Use these links to rapidly review the document
TABLE OF CONTENTS

Table of Contents

As filed with the Securities and Exchange Commission on January 24, 2018

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

---

FORM 20-F

Commission file number 1-15024

NOVARTIS AG
(Exact name of Registrant as specified in its charter)

NOVARTIS Inc.
(Translation of Registrant's name into English)

Switzerland
(Jurisdiction of incorporation or organization)

Lichtstrasse 35
4056 Basel, Switzerland

(Address of principal executive offices)

Felix R. Ehrat
Group General Counsel
Novartis AG
CH-4056 Basel
Switzerland
Tel.: 011-41-61-324-1111
Fax: 011-41-61-324-7826
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

2,317,456,499 shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ý    No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o    No ý

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý                        Accelerated filer o                        Non-accelerated filer o                        Emerging growth company o

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. o

† The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If "Other" has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o         Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o    No ý

---

*

Not for trading but only in connection with the registration of American Depositary Shares representing such ordinary shares.

   

---

Table of Contents

TABLE OF CONTENTS

2

---

Table of Contents

3

---

Table of Contents

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 (Form 20-F) are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

        Pursuant to Rule 12b-23 of the Securities Exchange Act of 1934, as amended, we incorporate information for certain items of this Form 20-F by reference to the "Excerpts from Novartis Annual Report 2017" included as Exhibit 99.1 to Form 6-K furnished to the SEC on January 24, 2018 (the Annual Report Excerpts). Therefore the information in this Form 20-F should be read in conjunction with the Annual Report Excerpts. References to content not contained within the Annual Report Excerpts shall not be deemed to be incorporated by reference.

        Unless the context requires otherwise, the words "we," "our," "us," "Novartis," "Group," "Company," and similar words or phrases in this Form 20-F 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 Form 20-F reports directly to other executives of the Group company which employs the executive, or to that Group company's board of directors.

        In this Form 20-F, references to "US dollars," "USD" or "$" are to the lawful currency of the United States of America, and references to "CHF" are to Swiss francs; 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 28 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 "FDA" are to the US Food and Drug Administration, references to "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 the "SIX" are to the SIX Swiss Exchange; references to "GSK" are to GlaxoSmithKline plc, references to "Lilly" are to Eli Lilly and Company, and references to "CSL" are to CSL Limited.

        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 property of their respective owners.

---

FORWARD-LOOKING STATEMENTS

        This Form 20-F contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Other written materials filed with or furnished to the US Securities and Exchange Commission (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 "potential," "expected," "will," "planned," "pipeline," "outlook," or similar terms, or by express or implied discussions regarding potential new products, potential new indications for existing products, or regarding potential future revenues from any such products; or regarding the potential outcome, or financial or other impact on Novartis, of the strategic review being undertaken to maximize shareholder value of the Alcon Division; or regarding the potential financial or other impact on Novartis or any of our divisions of

4

---

Table of Contents

the significant acquisitions and reorganizations of recent years; or regarding the potential impact of the share buyback plan; or regarding potential future sales or earnings of the Novartis Group or any of its divisions or potential shareholder returns; or by discussions of strategy, plans, expectations or intentions. You should not place undue reliance on these statements.

        Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. There can be no guarantee that any new products will be approved for sale in any market, or that any new indications will be approved for any existing products in any market, or that any approvals which are obtained will be obtained at any particular time, or that any such products will achieve any particular revenue levels. Neither can there be any guarantee that the strategic review being undertaken to maximize shareholder value of the Alcon Division will reach any particular results, or at any particular time, or that the result of the strategic review will in fact maximize shareholder value. Nor can there be any guarantee that Novartis will be able to realize any of the potential strategic benefits, synergies or opportunities as a result of the significant acquisitions and reorganizations of recent years. Neither can there be any guarantee that shareholders will achieve any particular level of shareholder returns. Nor can there be any guarantee that the Group, or any of its divisions, will be commercially successful in the future, or achieve any particular credit rating or financial results.

        In particular, our expectations could be affected by, among other things:

•

global trends toward health care cost containment, including ongoing government, payor and general public pricing and reimbursement pressures, such as from increased publicity on pharmaceuticals pricing, and requirements for increased pricing transparency;



•

regulatory actions or delays or government regulation generally;



•

the potential that the strategic benefits, synergies or opportunities expected from the significant acquisitions and reorganizations of recent years may not be realized or may take longer to realize than expected;



•

the inherent uncertainties involved in predicting shareholder returns;



•

the uncertainties inherent in the research and development of new healthcare products, including clinical trial results and additional analysis of existing clinical data;



•

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 which commenced in prior years and will continue this year;



•

safety, quality or manufacturing issues;



•

uncertainties regarding actual or potential legal proceedings, including, among others, actual or potential product liability litigation, litigation and investigations regarding sales and marketing practices, intellectual property disputes and government investigations generally;



•

uncertainties involved in the development or adoption of potentially transformational technologies and business models;



•

general political and economic conditions, including uncertainties regarding the effects of ongoing instability in various parts of the world;



•

uncertainties regarding future global exchange rates;



•

uncertainties regarding future demand for our products; and

5

---

Table of Contents

•

uncertainties regarding potential significant breaches of data security or data privacy, or disruptions of our information technology systems.

        Some of these factors are discussed in more detail in this Form 20-F, including under "Item 3. Key Information—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 Form 20-F as anticipated, believed, estimated or expected. We provide the information in this Form 20-F 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 Form 20-F as a result of new information, future events or otherwise.

6

---

Table of Contents

PART I

Item 1.    Identity of Directors, Senior Management and Advisers

        Not applicable.

Item 2.    Offer Statistics and Expected Timetable

        Not applicable.

Item 3.    Key Information

3.A    Selected Financial Data

        The selected financial information set out below has been extracted from our consolidated financial statements prepared in accordance with IFRS as issued by the IASB. Our consolidated financial statements for the years ended December 31, 2017, 2016 and 2015, are included under "Novartis Group consolidated financial statements" on pages 186 to 254 of the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018, and in "Item 18. Financial Statements" in this Form 20-F.

7

---

Table of Contents

        All financial data should be read in conjunction with "Item 5. Operating and Financial Review and Prospects". All financial data presented in this Form 20-F are qualified in their entirety by reference to the consolidated financial statements and their notes.

8

---

Table of Contents

Cash Dividends per Share

        Cash dividends are translated into US dollars at the Bloomberg Market System Rate on the payment date. Because we pay dividends in Swiss francs, exchange rate fluctuations will affect the US dollar amounts received by holders of ADRs.

9

---

Table of Contents

Exchange Rates

        The following table shows, for the years and dates indicated, certain information concerning the rate of exchange of US dollar per Swiss franc based on exchange rate information found on Bloomberg Market System. The exchange rate in effect on January 18, 2018, as found on Bloomberg Market System, was CHF 1.00 = $1.04.

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. You should carefully consider all of the information set forth in this annual report on Form 20-F and in other documents we file with or furnish to the SEC, including the following risk factors, before deciding to invest in or to maintain an investment in any Novartis securities. Our business, as well as our financial condition or results of operations could be materially adversely affected by any of these risks, as well as other risks and uncertainties not currently known to us or not currently considered material.

Risks Facing Our Business

Our products face important patent expirations and losses of intellectual property protection.

        Major products of our Innovative Medicines Division, as well as certain products of our Sandoz and Alcon Divisions, are protected by patent and other intellectual property rights, which provide us with exclusive rights to market the products, and give us an opportunity to recoup our investments in research and development. However, the strength and duration of those intellectual property rights can vary significantly from product to product and country to country, and they may be successfully challenged by

10

---

Table of Contents

third parties or regulatory authorities. Loss of market exclusivity for one or more important products has had, and can be expected to continue to have a material adverse effect on our results of operations.

        The introduction of generic competition for a patented branded medicine typically results in a significant and rapid reduction in net sales and operating income for the branded product because generic manufacturers typically offer their unpatented versions at sharply lower prices. Such competition can occur after successful challenges to intellectual property rights or the regular expiration of the term of the patent or other intellectual property rights. Such competition can also result from the entry of generic versions of another medicine in the same therapeutic class as one of our drugs or in another competing therapeutic class, from a Declaration of Public Interest or the compulsory licensing of our drugs by governments, or from a general weakening of intellectual property laws in certain countries around the world. In addition, generic manufacturers sometimes take an aggressive approach to challenging intellectual property rights, including conducting so-called "launches at risk" of products that are still under legal challenge for infringement, before final resolution of legal proceedings.

        We also rely in all aspects of our businesses on unpatented proprietary technology, know-how, trade secrets and other confidential information, which we seek to protect through various measures including confidentiality agreements with licensees, employees, third-party collaborators, and consultants who may have access to such information. If these agreements are breached or our other protective measures should fail, then our contractual or other remedies may not be adequate to cover our losses.

        Some of our best-selling products have begun or are about to face significant competition due to the end of market exclusivity resulting from the expiry of patent or other intellectual property protection.

•

Our formerly best-selling product Gleevec/Glivec faces continued and increasing generic competition in the US, EU and Japan.



•

Patent protection for the marketed forms of our Sandostatin products has expired. Generic versions of Sandostatin SC are available in the US, EU and Japan. While there is currently no generic competition in the US, EU or Japan for Sandostatin LAR, the long-acting version of Sandostatin which represents the majority of our Sandostatin sales, such generic competition may arise in the future.



•

Diovan and Co-Diovan/Diovan HCT, which had long been our best-selling product, has generic competitors in the US, EU and Japan. In addition, the single pill combination products Exforge and Exforge HCT, which contain valsartan, the active ingredient in Diovan, face generic competition despite the existence of separate intellectual property covering those products. Exforge has generic competition in the US, EU and Japan. Exforge HCT, which is not marketed in Japan, has generic competition in the US and may face additional generic competition in the future.



•

Intellectual property protecting a number of additional major products is either being challenged or will expire at various times in the coming years, raising the possibility of generic competition. Among these products that may begin to face generic competition in one or more major markets during the next three years are Gilenya, our everolimus products (Afinitor/Votubia and Certican/Zortress), Exjade/Jadenu and Lucentis.

        For more information on the patent status of our Innovative Medicines Division's products see "Item 4. Information on the Company—Item 4.B Business Overview—Innovative Medicines—Intellectual Property."

        In 2018, we expect an impact on our net sales of about $1.5 billion as a result of the loss of intellectual property protection for our products. Because we typically have substantially reduced marketing and research and development expenses related to products that are in their final year of exclusivity, we expect that this loss of intellectual property protection also will have an impact on our 2018 operating income in an amount corresponding to a significant portion of the products' lost sales. The magnitude of the impact of generic competition could depend on a number of factors, including the time of year at which the

11

---

Table of Contents

generic competitor is launched; the ease or difficulty of manufacturing a competitor product and obtaining regulatory approval to market it; the number of generic competitor products approved, including whether, in the US, a single competitor is granted an exclusive marketing period, and whether an authorized generic is launched; and the geographies in which generic competitor products are approved, including the strength of the market for generic pharmaceutical products in such geographies and the comparative profitability of branded pharmaceutical products in such geographies.

        Clearly, with respect to major products for which the patent terms are expiring, the loss of exclusivity of these products can be expected to have a material adverse effect on our business, financial condition and results of operations. In addition, should we unexpectedly lose exclusivity on additional products as a result of patent litigation or other reasons, this could also have a material adverse effect on our business, financial condition and results of operations, both due to the loss of revenue and earnings, and the difficulties in planning for such losses.

Our financial performance depends on the commercial success of key products.

        Our financial performance, including our ability to replace revenue and income lost to generic and other competition and to grow our business, depends heavily on the commercial success of our products. If any of our major products were to become subject to problems such as changes in prescription growth rates, unexpected side effects, loss of intellectual property protection, supply chain issues or other product shortages, regulatory proceedings, changes in labeling, publicity affecting doctor or patient confidence in the product, material product liability litigation, or pressure from new or existing competitive products, the adverse impact on our revenue and profit could be significant. In addition, our revenue and profit could be significantly impacted by the timing and rate of commercial acceptance of key new products. See also "—Our business is affected by pressures on pricing and reimbursement for our products," below, with regard to the impact of pricing and reimbursement issues on the commercial success of our products.

        All of our businesses are broadly faced with intense competition from new products and technological advances from competitors, and physicians, patients and third-party payors may choose our competitors' products instead of ours if they perceive them to be safer, more effective, easier to administer, less expensive, more convenient, or more cost-effective. Products that compete with ours are launched from time to time. We cannot predict with accuracy the timing of the introduction of such competitive products or their possible effect on our sales. However, products significantly competitive to our major products, including Cosentyx, Lucentis, Gilenya, Sandostatin, Tasigna and Afinitor, are on the market, and others are in development. In addition, numerous companies are seeking to enter the healthcare field to take advantage of their expertise in digital and other new technologies. See "—We may fail to develop or take advantage of transformational technologies and business models," below. We may also face new competitors from different regions of the world, including China, which is moving aggressively to expand its role in the sciences and in many industries. Such new competitors may successfully develop products or technologies which could make products of ours uncompetitive or obsolete.

        Such competitive products could significantly affect the revenue from our products and our results of operations. This impact could also be compounded to the extent such competition results in us making significant additional investments in marketing and sales, or in research and development.

        In particular, our Alcon Division and our US Sandoz business each has suffered declines in sales and profits in recent years due at least in part to increased competition for its products, although Alcon's results improved in 2017, returning to growth. There can be no certainty either that Sandoz US sales will recover, or that Alcon's improved results will be repeated in the coming years. In any event, such competition and the costs of our efforts to improve these businesses' performance, as well as other factors, can be expected to affect the business, financial condition or results of operations of these organizations, at least in the near term. In addition, despite the devotion of significant resources to our efforts to improve the performance of Alcon and Sandoz US, those efforts may ultimately prove insufficient. Should our efforts fail to accomplish their goals, or fail to do so in a timely manner, it could have a material

12

---

Table of Contents

adverse impact on our business, financial condition or results of operations beyond the near term, as well. See also "—Our research and development efforts may not succeed in bringing new products to market, or may fail to do so in a cost-efficient manner, or in a manner sufficient to grow our business, replace lost revenue and income and take advantage of new technologies," and "—Intense competition from patented and generic pharmaceuticals companies, as well as failure to obtain marketing exclusivity periods for new generic products, or to successfully develop biosimilars and other differentiated products, may have a material adverse effect on the success of our Sandoz Division," below.

Our research and development efforts may not succeed in bringing new products to market, or may fail to do so in a cost-efficient manner, or in a manner sufficient to grow our business, replace lost revenue and income and take advantage of new technologies.

        Our ability to continue to maintain and grow our business, to replace sales lost due to competition, entry of generics or other reasons, and to bring to market products and medical advances that take advantage of new, and potentially disruptive technologies depends in significant part upon the success of our research and development activities in identifying, and successfully and cost-effectively developing new products that address unmet medical needs, are accepted by patients and physicians, are reimbursed by payors, and are commercially successful. To accomplish this, we commit substantial effort, funds and other resources to research and development, both through our own dedicated resources and through collaborations with third parties. However, developing new healthcare products and bringing them to market is a highly costly, lengthy and uncertain process. In spite of our significant investments, there can be no guarantee that our research and development activities will produce commercially successful new products that will enable us to replace revenue and income lost to generic and other competition and to grow our business. See also "—We may not successfully achieve our goals in transactions or reorganizations," below, with regard to our recent reorganization of our pharmaceutical product development organization.

        Using the products of our Innovative Medicines Division as an example, the research and development process for a new product can take up to 15 years, or even longer, from discovery to commercial product launch—and with limited available intellectual property protections, the longer it takes to develop a product, the less time there may be for us to recoup our research and development costs. New products must undergo intensive preclinical and clinical testing, and must be approved by means of highly complex, lengthy and expensive approval processes which can vary from country to country.

        During each stage, there is a substantial risk that we will encounter serious obstacles that will further delay us and add substantial expense, that we will develop a product with limited potential for commercial success, or that we will be forced to abandon a product in which we have invested substantial amounts of time and money. These risks may include failure of the product candidate in preclinical studies, difficulty enrolling patients in clinical trials, clinical trial holds or other delays in completing clinical trials, delays in completing formulation and other testing and work necessary to support an application for regulatory approval, adverse reactions to the product candidate or other safety concerns, insufficient clinical trial data to support the safety or efficacy of the product candidate or to differentiate our product candidate from competitors, an inability to manufacture sufficient quantities of the product candidate for development or commercialization activities in a timely and cost-effective manner, and failure to obtain, or delays in obtaining, the required regulatory approvals for the product candidate or the facilities in which it is manufactured.

        In addition, following the "Brexit" vote in the UK, the EU has decided to move the headquarters of the EU's health authority, the EMA, from the UK to the Netherlands by March 2019. It is expected that a significant percentage of the current employees of the EMA will decide not to make the move to the Netherlands. This raises the possibility that new drug approvals in the EU could be delayed as a result.

13

---

Table of Contents

        Further, in recent years, in order to achieve approvals of and reimbursement for new products and new indications, governmental authorities and payors around the world have increasingly required more clinical trial data than they had in the past, the inclusion of significantly higher numbers of patients in clinical trials, and more detailed analyses of the trials. As a result, despite significant efforts by health authorities such as the FDA to accelerate the development of new drugs, the already lengthy and expensive process of obtaining regulatory approvals and reimbursement for pharmaceutical products has in many cases become even more challenging.

        Similarly, the post-approval regulatory burden has also increased. Approved drugs are subject to various requirements such as risk evaluation and mitigation strategies (REMS), risk management plans, comparative effectiveness studies, health technology assessments, and requirements to conduct post-approval Phase IV clinical trials to gather additional safety and other data on products. These requirements have the effect of making the maintenance of regulatory approvals and of achieving reimbursement for our products increasingly expensive, and further heightening the risk of recalls, product withdrawals, loss of market share, and loss of revenue and profitability.

        There is also the risk that we may fail to identify significant new product candidates for development or potentially disruptive new technologies, and so may fail to take advantage of a potential new wave of innovation.

        Our Alcon Division faces similar challenges in bringing new products to market, including both the products and components that have been developed in house, as well as those that have been acquired from third parties. Alcon's Surgical and Vision Care products face medical device development and approval processes that are often similarly as difficult as those faced by our Innovative Medicines Division. For example, the new EU Medical Devices Regulation could bring substantial changes to the way medical device manufacturers bring new products to the European market, including with respect to labelling, technical documentation and quality management systems. Alcon has taken steps to increase its innovation power and the success of its research and development efforts. But these efforts are costly and require extensive efforts over time. There can be no certainty that Alcon will be successful in these efforts, in either the short- or the long-term, and if Alcon is not successful, there could be a material adverse effect on the success of the Alcon Division, and on the Group as a whole.

        In addition, our Sandoz Division has made, and expects to continue to make, significant investments in the development of differentiated, "difficult-to-make" generic products, including biotechnology-based, "biologic" medicines, including those intended for sale as bioequivalent or "biosimilar" generic versions of currently-marketed biotechnology products. While the development of such products typically is significantly less costly and complex than the development of the equivalent originator medicines, it is nonetheless often significantly more costly and complex than those for non-differentiated generic products. In addition, many countries do not yet have fully-developed legislative or regulatory pathways to facilitate the development of biosimilars and permit biosimilars to be sold in a manner in which the biosimilar product would be readily substitutable for the originator product. Further delays in the development and completion of such regulatory pathways, or any significant impediments that may ultimately be built into such pathways, or any other significant difficulties that may arise in the development or marketing of biosimilars or other differentiated products, could put at risk the significant investments that Sandoz has made, and will continue to make, in the development of differentiated products in general, and in its biopharmaceuticals business in particular, and could have a material adverse effect on the long-term success of the Sandoz Division and the Group as a whole. See also "—Intense competition from patented and generic pharmaceuticals companies, as well as failure to obtain marketing exclusivity periods for new generic products, or to successfully develop biosimilars and other differentiated products, may have a material adverse effect on the success of our Sandoz Division," below.

        Further, in all of our divisions, our research and development activities must be conducted in an ethical and compliant manner. Among other things, we must be concerned with patient safety, data privacy, Good Clinical Practices requirements, data integrity requirements, the fair treatment of patients

14

---

Table of Contents

in developing countries, and animal welfare requirements. Should we fail to properly manage such issues, we risk injury to third parties, damage to our reputation, negative financial consequences as a result of potential claims for damages, sanctions and fines, and the potential that our investments in research and development activities could have no benefit to the Group.

        If we are unable to cost-effectively maintain a flow of successful new products and new indications for existing products sufficient to maintain and grow our business, cover our substantial research and development costs and the decline in sales of older products that become subject to generic or other competition, and take advantage of technological and medical advances, then this could have a material adverse effect on our business, financial condition or results of operations. For a description of the approval processes which must be followed to market our products, see the sections headed "Regulation" included in the descriptions of our operating divisions under "Item 4. Information on the Company—Item 4.B Business Overview."

Our business is affected by pressures on pricing and reimbursement for our products.

        Our businesses are operating in an ever more challenging environment, with significant pressures on the pricing of our products and on our ability to obtain and maintain satisfactory rates of reimbursement for our products by governments, insurers and other payors. The growth of overall healthcare costs as a percentage of gross domestic product in many countries means that governments and payors are under intense pressure to control healthcare spending even more tightly than in the past. These pressures are particularly strong given the increasing demand for healthcare resulting from the aging of the global population and associated increases in non-communicable diseases, and the resulting impact on healthcare budgets. These pressures are further compounded by consolidation among distributors, retailers, private insurers, managed care organizations and other private payors, which can increase their negotiating power, particularly with respect to our generic drugs. In addition, these pressures are augmented by significant controversies and intense publicity about prices for pharmaceuticals that some consider excessive, as well as government investigations and legal proceedings regarding pharmaceutical pricing practices.

        As a result, we face numerous cost-containment measures by governments and other payors, including government-imposed industry-wide price reductions, mandatory pricing systems, reference pricing systems, payors limiting access to treatments based on cost-benefit analyses, an increase in imports of drugs from lower-cost countries to higher-cost countries, shifting of the payment burden to patients through higher co-payments, limiting physicians' ability to choose among competing medicines, mandatory substitution of generic drugs for the patented equivalent, growing pressure on physicians to reduce the prescribing of patented prescription medicines, the imposition or threat of imposition of compulsory licensing or Declarations of Public Interest, and requirements for increased transparency on pricing. For more information on such price controls see "Item 4. Information on the Company—Item 4.B Business Overview—Innovative Medicines—Price Controls." See also "—Ongoing consolidation among our distributors and retailers is increasing both the purchasing leverage of key customers and the concentration of credit risk," below, with regard to the impact on pricing of the consolidation among our customers, and "—Political and economic instability may have a material adverse effect on our results," below, with regard to the impact of economic conditions on our pricing. These factors may materially affect our ability to achieve an acceptable return on our investments in the development of our products, and may impact our ability to invest in the research and development of new products.

        We expect these challenges to continue—and potentially to increase in 2018 and following years—as political pressures mount, and healthcare payors around the globe, including government-controlled health authorities, insurance companies and managed care organizations, step up initiatives to reduce the overall cost of healthcare, restrict access to higher-priced new medicines, increase the use of generics and impose overall price cuts. Such pressures could have a material adverse impact on our business, financial condition or results of operations, as well as on our reputation.

15

---

Table of Contents

Failure to comply with law, legal proceedings and government investigations may have a significant negative effect on our results of operations.

        We are obligated to comply with the laws of all of the countries around the world in which we operate and sell products with respect to an extremely wide and growing range of activities. Such legal requirements can vary from country to country and new requirements may be imposed on us from time to time as government and public expectations regarding acceptable corporate behavior change.

        For example, we are faced with increasing pressures, including new laws and regulations from around the world, to be more transparent with respect to how we do business, including with respect to our interactions with healthcare professionals and organizations. These laws and regulations include requirements that we disclose payments or other transfers of value made to healthcare professionals and organizations, as well as with regard to the prices for our products.

        In addition, we have significant activities in a number of developing countries around the world, both through our own employees, and through third parties retained to assist us. In some of these countries, a culture of compliance with law may not be as fully developed as in other countries.

        To help us in our efforts to comply with the many requirements that impact us, we have a significant global ethics and compliance program in place, and we devote substantial time and resources to efforts to ensure that our business is conducted in a lawful and publicly acceptable manner. Nonetheless, despite our efforts, any actual or alleged failure to comply with law or with heightened public expectations could lead to substantial liabilities that may not be covered by insurance, or to other significant losses, and could affect our business, financial position and reputation.

        In particular, in recent years, there has been a trend of increasing government investigations, legal proceedings and law enforcement activities against companies and executives operating in our industry, both in the US and in countries around the world. Increasingly, such activities can involve criminal proceedings, and can retroactively challenge practices previously considered to be legal. A number of our subsidiaries across each of our divisions are, or may in the future be subject to various investigations and legal proceedings that arise or may arise from time to time, such as proceedings regarding sales and marketing practices, pricing, corruption, trade regulation and embargo legislation, product liability, commercial disputes, employment and wrongful discharge, antitrust (including for so-called "pay for delay" patent settlements), securities, insider trading, occupational health and safety, environmental, tax, cybersecurity, data privacy and intellectual property matters. For information on significant legal matters pending against us see "Note 19. Provisions and other non-current liabilities" and "Note 27. Commitments and contingencies" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018. See also "—Our reliance on outsourcing key business functions to third parties heightens the risks faced by our businesses," below.

        Such proceedings are inherently unpredictable, and large judgments sometimes occur. As a consequence, we may in the future incur judgments that could involve large cash payments, including the potential repayment of amounts allegedly obtained improperly, and other penalties, including treble damages. In addition, such proceedings may affect our reputation, create a risk of potential exclusion from government reimbursement programs in the US and other countries, and may lead to civil litigation. As a result, having taken into account all relevant factors, we have in the past and may again in the future enter into major settlements of such claims without bringing them to final legal adjudication by courts or other such bodies, despite having potentially significant defenses against them, in order to limit the risks they pose to our business and reputation. Such settlements may require us to pay significant sums of money, and to enter into corporate integrity or similar agreements, which are intended to regulate company behavior for a period of years.

        Any such judgments or settlements, and any accruals that we may take with respect to potential judgments or settlements, could have a material adverse impact on our business, financial condition or results of operations, as well as on our reputation.

16

---

Table of Contents

        Our Sandoz Division may from time to time seek approval to market a generic version of a product before the expiration of patents claimed by the marketer of the patented product. We do this in cases where we believe that the relevant patents are invalid, unenforceable, or would not be infringed by our generic product. As a result, affiliates of our Sandoz Division frequently face patent litigation, and in certain circumstances, we may elect to market a generic product even though patent infringement actions are still pending. Should we elect to proceed in this manner and conduct a "launch at risk," we could face substantial damages if the final court decision is adverse to us.

        Adverse judgments or settlements in any of the significant investigations or cases against us could have a material adverse effect on our business, financial condition, results of operations and reputation.

The manufacture of our products is highly regulated and complex, and may result in a variety of issues that could increase our cost of goods and lead to extended supply disruptions and significant liability.

        The manufacture of our products is complex and heavily regulated by governmental health authorities around the world, including the FDA. Whether our products and the related raw materials are manufactured at our own dedicated manufacturing facilities or by third parties, we must ensure that all manufacturing processes comply with current Good Manufacturing Practices (cGMP) and other applicable regulations, as well as with our own high quality standards. In recent years, health authorities have substantially intensified their scrutiny of manufacturers' compliance with such requirements.

        Any significant failure by us or our third-party suppliers to comply with these requirements or the health authorities' expectations, may cause us to shut down the production facilities or production lines. Alternately, we may be forced to shut them down by a government health authority, or could be prevented from importing our products from one country to another. This could lead to product shortages, or to our being entirely unable to supply products to patients for an extended period of time. Such shortages or shut downs have led to and could continue to lead to significant losses of sales revenue and to potential third-party litigation. In addition, health authorities have in some cases imposed significant penalties for such failures to comply with cGMP. A failure to comply fully with cGMP could also lead to a delay in the approval of new products to be manufactured at the impacted site.

        In addition to these regulatory requirements, the technically complex manufacturing processes required to manufacture many of our products increase the risk of production failures, and can increase the cost of producing our goods. For example, we manufacture and sell a number of sterile products, including oncology products, which require sophisticated environmental controls. In addition, a significant number of our products are "biologic" products. Unlike traditional "small-molecule" drugs, biologic drugs or other biologic-based products cannot be manufactured synthetically, but typically must be produced from living plant or animal micro-organisms. As a result, the production of biologic-based products that meet all regulatory requirements is especially complex. Even slight deviations at any point in the production process may lead to production failures or recalls. In addition, because the production process involves living plant or animal micro-organisms, the process could be affected by contaminants that could impact those micro-organisms. Further, for our new oncology product Kymriah, each dose must be separately produced, using the individual patient's own cells as a basis, without contingencies for production failures. As a result, because the production process for many of our products is so complex and sensitive, the cost of production and the chance of production failures and lengthy supply interruptions is increased.

        In order to meet increasing health authority expectations and our own high quality standards, we are devoting substantial time and resources to remediate issues, improve quality and assure consistency of product supply at our manufacturing sites and third party suppliers around the world. However, there can be no guarantee as to the outcome of these efforts, or that we or our third parties suppliers will not face significant manufacturing issues, or that we will successfully manage such issues when they arise. For example, our Sandoz Division has been unable to launch its Glatopa 40mg product due to a Warning Letter received from the FDA by our third party supplier with respect to its manufacturing facility.

17

---

Table of Contents

        In addition, many of our products require a supply of highly specialized raw materials. For some of our products and raw materials, we may rely on a single source of supply. As a result, we are required to plan our production activities well in advance. If we should suffer from product shortages, including as a result of a natural disaster at a production facility, or if we should underestimate market demand for a product, or should fail to accurately predict when the product would be approved for sale, then we may not be able to produce sufficient product to meet demand. Alternately, if we overestimate the quantity or timing of product to be produced, then we may be required to dispose of excess product, which would result not only in the loss of the product, but also the resources spent to produce it.

        Further, because our products are intended to promote the health of patients, for some of our products, a supply disruption or other production issue could endanger our reputation and subject us to lawsuits or to allegations that the public health, or the health of individuals, has been harmed.

        Thus, complex production processes and compliance with regulatory requirements can increase our cost of producing our products, and any significant disruption in the supply of our products could impact our sales, either of which could have a material adverse effect on our business, financial condition or results of operations, as well as our reputation. See also "—We may not successfully achieve our goals in transactions or reorganizations," below, with regard to our recent reorganization of our product manufacturing organization, and "—Extreme weather events, earthquakes and other natural disasters could adversely affect our business," below.

Foreign exchange fluctuations may adversely affect our earnings and the value of some of our assets.

        Changes in exchange rates between the US dollar, our reporting currency, and other currencies can result in significant increases or decreases in our reported sales, costs and earnings as expressed in US dollars, and in the reported value of our assets, liabilities and cash flows.

        In addition to ordinary market risk, there is a risk that countries could take affirmative steps that could significantly impact the value of their currencies. Such steps could include "quantitative easing" measures and potential withdrawals by countries from common currencies. In addition, countries facing local financial difficulties, including countries experiencing high inflation rates and highly indebted countries facing large capital outflows, may impose controls on the exchange of foreign currency. Such exchange controls could limit our ability to distribute retained earnings from our local affiliates, or to pay intercompany payables due from those countries.. See "—Political and economic instability may have a material adverse effect on our results," below.

        Despite measures undertaken to reduce, or hedge against, foreign currency exchange risks, because a significant portion of our earnings and expenditures are in currencies other than the US dollar, including expenditures in Swiss francs that are significantly higher than our revenue in Swiss francs, any such exchange rate volatility may negatively and materially impact the Group's business, results of operations and financial condition, and may impact the reported value of our net sales, earnings, assets and liabilities. In addition, the timing and extent of such volatility can be difficult to predict. Further, depending on the movements of particular foreign exchange rates, the Group may be materially adversely affected at a time when the same currency movements are benefiting some of our competitors.

        For more information on the effects of currency fluctuations on our consolidated financial statements and on how we manage currency risk, see "Item 5. Operating and Financial Review and Prospects—Item 5.B Liquidity and Capital Resources—Effects of Currency Fluctuations" "Item 11. Quantitative and Qualitative Disclosures about Market Risk", and "Note 28. Financial instruments—additional disclosures" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.

18

---

Table of Contents

We may not successfully achieve our goals in transactions or reorganizations.

        As part of our strategy, from time to time we acquire and divest products or entire businesses, in order to expand or complement our existing businesses, or to enable us to focus more sharply on our strategic businesses. For example, we recently completed the acquisition of Advanced Accelerator Applications, a radiopharmaceutical company that develops, produces and commercializes molecular nuclear medicines including Lutathera, a first-in-class radioligand therapy product for neuroendocrine tumors.

        Despite expending significant efforts and resources in this area, we cannot ensure that we will identify products or businesses that are suitable for acquisition. In addition, acquisition activities can be thwarted by governmental regulation, including market concentration limitations, political interference, overtures from competitors for the targeted assets, potentially increasing prices demanded by sellers, and other issues. Once an acquisition is agreed upon with a third party, we may not be able to complete the acquisition in the expected form or within the expected time frame, or at all, due to a failure to obtain required regulatory approvals or a failure to achieve contractual or other required closing conditions. Further, after an acquisition, efforts to develop and market acquired products, including products acquired by Alcon, or to integrate the acquired business may not meet expectations, or may otherwise not be successful, as a result of difficulties in retaining key personnel, customers and suppliers, difference in corporate culture, standards, controls, processes and policies, or other reasons. Acquisitions and divestments can also divert management's attention from our existing businesses, and could result in the existing businesses failing to achieve expected results, or in liabilities being incurred that were not known at the time of acquisition, or the creation of tax or accounting issues.

        Similarly, we cannot ensure that suitable buyers will be identified for businesses or other assets that we might want to divest. Neither can we ensure that we will correctly select businesses or assets as candidates for divestiture, that we will be able to successfully complete any agreed upon divestments, or that any expected strategic benefits, synergies or opportunities will arise as a result of any divestiture. For example, in early 2017, we announced a strategic review of the Alcon Division in order to explore all options to maximize value for our shareholders. Key criteria for a final decision and timing remain continued Alcon sales growth and margin improvement which need to be demonstrated for multiple quarters leading to potential action not likely before the first half of 2019. But there can be no certainty that the strategic review will reach any particular results, or at any particular time, or that it will in fact maximize shareholder value.

        In addition, as part of our strategy, from time to time we reassess the optimal organization of our business, including the allocation of products by division and the level of centralization and simplification of certain functions across the Group, to better align those products and functions with the capabilities and expertise required for competitive advantage. As an example of this, in October 2017, we announced that certain over-the-counter and diagnostic ophthalmic products would be moved from the Innovative Medicines Division to the Alcon Division effective January 1, 2018, where we believe the products will create the most value. We expect this and other similar actions, including our prior move of prescription ophthalmic pharmaceutical products from our Alcon Division to our Innovative Medicines Division, to help further strengthen our competitive position, enable us to maintain our leading position in research and development, and free resources for our growth priorities. But the expected benefits of such reorganizations may never be fully realized or may take longer to realize than expected. There can be no certainty that the businesses and functions involved will be successfully integrated into the new organizations or that key personnel will be retained. Disruption from the reorganizations may make it more difficult to maintain relationships with customers, employees or suppliers, and the reorganizations may result in the Group not achieving the expected productivity and financial benefits, shortfalls in program oversight, or, potentially, sales declines and lost profits.

        Both with respect to the transactions and reorganizations previously announced, and to potential future transactions and reorganizations, if we fail to timely recognize or address these risks, or to devote

19

---

Table of Contents

adequate resources to them, we may fail to achieve our strategic objectives, including our growth strategy, or otherwise may not realize the intended benefits of the acquisition, divestiture or reorganization.

Significant breaches of data security or disruptions of information technology systems and the use of Internet, social media and mobile technologies could adversely affect our business and expose people's personal information.

        We are heavily dependent on critical, complex and interdependent information technology systems, including Internet-based systems, to support our business processes. In addition, Novartis and our employees rely on Internet and social media tools and mobile technologies as a means of communications, and to gather information, which can include people's personal information. We are also increasingly seeking to develop technology-based products such as mobile applications and other digital health products that go "beyond the pill" to improve patient welfare in a variety of ways, which could also result in us gathering personal information about patients and others electronically.

        The size and complexity of our information technology systems, and, in some instances, their age, make them potentially vulnerable to external or internal security incidents, breakdowns, malicious intrusions, cybercrimes, including State-sponsored cybercrimes, malware, misplaced or lost data, programming or human errors, or other similar events. Although we have devoted and continue to devote significant resources and management attention to cybersecurity and to business continuity efforts, like many companies, we have experienced certain of these events and expect to continue to experience them in the future, as the external cyber-attack threat only keeps growing. We believe that the information security incidents we have experienced to date have not resulted in significant disruptions to our operations, and have not had a significant adverse effect on our results of operations, or on third parties. However, we may not be able to prevent future breakdowns or breaches in our systems and we may not be able to prevent such events from having a material adverse effect on our business, financial condition, results of operation or reputation.

        Any such event could negatively impact important business processes, such as the conduct of scientific research and clinical trials, the submission of the results of such efforts to health authorities in support of requests for product approvals, the functioning of our manufacturing and supply chain processes, our compliance with legal obligations and other key business activities, including our employees' ability to communicate with one another and with third parties. Such potential information technology issues could also lead to the loss of important information such as trade secrets or other intellectual property and could accelerate the development or manufacturing of competing products by third parties. In addition, malfunctions in software or in devices that make significant use of information technology, including our Alcon surgical equipment, could lead to a risk of harm to patients.

        In addition, our routine business operations, including through the use of information technologies such as the Internet, social media, mobile technologies, and technology-based medical devices, increasingly involve our gathering personal information (including sensitive personal information) about patients, vendors, customers, employees, collaborators and others. Breaches of our systems or those of our third-party contractors, or other failures to protect such information, could expose such people's personal information to unauthorized persons. Any such event could give rise to significant potential liability and reputational harm, including potentially substantial monetary penalties. We also make significant efforts to ensure that any international transfers of personal data are done in compliance with applicable law. Any additional restraints that may be placed on our ability to transfer such data could have a material adverse effect on our business, financial condition, results of operations and reputation.

        We also use Internet, social media and mobile tools as a means to communicate with the public, including about our products or about the diseases our products are intended to treat. However, such uses create risks, such as the loss of trade secrets or other intellectual property. In addition, there continues to be significant uncertainties as to the rules that apply to such communications, and as to the interpretations that health authorities will apply in this context to the rules that do exist. As a result, despite our efforts to

20

---

Table of Contents

comply with applicable rules, there is a significant risk that our use of Internet, social media and mobile technologies for such purposes may cause us to nonetheless be found in violation of them.

        Our dependence upon information technology, including any breaches of data security, technology disruptions, privacy violations, or other uses of interconnected technologies could give rise to the loss of trade secrets or other intellectual property, to the public exposure of personal information, and to interruptions to our operations, and could result in enforcement actions or liability, including potential government fines, claims for damages, and shareholders' litigation. Any such events could require us to expend significant resources beyond those we already invest to further modify or enhance our protective measures, to remediate any damage, and to enable the continuity of our business. Such events could have a material adverse effect on our business, financial condition, results of operations and reputation.

We may fail to develop or take advantage of transformational technologies and business models.

        Rapid progress in digital technologies and in the development of sometimes radical new business models is substantially transforming numerous industries around the world, creating new businesses and new opportunities for revenue and profit, while sometimes quickly rendering established businesses uncompetitive or obsolete. The potential exists for such transformations, both positive and negative, to impact the pharmaceutical industry, and numerous companies from the digital technology and other industries are seeking to enter the healthcare field.

        To take advantage of these opportunities, Novartis has embarked upon a digital transformation strategy, with the goal of making Novartis an industry leader in leveraging advanced analytics and other new technologies. As part of this effort, we have created a new role of Chief Digital Officer, reporting directly to the CEO, charged with creating and executing a company-wide digital strategy, to be led by the Executive Committee of Novartis.

        In order to reach our goal, we expect to invest substantial resources into efforts to improve the way we use data in drug discovery and development, to improve the ways we engage with patients, doctors and other stakeholders, and to automate business processes. With our commitment to using science-based innovation to deliver better outcomes for patients, together with our expertise and the valuable data we have and continue to amass, we believe that we have an opportunity to transform our business model using digital technologies.

        There is no guarantee that our efforts toward a digital transformation will succeed, or that we will successfully transform our business model, or that we will be able to do so at any particular cost or any particular time. In order to succeed, we will be required to encourage a cultural change amongst our employees, attract and retain employees with appropriate skills and mindset, and successfully innovate across a variety of technology fields, while other companies, including both specialized start-up organizations and established technology companies such as IBM, with its Watson project, and Alphabet, with its subsidiary Verily, aggressively move forward in this field.

        At the same time, there is a risk that other companies with specialized expertise or business models may enter the healthcare field, potentially disrupting our relationships with patients, healthcare professionals, customers, distributors and suppliers, with unknown potential consequences for us. For example, new entrants may seek to enter the pharmaceutical distribution field.

        If we should fail to succeed in our efforts at a digital transformation of our company, then there is a risk that we may fail to create the innovative new products, tools or techniques that such technologies may make possible, or may fail to create them as quickly and efficiently as such technologies may enable. We may also lose opportunities to engage with our stakeholders and to profit from improved business processes, and may lose the resources devoted to these efforts to transform our business. At the same time, should third parties successfully enter the healthcare field with disruptive new technologies or business models, then we potentially may see our business supplanted in whole or in part by these new

21

---

Table of Contents

entrants. Any such events could have a material adverse effect on our business, financial condition or results of operations.

Intangible assets and goodwill on our books may lead to significant impairment charges in the future.

        We carry a significant amount of goodwill and other intangible assets on our consolidated balance sheet, primarily due to acquisitions, including, in particular, substantial goodwill and other intangible assets obtained as a result of our acquisitions of Alcon and the oncology assets from GSK. As a result, we may incur significant impairment charges in the future if the fair value of the intangible assets and the groupings of cash generating units containing goodwill would be less than their carrying value on the Group's consolidated balance sheet at any point in time.

        We regularly review our long-lived intangible and tangible assets, including identifiable intangible assets, investments in associated companies and goodwill, for impairment. Goodwill, intangible assets with an indefinite useful life, acquired research projects not ready for use, and acquired development projects not yet ready for use are subject to impairment review at least annually. Other long-lived assets are reviewed for impairment when there is an indication that an impairment may have occurred. Impairment testing under IFRS may lead to impairment charges in the future. Any significant impairment charges could have a material adverse effect on our results of operations and financial condition. In 2017, for example, we recorded intangible asset impairment charges of $0.7 billion. For a detailed discussion of how we determine whether an impairment has occurred, what factors could result in an impairment and the impact of impairment charges on our results of operations, see "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Critical Accounting Policies and Estimates—Impairment of Goodwill, Intangible Assets and Property, Plant and Equipment" and "Note 1. Significant accounting policies" and "Note 10. Goodwill and intangible assets" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.

Political and economic instability may have a material adverse effect on our results.

        Unpredictable political conditions currently exist in various parts of the world, including a backlash in certain areas against free trade, anti-immigrant sentiment, social unrest, the refugee crisis, fears of terrorism and the risk of direct conflicts between nations. In the US, the current presidential administration's opposition to free trade agreements could cause barriers to be raised to international trade, and the elimination of the Affordable Care Act's individual mandate could have a negative impact on individuals' ability to afford health insurance. Similarly, there is a risk that barriers to free trade and the free movement of people may rise in Europe following the UK's "Brexit" vote and the rise of nationalist, separatist and populist sentiment in various countries. And significant conflicts continue in parts of the Middle East, including conflicts involving Saudi Arabia and Iran, and with respect to places such as North Korea. Collectively, such difficult conditions could, among other things, disturb the international flow of goods and increase the costs and difficulties of international transactions.

        In addition, local economic conditions may adversely affect the ability of payors, as well as our distributors, customers, suppliers and service providers, to pay for our products, or otherwise to buy necessary inventory or raw materials, and to perform their obligations under agreements with us. Although we make efforts to monitor these third parties' financial condition and their liquidity, our ability to do so is limited, and some of them may become unable to pay their bills in a timely manner, or may even become insolvent, which could negatively impact our business and results of operations. These risks may be elevated with respect to our interactions with fiscally-challenged government payors, or with third parties with substantial exposure to such payors. See also "—Our reliance on outsourcing key business functions to third parties heightens the risks faced by our businesses," below.

        Financial market issues may also result in a lower return on our financial investments, and a lower value on some of our assets. Alternately, inflation could accelerate, which could lead to higher interest rates, increasing our costs of raising capital. Uncertainties around future central bank and other economic

22

---

Table of Contents

policies in the US and EU, as well as high debt levels in certain other countries, could also impact world trade. Sudden increases in economic, currency or financial market volatility in different countries have also impacted, and may continue to unpredictably impact, our business and results of operations, including the conversion of our operating results into our reporting currency, the US dollar, as well as the value of our investments in our pension plans. See "—Foreign exchange fluctuations may adversely affect our earnings and the value of some of our assets," above, and "—If any of numerous key assumptions and estimates in calculating our pension plan obligations turn out to be different from our actual experience, we may be required to increase substantially our contributions to pension plans as well as the amount we pay toward pension-related expenses in the future," below. See also "—Our business is affected by pressures on pricing and reimbursement for our products," above, and "Item 5. Operating and Financial Review and Prospects—Item 5.B Liquidity and Capital Resources—Effects of Currency Fluctuations."

        There is also a risk that countries facing local financial difficulties, including countries experiencing high inflation rates and highly indebted countries facing large capital outflows, may impose controls on the exchange of foreign currency. Such exchange controls could limit our ability to distribute retained earnings from our local affiliates, or to pay intercompany payables due from those countries. See also "Item 5. Operating and Financial Review and Prospects—Item 5.B Liquidity and Capital Resources—Condensed Consolidated Balance Sheets," and "Note 14. Trade receivables" and "Note 28. Financial instruments—additional disclosures" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.

        Similarly, increased scrutiny of corporate taxes and executive pay may lead to significant business disruptions or other adverse business conditions, and may interfere with our ability to attract and retain qualified personnel. See "—Changes in tax laws or their application could adversely affect our results of operations" and "—An inability to attract and retain qualified personnel could adversely affect our business" below.

        To the extent that economic and financial conditions directly affect consumers, some of our businesses, including the elective surgical and contact lens businesses of our Alcon Division, may be particularly sensitive to declines in consumer spending. In addition, our Innovative Medicines and Sandoz Divisions may not be immune to declines in consumer spending, particularly given the requirements in certain countries that patients directly pay an increasingly large contribution toward their own healthcare costs. As a result, there is a risk that consumers may cut back on prescription drugs and medical devices to help cope with rising costs.

        At the same time, significant changes and potential future volatility in the financial markets, in the consumer and business environment, in the competitive landscape and in the global political and security landscape make it increasingly difficult for us to predict our revenues and earnings into the future. As a result, any revenue or earnings guidance or outlook which we have given or might give may be overtaken by events, or may otherwise turn out to be inaccurate. Though we endeavor to give reasonable estimates of future revenues and earnings at the time we give such guidance, based on then-current knowledge and conditions, there is a significant risk that such guidance or outlook will turn out to be, or to have been, incorrect.

        Separately and collectively, such factors may have a material adverse effect on our revenues, results of operations, financial condition and, if circumstances worsen, our ability to raise capital at reasonable rates.

Our indebtedness could adversely affect our operations.

        As of December 31, 2017 we had $23.2 billion of non-current financial debt and $5.3 billion of current financial debt. Our current and long-term debt requires us to dedicate a portion of our cash flow to service interest and principal payments and, if interest rates rise, this amount may increase. In addition, our existing debt may limit our ability to engage in transactions or otherwise may place us at a competitive disadvantage relative to competitors that have less debt. We may also have difficulty refinancing our

23

---

Table of Contents

existing debt or incurring new debt on terms that we would consider to be commercially reasonable, if at all.

Our reliance on outsourcing key business functions to third parties heightens the risks faced by our businesses.

        We outsource the performance of certain key business functions to third parties, and invest a significant amount of effort and resources into doing so. Such outsourced functions can include research and development collaborations, manufacturing operations, warehousing and distribution activities, certain finance functions, marketing activities, data management and others. In particular, in many developing countries, we rely heavily on third party distributors and other agents for the sales, marketing and distribution of our products. Similarly, we often obtain the intermediate and raw materials used in the manufacture of our products from third parties located in developing countries.

        Our reliance on outsourcing and third parties for certain functions, such as the research and development or manufacturing of our products, may reduce the potential profitability of such products.

        In addition, governments and the public are increasingly placing pressure on major corporations, including Novartis, to take responsibility for compliance with human rights and appropriate environmental practices, as well as other actions, of their third party contractors around the world. Examples of this include the Conflict Minerals rule in the US, and the UK Modern Slavery Act.

        We place strict contractual requirements on such contractors to comply with law and with our high standards. We also expend significant resources on efforts to screen out inappropriate contractors, to monitor the activities of those we have retained, and to seek their compliance with the law and our expectations. Nonetheless, many of these companies have limited resources, and, in particular, do not have internal compliance resources comparable to those within our organization.

        Ultimately, if the third parties fail to meet their obligations to us, we may lose our investment in the collaborations and fail to receive the expected benefits. In addition, should any of these third parties fail to comply with the law or should they act inappropriately in the course of their performance of services for us, there is a risk that we could be held responsible for their acts, that our reputation may suffer, and that penalties may be imposed upon us. Any such failures by third parties could have a material adverse effect on our business, financial condition, results of operations or reputation.

Intense competition from patented and generic pharmaceuticals companies, as well as failure to obtain marketing exclusivity periods for new generic products, or to successfully develop biosimilars and other differentiated products, may have a material adverse effect on the success of our Sandoz Division.

        Our Sandoz Division faces intense competition from companies that market patented pharmaceutical products, which sometimes take aggressive steps to prevent or delay the introduction of generic medicines, to limit the availability of exclusivity periods or to reduce their value. At the same time, Sandoz faces strong competition from other generic pharmaceutical companies, which aggressively compete for exclusivity periods and for market share of generic products that may be identical to our generic products, including through significant price competition. In the US in 2017, industry-wide price competition among generic pharmaceutical companies significantly hurt Sandoz sales. More generally, such competitive actions by other patented and generic pharmaceutical manufacturers may increase the costs and risks associated with our efforts to introduce generic products, and may delay or entirely prevent their introduction and marketing. Such activities may further limit the prices at which we are able to sell these products and impact our results of operations.

        In addition, the division achieves significant revenue opportunities when it secures and maintains exclusivity periods granted for generic products in certain markets—particularly the 180-day exclusivity period granted in the US by the Hatch-Waxman Act for first-to-file generics—and when it is able to develop biosimilars and other differentiated products with few, if any, generic competitors. Failure to obtain and maintain these market opportunities could have an adverse effect on the success of Sandoz.

24

---

Table of Contents

        Sandoz has also invested heavily in the development of biosimilar drugs, despite the fact that regulations concerning their approval, marketing and sale in certain countries, including in the US, are still under development or not entirely clear. If such regulations do not ultimately favor the development and sale of biosimilar products, then we may fail to achieve expected returns on the investments by Sandoz in the development of biosimilars. See also "—Our research and development efforts may not succeed in bringing new products to market, or may fail to do so in a cost-efficient manner, or in a manner sufficient to grow our business and replace lost revenue and income" above, with regard to the risks involved in our efforts to develop differentiated generic products, and "—Failure to comply with law, legal proceedings and government investigations may have a significant negative effect on our results of operations" above, with regard to the risks of damages involved in our efforts to market generic versions of patented products.

If any of numerous key assumptions and estimates in calculating our pension plan obligations turn out to be different from our actual experience, we may be required to increase substantially our contributions to pension plans as well as the amount we pay toward pension-related expenses in the future.

        We sponsor pension and other post-employment benefit plans in various forms. These plans cover a significant portion of our current and former associates. While most of our plans are now defined contribution plans, certain of our associates remain under defined benefits plans. For these defined benefits plans, we are required to make significant assumptions and estimates about future events in calculating the present value of expected future plan expenses and liabilities. These include assumptions used to determine the discount rates we apply to estimated future liabilities and rates of future compensation increases. Assumptions and estimates used by Novartis may differ materially from the actual results we experience in the future, due to changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants, among other variables. For example, in 2017, a decrease in the interest rate we apply in determining the present value of expected future defined benefit obligations of one-quarter of one percent would have increased our year-end defined benefit pension obligation for plans in Switzerland, US, UK, Germany and Japan, which represent nearly 94% of the Group total defined benefit pension obligation, by $0.8 billion. Any differences between our assumptions and estimates and our actual experience could require us to make additional contributions to our pension funds. Further, additional employer contributions might be required if plan funding falls below the levels required by local rules. Either such event could have a material effect on our results of operations and financial condition. For more information on obligations under retirement and other post-employment benefit plans and underlying actuarial assumptions, see "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Critical Accounting Policies and Estimates—Retirement and Other Post-Employment Benefit Plans" and "Note 24. Post-employment benefits for associates" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018. See also "—Political and economic instability may have a material adverse effect on our results" above.

Changes in tax laws or their application could adversely affect our results of operations.

        Our worldwide operations are taxed under the laws of the jurisdictions in which we operate. However, the integrated nature of our worldwide operations can produce conflicting claims from revenue authorities in different countries as to the profits to be taxed in the individual countries, including disputes relating to transfer pricing. The majority of the jurisdictions in which we operate have double tax treaties with other foreign jurisdictions, which provide a framework for mitigating the impact of double taxation on our revenues and capital gains. However, mechanisms developed to resolve such conflicting claims are largely untried, and can be expected to be very lengthy.

        In recent years, tax authorities around the world have increased their scrutiny of company tax filings, and have become more rigid in exercising any discretion they may have. As part of this, the Organization for Economic Co-operation and Development (OECD) has proposed a number of tax law changes under

25

---

Table of Contents

its Base Erosion and Profit Shifting (BEPS) Action Plans to address issues of transparency, coherence and substance.

        At the same time, the European Commission is finalizing its Anti Tax Avoidance Directive, which seeks to prevent tax avoidance by companies and to ensure that companies pay appropriate taxes in the markets where profits are effectively made and business is effectively performed. The European Commission also continues to extend the application of its policies seeking to limit fiscal aid by Member States to particular companies, and the related investigation of the Member States' practices regarding the issuance of rulings on tax matters relating to individual companies.

        These OECD and EU tax reform initiatives also need local country implementation, including in our home country of Switzerland, which may result in significant changes to established tax principles. Although we have taken steps to be in compliance with the evolving OECD and EU tax initiatives, and will continue to do so, significant uncertainties remain as to the outcome of these efforts.

        In addition, in the United States, the president on December 22, 2017, signed into law the Tax Cuts and Jobs Act of 2017, which includes substantial changes to the US taxation of individuals and businesses. Although the new law substantially decreased tax rates applicable to corporations in the US, we do not yet know what all of the consequences of this new statute will be, including whether the law will have any unintended consequences. In particular, significant uncertainties remain as to how the US government will implement the new law, including with respect to the tax qualification of interest deductions, the concept of a territorial tax regime, royalty payments and cost of goods sold.

        In general, such tax reform efforts, including with respect to tax base or rate, transfer pricing, intercompany dividends, cross border transactions, controlled corporations, and limitations on tax relief allowed on the interest on intercompany debt, will require us to continually assess our organizational structure against tax policy trends, and could lead to an increased risk of international tax disputes and an increase in our effective tax rate, and could adversely affect our financial results.

Counterfeit versions of our products could harm our patients and reputation.

        Our industry continues to be challenged by the vulnerability of distribution channels to illegal counterfeiting and the presence of counterfeit products in a growing number of markets and over the Internet. Counterfeit products are frequently unsafe or ineffective, and can potentially be life-threatening. To distributors and patients, counterfeit products may be visually indistinguishable from the authentic version. Reports of product ineffectiveness or adverse reactions to counterfeit drugs, or increased levels of counterfeiting could materially affect patient confidence in the authentic product, and harm the business of companies such as ours or lead to litigation. In addition, it is possible that adverse events caused by unsafe counterfeit products could mistakenly be attributed to the authentic product. If a product of ours was the subject of counterfeits, we could incur substantial reputational and financial harm.

Ongoing consolidation among our distributors and retailers is increasing both the purchasing leverage of key customers and the concentration of credit risk.

        Increasingly, a significant portion of our global sales are made to a relatively small number of drug wholesalers, retail chains and other purchasing organizations. For example, our three most important customers globally are all in the US, and accounted for approximately 17%, 12% and 7%, respectively, of Group net sales in 2017. The largest trade receivables outstanding were for these three customers, amounting to 14%, 9% and 5%, respectively, of the Group's trade receivables at December 31, 2017. The trend has been toward further consolidation among distributors and retailers, both in the US and internationally. As a result, our customers are gaining additional purchasing leverage, which increases the pricing pressures facing our businesses. Moreover, we are exposed to a concentration of credit risk as a result of this concentration among our customers. If one or more of our major customers experienced financial difficulties, the effect on us would be substantially greater than in the past, and could include a

26

---

Table of Contents

substantial loss of sales and an inability to collect amounts owed to us. Such events could have a material adverse effect on our business, financial condition and results of operations.

An inability to attract and retain qualified personnel could adversely affect our business.

        We highly depend upon skilled personnel in key parts of our organization, and we invest heavily in recruiting, training and retaining qualified individuals, including significant efforts to enhance the diversity of our workforce. The loss of the service of key members of our organization—including senior members of our scientific and management teams, high-quality researchers and development specialists, and skilled personnel in developing countries—could delay or prevent the achievement of major business objectives.

        Our future growth will demand talented associates and leaders, yet the market for talent has become increasingly competitive. In particular, emerging growth markets are expected to continue to be an important source of growth, but in many of these countries there is a limited pool of executives with the training and international experience needed to work successfully in a global organization like Novartis.

        In addition, shifting demographic trends are expected to result in fewer students, fewer graduates and fewer people entering the workforce in the Western world in the next 10 years. Moreover, many members of younger generations around the world have changing expectations toward careers, engagement and the integration of work in their overall lifestyles.

        The supply of talent for certain key functional and leadership positions is decreasing, and a talent gap is visible for some professions and geographies—engineers in Germany, for example. Recruitment is increasingly regional or global in specialized fields such as clinical development, biosciences, chemistry and information technology. In addition, the geographic mobility of talent is expected to decrease in the future, with talented individuals in developed and developing countries anticipating ample career opportunities closer to home than in the past. This decrease in mobility may be worsened by anti-immigrant sentiments in many countries, and laws discouraging immigration. See "—Political and economic instability may have a material adverse effect on our results" above.

        In addition, our ability to hire qualified personnel also depends on the flexibility to reward superior performance and to pay competitive compensation. Laws and regulations on executive compensation, including legislation in our home country, Switzerland, may restrict our ability to attract, motivate and retain the required level of qualified personnel.

        We face intense competition for an increasingly limited pool of qualified individuals from numerous pharmaceutical and biotechnology companies, universities, governmental entities, other research institutions, other companies seeking to enter the healthcare space, and companies in other industries. As a result, despite significant efforts on our part, we may be unable to attract and retain qualified individuals in sufficient numbers, which could have an adverse effect on our business, financial condition and results of operations.

Environmental liabilities may adversely impact our results of operations.

        The environmental laws of various jurisdictions impose actual and potential obligations on us to remediate contaminated sites, in some cases over many years. While we have set aside substantial provisions for worldwide environmental liabilities, there is no guarantee that additional costs will not be incurred beyond the amounts for which we have provided in the Group consolidated financial statements. If environmental contamination caused by us adversely impact third parties, if we fail to properly manage the safety of our facilities and the environmental risks, or if we are required to further increase our provisions for environmental liabilities in the future, this could have a material adverse effect on our business, financial condition, results of operations, and on our reputation. See also "Item 4. Information on the Company—Item 4.D Property, Plants and Equipment—Environmental Matters" and "Note 19. Provisions and other non-current liabilities" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.

27

---

Table of Contents

Extreme weather events, earthquakes and other natural disasters could adversely affect our business.

        In recent years, extreme weather events and changing weather patterns such as storms, flooding, drought, and temperature changes, appear to have become more common. We operate in countries around the world. As a result, we are potentially exposed to varying natural disaster or extreme weather risks like hurricanes, tornadoes or floods, or other events that may result from the impact of climate change on the environment. As a result of such events, we could experience business interruptions, destruction of facilities and loss of life, all of which could have a material adverse effect on our business, financial condition and results of operations.

        In addition, our corporate headquarters, the headquarters of our Innovative Medicines Division, and certain of our major Innovative Medicines Division production and research facilities are located near earthquake fault lines in Basel, Switzerland. Other major facilities are located near major earthquake fault lines in various locations around the world. In the event of a major earthquake, we could experience business interruptions, destruction of facilities and loss of life, all of which could have a material adverse effect on our business, financial condition and results of operations. See also "—The manufacture of our products is highly regulated and complex, and may result in a variety of issues that could increase our cost of goods and lead to extended supply disruptions and significant liability," above.

Risks Related To Our ADRs

The price of our ADRs and the US dollar value of any dividends may be negatively affected by fluctuations in the US dollar/Swiss franc exchange rate.

        Our American Depositary Shares (ADSs) each representing one Novartis share and evidenced by American Depositary Receipts (ADRs) trade on the NYSE in US dollars. Since the shares underlying the ADRs are listed in Switzerland on the SIX Swiss Exchange (SIX) and trade in Swiss francs, the value of the ADRs may be affected by fluctuations in the US dollar/Swiss franc exchange rate. In addition, since dividends that we may declare will be denominated in Swiss francs, exchange rate fluctuations will affect the US dollar equivalent of dividends received by holders of ADRs. If the value of the Swiss franc decreases against the US dollar, the price at which our ADRs trade may—and the value of the US dollar equivalent of any dividend will—decrease accordingly.

Holders of ADRs may not be able to exercise preemptive rights attached to shares underlying ADRs.

        Under Swiss law, shareholders have preemptive rights to subscribe for issuances of new shares on a pro rata basis. Shareholders may waive their preemptive rights in respect of any offering at a general meeting of shareholders. Preemptive rights, if not previously waived, are transferable during the subscription period relating to a particular offering of shares and may be quoted on the SIX. US holders of ADRs may not be able to exercise the preemptive rights attached to the shares underlying their ADRs unless a registration statement under the US Securities Act of 1933 is effective with respect to such rights and the related shares, or an exemption from this registration requirement is available. In deciding whether to file such a registration statement, we would evaluate the related costs and potential liabilities, as well as the benefits of enabling the exercise by ADR holders of the preemptive rights associated with the shares underlying their ADRs. We cannot guarantee that a registration statement would be filed, or, if filed, that it would be declared effective. If preemptive rights could not be exercised by an ADR holder, JPMorgan Chase Bank, N.A., as depositary, would, if possible, sell the holder's preemptive rights and distribute the net proceeds of the sale to the holder. If the depositary determines, in its discretion, that the rights could not be sold, the depositary might allow such rights to lapse. In either case, the interest of ADR holders in Novartis would be diluted and, if the depositary allowed rights to lapse, holders of ADRs would not realize any value from the preemptive rights.

28

---

Table of Contents

Item 4.    Information on the Company

4.A History and Development of Novartis

Novartis AG

        Novartis AG was incorporated on February 29, 1996 under the laws of Switzerland as a stock corporation (Aktiengesellschaft) with an indefinite duration. On December 20, 1996, our predecessor companies, Ciba-Geigy AG and Sandoz AG, merged into this new entity, creating Novartis. We are domiciled in and governed by the laws of Switzerland. Our registered office is located at the following address:

Novartis AG
Lichtstrasse 35
CH-4056 Basel, Switzerland
Telephone: 011-41-61-324-1111
Web: www.novartis.com

        Novartis is a multinational group of companies specializing in the research, development, manufacturing and marketing of a broad range of healthcare products led by innovative pharmaceuticals. Novartis AG, our Swiss holding company, owns, directly or indirectly, all of our significant operating companies. For a list of our significant operating subsidiaries, see "Note 31. Principal Group subsidiaries and associated companies" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.

Important Corporate Developments 2015-January 2018

29

---

Table of Contents

30

---

Table of Contents

31

---

Table of Contents

32

---

Table of Contents

        For information on our principal expenditures on property, plants and equipment, see "Item 4. Information on the Company—4.D Property, Plants and Equipment." For information on our significant expenditures in research and development, see the sections headed "Research and Development" included in the descriptions of our Innovative Medicines Division and Alcon Division, and the section headed "Development and Registration" included in the description of our Sandoz Division under "Item 4. Information on the Company—4.B Business Overview." For information on other principal capital expenditures and divestitures, see "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Factors Affecting Comparability of Year-On-Year Results of Operations."

4.B Business Overview

OVERVIEW

        Novartis provides healthcare solutions that address the evolving needs of patients and societies worldwide. Our broad portfolio includes innovative pharmaceuticals and oncology medicines, generic and biosimilar medicines and eye care devices. Our mission is to discover new ways to improve and extend people's lives. Our vision is to be a trusted leader in changing the practice of medicine. Our strategy is to use science-based innovation to deliver better patient outcomes in growing areas of healthcare.

        Following the completion of a series of transactions in 2014 and 2015, the Group's continuing operations comprise three global operating divisions, Innovative Medicines, Sandoz and Alcon. We also separately report the results of Corporate activities. The disclosure in this Form 20-F focuses on these continuing operations unless otherwise specified. From March 2, 2015, the date of the completion of a series of transactions with GSK, continuing operations also includes the results from the oncology assets acquired from GSK and the 36.5% interest in GSK Consumer Healthcare Holdings Ltd. for the period from March 2015 (the latter reported as an investment in associated companies). We sold on March 2, 2015, our Vaccines Division, excluding our influenza vaccines business, to GSK. Our influenza vaccines business was sold on July 31, 2015 to CSL and our Animal Health Division was sold on January 1, 2015 to Lilly.

Continuing Operations:

•

Innovative Medicines: Innovative patent-protected prescription medicines



•

Sandoz: Generic pharmaceuticals and biosimilars



•

Alcon: Surgical and vision care products



•

Corporate activities

33

---

Table of Contents

Discontinued Operations:

•

Vaccines and Diagnostics: Preventive human vaccines and blood-testing diagnostics



•

Consumer Health: OTC (over-the-counter medicines) and Animal Health



•

Corporate: certain transactional and other expenses related to the portfolio transformation

        Novartis has leading positions globally in the areas of each of our three divisions. To maintain our competitive positioning across these segments of the healthcare industry, we place a strong focus on innovating to meet the evolving needs of patients around the world, working to grow our presence in new and emerging markets, and to enhance our productivity to invest for the future and increase returns to shareholders. The financial results of our continuing Corporate activities include the costs of the Group headquarters and those of corporate coordination functions in major countries. In addition, Corporate includes other items of income and expense that are not attributable to specific segments such as certain revenues from intellectual property rights and certain expenses related to post-employment benefits, environmental remediation liabilities, charitable activities, donations and sponsorships.

        In January 2018, we announced that Elizabeth (Liz) Barrett has been appointed CEO Novartis Oncology and a member of the ECN, effective February 1, 2018. Mrs. Barrett succeeds Bruno Strigini who decided to retire from Novartis for personal reasons.

        In September 2017, we announced that Joseph Jimenez, CEO of Novartis, informed the Board of Directors of his desire to step down as CEO in 2018, after eight years in the position. The Board of Directors has appointed Vasant (Vas) Narasimhan, M.D., Global Head of Drug Development and Chief Medical Officer, as CEO of Novartis, effective February 1, 2018. Dr. Narasimhan is a member of the ECN and joined Novartis in 2005.

        In August 2017, we announced that, effective January 1, 2018, Bertrand Bodson has been appointed to the new role of Chief Digital Officer, reporting to the CEO of Novartis. Mr. Bodson is responsible for creating and executing a company-wide digital strategy. As part of this strategy, we plan to improve the ways we use data in drug discovery and development, engage with patients, doctors and other stakeholders, as well as to automate business processes.

        In early 2017, we announced a strategic review of our Alcon Division in order to explore all options to maximize value for our shareholders. We have made significant progress in our ongoing strategic review and have examined all options, ranging from retaining the business to a capital markets solution (e.g., an IPO or a spin-off). As part of this, we have updated Alcon's strategic plan which confirms that it has the potential to grow sales at or above market while delivering profitability at least in line with the industry. We have also made significant progress on developing a potential capital markets solution, including financial carve-outs, tax and legal entity structuring, and identifying listing and incorporation locations. Key criteria for a final decision and timing remain continued Alcon sales growth and margin improvement which need to be demonstrated for multiple quarters leading to potential action not likely before first half of 2019.

        In addition, we transferred our over-the-counter ophthalmic products and certain surgical diagnostic products (2017 sales of approximately $0.8 billion) from the Innovative Medicines Division to the Alcon Division effective January 1, 2018. Our prescription Ophthalmic medicines business remains with the Innovative Medicines Division. In compliance with IFRS, beginning with our first quarter 2018 results, Novartis will update its segment financial information to reflect this transfer, both for the current and prior years, to aid comparability of year-on-year results.

        The Group is organized into three divisions, Innovative Medicines, Sandoz and Alcon, as well as Corporate activities. Our divisions are supported by the following cross-divisional organizational units: Novartis Institutes for BioMedical Research, Global Drug Development and Novartis Operations, which includes Novartis Technical Operations, Novartis Business Services and Novartis Corporate Affairs.

34

---

Table of Contents

        The Novartis Institutes for BioMedical Research (NIBR) is the innovation engine of Novartis, which conducts drug discovery research and early clinical development trials for our Innovative Medicines Division and also collaborates with our Sandoz Division. Approximately 6,000 full-time equivalent scientists and associates at NIBR are working to discover new medicines for various diseases at sites located in the US, Switzerland and China. For more information about NIBR, see "—Innovative Medicines—Research and Development—Research program," below.

        Our Global Drug Development (GDD) organization oversees all drug development activities for our Innovative Medicines Division and the biosimilars portfolio of our Sandoz Division. Development of products for the Surgical and Vision Care franchises within our Alcon Division and of small molecule generics for our Sandoz Division are not included in GDD. GDD works collaboratively with NIBR, Innovative Medicines and Sandoz to execute our overall pipeline strategy and takes an enterprise approach to pipeline portfolio management. GDD incorporates centralized global functions such as Regulatory Affairs and Global Development Operations, as well as Global Development units aligned with our business franchises. GDD was created to increase Group-wide coordination of drug development and to improve resource allocation, technology implementation and process standardization with a goal of further increasing innovation. GDD includes approximately 10,000 full-time equivalent associates worldwide.

        Novartis Technical Operations (NTO) was established to centralize management of our manufacturing operations across our Innovative Medicines and Sandoz Divisions, with a goal of further improving efficiency. Manufacturing for Alcon's Surgical and Vision Care franchises continues to be managed by our Alcon Division. NTO is expected to optimize capacity planning and adherence to quality standards, and to lower costs through simplification, standardization and external spend optimization. Centralization is also expected to improve our ability to develop next generation technologies, implement continuous manufacturing and share best practices across divisions. NTO includes approximately 26,900 full-time equivalent associates and 68 manufacturing sites across our Innovative Medicines and Sandoz Divisions.

        Novartis Business Services (NBS), our shared service organization, delivers integrated solutions to all Novartis divisions and units worldwide. NBS seeks to drive efficiency and effectiveness across Novartis by simplifying and standardizing services across six service domains: human resources, real estate and facility services, procurement, information technology, commercial and medical support activities, and financial reporting and accounting operations. NBS has approximately 10,870 full-time equivalent associates in more than 50 countries. NBS works to leverage the full scale of Novartis to create value across the company and to free up resources to invest in innovation and our product pipeline. NBS continues to transfer the delivery of selected services to its five Global Service Centers in Dublin, Ireland; Hyderabad, India; Kuala Lumpur, Malaysia; Mexico City, Mexico; and Prague, Czech Republic.

        In 2017, our Public Affairs and Group Country Management organizations were combined to form Novartis Corporate Affairs to better enable close collaboration among country presidents, unit heads and Public Affairs.

        In 2017, Novartis continuing operations achieved net sales of $49.1 billion, while net income from continuing operations amounted to $7.7 billion. Of total net sales from continuing operations, $12.4 billion, or 25%, came from Emerging Growth Markets, and $36.7 billion, or 75%, came from Established Markets. Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand. Research & Development expenditure in 2017 amounted to $9.0 billion.

        Headquartered in Basel, Switzerland, our Group companies employed 121,597 full-time equivalent associates as of December 31, 2017. Our products are sold in approximately 155 countries around the world.

35

---

Table of Contents

Innovative Medicines Division

        Our Innovative Medicines Division researches, develops, manufactures, distributes and sells patented prescription medicines to enhance health outcomes for patients and health-care providers. Innovative Medicines is organized into two global business units: Novartis Oncology and Novartis Pharmaceuticals. Novartis Pharmaceuticals consists of the global business franchises Ophthalmology, Immunology and Dermatology, Neuroscience, Respiratory, Cardio-Metabolic and Established Medicines.

        In 2017, the Innovative Medicines Division accounted for $33.0 billion, or 67%, of Group net sales, and for $7.8 billion, or 87%, of Group operating income (excluding Corporate income and expense, net).

Sandoz Division

        Our Sandoz Division develops, manufactures, distributes and sells prescription medicines, as well as pharmaceutical active substances that are not protected by valid and enforceable third-party patents. Sandoz is organized globally in three franchises: Retail Generics, Anti-Infectives, and Biopharmaceuticals. In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of pharmaceuticals to third parties. Retail Generics includes the areas of cardiovascular, central nervous system, dermatology, gastrointestinal and hormonal therapies, metabolism, oncology, ophthalmics, pain, and respiratory, as well as finished dosage form anti-infectives sold to third parties. In Anti-Infectives, Sandoz manufactures active pharmaceutical ingredients and intermediates—mainly antibiotics—for internal use by Retail Generics and for sale to third party customers. In Biopharmaceuticals, Sandoz develops, manufactures and markets protein- or other biotechnology-based products, including biosimilars, and provides biotechnology manufacturing services to other companies.

        In 2017, Sandoz accounted for $10.1 billion, or 21%, of Group net sales, and for $1.4 billion, or 15%, of Group operating income (excluding Corporate income and expense, net).

Alcon Division

        Our Alcon Division researches, develops, manufactures, distributes and sells eye care products. Alcon is a global leader in eye care with product offerings in eye care devices and vision care. Alcon is organized into two global business franchises: Surgical and Vision Care. The Surgical franchise includes technologies and devices for cataract, retinal, glaucoma and refractive surgery, as well as intraocular lenses to treat cataracts and refractive errors, like presbyopia and astigmatism. Alcon also provides viscoelastics, surgical solutions, surgical packs, and other disposable products for cataract and vitreoretinal surgery. The Vision Care franchise comprises daily disposable, monthly replacement, and color-enhancing contact lenses, as well as a complete line of contact lens care products including multi-purpose and hydrogen-peroxide based solutions, rewetting drops and daily protein removers.

        In 2017, Alcon accounted for $6.0 billion, or 12%, of Group net sales, and for $–0.2 billion, or–2%, of Group operating income (excluding Corporate income and expense, net).

INNOVATIVE MEDICINES

Overview

        Our Innovative Medicines Division is a world leader in offering innovation-driven, patent-protected medicines to patients and physicians. The Innovative Medicines Division researches, develops, manufactures, distributes and sells patented pharmaceuticals, and is composed of two business units: Novartis Oncology and Novartis Pharmaceuticals.

        The Novartis Oncology business unit is responsible for the commercialization of products in the areas of oncology and rare diseases. The Novartis Pharmaceuticals business unit is organized into the following global business franchises responsible for the commercialization of various products in their respective

36

---

Table of Contents

therapeutic areas: Ophthalmology, Immunology and Dermatology, Neuroscience, Respiratory, Cardio-Metabolic and Established Medicines.

        On March 2, 2015, we completed the acquisition of the oncology products of GSK, together with certain related assets. In addition, we acquired a right of first negotiation over the co-development or commercialization of GSK's current and future oncology R&D pipeline, excluding oncology vaccines. The right of first negotiation is for a period of twelve and one half years from the acquisition closing date.

        Following an internal reorganization announced on January 27, 2016, nineteen mature products were transferred from our Innovative Medicines Division to the Retail Generics franchise of our Sandoz Division, and Alcon's Ophthalmic Pharmaceuticals products were transferred to our Innovative Medicines Division.

        In addition, we transferred our over-the-counter ophthalmic products and certain surgical diagnostic products (2017 sales of approximately $0.8 billion) from the Innovative Medicines Division to the Alcon Division effective January 1, 2018. Our prescription Ophthalmic medicines business remains with the Innovative Medicines Division. In compliance with IFRS, beginning with our first quarter 2018 results, Novartis will update its segment financial information to reflect this transfer, both for the current and prior years, to aid comparability of year-on-year results.

        The Innovative Medicines Division is the largest contributor among the divisions of Novartis and reported consolidated net sales of $33.0 billion in 2017, which represented 67% of the Group's net sales.

        The product portfolio of the Innovative Medicines Division includes more than 60 key marketed products, many of which are leaders in their respective therapeutic areas.

Innovative Medicines Division Products

        The following table and summaries describe certain key marketed products in our Innovative Medicines Division. While we typically seek to sell our marketed products throughout the world, not all products and indications are currently available in every country. In addition, a product may be available under different brand names depending on country and indication. Some of the products listed below have lost patent protection or are otherwise subject to generic competition. Others are subject to patent challenges by potential generic competitors. Please see "—Intellectual Property" for general information on intellectual property and regulatory data protection, and for further information on the status of patents and exclusivity for Innovative Medicines Division products.

Selected Marketed Products

Novartis Oncology Business Unit

37

---

Table of Contents

38

---

Table of Contents

39

---

Table of Contents

Novartis Pharmaceuticals Business Unit

40

---

Table of Contents

41

---

Table of Contents

42

---

Table of Contents

Key Marketed Products

Novartis Oncology Business Unit

Oncology

•

Gleevec/Glivec (imatinib mesylate/imatinib) is a kinase inhibitor approved as a targeted therapy for Philadelphia chromosome-positive (Ph+) chronic myeloid leukemia (CML) and to treat patients with metastatic and/or unresectable KIT (CD117) positive (KIT+) gastrointestinal stromal tumors (GIST), and as an adjuvant treatment for certain adult patients following resection of KIT+ GIST. First launched in 2001, Gleevec/Glivec is approved in approximately 125 countries. Gleevec/Glivec is also approved in the US, EU and Japan to treat Ph+ acute lymphoblastic leukemia, a rapidly progressive form of leukemia. In addition, Gleevec/Glivec is approved in the US and EU to treat dermatofibrosarcoma protuberans, a rare solid tumor; hypereosinophilic syndrome; myelodysplastic/myeloproliferative diseases and other rare blood disorders. In the US, Gleevec is also approved for aggressive systemic mastocytosis. Gleevec/Glivec has received approvals in more than 80 countries as a post-surgery (adjuvant setting) therapy for certain adult patients with KIT+ GIST. Following approval by the FDA in 2013, the EMA approved Gleevec/Glivec in July 2013 for pediatric patients with newly diagnosed Ph+ acute lymphoblastic leukemia in combination with chemotherapy.



•

Tasigna (nilotinib) is a signal transduction inhibitor of the BCR-ABL tyrosine kinase. Since its launch in 2007, Tasigna has been approved in more than 125 countries to treat patients with Ph+ CML in the chronic and/or accelerated phase who are resistant or intolerant to existing treatment, including Gleevec/Glivec. It is also approved in more than 120 markets, including the US, EU member states, Switzerland and Japan, to treat newly diagnosed patients in the chronic phase. In June 2017, the European Commission approved the inclusion of treatment-free remission data in the "Tasigna Summary of Product Characteristics." Treatment-free remission is the ability to maintain molecular response after stopping tyrosine kinase inhibitor therapy in Ph+ CML patients in chronic phase. In December 2017, the FDA also approved the inclusion of treatment-free remission data in the US label for Tasigna.

43

---

Table of Contents

•

Sandostatin SC (octreotide acetate for injection) and Sandostatin LAR (octreotide acetate for injectable suspension) are somatostatin analogs indicated for the treatment of patients with acromegaly, a chronic disease caused by over-secretion of growth hormone in adults. Sandostatin is also indicated for the treatment of patients with certain symptoms associated with carcinoid tumors and other types of gastrointestinal and pancreatic neuroendocrine tumors. Additionally, Sandostatin LAR is approved in more than 60 countries for treatment of patients with advanced neuroendocrine tumors of the midgut or unknown primary tumor location. Sandostatin was first launched in 1988 and is approved in more than 100 countries.



•

Afinitor/Votubia (everolimus) is an oral inhibitor of the mTOR pathway. Afinitor is approved in more than 120 countries including the US, EU member states and Japan for patients with advanced renal cell carcinoma whose disease has progressed on or after treatment with vascular endothelial growth factor-targeted therapy (in the EU) or after failure of treatment with sunitinib or sorafenib (in the US). Afinitor has been approved in more than 110 countries, including the US, EU member states and Japan for the treatment of locally advanced, metastatic or unresectable progressive neuroendocrine tumors (NET) of pancreatic origin. It was approved in the US in February 2016 and the EU in June 2016 for the treatment of patients with progressive, well-differentiated, nonfunctional NET of gastrointestinal or lung origin that are unresectable, locally advanced or metastatic, and is now approved for this indication in more than 45 countries worldwide. In addition, Afinitor is approved in 117 countries for postmenopausal women with advanced hormone receptor-positive, HER2-negative breast cancer in combination with exemestane after recurrence or progression following a non-steroidal aromatase inhibitor (in the EU) or failure of treatment with letrozole or anastrozole (in the US). All oncology indications are approved under the trade name Afinitor, in the tablet formulation. Everolimus, under the trade name Afinitor in the US and Votubia in the EU, is also approved in more than 100 countries to treat patients with tuberous sclerosis complex (TSC) who have subependymal giant cell astrocytoma (SEGA) not requiring immediate surgery, and in more than 95 countries to treat patients with TSC who have renal angiomyolipoma not requiring immediate surgery. The dispersible tablets for oral suspension formulation is approved for patients with TSC who have SEGA in more than 40 countries including the US (under the trade name Afinitor Disperz), EU member states (under the trade name Votubia) and Japan (under the trade name Afinitor). Dispersible tablets also are approved in more than 30 countries, including EU member states (under the trade name Votubia), as adjunctive treatment for patients aged 2 years and older whose refractory partial-onset seizures, with or without secondary generalization, are associated with TSC. An application is currently under review in the US in support of an indication in select patients with TSC-associated refractory seizures. Everolimus, the active ingredient in Afinitor/Votubia, is also available under the trade names Zortress/Certican for use in transplantation in the US and EU, respectively, and is exclusively licensed to Abbott and sublicensed to Boston Scientific for use in drug-eluting stents.



•

Exjade and Jadenu (deferasirox) is an oral iron chelator approved for the treatment of chronic iron overload due to blood transfusions in patients two years of age and older, as well as chronic iron overload in patients with non-transfusion dependent thalassemia in patients 10 years of age and older. Patients with chronic anemia from diseases such as thalassemia, sickle cell disease and myelodysplastic syndromes require repeated transfusions, which puts them at risk of iron overload. Exjade, a dispersible tablet for oral suspension, was first approved in 2005 and is now approved in more than 100 countries, including the US, EU member states and Japan. An oral film-coated tablet formulation that can be swallowed or crushed is approved in the US and Canada under the tradename Jadenu. It was approved in the EU and Switzerland under the tradename of Exjade. Regulatory applications have been submitted in several other countries. In addition to the film-coated tablet formulation, an additional formulation has also been developed as granules for patients who cannot swallow tablets, using the same composition as the film-coated tablet formulation. Jadenu Sprinkle granules were approved in the US, and Jadenu granules were approved in Japan in 2017.

44

---

Table of Contents

•

Tafinlar + Mekinist (dabrafenib + trametinib) is the first combination of its kind for the treatment of patients with BRAF V600 mutation positive unresectable or metastatic melanoma, as detected by a validated test, in the US, EU and several other markets. Tafinlar + Mekinist is also approved for the treatment of patients with BRAF V600 mutation positive advanced non-small cell lung cancer, as detected by a validated test, in the US, EU and several other markets. Tafinlar targets the serine/threonine kinase BRAF in the RAS/RAF/MEK/ERK pathway and Mekinist targets the threonine/tyrosine kinases MEK1 and MEK2 in the MAP kinase pathway, resulting in dual blockade of this pathway. This is the first combination of a BRAF and a MEK inhibitor to demonstrate an overall survival benefit over BRAF inhibitor monotherapy after three years in two Phase III studies in BRAF V600 mutation positive unresectable or metastatic melanoma patients. Tafinlar and Mekinist are each also approved as single agents for the treatment of patients with unresectable or metastatic melanoma in more than 60 and 40 countries worldwide, respectively. Tafinlar and Mekinist were each acquired from GSK. As part of our purchase of oncology products from GSK, we obtained the worldwide exclusive rights granted by Japan Tobacco Inc., to develop, manufacture, and commercialize trametinib.



•

Promacta/Revolade (eltrombopag) is a once-daily oral thrombopoietin receptor agonist that works by stimulating bone marrow cells to produce platelets. It is the only approved once-daily oral thrombopoietin receptor agonist, and is marketed under the brand name Promacta in the US and Revolade in most countries outside the US. It is approved in more than 100 countries for the treatment of thrombocytopenia in adult patients with chronic immune (idiopathic) thrombocytopenia (ITP) who have had an inadequate response or are intolerant to other treatments. In the US and EU, Promacta/Revolade is approved for patients one year and older with chronic ITP who have had an insufficient response to other treatments. Promacta/Revolade is approved in Japan for aplastic anemia as first-line therapy and for patients who are refractory to other treatments. It is also approved in 45 countries for the treatment of patients with severe aplastic anemia (SAA) who are refractory to other treatments (in the US for the treatment of patients with SAA who have had an insufficient response to immunosuppressive therapy and in the EU for the treatment of adults with acquired SAA who were either refractory to prior immunosuppressive therapy or heavily pretreated and are unsuitable for hematopoietic stem cell transplant). In January 2018, the FDA granted a Breakthrough Therapy designation to Promacta for the first line treatment of severe aplastic anemia. In addition, Promacta/Revolade is approved in more than 50 countries for the treatment of thrombocytopenia in patients with chronic hepatitis C to allow them to initiate and maintain interferon-based therapy. Promacta/Revolade is marketed under a collaboration agreement between Ligand Pharmaceuticals, Inc., and Novartis. Promacta/Revolade was acquired from GSK.



•

Votrient (pazopanib) is a small molecule tyrosine kinase inhibitor that targets a number of growth factors to limit new blood vessel and tumor growth and cell survival. Votrient is approved in the US for the treatment of patients with advanced renal cell carcinoma (RCC), and in the EU for first-line treatment of adult patients with advanced RCC and for patients who have received prior cytokine therapy for advanced disease. RCC is the most common type of kidney cancer in adults, and nearly one-fifth of patients have advanced RCC at the time of diagnosis. Votrient is also indicated for the treatment of patients with advanced soft tissue sarcoma (STS) who have received prior chemotherapy (efficacy in adipocytic STS or gastrointestinal stromal tumors has not been demonstrated), and in the EU for the treatment of adult patients with selective subtypes of advanced STS who have received prior chemotherapy for metastatic disease or who have progressed within 12 months after (neo)adjuvant therapy. STS is a type of cancer which can arise from a wide variety of soft tissues including muscle, fat, blood vessel and nerves. Votrient is approved in more than 100 countries worldwide for advanced RCC and in more than 90 countries for advanced STS. Votrient was acquired from GSK.

45

---

Table of Contents

•

Jakavi (ruxolitinib) is an oral inhibitor of the JAK1 and JAK2 tyrosine kinases. It is the first JAK inhibitor indicated for the treatment of disease-related splenomegaly or symptoms in adult patients with primary myelofibrosis, post-polycythemia vera myelofibrosis or post-essential thrombocythemia myelofibrosis and adult patients with polycythemia vera who are resistant to or intolerant of hydroxyurea. Jakavi is currently approved in 101 countries for patients with myelofibrosis and in more than 75 countries for patients with polycythemia vera, including EU member states and Japan. A five year follow-up of the two pivotal trials, COMFORT-I and COMFORT-II suggests a reduced risk of death for patients randomized to Jakavi compared to placebo or best available therapy, respectively. Novartis licensed ruxolitinib from Incyte Corporation for development and commercialization in the indications of oncology, hematology and Graft-versus-host disease outside the US. Ruxolitinib, marketed in the US as Jakafi® by Incyte Corporation, is approved by the FDA for the treatment of patients with polycythemia vera who have had an inadequate response to or are intolerant of hydroxyurea. Jakafi® is also approved by the FDA for treatment of patients with intermediate or high-risk myelofibrosis, including primary myelofibrosis, post-polycythemia vera myelofibrosis and post-essential thrombocythemia myelofibrosis.



•

Kisqali (ribociclib, formerly LEE011) is a cyclin-dependent kinase inhibitor, a class of drugs that help slow the progression of cancer by inhibiting two proteins called cyclin-dependent kinase 4 and 6 (CDK4/6), approved for the treatment of postmenopausal women with hormone receptor positive, human epidermal growth factor receptor-2 negative locally advanced or metastatic breast cancer as initial endocrine-based therapy in combination with an aromatase inhibitor. Kisqali has been approved in approximately 45 countries, including in the US in March 2017 and in the EU member states in August 2017. In May 2017, the FDA also approved the Kisqali Femara Co-Pack (ribociclib tablets; letrozole tablets). Kisqali was developed by the Novartis Institutes for BioMedical Research under a research collaboration with Astex Pharmaceuticals.



•

Rydapt (midostaurin, formerly PKC412) is an oral, multi-targeted therapy, a type of treatment that interferes with certain pathways that are involved in the growth, progression and spread of cancer. In April 2017, the FDA approved Rydapt in combination with standard cytarabine and daunorubicin induction and cytarabine consolidation chemotherapy, for the treatment of adult patients with newly diagnosed acute myeloid leukemia (AML) who are FLT3 mutation-positive, as detected by an FDA approved test. Rydapt is not indicated as a single-agent induction therapy for the treatment of patients with AML. Rydapt is also approved in the US for the treatment of adult patients with aggressive systemic mastocytosis (ASM), systemic mastocytosis with associated hematological neoplasm (SM-AHN) or mast cell leukemia. In September 2017, the EMA approved Rydapt in combination with standard daunorubicin and cytarabine induction and high-dose cytarabine consolidation chemotherapy, and for adults in complete response followed by Rydapt single agent maintenance therapy, for adults with newly diagnosed AML who are FLT3 mutation-positive. It is also approved in the EU for use as monotherapy for the treatment of adults with ASM, SM-AHN or mast cell leukemia. Indications vary by country and not all indications are available in every country. Rydapt is the first targeted treatment for newly diagnosed FLT3-mutated AML and the first approved treatment for advanced systemic mastocytosis.



•

Kymriah (tisagenlecleucel, formerly CTL019) suspension for intravenous infusion is a CD19-directed genetically modified autologous chimeric antigen receptor T (CAR-T) cell therapy. Kymriah is approved in the US for the treatment of patients up to 25 years of age with B-cell precursor acute lymphoblastic leukemia that is refractory or in second or later relapse.

46

---

Table of Contents

Novartis Pharmaceuticals Business Unit

Ophthalmology

•

Lucentis (ranibizumab) is a recombinant humanized high affinity antibody fragment that binds to vascular endothelial growth factor A (VEGF-A), a key mediator of intraocular neovascularization. Lucentis is an anti-VEGF therapy specifically designed for the eye, minimizing systemic exposure. Lucentis is approved for six indications: neovascular (wet) age-related macular degeneration (nAMD), visual impairment due to diabetic macular edema (DME), visual impairment due to macular edema secondary to branch retinal vein occlusion (BRVO), visual impairment due to macular edema secondary to central retinal vein occlusion (CRVO), visual impairment due to choroidal neovascularization secondary to pathologic myopia (myopic CNV) and visual impairment due to choroidal neovascularization (CNV) associated with causes other than nAMD or secondary to pathologic myopia (PM). EC approval in visual impairment due to CNV associated with causes other than nAMD or secondary to PM was received in 2016, and this indication is now approved in 86 countries including the countries of the EU and Switzerland. Further submissions for this indication have been filed in 29 countries. The Lucentis pre-filled syringe has now launched in 33 countries. Lucentis is licensed from Genentech, and Novartis holds the rights to commercialize the product outside the US. Genentech holds the rights to commercialize Lucentis in the US. For further information see "Note 26. Transactions with related parties—Genentech/Roche" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.



•

Travatan (travoprost), Travatan Z (travoprost) and Duotrav (travoprost/timolol) are indicated for the reduction of elevated intraocular pressure (IOP) in patients with open-angle glaucoma or who have ocular hypertension. Single agent travoprost products (Travatan, Travatan Z, Travatan BAK-Free and Izba) are prescribed as first-line agents and are marketed in more than 140 countries, including the US, countries of the EU, Canada and China. Duotrav is a fixed-dose combination solution of the prostaglandin analog travoprost with the beta-blocker timolol, and is approved as a second-line treatment in adults for the reduction of IOP in patients with open-angle glaucoma or ocular hypertension who are insufficiently responsive to topical beta-blockers or prostaglandin analogs. Duotrav is currently marketed in more than 140 countries, including countries of the EU, Canada and China.

Immunology and Dermatology

•

Cosentyx (secukinumab) is a fully human monoclonal antibody that selectively neutralizes circulating interleukin 17A (IL-17A). IL-17A is a cytokine involved in the pathogenesis of psoriasis, ankylosing spondylitis and psoriatic arthritis. Cosentyx has been approved in over 75 markets, including the US, Japan and the countries of the EU, for the treatment of moderate-to-severe plaque psoriasis. Cosentyx is also approved in more than 65 countries for the treatment of adults with ankylosing spondylitis and psoriatic arthritis, including the US and the countries of the EU. Cosentyx is also approved in Japan for the treatment of pustular psoriasis, and both psoriasis vulgaris and psoriatic arthritis in adults who are not adequately responding to systemic therapies (except for biologics). Phase III 5-year data presented at a European medical congress in September 2017 showed high and long-lasting skin clearance in patients with moderate-to-severe plaque psoriasis with a continued favorable safety profile of Cosentyx sustained over the 5-year treatment period. Cosentyx in ankylosing spondylitis and psoriatic arthritis showed sustained improvements in signs and symptoms of both conditions in up to 80% of patients at three and four years respectively, as well as pain relief being rapid and sustained out to two years in both psoriatic arthritis and ankylosing spondylitis patients. Data presented at a US medical congress in November 2017 showed that almost 80% of ankylosing spondylitis patients have no radiographic progression of the spine at four years. In 2017, a label update for Cosentyx was also approved in the EU based on data showing long-term superiority over Stelara® (ustekinumab) in moderate-to-severe plaque psoriasis, along with efficacy in the treatment of moderate-to-severe scalp psoriasis, one of the most difficult to treat forms of the disease.

47

---

Table of Contents

•

Neoral (cyclosporine, USP Modified) is an immunosuppressant to prevent organ rejection following a kidney, liver, or heart transplant. Neoral is also approved for use in lung transplant in many countries outside of the US. This micro-emulsion formulation of cyclosporine is also indicated for treating selected autoimmune disorders such as psoriasis and rheumatoid arthritis. First launched in 1995, Neoral is marketed in approximately 100 countries.



•

Xolair (omalizumab) is a recombinant, DNA-derived, humanized IgG1K monoclonal antibody. Xolair is designed to block IgE, which limits the release of mediators in the early and late phases of the allergic inflammatory cascade. Xolair is currently approved in the EU, Switzerland and more than 80 countries as a treatment for chronic spontaneous urticaria (CSU), also known as chronic idiopathic urticaria (CIU). CSU is a skin condition that appears spontaneously and causes persistent hives and/or painful deeper swelling of the skin for six weeks or more. The approval for CSU in the EU includes use as add-on therapy for the treatment of CSU in adult and adolescent (12 years and above) patients with inadequate response to H1 antihistamine treatment, and, in the US, for the treatment of adults and adolescents (12 years of age and above) with CIU who remain symptomatic despite H1 antihistamine treatment. In 2017, new data demonstrated retreatment efficacy with Xolair in CSU patients after a treatment pause. See also, Xolair in "Respiratory" below. We co-promote Xolair with Genentech in the US and share a portion of operating income, but we do not record any US sales. Novartis records all sales of Xolair outside the US. For further information see "Note 26. Transactions with related parties—Genentech/Roche" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.



•

Ilaris (canakinumab) is a selective, high-affinity fully human monoclonal antibody that inhibits interleukin-1b (IL-1b), a key cytokine in the inflammatory pathway, by blocking the action of IL-1b for a sustained period of time. Ilaris is approved in more than 70 countries as a treatment for various inflammatory conditions, especially for adults and children with cryopyrin-associated periodic syndrome, systemic juvenile idiopathic arthritis, and the symptomatic treatment of refractory acute gouty arthritis. In 2016, Ilaris received approval for patients with adult-onset Still's disease in Europe, and for three rare and distinct types of Periodic Fever Syndromes, also known as Hereditary Periodic Fevers, in the US and Japan. Ilaris was approved in the EU in February 2017 for the same three Periodic Fever Syndromes.

Neuroscience

•

Gilenya (fingolimod) is an oral disease-modifying therapy approved to treat relapsing forms of multiple sclerosis. Gilenya has a reversible lymphocyte redistribution effect targeting both focal and diffuse central nervous system damage caused by multiple sclerosis (MS). In the US, Gilenya is indicated for relapsing forms of MS. In the EU, Gilenya is indicated for adult patients with high disease activity despite treatment with at least one disease modifying agent, or rapidly evolving severe relapsing-remitting MS. Gilenya impacts four key measures of disease activity: relapses, MRI lesions, brain shrinkage (brain volume loss) and disability progression. Gilenya is currently approved in more than 80 countries around the world. Gilenya is licensed from Mitsubishi Tanabe Pharma Corporation.

Respiratory

•

Xolair (omalizumab) is approved for the treatment of moderate-to-severe, or severe, persistent allergic asthma for children (age 6 and older) and adults in more than 90 countries, including the US since 2003, the EU since 2005, and Japan since 2009. Xolair is provided as lyophilized powder for resolution, and in addition as liquid formulation in a pre-filled syringe in most European countries. See also, Xolair in "Immunology and Dermatology" above. We co-promote Xolair with Genentech in the US and share a portion of operating income, but we do not record any US sales. Novartis records all sales of Xolair outside the US. For further information see "Note 26. Transactions with related parties—Genentech/Roche" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.

48

---

Table of Contents

Cardio-Metabolic

•

Entresto (sacubitril/valsartan) is a first-in-class angiotensin receptor/neprilysin inhibitor indicated for the treatment of symptomatic chronic heart failure with reduced ejection fraction (HFrEF). It acts to enhance the protective neurohormonal systems of the heart (neprilysin system) while simultaneously suppressing the harmful system (the renin-angiotensin-aldosterone system, or RAAS). Entresto was approved in the US and in the EU in 2015. Entresto is now approved in more than 95 countries, and launched in more than 50 countries. Both European Society of Cardiology heart failure guidelines and US heart failure guidelines have given a class I recommendation, the strongest class of recommendation, for the use of sacubitril/valsartan in patients with HFrEF.

Established Medicines

•

Galvus (vildagliptin), an oral DPP-4 inhibitor, and Eucreas, a single-pill combination of vildagliptin and metformin, are indicated for the treatment of type 2 diabetes. The products were first approved in 2007. Galvus is currently approved in more than 130 countries, including EU member states, Japan (as Equa) and countries in Latin America and Asia-Pacific. Eucreas was the first single-pill combination of a DPP-4 inhibitor and metformin approved in Europe, and also under the trade name Galvus Met, and is currently approved in more than 125 countries. In 2012, Galvus received approval in the EU for expanded use as a second-line monotherapy for type 2 diabetes patients who cannot take metformin. In 2012, the EU approved the use of Galvus in combination with insulin, with or without metformin, for patients with type 2 diabetes when diet, exercise and a stable dose of insulin do not result in glycemic control. The use of vildagliptin in triple combination with metformin and a sulphonylurea is also approved in the EU for the treatment of type 2 diabetes when diet and exercise plus dual therapy with vildagliptin and metformin do not provide adequate glycemic control. Galvus monotherapy indication was approved in China in 2015. Eucreas was approved in Japan in 2015 under the name Equmet as the first single-pill combination metformin/DPP-4 inhibitor approved in that country.



•

Exforge (valsartan and amlodipine besylate) is a single-pill combination of the ARB Diovan and the calcium channel blocker amlodipine besylate. First approved for the treatment of high blood pressure in Switzerland in 2006, and in the US and EU in 2007, it is now available in more than 100 countries. Exforge HCT (valsartan, amlodipine besylate and hydrochlorothiazide) is a single pill combining three widely prescribed high blood pressure treatments: an ARB, a calcium channel blocker and a diuretic (hydrochlorothiazide). Exforge HCT was approved in the EU and the US in 2009, and is now available in more than 75 countries.



•

Diovan (valsartan), together with Diovan HCT/Co-Diovan (valsartan and hydrochlorothiazide), is an angiotensin II receptor blocker (ARB). Diovan is the only agent in its class approved to treat all of the following: high blood pressure (including children 6 to 18 years), high-risk heart attack survivors and patients with heart failure. First launched in 1996, Diovan is available in more than 120 countries for treating high blood pressure, in more than 80 countries for heart failure and for heart attack survivors. First launched in 1997, Diovan HCT/Co-Diovan is approved in more than 100 countries worldwide.



•

Voltaren/Cataflam (diclofenac sodium/potassium/resinate/free acid/diethylamine) is a leading non-steroidal anti-inflammatory drug (NSAID) for the relief of symptoms in rheumatic diseases such as rheumatoid arthritis and osteoarthritis, and for various other inflammatory and pain conditions. Voltaren/Cataflam was first registered in 1973 and is available in more than 140 countries. This product is marketed by the Innovative Medicines Division in a wide variety of dosage forms including tablets, capsules, drops, suppositories, ampoules and topical therapy. Our Sandoz Division also markets generic versions of the product in various countries. In addition, we have licensed the Voltaren trademarks to our consumer healthcare joint venture with GSK to be

49

---

Table of Contents

used in the marketing of the topical and low dose oral forms of Voltaren as over-the-counter products.

•

Exelon capsules/oral solution (rivastigmine tartrate) and Exelon Patch (rivastigmine transdermal system) are cholinesterase inhibitors indicated for the treatment of Alzheimer's disease (AD) dementia and Parkinson's disease (PD) dementia. They are the oral and transdermal formulations, respectively, of the cholinesterase inhibitor rivastigmine. Exelon capsules have been available since 1997 to treat mild-to-moderate AD dementia and are approved in more than 80 countries. In 2006, Exelon capsules became the only cholinesterase inhibitor to be approved for mild-to-moderate PD dementia in addition to AD in both the US and EU. Exelon Patch was approved in 2007 in the US and EU and has been approved for the treatment of mild-to-moderate AD in more than 90 countries, including more than 20 countries where it is also approved for Parkinson's disease dementia. The once-daily formulation Exelon Patch has shown comparable efficacy and superior tolerability to the highest recommended doses of Exelon capsules, with significant improvement in cognition and overall functioning compared to placebo. In 2013, the FDA expanded the approved indication for Exelon Patch (15cm²) to also include the treatment of patients with severe Alzheimer's disease. In 2013, European Marketing Authorization was obtained for the higher dose in mild-to-moderate AD. The higher dose of Exelon Patch (15cm²) has been approved in more than 70 countries. The severe indication has now been approved in more than 10 countries.

Compounds in Development

        The following table and paragraph summaries provide an overview of the key Innovative Medicines Division projects currently in the Confirmatory Development stage, including projects seeking to develop potential uses of new molecular entities as well as potential additional indications or new formulations for already marketed products. Changes to the "Selected Development Projects" table are highlighted in the table below entitled "Projects Added to and Subtracted from the Development Table Since 2016."

        Compounds and new indications in development are subject to required regulatory approvals and, in certain instances, contractual limitations. These compounds and indications are in various stages of development throughout the world. It may not be possible to obtain regulatory approval for any or all of the new compounds and new indications referred to in this Form 20-F in any country or in every country. See "—Regulation" for further information on the approval process.

        The year that each project entered the current phase of development disclosed below reflects the year in which the decision to enter the phase was made. This may be different from the year in which the first patient received the first treatment in the related clinical trial. A reference to a project being in registration means that an application has been filed with a health authority for marketing approval.

Selected Development Projects

50

---

Table of Contents

51

---

Table of Contents

52

---

Table of Contents

Key Development Projects

•

ABL001 (asciminib) is a potent and specific inhibitor of the protein BCR-ABL. It binds to a distinct region of the protein, resulting in a mechanism of action that is different compared to tyrosine kinase inhibitors (TKIs) approved to treat Philadelphia chromosome-positive chronic myelogenous leukemia (Ph+ CML). Because of its unique receptor binding site, the compound may have the potential to be prescribed in combination with TKIs approved to treat Ph+ CML. Clinical trials investigating ABL001 are ongoing. A Phase III clinical study was initiated in October 2017 comparing the efficacy of ABL001 versus bosutinib in patients with CML-CP who are either resistant or intolerant to two prior TKIs.

53

---

Table of Contents

•

ACZ885 (canakinumab) was first approved in 2009 for cryopyrin-associated periodic syndromes as Ilaris. In 2017 data from CANTOS, a Phase III study evaluating quarterly injections of ACZ885 in people with a prior heart attack and inflammatory atherosclerosis, was presented at the European Society of Cardiology Congress and published simultaneously in The New England Journal of Medicine and The Lancet. CANTOS met its primary endpoint with a statistically significant 15% reduction of major adverse cardiovascular events (MACE) in people with a prior heart attack and inflammatory atherosclerosis who were treated with 150mg of ACZ885 in addition to standard of care including lipid-lowering therapy. This effect was driven by 24% relative reduction in risk of heart attack. A non-significant 10% reduction in risk of cardiovascular death was also observed. A sub-group of study participants, in the 150 mg arm, whose inflammation was reduced below the median high-sensitivity C-reactive protein level, measured at three months after one dose of treatment, saw a 27% relative risk reduction on the primary MACE endpoint. A review of a blinded, pre-planned oncology safety analysis revealed a 77% reduction in lung cancer mortality and 67% reduction in lung cancer cases in patients treated with 300 mg of ACZ885. Novartis is discussing the CANTOS study findings with health authorities and plans to submit the cardiovascular data for regulatory approval, as well as evaluate the lung cancer findings in additional Phase III confirmatory studies.



•

AMG 334 (erenumab) is a fully human monoclonal antibody designed to block the calcitonin gene-related peptide (CGRP) receptor, which is believed to play a critical role in mediating the incapacitating pain of migraine. Data from a pivotal Phase II study of erenumab presented in September 2017 at the Congress of the International Headache Society showed reduced monthly migraine days in patients with chronic migraine for whom previous preventive treatments have failed. In these patients, erenumab cut the average number of migraine days by at least five days and up to a week per month, depending on treatment dose. New data was also presented at the September 2017 Congress of the International Headache Society assessing the safety of erenumab 140 mg intravenous in a cardiovascular population with stable angina who are at increased risk for myocardial ischemia. Results of this study showed that inhibition of the CGRP receptor with erenumab had no impact on exercise capacity as measured by an exercise stress test. In January 2018, Novartis announced topline results from the Phase IIIb LIBERTY study of erenumab. The study met its primary endpoint with significantly more patients taking erenumab experiencing at least a 50% reduction from baseline in their monthly migraine days as compared to placebo. The trial assessed patients who tried and failed two to four previous preventive medications due to lack of efficacy or intolerable side effects. LIBERTY is the first migraine prevention trial of its kind conducted specifically in patients who have tried multiple therapies without success, and are in need of additional treatment options. In 2017 Novartis submitted AMG 334 to the EMA for migraine prophylaxis. Amgen Inc.'s filing for the same indication was also accepted by the FDA in July 2017. If approved, Novartis and Amgen plan to co-commercialize erenumab in the US. Amgen has exclusive commercialization rights in Japan, and Novartis has exclusive commercialization rights in the rest of the world. The companies plan to continue global co-development.



•

Arzerra (ofatumumab) is a fully human monoclonal antibody that is designed to target the CD20 molecule found on the surface of chronic lymphocytic leukemia (CLL) cells and normal B lymphocytes. Arzerra is approved in more than 60 countries worldwide as monotherapy for the treatment of patients with CLL who are refractory after prior treatment with fludarabine and alemtuzumab, and is also approved for other indications in CLL in the US and EU. A Phase III trial is underway to investigate ofatumumab in refractory indolent non-Hodgkin's lymphoma. Novartis is also investigating ofatumumab (disclosed as OMB157) in two Phase III studies for relapsing multiple sclerosis. Arzerra is marketed under a license agreement between Genmab A/S and Novartis.



•

BAF312 (siponimod) is an oral, second-generation sphingosine 1-phosphate receptor modulator under development for the treatment of secondary progressive multiple sclerosis (SPMS). BAF312

54

---

Table of Contents

binds selectively to the sphingosine 1-phosphate receptor subtypes 1 and 5, and distributes effectively to the brain where it may impact central nervous system inflammation and repair mechanisms. Results from the EXPAND Phase III study, evaluating efficacy and safety for SPMS, demonstrated that BAF312 reduced three- and six-month confirmed disability progression against placebo, with a safety profile similar to fingolimod. New data from the Phase III EXPAND study presented at the October 2017 joint meeting of the European and American Committees for Treatment and Research in Multiple Sclerosis demonstrated the effects of BAF312 on magnetic resonance imaging lesions and brain shrinkage in SPMS. Effects of BAF312 on disability progression in patients without on-study relapses were also presented. Results from EXPAND have been submitted for peer review publication. Novartis is planning to file BAF312 in the US and EU in 2018 for SPMS. If approved, label content will be subject to negotiation with regulatory authorities, but is expected to reflect the unique SPMS population studied in the EXPAND trial.

•

BYL719 (alpelisib) is an orally bioavailable, alpha isoform-specific PI3K inhibitor. In breast cancer cell lines harboring PIK3CA mutations, BYL719 has been shown to inhibit the PI3K/AKT/mTOR pathway and have anti-proliferative effects. In addition, cancer cell lines with PIK3CA mutations were more sensitive to BYL719 than those without the mutation across a broad range of different cancers. BYL719 is being studied in the Phase III SOLAR-1 trial in combination with fulvestrant in men and postmenopausal women with hormone receptor-positive advanced breast cancer who received prior treatment with aromatase inhibitor and a Phase II trial to determine the maximum tolerated dose in combination with fulvestrant in PIK3CA mutated estrogen receptor-positive breast cancer patients.



•

Cosentyx (secukinumab) is a fully human monoclonal antibody that selectively neutralizes IL-17A. Cosentyx is in Phase III development in non-radiographic axial spondyloarthritis. We expect results from this trial in 2019. Cosentyx is also in a Phase III head-to-head clinical trial in psoriatic arthritis against Humira® (adalimumab) and a Phase III head-to-head clinical trial in ankylosing spondylitis against the proposed biosimilar adalimumab in development by Sandoz.



•

CTL019 (tisagenlecleucel, approved in the US as Kymriah) is a CD19-directed genetically modified autologous chimeric antigen receptor T (CAR-T) cell therapy that uses the patient's own immune system to fight certain types of cancer. CARs are engineered proteins that enable a patient's own T cells to seek out specific target proteins present on a patient's cancerous tumor. When these cells are re-introduced into the patient's blood, they demonstrate the potential to bind to the cancer cells and destroy them. CTL019 targets a protein called CD19 that is associated with a number of B-cell malignancies. In August 2017, the FDA approved CTL019 as Kymriah for the treatment of patients up to 25 years of age with B-cell precursor acute lymphoblastic leukemia (ALL) that is refractory or in second or later relapse. Kymriah is also currently under regulatory review in the US for the treatment of adult patients with relapsed/refractory diffuse large B-cell lymphoma (DLBCL), the most common type of non-Hodgkin lymphoma. In the EU, the EMA is reviewing the CTL019 Marketing Authorization Application for the treatment of adult patients with relapsed/refractory DLBCL ineligible for autologous stem cell transplantation and for pediatric and young adult patients with relapsed/refractory ALL. At the American Society of Hematology Annual Meeting in December 2017, Novartis presented data from the primary analysis of the pivotal, Phase II JULIET trial that CTL019 sustained complete responses at six months in adults with relapsed/refractory DLBCL. CTL019 is also expected to enter Phase II development for adult patients with relapsed/refractory follicular lymphoma who have failed at least two prior systemic therapies. A Phase III study in second-line use in adult patients with DLBCL after first relapse is also being planned. Clinical trials in these patient populations are anticipated to begin in 2018. In January 2018, the FDA granted Priority Review for Kymriah for the treatment of adults with relapsed or refractory DLBCL who are ineligible for or relapse after autologous stem cell transplant (ASCT). Also in January 2018, the EMA granted accelerated assessment for CTL019 for the treatment of children and young adults with relapsed or refractory B-cell acute lymphoblastic

55

---

Table of Contents

leukemia, and for adult patients with relapsed or refractory DLBCL who are ineligible for ASCT. Novartis and the University of Pennsylvania's Perelman School of Medicine, which developed this CD19-directed CAR T cell therapy, have a global collaboration to research, develop and commercialize CAR-T therapies for the investigational treatment of cancers.

•

EMA401 (olodanrigan) is a novel angiotensin II type 2 receptor (AT₂R) antagonist. Targeting AT₂R is an emerging approach to neuropathic pain treatment. AT₂R antagonists block the pain signaling pathways in the peripheral nervous system. The first Phase II study to assess the potential of EMA401 in peripheral neuropathic pain was initiated in 2017, with the second Phase II study planned to start in 2018.



•

Entresto (sacubitril/valsartan) is a first-in-class angiotensin receptor/neprilysin inhibitor approved and marketed for the treatment of chronic heart failure with reduced ejection fraction. In addition, Novartis is conducting multiple studies of Entresto as part of the FortiHFy clinical program. This includes two large outcome studies. The first, PARAGON-HF, a Phase III trial of Entresto in patients with chronic heart failure with preserved ejection fraction, has completed enrollment with results expected in 2019. Novartis continues recruitment in PARADISE-MI, a Phase IIIb trial for patients at high risk for heart failure after an acute myocardial infarction, with results expected in 2020.



•

Gilenya (fingolimod, formerly FTY720) is a sphingosine 1-phosphate receptor modulator approved for the treatment of relapsing forms of multiple sclerosis in adults as Gilenya. Results from the Phase III PARADIGMS study, investigating the safety and efficacy of oral once-daily Gilenya in children and adolescents (ages 10 to 17) with multiple sclerosis showed that oral fingolimod resulted in an 82% reduction in the number of relapses in the patient population over a period of up to two years, compared to interferon beta-1a intramuscular injections. In December 2017, the FDA granted Gilenya Breakthrough Therapy designation for relapsing forms of multiple sclerosis in pediatric patients (ages 10 to 17). Gilenya is not currently approved for pediatric use.



•

INC280 (capmatinib) is a highly selective MET inhibitor. In June 2016, Novartis initiated ongoing Phase II studies to prospectively explore the predictive value of different mechanisms of MET dysregulation (including MET amplification and MET leading to exon 14 deletion mutation) in advanced non-small cell lung cancer. INC280 is licensed by Novartis from Incyte Corporation.



•

Jakavi (ruxolitinib) is an oral inhibitor of the JAK 1 and JAK 2 tyrosine kinases. Jakavi is currently in Phase III development in acute graft versus host disease and chronic graft versus host disease. Novartis licensed ruxolitinib from Incyte Corporation for development and commercialization in the indications of oncology and hematology outside the US. In the second quarter of 2016 the license was amended to also include rights to research, develop and commercialize ruxolitinib in graft-versus-host disease outside the US. Ruxolitinib is marketed in the US as Jakafi® by Incyte Corporation.



•

KAF156 belongs to a novel class of antimalarial compounds called imidazolopiperazines. It has the potential to clear malaria infection, including resistant strains, as well as to block the transmission of the malaria parasite. As demonstrated in a Phase IIa proof-of-concept trial, the compound is fast-acting and potent across multiple stages of the parasite's lifecycle, rapidly clearing both P. falciparum and P. vivax parasites. In August 2017 Novartis began a Phase IIb study to test multiple dosing combinations and dosing schedules of KAF156 and lumefantrine, including the feasibility of a single dose therapy in adults, adolescents and children.



•

Kisqali (ribociclib; formerly LEE011) is a selective cyclin-dependent kinase inhibitor that inhibits two proteins called cyclin-dependent kinase 4 and 6 (CDK4/6). In March 2017 the FDA approved Kisqali in combination with an aromatase inhibitor as initial endocrine-based therapy for treatment of postmenopausal women with hormone receptor positive, human epidermal growth factor receptor-2 negative (HR+/HER2-) advanced or metastatic breast cancer. In August 2017 the EC

56

---

Table of Contents

approved Kisqali in combination with an aromatase inhibitor as initial endocrine-based therapy for treatment of postmenopausal women with HR+/HER2- locally advanced or metastatic breast cancer. Results from the pivotal Phase III MONALEESA 2 study showed Kisqali plus letrozole significantly extended progression free survival (PFS) compared to a standard of care, letrozole, as a first line treatment in postmenopausal women with HR+/HER2- advanced breast cancer. Kisqali plus letrozole reduced the risk of disease progression or death by 44% over letrozole alone, significantly extending PFS across all patient subgroups. Novartis is continuing to assess Kisqali through the MONALEESA clinical trial program, which includes MONALEESA 2, MONALEESA 3 and MONALEESA 7. These trials are evaluating Kisqali in multiple endocrine therapy combinations across a broad range of patients, including men and premenopausal women. In December 2017, Kisqali was granted Breakthrough Therapy designation by the FDA for initial endocrine-based treatment of pre- or peri-menopausal women with HR+/HER2- advanced or metastatic breast cancer in combination with tamoxifen or an aromatase inhibitor. Kisqali was developed by Novartis as part of a drug discovery collaboration with Astex Pharmaceuticals.

•

LIK066 is an inhibitor of the sodium-glucose co-transporter-1 (SGLT1) and sodium-glucose co-transporter-2 (SGLT2). The dual mechanism (renal and intestinal) acts to improve multiple metabolic end points including glycemic control, weight, blood pressure and lipid biomarkers. We initiated Phase II dose ranging studies for weight loss in the first half of 2017.



•

LJN452 (tropifexor) is a potent, non-bile acid, Farnesoid X receptor (FXR) agonist, which is being developed for the treatment of nonalcoholic steatohepatitis (NASH). LJN452 has been shown to reduce steatosis, inflammation, and fibrosis in animal models, alongside a favorable safety profile in first in-human studies. This oral treatment is designed to break the cycle of fatty build-up in the liver and harness the body's built-in mechanisms for coping with excess bile acid. Recruitment is underway for the first LJN452 clinical study in NASH patients.



•

OMB157 (ofatumumab) is a fully human monoclonal antibody administered by subcutaneous injection in development for multiple sclerosis (MS). OMB157 works by binding to the CD20 molecule on the B cell surface and inducing B cell depletion. Positive Phase IIb results in MS patients were presented in 2014 and showed significant reduction in the number of new brain lesions in the first 24 weeks after ofatumumab administration. Novartis initiated a Phase III program for OMB157 in relapsing MS in August 2016. The program is on track, and we expect to complete the Phase III program in MS in 2019. Ofatumumab is marketed by Novartis for oncology indications as an intravenous infusion under the brand name Arzerra.



•

PDR001 (spartalizumab) is a PD-1 antagonist that may restore the ability of immune cells to induce cell death and fight cancer. PDR001 is being evaluated in a Phase III trial in combination with Tafinlar + Mekinist for metastatic BRAF V600+ melanoma, in a Phase II trial for neuroendocrine tumors and in Phase I trials in other tumor types.



•

QAW039 (fevipiprant) is being investigated in the reduction of asthma attacks in patients with severe asthma and in the improvement of lung function in patients with moderate asthma. This compound is designed to block the activity of the DP2 receptor, an upstream driver of allergen- and non-allergen dependent inflammation in asthma, resulting in reduction in IL-4, IL-5, and IL-13, inhibition of eosinophil migration, and inhibition of smooth muscle cells growth in the airway. Phase II clinical data shows a positive effect on symptoms (asthma control questionnaire) and lung function, and reduction in sputum eosinophils.



•

QMF149 (indacaterol acetate/mometasone furoate) is a once daily fixed-dose combination being investigated in asthmatic patients who are uncontrolled on an inhaled corticosteroid. QMF149 combines indacaterol acetate (an inhaled long-acting beta₂-adrenergic agonist with 24 hour duration of action) and mometasone furoate (an inhaled corticosteroid with 24 hour duration of action) delivered via the Breezhaler device, a single dose dry powder inhaler. QMF149 is currently being evaluated in two Phase III clinical trials to support registration outside the US.

57

---

Table of Contents

•

QVM149 (indacaterol acetate, glycopyrronium bromide, mometasone furoate) is a fixed-dose combination of indacaterol acetate (an inhaled long-acting beta₂-adrenergic agonist with 24 hour duration of action), glycopyrronium bromide (an inhaled long-acting muscarinic antagonist with 24 hour duration of action), and mometasone furoate (an inhaled corticosteroid with 24 hour duration of action) in development for once-daily maintenance treatment of poorly controlled asthmatic patients to be delivered via the Breezhaler device, a single dose dry powder inhaler. All three mono-components have previously been developed as individual drugs for either chronic obstructive pulmonary disease or asthma. QVM149 is currently in Phase III clinical trials to support registration outside the US.



•

RLX030 (serelaxin) is a novel recombinant form of the human hormone relaxin 2, and is believed to act through multiple mechanisms to reduce stress on the heart, kidneys and other organs. In 2017 Novartis announced the global Phase III RELAX-AHF-2 study investigating the efficacy, safety and tolerability of RLX030 in patients with acute heart failure (AHF) did not meet its primary endpoints of reduction in cardiovascular death through day 180 or reduced worsening heart failure through day five when added to standard therapy in patients with AHF.



•

RTH258 (brolucizumab) is a single-chain antibody fragment that acts as an anti-vascular endothelial growth factor (anti-VEGF) agent. RTH258 is currently in development for neovascular age related macular degeneration (nAMD) and diabetic macular edema. RTH258 met its primary endpoint of non-inferiority to aflibercept in mean change in best-corrected visual acuity in two Phase III clinical trials, HAWK and HARRIER. Additionally, superiority was shown in three secondary endpoints that are considered key markers of nAMD disease, central subfield retinal thickness, retinal fluid and disease activity. Additionally, a majority of patients were on a 12-week treatment schedule immediately following the loading phase, also assessed by secondary endpoints in the HAWK and HARRIER trials. Beginning in 2018, we expect to make regulatory filings for nAMD in the US, EU and Japan. RTH258 is also currently in development for diabetic macular edema, with Phase III trials in this indication scheduled to start in 2018.



•

SEG101 (crizanlizumab) is a humanized anti-P-selectin monoclonal antibody that is being investigated in the reduction of vaso-occlusive pain crises in patients with sickle cell disease (SCD). SCD is a hereditary blood disorder characterized by sickle-shaped red blood cells. Novartis acquired SEG101 in 2016 by exercising its right to acquire Reprixys Pharmaceuticals Corporation following receipt of results of the Phase II SUSTAIN study. Results from the Phase II SUSTAIN study demonstrated that SEG101 reduced the median annual rate of sickle cell-related pain crises compared to placebo in patients with or without hydroxyurea therapy.



•

Signifor LAR (pasireotide) is a somatostatin analogue approved in the EU in September 2017 as a long-acting release formulation for patients with Cushing's disease. An application for this indication has also been accepted by the FDA.



•

Tafinlar (dabrafenib) targets the serine/threonine kinase BRAF in the RAS/RAF/MEK/ERK pathway and Mekinist (trametinib) targets the threonine/tyrosine kinases MEK1 and MEK2 in the MAP kinase pathway, resulting in dual blockade of this pathway, which is the main escape mechanism for resistance. Tafinlar + Mekinist (dabrafenib + trametinib) is the first combination of BRAF and MEK inhibitors to report three years of follow-up survival data in two Phase III studies in BRAF V600+ unresectable or metastatic patients. A Phase III study is also underway for BRAF V600 mutation positive melanoma patients in the adjuvant setting. Phase II studies are also underway to evaluate the efficacy and safety of Tafinlar + Mekinist in patients with BRAF V600 mutation positive non-small cell lung cancer. Data presented at a major European conference in the third quarter showed reduced risk of disease recurrence by 53% in patients with resected BRAF V600 mutation-positive melanoma and meaningful improvements in secondary endpoints, including overall survival, distant metastasis-free survival and freedom from relapse. In October 2017, the FDA granted Breakthrough Therapy designation for Tafinlar + Mekinist for the adjuvant

58

---

Table of Contents

treatment of patients with stage III melanoma with a BRAF V600 mutation following complete resection. In December 2017, the FDA granted Priority Review to Tafinlar + Mekinist for adjuvant treatment of this patient population. Tafinlar + Mekinist is being evaluated in a Phase III trial in combination with PDR001 for metastatic BRAF V600+ melanoma, in a Phase II trial for neuroendocrine tumors and in Phase I trials in other tumor types.

•

UNR844 is a potential first-in-class topical treatment in development for presbyopia. UNR844 is believed to work through reduction of disulfide bonds, softening the crystalline lens. Presbyopia is a common age-related loss of near distance vision characterized by a progressive inability to focus on objects nearby, making everyday activities, such as reading, challenging. In a Phase I/II masked, placebo-controlled proof of concept study, 50 patients were treated daily for 90 days with topical UNR844 and 25 patients with placebo. UNR844 showed a statistically significant difference to placebo in distant corrected near vision at all time points measured (from day 8). At day 90, 82% of participants treated with UNR844 had 20/40 near vision (or 0.30 LogMAR) versus 48% in the placebo group. Near vision of 20/40 allows for the majority of near vision tasks in most people. UNR844 was acquired by Novartis through the acquisition of Encore Vision, Inc., in January 2017.



•

VAY736 is a highly specific and potent monoclonal antibody against the B-cell activating factor receptor (BAFF-R) with enhanced antibody-dependent cell-mediated cytotoxicity against BAFF-R positive B cells. VAY736 is in Phase II development for the treatment of primary Sjogren's syndrome, a systemic autoimmune disorder characterized by progressive lymphocytic destruction of exocrine glands and other organs resulting not only in eye and mouth dryness, but frequently complicated by severe fatigue and extraglandular organ involvement. VAY736 is also being tested for patients with autoimmune hepatitis, a chronic autoimmune disorder, characterized by hepatocyte injury and destruction of the liver architecture leading to fibrosis/cirrhosis, and ultimately to end stage liver disease requiring liver transplantation.



•

VAY785 (emricasan) is an investigational, first-in-class, oral, pan-caspase inhibitor being investigated for the treatment of chronic liver diseases including nonalcoholic steatohepatitis (NASH) with advanced fibrosis (scarring) and cirrhosis. In multiple Phase II clinical trials, VAY785 has demonstrated significant, rapid and sustained reductions in elevated levels of key biomarkers of inflammation and cell death, which play a role in the severity and progression of liver disease. VAY785 is being developed in collaboration with Conatus Pharmaceuticals Inc. As part of this collaboration, Conatus is conducting several Phase IIb clinical trials with VAY785, including the ENCORE-PH trial in primarily compensated NASH cirrhosis, the POLT-HCV-SVR trial in post-transplant hepatitis C virus fibrosis and cirrhosis, and the ENCORE-NF in NASH fibrosis. Top-line results of these trials are expected to be available starting in 2018 and continuing thereafter. In May 2017, Conatus also initiated the Phase IIb ENCORE-LF trial in patients with decompensated liver cirrhosis caused by NASH, with results expected in the second half of 2019.



•

ZPL389 is a once-daily oral H₄ receptor antagonist in development for atopic dermatitis, commonly known as eczema. ZPL389 is a potential first-in-class oral treatment for moderate-to-severe eczema. In a proof of concept study, ZPL389 showed a clinically and statistically significant reduction of eczema. After eight weeks of treatment, the compound reduced the Eczema Area and Severity Index (EASI) score by 50% in a study of 98 patients. In clinical studies conducted to date, ZPL389 has a favorable safety profile. ZPL389 was acquired by Novartis through the acquisition of Ziarco Group Limited in January 2017.



•

Zykadia (ceritinib) is a potent and highly selective oral anaplastic lymphoma kinase (ALK) inhibitor that is in development for ALK positive (ALK+) cancers. In May 2017, the FDA approved the expanded use of Zykadia to include the first-line treatment of patients with metastatic non-small cell lung cancer whose tumors are ALK+, as detected by an FDA-approved test. In June 2017 the European Commission approved expanding the use of Zykadia to the first-line treatment of patients with advanced non-small cell lung cancer whose tumors are ALK+.

59

---

Table of Contents

Projects Added to and Subtracted from the Development Table Since 2016

60

---

Table of Contents

61

---

Table of Contents

62

---

Table of Contents

Principal Markets

        The Innovative Medicines Division sells products in approximately 155 countries worldwide. Net sales are generally concentrated in the US, Europe and Japan. The following table sets forth the aggregate 2017 net sales of the Innovative Medicines Division by region:

        Many of our Innovative Medicines Division's products are used for chronic conditions that require patients to consume the product over long periods of time, ranging from months to years. Net sales of the vast majority of our products are not subject to material changes in seasonal demand.

Production

        The primary goal of our manufacturing and supply chain management program is to ensure the uninterrupted, timely and cost-effective supply of products that meet all product specifications and quality standards. The manufacture of our products is heavily regulated by governmental health authorities around the world, including the FDA and EMA. In addition to regulatory requirements, many of our products involve technically complex manufacturing processes or require a supply of highly specialized raw materials.

        We manufacture our products at facilities worldwide. See also "—Item 4.D Property, Plants and Equipment." Active pharmaceutical ingredients are manufactured in our own facilities or purchased from third-party suppliers. We maintain state-of-the-art processes with quality as a primary goal within our own production network. Those processes include fermentation, chemical syntheses and precipitation processes, such as sterile processing. Many biologic medicines are manufactured using recombinant DNA derived technology, by which a gene is introduced into a host cell, which then produces a human protein. This manufacturing process requires sophisticated technical expertise. We are constantly working to improve current, and to develop new, manufacturing processes, and review and adapt our manufacturing network to meet the needs of our Innovative Medicines Division.

63

---

Table of Contents

        Raw materials for the manufacturing process are either produced in-house or purchased from a number of third party suppliers. Where possible, we maintain multiple supply sources so that the business is not dependent on a single or limited number of suppliers. However, our ability to do so may at times be limited by regulatory or other requirements. We monitor market developments that could have an adverse effect on the supply of essential materials. Our suppliers of raw materials are required to comply with Novartis quality standards.

        Because the manufacture of our products is complex and heavily regulated by governmental health authorities, supply is never guaranteed. If we or our third party suppliers fail to comply with applicable regulations then there could be a product recall or other shutdown or disruption of our production activities. We have experienced supply interruptions for our products in the past, and there can be no assurance that supply will not be interrupted again in the future as a result of unforeseen circumstances. We have implemented a global manufacturing strategy to maximize business continuity in case of such events or other unforeseen catastrophic events. However, there can be no guarantee that we will always be able to successfully manage such issues when they arise.

Marketing and Sales

        The Innovative Medicines Division serves customers with 3,360 field force representatives in the US, and an additional 22,161 in the rest of the world, as of December 31, 2017, including supervisors and administrative personnel. These trained representatives, where permitted by law, present the therapeutic risks and benefits of our products to physicians, pharmacists, hospitals, insurance groups and managed care organizations. We continue to see increasing influence of customer groups beyond prescribers, and Novartis is responding by adapting our business practices to engage appropriately with such constituencies.

        The marketplace for healthcare is also evolving with patients becoming more informed stakeholders in their healthcare decisions and looking for solutions to meet their changing needs. Where permitted by law, Novartis seeks to assist the patient, delivering innovative solutions to drive education, access, and improved patient care.

        Although specific distribution patterns vary by country, Novartis generally sells its prescription drugs primarily to wholesale and retail drug distributors, hospitals, clinics, government agencies and managed healthcare providers. The growing number of so-called "specialty" drugs in our portfolio has resulted in increased engagement with specialty pharmacies. In the US, specialty pharmacies continue to grow as a distribution channel for specialty products, with an increasing number of health plans mandating use of specialty pharmacies to monitor specialty drug utilization and costs.

        Novartis pursues co-promotion/co-marketing opportunities as well as licensing and distribution agreements with other companies in various markets, when legally permitted and economically attractive. In the US, certain products can be advertised by way of internet, television, newspaper and magazine advertising.

        As a result of continuing changes in healthcare economics and an aging population, the US Centers for Medicare & Medicaid Services (CMS) is the largest single payor for healthcare services in the US. In addition, both commercial and government sponsored managed care organizations continue to be among the largest groups of payors for healthcare services in the US. In other countries, national health services are often the only significant payor for healthcare services. In an effort to control prescription drug costs, almost all managed care organizations and national health services use formularies that list specific drugs that may be reimbursed, and/or the level of reimbursement for each drug. Managed care organizations and national health services also increasingly utilize various cost-benefit analyses to determine whether or not newly-approved drugs will be added to a formulary and/or the level of reimbursement for that drug, and whether or not to continue to reimburse existing drugs. We have dedicated teams that actively seek to optimize formulary positions for our products.

64

---

Table of Contents

        Recent trends have been toward continued consolidation among distributors and retailers of Innovative Medicines Division products, both in the US and internationally. This has increased our customers' purchasing leverage and resulted in increased pricing pressure on our products. Moreover, we are exposed to increased concentration of credit risk as a result of the consolidation among our customers.

Competition

        The global pharmaceutical market is highly competitive, and we compete against other major international corporations which have substantial financial and other resources, as well as against smaller companies which operate regionally or nationally. Competition within the industry is intense and extends across a wide range of commercial activities, including pricing, product characteristics, customer service, sales and marketing, and research and development.

        In addition, as is the case with other pharmaceutical companies selling patented pharmaceuticals, Novartis faces ever-increasing challenges from companies selling products which compete with our products, including competing patented products and generic forms of our products following the expiry of intellectual property protection. Generic companies may also gain entry to the market through successfully challenging our intellectual property rights, but we vigorously use legally permissible measures to defend those rights. See also "—Intellectual Property" below. We also may face competition from over-the-counter (OTC) products that do not require a prescription from a physician. See also "—Regulation—Price Controls" below.

        There is ongoing consolidation in the pharmaceutical industry. At the same time, new entrants are looking to use their expertise to establish or expand their presence in healthcare, including technology companies hoping to benefit as data and data management become increasingly important in our industry.

Research and Development

        The discovery and development of a new drug is a lengthy process, usually requiring approximately 10 to 15 years from the initial research to bringing a drug to market, including approximately six to eight years from Phase I clinical trials to market entry. At each of these steps, there is a substantial risk that a compound will not meet the requirements to progress further. In such an event, we may be required to abandon a compound in which we have made a substantial investment.

        We manage our research and development expenditures across our entire portfolio in accordance with our strategic priorities. We make decisions about whether or not to proceed with development projects on a project-by-project basis. These decisions are based on the project's potential to meet a significant unmet medical need or to improve patient outcomes, the strength of the science underlying the project, and the potential of the project (subject to the risks inherent in pharmaceutical development) to generate significant positive financial results for the Company. Once a management decision has been made to proceed with the development of a particular molecule, the level of research and development investment required will be driven by many factors, including the medical indications for which it is being developed, the number of indications being pursued, whether the molecule is of a chemical or biological nature, the stage of development, and the level of evidence necessary to demonstrate clinical efficacy and safety.

        We are a leader in the pharmaceuticals industry in terms of research and development, including the level of our investment. For information about research and development expenditures by our Innovative Medicines Division over the last three years, please see "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Results of Operations—2017 Compared to 2016—Innovative Medicines—Research and development of Innovative Medicines Division," and "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Results of Operations—2016 Compared to 2015—Innovative Medicines—Research and development of Innovative Medicines Division."

65

---

Table of Contents

Research program

        Our research program is conducted by the Novartis Institutes for BioMedical Research (NIBR), which is responsible for the discovery of new medicines. We established NIBR in 2002. The principal goal of our research program is to discover new medicines for diseases with unmet medical need. To do this, we focus our work in areas where we have sufficient scientific understanding and believe we have the potential to change the practice of medicine. This requires the hiring and retention of the best talent, a focus on fundamental disease mechanisms that are relevant across different disease areas, continuous improvement in technologies for drug discovery and potential therapies, close alliances with clinical colleagues, and the establishment of appropriate external complementary alliances.

        At NIBR sites in Basel, Switzerland, Cambridge, Massachusetts, three other US locations, and Shanghai, China, approximately 6,000 full-time equivalent scientists, physicians and business professionals contribute to research into disease areas such as cardiovascular and metabolic diseases, neuroscience, oncology, muscle disorders, ophthalmology, autoimmune diseases, and respiratory diseases. In addition, the Novartis Institute for Tropical Diseases (NITD), the Friedrich Miescher Institute, and the Genomics Institute of the Novartis Research Foundation focus on basic genetic and genomic research. NITD is currently focused on parasitic pathogens, including malaria and cryptosporidiosis.

        All drug candidates are taken to the clinic via "proof-of-concept" trials to enable an early assessment of the safety and efficacy of the drug while collecting basic information on pharmacokinetics and tolerability, and adhering to the guidance for early clinical testing set forth by health authorities. Following proof-of-concept, our Global Drug Development unit conducts confirmatory trials on the drug candidates.

        In October 2016, we announced a new strategic plan for research that includes the creation of a unified early discovery research group based in Basel, Switzerland and Cambridge, Massachusetts, the creation of two centers of excellence for bio-therapeutic research in Basel, Switzerland and Cambridge, Massachusetts, the creation of an enterprise wide pharmacokinetics sciences group and growth of our respiratory diseases research group. As part of this plan, the Novartis Institute for Tropical Diseases (NITD) moved its research programs and operations from Singapore to Emeryville, California, where, as of June 2017, it is co-located with our infectious diseases research team. The creation of the two centers of excellence in bio-therapeutics resulted in the closure of a biologics group in Shanghai, China and the closure of ESBATech, a biologics group in Schlieren, Switzerland in 2017. In 2017 we also completed the exit of all internal non-human primate research resulting in the closure of operations focused on non-human primate research in Fort Worth, Texas.

Development program

        Our Global Drug Development (GDD) organization oversees drug development activities for our Innovative Medicines Division. GDD works collaboratively with NIBR to execute our overall pipeline strategy and takes an enterprise approach to pipeline and portfolio management. The GDD organization includes centralized global functions such as Regulatory Affairs and Global Development Operations, and Global Development units aligned with our business franchises. GDD was created to improve resource allocation, technology implementation and process standardization to further increase innovation. GDD includes approximately 10,000 full-time equivalent associates worldwide.

        Under our Global Drug Development unit, the focus of our development program is to determine the safety and efficacy of a potential new medicine in humans.

        The traditional model of development comprises three phases, which are defined as follows:

Phase I:    These are the first clinical trials of a new compound, generally performed in a small number of healthy human volunteers, to assess the drug's safety profile, including the safe dosage range. These trials also determine how a drug is absorbed, distributed, metabolized and excreted, and the duration of its action.

66

---

Table of Contents

Phase II:    Clinical studies performed with patients who have the target disease, with the aim of continuing the Phase I safety assessment in a larger group, assessing the efficacy of the drug in the patient population, and determining the appropriate doses for further evaluation.

Phase III:    Large-scale clinical studies with several hundred to several thousand patients, which are conducted to establish the safety and efficacy of the drug in specific indications for regulatory approval. Phase III trials may also be used to compare a new drug against a current standard of care to evaluate the overall benefit-risk relationship of the new medicine.

        In each of these phases, physicians monitor volunteer patients closely to assess the potential new drug's safety and efficacy.

        Though we use this traditional model as a platform, we have tailored the development process to be simpler, more flexible and efficient. We view the development process as generally consisting of Exploratory Development where "proof of concept" is established, and Confirmatory Development where this concept is confirmed in large numbers of patients. Exploratory Development consists of clinical "proof of concept" (PoC) studies, which are small clinical trials (typically 5-15 patients) that combine elements of traditional Phase I/II testing. These customized trials are designed to give early insights into issues such as safety, efficacy and toxicity for a drug in a given indication and are conducted by NIBR. Once a positive proof of concept has been established, the drug moves to the Confirmatory Development stage and becomes the responsibility of GDD. Confirmatory Development has elements of traditional Phase II/III testing and includes trials aimed at confirming the safety and efficacy of the drug in the given indication leading up to submission of a dossier to health authorities for approval. Like traditional Phase III testing, this stage can also include trials which compare the drug to the current standard of care for the disease, in order to evaluate the drug's overall risk/benefit profile.

        The vast amount of data that must be collected and evaluated makes clinical testing the most time-consuming and expensive part of new drug development. The next stage in the drug development process is to seek registration for the new drug. For more information, see "—Regulation."

        At each phase of clinical development, our activities are managed by our Innovation Management Board (IMB). The IMB is responsible for oversight over all major aspects of our development portfolio and oversees our drug development budget. In particular, the IMB is responsible for the endorsement of proposals to commence the first clinical trials of a development compound, and of major project phase transitions and milestones following a positive proof of concept outcome, including transitions to full development and the decision to submit a regulatory application to the health authorities. The IMB is also responsible for project discontinuations, for the endorsement of overall development strategy and the endorsement of development project priorities. The IMB is chaired by our Global Head of Drug Development and Chief Medical Officer and has representatives from Novartis senior management with expertise spanning multiple fields, among its core members and extended membership.

Alliances and acquisitions

        Our Innovative Medicines Division enters into business development agreements with other pharmaceutical and biotechnology companies and with academic and other institutions in order to develop new products and access new markets. We license products that complement our current product line and are appropriate to our business strategy. Therapeutic area strategies have been established to focus on alliances and acquisition activities for key disease areas and indications that are expected to be growth drivers in the future. We review products and compounds we are considering licensing using the same criteria as we use for our own internally discovered drugs.

        On January 19, 2018, we successfully completed our previously-announced tender offer for all of the then outstanding ordinary shares, including ordinary shares represented by American Depositary Shares (ADSs), of Advanced Accelerator Applications S.A. (AAA). As of the expiration of the offer on January 19, 2018, approximately 97% of the then outstanding fully diluted ordinary shares, including

67

---

Table of Contents

ordinary shares represented by ADSs, were validly tendered. In addition, on January 22, 2018, we commenced a subsequent offering period which will expire on January 31, 2018, unless extended. AAA is a NASDAQ-listed radiopharmaceutical company headquartered in Saint-Genis-Pouilly, France, that develops, produces and commercializes molecular nuclear medicines including Lutathera (lutetium (¹⁷⁷Lu) oxodotreotide), a first-in-class radioligand therapy product for neuroendocrine tumors and a portfolio of diagnostic products. For additional information, see "Note 2. Significant transactions—Significant transaction entered into in 2017 and closed in January 2018" on page 199 of the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.

        In November 2017, we announced an expanded collaboration with Amgen Inc., and the Banner Alzheimer's Institute to collaborate on a new Generation Study 2 to assess whether investigational BACE1 inhibitor CNP520 can prevent or delay the symptoms of Alzheimer's disease in a high-risk population.

        In September 2017, we announced a collaboration agreement with the University of California, Berkeley, (UCB) in the field of covalent chemoproteomics to establish the Novartis-Berkeley Center for Proteomics and Chemistry Technologies, based at Berkeley. The collaboration will focus on discovery of drug targets on proteins inaccessible to conventional therapeutic molecules.

        In June 2017, we announced a clinical research collaboration in which Bristol-Myers Squibb is to investigate the safety, tolerability, and efficacy of Mekinist (trametinib) in combination with Opdivo® (nivolumab) and Opdivo® + Yervoy® (ipilimumab) regimen as a potential treatment option for metastatic colorectal cancer in patients with microsatellite stable tumors where the tumors are proficient in mismatch repair (MSS mCRC pMMR).

        In April 2017, Novartis announced an expanded collaboration agreement with Amgen to co-commercialize AMG 334 (erenumab) in the US, currently being investigated for the prevention of migraine. Novartis retains exclusive rights to commercialize AMG 334 in the rest of the world and gains commercialization rights in Canada. This agreement builds on the previously-announced 2015 global collaboration between Novartis and Amgen.

        In January 2017, we entered into a collaboration and option agreement with Ionis Pharmaceuticals, Inc. (Ionis), and its affiliate Akcea Therapeutics, Inc. (Akcea), to license two investigational treatments with the potential to significantly reduce cardiovascular risk in patients suffering from high levels of lipoproteins known as Lp(a) and ApoCIII. The two investigational antisense therapies developed by Ionis—called AKCEA-APO(a)-L_Rx and AKCEA-APOCIII-L_Rx—have the potential to lower both lipoproteins up to 90% and significantly reduce cardiovascular risk in high-risk patient populations. In addition, Novartis entered into a stock purchase agreement with Ionis and Akcea. This transaction was completed on February 14, 2017.

        In December 2016, we entered into a definitive agreement for the acquisition of Encore Vision, Inc., a privately-held company focused on the development of UNR844 (formerly EV06), an investigational, first-in-class potentially disease modifying topical treatment for presbyopia. This acquisition was completed on January 20, 2017.

        In December 2016, we signed an exclusive option, collaboration and license agreement with Conatus Pharmaceuticals Inc., for the global rights to VAY785 (emricasan), an investigational, first-in-class, oral, pan-caspase inhibitor for the treatment of non-alcoholic steatohepatitis with advanced fibrosis and cirrhosis of the liver. Novartis exercised the option on May 4, 2017. Novartis obtained an exclusive, worldwide license to develop and commercialize products containing emricasan on July 5, 2017.

        In December 2016, we entered into a definitive agreement for the acquisition of Ziarco Group Limited, a privately held company focused on the development of novel treatments in dermatology including ZPL389, a once-daily oral H₄ receptor antagonist in development for atopic dermatitis. This acquisition was completed on January 20, 2017.

68

---

Table of Contents

        In November 2016, we acquired Reprixys Pharmaceuticals Corporation and SEG101 (crizanlizumab), an anti-P-selectin antibody being investigated in the reduction of vaso-occlusive pain crises in patients with sickle cell disease.

        In June 2016, we announced a collaboration and licensing agreement with Xencor for the development of bispecific antibodies for treating cancer. We are to collaborate with Xencor to co-develop their two bispecific T cell engaging antibodies targeting CD3xCD123 and CD3xCD20 for the treatment of acute myeloid leukemia and B-cell malignancies. As part of the agreement, Novartis also received the right to develop four additional bispecific antibodies and to use other Xencor proprietary antibody engineering technology for up to ten additional biotherapeutic programs across the Novartis research and development portfolio.

        In January 2016, we announced a collaboration and licensing agreement with Surface Oncology, which gives Novartis access to four pre-clinical programs in immuno-oncology. These programs target regulatory T cell populations, inhibitory cytokines, and immunosuppressive metabolites in the tumor microenvironment.

        In March 2015, we entered into a collaboration with Aduro Biotech focused on the discovery and development of next generation cancer immunotherapies targeting the STING signaling pathway. STING is a signaling pathway that when activated is known to initiate broad innate and adaptive immune responses in tumors. Aduro's novel small molecule cyclic dinucleotides (CDNs) have proven to generate an immune response in preclinical models that specifically attacks tumor cells.

        In January 2015, we announced collaboration and licensing agreements with Intellia Therapeutics for the discovery and development of new medicines using CRISPR genome editing technology and Caribou Biosciences for the development of drug discovery tools. CRISPR, an acronym that stands for clustered regularly interspaced short palindromic repeats, is an approach that allows scientists to easily and precisely edit the genes of targeted cells. In a short period of time it has proven to be a powerful tool for creating very specific models of disease for use in drug discovery and has potential for use as a therapeutic modality for treating disease at the genetic level by deleting, repairing or replacing the genes that cause disease.

        As part of our previously-announced exclusive global research and development collaboration with the University of Pennsylvania (Penn) to develop and commercialize targeted chimeric antigen receptor (CAR) immunotherapies for the treatment of cancer, in February 2016 Penn opened the Center for Advanced Cellular Therapeutics (CACT) at the Perelman School of Medicine campus in Philadelphia, Pennsylvania. The CACT is a first of its kind research and development center established specifically to develop and manufacture adoptive T cell immunotherapies under the research collaboration guided by scientists and clinicians from NIBR and Penn.

Regulation

        The international pharmaceutical industry is highly regulated. Regulatory authorities around the world administer numerous laws and regulations regarding the testing, approval, manufacturing, importing, labeling and marketing of drugs, and also review the safety and efficacy of pharmaceutical products. Extensive controls exist on the non-clinical and clinical development of pharmaceutical products. These regulatory requirements, and the implementation of them by local health authorities around the globe, are a major factor in determining whether a substance can be developed into a marketable product, and the amount of time and expense associated with that development.

        Health authorities, including those in the US, EU and Japan, have high standards of technical evaluation. The introduction of new pharmaceutical products generally entails a lengthy approval process. Products must be authorized or registered prior to marketing, and such authorization or registration must subsequently be maintained. In recent years, the registration process has required increased testing and

69

---

Table of Contents

documentation for the approval of new drugs, with a corresponding increase in the expense of product introduction.

        To register a pharmaceutical product, a registration dossier containing evidence establishing the safety, efficacy and quality of the product must be submitted to regulatory authorities. Generally, a therapeutic product must be registered in each country in which it will be sold. In every country, the submission of an application to a regulatory authority does not guarantee that approval to market the product will be granted. Although the criteria for the registration of therapeutic drugs are similar in most countries, the formal structure of the necessary registration documents and the specific requirements, including risk tolerance, of the local health authorities can vary significantly from country to country. It is possible that a drug can be registered and marketed in one country while the registration authority in another country may, prior to registration, request additional information from the pharmaceutical company or even reject the product. It is also possible that a drug may be approved for different indications in different countries.

        The registration process generally takes between six months and several years, depending on the country, the quality of the data submitted, the efficiency of the registration authority's procedures and the nature of the product. Many countries provide for accelerated processing of registration applications for innovative products of particular therapeutic interest. In recent years, efforts have been made among the US, the EU and Japan to harmonize registration requirements in order to achieve shorter development and registration times for medical products. However, the requirement in many countries to negotiate selling prices or reimbursement levels with government regulators and other payors can substantially extend the time until a product may finally be available to patients.

        The following provides a summary of the regulatory processes in the principal markets served by Innovative Medicines Division affiliates:

United States

        In the US, applications for drug registration are submitted to and reviewed by the FDA. The FDA regulates the testing, manufacturing, labeling and approval for marketing of pharmaceutical products intended for commercialization in the US. The FDA continues to monitor the safety of pharmaceutical products after they have been approved for sale in the US market. The pharmaceutical development and registration process is typically intensive, lengthy and rigorous. When a pharmaceutical company has gathered data which it believes sufficiently demonstrates a drug's safety, efficacy and quality, then the company may file a New Drug Application (NDA) or Biologics License Application (BLA), as applicable, for the drug. The NDA or BLA must contain all the scientific information that has been gathered about the drug and typically includes information regarding the clinical experiences of patients tested in the drug's clinical trials. A Supplemental New Drug Application (sNDA) or BLA amendment must be filed for new indications for a previously approved drug.

        Once an application is submitted, the FDA assigns reviewers from its staff, including experts in biopharmaceutics, chemistry, clinical microbiology, pharmacology/toxicology, and statistics. After a complete review, these content experts then provide written evaluations of the NDA or BLA. These recommendations are consolidated and are used by senior FDA staff in its final evaluation of the NDA or BLA. Based on that final evaluation, the FDA then provides to the NDA or BLA's sponsor an approval, or a "complete response" letter if the NDA or BLA application is not approved. If not approved, the letter will state the specific deficiencies in the NDA or BLA which need to be addressed. The sponsor must then submit an adequate response to the deficiencies in order to restart the review procedure.

        Once the FDA has approved an NDA, BLA, sNDA or BLA amendment, the company can make the new drug available for physicians to prescribe. The drug owner must submit periodic reports to the FDA, including any cases of adverse reactions. For some medications, the FDA requires additional

70

---

Table of Contents

post-approval studies (Phase IV) to evaluate long-term effects or to gather information on the use of the product under specified conditions.

        Throughout the life cycle of a product, the FDA requires compliance with standards relating to good laboratory, clinical and manufacturing practices. The FDA also requires compliance with rules pertaining to the manner in which we may promote our products.

European Union

        In the EU, there are three main procedures for application for authorization to market pharmaceutical products in the EU Member States, the Centralized Procedure, the Mutual Recognition Procedure and the Decentralized Procedure. It is also possible to obtain a national authorization for products intended for commercialization in a single EU member state only, or for additional indications for licensed products.

        Under the Centralized Procedure, applications are made to the EMA for an authorization which is valid for the European Community. The Centralized Procedure is mandatory for all biotechnology products and for new chemical entities in cancer, neurodegenerative disorders, diabetes and AIDS, autoimmune diseases or other immune dysfunctions and optional for other new chemical entities or innovative medicinal products or in the interest of public health. When a pharmaceutical company has gathered data which it believes sufficiently demonstrates a drug's safety, efficacy and quality, then the company may submit an application to the EMA. The EMA then receives and validates the application, and appoints a Rapporteur and Co-Rapporteur to review it. The entire review cycle must be completed within 210 days, although there is a "clock stop" at day 120, to allow the company to respond to questions set forth in the Rapporteur and Co-Rapporteur's Assessment Report. When the company's complete response is received by the EMA, the clock restarts on day 121. If there are further aspects of the dossier requiring clarification, the EMA will then request an Oral Explanation on day 180, in which case the sponsor must appear before the CHMP to provide the requested additional information. On day 210, the CHMP will then take a vote to recommend the approval or non-approval of the application. The final decision under this Centralized Procedure is a European Community decision which is applicable to all Member States. This decision occurs on average 60 days after a positive CHMP recommendation.

        Under the Mutual Recognition Procedure (MRP), the company first obtains a marketing authorization from a single EU member state, called the Reference Member State (RMS). In the Decentralized Procedure (DCP) the application is done simultaneously in selected or all Member States if a medicinal product has not yet been authorized in a Member State. During the DCP, the RMS drafts an Assessment Report within 120 days. Within an additional 90 days the Concerned Member States (CMS) review the application and can issue objections or requests for additional information. On Day 90, each CMS must be assured that the product is safe and effective, and that it will cause no risks to the public health. Once an agreement has been reached, each Member State grants national marketing authorizations for the product.

        After the Marketing Authorizations have been granted, the company must submit periodic safety reports to the EMA (if approval was granted under the Centralized Procedure) or to the National Health Authorities (if approval was granted under the DCP or the MRP). In addition, several pharmacovigilance measures must be implemented and monitored including Adverse Event collection, evaluation and expedited reporting and implementation, as well as update Risk Management Plans. For some medications, post approval studies (Phase IV) may be required to complement available data with additional data to evaluate long term effects (called a Post Approval Safety Study, or PASS) or to gather additional efficacy data (called a Post Approval Efficacy Study, or PAES).

        European Marketing Authorizations have an initial duration of five years. The holder of the Marketing Authorization must actively apply for its renewal after this first five year period. As part of the renewal procedure, the competent authority will perform a full benefit-risk review of the product. Should

71

---

Table of Contents

the authority conclude that the benefit-risk balance is no longer positive, the Marketing Authorization can be suspended or revoked. Once renewed the Marketing Authorization is valid for an unlimited period. If the holder does not apply for renewal, the Marketing Authorization automatically lapses. Any Marketing Authorization which is not followed within three years of its granting by the actual placing on the market of the corresponding medicinal product ceases to be valid.

Japan

        In Japan, applications for new products are made through the Pharmaceutical and Medical Devices Agency (PMDA). Once an NDA is submitted, a review team is formed consisting of specialized officials of the PMDA, including chemistry/manufacturing, non-clinical, clinical and biostatistics. While a team evaluation is carried out, a data reliability survey and Good Clinical Practice/Good Laboratory Practice/Good Manufacturing Practice inspection are carried out by the Office of Conformity Audit and Office of GMP/GQP Inspection of the PMDA. Team evaluation results are passed to the PMDA's external experts who then report back to the PMDA. After a further team evaluation, a report is provided to the Ministry of Health, Labor and Welfare (MHLW), which makes a final determination for approval and refers this to the Council on Drugs and Foods Sanitation which then advises the MHLW on final approvability. Marketing and distribution approvals require a review to determine whether or not the product in the application is suitable as a drug to be manufactured and distributed by a person who has obtained a manufacturing and distribution business license for the type of drug concerned and confirmation that the product has been manufactured in a plant compliant with Good Manufacturing Practices.

        Once the MHLW has approved the application, the company can make the new drug available for physicians to prescribe. After that, the MHLW lists its national health insurance price within 60 days (or 90 days) from the approval, and physicians can obtain reimbursement. For some medications, the MHLW requires additional post-approval studies (Phase IV) to evaluate safety, effects and/or to gather information on the use of the product under specified conditions. The MHLW also requires the drug's sponsor to submit periodic safety update reports. Within three months from the specified re-examination period, which is designated at the time of the approval of the application for the new product, the company must submit a re-examination application to enable the drug's safety and efficacy to be reassessed against approved labeling by the PMDA.

Price Controls

        In most of the markets where we operate, the prices of pharmaceutical products are subject to both direct and indirect price controls and to drug reimbursement programs with varying price control mechanisms. Due to increasing political pressure and governmental budget constraints, we expect these mechanisms to continue to remain robust—and to potentially even be strengthened—and to have a negative influence on the prices we are able to charge for our products.

72

---

Table of Contents

Direct governmental efforts to control prices

        United States.     In the US, as a result of the Patient Protection and Affordable Care Act (ACA), the recurring focus on deficit reduction, and public pressure on elected officials based on recent price increases by certain pharmaceutical manufacturers, there is a significant likelihood of continued actions to control prices. Specifically, one proposal that has been repeatedly advanced would impose a government-mandated pricing formula on both patented and generic medications provided through the Medicare prescription drug benefit (Medicare Part D). In addition, the ACA mandated the creation of a new entity, the Independent Payment Advisory Board (IPAB), which has been granted unprecedented authority to implement broad actions to reduce future costs of the Medicare program. This could include required prospective prescription drug discounts or rebates, which could limit net prices for our products. The Medicare Trustees' Report from June 2017 predicted that the projected 5-year average growth in per capita Medicare program spending is not likely to exceed a specified target level until 2022. If the Chief Actuary for CMS determines that the projected 5-year average growth rate exceeds the target, the IPAB would then develop savings proposals in the following year based on a savings target set by the Chief Actuary, to be implemented in the second following year. In October 2017, a bill to repeal the IPAB was passed by the House of Representatives and currently awaits consideration by the Senate. There is also a strong possibility that government officials will continue to search for additional ways to reduce or control prices, including state legislation mandating drug price controls, which could include limits on annual price increases or maximum price levels. In 2017, several states passed legislation impacting pricing or requiring price transparency reporting, including California, Louisiana, Nevada and Maryland. The California law will require 60 day advance notification of price increases for products exceeding a specific threshold over the past two years, as well as additional quarterly reporting requirements.

        Europe.     In Europe, our operations are subject to significant price and marketing regulations. Many governments are introducing healthcare reforms in a further attempt to curb increasing healthcare costs. In the EU, governments influence the price of pharmaceutical products through their control of national healthcare systems that fund a large part of the cost of such products to patients. The downward pressure on healthcare costs in general in the EU, particularly with regard to prescription drugs, has become very intense. Increasingly strict analyses are applied when evaluating the entry of new products, and, as a result, access to innovative medicines is limited based on strict cost-benefit assessments. In addition, prices for marketed products are referenced within Member States and across Member State borders, further impacting individual EU Member State pricing. As an additional control for healthcare budgets, some EU countries have passed legislation to impose further mandatory rebates for pharmaceutical products and/or financial claw-backs on the pharmaceutical industry. The calculation of these rebates and claw-backs can be difficult to predict.

        Japan.     In 2016, the National Health Insurance price calculation method for new products and the price revision rule for existing products were reviewed, and the resulting new drug tariffs became effective beginning April 2016. In addition, the MHLW implemented extraordinary price cuts in 2016 for certain products the sales of which have increased more than 100 billion Japanese Yen (one and one half times more than official forecasts). The Japanese government is continuing deliberations of a healthcare reform initiative with a goal of sustaining the universal coverage of the National Health Insurance program, and is addressing the efficient use of drugs, including promotion of generic use. Meanwhile, the government tentatively initiated a premium system which basically maintains the price of patented drugs for unmet medical needs in order to promote innovative new drug creation and the solution of the unapproved indication issue. In December 2016, the Japanese government also announced basic reform principles for fundamental reforms of the drug pricing system to be implemented in 2018. Based on these principles, which include an increase in the frequency of price cuts from every other year to annually, a revision to the premium system which basically maintains the price of patented drugs for unmet medical needs, and the introduction of a cost effectiveness

73

---

Table of Contents

assessment, the government is deliberating and undertaking fundamental reforms of the drug pricing system in 2017 which will be introduced at the next regular price revision scheduled for April 2018.

        Rest of World.     Many other countries around the world are also taking steps to control prescription drug prices. For example, in 2017, China, one of our most important emerging growth markets, organized national price negotiations for certain products directly linked to national drug reimbursement, which will apply nationwide both in public and military hospitals, with drug price reductions of more than 60% in some cases. Drug prices in China may further decline due to a stated national policy of reducing healthcare costs, including continued strategic initiatives specifically designed to reduce drug prices. Canada has proposed amendments to its Patented Medicines Regulations in 2017 that could reduce prices for specialty medicines, such as biologics and medicines for rare diseases, by as much as 30% to 40%. In addition, in 2016, the Colombian government took steps to unilaterally reduce the price of Glivec by up to 43% through a local procedural mechanism called a Declaration of Public Interest. While the government's use of this exceptional mechanism as a tool to control the price of a prescription drug and to generally manage its healthcare budget is unprecedented, we continue to contest its appropriateness with respect to Glivec in Colombia, as its use could become more widespread if upheld in this case, potentially leading to a more systemic impact on drug pricing.

Regulations favoring generics and biosimilars

        In response to rising healthcare costs, most governments and private medical care providers have instituted reimbursement schemes that favor the substitution of generic pharmaceuticals for more expensive brand-name pharmaceuticals. In the US, generic substitution statutes have been enacted by virtually all states and permit or require the dispensing pharmacist to substitute a less expensive generic drug instead of an original patented drug. Other countries have similar laws, including numerous European countries. We expect that the pressure for generic substitution will continue to increase. In addition, the US, EU and other jurisdictions are increasingly crafting laws and regulations encouraging the development of biosimilar versions of biologic drugs, which can also be expected to have an impact on pricing.

Cross-Border Sales

        Price controls in one country can also have an impact in other countries as a result of cross-border sales. In the EU, products which we have sold to customers in countries with stringent price controls can in some instances legally be re-sold to customers in other EU countries with less stringent price controls at a lower price than the price at which the product is otherwise available in the importing country. In North America, products which we have sold to customers in Canada, which has relatively stringent price controls, are sometimes re-sold into the US, again at a lower price than the price at which the product is otherwise sold in the US. Such imports from Canada and other countries into the US are currently illegal. Given the increased focus on pharmaceutical prices in the US, certain members of the US Congress and select state legislators continue to explore legislation to allow the safe importation of pharmaceutical products into the US from select countries, including Canada.

We expect that pressures on pricing will continue worldwide, and will likely increase. Because of these pressures, there can be no certainty that, in every instance, we will be able to charge prices for a product that, in a particular country or in the aggregate, would enable us to earn an adequate return on our investment in that product.

74

---

Table of Contents

Intellectual Property

        We attach great importance to intellectual property including patents, trademarks, copyrights, know-how and research data in order to protect our investment in research and development, manufacturing and marketing. In general, we seek intellectual property protection under applicable laws for significant product developments in major markets. Among other things, patents may cover the products themselves, including the product's active ingredient or ingredients and its formulation. Patents may cover processes for manufacturing a product, including processes for manufacturing intermediate substances used in the manufacture of the product. Patents may also cover particular uses of a product, such as its use to treat a particular disease, or its dosage regimen. In addition, patents may cover assays or tests for certain diseases or biomarkers, which can improve patient outcomes when administered certain drugs, as well as assays, research tools and other techniques used to identify new drugs. The protection offered by such patents extends for varying periods depending on the grant and duration of patents in the various countries or region. The protection afforded, which may vary from country to country, depends upon the type of patent and its scope of coverage.

        In addition to patent protection, various countries offer data or marketing exclusivities for a prescribed period of time. Data exclusivity may be available which would preclude a potential competitor from filing a regulatory application for a set period of time that relies on the sponsor's clinical trial data, or the regulatory authority from approving the application. The data exclusivity period can vary depending upon the type of data included in the sponsor's application. When it is available, market exclusivity, unlike data exclusivity, precludes a competitor from obtaining marketing approval for a product even if a competitor's application relies on its own data. Data exclusivity and other regulatory exclusivity periods generally run from the date a product is approved, and so their expiration dates cannot be known with certainty until the product approval date is known.

        In the US and other countries, pharmaceutical products are eligible for a patent term extension for patent periods lost during product development and regulatory review. The law recognizes that product development and review by the FDA and other health authorities can take an extended period, and permits an extension of the patent term for a period related to the time taken for the conduct of clinical trials and for the health authority's review. However, the length of this extension and the patents to which it applies cannot be known in advance, but can only be determined after the product is approved.

United States

Patents

        In the US, a patent issued for an application filed today will receive a term of 20 years from the application filing date, subject to potential patent term adjustments for delays in patent issuance based upon certain delays in prosecution by the United States Patent and Trademark Office (USPTO). A US pharmaceutical patent which claims a product, method of treatment using a product, or method of manufacturing a product, may also be eligible for a patent term extension based on the time the FDA took to approve the product. This type of extension may only extend the patent term for a maximum of 5 years, and may not extend the patent term beyond 14 years from regulatory approval. Only one patent may be extended for any product based on FDA delay.

        In practice, however, it is not uncommon for significantly more than the 5 year maximum patent extension period to pass between the time that a patent application is filed for a product and the time that the product is approved by the FDA. As a result, it is rarely the case that, at the time a product is approved by FDA, it will have the full 20 years of remaining patent life. Rather, in our experience, it is not uncommon that, at the date of approval, a product will have from 13 to 16 years of patent life remaining, including all extensions available at that time.

75

---

Table of Contents

Data and Market Exclusivity

        In addition to patent exclusivities, the FDA may provide data or market exclusivity for a new chemical entity or an "orphan drug," each of which run in parallel to any patent protection. Regulatory data protection or exclusivity prevents a potential generic competitor from relying on clinical trial data which were generated by the sponsor when establishing the safety and efficacy of its competing product. Market exclusivity prohibits any marketing of the same drug for the same indication.

•

A new small-molecule active pharmaceutical ingredient shall have 5 years of regulatory data exclusivity, during which time a competitor generally may not submit an application to the FDA based on a sponsor's clinical data.



•

Orphan drug exclusivity provides 7 years of market exclusivity for drugs designated by the FDA as "orphan drugs," meaning drugs that treat rare diseases, as designated by the FDA. During this period, a potential competitor may not market the same drug for the same indication even if the competitor's application does not rely on data from the sponsor.



•

A new biologic active pharmaceutical ingredient shall have 12 years of market exclusivity, during which time a competitor may not market the same drug for the same indication.



•

The FDA may also request that a sponsor conduct pediatric studies, and in exchange will grant an additional 6-month period of pediatric market exclusivity, if the FDA accepts the data, the sponsor makes a timely application for approval for pediatric treatment, and the sponsor has either a patent-based or regulatory-based exclusivity period for the product which can be extended.

European Community

Patents

        Patent applications in Europe may be filed in the European Patent Office (EPO) or in a particular country in Europe. The EPO system permits a single application to be granted for the EU, plus other non-EU countries, such as Switzerland and Turkey. When the EPO grants a patent, it is then validated in the countries that the patent owner designates. The term of a patent granted by the EPO or a European country office is generally 20 years from the filing date of the patent application on which the patent is based, subject to potential patent term extensions and adjustments. Pharmaceutical patents can be granted a further period of exclusivity under the Supplementary Protection Certificate (SPC) system. SPCs are designed to compensate the owner of the patent for the time it took to receive marketing authorization by the European Health Authorities. An SPC may be granted to provide, in combination with the patent, up to 15 years of exclusivity from the date of the first European marketing authorization. However, an SPC cannot last longer than 5 years. The SPC duration can additionally be extended by a further Pediatric Extension of 6 months if the product is the subject of an agreed pediatric investigation plan. The post-grant phase of patents, including the SPC system, is currently administered on a country-by-country basis under national laws which, while differing, are intended to, but do not always, have the same effect.

        In practice, as in the US, it is not uncommon for patent term extensions to not fully compensate the owner of a patent for the time it took to develop the product and receive marketing authorization by the European health authorities. Accordingly, it is not uncommon that a pharmaceutical product, at the date of approval, will have a patent lifetime of 10 to 15 years, including extensions available at that time.

Data and Market Exclusivity

        In addition to patent exclusivity, the EU also provides a system of regulatory data exclusivity for authorized human medicines, which runs in parallel to any patent protection. The system for drugs being approved today is usually referred to as "8+2+1" because it provides: an initial period of 8 years of data exclusivity, during which a competitor cannot rely on the relevant data; a further period of 2 years of

76

---

Table of Contents

market exclusivity, during which the data can be used to support applications for marketing authorization, but the competitive product cannot be launched; and a possible 1-year extension of the market exclusivity period if, during the initial 8-year data exclusivity period, the sponsor registered a new therapeutic indication with "significant clinical benefit." This system applies both to national and centralized authorizations. This system has been in force since 2005, therefore some medicines remain covered by the previous system in which EU member states provided either 6 or 10 years of data exclusivity.

        The EU also has an orphan drug exclusivity system for medicines similar to the US system. If a medicine is designated as an "orphan drug," then it benefits from 10 years of market exclusivity after it is authorized, during which time a similar medicine for the same indication will not receive marketing authorization. Under certain circumstances, this exclusivity can be extended with a 2-year Pediatric Extension.

Japan

Patents

        In Japan, a patent can be issued for active pharmaceutical ingredients. Although methods of treatment, such as dosage and administration, are not patentable in Japan, pharmaceutical compositions for a specific dosage or administration method are patentable. Processes to make a pharmaceutical composition are also patentable. The patent term granted is generally 20 years from the filing date of the patent application on which the patent is based, subject to potential patent term extensions and adjustments. A patent term extension can be granted for up to 5 years under the Japanese Patent Act to compensate for erosion against the patent term caused by the time needed to obtain marketing authorization from the MHLW. As in the US and EU, patent term extensions in Japan may not fully compensate for the time necessary to develop a product and obtain a marketing authorization. As a result, it is not uncommon for the effective term of patent protection for an active pharmaceutical ingredient in Japan to be approximately 10 to 15 years, including available extensions.

Data and Market Exclusivity

        Japan also has a regulatory data protection system called a "re-examination period" of 8 years for new chemical entities and 4-6 years for new indications and formulations and a 10 year orphan drug exclusivity system.

Third Party Patents and Challenges to Intellectual Property

        Third parties can challenge our patents, patent term extensions and marketing exclusivities, including pediatric extensions and orphan drug exclusivity, through various proceedings. For example, patents in the US can be challenged in the USPTO through various proceedings, including Inter Partes Review (IPR) proceedings. They may also be challenged through patent infringement litigation under the Hatch-Waxman Act. See generally, "—Sandoz—Intellectual Property" In the EU, EU patents may be challenged through oppositions in the EPO or national patents may be challenged in national courts or national patent offices. In Japan, patents may be challenged in the Japanese patent office and in national courts. The outcomes of such challenges can be difficult to predict.

        In addition to directly challenging our intellectual property rights, in some circumstances a competitor may be able to market a generic version of one of our products by, for example, designing around our intellectual property or marketing the generic product for non-protected indications. Despite data exclusivity protections, a competitor could opt to incur the costs of conducting its own clinical trials and preparing its own regulatory application, and avoid our data exclusivity protection altogether. There is a risk that some countries may seek to impose limitations on the availability of intellectual property right protections for pharmaceutical products, or on the extent to which such protections may be enforced. For example, a review of several intellectual property rights is currently ongoing in the EU (orphan drug

77

---

Table of Contents

exclusivity, pediatric extensions, SPCs and regulatory data protection), which could lead to legislative changes in the scope and/or term of protection under those rights. Also, even though we may own, co-own or in-license patents protecting our products, and conduct pre-launch freedom-to-operate analyses, a third party may nevertheless claim that one of our products infringes a third party patent for which we do not have a license.

        As a result, there can be no assurance that our intellectual property will protect our products or that we will be able to avoid adverse effects from the loss of intellectual property protection or from third party patents in the future.

Intellectual Property Protection for Certain Key Marketed Products and Compounds in Development

        We present below certain additional details regarding intellectual property protection for certain Innovative Medicines Division products and compounds in development. For each product and compound in development below, we identify issued, unexpired patents by general subject matter and, in parentheses, years of expiry in, if relevant, the US, EU and Japan that are owned, co-owned or exclusively in-licensed by Novartis and that relate to the product or to the method of its use as it is currently approved and marketed or, in the case of a compound in development, as it is currently filed with the FDA and/or the EMA for approval. Novartis may own or control additional patents relating to compound forms, methods of use, formulations, processes, synthesis, purification and detection.

        Identification of an EU patent refers to national patents in EU countries and/or to the national patents that have been derived from a patent granted by the EPO. We identify unexpired regulatory data protection periods and, in parentheses, years of expiry for the products and compounds in development below if the relevant marketing authorizations have been authorized or granted. The term "RDP" refers to regulatory data protection, regulatory data exclusivity (which in the EU refers to the protections under "8+2+1" regulatory data exclusivity), and to data re-examination protection systems. We identify certain unexpired patent term extensions, SPCs and marketing exclusivities and, in parentheses, years of expiry if they are granted; their subject matter scope may be limited, and is not specified. We designate them as "pending" if they have been applied for but not granted and years of expiry are estimable. Such pending applications may or may not ultimately be granted. In the case of the EU, identification of a patent, patent term extension, marketing exclusivity or data protection means grant, authorization and maintenance in at least one country and possibly pending or found invalid in others. Marketing exclusivities and patent term extensions include orphan drug exclusivity (ODE), pediatric exclusivity (PE), patent term extension (PTE) and SPC.

        For each product below, we indicate whether there is current generic competition, which in the case of products containing biologics refers to biosimilar competition, for one or more product versions in one or more approved indications in each of the major markets for which intellectual property is disclosed. We identify ongoing challenges to the disclosed intellectual property that have not been finally resolved, including IPRs if instituted by the USPTO. Challenges identified as being in administrative entities, such as national patent offices, include judicial appeals from decisions of those entities. Resolution of challenges to the disclosed intellectual property, which in the EU may involve intellectual property of one or more EU countries, may include settlement agreements under which Novartis permits or does not permit future launch of generic versions of our products before expiration of that intellectual property. We identify certain material terms of such settlement agreements where they could have a material adverse effect on our business. In other cases, such settlement agreements may contain confidentiality obligations restricting what may be disclosed.

        For additional information regarding commercial arrangements with respect to these products, see "—Key Marketed Products."

78

---

Table of Contents

Novartis Oncology Business Unit

Oncology

•

Gleevec/Glivec. US: Patent on polymorphic compound form (2019), PE (2019); patent on GIST method of use (2021), PE (2022); patent on tablet formulation (2018). EU: Patent on polymorphic compound form (2018); patent on GIST method of use (2021); patent on tablet formulation (2023). Japan: Patent on polymorphic compound form (2019); patent on GIST method of use (2021); patent on tablet formulation (2023).


There is generic competition in the US, EU and Japan. In the US and EU Novartis has resolved patent litigation with certain generic manufacturers. Novartis is taking steps in some EU countries to enforce the polymorphic compound form patent, the tablet formulation patent and the GIST method of use patent. The EU GIST method of use patent and polymorphic compound patent are being challenged in the patent offices and courts of several EU countries. The EU tablet formulation patent is being challenged in the EPO and in the patent office of one EU country.

•

Tasigna. US: Patent on compound (2023), pending PE (2024); patents on salt forms (2026, 2027, 2028), pending PE (2027, 2028, 2029); patent on polymorph compound form (2026), pending PE (2027); patents on capsule form (2026, 2027), pending PE (2027, 2028) and patent on method of treatment (2032), pending PE (2033). EU: Patent on compound (2023); patent on polymorph compound form (2026); patent on capsule form (2027); method of treatment (2030); ODE (2017), PE (2019). Japan: Patent on compound (2023), PTE (2024); patent on salt form (2026); patent on polymorph compound form (2026); patent on capsule form (2027).


There is currently no generic competition in the US, EU or Japan. In the US, generic manufacturers have filed ANDAs challenging the salt form patents, the polymorph patent, the capsule form patent and the method of treatment patent. The EU method of treatment patent, the capsule form patent, and the polymorph compound patent are being opposed in the EPO.

•

Sandostatin SC and Sandostatin LAR.


Sandostatin SC: There is no patent protection in the US, EU or Japan. There is generic competition in the US, EU and Japan.

Sandostatin LAR: There is no patent protection in the US, EU or Japan. There is currently no generic competition in the US, EU or Japan.

•

Afinitor/Votubia and Afinitor Disperz/Votubia dispersible tablets. US: Patent on compound (2014), PTE (2019), PE (2020); patent on dispersible tablet formulation (2022), PE (2023); two patents on antioxidant (2019), PE on one patent on antioxidant (2020); patent on tuberous sclerosis complex (TSC)/subependymal giant cell astrocytoma (SEGA) use (2022), PE (2022); patent on breast cancer use (2022), PE (2022); patent on renal cell carcinoma use (2025), PE (2026); patent on pancreatic neuroendocrine tumor use (2028); RDP for NET of gastrointestinal or lung origin (2019), PE (2019); ODE for TSC/SEGA use (2017), PE (2018); ODE for pancreatic neuroendocrine tumors use (2018), PE (2018); ODE for TSC/renal angiomyolipoma (2019), PE (2019). EU: Patent on compound (2013), SPC (2018), PE (2019); patent on dispersible tablet formulation (2022); patent on antioxidant (2019); patent on breast cancer use (2022); patent on renal cell carcinoma use (2022); patent on TSC/SEGA use (2022); ODE (Votubia) (2021). Japan: Patent on compound (2013), PTEs for certain indications/dosages (2018); patent on dispersible tablet formulation (2022); patent on antioxidant (2019); patent on breast cancer use (2022); patent on pancreatic neuroendocrine tumor use (2026); patent on renal cell carcinoma use (2022); patent on gastrointestinal and lung neuroendocrine tumor use (2026), PTE (2027); patent on TSC/SEGA and TSC/AML use (2027); ODE (tuberous sclerosis) (2022); ODE (dispersible tablet) (2022). There is currently no generic competition in the US, EU or Japan. In the US, generic manufacturers have filed ANDAs challenging the compound patent and the patents on breast

79

---

Table of Contents

cancer use, pancreatic neuroendocrine tumor use, renal cell carcinoma use and RSC/SEGA use. The US compound, renal cell carcinoma use and pancreatic neuroendocrine tumor use patents are being challenged in IPR proceedings in the USPTO. In the US, Novartis has resolved patent litigation with a generic manufacturer. The EU breast cancer use patent, the EU TSC/SEGA use patent and the EU renal cell carcinoma use patent are being opposed in the EPO. The Japanese breast cancer use patent is being challenged in the Japanese Patent Office.

•

Exjade and Jadenu.


Exjade: US: Patent on compound (2017), PTE (2019), ODE for non-transfusion iron overload (2020). EU: Patent on compound (2017), SPC (2021); patent on dispersible tablet formulation (2023). Japan: Patent on compound (2017), PTE (2021); patent on dispersible tablet formulation (2023). There is currently no generic competition in the US, EU or Japan. In the US, Novartis has resolved patent litigation with generic manufacturers relating to Exjade.

Jadenu (marketed as Exjade FCT in EU and Japan): The compound patents for Exjade also protect Jadenu (US), and Exjade FCT (EU/Japan). US: Formulation patent for film coated tablets (2034), ODE for non-transfusion iron overload (2020). EU: Formulation patent for film coated tablets (2034). There is currently no generic competition in the US, EU or Japan. In the US, generic manufacturers have filed ANDAs challenging the formulation patent.

•

Tafinlar and Mekinist.


Tafinlar: US: Two patents on compound (2030; 2030); patent on method of use (2029); RDP (2018); ODE (2020). EU: Patent on compound (2029); RDP (2023). Japan: Patent on compound (2031). There is currently no generic competition in the US, EU or Japan. The EU compound patent is being opposed in the EPO.

Mekinist: US: Patent on compound (2025), pending PTE (2027); patent on method of use (2025); three patents on formulation (2032; 2032; 2032); RDP (2018); ODE (2020). EU: Patent on compound (2025), SPC (2029); RDP (2025). Japan: Patent on compound (2025); patent on method of use (2025); patent on formulation (2031). There is currently no generic competition in the US, EU or Japan.

Use of Mekinist with Tafinlar or Tafinlar with Mekinist: US: Patent on combination (2030) ; patent on method of use of combination (2030); RDP on melanoma indication (2018), RDP on non-small cell lung cancer indication (2020); ODE on melanoma with certain mutations (2021), ODE on non-small cell lung cancer (2024). EU: RDP (2025). Japan: Patent on method of use of combination (2030). There is currently no generic competition in the US, EU or Japan.

•

Promacta/Revolade. US: Patent on compound (2021), PTE (2022), PE (2023); patent on compound (2018), PE (2019); two patents on compound (2021), PE (2021); patent on method of treating thrombocytopenia (2021), PE (2021); patent on method of enhancing platelet production (2021), PE (2021); patent on method of enhancing platelet production (2023), PE (2023); patent on salt form (2025); PE (2026); five patents on formulation of different dose strengths (all 2027), PE (2028); ODE (2021), PE (2022, 2022). EU: Two patents on compound (2021; 2021), SPC for one compound patent (2025); patent on salt form (2023); patent on formulation (2027); RDP (2020). Japan: Patent on compound (2021), PTE (2025); patent on salt form (2023); PTE (2023), patent on formulation (2027); RDP (2020). There is currently no generic competition in the US, EU or Japan. In the US, a generic manufacturer has filed an ANDA challenging certain patents other than the compound patents. The EU formulation patent is being opposed in the EPO.



•

Votrient. US: Patent on compound (2021), PTE (2023), 2 patents on compound (2021, 2021), ODE (2019). EU: Patent on compound (2021), SPC (2025); RDP (2020). Japan: patent on compound (2021), PTEs (2025, 2026); RDP (2020). There is currently no generic competition in the US, EU or Japan.

80

---

Table of Contents

•

Jakavi. EU: Patent on compound (2026), SPC (2027); patent on salt (2028); RDP (2023). Japan: Patent on compound (2026), PTE (2028), PTE (2030); patent on salt (2028), PTE (2028), PTE (2030); patent on method of use (2026), PTE (2027); RDP (2022). There is currently no generic competition in the EU or Japan. The EU salt patent is being opposed in the EPO.



•

Kisqali (formerly LEE011). US: Three patents on compound (2028, 2030, 2031), pending PTE (2031); two patents on methods of use (2029, 2029); patent on salt (2031); RDP (2022). EU: Two patents on compound (2027, 2029), pending SPC (2032); patent on methods of use (2029); RDP (2027). Japan: Two patents on compound (2027, 2029). Kisqali is currently not marketed in Japan. There is currently no generic competition in the US or EU.



•

Rydapt (formerly PKC412). US: Three patents on methods of use (2022, 2024, 2030); RDP (2022), ODE (2024). EU: Two patents on methods of use (2022, 2024); patent on formulation (2020); RDP (2027). Japan: Two patents on methods of use (2022, 2024); patent on formulation (2020). Rydapt is currently not marketed in Japan. There is currently no generic competition in the US or EU.



•

Kymriah (formerly CTL019). US: Seven patents on cells and/or pharmaceutical compositions comprising the cells (all 2031); four patents on methods of use (all 2031); RDP (2029), PE (2030); ODE (2024), PE (2025). EU: Patent on cells and methods of use (2031). Japan: patent on pharmaceutical compositions (2031). Kymriah is currently not marketed in the EU or Japan. There is currently no generic competition in the US.

Novartis Pharmaceuticals Business Unit

Ophthalmology

•

Lucentis. EU: Two patents on compound (2018; 2018), one SPC (2022), RDP (2018). Japan: Patent on compound (2018), PTE for age-related macular degeneration (2019), PTE for pathologic myopia (2021), PTE for retinal vein occlusion (2023). There is currently no generic competition in the EU or Japan.



•

Duotrav, Travatan and Travatan Z.


Duotrav. EU: Six patents on formulations (2029). Japan: Patent on methods of use (2014), PTE (2018); two patents on formulations (2029). Duotrav is not marketed in the US. There is generic competition in some EU countries. There is currently no generic competition in Japan. In the EU, two formulation patents are being opposed in the EPO.

Travatan. EU: Six patents on formulations (2029). Travatan is not marketed in the US or Japan. There is generic competition in the EU. In the EU, two formulation patents are being opposed in the EPO.

Travatan Z. US: Three patents on formulations (2027; 2027; 2029). Japan: Three patents on formulation (2027). Travatan Z is not marketed in the EU. There is currently no generic competition in the US or Japan. In the US, Novartis has resolved patent litigation with certain generic manufacturers. In the US one formulation patent (2029) is being challenged in an IPR proceeding in the USPTO.

Immunology and Dermatology

•

Cosentyx. US: Patent on compound (2027), pending PTE (2029); patent on method of use (psoriasis) (2032); patent on method of use (ankylosing spondylitis) (2031); RDP (2027). EU: Patent on compound (2025), SPC (2030); patent on method of use (psoriasis) (2031); RDP (2026). Japan: Patent on compound (2025), PTE (2026, 2028, 2029); patent on method of use (2031), PTE (2032, 2033); RDP (2022). There is currently no generic competition in the US, EU, or Japan.

81

---

Table of Contents

•

Neoral. There is no patent protection for Neoral in the US, EU or Japan. There is generic competition in the US, EU and Japan.



•

Xolair. US: Patent on compound (2018); patents on syringe formulation (2021, 2024). EU: Patents on syringe formulation (2021, 2024). Japan: Patents on syringe formulation (2021, 2024). There is currently no generic competition in the US, EU or Japan.



•

Ilaris. US: Patent on compound (2024); patent on method of use in cryopyrin-associated periodic syndromes (CAPS) (2026), patent on method of use in familial Mediterranean fever (FMF) (2026), patent on method of use in systemic onset juvenile idiopathic arthritis (SJIA) (2027), patent on method of use in hyperimmunoglobulin D syndrome (HIDS) and tumour necrosis factor receptor associated periodic syndrome (TRAPS) (2028); patent on formulation (2029); RDP (2021). EU: Patent on compound (2021), SPC (2024), PE (2025); patent on method of use in SJIA (2026), patent on method of use in FMF (2026), patent on formulation (2029); RDP (2020). Japan: Patent on compound (2021), PTE for CAPS (2024), PTE for FMF, HIDS and TRAPS (2026); patent on method of use in familial cold urticaria, neonatal onset multisystem inflammatory disease and FMF (2026), patent on formulation (2029); ODE for CAPS (2021); ODE for FMF, HIDS and TRAPS (2026).

Neuroscience

•

Gilenya. US: Patent on compound (2014), PTE (2019), pending PE (2019); patent on dose (2027). EU: Patent on compound (2013), SPC (2018); RDP (2021); patent on formulation (2024), SPC (2026). Japan: Patent on compound (2013), PTE (2018); RDP (2021); two patents on formulation (2024; 2024). There is currently no generic competition in the US, EU or Japan. In the US, generic manufacturers have filed ANDAs challenging the compound patent. The US dose patent is being challenged in an IPR proceeding in the USPTO.

Respiratory

•

Xolair. The information set forth in the IP paragraph for Xolair under the "Immunology and Dermatology" heading also applies to Xolair for respiratory indications.

Cardio-Metabolic

•

Entresto. US: Four patents on combination (2023; 2023; 2023; 2023); two patents on complex (2026; 2027); RDP (2020). EU: Patent on combination (2023), SPC (2028); patent on complex (2026), SPC (2030); RDP (2025). Japan: Patent on combination (2023); patent on complex (2026); patent on formulation (2028). There is currently no generic competition in the US, EU or Japan. The EU complex patent is being opposed in the EPO.

Established Medicines

•

Galvus and Eucreas. EU: Patent on compound (2019), SPC (2022); patent on combination (2021), SPC (2022); patent on Eucreas formulation (2026). Japan: Patent on compound (2019), PTE on mono therapy and combinations with sulfonyureas (2024), PTE on mono therapy and combinations with other antidiabetics (2022) PTE on Eucreas combination (2024); patent on combination (2021); patent on Galvus formulation (2025), PTE (2025); patent on Eucreas formulation (2026), PTE (2028); Galvus RDP (2018); Eucreas RDP (2019). Galvus/Eucreas is not marketed in the US. There is currently no generic competition in the EU or Japan. The EU Eucreas formulation patent is being opposed in the EPO.



•

Exforge and Exforge HCT.

82

---

Table of Contents

Exforge: US: Patent on Exforge combination (2019). EU: Patent on Exforge combination/Exforge HCT combination (2019), SPC (2021). There is generic competition in the US, EU and Japan. The EU Exforge combination/Exforge HCT combination patent is being challenged in the EPO and in the patent offices of some EU countries. In the EU, Novartis has resolved patent litigation with certain generic manufacturers. We are taking steps to enforce the EU Exforge combination/Exforge HCT combination patent against generic manufacturers.

Exforge HCT: US: Patent on Exforge HCT combination (2023); patent on formulation (2023). EU: patent on Exforge combination/Exforge HCT combination (2019), SPC (2021); RDP (2019). Japan: Patent on Exforge HCT combination (2023). There is generic competition in the US. There is currently no generic competition in the EU. Exforge HCT is not currently marketed in Japan. The EU Exforge combination/Exforge HCT combination patent is being challenged in the EPO and in the patent offices of some EU countries.

•

Diovan and Co-Diovan/Diovan HCT. Diovan: There is generic competition in the US, EU and Japan. Co-Diovan/Diovan HCT: There is generic competition in the US, EU and Japan.



•

Voltaren/Cataflam. There is no patent protection in the US, EU or Japan. There is generic competition in the US, EU and Japan.



•

Exelon and Exelon Patch.


Exelon: There is no patent protection for Exelon capsules in the US or EU. There is generic competition in the US and EU.

Exelon Patch: US: Patent on formulation (2019). EU: Patent on formulation (2019). Japan: Patent on formulation (2019), PTE (2023); RDP (2019). There is generic competition in the US and in most EU countries. There is currently no generic competition in Japan. In the US Novartis has resolved patent litigation with certain generic manufacturers.

Compounds in Development

        We provide the following information for non-marketed compounds in development that have been filed with the FDA and/or the EMA for registration but have not yet been approved by either agency for any indication.

•

AMG 334. US (to be co-commercialized with Amgen): Patent on compound (2031). EU: Patent on compound (2029).

SANDOZ

        Our Sandoz Division is a global leader in generic pharmaceuticals and biosimilars and sells products in more than 150 countries. In 2017, the Sandoz Division achieved consolidated net sales of $10.1 billion, representing 21% of the Group's total net sales. Sandoz develops, manufactures and markets finished dosage form medicines as well as intermediary products including active pharmaceutical ingredients.

        Sandoz is organized globally in three franchises: Retail Generics, Anti-Infectives, and Biopharmaceuticals. In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of pharmaceuticals to third parties. Retail Generics includes the areas of cardiovascular, central nervous system, dermatology, gastrointestinal and hormonal therapies, metabolism, oncology, ophthalmics, pain, and respiratory, as well as finished dosage form anti-infectives sold to third parties. In Anti-Infectives, Sandoz manufactures and supplies active pharmaceutical ingredients and intermediates—mainly antibiotics—for internal use by Retail Generics and for sale to third-party customers. In Biopharmaceuticals, Sandoz develops, manufactures and markets protein- or other biotechnology-based products, including biosimilars, and provides biotechnology manufacturing services to other companies.

83

---

Table of Contents

        Sandoz products were estimated to reach more than 500 million patients worldwide in 2017 and Sandoz strategy is to further increase patient access by driving sustainable and profitable growth. Sandoz executes on its divisional strategy by focusing on several key priorities, including investing in key markets and therapeutic areas, increasing the performance of its small-molecule Development and Regulatory organization and maximizing opportunities in biosimilars. Sandoz focuses on products that add more value for patients, payors and healthcare professionals than standard generics.

        Top marketed products in the Sandoz generic medicines portfolio include broad-spectrum antibiotic amoxicillin/clavulanic acid, multiple sclerosis treatment Glatopa (glatiramer acetate injection) 20mg/mL, osteoporosis treatment zoledronic acid, hypokalemia treatment potassium, hyperthyroidism treatment levothyroxine sodium, oncology therapy cyclophosphamide, and pain medication fentanyl, which is delivered using a transdermal patch.

        Sandoz also has a strong and continued strategic focus on biosimilars, which it began developing in 1996 and today sells in more than 80 countries. Sandoz is the market leader in biosimilars and now markets a total of five biosimilars. These biosimilars are: Omnitrope, a human growth hormone; Binocrit, an erythropoiesis-stimulating agent used to treat anemia; filgrastim for neutropenia under the brand names Zarzio outside the US and Zarxio in the US; Rixathon (biosimilar rituximab), approved in Europe in 2017 to treat blood cancers and immunological diseases (also approved in the EU as Riximyo under a duplicate marketing authorization); and Erelzi (biosimilar etanercept), approved in Europe in 2017 to treat multiple inflammatory diseases. Availability of these biosimilars varies by country.

        The FDA approved biosimilar Erelzi (etanercept-szzs) in 2016 to treat multiple inflammatory diseases. A confirmatory clinical safety and efficacy study demonstrated that Erelzi is equivalent to reference medicine Enbrel®. The biosimilar launch in the US is pending litigation with Amgen, which markets Enbrel®.

        Filings were accepted in the EU in 2017 for our biosimilar adalimumab, infliximab and pegfilgrastim, and in the US for our biosimilar rituximab in 2017 and adalimumab in 2018.

        We plan to submit additional data for pegfilgrastim to the FDA in 2019 to address a complete response letter received from the FDA in June 2016.

        According to IMS Health, as of November 2017, Sandoz holds the global number one position in sales of biosimilars and of generic anti-infectives, oncology and ophthalmic medicines. In addition, Sandoz holds leading global positions in key therapeutic areas including generic cardiovascular, central nervous system, gastrointestinal, metabolism, pain and respiratory medicines.

        In 2017, product launches in the US included olopatadine hydrochloride 0.2% ophthalmic solution, an authorized generic version of Pataday (olopatadine hydrochloride ophthalmic solution) and sevoflurane (Ultane®).

        An Abbreviated New Drug Application (ANDA) for Glatopa (glatiramer acetate injection) 40mg/mL was filed with the FDA in February 2014. However, the FDA approval and commercial launch of Glatopa 40mg/mL has been delayed in connection with an FDA Warning Letter received by Pfizer in February 2017 related to the Pfizer manufacturing plant at McPherson, Kansas. Pfizer is the contract manufacturer for the fill and finish stage of Glatopa 40mg/mL production at its McPherson site. The FDA re-inspected the Pfizer McPherson site in the fourth quarter of 2017 and issued Form 483 observations. In response, Pfizer proposed corrective and preventive actions to the FDA. The FDA is reviewing Pfizer's response and we await the conclusion of the FDA's assessment. Under FDA policy, approval of the Abbreviated New Drug Application for Glatopa 40mg/mL is dependent in part on the satisfactory resolution of the FDA's observations for the Pfizer facility where the final product is made. Therefore, the date of commercial availability of Glatopa 40mg/mL is not yet known.

84

---

Table of Contents

        In 2017, product launches in various European countries included tenofovir disoproxil fumarate (Gilead's Viread®), emtricitabine/tenofovir disoproxil fumarate (Gilead's Truvada®) and etoricoxib (MSD's Arcoxia®).

        Following an internal reorganization announced on January 27, 2016, nineteen mature products were transferred from our Innovative Medicines Division to the Retail Generics franchise of Sandoz.

        Sandoz also holds operational responsibility for the Novartis Access program. Novartis Access offers a portfolio of medicines to treat chronic diseases in low- and lower-middle income countries. The portfolio addresses cardiovascular diseases, type 2 diabetes, respiratory illnesses and breast cancer, and is offered to governments, non-governmental organizations (NGOs) and other public sector health providers for one US dollar per treatment per month. Effective as of April 1, 2016, operational control for the Novartis Malaria Initiative, our largest access-to-medicine program, was transferred from our Innovative Medicines Division to Sandoz. As of the end of 2016, these two programs were integrated in the Novartis Social Business unit, which also comprises the Novartis Healthy Family programs, Sandoz NGO Supply and SMS for Life.

New Products

        Sandoz launched a number of products in various countries in 2017, including:

•

Emtricitabine/tenofovir disoproxil fumarate (Gilead's Truvada®)



•

Etoricoxib (MSD's Arcoxia®)



•

Olopatadine hydrochloride 0.2% ophthalmic solution (Pataday)



•

Sevoflurane (AbbVie's Ultane®)



•

Tenofovir disoproxil fumarate (Gilead's Viread®)

Key Marketed Products

        Sandoz markets approximately 1000 molecules in countries around the world. The following are some of the Sandoz key marketed products in each of its franchises (availability varies by market):

Retail Generics

Anti-Infectives

85

---

Table of Contents

Biopharmaceuticals

Biosimilars in Phase III Development and Registration

        The following table describes Sandoz biosimilar projects that are in Phase III clinical trials (including filing preparation) and registration:

86

---

Table of Contents

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 2017 net sales of Sandoz by region:

        Many Sandoz products are used for chronic conditions that require patients to consume the product over long periods of time, from months to years. Sales of our anti-infective products are subject to seasonal variation. Sales of the vast majority of our other products are not subject to material changes in seasonal demand.

Production

        The primary goal of our manufacturing and supply chain management program is to ensure the uninterrupted, timely and cost-effective supply of products that meet all product specifications and quality standards. The manufacture of our products is heavily regulated by governmental health authorities around the world, including the FDA and EMA. In addition to regulatory requirements, many of our products involve technically complex manufacturing processes or require a supply of highly specialized raw materials.

        We manufacture our products at facilities worldwide. See also "—Item 4.D Property, Plants and Equipment." Active pharmaceutical ingredients are manufactured in our own facilities or purchased from third-party suppliers. We maintain state-of-the-art and cost-competitive processes with quality as a primary goal within our own production network. Those processes include fermentation, chemical syntheses and precipitation processes, as well as sterile processing. Many biologic medicines are manufactured using recombinant DNA derived technology, by which a gene is introduced into a host cell, which then produces a human protein. This manufacturing process requires sophisticated technical expertise. We are constantly working to improve current, and to develop new, manufacturing processes, and to review and adapt our manufacturing network to meet the needs of our Sandoz Division.

        Raw materials for the manufacturing process are either produced in-house or purchased from a number of third party suppliers. Where possible, we maintain multiple supply sources so that the business is not dependent on a single or limited number of suppliers. However, our ability to do so may at times be limited by regulatory or other requirements. We monitor market developments that could have an adverse effect on the supply of essential materials. Our suppliers of raw materials are required to comply with Novartis quality standards.

        Because the manufacture of our products is complex and heavily regulated by governmental health authorities, supply is never guaranteed. If we or our third party suppliers fail to comply with applicable

87

---

Table of Contents

regulations then there could be a product recall or other shutdown or disruption of our production activities. We have experienced supply interruptions for our products in the past, and there can be no assurance that supply will not be interrupted again in the future as a result of unforeseen circumstances. We have implemented a global manufacturing strategy to maximize business continuity in case of such events or other unforeseen catastrophic events. However, there can be no guarantee that we will always be able to successfully manage such issues when they arise.

        Please refer to "—Item 4.B Business Overview—Sandoz" above for more detailed information regarding the manufacture of Glatopa 40mg/mL.

        In October 2015, our Sandoz Division received a Warning Letter from the FDA with respect to our Kalwe and Turbhe, India manufacturing sites. The Warning Letter observations follow an FDA inspection at both sites in August 2014 and were related to deficiencies in current good manufacturing practice (cGMP) for finished pharmaceuticals. The Warning Letter did not contain any new issues in addition to the 483 observations issued following the August 2014 inspection. In July 2017, the FDA confirmed that it closed out the October 2015 Warning Letter with respect to our Kalwe and Turbhe sites.

        In September 2015, the FDA confirmed that it closed out the May 2013 Warning Letter relating to our Sandoz Division oncology injectables manufacturing facility in Unterach, Austria. That Warning Letter contained two observations which followed an FDA inspection at the site in October 2012, and were related to historical visual inspection practices for products manufactured at the site. A follow up inspection by the FDA in 2014 resulted in no observations.

Marketing and Sales

        Sandoz sells a broad portfolio of products, including the products of our Retail Generics franchise and biosimilars, to wholesalers, pharmacies, hospitals and other healthcare outlets. Sandoz adapts its marketing and sales approach to local decision making processes, depending on the structure of the market in each country.

        In response to rising healthcare costs, many governments and private medical care providers, such as health maintenance organizations, have instituted reimbursement schemes that favor the substitution of bioequivalent generic versions of originator pharmaceutical products, such as those sold by our Retail Generics franchise. In the US, statutes have been enacted by virtually all states that permit or require pharmacists to substitute a less expensive generic product for the brand-name version of a drug that has been prescribed to a patient. Generic use is growing in Europe, but penetration rates in many EU countries (as a percentage of volume) remain well below those in the US.

        Recent trends have been toward continued consolidation among distributors and retailers of Sandoz products, both in the US and internationally, which has increased our customers' purchasing leverage. In addition, Sandoz faces increased competition from other manufacturers of generic medicines in the US. These factors have resulted in increased industry-wide pressure on prices for generic products, particularly in the US, which contributed to a decline in US sales in 2017. Moreover, we are exposed to increased concentration of credit risk as a result of the consolidation among our customers.

        Legislative or regulatory changes can have a significant impact on our business in a country. In Germany, for example, the generic market has experienced a major transition and healthcare reforms have increasingly shifted decision making from physicians to insurance funds.

        Our Anti-Infectives franchise supplies active pharmaceutical ingredients and intermediates—mainly antibiotics—for internal use by Retail Generics and for sale to the pharmaceutical industry worldwide.

        Our Biopharmaceuticals franchise operates in an emerging business environment, particularly in the US. Regulatory pathways for approving biosimilar products are either relatively new or still in development, and policies have not yet been fully defined or implemented for the automatic substitution and reimbursement of biosimilars in many markets, including the US. As a result, in many of these

88

---

Table of Contents

markets our biosimilar products are marketed as branded competitors to the originator products. However, a June 2017 US Supreme Court ruling has clarified certain aspects of the US biosimilar approval pathway under the Biologics Price Competition and Innovation Act (see "—Regulation—Biosimilars" for additional information).

Competition

        The market for generic products is characterized by increasing demand for high-quality pharmaceuticals that can be marketed at lower costs due to comparatively minimal initial research and development investments. Increasing pressure on healthcare expenditures and numerous patent and data exclusivity period expirations have encouraged more generic product launches, resulting in increased competition among the companies selling generic pharmaceutical products, leading to ongoing price pressure. In particular, Sandoz faces increased industry-wide pressure on prices for generic products, particularly in the US, driven by factors including customer consolidation and growing competition from other manufacturers of generic medicines. These factors contributed to a decline in US sales in 2017.

        In addition, research-based pharmaceutical companies are participating directly in the generic conversion process by licensing their patented products to generic companies (so-called "authorized generics"). Consequently, generic companies that were not otherwise in a position to launch a specific product may enter the generic market using the innovator's product. In the US, the authorized generic is not subject to the Hatch-Waxman Act rules regarding exclusivity (see "—Regulation"), which means that the company that launches an authorized generic typically launches its product at the same time as the generic exclusivity holder. Authorized generics serve as a business opportunity for Sandoz when the product of a research-based pharmaceutical company loses patent protection and Sandoz secures a license from the research-based pharmaceutical company to launch the authorized generic of that product. Authorized generics can also reduce the ability of the generic exclusivity holder to recoup its investment in creating the first generic medicine to compete with the originator product.

Development and Registration

        Development of Sandoz Biopharmaceuticals products is jointly overseen by Sandoz and by Novartis Global Drug Development. Development and registration activities for Retail Generics products, and certain registration activities for Biopharmaceuticals products, continue to be overseen directly by Sandoz.

        Before a generic pharmaceutical may be marketed, intensive technical and clinical development work must be performed to demonstrate, in bioavailability studies, the bioequivalence of the generic product to the reference product. Nevertheless, research and development costs associated with generic pharmaceuticals generally are much lower than those of the originator pharmaceuticals, as no pre-clinical studies or clinical trials on dose finding, safety and efficacy must be performed by the generic company. As a result, generic pharmaceutical products can be offered for sale at prices often much lower than those of products protected by patents and data exclusivity, which must recoup substantial research and development costs through higher prices over the life of the product's patent and data exclusivity period.

        While generic pharmaceuticals are follow-on versions of chemically synthesized molecules, biosimilar products contain a version of the active substance of an already approved biological reference medicine. Due to the inherent variability and complexity of biologic products, including batch-to-batch differences and variations following manufacturing changes, the development and the regulatory pathway of biosimilars differ significantly from that of generics.

        The development of a biosimilar product is much more technically challenging than the development of a typical generic pharmaceutical. While generic pharmaceuticals normally do not require clinical studies in patients, regulators worldwide do require such targeted studies for biosimilar products. Biosimilars are engineered to match the reference medicine in quality, safety and efficacy. This is achieved by systematically defining the target range of the reference medicine and then comparing the biosimilar to

89

---

Table of Contents

the reference medicine at various development stages to confirm biosimilarity and to establish that there are no clinically meaningful differences between the proposed biosimilar and the reference biologic. Because the purpose of a biosimilar clinical development program is to confirm biosimilarity and not to establish efficacy and safety de novo, the clinical studies required are less than those required for a reference biologic. Therefore, the cost of development for a biosimilar is usually less than that of a reference biologic.

        The Development and Registration staff employed by affiliates of the Sandoz Division are based worldwide, including facilities in Holzkirchen, Germany; Rudolstadt, Germany; Unterach, Austria; Melville, New York; Hicksville, New York; and Boucherville, Canada. In 2017, Sandoz expensed $0.8 billion in product development, which amounted to 8% of the division's net sales. Sandoz expensed $0.8 billion in 2016 and $0.8 billion in 2015. For additional information, see "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Non-IFRS Measures as Defined by Novartis."

Regulation

Generics

        The Hatch-Waxman Act in the US (and similar legislation in the EU and in other countries) eliminated the requirement that manufacturers of generic pharmaceuticals repeat the extensive clinical trials required for reference products, so long as the generic version could be shown in bioequivalence studies to be of identical quality and purity, and to be therapeutically equivalent to the reference product.

        In the US, the decision whether a generic pharmaceutical is bioequivalent to the original patented product is made by the FDA based on an Abbreviated New Drug Application (ANDA) filed by the generic product's manufacturer. The process typically takes nearly two years from the filing of the ANDA until FDA approval. However, delays can occur if issues arise regarding the interpretation of bioequivalence study data, labeling requirements for the generic product, or qualifying the supply of active ingredients. In addition, the Hatch-Waxman Act requires a generic manufacturer to certify in certain situations that the generic product does not infringe on any current applicable patents on the product held by the holder of the marketing authorization for the reference product, or to certify that such patents are invalid or the product is non-infringing. This certification often results in a patent infringement lawsuit being brought by the patent holder against the generic company. In the event of such a lawsuit, the Hatch-Waxman Act imposes an automatic 30 month delay in the approval of the generic product in order to allow the parties to resolve the intellectual property issues. For generic applicants who are the first to file their ANDA containing a certification claiming non-infringement or patent invalidity, the Hatch-Waxman Act provides those applicants with 180 days of marketing exclusivity to recoup the expense of challenging the patents on the reference product. However, generic applicants must launch their products within certain time frames or risk losing the marketing exclusivity that they had gained by being a first to file applicant.

        In the EU, decisions on the granting of a marketing authorization are made either by the European Commission based on a positive recommendation by the EMA under the Centralized Procedure, or by a single Member State under the national or decentralized procedure. See "—Innovative Medicines—Regulation—European Union." Companies may submit Abridged Applications for approval of a generic medicinal product based upon its "essential similarity" to a medicinal product authorized and marketed in the EU following the expiration of the product's data exclusivity period. In such cases, the generic company is able to submit its Abridged Application based on the data submitted by the innovator company for the reference product, without the need to conduct extensive Phase III clinical trials of its own. For all products that received a marketing authorization in the EU after late 2005, the Abridged Application can be submitted throughout the EU. However, the data submitted by the innovator company in support of its application for a marketing authorization for the reference product will be protected for ten years after the first grant of marketing authorization in all Member States, and can be extended for an additional year if a further innovative indication has been authorized for that product, based on

90

---

Table of Contents

pre-clinical and clinical trials filed by the innovator company that show a significant clinical benefit in comparison to the existing therapies.

Biosimilars

        The regulatory pathways for approval of biosimilar medicines are still being developed and established in many countries of the world. A regulatory framework for the approval of biosimilars has been established in the EU, Japan, Canada and the US, while the WHO has issued guidance. Sandoz has successfully registered and launched the first biosimilar (or biosimilar type) medicine in Europe, the US, Canada, Japan, Taiwan, Australia and many countries in Latin America and Asia. Sandoz was the first company to secure approval for and launch a biosimilar under the US biosimilar pathway that was established as part of the Biologics Price Competition and Innovation Act (BPCIA).

        The approval of biosimilars in Europe follows a process similar to that followed for small molecules. However, biosimilars usually have to be approved through the centralized procedure because they are manufactured using recombinant DNA technology. As part of the approval process in the EU, biosimilars have to demonstrate comparability to the reference medicine in terms of safety, efficacy and quality through an extensive comparability exercise, based on strict guidelines set by the authorities. Regulators will only approve a biosimilar based on data which allows the regulators to conclude that there are no clinically meaningful differences between the reference medicine and the biosimilar.

        In the US, under the BPCIA, a biosimilar must be highly similar with no clinically meaningful differences compared to the reference medicine. Approval of a biosimilar in the US requires the submission of a BLA to the FDA, including an assessment of immunogenicity, and pharmacokinetics or pharmacodynamics. The BLA for a biosimilar can be submitted as soon as four years after the initial approval of the reference biologic, but can only be approved 12 years after the initial approval of the reference biologic. This pathway is still relatively new and some aspects remain untried, controversial and subject to ongoing litigation. A ruling by the US Supreme Court in June 2017 clarified several key issues regarding the patent dispute resolution mechanisms in the BPCIA, including that the biosimilar medicine applicant can provide notice of its intention to commercially market its biosimilar (called the Notice of Commercial Marketing or NCM) to the originator company for the reference medicine at any time, including before FDA approval of the biosimilar medicine. The Court also clarified that a biosimilar applicant cannot be compelled by federal injunction to either provide the NCM or to participate in the patent dispute resolution procedures under the BPCIA (also known as the "patent dance"). The Court remanded this matter to the US Federal Circuit, which in December 2017 determined that such an injunction also is not available under state laws, as the federal BPCIA preempts state laws on this issue.

Intellectual Property

        We take all reasonable steps to ensure that our products do not infringe valid intellectual property rights held by others. Nevertheless, competing companies commonly assert patent and other intellectual property rights. As a result, we can become involved in significant litigation regarding our products. If we are unsuccessful in defending these suits, we could be subject to injunctions preventing us from selling our products and to potentially substantial damages.

        Wherever possible, our products are protected by our own patents. Among other things, patents may cover the products themselves, including the product's formulation, or the processes for manufacturing a product. However, there can be no assurance that our intellectual property will protect our products or that we will be able to avoid adverse effects from the loss of intellectual property protection in the future.

ALCON

        Our Alcon Division researches, develops, manufactures, distributes and sells eye care products. Alcon is a global leader in eye care with product offerings in eye care devices and vision care. Its products are

91

---

Table of Contents

sold in more than 140 countries. In 2017, the Alcon Division had consolidated net sales of $6.0 billion representing 12% of total Group net sales.

        To meet the needs of patients, ophthalmologists, surgeons, optometrists, opticians and physician specialists, Alcon operates with two global business franchises: Surgical and Vision Care. Each business franchise operates with specialized sales forces and marketing support.

        Following an internal reorganization announced on January 27, 2016, Alcon's Ophthalmic Pharmaceuticals products were transferred to our Innovative Medicines Division.

        In early 2017, we announced a strategic review of the Alcon Division in order to explore all options to maximize value for our shareholders. We have made significant progress in our ongoing strategic review and have examined all options, ranging from retaining the business to a capital markets solution (e.g., an IPO or a spin-off). As part of this, we have updated Alcon's strategic plan which confirms that it has the potential to grow sales at or above market while delivering profitability at least in line with the industry. We have also made significant progress on developing a potential capital markets solution, including financial carve-outs, tax and legal entity structuring, and identifying listing and incorporation locations. Key criteria for a final decision and timing remain continued Alcon sales growth and margin improvement which need to be demonstrated for multiple quarters leading to potential action not likely before the first half of 2019.

        In addition, we transferred our over-the-counter ophthalmic products and certain surgical diagnostic products (2017 sales of approximately $0.8 billion) from the Innovative Medicines Division to the Alcon Division effective January 1, 2018. Our prescription Ophthalmic medicines business remains with the Innovative Medicines Division. In compliance with IFRS, beginning with our first quarter 2018 results, Novartis will update its segment financial information to reflect this transfer, both for the current and prior years, to aid comparability of year-on-year results.

        In April 2016, Alcon entered into a strategic alliance with PowerVision to develop an accommodating IOL that has the potential to change focus via a fluid-driven shape-changing technology.

        In March 2016, Alcon acquired Transcend Medical, the developer of CyPass micro-stent, a micro invasive glaucoma surgery (MIGS) device to treat patients with glaucoma. The CyPass micro-stent was initially launched in the US in October 2016.

        In February 2016, Alcon entered into an exclusive agreement in the field of ophthalmology with TrueVision to distribute NGENUITY, a 3D visualization system which combines a high-dynamic 3D camera, advanced high-speed image optimization, polarizing surgeon glasses, and an ultra-high definition 4K OLED 3D display to create a platform for digitally assisted vitreoretinal surgery to help improve visualization of the delicate tissues in the back of the eye.

Alcon Division Products

Surgical

        Our Alcon Division's Surgical franchise is the leader in global ophthalmic surgical product sales, offering ophthalmic surgical equipment, instruments, disposable products and intraocular lenses for use in surgical procedures to address cataracts, vitreoretinal conditions, glaucoma and refractive errors.

        The Alcon Surgical portfolio includes intraocular lenses (IOLs) and equipment for use in cataract procedures, devices for use in vitreoretinal surgeries, surgical equipment and diagnostic devices used in refractive surgical procedures, and devices for use in treating patients with glaucoma. Our IOLs include the AcrySof family of IOLs, with options ranging from monofocal IOLs for basic cataract surgery to specialized IOLs for the correction of presbyopia and astigmatism at the time of cataract surgery; the recently launched Clareon monofocal IOL, made of a new material with an advanced design that enables sharp, crisp vision, low edge glare, and outstanding optic clarity; and the UltraSert and AutonoMe

92

---

Table of Contents

innovative IOL delivery systems. The Cataract Refractive Suite by Alcon features the Centurion vision system for phacoemulsification and cataract removal; the Infiniti vision system for phacoemulsification and cataract removal; the LenSx femtosecond laser used for specific steps in the cataract surgical procedure; the LuxOR ophthalmic microscope; the ORA SYSTEM for cataract surgery planning and intra-operative guidance during surgery; and the Verion imaged guided system for use during cataract surgery. The Alcon vitreoretinal portfolio includes the NGENUITY 3D visualization system, designed to enhance visualization of the back of the eye, and the Constellation vision system. Our WaveLight devices are used for LASIK and other vision-correcting refractive procedures, including topography-guided procedures marketed under the Contoura brand. The Alcon glaucoma device portfolio includes the CyPass micro-stent, a micro invasive glaucoma surgery device, and the EX-PRESS glaucoma filtration device. In addition, Alcon provides advanced viscoelastics, irrigating solutions, diagnostic ophthalmic products, surgical packs and other disposable products for cataract and vitreoretinal surgery.

Vision Care

        Our Alcon Division's Vision Care franchise develops and markets contact lenses and lens care products and over-the-counter ophthalmic products. Alcon's broad portfolio of silicone hydrogel, daily disposable and color contact lenses includes our Air Optix, Dailies and Freshlook brands. Our Dailies product line includes the Dailies Total1 lens, a first-of-its-kind water gradient contact lens, which is also offered in a multifocal option for patients with presbyopia. Our Air Optix monthly replacement product line features silicone hydrogel contact lenses in monofocal, astigmatism-correcting, and multifocal options, as well as Air Optix Colors and Air Optix plus HydraGlyde contact lenses. Our contact lens care solutions business includes the Opti-Free line of multi-purpose disinfecting solutions, as well as the Clear Care and AOSEPT Plus line of hydrogen peroxide lens care solutions. Over-the-counter ophthalmic products that have moved from our Innovative Medicines Division to the Alcon Vision Care franchise include artificial tear and related dry eye products marketed under the Systane, Tears Naturale, and Genteal brands; Naphcon A and Zaditor eye drops for the temporary relief of ocular itching due to allergies; and vitamins for ocular health marketed under the ICAPS and Vitalux brands.

New Products

        We received a number of approvals and launched a number of products in 2017, including:

•

CyPass micro-stent, a micro invasive glaucoma surgery device, received a CE Mark and was launched in the EU for the treatment of patients with mild to moderate primary open-angle glaucoma in conjunction with cataract surgery. In addition, the CyPass micro-stent has a CE Mark for use as a standalone procedure in patients with primary open-angle glaucoma who have failed previous medical treatments.



•

AcrySof IQ ReSTOR +2.5D Toric IOL, was approved by the FDA and launched in the US to address presbyopia and astigmatism at the time of cataract surgery. This IOL features the ACTIVEFOCUS optical design, to delivers crisp, clear distance vision as well as a range of vision for patients who desire less dependence on glasses.



•

The Clareon monofocal IOL received a CE Mark and was launched in the EU. This IOL utilizes a new material and features an advanced design that enables sharp, crisp vision, low edge glare, and outstanding optic clarity. The Clareon monofocal IOL was launched with the new automated, disposable AutonoMe pre-loaded IOL delivery system.



•

Systane Complete lubricant eye drops received a CE Mark. This addition to the Systane product line offers fast hydration and long-lasting relief, with nano-droplet technology for enhanced coverage. We expect to launch Systane Complete in the EU in 2018.

93

---

Table of Contents

Key Marketed Products

        The following tables set forth certain key marketed products in our Alcon Division. While we intend to sell our marketed products throughout the world, not all products and indications are currently available in every country.

Surgical

        In addition, Alcon provides advanced viscoelastics, irrigating solutions, surgical packs, diagnostic ophthalmics, and other disposable products for cataract and vitreoretinal surgery.

94

---

Table of Contents

Vision Care

Selected Development Projects

        The following tables provide an overview of certain key projects currently in development within our Alcon Division for the US and/or the EU. Alcon also has projects in development for markets outside the US and the EU, as well as less significant projects in development for markets throughout the world, including the US and EU. The planned submission dates in the tables below refer to the primary regulatory filings for each of the development projects listed. Full commercialization may be affected by other factors, including the potential need for additional regulatory filings, reimbursement status, and time to build product inventory. The term "Advanced" under the Current Phase in the tables below refers to a project for which a positive proof of concept has been established, and clinical and non-clinical studies are being conducted to establish the device's safety, efficacy or performance, which are needed to address regulatory requirements for obtaining marketing authorization.

Surgical