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
efforts 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 off 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 sub­stantial cost savings, we We have also further intensified our efforts to integrate
expect these steps to increase our operational agility and our environmental, social and governance (ESG) activi-
strengthen our business in key markets such as the ties into our daily business, which we believe is vital for
United States and China. the success of Novartis. Among a variety of steps aimed
at reaching as many patients as possible, we renewed
The organizational changes, which we expect to finalize our commitment to continue our R&D efforts in neglected
in 2023, complete the portfolio shift we started in 2014. tropical diseases and to work further toward the elimi-
Over this time, we have divested several non-core busi- nation of malaria. In addition, we are partnering with the
nesses and spun off our eye-care division Alcon. With a American Society of Hematology to deepen our efforts
view to boosting our innovation power, we have also made to fight against sickle cell disease in Africa.
substantial investments in cutting-edge technology plat-
forms, including gene and cell therapy, radioligand ther- The Board of Directors also remained vigilant in its gov-
apy and RNA technology. ernance oversight efforts by putting added emphasis on
values such as integrity as Novartis pivots towards
Novartis delivered on its sales and operating profit tar- becoming a high-performance, pure-play medicines
gets in 2022 despite the c­ hallenges of a volatile macro- company. Likewise, the Executive Committee and the
economic environment and while executing on our ongo- Board of Directors are keeping up the intensive dialogue
ing transformation, which entailed job reductions due to with stake­holder groups and working towards achieving
structural changes. This performance was supported by our vision to be the most valued and trusted medicines
cost discipline and continued operational streamlining, companies in the world.
as well as the strong uptake of recently launched
medicines, such as multiple sclerosis treatment Kesi- I thank you for the confidence you have placed in our
mpta, and continued strong demand for our cardiovas- company and am pleased to be able to propose a divi-
cular medicine Entresto and psoriasis treatment dend increase of 3.2% to CHF 3.20 at the next Annual
Cosentyx. ­General Meeting.

Last year also saw new leadership at the Novartis Insti- Sincerely,
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- Joerg Reinhardt
folio of medicines, which we have consistently broadened Chair of the Board of Directors
in recent years with launches including cancer treat-
ments Pluvicto and Scemblix.


I
 

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-off 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 difference our innovation makes
for patients and society.

The world is counting on us to succeed. Fewer than 10% we also reported positive Phase III results for Cosentyx in
of diseases known to affect humans are currently treat- hidradenitis suppurativa, offering the potential to expand
able, and globally, people live an average of 10 years with one of our most successful medicines and bring a new
a disease or disability. Yet new treatments broadly still treatment option to patients with this painful skin disease.
reach only a fraction of eligible patients, and manageable
conditions like heart disease cause millions of avoidable As we continue innovating for patients, millions around the
deaths each year. world are still without proper access to healthcare. Trans-
lating the latest science into lasting progress requires us
Our performance in 2022 showed that we are making to work with healthcare systems and other stakeholders to
progress in addressing society’s greatest disease bur- advance access for underserved patients in low- and mid-
dens. Our focus on cardiovascular disease, for example, dle-income countries, while also tackling access barriers
gives countries and healthcare systems solutions to in some of the wealthiest countries in the world.
address the world’s leading cause of death and disability.
Entresto, our medicine for heart failure and hypertension, In the US, for example, we expanded our 10-year Beacon
is estimated to be treating around 10 million patients of Hope initiative, which seeks to address racial dispari-
worldwide, while our cholesterol-lowering siRNA treat- ties in healthcare, including by increasing diversity among
ment Leqvio is now approved in 70 countries. clinical trial participants and investigators. We also pledged
to invest USD 250 million in R&D for the treatment of
We saw robust growth momentum across our in-market malaria and neglected tropical diseases, building on our
medicines. This includes stronger-than-expected uptake decades-long commitment to global health priorities. We
in the US for Pluvicto, our novel radioligand therapy for continue to make progress in other aspects of our ESG
advanced prostate cancer, highlighting our ability to turn agenda, including reducing greenhouse gas emissions
the promise of next-generation medicines into a reality for from our own operations by nearly half since 2016.
patients.
As we look to the future as a focused medicines company,
Despite challenging macroeconomic conditions and an our dedication to innovation and excellence will drive us
unstable geopolitical environment, we delivered a solid forward. We have set clear growth ambitions and we are
financial performance that underscores the progress we confident we will meet them. Through reshaping Novartis,
are making, with 4% growth in net sales in constant cur- we are set to reimagine medicine for decades to come.
rencies (cc) and 8% growth (cc) in core operating income
compared with the previous year. Looking ahead, we aim Sincerely,
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 Vas Narasimhan
blood disorder. We saw an important positive Phase III Chief Executive Officer
result for Pluvicto in earlier lines of prostate cancer. And


II
 Table of contents

Table of contents
Introduction and use of certain terms..................................................................................................................................................................4
Forward-looking statements....................................................................................................................................................................................5
PART I 7
Item 1. Identity of Directors, Senior Management and Advisers....................................................................................................7
Item 2. Offer Statistics and Expected Timetable....................................................................................................................................8
Item 3. Key Information.........................................................................................................................................................................................9
3.A [Reserved]...................................................................................................................................................................................................9
3.B Capitalization and indebtedness......................................................................................................................................................9
3.C Reasons for the offer and use of proceeds...............................................................................................................................9
3.D Risk factors.................................................................................................................................................................................................9
Item 4. Information on the Company...........................................................................................................................................................21
4.A History and development of Novartis.........................................................................................................................................21
*
4.B Business overview................................................................................................................................................................................21
Innovative Medicines...........................................................................................................................................................................22
Sandoz....................................................................................................................................................................................................... 40
4.C Organizational structure....................................................................................................................................................................46
4.D Property, plants and equipment....................................................................................................................................................46
Item 4A. Unresolved Staff Comments.......................................................................................................................................................... 48
Item 5. Operating and Financial Review and Prospects..*.................................................................................................................49
5.A Operating results..................................................................................................................................................................................49
5.B Liquidity and capital resources...................................................................................................................................................... 74
5.C Research and development, patents and licenses..............................................................................................................85
5.D Trend information..................................................................................................................................................................................85
5.E Critical accounting estimates.........................................................................................................................................................85
Item 6. Directors, Senior Management and Employees...................................................................................................................89
6.A Directors and senior management..............................................................................................................................................89
6.B Compensation........................................................................................................................................................................................90
6.C Board practices..................................................................................................................................................................................123
6.D Employees.............................................................................................................................................................................................158
6.E Share ownership................................................................................................................................................................................158
Item 7. Major Shareholders and Related Party Transactions.....................................................................................................159
7.A Major shareholders...........................................................................................................................................................................159
7.B Related party transactions............................................................................................................................................................160
7.C Interests of experts and counsel...............................................................................................................................................160
Item 8. Financial Information........................................................................................................................................................................161
8.A Consolidated statements and other financial information............................................................................................161
8.B Significant changes..........................................................................................................................................................................162
Item 9. The Offer and Listing.......................................................................................................................................................................163
9.A Offer and listing details...................................................................................................................................................................163
9.B Plan of distribution.............................................................................................................................................................................163
9.C Markets....................................................................................................................................................................................................163
9.D Selling shareholders.........................................................................................................................................................................163
9.E Dilution.....................................................................................................................................................................................................163
9.F Expenses of the issue.....................................................................................................................................................................163
Item 10. Additional Information......................................................................................................................................................................164
10.A Share capital.........................................................................................................................................................................................164
10.B Memorandum and articles of association.............................................................................................................................164
10.C Material contracts..............................................................................................................................................................................167
10.D Exchange controls............................................................................................................................................................................168
10.E Taxation...................................................................................................................................................................................................168
10.F Dividends and paying agents....................................................................................................................................................... 171
10.G Statement by experts...................................................................................................................................................................... 171

* “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.


2
 Table of contents

10.H Documents on display..................................................................................................................................................................... 172

10.I Subsidiary information..................................................................................................................................................................... 172
Item 11. Quantitative and Qualitative Disclosures About Market Risk..................................................................................... 173
Item 12. Description of Securities Other Than Equity Securities............................................................................................... 174
12.A Debt securities.................................................................................................................................................................................... 174
12.B Warrants and rights.......................................................................................................................................................................... 174
12.C Other securities.................................................................................................................................................................................. 174
12.D American Depositary Shares....................................................................................................................................................... 174
PART II 176
Item 13. Defaults, Dividend Arrearages and Delinquencies........................................................................................................... 176
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds..............................................177
Item 15. Controls and Procedures............................................................................................................................................................... 178
Item 16A. Audit Committee Financial Expert............................................................................................................................................ 179
Item 16B. Code of Ethics.....................................................................................................................................................................................180
Item 16C. Principal Accountant Fees and Services............................................................................................................................... 181
Item 16D. Exemptions from the Listing Standards for Audit Committees.................................................................................182
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers..............................................................183
Item 16F. Change in Registrant’s Certifying Accountant...................................................................................................................184
Item 16G. Corporate Governance...................................................................................................................................................................185
Item 16H. Mine Safety Disclosure...................................................................................................................................................................186
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections..................................................................187
PART III 188
Item 17. Financial Statements.......................................................................................................................................................................188
Item 18. Financial Statements.......................................................................................................................................................................189
Item 19. Exhibits....................................................................................................................................................................................................190


3
 Introduction and use of certain terms

Introduction and use of certain terms

Novartis AG and its consolidated affiliates 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 affiliates. 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 affiliates; 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.


4
 Forward-looking statements

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 f­ orward-looking statements. You should not place undue reli-
ance on these statements.

In particular, our expectations could be affected 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 efficiencies 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-off, 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;


5
 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 effects of and efforts
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 effects 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.


6
 Item 1. Identity of Directors, Senior Management and Advisers

PART I
Item 1. Identity of Directors,
Senior Management and Advisers
Not applicable.


7
 Item 2. Offer Statistics and Expected Timetable

Item 2. Offer Statistics and Expected

Timetable
Not applicable.


8
 Item 3. Key Information

Item 3. Key Information

3.A [Reserved]

3.B Capitalization and indebtedness

Not applicable.

3.C Reasons for the offer and use of proceeds

Not applicable.

3.D Risk factors

Our businesses face significant risks and uncertainties. reasons, including if they perceive them to be better in
You should carefully consider all of the information set terms of efficacy, safety, cost, convenience or other rea-
forth in this Annual Report and in other documents we sons. The commercial success of our key products and
file with or furnish to the SEC, including the following risk launches in the face of increasing competition requires
factors, before deciding to invest in or to maintain an significant attention and management focus. Such com-
investment in any Novartis securities. Our business, as petition could significantly affect the revenue from our
well as our reputation, financial condition, results of oper- products and our results of operations. This impact could
ations, and share price, could be materially adversely also be compounded to the extent that such competi-
affected by any of these risks, as well as other risks and tion results in us making significant additional invest-
uncertainties not currently known to us or not currently ments in research and development, marketing or sales.
considered material.
Research and development

Strategic risks Risk description

Failure to successfully prioritize, integrate and execute
Key products and commercial priorities our research and development programs for new prod-
ucts or new indications for existing products, given our
Risk description focus on innovative medicines
Failure to deliver key commercial priorities and success-
fully launch new products Context and potential impact
We engage in extensive and costly research and devel-
Context and potential impact opment activities, both through our own internal
Our ability to maintain and grow our business and to resources and through collaborations with third parties,
replace revenue and income lost to generic, biosimilar in an effort to identify and develop new products and
and other competition depends heavily on the commer- new indications for existing products that address unmet
cial success of our new or existing key products. The and changing medical needs, and that are commercially
commercial success of these products could be impacted successful. Our ability to grow our business and our
at any time by a number of factors, including pressure product pipeline; to replace sales lost due to branded
from new or existing competitive products, changes in competition, entry of generics, or other reasons; and to
the prescribing habits of healthcare professionals, unex- bring to market products that take advantage of new and
pected side effects or safety signals, supply chain issues potentially disruptive technologies, including cell, gene
or other product shortages, pricing pressure, regulatory and radioligand therapies, depends in significant part on
proceedings, changes in labeling, loss of intellectual the success of these efforts.
property protection, and global pandemics. In addition, Failure to successfully develop our pipeline products
our revenue and margins could be significantly impacted is typically the result of the inherent uncertainty of sci-
by the timing and rate of commercial acceptance of new ence, suboptimal internal execution, or both. Key ele-
products. ments of internal execution include our ability to priori-
Healthcare professionals, patients and payers may tize our investments on our highest potential value assets,
choose competitor products instead of ours for various optimize the transition of assets from research to


9
 Item 3. Key Information

development, integrate externally acquired assets in an overview— Sandoz—Development and registration.” In

efficient way, and execute the steps in our drug develop- addition, many countries do not yet have fully developed
ment process that enable our assets to be approved and legislative or regulatory pathways to facilitate the devel-
reimbursed in a timely manner to positively impact clin- opment of biosimilars, and to permit their sale in such a
ical practice. See also “Item 4. Information on the Com- way that they are readily substitutable alternatives to the
pany— Item 4.B Business overview—Innovative originator product. Further delays or difficulties in the
Medicines—Research and development” with regards to development or marketing of biosimilars could put at risk
the research and development efforts of our Innovative the significant investments that Sandoz has made, and
Medicines Division. will continue to make, in its Biopharmaceuticals business.
Our new products must undergo intensive preclinical Failure to successfully develop and market biosimilars
and clinical testing and are approved by means of a highly could have a material adverse effect on the success of
complex, lengthy, and expensive approval process that the Sandoz Division and the Group as a whole. For more
varies substantially from country to country and may information about the approval processes that must be
have very specific requirements for the recruitment of followed to market Sandoz Division products, see “Item
patients for clinical trials. We face increasing and evolv- 4. Information on the Company—Item 4.B Business over-
ing regulatory approval and reimbursement require- view—Sandoz—Regulation.”
ments. If we fail to successfully progress late-stage Furthermore, our research and development activi-
assets and the core elements of drug development for ties must be conducted in an ethical and compliant man-
key programs, this could have a negative impact on the ner. Among other things, we are concerned with patient
development of our product pipeline, and ultimately on safety (both pre- and post-product approval), data pri-
the success of our business and our financial results. vacy, current Good Clinical Practices (cGCP) require-
In addition, in the US it is becoming increasingly chal- ments, data integrity, the fair treatment of patients, diver-
lenging to adequately recruit a sufficient number of US sity and inclusion in the recruitment of patients to clinical
patients in clinical trials due to new and changing require- trials, and animal welfare. Should we fail to properly man-
ments for recruitment of patients into such trials. As a age such issues, we risk injury to third parties, damage
result, we may be unable to develop the necessary clin- to our reputation, negative financial consequences as a
ical evidence to support the desired indications and result of potential claims for damages, sanctions and
product profile for a particular disease that is needed to fines, and the potential that investments in research and
drive clinical adoption of our new products, and thereby development activities may not bring the expected ben-
achieve the full potential of our assets (also known as efits to the Group.
the “target product profile”). Similarly, the post‑approval
regulatory burden has also increased. These require- Pricing, reimbursement and access
ments make the maintenance of regulatory approvals for
our products increasingly expensive, and further heighten Risk description
the risk of recalls, product withdrawals, change to prod- Pricing and reimbursement pressure, including pricing
uct specifications, loss of market share, and loss of rev- transparency and access to healthcare
enue and profitability.
The clinical testing, regulatory processes and Context and potential impact
post-approval activities described above become more Our business has continuously experienced significant
difficult during pandemics, such as the COVID-19 pan- pressures on the pricing of our products and on our abil-
demic, as well as during periods of geopolitical and eco- ity to obtain and maintain satisfactory rates of reimburse-
nomic uncertainty. This is due to challenges related to ment for our products by governments, insurers and
recruiting, enrolling and treating patients in clinical trials, other payers. These pressures have many sources,
as well as ensuring the supply of trial materials. For a fur- including growth of healthcare costs as a percentage of
ther description of the research and development of, and gross domestic product; funding restrictions and policy
approval processes for, the products of our Innovative changes; and public controversies, political debate,
Medicines Division, see the sections headed “Research investigations and legal proceedings regarding pharma-
and development” and “Regulation” included in the ceutical pricing. Pressures on pricing may negatively
description of our Innovative Medicines Division under impact both our product pricing and the availability of
“Item 4. Information on the Company—Item 4.B Business our products.
overview—Innovative Medicines.” In addition, we face numerous cost‑containment
Our Sandoz Division has made, and expects to measures imposed by governments and other payers.
­continue to make, significant investments in the devel- These include government‑imposed industrywide price
opment of biotechnology‑based, “biologic” medicines reductions, mandatory pricing systems, reference pric-
that are intended for sale as bioequivalent or “biosimilar” ing systems, payers limiting access to treatments based
versions of currently marketed biotechnology products. on cost‑benefit analyses, the importation of drugs from
While the development of such products is typically lower‑cost countries to higher‑cost countries, the shift-
­significantly less costly and complex than the develop- ing of the payment burden to patients through higher
ment of the equivalent originator medicines, it is co‑payments and co-pay accumulator programs, the lim-
­nonetheless significantly more costly and complex than iting of physicians’ ability to choose among competing
that for typical small-molecule generic products. medicines, the mandatory substitution of generic drugs
For more information about the research and develop- for the patented equivalent, pressure on physicians to
ment efforts of our Sandoz Division, see “Item 4. reduce the prescribing of patented prescription
Information on the Company—Item 4.B Business
­ medicines, increasing pressure on intellectual property


10
 Item 3. Key Information

protections, and growing requirements for increased due to difficulties in retaining key personnel, customers
transparency on pricing. For more information on price and suppliers; failure to obtain marketing approval or
controls, see “Item 4. Information on the Company—Item reimbursement within expected time frames or at all; dif-
4.B Business overview—Innovative Medicines—Price ferences in corporate culture, standards, controls, pro-
controls.” cesses and policies; or other factors. Transactions can
Recent trends in the external environment may have also result in liabilities being incurred that were not
an impact on the likelihood of these pricing and reim- known at the time of acquisition, or the creation of tax
bursement pressures occurring. A worldwide slowdown or accounting issues. Acquired businesses are not
in economic growth following the COVID-19 pandemic always in full compliance with legal, regulatory or Novartis
and the war in Ukraine (contributing to challenges such standards, including, for example, Current Good Manu-
as high energy costs and inflation) has led to increased facturing Practices (cGMP) or cGCP standards, which
strain on fiscal budgets in many major economies. In can be costly and time-consuming to remediate. Further-
addition, legislative developments such as those in the more, our strategic alliances and collaborations with third
US (e.g., the Inflation Reduction Act) and in Europe (e.g., parties may not achieve their intended goals and objec-
the EU Joint Health Technology Assessment) pose tives within expected time frames, or at all.
potential further pressures on pricing and timelines for Similarly, we cannot ensure that we will be able to
reimbursement in these countries. These external fac- successfully divest or spin off businesses or other assets
tors may materially affect our ability to achieve val- that we have identified for this purpose, or that any com-
ue-based prices; to achieve and maintain an acceptable pleted divestment or spin-off will achieve the expected
return on our investments in the research and develop- strategic benefits, operational efficiencies or opportuni-
ment of our products; and may impact our ability to ties, or that the divestment or spin-off will ultimately max-
research and develop new products. imize shareholder value.
In addition, our Sandoz Division has faced and may
continue to face intense competition from other generic Intellectual property
and biosimilar pharmaceutical companies that aggres-
sively compete for market share, including through sig- Risk description
nificant price competition. Such competitive actions may Expiry, assertion or loss of intellectual property protec-
increase the costs and risks associated with our efforts tion
to introduce and market generic and biosimilar products,
may delay the introduction or marketing of such prod- Context and potential impact
ucts, and may further limit the prices at which we are Many products of our Innovative Medicines Division are
able to sell these products. In particular, in the US in past protected by intellectual property rights, which may pro-
years, industrywide price competition among generic vide us with exclusive rights to market those products
pharmaceutical companies and consolidation of buyers for a limited time, and to enable our purpose of reimag-
caused significant declines in sales and profits of Sandoz. ining medicine by sustainably financing our research and
development. However, the strength and duration of
Alliances, acquisitions and divestments those rights can vary significantly from product to prod-
uct and from country to country, and they may be suc-
Risk description cessfully challenged by third parties or governmental
Failure to identify, execute, and/or realize the expected authorities.
benefits from our external business opportunities Loss of intellectual property protection and the intro-
duction of generic or biosimilar competition for a pat-
Context and potential impact ented branded medicine in a country typically result in a
As part of our strategy, from time to time we acquire and significant and rapid reduction in net sales and operat-
divest products or entire businesses and enter into stra- ing income for the branded product. Such competition
tegic alliances and collaborations. For example, in Feb- can occur after successful challenges to intellectual
ruary 2022, we closed the acquisition of Gyroscope property rights or the regular expiration of the patent
Therapeutics. This strategy is partly dependent on our term or other intellectual property rights. Such compe-
ability to identify strategic external business opportuni- tition can also result from the entry of generic or biosim-
ties and to close transactions with third parties on ilar versions of another medicine in the same therapeu-
acceptable terms. tic class as one of our drugs or in a competing
Once the terms of a strategic transaction have been therapeutic class, from a Declaration of Public Interest
agreed with a third party, we may not be able to com- or the compulsory licensing of our intellectual property
plete the transaction in a timely manner or at all, nor can by governmental authorities, or as a result of a general
we be sure that pre-transaction due diligence will iden- weakening of intellectual property and governing laws in
tify all possible issues that might arise during and after certain countries around the world. In addition, generic
the transaction. Our efforts on such transactions can or biosimilar manufacturers may sometimes conduct
also divert management’s attention from our existing so-called “launches at risk” of products that are still
businesses. under legal challenge for infringement, or whose patents
After a transaction is closed, efforts to develop and are still under legal challenge for validity, before final res-
market acquired or licensed products, to integrate the olution of legal proceedings.
acquired business or to achieve expected synergies may We also rely in all aspects of our businesses on unpat-
fail or may not fully meet expectations. This may occur ented proprietary technology, know-how, trade secrets,


11
 Item 3. Key Information

and other confidential information, which we seek to pro- Context and potential impact
tect through various measures, including confidentiality From time to time, we reassess our business organiza-
agreements with licensees, employees, third-party col- tion to ensure we have the optimal structure with which
laborators and consultants who may have had access to to execute our strategy. In April 2022, we announced a
such information. If these agreements are breached or new organizational structure and operating model
our other protective measures should fail, then our con- designed to support our innovation, growth, and produc-
tractual or other remedies may not be adequate to cover tivity ambitions as a focused medicines company. See
our losses. “Item 4. Information on the Company—Item 4.B Over-
We may also be subject to assertions of intellectual view.”
property rights against our innovative medicines by third In addition, in October 2021 we announced the com-
parties. If successful, these actions may involve payment mencement of a strategic review of our Sandoz Division.
of future royalties or damages, for example for patent After exploring all options, ranging from retaining the
infringement, and may also involve injunctive relief requir- business to separation, on August 25, 2022, we
ing the removal of one or more dosage strengths of a announced our intention to separate our Sandoz Division
product from the market (or removal of a therapeutic into a new publicly traded standalone company, by way
indication from the product’s approved labeling) for some of a 100% spin-off in order to maximize shareholder
period of time or throughout the life of the asserted intel- value. See “Item 4. Information on the Company—Item
lectual property right. Such damages or such an injunc- 4.B Sandoz.”
tion may have a material impact on our operating income Our inability to successfully implement our new orga-
and net sales. nizational structure and operating model or to success-
In any given year, we may experience a potentially fully complete the spin-off of our Sandoz Division could
significant impact on our net sales from products that have a material adverse effect on the success of the
have already lost intellectual property protections, as Group as a whole, and could have a material adverse
well as products that may lose protection during the year. effect on our results of operations and financial condi-
Because we may have substantially reduced marketing tion. The overall extent and pace of these organizational
and research and development expenses related to changes, and the additional workload and complexity for
products that are in their final years of exclusivity, the our employees in some areas, could trigger uncertainty,
initial loss of protection for a product during a given year stress and fatigue among employees, potentially result-
could also have an impact on our operating income for ing in instability within the organization that could lead
that year in an amount corresponding to a significant to failure of these organizational changes to succeed or
portion of the product’s lost sales. The magnitude of the to achieve the desired benefits. As a result, the expected
impact of generic or biosimilar competition on our income benefits of these organizational changes may never be
could depend on a number of factors. These include, fully realized or may take longer to realize than expected.
with respect to income in a given year, the time of year
at which the generic or biosimilar competitor is launched; Environmental, social and governance matters
the ease or difficulty of manufacturing a competitor prod-
uct and obtaining regulatory approval to market it; the Risk description
number of generic or biosimilar competitor products Failure to meet environmental, social and governance
approved, including whether, in the US, a single compet- expectations
itor is granted an exclusive marketing period; whether an
authorized generic is launched; the geographies in which Context and potential impact
generic or biosimilar competitor products are approved, Increasingly, in addition to financial results, companies
including the strength of the market for generic or bio- are being judged by performance on a variety of envi-
similar pharmaceutical products in such geographies, ronmental, social and governance (ESG) matters, which
and the comparative profitability of branded pharmaceu- can contribute to the long-term sustainability of our com-
tical products in such geographies; and our ability to suc- pany’s performance. An inability to successfully perform
cessfully develop and launch new products for patients on ESG matters and to meet societal expectations can
that may also offset the income lost to generic or bio- result in negative impacts on our recruitment, retention,
similar competition. For more information on the patent operations, financial results, reputation, and share price.
and generic competition status of our Innovative Topics related to large societal changes such as
Medicines Division products, see “Item 4. Information on social inequity, access to medicines and climate change
the Company—Item 4.B Business overview—Innovative are increasingly important to a wide range of our stake-
Medicines—Intellectual property.” holders. For example, a variety of organizations measure
the performance of companies on ESG topics, and the
Strategic transformations results of these assessments are widely publicized. In
addition, investments in funds that specialize in compa-
Risk description nies that perform well in such assessments are increas-
Failure to meet organizational transformation programs ingly popular, and major institutional investors have pub-
objectives and/or unintended adverse impacts on our licly emphasized the importance of such ESG measures
business in making their investment decisions. Our actions related


12
 Item 3. Key Information

to ESG topics may in the long-term therefore impact our A significant information security or other event, such
operations and ability to achieve our strategic goals, and as a disruption or loss of availability of one or more of
ultimately could have a potential negative impact on the our IT systems, whether managed by us or a third-party
value of Novartis. For this reason, the role of our Board service provider, has previously and could in the future
of Directors and executive officers in supervising various negatively impact important business processes, such
sustainability issues is becoming increasingly important. as the conduct of scientific research and clinical trials,
We actively manage a broad range of ESG matters, the submission of data and information to health author-
taking into consideration their expected impact on the ities, our manufacturing and supply chain processes, our
sustainability of our business over time, and the poten- shipments to customers, our compliance with legal obli-
tial impact of our business on society and the environ- gations, and communication between employees and
ment. We have created a Sustainability & ESG Office, with third parties. IT issues have previously led to, and
which, in coordination with the ESG Committee of the could in the future lead to, the compromise of trade
Executive Committee of Novartis, is tasked with devel- secrets or other intellectual property that could be sold
oping our ESG strategy and tracking our performance and used by competitors to accelerate the development
against our ESG targets. However, considering investors’ or manufacturing of competing products; to the compro-
increasing focus on ESG matters, the fast pace of change mise of personal financial and health information; and to
of external expectations, and a range of upcoming reg- the compromise of IT security data such as usernames,
ulations, there can be no certainty that we will manage passwords and encryption keys, as well as security strat-
such issues successfully, that the ESG standards we cur- egies and information about network infrastructure,
rently use to measure our performance against will which could allow unauthorized parties to gain access
remain the same, or that we will successfully meet soci- to additional systems or data. In addition, malfunctions
ety or investors’ expectations. 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
Operational risks described above, to date they have not had a material
impact on our operations. Nonetheless, the occurrence
Cybersecurity and IT systems of any of the events described above in the future could
disrupt our business operations and result in enforce-
Risk description ment actions or liability, including potential government
Cybersecurity breaches, data loss and catastrophic loss fines and penalties, claims for damages, and shareholder
of IT systems litigation or allegations that the public health, or the
health of individuals, has been harmed.
Context and potential impact Any significant events of this type could require us to
We are heavily dependent on critical, complex and inter- expend significant resources beyond those we already
dependent information technology (IT) systems, includ- invest to remediate any damage, to further modify or
ing internet‑based systems to support our business pro- enhance our protective measures, and to enable the con-
cesses. We have also outsourced significant parts of our tinuity of our business.
IT infrastructure to third-party providers, and we cur-
rently use these providers to perform business-critical Fragmented IT landscape and strategic technology
IT services for us. We are therefore vulnerable to cyber- programs implementation
security attacks and incidents on such networks and
systems, whether our own or those of the third-party Risk description
providers we contract, and we have experienced and Failure to address fragmented business processes,
may in the future experience such cybersecurity threats unclear data ownership, and IT applications and infra-
and attacks. Cybersecurity threats and attacks take structure nearing their end-of-life, may disrupt our core
many forms, and the size, age and complexity of our IT business processes
systems make them potentially vulnerable to external
and internal security threats; outages; malicious intru- Context and potential impact
sions and attacks; cybercrimes, including state-spon- We rely on various IT systems to operate our complex
sored cybercrimes; malware; misplaced data, lost data global business. Historically, while highly overlapping
or data errors; programming or human errors; or other data strategy and architectural needs exist across our
similar events. In the context of the COVID-19 pandemic, businesses, in the past we built distinct solutions across
the risk of such threats and attacks has increased, as both prior business units and our various geographies,
virtual and remote working has become more widely which have led to a fragmented and complex landscape
used, and sensitive data is accessed by employees work- of IT systems. Additionally, several of our current IT sys-
ing in less secure, home-based environments. In addi- tems are reaching the end of their useful life, which,
tion, due to our reliance on third-party providers, we have together with our fragmented IT landscape, may cause
experienced and may in the future experience interrup- disruptions to our operational stability. As a result, we
tions, delays or outages in IT service availability due to started to implement several companywide IT programs
a variety of factors outside of our control, including tech- with a view toward replacing and consolidating outdated
nical failures, natural disasters, fraud, or security attacks IT systems. For example, we have completed the con-
experienced by or caused by third-party providers. Inter- ceptual design phase and started to build a new global
ruptions in the service provided by these third parties Enterprise Resource Planning (ERP) system that seeks
could affect our ability to perform critical tasks. to simplify, standardize and digitize processes in our


13
 Item 3. Key Information

commercial, finance and operations functions, thereby corporate reorganization undertaken to implement this
helping to ensure efficient and compliant business oper- new organizational structure has resulted in significant
ations across our businesses and geographies, as well redundancies and senior leadership changes that may
as the availability of high-quality data necessary to aid reduce morale, increase employee distraction and
our decision-making. We expect the first implementation prompt higher voluntary turnover, any of which could
of our new ERP system to begin in the first quarter of negatively impact our competitiveness and ability to
2024, with full implementation by 2028. In addition, we achieve strategic objectives. For more information on
are also implementing other IT projects, seeking to sim- this new organizational structure see “Item 4. Informa-
plify and standardize our processes, systems and tools, tion on the Company—Item 4.B Overview.”
and create a unified data marketplace. Implementation The risks associated with the challenging external
and operation of the new ERP system and other IT proj- talent market and the implementation of our new orga-
ects involves certain risks, including a failure of the new nizational structure will be exacerbated if we are unable
ERP system and other IT projects to operate as expected, to retain and effectively develop employees and main-
a failure to properly integrate with other systems we use, tain an internal pipeline with critical skills, experiences,
potential loss of data or information, compliance issues, and leadership to deliver our business priorities. As a
or cost overruns and delays. Any disruptions or malfunc- result, development, engagement, motivation, succes-
tions of the new ERP system and other IT projects could sion planning and performance rewards for our critical
cause critical information to be delayed, lost, defective, talent are essential to achieve our business priorities.
corrupted, or rendered inadequate or inaccessible,
which could negatively impact our operations and the Third-party management
effectiveness of our internal controls.
Risk description
Talent management Failure to maintain adequate governance and oversight
over third-party relationships, and failure of third parties
Risk description to meet their contractual, regulatory or other obligations
Inability to attract, retain and motivate qualified individ-
uals in key roles and markets Context and potential impact
We outsource the performance of certain key business
Context and potential impact functions and services to third parties. Such activities
We rely on attracting and retaining a diverse, highly include research and development collaborations, man-
skilled workforce across our businesses and functions ufacturing operations, warehousing and distribution, cer-
to achieve our business objectives. If we are unable to tain finance functions, sales and marketing activities,
sustain our supply of key personnel – including senior data management and others. Some third parties, par-
members of our scientific and management teams, ticularly those in developing countries, do not have inter-
high‑quality researchers and development specialists nal compliance systems or resources comparable to
and skilled employees in key markets – our ability to those of Novartis. As a result, our investment and efforts
achieve our major business objectives may be adversely in relation to third party management include focusing
affected. In addition, our brand and reputation could be on risk management and the oversight of such third par-
negatively impacted, and the diversity of our workforce ties.
may decline. Our reliance on third parties poses certain risks,
The market for skilled talent has become increasingly including the misappropriation of our intellectual prop-
competitive, and we anticipate this trend will persist long- erty, the failure of the third party to comply with regula-
term. We face a challenge to attract and retain top tal- tory and quality assurance requirements, the failure of
ent in several areas, including biology, chemistry, clinical the third party to comply with environmental, anti-brib-
development, drug manufacturing, IT, oncology, and ery and human rights standards and regulations, unex-
advanced therapy platforms (i.e., gene and cell therapy, pected supply disruptions, breach of our agreement by
radioligand therapy and “xRNA”). In addition, many bio- the third party, and the unexpected termination or non-
technology companies have received significant inflows renewal of our agreement by the third party.
of capital and are not only competing with us to attract In addition, governments require, and the public
the same skilled talent but are also aggressively pursu- expects, Novartis to take responsibility for and report on
ing our experienced talent. compliance with various human rights, responsible
In recent years, we have adopted new ways of work- sourcing and environmental practices, as well as other
ing that include location flexibility and increasingly actions of our third-party contractors around the world.
recruiting from a global pool of talent. However, the suc- Ultimately, if third parties fail to meet their obligations
cess of our business continues to depend on having to us, we may lose our investment in the relationship with
employees who possess local knowledge of, and expe- the third parties or fail to receive the expected benefits
rience in, our key markets. The external talent supply is of our agreements with such third parties. In addition,
especially limited in many of the geographies that are should any of these third parties fail to comply with the
expected to be sources of growth for Novartis. In the law or our standards, or should they otherwise act inap-
United States, China and several other markets, the geo- propriately while performing services for us, there is a
graphic mobility of talent is decreasing, as they find risk that we could be held responsible for their acts, that
ample career opportunities available closer to home. our reputation may suffer, and that penalties may be
In addition, in April 2022 we announced a new, inte- imposed on us.
grated organizational structure and operating model. The


14
 Item 3. Key Information

Legal, ethics and compliance potential exclusion from government reimbursement

programs in the US and other countries, and may lead
Risk description to civil litigation and/or criminal exposure. As a result,
Challenges posed by evolving legal and regulatory having considered all relevant factors, we have in the
requirements and societal expectations regarding ethi- past and may again in the future enter into major settle-
cal behavior ments of such claims without bringing them to final legal
adjudication by courts or other such bodies, despite hav-
Context and potential impact ing potentially significant defenses against them, to limit
We must comply with the laws of all countries in which the risks they pose to our business and reputation. Such
we operate, and we sell products with respect to a wide settlements may require us to pay significant sums of
and growing range of activities. Such legal requirements money and to enter into corporate integrity or similar
are extensive and complex. agreements, which are intended to regulate company
The laws and regulations relevant to the healthcare behavior for extended periods.
industry and applicable to us are broad in scope, are sub- For information on significant legal matters pending
ject to change, and have evolving interpretations, which against us, see “Item 18. Financial Statements—Note 20.
could require us to incur substantial costs associated Provisions and other non‑current liabilities” and “Item 18.
with compliance or to alter one or more of our business Financial Statements—Note 28. Commitments and con-
practices. For example, we have been, are currently, and tingent liabilities.”
may in the future be, subject to various significant legal New requirements may also be imposed on us due
proceedings, such as private party litigation, government to changing government and societal expectations
investigations and law enforcement actions worldwide. regarding the healthcare industry, and acceptable cor-
These types of matters may take various forms based porate behavior generally. For example, we are faced
on evolving government enforcement and private party with laws and regulations requiring changes in how we
litigation priorities, and could include, for example, mat- do business, including with respect to disclosures con-
ters pertaining to pricing; bribery and corruption; trade cerning our interactions with healthcare professionals,
regulation and embargo legislation; product liability; healthcare organizations and patient organizations.
commercial disputes; employment and wrongful dis- These laws and regulations include requirements that
charge; antitrust and competition; securities; govern- we disclose payments or other transfers of value made
ment benefit programs; reimbursement; rebates; health- to healthcare professionals and organizations, as well as
care fraud; sales and marketing practices; insider trading; information relating to the costs and prices for our prod-
occupational health and safety; environmental regula- ucts, which represent evolving standards of acceptable
tions; tax; cybersecurity; data privacy; regulatory inter- corporate behavior. These requirements may incur sig-
actions; and intellectual property. Such matters can nificant costs, including substantial time and additional
involve civil and/or criminal proceedings and can retro- resources, that are necessary to bring our interactions
actively challenge practices previously considered to be with healthcare professionals and organizations into
legal. compliance with these evolving standards.
There is also a risk that governance for our medical In addition to legal and regulatory requirements, we
and patient support activities, and our interactions with aim to meet the evolving societal expectations of the
governments, public officials/institutions, healthcare public and our investors regarding ethical behavior and
professionals, healthcare organizations and patient the increasing importance placed on ESG matters.
organizations may be inadequate or fail, or that we may To support our efforts to comply with the many
undertake activities based on improper or inadequate requirements that impact us, we have a significant global
scientific justification. ethics and compliance program in place, and we devote
Our Sandoz Division may from time to time seek substantial time and resources to efforts to ensure that
approval to market a generic version of a product before we conduct business in a lawful manner, and in line with
the expiration of patents claimed by the marketer of the society’s expectations. Despite our efforts, an actual or
patented product. We do this in cases in which we believe alleged failure to comply with the law or with heightened
the relevant patents are invalid or unenforceable, or public expectations could lead to substantial liabilities
would not be infringed by our generic product. As a result, that may not be covered by insurance, or to other signif-
affiliates of our Sandoz Division frequently face patent icant losses.
litigation, and in certain circumstances we may make the
business decision to market a generic product even Manufacturing and product quality
though patent infringement actions are still pending.
Should we elect to do so and conduct a so-called “launch Risk description
at risk,” we could face substantial damages if the final Inability to ensure proper controls in product develop-
court decision is adverse to us. ment and product manufacturing, and failure to comply
Legal proceedings and investigations are inherently with applicable regulations and standards
unpredictable, and large judgments sometimes occur.
Consequently, we may in the future incur judgments that Context and potential impact
could involve large payments, including the potential The development and manufacture of our products is
repayment of amounts allegedly obtained improperly, complex and heavily regulated by governmental health
and other penalties, including treble damages. In addi- authorities around the world. Whether or not our prod-
tion, such legal proceedings and investigations, even if ucts and the related raw materials are developed and
meritless, may affect our reputation, may create a risk of manufactured at our own manufacturing sites or by third


15
 Item 3. Key Information

parties, we must ensure that all development and man- advance. If we suffer from third-party raw material short-
ufacturing processes comply with regulatory require- ages, underestimate market demand for a product, or
ments, as well as our own quality standards in order to fail to accurately predict when a new product will be
deliver novel therapies to patients with unmet needs approved for sale, then we may not be able to produce
while ensuring patient safety. Failure to comply with reg- sufficient product to meet demand. These issues could
ulatory requirements has resulted in, and may in the be made worse during a pandemic, such as the COVID-
future result in, warning letters, suspension of manufac- 19 pandemic, or geopolitical events, such as the war in
turing, seizure of products, injunctions, product recalls, Ukraine, and could lead to (i) a sudden increase in
failure to secure product approvals, or debarment. demand for selected medicinal products, resulting in the
In recent years, global health authorities have sub- short-term unavailability of critical materials; (ii) logisti-
stantially intensified their scrutiny of manufacturers’ cal and supply challenges that may lead to our inability
compliance with regulatory requirements. Any significant to ship products from one place to another due to restric-
failure by us or our third-party suppliers to comply with tions imposed as a result of a pandemic or geopolitical
regulatory requirements, or with health authorities’ events and any related sanctions, which can also impact
expectations, may create the need to suspend clinical transportation and warehousing costs; or (iii) our inabil-
trials, shut down production facilities or production lines, ity to properly operate a manufacturing site due to restric-
and recall commercial products. A failure to fully comply tions imposed as the result of a pandemic or any issues
with regulatory requirements could also lead to a delay arising from geopolitical events.
in the approval of new products, an inability to ship or Our or our third-party suppliers’ inability to manage
import our products, and significant penalties and repu- such issues could lead to shutdowns, product shortages,
tational harm. or to us being entirely unable to supply products to
In addition, the technically complex manufacturing patients for an extended period of time. Furthermore, as
processes required to manufacture many of our prod- our products are intended to promote the health of
ucts increase the risk of both production failures and patients, such shortages or shutdowns could endanger
product recalls and can increase the cost of producing our reputation and have led to, and could continue to lead
our goods. Some of our products require a supply of to, significant losses of sales revenue, potential litigation
highly specialized raw materials, such as cell lines, tis- or allegations that the public health, or the health of indi-
sue samples, bacteria, viral strains and radioisotopes. In viduals, has been harmed.
addition, we manufacture and sell a number of sterile
products, biologic products and products that involve Data privacy
advanced therapy platforms, such as CAR-T therapies,
gene therapies and radioligand therapy products, all of Risk description
which are particularly complex and involve highly spe- Noncompliance with personal data protection laws and
cialized manufacturing technologies. As a result, even regulations
slight deviations at any point in their production pro-
cesses or in material used have led to, and may in the Context and potential impact
future lead to, production failures or recalls. See “Item We operate in an environment that relies on the collec-
4. Information on the Company—Item 4.B. Business over- tion, processing, analysis and interpretation of large sets
view—Sandoz—Production.” of patients and other individuals’ personal information,
including via social media and mobile technologies. In
Supply chain addition, the operation of our business requires data to
flow across the borders of numerous countries in which
Risk description there are different, potentially conflicting, and frequently
Inability to maintain continuity of product supply changing, data privacy laws in effect. Examples of such
laws include: the EU General Data Protection Regulation
Context and potential impact (GDPR), which took effect in May 2018; the California
Many of our products are produced using technically Consumer Privacy Act, which took effect in January
complex manufacturing processes and require a supply 2020; Brazil’s General Personal Data Protection Law,
of highly specialized raw materials. For some of our prod- which entered into force in September 2020; and the
ucts and raw materials, we may rely on a single source Personal Information Protection Law in China, which took
of supply. In addition, we manufacture and sell a number effect in November 2021. Such laws impose stringent
of sterile products, biologic products, and products that requirements on how we and third parties with whom we
involve advanced therapy platforms, such as gene and contract collect, share, export or otherwise process per-
cell therapy, radioligand therapy, and “xRNA”, all of which sonal information, and provide for significant penalties
are particularly complex and involve highly specialized for noncompliance. Breaches of our systems or those of
manufacturing technologies. Due to this complexity, our third-party contractors, or other failures to protect
there is a risk of production and supply of critical raw the data we collect from misuse or breach by third par-
materials failures, which may result in supply interrup- ties, could expose such personal information to unau-
tions or product recalls due to manufactured products thorized persons.
not meeting required specifications. Events involving the substantial loss of personal infor-
In addition, due to the inherent complexities of our mation, use of personal information without a legal basis,
manufacturing processes and the supply chains for or other privacy violations could give rise to significant
advanced therapy platforms, we are required to plan our liability, reputational harm, damaged relationships with
production activities and purchase of materials well in business partners, and potentially substantial monetary


16
 Item 3. Key Information

penalties and other sanctions under laws enacted or ingredients (APIs) were increased, this could impact the
being enacted around the world. Such events could also profitability of our products and disrupt our supply chain.
lead to restrictions on our ability to use personal infor- Increasing opposition to free trade may increase the
mation and/or transfer personal information across risks we face in our efforts to improve and harmonize
country borders. In addition, there is a trend of increas- standards in regulation and intellectual property.
ing divergence of data privacy legal frameworks, not only Furthermore, significant conflicts continue in certain
across these frameworks but also within individual legal parts of the world. Collectively, such unstable conditions
frameworks themselves. This divergence may constrain could, among other things, disturb the international flow
the implementation of global business processes and of goods and increase the costs and difficulties of inter-
may lead to different approaches on the use of health national transactions, which could in turn significantly
data for scientific research, which may have a negative impact time to market and our ability to supply our prod-
impact on our business and operations. ucts to patients in an undisrupted fashion, and further
erode reimbursement levels for innovative therapies.
Falsified medicines
Macroeconomic developments
Risk description
Impact of falsified medicines on patient safety, and rep- Risk description
utational and financial harm to Novartis and our products Impact of macroeconomic developments

Context and potential impact Context and potential impact

We continue to be challenged by the vulnerability of dis- Our business may be impacted by deteriorating macro-
tribution channels to falsified medicines, which include economic and financial conditions directly affecting con-
counterfeit, stolen, tampered and illegally diverted sumers. Given that patients, in many countries, directly
medicines as defined by the World Health Organization. pay a sizable portion of their own healthcare costs, there
Falsified medicines pose patient safety risks and can is a risk that consumers may cut back on prescription
be seriously harmful or life-threatening. Reports of drugs due to financial constraints.
adverse events related to falsified medicines and Negative macroeconomic developments may also
increased levels of falsified medicines in the healthcare adversely affect the ability of payers, as well as our dis-
system affect patient confidence in genuine medicines tributors, customers, suppliers, and service providers, to
and in healthcare systems in general. These events could pay for our products, or otherwise to buy necessary
also cause us substantial reputational and financial harm, inventory or raw materials, and to perform their obliga-
and potentially lead to litigation if the adverse event from tions under agreements with us. Although we make
the falsified medicine is mistakenly attributed to the gen- efforts to monitor the financial condition and liquidity of
uine one. Stolen or illegally diverted medicines that are these third parties, our ability to do so is limited, and some
not properly stored and later sold through unauthorized of them may become unable to pay their bills in a timely
channels, could adversely impact patient safety, our rep- manner or may even become insolvent. These risks may
utation and our business. Furthermore, there is a direct be elevated with respect to our interactions with fiscally
financial loss when, for example, falsified medicines challenged government payers, or with third parties with
replace sales of genuine medicines, or genuine medicines substantial exposure to such payers.
are recalled following the discovery of falsified products. At the same time, significant changes, and potential
future volatility in financial markets, the consumer and
business environment, the competitive landscape, and
Emerging risks the global political and security landscape make it
increasingly difficult for us to predict our revenues and
Geopolitical developments earnings. As a result, any revenue or earnings guidance
or outlook that we have given or might give may be over-
Risk description taken by events or may otherwise prove to be inaccu-
Impact of geo- and socio-political threats rate. Although we endeavor to give reasonable estimates
of future revenues and earnings at the time at which we
Context and potential impact give such guidance, based on then‑current knowledge
Challenging political conditions currently exist in various and conditions, there is a risk that such guidance or out-
parts of the world, including an economic downturn; risk look will prove to be incorrect.
of direct conflicts between nations, such as the war in Asset price corrections in financial markets may also
Ukraine; a global pandemic; resistance in certain areas result in lower returns on our financial investments. In
against free trade; anti-corporate sentiment; and social addition, pricing pressures in developed markets result-
unrest. ing from efforts to reduce the cost of healthcare (e.g.,
The imposition of tariffs, including those imposed by the Inflation Reduction Act in the US, which targets drug
the US and China, and the possibility of additional tariffs prices) may have a negative impact on our revenue and
or other trade restrictions relating to trade could have a our net sales. In addition, inflation has an impact on our
material negative impact on our business. Given that the operating costs due to the increased cost of supplies.
outcome of ongoing trade negotiations remains uncer- Higher costs for energy, raw materials, wages, and cap-
tain, we cannot yet determine the nature or extent of the ital will increase our operating costs, potentially reduc-
potential impact on our business. For example, if tariffs ing our net sales.
on pharmaceutical products or active pharmaceutical


17
 Item 3. Key Information

Uncertainties around future central bank and other production facilities that depend on the availability of sig-
economic policies in the US and EU, as well as high debt nificant water supplies are located in areas where water
levels in some countries could also impact world trade. is increasingly scarce. Other facilities are located in
Sudden increases in economic, currency or financial areas that, due to increasingly violent weather events,
market volatility in different countries, such as the recent rising sea levels, or both, are increasingly at risk of sub-
appreciation of the US dollar, have also impacted, and stantial flooding. In regions where such a risk is present,
may continue to have an unpredictable impact on our this has an impact not only on our own operations but
business, or results of operations, including the conver- also our distributed supply chain. Such events may result
sion of our operating results into our reporting currency, in the loss of life, increased costs, business interruptions,
the US dollar, as well as the value of our investments in destruction of facilities, and disruption to healthcare sys-
our pension plans. tems that patients use to access our medicines.
For a discussion on the effect of price controls on Furthermore, our corporate headquarters, the head-
our business, see “Item 4. Information on the Company— quarters of our Innovative Medicines and Sandoz Divi-
Item 4.B—Business overview—Innovative Medicines— sions, and a number of major Innovative Medicines Divi-
Price controls.” See also “Item 5. Operating and Finan- sion production and research facilities are located near
cial Review and Prospects—Item 5.B Liquidity and earthquake fault lines in Basel, Switzerland. Other major
capital resources—Effects of currency fluctuations,” facilities are located near major earthquake fault lines in
“Item 5. Operating and Financial Review and Prospects— various locations around the world. A major earthquake
Item 5.B Liquidity and capital resources—Condensed could result in loss of life, business interruptions and the
consolidated balance sheets,” “Item 18. Financial State- destruction of our facilities.
ments—Note 15. Trade receivables” and “Item 18. Finan-
cial Statements—Note 29. Financial instruments – addi- Tax laws and developments
tional disclosures.”
Risk description
Climate change Changes in tax laws or their application

Risk description Context and potential impact

Impact of climate change and increased risk of major Our multinational operations are taxed under the laws
natural disasters of the countries and other jurisdictions in which we oper-
ate. Changes in tax laws or in their application could lead
Context and potential impact to an increased risk of international tax disputes and an
Novartis is exposed to a broad range of climate risks increase in our effective tax rate, which could adversely
such as transition risks (e.g., regulatory frameworks, car- affect our financial results. The integrated nature of our
bon pricing, and the cost of and access to capital) and worldwide operations can produce conflicting claims
physical risks (e.g., heat, water scarcity, sea level rise, from revenue authorities in different countries as to the
and flooding from severe weather events), which could profits to be taxed in the individual countries, including
vary in magnitude and impact across different countries. potential disputes relating to the prices our subsidiaries
Climate change has triggered, and may continue to charge one another for intercompany transactions,
trigger, the adoption of new regulatory requirements known as transfer pricing. Most of the jurisdictions in
across the globe. To comply with such legislation, we which we operate have double tax treaties with other
may be required to increase our investment in technol- foreign jurisdictions, which provide a framework for mit-
ogy to reduce our energy use, water use and greenhouse igating the impact of double taxation on our revenues
gas emissions. In addition, legislative and regulatory and capital gains. However, mechanisms developed to
action, both current and in the future, includes or could resolve such conflicting claims are largely untried and
include carbon pricing, climate risk related disclosures, can be expected to be very lengthy. Accruals for tax con-
and changes in zoning or building codes to increase cli- tingencies are made based on experience, interpreta-
mate resilience. As a result, the combined impact of tions of tax law, and judgments about potential actions
these transition risks could increase our direct operat- by tax authorities. However, due to the complexity of tax
ing costs and impact our supply chain. We have also com- contingencies, the ultimate resolution of any tax matter
mitted to incorporating the recommendations of the Task may result in payments materially different from the
Force on Climate-related Financial Disclosures (TCFD) amounts accrued.
framework into our business, which includes providing In 2019, the Organization for Economic Co-operation
qualitative and quantitative disclosures on climate-re- and Development (OECD) launched a new initiative on
lated topics on a recurring basis. As a result of these behalf of the G20 to minimize profit shifting by working
transition risks, we are committed to becoming carbon toward a global tax framework that ensures that corpo-
neutral in our own operations by 2025, and carbon neu- rate income taxes are paid where consumption takes
tral across our value chain by 2030. In addition, we are place, in addition to introducing a global standard on min-
committed to achieving net zero across our value chain imum taxation combined with new tax dispute resolution
by 2040. Any failure to achieve these commitments in processes. This project achieved OECD political con-
the expected time frame, or at all, could result in nega- sensus in October 2021, and the detailed principles are
tive impacts on our reputation, our operations, and the still under discussion by the OECD and political leaders.
price of our shares. The OECD expects that the implementation of these new
Climate change has created, and will continue to principles will begin globally in 2024. Once changes to
­create, physical risks to our business. Some of our the tax laws in any jurisdiction in which the Group


18
 Item 3. Key Information

operates are enacted or substantially enacted, the Group the fair value of the intangible assets and the groupings
may be subject to the OECD top-up tax, the aim of which of cash-generating units containing goodwill would be
is to bring the total amount of taxes paid on our profit in less than their carrying value on the Group’s consolidated
a jurisdiction up to a minimum rate of 15%. In 2020, the balance sheet at any point in time.
EU announced that it would introduce new centralized We regularly review our intangible and tangible assets
taxation powers (which have not yet been introduced) to for impairment, including identifiable intangible assets
address the financial impact of the COVID-19 pandemic. and goodwill. Any significant impairment charges could
In addition, the European Commission continues to have a material adverse effect on our results of opera-
extend the application of its policies seeking to limit fis- tions and financial condition. In 2022, for example, we
cal aid by member states to particular companies, recorded intangible asset impairment charges of USD
together with the related investigation into member 1.3 billion.
states’ practices regarding the issuance of rulings on tax For a detailed discussion of how we determine
matters relating to individual companies. Although we whether an impairment has occurred, what factors could
have taken steps to comply with evolving initiatives such result in an impairment, and the impact of impairment
as these of the OECD and the EU, and we will continue charges on our results of operations, see Item 18. Finan-
to do so, significant uncertainties remain as to the out- cial Statements—Note 1. Significant accounting policies”
come of our efforts. For more information, see “Item 18. and “Item 18. Financial Statements—Note 11. Goodwill
Financial Statements—Note 6. Income taxes” and “Item and intangible assets.”
18. Financial Statements—Note 12. Deferred tax assets
and liabilities.” Foreign currency exchange rates

Risk description
General risks Negative effect on financial results due to foreign cur-
rency exchange rate fluctuations
Indebtedness
Context and potential impact
Risk description Changes in exchange rates between the US dollar, our
Our indebtedness could adversely affect our operations reporting currency, and other currencies can result in
significant increases or decreases in our reported sales,
Context and potential impact costs and earnings as expressed in US dollars, and in
As of December 31, 2022, we had USD 20.2 billion of the reported value of our assets, liabilities and cash flows.
non‑current financial debt, and USD 5.9 billion of current In addition to ordinary market risk, there is a risk that
financial debt. Our current and long‑term debt requires countries could take affirmative steps that could signifi-
us to dedicate a portion of our cash flow to service inter- cantly impact the value of their currencies. Such steps
est and principal payments and, if interest rates rise, this could include “quantitative easing” measures and poten-
amount may increase. As a result, our existing debt may tial withdrawals by countries from common currencies.
limit our ability to use our cash flow to fund capital expen- In addition, countries facing local financial difficulties,
ditures, to engage in transactions, or to meet other cap- including countries experiencing high inflation rates, and
ital needs, or otherwise may place us at a competitive highly indebted countries facing large capital outflows,
disadvantage relative to competitors that have less debt. may impose controls on the exchange of foreign cur-
Our debt could also limit our flexibility to plan for and rency. Currency exchange controls and sanctions could
react to changes in our business or industry, and increase limit our ability to distribute retained earnings from our
our vulnerability to general adverse economic and indus- local affiliates, or to pay intercompany payables due from
try conditions, including changes in interest rates or a those countries.
downturn in our business or the economy. We may also Despite measures undertaken to reduce or hedge
have difficulty refinancing our existing debt or incurring against foreign currency exchange risks, as a significant
new debt on terms that we would consider to be com- portion of our earnings and expenditures are in curren-
mercially reasonable, if at all. cies other than the US dollar, including expenditures in
Swiss francs that are significantly higher than our reve-
Goodwill and intangible assets nue in Swiss francs, any such exchange rate volatility
may negatively and materially impact our results of oper-
Risk description ations and financial condition, and may impact the
Goodwill and intangible assets resulting in significant reported value of our net sales, earnings, assets and lia-
impairment charges bilities. In addition, the timing and extent of such volatil-
ity can be difficult to predict. Furthermore, depending on
Context and potential impact the movements of particular foreign exchange rates, we
We carry a significant amount of goodwill and other may be materially adversely affected at a time when the
intangible assets on our consolidated balance sheet, same currency movements are benefiting some of our
including, in particular, substantial goodwill and other competitors.
intangible assets obtained through acquisitions, includ- For more information on the effects of currency fluc-
ing most recently through our acquisitions of Gyroscope tuations on our consolidated financial statements and
Therapeutics, The Medicines Company, Xiidra, Endo- on how we manage currency risk, see “Item 5. Operat-
cyte, Novartis Gene Therapies, and AAA. As a result, we ing and Financial Review and Prospects—Item 5.B Liquid-
may incur significant impairment charges in the future if ity and capital resources—Effects of currency


19
 Item 3. Key Information

fluctuations” and “Item 18. Financial Statements—Note consolidated financial statements. If environmental con-
29. Financial instruments – additional disclosures.” tamination resulting from our facility operations, busi-
ness activities or products adversely impacts third par-
Key customers ties or if we fail to properly manage the safety of our
facilities, including the safety of our employees and con-
Risk description tractors, and the environmental risks, we may face sub-
Ongoing consolidation among our distributors and retail- stantial one-time and recurring costs and other penal-
ers, and the concentration of credit risk ties, and be required to increase our provisions for
environmental liabilities.
Context and potential impact See also “Item 4. Information on the Company—Item
A significant portion of our global sales is made to a rel- 4.D Property, plants and equipment” and “Item 18. Finan-
atively small number of drug wholesalers, retail chains cial Statements—Note 20. Provisions and other non‑cur-
and other purchasing organizations. For example, our rent liabilities.”
three most important customers globally accounted for
approximately 16%, 11% and 7%, respectively, of net sales Pension plans
in 2022. The largest trade receivables outstanding were
for these three customers, amounting to 16%, 14% and Risk description
7%, respectively, of the Group’s trade receivables at Inaccuracies in the assumptions and estimates used to
December 31, 2022. The trend has been toward further calculate our pension plan and other post-employment
consolidation among some distributors and retailers. As obligations
a result, we may be affected by fluctuations in the buy-
ing patterns of such customers. Furthermore, these cus- Context and potential impact
tomers are gaining additional purchasing leverage, We sponsor pension and other post-employment bene-
increasing the pricing pressures facing our businesses. fit plans in various forms that cover a significant portion
These pressures can impact our Sandoz Division in par- of our current and former employees. For post-employ-
ticular, the generic products of which can often be ment plans with defined benefit obligations, we are
obtained from numerous competitors. Moreover, we are required to make significant assumptions and estimates
exposed to a concentration of credit risk as a result of about future events in calculating the expense and the
this concentration among our customers. If one or more present value of the liability related to these plans. These
of our major customers experienced financial difficulties, include assumptions about the discount rates we apply
the effect on us would be substantial, and could include to estimate future defined benefit obligations and net
a substantial loss of sales and an inability to collect periodic pension expense, as well as rates of future pen-
amounts owed to us. sion increases. In addition, our actuarial consultants pro-
vide our management with historical statistical informa-
Environmental matters tion, such as withdrawal and mortality rates in connection
with these estimates.
Risk description Assumptions and estimates that we use may differ
Impact of environmental liabilities materially from the actual results we experience due to
changing market and economic conditions, higher or
Context and potential impact lower withdrawal rates, and longer or shorter life spans
The environmental laws of various jurisdictions impose of participants, among other factors. Depending on
actual and potential obligations on us to investigate and events, such differences could have a material effect on
remediate contaminated sites, including in connection our total equity, and may require us to make additional
with activities in the past by businesses that are no lon- contributions to our pension funds.
ger part of Novartis. In some cases, these remediation For more information on obligations under retirement
efforts may take many years. While we have set aside and other post-employment benefit plans and underly-
provisions for known worldwide environmental liabilities ing actuarial assumptions, see “Item 18. Financial State-
that are probable and estimable, there is no guarantee ments—Note 25. Post-employment benefits for employ-
that additional costs will not be incurred beyond the ees.”
amounts for which we have provided in the Group


20
 Item 4. Information on the Company

Item 4. Information on the Company

4.A History and development of Novartis
Novartis AG and cost-saving generic medicines. Novartis AG, our
Swiss holding company, owns, directly or indirectly, all
Novartis AG was incorporated on February 29, 1996, of our significant operating companies. For a list of our
under the laws of Switzerland as a stock corporation significant operating subsidiaries, see “Item 18. Financial
(“Aktiengesellschaft”) with an indefinite duration. On Statements—Note 31. Principal Group subsidiaries and
December 20, 1996, our predecessor companies, associated companies.”
Ciba‑Geigy AG and Sandoz AG, merged into this new
entity, creating Novartis. We are domiciled in and gov- For a description of important corporate developments
erned by the laws of Switzerland. Our registered office since January 1, 2020, see “Item 18. Financial State-
is located at the following address: ments—Note 2. Significant transactions.” For information
regarding the Company’s material commitments for cap-
Novartis AG ital expenditures, see “Item 5. Operating and Financial
Lichtstrasse 35 Review and Prospects—Liquidity and Capital Resources—
CH‑4056 Basel, Switzerland Material short- and long-term cash requirements.”
Telephone: +41‑61‑324‑1111
Web: www.novartis.com The SEC maintains an internet site at http://www.sec.
gov that contains reports, information statements, and
Novartis is a multinational group of companies special- other information regarding issuers that file electroni-
izing in the research, development, manufacturing and cally with the SEC.
marketing of a broad range of innovative pharmaceuticals

4.B Business overview

Overview
Our purpose is to reimagine medicine to improve and • Innovative Medicines: innovative patent‑protected pre-
extend people’s lives. We use innovative science and scription medicines
technology to address some of society’s most challeng- For a description of our Innovative Medicines Division,
ing healthcare issues. We discover and develop break- see “—Innovative Medicines—Overview” below.
through treatments and find new ways to deliver them to
as many people as possible. We also aim to reward those • Sandoz: generic pharmaceuticals and biosimilars
who invest their money, time and ideas in our Company. For a description of our Sandoz Division, see “—
Our vision is to become the most valued and trusted Sandoz” below.
medicines company in the world. Our strategy is to
deliver high-value medicines that alleviate society’s In April 2022, we announced a new, integrated organi-
greatest disease burdens through technology leadership zational structure and operating model designed to sup-
in research and development (R&D) and novel access port our innovation, growth, and productivity ambitions
approaches. To support this strategy, we have clear as a focused medicines company. As part of this new
focus areas and priorities, ensuring we deliver on our organizational structure, we have integrated our former
purpose and continue to create value for both stakehold- Pharmaceuticals and Oncology business units and cre-
ers and society. See, “Item 5. Operating and Financial ated two separate commercial organizations—Innovative
Review and Prospects—Item 5.A Operating Results— Medicines US and Innovative Medicines International.
Overview—Our strategy.” The Innovative Medicines Division focuses on five core
In 2022, Novartis achieved net sales from continuing therapeutic areas—cardiovascular, immunology, neuro-
operations of USD 50.5 billion, and total net income science, solid tumor, and hematology—as well as other
amounted to USD 7.0 billion. Headquartered in Basel, promoted brands (in the therapeutic areas of ophthal-
Switzerland, our Group companies employed approxi- mology and respiratory) and established brands. For
mately 102 000 full‑time equivalent employees as of more information, see “Item 4. Information on the Com-
December 31, 2022. Our products are sold in approxi- pany—Item 4.B Innovative Medicines.” We have also cre-
mately 140 countries around the world. ated a new Strategy and Growth function that combines
The Group comprises two global operating divisions: 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


21
 Item 4. Information on the Company

end-to-end and look across internal and external oppor- GDD, see “—Innovative Medicines—Research and devel-
tunities to strengthen the Novartis pipeline with medicines opment—Development program” below. For more infor-
that are both transformational and can make significant mation about Operations, see “—Item 4.D Property,
contributions to growth. Finally, we have combined our plants and equipment” and “Item 18. Financial State-
former Novartis Technical Operations and Customer & ments—Note 3. Segmentation of key figures 2022, 2021
Technology Solutions units to create a new operations and 2020.”
unit called Operations. This new unit seeks to provide a
stronger and simpler operational backbone that can
accelerate multiple technology transformation initiatives Corporate activities
more efficiently, create novel digital solutions at scale,
and increase productivity, while maintaining indus- We separately report the results of Corporate activities.
try-leading quality and service levels. The financial results of our Corporate activities include
Under this new organizational structure, our divisions the costs of the Group headquarters and those of cor-
are supported by the following organizational units: the porate coordination functions in major countries. In addi-
Novartis Institutes for BioMedical Research (NIBR), tion, Corporate includes other items of income and
Global Drug Development (GDD), and Operations. The expense that are not attributable to specific segments,
financial results of these organizational units are included such as certain revenues from intellectual property
in the results of the divisions for which their work is per- rights and certain expenses related to post-employment
formed. For more information about NIBR, see “— benefits, environmental remediation liabilities, charita-
Innovative Medicines—Research and development— ble activities, donations and sponsorships.
Research program” below. For more information about

Innovative Medicines

Overview described below have lost patent protection or are oth-

erwise subject to generic competition. Others are sub-
Our Innovative Medicines Division is a world leader in ject to patent challenges by potential generic competi-
offering patent-protected medicines to patients and phy- tors. Please see “—Intellectual property” for general
sicians. The Innovative Medicines Division researches, information on intellectual property and regulatory data
develops, manufactures, distributes and sells patented protection, and for more information on the status of pat-
pharmaceuticals. The Innovative Medicines Division is ents and exclusivity for Innovative Medicines Division
organized into two commercial organizational units— products.
Innovative Medicines US and Innovative Medicines Inter- While we typically seek to sell our marketed products
national. These units were created in April 2022 as part throughout the world, not all products and indications
of our new, integrated organizational structure. Prior to are available in every country. The indications described
April 2022, the Innovative Medicines Division was orga- in these summaries may therefore vary by country. In
nized into two global business units: Novartis Oncology addition, a product may be available under different
and Novartis Pharmaceuticals. See “Item 4. Information brand names depending on country and indication.
on the Company—Item 4.B Overview.”
The Innovative Medicines Division focuses on core Key marketed products
therapeutic areas—cardiovascular, immunology, neuro-
science, solid tumor, and hematology—as well as other Cardiovascular
promoted brands (in the therapeutic areas of ophthal-
mology and respiratory) and established brands. • Entresto (sacubitril/valsartan) is an oral, first‑in‑class
The Innovative Medicines Division is the larger of our angiotensin receptor neprilysin inhibitor. Entresto
two divisions in terms of consolidated net sales. It enhances the protective effects of a hormone system
reported consolidated net sales of USD 41.3 billion in called the natriuretic peptide system, and simultane-
2022, which represented 81.7% of the Group’s net sales. ously suppresses the harmful effects of a hormone sys-
The product portfolio of the Innovative Medicines Division tem called the renin‑angiotensin‑aldosterone system.
includes a significant number of key marketed products, It is approved:
many of which are among the leaders in their respective • In the US, the EU and other countries to treat adults
therapeutic areas. who have symptomatic heart failure with reduced
ejection fraction (HFrEF). HFrEF is a disease in which
the heart cannot pump enough blood.
Innovative Medicines Division • In the US and other countries to treat most heart fail-
products ure patients with preserved ejection fraction (HFpEF).
HFpEF is another disease in which the heart cannot
The following summaries describe certain key marketed pump enough blood.
products in our Innovative Medicines Division, listed • In the US and other countries to treat children aged
according to year-end net sales within each therapeutic 1 year and older who have symptomatic heart failure
area or reporting category. Some of the products with systemic left ventricular systolic dysfunction


22
 Item 4. Information on the Company

• In China and Japan to treat patients with essential arthritis (ERA) and children (aged 2 years and older
hypertension (a type of high blood pressure) in the US and 6 years and older in the EU) with juve-
nile psoriatic arthritis (JPsA). ERA and JPsA are sub-
• Leqvio (inclisiran) is the first and only small-interfering types of juvenile idiopathic arthritis. If left untreated,
RNA therapy to reduce LDL cholesterol, a risk factor they can lead to high levels of pain and disability.
for atherosclerotic cardiovascular disease (ASCVD),
which is caused by plaque buildup in the arteries. • Xolair (omalizumab) is an injectable prescription med-
Leqvio is administered by a healthcare professional icine and the only approved antibody designed to tar-
twice a year as an injection, following an initial dose get and block immunoglobulin E (IgE). It is approved in
and a dose at three months. It is approved: the US, the EU and other countries to treat:
• In the EU and other countries to treat adults with pri- • Adults and children aged 6 years and older with mod-
mary hypercholesterolemia (heterozygous familial erate‑to‑severe, or severe, persistent allergic asthma
and non-familial) or mixed dyslipidemia. In patients • Adults and children aged 12 years and older with
unable to reach LDL cholesterol goals, Leqvio is used chronic spontaneous urticaria/chronic idiopathic
in combination with the maximum tolerated dose of urticaria (hives)
a statin, or alone or in combination with other lip- • Adults with nasal polyps or severe chronic rhinosi-
id-lowering therapies in patients who are statin-in- nusitis with nasal polyps (CRSwNP). CRSwNP is a
tolerant or for whom a statin is contraindicated. Pri- chronic inflammation of the nose and the sinuses
mary hypercholesterolemia and mixed dyslipidemia with the presence of benign lesions (nasal polyps)
are disorders characterized by high levels of fats in on the lining of the nasal sinuses or nasal cavity.
the blood.
• In the US to treat adults with clinical ASCVD or het- Approved indications vary by country. Xolair is provided
erozygous familial hypercholesterolemia (HeFH), as as lyophilized powder for reconstitution, and as liquid
an adjunct to diet and maximally tolerated statin ther- formulation in a pre‑filled syringe. Novartis co-pro-
apy, who require additional lowering of LDL choles- motes Xolair with Genentech in the US and shares a
terol. HeFH is an inherited disorder that causes dan- portion of operating income, but Novartis does not
gerously high levels of LDL cholesterol. (The effect record any US sales. Novartis records all sales of Xolair
of Leqvio on cardiovascular morbidity and mortality outside the US. For more information, see “Item 18.
has not yet been determined). Financial Statements—Note 27. Transactions with
related parties—Roche Holding AG.”
Novartis obtained global rights to develop, manufac-
ture and commercialize Leqvio under a license and col- • Ilaris (canakinumab) is an injectable, selective, high-af-
laboration agreement with Alnylam Pharma­ceuticals, finity, fully human monoclonal antibody that inhibits
Inc. interleukin-1 beta (IL-1 beta), a key cytokine in the
inflammatory pathway. It is approved in the US, the EU
Immunology and other countries to treat patients with certain debil-
itating autoinflammatory disorders, including:
• Cosentyx (secukinumab) is an injectable, fully human • Adults and children with periodic fever syndromes.
monoclonal antibody that selectively inhibits interleu- Periodic fever syndromes are a set of rare disorders
kin-17A (IL‑17A), a cytokine involved in several immuno- characterized by recurrent episodes of illness, with
logical diseases. It is approved in the US, the EU and fever as the main symptom.
other countries to treat: • Patients with Still’s disease, including systemic juve-
• Adults and children aged 6 years and older with mod- nile idiopathic arthritis and adult-onset Still’s disease.
erate‑to‑severe plaque psoriasis. Psoriasis is a debil- Still’s disease is a disorder that causes fevers, rash
itating systemic inflammatory disease that is charac- and joint pain.
terized by the appearance of raised, red patches on • Adults with acute gouty arthritis. Gouty arthritis is a
the skin. type of arthritis characterized by pain, redness, ten-
• Adults with active ankylosing spondylitis (AS). AS is derness and swelling in one or more joints.
a progressive inflammatory disease that is charac-
terized by chronic back pain, is generally visible on Approved indications vary by country.
X-rays, and can cause structural damage to the
bones and joints. Neuroscience
• Adults with active non-radiographic axial spondy-
loarthritis (nr-axSpA). This is a long-term inflamma- • Gilenya (fingolimod) is an oral sphingosine-1-phos-
tory disease that is characterized by chronic back phate (S1P) receptor modulator that inhibits the move-
pain and is not visible on X-rays. ment of lymphocytes (a type of white blood cell) out of
• Adults and children (aged 2 years and older in the the lymph nodes into the central nervous system,
US and 6 years and older in the EU) with active pso- thereby preventing nerve inflammation and nervous tis-
riatic arthritis (PsA). PsA is a type of progressive sue damage. It is approved:
inflammatory arthritis that results in swollen and pain- • In the US to treat adults and children aged 10 years
ful joints and tendons, which can cause structural and older with relapsing forms of multiple sclerosis,
damage to the bones and joints. including clinically isolated syndrome, relapsing-re-
• Children (aged 4 years and older in the US and 6 mitting multiple sclerosis (RRMS) and active second-
years and older in the EU) with enthesitis-related ary progressive multiple sclerosis (SPMS). Multiple


23
 Item 4. Information on the Company

sclerosis is a disease in which the immune system • Adults with stage III melanoma with a BRAF V600
attacks the protective covering of nerves (known as mutation as an adjuvant treatment (following surgery)
myelin). • Adults with advanced non-small cell lung cancer
• In the EU to treat adults and children aged 10 years (NSCLC) with a BRAF V600 mutation. NSCLC is the
and older who have highly active RRMS despite treat- most common type of lung cancer.
ment with at least one disease-modifying agent, or • Adults with locally advanced or metastatic anaplas-
who have rapidly evolving severe RRMS tic thyroid cancer (ATC) with a BRAF V600 mutation
whose cancer has progressed following treatment,
Gilenya is licensed from Mitsubishi Tanabe Pharma and who have no satisfactory alternative treatment
Corporation. options (US). ATC is a rare and aggressive form of
thyroid cancer.
• Zolgensma (onasemnogene abeparvovec) is a one-
time intravenous gene therapy designed to address the Approved indications vary by country. Novartis has
genetic root cause of spinal muscular atrophy (SMA) worldwide exclusive rights to develop, manufacture and
by replacing the function of the missing or nonworking commercialize trametinib granted by Japan Tobacco
SMN1 gene. Zolgensma delivers a new working copy Inc.
of the SMN1 gene into a patient’s cells. It is approved
in the US, the EU and other countries to treat: • Kisqali (ribociclib) is a selective oral cyclin‑dependent
• Babies and young children who have SMA with bial- inhibitor of kinases 4 and 6 (CDK4/6) with somewhat
lelic mutations in the SMN1 gene. SMA is a rare, greater inhibitory activity against CDK4 vs CDK6 – the
genetic neuromuscular disease resulting in the pro- two enzymes involved in the control of cell cycle pro-
gressive and irreversible loss of motor neurons, gression. Kisqali is approved in the US, the EU and other
which causes muscle weakness and atrophy. countries to treat:
• Pre-, peri- and postmenopausal women, and men
• Kesimpta (ofatumumab) is an anti-CD20 monoclonal (US), with hormone receptor-positive (HR+)/human
antibody that enables the targeted depletion of B-cells, epidermal growth factor receptor 2-negative (HER2-)
specifically in lymph nodes. Kesimpta is self-adminis- locally advanced or metastatic breast cancer, in com-
tered as a once-monthly injection via the Sensoready bination with an aromatase inhibitor as initial endo-
autoinjector pen. It is approved: crine‑based therapy. HR+/HER2- breast cancer is
• In the US to treat adults with relapsing forms of mul- the most common subtype of breast cancer.
tiple sclerosis, including clinically isolated syndrome, • Pre-, peri- (EU) and postmenopausal women, and
relapsing-remitting multiple sclerosis (RRMS) and men (US), with HR+/HER2- locally advanced or met-
active secondary progressive multiple sclerosis astatic breast cancer, in combination with fulvestrant,
(SPMS). Multiple sclerosis is a disease in which the as first- or second-line therapy
immune system attacks the protective covering of
nerves (known as myelin). Kisqali was developed by the Novartis Institutes for
• In the EU to treat adults with relapsing forms of mul- BioMedical Research under a research collaboration
tiple sclerosis with active disease defined by clinical with Astex Pharmaceuticals.
or imaging features (i.e., relapse, disability, or lesions
detected by MRI scans) • Piqray (alpelisib) is an oral kinase inhibitor that specif-
ically targets the PIK3CA gene. This is the most com-
Approved indications vary across other countries. Ofa- monly mutated gene in HR+/HER2- breast cancer, the
tumumab was originally developed by Genmab and most common subtype of breast cancer. Piqray is
licensed to GlaxoSmithKline (GSK). Novartis obtained approved in the US, the EU and other countries to treat:
the rights to ofatumumab from GSK across all indica- • Postmenopausal women, and men, with hormone
tions. receptor-positive (HR+)/human epidermal growth
factor receptor 2-negative (HER2-) locally advanced
Solid Tumor or metastatic breast cancer with a PIK3CA mutation.
It is used in combination with fulvestrant after dis-
• Tafinlar + Mekinist (dabrafenib + trametinib) is an oral ease progression while on or following an endo-
combination therapy. Tafinlar and Mekinist are kinase crine-based regimen (US), or after disease progres-
inhibitors of the BRAF and MEK1/2 proteins, respec- sion following endocrine therapy as monotherapy
tively, approved in combination in the US, the EU and (EU).
other countries to treat patients who have certain types
of cancer with a change in the BRAF gene (called a • Pluvicto (lutetium (177Lu) vipivotide tetraxetan) is an
BRAF V600 mutation), including: intravenous radioligand therapy combining a targeting
• Adults with unresectable or metastatic melanoma compound (a ligand) with a therapeutic radionuclide (a
with a BRAF V600 mutation. Melanoma is a form of radioactive particle, in this case lutetium-177). Pluvicto
skin cancer; unresectable melanoma cannot be delivers radiation selectively to PSMA-positive cells
removed with surgery and metastatic melanoma has and the surrounding cells. It is approved in the US, the
spread to other parts of the body. Tafinlar and EU and other countries to treat:
Mekinist are also approved as single agents for this • Adults with a type of advanced cancer that has
indication. spread to other parts of the body (metastatic) called
prostate-specific membrane antigen–positive


24
 Item 4. Information on the Company

metastatic castration-resistant prostate cancer indications of oncology, hematology and graft-versus-

(PSMA-positive mCRPC) who have already been host disease outside the US. Incyte Corporation mar-
treated with other anticancer treatments (androgen kets ruxolitinib as Jakafi® in the US.
receptor pathway inhibition and taxane-based che-
motherapy) • Scemblix (asciminib) is an oral kinase inhibitor that
works by binding to the ABL myristoyl pocket. It is
Hematology approved:
• In the US, the EU and other countries to treat adults
• Promacta/Revolade (eltrombopag) is a once‑daily oral with Philadelphia chromosome-positive chronic
thrombopoietin receptor agonist that works by stimu- myeloid leukemia (Ph+ CML) in chronic phase who
lating bone marrow cells to produce platelets. It is have previously been treated with two or more tyro-
approved in the US, the EU and other countries to treat: sine kinase inhibitors (TKIs). CML is a type of cancer
• Immune thrombocytopenia (ITP) in patients who have that starts in the blood-forming cells of the bone mar-
had an insufficient response to or have failed previ- row and invades the blood. There are three phases
ous therapies. ITP is a bleeding disorder caused by of CML: chronic phase, accelerated phase and blast
an unusually low number of platelets. phase.
• Thrombocytopenia in patients with chronic hepatitis • In the US and other countries to treat adults with Ph+
C to allow them to initiate and maintain interfer- CML in chronic phase with the T315I mutation. Some
on‑based therapy patients with CML develop mutations that cause
• Patients with severe aplastic anemia (SAA). SAA is resistance to TKI therapy, including the T315I muta-
a condition in which the body does not produce tion, which confers resistance to most available TKIs.
enough blood cells As a result, patients with this mutation have limited
treatment options.
Promacta/Revolade is marketed under a research,
development and license agreement between Novartis Other Promoted Brands
and RPI Finance Trust (dba Royalty Pharma), as
assignee of Ligand Pharmaceuticals. • Lucentis (ranibizumab) is a humanized, high-affinity
antibody fragment that binds to vascular endothelial
• Tasigna (nilotinib) is a twice-daily oral tyrosine kinase growth factor A (VEGF‑A), a protein that can cause the
inhibitor that acts by blocking the BCR-ABL protein. It growth of blood vessels in the eye, potentially leading
is approved in the US, the EU and other countries to to vision loss. Lucentis is an anti-VEGF therapy that is
treat: injected into the eye. It is approved in the EU and other
• Patients with Philadelphia chromosome-positive countries to treat patients with certain eye conditions,
chronic myeloid leukemia (Ph+ CML) in the chronic including:
and/or accelerated phase who are resistant or intol- • Adults with neovascular (wet) age‑related macular
erant to existing treatment. Ph+ CML is a cancer that degeneration (AMD). Wet AMD develops when
starts in the blood-forming cells of bone marrow. abnormal blood vessels grow under the macula and
• Newly diagnosed adults and children with Ph+ CML leak blood and other fluids in the back of the eye,
in the chronic phase which damages the macula.
• Adults with proliferative diabetic retinopathy, moder-
• Jakavi (ruxolitinib) is an oral inhibitor of the JAK1 and ately severe to severe non-proliferative diabetic ret-
JAK2 tyrosine kinases. It is the first therapy approved inopathy, and/or diabetic macular edema. These con-
in the EU and other countries to treat: ditions are complications of diabetes.
• Adults with myelofibrosis (MF), including primary • Adults with visual impairment due to macular edema
myelofibrosis, post-polycythemia vera myelofibrosis secondary to retinal vein occlusion (branch RVO or
and post-essential thrombocythemia myelofibrosis. central RVO). Retinal vein occlusion is a blockage of
MF is a rare blood cancer characterized by abnor- the branch or central retinal veins, which carry blood
mal blood cell production and scarring in the bone away from the retina.
marrow, which can lead to an enlarged spleen.
• Adults with polycythemia vera (PV) who are resistant Approved indications vary by country. Lucentis is
or intolerant to a medication called hydroxyurea. PV licensed from Genentech, and Novartis holds the rights
is a rare blood cancer in which the bone marrow pro- to commercialize the product outside the US. Genen-
duces too many red blood cells, resulting in serious tech holds the rights to commercialize Lucentis in the
problems like clots. US. For more information, see “Item 18. Financial State-
• Patients aged 12 years and older with acute or chronic ments—Note 27. Transactions with related parties—
graft-versus-host disease (GvHD) and who have had Roche Holding AG.”
an inadequate response to corticosteroids or other
systemic therapies. GvHD occurs in stem-cell trans- • Xiidra (lifitegrast 0.5%), an LFA-1 antagonist, is a pre-
plant patients when donor cells see the recipient’s scription eye drop designed to block the interaction of
healthy cells as foreign and attack them. two key proteins called ICAM-1 and LFA-1, thereby
reducing inflammation. It is approved in the US and
Novartis licensed ruxolitinib from Incyte Corporation other countries to treat:
for development and commercialization in the • The signs and symptoms of dry eye disease in adults


25
 Item 4. Information on the Company

Established Brands molecular entities as well as potential additional indica-

tions or new formulations for already marketed products.
• Sandostatin SC (octreotide acetate for injection) and The table below, entitled “Projects removed from the
Sandostatin LAR (octreotide acetate for injectable sus- development table since 2021,” highlights changes to the
pension) are somatostatin analogs approved in the US, table entitled “Selected development projects” from the
the EU and other countries to treat: previous year.
• Adults with acromegaly that is inadequately con- The year that each project entered the current phase
trolled by surgery or radiotherapy. Acromegaly is a of development refers to the year of the first patient’s
chronic disease caused by the oversecretion of first visit in the first clinical trial of that phase. For proj-
growth hormone. ects in Phase II, the year refers to the first patient’s first
• Patients with certain symptoms associated with car- visit in the first Phase II trial, which can occur before the
cinoid tumors and other types of functional gastro- Confirmatory Development stage. Prior to 2020, we
intestinal and pancreatic neuroendocrine tumors reported the current phase based on the year in which
the decision to enter the phase was made. To maintain
Sandostatin LAR is also approved in the EU and other continuity, we have included certain previously disclosed
countries to treat patients with advanced neuroendo- projects, noted below, that have not yet achieved “first
crine tumors of the midgut or of unknown primary patient, first visit” in any Phase I-III study for the reported
tumor origin. indication and route of administration. We have disclosed
these projects using our previous reporting criteria.
Compounds in development A reference to a project being in registration means
The following table provides an overview of the key that an application has been submitted to a health author-
Innovative Medicines Division projects currently in the ity for marketing approval. Compounds and new indica-
Confirmatory Development stage and may also describe tions in development are subject to required regulatory
certain projects in the Exploratory Development stage. approvals and, in certain instances, contractual limita-
Projects typically enter Confirmatory Development and tions. These compounds and indications are in various
become the responsibility of our Global Drug Develop- stages of development throughout the world. It may not
ment organization during Phase II testing. (For more be possible to obtain regulatory approval for any or all
information about our drug development program, see of the new compounds and new indications referred to
“—Research and development—Development program.”) in this Form 20‑F in any country or in every country. See
Projects are listed in alphabetical order by compound “—Regulation” for more information on the approval pro-
code, or by product name where applicable. Projects cess.
include those seeking to develop potential uses of new


26
 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-101 onasemno- Survival motor neuron Spinal muscular atrophy Neuroscience Intrathecal injection 2021 2025/III
(OAV101) gene abepar- (SMN) gene therapy (IT formulation)
vovec
Beovu brolucizumab VEGF inhibitor Diabetic retinopathy Ophthalmology Intravitreal injection 2020 2025/III
CFZ533 iscalimab CD40 inhibitor Sjögren’s syndrome Immunology Subcutaneous injection 2019 ≥2026/II
artemether + PGH-1 (artemisinin
Coartem Malaria, Global Health Oral 2020 2024/III
lumefantrine combination therapy) uncomplicated
(<5 kg patients)
Cosentyx secukinumab IL‑17A inhibitor Hidradenitis suppurativa Immunology Subcutaneous injection 2022 US/EU
registration
Giant cell arteritis Immunology Subcutaneous injection 2021 2025/III
Lupus nephritis Immunology Subcutaneous injection 2020 ≥2026/III
Psoriatic arthritis (IV formulation) Immunology Intravenous infusion 2022 US registration
Ankylosing spondylitis (IV formulation) Immunology Intravenous infusion 2022 US registration
JDQ443 TBD KRAS inhibitor Non-small cell lung cancer, 2/3L 1 Solid Tumor Oral 2022 2024/III
KAE609 cipargamin PfATP4 inhibitor Malaria, uncomplicated Global Health Oral 2017 ≥2026/II
Malaria, severe Global Health Oral 2022 ≥2026/II
KAF156 ganaplacide Non-artemisinin Malaria, uncomplicated Global Health Oral 2017 ≥2026/II
plasmodium
falciparum inhibitor
Kisqali ribociclib CDK4 inhibitor Hormone receptor-positive Solid Tumor Oral 2018 2023/III
(HR+)/human epidermal growth
factor receptor 2-negative (HER2-)
early breast cancer (adjuvant)
Leqvio inclisiran siRNA Secondary prevention of cardiovascular Cardiovascular Subcutaneous injection 2018 ≥2026/III
(regulation of LDL-C) events in patients with elevated levels
of LDL-C
LNA043 TBD ANGPTL3 agonist Knee osteoarthritis Immunology Intra-articular 2021 ≥2026/II
LNP023 iptacopan CFB inhibitor IgA nephropathy Cardiovascular Oral 2021 2024/III
C3 glomerulopathy Cardiovascular Oral 2021 2024/III
Paroxysmal nocturnal hemoglobinuria Hematology Oral 2021 2023/III
Atypical hemolytic uremic syndrome Hematology Oral 2021 ≥2026/III
LOU064 remibrutinib BTK inhibitor Chronic spontaneous urticaria Immunology Oral 2021 2024/III
Sjögren’s syndrome Immunology Oral 2019 ≥2026/II
Multiple sclerosis Neuroscience Oral 2021 ≥2026/III
Lutathera lutetium Radioligand therapy Gastroenteropancreatic Solid Tumor Intravenous infusion 2020 2023/III
Lu 177 targeting SSTR neuroendocrine tumors,
dotatate/ 1 line in G2/3 tumors
st

lutetium
( Lu)
177

oxodotreotide
LXE408 TBD Proteasome inhibitor Visceral leishmaniasis Global Health Oral 2022 ≥2026/II
MBG453 sabatolimab TIM-3 antagonist Myelodysplastic syndrome Hematology Intravenous infusion 2020 2024/III
Unfit acute myeloid leukemia Hematology Intravenous infusion 2020 ≥2026/II
MIJ821 onfasprodil NR2B negative Major depressive disorder Neuroscience Intravenous infusion 2021 ≥2026/II
allosteric modulator
NIS793 TBD TGF-beta 1 inhibitor Pancreatic cancer, 1st line Solid Tumor Intravenous infusion 2021 2025/III
Piqray alpelisib PI3K‑alpha inhibitor Ovarian cancer Solid Tumor Oral 2021 2023/III
Pluvicto lutetium Radioligand therapy Metastatic castration-resistant Solid Tumor Intravenous infusion 2021 2023/III
Lu 177 targeting PSMA prostate cancer, pre-taxane
vipivotide
tetraxetan/
lutetium
(177Lu)
vipivotide
tetraxetan
Metastatic hormone-sensitive Solid Tumor Intravenous infusion 2021 2024/III
prostate cancer

1
Project added to selected development projects table in 2022 – entered Confirmatory Development


27
 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
PPY988 2 TBD Gene therapy - Geographic atrophy Ophthalmology Subretinal injection 2022 ≥2026/II
complement
factor I modulation
QGE031 ligelizumab IgE inhibitor Food allergy Immunology Subcutaneous injection 2021 ≥2026/III
SAF312 libvatrep TRPV1 antagonist Chronic ocular surface pain Ophthalmology Topical 2016 ≥2026/II
Scemblix asciminib BCR‑ABL inhibitor Chronic myeloid Hematology Oral 2021 2025/III
leukemia, 1st line
SKO136 3 ensovibep Multispecific DARPin Coronavirus infection Global Health Intravenous infusion Not applicable TBD4/II
(N/A)
TQJ230 pelacarsen ASO targeting Secondary prevention of cardiovascular Cardiovascular Subcutaneous injection 2019 2025/III
lipoprotein(a) events in patients with elevated levels
of lipoprotein(a)
VAY736 ianalumab BAFF-R inhibitor Autoimmune hepatitis Immunology Subcutaneous injection 2018 ≥2026/II
Lupus nephritis 5 Immunology Subcutaneous injection 2022 ≥2026/III
Sjögren’s syndrome Immunology Subcutaneous injection 2022 ≥2026/III
Warm autoimmune hemolytic anemia 5 Hematology Intravenous infusion 2022 ≥2026/III
(wAIHA)
VDT482 tislelizumab Anti-PD-1 monoclonal Esophageal cancer, 2nd 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, 1st line Solid Tumor Intravenous infusion N/A 2023/III
Gastric cancer, 1st line Solid Tumor Intravenous infusion N/A 2023/III
Esophageal cancer, 1st line Solid Tumor Intravenous infusion N/A 2023/III
Localized esophageal cancer Solid Tumor Intravenous infusion N/A 2024/III
Hepatocellular carcinoma, 1st line Solid Tumor Intravenous infusion N/A 2023/III
Small cell lung cancer, 1st line Solid Tumor Intravenous infusion N/A 2024/III
Urothelial cell carcinoma, 1st line 6 Solid Tumor Intravenous infusion N/A ≥2026/III
VPM087 gevokizumab IL-1 beta antagonist Colorectal cancer, 1st line Solid Tumor Intravenous infusion 2019 ≥2026/I
Xolair omalizumab IgE inhibitor Food allergy Immunology Subcutaneous injection 2019 2023/III
XXB750 5 TBD NPR1 agonist Hypertension Cardiovascular Subcutaneous injection 2022 ≥2026/II

2
Entered confirmatory development following the acquisition of Gyroscope Thereapeutics.
3
In-licensed from Molecular Partners in 2021 (option deal)
4
No definite submission date can be provided at this time
5
Project added to selected development projects table in 2022 – entered Confirmatory Development
6
Formerly “bladder urothelial cell carcinoma”. Indication language updated in 2022 to reflect latest development plan


28
 Item 4. Information on the Company

Projects removed from the development table since 2021

Compound/product Potential indication Change Reason

ACZ885 (canakinumab) Non‑small cell lung cancer, adjuvant Removed Development discontinued

Beovu Diabetic macular edema Commercialized

CFZ533 (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

CSJ117 Asthma Removed Development discontinued

Jakavi Acute graft‑versus‑host disease Commercialized

Jakavi Chronic graft‑versus‑host disease Commercialized

Kymriah Relapsed/refractory follicular lymphoma Commercialized

LJN452 Nonalcoholic steatohepatitis Removed Development discontinued

LMI070 Huntington’s disease Removed Development discontinued

LNP023 Membranous nephropathy Removed Development discontinued

Vijoice 1
PIK3CA-related overgrowth spectrum Commercialized

Piqray Triple negative breast cancer Removed Development discontinued

Piqray Human epidermal growth factor Removed Development discontinued

receptor 2-positive (HER2+)
advanced breast cancer

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

QBW251 (icenticaftor) Chronic obstructive pulmonary disease Removed Development discontinued

QGE031 (ligelizumab) Chronic spontaneous urticaria Removed Development discontinued

QGE031 (ligelizumab) Chronic inducible urticaria Removed Development discontinued

Scemblix Chronic myeloid leukemia, 3rd line Commercialized

UNR844 Presbyopia Removed Development discontinued

1
Formerly listed as BYL719


29
 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
2022 net sales
to third parties

USD millions %

United States 15 899 39

Europe 13 554 33
Asia, Africa, Australasia 8 929 22
Canada and Latin America 2 914 6
Total 41 296 100
Of which in Established Markets 1 30 548 74
Of which in Emerging Growth Markets 1 10 748 26

1
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 our manufacturing network to meet our needs and those
used for chronic conditions that require patients to con- of our patients and customers.
sume the product over long periods of time, ranging from We produce raw materials for manufacturing in‑house
months to years. However, certain of our marketed prod- or purchase them from a number of third-party suppli-
ucts and development projects, such as cell and gene ers. Where possible, we maintain multiple supply sources
therapies, are administered only once. Net sales of the so that the business is not dependent on a single or lim-
vast majority of our products are not subject to material ited number of suppliers. However, our ability to do so
changes in seasonal demand. may at times be limited by regulatory or other require-
ments. We monitor market developments that could have
an adverse effect on the supply of essential materials.
Production Our suppliers of raw materials are required to comply
with applicable regulations and Novartis quality stan-
Our primary goal is to ensure the uninterrupted and dards.
timely supply of medicines that meet all product speci- Because the manufacturing of our products is com-
fications and quality standards, and that are produced plex and highly regulated by governmental health author-
in the most cost-effective and sustainable manner. The ities, supply is never guaranteed. If we or our third-party
manufacturing of our products is highly regulated by gov- suppliers fail to comply with applicable regulations, then
ernmental health authorities around the world, including there could be a product recall or other disruption to our
the US Food and Drug Administration (FDA) and Euro- production activities. We have experienced supply inter-
pean Medicines Agency (EMA). In addition to regulatory ruptions for our products in the past, and there can be
requirements, many of our products involve technically no assurance that supply will not be interrupted again in
complex manufacturing processes or require highly spe- the future. However, we have implemented a global man-
cialized raw materials. ufacturing strategy to maximize business continuity in
In 2022, we began to integrate Advanced Accelera- case of such events.
tor Applications (AAA), a Novartis company that focuses
on radioligand therapies, into our existing manufacturing
and supply structure. We manufacture our products Marketing and sales
across the following technologies at facilities worldwide:
large molecules, small molecules, cell and gene therapy, The Innovative Medicines Division serves customers with
RNA therapy and radioligand therapy (see also “—Item 21 564 field force representatives, as of December 31,
4.D Property, plants and equipment”). In our manufac- 2022, including supervisors and administrative person-
turing network, we maintain state‑of‑the‑art processes, nel. These trained representatives present the therapeu-
with quality as a priority, and require our suppliers to tic benefits and risks of our products to physicians, phar-
adhere to the same high standards we expect from our macists, hospitals, insurance groups, managed care
own people and processes. These processes include: organizations and other healthcare professionals. In the
chemical and biological syntheses; radioisotope han- US, Novartis advertises certain products via digital and
dling, which relates to our radioligand therapies; sterile traditional media channels, including the internet, televi-
processing, including CAR-T cell processing; and formu- sion, newspapers and magazines. Novartis also pursues
lation and packaging. We are constantly working to co‑promotion or co‑marketing opportunities as well as
improve our existing manufacturing processes, develop licensing and distribution agreements with other com-
new and innovative technologies, and review and adapt panies in various markets.


30
 Item 4. Information on the Company

The marketplace for healthcare is evolving. Customer Reduction Act (please see “—Price controls” for more
groups beyond prescribers have increasing influence on information). At Novartis, we are increasing our efforts
treatment decisions and guidelines, while patients con- to enable patient access through innovative pricing and
tinue to become more informed stakeholders in their access initiatives in the US, Europe and other markets.
healthcare decisions and look for solutions to meet their These include contract structures such as pay-over-time
changing needs. Novartis is responding by adapting our and outcome-based agreements.
business practices to engage appropriately with patients, In 2021, Novartis reached an agreement with the
customer groups and other stakeholders, including by National Health Service (NHS) in England to implement
delivering innovative solutions to drive education, access a first-of-its-kind population health management
and improved patient care. approach designed to provide faster and broader access
The COVID-19 pandemic has accelerated additional to Leqvio for certain high-risk patients with atheroscle-
changes related to marketing and sales techniques in rotic cardiovascular disease. Novartis is engaging in sim-
the healthcare industry. For example, many healthcare ilar collaborations with other countries.
professionals have increased their use of virtual plat- Additionally, following conditional approval of
forms when interacting with pharmaceutical companies, Zolgensma in Europe in 2020, Novartis Gene Therapies
and prefer to receive information in a more convenient established “Day One” early access agreements in mul-
and personalized way. In response, Novartis is working tiple European countries. These agreements support
to implement a new customer engagement model that early patient access by allowing a variety of customiz-
combines traditional face-to-face visits with digital and able options, including retroactive rebates, deferred pay-
other methods of engaging healthcare professionals to ments, installment options, outcome-based rebates, and
improve the efficiency and effectiveness of every inter- collaborations with healthcare systems to optimize dis-
action. We are similarly changing our approach to engag- ease management. These efforts have expanded glob-
ing healthcare systems, payers and other healthcare pro- ally, and we now have multiple early access agreements
viders. and pay-for-performance agreements (i.e., out-
Although specific distribution patterns vary by coun- come-based arrangements) in place in various markets
try, Novartis generally sells its prescription drugs primar- around the world. Zolgensma is approved in 45 countries.
ily to wholesale and retail drug distributors, hospitals,
clinics, government agencies and managed healthcare
providers. The growing number of so‑called “specialty” Competition
drugs in our portfolio has resulted in increased engage-
ment with specialty pharmacies. The global pharmaceutical market is highly competitive.
In the US, the US Centers for Medicare & Medicaid We compete against other major international corpora-
Services (CMS) is the largest single payer for healthcare tions that have substantial financial and other resources,
services as a result of continuing changes in healthcare as well as against smaller companies that operate region-
economics and an aging population. In addition, both ally or nationally. Competition within the industry is
commercial and government-sponsored managed care intense and extends across a wide range of activities,
organizations continue to be among the largest groups including pricing, product characteristics, customer ser-
of payers for healthcare services in the US. In other coun- vice, sales and marketing, and research and develop-
tries, national health services are often the only signifi- ment.
cant payer for healthcare services. In an effort to control Like other companies selling patented pharma­
prescription drug costs, almost all managed care orga- ceuticals, Novartis faces challenges from companies
nizations and national health services use formularies selling competing patented products. Generic forms of
that list specific drugs that may be reimbursed and/or our products may follow the expiry of intellectual prop-
the level of reimbursement for each drug. Managed care erty protection or regulatory exclusivities, and generic
organizations and national health services also increas- companies may also gain entry to the market through
ingly use cost‑benefit analyses to determine whether or successfully challenging our intellectual property rights
not newly approved drugs will be added to a formulary and exclusivities. We use appropriate, legally permissi-
and/or the level of reimbursement for that drug, and to ble measures to defend those rights and exclusivities.
determine whether or not to continue to reimburse exist- (See also “—Intellectual property” below). We also may
ing drugs. We have dedicated teams that actively seek face competition from over-the-counter (OTC) products
to optimize patient access, including formulary positions, that do not require a prescription from a physician.
for our products. There is ongoing consolidation in the pharmaceuti-
The trend toward consolidation among distributors cal industry. At the same time, new entrants are looking
and retailers of Innovative Medicines Division products to use their expertise to establish or expand their pres-
continues in the US and internationally, both within and ence in healthcare, including technology companies
across countries. This has increased our customers’ pur- seeking to benefit from the increasing importance of
chasing leverage and resulted in increased pricing pres- data and data management in our industry.
sure on our products. Moreover, we are exposed to
increased concentration of credit risk as a result of the
consolidation among our customers. Research and development
Drug pricing is an increasingly prominent issue in
many countries as healthcare spending continues to rise. The discovery and development of a new drug usually
This issue has received significant attention in the US, requires approximately 10 to 15 years from the initial
especially with the recent passage of the Inflation research to bringing a drug to market. This includes


31
 Item 4. Information on the Company

approximately six to eight years from Phase I clinical tri- authorities. Following proof of concept, our Global Drug
als to market entry. At each of these steps, there is a Development unit conducts confirmatory trials on the
substantial risk that a compound (i.e., drug or biologic) drug candidates.
or other therapeutic candidate will not meet the require- In 2022, we integrated the Genomics Institute of the
ments to progress further. In such an event, we may be Novartis Research Foundation (GNF), which is based in
required to abandon the development of a potential ther- San Diego, US, into NIBR. This enables closer collabo-
apy in which we have made a substantial investment. ration with colleagues across NIBR and gives greater
We manage our research and development expendi- access to biological, therapeutic, and translational plat-
tures across our entire portfolio in accordance with our forms to researchers across Novartis. The NIBR San
strategic priorities. We make decisions about whether Diego site is focused on developing novel technology to
or not to proceed with development projects on a proj- drive drug discovery research, including regenerative
ect‑by‑project basis. These decisions are based on the medicine, small interfering RNA therapy and covalent
project’s potential to meet a significant unmet medical drug discovery.
need or to improve patient outcomes, the strength of the
science underlying the project, and the potential of the Development program
project (subject to the risks inherent in pharmaceutical Our Global Drug Development (GDD) organization
development) to generate significant positive financial ­oversees and executes drug development activities,
results for the Company. Once a management decision working collaboratively with NIBR, our commercial orga-
has been made to proceed with the development of a nization and other parts of the Company on our overall
particular molecule, the level of research and develop- pipeline strategy. The GDD organization includes
ment investment required will be driven by many factors. ­centralized global functions such as Regulatory Affairs
These include the medical indications for which it is being and Global Development Operations, and global Devel-
developed, the number of indications being pursued, opment Units, and has approximately 12 800 full‑time
whether the molecule is of a chemical or biological equivalent employees worldwide.
nature, the stage of development, and the level of evi-
dence necessary to demonstrate clinical efficacy and The traditional model of clinical development consists
safety. of three phases:
Phase I: The first clinical trials of a new compound –
Research program generally performed in a small number of healthy human
Our research program is conducted by the Novartis Insti- volunteers – to assess the drug’s safety profile, includ-
tutes for BioMedical Research (NIBR), which is the ing the safe dosage range. These trials also determine
research and early development innovation engine of how a drug is absorbed, distributed, metabolized and
Novartis. NIBR is responsible for the discovery of new excreted, and the duration of its action.
medicines for diseases with unmet medical need. We Phase II: Clinical studies performed with patients who
focus our work in areas where we believe we can have have the target disease, with the aim of continuing the
the most impact for patients. This requires the hiring and Phase I safety assessment in a larger group, assessing
retention of highly talented employees, a focus on fun- the efficacy of the drug in the patient population, and
damental disease mechanisms that are relevant across determining the appropriate doses for further evaluation.
different disease areas, continuous improvement in tech- Phase III: Large‑scale clinical studies with several hun-
nologies for drug discovery and potential therapies, dred to several thousand patients, which are conducted
working with patients to understand their diseases and to establish the safety and efficacy of the drug in spe-
the potential benefits of therapies, close alliances with cific indications for regulatory approval. Phase III trials
clinical and commercial colleagues, and the establish- may also be used to compare a new drug against a cur-
ment of strategic external alliances. rent standard of care to evaluate the overall benefit‑risk
Approximately 5 500 full‑time-equivalent scientists, relationship of the new medicine.
physicians and business professionals work at NIBR
sites in Basel, Switzerland; Cambridge, Massachusetts; In each of these phases, physicians monitor volunteer
East Hanover, New Jersey; San Diego, California; and patients closely to assess the safety and efficacy of a
Emeryville, California. They contribute to research into potential new drug or indication.
disease areas such as cardiovascular, renal and meta- Although we use this traditional model, we have tai-
bolic diseases; neuroscience; oncology; hematology; lored the development process to be simpler, more flex-
muscle disorders; ophthalmology; autoimmune diseases; ible and more efficient. We divide the development pro-
and respiratory and allergic diseases. Research at the cess into two stages: Exploratory Development to
Friedrich Miescher Institute focuses on basic genetic establish proof of concept, followed by Confirmatory
and genomic research, and the Novartis Institute for Development to confirm the concept in large numbers
Tropical Diseases (NITD), in Emeryville, California, of patients. Exploratory Development consists of clini-
focuses on discovering new medicines to fight tropical cal proof-of-concept (PoC) studies, which are small clin-
diseases, including malaria and cryptosporidiosis. ical trials (typically involving between five and 15 patients)
All drug candidates go through proof‑of‑concept tri- that combine elements of traditional Phase I/II testing.
als to enable an early assessment of the safety and effi- NIBR conducts these customized trials, which are
cacy of the drug while collecting basic information on designed to give early insights into issues such as safety,
pharmacokinetics and tolerability, and adhering to the efficacy and toxicity for a drug in a given indication. Once
guidance for early clinical testing set forth by health a positive proof of concept has been established, the


32
 Item 4. Information on the Company

drug moves to the Confirmatory Development stage and Regulation

becomes the responsibility of GDD. Confirmatory Devel-
opment has elements of traditional Phase II/III testing The international pharmaceutical industry is highly reg-
and includes trials aimed at confirming the safety and ulated. Regulatory authorities around the world admin-
efficacy of the drug in the given indication, leading up to ister numerous laws and regulations regarding the test-
submission of a dossier to health authorities for approval. ing, approval, manufacturing, importing, labeling and
This stage can also include trials that compare the drug marketing of drugs, and review the safety and efficacy
to the current standard of care for the disease in order of pharmaceutical products. Extensive controls exist on
to evaluate the drug’s overall benefit-risk profile. Further, the non‑clinical and clinical development of pharmaceu-
with new treatment approaches such as gene therapy tical products. These regulatory requirements, and the
for rare diseases, elements of Exploratory and Confir- implementation of them by local health authorities around
matory Development may be combined and suffice for the globe, are a major factor in determining whether a
registration under certain conditions such as high unmet substance can be developed into a marketable product,
medical need and clinical data showing highly favorable and the amount of time and expense associated with
benefit-risk. In these cases, additional post-approval that development.
studies may be required by the regulatory authorities to Health authorities, including those in the US and the
continue to gather important data to further support EU, have high standards of technical evaluation. The
approval. introduction of new pharmaceutical products generally
The vast amount of data that must be collected and entails a lengthy approval process. Products must be
evaluated makes clinical testing the most time‑consum- authorized or registered prior to marketing, and such
ing and expensive part of new drug development. The authorization or registration must subsequently be main-
next stage in the drug development process is to seek tained. In recent years, the registration process has
registration for the new drug. For more information, see required increased testing and documentation for the
“—Regulation.” approval of new drugs, with a corresponding increase in
Our Innovation Management Board (IMB) is respon- the expense of product introduction.
sible for all strategic aspects of our development port- To register a pharmaceutical product, a registration
folio and oversees our drug development budget as well dossier containing evidence establishing the safety, effi-
as major project phase transitions and milestones fol- cacy and quality of the product must be submitted to
lowing a positive proof-of-concept outcome, including regulatory authorities. Generally, a therapeutic product
transitions to Confirmatory Development and the deci- must be registered in each country in which it will be sold.
sion to submit a regulatory application to the health In every country, the submission of an application to a
authorities. The IMB is also responsible for the endorse- regulatory authority does not guarantee that approval to
ment of overall development strategy, the endorsement market the product will be granted. Although the criteria
of development project priorities, and decisions on proj- for the registration of therapeutic drugs are similar in
ect discontinuations. Our Chief Executive Officer chairs most countries, the formal structure of the necessary
the IMB, and other representatives from Novartis senior registration documents and the specific requirements,
management, with expertise spanning multiple fields, are including risk tolerance, of the local health authorities
among its core and extended membership. can vary significantly from country to country. Even if a
drug is registered and marketed in one country, the reg-
Alliances and acquisitions istration authority in another country may request addi-
Our Innovative Medicines Division enters into business tional information from the pharmaceutical company
development agreements with other pharmaceutical and prior to registration or even reject the product. A drug
biotechnology companies and with academic and other may be approved for different indications in different
institutions to develop new products and access new countries.
markets. We license products that complement our cur- The registration process generally takes between six
rent product line and are appropriate to our business months and several years, depending on the country, the
strategy. We focus on strategic alliances and acquisition quality of the data submitted, the efficiency of the regis-
activities for key disease areas and indications that we tration authority’s procedures, and the nature of the
expect to be growth drivers in the future. We review prod- product. Many countries provide for accelerated pro-
ucts and compounds we are considering licensing, using cessing of registration applications for innovative prod-
the same criteria that we use for our own internally dis- ucts of particular therapeutic interest. In recent years,
covered drugs. the US and the EU have made efforts to harmonize reg-
In February 2022, Novartis completed the acquisition istration requirements in order to achieve shorter devel-
of Gyroscope Therapeutics Holdings Plc. Through the opment and registration times for medical products.
acquisition, Novartis added PPY988 (GT005), an inves- However, the requirement in many countries to negoti-
tigational one-time gene therapy for geographic atrophy, ate selling prices or reimbursement levels with govern-
to its portfolio. ment regulators and other payers can substantially
extend the time until a product may finally be available
For more information about recent business acquisitions, to patients.
see “Item 18. Financial Statements—Note 2. Significant The following provides a summary of the regulatory
transactions.” processes in the principal markets served by Innovative
Medicines Division affiliates:


33
 Item 4. Information on the Company

United States Under the centralized procedure, applications are

In the US, applications for drug registration are submit- made to the EMA for an authorization that is valid for the
ted to and reviewed by the FDA. The FDA regulates the European Union (all member states). The centralized pro-
testing, manufacturing, labeling and approval for market- cedure is mandatory for all biotechnology products; new
ing of pharmaceutical products intended for commer- chemical entities in cancer, neurodegenerative disor-
cialization in the US. The FDA continues to monitor the ders, diabetes, AIDS, autoimmune diseases and other
safety of pharmaceutical products after they have been immune dysfunctions; advanced therapy medicines,
approved for sale in the US market. The pharmaceutical such as gene therapy, somatic cell therapy and tis-
development and registration process is typically inten- sue-engineered medicines; and orphan medicines
sive, lengthy and rigorous. When a pharmaceutical com- (medicines for rare diseases). It is optional for other new
pany has gathered data that it believes sufficiently chemical entities, innovative medicinal products, and
demonstrates a drug’s safety, efficacy and quality, the medicines for which authorization would be in the inter-
company may file a New Drug Application (NDA) or Bio- est of public health. When a pharmaceutical company
logics License Application (BLA), as applicable, for the has gathered data that it believes sufficiently demon-
compound. The NDA or BLA must contain all the scien- strates a drug’s safety, efficacy and quality, the company
tific information that has been gathered about the com- may submit an application to the EMA. The EMA then
pound. This typically includes information regarding the receives and validates the application, and the special-
clinical experiences of patients tested in the drug’s clin- ized committee for human medicines, the CHMP, appoints
ical trials. A Supplemental New Drug Application (sNDA) a rapporteur and co‑rapporteur to review it. They use
or Supplemental Biologics License Application (sBLA) experts from their countries to carry out the assessment
must be filed for new indications and dosage forms for but can also draw on expertise from other member states
a previously approved drug. (“multinational teams”). The entire review cycle must be
Once an application is submitted, the FDA assigns completed within 210 days, although there are “clock
reviewers from its staff, including experts in biopharma- stops” to allow the company to respond to questions set
ceutics, chemistry, clinical microbiology, pharmacology/ forth in the rapporteur and co‑rapporteur’s assessment
toxicology, and statistics. After a complete review, these report and agreed with the CHMP. The first clock stop
content experts provide written evaluations of the NDA is at Day 120 and the clock restarts on Day 121, when the
or BLA. These recommendations are consolidated and company’s complete response is received by the EMA.
are used by senior FDA staff in its final evaluation of the If there are further aspects of the dossier requiring clar-
NDA or BLA. Based on that final evaluation, the FDA then ification, the CHMP will issue further questions at Day
provides to the NDA or BLA’s sponsor an approval, or a 180, and may also request an oral explanation, in which
“complete response” letter if the NDA or BLA applica- case the sponsor must not only respond to the further
tion is not approved. If not approved, the letter will state questions but also appear before the committee to jus-
the specific deficiencies in the NDA or BLA that need to tify its responses. On Day 210, the CHMP will take a vote
be addressed. The sponsor must then submit an ade- to recommend the approval or non‑approval of the appli-
quate response to the deficiencies in order to restart the cation, and their opinion is transferred to the EC. The
review procedure. final EC decision under this centralized procedure is a
Once the FDA has approved an NDA, BLA, sNDA or single decision that is applicable to all member states.
sBLA, the company can make the new drug available for This decision occurs 60 days, on average, after a posi-
physicians and other healthcare providers to prescribe. tive CHMP recommendation.
The drug owner must submit periodic reports to the FDA, Under both the mutual recognition procedure (MRP)
including any cases of adverse reactions. For some med- and the decentralized procedure (DCP), the assessment
ications, the FDA requires additional post‑approval stud- is led by one member state, called the reference mem-
ies (Phase IV) to evaluate long‑term effects or to gather ber state (RMS) which then liaises with other member
information on the use of the product under specified states, known as the concerned member states. In the
conditions. MRP, the company first obtains a marketing authoriza-
Throughout the life cycle of a product, the FDA tion in the RMS, which is then recognized by the con-
requires compliance with standards relating to good lab- cerned member states in 90 days. In the DCP, the appli-
oratory, clinical and manufacturing practices. The FDA cation is done simultaneously in the RMS and all
also requires compliance with rules pertaining to the concerned member states. During the DCP, the RMS
manner in which we may promote our products. drafts an assessment report within 120 days. Within an
additional 90 days, the concerned member states review
European Union the application and can issue objections or requests for
In the EU, there are three main procedures for applica- additional information. On Day 90, each concerned mem-
tion for authorization to market pharmaceutical products ber state must be assured that the product is safe and
in more than one EU member state at the same time: the effective, and that it will cause no undue risks to the pub-
centralized procedure, the mutual recognition procedure lic health. Once an agreement has been reached, each
and the decentralized procedure. It is also possible to member state grants national marketing authorizations
obtain a national authorization for products intended for for the product.
commercialization in a single EU member state only. The After receiving the marketing authorizations, the
procedure used for first authorization must continue to company must submit periodic safety reports to the rel-
be followed for subsequent changes, e.g., to add an indi- evant health authority (EMA for the centralized proce-
cation for a licensed product. dure, national health authorities for DCP or MRP). In addi-
tion, pharmacovigilance measures must be implemented


34
 Item 4. Information on the Company

and monitored, including the collection, evaluation and • an additional 15 eligible Medicare Part D drugs in 2027;
expedited reporting of adverse events, and updates to • an additional 15 eligible combined Medicare Part B and
risk management plans. For some medications, post-ap- Part D drugs in 2028;
proval studies (Phase IV) may be imposed to comple- • an additional 20 eligible combined Medicare Part B and
ment available data with additional data to evaluate long- Part D drugs in 2029; and
term effects (called a Post-Approval Safety Study, or • an additional 20 eligible combined Medicare Part B and
PASS) or to gather additional efficacy data (called a Part D drugs each year after 2029
Post-Approval Efficacy Study, or PAES).
European marketing authorizations have an initial Novartis will participate in the Medicare negotiation pro-
duration of five years. The holder of the marketing autho- cess if Novartis drugs are selected. Pharmaceutical man-
rization must actively apply for its renewal after this first ufacturers that choose not to participate in the negotia-
five-year period. As part of the renewal procedure, the tion process will be subject to an excise tax of up to 95%
competent authority performs a full benefit‑risk review of sales. Novartis may also be affected by other provi-
of the product. Should the authority conclude that the sions of the Act, such as price increase penalties for
benefit‑risk balance is no longer positive, the marketing Medicare Part D drugs starting in 2022 and for Medicare
authorization can be suspended or revoked. Once Part B drugs in 2023, and rebates on eligible Medicare
renewed, the marketing authorization is valid for an unlim- Part D sales starting in 2025.
ited period, unless it is determined that the product must In addition, by December 31, 2022, 20 US states had
be further monitored for safety reasons. In this case, the passed legislation intended to impact pricing or requir-
authority may require another renewal at 10 years. If the ing manufacturer price transparency reporting, with
holder does not apply for renewal, the marketing autho- eight of these states also allowing for drug affordability
rization automatically lapses. Any marketing authoriza- (i.e., price control) review boards. The disclosure require-
tion that is not followed within three years of its granting ments vary by state. Many states require multiple types
by the actual placing on the market of the correspond- of reporting, including for new drug applications, new
ing medicinal product ceases to be valid. 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
Price controls that similar bills will be passed in more states.

In most of the markets where we operate, the prices of Europe: In Europe, our operations are subject to signif-
pharmaceutical products are subject to both direct and icant price and marketing regulations. Many govern-
indirect price controls and to drug reimbursement pro- ments are introducing healthcare reforms in a further
grams with varying price control mechanisms. Due to attempt to curb increasing healthcare costs. In some
increasing political pressure and governmental budget member states, these include reforms to permit the reim-
constraints, we expect these mechanisms to remain bursed use of off-label medicines, despite the presence
robust – and potentially even strengthened – and to have of licensed alternatives on the market. In the EU, govern-
a continued negative influence on the prices we are able ments influence the price of pharmaceutical products
to charge for our products. through their control of national healthcare systems that
fund a large part of the cost of such products to patients.
Direct governmental efforts to control prices The downward pressure on healthcare costs in general
United States: The Inflation Reduction Act of 2022 (the in the EU, particularly with regard to prescription drugs,
“Act”) was signed into law, which mandates the negoti- is intense. Increasingly strict analyses are applied when
ation of eligible Medicare Part B and Part D drugs; rede- evaluating the entry of new products, and as a result,
signs the Medicare Part D benefit, including a USD 2 000 access to innovative medicines is limited based on strict
out-of-pocket cap for Medicare beneficiaries; and cost‑benefit assessments. In addition, prices for mar-
imposes penalties for Medicare drugs that increase in keted products are referenced within member states and
price faster than the rate of inflation. Under the Act, the across international borders, further impacting individ-
US government is required to negotiate the Medicare ual EU member state pricing. Member states also col-
prices of single-sourced small molecule drugs that have laborate to enhance pricing transparency and have
been on the market for seven years following FDA started conducting joint health technology assessments,
approval as well as single-sourced biologics that have joint pricing negotiations and/or joint purchasing. As an
been on the market for 11 years after FDA approval. additional control for healthcare budgets, some EU coun-
Medicare drugs with the highest total cost to the US tries have passed legislation to impose further manda-
government will be selected for negotiation once they tory rebates for pharmaceutical products and/or finan-
become eligible. Exemptions include orphan drugs with cial claw‑backs on the pharmaceutical industry. The
an indication for one rare disease or condition, drugs calculation of these rebates and claw‑backs may lack
with a total cost to the US government of less than transparency in some cases and can be difficult to pre-
USD 200 million, and plasma-derived drugs. dict.
The negotiated price will be publicly available and will
become effective for selected drugs nine years after FDA Regulations favoring generics and biosimilars
approval for eligible small molecules and 13 years after In response to rising healthcare costs, most govern-
approval for eligible biologics. The negotiated price will ments and private medical care providers have estab-
be implemented as follows: lished reimbursement schemes that favor the substitu-
• 10 eligible Medicare Part D drugs in 2026; tion of generic pharmaceuticals for more expensive


35
 Item 4. Information on the Company

brand‑name pharmaceuticals. All US states have generic biomarkers – which can improve patient outcomes when
substitution statutes. These statutes permit or require administered with certain drugs – as well as assays,
the dispensing pharmacist to substitute a less expensive research tools and other techniques used to identify new
generic drug instead of an original drug. Other countries, drugs. The protection afforded, which may vary from
including many European countries, have similar laws. country to country, depends upon the type of patent, its
We expect that the pressure for generic substitution will duration and its scope of coverage.
continue to increase. In addition, the US, the EU and other In the US and other countries, the law recognizes that
jurisdictions are increasingly introducing laws and regu- product development and review by the FDA and other
lations encouraging the development of biosimilar ver- health authorities can take an extended period, and pro-
sions of biologic drugs, which can also be expected to vides an extension of patent term for a period related to
have an impact on pricing. the time taken for the conduct of clinical trials and for
the health authority’s review. However, the length of this
Cross‑border sales extension and the patents to which it applies cannot be
Price controls in one country can have an impact in other known in advance and can only be determined after the
countries as a result of cross‑border sales. In the EU, product is approved. In practice, it is not uncommon for
products that we have sold to customers in countries patent term extensions (PTEs) or supplementary protec-
with stringent price controls can be legally resold to cus- tion certificates (SPCs) to not fully account for the time
tomers in other EU countries at a lower price than the it took to develop the product and receive marketing
price at which the product is otherwise available in the authorization. As a result, it is rarely the case, for exam-
importing country (known as parallel trade). In North ple, that a `product’s active ingredient(s) will have a full
America, products that we have sold to customers in patent term at the time the product is approved by the
Canada – which has relatively stringent price controls – FDA and other health authorities.
are sometimes resold into the US, again at a lower price In addition to patent protection, various countries pro-
than the price at which the product is otherwise sold in vide regulatory-based protection, including regulatory
the US. Such imports from Canada and other countries data protection (RDP) and/or other market exclusivities,
into the US are currently illegal in most states. However, for a prescribed period of time. RDP is a distinct type of
six US states (Colorado, Florida, Minnesota, New Hamp- IP right providing exclusivity that precludes a potential
shire, New Mexico, and Vermont) have enacted laws competitor from filing a regulatory application that relies
allowing the import of pharmaceutical drugs from select on the sponsor’s clinical trial data, or that precludes the
foreign countries. The Secretary of the US Department regulatory authority from approving the application for
of Health and Human Services (HHS) must certify that a set period of time. The RDP period can vary depend-
each state’s importation plan is safe and cost-effective ing on the type of data included in the sponsor’s appli-
before it can be implemented. cation. When it is available, market exclusivity, unlike RDP,
We expect that pressures on pricing will continue may preclude a competitor from obtaining marketing
worldwide and will likely increase. Because of these approval for a product even if a competitor’s application
pressures, there can be no certainty that in every instance relies on its own data. RDP and market exclusivity peri-
we will be able to charge prices for a product that, in a ods generally run from the date a product is approved,
particular country or in the aggregate, would enable us and so their expiration dates cannot be known with cer-
to earn an adequate return on our investment in that tainty until the product approval date is known and exclu-
product. sivity has been granted by the relevant authorities.

United States
Intellectual property Patents
In the US, a patent issued from an application filed today
We attach great importance to intellectual property (IP) will receive a term of 20 years from the earliest applica-
rights – including patents, trademarks, copyrights, tion filing date, subject to potential patent term adjust-
know‑how, trade secrets and regulatory data protection ments for delays in patent issuance based upon certain
– as essential to our purpose of reimagining medicine to delays in prosecution by the United States Patent and
improve and extend people’s lives, and to protect our Trademark Office (USPTO). A US pharmaceutical patent
investment in research and development, manufacturing that claims a product, method of treatment using a prod-
and marketing. The IP system provides a means to attract uct, or method of manufacturing a product may also be
the investments needed to conduct and sustainably eligible for a PTE. This type of extension may only extend
finance innovative R&D, and to manage the risks inher- the patent term for a maximum of five years, and may not
ent in our work. For example, we seek IP protection under extend the patent term beyond 14 years from regulatory
applicable laws for significant product developments in approval. Only one patent may be extended for a prod-
major markets. Among other things, patents may cover uct based on FDA review.
the products themselves, including the product’s active
ingredient or ingredients and its formulation. Patents may RDP and market exclusivity
cover processes for manufacturing a product, including Separate from patent exclusivities, the FDA may provide
processes for manufacturing intermediate substances regulatory-based protection, which runs in parallel to any
used in the manufacture of the product. Patents may also patent protection.
cover particular uses of a product, such as its use to treat • A new small‑molecule active pharmaceutical ingredi-
a particular disease, or its dosage regimen. In addition, ent receives five years of RDP, during which time a com-
patents may cover tests for certain diseases or petitor generally may not obtain final approval of an


36
 Item 4. Information on the Company

application to the FDA based on a sponsor’s clinical data exclusivity period, the sponsor registered a new
data. therapeutic indication with “significant clinical benefit.”
• A new biologic active pharmaceutical ingredient This system generally applies both to national and cen-
receives 12 years of regulatory-based market exclusiv- tralized authorizations in the EU plus other non-EU coun-
ity, during which time a competitor generally may not tries such as the UK.
market the same or similar drug. The EU also has an orphan drug exclusivity system
• The FDA may also request that a sponsor conduct for medicines. If a medicine is designated as an orphan
pediatric studies and, in exchange, it will grant an addi- drug, then it benefits from 10 years of market exclusivity
tional six‑month period of pediatric market exclusivity after it is authorized, during which time an application for
if the sponsor makes a timely submission of the reports the same or similar medicine for the same indication will
of the pediatric studies in response to the FDA’s Writ- not generally be accepted or granted. Under certain cir-
ten Request. The sponsor must also have a pat- cumstances, this exclusivity can be extended with a
ent‑based and/or regulatory‑based exclusivity period two‑year pediatric extension.
for the product to which the pediatric market exclusiv-
ity is appended. Third-party patents and challenges to intellectual
• Orphan drug exclusivity provides seven years of mar- property
ket exclusivity for drugs designated by the FDA as Third parties can challenge our IP, including patents, pat-
orphan drugs, meaning drugs that treat rare diseases. ent term extensions, RDP and marketing exclusivities
During this period, a potential competitor generally may (such as pediatric extensions and orphan drug exclusiv-
not market the same or similar drug for the same indi- ity), through various proceedings. For example, patents
cation even if the competitor’s application does not rely in the US can be challenged in the United States Patent
on data from the sponsor. and Trademark Office (USPTO) through various pro-
ceedings, including Inter Partes Review (IPR) and Post-
European Union Grant Review (PGR) proceedings. They may also be chal-
Patents lenged through patent infringement litigation under the
Patent applications in Europe may be filed in the Euro- Abbreviated New Drug Application (ANDA) provisions of
pean Patent Office (EPO) or in a particular country or the Hatch‑Waxman Act or under the Biologics Price
countries. The EPO system permits a single application Competition and Innovation Act (BPCIA). In the EU, pat-
to be granted for the EU plus other non‑EU countries ents may be challenged through oppositions in the EPO,
such as Switzerland, Turkey and the UK. When the EPO or national patents may be challenged in national courts
grants a patent, it is then validated in the countries that or national patent offices. The outcomes of such chal-
the patent owner designates. The term of a patent lenges can be difficult to predict.
granted by the EPO or a European country office is In addition to directly challenging our IP rights, in
20 years from the earliest application filing date. Phar- some circumstances a competitor may be able to mar-
maceutical patents can be granted a further period of ket a generic version of one of our products by, for exam-
exclusivity under the SPC system. SPCs are designed, ple, designing around our patents or marketing the
in part, to account for the time taken to receive market- generic product for non‑patent-protected indications, or
ing authorization of a product by the European health filing a separate New Drug Application (NDA) under the
authorities. An SPC may be granted to provide, in com- Hatch-Waxman Act (typically referred to as a 505(b)(2)
bination with the patent, up to 15 years of exclusivity from application). Despite RDP, a competitor could opt to incur
the date of the first European marketing authorization. the costs of conducting its own clinical trials and prepar-
However, an SPC cannot last longer than five years. The ing its own regulatory application, and avoid our RDP
SPC duration may be extended by a further six months altogether. There is a risk that some countries may seek
if the product is the subject of an agreed and success- to impose limitations on or seek not to recognize the
fully completed pediatric investigation plan. The availability of IP rights for pharmaceutical products, or
post‑grant phase of patents, including the SPC system, limit the extent to which such rights may be enforced.
is currently administered on a country‑by‑country basis Also, even though we may own, co‑own or in‑license pat-
under national laws that, while differing, are intended to ents protecting our products, and conduct free-
(but do not always) have the same effect. dom‑to‑operate analyses, a third party may nevertheless
assert that one of our products infringes a third-party
RDP and market exclusivity patent for which we do not have a license, seeking rem-
Separate from patent exclusivities, the EU provides a edies such as monetary damages or an injunction against
system of regulatory data protection for authorized our continued marketing of the product.
human medicines that runs in parallel to any patent pro- As a result, there can be no assurance that our IP
tection. The system for new drugs being approved today rights will protect our products or that we will be able to
is usually referred to as “8+2+1” because it provides an avoid adverse effects from the loss of IP protection or
initial period of eight years of data protection, during from third-party patents in the future.
which a competitor cannot rely on the relevant data; a
further period of two years of market exclusivity, during Intellectual property protection for certain key
which the data can be used to support applications for marketed products and compounds in development
marketing authorization but a competitive product can- We present additional details below regarding certain IP
not be launched; and a possible one‑year extension of protection for the listed Innovative Medicines Division
the market exclusivity period if, during the initial eight‑year products. For each, we identify issued, unexpired


37
 Item 4. Information on the Company

patents by their general subject matter and, in parenthe- Cardiovascular

ses, years of expiry, if relevant, in the US and the EU. The • Entresto. US: Four patents on combination (2023 (4)),
identified patents are owned, co‑owned or exclusively PTE (2025), four PEs (2023, 2023, 2024, 2025); two
in‑licensed by Novartis and relate to at least one dosage patents on complex (2026, 2027), two PEs (2027,
strength of the product or to the method of treatment or 2027); three patents on methods of treatment (2033
its use as it is currently approved and marketed or, in the (3)); patent on dosage regimen (2036); RDP for new
case of a compound in development, as it is currently pediatric patient population (2022), PE (2023); RDP for
submitted to the FDA and/or the EMA for approval. Iden- labeling changes related to new clinical investigation
tification of an EU patent refers to national patents in EU (2024). EU: Patent on combination (2023), SPC (2028);
countries and/or to the national patents that have been two patents on complex (2026, 2026), two SPCs
derived from a patent granted by the EPO. Novartis may (2030, 2030); patent on formulation (2028); patent on
own, co-own, control or have rights to additional patents, method of use (2034); RDP (2025). There is no generic
for example, relating to compound forms, methods of competition in the US or the EU. In the US, two combi-
treatment or use, formulations, devices, processes, prod- nation patents, the two complex patents, and the dos-
uct-by-process, synthesis, purification and detection. age regimen patent are being challenged in ANDA pro-
We identify unexpired RDP periods and, in parenthe- ceedings against generic manufacturers. In the EU, one
ses, years of expiry if the relevant marketing authoriza- complex patent and the use patent are being opposed
tions have been authorized or granted. We identify cer- in the EPO. In some EU countries, the combination pat-
tain unexpired patent term extensions and marketing ent or its associated SPC is being challenged by
exclusivities and, in parentheses, years of expiry if they generic manufacturers.
are granted; their subject matter scope may be limited
and is not specified. Marketing exclusivities and patent • Leqvio. US: Two patents on composition of matter
term extensions include orphan drug exclusivity (ODE), (2027, 2034), PTE pending (2035); two patents on
pediatric exclusivity (PE), patent term extension (PTE) method of treatment and dosing regimen (2027, 2036);
and supplementary protection certificate (SPC). We des- RDP (2026). EU: One patent on composition of matter
ignate these as “pending” if they have been applied for (2033), SPC (2035); RDP (2030). There is no generic
but not granted and include years of expiry if estimable. competition in the US or the EU.
Such pending applications ultimately may or may not be
granted. Immunology
In the case of the EU, identification of a patent, sup- • Cosentyx. US: Five patents on composition of matter
plementary protection certificate, marketing exclusivity (2025 (4), 2026), PTE (2029); patent on psoriatic arthri-
or regulatory data protection means grant, authorization tis use (2031); patent on psoriasis use (2032); two pat-
and maintenance in at least one EU country or the UK. ents on ankylosing spondylitis use (2032, 2033); RDP
However, it could be pending, not granted, expired or (2027). EU: Four patents on composition of matter
found invalid in others. (2025 (4)), SPC (2030), PE (2030); patent on psoriasis
For each product below, we indicate whether there use (2031); patent on ankylosing spondylitis use (2031);
is current generic or biosimilar competition for one or RDP (2026). There is no generic competition in the US
more product versions in one or more approved indica- or the EU. In the EU, the patent on ankylosing spondy-
tions in either the US or one or more EU countries, if IP litis use is being opposed in the EPO.
is otherwise disclosed. We identify certain enforcement
actions, or ongoing challenges to the disclosed IP, includ- • Xolair. US: Two patents on syringe formulation (2024,
ing IPRs or PGRs if instituted by the USPTO, that have 2025). EU: Three patents on syringe formulation (2024,
not been finally resolved (including appeals) unless 2024, 2025). There is no generic competition in the US
noted. Challenges identified as being in administrative or the EU.
entities, such as national patent offices, include judicial
appeals from decisions of those entities. Resolution of • Ilaris. US: Patent on composition of matter (2024); pat-
challenges to the disclosed IP, which in the EU may ent on cryopyrin‑associated periodic syndromes use
involve IP in one or more EU countries, may include set- (2026); patent on familial Mediterranean fever (FMF)
tlement agreements under which Novartis permits or use (2026); patent on systemic onset juvenile idiopathic
does not permit future launch of generic versions of our arthritis (SJIA) use (2028); patent on hyperimmuno-
products before expiration of that IP. We identify certain globulin D syndrome and tumor necrosis factor recep-
material terms of such settlement agreements where tor-associated periodic syndrome use (2029); patent
they could have a material adverse effect on our busi- on formulation (2029). EU: Patent on composition of
ness. In other cases, such settlement agreements may matter (2021), SPC (2024), PE (2025); patent on SJIA
contain confidentiality obligations restricting what may use (2026); patent on FMF use (2026); two patents on
be disclosed. formulation (2029, 2029). There is no generic compe-
In the event that a product listed below does not have tition in the US or the EU.
identified patents as described above, we provide infor-
mation only on generic competition. Neuroscience
• Gilenya. US: Patent on dosage regimen (2027), PE
For additional information regarding commercial arrange- (2027); patent on 0.25 mg formulation (2032), PE
ments with respect to these products, see “—Key mar- (2032); patent on method of treatment (2027). EU: Pat-
keted products.” ent on formulation (2024), SPC (2026); patent on


38
 Item 4. Information on the Company

0.25 mg formulation (2032); patent on dosing regimen • Kisqali. US: Three patents on compound (2028, 2030,
(2027). There is generic competition in the US and in 2031), PTE (2031); three patents on methods of treat-
most EU countries. In the US, the dosage regimen pat- ment (2029, 2029, 2031); patent on salt form (2031);
ent was challenged in ANDA proceedings against a patent for tablet formulation (2036). EU: Patent on com-
generic manufacturer and was found invalid by the US pound (2027); patent on compound (2029), SPC
Court of Appeals for the Federal Circuit in June 2022. (2032); patent on salt form (2031); patent on methods
Novartis has filed a petition seeking further review with of use with letrozole (2034); patent on formulation
the US Supreme Court. Novartis is also enforcing the (2036); RDP (2027). There is no generic competition
method of treatment patent against a generic manu- in the US or the EU. In the US, the three compound pat-
facturer. In the EU, Novartis is enforcing the dosing reg- ents, the three method of treatment patents, the salt
imen patent against generic manufacturers. The dos- patent and the formulation patent are being challenged
ing regimen patent is being opposed in the EPO. in ANDA proceedings against generic manufacturers.
In the EU, the method of use patent is being opposed
• Zolgensma. US: Four patents on composition of mat- in the EPO.
ter (2024, 2024, 2026, 2033), PTE pending (2029);
three patents on methods of treatment (2028, 2028, • Piqray. US: Patent on compound (2029); patent on com-
2029); ODE for spinal muscular atrophy (SMA) in pound and use (2029), PTE pending (2033); RDP
patients less than 2 years old with biallelic mutations (2024). EU: Patent on compound and use (2029), SPC
in the SMN1 gene (2026); RDP (2031). EU: Three pat- (2034); RDP (2030). There is no generic competition
ents on composition of matter (2024, 2024, 2028), SPC in the US or the EU.
(2029); two patents on methods of use (2028, 2028),
SPC (2033), SPC pending (2033); ODE for SMA in • Pluvicto. US: Three patents on composition of matter
patients with a biallelic mutation in the SMN1 gene and (2028, 2028, 2034); RDP (2027). PTE pending. EU:
a clinical diagnosis of SMA type 1, or patients with a RDP (2032). There is no generic competition in the US
biallelic mutation in the SMN1 gene and up to three cop- or the EU.
ies of the SMN2 gene (2030); RDP (2030). There is no
generic competition in the US or the EU. Hematology
• Promacta/Revolade. US: Patent on compound (2021),
• Kesimpta. US: Patent on compound (2031); patent on PTE (2022), PE (2023); patent on method of enhanc-
dosing regimen (2037). EU: Patent on compound ing platelet production using salt (2023), PE (2023);
(2023); patent on use (2023), SPC (2028); patent on patent on salt form and thrombocytopenia use (2025),
formulation (2028), patent on formulation and use PE (2026); five patents on tablet formulations of differ-
(2028), SPC (2033); patent on dosing regimen (2037). ent dose strengths (2027 (5)), five PEs (2028 (5)); ODE
There is no generic competition in the US or the EU. on severe aplastic anemia patients in combination with
standard immunosuppressive therapy (2025). EU: Pat-
Solid Tumor ent on compound (2021), SPC (2025), PE (2025); pat-
• Tafinlar and Mekinist. ent on salt form (2023); patent on severe aplastic ane-
mia use (2028). There is no generic competition in the
Tafinlar. US: Two patents on compound (2030, 2030); US or the EU. In the US, generic manufacturers have
patent on method of treatment (2029). EU: Patent on filed ANDAs challenging certain patents other than the
compound (2029); RDP (2024). There is no generic compound patent. In the EU, the severe aplastic ane-
competition in the US or the EU. mia use patent is being opposed in the EPO.

Mekinist. US: Patent on compound (2025), PTE (2027); • Tasigna. US: Patent on compound (2023), PE (2024);
patent on method of treatment (2025); four patents on two patents on salt forms (2026, 2028), two PEs (2027,
formulation (2032 (4)). EU: Patent on compound (2025), 2029); patent on polymorph compound form (2026),
SPC (2029); patent on formulation (2031); RDP (2025). PE (2027); two patents on capsule form (2026, 2027),
There is no generic competition in the US or the EU. In two PEs (2027, 2028); patent on method of treatment
the EU, the formulation patent is being opposed in the (2032), PE (2032). EU: Patent on compound (2023);
EPO. patent on salt form (2026); patent on polymorph com-
pound form (2026); patent on capsule form (2027); pat-
Use of Mekinist with Tafinlar or Tafinlar with Mekinist. ent on method of treatment (2030). There is no generic
US: Patent on combination (2030); four patents on competition in the US or the EU. In the US, generic man-
method of use of combination (2025, 2030, 2030, ufacturers have filed ANDAs challenging certain pat-
2033); ODE on non‑small cell lung cancer (2024); ODE ents other than the compound patent.
on adjuvant treatment of melanoma (2025); ODE on
anaplastic thyroid cancer (2025); ODE on metastatic • Jakavi. EU: Patent on compound (2026), SPC (2027);
solid tumors (2025). EU: Patent on combination (2030); two patents on salt form (2028, 2028); patent on com-
patent on adjuvant for melanoma use (2033). There is pound for polycythemia vera (PV) use (2026); patent
no generic competition in the US or the EU. In the EU, on salt form for graft-versus-host disease (GvHD) use
the adjuvant use patent is being opposed in the EPO. (2028). There is no generic competition in the EU.


39
 Item 4. Information on the Company

• Scemblix. US: Patent on compound (2033), PTE pend- Established Brands

ing (2035); Patent on polymorph compound form • Sandostatin SC and Sandostatin LAR:
(2040); RDP (2026); ODE (2028). EU: Patent on com-
pound (2033), SPC pending (2037); RDP (2032); Sandostatin SC: There is generic competition in the US
ODE (2032). There is no generic competition in the US and the EU.
or the EU.
Sandostatin LAR: There is generic competition in most
Other Promoted Brands EU countries but no generic competition in the US.
• Lucentis. EU: There is generic competition in some EU
markets. Compounds in development
We provide certain patent information for non‑marketed
• Xiidra. US: Four patents on compound (2024, 2024, compounds in development that have been submitted to
2025, 2026); two patents on formulation (2024, 2033); the FDA and/or the EMA for registration but have not yet
five patents on method of treatment (2024, 2024, 2026, been approved by either agency. For these products,
2029, 2029); one patent on polymorph compound form Novartis will seek all appropriate RDP, will continue to
(2029). PTE pending. There is no generic competition seek additional intellectual property protection for sig-
in the US. Xiidra is not marketed in the EU. In the US, nificant product developments, and will apply for PTEs
the compound, compound and use, formulation, and SPCs in keeping with the great importance we attach
method of treatment, and polymorph compound form to intellectual property.
patents are being challenged in ANDA proceedings • VDT482 (tislelizumab). US: Patent on composition of
against generic manufacturers. matter (2033). EU: Patent on composition of matter
(2033).

Sandoz

Our Sandoz Division is a global leader in generic publicly announced commercialization agreements with
pharmaceuticals and biosimilars, and sells products in BioCon, Gan & Lee, EirGenix, Polpharma Biologics and
well over 100 countries. In 2022, the Sandoz Division Bio-Thera Solutions Ltd. Availability of our biosimilars
achieved consolidated net sales of USD 9.2 billion, rep- varies by country.
resenting 18.3% of the Group’s total net sales. Sandoz Sandoz is also the global market leader in generic
develops, manufactures and markets finished dosage antibiotics. Its Kundl, Austria, manufacturing site is the
form medicines as well as intermediary products includ- hub of the last fully vertically integrated penicillin pro-
ing active pharmaceutical ingredients. duction chain in Europe, which offers certain competi-
Sandoz is organized globally into three franchises: tive advantages including added supply chain resilience.
Retail Generics, Anti‑Infectives and Biopharmaceuticals. In January 2020, we closed the previously announced
In Retail Generics, Sandoz develops, manufactures and acquisition of the Japanese business of Aspen Global
markets finished dosage forms of small-molecule Incorporated, consisting of off-patent branded medicines
pharmaceuticals for sale to third parties across a broad with a focus on anesthetics and specialty brands.
range of therapeutic areas, including finished dosage In July 2020, Sandoz and the Austrian government
form anti-infectives sold to third parties. In Anti‑Infec- announced a planned combined investment of more than
tives, Sandoz manufactures and supplies active pharma- EUR 150 million to enhance the long-term competitive-
ceutical ingredients and intermediates – mainly antibiot- ness and supply resilience of European production for
ics – for internal use by Retail Generics and for sale to key antibiotics.
third‑party customers. In Biopharmaceuticals, Sandoz In May 2021, Sandoz confirmed details of a previously
develops, manufactures and markets protein‑ and other announced investment of EUR 100 million in antibiotic
biotechnology‑based products, including biosimilars. manufacturing technology for its Kundl, Austria, manu-
The Sandoz strategic ambition is to be the world’s facturing site, and announced an additional EUR 50 mil-
leading and most valued generics and biosimilars com- lion investment in a new sterile production line in Pala-
pany . Our divisional strategy focuses on three areas: folls, Spain. In November 2022, Sandoz announced an
developing a broad and consistent pipeline of generic additional EUR 50 million investment to support increased
and biosimilar launches across key geographies and manufacturing capacity for finished dosage form peni-
across a broad range of therapeutic areas; positioning cillin at its Kundl, Austria, manufacturing site.
Sandoz to be “first in” by having a strong pipeline with a In October 2021, Sandoz announced that its planned
focus on being first to market and “last out” by way of acquisition of GSK’s global cephalosporin antibiotics
competitive costs and stable supply; and instilling a true business, first announced in February 2021, had been
“generic mindset,” with a focus on priorities, simple and successfully closed.
rapid decision-making, and focused resource allocation. On October 1, 2021, Sandoz Inc., the US subsidiary
Sandoz is a global market leader in biosimilars, with of Sandoz, entered into a settlement agreement with the
a total of eight approved and marketed products, and a Civil Division of the US Department of Justice (DOJ) con-
pipeline of over 15 molecules. In addition to internally cerning the department’s years-long pricing investiga-
developed projects, our biosimilar portfolio comprises tion into the US generic drug industry. This settlement


40
 Item 4. Information on the Company

was an expected outcome of the resolution the company Strategic Review announced in October 2021. The Stra-
reached in March 2020 with the DOJ Antitrust Division tegic Review determined that a 100% spin-off would be
regarding the same investigation and underlying con- in the best interests of shareholders as it would create
duct. As part of the settlement, Sandoz agreed to cer- two standalone companies focused on their respective
tain corporate integrity obligations as part of a corporate growth strategies. The new company is planned to be
integrity agreement with the Office of Inspector General incorporated in Switzerland and to be listed on the SIX
of the US Department of Health and Human Services, Swiss Exchange, with an American Depositary Receipt
which have now been implemented. The settlement con- (ADR) program in the US. Completion of the transaction
tains no new factual allegations against Sandoz and, in is subject to certain conditions, including consultation
2020, the Group fully provisioned for this settlement and with works councils and employee representatives (as
disclosed the agreement in principle as part of the March required), general market conditions, tax rulings and
2020 resolution. For more information, see “Item 18. opinions, final Board of Directors endorsement and
Financial Statements—Note 20. Provisions and other shareholder approval in line with Swiss corporate law.
non-current liabilities.” The transaction is expected to be generally tax neutral
In August 2022, Novartis announced its intention to to Novartis, with completion expected in the second half
separate the Sandoz business to create a standalone of 2023.
company by way of a 100% spin-off, concluding the

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.


41
 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 ®
1
Fusion protein (TNF-alpha receptor) to treat multiple
immune-mediated inflammatory diseases
Rixathon MabThera ® Chimeric monoclonal antibody (directed against
CD20 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

1
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

GP2411 denosumab Anti-RANKL Osteoporosis (same as originator) Endocrinology, Subcutaneous Phase III
monoclonal antibody Neurology

SOK583 aflibercept Recombinant fusion protein Ophthalmology indication (same as originator) Ophthalmology Intravitreal Phase III
that blocks VEGF-A

EGI014A11 trastuzumab Anti-HER2 recombinant HER2+ cancer tumors Oncology Intravenous Registration
IgG1, humanized
monoclonal antibody

DST356A12 natalizumab Anti-alpha4 integrin Multiple sclerosis and Crohn’s disease Neurology, Intravenous Registration
monoclonal antibody Immunology (US only)

HFT896, insulin glargine, Long-acting (HFT896)/ Diabetes Endocrinology, Subcutaneous Phase III/
SMQ969, lispro, aspart rapid-acting insulin Diabetology Phase I
PYB106
3

VVF3794 bevacizumab Recombinant humanized Solid tumors Oncology Intravenous Registration

monoclonal antibody that
blocks VEGF

1
Development in collaboration with EirGenix, Inc.
2
Development in collaboration with Polpharma Biologics
3
Development in collaboration with Gan & Lee
4
Development in collaboration with Bio-Thera Solutions


42
 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
2022 net sales
to third parties

USD millions %

Europe 4 913 53
United States 1 754 19
Asia, Africa, Australasia 1 613 17
Canada and Latin America 969 11
Total 9 249 100
Of which in Established Markets 1 6 460 70
Of which in Emerging Growth Markets 1 2 789 30

1
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 products, we have provided initial testing and potential

control strategy updates to the EMA and other health
For information on the production of our products, see authorities. Due to constant and rapidly evolving health
“—Item 4.B Business overview—Innovative Medicines— authority requirements, the risk assessment and related
Production.” testing that we may be required to perform may increase.
In September 2020, as part of a broader reorganiza- We will submit and communicate the final outcome of
tion of Novartis Technical Operations (NTO), we estab- any risk assessment and related testing to the relevant
lished the Sandoz Technical Operations (STO) platform health authorities within their expected time frame, and
within NTO. STO focuses on producing generic medicines make changes to the control strategy update, if neces-
for Sandoz, as well as related external supply operations sary.
and supply chain. In October 2021, Sandoz created a Beginning in September 2021, we initiated a volun-
new position, Global Head, Sandoz Operations. This new, tary recall of all finished product batches of losartan and
broader role, includes full operational and financial losartan HCT products exceeding or potentially exceed-
accountability for manufacturing and supply as of Jan- ing acceptable regulatory limits of the losartan azide
uary 1, 2023, and was established in anticipation of the impurity in the losartan drug substance. This impurity,
intended Sandoz 100% spin-off. which is viewed as an industrywide issue, was initially
Due to impurities found in the active ingredient considered a mutagen that may increase the risk of can-
batches sourced from third-party manufacturers, we cer over time if allowed to rise above certain levels. This
recalled Sandoz valsartan, losartan and irbesartan prod- recall was unrelated to the nitrosamine-related recalls
ucts in the second half of 2018 and the first quarter of described above, and supply was re-established in
2019, and ranitidine film-coated tablets in the second March 2022. Since the voluntary recall, further informa-
half of 2019, from several markets, in line with our qual- tion has been provided to the EMA by Novartis and other
ity standards for all of our marketed products. The dis- companies in the industry, and the EMA has concluded
covery of nitrosamines in some types of drug products that the losartan azide impurity is to be classified as a
led several health regulators (e.g., EMA, FDA and others) non-mutagenic impurity.
to conduct a detailed analysis of these impurities in
affected medicinal products. Novartis works with health
authorities around the world to continuously review all Marketing and sales
chemical and biological human medicines for the possi-
ble presence of nitrosamines. The EMA, FDA and other Sandoz sells a broad portfolio of products, including the
health authorities have provided guidance to the phar- products of our Retail Generics franchise and biosimi-
maceutical industry to prevent unacceptable levels of lars, to wholesalers, pharmacies, hospitals and other
nitrosamines in medicines. The EMA review concluded healthcare outlets. Sandoz adapts its marketing and
in March 2021 for chemical human medicines and in July sales approach to local decision-making processes,
2021 for biological human medicines. Based on guidance depending on the structure of the market in each coun-
from health authorities, any chemical and/or biological try.
human medicines products identified with a potential risk In response to rising healthcare costs, many govern-
for nitrosamines will undergo further testing. For these ments and private medical care providers, such as health


43
 Item 4. Information on the Company

maintenance organizations, have instituted reimburse- reference product. Nevertheless, research and develop-
ment schemes that favor the substitution of bioequiva- ment costs associated with generic pharmaceuticals are
lent generic versions of originator pharmaceutical prod- generally much lower than those of the originator
ucts, such as those sold by our Retail Generics franchise. pharmaceuticals, as no original drug discovery, preclin-
In the US, statutes have been enacted by all states that ical studies or clinical trials on dose finding, safety and
permit or require pharmacists to substitute a less expen- efficacy are typically performed by the generics com-
sive generic product for the brand‑name version of a pany. As a result, the different focus and lower costs of
drug that has been prescribed to a patient. Generic use the generic pharmaceutical model ultimately allow
is growing in Europe, but penetration rates in many EU generic pharmaceutical products to be offered at lower
countries (as a percentage of volume) remain well below prices, which support and contribute to the cost contain-
those in the US. ment goals of healthcare systems.
Recent trends have been toward continued consoli- While generic pharmaceuticals are follow‑on ver-
dation among distributors and retailers of Sandoz prod- sions of chemically synthesized molecules, biosimilar
ucts, both in the US and internationally, which has products contain a version of the active substance of an
increased our customers’ purchasing leverage. already approved biological reference medicine. Due to
Legislative or regulatory changes can have a signifi- the inherent variability and complexity of biologic prod-
cant impact on our business in a country. For more infor- ucts, including batch‑to‑batch differences and variations
mation on such changes, see “—Item 4.B Business over- following manufacturing changes, the development and
view—Innovative Medicines—Price controls.” the regulatory pathway of biosimilars differ significantly
Our Anti‑Infectives franchise supplies active phar- from that of generics.
maceutical ingredients and intermediates – mainly anti- The development of a biosimilar product is much
biotics – for internal use by Retail Generics and for sale more technically challenging than the development of a
to the pharmaceutical industry worldwide. typical generic small-molecule pharmaceutical. While
Our Biopharmaceuticals franchise operates in an generic pharmaceuticals normally do not require clinical
already mature market framework in Europe and some studies in patients, regulators worldwide do still require
other markets, while the business environment is rapidly such targeted studies for biosimilar products. Interna-
evolving in the US and many international markets. Reg- tional regulators are nonetheless increasingly discuss-
ulatory pathways for approving biosimilar products are ing the potential for “tailored development” (which refers
at various stages of maturity by market, but in some to proposals that seek to implement a more efficient and
cases are still relatively new or still in development. Pol- expedited biosimilar development process that elimi-
icies have not yet been fully defined or implemented nates the current need for comparative clinical efficacy
regarding the substitution and reimbursement of biosim- and safety studies of biosimilars, without any resulting
ilars in many markets, including the US. compromise on quality, safety or efficacy) for certain
molecules. Biosimilars are engineered to match the ref-
erence medicine in quality, safety and efficacy. This is
Competition achieved by systematically defining the target range of
the reference medicine and then comparing the biosim-
The market for generic products is characterized by ilar to the reference medicine at various development
increasing demand for high‑quality pharmaceuticals that stages to confirm biosimilarity and to establish that there
can be marketed at lower costs due to comparatively are no clinically meaningful differences between the pro-
minimal initial research and development investments. posed biosimilar and the reference biologic. Because
Increasing pressure on healthcare expenditure and the purpose of a biosimilar clinical development program
numerous patent and data exclusivity period expirations is to confirm biosimilarity and not to establish efficacy
have encouraged more generic product launches, result- and safety de novo, the clinical studies required are less
ing in increased competition among the companies sell- than those required for a reference biologic. Therefore,
ing generic pharmaceutical products, leading to ongoing the cost of development for a biosimilar is usually less
price pressure. In particular, Sandoz faces increased than that of a reference biologic.
industrywide pressure on prices for generic products, The development and registration staff employed by
particularly in the US, driven by factors including cus- affiliates of the Sandoz Division are based worldwide,
tomer consolidation and growing competition from other including at facilities in Holzkirchen, Germany; Hyder-
manufacturers of generic medicines. These factors con- abad, India; Kundl, Austria; Ljubljana, Slovenia; and
tributed to a decline in industrywide US sales that began Rudolstadt, Germany. In November 2020, Sandoz com-
in 2017 and continued through 2022. pleted (i) the previously announced closure of the Holz-
kirchen, Germany, development and registration site,
with the exception of patch development and the proj-
Development and registration ect management group, and (ii) the closure of the prod-
uct development and registration site as well as the main-
Development of Sandoz Biopharmaceuticals is jointly tenance and development regulatory centers in Unterach,
overseen by Sandoz and GDD, and is governed by the Austria. We conduct an ongoing review of our global
IMB. Development and registration activities for Retail development and regulatory network to consolidate and
Generics products, and registration activities for Bio- streamline operations and optimize our network struc-
pharmaceuticals products, are also overseen by Sandoz. ture to enable Sandoz to compete sustainably in an
Before a generic pharmaceutical may be marketed, increasingly challenging generics environment. In 2021,
intensive technical and clinical development work must Sandoz completed the previously announced closures
be performed to demonstrate, in bioavailability studies, of its maintenance regulatory center in Barleben, Ger-
the bioequivalence of the generic product to the many, its Fougera development center located in

44
 Item 4. Information on the Company

Melville, New York, as well as its product development company for the reference product, without the need to
center in Boucherville, Canada. 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
Regulation submitted throughout the EU. However, the data submit-
ted by the innovator company in support of its applica-
Generics tion for a marketing authorization for the reference prod-
The Hatch‑Waxman Act in the US (and similar legislation uct is generally protected for 10 years after the first grant
in the EU and in other countries) eliminated the require- of marketing authorization in all member states, and can
ment that manufacturers of generic pharmaceuticals be extended for an additional year if, during the initial
repeat the extensive clinical trials required for reference eight‑year data exclusivity period, the innovator company
products, so long as the generic version could be shown registers a new therapeutic indication with “significant
to be therapeutically equivalent to the reference prod- clinical benefit.” In the case of orphan drugs, it may be
uct. extended with a two‑year pediatric extension. See “—
In the US, the decision on whether a generic phar- Item 4.B Business overview—Innovative Medicines—
maceutical is therapeutically equivalent to the original Intellectual property.”
product is made by the FDA based on an Abbreviated
New Drug Application (ANDA) filed by the generic prod- Biosimilars
uct’s manufacturer. An ANDA is generally permitted to The regulatory pathways for approval of biosimilar
be filed four years after the initial approval of the refer- medicines are still being developed and established in
ence product and generally cannot be fully approved by many countries of the world. A regulatory framework for
the FDA until any regulatory exclusivity of the reference the approval of biosimilars has been established in the
product has expired. The process typically takes nearly EU, Japan, Canada and the US, while the World Health
two years from the filing of the ANDA until FDA approval. Organization (WHO) has issued guidance. Sandoz has
However, delays can occur if issues arise, for example, successfully registered and launched the first biosimilar
regarding the interpretation of bioequivalence study (or biosimilar-type) medicine in Europe, the US, Canada,
data, labeling requirements for the generic product, or Japan, Taiwan, Australia, and many countries in Latin
qualifying the supply of active ingredients. In addition, America and Asia. Sandoz was the first company to
the Hatch‑Waxman Act requires a generic manufacturer secure approval for and launch a biosimilar under the US
to certify in certain situations that the generic product biosimilar pathway that was established as part of the
does not infringe on any current applicable patents on Biologics Price Competition and Innovation Act (BPCIA).
the product held by the holder of the marketing authori- The approval of biosimilars in Europe follows a process
zation for the reference product, or to certify that such similar to that followed for small molecules. However,
patents are invalid. This certification often results in a biosimilars usually have to be approved through the cen-
patent infringement lawsuit being brought against the tralized procedure because they are manufactured using
generics company. In the event of such a lawsuit, the recombinant DNA technology. As part of the approval
Hatch‑Waxman Act imposes an automatic 30-month process in the EU, biosimilars have to demonstrate com-
stay in the approval of the ANDA to allow the parties to parability to the reference medicine in terms of safety,
resolve the intellectual property issues. For generic efficacy and quality through an extensive comparability
applicants who are the first to file their ANDA containing exercise, based on strict guidelines set by the authori-
a certification claiming non‑infringement or patent inva- ties. Regulators will only approve a biosimilar based on
lidity, the Hatch‑Waxman Act generally provides those data that allows the regulators to conclude that there are
applicants with 180 days of marketing exclusivity, no clinically meaningful differences between the refer-
enabling such generic applicants to exclusively market ence medicine and the biosimilar.
their product alongside the reference product at a cer- In the US, under the BPCIA, a biosimilar must be
tain point in time, which is generally after any intellectual highly similar with no clinically meaningful differences
property issues have been resolved. However, after such compared to the reference medicine. Approval of a bio-
point in time, the generic applicants must launch their similar in the US requires the submission of a BLA to the
products within certain time frames or risk losing the FDA, including an assessment of immunogenicity and
marketing exclusivity that they had gained by being a pharmacokinetics; an efficacy study; and possibly a phar-
first-to-file applicant. macodynamics study. The BLA for a biosimilar can be
In the EU, decisions on the granting of a marketing submitted as soon as four years after the initial approval
authorization are made either by the European Commis- of the reference biologic, but can only be approved
sion based on a positive recommendation by the EMA 12 years after the initial approval of the reference bio-
under the centralized procedure, or by a single member logic.
state under the national or decentralized procedure. See
“—Innovative Medicines—Regulation—European Union.”
Companies may submit abridged applications for Intellectual property
approval of a generic medicinal product based upon its
“essential similarity” to a medicinal product authorized We take all reasonable steps to ensure that our products
and marketed in the EU following the expiration of the do not infringe valid intellectual property rights held by
product’s data exclusivity period. In such cases, the others, including taking steps to proactively challenge
generics company is able to submit its abridged appli- intellectual property rights that we believe should not
cation based on the data submitted by the innovator have been granted. Nevertheless, competing companies


45
 Item 4. Information on the Company

commonly assert patent and other intellectual property the products themselves, including the product’s formu-
rights. As a result, we can become involved in significant lation, or the processes for manufacturing a product.
litigation regarding our products. If we are unsuccessful However, there can be no assurance that our intellectual
in defending these suits, we could be subject to injunc- property will protect our products or that we will be able
tions preventing us from selling our products and to to avoid adverse effects from the loss of intellectual prop-
potentially substantial damages. erty protection in the future.
Wherever possible, our products are protected by
our own patents. Among other things, patents may cover

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 offices are located in Basel, Swit- manufacturing sites, as well as through external suppli-
zerland. Our divisions operate through a number of affil- ers, and warehouse and distribution centers. In addition,
iates that have offices, research and development facil- Novartis Operations also manages non-production real
ities, and production sites throughout the world. estate owned or leased by Novartis around the world.
We generally own our facilities or have entered into The following table sets forth our major headquar-
long-term lease arrangements for them. Some of our ters and most significant production, research and devel-
principal facilities are subject to mortgages and other opment, and administrative facilities. See also “—Item
security interests granted to secure certain debts. 4.B Business overview—Innovative Medicines—Produc-
Novartis Operations manages the production, supply tion” and “—Item 4.B Business overview—Sandoz—Pro-
chains and quality of our Innovative Medicines and duction” for a discussion of our manufacturing pro-
Sandoz Division products through a network of 55 cesses.

Major facilities
Size of site
Location (in square meters) Major activity

Basel, Switzerland – St. Johann 589 000 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 480 000 Production of biotechnological products, drug products and finished products,
anti‑infectives, active drug substances and nucleic acids; product development
East Hanover, New Jersey 391 000 Innovative Medicines Division US headquarters; research and development
Barleben, Germany 340 000 Production of broad range of generics finished dosage forms
Cambridge, Massachusetts 201 800 Research and development
Menges, Slovenia 133 763 Production of drug substances and drug intermediates
Shanghai, China 106 500 Research and development
Stein, Switzerland 64 700 Production of sterile vials, pre‑filled syringes and ampoules; inhalation capsules,
tablets and transdermals; active pharmaceutical ingredients; and cell and gene therapies
Holzkirchen, Germany 64 200 Sandoz Division production of transdermal delivery systems and certain international
and global service functions.
Huningue, France 35 000 Production of drug substances for clinical and commercial supply
Durham, North Carolina 15 794 Manufacture, package and release commercial Zolgensma product
and certain clinical development activities
Princeton, New Jersey 14 300 Sandoz Division US headquarters
Schweizerhalle, Switzerland 8 880 Manufacture of small-interfering RNA (siRNA) drug substance for Leqvio


46
 Item 4. Information on the Company

As our product portfolio evolves, Novartis Operations is efficiently as possible, optimize external spend, and sim-
adapting our manufacturing capacity and capabilities to plify and standardize across our manufacturing network
meet our changing needs, shifting from high-volume to help us increase our cost competitiveness and opti-
products toward lower-volume, customized and person- mize the value of our products. At the same time, we are
alized medicines. As of December 31, 2022, we have working to improve our environmental sustainability, for
closed, exited or sold 19 manufacturing sites since 2019 example by reducing energy, waste disposal and water
and have announced the closure, exit or sale of seven consumption at our sites by making our manufacturing
additional manufacturing sites. We have continued to processes more efficient, introducing new technologies,
invest in new technologies implemented at our sites, such and switching to clean and renewable energy solutions.
as the new targeted radioligand therapy production facil- For a description of the impact of environmental mat-
ity in Indianapolis, Indiana, which is currently under con- ters, see “Item 3. Key Information—Item 3.D Risk fac-
struction (with an expected size of approximately 67 tors—Environmental, social and governance matters—
thousand square meters), the FDA-approved Zolgensma Failure to meet increasingly challenging environmental,
production site in Durham, North Carolina, and the social and governance expectations,” “Item 3. Key Infor-
small-interfering RNA (siRNA) oligonucleotide manufac- mation—Item 3.D Risk factors—Environmental matters—
turing facility in Schweizerhalle, Switzerland. We are Impact of environmental liabilities,” and “Item 3. Key Infor-
leveraging innovation to increase the reliability and pro- mation—Item 3.D Risk factors—Climate change—Climate
ductivity of our manufacturing network, including using change and increased risk of major natural disasters.”
data and digital technologies. We continue to seek See also “Item 18. Financial Statements—Note 20. Pro-
opportunities to manage our production facilities as visions and other non‑current liabilities.”


47
 Item 4A. Unresolved Staff Comments

Item 4A. Unresolved Staff Comments

Not applicable.


48
 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 new organizational structure, see “Item 4. Information on
the Group’s consolidated financial statements in this the Company—Item 4.B Overview.” Under this new orga-
Annual Report, which have been prepared in accordance nizational structure, our divisions are supported by the
with International Financial Reporting Standards (IFRS) following organizational units: the Novartis Institutes for
as published by the International Accounting Standards BioMedical Research, Global Drug Development, and
Board (see “Item 18. Financial Statements”). “Item 5. Novartis Operations. The financial results of these orga-
Operating and Financial Review and Prospects” with the nizational units are included in the results of the divisions
sections on compounds in development and selected for which their work is performed.
development projects of our divisions (see “Item 4. Infor- Significant transactions are discussed in “Item 18.
mation on the Company—Item 4.B Business overview”) Financial Statements—Note 2. Significant transactions,”
constitute the Operating and Financial Review (Lage- and “Item 18. Financial Statements—Note 3. Segmenta-
bericht), as defined by the Swiss Code of Obligations. tion of key figures 2022, 2021 and 2020.”
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- Our business environment
son between fiscal year ended December 31, 2021, and
December 31, 2020, that are not included in this Form Medical technology continues to accelerate, with new
20-F can be found in “Item 5. Operating and Financial advanced treatments emerging to meet the growing
Review and Prospects” of our Form 20-F for the fiscal need for high-quality healthcare. At the same time, aging
year ended December 31, 2021, which is incorporated populations are putting pressure on healthcare
by reference herein. 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

Overview 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-
Our purpose is to reimagine medicine to improve and ogy. The following are some major trends currently shap-
extend people’s lives. We use innovative science and tech- ing our business environment.
nology to address some of society’s most challenging • Spending on healthcare continues to grow. The need
healthcare issues. We discover and develop breakthrough for high-quality healthcare is more critical than ever.
treatments and find new ways to deliver them to as many Over the next five years, global spending on medicines
people as possible. We also aim to reward those who invest is forecast to rise faster than GDP in many developed
their money, time and ideas in our Company. Our vision is countries. The price of medicines remains a key issue
to become the most valued and trusted medicines com- as increased healthcare spending and a more uncer-
pany in the world. tain economic outlook weigh on government budgets.
The businesses of Novartis are divided operationally • Aging populations are fueling a rise in chronic illness.
on a worldwide basis into two identified reporting seg- Aging and lifestyle changes are triggering an increase
ments: in noncommunicable diseases, such as cancer, heart
• Innovative Medicines: innovative patent-protected pre- disease and diabetes, causing millions of preventable
scription medicines deaths and putting further pressure on healthcare
• Sandoz: generic pharmaceuticals and biosimilars resources.
• Medical science continues to accelerate. Scientific
In addition, we separately report the results of Corpo- innovation is advancing at an unprecedented pace. In
rate activities. The financial results of our Corporate recent years, new types of treatments have been
activities include the costs of the Group headquarters approved, including RNA therapies, gene and cell ther-
and those of corporate coordination functions in major apies, and radioligand therapies, which offer targeted
countries. Corporate also includes other items of income approaches to treating serious diseases. Because
and expense that are not attributable to specific seg- these medicines are complex, they require focused
ments, such as certain revenues from intellectual prop- investment and expertise to bring them to reality for
erty rights and certain expenses related to post-employ- patients.
ment benefits, environmental remediation liabilities, • Access to healthcare remains a formidable challenge.
charitable activities, donations and sponsorships. Worldwide, millions of patients struggle to access the
In April 2022, we announced a new, integrated orga- medicines they need. This may be because of cost,
nizational structure and operating model designed to sup- inequity, or structural issues in healthcare systems.
port our innovation, growth, and productivity ambitions as While access to medicines remains an acute issue in
a focused medicines company. For information about this lower-income countries, it is a problem in developed


49
 Item 5. Operating and Financial Review and Prospects

countries too, where the COVID-19 pandemic high- supply chains. See “Item 3. Key Information—Item 3.D
lighted that deep health inequities remain entrenched. Risk factors—Climate change—Impact of climate
• Patients are moving to the center of healthcare. Patients change and increased risk of major natural disasters.”
are demanding more say over their treatment through
patient representative groups and other means. In
response, healthcare systems and pharmaceutical Our strategy
companies are adapting, moving toward a more inte-
grated, end-to-end approach, with an increased focus Our strategy as a focused medicines company is to
on patient engagement in drug development and other deliver high-value medicines that alleviate society’s
areas. At the same time, patients are becoming more greatest disease burdens through technology leadership
important as data owners – as personal data allows in R&D and novel access approaches.
more targeted treatments and supports development We have made significant progress in transforming
of new medicines. Novartis from a diversified healthcare conglomerate into
• Economic uncertainty is growing, post-COVID-19 pan- a focused medicines company. In doing so, we have
demic. The global economy is facing considerable divested or spun off non-core businesses and made tar-
uncertainty, driven by concerns over rising energy geted acquisitions to focus on our core business: dis-
prices and geopolitical instability. Forecasts suggest covering and developing new medicines and finding new
the current economic slowdown is likely to continue in ways to deliver them to as many people as possible.
2023. In our own industry, the COVID-19 pandemic put In 2022, we continued to execute on our strategy by
strain on supply chains and highlighted the importance putting in place a new organizational structure to sup-
of resilient supplies of active pharmaceutical ingredi- port innovation, growth and productivity. We also updated
ents – the raw materials used to make finished our strategic priorities and announced our intention to
medicines. See “Item 3. Key Information—Item 3.D Risk spin-off our Sandoz business, which paves the way for
factors—Pricing, reimbursement and access—Pricing Novartis to advance as a company focused fully on
and reimbursement pressure, including pricing trans- innovative medicines. See “Item 4. Information on the
parency and access to healthcare,” and “Item 3. Key Company—Item 4.B Overview” and “Item 4. Information
Information—Item 3.D Risk factors—Macroeconomic on the Company—Item 4.B Sandoz.”
developments—Impact of macroeconomic develop- Our strategy has clear focus areas and priorities to
ments.” meet the challenges and opportunities we see in our
• Biopharma searches for more efficiency. At a time of business environment, and ensure we continue to cre-
growing economic uncertainty, investors are looking ate value for our stakeholders and society.
for sustainable growth in margins and earnings. To Our focus areas determine where we invest most of our
remain competitive, pharmaceutical companies are time, energy and resources and include:
moving to more agile, cost-efficient business models, • Core therapeutic areas with high unmet patient needs:
particularly as they invest to build specialized capabil- cardiovascular; immunology; neuroscience; solid
ities in research and development (R&D) and manufac- tumors; and hematology.
turing. Meanwhile, rates of return on R&D are increas- • Technology platforms where we have the depth and
ing for the first time in several years, largely because scale to discover, develop and commercialize new ther-
of emergency approvals during the COVID-19 pan- apies: Chemistry; biotherapeutics; xRNA; radioligand
demic and faster innovation cycles. therapy; and gene and cell therapy.
• New technologies are reshaping our industry. The use • Priority geographies which, taken together, account
of data science and technology is increasing across for the majority of the forecast growth in global health-
the industry in everything from R&D to manufacturing care spending: US, China, Germany and Japan. While
and marketing. This has brought greater efficiency, but these are our priority countries, we will continue to
it also requires new investment and skills. Importantly, invest in other markets worldwide.
new technologies are helping close gaps between
companies, healthcare systems and patients – for Our focus areas are supported by three strategic prior-
example, by providing insights into the social determi- ities, which determine how we implement our strategy.
nants of heart health enabling the development of new These three strategic priorities are:
prevention measures. • Deliver high-value medicines to accelerate growth.
• Working practices are changing. Working practices are Delivering new medicines for major diseases is at the
changing in many countries. Demand for new skills is core of our purpose and value creation as a company.
increasing, especially in areas such as data science. We focus on high-value innovative medicines with the
Workforces are becoming more flexible and more potential to transform the treatment of diseases across
diverse, allowing companies to tap into new talent our five core therapeutic areas. To do this, we seek to
pools – important at a time of skills shortages in many maximize the potential of our key in-market and launch
parts of the economy. medicines, while finding new ways to deliver them to
• Climate change is increasingly affecting human health. as many people as possible and investing in R&D to
Climate change could undermine decades of progress deliver the next generation of high-value therapies for
in improving human health at a time when antimicrobial patients over the longer term. As part of our efforts, we
resistance is also rising. At the same time, more gov- continue our longstanding commitment to reduce the
ernments are looking to decarbonize their economies burden of infectious and tropical diseases that pre-
over the long-term, while companies also face increased dominantly affect underserved populations in low- and
scrutiny over the sustainability of their operations and middle-income countries.


50
 Item 5. Operating and Financial Review and Prospects

• Embed operational excellence to deliver returns. We this is about building an agile, diverse workforce and
aim to drive efficiency and free up resources to invest making sure we attract and retain the right talent for
in innovation for patients. This also underpins our finan- the future.
cial performance and makes us more agile; better able Scaling data science and technology. We are investing
to take quick decisions and scale the use of new tech- in data science and technology to increase efficiency,
nologies, with effective cooperation across our busi- support innovation, better respond to the needs of
ness. In everything we do, we maintain high standards patients and healthcare professionals, and ultimately
of product quality and patient safety, while also work- improve the way we develop and deliver our medicines.
ing to reduce our environmental footprint. Building trust with society. We aim to increase access
• Strengthen our foundations by: to our medicines for underserved populations around
Unleashing the power of our people. We continue to the world and follow high standards of ethical behav-
focus on culture as a key enabler of our strategy to ior wherever we operate.
drive innovation and long-term performance. For us,


51
 Item 5. Operating and Financial Review and Prospects

Results of operations
Financial year 2022 compared with 2021

Key figures1

Change in
Change constant
Year ended Year ended in USD currencies
(USD millions unless indicated otherwise) Dec 31, 2022 Dec 31, 2021 % %1

Net sales to third parties 50 545 51 626 –2 4

Other revenues 1 283 1 251 3 4
Cost of goods sold – 15 486 – 15 867 2 –4
Gross profit 36 342 37 010 –2 4
Selling, general and administration – 14 253 – 14 886 4 –1
Research and development – 9 996 – 9 540 –5 –9
Other income 805 1 852 – 57 – 54
Other expense – 3 701 – 2 747 – 35 – 43
Operating income 9 197 11 689 – 21 – 13
% of net sales to third parties 18.2 22.6
(Loss)/income from associated companies –9 15 339 nm nm
Interest expense – 837 – 811 –3 –5
Other financial income and expense 20 – 80 nm nm
Income before taxes 8 371 26 137 – 68 – 64
Income taxes – 1 416 – 2 119 33 25
Net income 6 955 24 018 – 71 – 67
Attributable to:
Shareholders of Novartis AG 6 955 24 021 – 71 – 67
Non-controlling interests 0 –3 nm nm
Basic earnings per share (USD) 3.19 10.71 – 70 – 66
Net cash flows from operating activities 14 236 15 071 –6
Free cash flow 1 11 945 13 282 – 10

1
For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS measures as defined by Novartis.”
nm = not meaningful


52
 Item 5. Operating and Financial Review and Prospects

Group overview
Net sales to third parties for Novartis were USD 50.5 bil- USD 3.19 compared with USD 10.71 in the prior year.
lion, down 2% in USD reported terms and up 4% mea- Excluding the impact of Roche income, EPS declined
sured in constant currencies (cc) to remove the impact –7% (cc).
of exchange rate movements. Sales growth was driven Net cash flows from operating activities amounted to
by volume growth of 11 percentage points, mainly driven USD 14.2 billion, compared with USD 15.1 billion in 2021.
by continued strong growth from Entresto, Kesimpta, This decrease was mainly due to unfavorable changes
Kisqali, Pluvicto and Cosentyx. Generic competition had in working capital and lower dividends from associated
a negative impact of 3 percentage points, mainly due to companies (2021 included the USD 0.5 billion dividends
Gilenya, Afinitor/Votubia, and Gleevec/Glivec. Pricing had received from our investment in Roche, which was
a negative impact of 4 percentage points. Sales in the divested in the fourth quarter of 2021), partly offset by
US were USD 17.7 billion (+5%) and in the rest of the world lower income taxes paid and favorable hedging results.
USD 32.8 billion (–6%, +4% cc). Free cash flow amounted to USD 11.9 billion (–10%
By division, Innovative Medicines delivered net sales USD), compared with USD 13.3 billion in 2021, mainly due
of USD 41.3 billion (–2%, +4% cc) and Sandoz net sales to a decrease in net cash flows from operating activities
were USD 9.2 billion (–4%, +4% cc). and lower divestment proceeds, partly offset by lower
In Emerging Growth Markets, which comprise all mar- purchases of property, plant and equipment.
kets excluding the US, Canada, Western Europe, Japan, We also present our core results1, which exclude the
Australia and New Zealand, sales to third parties were impact of amortization, impairments, disposals, acquisi-
USD 13.5 billion (+2%, +9% cc) driven by China (USD 3.1 tions, restructurings and other significant items, to help
billion) growing 2% (+6% cc). investors understand our underlying performance.
Operating income was USD 9.2 billion (–21%, –13% Core operating income was USD 16.7 billion (0%, +8%
cc), mainly due to higher restructuring costs (USD 1.2 bil- cc), benefiting from higher sales, partly offset by higher
lion) primarily related to the implementation of the pre- research and development (R&D) investments. Core
viously announced streamlined organizational model, operating income margin was 33.0% of net sales,
higher impairments (USD 1.0 billion), and lower divest- increasing by 0.9 percentage points (+1.3 percentage
ment gains (USD 0.6 billion). Operating income margin points cc).
was 18.2% of net sales, decreasing by 4.4 percentage Core net income was USD 13.4 billion (–5%, +3% cc)
points (-3.8 percentage points cc). as growth in core operating income was partly offset by
Net income was USD 7.0 billion compared with USD the loss of Roche core income. Excluding the impact of
24.0 billion in the prior year, impacted by Roche income Roche core income, core net income grew +11% (cc).
in the prior year. Excluding the impact of Roche income,
net income declined –9% (cc). Earnings per share were 1
For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS
measures as defined by Novartis.”


53
 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 Year ended in USD currencies
(USD millions) Dec 31, 2022 Dec 31, 2021 % %

Innovative Medicines 41 296 41 995 –2 4

Sandoz 9 249 9 631 –4 4
Net sales to third parties 50 545 51 626 –2 4

Innovative Medicines
The Innovative Medicines Division delivered net sales of In the US (USD 15.9 billion +6%), sales growth was
USD 41.3 billion (–2%, +4% cc) with volume contributing mainly driven by Entresto, Kesimpta and Pluvicto, partly
12 percentage points to growth. Generic competition had offset by the impact of generic competition on Afinitor/
a negative impact of 4 percentage points. Pricing had a Votubia and Gilenya. In Europe (USD 13.6 billion, –9%,
negative impact of 4 percentage points. Sales in the US +1% cc) sales growth was driven by Entresto, Kisqali and
were USD 15.9 billion (+6%) and in the rest of the world Kesimpta, partly offset by increased generic competition
USD 25.4 billion (–6%, +3% cc). for Gilenya. Emerging Growth Markets grew +2% (+9%
Sales growth was mainly driven by continued strong cc), with China sales USD 2.9 billion (+3%, +7% cc) driven
growth from Entresto (USD 4.6 billion, +31%, +37% cc), by Cosentyx.
Kesimpta (USD 1.1 billion, +194%, +200% cc), Kisqali (USD The following table provides an overview of net sales
1.2 billion, +31%, +38% cc), Pluvicto (USD 271 million) and to third parties by core therapeutic area; other promoted
Cosentyx (USD 4.8 billion, +1%, +5% cc), partly offset by brands; and established brands in the Innovative
generic competition mainly for Gilenya, Afinitor/Votubia Medicines Division:
and Gleevec/Glivec.

Change in
Change constant
Year ended Year ended in USD currencies
(USD millions) Dec 31, 2022 Dec 31, 2021 1 % %

Cardiovascular 4 756 3 560 34 40

Immunology 7 287 7 205 1 7
Neuroscience 5 051 5 007 1 5
Solid Tumors 4 723 4 101 15 21
Hematology 6 452 6 430 0 7
Other Promoted Brands 3 127 3 451 –9 –1
Total Promoted Brands 31 396 29 754 6 12
Established Brands 9 900 12 241 – 19 – 13
Total Innovative Medicines 41 296 41 995 –2 4

1
Reclassified to reflect the new Innovative Medicines divisional structures announced on April 4, 2022


54
 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 Total

Brand classification by
therapeutic area, other % % % % %
promoted brands or change change change change change
Brands established brands Key indications USD m USD/cc 2 USD m USD cc 2 USD m USD cc 2

Cosentyx Immunology Psoriasis (PsO), 2 770 –4 2 018 10 20 4 788 1 5

ankylosing spondylitis
(AS), psoriatic arthritis
(PsA), non-radiographic
axial spondyloarthritis
(nr-axSPA)
Entresto Cardiovascular Chronic heart failure, 2 354 38 2 290 25 37 4 644 31 37
hypertension
Promacta/Revolade Hematology Immune 1 083 14 1 005 –6 5 2 088 4 9
thrombocytopenia (ITP),
severe aplastic anemia (SAA)
Gilenya Neuroscience Relapsing multiple sclerosis 1 153 – 19 860 – 37 – 29 2 013 – 28 – 24
(RMS)
Tasigna Hematology Chronic myeloid leukemia 877 –1 1 046 – 11 –2 1 923 –7 –1
(CML)
Other Promoted
Lucentis Age-related 1 874 – 13 –4 1 874 – 13 –4
Brands macular degeneration (AMD),
diabetic macular edema (DME),
retinal vein occlusion (RVO)
Tafinlar + Mekinist Solid Tumors BRAF V600+ metastatic 678 12 1 092 0 10 1 770 5 11
adjuvant melanoma,
advanced non-small cell
lung cancer (NSCLC),
tumor agnostic with
BRAF mutation indication
Jakavi Hematology Myelofibrosis (MF), 1 561 –2 9 1 561 –2 9
polycytomia vera (PV),
graft-versus-host disease
(GvHD)
Zolgensma Neuroscience Spinal muscular atrophy 434 –7 936 6 12 1 370 1 5
(SMA)
Xolair 1 Immunology Severe allergic asthma (SAA), 1 365 –4 6 1 365 –4 6
chronic spontaneous urticaria
(CSU), nasal polyps
Sandostatin Established Brands Carcinoid tumors, 800 –5 438 – 23 – 16 1 238 – 12 – 10
acromegaly
Kisqali Solid Tumors HR+/HER2- 472 39 759 27 38 1 231 31 38
metastatic breast cancer
Ilaris Immunology Auto-inflammatory (CAPS, 570 14 563 1 16 1 133 7 15
TRAPS, HIDS/MKD, FMF,
SJIA, AOSD, gout)
Kesimpta Neuroscience Relapsing-remitting 921 165 171 nm nm 1 092 194 200
multiple sclerosis (RRMS)
Galvus Group Established Brands Type 2 diabetes 859 – 21 – 12 859 – 21 – 12
Gleevec/Glivec Established Brands Chronic myeloid 205 – 22 540 – 29 – 23 745 – 27 – 22
leukemia (CML),
gastrointestinal stromal
tumors (GIST)
Exforge Group Established Brands Hypertension 14 0 729 – 18 – 12 743 – 18 – 12
Diovan Group Established Brands Hypertension 55 8 597 – 17 – 10 652 – 16 –9
Kymriah Hematology r/r pediatric and young 196 – 15 340 –5 7 536 –9 –2
adults acute lymphoblastic
leukemia (ALL), diffuse large
B-cell lymphoma (DLBCL),
follicular lymphoma (FL)
Afinitor/Votubia Established Brands Breast cancer/ 171 – 67 341 – 18 –8 512 – 45 – 41
tuberous sclerosis complex
(TSC)
Top 20 brands total 12 753 6 19 384 –5 5 32 137 –1 5
Rest of portfolio 3 146 6 6 013 –9 0 9 159 –4 2
Total division net
sales to third parties 15 899 6 25 397 –6 3 41 296 –2 4

1
Net sales to third parties reflect Xolair sales for all indications.
2
For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS measures as defined by Novartis.”

nm = not meaningful


55
 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 NEUROSCIENCE
Sales in the Cardiovascular therapeutic area were USD Sales in the Neuroscience therapeutic area were USD
4.8 billion (+34%, +40% cc), sales growth mainly driven 5.1 billion (+1%, +5% cc), sales growth (cc) mainly driven
by Entresto. by Kesimpta, which was partly offset by sales decline of
Entresto (USD 4.6 billion, +31%, +37% cc) sustained Gilenya.
robust demand-led growth, with increased patient share Gilenya (USD 2.0 billion, –28%, –24% cc) sales
across all geographies. Guidelines position Entresto as declined mainly in Europe and in the US due to generic
the first choice RASi versus ACEi/ARB in patients with pressure.
HFrEF. Entresto benefits from the adoption of guideline Zolgensma (USD 1.4 billion, +1%, +5% cc) has been
directed medical therapy for these patients in all geog- approved in 47 countries to date. As this represents most
raphies. In the US, Entresto benefits from being added major markets, sales growth is now mainly driven by the
to guidelines for patients with HFpEF (with LVEF below Incident patient population where we’ve seen double
normal). In China, Entresto has been listed in the National digit growth in 2022. Access pathways are now in place
Reimbursement Drug List (NRDL) for both HFrEF and in 35 countries with negotiations ongoing in additional
hypertension, effective January 2022. In China and markets.
Japan, Entresto volume growth is fueled by increased Kesimpta (USD 1.1 billion, +194%, +200% cc) showed
penetration in hypertension in addition to growth in heart strong sales growth driven by launch momentum across
failure. It is estimated that around 10 million patients are all geographies. Kesimpta is a targeted B-cell therapy
on treatment with Entresto. that can deliver powerful and sustained high efficacy,
Leqvio (USD 0.1 billion) launch in the US and other with a favorable safety and tolerability profile and the
markets is ongoing, with focus on patient on-boarding, flexibility of an at home self-administration for a broad
removing access hurdles and enhancing medical edu- population of RMS patients. Kesimpta is now approved
cation. Leqvio is the first and only small interfering RNA in 80 countries with more than 36,000 patients treated.
(siRNA) therapy to lower low-density lipoprotein choles- Mayzent (USD 0.4 billion, +27%, +32% cc) sales grew
terol approved in the US and was launched in January across all geographies in MS patients showing signs of
2022. In the US, Leqvio is covered at or near label for progression despite being on other treatments. Mayzent
76% of patients eleven months after launch. Leqvio in is the first and only oral disease-modifying therapy stud-
the US has been assigned a unique Healthcare Common ied and proven to delay disease progression in a broad
Procedure Coding System code (J-code) and average SPMS patient population.
sales price. Leqvio is now approved in 70 countries. Aimovig (USD 0.2 billion, +1%, +11% cc) sales grew in
Novartis obtained global rights to develop, manufacture Europe and Emerging Growth Markets. Aimovig is reim-
and commercialize Leqvio under a license and collabo- bursed in 32 markets and has been prescribed to over
ration agreement with Alnylam Pharmaceuticals. 759,000 patients worldwide. Earlier this year, Aimovig
was submitted for approval in China. In October 2022,
IMMUNOLOGY Novartis reached an agreement in Germany by which
Sales in the Immunology therapeutic area reached USD Aimovig is reimbursed as a 1st line prophylactic migraine
7.3 billion (+1%, +7% cc), sales growth was mainly driven treatment based on the HER-MES trial.
by Cosentyx and Ilaris.
Cosentyx (USD 4.8 billion, +1%, +5% cc) sales grew SOLID TUMORS
in Emerging Growth Markets, Europe and Japan, partly Sales in the Solid Tumors therapeutic area were USD 4.7
offset by decline in the US due to higher revenue deduc- billion (+15%, +21% cc), sales growth mainly driven by
tions. In China, Cosentyx growth was fueled by increased Kisqali, Pluvicto and Tafinlar + Mekinist.
biologic uptake and inclusion in approximately 1,900 hos- Tafinlar + Mekinist (USD 1.8 billion, +5%, +11% cc)
pital listings. Since initial approval in 2015, Cosentyx has sales grew across all geographies, driven by demand in
proven its sustained efficacy and consistent safety pro- BRAF+ adjuvant melanoma and NSCLC indications,
file across five systemic inflammatory conditions and has while maintaining demand in the highly competitive
treated more than 960,000 patients worldwide. BRAF+ metastatic melanoma market. Tafinlar + Mekinist
Xolair (USD 1.4 billion, –4%, +6% cc) sales grew (cc) remains the worldwide targeted therapy leader in BRAF+
in Emerging Growth Markets, Europe and Japan. Novartis melanoma. Following FDA approval in late June, Tafinlar
co-promotes Xolair with Genentech in the US and shares + Mekinist is the first and only therapy with a tumor-ag-
a portion of revenue as operating income but does not nostic indication for adult and pediatric patients with
record any US sales. solid tumors that have a BRAF V600E mutation, which
Ilaris (USD 1.1 billion, +7%, +15% cc) showed contin- drives tumor growth in more than 20 different tumor
ued growth across all geographies. Contributors to types.
growth include the adult-onset Still’s disease indication, Kisqali (USD 1.2 billion, +31%, +38% cc) sales grew
together with the other adult rheumatology indications strongly across all geographies, based on increasing rec-
in the US and Europe, as well as strong performance for ognition of its overall survival and quality of life benefits
the Periodic Fevers Syndrome indications in Japan. in HR+/HER2- advanced breast cancer. It is a CDK4/6


56
 Item 5. Operating and Financial Review and Prospects

inhibitor with proven overall survival benefit across all with relapsed or refractory (r/r) follicular lymphoma (FL)
three Phase III trials of the MONALEESA program after two or more lines of systemic therapy.
regardless of menopausal status, line of therapy, site and Adakveo (USD 0.2 billion, +18%, +19% cc) continued
number of metastases, endocrine resistance, or endo- to grow worldwide, reaching more than 11,800 patients
crine partner. with vaso-occlusive crises caused by sickle cell disease
Votrient (USD 0.5 billion, –18%, –13% cc) declined due to date.
to increased competition, especially from immuno-on- Scemblix (USD 0.1 billion) continued its strong launch
cology agents in metastatic renal cell carcinoma. uptake in the US, with launches underway in EU and
Lutathera (USD 0.5 billion, –1%, +3% cc) sales grew Japan, demonstrating the high unmet need in CML, par-
(cc) in Europe and Japan, partly offset by decline in the ticularly patients previously treated with 2 or more tyro-
US. There are approximately 500 centers actively treat- sine kinase inhibitors, or with the T315I mutation. In Octo-
ing patients globally. In the second quarter of 2022, there ber 2022, US FDA converted the accelerated approval
was a temporary suspension in manufacturing during the of Scemblix to a full approval, confirming the clinical ben-
quarter; production and deliveries of patient doses efit after longer exposure.
resumed in early June.
Piqray (USD 0.4 billion, +13%, +14% cc) sales grew OTHER PROMOTED BRANDS
mainly in the US, benefiting from indication expansion Sales for Other Promoted Brands were USD 3.1 billion
into PIK3CA-related overgrowth spectrum (PROS). (–9%, –1% cc).
Piqray is the first and only therapy specifically developed Lucentis (USD 1.9 billion, –13%, –4% cc) sales declined
for the approximately 40% of HR+/HER2- advanced in Japan and Europe mainly due to competition, which
breast cancer patients who have a PIK3CA mutation, was partly offset by growth in Emerging Growth Markets.
which is associated with a worse prognosis. Xiidra (USD 0.5 billion, +4%, +4% cc) sales grew
Pluvicto (USD 0.3 billion) launch is progressing well, mainly in the US.
with more than 160 active centers ordering. Pluvicto is Ultibro Group (USD 0.5 billion, –18%, –9% cc) sales
the first and only radioligand therapy approved by the declined in Europe and Emerging Growth Markets due
FDA for the treatment of progressive, PSMA-positive to competition and was partly offset by growth in Japan.
metastatic castration-resistant prostate cancer, who Ultibro Group consists of Ultibro Breezhaler, Seebri Bree-
have already been treated with other anticancer treat- zhaler and Onbrez Breezhaler.
ments (ARPI and taxane-based chemotherapy). Beovu (USD 0.2 billion, +9%, +18% cc) sales grew in
Tabrecta (USD 0.1 billion, +48%, +48% cc) sales grew Europe, Emerging Growth Markets and Japan, partly off-
across all geographies, as the first therapy approved by set by decline in the US. Beovu received approval for dia-
the FDA to specifically target metastatic NSCLC with a betic macular edema (DME) in the EU in the first quarter
mutation that leads to MET exon 14 skipping (METex14). of 2022, and in the US in the second quarter of 2022.

HEMATOLOGY ESTABLISHED BRANDS

Sales in the Hematology therapeutic area were USD 6.5 The Established Brands had sales of USD 9.9 billion
billion (0%, +7% cc), sales growth (cc) mainly driven by (–19%, –13% cc).
Promacta/Revolade, Jakavi and Scemblix. Sandostatin (USD 1.2 billion, –12%, –10% cc) declined
Promacta/Revolade (USD 2.1 billion, +4%, +9% cc) across all geographies due to ongoing competitive pres-
growth was driven by the US, Europe and Emerging sure, including generic competition ex-US.
Growth Markets, partly offset by decline in Japan. Sales Galvus Group (USD 0.9 billion, –21%, –12% cc)
growth was driven by increased use in second-line per- declined in Japan, Europe and Emerging Growth Mar-
sistent and chronic immune thrombocytopenia and as kets.
first-line and/or second-line treatment for severe aplas- Gleevec/Glivec (USD 0.7 billion, –27%, –22% cc)
tic anemia. declined due to increased generic competition.
Tasigna (USD 1.9 billion, –7%, –1% cc) sales declined Exforge Group (USD 0.7 billion, –18%, –12% cc)
in Europe, Japan and the US, partly offset by growth in declined across all geographies.
Emerging Growth Markets. Diovan Group (USD 0.7 billion, –16%, –9% cc) declined
Jakavi (USD 1.6 billion, –2%, +9% cc) sales grew (cc) in Emerging Growth Markets, Japan and Europe.
in Europe, Emerging Growth Markets, Japan, driven by Afinitor/Votubia (USD 0.5 billion, –45%, –41% cc)
strong demand in both the myelofibrosis and polycythe- declined in the US and Europe driven by generic com-
mia vera indications. In May, EC approved Jakavi for the petition.
treatment of patients aged 12 years and older with acute Voltaren/Cataflam (USD 0.3 billion, –10%, 0% cc)
or chronic GvHD who have inadequate response to cor- sales were stable (cc).
ticosteroids or other systemic therapies. Zortress/Certican (USD 0.3 billion, –24%, –14% cc)
Kymriah (USD 0.5 billion, –9%, –2% cc) sales declined declined in the US and Japan.
in the US and Europe due to lower DLBCL demand in Exjade/Jadenu (USD 0.3 billion, –43%, –38% cc)
both geographies and was partly offset by growth in declined due to pressure from generic competition.
Emerging Growth Markets and Japan. In May, EC and Neoral/Sandimmun(e) (USD 0.3 billion, –16%, –8% cc)
FDA approved Kymriah for the treatment of adult patients declined across all geographies.


57
 Item 5. Operating and Financial Review and Prospects

Sandoz
Sandoz net sales were USD 9.2 billion (–4%, +4% cc) range of therapeutic areas, including finished dosage
with volume contributing 10 percentage points to growth. form of anti-infectives sold to third parties.
Pricing had a negative impact of 6 percentage points. Retail sales were USD 6.8 billion (–4%, +4% cc), grow-
Sales in Europe were USD 4.9 billion (–7%, +4% cc), ing across all regions ex-US.
in the US USD 1.8 billion (–4%) in Asia/Africa/Australasia
USD 1.6 billion (–3%, +6% cc) and in Canada and Latin Biopharmaceuticals
America USD 969 million (+11%, +15% cc) driven by vol- In Biopharmaceuticals, Sandoz develops, manufactures
ume increases and tender wins. and markets protein- and other biotechnology-based
The following table provides an overview of net sales products, including biosimilars, and provides biotechnol-
to third parties by business franchise in the Sandoz Divi- ogy manufacturing services to other companies. The
sion: Biopharmaceuticals business also includes Glatopa, a
generic version of Copaxone®, which treats relapsing
Change in forms of multiple sclerosis and is marketed in the US.
Change constant Global sales of Biopharmaceuticals (biosimilars, bio-
Year ended Year ended in USD currencies
(USD millions) Dec 31, 2022 Dec 31, 2021 % % pharmaceutical contract manufacturing and Glatopa)
Retail Generics1 6 776 7 092 –4 4 grew to USD 2.1 billion (–1%, +9% cc), growing across all
regions.
Biopharmaceuticals 2 093 2 116 –1 9
Anti-Infectives
(partner label/API)1 380 423 – 10 –5 Anti-Infectives
Total Sandoz 9 249 9 631 –4 4
In Anti-Infectives, Sandoz manufactures and supplies
active pharmaceutical ingredients and intermediates,
1
Sandoz total anti-infectives net sales to third parties amounted to USD 1.2 billion mainly antibiotics, for internal use by Retail Generics and
(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
for sale to third-party customers.
and USD 380 million (2021: USD 423 million; 2020: USD 474 million) is sold to other Total Anti-Infectives sales were USD 1.2 billion (+2%,
third-party companies through the Anti-Infectives business franchise.
+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
Retail Generics Anti-Infectives business franchise. The sales of the
In Retail Generics, Sandoz develops, manufactures and Anti-Infectives business franchise declined mainly due
markets finished dosage forms of small molecule to product discontinuations and supply challenges.
pharmaceuticals for sale to third parties across a broad


58
 Item 5. Operating and Financial Review and Prospects

Operating income
The following table provides an overview of operating income by segment:

% of % of Change in
net sales net sales Change constant
Year ended to third Year ended to third in USD currencies
(USD millions) Dec 31, 2022 parties Dec 31, 2021 parties % %

Innovative Medicines 8 786 21.3 10 688 25.5 – 18 –9

Sandoz 1 448 15.7 1 600 16.6 – 10 –2
Corporate – 1 037 – 599 – 73 – 84
Operating income 9 197 18.2 11 689 22.6 – 21 – 13

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 figures1

Change in
Change constant
Year ended Year ended in USD currencies
(USD millions unless indicated otherwise) Dec 31, 2022 Dec 31, 2021 % %

Core gross profit 40 392 41 097 –2 4

Selling, general and administration – 14 190 – 14 815 4 –1
Research and development – 9 088 – 9 041 –1 –5
Other income 384 421 –9 –2
Other expense – 833 – 1 074 22 17
Core operating income 16 665 16 588 0 8
As % of net sales to third parties 33.0 32.1

1
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 was USD 16.7 billion (0%, +8%
core operating income amounted to USD 7.5 billion (com- cc) benefiting from higher sales, partly offset by higher
pared with USD 4.9 billion in the prior year). For details, R&D investments. Core operating income margin was
please see “—Non-IFRS measures as defined by 33.0% of net sales, increasing by 0.9 percentage points
Novartis—2022 and 2021 reconciliation from IFRS (+1.3 percentage points cc).
results to core results.”

The following table provides an overview of core operating income by segment:

% of % of Change in
net sales net sales Change constant
Year ended to third Year ended to third in USD currencies
(USD millions) Dec 31, 2022 parties Dec 31, 2021 parties % %

Innovative Medicines 15 237 36.9 15 215 36.2 0 8

Sandoz 1 903 20.6 2 064 21.4 –8 –1
Corporate – 475 – 691 31 28
Core operating income 16 665 33.0 16 588 32.1 0 8

Innovative Medicines Core adjustments were USD 6.5 billion, mainly due
Operating income was USD 8.8 billion (–18%, –9% cc), to amortization, impairments and restructuring, com-
driven by higher impairments, restructuring, lower divest- pared to USD 4.5 billion in prior year. Core adjustments
ment gains and higher R&D expenses, partly offset by increased compared to prior year, mainly due to higher
higher gross margin. Operating income margin was impairments and restructuring.
21.3% of net sales, decreasing 4.2 percentage points Core operating income was USD 15.2 billion (0%, +8%
(-3.4 percentage points in cc). cc), mainly driven by higher gross margin, partly offset


59
 Item 5. Operating and Financial Review and Prospects

by higher R&D investments. Core operating income mar- Core operating income was USD 1.9 billion (–8%, –1%
gin was 36.9% of net sales, increasing 0.7 percentage cc), with the decline mainly due to higher SG&A, partly
points (+1.3 percentage points cc). Revenues as a per- offset by higher sales. Core operating margin was 20.6%
centage of sales increased by 0.1 percentage points (cc). of net sales, decreasing by 0.8 percentage points (-1.1
Core cost of goods sold as a percentage of sales was percentage points cc). Core gross margin as a percent-
in line with the prior year. Core R&D expenses as a per- age of sales decreased by 0.3 percentage points (cc),
centage of net sales increased by 0.2 percentage points due to higher inflation and input costs. Core R&D
(cc). Core selling, general and administration (SG&A) expenses as a percentage of net sales decreased by 0.5
expenses as a percentage of net sales decreased by 1.4 percentage points (cc). Core SG&A expenses increased
percentage points (cc). Core other income and expense by 0.9 percentage points (cc). Core other income and
as a percentage of net sales was in line with the prior expense decreased the margin by 0.4 percentage points
year. (cc).

Sandoz Corporate income and expense, net

Operating income was USD 1.4 billion (–10%, –2% cc), Corporate income and expense, which includes the cost
with the decline mainly due to higher SG&A investments of Group headquarter and coordination functions,
to drive higher sales and inflationary pressures on input amounted to an expense of USD 1.0 billion, compared to
costs, which were partly offset by higher sales. Operat- an expense of USD 599 million in 2021, mainly driven by
ing income margin was 15.7% of net sales, decreasing higher restructuring costs, lower contributions from the
by 0.9 percentage points (-1.0 percentage points in cc). Novartis Venture Fund and prior year income from a fair
Core adjustments were USD 455 million, including value adjustment on contingent receivables related to
USD 221 million of amortization. Prior year core adjust- intellectual property rights, partly offset by prior year
ments were USD 464 million, including USD 236 million adjustments to provisions on M&A transactions.
of amortization.

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 Year ended in USD currencies
(USD millions unless indicated otherwise) Dec 31, 2022 Dec 31, 2021 % %

Research and exploratory development – 2 938 – 3 209 8 6

Confirmatory development – 6 234 – 5 432 – 15 – 20
Total Innovative Medicines Division research and development expense – 9 172 – 8 641 –6 – 10
As % of Innovative Medicines net sales to third parties 22.2 20.6
Core research and exploratory development1 – 2 784 – 2 809 1 –1
Core confirmatory development1 – 5 483 – 5 341 –3 –7
Total core Innovative Medicines Division research and development expense – 8 267 – 8 150 –1 –5
As % of Innovative Medicines net sales to third parties 20.0 19.4

1
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 Total core research and development expense in the
development expense decreased by 8% (+6% cc) to USD Innovative Medicine Division as a percentage of sales
2.9 billion. Confirmatory development expense amounted increased by 0.6 percentage points (+0.2 percentage
to USD 6.2 billion, increasing by 15% (–20% cc) versus points cc) to 20.0% of net sales, mainly driven by higher
prior year mainly due to higher impairment charges and investments in recently acquired assets.
higher investments in development to support recently
acquired assets.


60
 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 Year ended in USD currencies
(USD millions unless indicated otherwise) Dec 31, 2022 Dec 31, 2021 % %

Operating income 9 197 11 689 – 21 – 13

(Loss)/income from associated companies –9 15 339 nm nm
Interest expense – 837 – 811 –3 –5
Other financial income and expense 20 – 80 nm nm
Income before taxes 8 371 26 137 – 68 – 64
Income taxes – 1 416 – 2 119 33 25
Net income 6 955 24 018 – 71 – 67
Attributable to:
Shareholders of Novartis AG 6 955 24 021 – 71 – 67
Non-controlling interests 0 –3 nm nm
Basic earnings per share (USD) 3.19 10.71 – 70 – 66

nm = not meaningful

Income from associated companies Income taxes

Income from associated companies was a loss of USD The tax rate was 16.9% compared to 8.1% in the prior
9 million compared to an income of USD 15.3 billion in year period. In the prior year, the tax rate was impacted
prior year. This decrease was due to the divestment of by the Roche income from associated companies (includ-
our investment in Roche that closed in the fourth quar- ing the divestment gain recognized on the sale of our
ter of 2021 where a gain of USD 14.6 billion was recog- investment in Roche in December 2021), the impact of
nized. increases in uncertain tax positions and prior-year items.
For comparability, excluding these impacts, the prior year
Interest expense and other financial income and tax rate would have been 16.8%, broadly in line with 16.9%
expense in the current year.
Interest expense amounted to USD 837 million, broadly
in line with prior year. Net income
Other financial income and expense amounted to an Net income was USD 7.0 billion (–71%, –67% cc), impacted
income of USD 20 million compared to an expense of by Roche income in the prior year. Excluding the impact
USD 80 million in the prior year, as higher interest income of Roche income, net income declined –9% (cc).
was partly offset by financial expenses and currency
losses. 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).


61
 Item 5. Operating and Financial Review and Prospects

Core non-operating income and expense1

The following table provides an overview of core non-operating income and expense:

Change in
Change constant
Year ended Year ended in USD currencies
(USD millions unless indicated otherwise) Dec 31, 2022 Dec 31, 2021 % %

Core operating income 16 665 16 588 0 8

Core (loss)/income from associated companies –9 993 nm nm
Core interest expense – 837 – 811 –3 –5
Core other financial income and expense 141 – 41 nm nm
Core income before taxes 15 960 16 729 –5 3
Core income taxes – 2 608 – 2 635 1 –7
Core net income 13 352 14 094 –5 3
Core basic earnings per share (USD) 6.12 6.29 –3 6

nm = not meaningful

Core income from associated companies Core income taxes

Core income from associated companies was a loss of The core tax rate (core taxes as a percentage of core
USD 9 million compared with an income of USD 993 mil- income before tax) was 16.3% compared to 15.8% in the
lion in prior year. This decrease was due to the divest- prior year. For comparability, excluding Roche Income
ment of our investment in Roche that closed in the fourth from associated companies (divested in December
quarter of 2021. 2021), the prior year core tax rate would have been 16.7%
compared to 16.3% in the current year, decreasing mainly
Core interest expense and other financial income as a result of a change in core profit mix.
and expense
Core interest expense amounted to USD 837 million, Core net income
broadly in line with prior year. Core net income was USD 13.4 billion (–5%, +3% cc) as
Core other financial income and expense amounted growth in core operating income was partly offset by the
to an income of USD 141 million compared to an expense loss of Roche core income. Excluding the impact of
of USD 41 million in the prior year as higher interest Roche core income, core net income grew +11% (cc).
income was only partly offset by currency losses.
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).
1
For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS
measures as defined by Novartis.”


62
 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 impacts2

Year ended Year ended % change % change

Dec 31, 2022 Dec 31, 2021 USD cc 1

Operating income 9 197 11 689 – 21 – 13

Loss from associated companies –9 –2 nm nm
Interest expense – 837 – 811 –3 –5
Other financial income and expense 20 – 96 nm nm
Income taxes – 1 416 – 2 119 33 25
Net income 6 955 8 661 – 20 –9
Basic earnings per share (USD) 3.19 3.86 – 17 –7
Net cash flows from operating activities 14 236 14 549 –2
Free cash flow 1 11 945 12 760 –6

Core 1
Core operating income 16 665 16 588 0 8
Core net income 13 352 13 099 2 11
Core basic earnings per share (USD) 6.12 5.84 5 14

1
For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS measures as defined by Novartis.”
2
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


63
 Item 5. Operating and Financial Review and Prospects

Factors affecting comparability of year-on-year results

of operations
Significant transactions long-term strategy to focus Novartis as a leading
in 2022 and 2021 medicines company, we announced and/or completed
several acquisitions and divestments during 2022 and
2021.
The comparability of the year-on-year results of our A detailed description of significant transactions in
operations for the total Group can be significantly 2022 and 2021, can be found in “Item 18. Financial State-
affected by acquisitions and divestments. As part of our ments—Note 2. Significant transactions.”

Internal control over financial reporting

The Group’s management has assessed the effective- its external auditors concluded that the Group main-
ness of internal control over financial reporting. The tained, in all material respects, effective internal control
Group’s independent statutory auditor also issued an over financial reporting as of December 31, 2022. For
opinion on the effectiveness of internal control over more details, see “Item 15. Controls and Procedures.”
financial reporting. Both the Group’s management and

Approach to risk management

See “Item 6. Directors, Senior Management and Employ- management” and “Item 18. Financial Statements—Note
ees—Item 6.C Board practices—Corporate gover- 29. Financial instruments – additional disclosures.”
nance—Information and control systems—Risk

Non-IFRS measures as defined by Novartis

Novartis uses certain non-IFRS metrics when measur- comparable to the calculation of similar measures of
ing performance, especially when measuring cur- other companies. These non-IFRS measures are pre-
rent-year results against prior periods, including core sented solely to permit investors to more fully understand
results, constant currencies and free cash flow. how the Group’s management assesses underlying per-
Despite the use of these measures by management formance. These non-IFRS measures are not, and should
in setting goals and measuring the Group’s performance, not be viewed as, a substitute for IFRS measures, and
these are non-IFRS measures that have no standardized should be viewed in conjunction with IFRS financials.
meaning prescribed by IFRS. As a result, such measures As an internal measure of Group performance, these
have limits in their usefulness to investors. non-IFRS measures have limitations, and the Group’s
Because of their non-standardized definitions, the performance management process is not solely
non-IFRS measures (unlike IFRS measures) may not be restricted to these metrics.


64
 Item 5. Operating and Financial Review and Prospects

Core results can be made of underlying changes in the consolidated

income statement excluding the impact of fluctuations
The Group’s core results – including core operating in exchanges rates:
income, core net income and core earnings per share – • The impact of translating the income statements of
exclude fully the amortization and impairment charges consolidated entities from their non-USD functional
of intangible assets, excluding software, net gains and currencies to USD
losses on fund investments and equity securities valued • The impact of exchange rate movements on the major
at fair value through profit and loss, and certain acquisi- transactions of consolidated entities performed in cur-
tion- and divestment-related items. The following items rencies other than their functional currency.
that exceed a threshold of USD 25 million are also
excluded: integration- and divestment-related income We calculate constant currency measures by translating
and expenses; divestment gains and losses; restructur- the current year’s foreign currency values for sales and
ing charges/releases and related items; legal-related other income statement items into USD (excluding the
items; impairments of property, plant and equipment, IAS 29 “Financial Reporting in Hyperinflationary Econo-
software, and financial assets, and income and expense mies” adjustments to the local currency income state-
items that management deems exceptional and that are ments of subsidiaries operating in hyperinflationary
or are expected to accumulate within the year to be over economies), using the average exchange rates from the
a USD 25 million threshold. prior year and comparing them to the prior year values
Novartis believes that investor understanding of the in USD.
Group’s performance is enhanced by disclosing core We use these constant currency measures in evalu-
measures of performance, since core measures exclude ating the Group’s performance, since they may assist us
items that can vary significantly from year to year, they in evaluating our ongoing performance from year to year.
enable better comparison of business performance However, in performing our evaluation, we also consider
across years. For this same reason, Novartis uses these equivalent measures of performance that are not affected
core measures in addition to IFRS and other measures by changes in the relative value of currencies.
as important factors in assessing the Group’s perfor-
mance.
Growth rate calculation
The following are examples of how these core measures
are utilized: For ease of understanding, Novartis uses a sign conven-
• In addition to monthly reports containing financial infor- tion for its growth rates such that a reduction in operat-
mation prepared under International Financial Report- ing expenses or losses compared with the prior year is
ing Standards (IFRS), senior management receives a shown as a positive growth.
monthly analysis incorporating these core measures.
• Annual budgets are prepared for both IFRS and core
measures. Free cash flow
As an internal measure of Group performance, the core Novartis defines free cash flow as net cash flows from
results measures have limitations, and the Group’s per- operating activities and cash flows from investing activ-
formance management process is not solely restricted ities associated with purchases and sales of property,
to these metrics. A limitation of the core results mea- plant and equipment, of intangible assets, of financial
sures is that they provide a view of the Group’s opera- assets and of other non-current assets. Excluded from
tions without including all events during a period, such free cash flow are cash flows from investing activities
as the effects of an acquisition, divestment, or amortiza- associated with acquisitions and divestments of busi-
tion/impairments of purchased intangible assets, impair- nesses and of interests in associated companies, pur-
ments to property, plant and equipment and restructur- chases and sales of marketable securities, commodities,
ings and related items. time deposits and net cash flows from financing activi-
ties.
Free cash flow is a non-IFRS measure and is not
Constant currencies intended to be a substitute measure for net cash flows
from operating activities as determined under IFRS. Free
Changes in the relative values of non-US currencies to cash flow is presented as additional information because
the US dollar can affect the Group’s financial results and management believes it is a useful supplemental indica-
financial position. To provide additional information that tor of the Group’s ability to operate without reliance on
may be useful to investors, including changes in sales additional borrowing or use of existing cash. Free cash
volume, we present information about our net sales and flow is a measure of the net cash generated that is avail-
various values relating to operating and net income that able for investment in strategic opportunities, returning
are adjusted for such foreign currency effects. to shareholders and for debt repayment. Free cash flow
Constant currency calculations have the goal of elim- is a non-IFRS measure, which means it should not be
inating two exchange rate effects so that an estimate interpreted as a measure determined under IFRS.


65
 Item 5. Operating and Financial Review and Prospects

Additional information (USD millions) 2022 2021

Operating income 9 197 11 689

NET DEBT Depreciation of property,
Novartis calculates net debt as current financial debts plant and equipment 1 163 1 208
and derivative financial instruments plus non-current Depreciation of
financial debt less cash and cash equivalents and mar- right-of-use assets 300 318
ketable securities, commodities, time deposits and deriv- Amortization of intangible
assets 3 982 3 903
ative financial instruments.
Net debt is presented as additional information Impairments of property,
plant and equipment, right-of-use assets and
because it sets forth how management monitors net debt intangible assets 1 1 736 684
or liquidity and management believes it is a useful sup- EBITDA 16 378 17 802
plemental indicator of the Group’s ability to pay divi-
dends, to meet financial commitments, and to invest in 1
There were no impairments of right-of-use assets in 2021.

new strategic opportunities, including strengthening its

balance sheet. ENTERPRISE VALUE
For the table that shows the Group’s net debt, see Enterprise value represents the total amount that share-
“— Item 5.B Liquidity and capital resources — Group holders and debt holders have invested in Novartis, less
liquidity, financial debts and net debt.” the Group’s liquidity.

EBITDA (USD millions) Dec 31, 2022 Dec 31, 2021

Novartis defines earnings before interest, tax, depreci- Market capitalization 191 530 196 107
ation and amortization (EBITDA) as operating income, Non-controlling interests 81 167
excluding depreciation of property, plant and equipment, Non-current financial debts 20 244 22 902
depreciation of right-of-use assets, amortization of intan-
Current financial debts and
gible assets, and impairments of property, plant and derivative financial instruments 5 931 6 295
equipment, right-of-use assets and of intangible assets. Marketable securities,
commodities, time deposits
and derivative financial
instruments – 11 413 – 15 922
Cash and cash equivalents – 7 517 – 12 407
Enterprise value 198 856 197 142


66
 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) 2022 2021 2022 2021 2022 2021 2022 2021

IFRS operating income 8 786 10 688 1 448 1 600 – 1 037 – 599 9 197 11 689
Amortization of intangible assets 3 585 3 528 221 236 3 806 3 764
Impairments
Intangible assets 1 291 360 25 27 2 1 318 387
Property, plant and equipment related to the Group-wide
rationalization of manufacturing sites 286 219 –2 7 284 226
Other property, plant and equipment 85 40 85 40
Total impairment charges 1 662 619 23 34 2 1 687 653
Acquisition or divestment of businesses and related items
- Income –2 –4 – 64 –4 – 66
- Expense 8 1 106 8 107
Total acquisition or divestment of
businesses and related items, net 8 –1 –4 42 4 41
Other items
Divestment gains – 161 – 649 –4 –5 – 75 – 166 – 728
Financial assets – fair value adjustments 134 – 43 126 5 260 – 38
Restructuring and related items
- Income – 33 – 32 – 14 – 36 –1 –6 – 48 – 74
- Expense 1 572 833 167 193 449 32 2 188 1 058
Legal-related items
- Income – 51 – 11 – 51 – 11
- Expense 364 170 56 53 420 223
Additional income – 692 – 139 –6 –1 –6 – 138 – 704 – 278
Additional expense 63 241 8 1 48 72 289
Total other items 1 196 381 211 194 564 – 134 1 971 441
Total adjustments 6 451 4 527 455 464 562 – 92 7 468 4 899
Core operating income 15 237 15 215 1 903 2 064 – 475 – 691 16 665 16 588
as % of net sales 36.9% 36.2% 20.6% 21.4% 33.0% 32.1%
(Loss)/income from associated companies –2 5 2 2 –9 15 332 –9 15 339
Core adjustments to income from associated companies, net of tax – 14 346 – 14 346
Interest expense – 837 – 811
Other financial income and expense 20 – 80
Core adjustments to other financial income and expense 121 39
Income taxes, adjusted for above items (core income taxes) – 2 608 – 2 635
Core net income 13 352 14 094
Core net income attributable to shareholders of Novartis AG 13 352 14 097
Core basic EPS (USD) 1 6.12 6.29

1
Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.


67
 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
2022 (USD millions unless indicated otherwise) IFRS results assets 1 Impairments 2 related items 3 items 4 Core results

Gross profit 36 342 3 648 338 64 40 392

Operating income 9 197 3 806 1 687 4 1 971 16 665
Income before taxes 8 371 3 806 1 687 4 2 092 15 960
Income taxes 5 – 1 416 – 2 608
Net income 6 955 13 352
Basic EPS (USD) 6 3.19 6.12

The following are adjustments to arrive at core gross profit

Other revenues 1 283 – 86 1 197
Cost of goods sold – 15 486 3 648 338 150 – 11 350

The following are adjustments to arrive at core operating income

Selling, general and administration – 14 253 63 – 14 190
Research and development – 9 996 158 954 – 204 – 9 088
Other income 805 –3 –4 – 414 384
Other expense – 3 701 398 8 2 462 – 833

The following are adjustments to arrive at core income before taxes

Other financial income and expense 20 121 141

1
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
2
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
3
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
4
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
5
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 effect. Due to these factors and the differing effective 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.
6
Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.


68
 Item 5. Operating and Financial Review and Prospects

Acquisition or
Amortization divestment of
of intangible businesses and Other
2021 (USD millions unless indicated otherwise) IFRS results assets 1 Impairments 2
related items 3 items 4 Core results

Gross profit 37 010 3 655 18 414 41 097

Operating income 11 689 3 764 653 41 441 16 588
Income before taxes 26 137 3 974 653 – 14 531 496 16 729
Income taxes 5 – 2 119 – 2 635
Net income 24 018 14 094
Basic EPS (USD) 6 10.71 6.29

The following are adjustments to arrive at core gross profit

Cost of goods sold – 15 867 3 655 18 414 – 11 780

The following are adjustments to arrive at core operating income

Selling, general and administration – 14 886 71 – 14 815
Research and development – 9 540 109 369 21 – 9 041
Other income 1 852 – 100 – 66 – 1 265 421
Other expense – 2 747 366 107 1 200 – 1 074

The following are adjustments to arrive at core income before taxes

Income from associated companies 15 339 210 – 14 556 993
Other financial income and expense – 80 – 16 55 – 41

1
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
2
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
3
Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income includes adjustments to portfolio transformation and Alcon
spin-off 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
4
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
5
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 effect. Due to these factors and the differing effective 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%.
6
Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.


69
 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
2022 of intangible businesses and Other
(USD millions) IFRS results assets 1 Impairments 2 related items 3 items 4 Core results

Gross profit 31 801 3 427 314 – 29 35 513

Operating income 8 786 3 585 1 662 8 1 196 15 237

The following are adjustments to arrive at core gross profit

Other revenues 1 249 – 86 1 163
Cost of goods sold – 11 569 3 427 314 57 – 7 771

The following are adjustments to arrive at core operating income

Selling, general and administration – 11 679 50 – 11 629
Research and development – 9 172 158 953 – 206 – 8 267
Other income 531 –1 – 311 219
Other expense – 2 695 396 8 1 692 – 599

1
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
2
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
3
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
4
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
2021 of intangible businesses and Other
(USD millions) IFRS results assets 1 Impairments 2
related items 3 items 4 Core results

Gross profit 32 218 3 419 344 35 981

Operating income 10 688 3 528 619 –1 381 15 215

The following are adjustments to arrive at core gross profit

Cost of goods sold – 11 751 3 419 344 – 7 988

The following are adjustments to arrive at core operating income

Selling, general and administration – 12 306 71 – 12 235
Research and development – 8 641 109 360 22 – 8 150
Other income 1 149 – 45 –2 – 837 265
Other expense – 1 732 304 1 781 – 646

1
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
2
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
3
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
4
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


70
 Item 5. Operating and Financial Review and Prospects

2022 and 2021 reconciliation from IFRS to core results – Sandoz

Acquisition or
Amortization divestment of
2022 of intangible businesses and Other
(USD millions) IFRS results assets 1 Impairments 2 related items items 3 Core results

Gross profit 4 504 221 24 93 4 842

Operating income 1 448 221 23 211 1 903

The following are adjustments to arrive at core gross profit

Cost of goods sold – 4 978 221 24 93 – 4 640

The following are adjustments to arrive at core operating income

Selling, general and administration – 2 062 9 – 2 053
Research and development – 824 1 2 – 821
Other income 103 –2 – 14 87
Other expense – 273 121 – 152

1
Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets
2
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
3
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
2021 of intangible businesses and Other
(USD millions) IFRS results assets 1 Impairments 2
related items items 3 Core results

Gross profit 4 725 236 18 70 5 049

Operating income 1 600 236 34 194 2 064

The following are adjustments to arrive at core gross profit

Cost of goods sold – 5 147 236 18 70 – 4 823

The following are adjustments to arrive at core operating income

Research and development – 899 9 –1 – 891
Other income 233 – 55 – 51 127
Other expense – 397 62 176 – 159

1
Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets
2
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
3
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


71
 Item 5. Operating and Financial Review and Prospects

2022 and 2021 reconciliation from IFRS results to core results – Corporate

Acquisition or
Amortization divestment of
2022 of intangible businesses and Other
(USD millions) IFRS results assets Impairments 1 related items 2 items 3 Core results

Gross profit 37 37
Operating loss – 1 037 2 –4 564 – 475

The following are adjustments to arrive at core operating loss

Selling, general and administration – 512 4 – 508
Other income 171 –4 – 89 78
Other expense – 733 2 649 – 82

1
Impairments: other expense includes impairment charges related to intangible assets
2
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
3
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
2021 of intangible businesses and Other
(USD millions) IFRS results assets Impairments related items 1 items 2 Core results

Gross profit 67 67
Operating loss – 599 42 – 134 – 691

The following are adjustments to arrive at core operating loss

Other income 470 – 64 – 377 29
Other expense – 618 106 243 – 269

1
Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income includes adjustments to portfolio transformation and Alcon
spin-off 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
2
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


72
 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
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 11 689 11 689

Income from associated companies 15 339 – 785 – 14 556 –2
Interest expense and other financial
income and expense – 891 – 16 – 907
Income before tax 26 137 – 785 – 14 572 10 780
Income taxes – 2 119 – 2 119
Net income 24 018 – 785 – 14 572 8 661
Basic earnings per share (USD) 10.71 – 0.35 – 6.50 3.86
Effective tax rate 1 8.1% 19.7%

Core operating income 16 588 16 588

Core income from associated companies 993 – 995 –2
Core interest expense and core other
financial income and expense – 852 – 852
Core income before tax 16 729 – 995 15 734
Core income taxes – 2 635 – 2 635
Core net income 14 094 – 995 13 099
Core basic earnings per share (USD) 6.29 – 0.45 5.84
Core effective tax rate 2 15.8% 16.7%

Free cash flow 3 13 282 – 522 12 760

1
Effective tax rate is calculated as Income taxes divided by Income before tax.
2
Core effective tax rate is calculated as Core income taxes divided by Core income before tax.
3
The free cash flow impact represents the dividend received in Q1 2021 from Roche in relation to the distribution of its 2020 net income.


73
 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 2020 received
1
(USD millions) as published net income from Roche

Operating income 11 689 11 689

Adjustments for non-cash items 7 030 7 030
Operating income adjusted for non-cash items 18 719 18 719
Dividends received from associated companies and others 525 – 522 3
Interest and other financial payments, net – 953 – 953
Income taxes paid – 2 342 – 2 342
Other operating cash flow items, net – 878 – 878
Net cash flows from operating activities 15 071 – 522 14 549
Net purchases of property, plant and equipment, intangible assets, financial assets and
other non-current assets – 1 789 – 1 789
Free cash flow 13 282 – 522 12 760

1
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 effect 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 % change
excluding excluding
impacts impacts
from the from the
divestment Percentage divestment Percentage
% change of our Roche point % change of our Roche point
as published investment impact as published investment impact
2022 2022 2022 2022 2022 2022

Net income – 71 – 20 – 51 – 67 –9 – 58
Basic earnings per share (USD) – 70 – 17 – 53 – 66 –7 – 59
Free cash flow – 10 –6 –4
Core net income –5 2 –7 3 11 –8
Core basic earnings per share (USD) –3 5 –8 6 14 –8

5.B Liquidity and capital resources

The following tables summarize the Group’s cash flows and net debt:

(USD millions) 2022 2021

Net cash flows from operating activities 14 236 15 071

Net cash flows from investing activities 1 468 4 208
Net cash flows used in financing activities – 20 562 – 16 264
Effect of exchange rate changes on cash and cash equivalents – 32 – 266
Net change in cash and cash equivalents – 4 890 2 749
Change in marketable securities, commodities, time deposits and derivative financial instruments – 4 509 14 017
Change in current and non-current financial debts and derivative financial instruments 3 022 6 847
Change in net debt – 6 377 23 613
Net debt at January 1 – 868 – 24 481
Net debt at December 31 – 7 245 – 868


74
 Item 5. Operating and Financial Review and Prospects

Cash flow
Financial year 2022 compared with 2021 marketable securities and time deposits, mainly due to
Net cash flows from operating activities amounted to the investment of a portion of the proceeds from the
USD 14.2 billion, compared with USD 15.1 billion in 2021. divestment of our investment in Roche; USD 1.6 billion
This decrease was mainly due to unfavorable changes for purchases of intangible assets (including the upfront
in working capital and lower dividends from associated payment to in-license tislelizumab from an affiliate of Bei-
companies (2021 included the USD 0.5 billion dividends Gene, Ltd); USD 1.4 billion for purchases of property,
received from our investment in Roche, which was plant and equipment; USD 0.6 billion for acquisitions and
divested in the fourth quarter of 2021), partly offset by divestments of businesses, net (including the acquisition
lower income taxes paid and favorable hedging results. of GSK’s cephalosporin antibiotics business for USD 351
Net cash inflows from investing activities amounted million); and USD 0.2 billion for purchases of financial
to USD 1.5 billion, compared with USD 4.2 billion in 2021. assets.
The current year cash inflows were driven by net pro- Net cash outflows used in financing activities
ceeds of USD 4.7 billion from the sale of marketable amounted to USD 20.6 billion, compared with USD 16.3
securities, commodities and time deposits; USD 0.5 bil- billion in 2021.
lion from the sale of intangible assets, financial assets The current year cash outflows were mainly driven
and property, plant and equipment. These cash inflows by USD 10.6 billion for net treasury share transactions;
were partly offset by cash outflows of USD 1.5 billion for USD 7.5 billion for the dividend payment; USD 2.5 billion
purchases of intangible assets; USD 1.2 billion for pur- in aggregate for the repayment of two US dollar bonds;
chases of property, plant and equipment; USD 0.1 billion and USD 0.3 billion payments of lease liabilities. These
for purchases of financial assets; and USD 0.9 billion for cash outflows were partly offset by cash inflows of USD
acquisitions and divestments of businesses, net (primar- 0.3 billion from the net increase in current financial debts.
ily the acquisition of Gyroscope Therapeutics Holdings In 2021, net cash outflows used in financing activities
plc for USD 0.8 billion). of USD 16.3 billion were driven by USD 7.4 billion for the
In 2021, net cash inflows from investing activities of dividend payment; USD 3.0 billion for net treasury share
USD 4.2 billion were driven by proceeds of USD 20.7 bil- transactions; USD 3.5 billion net decrease in current
lion from the divestment of our investment in Roche; USD financial debts; and USD 2.2 billion for the repayment of
2.3 billion from the sale of marketable securities, com- two bonds denominated in euro (notional amount of EUR
modities and time deposits; and USD 1.4 billion from the 1.25 billion and of EUR 0.6 billion) at maturity. Payments
sale of intangible assets, financial assets and property, of lease liabilities and other financing cash flows resulted
plant and equipment. These cash inflows were partly off- in a net cash outflow of USD 0.2 billion.
set by USD 16.4 billion cash outflows for purchases of

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 cash flow Adjustments cash flow

Net cash flows from operating activities 14 236 14 236 15 071 15 071

Net cash flows from/(used in) investing activities 1 1 468 – 3 759 – 2 291 4 208 – 5 997 – 1 789

Net cash flows used in financing activities 2 – 20 562 20 562 0 – 16 264 16 264 0

Free cash flow 11 945 13 282

1
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.
2
Net cash flows used in financing activities are excluded from the free cash flow.


75
 Item 5. Operating and Financial Review and Prospects

The following table is a summary of the free cash flow:

(USD millions) 2022 2021

Operating income 9 197 11 689

Adjustments for non-cash items
Depreciation, amortization and impairments 7 441 6 075
Change in provisions and other non-current liabilities 1 403 896
Other 460 59
Operating income adjusted for non-cash items 18 501 18 719
Dividends received from associated companies and others 1 525
Interest and other financial receipts 325 13
Interest and other financial payments – 728 – 966
Income taxes paid – 1 975 – 2 342
Payments out of provisions and other net cash movements in non-current liabilities – 885 – 1 119
Change in inventories and trade receivables less trade payables – 1 467 – 329
Change in other net current assets and other operating cash flow items 464 570
Net cash flows from operating activities 14 236 15 071
Purchases of property, plant and equipment – 1 198 – 1 378
Proceeds from sale of property, plant and equipment 167 240
Purchases of intangible assets – 1 473 – 1 593
Proceeds from sale of intangible assets 202 748
Purchases of financial assets – 121 – 191
Proceeds from sale of financial assets 133 442
Purchases of other non-current assets –1 – 61
Proceeds from sale of other non-current assets 4
Free cash flow 11 945 13 282

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 offset by lower pur-
chases of property, plant and equipment.


76
 Item 5. Operating and Financial Review and Prospects

Condensed consolidated balance sheets

(USD millions) Dec 31, 2022 Dec 31, 2021

Assets
Property, plant and equipment 10 764 11 545
Right-of-use assets 1 431 1 561
Goodwill 29 301 29 595
Intangible assets other than goodwill 31 644 34 182
Investments in associated companies 143 205
Deferred tax assets 3 739 3 743
Financial assets and other non-current assets 3 521 5 246
Total non-current assets 80 543 86 077
Inventories 7 175 6 666
Trade receivables 8 066 8 005
Other current assets and income tax receivables 2 739 2 718
Marketable securities, commodities, time deposits and derivative financial instruments 11 413 15 922
Cash and cash equivalents 7 517 12 407
Total current assets 36 910 45 718
Total assets 117 453 131 795
Equity and liabilities
Total equity 59 423 67 822
Liabilities
Financial debts 20 244 22 902
Lease liabilities 1 538 1 621
Deferred tax liabilities 2 686 3 070
Provisions and other non-current liabilities 4 906 6 172
Total non-current liabilities 29 374 33 765
Trade payables 5 146 5 553
Financial debts and derivative financial instruments 5 931 6 295
Lease liabilities 251 275
Provisions and other current liabilities and current income tax liabilities 17 328 18 085
Total current liabilities 28 656 30 208
Total liabilities 58 030 63 973
Total equity and liabilities 117 453 131 795

Right-of-use assets, investments in associated com-

Assets panies and deferred tax assets were broadly in line with
Total non-current assets of USD 80.5 billion at Decem- December 31, 2021.
ber 31, 2022, decreased by USD 5.5 billion compared to Total current assets of USD 36.9 billion at December
December 31, 2021. 31, 2022, decreased by USD 8.8 billion compared to
Intangible assets other than goodwill decreased by December 31, 2021.
USD 2.5 billion as additions (including the acquisition of Cash and cash equivalents decreased by USD 4.9
Gyroscope Therapeutics Holdings plc) were more than billion, mainly due to the dividend payment, the purchase
offset by amortization, impairments and unfavorable cur- of treasury shares and net repayments of financial debt,
rency translation adjustments. partly offset by the cash generated from operating activ-
Goodwill decreased by USD 0.3 billion, mainly due to ities and from investing activities, which includes the net
unfavorable currency translation adjustments. proceeds from the sales of marketable securities, com-
Property, plant and equipment decreased by USD 0.8 modities and time deposits.
billion, as net additions were more than offset by depre- Marketable securities, commodities, time deposits
ciation, unfavorable currency translation adjustments and derivative financial instruments decreased by USD
and impairments. 4.5 billion mainly driven by the net sales of marketable
Financial and other non-current assets decreased by securities, commodities and time deposits.
USD 1.7 billion, driven by the decrease of the prepaid Inventories increased by USD 0.5 billion and trade
post-employment benefit plans of USD 0.9 billion, result- receivables and other current assets and income tax
ing mainly from the pension accounting effects from receivables were broadly in line with December 31, 2021.
increases in actuarial discount rates and of USD 0.6 bil- We consider our provisions for doubtful trade receiv-
lion from fair value losses on listed equity and fund invest- ables to be adequate. We particularly monitor the level
ments. of trade receivables in countries deemed to have an


77
 Item 5. Operating and Financial Review and Prospects

elevated credit risk. We consider macroeconomic envi- Provisions and other current liabilities and current
ronment, historical experience, country and political risk, income tax liabilities decreased by USD 0.8 billion, mainly
in addition to other relevant information when assessing driven by the decrease in the commitment for repurchase
risk. These risk factors are monitored regularly to deter- of own shares liability of USD 2.8 billion, partly offset by
mine any adjustments in risk classification. The majority increases in restructuring provisions of USD 0.8 billion
of the past due trade receivables from elevated credit (primarily due to the initiative announced in April 2022,
risk countries are due from local governments or from to implement a new streamlined organizational model),
government-funded entities. Deteriorating credit and in provisions for legal matters of USD 0.5 billion, includ-
economic conditions as well as other factors in these ing a USD 0.2 billion reclassification from non-current
elevated credit risk countries have resulted in, and may provisions for legal matters, and in provisions for reve-
continue to result in, an increase in the average length nue deductions of USD 0.3 billion.
of time that it takes to collect these trade receivables Current financial debts and derivative financial instru-
and may require the Group to re-evaluate the expected ments decreased by USD 0.4 billion, mainly due to the
credit loss amount of these trade receivables in future repayment of two US dollar bonds of USD 1.0 billion and
periods. At December 31, 2022, amounts past due for USD 1.5 billion, the closure during the third quarter of
more than one year were not significant in elevated credit 2022 of the interest-bearing accounts of employees pay-
risk countries. able on demand, which amounted to USD 1.8 billion at
For a table showing an overview of the aging analy- December 31, 2021, and favorable currency translation
sis of total trade receivables and the total amount of the adjustments, partly offset by the reclassification from
provision for doubtful trade receivables as of December non-current to current financial debts of USD 2.3 billion
31, 2022, and 2021, see “Item 18. Financial Statements— and an increase of USD 1.9 billion in commercial paper.
Note 15. Trade receivables.” Trade payables decreased by USD 0.4 billion and cur-
There is also a risk that certain countries could rent lease liabilities were broadly in line with December
devalue their currency. Currency exposures are 31, 2021.
described in more detail in “—Effects of currency fluctu- In our key countries, Switzerland and the United
ations.” States, assessments have been agreed by the tax author-
ities up to 2017 in Switzerland and up to 2014 in the United
Liabilities States, with the exception of one open United States
Total non-current liabilities of USD 29.4 billion decreased position related to the 2007 tax filing. Uncertainties also
by USD 4.4 billion compared to December 31, 2021. exist on the application of a taxing right based on a Ger-
Non-current financial debts decreased by USD 2.7 man non-resident tax regulation for specific revenues
billion, mainly due to the reclassification of USD 2.3 bil- derived from German registered intellectual property
lion from non-current to current financial debts of two rights.
EUR denominated bonds with notional amounts of EUR Novartis believes that its total provisions are ade-
750 million and EUR 1.25 billion maturing in 2023 and quate based upon currently available information. How-
favorable currency translation adjustments of USD 0.4 ever, given the inherent difficulties in estimating liabilities
billion. in this area, Novartis may incur additional costs beyond
Provisions and other non-current liabilities decreased the amounts provided. Management believes that such
by USD 1.3 billion, mainly driven by decreases in accrued additional amounts, if any, would not be material to the
liabilities for employee benefits of USD 1.2 billion (primar- Group’s financial condition but could be material to the
ily due to a decrease in accrued liabilities for defined results of operations or cash flows in a given period.
benefit pension plans of USD 0.9 billion, resulting from
the pension accounting effects from increases in actu- Equity
arial discount rates), and in contingent consideration of The Group`s equity decreased by USD 8.4 billion to USD
USD 0.3 billion, a reclassification of non-current legal 59.4 billion at December 31, 2022, compared to Decem-
matters provisions to current portion of USD 0.2 billion, ber 31, 2021.
partly offset by the increase in other non-current liabili- This decrease was mainly due to the cash-dividend
ties of USD 0.4 billion. payment of USD 7.5 billion, purchase of treasury shares
Deferred tax liabilities decreased by USD 0.4 billion of USD 10.9 billion, unfavorable currency translation dif-
and non-current lease liabilities were broadly in line with ferences of USD 0.5 billion and fair value adjustments on
December 31, 2021. equity securities of USD 0.4 billion. This was partially off-
Total current liabilities of USD 28.7 billion decreased set by the net income of USD 7.0 billion, decrease of the
by USD 1.6 billion compared to December 31, 2021. treasury share repurchase obligation of USD 2.8 billion,
and equity-based compensation of USD 0.9 billion.


78
 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

2022 2021
2022 2021 USD millions USD millions

Balance at beginning of year 2 234.9 2 256.8 67 655 56 598

Shares acquired to be canceled – 126.2 – 30.7 – 10 787 – 2 775
Other share purchases – 1.4 – 1.5 – 123 – 145
Exercise of options and employee transactions 1.9 0.6 88 39
Equity-based compensation 10.4 9.6 854 745
Shares delivered to Alcon employees as a result of the Alcon spin-off 0.0 0.1 5 17
Taxes on treasury share transactions 14 1
Decrease/(increase) of treasury share repurchase
obligation under a share buyback trading plan 2 809 – 1 040
Transaction costs, net of taxes 12
Dividends – 7 506 – 7 368
Net income of the year attributable to shareholders of Novartis AG 6 955 24 021
Other comprehensive income attributable to shareholders of Novartis AG – 839 – 2 493
Impact of change in ownership of consolidated entities –5
Other movements 1 217 48
Balance at end of year 2 119.6 2 234.9 59 342 67 655

1
Impact of hyperinflationary economies (see “Item 18. Financial Statements—Note 1. Significant accounting policies”).

In 2022, Novartis repurchased a total of 126.2 million billion) under the up-to USD 15 billion share buyback
shares for USD 10.8 billion on the SIX Swiss Exchange announced in December 2021. In addition, 1.5 million
second trading line, including 115.3 million shares (USD shares (USD 0.1 billion) were repurchased from associ-
9.9 billion) under the up-to USD 15 billion share buyback ates. In the same period, 10.3 million shares (for an equity
announced in December 2021 and 10.9 million shares value of USD 0.8 billion) were delivered as a result of
(USD 0.9 billion) to mitigate dilution related to participa- options exercised and share deliveries related to partic-
tion plans of associates. In addition, 1.4 million shares ipation plans of associates. Consequently, the total num-
(USD 0.1 billion) were repurchased from associates. In ber of shares outstanding decreased by 21.9 million ver-
the same period, 12.3 million shares (for an equity value sus December 31, 2020. These treasury share
of USD 0.9 billion) were delivered as a result of option transactions resulted in a decrease in equity of USD 2.1
exercises and share deliveries related to participation billion and a net cash outflow of USD 3.0 billion.
plans of associates. Consequently, the total number of
shares outstanding decreased by 115.3 million versus Treasury shares
December 31, 2021. These treasury share transactions At December 31, 2022, our holding of treasury shares
resulted in a decrease in equity of USD 10.0 billion and amounted to 284.1 million shares, or approximately 12%
a net cash outflow of USD 10.6 billion. of the total number of issued shares. Approximately 99.0
In 2021, Novartis repurchased a total of 30.7 million million treasury shares were held in entities that restrict
shares for USD 2.8 billion on the SIX Swiss Exchange their availability for use.
second trading line, including 19.6 million shares (USD At December 31, 2021, our holding of treasury shares
1.8 billion) under the up-to USD 2.5 billion share buyback amounted to 199.5 million shares, or approximately 8%
announced in November 2020, 8.6 million shares (USD of the total number of issued shares. Approximately
0.8 billion) to mitigate dilution related to participation 102.5 million treasury shares were held in entities that
plans of associates and 2.5 million shares (USD 0.2 restrict their availability for use.


79
 Item 5. Operating and Financial Review and Prospects

Effects 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 Operating
Net sales expenses Net sales expenses
Currency % %1 % %1

US dollar (USD) 37 36 35 35
Euro (EUR) 27 24 29 26
Swiss franc (CHF) 2 20 2 18
Chinese yuan (CNY) 6 4 6 3
Japanese yen (JPY) 4 2 5 3
Canadian dollar (CAD) 3 1 3 2
British pound (GBP) 2 2 3 2
Russian ruble (RUB) 2 1 2 1
Brazilian real (BRL) 2 1 1 1
Australian dollar (AUD) 1 1 1 1
Other currencies 14 8 13 8

1
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 in the value of the Swiss franc can have a significant
dollars. As a result, fluctuations in the exchange rates impact on the reported value of our earnings, assets and
between the US dollar and other currencies can have a liabilities, and the timing and extent of such volatility can
significant effect on both the Group’s results of opera- be difficult to predict.
tions as well as the reported value of our assets, liabili- The Group manages its global currency exposure by
ties and cash flows. This in turn may significantly affect engaging in hedging transactions where management
reported earnings (both positively and negatively) and deems appropriate, after taking into account the natural
the comparability of period-to-period results of opera- hedging afforded by our global business activity. In 2022
tions. and 2021, we entered into various contracts that change
For purposes of our consolidated balance sheets, we in value with movements in foreign exchange rates, to
translate assets and liabilities denominated in other cur- preserve the value of assets, commitments and expected
rencies into US dollars at the prevailing market exchange transactions. We use forward contracts and foreign cur-
rates as of the relevant balance sheet date. For purposes rency options to hedge. For more information on how
of the Group’s consolidated income and cash flow state- these transactions affect our consolidated financial
ments, revenue, expense and cash flow items in local statements and on how foreign exchange rate exposure
currencies are translated into US dollars at average is managed, see “Item 18. Financial Statements—Note 1.
exchange rates prevailing during the relevant period. As Significant accounting policies,” “Item 18. Financial State-
a result, even if the amounts or values of these items ments—Note 5. Interest expense and other financial
remain unchanged in the respective local currency, income and expense,” “Item 18. Financial Statements—
changes in exchange rates have an impact on the Note 15. Trade receivables,” “Item 18. Financial State-
amounts or values of these items in our consolidated ments—Note 28. Commitments and contingent liabilities”
financial statements. and “Item 18. Financial Statements—Note 29. Financial
Because our expenditure in Swiss francs is signifi- instruments – additional disclosures.”
cantly higher than our revenue in Swiss francs, volatility


80
 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 2022 2021 Change in % 2022 2021 Change in %

Australian dollar (AUD) 0.695 0.752 –8 0.678 0.726 –7

Brazilian real (BRL) 0.194 0.186 4 0.189 0.180 5
Canadian dollar (CAD) 0.769 0.798 –4 0.738 0.785 –6
Swiss franc (CHF) 1.048 1.094 –4 1.081 1.093 –1
Chinese yuan (CNY) 0.149 0.155 –4 0.144 0.157 –8
Euro (EUR) 1.054 1.183 – 11 1.065 1.131 –6
British pound (GBP) 1.237 1.376 – 10 1.207 1.351 – 11
Japanese yen (JPY (100)) 0.766 0.912 – 16 0.757 0.868 – 13
Russian ruble (RUB (100)) 1.481 1.357 9 1.380 1.336 3

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
2022 2022 2022 2021 2021 2021

Total Group
Net sales to third parties –2 4 –6 6 4 2
Operating income – 21 – 13 –8 15 13 2
Net income – 71 – 67 –4 198 195 3
Basic earnings per share (USD) – 70 – 66 –4 202 200 2
Core operating income 0 8 –8 8 6 2
Core net income –5 3 –8 7 5 2
Core basic earnings per share (USD) –3 6 –9 9 7 2

Innovative Medicines
Net sales to third parties –2 4 –6 8 6 2
Operating income – 18 –9 –9 17 15 2
Core operating income 0 8 –8 12 10 2

Sandoz
Net sales to third parties –4 4 –8 0 –2 2
Operating income – 10 –2 –8 53 48 5
Core operating income –8 –1 –7 – 12 – 14 2

Corporate
Operating loss – 73 – 84 11 nm nm nm
Core operating loss 31 28 3 – 23 – 20 –3

nm = not meaningful

For additional information on the effects of currency fluctuations, see “Item 18. Financial Statements—Note 29.
Financial instruments – additional disclosures.”


81
 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) 2022 2021

Non-current financial debts – 20 244 – 22 902

Current financial debts and derivative financial instruments – 5 931 – 6 295
Total financial debts – 26 175 – 29 197
Less liquidity
Cash and cash equivalents 7 517 12 407
Marketable securities, commodities, time deposits and
derivative financial instruments 11 413 15 922
Total liquidity 18 930 28 329
Net debt at December 31 1 – 7 245 – 868

1
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 facility is provided by a syndicate of banks and is intended

Group net debt at December 31, 2022, increased to to be used as a backstop for the US commercial paper
USD 7.2 billion, compared with USD 0.9 billion at Decem- programs. The extended facility matures in September
ber 31, 2021. 2025 and was undrawn as per December 31, 2022, and
Total financial debts amounted to USD 26.2 billion at December 31, 2021.
December 31, 2022, compared with USD 29.2 billion at Total liquidity decreased to USD 18.9 billion com-
December 31, 2021. Non-current financial debts pared with USD 28.3 billion at December 31, 2021.
decreased by USD 2.7 billion, mainly due to the reclas- As of year-end 2022, Moody’s Investors Service rated
sification of USD 2.3 billion from non-current to current the Company A1 for long-term maturities and P-1 for
financial debts of two EUR denominated bonds with short-term maturities and S&P Global Ratings rated the
notional amounts of EUR 750 million and EUR 1.25 bil- company AA- for long-term maturities and A-1+ for short-
lion maturing in 2023 and favorable foreign currency term maturities.
translation adjustments of USD 0.4 billion. For the tables showing the maturity schedule of our
Current financial debts and derivative financial instru- current financial assets, current and non-current finan-
ments decreased by USD 0.4 billion, mainly due to the cial debts and net debt at December 31, 2022 and
repayment of two US dollar bonds of USD 1.0 billion and December 31, 2021, see “Item 18. Financial Statements—
USD 1.5 billion, the closure during the third quarter of Note 29. Financial instruments – Additional disclosures—
2022 of the interest-bearing accounts of employees pay- Nature and extent of risks arising from financial instru-
able on demand, which amounted to USD 1.8 billion at ments—Liquidity risk.”
December 31, 2021, and favorable currency translation For a description of risks and restrictions on the abil-
adjustments, partly offset by the reclassification from ity of subsidiaries to transfer funds to the Company via
non-current to current financial debts of USD 2.3 billion cash dividends, loan or advances, please see “—Liquid-
and an increase of USD 1.9 billion in commercial paper. ity/short-term funding” and “Item 18. Financial State-
Novartis has two US commercial paper programs ments—Note 29. Financial instruments – Additional dis-
under which it can issue up to USD 9.0 billion in the closures—Nature and extent of risks arising from
aggregate of unsecured commercial paper notes. financial instruments.”
Novartis also has a Japanese commercial paper program Information regarding the Company’s material com-
under which it can issue up to JPY 150 billion (approxi- mitments for capital expenditures as of the end of 2022
mately USD 1.1 billion) of unsecured commercial paper and 2021 and an indication of the general purpose of
notes. Commercial paper notes totaling USD 2.8 billion such commitments and the anticipated sources of funds
under these three programs were outstanding as per needed to fulfill such commitments are provided in “—
December 31, 2022 (2021: USD 0.9 billion). Material short- and long-term cash requirements.”
Novartis also has a committed credit facility of
USD 6.0 billion, which was extended in 2022. This credit


82
 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 Financial
Liquidity Liquidity debt in % debt in %
in % 20221 in % 2021 1 2022 2 2021 2

USD 85 92 62 57
CHF 4 4 6 12
EUR 7 2 29 27
JPY 1 1
Other 4 2 2 3
100 100 100 100

1
Liquidity includes cash and cash equivalents and marketable securities, including debt securities, commodities and time deposits.
2
Financial debt includes non-current and current financial debt.

Bonds December 31, 2022, compared with USD 0.9 billion at

December 31, 2021.
In April 2022, a 5-year USD denominated bond of USD We continuously track our liquidity position and
1.0 billion with a coupon of 2.40% was repaid, in advance asset/liability profile. This involves modeling cash flow
of its maturity date at no additional cost. maturity profiles based on both historical experiences
In September 2022, a 10-year USD denominated and contractual expectations to project our liquidity
bond of USD 1.5 billion with a coupon of 2.40% was requirements. We seek to preserve prudent liquidity and
repaid at maturity. funding capabilities. We are confident that we have suf-
In March 2021, a 4-year EUR denominated bond of ficient liquidity to support our normal business activities
EUR 1.25 billion with a coupon of 0.00% was repaid at for the foreseeable future.
maturity. Certain countries have legal or economic restrictions
In November 2021, a 7-year EUR denominated bond on the ability of subsidiaries to transfer funds to the
of EUR 0.6 billion with a coupon of 0.75% was repaid at Group in the form of cash dividends, loans or advances,
maturity. 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
Liquidity/short-term funding change the level of liquidity needed to support our nor-
mal business activities. We make use of various borrow-
The Group’s liquidity amounted to USD 18.9 billion at ing facilities provided by several financial institutions. We
December 31, 2022, compared with USD 28.3 billion at also successfully issued various bonds in previous years
December 31, 2021. Total non-current and current finan- and raised funds through our commercial paper pro-
cial debts, including derivatives, amounted to USD 26.2 grams.
billion at December 31, 2022, compared with USD 29.2 The maturity schedule of our net debt can be found
billion at December 31, 2021. in “Item 18. Financial Statements—Note 29. Financial
The debt/equity ratio increased to 0.44:1 at Decem- instruments – Additional disclosures—Nature and extent
ber 31, 2022, compared with 0.43:1 at December 31, of risks arising from financial instruments—Liquidity risk.”
2021. The net debt increased to USD 7.2 billion at


83
 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 1 year 2–3 years 4–5 years 5 years

Non-current financial debt, including current portion 22 485 2 241 5 428 3 547 11 269
Interest on non-current financial debt, including current portion 5 532 476 821 611 3 624
Lease liabilities, non-current and current portion 1 789 251 357 259 922
Interest on lease liabilities, non-current and current portion 1 416 46 76 67 1 227
Commitments for leases not yet commenced 83 10 14 15 44
Unfunded pensions and other post-employment benefit plans 1 281 115 215 204 747
Research and development potential milestone commitments 5 814 420 1 256 969 3 169
Contingent consideration liabilities 835 131 339 98 267
Property, plant and equipment purchase commitments 549 441 93 15
Total contractual cash obligations 39 784 4 131 8 599 5 785 21 269

The Group intends to fund the research and develop- other financial information,” “Item 18. Financial State-
ment; property, plant and equipment; intangible asset ments—Note 10. Right-of-use assets and lease liabilities,”
purchase commitments with internally generated “Item 18. Financial Statements—Note 20. Provisions and
resources, and the acquisition of business commitment other non-current liabilities,” and “Item 18. Financial
through available cash and short- and long-term borrow- Statements—Note 28. Commitments and contingent lia-
ings. bilities.”
For other contingent liabilities, see “Item 8. Financial
Information—Item 8.A Consolidated statements and


84
 Item 5. Operating and Financial Review and Prospects

5.C Research and development, patents and licenses

Our research and development spending totaled risks and uncertainties involved in progressing through
USD 10.0 billion and USD 9.5 billion (Core research and preclinical development and clinical trials, and the time
development USD 9.1 billion and USD 9.0 billion) for the and cost involved in obtaining regulatory approvals,
years 2022 and 2021, respectively. among other factors, we cannot reasonably estimate the
Each of our divisions has its own research and devel- timing, completion dates and costs, or range of costs, of
opment and patents. Our divisions have numerous prod- our drug development programs, or of the development
ucts in various stages of development. For further infor- of any particular development compound (see “Item 3.
mation on these policies and these products in Key Information—Item 3.D Risk factors”). In addition, for
development, see “Item 4. Information on the Company— a description of the research and development process
Item 4.B Business overview.” for the development of new drugs and our other prod-
As described in the risk factors section and else- ucts, and the regulatory process for their approval, see
where in this Annual Report, our drug development “Item 4. Information on the Company—Item 4.B Business
efforts are subject to the risks and uncertainties inher- overview.”
ent in any new drug development program. Due to the

5.D Trend information

Please see “—Item 5.A Operating results”, “—Item 5.B on the Company—Item 4.B Business overview” for trend
Liquidity and capital resources” and “Item 4. Information information.

5.E Critical accounting estimates

Our consolidated financial statements are prepared in Deductions from revenues
accordance with International Financial Reporting Stan-
dards (IFRS) as issued by the International Accounting As is typical in the pharmaceutical industry, the consid-
Standards Board (IASB). The preparation of financial eration we receive in exchange for goods and services
statements requires management to make certain esti- maybe fixed or variable. The most common elements of
mates and assumptions, either at the balance sheet date variable consideration are primarily composed of rebates
or during the year, which affect the reported amounts of and discounts granted to wholesalers, retailers, govern-
revenues, expenses, assets, liabilities and contingent ment agencies, government supported healthcare sys-
amounts. Our significant accounting policies that are set tems, private health systems, pharmacy benefit manag-
out in “Item 18. Financial Statements—Note 1. Significant ers, managed healthcare organizations and other
accounting policies” include a description of the esti- customers. Variable consideration is recognized when it
mates, assumptions and judgments applied in the prepa- is highly probable that a significant reversal will not occur.
ration of the consolidated financial statements of the These elements of variable consideration represent esti-
Group. mates of the related obligations, requiring the use of judg-
Given the uncertainties inherent in our business activ- ment when estimating the effect of these considerations
ities, we must make certain estimates and assumptions for a reporting period.
that require difficult, subjective and complex judgments. The following summarizes the nature of some of
Because of uncertainties inherent in such judgments, these deductions and how the deduction is estimated.
actual outcomes and results may differ from our assump- After recording these, net sales represent our best esti-
tions and estimates, which could materially affect the mate of the cash that we expect to ultimately collect. The
Group’s consolidated financial statements. Application US market has the most complex arrangements related
of the following accounting policies requires certain to revenue deductions.
assumptions and estimates that have the potential for
the most significant impact on our consolidated financial United States-specific healthcare plans and
statements. program rebates
Management believes that the estimation uncertain- The United States Medicaid Drug Rebate Program is
ties described below did not have or are not reasonably administered by state governments, using state and fed-
likely to have a material impact on the Group’s financial eral funds to provide assistance to certain vulnerable
condition but could be material to the results of opera- and needy individuals and families. Calculating the
tions or cash flows in a given period. 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


85
 Item 5. Operating and Financial Review and Prospects

guidance by government authorities. Provisions for esti- The impact of potential refunds or a deferral of a por-
mated Medicaid rebates are calculated using a combi- tion of the sales price are estimated and recorded as a
nation of historical experience, product and population deduction from revenue at the time the related sales are
growth, product pricing, and the mix of contracts and recorded. The impact of the future delivery of additional
specific terms in the individual state agreements. medicines at no cost is estimated and recorded as a con-
The United States Federal Medicare Program, which tract liability at the time the related revenues are recorded.
funds healthcare benefits to individuals aged 65 and Estimates are based on historical experience and clini-
older, and to people with certain disabilities, provides cal data available for the product, as well as specific
prescription drug benefits under the Part D section of terms of the individual agreements. In cases where his-
the program. This benefit is provided and administered torical experience and clinical data are not sufficient for
through private prescription drug plans. Calculating the a reliable estimation of the outcome, revenue recogni-
rebates to be paid related to this program involves use tion is deferred until the uncertainty is resolved, until such
of estimates and interpreting relevant regulations, which history is available or the period of the refund right has
are subject to challenge or change in interpretative guid- expired.
ance by government authorities. Provisions for estimated These provisions for revenue deductions are adjusted
Medicare Part D rebates are calculated based on the periodically based on established processes and actual
terms of individual plan agreements, product sales and experience, including the products’ actual outcomes
population growth, product pricing, including inflation achieved compared with the anticipated predefined tar-
impacts, and the mix of contracts. gets.
We offer rebates to key managed healthcare and pri- There is often a time lag between recording of the
vate plans in an effort to ensure patient access to our revenue deductions and the final accounting for them.
products and to sustain and increase the market share
of our products. These programs provide a rebate after Non-healthcare plans and program rebates, returns
the plans have demonstrated they have met all terms and and other deductions
conditions set forth in their contract with us. We offer rebates to purchasing organizations and other
These rebates and discounts, applied using provision direct and indirect customers to sustain and increase
rates, are estimated based on the specific terms in the market share and to ensure patient access to our prod-
individual states and plans agreements, historical expe- ucts. Since rebates are contractually agreed upon, the
rience, product pricing and projected product growth related provisions are estimated based on the terms of
rates, as appropriate to the individual rebate and dis- the individual agreements, historical experience and pro-
count arrangements, and are recorded as a deduction jected product sales growth rates.
from revenue at the time the related revenues are Chargebacks occur where our subsidiaries have
recorded. arrangements with indirect customers to sell products
These provisions are adjusted based on established at prices that are lower than the price charged to whole-
processes and experiences from filing data with individ- salers. A chargeback represents the difference between
ual states and plans. There is often a time lag between the invoice price to the wholesaler and the indirect cus-
recording of revenue deductions and the final account- tomer’s contract price. We account for chargebacks by
ing for them. reducing revenue by the estimate of chargebacks attrib-
utable to a sales transaction. Provisions for estimated
Non-United States-specific healthcare plans and chargebacks are calculated using a combination of fac-
program rebates tors, such as historical experience, product growth rates,
In certain countries other than the US, we provide rebates product pricing, level of inventory in the distribution chan-
to governments and other entities. These rebates are nel, and the terms of individual agreements.
often mandated by laws or government regulations. When we sell a product providing a customer the right
These rebates, applied using provision rates, are esti- to return it, we record a provision for estimated sales
mated based on government regulations, laws and terms returns based on our sales return policy and historical
of individual rebate arrangements, historical experience return rates. Other factors considered include actual
and other relevant factors, and are recorded as a deduc- product recalls, expected marketplace changes, the
tion from revenue at the time the related revenue is remaining shelf life of the product, and the expected
recorded. These estimates are adjusted periodically to entry of generic products. In 2021, sales returns amounted
reflect actual experience. There is often a time lag to approximately 1% of gross product sales. If sufficient
between the recording of revenue deductions and the experience is not available, sales are only recorded
final accounting for them. based on evidence of product consumption or when the
right of return has expired.
Innovative pay-for-performance arrangements We enter into distribution service agreements with
We enter into innovative pay-for-performance arrange- major wholesalers, which provide a financial disincentive
ments (i.e. outcome based arrangements) with certain for the wholesalers to purchase product quantities in
healthcare providers and governments. Under these excess of current customer demand. Where possible,
agreements, we may be required to make refunds, defer we adjust shipping patterns for our products to maintain
a portion of the sales price until anticipated treatment wholesalers’ inventory levels consistent with underlying
outcomes meet predefined targets, or to provide addi- patient demand.
tional medicines free of charge if anticipated treatment We offer cash discounts to customers to encourage
outcomes do not meet predefined targets. prompt payment. Cash discounts are estimated and


86
 Item 5. Operating and Financial Review and Prospects

provisioned at the time of revenue recognition and are the range of economic c ­ onditions that are expected to
deducted from revenue. exist over the remaining useful life of the asset.
Following a decrease in the price of a product, we The estimates used in calculating the net present val-
generally grant customers a “shelf stock adjustment” for ues are highly sensitive and depend on assumptions spe-
their existing inventory for the relevant product. Shelf cific to the nature of the Group’s activities as indicated
stock adjustments are generally granted to customers, in “Item 18. Financial Statements—Note 1. Significant
primarily of the Sandoz Division, to cover the inventory accounting policies.” Due to these factors, actual cash
held by them at the time a price decline becomes effec- flows and values could vary significantly from forecasted
tive. Revenue deduction provisions for shelf stock adjust- future cash flows and related values derived using dis-
ments are recorded when the price decline is anticipated, counting techniques.
based on the impact of the price decline on the custom- The recoverable amount of the grouping of cash-gen-
er’s estimated inventory levels. erating units to which goodwill is allocated is based on
Other sales discounts, such as consumer coupons, fair value less costs of disposal. The valuations are
vouchers and copay discount cards, are offered in some derived from applying discounted future cash flows
markets. The estimated amounts of these discounts are based on key assumptions, including the terminal growth
recorded at the time of sale or when the coupons are rate and discount rate. For additional information on
issued, and are estimated utilizing historical experience impairment charges recognized and reversed by divi-
and the specific terms for each program. sions, see “Item 18. Financial Statements—Note 1. Sig-
In addition, we offer global patient assistance pro- nificant accounting policies—Impairment of goodwill and
grams. intangible assets” and “Item 18. Financial Statements—
We adjust provisions for revenue deductions period- Note 11. Goodwill and intangible assets.”
ically to reflect actual experience. To evaluate the ade- Goodwill and other intangible assets represent a sig-
quacy of provision balances, we use internal and exter- nificant part of our consolidated balance sheet, primar-
nal estimates of the inventory in transit, the level of ily due to acquisitions. Although no significant additional
inventory in the distribution and retail channels, actual impairments are currently anticipated based on our
claims data received, and the time lag for processing impairment assessment and review of reasonable pos-
rebate claims. External data sources include reports sible changes in key assumptions to the respective
from wholesalers and third-party market data purchased impairment assessment, future impairment evaluation
by Novartis. could lead to material impairment charges in the future.
For more information, see “Item 18. Financial State-
For the table showing the worldwide extent of our reve- ments—Note 11. Goodwill and intangible assets.”
nue deductions provisions and related payment experi- For net impairment charges for property, plant and
ences for the Group see “Item 18. Financial Statements— equipment see “Item 18. Financial Statements—Note 9.
Note 22. Provisions and other current liabilities.” Property, plant and equipment.”

Impairment of goodwill, intangible Retirement and other post-

assets and property, plant and employment benefit plans
equipment We sponsor pension and other post-employment bene-
We review intangible assets and property, plant and fit plans in various forms that cover a significant portion
equipment for impairment whenever events or changes of our current and former employees. For post-employ-
in circumstance indicate that the asset’s balance sheet ment plans with defined benefit obligations, we are
carrying amount may not be recoverable. Goodwill and required to make significant assumptions and estimates
other intangible assets that are not yet amortized, are about future events in calculating the expense and the
reviewed for impairment at least annually. present value of the liability related to these plans. These
An asset is considered impaired when its balance include assumptions about the interest rates we apply
sheet carrying amount exceeds its estimated recover- to estimate future defined benefit obligations and net
able amount, which is defined as the higher of its fair value periodic pension expense, as well as rates of future pen-
less costs of disposal and its value in use. Usually, Novartis sion increases. In addition, our actuarial consultants pro-
applies the fair value less costs of disposal method for vide our management with historical statistical informa-
its impairment assessment. In most cases, no directly tion, such as withdrawal and mortality rates in connection
observable market inputs are available to measure the with these estimates.
fair value less costs of disposal. Therefore, an estimate Assumptions and estimates used by the Group may
is derived indirectly and is based on net present value differ materially from the actual results we experience
techniques utilizing post-tax cash flows and discount due to changing market and economic conditions, higher
rates. In the limited cases where the value in use method or lower withdrawal rates, and longer or shorter life spans
would be applied, net present value techniques would be of participants, among other factors.
applied using pre-tax cash flows and discount rates. Depending on events, such differences could have a
Fair value less costs of disposal reflects estimates of material effect on our total equity.
assumptions that market participants would be expected For more information on obligations under retirement
to use when pricing the asset or cash generating units and other post-employment benefit plans and underly-
(CGUs), and for this purpose, management considers ing actuarial assumptions, see “Item 18. Financial


87
 Item 5. Operating and Financial Review and Prospects

Statements—Note 25. Post-employment benefits for For more information, see “Item 18. Financial State-
employees.” ments—Note 6. Income taxes” and “Item 18. Financial
Statements—Note 12. Deferred tax assets and liabilities.”

Income taxes
Provisions and contingent liabilities
We prepare and file our tax returns based on an inter-
pretation of tax laws and regulations, and we record esti- A number of Group companies are involved in various
mates based on these judgments and interpretations. government investigations and legal proceedings (intel-
Our tax returns are subject to examination by the com- lectual property, sales and marketing practices, product
petent taxing authorities, which may result in an assess- liability, commercial, employment and wrongful dis-
ment being made, requiring payments of additional tax, charge, environmental claims, etc.) arising out of the nor-
interest or penalties. Since Novartis uses its intellectual mal conduct of their businesses.
property globally to deliver goods and services, the We record provisions for legal proceedings when it
transfer prices within the Group as well as arrangements is probable that a liability has been incurred and the
between subsidiaries to finance research and develop- amount can be reliably estimated. These provisions are
ment and other activities may be challenged by the adjusted periodically as assessments change or addi-
national tax authorities in any of the jurisdictions in which tional information becomes available. For significant
Novartis operates. Therefore, inherent uncertainties product liability cases, the provision is actuarially deter-
exist in our estimates of our tax positions, but we believe mined based on factors such as past experience, amount
that our estimated amounts for current and deferred tax and number of claims reported, and estimates of claims
assets or liabilities, including any amounts related to any incurred but not yet reported.
uncertain tax positions, are appropriate based on cur- Provisions are recorded for environmental remedia-
rently known facts and circumstances. Uncertain tion costs when expenditure on remedial work is proba-
(income) tax positions are periodically (re)assessed by ble and the cost can be reliably estimated.
the Company based on management’s best judgment Novartis believes that its total provisions are ade-
given any changes in the facts, circumstances and infor- quate based upon currently available information. How-
mation available and applicable tax laws. When it is prob- ever, given the inherent difficulties in estimating liabilities
able that the tax authorities will not accept the position in this area, Novartis may incur additional costs beyond
taken, the Group recognizes income tax liabilities based the amounts provided. Management believes that such
on the most likely amount of the liability (recovery) or additional amounts, if any, would not be material to the
weighted average of various possible outcomes to reflect Group’s financial condition but could be material to the
the effect of the uncertainty in determining the related results of operations or cash flows in a given period.
taxable profit (tax loss), tax bases, unused tax losses, For more information, see “Item 18. Financial State-
unused tax credits or tax rates, to the extent that a reli- ments—Note 20. Provisions and other non-current liabil-
able estimate can be made. ities” and “Item 18. Financial Statements—Note 28. Com-
mitments and contingent liabilities.”


88
 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 “Item 6. Directors, Senior Management and Employees—
Management and Employees—Item 6.C Board prac- Item 6.C Board practices—Corporate governance—
tices—Corporate governance—Board of Directors” and Executive Committee” is incorporated by reference.


89
 Item 6. Directors, Senior Management and Employees

6.B Compensation

Dear shareholder,
I am pleased to share with you the Novartis Compensa- iptacopan, our investigational monotherapy in the treat-
tion Report for 2022. ment of paroxysmal nocturnal hemoglobinuria (PNH).
We believe that our compensation system supports However, we also had disappointments as some clinical
our strategy and motivates our executives to deliver sus- trials of experimental compounds did not meet their pri-
tainable growth, successful outcomes on our financial mary endpoints, including ACZ885 (canakinumab) in
and strategic targets, and value creation for our share- lung cancer, and UNR844 in presbyopia.
holders. Over the course of 2022, we engaged with We are proud that Novartis also continued to deliver
shareholders and proxy advisors to share how our com- on its commitments to broaden access to medicines and
pensation system is aligned with short and long-term tackle major global health challenges. We pledged fur-
performance, and to secure their continued support for ther investment in research into malaria and neglected
our compensation system design. Based on the feed- tropical diseases, increased access to our innovative
back from these interactions and the positive response medicines for low- and middle-income countries and
to our 2021 Compensation Report, which received a formed new collaborations with governments and other
90.7% vote in favor, we will retain the current design of partners to strengthen healthcare systems. More details
our executive compensation system, with small enhance- on our ESG efforts can be found in our Novartis in Soci-
ments as explained later in this letter. ety Integrated Report 2022.

2022 performance highlights 2022 CEO compensation

2022 was a year of solid financial performance, with As a result of the above performance, the CEO was
growth in constant currencies (cc) across sales, core awarded a 2022 Annual Incentive of 100%, having over-
profits and core margins. Sales growth drivers were all met the financial targets and strategic objectives set
Entresto (USD 4.6 billion), Kesimpta (USD 1.1 billion), at the beginning of the cycle. When determining perfor-
Kisqali (USD 1.2 billion), Cosentyx (USD 4.8 billion), along mance against the operating income metric, the Board
with the Pluvicto launch. Our six in-market growth driv- of Directors approved adjustments to exclude restruc-
ers with multi-billion sales potential (Cosentyx, Entresto, turing costs arising from the implementation of the new
Zolgensma, Kisqali, Kesimpta and Leqvio) grew 26% (cc) organizational model and costs related to the planned
in 2022, and now represent 32% of total Innovative Sandoz spin-off, which are investments in the future of
Medicines sales, up from 26% in 2021. Overall sales were the company in terms of both sales and margin growth.
broadly in line with target. These adjustments ensured that the performance
In April 2022, we announced the introduction of a new assessment was consistent with the basis on which the
organizational model designed to support the company’s original targets were set.
innovation, growth, and productivity ambitions as a The 2020-2022 Long-Term Performance Plan (LTPP)
focused medicines company. The restructuring will sim- vested at 57% of target. The LTPP outcome was heavily
plify the organization and our processes, and is expected affected by the relative Total Shareholder Return (rTSR)
to deliver USD 1.5 billion in savings by 2024 with a pro- performance over the period, as well as reduced sales
portion of these savings already delivered in 2022, growth during 2020 and 2021, which was substantially
enabling us to raise our long-term core operating income impacted by the COVID-19 pandemic. No adjustments
margin guidance. These savings are expected to help us were made for the COVID-19 impact, or for any other
progress towards our aspiration of achieving ~40%+ core factors. (For more information, please see “—LTPP per-
margin beyond 2027 and further invest in our pipeline, as formance outcomes”).
a pure-play medicines company (after the planned Despite a solid 2022 performance, as outlined above,
Sandoz spin-off which is subject to approval of the the CEO’s 2022 total realized compensation was CHF
Novartis AG Board of Directors and shareholders). None- 8 452 176, a decrease of 24.7% compared with prior year,
theless, there was an immediate impact on Operating driven mainly by the 2020-2022 LTPP outcome.
Income as we incorporated related costs in the latter part
of the year, that, along with higher legal settlements and Changes to Executive Committee compensation
unfavorable fair market value adjustments on financial system and disclosures
assets, impacted operating income growth. During the year, we reviewed our Executive Committee
In 2022, we continued to deliver high value medicines compensation system, with the aim of simplification and
to patients. We received 23 approvals in our key focus increased transparency of our performance assessment
markets US, EU, China and Japan, including US and EU measures and strengthening our focus on key strategic
approvals for Pluvicto, a novel radioligand therapy for priorities, while also considering developments in com-
advanced prostate cancer. We advanced our focused pensation best practices.
pipeline of investigational medicines, with several import- Effective the 2022-2024 cycle of the LTPP, we
ant clinical data readouts paving the way for further strengthened the assessment of research and early
launches in 2023 and beyond, a significant one being development performance under the Innovation metrics,


90
 Item 6. Directors, Senior Management and Employees

to ensure that targets are focused more directly on activ- Committee has considered these as part of its pay deci-
ities that create long-term value, and are measurable sions and outcomes, and where appropriate, it has initi-
over a three-year performance period. For the innova- ated local level initiatives to support associates.
tion performance measure, the Science & Technology In most countries, our 2023 salary budgets are higher
Committee sets targets that take into account the than in previous years, reflecting the overall higher mar-
expected Net Present Value (eNPV) of programs transi- ket forecasts driven by inflation. In some of our larger
tioning to late-stage clinical development rather than the markets we are making a one-time payment to certain
previous approach to set targets related to early-stage employee populations. Where legally possible, we have
milestones. tried to target these one-time payments to our lower paid
Effective from performance year 2023, we will remove employees, who are most impacted. We will continue to
“Share of Peers” as a financial performance measure for monitor our compensation against the Living Wage, and
the Annual Incentive plan, to simplify the metrics and regularly monitor and adjust wages in hyperinflation mar-
focus on targets that provide greater transparency. The kets to support our local associates.
weighting of the three remaining financial measures, These actions reflect our commitment to pay mar-
Group Net Sales, Group Operating Income and Group ket-competitive and sustainable salaries, rather than to
Free Cash Flow, will be 40%, 30% and 30%, respectively. fully match the current volatile inflation environment.
In addition, we will fold division specific financial targets, 2023 base salary increases for ECN members,
where applicable, into individual strategic objectives including the CEO, are made in line with policy, and no
(40% weighting) of the related Executive Committee ECN member will receive any inflation related one-time
member. All Executive Committee members will be eval- payments.
uated, with a 60% weighting, against the performance
of Group financial measures mentioned above. 2023 Annual General Meeting (AGM)
During the year, we announced our intention to sep- At the 2023 AGM, shareholders will be asked to vote on
arate our Sandoz generics and biosimilars Division into both the maximum aggregate amount of compensation
a new publicly traded standalone company, by way of a for the Board of Directors from the 2023 AGM to the 2024
100% spin-off, subject to approval of the Novartis AG AGM, and the maximum aggregate amount of compen-
Board of Directors and shareholders. Based on the sation for the Executive Committee for the financial year
planned completion of the spin-off in 2023, the Compen- 2024. Furthermore, we will request an advisory vote on
sation Committee made some initial decisions on the this Compensation Report.
2023 compensation elements related to the spin-off. We welcome your feedback, which is invaluable in
Finally, the 2023 Compensation Report will also driving improvements in our compensation system and
include additional disclosures following the reform of practices. On behalf of the Compensation Committee, I
Swiss corporate law that came into effect on January 1, would like to thank you for your continued support and
2023. For more information, please see “—2023 Execu- trust.
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 Simon Moroney, D.Phil.
our associates in different markets. The Executive Chair of the Compensation Committee


91
 Item 6. Directors, Senior Management and Employees

Compensation at a glance
2022 outcomes

CEO pay for performance

2022 Annual Incentive Long-Term Performance Plan (2020–2022 performance)

% of target % of target

200% Maximum 200% Maximum

150% 150%

100% Payout: 100% of target 100% Target

{
• Net sales CAGR
(43% of target)
Payout: • Core operating income CAGR
50% 50% 57% of target (93% of target)
• Innovation
(92% of target)
0% 0% • Relative TSR
(0% of target)

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”.
Fixed pay
and benefits Variable pay:
(CHF 000s) Performance-related (CHF 000s)
Annual base salary
Pension and other benefits
2022 Annual Incentive
LTPP 2020–2022 cycle
1 787 674 2 684 3 3071

29% of total 32% of total 39% of total

Total realized compensation: CHF 8 452 176

1
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.

Board compensation
The total actual compensation earned by Board members in the 2022 financial year is shown in the table below.
2022
CHF 000s total compensation1

Board Chair 3 804

Other members of the Board 4 703
Total 8 506

1
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.


92
 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

Effective 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.

2023 fixed pay and benefits Performance-related variable pay

Annual base salary Pension and 2023 Long-Term Incentive

other benefits Annual Incentive awards cycle 2023-2025
LTPP1

Purpose Reflects responsibilities, Provide retirement and Rewards performance Rewards long-term share-
experience and skill sets risk insurances (tailored against short-term holder value creation and
to local market practices/ financial and strategic innovation in line with our
regulations) objectives, and Values and strategy
Behaviors
Form of payment Cash Country/individual-­ 50% cash Equity, vesting following a
specific and aligned with 50% equity2 deferred three-year performance
other employees for three years3 period

Performance measures – – Balanced scorecard • Net sales

comprising: CAGR (25%)
• Financial measures4 • Core operating income
(60%) CAGR (25%)
• Strategic objectives5 • Innovation (25%)
(40%) • Relative TSR (25%)

1
LTPP = Long-Term Performance Plan
2
Executive Committee members may elect to receive more of their Annual Incentive in equity instead of cash
3
The Annual Incentive deferred in equity is granted under the Deferred Share Bonus Plan (DSBP)
4
Financial Measures are Group Net Sales (40%), Group Operating Income (30%) and Group Free Cash Flow (30%)
5
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

Board compensation system

There are no changes to the Board compensation system for 2023.
AGM 2023-2024
CHF 000s annual fee

Board Chair 3 800

Board membership 280
Vice-Chair 50
Lead Independent Director 20
Chair of the Audit and Compliance Committee 130
Chair of the Compensation Committee 90
Chair of the following committees:
• Governance, Sustainability and Nomination Committee
• Science & Technology Committee
• Risk Committee 70
Membership of the Audit and Compliance Committee 70
Membership of the following committees:
• Compensation Committee
• Governance, Sustainability and Nomination Committee
• Science & Technology Committee
• Risk Committee 40


93
 Item 6. Directors, Senior Management and Employees

Executive Committee
compensation philosophy and principles
Novartis compensation philosophy Approach to market benchmarking
Our compensation philosophy aims to ensure that we There continues to be significant competition for top
attract and retain outstanding Executive Committee executive talent with deep expertise, the requisite com-
members and reward them according to their success petencies and proven performance within the pharma-
in implementing the Company strategy, and their contri- ceutical and biotechnology industries. As such, external
bution to Company performance and long-term value peer compensation data is one of a number of key refer-
creation. The main elements of our compensation phi- ence points considered by the Board of Directors and the
losophy are set out in the table below. Compensation Committee when making decisions on
executive pay, so as to help ensure that the compensa-
tion system and compensation levels at Novartis remain
Pay for • Variable compensation is tied directly to the
performance achievement of strategic Company targets
competitive. Novartis is committed to confirming bench-
marking practices, including the peer group, to sharehold-
Shareholder • Our incentives are significantly weighted ers on an annual basis.
alignment toward long-term equity-based plans
The Compensation Committee believes in a rigorous
• Measures under the Long-Term Incentive
approach to peer group construction and maintenance.
plans are calibrated to promote the creation
of shareholder value Furthermore, it believes that using a consistent set of
• Executive Committee members are
peers that is similar in size and scope enables sharehold-
expected to build and maintain substantial ers to evaluate the compensation year on year and make
shareholdings pay-for-performance comparisons. In 2022, the Com-
Balanced • Balanced set of measures to create pensation Committee decided to maintain the same pri-
rewards sustainable value mary peer group of 14 global healthcare companies,
• Mix of targets based on financial metrics, as presented in the table below.
strategic objectives, and performance versus
our competitors GLOBAL HEALTHCARE PEER GROUP

Business • The Novartis Values and Behaviors are an AbbVie Amgen AstraZeneca
ethics integral part of our compensation system
Biogen Bristol-Myers Squibb Eli Lilly & Co.
• They underpin the assessment of overall
performance for the Annual Incentive GlaxoSmithKline Gilead Sciences Johnson & Johnson

Competitive • Total compensation must be sufficient to Novo Nordisk Merck & Co. Pfizer
compensation attract and retain key global talent
Roche Sanofi
• Overarching emphasis on pay for
performance

The companies in this peer group reflect our industry

Alignment with Company strategy and are similar to Novartis in terms of both size and scope
of operations. Although Novartis is headquartered in
Executive compensation is strongly connected to busi- Switzerland, more than a third of its sales come from the
ness strategy. In 2022, we refocused our strategy to US market, and the US remains a significant talent pool
deliver high-value medicines that alleviate society’s for the recruitment of executives by the Company. It is
greatest disease burdens through technology leadership therefore critical that Novartis is able to attract and retain
in research and development, and novel access key talent globally, especially from the US.
approaches. Our strategy focuses on five core thera- To ensure European and local practices were fully
peutic areas with high unmet patient needs, two core taken into account, in 2022 the Compensation Commit-
and three emerging technology platforms, and four pri- tee also reviewed a cross-industry peer group of
ority geographies, which together account for the major- Europe-headquartered multinational companies,
ity of expected growth in global healthcare spending. selected based on comparability to Novartis in terms of
In line with this refocused strategy, we updated our industry, size, global scope of operations, and economic
strategic priorities to target innovation power, sales influence. Based on this review, the Committee retained
growth, delivering both margin and total shareholder the same group of European peers as in 2021: Anheus-
returns, and sector leadership in material ESG factors. er-Busch InBev, AstraZeneca, Bayer, BMW, GlaxoSmith-
The Long-Term Incentive Plan was adapted, with greater Kline, L’Oréal, Merck KGaA, Nestlé, Novo Nordisk, Reck-
emphasis now on the delivery of high value programs in itt Benckiser, Roche, Siemens, Sanofi, and Unilever.
our research and early development targets. The Annual
Incentive plan has been simplified effective 2023, with
three key financial metrics: Net Sales, weighted 40%;
Operating Income, weighted 30%; and Free Cash Flow,
weighted 30%.


94
 Item 6. Directors, Senior Management and Employees

Executive Committee appointments compensation policy

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.


95
 Item 6. Directors, Senior Management and Employees

Treatment of variable compensation for Executive Committee leavers

ELEMENT OF COMPENSATION POLICY

Annual Incentive – Retirement, termination by the Company (for reasons other than performance or conduct), change of
cash element 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 Retirement, termination by the Company for reasons other than performance or conduct, and change
deferral into restricted shares/ of control
restricted share units (RSUs) 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 Awards are not subject to forfeiture during the deferral period.
restricted shares/RSUs/American
Depository Receipts (ADRs)
(ADRs applicable for
US employees only)

Long-Term Incentive – mandatory Retirement, termination by the Company for reasons other than performance or conduct, and change
performance share units (PSUs) 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.

Malus and clawback

Any incentive compensation paid to Executive Commit- violation of laws or conflicts with internal management
tee members is subject to malus and clawback rules. standards, including Company and accounting policies.
This means that the Board of Directors for the CEO, and This principle applies to both the short-term Annual
the Compensation Committee for the other Executive Incentive and Long-Term Incentive (LTI) plans.
Committee members, may decide – subject to applica- The Compensation Committee is assessing the
ble law – to retain any unpaid or unvested incentive com- impact of the final clawback rule in the Federal Register
pensation (malus), or to recover incentive compensation published by the US Securities and Exchange Commis-
that has been paid or vested in the past (clawback). This sion in 2022, and any required changes to the policy will
applies in cases where the payout has resulted from a be disclosed in the 2023 Compensation Report.


96
 Item 6. Directors, Senior Management and Employees

Executive Committee performance management process

To foster a high-performance culture, the Company The targets are challenged at multiple stages before they
applies a performance management process based on are ultimately approved by the Board of Directors. In line
quantitative and qualitative criteria. The CEO and the with good governance practices, the Compensation
other Executive Committee members are subject to a Committee works to set targets that are ambitious and
formal three-step process: objective setting, perfor- challenging but do not encourage undue risk-taking.
mance evaluation and compensation determination. This Following the end of the performance cycle, the Board
process is explained in the chart below. of Directors and the Compensation Committee consider
Performance targets are generally set before the performance against the targets originally set. The CEO
start of the relevant performance cycle. A rigorous and Executive Committee members are not present while
framework is in place for establishing targets to ensure the Board of Directors and the Compensation Commit-
they are suitably robust and challenging, and align with tee discuss their individual performance evaluations and
the strategic priorities of the Group. determine their individual compensation. Prior to deter-
The key factors taken into account when setting tar- mining the final outcome, related factors such as perfor-
gets include: mance relative to peers, wider market conditions, general
• Internal and external market expectations industry trends and good practice are used to inform the
• Novartis strategic priorities overall performance assessment.
• Regulatory factors (e.g., new launches, patent expiries)
• Investment in capital expenditure
• Values and Behaviors

Objective setting Performance evaluation Compensation determination

• The CEO proposes their targets to the • The CEO’s performance against • A recommendation for the CEO’s
Board Chair; they are then reviewed and the individual balanced scorecard is variable pay is made by the
approved by the Board of Directors, assessed by the Board of Directors. Compensation Committee to the Board
based on input from the Compensation of Directors for final determination.
Committee. • For Executive Committee members,
the CEO discusses each member’s • For the Long-Term Incentive financial
• For other Executive Committee performance (assessed against his measures’ payout schedules, a
members, targets for their division or her individual balanced scorecard) formulaic approach applies, and the
or unit are initially discussed with the with the Board Chair before making Compensation Committee can also
CEO and subsequently approved recommendations to the Board of exercise judgment to ensure there
by the Board of Directors and the Directors for final determination. is appropriate alignment between
Compensation Committee. payout levels and overall performance
• Periodic assessments, including at the achieved. The same principle of
mid-year stage, ensure progress is discretion applies to the relative TSR
suitably tracked. 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.


97
 Item 6. Directors, Senior Management and Employees

2022 Executive Committee compensation

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.


98
 Item 6. Directors, Senior Management and Employees

2022 Annual Incentive

PLAN OVERVIEW

Target Annual Incentive

Annual base Target incentive Target
x =
salary (% of base salary) 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
Annual base Target incentive Payout factor (% of Realized
x x =
salary (% of base salary) target: 0%–200%) Annual Incentive

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 • Novartis restricted shares and ADRs carry voting rights and dividends during the vesting period. RSUs are
and settlement 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.


99
 Item 6. Directors, Senior Management and Employees

2022 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
| Met*

Group free cash flow as a % of sales (cc) (20%)

Share of peers for Novartis Group (20%) 7.3%

| 24.8%
| Below

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-off, to transform Novartis into a focused medicines company.

Strategic objectives – 40% of total Annual Incentive, comprising:

Strategy (15%)
In 2022, the CEO launched a new strategy and laid the foundation to improve our growth profile via a strong focus | Met

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%)
Recent launch products Pluvicto (USD 271 million), Kesimpta (USD 1.1 billion), and Scemblix (USD 149 million) achie- | Met

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%)
In 2022, we received 23 approvals in our top four markets (US, EU, China and Japan). Major approvals included | Met

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).


100
 Item 6. Directors, Senior Management and Employees

2022 CEO BALANCED SCORECARD − CONTINUED

Operational excellence (15%)

In April 2022, we introduced a new operating model to make our organization more agile and efficient in support of | Met

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%.


101
 Item 6. Directors, Senior Management and Employees

Long-Term Performance Plan, 2020-2022 cycle

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:

Annual base Target

Step 1 x = Grant value
salary incentive %

Target number of
Step 2 Grant value / Share price =
PSUs

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.

Novartis position Payout range

Global healthcare peer group in the peer group (% of target)

Abbvie Amgen AstraZeneca Position 1 – 2 170% – 200%

Biogen Bristol-Myers Squibb Eli Lilly & Co Position 3 – 5 130% – 160%

GlaxoSmithKline Gilead Sciences Johnson & Johnson Position 6 – 8 80% – 120%

Novo Nordisk Merck & Co. Pfizer Position 9 – 15 0%

Roche Sanofi

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
Target number of Dividend
x Performance factor + = Realized PSUs
PSUs equivalents


102
 Item 6. Directors, Senior Management and Employees

LTPP performance outcomes

The charts below illustrate the performance of the 2020-2022 LTPP against target.

NET SALES CAGR CORE OPERATING INCOME (COI) CAGR

(25% weighting) (25% weighting)

Vesting range 0–200% of target Vesting range 0–200% of target

Maximum (200%): 8.7% (CAGR)

8% 16% Maximum (200%): 16.6% (CAGR)

6% 12%
Target: 5.7% (CAGR)
Target: 10.6% (CAGR)
4% 8% Actual: 9.9% (CAGR) COI growth payout
Actual: 3.8% (CAGR) Net sales 93% of target
2% growth payout 4%
43% of target
0% 0%

Notes: Notes:
A minimum achievement of 3.7% CAGR was required to receive a payout under A minimum achievement of 6.6% CAGR was required to receive a payout under
this performance measure this performance measure
Actual performance was adjusted for mergers and acquisitions as well as
business development and licensing projects not included in the target

Novartis achieved a net sales CAGR of 3.8% (in constant currencies – Novartis achieved a COI CAGR of 9.9% (cc) against the 10.6% target
cc) against the 5.7% target set at the beginning of the performance set at the beginning of the performance cycle. This was mainly due to
cycle. The lower than target performance was mainly due to the nega- lower than target Innovative Medicines sales over the three-year cycle,
tive and unexpected impact of COVID-19 in 2020 and 2021, the Beovu which was partly offset by lower spend in selling, general and adminis-
safety update, and the slower uptake of Zolgensma. trative expenses (SG&A). In 2022, the Company took organizational
Following the application of the payout curve, the net sales CAGR transformative measures, delivering savings reflected in COI improve-
(cc) achievement generates a payout factor of 43% (maximum 200%) ment for the year.
for this metric. Following the application of the payout curve, the COI CAGR (cc)
achievement generates a payout factor of 93% (maximum 200%) for
this metric.

INNOVATION RELATIVE TOTAL SHAREHOLDER RETURN (TSR)

(25% weighting) (25% weighting)

The following developments were considered in our 2020-2022 LTPP Novartis position Payout range
innovation performance: in the peer group (% of target)
• US and EU approvals for Pluvicto
• EU approval for Scemblix for adult patients with chronic myeloid leu- Position 1 – 2 170% – 200%
kemia
Position 3 – 5 130% – 160%
• US approval for Kymriah in the treatment of adult patients with
relapsed or refractory follicular lymphoma Position 6 – 8 80% – 120%
• Filing of Cosentyx for Hidradenitis suppurativa with both the US FDA Actual ranking
and the European Medicines Agency(EMA) Position 9 – 15 0%
12th = 0% of target
• Submission of Cosentyx for an additional indication ahead of planned
timelines
• Tislelizumab’s acceptance by the EMA for regulatory review in esoph- TSR for the 2020-2022 cycle was 5.5%. As a result, Novartis ranked
ageal and lung cancers No. 12 out of 15 healthcare companies (including Novartis). Considering
• CANOPY trials, Ligelizumab PEARL studies in chronic spontaneous that the relative TSR rank is below median, there was a zero payout for
urticaria (CSU), and Sabatolimab STIMULUS MDS-1 where import- this metric.
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.

2020-2022 LTPP PAYOUT

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 d ­ ividend equivalents of CHF 317 316.

Net sales CAGR + COI CAGR + Innovation + Relative TSR Final vesting
43% x 25% 93% x 25% 92% x 25% 0% x 25% 57% of target


103
 Item 6. Directors, Senior Management and Employees

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 16, 2022 CHF No cash buyout 5 708 RSUs, 491 915
President, Global Drug vesting over the period 2023-2026

Development and

Chief Medical Officer

Aharon Gal, July 18, 2022 CHF 818 202 43 253 RSUs, 4 353 702
Chief Strategy & Growth Officer vesting over the period 2022-2023

Fiona Marshall, November 1, 2022 USD 522 000 to be paid 31 861 RSUs and 9 649 PSUs, 3 886 801
President, Novartis Institutes out in March 2023 vesting over the period 2023-2026

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 Schaffert, 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 Officer, John Tsai, stepped down from his role
effective 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 effective 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 Officer of Sandoz, stepped down from the Execu-
tive Committee with effect 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.


104
 Item 6. Directors, Senior Management and Employees

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
2022 annual base 2022 pension 2022 Annual Incentive Long-Term Other 2022
salary benefits1 Incentives compensation
LTPP 2020 – 2022
cycle

Total realized
compensation
Equity (value (incl. share
Currency Cash (amount) Amount Cash Equity2 at vesting date)3 Amount4,5 price movement)6

Executive Committee members

Vasant Narasimhan (CEO) CHF 1 786 500 174 488 1 342 125 1 342 196 3 307 422 499 445 8 452 176
Aggregate realized compensation of the
other 15 Executive Committee members,
including the members who stepped down
during the financial year 2022 7,8 CHF 9 122 792 1 978 304 4 211 841 5 918 318 10 025 047 9 716 294 40 972 595
Total CHF 10 909 292 2 152 792 5 553 966 7 260 514 13 332 469 10 215 739 49 424 771

See 2021 realized compensation for the CEO and other Executive Committee members for 2021 comparative figures.
1
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.
2
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.
3
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.
4
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.
5
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.
6
All amounts are before deduction of the social security contribution and income tax due from the Executive Committee member.
7
Includes compensation of the following members who stepped down from the ECN: Richard Saynor, Sandoz CEO designate, James Bradner, former President NIBR, Susanne
Schaffert, former CEO Oncology, John Tsai, former Global Head of Drug Development and Chiel Medical Officer 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.
8
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).


105
 Item 6. Directors, Senior Management and Employees

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) 2 (% of target) (number) (CHF) 3 (number) 4 (CHF) (CHF)

1
Executive Committee members
Vasant Narasimhan 61 498 5 712 549 57% 35 054 2 990 106 3 720 317 316 3 307 422

Other 15 Executive Committee members,

including the members who stepped
down during the financial year 2022 5 183 733 17 005 806 57% 105 530 9 058 150 11 156 966 897 10 025 047

Total 245 231 22 718 356 140 584 12 048 256 14 876 1 284 213 13 332 469

1
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.
2
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.
3
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.
4
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.
5
Includes the LTPP vesting for Richard Saynor, Sandoz CEO Designate, James Bradner, former President NIBR, Susanne Schaffert, former CEO Oncology, John Tsai, former Global
Head of Drug Development and Chiel Medical Officer and Robert Weltevreden, former Head of Customer and Technology Solutions for the 2020-2022 performance cycle, as per
the plan rules.


106
 Item 6. Directors, Senior Management and Employees

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
2021 annual base 2021 pension 2021 Annual Incentive Long-Term Incentives Other 2021
salary benefits1 compensation
LTPP 2019-2021
cycle
Total realized
compensation
Equity (value (incl. share
Currency Cash (amount) Amount Cash Equity2 at vesting date)3 Amount2,4,5 price movement)6

Executive Committee members

Vasant Narasimhan (CEO) CHF 1 769 200 176 731 1 328 625 1 328 642 6 356 128 265 401 11 224 727
Aggregate realized compensation of the
other 14 Executive Committee members,
including the members who stepped down
during the financial year 2021 7,8 CHF 8 983 841 2 065 561 4 174 006 5 400 015 18 770 029 6 021 712 45 415 164
Total CHF 10 753 041 2 242 292 5 502 631 6 728 657 25 126 157 6 287 113 56 639 891
1
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.
2
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.
3
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.
4
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 Schaffert, and CHF 156 788 for Vas Narasimhan.
5
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.
6
All amounts are before deduction of the social security contribution and income tax due from the Executive Committee member.
7
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 Officer and Steven Baert, former Chief People & Organization Officer, 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.
8
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-off 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”.


107
 Item 6. Directors, Senior Management and Employees

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 p
­ erformance
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 2022 Long-Term Incentive

2022-2024 cycle
grants at target

2022 annual base 2022 pension 2022 Annual Incentive LTPP 2022-2024 cycle Other 2022 Total
salary benefits (performance achieved) compensation compensation
paid, promised
or granted 2022

Equity PSUs
Cash Cash (value at (target value
Currency (amount) Amount 1 (amount) grant date) 2 at grant date) 3 Amount 4 Amount 5

Executive Committee members active on December 31, 2022
Vasant Narasimhan CHF 1 786 500 174 488 1 342 125 1 342 196 5 815 886 499 445 10 960 639
Shreeram Aradhye (from May 16, 2022) 6 CHF 538 656 110 041 270 959 270 998 1 629 233 581 328 3 401 215
Victor Bulto (from May 1, 2022) 7, 8 USD 622 596 49 434 310 445 310 449 873 500 782 443 2 948 867
Aharon Gal (from July 18, 2022) 9 CHF 363 441 78 083 150 000 150 043 – 4 576 719 5 318 285
Karen Hale CHF 845 834 215 842 – 935 059 1 700 058 146 154 3 842 946
Harry Kirsch CHF 1 082 250 177 526 655 820 655 872 2 818 450 36 456 5 426 373
Robert Kowalski CHF 705 833 207 628 349 965 349 986 1 272 601 307 969 3 193 982
Steffen Lang CHF 840 833 180 675 165 136 935 826 1 722 021 14 431 3 858 923
Fiona Marshall (from November 1, 2022) 8, 9 USD 186 154 16 222 101 085 101 163 – 3 961 064 4 365 688
Klaus Moosmayer CHF 580 000 181 112 313 740 313 819 1 045 859 32 026 2 466 555
Marie-France Tschudin CHF 951 250 164 480 527 209 527 239 2 220 057 8 804 4 399 040
Total 8 466 817 1 552 567 4 167 896 5 874 057 19 058 209 10 732 583 49 852 130

Executive Committee members who stepped down during 2022
James Bradner (until October 31, 2022) 8, 10 USD 1 006 294 280 763 605 668 605 771 3 030 029 651 499 6 180 024
Richard Saynor (until October 25, 2022) 11 CHF 641 721 150 920 383 977 384 021 1 493 403 706 394 3 760 436
Susanne Schaffert (until April 4, 2022) 12 CHF 292 466 59 180 161 112 161 217 2 138 458 1 306 257 4 118 690
John Tsai (until May 15, 2022) 13 CHF 321 967 67 322 161 031 161 132 2 192 544 1 396 407 4 300 403
Robert Weltevreden (until April 4, 2022) 14 CHF 225 479 54 721 101 638 101 678 1 374 053 1 029 246 2 886 815
Subtotal 2 442 475 600 225 1 386 070 1 386 456 10 091 626 5 060 376 20 967 229
Total 10 909 292 2 152 792 5 553 966 7 260 514 29 149 836 15 792 959 70 819 358

Based on assumption of
100% payout at target.
Actual payout (0–200% of
target) will be known at
the end of the three-year
cycle in January 2025

See next page for 2021 comparative figures.

1
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.
2
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.
3
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.
4
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’.
5
All amounts are before deduction of the social security contribution and income tax due by the Executive Committee member.
6
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.
7
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.
8
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.
9
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.
10
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.
11
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.
12
Susanne Schaffert 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.
13
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.
14
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.

108
 Item 6. Directors, Senior Management and Employees

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 2021 Long-Term Incentive

2021-2023 cycle
grants at target

2021 annual base 2021 pension 2021 Annual Incentive LTPP Other 2021 Total
salary benefits (performance achieved) 2021-2023 cycle compensation compensation
paid, promised
or granted 2021

Equity PSUs
Cash Cash (value at (target value
Currency (amount) Amount 1 (amount) grant date) 2 at grant date) 3 Amount 4 Amount 5

Executive Committee members active on December 31, 2021
Vasant Narasimhan CHF 1 769 200 176 731 1 328 625 1 328 642 5 757 423 265 401 10 626 023
James Bradner 6 USD 1 184 462 367 246 712 802 712 839 2 970 016 92 286 6 039 652
7
Karen Hale (from May 15, 2021) CHF 519 750 85 987 261 062 261 133 1 442 371 542 689 3 112 992
Harry Kirsch CHF 1 072 084 177 174 354 255 1 062 820 2 791 111 43 617 5 501 060
Robert Kowalski (from September 1, 2021) 8 CHF 233 333 49 692 105 288 105 360 448 824 180 428 1 122 925
Steffen Lang CHF 780 833 180 413 508 680 763 076 1 570 027 14 430 3 817 459
Klaus Moosmayer CHF 566 667 198 992 253 000 253 004 1 035 044 49 850 2 356 557
Richard Saynor CHF 785 000 190 263 196 500 196 572 1 493 478 416 693 3 278 506
Susanne Schaffert CHF 881 333 180 837 88 250 794 262 2 118 082 856 650 4 919 415
John Tsai CHF 875 834 186 807 306 950 307 012 2 192 567 201 307 4 070 477
Marie-France Tschudin CHF 881 333 164 980 706 000 706 019 2 029 750 – 4 488 083
Robert Weltevreden CHF 673 333 171 352 299 200 299 275 1 292 042 – 2 735 202
Total 10 121 211 2 098 866 5 059 259 6 728 657 24 885 096 2 655 408 51 548 498

Executive Committee members who stepped down during 2021

Steven Baert (until June 30, 2021) 9 CHF 400 277 87 753 399 887 – 422 223 1 831 302 3 141 442
Bertrand Bodson (until January 31, 2021) 10 CHF 54 451 15 240 43 485 – – 1 339 471 1 452 647
11
Shannon Thyme Klinger (until March 15, 2021) CHF 177 102 40 434 – – 279 791 2 018 161 2 515 487

Subtotal 631 830 143 427 443 372 0 702 014 5 188 934 7 109 576
Total 10 753 041 2 242 292 5 502 631 6 728 657 25 587 110 7 844 343 58 658 074

Based on assumption of
100% payout at target.
Actual payout (0–200% of
target) will be known at
the end of the three-year
cycle in January 2024

1
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.
2
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.
3
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.
4
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 2021 compensation’.
5
All amounts are before deduction of the social security contribution and income tax due by the Executive Committee member.
6
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.
7
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.
8
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.
9
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.
10
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.
11
Shannon Klinger resigned as Chief Legal Officer 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.


109
 Item 6. Directors, Senior Management and Employees

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 compensation1

2022 Annual Incentive LTPP Other

(performance achieved) 2022-2024 cycle

Equity PSUs Equity/PSUs

(number)2 (target number)3 (number)

Executive Committee members active on December 31, 2022

Vasant Narasimhan 15 735 74 410 0
Shreeram Aradhye (from May 16, 2022) 3 177 18 905 5 708
Victor Bulto (from May 1, 2022) 3 345 10 671 0
Aharon Gal (from July 18, 2022) 1 759 0 43 253
Karen Hale 10 962 21 751 0
Harry Kirsch 7 689 36 060 0
Robert Kowalski 4 103 16 282 0
Steffen Lang 10 971 22 032 0
Fiona Marshall (from November 1, 2022) 1 090 0 41 510
Klaus Moosmayer 3 679 13 381 0
Marie-France Tschudin 6 181 28 404 0
Total 68 691 241 896 90 471

Executive Committee members who stepped down during 2022

James Bradner (until October 31, 2022) 4 6 527 35 969 0
Richard Saynor (until October 25, 2022) 5 4 502 19 107 0
Susanne Schaffert (until April 4, 2022) 6 1 890 27 360 0
John Tsai (until May 15, 2022) 7 1 889 28 052 0
Robert Weltevreden (until April 4, 2022) 8 1 192 17 580 0
Subtotal 16 000 128 068 0
Total 84 691 369 964 90 471

See next page for 2021 comparative figures.

1
The values of the awards are reported in the table “2022 compensation at grant value for the CEO and other Executive Committee members.”
2
Vested shares, restricted shares and/or RSUs granted under the Annual Incentive for the 2022 performance period.
3
Target number of PSUs granted under the LTPP as applicable for the 2022-2024 performance cycle.
4
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.
5
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.
6
Susanne Schaffert 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.
7
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.
8
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.


110
 Item 6. Directors, Senior Management and Employees

Number of equity instruments granted to the CEO and other Executive Committee members for the
financial year 2021 (comparative information)
Variable compensation1

2021 Annual Incentive LTPP Other

(performance achieved) 2021-2023 cycle

Equity PSUs Equity/PSUs

(number)2 (target number)3 (number)

Executive Committee members active on December 31, 2021

Vasant Narasimhan 16 999 66 939 0
James Bradner 8 462 30 644 0
Karen Hale (from May 15, 2021) 3 341 17 823 0
Harry Kirsch 13 598 32 451 0
Robert Kowalski (from September 1, 2021) 1 348 5 067 0
Steffen Lang 9 763 18 254 0
Klaus Moosmayer 3 237 12 034 0
Richard Saynor 2 515 17 364 0
Susanne Schaffert 10 162 24 626 0
John Tsai 3 928 25 492 0
Marie-France Tschudin 9 033 23 599 0
Robert Weltevreden 3 829 15 022 0
Total 86 215 289 315 0

Executive Committee members who stepped down during 2021

Steven Baert (until June 30, 2021) 4 0 4 909 0
Bertrand Bodson (until January 31, 2021) 5 0 0 0
Shannon Thyme Klinger (until March 15, 2021) 6 0 3 253 0
Subtotal 0 8 162 0
Total 86 215 297 477 0

1
The values of the awards are reported in the table “2021 compensation at grant value for the CEO and other Executive Committee members.”
2
Vested shares, restricted shares and/or RSUs granted under the Annual Incentive for the 2021 performance period.
3
Target number of PSUs granted under the LTPP as applicable for the 2021-2023 performance cycle.
4
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.
5
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.
6
Shannon Klinger resigned as Chief Legal Officer 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.


111
 Item 6. Directors, Senior Management and Employees

Share ownership requirements for the CEO and The determination of equity amounts against the share
other Executive Committee members ownership requirements is defined to include vested and
Executive Committee members are required to own at unvested Novartis shares or American Depositary
least a minimum multiple of their annual base salary in Receipts (ADRs), together with RSUs acquired under the
Novartis shares or RSUs within five years of hire or pro- Company’s compensation plans. Unvested PSUs are,
motion, as set out in the table here. In addition, the CEO however, excluded. The determination also includes
and CFO are required to hold the equity vesting under other shares and vested options of Novartis shares or
the LTPP plan (granted since 2022) for a minimum of two ADRs that are owned directly or indirectly by “persons
years after the vesting date. In the event of a substantial closely linked” to an Executive Committee member. The
rise or drop in the share price, the Board of Directors Compensation Committee reviews compliance with the
may, at its discretion, amend that time period accord- share ownership guideline on an annual basis.
ingly.

FUNCTION OWNERSHIP LEVEL

CEO 5 x base compensation
Other Executive Committee members 3 x base compensation

Shares, ADRs and other equity rights owned by Executive Committee members as at December 31, 20221
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 31,
and ADRs1 and other equity rights2 annual base salary3 (e.g., LTPP)4 2022

Vasant Narasimhan 228 614 69 687 13x 108 201 406 502
Shreeram Aradhye (from May 16, 2022) 1 241 8 885 0x 4 268 14 394
Victor Bulto (from May 1, 2022) 0 21 292 2x 15 094 36 386
Aharon Gal (from July 18, 2022) 17 948 45 012 6x 0 62 960
Karen Hale 0 9 458 0x 19 110 28 568
Harry Kirsch 312 682 34 816 26x 52 450 399 948
Robert Kowalski 0 17 398 2x 15 097 32 495
Steffen Lang 118 057 27 383 14x 28 797 174 237
Fiona Marshall (from November 1, 2022) 0 32 951 2x 2 029 34 980
Klaus Moosmayer 16 713 12 524 4x 18 184 47 421
Marie-France Tschudin 52 818 28 447 6x 46 699 127 964
Subtotal 748 073 307 853 309 929 1 365 855

Executive Committee members who stepped down during 2022

James Bradner (until October 31, 2022) 0 34 231 2x 70 171 104 402
Richard Saynor (until October 25, 2022) 0 16 843 1x 48 117 64 960
Susanne Schaffert (until April 4, 2022) 142 844 26 245 15x 44 981 214 070
John Tsai (until May 15, 2022) 13 550 21 812 3x 49 826 85 188
Robert Weltevreden (until April 4, 2022) 28 755 14 436 5x 27 317 70 508
Subtotal 185 149 113 567 240 412 539 128
Total 933 222 421 420 550 341 1 904 983

1
Includes holdings of “persons closely linked” to Executive Committee members (see the ‘persons closely linked’ definition).
2
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.
3
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.
4
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.


112
 Item 6. Directors, Senior Management and Employees

Fixed and variable compensation Payments to former Executive Committee

The following table summarizes the annual base salary members
and variable compensation mix at grant value for the Under the former Executive Committee members’
financial year 2022 for the CEO and other Executive ­contracts and in line with the Company’s LTI plan rules,
Committee members. payments were made to 8 former members. Of this,
CHF 993 574 relates to the vesting of LTI awards. In addi-
Annual Variable
base salary1 compensation2
tion, contractual amounts totaling CHF 167 106 were
Vasant Narasimhan 16.6% 83.4%
made (comprising the base salary, the Annual Incentive
and other benefits), and tax equalization on variable com-
Shreeram Aradhye (from May 16, 2022) 16.4% 83.6%
pensation granted during international assignments
Victor Bulto (from May 1, 2022) 21.5% 78.5%
amounted to a total of CHF 296 627.
Aharon Gal (from July 18, 2022) 6.9% 93.1% No other payments (or waivers of claims) were made
Karen Hale 23.3% 76.7% to former Executive Committee members or to “persons
Harry Kirsch 20.6% 79.4% closely linked” to them during 2022.
Robert Kowalski 23.6% 76.4%
Steffen Lang 22.9% 77.1% Persons closely linked
Fiona Marshall (from November 1, 2022) 4.3% 95.7% “Persons closely linked” are (i) their spouse, (ii) their chil-
Klaus Moosmayer 25.4% 74.6%
dren (under 18 years of age), (iii) any legal entities that
they own or otherwise control, and (iv) any legal or nat-
Marie-France Tschudin 22.5% 77.5%
ural person who is acting as their fiduciary.
Total 3 17.5% 82.5%

1
Excludes pension and other benefits and is pro-rated for ECN time. Note 27 to the Group’s audited consolidated
2
See the table “2022 compensation at grant value for the CEO and other Executive financial statements
Committee members” with regard to the disclosure principles of variable
compensation.
The total expense for the year for compensation awarded
3
Excludes members, who stepped down during the year. 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.
Other payments to Executive Committee members
During 2022, no other payments or waivers of claims Award and delivery of equity to Novartis employees
other than those set out in the tables (including the foot- During 2022, 12.7 million unvested restricted shares (or
notes) contained in this Compensation Report were ADRs), RSUs and target PSUs were granted, and 10.4
made to Executive Committee members or to “persons million Novartis vested shares (or ADRs) were delivered
closely linked” to them. 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 offset
the dilutive impact from its equity-based participation
plans.


113
 Item 6. Directors, Senior Management and Employees

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 2022-2024 LTPP

After the first two years of the three-year LTPP perfor- After the first year of the three-year LTPP performance
mance cycle, both net sales CAGR and core operating cycle, net sales CAGR is on target and core operating
income CAGR are tracking behind target, driven mainly income CAGR is ahead of target, while innovation perfor-
by the impact of the safety update on Beovu. Innovation mance is on target. At the end of 2022, the relative TSR
is on track. At the end of 2022, the relative TSR for for Novartis was below the median among our global
Novartis was below median among our global healthcare healthcare peer group.
peer group.
PERFORMANCE MEASURES TRACKING
PERFORMANCE MEASURES TRACKING Net sales CAGR (25%) T
Net sales CAGR (25%) M Core operating income CAGR (25%) T
Core operating income CAGR (25%) M Innovation (25%) T
Innovation (25%) T Relative TSR (25%) M
Relative TSR (25%) M
CAGR = compound annual growth rate

CAGR = compound annual growth rate

T On or ahead of target M Slightly behind or behind target


114
 Item 6. Directors, Senior Management and Employees

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 effect on January 1,
2023.
Assuming that the Sandoz spin-off will occur in 2023, some impact is expected on 2023 Executive Compensation.

Annual Incentive Sandoz spin-off

Following a review, the Compensation Committee In August 2022, we announced our intention to separate
decided to adapt the financial performance in the Annual Sandoz, our generics and biosimilars division, into a new
Incentive Plan effective as of performance year 2023 as publicly traded standalone company, by way of a 100%
below: spin-off, subject to approval of the Novartis AG Board of
• Remove “Share of Peers” from the financial perfor- Directors and shareholders. In view of the planned spin-
mance measures in the Annual Incentive plan. As a off, the Compensation Committee made the following
result, the Annual Incentive financial performance mea- decisions.
sures are Group Net Sales (40%), Group Operating
Income (30%) and Group Free Cash Flow 1 (30%), Sandoz CEO 2023 Annual Incentive
thereby retaining a strong link to our key priorities Based on the assumption that the spin-off will be imple-
• Group financial measures will be weighted at 60% for mented in the second half of 2023, the 2023 Balanced
all Executive Committee members. Financial targets Scorecard for Richard Saynor, CEO designate of Sandoz,
that relate to a division or business unit, where appli- will be adapted so that his 2023 Annual Incentive will be
cable, will be part of the individual strategic objectives based exclusively on the financial and strategic perfor-
(40% weight) mance of Sandoz.

Swiss Corporate Law reform Equity Restoration principles

Following the reform of Swiss corporate law, which came If and when the planned spin-off occurs, holders of
into effect on January 1, 2023, the following changes will vested and unvested awards in the form of Novartis
be made to compensation design and disclosure in the shares or ADRs will receive a dividend in kind resulting
2023 Compensation Report: from the spin-off in the same way as other Novartis
• Contracts of Executive Committee members will be shareholders. Holders of unvested RSUs and PSUs will
adapted so that any non-compete compensation will not receive the dividend in kind resulting from the spin-
not exceed the average annual compensation of the off. To compensate for the expected reduction in share-
previous three financial years holder value after the issue of dividend in kind, Novartis
• In previous years, the Swiss regulations permitted com- will grant equity awards (called “Keep Whole awards”)
panies to award compensation of up to 40% above the to its employees, including the Executive Committee
shareholder approved budget for newly appointed members, following the spin-off. This will be undertaken
members of the Executive Committee, whether that be in accordance with the Sandoz equity restoration plan,
through internal promotions or external hires. From as follows:
2023, this additional budget of 40% will only be made • The Keep Whole awards will have a value similar to the
available for external appointments of Executive Com- value of the dividend in kind resulting from the spin-off
mittee members that each RSU or PSU would have received had it been
a Novartis share or ADR
These changes will require adjustments to the Articles • The aim of the Keep Whole awards is to ensure that
of Incorporation of Novartis, which will be submitted to Novartis employees who have been granted RSUs or
Novartis shareholders for their approval at the 2023 PSUs, including Executive Committee members, are
AGM. not disadvantaged by the spin-off relative to Novartis
shareholders

More details will be shared at the time of the spin-off.

1
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.


115
 Item 6. Directors, Senior Management and Employees

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 Officer

Ms. Hale, who has joined the Executive Committee in May 2021, delivered many highlights in 2022, including effec-
tively managing ongoing cases with the SEC/DOJ, creating a new, focused and efficient global legal function, pre-
paring for the Sandoz spin-off effectively, and continuing to improve the governance of the company. Effective
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 Officer

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. Effective 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 Officer
Following her appointment in April 2022 as the President, Innovative Medicines International & Chief Commercial
Officer, Ms. Tschudin effectively executed the creation of our new Innovative Medicines International organization
and Chief Commercial Office. 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. Effective 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 Officer.

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”. Steffen Lang will also receive a 10% increase in LTI target as a result of his enhanced responsibilities in Oper-
ations.


116
 Item 6. Directors, Senior Management and Employees

2022 Board compensation

Philosophy and benchmarking Other Board members
Aligned with market practice in Switzerland, the Board The annual fee rates for Board membership and addi-
of Directors sets compensation for its members at a level tional functions are included in the table below. These
that allows for the attraction of high-caliber individuals, were approved by the Board of Directors with effect from
including both Swiss and international members, who the 2022 AGM. Aggregate Board compensation is
have global experience. aligned with other large Swiss companies.
Given their focus on corporate strategy, supervision 2022-2023 AGM
and governance, Board members do not receive variable CHF 000s annual fee

compensation. Each year at the AGM, shareholders are Board Chair 3 800
requested to approve, in a binding vote, the total com- Board membership 280
pensation of the Board of Directors until the following Vice-Chair 50
AGM. Lead Independent Director 20
The Board of Directors sets the level of compensa- Chair of the Audit and Compliance Committee 130
tion for its Chair and the other members to be in line with
Chair of the Compensation Committee 90
relevant benchmark companies, including other large
Chair of the following committees:
Switzerland-based multinational companies such as • Governance, Nomination and
ABB, Credit Suisse, Holcim, Nestlé, Roche and UBS. This Corporate Responsibilities Committee
peer group was chosen for Board compensation due to • Science & Technology Committee
• Risk Committee 70
the comparability of Swiss legal requirements, including
Membership of the Audit
broad personal and individual liabilities under Swiss law and Compliance Committee 70
(and criminal liability under Swiss rules regarding board
Membership of the following committees:
and executive committee compensation related to the • Compensation Committee
Ordinance against Excessive Compensation in Listed • Governance, Nomination and
Corporate Responsibilities Committee
Companies), and under US law (due to the Company’s • Science & Technology Committee
secondary listing on the New York Stock Exchange). The • Risk Committee 40
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 In addition, the following policies apply regarding Board
from its independent advisor, including relevant bench- compensation:
marking information. To ensure independence of deci- • 50% of compensation is delivered in cash, paid on a
sion-making, the peer group used for the Board of Direc- quarterly basis in arrears. Board members may choose
tors is different to that used for the Executive Committee. to receive more of their compensation in shares instead
The Board Chair’s contract and the Board of Direc- of cash
tors compensation policy do not provide for any termi- • At least 50% of compensation is delivered in shares in
nation-related payments. two installments: one six months after the AGM; and
one 12 months after the AGM

Board Chair Board members bear the full cost of their employee
social security contributions, if any, and do not receive
As Board Chair, Joerg Reinhardt receives total annual share options or pension benefits.
compensation valued at CHF 3.8 million. The total com-
pensation is comprised equally of cash and shares, as
follows: 2023 Board compensation
• Cash compensation: CHF 1.9 million per year
• Share compensation: annual value equal to CHF 1.9 In 2022, the Compensation Committee reviewed,
million of unrestricted Novartis shares together with its independent advisor, the Board of Direc-
tors’ compensation system against the Swiss Market
For 2022, the Board Chair voluntarily waived the increase Index. They found that the Board Chair fees and retainer
in compensation to which he is contractually entitled. 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.


117
 Item 6. Directors, Senior Management and Employees

Board member total compensation earned for the financial year 2022
Governance,
Audit and Sustainability Science & Cash Shares Other Total
Board Compliance Compensation and Nomination Technology Risk Shares (CHF) (CHF) (CHF) (CHF)
membership Committee Committee Committee Committee Committee (number) 1 (A) (B) (C) 2 (A)+(B)+(C) 3

Board members active on December 31, 2022

4
Joerg Reinhardt Board Chair Chair 23 574 1 900 000 1 900 000 3 670 3 803 670

Simon Moroney Vice-Chair 6 Chair • 2 695 225 834 225 834 4 560 456 228

Lead Independent
Patrice Bula Director 6 • Chair 6 2 259 197 500 197 500 3 670 398 670

Nancy C. Andrews • • • 2 233 180 000 180 000 – 360 000

Ton Buechner • • Chair 2 605 210 000 210 000 4 560 424 560

Elizabeth Doherty • Chair • 2 791 225 000 225 000 – 450 000

Bridgette Heller • • • • 6 2 541 211 667 211 667 – 423 334

Daniel Hochstrasser • 6 856 116 667 116 667 4 560 237 894

Frans van Houten • • • 4 838 – 390 000 – 390 000

Ana de Pro Gonzalo •6 • • 1 192 162 500 162 500 4 560 329 560

Andreas von Planta • • • 2 327 182 500 182 500 3 670 368 670

Charles L. Sawyers • • • 2 233 180 000 180 000 – 360 000

William T. Winters • • • 4 466 –  360 000 –  360 000

Subtotal 54 610 3 791 668 4 541 668 29 250 8 362 586

Board members who stepped down at the 2022 AGM

Ann Fudge 5 1 132 30 000 30 000 – 60 000

Enrico Vanni 5 1 509 40 000 40 000 3 670 83 670

Subtotal 2 641 70 000 70 000 3 670 143 670

Total 57 251 3 861 668 4 611 668 32 919 8 506 255

See next page for 2021 comparative figures.

1
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.
2
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.
3
All amounts are before deduction of the social security contribution and income tax due by the Board member.
4
No additional committee fees for chairing the Science & Technology Committee were delivered to Joerg Reinhardt.
5
Until March 4, 2022.
6
From March 4, 2022.


118
 Item 6. Directors, Senior Management and Employees

Board member total compensation earned for the financial year 2021
Governance,
Audit and Sustainability Science & Cash Shares Other Total
Board Compliance Compensation and Nomination Technology Risk Shares (CHF) (CHF) (CHF) (CHF)
membership Committee Committee Committee Committee Committee (number) 1 (A) (B) (C) 2 (A)+(B)+(C) 3

Board members active on December 31, 2021

Joerg Reinhardt 4 Chairman Chair 22 830 1 900 000 1 900 000 4 560 3 804 560

Vice Chairman /
Lead Independent
Enrico Vanni Director7 • • • 3 035 244 167 244 167 3 670 492 004

Nancy C. Andrews • • • 2 162 180 000 180 000 – 360 000

Ton Buechner • • Chair 6 3 625 175 000 240 000 4 560 419 560

Patrice Bula • • 1 922 160 000 160 000 4 560 324 560

Elizabeth Doherty • Chair • 3 391 206 250 243 750 – 450 000

Ann Fudge • • • 2 162 180 000 180 000 – 360 000

Bridgette Heller • •6 • 2 128 189 167 189 167 – 378 334

Frans van Houten • • 6 • 4 257 – 378 333 – 378 333

Simon Moroney • Chair 6 • 2 187 197 500 197 500 4 560 399 560

Andreas von Planta • Chair • 2 556 200 833 200 833 3 670 405 336

Charles L. Sawyers • • • 2 162 180 000 180 000 – 360 000

William T. Winters • • • 4 325 – 360 000 – 360 000

Subtotal 56 742 3 812 917 4 653 750 25 580 8 492 247

Board members who stepped down at the 2021 AGM

Srikant Datar 5 1 970 23 000 53 667 – 76 667

Subtotal – – – – –

Total 58 712 3 835 917 4 707 417 25 580 8 568 914

1
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.
2
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.
3
All amounts are before deduction of the social security contribution and income tax due by the Board member.
4
No additional committee fees for chairing the Science & Technology Committee were delivered to Joerg Reinhardt.
5
Until March 2, 2021.
6
From March 2, 2021.
7
No additonal compensation was paid for the Lead Independent Director role.


119
 Item 6. Directors, Senior Management and Employees

Additional disclosures

Share ownership requirements for Board members Other payments to Board members
The Board Chair is required to own a minimum of 30 000 During 2022, no payments (or waivers of claims) other
Novartis shares, and other members of the Board of than those set out in the Board member compensation
Directors are required to own at least 5 000 Novartis table titled “—Board member total compensation earned
shares within five years after joining the Board of Direc- for the financial year 2022” (including in the table foot-
tors, to ensure their interests are aligned with those of notes) were made to current members of the Board or
shareholders. to “persons closely linked” to them.
Board members are prohibited from hedging or
pledging their ownership positions in Novartis shares Payments to former Board members
that are part of their guideline share ownership require- During 2022, no payments (or waivers of claims) were
ment and are required to hold these shares for 12 months made to former Board members or to “persons closely
after retiring from the Board of Directors. As at Decem- linked” to them.
ber 31, 2022, all current and former members of the
Board of Directors who were required to meet the mini- Board member compensation approved by
mum share ownership requirements did so. shareholders
The total compensation earned by Board members from
Shares, ADRs and share options owned by Board the 2021 AGM to the 2022 AGM was within the amount
members approved by shareholders at the 2021 AGM.
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 31, 2022 1,2

Joerg Reinhardt 632 730

Simon Moroney 4 102
Patrice Bula 8 802
Nancy C. Andrews 8 931
Ton Buechner 20 461
Elizabeth Doherty 12 836
Bridgette Heller 4 296
Daniel Hochstrasser 804
Frans van Houten 14 442
Ana de Pro Gonzalo 823
Andreas von Planta 168 717
Charles L. Sawyers 15 888
William T. Winters 27 659
Sub-Total 920 491

Board members who stepped down at the 2022 AGM

Enrico Vanni 32 078
Ann Fudge 12 751
Sub-Total 44 829
Total 965 320

1
Includes holdings of “persons closely linked” to Board members (see definition
“Persons closely linked”).
2
Each share provides entitlement to one vote.


120
 Item 6. Directors, Senior Management and Employees

Compensation governance
Legal framework line with the Compensation Committee Charter. The dis-
The Swiss Code of Obligations and the corporate gov- cussions and conclusions of each committee meeting
ernance guidelines of the SIX Swiss Exchange require are delivered to the full Board of Directors. A summary
listed companies to disclose certain information about of the compensation decision-making authorities is set
the compensation of board and executive committee out below.
members, their equity participation, and loans made to
them. This Annual Report fulfills that requirement in addi- Compensation authorization levels within the
tion to being in line with the principles of the Swiss Code parameters set by the shareholders’ meeting
of Best Practice for Corporate Governance of the Swiss
DECISION ON DECISION-MAKING AUTHORITY
Business Federation (economiesuisse). For more details,
Compensation of Board Chair and Board of Directors
please refer to “—Corporate Governance” in Section 6C other Board members
of this Report. Compensation of CEO Board of Directors
Compensation of other Executive Compensation Committee
Risk management principles Committee members
The Compensation Committee, with support from its
independent advisor, reviews market trends in compen-
sation, and changes in corporate governance rules and Committee member independence
best practices. Together with the Risk Committee, it also The Compensation Committee is composed exclusively
reviews the Novartis compensation systems to ensure of members of the Board of Directors who meet the inde-
that they do not encourage inappropriate or excessive pendence criteria set forth in the Board Regulations. From
risk-taking, and instead encourage behaviors that sup- the 2022 AGM, the Compensation Committee consisted
port sustainable value creation. A summary of the risk of the following four members: Simon Moroney (as Chair),
management principles is outlined below. Patrice Bula, Bridgette Heller, and William Winters.
RISK MANAGEMENT PRINCIPLES
Role of the Compensation Committee’s
• Rigorous performance man- • Post-contractual non-compete independent advisor
agement process, with approval period is limited to a maximum The independent external compensation advisor sup-
of targets and ­evaluation of of 12 months from the end of
performance for the CEO by employment. Resulting com-
ports the committee in determining the design and imple-
the Board of Directors pensation, if applicable, will mentation of compensation and benefits.
• Balanced mix of short-term not exceed the average annual The Compensation Committee retained Mercer
and long-term variable com- compensation (annual base
salary plus Annual Incentive)
­Limited, which was appointed in July 2017, as its inde-
pensation elements
• Values and Behaviors are a of the previous three financial pendent external advisor until June 2022. As part of its
key component of the Annual years normal governance practices, and with a view to ensur-
Incentive and are embedded in • Good and bad leaver ing the independence of the advisor, the Compensation
our culture provisions apply to variable
­compensation of leavers Committee considered a change in the Committee advi-
• Clawback and malus principles
apply to all elements of the • No severance payments or sor. To inform this decision, it conducted a market review
variable compensation change-of-control clauses of compensation advisors, with a focus on companies
• Performance-vesting Long- • Share ownership requirements; with extensive experience in European and US markets.
Term Incentives only, with no hedging or pledging of
three-year cycles Novartis share ownership Following a tendering process and an analysis to ensure
• All variable compensation is • No loans granted to current or that there were no conflicts of interest, the Compensa-
capped at 200% of target former members of the Execu- tion Committee appointed Mitul Shah of Deloitte AG as
tive Committee and the Board
• Contractual notice period of
of Directors or to “persons
its independent compensation advisor with effect from
12 months
closely linked” to them 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 decision-making authorities Compensation Committee and the People & Organiza-
Authority for decisions related to compensation is gov- tion function on senior compensation.
erned by the Articles of Incorporation, Board Regulations
and the Compensation Committee Charter, which are all Meetings held in 2022 and self-evaluation
published on the Company website: www.novartis.com/ In 2022, the Compensation Committee held seven for-
investors/company-overview/corporate-governance. mal meetings. In line with prior years, it collaborated with
The Compensation Committee serves as the supervi- the Science & Technology Committee to review and
sory and governing body for compensation policies and endorse, for approval by the Board of Directors, the inno-
plans within Novartis, and has overall responsibility for vation targets and achievements of the Annual Incentive
determining, reviewing and proposing compensation pol- and LTPP. The Compensation Committee conducted a
icies and plans for approval by the Board of Directors in self-evaluation in 2022.


121
 Item 6. Directors, Senior Management and Employees

Report of the statutory auditor on the

Compensation Report of Novartis AG
To the General Meeting of Novartis AG, Basel necessary to enable the preparation of a Compensation Report
that is free from material misstatement, whether due to fraud
Opinion or error. The Board of Directors is also responsible for design-
We have audited the Compensation Report of Novartis AG (the ing the compensation system and defining individual compen-
Company) for the year ended December 31, 2022. The audit sation packages.
was limited to the information on compensation, loans and
advances pursuant to Art. 14-16 of the Ordinance against Auditor’s Responsibilities for the Audit of the Compensation
Excessive Compensation in Listed Companies Limited by Report
Shares (Verordnung gegen übermässige Vergütungen bei Our objectives are to obtain reasonable assurance about
börsenkotierten Aktiengesellschaften, VegüV) namely the whether the information on compensation, loans and advances
tables “2022 realized compensation for the CEO and other pursuant to Art. 14-16 VegüV is free from material misstatement,
Executive Committee members” on pages 105-106, “2022 com- whether due to fraud or error, and to issue an auditor’s report
pensation at grant value for the CEO and other Executive Com- that includes our opinion. Reasonable assurance is a high level
mittee members” on pages 108-109, “Additional disclosures for of assurance but is not a guarantee that an audit conducted in
the CEO and other Executive Committee members” on pages accordance with Swiss law and SA-CH will always detect a
110-113, as well as the “2022 Board compensation” on page 117- material misstatement when it exists. Misstatements can arise
118 and the “Additional disclosures” on page 120 of the Com- from fraud or error and are considered material if, individually
pensation Report of Novartis AG for the year ended December or in the aggregate, they could reasonably be expected to influ-
31, 2022, hereinafter referred to as “disclosures made on the ence the economic decisions of users taken on the basis of the
pages defined as subject to audit”. Compensation Report.
In our opinion, the information on compensation, loans and As part of an audit in accordance with Swiss law and SA-CH,
advances in the enclosed Compensation Report defined as sub- we exercise professional judgment and maintain professional
ject to audit complies with Swiss law and Art. 14-16 VegüV. scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement in the
Basis for Opinion Compensation Report, whether due to fraud or error, design
We conducted our audit in accordance with Swiss law and and perform audit procedures responsive to those risks, and
Swiss Standards on Auditing (SA-CH). Our responsibilities obtain audit evidence that is sufficient and appropriate to
under those provisions and standards are further described in provide a basis for our opinion. The risk of not detecting a
the “Auditor’s Responsibilities for the Audit of the Compensa- material misstatement resulting from fraud is higher than for
tion Report” section of our report. We are independent of the one resulting from error, as fraud may involve collusion, forg-
Company in accordance with the provisions of Swiss law and ery, intentional omissions, misrepresentations, or the over-
the requirements of the Swiss audit profession, and we have ride of internal control.
fulfilled our other ethical responsibilities in accordance with • Obtain an understanding of internal control relevant to the
these requirements. audit in order to design audit procedures that are appropri-
We believe that the audit evidence we have obtained is suffi- ate in the circumstances, but not for the purpose of express-
cient and appropriate to provide a basis for our opinion. ing an opinion on the effectiveness of the Company’s inter-
nal control.
Other Matter • Evaluate the appropriateness of accounting policies used
The Compensation Report of the Company for the year ended and the reasonableness of accounting estimates and related
December 31, 2021 was audited by another auditor who disclosures made.
expressed an unmodified opinion on this Report on February
1, 2022. We communicate with the Board of Directors or its relevant
committee regarding, among other matters, the planned scope
Other Information and timing of the audit and significant audit findings, including
The Board of Directors is responsible for the other information. any significant deficiencies in internal control that we identify
The other information comprises the information included in during our audit.
the annual report, but does not include the tables and disclo- We also provide the Board of Directors or its relevant com-
sures in the Compensation Report mentioned in the “Opinion” mittee with a statement that we have complied with relevant
paragraph of this report, the consolidated financial statements, ethical requirements regarding independence, and to commu-
the financial statements and our auditor’s reports thereon. nicate with them all relationships and other matters that may
Our opinion on the Compensation Report does not cover the reasonably be thought to bear on our independence, and where
other information and we do not express any form of assurance applicable, actions taken to eliminate threats or safeguards
conclusion thereon. applied.
In connection with our audit of the Compensation Report, our
responsibility is to read the other information and, in doing so, KPMG AG
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 Richard Broadbelt Norman Dittes
Compensation Report in accordance with the provisions of Licensed Audit Expert Licensed Audit Expert
Swiss law and the Company’s articles of incorporation, and for Auditor in charge
such internal control as the Board of Directors determines is
Basel, January 31, 2023


122
 Item 6. Directors, Senior Management and Employees

6.C Board practices

Corporate governance
Framework
Novartis is committed to effective corporate governance, The Novartis corporate governance principles are ­further
and our corporate governance framework is intended to described in key governance documents, in p ­ articular
support sustainable financial performance and long- in our Articles of Incorporation and the Regulations of
term value creation for our shareholders, patients, the Board, the Board Committees and the Executive
employees and other stakeholders based on our Values Committee (“Board Regulations”) (www.novartis.com/
and Behaviors. 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, effective 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).

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 Provides opinion on
compliance of Novartis
AUDIT AND COMPENSATION GOVERNANCE, RISK SCIENCE & Group consolidated
COMPLIANCE COMMITTEE SUSTAINABILITY COMMITTEE TECHNOLOGY financial statements and
COMMITTEE AND NOMINATION COMMITTEE
the financial statements
COMMITTEE
of Novartis AG with
applicable standards and
Swiss law, on compliance
Sets strategic direction of Novartis, appoints and oversees key executives, approves major transactions of the Compensation
and investments, adopts and modifies Board Regulations Report with applicable law,
on effectiveness of internal
controls over financial
reporting, and limited
assurance on selected
EXECUTIVE COMMITTEE
performance indicators
in the Novartis in Society
Responsible for operational management of Novartis
Integrated Report


123
 Item 6. Directors, Senior Management and Employees

Group structure and shareholders

Group structure Shareholdings
Novartis AG and Group companies Majority holdings in publicly traded Group companies
Novartis AG, the Group’s holding company, is a corpo- The Novartis Group owns 70.68% of Novartis India Ltd.,
ration organized under Swiss law with issued registered with registered office in Mumbai, India, and a listing on the
shares and registered office at Lichtstrasse 35, CH-4056 BSE (formerly known as the Bombay Stock Exchange)
Basel, Switzerland. (ISIN INE234A01025, symbol: HCBA). The total market
The principal subsidiaries and associated companies value of the 29.32% free float of Novartis India Ltd. was
of the Novartis Group are shown in “Item 18. Financial USD 59.0 million on December 31, 2022, using the quoted
Statements—Note 31. Principal Group subsidiaries and market share price at year-end. Applying this share price
associated companies.” to all the shares of the company, the market capitalization
of the whole company was USD 201.2 million, and that
Divisions and business units of the shares owned by Novartis was USD 142.2 million.
Novartis has two operating divisions: Innovative Medicines
(IM), which specializes in patent-protected medicines, and
Sandoz1, which sells generics and biosimilars. In 2022, Shareholders
Novartis integrated the Pharmaceuticals and Oncology
business units under the IM Division and created two Significant shareholders
separate commercial organizations with a stronger geo- According to the Share Register, as of December 31,
graphic focus – Innovative Medicines International and 2022, the ­following registered shareholders, including
Innovative Medicines US. IM is supported by the Novartis nominees and the American Depositary Share (ADS)
Institutes for BioMedical Research (NIBR) and Global depositary, held more than 2% of the total share capital,
Drug Development (GDD). Both operating divisions are with the right to vote all their shares based on exemp-
supported by Novartis Operations (which combines the tions granted by the Board (see “—Item 6.C Board prac-
former Novartis Technical Operations (NTO) and Cus- tices—Shareholder participation—Voting rights, restric-
tomer & Technology Solutions (CTS) units), and corporate tions and representation—Registration restrictions”):2
functions. The latter includes the newly created Strat-
egy & Growth function, which combines corporate strat- % holding of
egy, R&D portfolio strategy and business development. share capital
Dec 31, 2022
A detailed review of 2022 business results can be found
Shareholders registered for their own account:
in “Item 18. Financial Statements—Note 3. Segmentation
of key figures 2022, 2021 and 2020.” Emasan AG, Basel 3.7
UBS Fund Management (Switzerland) AG, Basel 2.3
Credit Suisse Funds AG, Zurich 2.1

% holding of
ive Medicine
ovat
share capital
Inn s Dec 31, 2022

Shareholders registered as nominees:

Operations 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
Research & Through The Bank of New York Mellon, New York 0.9
Development
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
Co
io ns
rpo nct
ra t e f u 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-off, with completion
expected in the second half of 2023.
S a n d oz 2
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.


124
 Item 6. Directors, Senior Management and Employees

According to a disclosure notification filed with Number of registered shareholders/shares

Novartis AG, Norges Bank (Central Bank of Norway),
Oslo, held 2.3% of the share capital but was not regis- Number of
tered in the Share Register as of December 31, 2022. registered % of
As of December 31, 2022 1 shareholders share capital
According to a disclosure notification filed with Novartis AG
1–100 34 085 0.08
and the SIX Swiss Exchange Regulation AG, BlackRock, Inc.,
New York, held between 5% and 10% but was registered 101–1 000 110 467 1.86

with less than 2% of the share capital as of December 31, 2022. 1 001–10 000 37 732 4.32
Disclosure notifications pertaining to shareholdings 10 001–100 000 3 212 3.39
filed with Novartis AG and the SIX Swiss Exchange are 100 001–1 000 000 475 5.85
published on the latter’s electronic publication platform: 1 000 001–5 000 000 68 5.39
www.ser-ag.com/en/resources/notifications-market-par- 5 000 001 or more 2 29 46.14
ticipants/significant-shareholders.html. Total registered shareholders/shares 186 068 67.03
Unregistered shares 32.97
Duty to make an offer
Total 100.00
According to the Swiss Federal Act on Financial Infra-
structures, anyone who – directly, indirectly or acting in 1
At the record date of the 2022 Annual General Meeting of Shareholders (AGM),
concert with third parties – acquires equity securities unregistered shares amounted to 17.0%.
2
Including significant registered shareholders as listed above
exceeding 33 1/3% of the voting rights of a company
(whether or not such rights are exercisable) is required
to make an offer to acquire all listed equity securities of Registered shareholders by type
that company. A company may raise this threshold up to
49% of the voting rights (“opting up”) or may, under cer- As of December 31, 2022 Shareholders in % Shares in %
tain circumstances, waive the threshold (“opting out”). Individual shareholders 96.71 15.61
Novartis AG has not adopted any such measures. Legal entities 1 3.25 37.69
Nominees, fiduciaries
Cross shareholdings and ADS depositary 0.04 46.70
Novartis AG has no cross shareholdings in excess of Total 100.00 100.00
5% of capital, or voting rights with any other company.
1
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
Overview on shareholder structure Obligations on January 1, 2023, Novartis ordinary shares held by certain Swiss
The following tables relate only to registered share- 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.
holders and cannot be assumed to represent the entire
­investor base because nominees and J ­ PMorgan Chase
Bank, N.A., as ADS depositary, are registered as share- Registered shareholders by country1
holders for a large number of beneficial owners.
As of December 31, 2022, Novartis AG had approxi- As of December 31, 2022 Shareholders in % Shares in %
mately 186 000 registered shareholders. 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 2 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

1
Registered shares held by nominees are shown in the country where the company/
affiliate entered in the Share Register as shareholder has its registered seat.
2
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.


125
 Item 6. Directors, Senior Management and Employees

Capital structure
Share capital Convertible securities and options
As of December 31, 2022, the share capital amounted Novartis AG has not issued convertible or exchange-
to CHF 1 201 860 626 fully paid-in and divided into able bonds, w ­ arrants, options or other securities grant-
2 403 721 252 registered shares with a nominal value of ing rights to shares, other than options (or similar instru-
CHF 0.50 each. ments such as stock appreciation rights) granted under
Shares are listed on the SIX Swiss Exchange (ISIN or in connection with equity-based participation plans of
CH0012005267, symbol: NOVN) and on the New York employees. Novartis AG does not grant any new stock
Stock Exchange (NYSE) in the form of ­American Depositary options under these plans.
Receipts (ADRs) representing American Depositary
Shares (ADSs) (ISIN US66987V1098, symbol: NVS).
No authorized and conditional capital exists as of Limitation on transferability
December 31, 2022.
No transferability restrictions are imposed on shares (for
registration restrictions, see “—Item 6.C Board practices—
Shares, participation certificates, Shareholder participation—Voting rights, restrictions and
non-voting equity securities, profit- representation—Registration restrictions”). The registra-
tion of shareholders in the Share Register or in the ADR
sharing certificates register kept by JPMorgan Chase Bank, N.A., does not
Shares are issued as uncertificated securities (in the affect the tradability of shares or ADRs.
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.

Changes to share capital

Average repurchase
AGM Shareholder decision Shares canceled share price (CHF)1

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 AGM2
Average repurchase
AGM Proposal to the shareholders Shares to be canceled share price (CHF)1

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 AGM3

1
All shares were repurchased on the SIX Swiss Exchange second trading line.
2
In addition to the remaining authorization from the 2021 AGM
3
In addition to the remaining authorization from the 2022 AGM

Key Novartis share data

2022 2021 2020

Issued shares 2 403 721 252 2 434 420 920 2 467 060 920
Treasury shares 1 284 112 195 199 480 972 210 238 872
Outstanding shares at December 31 2 119 609 057 2 234 939 948 2 256 822 048
Weighted average number of shares outstanding 2 181 180 341 2 242 601 173 2 277 041 940

1
Approximately 99 million treasury shares (2021: 102 million, 2020: 103 million) are held in Novartis entities that restrict their availability for use.


126
 Item 6. Directors, Senior Management and Employees

Per-share information1
2022 2021 2020

Basic earnings per share from continuing operations (USD) 3.19 10.71 3.55
Diluted earnings per share from continuing operations (USD) 3.17 10.63 3.52
Net cash flows from operating activities from continuing operations (USD) 6.53 6.72 5.99
Year-end equity for Novartis AG shareholders (USD) 28.00 30.31 25.07
Dividend (CHF) 2 3.20 3.10 3.00
Dividend (USD) 3 3.46 3.33 3.20

1
Calculated on the weighted average number of shares outstanding, except year-end equity
2
2022: proposal to shareholders for approval at the AGM on March 7, 2023.
3
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 Share price (CHF)

2022 2021 2020 2022 2021 2020

Price/earnings ratio 1
28.3 8.2 26.7 Year-end share price 83.59 80.28 83.65
Dividend yield (%) 1 3.8 3.9 3.6 High 1 87.82 86.75 95.82
Low 1 73.98 73.44 69.96
1
Based on the Novartis share price at December 31 of each year
Year-end market capitalization
(USD billions) 2 191.5 196.1 214.3
Key data on ADRs issued in the US Year-end market capitalization
(CHF billions) 2 177.2 179.4 188.8
2022 2021 2020

Year-end ADR price (USD) 90.72 87.47 94.43 1

Based on daily closing prices
2
Market capitalization is calculated based on the number of shares outstanding
High 1
93.75 98.47 99.01
(excluding treasury shares). Market capitalization in USD is based on the market
Low 1 74.61 79.70 70.67 capitalization in CHF converted at the year-end CHF/USD exchange rate.

Number of
ADRs outstanding 2 225 435 680 269 891 321 288 755 853

1
Based on daily closing prices
2
The depositary, JPMorgan Chase Bank, N.A., holds one Novartis AG share for every
ADR issued.


127
 Item 6. Directors, Senior Management and Employees

Shareholder participation
Shareholder engagement We appreciate the value that shareholders attach to ESG
matters. We will continue to integrate ESG into our strat-
Shareholder engagement is fundamental to our commit- egy and to promote transparency through our compre-
ment to governance and transparency, and the feedback hensive ESG engagement program. We have more than
we receive during these engagements helps us create doubled the number of investor engagements on ESG mat-
long-term and sustainable value. ters in recent years, and in 2022, our CEO led our Inves-
We concentrate our outreach efforts on our largest tor Update on Access & Sustainability (formerly known as
100 shareholders – portfolio managers, buy-side profes- ESG Investor Day) for the fourth time (marking our ninth
sionals, stewardship teams and ESG analysts – who rep- dedicated ESG event for investors since 2014). We also
resent 60% of our ownership. While the Board Chair, held virtual roadshows in 2022 as part of our engage-
CEO and CFO, together with Investor Relations, are ment with North American, European and Asian investors.
accountable for ensuring effective shareholder engage-
ment, other senior managers from within and outside the
Executive Committee also participate in the meetings. We Voting rights, restrictions and
conduct regular outreach to investors throughout the representation
year.
REGISTRATION
TYPES OF ENGAGEMENTS (SELECT EXAMPLES): Shareholders have the right to vote and to execute all
other rights as granted under Swiss law and the Articles
• AGM and quarterly results teleconferences (TCs)
of Incorporation (see, in particular, articles 17 and 18 of
• Bank conferences and management roadshows
• “Meet Novartis Management” capital markets event the Articles of Incorporation).
• Governance roadshow and TCs Each share registered with the right to vote by the third
• Board Chair’s TCs for US and UK investors business day before the General Meeting entitles the holder
• ESG roadshows to one vote at General Meetings. Article 5, paragraph 2 of the
• Investor Update on Access & Sustainability
(formerly known as ESG Investor Day)
Articles of Incorporation provides that to be registered with
• Update on the new organizational model voting rights, a shareholder must declare that he or she acquired
• Update on the Sandoz business 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
TOPICS DISCUSSED WITH SHAREHOLDERS DURING 2022: Incorporation, the Board may register nominees with the right
to vote. The Share Register is an internal, non-public register
GROWTH:
subject to statutory confidentiality and data privacy.
• Replacement power
• Growth drivers (Cosentyx, Entresto, Zolgensma, Kisqali, Kesimpta, The Articles of Incorporation are available at www.
Leqvio) novartis.com/investors/company-overview/corpo-
• Policy and pricing environment rate-governance.
• Life cycle management

INNOVATION: REGISTRATION RESTRICTIONS

• Progress and milestones Article 5, paragraph 2 of the Articles of Incorporation provides
• Data of pipeline projects
that no shareholder shall be registered with the right to vote
• Return on R&D investments
for more than 2% of the share capital. Given that shareholder
PRODUCTIVITY: representation at General Meetings has traditionally been com-
• Progress on financial, strategic and operational performance
paratively low in Switzerland, Novartis AG considers registra-
• Long-term sustainability of financial performance
• Capital allocation strategy tion restrictions necessary to prevent a minority shareholder
• New organization model from dominating a General Meeting. The Board may, upon
• Intention to separate Sandoz business request, grant an exemption. Considerations include whether
BUILDING TRUST WITH SOCIETY AND CULTURE: the shareholder supports our goal of creating sustainable
• Board accountability on ESG, and integration of ESG and value and has a long-term investment horizon. Exemptions
compensation are in force for the registered shareholders listed in “—Item
• Strong governance, enhanced process and focus on material ESG 6.C Board practices—Group structure and shareholders—
factors, leading to improved rating agency scores
• Patient access to innovative medicines
Shareholders—Significant shareholders.” Exemptions also
• Learning from Novartis Access programs implemented over the apply to the Novartis Foundation for Employee Participa-
decades, including integrated sustainable business models and tion, Basel, which as of December 31, 2022, was registered
access principles to help address access and inequities in the Share Register with less than 2% of the share capital,
• ESG targets: full carbon neutrality, patient access targets for
and to Norges Bank (Central Bank of Norway), Oslo, which
strategic innovative therapies, and global health flagship programs
• Progress on culture and other human capital metrics as of December 31, 2022, was not registered but held 2.3%
according to a disclosure notification filed with Novartis AG.
COMPENSATION AND GOVERNANCE:
• Diversity of the Board, the Executive Committee and the Company
No further exemptions were requested in 2022. The same
• Board renewal, succession planning and evaluation restrictions indirectly apply to ADR holders.
• Link of compensation system to key strategic priorities Article 5, paragraph 3 of the Articles of Incorporation
• Risk oversight provides that no nominee shall be registered with the right
• Stakeholder expectations from the Board on ESG matters
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

128
 Item 6. Directors, Senior Management and Employees

and number of shares of the persons for whose account it General Meeting
holds 0.5% or more of the registered share capital. Exemp-
tions are in force for the nominees listed in “—Item 6.C Board CONVENING
practices—Group structure and shareholders—Sharehold- The AGM must be held within six months after the end of
ers—Significant shareholders,” and for the nominee Citibank, our financial year (December 31), and normally takes place
London, which in 2015 requested an exemption, but as of in late February/early March. Extraordinary General Meet-
December 31, 2022, was not registered in the Share Regis- ings may be requested by the Board, the external auditor, or
ter. The same restrictions indirectly apply to ADR holders. shareholders representing at least 10% of the share capital.
According to article 5, paragraph 4 of the Articles of
Incorporation, shareholders, ADR holders, or nominees who AGENDA
are linked to each other or who act in concert to circumvent Shareholders representing shares with an aggregate
registration restrictions are treated as one person or nom- nominal value of at least CHF 1 million may request that
inee for the purposes of the restrictions on registration. an item be included in a General Meeting agenda. Such
The registration restrictions may be changed by res- requests must be made in writing at least 45 days before
olution of the General Meeting, with approval of at least the meeting, specifying the requested item and proposal.
two-thirds of the votes represented at the meeting.
The Articles of Incorporation are available at www. POWERS
novartis.com/investors/company-overview/corpo- According to article 17 of the Articles of Incorporation
rate-governance. (www.novartis.com/investors/company-overview/corpo-
rate-governance), the following powers are vested exclu-
ATTENDANCE, REPRESENTATION AND ONLINE PLATFORM sively in the General Meeting:
Registered shareholders will receive personal invita- • Adoption and amendment of the Articles of Incorporation
tions to the General Meetings along with a registration/ • Election and removal of the Board Chair, the Board and
proxy form as well as a personal one-time password and Compensation Committee members, the Independent
a QR code to log in to our online platform. By r­ eturning Proxy and the external auditor
the registration/proxy form or using the online platform, • Approval of the management report and the consoli-
shareholders are able to order an admission card for the dated financial statements
General Meeting or appoint another shareholder or the • Approval of the financial statements of Novartis AG, and
Independent Proxy to vote their shares on their behalf. the decision on the appropriation of available earnings
If the Independent Proxy is appointed, shareholders shown on the balance sheet, including dividends
can also give voting instructions on alternative or addi- • Approval of the maximum aggregate compensation of
tional motions related to the agenda items either (i) fol- the Board (from an AGM until the next AGM) and of the
lowing the recommendations of the Board for such alter- Executive Committee (for the financial year following
native or additional motions, or (ii) opposing such the AGM). If the maximum aggregate amount of com-
alternative or additional motions. They can also abstain pensation already approved by the AGM is not sufficient
from voting. to cover the compensation of newly appointed or pro-
Shareholders choosing not to receive the compre- moted Executive Committee members, Novartis may use
hensive invitation materials will be informed of upcoming up to 40% of the amount last approved for the newly
General Meetings through a letter containing the login appointed or promoted Executive Committee members.
credentials to access the online platform as well as a ref- • Discharge of Board and Executive Committee members
erence to www.novartis.com/investors/shareholder-in- • Decision on other matters that are reserved by law or
formation/general-meetings, where all relevant informa- by the Articles of Incorporation (e.g., advisory vote on
tion is available. the Compensation Report) to the General Meeting
In accordance with Swiss legislation passed in
response to the COVID-19 pandemic, and as in the pre- STATUTORY QUORUMS
vious year, physical attendance at the 2022 Annual Gen- The General Meeting passes resolutions and elections with
eral Meeting (AGM) was not possible, and shareholders the absolute majority of the votes represented at the meet-
could exercise their voting rights exclusively through the ing. However, under article 18 of the Articles of Incorpora-
Independent Proxy. tion (www.novartis.com/investors/company-overview/
corporate-governance), the approval of two-thirds of the
ADR HOLDERS votes represented at the meeting is required for:
ADR holders have the rights enumerated in the deposit • Alteration of the purpose of Novartis AG
agreement (such as the right to give voting instruc- • Creation of shares with increased voting powers
tions and to receive dividends). The ADS depositary of • Implementation of restrictions on the transfer of registe­red
Novartis AG – JPMorgan Chase Bank, N.A., New York – shares, and the removal of such restrictions
holds the shares underlying the ADRs and is registered • Authorized or conditional increase of the share capital
as a shareholder in the Share Register. An ADR is not a • Increase of the share capital out of equity, by contribution
share, and an ADR holder is not a Novartis AG shareholder. in kind, for the purpose of an acquisition of property or
Each ADR represents one share. ADR holders exercise the grant of special rights
their voting rights by instructing the depositary to exer- • Restriction or cancellation of subscription rights
cise their voting rights. The ADS depositary exercises • Change of the registered office of Novartis AG
the voting rights for registered shares underlying ADRs • Dissolution of Novartis AG
for which no voting instructions have been given by pro-
viding a discretionary proxy to an uninstructed indepen- In addition, the law provides for a qualified majority for
dent designee. Such designee has to be a shareholder. other resolutions, such as a merger or demerger.


129
 Item 6. Directors, Senior Management and Employees

Board of Directors
Composition (as per December 31, 2022)1

BOARD CHAIR: J. Reinhardt N. Andrews D. Hochstrasser1 A. de Pro Gonzalo

T. Buechner F. van Houten C. Sawyers
VICE-CHAIR: S. Moroney E. Doherty A. von Planta2 W. Winters
LEAD INDEPENDENT DIRECTOR: P. Bula B. Heller

AUDIT AND COMPENSATION GOVERNANCE, RISK COMMITTEE SCIENCE & TECHNOLOGY

COMPLIANCE COMMITTEE SUSTAINABILITY COMMITTEE
COMMITTEE AND NOMINATION
COMMITTEE
E. Doherty (Chair) S. Moroney (Chair) P. Bula (Chair) T. Buechner (Chair) J. Reinhardt (Chair)
T. Buechner P. Bula B. Heller N. Andrews N. Andrews
B. Heller B. Heller A. von Planta E. Doherty F. van Houten
F. van Houten W. Winters C. Sawyers A. von Planta S. Moroney
A. de Pro Gonzalo W. Winters A. de Pro Gonzalo C. Sawyers
1
Effective January 1, 2023, Mr. Hochstrasser became a member of the Audit and Compliance Committee and of the Governance, Sustainability and Nomination Committee.
2
Mr. von Planta will not stand for re-election at the 2023 AGM.

Changes to the Board of Directors Succession planning

Ana de Pro Gonzalo and Daniel Hochstrasser were elected The Board Chair, supported by the GSNC, ensures
as new Board members at the 2022 AGM. Ann Fudge, effective succession plans for the Board, the CEO and
Board member since 2008, and Enrico Vanni, Board the Executive Committee. These plans are discussed
member and Vice-Chair since 2011 and Lead Indepen- by the Board in private meetings. A search for a new
dent Director since 2021, did not stand for re-election Board member is launched – normally with the support
at the 2022 AGM. The biographies of Ms. Fudge and Mr. of a professional executive search company – with indi-
Vanni can be found in the 2021 Annual Report (pages 130 vidual selection criteria defined based on the evolving
and 133), available at www.novartis.com/news/media-li- needs of the Company and a continuing focus on diver-
brary/novartis-annual-report-2021. 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
Election and term of office and fresh perspectives are also important criteria for the
GSNC when evaluating new candidates. Candidates are
Board members (including the Board Chair) and Com- interviewed by the Board Chair, members of the GSNC,
pensation Committee members are elected individually other Board members, and members of the Executive
by shareholders at the General Meeting for a one-year Committee. The GSNC then makes a recommendation
term of office. The term of office expires at the end of to the full Board, and the Board ultimately decides who
the next AGM. should be proposed for election at the upcoming AGM.
According to article 20, paragraph 3 of the Articles The Board will propose to the shareholders a new
of Incorporation, a member shall not serve on the Board candidate for election at the 2023 AGM. Andreas von
for more than 12 years. Under special circumstances and Planta already announced in 2021 that he will not stand
if deemed to be in the best interest of the Company, the for re-election at the 2023 AGM.
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.


130
 Item 6. Directors, Senior Management and Employees

Independence dence questionnaire that is subject to review by the

GSNC. The GSNC then submits a proposal to the full
All Board members – including the Board Chair – are Board, and the Board determines the independence sta-
non-executive and independent, pursuant to applica- tus of each Board member.
ble corporate governance rules and Novartis indepen-
dence criteria, which are outlined in Appendix II to the
NATIONALITY
Board Regulations (www.novartis.com/investors/com-
NATIONALITY Diversity
GENDER
GENDER EXECUTIVE/NON-EXECUTIVE
EXECUTIVE/NON-EXECUTIVE INDEPEND
INDEPENDENC
pany-overview/corporate-governance). In particular, no
Board member is or was a member of the management Diversity of gender, age, nationality, ethnicity, viewpoints,
of Novartis AG or of any other Novartis Group company professional backgrounds and expertise is a key factor to
in the last three financial years up to December 31, 2022, success and Board effectiveness in a constantly evolving
or has or had, except for Daniel Hochstrasser, a signifi- environment. A diverse Board ensures that the appropri-
cant business relationship with Novartis AG or with any ate balance of skills, expertise, experience and cultural
other Novartis Group company. Mr. Hochstrasser fulfilled background is represented to discharge its responsibil-
the independence criteria following his resignation from ities and to support long-term value creation for share-
Bär & Karrer, a Swiss law firm that has a business rela- holders, patients, employees and other stakeholders.
tionship with Novartis, as of December 31, 2022. During Diversity remains a critical area of focus for the Board,
2022, Mr. Hochstrasser did not belong to any Board and the GSNC is continuously looking for opportunities
committee. No separate meetings of independent Board to further increase the Board’s diversity when identify-
­members were held in 2022. ing new Board member candidates.
The independence of Board members is assessed
annually. Each Board member completes an indepen-

Diversity profile
NATIONALITY
NATIONALITY GENDER
GENDER
BACKGROUND/EXPERIENCE AGEAGEEXECUTIVE/NON-EXECUTIVE
EXECUTIVE/NON-EXECUTIVE TENURE INDEPENDENCE
TENURE INDEPENDENCE
Nationality1 Gender
BACKGROUND/EXPERIENCE Age Tenure

p Swiss 31% p Male 69% p 55–60 15% p <3 y 31%

p American 23% p Female 31% p 61–65 62% p 3–6 y 31%
p Dutch 11% p >65 23% p 7–9 y 31%
p German 11% p >9 y 7%
p British 8%
p Spanish 8%
p Irish 4%
p New Zealander 4%
1
Please note that five Board members have dual nationalities. Each of these nationalities is counted as a half in the above chart.
BACKGROUND/EXPERIENCE
BACKGROUND/EXPERIENCE AGEAGE TENURE
TENURE

Board skills Board skill distribution

Upon proposal by the GSNC, the Board has determined Medicine/healthcare/R&D 46% 6/13
a diverse set of competencies for its members that aligns Leadership/management 92% 12/13
with our status as a listed company, as well as our busi-
ness portfolio, geographic reach and culture. Based on Finance/accounting 46% 6/13
this set of competencies, our Board members were asked Law/regulatory/risk management 69% 9/13
to identify their most relevant skills highlighted by their
educational background, professional experience and Data/digital 23% 3/13
personal achievements. Environmental, social 38% 5/13
The GSNC assesses the set of competencies as well and governance (ESG)
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.”


131
 Item 6. Directors, Senior Management and Employees

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 Officer 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 Officer, 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


132
 Item 6. Directors, Senior Management and Employees

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 officer, Boston Children’s Hospital, US (2021–present)
• Dean emerita, Duke University School of Medicine, and vice chancellor emerita for academic affairs,
Duke University, US (2017–2021)
• Dean, Duke University School of Medicine, and vice chancellor for academic affairs,
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)


133
 Item 6. Directors, Senior Management and Employees

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 Coffee 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, Affinity 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


134
 Item 6. Directors, Senior Management and Employees

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 Affoltern, 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


135
 Item 6. Directors, Senior Management and Employees

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


136
 Item 6. Directors, Senior Management and Employees

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 officer of Amadeus IT Group, a leading software provider
for the global travel and tourism industry.
Professional experience
• Chief financial officer, 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)


137
 Item 6. Directors, Senior Management and Employees

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 pre-reading material; team effectiveness; and Board Chair
once a year, covering topics including Board composition, and peer evaluation. Every third year, this process is con-
purpose, scope and responsibilities; succession planning; ducted by an independent external consultant. This last
Board processes and governance; interaction between the occurred in 2020 with the consulting firm Egon Zehnder.
Board and the Executive Committee; Board meetings and

Anonymous survey Qualitative review Outcome

• Each Board member fills out an • Based on the results, the Board Chair • The last self-assessment of October
anonymous survey. and the committee chairs each lead a 2022 determined that the Board and its
qualitative review with their colleagues committees are functioning effectively
• A report identifying key strengths and and then with the entire Board. and efficiently.
challenges is produced for the Board
and its committees. • In addition, the Vice-Chair leads a • The feedback confirmed that the Board
qualitative review of the Board Chair’s has an open culture, fostering a broad
performance, without the Chair being range of viewpoints.
present, and then provides the Board
Chair with the Board’s feedback. • 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.


138
 Item 6. Directors, Senior Management and Employees

Trainings Role of the Board and its committees

Our Board receives regular briefings and trainings on The Board is responsible for the overall direction
ethics, risks and compliance, ESG and other relevant and oversight of management, and holds the ultimate
topics. In 2022, each Board member completed the fol- ­decision-making authority, with the exception of deci-
lowing trainings: sions reserved for shareholders.
• Health, Safety and Environment Policy The Board has delegated certain of its duties and
• ‘Fit to Commit’, which focused on anti-bribery, insider responsibilities to its five committees led by a Board-elected
trading and procurement committee chair, as set out in the Board Regulations (www.
• An ESG educational session conducted by an external novartis.com/investors/company-overview/corporate-gov-
expert on holistic value creation ernance). In some cases, these responsibilities are of an
• Third Party Risk Management advisory or preparatory nature. In other cases, the com-
Our Chief Legal Officer also provides regular updates to mittee has decision-making power that is subject to final
our Board members on developments related to insider Board approval, or the responsibilities have been fully del-
trading laws and regulations and briefs the members of egated to the committee. All committees have the author-
the Board and the Executive Committee on an annual ity to retain external consultants.
basis on their respective duties. In addition, the Com- Any Board member may request a Board or committee
pany offers a broad range of external trainings to its meeting and the inclusion of an agenda item. Before
Board members. 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 10/10 4/4

S. Moroney Vice-Chair 10/10 7/7 4/4
P. Bula Lead Independent Director 10/10 7/7 3/3
N. Andrews Member 9/10 5/5 4/4
T. Buechner Member 10/10 7/7 5/5
E. Doherty Member 10/10 7/7 5/5
B. Heller Member 10/10 7/7 7/7 3/3
F. van Houten Member 10/10 7/7 3/4
D. Hochstrasser 1 Member 8/8
A. von Planta Member 10/10 3/3 5/5
A. de Pro Gonzalo 1 Member 8/8 5/5 5/5
C. Sawyers Member 10/10 3/3 4/4
W. Winters Member 9/10 6/7 3/3

1
Ms. de Pro Gonzalo and Mr. Hochstrasser were elected at the 2022 AGM.

Further details can be found on pages 140 – 145.


139
 Item 6. Directors, Senior Management and Employees

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-off
would offer 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 J. Reinhardt (Board Chair) 10
Number of members 13 S. Moroney (Vice-Chair) 10
Approximate average duration (hours) 6:30 P. Bula (Lead Independent Director) 10
Meeting attendance 98.5% N. Andrews 9
T. Buechner 10
The Board met ten times in 2022. This includes regular meet- E. Doherty 10
ings in January, April, June, August, October and December, B. Heller 10
and additional special meetings to deal with ad hoc matters. D. Hochstrasser1 8
Board committees typically meet the day before the meetings F. van Houten 10
of the full Board. The Board held virtual, hybrid and physical A. von Planta 10
meetings, with participants joining in person when possible. A. de Pro Gonzalo1 8
C. Sawyers 10
W. Winters 9

Documents
• Articles of Incorporation of Novartis AG
• Board Regulations

www.novartis.com/investors/company-overview/corporate-governance
1
Ms. de Pro Gonzalo and Mr. Hochstrasser were elected at the 2022 AGM and have attended all Board meetings since their election.


140
 Item 6. Directors, Senior Management and Employees

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 Office twice a year (FD)**
• Reviews the Group’s tax policy every two years (FD)**
• Reviews updates in closed sessions with the Chief Financial Officer, Chief Audit Officer, 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-off
• 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 Office; Health, Safety &
Environment; and Legal, and discussed progress on identifying and remedying the root causes of issues

Meetings
Number of meetings held 7 E. Doherty (Chair, Audit Committee Financial Expert) 7
Number of members 5 T. Buechner 7
Approximate average duration (hours) 2:35 B. Heller 7
Meeting attendance 100% F. van Houten 7
A. de Pro Gonzalo1 (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
1
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.


141
 Item 6. Directors, Senior Management and Employees

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 effectiveness 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-off
• Reviewed the Compensation Committee charter

Meetings
Number of meetings held 7 S. Moroney (Chair) 7
Number of members 4 P. Bula 7
Approximate average duration (hours) 1:40 B. Heller 7
Meeting attendance 96.5% 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


142
 Item 6. Directors, Senior Management and Employees

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 P. Bula (Chair) 3
Number of members 5 B. Heller 3
Approximate average duration (hours) 2:00 A. von Planta 3
Meeting attendance 100% 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


143
 Item 6. Directors, Senior Management and Employees

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 Officer

Meetings
Number of meetings held 5 T. Buechner (Chair) 5
Number of members 5 N. Andrews 5
Approximate average duration (hours) 1:50 E. Doherty 5
Meeting attendance 100% 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


144
 Item 6. Directors, Senior Management and Employees

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 J. Reinhardt (Chair) 4
Number of members 5 N. Andrews 4
Approximate average duration (hours) 6:00 F. van Houten 3
Meeting attendance 95% 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


145
 Item 6. Directors, Senior Management and Employees

Board Chair The Board appointed Simon Moroney as Vice-Chair

and Patrice Bula as Lead Independent Director, both
The Board Chair leads the Board to represent the interests roles effective as of March 4, 2022.
of all stakeholders and ensures an appropriate balance of
power between the Board and the Executive Committee.
In this role, the Board Chair: Honorary Chairmen
• Provides leadership to the Board
• Supports and mentors the CEO Alex Krauer and Daniel Vasella were appointed Honor-
• Ensures that the Board and its committees work ary Chairmen in recognition of their significant achieve-
­effectively ments on behalf of Novartis. In December 2021, Mr. Krauer
• Sets the agenda, style and tone of Board discus- passed away at the age of 90.
sions, promoting constructive dialogue and effective Mr. Vasella is not provided with Board documents
­decision-making and does not attend Board meetings.
• Ensures onboarding programs for new Board m ­ embers,
and continuing education for and specialization of all
Board members Mandates outside the Novartis Group
• Ensures the Board’s annual performance evaluation
• Promotes effective relationships and communication According to article 34, paragraph 1 of the Articles of
between Board and Executive Committee members Incorporation (www.novartis.com/investors/company-­
• Ensures effective communication with the Company’s overview/corporate-governance), the following limitations
shareholders, other stakeholders and the public on mandates apply:

Maximum number
Vice-Chair and of mandates

Lead Independent Director Mandates 10

Other listed companies 1 4
Vice-Chair 1
Holding a chair position of the board of directors in other listed companies counts as
The Vice-Chair has the following responsibilities: two mandates.
• Leads the Board in case and as long as the Board Chair
is incapacitated
• Leads the yearly session of the Board members to eval- According to article 34, paragraph 3 of the Articles of
uate the performance of the Board Chair, during which Incorporation (www.novartis.com/investors/company-­
the Board Chair is not present overview/corporate-governance), the following man-
dates are not subject to the above-mentioned limitations:
The Vice-Chair also provides advice and support to the
Board Chair. Maximum number
of mandates

Lead Independent Director Mandates in companies that are controlled by Novartis AG No limit
To support adequate control mechanisms, the Board Mandates held at the request of Novartis AG
Regulations outline the role of the Lead Independent or companies controlled by it 5

Director. The Lead Independent Director has the follow- Mandates in associations, charitable organizations,
foundations, trusts and employee welfare foundations 10
ing responsibilities:
• Chairs the sessions of the independent Board members
• Leads the independent Board members in the event “Mandates” means those in the supreme governing body
of a crisis or matter requiring their separate consider- of a legal entity that is required to be registered in the
ation or decision commercial register or a comparable foreign register.
Mandates in different legal entities that are under joint
The roles of the Vice-Chair and the Lead Independent control are deemed to be one mandate.
Director can be held by two Board members or by one
Board member (combined role).


146
 Item 6. Directors, Senior Management and Employees

Executive Committee
Composition (as per December 31, 2022)

Vasant (Vas) Narasimhan

Chief Executive Officer

Shreeram Aradhye Victor Bulto Aharon (Ronny) Gal Karen L. Hale

President, Global Drug Development President, Innovative Chief Strategy & Growth Officer Chief Legal Officer
& Chief Medical Officer Medicines US

Harry Kirsch Robert (Rob) Kowalski Steffen Lang Fiona H. Marshall

Chief Financial Officer Chief People & President, Operations President, Novartis Institutes
Organization Officer for BioMedical Research (NIBR)

Klaus Moosmayer Marie-France Tschudin

Chief Ethics, Risk President, Innovative Medicines
& Compliance Officer International & Chief
Commercial Officer

Changes to the Executive Committee (NIBR), stepped down from his role effective October
31, 2022. Fiona H. Marshall was appointed President of
Susanne Schaffert, President of Novartis Oncology since the Novartis Institutes for BioMedical Research (NIBR),
2019, stepped down from her role following the Com- effective November 1, 2022. The biographies of the for-
pany’s decision to integrate the Pharmaceuticals and mer members of the Executive Committee can be found
Oncology business units and create separate US and Inter- in the 2021 Annual Report (pages 147 – 149), available
national commercial organizations under the Innovative at www.novartis.com/news/media-library/novartis-an-
Medicines (IM) Division, effective April 4, 2022. Marie- nual-report-2021.
France Tschudin, President of Novartis Pharmaceuticals
since 2019, was appointed President, Innovative Medicines
International & Chief Commercial Officer, effective April 4, Role of the Executive Committee
2022. Victor Bulto, President, Novartis Pharmaceuticals
Corporation, US, since 2019, was appointed President, The Board has appointed the Executive Committee mem-
Innovative Medicines US, effective April 4, 2022. He has bers and delegated the overall responsibility for and
been a member of the Executive Committee since May oversight of the operational management of Novartis to
1, 2022. Robert Weltevreden, Head of Customer & Tech- them, including:
nology Solutions (CTS) since February 1, 2021, stepped • Recruiting, appointing and promoting senior ­management
down from his role following the Company’s decision to • Ensuring the efficient operation of the Group and the
combine Novartis Technical Operations (NTO) and CTS achievement of optimal results
into a new Operations unit, effective April 4, 2022. Stef- • Promoting an active internal and external ­communi­cations
fen Lang, Global Head of Novartis Technical Operations policy
since 2017, was appointed President, Operations, effec- • Developing policies and strategic plans for Board
tive April 4, 2022. John Tsai, Head of Global Drug Devel- approval, and implementing those approved
opment and Chief Medical Officer, stepped down from • Submitting the following to the Board for approval: invest-
his role effective May 15, 2022. Shreeram Aradhye was ments, divestments, transactions, contracts and litigations
appointed President, Global Drug Development & Chief with a value exceeding USD 500 million, and capital market
Medical Officer, effective May 16, 2022. Aharon (Ronny) and other important financing transactions, as well as all
Gal was appointed Chief Strategy & Growth Officer, effec- other matters of fundamental significance to the Novartis
tive July 18, 2022. From April 4, 2022, until July 17, 2022, Group
Lutz Hegemann, President Global Health & Sustainabil- • Preparing and submitting quarterly and annual reports
ity, served as ad interim Chief Strategy & Growth Offi- to the Board and its committees
cer but was not a member of the Executive Committee. • Informing the Board of all matters of fundamental sig-
Richard Saynor, Chief Executive Officer, Sandoz, stepped nificance to the businesses
down from the Executive Committee effective October • Dealing with any other matters delegated by the Board
25, 2022, following his appointment as CEO designate of
the Sandoz standalone company expected to be created There are no contracts between Novartis and third
in the second half of 2023. James (Jay) Bradner, Presi- parties whereby Novartis would delegate any business
dent of the Novartis Institutes for BioMedical Research management tasks to such third parties.


147
 Item 6. Directors, Senior Management and Employees

CEO • Ensuring Novartis has the capabilities to achieve its

long-term strategic objectives
With the support of the NATIONALITY
Executive
NATIONALITY is GENDER
Committee, the CEOGENDER • Developing robust managementEXECUTIVE/NON-EXECUTIVE
succession and
EXECUTIVE/NON-EXECUTIVE INDEPEND
INDEPENDENC
responsible for the operational management of Novartis. development plans for presentation to the Board
This includes effectively implementing the Company strat- • Promoting effective communication with shareholders
egy, delivering financial results, and shaping a corporate and other stakeholders
culture of empowerment and responsibility to help drive • Ensuring Novartis conducts its business in a legal and
innovation, performance and reputation. ethical manner
In addition to other Board-assigned duties, the CEO • Developing an effective risk control framework for all
leads the Executive Committee, and is responsible for business activities
building and maintaining an effective executive team. With • Ensuring the flow of information to the Board is accurate,
the support of the Executive Committee, the CEO is timely and clear
responsible for:

Diversity
The composition as of December 31, 2022, in terms of nationality, gender, age and length of tenure, is shown in
the f­ ollowing charts:

Diversity profile
NATIONALITY
NATIONALITY GENDER
GENDER
BACKGROUND/EXPERIENCE AGEAGEEXECUTIVE/NON-EXECUTIVE
EXECUTIVE/NON-EXECUTIVE TENURE INDEPENDENCE
TENURE INDEPENDENCE
Nationality1 Gender
BACKGROUND/EXPERIENCE Age Tenure

p American 41% p Male 73% p <45 9% p <2 y 55%

p German 18% p Female 27% p 45–50 9% p 2–4 y 27%
p Swiss 18% p >50 82% p >4 y 18%
p British 9%
p Spanish 9%
p Israeli 5%
1
Please note that three Executive Committee members have dual nationalities. Each of these nationalities is counted as a half in the above chart.

BACKGROUND/EXPERIENCE
BACKGROUND/EXPERIENCE AGEAGE TENURE
TENURE
Mandates outside the Novartis Group According to article 34, paragraph 3 of the Articles of
Incorporation (www.novartis.com/investors/company-­
According to article 34, paragraph 2 of the Articles of overview/corporate-governance), the following man-
Incorporation (www.novartis.com/investors/company-­ dates are not subject to the above-mentioned limitations:
overview/corporate-governance), the following limitations
on mandates apply: Maximum number
of mandates

Maximum number Mandates in companies that are controlled by Novartis AG No limit

of mandates Mandates held at the request of Novartis AG
Mandates 6 or companies controlled by it 5
Other listed companies 1
2 Mandates in associations, charitable organizations,
foundations, trusts and employee welfare foundations 10
1
Holding a chair position of the board of directors in other listed companies is not
allowed.
“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 different legal entities that are under joint
control are deemed to be one mandate.


148
 Item 6. Directors, Senior Management and Employees

Members of the Executive Committee

Vasant (Vas) Narasimhan, M.D.

Chief Executive Officer of Novartis since 2018 | Nationality: American | Year of birth: 1976
Professional experience
• Global Head of Drug Development and Chief Medical Officer, 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 Officer since May 16, 2022 | Nationality: American |
Year of birth: 1962
Professional experience
• Executive Vice President & Chief Medical Officer, Dicerna Pharmaceuticals, US (2020–March 2022)
• Executive Vice President & Chief Development Officer, Axcella Health, US (2019–2020)
• Global Head, Medical Affairs and Chief Medical Officer, 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 Affairs, 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


149
 Item 6. Directors, Senior Management and Employees

Aharon (Ronny) Gal, Ph.D.

Chief Strategy & Growth Officer 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 Officer 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 officer, 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 Officer of Novartis since 2013 | Nationality: German/Swiss | Year of birth: 1965
Professional experience
• Chief Financial Officer of the Pharmaceuticals Division (now known as the Innovative Medicines Division),
Novartis Pharmaceuticals, Switzerland (2010–2013)
• Chief Financial Officer 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 Officer of Novartis since September 1, 2021 | Nationality: American | Year of birth: 1968
Professional experience
• Executive Vice President and Global Head of Regulatory Affairs (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 Officer, Novartis AG,
Switzerland (2018)
• Senior Vice President and Head of Regulatory Affairs, Novartis Pharmaceuticals Corporation, US
(2009–2015 and 2017–2018)
• Senior Vice President and Head of Regulatory Affairs, 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


150
 Item 6. Directors, Senior Management and Employees

Steffen 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 officer, Sosei Heptares, UK (2015–2018)
• Chief scientific officer 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 Officer of Novartis since 2018 | Nationality: German | Year of birth: 1968
Professional experience
• Chief compliance officer, Siemens AG, Germany (2014–2018)
• Chief counsel compliance, Siemens AG, Germany (2009–2013)
• Compliance operating officer, 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 Officers’ 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 Officer 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


151
 Item 6. Directors, Senior Management and Employees

Information and control systems

The Board’s information and control systems vis-à-vis Monthly financial reports
management include a steady flow of information from
senior management; monthly financial reports; a compre- Novartis produces comprehensive, consolidated (unau-
hensive and integrated risk management framework; and dited) financial statements on a monthly basis for the
the independent evaluation of our risk management and Group and its operating divisions. These are typically
internal control framework by the Internal Audit function available within 10 days after the end of the month, and
(see “Item 15. Controls and Procedures”). include the following:
• Consolidated income statement of the month and year to
date, in accordance with International Financial Report-
Information from senior management ing Standards (IFRS), as well as adjustments to arrive
at core results, as defined by Novartis (see “Item 5.
The Board ensures that it receives sufficient information Operating and Financial Review and Prospects—Item
from the Executive Committee through: 5.A Operating results—Non-IFRS measures as defined
• Monthly CEO reporting (including detailed written by Novartis”). The IFRS and core figures are compared
updates from each division and business unit head), with the prior-year period and targets in both USD and
frequent communications from the CEO on current on a constant currency basis.
developments, and a yearly presentation • Supplementary data on a monthly and year-to-date
• Executive Committee meeting minutes basis, such as free cash flow and earnings per share
• Regular meetings and teleconferences by the Board on a USD basis
and/or Board committees with the CEO and/or other
members of the Executive Committee (e.g., the CFO, Management information related to the consolidated
the Chief Legal Officer, the Chief Ethics, Risk & Com- income statements and free cash flow is made available
pliance Officer), and regular meetings and teleconfer- to Board members through the monthly CEO Report,
ences with senior management (e.g., the Chief Audit which includes an analysis of key deviations from the
Officer) prior year or target.
• Information from Executive Committee members or Prior to the release of each quarter’s results, the Board
other Novartis employees, and visits to Novartis sites receives the actual consolidated financial statement infor-
mation and an outlook of the full-year results in accor-
To get an outside view, the Board and/or Board commit- dance with IFRS and core results (as defined by Novartis),
tees occasionally invite external advisors (e.g., the inde- together with related commentary.
pendent advisor of the Compensation Committee, the Annually, in the middle of the year, the Board approves
external auditor) to attend a meeting and/or share their the Company’s strategic plan for the next three years. In
observations about a specific topic. 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.


152
 Item 6. Directors, Senior Management and Employees

Risk management Enterprise Risk Management framework

The Ethics, Risk & Compliance (ERC) function provides
Overview an integrated ERM framework to obtain a holistic view of
At Novartis, our continued success depends on our abil- Company risks and drive a culture of smart risk-taking.
ity to manage risk. Our Board has ultimate oversight of Under the leadership of the Chief Ethics, Risk & Compli-
the Enterprise Risk Management (ERM) system and reg- ance Officer, the Risk & Resilience team is responsible
ularly reviews the most significant risks and how these for the overall ERM process. This process covers, but is
risks are managed. As explained further below, the Board not limited to, risks associated with:
is supported by its committees. Furthermore, our Internal • The research, development, manufacturing, marketing
Audit function provides an independent evaluation of risk and sales of products
management (see “—Item 6.C Board practices—Informa- • Finance, taxes, intellectual property, compliance with law
tion and control systems—Internal Audit”). and regulations, security, product safety, human resources,
and health, safety and environmental protection
BOARD COMMITTEES • Business objectives and strategies, including mergers
and acquisitions
RISK COMMITTEE
• External factors such as the social, political and eco-
• Oversees the risk management system and processes
• Reviews, together with management, the prioritization and handling nomic environment
of risks, the risk portfolio, and actions implemented by management
• Performs deep dives into key risk areas and fosters a culture of The ERM process continued to evolve in 2022. The Risk
smart risk-taking & Resilience team conducted risk workshops and collab-
• Receives updates on cyber security on an annual basis
• Receives regular updates from designated risk owners as well as
orated with all risk assurance and monitoring functions
the Chief Ethics, Risk & Compliance Officer and/or the Head of Risk to identify key risks across the Company. Each Novartis
& Resilience unit organized a focused risk workshop at the leadership
AUDIT AND COMPLIANCE COMMITTEE team level. In parallel, risk workshops were held in the
• Ensures that Internal Audit plans are aligned with key risks, and that top 11 countries (by revenue) and in certain focus mar-
the function provides independent assurance and insights around kets. Once key risks were identified, mitigation action
these risks plans were created to address them in an effective way.
• Works closely with the Risk Committee to minimize gaps in
risk coverage
The findings from these workshops were consolidated
• Receives a semiannual presentation from the Chief Ethics, Risk & into the Novartis Risk Compass, which enables senior
Compliance Officer management, the Executive Committee and the Board
• Receives a quarterly presentation from the Chief Audit Officer on to focus discussions on key risks and more closely align
progress achieved in implementing the risk-based audit plan, and
our corporate strategy with our risk exposure and ways
key insights about audit and advisory activities
• Pays particular attention to financial risk of working.
• Has closed sessions with the Chief Audit Officer and, upon request, In 2022, we further matured our ERM framework
with the Chief Ethics, Risk & Compliance Officer within the Novartis Risk & Resilience organization, devel-
COMPENSATION COMMITTEE oped additional risk management trainings, and inte-
• Works closely with the Risk Committee to ensure that the grated other critical risk management functions (like
compensation system does not lead to excessive risk-taking Third-Party Risk Management and Health, Safety and
(see “—Item 6.B Compensation—Compensation governance— Environment) into the Risk & Resilience department. Fur-
Risk management principles”)
thermore, the Enterprise Policy & Internal Control team
EXECUTIVE COMMITTEE OF NOVARTIS is progressing as planned to create a holistic framework,
and the Central Monitoring Coordination team is expand-
• Regularly assesses risks and fosters a culture of risk awareness,
in line with the Novartis Values and Behaviors and the Novartis ing its scope to ensure a harmonized and coordinated
Code of Ethics monitoring process across the Company.
ETHICS, RISK & COMPLIANCE
SpeakUp Office
• Governs the Novartis Code of Ethics Our SpeakUp Office provides a safe place for employ-
• Provides an integrated ERM framework (further described in the ees to report potential misconduct, including the option
following section)
to do so anonymously.
• Governs the global compliance program within Novartis
• Administers the Enterprise Policy Management and global Internal
Controls framework Global Security
Global Security proactively collects and shares threat
SENIOR LEADERS OF DIVISIONS, ORGANIZATIONAL UNITS
AND GROUP FUNCTIONS, AT ALL LEVELS intelligence to protect Novartis from situations that may
compromise the safety of people, products and assets,
• Provide appropriate risk management within their area of and/or the reputation of our organization. Global Security
responsibility
protects patients from counterfeit products and, as part
• Establish adequate risk prevention and mitigation strategies when
risk exposure is identified, including tracking progress and providing of the SpeakUp process, performs fair and timely inves-
resources for possible actions tigations into high-risk cases of alleged internal miscon-
• Assess emerging risks, trends and overall exposure as part of the duct. It also provides personal security advice and sup-
ERM process port for Novartis executives and other employees with
the utmost discretion.


153
 Item 6. Directors, Senior Management and Employees

Internal Audit 2022 INTERNAL AUDIT ACTIVITIES

The purpose of Internal Audit is to assist the Board and AUDITS

Internal Audit cycle methodology

41
the Executive Committee in discharging their governance
responsibilities by providing independent assurance and includes:
advice on the effectiveness, efficiency and adequacy of
processes and controls that support Novartis in achiev- 33 Planning: Monitoring and information
gathering via continuous risk assess-
ing its objectives, managing its major risks, and ensuring
ment based on data analytics, busi-
compliance with applicable policies, laws and regulations.
ness interviews and quarterly calibra-
The Chief Audit Officer reports administratively to INTERNAL REVIEWS
tion of the audit plan

14
the CEO, and functionally to the chair of the Audit and
Compliance Committee (ACC). The Chief Audit Officer 33 Execution and Reporting: 63 engage-
meets with the ACC at least once a quarter and confirms ments delivered in 2022, all linked to
the organizational independence of the Internal Audit group risks, emerging topics and com-
function to the ACC on an annual basis. pany-wide initiatives
In 2022, our Internal Audit function executed a risk-
based audit plan and reported the results to the audited ADVISORIES 33 Follow Up: Management is responsible
8
units, the Executive Committee and the ACC. Audit find- for resolving issues, supported by
ings and action plans are stored and monitored in a sin- Internal Audit to ensure timely closure
gle location to enable efficient and effective follow-up. of observations
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.


154
 Item 6. Directors, Senior Management and Employees

Auditors
Duration of the mandate Audit-related services include other assurance services
and terms of office provided by the independent auditor but not restricted to
those that can only be provided by the statutory auditor.
On behalf of the Board, the ACC selects and nominates They include services such as: audits of pension and
an independent auditor for election at the AGM. KPMG other employee benefit plans; audits in connection with
commenced its auditing mandate for Novartis in 2022. non-recurring transactions; contract audits of third-party
Richard Broadbelt, Auditor in charge, and Sara Burke, arrangements; corporate responsibility assurance; and
Global Audit Partner, began serving in their roles in 2022. other audit-related services.
The ACC together with KPMG will ensure that these part- Tax services include tax compliance, assistance with
ners are rotated at least every five years. historical tax matters, and other tax-related services.
Other services in 2021 included procedures related
to corporate integrity agreements, benchmarking stud-
Auditing fees and additional fees ies, and license fees for use of accounting and other
reporting guidance databases.
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 Information to the Board and the ACC
on the engagement of the independent auditor firm. This
policy is designed to help ensure that the independence The ACC, acting on behalf of the Board, is responsible for
of the external auditor is maintained. It limits the scope of overseeing the activities of the external auditor. In 2022,
services that the external auditor may provide to the Group, this committee held seven meetings. KPMG was invited to
stipulating certain permissible types of audit-related and all of these meetings to attend the discussions on audit-
non-audit services, including tax services and other ser- ing matters and any other matters relevant to its audit.
vices that have been preapproved by the ACC. The ACC The ACC recommended to the Board to approve the
preapproves all other services on a case-by-case basis. audited consolidated financial statements and the separate
The external auditor is required to report periodically parent company financial statements of Novartis AG for the
to the ACC about the scope of the services it has pro- year ended December 31, 2022. The Board proposed
vided to the Group and the fees for the services it has the acceptance of these financial statements for approval
performed to date. KPMG fees for professional services by the shareholders at the next AGM.
related to the 12-month period ended December 31, 2022, The ACC regularly evaluates the performance of the
and PwC fees for professional services related to the external auditor and, based on this, once a year deter-
12-month period ended December 31, 2021, are as fol- mines whether the external auditor should be proposed
lows: to the shareholders for re-election. To assess the per-
formance of the external auditor, the ACC requests input
2022 2021 from management and holds private meetings with the
USD million USD million CFO and the Chief Audit Officer and, if necessary, obtains
Audit services 22.5 22.2 an independent external assessment. Criteria applied
Audit-related services 0.7 1.5 for the performance assessment of the external auditor
Tax services 1.2 0.1 include an evaluation of: its technical and operational
Other services 0.0 1.4 competence; its independence and objectivity; the suf-
Total 24.4 25.2 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 effective, prac-
tical recommendations; and the openness and effective-
Audit services include work performed to issue opinions ness of its communications and coordination with the
on consolidated financial statements and parent company ACC, the Internal Audit function and management.
financial statements of Novartis AG, to issue opinions related Once a year, the Auditor in charge and the Global
to the effectiveness of the Group’s internal control over Audit Partner report to the Board on the external audi-
financial reporting, and to issue reports on local statutory tor’s activities during the current year, and on the audit
financial statements. Also included are audit services that plan for the coming year.
generally can only be provided by the statutory auditor, On an annual basis, the external auditor provides the
such as the audit of the Compensation Report, audits of ACC with written disclosures required by the US Public
the adoption of new accounting policies, audits of infor- Company Accounting Oversight Board, and the commit-
mation systems and the related control environment, as tee and the external auditor discuss the external audi-
well as reviews of quarterly financial results. tor’s independence from Novartis.


155
 Item 6. Directors, Senior Management and Employees

Information policy
Novartis is committed to open and transparent commu- The information on Board and Executive Committee
nication with shareholders, investors, financial analysts, compensation is outlined in the Compensation Report (see
customers, suppliers and other stakeholders. Novartis “—Item 6.B Compensation” in general, and for certain com-
disseminates information about material developments in pensation information with respect to our Board that is
its businesses in a broad and timely manner that complies responsive to Item 6.C.2 of Form 20-F, see “—Item 6.B Com-
with the rules of the SIX Swiss Exchange and the NYSE. pensation—2022 Board compensation—Philosophy and
benchmarking”). Please also refer to articles 29-35 of the
Articles of Incorporation (www.novartis.com/investors/
Communications company-­overview/corporate-governance). There are no
change-of-control or ‘golden parachute’ clauses benefit-
Novartis publishes this Annual Report to provide infor- ing Board members, Executive Committee ­members, or
mation on the Group’s results and operations. Novartis other members of senior management. Employment con-
discloses financial results in accordance with IFRS on a tracts with Executive Committee members are either for a
quarterly basis, and issues press releases from time to fixed term not exceeding one year or for an i­ndefinite period
time regarding business developments. with a notice period not exceeding 12 months, and do not
Novartis publishes press releases related to financial contain commissions for the acquisition or ­transfer of enter-
results and material events to the US Securities and prises or severance payments. No loans or ­credits are
Exchange Commission (SEC) via Form 6-K. An archive granted to Board and Executive Committee members.
containing annual reports, US SEC Form 20-F, quarterly Information contained in reports and releases issued
results releases and all related materials – including pre- by Novartis is only correct and accurate at the time of
sentations and conference call webcasts – is available release. Novartis does not update past releases to reflect
at www.novartis.com/investors. subsequent events, and advises against relying on them
Novartis also publishes a Novartis in Society Inte- for current information.
grated Report, available at www.reporting.novartis.com,
which highlights progress on the Company’s strategic
priorities and describes how Novartis creates value for Investor Relations
diverse stakeholders. The Novartis in Society Integrated
Report has been prepared in alignment with the Inte- Investor Relations manages the Group’s interactions with
grated Reporting Framework (part of the IFRS Founda- the international financial community. Several events are
tion), the Task Force on Climate-related Financial Dis- held each year to provide institutional investors and analysts
closures (TCFD), the Sustainability Accounting Standards with various opportunities to learn more about Novartis.
Board (SASB) and the latest non-financial standards Investor Relations is based at the Group’s head­quarters
issued by the Global Reporting Initiative (GRI). It also in Basel. Part of the team is located in the US to coor­
contains our main disclosures against the Company’s dinate interaction with US investors. More information is
reporting requirement as a signatory of the United Nations available at www.novartis.com/investors.
Global Compact.

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 officers Novartis Code of Ethical Conduct for CEO and Senior Financial Officers
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 office, www.novartis.com/investors
contact and email addresses, phone numbers, etc.)


156
 Item 6. Directors, Senior Management and Employees

Quiet periods
According to our Global Insider Policy, employees who ods commence on the first trading day of each calen-
have access to material non-public information on a reg- dar quarter and end at the beginning of the first trading
ular basis are designated as Continuing Insiders and are day after the subsequent release of the quarterly and/
banned from trading in Novartis securities during quiet or annual results.
periods. Limited exemptions for the expiry of options or In 2022, the following quiet periods applied:
warrants within a quiet period apply. Until June 14, 2022, • December 30, 2021, until (and including) February 2,
our quarterly quiet periods commenced at the begin- 2022
ning of the last trading day of each calendar quarter • March 31, 2022, until (and including) April 26, 2022
and ended at the beginning of the first trading day after • July 1, 2022, until (and including) July 19, 2022
the subsequent release of the quarterly and/or annual • October 1, 2022, until (and including) October 25, 2022
results. Effective June 15, 2022, our quarterly quiet peri-


157
 Item 6. Directors, Senior Management and Employees

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 31, 2022 Marketing and Production and Research and General and
(full-time equivalents) sales supply development Operations 1 administration Total

USA 6 003 1 740 5 358 825 599 14 525

Canada and Latin America 2 678 809 514 1 071 270 5 342
Europe 14 078 18 781 10 483 5 028 2 483 50 853
Asia/Africa/Australasia 15 856 3 841 4 841 5 513 932 30 983
Total 38 615 25 171 21 196 12 437 4 284 101 703

For the year ended

December 31, 2021 Marketing and Production and Research and General and
(full-time equivalents) sales supply development Operations 1 administration Total

USA 6 074 1 938 5 324 879 654 14 869

Canada and Latin America 3 116 1 426 510 1 116 370 6 538
Europe 15 163 17 630 10 307 5 108 2 613 50 821
Asia/Africa/Australasia 16 927 3 570 4 812 5 696 1 090 32 095
Total 41 280 24 564 20 953 12 799 4 727 104 323

For the year ended

December 31, 2020 Marketing and Production and Research and General and
(full-time equivalents) sales supply development Operations 1 administration Total

USA 5 978 2 954 5 554 636 820 15 942

Canada and Latin America 3 405 1 286 504 928 401 6 524
Europe 16 066 18 628 10 043 4 506 2 852 52 095
Asia/Africa/Australasia 17 240 3 346 4 537 4 991 1 119 31 233
Total 42 689 26 214 20 638 11 061 5 192 105 794
1
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- about this new organizational structure, see “Item 4.
time equivalent employees decreased by 2 620 com- Information on the Company—Item 4.B Overview.”
pared with December 31, 2021, mainly driven by the ini- A significant number of our employees are repre-
tiative announced in April 2022 to implement a new, sented by unions or works councils. We have not expe-
streamlined organizational model. For more information 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 Board compensation—Additional disclosures—Shares,
Management and Employees—Item 6.B Compensa- ADRs and share options owned by Board members” is
tion—2021 Executive Committee compensation—Addi- incorporated by reference. For more information on our
tional disclosures for the CEO and other Executive Com- equity-based participation plans, see the information set
mittee members—Shares, ADRs and other equity rights forth under “Item 18. Financial Statements—Note 26.
owned by Executive Committee members at Decem- Equity‑based participation plans for employees,” which
ber 31, 2021” and under “Item 6. Directors, Senior Man- is incorporated by reference.
agement and Employees—Item 6.B Compensation—2021


158
 Item 7. Major Shareholders and Related Party Transactions

Item 7. Major Shareholders and Related Party

Transactions
7.A Major shareholders
Novartis shares are widely held. As of December 31, in the Share Register in the same way, as described
2022, Novartis had approximately 186 000 sharehold- above, that our treasury shares are excluded. This will
ers listed in the Share Register of Novartis, representing impact some of the percentage holdings reported in this
approximately 67.0% of issued shares. Based on the Item 7.A in future Form 20-F filings by Novartis.
Novartis Share Register and excluding treasury shares, Based on the Share Register, we believe that we are
approximately 48.4% of the shares registered by name not directly or indirectly owned or controlled by another
were held in Switzerland, and approximately 21.3% were corporation or government, or by any other natural or
held in the US. Approximately 15.6% of the shares reg- legal persons. There are no arrangements that may result
istered in the Share Register were held by individual in a change of control.
investors, while approximately 37.7% were held by legal The tables below set forth information with respect
entities (excluding 7.7% of our share capital held as trea- to our major shareholders according to the Share Reg-
sury shares by Novartis AG or its fully owned subsidiar- ister as of December 31, 2022, excluding 7.7% of our
ies), and 46.7% were held by nominees, fiduciaries and share capital held as treasury shares by Novartis AG or
the ADS depositary. Due to a change in Swiss corporate its fully owned subsidiaries. The following registered
law, as of January 1, 2023, Novartis ordinary shares held shareholders (including nominees and the ADS deposi-
by certain Swiss foundations controlled by Novartis tary) held more than 2% of the total share capital of
(Foundation Shares) no longer carry the right to vote. As Novartis with the right to vote all their Novartis shares
a result, in the future these Foundation Shares will be based on an exemption granted by the Board of Direc-
excluded from the calculation of the shares registered tors:

% of respective share capital beneficially owned

as of:

Ordinary shares
beneficially owned as of
Dec 31, 2022 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020

Shareholders registered for their own account:

Emasan AG, Basel, Switzerland 89 135 960 3.7 3.7 3.6

UBS Fund Management (Switzerland) AG, Basel, Switzerland 55 906 821 2.3 2.3 2.3
Credit Suisse Funds AG, Zurich, Switzerland 49 335 879 2.1 2.1 2.0

% of respective share capital held as of:

Ordinary shares
held as of
Dec 31, 2022 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020

Shareholders registered as nominees:

Chase Nominees Ltd., London, England 201 853 725 8.4 8.8 9.6
Nortrust Nominees Ltd., London, England 90 962 072 3.8 4.2 4.2
The Bank of New York Mellon, New York, NY 68 638 910 2.9 3.0 3.4
Through The Bank of New York Mellon, Everett, MA 37 227 478 1.6 1.6 1.7
Through The Bank of New York Mellon, New York, NY 22 583 699 0.9 1.1 1.2
Through The Bank of New York Mellon, SA/NV, Brussels, Belgium 8 827 733 0.4 0.3 0.5
Shareholder acting as American Depositary Share (ADS) depositary:
JPMorgan Chase Bank, N.A., New York, NY 225 529 101 9.4 11.1 11.7

According to a disclosure notification filed with Novartis Meeting, Norges Bank will have full voting rights for all
AG, Norges Bank (Central Bank of Norway), Oslo, Nor- of these shares.
way, held 2.3% of the share capital of Novartis AG, or 54 According to a disclosure notification filed with
667 792 shares, as of December 31, 2022, but was not Novartis AG and the SIX Swiss Exchange, Black-
registered in the Share Register as of December 31, Rock, Inc., New York, NY, held between 5% and 10%, but
2022. Provided that these shares are registered in the was registered with less than 2% of the share capital of
Share Register on the record date of the Annual General


159
 Item 7. Major Shareholders and Related Party Transactions

Novartis AG in the Share Register as of December 31, capital. The Board of Directors may, upon request, grant
2022. an exemption from this restriction. Considerations
As of December 31, 2022, no other shareholder was include whether the shareholder supports the Novartis
registered as owner of more than 2% of the registered goal of creating sustainable value and has a long-term
share capital. investment horizon. Exemptions are in force for the reg-
The Articles of Incorporation provide that no share- istered major shareholders as described above. Novartis
holder shall be registered with the right to vote shares has not entered into any agreement with any shareholder
comprising more than 2% of the registered share 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.


160
 Item 8. Financial Information

Item 8. Financial Information

8.A Consolidated statements and other financial
information

See “Item 18. Financial Statements.” obligations on the part of either Novartis or the Iranian
Ministry of Health.
From time to time, including in 2022, non‑US affiliates
Dividend policy 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-
Subject to the dividend policy described below, our narily incident to travel by doctors and other medical pro-
Board of Directors expects to recommend the payment fessionals resident in Iran to attend conferences or other
of a dividend in respect of each financial year. If approved events outside Iran.
by our shareholders at the relevant annual shareholders’ From time to time, including in 2022, non‑US affiliates
meeting, the dividends will be payable shortly following in our Innovative Medicines and Sandoz Divisions enter
such approval. Any shareholder who purchases our into agreements with hospitals, research institutes, med-
shares before the ex‑dividend date and holds the shares ical associations and universities in Iran to provide grants
until that date shall be deemed to be entitled to receive and sponsor congresses, seminars and symposia, and
the dividends approved at that meeting. Dividends are with doctors and other healthcare professionals for con-
reflected in our financial statements in the year in which sulting services, including participation in advisory
they are approved by our shareholders. boards and investigator services for observational
Our dividend policy is to pay a growing annual divi- (non‑interventional) studies. Some hospitals and
dend in Swiss francs per share. This policy is subject to research institutes are owned or controlled by the gov-
our financial conditions and outlook at the time, the ernment of Iran, and some doctors and healthcare pro-
results of our operations, and other factors. fessionals are employed by hospitals that may be public
The Board will propose a dividend of CHF 3.20 per or government‑owned.
share to the shareholders for approval at the Annual Because our Innovative Medicines and Sandoz Divi-
General Meeting to be held on March 7, 2023. Because sions have operations in Iran, including employees, they
we pay dividends in Swiss francs, exchange rate fluctu- obtain services and have other dealings incidental to
ations will affect the US dollar amounts received by hold- their activities in that country, including paying taxes and
ers of ADRs. For the amount of dividends we paid in the salaries either directly or indirectly through a service pro-
past three years, see “Item 18. Financial Statements— vider, and obtaining office rentals, insurance, electricity,
Note 18—Equity.” water and telecommunications services, office and sim-
ilar supplies, and customs‑related services from Iranian
Disclosure pursuant to Section 219 of the Iran companies that may be owned or controlled by the gov-
Threat Reduction and Syria Human Rights Act ernment of Iran. In addition, from time to time, represen-
(ITRA) tatives of our non-US affiliates participate in meetings
with Iranian officials to discuss issues relevant to our
At Novartis, our purpose is to reimagine medicine to business and the pharmaceutical industry.
improve and extend people’s lives, regardless of where Non-US affiliates in our Innovative Medicines and
they live. This includes the compliant sale of medicines Sandoz Divisions maintain local accounts at banks that
and other healthcare products worldwide. To help us ful- are, as of November 5, 2018, on the Specially Designated
fill this mission, we have for many years maintained two Nationals and Blocked Persons List (SDN List). These
representative offices located in Iran. non-US affiliates make local transactions for employee
As of October 18, 2010, a non‑US affiliate within our payroll and local vendor payment purposes. These trans-
Innovative Medicines Division entered into a non‑bind- actions are conducted for the purpose of facilitating the
ing Memorandum of Understanding (MoU) with the Min- provision of medicine to Iran, in line with the humanitar-
istry of Health and Medical Education of the Islamic ian exceptions contained in Section 11 of Executive Order
Republic of Iran. Pursuant to the MoU, the Iranian Minis- 13902 and other applicable sanctions legal authorities.
try of Health acknowledges certain benefits that may No transactions are made with an Iranian financial insti-
apply to sales of certain Innovative Medicines Division tution designated on the SDN List in connection with
medicines by third‑party distributors in Iran. These Iran’s support for international terrorism or proliferation
include fast‑track registration, market exclusivity, of weapons of mass destruction.
end‑user subsidies, and exemptions from customs tar-
iffs. Novartis receives no payments from the Iranian Min-
istry of Health under the MoU, and the MoU creates no


161
 Item 8. Financial Information

8.B Significant changes

None.


162
 Item 9. The Offer and Listing

Item 9. The Offer and Listing

9.A Offer and listing details
Our shares are listed in Switzerland on the SIX Swiss Our ADRs have been listed on the NYSE since May 2000
Exchange (SIX). and are traded under the symbol NVS.
ADSs, each representing one share, have been avail- The depositary has informed us that as of January
able in the US through an ADR program since Decem- 25, 2023, there were 220 million ADRs outstanding, each
ber 1996. This program was established pursuant to a representing one Novartis share (approximately 9% of
deposit agreement that we entered into with JPMorgan total Novartis shares issued). On January 25, 2023, the
Chase Bank, N.A., as depositary (“Deposit Agreement”). 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 Offer and listing details.”

9.D Selling shareholders

Not applicable.

9.E Dilution
Not applicable.

9.F Expenses of the issue

Not applicable.


163
 Item 10. Additional Information

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 (d) The Articles provide that a Director shall not serve on
provisions of our Articles of Incorporation (“Articles”); the Board for more than 12 years. The Board may,
our Regulations of the Board, the Board Committees and under certain circumstances and if deemed in the
the Executive Committee (“Board Regulations”); and best interests of the Company, recommend excep-
Swiss law, particularly the Swiss Code of Obligations tions to this rule to the General Meeting.
(“Swiss CO”), and is qualified in its entirety by reference (e) Our Directors are not required to be shareholders at
to the Articles and the Board Regulations, which are an the time of the election by the General Meeting. How-
exhibit to this Form 20‑F, and to Swiss law. 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
10.B.1 Company purpose required to own at least 5 000 Novartis AG shares
within five years after joining the Board, to ensure
Novartis AG is registered in the commercial register of their interests are aligned with those of our share-
the canton of Basel‑Stadt, Switzerland, under number holders.
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 10.B.3 Shareholder rights
interests in enterprises in the areas of biology, chemis-
try, physics, information technology or related areas. We Because Novartis AG has only one class of registered
may acquire, mortgage, liquidate or sell real estate and shares, the following information applies to all sharehold-
intellectual property rights in Switzerland or abroad. In ers.
pursuing our business purpose, we strive to create sus- (a) Under the Swiss CO, we may only pay dividends out
tainable value. 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
10.B.2 Directors only pay dividends upon shareholders’ approval at a
General Meeting. Furthermore, the Swiss CO requires
According to our Articles, the Board of Directors us to accrue general legal reserves under certain cir-
(“Board”) consists of a minimum of eight and a maximum cumstances so long as these reserves amount to less
of 16 members. The members of the Board (including the than 20% of our registered share capital, and Swiss
Board Chair) are elected individually by the General law and the Articles permit us to accrue additional
Meeting of Shareholders (“General Meeting”) for a one- reserves beyond the statutory reserves. Our auditors
year term of office lasting until completion of the next must confirm that the dividend proposal of our Board
Annual General Meeting of Shareholders (“AGM”). conforms with the Swiss CO and the Articles. Our
(a) A Board resolution requires the affirmative majority Board expects to recommend the payment of a divi-
of the votes cast. According to our Board Regulations, dend in respect of each financial year. See “Item 6.
a member of our Board (“Director”) may not partici- Directors, Senior Management and Employees—Item
pate in decisions and resolutions on matters that 6.C Board Practices—Capital Structure—Limitation
affect, or reasonably might affect, the Director’s inter- on transferability—Per-share information” and
ests or the interests of a person close to the Direc- “Item 8. Financial Information—Item 8.A. Consoli-
tor. dated statements and other financial information—
(b) Compensation of the Directors is subject to the Dividend policy.”
approval of the aggregate amounts of such compen- Dividends are usually due and payable shortly after
sation by a shareholders’ resolution under the Ordi- the shareholders have passed a resolution approving
nance against Excessive Compensation in Public the payment. Dividends that have not been claimed
Companies of the Swiss Federal Council. within five years after the due date revert to us and are
(c) The Articles prohibit the granting of loans or credits allocated to our general reserves. For information
to Directors. about deduction of the withholding tax or other duties
from dividend payments, see “—Item 10.E Taxation.”


164
 Item 10. Additional Information

(b) Each share is entitled to one vote at a General Meet- • Approval of the financial statements of Novartis AG,
ing. Voting rights may only be exercised for shares and decision on the appropriation of available earn-
registered with the right to vote on the record date ings shown on the balance sheet, including divi-
for the applicable General Meeting. In order to do so, dends, if any
the shareholder must file a share registration form
with us, setting forth the shareholder’s name, address • Approval of the maximum aggregate compensation
and citizenship (or, in the case of a legal entity, its reg- of the Board (from an AGM until the next AGM) and
istered office). If the shareholder has not timely reg- of the Executive Committee (for the financial year
istered its shares, then the shareholder may not vote following the AGM)
at, or participate in, a General Meeting.
To vote its shares, the shareholder must also • Discharge of Board and Executive Committee
explicitly declare that it has acquired the shares in its members from liability for matters disclosed to the
own name and for its own account. If the shareholder General Meeting
refuses to make such a declaration, the shares may
not be voted unless the Board recognizes such share- • Decision on other matters that are reserved by law
holder as a nominee. or by the Articles (e.g., advisory vote on the Com-
The Articles provide that no shareholder shall be pensation Report) to the General Meeting
registered with the right to vote shares comprising
more than 2% of the registered share capital. The According to the Articles and Swiss law, the fol-
Board may, upon request, grant an exemption from lowing matters require the approval of a “superma-
this restriction. Considerations include whether the jority” of at least two‑thirds of the votes present at a
shareholder supports our goal of creating sustainable General Meeting:
value and has a long‑term investment horizon. Fur- • Alteration of the purpose of Novartis AG
thermore, the Articles provide that no nominee shall
be registered with the right to vote shares compris- • Creation of shares with increased voting powers
ing more than 0.5% of the registered share capital.
The Board may, upon request, grant an exemption • Implementation of restrictions on the transfer of
from this restriction if the nominee discloses the registe­red shares, and the removal of such restric-
names, addresses, and number of shares of the per- tions
sons for whose account it holds 0.5% or more of the
registered share capital. The same restrictions indi- • Authorized or conditional increase of the share cap-
rectly apply to ADR holders. We have in the past ital
granted exemptions from the 2% rule for sharehold-
ers and the 0.5% rule for nominees. • Increase of the share capital out of equity, by con-
For purposes of the 2% rule for shareholders and tribution in kind, for the purpose of an acquisition
the 0.5% rule for nominees, groups of companies and of property or the grant of special rights
groups of shareholders acting in concert are consid-
ered to be one shareholder. These rules also apply to • Restriction or cancellation of subscription rights
shares acquired or subscribed by the exercise of sub-
scription, option or conversion rights. • Change of the registered office of Novartis AG
After hearing the registered shareholder or nom-
inee, the Board may cancel, with retroactive effect as • Dissolution of Novartis AG
of the date of registration, the registration of the
shareholders if the registration was effected based In addition, the law provides for a qualified major-
on false information. ity for other resolutions, such as a merger or demerger.
Registration restrictions in the Articles may only Our shareholders are required to annually elect
be removed upon a resolution carrying a two‑thirds all Directors (including the Board Chair), the Compen-
majority of the votes represented at a General Meet- sation Committee members, the external auditor and
ing. the Independent Proxy. The Articles do not provide
Except as noted below, shareholders’ resolutions for cumulative voting of shares.
require the approval of an absolute majority of the At a General Meeting, shareholders can be repre-
votes present at a General Meeting. As a result, sented by a proxy, which must either be the sharehold-
abstentions have the effect of votes against such res- er’s legal representative, another shareholder with the
olutions. Some examples of shareholders’ resolutions right to vote, or the Independent Proxy. Votes are taken
requiring a vote by such “absolute majority of the either by a show of hands or by electronic voting,
votes” are: unless the General Meeting resolves to have a ballot
• Adoption and amendment of the Articles or where a ballot is ordered by the chair of the meet-
ing. ADSs, each representing one Novartis AG share
• Election and removal of the Board Chair, the Board and evidenced by ADRs, are issued by our depositary
and Compensation Committee members, the Inde- JPMorgan Chase Bank, N.A., New York, and not by
pendent Proxy and the external auditor us. The ADR is vested with rights defined and enu-
merated in the Deposit Agreement (such as the rights
• Approval of the management report and of the con- to vote, to receive a dividend and to receive a share
solidated financial statements of Novartis AG in exchange for a certain number of


165
 Item 10. Additional Information

ADRs). The enumeration of rights, including any lim- to obtain benefits from its activities. Therefore, our
itations on those rights in the Deposit Agreement, is consolidated financial statements include special
final. There are no other rights given to the ADR hold- purpose entities, mainly foundations, which do not
ers. Only the ADS depositary, holding our shares qualify as subsidiaries subject to the reserve require-
underlying the ADRs, is registered as shareholder in ments and voting restrictions of the Swiss CO because
our share register. An ADR is not a Novartis AG share we do not hold a majority participation in these spe-
and an ADR holder is not a Novartis AG shareholder. cial purpose entities. Accordingly, no reserve require-
The Deposit Agreement between our depositary, ments apply to shares held by such special purpose
the ADR holder and us has granted certain indirect entities, and such entities are not restricted from inde-
rights to vote to the ADR holders. ADR holders may pendently voting their shares.
not attend a General Meeting in person. ADR holders Under the Swiss CO, we may not cancel treasury
exercise their voting rights by instructing JPMorgan shares without the approval of a capital reduction by
Chase Bank, N.A., our depositary, to exercise the vot- our shareholders.
ing rights attached to the registered shares underly- (f) Not applicable.
ing the ADRs. Each ADR represents one Novartis AG (g) Since all of our issued and outstanding shares have
share. JPMorgan Chase Bank, N.A., exercises the vot- been fully paid in, our shareholders are not obliged to
ing rights for registered shares underlying ADRs for make further contributions with respect to their
which no voting instructions have been given by pro- shares.
viding a discretionary proxy to an uninstructed inde- (h) See “—Item 10.B.3(b) Shareholder rights” and “—
pendent designee. Such designee has to be a share- Item 10.B.7 Change in control.”
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 10.B.4 Changes to shareholder rights
AG registered share capital – unless otherwise
granted an exemption by the Board – and the disclo- Under the Swiss CO, we may not issue new shares with-
sure requirement for nominees). out the prior approval of a capital increase by our share-
(c) Shareholders have the right to allocate the profit holders. If a capital increase is approved, then our share-
shown on our balance sheet and to distribute divi- holders would generally have certain pre-emptive rights
dends by vote taken at the General Meeting, subject to obtain newly issued shares in an amount proportional
to the legal requirements described in “Item 10.B.3(a) to the nominal value of the shares they already hold.
Shareholder rights.” These pre-emptive rights could be excluded in certain
(d) Under the Swiss CO, any surplus arising out of a liq- limited circumstances with the approval of a resolution
uidation of Novartis AG (i.e., after the settlement of all adopted at a General Meeting by a supermajority of
claims of all creditors) would be distributed to the two‑thirds of the votes. In addition, we may not create
shareholders in proportion to the paid‑in nominal shares with increased voting powers or place restrictions
value of their shares. on the transfer of registered shares without the approval
(e) The Swiss CO limits a corporation’s ability to hold or of a resolution adopted at a General Meeting by a super-
repurchase its own shares. We and our subsidiaries majority of votes. In addition, see “—Item 10.B.3(b) Share-
may only repurchase shares if we have sufficient holder rights” with regard to the Board’s ability to cancel
freely disposable equity in the amount of the pur- the registration of shares under limited circumstances.
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- 10.B.5 Shareholder meetings
tered share capital. However, it is accepted that a
Swiss corporation may repurchase its own shares Under the Swiss CO and the Articles, we must hold an
beyond the statutory limit of 10% if the repurchased AGM within six months after the end of our financial year.
shares are clearly earmarked for cancellation. In addi- A General Meeting may be convened by the Board or, if
tion, we are required to recognize a negative position, necessary, by the external auditor. The Board is further
or if our subsidiaries acquire our shares, to create a required to convene an extraordinary General Meeting
special reserve on our balance sheet in the amount if so resolved by a General Meeting, or if so requested
of the purchase price of the acquired shares. Repur- by shareholders representing at least 10% of the share
chased shares held by us or our subsidiaries do not capital, specifying the items for the agenda and their
carry any rights to vote at a General Meeting, but are proposals. Shareholders representing shares with an
entitled to the economic benefits generally con- aggregate nominal value of at least CHF 1 000 000 may
nected with the shares. The definition of subsidiaries, request that an item be included in a General Meeting
and therefore, treasury shares, for purposes of the agenda. A General Meeting is convened by publishing a
above-described reserves requirement and voting notice in the Swiss Official Gazette of Commerce
restrictions, differs from the definition of subsidiaries ­(Schweizerisches Handelsamtsblatt) at least 20 days
for purposes of consolidation in our consolidated prior to such meeting. Shareholders may also be informed
financial statements. The definition in the consoli- by mail. Neither the Swiss CO nor the Articles require a
dated financial statements requires consolidation for quorum for a General Meeting. In addition, see “—
financial reporting purposes of special purpose enti- Item 10.B.3(b) Shareholder rights” regarding conditions
ties in instances where we have the power to govern for exercising a shareholder’s right to vote at a General
the financial and operating policies of the entity so as Meeting.


166
 Item 10. Additional Information

10.B.6 Limitations parties acquire or dispose of our shares or purchase or

sale rights relating to our shares are required to notify
There are no limitations under the Swiss CO or our Arti- us and the SIX of the level of their holdings whenever
cles on the right of non‑Swiss residents or nationals to such holdings reach, exceed or fall below certain thresh-
own or vote shares other than the restrictions applica- olds – 3%, 5%, 10%, 15%, 20%, 25%, 33 1/3%, 50% and
ble to all shareholders. But see “—Item 10.B.3(b) Share- 66 2/3% – of the voting rights represented by our share
holder rights” regarding conditions for exercising an ADR capital (whether exercisable or not). This also applies to
holder’s right to vote at a shareholder meeting. 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
10.B.7 Change in control publishing the information via the electronic publication
platform operated by the SIX.
The Articles and the Board Regulations contain no pro- An additional disclosure obligation exists under the
vision that would have an effect of delaying, deferring or Swiss CO that requires us to disclose, once a year in the
preventing a change in control of Novartis AG and that notes to the financial statements published in our Annual
would operate only with respect to a merger, acquisition Report, the identity of all of our shareholders (or related
or corporate restructuring involving us or any of our sub- groups of shareholders) who have been granted exemp-
sidiaries. tion entitling them to vote more than 2% of our registered
According to the Swiss Merger Act, shareholders share capital, as described in “—Item 10.B.3(b) Share-
may pass a resolution to merge with another corpora- holder rights.”
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. 10.B.9 Differences in the law
Under the Swiss Financial Market Infrastructure Act,
shareholders and groups of shareholders acting in con- See the references to Swiss law throughout this “—
cert who acquire more than 33 1/3% of our shares would Item 10.B Memorandum and articles of association.”
be under an obligation to make an offer to acquire all
remaining Novartis AG shares. Novartis AG has neither
opted out from the mandatory takeover offer obligation 10.B.10 Changes in capital
nor opted to increase the threshold for mandatory take-
over offers in its Articles. The requirements of the Articles regarding changes in
capital are not more stringent than the requirements of
Swiss law.
10.B.8 Disclosure of shareholdings
Under the Swiss Financial Market Infrastructure Act, per-
sons who directly, indirectly or in concert with other

10.C Material contracts

Acquisition of The Medicines indirect wholly owned subsidiary of Novartis. This merger
Company broadens our cardiovascular portfolio by adding incli-
siran, an investigational cholesterol-lowering therapy.
On November 23, 2019, we entered into an Agreement
and Plan of Merger (the “Merger Agreement”) with
US-based pharmaceutical company The Medicines Divestment of Roche shares
Company. Pursuant to the Merger Agreement, on Decem-
ber 5, 2019, Novartis, through a subsidiary, commenced On November 3, 2021, we entered into a Share Repur-
a tender offer to acquire all outstanding shares of The chase Agreement with Roche under which we agreed to
Medicines Company for USD 85 per share, or a total con- sell 53.3 million (approximately 33%) of Roche bearer
sideration of approximately USD 9.6 billion in cash on a shares in a bilateral transaction to Roche for a total con-
fully diluted basis. The tender offer expired on January sideration of USD 20.7 billion. The transaction was
3, 2020, and on January 6, 2020, the acquiring subsid- approved by the shareholders of Roche on Novem-
iary merged with and into The Medicines Company, ber 26, 2021, and closed on December 6, 2021.
resulting in The Medicines Company becoming an


167
 Item 10. Additional Information

10.D Exchange controls

There are no Swiss governmental laws, decrees or reg- any foreign exchange controls that affect the remittance
ulations that affect – in a manner material to Novartis AG of dividends, interest or other payments to non‑residents
– the export or import of capital, including the availabil- or non‑citizens of Switzerland who hold Novartis AG
ity of cash and cash equivalents for use by Novartis or securities.

10.E Taxation
The taxation discussion set forth below is intended only distributions out of qualified capital contribution reserves
as a descriptive summary and does not purport to be a are not subject to income tax. A corporate shareholder
complete analysis or listing of all potential tax effects rel- may claim substantial relief from taxation of dividends
evant to the ownership or disposition of our shares or and similar distributions received if the shares held rep-
ADRs. The statements of US and Swiss tax laws set forth resent a fair market value of at least CHF 1 million.
below are based on the laws and regulations in force as
of the date of this 20‑F – including the current Conven- Capital gains tax upon disposal of shares. Under current
tion Between the US and the Swiss Confederation for Swiss tax law, the gain realized on shares held by a Swiss
the Avoidance of Double Taxation with Respect to Taxes resident who holds shares or ADRs as part of his private
on Income, entered into force on December 19, 1997 (“the property is generally not subject to any federal, cantonal
Treaty”); the US Internal Revenue Code of 1986, as or municipal income taxation on gains realized on the
amended (“the Code”); Treasury regulations; rulings; judi- sale or other disposal of shares or ADRs. However, gains
cial decisions; and administrative pronouncements – and realized upon a repurchase of shares by us may be char-
may be subject to any changes in US and Swiss law, and acterized as taxable dividend income if certain condi-
in any double taxation convention or treaty between the tions are met. Book gains realized on shares or ADRs
US and Switzerland occurring after that date, which held by a Swiss corporate entity or by a Swiss resident
changes may have retroactive effect. 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
Swiss taxation Tax of December 14, 1990, and several cantonal laws on
direct cantonal taxes provide for exceptions for Swiss
Swiss residents corporate entities holding more than 10% of our voting
Withholding Tax on dividends and distributions. Divi- stock for more than one year.
dends that we pay and similar cash or in‑kind distribu-
tions that we may make to a holder of shares or ADRs Residents of other countries
(including distributions of liquidation proceeds in excess Recipients of dividends and similar distributions on our
of the nominal value, stock dividends and, under certain shares who are neither residents of Switzerland for tax
circumstances, proceeds from repurchases of shares purposes nor holding shares as part of a business con-
by us in excess of the nominal value) are generally sub- ducted through a permanent establishment situated in
ject to a Swiss federal withholding tax (“the Withholding Switzerland (“Non‑Resident Holders”) are not subject to
Tax”) at a current rate of 35%. Under certain circum- Swiss income taxes in respect of such distributions.
stances, distributions out of capital contribution reserves Moreover, gains realized by such recipients upon the dis-
made by shareholders after December 31, 1996, are posal of shares are not subject to Swiss income taxes.
exempt from the Withholding Tax. We are required to Non‑Resident Holders of shares are, however, sub-
withhold Withholding Tax due from the gross distribution ject to the Withholding Tax on dividends and similar dis-
and to pay the Withholding Tax to the Swiss Federal Tax tributions mentioned above and, under certain circum-
Administration. The Withholding Tax is refundable in full stances, to the Stamp Duty described below. Such
to Swiss tax residents who are the beneficial owners of Non‑Resident Holders may be entitled to a partial refund
the taxable distribution at the time it is resolved and duly of the Withholding Tax if the country in which they reside
report the gross distribution received on their personal has entered into a bilateral treaty for the avoidance of
tax return or in their financial statements for tax pur- double taxation with Switzerland. Non‑Resident Holders
poses, as the case may be. should be aware that the procedures for claiming treaty
refunds (and the time frame required for obtaining a
Income tax on dividends. A Swiss tax resident who refund) may differ from country to country. Non‑Resident
receives dividends and similar distributions (including Holders should consult their own tax advisors regarding
stock dividends and liquidation surplus) on shares or receipt, ownership, purchase, sale or other dispositions
ADRs is required to include such amounts in the share- of shares or ADRs, and the procedures for claiming a
holder’s personal income tax return. However, refund of the Withholding Tax.


168
 Item 10. Additional Information

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 France Lithuania Slovak Republic

Algeria Georgia Luxembourg Slovenia
Argentina Germany Malaysia South Africa
Armenia Ghana Malta Spain
Australia Greece Mexico Sri Lanka
Austria Hong Kong Moldova Sweden
Azerbaijan Hungary Mongolia Taiwan
Bahrain Iceland Montenegro Tajikistan
Bangladesh India Morocco Thailand
Belarus Indonesia Netherlands Trinidad and Tobago
Belgium Iran New Zealand Tunisia
Brazil Republic of Ireland North Macedonia Turkey
Bulgaria Israel Norway Turkmenistan
Canada Italy Oman Ukraine
Chile Ivory Coast Pakistan United Arab Emirates
China Jamaica Peru United Kingdom
Colombia Japan Philippines United States of America
Croatia Kazakhstan Poland Uruguay
Cyprus Republic of Korea Portugal Uzbekistan
Czech Republic (South Korea) Qatar Venezuela
Denmark Kosovo Romania Vietnam
Ecuador Kuwait Russia Zambia
Egypt Kyrgyzstan Saudi Arabia
Estonia Latvia Serbia
Finland Liechtenstein Singapore

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 effect.

A Non‑Resident Holder of shares or ADRs will not be lia- rate of tax on dividends equal to 5% of the dividend, pro-
ble for any Swiss taxes other than the Withholding Tax vided that such holder (i) is a company, (ii) qualifies for
described above and, if the transfer occurs through or benefits under the Treaty, (iii) holds directly at least 10%
with a Swiss bank or other Swiss securities dealer, the of our voting stock, and (iv) does not conduct business
Stamp Duty described below. If, however, the shares or through a permanent establishment or fixed place of
ADRs of Non‑Resident Holders can be attributed to a business in Switzerland to which the shares or ADRs are
permanent establishment or a fixed place of business attributable. Such an eligible holder must apply for a
maintained by such person within Switzerland during the refund of the amount of the Withholding Tax in excess
relevant tax year, the shares or ADRs may be subject to of the 5% Treaty rate. Claims for refunds must be filed
Swiss income taxes in respect of income and gains real- on Swiss Tax Form 82 (82C for corporations; 82I for indi-
ized on the shares or ADRs, and such person may qual- viduals; 82E for other entities), which may be obtained
ify for a full refund of the Withholding Tax based on Swiss from any Swiss Consulate General in the US or from the
tax law. Federal Tax Administration of Switzerland at the address
below, together with an instruction form. Four copies of
Residents of the US. A Non‑Resident Holder who is a the form must be duly completed, signed before a notary
resident of the US for purposes of the Treaty is eligible public of the US, and sent to the Federal Tax Adminis-
for a reduced rate of tax on dividends equal to 15% of tration of Switzerland, Eigerstrasse 65, CH‑3003 Bern,
the dividend, provided that such holder (i) qualifies for Switzerland. The form must be accompanied by suitable
benefits under the Treaty, (ii) is not a company (or, if it is evidence of deduction of Swiss tax withheld at source,
a company, such company directly holds less than 10% such as certificates of deduction, signed bank vouchers
of our voting stock), and (iii) does not conduct business or credit slips. The form may be filed on or after July 1 or
through a permanent establishment or fixed base in Swit- January 1 following the date the dividend was payable,
zerland to which the shares or ADRs are attributable. but no later than December 31 of the third year following
Such an eligible holder must apply for a refund of the the calendar year in which the dividend became payable.
amount of the Withholding Tax in excess of the 15% For US resident holders of ADRs, JPMorgan Chase Bank,
Treaty rate. A Non‑Resident Holder who is a resident of N.A., as depositary, will comply with these Swiss
the US for purposes of the Treaty is eligible for a reduced


169
 Item 10. Additional Information

procedures on behalf of the holders, and will remit the the control of one or more US persons, or (ii) that has a
net amount to the holders. valid election in place to be treated as a US person. If a
partnership (or other entity treated as a partnership for
Stamp Duty upon transfer of securities. The sale of US federal income tax purposes) holds shares or ADRs,
shares, whether by Swiss residents or Non‑Resident the tax treatment of a partner generally will depend upon
Holders, may be subject to federal securities transfer the status of the partner and the activities of the part-
Stamp Duty of 0.15%, calculated on the sale proceeds, nership. Partners in a partnership that holds shares or
if the sale occurs through or with a Swiss bank or other ADRs are urged to consult their own tax advisor regard-
Swiss securities dealer, as defined in the Swiss Federal ing the specific tax consequences of the owning and
Stamp Duty Act. The Stamp Duty has to be paid by the disposing of such shares or ADRs by the partnership.
securities dealer and may be charged to the parties in a For US federal income tax purposes, a US Holder of
taxable transaction who are not securities dealers. ADRs generally will be treated as the beneficial owner
Stamp Duty may also be due if a sale of shares occurs of our shares represented by the ADRs. However, see
with or through a non‑Swiss bank or securities dealer, the discussion below under “—Dividends” regarding cer-
provided that (i) such bank or dealer is a member of the tain statements made by the US Treasury concerning
SIX, and (ii) the sale takes place on the SIX. In addition depositary arrangements.
to this Stamp Duty, the sale of shares by or through a This discussion assumes that each obligation in the
member of the SIX may be subject to a minor stock Deposit Agreement and any related agreement will be
exchange levy. performed in accordance with its terms.

Dividends. US Holders will be required to include in gross

US federal income taxation income, as an item of ordinary income, the full amount
(without reduction for any Withholding Tax) of the divi-
The following is a general discussion of the material US dend paid with respect to our shares or ADRs at the time
federal income tax consequences of the ownership and that such dividend is received by the US Holder, in the
disposition of our shares or ADRs that may be relevant case of shares, or by the depositary, in the case of ADRs.
to you if you are a US Holder (as defined below). Because For this purpose, a “dividend” will include any distribu-
this discussion does not consider any specific circum- tion paid by us with respect to our shares or ADRs (other
stances of any particular holder of our shares or ADRs, than certain pro rata distributions of our capital stock)
persons who are subject to US taxation are strongly paid out of our current or accumulated earnings and prof-
urged to consult their own tax advisors as to the overall its, as determined under US federal income tax princi-
US federal, state and local tax consequences, as well as ples. To the extent the amount of a distribution by us
to the overall Swiss and other foreign tax consequences, exceeds our current and accumulated earnings and prof-
of the ownership and disposition of our shares or ADRs. its, such excess will first be treated as a tax‑free return
In particular, additional or different rules may apply to US of capital to the extent of a US Holder’s tax basis in the
expatriates; banks and other financial institutions; regu- shares or ADRs (with a corresponding reduction in such
lated investment companies; traders in securities who tax basis), and thereafter will be treated as capital gain,
elect to apply a mark‑to‑market method of accounting; which will be long‑term capital gain if the US Holder held
dealers in securities or currencies; tax‑exempt entities; our shares or ADRs for more than one year. Under the
insurance companies; broker‑dealers; investors liable for Code, dividend payments by us on the shares or ADRs
alternative minimum tax; investors that hold shares or are not eligible for the dividends received deduction gen-
ADRs as part of a straddle, hedging or conversion trans- erally allowed to corporate shareholders.
action; holders whose functional currency is not the US Dividend income in respect of our shares or ADRs
dollar; partnerships or other pass-through entities; per- will constitute income from sources outside the US for
sons who acquired our shares pursuant to the exercise US foreign tax credit purposes. Subject to the limitations
of employee stock options or otherwise as compensa- and conditions provided in the Code, US Holders gener-
tion; and persons who hold, directly, indirectly or by attri- ally may claim as a credit against their US federal income
bution, 10% or more of our outstanding shares. This dis- tax liability, any Withholding Tax withheld from a dividend.
cussion generally applies only to US Holders who hold The rules governing the foreign tax credit are complex.
the shares or ADRs as a capital asset (generally, for Each US Holder is urged to consult its own tax advisor
investment purposes), and whose functional currency is concerning whether, and to what extent, a foreign tax
the US dollar. Investors are urged to consult their own credit will be available with respect to dividends received
tax advisors concerning whether they are eligible for from us. Alternatively, a US Holder may claim the With-
benefits under the Treaty. holding Tax as a deduction for the taxable year within
For purposes of this discussion, a US Holder is a ben- which the Withholding Tax is paid or accrued, provided
eficial owner of our shares or ADRs who is (i) an individ- a deduction is claimed for all of the foreign income taxes
ual who is a citizen or resident of the US for US federal the US Holder pays or accrues in the particular year. A
income tax purposes; (ii) a corporation (or other entity deduction does not reduce US tax on a dollar‑for‑dollar
taxable as a corporation for US federal income tax pur- basis like a tax credit. The deduction, however, is not
poses) created or organized in or under the laws of the subject to the limitations applicable to foreign tax cred-
US or a state thereof or the District of Columbia; (iii) an its, but may be subject to other limitations, and each US
estate the income of which is subject to US federal Holder is urged to consult its own tax advisor.
income taxation regardless of its source; or (iv) a trust The US Treasury has expressed concern that parties
(i) subject to the primary supervision of a US court and to whom ADRs are released may be taking actions


170
 Item 10. Additional Information

inconsistent with the claiming of foreign tax credits for generally will recognize capital gain or loss in an amount
US Holders of ADRs. Accordingly, the summary above equal to the difference between the US dollar value of
of the creditability of the Withholding Tax could be the amount realized on the disposition and the US Hold-
affected by future actions that may be taken by the US er’s tax basis (determined in US dollars) in the shares or
Treasury. ADRs. This capital gain or loss generally will be US
In general, a US Holder will be required to determine source gain or loss and will be treated as long‑term cap-
the amount of any dividend paid in Swiss francs, includ- ital gain or loss if the holding period in the shares or ADRs
ing the amount of any Withholding Tax imposed thereon, exceeds one year. In the case of a non‑corporate US
by translating the Swiss francs into US dollars at the spot Holder, any long-term capital gain generally will be sub-
rate on the date the dividend is actually or constructively ject to US federal income tax at preferential rates, with
received by a US Holder, in the case of shares, or by the a maximum rate of 15% (or 20% in the case of taxpayers
depositary, in the case of ADRs, regardless of whether with annual income that exceeds certain thresholds). In
the Swiss francs are in fact converted into US dollars. If addition, the gains could be subject to a 3.8% investment
a US Holder converts the Swiss francs so received into income tax. This tax is applied against the lesser of the
US dollars on the date of receipt, the US Holder gener- US Holder’s net investment income or the amount by
ally should not recognize foreign currency gain or loss which modified adjusted gross income exceeds a stat-
on such conversion. If a US Holder does not convert the utory threshold amount based on filing status. The
Swiss francs so received into US dollars on the date of deductibility of capital losses is subject to significant lim-
receipt, the US Holder will have a tax basis in the Swiss itations under the Code. Deposits or withdrawals of our
francs equal to the US dollar value on such date. Any for- shares by US Holders in exchanges for ADRs will not
eign currency gain or loss that a US Holder recognizes result in the realization of gain or loss for US federal
on a subsequent conversion or other disposition of the income tax purposes.
Swiss francs generally will be treated as US source ordi-
nary income or loss. US information reporting and backup withholding. Divi-
For a non‑corporate US Holder, the US dollar amount dend payments with respect to shares or ADRs and pro-
of any dividends paid that constitute qualified dividend ceeds from the sale, exchange or other disposition of
income generally will be taxable at a maximum rate of shares or ADRs received in the United States or through
15% (or 20% in the case of taxpayers with annual income US‑related financial intermediaries may be subject to
that exceeds certain thresholds), provided that the US information reporting to the US Internal Revenue Service
Holder meets certain holding period and other require- (IRS) and possible US backup withholding. Certain
ments. In addition, the dividends could be subject to a exempt recipients (such as corporations) are not subject
3.8% net investment income tax. This tax is applied to these information reporting and backup withholding
against the lesser of the US Holder’s net investment requirements. Backup withholding will not apply to a US
income or the amount by which modified adjusted gross Holder who furnishes a correct taxpayer identification
income exceeds a statutory threshold amount based on number and makes any other required certification or
filing status. We currently believe that dividends paid with who is otherwise exempt from backup withholding. Any
respect to our shares and ADRs will constitute qualified US Holders required to establish their exempt status
dividend income for US federal income tax purposes, generally must provide a properly executed IRS Form W‑9
provided that the US Holder meets certain holding period (Request for Taxpayer Identification Number and Certi-
and other requirements. US Holders of shares or ADRs fication). Backup withholding is not an additional tax.
are urged to consult their own tax advisors regarding the Amounts withheld as backup withholding may be cred-
availability to them of the reduced dividend rate in light ited against a US Holder’s US federal income tax liabil-
of their own particular situation and the computations of ity, and a US Holder may obtain a refund of any excess
their foreign tax credit limitation with respect to any qual- amounts withheld under the backup withholding rules by
ified dividends paid to them, as applicable. timely filing the appropriate claim for refund with the IRS
and furnishing any required information.
Sale or other taxable disposition. Upon a sale or other
taxable disposition of shares or ADRs, US Holders

10.F Dividends and paying agents

Not applicable.

10.G Statement by experts

Not applicable.


171
 Item 10. Additional Information

10.H Documents on display

Any statement in this Form 20‑F about any of our con- SEC filings are also available to the public from commer-
tracts or other documents is not necessarily complete. cial document retrieval services.
If the contract or document is filed as an exhibit to the We are required to file or furnish reports and other
Form 20‑F, the contract or document is deemed to mod- information with the SEC under the Exchange Act and
ify the description contained in this Form 20‑F. You must regulations under that act. As a foreign private issuer, we
review the exhibits themselves for a complete descrip- are exempt from the rules under the Exchange Act pre-
tion of the contract or document. scribing the form and content of proxy statements, and
The SEC maintains an internet site at http://www.sec. our officers, directors and principal shareholders are
gov that contains reports and other information regard- exempt from the reporting and short-swing profit recov-
ing issuers that file electronically with the SEC. These ery provisions contained in Section 16 of the Exchange
Act.

10.I Subsidiary information

Not applicable.


172
 Item 11. Quantitative and Qualitative Disclosures About Market Risk

Item 11. Quantitative and Qualitative

Disclosures About Market Risk
The major financial risks facing the Group are managed For information about the effects of currency fluctu-
centrally by Group Treasury, which has established pro- ations and how we manage currency risk, see “Item 5.
cesses and procedures to identify, aggregate and man- Operating and Financial Review and Prospects—Item 5.B
age our financial risk exposure. The Group Treasury Liquidity and capital resources.”
function is included in management’s internal control The information set forth under “Item 18. Financial
assessment. Statements—Note 29. Financial instruments—additional
disclosures” is incorporated by reference.


173
 Item 12. Description of Securities Other Than Equity Securities

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 5.00 for each 100 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
affecting the ADSs or the deposited shares
Withdrawing Acceptance of ADRs surrendered for withdrawal of deposited shares USD 5.00 for each 100 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 5.00 for each 100 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 1.50 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 0.008 per ADS


174
 Item 12. Description of Securities Other Than Equity Securities

Fees payable by the depositary to the issuance and cancellation fees collected by JPMorgan
issuer under the Deposit Agreement during such Contract Year
minus (c) that portion (if any) of JPMorgan’s legal fees,
Pursuant to an agreement effective as of May 11, 2017 charges and out-of-pocket expenses in excess of USD
(“the Agreement”), JPMorgan, as our ADS depositary, 50 000 for such Contract Year. To the extent that the
has agreed to make an annual contribution payment to Custody Costs for a Contract Year exceed USD 1.7 mil-
Novartis at the end of each 12-month period beginning lion, these costs would be capped at USD 1.7 million.
on the effective date of the Agreement and on each sub- JPMorgan has further agreed to waive the USD 0.05
sequent anniversary of the effective date of the Agree- per ADS issuance fees that would normally be owed by
ment (each such 12-month period is a “Contract Year”). Novartis in connection with our deposits of shares as
This annual contribution payment will equal: (a)(1) USD part of our employee stock ownership and employee par-
1.7 million less (a)(2) the custody costs, fees and expenses ticipation plans. Novartis is responsible for reimbursing
(including, without limitation, any central securities JPMorgan for all taxes and governmental charges
depository fees, charges and expenses) incurred during required to have been withheld and/or paid, and not so
the applicable Contract Year (the items in (a)(2) collec- withheld and/or paid, arising from such waived fees.
tively are the “Custody Costs”) plus (b) 70% of the gross


175
 Item 13. Defaults, Dividend Arrearages and Delinquencies

PART II
Item 13. Defaults, Dividend Arrearages and
Delinquencies
None.


176
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

Item 14. Material Modifications to the Rights

of Security Holders and Use of Proceeds
None.


177
 Item 15. Controls and Procedures

Item 15. Controls and Procedures

Report of Novartis Management on Internal Control Over Financial Reporting

Novartis AG’s Chief Executive Officer and Chief Finan‑ Group management assessed the effectiveness of
cial Officer, after evaluating the effectiveness of our dis‑ the Group’s internal control over financial reporting as
closure controls and procedures (as defined in Exchange of December 31, 2022. In making this assessment, it used
Act Rule 13a‑15(e)) as of the end of the period covered the criteria established in Internal Control—Integrated
by this Annual Report, have concluded that, as of such Framework (2013) issued by the Committee of Sponsor‑
date, our disclosure controls and procedures were effec‑ ing Organizations of the Treadway Commission (COSO).
tive. Based on our assessment, management concluded that,
The Board of Directors and management of the as of December 31, 2022, the Group’s internal control
Group are responsible for establishing and maintaining over financial reporting is effective based on those cri‑
adequate internal control over financial reporting. The teria.
Group’s internal control system was designed to provide KPMG AG, Switzerland, an independent registered
reasonable assurance to the Group’s management and public accounting firm, has issued an unqualified opin‑
Board of Directors regarding the reliability of financial ion on the effectiveness of the Group’s internal control
reporting and the preparation and fair presentation of its over financial reporting, which is included in this Annual
published consolidated financial statements. Report under “Item 18. Financial Statements—Report of
All internal control systems, no matter how well independent registered public accounting firm.”
designed, have inherent limitations. Therefore, even See the report of KPMG, an independent registered
those systems determined to be effective may not pre‑ public accounting firm, included under “Item 18. Finan‑
vent or detect misstatements and can provide only rea‑ cial Statements—Report of independent registered pub‑
sonable assurance with respect to financial statement lic accounting firm.”
preparation and presentation. Also, projections of any There were no changes to our internal control over
evaluation of effectiveness to future periods are subject financial reporting that occurred during the period cov‑
to the risk that controls may become inadequate because ered by this Annual Report that have materially affected,
of changes in conditions, or that the degree of compli‑ or are reasonably likely to materially affect, our internal
ance with the policies or procedures may deteriorate. control over financial reporting.

Vas Narasimhan Harry Kirsch

Chief Executive Officer Chief Financial Officer

Basel, January 31, 2023


178
 Item 16A. Audit Committee Financial Expert

Item 16A. Audit Committee Financial Expert

Our Audit and Compliance Committee has determined Gonzalo are “independent” in accordance with the appli‑
that Elizabeth Doherty and Ana de Pro Gonzalo possess cable requirements of Rule 10A‑3 of the Exchange Act,
specific accounting and financial management exper‑ and that other members of the Audit and Compliance
tise, and that they are Audit Committee Financial Experts Committee have sufficient experience and ability in
as defined by the SEC. The Board of Directors has also finance and compliance matters to enable them to ade‑
determined that Elizabeth Doherty and Ana de Pro quately discharge their responsibilities.


179
 Item 16B. Code of Ethics

Item 16B. Code of Ethics

In addition to our Code of Ethics and Professional Prac‑ officer, and persons performing similar functions. This
tices Policy, which are applicable to all of our employees, document is accessible on our internet website at:
we have adopted Ethical Conduct Requirements that https://www.novartis.com/investors/company-over‑
impose additional obligations on our principal executive view/corporate-governance
officer, principal financial officer, principal accounting


180
 Item 16C. Principal Accountant Fees and Services

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.


181
 Item 16D. Exemptions from the Listing Standards for Audit Committees

Item 16D. Exemptions from the Listing

Standards for Audit Committees
Not applicable.


182
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Item 16E. Purchases of Equity Securities by

the Issuer and Affiliated Purchasers
Maximum Maximum
approximate approximate
Total number value of value of
of shares shares that shares that
purchased may yet be may yet be
as part of purchased purchased
publicly under the under the
Average price announced plans or plans or
Total number of paid per share plans or programs programs
shares purchased in USD programs (CHF millions) (USD millions)
2022 (a)1 (b) (c)2 (d) (e)3

Jan. 1-31 10 746 816 87.76 9 773 500 7 831 8 405

Feb. 1-28 10 160 538 86.73 10 000 000 7 030 7 594
Mar. 1-31 11 494 338 85.43 11 470 000 16 119 17 451
Apr. 1-30 9 534 769 90.61 9 500 000 15 305 15 756
May 1-31 10 521 350 88.04 10 500 000 14 399 14 996
Jun. 1-30 10 524 101 84.79 10 500 000 13 535 14 164
Jul. 1-31 10 525 453 85.10 10 500 000 12 670 13 329
Aug. 1-31 11 045 776 84.91 11 000 000 11 775 12 098
Sep. 1-30 11 035 057 79.65 11 000 000 10 922 11 172
Oct. 1-31 10 524 526 77.45 10 500 000 10 113 10 118
Nov. 1-30 11 021 724 84.64 11 000 000 9 216 9 675
Dec. 1-31 10 520 012 91.17 10 500 000 8 324 8 999

Total 127 654 460 85.45 126 243 500

1
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.”
2
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.”
3
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


183
 Item 16F. Change in Registrant’s Certifying Accountant

Item 16F. Change in Registrant’s Certifying

Accountant
Not applicable.


184
 Item 16G. Corporate Governance

Item 16G. Corporate Governance

Novartis AG is subject to and compliant with the laws • While shareholders cannot vote on all equity compen‑
and regulations of Switzerland (in particular, Swiss com‑ sation plans, they are entitled to hold separate, yearly
pany and securities laws, SIX Swiss Exchange rules and binding votes on Board and Executive Committee com‑
the Swiss Code of Best Practice for Corporate Gover‑ pensation.
nance) and the securities laws of the United States,
including New York Stock Exchange (NYSE) rules, as • The Board has set up a separate Risk Committee that
applicable to foreign private issuers of securities. The oversees the risk management system and processes,
following summarizes some significant ways in which our as opposed to delegating this responsibility to the Audit
corporate governance practices differ from those fol‑ and Compliance Committee.
lowed by domestic listed US companies under the list‑
ing standards of the NYSE: • The full Board is responsible for overseeing the
• Novartis AG shareholders do not receive written ­performance evaluation of the Board and Executive
reports directly from Board committees. Committee.

• External auditors are appointed by shareholders at the • The full Board is responsible for setting objectives rel‑
Annual General Meeting of Shareholders (AGM), as evant to the CEO’s compensation and for evaluating
opposed to being appointed by the Audit and Compli‑ his performance.
ance Committee.


185
 Item 16H. Mine Safety Disclosure

Item 16H. Mine Safety Disclosure

Not applicable.


186
 Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 16I. Disclosure Regarding Foreign

Jurisdictions that Prevent Inspections
Not applicable.


187
 Item 17. Financial Statements

PART III
Item 17. Financial Statements
See response to “Item 18. Financial Statements.”


188
 Item 18. Financial Statements

Item 18. Financial Statements

The following financial statements are filed as part of this Annual Report.
Page
Consolidated income statements F-1
Consolidated statements of comprehensive income F-2
Consolidated balance sheets F-3
Consolidated statements of changes in equity F-4
Consolidated statements of cash flows F-5
Notes to the Novartis Group consolidated financial statements F-6
1. Significant accounting policies F-6
2. Significant transactions F-15
3. Segmentation of key figures 2022, 2021 and 2020 F-17
4. Associated companies F-26
5. Interest expense and other financial income and expense F-27
6. Income taxes F-27
7. Earnings per share F-28
8. Changes in consolidated statements of comprehensive income F-29
9. Property, plant and equipment F-30
10. Right-of-use assets and lease liabilities F-32
11. Goodwill and intangible assets F-33
12. Deferred tax assets and liabilities F-36
13. Financial and other non-current assets F-37
14. Inventories F-38
15. Trade receivables F-38
16. Marketable securities, commodities, time deposits, derivative financial instruments,
and cash and cash equivalents F-39
17. Other current assets F-40
18. Equity F-40
19. Non-current financial debt F-42
20. Provisions and other non-current liabilities F-44
21. Current financial debt and derivative financial instruments F-48
22. Provisions and other current liabilities F-48
23. Details to the consolidated statements of cash flows F-50
24. Acquisitions of businesses F-53
25. Post-employment benefits for employees F-53
26. Equity-based participation plans for employees F-58
27. Transactions with related parties F-61
28. Commitments and contingent liabilities F-62
29. Financial instruments – additional disclosures F-64
30. Events subsequent to the December 31, 2022, consolidated balance sheet date F-74
31. Principal Group subsidiaries and associated companies F-75
Statutory Auditor’s Report on the consolidated financial statements of Novartis AG F-77

Financial statements of Novartis AG A-1

Notes to the financial statements of Novartis AG A-3
Appropriation of available earnings and reserves of Novartis AG A-11
Statutory Auditor’s Report on the financial statements of Novartis AG A-12


189
 Item 19. Exhibits

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, effective 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 Officer of Novartis AG, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.

12.2 Certification of Harry Kirsch, Chief Financial Officer of Novartis AG, pursuant to Section 302 of the Sar‑
banes-Oxley Act of 2002.

13.1 Certification of Vasant Narasimhan, Chief Executive Officer 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 Officer 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.


190
 Item 19. Exhibits

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).


191
 

(This page has been left blank intentionally.)


192
 Novartis Group consolidated financial statements

Novartis Group
consolidated financial statements
Consolidated income statements
(For the years ended December 31, 2022, 2021 and 2020)

(USD millions unless indicated otherwise) Note 2022 2021 2020

Net sales to third parties 3 50 545 51 626 48 659

Other revenues 3 1 283 1 251 1 239
Cost of goods sold – 15 486 – 15 867 – 15 121
Gross profit 36 342 37 010 34 777
Selling, general and administration – 14 253 – 14 886 – 14 197
Research and development – 9 996 – 9 540 – 8 980
Other income 805 1 852 1 742
Other expense – 3 701 – 2 747 – 3 190
Operating income 9 197 11 689 10 152
(Loss)/income from associated companies 4 –9 15 339 673
Interest expense 5 – 837 – 811 – 869
Other financial income and expense 5 20 – 80 – 78
Income before taxes 8 371 26 137 9 878
Income taxes 6 – 1 416 – 2 119 – 1 807
Net income 6 955 24 018 8 071
Attributable to:
Shareholders of Novartis AG 6 955 24 021 8 072
Non-controlling interests 0 –3 –1

Basic earnings per share (USD) 7 3.19 10.71 3.55

Diluted earnings per share (USD) 7 3.17 10.63 3.52

The accompanying Notes form an integral part of the consolidated financial statements.


F-1
 Novartis Group consolidated financial statements

Consolidated statements of comprehensive income

(For the years ended December 31, 2022, 2021 and 2020)

(USD millions) Note 2022 2021 2020

Net income 6 955 24 018 8 071

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 4 46 – 56
Net investment hedge, net of taxes 8 91 216 – 201
Currency translation effects, net of taxes 8 – 450 – 4 762 3 194
Total of items that are or may be recycled – 359 – 4 500 2 937

Items that will never be recycled into the consolidated income statement
Actuarial (losses)/gains from defined benefit plans, net of taxes 8 – 103 1 809 143
Fair value adjustments on equity securities, net of taxes 8 – 382 194 250
Total of items that will never be recycled – 485 2 003 393

Total comprehensive income 6 111 21 521 11 401

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.


F-2
 Novartis Group consolidated financial statements

Consolidated balance sheets

(At December 31, 2022 and 2021)

(USD millions) Note 2022 2021

Assets
Non-current assets
Property, plant and equipment 9 10 764 11 545
Right-of-use assets 10 1 431 1 561
Goodwill 11 29 301 29 595
Intangible assets other than goodwill 11 31 644 34 182
Investments in associated companies 4 143 205
Deferred tax assets 12 3 739 3 743
Financial assets 13 2 411 3 036
Other non-current assets 13 1 110 2 210
Total non-current assets 80 543 86 077
Current assets
Inventories 14 7 175 6 666
Trade receivables 15 8 066 8 005
Income tax receivables 268 278
Marketable securities, commodities, time deposits and derivative financial instruments 16 11 413 15 922
Cash and cash equivalents 16 7 517 12 407
Other current assets 17 2 471 2 440
Total current assets 36 910 45 718
Total assets 117 453 131 795

Equity and liabilities

Equity
Share capital 18 890 901
Treasury shares 18 – 92 – 48
Reserves 58 544 66 802
Equity attributable to Novartis AG shareholders 59 342 67 655
Non-controlling interests 81 167
Total equity 59 423 67 822
Liabilities
Non-current liabilities
Financial debts 19 20 244 22 902
Lease liabilities 10 1 538 1 621
Deferred tax liabilities 12 2 686 3 070
Provisions and other non-current liabilities 20 4 906 6 172
Total non-current liabilities 29 374 33 765
Current liabilities
Trade payables 5 146 5 553
Financial debts and derivative financial instruments 21 5 931 6 295
Lease liabilities 10 251 275
Current income tax liabilities 2 533 2 415
Provisions and other current liabilities 22 14 795 15 670
Total current liabilities 28 656 30 208
Total liabilities 58 030 63 973
Total equity and liabilities 117 453 131 795

The accompanying Notes form an integral part of the consolidated financial statements.


F-3
 Novartis Group consolidated financial statements

Consolidated statements of changes in equity

(For the years ended December 31, 2022, 2021 and 2020)

Reserves Equity
attributable Non-
Share Treasury Retained Total value to Novartis controlling Total
(USD millions) Note capital shares earnings adjustments shareholders interests equity
Total equity at January 1, 2020 936 – 80 59 275 – 4 657 55 474 77 55 551
Net income 8 072 8 072 –1 8 071
Other comprehensive income 8 – 56 3 387 3 331 –1 3 330
Total comprehensive income 8 016 3 387 11 403 –2 11 401
Dividends 18.1 – 6 987 –6 987 –6 987
Purchase of treasury shares 18.2 – 18 – 3 038 –3 056 –3 056
Reduction of share capital 18 – 23 31 –8
Exercise of options and employee transactions 18.2 8 798 806 806
Repurchase of options 18.4 – 89 – 89 – 89
Equity-based compensation 18.2 6 724 730 730
Shares delivered to Alcon employees
as a result of the Alcon spin-off 18.2 0 30 30 30
Taxes on treasury share transactions 32 32 32
Increase of treasury share repurchase
obligation under a share buyback trading plan 18.3 – 1 769 – 1 769 – 1 769
Fair value adjustments on financial assets sold 8 150 – 150
Value adjustments related to divestments 8 –2 2
Impact of change in ownership of consolidated entities 18.5 7 –1 6 –7 –1
Other movements 18.7 18 18 18
Total of other equity movements – 23 27 – 10 134 – 149 – 10 279 –7 – 10 286
Total equity at December 31, 2020 913 – 53 57 157 – 1 419 56 598 68 56 666
Net income 24 021 24 021 –3 24 018
Other comprehensive income 8 46 – 2 539 –2 493 –4 –2 497
Total comprehensive income 24 067 – 2 539 21 528 –7 21 521
Dividends 18.1 – 7 368 –7 368 –7 368
Purchase of treasury shares 18.2 – 18 – 2 902 –2 920 –2 920
Reduction of share capital 18 – 12 18 –6
Exercise of options and employee transactions 18.2 0 39 39 39
Equity-based compensation 18.2 5 740 745 745
Shares delivered to Alcon employees
as a result of the Alcon spin-off 18.2 0 17 17 17
Taxes on treasury share transactions 1 1 1
Increase of treasury share repurchase
obligation under a share buyback trading plan 18.3 – 1 040 – 1 040 – 1 040
Transaction costs, net of taxes 18.8 12 12 12
Changes in non-controlling interests 18.6 –1 –1
Fair value adjustments on financial assets sold 8 164 – 164
Value adjustments related to divestments 8 65 – 65
Impact of change in ownership of consolidated entities 18.5 –5 0 –5 107 102
Other movements 18.7 48 48 48
Total of other equity movements – 12 5 – 10 235 – 229 – 10 471 106 – 10 365
Total equity at December 31, 2021 901 – 48 70 989 – 4 187 67 655 167 67 822
Net income 6 955 6 955 0 6 955
Other comprehensive income 8 – 839 – 839 –5 – 844
Total comprehensive income 6 955 – 839 6 116 –5 6 111
Dividends 18.1 – 7 506 – 7 506 – 7 506
Purchase of treasury shares 18.2 – 66 – 10 844 – 10 910 – 10 910
Reduction of share capital 18 – 11 15 –4
Exercise of options and employee transactions 18.2 1 87 88 88
Equity-based compensation 18.2 6 848 854 854
Shares delivered to Alcon employees
as a result of the Alcon spin-off 18.2 0 5 5 5
Taxes on treasury share transactions 14 14 14
Decrease of treasury share repurchase
obligation under a share buyback trading plan 18.3 2 809 2 809 2 809
Changes in non-controlling interests 18.6 – 81 – 81
Fair value adjustments on financial assets sold 8 4 –4
Value adjustments related to divestments 8 – 34 34
Other movements 18.7 217 217 217
Total of other equity movements – 11 – 44 – 14 404 30 – 14 429 – 81 – 14 510
Total equity at December 31, 2022 890 – 92 63 540 – 4 996 59 342 81 59 423

The accompanying Notes form an integral part of the consolidated financial statements.


F-4
 Novartis Group consolidated financial statements

Consolidated statements of cash flows

(For the years ended December 31, 2022, 2021 and 2020)

(USD millions) Note 2022 2021 2020

Net income 6 955 24 018 8 071

Adjustments to reconcile net income to net cash flows from operating activities
Reversal of non-cash items and other adjustments 23.1 11 546 – 5 299 9 881
Dividends received from associated companies and others 1 525 490
Interest received 254 13 47
Interest paid – 696 – 664 – 703
Other financial receipts 71 464
Other financial payments – 32 – 302 – 39
Income taxes paid 23.2 – 1 975 – 2 342 – 1 833
Net cash flows from operating activities before working capital and
provision changes 16 124 15 949 16 378
Payments out of provisions and other net cash movements in non-current liabilities – 885 – 1 119 – 2 437
Change in net current assets and other operating cash flow items 23.3 – 1 003 241 – 291
Net cash flows from operating activities 14 236 15 071 13 650
Purchases of property, plant and equipment – 1 198 – 1 378 – 1 275
Proceeds from sale of property, plant and equipment 167 240 88
Purchases of intangible assets – 1 473 – 1 593 – 1 310
Proceeds from sale of intangible assets 202 748 380
Purchases of financial assets – 121 – 191 – 230
Proceeds from sale of financial assets 133 442 723
Purchases of other non-current assets –1 – 61 – 61
Proceeds from sale of other non-current assets 4 2
Acquisitions and divestments of interests in associated companies, net 23.4 – 24 20 669 –7
Acquisitions and divestments of businesses, net 23.5 – 879 – 567 – 9 957
Purchases of marketable securities, commodities and time deposits – 34 695 – 16 403 – 1 900
Proceeds from sale of marketable securities, commodities and time deposits 39 357 2 298 492
Net cash flows from/(used in) investing activities from continuing operations 1 468 4 208 – 13 055
Net cash flows used in investing activities from discontinued operations 23.7 – 127
Net cash flows from/(used in) investing activities 1 468 4 208 – 13 182
Dividends paid to shareholders of Novartis AG – 7 506 – 7 368 – 6 987
Acquisitions of treasury shares – 10 652 – 3 057 – 2 842
Proceeds from exercised options and other treasury share transactions, net 100 53 748
Increase in non-current financial debts 23.6 16 16 7 126
Repayments of the current portion of non-current financial debts 23.6 – 2 575 – 2 162 – 2 003
Change in current financial debts 23.6 295 – 3 524 2 261
Payments of lease liabilities 23.6 – 295 – 316 – 312
Impact of change in ownership of consolidated entities –3 –2
Other financing cash flows, net 55 97 – 147
Net cash flows used in financing activities from continuing operations – 20 562 – 16 264 – 2 158
Net cash flows used in financing activities from discontinued operations 23.7 – 50
Net cash flows used in financing activities – 20 562 – 16 264 – 2 208
Net change in cash and cash equivalents before effect of exchange
rate changes – 4 858 3 015 – 1 740
Effect of exchange rate changes on cash and cash equivalents – 32 – 266 286
Net change in cash and cash equivalents – 4 890 2 749 – 1 454
Cash and cash equivalents at January 1 12 407 9 658 11 112
Cash and cash equivalents at December 31 7 517 12 407 9 658

The accompanying Notes form an integral part of the consolidated financial statements.


F-5
 Notes to the Novartis Group consolidated financial statements

Notes to the Novartis

Group consolidated financial statements
1. Significant accounting policies
The Novartis Group (Novartis or Group) is a multinational Foreign currencies
group of companies specializing in the research, devel-
opment, manufacturing and marketing of a broad range The consolidated financial statements of Novartis are
of innovative pharmaceuticals and cost-saving generic presented in US dollars (USD). The functional currency
medicines. The Group is headquartered in Basel, Swit- of a subsidiary is generally the local currency of that
zerland. respective entity. The functional currency used for the
The consolidated financial statements of the Group reporting of certain Swiss and foreign finance entities is
are prepared in accordance with International Financial USD instead of their respective local currencies. This
Reporting Standards (IFRS) as issued by the Interna- reflects the fact that the cash flows and transactions of
tional Accounting Standards Board (IASB). They are pre- these entities are primarily denominated in this currency.
pared in accordance with the historical cost convention, For subsidiaries not operating in hyperinflationary
except for items that are required to be accounted for economies, the subsidiary’s results, financial position
at fair value. and cash flows that do not have USD as their functional
The Group’s financial year-end is December 31, which currency are translated into USD using the following
is also the annual closing date of the individual entities’ exchange rates:
financial statements incorporated into the Group’s con- • Income, expense and cash flows for each month using
solidated ­financial statements. the average exchange rate, with the US dollar values
The preparation of financial statements requires for each month being aggregated during the year
management to make certain estimates and assump- • Balance sheet using year-end exchange rates
tions, either at the balance sheet date or during the year, • Resulting exchange rate differences are recognized in
which affect the reported amounts of revenues, expenses, other comprehensive income
assets, liabilities and contingent amounts.
Estimates are based on historical experience and For subsidiaries operating in hyperinflationary econo-
other assumptions that are considered reasonable under mies, the impact of the restatement of the non-monetary
the given circumstances and are regularly monitored. assets and liabilities with the general price index at the
Actual outcomes and results could differ from those esti- beginning of the period is recorded in retained earnings
mates and assumptions. Revisions to estimates are rec- in equity. The subsequent gains or losses resulting from
ognized in the period in which the estimate is revised. the restatement of non-monetary assets are recorded
in “Other financial income and expense” in the consoli-
Listed below are accounting policies of significance to dated income statement.
Novartis or, in cases where IFRS provides alternatives,
the option adopted by Novartis.
Non-current assets held for sale or
held for distribution to owners
Scope of consolidation
Non-current assets are accounted for as assets held for
The consolidated financial statements include all enti- sale or as related to discontinued operations when their
ties, including structured entities, over which Novartis carrying amount is to be recovered principally through
AG, Basel, Switzerland, directly or indirectly has control a sale transaction or distribution to owners and a sale or
(generally as a result of owning more than 50% of the distribution to owners is considered highly probable.
entity’s voting interest). Consolidated entities are also They are stated at the lower of carrying amount and fair
referred to as “subsidiaries.” value less costs to sell and any resulting impairment is
In cases where Novartis does not fully own a subsid- recognized. Assets related to discontinued operations
iary, it has elected to value any remaining outstanding and assets of a disposal group held for sale are not
non-controlling interest at the time of acquiring control depreciated or amortized. The prior year consolidated
of the subsidiary at its proportionate share of the fair balance sheet is not restated.
value of the net identified assets. If in a subsequent period, the criteria for classifica-
Investments in associated companies (generally tion as held for sale are no longer met, the recoverable
defined as investments in entities in which Novartis holds amount of assets and liabilities are reclassified out of
between 20% and 50% of voting shares or over which it assets held for sale into the respective balance sheet
otherwise has significant influence) and joint ventures lines and the prior year consolidated balance sheet is
are accounted for using the equity method, except for not restated. The cumulative amount of depreciation and
selected venture fund investments for which the Group amortization not recorded since the date of their classi-
has elected to apply the method of fair value through the fication as assets held for sale, and any required
consolidated income statement.


F-6
 Notes to the Novartis Group consolidated financial statements

adjustments to the recoverable amounts of assets are The following table shows the estimated useful life
recognized in the consolidated income statement. by major categories for property, plant and equipment:

Useful life
Acquisition of assets and businesses Buildings 20 to 40 years
Machinery and other equipment
Assets separately acquired are recorded at cost, which Machinery and equipment 7 to 20 years
includes the purchase price and any directly attributable
Furniture and vehicles 5 to 10 years
costs for bringing the asset into the condition to operate
Computer hardware 3 to 7 years
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 Government grants obtained for construction activities,
cost. including any related equipment, are deducted from the
Acquired businesses are accounted for by applying gross ­acquisition cost to arrive at the balance sheet car-
the acquisition method, unless the optional concentra- rying value of the related assets.
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 Leases and right-of-use assets
separately acquired when substantially all of the fair
value of the gross assets acquired is concentrated in a As lessee, at inception and upon the modification of a
single identifiable asset or group of similar identifiable contract, the Group assesses whether the contract con-
assets. tains a lease. The Group elected to allocate the consid-
The acquisition method requires that the assets eration in the contract to the lease and non-lease com-
acquired and liabilities assumed be recorded at their ponents on the basis of the relative standalone price of
respective fair values on the date the Group obtains con- each component.
trol. The excess of the fair value of the total purchase The Group recognizes a right-of-use asset and a cor-
consideration transferred over the fair value of the responding lease liability for all arrangements in which
acquired assets and assumed liabilities is recognized as it is a lessee, except for leases with a term of 12 months
goodwill. The valuations are based on information avail- or less (short-term leases) and low-value leases. For
able at the acquisition date. Acquisition related costs are these short-term and low-value leases, the Group rec-
expensed as incurred. ognizes the lease payments as an operating expense on
The application of the acquisition method requires a straight-line basis over the term of the lease.
certain estimates and assumptions to be made, espe- The lease liability is initially measured at the present
cially concerning the fair values of the acquired intangi- value of the future lease payments as from the com-
ble assets, inventories, property, plant and equipment mencement date of the lease to the end of the lease term.
and the liabilities assumed at the acquisition date, and The lease term includes the period of any lease exten-
the useful lives of the intangible assets and property, sion that management assess as reasonably certain to
plant and equipment. Estimates of fair value require the be exercised by the Group. The lease payments are dis-
use of valuation techniques. These valuations require the counted using the interest rate implicit in the lease or, if
use of management assumptions and estimates, includ- not readily determinable, the Novartis incremental bor-
ing the value of comparable assets in the market, amount rowing rate for the asset subject to the lease in the rel-
and timing of future cash flows, outcomes and costs of evant market.
research and development activities, probability of The Group remeasures the lease liability (and makes
obtaining regulatory approval, long-term sales forecasts, a corresponding adjustment to the related right-of-use
actions of competitors, discount rates and terminal asset) whenever there is a change to the lease terms or
growth rates. The section “—Impairment of goodwill and expected payments under the lease, or a modification
intangible assets” in this Note 1 provides additional infor- that is not accounted for as a separate lease.
mation on key assumptions that are highly sensitive in The portion of the lease payments attributable to the
the estimation of fair values using valuation techniques. 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
Property, plant and equipment operating activities.
Right-of-use assets are initially recognized on the bal-
Property, plant and equipment is depreciated on a ance sheet at cost, which comprises the amount of the
straight-line basis in the consolidated income statement initial measurement of the corresponding lease liability,
over the estimated useful life of the individual asset. Free- adjusted for any lease payments made at or prior to the
hold land is not depreciated. The related depreciation commencement date of the lease, any lease incentive
expense is included in the costs of the functions using received, and any initial direct costs incurred by Novartis,
the asset. and expected costs for obligations to dismantle and
Property, plant and equipment is assessed for impair- remove right-of-use assets when they are no longer
ment whenever there is an indication that the b ­ alance used.
sheet carrying amount may not be recoverable using Right-of-use assets are depreciated on a straight-line
cash flow projections over the useful life. basis from the commencement date of the lease over


F-7
 Notes to the Novartis Group consolidated financial statements

the shorter of the useful life of the right-of-use asset or in which the amortization and any potential impairment
the end of the lease term. charge is recognized:
Right-of-use assets are assessed for impairment
whenever there is an indication that the balance sheet Income statement line
carrying amount may not be recoverable using cash flow for amortization and
Useful life impairment charges
projections for the useful life.
Currently marketed products 5 to 20 years “Cost of goods sold”
In arrangements where the Group is the lessor, it
determines at lease inception whether the lease is a Technologies 10 to 20 years “Cost of goods sold”
or “Research
finance lease or an operating lease. Leases that trans- and development”
fer substantially all of the risk and rewards incidental to Other (including 3 to 12 years In the relevant
ownership of the underlying asset to the counterparty software) functional expense
(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- Intangible assets not yet available for use
nized on a straight-line basis over the lease term in the Acquired research and development intangible assets
consolidated income statement in “Other income.” that have not yet obtained marketing approval are rec-
ognized as in-process research and development
(IPR&D).
Goodwill and intangible assets IPR&D is not amortized, but is evaluated for potential
impairment on an annual basis or when facts and circum-
Goodwill stances warrant. Any impairment charge is recorded in
Goodwill arises on applying the acquisition method on the consolidated income statement under “Research and
the acquisition of a business and is the excess of the fair development.” Once a project included in IPR&D has
value of the consideration transferred to acquire the received marketing approval from a regulatory authority,
business over the underlying fair value of the net identi- it is transferred to the “Currently marketed ­products” cat-
fied assets acquired. It is allocated to groups of cash-gen- egory.
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 Impairment of goodwill and intangible
tested for impairment annually at the level of these assets
groups of CGUs, and any impairment charges are
recorded under “Other expense” in the consolidated An asset, a CGU or a grouping of CGUs is considered
income statement. impaired when its balance sheet carrying amount
exceeds its estimated recoverable amount, which is
Intangible assets available for use defined as the higher of its fair value less costs of dis-
Novartis has the following classes of available for use posal and its value in use. Usually, Novartis applies the
intangible assets: currently marketed products; technol- fair value less costs of disposal method for its impair-
ogies and other intangible assets (including software). ment assessment. In most cases, no directly observable
Currently marketed products represent the compos- market inputs are available to measure the fair value less
ite value of acquired intellectual property (IP), patents, costs of disposal. Therefore, an estimate is derived indi-
distribution rights and product trade names. rectly and is based on net present value techniques uti-
Technologies represent identified and separable lizing post-tax cash flows and discount rates. In the lim-
acquired know-how used in the research, development ited cases where the value-in-use method would be
and production processes. applied, net present value techniques would be applied
Significant investments in internally developed and using pre-tax cash flows and discount rates.
acquired computer software are capitalized and included Fair value less costs of disposal reflects estimates of
in the “Other” category, and amortized once available for assumptions that market participants would be expected
use. to use when pricing the asset or CGU, and for this pur-
Intangible assets available for use with a definite use- pose, management considers the range of economic
ful life are amortized over their estimated useful lives on ­conditions that are expected to exist over the remaining
a straight-line basis and are evaluated for potential useful life of the asset. These valuations are classified
impairment whenever facts and circumstances indicate as “Level 3” in the fair value hierarchy.
that their carrying value may not be recoverable. The estimates used in calculating the net present val-
The following table shows the estimated useful life ues are highly sensitive and depend on assumptions spe-
by major categories for intangible assets available for cific to the nature of the Group’s activities with regard
use and the line in the ­consolidated income statement to:


F-8
 Notes to the Novartis Group consolidated financial statements

• Amount and timing of projected future cash flows are recorded in “Other income” and “Other expense” in
• Sales forecasts the consolidated income statement.
• Actions of competitors (launch of competing products, Marketable securities and non-current financial
marketing initiatives, etc.) assets are initially recorded at fair value on their trade
• Sales erosion rates after the end of patent or other date, which is different from the settlement date when
intellectual property rights protection, and timing of the the transaction is ultimately effected. Quoted securities
entry of generic competition are remeasured at each reporting date to fair value based
• Outcome of research and development activities (com- on current market prices. If the market for a financial
pound efficacy, results of c ­ linical trials, etc.) asset is not active or no market is available, fair values
• Amount and timing of projected costs to develop IPR&D are established using valuation techniques. The major-
into ­commercially viable products ity of non-quoted investments are initially valued at fair
• Profit margins value through the purchase price established between
• Probability of obtaining regulatory approval a willing buyer and seller. Non-quoted investments are
• Future tax rate subsequently adjusted based on values derived from dis-
• Appropriate terminal growth rate counted cash flow analysis or other pricing models.
• Appropriate discount rate These investment values are classified as “Level 3” in
the fair value hierarchy.
Generally, for intangible assets with a definite useful life, The Group classifies and accounts for its marketable
Novartis uses cash flow projections for the whole useful securities and non-current financial assets in the follow-
life of these assets. For goodwill, Novartis generally uti- ing categories:
lizes cash flow projections for a three-year period based • Debt securities are valued at fair value through other
on management forecasts, with a terminal value based comprehensive income with subsequent recycling into
on cash flow projections usually in line with inflation rates the consolidated income statement, as they meet both
for later periods. the “solely payment of principal and interest” and the
Probability-weighted scenarios are t­ ypically used. business model criteria. Unrealized gains and losses,
Discount rates used consider the Group’s estimated except exchange gains and losses, are recorded as a
weighted average cost of capital, adjusted for specific fair value adjustment in the consolidated statement of
asset, country and currency risks associated with cash comprehensive income. They are recognized in the
flow projections, to approximate the discount rate that consolidated income statement when the debt instru-
market participants would use to value the asset. ment is sold, at which time the gain is transferred to
Due to the above factors, actual cash flows and val- “Other financial income and expense.” Exchange gains
ues could vary significantly from forecasted future cash and losses related to debt instruments are immediately
flows and related values derived using discounting tech- recognized in the consolidated income statement in
niques. “Other financial income and expense.”
• Fund investments and equity securities of the Novartis
Venture Fund are valued at fair value through profit and
Cash and cash equivalents loss (FVPL). Unrealized gains and losses, including
exchange gains and losses, are recognized in the con-
Cash and cash equivalents include highly liquid invest- solidated income statement in “Other income” for gains
ments with original maturities of three months or less, and “Other expense” for losses.
which are readily convertible to known amounts of cash. • Equity securities held as strategic investments, typi-
Bank overdrafts are presented within current financial cally held outside of the Novartis Venture Fund, are
debts on the consolidated balance sheet. 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
Marketable securities, commodities profit and loss. Unrealized gains and losses, including
and non-current financial assets exchange gains and losses, are recorded as a fair value
adjustment in the consolidated statement of compre-
Commodities, which include gold bullion or coins, are hensive income. They are reclassified to retained earn-
valued at the lower of cost or fair value using current ings when the equity security is sold. If these equity
market prices. The changes in fair value below cost are securities are not designated at the date of acquisition
immediately recorded in “Other financial income and as financial assets valued at fair value through other
expense.” comprehensive income, they are valued at FVPL, as
Marketable securities are financial assets held for described above.
short-term purposes which are principally traded in liq- • Other non-current financial assets, such as loans and
uid markets and are classified within current assets on long-term receivables from customers, advances and
the consolidated balance sheet. The financial impacts other deposits, are valued at amortized cost, which
related to these financial assets are recorded in “Other reflects the time value of money less any allowances
financial income and expense” in the consolidated for expected credit losses.
income statement. Non-current financial assets held for
long-term strategic purposes are classified within The Group assesses on a forward-looking basis the
non-current assets on the consolidated balance sheet. expected credit losses associated with its debt securi-
The financial impacts related to these financial assets ties valued at fair value through other comprehensive


F-9
 Notes to the Novartis Group consolidated financial statements

income. Impairments on debt securities are recorded in Inventories

“Other financial income and expense.”
For other financial assets valued at amortized cost, Inventory is valued at the lower of acquisition or produc-
impairments, which are based on their expected credit tion cost determined on a first-in, first-out basis and net
losses, and exchange rate losses are included in “Other realizable value. This value is used for the “Cost of goods
expense” in the consolidated income statement. sold” in the consolidated income statement. Unsaleable
Exchange rate gains and interest income, using the effec- inventory is fully written off in the consolidated income
tive interest rate method, are included in “Other income” statement under “Cost of goods sold.”
or “Other financial income” in the consolidated income
statement, depending on the nature of the item.
Trade receivables
Derivative financial instruments Trade receivables are initially recognized at their invoiced
amounts, including any related sales taxes less adjust-
Derivative financial instruments are initially recognized ments for estimated revenue deductions such as rebates,
in the balance sheet at fair value and are remeasured to chargebacks and cash discounts.
their current fair value at the end of each subsequent Provisions for doubtful trade receivables are estab-
reporting period. The valuation of a forward exchange lished using a forward-looking expected credit loss
rate contract is based on the discounted cash flow model (ECL), which includes possible default events on
model, using interest rate curves and forward rates at the trade receivables over the entire holding period of
the reporting date as observable inputs. the trade receivable. These provisions represent the dif-
Options are valued based on a modified Black- ference between the trade receivable’s carrying amount
Scholes model using volatility and exercise prices as in the consolidated balance sheet and the estimated col-
major observable inputs. lectible amount. Charges for doubtful trade receivables
The Group enters into certain derivative financial are recorded as marketing and selling costs recognized
instruments for the purpose of hedging to reduce the in the consolidated income statement within “Selling,
volatility in the Group’s performance due to the exposure general and administration” expenses.
to various business-related risks. The risk mitigation is
obtained because the derivative’s value or cash flows
are expected, wholly or partly, to offset changes in the Legal and environmental liabilities
value or cash flows of the recognized assets or liabilities.
The overall strategy is aiming to mitigate the currency Novartis and its subsidiaries are subject to contingen-
and interest rate risk of positions that are contractually cies arising in the ordinary course of business, such as
agreed, and to partially mitigate the exposure risk of patent litigation, environmental remediation liabilities and
selected anticipated transactions. other product-related and commercial litigation, and gov-
Certain derivative financial instruments meet the ernmental investigations and proceedings. A ­ provision
­criteria for hedge accounting treatment. A prerequisite is recorded when there is a probable outflow of resources
for obtaining this accounting-hedge relationship is exten- for which a reliable estimate can be made of the outcome
sive documentation on inception and proving on a regu- of the legal or other disputes against the subsidiary.
lar basis that the economic hedge is effective for account-
ing purposes. Other derivative financial instruments do
not meet the criteria to qualify for hedge accounting or Contingent consideration
are not designated in a hedge relationship. Changes in
the fair value of these derivative instruments are recog- In the acquisition or divestment of a business, it is nec-
nized immediately in “Other financial income and essary to recognize contingent future amounts due to
expense” in the consolidated income statement. previous owners, representing contractually defined
In addition, the Group has designated certain long- potential amounts as a liability or an asset. Usually for
term debt components as hedges of the translation risk Novartis, these are linked to milestone or royalty pay-
arising on certain net investments in foreign operations. ments related to certain assets and are recognized as a
On consolidation, foreign currency differences arising financial liability or financial asset at fair value, which is
on long-term debt designated as net investment hedges then remeasured at each subsequent reporting date.
of a foreign operation are recognized in other compre- These estimations typically depend on factors such as
hensive income and accumulated in currency translation technical milestones or ­market performance, and are
effects, to the extent that the hedge is effective. The for- adjusted for the probability of their likelihood of payment,
eign currency differences arising from hedge ineffective- and are appropriately discounted to reflect the impact
ness are recognized in the income statement in “Other of time.
financial income and expense.” Changes in the fair value of contingent consideration
When a hedged net investment is disposed of, the liabilities in subsequent periods are recognized in the
proportionate portion of the cumulative amount recog- consolidated income statement in “Cost of goods sold”
nized in equity in relation to the hedged net investment for currently marketed products and in “Research and
is transferred to the consolidated income statement as development” for IPR&D. Changes in contingent consid-
an adjustment to the gain or loss on disposal. eration assets are recognized in “Other income” or
“Other expense,” depending on their nature.


F-10
 Notes to the Novartis Group consolidated financial statements

The effect of unwinding the discount over time is rec- supported healthcare systems, private health systems,
ognized for contingent consideration liabilities in “Inter- pharmacy benefit managers, managed healthcare
est expense” and for contingent consideration assets as organizations, purchasing organizations and other
interest income recognized in the consolidated income direct and indirect customers, as well as chargebacks
statement within “Other financial income and expense.” are provisioned and recorded as revenue deductions
at the time the related revenues are recorded, or when
the incentives are offered. These rebates and dis-
Defined benefit pension plans counts, applied using provision rates, are estimated
and other post-employment benefits based on the terms and conditions in the individual
states, plans and customer agreements, historical
The liability in respect of defined benefit pension plans experience, product sales and growth rate, population
and other post-employment benefits is the defined ben- growth, product pricing including inflation impacts, the
efit obligation calculated annually by independent actu- mix of contracts and products, the level of inventory in
aries using the projected unit credit method. The current the distribution channel, regulations, contracts, chan-
service cost for such post-­employment benefit plans is nels and payers, as appropriate to the individual rebate
included in the personnel expenses of the various func- and discount arrangements.
tions in which employees are employed, while the net • Refunds granted to healthcare providers under
interest on the net defined benefit liability or asset is innovative pay-for-performance agreements (i.e. out-
­recognized as “Other expense” or “Other income.” 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
Treasury shares of historical experience and clinical data available for
the product, as well as specific terms of the individual
Treasury shares are initially recorded at fair value on their agreements. In cases where historical experience and
trade date, which is different from the settlement date, clinical data are not sufficient for a reliable estimation
when the transaction is ultimately effected. Treasury of the outcome, revenue recognition is deferred until
shares are deducted from consolidated equity at their the uncertainty is resolved, until such history is avail-
nominal value of CHF 0.50 per share. Differences able or the period when the refund right has expired.
between the nominal amount and the transaction price The provisions for revenue deductions under the
on purchases or sales of treasury shares with third par- innovative pay-for-performance agreements are
ties, or the value of services received for the shares allo- adjusted periodically based on established processes
cated to employees as part of share-based compensa- and actual experience, including the products actual
tion arrangements, are recorded in “Retained earnings” outcomes achieved compared with the anticipated pre-
in the ­consolidated statement of changes in equity. defined targets.
• Cash discounts are offered to customers to encourage
prompt payment and are provisioned and recorded as
Revenue recognition revenue deductions at the time the related sales are
recorded.
Revenue on the sale of Novartis Group products and ser- • Shelf stock adjustments are generally granted to cus-
vices, which is recorded as “Net sales to third parties” in tomers, primarily of the Sandoz Division, to cover the
the consolidated income statement, is recognized when inventory held by them at the time a price decline
a contractual promise to a customer (performance obli- becomes effective. Revenue deduction provisions for
gation) has been fulfilled by transferring control over the shelf stock adjustments are recorded when the price
promised goods and services to the customer, substan- decline is anticipated, based on the impact of the price
tially all of which is at the point in time of shipment to or decline on the customer’s estimated inventory levels.
receipt of the products by the customer or when the ser- • Sales returns provisions are recognized and recorded
vices are performed. If contracts contain customer as revenue deductions when there is historical expe-
acceptance provisions, revenue is recognized upon the rience of Novartis agreeing to customer returns and
satisfaction of the acceptance criteria. If a contract con- Novartis can reasonably estimate expected future
tains more than one performance obligation, the consid- returns. In doing so, the estimated rate of return is
eration is allocated based on the standalone selling price applied, determined on the basis of historical experi-
of each performance obligation. The amount of revenue ence of customer returns and considering any other
recognized is based on the consideration Novartis relevant factors. This is applied to the amounts invoiced,
expects to receive in exchange for its goods and ser- also considering the amount of returned products to
vices, when it is highly probable that a significant rever- be destroyed versus products that can be placed back
sal will not occur. in inventory for resale. Where shipments are made on
The consideration Novartis receives in exchange for a resale or return basis, without sufficient historical
its goods or services may be fixed or variable. Variable experience for estimating sales returns, revenue is only
consideration is recognized when it is highly probable recorded when there is evidence of consumption or
that a significant reversal will not occur. The most com- when the right of return has expired.
mon elements of variable consideration are listed below.
• Rebates and discounts granted to wholesalers, retail- Net sales to third parties and provisions for revenue
ers, government agencies (including US Medicaid and deductions are adjusted periodically to reflect experi-
US Federal Medicare programs), government ence and to reflect actual amounts as rebates, refunds,


F-11
 Notes to the Novartis Group consolidated financial statements

discounts and returns are processed. There is often a the receipt of marketing approval for a related product
time lag between recording of revenue deductions and from a regulatory authority in a major market.
the final accounting for them. The provision represents Costs for post-approval studies performed to sup-
estimates of the related obligations, requiring the use of port the continued registration of a marketed product
judgment when estimating the effect of these revenue are recognized as marketing expenses. Costs for activ-
deductions. ities that are required by regulatory authorities as a con-
dition for obtaining marketing approval in a major market
“Other revenue” includes income from profit-sharing are capitalized and recognized as currently marketed
arrangements with our collaboration partners, and roy- products.
alty and milestone income from the out-licensing of intel- Inventory produced ahead of regulatory approval is
lectual property when Novartis retains an interest in the fully provisioned, and the charge is included in “Other
intellectual property through a license. Royalty income expense” in the consolidated income statement, as its
earned from a license is recognized when the underly- ultimate use ­cannot be assured. If this inventory can sub-
ing sales have occurred. Milestone income is recognized sequently be sold, the provision is released to “Other
at the point in time when it is highly probable that the rel- income” in the consolidated income statement, either on
evant milestone event criteria are met, and the risk of approval by the appropriate regulatory authority or,
reversal of revenue recognition is remote. “Other reve- exceptionally in Europe, on recommendation by the
nue” also includes revenue from activities such as man- Committee for Medicinal Products for Human Use
ufacturing or other services rendered, to the extent such (CHMP), if approval is virtually certain.
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. Share-based compensation
Vested Novartis shares and American Depositary
Research and development Receipts (ADRs) that are granted as compensation are
valued at their market value on the grant date and are
Internal research and development (R&D) costs are fully immediately expensed in the consolidated income state-
charged to “Research and development” in the consol- ment.
idated income statement in the period in which they are The fair values of unvested restricted shares (RSs),
incurred. The Group considers that regulatory and other restricted share units (RSUs) and performance share
uncertainties inherent in the development of new prod- units (PSUs) in Novartis shares and ADRs granted to
ucts preclude the capitalization of internal development employees as compensation are recognized as an
expenses as an intangible asset until marketing approval expense over the related vesting period. The expense
from a regulatory authority is obtained in a major market recorded in the consolidated income statement is
such as the United States, the European Union, Switzer- included in the personnel expenses of the various func-
land or Japan. tions in which the employees are employed.
Payments made to third parties, such as contract Unvested restricted shares, restricted ADRs and
research and development organizations in compensa- RSUs are only conditional on the provision of services
tion for subcontracted R&D, that are deemed not to by the plan participant during the vesting period. They
transfer intellectual property to Novartis are expensed are valued at fair value on the grant date. As RSUs do
as internal R&D expenses in the period in which they are not entitle the holder to dividends, the fair value is based
incurred. Such payments are only capitalized if they meet on the Novartis share price at the grant date adjusted
the criteria for recognition of an internally generated for the net present value of the dividends expected to
intangible asset, usually when marketing approval has be paid during the holding period. The fair value of these
been received from a regulatory authority in a major mar- grants, after making adjustments for assumptions related
ket. to forfeiture during the vesting period, is expensed on a
Payments made to third parties to in-license or straight-line basis over the respective vesting period.
acquire intellectual property rights, compounds and PSUs are subject to the achievement of certain per-
products, including initial upfront and subsequent mile- formance criteria during the vesting period and require
stone payments, are capitalized, as are payments for plan participants to provide services during this period.
other assets, such as technologies to be used in R&D The following paragraphs provide an overview of the
activities. If additional payments are made to the origi- accounting policies for the share-based compensation
nator company to continue performing R&D activities, an plan that grant PSUs.
evaluation is made as to the nature of the payments. Such For PSUs that are subject to performance criteria
additional payments will be expensed if they are deemed based on Novartis internal performance metrics and that
to be compensation for subcontracted R&D services not are conditional on the provision of service by plan par-
resulting in an additional transfer of intellectual property ticipants during the vesting period, the expense is rec-
rights to Novartis. Such additional payments will be cap- ognized on a straight-line basis over the vesting period,
italized if they are deemed to be compensation for the and is determined based on assumptions concerning the
transfer to Novartis of additional intellectual property expected performance against the internal performance
developed at the risk of the originator company. Subse- metrics throughout the vesting period. The assumptions
quent internal R&D costs in relation to IPR&D and other are based on the Group’s targets for those performance
assets are expensed, since the technical feasibility of metrics, and the expected forfeitures due to plan partic-
the internal R&D activity can only be demonstrated by ipants not meeting their service conditions. The


F-12
 Notes to the Novartis Group consolidated financial statements

assumptions are periodically adjusted over the vesting statement over the period necessary to match them
period. Any change in estimates for past services is against the related costs that they are intended to com-
recorded immediately as an expense or income in the pensate.
consolidated income statement, and amounts for the The accounting policy for property, plant and equip-
remaining vesting period are expensed on a straight-line ment describes the treatment of any related grants.
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- Restructuring charges
ments that finally vest is determined at the vesting date.
For PSUs that are subject to performance criteria Restructuring provisions are recognized for the direct
based on variables that can be observed in the market, expenditure arising from the restructuring, where the
which for Novartis plans is the Novartis total shareholder plans are sufficiently detailed and where appropriate
return (TSR) relative to a specific peer group of compa- communication to those affected has been made.
nies over the vesting period, and that are conditional on Charges to increase restructuring provisions are
the provision of services by the plan participants during included in “Other expense” in the consolidated income
the vesting period, the expense is recognized on a statements.
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 Healthcare contributions
can be observed in the market are taken into account in
determining the fair value of the PSUs at the grant date. Healthcare cost contribution levies and fees under gov-
Novartis determined the fair value of these PSUs at the ernmental programs that require the Group to contrib-
date of grant using a Monte Carlo simulation model. ute to a country’s healthcare costs, other than programs
Adjustments to the number of equity instruments granted described in “Revenue recognition” in this Note 1, are
are only made if a plan participant does not fulfill the ser- recognized in “Other expense” in the consolidated
vice conditions. income statement. Provisions for healthcare cost con-
For PSUs granted under plans that are subject to both tributions are adjusted to the actual amounts levied. The
performance criteria based on Novartis internal perfor- provision represents estimates of the related obligations,
mance metrics and Novartis TSR relative to a specific requiring the use of judgment when estimating the effect
peer group of companies over the vesting period and of these healthcare cost contributions.
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 Income taxes
period, and is determined based on a bifurcation into the
components based on the performance criteria related Income taxes comprise current income taxes and
to Novartis internal performance metrics and TSR, as deferred income taxes and are recognized in the same
described in the paragraphs above. periods as the revenues and expenses to which they
Measuring the fair values of PSUs granted that relate. Income taxes include interest and penalties
include TSR performance criteria requires use of esti- incurred during the period, insofar as they are consid-
mates. The Monte Carlo simulation used to determine ered an income tax. Income taxes related to items rec-
the fair value of the PSUs TSR performance criteria ognized directly to other comprehensive income or to
requires the probability of factors related to uncertain equity are recognized together with the corresponding
future events; the term of the award; the grant price of item, to which the income tax is attributable, directly in
underlying shares or ADRs; expected volatilities; the other comprehensive income or in equity.
expected correlation matrix of the underlying equity Deferred income taxes are determined using the
instruments with those of the peer group of companies; comprehensive liability method and are calculated on
and the risk-free interest rate as input parameters. the temporary differences that arise between the tax
If a plan participant leaves Novartis for reasons other base of an asset or liability and its carrying value for
than retirement, disability or death, then unvested financial reporting purposes, except for those temporary
restricted shares, restricted ADRs, RSUs and PSUs are differences related to investments in subsidiaries and
forfeited, unless determined otherwise by the provision associated companies, where the timing of their rever-
of the plan rules or by the Compensation Committee of sal can be controlled and it is probable that the differ-
the Novartis Board of Directors, for example, in connec- ence will not reverse in the foreseeable future. Since the
tion with a reorganization or divestment. 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
Government grants or has been planned. Furthermore, deferred income
taxes are recognized for the net tax effects of net oper-
Grants from governments or similar organizations are ating loss carryforwards and tax credits.
recognized at their fair value when there is reasonable The carrying amount of deferred tax assets is
assurance that the grant will be received and the Group reduced to the extent that it is not probable that suffi-
will comply with all attached conditions. cient taxable profits will be available to enable all or part
Government grants received to compensate costs of the asset to be recovered. In evaluating our ability to
are deferred and recognized in the consolidated income recover our deferred tax assets in the jurisdiction from


F-13
 Notes to the Novartis Group consolidated financial statements

which they arise, we consider all available positive and Interest Rate Benchmark Reform – Phase 2,
negative evidence, including scheduled reversals of Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and
deferred tax liabilities, projected future taxable income, IFRS 16 (Interest Benchmark Reform Amendments)
tax-planning strategies, and results of recent operations. Interest Benchmark Reform Amendments became effec-
The estimated amounts for current and deferred tax tive from January 1, 2021. These amendments address
assets or liabilities, including amounts related to any issues that might affect financial reporting when an exist-
uncertain tax positions, are based on applicable tax law ing interest rate benchmark (i.e. Interbank offered rate –
and regulations in the various tax jurisdictions, in which IBOR) is replaced with an alternative benchmark inter-
the Group operates, which are subject to interpretations est rate. The effects of interest rate benchmark reform
based on currently known facts and circumstances. on the Group’s financial instruments and risk manage-
Tax returns are based on an interpretation of tax laws ment strategies did not have a material impact on the
and regulations, and reflect estimates based on these Group’s consolidated financial statements.
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- Impact of adopting significant new
ing payments of additional tax, interest or penalties. IFRS standard in 2020
The calculation of income tax assets and liabilities
involves dealing with uncertainties in the application of The following new IFRS standard has been adopted by
complex tax laws and regulations in a multitude of juris- Novartis from January 1, 2020:
dictions across our global operations. As a result, inher-
ent uncertainties exist in the estimates of the tax posi- IFRS 3 Business Combinations amendments
tions. Tax liabilities for uncertain tax provisions are The IASB issued amendments to IFRS 3 Business Com-
recognized on the consolidated balance sheets within binations that revised the definition of a business, which
current income tax liabilities. 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-
Impact of new IFRS standards, actions entered into on or after January 1, 2020. The
amendments and interpretations in amended standard allows an entity to apply an optional
concentration test, on a transaction-by-transaction
2022 basis, to evaluate whether substantially all of the fair
There were no new IFRS standards adopted by the value of the gross assets acquired is concentrated in a
Group in 2022. In addition, new IFRS amendments or single identifiable asset or group of similar identifiable
interpretations that became effective in 2022 did not assets. If this optional concentration test is met, the set
have a material impact to the Group’s consolidated finan- of activities and assets is determined not to be a busi-
cial statements. ness. The adoption of this amended standard on Janu-
Based on the Group’s assessment, there are no IFRS ary 1, 2020, did not have a significant impact on our con-
standards, amendments or interpretations not yet effec- solidated financial statements and is not expected to
tive in 2022 that would be expected to have a material have a significant impact in future periods. However, this
impact on the Group’s consolidated financial statements. 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
Impact of adopting significant new an acquired set of activities and assets is or is not a busi-
IFRS standard in 2021 ness.

The following new IFRS standard has been adopted by

Novartis from January 1, 2021:


F-14
 Notes to the Novartis Group consolidated financial statements

2. Significant transactions
The Group applied the acquisition method of account- The fair value of the total purchase consideration was
ing for businesses acquired, and did not elect to apply USD 415 million. The amount consisted of a payment of
the optional concentration test to account for acquired USD 351 million, including purchase price adjustments,
business as an asset separately acquired. 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-
Significant transactions in 2022 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
Innovative Medicines – acquisition of Gyroscope to USD 107 million.
Therapeutics Holdings plc The 2021 results of operations since the date of
On December 22, 2021, Novartis entered into an agree- acquisition were not material.
ment to acquire all outstanding shares of Gyroscope
Therapeutics Holdings plc (Gyroscope), a UK-based Corporate – divestment of the investment in Roche
ocular gene therapy company. Gyroscope focuses on Holding AG
the discovery and development of gene therapy treat- On November 3, 2021, Novartis entered into a Share
ments for retinal indications. The purchase price con- Repurchase Agreement with Roche Holding AG under
sisted of a cash payment of USD 0.8 billion, subject to which Novartis agreed to sell 53.3 million (approximately
certain customary purchase price adjustments, and 33.3%) bearer shares of Roche Holding AG voting shares
potential additional milestone payments of up to USD 0.7 in a bilateral transaction to Roche Holding AG for a total
billion, which Gyroscope shareholders are eligible to consideration of USD 20.7 billion. As a result, Novartis
receive upon achievement of specified milestones. The discontinued the use of equity method accounting start-
acquisition closed on February 17, 2022. ing from November 3, 2021.
The fair value of the total purchase consideration was The transaction closed on December 6, 2021.
USD 1.0 billion. The amount consisted of an upfront cash Novartis realized a gain of USD 14.6 billion, recorded in
payment of USD 0.8 billion (including customary pur- income from associated companies.
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- Significant transactions in 2020
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 Innovative Medicines – acquisition of
deferred tax liabilities of USD 0.2 billion. Goodwill The Medicines Company
amounted to USD 0.1 billion. On November 23, 2019, Novartis entered into an agree-
The results of operations since the date of acquisi- ment and plan of merger (“the Merger Agreement”) with
tion are not material. The Medicines Company, a US-based pharmaceutical
company headquartered in Parsippany, New Jersey,
USA. Pursuant to the Merger Agreement, on December
Significant transactions in 2021 5, 2019, Novartis, through a subsidiary, commenced a
tender offer to acquire all outstanding shares of The
Medicines Company for USD 85 per share, or a total con-
Sandoz – acquisition of GSK’s cephalosporin sideration of approximately USD 9.6 billion in cash on a
antibiotics business fully diluted basis, including the equivalent share value
On February 10, 2021, Sandoz entered into an agreement related to The Medicines Company’s convertible notes,
with certain subsidiaries of GlaxoSmithKline plc (GSK) in accordance with their terms. The tender offer expired
for the acquisition of the GSK’s cephalosporin antibiot- on January 3, 2020, and on January 6, 2020, the acquir-
ics business. ing subsidiary merged with and into The Medicines Com-
Under the agreement, Sandoz acquired the global pany, resulting in The Medicines Company becoming an
rights to three established brands (Zinnat®, Zinacef® and indirect wholly owned subsidiary of Novartis. Novartis
Fortum®) in more than 100 markets. It excluded the rights financed the transaction through available cash, and
in the US, Australia and Germany to certain of those short- and long-term borrowings.
brands, which were previously divested by GSK, and the The Medicines Company is focused on the develop-
rights in India, Pakistan, Egypt, Japan (to certain of the ment of inclisiran, a potentially first-in-class, twice yearly
brands) and China, which will be retained by GSK. The therapy that allows administration during patients’ rou-
transaction closed on October 8, 2021. tine visits to their healthcare professionals and will poten-
The purchase price consisted of a USD 350 million tially contribute to improved patient adherence and sus-
upfront payment paid at closing and potential milestone tained lower LDL-C levels.
payments up to USD 150 million, which GSK will be eli- The fair value of the total purchase consideration was
gible to receive upon the achievement of certain annual USD 9.6 billion. The purchase price allocation resulted
sales milestones for the portfolio. in net identifiable assets of approximately USD 7.1 billion,
consisting of USD 8.5 billion intangible assets, USD 1.4


F-15
 Notes to the Novartis Group consolidated financial statements

billion net deferred tax liabilities and goodwill of approx- Sandoz – retention of US dermatology business
imately USD 2.5 billion. and generic US oral solids portfolio, previously
The 2020 results of operations since the date of planned to be divested
acquisition were not material. On September 6, 2018, Novartis announced that it
entered into a stock and asset purchase agreement
Sandoz – acquisition of the Japanese business of (SAPA) with Aurobindo Pharma USA Inc. (Aurobindo) for
Aspen Global Incorporated the sale of selected portions of its Sandoz US portfolio,
On November 11, 2019, Sandoz entered into an agree- specifically the Sandoz US dermatology business and
ment for the acquisition of the Japanese business of generic US oral solids portfolio, for USD 0.8 billion in
Aspen Global Incorporated (AGI), a wholly owned sub- cash and potential earnouts. The closing was conditional
sidiary of Aspen Pharmacare Holdings Limited. Under on obtaining regulatory approval.
the agreement, Sandoz acquired the shares in Aspen In March 2020, Novartis took the decision to retain
Japan K.K. and associated assets held by AGI. The trans- the Sandoz US generic oral solids and dermatology busi-
action closed on January 31, 2020. nesses and on April 2, 2020 entered into a mutual agree-
Aspen’s portfolio in Japan consisted of off-patent ment with Aurobindo to terminate the transaction. The
medicines with a focus on anesthetics and specialty decision was taken as approval from the US Federal
brands. The acquisition will enable Sandoz to expand its Trade Commission for the transaction was not obtained
presence in the third-largest worldwide generics mar- within the agreed timelines.
ketplace. The cumulative amount of the depreciation on prop-
The purchase price consisted of EUR 274 million erty, plant and equipment (USD 38 million) and amorti-
(USD 303 million) upfront payment, less customary pur- zation on intangible assets (USD 102 million) not recorded
chase price adjustment of EUR 27 million (USD 30 mil- in the consolidated income statement since the date of
lion), plus potential milestone payments of up to EUR 70 classification as held for sale was recognized in the con-
million (USD 77 million), which AGI is eligible to receive solidated income statement in the first quarter of 2020.
upon the achievement of specified milestones. In addition, an impairment of currently marketed prod-
The fair value of the total purchase consideration was ucts of USD 42 million was recognized in the first quar-
EUR 294 million (USD 324 million). The amount consisted ter of 2020 consolidated income statement.
of a cash payment of EUR 247 million (USD 273 million) As at March 31, 2020, the assets and liabilities of the
and the fair value of contingent consideration of EUR 47 Sandoz US generic oral solids and dermatology busi-
million (USD 51 million), which AGI is eligible to receive nesses were reclassified out of assets and liabilities of
upon the achievement of specified milestones. The pur- disposal group held for sale. The prior year balance sheet
chase price allocation resulted in net identifiable assets was not required to be restated.
of USD 238 million, consisting of USD 196 million intan- There were no cumulative income or expenses
gible assets, USD 26 million other net assets and USD included in the other comprehensive income relating to
16 million net deferred tax assets. Goodwill amounted to the disposal group.
USD 86 million.
The 2020 results of operations since the date of
acquisition were not material.


F-16
 Notes to the Novartis Group consolidated financial statements

3. Segmentation of key figures 2022, 2021 and 2020

The businesses of Novartis are divided operationally on corporate coordination functions in major countries. In
a worldwide basis into two identified reporting segments: addition, Corporate includes other items of income and
Innovative Medicines and Sandoz. In addition, we sepa- expense that are not attributable to specific segments,
rately report Corporate activities. such as certain revenues from intellectual property
Reporting segments are presented in a manner con- rights, certain expenses related to post-employment
sistent with the internal reporting to the chief operating benefits, environmental remediation liabilities, charitable
decision-maker, which is the Executive Committee of activities, donations and sponsorships. Usually, no allo-
Novartis. The reporting segments are ­managed sepa- cation of Corporate items is made to the segments. As
rately because they each research, develop, manufac- a result, Corporate assets and liabilities principally con-
ture, distribute and sell distinct products that require dif- sist of net debt (cash and cash equivalents, marketable
fering marketing strategies. securities less financial debts), investments in associ-
The Executive Committee of Novartis is responsible ated companies, and current and deferred taxes and
for allocating resources and assessing the performance non-segment-specific environmental remediation and
of the reporting segments. post-employment benefit liabilities.
The reporting segments are as follows: Our divisions are supported by Novartis Institutes for
Innovative Medicines researches, develops, manu- BioMedical Research, Global Drug Development, and the
factures, distributes and sells patented pharmaceuticals. Operations unit.
Effective as of April 4, 2022, the Innovative Medicines • The Novartis Institutes for BioMedical Research (NIBR)
Division is organized in two commercial organizational conducts research activities for the Innovative
units: Innovative Medicines International and Innovative ­Medicines Division and also collaborates with Sandoz.
Medicines US, and is focused on the core therapeutic • The Global Drug Development organization oversees
areas: cardiovascular; immunology; neuroscience; solid all drug development activities for our Innovative
tumors and hematology; as well as other promoted Medicines Division and collaborates with our Sandoz
brands (in the therapeutic areas of ophthalmology and Division on the development of its biosimilars portfo-
respiratory) and established brands. Prior to the lio.
announcement on April 4, 2022, the Innovative Medicines • The Operations unit, combines the Novartis Technical
Division was organized into two global business units: Operations (NTO) and Customer & Technology Solu-
Novartis Oncology and Novartis Pharmaceuticals. tions (CTS), following the internal reorganization
Sandoz develops, manufactures and markets finished announced on April 4, 2022. The Operations unit man-
dosage form medicines as well as intermediary products ages our manufacturing operations across our
including active pharmaceutical ingredients. Sandoz is Innovative ­Medicines and Sandoz Divisions, and deliv-
organized globally into three franchises: Retail Generics, ers business support services across the Group, such
Anti-Infectives and Biopharmaceuticals. In Retail Gener- as information technology, real estate and facility ser-
ics, Sandoz develops, manufactures and markets fin- vices and procurement.
ished dosage forms of small molecule pharmaceuticals The accounting policies mentioned in Note 1 are used in
for sale to third parties across a broad range of thera- the reporting of segment results. Inter-segmental sales
peutic areas, including finished dosage form of anti-in- are made at amounts that are considered to approximate
fectives sold to third parties. In Anti-Infectives, Sandoz arm’s length transactions. The Executive Committee of
manufactures and supplies active pharmaceutical ingre- Novartis evaluates segmental performance and allo-
dients and intermediates, mainly antibiotics, for internal cates resources among the segments based on a num-
use by Retail Generics and for sale to third-party cus- ber of measures, including net sales to third parties,
tomers. In Biopharmaceuticals, Sandoz develops, man- operating income and net operating assets. Segment net
ufactures and markets protein- or other biotechnolo- operating assets consist primarily of property, plant and
gy-based products, including biosimilars, and provides equipment; right-of-use assets; intangible assets; good-
biotechnology manufacturing services to other compa- will; inventories; and trade and other operating receiv-
nies. ables less operating liabilities.
Income and expenses relating to Corporate include
the costs of the Group headquarters and those of


F-17
 Notes to the Novartis Group consolidated financial statements

Segmentation – consolidated income statements

Innovative Medicines Sandoz Corporate Group
(including eliminations)1

(USD millions) 2022 2021 2022 2021 2022 2021 2022 2021

Net sales to third parties 41 296 41 995 9 249 9 631 50 545 51 626
Sales to other segments 825 795 205 180 – 1 030 – 975
Net sales 42 121 42 790 9 454 9 811 – 1 030 – 975 50 545 51 626
Other revenues 1 249 1 179 28 61 6 11 1 283 1 251
Cost of goods sold – 11 569 – 11 751 – 4 978 – 5 147 1 061 1 031 – 15 486 – 15 867
Gross profit 31 801 32 218 4 504 4 725 37 67 36 342 37 010
Selling, general and administration – 11 679 – 12 306 – 2 062 – 2 062 – 512 – 518 – 14 253 – 14 886
Research and development – 9 172 – 8 641 – 824 – 899 – 9 996 – 9 540
Other income 531 1 149 103 233 171 470 805 1 852
Other expense – 2 695 – 1 732 – 273 – 397 – 733 – 618 – 3 701 – 2 747
Operating income 8 786 10 688 1 448 1 600 – 1 037 – 599 9 197 11 689
(Loss)/income from associated companies –2 5 2 2 –9 15 332 –9 15 339
Interest expense – 837 – 811
Other financial income and expense 20 – 80
Income before taxes 8 371 26 137
Income taxes – 1 416 – 2 119
Net income 6 955 24 018
Attributable to:
Shareholders of Novartis AG 6 955 24 021
Non-controlling interests 0 –3

Included in net income are:

Interest income 379 71
Depreciation of property, plant and equipment – 837 – 859 – 204 – 210 – 122 – 139 – 1 163 – 1 208
Depreciation of right-of-use assets – 252 – 265 – 33 – 39 – 15 – 14 – 300 – 318
Amortization of intangible assets – 3 728 – 3 638 – 222 – 238 – 32 – 27 – 3 982 – 3 903
Impairment charges on property, plant and equipment, net – 407 – 271 –9 –1 – 407 – 281
Impairment of right-of-use assets –3 –3
Impairment charges on intangible assets, net – 1 299 – 367 – 25 – 28 –2 –8 – 1 326 – 403
Impairment charges and fair value
changes on financial assets, net – 134 43 – 126 –5 – 260 38
Additions to restructuring provisions – 1 069 – 240 – 40 – 62 – 259 – 26 – 1 368 – 328
Equity-based compensation of Novartis equity plans – 706 – 721 – 62 – 65 – 280 – 193 – 1 048 – 979

1
Eliminations mainly relate to the elimination of sales to other segments and the corresponding cost of goods sold.


F-18
 Notes to the Novartis Group consolidated financial statements

Innovative Medicines Sandoz Corporate Group

(including eliminations)1

(USD millions) 2021 2020 2021 2020 2021 2020 2021 2020

Net sales to third parties 41 995 39 013 9 631 9 646 51 626 48 659
Sales to other segments 795 792 180 189 – 975 – 981
Net sales 42 790 39 805 9 811 9 835 – 975 – 981 51 626 48 659
Other revenues 1 179 1 018 61 53 11 168 1 251 1 239
Cost of goods sold – 11 751 – 10 927 – 5 147 – 5 252 1 031 1 058 – 15 867 – 15 121
Gross profit 32 218 29 896 4 725 4 636 67 245 37 010 34 777
Selling, general and administration – 12 306 – 11 657 – 2 062 – 2 076 – 518 – 464 – 14 886 – 14 197
Research and development – 8 641 – 8 118 – 899 – 862 – 9 540 – 8 980
Other income 1 149 922 233 176 470 644 1 852 1 742
Other expense – 1 732 – 1 871 – 397 – 831 – 618 – 488 – 2 747 – 3 190
Operating income 10 688 9 172 1 600 1 043 – 599 – 63 11 689 10 152
Income from associated companies 5 1 2 2 15 332 670 15 339 673
Interest expense – 811 – 869
Other financial income and expense – 80 – 78
Income before taxes 26 137 9 878
Income taxes – 2 119 – 1 807
Net income 24 018 8 071
Attributable to:
Shareholders of Novartis AG 24 021 8 072
Non-controlling interests –3 –1

Included in net income are:

Interest income 71 91
Depreciation of property, plant and equipment – 859 – 912 – 210 – 282 – 139 – 124 – 1 208 – 1 318
Depreciation of right-of-use assets – 265 – 273 – 39 – 41 – 14 – 16 – 318 – 330
Amortization of intangible assets – 3 638 – 3 080 – 238 – 370 – 27 – 12 – 3 903 – 3 462
Impairment charges on property, plant and equipment, net – 271 – 324 –9 – 116 –1 – 281 – 440
Impairment charges on intangible assets, net – 367 – 768 – 28 – 141 –8 –5 – 403 – 914
Impairment charges and fair value
changes on financial assets, net 43 153 –5 182 38 335
Additions to restructuring provisions – 240 – 217 – 62 – 98 – 26 – 39 – 328 – 354
Equity-based compensation of Novartis equity plans – 721 – 714 – 65 – 64 – 193 – 180 – 979 – 958

1
Eliminations mainly relate to the elimination of sales to other segments and the corresponding cost of goods sold.


F-19
 Notes to the Novartis Group consolidated financial statements

Segmentation – consolidated balance sheets

Innovative Medicines Sandoz Corporate Group
(including eliminations)1

(USD millions) 2022 2021 2022 2021 2022 2021 2022 2021

Total assets 75 510 79 220 16 078 16 192 25 865 36 383 117 453 131 795
Total liabilities – 16 966 – 15 929 – 3 710 – 3 632 – 37 354 – 44 412 – 58 030 – 63 973
Total equity 59 423 67 822
Net debt 2 7 245 868 7 245 868
Net operating assets 58 544 63 291 12 368 12 560 – 4 244 – 7 161 66 668 68 690

Included in assets and liabilities are:

Total property, plant and equipment 8 488 9 168 1 861 1 901 415 476 10 764 11 545
Additions to property, plant
and equipment 3 842 991 292 349 85 90 1 219 1 430
Total right-of-use assets 1 233 1 349 90 104 108 108 1 431 1 561
Additions to right-of-use assets 3 196 222 31 26 20 73 247 321
Total goodwill and intangible assets 51 357 53 919 9 230 9 603 358 255 60 945 63 777
Additions to goodwill and
intangible assets 3 1 791 1 491 163 102 139 143 2 093 1 736
Total investment in associated
companies 107 170 9 7 27 28 143 205
Additions to investment in associated
companies 25 24 13 19 38 43
Cash and cash equivalents, marketable securities,
commodities, time deposits and derivative
financial instruments 18 930 28 329 18 930 28 329
Financial debts and derivative
financial instruments 26 175 29 197 26 175 29 197
Current income tax liabilities and deferred tax liabilities 5 219 5 485 5 219 5 485

1
Eliminations mainly relate to the elimination of intercompany receivables and payables to other segments and inventories
2
Note 29 provides additional disclosures related to net debt
3
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 parties1 Total of selected non-current assets2

(USD millions) 2022 % 2021 % 2020 % 2022 % 2021 %

Country
Switzerland 970 2 873 2 800 2 23 708 32 25 770 33
United States 17 653 35 16 818 33 16 484 34 35 353 48 37 054 48
France 2 257 4 2 522 5 2 442 5 3 188 4 3 615 5
Germany 4 278 8 4 870 9 4 518 9 2 229 3 2 378 3
China 3 128 6 3 052 6 2 573 5 599 1 703 1
Japan 2 205 4 2 683 5 2 804 6 165 217
Other 20 054 41 20 808 40 19 038 39 8 241 12 7 351 10
Group 50 545 100 51 626 100 48 659 100 73 483 100 77 088 100

Region
Europe 18 467 37 20 197 39 18 715 38 35 896 49 37 525 49
Americas 21 536 42 20 463 40 19 725 41 35 806 49 37 522 49
Asia/Africa/Australasia 10 542 21 10 966 21 10 219 21 1 781 2 2 041 2
Group 50 545 100 51 626 100 48 659 100 73 483 100 77 088 100

1
Net sales to third parties by location of customer
2
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


F-20
 Notes to the Novartis Group consolidated financial statements

The Group’s largest, second-largest and third-largest cus- The highest amounts of trade receivables outstanding
tomers account for approximately 16%, 11% and 7% of net were for these same three customers and amounted to
sales to third parties, respectively (2021: 17%, 11% and 6%, approximately 16%, 14% and 7%, respectively, of the trade
respectively; 2020: 17%, 11% and 6%, respectively). All seg- receivables at December 31, 2022 (2021: 16%, 12% and
ments had sales to these customers in 2022, 2021 and 7%, respectively).
2020.

Segmentation – net sales to third parties

Net sales to third parties by region1

Change Change
(2021 (2020
2022 2021 to 2022) 2020 to 2021)
USD m USD m USD % USD m USD %

Innovative Medicines
Europe 13 554 14 919 –9 13 484 11
US 15 899 14 999 6 14 342 5
Asia/Africa/Australasia 8 929 9 304 –4 8 718 7
Canada and Latin America 2 914 2 773 5 2 469 12
Total 41 296 41 995 –2 39 013 8
Of which in Established Markets 30 548 31 459 –3 29 643 6
Of which in Emerging Growth Markets 10 748 10 536 2 9 370 12

Sandoz
Europe 4 913 5 278 –7 5 231 1
US 1 754 1 819 –4 2 142 – 15
Asia/Africa/Australasia 1 613 1 662 –3 1 501 11
Canada and Latin America 969 872 11 772 13
Total 9 249 9 631 –4 9 646 0
Of which in Established Markets 6 460 6 855 –6 7 089 –3
Of which in Emerging Growth Markets 2 789 2 776 0 2 557 9

Group
Europe 18 467 20 197 –9 18 715 8
US 17 653 16 818 5 16 484 2
Asia/Africa/Australasia 10 542 10 966 –4 10 219 7
Canada and Latin America 3 883 3 645 7 3 241 12
Total 50 545 51 626 –2 48 659 6
Of which in Established Markets 37 008 38 314 –3 36 732 4
Of which in Emerging Growth Markets 13 537 13 312 2 11 927 12

1
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.


F-21
 Notes to the Novartis Group consolidated financial statements

Innovative Medicines Division net sales to third parties by core therapeutic area; other
promoted brands; and established brands

Change Change Change Change

(2021 to (2020 to (2021 to (2020 to
2022 2021 2022) 2020 2021) 2022 2021 2022) 2020 2021)
USD m USD m 1 USD % USD m 1 USD % USD m USD m 1 USD % USD m 1 USD %

Cardiovascular Other Promoted Brands

Entresto 4 644 3 548 31 2 497 42 Lucentis 1 874 2 160 – 13 1 933 12
Leqvio 112 12 nm nm Xiidra 487 468 4 376 24
Total Cardiovascular 4 756 3 560 34 2 497 43 Ultibro Group 479 584 – 18 623 –6
Beovu 203 186 9 190 –2
Immunology Other respiratory 84 53 58 26 104
Cosentyx 4 788 4 718 1 3 995 18 Total Other Promoted
Brands 3 127 3 451 –9 3 148 10
Xolair 2 1 365 1 428 –4 1 251 14
Ilaris 1 133 1 059 7 873 21
Total Promoted
Other 1 nm nm
Brands 31 396 29 754 6 25 319 18
Total Immunology 7 287 7 205 1 6 119 18

Established Brands
Neuroscience
Sandostatin 1 238 1 413 – 12 1 439 –2
Gilenya 2 013 2 787 – 28 3 003 –7
Galvus Group 859 1 092 – 21 1 199 –9
Zolgensma 1 370 1 351 1 920 47
Gleevec/Glivec 745 1 024 – 27 1 188 – 14
Kesimpta 1 092 372 194 15 nm
Exforge Group 743 901 – 18 980 –8
Mayzent 357 281 27 170 65
Diovan Group 652 773 – 16 1 003 – 23
Aimovig 218 215 1 164 31
Afinitor/Votubia 512 938 – 45 1 083 – 13
Other 1 1 0 nm
Voltaren/Cataflam 334 373 – 10 360 4
Total Neuroscience 5 051 5 007 1 4 272 17
Zortress/Certican 329 431 – 24 452 –5
Exjade/Jadenu 323 563 – 43 653 – 14
Solid Tumors Neoral/Sandimmun(e) 310 368 – 16 393 –6
Tafinlar + Mekinist 1 770 1 693 5 1 542 10 Contract manufacturing 214 108 98 nm
Kisqali 1 231 937 31 687 36 Other 3 641 4 257 – 14 4 944 – 14
Votrient 474 577 – 18 635 –9 Total Established
Brands 9 900 12 241 – 19 13 694 – 11
Lutathera 471 475 –1 445 7
Piqray 373 329 13 320 3
Total division net
Pluvicto 271 nm 2 nm sales to third parties 41 296 41 995 –2 39 013 8
Tabrecta 133 90 48 35 157
1
Reclassified to reflect the new Innovative Medicines divisional structures announced
Total Solid Tumors 4 723 4 101 15 3 666 12 on April 4, 2022
2
Net sales to third parties reflect Xolair sales for all indications.

Hematology
Promacta/Revolade 2 088 2 016 4 1 738 16
Tasigna 1 923 2 060 –7 1 958 5
Jakavi 1 561 1 595 –2 1 339 19
Kymriah 536 587 –9 474 24
Adakveo 194 164 18 105 56
Scemblix 149 7 nm nm
Other 1 1 0 3 – 67
Total Hematology 6 452 6 430 0 5 617 14


F-22
 Notes to the Novartis Group consolidated financial statements

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 Total
Brands established brands Key indications USD m USD m USD m

Cosentyx Immunology Psoriasis (PsO), 2 770 2 018 4 788

ankylosing spondylitis
(AS), psoriatic arthritis
(PsA), non-radiographic
axial spondyloarthritis
(nr-axSPA)
Entresto Cardiovascular Chronic heart failure, 2 354 2 290 4 644
hypertension
Promacta/Revolade Hematology Immune 1 083 1 005 2 088
thrombocytopenia (ITP),
severe aplastic anemia (SAA)
Gilenya Neuroscience Relapsing multiple sclerosis 1 153 860 2 013
(RMS)
Tasigna Hematology Chronic myeloid leukemia 877 1 046 1 923
(CML)
Other Promoted
Lucentis Age-related 1 874 1 874
Brands macular degeneration (AMD),
diabetic macular edema (DME),
retinal vein occlusion (RVO)
Tafinlar + Mekinist Solid Tumors BRAF V600+ metastatic 678 1 092 1 770
adjuvant melanoma,
advanced non-small cell
lung cancer (NSCLC),
tumor agnostic with
BRAF mutation indication
Jakavi Hematology Myelofibrosis (MF), 1 561 1 561
polycytomia vera (PV),
graft-versus-host disease
(GvHD)
Zolgensma Neuroscience Spinal muscular atrophy 434 936 1 370
(SMA)
Xolair 1 Immunology Severe allergic asthma (SAA), 1 365 1 365
chronic spontaneous urticaria
(CSU), nasal polyps
Sandostatin Established Brands Carcinoid tumors, 800 438 1 238
acromegaly
Kisqali Solid Tumors HR+/HER2- 472 759 1 231
metastatic breast cancer
Ilaris Immunology Auto-inflammatory (CAPS, 570 563 1 133
TRAPS, HIDS/MKD, FMF,
SJIA, AOSD, gout)
Kesimpta Neuroscience Relapsing-remitting 921 171 1 092
multiple sclerosis (RRMS)
Galvus Group Established Brands Type 2 diabetes 859 859
Gleevec/Glivec Established Brands Chronic myeloid 205 540 745
leukemia (CML),
gastrointestinal stromal
tumors (GIST)
Exforge Group Established Brands Hypertension 14 729 743
Diovan Group Established Brands Hypertension 55 597 652
Kymriah Hematology r/r pediatric and young 196 340 536
adults acute lymphoblastic
leukemia (ALL), diffuse large
B-cell lymphoma (DLBCL),
follicular lymphoma (FL)
Afinitor/Votubia Established Brands Breast cancer/ 171 341 512
tuberous sclerosis complex
(TSC)
Top 20 brands total 12 753 19 384 32 137
Rest of portfolio 3 146 6 013 9 159
Total division net
sales to third parties 15 899 25 397 41 296

1
Net sales to third parties reflect Xolair sales for all indications.


F-23
 Notes to the Novartis Group consolidated financial statements

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 Total
Brands established brands 1 Key indications USD m USD m USD m

Cosentyx Immunology Psoriasis (PsO), ankylosing 2 883 1 835 4 718

spondylitis (AS),
psoriatic arthritis (PsA),
non-radiographic axial
spondyloarthritis (nr-axSPA)
Entresto Cardiovascular Chronic heart failure 1 712 1 836 3 548
Gilenya Neuroscience Relapsing multiple sclerosis (RMS) 1 427 1 360 2 787
Lucentis Other Promoted Age-related macular 2 160 2 160
Brands degeneration (AMD)
Tasigna Hematology Chronic myeloid leukemia (CML) 882 1 178 2 060
Promacta/Revolade Hematology Immune thrombocytopenia (ITP), 947 1 069 2 016
severe aplastic anemia (SAA)
Tafinlar + Mekinist Solid Tumors BRAF V600+ metastatic 606 1 087 1 693
adjuvant melanoma,
advanced non-small cell
lung cancer (NSCLC)
Jakavi Hematology Myelofibrosis (MF), 1 595 1 595
polycythemia vera (PV)
Xolair 2 Immunology Severe allergic asthma (SAA), 1 428 1 428
chronic spontaneous urticaria
(CSU), nasal polyps
Sandostatin Established Brands Carcinoid tumors, acromegaly 843 570 1 413
Zolgensma Neuroscience Spinal muscular atrophy (SMA) 469 882 1 351
Galvus Group Established Brands Type 2 diabetes 1 092 1 092
Ilaris Immunology Auto-inflammatory (CAPS, 501 558 1 059
TRAPS, HIDS/MKD, FMF,
SJIA, AOSD, gout)
Gleevec/Glivec Established Brands Chronic myeloid leukemia 263 761 1 024
(CML), gastrointestinal
stromal tumors (GIST)
Afinitor/Votubia Established Brands Breast cancer/ 521 417 938
tuberous sclerosis complex (TSC)
Kisqali Solid Tumors HR+/HER2- 339 598 937
metastatic breast cancer
Exforge Group Established Brands Hypertension 14 887 901
Diovan Group Established Brands Hypertension 51 722 773
Kymriah Hematology r/r pediatric and young 230 357 587
adults acute lymphoblastic
leukemia (ALL), diffuse large
B-cell lymphoma (DLBCL)
Ultibro Group
Other Promoted Cronic obstructive 584 584
Brands pulmonary disease
(COPD)
Top 20 products total 11 688 20 976 32 664
Rest of portfolio 3 311 6 020 9 331
Total division net
sales to third parties 14 999 26 996 41 995

1
Brand classifications have been changed to reflect the new Innovative Medicines divisional structures announced on April 4, 2022.
2
Net sales to third parties reflect Xolair sales for all indications.


F-24
 Notes to the Novartis Group consolidated financial statements

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 Total
Brands established brands 1 Key indications USD m USD m USD m

Cosentyx Immunology Psoriasis (PsO), ankylosing 2 516 1 479 3 995

spondylitis (AS), psoriatic arthritis (PsA)
Gilenya Neuroscience Relapsing multiple sclerosis (RMS) 1 562 1 441 3 003
Entresto Cardiovascular Chronic heart failure 1 277 1 220 2 497
Tasigna Hematology Chronic myeloid leukemia (CML) 859 1 099 1 958
Lucentis Other Promoted Age-related macular 1 933 1 933
Brands degeneration (AMD)
Promacta/Revolade Hematology Immune 833 905 1 738
thrombocytopenia (ITP),
severe aplastic anemia (SAA)
Tafinlar + Mekinist Solid Tumors BRAF V600+ metastatic 569 973 1 542
adjuvant melanoma,
advanced non-small cell
lung cancer (NSCLC)
Sandostatin Established Brands Carcinoid tumors, 837 602 1 439
acromegaly
Jakavi Hematology Myelofibrosis (MF), 1 339 1 339
polycythemia vera (PV)
Xolair 2 Immunology Severe allergic asthma (SAA), 1 251 1 251
chronic spontaneous urticaria
(CSU)
Galvus Group Established Brands Type 2 diabetes 1 199 1 199
Gleevec/Glivec Established Brands Chronic myeloid leukemia (CML), 315 873 1 188
gastrointestinal stromal tumors (GIST)
Afinitor/Votubia Established Brands Breast cancer/ 644 439 1 083
tuberous sclerosis complex (TSC)
Diovan Group Established Brands Hypertension 124 879 1 003
Exforge Group Established Brands Hypertension 16 964 980
Zolgensma Neuroscience Spinal muscular atrophy 459 461 920
(SMA)
Ilaris Immunology Auto-inflammatory (CAPS, 400 473 873
TRAPS, HIDS/MKD, FMF,
SJIA, AOSD gout)
Kisqali Solid Tumors HR+/HER2- 318 369 687
metastatic breast cancer
Exjade/Jadenu Established Brands Chronic iron overload 138 515 653
Votrient Solid Tumors Renal cell carcinoma (RCC) 259 376 635
Top 20 products total 11 126 18 790 29 916
Rest of portfolio 3 216 5 881 9 097
Total division net
sales to third parties 14 342 24 671 39 013

1
Brand classifications have been changed to reflect the new Innovative Medicines divisional structures announced on April 4, 2022.
2
Net sales to third parties reflect Xolair sales for all indications.

Sandoz Division net sales to third parties by business franchise

Change Change
(2021 to (2020 to
2022 2021 2022) 2020 2021)
USD m USD m USD % USD m USD %

Retail Generics 1 6 776 7 092 –4 7 244 –2

Biopharmaceuticals 2 093 2 116 –1 1 928 10
Anti-Infectives 1 380 423 – 10 474 – 11
Total division net sales to third parties 9 249 9 631 –4 9 646 0

1
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.


F-25
 Notes to the Novartis Group consolidated financial statements

Segmentation – other revenue

Innovative Medicines Sandoz Corporate Group
(including eliminations)

(USD millions) 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 2020

Profit-sharing income 921 873 835 921 873 835

Royalty income 28 74 107 18 24 25 6 11 168 52 109 300
Milestone income 145 127 39 3 28 11 148 155 50
Other 1 155 105 37 7 9 17 162 114 54
Total other revenues 1 249 1 179 1 018 28 61 53 6 11 168 1 283 1 251 1 239

1
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 effect Other comprehensive income effect 1 Total comprehensive income effect

(USD millions) 2022 2021 2020 2022 2021 2020 2022 2021 2020

Roche Holding AG, Switzerland 15 341 677 46 – 56 15 387 621

Others –9 –2 –4 –9 –2 –4
Associated companies –9 15 339 673 46 – 56 –9 15 385 617

1
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 between these estimates and actual results were
a significant investment in Roche Holding AG, Basel adjusted in the Group’s consolidated financial state-
(Roche), which was divested to Roche on December 6, ments when available. As Novartis discontinued the use
2021, that are accounted for as associated companies. of equity method accounting starting from November 3,
2021, and the divestment closed on December 6, 2021,
Roche Holding AG no such adjustment has been made to the 2022 Group’s
consolidated financial statements.
On November 3, 2021, Novartis entered into an agree- In 2021, dividends received from Roche in relation to
ment with Roche Holding AG to divest its 33.3% of Roche the distribution of its 2020 net income amounted to
Holding AG (Roche) voting shares, representing approx- USD 522 million.
imately 6.2% of Roche’s total outstanding voting and The consolidated income statement effects from
non-voting equity instruments, to Roche for USD 20.7 applying Novartis accounting principles for this invest-
billion in cash. As a result, Novartis discontinued the use ment in 2021 and 2020 are as follows:
of equity method accounting starting from November 3,
2021. (USD millions) 2021 2020
The divestment transaction closed on December 6, Novartis share of Roche’s
2021, and Novartis realized a gain of USD 14.6 billion, estimated current-year
consolidated net income 815 913
recorded in income from associated companies. See
Note 2. Prior-year adjustment 40 – 64

The Group’s holding in Roche voting shares was Amortization of fair value
adjustments relating to
33.3% at December 31, 2020. This investment repre- intangible assets, net of taxes
sented approximately 6.2% of Roche’s total outstanding of 2021: USD 10
voting and non-voting equity instruments at December million; 2020: USD 26 million – 70 – 172

31, 2020. Gain on divestment of the

investment in Roche 1 14 556
Since full-year financial data for Roche is not avail-
Net income effect 15 341 677
able when Novartis produces its consolidated financial
results, a survey of analyst estimates is used to estimate 1
The gain on divestment of the investment in Roche includes the recycling of currency
the Group’s share of Roche’s net income. Any differences translation effects (see Note 8.1) and other comprehensive income effects totaling
USD 3.2 billion.


F-26
 Notes to the Novartis Group consolidated financial statements

5. Interest expense
and other financial income and expense
Interest expense Other financial income and expense
(USD millions) 2022 2021 2020 (USD millions) 2022 2021 2020

Interest expense – 669 – 651 – 708 Interest income 379 71 91

Interest expense on lease liabilities – 60 – 62 – 67 Other financial income 19 12 18
Expense arising from Financial expense – 194 – 94 – 52
discounting long-term liabilities
Currency result, net – 184 – 69 – 135
and capitalized borrowing costs – 108 – 98 – 94
Total other financial income
Total interest expense – 837 – 811 – 869
and expense 20 – 80 – 78

6. Income taxes
Income before taxes as the weighted average tax rate based on the pre-tax
income of each subsidiary.
(USD millions) 2022 2021 2020 The main elements contributing to the difference
Switzerland 1 5 986 22 028 9 786 between the Group’s overall applicable tax rate and the
Foreign 2 385 4 109 92 effective tax rate are shown in the following table:
Income before taxes 8 371 26 137 9 878
(As a percentage) 2022 2021 2020
1
The 2021 income before taxes in Switzerland includes a USD 14.6 billion non-taxable
Applicable tax rate 16.8 14.8 13.6
gain on the divestment of the Group’s investment in Roche Holding AG (see Note 2
and Note 4). Effect of disallowed expenditures 2.6 1.0 4.6
Effect of utilization of previously unrecognized
tax losses brought forward from prior periods 0.0 0.0 – 0.3
Effect of income taxed at reduced rates – 0.3 – 0.1 – 0.3
Current and deferred income tax expense Effect of income not subject to tax 1 – 0.1 – 7.5 – 0.7
Effect of tax credits and allowances – 3.8 – 1.4 – 2.3
Effect of release of
The significant components of the provision for income contingent consideration liability – 0.5 – 0.1 – 0.2
taxes are as follows: Effect of tax rate change
on current and deferred
(USD millions) 2022 2021 2020 tax assets and liabilities – 0.1 0.0 0.3

Switzerland – 617 – 958 – 932 Effect of derecognition and

reversals of derecognition
Foreign – 1 454 – 1 470 – 1 168 of deferred tax assets 1.2 0.0 0.2
Current income tax expense – 2 071 – 2 428 – 2 100 Effect of write-down and reversal of
Switzerland – 142 23 – 137 write-down of investments in subsidiaries 0.0 0.0 – 0.8

Foreign 797 286 430 Effect of prior-year items – 0.4 0.1 2.3

Deferred tax income 655 309 293 Effect of changes in uncertain tax positions 1.4 1.3 2.0

Income tax expense – 1 416 – 2 119 – 1 807 Effect of other items 0.1 0.0 – 0.1
Effective tax rate 16.9 8.1 18.3

1
2021 includes the effect of income not subject to tax (– 7.3%) arising from the
Analysis of tax rate non-taxable gain on the divestment of our investment in Roche. See Notes 2 and 4 for
further details.
Novartis has a substantial business presence in many
countries and is therefore subject to income taxes in dif-
ferent tax jurisdictions. This leads to differences in Our effective tax rate fluctuates based primarily on,
income and expense items that are non-taxable or among other factors, changes in pre-tax income between
non-deductible (permanent differences) or are taxed at countries with varying statutory tax rates, income taxed
different statutory tax rates in those tax jurisdictions. As at reduced tax rates, effect of disallowed expenditures,
a result, there is a difference between our applicable tax effect of income not subject to tax, effect of tax credits
rate and effective tax rate. and allowances, effect of prior-year items, changes in
The applicable tax rate changes from year to year the measurement of deferred tax assets, changes in
due to changes in the mix of the Group’s pre-tax income uncertain tax positions and changes in tax laws. The
and changes in statutory tax rates since it is ­calculated table above provides the details of the significant items


F-27
 Notes to the Novartis Group consolidated financial statements

that impact the comparability of the effective tax rate The utilization of tax-loss carry-forwards lowered the
between years. 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

2022 2021 2020

Net income attributable to shareholders of Novartis AG (USD millions) 6 955 24 021 8 072

Number of shares (in millions)

Weighted average number of shares outstanding used in basic earnings per share 2 181 2 243 2 277
Adjustment for vesting of restricted shares, restricted share units and dilutive shares from options 16 17 19
Weighted average number of shares in diluted earnings per share 2 197 2 260 2 296

Basic earnings per share (USD) 3.19 10.71 3.55

Diluted earnings per share (USD) 3.17 10.63 3.52

Basic earnings per share (EPS) is calculated by dividing all restricted shares, restricted share units, and the
net income attributable to shareholders of Novartis AG ­conversion of all potentially dilutive shares arising from
by the weighted average number of shares outstanding options on Novartis shares that have been issued.
in a reporting period. This calculation excludes the aver- No options were excluded from the calculation of
age number of issued shares purchased by the Group diluted EPS in 2022, 2021 or 2020, as all options were
and held as treasury shares. dilutive in all years.
For diluted EPS, the weighted average number of
shares outstanding is adjusted to assume the vesting of


F-28
 Notes to the Novartis Group consolidated financial statements

8. Changes in consolidated statements

of comprehensive income
The consolidated statements of comprehensive income recorded in the consolidated income statement. These
include the Group’s net income for the year as well as all include fair value adjustments on financial instruments,
other valuation adjustments recorded in the Group’s con- actuarial gains or losses on defined benefit pension
solidated balance sheet, which under IFRS are not plans, and currency translation effects, net of taxes.

Total value
Fair value Actuarial Cumulative adjustments
adjustments gains/(losses) currency attributable to Non-
on financial from defined translation Novartis AG controlling Total value
(USD millions) Note instruments benefit plans effects shareholders interest adjustments

Value adjustments at December 31, 2019 120 – 5 919 1 142 – 4 657 – 29 – 4 686
Fair value adjustments on equity securities,
net of taxes of USD -36 million 1 250 250 250
Net investment hedge – 201 – 201 – 201
Defined benefit plans, net of taxes
of USD -3 million 145 145 –2 143
Currency translation effects,
net of taxes of USD 10 million 8.1 3 193 3 193 1 3 194
Total value adjustments in 2020 250 145 2 992 3 387 –1 3 386
Fair value adjustments on equity securities
sold, reclassified to retained earnings – 150 – 150 – 150
Value adjustments related to divestments 2 2 2
Impact of change in ownership of consolidated entities –1 –1 1
Value adjustments at December 31, 2020 220 – 5 773 4 134 – 1 419 – 29 – 1 448
Fair value adjustments on equity securities,
net of taxes of USD -44 million 1 194 194 194
Net investment hedge, net of taxes
of USD 33 million 216 216 216
Defined benefit plans, net of taxes
of USD -323 million 1 808 1 808 1 1 809
Currency translation effects,
net of taxes of USD 17 million 8.1 – 4 757 – 4 757 –5 – 4 762
Total value adjustments in 2021 194 1 808 – 4 541 – 2 539 –4 – 2 543
Fair value adjustments on equity securities
sold, reclassified to retained earnings
net of taxes of USD 48 million – 164 – 164 – 164
Value adjustments related to divestments – 62 – 3 – 65 – 65
Value adjustments at December 31, 2021 188 – 3 968 – 407 – 4 187 – 33 – 4 220
Fair value adjustments on equity securities,
net of taxes of USD 81 million 1 – 382 – 382 – 382
Net investment hedge, net of taxes
of USD -30 million 91 91 91
Defined benefit plans, net of taxes
of USD -104 million – 104 – 104 1 – 103
Currency translation effects,
net of taxes of USD 18 million 8.1 – 444 – 444 –6 – 450
Total value adjustments in 2022 – 382 – 104 – 353 – 839 –5 – 844
Fair value adjustments on equity securities
sold, reclassified to retained earnings
net of taxes of nil –4 –4 –4
Value adjustments related to divestments,
net of taxes of USD -4 million 34 34 34
Value adjustments at December 31, 2022 – 198 – 4 038 – 760 – 4 996 – 38 – 5 034

1
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


F-29
 Notes to the Novartis Group consolidated financial statements

8.1) In 2022, net cumulative currency translation gains of as a result of the divestment of the investment in Roche.
USD 13 million were recycled through the income state- See Notes 2 and 4. In 2020, there were no currency
ment as a result of the divestments of subsidiaries. In translation losses or gains recycled through the income
2021, net cumulative currency translation gains of USD statement.
3.2 billion were 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 1, 2022
Cost 492 11 819 1 508 13 328 27 147
Accumulated depreciation and impairment –7 – 5 744 – 65 – 9 786 – 15 602
Net book value 485 6 075 1 443 3 542 11 545

At January 1, 2022 485 6 075 1 443 3 542 11 545

Impact of acquisitions of businesses 13 13
Reclassifications 297 – 964 667
Additions 3 124 780 312 1 219
Disposals and derecognitions – 28 – 49 – 33 – 45 – 155
Depreciation charge – 437 – 726 – 1 163
Impairment charge –7 – 351 – 13 – 43 – 414
Reversal of impairment charge 1 1 5 7
Currency translation effects – 12 – 166 – 57 – 53 – 288
At December 31, 2022 442 5 493 1 157 3 672 10 764

At December 31, 2022

Cost 451 11 396 1 184 11 842 24 873
Accumulated depreciation and impairment –9 – 5 903 – 27 – 8 170 – 14 109
Net book value 442 5 493 1 157 3 672 10 764
Commitments for purchases of property, plant and equipment 549
Capitalized borrowing costs 5


F-30
 Notes to the Novartis Group consolidated financial statements

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 1, 2021
Cost 555 12 377 1 248 14 038 28 218
Accumulated depreciation and impairment – 19 – 5 807 – 66 – 10 063 – 15 955
Net book value 536 6 570 1 182 3 975 12 263

At January 1, 2021 536 6 570 1 182 3 975 12 263

Reclassifications 197 – 610 413
Additions 1 109 1 027 293 1 430
Disposals and derecognitions – 30 – 78 – 12 – 30 – 150
Depreciation charge – 453 – 755 – 1 208
Impairment charge –4 – 137 – 76 – 167 – 384
Reversal of impairment charge 5 70 16 12 103
Currency translation effects – 23 – 203 – 84 – 199 – 509
At December 31, 2021 485 6 075 1 443 3 542 11 545

At December 31, 2021

Cost 492 11 819 1 508 13 328 27 147
Accumulated depreciation and impairment –7 – 5 744 – 65 – 9 786 – 15 602
Net book value 485 6 075 1 443 3 542 11 545
Commitments for purchases of property, plant and equipment 204
Capitalized borrowing costs 4

The following table shows the property, plant and equipment impairment charges and reversals by reporting seg-
ment:

Impairment charges Impairment reversals

(USD millions) 2022 2021 2020 2022 2021 2020

Innovative Medicines – 411 – 315 – 326 4 44 2

Sandoz –3 – 68 – 121 3 59 5
Corporate –1
Total – 414 – 384 – 447 7 103 7


F-31
 Notes to the Novartis Group consolidated financial statements

10. Right-of-use assets and lease liabilities

The following table summarizes the movements of the The following table shows the right-of-use assets carry-
right-of-use assets: ing value and depreciation charge at December 31, 2022
and 2021, by underlying class of asset:
(USD millions) 2022 2021

Right-of-use assets at January 1 1 561 1 676 December 31, Depreciation December 31, Depreciation
2022 charge 2021 charge
Impact of acquisitions of businesses 12 (USD millions) carrying value 2022 carrying value 2021
Additions 247 321 Land 505 16 522 11
Depreciation charge – 300 – 318 Buildings 745 177 866 192
Impairment charge 1 –3 Vehicles 117 96 136 105
Lease contract terminations 2 – 34 – 66 Machinery and
Currency translation effects – 52 – 52 equipment, and
other assets 64 11 37 10
Total right-of-use assets at December 31 1 431 1 561
Total right-of-use
1
Impairment charges in 2022 were recorded in the Innovative Medicines segment. assets 1 431 300 1 561 318
2
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 lease liabilities by maturity at December 31, 2022 and 2021:

Lease liabilities Lease liabilities

Lease liabilities undiscounted Lease liabilities undiscounted
(USD millions) 2022 2022 2021 2021

Less than one year 251 297 275 324

Between one and two years 190 232 216 258
Between two and three years 167 201 162 198
Between three and four years 137 172 139 172
Between four and five years 122 154 122 154
After five years 922 2 149 982 2 243
Total lease liabilities 1 789 3 205 1 896 3 349
Less current portion of lease liabilities – 251 – 297 – 275 – 324
Non-current portion of lease liabilities 1 538 2 908 1 621 3 025
Commitments for leases not yet commenced 83 134

At December 31, 2022, and December 31, 2021, there payments. The net gain on the sale and leaseback trans-
were no material future cash outflows, including exten- actions amounted to USD 17 million. There were no sig-
sion options, excluded from the measurement of lease nificant sale and leaseback transactions in 2021 or 2020.
liabilities. The Group’s most material lease with a lease The following table provides additional disclosures
term extension, representing a lease liability value of USD related to right-of-use assets and lease liabilities for
0.7 billion (2021: USD 0.6 billion), has a determined lease 2022, 2021 and 2020:
term end date of 2071 (2021: 2071). Non-enforceable
extension options of up to 10 years have not been (USD millions) 2022 2021 2020
included within the measurement of this lease liability, Interest expense on lease liabilities 1
60 62 67
and do not have a material impact to the carrying value Expense on short-term leases 3 6 4
of the lease for both 2022 and 2021. Should the landlord Expense on low-value leases 6 7 7
agree to a lease extension, rent will be referenced to the
Total cash outflows for leases 355 381 379
market rates as at the commencement of the extension
Thereof:
period.
Cash outflows for short-term leases
In 2022, the Group completed three sale and lease- and low-value leases 2 9 13 11
back transactions for certain property, plant and equip-
Payments of interest 3 51 52 56
ment as part of the Groups plans to focus on key oper-
Payments of lease liabilities 4 295 316 312
ating locations. The transactions resulted in net cash
inflows of USD 49 million and the recognition of USD 23 1
The weighted average interest rate is 3.3% (2021: 3.2%, 2020: 3.4%).
million of lease liabilities, and USD 13 million of right-of- 2
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
use assets. The right-of-use assets value reflects the is committed to at December 31, 2022, 2021 and 2020, is similar to the portfolio of
proportion of the property, plant and equipment retained. short-term leases the Group entered into during 2022, 2021 and 2020.
Extension options have been included where manage- Included within total net cash flows from operating activities
3

4
Reported as cash outflows in financing activities net of lease incentives received, if
ment believe that such options will be exercised. The lia- any.
bilities reflect the net present value of future lease


F-32
 Notes to the Novartis Group consolidated financial statements

The net investment held and income from subleasing and equipment to third parties for 2022, 2021 and 2020
right-of-use assets were not significant for 2022, 2021, was not significant.
and 2020. Income from leasing Novartis property, plant

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 1, 2022
Cost 29 900 8 013 1 080 56 213 2 905 68 211
Accumulated amortization and impairment – 305 – 2 514 – 903 – 29 107 – 1 505 – 34 029
Net book value 29 595 5 499 177 27 106 1 400 34 182

At January 1, 2022 29 595 5 499 177 27 106 1 400 34 182

Impact of acquisitions of businesses 161 1 209 1 209
Reclassifications 1 – 1 429 2 1 403 24
Additions 330 1 175 588 2 093
Disposals and derecognitions 2 – 28 – 95 –3 –2 – 100
Amortization charge – 37 – 3 603 – 342 – 3 982
Impairment charge – 917 – 15 – 322 – 72 – 1 326
Currency translation effects – 427 – 176 –6 – 243 –7 – 432
At December 31, 2022 29 301 4 421 121 25 513 1 589 31 644

At December 31, 2022

Cost 29 596 7 092 1 038 58 249 3 305 69 684
Accumulated amortization and impairment – 295 – 2 671 – 917 – 32 736 – 1 716 – 38 040
Net book value 29 301 4 421 121 25 513 1 589 31 644

1
Reclassifications between various asset categories as a result of product launches of acquired in-process research and development and completion of software development
2
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


F-33
 Notes to the Novartis Group consolidated financial statements

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 1, 2021
Cost 30 321 6 893 1 115 57 333 2 384 67 725
Accumulated amortization and impairment – 322 – 2 193 – 885 – 26 566 – 1 272 – 30 916
Net book value 29 999 4 700 230 30 767 1 112 36 809

At January 1, 2021 29 999 4 700 230 30 767 1 112 36 809

Impact of acquisitions of businesses 238 262 292 98 652
Reclassifications 1 – 20 15 5
Additions 958 270 508 1 736
Disposals and derecognitions 2 – 36 –1 – 37
Amortization charge – 41 – 3 607 – 255 – 3 903
Impairment charge – 350 – 17 –1 – 35 – 403
Currency translation effects – 642 – 51 – 10 – 584 – 27 – 672
At December 31, 2021 29 595 5 499 177 27 106 1 400 34 182

At December 31, 2021

Cost 29 900 8 013 1 080 56 213 2 905 68 211
Accumulated amortization and impairment – 305 – 2 514 – 903 – 29 107 – 1 505 – 34 029
Net book value 29 595 5 499 177 27 106 1 400 34 182

1
Reclassifications between various asset categories as a result of product launches of acquired in-process research and development and completion of software development
2
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:

Goodwill1 Intangible assets other than goodwill

In-process Currently Other

research and marketed intangible
(USD millions) Total development Technologies products assets Total

Innovative Medicines 21 531 4 186 14 24 487 1 139 29 826

Sandoz 7 770 235 107 1 026 92 1 460
Corporate 358 358
Net book value at December 31, 2022 29 301 4 421 121 25 513 1 589 31 644

1
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:

Goodwill1 Intangible assets other than goodwill

In-process Currently Other

research and marketed intangible
(USD millions) Total development Technologies products assets Total

Innovative Medicines 21 562 5 313 15 25 938 1 091 32 357

Sandoz 8 026 186 162 1 168 61 1 577
Corporate 7 248 248
Net book value at December 31, 2021 29 595 5 499 177 27 106 1 400 34 182

1
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- period for Leqvio is USD 7.4 billion and 13 years, respec-
ble assets within currently marketed products category tively (2021: USD 7.9 billion and 14 years, respectively),
are Leqvio (Innovative Medicines: acquisition of The and for Zolgensma USD 5.9 billion and 8 years, respec-
Medicines Company) and Zolgensma (Innovative tively (2021: USD 6.6 billion and 9 years, respectively).
Medicines: acquisition of Avexis Inc.). As at December The Innovative Medicines and Sandoz Divisions’
31, 2022, the carrying value and remaining amortization cash-generating units, to which goodwill is allocated,


F-34
 Notes to the Novartis Group consolidated financial statements

each comprise a group of smaller cash-generating units. approximate the weighted average cost of capital of a
The valuation method of the recoverable amount of the comparable market participant.
group of cash-generating units, to which goodwill is allo- The fair value less costs of disposal, for all cash-gen-
cated, is based on the fair value less costs of disposal. erating units containing goodwill, is reviewed for the
The following assumptions are used in the calcula- impact of reasonably possible changes in key assump-
tions: tions. In particular, we considered an increase in the dis-
count rate, a decrease in the terminal growth rate, and
Innovative certain negative impacts on the forecasted cash flows.
(As a percentage) Medicines Sandoz These reasonably possible changes in key assumptions
Terminal growth rate 1.5 1.0 did not indicate an impairment.
Discount rate (post-tax) 8.0 8.0 “Note 1. Significant accounting policies—Impairment
of goodwill and intangible assets” provides additional
The discount rates for all divisions consider the Group’s disclosures on how the Group performs goodwill and
weighted average cost of capital, adjusted to intangible asset impairment testing.

The following table shows the intangible asset impairment charges and reversals by reporting segment:

Impairment charges Impairment reversals

(USD millions) 2022 2021 2020 2022 2021 2020

Innovative Medicines 1 – 1 299 – 367 – 768

Sandoz – 25 – 28 – 141
Corporate –2 –8 –5
Total – 1 326 – 403 – 914

1
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).


F-35
 Notes to the Novartis Group consolidated financial statements

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 1, 2022 125 1 307 1 026 2 273 374 2 727 7 832
Gross deferred tax liabilities at January 1, 2022 – 381 – 4 704 – 591 – 148 – 1 335 – 7 159
Net deferred tax balance at January 1, 2022 – 256 – 3 397 435 2 125 374 1 392 673

At January 1, 2022 – 256 – 3 397 435 2 125 374 1 392 673

Credited/(charged) to income 69 628 –5 – 43 5 1 655
Charged to equity 1 1
Credited/(charged) to other comprehensive income –2 – 104 63 – 43
Impact of acquisitions of businesses – 300 55 1 – 244
Other movements 4 10 –7 –6 –9 19 11
Net deferred tax balance at December 31, 2022 – 185 – 3 059 319 2 076 425 1 477 1 053

Gross deferred tax assets at December 31, 2022 158 1 726 739 2 214 425 2 789 8 051
Gross deferred tax liabilities at December 31, 2022 – 343 – 4 785 – 420 – 138 – 1 312 – 6 998
Net deferred tax balance at December 31, 2022 – 185 – 3 059 319 2 076 425 1 477 1 053

After offsetting the following amount of deferred tax

assets and liabilities within the same tax jurisdiction,

the balance amounts to:
4 312
Deferred tax assets at December 31, 2022 3 739
Deferred tax liabilities at December 31, 2022 – 2 686
Net deferred tax balance at December 31, 2022 1 053

Gross deferred tax assets at January 1, 2021 189 1 351 1 137 2 502 507 2 658 8 344
Gross deferred tax liabilities at January 1, 2021 – 430 – 5 269 – 340 – 159 – 10 – 1 344 – 7 552
Net deferred tax balance at January 1, 2021 – 241 – 3 918 797 2 343 497 1 314 792

At January 1, 2021 – 241 – 3 918 797 2 343 497 1 314 792

Credited/(charged) to income – 27 567 – 22 – 215 – 121 127 309
Charged to equity – 35 – 35
Credited/(charged) to other comprehensive income – 323 6 – 317
Impact of acquisitions of businesses – 58 12 – 46
Other movements 12 12 – 17 –3 – 14 – 20 – 30
Net deferred tax balance at December 31, 2021 – 256 – 3 397 435 2 125 374 1 392 673

Gross deferred tax assets at December 31, 2021 125 1 307 1 026 2 273 374 2 727 7 832
Gross deferred tax liabilities at December 31, 2021 – 381 – 4 704 – 591 – 148 – 1 335 – 7 159
Net deferred tax balance at December 31, 2021 – 256 – 3 397 435 2 125 374 1 392 673

After offsetting the following amount of deferred tax

assets and liabilities within the same tax jurisdiction,

the balance amounts to:
4 089
Deferred tax assets at December 31, 2021 3 743
Deferred tax liabilities at December 31, 2021 – 3 070
Net deferred tax balance at December 31, 2021 673


F-36
 Notes to the Novartis Group consolidated financial statements

Deferred tax liabilities have not been recognized for the (USD millions) Unrecognized Rcognized 2021 total
withholding tax and other taxes that would be payable One year 15 4 19
on the remittance of earnings of foreign subsidiaries, Two years 14 6 20
insofar as the Group has the ability to control any future Three years 37 10 47
reversal and the unremitted earnings are retained in the
Four years 26 11 37
foreign subsidiaries for reinvestment. The total unremit-
Five years 146 20 166
ted earnings retained for reinvestment in the Group’s for-
More than five years 3 536 1 872 5 408
eign subsidiaries that would be subject to withholding
tax or other taxes if remitted to the Group are estimated Not subject to expiry 418 684 1 102
at approximately USD 32 billion in 2022, (2021: USD 29 Total 4 192 2 607 6 799
billion).

The gross value of tax-loss carry-forwards that have or

have not been recognized as deferred tax assets, with (USD millions) 2022 2021 2020
their expiry dates, is as follows: Tax losses carried forward
that expired 6 18 14
(USD millions) Unrecognized Recognized 2022 total

One year 18 0 18 Deferred tax assets related to carry-forwards of taxable

Two years 37 5 42 losses and tax credits of relevant Group entities are rec-
Three years 25 5 30
ognized to the extent it is considered probable that future
taxable profits will be available in the respective tax juris-
Four years 138 0 138
dictions against which such losses and credits can be
Five years 79 688 767
utilized.
More than five years 3 880 2 380 6 260
Not subject to expiry 433 452 885
Total 4 610 3 530 8 140

13. Financial and other non-current assets

Financial assets Other non-current assets
(USD millions) 2022 2021 (USD millions) 2022 2021

Equity securities 1 145 1 663 Deferred compensation plans 419 520

Debt securities 37 34 Prepaid post-employment benefit plans 1 491 1 415
Fund investments 281 366 Other non-current assets 200 275
Total financial investments 1 463 2 063 Total other non-current assets 1 110 2 210
Long-term receivables from finance subleases 59 70 1
Note 25 provides additional disclosures related to post-emplyment benefits.
Other long-term receivables 197 184
Contingent consideration receivables 1 607 641
Long-term loans, advances and security deposits 85 78
Total financial assets 2 411 3 036

1
Note 29 provides additional disclosures related to contingent consideration.


F-37
 Notes to the Novartis Group consolidated financial statements

14. Inventories
(USD millions) 2022 2021 The following table shows the recognized amount of
Raw material, consumables 934 870 inventory provision and reversals of inventory provision
Work in progress 3 673 3 160 recorded in the consolidated income statements:
Finished products 2 568 2 636
(USD millions) 2022 2021 2020
Total inventories 7 175 6 666
Inventory provisions – 633 – 573 – 702
Reversals of inventory provisions 161 158 255
The following table shows the amount of inventory rec-
ognized as an expense in “Cost of goods sold” in the
consolidated income statements: The reversals mainly result from the release of products
­initially requiring additional quality control inspections
(USD billions) 2022 2021 2020 and from the reassessment of inventory values manu-
Cost of goods sold – 8.6 – 8.8 – 8.5 factured prior to regulatory approval but for which
approval was subsequently received.

15. Trade receivables

(USD millions) 2022 2021

Total gross trade receivables 8 128 8 088

Provisions for doubtful trade receivables – 62 – 83
Total trade receivables, net 8 066 8 005

The following table summarizes the movement in the p

­ rovision for doubtful trade receivables:

(USD millions) 2022 2021 2020

January 1 – 83 – 93 – 95
Provisions for doubtful trade receivables charged to the consolidated income statement – 47 – 39 – 59
Utilization of provisions for doubtful trade receivables 9 9 13
Reversal of provisions for doubtful trade receivables credited to the consolidated income statement 56 34 53
Currency translation effects 3 6 –5
December 31 – 62 – 83 – 93

The following table shows the trade receivables that are Trade receivable balances represent amounts due from
not overdue as specified in the payment terms and con- our customers, which are mainly drug wholesalers, retail-
ditions established with Novartis customers, as well as ers, private health systems, government agencies, man-
an analysis of overdue amounts and related provisions aged care providers, pharmacy benefit managers and
for doubtful trade receivables: government-supported healthcare systems. We partic-
ularly monitor the level of trade receivables in countries
(USD millions) 2022 2021 deemed to have an elevated credit risk. We consider
Not overdue 7 664 7 639 macroeconomic environment, historical experience,
Past due for not more than one month 190 162 country and political risk, in addition to other relevant
Past due for more than one month
information when assessing risk. These risk factors are
but less than three months 110 99 monitored regularly to determine any adjustments in risk
Past due for more than three months classification. The majority of the past due trade receiv-
but less than six months 62 63 ables from elevated credit risk countries are due from
Past due for more than six months local governments or from government-funded entities.
but less than one year 23 28 Deteriorating credit and economic conditions as well as
Past due for more than one year 79 97 other factors in these elevated credit risk countries have
Provisions for doubtful trade receivables – 62 – 83 resulted in, and may continue to result in, an increase in
Total trade receivables, net 8 066 8 005 the average length of time that it takes to collect these


F-38
 Notes to the Novartis Group consolidated financial statements

trade receivables, and may require the Group to re-eval- Total trade receivables include amounts denomi-
uate the expected credit loss amount of these trade nated in the ­following major currencies:
receivables in future periods. At December 31, 2022,
amounts past due for more than one year are not signif- (USD millions) 2022 2021
icant in elevated credit risk countries. US dollar (USD) 3 709 3 344
Euro (EUR) 1 426 1 408
Russian ruble (RUB) 430 473
Japanese yen (JPY) 177 383
British pound (GBP) 176 200
Chinese yuan (CNY) 155 197
Canadian dollar (CAD) 151 139
Brazilian real (BRL) 145 129
Australian dollar (AUD) 137 139
Swiss franc (CHF) 108 106
Other currencies 1 452 1 487
Total trade receivables, net 8 066 8 005

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) 2022 2021

Commodities 111 111

Debt securities 9 2 741
Time deposits and short-term investments with original maturity more than 90 days 11 089 12 965
Derivative financial instruments 204 105
Total marketable securities, commodities, time deposits and derivative financial instruments 11 413 15 922

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) 2022 2021

Current accounts 2 877 3 396

Time deposits and short-term investments with original maturity less than 90 days 4 640 9 011
Total cash and cash equivalents 7 517 12 407


F-39
 Notes to the Novartis Group consolidated financial statements

17. Other current assets

(USD millions) 2022 2021

VAT receivable 509 487

Withholding tax recoverable 50 58
Prepaid expenses 911 1 102
Contingent consideration receivable 1 43
Other receivables and current assets 958 793
Total other current assets 2 471 2 440

1
Note 29 provides additional disclosures related to contingent consideration.

18. Equity
The following table shows the movement in the share capital:

Movement Movement Movement

(USD millions) Jan 1, 2020 in year Dec 31, 2020 in year Dec 31, 2021 in year Dec 31, 2022

Share capital 1 936 – 23 913 – 12 901 – 11 890

Treasury shares – 80 27 – 53 5 – 48 – 44 – 92
Outstanding share capital 856 4 860 –7 853 – 55 798

1
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 Total Total Total Total Total Total Total Total

Number of outstanding shares Novartis treasury outstanding Novartis treasury outstanding Novartis treasury outstanding
(in millions) Note shares shares 1 shares shares shares 1 shares shares shares 1 shares

Balance at beginning of year 2 434.4 – 199.5 2 234.9 2 467.0 – 210.2 2 256.8 2 527.3 – 262.3 2 265.0
Shares canceled for capital
reduction 2 – 30.7 30.7 – 32.6 32.6 – 60.3 60.3
Shares acquired to be
canceled 3 – 126.2 – 126.2 – 30.7 – 30.7 – 32.6 – 32.6
Other share purchases 4 – 1.4 – 1.4 – 1.5 – 1.5 – 1.7 – 1.7
Exercise of options
and employee transactions 5 18.9 1.9 1.9 0.6 0.6 14.7 14.7
Equity-based compensation 5 10.4 10.4 9.6 9.6 11.0 11.0
Shares delivered to Alcon
employees 0.0 0.0 0.1 0.1 0.4 0.4
Total movements – 30.7 – 84.6 – 115.3 – 32.6 10.7 – 21.9 – 60.3 52.1 – 8.2
Balance at end of year 2 403.7 – 284.1 2 119.6 2 434.4 – 199.5 2 234.9 2 467.0 – 210.2 2 256.8

1
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.
2
Novartis reduced its share capital by canceling shares that were repurchased on the SIX Swiss Exchange second trading line during previous years.
3
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.
4
Shares acquired from employees, which were previously granted to them under the respective equity-based participation plans
5
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 2022 2021 2020
to shareholders is based on the available distributable Dividend per share (in CHF) 3.10 3.00 2.95
retained earnings of Novartis AG determined in accor- Total dividend payment
dance with the legal provisions of the Swiss Code of (in USD billion) 7.5 7.4 7.0
Obligations.


F-40
 Notes to the Novartis Group consolidated financial statements

18.2) The following table summarizes the treasury shares movements:

2022 2021 2020

Number of Number of Number of

outstanding outstanding outstanding
shares Equity impact shares Equity impact shares Equity impact
Note (in millions) USD m (in millions) USD m (in millions) USD m

Shares acquired to be canceled 1 – 126.2 – 10 787 – 30.7 – 2 775 – 32.6 – 2 897

Other share purchases 2 – 1.4 – 123 – 1.5 – 145 – 1.7 – 159
Purchase of treasury shares – 127.6 – 10 910 – 32.2 – 2 920 – 34.3 – 3 056
Exercise of options and employee transactions 3 18.9 1.9 88 0.6 39 14.7 806
Equity-based compensation 4
10.4 854 9.6 745 11.0 730
Shares delivered to Alcon employees 0.0 5 0.1 17 0.4 30
Total – 115.3 – 9 963 – 21.9 – 2 119 – 8.2 – 1 490

1
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.
2
Shares acquired from employees, which were previously granted to them under the respective equity-based participation plans
3
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.
4
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- repurchase Novartis shares to mitigate dilution related
cable, non-discretionary arrangement with a bank to to participation plans of associates. Novartis would have
repurchase Novartis shares on the second trading line been able to cancel this arrangement at any time but
under its up-to USD 15.0 billion share buyback. The would have been subjected to a 90-day waiting period.
arrangement was updated in July 2022. Novartis is able This trading plan commitment was fully executed and
to cancel this arrangement at any time but could be sub- expired, and as a consequence, there is no liability
ject to a 90-day waiting period. related to this plan recognized as of December 31, 2020.
As of December 31, 2022, these waiting period con-
ditions were not applicable and as a result, there was no 18.4) In October 2020, Novartis entered into an agree-
requirement to record a liability under this arrangement ment with the market maker for its employee options to
as of December 31, 2022. The liability under this arrange- repurchase a portion of the outstanding written call
ment amounted to USD 2.8 billion as of December 31, options. A total of 3.7 million options were repurchased
2021. under this agreement. This agreement was terminated
In June 2021, Novartis entered into an irrevocable, in November 2020.
non-discretionary arrangement with a bank to repur-
chase Novartis shares to mitigate dilution related to par- 18.5) The impact of change in ownership of consolidated
ticipation plans of employees. Novartis would have been entities represents the excess of the amount paid to
able to cancel this arrangement at any time but would non-controlling interest over their carrying value and
have been subject to a 90-day waiting period. equity allocation to non-controlling interest due to
This trading plan commitment was fully executed and change in ownership percentage.
expired in June 2021, and as a consequence, there is no
liability related to this plan recognized as of December 18.6) Changes in non-controlling interests represent the
31, 2021. impact on the non-controlling interest of transactions
In November 2020, Novartis entered into an irrevo- with minority shareholders, such as change in ownership
cable, non-discretionary arrangement with a bank to percentage, dividend payments and other equity trans-
repurchase Novartis shares on the second trading line actions.
under its up-to USD 2.5 billion share buyback. Novartis
would have been able to cancel this arrangement at any 18.7) Other movements include, for subsidiaries in hyper-
time, but would have been subject to a 90-day waiting inflationary economies, the impact of the restatement of
period. The commitment under this arrangement there- the equity balances of the current year as well as restate-
fore reflected the obligated purchases by the bank under ment of the non-monetary assets and liabilities with the
such trading plan over a rolling 90-day period, or if general price index at the beginning of the period. See
shorter, until the maturity date of such trading plan. Note 29 for additional disclosures.
The commitment under this arrangement amounted
to USD 1.8 billion as of December 31, 2020. This trading 18.8) In 2021, transaction costs that were directly attrib-
plan commitment was fully executed and expired in utable to the distribution (spin-off) of Alcon Inc. to
March 2021, and as a consequence, there is no liability Novartis AG shareholders and that would otherwise have
related to this plan recognized as of December 31, 2021. been avoided, were recorded to equity.
In August 2020, Novartis entered into an irrevocable,
non-discretionary arrangement with a bank to


F-41
 Notes to the Novartis Group consolidated financial statements

18.9) At December 31, 2022, the market maker held 3 weighted average exercise price of these options is USD
million (2021: 3 million; 2020: 1 million) written call options, 66.07 (2021: USD 61.45; 2020: USD 60.09), and they
originally issued as part of the share-based compensa- have contractual lives of 10 years, with remaining lives
tion for employees, that have not yet been exercised. The less than one year (2021: two years; 2020: three years).

19. Non-current financial debt

(USD millions) 2022 2021

Straight bonds 22 341 25 296

Liabilities to banks and other financial institutions 1 144 227
Total, including current portion of non-current financial debt 22 485 25 523
Less current portion of non-current financial debt – 2 241 – 2 621
Total non-current financial debt 20 244 22 902

1
Average interest rate 2.3% (2021: 0.9%)

All bonds are initially recorded at the amount of proceeds The percentage of fixed-rate financial debt to total
received, net of transaction costs. They are subsequently financial debt was 86% at December 31, 2022, and 87%
carried at amortized cost, with the difference between at December 31, 2021.
the proceeds, net of transaction costs, and the amount The average interest rate on total financial debt in
due on redemption being recognized as a charge to the 2022 was 2.4% (2021: 1.9%).
consolidated income statement over the period of the Note 29 contains a maturity table of the Group’s
relevant bond. Financial debts, including current finan- future contractual interest payments commitments.
cial debts, contain only general default covenants. The
Group is in compliance with these covenants.


F-42
 Notes to the Novartis Group consolidated financial statements

The following table provides a breakdown of straight bonds:

Notional 2022 2021

amount Issuance Maturity (USD (USD
Coupon Currency (millions) year year Issuer Issue price millions) millions)

2.400% USD 1 500 2012 2022 Novartis Capital Corporation, New York, United States 99.225% 1 498
3.700% USD 500 2012 2042 Novartis Capital Corporation, New York, United States 98.325% 490 490
3.400% USD 2 150 2014 2024 Novartis Capital Corporation, New York, United States 99.287% 2 147 2 144
4.400% USD 1 850 2014 2044 Novartis Capital Corporation, New York, United States 99.196% 1 827 1 826
1.625% EUR 600 2014 2026 Novartis Finance S.A., Luxembourg, Luxembourg 99.697% 638 676
0.250% CHF 500 2015 2025 Novartis AG, Basel, Switzerland 100.640% 541 547
0.625% CHF 550 2015 2029 Novartis AG, Basel, Switzerland 100.502% 595 602
1.050% CHF 325 2015 2035 Novartis AG, Basel, Switzerland 100.479% 352 356
3.000% USD 1 750 2015 2025 Novartis Capital Corporation, New York, United States 99.010% 1 742 1 740
4.000% USD 1 250 2015 2045 Novartis Capital Corporation, New York, United States 98.029% 1 221 1 220
0.125% EUR 1 250 2016 2023 Novartis Finance S.A., Luxembourg, Luxembourg 99.127% 1 330 1 409
0.625% EUR 500 2016 2028 Novartis Finance S.A., Luxembourg, Luxembourg 98.480% 528 559
2.400% USD 1 000 2017 2022 Novartis Capital Corporation, New York, United States 99.449% 1 000
3.100% USD 1 000 2017 2027 Novartis Capital Corporation, New York, United States 99.109% 994 993
1.125% EUR 600 2017 2027 Novartis Finance S.A., Luxembourg, Luxembourg 99.874% 638 677
0.500% EUR 750 2018 2023 Novartis Finance S.A., Luxembourg, Luxembourg 99.655% 798 846
1.375% EUR 750 2018 2030 Novartis Finance S.A., Luxembourg, Luxembourg 99.957% 797 846
1.700% EUR 750 2018 2038 Novartis Finance S.A., Luxembourg, Luxembourg 99.217% 792 840
1.750% USD 1 000 2020 2025 Novartis Capital Corporation, New York, United States 99.852% 998 998
2.000% USD 1 250 2020 2027 Novartis Capital Corporation, New York, United States 99.909% 1 246 1 246
2.200% USD 1 500 2020 2030 Novartis Capital Corporation, New York, United States 99.869% 1 494 1 493
2.750% USD 1 250 2020 2050 Novartis Capital Corporation, New York, United States 97.712% 1 215 1 214
0.000% 1 EUR 1 850 2020 2028 Novartis Finance S.A., Luxembourg, Luxembourg 99.354% 1 958 2 076
Total straight bonds 22 341 25 296
1
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: The following table shows the comparison of balance

sheet carrying value and fair value of total non-current
(USD millions) 2022 2021 financial debt, including current portion:
2022 2 621
2023 2 241 2 342 2022 2022 2021 2021
Balance Fair Balance Fair
2024 2 147 2 144 (USD millions) sheet values sheet values
2025 3 281 3 284 Straight bonds 22 341 20 277 25 296 27 079
2026 638 693 Others 144 144 227 227
2027 2 909 2 916 Total 22 485 20 421 25 523 27 306
After 2027 11 269 11 523
Total 22 485 25 523 The fair values of straight bonds are determined by
quoted market prices. Other financial debts are recorded
Breakdown by currency: at notional amounts, which are a reasonable approxima-
tion of the fair v­ alues.
(USD millions) 2022 2021

US dollar (USD) 13 376 15 862

Euro (EUR) 7 478 7 930
Japanese yen (JPY) 76 174
Swiss franc (CHF) 1 488 1 505
Others 67 52
Total 22 485 25 523


F-43
 Notes to the Novartis Group consolidated financial statements

20. Provisions and other non-current liabilities

(USD millions) 2022 2021

Accrued liability for employee benefits:

Defined benefit pension plans 1 1 723 2 640
Other long-term employee benefits and deferred compensation 554 662
Other post-employment benefits 1 362 487
Environmental remediation provisions 535 567
Provisions for product liabilities, governmental investigations and other legal matters 154 341
Contingent consideration 2 704 956
Other non-current liabilities 874 519
Total provisions and other non-current liabilities 4 906 6 172

1
Note 25 provides additional disclosures related to post-employment benefits.
2
Note 29 provides additional disclosures related to contingent consideration.

Novartis believes that its total provisions are adequate number of other PRPs at each site as well as the iden-
based upon currently available information. However, tity and financial position of such parties in light of the
given the inherent difficulties in estimating liabilities in joint and several nature of the liability.
this area, Novartis may incur additional costs beyond the The expected timing of the related cash outflows as
amounts provided. Management believes that such addi- of December 31, 2022, is currently projected as follows:
tional amounts, if any, would not be material to the
Group’s financial condition but could be material to the Expected
results of operations or cash flows in a given period. (USD millions) cash outflows

Due within two years 128

Environmental remediation Due later than two years, but within five years 163

provisions Due later than five years, but within 10 years

Due after 10 years
251
46
The following table shows the movements in the envi- Total environmental remediation provisions 588
ronmental liability provisions:

(USD millions) 2022 2021 2020

January 1 616 809 714 Provisions for product liabilities,

Cash payments –6 – 169 – 10 governmental investigations and
Releases – 18 – 105 – 27 other legal matters
Additions 6 105 82
Novartis has established provisions for certain product
Currency translation effects – 10 – 24 50
liabilities, governmental investigations and other legal
December 31 588 616 809
matters where a potential cash outflow is probable and
Less current provision – 53 – 49 – 167 Novartis can make a reliable estimate of the amount of
Non-current environmental the outflow. These provisions represent the Group’s cur-
remediation provisions
at December 31 535 567 642
rent best estimate of the total financial effect 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 offset by insurance in certain
The significant components of the environmental reme- circumstances.
diation provisions consist of costs to sufficiently clean Novartis has not established provisions for potential
and refurbish contaminated sites to the extent neces- damage awards for certain additional legal claims against
sary, and to continue surveillance at sites where the envi- its subsidiaries if Novartis currently believes that a pay-
ronmental remediation exposure is less significant. ment is either not probable or cannot be reliably esti-
A substantial portion of the environmental remedia- mated. These not-provisioned-for matters include indi-
tion provisions relate to the remediation of Basel regional vidual product liability cases and certain other legal
landfills in the adjacent border areas in Switzerland, Ger- matters. Plaintiffs’ have alleged claims in these matters
many and France. The provisions are reassessed on an and the Group does not believe that information about
annual basis and adjusted as necessary. the amount sought by plaintiffs, if that is known, would
In the United States, Novartis has been named under be meaningful with respect to those legal proceedings.
federal legislation (the Comprehensive Environmental This is due to a number of factors, including, but not lim-
Response, Compensation and Liability Act of 1980, as ited to, the stage of proceedings, the entitlement of par-
amended) as a potentially responsible party (PRP) in ties to appeal a decision and clarity as to theories of lia-
respect of certain sites. Novartis actively participates in, bility, damages and governing law. Therefore, it is not
or monitors, the cleanup activities at the sites in which it practicable to provide information about the potential
is a PRP. The provision takes into consideration the financial impact of these matters. In addition, in some of


F-44
 Notes to the Novartis Group consolidated financial statements

these matters there are claims for punitive or multiple In 2020, Sandoz Inc. reached a resolution with the DOJ
(treble) damages, civil penalties and disgorgement of Antitrust Division, pursuant to which Sandoz Inc. paid
profits that in the view of Novartis are either wholly or USD 195 million and entered into a deferred prosecution
partially unspecified, or wholly or partially unquantifiable agreement. The Sandoz Inc. resolution related to
at present; the Group believes that information about instances of misconduct at the Company between 2013
these amounts claimed by plaintiffs generally is not and 2015 with regard to certain generic drugs sold in the
meaningful for purposes of determining a reliable esti- United States. Under the terms of that agreement,
mate of a loss that is probable or more than remote. Sandoz Inc. will continue to take steps to enhance its
A number of other legal matters are in such early compliance program, employee training and monitoring,
stages or the issues presented are such that the Group and will continue to cooperate with the US government’s
has not made any provisions since it cannot currently ongoing investigation into the generic pharmaceutical
estimate either a potential outcome or the amount of any industry. Sandoz Inc. also finalized a resolution with the
potential losses. For these reasons, among others, the DOJ Civil Division and in 2021 paid USD 185 million, which
Group generally is unable to make a reliable estimate of includes interest from the date of the agreement in prin-
possible loss with respect to such cases. It is therefore ciple, to settle related claims arising under the FCA, and
not practicable to provide information about the poten- entered into a corporate integrity agreement with the
tial financial impact of those cases. Office of Inspector General (OIG) of the US Department
There might also be cases for which the Group was of Health and Human Services (HHS). This resolution
able to make a reliable estimate of the possible loss or with the DOJ resolves all federal government matters
the range of possible loss, but the Group believes that related to price fixing allegations.
publication of such information on a case-by-case basis Since the third quarter of 2016, Sandoz Inc. and Foug-
would seriously prejudice the Group’s position in ongo- era Pharmaceuticals Inc. have been sued alongside other
ing legal proceedings or in any related settlement dis- generic pharmaceutical companies in numerous individ-
cussions. Accordingly, in such cases, information has ual and putative class action complaints by direct and
been disclosed with respect to the nature of the contin- indirect private purchasers and by over 50 US states and
gency, but no disclosure is provided as to an estimate of territories, represented by their respective Attorneys
the possible loss or range of possible loss. General. Plaintiffs claim that defendants, including
Note 28 contains additional information on contin- Sandoz Inc., engaged in price fixing and market alloca-
gent liabilities. 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
Summary of significant legal complaints alleging the existence of an overarching
proceedings industry conspiracy, and assert claims for damages and
penalties under federal and state antitrust and consumer
The following is a summary of significant legal proceed- protection acts. The cases have been consolidated for
ings to which Novartis or its subsidiaries are currently a pretrial purposes in the United States District Court
party, or were a party and that concluded in 2022. (USDC) for the Eastern District of Pennsylvania, and the
claims are being vigorously contested.
Investigations and related litigations
Southern District of New York (S.D.N.Y.) Gilenya Lucentis/Avastin® matters
marketing practices investigation and litigation In connection with an investigation into whether Novartis
In 2013, Novartis Pharmaceuticals Corporation (NPC) entities, F. Hoffmann-La Roche AG, Genentech Inc. and
received a civil investigative demand from the United Roche S.p.A. colluded to artificially preserve the market
States Attorney’s Office (USAO) for the S.D.N.Y. request- positions of Avastin® and Lucentis, in 2014 the Italian
ing the production of documents and information relat- Competition Authority (ICA) imposed a fine equivalent
ing to marketing practices for Gilenya, including the to USD 125 million on the Novartis entities. Novartis paid
remuneration of healthcare providers in connection the fine, subject to the right to later claim recoupment,
therewith. In 2017, the S.D.N.Y. and New York State and appealed before the Consiglio di Stato (CdS). In 2014
declined to intervene in claims raised by an individual and 2015, the Italian Ministry of Health and the Lombar-
relator in a qui tam complaint. In 2022, NPC’s motion to dia region sent letters with payment requests for a total
dismiss this complaint was granted, which was appealed. equivalent of approximately USD 1.3 billion in damages
The claims are being vigorously contested. from Novartis and Roche entities based on these allega-
tions. In 2019, the CdS upheld the ICA decision and fine.
Government generic pricing antitrust investigations, Following that CdS decision, several additional Italian
antitrust class actions regions and hospitals sent letters claiming damages for
Since 2016, Sandoz Inc. has received a grand jury sub- an aggregate amount of approximately USD 330 million.
poena and a civil investigative demand and interrogato- None of these claims have been asserted in legal pro-
ries from the Antitrust and Civil Divisions of the US ceedings and no further letters have been sent since.
Department of Justice (DOJ) into alleged price fixing and Novartis continues to appeal the CdS decision. In 2019,
market allocation of generic drugs in the United States the French Competition Authority (FCA) issued a State-
as well as alleged federal False Claims Act (FCA) viola- ment of Objections against Novartis entities, alleging
tions. Sandoz Inc. also received a subpoena and inter- anti-competitive practices on the French market for
rogatories from the Attorney General of the State of Con- anti-vascular endothelial growth factor treatments for
necticut in connection with a similar States’ investigation. wet age-related macular degeneration from 2008 to


F-45
 Notes to the Novartis Group consolidated financial statements

2013. In 2020, the FCA issued a decision finding that the Swiss and EU investigation
Novartis entities had infringed competition law by abus- In September 2022, the Swiss Competition Commission
ing a dominant position and imposing a fine equivalent (COMCO) initiated an investigation of Novartis acquisi-
to approximately USD 452 million. Novartis paid the fine, tion of certain patents from Genentech in April 2020 and
again subject to recoupment, and is appealing the FCA’s their subsequent enforcement against Eli Lilly and other
decision. Novartis is the subject of similar investigations parties, allegedly in an attempt to protect Cosentyx from
and proceedings involving competition authorities in Bel- competing products. COMCO is investigating whether
gium and Greece and is currently in the appeal process enforcement of the patents violates the Swiss Cartel Act.
in Turkey. Novartis continues to vigorously contest all The European Commission also requested information
claims in all those countries. Novartis is also challeng- from Novartis regarding this matter. Novartis is cooper-
ing policies and regulations allowing off-label/unlicensed ating with the authorities and will vigorously contest any
use and reimbursement for economic reasons in Turkey. allegations.

Greece investigation Antitrust class actions

The Greek authorities are investigating legacy allega- Exforge
tions of potentially inappropriate economic benefits to Since 2018, Novartis Group companies as well as other
HCPs, government officials and others in Greece. These pharmaceutical companies have been sued by various
authorities include the Greek Coordinating Body for direct and indirect purchasers of Exforge in multiple US
Inspection and Control, and the Greek Body of Prose- individual and putative class action complaints. They
cution of Financial Crime (SDOE), from which the Com- claim that Novartis made a reverse payment in the form
pany received a summons in 2018 and 2020. Novartis of an agreement not to launch an authorized generic,
has cooperated in these investigations. In 2021, SDOE alleging violations of federal antitrust law and state anti-
imposed on Novartis Hellas a fine equivalent to approx- trust, consumer protection and common laws, and seek-
imately USD 1.2 million, which Novartis Hellas has ing damages as well as injunctive relief. The cases have
appealed. In 2022, the Greek State served a civil lawsuit been consolidated in the S.D.N.Y. In 2022, Novartis
on Novartis Hellas, seeking approximately USD 225 mil- agreed to a settlement in principle to pay USD 245 mil-
lion for moral damages allegedly arising from the con- lion to resolve these cases. These settlements are sub-
duct that was the subject of the Company’s 2020 set- ject to mutually agreeable terms, finalization of docu-
tlement with the DOJ regarding allegations of mentation and, in some cases, court approval.
inappropriate economic benefits in Greece that was dis-
closed in the 2020 Annual Report and the 2020 Form Product liability litigation
20-F. The claims are being vigorously contested. Reclast
NPC is a defendant in more than 20 US product liability
340B Drug Pricing Program investigations actions involving Reclast and alleging atypical femur
In 2021, NPC received a notification from the US Health fracture injuries, all of which are in New Jersey state or
Resources and Services Administration (HRSA) which federal court and in California state court, coordinated
stated that HRSA believes NPC’s contract pharmacy pol- with claims against other bisphosphonate manufactur-
icy violates the 340B statute, and threatened potential ers. The claims are being vigorously contested.
enforcement action. NPC subsequently sued HRSA in
the USDC for the District of Columbia to challenge Taxotere® (docetaxel)
HRSA’s determination and to enjoin HRSA from taking Sandoz is a defendant in more than 3 100 US product
action with respect to NPC’s contract pharmacy policy. liability actions involving Taxotere® (docetaxel), an
HRSA then referred the matter regarding NPC’s contract oncology product, many of which have been transferred
pharmacy policy to OIG, which could result in the impo- to a multidistrict litigation in the Eastern District of Lou-
sition of civil monetary penalties on NPC. The USDC isiana. The complaints allege misleading marketing and
issued a decision rejecting HRSA’s interpretation of the that Sanofi, as innovator, and several 505(b)(2) NDA hold-
340B statute, vacating the violation notification and ers (including Sandoz) failed to warn of the risk of per-
remanding the matter to HRSA. HRSA appealed, and the manent alopecia/hair loss. In 2022, actions involving
United States Court of Appeals for the DC Circuit heard claims related to alleged eye injuries caused by the use
argument on the case in 2022. In addition, in 2021, Emory of Taxotere® were coordinated in a separate multidistrict
University Hospital Midtown filed an Administrative Dis- litigation in the Eastern District of Louisiana. The claims
pute Resolution (ADR) proceeding against NPC, seek- are being vigorously contested.
ing the return of alleged overcharges resulting from
NPC’s contract pharmacy policy. NPC has moved to dis- Amiodarone
miss the proceeding pending resolution of the HRSA lit- Sandoz entities are named in two multi-plaintiff US prod-
igation. Finally, also in 2021, NPC received a civil inves- uct liability cases involving amiodarone, a cardiac drug
tigative subpoena from the Office of the Attorney General indicated to treat life-threatening arrhythmias that have
of the State of Vermont requesting the production of not responded to other treatment. The complaints allege
documents and information concerning NPC’s participa- failure to warn, off-label promotion, and failure to include
tion in the 340B Drug Pricing Program in Vermont; NPC medication guides to pharmacies. The claims are being
provided documents and information to the Office of the vigorously contested.
Attorney General.


F-46
 Notes to the Novartis Group consolidated financial statements

Sartans and ranitidine which resolved the last AWP lawsuit. This matter is now
Since 2018, claims have been brought against Sandoz concluded.
and other pharmaceutical companies alleging injury from
carcinogenic impurities found in valsartan and valsartan/ Entresto matter– Concluded matter
HCT film-coated tablets and/or losartan marketed or In 2021, NPC received a civil investigative demand from
manufactured by Sandoz. These claims include several the DOJ seeking information from 2016 to the present
putative class actions in Canada. Claims have also been regarding the marketing and pricing of Entresto, includ-
brought alleging injury from carcinogenic impurities in ing remuneration provided to HCPs. In December 2022,
ranitidine-containing medicines. These claims also the DOJ advised that it has no additional requests and
include several putative class actions in Canada and a that the matter is considered closed. This matter is now
multidistrict litigation in Florida. All of these claims are concluded.
being vigorously contested.
South Korea investigation – Concluded matter
Tasigna In 2016, the Seoul Western District Prosecutor initiated
NPC is a defendant in more than 400 US product liabil- a criminal investigation into, among other things, allega-
ity actions involving Tasigna, alleging that the product tions that Novartis Korea utilized medical journals to pro-
caused various cardiovascular effects and that NPC vide inappropriate economic benefits to healthcare pro-
failed to provide adequate warnings about those alleged fessionals (HCPs). This resulted in a non-material fine,
side effects. State court actions are pending in a multi- which the prosecutor appealed. In 2021, the appellate
county litigation in Bergen County, New Jersey, and fed- court upheld the fine, and the prosecutor appealed that
eral cases are pending in a multidistrict litigation in the decision. In January 2023, the Supreme Court dismissed
Middle District of Florida. The claims are being vigorously the appeal. This matter is now concluded.
contested.
Summary of product liability, governmental
Other matters investigations and other legal matters provision
Shareholder derivative lawsuit movements
In 2021, NPC, Sandoz Inc., Novartis Capital Corporation
and certain present and former directors and officers of (USD millions) 2022 2021 2020
Novartis were named as defendants, and Novartis was January 1 397 487 1 369
named as a nominal defendant, in a purported share- Impact of acquisitions of businesses 4 11
holder derivative lawsuit filed in New York state court. Cash payments – 105 – 292 – 1 863
The plaintiffs, derivatively as purported Novartis share-
Releases of provisions – 52 – 44 – 31
holders on behalf of Novartis, seek damages and other
Additions to provisions 466 251 1 018
remedies based on alleged conduct by the corporate
Currency translation effects –8 –5 – 17
and individual defendants. In 2022, the court granted
Novartis motion to dismiss the lawsuit, which the plain- December 31 702 397 487
tiffs have appealed. Less current portion – 548 – 56 – 306
Non-current product
Concluded legal matters liabilities, governmental
investigations and other
Average Wholesale Price (AWP) litigation – legal matters provisions
Concluded matter at December 31 154 341 181
Lawsuits were brought, the latest in February 2016, by
various US state governmental entities and private par-
ties against various pharmaceutical companies, includ- Novartis believes that its total provisions for investiga-
ing NPC, alleging that they fraudulently overstated the tions, product liability, arbitration and other legal matters
AWP that is or has been used by payers, including state are adequate based upon currently available information.
Medicaid agencies, to calculate reimbursements to However, given the inherent difficulties in estimating lia-
healthcare providers. In 2022, NPC settled a putative bilities, there can be no assurance that additional liabil-
class action brought by private payers in New Jersey, ities and costs will not be incurred beyond the amounts
provided.


F-47
 Notes to the Novartis Group consolidated financial statements

21. Current financial debt

and derivative financial instruments
(USD millions) 2022 2021 During the third quarter of 2022, Novartis closed the
Interest-bearing accounts of employees interest-bearing accounts of employees payable on
payable on demand 1 1 814 demand, and paid out USD 0.9 billion to the respective
Bank and other financial debt 2 863 899 beneficiaries on October 3, 2022. The net cash outflows
Commercial paper 2 772 893 from interest-bearing accounts of employees payable on
Current portion of non-current financial debt 2 241 2 621 demand were reported within the line change in current
Derivative financial instruments 55 68 financial debts in the consolidated statements of cash
Total current financial debt and derivative
flows. See Note 23.6.
financial instruments 5 931 6 295 The carrying amounts of current financial debt, other
than the current portion of non-­current financial debt,
1
Weighted average interest rate 0.25% through September 30, 2022 (2021: 0.25%)
2
Weighted average interest rate 9.7% (2021: 6.1%)
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) 2022 2021

Taxes other than income taxes 836 619

Restructuring provisions 1 131 345
Accrued expenses for goods and services received but not invoiced 1 059 1 089
Accruals for royalties 767 752
Accrued interests on financial debt 116 127
Provisions for deductions from revenue 6 732 6 481
Accruals for compensation and benefits, including social security 2 321 2 260
Environmental remediation provisions 53 49
Deferred income 123 123
Provisions for product liabilities, governmental investigations and other legal matters 1 548 56
Accrued share-based payments 235 253
Contingent consideration 2 131 119
Commitment for repurchase of own shares 3 2 809
Other payables 743 588
Total provisions and other current liabilities 14 795 15 670

1
Note 20 provides additional disclosures related to legal provisions.
2
Note 29 provides additional disclosures related to contingent consideration.
3
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.


F-48
 Notes to the Novartis Group consolidated financial statements

Provisions for deductions from revenue

The following table shows the movement of the provisions for deductions from revenue:

(USD millions) 2022 2021 2020

January 1 6 481 6 256 5 595

Effect of currency translation, business combinations – 210 – 218 234
Payments/utilizations – 22 261 – 19 838 – 19 294
Adjustments of prior years charged to income statement – 322 – 245 – 151
Current year income statement charge 23 072 20 413 19 773
Change in provisions offset against gross trade receivables – 28 113 99
December 31 6 732 6 481 6 256

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 effect of these deductions from revenue.

Restructuring provisions movements in response to changes in its go-to-market structure

with increased utilization of digital technology.
(USD millions) 2022 2021 2020 • Group-wide initiatives to streamline manufacturing
January 1 345 459 438 platforms and manufacturing functions and implement
Additions 1 368 328 354 new technologies continued. In addition, the Opera-
Cash payments – 468 – 344 – 268
tions unit (formerly Customer & Technology Solutions)
continued the phased implementation of the new oper-
Releases – 42 – 54 – 87
ating model to transition activities to service centers.
Transfers – 53 – 27
Currency translation effects – 19 – 17 22
In 2020, additions to provisions of USD 354 million were
December 31 1 131 345 459 mainly related to the following reorganizations:

• The Innovative Medicines Division restructured its field

force and supporting functions in Region Europe.
In 2022, additions to provisions of USD 1.4 billion were • The Sandoz Division initiatives to realign its organiza-
mainly related to the following reorganizations: tional structures to improve competitiveness that com-
• Initiative announced in April 2022 to implement a new menced in 2019 continued.
streamlined organizational model designed to support • Group-wide initiatives to streamline manufacturing
innovation, growth and productivity. platforms and manufacturing functions through the
• The continuation of the Innovative Medicines Division setup of operations centers and implementation of new
and the Operation unit (formerly Novartis Technical technologies, in the Innovative Medicines Division and
Operations and the Customer & Technology Solutions) the Sandoz Division, continued. In addition, the Oper-
2021 restructuring initiatives. ations unit (formerly Customer & Technology Solutions)
continued the phased implementation of the new oper-
In 2021, additions to provisions of USD 328 million were ating model to change outsourcing structures and tran-
mainly related to the following reorganizations: sition activities to service centers.
• The Innovative Medicines Division commenced a plan
to restructure its field force and supporting functions


F-49
 Notes to the Novartis Group consolidated financial statements

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) 2022 2021 2020

Depreciation, amortization and impairments on:

Property, plant and equipment 1 570 1 489 1 758
Right-of-use assets 303 318 330
Intangible assets 5 308 4 306 4 376
Financial assets 1 260 – 38 – 335
Change in provisions and other non-current liabilities 1 403 896 1 411
Gains on disposal and other adjustments on property, plant and equipment; intangible assets;
financial assets; and other non-current assets, net – 333 – 677 – 478
Equity-settled compensation expense 823 736 738
Loss/(income) from associated companies 2
9 – 15 339 – 673
Income taxes 1 416 2 119 1 807
Net financial expense 817 891 947
Other – 30
Total 11 546 – 5 299 9 881

1
Includes fair value changes
2
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 (2021: USD 321 million, 2020: USD 346 million) additions
were USD 635 million additions to intangible assets with to right-of-use assets recognized.
deferred payments. In 2022, there were USD 247 million

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) 2022 2021 2020

(Increase)/decrease in inventories – 830 81 – 543

(Increase)/decrease in trade receivables – 589 – 389 137
Decrease in trade payables – 48 – 21 – 324
Change in other current and non-current assets – 194 – 202 229
Change in other current liabilities 658 772 211
Other adjustments, net 0 –1
Total – 1 003 241 – 291

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).


F-50
 Notes to the Novartis Group consolidated financial statements

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 trans­actions are described in Note 2.

(USD millions) Note 2022 2021 2020

Net assets recognized as a result of acquisitions of businesses 24 – 1 077 – 735 – 10 173

Fair value of previously held equity interests 21 42 7
Contingent consideration payables, net 205 59 98
Payments, deferred consideration and other adjustments, net – 13 1 62
Cash flows used for acquisitions of businesses – 864 – 633 – 10 006
Cash flows (used for)/from divestments of businesses, net 1 – 15 66 49
Cash flows used for acquisitions and divestments of businesses, net – 879 – 567 – 9 957

1
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 offset 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 financial Non-current Current lease
(USD millions) debts instruments lease liabilities liabilities

January 1, 2022 22 902 6 295 1 621 275

Increase in non-current financial debts 16
Repayments of the current portion of non-current financial debts – 2 575
Change in current financial debts 1 295
Payments of lease liabilities – 295
Interest payments for amounts included in lease liabilities
classified as cash flows from operating activities – 51
New, modified and terminated leases, net 173 49
Impact of acquisitions and divestments of businesses, net 9 3
Changes in fair values, lease interest and other changes, net – 13 60
Amortization of bonds discount 17 5
Currency translation effects – 366 – 401 – 41 – 14
Reclassification from non-current to current, net – 2 325 2 325 – 224 224
December 31, 2022 20 244 5 931 1 538 251

1
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.


F-51
 Notes to the Novartis Group consolidated financial statements

Current
financial
debts and
Non-current derivative
financial financial Non-current Current lease
(USD millions) debts instruments lease liabilities liabilities

January 1, 2021 26 259 9 785 1 719 286

Increase in non-current financial debts 16
Repayments of the current portion of non-current financial debts – 2 162
Change in current financial debts – 3 524
Payments of lease liabilities, net – 316
Interest payments for amounts included in lease liabilities
classified as cash flows from operating activities – 52
New, modified and terminated leases, net 192 61
Impact of acquisitions of businesses 1
Changes in fair values, lease interest and other changes, net – 124 62
Amortization of bonds discount 25 4
Currency translation effects – 774 – 309 – 43 – 13
Reclassification from non-current to current, net – 2 624 2 624 – 247 247
December 31, 2021 22 902 6 295 1 621 275

Current
financial
debts and
Non-current derivative
financial financial Non-current Current lease
(USD millions) debts instruments lease liabilities liabilities

January 1, 2020 20 353 7 031 1 703 246

Increase in non-current financial debts 7 126
Repayments of the current portion of non-current financial debts – 2 003
Change in current financial debts 2 261
Payments of lease liabilities, net – 312
Interest payments for amounts included in lease liabilities
classified as cash flows from operating activities – 56
New, modified and terminated leases, net 221 73
Impact of acquisitions of businesses 32 36 8
Changes in fair values, lease interest and other changes, net –1 – 30 65
Amortization of bonds discount 16 5
Currency translation effects 832 392 39 12
Reclassification from non-current to current, net – 2 067 2 067 – 250 250
December 31, 2020 26 259 9 785 1 719 286

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-off 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-off) of the Alcon business to Novartis AG
shareholders on April 8, 2019.


F-52
 Notes to the Novartis Group consolidated financial statements

24. Acquisitions of businesses

Fair value of assets and liabilities arising from acquisitions of businesses:

(USD millions) 2022 2021 2020

Property, plant and equipment 13 26

Right-of-use assets 12 32
Currently marketed products 292 196
Acquired research and development 1 209 262 8 600
Other intangible assets 98 218
Deferred tax assets 56 28 476
Non-current financial and other assets 49
Inventories 84
Trade receivables and financial and other current assets 5 1 109
Cash and cash equivalents 89 10 76
Deferred tax liabilities – 300 – 74 – 1 977
Current and non-current financial debts –1 – 32
Current and non-current lease liabilities – 12 – 44
Trade payables and other liabilities – 67 –4 – 144
Net identifiable assets acquired 1 005 612 7 669
Acquired cash and cash equivalents – 89 – 10 – 76
Non-controlling interests – 105
Goodwill 161 238 2 580
Net assets recognized as a result of acquisitions of businesses 1 077 735 10 173

Note 2 details significant acquisitions of businesses, spe- attributable to the buyer-specific synergies, the assem-
cifically of Gyroscope in 2022, the cephalosporin anti- bled workforce, and the accounting for deferred tax lia-
biotics business from GSK in 2021; and of the The bilities on the acquired assets. In 2022, no goodwill (2021:
Medicines Company and the Japanese business of AGI USD 107 million; 2020: USD 74 million) is tax deductible.
in 2020. The goodwill arising out of these acquisitions is

25. Post-employment benefits for employees

Defined benefit plans represent 83% of the Group’s total DBO for post-em-
ployment benefit plans, are provided below.
In addition to the legally required social security schemes, Swiss-based pension plans represent the most sig-
the Group has numerous independent pension and other nificant portion of the Group’s total DBO and plan assets.
post-employment benefit plans. In most cases, these For the active insured members the benefits are linked
plans are externally funded in entities that are legally to contributions paid into the plan, interest credits
separate from the Group. For certain Group companies, granted and conversion rates applied.
however, no independent plan assets exist for the pen- All benefits granted under Swiss-based pension
sion and other post-employment benefit obligations of plans are vested, and Swiss legislation prescribes that
employees. In these cases, the related unfunded liability the employer has to contribute a fixed percentage of an
is included in the balance sheet. The defined benefit obli- employee’s pay to an external pension fund. Additional
gations (DBOs) of all major pension and other post-em- employer contributions may be required whenever the
ployment benefit plans are reappraised annually by inde- plan’s statutory funding ratio falls below a certain level.
pendent actuaries. Plan assets are recognized at fair The employee also contributes to the plan. The pension
value. The major plans are based in Switzerland, the plans are run by separate legal entities, each governed
United States, the United Kingdom, Germany and Japan, by a board of trustees that – for the principal plans – con-
which represent 95% of the Group’s total DBO for pen- sists of representatives nominated by Novartis and the
sion plans. Details of the plans in the two most signifi- active insured employees. The boards of trustees are
cant countries, Switzerland and the United States, which responsible for the plan design and asset investment
strategy.


F-53
 Notes to the Novartis Group consolidated financial statements

In December 2020, the Board of Trustees of the contributions are required for Qualified Plans whenever
Novartis Swiss Pension Fund agreed to adjust the annu- the statutory funding ratio falls below a certain level.
ity conversion rate at retirement with effect from Janu- Furthermore, in certain countries, employees are cov-
ary 1, 2022. This amendment did not affect existing pen- ered under other post-employment benefit plans and
sioners, and its impact on existing plan participants will post-retirement medical plans.
be mitigated by way of defined compensatory measures. In the US, other post-employment benefit plans con-
This amendment resulted in a net pre-tax curtailment sist primarily of post-employment healthcare benefits,
gain of USD 101 million (CHF 90 million) recognized in which have been closed to new members since 2015.
2020. Part of the costs of these plans is reimbursable under
The United States pension plans represent the sec- the Medicare Prescription Drug, Improvement, and Mod-
ond-largest component of the Group’s total DBO and ernization Act of 2003. There is no statutory funding
plan assets. The principal plans (Qualified Plans) are requirement for these plans. The Group is funding these
funded, whereas plans providing additional benefits for plans to the extent that it is tax efficient.
executives (Restoration Plans) are unfunded. Employer

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) 2022 2021 2022 2021

Benefit obligation at January 1 23 583 25 602 560 632

Current service cost 348 415 12 11
Interest cost 249 151 17 16
Past service costs and settlements – 40 63 1 –3
Administrative expenses 23 24
Remeasurement gains arising from changes in financial assumptions 1 – 5 046 – 713 – 94 – 20
Remeasurement (gains)/losses arising from changes in demographic assumptions – 53 – 377 4
Experience-related remeasurement losses/(gains) 199 531 – 28 – 47
Currency translation effects – 650 – 865 –2 –1
Benefit payments – 1 253 – 1 450 – 44 – 32
Contributions of employees 174 179
Effect of acquisitions, divestments or transfers –1 23
Benefit obligation at December 31 17 533 23 583 422 560
Fair value of plan assets at January 1 22 420 22 317 73 89
Interest income 220 105 2 2
Return on plan assets excluding interest income – 2 500 1 512 – 12 7
Currency translation effects – 539 – 726
Novartis Group contributions 424 490 41 7
Contributions of employees 174 179
Settlements –1 –7
Benefit payments – 1 253 – 1 450 – 44 – 32
Effect of acquisitions, divestments or transfers
Fair value of plan assets at December 31 18 945 22 420 60 73
Funded status 1 412 – 1 163 – 362 – 487
Limitation on recognition of fund surplus at January 1 – 62 – 51
Change in limitation on recognition of fund surplus – 2 504 – 16
Currency translation effects – 76 6
Interest income on limitation of fund surplus –2 –1
Limitation on recognition of fund surplus at December 31 2 – 2 644 – 62
Net liability in the balance sheet at December 31 – 1 232 – 1 225 – 362 – 487

1
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.
2
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.


F-54
 Notes to the Novartis Group consolidated financial statements

The reconciliation of the net liability from January 1 to December 31 is as follows:

Pension plans Other post-employment

benefit plans

(USD millions) 2022 2021 2022 2021

Net liability at January 1 – 1 225 – 3 336 – 487 – 543

Current service cost – 348 – 415 – 12 – 11
Net interest expense – 31 – 47 – 15 – 14
Administrative expenses – 23 – 24
Past service costs and settlements 39 – 70 –1 3
Remeasurements 2 400 2 071 110 70
Currency translation effects 35 145 2 1
Novartis Group contributions 424 490 41 7
Effect of acquisitions, divestments or transfers 1 – 23
Change in limitation on recognition of fund surplus – 2 504 – 16
Net liability at December 31 – 1 232 – 1 225 – 362 – 487

Amounts recognized in the consolidated balance sheet

Prepaid benefit cost 491 1 415
Accrued benefit liability – 1 723 – 2 640 – 362 – 487

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 31 11 824 2 746 2 963 17 533 15 268 3 645 4 670 23 583
Thereof unfunded 556 363 919 688 439 1 127
By type of member
Active 4 799 431 931 6 161 6 478 620 1 412 8 510
Deferred pensioners 830 861 1 691 1 208 1 730 2 938
Pensioners 7 025 1 485 1 171 9 681 8 790 1 817 1 528 12 135
Fair value of plan assets at December 31 14 701 1 978 2 266 18 945 16 436 2 551 3 433 22 420
Funded status 2 877 – 768 – 697 1 412 1 168 – 1 094 – 1 237 – 1 163

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 31 346 76 422 473 87 560

Thereof unfunded 286 76 362 400 87 487
By type of member
Active 30 18 48 60 23 83
Deferred pensioners 8 0 8 13 0 13
Pensioners 308 58 366 400 64 464
Fair value of plan assets at December 31 60 0 60 73 0 73
Funded status – 286 – 76 – 362 – 400 – 87 – 487


F-55
 Notes to the Novartis Group consolidated financial statements

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

2022 2021 2020 2022 2021 2020

Weighted average assumptions used to determine

benefit obligations at December 31
Discount rate 3.0% 0.9% 0.6% 6.3% 3.3% 2.9%
Expected rate of pension increase 0.4% 0.5% 0.3%
Expected rate of salary increase 2.9% 2.7% 2.7%
Interest on savings account 2.2% 0.5% 0.1%
Current average life expectancy
for a 65-year-old male in years 22 22 22 21 21 21
Current average life expectancy
for a 65-year-old female in years 24 24 24 23 23 23

Changes in the aforementioned actuarial assumptions correlation of interest rates with equities is not as strong
can result in significant volatility in the accounting for the as with bonds, especially in the short term).
Group’s pension plans in the consolidated financial state- The expected rate for pension increases significantly
ments. This can result in substantial changes in the affects the DBO of most plans in Switzerland, Germany
Group’s other comprehensive income, long-term liabili- and the United Kingdom. Such pension increases also
ties and prepaid p ­ ension assets. decrease the funded status, although there is no strong
The DBO is significantly impacted by assumptions correlation between the value of the plan assets and
regarding the rate that is used to discount the actuari- pension/inflation increases.
ally determined post-employment benefit liability. This Assumptions regarding life expectancy significantly
rate is based on yields of high-quality ­corporate bonds impact the DBO. An increase in longevity increases the
in the country of the plan. Decreasing corporate bond DBO. There is no offsetting impact from the plan assets,
yields decrease the discount rate, so that the DBO as no longevity bonds or swaps are held by the pension
increases and the funded status decreases. funds. The Group’s actuaries use mortality tables which
In Switzerland, an increase in the DBO due to lower take into account historic patterns and expected
discount rates is slightly offset by lower future benefits changes, such as further increases in longevity.
expected to be paid on the employee’s savings account In 2022 the mortality assumptions used for the pen-
where the assumption on interest accrued often changes sion plans in Switzerland were based on BVG 2020
broadly in line with the d­ iscount rate. tables with future improvements based on the BVG gen-
The impact of decreasing interest rates on a plan’s erational model. In US for the Pension and Postretire-
assets is more difficult to predict. A significant part of ment Medical Benefit Plans, the Society of Actuaries Pri-
the plan assets is invested in bonds. Bond values usually 2012 mortality tables with generational improvements
rise when interest rates decrease and may therefore par- based on Scale MP-2021 are used.
tially compensate for the decrease in the funded status. The following table shows the sensitivity of the
Furthermore, pension assets also include significant defined b­ enefit pension obligation to the principal actu-
holdings of equity instruments. Share prices usually tend arial assumptions for the major plans in Switzerland, the
to rise when interest rates decrease and therefore often United States, the United Kingdom, Germany and Japan
counteract the negative impact of the rising defined ben- on an aggregated basis:
efit obligation on the funded status (although the

Change in 2022 Change in 2021

year-end defined year-end defined
benefit pension benefit pension
(USD millions) obligation obligation

25 basis point increase in discount rate – 466 – 790

25 basis point decrease in discount rate 491 839
One-year increase in life expectancy 535 869
25 basis point increase in rate of pension increase 316 512
25 basis point decrease in rate of pension increase – 63 – 136
25 basis point increase of interest on savings account 38 58
25 basis point decrease of interest on savings account – 37 – 58
25 basis point increase in rate of salary increase 37 54
25 basis point decrease in rate of salary increase – 37 – 54


F-56
 Notes to the Novartis Group consolidated financial statements

The healthcare cost trend rate assumptions used for December 31, December 31,
other post-­employment benefits are as follows: 2022 2021

Investment in shares of Novartis AG

2022 2021 2020 Number of shares (in millions) 2.3 2.3
Healthcare cost trend rate Market value (in USD billions) 0.2 0.2
assumed for next year 6.5% 6.0% 6.3%
Rate to which the cost trend
rate is assumed to decline 4.5% 4.5% 4.5% The weighted average duration of the defined benefit
Year that the rate reaches pension obligation is 11.8 years (2021: 14.9 years).
the ultimate trend rate 2031 2028 2028
The Group’s ordinary contribution to the various pen-
sion plans is based on the rules of each plan. Additional
The following table shows the weighted average plan contributions are made whenever this is required by stat-
asset allocation of funded defined benefit pension plans ute or law (i.e., usually when statutory funding levels fall
at December 31, 2022 and 2021: below predetermined thresholds). The only significant
plans that require additional funding are those in the
Pension plans United Kingdom and Germany.
Long-term Long-term The expected future cash flows in respect of pension
target target and other post-employment benefit plans at December
(as a percentage) minimum maximum 2022 2021
31, 2022, were as follows:
Equity securities 15 40 24 27
Debt securities 20 60 31 33 Other post-
Real estate 5 30 21 19 employment
(USD millions) Pension plans benefit plans
Alternative investments 0 20 18 15
Novartis Group contributions
Cash and other investments 0 15 6 6
2023 (estimated) 397 38
Total 100 100
Expected future benefit payments
2023 1 268 38
Cash and most of the equity and debt securities have a 2024 1 441 38
quoted market price in an active market. Real estate and 2025 1 128 38
alternative investments, which include hedge fund, pri- 2026 1 114 38
vate equity, infrastructure and commodity investments, 2027 1 099 38
usually have a quoted market price or a regularly updated
2028–2032 5 310 171
net asset value.
The strategic allocation of assets of the different pen-
sion plans is determined with the objective of achieving
an investment return that, together with the contributions Defined contribution plans
paid by the Group and its employees, is sufficient to main-
tain reasonable control over the various funding risks of In many subsidiaries, employees are covered by defined
the plans. Based upon the market and economic envi- ­contribution plans. Contributions charged to the consol-
ronments, actual asset allocations may temporarily be idated income statement for the defined contribution
permitted to deviate from policy targets. The asset allo- plans were:
cation currently includes investments in shares of
Novartis AG as per the below table: (USD millions) 2022 2021 2020

Contributions for defined contribution plans 520 523 501

The Group’s total personnel costs amounted to USD 14.9

billion in 2022.


F-57
 Notes to the Novartis Group consolidated financial statements

26. Equity-based participation plans for employees

The expense related to all equity-based participation Novartis equity plan “Select”
plans and the liabilities arising from equity-based pay-
ment transactions were as follows: The equity plan “Select” is a global equity incentive plan
under which eligible employees may annually be awarded
(USD millions) 2022 2021 2020 a grant subject to a three-year, and for selected units a
Expense related to equity-based four-year, staggered vesting period. No awards are
participation plans 1 048 979 958 granted for performance ratings below a certain thresh-
Liabilities arising from equity-based old. Executive Committee members and NTLs are not
payment transactions 235 253 269 eligible to participate in the equity plan “Select.”
The equity plan “Select” currently allows participants
Equity-based participation plans can be separated into employed and living in Switzerland to choose the form
the following plans: of their equity compensation in RSs or RSUs. In all other
jurisdictions, RSs or RSUs are granted unilaterally. Until
2013, participants could also choose to receive part or
Annual Incentive the entire grant in the form of tradable share options.
Tradable share options expire on their 10th anniver-
The Annual Incentive for the Novartis Group CEO and sary from the grant date, meaning all outstanding options
other Executive Committee members (ECN) is paid 50% exercisable at December 31, 2022, will expire in January
in cash and 50% in Novartis restricted shares (RSs) or 2023. Each tradable share option entitles the holder to
restricted share units (RSUs). For the Novartis Top Lead- purchase after vesting (and before the 10th anniversary
ers (NTLs), the Annual Incentive is paid 70% in cash and from the grant date) one Novartis share at a stated exer-
30% in RSs or RSUs. Both the ECN and NTLs can opt cise price that equals the closing market price of the
to invest up to the maximum cash portion of their Annual underlying share at the grant date. As the exercise price
Incentive to receive further RSs or RSUs. Any cash is does not reflect the decrease in the Novartis share due
paid out during March in the year following the end of to the Alcon spin, one-fifth of an Alcon share will also be
the performance period, and the shares are granted awarded to the option holder upon exercise.
during January in the year following the end of the per-
formance period. Options under Novartis equity plan “Select”
outside North America
The following table shows the activity associated with
Employee share savings plan the share options during the period. The weighted aver-
age prices in the table below are translated from Swiss
Novartis operates employee share savings and purchase francs into USD at historical rates.
plans in certain countries. The most significant is
described below. 2022 2021
The Employee Share Ownership Plan (ESOP) in Swit- Weighted Weighted
zerland offers participants to choose to receive their average average
exercise exercise
Annual Incentive (i) 100% in shares, (ii) 50% in shares Options price Options price
and 50% in cash, or (iii) 100% in cash. After expiration (millions) (USD) (millions) (USD)
of a three-year holding period for Novartis shares Options outstanding
invested under the ESOP, participants will receive one at January 1 1.7 63.6 2.6 62.0
matching share for every two invested shares. Employ- Sold or exercised – 1.2 62.6 – 0.9 58.9
ees eligible for the equity plan “Select” are not eligible Outstanding at December 31 0.5 66.0 1.7 63.6
to receive ESOP matching shares. The Novartis Group Exercisable at December 31 0.5 66.0 1.7 63.6
CEO, the other Executive Committee members and the
NTLs are not eligible to participate in this plan.
All share options were granted at an exercise price that
was equal to the closing market price of the Group’s
Novartis Employee share purchase shares at the grant date. The weighted average share
plan price at the dates of sale or exercise was USD 86.1.

In 2022 Novartis started to grant shares under the Options under Novartis equity plan “Select” for
Employee Share Purchase Plan. The plan enables North America
employees to voluntarily purchase Novartis shares The following table shows the activity associated with
through payroll deductions at a discounted price. While the ADR options during the period:
the plan is global in scope, the first phase covers: North
America (the US, Puerto Rico and Canada). The shares
are not subject to a vesting period.


F-58
 Notes to the Novartis Group consolidated financial statements

2022 2021 Bloomberg standard published TSR data, which is pub-

Weighted Weighted licly available. The position of Novartis in the peer group
average average determines the payout range based on a payout matrix.
ADR exercise ADR exercise
options price options price
(millions) (USD) (millions) (USD) Long-Term Relative Performance
Options outstanding
at January 1 4.0 64.4 6.7 62.9
Plan
Sold or exercised – 2.9 63.7 – 2.7 60.7 The LTRPP was an equity plan for the Novartis ECN and
Outstanding at December 31 1.1 66.1 4.0 64.4 NTLs and the awards were subject to a three-year per-
Exercisable at December 31 1.1 66.1 4.0 64.4 formance and vesting period. The last grant under this
plan was made in 2018. The LTRPP performance crite-
ria were based on variables that could be observed in
All ADR options were granted at an exercise price that the market, which was the ranking of the Novartis TSR
was equal to the closing market price of the ADRs at the relative to a global healthcare peer group of 14 other
grant date. The weighted average ADR price at the dates companies, over rolling three-year performance periods.
of sale or exercise was USD 89.1. The TSR for Novartis and the peer companies was cal-
culated as described in the LTPP section above.
Long-Term Performance Plan
The Long-Term Performance Plan (LTPP) is an equity plan Other share awards
for the ECN, the NTLs and employees of Group units with
specific targets. Selected employees may exceptionally receive Special
Participants are granted a target number of perfor- Share Awards of RSs or RSUs. These Special Share
mance share units (PSUs) at the beginning of every per- Awards provide an opportunity to reward outstanding
formance period, which are converted into unrestricted achievements or exceptional performance, and aim to
Novartis shares after the performance period. The actual retain key contributors. They are based on a formal inter-
payout depends on the achievement of the performance nal selection process, through which the individual per-
measures and ranges between 0% and 200% of the formance of each candidate is thoroughly assessed at
granted amount. PSUs granted under the LTPP do not several management levels. Special Share Awards had
carry voting rights, but do carry dividend equivalents that a minimum three-year vesting period before 2021 and
are paid in unrestricted Novartis shares at the end of the mainly three years thereafter. In exceptional circum-
performance period. stances, Special Share Awards may be awarded to
The LTPP awards are subject to a three-year perfor- attract special expertise and new talents to the
mance and vesting period. Until 2018, the performance ­organization. Externally recruited ECN members are eli-
criteria were based on Novartis internal performance gible only for special awards that are “buyouts” in the
metrics. For LTPP awards starting in 2019, following the case that it is to replace equity forfeited with their for-
combination of the two LTPP and Long-Term Relative mer employer. The equity is provided on a like-for-like
Performance Plan (LTRPP), the performance criteria are basis as the forfeited equity, at the same value with the
based on both Novartis internal performance metrics and same vesting period, and with or without a performance
variables that can be observed in the market, which is condition.
the ranking of the Novartis total shareholder return (TSR) Worldwide, employees at different levels in the orga-
relative to a global healthcare peer group of 14 other nization were awarded RSs and RSUs in 2022, 2021 and
companies, over rolling three-year performance periods. 2020.
TSR for Novartis and the peer companies is calcu- In addition, in 2022, 2021 and 2020, Board members
lated as the change in the company share price, which received u­ nrestricted shares as part of their regular com-
is translated to USD at the relevant exchange rate, includ- pensation.
ing the reinvestment return of dividends, over the three-
year performance period. The calculation is based on


F-59
 Notes to the Novartis Group consolidated financial statements

Summary of share grants

The table below provides a summary of share grants (shares, RSs, RSUs and PSUs) for all plans:

2022 2021

Weighted Weighted
Number average fair Number average fair
of shares value at grant of shares value at grant
in millions date in USD in millions date in USD

Annual Incentive
– RSU 0.2 74.7 0.2 87.5
– Restricted shares 0.1 85.0 0.1 97.0
Share savings plans
– RSU 0.4 75.0 0.4 86.9
– Shares 1.2 85.0 1.1 97.0
Novartis Employee Share Purchase Plan 0.8 82.8
Select North America (RSU) 4.9 74.5 4.3 86.9
Select outside North America
– RSU 2.0 75.1 1.8 86.9
– Restricted shares 0.7 85.0 0.6 97.0
Long-Term Performance Plan (PSU) 1.7 82.0 1.8 89.5
Other share awards
– RSU 0.5 76.3 0.6 78.4
– Restricted shares 0.1 86.9
– Shares 0.1 86.1 0.1 91.9


F-60
 Notes to the Novartis Group consolidated financial statements

27. Transactions with related parties

Roche Holding AG all sales. Novartis records sales ­outside the United
States.
Novartis has two agreements with Genentech, Inc., Novartis markets Xolair and records all sales and
United States (Genentech), and one agreement with related costs outside the United States as well as co-pro-
Spark Therapeutics, Inc., United States (Spark). Both motion costs in the US. Genentech/Roche and Novartis
companies are s ­ubsidiaries of Roche Holding AG share the resulting profits from sales in the United States,
(Roche), which were indirectly included in the consoli- Europe and other countries, according to agreed prof-
dated financial statements using equity accounting until it-sharing percentages. From January 1, 2021 until
November 3, 2021, when Novartis entered into an agree- December 6, 2021, Novartis recognized total sales of
ment with Roche to divest its 33.3% of Roche voting Xolair of USD 1.3 billion (2020: USD 1.3 billion), including
shares. On December 6, 2021, Novartis divested its sales to Genentech/Roche for the United States market.
investment in Roche, on which date Roche ceased to be
a related party (see Notes 2 and 4). Luxturna
In 2018, Novartis entered into an exclusive licensing and
Lucentis commercialization agreement and a supply agreement
Novartis has licensed from Genentech/Roche the exclu- with Spark for Luxturna outside the United States. The
sive rights to develop and m­ arket Lucentis outside the agreements include regulatory and sales milestones as
United States for indications related to diseases of the well as royalties payable to Spark on ex-US sales. On
eye. Novartis pays royalties on the net sales to third par- December 17, 2019, Roche acquired Spark.
ties of Lucentis products outside the United States. From
January 1, 2021 until December 6, 2021, Lucentis sales The net income for royalties, cost sharing and profit shar-
of USD 2.0 billion (2020: USD 1.9 billion) were recognized ing arising out of the Lucentis, Xolair and Luxturna agree-
by Novartis. ments with Roche totaled USD 188 million from January
1, 2021 until December 6, 2021 (net income in 2020:
Xolair USD 217 million).
Novartis and Genentech/Roche are co-promoting Xolair Furthermore, Novartis has several patent license,
in the United States, where Genentech/Roche records supply and distribution agreements with Roche.

Novartis Pension Fund

In 2018, a Group subsidiary provided an uncommitted the US Federal Funds Rate. This credit facility was not
overnight credit facility to the Novartis Pension Fund, utilized during the current and past years.
Switzerland, for up to USD 500 million with interest at

Executive Officers and Non-Executive Directors compensation

At December 31, 2022, there were 11 Executive Com- 2021, there were 12 Executive Officers. During 2021, 3
mittee ­members (“Executive Officers”). During 2022, 5 Executive Officers stepped down. At December 31,
Executive Officers stepped down. At December 31, 2020, there were 13 Executive Officers.

The total compensation for Executive Committee members and the 15 Non-Executive Directors (14 in 2021 and
14 in 2020) using the Group’s accounting policies for equity-based compensation and pension benefits was as fol-
lows:

Executive Officers Non-Executive Directors Total

(USD millions) 2022 2021 2020 2022 2021 2020 2022 2021 2020

Cash and other compensation 25.0 20.3 25.6 4.6 4.7 4.6 29.6 25.0 30.2
Post-employment benefits 2.8 2.5 2.7 2.8 2.5 2.7
Equity-based compensation 42.6 37.3 41.1 4.8 5.2 5.2 47.4 42.5 46.3
Total 70.4 60.1 69.4 9.4 9.9 9.8 79.8 70.0 79.2

During 2022, there was an increase in the IFRS compen- down in 2022, in accordance with their employment con-
sation expense for executive officers compared to 2021, tracts and the relevant incentive plan terms, compared
driven by accelerated expenses (cash and other com- to the accelerated expenses due to executive officers
pensation and equity-based compensation) required who stepped down in 2021.
under IFRS for the executive members who stepped


F-61
 Notes to the Novartis Group consolidated financial statements

During 2021, the IFRS compensation expense Transactions with former members of the Board of
decreased due to one role less at the ECN, and lower Directors
cash and equity compensation attributable to former During 2022, 2021 and 2020, the following payments (or
ECN members, partially offset by the net increase of the waivers of claims) were made to former Board members
IFRS compensation expense of current ECN members. or to “persons closely” linked to them:
The Annual Incentive award, which is fully included
in equity-­based compensation even when paid out in Currency 2022 2021 2020
cash, is granted in January in the year following the Dr. Krauer CHF 60 000 60 000
reporting period.
The disclosures on Board and executive compensa-
tion required by the Swiss Code of Obligations and in Dr. Alex Krauer, was an Honorary Chairman of Novartis
accordance with the Swiss Ordinance against Excessive and was entitled to an amount of CHF 60 000 for annual
Compensation in Stock Exchange Listed Companies are periods from one AGM to the next. This amount was fixed
shown in the Compensation Report of the Group. in 1998 upon his departure from the Board in 1999. The
last payment under this arrangement was in 2021.

28. Commitments and contingent liabilities

Research and development Other commitments
commitments
The Group has entered into various purchase commit-
The Group has entered into long-term research and ments for services and materials as well as for equip-
development agreements with various institutions related ment in the ordinary course of business. These commit-
to intangible assets. These agreements provide for ments are g
­ enerally entered into at c
­ urrent market prices
potential milestone payments by Novartis, which are and reflect n
­ ormal business operations. For disclosure
dependent on successful clinical development, or meet- of property, plant and equipment purchase commit-
ing specified sales targets, or other conditions which are ments, see Note 9.
specified in the agreements.
As of December 31, 2022, the amount and estimated
timing of the Group’s commitments to make payments Guarantees issued
under those agreements, which are shown without risk
adjustment and on an undiscounted basis, were as fol- The Group has issued guarantees to third parties in the
lows: ordinary course of business, mostly for tax, customs or
other governmental agencies.
(USD millions) 2022

2023 420
2024 808 Contingent liabilities
2025 448
Group companies have to observe the laws, government
2026 282
orders and regulations of the country in which they
2027 687
­operate.
Thereafter 3 169
A number of Novartis companies are, and will likely
Total 5 814 continue to be, subject to various legal proceedings and
investigations that arise from time to time, including pro-
ceedings regarding product liability; sales and market-
ing practices; commercial disputes; employment and
Commitments for capital calls wrongful discharge; and antitrust, securities, health and
safety, environmental, tax, international trade, privacy
The Group holds investments in funds in which it has and intellectual property matters. As a result, the Group
committed to invest further upon future capital calls. As may become subject to substantial liabilities that may
of December 31, 2022, the total uncalled capital com- not be covered by insurance and that could affect our
mitments for the Group’s investments in funds amounts business, financial position and reputation. While Novartis
to USD 83 million. Note 29 contains further information does not believe that any of these legal proceedings will
on the Group’s investments in funds. have a material adverse effect on its financial position,
litigation is inherently unpredictable and large judgments
sometimes occur. As a consequence, Novartis may in
the future incur judgments or enter into settlements of


F-62
 Notes to the Novartis Group consolidated financial statements

claims that could have a material adverse effect on its investigations and settlements may be the subject of
results of operations or cash flow. separate private litigation.
Governments and regulatory authorities around the While provisions have been made for probable out-
world have been stepping up their compliance and law flows of economic resources, which management deems
enforcement activities in recent years in key areas, to be r­ easonable or appropriate, there are uncertainties
including marketing practices, pricing, corruption, trade connected with these ­estimates.
restrictions, embargo legislation, insider trading, anti- Note 20 contains additional information on these
trust, cyber security and data privacy. Further, when one matters.
government or regulatory authority undertakes an inves- A number of Group companies are involved in legal
tigation, it is not uncommon for other governments or proceedings concerning intellectual property rights. The
regulators to undertake investigations regarding the inherent unpredictability of such proceedings means
same or similar matters. Responding to such investiga- that there can be no assurances as to their ultimate out-
tions is costly and requires an increasing amount of man- come. A negative result in any such proceeding could
agement’s time and attention. In addition, such investi- potentially adversely affect the ability of certain Novartis
gations may affect our reputation, create a risk of companies to sell their products, or require the payment
potential exclusion from government reimbursement of substantial damages or royalties. The timing and the
programs in the United States and other countries, and outcome of legal proceedings and their potential finan-
lead to (or arise from) litigation. These factors have con- cial effect are not predictable.
tributed to decisions by Novartis and other c ­ o­mpanies In the opinion of management, however, the outcome
in the healthcare industry, when deemed in their interest, of these actions will not materially affect the Group’s
to enter into settlement agreements with governmental financial position but could be material to the results of
authorities around the world prior to any formal decision operations or cash flow in a given period.
by the authorities or a court. These government settle- The Group’s potential environmental remediation lia-
ments have involved and may in the future involve large bility is assessed based on a risk assessment and inves-
cash payments, sometimes in the hundreds of millions tigation of the various sites identified by the Group as at
of dollars or more, including the potential repayment of risk for environmental remediation exposure. The Group’s
amounts allegedly obtained improperly and other pen- future remediation expenses are affected by a number
alties, including treble damages. In addition, settlements of uncertainties. These uncertainties include, but are not
of government healthcare fraud cases and antitrust limited to, the method and extent of remediation, the per-
cases often require companies to enter into corporate centage of material attributable to the Group at the reme-
integrity agreements, which are intended to regulate diation sites relative to that attributable to other parties,
company behavior for a period of years. Our affiliates and the financial capabilities of the other potentially
Novartis Corporation and Sandoz Inc. are parties to such responsible parties.
agreements, which will expire in 2025 and 2026, respec- Note 20 contains additional information on environ-
tively. Also, matters underlying governmental mental liabilities.


F-63
 Notes to the Novartis Group consolidated financial statements

29. Financial instruments – additional disclosures

The following tables show the carrying values of finan- Note 19), the carrying values are equal to, or a reason-
cial instruments by measurement category as of Decem- able approximation of, the fair values.
ber 31, 2022 and 2021. Except for straight bonds (see

2022

Financial
Financial instruments at
instruments at fair value Other
Financial fair value through the financial
instruments at through other consolidated liabilities at
amortized comprehensive income amortized
(USD millions) Note costs income statement costs

Cash and cash equivalents 16 7 517

Time deposits and short-term investments with original maturity more than 90 days 16 11 089
Trade receivables 15 8 066
Other receivables and current assets 17 958
Marketable securities – debt securities 16 9
Long-term financial investments – equity securities 13 828 317
Long-term financial investments – debt securities 13 37
Long-term financial investments – fund investments 13 281
Long-term loans, advances, security deposits and other long-term receivables 13 341
Associated companies at fair value through profit and loss 129
Derivative financial instruments 16 204
Contingent consideration receivables 13/17 650
Total financial assets 27 971 874 1 581

Bank and other short-term financial debt 21 863

Commercial paper 21 2 772
Straight bonds 19 22 341
Long-term liabilities to banks and other financial institutions 19 144
Trade payables 5 146
Contingent consideration liabilities (see Note 20/22) and other financial liabilities 1 067
Derivative financial instruments 21 55
Lease liabilities 10 1 789
Total financial liabilities 31 266 1 122 1 789


F-64
 Notes to the Novartis Group consolidated financial statements

2021

Financial
Financial instruments at
instruments at fair value Other
Financial fair value through the financial
instruments at through other consolidated liabilities at
amortized comprehensive income amortized
(USD millions) Note costs income statement costs

Cash and cash equivalents 1 16 10 397 2 010

Time deposits and short-term investments with original maturity more than 90 days 16 12 965
Trade receivables 15 8 005
Other receivables and current assets 17 793
Marketable securities – debt securities 16 2 741
Long-term financial investments – equity securities 13 1 195 468
Long-term financial investments – debt securities 13 34
Long-term financial investments – fund investments 13 366
Long-term loans, advances, security deposits and other long-term receivables 13 332
Associated companies at fair value through profit and loss 192
Derivative financial instruments 16 105
Contingent consideration receivables 13 641
Total financial assets 32 492 5 980 1 772

Interest-bearing accounts of employees payable on demand 21 1 814

Bank and other short-term financial debt 21 899
Commercial paper 21 893
Straight bonds 19 25 296
Long-term liabilities to banks and other financial institutions 19 227
Trade payables 5 553
Commitment for repurchase of own shares 18/22 2 809
Contingent consideration liabilities (see Note 20/22) and other financial liabilities 1 094
Derivative financial instruments 21 68
Lease liabilities 10 1 896
Total financial liabilities 37 491 1 162 1 896

1
Includes short-term highly rated government-backed debt securities, with an original maturity of three months or less

Derivative financial instruments amounts indicate the gross volume of business outstand-
ing at the consolidated balance sheet date and do not
The following tables show the contract or underlying represent amounts at risk. The fair values are ­determined
principal amounts and fair values of derivative financial by reference to market prices or standard pricing mod-
instruments analyzed by type of contract at Decem- els that use observable market inputs at December
ber 31, 2022 and 2021. Contract or underlying principal 31, 2022 and 2021.

Contract or underlying Positive fair values Negative fair values

principal amount

(USD millions) 2022 2021 2022 2021 2022 2021

Forward foreign exchange rate contracts 7 907 13 248 189 92 – 41 – 35

Commodity purchase contract 97 17 15 13
Options on equity securities 39 82 – 14 – 33
Total derivative financial instruments included in
marketable securities and in current financial debts 8 043 13 347 204 105 – 55 – 68


F-65
 Notes to the Novartis Group consolidated financial statements

The following table shows a breakdown by currency of the contract or underlying principal amount of derivative
financial instruments at December 31, 2022 and 2021:

2022

(USD millions) EUR USD Other Total

Forward foreign exchange rate contracts 687 5 659 1 561 7 907

Commodity purchase contract 80 17 97
Options on equity securities 39 39
Total derivative financial instruments 767 5 715 1 561 8 043

2021

(USD millions) EUR USD Other Total

Forward foreign exchange rate contracts 1 485 5 158 6 605 13 248

Commodity purchase contract 17 17
Options on equity securities 82 82
Total derivative financial instruments 1 485 5 257 6 605 13 347

Derivative financial instruments effective for hedge The assets carried at Level 1 fair value are equity and
accounting purposes debt securities as well as fund investments listed in active
At the end of 2022 and 2021, there were no open hedg- markets.
ing instruments for anticipated transactions. The assets generally included in Level 2 fair value
hierarchy are derivatives, and certain debt securities. The
liabilities generally included in this fair value hierarchy
Fair value by hierarchy consist of derivatives. These are valued using corrobo-
rated market data.
As required by IFRS, financial assets and liabilities Level 3 inputs are unobservable for the asset or lia-
recorded at fair value in the consolidated financial state- bility. The assets generally included in Level 3 fair value
ments are categorized based upon the level of judgment hierarchy are various investments in funds and unquoted
associated with the inputs used to measure their fair equity security investments. Contingent consideration
value. There are three hierarchical levels, based on and other financial liabilities carried at fair value are
increasing s ­ ubjectivity associated with the inputs to included in this category.
derive fair valuation for these assets and liabilities, which
are as follows:

2022

(USD millions) Level 1 Level 2 Level 3 Total

Financial assets
Marketable securities
Debt securities 9 9
Derivative financial instruments 204 204
Total marketable securities and derivative financial instruments at fair value 213 213
Current contingent consideration receivables 43 43
Long-term financial investments
Debt and equity securities 473 10 699 1 182
Fund investments 20 261 281
Non-current contingent consideration receivables 607 607
Total long-term financial investments at fair value 493 10 1 567 2 070
Associated companies at fair value through profit and loss 129 129

Financial liabilities
Current contingent consideration liabilities – 131 – 131
Derivative financial instruments – 55 – 55
Total current financial liabilities at fair values – 55 – 131 – 186
Non-current contingent consideration liabilities – 704 – 704
Other financial liabilities – 232 – 232
Total non-current financial liabilities at fair value – 936 – 936


F-66
 Notes to the Novartis Group consolidated financial statements

2021

(USD millions) Level 1 Level 2 Level 3 Total

Financial assets
Cash and cash equivalents
Debt securities 1 2 010 2 010
Total cash and cash equivalents at fair value 2 010 2 010
Marketable securities and derivative financial instruments
Debt securities 2 719 22 2 741
Derivative financial instruments 105 105
Total marketable securities and derivative financial instruments at fair value 2 719 127 2 846
Long-term financial investments
Debt and equity securities 1 080 617 1 697
Fund investments 28 338 366
Contingent consideration receivables 641 641
Total long-term financial investments at fair value 1 108 1 596 2 704
Associated companies at fair value through profit and loss 192 192

Financial liabilities
Contingent consideration payables – 1 075 – 1 075
Derivative financial instruments – 68 – 68
Other financial liabilities – 19 – 19
Total financial liabilities at fair value – 68 – 1 094 – 1 162

1
Includes short-term highly rated government-backed debt securities, with an original maturity of three months or less

The change in carrying values associated with Level 3 financial instruments, using significant unobservable inputs
during the year ended December 31, is set forth below:

2022

Associated
companies at Long-term Contingent Contingent Other
fair value through Fund financial consideration consideration financial
(USD millions) profit and loss investments investments receivables liabilities liabiltiies

January 1 192 338 617 641 – 1 075 – 19

Fair value gains and other adjustments, including from divestments
recognized in the consolidated income statement 4 35 53 530 15
Fair value losses (including impairments and amortizations) and
other adjustments recognized in the consolidated income statement – 63 – 78 – 84 – 114 – 18
Fair value adjustments recognized in the consolidated statement
of comprehensive income, including currency translation effects 24 11
Purchases 4 11 160 – 231 – 238
Cash receipts and payments – 44 44 28
Disposals – 12 – 13
Reclassification –4 –2 – 40
December 31 129 261 699 650 – 835 – 232

Total of fair value gains and losses recognized

in the consolidated income statement for assets
and liabilities held at December 31, 2022 – 63 – 74 – 49 53 416 –3


F-67
 Notes to the Novartis Group consolidated financial statements

2021

Associated
companies at Long-term Contingent Contingent
fair value through Fund financial consideration consideration
(USD millions) profit and loss investments investments receivables payables

January 1 211 366 460 625 – 1 046

Fair value gains and other adjustments, including from divestments
recognized in the consolidated income statement 2 70 69 124 182
Fair value losses (including impairments and amortizations) and
other adjustments recognized in the consolidated income statement – 26 –8 – 13 – 44 – 189
Fair value adjustments recognized in the consolidated statement
of comprehensive income, including currency translation effects –2 –1 51 – 22 22
Purchases 34 12 137 – 88
Cash receipts and payments – 42 44
Disposals – 27 – 71 – 43
Reclassification – 30 – 44
December 31 192 338 617 641 – 1 075

Total of fair value gains and losses recognized

in the consolidated income statement for assets
and liabilities held at December 31, 2021 – 24 62 56 80 –7

During 2022, there was one transfer of equity securities consolidated income statement by USD 154 million and
from Level 3 to Level 1 for USD 44 million (2021: USD 73 USD 140 million, respectively.
million), due to Initial Public Offering of the invested com-
pany. During 2022, there were no transfers of equity
securities from Level 1 to Level 3 due to de-listing (2021: Equity securities measured at fair
USD 29 million). value through other comprehensive
Realized gains and losses associated with Level 3
long-term financial investments measured at fair value
income
through the consolidated income statement are recorded Equity securities held as strategic investments, typically
in the consolidated income statement under “Other held outside the Novartis Venture Fund, are generally
income” or “Other expense,” respectively. Realized gains designated at date of acquisition as financial assets val-
and losses associated with Level 3 long-term financial ued at fair value through other comprehensive income
investments measured at fair value through other com- with no subsequent recycling through profit and loss.
prehensive income are not recycled through the consol- These are made up of individually non-significant invest-
idated income statement but are instead reclassified to ments. At December 31, 2022, the Group holds 65 non-
retained earnings. listed equity securities (December 31, 2021: 60) and 46
During the year, the net loss and net gain recorded listed equity securities (December 31, 2021: 40) in this
on associated companies, fund investments and long- category with the following fair values:
term financial investments at fair value through profit and
loss were USD 316 million and USD 55 million, respec- (USD millions) 2022 2021
tively. Listed equity securities 438 888
To determine the fair value of a contingent Non-listed equity securities 390 307
­consideration, various unobservable inputs are used. A Total equity securities 828 1 195
change in these inputs might result in a significantly
higher or lower fair value measurement. The inputs used
are, among others, the probability of success, sales fore-
cast and assumptions regarding the discount rate and During 2022 and 2021, dividends received from these
timing and different scenarios of triggering events. The equity securities were insignificant. In 2022, in accor-
inputs are ­interrelated. The significance and usage of dance with the consolidated foundations Alcon Inc.
these inputs to each contingent consideration may vary shares divestment plans, Alcon Inc. shares with a fair
due to differences in the timing and triggering events for value of USD 22 million were sold (2021: USD 9 million),
payments or in the nature of the asset related to the con- and the USD 7 million gain on disposal (2021: USD 1 mil-
tingent consideration. lion gain) was transferred from other comprehensive
If the most significant parameters for the Level 3 input income to retained earnings during 2022. In addition, in
were to change by 10% positively or negatively, or where 2022, equity securities that were no longer considered
the probability of success (POS) is the most significant strategic, with a fair value of USD 3 million (2021: USD 254
input parameter, 10% were added or deducted from the million), were sold, and the USD 3 million loss on disposal
applied probability of success, for contingent consider- (2021: USD 211 million gain) was transferred from other
ation payables and contingent consideration receivables, comprehensive income to retained earnings (see Note
this would change the amounts recorded in the 2022 8).


F-68
 Notes to the Novartis Group consolidated financial statements

Nature and extent of risks arising commitments and anticipated transactions. Novartis also
from financial instruments uses forward contracts and may enter into foreign cur-
rency option contracts to hedge.
Market risk Net investments in subsidiaries in foreign countries
Market risk in general comprises currency risk, interest are long-term investments. Their fair value changes
rate risk and price risk, such as commodity and equity through movements of foreign currency exchange rates.
prices. Novartis is exposed to market risk, primarily The Group has designated a certain portion of its long-
related to foreign currency exchange rates, interest rates term euro-denominated straight bonds, maturing in
and the market value of the investments. The Group 2028, as hedges of the translation risk arising on certain
actively monitors and seeks to reduce, where it deems of these net investments in foreign operations with euro
it appropriate to do so, fluctuations in these exposures. functional currency. As of December 31, 2022, long-term
It is the Group’s policy and practice to enter into a vari- financial debt with a carrying amount of EUR 1.8 billion
ety of derivative financial instruments to manage the vol- (USD 2.0 billion; December 31, 2021: USD 2.1 billion), has
atility of these exposures. It does not enter into any finan- been designated as a hedge instrument. During 2022,
cial transactions containing a risk that cannot be USD 91 million of net of taxes unrealized income (2021:
quantified at the time the transaction is concluded. In USD 216 million) was recognized in other comprehen-
addition, it does not sell short assets it does not have, or sive income and accumulated in currency translation
does not know it will have, in the future. The Group only effects in relation with this net investment hedge. The
sells existing assets or enters into transactions and hedge remained effective since inception, and no amount
future transactions (in the case of anticipatory hedges) was recognized in the consolidated income statement
that it confidently expects it will have in the future, based in 2022, 2021 and 2020.
on past experience.
Commodity price risk
Foreign currency exchange rate risk The Group has only a very limited exposure to price risk
The Group uses the US dollar as its reporting currency. related to anticipated purchases of certain commodities
As a result, the Group is exposed to foreign currency used as raw materials by the Group’s businesses. A
exchange movements, primarily in European, Japanese change in those prices may alter the gross margin of a
and emerging market currencies. Fluctuations in the specific business, but generally by not more than 10% of
exchange rates between the US dollar and other curren- the margin and thus below the Group’s risk management
cies can have a significant effect on both the Group’s tolerance levels. Accordingly, the Group does not enter
results of operations, including reported sales and earn- into significant commodity futures, forward or option
ings, as well as on the reported value of our assets, lia- contracts to manage fluctuations in prices of anticipated
bilities and cash flows. This, in turn, may significantly purchases.
affect the comparability of period-to-period results of
operations. Interest rate risk
Because our expenditures in Swiss francs are sig- The Group addresses its net exposure to interest rate
nificantly higher than our revenues in Swiss francs, vol- risk mainly through the ratio of its fixed-rate financial
atility in the value of the Swiss franc can have a signifi- debt to variable-rate financial debt contained in its total
cant impact on the reported value of our earnings, assets financial debt portfolio. To manage this mix, Novartis may
and liabilities, and the timing and extent of such volatility enter into interest rate swap agreements, in which it
can be difficult to predict. exchanges periodic ­ payments based on a notional
There is also a risk that certain countries could expe- amount and agreed-upon fixed and variable interest
rience a devaluation of their currency. If this occurs, it rates.
could impact the effective prices we would be able to
charge for our products and also have an adverse impact Equity risk
on both our consolidated income statement and balance The Group may purchase equities as investments of its
sheet. liquid funds. As a policy, it limits its holdings in an unre-
Subsidiaries whose functional currencies have expe- lated company to less than 5% of its liquid funds. Poten-
rienced a cumulative inflation rate of more than 100% tial investments are thoroughly analyzed. Call options
over the past three years apply the principles of IAS 29 are written on equities that the Group owns, and put
“Financial reporting in Hyperinflationary Economies.” options are written on equities that the Group wants to
The hyperinflationary economies in which Novartis oper- buy and for which cash is available.
ates are Argentina, Venezuela and Turkey. Venezuela and
Argentina were hyperinflationary for all periods pre- Credit risk
sented, and Turkey became hyperinflationary effective Credit risks arise from the possibility that customers may
May 1, 2022, requiring retroactive implementation of not be able to settle their obligations as agreed. To man-
hyperinflation accounting as of January 1, 2022. The age this risk, the Group periodically assesses country
impacts of applying IAS 29 were not significant in all and customer credit risk, assigns individual credit limits,
years presented. and takes actions to mitigate credit risk where appropri-
The Group manages its global currency exposure by ate (for example payment guarantees, credit insurance
engaging in hedging transactions where management and factoring).
deems appropriate. Novartis may enter into various con- The provisions for expected credit losses for cus-
tracts that reflect the changes in the value of foreign cur- tomers are based on a forward-looking expected credit
rency exchange rates to preserve the value of assets, loss, which includes possible default events on the trade


F-69
 Notes to the Novartis Group consolidated financial statements

receivables over the entire holding period of the trade ones hold approximately 13.2%, 9.2% and 6.8%, respec-
receivables. tively (2021: 9.7%, 9.7% and 7.6%, respectively). As of
In measuring the expected credit losses, trade receiv- December 31, 2021, the Group’s cash and cash equiva-
ables are grouped based on shared credit risk charac- lents also included short-term highly rated govern-
teristics (such as private versus public receivables) and ment-backed debt securities, with an original maturity of
days past due. In determining the expected credit loss three months or less, for approximately 16% (2022: nil).
rates, the Group considers current and forward-looking The Group does not expect any losses from non-per-
macroeconomic factors that may affect the ability of the formance by these counterparties and does not have any
customers to settle the receivables, and historical loss significant grouping of exposures to financial sector or
rates for each category of customers. country risk.
The Group’s largest customer accounted for approx-
imately 16% of net sales to third parties, and the second Liquidity risk
largest and third largest customers accounted for 11% Liquidity risk is defined as the risk that the Group could
and 7% of net sales to third parties, respectively (2021: not be able to settle or meet its obligations associated
17%, 11% and 6%, respectively; 2020: 17%, 11% and 6%, with financial liabilities that are settled by delivering cash
respectively). or another financial asset. Group Treasury is responsi-
The highest amounts of trade receivables outstand- ble for liquidity, funding and settlement management. In
ing were for these same three customers and amounted addition, liquidity and funding risks, and related pro-
to 16%, 14% and 7%, respectively, of the Group’s trade cesses and policies, are overseen by management.
receivables at December 31, 2022 (2021: 16%, 12% and Novartis manages its liquidity risk on a consolidated
7%, respectively). There is no other significant concen- basis according to business needs and tax, capital or
tration of customer credit risk. regulatory considerations, if applicable, through numer-
ous sources of financing in order to maintain flexibility.
Counterparty risk Certain countries have legal or economic restrictions
Counterparty risk encompasses issuer risk on market- on the ability of subsidiaries to transfer funds to the
able securities and money market instruments; credit risk Group in the form of cash dividends, loans or advances,
on cash, time deposits and derivatives; as well as settle- but these restrictions do not have an impact on the abil-
ment risk for different instruments. Issuer risk is reduced ity of the Group to meet its cash obligations.
by only buying securities that are at least A- rated. Coun- Management monitors the Group’s net debt or liquid-
terparty credit risk and settlement risk are reduced by a ity position through rolling forecasts on the basis of
policy of entering into transactions with counterparties expected cash flows.
(banks or financial institutions) that feature a strong Novartis has two US commercial paper programs
credit rating. Exposure to these risks is closely moni- under which it can issue up to USD 9.0 billion in the
tored and kept within predetermined parameters. The aggregate of unsecured commercial paper notes.
limits are regularly assessed and determined based upon Novartis also has one Japanese commercial paper pro-
credit analysis, including financial statement and capital gram under which it can issue up to JPY 150 billion
adequacy ratio reviews. In addition, reverse repurchas- (approximately USD 1.1 billion) of unsecured commercial
ing agreements are contracted, and Novartis has entered paper notes. Commercial paper notes totaling USD 2.8
into credit support agreements with various banks for billion under these three programs were outstanding as
derivative transactions. To further reduce the settlement per December 31, 2022 (2021: USD 0.9 billion). Novartis
risk, the Group has implemented a multi-currency pay- further has a committed credit facility of USD 6.0 billion,
ment system, Continuous Linked Settlement (CLS), pro- which was extended in September 2022. This credit
viding multilateral netting (payment-versus-payment set- facility is provided by a syndicate of banks and is intended
tlement) of cash flows from foreign exchange to be used as a backstop for the US commercial paper
transactions. programs. The facility matures in September 2025 and
The Group’s cash and cash equivalents are held with was undrawn as per December 31, 2022, and December
major regulated financial institutions; the three largest 31, 2021.


F-70
 Notes to the Novartis Group consolidated financial statements

The following table sets forth how management monitors net debt or liquidity based on details of the remaining
contractual maturities of current financial assets and liabilities, excluding trade receivables and payables as well
as liabilities for contingent consideration at December 31, 2022, and December 31, 2021:

2022

Due later than Due later than Due later than

one month three months one year
Due within but less than but less than but less than Due after
(USD millions) one month three months one year five years five years Total

Current assets
Marketable securities, time deposits and short-term
investments with original maturity more than 90 days
and accrued interest 4 142 6 911 36 9 11 098
Commodities 111 111
Derivative financial instruments 23 147 19 15 204
Cash and cash equivalents 4 011 3 506 7 517
Total current financial assets 8 176 10 564 55 135 18 930

Non-current liabilities
Financial debt – 8 975 – 11 269 – 20 244
Financial debt – undiscounted – 9 002 – 11 394 – 20 396
Total non-current financial debt – 8 975 – 11 269 – 20 244

Current liabilities
Financial debt – 3 215 – 146 – 2 515 – 5 876
Financial debt – undiscounted – 3 215 – 146 – 2 517 – 5 878
Derivative financial instruments – 38 – 13 –4 – 55
Total current financial debt – 3 253 – 159 – 2 519 – 5 931

Net debt 4 923 10 405 – 2 464 – 8 975 – 11 134 – 7 245

2021

Due later than Due later than Due later than

one month three months one year
Due within but less than but less than but less than Due after
(USD millions) one month three months one year five years five years Total

Current assets
Marketable securities, time deposits and short-term
investments with original maturity more than 90 days
and accrued interest 11 14 585 1 088 4 18 15 706
Commodities 111 111
Derivative financial instruments 21 64 7 13 105
Cash and cash equivalents 7 406 5 001 12 407
Total current financial assets 7 438 19 650 1 095 4 142 28 329

Non-current liabilities
Financial debt – 8 464 – 14 438 – 22 902
Financial debt – undiscounted – 8 490 – 14 587 – 23 077
Total non-current financial debt – 8 464 – 14 438 – 22 902

Current liabilities
Financial debt – 2 780 – 521 – 2 926 – 6 227
Financial debt – undiscounted – 2 780 – 521 – 2 928 – 6 229
Derivative financial instruments – 50 – 16 –2 – 68
Total current financial debt – 2 830 – 537 – 2 928 – 6 295

Net debt 4 608 19 113 – 1 833 – 8 460 – 14 296 – 868

The carrying amounts of financial liabilities included in the above analysis are not materially different to the con-
tractual amounts due on maturity. The positive and negative fair values on derivative financial instruments repre-
sent the net contractual amounts to be exchanged at maturity.


F-71
 Notes to the Novartis Group consolidated financial statements

The Group’s contractual undiscounted potential cash flows from derivative financial instruments to be settled
on a gross basis are as follows:

2022

Due later than Due later than

one month three months
Due within but less than but less than
(USD millions) one month three months one year Total

Derivative financial instruments and accrued interest on derivative

financial instruments

Potential outflows in various currencies – from financial derivative liabilities – 2 029 – 4 598 – 316 – 6 943
Potential inflows in various currencies – from financial derivative assets 2 029 4 712 321 7 062

2021

Due later than Due later than

one month three months
Due within but less than but less than
(USD millions) one month three months one year Total

Derivative financial instruments and accrued interest on derivative

financial instruments
Potential outflows in various currencies – from financial derivative liabilities – 843 – 5 482 – 461 – 6 786
Potential inflows in various currencies – from financial derivative assets 847 5 516 457 6 820

Other contractual liabilities that are not part of management’s monitoring of the net debt or liquidity consist of the
following items:

2022

Due later than Due later than

three months one year
Due within but less than but less than Due after
(USD millions) three months one year five years five years Total

Contractual interest on non-current liabilities – 64 – 412 – 1 432 – 3 624 – 5 532

Lease liabilities 1 – 71 – 180 – 616 – 922 – 1 789
Trade payables – 5 020 – 126 – 5 146
Contingent consideration liabilities – 16 – 115 – 437 – 267 – 835

1
Note 10 provides additional disclosures related to lease liabilities.

2021

Due later than Due later than

three months one year
Due within but less than but less than Due after
(USD millions) three months one year five years five years Total

Contractual interest on non-current liabilities – 82 – 445 – 1 628 – 3 908 – 6 063

Lease liabilities 1 – 78 – 197 – 639 – 982 – 1 896
Trade payables – 5 373 – 180 – 5 553
Commitment for repurchase of own shares – 2 809 – 2 809
Contingent consideration liabilities – 54 – 65 – 517 – 439 – 1 075

1
Note 10 provides additional disclosures related to lease liabilities.

Capital risk management Sensitivity analysis

Novartis strives to maintain a strong credit rating. In man- The Group uses sensitivity analysis disclosures to pro-
aging its capital, Novartis focuses on maintaining a vide quantitative information about market risks to which
strong balance sheet. As of December 31, 2022, Moody’s it is exposed.
Investors Service rated the Company A1 for long-term The sensitivity analysis disclosures are in line with
maturities and P-1 for short-term maturities, and S&P the Group’s financial risk management policy, and are
Global Ratings rated the Company AA- for long-term based on a one-parameter risk model that considers a
maturities and A-1+ for short-term maturities. one-factor linear relationship between risk factors and


F-72
 Notes to the Novartis Group consolidated financial statements

exposures. They consider aggregated risk exposures Interest rate sensitivity

arising from the most significant risk factors (currency Our portfolio of fixed-income instruments as of Decem-
risk, interest rate risk and equity price risk) and include ber 31, 2022, was mainly composed of time deposits and
all financial assets and financial liabilities as set forth in debt securities.
the table on page F-64. Novartis uses duration models to approximate the
The disclosures below illustrate the potential impact possible change in the value of fixed-income instru-
on the Group’s consolidated financial statements as a ments. Based on these models, management believes
result of hypothetical market movements in foreign cur- that a 100-basis point change in interest is deemed a
rency exchange rates, interest rates and equity prices. reasonable possible change over a one-year period.
The range of variables chosen reflects management’s Based on exposures in 2022 and 2021, a hypotheti-
view of changes that are reasonably possible over a one- cal 100-basis point increase (decrease) in interest rates
year period. would not have resulted in a significant increase
(decrease) in the fair values of the fixed-income instru-
Foreign currency exchange rate sensitivity ments. In addition, a hypothetical 100-basis point
The Group uses the US dollar as its reporting currency. increase (decrease) in interest rates would not have
As a result, the Group is exposed to foreign currency resulted in a material increase (decrease) of cash flows
exchange movements, primarily in European, Japanese attributable to such fixed-income instruments.
and emerging market currencies, as well as in the Swiss The vast majority of our outstanding financial debts
franc. A strengthening (weakening) of the US dollar are straight bonds with fixed interest rates and are there-
against these currencies as of December 31, 2022 and fore not affected by movements in interest rates.
2021 would have affected the measurement of financial
instruments denominated in these foreign currencies. Equity price sensitivity
This analysis assumes that all other variables, in partic- Fund investments and equity securities held by the
ular interest rates, remain constant. A hypothetical 5% Novartis Venture Fund are valued at fair value through
increase or decrease in the foreign currency exchange profit and loss. Equity securities held as strategic invest-
rates against the US dollar would have impacted the ments, typically held outside the Novartis Venture Fund,
Group’s consolidated income statement as presented are generally designated at date of acquisition as finan-
below: cial assets valued at fair value through other compre-
hensive income with no subsequent recycling through
(USD millions) 2022 2021 profit and loss.
5% increase in foreign currency exchange rates The fair value of these fund investments and equity
against USD –6 3 securities was USD 1.6 billion as of December 31, 2022
5% decrease in foreign currency exchange rates (December 31, 2021: USD 2.2 billion). The fair values of
against USD 7 –3 these investments are impacted by the volatility of the
stock market, valuation parameters applied (for non-
As of December 31, 2022, the Group designated EUR 1.8 listed equities) and changes in general economic factors.
billion (December 31, 2021: EUR 1.8 billion) of its long- This analysis assumes that all other variables, in partic-
term euro-denominated straight bonds as hedges of the ular interest rates, remain constant. A hypothetical
translation risk arising on certain net investments in for- increase or decrease of 15% in the risk factors would
eign operations with euro functional currency. This anal- have impacted the Group’s consolidated income state-
ysis assumes that all other variables, in particular inter- ment as presented below:
est rates, remain constant. A hypothetical 5% increase,
or decrease, in the foreign currency exchange rates (USD millions) 2022 2021
against the US dollar, without considering the translation 15% increase in equity prices 109 154
effect of these net investments, would have impacted 15% decrease in equity prices – 109 – 154
the Group’s consolidated equity as presented below:

(USD millions) 2022 2021 A hypothetical increase or decrease of 15% in the risk
5% increase in foreign currency exchange rates factors would have impacted the Group’s consolidated
against USD 93 99 equity as presented below:
5% decrease in foreign currency exchange rates
against USD – 98 – 104 (USD millions) 2022 2021

15% increase in equity prices 124 179

15% decrease in equity prices – 124 – 179


F-73
 Notes to the Novartis Group consolidated financial statements

30. Events subsequent to the December 31, 2022,

consolidated balance sheet date
South Korea investigation – Concluded matter Dividend proposal for 2022 and approval of the
In January 2023, the Supreme Court dismissed the Group’s 2022 consolidated financial statements
appeal by the Seoul Western District Prosecutor on the On January 31, 2023, the Novartis AG Board of Direc-
criminal investigation on, among other things, allegations tors proposed the acceptance of the 2022 consolidated
that Novartis Korea utilized medical journals to provide financial statements of the Novartis Group for approval
inappropriate economic benefits to healthcare profes- by the Annual General Meeting on March 7, 2023. Fur-
sionals (HCPs). This matter is now concluded. For addi- thermore, also on January 31, 2023, the Board proposed
tional information see Note 20. a dividend of CHF 3.20 per share to be approved at the
Annual General Meeting on March 7, 2023. If approved,
total dividend payments would amount to approximately
USD 7.3 billion (2021: USD 7.5 ­billion), using the CHF/USD
December 31, 2022, exchange rate.


F-74
 Notes to the Novartis Group consolidated financial statements

31. Principal Group subsidiaries

and associated companies
The following table lists the principal subsidiaries controlled by Novartis, associated companies in which ­Novartis
is deemed to have significant influence, and foundations required to be consolidated under IFRS. It includes all sub-
sidiaries, associated companies and consolidated foundations with total assets or net sales to third parties in excess
of USD 25 million. The equity interest percentage shown in the table also represents the share in voting rights in
those entities.

Share Equity Share Equity

As at December 31, 2022 capital 1 interest As at December 31, 2022 capital 1 interest
Algeria France
Société par actions SANDOZ, Algiers DZD 650.0 m 100% Novartis Groupe France S.A., Rueil-Malmaison EUR 903.0 m 100%
Argentina Novartis Pharma S.A.S., Rueil-Malmaison EUR 43.4 m 100%
Novartis Argentina S.A., Buenos Aires ARS 906.1 m 100% Novartis Gene Therapies France SAS, Rueil-Malmaison EUR 10 000 100%
Advanced Accelerator Applications S.A., Rueil-Malmaison EUR 9.6 m 99.23%
Australia Advanced Accelerator Applications
Novartis Australia Pty Ltd, Macquarie Park, NSW AUD 2 100% Molecular Imaging France, Saint-Genis-Pouilly EUR 7.5 m 99.23%
Novartis Pharmaceuticals CELLforCURE, Les Ulis EUR 4.2 m 100%
Australia Pty Ltd, Macquarie Park, NSW AUD 3.8 m 100% Sandoz S.A.S., Levallois-Perret EUR 5.4 m 100%
Sandoz Pty Ltd, Macquarie Park, NSW AUD 11.6 m 100%
Germany
Austria Novartis Deutschland GmbH, Nuremberg EUR 155.5 m 100%
Novartis Austria GmbH, Vienna EUR 1.0 m 100% Novartis Business Services GmbH, Wehr EUR 25 000 100%
Novartis Pharma GmbH, Vienna EUR 1.1 m 100% Novartis Pharma GmbH, Nuremberg EUR 25.6 m 100%
Sandoz GmbH, Kundl EUR 32.7 m 100% Novartis Pharma Produktions GmbH, Wehr EUR 2.0 m 100%
EBEWE Pharma Ges.m.b.H Nfg. KG, Unterach am Attersee EUR 1.0 m 100% Sandoz International GmbH, Holzkirchen EUR 100 000 100%
Bangladesh 1 A Pharma GmbH, Holzkirchen EUR 26 000 100%
Novartis (Bangladesh) Limited, Gazipur BDT 162.5 m 60% HEXAL AG, Holzkirchen EUR 93.7 m 100%
Belgium Salutas Pharma GmbH, Barleben EUR 42.1 m 100%
Novartis Pharma NV, Vilvoorde EUR 72.1 m 100% Aeropharm GmbH, Rudolstadt EUR 26 000 100%
Sandoz NV, Vilvoorde EUR 19.2 m 100% Greece
Alcon – Couvreur NV, Puurs EUR 110.6 m 100% Novartis (Hellas) S.A.C.I., Metamorphosis / Athens EUR 233.9 m 100%
Bermuda Hungary
Novartis Investment Ltd., Hamilton 2 USD 12 000 100% Novartis Hungary Healthcare Limited Liability
Novartis Securities Investment Ltd., Hamilton CHF 30 000 100% Company, Budapest HUF 545.6 m 100%
Novartis Finance Services Ltd., Hamilton CHF 20 000 100% Sandoz Hungary Limited Liability Company, Budapest HUF 883.0 m 100%
Triangle International Reinsurance Limited, Hamilton CHF 1.0 m 100% India
Trinity River Insurance Co Ltd., Hamilton USD 370 000 100% Novartis India Limited, Mumbai INR 123.5 m 70.68%
Brazil Novartis Healthcare Private Limited, Mumbai INR 60.0 m 100%
Novartis Biociências S.A., São Paulo BRL 507.1 m 100% Sandoz Private Limited, Mumbai INR 32.0 m 100%
Sandoz do Brasil Indústria Farmacêutica Ltda., Cambé, PR BRL 190.0 m 100% Indonesia
Canada PT. Novartis Indonesia, Jakarta IDR 7.7 bn 100%
Novartis Pharmaceuticals Canada Inc., Dorval, Quebec CAD 1.2 m 100% Ireland
Sandoz Canada Inc., Boucherville, Quebec CAD 80.8 m 100% Novartis Ireland Limited, Dublin EUR 25 000 100%
Chile Novartis Integrated Services Limited, Cork City EUR 100 100%
Novartis Chile S.A., Santiago de Chile CLP 2.0 bn 100% Novartis Gene Therapies EU Limited, Dublin EUR 100 100%
China Israel
Beijing Novartis Pharma Co., Ltd., Beijing USD 30.0 m 100% Novartis Israel Ltd., Tel Aviv ILS 1 000 100%
Novartis Pharmaceuticals (HK) Limited, Hong Kong HKD 200 100% Italy
China Novartis Institutes for Novartis Farma S.p.A., Milan EUR 18.2 m 100%
BioMedical Research Co., Ltd., Shanghai USD 320.0 m 100% Advanced Accelerator Applications (Italy) S.r.l., Pozzilli EUR 119 000 99.23%
Suzhou Novartis Technical Sandoz S.p.A., Origgio EUR 1.7 m 100%
Development Co., Ltd., Changshu USD 12.0 m 100%
Shanghai Novartis Trading Ltd., Shanghai USD 3.2 m 100% Japan
Sandoz (China) Pharmaceutical Novartis Pharma K.K., Tokyo JPY 100.0 m 100%
Co., Ltd., Zhongshan USD 57.6 m 100% Ciba-Geigy Japan Limited, Tokyo JPY 100.0 m 100%
Sandoz K.K., Tokyo JPY 100.0 m 100%
Colombia
Novartis de Colombia S.A., Santafé de Bogotá COP 7.9 bn 100% Latvia
Novartis Baltics SIA, Riga EUR 3.0 m 100%
Croatia
Sandoz d.o.o. farmaceutska industrija, Zagreb HRK 25.6 m 100% Luxembourg
Novartis Investments S.à r.l., Luxembourg City 2 USD 100.0 m 100%
Czech Republic Novartis Finance S.A., Luxembourg City USD 100 000 100%
Novartis s.r.o., Prague CZK 51.5 m 100%
Sandoz s.r.o., Prague CZK 44.7 m 100% Malaysia
Novartis Corporation (Malaysia) Sdn. Bhd., Petaling Jaya MYR 3.3 m 100%
Denmark
Novartis Healthcare A/S, Copenhagen DKK 14.0 m 100% Mexico
Sandoz A/S, Copenhagen DKK 12.0 m 100% Novartis Farmacéutica, S.A. de C.V., Mexico City MXN 205.0 m 100%
Sandoz, S.A. de C.V., Mexico City MXN 468.2 m 100%
Ecuador
Novartis Ecuador S.A., Quito USD 4.0 m 100% Morocco
Novartis Pharma Maroc SA, Casablanca MAD 80.0 m 100%
Egypt
Novartis Pharma S.A.E., Cairo EGP 1.3 bn 99.96% Netherlands
Sandoz Egypt Pharma S.A.E., New Cairo City EGP 250 000 100% Novartis Netherlands B.V., Amsterdam EUR 1.4 m 100%
Novartis Pharma B.V., Amsterdam EUR 4.5 m 100%
Finland IDB Holland BV, Baarle-Nassau EUR 18 000 99.23%
Novartis Finland Oy, Espoo EUR 459 000 100% Sandoz B.V., Almere EUR 907 560 100%
New Zealand
Novartis New Zealand Ltd, Auckland NZD 820 000 100%


F-75
 Notes to the Novartis Group consolidated financial statements

Share Equity Share Equity

As at December 31, 2022 capital 1 interest As at December 31, 2022 capital 1 interest
Norway Taiwan
Novartis Norge AS, Oslo NOK 1.5 m 100% Novartis (Taiwan) Co., Ltd., Taipei TWD 170.0 m 100%
Pakistan Thailand
Novartis Pharma (Pakistan) Limited, Karachi PKR 6.7 bn 99.99% Novartis (Thailand) Limited, Bangkok THB 302.0 m 100%
Panama Turkey
Novartis Pharma (Logistics), Inc., Panama City USD 10 000 100% Novartis Saglik, Gida ve Tarim Ürünleri Sanayi
Philippines ve Ticaret A.S., Istanbul TRY 448.0 m 100%
Novartis Healthcare Philippines, Inc., Makati City PHP 298.8 m 100% Farmanova Saglik Hizmetleri Ltd. Sti., Istanbul TRY 6.7 m 100%
Sandoz Philippines Corporation, Makati City PHP 30.0 m 100% Sandoz Ilaç Sanayi ve Ticaret A.S., Istanbul TRY 880.0 m 99.99%
Sandoz Grup Saglik Ürünleri
Poland Ilaçlari Sanayi ve Ticaret A.S., Gebze – Kocaeli TRY 96.0 m 100%
Novartis Poland Sp. z o.o., Warsaw PLN 44.2 m 100%
Sandoz Polska Sp. z o.o., Warsaw PLN 25.6 m 100% Ukraine
Lek S.A., Strykow PLN 11.4 m 100% Sandoz Ukraine LLC, Kyiv UAH 8.0 m 100%

Portugal United Arab Emirates

Novartis Portugal, S.G.P.S., Lda., Porto Salvo EUR 500 000 100% Novartis Middle East FZE, Dubai AED 7.0 m 100%
Novartis Farma – Produtos Farmacêuticos, S.A., Porto Salvo EUR 2.4 m 100% United Kingdom
Sandoz Farmacêutica, Lda., Porto Salvo EUR 499 900 100% Novartis UK Limited, London GBP 25.5 m 100%
Romania Novartis Pharmaceuticals UK Limited, London GBP 5.4 m 100%
Novartis Pharma Services Romania S.R.L., Bucharest RON 3.0 m 100% Novartis Grimsby Limited, London GBP 250.0 m 100%
Sandoz S.R.L., Targu-Mures RON 119.5 m 100% Advanced Accelerator Applications (UK & Ireland), London GBP 100 99.23%
Neutec Pharma Limited, London GBP 7.7 m 100%
Russian Federation Gyroscope Therapeutics Limited, London GBP 1 492 100%
Novartis Pharma LLC, Moscow RUB 20.0 m 100% Sandoz Limited, Frimley / Camberley GBP 2.0 m 100%
Novartis Neva LLC, St. Petersburg RUB 500.0 m 100%
JSC Sandoz, Moscow RUB 57.4 m 100% United States of America
Novartis Corporation, East Hanover, NJ USD 72.2 m 100%
Saudi Arabia Novartis Finance Corporation, East Hanover, NJ 2 USD 1 000 100%
Novartis Saudi Ltd., Riyadh SAR 30.0 m 100% Novartis Capital Corporation, East Hanover, NJ USD 1 100%
Singapore Novartis Services, Inc., East Hanover, NJ USD 1 100%
Novartis (Singapore) Pte Ltd., Singapore SGD 100 000 100% Novartis US Foundation, East Hanover, NJ 3 -- -- --
Novartis Singapore Pharmaceutical Novartis Pharmaceuticals Corporation, East Hanover, NJ 2 USD 650 100%
Manufacturing Pte Ltd, Singapore SGD 45.0 m 100% Advanced Accelerator Applications USA, Inc., Millburn, NJ USD 1 99.23%
Novartis Asia Pacific Pharmaceuticals Novartis Gene Therapies, Inc., Bannockburn, IL USD 1 100%
Pte Ltd, Singapore SGD 39.0 m 100% Novartis Technology LLC, East Hanover, NJ -- -- --
Slovakia Novartis Institutes for BioMedical
Novartis Slovakia s.r.o., Bratislava EUR 2.0 m 100% Research, Inc., Cambridge, MA USD 1 100%
Cadent Therapeutics, Cambridge, MA USD 0.1 100%
Slovenia Endocyte, Inc., East Hanover, NJ USD 1 100%
Lek Pharmaceuticals d.d., Ljubljana EUR 48.4 m 100% Navigate BioPharma Services, Inc., Carlsbad, CA USD 1 100%
Sandoz Pharmaceuticals d.d., Ljubljana EUR 1.5 m 100% The Medicines Company, East Hanover, NJ USD 1 000 100%
South Africa Sandoz Inc., Princeton, NJ USD 25 000 100%
Novartis South Africa (Pty) Ltd, Midrand ZAR 86.3 m 100% Oriel Therapeutics, Inc., Durham, NC USD 50.0 m 100%
Sandoz South Africa (Pty) Ltd, Midrand ZAR 3.0 m 100% Fougera Pharmaceuticals Inc., Melville, NY USD 1 100%
South Korea Eon Labs, Inc., Princeton, NJ USD 1 100%
Novartis Korea Ltd., Seoul KRW 24.5 bn 100% Venezuela
Spain Novartis de Venezuela, S.A., Caracas VES 0 100%
Novartis Farmacéutica, S.A., Barcelona EUR 63.0 m 100% Vietnam
Advanced Accelerator Applications Novartis Vietnam Company Limited, Ho Chi Minh City VND 70 bn 100%
Iberica, S.L.U., Esplugues de Llobregat EUR 22.6 m 99.23%
Sandoz Farmacéutica S.A., Madrid EUR 270 450 100%
Sandoz Industrial Products In addition, the Group is represented by subsidiaries and associated companies with
S.A., Les Franqueses del Vallés / Barcelona EUR 9.3 m 100% total assets or net sales to third parties below USD 25 million in the following countries:
Abadia Retuerta S.A., Sardón de Duero / Valladolid EUR 6.0 m 100% Bosnia and Herzegovina, Bulgaria, Cameroon, Dominican Republic, Ghana, Guatemala,
Sweden Ivory Coast, Kazakhstan, Kenya, Kuwait, North Macedonia, Nigeria, Peru, Senegal and
Novartis Sverige AB, Stockholm SEK 5.0 m 100% Uruguay.
Switzerland
1
Share capital may not reflect the taxable share capital and does not include any
Novartis International AG, Basel CHF 10.0 m 100% paid-in surplus.
Novartis Holding AG, Basel 2 CHF 100.2 m 100% 2
Significant subsidiary under SEC Regulation S-X Rule 1-02(w)
Novartis International Pharmaceutical Investment AG, Basel CHF 100 000 100% 3
Fully consolidated Foundation
Novartis Bioventures AG, Basel CHF 100 000 100% m = million; bn = billion
Novartis Forschungsstiftung, Basel 3 -- -- --
Novartis Stiftung für Kaderausbildung, Basel 3 -- -- --
Novartis-Mitarbeiterbeteiligungsstiftung, Basel 3 -- -- --
Novartis Stiftung für Mensch und Umwelt, Basel 3 -- -- --
Stiftung der Novartis AG für Erziehung,
Ausbildung und Bildung, Basel 3 -- -- --
Novartis Overseas Investments AG, Basel CHF 1.0 m 100%
Japat AG, Basel CHF 50 000 100%
Novartis Pharma AG, Basel 2 CHF 350.0 m 100%
Novartis Pharma Services AG, Basel CHF 20.0 m 100%
Novartis Pharma Schweizerhalle AG, Muttenz CHF 18.9 m 100%
Novartis Pharma Stein AG, Stein CHF 251 000 100%
Novartis Pharma Schweiz AG, Risch CHF 5.0 m 100%
Cellerys AG, Schlieren CHF 129 630 20%
Arctos Medical AG, Bern CHF 360 020 100%
Novartis Innovative Therapies AG, Risch CHF 100 000 100%
Advanced Accelerator Applications International SA, Geneva CHF 9.3 m 99.23%
Sandoz AG, Basel 2 CHF 5.0 m 100%
Sandoz Pharmaceuticals AG, Risch CHF 100 000 100%


F-76
 Statutory Auditor’s Report

Statutory Auditor’s Report

to the General Meeting of Novartis AG Key audit matters are those matters that, in our profes-
Basel sional judgment, were of most significance in our audit
of the consolidated financial statements of the current
period. These matters were addressed in the context of
Report on the Audit of the our audit of the consolidated financial statements as a
Consolidated Financial Statements whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.

Opinion Assessment of the recoverable amount for the

Leqvio and Xiidra intangible assets
We have audited the consolidated financial statements
of Novartis AG and its subsidiaries (“the Group”), which Key Audit Matter
comprise the consolidated balance sheet as at Decem- As discussed in Note 1 to the consolidated financial state-
ber 31, 2022, the consolidated income statement, con- ments, the Group determined the recoverable amount
solidated statement of comprehensive income, consol- of the intangible assets other than goodwill based on the
idated statement of changes in equity and consolidated fair value less costs of disposal method for which no
statement of cash flows for the year then ended, and directly observable market inputs were available. As dis-
notes to the consolidated financial statements, including cussed in Note 11, the Group has intangible assets in its
a summary of significant accounting policies. Innovative Medicines Division other than goodwill total-
In our opinion, the consolidated financial statements ing USD 29’826 million as at December 31, 2022, a por-
(pages F-1 to F-76) give a true and fair view of the con- tion of which related to the currently marketed products
solidated financial position of the Group as at December Leqvio and Xiidra.
31, 2022, and its consolidated financial performance and We identified the assessment of the recoverable
its consolidated cash flows for the year then ended in amount, specifically the sales forecasts of the Leqvio
accordance with International Financial Reporting Stan- and Xiidra intangible assets, as a Key Audit Matter. Sig-
dards (IFRS) and comply with Swiss law. nificant auditor judgment and subjectivity was required
to assess the sales forecasts assumptions which were
a significant input in the determination of the recover-
Basis for opinion able amount of these intangible assets.

We conducted our audit in accordance with Swiss law, Our response

International Standards on Auditing (ISAs) and Swiss The following are the primary procedures we performed
Standards on Auditing (SA-CH). Our responsibilities to address this Key Audit Matter:
under those provisions and standards are further • We evaluated the design and tested the operating
described in the “Auditor’s Responsibilities for the Audit effectiveness of a certain internal control related to the
of the Consolidated Financial Statements” section of our Group’s intangible asset impairment process for Leqvio
report. We are independent of the Group in accordance and Xiidra, including the development of the sales fore-
with the provisions of Swiss law, together with the casts;
requirements of the Swiss audit profession, as well as • We evaluated the reasonableness of management’s
the International Ethics Standards Board for Accoun- sales forecasts for Leqvio and Xiidra by (1) comparing
tants’ International Code of Ethics for Professional certain underlying assumptions to company-specific
Accountants (including International Independence operational information and management’s communi-
Standards) (IESBA Code), and we have fulfilled our other cations to the board of directors, (2) comparing the
ethical responsibilities in accordance with these require- most recent sales performance to previous drug
ments. launches, and (3) comparing certain underlying
We believe that the audit evidence we have obtained assumptions to available external market and industry
is sufficient and appropriate to provide a basis for our data; and
opinion. • We assessed management’s ability to accurately fore-
cast sales by comparing historical sales forecasts for
Leqvio and Xiidra to actual results.
Key Audit Matters
For further information on the assessment of the recov-
• Assessment of the recoverable amount for the Leqvio erable amount for the Leqvio and Xiidra intangible assets
and Xiidra intangible assets refer to the following:
• Provisions for deductions from revenue related to Page F-6 (Note 1 Significant accounting policies), Page
Innovative Medicines US Managed Care, Medicare F-17 (Note 3 Segmentation of key figures 2022, 2021 and
Part D and Medicaid rebate programs 2020) and Page F-33 (Note 11 Goodwill and intangible
assets)


F-77
 Statutory Auditor’s Report

Provisions for deductions from revenue related to another auditor who expressed an unmodified opinion
Innovative Medicines US Managed Care, Medicare on those statements on February 1, 2022.
Part D and Medicaid rebate programs

Key Audit Matter Other Information in the

As discussed in Note 1 to the consolidated financial state- Annual Report
ments, the Group records provisions for estimated
rebates as a deduction from revenue when the related The Board of Directors is responsible for the other infor-
revenue is recognized. Rebates involve the use of mation in the Annual Report. The other information com-
assumptions and judgements in the determination of the prises the information included in the Annual Report, but
provision rates at the time revenues are recorded. Pro- does not include the consolidated financial statements,
vision rates are influenced by the terms and conditions the stand-alone financial statements of the company, the
in the individual agreements, historical experience, prod- compensation report and our auditor’s reports thereon.
uct sales and growth rate, population growth, product Our opinion on the consolidated financial statements
pricing, the mix of contracts and products, the level of does not cover the other information in the Annual Report
inventory in the distribution channel, regulations, con- and we do not express any form of assurance conclu-
tracts, and channels and payers. As discussed in Note sion thereon.
22, provisions for deductions from revenue totaled USD In connection with our audit of the consolidated finan-
6’732 million as at December 31, 2022, a portion of which cial statements, our responsibility is to read the other
related to Innovative Medicines US Managed Care, Medi- information in the Annual Report and, in doing so, con-
care Part D and Medicaid rebate programs (hereafter sider whether the other information is materially incon-
“IM US rebates”). sistent with the consolidated financial statements or our
We identified the estimation of the IM US rebates pro- knowledge obtained in the audit or otherwise appears
visions, specifically the provision rebate rates, as a Key to be materially misstated.
Audit Matter. The evaluation of the provision rebate rates If, based on the work we have performed, we con-
required a high degree of subjective auditor judgment as clude that there is a material misstatement of this other
it involved estimating the portion of the Group’s revenue information, we are required to report that fact. We have
which will ultimately be subject to a related rebate. nothing to report in this regard.

Our response
The following are the primary audit procedures we per- Board of Directors’ Responsibilities
formed to address this Key Audit Matter: for the Consolidated Financial
• We evaluated the design and tested the operating
effectiveness of certain internal controls over the
Statements
Group’s IM US rebates process related to the develop- The Board of Directors is responsible for the prepara-
ment of the provision rebate rates; tion of the consolidated financial statements that give a
• We developed our own independent expectation of the true and fair view in accordance with IFRS and the pro-
IM US rebates provisions, by using internal information, visions of Swiss law, and for such internal control as the
including historical experience and trend analysis of Board of Directors determines is necessary to enable
actual rebate claims paid, and comparing it to manage- the preparation of consolidated financial statements that
ment’s actual recorded balances; are free from material misstatement, whether due to
• For a sample of actual rebate claims processed by the fraud or error.
Group, we evaluated the claims against the contractual In preparing the consolidated financial statements,
and mandated terms of the rebate arrangements; and the Board of Directors is responsible for assessing the
• We assessed management’s ability to accurately esti- Group’s ability to continue as a going concern, disclos-
mate the IM US rebates provisions by comparing his- ing, as applicable, matters related to going concern and
torically recorded provisions to the actual amount that using the going concern basis of accounting unless the
was ultimately paid by the Group. Board of Directors either intends to liquidate the Group
or to cease operations, or has no realistic alternative but
For further information on the provisions for deductions to do so.
from revenue related to Innovative Medicines US Man-
aged Care, Medicare Part D and Medicaid rebate pro-
grams refer to the following: Auditor’s Responsibilities for the
Page F-6 (Note 1 Significant accounting policies), Page Audit of the Consolidated Financial
F-17 (Note 3 Segmentation of key figures 2022, 2021 and
2020), Page F-38 (Note 15 Trade receivables) and Page
Statements
F-48 (Note 22 Provisions and other current liabilities) Our objectives are to obtain reasonable assurance about
whether the consolidated financial statements as a
whole are free from material misstatement, whether due
Other Matter to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high
The consolidated financial statements of the Group for level of assurance, but is not a guarantee that an audit
the year ended December 31, 2021 were audited by conducted in accordance with Swiss law, ISAs and


F-78
 Statutory Auditor’s Report

SA-CH will always detect a material misstatement when We communicate with the Board of Directors, primarily
it exists. Misstatements can arise from fraud or error and through the Audit and Compliance Committee, regard-
are considered material if, individually or in the aggre- ing, among other matters, the planned scope and timing
gate, they could reasonably be expected to influence the of the audit and significant audit findings, including any
economic decisions of users taken on the basis of these significant deficiencies in internal control that we iden-
consolidated financial statements. tify during our audit.
As part of an audit in accordance with Swiss law, ISAs We also provide the Board of Directors with a state-
and SA-CH, we exercise professional judgment and ment that we have complied with relevant ethical require-
maintain professional skepticism throughout the audit. ments regarding independence, and communicate with
We also: them all relationships and other matters that may rea-
• Identify and assess the risks of material misstatement sonably be thought to bear on our independence, and
of the consolidated financial statements, whether due where applicable, actions taken to eliminate threats or
to fraud or error, design and perform audit procedures safeguards applied.
responsive to those risks, and obtain audit evidence From the matters communicated with the Board of
that is sufficient and appropriate to provide a basis for Directors, we determine those matters that were of most
our opinion. The risk of not detecting a material mis- significance in the audit of the consolidated financial
statement resulting from fraud is higher than for one statements of the current period and are therefore the
resulting from error, as fraud may involve collusion, key audit matters. We describe these matters in our audi-
forgery, intentional omissions, misrepresentations, or tor’s report, unless law or regulation precludes public
the override of internal control. disclosure about the matter or when, in extremely rare
• Obtain an understanding of internal control relevant to circumstances, we determine that a matter should not
the audit in order to design audit procedures that are be communicated in our report because the adverse
appropriate in the circumstances, but not for the pur- consequences of doing so would reasonably be expected
pose of expressing an opinion on the effectiveness of to outweigh the public interest benefits of such commu-
the Group’s internal control. nication.
• Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made. Report on Other Legal and
• Conclude on the appropriateness of the Board of Regulatory Requirements
Directors’ use of the going concern basis of account-
ing and, based on the audit evidence obtained, whether In accordance with article 728a para. 1 item 3 CO and
a material uncertainty exists related to events or con- PS-CH 890, we confirm that an internal control system
ditions that may cast significant doubt on the Group’s exists, which has been designed for the preparation of
ability to continue as a going concern. If we conclude consolidated financial statements according to the
that a material uncertainty exists, we are required to instructions of the Board of Directors.
draw attention in our auditor’s report to the related dis-
closures in the consolidated financial statements or, if We recommend that the consolidated financial state-
such disclosures are inadequate, to modify our opin- ments submitted to you be approved.
ion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. How- KPMG AG
ever, future events or conditions may cause the Group
to cease to continue as a going concern.
• Evaluate the overall presentation, structure and con-
tent of the consolidated financial statements, including
the disclosures, and whether the consolidated finan-
cial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding
the financial information of the entities or business
activities within the Group to express an opinion on the Richard Broadbelt Sara Burke
consolidated financial statements. We are responsible Licensed Audit Expert
for the direction, supervision and performance of the Auditor in charge
Group audit. We remain solely responsible for our audit
opinion.
Basel, January 31, 2023


F-79
 Financial statements of Novartis AG

Financial statements of Novartis AG

Income statements
(For the years ended December 31, 2022 and 2021)

(CHF millions) Note 2022 2021

Income from investment in Group subsidiaries 25 096 8 082

License income 230 228
Other income 2 2
Total income 25 328 8 312
Amortization of goodwill 3 – 252 – 252
Impairment of investment in Group subsidiaries – 85
General and administrative expenses – 13 – 13
Total expenses – 265 – 350
Operating income 25 063 7 962
Financial income 4 556 442
Financial expenses 4 – 160 – 160
Extraordinary expenses –1
Income before taxes 25 459 8 243
Direct taxes – 67 – 69
Net income of the year 25 392 8 174

The accompanying Notes form an integral part of these financial statements.


A-1
 Financial statements of Novartis AG

Balance sheets
(At December 31, 2022 and 2021)

(CHF millions) Note 2022 2021

Assets
Current assets
Cash and cash equivalents 3 3
Interest-bearing current receivables
Group subsidiaries 6 6 640 2 777
Other current receivables
Group subsidiaries 97 63
Total current assets 6 740 2 843

Non-current assets
Financial assets
Group subsidiaries 6 14 458 14 933
Investments
Group subsidiaries 5 14 303 14 172
Goodwill 3 1 915 2 167
Total non-current assets 30 676 31 272
Total assets 37 416 34 115

Liabilities and equity

Current liabilities
Interest-bearing current liabilities
Group subsidiaries 6 4 907
Other current liabilities
Group subsidiaries 33 51
Third parties 370 90
Accrued expenses 92 46
Total current liabilities 495 5 094

Non-current liabilities
Interest-bearing non-current liabilities
Bonds 7 1 376 1 377
Non-current provisions 483 482
Total non-current liabilities 1 859 1 859
Total liabilities 2 354 6 953

Equity
Share capital 8 1 202 1 217
Legal reserves
General legal reserve 320 320
Legal reserve for treasury shares held by subsidiaries 9 450 907
Total legal reserves 770 1 227
Free reserves 10 667 739
Retained earnings 17 353 18 342
Net income of the year 25 392 8 174
Retained earnings available for distribution at the end of the year 42 745 26 516
Total unappropriated earnings and free reserves 43 412 27 255
Treasury shares held by Novartis AG 9 – 10 322 – 2 537
Total equity 35 062 27 162
Total liabilities and equity 37 416 34 115

The accompanying Notes form an integral part of these financial statements.


A-2
 Notes to the financial statements of Novartis AG

Notes to the financial statements

of Novartis AG
1. Introduction
The financial statements of Novartis AG, with its regis- Novartis AG is presenting consolidated financial
tered office in Basel, comply with the requirements of statements according to IFRS. Therefore, Novartis AG
the Swiss accounting legislation of the Swiss Code of has applied the exemption included in article 961d, para-
Obligations (SCO). graph 1 SCO, and has not prepared additional disclo-
sures, a separate cash flow statement and a manage-
ment report for SCO purposes.

2. Accounting policies
Financial income and expenses Investments
Current assets and current liabilities denominated in Investments are initially recognized at cost. Investments
­foreign currencies are converted at year-end exchange in Novartis Group subsidiaries are assessed annually
rates. Realized exchange gains and losses, and all and, in case of an impairment, adjusted to their recover-
unreali­zed exchange losses arising from these as well able amount within their category.
as those from business transactions, are recorded net
as financial income or financial expenses.
Goodwill
Derivative financial instruments Goodwill is capitalized and amortized over a period of
20 years. Goodwill is reviewed for impairment on an
Derivative financial instruments are used for hedging pur- annual basis. If necessary, an impairment loss is recog-
poses. These instruments are valued at fair value. When nized.
different accounting policies apply for the hedged item
and the derivative financial instrument, hedge a
­ ccounting
is applied through measuring the hedged item together Bonds
with the derivative financial instrument.
Bonds are valued at nominal value. Any bond premium
is accrued over the duration of the bond so that at
Financial assets ­maturity, the balance sheet amount will equal the amount
that is due to be paid.
Financial assets are valued at acquisition cost less
adjustments for foreign currency losses and any other
impairment of value. Provisions
Provisions are made to cover general business risks of
the Group.


A-3
 Notes to the financial statements of Novartis AG

3. Goodwill
(CHF millions) 2022 2021

Goodwill
Gross cost 1 4 939 4 939

Accumulated amortization
January 1 – 2 772 – 2 520
Amortization charges – 252 – 252
December 31 – 3 024 – 2 772
Net book value at December 31 1 915 2 167

1
There was no change during 2022 and 2021.

4. Financial income and expenses

2022 2021

(CHF millions) Income Expenses Income Expenses

Interest 525 – 160 428 – 159

Foreign exchange 31 14
Others –1
Total 556 – 160 442 – 160

5. Investments
The principal direct and indirect subsidiaries and other h
­ oldings of Novartis AG are shown in Note 31 to the Group’s
consolidated financial statements.

6. Interest-bearing current receivables and liabilities

and financial assets
Interest-bearing current receivables and liabilities with Financial assets with Group subsidiaries include
Group subsidiaries contain intragroup arrangements financing arrangements and loans to direct or indirect
under which the company grants or receives credits that subsidiaries of Novartis AG.
are available on demand.


A-4
 Notes to the financial statements of Novartis AG

7. Bonds
Straight bonds

2022 2021
Nominal Issuance Maturity CHF CHF
Coupon Currency amount year year Issuer Issue price millions millions

0.250% CHF 500 2015 2025 Novartis AG, Basel, Switzerland 100.640% 500 501
0.625% CHF 550 2015 2029 Novartis AG, Basel, Switzerland 100.502% 551 551
1.050% CHF 325 2015 2035 Novartis AG, Basel, Switzerland 100.479% 325 325
Total straight bonds 1 376 1 377

Breakdowns by maturity

(CHF millions) 2022 2021

2025 500 501

After 2027 876 876
Total 1 376 1 377

Comparison of balance sheet and fair value

2022 2022 2021 2021

(CHF millions) Balance sheet Fair value Balance sheet Fair value

Straight bonds 1 376 1 266 1 377 1 438

Total 1 376 1 266 1 377 1 438

8. Share capital
2022 2021

Number Share capital Number Share capital

of shares CHF millions of shares CHF millions

January 1 2 434 420 920 1 217.2 2 467 060 920 1 233.5

Number of shares canceled/capital reduced during the period – 30 699 668 – 15.3 – 32 640 000 – 16.3
December 31 2 403 721 252 1 201.9 2 434 420 920 1 217.2

The Novartis AG share capital consists of registered During 2021, the total share capital decreased from
shares with a nominal value of CHF 0.50 each. CHF 1 233.5 million at December 31, 2020, to CHF 1 217.2
The total share capital decreased from CHF 1 217.2 million at December 31, 2021, due to a share capital
­million at December 31, 2021, to CHF 1 201.9 million at reduction as a result of the cancellation of 32.6 million
December 31, 2022, due to a share capital reduction as repurchased shares with a nominal value of CHF 16.3
a result of the cancellation of 30.7 million repurchased million. The cancellation was approved at the Annual
shares with a nominal value of CHF 15.3 million. The General Meeting on March 2, 2021, and became effec-
­cancellation was approved at the Annual General M ­ eeting tive on July 8, 2021.
on March 4, 2022, and became effective on May 11, 2022.


A-5
 Notes to the financial statements of Novartis AG

9. Treasury shares
2022 2021

Legal reserve for Legal reserve for

treasury shares treasury shares
Number held by subsidiaries Number held by subsidiaries
of shares CHF millions of shares CHF millions

Treasury shares held by subsidiaries 1

January 1 14 987 803 907 23 325 658 1 389
Number of shares purchased/sold; reserves transferred – 7 458 744 – 457 – 8 337 855 – 482
December 31 7 529 059 450 14 987 803 907

1
Excluding foundations

2022 2021

Deduction from equity Deduction from equity

for treasury shares for treasury shares
Number held by Novartis AG Number held by Novartis AG
of shares CHF millions of shares CHF millions

Treasury shares held by Novartis AG

January 1 82 007 126 2 537 83 947 458 2 655
Number of shares purchased/canceled; reserves transferred 95 543 832 7 785 – 1 940 332 – 118
December 31 177 550 958 10 322 82 007 126 2 537

2022 2021

Total Total
Number of treasury shares Number treasury shares
shares CHF millions of shares CHF millions

Total treasury shares 1

January 1 96 994 929 3 444 107 273 116 4 044
Total number of shares purchased/sold or canceled;
reserves transferred 88 085 088 7 328 – 10 278 187 – 600
December 31 185 080 017 10 772 96 994 929 3 444

1
Excluding foundations

Novartis AG has met the legal requirements for legal With effective date of January 1, 2023, article 659b
reserves under articles 659 et. seq. and 663b.10 SCO SCO was amended to change the definition of subsid-
for the treasury shares. iaries to include foundations of the Company. This
Treasury share purchases during 2022 totaled 127.7 change will have the impact as of January 1, 2023 to
million (2021: 32.2 million), with an average purchase increase the reported number of treasury shares held
price of CHF 82 (2021: CHF 82). No treasury share sales by subsidiaries to reflect the Company foundations’
were executed during 2022 and 2021. Share-based Novartis AG shares held (January 1, 2023: 96 969 226).
­compensation transactions totaled 9.7 million shares As of the entry into force of the revised Swiss corpo-
(2021: 9.9 million shares). rate law on January 1, 2023, Novartis ordinary shares
The number of treasury shares held by the Company held by Swiss foundations controlled by Novartis will no
and its subsidiaries meet the definitions and require- longer carry the right to vote and therefore will be
ments of article 659b SCO. As at December 31, 2022, included as treasury shares for determining compliance
treasury shares held by Novartis AG and its fully-owned with the legal requirements for legal reserves under arti-
subsidiaries totaled 185 080 017. It should be noted that cles 659 et. seq. and 663b.10 SCO for the treasury
within the Novartis Group’s IFRS consolidated financial shares.
statements, some Novartis entities are included in the For further information related to the amendment to
consolidation scope. These entities are mainly founda- SCO article 659b, see Note 10.
tions, which as at December 31, 2022 did not qualify as
subsidiaries in the sense of article 659b SCO.


A-6
 Notes to the financial statements of Novartis AG

10. Free reserves

(CHF millions) 2022 2021

January 1 739 2 256

Reduction due to cancellation of treasury shares (CHF 545 million / CHF 2 016 million of repurchased shares
less their nominal value of CHF 15 million / CHF 16 million) – 530 – 2 000
Transfer from legal reserve for treasury shares 1 458 483
December 31 667 739

1
Transfer from legal reserve for treasury shares (including expired dividends)

With effective date of January 1, 2023, article 659b of CHF 2 246 million, for the 96 969 226 Novartis AG
SCO was amended to change the definition of subsid- shares held by Company foundations, (from CHF 450
iaries to include foundations of the Company. This million to CHF 2 696 million), with a corresponding
change will have the impact as of January 1, 2023 to decrease in free reserves of CHF 667 million and retained
increase the amount of legal reserves by the cost basis earnings of CHF 1 579 million.
of the ­treasury shares held by subsidiaries in the amount

11. Contingent liabilities

(CHF millions) Dec 31, 2022 Dec 31, 2021

Guarantees in favor of subsidiaries to cover capital and interest of bonds, credit facilities and commercial paper
programs – total maximum amount CHF 39 416 million (2021: CHF 42 329 million) 21 997 22 739
Other guarantees in favor of subsidiaries, associated companies and others –
total maximum amount CHF 1 737 million (2021: CHF 1 966 million) 559 632
Total contingent liabilities 22 556 23 371

Novartis AG is part of the Swiss Novartis value-added line under its up-to USD 15.0 billion share buyback. The
tax (VAT) group and is therefore jointly liable for existing arrangement was updated in July 2022. Novartis AG is
and future VAT claims from the Swiss Federal Tax able to cancel this arrangement but would be subject to
­Administration. a 90-day waiting period under certain conditions. There
In December 2021, Novartis AG entered into an irre- was no requirement to record a contingent liability under
vocable, non-discretionary arrangement with a bank to this arrangement.
repurchase Novartis AG shares on the second trading


A-7
 Notes to the financial statements of Novartis AG

12. Registration, voting restrictions

and major shareholders
The Company’s Articles of Incorporation state that no Furthermore, there were the following other significant
person or entity shall be registered with the right to vote ­share­holders:
for more than 2% of the share capital, as set forth in the
commercial register. In particular cases, the Board of % holding of % holding of
Directors may allow exemptions from the limitation for share capital share capital
Dec 31, 2022 Dec 31, 2021
registration in the Novartis Share Register.
Shareholders registered as nominees:
According to the Novartis Share Register, sharehold-
ers who owned 2% or more of the Company’s capital at Chase Nominees Ltd., London 8.4 8.8

December 31, 2022, and were entitled to voting rights on Nortrust Nominees Ltd., London 3.8 4.2
all of their shares, excluding treasury shares held by The Bank of New York Mellon, New York 2.9 3.0
Novartis AG or its fully owned subsidiaries, were as fol- Through The Bank of New York Mellon, Everett 1.6 1.6
lows: Through The Bank of New York Mellon, New York 0.9 1.1
Through The Bank of New York Mellon,
% holding of % holding of SA/NV, Brussels 0.4 0.3
share capital share capital
Shareholder acting as American Depositary Share (ADS) depositary:
Dec 31, 2022 Dec 31, 2021
JPMorgan Chase Bank, N.A., New York 9.4 11.1
Shareholders registered for
their own account:
Emasan AG, Basel 3.7 3.7
The following shareholder was disclosed through a noti-
UBS Fund Management
(Switzerland) AG, Basel 2.3 2.3 fication filed with Novartis AG, but was not registered as
Credit Suisse Funds AG, Zurich 2.1 2.1
of December 31, 2022, in the Novartis Share Register:
• Norges Bank (Central Bank of Norway), Oslo, which
held 2.3% (2021: 2.1%)

The following shareholder was disclosed through a noti-

fication filed with Novartis AG and the SIX Swiss
Exchange, but was registered with less than 2% of the
share capital as of December 31, 2022, in the Novartis
Share Register:
• BlackRock, Inc., New York, which held between 5% and
10%


A-8
 Notes to the financial statements of Novartis AG

13. Equity instrument disclosures for the Board of

Directors and Executive Committee members
Share ownership requirements for Board members Shares and ADRs owned by Board members1
The Chairman is required to own a minimum of 30 000
Novartis shares, and other members of the Board of Number of shares 1,2
Directors are required to own at least 5 000 Novartis At At
shares within five years after joining the Board of Direc- December 31, December 31,
2022 2021
tors, to ensure their interests are aligned with those of
Joerg Reinhardt 3 632 730 609 156
shareholders.
Board members are prohibited from hedging or Simon Moroney 4 102 2 240

pledging their ownership positions in Novartis shares Patrice Bula 8 802 6 543
that are part of their guideline share ownership require- Nancy C. Andrews 8 931 7 257
ment, and are required to hold these shares for 12 months Ton Buechner 20 461 17 856
after retiring from the Board of Directors. As at Decem- Elizabeth Doherty 12 836 10 743
ber 31, 2022, all current and former members of the Bridgette Heller 4 296 2 655
Board of Directors who were required to meet the mini- Daniel Hochstrasser 804 0
mum share ownership requirements did so.
Frans van Houten 14 442 10 813
Ana de Pro Gonzalo 823 0
Shares, ADRs and share options owned by Board
members Andreas von Planta 168 717 166 390

As at December 31, 2022, no member of the Board of Charles L. Sawyers 15 888 14 214
Directors, either individually or together with “persons William T. Winters 27 659 24 436
closely linked”1 to them, owned 1% or more of the out- Sub-Total 920 491 872 303
standing shares (or ADRs) of Novartis. As at the same
date, no member of the Board of Directors held any share
Board members who stepped down at the 2022 AGM
options to purchase Novartis shares. Enrico Vanni 32 078 30 965
The total number of vested Novartis shares and ADRs
Ann Fudge 12 751 13 222
owned by members of the Board of Directors and
Sub-Total 44 829 44 187
“­persons closely linked”1 to them as at December 31,
2022, and as at December 31, 2021, is shown in the table Total 965 320 916 490

below. na – not applicable

1
Includes holdings of “persons closely linked” to Board members (see the “persons
closely linked” definition).
2
Each share provides entitlement to one vote.
3
The 2021 Annual Report included an underestimated number of owned shares for
Joerg Reinhardt. It should stipulate 609 156 shares owned compared to 418 706 as
reported.

Share ownership requirements for 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 below. In addition, the CEO
and CFO are required to hold the equity vesting under
the LTPP plan (granted since 2021) 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 5 x base compensation
Other Executive Committee members 3 x base compensation


A-9
 Notes to the financial statements of Novartis AG

The determination of equity amounts against the share Shares, ADRs, equity rights and share options
ownership requirements is defined to include vested and owned by Executive Committee members
unvested Novartis shares or American Depositary As at December 31, 2022, no member of the Executive
Receipts (ADRs), and RSUs acquired under the Compa- Committee, either individually or together with “persons
ny’s compensation plans. However, unvested PSUs are closely linked”1 to them, owned 1% or more of the out-
excluded. The determination also includes other shares standing shares (or ADRs) of Novartis. As at the same
and vested options of Novartis shares or ADRs that are date, no member of the ­Executive Committee held any
owned directly or indirectly by “persons closely linked” share options to purchase Novartis shares.
to an Executive Committee member. The Compensation The following table shows the total number of shares,
Committee reviews compliance with the share owner- ADRs and other equity rights owned by Executive
ship guideline on an annual basis. ­Committee members and “persons closely linked”1 to
As at December 31, 2022, all members who have them as at December 31, 2022, and as at December 31,
served at least five years on the Executive Committee 2021.
have met or exceeded their personal Novartis share own-
1
“Persons closely linked” are (i) their spouse, (ii) their children below age 18, (iii) any
ership requirements. legal entities that they own or otherwise control, and (iv) any legal or natural person
who is ­acting as their fiduciary.

Shares, ADRs and other equity rights owned by Executive Committee members1

Unvested Unvested
Vested shares Total as at Vested shares Total as at
shares and other December 31, shares and other December 31,
2
and ADRs equity rights 2022 and ADRs equity rights 2 2021

Vasant Narasimhan 228 614 177 888 406 502 170 111 218 826 388 937
Shreeram Aradhye (from May 16, 2022) 1 241 13 153 14 394 0 0 0
Victor Bulto (from May 1, 2022) 0 36 386 36 386 0 0 0
Aharon Gal (from July 18, 2022) 17 948 45 012 62 960 0 0 0
Karen Hale 0 28 568 28 568 0 9 059 9 059
Harry Kirsch 312 682 87 266 399 948 285 186 113 110 398 296
Robert Kowalski 0 32 495 32 495 0 37 562 37 562
Steffen Lang 118 057 56 180 174 237 125 286 65 918 191 204
Fiona Marshall (from November 1, 2022) 0 34 980 34 980 0 0 0
Klaus Moosmayer 16 713 30 708 47 421 8 312 34 732 43 044
Marie-France Tschudin 52 818 75 146 127 964 39 353 84 863 124 216
Subtotal 3 748 073 617 782 1 365 855 628 248 564 070 1 192 318

Executive Committee members who stepped down during 2022

James Bradner (until October 31, 2022) 0 104 402 104 402 43 744 110 808 154 552
Richard Saynor (until October 25, 2022) 0 64 960 64 960 0 33 713 33 713
Susanne Schaffert (until April 4, 2022) 4 142 844 71 226 214 070 120 003 87 801 207 804
John Tsai (until May 15, 2022) 4 13 550 71 638 85 188 25 768 87 461 113 229
Robert Weltevreden (until April 4, 2022) 28 755 41 753 70 508 27 758 44 064 71 822
Subtotal 185 149 353 979 539 128 217 273 363 847 581 120
Total 933 222 971 761 1 904 983 845 521 927 917 1 773 438

1
Includes holdings of “persons closely linked” to Executive Committee members (see “—persons closely linked” definition).
2
Includes restricted shares, RSUs and target number of PSUs. Target number of PSUs are disclosed pro-rata to December 31, unless the award qualified for full vesting under the
relevant plan rules. Awards under all other incentive plans are disclosed in full.
3
Excludes members who stepped down during the year.
4
The 2021 Annual Report included an underestimated number of owned shares for Susanne Schaffert and Jon Tsai. It should respectively stipulate 120 003 and 25 768 shares
owned compared to 116 173 and 23 382 as reported.


A-10
 Appropriation of available earnings and reserves of Novartis AG

Appropriation of available earnings and

reserves of Novartis AG

Appropriation of available earnings of Novartis AG as

per balance sheet and declaration of dividend
(CHF) 2022 2021

Available unappropriated earnings

Balance brought forward before capital reduction 19 318 747 323 18 776 584 858
Reduction due to cancellation of treasury shares1 – 1 966 414 116 – 434 511 117
Net income of the year 25 392 232 198 8 173 868 621
Total available earnings at the end of the year 42 744 565 405 26 515 942 362
Transfer to legal reserves for treasury shares2 – 1 578 834 054
Total available earnings at the disposal of the Annual General Meeting 41 165 731 351 26 515 942 362
Appropriation proposed by the Board of Directors
Payment of a gross dividend (before taxes and duties) of CHF 3.20 (2021: CHF 3.10) on 2 205 489 460
(2021: 2 326 572 339) dividend-bearing shares3 with a nominal value of CHF 0.50 each – 7 057 566 272 – 7 212 374 251
Total available earnings after appropriation 34 108 165 079 19 303 568 111
Dividend waived for additional treasury shares held by the Company 15 179 212
Balance to be carried forward 34 108 165 079 19 318 747 323

1
Based on the Annual General Meeting resolution of March 4, 2022 and March 2, 2021
2
With effective date of January 1, 2023, article 659b SCO was amended to change the definition of subsidiaries to include foundations of the Company. This amendment requires an
additional allocation of legal reserve for treasury shares held by foundations as of January 1, 2023, resulting in a reduction in available earnings at the disposal of the Annual
General Meeting
3
No dividend will be declared on treasury shares held by Novartis AG or its fully owned subsidiaries

If this proposal is approved, the dividend will be paid as from March 13, 2023. The last trading day with entitlement
to receive the dividend is March 8, 2023. As from March 9, 2023, the shares will be traded ex-dividend.


A-11
 Statutory Auditor’s Report

Statutory Auditor’s Report

to the General Meeting of Novartis AG does not include the consolidated financial statements,
Basel the stand-alone financial statements of the Company,
the compensation report and our auditor’s reports
thereon.
Report on the Audit of the Financial Our opinion on the financial statements does not
Statements cover the other information in the Annual Report and we
do not express any form of assurance conclusion
thereon.
Opinion In connection with our audit of the financial state-
ments, our responsibility is to read the other information
We have audited the financial statements of Novartis AG in the Annual Report and, in doing so, consider whether
(the Company), which comprise the balance sheet as at the other information is materially inconsistent with the
December 31, 2022, and the income statement for the financial statements or our knowledge obtained in the
year then ended, and notes to the financial statements, audit or otherwise appears to be materially misstated.
including a summary of significant accounting policies. If, based on the work we have performed, we con-
In our opinion, the financial statements (pages A-1 to clude that there is a material misstatement of this other
A-11) comply with Swiss law and the Company’s articles information, we are required to report that fact. We have
of incorporation. nothing to report in this regard.

Basis for Opinion Board of Directors’ Responsibilities

for the Financial Statements
We conducted our audit in accordance with Swiss law
and Swiss Standards on Auditing (SA-CH). Our respon- The Board of Directors is responsible for the prepara-
sibilities under those provisions and standards are fur- tion of the financial statements in accordance with the
ther described in the “Auditor’s Responsibilities for the provisions of Swiss law and the Company’s articles of
Audit of the Financial Statements” section of our report. incorporation, and for such internal control as the Board
We are independent of the Company in accordance with of Directors determines is necessary to enable the
the provisions of Swiss law, together with the require- preparation of financial statements that are free from
ments of the Swiss audit profession and we have fulfilled material misstatement, whether due to fraud or error.
our other ethical responsibilities in accordance with In preparing the financial statements, the Board of
these requirements. Directors is responsible for assessing the Company’s
We believe that the audit evidence we have obtained ability to continue as a going concern, disclosing, as
is sufficient and appropriate to provide a basis for our applicable, matters related to going concern and using
opinion. the going concern basis of accounting unless the Board
of Directors either intends to liquidate the Company or
to cease operations, or has no realistic alternative but to
Key Audit Matters do so.

Key audit matters are those matters that, in our profes-

sional judgment, were of most significance in our audit Auditor’s Responsibilities for the
of the financial statements of the current period. We have Audit of the Financial Statements
determined that there are no key audit matters to com-
municate in our report. Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and
Other Matter to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but
The financial statements of Novartis AG for the year is not a guarantee that an audit conducted in accordance
ended December 31, 2021 were audited by another audi- with Swiss law and SA-CH will always detect a material
tor who expressed an unmodified opinion on those state- misstatement when it exists. Misstatements can arise
ments on February 1, 2022. from fraud or error and are considered material if, indi-
vidually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users
Other Information in the Annual taken on the basis of these financial statements.
Report
The Board of Directors is responsible for the other infor-
mation in the Annual Report. The other information com-
prises the information included in the annual report, but


A-12
 Statutory Auditor’s Report

As part of an audit in accordance with Swiss law and matters that may reasonably be thought to bear on our
SA-CH, we exercise professional judgment and maintain independence, and where applicable, actions taken to
professional skepticism throughout the audit. We also: eliminate threats or safeguards applied.
• Identify and assess the risks of material misstatement From the matters communicated with the Board of
of the financial statements, whether due to fraud or Directors or its relevant committee, we determine those
error, design and perform audit procedures responsive matters that were of most significance in the audit of the
to those risks, and obtain audit evidence that is suffi- financial statements of the current period and are there-
cient and appropriate to provide a basis for our opin- fore the key audit matters. We describe these matters in
ion. The risk of not detecting a material misstatement our auditor’s report, unless law or regulation precludes
resulting from fraud is higher than for one resulting public disclosure about the matter or when, in extremely
from error, as fraud may involve collusion, forgery, rare circumstances, we determine that a matter should
intentional omissions, misrepresentations, or the over- not be communicated in our report because the adverse
ride of internal control. consequences of doing so would reasonably be expected
• Obtain an understanding of internal control relevant to to outweigh the public interest benefits of such commu-
the audit in order to design audit procedures that are nication.
appropriate in the circumstances, but not for the pur-
pose of expressing an opinion on the effectiveness of
the Company’s internal control. Report on Other Legal and
• Evaluate the appropriateness of accounting policies Regulatory Requirements
used and the reasonableness of accounting estimates
and related disclosures made. In accordance with article 728a para. 1 item 3 CO and
• Conclude on the appropriateness of the Board of PS-CH 890, we confirm that an internal control system
Directors’ use of the going concern basis of account- exists, which has been designed for the preparation of
ing and, based on the audit evidence obtained, whether financial statements according to the instructions of the
a material uncertainty exists related to events or con- Board of Directors.
ditions that may cast significant doubt on the Compa- We further confirm that the proposed appropriation
ny’s ability to continue as a going concern. If we con- of available earnings complies with Swiss law and the
clude that a material uncertainty exists, we are required Company’s articles of incorporation. We recommend that
to draw attention in our auditor’s report to the related the financial statements submitted to you be approved.
disclosures in the financial statements or, if such dis-
closures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained KPMG AG
up to the date of our auditor’s report. However, future
events or conditions may cause the Company to cease
to continue as a going concern.

We communicate with the Board of Directors, primarily

through the Audit and Compliance Committee regard-
ing, among other matters, the planned scope and timing
of the audit and significant audit findings, including any
significant deficiencies in internal control that we iden-
tify during our audit. Richard Broadbelt Norman Dittes
We also provide the Board of Directors or its relevant Licensed Audit expert Licensed Audit Expert
committee with a statement that we have complied with Auditor in Charge
relevant ethical requirements regarding independence,
and communicate with them all relationships and other
Basel, January 31, 2023


A-13