Novartis Annual Report 2021

1 Annual Report 2021 Annual Report 2021 IChairman s letterNovartis delivered a solid performance in 2021. Strong demand for heart failure medicine Entresto, psoriasis and autoimmune disease treatment Cosentyx, and recently launched therapies such as multiple sclerosis drug Kesimpta helped us increase sales and net profit as we maintained cost discipline. Looking ahead, we are con-fident we can maintain our momentum as we remain focused on operational excellence and science-based innovation. With more than 12 new drug approvals by the US Food and Drug Administration in the past five years, we are committed to our long-term research and development (R&D) strategy, which is aimed at creating breakthrough therapies for patients with high unmet medical needs. We strive to build leading market positions in fast-grow-ing areas of medicine and broaden patient reach to deliver on our purpose to improve and extend people s lives around the world.

2 Last year we continued to make significant investments in R&D, including in cutting-edge medical technologies such as radioligand therapy and small-interfering RNA. Our clinical pipeline covers a diverse area of noncommu-nicable diseases such as cancer and heart disease. This is positioning us well for the future amid the rising global need for innovative chronic therapies as we continue to strengthen patient engagement. We started a strategic review of our Sandoz generics divi-sion with the goal of strengthening its operational perfor-mance and maximizing shareholder return. Also, we divested our investment in Roche Holding AG, reflecting our strategy to create a focused medicines pressure on societies and healthcare systems due to the COVID-19 pandemic remains high. In this challeng-ing environment, our focus on operational excellence and shift to flexible working by our employees continued to help us navigate the crisis.

3 In a post-pandemic world, these lessons will enable us to maintain high levels of resilience and operational efficiency while continuing to position us as an employer of choice in a changing work also made further progress in our environmental, social and governance (ESG) activities, which are an essential part of our strategy and an important reputa-tion driver. Besides our progress in reducing our environ-mental footprint, we broadened patient access to our strategic medicines and launched a new program in the United States to address health disparities all with the intention to create more equitable and sustainable health-care systems and support the United Nations efforts to achieve the Sustainable Development Board of Directors took further action to strengthen governance. We paved the way for comprehensive ESG oversight and changed the leadership of the Compensa-tion Committee and the Governance, Nomination and Corporate Responsibilities Committee.

4 We also nomi-nated a new Board member. Together with the Executive Committee, the Board of Directors will continue the inten-sive dialogue with all stakeholder groups with a view to further strengthen trust in society and to maximize share-holder thank you for the confidence you have placed in our company and am pleased to be able to propose a divi-dend increase of to CHF at the next Annual General Meeting. Sincerely,Joerg ReinhardtChairman of the Board of Directors II CEO s letter2021 was another year of rapid change for the biopharma-ceutical industry and the world. The pandemic continues to disrupt care for patients across the spectrum of disease, creating a syndemic, or confluence of epidemics, that requires healthcare systems to cope with COVID-19 while caring for patients with chronic the challenges ahead, there are reasons to be optimistic a healthier future is within our grasp includ-ing the ways our industry has brought to this crisis the power of technology and shown once again the extraor-dinary ability of science to overcome humanity s greatest tests.

5 As we reimagine medicine at Novartis , our unwavering focus on our strategy and purpose enabled us to continue creating value for patients, healthcare professionals, healthcare systems, employees, shareholders and soci-ety. The adaptability and commitment of our employees, together with the resilience of our operations and capa-bilities in data science and tech nology, minimized disrup-tions to our business. Many changes, such as hybrid work-ing, are now business as usual. Our impact on the world remains extraordinary, with 766 million patients reached in 2021. We received 21 approv-als in the US, the EU, Japan and China, including two new mole cular entities. Our siRNA therapy Leqvio is now approved in more than 50 countries, including the US. We also demonstrated the strength of our in-market portfo-lio, with medicines like Cosentyx, Entresto, Zolgensma, Kesimpta and Kisqali driving growth.

6 Our pipeline promises innovation for years to come. We have built depth in five therapeutic areas and are building scale in five next-generation technology platforms. 2021 saw important data readouts, including for Kisqali in HR+/HER2- advanced breast cancer, and for 177L u - P S M A - 6 1 7, our investigational targeted radioligand therapy for patients with advanced prostate cancer, which received breakthrough therapy designation by the US Food and Drug Administration (FDA). We also received approval for Scemblix, a novel stamp inhibitor for the treatment of chronic myeloid leukemia. We have a promising mid- and late-stage portfolio, with more than 20 assets with expected approval by 2026 that each have sales potential over USD 1 billion. We also initi-ated a share buyback of up to USD 15 billion, underscor-ing our confidence in our mid- and long-term pipeline and growth on our journey to build trust with society and furthering our legacy in global health and access, in 2021 Novartis reached the milestone of delivering a staggering 1 billion courses of malaria treatment to people in endemic countries.

7 We continue delivering on our longstanding commitment to expand access, narrowing the time it takes to scale our latest innovations. Our progress was under-scored by improved environmental, social and gover-nance (ESG) ratings, and we once again ranked second in the Access to Medicine continued to go big on data science and digital tech-nologies, integrating our data and digital teams within Customer & Technology Solutions to maximize efficiency as we scale value-driving projects. For example, AI Nurse, developed in collaboration with Tencent, helps patients with heart failure and other cardiovascular diseases man-age disease progression. It is used by 300 000 patients in also continued doing our part to end the pan-demic, quickly scaling up production of COVID-19 vac-cines. We re proud to have helped develop a potential new treatment option with Molecular Partners. Our financial performance highlights the progress we ve made and drives confidence for the future with 4% growth in net sales and 6% growth in core operating income from the previous year.

8 We re confident we ll drive consistent growth to 2030 and beyond. We ve also initi-ated a strategic review of Sandoz to enable Sandoz to be positioned as a long-term leader in the generics industry. Emerging from the COVID-19 pande mic, I remain optimis-tic about a new era in medicine. Stakeholders like you play an important role in that. On behalf of all of us at Novartis , we re grateful for your contributions on the journey of reimagining medicine. Sincerely, Vas NarasimhanChief Executive Officer 2 Table of contentsTable of contentsIntroduction and use of certain terms ..4 Forward-looking statements ..5 PART I 7 Item 1. Identity of Directors, Senior Management and Advisers ..7 Item 2. Offer Statistics and Expected Timetable ..8 Item 3. Key Information ..9 Selected financial data ..9 Capitalization and indebtedness ..9 Reasons for the offer and use of proceeds ..9 Risk factors.

9 9 Item 4. Information on the Company ..22 History and development of Novartis ..22 Business overview ..22 Innovative Medicines ..23 Sandoz ..43 Organizational structure ..48 Property, plants and equipment ..48 Item 4A. Unresolved Staff Comments ..50 Item 5. Operating and Financial Review and Prospects ..51 Operating Liquidity and capital resources ..74 Research and development, patents and licenses ..85 Trend information ..85 Critical accounting estimates ..85 Item 6. Directors, Senior Management and Employees ..89 Directors and senior management ..89 Compensation ..90 Board Employees ..157 Share 7. Major Shareholders and Related Party Transactions ..158 Major shareholders ..158 Related party transactions ..159 Interests of experts and counsel ..159 Item 8. Financial Information ..160 Consolidated statements and other financial information.

10 160 Significant changes ..161 Item 9. The Offer and Listing ..162 Offer and listing details ..162 Plan of distribution ..162 Markets ..162 Selling shareholders ..162 Dilution ..162 Expenses of the issue ..162 Item 10. Additional Information ..163 Share capital ..163 Memorandum and articles of association ..163 Material contracts ..166 Exchange 10. E Ta xat i o n ..167 Dividends and paying agents ..170 Statement by experts ..170* Item 5. Operating and Financial Review and Prospects, together with the sections on compounds in development and selected development projects of our divisions (see Item 4. Information on the Company Item Business overview ), constitute the Operating and Financial Review ( Lagebericht ), as defined by the Swiss Code of Obligations.** 3 Table of contents Documents on display ..171 Subsidiary information ..171 Item 11. Quantitative and Qualitative Disclosures About Market Risk.