Novartis Annual Report 2019

1 Annual Report 2019 . Annual Report 2019 .. Chairman's letter Novartis delivered strong performance in 2019 . New product launches together with a disciplined focus on costs and operational efficiency helped us in crease sales, operating income and operating profit margin. Looking ahead, we are well positioned to continue our growth trajectory as we pursue our goal of driving sci- ence-based medical innovation. With the successful spin-off of our former eye care divi- sion, Alcon, in early 2019 , we concluded a major step in our portfolio transformation to create a more focused medicines company. We are active in disease areas with high un met needs and have a leading portfolio of highly innovative drugs, including recent ly launched breast can- cer therapy Piqray, eye care treatment Beovu, multiple sclerosis drug Mayzent, and our gene therapy Zolgensma for spinal muscular atrophy.

2 Going forward, we continue to strive for business excel- Although we still have work to do, we are also making good lence across all our divisions and functions. We are con- progress in efforts to enhance our integrity standards as tinually streamlining our business services and produc- part of a broader cultural transformation. In our strength- tion platforms. We are also introducing innovative digital ened governance framework, our Ethics, Risk & Compli- technologies to support our research, development and ance (ERC) function is developing a principles-based production efforts. As the digitization of our operations Code of Ethics to support our employees in navigating and the overall healthcare industry gains pace, we are the increasingly complex healthcare landscape and man- also taking action to minimize cyber risks and protect aging associated risks.

3 The Board of Directors and the patient data. Executive Committee are fully committed to further improving our business ethics principles to become one As a global healthcare leader, we are working to spear- of the most trusted healthcare partners in the industry. head cutting-edge medical development. Our recent moves in the areas of gene therapies, radioligand thera- I thank you for the confidence you have placed in our com- pies and digital health reflect our position at the forefront pany and am pleased to be able to propose a dividend of scientific discovery. To develop breakthrough thera- increase of 4% to CHF at the next Annual General pies that can help change the practice of medicine, we Meeting. are intent on attracting the best industry talent, collabo- rating with leading technology partners, and pursuing acquisitions to strengthen and expand high-tech therapy Sincerely, platforms.

4 We have also established clear environmental, social and governance (ESG) targets for our management. With a view to reaching the highest international environmental standards, we aim to become carbon neutral by 2025, and plastic and water neutral by 2030, and have put pro- Joerg Reinhardt cesses in place to minimize the carbon footprint of our Chairman of the Board of Directors supply chain. Likewise, the implementation of our Access Principles is gaining pace with the approval of innovative medicines in low- and middle-income countries, includ- ing migraine treatment Aimovig and cancer drug Kisqali.. I.. CEO's letter The Novartis team works tirelessly to bring life-changing medical innovation to the world. We had a strong year in 2019 delivering on our strategy, producing strong finan- cial results, and making a significant impact on society by improving and extending the lives of people across the globe.

5 In April, we took an important step with the spin-off of our former Alcon eye care devices division, further trans- forming Novartis into a focused medicines company. Our research and development teams launched five all- new medicines in 2019 , from our groundbreaking gene therapy Zolgensma, to the first target ed biologic medi- cine for sickle cell disease patients. We also advanced the development of more than 25 potential blockbuster treatments that we hope to launch in the coming years. This progress shows the power of our innovation engine, and of our people. Delivering on our strategy supported our financial per- formance in 2019 . Strength in key products helped us We are taking steps to make our treatments available to post net sales of USD billion, up 9%, m easured in more people worldwide by integrating access strategies constant currencies (cc).

6 Our core operating income rose into the core of our business. Our work to tackle sickle 17% (cc) to USD billion, increasing core margin by cell disease is one example. Adakveo, our new treatment percentage points (cc) to for this life-threatening, inherited blood disorder, was approved for use in the US last November. At the same I'm incredibly grateful for the hard work of our employ- time, we launched a collaboration in Ghana to expand ees, whose passion and commitment is driving our diagnosis and treatment of the disease and to strengthen momentum on every front. They are helping us the broader healthcare system an approach that could trans form our company culture, which I believe will be a become a model for other African countries. core performance driver for Novartis . It will take time, but after visiting Novartis sites in nearly 40 countries since I.

7 We are increasingly recognized as a leader in our indus- took over as CEO two years ago and seeing the results try in integrating data science and digital technologies from our internal surveys, I'm confident our culture into all aspects of our work from discovering new change is taking hold. medicines in the lab to improving manufacturing effi- ciency and serving our customers more effectively. We The progress we made this past year is helping set the are making progress on 12 major projects to deploy key foundation for a remarkable future for our company as digital technologies and data analytics at scale, and we're we strive to create long-term value for patients, for soci- colla borating with other companies to accelerate our ety and for our shareholders. Thank you for your support efforts in areas such as artificial intelligence. as we continue reimagining medicine together.

8 There's significant work underway to transform how we operate, expand our capabilities and make us more effi- Sincerely, cient. In our manufacturing operations, we are adding capabilities in areas such as cell therapies, where we now have processing capacity in place on every major conti- nent. In business services, we're getting smarter at pro- curement and redesigning our work to get at the root of inefficiencies, such as how we prepare marketing mate- rials across the company. Vas Narasimhan Chief Executive Officer . II. Table of contents Table of contents Introduction and use of certain Forward-looking PART I 7. Item 1. Identity of Directors, Senior Management and Item 2. Offer Statistics and Expected Item 3. Key Selected financial Capitalization and Reasons for the offer and use of Risk 11. Item 4. Information on the History and development of *. Business Innovative Organizational Property, plants and Item 4A.

9 Unresolved Staff 63. Item 5. Operating and Financial Review and *..64. Operating Liquidity and capital Research and development, patents and Trend Off-balance sheet Tabular disclosure of contractual Item 6. Directors, Senior Management and 124. Directors and senior 124. Board Share Item 7. Major Shareholders and Related Party Major Related party Interests of experts and Item 8. Financial Consolidated statements and other financial Significant Item 9. The Offer and Offer and listing Plan of Selling Expenses of the Item 10. Additional Share Memorandum and articles of Material Exchange Dividends and paying * Item 5. Operating and Financial Review and Prospects together with the sections on compounds in development and key development projects of our divisions (see Item 4. Information on the Company Item Business overview ) constitute the Operating and Financial Review ( Lagebericht ), as defined by the Swiss Code of Obligations.

10 2. Table of contents Statement by Documents on Subsidiary Item 11. Quantitative and Qualitative Disclosures About Market 211. Item 12. Description of Securities Other Than Equity 212. Debt 212. Warrants and 212. Other 212. American Depositary 212. PART II 214. Item 13. Defaults, Dividend Arrearages and 214. Item 14. Material Modifications to the Rights of Security Holders and Use of Item 15. Controls and Item 16A. Audit Committee Financial 217. Item 16B. Code of Item 16C. Principal Accountant Fees and Item 16D. Exemptions from the Listing Standards for Audit Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Item 16F. Change in Registrant's Certifying Item 16G. Corporate Item 16H. Mine Safety PART III 225. Item 17. Financial Item 18. Financial Item 19.. 3. Introduction and use of certain terms Introduction and use of certain terms Novartis AG and its consolidated affiliates publish consolidated financial statements expressed in US dollars.