Novartis Annual Report 2017

1 Annual Report2017 Our missionOur mission is to discover new ways to improve and extend people s lives. We use science-based innovation to address some of society s most challenging healthcare issues. We discover and develop breakthrough treatments and find new ways to deliver them to as many people as possible. We also aim to provide a shareholder return that rewards those who invest their money, time and ideas in our company. Novartis Annual Report 2017 | 1 ContentsCHAIRMAN S LETTER 2 CHIEF EXECUTIVE OFFICER S LETTER 4 KEY PERFORMANCE INDICATORS CONSOLIDATED HIGHLIGHTS 62017 AT A GLANCE 8 STRATEGIC OVERVIEW Our environment

2 15 Our strategy 17 Our culture and values 18 Our structure 19 PERFORMANCE Performance summary 23 Innovative Medicines 34 Sandoz 36 Alcon 38 INNOVATIONI nnovation 42 Pipeline

3 58 CORPORATE RESPONSIBILITYC orporate responsibility at Novartis 67 Access to healthcare 69 Patient health and safety 70 Novartis access approaches: performance indicators 2017 71 CORPORATE GOVERNANCEL etter from the Chairman 82 Summary of our corporate governance approach 84 Our shares and our shareholders 85 Our Board of Directors 92 Our management

4 106 Our independent external auditors 111 Our corporate governance framework 113 Further information 114 COMPENSATION REPORTC ompensation Committee Chairman s letter 118 Executive Committee compensation at a glance 120 Board compensation at a glance 122 Executive Committee compensation philosophy and principles 123 Executive Committee compensation policies 124 Executive Committee performance management process 1262017 Executive Committee compensation 1272018 Executive Committee compensation 14 3 Board

5 Compensation 14 6 Compensation governance 152 FINANCIAL REPORTO perating and financial review 2017 156 Novartis Group consolidated financial statements 186 Financial statements of Novartis AG 262 OTHER INFORMATION Key dates for 2018, contact information and forward-looking statements 276 Cover photo Ratan Singh and his wife, Ram Kali, attend a health clinic in Triveni Vihar in Uttar Pradesh, India, supported by a Novartis initiative that has improved access to healthcare for India s rural poor over the past decade.

6 Photo below Graduate intern Felix Peix uses CRISPR genome editing technology at Novartis in Basel, Switzerland. CRISPR edits the genes of targeted cells, assisting in drug discovery and offering the potential to treat disease by deleting, repairing or replacing specific | Novartis Annual Report 2017 Chairman s letterDear shareholder, Novartis made substantial progress in 2017 . We returned Alcon to growth, launched important new products, and benefited from efficiency gains delivered by Novartis Business Services and the recently established global drug development and production organizations. These accomplishments have helped us to deliver solid perfor-mance.

7 We increased sales by 2% in constant currencies, improved net income by 12% in constant currencies, and were able to strengthen our cash flow and core earnings per share with the objective of continuing to create value for our shareholders. With the appointment of Vasant Narasimhan as Chief Executive Officer starting February 1, the Board of Directors is confident Novartis is well placed to begin a new phase of growth and strengthen its global market positionWe believe innovation will become increasingly import-ant in view of the persistent challenges in the healthcare environment. To remain at the forefront of innovation, we have continued to strengthen our leadership.

8 We have also enhanced our ability to develop breakthrough therapies by accelerating internal and external collaboration, pur-suing bolt-on acquisitions and digitizing our operations. The creation of the Chief Digital Officer position is set to add further impetus to the transformation of the appointment of Vasant Narasimhan as Chief Executive Officer starting February 1, the Board of Directors is confident Novartis is well placed to begin a new phase of growth and strengthen its global market position. As we move forward, our leadership team is focused on driving innovation and is cultivating a company culture aimed at helping us become one of the most trusted partners in the healthcare industry.

9 On behalf of the Board of Directors, I would also like to express my gratitude to our outgoing CEO, Joseph Jimenez, who has successfully led Novartis for eight years through a challenging period of major patent expirations and laid the foundation for a strong future. We will continue to make substantial investments in research and development and to concentrate on ex -ploring new therapeutic pathways that help improve and extend people s lives. We are currently investigating more than 70 new molecules in areas of high unmet medical need such as cancer, respiratory disease and heart disease.

10 Joerg ReinhardtNovartis Annual Report 2017 | 3 CHAIRMAN S LETTERWe are prepared to take calculated risks across the research portfolio and work toward translating scientific advances in fields such as genetics and immunology into pharmaceutical products. As part of these efforts, we launched three cancer therapies in 2017 : Kisqali, Rydapt and Kymriah. Kymriah, developed with the University of Pennsylvania in the US, is the first approved chimeric antigen receptor T-cell (CAR-T) therapy, an innovative cell therapy that is available in the US on an industrial scale and takes personalized medicine to a new level. Reflecting our ambition to deliver our treatments to as many patients as possible, we are also accelerating our activities to improve access to healthcare in devel-oping countries.