reﬂect latest development plan

Item4. Information on the Company

Projects removed from the development table since 2021

Compound/product Potential indication Change Reason

ACZ (canakinumab) Non-small cell lung cancer, adjuvant Removed Development discontinued

Beovu Diabetic macular edema Commercialized

CFZ (iscalimab) Liver transplantation Removed Development discontinued

Cosentyx Ankylosing spondylitis head-to-head study versus Removed Development discontinued

Sandoz biosimilar Hyrimoz (adalimumab)

Cosentyx Lichen Planus Removed Development discontinued

CSJ Asthma Removed Development discontinued

Jakavi Acute graft-versus-host disease Commercialized

Jakavi Chronic graft-versus-host disease Commercialized

Kymriah Relapsed/refractory follicular lymphoma Commercialized

LJN Nonalcoholic steatohepatitis Removed Development discontinued

LMI Huntington’s disease Removed Development discontinued

LNP Membranous nephropathy Removed Development discontinued

Vijoice



PIKCA-related overgrowth spectrum Commercialized

Piqray Triple negative breast cancer Removed Development discontinued

Piqray Human epidermal growth factor Removed Development discontinued

receptor -positive (HER+)

advanced breast cancer

Pluvicto Metastatic castration-resistant prostate cancer, post-taxane Commercialized

QBW (icenticaftor) Chronic obstructive pulmonary disease Removed Development discontinued

QGE (ligelizumab) Chronic spontaneous urticaria Removed Development discontinued

QGE (ligelizumab) Chronic inducible urticaria Removed Development discontinued

Scemblix Chronic myeloid leukemia, 

line Commercialized

UNR Presbyopia Removed Development discontinued

Formerly listed as BYL719

Item4. Information on the Company

Principal markets

The Innovative Medicines Division sells products in approximately 130 countries worldwide. Net sales are primar-

ily concentrated in the US and Europe. The following table sets forth the aggregate 2022 net sales of the Innovative

Medicines Division by region:

Innovative Medicines

 net sales

to third parties

USD millions



United States 



Europe 



Asia, Africa, Australasia 



Canada and Latin America 



Total 



Of which in Established Markets







Of which in Emerging Growth Markets







Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand.

Many of our Innovative Medicines Division products are

used for chronic conditions that require patients to con-

sume the product over long periods of time, ranging from

months to years. However, certain of our marketed prod-

ucts and development projects, such as cell and gene

therapies, are administered only once. Net sales of the

vast majority of our products are not subject to material

changes in seasonal demand.

Production

Our primary goal is to ensure the uninterrupted and

timely supply of medicines that meet all product speci-

ﬁcations and quality standards, and that are produced

in the most cost-eective and sustainable manner. The

manufacturing of our products is highly regulated by gov-

ernmental health authorities around the world, including

the US Food and Drug Administration (FDA) and Euro-

pean Medicines Agency (EMA). In addition to regulatory

requirements, many of our products involve technically

complex manufacturing processes or require highly spe-

cialized raw materials.

In 2022, we began to integrate Advanced Accelera-

tor Applications (AAA), a Novartis company that focuses

on radioligand therapies, into our existing manufacturing

and supply structure. We manufacture our products

across the following technologies at facilities worldwide:

large molecules, small molecules, cell and gene therapy,

RNA therapy and radioligand therapy (see also “—Item

4.D Property, plants and equipment”). In our manufac-

turing network, we maintain state-of-the-art processes,

with quality as a priority, and require our suppliers to

adhere to the same high standards we expect from our

own people and processes. These processes include:

chemical and biological syntheses; radioisotope han-

dling, which relates to our radioligand therapies; sterile

processing, including CART cell processing; and formu-

lation and packaging. We are constantly working to

improve our existing manufacturing processes, develop

new and innovative technologies, and review and adapt

our manufacturing network to meet our needs and those

of our patients and customers.

We produce raw materials for manufacturing in-house

or purchase them from a number of third-party suppli-

ers. Where possible, we maintain multiple supply sources

so that the business is not dependent on a single or lim-

ited number of suppliers. However, our ability to do so

may at times be limited by regulatory or other require-

ments. We monitor market developments that could have

an adverse eect on the supply of essential materials.

Our suppliers of raw materials are required to comply

with applicable regulations and Novartis quality stan-

dards.

Because the manufacturing of our products is com-

plex and highly regulated by governmental health author-

ities, supply is never guaranteed. If we or our third-party

suppliers fail to comply with applicable regulations, then

there could be a product recall or other disruption to our

production activities. We have experienced supply inter-

ruptions for our products in the past, and there can be

no assurance that supply will not be interrupted again in

the future. However, we have implemented a global man-

ufacturing strategy to maximize business continuity in

case of such events.

Marketing and sales

The Innovative Medicines Division serves customers with

21 564 ﬁeld force representatives, as of December 31,

2022, including supervisors and administrative person-

nel. These trained representatives present the therapeu-

tic beneﬁts and risks of our products to physicians, phar-

macists, hospitals, insurance groups, managed care

organizations and other healthcare professionals. In the

US, Novartis advertises certain products via digital and

traditional media channels, including the internet, televi-

sion, newspapers and magazines. Novartis also pursues

co-promotion or co-marketing opportunities as well as

licensing and distribution agreements with other com-

panies in various markets.

Item4. Information on the Company

The marketplace for healthcare is evolving. Customer

groups beyond prescribers have increasing inﬂuence on

treatment decisions and guidelines, while patients con-

tinue to become more informed stakeholders in their

healthcare decisions and look for solutions to meet their

changing needs. Novartis is responding by adapting our

business practices to engage appropriately with patients,

customer groups and other stakeholders, including by

delivering innovative solutions to drive education, access

and improved patient care.

The COVID-19 pandemic has accelerated additional

changes related to marketing and sales techniques in

the healthcare industry. For example, many healthcare

professionals have increased their use of virtual plat-

forms when interacting with pharmaceutical companies,

and prefer to receive information in a more convenient

and personalized way. In response, Novartis is working

to implement a new customer engagement model that

combines traditional face-to-face visits with digital and

other methods of engaging healthcare professionals to

improve the eciency and eectiveness of every inter-

action. We are similarly changing our approach to engag-

ing healthcare systems, payers and other healthcare pro-

viders.

Although speciﬁc distribution patterns vary by coun-

try, Novartis generally sells its prescription drugs primar-

ily to wholesale and retail drug distributors, hospitals,

clinics, government agencies and managed healthcare

providers. The growing number of so-called “specialty”

drugs in our portfolio has resulted in increased engage-

ment with specialty pharmacies.

In the US, the US Centers for Medicare & Medicaid

Services (CMS) is the largest single payer for healthcare

services as a result of continuing changes in healthcare

economics and an aging population. In addition, both

commercial and government-sponsored managed care

organizations continue to be among the largest groups

of payers for healthcare services in the US. In other coun-

tries, national health services are often the only signiﬁ-

cant payer for healthcare services. In an eort to control

prescription drug costs, almost all managed care orga-

nizations and national health services use formularies

that list speciﬁc drugs that may be reimbursed and/or

the level of reimbursement for each drug. Managed care

organizations and national health services also increas-

ingly use cost-beneﬁt analyses to determine whether or

not newly approved drugs will be added to a formulary

and/or the level of reimbursement for that drug, and to

determine whether or not to continue to reimburse exist-

ing drugs. We have dedicated teams that actively seek

to optimize patient access, including formulary positions,

for our products.

The trend toward consolidation among distributors

and retailers of Innovative Medicines Division products

continues in the US and internationally, both within and

across countries. This has increased our customers’ pur-

chasing leverage and resulted in increased pricing pres-

sure on our products. Moreover, we are exposed to

increased concentration of credit risk as a result of the

consolidation among our customers.

Drug pricing is an increasingly prominent issue in

many countries as healthcare spending continues to rise.

This issue has received signiﬁcant attention in the US,

especially with the recent passage of the Inﬂation

Reduction Act (please see “—Price controls” for more

information). At Novartis, we are increasing our eorts

to enable patient access through innovative pricing and

access initiatives in the US, Europe and other markets.

These include contract structures such as pay-over-time

and outcome-based agreements.

In 2021, Novartis reached an agreement with the

National Health Service (NHS) in England to implement

a ﬁrst-of-its-kind population health management

approach designed to provide faster and broader access

to Leqvio for certain high-risk patients with atheroscle-

rotic cardiovascular disease. Novartis is engaging in sim-

ilar collaborations with other countries.

Additionally, following conditional approval of

Zolgensma in Europe in 2020, Novartis Gene Therapies

established “Day One” early access agreements in mul-

tiple European countries. These agreements support

early patient access by allowing a variety of customiz-

able options, including retroactive rebates, deferred pay-

ments, installment options, outcome-based rebates, and

collaborations with healthcare systems to optimize dis-

ease management. These eorts have expanded glob-

ally, and we now have multiple early access agreements

and pay-for-performance agreements (i.e., out-

come-based arrangements) in place in various markets

around the world. Zolgensma is approved in 45 countries.

Competition

The global pharmaceutical market is highly competitive.

We compete against other major international corpora-

tions that have substantial ﬁnancial and other resources,

as well as against smaller companies that operate region-

ally or nationally. Competition within the industry is

intense and extends across a wide range of activities,

including pricing, product characteristics, customer ser-

vice, sales and marketing, and research and develop-

ment.

Like other companies selling patented pharma-

ceuticals, Novartis faces challenges from companies

selling competing patented products. Generic forms of

our products may follow the expiry of intellectual prop-

erty protection or regulatory exclusivities, and generic

companies may also gain entry to the market through

successfully challenging our intellectual property rights

and exclusivities. We use appropriate, legally permissi-

ble measures to defend those rights and exclusivities.

(See also “—Intellectual property” below). We also may

face competition from over-the-counter (OTC) products

that do not require a prescription from a physician.

There is ongoing consolidation in the pharmaceuti-

cal industry. At the same time, new entrants are looking

to use their expertise to establish or expand their pres-

ence in healthcare, including technology companies

seeking to beneﬁt from the increasing importance of

data and data management in our industry.

Research and development

The discovery and development of a new drug usually

requires approximately 10 to 15years from the initial

research to bringing a drug to market. This includes

Item4. Information on the Company

approximately six to eight years from PhaseI clinical tri-

als to market entry. At each of these steps, there is a

substantial risk that a compound (i.e., drug or biologic)

or other therapeutic candidate will not meet the require-

ments to progress further. In such an event, we may be

required to abandon the development of a potential ther-

apy in which we have made a substantial investment.

We manage our research and development expendi-

tures across our entire portfolio in accordance with our

strategic priorities. We make decisions about whether

or not to proceed with development projects on a proj-

ect-by-project basis. These decisions are based on the

project’s potential to meet a signiﬁcant unmet medical

need or to improve patient outcomes, the strength of the

science underlying the project, and the potential of the

project (subject to the risks inherent in pharmaceutical

development) to generate signiﬁcant positive ﬁnancial

results for the Company. Once a management decision

has been made to proceed with the development of a

particular molecule, the level of research and develop-

ment investment required will be driven by many factors.

These include the medical indications for which it is being

developed, the number of indications being pursued,

whether the molecule is of a chemical or biological

nature, the stage of development, and the level of evi-

dence necessary to demonstrate clinical ecacy and

safety.

Research program

Our research program is conducted by the Novartis Insti-

tutes for BioMedical Research (NIBR), which is the

research and early development innovation engine of

Novartis. NIBR is responsible for the discovery of new

medicines for diseases with unmet medical need. We

focus our work in areas where we believe we can have

the most impact for patients. This requires the hiring and

retention of highly talented employees, a focus on fun-

damental disease mechanisms that are relevant across

dierent disease areas, continuous improvement in tech-

nologies for drug discovery and potential therapies,

working with patients to understand their diseases and

the potential beneﬁts of therapies, close alliances with

clinical and commercial colleagues, and the establish-

ment of strategic external alliances.

Approximately 5 500 full-time-equivalent scientists,

physicians and business professionals work at NIBR

sites in Basel, Switzerland; Cambridge, Massachusetts;

East Hanover, New Jersey; San Diego, California; and

Emeryville, California. They contribute to research into

disease areas such as cardiovascular, renal and meta-

bolic diseases; neuroscience; oncology; hematology;

muscle disorders; ophthalmology; autoimmune diseases;

and respiratory and allergic diseases. Research at the

Friedrich Miescher Institute focuses on basic genetic

and genomic research, and the Novartis Institute for

Tropical Diseases (NITD), in Emeryville, California,

focuses on discovering new medicines to ﬁght tropical

diseases, including malaria and cryptosporidiosis.

All drug candidates go through proof-of-concept tri-

als to enable an early assessment of the safety and e-

cacy of the drug while collecting basic information on

pharmacokinetics and tolerability, and adhering to the

guidance for early clinical testing set forth by health

authorities. Following proof of concept, our Global Drug

Development unit conducts conﬁrmatory trials on the

drug candidates.

In 2022, we integrated the Genomics Institute of the

Novartis Research Foundation (GNF), which is based in

San Diego, US, into NIBR. This enables closer collabo-

ration with colleagues across NIBR and gives greater

access to biological, therapeutic, and translational plat-

forms to researchers across Novartis. The NIBR San

Diego site is focused on developing novel technology to

drive drug discovery research, including regenerative

medicine, small interfering RNA therapy and covalent

drug discovery.

Development program

Our Global Drug Development (GDD) organization

oversees and executes drug development activities,

working collaboratively with NIBR, our commercial orga-

nization and other parts of the Company on our overall

pipeline strategy. The GDD organization includes

centralized global functions such as Regulatory Aairs

and Global Development Operations, and global Devel-

opment Units, and has approximately 12 800 full-time

equivalent employees worldwide.

The traditional model of clinical development consists

of three phases:

PhaseI: The ﬁrst clinical trials of a new compound –

generally performed in a small number of healthy human

volunteers – to assess the drug’s safety proﬁle, includ-

ing the safe dosage range. These trials also determine

how a drug is absorbed, distributed, metabolized and

excreted, and the duration of its action.

PhaseII: Clinical studies performed with patients who

have the target disease, with the aim of continuing the

PhaseI safety assessment in a larger group, assessing

the ecacy of the drug in the patient population, and

determining the appropriate doses for further evaluation.

PhaseIII: Large-scale clinical studies with several hun-

dred to several thousand patients, which are conducted

to establish the safety and ecacy of the drug in spe-

ciﬁc indications for regulatory approval. PhaseIII trials

may also be used to compare a new drug against a cur-

rent standard of care to evaluate the overall beneﬁt-risk

relationship of the new medicine.

In each of these phases, physicians monitor volunteer

patients closely to assess the safety and ecacy of a

potential new drug or indication.

Although we use this traditional model, we have tai-

lored the development process to be simpler, more ﬂex-

ible and more ecient. We divide the development pro-

cess into two stages: Exploratory Development to

establish proof of concept, followed by Conﬁrmatory

Development to conﬁrm the concept in large numbers

of patients. Exploratory Development consists of clini-

cal proof-of-concept (PoC) studies, which are small clin-

ical trials (typically involving between ﬁve and 15 patients)

that combine elements of traditional PhaseI/II testing.

NIBR conducts these customized trials, which are

designed to give early insights into issues such as safety,

ecacy and toxicity for a drug in a given indication. Once

a positive proof of concept has been established, the

Item4. Information on the Company

drug moves to the Conﬁrmatory Development stage and

becomes the responsibility of GDD. Conﬁrmatory Devel-

opment has elements of traditional PhaseII/III testing

and includes trials aimed at conﬁrming the safety and

ecacy of the drug in the given indication, leading up to

submission of a dossier to health authorities for approval.

This stage can also include trials that compare the drug

to the current standard of care for the disease in order

to evaluate the drug’s overall beneﬁt-risk proﬁle. Further,

with new treatment approaches such as gene therapy

for rare diseases, elements of Exploratory and Conﬁr-

matory Development may be combined and suce for

registration under certain conditions such as high unmet

medical need and clinical data showing highly favorable

beneﬁt-risk. In these cases, additional post-approval

studies may be required by the regulatory authorities to

continue to gather important data to further support

approval.

The vast amount of data that must be collected and

evaluated makes clinical testing the most time-consum-

ing and expensive part of new drug development. The

next stage in the drug development process is to seek

registration for the new drug. For more information, see

“—Regulation.”

Our Innovation Management Board (IMB) is respon-

sible for all strategic aspects of our development port-

folio and oversees our drug development budget as well

as major project phase transitions and milestones fol-

lowing a positive proof-of-concept outcome, including

transitions to Conﬁrmatory Development and the deci-

sion to submit a regulatory application to the health

authorities. The IMB is also responsible for the endorse-

ment of overall development strategy, the endorsement

of development project priorities, and decisions on proj-

ect discontinuations. Our Chief Executive Ocer chairs

the IMB, and other representatives from Novartis senior

management, with expertise spanning multiple ﬁelds, are

among its core and extended membership.

Alliances and acquisitions

Our Innovative Medicines Division enters into business

development agreements with other pharmaceutical and

biotechnology companies and with academic and other

institutions to develop new products and access new

markets. We license products that complement our cur-

rent product line and are appropriate to our business

strategy. We focus on strategic alliances and acquisition

activities for key disease areas and indications that we

expect to be growth drivers in the future. We review prod-

ucts and compounds we are considering licensing, using

the same criteria that we use for our own internally dis-

covered drugs.

In February 2022, Novartis completed the acquisition

of Gyroscope Therapeutics Holdings Plc. Through the

acquisition, Novartis added PPY988 (GT005), an inves-

tigational one-time gene therapy for geographic atrophy,

to its portfolio.

For more information about recent business acquisitions,

see “Item 18. Financial Statements—Note 2. Signiﬁcant

transactions.”

Regulation

The international pharmaceutical industry is highly reg-

ulated. Regulatory authorities around the world admin-

ister numerous laws and regulations regarding the test-

ing, approval, manufacturing, importing, labeling and

marketing of drugs, and review the safety and ecacy

of pharmaceutical products. Extensive controls exist on

the non-clinical and clinical development of pharmaceu-

tical products. These regulatory requirements, and the

implementation of them by local health authorities around

the globe, are a major factor in determining whether a

substance can be developed into a marketable product,

and the amount of time and expense associated with

that development.

Health authorities, including those in the US and the

EU, have high standards of technical evaluation. The

introduction of new pharmaceutical products generally

entails a lengthy approval process. Products must be

authorized or registered prior to marketing, and such

authorization or registration must subsequently be main-

tained. In recent years, the registration process has

required increased testing and documentation for the

approval of new drugs, with a corresponding increase in

the expense of product introduction.

To register a pharmaceutical product, a registration

dossier containing evidence establishing the safety, e-

cacy and quality of the product must be submitted to

regulatory authorities. Generally, a therapeutic product

must be registered in each country in which it will be sold.

In every country, the submission of an application to a

regulatory authority does not guarantee that approval to

market the product will be granted. Although the criteria

for the registration of therapeutic drugs are similar in

most countries, the formal structure of the necessary

registration documents and the speciﬁc requirements,

including risk tolerance, of the local health authorities

can vary signiﬁcantly from country to country. Even if a

drug is registered and marketed in one country, the reg-

istration authority in another country may request addi-

tional information from the pharmaceutical company

prior to registration or even reject the product. A drug

may be approved for dierent indications in dierent

countries.

The registration process generally takes between six

months and several years, depending on the country, the

quality of the data submitted, the eciency of the regis-

tration authority’s procedures, and the nature of the

product. Many countries provide for accelerated pro

cessing of registration applications for innovative prod-

ucts of particular therapeutic interest. In recent years,

the US and the EU have made eorts to harmonize reg-

istration requirements in order to achieve shorter devel-

opment and registration times for medical products.

However, the requirement in many countries to negoti-

ate selling prices or reimbursement levels with govern-

ment regulators and other payers can substantially

extend the time until a product may ﬁnally be available

to patients.

The following provides a summary of the regulatory

processes in the principal markets served by Innovative

Medicines Division aliates:

Item4. Information on the Company

United States

In the US, applications for drug registration are submit-

ted to and reviewed by the FDA. The FDA regulates the

testing, manufacturing, labeling and approval for market-

ing of pharmaceutical products intended for commer-

cialization in the US. The FDA continues to monitor the

safety of pharmaceutical products after they have been

approved for sale in the US market. The pharmaceutical

development and registration process is typically inten-

sive, lengthy and rigorous. When a pharmaceutical com-

pany has gathered data that it believes suciently

demonstrates a drug’s safety, ecacy and quality, the

company may ﬁlea New Drug Application (NDA) or Bio-

logics License Application (BLA), as applicable, for the

compound. The NDA or BLA must contain all the scien-

tiﬁc information that has been gathered about the com-

pound. This typically includes information regarding the

clinical experiences of patients tested in the drug’s clin-

ical trials. A Supplemental New Drug Application (sNDA)

or Supplemental Biologics License Application (sBLA)

must be ﬁled for new indications and dosage forms for

a previously approved drug.

Once an application is submitted, the FDA assigns

reviewers from its sta, including experts in biopharma-

ceutics, chemistry, clinical microbiology, pharmacology/

toxicology, and statistics. After a complete review, these

content experts provide written evaluations of the NDA

or BLA. These recommendations are consolidated and

are used by senior FDA sta in its ﬁnal evaluation of the

NDA or BLA. Based on that ﬁnal evaluation, the FDA then

provides to the NDA or BLA’s sponsor an approval, or a

“complete response” letter if the NDA or BLA applica-

tion is not approved. If not approved, the letter will state

the speciﬁc deﬁciencies in the NDA or BLA that need to

be addressed. The sponsor must then submit an ade-

quate response to the deﬁciencies in order to restart the

review procedure.

Once the FDA has approved an NDA, BLA, sNDA or

sBLA, the company can make the new drug available for

physicians and other healthcare providers to prescribe.

The drug owner must submit periodic reports to the FDA,

including any cases of adverse reactions. For some med-

ications, the FDA requires additional post-approval stud-

ies (PhaseIV) to evaluate long-term eects or to gather

information on the use of the product under speciﬁed

conditions.

Throughout the life cycle of a product, the FDA

requires compliance with standards relating to good lab-

oratory, clinical and manufacturing practices. The FDA

also requires compliance with rules pertaining to the

manner in which we may promote our products.

European Union

In the EU, there are three main procedures for applica-

tion for authorization to market pharmaceutical products

in more than one EU member state at the same time: the

centralized procedure, the mutual recognition procedure

and the decentralized procedure. It is also possible to

obtain a national authorization for products intended for

commercialization in a single EU member state only. The

procedure used for ﬁrst authorization must continue to

be followed for subsequent changes, e.g., to add an indi-

cation for a licensed product.

Under the centralized procedure, applications are

made to the EMA for an authorization that is valid for the

European Union (all member states). The centralized pro-

cedure is mandatory for all biotechnology products; new

chemical entities in cancer, neurodegenerative disor-

ders, diabetes, AIDS, autoimmune diseases and other

immune dysfunctions; advanced therapy medicines,

such as gene therapy, somatic cell therapy and tis

sue-engineered medicines; and orphan medicines

(medicines for rare diseases). It is optional for other new

chemical entities, innovative medicinal products, and

medicines for which authorization would be in the inter-

est of public health. When a pharmaceutical company

has gathered data that it believes suciently demon-

strates a drug’s safety, ecacy and quality, the company

may submit an application to the EMA. The EMA then

receives and validates the application, and the special-

ized committee for human medicines, the CHMP, appoints

a rapporteur and co-rapporteur to review it. They use

experts from their countries to carry out the assessment

but can also draw on expertise from other member states

(“multinational teams”). The entire review cycle must be

completed within 210days, although there are “clock

stops” to allow the company to respond to questions set

forth in the rapporteur and co-rapporteur’s assessment

report and agreed with the CHMP. The ﬁrst clock stop

is at Day 120 and the clock restarts on Day 121, when the

company’s complete response is received by the EMA.

If there are further aspects of the dossier requiring clar-

iﬁcation, the CHMP will issue further questions at Day

180, and may also request an oral explanation, in which

case the sponsor must not only respond to the further

questions but also appear before the committee to jus-

tify its responses. On Day 210, the CHMP will take a vote

to recommend the approval or non-approval of the appli-

cation, and their opinion is transferred to the EC. The

ﬁnal EC decision under this centralized procedure is a

single decision that is applicable to all member states.

This decision occurs 60days, on average, after a posi-

tive CHMP recommendation.

Under both the mutual recognition procedure (MRP)

and the decentralized procedure (DCP), the assessment

is led by one member state, called the reference mem-

ber state (RMS) which then liaises with other member

states, known as the concerned member states. In the

MRP, the company ﬁrst obtains a marketing authoriza-

tion in the RMS, which is then recognized by the con-

cerned member states in 90 days. In the DCP, the appli-

cation is done simultaneously in the RMS and all

concerned member states. During the DCP, the RMS

drafts an assessment report within 120days. Within an

additional 90days, the concerned member states review

the application and can issue objections or requests for

additional information. On Day 90, each concerned mem-

ber state must be assured that the product is safe and

eective, and that it will cause no undue risks to the pub-

lic health. Once an agreement has been reached, each

member state grants national marketing authorizations

for the product.

After receiving the marketing authorizations, the

company must submit periodic safety reports to the rel-

evant health authority (EMA for the centralized proce-

dure, national health authorities for DCP or MRP). In addi-

tion, pharmacovigilance measures must be implemented

Item4. Information on the Company

and monitored, including the collection, evaluation and

expedited reporting of adverse events, and updates to

risk management plans. For some medications, post-ap-

proval studies (PhaseIV) may be imposed to comple-

ment available data with additional data to evaluate long-

term eects (called a Post-Approval Safety Study, or

PASS) or to gather additional ecacy data (called a

Post-Approval Ecacy Study, or PAES).

European marketing authorizations have an initial

duration of ﬁve years. The holder of the marketing autho-

rization must actively apply for its renewal after this ﬁrst

ﬁve-year period. As part of the renewal procedure, the

competent authority performs a full beneﬁt-risk review

of the product. Should the authority conclude that the

beneﬁt-risk balance is no longer positive, the marketing

authorization can be suspended or revoked. Once

renewed, the marketing authorization is valid for an unlim-

ited period, unless it is determined that the product must

be further monitored for safety reasons. In this case, the

authority may require another renewal at 10 years. If the

holder does not apply for renewal, the marketing autho-

rization automatically lapses. Any marketing authoriza-

tion that is not followed within three years of its granting

by the actual placing on the market of the correspond-

ing medicinal product ceases to be valid.

Price controls

In most of the markets where we operate, the prices of

pharmaceutical products are subject to both direct and

indirect price controls and to drug reimbursement pro-

grams with varying price control mechanisms. Due to

increasing political pressure and governmental budget

constraints, we expect these mechanisms to remain

robust – and potentially even strengthened – and to have

a continued negative inﬂuence on the prices we are able

to charge for our products.

Direct governmental eorts to control prices

United States: The Inﬂation Reduction Act of 2022 (the

“Act”) was signed into law, which mandates the negoti-

ation of eligible Medicare Part B and Part D drugs; rede-

signs the Medicare Part D beneﬁt, including a USD 2 000

out-of-pocket cap for Medicare beneﬁciaries; and

imposes penalties for Medicare drugs that increase in

price faster than the rate of inﬂation. Under the Act, the

US government is required to negotiate the Medicare

prices of single-sourced small molecule drugs that have

been on the market for seven years following FDA

approval as well as single-sourced biologics that have

been on the market for 11 years after FDA approval.

Medicare drugs with the highest total cost to the US

government will be selected for negotiation once they

become eligible. Exemptions include orphan drugs with

an indication for one rare disease or condition, drugs

with a total cost to the US government of less than

USD200 million, and plasma-derived drugs.

The negotiated price will be publicly available and will

become eective for selected drugs nine years after FDA

approval for eligible small molecules and 13 years after

approval for eligible biologics. The negotiated price will

be implemented as follows:

• 10 eligible Medicare Part D drugs in 2026;

• an additional 15 eligible Medicare Part D drugs in 2027;

• an additional 15 eligible combined Medicare PartB and

Part D drugs in 2028;

• an additional 20 eligible combined Medicare PartB and

Part D drugs in 2029; and

• an additional 20 eligible combined Medicare PartB and

Part D drugs each year after 2029

Novartis will participate in the Medicare negotiation pro-

cess if Novartis drugs are selected. Pharmaceutical man-

ufacturers that choose not to participate in the negotia-

tion process will be subject to an excise tax of up to 95%

of sales. Novartis may also be aected by other provi-

sions of the Act, such as price increase penalties for

Medicare Part D drugs starting in 2022 and for Medicare

Part B drugs in 2023, and rebates on eligible Medicare

Part D sales starting in 2025.

In addition, by December 31, 2022, 20 US states had

passed legislation intended to impact pricing or requir-

ing manufacturer price transparency reporting, with

eight of these states also allowing for drug aordability

(i.e., price control) review boards. The disclosure require-

ments vary by state. Many states require multiple types

of reporting, including for new drug applications, new

drug launches, prior notice of price increases, and quar-

terly or annual reporting. It is expected that state legis-

latures will continue to focus on drug pricing in 2023 and

that similar bills will be passed in more states.

Europe: In Europe, our operations are subject to signif-

icant price and marketing regulations. Many govern-

ments are introducing healthcare reforms in a further

attempt to curb increasing healthcare costs. In some

member states, these include reforms to permit the reim-

bursed use of o-label medicines, despite the presence

of licensed alternatives on the market. In the EU, govern-

ments inﬂuence the price of pharmaceutical products

through their control of national healthcare systems that

fund a large part of the cost of such products to patients.

The downward pressure on healthcare costs in general

in the EU, particularly with regard to prescription drugs,

is intense. Increasingly strict analyses are applied when

evaluating the entry of new products, and as a result,

access to innovative medicines is limited based on strict

cost-beneﬁt assessments. In addition, prices for mar-

keted products are referenced within member states and

across international borders, further impacting individ-

ual EU member state pricing. Member states also col-

laborate to enhance pricing transparency and have

started conducting joint health technology assessments,

joint pricing negotiations and/or joint purchasing. As an

additional control for healthcare budgets, some EU coun-

tries have passed legislation to impose further manda-

tory rebates for pharmaceutical products and/or ﬁnan-

cial claw-backs on the pharmaceutical industry. The

calculation of these rebates and claw-backs may lack

transparency in some cases and can be dicult to pre-

dict.

Regulations favoring generics and biosimilars

In response to rising healthcare costs, most govern-

ments and private medical care providers have estab-

lished reimbursement schemes that favor the substitu-

tion of generic pharmaceuticals for more expensive

Item4. Information on the Company

brand-name pharmaceuticals. All US states have generic

substitution statutes. These statutes permit or require

the dispensing pharmacist to substitute a less expensive

generic drug instead of an original drug. Other countries,

including many European countries, have similar laws.

We expect that the pressure for generic substitution will

continue to increase. In addition, the US, the EU and other

jurisdictions are increasingly introducing laws and regu-

lations encouraging the development of biosimilar ver-

sions of biologic drugs, which can also be expected to

have an impact on pricing.

Cross-border sales

Price controls in one country can have an impact in other

countries as a result of cross-border sales. In the EU,

products that we have sold to customers in countries

with stringent price controls can be legally resold to cus-

tomers in other EU countries at a lower price than the

price at which the product is otherwise available in the

importing country (known as parallel trade). In North

America, products that we have sold to customers in

Canada – which has relatively stringent price controls –

are sometimes resold into the US, again at a lower price

than the price at which the product is otherwise sold in

the US. Such imports from Canada and other countries

into the US are currently illegal in most states. However,

six US states (Colorado, Florida, Minnesota, New Hamp-

shire, New Mexico, and Vermont) have enacted laws

allowing the import of pharmaceutical drugs from select

foreign countries. The Secretary of the US Department

of Health and Human Services (HHS) must certify that

each state’s importation plan is safe and cost-eective

before it can be implemented.

We expect that pressures on pricing will continue

worldwide and will likely increase. Because of these

pressures, there can be no certainty that in every instance

we will be able to charge prices for a product that, in a

particular country or in the aggregate, would enable us

to earn an adequate return on our investment in that

product.

Intellectual property

We attach great importance to intellectual property (IP)

rights – including patents, trademarks, copyrights,

know-how, trade secrets and regulatory data protection

– as essential to our purpose of reimagining medicine to

improve and extend people’s lives, and to protect our

investment in research and development, manufacturing

and marketing. The IP system provides a means to attract

the investments needed to conduct and sustainably

ﬁnance innovative R&D, and to manage the risks inher-

ent in our work. For example, we seek IP protection under

applicable laws for signiﬁcant product developments in

major markets. Among other things, patents may cover

the products themselves, including the product’s active

ingredient or ingredients and its formulation. Patents may

cover processes for manufacturing a product, including

processes for manufacturing intermediate substances

used in the manufacture of the product. Patents may also

cover particular uses of a product, such as its use to treat

a particular disease, or its dosage regimen. In addition,

patents may cover tests for certain diseases or

biomarkers – which can improve patient outcomes when

administered with certain drugs – as well as assays,

research tools and other techniques used to identify new

drugs. The protection aorded, which may vary from

country to country, depends upon the type of patent, its

duration and its scope of coverage.

In the US and other countries, the law recognizes that

product development and review by the FDA and other

health authorities can take an extended period, and pro-

vides an extension of patent term for a period related to

the time taken for the conduct of clinical trials and for

the health authority’s review. However, the length of this

extension and the patents to which it applies cannot be

known in advance and can only be determined after the

product is approved. In practice, it is not uncommon for

patent term extensions (PTEs) or supplementary protec-

tion certiﬁcates (SPCs) to not fully account for the time

it took to develop the product and receive marketing

authorization. As a result, it is rarely the case, for exam-

ple, that a `product’s active ingredient(s) will have a full

patent term at the time the product is approved by the

FDA and other health authorities.

In addition to patent protection, various countries pro-

vide regulatory-based protection, including regulatory

data protection (RDP) and/or other market exclusivities,

for a prescribed period of time. RDP is a distinct type of

IP right providing exclusivity that precludes a potential

competitor from ﬁling a regulatory application that relies

on the sponsor’s clinical trial data, or that precludes the

regulatory authority from approving the application for

a set period of time. The RDP period can vary depend-

ing on the type of data included in the sponsor’s appli-

cation. When it is available, market exclusivity, unlike RDP,

may preclude a competitor from obtaining marketing

approval for a product even if a competitor’s application

relies on its own data. RDP and market exclusivity peri-

ods generally run from the date a product is approved,

and so their expiration dates cannot be known with cer-

tainty until the product approval date is known and exclu-

sivity has been granted by the relevant authorities.

United States

Patents

In the US, a patent issued from an application ﬁled today

will receive a term of 20years from the earliest applica-

tion ﬁling date, subject to potential patent term adjust-

ments for delays in patent issuance based upon certain

delays in prosecution by the United States Patent and

Trademark Oce (USPTO). A US pharmaceutical patent

that claims a product, method of treatment using a prod-

uct, or method of manufacturing a product may also be

eligible for a PTE. This type of extension may only extend

the patent term for a maximum of ﬁveyears, and may not

extend the patent term beyond 14years from regulatory

approval. Only one patent may be extended for a prod-

uct based on FDA review.

RDP and market exclusivity

Separate from patent exclusivities, the FDA may provide

regulatory-based protection, which runs in parallel to any

patent protection.

• A new small-molecule active pharmaceutical ingredi-

ent receives ﬁve years of RDP, during which time a com-

petitor generally may not obtain ﬁnal approval of an

Item4. Information on the Company

application to the FDA based on a sponsor’s clinical

data.

• A new biologic active pharmaceutical ingredient

receives 12 years of regulatory-based market exclusiv-

ity, during which time a competitor generally may not

market the same or similar drug.

• The FDA may also request that a sponsor conduct

pediatric studies and, in exchange, it will grant an addi-

tional six-month period of pediatric market exclusivity

if the sponsor makes a timely submission of the reports

of the pediatric studies in response to the FDA’s Writ-

ten Request. The sponsor must also have a pat-

ent-based and/or regulatory-based exclusivity period

for the product to which the pediatric market exclusiv-

ity is appended.

• Orphan drug exclusivity provides seven years of mar-

ket exclusivity for drugs designated by the FDA as

orphan drugs, meaning drugs that treat rare diseases.

During this period, a potential competitor generally may

not market the same or similar drug for the same indi-

cation even if the competitor’s application does not rely

on data from the sponsor.

European Union

Patents

Patent applications in Europe may be ﬁled in the Euro-

pean Patent Oce (EPO) or in a particular country or

countries. The EPO system permits a single application

to be granted for the EU plus other non-EU countries

such as Switzerland, Turkey and the UK. When the EPO

grants a patent, it is then validated in the countries that

the patent owner designates. The term of a patent

granted by the EPO or a European country oce is

20years from the earliest application ﬁling date. Phar-

maceutical patents can be granted a further period of

exclusivity under the SPC system. SPCs are designed,

in part, to account for the time taken to receive market-

ing authorization of a product by the European health

authorities. An SPC may be granted to provide, in com-

bination with the patent, up to 15years of exclusivity from

the date of the ﬁrst European marketing authorization.

However, an SPC cannot last longer than ﬁveyears. The

SPC duration may be extended by a further sixmonths

if the product is the subject of an agreed and success-

fully completed pediatric investigation plan. The

post-grant phase of patents, including the SPC system,

is currently administered on a country-by-country basis

under national laws that, while diering, are intended to

(but do not always) have the same eect.

RDP and market exclusivity

Separate from patent exclusivities, the EU provides a

system of regulatory data protection for authorized

human medicines that runs in parallel to any patent pro-

tection. The system for new drugs being approved today

is usually referred to as “8+2+1” because it provides an

initial period of eightyears of data protection, during

which a competitor cannot rely on the relevant data; a

further period of twoyears of market exclusivity, during

which the data can be used to support applications for

marketing authorization but a competitive product can-

not be launched; and a possible one-year extension of

the market exclusivity period if, during the initial eight-year

data exclusivity period, the sponsor registered a new

therapeutic indication with “signiﬁcant clinical beneﬁt.”

This system generally applies both to national and cen-

tralized authorizations in the EU plus other non-EU coun-

tries such as the UK.

The EU also has an orphan drug exclusivity system

for medicines. If a medicine is designated as an orphan

drug, then it beneﬁts from 10years of market exclusivity

after it is authorized, during which time an application for

the same or similar medicine for the same indication will

not generally be accepted or granted. Under certain cir-

cumstances, this exclusivity can be extended with a

two-year pediatric extension.

Third-party patents and challenges to intellectual

property

Third parties can challenge our IP, including patents, pat-

ent term extensions, RDP and marketing exclusivities

(such as pediatric extensions and orphan drug exclusiv-

ity), through various proceedings. For example, patents

in the US can be challenged in the United States Patent

and Trademark Oce (USPTO) through various pro-

ceedings, including Inter Partes Review (IPR) and Post-

Grant Review (PGR) proceedings. They may also be chal

lenged through patent infringement litigation under the

Abbreviated New Drug Application (ANDA) provisions of

the Hatch-Waxman Act or under the Biologics Price

Competition and Innovation Act (BPCIA). In the EU, pat-

ents may be challenged through oppositions in the EPO,

or national patents may be challenged in national courts

or national patent oces. The outcomes of such chal-

lenges can be dicult to predict.

In addition to directly challenging our IP rights, in

some circumstances a competitor may be able to mar-

ket a generic version of one of our products by, for exam-

ple, designing around our patents or marketing the

generic product for non-patent-protected indications, or

ﬁling a separate New Drug Application (NDA) under the

Hatch-Waxman Act (typically referred to as a 505(b)(2)

application). Despite RDP, a competitor could opt to incur

the costs of conducting its own clinical trials and prepar-

ing its own regulatory application, and avoid our RDP

altogether. There is a risk that some countries may seek

to impose limitations on or seek not to recognize the

availability of IP rights for pharmaceutical products, or

limit the extent to which such rights may be enforced.

Also, even though we may own, co-own or in-license pat-

ents protecting our products, and conduct free-

dom-to-operate analyses, a third party may nevertheless

assert that one of our products infringes a third-party

patent for which we do not have a license, seeking rem-

edies such as monetary damages or an injunction against

our continued marketing of the product.

As a result, there can be no assurance that our IP

rights will protect our products or that we will be able to

avoid adverse eects from the loss of IP protection or

from third-party patents in the future.

Intellectual property protection for certain key

marketed products and compounds in development

We present additional details below regarding certain IP

protection for the listed Innovative Medicines Division

products. For each, we identify issued, unexpired

Item4. Information on the Company

patents by their general subject matter and, in parenthe-

ses, years of expiry, if relevant, in the US and the EU. The

identiﬁed patents are owned, co-owned or exclusively

in-licensed by Novartis and relate to at least one dosage

strength of the product or to the method of treatment or

its use as it is currently approved and marketed or, in the

case of a compound in development, as it is currently

submitted to the FDA and/or the EMA for approval. Iden-

tiﬁcation of an EU patent refers to national patents in EU

countries and/or to the national patents that have been

derived from a patent granted by the EPO. Novartis may

own, co-own, control or have rights to additional patents,

for example, relating to compound forms, methods of

treatment or use, formulations, devices, processes, prod-

uct-by-process, synthesis, puriﬁcation and detection.

We identify unexpired RDP periods and, in parenthe-

ses, years of expiry if the relevant marketing authoriza-

tions have been authorized or granted. We identify cer-

tain unexpired patent term extensions and marketing

exclusivities and, in parentheses, years of expiry if they

are granted; their subject matter scope may be limited

and is not speciﬁed. Marketing exclusivities and patent

term extensions include orphan drug exclusivity (ODE),

pediatric exclusivity (PE), patent term extension (PTE)

and supplementary protection certiﬁcate (SPC). We des-

ignate these as “pending” if they have been applied for

but not granted and include years of expiry if estimable.

Such pending applications ultimately may or may not be

granted.

In the case of the EU, identiﬁcation of a patent, sup-

plementary protection certiﬁcate, marketing exclusivity

or regulatory data protection means grant, authorization

and maintenance in at least one EU country or the UK.

However, it could be pending, not granted, expired or

found invalid in others.

For each product below, we indicate whether there

is current generic or biosimilar competition for one or

more product versions in one or more approved indica-

tions in either the US or one or more EU countries, if IP

is otherwise disclosed. We identify certain enforcement

actions, or ongoing challenges to the disclosed IP, includ-

ing IPRs or PGRs if instituted by the USPTO, that have

not been ﬁnally resolved (including appeals) unless

noted. Challenges identiﬁed as being in administrative

entities, such as national patent oces, include judicial

appeals from decisions of those entities. Resolution of

challenges to the disclosed IP, which in the EU may

involve IP in one or more EU countries, may include set-

tlement agreements under which Novartis permits or

does not permit future launch of generic versions of our

products before expiration of that IP. We identify certain

material terms of such settlement agreements where

they could have a material adverse eect on our busi-

ness. In other cases, such settlement agreements may

contain conﬁdentiality obligations restricting what may

be disclosed.

In the event that a product listed below does not have

identiﬁed patents as described above, we provide infor-

mation only on generic competition.

For additional information regarding commercial arrange-

ments with respect to these products, see “—Key mar-

keted products.”

Cardiovascular

• Entresto. US: Four patents on combination (2023 (4)),

PTE (2025), four PEs (2023, 2023, 2024, 2025); two

patents on complex (2026, 2027), two PEs (2027,

2027); three patents on methods of treatment (2033

(3)); patent on dosage regimen (2036); RDP for new

pediatric patient population (2022), PE (2023); RDP for

labeling changes related to new clinical investigation

(2024). EU: Patent on combination (2023), SPC (2028);

two patents on complex (2026, 2026), two SPCs

(2030, 2030); patent on formulation (2028); patent on

method of use (2034); RDP (2025). There is no generic

competition in the US or the EU. In the US, two combi-

nation patents, the two complex patents, and the dos-

age regimen patent are being challenged in ANDA pro-

ceedings against generic manufacturers. In the EU, one

complex patent and the use patent are being opposed

in the EPO. In some EU countries, the combination pat-

ent or its associated SPC is being challenged by

generic manufacturers.

• Leqvio. US: Two patents on composition of matter

(2027, 2034), PTE pending (2035); two patents on

method of treatment and dosing regimen (2027, 2036);

RDP (2026). EU: One patent on composition of matter

(2033), SPC (2035); RDP (2030). There is no generic

competition in the US or the EU.

Immunology

• Cosentyx. US: Five patents on composition of matter

(2025 (4), 2026), PTE (2029); patent on psoriatic arthri-

tis use (2031); patent on psoriasis use (2032); two pat-

ents on ankylosing spondylitis use (2032, 2033); RDP

(2027). EU: Four patents on composition of matter

(2025 (4)), SPC (2030), PE (2030); patent on psoriasis

use (2031); patent on ankylosing spondylitis use (2031);

RDP (2026). There is no generic competition in the US

or the EU. In the EU, the patent on ankylosing spondy-

litis use is being opposed in the EPO.

• Xolair. US: Two patents on syringe formulation (2024,

2025). EU: Three patents on syringe formulation (2024,

2024, 2025). There is no generic competition in the US

or the EU.

• Ilaris. US: Patent on composition of matter (2024); pat-

ent on cryopyrin-associated periodic syndromes use

(2026); patent on familial Mediterranean fever (FMF)

use (2026); patent on systemic onset juvenile idiopathic

arthritis (SJIA) use (2028); patent on hyperimmuno-

globulin D syndrome and tumor necrosis factor recep-

tor-associated periodic syndrome use (2029); patent

on formulation (2029). EU: Patent on composition of

matter (2021), SPC (2024), PE (2025); patent on SJIA

use (2026); patent on FMF use (2026); two patents on

formulation (2029, 2029). There is no generic compe-

tition in the US or the EU.

Neuroscience

• Gilenya. US: Patent on dosage regimen (2027), PE

(2027); patent on 0.25 mg formulation (2032), PE

(2032); patent on method of treatment (2027). EU: Pat-

ent on formulation (2024), SPC (2026); patent on

Item4. Information on the Company

0.25mg formulation (2032); patent on dosing regimen

(2027). There is generic competition in the US and in

most EU countries. In the US, the dosage regimen pat-

ent was challenged in ANDA proceedings against a

generic manufacturer and was found invalid by the US

Court of Appeals for the Federal Circuit in June 2022.

Novartis has ﬁled a petition seeking further review with

the US Supreme Court. Novartis is also enforcing the

method of treatment patent against a generic manu-

facturer. In the EU, Novartis is enforcing the dosing reg-

imen patent against generic manufacturers. The dos-

ing regimen patent is being opposed in the EPO.

• Zolgensma. US: Four patents on composition of mat-

ter (2024, 2024, 2026, 2033), PTE pending (2029);

three patents on methods of treatment (2028, 2028,

2029); ODE for spinal muscular atrophy (SMA) in

patients less than 2 years old with biallelic mutations

in the SMN1 gene (2026); RDP (2031). EU: Three pat-

ents on composition of matter (2024, 2024, 2028), SPC

(2029); two patents on methods of use (2028, 2028),

SPC (2033), SPC pending (2033); ODE for SMA in

patients with a biallelic mutation in the SMN1 gene and

a clinical diagnosis of SMA type 1, or patients with a

biallelic mutation in the SMN1 gene and up to three cop-

ies of the SMN2 gene (2030); RDP (2030). There is no

generic competition in the US or the EU.

• Kesimpta. US: Patent on compound (2031); patent on

dosing regimen (2037). EU: Patent on compound

(2023); patent on use (2023), SPC (2028); patent on

formulation (2028), patent on formulation and use

(2028), SPC (2033); patent on dosing regimen (2037).

There is no generic competition in the US or the EU.

Solid Tumor

• Taﬁnlar and Mekinist.

Taﬁnlar. US: Two patents on compound (2030, 2030);

patent on method of treatment (2029). EU: Patent on

compound (2029); RDP (2024). There is no generic

competition in the US or the EU.

Mekinist. US: Patent on compound (2025), PTE (2027);

patent on method of treatment (2025); four patents on

formulation (2032 (4)). EU: Patent on compound (2025),

SPC (2029); patent on formulation (2031); RDP (2025).

There is no generic competition in the US or the EU. In

the EU, the formulation patent is being opposed in the

EPO.

Use of Mekinist with Taﬁnlar or Taﬁnlar with Mekinist.

US: Patent on combination (2030); four patents on

method of use of combination (2025, 2030, 2030,

2033); ODE on non-small cell lung cancer (2024); ODE

on adjuvant treatment of melanoma (2025); ODE on

anaplastic thyroid cancer (2025); ODE on metastatic

solid tumors (2025). EU: Patent on combination (2030);

patent on adjuvant for melanoma use (2033). There is

no generic competition in the US or the EU. In the EU,

the adjuvant use patent is being opposed in the EPO.

• Kisqali. US: Three patents on compound (2028, 2030,

2031), PTE (2031); three patents on methods of treat-

ment (2029, 2029, 2031); patent on salt form (2031);

patent for tablet formulation (2036). EU: Patent on com-

pound (2027); patent on compound (2029), SPC

(2032); patent on salt form (2031); patent on methods

of use with letrozole (2034); patent on formulation

(2036); RDP (2027). There is no generic competition

in the US or the EU. In the US, the three compound pat-

ents, the three method of treatment patents, the salt

patent and the formulation patent are being challenged

in ANDA proceedings against generic manufacturers.

In the EU, the method of use patent is being opposed

in the EPO.

• Piqray. US: Patent on compound (2029); patent on com-

pound and use (2029), PTE pending (2033); RDP

(2024). EU: Patent on compound and use (2029), SPC

(2034); RDP (2030). There is no generic competition

in the US or the EU.

• Pluvicto. US: Three patents on composition of matter

(2028, 2028, 2034); RDP (2027). PTE pending. EU:

RDP (2032). There is no generic competition in the US

or the EU.

Hematology

• Promacta/Revolade. US: Patent on compound (2021),

PTE (2022), PE (2023); patent on method of enhanc-

ing platelet production using salt (2023), PE (2023);

patent on salt form and thrombocytopenia use (2025),

PE (2026); ﬁve patents on tablet formulations of dier-

ent dose strengths (2027 (5)), ﬁve PEs (2028 (5)); ODE

on severe aplastic anemia patients in combination with

standard immunosuppressive therapy (2025). EU: Pat-

ent on compound (2021), SPC (2025), PE (2025); pat-

ent on salt form (2023); patent on severe aplastic ane-

mia use (2028). There is no generic competition in the

US or the EU. In the US, generic manufacturers have

ﬁled ANDAs challenging certain patents other than the

compound patent. In the EU, the severe aplastic ane-

mia use patent is being opposed in the EPO.

• Tasigna. US: Patent on compound (2023), PE (2024);

two patents on salt forms (2026, 2028), two PEs (2027,

2029); patent on polymorph compound form (2026),

PE (2027); two patents on capsule form (2026, 2027),

two PEs (2027, 2028); patent on method of treatment

(2032), PE (2032). EU: Patent on compound (2023);

patent on salt form (2026); patent on polymorph com-

pound form (2026); patent on capsule form (2027); pat-

ent on method of treatment (2030). There is no generic

competition in the US or the EU. In the US, generic man-

ufacturers have ﬁled ANDAs challenging certain pat-

ents other than the compound patent.

• Jakavi. EU: Patent on compound (2026), SPC (2027);

two patents on salt form (2028, 2028); patent on com-

pound for polycythemia vera (PV) use (2026); patent

on salt form for graft-versus-host disease (GvHD) use

(2028). There is no generic competition in the EU.

Item4. Information on the Company

• Scemblix. US: Patent on compound (2033), PTE pend-

ing (2035); Patent on polymorph compound form

(2040); RDP (2026); ODE (2028). EU: Patent on com-

pound (2033), SPC pending (2037); RDP (2032);

ODE(2032). There is no generic competition in the US

or the EU.

Other Promoted Brands

• Lucentis. EU: There is generic competition in some EU

markets.

• Xiidra. US: Four patents on compound (2024, 2024,

2025, 2026); two patents on formulation (2024, 2033);

ﬁve patents on method of treatment (2024, 2024, 2026,

2029, 2029); one patent on polymorph compound form

(2029). PTE pending. There is no generic competition

in the US. Xiidra is not marketed in the EU. In the US,

the compound, compound and use, formulation,

method of treatment, and polymorph compound form

patents are being challenged in ANDA proceedings

against generic manufacturers.

Established Brands

• Sandostatin SC and Sandostatin LAR:

Sandostatin SC: There is generic competition in the US

and the EU.

Sandostatin LAR: There is generic competition in most

EU countries but no generic competition in the US.

Compounds in development

We provide certain patent information for non-marketed

compounds in development that have been submitted to

the FDA and/or the EMA for registration but have not yet

been approved by either agency. For these products,

Novartis will seek all appropriate RDP, will continue to

seek additional intellectual property protection for sig-

niﬁcant product developments, and will apply for PTEs

and SPCs in keeping with the great importance we attach

to intellectual property.

• VDT482 (tislelizumab). US: Patent on composition of

matter (2033). EU: Patent on composition of matter

(2033).

Sandoz

Our Sandoz Division is a global leader in generic

pharmaceuticals and biosimilars, and sells products in

well over 100 countries. In 2022, the Sandoz Division

achieved consolidated net sales of USD 9.2billion, rep-

resenting 18.3% of the Group’s total net sales. Sandoz

develops, manufactures and markets ﬁnished dosage

form medicines as well as intermediary products includ-

ing active pharmaceutical ingredients.

Sandoz is organized globally into three franchises:

Retail Generics, Anti-Infectives and Biopharmaceuticals.

In Retail Generics, Sandoz develops, manufactures and

markets ﬁnished dosage forms of small-molecule

pharmaceuticals for sale to third parties across a broad

range of therapeutic areas, including ﬁnished dosage

form anti-infectives sold to third parties. In Anti-Infec-

tives, Sandoz manufactures and supplies active pharma-

ceutical ingredients and intermediates – mainly antibiot-

ics – for internal use by Retail Generics and for sale to

third-party customers. In Biopharmaceuticals, Sandoz

develops, manufactures and markets protein- and other

biotechnology-based products, including biosimilars.

The Sandoz strategic ambition is to be the world’s

leading and most valued generics and biosimilars com-

pany . Our divisional strategy focuses on three areas:

developing a broad and consistent pipeline of generic

and biosimilar launches across key geographies and

across a broad range of therapeutic areas; positioning

Sandoz to be “ﬁrst in” by having a strong pipeline with a

focus on being ﬁrst to market and “last out” by way of

competitive costs and stable supply; and instilling a true

“generic mindset,” with a focus on priorities, simple and

rapid decision-making, and focused resource allocation.

Sandoz is a global market leader in biosimilars, with

a total of eight approved and marketed products, and a

pipeline of over 15 molecules. In addition to internally

developed projects, our biosimilar portfolio comprises

publicly announced commercialization agreements with

BioCon, Gan & Lee, EirGenix, Polpharma Biologics and

Bio-Thera Solutions Ltd. Availability of our biosimilars

varies by country.

Sandoz is also the global market leader in generic

antibiotics. Its Kundl, Austria, manufacturing site is the

hub of the last fully vertically integrated penicillin pro-

duction chain in Europe, which oers certain competi-

tive advantages including added supply chain resilience.

In January 2020, we closed the previously announced

acquisition of the Japanese business of Aspen Global

Incorporated, consisting of o-patent branded medicines

with a focus on anesthetics and specialty brands.

In July 2020, Sandoz and the Austrian government

announced a planned combined investment of more than

EUR 150 million to enhance the long-term competitive-

ness and supply resilience of European production for

key antibiotics.

In May 2021, Sandoz conﬁrmed details of a previously

announced investment of EUR 100 million in antibiotic

manufacturing technology for its Kundl, Austria, manu-

facturing site, and announced an additional EUR 50 mil-

lion investment in a new sterile production line in Pala-

folls, Spain. In November 2022, Sandoz announced an

additional EUR 50 million investment to support increased

manufacturing capacity for ﬁnished dosage form peni-

cillin at its Kundl, Austria, manufacturing site.

In October 2021, Sandoz announced that its planned

acquisition of GSK’s global cephalosporin antibiotics

business, ﬁrst announced in February 2021, had been

successfully closed.

On October 1, 2021, Sandoz Inc., the US subsidiary

of Sandoz, entered into a settlement agreement with the

Civil Division of the US Department of Justice (DOJ) con-

cerning the department’s years-long pricing investiga-

tion into the US generic drug industry. This settlement

Item4. Information on the Company

was an expected outcome of the resolution the company

reached in March 2020 with the DOJ Antitrust Division

regarding the same investigation and underlying con-

duct. As part of the settlement, Sandoz agreed to cer-

tain corporate integrity obligations as part of a corporate

integrity agreement with the Oce of Inspector General

of the US Department of Health and Human Services,

which have now been implemented. The settlement con-

tains no new factual allegations against Sandoz and, in

2020, the Group fully provisioned for this settlement and

disclosed the agreement in principle as part of the March

2020 resolution. For more information, see “Item 18.

Financial Statements—Note 20. Provisions and other

non-current liabilities.”

In August 2022, Novartis announced its intention to

separate the Sandoz business to create a standalone

company by way of a 100% spin-o, concluding the

Strategic Review announced in October 2021. The Stra-

tegic Review determined that a 100% spin-o would be

in the best interests of shareholders as it would create

two standalone companies focused on their respective

growth strategies. The new company is planned to be

incorporated in Switzerland and to be listed on the SIX

Swiss Exchange, with an American Depositary Receipt

(ADR) program in the US. Completion of the transaction

is subject to certain conditions, including consultation

with works councils and employee representatives (as

required), general market conditions, tax rulings and

opinions, ﬁnal Board of Directors endorsement and

shareholder approval in line with Swiss corporate law.

The transaction is expected to be generally tax neutral

to Novartis, with completion expected in the second half

of 2023.

Key marketed products

The Sandoz global portfolio covers a wide range of therapeutic areas. The following are some of the Sandoz key

marketed products in each of its franchises (availability varies by market):

Retail Generics

Product Originator drug Description

Amoxicillin/clavulanic acid Augmentin

Antibiotic

Zoledronic acid Aclasta Osteoporosis treatment

Acetylcysteine Various Mucolytic agent

Tacrolimus Various Immunosuppressive agent

Anti-Infectives

Active ingredients Description

Oral and sterile penicillins Anti-infectives

Oral and sterile cephalosporins Anti-infectives

Clavulanic acid and mixtures with clavulanic acid Beta-lactam inhibitors

Classical and semisynthetic macrolides Anti-infectives

Intermediates Description

Various cephalosporin intermediates Anti-infectives

Macrolide base intermediates Anti-infectives

Various crude compounds produced by fermentation Cyclosporine, ascomycin, rapamycin, mycophenolic acid, etc.

Item4. Information on the Company

Biopharmaceuticals

Product Originator drug Description

Omnitrope Genotropin

Recombinant human growth hormone to treat growth

disorders and growth hormone deﬁciency

Binocrit and Epoetin alfa Hexal Eprex

/Erypo

Recombinant protein (erythropoiesis-stimulating) agent

to treat anemia

Zarzio, Zarxio and Filgrastim Hexal Neupogen

Recombinant protein (granulocyte colony-stimulating

factor, short-acting) used in oncology

Glatopa Copaxone

Treatment for relapsing forms of multiple sclerosis

Erelzi



Enbrel

Fusion protein (TNF-alpha receptor) to treat multiple

immune-mediated inﬂammatory diseases

Rixathon MabThera

Chimeric monoclonal antibody (directed against

CD protein on B-cells) to treat blood cancers

and immunological diseases

Hyrimoz Humira

Monoclonal antibody (TNF-alpha antibody) to treat multiple

immune-mediated inﬂammatory diseases

Zessly Remicade

Monoclonal antibody (TNF-alpha antibody) to treat multiple

immune-mediated inﬂammatory diseases

Ziextenzo Neulasta

PEGylated form of a recombinant human granulocyte

colony-stimulating factor (long-acting) to

reduce duration of chemotherapy-induced neutropenia

and incidence of chemotherapy-induced febrile

neutropenia

Approved in the US in 2016. In patent litigation with Amgen, which markets Enbrel®, the US District Court of New Jersey ruled against Sandoz in August 2019, which was upheld on

appeal. The decision is ﬁnal and Sandoz cannot launch its Erelzi product in the US until 2029.

Selected development projects – biosimilars in PhaseIII development and

registration

The following table describes Sandoz biosimilar projects that are in registration trial or in registration with a regu-

latory agency (including ﬁling preparation):

Project/ Common Route of

product name (INN) Mechanism of action Potential indication/indications Therapeutic areas administration Current phase

GP denosumab Anti-RANKL Osteoporosis (same as originator) Endocrinology, Subcutaneous Phase III

monoclonal antibody Neurology

SOK aﬂibercept Recombinant fusion protein Ophthalmology indication (same as originator) Ophthalmology Intravitreal Phase III

that blocks VEGFA

EGIA



trastuzumab Anti-HER recombinant HER+ cancer tumors Oncology Intravenous Registration

IgG, humanized

monoclonal antibody

DSTA



natalizumab Anti-alpha integrin Multiple sclerosis and Crohn’s disease Neurology, Intravenous Registration

monoclonal antibody Immunology (US only)

HFT, insulin glargine, Long-acting (HFT)/ Diabetes Endocrinology, Subcutaneous Phase III/

SMQ, lispro, aspart rapid-acting insulin Diabetology Phase I

PYB



VVF



bevacizumab Recombinant humanized Solid tumors Oncology Intravenous Registration

monoclonal antibody that

blocks VEGF

Development in collaboration with EirGenix, Inc.

Development in collaboration with Polpharma Biologics

Development in collaboration with Gan & Lee

Development in collaboration with Bio-Thera Solutions

Item4. Information on the Company

Principal markets

The two largest generics markets in the world – the US and Europe – are the principal markets for Sandoz. The

following table sets forth the aggregate 2022 net sales of Sandoz by region:

Sandoz

 net sales

to third parties

USD millions



Europe 



United States 



Asia, Africa, Australasia 



Canada and Latin America 



Total 



Of which in Established Markets







Of which in Emerging Growth Markets







Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand.

Many Sandoz products are used for chronic conditions that require patients to consume the product over long peri-

ods of time, from months to years. Sales of our anti-infective products and over-the-counter cough and cold prod-

ucts are subject to material changes in seasonal demand, while sales of the vast majority of our other products are

not. The COVID-19 pandemic has substantially impacted seasonal variation in recent years.

Production

For information on the production of our products, see

“—Item 4.B Business overview—Innovative Medicines—

Production.”

In September 2020, as part of a broader reorganiza-

tion of Novartis Technical Operations (NTO), we estab-

lished the Sandoz Technical Operations (STO) platform

within NTO. STO focuses on producing generic medicines

for Sandoz, as well as related external supply operations

and supply chain. In October 2021, Sandoz created a

new position, Global Head, Sandoz Operations. This new,

broader role, includes full operational and ﬁnancial

accountability for manufacturing and supply as of Jan-

uary 1, 2023, and was established in anticipation of the

intended Sandoz 100% spin-o.

Due to impurities found in the active ingredient

batches sourced from third-party manufacturers, we

recalled Sandoz valsartan, losartan and irbesartan prod-

ucts in the second half of 2018 and the ﬁrst quarter of

2019, and ranitidine ﬁlm-coated tablets in the second

half of 2019, from several markets, in line with our qual-

ity standards for all of our marketed products. The dis-

covery of nitrosamines in some types of drug products

led several health regulators (e.g., EMA, FDA and others)

to conduct a detailed analysis of these impurities in

aected medicinal products. Novartis works with health

authorities around the world to continuously review all

chemical and biological human medicines for the possi-

ble presence of nitrosamines. The EMA, FDA and other

health authorities have provided guidance to the phar-

maceutical industry to prevent unacceptable levels of

nitrosamines in medicines. The EMA review concluded

in March 2021 for chemical human medicines and in July

2021 for biological human medicines. Based on guidance

from health authorities, any chemical and/or biological

human medicines products identiﬁed with a potential risk

for nitrosamines will undergo further testing. For these

products, we have provided initial testing and potential

control strategy updates to the EMA and other health

authorities. Due to constant and rapidly evolving health

authority requirements, the risk assessment and related

testing that we may be required to perform may increase.

We will submit and communicate the ﬁnal outcome of

any risk assessment and related testing to the relevant

health authorities within their expected time frame, and

make changes to the control strategy update, if neces-

sary.

Beginning in September 2021, we initiated a volun-

tary recall of all ﬁnished product batches of losartan and

losartan HCT products exceeding or potentially exceed-

ing acceptable regulatory limits of the losartan azide

impurity in the losartan drug substance. This impurity,

which is viewed as an industrywide issue, was initially

considered a mutagen that may increase the risk of can-

cer over time if allowed to rise above certain levels. This

recall was unrelated to the nitrosamine-related recalls

described above, and supply was re-established in

March 2022. Since the voluntary recall, further informa-

tion has been provided to the EMA by Novartis and other

companies in the industry, and the EMA has concluded

that the losartan azide impurity is to be classiﬁed as a

non-mutagenic impurity.

Marketing and sales

Sandoz sells a broad portfolio of products, including the

products of our Retail Generics franchise and biosimi-

lars, to wholesalers, pharmacies, hospitals and other

healthcare outlets. Sandoz adapts its marketing and

sales approach to local decision-making processes,

depending on the structure of the market in each coun-

try.

In response to rising healthcare costs, many govern-

ments and private medical care providers, such as health

Item4. Information on the Company

maintenance organizations, have instituted reimburse-

ment schemes that favor the substitution of bioequiva-

lent generic versions of originator pharmaceutical prod-

ucts, such as those sold by our Retail Generics franchise.

In the US, statutes have been enacted by all states that

permit or require pharmacists to substitute a less expen-

sive generic product for the brand-name version of a

drug that has been prescribed to a patient. Generic use

is growing in Europe, but penetration rates in many EU

countries (as a percentage of volume) remain well below

those in the US.

Recent trends have been toward continued consoli-

dation among distributors and retailers of Sandoz prod-

ucts, both in the US and internationally, which has

increased our customers’ purchasing leverage.

Legislative or regulatory changes can have a signiﬁ-

cant impact on our business in a country. For more infor-

mation on such changes, see “—Item 4.B Business over-

view—Innovative Medicines—Price controls.”

Our Anti-Infectives franchise supplies active phar-

maceutical ingredients and intermediates – mainly anti-

biotics – for internal use by Retail Generics and for sale

to the pharmaceutical industry worldwide.

Our Biopharmaceuticals franchise operates in an

already mature market framework in Europe and some

other markets, while the business environment is rapidly

evolving in the US and many international markets. Reg-

ulatory pathways for approving biosimilar products are

at various stages of maturity by market, but in some

cases are still relatively new or still in development. Pol-

icies have not yet been fully deﬁned or implemented

regarding the substitution and reimbursement of biosim-

ilars in many markets, including the US.

Competition

The market for generic products is characterized by

increasing demand for high-quality pharmaceuticals that

can be marketed at lower costs due to comparatively

minimal initial research and development investments.

Increasing pressure on healthcare expenditure and

numerous patent and data exclusivity period expirations

have encouraged more generic product launches, result-

ing in increased competition among the companies sell-

ing generic pharmaceutical products, leading to ongoing

price pressure. In particular, Sandoz faces increased

industrywide pressure on prices for generic products,

particularly in the US, driven by factors including cus-

tomer consolidation and growing competition from other

manufacturers of generic medicines. These factors con-

tributed to a decline in industrywide US sales that began

in 2017 and continued through 2022.

Development and registration

Development of Sandoz Biopharmaceuticals is jointly

overseen by Sandoz and GDD, and is governed by the

IMB. Development and registration activities for Retail

Generics products, and registration activities for Bio-

pharmaceuticals products, are also overseen by Sandoz.

Before a generic pharmaceutical may be marketed,

intensive technical and clinical development work must

be performed to demonstrate, in bioavailability studies,

the bioequivalence of the generic product to the

reference product. Nevertheless, research and develop-

ment costs associated with generic pharmaceuticals are

generally much lower than those of the originator

pharmaceuticals, as no original drug discovery, preclin-

ical studies or clinical trials on dose ﬁnding, safety and

ecacy are typically performed by the generics com-

pany. As a result, the dierent focus and lower costs of

the generic pharmaceutical model ultimately allow

generic pharmaceutical products to be oered at lower

prices, which support and contribute to the cost contain-

ment goals of healthcare systems.

While generic pharmaceuticals are follow-on ver-

sions of chemically synthesized molecules, biosimilar

products contain a version of the active substance of an

already approved biological reference medicine. Due to

the inherent variability and complexity of biologic prod-

ucts, including batch-to-batch dierences and variations

following manufacturing changes, the development and

the regulatory pathway of biosimilars dier signiﬁcantly

from that of generics.

The development of a biosimilar product is much

more technically challenging than the development of a

typical generic small-molecule pharmaceutical. While

generic pharmaceuticals normally do not require clinical

studies in patients, regulators worldwide do still require

such targeted studies for biosimilar products. Interna-

tional regulators are nonetheless increasingly discuss-

ing the potential for “tailored development” (which refers

to proposals that seek to implement a more ecient and

expedited biosimilar development process that elimi-

nates the current need for comparative clinical ecacy

and safety studies of biosimilars, without any resulting

compromise on quality, safety or ecacy) for certain

molecules. Biosimilars are engineered to match the ref-

erence medicine in quality, safety and ecacy. This is

achieved by systematically deﬁning the target range of

the reference medicine and then comparing the biosim-

ilar to the reference medicine at various development

stages to conﬁrm biosimilarity and to establish that there

are no clinically meaningful dierences between the pro-

posed biosimilar and the reference biologic. Because

the purpose of a biosimilar clinical development program

is to conﬁrm biosimilarity and not to establish ecacy

and safety de novo, the clinical studies required are less

than those required for a reference biologic. Therefore,

the cost of development for a biosimilar is usually less

than that of a reference biologic.

The development and registration sta employed by

aliates of the Sandoz Division are based worldwide,

including at facilities in Holzkirchen, Germany; Hyder-

abad, India; Kundl, Austria; Ljubljana, Slovenia; and

Rudolstadt, Germany. In November 2020, Sandoz com-

pleted (i) the previously announced closure of the Holz-

kirchen, Germany, development and registration site,

with the exception of patch development and the proj-

ect management group, and (ii) the closure of the prod-

uct development and registration site as well as the main

tenance and development regulatory centers in Unterach,

Austria. We conduct an ongoing review of our global

development and regulatory network to consolidate and

streamline operations and optimize our network struc-

ture to enable Sandoz to compete sustainably in an

increasingly challenging generics environment. In 2021,

Sandoz completed the previously announced closures

of its maintenance regulatory center in Barleben, Ger-

many, its Fougera development center located in

Item4. Information on the Company

Melville, New York, as well as its product development

center in Boucherville, Canada.

Regulation

Generics

The Hatch-Waxman Act in the US (and similar legislation

in the EU and in other countries) eliminated the require-

ment that manufacturers of generic pharmaceuticals

repeat the extensive clinical trials required for reference

products, so long as the generic version could be shown

to be therapeutically equivalent to the reference prod-

uct.

In the US, the decision on whether a generic phar-

maceutical is therapeutically equivalent to the original

product is made by the FDA based on an Abbreviated

New Drug Application (ANDA) ﬁled by the generic prod-

uct’s manufacturer. An ANDA is generally permitted to

be ﬁled four years after the initial approval of the refer-

ence product and generally cannot be fully approved by

the FDA until any regulatory exclusivity of the reference

product has expired. The process typically takes nearly

two years from the ﬁling of the ANDA until FDA approval.

However, delays can occur if issues arise, for example,

regarding the interpretation of bioequivalence study

data, labeling requirements for the generic product, or

qualifying the supply of active ingredients. In addition,

the Hatch-Waxman Act requires a generic manufacturer

to certify in certain situations that the generic product

does not infringe on any current applicable patents on

the product held by the holder of the marketing authori-

zation for the reference product, or to certify that such

patents are invalid. This certiﬁcation often results in a

patent infringement lawsuit being brought against the

generics company. In the event of such a lawsuit, the

Hatch-Waxman Act imposes an automatic 30-month

stay in the approval of the ANDA to allow the parties to

resolve the intellectual property issues. For generic

applicants who are the ﬁrst to ﬁle their ANDA containing

a certiﬁcation claiming non-infringement or patent inva-

lidity, the Hatch-Waxman Act generally provides those

applicants with 180 days of marketing exclusivity,

enabling such generic applicants to exclusively market

their product alongside the reference product at a cer-

tain point in time, which is generally after any intellectual

property issues have been resolved. However, after such

point in time, the generic applicants must launch their

products within certain time frames or risk losing the

marketing exclusivity that they had gained by being a

ﬁrst-to-ﬁle applicant.

In the EU, decisions on the granting of a marketing

authorization are made either by the European Commis-

sion based on a positive recommendation by the EMA

under the centralized procedure, or by a single member

state under the national or decentralized procedure. See

“—Innovative Medicines—Regulation—European Union.”

Companies may submit abridged applications for

approval of a generic medicinal product based upon its

“essential similarity” to a medicinal product authorized

and marketed in the EU following the expiration of the

product’s data exclusivity period. In such cases, the

generics company is able to submit its abridged appli-

cation based on the data submitted by the innovator

company for the reference product, without the need to

conduct extensive PhaseIII clinical trials of its own. For

all products that received a marketing authorization in

the EU after late 2005, the abridged application can be

submitted throughout the EU. However, the data submit-

ted by the innovator company in support of its applica-

tion for a marketing authorization for the reference prod-

uct is generally protected for 10 years after the ﬁrst grant

of marketing authorization in all member states, and can

be extended for an additional year if, during the initial

eight-year data exclusivity period, the innovator company

registers a new therapeutic indication with “signiﬁcant

clinical beneﬁt.” In the case of orphan drugs, it may be

extended with a two-year pediatric extension. See “—

Item 4.B Business overview—Innovative Medicines—

Intellectual property.”

Biosimilars

The regulatory pathways for approval of biosimilar

medicines are still being developed and established in

many countries of the world. A regulatory framework for

the approval of biosimilars has been established in the

EU, Japan, Canada and the US, while the World Health

Organization (WHO) has issued guidance. Sandoz has

successfully registered and launched the ﬁrst biosimilar

(or biosimilar-type) medicine in Europe, the US, Canada,

Japan, Taiwan, Australia, and many countries in Latin

America and Asia. Sandoz was the ﬁrst company to

secure approval for and launch a biosimilar under the US

biosimilar pathway that was established as part of the

Biologics Price Competition and Innovation Act (BPCIA).

The approval of biosimilars in Europe follows a process

similar to that followed for small molecules. However,

biosimilars usually have to be approved through the cen-

tralized procedure because they are manufactured using

recombinant DNA technology. As part of the approval

process in the EU, biosimilars have to demonstrate com-

parability to the reference medicine in terms of safety,

ecacy and quality through an extensive comparability

exercise, based on strict guidelines set by the authori-

ties. Regulators will only approve a biosimilar based on

data that allows the regulators to conclude that there are

no clinically meaningful dierences between the refer-

ence medicine and the biosimilar.

In the US, under the BPCIA, a biosimilar must be

highly similar with no clinically meaningful dierences

compared to the reference medicine. Approval of a bio-

similar in the US requires the submission of a BLA to the

FDA, including an assessment of immunogenicity and

pharmacokinetics; an ecacy study; and possibly a phar

macodynamics study. The BLA for a biosimilar can be

submitted as soon as four years after the initial approval

of the reference biologic, but can only be approved

12years after the initial approval of the reference bio-

logic.

Intellectual property

We take all reasonable steps to ensure that our products

do not infringe valid intellectual property rights held by

others, including taking steps to proactively challenge

intellectual property rights that we believe should not

have been granted. Nevertheless, competing companies

Item4. Information on the Company

commonly assert patent and other intellectual property

rights. As a result, we can become involved in signiﬁcant

litigation regarding our products. If we are unsuccessful

in defending these suits, we could be subject to injunc-

tions preventing us from selling our products and to

potentially substantial damages.

Wherever possible, our products are protected by

our own patents. Among other things, patents may cover

the products themselves, including the product’s formu-

lation, or the processes for manufacturing a product.

However, there can be no assurance that our intellectual

property will protect our products or that we will be able

to avoid adverse eects from the loss of intellectual prop-

erty protection in the future.

4.C Organizational structure

Organizational structure

See “Item4. Information on the Company—Item4.A History and development of Novartis” and “Item4. Information

on the Company—Item4.B Business overview—Overview.”

Signiﬁcant subsidiaries

See “Item 18. Financial Statements—Note 31. Principal Group subsidiaries and associated companies.”

4.D Property, plants and equipment

Our principal executive oces are located in Basel, Swit-

zerland. Our divisions operate through a number of al-

iates that have oces, research and development facil-

ities, and production sites throughout the world.

We generally own our facilities or have entered into

long-term lease arrangements for them. Some of our

principal facilities are subject to mortgages and other

security interests granted to secure certain debts.

Novartis Operations manages the production, supply

chains and quality of our Innovative Medicines and

Sandoz Division products through a network of 55

manufacturing sites, as well as through external suppli-

ers, and warehouse and distribution centers. In addition,

Novartis Operations also manages non-production real

estate owned or leased by Novartis around the world.

The following table sets forth our major headquar-

ters and most signiﬁcant production, research and devel-

opment, and administrative facilities. See also “—Item

4.B Business overview—Innovative Medicines—Produc-

tion” and “—Item 4.B Business overview—Sandoz—Pro-

duction” for a discussion of our manufacturing pro-

cesses.

Major facilities

Size of site

Location (in square meters) Major activity

Basel, Switzerland – St.Johann  Global Group headquarters; global Innovative Medicines Division headquarters;

global Sandoz Division headquarters; research and development;

production of drug substances and drug intermediates

Kundl and Schaftenau, Austria  Production of biotechnological products, drug products and ﬁnished products,

anti-infectives, active drug substances and nucleic acids; product development

East Hanover, New Jersey  Innovative Medicines Division US headquarters; research and development

Barleben, Germany  Production of broad range of generics ﬁnished dosage forms

Cambridge, Massachusetts  Research and development

Menges, Slovenia  Production of drug substances and drug intermediates

Shanghai, China  Research and development

Stein, Switzerland  Production of sterile vials, pre-ﬁlled syringes and ampoules; inhalation capsules,

tablets and transdermals; active pharmaceutical ingredients; and cell and gene therapies

Holzkirchen, Germany  Sandoz Division production of transdermal delivery systems and certain international

and global service functions.

Huningue, France  Production of drug substances for clinical and commercial supply

Durham, North Carolina  Manufacture, package and release commercial Zolgensma product

and certain clinical development activities

Princeton, New Jersey  Sandoz Division US headquarters

Schweizerhalle, Switzerland  Manufacture of small-interfering RNA (siRNA) drug substance for Leqvio

Item4. Information on the Company

As our product portfolio evolves, Novartis Operations is

adapting our manufacturing capacity and capabilities to

meet our changing needs, shifting from high-volume

products toward lower-volume, customized and person-

alized medicines. As of December 31, 2022, we have

closed, exited or sold 19 manufacturing sites since 2019

and have announced the closure, exit or sale of seven

additional manufacturing sites. We have continued to

invest in new technologies implemented at our sites, such

as the new targeted radioligand therapy production facil-

ity in Indianapolis, Indiana, which is currently under con-

struction (with an expected size of approximately 67

thousand square meters), the FDA-approved Zolgensma

production site in Durham, North Carolina, and the

small-interfering RNA (siRNA) oligonucleotide manufac-

turing facility in Schweizerhalle, Switzerland. We are

leveraging innovation to increase the reliability and pro-

ductivity of our manufacturing network, including using

data and digital technologies. We continue to seek

opportunities to manage our production facilities as

eciently as possible, optimize external spend, and sim-

plify and standardize across our manufacturing network

to help us increase our cost competitiveness and opti-

mize the value of our products. At the same time, we are

working to improve our environmental sustainability, for

example by reducing energy, waste disposal and water

consumption at our sites by making our manufacturing

processes more ecient, introducing new technologies,

and switching to clean and renewable energy solutions.

For a description of the impact of environmental mat-

ters, see “Item3. Key Information—Item3.D Risk fac-

tors—Environmental, social and governance matters—

Failure to meet increasingly challenging environmental,

social and governance expectations,” “Item 3. Key Infor-

mation—Item 3.D Risk factors—Environmental matters—

Impact of environmental liabilities,” and “Item 3. Key Infor-

mation—Item 3.D Risk factors—Climate change—Climate

change and increased risk of major natural disasters.”

See also “Item 18. Financial Statements—Note20. Pro-

visions and other non-current liabilities.”

Item4A. Unresolved Sta Comments

Not applicable.

Item 5. Operating and Financial Review andProspects

Item 5. Operating and Financial Review

andProspects

5.A Operating results

This operating and ﬁnancial review should be read with

the Group’s consolidated ﬁnancial statements in this

Annual Report, which have been prepared in accordance

with International Financial Reporting Standards (IFRS)

as published by the International Accounting Standards

Board (see “Item 18. Financial Statements”). “Item 5.

Operating and Financial Review and Prospects” with the

sections on compounds in development and selected

development projects of our divisions (see “Item 4. Infor-

mation on the Company—Item 4.B Business overview”)

constitute the Operating and Financial Review (Lage-

bericht), as deﬁned by the Swiss Code of Obligations.

The discussion and analysis of the ﬁnancial condition

and results of operations of certain items from ﬁscal year

ended December 31, 2020, and year-to-year compari-

son between ﬁscal year ended December 31, 2021, and

December 31, 2020, that are not included in this Form

20-F can be found in “Item 5. Operating and Financial

Review and Prospects” of our Form 20-F for the ﬁscal

year ended December 31, 2021, which is incorporated

by reference herein.

Overview

Our purpose is to reimagine medicine to improve and

extend people’s lives. We use innovative science and tech-

nology to address some of society’s most challenging

healthcare issues. We discover and develop breakthrough

treatments and ﬁnd new ways to deliver them to as many

people as possible. We also aim to reward those who invest

their money, time and ideas in our Company. Our vision is

to become the most valued and trusted medicines com-

pany in the world.

The businesses of Novartis are divided operationally

on a worldwide basis into two identiﬁed reporting seg-

ments:

• Innovative Medicines: innovative patent-protected pre-

scription medicines

• Sandoz: generic pharmaceuticals and biosimilars

In addition, we separately report the results of Corpo-

rate activities. The ﬁnancial results of our Corporate

activities include the costs of the Group headquarters

and those of corporate coordination functions in major

countries. Corporate also includes other items of income

and expense that are not attributable to speciﬁc seg-

ments, such as certain revenues from intellectual prop-

erty rights and certain expenses related to post-employ-

ment beneﬁts, environmental remediation liabilities,

charitable activities, donations and sponsorships.

In April 2022, we announced a new, integrated orga-

nizational structure and operating model designed to sup-

port our innovation, growth, and productivity ambitions as

a focused medicines company. For information about this

new organizational structure, see “Item 4. Information on

the Company—Item 4.B Overview.” Under this new orga-

nizational structure, our divisions are supported by the

following organizational units: the Novartis Institutes for

BioMedical Research, Global Drug Development, and

Novartis Operations. The ﬁnancial results of these orga-

nizational units are included in the results of the divisions

for which their work is performed.

Signiﬁcant transactions are discussed in “Item 18.

Financial Statements—Note 2. Signiﬁcant transactions,”

and “Item 18. Financial Statements—Note 3. Segmenta-

tion of key ﬁgures 2022, 2021 and 2020.”

Our business environment

Medical technology continues to accelerate, with new

advanced treatments emerging to meet the growing

need for high-quality healthcare. At the same time, aging

populations are putting pressure on healthcare

resources, while access to healthcare remains a chal-

lenge around the world. As a result, we see challenges

and opportunities in our business environment: the need

for continuous innovation in healthcare, increasing

access to medicines, the adoption of new working prac-

tices and the growing use of data science and technol-

ogy. The following are some major trends currently shap-

ing our business environment.

• Spending on healthcare continues to grow. The need

for high-quality healthcare is more critical than ever.

Over the next ﬁve years, global spending on medicines

is forecast to rise faster than GDP in many developed

countries. The price of medicines remains a key issue

as increased healthcare spending and a more uncer-

tain economic outlook weigh on government budgets.

• Aging populations are fueling a rise in chronic illness.

Aging and lifestyle changes are triggering an increase

in noncommunicable diseases, such as cancer, heart

disease and diabetes, causing millions of preventable

deaths and putting further pressure on healthcare

resources.

• Medical science continues to accelerate. Scientiﬁc

innovation is advancing at an unprecedented pace. In

recent years, new types of treatments have been

approved, including RNA therapies, gene and cell ther-

apies, and radioligand therapies, which oer targeted

approaches to treating serious diseases. Because

these medicines are complex, they require focused

investment and expertise to bring them to reality for

patients.

• Access to healthcare remains a formidable challenge.

Worldwide, millions of patients struggle to access the

medicines they need. This may be because of cost,

inequity, or structural issues in healthcare systems.

While access to medicines remains an acute issue in

lower-income countries, it is a problem in developed

Item 5. Operating and Financial Review andProspects

countries too, where the COVID-19 pandemic high-

lighted that deep health inequities remain entrenched.

• Patients are moving to the center of healthcare. Patients

are demanding more say over their treatment through

patient representative groups and other means. In

response, healthcare systems and pharmaceutical

companies are adapting, moving toward a more inte-

grated, end-to-end approach, with an increased focus

on patient engagement in drug development and other

areas. At the same time, patients are becoming more

important as data owners – as personal data allows

more targeted treatments and supports development

of new medicines.

• Economic uncertainty is growing, post-COVID-19 pan-

demic. The global economy is facing considerable

uncertainty, driven by concerns over rising energy

prices and geopolitical instability. Forecasts suggest

the current economic slowdown is likely to continue in

2023. In our own industry, the COVID-19 pandemic put

strain on supply chains and highlighted the importance

of resilient supplies of active pharmaceutical ingredi-

ents – the raw materials used to make ﬁnished

medicines. See “Item 3. Key Information—Item 3.D Risk

factors—Pricing, reimbursement and access—Pricing

and reimbursement pressure, including pricing trans-

parency and access to healthcare,” and “Item 3. Key

Information—Item 3.D Risk factors—Macroeconomic

developments—Impact of macroeconomic develop-

ments.”

• Biopharma searches for more eciency. At a time of

growing economic uncertainty, investors are looking

for sustainable growth in margins and earnings. To

remain competitive, pharmaceutical companies are

moving to more agile, cost-ecient business models,

particularly as they invest to build specialized capabil-

ities in research and development (R&D) and manufac-

turing. Meanwhile, rates of return on R&D are increas-

ing for the ﬁrst time in several years, largely because

of emergency approvals during the COVID-19 pan-

demic and faster innovation cycles.

• New technologies are reshaping our industry. The use

of data science and technology is increasing across

the industry in everything from R&D to manufacturing

and marketing. This has brought greater eciency, but

it also requires new investment and skills. Importantly,

new technologies are helping close gaps between

companies, healthcare systems and patients – for

example, by providing insights into the social determi-

nants of heart health enabling the development of new

prevention measures.

• Working practices are changing. Working practices are

changing in many countries. Demand for new skills is

increasing, especially in areas such as data science.

Workforces are becoming more ﬂexible and more

diverse, allowing companies to tap into new talent

pools – important at a time of skills shortages in many

parts of the economy.

• Climate change is increasingly aecting human health.

Climate change could undermine decades of progress

in improving human health at a time when antimicrobial

resistance is also rising. At the same time, more gov-

ernments are looking to decarbonize their economies

over the long-term, while companies also face increased

scrutiny over the sustainability of their operations and

supply chains. See “Item 3. Key Information—Item 3.D

Risk factors—Climate change—Impact of climate

change and increased risk of major natural disasters.”

Our strategy

Our strategy as a focused medicines company is to

deliver high-value medicines that alleviate society’s

greatest disease burdens through technology leadership

in R&D and novel access approaches.

We have made signiﬁcant progress in transforming

Novartis from a diversiﬁed healthcare conglomerate into

a focused medicines company. In doing so, we have

divested or spun o non-core businesses and made tar-

geted acquisitions to focus on our core business: dis-

covering and developing new medicines and ﬁnding new

ways to deliver them to as many people as possible.

In 2022, we continued to execute on our strategy by

putting in place a new organizational structure to sup-

port innovation, growth and productivity. We also updated

our strategic priorities and announced our intention to

spin-o our Sandoz business, which paves the way for

Novartis to advance as a company focused fully on

innovative medicines. See “Item 4. Information on the

Company—Item 4.B Overview” and “Item 4. Information

on the Company—Item 4.B Sandoz.”

Our strategy has clear focus areas and priorities to

meet the challenges and opportunities we see in our

business environment, and ensure we continue to cre-

ate value for our stakeholders and society.

Our focus areas determine where we invest most of our

time, energy and resources and include:

• Core therapeutic areas with high unmet patient needs:

cardiovascular; immunology; neuroscience; solid

tumors; and hematology.

• Technology platforms where we have the depth and

scale to discover, develop and commercialize new ther-

apies: Chemistry; biotherapeutics; xRNA; radioligand

therapy; and gene and cell therapy.

• Priority geographies which, taken together, account

for the majority of the forecast growth in global health-

care spending: US, China, Germany and Japan. While

these are our priority countries, we will continue to

invest in other markets worldwide.

Our focus areas are supported by three strategic prior-

ities, which determine how we implement our strategy.

These three strategic priorities are:

• Deliver high-value medicines to accelerate growth.

Delivering new medicines for major diseases is at the

core of our purpose and value creation as a company.

We focus on high-value innovative medicines with the

potential to transform the treatment of diseases across

our ﬁve core therapeutic areas. To do this, we seek to

maximize the potential of our key in-market and launch

medicines, while ﬁnding new ways to deliver them to

as many people as possible and investing in R&D to

deliver the next generation of high-value therapies for

patients over the longer term. As part of our eorts, we

continue our longstanding commitment to reduce the

burden of infectious and tropical diseases that pre-

dominantly aect underserved populations in low- and

middle-income countries.

Item 5. Operating and Financial Review andProspects

• Embed operational excellence to deliver returns. We

aim to drive eciency and free up resources to invest

in innovation for patients. This also underpins our ﬁnan-

cial performance and makes us more agile; better able

to take quick decisions and scale the use of new tech-

nologies, with eective cooperation across our busi-

ness. In everything we do, we maintain high standards

of product quality and patient safety, while also work-

ing to reduce our environmental footprint.

• Strengthen our foundations by:

Unleashing the power of our people. We continue to

focus on culture as a key enabler of our strategy to

drive innovation and long-term performance. For us,

this is about building an agile, diverse workforce and

making sure we attract and retain the right talent for

the future.

Scaling data science and technology. We are investing

in data science and technology to increase eciency,

support innovation, better respond to the needs of

patients and healthcare professionals, and ultimately

improve the way we develop and deliver our medicines.

Building trust with society. We aim to increase access

to our medicines for underserved populations around

the world and follow high standards of ethical behav-

ior wherever we operate.

Item 5. Operating and Financial Review andProspects

Results of operations

Financial year 2022 compared with 2021

Key ﬁgures

Change in

Change

constant

Year ended

in USD

currencies

(USD millions unless indicated otherwise) Dec , 

Dec , 





Net sales to third parties 



– 



Other revenues 







Cost of goods sold – 

– 



– 

Gross proﬁt 



– 



Selling, general and administration – 

– 



– 

Research and development – 

– 

– 

– 

Other income 



– 

– 

Other expense – 

– 

– 

– 

Operating income 



– 

– 

 of net sales to third parties 



(Loss)/income from associated companies – 



Interest expense – 

– 

– 

– 

Other ﬁnancial income and expense 

– 

Income before taxes 



– 

– 

Income taxes – 

– 





Net income 



– 

– 

Attributable to:

Shareholders of Novartis AG 



– 

– 

Non-controlling interests 

– 

Basic earnings per share (USD) 



– 

– 

Net cash ﬂows from operating activities 



– 

Free cash ﬂow







– 

For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS measures as deﬁned by Novartis.”

nm = not meaningful

Item 5. Operating and Financial Review andProspects

Group overview

Net sales to third parties for Novartis were USD 50.5 bil-

lion, down 2% in USD reported terms and up 4% mea-

sured in constant currencies (cc) to remove the impact

of exchange rate movements. Sales growth was driven

by volume growth of 11 percentage points, mainly driven

by continued strong growth from Entresto, Kesimpta,

Kisqali, Pluvicto and Cosentyx. Generic competition had

a negative impact of 3 percentage points, mainly due to

Gilenya, Aﬁnitor/Votubia, and Gleevec/Glivec. Pricing had

a negative impact of 4 percentage points. Sales in the

US were USD 17.7 billion (+5%) and in the rest of the world

USD 32.8 billion (–6%, +4% cc).

By division, Innovative Medicines delivered net sales

of USD41.3 billion (–2%, +4% cc) and Sandoz net sales

were USD9.2 billion (–4%, +4% cc).

In Emerging Growth Markets, which comprise all mar-

kets excluding the US, Canada, Western Europe, Japan,

Australia and New Zealand, sales to third parties were

USD13.5 billion (+2%, +9% cc) driven by China (USD3.1

billion) growing 2% (+6% cc).

Operating income was USD 9.2 billion (–21%, –13%

cc), mainly due to higher restructuring costs (USD 1.2 bil-

lion) primarily related to the implementation of the pre-

viously announced streamlined organizational model,

higher impairments (USD 1.0 billion), and lower divest-

ment gains (USD 0.6 billion). Operating income margin

was 18.2% of net sales, decreasing by 4.4 percentage

points (-3.8 percentage points cc).

Net income was USD 7.0 billion compared with USD

24.0 billion in the prior year, impacted by Roche income

in the prior year. Excluding the impact of Roche income,

net income declined –9% (cc). Earnings per share were

USD 3.19 compared with USD 10.71 in the prior year.

Excluding the impact of Roche income, EPS declined

–7% (cc).

Net cash ﬂows from operating activities amounted to

USD 14.2 billion, compared with USD 15.1 billion in 2021.

This decrease was mainly due to unfavorable changes

in working capital and lower dividends from associated

companies (2021 included the USD 0.5 billion dividends

received from our investment in Roche, which was

divested in the fourth quarter of 2021), partly oset by

lower income taxes paid and favorable hedging results.

Free cash ﬂow amounted to USD 11.9 billion (–10%

USD), compared with USD 13.3 billion in 2021, mainly due

to a decrease in net cash ﬂows from operating activities

and lower divestment proceeds, partly oset by lower

purchases of property, plant and equipment.

We also present our core results

, which exclude the

impact of amortization, impairments, disposals, acquisi-

tions, restructurings and other signiﬁcant items, to help

investors understand our underlying performance.

Core operating income was USD 16.7 billion (0%, +8%

cc), beneﬁting from higher sales, partly oset by higher

research and development (R&D) investments. Core

operating income margin was 33.0% of net sales,

increasing by 0.9 percentage points (+1.3 percentage

points cc).

Core net income was USD 13.4 billion (–5%, +3% cc)

as growth in core operating income was partly oset by

the loss of Roche core income. Excluding the impact of

Roche core income, core net income grew +11% (cc).

For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS

measures as deﬁned by Novartis.”

Item 5. Operating and Financial Review andProspects

Net sales to third parties by segment

The following table provides an overview of net sales to third parties by segment:

Change in

Change

constant

Year ended

in USD

currencies

(USD millions) Dec , 

Dec , 



Innovative Medicines 



– 



Sandoz 



– 



Net sales to third parties 



– 



Innovative Medicines

The Innovative Medicines Division delivered net sales of

USD 41.3 billion (–2%, +4% cc) with volume contributing

12 percentage points to growth. Generic competition had

a negative impact of 4 percentage points. Pricing had a

negative impact of 4 percentage points. Sales in the US

were USD 15.9 billion (+6%) and in the rest of the world

USD 25.4 billion (–6%, +3% cc).

Sales growth was mainly driven by continued strong

growth from Entresto (USD 4.6 billion, +31%, +37% cc),

Kesimpta (USD 1.1 billion, +194%, +200% cc), Kisqali (USD

1.2 billion, +31%, +38% cc), Pluvicto (USD 271 million) and

Cosentyx (USD 4.8 billion, +1%, +5% cc), partly oset by

generic competition mainly for Gilenya, Aﬁnitor/Votubia

and Gleevec/Glivec.

In the US (USD 15.9 billion +6%), sales growth was

mainly driven by Entresto, Kesimpta and Pluvicto, partly

oset by the impact of generic competition on Aﬁnitor/

Votubia and Gilenya. In Europe (USD 13.6 billion, –9%,

+1% cc) sales growth was driven by Entresto, Kisqali and

Kesimpta, partly oset by increased generic competition

for Gilenya. Emerging Growth Markets grew +2% (+9%

cc), with China sales USD 2.9 billion (+3%, +7% cc) driven

by Cosentyx.

The following table provides an overview of net sales

to third parties by core therapeutic area; other promoted

brands; and established brands in the Innovative

Medicines Division:

Change in

Change

constant

Year ended

in USD

currencies

(USD millions) Dec , 

Dec , 





Cardiovascular 







Immunology 







Neuroscience 







Solid Tumors 







Hematology 







Other Promoted Brands 



– 

– 

Total Promoted Brands 







Established Brands 



– 

– 

Total Innovative Medicines 



– 



Reclassiﬁed to reﬂect the new Innovative Medicines divisional structures announced on April 4, 2022

Item 5. Operating and Financial Review andProspects

The following table provides the top 20 Innovative Medicines Division product net sales to third parties in 2022 as

well as the change compared with 2021:

US Rest of world Tot al

Brand classiﬁcation by

therapeutic area, other



promoted brands or

change

Brands established brands Key indications USD m

USD/cc



USD m

USD



USD m

USD



Cosentyx Immunology Psoriasis (PsO), 

– 













ankylosing spondylitis

(AS), psoriatic arthritis

(PsA), non-radiographic

axial spondyloarthritis

(nr-axSPA)

Entresto Cardiovascular Chronic heart failure, 















hypertension

Promacta/Revolade Hematology Immune 





– 









thrombocytopenia (ITP),

severe aplastic anemia (SAA)

Gilenya Neuroscience Relapsing multiple sclerosis 

– 



– 

– 



– 

– 

(RMS)

Tasigna Hematology Chronic myeloid leukemia 

– 



– 

– 



– 

– 

(CML)

Lucentis Other Promoted Age-related



– 

– 



– 

– 

Brands macular degeneration (AMD),

diabetic macular edema (DME),

retinal vein occlusion (RVO)

Taﬁnlar + Mekinist Solid Tumors BRAF V+ metastatic 















adjuvant melanoma,

advanced non-small cell

lung cancer (NSCLC),

tumor agnostic with

BRAF mutation indication

Jakavi Hematology Myeloﬁbrosis (MF),



– 





– 



polycytomia vera (PV),

graft-versus-host disease

(GvHD)

Zolgensma Neuroscience Spinal muscular atrophy 

– 













(SMA)

Xolair



Immunology Severe allergic asthma (SAA),



– 





– 



chronic spontaneous urticaria

(CSU), nasal polyps

Sandostatin Established Brands Carcinoid tumors, 

– 



– 

– 



– 

– 

acromegaly

Kisqali Solid Tumors HR+/HER- 















metastatic breast cancer

Ilaris Immunology Auto-inﬂammatory (CAPS, 















TRAPS, HIDS/MKD, FMF,

SJIA, AOSD, gout)

Kesimpta Neuroscience Relapsing-remitting 











multiple sclerosis (RRMS)

Galvus Group Established Brands Type  diabetes



– 

– 



– 

– 

Gleevec/Glivec Established Brands Chronic myeloid 

– 



– 

– 



– 

– 

leukemia (CML),

gastrointestinal stromal

tumors (GIST)

Exforge Group Established Brands Hypertension 





– 

– 



– 

– 

Diovan Group Established Brands Hypertension 





– 

– 



– 

– 

Kymriah Hematology r/r pediatric and young 

– 



– 





– 

– 

adults acute lymphoblastic

leukemia (ALL), diuse large

B-cell lymphoma (DLBCL),

follicular lymphoma (FL)

Aﬁnitor/Votubia Established Brands Breast cancer/ 

– 



– 

– 



– 

– 

tuberous sclerosis complex

(TSC)

Top  brands total 





– 





– 



Rest of portfolio 





– 





– 



Total division net

sales to third parties 





– 





– 



Net sales to third parties reﬂect Xolair sales for all indications.

For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS measures as deﬁned by Novartis.”

nm = not meaningful

Item 5. Operating and Financial Review andProspects

For the table providing the top 20 Innovative Medicines Division product net sales to third parties in 2021, see “Item

18. Financial statements—Note 3. Segmentation of key ﬁgures 2022, 2021 and 2020.”

For information about the approved indications for certain products described, see “Item 4. Information on the

Company—Item 4.B Business overview—Innovative Medicines— Innovative Medicines Division products.”

CARDIOVASCULAR

Sales in the Cardiovascular therapeutic area were USD

4.8 billion (+34%, +40% cc), sales growth mainly driven

by Entresto.

Entresto (USD 4.6 billion, +31%, +37% cc) sustained

robust demand-led growth, with increased patient share

across all geographies. Guidelines position Entresto as

the ﬁrst choice RASi versus ACEi/ARB in patients with

HFrEF. Entresto beneﬁts from the adoption of guideline

directed medical therapy for these patients in all geog-

raphies. In the US, Entresto beneﬁts from being added

to guidelines for patients with HFpEF (with LVEF below

normal). In China, Entresto has been listed in the National

Reimbursement Drug List (NRDL) for both HFrEF and

hypertension, eective January 2022. In China and

Japan, Entresto volume growth is fueled by increased

penetration in hypertension in addition to growth in heart

failure. It is estimated that around 10 million patients are

on treatment with Entresto.

Leqvio (USD 0.1 billion) launch in the US and other

markets is ongoing, with focus on patient on-boarding,

removing access hurdles and enhancing medical edu-

cation. Leqvio is the ﬁrst and only small interfering RNA

(siRNA) therapy to lower low-density lipoprotein choles-

terol approved in the US and was launched in January

2022. In the US, Leqvio is covered at or near label for

76% of patients eleven months after launch. Leqvio in

the US has been assigned a unique Healthcare Common

Procedure Coding System code (J-code) and average

sales price. Leqvio is now approved in 70 countries.

Novartis obtained global rights to develop, manufacture

and commercialize Leqvio under a license and collabo-

ration agreement with Alnylam Pharmaceuticals.

IMMUNOLOGY

Sales in the Immunology therapeutic area reached USD

7.3 billion (+1%, +7% cc), sales growth was mainly driven

by Cosentyx and Ilaris.

Cosentyx (USD 4.8 billion, +1%, +5% cc) sales grew

in Emerging Growth Markets, Europe and Japan, partly

oset by decline in the US due to higher revenue deduc-

tions. In China, Cosentyx growth was fueled by increased

biologic uptake and inclusion in approximately 1,900 hos-

pital listings. Since initial approval in 2015, Cosentyx has

proven its sustained ecacy and consistent safety pro-

ﬁle across ﬁve systemic inﬂammatory conditions and has

treated more than 960,000 patients worldwide.

Xolair (USD 1.4 billion, –4%, +6% cc) sales grew (cc)

in Emerging Growth Markets, Europe and Japan. Novartis

co-promotes Xolair with Genentech in the US and shares

a portion of revenue as operating income but does not

record any US sales.

Ilaris (USD 1.1 billion, +7%, +15% cc) showed contin-

ued growth across all geographies. Contributors to

growth include the adult-onset Still’s disease indication,

together with the other adult rheumatology indications

in the US and Europe, as well as strong performance for

the Periodic Fevers Syndrome indications in Japan.

NEUROSCIENCE

Sales in the Neuroscience therapeutic area were USD

5.1 billion (+1%, +5% cc), sales growth (cc) mainly driven

by Kesimpta, which was partly oset by sales decline of

Gilenya.

Gilenya (USD 2.0 billion, –28%, –24% cc) sales

declined mainly in Europe and in the US due to generic

pressure.

Zolgensma (USD 1.4 billion, +1%, +5% cc) has been

approved in 47 countries to date. As this represents most

major markets, sales growth is now mainly driven by the

Incident patient population where we’ve seen double

digit growth in 2022. Access pathways are now in place

in 35 countries with negotiations ongoing in additional

markets.

Kesimpta (USD 1.1 billion, +194%, +200% cc) showed

strong sales growth driven by launch momentum across

all geographies. Kesimpta is a targeted B-cell therapy

that can deliver powerful and sustained high ecacy,

with a favorable safety and tolerability proﬁle and the

ﬂexibility of an at home self-administration for a broad

population of RMS patients. Kesimpta is now approved

in 80 countries with more than 36,000 patients treated.

Mayzent (USD 0.4 billion, +27%, +32% cc) sales grew

across all geographies in MS patients showing signs of

progression despite being on other treatments. Mayzent

is the ﬁrst and only oral disease-modifying therapy stud-

ied and proven to delay disease progression in a broad

SPMS patient population.

Aimovig (USD 0.2 billion, +1%, +11% cc) sales grew in

Europe and Emerging Growth Markets. Aimovig is reim-

bursed in 32 markets and has been prescribed to over

759,000 patients worldwide. Earlier this year, Aimovig

was submitted for approval in China. In October 2022,

Novartis reached an agreement in Germany by which

Aimovig is reimbursed as a 1

line prophylactic migraine

treatment based on the HERMES trial.

SOLID TUMORS

Sales in the Solid Tumors therapeutic area were USD 4.7

billion (+15%, +21% cc), sales growth mainly driven by

Kisqali, Pluvicto and Taﬁnlar + Mekinist.

Taﬁnlar + Mekinist (USD 1.8 billion, +5%, +11% cc)

sales grew across all geographies, driven by demand in

BRAF+ adjuvant melanoma and NSCLC indications,

while maintaining demand in the highly competitive

BRAF+ metastatic melanoma market. Taﬁnlar + Mekinist

remains the worldwide targeted therapy leader in BRAF+

melanoma. Following FDA approval in late June, Taﬁnlar

+ Mekinist is the ﬁrst and only therapy with a tumor-ag-

nostic indication for adult and pediatric patients with

solid tumors that have a BRAF V600E mutation, which

drives tumor growth in more than 20 dierent tumor

types.

Kisqali (USD 1.2 billion, +31%, +38% cc) sales grew

strongly across all geographies, based on increasing rec-

ognition of its overall survival and quality of life beneﬁts

in HR+/HER2- advanced breast cancer. It is a CDK4/6

Item 5. Operating and Financial Review andProspects

inhibitor with proven overall survival beneﬁt across all

three Phase III trials of the MONALEESA program

regardless of menopausal status, line of therapy, site and

number of metastases, endocrine resistance, or endo-

crine partner.

Votrient (USD 0.5 billion, –18%, –13% cc) declined due

to increased competition, especially from immuno-on-

cology agents in metastatic renal cell carcinoma.

Lutathera (USD 0.5 billion, –1%, +3% cc) sales grew

(cc) in Europe and Japan, partly oset by decline in the

US. There are approximately 500 centers actively treat-

ing patients globally. In the second quarter of 2022, there

was a temporary suspension in manufacturing during the

quarter; production and deliveries of patient doses

resumed in early June.

Piqray (USD 0.4 billion, +13%, +14% cc) sales grew

mainly in the US, beneﬁting from indication expansion

into PIK3CA-related overgrowth spectrum (PROS).

Piqray is the ﬁrst and only therapy speciﬁcally developed

for the approximately 40% of HR+/HER2- advanced

breast cancer patients who have a PIK3CA mutation,

which is associated with a worse prognosis.

Pluvicto (USD 0.3 billion) launch is progressing well,

with more than 160 active centers ordering. Pluvicto is

the ﬁrst and only radioligand therapy approved by the

FDA for the treatment of progressive, PSMA-positive

metastatic castration-resistant prostate cancer, who

have already been treated with other anticancer treat-

ments (ARPI and taxane-based chemotherapy).

Tabrecta (USD 0.1 billion, +48%, +48% cc) sales grew

across all geographies, as the ﬁrst therapy approved by

the FDA to speciﬁcally target metastatic NSCLC with a

mutation that leads to MET exon 14 skipping (METex14).

HEMATOLOGY

Sales in the Hematology therapeutic area were USD 6.5

billion (0%, +7% cc), sales growth (cc) mainly driven by

Promacta/Revolade, Jakavi and Scemblix.

Promacta/Revolade (USD 2.1 billion, +4%, +9% cc)

growth was driven by the US, Europe and Emerging

Growth Markets, partly oset by decline in Japan. Sales

growth was driven by increased use in second-line per-

sistent and chronic immune thrombocytopenia and as

ﬁrst-line and/or second-line treatment for severe aplas-

tic anemia.

Tasigna (USD 1.9 billion, –7%, –1% cc) sales declined

in Europe, Japan and the US, partly oset by growth in

Emerging Growth Markets.

Jakavi (USD 1.6 billion, –2%, +9% cc) sales grew (cc)

in Europe, Emerging Growth Markets, Japan, driven by

strong demand in both the myeloﬁbrosis and polycythe-

mia vera indications. In May, EC approved Jakavi for the

treatment of patients aged 12 years and older with acute

or chronic GvHD who have inadequate response to cor-

ticosteroids or other systemic therapies.

Kymriah (USD 0.5 billion, –9%, –2% cc) sales declined

in the US and Europe due to lower DLBCL demand in

both geographies and was partly oset by growth in

Emerging Growth Markets and Japan. In May, EC and

FDA approved Kymriah for the treatment of adult patients

with relapsed or refractory (r/r) follicular lymphoma (FL)

after two or more lines of systemic therapy.

Adakveo (USD 0.2 billion, +18%, +19% cc) continued

to grow worldwide, reaching more than 11,800 patients

with vaso-occlusive crises caused by sickle cell disease

to date.

Scemblix (USD 0.1 billion) continued its strong launch

uptake in the US, with launches underway in EU and

Japan, demonstrating the high unmet need in CML, par-

ticularly patients previously treated with 2 or more tyro-

sine kinase inhibitors, or with the T315I mutation. In Octo-

ber 2022, US FDA converted the accelerated approval

of Scemblix to a full approval, conﬁrming the clinical ben-

eﬁt after longer exposure.

OTHER PROMOTED BRANDS

Sales for Other Promoted Brands were USD 3.1 billion

(–9%, –1% cc).

Lucentis (USD 1.9 billion, –13%, –4% cc) sales declined

in Japan and Europe mainly due to competition, which

was partly oset by growth in Emerging Growth Markets.

Xiidra (USD 0.5 billion, +4%, +4% cc) sales grew

mainly in the US.

Ultibro Group (USD 0.5 billion, –18%, –9% cc) sales

declined in Europe and Emerging Growth Markets due

to competition and was partly oset by growth in Japan.

Ultibro Group consists of Ultibro Breezhaler, Seebri Bree-

zhaler and Onbrez Breezhaler.

Beovu (USD 0.2 billion, +9%, +18% cc) sales grew in

Europe, Emerging Growth Markets and Japan, partly o-

set by decline in the US. Beovu received approval for dia-

betic macular edema (DME) in the EU in the ﬁrst quarter

of 2022, and in the US in the second quarter of 2022.

ESTABLISHED BRANDS

The Established Brands had sales of USD 9.9 billion

(–19%, –13% cc).

Sandostatin (USD 1.2 billion, –12%, –10% cc) declined

across all geographies due to ongoing competitive pres-

sure, including generic competition ex-US.

Galvus Group (USD 0.9 billion, –21%, –12% cc)

declined in Japan, Europe and Emerging Growth Mar-

kets.

Gleevec/Glivec (USD 0.7 billion, –27%, –22% cc)

declined due to increased generic competition.

Exforge Group (USD 0.7 billion, –18%, –12% cc)

declined across all geographies.

Diovan Group (USD 0.7 billion, –16%, –9% cc) declined

in Emerging Growth Markets, Japan and Europe.

Aﬁnitor/Votubia (USD 0.5 billion, –45%, –41% cc)

declined in the US and Europe driven by generic com-

petition.

Voltaren/Cataﬂam (USD 0.3 billion, –10%, 0% cc)

sales were stable (cc).

Zortress/Certican (USD 0.3 billion, –24%, –14% cc)

declined in the US and Japan.

Exjade/Jadenu (USD 0.3 billion, –43%, –38% cc)

declined due to pressure from generic competition.

Neoral/Sandimmun(e) (USD 0.3 billion, –16%, –8% cc)

declined across all geographies.

Item 5. Operating and Financial Review andProspects

Sandoz

Sandoz net sales were USD 9.2 billion (–4%, +4% cc)

with volume contributing 10 percentage points to growth.

Pricing had a negative impact of 6 percentage points.

Sales in Europe were USD 4.9 billion (–7%, +4% cc),

in the US USD 1.8 billion (–4%) in Asia/Africa/Australasia

USD 1.6 billion (–3%, +6% cc) and in Canada and Latin

America USD 969 million (+11%, +15% cc) driven by vol-

ume increases and tender wins.

The following table provides an overview of net sales

to third parties by business franchise in the Sandoz Divi-

sion:

Change in

Change

constant

Year ended

in USD

currencies

(USD millions) Dec , 

Dec , 



Retail Generics







– 



Biopharmaceuticals 



– 



Anti-Infectives

(partner label/API)







– 

– 

Total Sandoz 



– 



Sandoz total anti-infectives net sales to third parties amounted to USD 1.2 billion

(2021: USD 1.1 billion; 2020: USD 1.2 billion), of which USD 777 million (2021: USD 707

million; 2020: USD 694 million) is sold through the Retail Generics business franchise

and USD 380 million (2021: USD 423 million; 2020: USD 474 million) is sold to other

third-party companies through the Anti-Infectives business franchise.

Retail Generics

In Retail Generics, Sandoz develops, manufactures and

markets ﬁnished dosage forms of small molecule

pharmaceuticals for sale to third parties across a broad

range of therapeutic areas, including ﬁnished dosage

form of anti-infectives sold to third parties.

Retail sales were USD 6.8 billion (–4%, +4% cc), grow-

ing across all regions ex-US.

Biopharmaceuticals

In Biopharmaceuticals, Sandoz develops, manufactures

and markets protein- and other biotechnology-based

products, including biosimilars, and provides biotechnol-

ogy manufacturing services to other companies. The

Biopharmaceuticals business also includes Glatopa, a

generic version of Copaxone

, which treats relapsing

forms of multiple sclerosis and is marketed in the US.

Global sales of Biopharmaceuticals (biosimilars, bio-

pharmaceutical contract manufacturing and Glatopa)

grew to USD 2.1 billion (–1%, +9% cc), growing across all

regions.

Anti-Infectives

In Anti-Infectives, Sandoz manufactures and supplies

active pharmaceutical ingredients and intermediates,

mainly antibiotics, for internal use by Retail Generics and

for sale to third-party customers.

Total Anti-Infectives sales were USD 1.2 billion (+2%,

+10% cc) of which USD 777 million were sold through the

Retail Generics business franchise and USD 380 million

were sold to other third-party companies through the

Anti-Infectives business franchise. The sales of the

Anti-Infectives business franchise declined mainly due

to product discontinuations and supply challenges.

Item 5. Operating and Financial Review andProspects

Operating income

The following table provides an overview of operating income by segment:

 of

Change in

net sales

Change

constant

Year ended

to third

Year ended

to third

in USD

currencies

(USD millions) Dec , 

parties

Dec , 

parties



Innovative Medicines 







– 

– 

Sandoz 







– 

– 

Corporate – 

– 

– 

– 

Operating income 







– 

– 

Operating income was USD 9.2 billion (–21%, –13% cc), mainly due to higher restructuring (USD 1.2 billion) primar-

ily related to the implementation of the previously announced streamlined organizational model, higher impairments

(USD 1.0 billion) and lower divestment gains (USD 0.6 billion). Operating income margin was 18.2% of net sales,

decreasing by 4.4 percentage points (-3.8 percentage points cc).

Core operating income key ﬁgures

Change in

Change

constant

Year ended

in USD

currencies

(USD millions unless indicated otherwise) Dec , 

Dec , 



Core gross proﬁt 



– 



Selling, general and administration – 

– 



– 

Research and development – 

– 

– 

– 

Other income 



– 

– 

Other expense – 

– 





Core operating income 







As  of net sales to third parties 



For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS measures as deﬁned by Novartis.”

The adjustments made to operating income to arrive at

core operating income amounted to USD7.5 billion (com-

pared with USD4.9 billion in the prior year). For details,

please see “—Non-IFRS measures as deﬁned by

Novartis—2022 and 2021 reconciliation from IFRS

results to core results.”

Core operating income was USD 16.7 billion (0%, +8%

cc) beneﬁting from higher sales, partly oset by higher

R&D investments. Core operating income margin was

33.0% of net sales, increasing by 0.9 percentage points

(+1.3 percentage points cc).

The following table provides an overview of core operating income by segment:

 of

Change in

net sales

Change

constant

Year ended

to third

Year ended

to third

in USD

currencies

(USD millions) Dec , 

parties

Dec , 

parties



Innovative Medicines 











Sandoz 







– 

– 

Corporate – 

– 





Core operating income 











Innovative Medicines

Operating income was USD 8.8 billion (–18%, –9% cc),

driven by higher impairments, restructuring, lower divest-

ment gains and higher R&D expenses, partly oset by

higher gross margin. Operating income margin was

21.3% of net sales, decreasing 4.2 percentage points

(-3.4 percentage points in cc).

Core adjustments were USD 6.5 billion, mainly due

to amortization, impairments and restructuring, com-

pared to USD 4.5 billion in prior year. Core adjustments

increased compared to prior year, mainly due to higher

impairments and restructuring.

Core operating income was USD 15.2 billion (0%, +8%

cc), mainly driven by higher gross margin, partly oset

Item 5. Operating and Financial Review andProspects

by higher R&D investments. Core operating income mar-

gin was 36.9% of net sales, increasing 0.7 percentage

points (+1.3 percentage points cc). Revenues as a per-

centage of sales increased by 0.1 percentage points (cc).

Core cost of goods sold as a percentage of sales was

in line with the prior year. Core R&D expenses as a per-

centage of net sales increased by 0.2 percentage points

(cc). Core selling, general and administration (SG&A)

expenses as a percentage of net sales decreased by 1.4

percentage points (cc). Core other income and expense

as a percentage of net sales was in line with the prior

year.

Sandoz

Operating income was USD 1.4 billion (–10%, –2% cc),

with the decline mainly due to higher SG&A investments

to drive higher sales and inﬂationary pressures on input

costs, which were partly oset by higher sales. Operat-

ing income margin was 15.7% of net sales, decreasing

by 0.9 percentage points (-1.0 percentage points in cc).

Core adjustments were USD 455 million, including

USD 221 million of amortization. Prior year core adjust-

ments were USD 464 million, including USD 236 million

of amortization.

Core operating income was USD 1.9 billion (–8%, –1%

cc), with the decline mainly due to higher SG&A, partly

oset by higher sales. Core operating margin was 20.6%

of net sales, decreasing by 0.8 percentage points (-1.1

percentage points cc). Core gross margin as a percent-

age of sales decreased by 0.3 percentage points (cc),

due to higher inﬂation and input costs. Core R&D

expenses as a percentage of net sales decreased by 0.5

percentage points (cc). Core SG&A expenses increased

by 0.9 percentage points (cc). Core other income and

expense decreased the margin by 0.4 percentage points

(cc).

Corporate income and expense, net

Corporate income and expense, which includes the cost

of Group headquarter and coordination functions,

amounted to an expense of USD 1.0 billion, compared to

an expense of USD 599 million in 2021, mainly driven by

higher restructuring costs, lower contributions from the

Novartis Venture Fund and prior year income from a fair

value adjustment on contingent receivables related to

intellectual property rights, partly oset by prior year

adjustments to provisions on M&A transactions.

Innovative Medicines Division research and development

The following table provides an overview of the reported and core research and development expense of the

Innovative Medicines Division:

Change in

Change

constant

Year ended

in USD

currencies

(USD millions unless indicated otherwise) Dec , 

Dec , 



Research and exploratory development – 

– 





Conﬁrmatory development – 

– 

– 

– 

Total Innovative Medicines Division research and development expense – 

– 

– 

– 

As  of Innovative Medicines net sales to third parties 



Core research and exploratory development



– 

– 



– 

Core conﬁrmatory development



– 

– 

– 

– 

Total core Innovative Medicines Division research and development expense – 

– 

– 

– 

As  of Innovative Medicines net sales to third parties 



Core results exclude impairments, amortization and certain other items. For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS measures as deﬁned

by Novartis.”



Innovative Medicine Division research and exploratory

development expense decreased by 8% (+6% cc) to USD

2.9 billion. Conﬁrmatory development expense amounted

to USD 6.2 billion, increasing by 15% (–20% cc) versus

prior year mainly due to higher impairment charges and

higher investments in development to support recently

acquired assets.

Total core research and development expense in the

Innovative Medicine Division as a percentage of sales

increased by 0.6 percentage points (+0.2 percentage

points cc) to 20.0% of net sales, mainly driven by higher

investments in recently acquired assets.

Item 5. Operating and Financial Review andProspects

Non-operating income and expense

The term “non-operating income and expense” includes all income and expense items outside operating income.

The following table provides an overview of non-operating income and expense:

Change in

Change

constant

Year ended

in USD

currencies

(USD millions unless indicated otherwise) Dec , 

Dec , 



Operating income 



– 

– 

(Loss)/income from associated companies – 



Interest expense – 

– 

– 

– 

Other ﬁnancial income and expense 

– 

Income before taxes 



– 

– 

Income taxes – 

– 





Net income 



– 

– 

Attributable to:

Shareholders of Novartis AG 



– 

– 

Non-controlling interests 

– 

Basic earnings per share (USD) 



– 

– 

nm = not meaningful

Income from associated companies

Income from associated companies was a loss of USD

9 million compared to an income of USD 15.3 billion in

prior year. This decrease was due to the divestment of

our investment in Roche that closed in the fourth quar-

ter of 2021 where a gain of USD 14.6 billion was recog-

nized.

Interest expense and other ﬁnancial income and

expense

Interest expense amounted to USD 837 million, broadly

in line with prior year.

Other ﬁnancial income and expense amounted to an

income of USD 20 million compared to an expense of

USD 80 million in the prior year, as higher interest income

was partly oset by ﬁnancial expenses and currency

losses.

Income taxes

The tax rate was 16.9% compared to 8.1% in the prior

year period. In the prior year, the tax rate was impacted

by the Roche income from associated companies (includ-

ing the divestment gain recognized on the sale of our

investment in Roche in December 2021), the impact of

increases in uncertain tax positions and prior-year items.

For comparability, excluding these impacts, the prior year

tax rate would have been 16.8%, broadly in line with 16.9%

in the current year.

Net income

Net income was USD 7.0 billion (–71%, –67% cc), impacted

by Roche income in the prior year. Excluding the impact

of Roche income, net income declined –9% (cc).

Earnings per share

Basic earnings per share were USD 3.19 compared with

USD 10.71 in the prior year, mainly due to prior year Roche

income. Excluding the impact of Roche income, EPS

declined –7% (cc).

Item 5. Operating and Financial Review andProspects

Core non-operating income and expense

The following table provides an overview of core non-operating income and expense:

Change in

Change

constant

Year ended

in USD

currencies

(USD millions unless indicated otherwise) Dec , 

Dec , 



Core operating income 







Core (loss)/income from associated companies – 



Core interest expense – 

– 

– 

– 

Core other ﬁnancial income and expense 

– 

Core income before taxes 



– 



Core income taxes – 

– 



– 

Core net income 



– 



Core basic earnings per share (USD) 



– 



nm = not meaningful

Core income from associated companies

Core income from associated companies was a loss of

USD 9 million compared with an income of USD 993 mil-

lion in prior year. This decrease was due to the divest-

ment of our investment in Roche that closed in the fourth

quarter of 2021.

Core interest expense and other ﬁnancial income

and expense

Core interest expense amounted to USD 837 million,

broadly in line with prior year.

Core other ﬁnancial income and expense amounted

to an income of USD 141 million compared to an expense

of USD 41 million in the prior year as higher interest

income was only partly oset by currency losses.

Core income taxes

The core tax rate (core taxes as a percentage of core

income before tax) was 16.3% compared to 15.8% in the

prior year. For comparability, excluding Roche Income

from associated companies (divested in December

2021), the prior year core tax rate would have been 16.7%

compared to 16.3% in the current year, decreasing mainly

as a result of a change in core proﬁt mix.

Core net income

Core net income was USD 13.4 billion (–5%, +3% cc) as

growth in core operating income was partly oset by the

loss of Roche core income. Excluding the impact of

Roche core income, core net income grew +11% (cc).

Core earnings per share

Core EPS was USD 6.12 (–3%, +6% cc), beneﬁting from

lower weighted average number of shares outstanding.

Excluding the impact of Roche core income, core EPS

grew +14% (cc).

For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS

measures as deﬁned by Novartis.”

Item 5. Operating and Financial Review andProspects

Results of operations excluding Roche investment impacts

To enhance investors’ understanding of the Group’s performance in comparison with the prior year, the following

table provides a comparison of our 2022 published IFRS results and non-IFRS measures core results and free cash

ﬂow with the 2021 results, excluding the impacts related to our Roche investment, due to its divestment.

Excluding Roche investment impacts

Year ended

 change

Dec , 

Dec , 

USD



Operating income 



– 

– 

Loss from associated companies – 

– 

Interest expense – 

– 

– 

– 

Other ﬁnancial income and expense 

– 

Income taxes – 

– 





Net income 



– 

– 

Basic earnings per share (USD) 



– 

– 

Net cash ﬂows from operating activities 



– 

Free cash ﬂow







– 

Core



Core operating income 







Core net income 







Core basic earnings per share (USD) 







For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS measures as deﬁned by Novartis.”

For a reconciliation of 2021 IFRS results and non-IFRS measures core results and free cash ﬂow to exclude the impacts of the 2021 divestment of our Roche investment, see “—

Non-IFRS measures as deﬁned by Novartis.”

nm = not meaningful

Item 5. Operating and Financial Review andProspects



Factors aecting comparability of year-on-year results

of operations

Signiﬁcant transactions

in 2022 and 2021

The comparability of the year-on-year results of our

operations for the total Group can be signiﬁcantly

aected by acquisitions and divestments. As part of our

long-term strategy to focus Novartis as a leading

medicines company, we announced and/or completed

several acquisitions and divestments during 2022 and

2021.

A detailed description of signiﬁcant transactions in

2022 and 2021, can be found in “Item 18. Financial State-

ments—Note 2. Signiﬁcant transactions.”

Internal control over ﬁnancial reporting

The Group’s management has assessed the eective-

ness of internal control over ﬁnancial reporting. The

Group’s independent statutory auditor also issued an

opinion on the eectiveness of internal control over

ﬁnancial reporting. Both the Group’s management and

its external auditors concluded that the Group main-

tained, in all material respects, eective internal control

over ﬁnancial reporting as of December 31, 2022. For

more details, see “Item 15. Controls and Procedures.”

Approach to risk management

See “Item 6. Directors, Senior Management and Employ-

ees—Item 6.C Board practices—Corporate gover-

nance—Information and control systems—Risk

management” and “Item 18. Financial Statements—Note

29. Financial instruments – additional disclosures.”

Non-IFRS measures as deﬁned by Novartis

Novartis uses certain non-IFRS metrics when measur-

ing performance, especially when measuring cur-

rent-year results against prior periods, including core

results, constant currencies and free cash ﬂow.

Despite the use of these measures by management

in setting goals and measuring the Group’s performance,

these are non-IFRS measures that have no standardized

meaning prescribed by IFRS. As a result, such measures

have limits in their usefulness to investors.

Because of their non-standardized deﬁnitions, the

non-IFRS measures (unlike IFRS measures) may not be

comparable to the calculation of similar measures of

other companies. These non-IFRS measures are pre-

sented solely to permit investors to more fully understand

how the Group’s management assesses underlying per-

formance. These non-IFRS measures are not, and should

not be viewed as, a substitute for IFRS measures, and

should be viewed in conjunction with IFRS ﬁnancials.

As an internal measure of Group performance, these

non-IFRS measures have limitations, and the Group’s

performance management process is not solely

restricted to these metrics.

Item 5. Operating and Financial Review andProspects

Core results

The Group’s core results – including core operating

income, core net income and core earnings per share –

exclude fully the amortization and impairment charges

of intangible assets, excluding software, net gains and

losses on fund investments and equity securities valued

at fair value through proﬁt and loss, and certain acquisi-

tion- and divestment-related items. The following items

that exceed a threshold of USD 25 million are also

excluded: integration- and divestment-related income

and expenses; divestment gains and losses; restructur-

ing charges/releases and related items; legal-related

items; impairments of property, plant and equipment,

software, and ﬁnancial assets, and income and expense

items that management deems exceptional and that are

or are expected to accumulate within the year to be over

a USD25 million threshold.

Novartis believes that investor understanding of the

Group’s performance is enhanced by disclosing core

measures of performance, since core measures exclude

items that can vary signiﬁcantly from year to year, they

enable better comparison of business performance

across years. For this same reason, Novartis uses these

core measures in addition to IFRS and other measures

as important factors in assessing the Group’s perfor-

mance.

The following are examples of how these core measures

are utilized:

• In addition to monthly reports containing ﬁnancial infor-

mation prepared under International Financial Report-

ing Standards (IFRS), senior management receives a

monthly analysis incorporating these core measures.

• Annual budgets are prepared for both IFRS and core

measures.

As an internal measure of Group performance, the core

results measures have limitations, and the Group’s per-

formance management process is not solely restricted

to these metrics. A limitation of the core results mea-

sures is that they provide a view of the Group’s opera-

tions without including all events during a period, such

as the eects of an acquisition, divestment, or amortiza-

tion/impairments of purchased intangible assets, impair-

ments to property, plant and equipment and restructur-

ings and related items.

Constant currencies

Changes in the relative values of non-US currencies to

the US dollar can aect the Group’s ﬁnancial results and

ﬁnancial position. To provide additional information that

may be useful to investors, including changes in sales

volume, we present information about our net sales and

various values relating to operating and net income that

are adjusted for such foreign currency eects.

Constant currency calculations have the goal of elim-

inating two exchange rate eects so that an estimate

can be made of underlying changes in the consolidated

income statement excluding the impact of ﬂuctuations

in exchanges rates:

• The impact of translating the income statements of

consolidated entities from their non-USD functional

currencies to USD

• The impact of exchange rate movements on the major

transactions of consolidated entities performed in cur-

rencies other than their functional currency.

We calculate constant currency measures by translating

the current year’s foreign currency values for sales and

other income statement items into USD (excluding the

IAS 29 “Financial Reporting in Hyperinﬂationary Econo-

mies” adjustments to the local currency income state-

ments of subsidiaries operating in hyperinﬂationary

economies), using the average exchange rates from the

prior year and comparing them to the prior year values

in USD.

We use these constant currency measures in evalu-

ating the Group’s performance, since they may assist us

in evaluating our ongoing performance from year to year.

However, in performing our evaluation, we also consider

equivalent measures of performance that are not aected

by changes in the relative value of currencies.

Growth rate calculation

For ease of understanding, Novartis uses a sign conven-

tion for its growth rates such that a reduction in operat-

ing expenses or losses compared with the prior year is

shown as a positive growth.

Free cash ﬂow

Novartis deﬁnes free cash ﬂow as net cash ﬂows from

operating activities and cash ﬂows from investing activ-

ities associated with purchases and sales of property,

plant and equipment, of intangible assets, of ﬁnancial

assets and of other non-current assets. Excluded from

free cash ﬂow are cash ﬂows from investing activities

associated with acquisitions and divestments of busi-

nesses and of interests in associated companies, pur-

chases and sales of marketable securities, commodities,

time deposits and net cash ﬂows from ﬁnancing activi-

ties.

Free cash ﬂow is a non-IFRS measure and is not

intended to be a substitute measure for net cash ﬂows

from operating activities as determined under IFRS. Free

cash ﬂow is presented as additional information because

management believes it is a useful supplemental indica-

tor of the Group’s ability to operate without reliance on

additional borrowing or use of existing cash. Free cash

ﬂow is a measure of the net cash generated that is avail-

able for investment in strategic opportunities, returning

to shareholders and for debt repayment. Free cash ﬂow

is a non-IFRS measure, which means it should not be

interpreted as a measure determined under IFRS.

Item 5. Operating and Financial Review andProspects

Additional information

NET DEBT

Novartis calculates net debt as current ﬁnancial debts

and derivative ﬁnancial instruments plus non-current

ﬁnancial debt less cash and cash equivalents and mar-

ketable securities, commodities, time deposits and deriv-

ative ﬁnancial instruments.

Net debt is presented as additional information

because it sets forth how management monitors net debt

or liquidity and management believes it is a useful sup-

plemental indicator of the Group’s ability to pay divi-

dends, to meet ﬁnancial commitments, and to invest in

new strategic opportunities, including strengthening its

balance sheet.

For the table that shows the Group’s net debt, see

“— Item 5.B Liquidity and capital resources — Group

liquidity, ﬁnancial debts and net debt.”

EBITDA

Novartis deﬁnes earnings before interest, tax, depreci-

ation and amortization (EBITDA) as operating income,

excluding depreciation of property, plant and equipment,

depreciation of right-of-use assets, amortization of intan-

gible assets, and impairments of property, plant and

equipment, right-of-use assets and of intangible assets.

(USD millions) 



Operating income 



Depreciation of property,

plant and equipment 



Depreciation of

right-of-use assets 



Amortization of intangible

assets 



Impairments of property,

plant and equipment, right-of-use assets and

intangible assets







EBITDA 



There were no impairments of right-of-use assets in 2021.

ENTERPRISE VALUE

Enterprise value represents the total amount that share-

holders and debt holders have invested in Novartis, less

the Group’s liquidity.

(USD millions) Dec , 

Dec , 

Market capitalization 



Non-controlling interests 



Non-current ﬁnancial debts 



Current ﬁnancial debts and

derivative ﬁnancial instruments 



Marketable securities,

commodities, time deposits

and derivative ﬁnancial

instruments – 

– 

Cash and cash equivalents – 

– 

Enterprise value 



Item 5. Operating and Financial Review andProspects

Reconciliation from IFRS results to core results

The following tables provide an overview of the reconciliation from IFRS results to core results:

2022 and 2021 reconciliation from IFRS results to core results

Innovative Medicines Sandoz Corporate Group

(USD millions unless indicated otherwise) 















IFRS operating income 







– 

– 





Amortization of intangible assets 











Impairments

Intangible assets 













Property, plant and equipment related to the Group-wide

rationalization of manufacturing sites 



– 







Other property, plant and equipment 







Total impairment charges 













Acquisition or divestment of businesses and related items

- Income

– 

– 

– 

– 

– 

- Expense 









Total acquisition or divestment of

businesses and related items, net 

– 

– 







Other items

Divestment gains – 

– 

– 

– 

– 

– 

– 

Financial assets – fair value adjustments 

– 







– 

Restructuring and related items

- Income – 

– 

– 

– 

– 

– 

– 

– 

- Expense 















Legal-related items

- Income – 

– 

– 

– 

- Expense 











Additional income – 

– 

– 

– 

– 

– 

– 

– 

Additional expense 













Total other items 









– 





Total adjustments 









– 





Core operating income 







– 

– 





as  of net sales 











(Loss)/income from associated companies – 





– 



– 



Core adjustments to income from associated companies, net of tax

– 

Interest expense

– 

– 

Other ﬁnancial income and expense



– 

Core adjustments to other ﬁnancial income and expense





Income taxes, adjusted for above items (core income taxes)

– 

– 

Core net income





Core net income attributable to shareholders of Novartis AG





Core basic EPS (USD)







Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.

Item 5. Operating and Financial Review andProspects

2022 and 2021 reconciliation from IFRS results to core results – Group

Acquisition or

Amortization

divestment of

of intangible

businesses and

Other

 (USD millions unless indicated otherwise) IFRS results

assets



Impairments



related items



items



Core results

Gross proﬁt 









Operating income 











Income before taxes 











Income taxes



– 

– 

Net income 



Basic EPS (USD)







The following are adjustments to arrive at core gross proﬁt

Other revenues 

– 



Cost of goods sold – 







– 

The following are adjustments to arrive at core operating income

Selling, general and administration – 



– 

Research and development – 





– 

– 

Other income 

– 

– 

– 



Other expense – 







– 

The following are adjustments to arrive at core income before taxes

Other ﬁnancial income and expense 





Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets;

research and development includes the amortization of acquired rights for technologies

Impairments: cost of goods sold, research and development and other expense include impairment charges related to intangible assets; other income and other expense include

net impairment charges related to property, plant and equipment

Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income and other expense include transitional service fee income

and charges related to divestments; other income also includes adjustments to provisions; other expense includes stamp duties related to an acquisition

Other items: other revenues includes a net income from an outlicensing agreement; cost of goods sold, selling, general and administration, research and development, other

income and other expense include restructuring income and charges related to the restructuring initiative to implement a new streamlined organizational model, the Sandoz

strategic review, the Group-wide rationalization of manufacturing sites and other net restructuring charges and related items; cost of goods sold, selling, general and

administration, research and development and other expense include adjustments to provisions and related items; cost of goods sold and research and development also include

contingent consideration adjustments; other income and other expense include fair value adjustments and divestment gains and losses on ﬁnancial assets and legal-related items;

other income also includes gains from the divestment of products and property, curtailment gains and an adjustment to an environmental provision; other expense includes a

reversal of an accrual and other costs and items; other ﬁnancial income and expense includes the monetary loss on the restatement of non-monetary items for subsidiaries in

hyperinﬂationary economies and a revaluation impact of a ﬁnancial liability incurred through the Alcon distribution

Taxes on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will ﬁnally be applicable to the item

based on the jurisdiction where the adjustment will ﬁnally have a tax impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related

restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for items arising from legal settlements

in certain jurisdictions. Adjustments related to income from associated companies are recorded net of any related tax eect. Due to these factors and the diering eective tax

rates in the various jurisdictions, the tax on the total adjustments of USD 7.6 billion to arrive at the core results before tax amounts to USD 1.2 billion. The average tax rate on the

adjustments is 15.7% since the full year core tax charge of 16.3% has been applied to the pre-tax income of the period.

Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.

Item 5. Operating and Financial Review andProspects

Acquisition or

Amortization

divestment of

of intangible

businesses and

Other

 (USD millions unless indicated otherwise) IFRS results

assets



Impairments



related items



items



Core results

Gross proﬁt 









Operating income 











Income before taxes 





– 





Income taxes



– 

– 

Net income 



Basic EPS (USD)







The following are adjustments to arrive at core gross proﬁt

Cost of goods sold – 







– 

The following are adjustments to arrive at core operating income

Selling, general and administration – 



– 

Research and development – 







– 

Other income 

– 

– 

– 



Other expense – 







– 

The following are adjustments to arrive at core income before taxes

Income from associated companies 



– 



Other ﬁnancial income and expense – 

– 



– 

Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets;

research and development includes the amortization of acquired rights for technologies; income from associated companies includes USD 210 million for the Novartis share of the

estimated Roche core items

Impairments: cost of goods sold and research and development include impairment charges related to intangible assets; other income and other expense include reversals of

impairment charges and impairment charges related to property, plant and equipment

Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income includes adjustments to portfolio transformation and Alcon

spin-o accruals; other income and other expense include transitional service-fee income and expenses related to the Alcon distribution; other expense also includes adjustments

to provisions; income from associated companies includes the gain related to the divestment of our investment in Roche; other ﬁnancial income and expense includes other

ﬁnancial gains related to the divestment of our investment in Roche

Other items: cost of goods sold, research and development, other income and other expense include net restructuring and other charges related to the Group-wide rationalization

of manufacturing sites; cost of goods sold, selling, general and administration, other income and other expense include other restructuring income and charges and related items;

cost of goods sold, research and development, other income and other expense also include adjustments to contingent consideration; selling, general and administration, research

and development, other income and other expense include adjustments to provisions; other income and other expense also include gains and losses from the divestment of

products and ﬁnancial assets and fair value adjustments on ﬁnancial assets, adjustments to environmental provisions and legal-related items; other ﬁnancial income and expense

includes a charge related to the monetary loss due to hyperinﬂation in Argentina and Venezuela and a revaluation impact of a ﬁnancial liability incurred through the Alcon

distribution

Taxes on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will ﬁnally be applicable to the item

based on the jurisdiction where the adjustment will ﬁnally have a tax impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related

restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for items arising from legal settlements

in certain jurisdictions. Adjustments related to income from associated companies are recorded net of any related tax eect. Due to these factors and the diering eective tax

rates in the various jurisdictions, the tax on the total adjustments of USD 9.4 billion to arrive at the core results before tax amounts to USD 516 million. Excluding the gain on the

divestment of our investment in Roche, the tax on the total adjustments of USD 5.2 billion to arrive at the core results before tax amounts to USD 516 million and the average tax

rate on the adjustments was 10.0%.

Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.

Item 5. Operating and Financial Review andProspects

2022 and 2021 reconciliation from IFRS results to core results – Innovative Medicines

Acquisition or

Amortization

divestment of



of intangible

businesses and

Other

(USD millions) IFRS results

assets



Impairments



related items



items



Core results

Gross proﬁt 





– 



Operating income 











The following are adjustments to arrive at core gross proﬁt

Other revenues 

– 



Cost of goods sold – 







– 

The following are adjustments to arrive at core operating income

Selling, general and administration – 



– 

Research and development – 





– 

– 

Other income 

– 

– 



Other expense – 







– 

Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets;

research and development includes the amortization of acquired rights for technologies

Impairments: cost of goods sold, research and development and other expense include impairment charges related to intangible assets; other income and other expense include

net impairment charges related to property, plant and equipment

Acquisition or divestment of businesses and related items, including restructuring and integration charges: other expense includes stamp duties related to an acquisition and

transitional service fee charges related to divestments

Other items: other revenues includes a net income from an outlicensing agreement; cost of goods sold, selling, general and administration, research and development, other

income and other expense include restructuring income and charges related to the initiative to implement a new streamlined organizational model, the Group-wide rationalization of

manufacturing sites and other net restructuring charges and related items; cost of goods sold and research and development also include contingent consideration adjustments

and adjustments to provisions and related items; other income and other expense include fair value adjustments and divestment gains and losses on ﬁnancial assets and

legal-related items; other income also includes gains from the divestment of products and property, curtailment gains and an adjustment to an environmental provision; other

expense includes a reversal of an accrual and other costs and items

Acquisition or

Amortization

divestment of



of intangible

businesses and

Other

(USD millions) IFRS results

assets



Impairments



related items



items



Core results

Gross proﬁt 







Operating income 





– 





The following are adjustments to arrive at core gross proﬁt

Cost of goods sold – 





– 

The following are adjustments to arrive at core operating income

Selling, general and administration – 



– 

Research and development – 







– 

Other income 

– 

– 

– 



Other expense – 







– 

Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets;

research and development includes the amortization of acquired rights for technologies

Impairments: research and development includes impairment charges related to intangible assets; other income and other expense include reversals of impairment charges and

impairment charges related to property, plant and equipment

Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income and other expense include transitional service fee income

and expenses related to the Alcon distribution

Other items: cost of goods sold, research and development, other income and other expense include net restructuring and other charges related to the Group-wide rationalization

of manufacturing sites; cost of goods sold, selling, general and administration, other income and other expense include other restructuring income and charges and related items;

cost of goods sold, research and development and other expense include adjustments to contingent consideration; selling, general and administration, research and development

and other expense include adjustments to provisions; other income and other expense include gains and losses from the divestment of products and ﬁnancial assets and fair value

adjustments on ﬁnancial assets; other expense also includes legal-related items and adjustments to environmental provisions

Item 5. Operating and Financial Review andProspects

2022 and 2021 reconciliation from IFRS to core results – Sandoz

Acquisition or

Amortization

divestment of



of intangible

businesses and

Other

(USD millions) IFRS results

assets



Impairments



related items

items



Core results

Gross proﬁt 









Operating income 









The following are adjustments to arrive at core gross proﬁt

Cost of goods sold – 







– 

The following are adjustments to arrive at core operating income

Selling, general and administration – 



– 

Research and development – 





– 

Other income 

– 

– 



Other expense – 



– 

Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets

Impairments: cost of goods sold and research and development include impairment charges related to intangible assets; other income includes a reversal of an impairment charge

related to property, plant and equipment

Other items: cost of goods sold, selling, general and administration, research and development, other income and other expense include charges related to the Sandoz strategic

review, the Group-wide rationalization of manufacturing sites and other net restructuring charges and related items; other expense also includes legal-related items; cost of goods

sold and selling, general and administration include adjustments to provisions and related items

Acquisition or

Amortization

divestment of



of intangible

businesses and

Other

(USD millions) IFRS results

assets



Impairments



related items

items



Core results

Gross proﬁt 









Operating income 









The following are adjustments to arrive at core gross proﬁt

Cost of goods sold – 







– 

The following are adjustments to arrive at core operating income

Research and development – 



– 

– 

Other income 

– 

– 



Other expense – 





– 

Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets

Impairments: cost of goods sold and research and development include impairment charges related to intangible assets; other income and other expense include reversals of

impairment charges and impairment charges related to property, plant and equipment

Other items: cost of goods sold, other income and other expense include net restructuring and other charges related to the Group-wide rationalization of manufacturing sites and

other restructuring income and charges and related items; research and development includes adjustments to provisions; other income includes net gains from the divestment of a

product; other income and other expense include legal-related items

Item 5. Operating and Financial Review andProspects

2022 and 2021 reconciliation from IFRS results to core results – Corporate

Acquisition or

Amortization

divestment of



of intangible

businesses and

Other

(USD millions) IFRS results

assets

Impairments



related items



items



Core results

Gross proﬁt 



Operating loss – 



– 



– 

The following are adjustments to arrive at core operating loss

Selling, general and administration – 



– 

Other income 

– 

– 



Other expense – 





– 

Impairments: other expense includes impairment charges related to intangible assets

Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income includes adjustments to provisions and transitional service

fee income related to divestments

Other items: selling, general and administration, other income and other expense include restructuring income and charges related to the initiative to implement a new streamlined

organizational model, the Sandoz strategic review and other net restructuring charges and related items; other income and other expense also include fair value adjustments and

divestment gains and losses on ﬁnancial assets; other income also includes a curtailment gain

Acquisition or

Amortization

divestment of



of intangible

businesses and

Other

(USD millions) IFRS results

assets

Impairments

related items



items



Core results

Gross proﬁt 



Operating loss – 



– 

– 

The following are adjustments to arrive at core operating loss

Other income 

– 

– 



Other expense – 





– 

Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income includes adjustments to portfolio transformation and Alcon

spin-o accruals; other income and other expense include transitional service fee income and expenses related to the Alcon distribution; other expense also includes adjustments

to provisions

Other items: other income includes an adjustment to a contingent consideration receivable; other income and other expense include fair value adjustments and divestment gains

and losses on ﬁnancial assets, adjustments to environmental provisions and restructuring income and charges and related items

Item 5. Operating and Financial Review andProspects

Reconciliation of 2021 IFRS results and non-IFRS measures core results and free cash ﬂow to exclude the

impacts of the 2021 divestment of our Roche investment

To enhance investor understanding of the Group’s performance in comparison with the prior year, we presented

the 2021 IFRS results and non-IFRS measures core results and free cash ﬂow excluding the impacts related to our

Roche investment, due to its divestment in the fourth quarter of 2021.

The following tables provide a reconciliation of our 2021 published IFRS results and non-IFRS measures core results

and free cash ﬂow to the 2021 results, excluding the impacts related to our Roche investment, due to its divest-

ment.

2021

Results

Our Roche

excluding

investment

Gain on

impacts

divestment

from the

excluding

of our

divestment

Results as

the divestment

investment

of our Roche

(USD millions unless indicated otherwise) published

gain

in Roche

investment

Operating income 



Income from associated companies 

– 

– 

– 

Interest expense and other ﬁnancial

income and expense – 

– 

– 

Income before tax 

– 

– 



Income taxes – 

– 

Net income 

– 

– 



Basic earnings per share (USD) 

– 

– 



Eective tax rate







Core operating income 



Core income from associated companies 

– 

– 

Core interest expense and core other

ﬁnancial income and expense – 

– 

Core income before tax 

– 



Core income taxes – 

– 

Core net income 

– 



Core basic earnings per share (USD) 

– 



Core eective tax rate







Free cash ﬂow





– 



Eective tax rate is calculated as Income taxes divided by Income before tax.

Core eective tax rate is calculated as Core income taxes divided by Core income before tax.

The free cash ﬂow impact represents the dividend received in Q1 2021 from Roche in relation to the distribution of its 2020 net income.

Item 5. Operating and Financial Review andProspects

2021

Dividends

received from

Roche in

Free cash

relation to

ﬂow excluding

the distribution

dividends

Free cash ﬂow

of its 

received

(USD millions) as published

net income



from Roche

Operating income 



Adjustments for non-cash items 



Operating income adjusted for non-cash items 



Dividends received from associated companies and others 

– 



Interest and other ﬁnancial payments, net – 

– 

Income taxes paid – 

– 

Other operating cash ﬂow items, net – 

– 

Net cash ﬂows from operating activities 

– 



Net purchases of property, plant and equipment, intangible assets, ﬁnancial assets and

other non-current assets – 

– 

Free cash ﬂow 

– 



In 2021, the dividend received from Roche in relation to the distribution of its 2020 net income was received in Q1 2021.

The following table provides a summary of the percentage point impact from excluding the eect of the divestment

of our investment in Roche (in the fourth quarter of 2021) on the USD and constant currencies % change on key

Group ﬁgures.

In USD In constant currencies

 change

excluding

impacts

from the

divestment

Percentage

divestment

Percentage

 change

of our Roche

point

 change

of our Roche

point

as published

investment

impact

as published

investment

impact



Net income – 

– 

– 

– 

– 

– 

Basic earnings per share (USD) – 

– 

– 

– 

– 

– 

Free cash ﬂow – 

– 

– 

Core net income – 



– 





– 

Core basic earnings per share (USD) – 



– 





– 

5.B Liquidity and capital resources

The following tables summarize the Group’s cash ﬂows and net debt:

(USD millions) 



Net cash ﬂows from operating activities 



Net cash ﬂows from investing activities 



Net cash ﬂows used in ﬁnancing activities – 

– 

Eect of exchange rate changes on cash and cash equivalents – 

– 

Net change in cash and cash equivalents – 



Change in marketable securities, commodities, time deposits and derivative ﬁnancial instruments – 



Change in current and non-current ﬁnancial debts and derivative ﬁnancial instruments 



Change in net debt – 



Net debt at January  – 

– 

Net debt at December  – 

– 

Item 5. Operating and Financial Review andProspects

Cash ﬂow

Financial year 2022 compared with 2021

Net cash ﬂows from operating activities amounted to

USD 14.2 billion, compared with USD 15.1 billion in 2021.

This decrease was mainly due to unfavorable changes

in working capital and lower dividends from associated

companies (2021 included the USD 0.5 billion dividends

received from our investment in Roche, which was

divested in the fourth quarter of 2021), partly oset by

lower income taxes paid and favorable hedging results.

Net cash inﬂows from investing activities amounted

to USD 1.5 billion, compared with USD 4.2 billion in 2021.

The current year cash inﬂows were driven by net pro-

ceeds of USD 4.7 billion from the sale of marketable

securities, commodities and time deposits; USD 0.5 bil-

lion from the sale of intangible assets, ﬁnancial assets

and property, plant and equipment. These cash inﬂows

were partly oset by cash outﬂows of USD 1.5 billion for

purchases of intangible assets; USD 1.2 billion for pur-

chases of property, plant and equipment; USD 0.1 billion

for purchases of ﬁnancial assets; and USD 0.9 billion for

acquisitions and divestments of businesses, net (primar-

ily the acquisition of Gyroscope Therapeutics Holdings

plc for USD 0.8 billion).

In 2021, net cash inﬂows from investing activities of

USD 4.2 billion were driven by proceeds of USD 20.7 bil-

lion from the divestment of our investment in Roche; USD

2.3 billion from the sale of marketable securities, com-

modities and time deposits; and USD 1.4 billion from the

sale of intangible assets, ﬁnancial assets and property,

plant and equipment. These cash inﬂows were partly o-

set by USD 16.4 billion cash outﬂows for purchases of

marketable securities and time deposits, mainly due to

the investment of a portion of the proceeds from the

divestment of our investment in Roche; USD 1.6 billion

for purchases of intangible assets (including the upfront

payment to in-license tislelizumab from an aliate of Bei-

Gene, Ltd); USD 1.4 billion for purchases of property,

plant and equipment; USD 0.6 billion for acquisitions and

divestments of businesses, net (including the acquisition

of GSK’s cephalosporin antibiotics business for USD 351

million); and USD 0.2 billion for purchases of ﬁnancial

assets.

Net cash outﬂows used in ﬁnancing activities

amounted to USD 20.6 billion, compared with USD 16.3

billion in 2021.

The current year cash outﬂows were mainly driven

by USD 10.6 billion for net treasury share transactions;

USD 7.5 billion for the dividend payment; USD 2.5 billion

in aggregate for the repayment of two US dollar bonds;

and USD 0.3 billion payments of lease liabilities. These

cash outﬂows were partly oset by cash inﬂows of USD

0.3 billion from the net increase in current ﬁnancial debts.

In 2021, net cash outﬂows used in ﬁnancing activities

of USD 16.3 billion were driven by USD 7.4 billion for the

dividend payment; USD 3.0 billion for net treasury share

transactions; USD 3.5 billion net decrease in current

ﬁnancial debts; and USD 2.2 billion for the repayment of

two bonds denominated in euro (notional amount of EUR

1.25 billion and of EUR 0.6 billion) at maturity. Payments

of lease liabilities and other ﬁnancing cash ﬂows resulted

in a net cash outﬂow of USD 0.2 billion.

Free cash ﬂow

Free cash ﬂow is a non-IFRS measure, see “—Item 5.A Operating results—Non-IFRS measures as deﬁned by

Novartis—Free cash ﬂow” for further information.

The following table is a reconciliation of the three major categories of the IFRS consolidated statements of cash

ﬂows to free cash ﬂow:

2022 2021

IFRS

Free

IFRS

Free

(USD millions) cash ﬂow

Adjustments

cash ﬂow

Adjustments

cash ﬂow

Net cash ﬂows from operating activities 





Net cash ﬂows from/(used in) investing activities





– 

– 



– 

– 

Net cash ﬂows used in ﬁnancing activities



– 





– 





Free cash ﬂow





Excluded from the free cash ﬂow are cash ﬂows from investing activities associated with acquisitions and divestments of businesses and of interest in associated companies,

purchases and sales of marketable securities, commodities and time deposits.

Net cash ﬂows used in ﬁnancing activities are excluded from the free cash ﬂow.

Item 5. Operating and Financial Review andProspects

The following table is a summary of the free cash ﬂow:

(USD millions) 



Operating income 



Adjustments for non-cash items

Depreciation, amortization and impairments 



Change in provisions and other non-current liabilities 



Other 



Operating income adjusted for non-cash items 



Dividends received from associated companies and others 



Interest and other ﬁnancial receipts 



Interest and other ﬁnancial payments – 

– 

Income taxes paid – 

– 

Payments out of provisions and other net cash movements in non-current liabilities – 

– 

Change in inventories and trade receivables less trade payables – 

– 

Change in other net current assets and other operating cash ﬂow items 



Net cash ﬂows from operating activities 



Purchases of property, plant and equipment – 

– 

Proceeds from sale of property, plant and equipment 



Purchases of intangible assets – 

– 

Proceeds from sale of intangible assets 



Purchases of ﬁnancial assets – 

– 

Proceeds from sale of ﬁnancial assets 



Purchases of other non-current assets – 

– 

Proceeds from sale of other non-current assets



Free cash ﬂow 



Financial year 2022 compared with 2021

Free cash ﬂow amounted to USD 11.9 billion (–10% USD), compared with USD 13.3 billion in 2021, mainly due to a

decrease in net cash ﬂows from operating activities and lower divestment proceeds, partly oset by lower pur-

chases of property, plant and equipment.

Item 5. Operating and Financial Review andProspects

Condensed consolidated balance sheets

(USD millions) Dec , 

Dec , 

Assets

Property, plant and equipment 



Right-of-use assets 



Goodwill 



Intangible assets other than goodwill 



Investments in associated companies 



Deferred tax assets 



Financial assets and other non-current assets 



Total non-current assets 



Inventories 



Trade receivables 



Other current assets and income tax receivables 



Marketable securities, commodities, time deposits and derivative ﬁnancial instruments 



Cash and cash equivalents 



Total current assets 



Total assets 



Equity and liabilities

Total equity 



Liabilities

Financial debts 



Lease liabilities 



Deferred tax liabilities 



Provisions and other non-current liabilities 



Total non-current liabilities 



Trade payables 



Financial debts and derivative ﬁnancial instruments 



Lease liabilities 



Provisions and other current liabilities and current income tax liabilities 



Total current liabilities 



Total liabilities 



Total equity and liabilities 



Assets

Total non-current assets of USD 80.5 billion at Decem-

ber 31, 2022, decreased by USD 5.5 billion compared to

December 31, 2021.

Intangible assets other than goodwill decreased by

USD 2.5 billion as additions (including the acquisition of

Gyroscope Therapeutics Holdings plc) were more than

oset by amortization, impairments and unfavorable cur-

rency translation adjustments.

Goodwill decreased by USD 0.3 billion, mainly due to

unfavorable currency translation adjustments.

Property, plant and equipment decreased by USD 0.8

billion, as net additions were more than oset by depre-

ciation, unfavorable currency translation adjustments

and impairments.

Financial and other non-current assets decreased by

USD 1.7 billion, driven by the decrease of the prepaid

post-employment beneﬁt plans of USD 0.9 billion, result-

ing mainly from the pension accounting eects from

increases in actuarial discount rates and of USD 0.6 bil-

lion from fair value losses on listed equity and fund invest-

ments.

Right-of-use assets, investments in associated com-

panies and deferred tax assets were broadly in line with

December 31, 2021.

Total current assets of USD 36.9 billion at December

31, 2022, decreased by USD 8.8 billion compared to

December 31, 2021.

Cash and cash equivalents decreased by USD 4.9

billion, mainly due to the dividend payment, the purchase

of treasury shares and net repayments of ﬁnancial debt,

partly oset by the cash generated from operating activ-

ities and from investing activities, which includes the net

proceeds from the sales of marketable securities, com-

modities and time deposits.

Marketable securities, commodities, time deposits

and derivative ﬁnancial instruments decreased by USD

4.5 billion mainly driven by the net sales of marketable

securities, commodities and time deposits.

Inventories increased by USD 0.5 billion and trade

receivables and other current assets and income tax

receivables were broadly in line with December 31, 2021.

We consider our provisions for doubtful trade receiv-

ables to be adequate. We particularly monitor the level

of trade receivables in countries deemed to have an

Item 5. Operating and Financial Review andProspects

elevated credit risk. We consider macroeconomic envi-

ronment, historical experience, country and political risk,

in addition to other relevant information when assessing

risk. These risk factors are monitored regularly to deter-

mine any adjustments in risk classiﬁcation. The majority

of the past due trade receivables from elevated credit

risk countries are due from local governments or from

government-funded entities. Deteriorating credit and

economic conditions as well as other factors in these

elevated credit risk countries have resulted in, and may

continue to result in, an increase in the average length

of time that it takes to collect these trade receivables

and may require the Group to re-evaluate the expected

credit loss amount of these trade receivables in future

periods. At December 31, 2022, amounts past due for

more than one year were not signiﬁcant in elevated credit

risk countries.

For a table showing an overview of the aging analy-

sis of total trade receivables and the total amount of the

provision for doubtful trade receivables as of December

31, 2022, and 2021, see “Item 18. Financial Statements—

Note 15. Trade receivables.”

There is also a risk that certain countries could

devalue their currency. Currency exposures are

described in more detail in “—Eects of currency ﬂuctu-

ations.”

Liabilities

Total non-current liabilities of USD 29.4 billion decreased

by USD 4.4 billion compared to December 31, 2021.

Non-current ﬁnancial debts decreased by USD 2.7

billion, mainly due to the reclassiﬁcation of USD 2.3 bil-

lion from non-current to current ﬁnancial debts of two

EUR denominated bonds with notional amounts of EUR

750 million and EUR 1.25 billion maturing in 2023 and

favorable currency translation adjustments of USD 0.4

billion.

Provisions and other non-current liabilities decreased

by USD 1.3 billion, mainly driven by decreases in accrued

liabilities for employee beneﬁts of USD 1.2 billion (primar-

ily due to a decrease in accrued liabilities for deﬁned

beneﬁt pension plans of USD 0.9 billion, resulting from

the pension accounting eects from increases in actu-

arial discount rates), and in contingent consideration of

USD 0.3 billion, a reclassiﬁcation of non-current legal

matters provisions to current portion of USD 0.2 billion,

partly oset by the increase in other non-current liabili-

ties of USD 0.4 billion.

Deferred tax liabilities decreased by USD 0.4 billion

and non-current lease liabilities were broadly in line with

December 31, 2021.

Total current liabilities of USD 28.7 billion decreased

by USD 1.6 billion compared to December 31, 2021.

Provisions and other current liabilities and current

income tax liabilities decreased by USD 0.8 billion, mainly

driven by the decrease in the commitment for repurchase

of own shares liability of USD 2.8 billion, partly oset by

increases in restructuring provisions of USD 0.8 billion

(primarily due to the initiative announced in April 2022,

to implement a new streamlined organizational model),

in provisions for legal matters of USD 0.5 billion, includ-

ing a USD 0.2 billion reclassiﬁcation from non-current

provisions for legal matters, and in provisions for reve-

nue deductions of USD 0.3 billion.

Current ﬁnancial debts and derivative ﬁnancial instru-

ments decreased by USD 0.4 billion, mainly due to the

repayment of two US dollar bonds of USD 1.0 billion and

USD 1.5 billion, the closure during the third quarter of

2022 of the interest-bearing accounts of employees pay-

able on demand, which amounted to USD 1.8 billion at

December 31, 2021, and favorable currency translation

adjustments, partly oset by the reclassiﬁcation from

non-current to current ﬁnancial debts of USD 2.3 billion

and an increase of USD 1.9 billion in commercial paper.

Trade payables decreased by USD 0.4 billion and cur-

rent lease liabilities were broadly in line with December

31, 2021.

In our key countries, Switzerland and the United

States, assessments have been agreed by the tax author-

ities up to 2017 in Switzerland and up to 2014 in the United

States, with the exception of one open United States

position related to the 2007 tax ﬁling. Uncertainties also

exist on the application of a taxing right based on a Ger-

man non-resident tax regulation for speciﬁc revenues

derived from German registered intellectual property

rights.

Novartis believes that its total provisions are ade-

quate based upon currently available information. How-

ever, given the inherent diculties in estimating liabilities

in this area, Novartis may incur additional costs beyond

the amounts provided. Management believes that such

additional amounts, if any, would not be material to the

Group’s ﬁnancial condition but could be material to the

results of operations or cash ﬂows in a given period.

Equity

The Group`s equity decreased by USD 8.4 billion to USD

59.4 billion at December 31, 2022, compared to Decem-

ber 31, 2021.

This decrease was mainly due to the cash-dividend

payment of USD 7.5 billion, purchase of treasury shares

of USD 10.9 billion, unfavorable currency translation dif-

ferences of USD 0.5 billion and fair value adjustments on

equity securities of USD 0.4 billion. This was partially o-

set by the net income of USD 7.0 billion, decrease of the

treasury share repurchase obligation of USD 2.8 billion,

and equity-based compensation of USD 0.9 billion.

Item 5. Operating and Financial Review andProspects

Summary of equity movements attributable to Novartis AG shareholders

Number of outstanding shares Equity attributable to

(in millions) Novartis AG shareholders









USD millions

Balance at beginning of year 







Shares acquired to be canceled – 

– 

– 

– 

Other share purchases – 

– 

– 

– 

Exercise of options and employee transactions 







Equity-based compensation 







Shares delivered to Alcon employees as a result of the Alcon spin-o 







Taxes on treasury share transactions





Decrease/(increase) of treasury share repurchase

obligation under a share buyback trading plan



– 

Transaction costs, net of taxes



Dividends

– 

– 

Net income of the year attributable to shareholders of Novartis AG





Other comprehensive income attributable to shareholders of Novartis AG

– 

– 

Impact of change in ownership of consolidated entities

– 

Other movements







Balance at end of year 







Impact of hyperinﬂationary economies (see “Item 18. Financial Statements—Note 1. Signiﬁcant accounting policies”).

In 2022, Novartis repurchased a total of 126.2 million

shares for USD 10.8 billion on the SIX Swiss Exchange

second trading line, including 115.3 million shares (USD

9.9 billion) under the up-to USD 15 billion share buyback

announced in December 2021 and 10.9 million shares

(USD 0.9 billion) to mitigate dilution related to participa-

tion plans of associates. In addition, 1.4 million shares

(USD 0.1 billion) were repurchased from associates. In

the same period, 12.3 million shares (for an equity value

of USD 0.9 billion) were delivered as a result of option

exercises and share deliveries related to participation

plans of associates. Consequently, the total number of

shares outstanding decreased by 115.3 million versus

December 31, 2021. These treasury share transactions

resulted in a decrease in equity of USD 10.0 billion and

a net cash outﬂow of USD 10.6 billion.

In 2021, Novartis repurchased a total of 30.7 million

shares for USD 2.8 billion on the SIX Swiss Exchange

second trading line, including 19.6 million shares (USD

1.8 billion) under the up-to USD 2.5 billion share buyback

announced in November 2020, 8.6 million shares (USD

0.8 billion) to mitigate dilution related to participation

plans of associates and 2.5 million shares (USD 0.2

billion) under the up-to USD 15 billion share buyback

announced in December 2021. In addition, 1.5 million

shares (USD 0.1 billion) were repurchased from associ-

ates. In the same period, 10.3 million shares (for an equity

value of USD 0.8 billion) were delivered as a result of

options exercised and share deliveries related to partic-

ipation plans of associates. Consequently, the total num-

ber of shares outstanding decreased by 21.9 million ver-

sus December 31, 2020. These treasury share

transactions resulted in a decrease in equity of USD 2.1

billion and a net cash outﬂow of USD 3.0 billion.

Treasury shares

At December 31, 2022, our holding of treasury shares

amounted to 284.1 million shares, or approximately 12%

of the total number of issued shares. Approximately 99.0

million treasury shares were held in entities that restrict

their availability for use.

At December 31, 2021, our holding of treasury shares

amounted to 199.5 million shares, or approximately 8%

of the total number of issued shares. Approximately

102.5 million treasury shares were held in entities that

restrict their availability for use.

Item 5. Operating and Financial Review andProspects

Eects of currency ﬂuctuations

We transact our business in many currencies other than the US dollar, our reporting currency.

The following table provides an overview of net sales and operating expenses based on IFRS values for 2022 and

2021, for currencies most important to the Group:

2022 2021

Operating

Net sales

expenses

Net sales

expenses

Currency 









US dollar (USD) 





Euro (EUR) 







Swiss franc (CHF) 







Chinese yuan (CNY) 







Japanese yen (JPY) 







Canadian dollar (CAD) 







British pound (GBP) 







Russian ruble (RUB) 







Brazilian real (BRL) 



Australian dollar (AUD) 



Other currencies 







Operating expenses include cost of goods sold; selling, general and administration; research and development; other income and other expense.

We prepare our consolidated ﬁnancial statements in US

dollars. As a result, ﬂuctuations in the exchange rates

between the US dollar and other currencies can have a

signiﬁcant eect on both the Group’s results of opera-

tions as well as the reported value of our assets, liabili-

ties and cash ﬂows. This in turn may signiﬁcantly aect

reported earnings (both positively and negatively) and

the comparability of period-to-period results of opera-

tions.

For purposes of our consolidated balance sheets, we

translate assets and liabilities denominated in other cur-

rencies into US dollars at the prevailing market exchange

rates as of the relevant balance sheet date. For purposes

of the Group’s consolidated income and cash ﬂow state-

ments, revenue, expense and cash ﬂow items in local

currencies are translated into US dollars at average

exchange rates prevailing during the relevant period. As

a result, even if the amounts or values of these items

remain unchanged in the respective local currency,

changes in exchange rates have an impact on the

amounts or values of these items in our consolidated

ﬁnancial statements.

Because our expenditure in Swiss francs is signiﬁ-

cantly higher than our revenue in Swiss francs, volatility

in the value of the Swiss franc can have a signiﬁcant

impact on the reported value of our earnings, assets and

liabilities, and the timing and extent of such volatility can

be dicult to predict.

The Group manages its global currency exposure by

engaging in hedging transactions where management

deems appropriate, after taking into account the natural

hedging aorded by our global business activity. In 2022

and 2021, we entered into various contracts that change

in value with movements in foreign exchange rates, to

preserve the value of assets, commitments and expected

transactions. We use forward contracts and foreign cur-

rency options to hedge. For more information on how

these transactions aect our consolidated ﬁnancial

statements and on how foreign exchange rate exposure

is managed, see “Item 18. Financial Statements—Note 1.

Signiﬁcant accounting policies,” “Item 18. Financial State-

ments—Note 5. Interest expense and other ﬁnancial

income and expense,” “Item 18. Financial Statements—

Note 15. Trade receivables,” “Item 18. Financial State-

ments—Note 28. Commitments and contingent liabilities”

and “Item 18. Financial Statements—Note 29. Financial

instruments – additional disclosures.”

Item 5. Operating and Financial Review andProspects

The following table sets forth the foreign exchange rates of the US dollar against key currencies used for foreign

currency translation when preparing the Group’s consolidated ﬁnancial statements:

Average for year Year-end

USD per unit 



Change in 





Change in 

Australian dollar (AUD) 



– 





– 

Brazilian real (BRL) 











Canadian dollar (CAD) 



– 





– 

Swiss franc (CHF) 



– 





– 

Chinese yuan (CNY) 



– 





– 

Euro (EUR) 



– 





– 

British pound (GBP) 



– 





– 

Japanese yen (JPY ()) 



– 





– 

Russian ruble (RUB ()) 











The following table provides a summary of the currency impact on key Group ﬁgures due to their conversion into

US dollars, the Group’s reporting currency. For additional information on the constant currency calculation (“cc”),

see “—Item 5.A Operating results—Non-IFRS measures as deﬁned by Novartis—Constant currencies”.

Currency impact on key ﬁgures

Change in

Percentage

Change in

Percentage

Change in

constant

point currency

Change in

constant

point currency

USD 

currencies 

impact

USD 

currencies 

impact





Total Group

Net sales to third parties – 



– 







Operating income – 

– 

– 







Net income – 

– 

– 







Basic earnings per share (USD) – 

– 

– 







Core operating income 



– 







Core net income – 



– 







Core basic earnings per share (USD) – 



– 







Innovative Medicines

Net sales to third parties – 



– 







Operating income – 

– 







Core operating income 



– 







Sandoz

Net sales to third parties – 



– 



– 



Operating income – 

– 

– 







Core operating income – 

– 

– 

– 

– 



Corporate

Operating loss – 

– 



Core operating loss 





– 

– 

– 

nm = not meaningful

For additional information on the eects of currency ﬂuctuations, see “Item 18. Financial Statements—Note 29.

Financial instruments – additional disclosures.”

Item 5. Operating and Financial Review andProspects

Group liquidity, ﬁnancial debts and net debt

The following table shows Group liquidity, ﬁnancial debts and net debt:

(USD millions) 



Non-current ﬁnancial debts – 

– 

Current ﬁnancial debts and derivative ﬁnancial instruments – 

– 

Total ﬁnancial debts – 

– 

Less liquidity

Cash and cash equivalents 



Marketable securities, commodities, time deposits and

derivative ﬁnancial instruments 



Total liquidity 



Net debt at December 



– 

– 

For further information about the net debt measure, which is a non-IFRS measure, see “—Item 5.A Operating results—Non-IFRS measures as deﬁned by Novartis—Net debt.”

Financial year 2022

Group net debt at December 31, 2022, increased to

USD7.2 billion, compared with USD0.9 billion at Decem-

ber 31, 2021.

Total ﬁnancial debts amounted to USD 26.2 billion at

December 31, 2022, compared with USD 29.2 billion at

December 31, 2021. Non-current ﬁnancial debts

decreased by USD 2.7 billion, mainly due to the reclas-

siﬁcation of USD 2.3 billion from non-current to current

ﬁnancial debts of two EUR denominated bonds with

notional amounts of EUR 750 million and EUR 1.25 bil-

lion maturing in 2023 and favorable foreign currency

translation adjustments of USD 0.4 billion.

Current ﬁnancial debts and derivative ﬁnancial instru-

ments decreased by USD 0.4 billion, mainly due to the

repayment of two US dollar bonds of USD 1.0 billion and

USD 1.5 billion, the closure during the third quarter of

2022 of the interest-bearing accounts of employees pay-

able on demand, which amounted to USD 1.8 billion at

December 31, 2021, and favorable currency translation

adjustments, partly oset by the reclassiﬁcation from

non-current to current ﬁnancial debts of USD 2.3 billion

and an increase of USD 1.9 billion in commercial paper.

Novartis has two US commercial paper programs

under which it can issue up to USD 9.0 billion in the

aggregate of unsecured commercial paper notes.

Novartis also has a Japanese commercial paper program

under which it can issue up to JPY 150 billion (approxi-

mately USD 1.1 billion) of unsecured commercial paper

notes. Commercial paper notes totaling USD 2.8 billion

under these three programs were outstanding as per

December 31, 2022 (2021: USD 0.9 billion).

Novartis also has a committed credit facility of

USD6.0 billion, which was extended in 2022. This credit

facility is provided by a syndicate of banks and is intended

to be used as a backstop for the US commercial paper

programs. The extended facility matures in September

2025 and was undrawn as per December 31, 2022, and

December 31, 2021.

Total liquidity decreased to USD 18.9 billion com-

pared with USD 28.3 billion at December 31, 2021.

As of year-end 2022, Moody’s Investors Service rated

the Company A1 for long-term maturities and P-1 for

short-term maturities and S&P Global Ratings rated the

company AA- for long-term maturities and A-1+ for short-

term maturities.

For the tables showing the maturity schedule of our

current ﬁnancial assets, current and non-current ﬁnan-

cial debts and net debt at December 31, 2022 and

December 31, 2021, see “Item 18. Financial Statements—

Note 29. Financial instruments – Additional disclosures—

Nature and extent of risks arising from ﬁnancial instru-

ments—Liquidity risk.”

For a description of risks and restrictions on the abil-

ity of subsidiaries to transfer funds to the Company via

cash dividends, loan or advances, please see “—Liquid-

ity/short-term funding” and “Item 18. Financial State-

ments—Note 29. Financial instruments – Additional dis-

closures—Nature and extent of risks arising from

ﬁnancial instruments.”

Information regarding the Company’s material com-

mitments for capital expenditures as of the end of 2022

and 2021 and an indication of the general purpose of

such commitments and the anticipated sources of funds

needed to fulﬁll such commitments are provided in “—

Material short- and long-term cash requirements.”

Item 5. Operating and Financial Review andProspects

Liquidity and ﬁnancial debt by currency

The following table provides a breakdown of liquidity and ﬁnancial debt by currency as of December 31:

Financial

Liquidity

debt in 

debt in 

in 



in 











USD 







CHF 







EUR 







JPY



Other 







Liquidity includes cash and cash equivalents and marketable securities, including debt securities, commodities and time deposits.

Financial debt includes non-current and current ﬁnancial debt.

Bonds

In April 2022, a 5-year USD denominated bond of USD

1.0 billion with a coupon of 2.40% was repaid, in advance

of its maturity date at no additional cost.

In September 2022, a 10-year USD denominated

bond of USD 1.5 billion with a coupon of 2.40% was

repaid at maturity.

In March 2021, a 4-year EUR denominated bond of

EUR 1.25 billion with a coupon of 0.00% was repaid at

maturity.

In November 2021, a 7-year EUR denominated bond

of EUR 0.6 billion with a coupon of 0.75% was repaid at

maturity.

Liquidity/short-term funding

The Group’s liquidity amounted to USD 18.9 billion at

December 31, 2022, compared with USD 28.3 billion at

December 31, 2021. Total non-current and current ﬁnan-

cial debts, including derivatives, amounted to USD 26.2

billion at December 31, 2022, compared with USD 29.2

billion at December 31, 2021.

The debt/equity ratio increased to 0.44:1 at Decem-

ber 31, 2022, compared with 0.43:1 at December 31,

2021. The net debt increased to USD 7.2 billion at

December 31, 2022, compared with USD 0.9 billion at

December 31, 2021.

We continuously track our liquidity position and

asset/liability proﬁle. This involves modeling cash ﬂow

maturity proﬁles based on both historical experiences

and contractual expectations to project our liquidity

requirements. We seek to preserve prudent liquidity and

funding capabilities. We are conﬁdent that we have suf-

ﬁcient liquidity to support our normal business activities

for the foreseeable future.

Certain countries have legal or economic restrictions

on the ability of subsidiaries to transfer funds to the

Group in the form of cash dividends, loans or advances,

but these restrictions do not have an impact on the abil-

ity of the Group to meet its cash obligations.

We are not aware of any signiﬁcant demands to

change the level of liquidity needed to support our nor-

mal business activities. We make use of various borrow-

ing facilities provided by several ﬁnancial institutions. We

also successfully issued various bonds in previous years

and raised funds through our commercial paper pro-

grams.

The maturity schedule of our net debt can be found

in “Item 18. Financial Statements—Note 29. Financial

instruments – Additional disclosures—Nature and extent

of risks arising from ﬁnancial instruments—Liquidity risk.”

Item 5. Operating and Financial Review andProspects

Material short- and long-term cash requirements

The following table summarizes the Group’s material short- and long-term cash requirements:

Payments due by period

Less than

After

(USD millions) Total

 year

– years

– years

 years

Non-current ﬁnancial debt, including current portion 









Interest on non-current ﬁnancial debt, including current portion 









Lease liabilities, non-current and current portion 









Interest on lease liabilities, non-current and current portion 









Commitments for leases not yet commenced 









Unfunded pensions and other post-employment beneﬁt plans 









Research and development potential milestone commitments 









Contingent consideration liabilities 









Property, plant and equipment purchase commitments 







Total contractual cash obligations 









The Group intends to fund the research and develop-

ment; property, plant and equipment; intangible asset

purchase commitments with internally generated

resources, and the acquisition of business commitment

through available cash and short- and long-term borrow-

ings.

For other contingent liabilities, see “Item 8. Financial

Information—Item 8.A Consolidated statements and

other ﬁnancial information,” “Item 18. Financial State

ments—Note 10. Right-of-use assets and lease liabilities,”

“Item 18. Financial Statements—Note 20. Provisions and

other non-current liabilities,” and “Item 18. Financial

Statements—Note 28. Commitments and contingent lia-

bilities.”

Item 5. Operating and Financial Review andProspects

5.C Research and development, patents and licenses

Our research and development spending totaled

USD10.0 billion and USD9.5 billion (Core research and

development USD9.1 billion and USD9.0 billion) for the

years 2022 and 2021, respectively.

Each of our divisions has its own research and devel-

opment and patents. Our divisions have numerous prod-

ucts in various stages of development. For further infor-

mation on these policies and these products in

development, see “Item 4. Information on the Company—

Item 4.B Business overview.”

As described in the risk factors section and else-

where in this Annual Report, our drug development

eorts are subject to the risks and uncertainties inher-

ent in any new drug development program. Due to the

risks and uncertainties involved in progressing through

preclinical development and clinical trials, and the time

and cost involved in obtaining regulatory approvals,

among other factors, we cannot reasonably estimate the

timing, completion dates and costs, or range of costs, of

our drug development programs, or of the development

of any particular development compound (see “Item 3.

Key Information—Item 3.D Risk factors”). In addition, for

a description of the research and development process

for the development of new drugs and our other prod-

ucts, and the regulatory process for their approval, see

“Item 4. Information on the Company—Item 4.B Business

overview.”

5.D Trend information

Please see “—Item 5.A Operating results”, “—Item 5.B

Liquidity and capital resources” and “Item 4. Information

on the Company—Item 4.B Business overview” for trend

information.

5.E Critical accounting estimates

Our consolidated ﬁnancial statements are prepared in

accordance with International Financial Reporting Stan-

dards (IFRS) as issued by the International Accounting

Standards Board (IASB). The preparation of ﬁnancial

statements requires management to make certain esti-

mates and assumptions, either at the balance sheet date

or during the year, which aect the reported amounts of

revenues, expenses, assets, liabilities and contingent

amounts. Our signiﬁcant accounting policies that are set

out in “Item 18. Financial Statements—Note 1. Signiﬁcant

accounting policies” include a description of the esti-

mates, assumptions and judgments applied in the prepa-

ration of the consolidated ﬁnancial statements of the

Group.

Given the uncertainties inherent in our business activ-

ities, we must make certain estimates and assumptions

that require dicult, subjective and complex judgments.

Because of uncertainties inherent in such judgments,

actual outcomes and results may dier from our assump-

tions and estimates, which could materially aect the

Group’s consolidated ﬁnancial statements. Application

of the following accounting policies requires certain

assumptions and estimates that have the potential for

the most signiﬁcant impact on our consolidated ﬁnancial

statements.

Management believes that the estimation uncertain-

ties described below did not have or are not reasonably

likely to have a material impact on the Group’s ﬁnancial

condition but could be material to the results of opera-

tions or cash ﬂows in a given period.

Deductions from revenues

As is typical in the pharmaceutical industry, the consid-

eration we receive in exchange for goods and services

maybe ﬁxed or variable. The most common elements of

variable consideration are primarily composed of rebates

and discounts granted to wholesalers, retailers, govern-

ment agencies, government supported healthcare sys-

tems, private health systems, pharmacy beneﬁt manag-

ers, managed healthcare organizations and other

customers. Variable consideration is recognized when it

is highly probable that a signiﬁcant reversal will not occur.

These elements of variable consideration represent esti-

mates of the related obligations, requiring the use of judg-

ment when estimating the eect of these considerations

for a reporting period.

The following summarizes the nature of some of

these deductions and how the deduction is estimated.

After recording these, net sales represent our best esti-

mate of the cash that we expect to ultimately collect. The

US market has the most complex arrangements related

to revenue deductions.

United States-speciﬁc healthcare plans and

program rebates

The United States Medicaid Drug Rebate Program is

administered by state governments, using state and fed-

eral funds to provide assistance to certain vulnerable

and needy individuals and families. Calculating the

rebates to be paid related to this program involves use

of estimates and interpreting relevant regulations, which

are subject to challenge or change in interpretative

Item 5. Operating and Financial Review andProspects

guidance by government authorities. Provisions for esti-

mated Medicaid rebates are calculated using a combi-

nation of historical experience, product and population

growth, product pricing, and the mix of contracts and

speciﬁc terms in the individual state agreements.

The United States Federal Medicare Program, which

funds healthcare beneﬁts to individuals aged 65 and

older, and to people with certain disabilities, provides

prescription drug beneﬁts under the Part D section of

the program. This beneﬁt is provided and administered

through private prescription drug plans. Calculating the

rebates to be paid related to this program involves use

of estimates and interpreting relevant regulations, which

are subject to challenge or change in interpretative guid-

ance by government authorities. Provisions for estimated

Medicare Part D rebates are calculated based on the

terms of individual plan agreements, product sales and

population growth, product pricing, including inﬂation

impacts, and the mix of contracts.

We oer rebates to key managed healthcare and pri-

vate plans in an eort to ensure patient access to our

products and to sustain and increase the market share

of our products. These programs provide a rebate after

the plans have demonstrated they have met all terms and

conditions set forth in their contract with us.

These rebates and discounts, applied using provision

rates, are estimated based on the speciﬁc terms in the

individual states and plans agreements, historical expe-

rience, product pricing and projected product growth

rates, as appropriate to the individual rebate and dis

count arrangements, and are recorded as a deduction

from revenue at the time the related revenues are

recorded.

These provisions are adjusted based on established

processes and experiences from ﬁling data with individ-

ual states and plans. There is often a time lag between

recording of revenue deductions and the ﬁnal account-

ing for them.

Non-United States-speciﬁc healthcare plans and

program rebates

In certain countries other than the US, we provide rebates

to governments and other entities. These rebates are

often mandated by laws or government regulations.

These rebates, applied using provision rates, are esti-

mated based on government regulations, laws and terms

of individual rebate arrangements, historical experience

and other relevant factors, and are recorded as a deduc-

tion from revenue at the time the related revenue is

recorded. These estimates are adjusted periodically to

reﬂect actual experience. There is often a time lag

between the recording of revenue deductions and the

ﬁnal accounting for them.

Innovative pay-for-performance arrangements

We enter into innovative pay-for-performance arrange-

ments (i.e. outcome based arrangements) with certain

healthcare providers and governments. Under these

agreements, we may be required to make refunds, defer

a portion of the sales price until anticipated treatment

outcomes meet predeﬁned targets, or to provide addi-

tional medicines free of charge if anticipated treatment

outcomes do not meet predeﬁned targets.

The impact of potential refunds or a deferral of a por-

tion of the sales price are estimated and recorded as a

deduction from revenue at the time the related sales are

recorded. The impact of the future delivery of additional

medicines at no cost is estimated and recorded as a con-

tract liability at the time the related revenues are recorded.

Estimates are based on historical experience and clini-

cal data available for the product, as well as speciﬁc

terms of the individual agreements. In cases where his-

torical experience and clinical data are not sucient for

a reliable estimation of the outcome, revenue recogni-

tion is deferred until the uncertainty is resolved, until such

history is available or the period of the refund right has

expired.

These provisions for revenue deductions are adjusted

periodically based on established processes and actual

experience, including the products’ actual outcomes

achieved compared with the anticipated predeﬁned tar-

gets.

There is often a time lag between recording of the

revenue deductions and the ﬁnal accounting for them.

Non-healthcare plans and program rebates, returns

and other deductions

We oer rebates to purchasing organizations and other

direct and indirect customers to sustain and increase

market share and to ensure patient access to our prod-

ucts. Since rebates are contractually agreed upon, the

related provisions are estimated based on the terms of

the individual agreements, historical experience and pro-

jected product sales growth rates.

Chargebacks occur where our subsidiaries have

arrangements with indirect customers to sell products

at prices that are lower than the price charged to whole-

salers. A chargeback represents the dierence between

the invoice price to the wholesaler and the indirect cus-

tomer’s contract price. We account for chargebacks by

reducing revenue by the estimate of chargebacks attrib-

utable to a sales transaction. Provisions for estimated

chargebacks are calculated using a combination of fac-

tors, such as historical experience, product growth rates,

product pricing, level of inventory in the distribution chan-

nel, and the terms of individual agreements.

When we sell a product providing a customer the right

to return it, we record a provision for estimated sales

returns based on our sales return policy and historical

return rates. Other factors considered include actual

product recalls, expected marketplace changes, the

remaining shelf life of the product, and the expected

entry of generic products. In 2021, sales returns amounted

to approximately 1% of gross product sales. If sucient

experience is not available, sales are only recorded

based on evidence of product consumption or when the

right of return has expired.

We enter into distribution service agreements with

major wholesalers, which provide a ﬁnancial disincentive

for the wholesalers to purchase product quantities in

excess of current customer demand. Where possible,

we adjust shipping patterns for our products to maintain

wholesalers’ inventory levels consistent with underlying

patient demand.

We oer cash discounts to customers to encourage

prompt payment. Cash discounts are estimated and

Item 5. Operating and Financial Review andProspects

provisioned at the time of revenue recognition and are

deducted from revenue.

Following a decrease in the price of a product, we

generally grant customers a “shelf stock adjustment” for

their existing inventory for the relevant product. Shelf

stock adjustments are generally granted to customers,

primarily of the Sandoz Division, to cover the inventory

held by them at the time a price decline becomes eec-

tive. Revenue deduction provisions for shelf stock adjust-

ments are recorded when the price decline is anticipated,

based on the impact of the price decline on the custom-

er’s estimated inventory levels.

Other sales discounts, such as consumer coupons,

vouchers and copay discount cards, are oered in some

markets. The estimated amounts of these discounts are

recorded at the time of sale or when the coupons are

issued, and are estimated utilizing historical experience

and the speciﬁc terms for each program.

In addition, we oer global patient assistance pro-

grams.

We adjust provisions for revenue deductions period-

ically to reﬂect actual experience. To evaluate the ade-

quacy of provision balances, we use internal and exter-

nal estimates of the inventory in transit, the level of

inventory in the distribution and retail channels, actual

claims data received, and the time lag for processing

rebate claims. External data sources include reports

from wholesalers and third-party market data purchased

by Novartis.

For the table showing the worldwide extent of our reve-

nue deductions provisions and related payment experi-

ences for the Group see “Item 18. Financial Statements—

Note 22. Provisions and other current liabilities.”

Impairment of goodwill, intangible

assets and property, plant and

equipment

We review intangible assets and property, plant and

equipment for impairment whenever events or changes

in circumstance indicate that the asset’s balance sheet

carrying amount may not be recoverable. Goodwill and

other intangible assets that are not yet amortized, are

reviewed for impairment at least annually.

An asset is considered impaired when its balance

sheet carrying amount exceeds its estimated recover-

able amount, which is deﬁned as the higher of its fair value

less costs of disposal and its value in use. Usually, Novartis

applies the fair value less costs of disposal method for

its impairment assessment. In most cases, no directly

observable market inputs are available to measure the

fair value less costs of disposal. Therefore, an estimate

is derived indirectly and is based on net present value

techniques utilizing post-tax cash ﬂows and discount

rates. In the limited cases where the value in use method

would be applied, net present value techniques would be

applied using pre-tax cash ﬂows and discount rates.

Fair value less costs of disposal reﬂects estimates of

assumptions that market participants would be expected

to use when pricing the asset or cash generating units

(CGUs), and for this purpose, management considers

the range of economic conditions that are expected to

exist over the remaining useful life of the asset.

The estimates used in calculating the net present val-

ues are highly sensitive and depend on assumptions spe-

ciﬁc to the nature of the Group’s activities as indicated

in “Item 18. Financial Statements—Note 1. Signiﬁcant

accounting policies.” Due to these factors, actual cash

ﬂows and values could vary signiﬁcantly from forecasted

future cash ﬂows and related values derived using dis-

counting techniques.

The recoverable amount of the grouping of cash-gen-

erating units to which goodwill is allocated is based on

fair value less costs of disposal. The valuations are

derived from applying discounted future cash ﬂows

based on key assumptions, including the terminal growth

rate and discount rate. For additional information on

impairment charges recognized and reversed by divi

sions, see “Item 18. Financial Statements—Note 1. Sig-

niﬁcant accounting policies—Impairment of goodwill and

intangible assets” and “Item 18. Financial Statements—

Note 11. Goodwill and intangible assets.”

Goodwill and other intangible assets represent a sig-

niﬁcant part of our consolidated balance sheet, primar-

ily due to acquisitions. Although no signiﬁcant additional

impairments are currently anticipated based on our

impairment assessment and review of reasonable pos-

sible changes in key assumptions to the respective

impairment assessment, future impairment evaluation

could lead to material impairment charges in the future.

For more information, see “Item 18. Financial State-

ments—Note 11. Goodwill and intangible assets.”

For net impairment charges for property, plant and

equipment see “Item 18. Financial Statements—Note 9.

Property, plant and equipment.”

Retirement and other post-

employment beneﬁt plans

We sponsor pension and other post-employment bene-

ﬁt plans in various forms that cover a signiﬁcant portion

of our current and former employees. For post-employ-

ment plans with deﬁned beneﬁt obligations, we are

required to make signiﬁcant assumptions and estimates

about future events in calculating the expense and the

present value of the liability related to these plans. These

include assumptions about the interest rates we apply

to estimate future deﬁned beneﬁt obligations and net

periodic pension expense, as well as rates of future pen-

sion increases. In addition, our actuarial consultants pro-

vide our management with historical statistical informa-

tion, such as withdrawal and mortality rates in connection

with these estimates.

Assumptions and estimates used by the Group may

dier materially from the actual results we experience

due to changing market and economic conditions, higher

or lower withdrawal rates, and longer or shorter life spans

of participants, among other factors.

Depending on events, such dierences could have a

material eect on our total equity.

For more information on obligations under retirement

and other post-employment beneﬁt plans and underly-

ing actuarial assumptions, see “Item 18. Financial

Item 5. Operating and Financial Review andProspects

Statements—Note 25. Post-employment beneﬁts for

employees.”

Income taxes

We prepare and ﬁle our tax returns based on an inter-

pretation of tax laws and regulations, and we record esti-

mates based on these judgments and interpretations.

Our tax returns are subject to examination by the com-

petent taxing authorities, which may result in an assess-

ment being made, requiring payments of additional tax,

interest or penalties. Since Novartis uses its intellectual

property globally to deliver goods and services, the

transfer prices within the Group as well as arrangements

between subsidiaries to ﬁnance research and develop-

ment and other activities may be challenged by the

national tax authorities in any of the jurisdictions in which

Novartis operates. Therefore, inherent uncertainties

exist in our estimates of our tax positions, but we believe

that our estimated amounts for current and deferred tax

assets or liabilities, including any amounts related to any

uncertain tax positions, are appropriate based on cur-

rently known facts and circumstances. Uncertain

(income) tax positions are periodically (re)assessed by

the Company based on management’s best judgment

given any changes in the facts, circumstances and infor-

mation available and applicable tax laws. When it is prob-

able that the tax authorities will not accept the position

taken, the Group recognizes income tax liabilities based

on the most likely amount of the liability (recovery) or

weighted average of various possible outcomes to reﬂect

the eect of the uncertainty in determining the related

taxable proﬁt (tax loss), tax bases, unused tax losses,

unused tax credits or tax rates, to the extent that a reli-

able estimate can be made.

For more information, see “Item 18. Financial State-

ments—Note 6. Income taxes” and “Item 18. Financial

Statements—Note 12. Deferred tax assets and liabilities.”

Provisions and contingent liabilities

A number of Group companies are involved in various

government investigations and legal proceedings (intel-

lectual property, sales and marketing practices, product

liability, commercial, employment and wrongful dis-

charge, environmental claims, etc.) arising out of the nor

mal conduct of their businesses.

We record provisions for legal proceedings when it

is probable that a liability has been incurred and the

amount can be reliably estimated. These provisions are

adjusted periodically as assessments change or addi-

tional information becomes available. For signiﬁcant

product liability cases, the provision is actuarially deter-

mined based on factors such as past experience, amount

and number of claims reported, and estimates of claims

incurred but not yet reported.

Provisions are recorded for environmental remedia-

tion costs when expenditure on remedial work is proba-

ble and the cost can be reliably estimated.

Novartis believes that its total provisions are ade-

quate based upon currently available information. How-

ever, given the inherent diculties in estimating liabilities

in this area, Novartis may incur additional costs beyond

the amounts provided. Management believes that such

additional amounts, if any, would not be material to the

Group’s ﬁnancial condition but could be material to the

results of operations or cash ﬂows in a given period.

For more information, see “Item 18. Financial State-

ments—Note 20. Provisions and other non-current liabil-

ities” and “Item 18. Financial Statements—Note 28. Com-

mitments and contingent liabilities.”

Item 6. Directors, Senior Management and Employees

Item 6. Directors, Senior Management and

Employees

6.A Directors and senior management

The information set forth under “Item 6. Directors, Senior

Management and Employees—Item 6.C Board prac-

tices—Corporate governance—Board of Directors” and

“Item 6. Directors, Senior Management and Employees—

Item 6.C Board practices—Corporate governance—

Executive Committee” is incorporated by reference.

Item 6. Directors, Senior Management and Employees

6.B Compensation

Dear shareholder,

I am pleased to share with you the Novartis Compensa-

tion Report for 2022.

We believe that our compensation system supports

our strategy and motivates our executives to deliver sus-

tainable growth, successful outcomes on our ﬁnancial

and strategic targets, and value creation for our share-

holders. Over the course of 2022, we engaged with

shareholders and proxy advisors to share how our com-

pensation system is aligned with short and long-term

performance, and to secure their continued support for

our compensation system design. Based on the feed-

back from these interactions and the positive response

to our 2021 Compensation Report, which received a

90.7% vote in favor, we will retain the current design of

our executive compensation system, with small enhance-

ments as explained later in this letter.

2022 performance highlights

2022 was a year of solid ﬁnancial performance, with

growth in constant currencies (cc) across sales, core

proﬁts and core margins. Sales growth drivers were

Entresto (USD 4.6 billion), Kesimpta (USD 1.1 billion),

Kisqali (USD 1.2 billion), Cosentyx (USD 4.8 billion), along

with the Pluvicto launch. Our six in-market growth driv-

ers with multi-billion sales potential (Cosentyx, Entresto,

Zolgensma, Kisqali, Kesimpta and Leqvio) grew 26% (cc)

in 2022, and now represent 32% of total Innovative

Medicines sales, up from 26% in 2021. Overall sales were

broadly in line with target.

In April 2022, we announced the introduction of a new

organizational model designed to support the company’s

innovation, growth, and productivity ambitions as a

focused medicines company. The restructuring will sim-

plify the organization and our processes, and is expected

to deliver USD 1.5 billion in savings by 2024 with a pro-

portion of these savings already delivered in 2022,

enabling us to raise our long-term core operating income

margin guidance. These savings are expected to help us

progress towards our aspiration of achieving ~40%+ core

margin beyond 2027 and further invest in our pipeline, as

a pure-play medicines company (after the planned

Sandoz spin-o which is subject to approval of the

Novartis AG Board of Directors and shareholders). None-

theless, there was an immediate impact on Operating

Income as we incorporated related costs in the latter part

of the year, that, along with higher legal settlements and

unfavorable fair market value adjustments on ﬁnancial

assets, impacted operating income growth.

In 2022, we continued to deliver high value medicines

to patients. We received 23 approvals in our key focus

markets US, EU, China and Japan, including US and EU

approvals for Pluvicto, a novel radioligand therapy for

advanced prostate cancer. We advanced our focused

pipeline of investigational medicines, with several import-

ant clinical data readouts paving the way for further

launches in 2023 and beyond, a signiﬁcant one being

iptacopan, our investigational monotherapy in the treat-

ment of paroxysmal nocturnal hemoglobinuria (PNH).

However, we also had disappointments as some clinical

trials of experimental compounds did not meet their pri-

mary endpoints, including ACZ885 (canakinumab) in

lung cancer, and UNR844 in presbyopia.

We are proud that Novartis also continued to deliver

on its commitments to broaden access to medicines and

tackle major global health challenges. We pledged fur-

ther investment in research into malaria and neglected

tropical diseases, increased access to our innovative

medicines for low- and middle-income countries and

formed new collaborations with governments and other

partners to strengthen healthcare systems. More details

on our ESG eorts can be found in our Novartis in Soci-

ety Integrated Report 2022.

2022 CEO compensation

As a result of the above performance, the CEO was

awarded a 2022 Annual Incentive of 100%, having over-

all met the ﬁnancial targets and strategic objectives set

at the beginning of the cycle. When determining perfor-

mance against the operating income metric, the Board

of Directors approved adjustments to exclude restruc-

turing costs arising from the implementation of the new

organizational model and costs related to the planned

Sandoz spin-o, which are investments in the future of

the company in terms of both sales and margin growth.

These adjustments ensured that the performance

assessment was consistent with the basis on which the

original targets were set.

The 2020-2022 Long-Term Performance Plan (LTPP)

vested at 57% of target. The LTPP outcome was heavily

aected by the relative Total Shareholder Return (rTSR)

performance over the period, as well as reduced sales

growth during 2020 and 2021, which was substantially

impacted by the COVID-19 pandemic. No adjustments

were made for the COVID-19 impact, or for any other

factors. (For more information, please see “—LTPP per-

formance outcomes”).

Despite a solid 2022 performance, as outlined above,

the CEO’s 2022 total realized compensation was CHF

8452176, a decrease of 24.7% compared with prior year,

driven mainly by the 2020-2022 LTPP outcome.

Changes to Executive Committee compensation

system and disclosures

During the year, we reviewed our Executive Committee

compensation system, with the aim of simpliﬁcation and

increased transparency of our performance assessment

measures and strengthening our focus on key strategic

priorities, while also considering developments in com-

pensation best practices.

Eective the 2022-2024 cycle of the LTPP, we

strengthened the assessment of research and early

development performance under the Innovation metrics,

Item 6. Directors, Senior Management and Employees

to ensure that targets are focused more directly on activ-

ities that create long-term value, and are measurable

over a three-year performance period. For the innova-

tion performance measure, the Science & Technology

Committee sets targets that take into account the

expected Net Present Value (eNPV) of programs transi-

tioning to late-stage clinical development rather than the

previous approach to set targets related to early-stage

milestones.

Eective from performance year 2023, we will remove

“Share of Peers” as a ﬁnancial performance measure for

the Annual Incentive plan, to simplify the metrics and

focus on targets that provide greater transparency. The

weighting of the three remaining ﬁnancial measures,

Group Net Sales, Group Operating Income and Group

Free Cash Flow, will be 40%, 30% and 30%, respectively.

In addition, we will fold division speciﬁc ﬁnancial targets,

where applicable, into individual strategic objectives

(40% weighting) of the related Executive Committee

member. All Executive Committee members will be eval-

uated, with a 60% weighting, against the performance

of Group ﬁnancial measures mentioned above.

During the year, we announced our intention to sep-

arate our Sandoz generics and biosimilars Division into

a new publicly traded standalone company, by way of a

100% spin-o, subject to approval of the Novartis AG

Board of Directors and shareholders. Based on the

planned completion of the spin-o in 2023, the Compen-

sation Committee made some initial decisions on the

2023 compensation elements related to the spin-o.

Finally, the 2023 Compensation Report will also

include additional disclosures following the reform of

Swiss corporate law that came into eect on January 1,

2023. For more information, please see “—2023 Execu-

tive Compensation Changes”.

Inﬂation and cost-of-living impact on broader

employee group

The Board and the Executive Committee are mindful of

the cost-of-living challenges that are impacting many of

our associates in dierent markets. The Executive

Committee has considered these as part of its pay deci-

sions and outcomes, and where appropriate, it has initi-

ated local level initiatives to support associates.

In most countries, our 2023 salary budgets are higher

than in previous years, reﬂecting the overall higher mar-

ket forecasts driven by inﬂation. In some of our larger

markets we are making a one-time payment to certain

employee populations. Where legally possible, we have

tried to target these one-time payments to our lower paid

employees, who are most impacted. We will continue to

monitor our compensation against the Living Wage, and

regularly monitor and adjust wages in hyperinﬂation mar-

kets to support our local associates.

These actions reﬂect our commitment to pay mar-

ket-competitive and sustainable salaries, rather than to

fully match the current volatile inﬂation environment.

2023 base salary increases for ECN members,

including the CEO, are made in line with policy, and no

ECN member will receive any inﬂation related one-time

payments.

2023 Annual General Meeting (AGM)

At the 2023 AGM, shareholders will be asked to vote on

both the maximum aggregate amount of compensation

for the Board of Directors from the 2023 AGM to the 2024

AGM, and the maximum aggregate amount of compen-

sation for the Executive Committee for the ﬁnancial year

2024. Furthermore, we will request an advisory vote on

this Compensation Report.

We welcome your feedback, which is invaluable in

driving improvements in our compensation system and

practices. On behalf of the Compensation Committee, I

would like to thank you for your continued support and

trust.

Simon Moroney, D.Phil.

Chair of the Compensation Committee

Item 6. Directors, Senior Management and Employees

Compensationataglance

2022 outcomes

CEO pay for performance

CEO total realized compensation

The 2022 total realized compensation for the CEO was CHF 8 452 176. It includes payouts of the Annual Incentive

and LTPP based on actual performance assessed for the cycles concluding in 2022. More information on the

assessment of the CEO by the Board of Directors can be found in “—2022 CEO balanced scorecard” and “ —LTPP

performance outcomes”.

Board compensation

The total actual compensation earned by Board members in the 2022 ﬁnancial year is shown in the table below.



CHF s total compensation



Board Chair 

Other members of the Board 

Total 

Includes an amount of CHF 29250 for mandatory employer contributions for all Board members paid by Novartis to Swiss governmental social security systems. This amount is out

of total employer contributions of CHF 453083 and provides a right to the maximum future insured government pension beneﬁt for the Board members.

Annual base salary

Pension and other beneﬁts

2022 Annual Incentive

LTPP 2020–2022 cycle

Fixed pay

and beneﬁts

(CHF 000s)

Variable pay:

Performance-related (CHF 000s)

Total realized compensation: CHF 8 452 176

The amounts shown represent the underlying share value of the total number of shares vested (including dividend equivalents of CHF 317 316) to the CEO for the 2020-2022 LTPP

performance cycle.

1 787 674

29% of total

2 684 3 307

32% of total 39% of total

200%

150%

100%

50%

200%

150%

100%

50%

% of target

Payout: 100% of target

Payout:

57% of target

Maximum

Target

Maximum

• Net sales CAGR

(43% of target)

• Core operating income CAGR

(93% of target)

• Innovation

(92% of target)

• Relative TSR

(0% of target)

2022 Annual Incentive

Long-Term Performance Plan (2020–2022 performance)

{

Annual base salary Pension and

other benefits

2023

Annual Incentive

Long-Term Incentive

awards cycle 2023-2025

LTPP

2023 fixed pay and benefits

Reflects responsibilities,

experience and skill sets

Cash

–

Provide retirement and

risk insurances (tailored

to local market practices/

regulations)

Country/individual-

specific and aligned with

other employees

–

Rewards performance

against short-term

financial and strategic

objectives, and Values and

Behaviors

50% cash

50% equity

deferred

for three years

Balanced scorecard

comprising:

• Financial measures

(60%)

• Strategic objectives

(40%)

Rewards long-term share-

holder value creation and

innovation in line with our

strategy

Equity, vesting following a

three-year performance

period

• Net sales

CAGR (25%)

• Core operating income

CAGR (25%)

• Innovation (25%)

• Relative TSR (25%)

Performance-related variable pay

Purpose

Form of payment

Performance measures

LTPP = Long-Term Performance Plan

Executive Committee members may elect to receive more of their Annual Incentive in equity instead of cash

The Annual Incentive deferred in equity is granted under the Deferred Share Bonus Plan (DSBP)

Financial Measures are Group Net Sales (40%), Group Operating Income (30%) and Group Free Cash Flow (30%)

Strategic objectives are aligned with our transformation to become a pure-play Innovative Medicines company: Strategy, Growth / Launches, Innovation, Operational excellence, Build trust with

society

Item 6. Directors, Senior Management and Employees

2023 compensation systems

An overview of the 2023 compensation systems for the Executive Committee and the Board of Directors is provided

below.

Executive Committee compensation system

Eective 2023, ﬁnancial measures of the Annual Incentive plan comprise Group Net Sales (40%), Group Operat-

ing Income (30%) and Group Free Cash Flow (30%) for all Executive Committee members. Additionally, “Share of

Peers” will be removed from the ﬁnancial measures.

Board compensation system

There are no changes to the Board compensation system for 2023.

AGM -

CHF s annual fee

Board Chair 

Board membership 

Vice-Chair 

Lead Independent Director 

Chair of the Audit and Compliance Committee 

Chair of the Compensation Committee 

Chair of the following committees:

• Governance, Sustainability and Nomination Committee

• Science & Technology Committee

• Risk Committee 

Membership of the Audit and Compliance Committee 

Membership of the following committees:

• Compensation Committee

• Governance, Sustainability and Nomination Committee

• Science & Technology Committee

• Risk Committee 

Pay for

performance

• Variable compensation is tied directly to the

achievement of strategic Company targets

Shareholder

alignment

• Our incentives are significantly weighted

toward long-term equity-based plans

• Measures under the Long-Term Incentive

plans are calibrated to promote the creation

of shareholder value

• Executive Committee members are

expected to build and maintain substantial

shareholdings

Balanced

rewards

• Balanced set of measures to create

sustainable value

• Mix of targets based on financial metrics,

strategic objectives, and performance versus

our competitors

Business

ethics

• The Novartis Values and Behaviors are an

integral part of our compensation system

• They underpin the assessment of overall

performance for the Annual Incentive

Competitive

compensation

• Total compensation must be sufficient to

attract and retain key global talent

• Overarching emphasis on pay for

performance

GLOBAL HEALTHCARE PEER GROUP

AbbVie

Biogen

GlaxoSmithKline

Novo Nordisk

Roche

Amgen

Bristol-Myers Squibb

Gilead Sciences

Merck & Co.

Sanofi

AstraZeneca

Eli Lilly & Co.

Johnson & Johnson

Pfizer

Item 6. Directors, Senior Management and Employees

Executive Committee

compensationphilosophy and principles

Novartis compensation philosophy

Our compensation philosophy aims to ensure that we

attract and retain outstanding Executive Committee

members and reward them according to their success

in implementing the Company strategy, and their contri-

bution to Company performance and long-term value

creation. The main elements of our compensation phi-

losophy are set out in the table below.

Alignment with Company strategy

Executive compensation is strongly connected to busi-

ness strategy. In 2022, we refocused our strategy to

deliver high-value medicines that alleviate society’s

greatest disease burdens through technology leadership

in research and development, and novel access

approaches. Our strategy focuses on ﬁve core thera-

peutic areas with high unmet patient needs, two core

and three emerging technology platforms, and four pri-

ority geographies, which together account for the major-

ity of expected growth in global healthcare spending.

In line with this refocused strategy, we updated our

strategic priorities to target innovation power, sales

growth, delivering both margin and total shareholder

returns, and sector leadership in material ESG factors.

The Long-Term Incentive Plan was adapted, with greater

emphasis now on the delivery of high value programs in

our research and early development targets. The Annual

Incentive plan has been simpliﬁed eective 2023, with

three key ﬁnancial metrics: Net Sales, weighted 40%;

Operating Income, weighted 30%; and Free Cash Flow,

weighted 30%.

Approach to market benchmarking

There continues to be signiﬁcant competition for top

executive talent with deep expertise, the requisite com-

petencies and proven performance within the pharma-

ceutical and biotechnology industries. As such, external

peer compensation data is one of a number of key refer-

ence points considered by the Board of Directors and the

Compensation Committee when making decisions on

executive pay, so as to help ensure that the compensa-

tion system and compensation levels at Novartis remain

competitive. Novartis is committed to conﬁrming bench-

marking practices, including the peer group, to sharehold-

ers on an annual basis.

The Compensation Committee believes in a rigorous

approach to peer group construction and maintenance.

Furthermore, it believes that using a consistent set of

peers that is similar in size and scope enables sharehold-

ers to evaluate the compensation year on year and make

pay-for-performance comparisons. In 2022, the Com-

pensation Committee decided to maintain the same pri-

mary peer group of 14 global healthcare companies,

as presented in the table below.

The companies in this peer group reﬂect our industry

and are similar to Novartis in terms of both size and scope

of operations. Although Novartis is headquartered in

Switzerland, more than a third of its sales come from the

US market, and the US remains a signiﬁcant talent pool

for the recruitment of executives by the Company. It is

therefore critical that Novartis is able to attract and retain

key talent globally, especially from the US.

To ensure European and local practices were fully

taken into account, in 2022 the Compensation Commit-

tee also reviewed a cross-industry peer group of

Europe-headquartered multinational companies,

selected based on comparability to Novartis in terms of

industry, size, global scope of operations, and economic

inﬂuence. Based on this review, the Committee retained

the same group of European peers as in 2021: Anheus-

er-Busch InBev, AstraZeneca, Bayer, BMW, GlaxoSmith-

Kline, L’Oréal, Merck KGaA, Nestlé, Novo Nordisk, Reck-

itt Benckiser, Roche, Siemens, Sanoﬁ, and Unilever.

ELEMENT OF COMPENSATION POLICY

Level The overall package should be market-competitive to enable the recruitment of global executive talent with

deep expertise and competencies.

Annual base salary The Compensation Committee may appoint individuals who are new to a role on an annual base salary

that is below the market level, with a view to increase this toward market level over a period of three to four

years as an individual develops in the role.

If the scope of an existing Executive Committee member’s role changes significantly during the year, the

Compensation Committee may make adjustments to the individual’s base salary (and/or incentives) in

consideration of the benchmark of the new role and the Executive Committee appointments compensation

policy.

This prudent approach ensures pay levels are merit-based, with increases dependent on strong

performance and proven ability in the role over a sustained period.

Incentives The compensation package will normally include the key compensation elements and incentive

opportunities in line with those offered to current Executive Committee members.

In exceptional circumstances, higher incentive opportunities than those offered to current Executive

Committee members may be provided at the Compensation Committee’s discretion.

Performance measures may include business-specific measures tailored to the specific role.

Pension and other benefits Newly appointed Executive Committee members are eligible for the local country pension plan and other

benefits in line with the wider employee group.

Buyouts The Compensation Committee seeks to balance the need to offer competitive compensation opportunities

to acquire the talent required by the business with the principle of maintaining a strong focus on pay for

performance.

As such, when an individual forfeits variable compensation as a result of an appointment at Novartis,

the Compensation Committee may offer replacement awards to compensate the commercial equivalent

value or fair value of payments and awards forfeited by the individual, in such form as the Compensation

Committee considers appropriate, taking into account relevant factors.

Relevant factors include the expected value of the forfeited award, the replacement vehicle (i.e., cash,

restricted share units, restricted shares or performance share units), whether the award is contingent on

meeting performance conditions or not, the timing of forfeiture (i.e., Novartis mirrors the blocking or vesting

period of the forfeited award) and the leaver conditions, in case the recruited individual leaves Novartis

prior to the end of the blocking or vesting period.

International mobility If individuals are required to relocate or be assigned away from their home location to take up their position,

relocation support may be provided in line with our global mobility policies (e.g., relocation support, tax

equalization). This includes ongoing US state income tax liabilities on behalf of US citizens locally employed

outside the US who have US workdays and therefore, US state taxable compensation that generates a US

state tax liability.

Item 6. Directors, Senior Management and Employees

Executive Committee appointments compensation policy

ELEMENT OF COMPENSATION POLICY

Annual Incentive –

cash element

Retirement, termination by the Company (for reasons other than performance or conduct), change of

control, disability, death, i.e., “good leavers”

Pro-rata Annual Incentive is paid to reflect the portion of the year the individual was employed.

Voluntary resignation or termination by the Company for misconduct or poor performance

Annual Incentive is fully forfeited.

Annual Incentive – mandatory

deferral into restricted shares/

restricted share units (RSUs)

Retirement, termination by the Company for reasons other than performance or conduct, and change

of control

Awards are released on the original blocking end date. There is no accelerated vesting. All awards are

subject to forfeiture in the event that a leaver joins a competitor company as defined in the applicable plan

rules, before the end of the three-year blocking date, starting from the date of grant.

Death or long-term disability

Accelerated vesting is applied.

Voluntary resignation or termination by the Company for misconduct or poor performance

Unvested restricted shares and restricted share units (RSUs) are forfeited.

Annual Incentive – voluntary

restricted shares/RSUs/American

Depository Receipts (ADRs)

(ADRs applicable for

US employees only)

Awards are not subject to forfeiture during the deferral period.

Long-Term Incentive – mandatory

performance share units (PSUs)

Retirement, termination by the Company for reasons other than performance or conduct, and change

of control

Awards vest on the regular vesting date, subject to performance, on a pro-rata basis for time spent with

the Company during the performance cycle. There is no accelerated vesting. All awards are subject to

forfeiture in the event that a leaver joins a competitor company as defined in the applicable plan rules, until

the vesting date.

Death or long-term disability

Accelerated vesting at target is applied.

Voluntary resignation or termination by the Company for misconduct or poor performance

All of the award is forfeited.

Item 6. Directors, Senior Management and Employees

Treatment of variable compensation for Executive Committee leavers

Malus and clawback

Any incentive compensation paid to Executive Commit-

tee members is subject to malus and clawback rules.

This means that the Board of Directors for the CEO, and

the Compensation Committee for the other Executive

Committee members, may decide – subject to applica-

ble law – to retain any unpaid or unvested incentive com-

pensation (malus), or to recover incentive compensation

that has been paid or vested in the past (clawback). This

applies in cases where the payout has resulted from a

violation of laws or conﬂicts with internal management

standards, including Company and accounting policies.

This principle applies to both the short-term Annual

Incentive and Long-Term Incentive (LTI) plans.

The Compensation Committee is assessing the

impact of the ﬁnal clawback rule in the Federal Register

published by the US Securities and Exchange Commis-

sion in 2022, and any required changes to the policy will

be disclosed in the 2023 Compensation Report.

Objective setting

• The CEO proposes their targets to the

Board Chair; they are then reviewed and

approved by the Board of Directors,

based on input from the Compensation

Committee.

• For other Executive Committee

members, targets for their division

or unit are initially discussed with the

CEO and subsequently approved

by the Board of Directors and the

Compensation Committee.

Performance evaluation

• The CEO’s performance against

the individual balanced scorecard is

assessed by the Board of Directors.

• For Executive Committee members,

the CEO discusses each member’s

performance (assessed against his

or her individual balanced scorecard)

with the Board Chair before making

recommendations to the Board of

Directors for final determination.

• Periodic assessments, including at the

mid-year stage, ensure progress is

suitably tracked.

Compensation determination

• A recommendation for the CEO’s

variable pay is made by the

Compensation Committee to the Board

of Directors for final determination.

• For the Long-Term Incentive financial

measures’ payout schedules, a

formulaic approach applies, and the

Compensation Committee can also

exercise judgment to ensure there

is appropriate alignment between

payout levels and overall performance

achieved. The same principle of

discretion applies to the relative TSR

and innovation performance measures.

• The CEO’s recommendations for

other Executive Committee members

are considered and approved by the

Compensation Committee, after which

the Board of Directors is notified of the

outcomes.

Item 6. Directors, Senior Management and Employees

Executive Committee performancemanagement process

To foster a high-performance culture, the Company

applies a performance management process based on

quantitative and qualitative criteria. The CEO and the

other Executive Committee members are subject to a

formal three-step process: objective setting, perfor-

mance evaluation and compensation determination. This

process is explained in the chart below.

Performance targets are generally set before the

start of the relevant performance cycle. A rigorous

framework is in place for establishing targets to ensure

they are suitably robust and challenging, and align with

the strategic priorities of the Group.

The key factors taken into account when setting tar-

gets include:

• Internal and external market expectations

• Novartis strategic priorities

• Regulatory factors (e.g., new launches, patent expiries)

• Investment in capital expenditure

• Values and Behaviors

The targets are challenged at multiple stages before they

are ultimately approved by the Board of Directors. In line

with good governance practices, the Compensation

Committee works to set targets that are ambitious and

challenging but do not encourage undue risk-taking.

Following the end of the performance cycle, the Board

of Directors and the Compensation Committee consider

performance against the targets originally set. The CEO

and Executive Committee members are not present while

the Board of Directors and the Compensation Commit-

tee discuss their individual performance evaluations and

determine their individual compensation. Prior to deter-

mining the ﬁnal outcome, related factors such as perfor-

mance relative to peers, wider market conditions, general

industry trends and good practice are used to inform the

overall performance assessment.

Annual base salary

Overview • The annual base salary is reviewed each year, taking into account: the individual’s role, performance and

experience; business performance and the external environment; increases across the Group; and market

movements.

2022 annual base salaries The 2022 annual base salaries were as follows:

• CEO (effective March 1, 2022): CHF 1 789 500.

• OTHER EXECUTIVE COMMITTEE MEMBERS (effective March 1, 2022): All other members of the

Executive Committee were awarded increases in line with the average of all Novartis employees, with the

exception of five individuals as disclosed in Item 6.B of the 2021 Annual Report.

Pension and other beneﬁts

Overview • Pension and other benefits do not constitute a significant proportion of total compensation and are

provided to the Executive Committee on the same terms as all other employees based on local country

practices and regulations.

• The CEO and all other Swiss-based members of the Executive Committee are members of the Novartis

Swiss pension funds, which provide Company contributions on the base salary and Annual Incentive up to

the legal cap on the insured salary of CHF 860 400. No supplementary pension plans or savings plans are

provided. The CEO’s employer pension contributions represent 9.77% of his base salary.

• Globally the Company operates both defined benefit and defined contribution pension plans (see also Note

25 to the Group’s consolidated financial statements).

• Novartis may provide other benefits according to local market practice. These include Company car

provision, tax and financial planning, and insurance benefits.

• Executive Committee members who are required to relocate internationally may also receive additional

benefits (including tax equalization), in line with the Company’s global mobility policies.

Item 6. Directors, Senior Management and Employees

2022 Executive Committee compensation

PLAN OVERVIEW

Target Annual Incentive

On-target opportunities • CEO: 150% of annual base salary

• Other Executive Committee members: 80% to 120% of annual base salary

Performance measures • An Annual Incentive balanced scorecard containing:

• Financial performance measures (60% weighting) related to Group, division or business unit, where relevant

• Strategic objectives (40% weighting) are aligned with our transformation to become a pure-play

Innovative Medicines company: Strategy, Growth / Launches, Innovation, Operational excellence, Build

trust with society

• The balanced scorecard targets and achievements of the CEO are detailed on the next page.

• The balanced scorecards for other Executive Committee members include Group financial targets as well

as financial or other quantitative targets that relate to their division or business unit, if applicable.

• Values and Behaviors are a key component of the Annual Incentive and are embedded in our culture. As

such, members of the Executive Committee are expected to demonstrate these to the highest standards.

Target setting • Financial targets are set at the beginning of each financial year and align with the strategic plan proposed

by management to the Board of Directors for approval.

• The strategic objectives are aligned with the most important priorities in any performance year.

Payout ranges • The payout schedule for the Annual Incentive incorporates performance against financial and strategic

objectives. The payout range is 0% to 200% of on-target opportunity based on performance, as shown

below:

PERFORMANCE PAYOUT (% of on-target)

Outstanding 170% – 200%

Exceeds expectations 130% – 160%

Meets expectations 80% – 120%

Partially meets expectations 40% – 70%

Below expectations 0%

Payout formula

Payout vehicle • At the end of the performance period, 50% is paid in cash, and the remaining 50% is delivered in Novartis

restricted shares or RSUs, deferred for three years (see “—Executive Committee compensation system”).

• Executives may choose to receive all or part of the cash portion of their Annual Incentive in Novartis shares

or American Depositary Receipts (ADRs; US only) that will not be subject to forfeiture conditions. In the US,

awards may also be delivered in cash under the US-deferred compensation plan.

Dividend rights, voting rights

and settlement

• Novartis restricted shares and ADRs carry voting rights and dividends during the vesting period. RSUs are

of equivalent value but do not carry voting rights and dividends during the vesting period.

• Following the vesting period, settlement of RSUs is made in unrestricted Novartis shares or ADRs.

Annual base

salary

Target incentive

(% of base salary)

Target

Annual Incentive

x =

Annual base

salary

Target incentive

(% of base salary)

Payout factor (% of

target: 0%–200%)

Realized

Annual Incentive

x x =

Item 6. Directors, Senior Management and Employees

2022 Annual Incentive

 CEO BALANCED SCORECARD

This section presents the balanced scorecard for the CEO. Balanced scorecard performance is measured in constant cur-

rencies (cc) to reflect operational performance that can be influenced. The Board of Directors uses a stringent process to set

ambitious financial targets to incentivize superior performance. In addition to the financial targets, the CEO also has ambitious

strategic objectives across key priority areas, including targets related to ESG matters.

Achievement versus

CEO achievements – 2022 Target target

Financial measures – 60% of total Annual Incentive, comprising:

Group net sales (cc) (30%) 54 360 million Met

Group operating income (cc) (30%)

11 630 million

M et *

Group free cash flow as a % of sales (cc) (20%)

24. 8 %

Bel ow

Share of peers for Novartis Group (20%) 7.3% Met

Overall assessment of Group financial targets in constant currencies Met

* The Board concluded that the achievement for Group operating income versus target was “Met” after approving adjustments mainly to exclude restructuring costs arising from the

implementation of the new organizational model announced to investors on April 4, 2022 (and were not available at the time of target setting in January 2022), and costs related to

the planned Sandoz spin-o, to transform Novartis into a focused medicines company.

Strategic objectives – 40% of total Annual Incentive, comprising:

Strategy (15%)

Met

In 2022, the CEO launched a new strategy and laid the foundation to improve our growth profile via a strong focus

on our five core therapeutic areas (cardiovascular, immunology, neuroscience, solid tumors, and hematology), two

established (chemistry and biotherapeutics) and three emerging (gene & cell therapy, radioligand therapy, and

xRNA) technology platforms, and four key geographies (China, Germany and Japan, and a particular priority in

the US market). This strategy will transform Novartis into a pure-play Innovative Medicines business, with multiple

in-market brands of multi-billion dollar peak sales potential, and prioritize our pipeline to focus on high-value assets

that address high disease burden and have substantial growth potential.

Sandoz separation analysis was completed with spin-off being the preferred separation path given potential future

value upside for shareholders. Substantial progress was also made on the preparation for the planned spin-off,

which is expected to take place in the second half of 2023.

Growth/Launches (15%)

Met

Recent launch products Pluvicto (USD 271 million), Kesimpta (USD 1.1 billion), and Scemblix (USD 149 million) achie-

ved higher than target sales. However, lower uptake for Leqvio resulted in sales behind target.

In-market growth drivers (including Cosentyx, Entresto, Zolgesma, Kisqali, Kesimpta, and Leqvio) delivered com-

bined sales of USD 13.2 billion, which was slightly behind target. This was largely due to the below target perfor-

mance of Cosentyx (total sales of USD 4.8 billion, impacted by US payer pressures, China business and Inflation

Reduction Act headwinds). This was partly offset by strong performance of Entresto (USD 4.6 billion) and Kisqali

(USD 1.2 billion).

Innovation (15%)

Met

In 2022, we received 23 approvals in our top four markets (US, EU, China and Japan). Major approvals included

Pluvicto (US, EU), Scemblix (EU), and further indication expansions for Kymriah and Cosentyx.

24 submissions were made across the top four markets. We advanced our focused pipeline of investigational

medicines, with several important clinical data readouts including Iptacopan for patients with paroxysmal nocturnal

hemoglobinuria (PNH), a rare and deadly blood disorder, and Pluvicto in earlier lines of prostate cancer. Cosentyx

was submitted to the US FDA for an additional indication, ahead of planned timelines.

Among our early-stage development activities, we secured ten proofs of concept (POCs) / proofs of mechanisms

(POMs). Additionally, we achieved First Patient First Visit in six pivotal trial-enabling studies against our Research

and Development target of five.

The year also experienced some disappointments, with important trials not meeting primary goals (such as cana-

kinumab for lung cancer and UNR844 in presbyopia).

Item 6. Directors, Senior Management and Employees

100

 CEO BALANCED SCORECARD − CONTINUED

Operational excellence (15%)

Met

In April 2022, we introduced a new operating model to make our organization more agile and efficient in support of

our strategy. This simplified and leaner organization is expected to deliver identified cost savings of approximately

USD 1.5 billion by 2024, and help drive mid-term Innovative Medicines margin to the low 40s.

Financial performance for 2022 improved from prior year in constant currencies on core operating income and

core margin to USD 16.7 billion and 33.0% respectively.

The Operations unit, comprising our legacy Technical Operations unit and the legacy Customer and Technology

Solutions unit, achieved savings of USD 998 million against a combined target of USD 785 million. However, these

savings were partially offset by external headwinds, driven mainly by inflation, of approximately USD 350 million.

Build trust with society (40%)

Above

INNOVATION AND ACCESS

In 2022, we achieved a 26% increase in patient reach with our strategic innovative therapies, reaching 1.2 million

patients, compared with the previous year (0.95 million).

All our product launches in 2022 included a tiered pricing strategy based on national income level and value-based

pricing, in line with target.

With our commitment to diversity in clinical trials, 100% of our US Phase 3 studies evaluated Diversity & Inclusion

principles in feasibility planning, in line with our target.

Through our Novartis Global Health flagship programs, we reached 31 million patients in 2022, beating our Sustain-

ability-linked Bond target of 22.6 million patients by 2025.

In 2022, we renewed our commitment to the research and development of new medicines for malaria and neglec-

ted tropical diseases, pledging to invest USD 250mn over five years (2021-2025), and we advanced the clinical

development of next-generation malaria medicines.

PEOPLE AND CULTURE

We progressed towards a “Performance Culture” mindset with the implementation of a new “high support / high

challenge” approach.

We remain committed in our efforts to increase workforce diversity. The percentage of women in management

increased to 47%, slightly behind our target of 48%.

ENVIRONMENTAL SUSTAINABILITY

In 2022, we reduced our Scope 1 and 2 carbon emissions by 49%, our water consumption by 42%, and our waste

sent for disposal by 59%, compared with our 2016 baseline. This was broadly in line or ahead of our 50%, 41% and

50% targets, respectively. To advance on our Scope 3 emissions target, environmental sustainability criteria have

been integrated into supply contracts covering more than a third of our Scope 3 supplier emissions.

ETHICAL BUSINESS PRACTICES

We assessed 100% of our applicable policies & controls in the areas of Access to Medicine & Artificial Intelligence

and categorized them as either “aligned with Human Right standards” or “needs update with defined scope to meet

Human Rights standards”, in line with our target.

Overall assessment of strategic objectives Met

Overall assessment of CEO balanced scorecard Met

ANNUAL INCENTIVE PAYOUT

Payout The 2022 CEO performance showed solid financial results, including sales and operating income

performance at target and most strategic objectives were achieved or exceeded. The launch of a new

focused strategy transforming Novartis into a pure-play medicines company, performance of launch

products and preparation for planned Sandoz spin-off were key highlights. However, Free Cash Flow

performance was impacted by decrease in net cash flows from operating activities and lower divestment

proceeds. On balance, based on the overall assessment, the Board of Directors decided on an Annual

Incentive payout for the CEO amounting to CHF 2 684 321, which is 100% of target, within the range of

0–200%.

Item 6. Directors, Senior Management and Employees

101

OVERVIEW OF LONGTERM PERFORMANCE PLAN

Award vehicle Performance share units (PSUs) are granted at the beginning of the three-year performance cycle and vest

at the end of the cycle to the extent that performance conditions have been met. At the time of vesting, they

are converted into Novartis shares.

PSUs carry dividend equivalents that are paid in shares at the end of the cycle.

Grant formula At the start of the performance cycle, PSUs are granted under the Long-Term Incentive plan, as follows:

Target opportunity • CEO: 325% of annual base salary

• Other Executive Committee members: between 180% and 260% of annual base salary

Performance measures • Net sales CAGR (25%)

• Core operating income CAGR (25%)

• Innovation (25%)

• Relative TSR (25%)

Target setting Financial targets: Targets for net sales CAGR and core operating income CAGR are set based on the

strategic plan of the Company.

Innovation: Global Drug Development (GDD) targets are based on targeted filings communicated at the

start of each performance cycle, weighted 70%. The Science & Technology Committee determines the most

important Novartis Institutes for BioMedical Research (NIBR) milestones, weighted 30%. Effective the 2022-

2024 LTPP cycle, NIBR targets set by the Science & Technology Committee take into account the expected

Net Present Value (eNPV) of programs transitioning to late-stage clinical development.

Payout range Financial targets: When assessing performance, achievements for threshold, target and maximum payout are

defined for each metric, and a payout curve is applied to determine the corresponding payout between 0–200%

against target.

Innovation: At the end of the cycle, the Compensation Committee determines the payout factor in the range

of 0–150% based on the performance assessment made by the Science & Technology Committee. A payout

between 150–200% of target is only delivered for truly exceptional performance.

Relative TSR: Performance on TSR is assessed relative to a global healthcare peer group, as outlined below.

A three-month averaging method is used for both the start and the end of the performance cycle. Companies

are then ranked in order of highest to lowest TSR in USD.

The Compensation Committee may use its discretion on each metric, including deciding on the payout

within the ranges where appropriate. In doing so, it takes into consideration factors such as the underlying

assumptions of the targets set at the beginning of the cycle, overall economic conditions, currency

fluctuations and other unforeseeable situations.

Payout formula

Annual base

salary

Grant value

Target

incentive %

Share price

Grant value

Target number of

PSUs

Step 1

Step 2

Target number of

PSUs

Performance factor

Dividend

equivalents

Realized PSUsx + =

Global healthcare peer group

Abbvie

Biogen

GlaxoSmithKline

Novo Nordisk

Roche

Amgen

Bristol-Myers Squibb

Gilead Sciences

Merck & Co.

Sanofi

AstraZeneca

Eli Lilly & Co

Johnson & Johnson

Pfizer

Novartis position Payout range

in the peer group (% of target)

Position 1 – 2

Position 3 – 5

Position 6 – 8

Position 9 – 15

170% – 200%

130% – 160%

80% – 120%

Item 6. Directors, Senior Management and Employees

102

Long-Term Performance Plan, 2020-2022 cycle

Item 6. Directors, Senior Management and Employees

103

LTPP performance outcomes

The charts below illustrate the performance of the 2020-2022 LTPP against target.

NET SALES CAGR

(25% weighting)

Vesting range 0–200% of target

Maximum (200%): 8.7% (CAGR)

Net sales

growth payout

43% of target

Actual: 3.8% (CAGR)

CORE OPERATING INCOME COI CAGR

(25% weighting)

16%

12%

Maximum (200%): 16.6% (CAGR)

COI growth payout

93% of target

Vesting range 0–200% of target

INNOVATION

(25% weighting)

The following developments were considered in our 2020-2022 LTPP

innovation performance:

• US and EU approvals for Pluvicto

• EU approval for Scemblix for adult patients with chronic myeloid leu-

kemia

• US approval for Kymriah in the treatment of adult patients with

relapsed or refractory follicular lymphoma

• Filing of Cosentyx for Hidradenitis suppurativa with both the US FDA

and the European Medicines Agency(EMA)

• Submission of Cosentyx for an additional indication ahead of planned

timelines

• Tislelizumab’s acceptance by the EMA for regulatory review in esoph-

ageal and lung cancers

• CANOPY trials, Ligelizumab PEARL studies in chronic spontaneous

urticaria (CSU), and Sabatolimab STIMULUS MDS-1 where import-

ant trial milestones were delayed/not submitted

• In NIBR, advancement of multiple development candidates including

two novel radioligand therapies

Based on input from the Science & Technology Committee, the Board

of Directors approved an innovation performance factor of 92% of tar-

get.

RELATIVE TOTAL SHAREHOLDER RETURN TSR

(25% weighting)

Novartis position Payout range

in the peer group (% of target)

Position 1 – 2

Position 3 – 5

Position 6 – 8

Position 9 – 15

170% – 200%

130% – 160%

80% – 120%

Actual ranking

= 0% of target

Novartis achieved a net sales CAGR of 3.8% (in constant currencies –

cc) against the 5.7% target set at the beginning of the performance

cycle. The lower than target performance was mainly due to the nega-

tive and unexpected impact of COVID-19 in 2020 and 2021, the Beovu

safety update, and the slower uptake of Zolgensma.

Following the application of the payout curve, the net sales CAGR

(cc) achievement generates a payout factor of 43% (maximum 200%)

for this metric.

Novartis achieved a COI CAGR of 9.9% (cc) against the 10.6% target

set at the beginning of the performance cycle. This was mainly due to

lower than target Innovative Medicines sales over the three-year cycle,

which was partly oset by lower spend in selling, general and adminis-

trative expenses (SG&A). In 2022, the Company took organizational

transformative measures, delivering savings reﬂected in COI improve-

ment for the year.

Following the application of the payout curve, the COI CAGR (cc)

achievement generates a payout factor of 93% (maximum 200%) for

this metric.

Notes:

A minimum achievement of 6.6% CAGR was required to receive a payout under

this performance measure

Actual performance was adjusted for mergers and acquisitions as well as

business development and licensing projects not included in the target

Notes:

A minimum achievement of 3.7% CAGR was required to receive a payout under

this performance measure

TSR for the 2020-2022 cycle was 5.5%. As a result, Novartis ranked

No. 12 out of 15 healthcare companies (including Novartis). Considering

that the relative TSR rank is below median, there was a zero payout for

this metric.

 LTPP PAYOUT

Net sales CAGR

43% x 25%

COI CAGR

93% x 25%

Innovation

92% x 25%

Relative TSR

0% x 25%

Final vesting

57% of target

+ + +

Overall, the Board of Directors approved a 2020-2022 LTPP payout at 57% of target, within the range of 0–200%. No adjustments, pandemic-

related or otherwise, were made in the evaluation of performance, despite the substantial shortfall in sales growth caused by Covid-19. This resulted

in an LTPP payout of CHF 3 307 422 for the CEO, including dividend equivalents of CHF 317 316.

Target: 5.7% (CAGR)

Actual: 9.9% (CAGR)

Target: 10.6% (CAGR)

Item 6. Directors, Senior Management and Employees

104

Compensation for joining and departing Executive Committee members

in2022

2022 Executive Committee member appointments

In 2022, four new appointments were made to the Executive Committee, which comprise an internal promotion and

three external appointments.

Victor Bulto was promoted internally as President, Innovative Medicines US, and joined the Executive Commit-

tee on May 1, 2022.

In line with our compensation policy, externally appointed Executive Committee members were granted buyout

awards to compensate for entitlements forfeited by them as a result of joining Novartis, as described in the table

below (see “—Executive Committee appointments compensation policy”). Further details on the vesting of the

awards below will be provided in relevant future compensation reports.



Name Date of appointment Currency Cash payments Equity awards Total value at grant

Shreeram Aradhye, May ,  CHF No cash buyout  RSUs, 

President, Global Drug vesting over the period -

Development and

Chief Medical Ocer

Aharon Gal, July ,  CHF   RSUs, 

Chief Strategy & Growth Ocer vesting over the period -

Fiona Marshall, November ,  USD  to be paid  RSUs and  PSUs, 

President, Novartis Institutes out in March  vesting over the period -

for BioMedical Research

2022 Executive Committee member departures

In determining the compensation arrangements for departing Executive Committee members, the Compensation

Committee ensures that contractual entitlements are respected, and all payments are in line with our plan rules

and the Swiss Ordinance against Excessive Compensation in Listed Companies.

All Executive Committee members have a 12-month notice period during which they are entitled to their con-

tractual base salary, pension, Annual Incentive and other beneﬁts. No new LTPP grants are made during the notice

period. In line with the new regulations arising from the reform of Swiss corporate law, any compensation payments

toward non-competition agreements from 2023 onwards, will not exceed the average annual compensation of the

previous three ﬁnancial years.

Equity plan rules state that malus and clawback as well as non-compete restrictions will continue to apply. No

severance payments are made to departing Executive Committee members. Further details on the policy treatment

of variable compensation for departing Executive Committee members can be found in “—Treatment of variable

compensation for Executive Committee leavers.”

Former President of Novartis Oncology, Susanne Schaert, stepped down from her role following the Compa-

ny’s decision to integrate the Pharmaceuticals and Oncology business units and create separate US and Interna-

tional commercial organizations under the Innovative Medicines (IM) Division, and started her notice period on May

1, 2022.

Former Head of Customer & Technology Solutions (CTS), Robert Weltevreden, stepped down from his role fol-

lowing the Company’s decision to combine Novartis Technical Operations (NTO) and CTS into a new Operations

unit, and started his notice period on May 1, 2022.

Former Head of Global Drug Development and Chief Medical Ocer, John Tsai, stepped down from his role

eective May 15, 2022, and started his notice period on the same day.

Former President of the Novartis Institutes for BioMedical Research (NIBR), James Bradner, stepped down from

his role eective October 31, 2022, and started his notice period on November 1, 2022.

All four executives departed under good leaver conditions. Outstanding LTI grants will vest at the end of the rel-

evant performance cycles on a pro-rata basis, as per their contractual agreements and in line with the said plan

rules.

To avoid a conﬂict of interest, Richard Saynor, Chief Executive Ocer of Sandoz, stepped down from the Execu-

tive Committee with eect from October 25, 2022, following his appointment as CEO designate of the Sandoz

standalone company that is planned to be created in the second half of 2023. He will continue to report directly to

the CEO and to lead the Sandoz division.

Item 6. Directors, Senior Management and Employees

105

Realized compensation

To aid shareholders’ understanding of the link between pay and performance, the Compensation Committee dis-

closes the realized compensation for the CEO individually, and for the other members of the Executive Committee

on an aggregated basis. Disclosing realized compensation means that the Annual Incentive and the LTI are dis-

closed at the end of their respective performance cycles, reﬂecting actual payouts based on performance.

The total actual payout may vary year on year depending on multiple factors, including the composition of the

Executive Committee and the tenure of its members (as new members may not have a vested LTI), compensation

increases, payout of variable compensation based on actual performance, share price ﬂuctuations of the LTI, and

dividend equivalents.

2022 realized compensation for the CEO and other Executive Committee members

The table below shows ﬁxed and other compensation for the year, including the Annual Incentive for the 2022 per-

formance year, the realized LTI for the 2020-2022 performance cycle, and any buyouts vesting in 2022. The por-

tion of the Annual Incentive paid in shares for the year 2022 is disclosed using the underlying value of Novartis

shares at the date of grant, while the realized values of any other equity awards (including dividend equivalents) are

calculated using the share price on the date of vesting.

To determine the appropriateness of the 2022 CEO and executive compensation payouts under the Annual

Incentive and LTI plans, the Board of Directors and the Compensation Committee reviewed management’s perfor-

mance and contribution, taking the following into consideration:

• Operational and ﬁnancial performance against targets

• Progress toward strengthening our global product portfolio

• Accomplishments across all strategic pillars, with careful attention given to ESG performance

The incentive performance outcomes, combined with base salary and other beneﬁts, pension, and dividend equiv-

alents, resulted in 2022 total realized compensation for the CEO of CHF8 452 176.

2022 realized compensation for the CEO and other Executive Committee members

 annual base

 pension

 Annual Incentive Long-Term

Other 

salary

beneﬁts



Incentives

compensation

LTPP  – 

cycle

Total realized

compensation

Equity (value

(incl. share

Currency

Cash (amount)

Amount

Cash

Equity



at vesting date)



Amount



price movement)



Executive Committee members

Vasant Narasimhan (CEO) CHF















Aggregate realized compensation of the

other  Executive Committee members,

including the members who stepped down

during the ﬁnancial year 



CHF















Total CHF















See 2021 realized compensation for the CEO and other Executive Committee members for 2021 comparative ﬁgures.

Includes mandatory employer contributions of CHF 4560 for the CEO and CHF 67148 for the other current Executive Committee members paid by Novartis to governmental social

security systems. This amount is out of total employer contributions of CHF 3937537 paid in 2022 for all Executive Committee members, and provides a right to the maximum future

insured government pension beneﬁt.

The portion of the Annual Incentive delivered in equity is rounded up to the nearest share, based on the closing share price on the grant date (January 25, 2023) of CHF 85.30 per

Novartis share and USD 92.81 per ADR.

The amounts represent the underlying share value of the 97361 LTPP PSUs vesting on January 25, 2023, to the CEO and other Executive Committee members for the 2020-2022

performance cycle and dividend equivalents for the three-year cycle (for details, see ‘’—LTPP performance outcomes’’). The taxable value is determined using the closing share price

on the day the Novartis Board of Directors approved the ﬁnal LTPP performance factor (i.e., January 25, 2023) of CHF 85.30 per Novartis share and USD 92.81 per ADR. Robert

Kowalski was promoted to the Executive Committee during the course of the 2021 performance period and Victor Bulto during the course of the 2022 performance period, and as

such, the information disclosed reﬂects their pro-rata LTPP 2020-2022 payout attributable to the period in which they were members of the Executive Committee. Shreeram Aradhye

rejoined Novartis and Karen Hale, Aharon Gal and Fiona Marshall joined Novartis after the 2020 LTI awards were made and hence did not receive an LTPP award for the 2020-2022

performance period.

Includes any other perquisites, beneﬁts in kind, and international assignment beneﬁts as per the global mobility policy (e.g., housing, international health insurance, children’s school

fees, tax equalization). The 2022 tax payments were CHF 221633 for Richard Saynor, as well as CHF 533927 for Victor Bulto, CHF 127980 for Robert Kowalski, CHF 109966 for

Aharon Gal, and CHF 417826 for Vas Narasimhan.

Includes 696 vested RSUs and 2765 PSUs (for a total value of CHF 268158), which vested on March 13, 2022, to John Tsai in lieu of the LTI that he forfeited when leaving his previous

employer. Also includes 2348 vested RSUs and 1586 vested PSUs (for a total value of CHF 313815), which vested on February 13, 2022, to Richard Saynor in lieu of the LTI that he

forfeited when leaving his previous employer, and 3675 vested PSUs (CHF 287238) on January 18, 2022, to Klaus Moosmayer in lieu of the LTI he forfeited when leaving his previous

employer as well as 15 448 RSUs (CHF 1292225), which vested on December 1, 2022, to Aharon Gal in lieu of the LTI that he forfeited when leaving his previous employer.

All amounts are before deduction of the social security contribution and income tax due from the Executive Committee member.

Includes compensation of the following members who stepped down from the ECN: Richard Saynor, Sandoz CEO designate, James Bradner, former President NIBR, Susanne

Schaert, former CEO Oncology, John Tsai, former Global Head of Drug Development and Chiel Medical Ocer and Robert Weltevreden, former Head of Customer and Technology

Solutions, including the vesting of their Long-Term Incentives for 2020-2022 performance cycle, as per the plan rules. The compensation and beneﬁts elements related to the period

after the step-down dates are reported under the ‘other 2022 compensation’ column. See “—2022 Executive Committee member departures” for details.

Amounts for Executive Committee members paid in USD were converted at a rate of USD 1.00 = CHF 0.9548, which is the same average exchange rate used in the Group’s 2022

consolidated ﬁnancial statements (a similar rule applies to payments made in other currencies during the year).

Item 6. Directors, Senior Management and Employees

106

The table and information below provide additional details on awards granted as part of the 2020-2022 LTPP per-

formance cycle, including the number of shares awarded and delivered, following the application of the payout fac-

tor and the addition of dividend equivalent shares.

2020-2022 LTPP performance cycle

PSUs at grant

Shares delivered at vesting

Dividend

Total shares

PSUs

Performance shares

Dividend

equivalent shares

delivered at vesting

(target value

Payout factor

Performance shares

delivered at vesting

equivalent shares

delivered at vesting

(value at

PSUs

at grant date)

for ECN LTPP

delivered at vesting

(value at vesting date)

delivered at vesting

(value at vesting date)

vesting date)

(target number)

(CHF)



( of target)

(number)

(CHF)



(number)



(CHF)

Executive Committee members



Vasant Narasimhan 















Other  Executive Committee members,

including the members who stepped

down during the ﬁnancial year 



















Total 













Robert Kowalski and Victor Bulto joined the Executive Committee during the course of the 2020-2022 performance period. As such, the information disclosed reﬂects their pro-rata

LTPP 2020-2022 attributable to the period in which they were members of the Executive Committee. Karen Hale, Aharon Gal, Fiona Marshall and Shreeram Aradhye joined Novartis

after the 2020-2022 LTPP awards were made and hence did not receive an LTPP award for this performance period.

The shown amounts represent the underlying share value of the target number of PSUs granted to each Executive Committee member for the 2020-2022 performance period,

based on the closing share price on the grant date (January 21, 2020) of CHF 92.89 per Novartis share and USD 95.19 per ADR.

The shown amounts represent the underlying share value of the number of PSUs vested for the 2020-2022 performance period, based on the closing share price on the day the

Novartis Board of Directors approved the ﬁnal LTPP performance payout factor (i.e., January 25, 2023) of CHF 85.30 per Novartis share and USD 92.81 per ADR.

Dividend equivalent shares are calculated on the dividend each member of the Executive Committee would have received, based on the actual number of shares delivered at the end

of the 2020-2022 performance period. At vesting, the dividend equivalents are credited in shares or ADRs.

Includes the LTPP vesting for Richard Saynor, Sandoz CEO Designate, James Bradner, former President NIBR, Susanne Schaert, former CEO Oncology, John Tsai, former Global

Head of Drug Development and Chiel Medical Ocer and Robert Weltevreden, former Head of Customer and Technology Solutions for the 2020-2022 performance cycle, as per

the plan rules.

Item 6. Directors, Senior Management and Employees

107

The table and information below provide details on the 2021 realized compensation for the CEO and other Execu-

tive Committee members, for comparative purposes.

2021 realized compensation for the CEO and other Executive Committee members

 annual base

 pension

 Annual Incentive Long-Term Incentives

Other 

salary

beneﬁts



compensation

LTPP -

cycle

Total realized

compensation

Equity (value

(incl. share

Currency

Cash (amount)

Amount

Cash

Equity



at vesting date)



Amount



price movement)



Executive Committee members

Vasant Narasimhan (CEO) CHF















Aggregate realized compensation of the

other  Executive Committee members,

including the members who stepped down

during the ﬁnancial year 



CHF















Total CHF















Includes mandatory employer contributions of CHF 5498 for the CEO and CHF 53693 for the other Executive Committee members paid by Novartis to governmental social security

systems. This amount is out of total employer contributions of CHF 4966397 paid in 2021 for all Executive Committee members, and provides a right to the maximum future insured

government pension beneﬁt.

The portion of the Annual Incentive delivered in equity is rounded up to the nearest share, based on the closing share price on the grant date (January 26, 2022) of CHF 78.16 per

Novartis share and USD 84.24 per ADR.

The amounts represent the underlying share value of the 296 741 LTPP PSUs vested on January 22, 2022, to the CEO and other Executive Committee members for the 2019-2021

performance cycle, inclusive of earned Alcon Keep Whole awards and dividend equivalents for the three-year cycle (for details, see ‘’—LTPP performance outcomes’’). The taxable

value is determined using the closing share price on the day the Novartis Board of Directors approved the ﬁnal LTPP performance factor (i.e., January 26, 2022) of CHF 78.16 per

Novartis share and USD 84.24 per ADR. Marie-France Tschudin and Robert Kowalski were promoted to the Executive Committee during the course of the 2019-2021 performance

period, and as such, the information disclosed reﬂects their pro-rata LTPP 2019-2021 payout attributable to the period in which they were members of the Executive Committee.

Richard Saynor and Karen Hale joined Novartis after the 2019 LTI awards were made and hence did not receive an LTPP award for the 2019-2021 performance period.

Includes any other perquisites, beneﬁts in kind, and international assignment beneﬁts as per the global mobility policy (e.g., housing, international health insurance, children’s school

fees, tax equalization). The 2021 tax payments were CHF 127009 for Mr. Saynor, as well as CHF 822808 for Susanne Schaert, and CHF 156788 for Vas Narasimhan.

Includes 6128 vested RSUs and 3546 PSUs (for a total value of CHF 782649), which vested partially on March 13, 2021, and partially on July 28, 2021, to John Tsai in lieu of the LTI

that he forfeited when leaving his previous employer. Also includes 2584 vested RSUs and 2043 vested PSUs (for a total value of CHF 379414), which vested on February 14, 2021,

to Mr. Saynor in lieu of the LTI that he forfeited when leaving his previous employer, and 4313 vested PSUs (CHF 370961) on January 18, 2021, to Klaus Moosmayer in lieu of the LTI

he forfeited when leaving his previous employer.

All amounts are before deduction of the social security contribution and income tax due from the Executive Committee member.

Includes the ﬁrst six weeks of Karen Hale’s compensation, before her appointment to the Executive Committee, under other compensation. Comprises the compensation of Bertrand

Bodson, former Chief Data Ocer and Steven Baert, former Chief People & Organization Ocer, including the vesting of their Long-Term Incentives for 2019-2021 performance

cycle, as per the plan rules. The compensation and beneﬁts elements related to the period after the step-down dates are reported under the other compensation column. Unvested

shares for Shannon Klinger were forfeited upon her departure from the Company. See “—2021 Executive Committee member departures” for details.

Amounts for Executive Committee members paid in USD were converted at a rate of USD 1.00 = CHF 0.9139, which is the same average exchange rate used in the Group’s 2021

consolidated ﬁnancial statements (a similar rule applies to payments made in other currencies during the year).

Realized compensation for the CEO and other Executive Committee members for 2022 compared

with2021

The 2022 total realized compensation for the CEO was CHF 8452176. This is a reduction of 24.7% compared with

the prior year, mainly due to the lower performance payout of the 2020-2022 LTPP (57% compared with the 107%

payout for the 2019-2021 LTPP). At the end of the 2020-2022 LTPP performance cycle, the rTSR ranking for

Novartis, which is weighted 25% of the overall LTPP opportunity, was below median, which resulted in zero payout

for this measure. Payout for Net Sales CAGR performance, also weighted 25%, was signiﬁcantly lower (43% com-

pared with 119% in 2019-2021), mainly driven by the impact of Covid-19 on Sales growth during 2020 and 2021.

Furthermore, the Alcon “keep-whole” awards, granted at the time of Alcon spin-o in 2019, ended with the 2019-

2021 LTPP payout.

The 2022 total realized compensation for the Executive Committee members, including the CEO, was CHF49424771.

This decrease of 12.7% compared with the prior year can be attributed to the same reasons mentioned above. For

more detail, please refer to “—LTPP performance outcomes”.

Item 6. Directors, Senior Management and Employees

108

Compensation at grant value

In accordance with the Swiss Ordinance against Excessive Compensation in Listed Companies, Novartis contin-

ues to disclose total compensation at grant value for the CEO and other Executive Committee members. The tables

below disclose the following information for the CEO and other Executive Committee members:

• Fixed 2022 compensation (base salary and beneﬁts)

• Actual cash portion and the deferred portion granted in equity of the 2022 Annual Incentive

• 2022-2024 LTPP performance cycle awards, which are reported at target grant date value, based on the assump-

tion that the awards will vest at 100% achievement, excluding any share price movement and dividend equivalents

that may be accrued over the performance cycle. The future payout will be determined only after the performance

cycle concludes in three years (i.e., at the end of 2024), with a payout range of 0% to 200% of the target value

• Other compensation for 2022, which includes other beneﬁts, either paid in cash or granted in equity during the year

The compensation paid, promised or granted to the members of the Executive Committee during ﬁnancial year 2022

was within the amount approved by shareholders at the 2021 AGM.

To assess CEO actual pay for performance in 2022, including the Annual Incentive payout for the 2022 performance

year and the LTI payouts for the 2020-2022 performance cycle, shareholders should refer to the 2022 realized

compensation table in “—2022 realized compensation for the CEO and other Executive Committee members.”

2022 compensation at grant value for the CEO and other Executive Committee members

Fixed compensation and

Variable compensation

pension beneﬁts

Actual compensation paid or granted for 

Long-Term Incentive

- cycle

grants at target

 annual base

 pension

 Annual Incentive

LTPP - cycle

Other 

Total

salary

beneﬁts

(performance achieved)

compensation

paid, promised

or granted 

Equity

PSUs

Cash

(value at

(target value

Currency

(amount)

Amount



(amount)

grant date)



at grant date)



Amount



Amount



Executive Committee members active on December 31, 2022

Vasant Narasimhan CHF















Shreeram Aradhye (from May , )



CHF















Victor Bulto (from May , )

, 

USD















Aharon Gal (from July , )



CHF









–





Karen Hale CHF





–









Harry Kirsch CHF















Robert Kowalski CHF















Steen Lang CHF















Fiona Marshall (from November , )

, 

USD









–





Klaus Moosmayer CHF















Marie-France Tschudin CHF















Tot a l















Executive Committee members who stepped down during 2022

James Bradner (until October , )

, 

USD















Richard Saynor (until October , )



CHF















Susanne Schaert (until April , )



CHF















John Tsai (until May , )



CHF















Robert Weltevreden (until April , )



CHF















Subtotal















Tot a l

 











Based on assumption of

 payout at target.

Actual payout (– of

target) will be known at 

the end of the three-year



cycle in January 



See next page for 2021 comparative ﬁgures.

Includes mandatory employer contributions of CHF 4560 for the CEO and CHF 67148 for the other current Executive Committee members paid by Novartis to governmental social security systems. This amount is out of total

employer contributions of CHF 3937537 paid in 2022 for all Executive Committee members, and provides a right to the maximum future insured government pension beneﬁt.

The portion of the Annual Incentive delivered in equity is rounded up to the nearest share, based on the closing share price on the grant date (January 25, 2023) of CHF 85.30 per Novartis share and USD 92.81 per ADR.

The amounts represent the underlying share value of the target number of PSUs granted to Executive Committee members for the 2022-2024 performance cycle, based on the closing share price on the grant date (January

26, 2022) of CHF 78.16 per Novartis share and USD 84.24 per ADR for all members.

Includes any other perquisites, beneﬁts in kind, and international assignment beneﬁts as per the global mobility policy (e.g., housing, international health insurance, children’s school fees, tax equalization). The compensation

and beneﬁts elements related to the period after the step-down dates are also reported under ‘other 2022 compensation’.

All amounts are before deduction of the social security contribution and income tax due by the Executive Committee member.

Shreeram Aradhye received a pro-rata LTPP award of 18 905 PSUs on June 1, 2022 (at CHF 86.18 closing share price on grant date) upon joining the organization, as per contractual entitlement.

Victor Bulto received his 2022 LTPP grant before his appointment to Executive Committee, therefore the reported LTPP amount is pro-rated to reﬂect his time as Executive Committee member over the full performance cycle.

Amounts in USD for Victor Bulto, Fiona Marshall and James Bradner were converted at a rate of CHF 1.00 = USD 1.0473, which is the average rate used in the Group’s 2022 consolidated ﬁnancial statements.

Aharon Gal and Fiona Marshall did not receive a pro-rata LTPP award upon joining the organization, as they received buyout grants for their forfeited awards upon joining.

James Bradner stepped down from the Executive Committee on October 31, 2022 and will end his notice period on October 31, 2023, in line with his contractual notice period (for more details, see “—2022 Executive

Committee member departures”). The LTPP grant for the 2022-2024 performance cycle, included in the table above, will vest at the end of the performance cycle on a pro-rata basis subject to the plan rules.

Richard Saynor left the Executive Committee on October 25, 2022. The LTPP grant for the 2022-2024 performance cycle, included in the table above, will vest at the end of the performance cycle, subject to the plan rules.

Susanne Schaert stepped down from the Executive Committee on April 4, 2022 and will end her notice period on April 30, 2023, in line with her contractual notice period (for more details, see “—2022 Executive Committee

member departures”). The LTPP grant for the 2022-2024 performance cycle, included in the table above, will vest at the end of the performance cycle on a pro-rata basis subject to the plan rules.

John Tsai stepped down from the Executive Committee on May 15, 2022 and will end his notice period on May 15, 2023, in line with his contractual notice period (for more details, see “—2022 Executive Committee member

departures”). The LTPP grant for the 2022-2024 performance cycle, included in the table above, will vest at the end of the performance cycle on a pro-rata basis subject to the plan rules.

Robert Weltevreden stepped down from the Executive Committee on April 4, 2022 and will end his notice period on April 30, 2023, in line with his contractual notice period (for more details, see “—2022 Executive Committee

member departures”). The LTPP grant for the 2022-2024 performance cycle, included in the table above, will vest at the end of the performance cycle on a pro-rata basis subject to the plan rules.

Item 6. Directors, Senior Management and Employees

109

2021 compensation at grant value for the CEO and other Executive Committee members

For comparative purposes, the table below provides the compensation at grant value for 2021.

Executive Committee member compensation at grant for ﬁnancial year 2021

Fixed compensation and

Variable compensation

pension beneﬁts

Actual compensation paid or granted for 

Long-Term Incentive

- cycle

grants at target

 annual base

 pension

 Annual Incentive

LTPP

Other 

Total

salary

beneﬁts

(performance achieved)

- cycle

compensation

paid, promised

or granted 

Equity

PSUs

Cash

(value at

(target value

Currency

(amount)

Amount



(amount)

grant date)



at grant date)



Amount



Amount



Executive Committee members active on December 31, 2021

Vasant Narasimhan CHF















James Bradner



USD















Karen Hale (from May , )



CHF















Harry Kirsch CHF















Robert Kowalski (from September , )



CHF















Steen Lang CHF















Klaus Moosmayer CHF















Richard Saynor CHF















Susanne Schaert CHF















John Tsai CHF















Marie-France Tschudin CHF











–



Robert Weltevreden CHF











–



Tot a l















Executive Committee members who stepped down during 2021

Steven Baert (until June , )



CHF







–







Bertrand Bodson (until January , )



CHF







–





Shannon Thyme Klinger (until March , )



CHF





–







Subtotal















Tot a l

 











Based on assumption of

 payout at target.

Actual payout (– of

target) will be known at 

the end of the three-year



cycle in January 



Includes mandatory employer contributions of CHF 5498 for the CEO and CHF 53693 for the other Executive Committee members paid by Novartis to governmental social security systems. This amount is out of total

employer contributions of CHF 4966 397 paid in 2021 for all Executive Committee members, and provides a right to the maximum future insured government pension beneﬁt.

The portion of the Annual Incentive delivered in equity is rounded up to the nearest share, based on the closing share price on the grant date (January 26, 2022) of CHF 78.16 per Novartis share and USD 84.24 per ADR.

The amounts represent the underlying share value of the target number of PSUs granted to Executive Committee members for the 2021-2023 performance cycle, based on the closing share price on the grant date (January

20, 2021) of CHF 86.01 per Novartis share and USD 96.92 per ADR for all members.

and beneﬁts elements related to the period after the step-down dates are also reported under ‘other 2021 compensation’.

All amounts are before deduction of the social security contribution and income tax due by the Executive Committee member.

Amounts in USD for James Bradner were converted at a rate of CHF 1.00 = USD 1.0942, which is the average rate used in the Group’s 2021 consolidated ﬁnancial statements.

Karen Hale received a pro-rata LTPP award of 18639 PSUs on Apr-2, 2021 (at CHF 81.15 share price at grant) upon joining the organization, as per contractual entitlement. The other compensation amount includes the ﬁrst six

weeks of compensation before her appointment to the Executive Committee.

Robert Kowalski received his 2021 LTPP grant before his appointment to Executive Committee, therefore the reported LTPP amount is pro-rated to reﬂect his time as Executive Committee member over the full performance

cycle.

Steven Baert left the Executive Committee on June 30, 2021 and ended his notice period on September 30, 2021, in line with his reduced contractual notice period (for more details, see “—2021 Executive Committee member

departures”). He received his 2021 Annual Incentive 100% in cash on a pro-rata basis, and the LTPP grant for the 2021-2023 performance cycle, included in the table above, will vest at the end of the performance cycle on a

pro-rata basis subject to the plan rules.

Bertrand Bodson left the Executive Committee on January 31, 2021 and ended his notice period on November 30, 2021, in line with his reduced contractual notice period (for more details, see “—2021 Executive Committee

member departures”). He received his 2021 Annual Incentive 100% in cash on a pro-rata basis, and no LTPP was granted for the 2021-2023 performance cycle.

Shannon Klinger resigned as Chief Legal Ocer as of March 15, 2021, and left the Company on May 31, 2021, in line with her reduced contractual notice period (for more details, see “—2021 Executive Committee member

departures”). The 2021 Annual Incentive and LTPP 2021-2023 cycle grant (23 586 PSUs), displayed at pro-rata value for the time she was in her role in 2021, were forfeited in full upon her departure.

Compensation at grant value for the CEO and other Executive Committee members for 2022 compared

with 2021

Compensation at grant delivered in 2022 to the CEO and the other Executive Committee members, including those

who stepped down, was CHF 70819358, which was an increase of 20.7% compared with the prior year. This increase

was driven mainly by the change in composition of the Executive Committee during 2022. Compensation at grant

for the active Executive Committee members on December 31, 2022 (11 active members versus 12 in prior year) was

CHF 49852130, which is a reduction of 3.3% from December 31, 2021.

Item 6. Directors, Senior Management and Employees

110

Additional disclosures for the CEO and other Executive Committee members

This section provides additional disclosures, including information about the shareholdings of the CEO and the

other Executive Committee members.

Malus and clawback

Consistent with our “—Executive Committee compensation philosophy and principles,” in 2022 there was no legal

or factual basis on which to exercise malus or clawback for current or former Executive Committee members.

Number of equity instruments granted to the CEO and other Executive Committee members for the

ﬁnancial year 2022

Variable compensation

 Annual Incentive

LTPP

Other

(performance achieved)

- cycle

Equity

PSUs

Equity/PSUs

(number)



(target number)



(number)

Executive Committee members active on December 31, 2022

Vasant Narasimhan 





Shreeram Aradhye (from May , ) 





Victor Bulto (from May , ) 





Aharon Gal (from July , ) 





Karen Hale 





Harry Kirsch 





Robert Kowalski 





Steen Lang 





Fiona Marshall (from November , ) 





Klaus Moosmayer 





Marie-France Tschudin 





Total 





Executive Committee members who stepped down during 2022

James Bradner (until October , )









Richard Saynor (until October , )









Susanne Schaert (until April , )









John Tsai (until May , )









Robert Weltevreden (until April , )









Subtotal 





Total 





See next page for 2021 comparative ﬁgures.

The values of the awards are reported in the table “2022 compensation at grant value for the CEO and other Executive Committee members.”

Vested shares, restricted shares and/or RSUs granted under the Annual Incentive for the 2022 performance period.

Target number of PSUs granted under the LTPP as applicable for the 2022-2024 performance cycle.

James Bradner stepped down from the Executive Committee on October 31, 2022 and will end his notice period on October 31, 2023, in line with his contractual notice period (for

more details, see “—2022 Executive Committee member departures”). The LTPP grant for the 2022-2024 performance cycle, included in the table above, will vest at the end of the

performance cycle on a pro-rata basis subject to the plan rules.

Richard Saynor left the Executive Committee on October 25, 2022. The LTPP grant for the 2022-2024 performance cycle, included in the table above, will vest at the end of the

performance cycle, subject to the plan rules.

Susanne Schaert stepped down from the Executive Committee on April 4, 2022 and will end her notice period on April 30, 2023, in line with her contractual notice period (for more

details, see “—2022 Executive Committee member departures”). The LTPP grant for the 2022-2024 performance cycle, included in the table above, will vest at the end of the

performance cycle on a pro-rata basis subject to the plan rules.

John Tsai stepped down from the Executive Committee on May 15, 2022 and will end his notice period on May 15, 2023, in line with his contractual notice period (for more details,

see “—2022 Executive Committee member departures”). The LTPP grant for the 2022-2024 performance cycle, included in the table above, will vest at the end of the performance

cycle on a pro-rata basis subject to the plan rules.

Robert Weltevreden stepped down from the Executive Committee on April 4, 2022 and will end his notice period on April 30, 2023, in line with his contractual notice period (for more

details, see “—2022 Executive Committee member departures”). The LTPP grant for the 2022-2024 performance cycle, included in the table above, will vest at the end of the

performance cycle on a pro-rata basis subject to the plan rules.

Item 6. Directors, Senior Management and Employees

111

Number of equity instruments granted to the CEO and other Executive Committee members for the

ﬁnancial year 2021 (comparative information)

Variable compensation

 Annual Incentive

LTPP

Other

(performance achieved)

- cycle

Equity

PSUs

Equity/PSUs

(number)



(target number)



(number)

Executive Committee members active on December 31, 2021

Vasant Narasimhan 





James Bradner 





Karen Hale (from May , ) 





Harry Kirsch 





Robert Kowalski (from September , ) 





Steen Lang 





Klaus Moosmayer 





Richard Saynor 





Susanne Schaert 





John Tsai 





Marie-France Tschudin 





Robert Weltevreden 





Tot al 





Executive Committee members who stepped down during 2021

Steven Baert (until June , )









Bertrand Bodson (until January , )





Shannon Thyme Klinger (until March , )









Subtotal 





Tot al 





The values of the awards are reported in the table “2021 compensation at grant value for the CEO and other Executive Committee members.”

Vested shares, restricted shares and/or RSUs granted under the Annual Incentive for the 2021 performance period.

Target number of PSUs granted under the LTPP as applicable for the 2021-2023 performance cycle.

Steven Baert left the Executive Committee on June 30, 2021 and ended his notice period on September 30, 2021, in line with his reduced contractual notice period (for more details,

see “—2021 Executive Committee member departures”). The LTPP grant for the 2021-2023 performance cycle, included in the table above, will vest at the end of the performance

cycle on a pro-rata basis subject to the plan rules.

Bertrand Bodson left the Executive Committee on January 31, 2021 and ended his notice period on November 30, 2021, in line with his reduced contractual notice period (for more

details, see “—2021 Executive Committee member departures”). No LTPP was granted for the 2021-2023 performance cycle.

Shannon Klinger resigned as Chief Legal Ocer as of March 15, 2021, and left the Company on May 31, 2021, in line with her reduced contractual notice period (for more details, see

“—2021 Executive Committee member departures”). The LTPP 2021-2023 cycle grant (23 586 PSUs), displayed at pro-rata value for the time she was in her role in 2021, was

forfeited in full upon her departure.

Item 6. Directors, Senior Management and Employees

112

Share ownership requirements for the CEO and

other Executive Committee members

Executive Committee members are required to own at

least a minimum multiple of their annual base salary in

Novartis shares or RSUs within ﬁve years of hire or pro-

motion, as set out in the table here. In addition, the CEO

and CFO are required to hold the equity vesting under

the LTPP plan (granted since 2022) for a minimum of two

years after the vesting date. In the event of a substantial

rise or drop in the share price, the Board of Directors

may, at its discretion, amend that time period accord-

ingly.



FUNCTION OWNERSHIP LEVEL

CEO  x base compensation

Other Executive Committee members  x base compensation

The determination of equity amounts against the share

ownership requirements is deﬁned to include vested and

unvested Novartis shares or American Depositary

Receipts (ADRs), together with RSUs acquired under the

Company’s compensation plans. Unvested PSUs are,

however, excluded. The determination also includes

other shares and vested options of Novartis shares or

ADRs that are owned directly or indirectly by “persons

closely linked” to an Executive Committee member. The

Compensation Committee reviews compliance with the

share ownership guideline on an annual basis.

Shares, ADRs and other equity rights owned by Executive Committee members as at December 31, 2022

The following table shows, in alphabetical order after the CEO, the total number of shares, ADRs and other equity

rights owned by the CEO and the other Executive Committee members and “persons closely linked” to them as at

December 31, 2022. As at December 31, 2022, no members of the Executive Committee, either individually or

together with “persons closely linked” to them, owned 1% or more of the outstanding shares or ADRs of Novartis.

As at December 31, 2022, all members who have served at least ﬁve years on the Executive Committee have met

or exceeded their personal Novartis share ownership requirements.

Equity ownership level

Total as at

Vested shares

Unvested shares

as a multiple of

Unvested target PSUs

December ,

and ADRs



and other equity rights



annual base salary



(e.g., LTPP)





Vasant Narasimhan 



x





Shreeram Aradhye (from May , ) 



x





Victor Bulto (from May , ) 



x





Aharon Gal (from July , ) 



x





Karen Hale 



x





Harry Kirsch 



x





Robert Kowalski 



x





Steen Lang 



x





Fiona Marshall (from November , ) 



x





Klaus Moosmayer 



x





Marie-France Tschudin 



x





Subtotal 







Executive Committee members who stepped down during 2022

James Bradner (until October , ) 



x





Richard Saynor (until October , ) 



x





Susanne Schaert (until April , ) 



x





John Tsai (until May , ) 



x





Robert Weltevreden (until April , ) 



x





Subtotal 







Total 







Includes holdings of “persons closely linked” to Executive Committee members (see the ‘persons closely linked’ deﬁnition).

Includes unvested shares and ADRs as well as other equity rights applicable for the determination of equity amounts for the share ownership requirements, as per the deﬁnition

above.

The multiple is calculated based on the full-year annual base salary and the closing share price as at the end of the 2022 ﬁnancial year. The share price on the ﬁnal trading day of

2022 was CHF 83.59 / USD 90.72 as at December 31, 2022.

The target number of PSUs is disclosed pro-rata to December 31, 2022, unless the award qualiﬁed for full vesting under the relevant plan rules.

Item 6. Directors, Senior Management and Employees

113

Fixed and variable compensation

The following table summarizes the annual base salary

and variable compensation mix at grant value for the

ﬁnancial year 2022 for the CEO and other Executive

Committee members.

Annual

Variable

base salary



compensation



Vasant Narasimhan 



Shreeram Aradhye (from May , ) 



Victor Bulto (from May , ) 



Aharon Gal (from July , ) 



Karen Hale 



Harry Kirsch 



Robert Kowalski 



Steen Lang 



Fiona Marshall (from November , ) 



Klaus Moosmayer 



Marie-France Tschudin 



Total







Excludes pension and other beneﬁts and is pro-rated for ECN time.

See the table “2022 compensation at grant value for the CEO and other Executive

Committee members” with regard to the disclosure principles of variable

compensation.

Excludes members, who stepped down during the year.

Other payments to Executive Committee members

During 2022, no other payments or waivers of claims

other than those set out in the tables (including the foot-

notes) contained in this Compensation Report were

made to Executive Committee members or to “persons

closely linked” to them.

Payments to former Executive Committee

members

Under the former Executive Committee members’

contracts and in line with the Company’s LTI plan rules,

payments were made to 8 former members. Of this,

CHF993 574 relates to the vesting of LTI awards. In addi-

tion, contractual amounts totaling CHF 167 106 were

made (comprising the base salary, the Annual Incentive

and other beneﬁts), and tax equalization on variable com-

pensation granted during international assignments

amounted to a total of CHF296 627.

No other payments (or waivers of claims) were made

to former Executive Committee members or to “persons

closely linked” to them during 2022.

Persons closely linked

“Persons closely linked” are (i) their spouse, (ii) their chil-

dren (under 18 years of age), (iii) any legal entities that

they own or otherwise control, and (iv) any legal or nat-

ural person who is acting as their ﬁduciary.

Note 27 to the Group’s audited consolidated

ﬁnancial statements

The total expense for the year for compensation awarded

to Executive Committee and Board members, using

International Financial Reporting Standards (IFRS) mea-

surement rules, is presented in Note 27 to the Group’s

audited consolidated ﬁnancial statements.

Award and delivery of equity to Novartis employees

During 2022, 12.7 million unvested restricted shares (or

ADRs), RSUs and target PSUs were granted, and 10.4

million Novartis vested shares (or ADRs) were delivered

to Novartis employees under various equity-based par-

ticipation plans. Current unvested equity instruments

(restricted shares, RSUs and target PSUs) and outstand-

ing equity options held by employees represent 1.05%

of issued shares. Novartis delivers treasury shares to

employees to fulﬁll these obligations and aims to oset

the dilutive impact from its equity-based participation

plans.

Item 6. Directors, Senior Management and Employees

114

Interim update regarding ongoing LTI performance cycles

Below we report how performance is tracking against our stretch targets for our ongoing LTI performance cycles.

2021-2023 LTPP

After the ﬁrst two years of the three-year LTPP perfor-

mance cycle, both net sales CAGR and core operating

income CAGR are tracking behind target, driven mainly

by the impact of the safety update on Beovu. Innovation

is on track. At the end of 2022, the relative TSR for

Novartis was below median among our global healthcare

peer group.

PERFORMANCE MEASURES TRACKING

Net sales CAGR () M

Core operating income CAGR () M

Innovation () T

Relative TSR () M

CAGR = compound annual growth rate

2022-2024 LTPP

After the ﬁrst year of the three-year LTPP performance

cycle, net sales CAGR is on target and core operating

income CAGR is ahead of target, while innovation perfor-

mance is on target. At the end of 2022, the relative TSR

for Novartis was below the median among our global

healthcare peer group.

PERFORMANCE MEASURES TRACKING

Net sales CAGR () T

Core operating income CAGR () T

Innovation () T

Relative TSR () M

CAGR = compound annual growth rate

T On or ahead of target M Slightly behind or behind target

Item 6. Directors, Senior Management and Employees

115

2023 Executive Committee compensation

2023 Executive Committee compensation changes

The Compensation Committee believes that the compensation system supports the company’s strategy and ensures

a strong link between pay and performance.

Following a positive vote of 90.6% in favor of our 2021 Compensation Report at the 2022 AGM, the Board and

Compensation Committee decided to make evolutionary changes to the compensation system. The aim of these

changes is to simplify and increase the transparency of our performance assessment measures, in addition to strength-

ening our focus on key strategic priorities, while also considering developments in compensation best practices.

There are also changes as a result of the Swiss Corporate Law reform, which came into eect on January 1,

2023.

Assuming that the Sandoz spin-o will occur in 2023, some impact is expected on 2023 Executive Compensation.

Annual Incentive

Following a review, the Compensation Committee

decided to adapt the ﬁnancial performance in the Annual

Incentive Plan eective as of performance year 2023 as

below:

• Remove “Share of Peers” from the ﬁnancial perfor-

mance measures in the Annual Incentive plan. As a

result, the Annual Incentive ﬁnancial performance mea-

sures are Group Net Sales (40%), Group Operating

Income (30%) and Group Free Cash Flow

(30%),

thereby retaining a strong link to our key priorities

• Group ﬁnancial measures will be weighted at 60% for

all Executive Committee members. Financial targets

that relate to a division or business unit, where appli-

cable, will be part of the individual strategic objectives

(40% weight)

Swiss Corporate Law reform

Following the reform of Swiss corporate law, which came

into eect on January 1, 2023, the following changes will

be made to compensation design and disclosure in the

2023 Compensation Report:

• Contracts of Executive Committee members will be

adapted so that any non-compete compensation will

not exceed the average annual compensation of the

previous three ﬁnancial years

• In previous years, the Swiss regulations permitted com-

panies to award compensation of up to 40% above the

shareholder approved budget for newly appointed

members of the Executive Committee, whether that be

through internal promotions or external hires. From

2023, this additional budget of 40% will only be made

available for external appointments of Executive Com-

mittee members

These changes will require adjustments to the Articles

of Incorporation of Novartis, which will be submitted to

Novartis shareholders for their approval at the 2023

AGM.

Sandoz spin-o

In August 2022, we announced our intention to separate

Sandoz, our generics and biosimilars division, into a new

publicly traded standalone company, by way of a 100%

spin-o, subject to approval of the Novartis AG Board of

Directors and shareholders. In view of the planned spin-

o, the Compensation Committee made the following

decisions.

Sandoz CEO 2023 Annual Incentive

Based on the assumption that the spin-o will be imple-

mented in the second half of 2023, the 2023 Balanced

Scorecard for Richard Saynor, CEO designate of Sandoz,

will be adapted so that his 2023 Annual Incentive will be

based exclusively on the ﬁnancial and strategic perfor-

mance of Sandoz.

Equity Restoration principles

If and when the planned spin-o occurs, holders of

vested and unvested awards in the form of Novartis

shares or ADRs will receive a dividend in kind resulting

from the spin-o in the same way as other Novartis

shareholders. Holders of unvested RSUs and PSUs will

not receive the dividend in kind resulting from the spin-

o. To compensate for the expected reduction in share-

holder value after the issue of dividend in kind, Novartis

will grant equity awards (called “Keep Whole awards”)

to its employees, including the Executive Committee

members, following the spin-o. This will be undertaken

in accordance with the Sandoz equity restoration plan,

as follows:

• The Keep Whole awards will have a value similar to the

value of the dividend in kind resulting from the spin-o

that each RSU or PSU would have received had it been

a Novartis share or ADR

• The aim of the Keep Whole awards is to ensure that

Novartis employees who have been granted RSUs or

PSUs, including Executive Committee members, are

not disadvantaged by the spin-o relative to Novartis

shareholders

More details will be shared at the time of the spin-o.

For the purposes of the 2023 annual incentives, free cash ﬂow is deﬁned as net cash ﬂows from operating activities less purchases of property, plant and

equipment.

Item 6. Directors, Senior Management and Employees

116

2023 Executive Committee member compensation increases

Each year, we collaborate with our external advisors to benchmark the compensation levels of the members of the

Executive Committee and assess the competitiveness of their total target compensation. 2023 salary increases

have been made in line with their demonstrated performance and ability in their respective roles, and commensu-

rate to changes in responsibilities, if any, as outlined in our “—Executive Committee appointments compensation

policy”.

In general, Executive Committee members (including the CEO) will receive compensation changes applicable

to associates in Switzerland or where applicable, the US. The members who will receive an additional increase

based on the principles outlined above are mentioned below.

Karen Hale, Chief Legal Ocer

Ms. Hale, who has joined the Executive Committee in May 2021, delivered many highlights in 2022, including eec-

tively managing ongoing cases with the SEC/DOJ, creating a new, focused and ecient global legal function, pre-

paring for the Sandoz spin-o eectively, and continuing to improve the governance of the company. Eective

March 1, 2023, Ms. Hale will receive a 6% increase in annual base salary increase and a 10% increase LTI target,

as a percentage of annual base salary.

Klaus Moosmayer, Chief Ethics, Risk & Compliance Ocer

Following the implementation of the new organization structure in 2022, Mr. Moosmayer took over additional man-

agement responsibilities in the areas of HSE governance, Data Privacy, and Digital & Artiﬁcial Intelligence Compli-

ance. He demonstrated strong leadership across all responsibilities of compliance, risk, ethics, and managing

emerging issues including the company’s continuing response to the global pandemic, the lockdown in China and

crisis management related to the war in Ukraine. Eective March 1, 2023, Mr. Moosmayer will receive a 12% increase

in annual base salary increase and a 10% increase LTI target, as a percentage of annual base salary, to recognize

these additional responsibilities.

Marie-France Tschudin, President, Innovative Medicines International & Chief Commercial Ocer

Following her appointment in April 2022 as the President, Innovative Medicines International & Chief Commercial

Ocer, Ms. Tschudin eectively executed the creation of our new Innovative Medicines International organization

and Chief Commercial Oce. During the year, she designed the new organization structure, implementing a large

restructuring program and creating new therapeutic areas with clear portfolio focus, while delivering strong com-

mercial performance in Region International and ensuring growth above target for many key brands. Eective March

1, 2022, Ms. Tschudin will receive a 5% increase in annual base salary, and a 10% increase in both her Annual Incen-

tive target and LTI target, as a percentage of annual base salary, to recognize her increased responsibilities as the

Chief Commercial Ocer.

Following an assessment of their compensation competitiveness and performance, recently appointed Executive

Committee members Victor Bulto, Aharon (Ronny) Gal, and Robert Kowalski will receive a 10–20% increase in their

Annual Incentive target and/or LTI target, in line with the “—Executive Committee appointments compensation pol-

icy”. Steen Lang will also receive a 10% increase in LTI target as a result of his enhanced responsibilities in Oper-

ations.

Item 6. Directors, Senior Management and Employees

117

2022 Board compensation

Philosophy and benchmarking

Aligned with market practice in Switzerland, the Board

of Directors sets compensation for its members at a level

that allows for the attraction of high-caliber individuals,

including both Swiss and international members, who

have global experience.

Given their focus on corporate strategy, supervision

and governance, Board members do not receive variable

compensation. Each year at the AGM, shareholders are

requested to approve, in a binding vote, the total com-

pensation of the Board of Directors until the following

AGM.

The Board of Directors sets the level of compensa-

tion for its Chair and the other members to be in line with

relevant benchmark companies, including other large

Switzerland-based multinational companies such as

ABB, Credit Suisse, Holcim, Nestlé, Roche and UBS. This

peer group was chosen for Board compensation due to

the comparability of Swiss legal requirements, including

broad personal and individual liabilities under Swiss law

(and criminal liability under Swiss rules regarding board

and executive committee compensation related to the

Ordinance against Excessive Compensation in Listed

Companies), and under US law (due to the Company’s

secondary listing on the New York Stock Exchange). The

Board of Directors reviews the compensation of its mem-

bers, including the Board Chair, each year based on a

proposal by the Compensation Committee and advice

from its independent advisor, including relevant bench-

marking information. To ensure independence of deci-

sion-making, the peer group used for the Board of Direc-

tors is dierent to that used for the Executive Committee.

The Board Chair’s contract and the Board of Direc-

tors compensation policy do not provide for any termi-

nation-related payments.

Board Chair

As Board Chair, Joerg Reinhardt receives total annual

compensation valued at CHF 3.8 million. The total com-

pensation is comprised equally of cash and shares, as

follows:

• Cash compensation: CHF 1.9 million per year

• Share compensation: annual value equal to CHF 1.9

million of unrestricted Novartis shares

For 2022, the Board Chair voluntarily waived the increase

in compensation to which he is contractually entitled.

Other Boardmembers

The annual fee rates for Board membership and addi-

tional functions are included in the table below. These

were approved by the Board of Directors with eect from

the 2022 AGM. Aggregate Board compensation is

aligned with other large Swiss companies.

- AGM

CHF s annual fee

Board Chair 

Board membership 

Vice-Chair 

Lead Independent Director 

Chair of the Audit and Compliance Committee 

Chair of the Compensation Committee 

Chair of the following committees:

• Governance, Nomination and

Corporate Responsibilities Committee

• Science & Technology Committee

• Risk Committee 

Membership of the Audit

and Compliance Committee 

Membership of the following committees:

• Compensation Committee

• Governance, Nomination and

Corporate Responsibilities Committee

• Science & Technology Committee

• Risk Committee 

In addition, the following policies apply regarding Board

compensation:

• 50% of compensation is delivered in cash, paid on a

quarterly basis in arrears. Board members may choose

to receive more of their compensation in shares instead

of cash

• At least 50% of compensation is delivered in shares in

two installments: one six months after the AGM; and

one 12 months after the AGM

Board members bear the full cost of their employee

social security contributions, if any, and do not receive

share options or pension beneﬁts.

2023 Board compensation

In 2022, the Compensation Committee reviewed,

together with its independent advisor, the Board of Direc-

tors’ compensation system against the Swiss Market

Index. They found that the Board Chair fees and retainer

fees of the other Board members are well positioned and

competitive among the benchmarked companies in rela-

tion to the Company’s size, operational complexity and

corporate headquarter’s location. Additional information

on our Board benchmarking practices is provided in

“—2022 Board compensation.” The compensation sys-

tem and fee levels for the Board of Directors will there-

fore remain unchanged in 2023.

Item 6. Directors, Senior Management and Employees

118

Board member total compensation earned for the ﬁnancial year 2022

Governance,

Audit and Sustainability Science &

Cash

Other

Total

Board Compliance Compensation and Nomination Technology Risk Shares

(CHF)

membership Committee Committee Committee Committee Committee (number)



(A)

(B)

(C)



(A)+(B)+(C)



Board members active on December 31, 2022

Joerg Reinhardt



Board Chair Chair 







Simon Moroney Vice-Chair



Chair • 







Lead Independent

Patrice Bula Director



• Chair











Nancy C. Andrews • • • 



–



Ton Buechner • • Chair 







Elizabeth Doherty • Chair • 



–



Bridgette Heller • • • •







–



Daniel Hochstrasser •











Frans van Houten • • • 

–



–



Ana de Pro Gonzalo •



• • 







Andreas von Planta • • • 







Charles L. Sawyers • • • 



–



William T. Winters • • • 

–  – 

Subtotal 









Board members who stepped down at the 2022 AGM

Ann Fudge







–



Enrico Vanni











Subtotal 







Total 









See next page for 2021 comparative ﬁgures.

The shown amounts represent the gross number of shares delivered to each Board member in 2022 for the respective Board member’s service period. The number of shares

reported in this column represent: (i) the second and ﬁnal equity installment delivered in February 2022 for the services from the 2021 AGM to the 2022 AGM, and (ii) the ﬁrst of two

equity installments delivered in August 2022 for the services from the 2022 AGM to the 2023 AGM. The second and ﬁnal equity installment for the services from the 2022 AGM to the

2023 AGM will take place in February 2023.

Includes an amount of CHF 29250 for mandatory employer contributions for all Board members paid by Novartis to Swiss governmental social security systems. This amount is out

of total employer contributions of CHF 453083 and provides a right to the maximum future insured government pension beneﬁt for the Board members.

All amounts are before deduction of the social security contribution and income tax due by the Board member.

No additional committee fees for chairing the Science & Technology Committee were delivered to Joerg Reinhardt.

Until March 4, 2022.

From March 4, 2022.

Item 6. Directors, Senior Management and Employees

119

Board member total compensation earned for the ﬁnancial year 2021

Governance,

Audit and Sustainability Science &

Cash

Other

Total

Board Compliance Compensation and Nomination Technology Risk Shares

(CHF)

membership Committee Committee Committee Committee Committee (number)



(A)

(B)

(C)



(A)+(B)+(C)



Board members active on December 31, 2021

Joerg Reinhardt



Chairman Chair 







Vice Chairman /

Lead Independent

Enrico Vanni Director



• • • 







Nancy C. Andrews • • • 



–



Ton Buechner • • Chair













Patrice Bula • • 







Elizabeth Doherty • Chair • 





–



Ann Fudge • • • 



–



Bridgette Heller • •



• 



–



Frans van Houten • •



• 

–



–



Simon Moroney • Chair



• 







Andreas von Planta • Chair • 







Charles L. Sawyers • • • 



–



William T. Winters • • • 

–



–



Subtotal 









Board members who stepped down at the 2021 AGM

Srikant Datar









–



Subtotal –

–

Total 









The shown amounts represent the gross number of shares delivered to each Board member in 2021 for the respective Board member’s service period. The number of shares

reported in this column represent: (i) the second and ﬁnal equity installment delivered in February 2021 for the services from the 2020 AGM to the 2021 AGM, and (ii) the ﬁrst of two

equity installments delivered in August 2021 for the services from the 2021 AGM to the 2022 AGM. The second and ﬁnal equity installment for the services from the 2021 AGM to the

2022 AGM will take place in February 2022.

Includes an amount of CHF 25580 for mandatory employer contributions for all Board members paid by Novartis to governmental social security systems. This amount is out of total

employer contributions of CHF 435204 and provides a right to the maximum future insured government pension beneﬁt for the Board member.

All amounts are before deduction of the social security contribution and income tax due by the Board member.

No additional committee fees for chairing the Science & Technology Committee were delivered to Joerg Reinhardt.

Until March 2, 2021.

From March 2, 2021.

No additonal compensation was paid for the Lead Independent Director role.

Item 6. Directors, Senior Management and Employees

120

Additional disclosures

Share ownership requirements for Board members

The Board Chair is required to own a minimum of 30 000

Novartis shares, and other members of the Board of

Directors are required to own at least 5 000 Novartis

shares within ﬁve years after joining the Board of Direc-

tors, to ensure their interests are aligned with those of

shareholders.

Board members are prohibited from hedging or

pledging their ownership positions in Novartis shares

that are part of their guideline share ownership require-

ment and are required to hold these shares for 12 months

after retiring from the Board of Directors. As at Decem-

ber 31, 2022, all current and former members of the

Board of Directors who were required to meet the mini-

mum share ownership requirements did so.

Shares, ADRs and share options owned by Board

members

The total number of vested Novartis shares and ADRs

owned by members of the Board of Directors and “per-

sons closely linked” to them as at December 31, 2022,

is shown in the table below. As at December 31, 2022,

no members of the Board, either individually or together

with “persons closely linked” to them, owned 1% or more

of the outstanding shares (or ADRs) of Novartis. As of

the same date, no members of the Board of Directors

held any share options to purchase Novartis shares.

Number of shares

at December , 



Joerg Reinhardt 

Simon Moroney 

Patrice Bula 

Nancy C. Andrews 

Ton Buechner 

Elizabeth Doherty 

Bridgette Heller 

Daniel Hochstrasser 

Frans van Houten 

Ana de Pro Gonzalo 

Andreas von Planta 

Charles L. Sawyers 

William T. Winters 

Sub-Total 

Board members who stepped down at the 2022 AGM

Enrico Vanni 

Ann Fudge 

Sub-Total 

Total 

Includes holdings of “persons closely linked” to Board members (see deﬁnition

“Persons closely linked”).

Each share provides entitlement to one vote.

Other payments to Board members

During 2022, no payments (or waivers of claims) other

than those set out in the Board member compensation

table titled “—Board member total compensation earned

for the ﬁnancial year 2022” (including in the table foot-

notes) were made to current members of the Board or

to “persons closely linked” to them.

Payments to former Board members

During 2022, no payments (or waivers of claims) were

made to former Board members or to “persons closely

linked” to them.

Board member compensation approved by

shareholders

The total compensation earned by Board members from

the 2021 AGM to the 2022 AGM was within the amount

approved by shareholders at the 2021 AGM.

RISK MANAGEMENT PRINCIPLES

• Rigorous performance man-

agement process, with approval

of targets and evaluation of

performance for the CEO by

the Board of Directors

• Balanced mix of short-term

and long-term variable com-

pensation elements

• Values and Behaviors are a

key component of the Annual

Incentive and are embedded in

our culture

• Clawback and malus principles

apply to all elements of the

variable compensation

• Performance-vesting Long-

Term Incentives only, with

three-year cycles

• All variable compensation is

capped at 200% of target

• Contractual notice period of

12months

• Post-contractual non-compete

period is limited to a maximum

of 12 months from the end of

employment. Resulting com-

pensation, if applicable, will

not exceed the average annual

compensation (annual base

salary plus Annual Incentive)

of the previous three financial

years

• Good and bad leaver

provisions apply to variable

compensation of leavers

• No severance payments or

change-of-control clauses

• Share ownership requirements;

no hedging or pledging of

Novartis share ownership

• No loans granted to current or

former members of the Execu-

tive Committee and the Board

of Directors or to “persons

closely linked” to them

Item 6. Directors, Senior Management and Employees

121

Compensation governance

Legal framework

The Swiss Code of Obligations and the corporate gov-

ernance guidelines of the SIX Swiss Exchange require

listed companies to disclose certain information about

the compensation of board and executive committee

members, their equity participation, and loans made to

them. This Annual Report fulﬁlls that requirement in addi-

tion to being in line with the principles of the Swiss Code

of Best Practice for Corporate Governance of the Swiss

Business Federation (economiesuisse). For more details,

please refer to “—Corporate Governance” in Section 6C

of this Report.

Risk management principles

The Compensation Committee, with support from its

independent advisor, reviews market trends in compen-

sation, and changes in corporate governance rules and

best practices. Together with the Risk Committee, it also

reviews the Novartis compensation systems to ensure

that they do not encourage inappropriate or excessive

risk-taking, and instead encourage behaviors that sup-

port sustainable value creation. A summary of the risk

management principles is outlined below.

Compensation decision-making authorities

Authority for decisions related to compensation is gov-

erned by the Articles of Incorporation, Board Regulations

and the Compensation Committee Charter, which are all

published on the Company website: www.novartis.com/

investors/company-overview/corporate-governance.

The Compensation Committee serves as the supervi-

sory and governing body for compensation policies and

plans within Novartis, and has overall responsibility for

determining, reviewing and proposing compensation pol-

icies and plans for approval by the Board of Directors in

line with the Compensation Committee Charter. The dis-

cussions and conclusions of each committee meeting

are delivered to the full Board of Directors. A summary

of the compensation decision-making authorities is set

out below.

Compensation authorization levels within the

parameters set by the shareholders’ meeting

DECISION ON DECISIONMAKING AUTHORITY

Compensation of Board Chair and Board of Directors

other Board members

Compensation of CEO Board of Directors

Compensation of other Executive Compensation Committee

Committee members

Committee member independence

The Compensation Committee is composed exclusively

of members of the Board of Directors who meet the inde-

pendence criteria set forth in the Board Regulations. From

the 2022 AGM, the Compensation Committee consisted

of the following four members: Simon Moroney (as Chair),

Patrice Bula, Bridgette Heller, and William Winters.

Role of the Compensation Committee’s

independent advisor

The independent external compensation advisor sup-

ports the committee in determining the design and imple-

mentation of compensation and beneﬁts.

The Compensation Committee retained Mercer

Limited, which was appointed in July 2017, as its inde-

pendent external advisor until June 2022. As part of its

normal governance practices, and with a view to ensur-

ing the independence of the advisor, the Compensation

Committee considered a change in the Committee advi-

sor. To inform this decision, it conducted a market review

of compensation advisors, with a focus on companies

with extensive experience in European and US markets.

Following a tendering process and an analysis to ensure

that there were no conﬂicts of interest, the Compensa-

tion Committee appointed Mitul Shah of Deloitte AG as

its independent compensation advisor with eect from

July 2022. The independent advisors from Mercer

Limited and Deloitte AG and their respective teams that

advised and supported the committee are not responsi-

ble or rewarded for work beyond support provided to the

Compensation Committee and the People & Organiza-

tion function on senior compensation.

Meetings held in 2022 and self-evaluation

In 2022, the Compensation Committee held seven for-

mal meetings. In line with prior years, it collaborated with

the Science & Technology Committee to review and

endorse, for approval by the Board of Directors, the inno-

vation targets and achievements of the Annual Incentive

and LTPP. The Compensation Committee conducted a

self-evaluation in 2022.

Item 6. Directors, Senior Management and Employees

122

Report of the statutory auditor onthe

CompensationReportof Novartis AG

To the General Meeting of Novartis AG, Basel

Opinion

We have audited the Compensation Report of Novartis AG (the

Company) for the year ended December 31, 2022. The audit

was limited to the information on compensation, loans and

advances pursuant to Art. 14-16 of the Ordinance against

Excessive Compensation in Listed Companies Limited by

Shares (Verordnung gegen übermässige Vergütungen bei

börsenkotierten Aktiengesellschaften, VegüV) namely the

tables “2022 realized compensation for the CEO and other

Executive Committee members” on pages 105-106, “2022 com-

pensation at grant value for the CEO and other Executive Com-

mittee members” on pages 108-109, “Additional disclosures for

the CEO and other Executive Committee members” on pages

110-113, as well as the “2022 Board compensation” on page 117-

118 and the “Additional disclosures” on page 120 of the Com-

pensation Report of Novartis AG for the year ended December

31, 2022, hereinafter referred to as “disclosures made on the

pages deﬁned as subject to audit”.

In our opinion, the information on compensation, loans and

advances in the enclosed Compensation Report deﬁned as sub-

ject to audit complies with Swiss law and Art. 14-16 VegüV.

Basis for Opinion

We conducted our audit in accordance with Swiss law and

Swiss Standards on Auditing (SACH). Our responsibilities

under those provisions and standards are further described in

the “Auditor’s Responsibilities for the Audit of the Compensa-

tion Report” section of our report. We are independent of the

Company in accordance with the provisions of Swiss law and

the requirements of the Swiss audit profession, and we have

fulﬁlled our other ethical responsibilities in accordance with

these requirements.

We believe that the audit evidence we have obtained is su-

cient and appropriate to provide a basis for our opinion.

Other Matter

The Compensation Report of the Company for the year ended

December 31, 2021 was audited by another auditor who

expressed an unmodiﬁed opinion on this Report on February

1, 2022.

Other Information

The Board of Directors is responsible for the other information.

The other information comprises the information included in

the annual report, but does not include the tables and disclo-

sures in the Compensation Report mentioned in the “Opinion”

paragraph of this report, the consolidated ﬁnancial statements,

the ﬁnancial statements and our auditor’s reports thereon.

Our opinion on the Compensation Report does not cover the

other information and we do not express any form of assurance

conclusion thereon.

In connection with our audit of the Compensation Report, our

responsibility is to read the other information and, in doing so,

consider whether the other information is materially inconsis-

tent with the audited ﬁnancial information in the Compensation

Report or our knowledge obtained in the audit or otherwise

appears to be materially misstated.

If, based on the work we have performed, we conclude that

there is a material misstatement of this other information, we

are required to report that fact. We have nothing to report in

this regard.

Board of Directors’ Responsibilities for the Compensation

Report

The Board of Directors is responsible for the preparation of a

Compensation Report in accordance with the provisions of

Swiss law and the Company’s articles of incorporation, and for

such internal control as the Board of Directors determines is

necessary to enable the preparation of a Compensation Report

that is free from material misstatement, whether due to fraud

or error. The Board of Directors is also responsible for design-

ing the compensation system and deﬁning individual compen-

sation packages.

Auditor’s Responsibilities for the Audit of the Compensation

Report

Our objectives are to obtain reasonable assurance about

whether the information on compensation, loans and advances

pursuant to Art. 14-16 VegüV is free from material misstatement,

whether due to fraud or error, and to issue an auditor’s report

that includes our opinion. Reasonable assurance is a high level

of assurance but is not a guarantee that an audit conducted in

accordance with Swiss law and SACH will always detect a

material misstatement when it exists. Misstatements can arise

from fraud or error and are considered material if, individually

or in the aggregate, they could reasonably be expected to inﬂu-

ence the economic decisions of users taken on the basis of the

Compensation Report.

As part of an audit in accordance with Swiss law and SACH,

we exercise professional judgment and maintain professional

scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement in the

Compensation Report, whether due to fraud or error, design

and perform audit procedures responsive to those risks, and

obtain audit evidence that is sucient and appropriate to

provide a basis for our opinion. The risk of not detecting a

material misstatement resulting from fraud is higher than for

one resulting from error, as fraud may involve collusion, forg-

ery, intentional omissions, misrepresentations, or the over-

ride of internal control.

• Obtain an understanding of internal control relevant to the

audit in order to design audit procedures that are appropri-

ate in the circumstances, but not for the purpose of express-

ing an opinion on the eectiveness of the Company’s inter-

nal control.

• Evaluate the appropriateness of accounting policies used

and the reasonableness of accounting estimates and related

disclosures made.

We communicate with the Board of Directors or its relevant

committee regarding, among other matters, the planned scope

and timing of the audit and signiﬁcant audit ﬁndings, including

any signiﬁcant deﬁciencies in internal control that we identify

during our audit.

We also provide the Board of Directors or its relevant com-

mittee with a statement that we have complied with relevant

ethical requirements regarding independence, and to commu-

nicate with them all relationships and other matters that may

reasonably be thought to bear on our independence, and where

applicable, actions taken to eliminate threats or safeguards

applied.

KPMG AG

Richard Broadbelt Norman Dittes

Licensed Audit Expert Licensed Audit Expert

Auditor in charge

Basel, January 31, 2023

Governance bodies

GENERAL MEETING OF SHAREHOLDERS

Approves operating and financial review, Novartis Group consolidated financial statements, and financial

statements of Novartis AG; decides appropriation of available earnings and dividend; approves compensation

of Board and Executive Committee; elects Board members, Board Chair, Compensation Committee members,

Independent Proxy and external auditor; adopts and modifies Articles of Incorporation

EXTERNAL AUDITOR

BOARD OF DIRECTORS

AUDIT AND

COMPLIANCE

COMMITTEE

COMPENSATION

COMMITTEE

RISK

COMMITTEE

SCIENCE &

TECHNOLOGY

COMMITTEE

GOVERNANCE,

SUSTAINABILITY

AND NOMINATION

COMMITTEE

EXECUTIVE COMMITTEE

Responsible for operational management of Novartis

Sets strategic direction of Novartis, appoints and oversees key executives, approves major transactions

andinvestments, adopts and modifies Board Regulations

Provides opinion on

compliance of Novartis

Group consolidated

financial statements and

the financial statements

of NovartisAG with

applicable standards and

Swiss law, on compliance

of the Compensation

Report with applicable law,

on effectiveness of internal

controls over financial

reporting, and limited

assurance on selected

performance indicators

in the Novartis in Society

Integrated Report

Item 6. Directors, Senior Management and Employees

123

6.C Board practices

Corporate governance

Framework

Novartis is committed to eective corporate governance,

and our corporate governance framework is intended to

support sustainable ﬁnancial performance and long-

term value creation for our shareholders, patients,

employees and other stakeholders based on our Values

and Behaviors.

The Novartis corporate governance principles are further

described in key governance documents, in particular

in our Articles of Incorporation and the Regulations of

the Board, the Board Committees and the Executive

Committee (“Board Regulations”) (www.novartis.com/

investors/company-overview/corporate-governance).

The Governance, Sustainability and Nomination Com-

mittee regularly reviews both the corporate governance

principles and the key governance documents against

evolving best practice standards and new developments

in line with our commitment to maintaining the highest

standards.

To better reﬂect its evolving role and responsibilities

in sustainability and environmental, social and gover-

nance (ESG) matters, the Board of Directors (“Board”)

amended, eective as of March 1, 2022, the Board Reg-

ulations and renamed the Governance, Nomination and

Corporate Responsibilities Committee to the Governance,

Sustainability and Nomination Committee (GSNC).

Research &

Development

Item 6. Directors, Senior Management and Employees

124

Group structure and shareholders

Group structure

Novartis AG and Group companies

Novartis AG, the Group’s holding company, is a corpo-

ration organized under Swiss law with issued registered

shares and registered oce at Lichtstrasse 35, CH-4056

Basel, Switzerland.

The principal subsidiaries and associated companies

of the Novartis Group are shown in “Item 18. Financial

Statements—Note 31. Principal Group subsidiaries and

associated companies.”

Divisions and business units

Novartis has two operating divisions: Innovative Medicines

(IM), which specializes in patent-protected medicines, and

Sandoz

, which sells generics and biosimilars. In 2022,

Novartis integrated the Pharmaceuticals and Oncology

business units under the IM Division and created two

separate commercial organizations with a stronger geo-

graphic focus – Innovative Medicines International and

Innovative Medicines US. IM is supported by the Novartis

Institutes for BioMedical Research (NIBR) and Global

Drug Development (GDD). Both operating divisions are

supported by Novartis Operations (which combines the

former Novartis Technical Operations (NTO) and Cus-

tomer & Technology Solutions (CTS) units), and corporate

functions. The latter includes the newly created Strat-

egy & Growth function, which combines corporate strat-

egy, R&D portfolio strategy and business development.

A detailed review of 2022 business results can be found

in “Item 18. Financial Statements—Note 3. Segmentation

of key ﬁgures 2022, 2021 and 2020.”

Shareholdings

Majority holdings in publicly traded Group companies

The Novartis Group owns 70.68% of Novartis India Ltd.,

with registered oce in Mumbai, India, and a listing on the

BSE (formerly known as the Bombay Stock Exchange)

(ISIN INE234A01025, symbol: HCBA). The total market

value of the 29.32% free ﬂoat of Novartis India Ltd. was

USD 59.0 million on December 31, 2022, using the quoted

market share price at year-end. Applying this share price

to all the shares of the company, the market capitalization

of the whole company was USD 201.2 million, and that

of the shares owned by Novartis was USD 142.2 million.

Shareholders

Signiﬁcant shareholders

According to the Share Register, as of December 31,

2022, the following registered shareholders, including

nominees and the American Depositary Share (ADS)

depositary, held more than 2% of the total share capital,

with the right to vote all their shares based on exemp-

tions granted by the Board (see “—Item 6.C Board prac-

tices—Shareholder participation—Voting rights, restric-

tions and representation—Registration restrictions”):

% holding of

share capital

Dec 31, 2022

Shareholders registered for their own account:

Emasan AG, Basel 3.7

UBS Fund Management (Switzerland) AG, Basel 2.3

Credit Suisse Funds AG, Zurich 2.1

% holding of

share capital

Dec 31, 2022

Shareholders registered as nominees:

Chase Nominees Ltd., London 8.4

Nortrust Nominees Ltd., London 3.8

The Bank of New York Mellon, New York 2.9

Through The Bank of New York Mellon, Everett 1.6

Through The Bank of New York Mellon, New York 0.9

Through The Bank of New York Mellon, SA/NV, Brussels 0.4

Shareholder acting as American Depositary Share (ADS) depositary:

JPMorgan Chase Bank, N.A., New York 9.4

1 On August 25, 2022, Novartis announced its intention to separate the Sandoz

business to create a standalone company by way of a 100% spin-o, with completion

expected in the second half of 2023.

Excluding 7.7% of the share capital held as treasury shares by Novartis AG or its fully

owned subsidiaries. As of the entry into force of the revised Swiss Code of

Obligations on January 1, 2023, Novartis ordinary shares held by certain Swiss

foundations controlled by Novartis also no longer carry the right to vote and therefore

will be treated for this calculation as treasury shares going forward.

Item 6. Directors, Senior Management and Employees

125

According to a disclosure notification filed with

NovartisAG, Norges Bank (Central Bank of Norway),

Oslo, held 2.3% of the share capital but was not regis-

tered in the Share Register as of December31, 2022.

According to a disclosure notiﬁcation ﬁled with NovartisAG

and the SIX Swiss Exchange Regulation AG, BlackRock,Inc.,

NewYork, held between 5% and 10% but was registered

with less than 2% of the share capital as of December31,2022.

Disclosure notiﬁcations pertaining to shareholdings

ﬁled with Novartis AG and the SIX Swiss Exchange are

published on the latter’s electronic publication platform:

www.ser-ag.com/en/resources/notiﬁcations-market-par-

ticipants/signiﬁcant-shareholders.html.

Duty to make an oer

According to the Swiss Federal Act on Financial Infra-

structures, anyone who – directly, indirectly or acting in

concert with third parties – acquires equity securities

exceeding 33 1/3% of the voting rights of a company

(whether or not such rights are exercisable) is required

to make an oer to acquire all listed equity securities of

that company. A company may raise this threshold up to

49% of the voting rights (“opting up”) or may, under cer-

tain circumstances, waive the threshold (“opting out”).

Novartis AG has not adopted any such measures.

Cross shareholdings

Novartis AG has no cross shareholdings in excess of

5% of capital, or voting rights with any other company.

Overview on shareholder structure

The following tables relate only to registered share-

holders and cannot be assumed to represent the entire

investor base because nominees and JPMorgan Chase

Bank, N.A., as ADS depositary, are registered as share-

holders for a large number of beneﬁcial owners.

As of December 31, 2022, Novartis AG had approxi-

mately 186 000 registered shareholders.

Number of registered shareholders/shares

Number of

registered

% of

As of December 31, 2022

shareholders

share capital

1–100 34 085

0.08

101–1000 110 467

1.86

1001–10000 37 732

4.32

10001–100000 3 212

3.39

100001–1000000 475

5.85

1000001–5000000 68

5.39

5000001 or more

46.14

Total registered shareholders/shares 186 068

67.03

Unregistered shares

32.97

Total

100.00

At the record date of the 2022 Annual General Meeting of Shareholders (AGM),

unregistered shares amounted to 17.0%.

Including signiﬁcant registered shareholders as listed above

Registered shareholders by type

As of December 31, 2022 Shareholders in %

Shares in %

Individual shareholders 96.71

15.61

Legal entities

3.25

37.69

Nominees, ﬁduciaries

and ADS depositary 0.04

46.70

Total 100.00

100.00

Excluding 7.7% of the share capital held as treasury shares by Novartis AG or its fully

owned subsidiaries. As of the entry into force of the revised Swiss Code of

Obligations on January 1, 2023, Novartis ordinary shares held by certain Swiss

foundations controlled by Novartis also no longer carry the right to vote and therefore

will be treated for this calculation as treasury shares going forward.

Registered shareholders by country

As of December 31, 2022 Shareholders in %

Shares in %

Belgium 0.11

0.77

France 1.97

0.36

Germany 5.72

1.82

Japan 0.17

0.45

Luxembourg 0.06

0.79

Switzerland

87.14

48.39

United Kingdom 0.63

23.68

United States 0.25

21.29

Other countries 3.95

2.45

Total 100.00

100.00

Registered shares held by nominees are shown in the country where the company/

aliate entered in the Share Register as shareholder has its registered seat.

Excluding 7.7% of the share capital held as treasury shares by Novartis AG or its fully

owned subsidiaries. As of the entry into force of the revised Swiss Code of

Obligations on January 1, 2023, Novartis ordinary shares held by certain Swiss

foundations controlled by Novartis also no longer carry the right to vote and therefore

will be treated for this calculation as treasury shares going forward.

Item 6. Directors, Senior Management and Employees

126

Capital structure

Share capital

As of December 31, 2022, the share capital amounted

to CHF 1 201 860 626 fully paid-in and divided into

2 403 721 252 registered shares with a nominal value of

CHF 0.50 each.

Shares are listed on the SIX Swiss Exchange (ISIN

CH0012005267, symbol: NOVN) and on the New York

Stock Exchange (NYSE) in the form of American Depositary

Receipts (ADRs) representing American Depositary

Shares (ADSs) (ISIN US66987V1098, symbol: NVS).

No authorized and conditional capital exists as of

December 31, 2022.

Shares, participation certiﬁcates,

non-voting equity securities, proﬁt-

sharing certiﬁcates

Shares are issued as uncertiﬁcated securities (in the

sense of the Swiss Code of Obligations) and as book

entry securities (in terms of the Swiss Act on Intermedi-

ated Securities). All shares have equal voting rights and

carry equal entitlements to dividends. No participation

certiﬁcates, non-voting equity securities (Genussscheine)

or proﬁt-sharing certiﬁcates have been issued.

Convertible securities and options

Novartis AG has not issued convertible or exchange-

able bonds, warrants, options or other securities grant-

ing rights to shares, other than options (or similar instru-

ments such as stock appreciation rights) granted under

or in connection with equity-based participation plans of

employees. Novartis AG does not grant any new stock

options under these plans.

Limitation on transferability

No transferability restrictions are imposed on shares (for

registration restrictions, see “—Item 6.C Board practices—

Shareholder participation—Voting rights, restrictions and

representation—Registration restrictions”). The registra-

tion of shareholders in the Share Register or in the ADR

aect the tradability of shares or ADRs.

Changes to share capital

Average repurchase

AGM Shareholder decision Shares canceled

share price (CHF)

2020 • Capital reduction by CHF 30.16 million (from CHF1 263 687 410 to CHF1 233 530 460) 60 313 900

88.18

2021 • Capital reduction by CHF 16.32 million (from CHF 1 233 530 460 to CHF 1 217 210 460) 32 640 000

80.57

• Authorization of the Board to repurchase shares up to a maximum of CHF 10 billion

between the 2021 AGM and the 2024 AGM

2022 • Capital reduction by CHF 15.35 million (from CHF 1 217 210 460 to CHF 1 201 860 626) 30 699 668

81.82

• Authorization of the Board to repurchase shares up to a maximum of CHF 10 billion

between the 2022 AGM and the 2025 AGM

Average repurchase

AGM Proposal to the shareholders Shares to be canceled

share price (CHF)

2023 • Capital reduction by CHF 63.12 million (from CHF1 201 860 626 to CHF 1 138 738 876) 126 243 500

81.56

• Authorization of the Board to repurchase shares up to a maximum of CHF 10 billion

between the 2023 AGM and the 2026 AGM

All shares were repurchased on the SIX Swiss Exchange second trading line.

In addition to the remaining authorization from the 2021 AGM

In addition to the remaining authorization from the 2022 AGM

Key Novartis share data







Issued shares 





Treasury shares









Outstanding shares at December  





Weighted average number of shares outstanding 





Approximately 99 million treasury shares (2021: 102 million, 2020: 103 million) are held in Novartis entities that restrict their availability for use.

Item 6. Directors, Senior Management and Employees

127

Per-share information







Basic earnings per share from continuing operations (USD) 





Diluted earnings per share from continuing operations (USD) 





Net cash ﬂows from operating activities from continuing operations (USD) 





Year-end equity for Novartis AG shareholders (USD) 





Dividend (CHF)









Dividend (USD)









Calculated on the weighted average number of shares outstanding, except year-end equity

2022: proposal to shareholders for approval at the AGM on March 7, 2023.

Translated into US dollars at the December 31, 2022, rate of USD 1.081 to the Swiss franc. This translation is an example only, and should not be construed as a representation that

the Swiss franc amount represents, or has been or could be converted into US dollars at that or any other rate. 2021 and 2020, dividends are translated into US dollars at the

Bloomberg Market System Rate on the payment date.

Key ratios – December 31

2022

2021

2020

Price/earnings ratio

28.3

8.2

26.7

Dividend yield (%)

3.8

3.9

3.6

Based on the Novartis share price at December 31 of each year

Key data on ADRs issued in the US

2022

2021

2020

Year-end ADR price (USD) 90.72

87.47

94.43

High

93.75

98.47

99.01

Low

74.61

79.70

70.67

Number of

ADRs outstanding

225 435 680

269 891 321

288 755 853

Based on daily closing prices

The depositary, JPMorgan Chase Bank, N.A., holds one Novartis AG share for every

ADR issued.

Share price (CHF)

2022

2021

2020

Year-end share price 83.59

80.28

83.65

High

87.82

86.75

95.82

Low

73.98

73.44

69.96

Year-end market capitalization

(USD billions)

191.5

196.1

214.3

Year-end market capitalization

(CHF billions)

177.2

179.4

188.8

Based on daily closing prices

Market capitalization is calculated based on the number of shares outstanding

(excluding treasury shares). Market capitalization in USD is based on the market

capitalization in CHF converted at the year-end CHF/USD exchange rate.

Item 6. Directors, Senior Management and Employees

128

Shareholder participation

Shareholder engagement

Shareholder engagement is fundamental to our commit-

ment to governance and transparency, and the feedback

we receive during these engagements helps us create

long-term and sustainable value.

We concentrate our outreach eorts on our largest

100 shareholders – portfolio managers, buy-side profes-

sionals, stewardship teams and ESG analysts – who rep-

resent 60% of our ownership. While the Board Chair,

CEO and CFO, together with Investor Relations, are

accountable for ensuring eective shareholder engage-

ment, other senior managers from within and outside the

Executive Committee also participate in the meetings. We

conduct regular outreach to investors throughout the

year.

TYPES OF ENGAGEMENTS SELECT EXAMPLES:

• AGM and quarterly results teleconferences (TCs)

• Bank conferences and management roadshows

• “Meet Novartis Management” capital markets event

• Governance roadshow and TCs

• Board Chair’s TCs for US and UK investors

• ESG roadshows

• Investor Update on Access & Sustainability

(formerly known as ESG Investor Day)

• Update on the new organizational model

• Update on the Sandoz business

TOPICS DISCUSSED WITH SHAREHOLDERS DURING :

GROWTH:

• Replacement power

• Growth drivers (Cosentyx, Entresto, Zolgensma, Kisqali, Kesimpta,

Leqvio)

• Policy and pricing environment

• Life cycle management

INNOVATION:

• Progress and milestones

• Data of pipeline projects

• Return on R&D investments

PRODUCTIVITY:

• Progress on ﬁnancial, strategic and operational performance

• Long-term sustainability of ﬁnancial performance

• Capital allocation strategy

• New organization model

• Intention to separate Sandoz business

BUILDING TRUST WITH SOCIETY AND CULTURE:

• Board accountability on ESG, and integration of ESG and

compensation

• Strong governance, enhanced process and focus on material ESG

factors, leading to improved rating agency scores

• Patient access to innovative medicines

• Learning from Novartis Access programs implemented over the

decades, including integrated sustainable business models and

access principles to help address access and inequities

• ESG targets: full carbon neutrality, patient access targets for

strategic innovative therapies, and global health ﬂagship programs

• Progress on culture and other human capital metrics

COMPENSATION AND GOVERNANCE:

• Diversity of the Board, the Executive Committee and the Company

• Board renewal, succession planning and evaluation

• Link of compensation system to key strategic priorities

• Risk oversight

• Stakeholder expectations from the Board on ESG matters

We appreciate the value that shareholders attach to ESG

matters. We will continue to integrate ESG into our strat-

egy and to promote transparency through our compre-

hensive ESG engagement program. We have more than

doubled the number of investor engagements on ESG mat-

ters in recent years, and in 2022, our CEO led our Inves-

tor Update on Access & Sustainability (formerly known as

ESG Investor Day) for the fourth time (marking our ninth

dedicated ESG event for investors since 2014). We also

held virtual roadshows in 2022 as part of our engage

ment with North American, European and Asian investors.

Voting rights, restrictions and

representation

REGISTRATION

Shareholders have the right to vote and to execute all

other rights as granted under Swiss law and the Articles

of Incorporation (see, in particular, articles 17 and 18 of

the Articles of Incorporation).

Each share registered with the right to vote by the third

business day before the General Meeting entitles the holder

to one vote at General Meetings. Article 5, paragraph 2 of the

Articles of Incorporation provides that to be registered with

voting rights, a shareholder must declare that he or she acquired

the shares in his or her own name and for his or her own

account. According to article 5, paragraph 3 of the Articles of

Incorporation, the Board may register nominees with the right

to vote. The Share Register is an internal, non-public register

subject to statutory conﬁdentiality and data privacy.

The Articles of Incorporation are available at www.

novartis.com/investors/company-overview/corpo

rate-governance.

REGISTRATION RESTRICTIONS

Article 5, paragraph 2 of the Articles of Incorporation provides

that no shareholder shall be registered with the right to vote

for more than 2% of the share capital. Given that shareholder

representation at General Meetings has traditionally been com-

paratively low in Switzerland, Novartis AG considers registra-

tion restrictions necessary to prevent a minority shareholder

from dominating a General Meeting. The Board may, upon

request, grant an exemption. Considerations include whether

the shareholder supports our goal of creating sustainable

value and has a long-term investment horizon. Exemptions

are in force for the registered shareholders listed in “—Item

6.C Board practices—Group structure and shareholders—

Shareholders—Signiﬁcant shareholders.” Exemptions also

apply to the Novartis Foundation for Employee Participa-

tion, Basel, which as of December 31, 2022, was registered

in the Share Register with less than 2% of the share capital,

and to Norges Bank (Central Bank of Norway), Oslo, which

as of December 31, 2022, was not registered but held 2.3%

according to a disclosure notiﬁcation ﬁled with Novartis AG.

No further exemptions were requested in 2022. The same

restrictions indirectly apply to ADR holders.

Article 5, paragraph 3 of the Articles of Incorporation

provides that no nominee shall be registered with the right

to vote for more than 0.5% of the registered share capital.

The Board may, upon request, grant an exemption from this

restriction if the nominee discloses the names, addresses

Item 6. Directors, Senior Management and Employees

129

and number of shares of the persons for whose account it

holds 0.5% or more of the registered share capital. Exemp-

tions are in force for the nominees listed in “—Item 6.C Board

practices—Group structure and shareholders—Sharehold-

ers—Signiﬁcant shareholders,” and for the nominee Citibank,

London, which in 2015 requested an exemption, but as of

December 31, 2022, was not registered in the Share Regis-

ter. The same restrictions indirectly apply to ADR holders.

According to article 5, paragraph 4 of the Articles of

Incorporation, shareholders, ADR holders, or nominees who

are linked to each other or who act in concert to circumvent

registration restrictions are treated as one person or nom-

inee for the purposes of the restrictions on registration.

The registration restrictions may be changed by res-

olution of the General Meeting, with approval of at least

two-thirds of the votes represented at the meeting.

The Articles of Incorporation are available at www.

novartis.com/investors/company-overview/corpo

rate-governance.

ATTENDANCE, REPRESENTATION AND ONLINE PLATFORM

Registered shareholders will receive personal invita-

tions to the General Meetings along with a registration/

proxy form as well as a personal one-time password and

a QR code to log in to our online platform. By returning

the registration/proxy form or using the online platform,

shareholders are able to order an admission card for the

General Meeting or appoint another shareholder or the

Independent Proxy to vote their shares on their behalf.

If the Independent Proxy is appointed, shareholders

can also give voting instructions on alternative or addi-

tional motions related to the agenda items either (i) fol-

lowing the recommendations of the Board for such alter-

native or additional motions, or (ii) opposing such

alternative or additional motions. They can also abstain

from voting.

Shareholders choosing not to receive the compre-

hensive invitation materials will be informed of upcoming

General Meetings through a letter containing the login

credentials to access the online platform as well as a ref-

erence to www.novartis.com/investors/shareholder-in-

formation/general-meetings, where all relevant informa-

tion is available.

In accordance with Swiss legislation passed in

response to the COVID-19 pandemic, and as in the pre-

vious year, physical attendance at the 2022 Annual Gen-

eral Meeting (AGM) was not possible, and shareholders

could exercise their voting rights exclusively through the

Independent Proxy.

ADR HOLDERS

ADR holders have the rights enumerated in the deposit

agreement (such as the right to give voting instruc-

tions and to receive dividends). The ADS depositary of

Novartis AG – JPMorgan Chase Bank, N.A., New York –

holds the shares underlying the ADRs and is registered

as a shareholder in the Share Register. An ADR is not a

share, and an ADR holder is not a Novartis AG shareholder.

Each ADR represents one share. ADR holders exercise

their voting rights by instructing the depositary to exer-

cise their voting rights. The ADS depositary exercises

the voting rights for registered shares underlying ADRs

for which no voting instructions have been given by pro

viding a discretionary proxy to an uninstructed indepen-

dent designee. Such designee has to be a shareholder.

General Meeting

CONVENING

The AGM must be held within six months after the end of

our ﬁnancial year (December 31), and normally takes place

in late February/early March. Extraordinary General Meet-

ings may be requested by the Board, the external auditor, or

shareholders representing at least 10% of the share capital.

AGENDA

Shareholders representing shares with an aggregate

nominal value of at least CHF 1 million may request that

an item be included in a General Meeting agenda. Such

requests must be made in writing at least 45 days before

the meeting, specifying the requested item and proposal.

POWERS

According to article 17 of the Articles of Incorporation

(www.novartis.com/investors/company-overview/corpo-

rate-governance), the following powers are vested exclu-

sively in the General Meeting:

• Adoption and amendment of the Articles of Incorporation

• Election and removal of the Board Chair, the Board and

Compensation Committee members, the Independent

Proxy and the external auditor

• Approval of the management report and the consoli-

dated ﬁnancial statements

• Approval of the ﬁnancial statements of Novartis AG, and

the decision on the appropriation of available earnings

shown on the balance sheet, including dividends

• Approval of the maximum aggregate compensation of

the Board (from an AGM until the next AGM) and of the

Executive Committee (for the ﬁnancial year following

the AGM). If the maximum aggregate amount of com-

pensation already approved by the AGM is not sucient

to cover the compensation of newly appointed or pro-

moted Executive Committee members, Novartis may use

up to 40% of the amount last approved for the newly

appointed or promoted Executive Committee members.

• Discharge of Board and Executive Committee members

• Decision on other matters that are reserved by law or

by the Articles of Incorporation (e.g., advisory vote on

the Compensation Report) to the General Meeting

STATUTORY QUORUMS

The General Meeting passes resolutions and elections with

the absolute majority of the votes represented at the meet-

ing. However, under article 18 of the Articles of Incorpora-

tion (www.novartis.com/investors/company-overview/

corporate-governance), the approval of two-thirds of the

votes represented at the meeting is required for:

• Alteration of the purpose of Novartis AG

• Creation of shares with increased voting powers

• Implementation of restrictions on the transfer of registe red

shares, and the removal of such restrictions

• Authorized or conditional increase of the share capital

• Increase of the share capital out of equity, by contribution

in kind, for the purpose of an acquisition of property or

the grant of special rights

• Restriction or cancellation of subscription rights

• Change of the registered oce of Novartis AG

• Dissolution of Novartis AG

In addition, the law provides for a qualiﬁed majority for

other resolutions, such as a merger or demerger.

Composition (as per December 31, 2022)

BOARD CHAIR: J. Reinhardt

VICECHAIR: S. Moroney

LEAD INDEPENDENT DIRECTOR: P. Bula

N. Andrews

T. Buechner

E. Doherty

B. Heller

D. Hochstrasser

F. van Houten

A. von Planta

A. de Pro Gonzalo

C. Sawyers

W. Winters

AUDIT AND

COMPLIANCE

COMMITTEE

COMPENSATION

COMMITTEE

E. Doherty (Chair)

T. Buechner

B. Heller

F. van Houten

A. de Pro Gonzalo

S. Moroney (Chair)

P. Bula

B. Heller

W. Winters

P. Bula (Chair)

B. Heller

A. von Planta

C. Sawyers

W. Winters

T. Buechner (Chair)

N. Andrews

E. Doherty

A. von Planta

A. de Pro Gonzalo

J. Reinhardt (Chair)

N. Andrews

F. van Houten

S. Moroney

C. Sawyers

GOVERNANCE,

SUSTAINABILITY

AND NOMINATION

COMMITTEE

RISK COMMITTEE SCIENCE & TECHNOLOGY

COMMITTEE

Eective January 1, 2023, Mr. Hochstrasser became a member of the Audit and Compliance Committee and of the Governance, Sustainability and Nomination Committee.

Mr. von Planta will not stand for re-election at the 2023 AGM.

Item 6. Directors, Senior Management and Employees

130

Board of Directors

Changes to the Board of Directors

Ana de Pro Gonzalo and Daniel Hochstrasser were elected

as new Board members at the 2022 AGM. Ann Fudge,

Board member since 2008, and Enrico Vanni, Board

member and Vice-Chair since 2011 and Lead Indepen-

dent Director since 2021, did not stand for re-election

at the 2022 AGM. The biographies of Ms. Fudge and Mr.

Vanni can be found in the 2021 Annual Report (pages 130

and 133), available at www.novartis.com/news/media-li-

brary/novartis-annual-report-2021.

Election and term of oce

Board members (including the Board Chair) and Com-

pensation Committee members are elected individually

by shareholders at the General Meeting for a one-year

term of oce. The term of oce expires at the end of

the next AGM.

According to article 20, paragraph 3 of the Articles

of Incorporation, a member shall not serve on the Board

for more than 12 years. Under special circumstances and

if deemed to be in the best interest of the Company, the

Board may recommend exceptions to the shareholders

(www.novartis.com/investors/company-overview/cor-

porate-governance).

The term limit supports our commitment to renew the

Board on an ongoing basis and also follows international

best practice. We believe age is still a relevant factor in

Board composition, and the GSNC will consider this and

other factors – including gender, nationality and ethnic-

ity – when evaluating candidates and exploring ways to

increase Board diversity.

Succession planning

The Board Chair, supported by the GSNC, ensures

eective succession plans for the Board, the CEO and

the Executive Committee. These plans are discussed

by the Board in private meetings. A search for a new

Board member is launched – normally with the support

of a professional executive search company – with indi-

vidual selection criteria deﬁned based on the evolving

needs of the Company and a continuing focus on diver-

sity. The set of competencies (further explained in “—

Item 6.C Board practices—Board of Directors—Board

skills”) and a balance between continuity of experience

and fresh perspectives are also important criteria for the

GSNC when evaluating new candidates. Candidates are

interviewed by the Board Chair, members of the GSNC,

other Board members, and members of the Executive

Committee. The GSNC then makes a recommendation

to the full Board, and the Board ultimately decides who

should be proposed for election at the upcoming AGM.

The Board will propose to the shareholders a new

candidate for election at the 2023 AGM. Andreas von

Planta already announced in 2021 that he will not stand

for re-election at the 2023 AGM.

Diversity proﬁle

Swiss 31%

American 23%

Dutch 11%

German 11%

British 8%

Spanish 8%

Irish 4%

New Zealander 4%

Gender

TENURE

EXECUTIVE/NON-EXECUTIVE INDEPENDENCEGENDER

AGEBACKGROUND/EXPERIENCE

NATIONALITY

Male 69%

Female 31%

55–60 15%

61–65 62%

>65 23%

Tenure

<3y 31%

3–6y 31%

7–9y 31%

>9y 7%

Age

TENURE

EXECUTIVE/NON-EXECUTIVE INDEPENDENCEGENDER

AGEBACKGROUND/EXPERIENCE

NATIONALITY

Nationality

TENURE

EXECUTIVE/NON-EXECUTIVE INDEPENDENCEGENDER

AGEBACKGROUND/EXPERIENCE

NATIONALITY

TENURE

EXECUTIVE/NON-EXECUTIVE INDEPENDENCEGENDER

AGEBACKGROUND/EXPERIENCE

NATIONALITY

Please note that ﬁve Board members have dual nationalities. Each of these nationalities is counted as a half in the above chart.

Board skill distribution

Medicine/healthcare/R&D 46% 6/13

Leadership/management 92% 12/13

Finance/accounting 46% 6/13

Law/regulatory/risk management 69% 9/13

Data/digital 23% 3/13

Environmental, social 38% 5/13

and governance (ESG)

Item 6. Directors, Senior Management and Employees

131

Independence

All Board members – including the Board Chair – are

non-executive and independent, pursuant to applica-

ble corporate governance rules and Novartis indepen-

dence criteria, which are outlined in Appendix II to the

Board Regulations (www.novartis.com/investors/com

pany-overview/corporate-governance). In particular, no

Board member is or was a member of the management

of Novartis AG or of any other Novartis Group company

in the last three ﬁnancial years up to December 31, 2022,

or has or had, except for Daniel Hochstrasser, a signiﬁ-

cant business relationship with Novartis AG or with any

other Novartis Group company. Mr. Hochstrasser fulﬁlled

the independence criteria following his resignation from

Bär & Karrer, a Swiss law ﬁrm that has a business rela-

tionship with Novartis, as of December 31, 2022. During

2022, Mr. Hochstrasser did not belong to any Board

committee. No separate meetings of independent Board

members were held in 2022.

The independence of Board members is assessed

annually. Each Board member completes an indepen-

dence questionnaire that is subject to review by the

GSNC. The GSNC then submits a proposal to the full

Board, and the Board determines the independence sta-

tus of each Board member.

Diversity

Diversity of gender, age, nationality, ethnicity, viewpoints,

professional backgrounds and expertise is a key factor to

success and Board eectiveness in a constantly evolving

environment. A diverse Board ensures that the appropri-

ate balance of skills, expertise, experience and cultural

background is represented to discharge its responsibil-

ities and to support long-term value creation for share-

holders, patients, employees and other stakeholders.

Diversity remains a critical area of focus for the Board,

and the GSNC is continuously looking for opportunities

to further increase the Board’s diversity when identify-

ing new Board member candidates.

Board skills

Upon proposal by the GSNC, the Board has determined

a diverse set of competencies for its members that aligns

with our status as a listed company, as well as our busi-

ness portfolio, geographic reach and culture. Based on

this set of competencies, our Board members were asked

to identify their most relevant skills highlighted by their

educational background, professional experience and

personal achievements.

The GSNC assesses the set of competencies as well

as the individual skills annually to ensure that an appro-

priate balance of skills, expertise, experience and diver-

sity is represented on the Board.

To learn more about our Board members and their

individual skills, see “—Item 6.C Board practices—Board

of Directors—Members of the Board of Directors.”

Item 6. Directors, Senior Management and Employees

132

Members of the Board of Directors

Joerg Reinhardt, Ph.D.

Chair since 2013 | Nationality: German | Year of birth: 1956

Joerg Reinhardt is a healthcare industry veteran whose career spans nearly 40 years. After receiving his

doctorate in pharmaceutical sciences, Mr. Reinhardt joined Sandoz Pharma Ltd., a predecessor to Novartis,

in 1982. He held a number of senior leadership positions at Novartis, including Chief Operating Ocer and

Head of the Vaccines and Diagnostics Division. Additionally, he led Bayer HealthCare AG as chair of the board

of management and the executive committee from 2010 to 2013.

Professional experience

• Chair of the board of management and the executive committee, Bayer HealthCare AG, Germany

(2010–2013)

• Chief Operating Ocer, Novartis AG, Switzerland (2008–2010)

• Head of the Vaccines and Diagnostics Division, Novartis AG, Switzerland (2006–2008)

• Various managerial positions at Sandoz Pharma Ltd. and Novartis AG, Switzerland (1982–2006)

Mandates

• Senate member, Helmholtz Association of German Research Centres, Germany

• Chair of the board of trustees, Institute of Molecular and Clinical Ophthalmology Basel (IOB), Switzerland

• Chair of the board of trustees, Novartis Foundation, Switzerland

• Board member, Swiss Re AG, Switzerland

• Member of the European Advisory Panel, Temasek Holdings Private Ltd., Singapore

• Board member, Lonza Group AG, Switzerland (2012–2013)

• Chair, Genomics Institute of the Novartis Research Foundation, US (2000–2010)

Education

• Doctorate in pharmaceutical sciences, Saarland University, Germany

Key skills

xMedicine/healthcare/R&D gLeadership/management lLaw/regulatory/risk management

Simon Moroney, D.Phil.

Board member since 2020 | Vice-Chair since March 4, 2022 | Nationality: German/New Zealander |

Year of birth: 1959

As co-founder and CEO of MorphoSys AG, Simon Moroney played a central role in establishing the company

as a force in the ﬁeld of therapeutic antibodies, with one of the broadest pipelines of drug candidates in the

industry. Mr. Moroney holds both a doctorate and a Master of Science in chemistry.

Professional experience

• Co-founder and CEO, MorphoSys AG, Germany (1992–2019)

• Research associate, Department of Pharmacology, University of Cambridge, UK (1991–1992)

• Assistant professor, Department of Chemistry, University of British Columbia, Canada (1989–1990)

Mandates

• Chair of the board of directors and the Remuneration and Nomination Committee, Biotalys NV, Belgium

Education

• Doctorate in chemistry, University of Oxford, UK

• Master of Science in chemistry, University of Waikato, New Zealand

Key skills

gLeadership/management xMedicine/healthcare/R&D lLaw/regulatory/risk management

Item 6. Directors, Senior Management and Employees

133

Nancy C. Andrews, M.D., Ph.D.

Board member since 2015 | Nationality: American/Swiss | Year of birth: 1958

Nancy C. Andrews has extensive experience as a physician, scientist, professor and senior administrator at

leading academic institutions and hospitals. Her distinguished career spans more than 30 years, with

leadership roles at both Harvard Medical School and the Duke University School of Medicine. Dr. Andrews

currently chairs the board of the American Academy of Arts and Sciences, and is credited with conducting

research that led to advances in understanding iron biology and iron diseases.

Professional experience

• Executive vice president and chief scientiﬁc ocer, Boston Children’s Hospital, US (2021–present)

• Dean emerita, Duke University School of Medicine, and vice chancellor emerita for academic aairs,

Duke University, US (2017–2021)

• Dean, Duke University School of Medicine, and vice chancellor for academic aairs,

Duke University, US (2007–2017)

• Professor of pediatrics, pharmacology and cancer biology, Duke University, US (2007–2021)

• Dean for basic sciences and graduate studies, Harvard Medical School, US (2003–2007)

• Director, Harvard/MIT M.D.-Ph.D. Program, US (1999–2003)

• Biomedical research investigator, Howard Hughes Medical Institute, US (1993–2006)

Mandates

• Board member, Maze Therapeutics Inc., US

• Board member and chair of the Science and Technology Committee, Charles River Laboratories

International Inc., US

• Council member, National Academy of Sciences, US

• Former council member (2013–2019) and member, National Academy of Medicine, US

• Chair of the board, American Academy of Arts and Sciences, US

• Member of the Scientiﬁc Advisory Board, Dyne Therapeutics Inc., US

• Member of the executive committee of the Corporation, Massachusetts Institute of Technology, US

(2019-2022)

• Member of the Scientiﬁc Management Review Board, National Institutes of Health, US (2014–2019)

• Board member and former chair, Burroughs Wellcome Fund, US (2011–2019)

Education

• Doctor of medicine, Harvard Medical School, US

• Doctorate in biology, Massachusetts Institute of Technology, US

• Master of Science and Bachelor of Science in molecular biophysics and biochemistry, Yale University, US

Key skills

xMedicine/healthcare/R&D gLeadership/management

Ton Buechner

Board member since 2016 | Nationality: Dutch/Swiss | Year of birth: 1965

Ton Buechner is an engineer by training who started his career in the oil and gas construction industry. Before

becoming the CEO of Sulzer AG, he held several divisional leadership roles at the company and worked in

markets including Asia. Mr. Buechner most recently served as CEO and chair of the executive board of

AkzoNobel NV, where he introduced industry-leading ESG policies.

Professional experience

• CEO and chair of the executive board, AkzoNobel NV, Netherlands (2012–2017)

• CEO, Sulzer AG, Switzerland (2007–2011)

• President, Sulzer Pumps, Switzerland (2003–2006)

• President, Sulzer Turbomachinery Services, Switzerland (2000–2002)

• Various managerial positions at Sulzer AG, China and Switzerland (1994–2000)

Mandates

• Chair of the board of directors and the sustainability board, Swiss Prime Site AG, Switzerland

• Chair of the board of directors and the Strategy and Sustainability Committee, Burckhardt Compression

AG, Switzerland

• Advisor, Ammega, Switzerland

• Member of the presidential and shareholder committees, Voith GmbH & Co. KGaA, Germany

(2014–2020)

• Member of the supervisory board, Voith GmbH & Co. KGaA, Germany (2014–2018)

Education

• Master of Business Administration, IMD business school, Switzerland

• Master of Science in civil engineering, Delft University of Technology, Netherlands

Key skills

mFinance/accounting gLeadership/management lLaw/regulatory/risk management

zEnvironmental, social and governance (ESG)

Item 6. Directors, Senior Management and Employees

134

Patrice Bula

Board member since 2019 | Lead Independent Director since March 4, 2022 | Nationality: Swiss | Year of birth: 1956

Patrice Bula has 40 years of global management experience and is a leader in the consumer goods industry

across established and emerging markets. He has served in various senior roles at Nestlé SA, including as

general manager of its businesses in China, Germany and South Africa. Most recently, he successfully led

the Nestlé Group’s brand strategies, digital marketing transformation and Nespresso business.

Professional experience

• Executive vice president and head of strategic business units, marketing, sales and Nespresso, Nestlé

SA, Switzerland (2011–2021)

• Market head of the Greater China region, Nestlé SA, Switzerland (2007–2011)

• Market head of Germany, Nestlé SA, Switzerland (2003–2007)

• Head of the confectionery and biscuits strategic business unit, Nestlé SA, Switzerland (2000–2003)

• Various managerial positions at Nestlé SA, Switzerland (1980–2000)

Mandates

• Chair, Froneri Lux Topco Sarl, Luxembourg

• Board member, Schindler AG, Switzerland

• Board member and chair of the ESG Committee, New Tiger LLC, US

• Co-chair (2020–2021) and board member (2015–2021), Cereal Partners Worldwide SA, Switzerland

(Nestlé representative)

• Board member, Froneri Lux Topco Sarl, Luxembourg (Nestlé representative) (2016–2020)

• Board member, Bobst Group SA, Switzerland (2017–2019)

• Chair, Blue Bottle Coee Inc., US (Nestlé representative) (2017–2019)

• Chair, Nestlé Nespresso SA, Switzerland (Nestlé representative) (2011–2019)

• Board member, Hsu Fu Chi Food Companies, China (Nestlé representative) (2011–2019)

Education

• Program for Executive Development, IMD business school, Switzerland

• Master’s degree in economic sciences, HEC Lausanne, Switzerland

Key skills

mFinance/accounting gLeadership/management yData/digital

Elizabeth (Liz) Doherty

Board member since 2016 | Nationality: British/Irish | Year of birth: 1957 | Audit Committee Financial Expert

Elizabeth (Liz) Doherty is an expert in ﬁnance and accounting who has broad operational experience in inter-

national consumer and retail businesses. She began her career in internal audit at UnileverPLC and has held

senior ﬁnance and accounting roles there and at other companies including Tesco PLC and Reckitt Benckiser

Group PLC.

Professional experience

• CFO (interim), Cognita Schools Ltd., UK (2014–2015)

• CFO and board member, Reckitt Benckiser Group PLC, UK (2011–2013)

• CFO (interim), City Inn, UK (2010)

• CFO, Brambles Ltd., Australia (2007–2009)

• Group international ﬁnance director, Tesco PLC, UK (2001–2007)

• Various managerial positions at Unilever PLC, UK (1981–2001)

Mandates

• Board member and chair of the Audit Committee, Corbion NV, Netherlands

• Member of the supervisory board and chair of the Audit Committee, Royal Philips NV, Netherlands

• Advisor, Anity Petcare SA and GB Foods SA, Spain

• Board member, Dunelm Group PLC, UK (2013–2019)

• Board member, HM Courts & Tribunals Service, UK (2015–2019)

• Board member, Ministry of Justice, UK (2015–2019)

• Board member, Delhaize Group, Belgium (2013–2016)

• Board member, Nokia Corp., Finland (2013–2016)

Education

• Fellow, Chartered Institute of Management Accountants, UK

• Bachelor’s degree in liberal studies in science (physics), University of Manchester, UK

Key skills

gLeadership/management mFinance/accounting lLaw/regulatory/risk management

Item 6. Directors, Senior Management and Employees

135

Bridgette Heller

Board member since 2020 | Nationality: American | Year of birth: 1961

Bridgette Heller has proven experience in the standalone divisions of companies such as Johnson & Johnson,

Merck & Co. Inc. and Danone SA, and has served on the audit committees of ADT Corp. and Tech Data Corp.

During her career, she has overseen the performance of CFOs and made decisions on strategic R&D prior-

ities. Ms.Heller is an advocate for diversity, equity and inclusion, and traveled globally to reinforce Danone’s

commitment to infant and maternal health, inclusive diversity, an equitable workforce for women, and

sustainable communities. She is co-founder and CEO of the Shirley Proctor Puller Foundation, an education

and youth empowerment nonproﬁt, and devotes much of her time to strengthening education and sustain-

ability in an underserved community in the US.

Professional experience

• Co-founder and CEO, Shirley Proctor Puller Foundation, US (2019–present)

• EVP and president of specialized nutrition, Danone SA, Netherlands (2017–2019)

• EVP of early life nutrition, Danone SA, Netherlands (2016–2019)

• EVP and president of consumer care, Merck & Co. Inc., US (2010–2015)

• Global president of the baby global business unit, Johnson & Johnson, US (2007–2009)

• President of the US baby, kids and wound care business and of global innovation development,

Johnson & Johnson, US (2005–2007)

• Managing partner, Heller Associates: Ideas for Growth Inc., US (2004–2005)

• CEO, Chung’s Gourmet Foods, US (2003–2004)

• Various managerial positions at Kraft Foods Inc., US (1985–2003)

Mandates

• Board member, Integral Ad Science Inc., US

• Board member, Aramark, US

• Board member, Dexcom Inc., US

• Board member, Newman’s Own Inc., US

• Member of the board of trustees, Northwestern University, US

• Member of the advisory board, Kellogg School of Management at Northwestern University, US

• Board member, Shirley Proctor Puller Foundation, US

• Board member, Newman’s Own Foundation, US

• Board member, Tech Data Corp., US (2016–2020)

• Board member, ADT Corp., US (2012–2016)

• Board member, Girls Inc., US (2002–2014)

Education

• Master’s degree in marketing and management policy, Kellogg School of Management at Northwestern

University, US

• Bachelor’s degree in economics and computer studies, Northwestern University, US

Key skills

zEnvironmental, social and governance (ESG) gLeadership/management xMedicine/healthcare/R&D

mFinance/accounting

Daniel Hochstrasser

Board member since March 4, 2022 | Nationality: Swiss | Year of birth: 1960

Daniel Hochstrasser is an independent dispute resolution specialist practicing in Zurich, Switzerland. Until

the end of 2022, he has been leading Bär & Karrer’s arbitration practice for 15 years. He frequently repre-

sented parties in complex disputes arising from matters such as M&A transactions, industrial and infrastructure

projects, and license, distribution and development agreements, particularly in the pharmaceutical industry.

In addition, he led the ﬁrm as senior partner from 2011 until 2021. He has published extensively on arbitration

and litigation, and lectures at the University of Zurich and the University of St. Gallen in Switzerland.

Professional experience

• Attorney-at-law, Daniel Hochstrasser AG, Switzerland (since January 2023)

• Attorney-at-law and partner, Bär & Karrer AG, Switzerland (1993–December 2022)

• Senior partner and chair of the board of directors, Bär & Karrer AG, Switzerland (2011-2021)

• Lawyer, District Court of Aoltern, Court of Appeals/Court of Cassation of Zurich, Switzerland

(1987–1992)

• In-house lawyer, Staubli SA, France (1986–1987)

Mandates

• Member (2015–2021) and Vice President (since 2021), ICC Court of Arbitration, France

• Member of the Ethics Court, Zurich Bar Association, Switzerland (since 2004)

• Board member, Finland Arbitration Institute, Finland (since 2020)

• Chair of the board of directors, Bär & Karrer AG, Switzerland (2011-2021)

• Member of the Court, Swiss Arbitration Chambers, Switzerland (2004–2014)

Education

• Master of Laws (LL.M.), Cornell Law School, US

• Bar examination, Switzerland

• Licentiatus iuris, University of Zurich, Switzerland

Key skills

gLeadership/management lLaw/regulatory/risk management

Item 6. Directors, Senior Management and Employees

136

Frans van Houten

Board member since 2017 | Nationality: Dutch | Year of birth: 1960

Frans van Houten is passionate about purpose-driven innovation, entrepreneurship and business transfor-

mation to drive customer value and competitiveness. Under his leadership as CEO of Royal Philips, the

company transformed into a leading health technology solutions company, leveraging data and informatics

to improve healthcare provider results, and became a forerunner across ESG dimensions, having become

carbon neutral in its operations since 2020 and recycling over 90% of its waste. Mr. van Houten was an

initiator of the World Economic Forum Compact for Responsive and Responsible Leadership as well as

founder and co-chair of the Platform to Accelerate the Circular Economy.

Professional experience

• Advisor, Royal Philips NV, Netherlands (October 2022–April 2023)

• CEO and chair of the executive committee and the board of management, Royal Philips NV, Netherlands

(2011–October 2022)

• Interim management, ING Group NV, Netherlands (2009–2010)

• CEO and chair of the management board, NXP Semiconductors NV (formerly Philips Semiconductors

NV), Netherlands (2004–2009)

• Various managerial positions at Royal Philips Electronics NV, Netherlands (1986–2004)

Mandates

• Chair of the supervisory board, Erasmus Trust Foundation, Netherlands (2014–February 2023)

• Founder and co-chair of the WEF Platform to Accelerate the Circular Economy (PACE),

Netherlands (2016-December 2022)

• Member of the steering committee, European Round Table for Industry (ERT), Belgium

(2014-November 2022)

• Chair, Graduate Entrepreneur Foundation, Netherlands

• Chair, NL2025 Foundation, Netherlands

• Vice chair and member of the supervisory board, Philips Lighting, Netherlands (2016–2017)

Education

• Master of Science in economics and business management, Erasmus University Rotterdam, Netherlands

• Bachelor of Science in economics, Erasmus University Rotterdam, Netherlands

Key skills

zEnvironmental, social and governance (ESG) gLeadership/management xMedicine/healthcare/R&D

yData/digital lLaw/regulatory/risk management

Andreas von Planta, Ph.D.

Board member since 2006 | Nationality: Swiss | Year of birth: 1955

Andreas von Planta is a leading expert in corporate governance, corporate law and stock exchange regulation.

He advises boards of public companies on corporate governance matters and is a sought-after speaker and

writer on these topics. He has co-authored the Switzerland chapter of the International Comparative Legal

Guide to Corporate Governance for many years.

Professional experience

• Senior counsel, Lenz & Staehelin, Switzerland (2017–present)

• Partner, Lenz & Staehelin, Switzerland (1988–2017)

Mandates

• Board member, Helvetia Holding AG, Switzerland

• Member of the board of trustees, Novartis Foundation, Switzerland

• Board member, Helvetia Schweizerische Lebensversicherungsgesellschaft AG, Switzerland

• Board member, Helvetia Schweizerische Versicherungsgesellschaft AG, Switzerland

• Chair, HSBC Private Bank (Suisse) SA, Switzerland

• Chair, HSBC Private Banking Holdings (Suisse) SA, Switzerland

• Board member, Socotab Frana SA, Switzerland

• Chair of the regulatory board, SIX Swiss Exchange AG, Switzerland

• Chair of the Audit Committee, International Road Transport Union, Switzerland

• Board member, Société Immobilière Quai Gustave Ador 50 SA, Switzerland

• Board member, Burberry (Suisse) SA, Switzerland (2001-2022)

• Vice chair of the board of directors, A.P. Moller Finance SA, Switzerland (1997-2022)

• Board member, Raymond Weil SA, Switzerland (2007–2018)

• Board member and former chair, Clinique Générale-Beaulieu SA, Switzerland (2008–2016)

• Board member and former chair, Schweizerische National Versicherungs AG, Switzerland (1997–2015)

• Board member, Holcim AG, Switzerland (2003–2014)

Education

• Master of Laws, Columbia Law School, US

• Bar examination, Switzerland

• Doctorate in law, University of Basel, Switzerland

• Licentiatus iuris, University of Basel, Switzerland

Key skills

zEnvironmental, social and governance (ESG) lLaw/regulatory/risk management

Item 6. Directors, Senior Management and Employees

137

Ana de Pro Gonzalo

Board member since March 4, 2022 | Nationality: Spanish | Year of birth: 1967 | Audit Committee Financial Expert

Since starting her career at Arthur Andersen, Ana de Pro Gonzalo has worked across a variety of industries,

ranging from construction and real estate to engineering and telecommunications. With deep expertise in

ﬁnance, capital markets and technology, she has held executive positions at several multinational companies.

Most recently, she spent 10 years as chief ﬁnancial ocer of Amadeus IT Group, a leading software provider

for the global travel and tourism industry.

Professional experience

• Chief ﬁnancial ocer, Amadeus IT Group SA, Spain (2010–2020)

• Corporate general manager, Sacyr Vallehermoso SA, Spain (2002–2010)

• Deputy general manager and ﬁnance director, Metrovacesa SA, Spain (1994–2002)

• Senior auditor, Arthur Andersen SA, Spain (1990–1994)

Mandates

• Member of the supervisory board and chair of the Audit Committee, STMicroelectronics NV, Netherlands

• Board member, National Express Group PLC, UK

• Board member, Indra Sistemas SA, Spain (2020-2022)

• Board member, Merlin Properties Socimi SA, Spain (2015–2017)

Education

• General Management Program (PDG), IESE Business School, Spain

• Bachelor of Science in business studies, Complutense University of Madrid, Spain

Key skills

gLeadership/management mFinance/accounting lLaw/regulatory/risk management

Charles L. Sawyers, M.D.

Board member since 2013 | Nationality: American | Year of birth: 1959

Charles L. Sawyers is a highly accomplished expert and leader in cancer research. As a physician and

prominent scientist, he has a deep understanding of the beneﬁts of drugs for patients and society at large,

and the importance of access to medicines. Dr. Sawyers co-developed the Novartis cancer drug Gleevec/

Glivec and has received numerous honors and awards, including the Lasker-DeBakey Clinical Medical

Research Award.

Professional experience

• Chair of the Human Oncology and Pathogenesis Program, Memorial Sloan Kettering Cancer Center, US

(2006–present)

• Professor of medicine (2008–present), and professor of cell and developmental biology (2011–present),

Weill Cornell Graduate School of Medical Sciences, US

• Investigator, Howard Hughes Medical Institute, US (2002–2006 and 2008–present)

• Associate chief, Division of Hematology-Oncology, University of California, Los Angeles, US (1996–2006)

Mandates

• Member, National Academy of Medicine, US

• Member, National Academy of Sciences, US

• Investigator, Howard Hughes Medical Institute, US

• Science advisor for the following US companies: Arsenal Capital Partners; BeiGene Ltd.; Blueprint

Medicines Corp.; Foghorn Therapeutics Inc.; Housey Pharmaceutical Research Laboratories; KSQ

Therapeutics Inc.; Nextech Invest Ltd.; ORIC Pharmaceuticals Inc.; PMV Pharmaceuticals Inc.; The

Column Group

• Member, National Cancer Advisory Board, US (2012–2020)

• President, American Association for Cancer Research, US (2013–2014)

Education

• Doctor of medicine, Johns Hopkins University School of Medicine, US

• Bachelor of Arts, Princeton University, US

Key skills

xMedicine/healthcare/R&D gLeadership/management zEnvironmental, social and governance (ESG)

Anonymous survey

• Each Board member fills out an

anonymous survey.

• A report identifying key strengths and

challenges is produced for the Board

and its committees.

Qualitative review

• Based on the results, the Board Chair

and the committee chairs each lead a

qualitative review with their colleagues

and then with the entire Board.

• In addition, the Vice-Chair leads a

qualitative review of the Board Chair’s

performance, without the Chair being

present, and then provides the Board

Chair with the Board’s feedback.

Outcome

• The last self-assessment of October

2022 determined that the Board and its

committees are functioning effectively

and efficiently.

• The feedback confirmed that the Board

has an open culture, fostering a broad

range of viewpoints.

• The results also identified key areas

on which to focus, such as further

development of Novartis strategy,

oversight of a range of challenging

technology and reorganizational

projects, and the impact of the current

geopolitical situation in Europe, the US

and China, including pricing.

Item 6. Directors, Senior Management and Employees

138

William T. Winters

Board member since 2013 | Nationality: British/American | Year of birth: 1961

William T. Winters has extensive leadership experience in the ﬁnancial sector. He began his career at JPMorgan

Chase & Co. in 1983 and has held management roles across several market areas and in corporate ﬁnance.

Mr. Winters founded Renshaw Bay LLP, an alternative asset management ﬁrm, and now serves as CEO of

Standard Chartered PLC, where he is leading a digital transformation of the global bank.

Professional experience

• CEO, Standard Chartered PLC, UK (2015–present)

• Chair and CEO, Renshaw Bay LLP, UK (2011–2015)

• Co-CEO of the Investment Bank, JPMorgan Chase & Co., UK (2004–2010)

• Various managerial positions at JPMorgan Chase & Co., UK and US (1983–2004)

Mandates

• Board member, Standard Chartered Bank PLC, UK

• Member of the board of overseers, International Rescue Committee, UK

• Chair of the board of trustees, The Coronet Theatre, UK

• Commissioner, Independent Commission on Banking, UK (2010–2011)

Education

• Master of Business Administration, Wharton School of the University of Pennsylvania, US

• Bachelor’s degree in international relations, Colgate University, US

Key skills

yData/digital gLeadership/management lLaw/regulatory/risk management mFinance/accounting

Corporate Secretary

Charlotte Pamer-Wieser, Ph.D.

Self-assessment

The Board and its committees conduct a self-assessment

once a year, covering topics including Board composition,

purpose, scope and responsibilities; succession planning;

Board processes and governance; interaction between the

Board and the Executive Committee; Board meetings and

pre-reading material; team eectiveness; and Board Chair

and peer evaluation. Every third year, this process is con-

ducted by an independent external consultant. This last

occurred in 2020 with the consulting ﬁrm Egon Zehnder.

Item 6. Directors, Senior Management and Employees

139

Trainings

Our Board receives regular brieﬁngs and trainings on

ethics, risks and compliance, ESG and other relevant

topics. In 2022, each Board member completed the fol-

lowing trainings:

• Health, Safety and Environment Policy

• ‘Fit to Commit’, which focused on anti-bribery, insider

trading and procurement

• An ESG educational session conducted by an external

expert on holistic value creation

• Third Party Risk Management

Our Chief Legal Ocer also provides regular updates to

our Board members on developments related to insider

trading laws and regulations and briefs the members of

the Board and the Executive Committee on an annual

basis on their respective duties. In addition, the Com-

pany oers a broad range of external trainings to its

Board members.

Role of the Board and its committees

The Board is responsible for the overall direction

and oversight of management, and holds the ultimate

decision-making authority, with the exception of deci-

sions reserved for shareholders.

The Board has delegated certain of its duties and

responsibilities to its ﬁve committees led by a Board-elected

committee chair, as set out in the Board Regulations (www.

novartis.com/investors/company-overview/corporate-gov-

ernance). In some cases, these responsibilities are of an

advisory or preparatory nature. In other cases, the com-

mittee has decision-making power that is subject to ﬁnal

Board approval, or the responsibilities have been fully del-

egated to the committee. All committees have the author-

ity to retain external consultants.

Any Board member may request a Board or committee

meeting and the inclusion of an agenda item. Before

meetings, Board members receive materials to help them

prepare for the discussions and to inform decision-mak-

ing.

Attendance at Board and Board Committee Meetings in 2022

Governance,

Audit and Sustainability Science &

Compliance Compensation and Nomination Risk Technology

Name Position Board Committee Committee Committee Committee Committee

J. Reinhardt Board Chair / /

S. Moroney Vice-Chair / / /

P. Bula Lead Independent Director / / /

N. Andrews Member / / /

T. Buechner Member / / /

E. Doherty Member / / /

B. Heller Member / / / /

F. van Houten Member / / /

D. Hochstrasser



Member /

A. von Planta Member / / /

A. de Pro Gonzalo



Member / / /

C. Sawyers Member / / /

W. Winters Member / / /

Ms. de Pro Gonzalo and Mr. Hochstrasser were elected at the 2022 AGM.

Further details can be found on pages 140 – 145.

Item 6. Directors, Senior Management and Employees

140

Board of Directors

Primary responsibilities

• Strategy: decides on the ultimate direction of the Group’s business (including portfolio, markets, acquisitions and divestments),

considering also key ESG aspects

• Structure and organization: determines major changes in the Group’s structure and organization

• Culture: oversees the strategy and implementation of the corporate culture

• Ethics and compliance: oversees the Group’s ethics and compliance framework, including the approval of fundamental

corporate policies such as the Novartis Code of Ethics

• Risk management: oversees the Group’s risk management system, the most signiﬁcant risks, and how these risks are

managed

• Finance: determines the Group’s accounting system, ﬁnancial controls and ﬁnancial planning;

reviews and approves the Annual Report (including the Compensation Report)

• Non-ﬁnancial reporting: reviews and approves the Group’s annual reporting on non-ﬁnancial matters

• People and organization: nominates or appoints, removes, and determines responsibilities of key executives,

and succession planning

Key activities in 2022

• Oversaw the Company’s strategy to become a fully focused medicines company with leading technology in key therapeutic

and geographic areas

• Reviewed the set-up and functioning of the Executive Committee in the context of the Company’s new organizational

structure

• Reviewed the geopolitical situation in Europe, with a special focus on the impact on the Russian and Ukrainian markets

• Discussed and closely monitored the Transformation for Growth project to ensure a smooth transition and the successful

implementation of its objectives

• Received an update on the US market and our priorities to accelerate growth in Innovative Medicines and become a top

player in the market

• Received an update on the German market and the Company’s strategic ambition to become the market leader in Germany

• Received updates from Global Drug Development and Operations

• Reviewed and discussed strategic considerations around mergers and acquisitions, and the Company’s larger strategic

moves to drive sustainable growth

• Conducted detailed discussions about the strategic review of Sandoz, deciding that a separation through a 100% spin-o

would oer the best value proposition to investors (subject to shareholders approval)

• Discussed the Company’s ESG strategy, plans and developments, and attended an ESG education session on holistic value

creation

• Discussed the upcoming non-ﬁnancial disclosure regulations and Novartis non-ﬁnancial reporting governance

• Discussed longer-term Board succession planning and required proﬁles, proposing a new Board member candidate to be

elected at the 2023 AGM

• Discussed the amendment of the Articles of Incorporation of Novartis AG as part of the reform of Swiss corporate law

• Discussed and reviewed the annual Board self-evaluation

Meetings

Number of meetings held 10

Number of members 13

Approximate average duration (hours) 6:30

Meeting attendance 98.5%

The Board met ten times in 2022. This includes regular meet-

ings in January, April, June, August, October and December,

and additional special meetings to deal with ad hoc matters.

Board committees typically meet the day before the meetings

of the full Board. The Board held virtual, hybrid and physical

meetings, with participants joining in person when possible.

J. Reinhardt (Board Chair) 10

S. Moroney (Vice-Chair) 10

P. Bula (Lead Independent Director) 10

N. Andrews 9

T. Buechner 10

E. Doherty 10

B. Heller 10

D. Hochstrasser

F. van Houten 10

A. von Planta 10

A. de Pro Gonzalo

C. Sawyers 10

W. Winters 9

Documents

• Articles of Incorporation of Novartis AG

• Board Regulations

www.novartis.com/investors/company-overview/corporate-governance

Ms. de Pro Gonzalo and Mr. Hochstrasser were elected at the 2022 AGM and have attended all Board meetings since their election.

Item 6. Directors, Senior Management and Employees

141

Audit and Compliance Committee

Primary responsibilities

• Supervises the external auditor, and selects and nominates the external auditor for election by the shareholders (FD)**

• Oversees Internal Audit (FD)**

• Oversees accounting policies, ﬁnancial controls, and compliance with accounting and internal control standards (FD)**

• Approves ﬁnancial statements for the ﬁrst three quarters of each calendar year and the corresponding ﬁnancial results

releases (FD)**, and reviews the annual ﬁnancial statements and the corresponding ﬁnancial results releases (FBA)***

• Reviews the non-ﬁnancial data contained in the Group’s annual reporting (FBA)***

• Oversees compliance with laws, regulations and internal policies related to its subject matter expertise (FD)**

• Reviews updates with regards to Quality Assurance and patient safety twice a year and Health Safety & Environment once

a year (FD)**

• Reviews updates from the SpeakUp Oce twice a year (FD)**

• Reviews the Group’s tax policy every two years (FD)**

• Reviews updates in closed sessions with the Chief Financial Ocer, Chief Audit Ocer, and external auditor

Key activities in 2022

• Evaluated the performance of the external auditor KPMG during 2022

• Reviewed the accounting and ﬁnancial reporting, focusing on those areas involving signiﬁcant risk or judgment

• Monitored the geopolitical situation and reviewed the treasury aspects and cash collection in Russia

• Reviewed and discussed the Company’s approach to non-ﬁnancial reporting and assurance

• Reviewed the timelines and milestones of the intended Sandoz spin-o

• Received an update on data privacy and its mechanisms of classiﬁcations and control

• Received a presentation on foreign exchange risk management at Novartis

• Liaised with the Risk Committee to ensure adequate oversight of the Company’s key transformation projects (Enterprise

Data Governance and Management and Lean Digital Core (LDC) program)

• Received reports and updates from Internal Audit; Quality; Ethics, Risk & Compliance; the SpeakUp Oce; Health, Safety &

Environment; and Legal, and discussedprogress on identifying and remedying the root causes of issues

Meetings

Number of meetings held 7

Number of members 5

Approximate average duration (hours) 2:35

Meeting attendance 100%

E. Doherty (Chair, Audit Committee Financial Expert) 7

T. Buechner 7

B. Heller 7

F. van Houten 7

A. de Pro Gonzalo

(Audit Committee Financial Expert) 5

Documents

• Board Committees Charter, Appendix I to the Board Regulations

www.novartis.com/investors/company-overview/corporate-governance

A/P = advisory or preparatory task

FD = fully delegated task

***

FBA = task subject to ﬁnal Board approval

Ms. de Pro Gonzalo became a member of the Audit and Compliance Committee after the 2022 AGM and has attended all Audit and Compliance Committee meetings since that time.

Item 6. Directors, Senior Management and Employees

142

Compensation Committee

Primary responsibilities

• Designs, reviews and recommends to the Board the compensation policies and programs (FBA)***

• Advises the Board on the compensation of Board members and the CEO (A/P)*

• Decides on the compensation of Executive Committee members (FD)**

• Prepares the Compensation Report and the Say-on-Pay brochure, and submits them to the Board for approval (FBA)***

Key activities in 2022

• Made decisions relating to Executive Committee and wider employee compensation during the year

• Established compensation to be paid for the future Sandoz board and executive committee members

• Determined the critical performance measures (including ﬁnancial, strategic, operational, innovation and ESG) to be

considered in the 2022 and 2023 incentive plan targets

• Reviewed the achievement of incentive plan targets for the Executive Committee members

• Reviewed shareholder and proxy advisor feedback related to Novartis compensation practices and disclosures and to

those of peer companies

• Reviewed disclosures in the Novartis Compensation Report

• Proposed appropriate peer companies for comparisons of board and executive committee compensation, and assessed

the Company’s level of compensation against the peer group

• Reviewed incentive plan rules to secure pay-for-performance alignment while preserving market competitiveness

• Appointed a new independent advisor to the Compensation Committee

• Reﬂected on eectiveness of the Company’s compensation programs in view of its strategy to become a fully focused

medicines company, following announcements of the introduction of a new organizational structure and the intention to

separate the Sandoz business by way of a 100% spin-o

• Reviewed the Compensation Committee charter

Meetings

Number of meetings held 7

Number of members 4

Approximate average duration (hours) 1:40

Meeting attendance 96.5%

S. Moroney (Chair) 7

P. Bula 7

B. Heller 7

W. Winters 6

Documents

• Board Committees Charter, Appendix I to the Board Regulations

www.novartis.com/investors/company-overview/corporate-governance

A/P = advisory or preparatory task

FD = fully delegated task

***

FBA = task subject to ﬁnal Board approval

Item 6. Directors, Senior Management and Employees

143

Governance, Sustainability and Nomination Committee

Primary responsibilities

• Oversees the Company’s strategy, governance and progress on sustainability, including access to medicine and healthcare,

global health, environmental sustainability, human capital management and other material ESG aspects (FBA)***

• Recommends corporate governance best practices to the Board (FBA)***

• Reviews the Articles of Incorporation and Board Regulations on a periodic basis (FD)**

• Reviews the composition and size of the Board and its committees as well as the skills matrix on a regular basis (FBA)***

• Identiﬁes new Board member candidates and recommends to the Board whether existing Board members

should stand for re-election (FBA)***

• Prepares and reviews succession plans for the Board Chair, the Vice-Chair, the Lead Independent Director,

Board members, committee members and chairs, and the CEO (FBA)***

• Reviews the independence of each Board member on an annual basis (FBA)***

• Reviews directorships and agreements of Board members for conﬂicts of interest, and deals with conﬂicts of interest (FBA)***

Key activities in 2022

• Evaluated progress on sustainability at Novartis, focusing on material ESG factors, together with targets and metrics

• Received updates on ESG and Global Health covering the Company’s ESG priorities and 5-year roadmap

• Received an update on environmental sustainability covering governance, strategy and progress against near- and longer-

term targets for carbon emissions, waste reduction and water consumption

• Received an update on human capital management covering the Company’s People & Organization strategy, key people

metrics and progress in its culture journey

• Evaluated the results of the 2022 AGM as well as investor and analyst feedback from ESG / Governance roadshows held in

2022

• Discussed and recommended to the Board amendments to the Articles of Incorporation of Novartis AG in connection with

the reform of Swiss corporate law

• Discussed candidates for the Sandoz board chair elect and the nomination process for the entire Sandoz board

• Discussed the composition of, and the succession for, the (Novartis) Board and its committees on a regular basis

Meetings

Number of meetings held 3

Number of members 5

Approximate average duration (hours) 2:00

Meeting attendance 100%

P. Bula (Chair) 3

B. Heller 3

A. von Planta 3

C. Sawyers 3

W. Winters 3

Documents

• Board Committees Charter, Appendix I to the Board Regulations

www.novartis.com/investors/company-overview/corporate-governance

A/P = advisory or preparatory task

FD = fully delegated task

***

FBA = task subject to ﬁnal Board approval

Item 6. Directors, Senior Management and Employees

144

Risk Committee

Primary responsibilities

• Oversees the risk management system and processes (FBA)***

• Reviews, together with management, the prioritization and handling of risks, the risk portfolio,

and actions implemented by management (FBA)***

• Performs deep dives into key risk areas and fosters a culture of smart risk-taking (FBA)***

• Reviews updates on cyber security on an annual basis (FD)**

Key activities in 2022

• Received updates on Enterprise Risk Management mitigation measures and results

• Evaluated the emerging risks associated with the current geopolitical crisis in Russia and Ukraine, and mitigation actions

• Received a presentation on launch excellence in Japan, evaluating opportunities and risks for Innovative Medicines

• Reviewed and discussed the current opportunities and risks at Global Drug Development

• Discussed the performance, risk management and transformation of Novartis Technical Operations associated supply

chain

• Received updates and closely monitored the Enterprise Data Governance and Management and the risk assessment and

mitigation of the Lean Digital Core (LDC) program

• Received a presentation on falsiﬁed medicines covering the various types of falsiﬁcation and indirect import

• Evaluated the enterprise risks for Innovative Medicines in the US for 2022 related to the Transforming for Growth program,

pipeline portfolio growth and diversity in clinical trials

• Reviewed the Third-Party Risk Management (TPRM) program

• Discussed the key risks associated with Intellectual Property (IP protection, IP enforcement, third-party assertion and trade

secrets)

• Analyzed the opportunities and risks around talent management in key areas and geographies

• Received a deep-dive update on cyber security, including on data loss protection, from the Chief Security Ocer

Meetings

Number of meetings held 5

Number of members 5

Approximate average duration (hours) 1:50

Meeting attendance 100%

T. Buechner (Chair) 5

N. Andrews 5

E. Doherty 5

A. von Planta 5

A. de Pro Gonzalo 5

Documents

• Board Committees Charter, Appendix I to the Board Regulations

www.novartis.com/investors/company-overview/corporate-governance

A/P = advisory or preparatory task

FD = fully delegated task

***

FBA = task subject to ﬁnal Board approval

Item 6. Directors, Senior Management and Employees

145

Science & Technology Committee

Primary responsibilities

• Monitors emerging scientiﬁc, data-related, technological and research trends and issues,

and brings recommendations to the Board (FBA)***

• Informs the Board on a periodic basis about critical developments for the success of the portfolio and for scientiﬁc,

technological and research activities as well as benchmarking (A/P)*

• Assists the Board with setting the Company’s strategy for science, data, technology and research (A/P)*

• Assists the Board with oversight and evaluation of the performance of the Company’s scientiﬁc, technological

and R&D activities (FBA)***

• Reviews performance and proposed targets in the area of science, technology and research (FD)**

• Reviews other matters in relation to science, data, technology and research that the committee may,

in its own discretion, deem desirable in connection with its responsibilities (A/P)*

Key activities in 2022

• Reviewed and provided guidance on the technology strategy for the Novartis Institutes of BioMedical Research (NIBR)

• Reviewed the Company’s early clinical pipeline

• Discussed the performance of Global Drug Development and its future strategy

• Provided guidance on the build-up of the Strategy & Growth function, and discussed the Company’s innovation strategy

with the Strategy & Growth leadership

Meetings

Number of meetings held 4

Number of members 5

Approximate average duration (hours) 6:00

Meeting attendance 95%

J. Reinhardt (Chair) 4

N. Andrews 4

F. van Houten 3

S. Moroney 4

C. Sawyers 4

Documents

• Board Committees Charter, Appendix I to the Board Regulations

www.novartis.com/investors/company-overview/corporate-governance

A/P = advisory or preparatory task

FD = fully delegated task

***

FBA = task subject to ﬁnal Board approval

Item 6. Directors, Senior Management and Employees

146

Board Chair

The Board Chair leads the Board to represent the interests

of all stakeholders and ensures an appropriate balance of

power between the Board and the Executive Committee.

In this role, the Board Chair:

• Provides leadership to the Board

• Supports and mentors the CEO

• Ensures that the Board and its committees work

eectively

• Sets the agenda, style and tone of Board discus-

sions, promoting constructive dialogue and eective

decision-making

• Ensures onboarding programs for new Board members,

and continuing education for and specialization of all

Board members

• Ensures the Board’s annual performance evaluation

• Promotes eective relationships and communication

between Board and Executive Committee members

• Ensures eective communication with the Company’s

shareholders, other stakeholders and the public

Vice-Chair and

LeadIndependentDirector

Vice-Chair

The Vice-Chair has the following responsibilities:

• Leads the Board in case and as long as the Board Chair

is incapacitated

• Leads the yearly session of the Board members to eval-

uate the performance of the Board Chair, during which

the Board Chair is not present

The Vice-Chair also provides advice and support to the

Board Chair.

Lead Independent Director

To support adequate control mechanisms, the Board

Regulations outline the role of the Lead Independent

Director. The Lead Independent Director has the follow-

ing responsibilities:

• Chairs the sessions of the independent Board members

• Leads the independent Board members in the event

of a crisis or matter requiring their separate consider-

ation or decision

The roles of the Vice-Chair and the Lead Independent

Director can be held by two Board members or by one

Board member (combined role).

The Board appointed Simon Moroney as Vice-Chair

and Patrice Bula as Lead Independent Director, both

roles eective as of March 4, 2022.

Honorary Chairmen

Alex Krauer and Daniel Vasella were appointed Honor-

ary Chairmen in recognition of their signiﬁcant achieve-

ments on behalf of Novartis. In December 2021, Mr. Krauer

passed away at the age of 90.

Mr. Vasella is not provided with Board documents

and does not attend Board meetings.

Mandates outside the Novartis Group

According to article 34, paragraph 1 of the Articles of

Incorporation (www.novartis.com/investors/company-

overview/corporate-governance), the following limitations

on mandates apply:

Maximum number

of mandates

Mandates 10

Other listed companies

Holding a chair position of the board of directors in other listed companies counts as

two mandates.

According to article 34, paragraph 3 of the Articles of

Incorporation (www.novartis.com/investors/company-

overview/corporate-governance), the following man

dates are not subject to the above-mentioned limitations:

Maximum number

of mandates

Mandates in companies that are controlled by Novartis AG No limit

Mandates held at the request of Novartis AG

or companies controlled by it 5

Mandates in associations, charitable organizations,

foundations, trusts and employee welfare foundations 10

“Mandates” means those in the supreme governing body

of a legal entity that is required to be registered in the

commercial register or a comparable foreign register.

Mandates in dierent legal entities that are under joint

control are deemed to be one mandate.

Composition (as per December 31, 2022)

Shreeram Aradhye

President, Global Drug Development

& Chief Medical Officer

Vasant (Vas) Narasimhan

Chief Executive Officer

Harry Kirsch

Chief Financial Officer

Robert (Rob) Kowalski

Chief People &

Organization Officer

Victor Bulto

President, Innovative

Medicines US

Klaus Moosmayer

Chief Ethics, Risk

& Compliance Officer

Marie-France Tschudin

President, Innovative Medicines

International & Chief

Commercial Officer

Steffen Lang

President, Operations

Aharon (Ronny) Gal

Chief Strategy & Growth Officer

Fiona H. Marshall

President, Novartis Institutes

for BioMedical Research (NIBR)

Karen L. Hale

Chief Legal Officer

Item 6. Directors, Senior Management and Employees

147

Executive Committee

Changes to the Executive Committee

Susanne Schaert, President of Novartis Oncology since

2019, stepped down from her role following the Com-

pany’s decision to integrate the Pharmaceuticals and

Oncology business units and create separate US and Inter-

national commercial organizations under the Innovative

Medicines (IM) Division, eective April 4, 2022. Marie-

France Tschudin, President of Novartis Pharmaceuticals

since 2019, was appointed President, Innovative Medicines

International & Chief Commercial Ocer, eective April 4,

2022. Victor Bulto, President, Novartis Pharmaceuticals

Corporation, US, since 2019, was appointed President,

Innovative Medicines US, eective April 4, 2022. He has

been a member of the Executive Committee since May

1, 2022. Robert Weltevreden, Head of Customer & Tech-

nology Solutions (CTS) since February 1, 2021, stepped

down from his role following the Company’s decision to

combine Novartis Technical Operations (NTO) and CTS

into a new Operations unit, eective April 4, 2022. Stef-

fen Lang, Global Head of Novartis Technical Operations

since 2017, was appointed President, Operations, eec-

tive April 4, 2022. John Tsai, Head of Global Drug Devel-

opment and Chief Medical Ocer, stepped down from

his role eective May 15, 2022. Shreeram Aradhye was

appointed President, Global Drug Development & Chief

Medical Ocer, eective May 16, 2022. Aharon (Ronny)

Gal was appointed Chief Strategy & Growth Ocer, eec-

tive July 18, 2022. From April 4, 2022, until July 17, 2022,

Lutz Hegemann, President Global Health & Sustainabil-

ity, served as ad interim Chief Strategy & Growth O-

cer but was not a member of the Executive Committee.

Richard Saynor, Chief Executive Ocer, Sandoz, stepped

down from the Executive Committee eective October

25, 2022, following his appointment as CEO designate of

the Sandoz standalone company expected to be created

in the second half of 2023. James (Jay) Bradner, Presi-

dent of the Novartis Institutes for BioMedical Research

(NIBR), stepped down from his role eective October

31, 2022. Fiona H. Marshall was appointed President of

the Novartis Institutes for BioMedical Research (NIBR),

eective November 1, 2022. The biographies of the for-

mer members of the Executive Committee can be found

in the 2021 Annual Report (pages 147 – 149), available

at www.novartis.com/news/media-library/novartis-an-

nual-report-2021.

Role of the Executive Committee

The Board has appointed the Executive Committee mem-

bers and delegated the overall responsibility for and

oversight of the operational management of Novartis to

them, including:

• Recruiting, appointing and promoting senior management

• Ensuring the ecient operation of the Group and the

achievement of optimal results

• Promoting an active internal and external communi cations

policy

• Developing policies and strategic plans for Board

approval, and implementing those approved

• Submitting the following to the Board for approval: invest-

ments, divestments, transactions, contracts and litigations

with a value exceeding USD 500 million, and capital market

and other important ﬁnancing transactions, as well as all

other matters of fundamental signiﬁcance to the Novartis

Group

• Preparing and submitting quarterly and annual reports

to the Board and its committees

• Informing the Board of all matters of fundamental sig-

niﬁcance to the businesses

• Dealing with any other matters delegated by the Board

There are no contracts between Novartis and third

parties whereby Novartis would delegate any business

management tasks to such third parties.

Diversity proﬁle

American 41%

German 18%

Swiss 18%

British 9%

Spanish 9%

Israeli 5%

Gender

TENURE

EXECUTIVE/NON-EXECUTIVE INDEPENDENCEGENDER

AGEBACKGROUND/EXPERIENCE

NATIONALITY

Male 73%

Female 27%

<45 9%

45–50 9%

>50 82%

Tenure

<2y 55%

2–4y 27%

>4y 18%

Age

TENURE

EXECUTIVE/NON-EXECUTIVE INDEPENDENCEGENDER

AGEBACKGROUND/EXPERIENCE

NATIONALITY

Nationality

TENURE

EXECUTIVE/NON-EXECUTIVE INDEPENDENCEGENDER

AGEBACKGROUND/EXPERIENCE

NATIONALITY

TENURE

EXECUTIVE/NON-EXECUTIVE INDEPENDENCEGENDER

AGEBACKGROUND/EXPERIENCE

NATIONALITY

Please note that three Executive Committee members have dual nationalities. Each of these nationalities is counted as a half in the above chart.

Item 6. Directors, Senior Management and Employees

148

CEO

With the support of the Executive Committee, the CEO is

responsible for the operational management of Novartis.

This includes eectively implementing the Company strat

egy, delivering ﬁnancial results, and shaping a corporate

culture of empowerment and responsibility to help drive

innovation, performance and reputation.

In addition to other Board-assigned duties, the CEO

leads the Executive Committee, and is responsible for

building and maintaining an eective executive team. With

the support of the Executive Committee, the CEO is

responsible for:

• Ensuring Novartis has the capabilities to achieve its

long-term strategic objectives

• Developing robust management succession and

development plans for presentation to the Board

• Promoting eective communication with shareholders

and other stakeholders

• Ensuring Novartis conducts its business in a legal and

ethical manner

• Developing an eective risk control framework for all

business activities

• Ensuring the ﬂow of information to the Board is accurate,

timely and clear

Diversity

The composition as of December 31, 2022, in terms of nationality, gender, age and length of tenure, is shown in

the following charts:

Mandates outside the Novartis Group

According to article 34, paragraph 2 of the Articles of

Incorporation (www.novartis.com/investors/company-

overview/corporate-governance), the following limitations

on mandates apply:

Maximum number

of mandates

Mandates 6

Other listed companies

Holding a chair position of the board of directors in other listed companies is not

allowed.

According to article 34, paragraph 3 of the Articles of

Incorporation (www.novartis.com/investors/company-

overview/corporate-governance), the following man-

dates are not subject to the above-mentioned limitations:

Maximum number

of mandates

Mandates in companies that are controlled by Novartis AG No limit

Mandates held at the request of Novartis AG

or companies controlled by it 5

Mandates in associations, charitable organizations,

foundations, trusts and employee welfare foundations 10

“Mandates” means those in the supreme governing body

of a legal entity that is required to be registered in the

commercial register or a comparable foreign register.

Mandates in dierent legal entities that are under joint

control are deemed to be one mandate.

Item 6. Directors, Senior Management and Employees

149

Members of the Executive Committee

Vasant (Vas) Narasimhan, M.D.

Chief Executive Ocer of Novartis since 2018 | Nationality: American | Year of birth: 1976

Professional experience

• Global Head of Drug Development and Chief Medical Ocer, Novartis AG, Switzerland (2016–2018)

• Global Head of Development, Novartis Pharmaceuticals, Switzerland (2014–2016)

• Global Head of Biopharmaceuticals and Oncology Injectables, Sandoz International, Germany (2014)

• Global Head of Development, Novartis Vaccines, US (2012–2014)

• North America Region Head, Novartis Vaccines, and US Country President, Novartis Vaccines and

Diagnostics, US (2008–2012)

• Joined Novartis in 2005

Mandates

• Member, National Academy of Medicine, US

• Chair (since December 2022) and board member (2020–2022), African Parks Network, South Africa

• Committee member, Biopharmaceutical CEOs Roundtable (BCR), International Federation of

Pharmaceutical Manufacturers & Associations (IFPMA), Switzerland

• Member of the board of fellows, Harvard Medical School, US

• Board member and treasurer, Pharmaceutical Research and Manufacturers of America (PhRMA), US

Education

• Doctor of medicine, Harvard Medical School, US

• Master’s degree in public policy, John F. Kennedy School of Government, Harvard University, US

• Bachelor’s degree in biological sciences, University of Chicago, US

Shreeram Aradhye, M.D.

President, Global Drug Development & Chief Medical Ocer since May 16, 2022 | Nationality: American |

Year of birth: 1962

Professional experience

• Executive Vice President & Chief Medical Ocer, Dicerna Pharmaceuticals, US (2020–March 2022)

• Executive Vice President & Chief Development Ocer, Axcella Health, US (2019–2020)

• Global Head, Medical Aairs and Chief Medical Ocer, Pharmaceuticals, Novartis, US & Switzerland

(2017–2019)

• Global Head, Development Franchise, Neuroscience, and US Head, Development, Novartis,

US&Switzerland (2013–2017)

• Executive Global Program Head, Multiple Sclerosis, Novartis, Switzerland (2012–2013)

• Head, Global Development India, Novartis, India (2011–2012)

• Head, Global Clinical Development & Medical Aairs, Biosimilars, Sandoz, Germany (2009–2011)

• Joined Novartis in 1999 holding positions of increasing responsibility

Education

• Chief Resident and Teaching Fellow in Internal Medicine, Newton Wellesley Hospital, US

• Resident in Internal Medicine, Newton Wellesley Hospital, US

• Fellow in Nephrology, St Luke’s Roosevelt Medical Center, US

• Resident in Internal Medicine (M.D.), All India Institute of Medical Sciences, India

• Bachelor of Medicine and Bachelor of Surgery, All India Institute of Medical Sciences, India

Victor Bulto

President, Innovative Medicines US since April 4, 2022 | Member of the Executive Committee as of May 1, 2022 |

Nationality: Spanish | Year of birth: 1978

Professional experience

• President, Novartis Pharmaceuticals Corporation, US (2019–April 2022)

• Vice President & Head US Immunology & Dermatology Franchise, US (2017–2019)

• Vice President & Head US Alcon Pharmaceuticals, US (2016–2017)

• Head Neuroscience Franchise, Region Europe, Novartis, Switzerland (2013–2016)

• Business Franchise Head Neuroscience, Novartis, Spain (2012–2013)

• Business Franchise Head Neuroscience/MS, Respiratory, Osteoarticular, Spain, Novartis (2010–2012)

• Marketing Head Respiratory, Osteoarticular, Novartis, Spain (2009–2010)

Mandates

• Board member, Biotechnology Innovation Organization (BIO), US

Education

• Master of business administration, ESADE Business School, Spain

• Master’s degree in health economics and pharmacoeconomics, Pompeu Fabra University Spain

• Master’s degree in chemical engineering, Ramon Llull University, Spain

• Bachelor’s of science degree in chemistry, Ramon Llull University, Spain

Item 6. Directors, Senior Management and Employees

150

Aharon (Ronny) Gal, Ph.D.

Chief Strategy & Growth Ocer since July 18, 2022 | Nationality: Israeli/American | Year of birth: 1966

Professional experience

• Senior analyst, US biopharmaceutical, Sanford Bernstein, US (2020–June 2022)

• Senior analyst, US specialty pharmaceuticals and Biotech, Sanford Bernstein, US (2016–2020)

• Senior analyst, US specialty pharmaceuticals and EU mid-cap pharmaceuticals, Sanford Bernstein,

US, UK (2013–2016)

• Senior analyst, US specialty pharmaceuticals, Sanford Bernstein, US (2004–2013)

• Vice president, Canon US Life Sciences, US (2003–2004)

• Consultant, team leader, manager, The Boston Consulting Group, Inc., US, Singapore, China

(1996–2002)

Mandates

• Scientiﬁc advisor, Pure Honey Technologies, US

Education

• Ph.D. in Biochemistry, Massachusetts Institute of Technology, US

• B.Sc. in Chemistry, Emory University, US

Karen L. Hale

Chief Legal Ocer of Novartis since May 15, 2021 | Nationality: American | Year of birth: 1968

Professional experience

• Vice president, deputy general counsel, AbbVie Inc., US (2019–2021)

• Vice president, chief ethics and compliance ocer, AbbVie Inc., US (2013–2019)

• Vice president, litigation and legal specialty operations, AbbVie Inc., US (2013)

• Divisional vice president, commercial litigation, Abbott Laboratories, US (2006–2012)

• Began practicing law in 1994 and joined Abbott in 1997

Education

• Bar memberships: Illinois and Virginia, US

• Juris doctor, William & Mary Law School, US

• Bachelor’s degree in economics, Duke University, US

Harry Kirsch

Chief Financial Ocer of Novartis since 2013 | Nationality: German/Swiss | Year of birth: 1965

Professional experience

• Chief Financial Ocer of the Pharmaceuticals Division (now known as the Innovative Medicines Division),

Novartis Pharmaceuticals, Switzerland (2010–2013)

• Chief Financial Ocer of Pharma Europe, Novartis Pharmaceuticals, Switzerland (2008–2010)

• Head of Business Planning & Analysis for the Pharmaceuticals Division, Novartis Pharmaceuticals,

Switzerland (2005–2008)

• Joined Novartis in 2003 as Head Finance Global Primary Care, and over the years held positions of

increasing responsibility within Finance

Mandates

• Represented Novartis on the board of GlaxoSmithKline Consumer Healthcare Holdings Ltd. (2015–2018)

Education

• Diploma degree in industrial engineering and economics, University of Karlsruhe, Germany

Robert (Rob) Kowalski

Chief People & Organization Ocer of Novartis since September 1, 2021 | Nationality: American | Year of birth: 1968

Professional experience

• Executive Vice President and Global Head of Regulatory Aairs (2018–2021), and US Head of Global

Drug Development (2009–2015 and 2017–2021), Novartis Pharmaceuticals Corporation, US

• Ad interim President, Novartis Corporation, US (2021)

• Ad interim Head of Global Drug Development and Chief Medical Ocer, Novartis AG,

Switzerland (2018)

• Senior Vice President and Head of Regulatory Aairs, Novartis Pharmaceuticals Corporation, US

(2009–2015 and 2017–2018)

• Senior Vice President and Head of Regulatory Aairs, Novartis Pharma AG, Switzerland (2015–2017)

• Global Head of Country Medical Development, Novartis Pharmaceuticals Corporation, US (2010–2011)

• Previously held regulatory leadership roles at Schering-Plough Corporation (now Merck) and Pharmacia

Corporation (now Pﬁzer)

Mandates

• Member of the advisory board, Industry Pharmacists Organization, US

Education

• Doctor of pharmacy, University of Wisconsin-Madison, US

• Bachelor of Science in pharmaceutical sciences, University of Wisconsin-Madison, US

Item 6. Directors, Senior Management and Employees

151

Steen Lang, Ph.D.

President, Operations since April 4, 2022 | Nationality: German/Swiss | Year of birth: 1967

Professional experience

• Global Head of Novartis Technical Operations (NTO), Switzerland (2017–April 2022)

• Global Head of Biologics Technical Development and Manufacturing, Novartis Technical Operations,

Switzerland (2015–2017)

• Global Head of Technical Research and Development, Novartis Pharmaceuticals, Switzerland (2009–2015)

• Joined Novartis in 1994 as Head of Laboratory in Research, and over the years held positions of

increasing responsibility within Pharmaceuticals Development

Mandates

• Board member, Bachem Holding AG, Switzerland

Education

• Doctorate in pharmaceutical technology, Swiss Federal Institute of Technology, Switzerland

• Master’s degree in pharmaceutical sciences, University of Heidelberg, Germany

Fiona H. Marshall, Ph.D.

President, Novartis Institutes for BioMedical Research (NIBR) since November 1, 2022 | Nationality: British |

Year of birth: 1964

Professional experience

• Senior vice president, head of discovery, preclinical and translational medicine, Merck & Co., US,

(2021–September 2022)

• Vice president, global head of neuroscience, Merck & Co., US (2019–2021)

• Vice president, head of UK discovery research, Merck & Co., UK (2018–2019)

• Executive vice president and chief scientiﬁc ocer, Sosei Heptares, UK (2015–2018)

• Chief scientiﬁc ocer and founder, Heptares Therapeutics, UK (2006–2018)

Mandates

• Member of the Scientiﬁc Advisory Board, SciLifeLab, Sweden

• Fellow, Royal Society, UK

• Honorary Fellow, Royal Society of Chemistry, UK

• Honorary Fellow, British Pharmacological Society, UK

• Fellow, UK Academy of Medical Sciences, UK

• Fellow, Royal Society of Biology, UK

Education

• PhD in Neuroscience, University of Cambridge, UK

• BSc in Biochemistry, University of Bath, UK

Klaus Moosmayer, Ph.D.

Chief Ethics, Risk & Compliance Ocer of Novartis since 2018 | Nationality: German | Year of birth: 1968

Professional experience

• Chief compliance ocer, Siemens AG, Germany (2014–2018)

• Chief counsel compliance, Siemens AG, Germany (2009–2013)

• Compliance operating ocer, Siemens AG, Germany (2007–2009)

Mandates

• Board member, SwissHoldings, the Swiss federation representing Swiss-based multinational companies,

Switzerland

• Member of the executive board, Business at OECD (BIAC), Paris

• Co-chair, B20 Integrity & Compliance Task Force under the G20 presidencies of Indonesia (2022), Italy

(2021), Saudi Arabia (2020), Argentina (2018), and Chair of the Task Force under the G20 presidency of

Germany (2017)

• Member of the advisory panel, Pharmaceutical Supply Chain Initiative, US

• Co-founder and board member, European Chief Compliance and Integrity Ocers’ Forum

• Chair of the Anti-Corruption Committee of the Business and Industry Advisory Committee (BIAC),

Organization for Economic Co-operation and Development (OECD), Paris (2013–2020)

Education

• First and second state examination in law, Germany

• Doctor of jurisprudence, University of Freiburg, Germany

Marie-France Tschudin

President, Innovative Medicines International & Chief Commercial Ocer since April 4, 2022 | Nationality: Swiss |

Year of birth: 1971

Professional experience

• President, Novartis Pharmaceuticals, Switzerland (2019–April 2022)

• President, Advanced Accelerator Applications, France (2019)

• Europe Region Head, Novartis Pharmaceuticals, Switzerland (2017–2019)

• Corporate vice president of hematology and oncology for Europe, the Middle East and Africa, Celgene

International, Switzerland (2014–2016)

• Regional vice president of northern Europe, Celgene International, Switzerland (2012–2014)

• General manager of Austria, Switzerland, the Czech Republic, Poland, Slovenia and Slovakia, Celgene

International, Switzerland (2009–2011)

• Country manager of Switzerland, Celgene International, Switzerland (2008–2009)

Mandates

• Board member, IMD Foundation, Switzerland

• Board member, AXA, France

• Board member, European Federation of Pharmaceutical Industries and Associations (EFPIA), Belgium

Education

• Master of Business Administration, IMD business school, Switzerland

• Bachelor of Science, Georgetown University, US

Item 6. Directors, Senior Management and Employees

152

Information and control systems

The Board’s information and control systems vis-à-vis

management include a steady ﬂow of information from

senior management; monthly ﬁnancial reports; a compre-

hensive and integrated risk management framework; and

the independent evaluation of our risk management and

internal control framework by the Internal Audit function

(see “Item 15. Controls and Procedures”).

Information from senior management

The Board ensures that it receives sucient information

from the Executive Committee through:

• Monthly CEO reporting (including detailed written

updates from each division and business unit head),

frequent communications from the CEO on current

developments, and a yearly presentation

• Executive Committee meeting minutes

• Regular meetings and teleconferences by the Board

and/or Board committees with the CEO and/or other

members of the Executive Committee (e.g., the CFO,

the Chief Legal Ocer, the Chief Ethics, Risk & Com-

pliance Ocer), and regular meetings and teleconfer-

ences with senior management (e.g., the Chief Audit

Ocer)

• Information from Executive Committee members or

other Novartis employees, and visits to Novartis sites

To get an outside view, the Board and/or Board commit-

tees occasionally invite external advisors (e.g., the inde-

pendent advisor of the Compensation Committee, the

external auditor) to attend a meeting and/or share their

observations about a speciﬁc topic.

Monthly ﬁnancial reports

Novartis produces comprehensive, consolidated (unau-

dited) ﬁnancial statements on a monthly basis for the

Group and its operating divisions. These are typically

available within 10 days after the end of the month, and

include the following:

• Consolidated income statement of the month and year to

date, in accordance with International Financial Report-

ing Standards (IFRS), as well as adjustments to arrive

at core results, as deﬁned by Novartis (see “Item 5.

Operating and Financial Review and Prospects—Item

5.A Operating results—Non-IFRS measures as deﬁned

by Novartis”). The IFRS and core ﬁgures are compared

with the prior-year period and targets in both USD and

on a constant currency basis.

• Supplementary data on a monthly and year-to-date

basis, such as free cash ﬂow and earnings per share

on a USD basis

Management information related to the consolidated

income statements and free cash ﬂow is made available

to Board members through the monthly CEO Report,

which includes an analysis of key deviations from the

prior year or target.

Prior to the release of each quarter’s results, the Board

receives the actual consolidated ﬁnancial statement infor-

mation and an outlook of the full-year results in accor

dance with IFRS and core results (as deﬁned by Novartis),

together with related commentary.

Annually, in the middle of the year, the Board approves

the Company’s strategic plan for the next three years. In

the fourth quarter of the year, the Board approves the

operating targets for the following year as well as the

ﬁnancial targets for the following three-year period,

including a projected consolidated income statement in

USD prepared in accordance with IFRS and non-IFRS

measures as deﬁned by Novartis (core results).

The Board does not have direct access to the Novartis

ﬁnancial and management reporting systems but can, at

any time, request more detailed information.

Item 6. Directors, Senior Management and Employees

153

Risk management

Overview

At Novartis, our continued success depends on our abil-

ity to manage risk. Our Board has ultimate oversight of

the Enterprise Risk Management (ERM) system and reg-

ularly reviews the most signiﬁcant risks and how these

risks are managed. As explained further below, the Board

is supported by its committees. Furthermore, our Internal

Audit function provides an independent evaluation of risk

management (see “—Item 6.C Board practices—Informa-

tion and control systems—Internal Audit”).

BOARD COMMITTEES

RISK COMMITTEE

• Oversees the risk management system and processes

• Reviews, together with management, the prioritization and handling

of risks, the risk portfolio, and actions implemented by management

• Performs deep dives into key risk areas and fosters a culture of

smart risk-taking

• Receives updates on cyber security on an annual basis

• Receives regular updates from designated risk owners as well as

the Chief Ethics, Risk & Compliance Ocer and/or the Head of Risk

& Resilience

AUDIT AND COMPLIANCE COMMITTEE

• Ensures that Internal Audit plans are aligned with key risks, and that

the function provides independent assurance and insights around

these risks

• Works closely with the Risk Committee to minimize gaps in

risk coverage

• Receives a semiannual presentation from the Chief Ethics, Risk &

Compliance Ocer

• Receives a quarterly presentation from the Chief Audit Ocer on

progress achieved in implementing the risk-based audit plan, and

key insights about audit and advisory activities

• Pays particular attention to ﬁnancial risk

• Has closed sessions with the Chief Audit Ocer and, upon request,

with the Chief Ethics, Risk & Compliance Ocer

COMPENSATION COMMITTEE

• Works closely with the Risk Committee to ensure that the

compensation system does not lead to excessive risk-taking

(see “—Item 6.B Compensation—Compensation governance—

Risk management principles”)

EXECUTIVE COMMITTEE OF NOVARTIS

• Regularly assesses risks and fosters a culture of risk awareness,

in line with the Novartis Values and Behaviors and the Novartis

Code of Ethics

ETHICS, RISK & COMPLIANCE

• Governs the Novartis Code of Ethics

• Provides an integrated ERM framework (further described in the

following section)

• Governs the global compliance program within Novartis

• Administers the Enterprise Policy Management and global Internal

Controls framework

SENIOR LEADERS OF DIVISIONS, ORGANIZATIONAL UNITS

ANDGROUP FUNCTIONS, AT ALL LEVELS

• Provide appropriate risk management within their area of

responsibility

• Establish adequate risk prevention and mitigation strategies when

risk exposure is identiﬁed, including tracking progress and providing

resources for possible actions

• Assess emerging risks, trends and overall exposure as part of the

ERM process

Enterprise Risk Management framework

The Ethics, Risk & Compliance (ERC) function provides

an integrated ERM framework to obtain a holistic view of

Company risks and drive a culture of smart risk-taking.

Under the leadership of the Chief Ethics, Risk & Compli-

ance Ocer, the Risk & Resilience team is responsible

for the overall ERM process. This process covers, but is

not limited to, risks associated with:

• The research, development, manufacturing, marketing

and sales of products

• Finance, taxes, intellectual property, compliance with law

and regulations, security, product safety, human resources,

and health, safety and environmental protection

• Business objectives and strategies, including mergers

and acquisitions

• External factors such as the social, political and eco-

nomic environment

The ERM process continued to evolve in 2022. The Risk

& Resilience team conducted risk workshops and collab-

orated with all risk assurance and monitoring functions

to identify key risks across the Company. Each Novartis

unit organized a focused risk workshop at the leadership

team level. In parallel, risk workshops were held in the

top 11 countries (by revenue) and in certain focus mar-

kets. Once key risks were identiﬁed, mitigation action

plans were created to address them in an eective way.

The ﬁndings from these workshops were consolidated

into the Novartis Risk Compass, which enables senior

management, the Executive Committee and the Board

to focus discussions on key risks and more closely align

our corporate strategy with our risk exposure and ways

of working.

In 2022, we further matured our ERM framework

within the Novartis Risk & Resilience organization, devel-

oped additional risk management trainings, and inte-

grated other critical risk management functions (like

Third-Party Risk Management and Health, Safety and

Environment) into the Risk & Resilience department. Fur-

thermore, the Enterprise Policy & Internal Control team

is progressing as planned to create a holistic framework,

and the Central Monitoring Coordination team is expand-

ing its scope to ensure a harmonized and coordinated

monitoring process across the Company.

SpeakUp Oce

Our SpeakUp Oce provides a safe place for employ-

ees to report potential misconduct, including the option

to do so anonymously.

Global Security

Global Security proactively collects and shares threat

intelligence to protect Novartis from situations that may

compromise the safety of people, products and assets,

and/or the reputation of our organization. Global Security

protects patients from counterfeit products and, as part

of the SpeakUp process, performs fair and timely inves

tigations into high-risk cases of alleged internal miscon-

duct. It also provides personal security advice and sup-

port for Novartis executives and other employees with

the utmost discretion.

Internal Audit cycle methodology

includes:

Planning: Monitoring and information

gathering via continuous risk assess-

ment based on data analytics, busi-

ness interviews and quarterly calibra-

tion of the audit plan

Execution and Reporting: 63 engage-

ments delivered in 2022, all linked to

group risks, emerging topics and com-

pany-wide initiatives

Follow Up: Management is responsible

for resolving issues, supported by

Internal Audit to ensure timely closure

of observations

AUDITS

ADVISORIES

INTERNAL REVIEWS

 INTERNAL AUDIT ACTIVITIES

Item 6. Directors, Senior Management and Employees

154

Internal Audit

The purpose of Internal Audit is to assist the Board and

the Executive Committee in discharging their governance

responsibilities by providing independent assurance and

advice on the eectiveness, eciency and adequacy of

processes and controls that support Novartis in achiev-

ing its objectives, managing its major risks, and ensuring

compliance with applicable policies, laws and regulations.

The Chief Audit Ocer reports administratively to

the CEO, and functionally to the chair of the Audit and

Compliance Committee (ACC). The Chief Audit Ocer

meets with the ACC at least once a quarter and conﬁrms

the organizational independence of the Internal Audit

function to the ACC on an annual basis.

In 2022, our Internal Audit function executed a risk-

based audit plan and reported the results to the audited

units, the Executive Committee and the ACC. Audit ﬁnd-

ings and action plans are stored and monitored in a sin-

gle location to enable ecient and eective follow-up.

The following outlines the number of audits, internal

reviews and advisories performed in 2022, and key meth-

odology steps when managing the Internal Audit cycle.

Internal Audit performed 85% of planned activities

(equating to 63 of 74 engagements) in 2022, conducted

under a hybrid model of engagement delivery, choos-

ing between remote and in-person auditing based on

the engagement scope and COVID-19 situation within

the audited entity.

Item 6. Directors, Senior Management and Employees

155

Auditors

Duration of the mandate

andtermsofoce

On behalf of the Board, the ACC selects and nominates

an independent auditor for election at the AGM. KPMG

commenced its auditing mandate for Novartis in 2022.

Richard Broadbelt, Auditor in charge, and Sara Burke,

Global Audit Partner, began serving in their roles in 2022.

The ACC together with KPMG will ensure that these part

ners are rotated at least every ﬁve years.

Auditing fees and additional fees

The ACC monitors and preapproves the fees paid to the

external auditor for all audit and non-audit services. It has

developed and approved a policy with clear guidelines

on the engagement of the independent auditor ﬁrm. This

policy is designed to help ensure that the independence

of the external auditor is maintained. It limits the scope of

services that the external auditor may provide to the Group,

stipulating certain permissible types of audit-related and

non-audit services, including tax services and other ser-

vices that have been preapproved by the ACC. The ACC

preapproves all other services on a case-by-case basis.

The external auditor is required to report periodically

to the ACC about the scope of the services it has pro-

vided to the Group and the fees for the services it has

performed to date. KPMG fees for professional services

related to the 12-month period ended December 31, 2022,

and PwC fees for professional services related to the

12-month period ended December 31, 2021, are as fol-

lows:

2022

2021

USD million

Audit services 22.5

22.2

Audit-related services 0.7

1.5

Tax services 1.2

0.1

Other services 0.0

1.4

Total 24.4

25.2

Audit services include work performed to issue opinions

on consolidated ﬁnancial statements and parent company

ﬁnancial statements of Novartis AG, to issue opinions related

to the eectiveness of the Group’s internal control over

ﬁnancial reporting, and to issue reports on local statutory

ﬁnancial statements. Also included are audit services that

generally can only be provided by the statutory auditor,

such as the audit of the Compensation Report, audits of

the adoption of new accounting policies, audits of infor-

mation systems and the related control environment, as

well as reviews of quarterly ﬁnancial results.

Audit-related services include other assurance services

provided by the independent auditor but not restricted to

those that can only be provided by the statutory auditor.

They include services such as: audits of pension and

other employee beneﬁt plans; audits in connection with

non-recurring transactions; contract audits of third-party

arrangements; corporate responsibility assurance; and

other audit-related services.

Tax services include tax compliance, assistance with

historical tax matters, and other tax-related services.

Other services in 2021 included procedures related

to corporate integrity agreements, benchmarking stud-

ies, and license fees for use of accounting and other

reporting guidance databases.

Information to the Board and the ACC

The ACC, acting on behalf of the Board, is responsible for

overseeing the activities of the external auditor. In 2022,

this committee held seven meetings. KPMG was invited to

all of these meetings to attend the discussions on audit-

ing matters and any other matters relevant to its audit.

The ACC recommended to the Board to approve the

audited consolidated ﬁnancial statements and the separate

parent company ﬁnancial statements of NovartisAG for the

year ended December 31, 2022. The Board proposed

the acceptance of these ﬁnancial statements for approval

by the shareholders at the next AGM.

The ACC regularly evaluates the performance of the

external auditor and, based on this, once a year deter-

mines whether the external auditor should be proposed

to the shareholders for re-election. To assess the per-

formance of the external auditor, the ACC requests input

from management and holds private meetings with the

CFO and the Chief Audit Ocer and, if necessary, obtains

an independent external assessment. Criteria applied

for the performance assessment of the external auditor

include an evaluation of: its technical and operational

competence; its independence and objectivity; the suf-

ﬁciency of the resources it has employed; its focus on

areas of signiﬁcant risk to Novartis; its willingness to

probe and challenge; its ability to provide eective, prac-

tical recommendations; and the openness and eective-

ness of its communications and coordination with the

ACC, the Internal Audit function and management.

Once a year, the Auditor in charge and the Global

Audit Partner report to the Board on the external audi-

tor’s activities during the current year, and on the audit

plan for the coming year.

On an annual basis, the external auditor provides the

ACC with written disclosures required by the US Public

Company Accounting Oversight Board, and the commit-

tee and the external auditor discuss the external audi-

tor’s independence from Novartis.

Item 6. Directors, Senior Management and Employees

156

Information policy

Novartis is committed to open and transparent commu-

nication with shareholders, investors, ﬁnancial analysts,

customers, suppliers and other stakeholders. Novartis

disseminates information about material developments in

its businesses in a broad and timely manner that complies

with the rules of the SIX Swiss Exchange and the NYSE.

Communications

Novartis publishes this Annual Report to provide infor-

mation on the Group’s results and operations. Novartis

discloses ﬁnancial results in accordance with IFRS on a

quarterly basis, and issues press releases from time to

time regarding business developments.

Novartis publishes press releases related to ﬁnancial

results and material events to the US Securities and

Exchange Commission (SEC) via Form 6-K. An archive

containing annual reports, US SEC Form 20-F, quarterly

results releases and all related materials – including pre-

sentations and conference call webcasts – is available

at www.novartis.com/investors.

Novartis also publishes a Novartis in Society Inte-

grated Report, available at www.reporting.novartis.com,

which highlights progress on the Company’s strategic

priorities and describes how Novartis creates value for

diverse stakeholders. The Novartis in Society Integrated

Report has been prepared in alignment with the Inte-

grated Reporting Framework (part of the IFRS Founda-

tion), the Task Force on Climate-related Financial Dis-

closures (TCFD), the Sustainability Accounting Standards

Board (SASB) and the latest non-ﬁnancial standards

issued by the Global Reporting Initiative (GRI). It also

contains our main disclosures against the Company’s

reporting requirement as a signatory of the United Nations

Global Compact.

The information on Board and Executive Committee

compensation is outlined in the Compensation Report (see

“—Item 6.B Compensation” in general, and for certain com

pensation information with respect to our Board that is

responsive to Item 6.C.2 of Form 20-F, see “—Item 6.B Com-

pensation—2022 Board compensation—Philosophy and

benchmarking”). Please also refer to articles 29-35 of the

Articles of Incorporation (www.novartis.com/investors/

company- overview/corporate-governance). There are no

change-of-control or ‘golden parachute’ clauses beneﬁt-

ing Board members, Executive Committee members, or

other members of senior management. Employment con-

tracts with Executive Committee members are either for a

ﬁxed term not exceeding one year or for an indeﬁnite period

with a notice period not exceeding 12months, and do not

contain commissions for the acquisition or transfer of enter-

prises or severance payments. No loans or credits are

granted to Board and Executive Committee members.

Information contained in reports and releases issued

by Novartis is only correct and accurate at the time of

release. Novartis does not update past releases to reﬂect

subsequent events, and advises against relying on them

for current information.

Investor Relations

Investor Relations manages the Group’s interactions with

the international ﬁnancial community. Several events are

held each year to provide institutional investors and analysts

with various opportunities to learn more about Novartis.

Investor Relations is based at the Group’s head quarters

in Basel. Part of the team is located in the US to coor-

dinate interaction with US investors. More information is

available at www.novartis.com/investors.

Website information

Topic Information

Share capital Articles of Incorporation of Novartis AG

www.novartis.com/investors/company-overview/corporate-governance

Novartis key share data

www.novartis.com/investors/share-data-analysis

Shareholder rights Articles of Incorporation of Novartis AG

www.novartis.com/investors/company-overview/corporate-governance

Annual General Meeting of Shareholders Annual General Meeting of Shareholders

www.novartis.com/investors/shareholder-information/annual-general-meeting

Board Regulations Board Regulations

www.novartis.com/investors/company-overview/corporate-governance

Novartis code for senior ﬁnancial ocers Novartis Code of Ethical Conduct for CEO and Senior Financial Ocers

www.novartis.com/investors/company-overview/corporate-governance

Novartis in Society Integrated Report Novartis in Society Integrated Report

www.reporting.novartis.com

Novartis ﬁnancial data Novartis ﬁnancial data

www.novartis.com/investors/ﬁnancial-data

Press releases Press releases

www.novartis.com/news/news-archive?typemedia_release

Email service

www.novartis.com/news/stay-up-to-date

Additional information Novartis Investor Relations

(including Novartis investor event calendar, registered oce, www.novartis.com/investors

contact and email addresses, phone numbers, etc.)

Item 6. Directors, Senior Management and Employees

157

Quiet periods

According to our Global Insider Policy, employees who

have access to material non-public information on a reg-

ular basis are designated as Continuing Insiders and are

banned from trading in Novartis securities during quiet

periods. Limited exemptions for the expiry of options or

warrants within a quiet period apply. Until June 14, 2022,

our quarterly quiet periods commenced at the begin-

ning of the last trading day of each calendar quarter

and ended at the beginning of the ﬁrst trading day after

the subsequent release of the quarterly and/or annual

results. Eective June 15, 2022, our quarterly quiet peri-

ods commence on the ﬁrst trading day of each calen

dar quarter and end at the beginning of the ﬁrst trading

day after the subsequent release of the quarterly and/

or annual results.

In 2022, the following quiet periods applied:

• December 30, 2021, until (and including) February 2,

2022

• March 31, 2022, until (and including) April 26, 2022

• July 1, 2022, until (and including) July 19, 2022

• October 1, 2022, until (and including) October 25, 2022

Item 6. Directors, Senior Management and Employees

158

6.D Employees

The table below sets forth the breakdown of the total year-end number of our full-time equivalent employees by

main category of activity and geographic area for the past three years.

For the year ended

December ,  Marketing and

Production and

Research and

General and

(full-time equivalents) sales

supply

development

Operations



administration

Tot a l

USA 











Canada and Latin America 











Europe 











Asia/Africa/Australasia 











Total 











For the year ended

December ,  Marketing and

Production and

Research and

General and

(full-time equivalents) sales

supply

development

Operations



administration

Tot a l

USA 











Canada and Latin America 











Europe 











Asia/Africa/Australasia 











Tot al 











For the year ended

December ,  Marketing and

Production and

Research and

General and

(full-time equivalents) sales

supply

development

Operations



administration

Tot a l

USA 











Canada and Latin America 











Europe 











Asia/Africa/Australasia 











Tot al 











relates to full time equivalent employees (FTEs) from our Operations unit, excluding the Operations units’ production and supply FTEs

As of December 31, 2022, the total number of our full-

time equivalent employees decreased by 2 620 com

pared with December 31, 2021, mainly driven by the ini-

tiative announced in April 2022 to implement a new,

streamlined organizational model. For more information

about this new organizational structure, see “Item 4.

Information on the Company—Item 4.B Overview.”

A signiﬁcant number of our employees are repre-

sented by unions or works councils. We have not expe-

rienced any material work stoppages in recent years, and

we consider our employee relations to be good.

6.E Share ownership

The information set forth under “Item 6. Directors, Senior

Management and Employees—Item 6.B Compensa-

tion—2021 Executive Committee compensation—Addi-

tional disclosures for the CEO and other Executive Com-

mittee members—Shares, ADRs and other equity rights

owned by Executive Committee members at Decem-

ber31, 2021” and under “Item 6. Directors, Senior Man-

agement and Employees—Item 6.B Compensation—2021

Board compensation—Additional disclosures—Shares,

ADRs and share options owned by Board members” is

incorporated by reference. For more information on our

equity-based participation plans, see the information set

forth under “Item 18. Financial Statements—Note26.

Equity-based participation plans for employees,” which

is incorporated by reference.

Item7. Major Shareholders and Related Party Transactions

159

Item7. Major Shareholders and Related Party

Transactions

7.A Major shareholders

Novartis shares are widely held. As of December31,

2022, Novartis had approximately 186 000 sharehold-

ers listed in the Share Register of Novartis, representing

approximately 67.0% of issued shares. Based on the

Novartis Share Register and excluding treasury shares,

approximately 48.4% of the shares registered by name

were held in Switzerland, and approximately 21.3% were

held in the US. Approximately 15.6% of the shares reg-

istered in the Share Register were held by individual

investors, while approximately 37.7% were held by legal

entities (excluding 7.7% of our share capital held as trea-

sury shares by Novartis AG or its fully owned subsidiar-

ies), and 46.7% were held by nominees, ﬁduciaries and

the ADS depositary. Due to a change in Swiss corporate

law, as of January 1, 2023, Novartis ordinary shares held

by certain Swiss foundations controlled by Novartis

(Foundation Shares) no longer carry the right to vote. As

a result, in the future these Foundation Shares will be

excluded from the calculation of the shares registered

in the Share Register in the same way, as described

above, that our treasury shares are excluded. This will

impact some of the percentage holdings reported in this

Item 7.A in future Form 20-F ﬁlings by Novartis.

Based on the Share Register, we believe that we are

not directly or indirectly owned or controlled by another

corporation or government, or by any other natural or

legal persons. There are no arrangements that may result

in a change of control.

The tables below set forth information with respect

to our major shareholders according to the Share Reg-

ister as of December 31, 2022, excluding 7.7% of our

share capital held as treasury shares by Novartis AG or

its fully owned subsidiaries. The following registered

shareholders (including nominees and the ADS deposi-

tary) held more than 2% of the total share capital of

Novartis with the right to vote all their Novartis shares

based on an exemption granted by the Board of Direc-

tors:

% of respective share capital beneﬁcially owned

as of:

Ordinary shares

beneﬁcially owned as of

Dec ,  Dec ,  Dec ,  Dec , 

Shareholders registered for their own account:

Emasan AG, Basel, Switzerland 





UBS Fund Management (Switzerland) AG, Basel, Switzerland 



Credit Suisse Funds AG, Zurich, Switzerland 





% of respective share capital held as of:

Ordinary shares

held as of

Dec , 

Dec , 

Dec , 

Shareholders registered as nominees:

Chase Nominees Ltd., London, England 







Nortrust Nominees Ltd., London, England 





The Bank of New York Mellon, New York, NY 







Through The Bank of New York Mellon, Everett, MA 





Through The Bank of New York Mellon, New York, NY 







Through The Bank of New York Mellon, SA/NV, Brussels, Belgium 







Shareholder acting as American Depositary Share (ADS) depositary:

JPMorgan Chase Bank, N.A., New York, NY 







According to a disclosure notiﬁcation ﬁled with Novartis

AG, Norges Bank (Central Bank of Norway), Oslo, Nor-

way, held 2.3% of the share capital of Novartis AG, or 54

667 792 shares, as of December31, 2022, but was not

registered in the Share Register as of December31,

2022. Provided that these shares are registered in the

Share Register on the record date of the Annual General

Meeting, Norges Bank will have full voting rights for all

of these shares.

According to a disclosure notiﬁcation ﬁled with

Novartis AG and the SIX Swiss Exchange, Black

Rock,Inc., NewYork, NY, held between 5% and 10%, but

was registered with less than 2% of the share capital of

Item7. Major Shareholders and Related Party Transactions

160

Novartis AG in the Share Register as of December31,

2022.

As of December31, 2022, no other shareholder was

registered as owner of more than 2% of the registered

share capital.

The Articles of Incorporation provide that no share-

holder shall be registered with the right to vote shares

comprising more than 2% of the registered share

capital. The Board of Directors may, upon request, grant

an exemption from this restriction. Considerations

include whether the shareholder supports the Novartis

goal of creating sustainable value and has a long-term

investment horizon. Exemptions are in force for the reg-

istered major shareholders as described above. Novartis

has not entered into any agreement with any shareholder

regarding the voting or holding of Novartis shares.

7.B Related party transactions

The information set forth under “Item 18. Financial Statements—Note27. Transactions with related parties” is incor-

porated by reference.

7.C Interests of experts and counsel

Not applicable.

Item8. Financial Information

161

Item8. Financial Information

8.A Consolidated statements and other ﬁnancial

information

See “Item18. Financial Statements.”

Dividend policy

Subject to the dividend policy described below, our

Board of Directors expects to recommend the payment

of a dividend in respect of each ﬁnancial year. If approved

by our shareholders at the relevant annual shareholders’

meeting, the dividends will be payable shortly following

such approval. Any shareholder who purchases our

shares before the ex-dividend date and holds the shares

until that date shall be deemed to be entitled to receive

the dividends approved at that meeting. Dividends are

reﬂected in our ﬁnancial statements in the year in which

they are approved by our shareholders.

Our dividend policy is to pay a growing annual divi-

dend in Swiss francs per share. This policy is subject to

our ﬁnancial conditions and outlook at the time, the

results of our operations, and other factors.

The Board will propose a dividend of CHF 3.20 per

share to the shareholders for approval at the Annual

General Meeting to be held on March 7, 2023. Because

we pay dividends in Swiss francs, exchange rate ﬂuctu-

ations will aect the US dollar amounts received by hold-

ers of ADRs. For the amount of dividends we paid in the

past three years, see “Item 18. Financial Statements—

Note 18—Equity.”

Disclosure pursuant to Section219 of the Iran

Threat Reductionand Syria Human Rights Act

(ITRA)

At Novartis, our purpose is to reimagine medicine to

improve and extend people’s lives, regardless of where

they live. This includes the compliant sale of medicines

and other healthcare products worldwide. To help us ful-

ﬁll this mission, we have for many years maintained two

representative oces located in Iran.

As of October18, 2010, a non-US aliate within our

Innovative Medicines Division entered into a non-bind-

ing Memorandum of Understanding (MoU) with the Min-

istry of Health and Medical Education of the Islamic

Republic of Iran. Pursuant to the MoU, the Iranian Minis-

try of Health acknowledges certain beneﬁts that may

apply to sales of certain Innovative Medicines Division

medicines by third-party distributors in Iran. These

include fast-track registration, market exclusivity,

end-user subsidies, and exemptions from customs tar-

is. Novartis receives no payments from the Iranian Min-

istry of Health under the MoU, and the MoU creates no

obligations on the part of either Novartis or the Iranian

Ministry of Health.

From time to time, including in 2022, non-US aliates

in our Innovative Medicines and Sandoz Divisions made

payments to government entities in Iran related to pat-

ents, trademarks, exit fees and other transactions ordi-

narily incident to travel by doctors and other medical pro-

fessionals resident in Iran to attend conferences or other

events outside Iran.

From time to time, including in 2022, non-US aliates

in our Innovative Medicines and Sandoz Divisions enter

into agreements with hospitals, research institutes, med-

ical associations and universities in Iran to provide grants

and sponsor congresses, seminars and symposia, and

with doctors and other healthcare professionals for con-

sulting services, including participation in advisory

boards and investigator services for observational

(non-interventional) studies. Some hospitals and

research institutes are owned or controlled by the gov-

ernment of Iran, and some doctors and healthcare pro-

fessionals are employed by hospitals that may be public

or government-owned.

Because our Innovative Medicines and Sandoz Divi-

sions have operations in Iran, including employees, they

obtain services and have other dealings incidental to

their activities in that country, including paying taxes and

salaries either directly or indirectly through a service pro-

vider, and obtaining oce rentals, insurance, electricity,

water and telecommunications services, oce and sim-

ilar supplies, and customs-related services from Iranian

companies that may be owned or controlled by the gov-

ernment of Iran. In addition, from time to time, represen-

tatives of our non-US aliates participate in meetings

with Iranian ocials to discuss issues relevant to our

business and the pharmaceutical industry.

Non-US aliates in our Innovative Medicines and

Sandoz Divisions maintain local accounts at banks that

are, as of November 5, 2018, on the Specially Designated

Nationals and Blocked Persons List (SDN List). These

non-US aliates make local transactions for employee

payroll and local vendor payment purposes. These trans-

actions are conducted for the purpose of facilitating the

provision of medicine to Iran, in line with the humanitar-

ian exceptions contained in Section 11 of Executive Order

13902 and other applicable sanctions legal authorities.

No transactions are made with an Iranian ﬁnancial insti-

tution designated on the SDN List in connection with

Iran’s support for international terrorism or proliferation

of weapons of mass destruction.

Item8. Financial Information

162

8.B Signiﬁcant changes

None.

Item9. The Oer and Listing

163

Item9. The Oer and Listing

9.A Oer and listing details

Our shares are listed in Switzerland on the SIX Swiss

Exchange (SIX).

ADSs, each representing one share, have been avail-

able in the US through an ADR program since Decem-

ber 1996. This program was established pursuant to a

deposit agreement that we entered into with JPMorgan

Chase Bank, N.A., as depositary (“Deposit Agreement”).

Our ADRs have been listed on the NYSE since May 2000

and are traded under the symbol NVS.

The depositary has informed us that as of January

25, 2023, there were 220 million ADRs outstanding, each

representing one Novartis share (approximately 9% of

total Novartis shares issued). On January 25, 2023, the

closing price was CHF 85.30 per share on the SIX, and

USD 92.81 per ADR on the NYSE.

9.B Plan of distribution

Not applicable.

9.C Markets

See “—Item9.A Oer and listing details.”

9.D Selling shareholders

Not applicable.

9.E Dilution

Not applicable.

9.F Expenses of the issue

Not applicable.

Item10. Additional Information

164

Item10. Additional Information

10.A Share capital

Not applicable.

10.B Memorandum and articles of association

The following is a non-exhaustive summary of certain

provisions of our Articles of Incorporation (“Articles”);

our Regulations of the Board, the Board Committees and

the Executive Committee (“Board Regulations”); and

Swiss law, particularly the Swiss Code of Obligations

(“Swiss CO”), and is qualiﬁed in its entirety by reference

to the Articles and the Board Regulations, which are an

exhibit to this Form20-F, and to Swiss law.

10.B.1 Company purpose

Novartis AG is registered in the commercial register of

the canton of Basel-Stadt, Switzerland, under number

CHE-103.867.266. Our business purpose, as stated in

Article2 of the Articles, is to hold interests in enterprises

in the area of healthcare or nutrition. We may also hold

interests in enterprises in the areas of biology, chemis-

try, physics, information technology or related areas. We

may acquire, mortgage, liquidate or sell real estate and

intellectual property rights in Switzerland or abroad. In

pursuing our business purpose, we strive to create sus-

tainable value.

10.B.2 Directors

According to our Articles, the Board of Directors

(“Board”) consists of a minimum of eight and a maximum

of 16 members. The members of the Board (including the

Board Chair) are elected individually by the General

Meeting of Shareholders (“General Meeting”) for a one-

year term of oce lasting until completion of the next

Annual General Meeting of Shareholders (“AGM”).

(a) A Board resolution requires the armative majority

of the votes cast. According to our Board Regulations,

a member of our Board (“Director”) may not partici-

pate in decisions and resolutions on matters that

aect, or reasonably might aect, the Director’s inter-

ests or the interests of a person close to the Direc-

tor.

(b) Compensation of the Directors is subject to the

approval of the aggregate amounts of such compen-

sation by a shareholders’ resolution under the Ordi-

nance against Excessive Compensation in Public

Companies of the Swiss Federal Council.

to Directors.

(d) The Articles provide that a Director shall not serve on

the Board for more than 12 years. The Board may,

under certain circumstances and if deemed in the

best interests of the Company, recommend excep-

tions to this rule to the General Meeting.

(e) Our Directors are not required to be shareholders at

the time of the election by the General Meeting. How-

ever, according to our share ownership guidelines,

the Board Chair is required to own a minimum of 30

000 Novartis AG shares, and other Directors are

required to own at least 5 000 Novartis AG shares

within ﬁve years after joining the Board, to ensure

their interests are aligned with those of our share-

holders.

10.B.3 Shareholder rights

Because Novartis AG has only one class of registered

shares, the following information applies to all sharehold-

ers.

(a) Under the Swiss CO, we may only pay dividends out

of balance sheet proﬁts or out of distributable

reserves. In any event, under the Swiss CO, while the

Board may propose that a dividend be paid, we may

only pay dividends upon shareholders’ approval at a

General Meeting. Furthermore, the Swiss CO requires

us to accrue general legal reserves under certain cir-

cumstances so long as these reserves amount to less

than 20% of our registered share capital, and Swiss

law and the Articles permit us to accrue additional

reserves beyond the statutory reserves. Our auditors

must conﬁrm that the dividend proposal of our Board

conforms with the Swiss CO and the Articles. Our

Board expects to recommend the payment of a divi-

dend in respect of each ﬁnancial year. See “Item 6.

Directors, Senior Management and Employees—Item

6.C Board Practices—Capital Structure—Limitation

on transferability—Per-share information” and

“Item 8. Financial Information—Item 8.A. Consoli

dated statements and other ﬁnancial information—

Dividend policy.”

Dividends are usually due and payable shortly after

the shareholders have passed a resolution approving

the payment. Dividends that have not been claimed

within ﬁve years after the due date revert to us and are

allocated to our general reserves. For information

about deduction of the withholding tax or other duties

from dividend payments, see “—Item10.E Taxation.”

Item10. Additional Information

165

(b) Each share is entitled to one vote at a General Meet-

ing. Voting rights may only be exercised for shares

registered with the right to vote on the record date

for the applicable General Meeting. In order to do so,

the shareholder must ﬁlea share registration form

with us, setting forth the shareholder’s name, address

and citizenship (or, in the case of a legal entity, its reg-

istered oce). If the shareholder has not timely reg-

istered its shares, then the shareholder may not vote

at, or participate in, a General Meeting.

To vote its shares, the shareholder must also

explicitly declare that it has acquired the shares in its

own name and for its own account. If the shareholder

refuses to make such a declaration, the shares may

not be voted unless the Board recognizes such share-

holder as a nominee.

The Articles provide that no shareholder shall be

registered with the right to vote shares comprising

more than 2% of the registered share capital. The

Board may, upon request, grant an exemption from

this restriction. Considerations include whether the

shareholder supports our goal of creating sustainable

value and has a long-term investment horizon. Fur-

thermore, the Articles provide that no nominee shall

be registered with the right to vote shares compris-

ing more than 0.5% of the registered share capital.

The Board may, upon request, grant an exemption

from this restriction if the nominee discloses the

names, addresses, and number of shares of the per-

sons for whose account it holds 0.5% or more of the

registered share capital. The same restrictions indi-

rectly apply to ADR holders. We have in the past

granted exemptions from the 2% rule for sharehold-

ers and the 0.5% rule for nominees.

For purposes of the 2% rule for shareholders and

the 0.5% rule for nominees, groups of companies and

groups of shareholders acting in concert are consid-

ered to be one shareholder. These rules also apply to

shares acquired or subscribed by the exercise of sub-

scription, option or conversion rights.

After hearing the registered shareholder or nom-

inee, the Board may cancel, with retroactive eect as

of the date of registration, the registration of the

shareholders if the registration was eected based

on false information.

Registration restrictions in the Articles may only

be removed upon a resolution carrying a two-thirds

majority of the votes represented at a General Meet-

ing.

Except as noted below, shareholders’ resolutions

require the approval of an absolute majority of the

votes present at a General Meeting. As a result,

abstentions have the eect of votes against such res-

olutions. Some examples of shareholders’ resolutions

requiring a vote by such “absolute majority of the

votes” are:

• Adoption and amendment of the Articles

• Election and removal of the Board Chair, the Board

and Compensation Committee members, the Inde-

pendent Proxy and the external auditor

• Approval of the management report and of the con-

solidated ﬁnancial statements

• Approval of the ﬁnancial statements of Novartis AG,

and decision on the appropriation of available earn-

ings shown on the balance sheet, including divi-

dends, if any

• Approval of the maximum aggregate compensation

of the Board (from an AGM until the next AGM) and

of the Executive Committee (for the ﬁnancial year

following the AGM)

• Discharge of Board and Executive Committee

members from liability for matters disclosed to the

General Meeting

• Decision on other matters that are reserved by law

or by the Articles (e.g., advisory vote on the Com-

pensation Report) to the General Meeting

According to the Articles and Swiss law, the fol-

lowing matters require the approval of a “superma-

jority” of at least two-thirds of the votes present at a

General Meeting:

• Alteration of the purpose of Novartis AG

• Creation of shares with increased voting powers

• Implementation of restrictions on the transfer of

registe red shares, and the removal of such restric-

tions

• Authorized or conditional increase of the share cap-

ital

• Increase of the share capital out of equity, by con-

tribution in kind, for the purpose of an acquisition

of property or the grant of special rights

• Restriction or cancellation of subscription rights

• Change of the registered oce of NovartisAG

• Dissolution of Novartis AG

In addition, the law provides for a qualiﬁed major-

ity for other resolutions, such as a merger or demerger.

Our shareholders are required to annually elect

all Directors (including the Board Chair), the Compen-

sation Committee members, the external auditor and

the Independent Proxy. The Articles do not provide

for cumulative voting of shares.

At a General Meeting, shareholders can be repre-

sented by a proxy, which must either be the sharehold-

er’s legal representative, another shareholder with the

right to vote, or the Independent Proxy. Votes are taken

either by a show of hands or by electronic voting,

unless the General Meeting resolves to have a ballot

or where a ballot is ordered by the chair of the meet-

ing. ADSs, each representing one Novartis AG share

and evidenced by ADRs, are issued by our depositary

JPMorgan Chase Bank, N.A., New York, and not by

us. The ADR is vested with rights deﬁned and enu-

merated in the Deposit Agreement (such as the rights

to vote, to receive a dividend and to receive a share

of Novartis AG in exchange for a certain number of

Item10. Additional Information

166

ADRs). The enumeration of rights, including any lim-

itations on those rights in the Deposit Agreement, is

ﬁnal. There are no other rights given to the ADR hold-

ers. Only the ADS depositary, holding our shares

underlying the ADRs, is registered as shareholder in

our share register. An ADR is not a Novartis AG share

and an ADR holder is not a Novartis AG shareholder.

The Deposit Agreement between our depositary,

the ADR holder and us has granted certain indirect

rights to vote to the ADR holders. ADR holders may

not attend a General Meeting in person. ADR holders

exercise their voting rights by instructing JPMorgan

Chase Bank, N.A., our depositary, to exercise the vot-

ing rights attached to the registered shares underly-

ing the ADRs. Each ADR represents one Novartis AG

share. JPMorgan Chase Bank, N.A., exercises the vot-

ing rights for registered shares underlying ADRs for

which no voting instructions have been given by pro-

viding a discretionary proxy to an uninstructed inde-

pendent designee. Such designee has to be a share-

holder of Novartis AG. The same voting restrictions

apply to ADR holders as to those holding Novartis AG

shares (i.e., the right to vote up to 2% of the Novartis

AG registered share capital – unless otherwise

granted an exemption by the Board – and the disclo-

sure requirement for nominees).

shown on our balance sheet and to distribute divi-

dends by vote taken at the General Meeting, subject

to the legal requirements described in “Item10.B.3(a)

Shareholder rights.”

(d) Under the Swiss CO, any surplus arising out of a liq-

uidation of Novartis AG (i.e., after the settlement of all

claims of all creditors) would be distributed to the

shareholders in proportion to the paid-in nominal

value of their shares.

(e) The Swiss CO limits a corporation’s ability to hold or

repurchase its own shares. We and our subsidiaries

may only repurchase shares if we have sucient

freely disposable equity in the amount of the pur

chase price of the acquired shares. The aggregate

nominal value of all Novartis AG shares held by us and

our subsidiaries may not exceed 10% of our regis-

tered share capital. However, it is accepted that a

Swiss corporation may repurchase its own shares

beyond the statutory limit of 10% if the repurchased

shares are clearly earmarked for cancellation. In addi-

tion, we are required to recognize a negative position,

or if our subsidiaries acquire our shares, to create a

special reserve on our balance sheet in the amount

of the purchase price of the acquired shares. Repur-

chased shares held by us or our subsidiaries do not

carry any rights to vote at a General Meeting, but are

entitled to the economic beneﬁts generally con-

nected with the shares. The deﬁnition of subsidiaries,

and therefore, treasury shares, for purposes of the

above-described reserves requirement and voting

restrictions, diers from the deﬁnition of subsidiaries

for purposes of consolidation in our consolidated

ﬁnancial statements. The deﬁnition in the consoli

dated ﬁnancial statements requires consolidation for

ﬁnancial reporting purposes of special purpose enti-

ties in instances where we have the power to govern

the ﬁnancial and operating policies of the entity so as

to obtain beneﬁts from its activities. Therefore, our

consolidated ﬁnancial statements include special

purpose entities, mainly foundations, which do not

qualify as subsidiaries subject to the reserve require-

ments and voting restrictions of the Swiss CO because

we do not hold a majority participation in these spe-

cial purpose entities. Accordingly, no reserve require-

ments apply to shares held by such special purpose

entities, and such entities are not restricted from inde-

pendently voting their shares.

Under the Swiss CO, we may not cancel treasury

shares without the approval of a capital reduction by

our shareholders.

(f) Not applicable.

(g) Since all of our issued and outstanding shares have

been fully paid in, our shareholders are not obliged to

make further contributions with respect to their

shares.

(h) See “—Item 10.B.3(b) Shareholder rights” and “—

Item10.B.7 Change in control.”

10.B.4 Changes to shareholder rights

Under the Swiss CO, we may not issue new shares with-

out the prior approval of a capital increase by our share-

holders. If a capital increase is approved, then our share-

holders would generally have certain pre-emptive rights

to obtain newly issued shares in an amount proportional

to the nominal value of the shares they already hold.

These pre-emptive rights could be excluded in certain

limited circumstances with the approval of a resolution

adopted at a General Meeting by a supermajority of

two-thirds of the votes. In addition, we may not create

shares with increased voting powers or place restrictions

on the transfer of registered shares without the approval

of a resolution adopted at a General Meeting by a super-

majority of votes. In addition, see “—Item10.B.3(b) Share-

holder rights” with regard to the Board’s ability to cancel

the registration of shares under limited circumstances.

10.B.5 Shareholder meetings

Under the Swiss CO and the Articles, we must hold an

AGM within six months after the end of our ﬁnancial year.

A General Meeting may be convened by the Board or, if

necessary, by the external auditor. The Board is further

required to convene an extraordinary General Meeting

if so resolved by a General Meeting, or if so requested

by shareholders representing at least 10% of the share

capital, specifying the items for the agenda and their

proposals. Shareholders representing shares with an

aggregate nominal value of at least CHF1000000 may

request that an item be included in a General Meeting

agenda. A General Meeting is convened by publishing a

notice in the Swiss Ocial Gazette of Commerce

(Schweizerisches Handelsamtsblatt) at least 20days

prior to such meeting. Shareholders may also be informed

by mail. Neither the Swiss CO nor the Articles require a

quorum for a General Meeting. In addition, see “—

Item10.B.3(b) Shareholder rights” regarding conditions

for exercising a shareholder’s right to vote at a General

Meeting.

Item10. Additional Information

167

10.B.6 Limitations

There are no limitations under the Swiss CO or our Arti-

cles on the right of non-Swiss residents or nationals to

own or vote shares other than the restrictions applica-

ble to all shareholders. But see “—Item10.B.3(b) Share-

holder rights” regarding conditions for exercising an ADR

holder’s right to vote at a shareholder meeting.

10.B.7 Change in control

The Articles and the Board Regulations contain no pro-

vision that would have an eect of delaying, deferring or

preventing a change in control of Novartis AG and that

would operate only with respect to a merger, acquisition

or corporate restructuring involving us or any of our sub-

sidiaries.

According to the Swiss Merger Act, shareholders

may pass a resolution to merge with another corpora-

tion at any time. Such a resolution would require the con-

sent of at least two-thirds of all votes present at the nec-

essary General Meeting.

Under the Swiss Financial Market Infrastructure Act,

shareholders and groups of shareholders acting in con-

cert who acquire more than 33 1/3% of our shares would

be under an obligation to make an oer to acquire all

remaining Novartis AG shares. Novartis AG has neither

opted out from the mandatory takeover oer obligation

nor opted to increase the threshold for mandatory take-

over oers in its Articles.

10.B.8 Disclosure of shareholdings

Under the Swiss Financial Market Infrastructure Act, per-

sons who directly, indirectly or in concert with other

parties acquire or dispose of our shares or purchase or

sale rights relating to our shares are required to notify

us and the SIX of the level of their holdings whenever

such holdings reach, exceed or fall below certain thresh-

olds – 3%, 5%, 10%, 15%, 20%, 25%, 33 1/3%, 50% and

66 2/3% – of the voting rights represented by our share

capital (whether exercisable or not). This also applies to

anyone who has discretionary power to exercise voting

rights associated with our shares. Following receipt of

such notiﬁcation, we are required to inform the public by

publishing the information via the electronic publication

platform operated by the SIX.

An additional disclosure obligation exists under the

Swiss CO that requires us to disclose, once a year in the

notes to the ﬁnancial statements published in our Annual

Report, the identity of all of our shareholders (or related

groups of shareholders) who have been granted exemp-

tion entitling them to vote more than 2% of our registered

share capital, as described in “—Item10.B.3(b) Share-

holder rights.”

10.B.9 Dierences in the law

See the references to Swiss law throughout this “—

Item10.B Memorandum and articles of association.”

10.B.10 Changes in capital

The requirements of the Articles regarding changes in

capital are not more stringent than the requirements of

Swiss law.

10.C Material contracts

Acquisition of The Medicines

Company

On November 23, 2019, we entered into an Agreement

and Plan of Merger (the “Merger Agreement”) with

US-based pharmaceutical company The Medicines

Company. Pursuant to the Merger Agreement, on Decem-

ber 5, 2019, Novartis, through a subsidiary, commenced

a tender oer to acquire all outstanding shares of The

Medicines Company for USD 85 per share, or a total con-

sideration of approximately USD 9.6 billion in cash on a

fully diluted basis. The tender oer expired on January

3, 2020, and on January 6, 2020, the acquiring subsid-

iary merged with and into The Medicines Company,

resulting in The Medicines Company becoming an

indirect wholly owned subsidiary of Novartis. This merger

broadens our cardiovascular portfolio by adding incli-

siran, an investigational cholesterol-lowering therapy.

Divestment of Roche shares

On November 3, 2021, we entered into a Share Repur-

chase Agreement with Roche under which we agreed to

sell 53.3 million (approximately 33%) of Roche bearer

shares in a bilateral transaction to Roche for a total con-

sideration of USD 20.7 billion. The transaction was

approved by the shareholders of Roche on Novem

ber26,2021, and closed on December 6, 2021.

Item10. Additional Information

168

10.D Exchange controls

There are no Swiss governmental laws, decrees or reg-

ulations that aect – in a manner material to Novartis AG

– the export or import of capital, including the availabil-

ity of cash and cash equivalents for use by Novartis or

any foreign exchange controls that aect the remittance

of dividends, interest or other payments to non-residents

or non-citizens of Switzerland who hold Novartis AG

securities.

10.E Taxation

The taxation discussion set forth below is intended only

as a descriptive summary and does not purport to be a

complete analysis or listing of all potential tax eects rel-

evant to the ownership or disposition of our shares or

ADRs. The statements of US and Swiss tax laws set forth

below are based on the laws and regulations in force as

of the date of this 20-F – including the current Conven-

tion Between the US and the Swiss Confederation for

the Avoidance of Double Taxation with Respect to Taxes

on Income, entered into force on December19, 1997 (“the

Treaty”); the US Internal Revenue Code of 1986, as

amended (“the Code”); Treasury regulations; rulings; judi-

cial decisions; and administrative pronouncements – and

may be subject to any changes in US and Swiss law, and

in any double taxation convention or treaty between the

US and Switzerland occurring after that date, which

changes may have retroactive eect.

Swiss taxation

Swiss residents

Withholding Tax on dividends and distributions. Divi-

dends that we pay and similar cash or in-kind distribu-

tions that we may make to a holder of shares or ADRs

(including distributions of liquidation proceeds in excess

of the nominal value, stock dividends and, under certain

circumstances, proceeds from repurchases of shares

by us in excess of the nominal value) are generally sub-

ject to a Swiss federal withholding tax (“the Withholding

Tax”) at a current rate of 35%. Under certain circum-

stances, distributions out of capital contribution reserves

made by shareholders after December 31, 1996, are

exempt from the Withholding Tax. We are required to

withhold Withholding Tax due from the gross distribution

and to pay the Withholding Tax to the Swiss Federal Tax

Administration. The Withholding Tax is refundable in full

to Swiss tax residents who are the beneﬁcial owners of

the taxable distribution at the time it is resolved and duly

report the gross distribution received on their personal

tax return or in their ﬁnancial statements for tax pur-

poses, as the case may be.

Income tax on dividends. A Swiss tax resident who

receives dividends and similar distributions (including

stock dividends and liquidation surplus) on shares or

ADRs is required to include such amounts in the share-

holder’s personal income tax return. However,

distributions out of qualiﬁed capital contribution reserves

are not subject to income tax. A corporate shareholder

may claim substantial relief from taxation of dividends

and similar distributions received if the shares held rep-

resent a fair market value of at least CHF1million.

Capital gains tax upon disposal of shares. Under current

Swiss tax law, the gain realized on shares held by a Swiss

resident who holds shares or ADRs as part of his private

property is generally not subject to any federal, cantonal

or municipal income taxation on gains realized on the

sale or other disposal of shares or ADRs. However, gains

realized upon a repurchase of shares by us may be char-

acterized as taxable dividend income if certain condi-

tions are met. Book gains realized on shares or ADRs

held by a Swiss corporate entity or by a Swiss resident

individual as part of the shareholder’s business property

are, in general, included in the taxable income of such

person. However, the Federal Law on the Direct Federal

Tax of December14, 1990, and several cantonal laws on

direct cantonal taxes provide for exceptions for Swiss

corporate entities holding more than 10% of our voting

stock for more than one year.

Residents of other countries

Recipients of dividends and similar distributions on our

shares who are neither residents of Switzerland for tax

purposes nor holding shares as part of a business con-

ducted through a permanent establishment situated in

Switzerland (“Non-Resident Holders”) are not subject to

Swiss income taxes in respect of such distributions.

Moreover, gains realized by such recipients upon the dis-

posal of shares are not subject to Swiss income taxes.

Non-Resident Holders of shares are, however, sub-

ject to the Withholding Tax on dividends and similar dis-

tributions mentioned above and, under certain circum-

stances, to the Stamp Duty described below. Such

Non-Resident Holders may be entitled to a partial refund

of the Withholding Tax if the country in which they reside

has entered into a bilateral treaty for the avoidance of

double taxation with Switzerland. Non-Resident Holders

should be aware that the procedures for claiming treaty

refunds (and the time frame required for obtaining a

refund) may dier from country to country. Non-Resident

Holders should consult their own tax advisors regarding

receipt, ownership, purchase, sale or other dispositions

of shares or ADRs, and the procedures for claiming a

refund of the Withholding Tax.

Item10. Additional Information

169

As of January1, 2023, Switzerland has entered into bilateral treaties for the avoidance of double taxation with

respect to income taxes with the following countries, whereby a part of the above-mentioned Withholding Tax may

be refunded (subject to the limitations set forth in such treaties):

Albania

Algeria

Argentina

Armenia

Australia

Austria

Azerbaijan

Bahrain

Bangladesh

Belarus

Belgium

Brazil

Bulgaria

Canada

Chile

China

Colombia

Croatia

Cyprus

Czech Republic

Denmark

Ecuador

Egypt

Estonia

Finland

France

Georgia

Germany

Ghana

Greece

Hong Kong

Hungary

Iceland

India

Indonesia

Iran

Republic of Ireland

Israel

Italy

Ivory Coast

Jamaica

Japan

Kazakhstan

Republic of Korea

(South Korea)

Kosovo

Kuwait

Kyrgyzstan

Latvia

Liechtenstein

Lithuania

Luxembourg

Malaysia

Malta

Mexico

Moldova

Mongolia

Montenegro

Morocco

Netherlands

New Zealand

North Macedonia

Norway

Oman

Pakistan

Peru

Philippines

Poland

Portugal

Qatar

Romania

Russia

Saudi Arabia

Serbia

Singapore

Slovak Republic

Slovenia

South Africa

Spain

Sri Lanka

Sweden

Taiwan

Tajikistan

Thailand

Trinidad and Tobago

Tunisia

Turkey

Turkmenistan

Ukraine

United Arab Emirates

United Kingdom

United States of America

Uruguay

Uzbekistan

Venezuela

Vietnam

Zambia

Tax treaty negotiations are underway, or have been conducted, with Angola, Bosnia and Herzegovina, Cameroon,

Costa Rica, Ethiopia, Jordan, Kenya, Libya, Nigeria, Rwanda, Senegal, Syria and Zimbabwe. Tax treaty negotiations

between Switzerland and some of the countries listed in the immediately preceding sentence have been ongoing

for an extended period of time, and we are not certain when or if such negotiations will be completed, and when or

if the corresponding treaties will come into eect.

A Non-Resident Holder of shares or ADRs will not be lia-

ble for any Swiss taxes other than the Withholding Tax

described above and, if the transfer occurs through or

with a Swiss bank or other Swiss securities dealer, the

Stamp Duty described below. If, however, the shares or

ADRs of Non-Resident Holders can be attributed to a

permanent establishment or a ﬁxed place of business

maintained by such person within Switzerland during the

relevant tax year, the shares or ADRs may be subject to

Swiss income taxes in respect of income and gains real-

ized on the shares or ADRs, and such person may qual-

ify for a full refund of the Withholding Tax based on Swiss

tax law.

Residents of the US. A Non-Resident Holder who is a

resident of the US for purposes of the Treaty is eligible

for a reduced rate of tax on dividends equal to 15% of

the dividend, provided that such holder (i)qualiﬁes for

beneﬁts under the Treaty, (ii)is not a company (or, if it is

a company, such company directly holds less than 10%

of our voting stock), and (iii)does not conduct business

through a permanent establishment or ﬁxed base in Swit-

zerland to which the shares or ADRs are attributable.

Such an eligible holder must apply for a refund of the

amount of the Withholding Tax in excess of the 15%

Treaty rate. A Non-Resident Holder who is a resident of

the US for purposes of the Treaty is eligible for a reduced

rate of tax on dividends equal to 5% of the dividend, pro-

vided that such holder (i)is a company, (ii)qualiﬁes for

beneﬁts under the Treaty, (iii)holds directly at least 10%

of our voting stock, and (iv)does not conduct business

through a permanent establishment or ﬁxed place of

business in Switzerland to which the shares or ADRs are

attributable. Such an eligible holder must apply for a

refund of the amount of the Withholding Tax in excess

of the 5% Treaty rate. Claims for refunds must be ﬁled

on Swiss Tax Form82 (82C for corporations; 82I for indi-

viduals; 82E for other entities), which may be obtained

from any Swiss Consulate General in the US or from the

Federal Tax Administration of Switzerland at the address

below, together with an instruction form. Four copies of

the form must be duly completed, signed before a notary

public of the US, and sent to the Federal Tax Adminis-

tration of Switzerland, Eigerstrasse 65, CH-3003 Bern,

Switzerland. The form must be accompanied by suitable

evidence of deduction of Swiss tax withheld at source,

such as certiﬁcates of deduction, signed bank vouchers

or credit slips. The form may be ﬁled on or after July1 or

January1 following the date the dividend was payable,

but no later than December31 of the third year following

the calendar year in which the dividend became payable.

For US resident holders of ADRs, JPMorgan Chase Bank,

N.A., as depositary, will comply with these Swiss

Item10. Additional Information

170

procedures on behalf of the holders, and will remit the

net amount to the holders.

Stamp Duty upon transfer of securities. The sale of

shares, whether by Swiss residents or Non-Resident

Holders, may be subject to federal securities transfer

Stamp Duty of 0.15%, calculated on the sale proceeds,

if the sale occurs through or with a Swiss bank or other

Swiss securities dealer, as deﬁned in the Swiss Federal

Stamp Duty Act. The Stamp Duty has to be paid by the

securities dealer and may be charged to the parties in a

taxable transaction who are not securities dealers.

Stamp Duty may also be due if a sale of shares occurs

with or through a non-Swiss bank or securities dealer,

provided that (i)such bank or dealer is a member of the

SIX, and (ii)the sale takes place on the SIX. In addition

to this Stamp Duty, the sale of shares by or through a

member of the SIX may be subject to a minor stock

exchange levy.

US federal income taxation

The following is a general discussion of the material US

federal income tax consequences of the ownership and

disposition of our shares or ADRs that may be relevant

to you if you are a US Holder (as deﬁned below). Because

this discussion does not consider any speciﬁc circum-

stances of any particular holder of our shares or ADRs,

persons who are subject to US taxation are strongly

urged to consult their own tax advisors as to the overall

US federal, state and local tax consequences, as well as

to the overall Swiss and other foreign tax consequences,

of the ownership and disposition of our shares or ADRs.

In particular, additional or dierent rules may apply to US

expatriates; banks and other ﬁnancial institutions; regu-

lated investment companies; traders in securities who

elect to apply a mark-to-market method of accounting;

dealers in securities or currencies; tax-exempt entities;

insurance companies; broker-dealers; investors liable for

alternative minimum tax; investors that hold shares or

ADRs as part of a straddle, hedging or conversion trans-

action; holders whose functional currency is not the US

dollar; partnerships or other pass-through entities; per-

sons who acquired our shares pursuant to the exercise

of employee stock options or otherwise as compensa-

tion; and persons who hold, directly, indirectly or by attri-

bution, 10% or more of our outstanding shares. This dis-

cussion generally applies only to US Holders who hold

the shares or ADRs as a capital asset (generally, for

investment purposes), and whose functional currency is

the US dollar. Investors are urged to consult their own

tax advisors concerning whether they are eligible for

beneﬁts under the Treaty.

For purposes of this discussion, a US Holder is a ben-

eﬁcial owner of our shares or ADRs who is (i)an individ-

ual who is a citizen or resident of the US for US federal

income tax purposes; (ii)a corporation (or other entity

taxable as a corporation for US federal income tax pur-

poses) created or organized in or under the laws of the

US or a state thereof or the District of Columbia; (iii)an

estate the income of which is subject to US federal

income taxation regardless of its source; or (iv)a trust

(i)subject to the primary supervision of a US court and

the control of one or more US persons, or (ii)that has a

valid election in place to be treated as a US person. If a

partnership (or other entity treated as a partnership for

US federal income tax purposes) holds shares or ADRs,

the tax treatment of a partner generally will depend upon

the status of the partner and the activities of the part-

nership. Partners in a partnership that holds shares or

ADRs are urged to consult their own tax advisor regard-

ing the speciﬁc tax consequences of the owning and

disposing of such shares or ADRs by the partnership.

For US federal income tax purposes, a US Holder of

ADRs generally will be treated as the beneﬁcial owner

of our shares represented by the ADRs. However, see

the discussion below under “—Dividends” regarding cer-

tain statements made by the US Treasury concerning

depositary arrangements.

This discussion assumes that each obligation in the

Deposit Agreement and any related agreement will be

performed in accordance with its terms.

Dividends. US Holders will be required to include in gross

income, as an item of ordinary income, the full amount

(without reduction for any Withholding Tax) of the divi-

dend paid with respect to our shares or ADRs at the time

that such dividend is received by the US Holder, in the

case of shares, or by the depositary, in the case of ADRs.

For this purpose, a “dividend” will include any distribu-

tion paid by us with respect to our shares or ADRs (other

than certain pro rata distributions of our capital stock)

paid out of our current or accumulated earnings and prof-

its, as determined under US federal income tax princi-

ples. To the extent the amount of a distribution by us

exceeds our current and accumulated earnings and prof-

its, such excess will ﬁrst be treated as a tax-free return

of capital to the extent of a US Holder’s tax basis in the

shares or ADRs (with a corresponding reduction in such

tax basis), and thereafter will be treated as capital gain,

which will be long-term capital gain if the US Holder held

our shares or ADRs for more than one year. Under the

Code, dividend payments by us on the shares or ADRs

are not eligible for the dividends received deduction gen-

erally allowed to corporate shareholders.

Dividend income in respect of our shares or ADRs

will constitute income from sources outside the US for

US foreign tax credit purposes. Subject to the limitations

and conditions provided in the Code, US Holders gener-

ally may claim as a credit against their US federal income

tax liability, any Withholding Tax withheld from a dividend.

The rules governing the foreign tax credit are complex.

Each US Holder is urged to consult its own tax advisor

concerning whether, and to what extent, a foreign tax

credit will be available with respect to dividends received

from us. Alternatively, a US Holder may claim the With-

holding Tax as a deduction for the taxable year within

which the Withholding Tax is paid or accrued, provided

a deduction is claimed for all of the foreign income taxes

the US Holder pays or accrues in the particular year. A

deduction does not reduce US tax on a dollar-for-dollar

basis like a tax credit. The deduction, however, is not

subject to the limitations applicable to foreign tax cred-

its, but may be subject to other limitations, and each US

Holder is urged to consult its own tax advisor.

The US Treasury has expressed concern that parties

to whom ADRs are released may be taking actions

Item10. Additional Information

171

inconsistent with the claiming of foreign tax credits for

US Holders of ADRs. Accordingly, the summary above

of the creditability of the Withholding Tax could be

aected by future actions that may be taken by the US

Treasury.

In general, a US Holder will be required to determine

the amount of any dividend paid in Swiss francs, includ-

ing the amount of any Withholding Tax imposed thereon,

by translating the Swiss francs into US dollars at the spot

rate on the date the dividend is actually or constructively

received by a US Holder, in the case of shares, or by the

depositary, in the case of ADRs, regardless of whether

the Swiss francs are in fact converted into US dollars. If

a US Holder converts the Swiss francs so received into

US dollars on the date of receipt, the US Holder gener-

ally should not recognize foreign currency gain or loss

on such conversion. If a US Holder does not convert the

Swiss francs so received into US dollars on the date of

receipt, the US Holder will have a tax basis in the Swiss

francs equal to the US dollar value on such date. Any for-

eign currency gain or loss that a US Holder recognizes

on a subsequent conversion or other disposition of the

Swiss francs generally will be treated as US source ordi-

nary income or loss.

For a non-corporate US Holder, the US dollar amount

of any dividends paid that constitute qualiﬁed dividend

income generally will be taxable at a maximum rate of

15% (or 20% in the case of taxpayers with annual income

that exceeds certain thresholds), provided that the US

Holder meets certain holding period and other require-

ments. In addition, the dividends could be subject to a

3.8% net investment income tax. This tax is applied

against the lesser of the US Holder’s net investment

income or the amount by which modiﬁed adjusted gross

income exceeds a statutory threshold amount based on

ﬁling status. We currently believe that dividends paid with

respect to our shares and ADRs will constitute qualiﬁed

dividend income for US federal income tax purposes,

provided that the US Holder meets certain holding period

and other requirements. US Holders of shares or ADRs

are urged to consult their own tax advisors regarding the

availability to them of the reduced dividend rate in light

of their own particular situation and the computations of

their foreign tax credit limitation with respect to any qual-

iﬁed dividends paid to them, as applicable.

Sale or other taxable disposition. Upon a sale or other

taxable disposition of shares or ADRs, US Holders

generally will recognize capital gain or loss in an amount

equal to the dierence between the US dollar value of

the amount realized on the disposition and the US Hold-

er’s tax basis (determined in US dollars) in the shares or

ADRs. This capital gain or loss generally will be US

source gain or loss and will be treated as long-term cap-

ital gain or loss if the holding period in the shares or ADRs

exceeds one year. In the case of a non-corporate US

Holder, any long-term capital gain generally will be sub-

ject to US federal income tax at preferential rates, with

a maximum rate of 15% (or 20% in the case of taxpayers

with annual income that exceeds certain thresholds). In

addition, the gains could be subject to a 3.8% investment

income tax. This tax is applied against the lesser of the

US Holder’s net investment income or the amount by

which modiﬁed adjusted gross income exceeds a stat-

utory threshold amount based on ﬁling status. The

deductibility of capital losses is subject to signiﬁcant lim-

itations under the Code. Deposits or withdrawals of our

shares by US Holders in exchanges for ADRs will not

result in the realization of gain or loss for US federal

income tax purposes.

US information reporting and backup withholding. Divi-

dend payments with respect to shares or ADRs and pro-

ceeds from the sale, exchange or other disposition of

shares or ADRs received in the United States or through

US-related ﬁnancial intermediaries may be subject to

information reporting to the US Internal Revenue Service

(IRS) and possible US backup withholding. Certain

exempt recipients (such as corporations) are not subject

to these information reporting and backup withholding

requirements. Backup withholding will not apply to a US

Holder who furnishes a correct taxpayer identiﬁcation

number and makes any other required certiﬁcation or

who is otherwise exempt from backup withholding. Any

US Holders required to establish their exempt status

generally must provide a properly executed IRS FormW-9

(Request for Taxpayer Identiﬁcation Number and Certi-

ﬁcation). Backup withholding is not an additional tax.

Amounts withheld as backup withholding may be cred-

ited against a US Holder’s US federal income tax liabil-

ity, and a US Holder may obtain a refund of any excess

amounts withheld under the backup withholding rules by

timely ﬁling the appropriate claim for refund with the IRS

and furnishing any required information.

10.F Dividends and paying agents

Not applicable.

10.G Statement by experts

Not applicable.

Item10. Additional Information

172

10.H Documents on display

Any statement in this Form20-F about any of our con-

tracts or other documents is not necessarily complete.

If the contract or document is ﬁled as an exhibit to the

Form20-F, the contract or document is deemed to mod-

ify the description contained in this Form20-F. You must

review the exhibits themselves for a complete descrip-

tion of the contract or document.

The SEC maintains an internet site at http://www.sec.

gov that contains reports and other information regard-

ing issuers that ﬁle electronically with the SEC. These

SEC ﬁlings are also available to the public from commer-

cial document retrieval services.

We are required to ﬁle or furnish reports and other

information with the SEC under the Exchange Act and

regulations under that act. As a foreign private issuer, we

are exempt from the rules under the Exchange Act pre-

scribing the form and content of proxy statements, and

our ocers, directors and principal shareholders are

exempt from the reporting and short-swing proﬁt recov-

ery provisions contained in Section16 of the Exchange

Act.

10.I Subsidiary information

Not applicable.

Item11. Quantitative and Qualitative Disclosures About Market Risk

173

Item11. Quantitative and Qualitative

Disclosures About Market Risk

The major ﬁnancial risks facing the Group are managed

centrally by Group Treasury, which has established pro-

cesses and procedures to identify, aggregate and man-

age our ﬁnancial risk exposure. The Group Treasury

function is included in management’s internal control

assessment.

For information about the eects of currency ﬂuctu-

ations and how we manage currency risk, see “Item5.

Operating and Financial Review and Prospects—Item5.B

Liquidity and capital resources.”

The information set forth under “Item 18. Financial

Statements—Note29. Financial instruments—additional

disclosures” is incorporated by reference.

Item12. Description of Securities Other Than Equity Securities

174

Item12. Description of Securities Other Than

Equity Securities

12.A Debt securities

Not applicable.

12.B Warrants and rights

Not applicable.

12.C Other securities

Not applicable.

12.D American Depositary Shares

Fees payable by ADR holders

According to our Deposit Agreement with the ADS depositary, JPMorgan Chase Bank, N.A. (JPMorgan), holders

of our ADRs may have to pay to JPMorgan, either directly or indirectly, fees or charges up to the amounts set forth

below:

Category Depositary actions Associated fee

Depositing or substituting Acceptance of shares surrendered, and issuance of ADRs in exchange, USD  for each  ADSs

underlying shares including surrenders and issuances in respect of: (or portion thereof)

— Share distributions evidenced by the new

— Stock split ADRs delivered

— Rights

— Merger

— Exchange of shares or any other transaction or event or other distribution

aecting the ADSs or the deposited shares

Withdrawing Acceptance of ADRs surrendered for withdrawal of deposited shares USD  for each  ADSs

underlying shares (or portion thereof)

evidenced by the ADRs

surrendered

Selling or Distribution or sale of shares, the fee being in an amount equal to the fee USD  for each  ADSs

exercising rights for the execution and delivery of ADRs that would have been charged (or portion thereof)

as a result of the deposit of such shares

Transferring, Transfers, combining or grouping of depositary receipts USD  per ADR

splitting or

grouping receipts

Expenses of the Expenses incurred on behalf of holders in connection with: Expenses payable at the sole

depositary — Compliance with foreign exchange control regulations or any law or discretion of the depositary

regulation relating to foreign investment by billing holders or by

— The depositary’s or its custodian’s compliance with applicable law, deducting charges from one

rule or regulation or more cash dividends or

— Stock transfer or other taxes and other governmental charges other cash distributions

— Cable, telex and facsimile transmission and delivery

— Expenses of the depositary in connection with the conversion of foreign

currency into US dollars (which are paid out of such foreign currency)

— Any other charge payable by any of the depositary or its agents

Advance tax relief Tax relief/reclamation process for qualiﬁed holders A depositary service charge

of USD  per ADS

Item12. Description of Securities Other Than Equity Securities

175

Fees payable by the depositary to the

issuer

Pursuant to an agreement eective as of May11, 2017

(“the Agreement”), JPMorgan, as our ADS depositary,

has agreed to make an annual contribution payment to

Novartis at the end of each 12-month period beginning

on the eective date of the Agreement and on each sub-

sequent anniversary of the eective date of the Agree-

ment (each such 12-month period is a “Contract Year”).

This annual contribution payment will equal: (a)(1) USD

1.7million less (a)(2) the custody costs, fees and expenses

(including, without limitation, any central securities

depository fees, charges and expenses) incurred during

the applicable Contract Year (the items in (a)(2) collec-

tively are the “Custody Costs”) plus (b)70% of the gross

issuance and cancellation fees collected by JPMorgan

under the Deposit Agreement during such Contract Year

minus (c)that portion (if any) of JPMorgan’s legal fees,

charges and out-of-pocket expenses in excess of USD

50 000 for such Contract Year. To the extent that the

Custody Costs for a Contract Year exceed USD 1.7mil-

lion, these costs would be capped at USD 1.7million.

JPMorgan has further agreed to waive the USD 0.05

per ADS issuance fees that would normally be owed by

Novartis in connection with our deposits of shares as

part of our employee stock ownership and employee par-

ticipation plans. Novartis is responsible for reimbursing

JPMorgan for all taxes and governmental charges

required to have been withheld and/or paid, and not so

withheld and/or paid, arising from such waived fees.

Item13. Defaults, Dividend Arrearages and Delinquencies

176

PART II

Item13. Defaults, Dividend Arrearages and

Delinquencies

None.

Item14. Material Modiﬁcations to the Rights of Security Holders and Use of Proceeds

177

Item14. Material Modiﬁcations to the Rights

of Security Holders and Use of Proceeds

None.

Item15. Controls and Procedures

178

Item15. Controls and Procedures

Report of Novartis Management on Internal Control Over Financial Reporting

Novartis AG’s Chief Executive Ocer and Chief Finan‑

cial Ocer, after evaluating the eectiveness of our dis‑

closure 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, our disclosure controls and procedures were eec‑

tive.

The Board of Directors and management of the

Group are responsible for establishing and maintaining

adequate internal control over ﬁnancial reporting. The

Group’s internal control system was designed to provide

reasonable assurance to the Group’s management and

Board of Directors regarding the reliability of ﬁnancial

reporting and the preparation and fair presentation of its

published consolidated ﬁnancial statements.

All internal control systems, no matter how well

designed, have inherent limitations. Therefore, even

those systems determined to be eective may not pre‑

vent or detect misstatements and can provide only rea‑

sonable assurance with respect to ﬁnancial statement

preparation and presentation. Also, projections of any

evaluation of eectiveness to future periods are subject

to the risk that controls may become inadequate because

of changes in conditions, or that the degree of compli‑

ance with the policies or procedures may deteriorate.

Group management assessed the eectiveness of

the Group’s internal control over ﬁnancial reporting as

of December31, 2022. In making this assessment, it used

the criteria established in Internal Control—Integrated

Framework (2013) issued by the Committee of Sponsor‑

ing Organizations of the Treadway Commission (COSO).

Based on our assessment, management concluded that,

as of December31, 2022, the Group’s internal control

over ﬁnancial reporting is eective based on those cri‑

teria.

KPMG AG, Switzerland, an independent registered

public accounting ﬁrm, has issued an unqualiﬁed opin‑

ion on the eectiveness of the Group’s internal control

over ﬁnancial reporting, which is included in this Annual

Report under “Item18. Financial Statements—Report of

independent registered public accounting ﬁrm.”

See the report of KPMG, an independent registered

public accounting ﬁrm, included under “Item18. Finan‑

cial Statements—Report of independent registered pub‑

lic accounting ﬁrm.”

There were no changes to our internal control over

ﬁnancial reporting that occurred during the period cov‑

ered by this Annual Report that have materially aected,

or are reasonably likely to materially aect, our internal

control over ﬁnancial reporting.

Vas Narasimhan Harry Kirsch

Chief Executive Ocer Chief Financial Ocer

Basel, January 31, 2023

Item16A. Audit Committee Financial Expert

179

Item16A. Audit Committee Financial Expert

Our Audit and Compliance Committee has determined

that Elizabeth Doherty and Ana de Pro Gonzalo possess

speciﬁc accounting and ﬁnancial management exper-

tise, and that they are Audit Committee Financial Experts

as deﬁned by the SEC. The Board of Directors has also

determined that Elizabeth Doherty and Ana de Pro

Gonzalo are “independent” in accordance with the appli

cable requirements of Rule10A-3 of the Exchange Act,

and that other members of the Audit and Compliance

Committee have sucient experience and ability in

ﬁnance and compliance matters to enable them to ade-

quately discharge their responsibilities.

Item16B. Code of Ethics

180

Item16B. Code of Ethics

In addition to our Code of Ethics and Professional Prac-

tices Policy, which are applicable to all of our employees,

we have adopted Ethical Conduct Requirements that

impose additional obligations on our principal executive

ocer, principal ﬁnancial ocer, principal accounting

ocer, and persons performing similar functions. This

document is accessible on our internet website at:

https://www.novartis.com/investors/company-over-

view/corporate-governance

Item16C. Principal Accountant Fees and Services

181

Item16C. Principal Accountant Fees and

Services

The information set forth under “Item 6. Directors, Senior Management and Employees—Item 6.C Board practices—

Corporate governance—Auditors” is incorporated by reference.

Item16D. Exemptions from the Listing Standards for Audit Committees

182

Item16D. Exemptions from the Listing

Standards for Audit Committees

Not applicable.

Item16E. Purchases of Equity Securities by the Issuer and Aliated Purchasers

183

Item16E. Purchases of Equity Securities by

the Issuer and Aliated Purchasers

Maximum

approximate

Total number

value of

of shares

shares that

purchased

may yet be

as part of

purchased

publicly

under the

Average price

announced

plans or

Total number of

paid per share

plans or

programs

shares purchased

in USD

programs

(CHF millions)

(USD millions)

 (a)



(b)

(c)



(d)

(e)



Jan. - 









Feb. - 









Mar. - 









Apr. - 









May - 









Jun. - 









Jul. - 









Aug. - 









Sep. - 









Oct. - 









Nov. - 









Dec. - 









Total 





Column (a) shows shares repurchased on the SIX Swiss Exchange second trading line plus shares we purchased from employees who had

obtained the shares through a Novartis Employee Ownership Plan. See “Item 18. Financial Statements – Note 26 Equity-based participation

plans for employees.”

Column (c) shows shares repurchased on the SIX Swiss Exchange second trading line under the CHF 10 billion share buyback authority

approved at the 2021 AGM and under the additional CHF 10 billion share buyback authority approved at the 2022 AGM for transactions in

2022. See “Item 6. Directors, Senior Management and Employees – Item 6C. Board Practices – Our capital structure – Changes in capital.”

Column (e) shows the Swiss franc amount from column (d) converted into US dollars as of the month-end, using the Swiss franc/US dollar

exchange rate at the applicable month-end

Item16F. Change in Registrant’s Certifying Accountant

184

Item16F. Change in Registrant’s Certifying

Accountant

Not applicable.

Item16G. Corporate Governance

185

Item16G. Corporate Governance

Novartis AG is subject to and compliant with the laws

and regulations of Switzerland (in particular, Swiss com-

pany and securities laws, SIX Swiss Exchange rules and

the Swiss Code of Best Practice for Corporate Gover-

nance) and the securities laws of the United States,

including New York Stock Exchange (NYSE) rules, as

applicable to foreign private issuers of securities. The

following summarizes some signiﬁcant ways in which our

corporate governance practices dier from those fol-

lowed by domestic listed US companies under the list-

ing standards of the NYSE:

• Novartis AG shareholders do not receive written

reports directly from Board committees.

• External auditors are appointed by shareholders at the

Annual General Meeting of Shareholders (AGM), as

opposed to being appointed by the Audit and Compli-

ance Committee.

• While shareholders cannot vote on all equity compen-

sation plans, they are entitled to hold separate, yearly

binding votes on Board and Executive Committee com-

pensation.

• The Board has set up a separate Risk Committee that

oversees the risk management system and processes,

as opposed to delegating this responsibility to the Audit

and Compliance Committee.

• The full Board is responsible for overseeing the

performance evaluation of the Board and Executive

Committee.

• The full Board is responsible for setting objectives rel-

evant to the CEO’s compensation and for evaluating

his performance.

Item16H. Mine Safety Disclosure

186

Item16H. Mine Safety Disclosure

Not applicable.

Item16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

187

Item16I. Disclosure Regarding Foreign

Jurisdictions that Prevent Inspections

Not applicable.

Item17. Financial Statements

188

PART III

Item17. Financial Statements

See response to “Item18. Financial Statements.”

Item18. Financial Statements

189

Item18. Financial Statements

The following ﬁnancial statements are ﬁled as part of this Annual Report.

Page

Consolidated income statements F-

Consolidated statements of comprehensive income F-

Consolidated balance sheets F-

Consolidated statements of changes in equity F-

Consolidated statements of cash ﬂows F-

Notes to the Novartis Group consolidated ﬁnancial statements F-

. Signiﬁcant accounting policies F-

. Signiﬁcant transactions F-

. Segmentation of key ﬁgures ,  and  F-

. Associated companies F-

. Interest expense andotherﬁnancialincomeandexpense F-

. Income taxes F-

. Earnings per share F-

. Changes in consolidated statements ofcomprehensive income F-

. Property, plant and equipment F-

. Right-of-use assets and lease liabilities F-

. Goodwill and intangible assets F-

. Deferred tax assets and liabilities F-

. Financial and other non-current assets F-

. Inventories F-

. Trade receivables F-

. Marketable securities, commodities, timedeposits, derivative ﬁnancial instruments,

andcash and cash equivalents F-

. Other current assets F-

. Equity F-

. Non-current ﬁnancial debt F-

. Provisions and other non-current liabilities F-

. Current ﬁnancial debt andderivativeﬁnancialinstruments F-

. Provisions and other current liabilities F-

. Details to the consolidated statements of cash ﬂows F-

. Acquisitions of businesses F-

. Post-employment beneﬁts for employees F-

. Equity-based participation plans for employees F-

. Transactions with related parties F-

. Commitments and contingent liabilities F-

. Financial instruments – additional disclosures F-

. Events subsequent to the December , , consolidated balance sheet date F-

. Principal Group subsidiaries andassociatedcompanies F-

Statutory Auditor’s Report on the consolidated ﬁnancial statements of Novartis AG F-

Financial statements of Novartis AG A-

Notes to the ﬁnancial statements of Novartis AG A-

Appropriation of available earnings and reserves of Novartis AG A-

Statutory Auditor’s Report on the ﬁnancial statements of Novartis AG A-

Item19. Exhibits

190

Item19. Exhibits

The SEC maintains an internet site at http://www.sec.gov that contains reports and other information regarding

issuers that ﬁle electronically with the SEC. These SEC ﬁlings are also available to the public from commercial doc-

ument retrieval services.

1.1 Articles of Incorporation of Novartis AG, as amended March 2, 2021 (English translation) (incorporated

by reference to Exhibit4.1 to Novartis AG’s registration statement on FormS-8 (File No.333-258081) as

ﬁled with the SEC on July 22, 2021).

1.2 Regulations of the Board of Directors, the Board Committees and the Executive Committee of Novartis

AG, eective January 1, 2021 (incorporated by reference to Exhibit 1.2 to Novartis AG’s Annual Report

on Form 20-F (File No. 001-15024) as ﬁled with the SEC on January 26, 2021).

2.1 Form of Second Amended and Restated Deposit Agreement among Novartis AG, JPMorgan Chase Bank,

N.A., as depositary, and all Holders and Beneﬁcial Owners from time to time of American Depositary

Receipts issued thereunder (incorporated by reference to Exhibit99.A to the Registration Statement on

FormF-6 (File No.333-198623) as ﬁled with the SEC on December 16, 2022).

2.2 Form of American Depositary Receipt (incorporated by reference to Exhibit99.A to the Registration

Statement on FormF-6 (File No.333-198623) as ﬁled with the SEC on December 16, 2022).

2.3 The total amount of long-term debt securities authorized under any instrument does not exceed 10% of

the total assets of the Company and its subsidiaries on a consolidated basis. We hereby agree to furnish

to the SEC, upon its request, a copy of any instrument deﬁning the rights of holders of long-term debt of

the Company or of its subsidiaries for which consolidated or unconsolidated ﬁnancial statements are

required to be ﬁled.

2.4 Description of Securities registered under Section 12 of the Exchange Act.

8.1 For a list of all of our principal Group subsidiaries and associated companies, see “Item 18. Financial

Statements—Note31. Principal Group subsidiaries and associated companies.”

12.1 Certiﬁcation of Vasant Narasimhan, Chief Executive Ocer of Novartis AG, pursuant to Section302 of

the Sarbanes-Oxley Act of 2002.

12.2 Certiﬁcation of Harry Kirsch, Chief Financial Ocer of Novartis AG, pursuant to Section302 of the Sar-

banes-Oxley Act of 2002.

13.1 Certiﬁcation of Vasant Narasimhan, Chief Executive Ocer of Novartis AG, pursuant to Section18 U.S.C.

Section1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002.

13.2 Certiﬁcation of Harry Kirsch, Chief Financial Ocer of Novartis AG, pursuant to Section18 U.S.C. Sec-

tion1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002.

15.1 Consent of KPMG AG.

15.2 Consent of PricewaterhouseCoopers AG.

Item19. Exhibits

191



101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Deﬁnition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit101).

192

(This page has been left blank intentionally.)

Novartis Group consolidatedﬁnancialstatements

F-1

Novartis Group

consolidatedﬁnancialstatements

Consolidated income statements

(For the years ended December 31, 2022, 2021 and 2020)

(USD millions unless indicated otherwise) Note







Net sales to third parties 







Other revenues 







Cost of goods sold

– 

– 

– 

Gross proﬁt







Selling, general and administration

– 

– 

– 

Research and development

– 

– 

– 

Other income







Other expense

– 

– 

– 

Operating income







(Loss)/income from associated companies 

– 





Interest expense 

– 

– 

– 

Other ﬁnancial income and expense 



– 

– 

Income before taxes







Income taxes 

– 

– 

– 

Net income







Attributable to:

Shareholders of Novartis AG

6 955

24 021

8 072

Non-controlling interests

– 3

– 1

Basic earnings per share (USD) 







Diluted earnings per share (USD) 







The accompanying Notes form an integral part of the consolidated ﬁnancial statements.

Novartis Group consolidatedﬁnancialstatements

F-2



Consolidated statements of comprehensive income

(For the years ended December 31, 2022, 2021 and 2020)

(USD millions) Note







Net income







Other comprehensive income

Items that are or may be recycled into the consolidated income statement

Novartis share of other comprehensive income

recognized by associated companies, net of taxes 



– 

Net investment hedge, net of taxes 





– 

Currency translation eects, net of taxes 

– 

– 



Total of items that are or may be recycled

– 

– 



Items that will never be recycled into the consolidated income statement

Actuarial (losses)/gains from deﬁned beneﬁt plans, net of taxes 

– 





Fair value adjustments on equity securities, net of taxes 

– 





Total of items that will never be recycled

– 





Total comprehensive income







Attributable to:

Shareholders of Novartis AG

6 116

21 528

11 403

Non-controlling interests

– 5

– 7

– 2

The accompanying Notes form an integral part of the consolidated ﬁnancial statements.

Novartis Group consolidatedﬁnancialstatements

F-3

Consolidated balance sheets

(At December 31, 2022 and 2021)

(USD millions) Note





Assets

Non-current assets

Property, plant and equipment 





Right-of-use assets 





Goodwill 





Intangible assets other than goodwill 





Investments in associated companies 





Deferred tax assets 





Financial assets 





Other non-current assets 





Total non-current assets





Current assets

Inventories 





Trade receivables 





Income tax receivables





Marketable securities, commodities, time deposits and derivative ﬁnancial instruments 





Cash and cash equivalents 





Other current assets 





Total current assets





Total assets





Equity and liabilities

Equity

Share capital 





Treasury shares 

– 

– 

Reserves





Equity attributable to Novartis AG shareholders





Non-controlling interests





Total equity





Liabilities

Non-current liabilities

Financial debts 





Lease liabilities 





Deferred tax liabilities 





Provisions and other non-current liabilities 





Total non-current liabilities





Current liabilities

Trade payables





Financial debts and derivative ﬁnancial instruments 





Lease liabilities 





Current income tax liabilities





Provisions and other current liabilities 





Total current liabilities





Total liabilities





Total equity and liabilities





The accompanying Notes form an integral part of the consolidated ﬁnancial statements.

Novartis Group consolidatedﬁnancialstatements

F-4

Consolidated statements of changes in equity

(For the years ended December 31, 2022, 2021 and 2020)

Reserves

Equity

attributable

Non-

Treasury

Retained

Total value

to Novartis

controlling

Total

(USD millions) Note

capital

earnings

adjustments

shareholders

interests

equity

Total equity at January , 



– 



– 







Net income



– 



Other comprehensive income 

– 





– 



Total comprehensive income







– 



Dividends 

– 

Purchase of treasury shares 

– 

– 

– 

Reduction of share capital 

– 



– 

Exercise of options and employee transactions 







Repurchase of options 

– 

Equity-based compensation 







Shares delivered to Alcon employees

as a result of the Alcon spin-o 





Taxes on treasury share transactions



Increase of treasury share repurchase

obligation under a share buyback trading plan 

– 

Fair value adjustments on ﬁnancial assets sold 



– 

Value adjustments related to divestments 

– 



Impact of change in ownership of consolidated entities 



– 



– 

– 

Other movements 



Total of other equity movements

– 



– 

– 

– 

– 

– 

Total equity at December , 

 –   –    

Net income



– 



Other comprehensive income 



– 

– 

– 

– 

Total comprehensive income



– 



– 



Dividends 

– 

Purchase of treasury shares 

– 

– 

– 

Reduction of share capital 

– 



– 

Exercise of options and employee transactions 





Equity-based compensation 







Shares delivered to Alcon employees

as a result of the Alcon spin-o 





Taxes on treasury share transactions



Increase of treasury share repurchase

obligation under a share buyback trading plan 

– 

Transaction costs, net of taxes 



Changes in non-controlling interests 

– 

Fair value adjustments on ﬁnancial assets sold 



– 

Value adjustments related to divestments 



– 

Impact of change in ownership of consolidated entities 

– 



– 





Other movements 



Total of other equity movements

– 



– 

– 

– 



– 

Total equity at December , 

 –   –    

Net income







Other comprehensive income 

– 

– 

– 

Total comprehensive income



– 



– 



Dividends 

– 

Purchase of treasury shares 

– 

– 

– 

Reduction of share capital 

– 



– 

Exercise of options and employee transactions 







Equity-based compensation 







Shares delivered to Alcon employees

as a result of the Alcon spin-o 





Taxes on treasury share transactions



Decrease of treasury share repurchase

obligation under a share buyback trading plan 



Changes in non-controlling interests 

– 

Fair value adjustments on ﬁnancial assets sold 



– 

Value adjustments related to divestments 

– 



Other movements 



Total of other equity movements

– 

– 

– 



– 

– 

– 

Total equity at December , 



– 



– 







The accompanying Notes form an integral part of the consolidated ﬁnancial statements.

Novartis Group consolidatedﬁnancialstatements

F-5

Consolidated statements of cash ﬂows

(For the years ended December 31, 2022, 2021 and 2020)

(USD millions) Note







Net income







Adjustments to reconcile net income to net cash ﬂows from operating activities

Reversal of non-cash items and other adjustments 



– 



Dividends received from associated companies and others







Interest received







Interest paid

– 

– 

– 

Other ﬁnancial receipts





Other ﬁnancial payments

– 

– 

– 

Income taxes paid 

– 

– 

– 

Net cash ﬂows from operating activities before working capital and

provision changes







Payments out of provisions and other net cash movements in non-current liabilities

– 

– 

– 

Change in net current assets and other operating cash ﬂow items 

– 



– 

Net cash ﬂows from operating activities







Purchases of property, plant and equipment

– 

– 

– 

Proceeds from sale of property, plant and equipment







Purchases of intangible assets

– 

– 

– 

Proceeds from sale of intangible assets







Purchases of ﬁnancial assets

– 

– 

– 

Proceeds from sale of ﬁnancial assets







Purchases of other non-current assets

– 

– 

Proceeds from sale of other non-current assets





Acquisitions and divestments of interests in associated companies, net 

– 



– 

Acquisitions and divestments of businesses, net 

– 

– 

– 

Purchases of marketable securities, commodities and time deposits

– 

– 

– 

Proceeds from sale of marketable securities, commodities and time deposits







Net cash ﬂows from/(used in) investing activities from continuing operations





– 

Net cash ﬂows used in investing activities from discontinued operations 

– 

Net cash ﬂows from/(used in) investing activities





– 

Dividends paid to shareholders of Novartis AG

– 

– 

– 

Acquisitions of treasury shares

– 

– 

– 

Proceeds from exercised options and other treasury share transactions, net







Increase in non-current ﬁnancial debts 





Repayments of the current portion of non-current ﬁnancial debts 

– 

– 

– 

Change in current ﬁnancial debts 



– 



Payments of lease liabilities 

– 

– 

– 

Impact of change in ownership of consolidated entities

– 

– 

Other ﬁnancing cash ﬂows, net





– 

Net cash ﬂows used in ﬁnancing activities from continuing operations

– 

– 

– 

Net cash ﬂows used in ﬁnancing activities from discontinued operations 

– 

Net cash ﬂows used in ﬁnancing activities

– 

– 

– 

Net change in cash and cash equivalents before eect of exchange

rate changes

– 



– 

Eect of exchange rate changes on cash and cash equivalents

– 

– 



Net change in cash and cash equivalents

– 



– 

Cash and cash equivalents at January 







Cash and cash equivalents at December 







The accompanying Notes form an integral part of the consolidated ﬁnancial statements.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-6

Notes to the Novartis

Groupconsolidatedﬁnancial statements

1. Signiﬁcant accounting policies

The Novartis Group (Novartis or Group) is a multinational

group of companies specializing in the research, devel-

opment, manufacturing and marketing of a broad range

of innovative pharmaceuticals and cost-saving generic

medicines. The Group is headquartered in Basel, Swit-

zerland.

The consolidated ﬁnancial statements of the Group

are prepared in accordance with International Financial

Reporting Standards (IFRS) as issued by the Interna-

tional Accounting Standards Board (IASB). They are pre-

pared in accordance with the historical cost convention,

except for items that are required to be accounted for

at fair value.

The Group’s ﬁnancial year-end is December 31, which

is also the annual closing date of the individual entities’

ﬁnancial statements incorporated into the Group’s con-

solidated ﬁnancial statements.

The preparation of ﬁnancial statements requires

management to make certain estimates and assump

tions, either at the balance sheet date or during the year,

which aect the reported amounts of revenues, expenses,

assets, liabilities and contingent amounts.

Estimates are based on historical experience and

other assumptions that are considered reasonable under

the given circumstances and are regularly monitored.

Actual outcomes and results could dier from those esti-

mates and assumptions. Revisions to estimates are rec-

ognized in the period in which the estimate is revised.

Listed below are accounting policies of signiﬁcance to

Novartis or, in cases where IFRS provides alternatives,

the option adopted by Novartis.

Scope of consolidation

The consolidated ﬁnancial statements include all enti-

ties, including structured entities, over which Novartis

AG, Basel, Switzerland, directly or indirectly has control

(generally as a result of owning more than 50% of the

entity’s voting interest). Consolidated entities are also

referred to as “subsidiaries.”

In cases where Novartis does not fully own a subsid-

iary, it has elected to value any remaining outstanding

non-controlling interest at the time of acquiring control

of the subsidiary at its proportionate share of the fair

value of the net identiﬁed assets.

Investments in associated companies (generally

deﬁned as investments in entities in which Novartis holds

between 20% and 50% of voting shares or over which it

otherwise has signiﬁcant inﬂuence) and joint ventures

are accounted for using the equity method, except for

selected venture fund investments for which the Group

has elected to apply the method of fair value through the

consolidated income statement.

Foreign currencies

The consolidated ﬁnancial statements of Novartis are

presented in US dollars (USD). The functional currency

of a subsidiary is generally the local currency of that

respective entity. The functional currency used for the

reporting of certain Swiss and foreign ﬁnance entities is

USD instead of their respective local currencies. This

reﬂects the fact that the cash ﬂows and transactions of

these entities are primarily denominated in this currency.

For subsidiaries not operating in hyperinﬂationary

economies, the subsidiary’s results, ﬁnancial position

and cash ﬂows that do not have USD as their functional

currency are translated into USD using the following

exchange rates:

• Income, expense and cash ﬂows for each month using

the average exchange rate, with the US dollar values

for each month being aggregated during the year

• Balance sheet using year-end exchange rates

• Resulting exchange rate dierences are recognized in

other comprehensive income

For subsidiaries operating in hyperinﬂationary econo-

mies, the impact of the restatement of the non-monetary

assets and liabilities with the general price index at the

beginning of the period is recorded in retained earnings

in equity. The subsequent gains or losses resulting from

the restatement of non-monetary assets are recorded

in “Other ﬁnancial income and expense” in the consoli-

dated income statement.

Non-current assets held for sale or

held for distribution to owners

Non-current assets are accounted for as assets held for

sale or as related to discontinued operations when their

carrying amount is to be recovered principally through

a sale transaction or distribution to owners and a sale or

distribution to owners is considered highly probable.

They are stated at the lower of carrying amount and fair

value less costs to sell and any resulting impairment is

recognized. Assets related to discontinued operations

and assets of a disposal group held for sale are not

depreciated or amortized. The prior year consolidated

balance sheet is not restated.

If in a subsequent period, the criteria for classiﬁca-

tion as held for sale are no longer met, the recoverable

amount of assets and liabilities are reclassiﬁed out of

assets held for sale into the respective balance sheet

lines and the prior year consolidated balance sheet is

not restated. The cumulative amount of depreciation and

amortization not recorded since the date of their classi-

ﬁcation as assets held for sale, and any required

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-7

adjustments to the recoverable amounts of assets are

recognized in the consolidated income statement.

Acquisition of assets and businesses

Assets separately acquired are recorded at cost, which

includes the purchase price and any directly attributable

costs for bringing the asset into the condition to operate

as intended. Expected costs for obligations to disman-

tle and remove property, plant and equipment and restore

the site when it is no longer used are included in their

cost.

Acquired businesses are accounted for by applying

the acquisition method, unless the optional concentra-

tion test is applied. The optional concentration test

allows for an election on a transaction-by-transaction

basis to account for the acquired business as an asset

separately acquired when substantially all of the fair

value of the gross assets acquired is concentrated in a

single identiﬁable asset or group of similar identiﬁable

assets.

The acquisition method requires that the assets

acquired and liabilities assumed be recorded at their

respective fair values on the date the Group obtains con-

trol. The excess of the fair value of the total purchase

consideration transferred over the fair value of the

acquired assets and assumed liabilities is recognized as

goodwill. The valuations are based on information avail-

able at the acquisition date. Acquisition related costs are

expensed as incurred.

The application of the acquisition method requires

certain estimates and assumptions to be made, espe-

cially concerning the fair values of the acquired intangi-

ble assets, inventories, property, plant and equipment

and the liabilities assumed at the acquisition date, and

the useful lives of the intangible assets and property,

plant and equipment. Estimates of fair value require the

use of valuation techniques. These valuations require the

use of management assumptions and estimates, includ-

ing the value of comparable assets in the market, amount

and timing of future cash ﬂows, outcomes and costs of

research and development activities, probability of

obtaining regulatory approval, long-term sales forecasts,

actions of competitors, discount rates and terminal

growth rates. The section “—Impairment of goodwill and

intangible assets” in this Note 1 provides additional infor-

mation on key assumptions that are highly sensitive in

the estimation of fair values using valuation techniques.

Property, plant and equipment

Property, plant and equipment is depreciated on a

straight-line basis in the consolidated income statement

over the estimated useful life of the individual asset. Free

hold land is not depreciated. The related depreciation

expense is included in the costs of the functions using

the asset.

Property, plant and equipment is assessed for impair

ment whenever there is an indication that the balance

sheet carrying amount may not be recoverable using

cash ﬂow projections over the useful life.

The following table shows the estimated useful life

by major categories for property, plant and equipment:

Useful life

Buildings  to  years

Machinery and other equipment

Machinery and equipment  to  years

Furniture and vehicles  to  years

Computer hardware  to  years

Government grants obtained for construction activities,

including any related equipment, are deducted from the

gross acquisition cost to arrive at the balance sheet car-

rying value of the related assets.

Leases and right-of-use assets

As lessee, at inception and upon the modiﬁcation of a

contract, the Group assesses whether the contract con-

tains a lease. The Group elected to allocate the consid-

eration in the contract to the lease and non-lease com-

ponents on the basis of the relative standalone price of

each component.

The Group recognizes a right-of-use asset and a cor-

responding lease liability for all arrangements in which

it is a lessee, except for leases with a term of 12 months

or less (short-term leases) and low-value leases. For

these short-term and low-value leases, the Group rec-

ognizes the lease payments as an operating expense on

a straight-line basis over the term of the lease.

The lease liability is initially measured at the present

value of the future lease payments as from the com-

mencement date of the lease to the end of the lease term.

The lease term includes the period of any lease exten-

sion that management assess as reasonably certain to

be exercised by the Group. The lease payments are dis-

counted using the interest rate implicit in the lease or, if

not readily determinable, the Novartis incremental bor-

rowing rate for the asset subject to the lease in the rel-

evant market.

The Group remeasures the lease liability (and makes

a corresponding adjustment to the related right-of-use

asset) whenever there is a change to the lease terms or

expected payments under the lease, or a modiﬁcation

that is not accounted for as a separate lease.

The portion of the lease payments attributable to the

repayment of lease liabilities is recognized in cash ﬂows

used in ﬁnancing activities, and the portion attributable

to the payment of interest is included in cash ﬂows from

operating activities.

Right-of-use assets are initially recognized on the bal-

ance sheet at cost, which comprises the amount of the

initial measurement of the corresponding lease liability,

adjusted for any lease payments made at or prior to the

commencement date of the lease, any lease incentive

received, and any initial direct costs incurred by Novartis,

and expected costs for obligations to dismantle and

remove right-of-use assets when they are no longer

used.

Right-of-use assets are depreciated on a straight-line

basis from the commencement date of the lease over

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-8

the shorter of the useful life of the right-of-use asset or

the end of the lease term.

Right-of-use assets are assessed for impairment

whenever there is an indication that the balance sheet

carrying amount may not be recoverable using cash ﬂow

projections for the useful life.

In arrangements where the Group is the lessor, it

determines at lease inception whether the lease is a

ﬁnance lease or an operating lease. Leases that trans-

fer substantially all of the risk and rewards incidental to

ownership of the underlying asset to the counterparty

(the lessee) are accounted for as ﬁnance leases. Leases

that do not transfer substantially all of the risks and

rewards of ownership are accounted for as operating

leases. Operating lease payments received are recog-

nized on a straight-line basis over the lease term in the

consolidated income statement in “Other income.”

Goodwill and intangible assets

Goodwill

Goodwill arises on applying the acquisition method on

the acquisition of a business and is the excess of the fair

value of the consideration transferred to acquire the

business over the underlying fair value of the net identi-

ﬁed assets acquired. It is allocated to groups of cash-gen-

erating units (CGUs), that are expected to beneﬁt from

the synergies of the combination, and which are usually

represented by the reported segments. Goodwill is

tested for impairment annually at the level of these

groups of CGUs, and any impairment charges are

recorded under “Other expense” in the consolidated

income statement.

Intangible assets available for use

Novartis has the following classes of available for use

intangible assets: currently marketed products; technol-

ogies and other intangible assets (including software).

Currently marketed products represent the compos-

ite value of acquired intellectual property (IP), patents,

distribution rights and product trade names.

Technologies represent identiﬁed and separable

acquired know-how used in the research, development

and production processes.

Signiﬁcant investments in internally developed and

acquired computer software are capitalized and included

in the “Other” category, and amortized once available for

use.

Intangible assets available for use with a deﬁnite use-

ful life are amortized over their estimated useful lives on

a straight-line basis and are evaluated for potential

impairment whenever facts and circumstances indicate

that their carrying value may not be recoverable.

The following table shows the estimated useful life

by major categories for intangible assets available for

use and the line in the consolidated income statement

in which the amortization and any potential impairment

charge is recognized:

Income statement line

for amortization and

Useful life

impairment charges

Currently marketed products 5 to 20 years

“Cost of goods sold”

Technologies 10 to 20 years

“Cost of goods sold”

or “Research

and development”

Other (including 3 to 12 years

In the relevant

software)

functional expense

Intangible assets not yet available for use

Acquired research and development intangible assets

that have not yet obtained marketing approval are rec-

ognized as in-process research and development

(IPR&D).

IPR&D is not amortized, but is evaluated for potential

impairment on an annual basis or when facts and circum

stances warrant. Any impairment charge is recorded in

the consolidated income statement under “Research and

development.” Once a project included in IPR&D has

received marketing approval from a regulatory authority,

it is transferred to the “Currently marketed products” cat-

egory.

Impairment of goodwill and intangible

assets

An asset, a CGU or a grouping of CGUs is considered

impaired when its balance sheet carrying amount

exceeds its estimated recoverable amount, which is

deﬁned as the higher of its fair value less costs of dis-

posal and its value in use. Usually, Novartis applies the

fair value less costs of disposal method for its impair-

ment assessment. In most cases, no directly observable

market inputs are available to measure the fair value less

costs of disposal. Therefore, an estimate is derived indi-

rectly and is based on net present value techniques uti-

lizing post-tax cash ﬂows and discount rates. In the lim-

ited cases where the value-in-use method would be

applied, net present value techniques would be applied

using pre-tax cash ﬂows and discount rates.

Fair value less costs of disposal reﬂects estimates of

assumptions that market participants would be expected

to use when pricing the asset or CGU, and for this pur-

pose, management considers the range of economic

conditions that are expected to exist over the remaining

useful life of the asset. These valuations are classiﬁed

as “Level 3” in the fair value hierarchy.

The estimates used in calculating the net present val-

ues are highly sensitive and depend on assumptions spe-

ciﬁc to the nature of the Group’s activities with regard

to:

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-9

• Amount and timing of projected future cash ﬂows

• Sales forecasts

• Actions of competitors (launch of competing products,

marketing initiatives, etc.)

• Sales erosion rates after the end of patent or other

intellectual property rights protection, and timing of the

entry of generic competition

• Outcome of research and development activities (com-

pound ecacy, results of clinical trials, etc.)

• Amount and timing of projected costs to develop IPR&D

into commercially viable products

• Proﬁt margins

• Probability of obtaining regulatory approval

• Future tax rate

• Appropriate terminal growth rate

• Appropriate discount rate

Generally, for intangible assets with a deﬁnite useful life,

Novartis uses cash ﬂow projections for the whole useful

life of these assets. For goodwill, Novartis generally uti-

lizes cash ﬂow projections for a three-year period based

on management forecasts, with a terminal value based

on cash ﬂow projections usually in line with inﬂation rates

for later periods.

Probability-weighted scenarios are typically used.

Discount rates used consider the Group’s estimated

weighted average cost of capital, adjusted for speciﬁc

asset, country and currency risks associated with cash

ﬂow projections, to approximate the discount rate that

market participants would use to value the asset.

Due to the above factors, actual cash ﬂows and val-

ues could vary signiﬁcantly from forecasted future cash

ﬂows and related values derived using discounting tech-

niques.

Cash and cash equivalents

Cash and cash equivalents include highly liquid invest-

ments with original maturities of three months or less,

which are readily convertible to known amounts of cash.

Bank overdrafts are presented within current ﬁnancial

debts on the consolidated balance sheet.

Marketable securities, commodities

and non-current ﬁnancial assets

Commodities, which include gold bullion or coins, are

valued at the lower of cost or fair value using current

market prices. The changes in fair value below cost are

immediately recorded in “Other ﬁnancial income and

expense.”

Marketable securities are ﬁnancial assets held for

short-term purposes which are principally traded in liq-

uid markets and are classiﬁed within current assets on

the consolidated balance sheet. The ﬁnancial impacts

related to these ﬁnancial assets are recorded in “Other

ﬁnancial income and expense” in the consolidated

income statement. Non-current ﬁnancial assets held for

long-term strategic purposes are classiﬁed within

non-current assets on the consolidated balance sheet.

The ﬁnancial impacts related to these ﬁnancial assets

are recorded in “Other income” and “Other expense” in

the consolidated income statement.

Marketable securities and non-current ﬁnancial

assets are initially recorded at fair value on their trade

date, which is dierent from the settlement date when

the transaction is ultimately eected. Quoted securities

are remeasured at each reporting date to fair value based

on current market prices. If the market for a ﬁnancial

asset is not active or no market is available, fair values

are established using valuation techniques. The major-

ity of non-quoted investments are initially valued at fair

value through the purchase price established between

a willing buyer and seller. Non-quoted investments are

subsequently adjusted based on values derived from dis

counted cash ﬂow analysis or other pricing models.

These investment values are classiﬁed as “Level 3” in

the fair value hierarchy.

The Group classiﬁes and accounts for its marketable

securities and non-current ﬁnancial assets in the follow-

ing categories:

• Debt securities are valued at fair value through other

comprehensive income with subsequent recycling into

the consolidated income statement, as they meet both

the “solely payment of principal and interest” and the

business model criteria. Unrealized gains and losses,

except exchange gains and losses, are recorded as a

fair value adjustment in the consolidated statement of

comprehensive income. They are recognized in the

consolidated income statement when the debt instru-

ment is sold, at which time the gain is transferred to

“Other ﬁnancial income and expense.” Exchange gains

and losses related to debt instruments are immediately

recognized in the consolidated income statement in

“Other ﬁnancial income and expense.”

• Fund investments and equity securities of the Novartis

Venture Fund are valued at fair value through proﬁt and

loss (FVPL). Unrealized gains and losses, including

exchange gains and losses, are recognized in the con-

solidated income statement in “Other income” for gains

and “Other expense” for losses.

• Equity securities held as strategic investments, typi-

cally held outside of the Novartis Venture Fund, are

generally designated at the date of acquisition as ﬁnan-

cial assets valued at fair value through other compre-

hensive income with no subsequent recycling through

proﬁt and loss. Unrealized gains and losses, including

exchange gains and losses, are recorded as a fair value

adjustment in the consolidated statement of compre-

hensive income. They are reclassiﬁed to retained earn-

ings when the equity security is sold. If these equity

securities are not designated at the date of acquisition

as ﬁnancial assets valued at fair value through other

comprehensive income, they are valued at FVPL, as

described above.

• Other non-current ﬁnancial assets, such as loans and

long-term receivables from customers, advances and

other deposits, are valued at amortized cost, which

reﬂects the time value of money less any allowances

for expected credit losses.

The Group assesses on a forward-looking basis the

expected credit losses associated with its debt securi-

ties valued at fair value through other comprehensive

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-10

income. Impairments on debt securities are recorded in

“Other ﬁnancial income and expense.”

For other ﬁnancial assets valued at amortized cost,

impairments, which are based on their expected credit

losses, and exchange rate losses are included in “Other

expense” in the consolidated income statement.

Exchange rate gains and interest income, using the eec-

tive interest rate method, are included in “Other income”

or “Other ﬁnancial income” in the consolidated income

statement, depending on the nature of the item.

Derivative ﬁnancial instruments

Derivative ﬁnancial instruments are initially recognized

in the balance sheet at fair value and are remeasured to

their current fair value at the end of each subsequent

reporting period. The valuation of a forward exchange

rate contract is based on the discounted cash ﬂow

model, using interest rate curves and forward rates at

the reporting date as observable inputs.

Options are valued based on a modiﬁed Black-

Scholes model using volatility and exercise prices as

major observable inputs.

The Group enters into certain derivative ﬁnancial

instruments for the purpose of hedging to reduce the

volatility in the Group’s performance due to the exposure

to various business-related risks. The risk mitigation is

obtained because the derivative’s value or cash ﬂows

are expected, wholly or partly, to oset changes in the

value or cash ﬂows of the recognized assets or liabilities.

The overall strategy is aiming to mitigate the currency

and interest rate risk of positions that are contractually

agreed, and to partially mitigate the exposure risk of

selected anticipated transactions.

Certain derivative ﬁnancial instruments meet the

criteria for hedge accounting treatment. A prerequisite

for obtaining this accounting-hedge relationship is exten-

sive documentation on inception and proving on a regu-

lar basis that the economic hedge is eective for account-

ing purposes. Other derivative ﬁnancial instruments do

not meet the criteria to qualify for hedge accounting or

are not designated in a hedge relationship. Changes in

the fair value of these derivative instruments are recog-

nized immediately in “Other ﬁnancial income and

expense” in the consolidated income statement.

In addition, the Group has designated certain long-

term debt components as hedges of the translation risk

arising on certain net investments in foreign operations.

On consolidation, foreign currency dierences arising

on long-term debt designated as net investment hedges

of a foreign operation are recognized in other compre-

hensive income and accumulated in currency translation

eects, to the extent that the hedge is eective. The for-

eign currency dierences arising from hedge ineective-

ness are recognized in the income statement in “Other

ﬁnancial income and expense.”

When a hedged net investment is disposed of, the

proportionate portion of the cumulative amount recog-

nized in equity in relation to the hedged net investment

is transferred to the consolidated income statement as

an adjustment to the gain or loss on disposal.

Inventories

Inventory is valued at the lower of acquisition or produc-

tion cost determined on a ﬁrst-in, ﬁrst-out basis and net

realizable value. This value is used for the “Cost of goods

sold” in the consolidated income statement. Unsaleable

inventory is fully written o in the consolidated income

statement under “Cost of goods sold.”

Trade receivables

Trade receivables are initially recognized at their invoiced

amounts, including any related sales taxes less adjust-

ments for estimated revenue deductions such as rebates,

chargebacks and cash discounts.

Provisions for doubtful trade receivables are estab-

lished using a forward-looking expected credit loss

model (ECL), which includes possible default events on

the trade receivables over the entire holding period of

the trade receivable. These provisions represent the dif-

ference between the trade receivable’s carrying amount

in the consolidated balance sheet and the estimated col-

lectible amount. Charges for doubtful trade receivables

are recorded as marketing and selling costs recognized

in the consolidated income statement within “Selling,

general and administration” expenses.

Legal and environmental liabilities

Novartis and its subsidiaries are subject to contingen-

cies arising in the ordinary course of business, such as

patent litigation, environmental remediation liabilities and

other product-related and commercial litigation, and gov-

ernmental investigations and proceedings. A provision

is recorded when there is a probable outﬂow of resources

for which a reliable estimate can be made of the outcome

of the legal or other disputes against the subsidiary.

Contingent consideration

In the acquisition or divestment of a business, it is nec-

essary to recognize contingent future amounts due to

previous owners, representing contractually deﬁned

potential amounts as a liability or an asset. Usually for

Novartis, these are linked to milestone or royalty pay-

ments related to certain assets and are recognized as a

ﬁnancial liability or ﬁnancial asset at fair value, which is

then remeasured at each subsequent reporting date.

These estimations typically depend on factors such as

technical milestones or market performance, and are

adjusted for the probability of their likelihood of payment,

and are appropriately discounted to reﬂect the impact

of time.

Changes in the fair value of contingent consideration

liabilities in subsequent periods are recognized in the

consolidated income statement in “Cost of goods sold”

for currently marketed products and in “Research and

development” for IPR&D. Changes in contingent consid-

eration assets are recognized in “Other income” or

“Other expense,” depending on their nature.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-11

The eect of unwinding the discount over time is rec-

ognized for contingent consideration liabilities in “Inter-

est expense” and for contingent consideration assets as

interest income recognized in the consolidated income

statement within “Other ﬁnancial income and expense.”

Deﬁned beneﬁt pension plans

andotherpost-employment beneﬁts

The liability in respect of deﬁned beneﬁt pension plans

and other post-employment beneﬁts is the deﬁned ben-

eﬁt obligation calculated annually by independent actu-

aries using the projected unit credit method. The current

service cost for such post- employment beneﬁt plans is

included in the personnel expenses of the various func-

tions in which employees are employed, while the net

interest on the net deﬁned beneﬁt liability or asset is

recognized as “Other expense” or “Other income.”

Treasury shares

Treasury shares are initially recorded at fair value on their

trade date, which is dierent from the settlement date,

when the transaction is ultimately eected. Treasury

shares are deducted from consolidated equity at their

nominal value of CHF 0.50 per share. Dierences

between the nominal amount and the transaction price

on purchases or sales of treasury shares with third par-

ties, or the value of services received for the shares allo-

cated to employees as part of share-based compensa-

tion arrangements, are recorded in “Retained earnings”

in the consolidated statement of changes in equity.

Revenue recognition

Revenue on the sale of Novartis Group products and ser

vices, which is recorded as “Net sales to third parties” in

the consolidated income statement, is recognized when

a contractual promise to a customer (performance obli-

gation) has been fulﬁlled by transferring control over the

promised goods and services to the customer, substan-

tially all of which is at the point in time of shipment to or

receipt of the products by the customer or when the ser-

vices are performed. If contracts contain customer

acceptance provisions, revenue is recognized upon the

satisfaction of the acceptance criteria. If a contract con-

tains more than one performance obligation, the consid-

eration is allocated based on the standalone selling price

of each performance obligation. The amount of revenue

recognized is based on the consideration Novartis

expects to receive in exchange for its goods and ser-

vices, when it is highly probable that a signiﬁcant rever-

sal will not occur.

The consideration Novartis receives in exchange for

its goods or services may be ﬁxed or variable. Variable

consideration is recognized when it is highly probable

that a signiﬁcant reversal will not occur. The most com-

mon elements of variable consideration are listed below.

• Rebates and discounts granted to wholesalers, retail-

ers, government agencies (including US Medicaid and

US Federal Medicare programs), government

supported healthcare systems, private health systems,

pharmacy beneﬁt managers, managed healthcare

organizations, purchasing organizations and other

direct and indirect customers, as well as chargebacks

are provisioned and recorded as revenue deductions

at the time the related revenues are recorded, or when

the incentives are oered. These rebates and dis-

counts, applied using provision rates, are estimated

based on the terms and conditions in the individual

states, plans and customer agreements, historical

experience, product sales and growth rate, population

growth, product pricing including inﬂation impacts, the

mix of contracts and products, the level of inventory in

the distribution channel, regulations, contracts, chan-

nels and payers, as appropriate to the individual rebate

and discount arrangements.

• Refunds granted to healthcare providers under

innovative pay-for-performance agreements (i.e. out-

come based arrangements) are provisioned and

recorded as a revenue deduction at the time the related

sales are recorded. They are calculated on the basis

of historical experience and clinical data available for

the product, as well as speciﬁc terms of the individual

agreements. In cases where historical experience and

clinical data are not sucient for a reliable estimation

of the outcome, revenue recognition is deferred until

the uncertainty is resolved, until such history is avail-

able or the period when the refund right has expired.

The provisions for revenue deductions under the

innovative pay-for-performance agreements are

adjusted periodically based on established processes

and actual experience, including the products actual

outcomes achieved compared with the anticipated pre-

deﬁned targets.

• Cash discounts are oered to customers to encourage

prompt payment and are provisioned and recorded as

revenue deductions at the time the related sales are

recorded.

• Shelf stock adjustments are generally granted to cus-

tomers, primarily of the Sandoz Division, to cover the

inventory held by them at the time a price decline

becomes eective. Revenue deduction provisions for

shelf stock adjustments are recorded when the price

decline is anticipated, based on the impact of the price

decline on the customer’s estimated inventory levels.

• Sales returns provisions are recognized and recorded

as revenue deductions when there is historical expe-

rience of Novartis agreeing to customer returns and

Novartis can reasonably estimate expected future

returns. In doing so, the estimated rate of return is

applied, determined on the basis of historical experi-

ence of customer returns and considering any other

relevant factors. This is applied to the amounts invoiced,

also considering the amount of returned products to

be destroyed versus products that can be placed back

in inventory for resale. Where shipments are made on

a resale or return basis, without sucient historical

experience for estimating sales returns, revenue is only

recorded when there is evidence of consumption or

when the right of return has expired.

Net sales to third parties and provisions for revenue

deductions are adjusted periodically to reﬂect experi-

ence and to reﬂect actual amounts as rebates, refunds,

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-12

discounts and returns are processed. There is often a

time lag between recording of revenue deductions and

the ﬁnal accounting for them. The provision represents

estimates of the related obligations, requiring the use of

judgment when estimating the eect of these revenue

deductions.

“Other revenue” includes income from proﬁt-sharing

arrangements with our collaboration partners, and roy-

alty and milestone income from the out-licensing of intel-

lectual property when Novartis retains an interest in the

intellectual property through a license. Royalty income

earned from a license is recognized when the underly-

ing sales have occurred. Milestone income is recognized

at the point in time when it is highly probable that the rel-

evant milestone event criteria are met, and the risk of

reversal of revenue recognition is remote. “Other reve-

nue” also includes revenue from activities such as man-

ufacturing or other services rendered, to the extent such

revenue is not recorded under net sales to third parties,

and is recognized when control transfers to the third

party and our performance obligations are satisﬁed.

Research and development

Internal research and development (R&D) costs are fully

charged to “Research and development” in the consol-

idated income statement in the period in which they are

incurred. The Group considers that regulatory and other

uncertainties inherent in the development of new prod-

ucts preclude the capitalization of internal development

expenses as an intangible asset until marketing approval

from a regulatory authority is obtained in a major market

such as the United States, the European Union, Switzer-

land or Japan.

Payments made to third parties, such as contract

research and development organizations in compensa-

tion for subcontracted R&D, that are deemed not to

transfer intellectual property to Novartis are expensed

as internal R&D expenses in the period in which they are

incurred. Such payments are only capitalized if they meet

the criteria for recognition of an internally generated

intangible asset, usually when marketing approval has

been received from a regulatory authority in a major mar-

ket.

Payments made to third parties to in-license or

acquire intellectual property rights, compounds and

products, including initial upfront and subsequent mile-

stone payments, are capitalized, as are payments for

other assets, such as technologies to be used in R&D

activities. If additional payments are made to the origi-

nator company to continue performing R&D activities, an

evaluation is made as to the nature of the payments. Such

additional payments will be expensed if they are deemed

to be compensation for subcontracted R&D services not

resulting in an additional transfer of intellectual property

rights to Novartis. Such additional payments will be cap-

italized if they are deemed to be compensation for the

transfer to Novartis of additional intellectual property

developed at the risk of the originator company. Subse-

quent internal R&D costs in relation to IPR&D and other

assets are expensed, since the technical feasibility of

the internal R&D activity can only be demonstrated by

the receipt of marketing approval for a related product

from a regulatory authority in a major market.

Costs for post-approval studies performed to sup-

port the continued registration of a marketed product

are recognized as marketing expenses. Costs for activ-

ities that are required by regulatory authorities as a con-

dition for obtaining marketing approval in a major market

are capitalized and recognized as currently marketed

products.

Inventory produced ahead of regulatory approval is

fully provisioned, and the charge is included in “Other

expense” in the consolidated income statement, as its

ultimate use cannot be assured. If this inventory can sub-

sequently be sold, the provision is released to “Other

income” in the consolidated income statement, either on

approval by the appropriate regulatory authority or,

exceptionally in Europe, on recommendation by the

Committee for Medicinal Products for Human Use

(CHMP), if approval is virtually certain.

Share-based compensation

Vested Novartis shares and American Depositary

Receipts (ADRs) that are granted as compensation are

valued at their market value on the grant date and are

immediately expensed in the consolidated income state-

ment.

The fair values of unvested restricted shares (RSs),

restricted share units (RSUs) and performance share

units (PSUs) in Novartis shares and ADRs granted to

employees as compensation are recognized as an

expense over the related vesting period. The expense

recorded in the consolidated income statement is

included in the personnel expenses of the various func-

tions in which the employees are employed.

Unvested restricted shares, restricted ADRs and

RSUs are only conditional on the provision of services

by the plan participant during the vesting period. They

are valued at fair value on the grant date. As RSUs do

not entitle the holder to dividends, the fair value is based

on the Novartis share price at the grant date adjusted

for the net present value of the dividends expected to

be paid during the holding period. The fair value of these

grants, after making adjustments for assumptions related

to forfeiture during the vesting period, is expensed on a

straight-line basis over the respective vesting period.

PSUs are subject to the achievement of certain per-

formance criteria during the vesting period and require

plan participants to provide services during this period.

The following paragraphs provide an overview of the

accounting policies for the share-based compensation

plan that grant PSUs.

For PSUs that are subject to performance criteria

based on Novartis internal performance metrics and that

are conditional on the provision of service by plan par-

ticipants during the vesting period, the expense is rec-

ognized on a straight-line basis over the vesting period,

and is determined based on assumptions concerning the

expected performance against the internal performance

metrics throughout the vesting period. The assumptions

are based on the Group’s targets for those performance

metrics, and the expected forfeitures due to plan partic-

ipants not meeting their service conditions. The

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-13

assumptions are periodically adjusted over the vesting

period. Any change in estimates for past services is

recorded immediately as an expense or income in the

consolidated income statement, and amounts for the

remaining vesting period are expensed on a straight-line

basis. As a result, at the end of the vesting period, the

charge during the entire vesting period represents the

amount that will ﬁnally vest. The number of equity instru-

ments that ﬁnally vest is determined at the vesting date.

For PSUs that are subject to performance criteria

based on variables that can be observed in the market,

which for Novartis plans is the Novartis total shareholder

return (TSR) relative to a speciﬁc peer group of compa-

nies over the vesting period, and that are conditional on

the provision of services by the plan participants during

the vesting period, the expense is recognized on a

straight-line basis over the vesting period, and is deter-

mined based on the total fair value of the grant over the

vesting period. IFRS requires that these variables that

can be observed in the market are taken into account in

determining the fair value of the PSUs at the grant date.

Novartis determined the fair value of these PSUs at the

date of grant using a Monte Carlo simulation model.

Adjustments to the number of equity instruments granted

are only made if a plan participant does not fulﬁll the ser-

vice conditions.

For PSUs granted under plans that are subject to both

performance criteria based on Novartis internal perfor-

mance metrics and Novartis TSR relative to a speciﬁc

peer group of companies over the vesting period and

that are conditional on the provision of service by plan

participants during the vesting period, the expense is

recognized on a straight-line basis over the vesting

period, and is determined based on a bifurcation into the

components based on the performance criteria related

to Novartis internal performance metrics and TSR, as

described in the paragraphs above.

Measuring the fair values of PSUs granted that

include TSR performance criteria requires use of esti-

mates. The Monte Carlo simulation used to determine

the fair value of the PSUs TSR performance criteria

requires the probability of factors related to uncertain

future events; the term of the award; the grant price of

underlying shares or ADRs; expected volatilities; the

expected correlation matrix of the underlying equity

instruments with those of the peer group of companies;

and the risk-free interest rate as input parameters.

If a plan participant leaves Novartis for reasons other

than retirement, disability or death, then unvested

restricted shares, restricted ADRs, RSUs and PSUs are

forfeited, unless determined otherwise by the provision

of the plan rules or by the Compensation Committee of

the Novartis Board of Directors, for example, in connec-

tion with a reorganization or divestment.

Government grants

Grants from governments or similar organizations are

recognized at their fair value when there is reasonable

assurance that the grant will be received and the Group

will comply with all attached conditions.

Government grants received to compensate costs

are deferred and recognized in the consolidated income

statement over the period necessary to match them

against the related costs that they are intended to com-

pensate.

The accounting policy for property, plant and equip-

ment describes the treatment of any related grants.

Restructuring charges

Restructuring provisions are recognized for the direct

expenditure arising from the restructuring, where the

plans are suciently detailed and where appropriate

communication to those aected has been made.

Charges to increase restructuring provisions are

included in “Other expense” in the consolidated income

statements.

Healthcare contributions

Healthcare cost contribution levies and fees under gov-

ernmental programs that require the Group to contrib-

ute to a country’s healthcare costs, other than programs

described in “Revenue recognition” in this Note 1, are

recognized in “Other expense” in the consolidated

income statement. Provisions for healthcare cost con-

tributions are adjusted to the actual amounts levied. The

provision represents estimates of the related obligations,

requiring the use of judgment when estimating the eect

of these healthcare cost contributions.

Income taxes

Income taxes comprise current income taxes and

deferred income taxes and are recognized in the same

periods as the revenues and expenses to which they

relate. Income taxes include interest and penalties

incurred during the period, insofar as they are consid-

ered an income tax. Income taxes related to items rec-

ognized directly to other comprehensive income or to

equity are recognized together with the corresponding

item, to which the income tax is attributable, directly in

other comprehensive income or in equity.

Deferred income taxes are determined using the

comprehensive liability method and are calculated on

the temporary dierences that arise between the tax

base of an asset or liability and its carrying value for

ﬁnancial reporting purposes, except for those temporary

dierences related to investments in subsidiaries and

associated companies, where the timing of their rever-

sal can be controlled and it is probable that the dier-

ence will not reverse in the foreseeable future. Since the

retained earnings are reinvested, withholding or other

taxes on eventual distribution of a subsidiary’s retained

earnings are only recognized when a dividend is declared

or has been planned. Furthermore, deferred income

taxes are recognized for the net tax eects of net oper-

ating loss carryforwards and tax credits.

The carrying amount of deferred tax assets is

reduced to the extent that it is not probable that su-

cient taxable proﬁts will be available to enable all or part

of the asset to be recovered. In evaluating our ability to

recover our deferred tax assets in the jurisdiction from

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-14

which they arise, we consider all available positive and

negative evidence, including scheduled reversals of

deferred tax liabilities, projected future taxable income,

tax-planning strategies, and results of recent operations.

The estimated amounts for current and deferred tax

assets or liabilities, including amounts related to any

uncertain tax positions, are based on applicable tax law

and regulations in the various tax jurisdictions, in which

the Group operates, which are subject to interpretations

based on currently known facts and circumstances.

Tax returns are based on an interpretation of tax laws

and regulations, and reﬂect estimates based on these

judgments and interpretations. The tax returns are sub-

ject to examination by the competent taxing authorities,

which may result in an assessment being made requir-

ing payments of additional tax, interest or penalties.

The calculation of income tax assets and liabilities

involves dealing with uncertainties in the application of

complex tax laws and regulations in a multitude of juris-

dictions across our global operations. As a result, inher-

ent uncertainties exist in the estimates of the tax posi-

tions. Tax liabilities for uncertain tax provisions are

recognized on the consolidated balance sheets within

current income tax liabilities.

Impact of new IFRS standards,

amendments and interpretations in

2022

There were no new IFRS standards adopted by the

Group in 2022. In addition, new IFRS amendments or

interpretations that became eective in 2022 did not

have a material impact to the Group’s consolidated ﬁnan-

cial statements.

Based on the Group’s assessment, there are no IFRS

standards, amendments or interpretations not yet eec-

tive in 2022 that would be expected to have a material

impact on the Group’s consolidated ﬁnancial statements.

Impact of adopting signiﬁcant new

IFRS standard in 2021

The following new IFRS standard has been adopted by

Novartis from January 1, 2021:

Interest Rate Benchmark Reform – Phase 2,

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and

IFRS 16 (Interest Benchmark Reform Amendments)

Interest Benchmark Reform Amendments became eec-

tive from January 1, 2021. These amendments address

issues that might aect ﬁnancial reporting when an exist-

ing interest rate benchmark (i.e. Interbank oered rate –

IBOR) is replaced with an alternative benchmark inter-

est rate. The eects of interest rate benchmark reform

on the Group’s ﬁnancial instruments and risk manage-

ment strategies did not have a material impact on the

Group’s consolidated ﬁnancial statements.

Impact of adopting signiﬁcant new

IFRS standard in 2020

The following new IFRS standard has been adopted by

Novartis from January 1, 2020:

IFRS 3 Business Combinations amendments

The IASB issued amendments to IFRS 3 Business Com-

binations that revised the deﬁnition of a business, which

assist entities with the evaluation of when an asset or

group of assets acquired should be considered a busi-

ness. This amended standard has been applied to trans-

actions entered into on or after January 1, 2020. The

amended standard allows an entity to apply an optional

concentration test, on a transaction-by-transaction

basis, to evaluate whether substantially all of the fair

value of the gross assets acquired is concentrated in a

single identiﬁable asset or group of similar identiﬁable

assets. If this optional concentration test is met, the set

of activities and assets is determined not to be a busi-

ness. The adoption of this amended standard on Janu-

ary 1, 2020, did not have a signiﬁcant impact on our con-

solidated ﬁnancial statements and is not expected to

have a signiﬁcant impact in future periods. However, this

will depend on the facts and circumstances of future

transactions and if the Group decides to apply the

optional concentration test in the assessment of whether

an acquired set of activities and assets is or is not a busi-

ness.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-15



2. Signiﬁcant transactions

The Group applied the acquisition method of account-

ing for businesses acquired, and did not elect to apply

the optional concentration test to account for acquired

business as an asset separately acquired.

Signiﬁcant transactions in 2022

Innovative Medicines – acquisition of Gyroscope

Therapeutics Holdings plc

On December 22, 2021, Novartis entered into an agree-

ment to acquire all outstanding shares of Gyroscope

Therapeutics Holdings plc (Gyroscope), a UK-based

ocular gene therapy company. Gyroscope focuses on

the discovery and development of gene therapy treat-

ments for retinal indications. The purchase price con-

sisted of a cash payment of USD 0.8 billion, subject to

certain customary purchase price adjustments, and

potential additional milestone payments of up to USD 0.7

billion, which Gyroscope shareholders are eligible to

receive upon achievement of speciﬁed milestones. The

acquisition closed on February 17, 2022.

The fair value of the total purchase consideration was

USD 1.0 billion. The amount consisted of an upfront cash

payment of USD 0.8 billion (including customary pur-

chase price adjustments) and the fair value of contingent

consideration of USD 0.2 billion, which Gyroscope share-

holders are eligible to receive upon achievement of spec

iﬁed milestones. The purchase price allocation resulted

in net identiﬁable assets of USD 0.9 billion, consisting

primarily of intangible assets of USD 1.1 billion and net

deferred tax liabilities of USD 0.2 billion. Goodwill

amounted to USD 0.1 billion.

The results of operations since the date of acquisi-

tion are not material.

Signiﬁcant transactions in 2021

Sandoz – acquisition of GSK’s cephalosporin

antibiotics business

On February 10, 2021, Sandoz entered into an agreement

with certain subsidiaries of GlaxoSmithKline plc (GSK)

for the acquisition of the GSK’s cephalosporin antibiot-

ics business.

Under the agreement, Sandoz acquired the global

rights to three established brands (Zinnat

, Zinacef

and

Fortum

) in more than 100 markets. It excluded the rights

in the US, Australia and Germany to certain of those

brands, which were previously divested by GSK, and the

rights in India, Pakistan, Egypt, Japan (to certain of the

brands) and China, which will be retained by GSK. The

transaction closed on October 8, 2021.

The purchase price consisted of a USD 350 million

upfront payment paid at closing and potential milestone

payments up to USD 150 million, which GSK will be eli-

gible to receive upon the achievement of certain annual

sales milestones for the portfolio.

The fair value of the total purchase consideration was

USD 415 million. The amount consisted of a payment of

USD 351 million, including purchase price adjustments,

and the fair value of contingent consideration of USD 64

million, which GSK is eligible to receive upon the achieve-

ment of speciﬁed milestones. The purchase price allo-

cation resulted in net identiﬁable assets of USD 308 mil-

lion, consisting of USD 292 million intangible assets and

USD 16 million deferred tax assets. Goodwill amounted

to USD 107 million.

The 2021 results of operations since the date of

acquisition were not material.

Corporate – divestment of the investment in Roche

Holding AG

On November 3, 2021, Novartis entered into a Share

Repurchase Agreement with Roche Holding AG under

which Novartis agreed to sell 53.3 million (approximately

33.3%) bearer shares of Roche Holding AG voting shares

in a bilateral transaction to Roche Holding AG for a total

consideration of USD 20.7 billion. As a result, Novartis

discontinued the use of equity method accounting start-

ing from November 3, 2021.

The transaction closed on December 6, 2021.

Novartis realized a gain of USD 14.6 billion, recorded in

income from associated companies.

Signiﬁcant transactions in 2020

Innovative Medicines – acquisition of

TheMedicines Company

On November 23, 2019, Novartis entered into an agree-

ment and plan of merger (“the Merger Agreement”) with

The Medicines Company, a US-based pharmaceutical

company headquartered in Parsippany, New Jersey,

USA. Pursuant to the Merger Agreement, on December

5, 2019, Novartis, through a subsidiary, commenced a

tender oer to acquire all outstanding shares of The

Medicines Company for USD 85 per share, or a total con-

sideration of approximately USD 9.6 billion in cash on a

fully diluted basis, including the equivalent share value

related to The Medicines Company’s convertible notes,

in accordance with their terms. The tender oer expired

on January 3, 2020, and on January 6, 2020, the acquir-

ing subsidiary merged with and into The Medicines Com-

pany, resulting in The Medicines Company becoming an

indirect wholly owned subsidiary of Novartis. Novartis

ﬁnanced the transaction through available cash, and

short- and long-term borrowings.

The Medicines Company is focused on the develop-

ment of inclisiran, a potentially ﬁrst-in-class, twice yearly

therapy that allows administration during patients’ rou-

tine visits to their healthcare professionals and will poten-

tially contribute to improved patient adherence and sus-

tained lower LDLC levels.

The fair value of the total purchase consideration was

USD 9.6 billion. The purchase price allocation resulted

in net identiﬁable assets of approximately USD 7.1 billion,

consisting of USD 8.5 billion intangible assets, USD 1.4

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-16

billion net deferred tax liabilities and goodwill of approx-

imately USD 2.5 billion.

The 2020 results of operations since the date of

acquisition were not material.

Sandoz – acquisition of the Japanese business of

Aspen Global Incorporated

On November 11, 2019, Sandoz entered into an agree-

ment for the acquisition of the Japanese business of

Aspen Global Incorporated (AGI), a wholly owned sub-

sidiary of Aspen Pharmacare Holdings Limited. Under

the agreement, Sandoz acquired the shares in Aspen

Japan K.K. and associated assets held by AGI. The trans-

action closed on January 31, 2020.

Aspen’s portfolio in Japan consisted of o-patent

medicines with a focus on anesthetics and specialty

brands. The acquisition will enable Sandoz to expand its

presence in the third-largest worldwide generics mar-

ketplace.

The purchase price consisted of EUR 274 million

(USD 303 million) upfront payment, less customary pur-

chase price adjustment of EUR 27 million (USD 30 mil-

lion), plus potential milestone payments of up to EUR 70

million (USD 77 million), which AGI is eligible to receive

upon the achievement of speciﬁed milestones.

The fair value of the total purchase consideration was

EUR 294 million (USD 324 million). The amount consisted

of a cash payment of EUR 247 million (USD 273 million)

and the fair value of contingent consideration of EUR 47

million (USD 51 million), which AGI is eligible to receive

upon the achievement of speciﬁed milestones. The pur-

chase price allocation resulted in net identiﬁable assets

of USD 238 million, consisting of USD 196 million intan-

gible assets, USD 26 million other net assets and USD

16 million net deferred tax assets. Goodwill amounted to

USD 86 million.

The 2020 results of operations since the date of

acquisition were not material.

Sandoz – retention of US dermatology business

and generic US oral solids portfolio, previously

planned to be divested

On September 6, 2018, Novartis announced that it

entered into a stock and asset purchase agreement

(SAPA) with Aurobindo Pharma USA Inc. (Aurobindo) for

the sale of selected portions of its Sandoz US portfolio,

speciﬁcally the Sandoz US dermatology business and

generic US oral solids portfolio, for USD 0.8 billion in

cash and potential earnouts. The closing was conditional

on obtaining regulatory approval.

In March 2020, Novartis took the decision to retain

the Sandoz US generic oral solids and dermatology busi-

nesses and on April 2, 2020 entered into a mutual agree-

ment with Aurobindo to terminate the transaction. The

decision was taken as approval from the US Federal

Trade Commission for the transaction was not obtained

within the agreed timelines.

The cumulative amount of the depreciation on prop-

erty, plant and equipment (USD 38 million) and amorti-

zation on intangible assets (USD 102 million) not recorded

in the consolidated income statement since the date of

classiﬁcation as held for sale was recognized in the con-

solidated income statement in the ﬁrst quarter of 2020.

In addition, an impairment of currently marketed prod-

ucts of USD 42 million was recognized in the ﬁrst quar-

ter of 2020 consolidated income statement.

As at March 31, 2020, the assets and liabilities of the

Sandoz US generic oral solids and dermatology busi-

nesses were reclassiﬁed out of assets and liabilities of

disposal group held for sale. The prior year balance sheet

was not required to be restated.

There were no cumulative income or expenses

included in the other comprehensive income relating to

the disposal group.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-17



3. Segmentation of key ﬁgures 2022, 2021 and 2020

The businesses of Novartis are divided operationally on

a worldwide basis into two identiﬁed reporting segments:

Innovative Medicines and Sandoz. In addition, we sepa-

rately report Corporate activities.

Reporting segments are presented in a manner con-

sistent with the internal reporting to the chief operating

decision-maker, which is the Executive Committee of

Novartis. The reporting segments are managed sepa-

rately because they each research, develop, manufac-

ture, distribute and sell distinct products that require dif-

fering marketing strategies.

The Executive Committee of Novartis is responsible

for allocating resources and assessing the performance

of the reporting segments.

The reporting segments are as follows:

Innovative Medicines researches, develops, manu-

factures, distributes and sells patented pharmaceuticals.

Eective as of April 4, 2022, the Innovative Medicines

Division is organized in two commercial organizational

units: Innovative Medicines International and Innovative

Medicines US, and is focused on the core therapeutic

areas: cardiovascular; immunology; neuroscience; solid

tumors and hematology; as well as other promoted

brands (in the therapeutic areas of ophthalmology and

respiratory) and established brands. Prior to the

announcement on April 4, 2022, the Innovative Medicines

Division was organized into two global business units:

Novartis Oncology and Novartis Pharmaceuticals.

Sandoz develops, manufactures and markets ﬁnished

dosage form medicines as well as intermediary products

including active pharmaceutical ingredients. Sandoz is

organized globally into three franchises: Retail Generics,

Anti-Infectives and Biopharmaceuticals. In Retail Gener-

ics, Sandoz develops, manufactures and markets ﬁn-

ished dosage forms of small molecule pharmaceuticals

for sale to third parties across a broad range of thera-

peutic areas, including ﬁnished dosage form of anti-in-

fectives sold to third parties. In Anti-Infectives, Sandoz

manufactures and supplies active pharmaceutical ingre-

dients and intermediates, mainly antibiotics, for internal

use by Retail Generics and for sale to third-party cus-

tomers. In Biopharmaceuticals, Sandoz develops, man-

ufactures and markets protein- or other biotechnolo-

gy-based products, including biosimilars, and provides

biotechnology manufacturing services to other compa-

nies.

Income and expenses relating to Corporate include

the costs of the Group headquarters and those of

corporate coordination functions in major countries. In

addition, Corporate includes other items of income and

expense that are not attributable to speciﬁc segments,

such as certain revenues from intellectual property

rights, certain expenses related to post-employment

beneﬁts, environmental remediation liabilities, charitable

activities, donations and sponsorships. Usually, no allo-

cation of Corporate items is made to the segments. As

a result, Corporate assets and liabilities principally con-

sist of net debt (cash and cash equivalents, marketable

securities less ﬁnancial debts), investments in associ-

ated companies, and current and deferred taxes and

non-segment-speciﬁc environmental remediation and

post-employment beneﬁt liabilities.

Our divisions are supported by Novartis Institutes for

BioMedical Research, Global Drug Development, and the

Operations unit.

• The Novartis Institutes for BioMedical Research (NIBR)

conducts research activities for the Innovative

Medicines Division and also collaborates with Sandoz.

• The Global Drug Development organization oversees

all drug development activities for our Innovative

Medicines Division and collaborates with our Sandoz

Division on the development of its biosimilars portfo-

lio.

• The Operations unit, combines the Novartis Technical

Operations (NTO) and Customer & Technology Solu-

tions (CTS), following the internal reorganization

announced on April 4, 2022. The Operations unit man-

ages our manufacturing operations across our

Innovative Medicines and Sandoz Divisions, and deliv-

ers business support services across the Group, such

as information technology, real estate and facility ser-

vices and procurement.

The accounting policies mentioned in Note 1 are used in

the reporting of segment results. Inter-segmental sales

are made at amounts that are considered to approximate

arm’s length transactions. The Executive Committee of

Novartis evaluates segmental performance and allo-

cates resources among the segments based on a num-

ber of measures, including net sales to third parties,

operating income and net operating assets. Segment net

operating assets consist primarily of property, plant and

equipment; right-of-use assets; intangible assets; good-

will; inventories; and trade and other operating receiv-

ables less operating liabilities.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-18

Segmentation – consolidated income statements

Innovative Medicines Sandoz Corporate Group

(including eliminations)



(USD millions) 















Net sales to third parties 











Sales to other segments 







– 

– 

Net sales 







– 

– 





Other revenues 















Cost of goods sold – 

– 

– 

– 





– 

– 

Gross proﬁt 















Selling, general and administration – 

– 

– 

– 

– 

– 

– 

Research and development – 

– 

– 

– 

– 

– 

Other income 















Other expense – 

– 

– 

– 

– 

– 

– 

– 

Operating income 







– 

– 





(Loss)/income from associated companies – 





– 



– 



Interest expense

– 

– 

Other ﬁnancial income and expense



– 

Income before taxes





Income taxes

– 

– 

Net income





Attributable to:

Shareholders of Novartis AG

6 955

24 021

Non-controlling interests

– 3

Included in net income are:

Interest income





Depreciation of property, plant and equipment – 

– 

– 

– 

– 

– 

– 

– 

Depreciation of right-of-use assets – 

– 

– 

– 

– 

– 

– 

– 

Amortization of intangible assets – 

– 

– 

– 

– 

– 

– 

– 

Impairment charges on property, plant and equipment, net – 

– 

– 

– 

– 

– 

Impairment of right-of-use assets – 

– 

Impairment charges on intangible assets, net – 

– 

– 

– 

– 

– 

– 

– 

Impairment charges and fair value

changes on ﬁnancial assets, net – 



– 

– 

– 



Additions to restructuring provisions – 

– 

– 

– 

– 

– 

– 

– 

Equity-based compensation of Novartis equity plans – 

– 

– 

– 

– 

– 

– 

– 

Eliminations mainly relate to the elimination of sales to other segments and the corresponding cost of goods sold.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-19

Innovative Medicines Sandoz Corporate Group

(including eliminations)



(USD millions) 















Net sales to third parties 











Sales to other segments 







– 

– 

Net sales 







– 

– 





Other revenues 















Cost of goods sold – 

– 

– 

– 





– 

– 

Gross proﬁt 















Selling, general and administration – 

– 

– 

– 

– 

– 

– 

– 

Research and development – 

– 

– 

– 

– 

– 

Other income 















Other expense – 

– 

– 

– 

– 

– 

– 

– 

Operating income 







– 

– 





Income from associated companies 













Interest expense

– 

– 

Other ﬁnancial income and expense

– 

– 

Income before taxes





Income taxes

– 

– 

Net income





Attributable to:

Shareholders of Novartis AG

24 021

8 072

Non-controlling interests

– 3

– 1

Included in net income are:

Interest income





Depreciation of property, plant and equipment – 

– 

– 

– 

– 

– 

– 

– 

Depreciation of right-of-use assets – 

– 

– 

– 

– 

– 

– 

– 

Amortization of intangible assets – 

– 

– 

– 

– 

– 

– 

– 

Impairment charges on property, plant and equipment, net – 

– 

– 

– 

– 

– 

– 

Impairment charges on intangible assets, net – 

– 

– 

– 

– 

– 

– 

– 

Impairment charges and fair value

changes on ﬁnancial assets, net 



– 







Additions to restructuring provisions – 

– 

– 

– 

– 

– 

– 

– 

Equity-based compensation of Novartis equity plans – 

– 

– 

– 

– 

– 

– 

– 

Eliminations mainly relate to the elimination of sales to other segments and the corresponding cost of goods sold.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-20

Segmentation – consolidated balance sheets

Innovative Medicines Sandoz Corporate Group

(including eliminations)



(USD millions) 















Total assets 















Total liabilities – 

– 

– 

– 

– 

– 

– 

– 

Total equity





Net debt











Net operating assets 







– 

– 





Included in assets and liabilities are:

Total property, plant and equipment 















Additions to property, plant

and equipment



















Total right-of-use assets 













Additions to right-of-use assets



















Total goodwill and intangible assets 















Additions to goodwill and

intangible assets



















Total investment in associated

companies 















Additions to investment in associated

companies 











Cash and cash equivalents, marketable securities,

commodities, time deposits and derivative

ﬁnancial instruments









Financial debts and derivative

ﬁnancial instruments









Current income tax liabilities and deferred tax liabilities









Eliminations mainly relate to the elimination of intercompany receivables and payables to other segments and inventories

Note 29 provides additional disclosures related to net debt

Excluding the impact of business acquisitions

The following table shows countries that accounted for more than 5% of at least one of the respective Group totals,

as well as regional information for net sales to third parties for the years ended December 31, 2022, 2021 and 2020,

and for selected non-current assets for the years ended December 31, 2022 and 2021:

Net sales to third parties



Total of selected non-current assets



(USD millions) 



















Country

Switzerland 



















United States 



















France 



















Germany 



















China 



















Japan 















Other 



















Group 



















Region

Europe 



















Americas 



















Asia/Africa/Australasia 



















Group 



















Net sales to third parties by location of customer

Total of property, plant and equipment; right-of-use assets; goodwill; intangible assets; investment in associated companies and other non-current assets excluding post-

employment beneﬁt assets

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-21



The Group’s largest, second-largest and third-largest cus-

tomers account for approximately 16%, 11% and 7% of net

sales to third parties, respectively (2021: 17%, 11% and 6%,

respectively; 2020: 17%, 11% and 6%, respectively). All seg-

ments had sales to these customers in 2022, 2021 and

2020.

The highest amounts of trade receivables outstanding

were for these same three customers and amounted to

approximately 16%, 14% and 7%, respectively, of the trade

receivables at December 31, 2022 (2021: 16%, 12% and

7%, respectively).

Segmentation – net sales to third parties

Net sales to third parties by region

Change

(

(





to )



to )

USD m

USD 

USD m

USD 

Innovative Medicines

Europe 



– 





US 









Asia/Africa/Australasia 



– 





Canada and Latin America 









Total 



– 





Of which in Established Markets 



– 





Of which in Emerging Growth Markets 









Sandoz

Europe 



– 





US 



– 



– 

Asia/Africa/Australasia 



– 





Canada and Latin America 









Total 



– 





Of which in Established Markets 



– 



– 

Of which in Emerging Growth Markets 









Group

Europe 



– 





US 









Asia/Africa/Australasia 



– 





Canada and Latin America 









Total 



– 





Of which in Established Markets 



– 





Of which in Emerging Growth Markets 









Net sales to third parties by location of customer. Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan,

Australia and New Zealand.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-22



Innovative Medicines Division net sales to third parties by core therapeutic area; other

promoted brands; and established brands

Change

( to

( to





)



)

USD m



USD 

USD m



USD 

Cardiovascular

Entresto 









Leqvio 



Total Cardiovascular 









Immunology

Cosentyx 









Xolair







– 





Ilaris 









Other 

Total Immunology 









Neuroscience

Gilenya 



– 



– 

Zolgensma 









Kesimpta 







Mayzent 









Aimovig 









Other 





Total Neuroscience 









Solid Tumors

Taﬁnlar + Mekinist 









Kisqali 









Votrient 



– 



– 

Lutathera 



– 





Piqray 









Pluvicto 



Tabrecta 









Total Solid Tumors 









Hematology

Promacta/Revolade 









Tasigna 



– 





Jakavi 



– 





Kymriah 



– 





Adakveo 









Scemblix 



Other 







– 

Total Hematology 









Change

( to

( to





)



)

USD m



USD 

USD m



USD 

Other Promoted Brands

Lucentis 



– 





Xiidra 









Ultibro Group 



– 



– 

Beovu 







– 

Other respiratory 









Total Other Promoted

Brands 



– 





Total Promoted

Brands 









Established Brands

Sandostatin 



– 



– 

Galvus Group 



– 



– 

Gleevec/Glivec 



– 



– 

Exforge Group 



– 



– 

Diovan Group 



– 



– 

Aﬁnitor/Votubia 



– 



– 

Voltaren/Cataﬂam 



– 





Zortress/Certican 



– 



– 

Exjade/Jadenu 



– 



– 

Neoral/Sandimmun(e) 



– 



– 

Contract manufacturing 





Other 



– 



– 

Total Established

Brands 



– 



– 

Total division net

sales to third parties 



– 





Reclassiﬁed to reﬂect the new Innovative Medicines divisional structures announced

on April 4, 2022

Net sales to third parties reﬂect Xolair sales for all indications.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-23

Net sales to third parties of the top 20 Innovative Medicines Division brands in 2022

Brand classiﬁcation by

therapeutic area, other

Rest of

promoted brands or US

world

Tot a l

Brands established brands Key indications USD m

USD m

Cosentyx Immunology Psoriasis (PsO), 





ankylosing spondylitis

(AS), psoriatic arthritis

(PsA), non-radiographic

axial spondyloarthritis

(nr-axSPA)

Entresto Cardiovascular Chronic heart failure, 





hypertension

Promacta/Revolade Hematology Immune 





thrombocytopenia (ITP),

severe aplastic anemia (SAA)

Gilenya Neuroscience Relapsing multiple sclerosis 





(RMS)

Tasigna Hematology Chronic myeloid leukemia 





(CML)

Lucentis Other Promoted Age-related



Brands macular degeneration (AMD),

diabetic macular edema (DME),

retinal vein occlusion (RVO)

Taﬁnlar + Mekinist Solid Tumors BRAF V+ metastatic 





adjuvant melanoma,

advanced non-small cell

lung cancer (NSCLC),

tumor agnostic with

BRAF mutation indication

Jakavi Hematology Myeloﬁbrosis (MF),



polycytomia vera (PV),

graft-versus-host disease

(GvHD)

Zolgensma Neuroscience Spinal muscular atrophy 





(SMA)

Xolair



Immunology Severe allergic asthma (SAA),



chronic spontaneous urticaria

(CSU), nasal polyps

Sandostatin Established Brands Carcinoid tumors, 





acromegaly

Kisqali Solid Tumors HR+/HER- 





metastatic breast cancer

Ilaris Immunology Auto-inﬂammatory (CAPS, 





TRAPS, HIDS/MKD, FMF,

SJIA, AOSD, gout)

Kesimpta Neuroscience Relapsing-remitting 





multiple sclerosis (RRMS)

Galvus Group Established Brands Type  diabetes



Gleevec/Glivec Established Brands Chronic myeloid 





leukemia (CML),

gastrointestinal stromal

tumors (GIST)

Exforge Group Established Brands Hypertension 





Diovan Group Established Brands Hypertension 





Kymriah Hematology r/r pediatric and young 





adults acute lymphoblastic

leukemia (ALL), diuse large

B-cell lymphoma (DLBCL),

follicular lymphoma (FL)

Aﬁnitor/Votubia Established Brands Breast cancer/ 





tuberous sclerosis complex

(TSC)

Top  brands total 





Rest of portfolio 





Total division net

sales to third parties 





Net sales to third parties reﬂect Xolair sales for all indications.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-24

Net sales to third parties of the top 20 Innovative Medicines Division brands in 2021

Brand classiﬁcation by

therapeutic area, other

Rest of

promoted brands or US

world

Tot a l

Brands established brands



Key indications USD m

USD m

Cosentyx Immunology Psoriasis (PsO), ankylosing 





spondylitis (AS),

psoriatic arthritis (PsA),

non-radiographic axial

spondyloarthritis (nr-axSPA)

Entresto Cardiovascular Chronic heart failure 





Gilenya Neuroscience Relapsing multiple sclerosis (RMS) 





Lucentis Other Promoted Age-related macular





Brands degeneration (AMD)

Tasigna Hematology Chronic myeloid leukemia (CML) 





Promacta/Revolade Hematology Immune thrombocytopenia (ITP), 





severe aplastic anemia (SAA)

Taﬁnlar + Mekinist Solid Tumors BRAF V+ metastatic 





adjuvant melanoma,

advanced non-small cell

lung cancer (NSCLC)

Jakavi Hematology Myeloﬁbrosis (MF),





polycythemia vera (PV)

Xolair



Immunology Severe allergic asthma (SAA),





chronic spontaneous urticaria

(CSU), nasal polyps

Sandostatin Established Brands Carcinoid tumors, acromegaly 





Zolgensma Neuroscience Spinal muscular atrophy (SMA) 





Galvus Group Established Brands Type  diabetes





Ilaris Immunology Auto-inﬂammatory (CAPS, 





TRAPS, HIDS/MKD, FMF,

SJIA, AOSD, gout)

Gleevec/Glivec Established Brands Chronic myeloid leukemia 





(CML), gastrointestinal

stromal tumors (GIST)

Aﬁnitor/Votubia Established Brands Breast cancer/ 





tuberous sclerosis complex (TSC)

Kisqali Solid Tumors HR+/HER- 





metastatic breast cancer

Exforge Group Established Brands Hypertension 





Diovan Group Established Brands Hypertension 





Kymriah Hematology r/r pediatric and young 





adults acute lymphoblastic

leukemia (ALL), diuse large

B-cell lymphoma (DLBCL)

Ultibro Group Other Promoted Cronic obstructive





Brands pulmonary disease

(COPD)

Top  products total 





Rest of portfolio 





Total division net

sales to third parties 





Brand classiﬁcations have been changed to reﬂect the new Innovative Medicines divisional structures announced on April 4, 2022.

Net sales to third parties reﬂect Xolair sales for all indications.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-25

Net sales to third parties of the top 20 Innovative Medicines Division brands in 2020

Brand classiﬁcation by

therapeutic area, other

Rest of

promoted brands or US

world

Tot a l

Brands established brands



Key indications USD m

USD m

Cosentyx Immunology Psoriasis (PsO), ankylosing 





spondylitis (AS), psoriatic arthritis (PsA)

Gilenya Neuroscience Relapsing multiple sclerosis (RMS) 





Entresto Cardiovascular Chronic heart failure 





Tasigna Hematology Chronic myeloid leukemia (CML) 





Lucentis Other Promoted Age-related macular





Brands degeneration (AMD)

Promacta/Revolade Hematology Immune 





thrombocytopenia (ITP),

severe aplastic anemia (SAA)

Taﬁnlar + Mekinist Solid Tumors BRAF V+ metastatic 





adjuvant melanoma,

advanced non-small cell

lung cancer (NSCLC)

Sandostatin Established Brands Carcinoid tumors, 





acromegaly

Jakavi Hematology Myeloﬁbrosis (MF),





polycythemia vera (PV)

Xolair



Immunology Severe allergic asthma (SAA),





chronic spontaneous urticaria

(CSU)

Galvus Group Established Brands Type  diabetes





Gleevec/Glivec Established Brands Chronic myeloid leukemia (CML), 





gastrointestinal stromal tumors (GIST)

Aﬁnitor/Votubia Established Brands Breast cancer/ 





tuberous sclerosis complex (TSC)

Diovan Group Established Brands Hypertension 





Exforge Group Established Brands Hypertension 





Zolgensma Neuroscience Spinal muscular atrophy 





(SMA)

Ilaris Immunology Auto-inﬂammatory (CAPS, 





TRAPS, HIDS/MKD, FMF,

SJIA, AOSD gout)

Kisqali Solid Tumors HR+/HER- 





metastatic breast cancer

Exjade/Jadenu Established Brands Chronic iron overload 





Votrient Solid Tumors Renal cell carcinoma (RCC) 





Top  products total 





Rest of portfolio 





Total division net

sales to third parties 





Brand classiﬁcations have been changed to reﬂect the new Innovative Medicines divisional structures announced on April 4, 2022.

Net sales to third parties reﬂect Xolair sales for all indications.

Sandoz Division net sales to third parties by business franchise

Change

( to

( to





)



)

USD m

USD 

USD m

USD 

Retail Generics







– 



– 

Biopharmaceuticals 



– 





Anti-Infectives







– 



– 

Total division net sales to third parties 



– 





Sandoz total anti-infectives net sales to third parties amounted to USD 1.2 billion (2021: USD 1.1 billion; 2020: USD 1.2 billion), of which USD 777 million (2021: USD 707 million; 2020:

USD 694 million) is sold through the Retail Generics business franchise and USD 380 million (2021: USD 423 million; 2020: USD 474 million) is sold to other third-party companies

through the Anti-Infectives business franchise.

The product portfolio of Sandoz is widely spread in 2022, 2021 and 2020.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-26

Segmentation – other revenue

Innovative Medicines Sandoz Corporate Group

(including eliminations)

(USD millions) 























Proﬁt-sharing income 











Royalty income 























Milestone income 

















Other





















Total other revenues 























Other includes revenue from activities such as manufacturing or other services rendered, to the extent such revenue is not recorded under net sales to third parties.

4. Associated companies

Net income statement eect Other comprehensive income eect

Total comprehensive income eect

(USD millions) 

















Roche Holding AG, Switzerland







– 





Others – 

– 

– 

– 

– 

– 

Associated companies – 







– 

– 





In 2021, Novartis share of other comprehensive income recognized by associated companies, net of taxes of USD 3 million was recycled into the consolidated income statement as

a result of the divestment of the investment in Roche Holding AG. No Novartis share of other comprehensive income recognized by associated companies was recycled to the

consolidated income statement in 2022 and 2020.

Novartis has certain non-signiﬁcant investments and had

a signiﬁcant investment in Roche Holding AG, Basel

(Roche), which was divested to Roche on December 6,

2021, that are accounted for as associated companies.

Roche Holding AG

On November 3, 2021, Novartis entered into an agree-

ment with Roche Holding AG to divest its 33.3% of Roche

Holding AG (Roche) voting shares, representing approx-

imately 6.2% of Roche’s total outstanding voting and

non-voting equity instruments, to Roche for USD 20.7

billion in cash. As a result, Novartis discontinued the use

of equity method accounting starting from November 3,

2021.

The divestment transaction closed on December 6,

2021, and Novartis realized a gain of USD 14.6 billion,

recorded in income from associated companies. See

Note 2.

The Group’s holding in Roche voting shares was

33.3% at December 31, 2020. This investment repre

sented approximately 6.2% of Roche’s total outstanding

voting and non-voting equity instruments at December

31, 2020.

Since full-year ﬁnancial data for Roche is not avail-

able when Novartis produces its consolidated ﬁnancial

results, a survey of analyst estimates is used to estimate

the Group’s share of Roche’s net income. Any dierences

between these estimates and actual results were

adjusted in the Group’s consolidated ﬁnancial state

ments when available. As Novartis discontinued the use

of equity method accounting starting from November 3,

2021, and the divestment closed on December 6, 2021,

no such adjustment has been made to the 2022 Group’s

consolidated ﬁnancial statements.

In 2021, dividends received from Roche in relation to

the distribution of its 2020 net income amounted to

USD522 million.

The consolidated income statement eects from

applying Novartis accounting principles for this invest-

ment in 2021 and 2020 are as follows:

(USD millions) 



Novartis share of Roche’s

estimated current-year

consolidated net income 



Prior-year adjustment 

– 

Amortization of fair value

adjustments relating to

intangible assets, net of taxes

of : USD 

million; : USD  million – 

– 

Gain on divestment of the

investment in Roche





Net income eect 



The gain on divestment of the investment in Roche includes the recycling of currency

translation eects (see Note 8.1) and other comprehensive income eects totaling

USD 3.2 billion.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-27

5. Interest expense

andotherﬁnancialincomeandexpense

Interest expense

(USD millions) 





Interest expense – 

– 

– 

Interest expense on lease liabilities – 

– 

– 

Expense arising from

discounting long-term liabilities

and capitalized borrowing costs – 

– 

– 

Total interest expense – 

– 

– 

Other ﬁnancial income and expense

(USD millions) 





Interest income 





Other ﬁnancial income 





Financial expense – 

– 

– 

Currency result, net – 

– 

– 

Total other ﬁnancial income

and expense 

– 

– 

6. Income taxes

Income before taxes

(USD millions) 





Switzerland









Foreign 





Income before taxes 





The 2021 income before taxes in Switzerland includes a USD 14.6 billion non-taxable

gain on the divestment of the Group’s investment in Roche Holding AG (see Note 2

and Note 4).

Current and deferred income tax expense

The signiﬁcant components of the provision for income

taxes are as follows:

(USD millions) 





Switzerland – 

– 

– 

Foreign – 

– 

– 

Current income tax expense – 

– 

– 

Switzerland – 



– 

Foreign 





Deferred tax income 





Income tax expense – 

– 

– 

Analysis of tax rate

Novartis has a substantial business presence in many

countries and is therefore subject to income taxes in dif-

ferent tax jurisdictions. This leads to dierences in

income and expense items that are non-taxable or

non-deductible (permanent dierences) or are taxed at

dierent statutory tax rates in those tax jurisdictions. As

a result, there is a dierence between our applicable tax

rate and eective tax rate.

The applicable tax rate changes from year to year

due to changes in the mix of the Group’s pre-tax income

and changes in statutory tax rates since it is calculated

as the weighted average tax rate based on the pre-tax

income of each subsidiary.

The main elements contributing to the dierence

between the Group’s overall applicable tax rate and the

eective tax rate are shown in the following table:

(As a percentage) 





Applicable tax rate 





Eect of disallowed expenditures 





Eect of utilization of previously unrecognized

tax losses brought forward from prior periods 



– 

Eect of income taxed at reduced rates – 

– 

– 

Eect of income not subject to tax



– 

– 

– 

Eect of tax credits and allowances – 

– 

– 

Eect of release of

contingent consideration liability – 

– 

– 

Eect of tax rate change

on current and deferred

tax assets and liabilities – 





Eect of derecognition and

reversals of derecognition

of deferred tax assets 





Eect of write-down and reversal of

write-down of investments in subsidiaries 



– 

Eect of prior-year items – 





Eect of changes in uncertain tax positions 





Eect of other items 



– 

Eective tax rate 





2021 includes the eect of income not subject to tax (– 7.3%) arising from the

non-taxable gain on the divestment of our investment in Roche. See Notes 2 and 4 for

further details.

Our eective tax rate ﬂuctuates based primarily on,

among other factors, changes in pre-tax income between

countries with varying statutory tax rates, income taxed

at reduced tax rates, eect of disallowed expenditures,

eect of income not subject to tax, eect of tax credits

and allowances, eect of prior-year items, changes in

the measurement of deferred tax assets, changes in

uncertain tax positions and changes in tax laws. The

table above provides the details of the signiﬁcant items

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-28

that impact the comparability of the eective tax rate

between years.

The utilization of tax-loss carry-forwards lowered the

tax charge by USD1 million in 2022, by USD5 million in

2021, and by USD29 million in 2020.

7. Earnings per share







Net income attributable to shareholders of Novartis AG (USD millions) 





Number of shares (in millions)

Weighted average number of shares outstanding used in basic earnings per share 





Adjustment for vesting of restricted shares, restricted share units and dilutive shares from options 





Weighted average number of shares in diluted earnings per share 





Basic earnings per share (USD) 





Diluted earnings per share (USD) 





Basic earnings per share (EPS) is calculated by dividing

net income attributable to shareholders of Novartis AG

by the weighted average number of shares outstanding

in a reporting period. This calculation excludes the aver-

age number of issued shares purchased by the Group

and held as treasury shares.

For diluted EPS, the weighted average number of

shares outstanding is adjusted to assume the vesting of

all restricted shares, restricted share units, and the

conversion of all potentially dilutive shares arising from

options on Novartis shares that have been issued.

No options were excluded from the calculation of

diluted EPS in 2022, 2021 or 2020, as all options were

dilutive in all years.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-29



8. Changes in consolidated statements

ofcomprehensive income

The consolidated statements of comprehensive income

include the Group’s net income for the year as well as all

other valuation adjustments recorded in the Group’s con-

solidated balance sheet, which under IFRS are not

recorded in the consolidated income statement. These

include fair value adjustments on ﬁnancial instruments,

actuarial gains or losses on deﬁned beneﬁt pension

plans, and currency translation eects, net of taxes.

Total value

Fair value

Actuarial

Cumulative

adjustments

gains/(losses)

currency

attributable to

Non-

on ﬁnancial

from deﬁned

translation

Novartis AG

controlling

Total value

(USD millions) Note

instruments

beneﬁt plans

eects

shareholders

interest

adjustments

Value adjustments at December , 



– 



– 

– 

– 

Fair value adjustments on equity securities,

net of taxes of USD - million





Net investment hedge

– 

Deﬁned beneﬁt plans, net of taxes

of USD - million



– 



Currency translation eects,

net of taxes of USD  million 







Total value adjustments in 









– 



Fair value adjustments on equity securities

sold, reclassiﬁed to retained earnings

– 

Value adjustments related to divestments



Impact of change in ownership of consolidated entities

– 



Value adjustments at December , 



– 



– 

– 

– 

Fair value adjustments on equity securities,

net of taxes of USD - million





Net investment hedge, net of taxes

of USD  million



Deﬁned beneﬁt plans, net of taxes

of USD - million







Currency translation eects,

net of taxes of USD  million 

– 

– 

– 

Total value adjustments in 





– 

– 

– 

– 

Fair value adjustments on equity securities

sold, reclassiﬁed to retained earnings

net of taxes of USD  million

– 

Value adjustments related to divestments

–  – 

– 

Value adjustments at December , 



– 

– 

– 

– 

– 

Fair value adjustments on equity securities,

net of taxes of USD  million



– 

Net investment hedge, net of taxes

of USD - million



Deﬁned beneﬁt plans, net of taxes

of USD - million

– 



– 

Currency translation eects,

net of taxes of USD  million 

– 

– 

– 

Total value adjustments in 

– 

– 

– 

– 

– 

– 

Fair value adjustments on equity securities

sold, reclassiﬁed to retained earnings

net of taxes of nil

– 

Value adjustments related to divestments,

net of taxes of USD - million



Value adjustments at December , 

– 

– 

– 

– 

– 

– 

Includes fair value adjustments on equity securities designated as ﬁnancial assets valued at fair value through other comprehensive income with no subsequent recycling into the

consolidated income statement

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-30



8.1) In 2022, net cumulative currency translation gains of

USD 13 million were recycled through the income state-

ment as a result of the divestments of subsidiaries. In

2021, net cumulative currency translation gains of USD

3.2 billion were recycled through the income statement

as a result of the divestment of the investment in Roche.

See Notes 2 and 4. In 2020, there were no currency

translation losses or gains recycled through the income

statement.

9. Property, plant and equipment

The following table summarizes the movements of property, plant and equipment during 2022:

Machinery

Construction

and other

(USD millions) Land

Buildings

in progress

equipment

Total

At January , 

Cost 









Accumulated depreciation and impairment – 

– 

– 

– 

– 

Net book value 









At January ,  









Impact of acquisitions of businesses



Reclassiﬁcations



– 



Additions 









Disposals and derecognitions – 

– 

– 

– 

– 

Depreciation charge

– 

– 

– 

Impairment charge – 

– 

– 

– 

– 

Reversal of impairment charge 







Currency translation eects – 

– 

– 

– 

– 

At December ,  









At December , 

Cost 









Accumulated depreciation and impairment – 

– 

– 

– 

– 

Net book value 









Commitments for purchases of property, plant and equipment



Capitalized borrowing costs



Notes to the Novartis Groupconsolidatedﬁnancial statements

F-31

The following table summarizes the movements of property, plant and equipment during 2021:

Machinery

Construction

and other

(USD millions) Land

Buildings

in progress

equipment

Total

At January , 

Cost 









Accumulated depreciation and impairment – 

– 

– 

– 

– 

Net book value 









At January ,  









Reclassiﬁcations



– 



Additions 









Disposals and derecognitions – 

– 

– 

– 

– 

Depreciation charge

– 

– 

– 

Impairment charge – 

– 

– 

– 

– 

Reversal of impairment charge 









Currency translation eects – 

– 

– 

– 

– 

At December ,  









At December , 

Cost 









Accumulated depreciation and impairment – 

– 

– 

– 

– 

Net book value 









Commitments for purchases of property, plant and equipment



Capitalized borrowing costs



The following table shows the property, plant and equipment impairment charges and reversals by reporting seg-

ment:

Impairment charges Impairment reversals

(USD millions) 











Innovative Medicines – 

– 

– 







Sandoz – 

– 

– 







Corporate

– 

Total – 

– 

– 







Notes to the Novartis Groupconsolidatedﬁnancial statements

F-32



10. Right-of-use assets and lease liabilities

The following table summarizes the movements of the

right-of-use assets:

(USD millions) 



Right-of-use assets at January  



Impact of acquisitions of businesses 

Additions 



Depreciation charge – 

– 

Impairment charge



– 

Lease contract terminations



– 

– 

Currency translation eects – 

– 

Total right-of-use assets at December  



Impairment charges in 2022 were recorded in the Innovative Medicines segment.

Lease contract terminations also includes modiﬁcations to existing leases that result

in reductions to the right-of-use assets, and reductions due to sub-leasing.

The following table shows the right-of-use assets carry-

ing value and depreciation charge at December 31, 2022

and 2021, by underlying class of asset:

December ,

Depreciation

December ,

Depreciation



charge



charge

(USD millions) carrying value



carrying value



Land 







Buildings 







Vehicles 







Machinery and

equipment, and

other assets 







Total right-of-use

assets 







The following table shows the lease liabilities by maturity at December 31, 2022 and 2021:

Lease liabilities

undiscounted

Lease liabilities

undiscounted

(USD millions) 





Less than one year 







Between one and two years 







Between two and three years 







Between three and four years 







Between four and ﬁve years 







After ﬁve years 







Total lease liabilities 







Less current portion of lease liabilities – 

– 

– 

– 

Non-current portion of lease liabilities 







Commitments for leases not yet commenced





At December 31, 2022, and December 31, 2021, there

were no material future cash outﬂows, including exten-

sion options, excluded from the measurement of lease

liabilities. The Group’s most material lease with a lease

term extension, representing a lease liability value of USD

0.7 billion (2021: USD 0.6 billion), has a determined lease

term end date of 2071 (2021: 2071). Non-enforceable

extension options of up to 10 years have not been

included within the measurement of this lease liability,

and do not have a material impact to the carrying value

of the lease for both 2022 and 2021. Should the landlord

agree to a lease extension, rent will be referenced to the

market rates as at the commencement of the extension

period.

In 2022, the Group completed three sale and lease-

back transactions for certain property, plant and equip-

ment as part of the Groups plans to focus on key oper-

ating locations. The transactions resulted in net cash

inﬂows of USD 49 million and the recognition of USD 23

million of lease liabilities, and USD 13 million of right-of-

use assets. The right-of-use assets value reﬂects the

proportion of the property, plant and equipment retained.

Extension options have been included where manage-

ment believe that such options will be exercised. The lia-

bilities reﬂect the net present value of future lease

payments. The net gain on the sale and leaseback trans-

actions amounted to USD 17 million. There were no sig-

niﬁcant sale and leaseback transactions in 2021 or 2020.

The following table provides additional disclosures

related to right-of-use assets and lease liabilities for

2022, 2021 and 2020:

(USD millions) 

2021

2020

Interest expense on lease liabilities









Expense on short-term leases 





Expense on low-value leases 



Total cash outﬂows for leases 





Thereof:

Cash outﬂows for short-term leases

and low-value leases



Payments of interest



Payments of lease liabilities



295

316

312

The weighted average interest rate is 3.3% (2021: 3.2%, 2020: 3.4%).

Cash ﬂows from short-term and low-value leases are included within total net cash

ﬂows from operating activities. The portfolio of short-term leases to which the Group

is committed to at December 31, 2022, 2021 and 2020, is similar to the portfolio of

short-term leases the Group entered into during 2022, 2021 and 2020.

Included within total net cash ﬂows from operating activities

Reported as cash outﬂows in ﬁnancing activities net of lease incentives received, if

any.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-33

The net investment held and income from subleasing

right-of-use assets were not signiﬁcant for 2022, 2021,

and 2020. Income from leasing Novartis property, plant

and equipment to third parties for 2022, 2021 and 2020

was not signiﬁcant.

11. Goodwill and intangible assets

The following table summarizes the movements of goodwill and intangible assets in 2022:

Goodwill Intangible assets other than goodwill

In-process

Currently

Other

research and

marketed

intangible

(USD millions) Total

development

Technologies

products

assets

Total

At January , 

Cost 











Accumulated amortization and impairment – 

– 

– 

– 

– 

– 

Net book value 











At January ,  











Impact of acquisitions of businesses 



Reclassiﬁcations



– 







Additions









Disposals and derecognitions



– 

– 

– 

– 

– 

Amortization charge

– 

– 

– 

– 

Impairment charge

– 

– 

– 

– 

– 

Currency translation eects – 

– 

– 

– 

– 

– 

At December ,  











At December , 

Cost 











Accumulated amortization and impairment – 

– 

– 

– 

– 

– 

Net book value 











Reclassiﬁcations between various asset categories as a result of product launches of acquired in-process research and development and completion of software development

Derecognition of assets that are no longer being used or developed and are not considered to have a signiﬁcant disposal value or other alternative use

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-34

The following table summarizes the movements of goodwill and intangible assets in 2021:

Goodwill Intangible assets other than goodwill

In-process

Currently

Other

research and

marketed

intangible

(USD millions) Total

development

Technologies

products

assets

Total

At January , 

Cost 











Accumulated amortization and impairment – 

– 

– 

– 

– 

– 

Net book value 











At January ,  











Impact of acquisitions of businesses 









Reclassiﬁcations



– 





Additions









Disposals and derecognitions



– 

– 

– 

Amortization charge

– 

– 

– 

– 

Impairment charge

– 

– 

– 

– 

– 

Currency translation eects – 

– 

– 

– 

– 

– 

At December ,  











At December , 

Cost 











Accumulated amortization and impairment – 

– 

– 

– 

– 

– 

Net book value 











Reclassiﬁcations between various asset categories as a result of product launches of acquired in-process research and development and completion of software development

Derecognition of assets that are no longer being used or developed and are not considered to have a signiﬁcant disposal value or other alternative use

The following table summarizes the allocation of the net book values of goodwill and intangible assets by report-

ing segment at December 31, 2022:

Goodwill



Intangible assets other than goodwill

In-process

Currently

Other

research and

marketed

intangible

(USD millions) Total

development

Technologies

products

assets

Total

Innovative Medicines 











Sandoz 











Corporate



Net book value at December ,  











The Innovative Medicines and Sandoz Divisions’ represent the grouping of cash-generating units, to which goodwill is allocated.

The following table summarizes the allocation of the net book values of goodwill and intangible assets by report-

ing segment at December 31, 2021:

Goodwill



Intangible assets other than goodwill

In-process

Currently

Other

research and

marketed

intangible

(USD millions) Total

development

Technologies

products

assets

Total

Innovative Medicines 











Sandoz 











Corporate 



Net book value at December ,  











The Innovative Medicines and Sandoz Divisions’ and Corporate represent the grouping of cash-generating units, to which goodwill is allocated.

As at December 31, 2022, the most signiﬁcant intangi-

ble assets within currently marketed products category

are Leqvio (Innovative Medicines: acquisition of The

Medicines Company) and Zolgensma (Innovative

Medicines: acquisition of Avexis Inc.). As at December

31, 2022, the carrying value and remaining amortization

period for Leqvio is USD 7.4 billion and 13 years, respec-

tively (2021: USD 7.9 billion and 14 years, respectively),

and for Zolgensma USD 5.9 billion and 8 years, respec-

tively (2021: USD 6.6 billion and 9 years, respectively).

The Innovative Medicines and Sandoz Divisions’

cash-generating units, to which goodwill is allocated,

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-35

each comprise a group of smaller cash-generating units.

The valuation method of the recoverable amount of the

group of cash-generating units, to which goodwill is allo-

cated, is based on the fair value less costs of disposal.

The following assumptions are used in the calcula-

tions:

Innovative

(As a percentage) Medicines

Sandoz

Terminal growth rate 



Discount rate (post-tax) 



The discount rates for all divisions consider the Group’s

weighted average cost of capital, adjusted to

approximate the weighted average cost of capital of a

comparable market participant.

The fair value less costs of disposal, for all cash-gen-

erating units containing goodwill, is reviewed for the

impact of reasonably possible changes in key assump-

tions. In particular, we considered an increase in the dis-

count rate, a decrease in the terminal growth rate, and

certain negative impacts on the forecasted cash ﬂows.

These reasonably possible changes in key assumptions

did not indicate an impairment.

“Note 1. Signiﬁcant accounting policies—Impairment

of goodwill and intangible assets” provides additional

disclosures on how the Group performs goodwill and

intangible asset impairment testing.

The following table shows the intangible asset impairment charges and reversals by reporting segment:

Impairment charges Impairment reversals

(USD millions) 











Innovative Medicines



– 

– 

– 

Sandoz – 

– 

– 

Corporate – 

– 

– 

Total – 

– 

– 

2022 includes an impairment of USD 0.6 billion related to the write-down of IPR&D related to cessation of clinical development program UNR844.

2021 includes an impairment of USD 0.2 billion related to the write-down of IPR&D related to cessation of clinical development program GTX312.

2020 includes an impairment of USD 0.5 billion related to the write-down of IPR&D related to cessation of clinical development program ZPL389 for atopic dermatitis and USD 0.2

billion related to a partial write-down of the Votrient currently marketed product (Votrient carrying value was USD 0.9 billion in 2022 and USD 1.3 billion in 2021).

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-36



12. Deferred tax assets and liabilities

Pensions and

Property,

other beneﬁt

Tax loss

Other assets,

plant and

Intangible

obligations

carry-

provisions

(USD millions) equipment

assets

of employees

Inventories

forwards

and accruals

Total

Gross deferred tax assets at January ,  













Gross deferred tax liabilities at January ,  – 

– 

– 

– 

– 

– 

Net deferred tax balance at January ,  – 

– 











At January ,  – 

– 











Credited/(charged) to income 



– 

– 







Charged to equity



Credited/(charged) to other comprehensive income – 

– 



– 

Impact of acquisitions of businesses

– 





– 

Other movements 



– 

– 

– 





Net deferred tax balance at December ,  – 

– 











Gross deferred tax assets at December ,  













Gross deferred tax liabilities at December ,  – 

– 

– 

– 

– 

– 

Net deferred tax balance at December ,  – 

– 











After osetting the following amount of deferred tax

assets and liabilities within the same tax jurisdiction,

the balance amounts to:



Deferred tax assets at December , 



Deferred tax liabilities at December , 

– 

Net deferred tax balance at December , 



Gross deferred tax assets at January ,  













Gross deferred tax liabilities at January ,  – 

– 

– 

– 

– 

– 

– 

Net deferred tax balance at January ,  – 

– 











At January ,  – 

– 











Credited/(charged) to income – 



– 

– 

– 





Charged to equity

– 

Credited/(charged) to other comprehensive income

– 



– 

Impact of acquisitions of businesses

– 



– 

Other movements 



– 

– 

– 

– 

– 

Net deferred tax balance at December ,  – 

– 











Gross deferred tax assets at December ,  













Gross deferred tax liabilities at December ,  – 

– 

– 

– 

– 

– 

Net deferred tax balance at December ,  – 

– 











After osetting the following amount of deferred tax

assets and liabilities within the same tax jurisdiction,

the balance amounts to:



Deferred tax assets at December , 



Deferred tax liabilities at December , 

– 

Net deferred tax balance at December , 



Notes to the Novartis Groupconsolidatedﬁnancial statements

F-37

Deferred tax liabilities have not been recognized for the

withholding tax and other taxes that would be payable

on the remittance of earnings of foreign subsidiaries,

insofar as the Group has the ability to control any future

reversal and the unremitted earnings are retained in the

foreign subsidiaries for reinvestment. The total unremit-

ted earnings retained for reinvestment in the Group’s for-

eign subsidiaries that would be subject to withholding

tax or other taxes if remitted to the Group are estimated

at approximately USD 32 billion in 2022, (2021: USD 29

billion).

The gross value of tax-loss carry-forwards that have or

have not been recognized as deferred tax assets, with

their expiry dates, is as follows:

(USD millions) Unrecognized

Recognized

 total

One year 





Two years 





Three years 





Four years 





Five years 





More than ﬁve years 





Not subject to expiry 





Total 





(USD millions) Unrecognized

Rcognized

 total

One year 





Two years 





Three years 





Four years 





Five years 





More than ﬁve years 





Not subject to expiry 





Tot al 





(USD millions) 





Tax losses carried forward

that expired 





Deferred tax assets related to carry-forwards of taxable

losses and tax credits of relevant Group entities are rec-

ognized to the extent it is considered probable that future

taxable proﬁts will be available in the respective tax juris-

dictions against which such losses and credits can be

utilized.

13. Financial and other non-current assets

Financial assets

(USD millions) 



Equity securities 



Debt securities 



Fund investments 



Total ﬁnancial investments 



Long-term receivables from ﬁnance subleases 



Other long-term receivables 



Contingent consideration receivables







Long-term loans, advances and security deposits 



Total ﬁnancial assets 



Note 29 provides additional disclosures related to contingent consideration.

Other non-current assets

(USD millions) 



Deferred compensation plans 



Prepaid post-employment beneﬁt plans







Other non-current assets 



Total other non-current assets 



Note 25 provides additional disclosures related to post-emplyment beneﬁts.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-38



14. Inventories

(USD millions) 



Raw material, consumables 



Work in progress 



Finished products 



Total inventories 



The following table shows the amount of inventory rec-

ognized as an expense in “Cost of goods sold” in the

consolidated income statements:

(USD billions) 





Cost of goods sold – 

– 

– 

The following table shows the recognized amount of

inventory provision and reversals of inventory provision

recorded in the consolidated income statements:

(USD millions) 





Inventory provisions – 

– 

– 

Reversals of inventory provisions 





The reversals mainly result from the release of products

initially requiring additional quality control inspections

and from the reassessment of inventory values manu-

factured prior to regulatory approval but for which

approval was subsequently received.

15. Trade receivables

(USD millions) 



Total gross trade receivables 



Provisions for doubtful trade receivables – 

– 

Total trade receivables, net 



The following table summarizes the movement in the provision for doubtful trade receivables:

(USD millions) 





January  – 

– 

– 

Provisions for doubtful trade receivables charged to the consolidated income statement – 

– 

– 

Utilization of provisions for doubtful trade receivables 





Reversal of provisions for doubtful trade receivables credited to the consolidated income statement 





Currency translation eects 



– 

December  – 

– 

– 

The following table shows the trade receivables that are

not overdue as speciﬁed in the payment terms and con-

ditions established with Novartis customers, as well as

an analysis of overdue amounts and related provisions

for doubtful trade receivables:

(USD millions) 



Not overdue 



Past due for not more than one month 



Past due for more than one month

but less than three months 



Past due for more than three months

but less than six months 



Past due for more than six months

but less than one year 



Past due for more than one year 



Provisions for doubtful trade receivables – 

– 

Total trade receivables, net 



Trade receivable balances represent amounts due from

our customers, which are mainly drug wholesalers, retail-

ers, private health systems, government agencies, man-

aged care providers, pharmacy beneﬁt managers and

government-supported healthcare systems. We partic-

ularly monitor the level of trade receivables in countries

deemed to have an elevated credit risk. We consider

macroeconomic environment, historical experience,

country and political risk, in addition to other relevant

information when assessing risk. These risk factors are

monitored regularly to determine any adjustments in risk

classiﬁcation. The majority of the past due trade receiv-

ables from elevated credit risk countries are due from

local governments or from government-funded entities.

Deteriorating credit and economic conditions as well as

other factors in these elevated credit risk countries have

resulted in, and may continue to result in, an increase in

the average length of time that it takes to collect these

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-39

trade receivables, and may require the Group to re-eval-

uate the expected credit loss amount of these trade

receivables in future periods. At December 31, 2022,

amounts past due for more than one year are not signif-

icant in elevated credit risk countries.

Total trade receivables include amounts denomi-

nated in the following major currencies:

(USD millions) 



US dollar (USD) 



Euro (EUR) 



Russian ruble (RUB) 



Japanese yen (JPY) 



British pound (GBP) 



Chinese yuan (CNY) 



Canadian dollar (CAD) 



Brazilian real (BRL) 



Australian dollar (AUD) 



Swiss franc (CHF) 



Other currencies 



Total trade receivables, net 



16. Marketable securities, commodities, timedeposits,

derivative ﬁnancial instruments, andcash and cash

equivalents

Marketable securities, commodities, timedeposits and derivative ﬁnancial instruments

(USD millions) 



Commodities 



Debt securities 



Time deposits and short-term investments with original maturity more than  days 



Derivative ﬁnancial instruments 



Total marketable securities, commodities, time deposits and derivative ﬁnancial instruments 



The vast majority of debt securities, time deposits and short-term investments with an original maturity of more

than 90 days was denominated in USD as of December 31, 2022, and 2021.

Cash and cash equivalents

(USD millions) 



Current accounts 



Time deposits and short-term investments with original maturity less than  days 



Total cash and cash equivalents 



Notes to the Novartis Groupconsolidatedﬁnancial statements

F-40

17. Other current assets

(USD millions) 



VAT receivable 



Withholding tax recoverable 



Prepaid expenses 



Contingent consideration receivable





Other receivables and current assets 



Total other current assets 



Note 29 provides additional disclosures related to contingent consideration.

18. Equity

The following table shows the movement in the share capital:

Movement

(USD millions) Jan , 

in year

Dec , 

in year

Dec , 

in year

Dec , 

Share capital





– 



– 



– 



Treasury shares – 



– 



– 

– 

– 

Outstanding share capital 





– 



– 



The Novartis AG share capital consists of registered shares with a nominal value of CHF 0.50 each. No authorized and conditional capital exists.

The following table shows the movement in the shares:

2022 2021 2020

Total

Number of outstanding shares

Novartis

treasury

outstanding

Novartis

treasury

outstanding

Novartis

treasury

outstanding

(in millions) Note



Balance at beginning of year



– 





– 





– 



Shares canceled for capital

reduction



– 



– 



– 



Shares acquired to be

canceled



– 

– 

– 

Other share purchases



– 

– 

– 

Exercise of options

and employee transactions











Equity-based compensation









Shares delivered to Alcon

employees







Total movements

– 

– 

– 

– 



– 

– 



– 

Balance at end of year



– 





– 





– 



Approximately 99.0 million treasury shares (2021: 102.5 million; 2020: 103.0 million) are held in Novartis entities that restrict their availability for use.

Novartis reduced its share capital by canceling shares that were repurchased on the SIX Swiss Exchange second trading line during previous years.

Shares repurchased on the SIX Swiss Exchange second trading line under a CHF 10 billion share buyback authority approved at the 2019 Annual General Meeting (AGM) for

transactions after February 28, 2019, until March 2, 2021. Transactions after March 2, 2021, were executed under the CHF 10 billion share buyback authority approved at the 2021

AGM and the additional CHF 10 billion authority approved at the 2022 AGM.

Shares acquired from employees, which were previously granted to them under the respective equity-based participation plans

Shares delivered as a result of options being exercised and physical share deliveries related to equity-based participation plans

18.1) The amount available for distribution as a dividend

to shareholders is based on the available distributable

retained earnings of Novartis AG determined in accor-

dance with the legal provisions of the Swiss Code of

Obligations.







Dividend per share (in CHF) 





Total dividend payment

(in USD billion) 





Notes to the Novartis Groupconsolidatedﬁnancial statements

F-41

18.2) The following table summarizes the treasury shares movements:

2022 2021 2020

Number of

outstanding

Equity impact

Note

(in millions)

USD m

(in millions)

USD m

(in millions)

USD m

Shares acquired to be canceled



– 

– 

– 

– 

– 

– 

Other share purchases



– 

– 

– 

– 

– 

– 

Purchase of treasury shares

– 

– 

– 

– 

– 

– 

Exercise of options and employee transactions

















Equity-based compensation















Shares delivered to Alcon employees













Tot al

– 

– 

– 

– 

– 

– 

Shares repurchased on the SIX Swiss Exchange second trading line under a CHF 10 billion share buyback authority approved at the 2019 Annual General Meeting (AGM) for

transactions after February 28, 2019, until March 2, 2021. Transactions after March 2, 2021, were executed under the CHF 10 billion share buyback authority approved at the 2021

AGM and the additional CHF 10 billion authority approved at the 2022 AGM.

Shares acquired from employees, which were previously granted to them under the respective equity-based participation plans

Shares delivered as a result of options being exercised related to equity-based participation plans and the delivery of treasury shares. The average share price of the shares

delivered was signiﬁcantly below market price, reﬂecting the strike price of the options exercised.

Equity-settled share-based compensation is expensed in the consolidated income statement in accordance with the vesting period of the share-based compensation plans. The

value for the shares and options granted is credited to consolidated equity over the respective vesting period. In addition, tax beneﬁts arising from tax-deductible amounts

exceeding the expense recognized in the income statement are credited to equity.

18.3) In December 2021, Novartis entered into an irrevo-

cable, non-discretionary arrangement with a bank to

repurchase Novartis shares on the second trading line

under its up-to USD 15.0 billion share buyback. The

arrangement was updated in July 2022. Novartis is able

to cancel this arrangement at any time but could be sub-

ject to a 90-day waiting period.

As of December 31, 2022, these waiting period con-

ditions were not applicable and as a result, there was no

requirement to record a liability under this arrangement

as of December 31, 2022. The liability under this arrange-

ment amounted to USD 2.8 billion as of December 31,

2021.

In June 2021, Novartis entered into an irrevocable,

non-discretionary arrangement with a bank to repur-

chase Novartis shares to mitigate dilution related to par-

ticipation plans of employees. Novartis would have been

able to cancel this arrangement at any time but would

have been subject to a 90-day waiting period.

This trading plan commitment was fully executed and

expired in June 2021, and as a consequence, there is no

liability related to this plan recognized as of December

31, 2021.

In November 2020, Novartis entered into an irrevo-

cable, non-discretionary arrangement with a bank to

repurchase Novartis shares on the second trading line

under its up-to USD 2.5 billion share buyback. Novartis

would have been able to cancel this arrangement at any

time, but would have been subject to a 90-day waiting

period. The commitment under this arrangement there-

fore reﬂected the obligated purchases by the bank under

such trading plan over a rolling 90-day period, or if

shorter, until the maturity date of such trading plan.

The commitment under this arrangement amounted

to USD 1.8 billion as of December 31, 2020. This trading

plan commitment was fully executed and expired in

March 2021, and as a consequence, there is no liability

related to this plan recognized as of December 31, 2021.

In August 2020, Novartis entered into an irrevocable,

non-discretionary arrangement with a bank to

repurchase Novartis shares to mitigate dilution related

to participation plans of associates. Novartis would have

been able to cancel this arrangement at any time but

would have been subjected to a 90-day waiting period.

This trading plan commitment was fully executed and

expired, and as a consequence, there is no liability

related to this plan recognized as of December 31, 2020.

18.4) In October 2020, Novartis entered into an agree-

ment with the market maker for its employee options to

repurchase a portion of the outstanding written call

options. A total of 3.7 million options were repurchased

under this agreement. This agreement was terminated

in November 2020.

18.5) The impact of change in ownership of consolidated

entities represents the excess of the amount paid to

non-controlling interest over their carrying value and

equity allocation to non-controlling interest due to

change in ownership percentage.

18.6) Changes in non-controlling interests represent the

impact on the non-controlling interest of transactions

with minority shareholders, such as change in ownership

percentage, dividend payments and other equity trans-

actions.

18.7) Other movements include, for subsidiaries in hyper-

inﬂationary economies, the impact of the restatement of

the equity balances of the current year as well as restate-

ment of the non-monetary assets and liabilities with the

general price index at the beginning of the period. See

Note 29 for additional disclosures.

18.8) In 2021, transaction costs that were directly attrib-

utable to the distribution (spin-o) of Alcon Inc. to

Novartis AG shareholders and that would otherwise have

been avoided, were recorded to equity.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-42

18.9) At December 31, 2022, the market maker held 3

million (2021: 3 million; 2020: 1 million) written call options,

originally issued as part of the share-based compensa-

tion for employees, that have not yet been exercised. The

weighted average exercise price of these options is USD

66.07 (2021: USD 61.45; 2020: USD 60.09), and they

have contractual lives of 10 years, with remaining lives

less than one year (2021: two years; 2020: three years).

19. Non-current ﬁnancial debt

(USD millions) 



Straight bonds 



Liabilities to banks and other ﬁnancial institutions







Total, including current portion of non-current ﬁnancial debt 



Less current portion of non-current ﬁnancial debt – 

– 

Total non-current ﬁnancial debt 



Average interest rate 2.3% (2021: 0.9%)

All bonds are initially recorded at the amount of proceeds

received, net of transaction costs. They are subsequently

carried at amortized cost, with the dierence between

the proceeds, net of transaction costs, and the amount

due on redemption being recognized as a charge to the

consolidated income statement over the period of the

relevant bond. Financial debts, including current ﬁnan-

cial debts, contain only general default covenants. The

Group is in compliance with these covenants.

The percentage of ﬁxed-rate ﬁnancial debt to total

ﬁnancial debt was 86% at December 31, 2022, and 87%

at December 31, 2021.

The average interest rate on total ﬁnancial debt in

2022 was 2.4% (2021: 1.9%).

Note 29 contains a maturity table of the Group’s

future contractual interest payments commitments.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-43

The following table provides a breakdown of straight bonds:

Notional





amount

Issuance

Maturity

(USD

Coupon Currency (millions)

year

Issuer Issue price

millions)

 USD 





Novartis Capital Corporation, New York, United States 



 USD 





Novartis Capital Corporation, New York, United States 



 USD 





Novartis Capital Corporation, New York, United States 





 USD 





Novartis Capital Corporation, New York, United States 





 EUR 





Novartis Finance S.A., Luxembourg, Luxembourg 





 CHF 





Novartis AG, Basel, Switzerland 





 CHF 





Novartis AG, Basel, Switzerland 





 CHF 





Novartis AG, Basel, Switzerland 





 USD 





Novartis Capital Corporation, New York, United States 





 USD 





Novartis Capital Corporation, New York, United States 





 EUR 





Novartis Finance S.A., Luxembourg, Luxembourg 





 EUR 





Novartis Finance S.A., Luxembourg, Luxembourg 





 USD 





Novartis Capital Corporation, New York, United States 



 USD 





Novartis Capital Corporation, New York, United States 





 EUR 





Novartis Finance S.A., Luxembourg, Luxembourg 





 EUR 





Novartis Finance S.A., Luxembourg, Luxembourg 





 EUR 





Novartis Finance S.A., Luxembourg, Luxembourg 





 EUR 





Novartis Finance S.A., Luxembourg, Luxembourg 





 USD 





Novartis Capital Corporation, New York, United States 



 USD 





Novartis Capital Corporation, New York, United States 



 USD 





Novartis Capital Corporation, New York, United States 





 USD 





Novartis Capital Corporation, New York, United States 









EUR 





Novartis Finance S.A., Luxembourg, Luxembourg 





Total straight bonds





The EUR 1 850 million bond issued in 2020 features a coupon step-up of 0.25% commencing with the ﬁrst interest payment date after December 31, 2025, if one or both of the

2025 Patient Access Targets are not met. These 2025 Patient Access Targets are the 2025 Flagship Programs Patient Reach Target and the 2025 Strategic Innovative Therapies

Patient Reach Target, as deﬁned in the bond prospectus. As of December 31, 2022, there is no indication that these 2025 Patient Access Targets will not be met.

The following tables provide a breakdown of total non-current ﬁnancial debt, including current portion by maturity

and currency:

Breakdown by maturity:

(USD millions) 







 



 



 



 



 



After  



Total 



Breakdown by currency:

(USD millions) 



US dollar (USD) 



Euro (EUR) 



Japanese yen (JPY) 



Swiss franc (CHF) 



Others 



Total 



The following table shows the comparison of balance

sheet carrying value and fair value of total non-current

ﬁnancial debt, including current portion:





Balance

Fair

Balance

Fair

(USD millions) sheet

values

sheet

values

Straight bonds 







Others 





Total 







The fair values of straight bonds are determined by

quoted market prices. Other ﬁnancial debts are recorded

at notional amounts, which are a reasonable approxima-

tion of the fair values.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-44

20. Provisions and other non-current liabilities

(USD millions) 



Accrued liability for employee beneﬁts:

Deﬁned beneﬁt pension plans







Other long-term employee beneﬁts and deferred compensation 



Other post-employment beneﬁts







Environmental remediation provisions 



Provisions for product liabilities, governmental investigations and other legal matters 



Contingent consideration







Other non-current liabilities 



Total provisions and other non-current liabilities 



Note 25 provides additional disclosures related to post-employment beneﬁts.

Note 29 provides additional disclosures related to contingent consideration.

Novartis believes that its total provisions are adequate

based upon currently available information. However,

given the inherent diculties in estimating liabilities in

this area, Novartis may incur additional costs beyond the

amounts provided. Management believes that such addi-

tional amounts, if any, would not be material to the

Group’s ﬁnancial condition but could be material to the

results of operations or cash ﬂows in a given period.

Environmental remediation

provisions

The following table shows the movements in the envi-

ronmental liability provisions:

(USD millions) 





January  





Cash payments – 

– 

– 

Releases – 

– 

– 

Additions 





Currency translation eects – 

– 



December  





Less current provision – 

– 

– 

Non-current environmental

remediation provisions

at December  





The signiﬁcant components of the environmental reme-

diation provisions consist of costs to suciently clean

and refurbish contaminated sites to the extent neces-

sary, and to continue surveillance at sites where the envi-

ronmental remediation exposure is less signiﬁcant.

A substantial portion of the environmental remedia-

tion provisions relate to the remediation of Basel regional

landﬁlls in the adjacent border areas in Switzerland, Ger-

many and France. The provisions are reassessed on an

annual basis and adjusted as necessary.

In the United States, Novartis has been named under

federal legislation (the Comprehensive Environmental

Response, Compensation and Liability Act of 1980, as

amended) as a potentially responsible party (PRP) in

respect of certain sites. Novartis actively participates in,

or monitors, the cleanup activities at the sites in which it

is a PRP. The provision takes into consideration the

number of other PRPs at each site as well as the iden-

tity and ﬁnancial position of such parties in light of the

joint and several nature of the liability.

The expected timing of the related cash outﬂows as

of December 31, 2022, is currently projected as follows:

Expected

(USD millions) cash outﬂows

Due within two years 

Due later than two years, but within ﬁve years 

Due later than ﬁve years, but within  years 

Due after  years 

Total environmental remediation provisions 

Provisions for product liabilities,

governmental investigations and

other legal matters

Novartis has established provisions for certain product

liabilities, governmental investigations and other legal

matters where a potential cash outﬂow is probable and

Novartis can make a reliable estimate of the amount of

the outﬂow. These provisions represent the Group’s cur-

rent best estimate of the total ﬁnancial eect for the mat-

ters described below and for other less signiﬁcant mat-

ters. Potential cash outﬂows reﬂected in a provision

might be fully or partially oset by insurance in certain

circumstances.

Novartis has not established provisions for potential

damage awards for certain additional legal claims against

its subsidiaries if Novartis currently believes that a pay-

ment is either not probable or cannot be reliably esti-

mated. These not-provisioned-for matters include indi-

vidual product liability cases and certain other legal

matters. Plaintis’ have alleged claims in these matters

and the Group does not believe that information about

the amount sought by plaintis, if that is known, would

be meaningful with respect to those legal proceedings.

This is due to a number of factors, including, but not lim-

ited to, the stage of proceedings, the entitlement of par-

ties to appeal a decision and clarity as to theories of lia-

bility, damages and governing law. Therefore, it is not

practicable to provide information about the potential

ﬁnancial impact of these matters. In addition, in some of

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-45

these matters there are claims for punitive or multiple

(treble) damages, civil penalties and disgorgement of

proﬁts that in the view of Novartis are either wholly or

partially unspeciﬁed, or wholly or partially unquantiﬁable

at present; the Group believes that information about

these amounts claimed by plaintis generally is not

meaningful for purposes of determining a reliable esti-

mate of a loss that is probable or more than remote.

A number of other legal matters are in such early

stages or the issues presented are such that the Group

has not made any provisions since it cannot currently

estimate either a potential outcome or the amount of any

potential losses. For these reasons, among others, the

Group generally is unable to make a reliable estimate of

possible loss with respect to such cases. It is therefore

not practicable to provide information about the poten-

tial ﬁnancial impact of those cases.

There might also be cases for which the Group was

able to make a reliable estimate of the possible loss or

the range of possible loss, but the Group believes that

publication of such information on a case-by-case basis

would seriously prejudice the Group’s position in ongo-

ing legal proceedings or in any related settlement dis-

cussions. Accordingly, in such cases, information has

been disclosed with respect to the nature of the contin-

gency, but no disclosure is provided as to an estimate of

the possible loss or range of possible loss.

Note 28 contains additional information on contin-

gent liabilities.

Summary of signiﬁcant legal

proceedings

The following is a summary of signiﬁcant legal proceed-

ings to which Novartis or its subsidiaries are currently a

party, or were a party and that concluded in 2022.

Investigations and related litigations

Southern District of New York (S.D.N.Y.) Gilenya

marketing practices investigation and litigation

In 2013, Novartis Pharmaceuticals Corporation (NPC)

received a civil investigative demand from the United

States Attorney’s Oce (USAO) for the S.D.N.Y. request-

ing the production of documents and information relat-

ing to marketing practices for Gilenya, including the

remuneration of healthcare providers in connection

therewith. In 2017, the S.D.N.Y. and New York State

declined to intervene in claims raised by an individual

relator in a qui tam complaint. In 2022, NPC’s motion to

dismiss this complaint was granted, which was appealed.

The claims are being vigorously contested.

Government generic pricing antitrust investigations,

antitrust class actions

Since 2016, Sandoz Inc. has received a grand jury sub-

poena and a civil investigative demand and interrogato-

ries from the Antitrust and Civil Divisions of the US

Department of Justice (DOJ) into alleged price ﬁxing and

market allocation of generic drugs in the United States

as well as alleged federal False Claims Act (FCA) viola-

tions. Sandoz Inc. also received a subpoena and inter-

rogatories from the Attorney General of the State of Con-

necticut in connection with a similar States’ investigation.

In 2020, Sandoz Inc. reached a resolution with the DOJ

Antitrust Division, pursuant to which Sandoz Inc. paid

USD 195 million and entered into a deferred prosecution

agreement. The Sandoz Inc. resolution related to

instances of misconduct at the Company between 2013

and 2015 with regard to certain generic drugs sold in the

United States. Under the terms of that agreement,

Sandoz Inc. will continue to take steps to enhance its

compliance program, employee training and monitoring,

and will continue to cooperate with the US government’s

ongoing investigation into the generic pharmaceutical

industry. Sandoz Inc. also ﬁnalized a resolution with the

DOJ Civil Division and in 2021 paid USD 185 million, which

includes interest from the date of the agreement in prin-

ciple, to settle related claims arising under the FCA, and

entered into a corporate integrity agreement with the

Oce of Inspector General (OIG) of the US Department

of Health and Human Services (HHS). This resolution

with the DOJ resolves all federal government matters

related to price ﬁxing allegations.

Since the third quarter of 2016, Sandoz Inc. and Foug-

era Pharmaceuticals Inc. have been sued alongside other

generic pharmaceutical companies in numerous individ-

ual and putative class action complaints by direct and

indirect private purchasers and by over 50 US states and

territories, represented by their respective Attorneys

General. Plaintis claim that defendants, including

Sandoz Inc., engaged in price ﬁxing and market alloca-

tion of generic drugs in the United States, and seek dam-

ages and injunctive relief. The litigation includes com-

plaints alleging product-speciﬁc conspiracies, as well as

complaints alleging the existence of an overarching

industry conspiracy, and assert claims for damages and

penalties under federal and state antitrust and consumer

protection acts. The cases have been consolidated for

pretrial purposes in the United States District Court

(USDC) for the Eastern District of Pennsylvania, and the

claims are being vigorously contested.

Lucentis/Avastin

matters

In connection with an investigation into whether Novartis

entities, F. Homann-La Roche AG, Genentech Inc. and

Roche S.p.A. colluded to artiﬁcially preserve the market

positions of Avastin

and Lucentis, in 2014 the Italian

Competition Authority (ICA) imposed a ﬁne equivalent

to USD 125 million on the Novartis entities. Novartis paid

the ﬁne, subject to the right to later claim recoupment,

and appealed before the Consiglio di Stato (CdS). In 2014

and 2015, the Italian Ministry of Health and the Lombar-

dia region sent letters with payment requests for a total

equivalent of approximately USD1.3 billion in damages

from Novartis and Roche entities based on these allega-

tions. In 2019, the CdS upheld the ICA decision and ﬁne.

Following that CdS decision, several additional Italian

regions and hospitals sent letters claiming damages for

an aggregate amount of approximately USD 330 million.

None of these claims have been asserted in legal pro-

ceedings and no further letters have been sent since.

Novartis continues to appeal the CdS decision. In 2019,

the French Competition Authority (FCA) issued a State-

ment of Objections against Novartis entities, alleging

anti-competitive practices on the French market for

anti-vascular endothelial growth factor treatments for

wet age-related macular degeneration from 2008 to

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-46

2013. In 2020, the FCA issued a decision ﬁnding that the

Novartis entities had infringed competition law by abus-

ing a dominant position and imposing a ﬁne equivalent

to approximately USD 452 million. Novartis paid the ﬁne,

again subject to recoupment, and is appealing the FCA’s

decision. Novartis is the subject of similar investigations

and proceedings involving competition authorities in Bel-

gium and Greece and is currently in the appeal process

in Turkey. Novartis continues to vigorously contest all

claims in all those countries. Novartis is also challeng-

ing policies and regulations allowing o-label/unlicensed

use and reimbursement for economic reasons in Turkey.

Greece investigation

The Greek authorities are investigating legacy allega-

tions of potentially inappropriate economic beneﬁts to

HCPs, government ocials and others in Greece. These

authorities include the Greek Coordinating Body for

Inspection and Control, and the Greek Body of Prose-

cution of Financial Crime (SDOE), from which the Com-

pany received a summons in 2018 and 2020. Novartis

has cooperated in these investigations. In 2021, SDOE

imposed on Novartis Hellas a ﬁne equivalent to approx-

imately USD 1.2 million, which Novartis Hellas has

appealed. In 2022, the Greek State served a civil lawsuit

on Novartis Hellas, seeking approximately USD 225 mil-

lion for moral damages allegedly arising from the con-

duct that was the subject of the Company’s 2020 set-

tlement with the DOJ regarding allegations of

inappropriate economic beneﬁts in Greece that was dis-

closed in the 2020 Annual Report and the 2020 Form

20-F. The claims are being vigorously contested.

340B Drug Pricing Program investigations

In 2021, NPC received a notiﬁcation from the US Health

Resources and Services Administration (HRSA) which

stated that HRSA believes NPC’s contract pharmacy pol-

icy violates the 340B statute, and threatened potential

enforcement action. NPC subsequently sued HRSA in

the USDC for the District of Columbia to challenge

HRSA’s determination and to enjoin HRSA from taking

action with respect to NPC’s contract pharmacy policy.

HRSA then referred the matter regarding NPC’s contract

pharmacy policy to OIG, which could result in the impo-

sition of civil monetary penalties on NPC. The USDC

issued a decision rejecting HRSA’s interpretation of the

340B statute, vacating the violation notiﬁcation and

remanding the matter to HRSA. HRSA appealed, and the

United States Court of Appeals for the DC Circuit heard

argument on the case in 2022. In addition, in 2021, Emory

University Hospital Midtown ﬁled an Administrative Dis-

pute Resolution (ADR) proceeding against NPC, seek-

ing the return of alleged overcharges resulting from

NPC’s contract pharmacy policy. NPC has moved to dis-

miss the proceeding pending resolution of the HRSA lit-

igation. Finally, also in 2021, NPC received a civil inves-

tigative subpoena from the Oce of the Attorney General

of the State of Vermont requesting the production of

documents and information concerning NPC’s participa-

tion in the 340B Drug Pricing Program in Vermont; NPC

provided documents and information to the Oce of the

Attorney General.

Swiss and EU investigation

In September 2022, the Swiss Competition Commission

(COMCO) initiated an investigation of Novartis acquisi-

tion of certain patents from Genentech in April 2020 and

their subsequent enforcement against Eli Lilly and other

parties, allegedly in an attempt to protect Cosentyx from

competing products. COMCO is investigating whether

enforcement of the patents violates the Swiss Cartel Act.

The European Commission also requested information

from Novartis regarding this matter. Novartis is cooper-

ating with the authorities and will vigorously contest any

allegations.

Antitrust class actions

Exforge

Since 2018, Novartis Group companies as well as other

pharmaceutical companies have been sued by various

direct and indirect purchasers of Exforge in multiple US

individual and putative class action complaints. They

claim that Novartis made a reverse payment in the form

of an agreement not to launch an authorized generic,

alleging violations of federal antitrust law and state anti-

trust, consumer protection and common laws, and seek-

ing damages as well as injunctive relief. The cases have

been consolidated in the S.D.N.Y. In 2022, Novartis

agreed to a settlement in principle to pay USD 245 mil-

lion to resolve these cases. These settlements are sub-

ject to mutually agreeable terms, ﬁnalization of docu-

mentation and, in some cases, court approval.

Product liability litigation

Reclast

NPC is a defendant in more than 20 US product liability

actions involving Reclast and alleging atypical femur

fracture injuries, all of which are in New Jersey state or

federal court and in California state court, coordinated

with claims against other bisphosphonate manufactur-

ers. The claims are being vigorously contested.

Taxotere

(docetaxel)

Sandoz is a defendant in more than 3 100 US product

liability actions involving Taxotere

(docetaxel), an

oncology product, many of which have been transferred

to a multidistrict litigation in the Eastern District of Lou-

isiana. The complaints allege misleading marketing and

that Sanoﬁ, as innovator, and several 505(b)(2) NDA hold-

ers (including Sandoz) failed to warn of the risk of per-

manent alopecia/hair loss. In 2022, actions involving

claims related to alleged eye injuries caused by the use

of Ta xotere

were coordinated in a separate multidistrict

litigation in the Eastern District of Louisiana. The claims

are being vigorously contested.

Amiodarone

Sandoz entities are named in two multi-plainti US prod-

uct liability cases involving amiodarone, a cardiac drug

indicated to treat life-threatening arrhythmias that have

not responded to other treatment. The complaints allege

failure to warn, o-label promotion, and failure to include

medication guides to pharmacies. The claims are being

vigorously contested.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-47

Sartans and ranitidine

Since 2018, claims have been brought against Sandoz

and other pharmaceutical companies alleging injury from

carcinogenic impurities found in valsartan and valsartan/

HCT ﬁlm-coated tablets and/or losartan marketed or

manufactured by Sandoz. These claims include several

putative class actions in Canada. Claims have also been

brought alleging injury from carcinogenic impurities in

ranitidine-containing medicines. These claims also

include several putative class actions in Canada and a

multidistrict litigation in Florida. All of these claims are

being vigorously contested.

Tasigna

NPC is a defendant in more than 400 US product liabil-

ity actions involving Tasigna, alleging that the product

caused various cardiovascular eects and that NPC

failed to provide adequate warnings about those alleged

side eects. State court actions are pending in a multi-

county litigation in Bergen County, New Jersey, and fed-

eral cases are pending in a multidistrict litigation in the

Middle District of Florida. The claims are being vigorously

contested.

Other matters

Shareholder derivative lawsuit

In 2021, NPC, Sandoz Inc., Novartis Capital Corporation

and certain present and former directors and ocers of

Novartis were named as defendants, and Novartis was

named as a nominal defendant, in a purported share

holder derivative lawsuit ﬁled in New York state court.

The plaintis, derivatively as purported Novartis share-

holders on behalf of Novartis, seek damages and other

remedies based on alleged conduct by the corporate

and individual defendants. In 2022, the court granted

Novartis motion to dismiss the lawsuit, which the plain-

tis have appealed.

Concluded legal matters

Average Wholesale Price (AWP) litigation –

Concluded matter

Lawsuits were brought, the latest in February 2016, by

various US state governmental entities and private par-

ties against various pharmaceutical companies, includ-

ing NPC, alleging that they fraudulently overstated the

AWP that is or has been used by payers, including state

Medicaid agencies, to calculate reimbursements to

healthcare providers. In 2022, NPC settled a putative

class action brought by private payers in New Jersey,

which resolved the last AWP lawsuit. This matter is now

concluded.

Entresto matter– Concluded matter

In 2021, NPC received a civil investigative demand from

the DOJ seeking information from 2016 to the present

regarding the marketing and pricing of Entresto, includ-

ing remuneration provided to HCPs. In December 2022,

the DOJ advised that it has no additional requests and

that the matter is considered closed. This matter is now

concluded.

South Korea investigation – Concluded matter

In 2016, the Seoul Western District Prosecutor initiated

a criminal investigation into, among other things, allega-

tions that Novartis Korea utilized medical journals to pro-

vide inappropriate economic beneﬁts to healthcare pro-

fessionals (HCPs). This resulted in a non-material ﬁne,

which the prosecutor appealed. In 2021, the appellate

court upheld the ﬁne, and the prosecutor appealed that

decision. In January 2023, the Supreme Court dismissed

the appeal. This matter is now concluded.

Summary of product liability, governmental

investigations and other legal matters provision

movements

(USD millions) 





January  





Impact of acquisitions of businesses 



Cash payments – 

– 

– 

Releases of provisions – 

– 

– 

Additions to provisions 





Currency translation eects – 

– 

– 

December  





Less current portion – 

– 

– 

Non-current product

liabilities, governmental

investigations and other

legal matters provisions

at December  





Novartis believes that its total provisions for investiga-

tions, product liability, arbitration and other legal matters

are adequate based upon currently available information.

However, given the inherent diculties in estimating lia-

bilities, there can be no assurance that additional liabil-

ities and costs will not be incurred beyond the amounts

provided.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-48



21. Current ﬁnancial debt

andderivativeﬁnancialinstruments

(USD millions) 



Interest-bearing accounts of employees

payable on demand





Bank and other ﬁnancial debt







Commercial paper 



Current portion of non-current ﬁnancial debt 



Derivative ﬁnancial instruments 



Total current ﬁnancial debt and derivative

ﬁnancial instruments 



Weighted average interest rate 0.25% through September 30, 2022 (2021: 0.25%)

Weighted average interest rate 9.7% (2021: 6.1%)

During the third quarter of 2022, Novartis closed the

interest-bearing accounts of employees payable on

demand, and paid out USD 0.9 billion to the respective

beneﬁciaries on October 3, 2022. The net cash outﬂows

from interest-bearing accounts of employees payable on

demand were reported within the line change in current

ﬁnancial debts in the consolidated statements of cash

ﬂows. See Note 23.6.

The carrying amounts of current ﬁnancial debt, other

than the current portion of non- current ﬁnancial debt,

approximate the estimated fair value due to the short-

term nature of these instruments.

Details on commercial papers and short-term bor-

rowings are provided under “Liquidity risk” in Note29.

22. Provisions and other current liabilities

(USD millions) 



Taxes other than income taxes 



Restructuring provisions 



Accrued expenses for goods and services received but not invoiced 



Accruals for royalties 



Accrued interests on ﬁnancial debt 



Provisions for deductions from revenue 



Accruals for compensation and beneﬁts, including social security 



Environmental remediation provisions 



Deferred income 



Provisions for product liabilities, governmental investigations and other legal matters







Accrued share-based payments 



Contingent consideration







Commitment for repurchase of own shares





Other payables 



Total provisions and other current liabilities 



Note 20 provides additional disclosures related to legal provisions.

Note 29 provides additional disclosures related to contingent consideration.

Note 18.3 provides additional disclosures related to commitment for repurchase of own shares.

Provisions are based upon management’s best estimate and adjusted for actual experience. Such adjustments to

historic estimates have not been material.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-49

Provisions for deductions from revenue

The following table shows the movement of the provisions for deductions from revenue:

(USD millions) 





January  





Eect of currency translation, business combinations – 

– 



Payments/utilizations – 

– 

– 

Adjustments of prior years charged to income statement – 

– 

– 

Current year income statement charge 





Change in provisions oset against gross trade receivables – 





December  





The provisions for deductions from revenue include speciﬁc healthcare plans and program rebates as well as

non-healthcare plans and program-related rebates, returns and other deductions. The provisions for deductions

from revenue are adjusted to reﬂect experience and to reﬂect actual amounts as rebates, refunds, discounts and

returns are processed. The provision represents estimates of the related obligations, requiring the use of judgment

when estimating the eect of these deductions from revenue.

Restructuring provisions movements

(USD millions) 





January  





Additions 





Cash payments – 

– 

– 

Releases – 

– 

– 

Transfers – 

– 

Currency translation eects – 

– 



December  





In 2022, additions to provisions of USD1.4 billion were

mainly related to the following reorganizations:

• Initiative announced in April 2022 to implement a new

streamlined organizational model designed to support

innovation, growth and productivity.

• The continuation of the Innovative Medicines Division

and the Operation unit (formerly Novartis Technical

Operations and the Customer & Technology Solutions)

2021 restructuring initiatives.

In 2021, additions to provisions of USD 328 million were

mainly related to the following reorganizations:

• The Innovative Medicines Division commenced a plan

to restructure its ﬁeld force and supporting functions

in response to changes in its go-to-market structure

with increased utilization of digital technology.

• Group-wide initiatives to streamline manufacturing

platforms and manufacturing functions and implement

new technologies continued. In addition, the Opera-

tions unit (formerly Customer & Technology Solutions)

continued the phased implementation of the new oper-

ating model to transition activities to service centers.

In 2020, additions to provisions of USD354 million were

mainly related to the following reorganizations:

• The Innovative Medicines Division restructured its ﬁeld

force and supporting functions in Region Europe.

• The Sandoz Division initiatives to realign its organiza-

tional structures to improve competitiveness that com-

menced in 2019 continued.

• Group-wide initiatives to streamline manufacturing

platforms and manufacturing functions through the

setup of operations centers and implementation of new

technologies, in the Innovative Medicines Division and

the Sandoz Division, continued. In addition, the Oper-

ations unit (formerly Customer & Technology Solutions)

continued the phased implementation of the new oper-

ating model to change outsourcing structures and tran-

sition activities to service centers.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-50



23. Details to the consolidated statements of cash ﬂows

23.1) Non-cash items and other adjustments

The following table shows the reversal of non-cash items and other adjustments in the consolidated statements of

cash ﬂows.

(USD millions) 





Depreciation, amortization and impairments on:

Property, plant and equipment 





Right-of-use assets 





Intangible assets 





Financial assets





– 

– 

Change in provisions and other non-current liabilities 





Gains on disposal and other adjustments on property, plant and equipment; intangible assets;

ﬁnancial assets; and other non-current assets, net – 

– 

– 

Equity-settled compensation expense 





Loss/(income) from associated companies





– 

– 

Income taxes 





Net ﬁnancial expense 





Other – 

Total 

– 



Includes fair value changes

2021 included the gain of USD 14.6 billion recognized from the divestment of the Group’s investment in Roche (see Notes 2 and 4).

In 2022, other than through business combinations, there

were USD 635 million additions to intangible assets with

deferred payments. In 2022, there were USD 247 million

(2021: USD 321 million, 2020: USD 346 million) additions

to right-of-use assets recognized.

23.2) Total amount of income taxes paid

In 2022, the total amount of income taxes paid was USD2.0 billion (2021: USD2.3 billion), which was included within

“Net cash ﬂows from operating activities.”

In 2020, the total amount of income taxes paid was USD1.9 billion, of which USD1.8 billion was included within

“Net cash ﬂows from operating activities,” and USD88 million was included within “Net cash ﬂows used in invest-

ing activities from discontinued operations.”

23.3) Cash ﬂows from changes in working capital and other operating items included in

the net cash ﬂows from operating activities

(USD millions) 





(Increase)/decrease in inventories – 



– 

(Increase)/decrease in trade receivables – 

– 



Decrease in trade payables – 

– 

– 

Change in other current and non-current assets – 

– 



Change in other current liabilities 





Other adjustments, net



– 

Total – 



– 

23.4) Cash ﬂows arising from acquisitions and divestments of interests in associated

companies, net

In 2021, acquisitions and divestments of interests in associated companies, net included USD 20.7 billion proceeds

from the divestment of the Group’s investment in Roche (see Notes 2 and 4).

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-51

23.5) Cash ﬂows arising from acquisitions and divestments of businesses, net

The following table is a summary of the cash ﬂow impact of acquisitions and divestments of businesses. The most

signiﬁcant trans actions are described in Note 2.

(USD millions) Note







Net assets recognized as a result of acquisitions of businesses 

– 

– 

– 

Fair value of previously held equity interests







Contingent consideration payables, net







Payments, deferred consideration and other adjustments, net

– 





Cash ﬂows used for acquisitions of businesses

– 

– 

– 

Cash ﬂows (used for)/from divestments of businesses, net



– 





Cash ﬂows used for acquisitions and divestments of businesses, net

– 

– 

– 

In 2022, USD 15 million net cash outﬂows from divestments of businesses included USD 20 million reduction to cash and cash equivalents due to the derecognized cash and cash

equivalents following a loss of control of a company upon expiry of an option to purchase the company, partly oset by USD 5 million net cash inﬂows from business divestments in

2022 and in prior years.

In 2022, the net identiﬁable assets of divested businesses amounted to USD 173 million, comprised of non-current assets of USD 132 million, current assets of USD 113 million,

including USD 71 million cash and cash equivalents and of non-current and current liabilities of USD 72 million. Deferred sales price receivables and other adjustments amounted to

USD 41 million.

In 2021, USD 66 million included USD 52 million net cash inﬂows from divestments in previous years, and a USD 14 million net cash inﬂow from a business divestment in 2021,

comprised of intangible assets.

In 2020, USD 49 million represented the net cash inﬂows from divestments in previous years.

Notes 2 and 24 provide further information regarding acquisitions and divestments of businesses. All acquisitions

were for cash.

23.6) Reconciliation of liabilities arising from ﬁnancing activities

Current

ﬁnancial

debts and

Non-current

derivative

ﬁnancial

Non-current

Current lease

(USD millions) debts

instruments

lease liabilities

liabilities

January ,  







Increase in non-current ﬁnancial debts 

Repayments of the current portion of non-current ﬁnancial debts

– 

Change in current ﬁnancial debts





Payments of lease liabilities

– 

Interest payments for amounts included in lease liabilities

classiﬁed as cash ﬂows from operating activities

– 

New, modiﬁed and terminated leases, net





Impact of acquisitions and divestments of businesses, net





Changes in fair values, lease interest and other changes, net

– 



Amortization of bonds discount 



Currency translation eects – 

– 

– 

– 

Reclassiﬁcation from non-current to current, net – 



– 



December ,  







Change in current ﬁnancial debts included net cash outﬂows from interest-bearing accounts of employees payable on demand amounting to USD 1.7 billion. See Note 21.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-52

Current

ﬁnancial

debts and

Non-current

derivative

ﬁnancial

Non-current

Current lease

(USD millions) debts

instruments

lease liabilities

liabilities

January ,  







Increase in non-current ﬁnancial debts 

Repayments of the current portion of non-current ﬁnancial debts

– 

Change in current ﬁnancial debts

– 

Payments of lease liabilities, net

– 

Interest payments for amounts included in lease liabilities

classiﬁed as cash ﬂows from operating activities

– 

New, modiﬁed and terminated leases, net





Impact of acquisitions of businesses



Changes in fair values, lease interest and other changes, net

– 



Amortization of bonds discount 



Currency translation eects – 

– 

– 

– 

Reclassiﬁcation from non-current to current, net – 



– 



December ,  







Current

ﬁnancial

debts and

Non-current

derivative

ﬁnancial

Non-current

Current lease

(USD millions) debts

instruments

lease liabilities

liabilities

January ,  







Increase in non-current ﬁnancial debts 

Repayments of the current portion of non-current ﬁnancial debts

– 

Change in current ﬁnancial debts



Payments of lease liabilities, net

– 

Interest payments for amounts included in lease liabilities

classiﬁed as cash ﬂows from operating activities

– 

New, modiﬁed and terminated leases, net





Impact of acquisitions of businesses







Changes in fair values, lease interest and other changes, net – 

– 



Amortization of bonds discount 



Currency translation eects 







Reclassiﬁcation from non-current to current, net – 



– 



December ,  







23.7) Supplemental disclosures related to the Alcon business distributed to Novartis AG

shareholders

In 2020, net cash ﬂows used in investing activities from discontinued operations of USD 127 million included the

investing activities of the Alcon business, which was spun-o to Novartis AG shareholders on April 8, 2019, and

cash outﬂows for transaction-related expenditures attributable to the series of portfolio transformation transac-

tions completed in 2015.

In 2020, net cash ﬂows used in ﬁnancing activities from discontinued operations of USD 50 million were for

transaction cost payments directly attributable to the distribution (spin-o) of the Alcon business to Novartis AG

shareholders on April 8, 2019.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-53

24. Acquisitions of businesses

Fair value of assets and liabilities arising from acquisitions of businesses:

(USD millions) 





Property, plant and equipment 



Right-of-use assets 



Currently marketed products





Acquired research and development 





Other intangible assets





Deferred tax assets 





Non-current ﬁnancial and other assets



Inventories



Trade receivables and ﬁnancial and other current assets 





Cash and cash equivalents 





Deferred tax liabilities – 

– 

– 

Current and non-current ﬁnancial debts

– 

– 

Current and non-current lease liabilities – 

– 

Trade payables and other liabilities – 

– 

– 

Net identiﬁable assets acquired 





Acquired cash and cash equivalents – 

– 

– 

Non-controlling interests

– 

Goodwill 





Net assets recognized as a result of acquisitions of businesses 





Note 2 details signiﬁcant acquisitions of businesses, spe-

ciﬁcally of Gyroscope in 2022, the cephalosporin anti-

biotics business from GSK in 2021; and of the The

Medicines Company and the Japanese business of AGI

in 2020. The goodwill arising out of these acquisitions is

attributable to the buyer-speciﬁc synergies, the assem-

bled workforce, and the accounting for deferred tax lia-

bilities on the acquired assets. In 2022, no goodwill (2021:

USD 107 million; 2020: USD 74 million) is tax deductible.

25. Post-employment beneﬁts for employees

Deﬁned beneﬁt plans

In addition to the legally required social security schemes,

the Group has numerous independent pension and other

post-employment beneﬁt plans. In most cases, these

plans are externally funded in entities that are legally

separate from the Group. For certain Group companies,

however, no independent plan assets exist for the pen-

sion and other post-employment beneﬁt obligations of

employees. In these cases, the related unfunded liability

is included in the balance sheet. The deﬁned beneﬁt obli-

gations (DBOs) of all major pension and other post-em-

ployment beneﬁt plans are reappraised annually by inde-

pendent actuaries. Plan assets are recognized at fair

value. The major plans are based in Switzerland, the

United States, the United Kingdom, Germany and Japan,

which represent 95% of the Group’s total DBO for pen-

sion plans. Details of the plans in the two most signiﬁ-

cant countries, Switzerland and the United States, which

represent 83% of the Group’s total DBO for post-em-

ployment beneﬁt plans, are provided below.

Swiss-based pension plans represent the most sig-

niﬁcant portion of the Group’s total DBO and plan assets.

For the active insured members the beneﬁts are linked

to contributions paid into the plan, interest credits

granted and conversion rates applied.

All beneﬁts granted under Swiss-based pension

plans are vested, and Swiss legislation prescribes that

the employer has to contribute a ﬁxed percentage of an

employee’s pay to an external pension fund. Additional

employer contributions may be required whenever the

plan’s statutory funding ratio falls below a certain level.

The employee also contributes to the plan. The pension

plans are run by separate legal entities, each governed

by a board of trustees that – for the principal plans – con-

sists of representatives nominated by Novartis and the

active insured employees. The boards of trustees are

responsible for the plan design and asset investment

strategy.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-54

In December 2020, the Board of Trustees of the

Novartis Swiss Pension Fund agreed to adjust the annu-

ity conversion rate at retirement with eect from Janu-

ary 1, 2022. This amendment did not aect existing pen-

sioners, and its impact on existing plan participants will

be mitigated by way of deﬁned compensatory measures.

This amendment resulted in a net pre-tax curtailment

gain of USD 101 million (CHF 90 million) recognized in

2020.

The United States pension plans represent the sec-

ond-largest component of the Group’s total DBO and

plan assets. The principal plans (Qualiﬁed Plans) are

funded, whereas plans providing additional beneﬁts for

executives (Restoration Plans) are unfunded. Employer

contributions are required for Qualiﬁed Plans whenever

the statutory funding ratio falls below a certain level.

Furthermore, in certain countries, employees are cov-

ered under other post-employment beneﬁt plans and

post-retirement medical plans.

In the US, other post-employment beneﬁt plans con-

sist primarily of post-employment healthcare beneﬁts,

which have been closed to new members since 2015.

Part of the costs of these plans is reimbursable under

the Medicare Prescription Drug, Improvement, and Mod-

ernization Act of 2003. There is no statutory funding

requirement for these plans. The Group is funding these

plans to the extent that it is tax ecient.

The following tables are a summary of the funded and unfunded deﬁned beneﬁt obligation for pension and other

post-employment beneﬁt plans of employees at December 31, 2022 and 2021:

Pension plans Other post-employment

beneﬁt plans

(USD millions) 







Beneﬁt obligation at January  







Current service cost 







Interest cost 







Past service costs and settlements – 





– 

Administrative expenses 



Remeasurement gains arising from changes in ﬁnancial assumptions



– 

– 

– 

– 

Remeasurement (gains)/losses arising from changes in demographic assumptions – 

– 



Experience-related remeasurement losses/(gains) 



– 

– 

Currency translation eects – 

– 

– 

– 

Beneﬁt payments – 

– 

– 

– 

Contributions of employees 



Eect of acquisitions, divestments or transfers – 



Beneﬁt obligation at December  







Fair value of plan assets at January  







Interest income 





Return on plan assets excluding interest income – 



– 



Currency translation eects – 

– 

Novartis Group contributions 







Contributions of employees 



Settlements – 

– 

Beneﬁt payments – 

– 

– 

– 

Eect of acquisitions, divestments or transfers

Fair value of plan assets at December  







Funded status 

– 

– 

– 

Limitation on recognition of fund surplus at January  – 

– 

Change in limitation on recognition of fund surplus – 

– 

Currency translation eects – 



Interest income on limitation of fund surplus – 

– 

Limitation on recognition of fund surplus at December 



– 

– 

Net liability in the balance sheet at December  – 

– 

– 

– 

The remeasurement gains arising from changes in ﬁnancial assumptions is driven mainly by changes in the actuarial discount rates used to determine the beneﬁt obligation.

As of December 31, 2022, the most signiﬁcant pension plans where the asset ceiling was required to be applied were in Switzerland and amounted to USD 2 587 million.

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-55

The reconciliation of the net liability from January 1 to December 31 is as follows:

Pension plans Other post-employment

beneﬁt plans

(USD millions) 







Net liability at January  – 

– 

– 

– 

Current service cost – 

– 

– 

– 

Net interest expense – 

– 

– 

– 

Administrative expenses – 

– 

Past service costs and settlements 

– 

– 



Remeasurements 







Currency translation eects 







Novartis Group contributions 







Eect of acquisitions, divestments or transfers 

– 

Change in limitation on recognition of fund surplus – 

– 

Net liability at December  – 

– 

– 

– 

Amounts recognized in the consolidated balance sheet

Prepaid beneﬁt cost 



Accrued beneﬁt liability – 

– 

– 

– 

The following table shows a breakdown of the DBO for pension plans by geography and type of member, and the

breakdown of plan assets into the geographical locations in which they are held:

2022 2021

United

Rest of

United

Rest of

(USD millions) Switzerland

States

the world

Total

Switzerland

States

the world

Total

Beneﬁt obligation at December  















Thereof unfunded

556

363

919

688

439

1 127

By type of member

Active 















Deferred pensioners













Pensioners 















Fair value of plan assets at December  















Funded status 

– 

– 





– 

– 

– 

The following table shows a breakdown of the DBO for other post-employment beneﬁt plans by geography and

type of member, and the breakdown of plan assets into the geographical locations in which they are held:

2022 2021

United

Rest of

United

Rest of

(USD millions) States

the world

Total

States

the world

Total

Beneﬁt obligation at December  











Thereof unfunded 286

362

400

487

By type of member

Active 











Deferred pensioners 











Pensioners 











Fair value of plan assets at December  











Funded status – 

– 

– 

– 

– 

– 

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-56

The following table shows the principal weighted average actuarial assumptions used for calculating deﬁned ben-

eﬁt plans and other post- employment beneﬁts of employees:

Pension plans Other post-employment

beneﬁt plans













Weighted average assumptions used to determine

beneﬁt obligations at December 

Discount rate 











Expected rate of pension increase 





Expected rate of salary increase 



Interest on savings account 





Current average life expectancy

for a -year-old male in years 





Current average life expectancy

for a -year-old female in years 





Changes in the aforementioned actuarial assumptions

can result in signiﬁcant volatility in the accounting for the

Group’s pension plans in the consolidated ﬁnancial state-

ments. This can result in substantial changes in the

Group’s other comprehensive income, long-term liabili-

ties and prepaid pension assets.

The DBO is signiﬁcantly impacted by assumptions

regarding the rate that is used to discount the actuari-

ally determined post-employment beneﬁt liability. This

rate is based on yields of high-quality corporate bonds

in the country of the plan. Decreasing corporate bond

yields decrease the discount rate, so that the DBO

increases and the funded status decreases.

In Switzerland, an increase in the DBO due to lower

discount rates is slightly oset by lower future beneﬁts

expected to be paid on the employee’s savings account

where the assumption on interest accrued often changes

broadly in line with the discount rate.

The impact of decreasing interest rates on a plan’s

assets is more dicult to predict. A signiﬁcant part of

the plan assets is invested in bonds. Bond values usually

rise when interest rates decrease and may therefore par-

tially compensate for the decrease in the funded status.

Furthermore, pension assets also include signiﬁcant

holdings of equity instruments. Share prices usually tend

to rise when interest rates decrease and therefore often

counteract the negative impact of the rising deﬁned ben-

eﬁt obligation on the funded status (although the

correlation of interest rates with equities is not as strong

as with bonds, especially in the short term).

The expected rate for pension increases signiﬁcantly

aects the DBO of most plans in Switzerland, Germany

and the United Kingdom. Such pension increases also

decrease the funded status, although there is no strong

correlation between the value of the plan assets and

pension/inﬂation increases.

Assumptions regarding life expectancy signiﬁcantly

impact the DBO. An increase in longevity increases the

DBO. There is no osetting impact from the plan assets,

as no longevity bonds or swaps are held by the pension

funds. The Group’s actuaries use mortality tables which

take into account historic patterns and expected

changes, such as further increases in longevity.

In 2022 the mortality assumptions used for the pen-

sion plans in Switzerland were based on BVG 2020

tables with future improvements based on the BVG gen-

erational model. In US for the Pension and Postretire-

ment Medical Beneﬁt Plans, the Society of Actuaries Pri-

2012 mortality tables with generational improvements

based on Scale MP-2021 are used.

The following table shows the sensitivity of the

deﬁned beneﬁt pension obligation to the principal actu-

arial assumptions for the major plans in Switzerland, the

United States, the United Kingdom, Germany and Japan

on an aggregated basis:

Change in 

Change in 

year-end deﬁned

beneﬁt pension

(USD millions) obligation

obligation

 basis point increase in discount rate – 

– 

 basis point decrease in discount rate 



One-year increase in life expectancy 



 basis point increase in rate of pension increase 



 basis point decrease in rate of pension increase – 

– 

 basis point increase of interest on savings account 



 basis point decrease of interest on savings account – 

– 

 basis point increase in rate of salary increase 



 basis point decrease in rate of salary increase – 

– 

Notes to the Novartis Groupconsolidatedﬁnancial statements

F-57



The healthcare cost trend rate assumptions used for

other post- employment beneﬁts are as follows:







Healthcare cost trend rate

assumed for next year 





Rate to which the cost trend

rate is assumed to decline 



Year that the rate reaches

the ultimate trend rate 



The following table shows the weighted average plan

asset allocation of funded deﬁned beneﬁt pension plans

at December 31, 2022 and2021:

Pension plans

Long-term

target

(as a percentage) minimum

maximum





Equity securities 







Debt securities 







Real estate 







Alternative investments 







Cash and other investments 





Total



Cash and most of the equity and debt securities have a

quoted market price in an active market. Real estate and

alternative investments, which include hedge fund, pri-

vate equity, infrastructure and commodity investments,

usually have a quoted market price or a regularly updated

net asset value.

The strategic allocation of assets of the dierent pen-

sion plans is determined with the objective of achieving

an investment return that, together with the contributions

paid by the Group and its employees, is sucient to main-

tain reasonable control over the various funding risks of

the plans. Based upon the market and economic envi-

ronments, actual asset allocations may temporarily be

permitted to deviate from policy targets. The asset allo-

cation currently includes investments in shares of

Novartis AG as per the below table:

December ,

December ,





Investment in shares of Novartis AG

Number of shares (in millions) 



Market value (in USD billions) 



The weighted average duration of the deﬁned beneﬁt

pension obligation is 11.8 years (2021: 14.9 years).

The Group’s ordinary contribution to the various pen-

sion plans is based on the rules of each plan. Additional

contributions are made whenever this is required by stat-

ute or law (i.e., usually when statutory funding levels fall

below predetermined thresholds). The only signiﬁcant

plans that require additional funding are those in the

United Kingdom and Germany.

The expected future cash ﬂows in respect of pension

and other post-employment beneﬁt plans at December

31, 2022, were as follows: