Annual Report
2020
Annual Report
2020
Chairman’s letter
The COVID-19 pandemic in 2020 created massive soci-
etal, economic and healthcare challenges. Novartis took
careful steps to protect our associates, maintain supplies
of medicines to pa tients and ensure business continuity,
helping us also meet the needs and in terests of our
healthcare partners, stake holders and shareholders.
These actions enabled Novartis to na vi gate the pandemic
and paved the way for future growth. We increased sales
and operating profit in 2020, generated good cash flows
and continued to innovate. We absorbed the economic
shock without resorting to government support or divi-
dend cuts, and we committed to no COVID-19-related
job losses during the year. Our performance de monstrates
our strong operational resilience and ability to cater to
diverse patient needs in challenging situations.
Even as the healthcare landscape changed, we launched
new pro ducts and strengthened our foothold in the bio-
similars arena. Our new launches included the multiple
sclerosis medicine Kesimpta and the lung cancer treat-
ment Tabrecta. We supported these market entries through
digital platforms. Biosimilars, meanwhile, benefited from
increased demand amid a continued focus on healthcare
costs.
Our research and development acti vities remained
robust. We leveraged remote monitoring technology to
en sure patient safety while keeping the majority of our
clinical trials on track. We also enhanced internal and
external collaboration to bolster our medical pipe line.
Going forward, we will continue to pursue our sci-
ence-based innovation strategy, focusing on fast-grow-
ing areas of healthcare, including oncology, cardiology
and lung diseases.
We also participated in cross-industry collaborations to
fight the pandemic and took steps to support patients in
low-income and lower-middle-income countries through
a dedicated generic medicines portfolio as well as the
creation of a relief fund for affected communities. These
efforts are designed to help mitigate the effects of the
pandemic in the months and years to come, especially in
the most vulnerable re gions of the world, where
healthcare- related challenges can have undue long-term
societal and economic consequences.
Demonstrating the Board of Directors’ and manage-
ment’s attention to the growing importance of our
environ mental, social and governance (ESG) agenda, we
further reduced our environmental footprint, expanded our
I
global health efforts and strengthened our governance
framework. We consider these steps essential to con-
tribute to efforts led by the United Nations to fight pov-
erty and climate change, and work toward the creation
of more equitable societies.
With the goal of strengthening our reputation and pro-
tecting the interests of patients, stakeholders and share-
holders, we also overhauled our third-party risk manage-
ment to establish stricter controls of our supplier network.
Our new Code of Ethics, crowdsourced by associates
and rolled out in 2020, is aimed at integrating ethics more
closely into business decision-making. These steps are
helping Novartis make progress to ward its ambition to be
one of the world’s most trusted healthcare partners.
I thank you for the confidence you have placed in our
company and am pleased to be able to propose a divi-
dend in crease of 2% to CHF 3.00 at the next Annual Gen-
eral Meeting.
Sincerely,
Joerg Reinhardt
Chairman of the Board of Directors
CEO’s letter
2020 was a unique year in the long history of Novartis,
as the COVID-19 pandemic challenged us to deliver on
our purpose despite immense challenges to healthcare
systems and society. Our company has the utmost
respect and gratitude for healthcare professionals
around the world who are caring for patients, as well as
for scientists who are finding ways to end the pandemic.
As we review our performance for the year, I feel proud
of the resilience and agility of our people who continued
to make progress in reimagining medi cine. In challenging
circumstances, they maintained the supply of Novartis
medicines to patients around the world while advancing
our pipeline and pivoting to new ways of engaging with
customers and each other.
We continued to make progress on our strategic priori-
ties. We delivered new innovative medicines for patients,
including a treatment for relapsing forms of multiple scle-
rosis and a first-in-class siRNA cholesterol-lowering
treatment. We continued to develop and build out our
pipeline, which remains one of the most valuable in the
industry. We’re especially optimistic about our mid- to
late-stage pipeline, tracking five promising assets in our
Oncology pipeline, six in our Pharma ceuticals pipeline,
and an additional five medicines that are already approved
and that we believe can be further applied to expanded
areas of treatment.
Our ongoing commitments to operational excellence and
our digital transformation were critical to our success.
We managed disruptions to our development programs,
with our early investments in data science and technol-
ogy helping to keep the majority of our clinical trials on
track. As most of the world went into lockdown, we mit-
igated the disruption as much as we could by shifting to
digital launches. We kept our supply stable while continu-
ing to transform our production network to prepare for
future growth.
We also continued to make progress in building trust with
society. We announced new, ambitious targets regarding
access to medicine and global health, and we issued a
sustainability-linked bond to reinforce our commitment to
achieving them. We also strengthened our environmental
targets, launched a new Code of Ethics, and followed
through on our promise to settle legacy legal matters from
years prior.
Culture underpinned all of our efforts. The pandemic con-
nected associates even more strongly to our purpose,
created new demands for learning, and demonstrated
the benefits of empowered working. We launched a new
working model in 2020 designed to provide associates
with greater flexibility while ensuring we continue to drive
innovation and performance.
I’m also proud of the ways Novartis contributed to the
global pandemic response. Through Sandoz, Novartis
was the first company to commit to keeping the prices
of essential generic medicines stable. We launched a
first- of-its-kind not-for-profit portfolio of medicines to
treat symptoms of COVID-19. And we played our part in
the scientific effort to find treatments for the disease.
Across the industry, we are sharing our scientific find-
ings and our research and manufacturing capa city while
committing to equitable distribution of diagnostics, ther-
apeutics and vaccines. Many more response efforts are
outlined in this report.
Delivering on our strategy supported our financial per-
formance in 2020. Although the pandemic affected
demand in some therapeutic areas, strength in key prod-
ucts helped us post net sales of USD 48.7 billion, up 3%,
measured in constant currencies (cc). Our core operat-
ing income rose 13% (cc) to USD 15.4 billion.
As I write this letter at the end of 2020, the world remains
in the grip of COVID-19. Yet we have reasons to be opti-
mistic. The pandemic has demonstrated what is possible
when human resilience and collaborative science rise to
the occasion. Novartis will continue to deliver on our pur-
pose to reimagine medicine by developing transforma-
tive new treatments and finding innovative solutions to the
world’s most pressing healthcare challenges.
Sincerely,
Vas Narasimhan
Chief Executive Officer
II
Table of contents
Table of contents
*
*
Item 4.
Introduction and use of certain terms .................................................................................................................................................................4
Forward-looking statements ...................................................................................................................................................................................5
PART I
7
Item 1.
Identity of Directors, Senior Management and Advisers ...................................................................................................7
Item 2. Offer Statistics and Expected Timetable ...................................................................................................................................8
Key Information ........................................................................................................................................................................................9
Item 3.
3.A Selected financial data .........................................................................................................................................................................9
3.B Capitalization and indebtedness ..................................................................................................................................................10
3.C Reasons for the offer and use of proceeds ...........................................................................................................................10
3.D Risk factors ............................................................................................................................................................................................. 11
Information on the Company ..........................................................................................................................................................23
4.A History and development of Novartis ........................................................................................................................................23
4.B Business overview ...............................................................................................................................................................................23
Innovative Medicines ..........................................................................................................................................................................24
Sandoz ...................................................................................................................................................................................................... 43
4.C Organizational structure .................................................................................................................................................................. 48
4.D Property, plants and equipment .................................................................................................................................................. 48
Item 4A. Unresolved Staff Comments ..........................................................................................................................................................50
Item 5. Operating and Financial Review and Prospects ..................................................................................................................51
5.A Operating results..................................................................................................................................................................................51
5.B Liquidity and capital resources .....................................................................................................................................................77
5.C Research and development, patents and licenses .............................................................................................................86
5.D Trend information .................................................................................................................................................................................86
5.E Off-balance sheet arrangements ................................................................................................................................................86
5.F Tabular disclosure of contractual obligations .......................................................................................................................87
Item 6. Directors, Senior Management and Employees ..................................................................................................................88
6.A Directors and senior management .............................................................................................................................................88
6.B Compensation .......................................................................................................................................................................................89
6.C Board practices..................................................................................................................................................................................125
6.D Employees ............................................................................................................................................................................................161
6.E Share ownership................................................................................................................................................................................161
Item 7. Major Shareholders and Related Party Transactions ....................................................................................................162
7.A Major shareholders ..........................................................................................................................................................................162
7.B Related party transactions ...........................................................................................................................................................163
Interests of experts and counsel ..............................................................................................................................................163
7.C
Financial Information .......................................................................................................................................................................164
8.A Consolidated statements and other financial information ...........................................................................................164
8.B Significant changes .........................................................................................................................................................................165
The Offer and Listing ......................................................................................................................................................................166
9.A Offer and listing details ..................................................................................................................................................................166
9.B Plan of distribution ............................................................................................................................................................................166
9.C Markets ...................................................................................................................................................................................................166
9.D Selling shareholders ........................................................................................................................................................................166
9.E Dilution ....................................................................................................................................................................................................166
9.F Expenses of the issue ....................................................................................................................................................................166
Item 10. Additional Information .....................................................................................................................................................................167
10.A Share capital ........................................................................................................................................................................................167
10.B Memorandum and articles of association ............................................................................................................................167
10.C Material contracts ............................................................................................................................................................................. 170
10.D Exchange controls............................................................................................................................................................................ 171
10.E Taxation .................................................................................................................................................................................................. 171
10.F Dividends and paying agents ...................................................................................................................................................... 174
Item 8.
Item 9.
* “Item 5. Operating and Financial Review and Prospects” together with the sections on compounds in development and selected development projects of our divisions
(see “Item 4. Information on the Company—Item 4.B Business overview”) constitute the Operating and Financial Review (“Lagebericht”), as defined by the Swiss Code of
Obligations.
2
Table of contents
10.G Statement by experts ..................................................................................................................................................................... 175
10.H Documents on display .................................................................................................................................................................... 175
10.I Subsidiary information .................................................................................................................................................................... 175
Item 11. Quantitative and Qualitative Disclosures About Market Risk .................................................................................... 176
Item 12. Description of Securities Other Than Equity Securities...............................................................................................177
12.A Debt securities ...................................................................................................................................................................................177
12.B Warrants and rights..........................................................................................................................................................................177
12.C Other securities .................................................................................................................................................................................177
12.D American Depositary Shares ......................................................................................................................................................177
179
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies .......................................................................................................... 179
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds .............................................180
Item 15. Controls and Procedures .............................................................................................................................................................. 181
Item 16A. Audit Committee Financial Expert ...........................................................................................................................................182
Item 16B. Code of Ethics ....................................................................................................................................................................................183
Item 16C. Principal Accountant Fees and Services ..............................................................................................................................184
Item 16D. Exemptions from the Listing Standards for Audit Committees ................................................................................185
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers .............................................................186
Item 16F. Change in Registrant’s Certifying Accountant ..................................................................................................................187
Item 16G. Corporate Governance ..................................................................................................................................................................188
Item 16H. Mine Safety Disclosure ..................................................................................................................................................................189
190
PART III
Item 17. Financial Statements.......................................................................................................................................................................190
Item 18. Financial Statements.......................................................................................................................................................................191
Item 19. Exhibits ...................................................................................................................................................................................................192
3
Introduction and use of certain terms
Introduction and use of certain terms
Novartis AG and its consolidated affiliates publish consolidated financial statements expressed in US dollars. Our
consolidated financial statements responsive to Item 18 of this Annual Report on Form 20-F (Annual Report) are
prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB). “Item 5. Operating and Financial Review and Prospects,” together with the
sections on products in development and key development projects of our businesses (see “Item 4. Information on
the Company—Item 4.B. Business overview”), constitute the Operating and Financial Review (“Lagebericht”), as
defined by the Swiss Code of Obligations.
Unless the context requires otherwise, the words “we,” “our,” “us,” “Novartis,” “Group,” “Company,” and similar
words or phrases in this Annual Report refer to Novartis AG and its consolidated affiliates. However, each Group
company is legally separate from all other Group companies and manages its business independently through its
respective board of directors or similar supervisory body or other top local management body, if applicable. Each
executive identified in this Annual Report reports directly to other executives of the Group company that employs
the executive, or to that Group company’s board of directors.
In this Annual Report, references to “US dollars,” “USD” or “$” are to the lawful currency of the United States of
America, references to “CHF” are to Swiss francs, and references to “euro” or “EUR” are to the lawful currency of
27 member states participating in the European Union; references to the “United States” or to “US” are to the United
States of America, references to the “European Union” or to “EU” are to the European Union and its 27 member
states, references to “Latin America” are to Central and South America, including the Caribbean, and references
to “Australasia” are to Australia, New Zealand, Melanesia, Micronesia and Polynesia, unless the context otherwise
requires; references to the “EC” are to the European Commission; references to “associates” are to employees of
our affiliates; references to the “SEC” are to the US Securities and Exchange Commission; references to the “FDA”
are to the US Food and Drug Administration; references to the “EMA” are to the European Medicines Agency, an
agency of the EU, and references to the “CHMP” are to the Committee for Medicinal Products for Human Use of
the EMA; references to “ADR” or “ADRs” are to Novartis American Depositary Receipts, and references to “ADS”
or “ADSs” are to Novartis American Depositary Shares; references to the “NYSE” are to the New York Stock
Exchange, and references to “SIX” are to the SIX Swiss Exchange; references to “ECN” are to the Executive Com-
mittee of Novartis; references to “GSK” are to GlaxoSmithKline plc, references to “AAA” are to Advanced Acceler-
ator Applications S.A., references to “Novartis Gene Therapies” are to Novartis Gene Therapies, Inc. (formerly
AveXis), and references to “Endocyte” are to Endocyte, Inc.
All product names appearing in italics are trademarks owned by or licensed to Group companies. Product names
identified by a “®” or a “™” are trademarks that are not owned by or licensed to Group companies and are the prop-
erty of their respective owners.
4
Forward-looking statements
Forward-looking statements
This Annual Report contains certain forward-looking statements within the meaning of Section 27A of the Securi-
ties Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and the United States Private Securities Litigation Reform Act of 1995, as amended. Other written materials
filed with or furnished to the SEC by Novartis, as well as other written and oral statements made to the public, may
also contain forward-looking statements. Forward-looking statements can be identified by words such as “poten-
tial,” “expected,” “will,” “planned,” “pipeline,” “outlook,” “may,” “could,” “would,” “anticipate,” “seek,” or similar terms,
or by express or implied discussions regarding potential new products, potential new indications for existing prod-
ucts, or regarding potential future revenues from any such products; or regarding the potential outcome, or finan-
cial or other impact on Novartis, of the acquisition of The Medicines Company, and other transactions described;
or regarding the potential impact of share buybacks; or regarding potential future sales or earnings of the Group
or any of its divisions or potential shareholder returns; or regarding potential future credit ratings of the Group; or
by discussions of strategy, plans, expectations or intentions. 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 under-
lying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking
statements. You should not place undue reliance on these statements.
In particular, our expectations could be affected by, among other things:
• Uncertainties regarding the success of key products and commercial priorities;
• Global trends toward healthcare cost-containment, including ongoing government, payer and general public pric-
ing and reimbursement pressures and requirements for increased pricing transparency;
• Uncertainties 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 that commenced in prior years
and is expected to continue this year;
• The potential that the strategic benefits, operational efficiencies or opportunities expected from our recent trans-
actions or our organizational, structural and cultural transformations may not be realized or may take longer to
realize than expected;
• Our performance on environmental, social and governance measures;
• Uncertainties in the development or adoption of potentially transformational technologies and business models;
• Uncertainties regarding potential significant breaches of information security or disruptions of our information
technology systems;
• Our reliance on outsourcing key business functions to third parties;
• Our ability to attract, integrate and retain key personnel and qualified individuals;
• Uncertainties regarding actual or potential legal proceedings, including, among others, litigation and other legal
disputes with respect to our recent transactions, product liability litigation, litigation and investigations regarding
sales and marketing practices, intellectual property disputes and government investigations generally;
• Regulatory actions or delays or government regulation generally, including potential regulatory actions or delays
with respect to the development of the products described in this Annual Report;
• Our ability to comply with data privacy laws and regulations, and uncertainties regarding potential significant
breaches of data privacy;
• Safety, quality, data integrity or manufacturing issues;
5
Forward-looking statements
• General political, economic and business conditions, including the effects of and efforts to mitigate pandemic
diseases such as COVID-19;
• The impact of pandemic diseases such as COVID-19 on enrollment in, initiation and completion of our clinical tri-
als in the future, and research and development timelines;
• Uncertainties involved in predicting shareholder returns;
• Uncertainties regarding the effects of recent and anticipated future changes in tax laws and their application to
us;
• Uncertainties regarding future global exchange rates; and
• Uncertainties regarding future demand for our products.
Some of these factors are discussed in more detail in this Annual Report, including under “Item 3. Key Information—
Item 3.D. Risk factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and
Prospects.” Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described in this Annual Report as anticipated, believed,
estimated or expected. We provide the information in this Annual Report as of the date of its filing. We do not intend,
and do not assume any obligation, to update any information or forward-looking statements set out in this Annual
Report as a result of new information, future events or otherwise.
6
Item 1. Identity of Directors, Senior Management and Advisers
PART I
Item 1. Identity of Directors,
Senior Management and Advisers
Not applicable.
7
Item 2. Offer Statistics and Expected Timetable
Item 2. Offer Statistics and Expected
Timetable
Not applicable.
8
Item 3. Key Information
Item 3. Key Information
3.A Selected financial data
The selected financial information set out below has
been extracted from our consolidated financial state-
ments prepared in accordance with International Finan-
cial Reporting Standards (IFRS) as issued by the Inter-
national Accounting Standard Board (IASB). Our
consolidated financial statements for the years ended
December 31, 2020, 2019 and 2018, are included in “Item
18. Financial Statements” in this Form 20-F.
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 quali-
fied in their entirety by reference to the consolidated
financial statements and their notes.
(USD millions, except per share information)
INCOME STATEMENT DATA1
Year ended December 31,
2020
2019
2018
2017
2016
Net sales to third parties from continuing operations
48 659
47 445
44 751
42 338
41 975
Operating income from continuing operations
Income from associated companies
Interest expense
Other financial income and expense
10 152
9 086
673
– 869
– 78
659
– 850
45
8 403
6 438
– 932
186
8 702
1 108
– 750
42
Income before taxes from continuing operations
9 878
8 940
14 095
9 102
8 248
703
– 675
– 385
7 891
Taxes
– 1 807
– 1 793
– 1 295
– 1 603
– 1 095
Net income from continuing operations
8 071
7 147
12 800
7 499
6 796
Net (loss) / income from discontinued operations before gain
on distribution of Alcon Inc. to Novartis shareholders
Gain on distribution of Alcon Inc. to Novartis AG shareholders
Net income/(loss) from discontinued operations
– 101
4 691
4 590
Group net income
Attributable to:
Shareholders of Novartis AG
Non-controlling interests
Basic earnings per share (USD)
Continuing operations
Discontinued operations
Total
Diluted earnings per share (USD)
Continuing operations
Discontinued operations
Total
Cash dividends2
Cash dividends per share in CHF3
– 186
204
– 98
8 071
11 737
12 614
7 703
– 186
204
– 98
6 698
8 072
11 732
12 611
7 703
6 712
– 1
5
3
0
– 14
3.55
3.55
3.52
3.52
3.12
2.00
5.12
3.08
1.98
5.06
5.52
– 0.08
5.44
5.46
– 0.08
5.38
3.20
0.08
3.28
3.17
0.08
3.25
6 987
6 645
6 966
6 495
3.00
2.95
2.85
2.80
2.86
– 0.04
2.82
2.84
– 0.04
2.80
6 475
2.75
Personnel cost from continuing operations4, 5
13 898
13 843
13 515
12 009
11 950
Full-time equivalent associates of continuing operations at year-end5
105 794
103 914
104 780
102 467
99 747
1 Continuing operations include the businesses of the Innovative Medicines and Sandoz Divisions and Corporate activities. Discontinued operations included the Alcon business,
which was divested in 2019. To reflect these transactions, Novartis reported the Group’s financial results for 2020 to 2016 as “continuing operations” and “discontinued
operations,” as required by IFRS.
2 Cash dividends represent cash payments in the applicable year that generally relates to earnings of the previous year.
3 Cash dividends per share represent dividends proposed that relate to earnings of the current year. Dividends for 2016 through 2019 were approved at the respective AGMs, and
dividends for 2020 will be proposed to the Annual General Meeting on March 2, 2021, for approval.
4 Personnel cost include wages, salaries, allowances, commissions and bonuses to staff, overtime, awards, holiday pay, severance payments and social welfare expenses.
5 Own employees
9
Item 3. Key Information
(USD millions)
BALANCE SHEET DATA
Cash, cash equivalents, and marketable securities
and derivative financial instruments
Inventories
Other current assets
Non-current assets
Year ended December 31,
2020
2019
2018
2017
2016
11 563
11 446
15 964
7 131
5 982
6 956
9 485
6 867
7 777
6 255
10 979
11 235
11 836
11 856
10 899
102 386
88 866
110 000
104 871
105 193
Assets of disposal group held for sale1
841
807
Total assets
Trade accounts payable
Other current liabilities
Non-current liabilities
Liabilities of disposal group held for sale1
Total liabilities
Equity attributable to shareholders
of Novartis AG
Non-controlling interests
Total equity
Total liabilities and equity
Net assets
Outstanding share capital
Total outstanding shares (millions)
132 059
118 370
145 563
133 079
130 124
5 403
5 424
5 556
5 169
4 873
27 656
22 809
24 000
18 234
17 336
42 334
34 555
37 264
35 449
33 024
31
51
75 393
62 819
66 871
58 852
55 233
56 598
55 474
78 614
74 168
74 832
68
77
78
59
59
56 666
55 551
78 692
74 227
74 891
132 059
118 370
145 563
133 079
130 124
56 666
55 551
78 692
74 227
74 891
860
856
875
869
896
2 257
2 265
2 311
2 317
2 374
1 In 2019 and 2018, the disposal group held for sale related to the assets and liabilities of the planned divestment of the Sandoz US dermatology business and generic US oral solids
portfolio to Aurobindo Pharma USA Inc., as announced on September 6, 2018. In March 2020, Novartis took the decision to retain these businesses. (see “Item 18. Financial
Statements—Note 2. Significant transactions”).
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.
Year earned
2016
2017
2018
2019
2020 1
Month and
year paid
Total dividend Total dividend
per share
(USD)
per share
(CHF)
March 2017
March 2018
March 2019
March 2020
March 2021
2.75
2.80
2.85
2.95
3.00
2.72
2.94
2.84
3.12
3.40 2
1 Dividend to be proposed at the Annual General Meeting on March 2, 2021, and to be distributed from March 8, 2021.
2 Translated into US dollars at the December 31, 2020, rate of USD 1.135 to the Swiss franc. This translation is an example only, and should not be construed as a representation that
the Swiss franc amount represents, or has been or could be converted into US dollars at that or any other rate.
3.B Capitalization and indebtedness
Not applicable.
3.C Reasons for the offer and use of proceeds
Not applicable.
10
Item 3. Key Information
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 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 reputation, financial condition, results of oper-
ations, and share price, 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.
Strategic risks
Key products and commercial priorities
Risk description
Failure to deliver key commercial priorities and success-
fully launch new products
Context and potential impact
Our ability to maintain and grow our business and to
replace revenue and income lost to generic, biosimilar
and other competition depends heavily on the commer-
cial success of our new or existing key products. The
commercial success of these products could be impacted
at any time by a number of factors, including pressure
from new or existing competitive products, changes in
the prescribing habits of healthcare professionals, unex-
pected side effects or safety signals, supply chain issues
or other product shortages, pricing pressure, regulatory
proceedings, changes in labeling, loss of intellectual
property protection, and global pandemics. In addition,
our revenue and margins could be significantly impacted
by the timing and rate of commercial acceptance of new
products.
We face competition from scientific advances and
other company’s new products. Healthcare profession-
als, patients and payers may choose competitor prod-
ucts instead of ours for various reasons, including if they
perceive them to be better in terms of efficacy, safety,
cost, convenience or other reasons. The commercial
success of our key products and launches in the face of
increasing competition and pressures on pricing requires
significant attention and management focus. Such com-
petitive 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 research and development, marketing or
sales.
Pricing, reimbursement and access
Risk description
Pricing and reimbursement pressure, including access
to healthcare
Context and potential impact
Our businesses experience 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 payers.
These pressures have many sources, including growth
of healthcare costs as a percentage of gross domestic
product; funding restrictions and policy changes; man-
agement of the COVID-19 pandemic and its impact on
healthcare spending; and public controversies, political
debate, investigations and legal proceedings regarding
pharmaceutical pricing. Pressures on pricing may nega-
tively impact, in parallel, both our product pricing and our
market access.
In addition, we face numerous cost-containment
measures imposed by governments and other payers,
including government-imposed industrywide price
reductions, mandatory pricing systems, reference pric-
ing systems, payers limiting access to treatments based
on cost-benefit analyses, imports of drugs from low-
er-cost countries to higher-cost countries, shifting of the
payment burden to patients through higher co-payments
and co-pay accumulator programs, limiting physicians’
ability to choose among competing medicines, manda-
tory substitution of generic drugs for the patented equiv-
alent, pressure on physicians to reduce the prescribing
of patented prescription medicines, increasing pressure
on intellectual property protections, and growing require-
ments for increased transparency on pricing. For more
information on price controls, see “Item 4. Information
on the Company—Item 4.B Business overview—
Innovative Medicines—Price controls.”
These challenges are expected to continue to
increase in 2021 and beyond as healthcare investment
into the management of the COVID-19 pandemic contin-
ues; political pressures mount; and healthcare payers
around the globe, including government-controlled
health authorities, insurance companies and managed
care organizations, step up initiatives to reduce the over-
all cost of healthcare, restrict access to higher-priced
new medicines, increase the use of generics, and impose
overall price cuts. These factors may materially affect
our ability to achieve value-based prices and maintain
an acceptable return on our investments in the research
and development of our products, and may impact our
ability to research and develop new products.
In addition, our Sandoz Division has faced and may
in the future face strong competition from other generic
and biosimilar pharmaceutical companies, which aggres-
sively compete for market share, including through sig-
nificant price competition. Such competitive actions may
increase the costs and risks associated with our efforts
to introduce and market generic and biosimilar products,
may delay the introduction or marketing of such prod-
ucts, and may further limit the prices at which we are
able to sell these products. In particular, in the US in past
years, industrywide price competition among generic
pharmaceutical companies and consolidation of buyers
caused significant declines in sales and profits of Sandoz.
11
Item 3. Key Information
Research and development
Risk description
Failure or delay in the research and development of new
products or new indications for existing products
Context and potential impact
We engage in extensive and costly research and devel-
opment activities, both through our own internal
resources and through collaborations with third parties,
in an effort to identify and develop new products and
new indications for existing products that address unmet
and changing medical needs and are commercially suc-
cessful. Our ability to grow our business; to replace sales
lost due to branded competition, entry of generics, or
other reasons; and to bring to market products that take
advantage of new and potentially disruptive technolo-
gies, including cell, gene and radioligand therapies,
depends in significant part upon the success of these
efforts.
Research and development of new products of our
Innovative Medicines Division, including the research and
development of our cell and gene therapies, is a costly,
lengthy and uncertain process. Because intellectual
property protections are limited in scope and duration,
the longer it takes to develop a product, the less time
there may be for us to recoup our research and devel-
opment costs before loss of exclusivity. Failure can occur
at any point in the process, including in later stages after
substantial investment. In spite of such substantial invest-
ment, there can be no guarantee that our research and
development activities will produce commercially suc-
cessful new products that will enable us to replace rev-
enue and income lost to competition and to grow our
business. See also “Item 4. Information on the Com-
pany—Item 4.B Business overview—Innovative
Medicines—Research and development” with regards to
the research and development efforts of our Innovative
Medicines Division.
New products must undergo intensive preclinical and
clinical testing, and must be approved by means of highly
complex, lengthy and expensive approval processes that
can vary from country to country. Further, regulatory
authorities continue to establish new and increasingly
rigorous and time-consuming requirements for approval
and reimbursement of new products and new indications.
Similarly, the post-approval regulatory burden has also
increased. These requirements make the maintenance
of regulatory approvals for our products increasingly
expensive, and further heighten the risk of recalls, prod-
uct withdrawals, loss of market share, and loss of reve-
nue and profitability. The clinical testing, regulatory pro-
cesses and post-approval activities described above
become more difficult during pandemics, such as the
COVID-19 pandemic. This is primarily due to challenges
related to recruiting, enrolling and treating patients in
clinical trials. In addition, travel restrictions resulting from
pandemics make it more difficult for regulatory authori-
ties to inspect sites. For a further description of the
research and development and approval processes for
the products of our Innovative Medicines Division, see
the sections headed “Research and development” and
“Regulation” included in the description of our Innovative
Medicines Division under “Item 4. Information on the
Company—Item 4.B Business overview—Innovative
Medicines.”
Our Sandoz Division has made, and expects to con-
tinue to make, significant investments in the development
of biotechnology-based, “biologic” medicines intended
for sale as bioequivalent or “biosimilar” versions of cur-
rently 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 signifi-
cantly more costly and complex than that for typical
small-molecule generic products. See also “Item 4. Infor-
mation on the Company—Item 4.B Business overview—
Sandoz—Development and registration” with regards to
the research and development efforts of our Sandoz Divi-
sion. In addition, many countries do not yet have fully
developed legislative or regulatory pathways to facilitate
the development of biosimilars and permit their sale in a
manner in which they are readily substitutable alterna-
tives to the originator product. Further delays or difficul-
ties in the development or marketing of biosimilars could
put at risk the significant investments that Sandoz has
made, and will continue to make, in its Biopharmaceuti-
cals business. Failure to successfully develop and mar-
ket biosimilars could have a material adverse effect on
the success of the Sandoz Division and the Group as a
whole. For more information about the approval pro-
cesses that must be followed to market Sandoz Division
products, see “Item 4. Information on the Company—Item
4.B Business overview—Sandoz—Regulation.”
Further, our research and development activities
must be conducted in an ethical and compliant manner.
Among other things, we are concerned with patient
safety, data privacy, Current Good Clinical Practices
(cGCP) requirements, data integrity, the fair treatment
of patients, and animal welfare. Should we fail to prop-
erly manage such issues, we risk injury to third parties,
damage to our reputation, negative financial conse-
quences as a result of potential claims for damages,
sanctions and fines, and the potential that investments
in research and development activities could have no
benefit to the Group. Research to find new targets for
drug discovery and the therapeutic agents to treat unmet
medical needs is made more difficult during pandemics,
such as the COVID-19 pandemic. This is primarily due to
safety-related restrictions on the ability of laboratory sci-
entists to work in research laboratories, and impacts our
ability to collaborate with academic and commercial
research organizations facing similar challenges and
restrictions.
Intellectual property
Risk description
Expiry, assertion or loss of intellectual property protec-
tion
Context and potential impact
Many products of our Innovative Medicines Division are
protected by intellectual property rights, which may pro-
vide us with exclusive rights to market those products
for a limited time and enable us to sustainably finance
our research and development. However, the strength
and duration of those rights can vary significantly from
12
Item 3. Key Information
product to product and country to country, and they may
be successfully challenged by third parties or govern-
mental authorities.
Loss of intellectual property protection and the intro-
duction of generic or biosimilar competition for a pat-
ented branded medicine typically result in a significant
and rapid reduction in net sales and operating income
for the branded product, because generic or biosimilar
manufacturers typically offer their versions at sharply
lower prices. Such competition can occur after success-
ful challenges to intellectual property rights or the reg-
ular expiration of the patent term or other intellectual
property rights. Such competition can also result from
the entry of generic or biosimilar versions of another
medicine in the same therapeutic class as one of our
drugs or in a competing therapeutic class, from a Dec-
laration of Public Interest or the compulsory licensing of
our drugs by governments, or from a general weakening
of intellectual property and governing laws in certain
countries around the world. In addition, generic or bio-
similar manufacturers may sometimes conduct so-called
“launches at risk” of products that are still under legal
challenge for infringement, or whose patents are still
under legal challenge for validity, before final resolution
of legal proceedings.
We also rely in all aspects of our businesses on unpat-
ented proprietary technology, know-how, trade secrets
and other confidential information, which we seek to pro-
tect through various measures, including confidentiality
agreements with licensees, employees, third-party col-
laborators, and consultants who may have access to
such information. If these agreements are breached or
our other protective measures should fail, then our con-
tractual or other remedies may not be adequate to cover
our losses.
We may also be subject to assertions of intellectual
property rights against our innovative medicines by third
parties. If successful, these actions may involve payment
of damages, for example for patent infringement, and
may also involve injunctive relief requiring removal of a
product from the market (or removing a therapeutic indi-
cation from the product’s approved labeling) for some
period of time or throughout the life of the asserted intel-
lectual property right. These damages or an injunction
may have a material impact on our operating income and
net sales.
In any given year, we may experience a potentially
significant impact on our net sales from products that
have already lost intellectual property protections, as
well as products that may lose protection during the year.
Because we may have substantially reduced marketing
and research and development expenses related to
products that are in their final years of exclusivity, the
initial loss of protection for a product during a given year
could also have an impact on our operating income for
that year in an amount corresponding to a significant
portion of the product’s lost sales. The magnitude of the
impact of generic or biosimilar competition on our income
could depend on a number of factors, including, with
respect to income in a given year, the time of year at
which the generic or biosimilar competitor is launched;
the ease or difficulty of manufacturing a competitor prod-
uct and obtaining regulatory approval to market it; the
number of generic or biosimilar competitor products
approved, including whether, in the US, a single compet-
itor is granted an exclusive marketing period; whether an
authorized generic is launched; the geographies in which
generic or biosimilar competitor products are approved,
including the strength of the market for generic or bio-
similar pharmaceutical products in such geographies,
and the comparative profitability of branded pharmaceu-
tical products in such geographies; and our ability to suc-
cessfully develop and launch profitable new products to
replace the income lost to generic or biosimilar compe-
tition. For more information on the patent and generic
competition status of our Innovative Medicines Division
products, see “Item 4. Information on the Company—Item
4.B Business overview—Innovative Medicines—Intellec-
tual property.”
Alliances, acquisitions and divestments
Risk description
Failure to identify external business opportunities or real-
ize the expected benefits from our strategic acquisitions
or divestments
Context and potential impact
As part of our strategy, from time to time we acquire and
divest products or entire businesses, and enter into stra-
tegic alliances and collaborations. For example, in 2020
we completed the acquisitions of The Medicines Com-
pany and the Japanese operations and associated
assets of Aspen Global Incorporated. This strategy
depends in part on our ability to identity strategic exter-
nal business opportunities and to move forward with
such opportunities on acceptable terms.
Once a strategic transaction is agreed upon with a
third party, we may not be able to complete the transac-
tion in a timely manner or at all, nor can we be sure that
pre-transaction due diligence will identify all possible
issues that might arise during and after the transaction.
Our efforts on such transactions can also divert man-
agement’s attention from our existing businesses.
Further, after an acquisition, efforts to develop and
market acquired products, to integrate the acquired busi-
ness or to achieve expected synergies may fail or may
not fully meet expectations, as a result of difficulties in
retaining key personnel, customers and suppliers; failure
to obtain marketing approval or reimbursement within
expected time frames or at all; differences in corporate
culture, standards, controls, processes and policies; or
other factors. Acquisitions can also result in liabilities
being incurred that were not known at the time of acqui-
sition, or the creation of tax or accounting issues.
Acquired businesses are not always in full compliance
with legal, regulatory or Novartis standards, including,
for example, Current Good Manufacturing Practices
(cGMP) or cGCP standards, which can be costly and
time-consuming to remedy. Also, our strategic alliances
and collaborations with third parties may not achieve
their intended goals and objectives within expected time
frames, or at all.
Similarly, we cannot ensure that we will be able to
successfully divest or spin off businesses or other assets
that we have identified for this purpose, or that any com-
pleted divestment or spin-off will achieve the expected
strategic benefits, operational efficiencies or opportuni-
13
Item 3. Key Information
ties, or that the divestment or spin-off will ultimately max-
imize shareholder value.
Environmental, social and governance matters
Risk description
Unsuccessful management of environmental, social and
governance matters
Context and potential impact
Increasingly, in addition to financial results, companies
are being judged by performance on a variety of envi-
ronmental, social and governance (ESG) matters, which
can contribute to the long-term sustainability of compa-
nies’ performance. An inability to successfully perform
on ESG matters can result in negative impacts to our
reputation, recruitment, retention, operations, financial
results, and the price of our shares.
A variety of organizations measure the performance
of companies on ESG topics, and the results of these
assessments are widely publicized. In addition, invest-
ment in funds that specialize in companies that perform
well in such assessments are increasingly popular, and
major institutional investors have publicly emphasized
the importance of such ESG measures in making their
investment decisions. Topics taken into account in such
assessments include, among others, the unintentional
costs or benefits of our actions on third parties not
involved in such actions, which may impact society and
the environment, such as with respect to climate change,
the degradation of biodiversity, and inequality in society.
In particular, the resulting costs of such actions may in
the long-term impact our operations and ability to achieve
our strategic goals, ultimately resulting in broader neg-
ative impacts on the value of Novartis. Therefore, the role
of our Board of Directors and executive officers in super-
vising various sustainability issues is becoming increas-
ingly important. In addition to the topics typically consid-
ered in such assessments in the healthcare industry, the
public’s ability to access our medicines is particularly
important. If our advocacy and lobbying efforts are not
aligned with our publicly stated ESG targets, our perfor-
mance on ESG assessments may be negatively impacted.
We actively manage a broad range of such ESG mat-
ters, taking into consideration their expected impact on
the sustainability of our business over time, and the
potential impact of our business on society and the envi-
ronment. However, in light of investors’ increasing focus
on ESG matters and rapidly changing views on accept-
able levels of action across a range of topics, there can
be no certainty that we will manage such issues suc-
cessfully, or that we will successfully meet society’s or
investors’ expectations as to our proper role.
Organizational, structural and cultural
transformations
Risk description
Failure to successfully achieve our organizational, struc-
tural and cultural transformations
Context and potential impact
From time to time we reassess our business organiza-
tion to ensure we have the optimal structure with which
to execute our strategy. This resulted in our decision to
centralize and optimize our manufacturing and business
services organizations, which is currently being effected
through a series of complex initiatives. For example, our
Novartis Technical Operations organizational unit is cur-
rently undergoing a transformation to change its oper-
ating model by building two global operations centers
that will allow our manufacturing sites to focus on their
core activity, which is the manufacture of our medicines.
This structural transformation is expected to be com-
pleted over the next 24 months, and a failure to complete
this transformation in the expected time frame, or at all,
could negatively impact our operations. We are also
undertaking a cultural transformation to an “inspired,
curious and unbossed” organization, which is a core
organizational imperative. Inability to successfully imple-
ment this cultural change may result in cynicism and dis-
engagement of our associates, as well as impede our
ability to retain key talent in strategically important areas.
These organizational changes are being implemented
in parallel and have interdependencies that could nega-
tively impact each other and their timing of implementa-
tion. The overall extent and pace of organizational
change, and the additional workload and complexity for
our employees in some areas, could trigger uncertainty,
stress and fatigue among employees, potentially result-
ing in instability within the organization that may lead to
failure in delivering the desired organizational changes.
As a result, the expected benefits of these organizational
changes may never be fully realized or may take longer
to realize than expected.
Digitalization and emerging business models
Risk description
Missed opportunities in digitalization and emerging busi-
ness models
Context and potential impact
Rapid progress in medical and digital technologies and
in the development of new business models is substan-
tially transforming our industry and is creating new busi-
nesses and new opportunities for improving patient care
and increasing revenue and profit, while sometimes
quickly rendering established businesses uncompetitive
or obsolete. Such transformations, both positive and
negative, may impact our businesses. For example,
numerous technology companies are seeking to enter
the healthcare field, which generates opportunities for
partnerships and alliances for us that may accelerate
innovation and complement our current capabilities,
although we also may be impacted by potential innovative
technological advances among our existing competitors,
through partnerships and alliances with technology com-
panies or otherwise.
To take advantage of these opportunities, we are
implementing a digital transformation strategy, with the
goal of becoming an industry leader in leveraging
advanced analytics and digital technologies. 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 pro-
cesses. Our success in these efforts will depend on many
14
Item 3. Key Information
factors, including data quality, technology architecture,
entering into successful partnerships and alliances with
technology companies, a cultural change among our
employees, attracting and retaining employees with
appropriate skills and mindsets, and successfully inno-
vating across a variety of technology fields. The COVID-
19 pandemic has accelerated our digital transformation,
including in the ways we engage and interact with our
stakeholders, bring our products to market, and meet
the needs of patients. These initiatives include the devel-
opment and implementation of personalized engage-
ment models enabled by digital technologies, the demand
for which has increased in response to the COVID-19
pandemic. Our digital transformation efforts have started
to gain significant traction, but we do not yet know
whether they will be sustainable as they are scaled and
made a part of our normal business operations. There is
also no guarantee that these efforts will succeed, that
we will successfully implement our digital transformation
strategy, or that we will be able to do so within our bud-
get or in the expected time frame.
At the same time, other technology companies with
specialized expertise or business models and substan-
tial resources are entering the healthcare field, from
research and development to pharmaceutical distribu-
tion and delivery of care. These new entrants could dis-
rupt our relationships with patients, healthcare profes-
sionals, customers, distributors and suppliers, with
unknown potential consequences for us. Such new com-
petitors may impact our share of the healthcare value
chain, or successfully develop products or technologies
that could make our products or business models uncom-
petitive or obsolete. The risks described above may
result in our business being supplanted in whole or in
part by new competitors with disruptive new technolo-
gies or business models.
Operational risks
Cybersecurity and IT systems
Risk description
Cybersecurity breaches and catastrophic loss of IT sys-
tems
Context and potential impact
We are heavily dependent on critical, complex and inter-
dependent information technology (IT) systems, includ-
ing internet-based systems to support our business pro-
cesses. We also have outsourced significant parts of our
IT infrastructure to third-party providers, and we cur-
rently use these providers to perform business-critical
IT services for us. We are therefore vulnerable to cyber-
security attacks and incidents on such networks and
systems, whether our own or those of the third-party
providers we contract, and we have experienced and
may in the future experience such cybersecurity threats
and attacks. Cybersecurity threats and attacks take
many forms, and the size, age and complexity of our IT
systems make them potentially vulnerable to external
and internal security threats; outages; malicious intru-
sions and attacks; cybercrimes, including state-spon-
sored cybercrimes; malware; misplaced or lost data; pro-
gramming or human errors; or other similar events. In the
context of the COVID-19 pandemic, the risk of such
threats and attacks has increased, as virtual and remote
working has become more widely used, and sensitive
data is accessed by employees working in less secure,
home-based environments. In addition, due to our reli-
ance on third-party providers, we have experienced and
may in the future experience interruptions, delays or out-
ages in IT service availability due to a variety of factors
outside of our control, including technical failures, natu-
ral disasters, fraud, or security attacks experienced by
or caused by the third-party provider. Interruptions in the
service provided by these third parties could affect our
ability to perform critical tasks.
A significant information security or other event, such
as a disruption or loss of availability of one or more of
our IT systems, whether managed by us or a third-party
service provider, has previously and could in the future
negatively impact important business processes, such
as the conduct of scientific research and clinical trials,
the submission of data and information to health author-
ities, our manufacturing and supply chain processes, our
shipments to customers, our compliance with legal obli-
gations, and communication between employees and
with third parties. IT issues have previously and could in
the future also lead to the compromise of trade secrets
or other intellectual property that could be sold and used
by competitors to accelerate the development or man-
ufacturing of competing products; to the compromise of
personal financial and health information; and to the
compromise of IT security data such as usernames,
passwords and encryption keys, as well as security strat-
egies and information about network infrastructure,
which could allow unauthorized parties to gain access
to additional systems or data. In addition, malfunctions
in software or medical devices that make significant use
of IT could lead to a risk of direct harm to patients.
Although we have experienced some of the events
described above, to date they have not had a material
impact on our operations. Nonetheless, the occurrence
of any of the events described above in the future could
disrupt our business operations and result in enforce-
ment actions or liability, including potential government
fines and penalties, claims for damages, and shareholder
litigation or allegations that the public health, or the
health of individuals, has been harmed.
Any significant events of this type could require us to
expend significant resources beyond those we already
invest to remediate any damage, to further modify or
enhance our protective measures, and to enable the con-
tinuity of our business.
Third-party management
Risk description
Failure to maintain adequate governance and oversight
over third-party relationships, and failure of third parties
to meet their contractual, regulatory or other obligations
Context and potential impact
We outsource the performance of certain key business
functions to third parties, and invest a significant amount
of effort and resources into doing so, including to man-
age and oversee such third parties. Such outsourced
15
Item 3. Key Information
functions include research and development collabora-
tions, manufacturing operations, warehousing and dis-
tribution activities, certain finance functions, sales and
marketing activities, data management and others. Some
of these third parties, particularly those in developing
countries, do not have internal compliance systems com-
parable to those within our organization.
Our reliance on outsourcing and third parties for the
research and development, sales or manufacturing of
our products poses certain risks, including misappropri-
ation of our intellectual property, failure of the third party
to comply with regulatory and quality assurance require-
ments, unexpected supply disruptions, breach of the
research and development or manufacturing agreement
by the third party, and the unexpected termination or
nonrenewal of the agreement by the third party.
In addition, governments and the public expect com-
panies like Novartis to take responsibility for and report
on compliance with various human rights, responsible
sourcing and environmental practices, as well as other
actions of their third-party contractors around the world.
Ultimately, if third parties fail to meet their obligations
to us, we may lose our investment in the collaborations
or fail to receive the expected benefits of our agreements
with such third parties. In addition, should any of these
third parties fail to comply with the law or our standards,
or should they otherwise 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.
Manufacturing and product quality
Risk description
Inability to ensure proper controls in product develop-
ment and product manufacturing, and failure to comply
with applicable regulations and standards
Context and potential impact
The development and manufacture of our products is
complex and heavily regulated by governmental health
authorities around the world. Whether or not our prod-
ucts and the related raw materials are developed and
manufactured at our own manufacturing sites or by third
parties, we must ensure that all development and man-
ufacturing processes comply with regulatory require-
ments as well as our own quality standards. Failure to
comply with regulatory requirements has resulted in, and
may in the future result in, warning letters, suspension
of manufacturing, seizure of products, injunctions, prod-
uct recalls, failure to secure product approvals, or debar-
ment.
In recent years, global health authorities have sub-
stantially intensified their scrutiny of manufacturers’
compliance with regulatory requirements. Any significant
failure by us or our third-party suppliers to comply with
regulatory requirements, or with health authorities’
expectations, may create the need to suspend clinical
trials, shut down production facilities or production lines,
and recall commercial products. A failure to fully comply
with regulatory requirements could also lead to a delay
in the approval of new products, an inability to ship or
import our products, and significant penalties and repu-
tational harm.
Talent management
Risk description
Inability to attract, integrate and retain key personnel and
qualified individuals
Context and potential impact
We rely on a diverse, capable workforce across our busi-
nesses and functions. Novartis invests in attracting,
recruiting, developing and retaining highly skilled individ-
uals to achieve our business objectives. The loss of key
personnel – including senior members of our scientific
and management teams, high-quality researchers and
development specialists, and skilled personnel in key
markets – could delay or prevent the achievement of our
major business objectives.
Our future growth will demand that we retain talented
associates and leaders while also recruiting new talent
who bring new skills and perspectives. The market for
skilled labor has become increasingly competitive. We
are experiencing challenges in attracting skilled talent
in several areas, including in our Oncology business unit
and for our chimeric antigen receptor T-cell (CAR-T)
therapies, gene therapies and radioligand therapy prod-
ucts. The supply of new talent is especially limited in
many of the geographies that are expected to be sources
of growth for Novartis, including Emerging Growth Mar-
kets such as China, where there is a limited pool of exec-
utives and functional experts with the experience needed
to work successfully in a global organization like Novartis.
The geographic mobility of talent worldwide is decreas-
ing, with ample career opportunities available closer to
home to talented individuals in developed and develop-
ing countries. This decrease in mobility may be wors-
ened by anti-immigrant sentiments in many countries,
and laws discouraging immigration.
The constraints associated with lockdowns and
social distancing during the COVID-19 pandemic com-
plicated and initially slowed our talent acquisition activ-
ities. The necessity to adopt remote working across a
portion of the workforce has accelerated our transition
toward a new working model, in which a number of our
associates have the flexibility to determine where, when
and how they work. Our transition toward a more flexi-
ble working model accelerated our efforts to expand our
sources to recruit talent from an increasingly global pool.
We aspire to become less inhibited by job location
requirements or candidate mobility preferences when
searching for the highest caliber talent to fill openings.
However, these efforts may not achieve the intended
results in any particular time frame, or at all, or may have
unanticipated negative consequences, including possi-
ble negative impacts on company culture and productiv-
ity. In addition, in many of the specialized fields from
which we draw talent, such as clinical development, bio-
sciences, chemistry, drug manufacturing and IT, and in
many senior leadership positions, high demand will con-
tinue to limit the pool of external talent and increase the
risk of turnover.
16
Item 3. Key Information
Legal and compliance
Risk description
Challenges in keeping up with legal and regulatory
requirements, and evolving societal expectations
Context and potential impact
We are obligated to comply with the laws of all of the
countries in which we operate and sell products with
respect to an extremely wide and growing range of activ-
ities. Such legal requirements are extensive and com-
plex.
The laws and regulations relevant to the healthcare
industry and applicable to us are broad in scope and are
subject to change and evolving interpretations, which
could require us to incur substantial costs associated
with compliance or to alter one or more of our business
practices. For example, we have been, are currently and
may in the future be subject to various significant legal
proceedings, such as private party litigation, government
investigations and law enforcement actions worldwide.
These types of matters may take various forms based
upon evolving government enforcement and private
party litigation priorities, and could include matters per-
taining to pricing; bribery and corruption; trade regula-
tion and embargo legislation; product liability; commer-
cial disputes; employment and wrongful discharge;
antitrust; securities; government benefit programs; reim-
bursement; rebates; healthcare fraud; sales and market-
ing practices; insider trading; occupational health and
safety; environmental regulations; tax; cybersecurity;
data privacy; regulatory interactions; and intellectual
property. Such activities can involve criminal proceed-
ings, and can retroactively challenge practices previously
considered to be legal.
There is also a risk that governance for our medical
and patient support activities, and our interactions with
governments, public officials/institutions, healthcare
professionals, healthcare organizations and patient
organizations may be inadequate or fail, or that we may
undertake activities based on improper or inadequate
scientific justification.
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
the relevant patents are invalid or 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 make the
business decision to market a generic product even
though patent infringement actions are still pending.
Should we elect to do so and conduct a so-called “launch
at risk,” we could face substantial damages if the final
court decision is adverse to us.
Legal proceedings and investigations are inherently
unpredictable, and large judgments sometimes occur.
As a consequence, we may in the future incur judgments
that could involve large payments, including the poten-
tial repayment of amounts allegedly obtained improperly,
and other penalties, including treble damages. In addi-
tion, such legal proceedings and investigations, even if
meritless, may affect our reputation, may 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 signifi-
cant defenses against them, in order to limit the risks
they pose to our business and reputation. Such settle-
ments may require us to pay significant sums of money
and to enter into corporate integrity or similar agree-
ments, which are intended to regulate company behav-
ior for extended periods.
For information on significant legal matters pending
against us, see “Item 18. Financial Statements—Note 22.
Provisions and other non-current liabilities” and “Item 18.
Financial Statements—Note 28. Commitments and con-
tingencies.”
New requirements may also be imposed on us as a
result of changing government and societal expectations
regarding the healthcare industry, and acceptable cor-
porate behavior generally. For example, we are faced
with laws and regulations requiring changes in how we
do business, including with respect to disclosures con-
cerning our interactions with healthcare professionals,
healthcare organizations and patient 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
information relating to the costs and prices for our prod-
ucts, which represent evolving standards of acceptable
corporate behavior. These requirements may incur sig-
nificant costs, including substantial time and additional
resources, that are necessary to bring our interactions
with healthcare professionals and organizations into
compliance with these evolving standards.
In addition to legal and regulatory requirements, as a
company we aim to meet the evolving societal expecta-
tions of the public and our investors regarding ethical
behavior and the increasing importance placed on ESG
matters.
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 accept-
able manner. Despite our efforts, an 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.
Data privacy
Risk description
Noncompliance with personal data protection laws and
regulations
Context and potential impact
We operate in an environment that relies on the collec-
tion, processing, analysis and interpretation of large sets
of patients’ and other individuals’ personal information,
including via social media and mobile technologies. Also,
the operation of our business requires data to flow freely
across borders of numerous countries in which there are
17
Item 3. Key Information
different, and potentially conflicting, frequently changing
data privacy laws in effect. For example, the EU General
Data Protection Regulation (GDPR), which took effect in
May 2018; the California Consumer Privacy Act, which
took effect in January 2020; and Brazil’s General Per-
sonal Data Protection Law, which entered into force in
September 2020, impose stringent requirements on how
we and third parties with whom we contract collect,
share, export or otherwise process personal informa-
tion, and provide for significant penalties for noncompli-
ance. Further examples of countries with data-specific
requirements governing where data is stored and
whether it can be transferred outside the country are
Russia and China. Breaches of our systems or those of
our third-party contractors, or other failures to protect
the data we collect from misuse or breach by third par-
ties, could expose such personal information to unau-
thorized persons.
Any event involving the substantial loss of personal
information, use of personal information without a legal
basis, or other privacy violations could give rise to sig-
nificant liability, reputational harm, damaged relation-
ships with business partners, and potentially substantial
monetary penalties under laws enacted or being enacted
around the world. Such events could also lead to restric-
tions on our ability to use personal information and/or
transfer personal information across country borders. In
addition, there is a trend of increasing divergence of data
privacy legal frameworks, not only across these frame-
works but also within individual legal frameworks them-
selves. This divergence may constrain the implementa-
tion of global business processes and may lead to
different approaches on the use of health data for sci-
entific research, which may have a negative impact on
our business and operations.
Supply chain
Risk description
Inability to maintain continuity of product supply
Context and potential impact
Many of our products are produced using technically
complex manufacturing processes and require a supply
of highly specialized raw materials. For some of our prod-
ucts and raw materials, we may rely on a single source
of supply. In addition, we manufacture and sell a number
of sterile products, biologic products, and products
involving advanced therapy platforms, such as CAR-T
therapies, gene therapies and radioligand therapy prod-
ucts, all of which are particularly complex and involve
highly specialized manufacturing technologies. Because
the production process for some of our products is com-
plex, there is a risk of production failures, which may
result in supply interruptions or product recalls due to
defective product being distributed to the market.
In addition, due to the inherent complexities of our
production processes, we are required to plan our pro-
duction activities well in advance. If we suffer from third-
party raw material shortages, underestimate market
demand for a product, or fail to accurately predict when
a new product will be approved for sale, then we may not
be able to produce sufficient product to meet demand.
These issues could be made worse during a pandemic
like the COVID-19 pandemic, and can lead to (i) a sud-
den increase in demand for selected medicinal products,
resulting in the short-term unavailability of raw material;
(ii) logistical and supply challenges that may lead to our
inability to ship products from one place to another due
to restrictions imposed as a result of a pandemic, which
can impact transportation and warehousing costs; or (iii)
our inability to properly operate a production site due to
restrictions imposed as the result of a pandemic.
Our or our third-party suppliers’ inability to manage
such issues could lead to shutdowns, to product short-
ages, or to our being entirely unable to supply products
to patients for an extended period of time. Further,
because our products are intended to promote the health
of patients, such shortages or shutdowns could endan-
ger our reputation and have led to, and could continue
to lead to, significant losses of sales revenue, potential
litigation or allegations that the public health, or the
health of individuals, has been harmed.
Falsified medicines
Risk description
Impact on patient safety and reputational and financial
harm to Novartis and our products
Context and potential impact
We continue to be challenged by the vulnerability of dis-
tribution channels to falsified medicines, which include
counterfeit, stolen, tampered and illegally diverted
medicines under the definition of the World Health Orga-
nization. The COVID-19 pandemic has substantially
increased the presence of falsified medicines in the mar-
kets affected and on the internet. Falsified medicines
pose patient safety risks and can be seriously harmful
or life-threatening. Reports of adverse events related to
falsified medicines and increased levels of falsified
medicines in the healthcare system affect patient confi-
dence in our genuine medicines and in healthcare sys-
tems in general. These events could also cause us sub-
stantial reputational and financial harm, and potentially
lead to litigation if the adverse event from the falsified
medicine is mistakenly attributed to the genuine one. Sto-
len or illegally diverted medicines, which are then not
properly stored and are later sold through unauthorized
channels, could adversely impact patient safety, our rep-
utation and our business. Further, there is a direct finan-
cial loss when, for example, falsified medicines replace
sales of genuine medicines, or genuine medicines are
recalled following discovery of falsified products.
Emerging risks
Geo-political and socio-economic threats
Risk description
Negative impact of geo- and socio-political threats and
economic instability
Context and potential impact
Unpredictable political conditions currently exist in var-
ious parts of the world, including a backlash in certain
areas against free trade; anti-immigrant sentiment;
18
Item 3. Key Information
anti-corporatist sentiment; social unrest; fears of terror-
ism; risk of direct conflicts between nations; a global pan-
demic; and economic downturn.
The imposition of tariffs, including those imposed by
the US and China, and the possibility of additional tariffs
or other trade restrictions relating to trade between the
US and other countries, could have a material negative
impact on our business. Given that the status of trade
negotiations remains subject to change, we cannot be
certain of the nature or extent of the potential impact on
our business. For example, if tariffs on pharmaceutical
products or active pharmaceutical ingredients (APIs)
were increased, this could impact the profitability of our
products and disrupt our supply chain. Increasing oppo-
sition to free trade may increase the risks we face in our
efforts to improve and harmonize standards in regulation
and intellectual property.
Furthermore, significant conflicts continue in certain
parts of the world. Collectively, such unstable conditions
could, among other things, disturb the international flow
of goods and increase the costs and difficulties of inter-
national transactions, which could significantly impact
time to market and our ability to supply our products to
patients in an undisrupted fashion, and further erode
reimbursement levels for innovative therapies.
In addition, local economic conditions may adversely
affect the ability of payers, 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 moni-
tor these third parties’ financial condition and their liquid-
ity, 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. These risks may be elevated
with respect to our interactions with fiscally challenged
government payers, or with third parties with substantial
exposure to such payers.
Our business may be impacted by economic and
financial conditions directly affecting consumers. Given
that in many countries, patients directly pay a large por-
tion of their own healthcare costs, there is a risk that
consumers may cut back on prescription drugs due to
financial constraints.
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. As a result, any revenue or earnings guidance
or outlook that we have given or might give may be over-
taken by events, or may otherwise turn out to be inaccu-
rate. 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 condi-
tions, there is a risk that such guidance or outlook will
turn out to be incorrect.
Financial market issues may also result in a lower
return on our financial investments, and a lower value on
some of our assets. Alternatively, inflation could accel-
erate, which could lead to higher interest rates, increas-
ing our costs of raising capital. Uncertainties around
future central bank and other economic 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 vol-
atility in different countries have also impacted, and may
continue to unpredictably impact, our business or 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.
For a discussion of effect of price controls on our
business, see “Item 4. Information on the Company—Item
4.B—Business overview—Innovative Medicines—Price
controls.” See also “Item 5. Operating and Financial
Review and Prospects—Item 5.B Liquidity and capital
resources—Effects of currency fluctuations,” “Item 5.
Operating and Financial Review and Prospects—Item 5.B
Liquidity and capital resources—Condensed consoli-
dated balance sheets,” “Item 18. Financial Statements—
Note 15. Trade receivables” and “Item 18. Financial State-
ments—Note 29. Financial instruments—additional
disclosures.”
Social media and digital engagement
Risk description
Inappropriate or illegal use of social media, interactive
internet platforms or mobile applications
Context and potential impact
Our increasing use of social media, interactive internet
platforms and other mobile applications (together, digi-
tal engagement platforms) carries risks related to poten-
tial violations of rules regulating the promotion of pre-
scription medicines and the potential disclosure of
confidential information, trade secrets, or loss of other
intellectual property. As a result of the COVID-19 pan-
demic, the use and rate of adoption of digital engage-
ment platforms is increasing and expanding into new
uses that may have unforeseen impacts and conse-
quences on our business.
There continue to be uncertainties as to the rules that
apply to such communications and as to the interpreta-
tions that health authorities will apply in this context, and
as a result, despite our efforts to comply with applicable
rules, there is a risk that our use of digital engagement
platforms may cause us to be found in violation of appli-
cable regulations.
For example, patients may use digital engagement
platforms to comment on the effectiveness of a product
or to report an adverse event, which may result in a fail-
ure to follow applicable adverse event reporting obliga-
tions if such platforms are not properly monitored. In
addition, our associates may use digital engagement
platforms inappropriately, for example to discuss our
products or confidential projects, which may lead to a
disclosure of confidential information, trade secrets, or
loss of other intellectual property, and may give rise to
liability or incur other harm to our business. Further, large
numbers of or highly visible negative posts or comments
about us or our executives could damage our reputation.
Global ERP implementation
Risk description
Inability to implement and properly operate our new
global enterprise resource planning (ERP) system
19
Item 3. Key Information
Context and potential impact
We rely on various information and other business sys-
tems to leverage data in order to operate our complex
global business. We are currently in the design and plan-
ning phase for the implementation of a new global ERP
system that seeks to simplify, standardize and digitize
processes in our commercial and finance functions as
well as our Novartis Technical Operations unit to help
ensure efficient and compliant business operations as
well as the availability of high-quality data necessary to
aid our decision-making. We expect the planning, design
and build phase to continue through 2021, with the first
implementations of our new ERP system expected to
begin in the second half of 2022. We expect our new
ERP system to be fully implemented by 2027, when our
current system is no longer supported by the software
provider. Implementing and operating a new ERP system
involves certain risks, including a failure of the new sys-
tem to operate as expected, a failure to properly inte-
grate with other systems we use, potential loss of data
or information, compliance issues, cost overruns and
delays, and operational disruptions. Any disruptions or
malfunctions of our new ERP system could cause criti-
cal information we use to be delayed, defective, cor-
rupted, inadequate or inaccessible. In addition, if the
design or implementation of our new ERP system is defi-
cient, it could adversely affect our operations, and could
negatively impact the effectiveness of our internal con-
trols.
General risks
Indebtedness
Risk description
Our indebtedness could adversely affect our operations
Context and potential impact
As of December 31, 2020, we had USD 26.3 billion of
non-current financial debt, and USD 9.8 billion of current
financial debt. Our current and long-term debt requires
us to dedicate a portion of our cash flow to service inter-
est and principal payments and, if interest rates rise, this
amount may increase. As a result, our existing debt may
limit our ability to use our cash flow to fund capital expen-
ditures, to engage in transactions, or to meet other cap-
ital needs, or otherwise may place us at a competitive
disadvantage relative to competitors that have less debt.
Our debt could also limit our flexibility to plan for and
react to changes in our business or industry, and increase
our vulnerability to general adverse economic and indus-
try conditions, including changes in interest rates or a
downturn in our business or the economy. We may also
have difficulty refinancing our existing debt or incurring
new debt on terms that we would consider to be com-
mercially reasonable, if at all.
Intangible assets and goodwill
Risk description
Intangible assets and goodwill resulting in significant
impairment charges
Context and potential impact
We carry a significant amount of goodwill and other
intangible assets on our consolidated balance sheet, pri-
marily due to acquisitions, including, in particular, sub-
stantial goodwill and other intangible assets obtained
through acquisitions, including most recently through our
acquisitions of The Medicines Company, Xiidra, Endo-
cyte, Novartis Gene Therapies (formerly AveXis), AAA,
and certain oncology products from GSK. As a result,
we may incur significant impairment charges in the future
if the fair value of the intangible assets and the group-
ings of cash-generating units containing goodwill would
be less than their carrying value on the Group’s consol-
idated balance sheet at any point in time.
We regularly review for impairment our long-lived
intangible and tangible assets, including identifiable
intangible assets, investments in associated companies,
and goodwill. Any significant impairment charges could
have a material adverse effect on our results of opera-
tions and financial condition. In 2020, for example, we
recorded intangible asset impairment charges of USD
914 million.
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. Oper-
ating and Financial Review and Prospects—Item 5.A
Operating results—Critical accounting policies and esti-
mates—Impairment of goodwill, intangible assets and
property, plant and equipment,” “Item 18. Financial State-
ments—Note 1. Significant accounting policies” and “Item
18. Financial Statements—Note 11. Goodwill and intangi-
ble assets.”
Tax laws and developments
Risk description
Changes in tax laws or their application
Context and potential impact
Our multinational operations are taxed under the laws
of the countries and other jurisdictions in which we oper-
ate. Changes in tax laws or in their application could lead
to an increased risk of international tax disputes and an
increase in our effective tax rate, which could adversely
affect our financial results. 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
potential disputes relating to the prices our subsidiaries
charge one another for intercompany transactions,
known as transfer pricing. The majority of the jurisdic-
tions 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 rev-
enues and capital gains. However, mechanisms devel-
oped to resolve such conflicting claims are largely untried
and can be expected to be very lengthy. Accruals for tax
contingencies are made based on past experience, inter-
pretations of tax law, and judgments about potential
actions by tax authorities; however, due to the complex-
ity of tax contingencies, the ultimate resolution of any
tax matter may result in payments materially different
from the amounts accrued.
20
Item 3. Key Information
In 2019, the Organization for Economic Co-operation
and Development (OECD) launched a new initiative on
behalf of the G20 to minimize profit shifting by working
toward a global tax framework that ensures that corpo-
rate income taxes are paid where consumption takes
place and also introduces a global standard on minimum
taxation combined with new tax dispute resolution pro-
cesses. The respective principles are currently being
evaluated.
The EU also adopted a new Directive on Administra-
tive Cooperation (DAC6) in 2018, which seeks additional
reporting since July 2020. Recently, the EU announced
it will introduce new centralized taxation powers to
address the financial impact of the COVID-19 pandemic.
In addition, the European Commission continues to
extend the application of its policies seeking to limit fis-
cal 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.
In Switzerland, the Basel-Stadt Cantonal Tax Reform
was approved by voters in February 2019, with parts ret-
roactive from January 1, 2019. In May 2019, Swiss voters
approved the Swiss Federal Tax Reform. With the enact-
ment of this tax reform, new elements were introduced
into law as of January 1, 2020.
Although we have taken steps to be in compliance
with evolving initiatives like that of the OECD, the EU and
of Switzerland, and will continue to do so, significant
uncertainties remain as to the outcome of our efforts.
For more information, see “Item 18. Financial State-
ments—Note 12. Deferred tax assets and liabilities.”
Foreign currency exchange rates
Risk description
Negative effect on financial results due to foreign cur-
rency exchange rate fluctuations
Context and potential impact
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 signifi-
cantly impact the value of their currencies. Such steps
could include “quantitative easing” measures and poten-
tial 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 cur-
rency. Currency exchange controls could limit our ability
to distribute retained earnings from our local affiliates,
or to pay intercompany payables due from those coun-
tries.
Despite measures undertaken to reduce or hedge
against foreign currency exchange risks, because a sig-
nificant portion of our earnings and expenditures are in
currencies other than the US dollar, including expendi-
tures in Swiss francs that are significantly higher than
our revenue in Swiss francs, any such exchange rate vol-
atility may negatively and materially impact our 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 vola-
tility can be difficult to predict. Further, depending on the
movements of particular foreign exchange rates, we may
be materially adversely affected at a time when the same
currency movements are benefiting some of our com-
petitors.
For more information on the effects of currency fluc-
tuations on our consolidated financial statements and
on how we manage currency risk, see “Item 5. Operat-
ing and Financial Review and Prospects—Item 5.B Liquid-
ity and capital resources—Effects of currency fluctua-
tions” and “Item 18. Financial Statements—Note 29.
Financial instruments—additional disclosures.”
Key customers
Risk description
Ongoing consolidation among our distributors and retail-
ers, and the concentration of credit risk
Context and potential impact
Increasingly, a significant portion of our global sales is
made to a relatively small number of drug wholesalers,
retail chains and other purchasing organizations. For
example, our three most important customers globally
accounted for approximately 17%, 11% and 6%, respec-
tively, of net sales in 2020. The largest trade receivables
outstanding were for these three customers, amounting
to 14%, 12% and 6%, respectively, of the Group’s trade
receivables at December 31, 2020. The trend has been
toward further consolidation among distributors and
retailers. As a result, we may be affected by fluctuations
in the buying patterns of such customers. Furthermore,
these customers are gaining additional purchasing lever-
age, increasing the pricing pressures facing our busi-
nesses. These pressures can particularly impact our
Sandoz Division, the generic products of which can often
be obtained from numerous competitors. 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 dif-
ficulties, the effect on us would be substantial, and could
include a substantial loss of sales and an inability to col-
lect amounts owed to us.
Environmental matters
Risk description
Impact of environmental liabilities
Context and potential impact
The environmental laws of various jurisdictions impose
actual and potential obligations on us to investigate and
remediate contaminated sites, including in connection
with activities in the past by businesses that are no lon-
ger part of Novartis. In some cases, these remediation
efforts may take many years. While we have set aside
substantial provisions for known worldwide environmen-
tal liabilities that are probable and estimable, there is no
guarantee that additional costs will not be incurred
beyond the amounts for which we have provided in the
21
Item 3. Key Information
Group consolidated financial statements. If environmen-
tal contamination related to our facilities or products
adversely impacts third parties or if we fail to properly
manage the safety of our facilities, including the safety
of our associates and contractors, and the environmen-
tal risks, we may face substantial costs and other
expenses, and be required to further increase our pro-
visions for environmental liabilities.
See also “Item 4. Information on the Company—Item
4.D Property, plants and equipment” and “Item 18. Finan-
cial Statements—Note 20. Provisions and other non-cur-
rent liabilities.”
could increase our direct operating costs and result in
the same impact across our supply chain.
In addition, our corporate headquarters, the head-
quarters of our Innovative Medicines and Sandoz Divi-
sions, and certain of our major Innovative Medicines Divi-
sion 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.
Climate change
Risk description
Climate change and increased risk of major natural disas-
ters
Context and potential impact
Novartis is exposed to both physical risks and transition
risks (which include financial, credit rating and mar-
ket-driven risks) associated with climate change, which
could be either acute/short-term or chronic/long-term.
Extreme weather events and changing weather pat-
terns have become more common. As a result, we are
potentially exposed to increased extreme weather and
associated risks such as hurricanes, tornadoes, droughts
or floods, or other events that result from the impact of
climate change on the environment, such as loss of bio-
diversity, sea level rise or wildfires.
For example, some of our production facilities that
depend on the availability of significant water supplies
are located in areas where water is increasingly scarce.
Other facilities are located in places that, because of
increasingly violent weather events, sea level rise, or
both, are increasingly at risk of substantial flooding. In
regions where this risk is present, it impacts not only our
own operations but also our distributed supply chain.
Such events could result in increased costs, business
interruptions, destruction of facilities, and loss of life.
Climate change may trigger the adoption of new reg-
ulatory requirements across the globe. Such legislation
could include increased requirements to invest in tech-
nology to reduce energy use, water use and greenhouse
gas emissions, beyond what we expect to invest in our
existing plans. In addition, legislation could include car-
bon pricing, climate risk disclosure mandates, and
changes in zoning or building codes to increase climate
resilience. The combined impact of these transition risks
Pension plans
Risk description
Inaccuracies in the assumptions and estimates used to
calculate our pension plan and other post-employment
obligations
Context and potential impact
We sponsor pension and other post-employment bene-
fit plans in various forms that cover a significant portion
of our current and former associates. For post-employ-
ment plans with defined benefit obligations, we are
required to make significant assumptions and estimates
about future events in calculating the expense and the
present value of the liability related to these plans. These
include assumptions about the discount rates we apply
to estimate future defined benefit obligations and net
periodic pension expense, as well as rates of future pen-
sion increases. In addition, our actuarial consultants pro-
vide our management with historical statistical informa-
tion, such as withdrawal and mortality rates in connection
with these estimates.
Assumptions and estimates we use may differ mate-
rially from the actual results we experience due to chang-
ing market and economic conditions, higher or lower
withdrawal rates, and longer or shorter life spans of par-
ticipants, among other factors. Depending on events,
such differences could have a material effect on our total
equity and may require us to make additional contribu-
tions to our pension funds.
For more information on obligations under retirement
and other post-employment benefit plans and underly-
ing 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 “Item 18. Financial Statements—Note 25. Post-em-
ployment benefits for associates.”
22
Item 4. Information on the Company
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 gov-
erned by the laws of Switzerland. Our registered office
is located at the following address:
Novartis AG
Lichtstrasse 35
CH-4056 Basel, Switzerland
Telephone: +41-61-324-1111
Web: www.novartis.com
Novartis is a multinational group of companies special-
izing in the research, development, manufacturing and
marketing of a broad range of innovative pharmaceuticals
and cost-saving generic medicines. 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 “Item 18. Financial
Statements—Note 32. Principal Group subsidiaries and
associated companies.”
For a description of important corporate developments
since January 1, 2018, see “Item 18. Financial State-
ments—Note 2. Significant Transactions.”
The SEC maintains an internet site at http://www.sec.
gov that contains reports, information statements, and
other information regarding issuers that file electroni-
cally with the SEC.
4.B Business overview
Overview
Our purpose is to reimagine medicine to improve and
extend people’s lives. We use innovative science and
technology to address some of society’s most challeng-
ing healthcare issues. We discover and develop break-
through treatments and find new ways to deliver them to
as many people as possible. We also aim to reward those
who invest their money, time and ideas in our company.
Our vision is to be a trusted leader in changing the prac-
tice of medicine. Our strategy is to build a leading,
focused medicines company powered by advanced ther-
apy platforms and data science. As we implement our
strategy, we have five priorities to shape our future and
help us continue to create value for our company, our
shareholders and society: unleash the power of our peo-
ple, deliver transformative innovation, embrace opera-
tional excellence, go big on data and digital, and build
trust with society.
In 2020, Novartis achieved net sales from continuing
operations of USD 48.7 billion, while net income from
continuing operations amounted to USD 8.1 billion, and
total net income amounted to USD 8.1 billion. Headquar-
tered in Basel, Switzerland, our Group companies
employed approximately 106 000 full-time equivalent
associates as of December 31, 2020. Our products are
sold in approximately 155 countries around the world.
The Group comprises two global operating divisions:
• Innovative Medicines: innovative patent-protected pre-
scription medicines
For a description of our Innovative Medicines Division,
see “—Innovative Medicines—Overview” below.
• Sandoz: generic pharmaceuticals and biosimilars
For a description of our Sandoz Division, see “—
Sandoz” below.
Our divisions are supported by the following organiza-
tional units: the Novartis Institutes for BioMedical
Research (NIBR), Global Drug Development (GDD),
Novartis Technical Operations (NTO) and Novartis Busi-
ness Services (NBS). The financial results of these orga-
nizational units are included in the results of the divisions
for which their work is performed. For more information
about NIBR, see “—Innovative Medicines—Research and
development—Research program” below. For more
information about GDD, see “—Innovative Medicines—
Research and development—Development program”
below. For more information about NTO, see “—Item 4.D
Property, plants and equipment.” For more information
about NBS, see “Item 18. Financial Statements—Note 3.
Segmentation of key figures 2020, 2019 and 2018.”
Corporate activities
We separately report the results of Corporate activities.
The financial results of our Corporate activities include
the costs of the Group headquarters and those of cor-
porate coordination functions in major countries. In addi-
23
Item 4. Information on the Company
tion, 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, charita-
ble activities, donations and sponsorships.
Innovative Medicines
Overview
Our Innovative Medicines Division is a world leader in
offering patent-protected medicines to patients and phy-
sicians. The Innovative Medicines Division researches,
develops, manufactures, distributes and sells patented
pharmaceuticals, and is composed of two global busi-
ness units: Novartis Oncology and Novartis
Pharmaceuticals.
The Novartis Oncology business unit is responsible
for the commercialization of products in the areas of can-
cer and hematologic disorders. The Novartis
Pharmaceuticals business unit is organized into the fol-
lowing global business franchises responsible for the
commercialization of various products in their respec-
tive therapeutic areas: Immunology, Hepatology and Der-
matology; Ophthalmology; Neuroscience; Cardiovascu-
lar, Renal and Metabolism; Respiratory; and Established
Medicines.
The Innovative Medicines Division is the larger of our
two divisions in terms of consolidated net sales. It
reported consolidated net sales of USD 39.0 billion in
2020, which represented 80% of the Group’s net sales.
The product portfolio of the Innovative Medicines
Division includes a significant number of key marketed
products, many of which are among the leaders in their
respective therapeutic areas.
Innovative Medicines Division
products
The following summaries describe certain key marketed
products in our Innovative Medicines Division, listed
according to year-end net sales within each franchise.
While we typically seek to sell our marketed products
throughout the world, not all products and indications
are available in every country. Therefore, the indications
described in these summaries may vary by country. In
addition, a product may be available under different
brand names depending on country and indication. Some
of the products described below have lost patent pro-
tection 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 reg-
ulatory data protection, and for further information on
the status of patents and exclusivity for Innovative
Medicines Division products.
Key marketed products
Novartis Oncology business unit
Oncology
• Tasigna (nilotinib) is an oral tyrosine kinase inhibitor
targeting the BCR-ABL protein. It is approved in the
US, the EU and other countries to treat:
• Patients with Philadelphia chromosome-positive
chronic myeloid leukemia (Ph+ CML) in the chronic
and/or accelerated phase who are resistant or intol-
erant to existing treatment. Ph+ CML is a cancer that
starts in the blood-forming cells of bone marrow
• Newly diagnosed adults and children with Ph+ CML
in the chronic phase
• Promacta/Revolade (eltrombopag) is a once-daily oral
thrombopoietin receptor agonist that works by stimu-
lating bone marrow cells to produce platelets. It is
approved in the US, the EU and other countries to treat:
• Immune thrombocytopenia (ITP) in patients who have
had an insufficient response to or have failed previ-
ous therapies. ITP is a bleeding disorder caused by
an unusually low number of platelets
• Thrombocytopenia in patients with chronic hepatitis
C to allow them to initiate and maintain interfer-
on-based therapy
• Patients with severe aplastic anemia (SAA). SAA is
a condition in which the body does not produce
enough blood cells
Promacta/Revolade is marketed under a research,
development and license agreement between Novartis
and RPI Finance Trust (dba Royalty Pharma), as
assignee of Ligand Pharmaceuticals.
• Tafinlar + Mekinist (dabrafenib + trametinib) is an oral
combination therapy. Tafinlar and Mekinist are kinase
inhibitors of the BRAF and MEK1/2 proteins, respec-
tively, approved in combination in the US, the EU and
other countries to treat patients who have certain types
of cancer with a change in the BRAF gene (called a
BRAF V600 mutation), including:
• Adults with unresectable or metastatic melanoma
with a BRAF V600 mutation. Melanoma is a form of
skin cancer; unresectable melanoma cannot be
removed with surgery, and metastatic melanoma has
spread to other parts of the body. Tafinlar and
Mekinist are also approved as single agents for this
indication
• Adults with stage III melanoma with a BRAF V600
mutation as an adjuvant treatment (following surgery)
• Adults with advanced non-small cell lung cancer
(NSCLC) with a BRAF V600 mutation. NSCLC is the
most common type of lung cancer
24
Item 4. Information on the Company
• Adults with locally advanced or metastatic anaplas-
tic thyroid cancer with a BRAF V600 mutation and
no satisfactory treatment options. Anaplastic thyroid
cancer is a rare and aggressive form of thyroid can-
cer
Approved indications vary by country. Novartis has
worldwide exclusive rights to develop, manufacture and
commercialize trametinib granted by Japan Tobacco
Inc.
• Sandostatin SC (octreotide acetate for injection) and
Sandostatin LAR (octreotide acetate for injectable sus-
pension) are somatostatin analogs approved in the US,
the EU and other countries to treat:
• Adults with acromegaly that is inadequately con-
trolled by surgery or radiotherapy. Acromegaly is a
chronic disease caused by the oversecretion of
growth hormone
• Patients with certain symptoms associated with car-
cinoid tumors and other types of functional gastro-
intestinal and pancreatic neuroendocrine tumors
Sandostatin LAR is also approved in the EU and other
countries to treat patients with advanced neuroendo-
crine tumors of the midgut or of unknown primary
tumor origin.
• Jakavi (ruxolitinib) is an oral inhibitor of the JAK1 and
JAK2 tyrosine kinases. It is the first therapy approved
in the EU and other countries to treat:
• Adults with myelofibrosis (MF), including primary
myelofibrosis, post-polycythemia vera myelofibrosis
and post-essential thrombocythemia myelofibrosis.
MF is a rare blood cancer characterized by abnor-
mal blood cell production and scarring in the bone
marrow, which can lead to an enlarged spleen
• Adults with polycythemia vera (PV) who are resistant
or intolerant to a medication called hydroxyurea. PV
is a rare blood cancer in which the bone marrow pro-
duces too many red blood cells, resulting in serious
problems like clots
Novartis licensed ruxolitinib from Incyte Corporation
for development and commercialization in the indica-
tions of oncology, hematology and graft-versus-host
disease outside the US. Incyte Corporation markets
ruxolitinib as Jakafi® in the US.
• Gleevec/Glivec (imatinib mesylate/imatinib) is an oral
tyrosine kinase inhibitor approved in the US, the EU
and other countries to treat patients with certain types
of cancer, including:
• Patients with Philadelphia chromosome-positive
chronic myeloid leukemia (Ph+ CML) in the chronic,
accelerated or blast crisis (acute) phase. Ph+ CML
is a cancer that starts in the blood-forming cells of
bone marrow
• Adults and children with Philadelphia chromo-
some-positive acute lymphoblastic leukemia (Ph+
ALL). Ph+ ALL is a rare subtype of the most common
childhood cancer
• Adults with KIT (CD117)-positive gastrointestinal
stromal tumors (GISTs). GISTs are tumors found in
the digestive system
• Adults with advanced hypereosinophilic syndrome
(HES) and/or chronic eosinophilic leukemia (CEL)
who have a rearrangement of two genes called
FIP1L1 and PDGFR-alpha. HES and CEL are closely
related diseases in which the body produces too
many eosinophils (a type of white blood cell)
• Adults with myelodysplastic syndromes (MDS) and
myeloproliferative disorders (MPD). MDS and MPD
are a group of diseases of the blood and bone mar-
row
• Adults with aggressive systemic mastocytosis (ASM)
and dermatofibrosarcoma protuberans (DFSP) when
surgery is not possible or the disease has spread.
ASM is a form of mast cell disease, and DFSP is a
rare skin cancer
Approved indications vary by country.
• Afinitor/Votubia (everolimus) is an oral inhibitor of the
mTOR pathway. Afinitor is approved in the US, the EU
and other countries to treat patients with certain types
of cancer, including:
• Postmenopausal women with advanced hormone
receptor-positive (HR+)/human epidermal growth
factor receptor 2-negative (HER2-) breast cancer, in
combination with the medicine exemestane, when
certain other medicines have not worked. HR+/
HER2- breast cancer is the most common subtype
of breast cancer
• Adults with neuroendocrine tumors of the pancreas,
and non-symptomatic neuroendocrine tumors of the
stomach and intestine (gastrointestinal) or lung that
have progressed and cannot be treated with surgery
Everolimus is also approved as Afinitor/Afinitor Disperz
in the US and other countries, and as Votubia (tablets
and dispersible tablets) in the EU, to treat certain
patients with a genetic condition called tuberous scle-
rosis complex (TSC), including:
• Adults with TSC and angiomyolipoma (a kidney
tumor) when the tumor does not require immediate
surgery
• Adults and children with TSC and subependymal
giant cell astrocytoma (a brain tumor) when the tumor
cannot be removed completely by surgery
Approved indications vary by country. Everolimus is
available under the trade names Zortress/Certican for
use in transplantation, and is exclusively licensed to
Abbott Laboratories and sublicensed to Boston Scien-
tific for use in drug-eluting stents.
• Kisqali (ribociclib) is an oral cyclin-dependent kinase
inhibitor approved in the US, the EU and other coun-
tries to treat:
• Pre-, peri- and postmenopausal women with hor-
mone receptor-positive (HR+)/human epidermal
growth factor receptor 2-negative (HER2-) locally
advanced or metastatic breast cancer, in combina-
tion with an aromatase inhibitor as initial endo-
25
Item 4. Information on the Company
crine-based therapy. HR+/HER2- breast cancer is
the most common subtype of breast cancer
• Postmenopausal women with HR+/HER2- locally
advanced or metastatic breast cancer, in combina-
tion with fulvestrant, as first- or second-line therapy
years and older with SCD. SCD is a group of inher-
ited blood disorders in which the body makes abnor-
mally shaped red blood cells that become sticky and
can block blood vessels, leading to unpredictable,
painful VOCs
Kisqali was developed by the Novartis Institutes for
BioMedical Research under a research collaboration
with Astex Pharmaceuticals.
Novartis Pharmaceuticals business unit
Immunology, Hepatology and Dermatology1
• Kymriah (tisagenlecleucel) suspension for intravenous
infusion is a CD19-directed genetically modified autol-
ogous chimeric antigen receptor T-cell (CAR-T) ther-
apy. It is approved in the US, the EU and other coun-
tries to treat:
• Patients up to 25 years old with B-cell acute lympho-
blastic leukemia (ALL) that is refractory or in second
or later relapse. ALL is a cancer of the lymphocytes,
a type of white blood cell involved in the body’s
immune system
• Adults with relapsed or refractory diffuse large B-cell
lymphoma (DLBCL) after two or more lines of sys-
temic therapy. DLBCL is the most common form of
non-Hodgkin lymphoma and a cancer of the B-lym-
phocytes
• Lutathera (lutetium Lu 177 dotatate/lutetium (177Lu) oxo-
dotreotide) is an intravenous targeted radioligand ther-
apy approved in the US, the EU and other countries to
treat:
• Adults with somatostatin receptor-positive gastro-
enteropancreatic neuroendocrine tumors (GEP-
NETs). GEP-NETs are rare tumors found in the diges-
tive tract, including the foregut, midgut and hindgut
• Piqray (alpelisib) is an oral kinase inhibitor approved in
the US, the EU and other countries to treat:
• Postmenopausal women, and men, with PIK3CA-mu-
tated, hormone receptor-positive (HR+)/human epi-
dermal growth factor receptor 2-negative (HER2-)
locally advanced or metastatic breast cancer, in com-
bination with fulvestrant, after disease progression
following endocrine therapy as monotherapy (EU),
or after disease progression on or following endo-
crine therapy (US). HR+/HER2- breast cancer is the
most common subtype of breast cancer
• Adakveo (crizanlizumab) is a humanized monoclonal
antibody that binds to P-selectin, a cell adhesion pro-
tein that plays a central role in the multicellular inter-
actions that can lead to vaso-occlusion in sickle cell
disease (SCD). Delivered via intravenous infusion,
Adakveo is approved in the US, the EU and other coun-
tries to:
• Prevent or reduce the frequency of vaso-occlusive
crises (VOCs), or pain crises, in patients aged 16
• Cosentyx (secukinumab) is an injectable fully human
monoclonal antibody that specifically inhibits interleu-
kin-17A (IL-17A), a cytokine involved in several immuno-
logical diseases. It is approved in the US, the EU and
other countries to treat:
• Patients with moderate-to-severe plaque psoriasis.
Psoriasis is a debilitating systemic inflammatory dis-
ease that is characterized by the appearance of
raised, red patches on the skin
• Adults with active ankylosing spondylitis (AS). AS is
a long-term inflammatory disease that is character-
ized by chronic back pain and is generally visible on
X-rays
• Adults with active non-radiographic axial spondy-
loarthritis (nr-axSpA). nr-axSpA is a long-term inflam-
matory disease that is characterized by chronic back
pain and is not visible on X-rays
• Adults with active psoriatic arthritis (PsA). PsA is a
type of inflammatory arthritis that results in swollen
and painful joints and tendons
Ophthalmology
• Lucentis (ranibizumab) is a recombinant, humanized,
high-affinity antibody fragment that binds to vascular
endothelial growth factor A (VEGF-A), a protein that
can cause the growth of blood vessels in the eye,
potentially leading to vision loss. Lucentis is an anti-
VEGF therapy that is injected into the eye. It is approved
in the EU and other countries to treat patients with cer-
tain eye conditions, including:
• Adults with neovascular (wet) age-related macular
degeneration (AMD). Wet AMD develops when
abnormal blood vessels grow under the macula and
leak blood and other fluids in the back of the eye,
which can scar the macula
• Adults with proliferative diabetic retinopathy, non-pro-
liferative diabetic retinopathy and/or diabetic macu-
lar edema. These conditions are complications of
diabetes
• Adults with visual impairment due to macular edema
secondary to retinal vein occlusion (branch RVO or
central RVO). Retinal vein occlusion is a blockage of
the branch or central retinal vein, which carry blood
away from the retina
1 Xolair sales for all indications are reported in the Respiratory franchise.
26
Item 4. Information on the Company
Approved indications vary by country. Lucentis is
licensed from Genentech, and Novartis holds the rights
to commercialize the product outside the US. Genen-
tech holds the rights to commercialize Lucentis in the
US. For further information, see “Item 18. Financial
Statements—Note 27. Transactions with related par-
ties—Roche Holding AG.”
• Xiidra (lifitegrast 0.5%), an LFA-1 antagonist, is a pre-
scription eye drop designed to reduce inflammation by
blocking the interaction of two key proteins. It is
approved in the US and other countries to treat:
• The signs and symptoms of dry eye disease in adults
• Beovu (brolucizumab) is the first humanized sin-
gle-chain antibody fragment approved for clinical use.
Beovu acts as an anti-VEGF agent and is administered
via injection. It is approved in the US, the EU and other
countries to treat:
• Patients with neovascular (wet) age-related macular
degeneration (AMD). Wet AMD develops when
abnormal blood vessels grow under the macula and
leak blood and other fluids in the back of the eye,
which can scar the macula
Neuroscience
• Gilenya (fingolimod) is an oral sphingosine-1-phos-
phate (S1P) receptor modulator that crosses the blood-
brain barrier to bind to the S1P receptors based in the
central nervous system. It is approved:
• In the US to treat adults and children aged 10 years
and older with relapsing forms of multiple sclerosis,
including clinically isolated syndrome, relapsing-re-
mitting multiple sclerosis (RRMS) and active second-
ary progressive multiple sclerosis (SPMS). Multiple
sclerosis is a disease in which the immune system
attacks the protective covering of nerves (known as
myelin)
• In the EU to treat adults and children aged 10 years
and older who have highly active RRMS despite treat-
ment with at least one disease-modifying agent, or
who have rapidly evolving severe RRMS
Gilenya is licensed from Mitsubishi Tanabe Pharma
Corporation.
• Zolgensma (onasemnogene abeparvovec) is a one-
time intravenous gene therapy designed to address the
genetic root cause of spinal muscular atrophy (SMA)
by replacing the function of the missing or nonworking
SMN1 gene. Zolgensma delivers a new working copy
of the SMN1 gene into a patient’s cells. It is approved
in the US, the EU and other countries to treat:
• Babies and young children who have SMA and a bial-
lelic mutation in the SMN1 gene. SMA is a rare,
genetic neuromuscular disease resulting in the pro-
gressive and irreversible loss of motor neurons,
which causes muscle weakness and atrophy
• Mayzent (siponimod) is an oral, selective sphin-
gosine-1-phosphate (S1P) receptor modulator that
selectively binds to S1P1 and S1P5 receptors and pen-
etrates the central nervous system, where it may impact
central nervous system inflammation and repair mech-
anisms. It is approved:
• In the US and other countries to treat adults with
relapsing forms of multiple sclerosis, including clini-
cally isolated syndrome, relapsing-remitting multiple
sclerosis (RRMS) and active secondary progressive
multiple sclerosis (SPMS). Multiple sclerosis is a dis-
ease in which the immune system attacks the pro-
tective covering of nerves (known as myelin)
• In the EU and other countries to treat adults with
active SPMS
Approved indications vary across other countries.
• Kesimpta (ofatumumab) is an anti-CD20 monoclonal
antibody that enables the targeted depletion of B-cells,
specifically in lymph nodes. Kesimpta is self-adminis-
tered as a once-monthly injection via the Sensoready
autoinjector pen. It is approved in the US to treat:
• Adults with relapsing forms of multiple sclerosis,
including clinically isolated syndrome, relapsing-re-
mitting multiple sclerosis (RRMS) and active second-
ary progressive multiple sclerosis (SPMS). Multiple
sclerosis is a disease in which the immune system
attacks the protective covering of nerves (known as
myelin)
Ofatumumab was originally developed by Genmab and
licensed to GlaxoSmithKline (GSK). Novartis obtained
the rights to ofatumumab from GSK across all indica-
tions.
Cardiovascular, Renal and Metabolism
• Entresto (sacubitril/valsartan) is an oral, first-in-class
angiotensin receptor/neprilysin inhibitor. Entresto
enhances the protective effects of a hormone system
called the natriuretic peptide system, and simultane-
ously suppresses the harmful effects of a hormone sys-
tem called the renin-angiotensin-aldosterone system.
It is approved in the US, the EU and other countries to
treat:
• Adults who have symptomatic chronic heart failure
with reduced ejection fraction (HFrEF). HFrEF is a
disease in which the heart cannot pump enough
blood
• Children aged 1 year and older who have symptom-
atic heart failure with systemic left ventricular dys-
function. This is a disease in which the heart cannot
pump enough blood
Approved indications vary by country.
• Leqvio (inclisiran) is an injectable small-interfering RNA
that reduces LDL cholesterol in patients with athero-
sclerotic cardiovascular disease. Leqvio is adminis-
tered twice a year, following an initial dose and a dose
at three months. It is approved in the EU to treat:
• Adults with primary hypercholesterolemia (high cho-
lesterol) or mixed dyslipidemia, in combination with
maximally tolerated statin therapy. Mixed dyslipid-
emia is a disorder characterized by elevated levels
of LDL cholesterol and triglycerides, and decreased
levels of HDL cholesterol
27
Item 4. Information on the Company
Novartis obtained global rights to develop, manufac-
ture and commercialize inclisiran under a license and
collaboration agreement with Alnylam Pharmaceuticals,
Inc.
Respiratory
• Xolair (omalizumab) is an injectable prescription medicine
and the only approved antibody designed to target and
block immunoglobulin E (IgE). It is approved in the US, the
EU and other countries to treat:
• Adults and children aged 6 years and older with mod-
erate-to-severe, or severe, persistent allergic asthma
• Adults and children aged 12 years and older with
chronic spontaneous urticaria/chronic idiopathic
urticaria (hives)
• Adults with nasal polyps or chronic rhinosinusitis with
nasal polyps (CRSwNP). CRSwNP is a chronic inflam-
mation of the nose and the sinuses with the presence
of benign lesions (nasal polyps) on the lining of the
nasal sinuses or nasal cavity
Approved indications vary by country. Xolair is provided
as lyophilized powder for reconstitution, and as liquid
formulation in a pre-filled syringe. Novartis co-pro-
motes Xolair with Genentech in the US and shares a
portion of operating income, but Novartis does not
record any US sales. Novartis records all sales of Xolair
outside the US. For further information, see “Item 18.
Financial Statements—Note 27. Transactions with
related parties—Roche Holding AG.”
Established Medicines
• Galvus (vildagliptin) is an oral inhibitor of the DPP-4
enzyme approved in the EU and other countries to treat:
• Adults with type 2 diabetes that is inadequately con-
trolled by diet and exercise. It can be used as mono-
therapy; in dual combination with metformin, a sulfo-
nylurea or a thiazolidinedione (antidiabetic medicines);
in triple combination with metformin and a sulfony-
lurea; and as an add-on to insulin with or without met-
formin
An oral single-pill combination of vildagliptin and met-
formin, marketed as Eucreas/GalvusMet, is also
approved in the EU and other countries to treat adults
with type 2 diabetes.
• Diovan (valsartan) is an oral angiotensin II receptor
blocker (ARB) approved in the US, the EU and other
countries to treat:
• Adults and children with high blood pressure
• Adults with heart failure
• Adults with certain types of heart failure following a
heart attack
An oral single-pill combination of valsartan and hydro-
chlorothiazide, marketed as Diovan HCT/Co-Diovan, is
also approved in the US, the EU and other countries to
treat high blood pressure.
Compounds in development
The following table provides an overview of the key
Innovative Medicines Division projects currently in the
Confirmatory Development stage and may also describe
certain projects in the Exploratory Development stage.
Projects typically enter Confirmatory Development and
become the responsibility of our Global Drug Develop-
ment organization during Phase II testing. (For more
information about our drug development program, see
“—Research and development—Development program.”)
Projects are listed in alphabetical order by compound
code, or by product name where applicable. Projects
include those seeking to develop potential uses of new
molecular entities as well as potential additional indica-
tions or new formulations for already marketed products.
The table below, entitled “Projects removed from the
development table since 2019,” highlights changes to the
table entitled “Selected development projects” from the
previous year.
The year that each project entered the current phase
of development refers to the year of the first patient’s
first visit in the first clinical trial of that phase. For proj-
ects in Phase II, the year refers to the first patient’s first
visit in the first Phase II trial, which can happen prior to
the Confirmatory Development stage. We previously
reported the current phase based on the year in which
the decision to enter the phase was made, and as a result,
there may be variations between the reported phases in
this year’s table versus last year’s table. Certain previ-
ously disclosed projects, noted below, have not yet
achieved “first patient, first visit” in any Phase I-III study
for the reported indication and route of administration.
We have included these projects in the table to maintain
continuity with last year’s disclosures, and have dis-
closed them using the reporting criteria from last year.
A reference to a project being in registration means
that an application has been submitted to a health author-
ity for marketing approval. Compounds and new indica-
tions in development are subject to required regulatory
approvals and, in certain instances, contractual limita-
tions. 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.
28
Item 4. Information on the Company
Selected development projects
Compound/ Common
product
name
Mechanism
of action
Potential indication
Business
franchise
Formulation/
route of
administration
Year project
entered
current
Planned filing
development dates/current
phase
phase
ABL001
asciminib
BCR-ABL inhibitor
Chronic myeloid leukemia, 3rd line
Oncology
Oral
2017
ACZ885
canakinumab IL-1 beta inhibitor
Non-small cell lung cancer, 2nd line
Oncology
Subcutaneous injection 2019
Non-small cell lung cancer, 1st line
Oncology
Subcutaneous injection 2018
Non-small cell lung cancer, adjuvant
Oncology
Subcutaneous injection 2018
AVXS-101 onasemno- Survival motor neuron Spinal muscular atrophy
(OAV101)
(IT formulation)1
gene abepar- (SMN) gene therapy
vovec
Neuroscience
Intrathecal injection
2018
2021/III
2021/III
2021/III
2023/III
TBC based on
FDA feedback/
I/II
AVXS-201 TBD
(OAV201)
Methyl-CpG binding
protein 2 (MECP2) gene
therapy
Rett syndrome
Neuroscience
Intrathecal injection
2018
≥2025/I
Beovu
brolucizumab VEGF inhibitor
Diabetic macular edema
Ophthalmology
Intravitreal injection
2018
Retinal vein occlusion
Ophthalmology
Intravitreal injection
2019
Diabetic retinopathy2
Ophthalmology
Intravitreal injection
2020
2021/III
2023/III
2023/III
2021/II
2023/III
≥2025/III
2020
2020
2020
20194
20196
2023/III
≥2025/III
BYL719
alpelisib
PI3K-alpha inhibitor
PIK3CA-related overgrowth spectrum
Oncology
Triple negative breast cancer
Human epidermal growth factor
receptor 2-positive (HER2+)
advanced breast cancer3
Oncology
Oncology
Ovarian cancer
Oncology
Head and neck squamous cell carcinoma, Oncology
2nd and 3rd line5
Oral
Oral
Oral
Oral
Oral
CEE321
TBD
Pan-JAK inhibitor
Atopic dermatitis
CFZ5338
iscalimab
CD40 inhibitor
Renal transplantation
Liver transplantation
Sjögren’s syndrome
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Topical
20197
≥2025/I
Intravenous infusion
2018
≥2025/II
Intravenous infusion
2019
≥2025/II
Intravenous infusion
2019
≥2025/II
Coartem
artemether + PGH-1
lumefantrine
Malaria, uncomplicated (<5 kg patients)9
Established
Medicines
Oral
2020
2024/III
Cosentyx
secukinumab IL-17A inhibitor
Ankylosing spondylitis head-to-head study Immunology,
versus Sandoz biosimilar Hyrimoz
(adalimumab)
Hepatology and
Dermatology
Subcutaneous injection 2017
2022/III
Hidradenitis suppurativa
Giant cell arteritis
Lichen planus
Lupus nephritis10
Psoriatic arthritis (IV formulation)11
Ankylosing spondylitis (IV formulation)12
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Subcutaneous injection 2019
2022/III
Subcutaneous injection 2019
2024/II
Subcutaneous injection 2020
≥2025/II
Subcutaneous injection 2020
≥2025/III
Intravenous infusion
2019
2022/III
Intravenous infusion
2019
2023/III
CSJ117
TBD
TSLP inhibitor
ECF843
TBD
rh-Lubricin
Asthma13
Dry eye
Respiratory
Inhalation
Ophthalmology Topical
2020
2020
≥2025/II
2023/II
1 Preclinical studies to address partial clinical hold are on track. The FDA has acknowledged the potential of AVXS-101 IT in this patient population and recommends a pivotal
confirmatory study, to be initiated after partial clinical hold is lifted.
2 Previously disclosed as proliferative diabetic retinopathy
3 Previously disclosed as hormone receptor-negative (HR-)/human epidermal growth factor receptor 2-positive (HER2+) advanced breast cancer
4 Reflects the year in which the decision to enter the disclosed phase was made; “first patient, first visit” has not yet occurred
5 Previously disclosed as head and neck squamous cell carcinoma
6 Reflects the year in which the decision to enter the disclosed phase was made; “first patient, first visit” has not yet occurred
7 Reflects the year in which the decision to enter the disclosed phase was made; “first patient, first visit” has not yet occurred
8 The renal transplantation and liver transplantation indications were previously disclosed as solid organ transplantation. This has since split into two separate projects.
9 Project added to selected development projects table in 2020 – entered Confirmatory Development
10 Project added to selected development projects table in 2020 – entered Confirmatory Development
11 Project added to selected development projects table in 2020 – in Confirmatory Development
12 Project added to selected development projects table in 2020 – in Confirmatory Development
13 Previously disclosed as severe asthma
29
Item 4. Information on the Company
Compound/ Common
product
name
Mechanism
of action
Potential indication
Entresto
valsartan and Angiotensin receptor/ Chronic heart failure with preserved
sacubitril
(as sodium
salt complex)
neprilysin inhibitor
ejection fraction
Post-acute myocardial infarction
Business
franchise
Formulation/
route of
administration
Cardiovascular, Oral
Renal
and Metabolism
Cardiovascular, Oral
Renal
and Metabolism
Jakavi
ruxolitinib
JAK1/2 inhibitor
Acute graft-versus-host disease
Oncology
Chronic graft-versus-host disease
Oncology
KAE609
cipargamin PfATP4 inhibitor
Malaria, uncomplicated14
Malaria, severe15
KAF156
ganaplacide
Imidazolopiperazines Malaria, uncomplicated17
derivative
Kisqali
ribociclib
CDK4 inhibitor
Hormone receptor-positive
(HR+)/human epidermal growth
factor receptor 2-negative (HER2-)
early breast cancer (adjuvant)18
Year project
entered
current
Planned filing
development dates/current
phase
phase
2020
US registration
2016
2021/III
2017
2017
2017
2021/III
2021/III
≥2025/II
201916
≥2025/II
2017
≥2025/II
Oral
Oral
Oral
Oral
Oral
Established
Medicines
Established
Medicines
Established
Medicines
Oncology
Oral
2018
2023/III
KJX83919
inclisiran
siRNA
(regulation of LDL-C)
Hyperlipidemia
Cardiovascular, Subcutaneous injection 2020
Renal
and Metabolism
Secondary prevention of cardiovascular Cardiovascular, Subcutaneous injection 2018
Renal
events in patients with elevated levels
and Metabolism
of LDL-C
EU approved
US20
≥2025/III
Kymriah
tisagen-
lecleucel
CD19 CAR-T
Relapsed/refractory follicular lymphoma Oncology
Intravenous infusion
2018
2021/II
LJC242
LJN452
FXR agonist and
tropifexor,
cenicriviroc CCR2 inhibitor
(in fixed-dose
combination)
FXR agonist and
tropifexor,
licogliflozin SGLT1/2 inhibitor
(in fixed-dose
combination)
LMI070
branaplam
SMN2 RNA splicing
modulator
Relapsed/refractory diffuse large B-cell Oncology
lymphoma in 1st relapse
Intravenous infusion
2019
2021/III
Nonalcoholic steatohepatitis
Nonalcoholic steatohepatitis
Immunology,
Hepatology and
Dermatology
Oral
Immunology,
Hepatology and
Dermatology
Oral
2018
≥2025/II
2019
≥2025/II
Spinal muscular atrophy
Neuroscience
Oral
2015
≥2025/II
LNP023
iptacopan
CFB inhibitor
IgA nephropathy
C3 glomerulopathy
Paroxysmal nocturnal hemoglobinuria
Membranous nephropathy
LOU064
remibrutinib BTK inhibitor
Chronic spontaneous urticaria
Lutathera
Radioligand therapy
targeting SSTR
lutetium
Lu 177
dotatate/
lutetium
(177Lu)
oxodotreotide
Sjögren’s syndrome21
Gastroenteropancreatic
neuroendocrine tumors,
1st line in G2/3 tumors22
Cardiovascular, Oral
Renal
and Metabolism
Cardiovascular, Oral
Renal
and Metabolism
Cardiovascular, Oral
Renal
and Metabolism
Cardiovascular, Oral
Renal
and Metabolism
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Oral
Oral
2018
2023/II
2019
2023/II
2018
2023/II
2019
≥2025/II
2019
≥2025/II
2019
≥2025/II
Oncology
Intravenous infusion
2020
2023/III
14 Previously disclosed as malaria
15 Previously disclosed as severe malaria
16 Reflects the year in which the decision to enter the disclosed phase was made; “first patient, first visit” has not yet occurred
17 Previously disclosed as malaria
18 Previously disclosed as HR+/HER2- breast cancer (adjuvant)
19 Approved in the EU as Leqvio for primary hypercholesterolemia and mixed dyslipidemia
20 Novartis received a complete response letter (CRL) from the FDA due to unresolved facility inspection-related conditions at a third-party manufacturing facility in Europe. The FDA
has not raised any concerns related to the efficacy or safety of inclisiran. A response to the CRL is planned to be submitted in Q2-Q3 2021.
21 Project added to selected development projects table in 2020 – in Confirmatory Development
22 Project added to selected development projects table in 2020 – entered Confirmatory Development
30
Item 4. Information on the Company
Compound/ Common
product
name
Mechanism
of action
Potential indication
177Lu-
PSMA-617
TBD
Radioligand therapy
targeting PSMA
Metastatic castration-resistant
prostate cancer
LXE408
TBD
Protozoane inhibitor
Visceral leishmaniasis
Business
franchise
Formulation/
route of
administration
Year project
entered
current
Planned filing
development dates/current
phase
phase
Oncology
Intravenous infusion
2018
2021/III
Established
Medicines
Oral
201923
≥2025/II
MBG453
sabatolimab TIM-3 antagonist
Myelodysplastic syndrome
Oncology
Intravenous infusion
2020
Unfit acute myeloid leukemia24
Oncology
Intravenous infusion
2020
OMB15725 ofatumumab Anti-CD20 monoclonal Relapsing multiple sclerosis
Neuroscience
Subcutaneous injection 2020
antibody
2021/III
2024/II
US approved
EU registration
PDR001
spartalizumab PD-1 inhibitor
Malignant melanoma (combo)26
Oncology
Intravenous infusion
2018
≥2025/II
QBW251
icenticaftor CFTR potentiator
Chronic obstructive pulmonary disease
Respiratory
Oral
2019
QGE031
ligelizumab
IgE inhibitor
Chronic spontaneous urticaria27
Immunology,
Hepatology and
Dermatology
Subcutaneous injection 2018
SAF312
TBD
TRPV1 antagonist
Chronic ocular surface pain
Ophthalmology Topical
Tabrecta
capmatinib
c-MET inhibitor
Solid tumors
Oncology
Oral
2016
201928
TQJ230
pelacarsen ASO targeting Lp(a)
Secondary prevention of cardiovascular Cardiovascular, Subcutaneous injection 2019
events in patients with elevated levels
of lipoprotein(a)
Renal and
Metabolism
2024/II
2022/III
2024/II
2024/II
≥2025/III
UNR844
TBD
Reduction of
disulfide bonds
Presbyopia
Ophthalmology Topical
2019
2024/II
VAY736
ianalumab
BAFF-R inhibitor
Autoimmune hepatitis
Sjögren’s syndrome29
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Subcutaneous injection 2018
≥2025/II
Subcutaneous injection 2017
≥2025/II
VPM087
gevokizumab IL-1 beta antagonist
Colorectal cancer, 1st line
Oncology
Intravenous infusion
2019
Xolair
omalizumab
IgE inhibitor
Food allergy
Respiratory
Subcutaneous injection 2019
≥2025/I
2022/III
23 Reflects the year in which the decision to enter the disclosed phase was made; “first patient, first visit” has not yet occurred
24 Previously disclosed as acute myeloid leukemia
25 Approved in the US as Kesimpta for relapsing multiple sclerosis
26 Previously disclosed as metastatic melanoma (combo)
27 Previously disclosed as chronic spontaneous urticaria/chronic idiopathic urticaria
28 Reflects the year in which the decision to enter the disclosed phase was made; “first patient, first visit” has not yet occurred
29 Previously disclosed as primary Sjögren’s syndrome
Projects removed from the development table since 2019
Compound/
product
Potential indication
Change
AVXS-101
Spinal muscular atrophy (IV formulation)
Commercialized as Zolgensma
BYL719
PIK3CA mutant hormone receptor-positive
(HR+)/human epidermal growth factor
receptor 2-negative (HER2-)
postmenopausal advanced breast cancer,
2nd line (+ fulvestrant)
Commercialized as Piqray
Cosentyx
Non-radiographic axial spondyloarthritis
Commercialized
Psoriatic arthritis head-to-head study
versus Humira® (adalimumab)
Publication achieved
Non-small cell lung cancer
Commercialized as Tabrecta
INC280
Kymriah
Relapsed/refractory diffuse large B-cell
lymphoma (+ pembrolizumab)
LAM320
Multidrug-resistant tuberculosis
PDR001
QMF149
QVM149
RTH258
Metastatic BRAF V600+ melanoma
(w/ Tafinlar + Mekinist)
Asthma
Asthma
Neovascular (wet) age-related
macular degeneration
Removed
Removed
Removed
Commercialized as Atectura Breezhaler
Commercialized as Enerzair Breezhaler
Commercialized as Beovu
SEG101
Sickle cell disease
Commercialized as Adakveo
VPM087
Renal cell carcinoma, 1st line
Xolair
Nasal polyps
ZPL389
Atopic dermatitis
Removed
Commercialized
Removed
31
Reason
Development discontinued
Planned US submission
discontinued
Development discontinued
Development discontinued
Development discontinued
Item 4. Information on the Company
Principal markets
The Innovative Medicines Division sells products in approximately 140 countries worldwide. Net sales are primar-
ily concentrated in the US and Europe. The following table sets forth the aggregate 2020 net sales of the Innovative
Medicines Division by region:
Innovative Medicines
United States
Europe
Asia, Africa, Australasia
Canada and Latin America
Total
Of which in Established Markets 1
Of which in Emerging Growth Markets 1
2020 net sales
to third parties
USD millions
14 342
13 484
8 718
2 469
39 013
29 643
9 370
%
37
35
22
6
100
76
24
1 Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand.
Many of our Innovative Medicines Division products are used for chronic conditions that require patients to con-
sume the product over long periods of time, ranging from months to years. However, certain of our marketed prod-
ucts and development projects, such as cell and gene therapies, are administered only once. Net sales of the vast
majority of our products are not subject to material changes in seasonal demand.
Production
Our primary goal is to ensure the uninterrupted, timely
and cost-effective supply of products that meet all prod-
uct specifications and quality standards. The manufac-
turing of our products is highly regulated by governmen-
tal health authorities around the world, including the FDA
and EMA. In addition to regulatory requirements, many
of our products involve technically complex manufactur-
ing processes or require highly specialized raw materi-
als.
In 2020, we established five integrated manufactur-
ing and supply platforms: large molecules, small mole-
cules, Sandoz Technical Operations, cell and gene ther-
apy, and local market manufacturing. We manufacture
our products across these platforms at facilities world-
wide, producing active pharmaceutical ingredients in our
own facilities or purchasing them from third-party sup-
pliers (see also “—Item 4.D Property, plants and equip-
ment”). In our manufacturing network, we maintain
state-of-the-art processes, with quality as a priority, and
require our suppliers to adhere to the same high stan-
dards we expect from our own people and processes.
Those processes include chemical and biological syn-
theses; sterile processing, including CAR-T cell process-
ing; and formulation and packaging. We are constantly
working to improve our existing manufacturing pro-
cesses, to develop new and innovative technologies, and
to review and adapt our manufacturing network to meet
our needs and those of our patients and customers.
We produce raw materials for manufacturing in-house
or we purchase them from a number of third-party sup-
pliers. Where possible, we maintain multiple supply
sources so that the business is not dependent on a sin-
gle 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 applicable regulations and Novartis quality
standards.
Because the manufacturing of our products is com-
plex and highly regulated by governmental health author-
ities, 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 disruption to our
production activities. We have experienced supply inter-
ruptions for our products in the past, and there can be
no assurance that supply will not be interrupted again in
the future. However, we have implemented a global man-
ufacturing strategy to maximize business continuity in
case of such events.
Marketing and sales
The Innovative Medicines Division serves customers with
24 432 field force representatives, as of December 31,
2020, including supervisors and administrative person-
nel. These trained representatives present the therapeu-
tic risks and benefits of our products to physicians, phar-
macists, hospitals, insurance groups, managed care
organizations and other healthcare professionals. In the
US, Novartis advertises certain products via digital and
traditional media channels, including the internet, televi-
sion, newspapers and magazines. Novartis also pursues
co-promotion/co-marketing opportunities as well as
licensing and distribution agreements with other com-
panies in various markets.
The marketplace for healthcare is evolving: Customer
groups beyond prescribers have increasing influence on
treatment decisions and guidelines, while patients con-
32
Item 4. Information on the Company
tinue to become more informed stakeholders in their
healthcare decisions and look for solutions to meet their
changing needs. Novartis is responding by adapting our
business practices to engage appropriately with patients,
customer groups and other stakeholders, including by
delivering innovative solutions to drive education, access
and improved patient care.
The COVID-19 pandemic has accelerated additional
changes related to marketing and sales techniques in
the healthcare industry. For example, many healthcare
professionals have increased their use of virtual plat-
forms when interacting with pharmaceutical companies,
and prefer to receive information in a more convenient
and personalized way. In response, Novartis has expe-
dited the planned implementation of a new customer
engagement model, which combines traditional face-to-
face visits with digital methods of engaging healthcare
professionals. We are similarly changing our approach
to engaging healthcare systems, payers and other health-
care providers.
Although specific distribution patterns vary by coun-
try, Novartis generally sells its prescription drugs primar-
ily 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 engage-
ment with specialty pharmacies. In the US, specialty
pharmacies continue to grow as a distribution channel
for specialty products. Most specialty drugs can only be
dispensed through specialty pharmacies that are wholly
owned by national pharmacy benefit managers.
In the US, the US Centers for Medicare & Medicaid
Services (CMS) is the largest single payer for healthcare
services as a result of continuing changes in healthcare
economics and an aging population. In addition, both
commercial and government-sponsored managed care
organizations continue to be among the largest groups
of payers for healthcare services in the US. In other coun-
tries, national health services are often the only signifi-
cant payer for healthcare services. In an effort to control
prescription drug costs, almost all managed care orga-
nizations 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 increas-
ingly use 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 to
determine whether or not to continue to reimburse exist-
ing drugs. We have dedicated teams that actively seek
to optimize patient access, including formulary positions,
for our products.
The trend toward consolidation among distributors
and retailers of Innovative Medicines Division products
continues in the US and internationally, both within coun-
try and across countries. This has increased our cus-
tomers’ 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.
Drug pricing is an increasingly prominent issue in
many countries as healthcare spending continues to rise.
This issue has received significant attention in the US
(please see “—Price controls” for further information). At
Novartis, we are increasing our efforts to enable patient
access through innovative pricing and access initiatives
in the US, Europe and other markets. These include con-
tract structures such as pay-over-time and out-
come-based agreements.
In 2019, Novartis Gene Therapies (formerly AveXis)
formed an agreement with Accredo Health Group, Inc.
in the US to offer a pay-over-time option of up to five
years for Zolgensma to help ease possible short-term
budget constraints for customers. Novartis Gene Ther-
apies also offers payers outcome-based agreements for
Zolgensma based on measures included in the clinical
trial program, and has these agreements in place with
both commercial and Medicaid contracts. In these agree-
ments, if a patient has a significant negative outcome
during a five-year period, Novartis Gene Therapies reim-
burses a percentage of the cost of the therapy relative
to the time passed. Following conditional approval of
Zolgensma in Europe in 2020, Novartis Gene Therapies
established “Day One” early access agreements in mul-
tiple European countries. These agreements support
early patient access by allowing a variety of customiz-
able options, including retroactive rebates, deferred pay-
ments, installment options and outcome-based rebates.
Additionally, Novartis has established an out-
come-based framework in the US for one of the approved
indications of Kymriah, whereby the product invoice is
linked to a successful outcome for each patient at an
agreed milestone. Novartis also offers outcome-based
agreements for approved indications of Kymriah and
Luxturna in certain countries other than the US. These
typically involve a full upfront payment of the product
with a partial refund in case of failed outcomes, or install-
ment payments based on successful patient outcomes
at agreed milestones.
Competition
The global pharmaceutical market is highly competitive.
We compete against other major international corpora-
tions that have substantial financial and other resources,
as well as against smaller companies that operate region-
ally or nationally. Competition within the industry is
intense and extends across a wide range of activities,
including pricing, product characteristics, customer ser-
vice, sales and marketing, and research and develop-
ment.
Like other companies selling patented pharma-
ceuticals, Novartis faces challenges from companies
selling competing patented products. Generic forms of
our products may follow the expiry of intellectual prop-
erty protection, and generic companies may also gain
entry to the market through successfully challenging our
intellectual property rights. We 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.
There is ongoing consolidation in the pharmaceuti-
cal industry. At the same time, new entrants are looking
to use their expertise to establish or expand their pres-
ence in healthcare, including technology companies
33
Item 4. Information on the Company
seeking to benefit from the increasing importance of
data and data management in our industry.
focuses on discovering new medicines to fight tropical
diseases, including malaria and cryptosporidiosis.
Research and development
The discovery and development of a new drug usually
requires approximately 10 to 15 years from the initial
research to bringing a drug to market. This includes
approximately six to eight years from Phase I clinical tri-
als 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 the development of a com-
pound in which we have made a substantial investment.
We manage our research and development expendi-
tures across our entire portfolio in accordance with our
strategic priorities. We make decisions about whether
or not to proceed with development projects on a proj-
ect-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 develop-
ment investment required will be driven by many factors.
These include 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 evi-
dence necessary to demonstrate clinical efficacy and
safety.
Research program
Our research program is conducted by the Novartis Insti-
tutes for BioMedical Research (NIBR), which is the
research and early development innovation engine of
Novartis. NIBR is responsible for the discovery of new
medicines for diseases with unmet medical need. We
focus our work in areas where we believe we can have
the most impact for patients. This requires the hiring and
retention of highly talented employees, a focus on fun-
damental disease mechanisms that are relevant across
different disease areas, continuous improvement in tech-
nologies for drug discovery and potential therapies,
close alliances with clinical colleagues, and the estab-
lishment of strategic external alliances.
Approximately 5 600 full-time-equivalent scientists,
physicians and business professionals work at NIBR
sites in Basel, Switzerland; Cambridge, Massachusetts;
East Hanover, New Jersey; San Diego, California;
Emeryville, California; and Shanghai, China. They con-
tribute to research into disease areas such as cardiovas-
cular and metabolic diseases, neuroscience, oncology,
muscle disorders, ophthalmology, autoimmune diseases
and respiratory diseases. Research at the Friedrich
Miescher Institute and the Genomics Institute of the
Novartis Research Foundation focuses on basic genetic
and genomic research, and the Novartis Institute for
Tropical Diseases (NITD), in Emeryville, California,
All drug candidates go through proof-of-concept tri-
als to enable an early assessment of the safety and effi-
cacy 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 July 2018, we announced the decision to exit anti-
bacterial and antiviral research. While the science for
these programs is compelling, we decided to prioritize
our resources in other areas where we believe we are
better positioned to develop innovative medicines that
will have a positive impact for patients. Since then, we
have executed three out-licensing deals with Gilead Sci-
ences, Boston Pharmaceuticals and Amplyx
Pharmaceuticals for assets from our infectious diseases
portfolio. However, in response to the COVID-19 pan-
demic, we started a robust and collaborative drug dis-
covery effort to develop an antiviral molecule to poten-
tially treat all coronaviruses, including the virus that
causes COVID-19. This longer-term effort with the Uni-
versity of California, Berkeley, and other pharmaceutical
companies will target the self-replication machinery that
coronaviruses share.
In 2020, we discontinued early discovery research
at NIBR’s Shanghai site and focused our research and
development activities there on expanding the scale and
scope of our early clinical development and later-stage
clinical trial operations to help accelerate the develop-
ment of new medicines.
Development program
Our Global Drug Development (GDD) organization over-
sees drug development activities for our Innovative
Medicines Division. GDD works collaboratively with NIBR
to execute our overall pipeline strategy. The GDD orga-
nization 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 allo-
cation, technology implementation and process stan-
dardization to further increase innovation. GDD includes
approximately 11 000 full-time equivalent associates
worldwide.
The traditional model of development consists of three
phases:
Phase I: 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, includ-
ing the safe dosage range. These trials also determine
how a drug is absorbed, distributed, metabolized and
excreted, and the duration of its action.
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 hun-
dred to several thousand patients, which are conducted
34
Item 4. Information on the Company
to establish the safety and efficacy of the drug in spe-
cific indications for regulatory approval. Phase III trials
may also be used to compare a new drug against a cur-
rent 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, we have tai-
lored the development process to be simpler, more flex-
ible and efficient. We divide the development process
into two stages: Exploratory Development to establish
proof of concept, followed by Confirmatory Development
to confirm the concept in large numbers of patients.
Exploratory Development consists of clinical proof-of-
concept (PoC) studies, which are small clinical trials (typ-
ically involving in the range of between five and 15
patients) that combine elements of traditional Phase I/II
testing. NIBR conducts these customized trials, which
are designed to give early insights into issues such as
safety, efficacy and toxicity for a drug in a given indica-
tion. Once a positive proof of concept has been estab-
lished, the drug moves to the Confirmatory Development
stage and becomes the responsibility of GDD. Confir-
matory 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 authori-
ties for approval. This stage can also include trials that
compare the drug to the current standard of care for the
disease in order to evaluate the drug’s overall benefit-risk
profile. Further, with new treatment approaches such as
gene therapy for rare diseases, elements of Exploratory
and Confirmatory Development may be combined and
suffice for registration under certain conditions such as
high unmet medical need and clinical data showing highly
favorable benefit-risk. In these cases, additional post-ap-
proval studies may be required by the regulatory author-
ities to continue to gather important data to further sup-
port approval.
The vast amount of data that must be collected and
evaluated makes clinical testing the most time-consum-
ing 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.”
Our Innovation Management Board (IMB) manages
our activities at each phase of clinical development. The
IMB is responsible for all major aspects of our develop-
ment portfolio and oversees our drug development bud-
get as well as major project phase transitions and mile-
stones following a positive proof-of-concept outcome,
including transitions to Confirmatory Development and
the decision to submit a regulatory application to the
health authorities. The IMB is also responsible for the
endorsement of overall development strategy, the
endorsement of development project priorities, and deci-
sions on project discontinuations. Our Chief Executive
Officer chairs the IMB, and other representatives from
Novartis senior management, with expertise spanning
multiple fields, are among its core and extended mem-
bership.
Alliances and acquisitions
Our Innovative Medicines Division enters into business
development agreements with other pharmaceutical and
biotechnology companies and with academic and other
institutions to develop new products and access new
markets. We license products that complement our cur-
rent product line and are appropriate to our business
strategy. We focus on strategic alliances and acquisition
activities for key disease areas and indications that we
expect to be growth drivers in the future. We review prod-
ucts and compounds we are considering licensing, using
the same criteria that we use for our own internally dis-
covered drugs.
In January 2021, we announced a strategic collabo-
ration agreement to in-license tislelizumab from an affil-
iate of BeiGene, Ltd. in major markets outside of China.
Tislelizumab is an anti-PD-1 monoclonal antibody spe-
cifically designed to minimize binding to FcyR on mac-
rophages, which accelerates the potential for Novartis
to enter the large and growing checkpoint inhibitor field.
Closing of this transaction is subject to expiration or early
termination of the waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act. For additional infor-
mation, see “Item 18. Financial Statements—Note 28.
Commitments and contingencies—Research and devel-
opment commitments.”
For additional information, see “Item 18. Financial
Statements—Note 2. Significant transactions.”
Regulation
The international pharmaceutical industry is highly reg-
ulated. Regulatory authorities around the world admin-
ister numerous laws and regulations regarding the test-
ing, approval, manufacturing, importing, labeling and
marketing of drugs, and review the safety and efficacy
of pharmaceutical products. Extensive controls exist on
the non-clinical and clinical development of pharmaceu-
tical 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 and the
EU, 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 main-
tained. In recent years, the registration process has
required increased testing and 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, effi-
cacy 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
35
Item 4. Information on the Company
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. Even if a
drug is registered and marketed in one country, the reg-
istration authority in another country may request addi-
tional information from the pharmaceutical company
prior to registration or even reject the product. 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 regis-
tration authority’s procedures, and the nature of the
product. Many countries provide for accelerated pro-
cessing of registration applications for innovative prod-
ucts of particular therapeutic interest. In recent years,
the US and the EU have made efforts to harmonize reg-
istration requirements in order to achieve shorter devel-
opment and registration times for medical products.
However, the requirement in many countries to negoti-
ate selling prices or reimbursement levels with govern-
ment regulators and other payers 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 submit-
ted to and reviewed by the FDA. The FDA regulates the
testing, manufacturing, labeling and approval for market-
ing of pharmaceutical products intended for commer-
cialization 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 inten-
sive, lengthy and rigorous. When a pharmaceutical com-
pany has gathered data that 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. This
typically includes information regarding the clinical expe-
riences 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 pre-
viously approved drug.
Once an application is submitted, the FDA assigns
reviewers from its staff, including experts in biopharma-
ceutics, chemistry, clinical microbiology, pharmacology/
toxicology, and statistics. After a complete review, these
content experts 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 applica-
tion is not approved. If not approved, the letter will state
the specific deficiencies in the NDA or BLA that need to
be addressed. The sponsor must then submit an ade-
quate 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 and other healthcare providers
to prescribe. The drug owner must submit periodic
reports to the FDA, including any cases of adverse reac-
tions. For some medications, the FDA requires additional
post-approval studies (Phase IV) to evaluate long-term
effects or to gather information on the use of the prod-
uct under specified conditions.
Throughout the life cycle of a product, the FDA
requires compliance with standards relating to good lab-
oratory, 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 applica-
tion for authorization to market pharmaceutical products
in more than one EU member state at the same time: 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. The pro-
cedure used for first authorization must continue to be
followed for subsequent changes, e.g., to add an indica-
tion for a licensed product.
Under the centralized procedure, applications are
made to the EMA for an authorization that is valid for the
European Union (all member states). The centralized pro-
cedure is mandatory for all biotechnology products; new
chemical entities in cancer, neurodegenerative disor-
ders, diabetes, AIDS, autoimmune diseases and other
immune dysfunctions; advanced therapy medicines,
such as gene therapy, somatic cell therapy and tis-
sue-engineered medicines; and orphan medicines
(medicines for rare diseases). It is optional for other new
chemical entities, innovative medicinal products, and
medicines for which authorization would be in the inter-
est of public health. When a pharmaceutical company
has gathered data that it believes sufficiently demon-
strates a drug’s safety, efficacy and quality, the company
may submit an application to the EMA. The EMA then
receives and validates the application, and the special-
ized committee for human medicines, the CHMP, 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 compa-
ny’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 CHMP will issue fur-
ther questions at Day 180, and may also request an oral
explanation, in which case the sponsor must not only
respond to the further questions but also appear before
the committee to justify its responses. On Day 210, the
CHMP will take a vote to recommend the approval or
non-approval of the application, and their opinion is
transferred to the EC. The final EC decision under this
36
Item 4. Information on the Company
centralized procedure is a decision that is applicable to
all member states. This decision occurs 60 days, on aver-
age, after a positive CHMP recommendation.
Under both the mutual recognition procedure (MRP)
and the decentralized procedure (DCP), the assessment
is led by one member state, called the reference mem-
ber state (RMS) which then liaises with other member
states, known as the concerned member states. In the
MRP, the company first obtains a marketing authoriza-
tion in the RMS, which is then recognized by the con-
cerned member states in 90 days. In the DCP, the appli-
cation is done simultaneously in the RMS and all
concerned member states. During the DCP, the RMS
drafts an assessment report within 120 days. Within an
additional 90 days, the concerned member states review
the application and can issue objections or requests for
additional information. On Day 90, each concerned mem-
ber state 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 receiving the marketing authorizations, the
company must submit periodic safety reports to the rel-
evant health authority (EMA for the centralized proce-
dure, national health authorities for DCP or MRP). In addi-
tion, pharmacovigilance measures must be implemented
and monitored, including the collection, evaluation and
expedited reporting of adverse events, and updates to
risk management plans. For some medications, post-ap-
proval studies (Phase IV) may be imposed to comple-
ment 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 autho-
rization 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 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 unlim-
ited period. If the holder does not apply for renewal, the
marketing authorization automatically lapses. Any mar-
keting authorization that 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.
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 pro-
grams with varying price control mechanisms. Due to
increasing political pressure and governmental budget
constraints, we expect these mechanisms to remain
robust – and potentially even to be strengthened – and
to have a continued negative influence on the prices we
are able to charge for our products.
Direct governmental efforts to control prices
United States: In the US, former President Donald Trump
and congressional leaders declared the reduction of
drug prices a key priority in 2020. Former President
Trump signed an executive order that included a most
favored nation (MFN) policy limiting prices in Medicare
parts B and D to no greater than those paid by devel-
oped countries outside the US, and his administration
finalized the rule to begin implementing a seven-year
demonstration project for the MFN in Medicare Part B
on January 1, 2021. However, lawsuits were filed in sev-
eral US states, and the district courts granted orders
delaying implementation. The Biden administration will
likely determine next steps. Former President Trump also
signed an executive order allowing US states to develop
plans for the importation of drugs from Canada and per-
mit personal importation from countries outside the US.
These state plans must be approved by the US Depart-
ment of Health and Human Services (HHS) prior to imple-
mentation. However, a lawsuit was filed against HHS
challenging the importation of certain prescription drugs
from Canada without drug manufacturer authorization
or oversight, and in parallel, the Canadian government
blocked the distribution of certain medicines outside
Canada to avoid shortages within the country. It is antic-
ipated that focus on drug pricing will continue at the fed-
eral level in 2021. Further, by December 31, 2020, 18 US
states had passed legislation intended to impact pricing
or requiring price transparency reporting, with five of
these states also allowing for price control review boards.
The disclosure requirements vary by state. Many states
require multiple types of reporting, including for new drug
applications, new drug launches, prior notice of price
increases, and quarterly or annual reporting. It is
expected in 2021 that state legislatures will continue to
focus on drug pricing and that similar bills will be passed
in more states.
Europe: In Europe, our operations are subject to signif-
icant price and marketing regulations. Many govern-
ments are introducing healthcare reforms in a further
attempt to curb increasing healthcare costs. In some
member states, these include reforms to permit the reim-
bursed use of off-label medicines, despite the presence
of licensed alternatives on the market. In the EU, govern-
ments 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,
is 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 mar-
keted products are referenced within member states and
across international borders, further impacting individ-
ual EU member state pricing. Member states also col-
laborate to enhance pricing transparency and have
started conducting joint health technology assessments,
joint pricing negotiations and/or joint purchasing. As an
additional control for healthcare budgets, some EU coun-
tries have passed legislation to impose further manda-
tory rebates for pharmaceutical products and/or finan-
37
Item 4. Information on the Company
cial claw-backs on the pharmaceutical industry. The
calculation of these rebates and claw-backs may lack
transparency in some cases and can be difficult to pre-
dict.
Regulations favoring generics and biosimilars
In response to rising healthcare costs, most govern-
ments and private medical care providers have estab-
lished reimbursement schemes that favor the substitu-
tion of generic pharmaceuticals for more expensive
brand-name pharmaceuticals. All US states have generic
substitution statutes. These statutes permit or require
the dispensing pharmacist to substitute a less expensive
generic drug instead of an original drug. Other countries,
including many European countries, have similar laws.
We expect that the pressure for generic substitution will
continue to increase. In addition, the US, the EU and other
jurisdictions are increasingly crafting laws and regula-
tions 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 have an impact in other
countries as a result of cross-border sales. In the EU,
products that we have sold to customers in countries
with stringent price controls can be legally resold to cus-
tomers in other EU countries at a lower price than the
price at which the product is otherwise available in the
importing country (known as parallel trade). In North
America, products that we have sold to customers in
Canada – which has relatively stringent price controls –
are sometimes resold 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. However, given the
increased focus on pharmaceutical prices in the US, the
former Trump administration, certain members of the US
Congress, and several US states continued to explore
regulatory and legislative ways to allow the safe impor-
tation of pharmaceutical products into the US from select
countries, including Canada. Six US states have enacted
drug importation laws, but the Secretary of HHS must
certify that each state’s importation plan is safe and
cost-effective before it can be implemented.
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.
Intellectual property
We attach great importance to intellectual property (IP)
rights – including patents, trademarks, copyrights,
know-how, trade secrets and regulatory data protection
– as essential to our purpose of reimagining medicine to
improve and extend people’s lives, and to protect our
investment in research and development, manufacturing
and marketing. The IP system provides a means to attract
the investments needed to conduct and sustainably
finance innovative R&D, and to manage the risks inher-
ent in our work. For example, we seek IP 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 tests for certain diseases or biomark-
ers – which can improve patient outcomes when admin-
istered with certain drugs – as well as assays, research
tools and other techniques used to identify new drugs.
The protection afforded, which may vary from country
to country, depends upon the type of patent, its duration
and its scope of coverage.
In the US and other countries, the law recognizes that
product development and review by the FDA and other
health authorities can take an extended period, and per-
mits an extension of 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 and can only be determined after the
product is approved. In practice, it is not uncommon for
patent term extensions (PTEs) to not fully account for
the time it took to develop the product and receive mar-
keting authorization. As a result, for example, it is rarely
the case that a product’s active ingredient(s) will have a
full patent term at the time the product is approved by
the FDA and other health authorities.
In addition to patent protection, various countries
offer regulatory data protection (RDP) or marketing
exclusivities for a prescribed period of time. RDP is a dis-
tinct type of IP right providing exclusivity that precludes
a potential competitor from filing a regulatory applica-
tion that relies on the sponsor’s clinical trial data, or that
precludes the regulatory authority from approving the
application for a set period of time. The RDP period can
vary depending upon the type of data included in the
sponsor’s application. When it is available, market exclu-
sivity, unlike RDP, may preclude a competitor from obtain-
ing marketing approval for a product even if a competi-
tor’s application relies on its own data. RDP and market
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 and exclusivity has been granted by the relevant
authorities.
United States
Patents
In the US, a patent issued for an application filed today
will receive a term of 20 years from the earliest applica-
tion filing date, subject to potential patent term adjust-
ments for delays in patent issuance based upon certain
delays in prosecution by the United States Patent and
Trademark Office (USPTO). A US pharmaceutical patent
that claims a product, method of treatment using a prod-
uct, or method of manufacturing a product may also be
eligible for a PTE. This type of extension may only extend
the patent term for a maximum of five years, and may not
38
Item 4. Information on the Company
extend the patent term beyond 14 years from regulatory
approval. Only one patent may be extended for any prod-
uct based on FDA review.
RDP and market exclusivity
Separate from patent exclusivities, the FDA may provide
RDP or market exclusivity, which runs in parallel to any
patent protection.
• A new small-molecule active pharmaceutical ingredi-
ent receives five years of RDP, during which time a com-
petitor generally may not submit or obtain approval of
an application to the FDA based on a sponsor’s clini-
cal data.
• For a small-molecule active pharmaceutical ingredient,
the FDA may also request that a sponsor conduct pedi-
atric studies and, in exchange, it will grant an additional
six-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 regulato-
ry-based exclusivity period for the product that can be
extended.
• Orphan drug exclusivity provides seven years of mar-
ket exclusivity for drugs designated by the FDA as
orphan drugs, meaning drugs that treat rare diseases.
During this period, a potential competitor generally may
not market the same or similar drug for the same indi-
cation even if the competitor’s application does not rely
on data from the sponsor.
• A new biologic active pharmaceutical ingredient
receives 12 years of market exclusivity, during which
time a competitor generally may not market the same
or similar drug.
European community
Patents
Patent applications in Europe may be filed in the Euro-
pean Patent Office (EPO) or in a particular country or
countries. 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 pat-
ent owner designates. The term of a patent granted by
the EPO or a European country office is generally
20 years from the earliest application filing date. Phar-
maceutical patents can be granted a further period of
exclusivity under the Supplementary Protection Certifi-
cate (SPC) system. SPCs are designed, in part, to account
for the time it took to receive marketing authorization of
a product by the European health authorities. An SPC
may be granted to provide, in combination with the pat-
ent, up to 15 years of exclusivity from the date of the first
European marketing authorization. However, an SPC
cannot last longer than five years. The SPC duration may
be extended by a further six 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 that, while differing, are intended to
(but do not always) have the same effect.
RDP and market exclusivity
Separate from patent exclusivities, the EU provides a
system of regulatory data protection for authorized
human medicines that runs in parallel to any patent pro-
tection. The system for drugs being approved today is
usually referred to as “8+2+1” because it provides an ini-
tial period of eight years of data protection, during which
a competitor cannot rely on the relevant data; a further
period of two years of market exclusivity, during which
the data can be used to support applications for market-
ing authorization but a competitive product cannot be
launched; and a possible one-year extension of the mar-
ket exclusivity period if, during the initial eight-year data
exclusivity period, the sponsor registered a new thera-
peutic indication with “significant clinical benefit.” This
system applies both to national and centralized authori-
zations.
The EU also has an orphan drug exclusivity system
for medicines. 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 an application for
the same or similar medicine for the same indication will
not generally be accepted or granted. Under certain cir-
cumstances, this exclusivity can be extended with a
two-year pediatric extension.
Third-party patents and challenges to intellectual
property
Third parties can challenge our IP, including patents, pat-
ent term extensions, RDP and marketing exclusivities
(such as pediatric extensions and orphan drug exclusiv-
ity), through various proceedings. For example, patents
in the US can be challenged in the USPTO through var-
ious proceedings, including Inter Partes Review (IPR) and
Post-Grant Review (PGR) proceedings. They may also
be challenged through patent infringement litigation
under the Abbreviated New Drug Application (ANDA)
provisions of the Hatch-Waxman Act or under the Bio-
logics Price Competition and Innovation Act (BPCIA). In
the EU, patents may be challenged through oppositions
in the EPO, or national patents may be challenged in
national courts or national patent offices. The outcomes
of such challenges can be difficult to predict.
In addition to directly challenging our IP rights, in
some circumstances a competitor may be able to mar-
ket a generic version of one of our products by, for exam-
ple, designing around our patents or marketing the
generic product for non-patent-protected indications.
Despite RDP, a competitor could opt to incur the costs
of conducting its own clinical trials and preparing its own
regulatory application, and avoid our RDP altogether.
There is a risk that some countries may seek to impose
limitations on or seek not to recognize the availability of
IP rights for pharmaceutical products, or limit the extent
to which such rights may be enforced. Also, even though
we may own, co-own or in-license patents protecting our
products, and conduct freedom-to-operate analyses, a
third party may nevertheless assert that one of our prod-
ucts infringes a third-party patent for which we do not
have a license.
As a result, there can be no assurance that our IP
rights will protect our products or that we will be able to
avoid adverse effects from the loss of IP protection or
from third-party patents in the future.
39
Item 4. Information on the Company
Intellectual property protection for certain key
marketed products and compounds in development
We present below additional details regarding IP protec-
tion for certain Innovative Medicines Division products.
For each, we identify issued, unexpired patents by gen-
eral subject matter and, in parentheses, years of expiry
in, if relevant, the US and the EU. The identified patents
are owned, co-owned or exclusively in-licensed by
Novartis and relate to at least one dosage strength of
the product or to the method of treatment or its use as
it is currently approved and marketed or, in the case of
a compound in development, as it is currently submitted
to the FDA and/or the EMA for approval. 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. Novartis may own,
co-own, control or have rights to additional patents, for
example, relating to compound forms, methods of treat-
ment or use, formulations, devices, processes, synthe-
sis, purification and detection.
We identify unexpired RDP periods and, in parenthe-
ses, years of expiry if the relevant marketing authoriza-
tions have been authorized or granted. We identify cer-
tain unexpired patent term extensions and marketing
exclusivities and, in parentheses, years of expiry if they
are granted; their subject matter scope may be limited
and is not specified. Marketing exclusivities and patent
term extensions include orphan drug exclusivity (ODE),
pediatric exclusivity (PE), patent term extension (PTE)
and supplementary protection certificate (SPC). We des-
ignate them as “pending” if they have been applied for
but not granted and include years of expiry if estimable.
Such pending applications may or may not ultimately be
granted.
In the case of the EU, identification of a patent, sup-
plementary protection certificate, marketing exclusivity
or regulatory data protection means grant, authorization
and maintenance in at least one country. However, it
could be pending, not granted, or found invalid in others.
For each product below, we indicate whether there
is current generic or biosimilar competition for one or
more product versions in one or more approved indica-
tions in either the US or the EU, if IP is otherwise dis-
closed. We identify certain enforcement actions, or
ongoing challenges to the disclosed IP that have not
been finally resolved, including IPRs or PGRs if instituted
by the USPTO. Challenges identified as being in admin-
istrative entities, such as national patent offices, include
judicial appeals from decisions of those entities. Reso-
lution of challenges to the disclosed IP, which in the EU
may involve IP in 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 IP. We identify certain
material terms of such settlement agreements where
they could have a material adverse effect on our busi-
ness. 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.”
Novartis Oncology business unit
Oncology
• Tasigna. US: Patent on compound (2023), PE (2024);
three patents on salt forms (2026, 2027, 2028), three
PEs (2027, 2028, 2029); patent on polymorph com-
pound form (2026), PE (2027); two patents on capsule
form (2026, 2027), two PEs (2027, 2028); patent on
method of treatment (2032), PE (2032). EU: Patent on
compound (2023); patent on salt form (2026); patent
on polymorph compound form (2026); patent on cap-
sule form (2027); patent on method of treatment
(2030). There is no generic competition in the US or
the EU. In the US, generic manufacturers have filed
ANDAs challenging certain patents other than the com-
pound patent. In the EU, the method-of-treatment pat-
ent and the capsule form patent are being opposed in
the EPO.
• Promacta/Revolade. US: Patent on compound (2021),
PTE (2022), PE (2023); two patents on compound
(2021, 2021), two PEs (2021, 2021); patent on throm-
bocytopenia use (2021), PE (2021); patent on method
of enhancing platelet production (2021), PE (2021); pat-
ent on method of enhancing platelet production using
salt (2023), PE (2023); patent on salt form and throm-
bocytopenia use (2025), PE (2026); five patents on tab-
let formulations of different dose strengths (2027) (5),
five PEs (2028) (5); ODE on severe aplastic anemia
patients with an insufficient response to immunosup-
pressive therapy (2021), PE (2022); ODE on severe
aplastic anemia patients in combination with standard
immunosuppressive therapy (2025). EU: Patent on
compound (2021), SPC (2025), PE (2025); patent on
salt form (2023); patent on formulation (2027); patent
on severe aplastic anemia use (2028); patent on severe
aplastic anemia dosing regimen (2030). There is no
generic competition in the US or the EU. In the US,
generic manufacturers have filed ANDAs challenging
certain patents other than the compound patent. In the
EU, the formulation patent is being opposed in the EPO.
• Tafinlar and Mekinist.
Tafinlar. US: Two patents on compound (2030, 2030);
patent on method of treatment (2029). EU: Patent on
compound (2029); RDP (2023). There is no generic
competition in the US or the EU.
Mekinist. US: Patent on compound (2025), PTE (2027);
patent on method of treatment (2025); four patents on
formulation (2032) (4). EU: Patent on compound (2025),
SPC (2029); patent on formulation (2031); RDP (2025).
There is no generic competition in the US or the EU.
Use of Mekinist with Tafinlar or Tafinlar with Mekinist.
US: Patent on combination (2030); two patents on
method of use of combination (2025, 2030); ODE on
melanoma with certain mutations (2021); ODE on
non-small cell lung cancer (2024); ODE on adjuvant
treatment of melanoma (2025); ODE on anaplastic thy-
roid cancer (2025). EU: Patent on combination (2030);
40
Item 4. Information on the Company
RDP (2025). There is no generic competition in the US
or the EU.
• Sandostatin SC and Sandostatin LAR.
Sandostatin SC. There is no such patent protection in
the US or the EU. There is generic competition in the
US and the EU.
Sandostatin LAR. There is no such patent protection in
the US or the EU. There is generic competition in some
EU markets but no generic competition in the US.
• Jakavi. EU: Patent on compound (2026), SPC (2027);
patent on salt form (2028); patent on compound for
polycythemia vera (PV) use (2026); patent on salt form
for PV use (2028); RDP (2023). There is no generic
competition in the EU. In the EU, the salt form patent
and the patent on salt form for PV use are being
opposed in the EPO.
• Gleevec/Glivec. US: Patent on gastrointestinal stromal
tumor (GIST) use (2021), PE (2022). EU: Patent on GIST
use (2021); patent on tablet formulation (2023). There
is generic competition in the US and the EU. National
enforcement and validity actions are also ongoing on
the GIST use patent in certain EU countries.
• Afinitor/Votubia and Afinitor Disperz/Votubia dispers-
ible tablets. US: Patent on dispersible tablet formula-
tion (2022), PE (2023); patent on tuberous sclerosis
complex (TSC)/subependymal giant cell astrocytoma
(SEGA) use (2022), PE (2022); patent on breast can-
cer use (2022), PE (2022); patent on renal cell carci-
noma use (2025), PE (2026); patent on pancreatic neu-
roendocrine tumor use (2028); ODE for Afinitor on
neuroendocrine tumors of gastrointestinal or lung ori-
gin (2023); ODE for Afinitor Disperz on tuberous scle-
rosis (2025). EU: Two patents on dispersible tablet for-
mulation (2022, 2022); patent on breast cancer use
(2022); patent on renal cell carcinoma use (2022); pat-
ent on neuroendocrine tumors of pancreatic origin use
(2022); patent on neuroendocrine tumors of lung ori-
gin use (2022); patent on TSC/SEGA, TSC/renal angi-
omyolipoma and TSC/seizures use (2027); ODE
(Votubia, tuberous sclerosis) (2023). There is generic
competition in the EU, and in the US for the three low-
er-dosage strengths for Afinitor. In the US, Novartis has
resolved patent litigation relating to Afinitor, which may
result in further generic competition prior to the expi-
ration in February 2022 of the breast cancer use pat-
ent. Also in the US, Novartis has resolved patent litiga-
tion relating to Afinitor Disperz, which may result in
generic competition prior to the expiration in February
2022 of the TSC use patent. In the EU, the breast can-
cer use patent, the TSC/SEGA, TSC/renal angiomyo-
lipoma and TSC/seizures use patent, the renal cell car-
cinoma use patent, and the use patents on
neuroendocrine tumors of pancreatic origin and of lung
origin are being opposed in the EPO. National enforce-
ment and validity actions are also ongoing on some of
these patents in certain EU countries.
• Kisqali. US: Three patents on compound (2028, 2030,
2031), PTE pending (2031); three patents on methods
of treatment (2029, 2029, 2031); patent on salt form
(2031); RDP (2022). EU: Patent on compound (2027);
patent on compound (2029), SPC (2032); patent on
salt form (2031); patent on methods of use (2029); RDP
(2027). There is no generic competition in the US or
the EU.
• Kymriah. US: Seven patents on cells and/or pharma-
ceutical compositions comprising the cells (2031) (7);
four patents on methods of use of cells and/or phar-
maceutical compositions comprising the cells (2031)
(4); RDP (2029), PE (2030); ODE for relapsed or refrac-
tory (r/r) pediatric acute lymphoblastic leukemia (2024),
PE (2025); ODE for r/r diffuse large B-cell lymphoma
(2025), PE (2025). EU: Patent on methods of use (2031),
SPC (2033); RDP (2028); ODE (2028), PE (2030).
There is no generic competition in the US or the EU.
• Lutathera. US: Patent on formulation (2038); patent on
formulation process (2038); RDP (2023); ODE (2025).
EU: RDP (2027); ODE (2027). There is no generic com-
petition in the US or the EU.
• Piqray. US: Patent on compound (2029); patent on com-
pound and use (2030), PTE pending (2033); RDP
(2024). EU: Patent on compound and use (2029), SPC
(2034); RDP (2030). There is no generic competition
in the US or the EU.
• Adakveo. US: Patent on composition of matter (2028),
PTE pending (2032); patent on methods of treatment
(2027); RDP (2031), PE (2032); ODE (2026). EU: Pat-
ent on composition of matter (2027); patent on disso-
ciation use (2031); RDP (2030); ODE (2030). There is
no generic competition in the US or the EU.
Novartis Pharmaceuticals business unit
Immunology, Hepatology and Dermatology
• Cosentyx. US: Patent on composition of matter (2026),
PTE (2029); patent on psoriasis use (2032); patent on
ankylosing spondylitis use (2033); RDP (2027). EU: Pat-
ent on composition of matter (2025), SPC (2030), PE
(2030); patent on psoriasis use (2031); RDP (2026).
There is no generic competition in the US or the EU.
Ophthalmology
• Lucentis. EU: Patent on composition of matter (2018),
SPC (2022), PE (2022). There is no generic competi-
tion in the EU. In the EU, the pre-filled syringe patent is
being opposed in the EPO.
• Xiidra. US: Patent on compound (2024); three patents
on compound and use (2024, 2024, 2025); patent on
formulation (2024); five patents on method of treatment
(2024, 2024, 2026, 2029, 2029); two patents on poly-
morph compound form (2029, 2029); RDP (2021). PTE
pending. There is no generic competition in the US.
Xiidra is not marketed in the EU. In the US, the com-
pound, compound and use, formulation, method of
treatment, and polymorph compound form patents are
being challenged in ANDA proceedings against a
generic manufacturer.
41
Item 4. Information on the Company
• Beovu. US: Patent on composition of matter (2029),
PTE pending (2033); patent on method of treatment
(2029); patent on nucleic acid molecule (2029); patent
on antibodies (2023); patent on dosing regimen (2035);
RDP (2031). EU: Two patents on composition of matter
(2029, 2029), SPC (2034); patent on antibodies (2023);
RDP (2030). There is no generic competition in the US
or the EU.
Neuroscience
• Gilenya. US: Patent on dosage regimen (2027), PE
(2027); patent on 0.25 mg formulation (2032), PE
(2032); patent on method of treatment (2027); RDP for
pediatric use and 0.25 mg (2021), PE (2021). EU: Pat-
ent on formulation (2024), SPC (2026); patent on 0.25
mg formulation (2032); RDP (2022). There is no generic
competition in the US or the EU. In the US, the dosage
regimen patent is being challenged in ANDA proceed-
ings against a generic manufacturer and was upheld
as being valid and infringed. The decision has been
appealed. In parallel, an appeal against a USPTO deci-
sion upholding that patent in IPR proceedings is ongo-
ing. Novartis is also enforcing the method of treatment
patent against a generic manufacturer. Novartis has
entered into settlement agreements with a number of
manufacturers that had filed ANDAs to market a generic
version of 0.5 mg Gilenya. Under the confidential terms
of these settlements, these ANDA filers will be able to
launch a generic version of 0.5 mg Gilenya on an
agreed-upon date that is prior to the expiration of the
dosage regimen patent.
• Zolgensma. US: Three patents on vector (2024, 2024,
2026); two patents on methods of treatment (2028,
2028); ODE for spinal muscular atrophy (SMA) in
patients less than 2 years old with biallelic mutations
in the SMN1 gene (2026); RDP (2031). EU: Two patents
on vector (2024, 2028); two patents on methods of use
(2028, 2028); ODE for SMA in patients with a biallelic
mutation in the SMN1 gene, or patients with a biallelic
mutation in the SMN1 gene and up to three copies of
the SMN2 gene (2030); RDP (2030). There is no
generic competition in the US or the EU.
• Mayzent. US: Patent on compound (2024); patent on
treatment initiation use (2030); RDP (2024). PTE pend-
ing. EU: Patent on compound (2024); patent on solid
form (2029); patent on treatment initiation use (2029),
SPC (2034); patent on formulation (2032); RDP (2030).
There is no generic competition in the US or the EU.
• Kesimpta. US: Patent on compound (2031); RDP (2021).
EU: Three patents on compound (2023) (3); two pat-
ents on formulation (2028, 2028); patent on dosing
regimen (2037). There is no generic competition in the
US. Kesimpta is not currently marketed in the EU.
Cardiovascular, Renal and Metabolism
• Entresto. US: Four patents on combination (2023) (4),
four PEs (2023 (3), 2024); two patents on complex
(2026, 2027), two PEs (2027, 2027); RDP for new pedi-
atric patient population (2022), PE (2023). PTE pend-
ing. EU: Patent on combination (2023), SPC (2028);
two patents on complex (2026, 2026), two SPCs
(2030, pending 2030); patent on method of use (2034);
RDP (2025). There is no generic competition in the US
or the EU. In the US, two combination patents and the
two complex patents are being challenged in ANDA
proceedings against generic manufacturers. In the EU,
the two complex patents and the use patent are being
opposed in the EPO.
• Leqvio. US: Patent on composition of matter (2034),
anticipated PTE (2035); patent on dosing regimen
(2036). EU: Patent on composition of matter (2033),
anticipated SPC (2035); RDP (2030). There is no
generic competition in the EU. Leqvio is not currently
marketed in the US.
Respiratory
• Xolair. US: Two patents on syringe formulation (2021,
2025). EU: Two patents on syringe formulation (2021,
2024). There is no generic competition in the US or the
EU.
Established Medicines
• Galvus and Eucreas. EU: Patent on compound (2019),
SPC (2022); patent on combination (2021), SPC (2022);
patent on Galvus formulation (2025); patent on Eucreas
formulation (2026). Galvus/Eucreas is not marketed in
the US. There is generic competition for Galvus and
Eucreas in some EU countries. The EU Galvus formu-
lation patent is being opposed in the EPO.
• Diovan and Co-Diovan/Diovan HCT. Diovan: There is no
such patent protection for Diovan in the US or the EU.
There is generic competition in the US and the EU.
Co-Diovan/Diovan HCT: There is no such patent pro-
tection for Co-Diovan/Diovan HCT in the US or the EU.
There is generic competition in the US and the EU.
Compounds in development
We provide patent information for non-marketed com-
pounds in development that have been submitted to the
FDA and/or the EMA for registration but have not yet
been approved by either agency. We currently do not
have any non-marketed compounds in development that
have been submitted for registration but have not yet
been approved by either agency.
42
Item 4. Information on the Company
Sandoz
Our Sandoz Division is a global leader in generic
pharmaceuticals and biosimilars, and sells products in
well over 100 countries. In 2020, the Sandoz Division
achieved consolidated net sales of USD 9.6 billion, rep-
resenting 20% of the Group’s total net sales. Sandoz
develops, manufactures and markets finished dosage
form medicines as well as intermediary products includ-
ing active pharmaceutical ingredients.
Sandoz is organized globally into three franchises:
Retail Generics, Anti-Infectives and Biopharmaceuticals.
In Retail Generics, Sandoz develops, manufactures and
markets active ingredients and finished dosage forms of
small-molecule pharmaceuticals to third parties across
a broad range of therapeutic areas, 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 Biopharmaceu-
ticals, Sandoz develops, manufactures and markets pro-
tein- or other biotechnology-based products, including
biosimilars, and provides biotechnology manufacturing
services to other companies.
The Sandoz strategic ambition is to be the world’s
leading and most valued generics company (including
biosimilars). Our divisional strategy focuses on three
areas: developing a broad and consistent pipeline of
off-patent launches across key geographies and across
a broad range of therapeutic areas; positioning Sandoz
to be “first in” by having a strong pipeline with a focus on
being first to market and “last out” by way of competitive
costs and stable supply; and instilling a true “generic
mindset,” with a focus on priorities, simple and rapid deci-
sion-making, and focused resource allocation.
Sandoz is the global market leader in biosimilars, with
a total of eight approved and marketed products, and a
pipeline of over 15 molecules. In addition to internally
developed projects, our biosimilar portfolio comprises
publicly announced commercialization agreements with
BioCon, Gan & Lee, EirGenix and Polpharma Biologics.
Availability of our biosimilars varies by country.
Key marketed products
Sandoz is also the global market leader in generic
antibiotics. Its Kundl, Austria, manufacturing site is the
hub of the last vertically integrated antibiotics produc-
tion chain in Europe, which offers certain competitive
advantages including added supply chain resilience.
On January 31, 2020, we closed the previously
announced acquisition of the Japanese business of
Aspen Global Incorporated, consisting of off-patent
branded medicines with a focus on anesthetics and spe-
cialty brands.
We received a CRL from the FDA in 2018 for our sub-
mission for a generic form of fluticasone propionate and
salmeterol inhalation powder, for oral inhalation (GSK’s
Advair®). In January 2020, we decided to discontinue the
generic Advair® development program in the US, follow-
ing a detailed review of the latest data read-outs.
On March 2, 2020, we announced a resolution with
the US Department of Justice (DOJ) Antitrust Division
concerning the DOJ’s antitrust investigation into the US
generic drug industry. For more information, see “Item
18. Financial Statements—Note 20. Provisions and other
non-current liabilities.”
In 2018, Novartis announced an agreement to sell
selected portions of its Sandoz US portfolio, specifically
the Sandoz US dermatology business and generic US
oral solids portfolio, to Aurobindo Pharma USA Inc., for
USD 0.8 billion in cash and potential earn-outs. On April
2, 2020, Novartis announced the mutual agreement with
Aurobindo to terminate the sale agreement, as approval
from the US Federal Trade Commission for the transac-
tion was not obtained within anticipated timelines.
Sandoz continues to operate its oral solids and derma-
tology businesses as well as its dermatology develop-
ment center as part of the Sandoz US business.
On July 27, 2020, Sandoz and the Austrian govern-
ment announced a planned combined investment of
more than EUR 150 million to enhance the long-term
competitiveness and supply resilience of European pro-
duction for key antibiotics.
The Sandoz global portfolio covers a wide range of therapeutic areas. The following are some of the Sandoz key
marketed products in each of its franchises (availability varies by market):
Retail Generics
Product
Amoxicillin/clavulanic acid
Zoledronic acid
Acetylcysteine
Tacrolimus
Originator drug
Augmentin®
Aclasta
Various
Various
Description
Antibiotic
Osteoporosis treatment
Mucolytic agent
Immunosuppressive agent
43
Item 4. Information on the Company
Anti-Infectives
Active ingredients
Oral and sterile penicillins
Oral and sterile cephalosporins
Description
Anti-infectives
Anti-infectives
Clavulanic acid and mixtures with clavulanic acid
ß-lactam inhibitors
Classical and semisynthetic macrolides
Anti-infectives
Intermediates
Various cephalosporin intermediates
Macrolide base intermediates
Description
Anti-infectives
Anti-infectives
Various crude compounds produced by fermentation Cyclosporine, ascomycin, rapamycin, mycophenolic acid, etc.
Biopharmaceuticals
Product
Omnitrope
Originator drug
Genotropin®
Binocrit and Epoetin alfa Hexal
Eprex®/Erypo®
Zarzio, Zarxio and Filgrastim Hexal
Neupogen®
Glatopa
Erelzi 1
Rixathon
Hyrimoz
Zessly
Ziextenzo
Copaxone®
Enbrel®
MabThera®
Humira®
Remicade®
Neulasta®
Description
Recombinant human growth hormone to treat growth
disorders and growth hormone deficiency
Recombinant protein (erythropoiesis-stimulating) agent
to treat anemia
Recombinant protein (granulocyte colony-stimulating
factor (GCSF), short-acting) used in oncology
Treatment for relapsing forms of multiple sclerosis (MS)
Fusion protein (TNF-α receptor) to treat multiple
immune-mediated inflammatory diseases
Chimeric monoclonal antibody (directed against
CD20 protein on B-cells) to treat blood cancers
and immunological diseases
Monoclonal antibody (TNF-α antibody) to treat multiple
immune-mediated inflammatory diseases
Monoclonal antibody (TNF-α antibody) to treat multiple
immune-mediated inflammatory diseases
PEGylated form of a recombinant human granulocyte colony-
stimulating factor (GCSF) (long-acting) to reduce duration
of chemotherapy-induced neutropenia and incidence of
chemotherapy-induced febrile neutropenia
1 Approved in the US in 2016. Launch in the US pending final resolution of litigation with Amgen, which markets Enbrel®. The US District Court of New Jersey ruled against Sandoz in
August 2019, which was upheld on appeal; Sandoz is now considering its further appeal options.
Selected development projects – Biosimilars in Phase III development and
registration
The following table describes Sandoz biosimilar projects that are in Phase III clinical trials (including filing prepa-
ration) and registration:
Project/
product
Route of
administration
Potential indication/indications
Common
name
Mechanism of action
Therapeutic areas
Current phase
GP2017
adalimumab
TNF-α antibody
Arthritides (rheumatoid arthritis, ankylosing
spondylitis, psoriatic arthritis), plaque psoriasis
and others (same as originator)
Immunology
Subcutaneous
EU approved
US approved1
GP2411 2
denosumab
Anti-RANKL
monoclonal antibody
Osteoporosis, treatment-induced bone loss,
metastases to bone, giant cell tumor
(indications vary in US and EU)
Endocrinology,
Neurology
Subcutaneous
Phase III
EGI014A1 3
trastuzumab
DST356A1 4 natalizumab
Anti-HER2 recombinat
IgG1, humanized
monoclonal antibody
Anti-α4 integrin
monoclonal antibody
Breast and gastric tumors
Oncology
Intravenous
Phase III
Monotherapy for relapsing-remitting forms of
multiple sclerosis (RRMS); in US, second-line
treatment for active Crohn’s disease
Neurology,
Immunology (US only)
Intravenous
Phase III
1 Launched as Hyrimoz in the EU in October 2018. Also in October 2018, we announced a global resolution of all intellectual property-related litigation with AbbVie concerning
adalimumab. Under the terms of the agreement, AbbVie grants us a non-exclusive license to AbbVie’s intellectual property relating to Humira®, beginning on certain dates in
certain countries in which AbbVie has intellectual property. We are not entitled to launch Hyrimoz in the US until the second half of 2023.
2 Development in collaboration with Hexal AG.
3 Development in collaboration with EirGenix, Inc.
4 Development in collaboration with Polpharma Biologics.
44
Item 4. Information on the Company
Principal markets
The two largest generics markets in the world – the US and Europe – are the principal markets for Sandoz. The
following table sets forth the aggregate 2020 net sales of Sandoz by region:
Sandoz
Europe
United States
Asia, Africa, Australasia
Canada and Latin America
Total
Of which in Established Markets 1
Of which in Emerging Growth Markets 1
2020 net sales
to third parties
USD millions
5 231
2 142
1 501
772
9 646
7 089
2 557
%
54
22
16
8
100
73
27
1 Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand.
Many Sandoz products are used for chronic conditions that require patients to consume the product over long peri-
ods of time, from months to years. Sales of our anti-infective products and over-the-counter cough and cold prod-
ucts are subject to seasonal variation. Sales of the vast majority of our other products are not subject to material
changes in seasonal demand.
Production
For information on the production of our products, see
“—Item 4.B Business overview—Innovative Medicines—
Production.”
In September 2020, as part of a broader reorganiza-
tion of Novartis Technical Operations (NTO), we estab-
lished the Sandoz Technical Operations (STO) platform
within NTO. STO will focus on producing generic
medicines for Sandoz, as well as related external supply
operations and supply chain.
Due to impurities found in the active ingredient
batches sourced from third-party manufacturers, we
recalled Sandoz valsartan, losartan and irbesartan prod-
ucts in the second half of 2018 and first quarter of 2019,
and ranitidine film-coated tablets in the second half of
2019, from several markets, in line with our quality stan-
dards for all of our marketed products. The discovery
of nitrosamines in some types of drug products led sev-
eral health regulators (e.g., EMA, FDA and others) to con-
duct a detailed analysis of these impurities in affected
medicinal products. Novartis works with health authori-
ties around the world to continuously review all chemi-
cal and biological human medicines for the possible
presence of nitrosamines. The EMA, FDA and other
health authorities have provided guidance to the phar-
maceutical industry to prevent unacceptable levels of
nitrosamines in medicines. The EMA review is due to
conclude in March 2021 for chemical human medicines
and in July 2021 for biological human medicines.
Marketing and sales
Sandoz sells a broad portfolio of products, including the
products of our Retail Generics franchise and biosimi-
lars, 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 coun-
try.
In response to rising healthcare costs, many govern-
ments and private medical care providers, such as health
maintenance organizations, have instituted reimburse-
ment schemes that favor the substitution of bioequiva-
lent generic versions of originator pharmaceutical prod-
ucts, such as those sold by our Retail Generics franchise.
In the US, statutes have been enacted by all states that
permit or require pharmacists to substitute a less expen-
sive 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 consoli-
dation among distributors and retailers of Sandoz prod-
ucts, both in the US and internationally, which has
increased our customers’ purchasing leverage.
Legislative or regulatory changes can have a signifi-
cant impact on our business in a country. For more infor-
mation on such changes, see ““—Item 4.B Business over-
view—Innovative Medicines—Price controls.”
Our Anti-Infectives franchise supplies active phar-
maceutical ingredients and intermediates – mainly anti-
biotics – 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 pol-
icies have not yet been fully defined or implemented
regarding the automatic substitution and reimbursement
of biosimilars in many markets, including the US. As a
result, in many of these markets, our biosimilar products
are marketed as branded competitors to the originator
products.
45
Item 4. Information on the Company
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 expenditure and
numerous patent and data exclusivity period expirations
have encouraged more generic product launches, result-
ing in increased competition among the companies sell-
ing generic pharmaceutical products, leading to ongoing
price pressure. In particular, Sandoz faces increased
industrywide pressure on prices for generic products,
particularly in the US, driven by factors including cus-
tomer consolidation and growing competition from other
manufacturers of generic medicines. These factors con-
tributed to a decline in US sales that began in 2017 and
continued through 2020.
In addition, research-based pharmaceutical compa-
nies are participating directly in the generic conversion
process by licensing their patented products to generic
companies (so-called “authorized generics”). Conse-
quently, generic companies that were not otherwise in a
position to launch a specific product may participate in
the market using the innovator’s product authorization.
Authorized generics serve as a business opportunity for
Sandoz when the product of a research-based pharma-
ceutical company loses patent protection and Sandoz
secures a license from the research-based pharmaceu-
tical company to launch the authorized generic of that
product.
Development and registration
Development of Sandoz Biopharmaceuticals is jointly
overseen by Sandoz and by Global Drug Development
(GDD) and is mostly executed by GDD. 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 refer-
ence product. Nevertheless, research and development
costs associated with generic pharmaceuticals are much
lower than those of the originator pharmaceuticals, as
no preclinical 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 exclu-
sivity, which must recoup substantial research and devel-
opment costs through higher prices over the life of the
product’s patent and data exclusivity period.
While generic pharmaceuticals are follow-on ver-
sions 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 prod-
ucts, 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 small-molecule 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 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 ref-
erence biologic. Because the purpose of a biosimilar clin-
ical 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 ref-
erence biologic. Therefore, the cost of development for
a biosimilar is usually less than that of a reference bio-
logic.
The Development and Registration staff employed by
affiliates of the Sandoz Division are based worldwide,
including at facilities in Holzkirchen, Germany; Hyder-
abad, India; Kundl, Austria; Ljubljana, Slovenia; and
Rudolstadt, Germany. In November 2020, Sandoz com-
pleted (i) the previously announced closure of the Holz-
kirchen, Germany, development and registration site,
with the exception of patch development and the proj-
ect management group, and; (ii) the closure of the prod-
uct development and registration site as well as the main-
tenance and development regulatory centers in Unterach,
Austria. We are conducting a review of our global devel-
opment and regulatory network to consolidate and
streamline operations and optimize our network struc-
ture to enable Sandoz to compete sustainably in an
increasingly challenging generics environment. As part
of this review, in the fourth quarter of 2020, Sandoz
announced the planned closure of its maintenance reg-
ulatory center in Barleben, Germany, which we expect
will be completed in the fourth quarter of 2021. Sandoz
also announced the planned closure of the Fougera
development center located in Melville, New York as well
as the product development center in Boucherville, Can-
ada, which we expect will be completed in 2021.
Regulation
Generics
The Hatch-Waxman Act in the US (and similar legislation
in the EU and in other countries) eliminated the require-
ment that manufacturers of generic pharmaceuticals
repeat the extensive clinical trials required for reference
products, so long as the generic version could be shown
to be therapeutically equivalent to the reference prod-
uct.
In the US, the decision on whether a generic phar-
maceutical is therapeutically equivalent to the original
product is made by the FDA based on an Abbreviated
New Drug Application (ANDA) filed by the generic prod-
uct’s manufacturer. The process typically takes nearly
two years from the filing of the ANDA until FDA approval.
46
Item 4. Information on the Company
However, delays can occur if issues arise, for example,
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 authori-
zation for the reference product, or to certify that such
patents are invalid. This certification often results in a
patent infringement lawsuit being brought 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 ANDA 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 inva-
lidity, the Hatch-Waxman Act generally 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 timeframes 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 Commis-
sion 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 Applica-
tion based on the data submitted by the innovator com-
pany for the reference product, without the need to con-
duct 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 sub-
mitted 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 10 years after the first grant of mar-
keting 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 preclinical and clinical trials filed by the innovator
company that show a significant clinical benefit in com-
parison 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 World Health
Organization (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 pro-
cess similar to that followed for small molecules. How-
ever, 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 demon-
strate comparability to the reference medicine in terms
of safety, efficacy and quality through an extensive com-
parability exercise, based on strict guidelines set by the
authorities. Regulators will only approve a biosimilar
based on data that 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 bio-
similar in the US requires the submission of an ABLA to
the FDA, including an assessment of immunogenicity,
and pharmacokinetics or pharmacodynamics. The ABLA
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.
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 defend-
ing these suits, we could be subject to injunctions pre-
venting 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 formu-
lation, 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 prop-
erty protection in the future.
47
Item 4. Information on the Company
4.C Organizational structure
Organizational structure
See “Item 4. Information on the Company—Item 4.A History and development of Novartis” and “Item 4. Information
on the Company—Item 4.B Business overview—Overview.”
Significant subsidiaries
See “Item 18. Financial Statements—Note 32. Principal Group subsidiaries and associated companies.”
4.D Property, plants and equipment
Our principal executive offices are located in Basel, Swit-
zerland. Our divisions operate through a number of affil-
iates that have offices, research and development facil-
ities, and production sites throughout the world.
We generally own our facilities or have entered into
long-term lease arrangements for them. Some of our
principal facilities are subject to mortgages and other
security interests granted to secure certain debts.
Novartis Technical Operations (NTO) manages the
production, supply chains and quality of our Innovative
Medicines and Sandoz Division products through a net-
work of 54 manufacturing sites, as well as through exter-
nal suppliers, and warehouse and distribution centers.
In addition, our Innovative Medicines Division manages
six AAA sites for radioligand therapies production and
six sites for Novartis Gene Therapies (formerly AveXis)
for research and development, production, warehousing
and administrative offices. Endocyte manages two sites
for research and its headquarters and administrative
offices.
The following table sets forth our major headquar-
ters and most significant production, research and devel-
opment, and administrative facilities. See also “—Item
4.B Business overview—Innovative Medicines—Produc-
tion” and “—Item 4.B Business overview—Sandoz—Pro-
duction” for a discussion of our manufacturing pro-
cesses.
Major facilities
Location
Basel, Switzerland – St. Johann
Size of site (in
square meters) Major activity
589 000 Global Group headquarters; global Innovative Medicines Division headquarters; Global Sandoz
Division headquarters; research and development; production of drug substances and
drug intermediates
Kundl and Schaftenau, Austria
480 000
Production of biotechnological products, drug products and finished products, anti-infectives,
active drug substances, product development
East Hanover, New Jersey
391 000
Innovative Medicines Division US headquarters, research and development
Barleben, Germany
340 000
Production of broad range of generics finished dosage forms
Cambridge, Massachusetts
201 800 Research and development
Shanghai, China
Stein, Switzerland
106 500 Research and development
64 700
Production of sterile vials, pre-filled syringes and ampoules; inhalation capsules,
tablets and transdermals; active pharmaceutical ingredients, and cell and gene therapies
Holzkirchen, Germany
64 200 Global Sandoz Division, production of oral films, transdermal delivery systems,
matrix patches, product development
Huningue, France
35 000
Production of drug substances for clinical and commercial supply
Princeton, New Jersey
14 300 Sandoz Division US headquarters
Libertyville, Illinois
9 800
Production, warehouse and administrative offices for the Novartis Gene Therapies unit
within the Innovative Medicines Division
As our product portfolio evolves, NTO is adapting our
manufacturing capacity and capabilities to meet our
changing needs, shifting from high-volume products
toward lower-volume, customized and personalized
medicines. As of December 31, 2020, we have closed,
exited or sold 18 manufacturing sites since 2016 and have
announced the closure, exit or sale of seven additional
manufacturing sites. We have continued to expand our
capacity in personalized medicines and complex biologic
drugs, such as in Stein, Switzerland, as well as investing
in new facilities to provide cell and gene therapies, such
as in Les Ulis, France. We are leveraging innovation to
increase the reliability and productivity of our manufac-
turing network, including using data and digital technol-
ogies. We continue to seek opportunities to manage our
production facilities as efficiently as possible, optimize
48
Item 4. Information on the Company
external spend, and simplify and standardize across our
manufacturing network to help us lower costs and help
optimize the value of our products. At the same time, we
are working to improve our environmental sustainability,
for example by reducing energy and water consumption
at our sites.
For a description of the impact of environmental mat-
ters, see “Item 3. Key Information—Item 3.D Risk fac-
tors—Environmental, social and governance—Unsuc-
cessful management of environmental, social and
governance matters,” “Item 3. Key Information—Item 3.D
Risk factors—Environmental matters—Impact of environ-
mental liabilities,” and “Item 3. Key Information—Item 3.D
Risk factors—Climate change—Climate change and
associated increased risk of major natural disasters.”
See also “Item 18. Financial Statements—Note 20. Pro-
visions and other non-current liabilities.”
49
Item 4A. Unresolved Staff Comments
Item 4A. Unresolved Staff Comments
Not applicable.
50
Item 5. Operating and Financial Review and Prospects
Item 5. Operating and Financial Review
and Prospects
5.A Operating results
This operating and financial review should be read with
the Group’s consolidated financial statements in this
Annual Report, which have been prepared in accordance
with International Financial Reporting Standards (IFRS)
as published by the International Accounting Standards
Board (see “Item 18. Financial Statements”). “Item 5.
Operating and Financial Review and Prospects” with the
sections on compounds in development and selected
development projects of our divisions (see “Item 4. Infor-
mation on the Company—Item 4.B Business overview”)
constitute the Operating and Financial Review (Lage-
bericht), as defined by the Swiss Code of Obligations.
The discussion and analysis of the financial condition
and results of operations of certain items from fiscal year
ended December 31, 2018 and year to year comparison
between fiscal year ended December 31, 2019 and
December 31, 2018 that are not included in this Form
20-F can be found in “Item 5. Operating and Financial
Review and Prospects” of our Form 20-F for the fiscal
year ended December 31, 2019, which is incorporated
by reference herein.
Overview
Our purpose is to reimagine medicine to improve and
extend people’s lives. We use innovative science and tech-
nology 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 reward those who invest
their money, time and ideas in our Company. Our vision is
to become the most valued and trusted medicines com-
pany in the world.
The businesses of Novartis are divided operationally
on a worldwide basis into two identified reporting seg-
ments:
• Innovative Medicines: innovative patent-protected pre-
scription medicines
• Sandoz: generic pharmaceuticals and biosimilars
In addition, we separately report the results of Corpo-
rate activities. The financial results of our Corporate
activities include the costs of the Group headquarters
and those of corporate coordination functions in major
countries. Corporate also includes other items of income
and expense that are not attributable to specific seg-
ments, such as certain revenues from intellectual prop-
erty rights and certain expenses related to post-employ-
ment benefits, environmental remediation liabilities,
charitable activities, donations and sponsorships.
Our divisions are supported by the following organi-
zational units: the Novartis Institutes for BioMedical
Research, Global Drug Development, Novartis Technical
Operations and Novartis Business Services. The financial
51
results of these organizational units are included in the
results of the divisions for which their work is performed.
Significant transactions are discussed in “Item 18.
Financial Statements—Note 2. Significant transactions”,
“Item 18. Financial Statements—Note 3. Segmentation
of key figures 2020, 2019 and 2018,” and “Item 18. Finan-
cial Statements—Note 30. Discontinued operations.”
Following the February 28, 2019, shareholders’
approval of the spin-off of the Alcon business, the Group
reported its consolidated financial statements as “con-
tinuing operations” and “discontinued operations” for the
current and prior years to comply with IFRS. Continuing
operations include the businesses of the Innovative
Medicines and Sandoz Divisions, and the continuing Cor-
porate activities. Discontinued operations include the
Alcon eye care devices business and certain Corporate
activities attributable to the Alcon business prior to the
spin-off, the gain on distribution of Alcon Inc. to Novartis
AG shareholders and certain other expenses related to
the spin-off. See “Item 18. Financial Statements—Note 1.
Significant Accounting Policies”, “Item 18. Financial State-
ments—Note 2. Significant Transactions” and “Item 18.
Financial Statements—Note 30. Discontinued opera-
tions.”
Our environment
We live in an era of amazing medical innovation, driven
by better understanding of the genetic and biological
roots of disease, and surging use of data analytics and
digital technology in science and healthcare. At the same
time, the world’s population continues to grow and peo-
ple are living longer, fueling a rise in chronic diseases.
Together, these factors are increasing demand for
high-quality care worldwide and pressuring healthcare
systems to restrain spending growth.
Our strategy
Our strategy is to build a leading, focused medicines
company powered by advanced therapy platforms and
data science. As we implement our strategy, we have five
priorities to shape our future and help us continue to cre-
ate value for our company, our shareholders and soci-
ety:
• Unleash the power of people. We believe that culture is
fundamental to driving our performance and value for
stakeholders. We are implementing this priority by
building one consistent organizational culture that is
inspired, curious and unbossed. Engagement of our
associates is now at an all-time high. Externally, more
than half of our candidates reference culture as one of
the reasons to join Novartis. In the future, we expect to
make real-time insights on company culture available
Item 5. Operating and Financial Review and Prospects
to our leaders to drive our performance and further
foster our culture.
• Deliver transformative innovation. We prioritize first-in-
class medicines in our pipeline to address the needs
of patients with no or limited treatment options. Our
commitment is to go beyond traditional modalities (for
example, small molecules and biologics) and invest in
advanced therapy platforms (for example, cell therapy,
gene therapy, radioligand therapy and RNA-based
therapeutics). Novartis has a leading pipeline based on
scale, innovation and future value, including 118 assets
in Phase I or II, 49 in Phase III or undergoing registra-
tion and more than 65 new molecular entities as of
December 31, 2020. The pipeline is expected to fuel
growth in the mid-to long-term, with around 90% poten-
tial first-in-class/first-in-indication medicines and
about 80% of targets in areas of high unmet patient
need. The company is strengthening its advanced ther-
apy platforms along the value chain with 20 advanced
platform therapies in clinical development alongside a
large number of pre-clinical projects. We are also mak-
ing significant progress on the manufacturing and com-
mercialization of these advanced therapy platforms.
• Embrace operational excellence. We believe that oper-
ational excellence is becoming an increasingly import-
ant factor to the success of our business. We are
focused on three key areas: (i) Launch excellence and
the performance of our growth drivers. We are rein-
forcing our approach to product launches to become
more consistent across markets. To ensure we deploy
our resources effectively, we are investing in earlier
pre-launch preparations, including talking with doctors,
patients and insurers to better understand their needs.
Using data science, we are expanding our ability to test
and learn from new commercial models and employ
real-time analysis of marketing data in order to target
customers with personalized content, orchestrated
across multiple marketing channels; (ii) Transformation
of NTO to deliver consistent productivity gains together
with high levels of quality and service. We are consol-
idating our manufacturing footprint to achieve better
asset utilization and increased focus on making
medicines. At the same time, we are investing in
innovative technologies and advanced therapy plat-
forms, while supporting launches and growth drivers
through dedicated product management teams. NTO
is digitizing its key processes and leveraging data to
establish next-generation manufacturing capabilities.
Our resilient supply network has helped us to respond
to the COVID-19 pandemic, supporting an uninter-
rupted supply of our medicines; and (iii) NBS continu-
ing on its journey to become an industry-leading enter-
prise transformation engine. We are strengthening our
Global Service Centers, while building strong IT and
digital foundations, realizing significant procurement
efficiencies, and driving simplification of key enterprise
processes.
• Go big on data and digital. We believe that the growth
and implementation of digital technologies in our indus-
try, including for research and development, produc-
tion, marketing and sales, and as a component of our
products is an important trend in our industry. Our dig-
ital ambition is to transform how we innovate, how we
engage with customers and how we operate. We plan
to achieve this by focusing on four areas: (i) Scale our
digital foundational programs designed to jumpstart
our digital transformation in key areas of our business;
(ii) Make Novartis digital by working to build up our tal-
ent, infrastructure and ways of working to enable us to
work more efficiently with data and to improve the qual-
ity of that data; (iii) Become the healthcare partner of
choice in the tech ecosystem by transforming how we
work with all of our partners – from nimble start-ups
and innovative academic institutions to some of the
biggest organizations in the industry. We have created
the Novartis Biome as a bridge to help our partners
become more like an extension of our own teams and
to work with us as easily and productively as possible;
and (iv) We are preparing for potential future disruptive
healthcare scenarios such as AI-based digital disease
management.
• Build trust with society. Building trust with society has
become an important requirement for companies like
Novartis. Stakeholders are increasingly expressing
preference for companies with clear ESG plans, and
some institutional investors increasingly believe there
is a correlation between company valuations and ESG
performance. We focus on four strategic pillars defined
as material by strategic stakeholders: (i) Ethical stan-
dards: In 2020, we focused our activities on operational
excellence including the launch of a new Code of Eth-
ics and strengthening our third-party risk management
framework; (ii) Pricing and Access: We continue to sys-
tematically integrate access strategies into the
research, development and delivery of our medicines
globally, including in low and middle-income countries.
In 2020, we issued the first healthcare industry sus-
tainability-linked bond which was also the first sustain-
ability-linked bond incorporating social targets tied to
targets for expanding access to our innovative
medicines and addressing key global health chal-
lenges, two areas where we believe we can drive the
greatest value for society; (iii) Global Health Chal-
lenges: We continue to expand our global health pro-
grams in malaria, leprosy, Chagas disease, and sick-
le-cell-disease, and in 2020 launched our new
Sub-Saharan-Africa strategy with our Sub-Saha-
ran-Africa unit deploying innovative approaches to
increase patient reach across countries regardless of
income level; and (iv) Corporate Citizenship: We aim at
achieving gender balance in management and fulfill our
UN pay equity and transparency pledge by 2023. We
also aim to achieve full carbon, plastic and water neu-
trality by 2030. Beyond our four strategic pillars, we
continue our efforts to strengthen our governance and
increase transparency. In 2020, we created an ESG
Management Office within Corporate Strategy tasked
with improving oversight, and facilitating embedding
ESG measures into our business operations. Further,
we have created an ESG Index to allow ESG analysts
to more easily locate our ESG disclosures across our
public disclosures and channels.
52
Item 5. Operating and Financial Review and Prospects
Results of operations
Financial year 2020 compared to 2019
Key figures1
(USD millions unless indicated otherwise)
Net sales to third parties from continuing operations
Sales to discontinued operations
Net sales from continuing operations
Other revenues
Cost of goods sold
Gross profit from continuing operations
Selling, general and administration
Research and development
Other income
Other expense
Operating income from continuing operations
% of net sales to third parties
Income from associated companies
Interest expense
Other financial income and expense
Income before taxes from continuing operations
Taxes
Net income from continuing operations
Net loss from discontinued operations
before gain on distribution of Alcon Inc.
to Novartis AG shareholders
Gain on distribution of Alcon Inc.
to Novartis AG shareholders
Net income from discontinued operations
Net income
Attributable to:
Shareholders of Novartis AG
Non-controlling interests
Basic earnings per share from continuing operations (USD)
Basic earnings per share from discontinued operations (USD)
Total basic earnings per share (USD)
Net cash flows from operating activities from continuing operations
Free cash flow from continuing operations 2
Year ended
Year ended
Dec 31, 2020 Dec 31, 2019
48 659
47 445
53
48 659
47 498
1 239
1 179
– 15 121
– 14 425
34 777
34 252
– 14 197
– 14 369
– 8 980
– 9 402
Change
in USD
%
Change in
constant
currencies
% 2
3
nm
2
5
– 5
2
1
4
3
nm
3
5
– 3
3
1
6
1 742
2 031
– 14
– 17
– 3 190
– 3 426
10 152
9 086
20.9
673
– 869
– 78
19.2
659
– 850
45
9 878
8 940
– 1 807
– 1 793
8 071
7 147
7
12
2
– 2
nm
10
– 1
13
– 101
nm
4 691
4 590
8 071
11 737
nm
nm
– 31
9
19
2
– 4
nm
17
– 7
20
nm
nm
nm
– 27
8 072
11 732
– 31
– 27
– 1
3.55
3.55
5
3.12
2.00
5.12
13 650
13 547
11 691
12 937
nm
14
nm
– 31
1
– 10
nm
21
nm
– 26
1 Continuing operations include the businesses of the Innovative Medicines and Sandoz Divisions and the continuing Corporate activities and discontinued operations include the
Alcon eye care devices business and certain Corporate activities attributable to the Alcon business prior to the spin-off, the gain on distribution of Alcon Inc. to Novartis AG
shareholders in 2019 and certain other expenses related to the distribution. See “Item 18. Financial Statements—Note 1. Significant accounting policies”, “Item 18. Financial
Statements—Note 2. Significant transactions—Significant transactions in 2019,” and “Item 18. Financial Statements—Note 30. Discontinued operations.”
2 For an explanation of non-IFRS measures and reconciliation tables, see “Item 5.A Operating results—Non-IFRS measures as defined by Novartis.”
nm = not meaningful
53
Item 5. Operating and Financial Review and Prospects
Group overview
The COVID-19 situation continues to evolve and is tak-
ing differing courses across the multitude of geographies
that Novartis operates in. We continue to take strong
actions to help address the pandemic consequences.
Our primary concerns remain the health and safety of
our associates and patients.
During the year, there have been COVID-19 related
lockdowns in several geographies negatively impacting
certain therapeutic areas, most notably in: ophthalmol-
ogy, dermatology and the Sandoz Retail Generics Busi-
ness. However, our operations remain stable and cash
collections continue to be according to our normal trade
terms, with days sales outstanding at normal levels.
Novartis remains well positioned to meet its ongoing
financial obligations and has sufficient liquidity to sup-
port our normal business activities. At present, drug
development operations are continuing with manageable
disruptions, with our range of digital technologies allow-
ing us to proactively manage our clinical trials portfolio
and rapidly mitigate any disruptions (see the section on
compounds in development and selected development
projects of our divisions within “Item 4. Information on
the Company – Item 4.B Business overview”).
Novartis launched a first-of-its-kind not-for-profit
portfolio of 15 medicines from the Sandoz Division for
symptomatic treatment of COVID-19. The portfolio
addresses urgent unmet needs and is sold at no profit
to governments in up to 79 eligible low and lower middle
income countries. We continue to work closely with third
parties to fight the COVID-19 pandemic. Novartis is also
undertaking drug discovery efforts to develop the first
oral medicines for COVID-19 and other coronaviruses.
We are investigating two potential medicines, DFV890
and MAS825, in early stage development focused on the
immune response. In October, we announced a collab-
oration with Molecular Partners to develop, manufacture
and commercialize Molecular Partners’ anti-COVID-19
DARPin® program, potential medicines for the prevention
and treatment of COVID-19.
In 2020, Novartis delivered sales growth, margin
expansion, and continued to progress its next wave of
medicines.
Net sales to third parties for Novartis continuing oper-
ations were USD 48.7 billion, up 3% in reported terms
and up 3% measured in constant currencies (cc) to
remove the impact of exchange rate movements. Sales
growth was driven by volume growth of 9 percentage
points, mainly driven by Entresto, Zolgensma, Cosentyx,
Ilaris and the Xiidra acquisition for the Novartis
Pharmaceuticals business unit and Promacta/Revolade,
Jakavi, Kisqali, Tafinlar + Mekinist and Piqray for the
Novartis Oncology business unit. The strong volume
growth was partly offset by the negative impacts of pric-
ing (3 percentage points) and generic competition (3 per-
centage points).
By division, Innovative Medicines delivered net sales
of USD 39.0 billion (+3%, +4% cc). Sandoz net sales were
USD 9.6 billion (–1%, 0% cc), impacted by ongoing dis-
ruptions to hospitals and HCP practices due to COVID-
19, which limited patient access to treatments for our
retail business across regions.
In Emerging Growth Markets, which comprise all mar-
kets excluding the US, Canada, Western Europe, Japan,
Australia and New Zealand, sales from continuing oper-
ations were USD 11.9 billion (+1%, +6% cc) driven by China
(USD 2.6 billion) growing 16%, (+16% cc).
Operating income from continuing operations was
USD 10.2 billion (+12%, +19% cc), mainly driven by higher
sales and productivity including lower spend. Operating
income margin from continuing operations was 20.9%
of net sales, increasing by 1.7 percentage point (+2.9 per-
centage points cc).
Net income from continuing operations was USD 8.1
billion (+13%, +20% cc) mainly driven by higher operat-
ing income. Earnings per share from continuing opera-
tions were USD 3.55 (+14%, +21% cc), growing faster than
net income and benefiting from lower weighted average
number of shares outstanding.
Net cash flows from operating activities from con-
tinuing operations amounted to USD 13.6 billion, com-
pared to USD 13.5 billion in 2019. This increase was
mainly driven by higher net income adjusted for non-cash
items and other adjustments including divestment gains,
partly offset by higher payments out of provisions related
to legal matters.
Free cash flow from continuing operations amounted
to USD 11.7 billion (–10%) compared to USD 12.9 billion
in 2019, as higher operating income adjusted for non-
cash items was more than offset by payments related to
legal matters and lower divestment proceeds.
We also present our core results1, which exclude the
impact of amortization, impairments, disposals, acquisi-
tions, restructurings and other significant items, to help
investors understand our underlying performance.
Core operating income from continuing operations
was USD 15.4 billion (+9%, +13% cc) driven by sales
growth, lower spend and productivity. Core operating
income margin was 31.7% of net sales, increasing by 2.0
percentage points (+2.8 percentage points cc).
Core net income from continuing operations was
USD 13.2 billion (+9%, +12% cc) mainly driven by growth
in core operating income. Core earnings per share from
continuing operations were USD 5.78 (+9%, +13% cc),
growing faster than core net income benefiting from
lower weighted average number of shares outstanding.
In 2020, there were no operational activities related
to discontinued operations. In 2019, discontinued oper-
ations net sales were USD 1.8 billion, operating income
amounted to USD 71 million and net income from discon-
tinued operations was USD 4.6 billion, including the
non-taxable non-cash net gain on distribution of Alcon
Inc. to Novartis AG shareholders which amounted to USD
4.7 billion.
For the total Group, net income amounted to USD 8.1
billion compared to USD 11.7 billion in the prior year,
including the non-taxable non-cash net gain on distribu-
tion of Alcon Inc. which amounted to USD 4.7 billion.
Basic earnings per share were USD 3.55 compared to
USD 5.12 in prior year. Cash flow from operating activi-
ties for the total Group amounted to USD 13.6 billion and
free cash flow to USD 11.7 billion.
1 For an explanation of non-IFRS measures and reconciliation tables, see “Item 5.A
Operating results—Non-IFRS measures as defined by Novartis.”
54
Item 5. Operating and Financial Review and Prospects
Net sales by segment
The following table provides an overview of net sales to third parties by segment:
(USD millions)
Innovative Medicines
Sandoz
Net sales to third parties from continuing operations
Innovative Medicines
Year ended
Year ended
Dec 31, 2020 Dec 31, 2019
39 013
37 714
9 646
9 731
48 659
47 445
Change
in USD
%
3
– 1
3
Change in
constant
currencies
%
4
0
3
The Innovative Medicines Division delivered net sales of
USD 39.0 billion in 2020, up 3% in reported terms and
in constant currencies (cc). The Novartis
4%
Pharmaceuticals business unit delivered net sales of
USD 24.3 billion in 2020, growing 4% (+5% cc), driven by
Entresto, Zolgensma, Cosentyx, Ilaris and the Xiidra
acquisition. Growth was partly offset by declines in
Gilenya, and lower demand for Lucentis due to COVID-
19. Other Ophthalmology products were also impacted
by both COVID-19 and generic competition. The Novartis
Oncology business unit delivered net sales of USD 14.7
billion, growing 2% (+3% cc), driven by Promacta/
Revolade, Jakavi, Kisqali, Tafinlar + Mekinist and Piqray,
partially offset by generic competition for Afinitor and
Exjade. Volume contributed 10 percentage points to
sales growth. Pricing had a negative impact of 3 percent-
age points. Generic competition had a negative impact
of 3 percentage points.
Regionally, US sales (USD 14.3 billion, +4%) delivered
strong performance of Entresto, Zolgensma and
Cosentyx. Europe sales (USD 13.5 billion, +5%, +4% cc)
grew driven by Entresto, Zolgensma, Jakavi, Kisqali and
Kymriah. Japan sales were USD 2.4 billion (0%, –3% cc)
as growth was negatively impacted by the Galvus co-pro-
motion agreement. Emerging Growth Markets sales grew
3% (+7% cc), led by double-digit growth in China, includ-
ing the launches of Cosentyx and Entresto.
The following table provides an overview of net sales
to third parties by business franchise in the Innovative
Medicines Division:
(USD millions)
Total Novartis Oncology business unit
Total Novartis Pharmaceuticals business unit
Immunology, Hepatology and Dermatology
Ophthalmology
Neuroscience
Cardiovascular, Renal and Metabolism
Respiratory
Established Medicines
Total Innovative Medicines
Year ended
Year ended
Dec 31, 2020 Dec 31, 2019
14 711
14 370
24 302
23 344
4 868
4 410
4 323
2 498
1 900
6 303
4 222
4 776
3 773
1 750
1 825
6 998
39 013
37 714
Change
in USD
%
Change in
constant
currencies
%
2
4
15
– 8
15
43
4
– 10
3
3
5
16
– 8
14
42
5
– 8
4
55
Item 5. Operating and Financial Review and Prospects
The following table provides the top 20 Innovative Medicines Division product net sales in 2020 as well as the
change compared to 2019:
US
Rest of world
Total
Brands
Business franchise
Indication
%
change
USD m USD/cc 2
%
%
change change
cc 2
USD
USD m
%
%
change change
cc 2
USD
USD m
Immunology,
Hepatology and
Dermatology
Psoriasis, ankylosing
spondylitis, psoriatic
arthritis and
non-radiographic axial
spondyloarthritis
2 516
13
1 479
11
12
3 995
13
Neuroscience
Relapsing multiple sclerosis
1 562 – 10
1 441
– 3
– 3
3 003
– 7
Cardiovascular, Renal
and Metabolism
Chronic heart failure
1 277
38
1 220
52
52
2 497
45
Oncology
Chronic myeloid leukemia
859
7
1 099
2
3
1 958
4
13
– 7
44
5
Cosentyx
Gilenya
Entresto
Tasigna
Lucentis
Ophthalmology
Promacta/Revolade Oncology
Tafinlar + Mekinist
Oncology
Sandostatin
Oncology
Jakavi
Oncology
Xolair 1
Respiratory
Age-related
macular degeneration
Immune thrombocytopenia
(ITP), severe aplastic
anemia (SAA)
BRAF V600+ metastatic
and adjuvant melanoma;
advanced non-small cell
lung cancer (NSCLC)
Carcinoid tumors
and acromegaly
Myelofibrosis (MF),
polycythemia vera (PV)
Severe zllergic zsthma
(SAA), chronic spontaneous
urticaria (CSU) and nasal polyps
Galvus Group
Established Medicines Type 2 diabetes
Gleevec/Glivec
Oncology
Chronic myeloid
leukemia and GIST
1 933
– 7
– 8
1 933
– 7
– 8
833
21
905
25
26
1 738
23
23
569
18
973
14
15
1 542
15
16
837
– 5
602 – 14 – 13
1 439
– 9
– 8
1 339
20
20
1 339
20
20
1 251
7
8
1 251
7
8
1 199
– 8
– 5
1 199
– 8
– 5
315
– 6
873
– 6
– 6
1 188
– 6
– 6
Afinitor/Votubia
Oncology
Breast cancer/TSC
644 – 36
439 – 18 – 17
1 083 – 30 – 29
Diovan Group
Established Medicines Hypertension
Exforge Group
Established Medicines Hypertension
124
16
44
23
879 – 10
– 8
1 003
964
– 5
– 3
980
– 6
– 4
– 4
– 3
Zolgensma
Neuroscience
Spinal muscular atrophy
(SMA)
459
50
461
nm
nm
920 155 151
Ilaris
Kisqali
Exjade/Jadenu
Votrient
Immunology,
Hepatology and
Dermatology
Auto-inflammatory (CAPS,
TRAPS, HIDS/MKD, FMF, SJIA,
AOSD and gout)
400
32
473
29
30
873
30
31
Oncology
Oncology
Oncology
HR+/HER2- metastatic
breast cancer
318
27
369
60
Chronic iron overload
138 – 69
515
– 2
65
– 2
687
43
45
653 – 33 – 33
Renal cell carcinoma
259 – 22
376 – 11 – 10
635 – 16 – 15
Top 20 products total
Rest of portfolio
Total division sales
11 126
3 18 790
6
7 29 916
5
3 216
8
5 881
– 5
– 5
9 097
– 1
14 342
4 24 671
3
4 39 013
3
5
0
4
1 Net sales reflect Xolair sales for all indications.
2 Constant currencies (cc) is a non-IFRS measure. For an explanation of non-IFRS measures, see “ —Item 5.A Operating results—Non-IFRS measures as defined by Novartis.”
For the table providing the top 20 Innovative Medicines Division product net sales in 2019, see “Item 18. Financial
statements—Note 3. Segmentation of key figures 2020, 2019 and 2018.”
For information about the approved indications for certain products described, see “Item 4. Information on the
Company—Item 4.B Business overview—Innovative Medicines— Innovative Medicines Division products.”
Novartis Oncology business unit
Tasigna (USD 2.0 billion, +4%, +5% cc) sales grew due
to a strong performance in key markets including the US
and China, partly offset by a decline in Europe.
Promacta/Revolade (USD 1.7 billion, +23%, +23% cc)
grew across all regions, driven by increased use in
chronic immune thrombocytopenia (ITP) and as first-line
treatment for severe aplastic anemia (SAA) in the US.
Tafinlar + Mekinist (USD 1.5 billion, +15%, +16% cc),
the worldwide leader in BRAF/MEK-inhibition, continued
to deliver strong growth driven by demand in adjuvant
melanoma, as well as advanced NSCLC. Tafinlar +
56
Item 5. Operating and Financial Review and Prospects
Mekinist is the first and only targeted therapy to achieve
five-year relapse-free survival (RFS) and overall survival
(OS) data in the adjuvant and metastatic melanoma set-
tings, respectively.
Sandostatin (USD 1.4 billion, –9%, –8% cc) sales
declined due to ongoing competitive pressure in Europe,
US and Japan. The brand was also impacted by generic
competition in Europe.
Jakavi (USD 1.3 billion, +20%, +20% cc) growth was
driven by strong demand in the myelofibrosis and poly-
cythemia vera indications. Data readouts from two Phase
III studies (REACH2 and REACH3) showed Jakavi sig-
nificantly improved outcomes in patients with steroid-re-
sistant/dependent graft-versus-host disease (GvHD)
compared to best available therapy. Regulatory filings
based on the GvHD data are planned for 2021.
Gleevec/Glivec (USD 1.2 billion, –6%, –6% cc)
than 50 countries, including the US and EU member states.
Piqray launched in the US in June 2019.
Adakveo (USD 105 million) US launch continued to
progress well, with more than 600 accounts purchasing
Adakveo to date. Payer coverage decisions expanded,
both in Medicaid and commercial (with 94% coverage
among commercial plans to date). Following approval in
Europe in Q4, reimbursement discussions with individ-
ual countries are underway.
Tabrecta (USD 35 million) US launch progressed well.
Ninety leading lung cancer institutions have started
patients on treatment. Tabrecta is the first and only ther-
apy approved by the US FDA to specifically target met-
astatic NSCLC with a mutation that leads to MET exon
14 skipping (METex14), as detected by an FDA-approved
test. Tabrecta also secured regulatory approval in Japan.
declined due to increased generic competition.
Novartis Pharmaceuticals business unit
Afinitor/Votubia (USD 1.1 billion, –30%, –29% cc)
declined due to generic competition in the US, Europe
and Emerging Growth Markets.
Kisqali (USD 687 million, +43%, +45% cc) continued
strong growth across all geographies benefiting from
the impact of positive overall survival (OS) data from two
pivotal Phase III trials (MONALEESA-7 and MONA-
LEESA-3). Kisqali stands apart as the only CDK4/6 inhib-
itor that significantly improves OS in two large Phase III
trials, regardless of metastatic sites, endocrine treat-
ment (ET) resistance, ET partner, treatment line or meno-
pausal status, while maintaining quality of life.
Exjade/Jadenu (USD 653 million, –33%, –33% cc)
declined mainly due to pressure from generic competi-
tion in the US and other regions.
Votrient (USD 635 million, –16%, –15% cc) declined
due to increased competition in Europe and the US.
Kymriah (USD 474 million, +71%, +68% cc) grew
strongly in Europe, US and Japan. Coverage continued
to expand, with more than 280 qualified treatment cen-
ters and 27 countries having coverage for at least one
indication. FDA granted Regenerative Medicine
Advanced Therapy designation and orphan drug status
for Kymriah in follicular lymphoma. At the interim analy-
sis, the Phase II ELARA trial in patients with relapsed or
refractory follicular lymphoma met its primary endpoint
of complete response rate. Regulatory approvals in Swit-
zerland, France and Japan expanded manufacturing
capabilities for Kymriah to meet increased demand.
Lutathera (USD 445 million, +1%, +1% cc) sales were
broadly in line with prior year, as the COVID-19 pandemic
had an impact on the brand. There are 384 total centers
now actively treating patients. Sales from all AAA brands
(including Lutathera and radiopharmaceutical diagnos-
tic products) were USD 681 million.
Piqray (USD 320 million, +176%, +176% cc) grew sig-
nificantly in the US as the launch roll out continued. Piqray
in combination with fulvestrant received European Com-
mission (EC) approval to treat HR+/HER2- advanced
breast cancer with a PIK3CA mutation. Piqray is the first
and only therapy specifically developed for the approx-
imately 40% of HR+/HER2- advanced breast cancer
patients who have a PIK3CA mutation, which is associ-
ated with poor prognosis. Piqray is now approved in more
Immunology, Hepatology and Dermatology
Sales in the Immunology, Hepatology and Dermatology
franchise reached USD 4.9 billion (+15%, +16% cc), of
which Cosentyx delivered USD 4.0 billion.
Cosentyx (USD 4.0 billion, +13%, +13% cc) saw con-
tinued growth across indications despite lower new
patient starts across the market in dermatology and
rheumatology in most geographies due to COVID-19. In
the second quarter, Cosentyx received approval and
launched in the EU and US for non-radiographic axial
spondyloarthritis (nr-axSpA), its fourth major indication,
and in August became the first treatment approved in
Japan for this indication. In April, Cosentyx also became
the first IL17A inhibitor approved in China for the treat-
ment of AS. In July, Cosentyx received EU approval as a
first-line systemic treatment for pediatric psoriasis. In
November, Cosentyx received EC approval for a new
300 mg autoinjector and pre-filled syringe, which enable
the 300 mg dose to be administered in a single injection.
In China, Cosentyx has been listed in the National Reim-
bursement Drug List (NRDL) as the only interleukin inhib-
itor with planned execution March 1, 2021
Ilaris (USD 873 million, +30%, +31% cc) sales were
driven by strong double-digit volume growth, particularly
coming from the US, Europe and Japan. In June, Ilaris
was granted a new indication in the US for active Still’s
disease including Adult-Onset Still’s Disease (AOSD);
this is in addition to its previously-granted indication for
systemic juvenile idiopathic arthritis (SJIA). Ilaris is the
first FDA-approved treatment for AOSD.
Ophthalmology
Sales in the Ophthalmology franchise were USD 4.4 bil-
lion (–8%, –8% cc) and were impacted by the COVID-19
pandemic.
Lucentis (USD 1.9 billion, –7%, –8% cc) sales declined
due to the negative impact of the COVID-19 pandemic,
which has significantly disrupted ophthalmology prac-
tices and limited patient access to treatment of retinal
diseases. Sales have been consistently recovering from
the COVID-19 impact since May until the end of the third
quarter, and showed less impact of the pandemic in the
fourth quarter compared to the second quarter.
57
Item 5. Operating and Financial Review and Prospects
Xiidra (USD 376 million, +96%, +95% cc) was impacted
by COVID-19 pandemic as ophthalmology visits declined
significantly. In the latter part of the second quarter, the
US dry eye market began to rebound as eye care prac-
tices began opening. Novartis has informed the Euro-
pean Medicines Agency of its decision to withdraw the
centralized application for Marketing Authorization of
Xiidra. Novartis acquired Xiidra from Takeda and began
recording sales as of July 1, 2019.
Beovu (USD 190 million) launch roll-out continued,
with approval now in 57 countries. Post marketing case
reports termed as “retinal vasculitis” and/or “retinal vas-
cular occlusion” that may result in severe vision loss, typ-
ically associated with intraocular inflammation, and the
COVID-19 pandemic had an unfavorable impact on sales.
Novartis has a comprehensive plan, in strong collabora-
tion with leading external global experts to educate the
retina community about the positive benefit / risk profile
of Beovu.
Other Ophthalmology products declined due to the
negative impact of the COVID-19 pandemic and generic
impacts in the US, primarily for Travatan and Ciprodex.
Neuroscience
Sales in the Neuroscience franchise were USD 4.3 bil-
lion (+15%, +14% cc), mainly driven by the sales growth
of Zolgensma, partly offset by sales decline of Gilenya.
Gilenya (USD 3.0 billion, –7%, –7% cc) sales declined
due to increased competition and the impact of the
COVID-19 pandemic. Gilenya remains the top prescribed
high efficacy therapy in 41 countries and the only one
approved to treat pediatric RMS.
Zolgensma (USD 920 million, +155%, +151% cc) deliv-
ered significant growth despite the negative impact of
the COVID-19 pandemic in the US and ex-US, with geo-
graphic expansion in Europe and Japan contributing
strongly. Reimbursement is now secured in six countries,
with access pathways in nine EU countries through our
Day One Access initiative representing approximately
25% of the EU population. As anticipated, there was a
shift from prevalent patients to incident patients in all
markets post launch, with increased newborn screening
in the US contributing to growth. Zolgensma recent
approvals include Brazil, Israel, Canada and Taiwan.
Zolgensma is viewed as an essential one-time treatment
and is the only therapy for spinal muscular atrophy (SMA)
that addresses the genetic root cause of SMA by replac-
ing the function of the missing SMN1 gene. Its clinical
profile and one-time dosing are anticipated to remain dif-
ferentiators for both physicians and patients when mak-
ing a treatment choice. Zolgensma launched in the US in
June 2019.
Mayzent (USD 170 million) continued to grow steadily.
Growth was driven by fulfilling an important unmet need
in patients showing signs of progression despite being
on other treatments. Mayzent is the first and only oral
DMT studied and proven to delay disease progression
in a broad SPMS patient population. In addition to the US
and EU, Mayzent is now approved in the UK, Australia,
Canada, Japan and Switzerland.
Aimovig (USD 164 million, ex-US, ex-Japan, +59%,
+57% cc) is the most prescribed anti-CGRP worldwide,
with more than half a million patients prescribed world-
wide in the post-trial setting. Aimovig is co-commercial-
ized with Amgen in the US, where Amgen records sales.
Novartis has exclusive rights and records sales in all
ex-US territories excluding Japan. During the ongoing
litigation between the companies the collaboration con-
tinues and will remain in force until a final court decision.
Kesimpta (ofatumumab, formerly OMB157) (USD 15
million) was launched in the US following FDA approval
in August. To initiate access, we are providing Kesimpta
free of charge to US patients who are eligible for reim-
bursement until they are covered by their insurance. Kes-
impta is a targeted B-cell therapy that can deliver sus-
tained high efficacy, with a favorable safety profile and
the flexibility of an at home self-administration for a broad
population of RMS patients. We have seen a promising
start with our flexible hybrid face-to-face / digital launch.
Cardiovascular, Renal and Metabolism
Sales in the Cardiovascular, Renal and Metabolism fran-
chise were USD 2.5 billion (+43%, +42% cc).
Entresto (USD 2.5 billion, +45%, +44% cc) sustained
strong growth with increased patient share across mar-
kets, driven by demand as the essential first choice ther-
apy for HF patients (reduced ejection fraction). Entresto
was successfully launched in Japan in August. FDA Car-
diovascular and Renal Drugs Advisory Committee voted
12 to 1 to support the use of Entresto in treatment of
patients with heart failure with preserved ejection frac-
tion (HFpEF). Expected FDA approval has the potential
to make Entresto the first therapy indicated for both
HFpEF and HFrEF in the US, and a final decision is
expected in the first quarter of 2021.
Respiratory
Sales in the Respiratory franchise were USD 1.9 billion
(+4%, +5% cc), of which Xolair delivered USD 1.3 billion.
Xolair (USD 1.3 billion, +7%, +8% cc) continued growth
in the severe allergic asthma (SAA) and chronic sponta-
neous urticaria (CSU) indications. In the first half 2020,
Xolair received approval from the US and the European
Commission (EC) for a new indication to treat severe
chronic rhinosinusitis with nasal polyps (CRSwNP).
Novartis co-promotes Xolair with Genentech in the US
and shares a portion of operating income, but we do not
record any US sales.
Ultibro Group (USD 623 million, –1%, –1% cc) sales
were broadly in line with prior year, as strong Ultibro Bree-
zhaler sales were offset by the decline in Seebri Bree-
zhaler and Onbrez Breezhaler. Ultibro Group consists of
inhaled COPD therapies Ultibro Breezhaler, Seebri Bree-
zhaler and Onbrez Breezhaler.
Enerzair Group consists of Enerzair Breezhaler and
Atectura Breezhaler. Enerzair Breezhaler (indacaterol /
glycopyrronium bromide / mometasone, formerly known
as QVM149) is an inhaled LABA/LAMA/ICS combina-
tion for patients whose asthma is uncontrolled with
LABA/ICS. Atectura Breezhaler (indacaterol / mometa-
sone, formerly known as QMF149) is a LABA/ICS fixed-
dose combination for patients whose asthma is uncon-
trolled with SABA and ICS. Both medicines were approved
in the EU, Japan, Canada, Australia, Switzerland and
South Korea in 2020, together with the digital compan-
ion (sensor and app) for Enerzair Breezhaler in the EU
and Switzerland. They have been launched to date in
seven markets, including Germany, Japan and the UK.
58
Item 5. Operating and Financial Review and Prospects
Established Medicines
The Established Medicines franchise had sales of USD
6.3 billion (–10%, –8% cc).
Exforge Group (USD 980 million, –4%, –3% cc)
declined in Europe due to generic competition, partly
offset by growth in China.
Galvus Group (USD 1.2 billion, –8%, –5% cc) declined
primarily due to generic competition in Emerging Growth
Markets and pricing impact from our co-promotion
agreement in Japan that started in 2019.
Diovan Group (USD 1.0 billion, –6%, –4% cc) declined
mainly due to generic competition and the impact of VBP
in China.
Zortress/Certican (USD 452 million, –7%, –7% cc)
declined mainly due to generic competition in the US.
Neoral/Sandimmun(e) (USD 393 million, –6%, –6%
cc) declined mainly due to generic competition and man-
datory price reductions.
Voltaren/Cataflam (USD 360 million, –14%, –12% cc)
declined mainly due to generic competition and external
supply issues following the COVID-19 pandemic.
Sandoz
Net sales were USD 9.6 billion (–1%, 0% cc) with volume
growth of 2 percentage points despite the COVID-19
impacts. There was a negative price effect of 2 percent-
age points, despite the benefit from off-contract sales
and favorable revenue deduction adjustments.
Sales in Europe were USD 5.2 billion (+2%, +2% cc).
Sales in the US were USD 2.1 billion (–14%), due to the
continued volume decline in oral solids including part-
nership terminations. Sales in Asia / Africa / Australasia
were USD 1.5 billion (+12%, +11% cc) including the con-
tribution from the Aspen Japan acquisition. Sales in Can-
ada and Latin America were USD 772 million (–2%, +8%
cc).
The following table provides an overview of net sales
to third parties by business franchise in the Sandoz Divi-
sion:
(USD millions)
Year ended
Year ended
Dec 31, 2020 Dec 31, 2019
Retail Generics1
7 244
Biopharmaceuticals 1 928
7 590
1 607
Anti-Infectives
(partner label/API)
474
534
Total Sandoz
9 646
9 731
Change
in USD
%
– 5
20
– 11
– 1
Change in
constant
currencies
%
– 4
19
– 12
0
1 Of which USD 694 million (2019: USD 784 million) represents anti-infectives sold
under the Sandoz name
Retail Generics
In Retail Generics, Sandoz develops, manufactures and
markets active ingredients and finished dosage forms of
small molecule pharmaceuticals to third parties across
a broad range of therapeutic areas, as well as finished
dosage form of anti-infectives sold to third parties.
Retail Generics sales were USD 7.2 billion (–5%, –4%
cc) impacted by the declines in the US and COVID-19
related impact across regions.
Biopharmaceuticals
In Biopharmaceuticals, Sandoz develops, manufactures
and markets protein- and other biotechnology-based
products, including biosimilars, and provides biotechnol-
ogy manufacturing services to other companies. The
Biopharmaceuticals business also includes Glatopa, a
generic version of Copaxone®, which treats relapsing
forms of multiple sclerosis and is marketed in the US.
Global sales of Biopharmaceuticals (biosimilars, bio-
pharmaceutical contract manufacturing and Glatopa)
grew to USD 1.9 billion (+20%, +19% cc), driven by con-
tinued double-digit growth in Europe from Hyrimoz (adali-
mumab), Erelzi (etanercept) and Zessly (infliximab) and
growth from Omnitrope (somatropin) across all regions.
Launch roll-outs in other geographies also contributed
to growth.
Anti-Infectives
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.
Total Anti-Infectives franchise sales were USD 1.2 bil-
lion (–11%, –11% cc) including finished dosage forms sold
under the Sandoz name (USD 694 million, –11%, –10%
cc) and Anti-Infectives sold to third parties for sale under
their own name (USD 474 million, –11%, –12% cc), which
were impacted by a planned contract discontinuation.
59
Item 5. Operating and Financial Review and Prospects
Operating income from continuing operations
The following table provides an overview of operating income from continuing operations by segment:
(USD millions)
Innovative Medicines
Sandoz
Corporate
Year ended
Dec 31, 2020
9 172
1 043
– 63
Operating income from continuing operations
10 152
20.9
% of
net sales
to third
Year ended
parties Dec 31, 2019
23.5
10.8
9 287
551
– 752
9 086
% of
net sales
to third
parties
24.6
5.7
19.2
Change
in USD
%
Change in
constant
currencies
%
– 1
89
nm
12
4
106
nm
19
Operating income was USD 10.2 billion (+12%, +19% cc) mainly driven by higher sales and productivity including
lower spend.
Core operating income from continuing operations key figures1
(USD millions unless indicated otherwise)
Core gross profit from continuing operations
Selling, general and administration
Research and development
Other income
Other expense
Core operating income from continuing operations
As % of net sales to third parties
Year ended
Year ended
Dec 31, 2020 Dec 31, 2019
38 663
37 392
– 14 093
– 14 319
– 8 484
– 8 386
323
495
– 993
– 1 070
15 416
14 112
31.7
29.7
Change
in USD
%
Change in
constant
currencies
%
3
2
– 1
– 35
7
9
4
2
0
– 39
11
13
1 For an explanation of non-IFRS measures and reconciliation tables, see “Item 5.A Operating results—Non-IFRS measures as defined by Novartis.”
The adjustments made to operating income from con-
tinuing operations to arrive at core operating income
from continuing operations amounted to USD 5.3 billion
(compared to USD 5.0 billion in the prior year). For details
please see “Item 5.A Operating results–2020 and 2019
reconciliation from IFRS results to core results.”
Core operating income was USD 15.4 billion (+9%,
+13% cc) driven by sales growth, lower spend and pro-
ductivity. Core operating income margin was 31.7% of
net sales, increasing by 2.0 percentage points (+2.8 per-
centage points cc).
The following table provides an overview of core operating income from continuing operations by segment:
(USD millions)
Innovative Medicines
Sandoz
Corporate
Year ended
Dec 31, 2020
13 645
2 334
– 563
% of
net sales
to third
Year ended
parties Dec 31, 2019
35.0
24.2
12 650
2 094
– 632
% of
net sales
to third
parties
33.5
21.5
Core operating income from continuing operations
15 416
31.7
14 112
29.7
Change
in USD
%
Change in
constant
currencies
%
8
11
11
9
11
15
14
13
Innovative Medicines
Operating income was USD 9.2 billion (–1%, +4% cc).
Growth at constant currencies was mainly driven by
sales growth, partly offset by lower divestment gains and
higher amortization. Operating income margin was
23.5% of net sales, decreasing 1.1 percentage points (+0.1
percentage points cc).
Core adjustments were USD 4.5 billion, mainly due
to USD 3.0 billion of amortization. Core adjustments
increased compared to prior year (USD 3.4 billion) mainly
due to lower divestment gains and higher amortization.
Core operating income was USD 13.6 billion (+8%,
+11% cc) mainly driven by sales growth, lower COVID-19
related spending and improved gross margin productiv-
60
Item 5. Operating and Financial Review and Prospects
ity. Core operating income margin was 35.0% of net
sales, increasing 1.5 percentage points (+2.2 percentage
points cc).
Core gross margin increased by 0.4 percentage
points (cc) mainly driven by productivity. Core R&D
expenses as a percentage of net sales decreased by 0.9
percentage points (cc) mainly driven by the higher net
sales, productivity, and COVID-19 related spending
impacts. Core SG&A expenses declined by 1.2 percent-
age points (cc) benefiting from COVID-19 related spend-
ing impacts. Core Other Income and Expense net
decreased the margin by 0.3 percentage points (cc).
Sandoz
Operating income was USD 1.0 billion, (+89%, +106% cc),
an increase of USD 492 million versus prior year mainly
due to lower impairments, continued gross margin
improvements and lower spending. Operating income
margin increased by 6.0 percentage points in constant
currencies; currency had a negative impact of 0.9 per-
centage points, resulting in a net increase of 5.1 percent-
age points to 10.8% of net sales.
Core adjustments were USD 1.3 billion, mainly from
USD 0.6 billion of amortization and impairments and USD
0.4 billion legal charges. Prior year core adjustments
were USD 1.5 billion. The change in core adjustments
compared to prior year was mainly due to higher prior
year impairments.
Core operating income was USD 2.3 billion (+11%,
+15% cc), driven by gross margin improvements, lower
spending from cost discipline and COVID-19. Core oper-
ating income margin was 24.2% of net sales, increasing
2.7 percentage points (3.3 percentage points cc). Core
gross margin increased by 1.9 percentage points (cc),
driven by favorable product and geographic mix, ongo-
ing productivity improvements and lower price effects.
Core R&D increased by 0.5 percentage points (cc) driven
by biosimilar pipeline investments. Core SG&A expenses
declined by 1.6 percentage points (cc) benefiting from
COVID-19 related spending impacts. Core Other Income
and Expense decreased by 0.3 percentage points (cc).
Corporate income and expense, net
Corporate income and expense, which includes the cost
of Group headquarter and coordination functions,
amounted to an expense of USD 63 million in the full year,
compared to an expense of USD 752 million in prior year,
mainly driven by favorable contributions from the Novartis
Venture Fund, income from a fair value adjustment on
contingent receivables, royalty settlement gains related
to intellectual property rights and lower restructuring
costs.
Innovative Medicines Division research and development
The following table provides an overview of the reported and core research and development expense of the
Innovative Medicines Division:
(USD millions unless indicated otherwise)
Research and exploratory development
Confirmatory development
Total Innovative Medicines Division research and development expense
As % of Innovative Medicines net sales to third parties
Core research and exploratory development1
Core confirmatory development1
Total core Innovative Medicines Division research and development expense
As % of Innovative Medicines net sales to third parties
Year ended
Year ended
Dec 31, 2020 Dec 31, 2019
– 2 737
– 2 855
– 5 381
– 5 297
– 8 118
– 8 152
20.8
21.6
– 2 682
– 2 706
– 4 954
– 4 879
– 7 636
– 7 585
19.6
20.1
Change
in USD
%
Change in
constant
currencies
%
4
– 2
0
1
– 2
– 1
6
– 1
2
3
– 0
1
1 Core excludes impairments, amortization and certain other items. For an explanation of non-IFRS measures and reconciliation tables, see “Item 5.A Operating results—Non-IFRS
measures as defined by Novartis.”
Innovative Medicines Division research and exploratory
development expense decreased by 4% (+6% cc) to USD
2.7 billion, and confirmatory development expense
amounted to USD 5.4 billion, increasing by 2% (–1% cc)
versus prior year. This was mainly due to lower impair-
ment charges, lower spending due to COVID-19 and pro-
ductivity.
Total core research and development expense in the
Innovative Medicines Division as a percentage of sales
decreased by 0.5 percentage points (0.9 percentage
points cc) to 19.6% of net sales, mainly driven by the
higher net sales, productivity, and COVID-19 related
spending impacts.
61
Item 5. Operating and Financial Review and Prospects
Non-operating income and expense
The term “non-operating income and expense” includes all income and expense items outside operating income.
The following table provides an overview of non-operating income and expense from continuing operations:
(USD millions unless indicated otherwise)
Operating income from continuing operations
Income from associated companies
Interest expense
Other financial income and expense
Income before taxes from continuing operations
Taxes
Net income from continuing operations
Net loss from discontinued operations
before gain on distribution of Alcon Inc.
to Novartis AG shareholders
Gain on distribution of Alcon Inc.
to Novartis AG shareholders
Net income from discontinued operations
Net income
Attributable to:
Shareholders of Novartis AG
Non-controlling interests
Basic earnings per share from continuing operations (USD)
Basic earnings per share from discontinued operations (USD)
Total basic earnings per share (USD)
nm = not meaningful
Year ended
Year ended
Dec 31, 2020 Dec 31, 2019
10 152
9 086
673
– 869
– 78
659
– 850
45
9 878
8 940
– 1 807
– 1 793
8 071
7 147
– 101
4 691
4 590
Change
in USD
%
Change in
constant
currencies
%
12
2
– 2
nm
10
– 1
13
nm
nm
nm
19
2
– 4
nm
17
– 7
20
nm
nm
nm
8 071
11 737
– 31
– 27
8 072
11 732
– 31
– 27
– 1
3.55
3.55
5
3.12
2.00
5.12
nm
14
nm
nm
21
nm
– 31
– 26
Income from associated companies
Income from associated companies amounted to USD
673 million in 2020 compared to USD 659 million in the
prior year. This comprises mainly the share of income
from Roche amounting to USD 677 million, which was
broadly in line with the prior year amount of USD 662
million.
Interest expense and other financial income and
expense
Interest expense increased to USD 869 million from USD
850 million in the prior year, mainly due to an increase in
interest expense from discounting long term liabilities.
Other financial income and expense amounted to a
loss of USD 78 million compared to an income of USD
45 million in prior year mainly due to lower interest
income in 2020.
Taxes
The tax rate for continuing operations was 18.3% com-
pared to 20.1% in the prior year. The current year tax rate
was impacted by the effect of non-deductible legal
charges and uncertain tax positions. The prior year tax
rate was impacted by a one-time, non-cash deferred tax
expense resulting from legal entity reorganizations, a
prior year item and an increase to an uncertain tax posi-
tion, partially offset by the deferred tax credit from Swiss
tax reform.
Excluding these impacts, the rate from continuing
operations would have been 15.6% compared to 15.4%
in the prior year. The increase from prior year was mainly
the result of a change in profit mix.
Net income from continuing operations
Net income was USD 8.1 billion (+13%, +20% cc) mainly
driven by higher operating income.
Earnings per share
Basic earnings per share from continuing operations
were USD 3.55 (+14%, +21% cc), growing faster than net
income and benefiting from lower weighted average
number of shares outstanding.
62
Item 5. Operating and Financial Review and Prospects
Core non-operating income and expense from continuing operations1
The following table provides an overview of core non-operating income and expense from continuing operations:
(USD millions unless indicated otherwise)
Core operating income from continuing operations
Core income from associated companies
Core interest expense
Core other financial income and expense
Core income before taxes from continuing operations
Core taxes
Core net income from continuing operations
Core basic earnings per share from continuing operations (USD)
Year ended
Year ended
Dec 31, 2020 Dec 31, 2019
15 416
14 112
1 097
– 869
– 83
1 086
– 850
56
15 561
14 404
– 2 403
– 2 300
13 158
12 104
5.78
5.28
Change
in USD
%
Change in
constant
currencies
%
9
1
– 2
nm
8
– 4
9
9
13
1
– 4
nm
11
– 8
12
13
1 For an explanation of non-IFRS measures and reconciliation tables, see “Item 5.A Operating results—Non-IFRS measures as defined by Novartis.”
Core income from associated companies
Core income from associated companies was USD 1.1
billion in 2020, in line with the prior year, mainly driven
by the core income contribution from Roche.
Core interest expense and other financial income
and expense
Core interest expense increased to USD 869 million from
USD 850 million in the prior year, mainly due to an
increase in interest expense from discounting long term
liabilities. Core other financial income and expense
amounted to a loss of USD 83 million compared to an
income of USD 56 million in prior year mainly due to lower
interest income in 2020.
Core taxes
The core tax rate from continuing operations (core taxes
as a percentage of core income before tax from continu-
ing operations) was 15.4% compared to 16.0% in the prior
year mainly as a result of a change in profit mix.
Core net income
Core net income was USD 13.2 billion (+9%, +12% cc)
mainly driven by growth in core operating income.
Core earnings per share
Core earnings per share were USD 5.78 (+9%, +13% cc),
growing faster than core net income and benefiting from
lower weighted average number of shares outstanding.
Discontinued operations
Discontinued operations include the business of Alcon
and certain corporate costs directly attributable to Alcon
up to the spin-off date. As the Alcon spin-off was com-
pleted on April 9, 2019, the prior year included three
months of operating results of the divested business.
In 2020, there were no operational activities related
to discontinued operations. In 2019, discontinued oper-
ations net sales were USD 1.8 billion, operating income
amounted to USD 71 million and net income from discon-
tinued operations was USD 4.6 billion, including the
non-taxable non-cash net gain on distribution of Alcon
Inc. to Novartis AG shareholders which amounted to USD
4.7 billion.
For further details, see “Item 18. Financial State-
ments—Note 1. Significant accounting policies—Distri-
bution of Alcon Inc. to Novartis AG shareholders,” “Item
18. Financial Statements—Note 2. Significant transac-
tions—Significant transactions in 2019—Completion of
the spin-off of the Alcon business through a dividend in
kind distribution to Novartis AG shareholders,” and “Item
18. Financial Statements—Note 30. Discontinued oper-
ations.”
Total Group
For the total Group, net income amounted to USD 8.1 bil-
lion compared to USD 11.7 billion in the prior year, includ-
ing the non-taxable non-cash net gain on distribution of
Alcon Inc. which amounted to USD 4.7 billion. Basic earn-
ings per share were USD 3.55 compared to USD 5.12 in
prior year. Cash flow from operating activities for the total
Group amounted to USD 13.6 billion and free cash flow
to USD 11.7 billion.
63
Item 5. Operating and Financial Review and Prospects
Factors affecting comparability of year-on-year results
of operations
Significant transactions in 2020 and
2019
long-term strategy to focus Novartis as a leading
medicines company, we announced and/or completed
several acquisitions and divestments during 2020 and
2019.
The comparability of the year-on-year results of our
operations for the total Group can be significantly
affected by acquisitions and divestments. As part of our
A detailed description of significant transactions in
2020 and 2019, can be found in “Item 18. Financial State-
ments—Note 2. Significant transactions.”
Critical accounting policies and estimates
Our significant accounting policies which are prepared
in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Account-
ing Standards Board (IASB) are set out in “Item 18. Finan-
cial Statements—Note 1. Significant accounting policies.”
Given the uncertainties inherent in our business activ-
ities, we must make certain estimates and assumptions
that require difficult, subjective and complex judgments.
Because of uncertainties inherent in such judgments,
actual outcomes and results may differ from our assump-
tions and estimates, which could materially affect the
Group’s consolidated financial statements. Application
of the following accounting policies requires certain
assumptions and estimates that have the potential for
the most significant impact on our consolidated financial
statements.
Deductions from revenues
As is typical in the pharmaceutical industry, our gross
sales are subject to various deductions, which are pri-
marily composed of rebates and discounts to retail cus-
tomers, government agencies, wholesalers, health insur-
ance companies and managed healthcare organizations.
These deductions represent estimates of the related
obligations, requiring the use of judgment when estimat-
ing the effect of these sales deductions on gross sales
for a reporting period. These adjustments are deducted
from gross sales to arrive at net sales.
The following summarizes the nature of some of
these deductions and how the deduction is estimated.
After recording these, net sales represent our best esti-
mate of the cash that we expect to ultimately collect. The
US market has the most complex arrangements related
to revenue deductions.
United States-specific healthcare plans and
program rebates
The United States Medicaid Drug Rebate Program is
administered by state governments, using state and fed-
eral funds to provide assistance to certain vulnerable
and needy individuals and families. Calculating the
rebates to be paid related to this program involves inter-
preting relevant regulations, which are subject to chal-
lenge or change in interpretative guidance by govern-
ment authorities. Provisions for estimating Medicaid
rebates are calculated using a combination of historical
experience, product and population growth, product
pricing, and the mix of contracts and specific terms in
the individual state agreements.
The United States Federal Medicare Program, which
funds healthcare benefits to individuals aged 65 and
older, and to people with certain disabilities, provides
prescription drug benefits under the Part D section of
the program. This benefit is provided and administered
through private prescription drug plans. Provisions for
estimating Medicare Part D rebates are calculated based
on the terms of individual plan agreements, product sales
and population growth, product pricing, and the mix of
contracts.
We offer rebates to key managed healthcare and pri-
vate plans in an effort to ensure patient access to our
products and to sustain and increase the market share
of our products. These programs provide a rebate after
the plans have demonstrated they have met all terms and
conditions set forth in their contract with us.
These rebates are estimated based on the terms of
individual agreements, historical experience, product
pricing and projected product growth rates, and are
recorded as a deduction from revenue at the time the
related revenues are recorded.
These provisions are adjusted based on established
processes and experiences from filing data with individ-
ual states and plans. There is often a time lag of several
months between recording of the revenue deductions
and the final accounting for them.
Non-United States-specific healthcare plans and
program rebates
In certain countries other than the US, we provide rebates
to governments and other entities. These rebates are
often mandated by laws or government regulations.
These rebates are estimated based on government reg-
ulations, laws and terms of individual rebate arrange-
ments, historical experience and other relevant factors,
and are recorded as a deduction from revenue at the
time the related revenue is recorded. These estimates
are adjusted periodically to reflect actual experience.
There is often a time lag of several months between the
recording of revenue deductions and the final account-
ing for them.
Innovative pay-for-performance arrangements
In several countries, we enter into innovative pay-for-per-
formance arrangements (i.e. outcome based arrange-
64
Item 5. Operating and Financial Review and Prospects
ments) with certain healthcare providers. Under these
agreements, we may be required to make refunds to the
healthcare providers or to provide additional medicines
free of charge if anticipated treatment outcomes do not
meet predefined targets. The impact of potential refunds
or the delivery of additional medicines at no cost is esti-
mated and recorded as a deduction from revenue at the
time the related revenues are recorded. Estimates are
based on historical experience and clinical data. In cases
where historical experience and clinical data are not suf-
ficient for a reliable estimation of the outcome, revenue
recognition is deferred until such history is available.
There is often a time lag of several months between
recording of the revenue deductions and the final
accounting for them.
Non-healthcare plans and program rebates, returns
and other deductions
We offer rebates to purchasing organizations and other
direct and indirect customers to sustain and increase
market share and to ensure patient access to our prod-
ucts. Since rebates are contractually agreed upon, the
related provisions are estimated based on the terms of
the individual agreements, historical experience and pro-
jected product sales growth rates.
Chargebacks occur where our subsidiaries have
arrangements with indirect customers to sell products
at prices that are lower than the price charged to whole-
salers. A chargeback represents the difference between
the invoice price to the wholesaler and the indirect cus-
tomer’s contract price. We account for chargebacks by
reducing revenue by the estimate of chargebacks attrib-
utable to a sales transaction. Provisions for estimated
chargebacks are calculated using a combination of fac-
tors, such as historical experience, product growth rates,
product pricing, level of inventory in the distribution chan-
nel, and the terms of individual agreements.
When we sell a product providing a customer the right
to return it, we record a provision for estimated sales
returns based on our sales return policy and historical
return rates. Other factors considered include actual
product recalls, expected marketplace changes, the
remaining shelf life of the product, and the expected
entry of generic products. In 2020, sales returns
amounted to approximately 1% of gross product sales.
If sufficient experience is not available, sales are only
recorded based on evidence of product consumption or
when the right of return has expired.
We enter into distribution service agreements with
major wholesalers, which provide a financial disincentive
for the wholesalers to purchase product quantities in
excess of current customer demand. Where possible,
we adjust shipping patterns for our products to maintain
wholesalers’ inventory levels consistent with underlying
patient demand.
We offer cash discounts to customers to encourage
prompt payment. Cash discounts are estimated and
accrued at the time of invoicing and are deducted from
revenue.
Following a decrease in the price of a product, we
generally grant customers a “shelf stock adjustment” for
their existing inventory for the relevant product. Provi-
sions for shelf stock adjustments, which are primarily
relevant within the Sandoz Division, are determined at
the time of the price decline or at the point of sale, if the
impact of a price decline on the products sold can be
reasonably estimated based on the customer’s inventory
levels of the relevant product.
Other sales discounts, such as consumer coupons
and copay discount cards, are offered in some markets.
The estimated amounts of these discounts are recorded
at the time of sale or when the coupons are issued, and
are estimated utilizing historical experience and the spe-
cific terms for each program. If a discount for a proba-
ble future transaction is offered as part of a sales trans-
action, then an appropriate portion of revenue is deferred
to cover this estimated obligation.
In addition, we offer global patient assistance pro-
grams.
We adjust provisions for revenue deductions period-
ically to reflect actual experience. To evaluate the ade-
quacy of provision balances, we use internal and exter-
nal estimates of the inventory in transit, the level of
inventory in the distribution and retail channels, actual
claims data received, and the time lag for processing
rebate claims. External data sources include reports
from wholesalers and third-party market data purchased
by Novartis.
For the table showing the worldwide extent of our
revenue deductions provisions and related payment
experiences for the Group see “Item 18. Financial State-
ments—Note 22. Provisions and other current liabilities.”
Gross-to-net sales reconciliation
The table below shows the gross-to-net sales reconciliation for our Innovative Medicines Division:
(USD millions)
In % of
gross sales
to third
parties
In % of
gross sales
to third
parties
2019
2020
Innovative Medicines gross sales subject to deductions
56 067
100.0
52 956
100.0
US-specific healthcare plans and program rebates
Non-US-specific healthcare plans and program rebates
Non-healthcare plans and program-related rebates,
returns and other deductions
Total Innovative Medicines gross-to-net sales adjustments
Innovative Medicines net sales
– 5 412
– 3 746
– 9.7
– 4 824
– 6.7
– 3 438
– 7 896
– 14.0
– 6 980
– 17 054
– 30.4
– 15 242
39 013
69.6
37 714
– 9.1
– 6.5
– 13.2
– 28.8
71.2
65
Item 5. Operating and Financial Review and Prospects
Impairment of goodwill, intangible
assets and property, plant and
equipment
We review long-lived intangible assets and property,
plant and equipment for impairment whenever events or
changes in circumstance indicate that the asset’s bal-
ance sheet carrying amount may not be recoverable.
Goodwill and other currently not amortized intangible
assets are reviewed for impairment at least annually.
An asset is considered impaired when its balance
sheet carrying amount exceeds its estimated recover-
able amount, which is defined as the higher of its fair value
less costs of disposal and its value in use. Usually, Novartis
applies the fair value less costs of disposal method for
its impairment assessment. In most cases, no directly
observable market inputs are available to measure the
fair value less costs of disposal. Therefore, an estimate
is derived indirectly and is based on net present value
techniques utilizing post-tax cash flows and discount
rates. In the limited cases where the value in use method
would be applied, net present value techniques would be
applied using pre-tax cash flows and discount rates.
Fair value less costs of disposal reflects estimates of
assumptions that market participants would be expected
to use when pricing the asset or cash generating units
(CGUs), and for this purpose, management considers
the range of economic conditions that are expected to
exist over the remaining useful life of the asset.
The estimates used in calculating the net present val-
ues are highly sensitive and depend on assumptions spe-
cific to the nature of the Group’s activities as indicated
in “Item 18. Financial Statements—Note 1. Significant
accounting policies.” Due to these factors, actual cash
flows and values could vary significantly from forecasted
future cash flows and related values derived using dis-
counting techniques.
The recoverable amount of the grouping of cash-gen-
erating units to which goodwill is allocated is based on
fair value less costs of disposal. The valuations are
derived from applying discounted future cash flows
based on key assumptions, including the terminal growth
rate and discount rate. For additional information on
impairment charges recognized and reversed by divi-
sions, see “Item 18. Financial Statements—Note 1. Sig-
nificant accounting policies—Impairment of goodwill and
intangible assets” and “Item 18. Financial Statements—
Note 11. Goodwill and intangible assets.”
Goodwill and other intangible assets represent a sig-
nificant part of our consolidated balance sheet, primar-
ily due to acquisitions. Although no significant additional
impairments are currently anticipated, impairment eval-
uation could lead to material impairment charges in the
future. For more information, see “Item 18. Financial
Statements—Note 11. Goodwill and intangible assets.”
For net impairment charges for property, plant and
equipment from continuing operations see “Item 18. Finan-
cial Statements—Note 9. Property, plant and equipment.”
Contingent consideration
In an acquisition or divestment of a business, it is neces-
sary to recognize contingent future amounts due to pre-
vious owners representing contractually defined potential
amounts as a liability or asset. Usually for Novartis, these
are linked to milestone or royalty payments related to cer-
tain assets and are recognized as a financial liability or
financial asset at their fair value, which is then remeasured
at each subsequent reporting date. These estimations
typically depend on factors such as technical milestones
or market performance, and are adjusted for the proba-
bility of their likelihood of payment and, if material, are
appropriately discounted to reflect the impact of time.
Changes in the fair value of contingent consideration
liabilities in subsequent periods are recognized in the
consolidated income statement in “Cost of goods sold”
for currently marketed products and in “Research and
development” for in-process research and development
(IPR&D). Changes in contingent consideration assets are
recognized in “Other income” or “Other expense,”
depending on their nature.
The effect of unwinding the discount over time is rec-
ognized for contingent liabilities in “Interest expense”
and for contingent assets as interest income recognized
in the consolidated income statement within “Other
financial income and expense.”
Retirement and other post-
employment benefit plans
We sponsor pension and other post-employment bene-
fit plans in various forms that cover a significant portion
of our current and former associates. For post-employ-
ment plans with defined benefit obligations, we are
required to make significant assumptions and estimates
about future events in calculating the expense and the
present value of the liability related to these plans. These
include assumptions about the interest rates we apply
to estimate future defined benefit obligations and net
periodic pension expense, as well as rates of future pen-
sion increases. In addition, our actuarial consultants pro-
vide our management with historical statistical informa-
tion, such as withdrawal and mortality rates in connection
with these estimates.
Assumptions and estimates used by the Group may
differ materially from the actual results we experience
due to changing market and economic conditions, higher
or lower withdrawal rates, and longer or shorter life spans
of participants, among other factors.
Depending on events, such differences could have a
material effect on our total equity. For more information
on obligations under retirement and other post-employ-
ment benefit plans and underlying actuarial assumptions,
see “Item 18. Financial Statements—Note 25. Post-em-
ployment benefits for associates.”
Provisions and contingencies
A number of Group companies are involved in various gov-
ernment investigations and legal proceedings (intellectual
property, sales and marketing practices, product liability,
commercial, employment and wrongful discharge, envi-
ronmental claims, etc.) arising out of the normal conduct
of their businesses. For more information, see “Item 18.
Financial Statements—Note 20. Provisions and other
66
Item 5. Operating and Financial Review and Prospects
non-current liabilities” and “Item 18. Financial State-
ments—Note 28. Commitments and contingencies.”
We record provisions for legal proceedings when it
is probable that a liability has been incurred and the
amount can be reliably estimated. These provisions are
adjusted periodically as assessments change or addi-
tional information becomes available. For significant
product liability cases, the provision is actuarially deter-
mined based on factors such as past experience, amount
and number of claims reported, and estimates of claims
incurred but not yet reported.
Provisions are recorded for environmental remedia-
tion costs when expenditure on remedial work is proba-
ble and the cost can be reliably estimated. Remediation
costs are provided for under “Non-current liabilities” in
the Group’s consolidated balance sheet.
Provisions relating to estimated future expenditure
for liabilities do not usually reflect any insurance or other
claims or recoveries, since these are only recognized as
assets when the amount is reasonably estimable and
collection is virtually certain.
of programs other than the ones mentioned above under
deductions from revenues. The amounts to be paid
depend on various criteria such as the subsidiary’s mar-
ket share or sales volume compared to certain targets.
Considerable judgment is required in estimating these
contributions, as not all data is available when the esti-
mates need to be made.
The largest of these healthcare contributions relates
to the US healthcare reform fee, which was introduced in
2011. This fee is an annual levy paid by US pharmaceutical
companies, including various Novartis subsidiaries. The
calculation of the annual expense for this levy requires use
of management judgement and estimates. This is required
as the US healthcare reform fee owed is based on the
Group’s percentage share of the total industry qualifying
sales subject to the healthcare reform fee, which requires
estimation as the total industry qualifying sales subject to
the healthcare reform fee is not publicly available until the
following year when the fee is due for payment. This phar-
maceutical fee levy is recognized in “Other expense.”
Research and development
Internal research and development (R&D) costs are fully
charged to the consolidated income statement in the
period in which they are incurred. We consider that reg-
ulatory and other uncertainties inherent in the develop-
ment of new products preclude the capitalization of inter-
nal development expenses as an intangible asset usually
until marketing approval from the regulatory authority is
obtained in a relevant major market, such as for the
United States, the European Union or Switzerland.
Costs for post-approval studies performed to sup-
port the continued registration of a marketed product
are recognized as marketing expenses. Costs for activ-
ities that are required by regulatory authorities as a con-
dition for obtaining marketing approval are capitalized
and recognized as currently marketed products.
Healthcare contributions
In some countries, our subsidiaries are required to make
contributions to the country’s healthcare costs as part
Taxes
We prepare and file our tax returns based on an inter-
pretation of tax laws and regulations, and we record esti-
mates based on these judgments and interpretations.
Our tax returns are subject to examination by the com-
petent taxing authorities, which may result in an assess-
ment being made, requiring payments of additional tax,
interest or penalties. Since Novartis uses its intellectual
property globally to deliver goods and services, the
transfer prices within the Group as well as arrangements
between subsidiaries to finance research and develop-
ment and other activities may be challenged by the
national tax authorities in any of the jurisdictions in which
Novartis operates. Therefore, inherent uncertainties
exist in our estimates of our tax positions, but we believe
that our estimated amounts for current and deferred tax
assets or liabilities, including any amounts related to any
uncertain tax positions, are appropriate based on cur-
rently known facts and circumstances.
Internal control over financial reporting
The Group’s management has assessed the effective-
ness of internal control over financial reporting. The
Group’s independent statutory auditor also issued an
opinion on the effectiveness of internal control over
financial reporting. Both the Group’s management and
its external auditors concluded that the Group main-
tained, in all material respects, effective internal control
over financial reporting as of December 31, 2020. For
more details, see “Item 15. Controls and Procedures.”
Approach to risk management
See “Item 6. Directors, Senior Management and Employ-
ees—Item 6.C Board practices—Corporate gover-
nance—Information and control systems—Risk manage-
ment” and “Item 18. Financial Statements—Note 29.
Financial instruments – additional disclosures.”
67
Item 5. Operating and Financial Review and Prospects
Non-IFRS measures as defined by Novartis
Novartis uses certain non-IFRS metrics when measur-
ing performance, especially when measuring cur-
rent-year results against prior periods, including core
results, constant currencies, free cash flow and net debt.
Despite the use of these measures by management
in setting goals and measuring the Group’s performance,
these are non-IFRS measures that have no standardized
meaning prescribed by IFRS. As a result, such measures
have limits in their usefulness to investors.
Because of their non-standardized definitions, the
non-IFRS measures (unlike IFRS measures) may not be
comparable to the calculation of similar measures of
other companies. These non-IFRS measures are pre-
sented solely to permit investors to more fully understand
how the Group’s management assesses underlying per-
formance. These non-IFRS measures are not, and should
not be viewed as, a substitute for IFRS measures, and
should be viewed in conjunction with IFRS financials.
As an internal measure of Group performance, these
non-IFRS measures have limitations, and the Group’s
performance management process is not solely
restricted to these metrics.
Core results
The Group’s core results – including core operating
income, core net income and core earnings per share –
exclude fully the amortization and impairment charges
of intangible assets, excluding software, net gains and
losses on fund investments and equity securities valued
at fair value through profit and loss, and certain acquisi-
tion- and divestment-related items. The following items
that exceed a threshold of USD 25 million are also
excluded: integration- and divestment-related income
and expenses; divestment gains and losses; restructur-
ing charges/releases and related items; legal-related
items; impairments of property, plant and equipment, and
financial assets, and income and expense items that
management deems exceptional and that are or are
expected to accumulate within the year to be over a
USD 25 million threshold.
Novartis believes that investor understanding of the
Group’s performance is enhanced by disclosing core
measures of performance since, core measures exclude
items that can vary significantly from year to year, they
enable better comparison of business performance
across years. For this same reason, Novartis uses these
core measures in addition to IFRS and other measures
as important factors in assessing the Group’s perfor-
mance.
The following are examples of how these core measures
are utilized:
• In addition to monthly reports containing financial infor-
mation prepared under International Financial Report-
ing Standards (IFRS), senior management receives a
monthly analysis incorporating these core measures.
• Annual budgets are prepared for both IFRS and core
measures.
As an internal measure of Group performance, the
core results measures have limitations, and the Group’s
performance management process is not solely
restricted to these metrics. A limitation of the core results
measures is that they provide a view of the Group’s oper-
ations without including all events during a period, such
as the effects of an acquisition, divestment, or amortiza-
tion/impairments of purchased intangible assets and
restructurings.
Constant currencies
Changes in the relative values of non-US currencies to
the US dollar can affect the Group’s financial results and
financial position. To provide additional information that
may be useful to investors, including changes in sales
volume, we present information about our net sales and
various values relating to operating and net income that
are adjusted for such foreign currency effects.
Constant currency calculations have the goal of elim-
inating two exchange rate effects so that an estimate
can be made of underlying changes in the consolidated
income statement excluding the impact of fluctuations
in exchanges rates:
• The impact of translating the income statements of con-
solidated entities from their non-USD functional cur-
rencies to USD
• The impact of exchange rate movements on the major
transactions of consolidated entities performed in cur-
rencies other than their functional currency
We calculate constant currency measures by translating
the current year’s foreign currency values for sales and
other income statement items into USD, using the aver-
age exchange rates from the prior year and comparing
them to the prior-year values in USD.
We use these constant currency measures in evalu-
ating the Group’s performance, since they may assist us
in evaluating our ongoing performance from year to year.
However, in performing our evaluation, we also consider
equivalent measures of performance that are not affected
by changes in the relative value of currencies.
Growth rate calculation
For ease of understanding, Novartis uses a sign conven-
tion for its growth rates such that a reduction in operat-
ing expenses or losses compared to the prior year is
shown as a positive growth.
68
Item 5. Operating and Financial Review and Prospects
Free cash flow
Additional information
Novartis defines free cash flow as net cash flows from
operating activities and cash flows from investing activ-
ities associated with purchases and sales of property,
plant and equipment, of intangible assets, of financial
assets and of other non-current assets. Excluded from
free cash flow are cash flows from investing activities
associated with acquisitions and divestments of busi-
nesses and of interests in associated companies, pur-
chases and sales of marketable securities and commod-
ities and net cash flows from financing activities.
Free cash flow is a non-IFRS measure and is not
intended to be a substitute measure for net cash flows
from operating activities as determined under IFRS. Free
cash flow is presented as additional information because
management believes it is a useful supplemental indica-
tor of the Group’s ability to operate without reliance on
additional borrowing or use of existing cash. Free cash
flow is a measure of the net cash generated that is avail-
able for investment in strategic opportunities, returning
to shareholders and for debt repayment. Free cash flow
is a non-IFRS measure, which means it should not be
interpreted as a measure determined under IFRS.
Net debt
Novartis calculates net debt as current financial debts
and derivative financial instruments plus non-current
financial debt less cash and cash equivalents and mar-
ketable securities, commodities, time deposits and deriv-
ative financial instruments.
Net debt is a non-IFRS measure, which means it
should not be interpreted as a measure determined
under IFRS. Net debt is presented as additional informa-
tion because management believes it is a useful supple-
mental indicator of the Group’s ability to pay dividends,
to meet financial commitments, and to invest in new stra-
tegic opportunities, including strengthening its balance
sheet.
Novartis Cash Value Added
Novartis Cash Value Added (NCVA) is a metric that is
based on what the Company assesses to be its cash
flow return less a capital charge on gross operating
assets. NCVA is used as the primary internal financial
measure for determining payouts under the old Long-
Term Performance Plan (LTPP) introduced in 2014. The
LTPP performance measures were changed effective
January 1, 2019, and from the 2019 cycle onward no lon-
ger include NCVA as a performance measure. More infor-
mation on NCVA is presented as part of the Compensa-
tion Report; see “Item 6. Directors, Senior Management
and Employees—Item 6.B Compensation.”
EBITDA
Novartis defines earnings before interest, tax, depreci-
ation and amortization (EBITDA) as operating income,
excluding depreciation of property, plant and equipment,
depreciation of right-of-use assets, amortization of intan-
gible assets, and impairments of plant and equipment,
right-of-use assets and of intangible assets.
(USD millions)
Operating income from
continuing operations
Depreciation of property,
plant and equipment
Depreciation of the
right-of-use-assets
Amortization of intangible
assets
Impairments of property,
plant and equipment, and
intangible assets 1
EBITDA from continuing
operations
Operating income from
discontinued operations
Depreciation of property,
plant and equipment
Depreciation of the
right-of-use-assets
Amortization of intangible
assets
EBITDA from discontinued
operations
2020
2019
10 152
9 086
1 318
1 345
330
305
3 462
2 836
1 354
1 340
16 616
14 912
71
42
9
174
296
EBITDA Total Group
16 616
15 208
1 There were no impairments of right-of-use assets in 2020 and 2019.
Enterprise value
Enterprise value represents the total amount that share-
holders and debt holders have invested in Novartis, less
the Group’s liquidity.
(USD millions)
Market capitalization
Non-controlling interests
Non-current financial debts
Current financial debts and
derivatives financial instruments
Marketable securities,
commodities, time deposits
and derivative financial
instruments
Cash and cash equivalents
Enterprise value
Dec 31, 2020 Dec 31, 2019
214 269
214 815
68
77
26 259
20 353
9 785
7 031
– 1 905
– 334
– 9 658
– 11 112
238 818
230 830
69
Item 5. Operating and Financial Review and Prospects
Reconciliation from IFRS results to core results
The following tables provide an overview of the reconciliation from IFRS results to core results.
2020 and 2019 reconciliation from IFRS results to core results
(USD millions unless indicated otherwise)
2020
2019
2020
2019
2020
2019
2020
2019
IFRS operating income from continuing operations
9 172
9 287
1 043
Amortization of intangible assets
2 999
2 447
366
551
314
– 63
– 752 10 152
9 086
3 365
2 761
Innovative Medicines
Sandoz
Corporate
Group
Impairments
Intangible assets
759
632
141
503
900
1 135
Property, plant and equipment related to the Group-wide
rationalization of manufacturing sites
321
Other property, plant and equipment
83
10
112
2
69
33
Total impairment charges
1 080
725
255
605
Acquisition or divestment of businesses and related items
433
2
152
43
1 335
1 330
- Income
- Expense
Total acquisition or divestment of
businesses and related items, net
Other items
Divestment gains
– 5
107
– 8
87
– 73
– 108
– 78
– 116
22
89
115
218
202
102
79
22
16
7
140
86
– 348 – 1 091
– 27
– 39
2
– 414 – 1 089
Financial assets – fair value adjustments
– 153
– 18
– 183
– 20
– 336
– 38
Restructuring and related items
- Income
- Expense
Legal-related items
- Income
- Expense
Additional income
Additional expense
Total other items
Total adjustments
– 36
484
– 58
509
– 30
252
– 7
– 28
– 6
– 94
– 71
390
35
113
771
1 012
555
999
406
– 264
– 316
54
87
– 6
53
– 32
156
– 26
935
1 155
– 32
– 4
– 361
– 95
– 631
– 415
121
86
119
113
193
424
327
849
292
112
648
624
– 516
4 473
3 363
1 291
1 543
– 500
120
5 264
5 026
Core operating income from continuing operations
13 645 12 650
2 334
2 094
– 563
– 632 15 416 14 112
as % of net sales
35.0% 33.5% 24.2% 21.5%
31.7% 29.7%
Income from associated companies
1
1
2
2
Core adjustments to income from associated companies, net of tax
670
424
656
427
673
424
659
427
Interest expense
Other financial income and expense
Core adjustments to other financial income and expense
Taxes, adjusted for above items (core taxes)
Core net income from continuing operations
Core net income from discontinued operations 1
Core net income
Core net income attributable to shareholders of Novartis AG
Core basic EPS from continuing operations (USD) 2
Core basic EPS from discontinued operations (USD) 2
Core basic EPS (USD) 2
1 For details on discontinued operations reconciliation from IFRS to core net income, please refer to page 76.
2 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
– 869
– 850
– 78
– 5
45
11
– 2 403 – 2 300
13 158 12 104
278
13 158 12 382
13 159 12 377
5.78
5.78
5.28
0.12
5.40
70
Item 5. Operating and Financial Review and Prospects
2020 and 2019 reconciliation from IFRS results to core results – Group
2020 (USD millions unless indicated otherwise)
Gross profit from continuing operations
Operating income from continuing operations
Income before taxes from continuing operations
Taxes from continuing operations 5
Net income from continuing operations
Net income
Basic EPS from continuing operations (USD) 6
Basic EPS (USD) 6
The following are adjustments to arrive at core gross profit
Other revenues
Cost of goods sold
Amortization
of intangible
assets 1
IFRS results
Acquisition or
divestment of
businesses and
related items 3
Impairments 2
Other
items 4 Core results
34 777
10 152
9 878
– 1 807
8 071
8 071
3.55
3.55
1 239
3 301
3 365
3 789
377
1 335
1 335
70
140
140
138
424
419
38 663
15 416
15 561
– 2 403
13 158
13 158
5.78
5.78
– 136
1 103
– 15 121
3 301
377
70
274
– 11 099
The following are adjustments to arrive at core operating income
Selling, general and administration
Research and development
Other income
Other expense
– 14 197
– 8 980
1 742
– 3 190
64
523
– 6
441
16
3
– 78
129
88
– 14 093
– 94
– 8 484
– 1 335
1 627
323
– 993
The following are adjustments to arrive at core income before taxes
Income from associated companies
Other financial income and expense
673
– 78
424
1 097
– 83
– 5
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets;
research and development includes the amortization of acquired rights for technologies; income from associated companies includes USD 424 million for the Novartis share of the
estimated Roche core items
2 Impairments: cost of goods sold and research and development include impairment charges related to intangible assets; other income includes an impairment reversal related to
property, plant and equipment; other expense includes impairment charges related to property, plant and equipment
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold, selling, general and administration, research and
development and other expense include net charges related to acquisitions; other income and other expense include transitional service-fee income and expenses related to the
Alcon distribution
4 Other items: other revenues includes a settlement of royalties; cost of goods sold includes the cumulative amount of the depreciation up to December 31, 2019, recognized with the
reclassification of property, plant and equipment out of assets of disposal group held for sale (see Item 18. Financial Statements–Note 2. Significant transactions–Significant
transactions in 2020); cost of goods sold, other income and other expense include net restructuring and other charges related to the Group-wide rationalization of manufacturing
sites; cost of goods sold, selling, general and administration, research and development, other income and other expense include other restructuring income and charges and
related items; cost of goods sold and research and development also include adjustments to contingent considerations; selling, general and administration and other expense
include expenses related to COVID-19 donations; selling, general and administration also includes adjustments to provisions; other income and other expense include fair value
adjustments and divestment gains and losses on financial assets, and adjustments to environmental provisions; other income also includes net gains from the divestment of
products, a fair value adjustment on a contingent receivable and adjustments to provisions; other expense includes adjustments to legal provisions, legal-related items and a
termination fee; other financial income and expense includes a revaluation impact of a financial liability incurred through the Alcon distribution
5 Taxes on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will finally be applicable to the item
based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related
restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for items arising from legal settlements
in certain jurisdictions. Adjustments related to income from associated companies are recorded net of any related tax effect. Due to these factors and the differing effective tax
rates in the various jurisdictions, the tax on the total adjustments for continuing operations of USD 5.7 billion to arrive at the core results before tax amounts to USD 596 million. The
average tax rate on the adjustments is 10.5%.
6 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
71
Item 5. Operating and Financial Review and Prospects
2019 (USD millions unless indicated otherwise)
Gross profit from continuing operations
Operating income from continuing operations
Income before taxes from continuing operations
Taxes from continuing operations 5
Net income from continuing operations
Net income from discontinued operations 6
Net income
Basic EPS from continuing operations (USD) 7
Basic EPS from discontinued operations (USD) 7
Basic EPS (USD) 7
The following are adjustments to arrive at core gross profit
Other revenues
Cost of goods sold
Amortization
of intangible
assets 1
IFRS results
Acquisition or
divestment of
businesses and
related items 3
Impairments 2
Other
items 4 Core results
34 252
9 086
8 940
– 1 793
7 147
4 590
11 737
3.12
2.00
5.12
1 179
2 711
2 761
3 188
85
1 330
1 330
48
86
86
296
849
860
37 392
14 112
14 404
– 2 300
12 104
278
12 382
5.28
0.12
5.40
– 66
1 113
– 14 425
2 711
85
48
362
– 11 219
The following are adjustments to arrive at core operating income
Selling, general and administration
Research and development
Other income
Other expense
– 14 369
– 9 402
2 031
– 3 426
50
1 078
10
10
40
– 14 319
– 122
– 8 386
– 2
169
– 116
– 1 418
495
134
2 053
– 1 070
The following are adjustments to arrive at core income before taxes
Income from associated companies
Other financial income and expense
659
45
427
1 086
56
11
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets;
research and development includes the amortization of acquired rights for technologies; income from associated companies includes USD 427 million for the Novartis share of the
estimated Roche core items
2 Impairments: cost of goods sold, and research and development include impairment charges related to intangible assets; research and development also includes the reversal of
an impairment charge; cost of goods sold, other income and other expense include net impairment charges related to property, plant and equipment
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold, selling, general and administration, research and
development, other income and other expense include net charges related to acquisitions; other income and other expense also include transitional service fee income and
expenses related to the portfolio transformation and the Alcon distribution
4 Other items: other revenues includes income from an outlicensing agreement, and income related to an amendment of a collaboration agreement; cost of goods sold, other income
and other expense include net restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold, research and development,
selling, general and administration, other income and other expense include other restructuring income and charges and related items; cost of goods sold, and research and
development also include fair value adjustments of contingent consideration liabilities; cost of goods sold also includes inventory write-offs and other provisions; selling, general
and administration includes receivable expected credit loss provisions and other provisions; other income and other expense include fair value adjustments and divestment gains
and losses on financial assets and legal-related items as well as environmental provisions; other income also includes net gains from the divestment of products and property, plant
and equipment, and provision releases; other expense includes a provision for onerous contracts and other provisions; other financial income and expense includes a revaluation
impact of a financial liability incurred through the Alcon distribution
5 Taxes on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will finally be applicable to the item
based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related
restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for items arising from legal settlements
in certain jurisdictions. Adjustments related to income from associated companies are recorded net of any related tax effect. Due to these factors and the differing effective tax
rates in the various jurisdictions, the tax on the total adjustments for continuing operations of USD 5.5 billion to arrive at the core results before tax amounts to USD 507 million. The
average tax rate on the adjustments is 9.3%.
6 For details on discontinued operations reconciliation from IFRS to core net income please refer to page 76.
7 Earnings per share (EPS) is calculated on the amount of net income, attributable to shareholders of Novartis AG.
72
Item 5. Operating and Financial Review and Prospects
2020 and 2019 reconciliation from IFRS results to core results – Innovative Medicines
2020
(USD millions)
Gross profit
Operating income
Amortization
of intangible
assets 1
IFRS results
Acquisition or
divestment of
businesses and
related items 3
Impairments 2
29 896
9 172
2 935
2 999
250
1 080
48
102
Other
items 4 Core results
146
292
33 275
13 645
The following are adjustments to arrive at core gross profit
Cost of goods sold
– 10 927
2 935
250
48
146
– 7 548
The following are adjustments to arrive at core operating income
Selling, general and administration
Research and development
Other income
Other expense
– 11 657
– 8 118
922
– 1 871
64
509
– 1
322
16
3
– 5
40
58
– 11 583
– 94
– 7 636
– 687
869
229
– 640
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets;
research and development includes the amortization of acquired rights for technologies
2 Impairments: cost of goods sold and research and development include impairment charges related to intangible assets; other income and other expense include net impairment
charges related to property, plant and equipment
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold, selling, general and administration, research and
development and other expense include net charges related to acquisitions; other income and other expense include transitional service-fee income and expenses related to the
Alcon distribution
4 Other items: cost of goods sold, other income and other expense include net restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost
of goods sold, selling, general and administration, research and development, other income and other expense include other restructuring income and charges and related items;
cost of goods sold and research and development also include adjustments to contingent considerations; selling, general and administration includes expenses related to
COVID-19 donations and adjustments to provisions; other income and other expense include fair value adjustments on financial assets; other income also includes net gains from
the divestment of products and financial assets and adjustments to provisions; other expense includes legal-related items and a termination fee
2019
(USD millions)
Gross profit
Operating income
The following are adjustments to arrive at core gross profit
Other revenues
Cost of goods sold
Amortization
of intangible
assets 1
IFRS results
29 539
9 287
2 397
2 447
1 092
– 10 050
2 397
Acquisition or
divestment of
businesses and
related items 3
Impairments 2
725
The following are adjustments to arrive at core operating income
Selling, general and administration
Research and development
Other income
Other expense
– 11 617
– 8 152
1 586
– 2 069
50
632
– 1
94
Other
items 4 Core results
116
112
32 100
12 650
– 66
182
1 026
– 7 423
25
– 11 582
– 125
– 7 585
– 1 230
1 326
347
– 630
48
79
48
10
10
– 8
19
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets;
research and development includes the amortization of acquired rights for technologies
2 Impairments: research and development includes impairment charges and a reversal of impairment charges related to intangible assets; other income and other expense include
net impairment charges related to property, plant and equipment
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold, selling, general and administration, research and
development, other income and other expense include net charges related to acquisitions; other income and other expense also include transitional service-fee income and
expenses related to the portfolio transformation and the Alcon distribution
4 Other items: other revenues includes a net income from an outlicensing agreement and an income related to an amendment of a collaboration agreement; cost of goods sold, other
income and other expense include restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold, research and development,
other income and other expense include other restructuring income and charges and related items; cost of goods sold, and research and development also include fair value
adjustments of contingent consideration liabilities; selling, general and administration includes other provisions; other income and other expense include fair value adjustments and
divestment gains and losses on financial assets; other income also includes net gains from the divestment of products and property, plant and equipment, and provision releases;
other expense includes legal-related items
73
Item 5. Operating and Financial Review and Prospects
2020 and 2019 reconciliation from IFRS to core results – Sandoz
2020
(USD millions)
Gross profit
Operating income
Amortization
of intangible
assets 1
IFRS results
Acquisition or
divestment of
businesses and
related items 3
Impairments 2
4 636
1 043
366
366
127
255
22
22
Other
items 4 Core results
128
648
5 279
2 334
The following are adjustments to arrive at core gross profit
Cost of goods sold
– 5 252
366
127
22
128
– 4 609
The following are adjustments to arrive at core operating income
Selling, general and administration
Research and development
Other income
Other expense
– 2 076
– 862
176
– 831
14
– 5
119
30
– 2 046
– 62
552
– 848
109
– 160
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets
2 Impairments: cost of goods sold and research and development include impairment charges related to intangible assets; other income includes an impairment reversal related to
property, plant and equipment; other expense includes impairment charges related to property, plant and equipment
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold includes net charges related to an acquisition
4 Other items: cost of goods sold includes the cumulative amount of the depreciation up to December 31, 2019, recognized with the reclassification of property, plant and equipment
out of assets of disposal group held for sale (see Item 18. Financial Statements–Note 2. Significant transactions–Significant transactions in 2020); cost of goods sold and other
expense include restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold, selling, general and administration, other
income and other expense include other restructuring income and charges and related items; selling, general and administration also includes expenses related to COVID-19
donations and adjustments to provisions; other income includes net gains from the divestment of a product and adjustments to provisions; other expense includes a legal provision
and legal-related items
2019
(USD millions)
Gross profit
Operating income
Amortization
of intangible
assets 1
IFRS results
Acquisition or
divestment of
businesses and
related items
Impairments 2
4 601
551
314
314
85
605
Other
items 3 Core results
180
624
5 180
2 094
The following are adjustments to arrive at core gross profit
Cost of goods sold
– 5 334
314
85
180
– 4 755
The following are adjustments to arrive at core operating income
Selling, general and administration
Research and development
Other income
Other expense
– 2 218
– 1 250
167
– 749
446
– 1
75
15
3
– 39
465
– 2 203
– 801
127
– 209
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets
2 Impairments: cost of goods sold, and research and development include impairment charges related to intangible assets; cost of goods sold, other income and other expense
include net impairment charges related to property, plant and equipment
3 Other items: cost of goods sold and other expense include net restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold,
selling, general and administration, other income and other expense include restructuring income and charges and related items; cost of goods sold also includes inventory
write-offs and other provisions; selling, general and administration includes receivable expected credit loss provisions and other provisions; other income and other expense also
include legal-related items; other expense also includes an environmental provision, a provision for onerous contracts and other provisions
74
Item 5. Operating and Financial Review and Prospects
2020 and 2019 reconciliation from IFRS results to core results – Corporate
Amortization
of intangible
assets
IFRS results
Acquisition or
divestment of
businesses and
related items 1
Impairments
2020
(USD millions)
Gross profit
Operating loss
The following are adjustments to arrive at core gross profit
Other revenues
The following are adjustments to arrive at core operating loss
Other income
Other expense
245
– 63
168
644
– 488
16
Other
items 2 Core results
– 136
– 516
109
– 563
– 136
32
– 73
89
– 586
206
– 15
– 193
1 Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income and other expense include transitional service fee income
and expenses related to the Alcon distribution
2 Other items: other revenues includes a settlement of royalties; other income and other expense include fair value adjustments and divestment gains and losses on financial assets,
adjustments to environmental provisions and restructuring income and charges and related items; other income also includes a fair value adjustment on a contingent receivable and
adjustments to provisions; other expense includes adjustments to legal provisions and expenses related to COVID-19 donations
2019
(USD millions)
Gross profit
Operating loss
The following are adjustments to arrive at core operating loss
Other income
Other expense
Amortization
of intangible
assets
IFRS results
Acquisition or
divestment of
businesses and
related items 1
Impairments
Other
items 2 Core results
112
– 752
278
– 608
7
113
112
– 632
– 108
– 149
21
115
262
– 231
1 Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income and other expense include transitional service fee income
and expenses related to the portfolio transformation and the Alcon distribution
2 Other items: other income and other expense include fair value adjustments and divestment gains and losses on financial assets, restructuring income and charges and related
items as well as environmental provisions
75
Item 5. Operating and Financial Review and Prospects
2019 reconciliation of IFRS results to core results – Discontinued operations
2019
(USD millions)
Gross profit
Operating income of discontinued operations
Income before taxes of discontinued operations
Taxes 4
Net (loss)/income from discontinued operations
before gain on distribution of Alcon Inc.
to Novartis AG shareholders
Gain on distribution of Alcon Inc.
to Novartis AG shareholders
Net income from discontinued operations
Basic EPS (USD) 5
Amortization
of intangible
assets 1
IFRS results
Acquisition or
divestment of
businesses and
related items 2
Impairments
165
167
949
71
58
– 159
– 101
4 691
4 590
2.00
– 4 691
Other
items 3 Core results
9
1 123
112
350
337
– 59
278
278
0.12
The following are adjustments to arrive at core gross profit
Cost of goods sold
– 860
165
9
– 686
The following are adjustments to arrive at core operating income
Selling, general and administration
Research and development
Other income
Other expense
– 638
– 142
15
– 113
2
14
4
– 3
88
– 624
– 136
12
– 25
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to currently marketed products and other production-related intangible assets;
research and development includes the amortization of acquired rights for technologies
2 Acquisition or divestment of businesses and related items represents the non-taxable non-cash gain adjustment related to the distribution of Alcon Inc. (spin-off) to Novartis AG
shareholders
3 Other items: cost of goods sold, selling, general and administration, research and development and other expense include other restructuring charges and related items; research
and development also includes amortization of option rights and the fair value adjustment of a contingent consideration liability; other income includes fair value adjustments on a
financial asset; other expense also includes legal-related items
4 Taxes on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will finally be applicable to the item
based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related
restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for items arising from legal settlements
in certain jurisdictions. Due to these factors and the differing effective tax rates in the various jurisdictions, the tax on the total adjustments, excluding the non-taxable non-cash
gain on the distribution (spin-off) of Alcon Inc. to Novartis AG shareholders of USD 279 million to arrive at the core results before tax amounts to USD 100 million. The 2019 core tax
rate, excluding the effect of the gain on the distribution of Alcon Inc. to Novartis AG shareholders, is 17.5%.
5 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
76
Item 5. Operating and Financial Review and Prospects
5.B Liquidity and capital resources
The following tables summarize the Group’s cash flows and net debt.
(USD millions)
Net cash flows from operating activities from continuing operations
Net cash flows from operating activities from discontinued operations
Net cash flows used in investing activities from continuing operations
Net cash flows used in investing activities from discontinued operations
Net cash flows used in financing activities from continuing operations
Net cash flows used in/from financing activities from discontinued operations
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Change in marketable securities, commodities, time deposits and derivative financial instruments
Change in current and non-current financial debts and derivative financial instruments
Change in net debt
Net debt at January 1
Net debt at December 31
Cash flow
2020
2019
13 650
13 547
78
– 13 055
– 1 067
– 127
– 1 159
– 2 158
– 16 884
– 50
286
3 257
69
– 1 454
– 2 159
1 571
– 2 359
– 8 660
4 764
– 8 543
246
– 15 938
– 16 184
– 24 481
– 15 938
Financial year 2020 compared to 2019
Net cash flows from operating activities from continuing
operations amounted to USD 13.6 billion, compared to
USD 13.5 billion in 2019. This increase was mainly driven
by higher net income adjusted for non-cash items and
other adjustments, including divestment gains, partly off-
set by higher payments out of provisions related to legal
matters.
Net cash outflows used in investing activities from
continuing operations amounted to USD 13.1 billion, com-
pared to USD 1.1 billion in 2019.
The current year cash outflows were mainly driven
by USD 10.0 billion for acquisitions and divestments of
businesses, net (including the acquisition of The
Medicines Company for USD 9.5 billion, net of cash
acquired USD 0.1 billion, and the acquisition of the Jap-
anese business of Aspen Global Incorporated for USD
0.3 billion); USD 1.4 billion for net purchases of market-
able securities and commodities; USD 1.3 billion for pur-
chases of property, plant and equipment; and USD 1.3
billion for purchases of intangible assets. These cash
outflows were partly offset by cash inflows of USD 0.7
billion from the sale of financial assets (including USD
0.3 billion proceeds from the sale of Alcon Inc. shares)
and USD 0.4 billion from the sale of intangible assets.
In 2019, net cash flows used in investing activities
from continuing operations were driven by USD 3.8 bil-
lion for acquisitions and divestments of businesses, net
(including the acquisition of Xiidra from Takeda Pharma-
ceutical Company Limited for USD 3.5 billion and the
acquisition of IFM Tre, Inc. for USD 0.3 billion); USD 1.4
billion for purchases of property, plant and equipment;
USD 0.9 billion for purchases of intangible assets; and
USD 0.4 billion for purchases of financial assets and
other non-current assets. These cash outflows were
partly offset by cash inflows of USD 2.3 billion from the
net proceeds from the sale of marketable securities and
commodities; USD 0.9 billion from the sale of property,
plant and equipment (including the proceeds from the
sale and leaseback of real estate); USD 1.2 billion from
the sale of financial assets (including USD 1.0 billion pro-
ceeds from the sale of Alcon Inc. shares); and USD 1.0
billion from the sale of intangible assets.
Net cash flows used in investing activities from dis-
continued operations amounted to USD 0.1 billion com-
pared to USD 1.2 billion in 2019. The current year includes
payments for transaction related expenditures. In 2019,
the net outflows were mainly driven by USD 0.3 billion
for the acquisition of PowerVision, Inc.; USD 0.6 billion
due to derecognized cash and cash equivalents follow-
ing the completion of the Alcon spin-off, on April 9, 2019;
and transaction related expenditures.
Net cash flows used in financing activities from con-
tinuing operations amounted to USD 2.2 billion, com-
pared to USD 16.9 billion in 2019.
The current year cash outflows were driven by USD
7.0 billion for the dividend payment; USD 2.1 billion for
net treasury share transactions; USD 2.0 billion for the
repayment of two US dollar bonds at maturity; USD 0.3
billion net payments for lease liabilities; and USD 0.2 bil-
lion for other financing cash outflows, net. These cash
outflows were partly offset by cash inflows of USD 7.1
billion from the increase in non-current financial debts,
mainly consisting of USD 4.9 billion from the issuance of
bonds denominated in US dollars (notional amount of
USD 5.0 billion) and USD 2.1 billion from the issuance of
a sustainability-linked bond denominated in euro (notional
amount of EUR 1.85 billion); and USD 2.3 billion from the
net increase in current financial debts.
In 2019, net cash flows used in financing activities
from continuing operations were driven by USD 6.6 bil-
lion for the dividend payment; USD 5.3 billion for the net
treasury share transactions (mainly related to the up-to
USD 5 billion share buyback); USD 3.1 billion for net
77
Item 5. Operating and Financial Review and Prospects
non-current financial debts (mainly driven by the repay-
ment at maturity of a US dollar bond of USD 3.0 billion);
USD 1.6 billion for net repayments of current financial
debts; and USD 0.3 billion for payments of lease liabili-
ties, net.
pared to a cash inflow of USD 3.3 billion in 2019. The
current year cash outflows are for transaction costs. In
2019, cash inflows included mainly proceeds from the
USD 3.5 billion Alcon borrowings, partly offset by USD
0.2 billion payments for transaction costs.
Net cash flows used in financing activities from dis-
continued operations amounted to USD 50 million, com-
Free cash flow
Free cash flow is a non-IFRS measure, see “Item 5.A Operating results—Non-IFRS measures as defined by Novartis—
Free cash flow” above for further information.
The following table is a summary of the free cash flow:
(USD millions)
Operating income from continuing operations
Adjustments for non-cash items
Depreciation, amortization and impairments
Change in provisions and other non-current liabilities
Other
Operating income adjusted for non-cash items
Dividends received from associated companies and others
Interest and other financial receipts
Interest and other financial payments
Taxes paid
Payments out of provisions and other net cash movements in non-current liabilities
Change in inventory and trade receivables less trade payables
Change in other net current assets and other operating cash flow items
Net cash flows from operating activities from continuing operations
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchases of intangible assets
Proceeds from sale of intangible assets
Purchases of financial assets
Proceeds from sale of financial assets 1
Purchases of other non-current assets
Proceeds from sale of other non-current assets
Free cash flow from continuing operations
Free cash flow from discontinued operations 2
Total free cash flow
2020
10 152
6 129
1 411
260
2019
9 086
5 788
1 871
– 476
17 952
16 269
490
511
463
242
– 742
– 826
– 1 833
– 1 876
– 2 437
– 730
439
– 924
– 809
1 008
13 650
13 547
– 1 275
– 1 379
88
– 1 310
380
– 230
447
– 61
2
857
– 878
973
– 302
176
– 60
3
11 691
12 937
– 62
11 691
12 875
1 For the free cash flow, proceeds from the sale of financial assets excludes the cash inflows from the sale of a portion of the Alcon Inc. shares received by certain consolidated
foundations through the Alcon spin-off, which amounted to USD 276 million (2019: USD 976 million). See “Item 18. Financial Statements–Note 2. Significant transactions–Significant
transactions in 2019.”
2 In 2019, the free cash flow from discontinued operations was a cash outflow of USD 62 million consisting of USD 78 million net cash inflows from operating activities from
discontinued operations, USD 1.2 billion net cash flows used in investing activities from discontinued operations adjusted by USD 362 million of net cash outflows for acquisition
and divestments of businesses and by USD 657 million for cash outflows attributable to the spin-off of the Alcon business.
Financial year 2020 compared to 2019
Free cash flow from continuing operations amounted to USD 11.7 billion (–10%) compared to USD 12.9 billion in 2019,
as higher operating income adjusted for non-cash items was more than offset by payments related to legal mat-
ters and lower divestment proceeds.
78
Item 5. Operating and Financial Review and Prospects
Condensed consolidated balance sheets
(USD millions)
Assets
Property, plant and equipment
Right-of-use assets
Goodwill
Intangible assets other than goodwill
Investments in associated companies
Deferred tax assets
Financial assets and other non-current assets
Total non-current assets
Inventories
Trade receivables
Other current assets and income tax receivable
Marketable securities, commodities, time deposits and derivative financial instruments
Cash and cash equivalents
Assets of disposal group held for sale
Total current assets
Total assets
Equity and liabilities
Total equity
Liabilities
Financial debts
Lease liabilities
Deferred tax liabilities
Provisions and other non-current liabilities
Total non-current liabilities
Trade payables
Financial debts and derivative financial instruments
Lease liabilities
Provisions and other current liabilities and
current income tax liabilities
Liabilities of disposal group held for sale
Total current liabilities
Total liabilities
Total equity and liabilities
Dec 31, 2020 Dec 31, 2019
12 263
12 069
1 676
1 677
29 999
26 524
36 809
28 787
9 632
8 214
3 793
8 644
7 909
3 256
102 386
88 866
7 131
8 217
2 762
1 905
5 982
8 301
2 934
334
9 658
11 112
841
29 673
29 504
132 059
118 370
56 666
55 551
26 259
20 353
1 719
7 422
6 934
1 703
5 867
6 632
42 334
34 555
5 403
9 785
286
5 424
7 031
246
17 585
15 532
31
33 059
28 264
75 393
62 819
132 059
118 370
As of December 31, 2019, the assets and liabilities of the
Sandoz US generic oral solids and dermatology busi-
nesses were reported as current assets and liabilities
held for sale in the consolidated balance sheet. In March
2020, Novartis decided to retain the Sandoz US generic
oral solids and dermatology businesses and, on April 2,
2020, announced the mutual agreement with Aurobindo
to terminate the sale agreement. As such, these assets
and liabilities are reclassified to their respective consol-
idated balance sheet lines as from March 31, 2020; the
prior year consolidated balance sheet is not restated.
For further details see “Item 18. Financial Statements—
Note 2. Significant transactions—Significant transac-
tions in 2020—Sandoz – retention of US dermatology
business and generic US oral solids portfolio, previously
planned to be divested.”
Assets
Total non-current assets of USD 102.4 billion at Decem-
ber 31, 2020, increased by USD 13.5 billion compared to
December 31, 2019.
Intangible assets other than goodwill increased by
USD 8.0 billion mainly due to the acquisitions of The
Medicines Company and of the Japanese business of
Aspen Global Incorporated, net additions, favorable cur-
rency translation adjustments and the reclassification of
the intangible assets of the disposal group held for sale
of USD 0.3 billion, partially offset by amortization and
impairments.
Goodwill increased by USD 3.5 billion, and deferred
tax assets by USD 0.3 billion, mainly due to the acquisi-
tion of The Medicines Company and favorable currency
translation adjustments.
Investments in associated companies increased by
USD 1.0 billion primarily due to favorable currency trans-
79
Item 5. Operating and Financial Review and Prospects
lation adjustments, as income from associated compa-
nies was largely offset by dividends received.
Financial and other non-current assets increased by
USD 0.5 billion, mainly due to fair value adjustments on
financial assets.
Property, plant and equipment increased by USD 0.2
billion, mainly due to net additions and the reclassifica-
tion of property, plant and equipment of the disposal
group held for sale of USD 0.1 billion and favorable cur-
rency translation adjustments, partly offset by depreci-
ation and impairments. Right-of-use assets were broadly
in line with December 31, 2019.
Total current assets of USD 29.7 billion at December
31, 2020, increased by USD 0.2 billion compared to
December 31, 2019.
Marketable securities, commodities, time deposits,
and derivative financial instruments increased by USD
1.6 billion, mainly due to the investment of a portion of
the September 16, 2020 issuance of the euro denomi-
nated sustainability-linked bond.
Inventories increased by USD 1.1 billion, which
includes USD 0.2 billion from the reclassification of the
inventory of the disposal group held for sale.
These increases were partly offset by a decrease in
cash and cash equivalents by USD 1.5 billion, and in other
current assets by USD 0.2 billion.
Trade receivables and income tax receivables were
broadly in line with December 31, 2019.
We consider our provisions for doubtful trade receiv-
ables to be adequate. We continue to monitor the level
of trade receivables, particularly in Argentina, Brazil,
Greece, Italy, Portugal, Russia, Saudi Arabia, Spain and
Turkey. Should there be a substantial deterioration in our
economic exposure with respect to those countries, we
may change the terms of trade on which we operate. The
gross trade receivables from these countries at Decem-
ber 31, 2020, amounted to USD 1.5 billion (2019: USD 1.6
billion), of which USD 55 million is past due for more than
one year (2019: USD 61 million), and for which provisions
of USD 27 million have been recorded (2019: USD 24 mil-
lion). At December 31, 2020, amounts past due for more
than one year were not significant in any of these coun-
tries on a standalone basis. The majority of the outstand-
ing trade receivables from Portugal, Saudi Arabia, Spain
and Greece are due directly from local governments or
government-funded entities.
The following table provides an overview of the aging
analysis of total trade receivables and the total amount
of the provision for doubtful trade receivables as of
December 31, 2020 and 2019:
(USD millions)
Not overdue
Past due for not more than one month
Past due for more than one month
but less than three months
Past due for more than three months
but less than six months
Past due for more than six months
but less than one year
Past due for more than one year
Provisions for doubtful trade receivables
2020
7 714
150
2019
7 763
161
118
102
77
149
– 93
123
103
96
150
– 95
Total trade receivables, net
8 217
8 301
There is also a risk that certain countries could devalue
their currency. Currency exposures are described in
more detail in “—Effects of currency fluctuations.”
Liabilities
Total non-current liabilities of USD 42.3 billion increased
by USD 7.8 billion compared to December 31, 2019.
Non-current financial debts increased by USD 5.9
billion, mainly driven by the issuance of a euro denomi-
nated sustainability-linked bond for a notional amount of
EUR 1.85 billion (USD 2.2 billion), and the issuance of US
dollar denominated bonds for a total notional amount of
USD 5.0 billion.
This increase was partly offset by the reclassification
from non-current to current financial debt for a total of
USD 2.3 billion consisting of a EUR 1.25 billion (USD 1.5
billion) bond and a EUR 0.6 billion (USD 0.7 billion) bond
due in March 2021 and November 2021, respectively.
Deferred tax liabilities increased by USD 1.6 billion
mainly due to the acquisition of The Medicines Company.
Provisions and other non-current liabilities increased
by USD 0.3 billion, and lease liabilities were broadly in
line compared to December 31, 2019.
Total current liabilities of USD 33.1 billion increased
by USD 4.8 billion compared to December 31, 2019.
Current financial debts and derivative financial instru-
ments increased by USD 2.8 billion, due to the reclassi-
fication from non-current to current financial debt of USD
2.3 billion and higher short-term borrowings, partly off-
set by the repayment at maturity of two US dollar bonds
totaling USD 2.0 billion.
Provisions and other current liabilities increased by
USD 1.8 billion mainly due to a USD 1.8 billion treasury
share repurchase obligation under a share buyback trad-
ing plan and current income tax liabilities increased by
USD 0.3 billion.
Trade payables and lease liabilities were broadly in
line compared to December 31, 2019.
In our key countries, Switzerland and the United
States, assessments have been agreed by the tax author-
ities up to 2015 in Switzerland and 2014 in the United
States, respectively, with the exception of one open
United States position related to the 2007 tax filing. In
addition, a subsidiary in France, acquired with the AAA
acquisition, has an open position related to the tax years
2014 and 2015. Uncertainties also exist on the applica-
tion of a German non-resident tax regulation for license
or capital gains income derived from German registered
intellectual property rights.
Novartis believes that its total provisions are ade-
quate based upon currently available information. How-
ever, given the inherent difficulties in estimating liabilities
in this area, Novartis may incur additional costs beyond
the amounts provided. Management believes that such
additional amounts, if any, would not be material to the
Group’s financial condition but could be material to the
results of operations or cash flows in a given period.
Equity
The Group’s equity increased by USD 1.1 billion to USD
56.7 billion at December 31, 2020 compared to Decem-
ber 31, 2019.
This increase was mainly due to the net income of
USD 8.1 billion, the net effect of the exercise of options
80
Item 5. Operating and Financial Review and Prospects
and employee transactions of USD 0.8 billion, equi-
ty-based compensation of USD 0.7 billion, favorable cur-
rency translation differences of USD 3.2 billion and the
net favorable fair value adjustments on financial instru-
ments of USD 0.3 billion.
This was partly offset by the cash-dividend payment
of USD 7.0 billion, purchase of treasury shares of USD
3.1 billion and the increase of the treasury share repur-
chase obligation of USD 1.8 billion.
Summary of equity movements attributable to Novartis AG shareholders
Balance at beginning of year
Impact of change in accounting policy 1
Restated equity at January 1
Shares acquired to be canceled
Other share purchases
Exercise of options and employee transactions
Repurchase of options
Equity-based compensation
Shares delivered to Alcon employees as a result of the Alcon spin-off
Taxes on treasury share transactions 2
(Increase)/decrease of treasury share repurchase
obligation under a share buyback trading plan
Transaction costs, net of taxes 3
Dividends
Dividend in kind to effect the spin-off of Alcon Inc. 4
Net income of the year attributable to shareholders of Novartis AG
Other comprehensive income attributable to shareholders of Novartis AG
Impact of change in ownership of consolidated entities
Other movements 5
Balance at end of year
Number of outstanding shares
(in millions)
Equity attributable to
Novartis AG shareholders
2020
2019
2020
2019 USD millions USD millions
2 265.0
2 311.2
55 474
78 614
3
55 474
78 617
– 32.6
– 60.3
– 2 897
– 5 351
– 1.7
14.7
11.0
0.4
– 1.7
5.5
9.4
0.9
– 159
806
– 89
730
30
32
– 1 769
– 160
210
833
18
– 189
284
– 253
– 6 987
– 6 645
– 23 434
8 072
11 732
3 331
– 207
6
18
– 3
22
2 256.8
2 265.0
56 598
55 474
1 In 2019, the impact of change in accounting policy includes USD 3 million related to the implementation of IFRS 16 Leases (see “Item 18. Financial Statements—Note 1. Significant
accounting policies”).
2 Included in 2019 is a USD 69 million impact related to the revaluation of deferred tax liability on treasury shares. This revaluation resulted from the Swiss federal tax reform enacted
in May 2019 (see “Item 18. Financial Statements—Note 12. Deferred tax assets and liabilities”).
3 In 2019 transaction costs, net of tax of USD 36 million, directly attributable to the distribution (spin-off) of Alcon to Novartis shareholders (see “Item 18. Financial Statements—Note
1. Significant accounting policies”).
4 Included in 2019 is the fair value of the dividend in kind of Alcon Inc. shares to Novartis AG shareholders and ADR (American Depositary Receipt) holders approved at the 2019
Annual General Meeting held on February 28, 2019. Distribution was effected on April 8, 2019, whereby each Novartis AG shareholder and ADR holder received one Alcon Inc.
share for every five Novartis AG shares/ADRs they held on April 8, 2019, close of business (see “Item 18. Financial Statements—Note 1. Significant accounting policies”).
5 Impact of hyperinflationary economies (see “Item 18. Financial Statements—Note 1. Significant accounting policies”).
In 2020, Novartis repurchased a total of 32.6 million
shares for USD 2.9 billion on the SIX Swiss Exchange
second trading line, including 8.0 million shares (USD 0.7
billion) bought back under the up-to USD 2.5 billion share
buyback announced in November 2020, and 24.6 million
shares (USD 2.2 billion) to mitigate dilution related to par-
ticipation plans of associates. In addition, 1.7 million
shares (USD 0.2 billion) were repurchased from associ-
ates. In the same period, 26.1 million shares (for an equity
value of USD 1.5 billion) were delivered as a result of
options exercised and share deliveries related to partic-
ipation plans of associates. Consequently, the total num-
ber of shares outstanding decreased by 8.2 million ver-
sus December 31, 2019. These treasury share
transactions resulted in a decrease in equity of USD 1.6
billion and a net cash outflow of USD 2.1 billion including
the benefit from net option proceeds.
In 2019, Novartis repurchased a total of 60.3 million
shares for USD 5.4 billion on the SIX Swiss Exchange
second trading line, including 46.5 million shares
(USD 4.2 billion) bought back under the up-to USD 5 bil-
lion share buyback announced in June 2018, and 13.8
million shares (USD 1.1 billion) to mitigate dilution related
to participation plans of associates. In addition, 1.7 mil-
lion shares (USD 0.2 billion) were repurchased from
associates. In the same period, 15.8 million shares (for
an equity value of USD 1.1 billion) were delivered as a
result of options exercised and share deliveries related
to participation plans of associates. Consequently, the
total number of shares outstanding decreased by 46.2
million versus December 31, 2018. These treasury share
transactions resulted in a decrease in equity of USD 4.5
billion and a net cash outflow of USD 5.3 billion.
Treasury shares
At December 31, 2020, our holding of treasury shares
amounted to 210.2 million shares, or approximately 9%
of the total number of issued shares. Approximately 103
81
Item 5. Operating and Financial Review and Prospects
million treasury shares were held in entities that restrict
their availability for use.
At December 31, 2019, our holding of treasury shares
amounted to 262.3 million shares, or approximately 10%
of the total number of issued shares. Approximately 118
million treasury shares were held in entities that restrict
their availability for use.
Effects of currency fluctuations
We transact our business in many currencies other than the US dollar, our reporting currency.
The following table provides an overview of net sales and operating expenses for our continuing operations based
on IFRS values for 2020 and 2019, for currencies most important to the Group:
Currency
US dollar (USD)
Euro (EUR)
Swiss franc (CHF)
Japanese yen (JPY)
Chinese yuan (CNY)
Canadian dollar (CAD)
British pound (GBP)
Brazilian real (BRL)
Russian ruble (RUB)
Australian dollar (AUD)
Other currencies
2020
2019
Net sales
%
Operating
expenses
% 1
Net sales
%
Operating
expenses
% 1
36
29
2
6
5
3
2
2
2
1
12
34
27
18
3
3
1
3
1
1
1
8
37
28
2
6
5
3
2
2
2
1
12
36
26
16
3
4
2
2
1
1
1
8
1 Operating expenses include cost of goods sold; selling, general and administration; research and development; other income and other expense.
We prepare our consolidated financial statements in US
dollars. As a result, fluctuations in the exchange rates
between the US dollar and other currencies can have a
significant effect on both the Group’s results of operations
as well as the reported value of our assets, liabilities and
cash flows. This in turn may significantly affect reported
earnings (both positively and negatively) and the compa-
rability of period-to-period results of operations.
For purposes of our consolidated balance sheets, we
translate assets and liabilities denominated in other cur-
rencies into US dollars at the prevailing market exchange
rates as of the relevant balance sheet date. For purposes
of the Group’s consolidated income and cash flow state-
ments, revenue, expense and cash flow items in local cur-
rencies are translated into US dollars at average exchange
rates prevailing during the relevant period. As a result, even
if the amounts or values of these items remain unchanged
in the respective local currency, changes in exchange rates
have an impact on the amounts or values of these items in
our consolidated financial statements.
Because our expenditure in Swiss francs is signifi-
cantly higher than our revenue in Swiss francs, volatility
in the value of the Swiss franc can have a significant
impact on the reported value of our earnings, assets and
liabilities, and the timing and extent of such volatility can
be difficult to predict.
There is also a risk that certain countries could
devalue their currency. If this occurs, it could impact the
effective prices we would be able to charge for our prod-
ucts and also have an adverse impact on both our con-
solidated income statement and balance sheet.
Subsidiaries whose functional currencies have expe-
rienced a cumulative inflation rate of more than 100%
over the past three years apply the rules of IAS 29 “Finan-
cial Reporting in Hyperinflationary Economies.” Gains
and losses incurred upon adjusting the carrying amounts
of non-monetary assets and liabilities for inflation are
recognized in the income statement. The hyperinflation-
ary economies in which Novartis operates are Argentina
and Venezuela. Venezuela was hyperinflationary for all
years presented, and Argentina became hyperinflation-
ary effective July 1, 2018, requiring retroactive implemen-
tation of hyperinflation accounting as of January 1, 2018.
The impacts from applying IAS 29 were not significant.
The Group manages its global currency exposure by
engaging in hedging transactions where management
deems appropriate, after taking into account the natural
hedging afforded by our global business activity. For 2020,
we entered into various contracts that change in value with
movements in foreign exchange rates, to preserve the
value of assets, commitments and expected transactions.
We use forward contracts and foreign currency options to
hedge. For more information on how these transactions
affect our consolidated financial statements and on how
foreign exchange rate exposure is managed, see “Item 18.
Financial Statements—Note 1. Significant accounting pol-
icies,” “Item 18. Financial Statements—Note 5. Interest
expense and other financial income and expense,” “Item
18. Financial Statements—Note 15. Trade receivables,”
“Item 18. Financial Statements—Note 28. Commitments
and contingencies” and “Item 18. Financial Statements—
Note 29. Financial instruments – additional disclosures.”
82
Item 5. Operating and Financial Review and Prospects
The following table sets forth the foreign exchange rates of the US dollar against key currencies used for foreign
currency translation when preparing the Group’s consolidated financial statements:
USD per unit
Australian dollar (AUD)
Brazilian real (BRL)
Canadian dollar (CAD)
Swiss franc (CHF)
Chinese yuan (CNY)
Euro (EUR)
British pound (GBP)
Japanese yen (JPY (100))
Russian ruble (RUB (100))
Average for year
Year-end
2020
0.690
0.196
0.746
1.066
0.145
1.141
1.283
0.937
1.389
2019 Change in %
0.695
0.254
0.754
1.006
0.145
1.120
1.277
0.918
1.546
– 1
– 23
– 1
6
0
2
0
2
– 10
2020
0.771
0.193
0.784
1.135
0.153
1.229
1.365
0.970
1.337
2019 Change in %
0.701
0.249
0.767
1.032
0.144
1.121
1.313
0.920
1.613
10
– 22
2
10
6
10
4
5
– 17
The following table provides a summary of the currency impact on key Group figures due to their conversion into
US dollars, the Group’s reporting currency, of the financial data from entities reporting in non-US dollars. Constant
currency (cc) calculations apply the exchange rates of the prior year to the current-year financial data for entities
reporting in non-US dollars.
Currency impact on key figures
Total Group – Continuing operations
Net sales to third parties
Operating income
Net income
Basic earnings per share (USD)
Core operating income
Core net income
Core basic earnings per share (USD)
Innovative Medicines
Net sales to third parties
Operating income
Core operating income
Sandoz
Net sales to third parties
Operating income
Core operating income
Corporate
Operating loss
Core operating loss
nm = not meaningful
Change in
USD %
2020
Change in
Percentage
constant point currency
impact
2020
currencies %
2020
Change in
Change in
Percentage
constant point currency
impact
2019
USD % currencies %
2019
2019
3
12
13
14
9
9
9
3
– 1
8
– 1
89
11
nm
11
3
19
20
21
13
12
13
4
4
11
0
– 7
– 7
– 7
– 4
– 3
– 4
– 1
– 5
– 3
0
106
15
– 1
– 17
– 4
6
8
– 44
– 43
12
11
12
8
18
13
– 1
– 59
5
9
14
– 41
– 40
17
15
17
11
24
18
2
– 53
10
nm
14
nm
– 3
6
– 6
4
– 9
– 3
– 6
– 3
– 3
– 5
– 4
– 5
– 3
– 6
– 5
– 3
– 6
– 5
2
3
For additional information on the effects of currency fluctuations, see “Item 18. Financial Statements—Note 29.
Financial instruments – additional disclosures.”
83
Item 5. Operating and Financial Review and Prospects
Group liquidity, financial debts and net debt
The following table shows Group liquidity, financial debts and net debt:
(USD millions)
Non-current financial debts
Current financial debts
and derivative financial
instruments
Total financial debts
Less liquidity
Cash and cash equivalents
Marketable securities,
commodities, time deposits
and derivative financial
instruments
Total liquidity
Net debt at December 31 1
2020
2019
– 26 259
– 20 353
– 9 785
– 7 031
– 36 044
– 27 384
9 658
11 112
1 905
334
11 563
11 446
– 24 481
– 15 938
1 For further information about the net debt measure, which is a non-IFRS measure, see “Item 5.A Operating results—Non-IFRS measures as defined by Novartis—Net debt”.
Financial year 2020
Group net debt at December 31, 2020, increased to
USD 24.5 billion, compared to USD 15.9 billion at Decem-
ber 31, 2019.
Total financial debts increased by USD 8.7 billion to
USD 36.0 billion at December 31, 2020. Non-current
financial debts increased by USD 5.9 billion, mainly driven
by the issuance of a euro denominated sustainabili-
ty-linked bond for a notional amount of EUR 1.85 billion
(USD 2.2 billion), and the issuance of US dollar denomi-
nated bonds for a total notional amount of USD 5.0 bil-
lion. This increase was partly offset by the reclassifica-
tion from non-current to current financial debt for a total
of USD 2.3 billion consisting of a EUR 1.25 billion (USD
1.5 billion) bond and a EUR 0.6 billion (USD 0.7 billion)
bond due in March 2021 and November 2021, respec-
tively.
Current financial debts and derivative financial instru-
ments increased by USD 2.8 billion, due to the reclassi-
fication from non-current to current financial debt of USD
2.3 billion and higher short-term borrowings, partly off-
set by the repayment at maturity of two US dollar bonds
totaling USD 2.0 billion.
Novartis has two US commercial paper programs
under which it can issue up to USD 9.0 billion in the
aggregate of unsecured commercial paper notes.
Novartis also has a Japanese commercial paper program
under which it can issue up to JPY 150 billion (approxi-
mately USD 1.5 billion) of unsecured commercial paper
notes. Commercial paper notes totaling USD 4.3 billion
under these three programs were outstanding as per
December 31, 2020 (2019: USD 2.3 billion).
Novartis also has a committed credit facility of
USD 6.0 billion, which was renewed in 2019. This credit
facility is provided by a syndicate of banks and is intended
to be used as a backstop for the US commercial paper
programs. The renewed facility matures in September
2024 and was undrawn as per December 31, 2020, and
December 31, 2019.
As of year-end 2020, Moody’s Investors Service
rated the Company A1 for long-term maturities and P-1
for short-term maturities and S&P Global Ratings rated
the company AA- for long-term maturities and A-1+ for
short-term maturities.
For the tables showing the maturity schedule of our
current financial assets, current and non-current finan-
cial debts and net debt at December 31, 2020 and
December 31, 2019 see “Item 18. Financial Statements–
Note 29. Financial instruments – Additional disclosures—
Nature and extent of risks arising from financial instru-
ments—Liquidity risk.”
For a description of risks and restrictions on the abil-
ity of subsidiaries to transfer funds to the Company via
cash dividends, loan or advances please see “Item 5.B
Liquidity and capital resources—Group liquidity, finan-
cial debts and net debt–Liquidity/short-term funding”
and “Item 18. Financial Statements—Note 29. Financial
instruments – Additional disclosures—Nature and extent
of risks arising from financial instruments.”
Information regarding the Company’s material com-
mitments for capital expenditures as of the end of 2020
and 2019 and an indication of the general purpose of
such commitments and the anticipated sources of funds
needed to fulfill such commitments are provided in “Item
5.F Tabular disclosure of contractual obligations.”
84
Item 5. Operating and Financial Review and Prospects
Liquidity and financial debt by currency
The following table provides a breakdown of liquidity and financial debt by currency as of December 31:
USD
CHF
EUR
JPY
Other
Liquidity
in % 2020 1
Liquidity
in % 2019 1
Financial
debt in %
2020 2
Financial
debt in %
2019 2
57
11
23
9
100
72
14
7
1
6
55
10
30
2
3
53
12
29
3
3
100
100
100
1 Liquidity includes cash and cash equivalents, marketable securities, commodities and time deposits.
2 Financial debt includes non-current and current financial debt.
Bonds
In February 2020, a 3-year USD bond of USD 1.0 billion
with a coupon of 1.80% was repaid at maturity.
In February 2020, four US dollar bonds totaling USD
5.0 billion were issued: a 5-year bond of USD 1.0 billion
with a coupon of 1.75%, a 7-year bond of USD 1.25 billion
with a coupon of 2.00%, a 10-year bond of USD 1.5 bil-
lion with a coupon of 2.20%, and a 30-year bond of USD
1.25 billion with a coupon of 2.75%.
In April 2020, a 10-year USD bond of USD 1.0 billion
with a coupon of 4.40% was repaid at maturity.
In September 2020, an 8-year euro sustainabili-
ty-linked bond of EUR 1.85 billion with a coupon of 0.00%
was issued.
In February 2019, a 10-year USD bond of USD 3.0 bil-
lion with a coupon of 5.125% was repaid at maturity.
Liquidity/short-term funding
The Group’s liquidity amounted to USD 11.6 billion at
December 31, 2020, compared to USD 11.4 billion at
December 31, 2019. Total non-current and current finan-
cial debts, including derivatives, amounted to USD 36.0
billion at December 31, 2020, compared to USD 27.4 bil-
lion at December 31, 2019.
The debt/equity ratio increased to 0.64:1 at Decem-
ber 31, 2020, compared to 0.49:1 at December 31, 2019.
The net debt increased to USD 24.5 billion at December
31, 2020, compared to USD 15.9 billion at December 31,
2019.
We continuously track our liquidity position and
asset/liability profile. This involves modeling cash flow
maturity profiles based on both historical experiences
and contractual expectations to project our liquidity
requirements. We seek to preserve prudent liquidity and
funding capabilities. We are confident that we have suf-
ficient liquidity to support our normal business activities
for the foreseeable future.
Certain countries have legal or economic restrictions
on the ability of subsidiaries to transfer funds to the
Group in the form of cash dividends, loans or advances,
but these restrictions do not have an impact on the abil-
ity of the Group to meet its cash obligations.
We are not aware of any significant demands to
change the level of liquidity needed to support our nor-
mal business activities. We make use of various borrow-
ing facilities provided by several financial institutions. We
also successfully issued various bonds in previous years
(including 2018), and raised funds through our commer-
cial paper programs.
The maturity schedule of our net debt can be found
in “Item 18. Financial Statements–Note 29. Financial
instruments –Additional disclosures—Nature and extent
of risks arising from financial instruments—Liquidity risk.”
85
Item 5. Operating and Financial Review and Prospects
5.C Research and development, patents and licenses
Our research and development spending from continu-
ing operations totaled USD 9.0 billion and USD 9.4 bil-
lion (Core research and development USD 8.5 billion and
USD 8.4 billion) for the years 2020 and 2019, respec-
tively.
Each of our divisions has its own research and devel-
opment and patent policies. Our divisions have numer-
ous products in various stages of development. For fur-
ther information on these policies and these products in
development, see “Item 4. Information on the Company—
Item 4.B Business overview.”
As described in the risk factors section and else-
where in this Annual Report, our drug development
efforts are subject to the risks and uncertainties inher-
ent in any new drug development program. Due to the
risks and uncertainties involved in progressing through
preclinical development and clinical trials, and the time
and cost involved in obtaining regulatory approvals,
among other factors, we cannot reasonably estimate the
timing, completion dates and costs, or range of costs, of
our drug development programs, or of the development
of any particular development compound (see “Item 3.
Key Information—Item 3.D Risk factors”). In addition, for
a description of the research and development process
for the development of new drugs and our other prod-
ucts, and the regulatory process for their approval, see
“Item 4. Information on the Company—Item 4.B Business
overview.”
5.D Trend information
Please see “—Item 5.A Operating results”, “—Item 5.B
Liquidity and capital resources” and “Item 4. Information
on the Company—Item 4.B Business overview” for trend
information.
5.E Off-balance sheet arrangements
We have no unconsolidated special purpose financing
or partnership entities or other off-balance sheet
arrangements that have or are reasonably likely to have
a current or future effect on our financial condition,
changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or
capital resources, that is material to investors. See also
“Item 18. Financial Statements—Note 28. Commitments
and contingencies,” and matters described in “— Item
5.F Tabular disclosure of contractual obligations.”
86
Item 5. Operating and Financial Review and Prospects
5.F Tabular disclosure of contractual obligations
The following table summarizes the Group’s contractual obligations and other commercial commitments, as well
as the effect these obligations and commitments are expected to have on the Group’s liquidity and cash flow in
future periods:
(USD millions)
Non-current financial debt, including current portion
Interest on non-current financial debt, including current portion
Lease liabilities, non-current and current portion
Interest on lease liabilities, non-current and current portion
Unfunded pensions and other post-employment benefit plans
Research and development potential milestone commitments
Contingent consideration liabilities
Property, plant and equipment purchase commitments
Acquisition of business commitments
Research and development commitments on transactions
entered into but not closed in 2020 1
Total contractual cash obligations
Payments due by period
Total
Less than
1 year
28 531
2 272
6 647
2 005
1 502
1 760
5 232
1 046
256
235
550
286
52
93
449
62
223
210
2–3 years
4–5 years
After
5 years
5 177
1 014
415
85
190
1 016
327
29
7
5 444
15 638
832
277
66
191
764
312
4 251
1 027
1 299
1 286
3 003
345
4
18
3 296
549
408
930
1 409
50 510
4 746
8 668
8 816
28 280
1 For research and development commitments on transactions entered into but not closed in 2020, please refer to “Item 18. Financial Statements – Note 28 Commitments and
contingencies – research and development commitments”.
The Group intends to fund the research and develop-
ment; property, plant and equipment; intangible asset
purchase commitments with internally generated
resources, and the acquisition of business commitment
through available cash and short- and long-term borrow-
ings.
For other contingencies, see “Item 8. Financial Infor-
mation—Item 8.A Consolidated statements and other
financial information,” “Item 18. Financial Statements —
Note 10. Right-of-use assets and lease liabilities,” “Item
18. Financial Statements—Note 20. Provisions and other
non-current liabilities,” and “Item 18. Financial State-
ments—Note 28. Commitments and contingencies.”
87
Item 6. Directors, Senior Management and Employees
Item 6. Directors, Senior Management and
Employees
6.A Directors and senior management
The information set forth under “Item 6. Directors, Senior
Management and Employees—Item 6.C Board prac-
tices—Corporate governance—Board of Directors” and
“Item 6. Directors, Senior Management and Employees—
Item 6.C Board practices—Corporate governance—
Executive Committee” is incorporated by reference.
88
Item 6. Directors, Senior Management and Employees
6.B Compensation
Dear shareholder,
I am pleased to share with you the 2020 Compensation
Report of Novartis AG. It follows a similar structure to
the previous year’s report, which was supported by over
92% of shareholders.
From the 2020 Annual General Meeting (AGM), we
welcomed new member Bridgette Heller and permanent
guest Simon Moroney to the Compensation Committee.
I have been grateful for their contributions during the
year. In addition, I would like to express my sincere grat-
itude to Srikant Datar, who will step down from the Com-
pensation Committee at the 2021 AGM, for his valuable
engagement throughout his tenure with the Committee.
Feedback from shareholders prior to our last AGM
and, more recently, toward the end of 2020 suggested
that shareholders were in agreement that our current
compensation system is aligned with the Company’s
purpose, strategy and culture. No changes are therefore
proposed for 2021.
COVID-19 pandemic
During 2020, Novartis navigated the pandemic well. We
increased our focus on associates’ health and well-be-
ing by implementing a number of support programs,
including additional paid leave, childcare assistance
during school closures, a one-time payment for home
office setup, a new flexible working scheme within the
country of employment, and a one-time payment to asso-
ciates and external contractors required to work on site
(i.e., in our laboratories or our manufacturing units). No
government assistance (e.g., subsidies, furloughs) was
sought by the Company, and no COVID-19-related asso-
ciate redundancies were made. Through these actions,
we were able to minimize the disruption to our business
operations and consequently were in a position to com-
mit to making no changes to our dividend policy for 2021.
To help tackle the issues caused by the pandemic
directly, Novartis made a number of commitments, col-
laborating with healthcare peers and other organizations
on anti-COVID-19 programs, including the rollout of treat-
ments to the developing world. More information on
Novartis response efforts can be found in our Novartis
in Society ESG Report 2020.
2020 Company performance
Financial performance in 2020 was solid despite the
impact of the global pandemic. Net sales to third parties
for Novartis continuing operations grew 3% in reported
terms and 3% measured in constant currencies (cc),
which removes the impact of exchange rate movements.
Growth was mainly driven by Cosentyx (USD 4.0 billion
in sales), Entresto (USD 2.5 billion), Promacta/Revolade
(USD 1.7 billion), and Zolgensma (USD 0.9 billion). Other
recently launched products, including Kisqali, Piqray and
Kymriah, also contributed. However, this was below our
ambitious net sales plan, as COVID-19 weighed on cer-
tain therapeutic areas, most notably dermatology and
ophthalmology, and the Sandoz Retail Generics business.
The safety updates on Beovu also impacted the business.
Operating income grew 19% versus the prior year
(cc), and net income grew 20% versus the prior year (cc).
Core operating income grew 13% versus the prior year
(cc), exceeding the target, driven by improved produc-
tivity in marketing and sales as well as research and
development, and Novartis Technical Operations (NTO)
network transformation initiatives. Core operating
income margin increased to 31.7% (+2.8 percentage
points cc versus the prior year, and +1.5 percentage
points cc versus target), with Innovative Medicines core
margin reaching 35%.
Free cash flow amounted to USD 11.7 billion. The tar-
get, as a percentage of sales, was slightly overachieved
due to continued strong cash collection despite higher
legal fee payouts.
Financial performance determines 60% of the CEO’s
Annual Incentive balanced scorecard. Targets for the
financial measures were set at the start of the year, and
the Compensation Committee determined that it would
not adjust or apply upwards discretion to reflect the neg-
ative impact of the pandemic or settlements of legacy
legal cases. Overall, our aforementioned performance
resulted in achievement meeting target for this element
of the Annual Incentive.
Strategic objectives determine the remaining 40% of
the CEO’s Annual Incentive balanced scorecard. Prog-
ress against these objectives resulted in achievement
meeting target for this element of the CEO’s Annual
Incentive. More details on our strategic objectives as well
as our financial performance can be found in “—2020
CEO balanced scorecard.”
Two of the five strategic objectives in the CEO’s
Annual Incentive balanced scorecard relate to environ-
mental, social and governance (ESG) matters: “people
and culture” and “building trust with society.” We con-
tinue to integrate ESG, a priority for the Novartis Board
of Directors and the Executive Committee, across our
operations. Novartis focuses on four strategic ESG pil-
lars: ethical standards, pricing and access, global health
challenges and corporate citizenship. In addition to the
COVID-19-related efforts previously mentioned, partic-
ular achievements in 2020 included:
• Setting ambitious long-term environmental targets for
our entire supply chain
• Increasing our patient reach in low- and middle-income
countries with emerging market brands and flagship
programs (i.e., Chagas disease, leprosy, malaria and
sickle cell disease)
• Continuing to make great progress on our diversity and
inclusion strategy related to gender balance, LGBTI
equity, disability equity, and race and ethnicity
• Issuing a sustainability-linked bond, the first of its kind
in the healthcare industry
• Launching our new Code of Ethics
89
Item 6. Directors, Senior Management and Employees
Significant upgrades from ESG rating agencies such
as MSCI and Sustainalytics in the latest reporting season
were based on closing compliance-related allegations;
strong governance, including extensive ethics policies;
leading programs to expand access to healthcare for
low-income populations; and a comprehensive employee
engagement strategy relative to peers.
2020 realized compensation
Based on the overall balanced scorecard assessment
meeting target, the Board of Directors decided on an
Annual Incentive resulting in a payout for the CEO
amounting to CHF 2 636 550, which is 100% of target,
within the range of 0–200%.
The 2018-2020 Long-Term Incentive (LTI) plans com-
prise the Long-Term Performance Plan (LTPP) and the
Long-Term Relative Performance Plan (LTRPP). The
2018-2020 LTPP delivered strong results. The Cash
Value Added target – which has continued to increase
for the last three cycles – was exceeded, and innovation
was above target. For the 2018-2020 LTRPP, Novartis
was above median, ranking 7 out of a total of 15 global
healthcare peers (including Novartis) on three-year
relative total shareholder return (TSR). Overall, when
considering both plans, the Board of Directors awarded
the CEO a total LTI payout of CHF 8 054 923, corre-
sponding to a 126% payout against a maximum of 200%.
No Annual Incentive or LTI targets were adjusted as
a result of the pandemic.
The Board determined that no adjustments were
required to the incentive payouts, notwithstanding the
Company’s supportive treatment of associates and
ability to adapt to new ways of working throughout the
pandemic, without government assistance or making any
COVID-19-related redundancies. In addition, Novartis is
committing to a 2021 dividend to shareholders, in line
with its policy.
These incentive performance outcomes, combined
with base salary and other benefits, pension, Alcon
Keep Whole awards and dividend equivalents, resulted
in 2020 total realized compensation for the CEO of
CHF 12 724 166.
The higher total realized compensation for the CEO
compared to 2019 can be attributed to the vesting of his
first LTI granted after his promotion to CEO in 2018.
The 2020 total realized compensation for the Exec-
utive Committee members (comprising the CEO and the
other 12 active Executive Committee members) was
CHF 58 819 813. This is lower than the prior year due to
the reduction in members reported (two members
stepped down and were replaced in 2019, whereas no
members stepped down in 2020). For more detail on the
2020 realized pay for the CEO and ECN members,
please see “—2020 realized compensation for the CEO
and other Executive Committee members.”
Board compensation
In 2020, the Compensation Committee reviewed, with
its independent advisor, the Board of Directors’ compen-
sation system against the Swiss Market Index. Additional
information on our Board benchmarking practices is
provided in “—2020 Board compensation.”
They found that the Chairman and retainer fees of
the other Board members are well positioned and com-
petitive among the benchmarked companies in relation
to the Company’s size, operational complexity and
corporate headquarters location. The Compensation
Committee therefore proposed no changes to the Board
of Directors’ fees for the 2021-2022 AGM.
2021 AGM
In line with our Articles of Incorporation, at the 2021 AGM,
shareholders will be asked to approve, in a binding vote,
the maximum aggregate amount of compensation for
the Board of Directors from the 2021 AGM to the 2022
AGM, and the maximum aggregate amount of compen-
sation for the Executive Committee for the financial year
2022. Shareholders will also be asked to endorse this
Compensation Report in an advisory vote.
This will be my last year as Chairman of the Compen-
sation Committee of the Board of Directors, and I would
like to thank you all for your support throughout my nine-
year tenure. I will stand for election as a member of our
Compensation Committee at the 2021 AGM to ensure a
smooth transition to my successor. We will also ask
shareholders to elect Simon Moroney to the Compen-
sation Committee and, if support is received, the Board
of Directors will then appoint him as the new Chairman
of the Compensation Committee.
On behalf of Novartis and the Compensation
Committee, I would like to thank you for your continued
engagement and feedback, which we consider extremely
valuable in driving improvements in our compensation
systems and practices.
Respectfully,
Enrico Vanni, Ph.D.
Chairman of the Compensation Committee
90
Item 6. Directors, Senior Management and Employees
Compensation at a glance
Executive Committee compensation system
2020 fixed pay and benefits
Performance-related variable pay
Annual base salary
Pension and other
benefits
2020 Annual Incentive
Purpose
Reflects responsibil-
ities, experience and
skill sets
Form of payment
Cash
Provides retirement
and risk insurances
(tailored to local market
practices/regulations)
Rewards for perfor-
mance against short-
term financial and stra-
tegic objectives, and
Values and Behaviors
Country/individual-
specific and aligned
with other employees
50% cash
50% equity3 deferred
for three years
Long-Term Incentive awards
cycle 2018-2020
LTPP1
LTRPP2
Rewards long-term shareholder
value creation and innovation in line
with our strategy
Equity, vesting following a three-
year performance period
Performance measures
–
–
Balanced scorecard
comprising:
• Financial measures
(60%)
• Strategic objectives4
(40%)
• Novartis Cash
Value Added
(75%)
• Innovation mile-
stones (25%)
• Relative TSR
versus global
sector peers
(100%)5
1 LTPP = Long-Term Performance Plan
2 LTRPP = Long-Term Relative Performance Plan
3 Executive Committee members may elect to receive more of their Annual Incentive in equity instead of cash.
4 Strategic objectives are aligned with the five strategic pillars: innovation, operational excellence, data and digital, people and culture, and building trust with society.
5 For the 2018-2020 performance cycle, the peer group comprises 15 global healthcare companies, including Novartis, as listed in “—Approach to market benchmarking.”
Target incentive opportunity levels for the CEO are 150% and 325% of base salary for the Annual Incentive and
LTI, respectively. Based on Novartis compensation guidelines, the other members of the Executive Committee have
Annual Incentive and LTI target opportunity levels that range from 80% to 120%, and 160% to 270% of base sal-
ary, respectively. The payout range remains at 0% to 200% of target opportunity based on achievement against
performance.
The 2018-2020 cycle will be the last vesting of the LTRPP plan, which was discontinued as of grants made in 2019.
The LTPP metrics were subsequently transformed into four equally weighted measures: net sales compound annual
growth rate, core operating income compound annual growth rate, innovation and relative TSR.
Compensation governance at a glance
A summary of the compensation decision authorization levels within the parameters set by the AGM is shown below,
along with an overview of the risk management principles.
DECISION ON
Compensation of Chairman and other Board members
Compensation of CEO
Compensation of other Executive Committee members
EXECUTIVE COMMITTEE COMPENSATION RISK MANAGEMENT PRINCIPLES
• Rigorous performance management
• All variable compensation is capped at
process
• Balanced mix of short-term and
long-term variable compensation
elements
• Performance evaluation under the
Annual Incentive includes an individual
balanced scorecard
• Performance-based LTI, with three-year
cycles
200% of target
• Contractual notice period of 12 months
• Post-contractual non-compete period
limited to a maximum of 12 months from
the end of employment. Resulting
compensation is limited to the annual
base salary plus the prior-year Annual
Incentive as per contract, if applicable
DECISION-MAKING AUTHORITY
Board of Directors
Board of Directors
Compensation Committee
• Good and bad leaver provisions apply to
the variable compensation of leavers
• No severance payments or change-of-
control clauses
• Clawback and malus principles apply to
all elements of variable compensation
• Share ownership requirements; no
hedging or pledging of Novartis share
ownership position
91
Item 6. Directors, Senior Management and Employees
2020 CEO pay for performance – outcomes
Measure
Target1
Achievement versus target
2020 ANNUAL INCENTIVE (SEE “—2020 ANNUAL INCENTIVE”)
Financial measures – 60% of total Annual Incentive, comprising:
Group net sales (cc) (30%)
Group operating income (cc) (30%)
Group free cash flow as a % of sales (cc) (20%)
Share of peers for Novartis Group (USD) (20%)
Overall assessment of Group financial targets in constant currencies
USD 50 781 million
Below
USD 9 745 million
Significantly above
24.3%
8.3%
Above
Met
Met
1 For performance evaluation purposes, target as well as actual financial KPIs included the results of the Sandoz US dermatology business and generic oral solids portfolio, which
were expected to be divested to Aurobindo Pharma USA Inc. This deal was later terminated by mutual agreement with Aurobindo.
Strategic objectives – 40% of total Annual Incentive, comprising:
Innovation (20%)
Operational excellence (20%)
Data and digital (20%)
People and culture (including Values and Behaviors) (20%)
Met
Met
Met
Met
Building trust with society (including access to healthcare, reputation and other ESG topics) (20%)
Significantly above
Overall assessment of strategic objectives
Overall assessment of CEO balanced scorecard
Met
Met
TOTAL Annual Incentive:
100% of target (payout range 0% – 200%)
2018-2020 LONG-TERM INCENTIVES (SEE “— LONG-TERM INCENTIVE PLANS, 2018-2020 CYCLE”)
Long-Term Performance Plan (LTPP)
Novartis Cash Value Added (cc) (75%)
Key innovation milestones (25%)
TOTAL LTPP1:
Long-Term Relative Performance Plan (LTRPP)
Relative TSR against a global healthcare peer group (USD)
TOTAL LTRPP1:
1 Combined LTI payout is 126% of target.
USD 8.3 billion
Above
Above
143% of target (payout range 0% – 200%)
100% of target (payout range 0% – 200%)
Above median
2020 total realized compensation for the CEO
The 2020 total realized compensation for the CEO was CHF 12 724 166. It includes payouts of the Annual Incen-
tive, LTPP and LTRPP based on actual performance assessed for cycles concluding in 2020. More information on
the overall assessment of the CEO by the Board of Directors can be found in “—2020 CEO balanced scorecard.”
CHF
Annual base
salary
Pension and other
benefits
2020 Annual
Incentive
LTPP 2018-2020
cycle1
LTRPP 2018-2020
cycle1
Total realized
compensation
Fixed pay and benefits
Variable pay – performance-related
Vasant Narasimhan
(CEO)
1 743 750
288 943
2 636 550
5 605 100
2 449 823
12 724 166
1 The shown amounts represent the underlying share value of the total number of shares vested (including Alcon Keep Whole awards of CHF 784 497 as well as dividend equivalents
of CHF 660 900) to the CEO for the LTPP and LTRPP performance cycle 2018-2020.
92
Item 6. Directors, Senior Management and Employees
2020 Board compensation system
The compensation system applicable to the Board of Directors is shown below and remains unchanged since the
prior year. All fees to the Board members are delivered at least 50% in shares and the remainder in cash.
CHF 000s
Chairman of the Board
Board membership
Vice Chairman
Chair of the Audit and Compliance Committee
Chair of the Compensation Committee
Chair of the following committees:
• Governance, Nomination and Corporate Responsibilities Committee
• Science & Technology Committee
• Risk Committee
Membership of the Audit and Compliance Committee
Membership of the following committees:
• Compensation Committee
• Governance, Nomination and Corporate Responsibilities Committee
• Science & Technology Committee
• Risk Committee
2020 Board compensation
AGM 2020-2021
annual fee
3 800
280
50
130
90
70
70
40
Total actual compensation earned by Board members in the 2020 financial year is shown in the table below.
CHF 000s
Chairman of the Board
Other 13 members of the Board
Total
2020
total compensation 1
3 805
4 925
8 729
1 Includes an amount of CHF 26 118 for mandatory employer contributions for all Board members paid by Novartis to governmental social security systems. This amount is out of total
employer contributions of CHF 430 023 , and provides a right to the maximum future insured government pension benefit for the Board member.
93
Item 6. Directors, Senior Management and Employees
Executive Committee
compensation philosophy and principles
Novartis compensation philosophy
Our compensation philosophy aims to ensure that we
attract and retain outstanding Executive Committee
members and that they are rewarded according to their
success in implementing the Company strategy, and their
contribution to Company performance and long-term
value creation.
Pay for
performance
Shareholder
alignment
• Variable compensation is tied directly to the
achievement of strategic Company targets
• Our incentives are significantly weighted
toward long-term equity-based plans
• Measures under the Long-Term Incentive
plans are calibrated to promote the creation
of shareholder value
• Executive Committee members are
expected to build and maintain substantial
shareholdings
Balanced
rewards
• Balanced set of measures to create
sustainable value
• Mix of targets based on financial metrics,
strategic objectives, and performance versus
our competitors
Business
ethics
• The Novartis Values and Behaviors are an
integral part of our compensation system
• They underpin the assessment of overall
performance for the Annual Incentive
Competitive
compensation
• Total compensation must be sufficient to
attract and retain key global talent
• Overarching emphasis on pay for
performance
Alignment with Company strategy
Our strategy is to build a leading, focused medicines com-
pany powered by advanced therapy platforms and data
science. We foster a company culture that is inspired, curi-
ous and unbossed. We believe these elements drive con-
tinued innovation and will support the creation of value over
the long term for our Company, society and shareholders.
To align the compensation system with this strategy
and to ensure that Novartis is a high-performing organiza-
tion, the Company operates both a short-term Annual
Incentive and an LTI plan with a balanced set of measures
and targets. The Board of Directors determines specific,
measurable and time-bound performance measures for
the Annual Incentive and LTI plan. The Compensation Com-
mittee has reviewed the existing compensation system and
determined that it continues to support our strategy.
Approach to market benchmarking
There remains significant competition for top executive
talent with deep expertise, competencies and proven per-
formance within the pharmaceutical and biotechnology
industries. As such, external peer compensation data is
one of a number of key reference points considered by
the Board of Directors and the Compensation Committee
when making decisions on executive pay, helping to
ensure that the compensation system and compensation
levels at Novartis remain competitive. Novartis makes the
commitment to shareholders to confirm benchmarking
practices, including the peer group, each year.
The Compensation Committee believes in a rigorous
approach to peer group construction and maintenance.
The Compensation Committee also believes that using
a consistent set of peers that is similar in size and scope
enables shareholders to evaluate the compensation year
on year and make pay-for-performance comparisons. As
such, following a review of the benchmarking peer group,
the Compensation Committee decided to maintain the
same primary peer group of 14 global healthcare com-
panies until the end of 2020 (with the exception of Cel-
gene, which was acquired by Bristol-Myers Squibb), as
presented below.
GLOBAL HEALTHCARE PEER GROUP
AbbVie
Biogen
Amgen
AstraZeneca
Bristol-Myers Squibb
Eli Lilly & Co.
GlaxoSmithKline
Gilead Sciences
Johnson & Johnson
Novo Nordisk
Merck & Co.
Pfizer
Roche
Sanofi
The companies in this peer group reflect our industry and
are similar to Novartis in terms of both size and scope of
operations. Novartis target compensation is generally
positioned around the market median benchmark for com-
parable roles within this group.
Although Novartis is headquartered in Switzerland,
more than a third of its sales come from the US market,
and the US remains a significant talent pool for the
recruitment of executives by the Company. It is therefore
critical that Novartis is able to attract and retain key tal-
ent globally, especially from the US.
For consideration of European and local practices,
the Compensation Committee also references a cross-in-
dustry peer group of Europe-headquartered multina-
tional companies, selected on the basis of comparability
in size, scale, global scope of operations, and economic
influence to Novartis.
Six of these companies focus mainly on healthcare:
AstraZeneca, GlaxoSmithKline, Merck KgaA, Novo Nor-
disk, Roche and Sanofi. Nine companies are selected
from the STOXX® All Europe 100 Index representing mul-
tiple sectors: Anheuser-Busch InBev, Bayer, BMW, Daim-
ler, Danone, Heineken, L’Oréal, Nestlé and Unilever.
Due to the varying impact of the global pandemic on
different companies, we believe that this year has demon-
strated the importance of using a more homogeneous
industry peer group, where possible.
94
Item 6. Directors, Senior Management and Employees
Executive Committee appointments compensation policy
ELEMENT OF COMPENSATION POLICY
Level
The overall package should be market-competitive to enable the recruitment of global executive talent with
deep expertise and competencies.
Annual base salary
The Compensation Committee may appoint individuals who are new to a role on an annual base salary that
is below the market level, with a view to increase this toward a market level over a period of three to four
years as an individual develops in the role.
This prudent approach ensures pay levels are merit-based, with increases dependent on strong
performance and proven ability in the role over a sustained period.
Incentives
The ongoing compensation package will normally include the key compensation elements and incentive
opportunities in line with those offered to current Executive Committee members.
In exceptional circumstances, higher Long-Term Incentive opportunities than those offered to current
Executive Committee members may be provided at the Compensation Committee’s discretion.
Performance measures may include business-specific measures tailored to the specific role.
Pension and other benefits
Newly appointed Executive Committee members are eligible for a local market pension and other benefits
in line with the wider employee group.
Buyouts
The Compensation Committee seeks to balance the need to offer competitive compensation opportunities
to acquire the talent required by the business with the principle of maintaining a strong focus on pay for
performance.
As such, when an individual forfeits variable compensation as a result of an appointment at Novartis, the
Compensation Committee may offer replacement awards in such form as the Compensation Committee
considers appropriate, taking into account relevant factors.
Relevant factors include the replacement vehicle (i.e., cash, restricted share units, restricted shares or
performance share units), whether the award is contingent on meeting performance conditions or not, the
expected value of the forfeited award, the timing of forfeiture (i.e., Novartis mirrors the blocking or vesting
period of the forfeited award) and the leaver conditions, in case the recruited individual leaves Novartis
prior to the end of the blocking or vesting period.
The Compensation Committee will seek to pay no more than is required to match the commercial value or
fair value of payments and awards forfeited by the individual.
International mobility
If individuals are required to relocate or be assigned away from their home location to take up their position,
relocation support may be provided in line with our global mobility policies (i.e., relocation support, tax
equalization).
95
Item 6. Directors, Senior Management and Employees
Treatment of variable compensation for Executive Committee leavers
ELEMENT OF COMPENSATION POLICY
Annual Incentive –
cash element
Retirement, termination by the Company (for reasons other than performance or conduct), change of
control, disability, death i.e. “good leavers”
Pro-rata Annual Incentive is paid to reflect the portion of the year the individual was employed.
Any other reason
No Annual Incentive.
Annual Incentive – mandatory
deferral into restricted shares/
RSUs
If a participant leaves employment due to voluntary resignation or misconduct, unvested restricted shares
and restricted share units (RSUs) are forfeited.
If a participant leaves involuntarily, restricted shares and RSUs are released on the original blocking end
date.
All awards are subject to non-compete terms until the end of the three-year blocking date, starting from the
date of grant.
Awards are not subject to forfeiture during the deferral period.
Annual Incentive – voluntary
restricted shares/RSUs/ADRs
(US associates only)
Long-Term Incentives
(LTPP/LTRPP)
Voluntary resignation or termination by the Company for misconduct
All of the award will be forfeited.
Termination by the Company for reasons other than performance or conduct, and change in control
due to divestment (including retirement)
Awards vest on the regular vesting date, subject to performance, on a pro-rata basis for time spent with the
Company during the performance cycle. There is no accelerated vesting.
Death or long-term disability
Accelerated vesting at target will be applied.
Non-compete agreement
All awards are subject to non-compete terms against the healthcare peer group until the vesting date.
Malus and clawback
Any incentive compensation paid to Executive Commit-
tee members is subject to malus and clawback rules.
This means that the Board of Directors for the CEO, and
the Compensation Committee for the other Executive
Committee members, may decide – subject to applica-
ble law – to retain any unpaid or unvested incentive com-
pensation (malus), or to recover incentive compensation
that has been paid or has vested in the past (clawback).
This applies in cases where the payout has resulted from
a violation of laws or conflicts with internal management
standards, including Company and accounting policies.
This principle applies to both the short-term Annual
Incentive and LTI plans.
96
Item 6. Directors, Senior Management and Employees
Executive Committee performance management process
To foster a high-performance culture, the Company
applies a uniform performance management process
worldwide, based on quantitative and qualitative criteria,
including our Values and Behaviors. All Novartis associ-
ates, including the CEO and other Executive Committee
members, are subject to a formal three-step process:
objective setting, performance evaluation and compen-
sation determination. This process is explained below.
Performance targets are generally set before the
start of the relevant performance cycle. There is a rigor-
ous framework in place for establishing targets to ensure
they are suitably robust and challenging, and align with
the strategic priorities of the Group. The key factors
taken into account when setting targets include:
• Novartis strategic priorities
• Internal and external market expectations
• Regulatory factors (e.g., new launches, patent expiries)
• Investment in capital expenditure
• Values and Behaviors
The targets are challenged at multiple stages before they
are ultimately approved by the Board of Directors. In line
with good governance practices, the Compensation
Committee works to set targets that are ambitious and
challenging but do not encourage undue risk-taking.
Following the end of the performance cycle, the Board
of Directors and the Compensation Committee consider
performance against the targets originally set. The CEO
and Executive Committee members are not present while
the Board of Directors and the Compensation Commit-
tee discuss their individual performance evaluations.
Prior to determining the final outcome, related factors
such as performance relative to peers, wider market con-
ditions, general industry trends and good practice are
used to inform the overall performance assessment.
Objective setting
Performance evaluation
Compensation determination
• The CEO proposes his targets to the
Chairman of the Board; they are then
reviewed and approved by the Board
of Directors, based on input from the
Compensation Committee.
• For other Executive Committee
members, targets for their division or
unit are initially discussed with the CEO
and subsequently approved by the
Board of Directors and Compensation
Committee.
• The CEO’s performance against
• A recommendation for the CEO’s
the individual balanced scorecard is
assessed by the Board of Directors.
• For Executive Committee members,
the CEO discusses with the Chairman
each member’s performance
(assessed against his or her individual
balanced scorecard) before making
recommendations to the Board of
Directors.
• Periodic assessments, including at the
mid-year stage, ensure progress is
suitably tracked.
variable pay is made by the
Compensation Committee to the Board
of Directors for final determination.
• For the Long-Term Incentive financial
measures payout schedules, a
formulaic approach applies and the
Compensation Committee can also
exercise judgment to ensure there
is appropriate alignment between
payout levels and overall performance
achieved. The same principle of
discretion applies to the relative TSR
and innovation performance measures.
• The CEO’s recommendations for
other Executive Committee members
are considered and approved by the
Compensation Committee, after which
the Board of Directors is notified of the
outcomes.
97
Item 6. Directors, Senior Management and Employees
2020 Executive Committee compensation
Performance outcomes
Annual base salary
Overview
• The annual base salary is reviewed each year, taking into account the individual’s role, performance and
experience, business performance and the external environment, increases across the Group and market
movements.
2020 annual base salaries
The 2020 annual base salaries were as follows:
• CEO (effective March 1, 2020): CHF 1 757 700
• OTHER EXECUTIVE COMMITTEE MEMBERS (effective March 1, 2020): All other members of the
Executive Committee were awarded increases in line with the average of all Novartis employees, with the
exception of four individuals as disclosed in Item 6.B of the 2019 Annual Report. These members were
appointed to their roles with base salaries below external market median level and have demonstrated
excellent performance during their tenure.
Pension and other benefits
Overview
• Pension and other benefits do not constitute a significant proportion of total compensation and are
provided to the Executive Committee on the same terms as all other associates based on local country
practices and regulations.
• The CEO and all other Swiss-based members of the Executive Committee are members of the Novartis
Swiss pension funds, which provide Company contributions on the base salary and Annual Incentive up to
the legal cap on the insured salary of CHF 853 200. No supplementary pension plans or savings plans are
provided. The CEO’s employer pension contributions represent 10.04% of his base salary.
• Globally the Company operates both defined benefit and defined contribution pension plans (see also Note
25 to the Group’s consolidated financial statements).
• Novartis may provide other benefits according to local market practice. These include Company car
provision, tax and financial planning, and insurance benefits.
• Executive Committee members who are required to relocate internationally may also receive additional
benefits (including tax equalization), in line with the Company’s global mobility policies.
98
Item 6. Directors, Senior Management and Employees
2020 Annual Incentive
PLAN OVERVIEW
Target Annual Incentive
Annual base
salary
x
Target incentive
(% of base salary)
=
Target
Annual Incentive
On-target opportunities
• CEO: 150% of annual base salary
• Other Executive Committee members: 80% to 120% of annual base salary
Performance measures
• An Annual Incentive balanced scorecard containing:
• Financial performance measures related to Group, division or business unit, where relevant (60% weighting)
• Five key strategic objectives in the areas of innovation, operational excellence, data and digital, people
and culture, and building trust with society (40% weighting)
• The 2020 balanced scorecard targets and achievements of the CEO are detailed on the next page.
• The 2020 balanced scorecards for other Executive Committee members include Group financial targets as
well as financial or other quantitative targets that relate to their division or business unit, if applicable.
• Values and Behaviors are a key component of the Annual Incentive and are embedded in our culture. As
such, members of the Executive Committee are expected to demonstrate these to the highest standards.
Target setting
• Financial targets are set at the beginning of each financial year and align with the strategic plan proposed
by management to the Board of Directors for approval.
• The strategic objectives are aligned with the most important priorities in any performance year.
Payout ranges
• The payout schedule for the Annual Incentive incorporates performance against financial and strategic
objectives. The payout range is 0% to 200% of on-target opportunity based on performance, as shown
below:
PERFORMANCE
Outstanding
Exceeds expectations
Meets expectations
Partially meets expectations
Below expectations
PAYOUT (% of on-target)
170% – 200%
130% – 160%
80% – 120%
40% – 70%
0%
Payout formula
Annual base
salary
x
Target incentive
(% of base salary)
x
Payout factor (% of
target: 0%–200%)
=
Realized
Annual Incentive
Payout vehicle
• At the end of the performance period, 50% is paid in cash, and the remaining 50% is delivered in Novartis
restricted shares or RSUs, deferred for three years (see “—Treatment of variable compensation for
Executive Committee leavers”).
• Executives may choose to receive all or part of the cash portion of their Annual Incentive in Novartis shares
or American Depositary Receipts (ADRs; US only) that will not be subject to forfeiture conditions. In the US,
awards may also be delivered in cash under the US-deferred compensation plan.
• Clawback and malus provisions apply to all Annual Incentive awards.
Dividend rights, voting rights
and settlement
• Novartis restricted shares carry voting rights and dividends during the vesting period. RSUs are of
equivalent value but do not carry voting rights and dividends during the vesting period.
• Following the vesting period, settlement of RSUs is made in unrestricted Novartis shares or ADRs.
99
Item 6. Directors, Senior Management and Employees
2020 CEO BALANCED SCORECARD
This section presents the balanced scorecard for the CEO. Balanced scorecard performance is measured in constant curren-
cies to reflect operational performance that can be influenced. The Board of Directors uses a stringent process to set ambi-
tious financial targets to incentivize superior performance. No adjustments were made to the targets as a result of the COVID-
19 pandemic. In addition to the financial targets, the CEO also has ambitious strategic objectives across five key pillars, two of
which are related to ESG matters.
During the year, the Compensation Committee took the opportunity to benchmark its approach to incentive target setting. The
committee asked its independent advisor to survey several organizations, representing global multinationals from various indus-
tries, to gain insight into their variable incentive target-setting processes. Through this review, it was concluded that Novartis
practices are in line with the surveyed companies, and no changes to the target-setting process were made.
CEO achievements – 2020
Financial measures – 60% of total Annual Incentive, comprising:
Group net sales (cc) (30%)
Group operating income (cc) (30%)
Group free cash flow as a % of sales (cc) (20%)
Share of peers for Novartis Group (USD) (20%)
Overall assessment of Group financial targets in constant currencies
Target1
Achievement versus
target
50 781 million
| 9 745 million
| 24.3%
8.3%
|
|
Below
Significantly above
Above
Met
Met
1 For performance evaluation purposes, target as well as actual financial KPIs included the results of the Sandoz US dermatology business and generic oral solids portfolio, which
were expected to be divested to Aurobindo Pharma USA Inc. This deal was later terminated by mutual agreement with Aurobindo.
Strategic objectives – 40% of total Annual Incentive, comprising:
Innovation (20%)
Novartis continued to strengthen its product portfolio with 26 major approvals and 13 major submissions. Thir-
ty-one new targets or technologies were discovered; 35 projects achieved first patient, first visit; and 13 positive
proofs of concept/proofs of mechanism were achieved. However, due to pandemic and data-related delays, miles-
tones for Lu-PSMA-617 and Entresto (for heart failure with preserved ejection fraction) were missed.
Despite the pandemic, launches of Kesimpta, Cosentyx (for non-radiographic axial spondyloarthritis), Enerzair and
Tabrecta showed strong early performance, with Tabrecta being the first-ever fully virtual launch. The launch of
AVXS-101 intrathecal was delayed due to a partial hold on clinical trials based on findings in a small preclinical
animal study.
We continued to strengthen our advanced therapy platforms across the value chain, moving forward a breadth of
clinical and preclinical programs, expanding our manufacturing capacity, and making our marketed therapies like
Zolgensma, Kymriah and Lutathera widely available around the world.
Operational excellence (20%)
Solid sales growth (3% increase compared to 2019), transformation of our NTO network, and improved produc-
tivity in marketing and sales as well as research and development drove double-digit cc growth in core operating
income to USD 15.4 billion. Compared to the prior year, core operating income margin increased by 2.8 percentage
points (cc) to 31.7%.
Net income from continuing operations grew 13% (20% cc), mainly driven by higher operating income. Full-year
free cash flow was USD 11.7 billion, as higher operating income was more than offset by increased legal payments
and lower divestments.
Data and digital (20%)
We continued to advance and accelerate our digital lighthouse platforms in areas of biggest impact. The data42
analytics platform is now scaled. We have more than 5 000 users on our Nerve Live platform to manage clinical
trials in real time. Through our remote clinical trial program, we ran over 35 000 remote monitoring interventions to
mitigate the impact of the pandemic.
In the commercial and medical space, we transitioned all sales representatives globally to a harmonized customer
relationship management tool. We also continued to significantly invest in next-generation marketing and sales,
with 1 400 marketers trained. SpotOn, our control center for manufacturing and supply chain flow, is now live at
five sites with three technology platforms, and is supporting our NTO organization to connect and contextualize
data to predict and simulate scenarios.
|
|
|
Met
Met
Met
100
|
Met
| Significantly above
Item 6. Directors, Senior Management and Employees
2020 CEO BALANCED SCORECARD − CONTINUED
People and culture (20%)
We continued to build a culture that is inspired, curious and unbossed. The score for engagement in our quarterly
employee survey reached an all-time high of 80 (out of 100) in the fourth quarter of 2020, compared to 74 a year
earlier, bringing us further above the pharmaceutical industry benchmark of 73 and the global benchmark of 74.
We made good progress toward our associate learning initiatives in 2020, with 45.7 learning hours per associate
on average. Additionally, the Unbossed Leadership Experience leadership program reached over 5 000 leaders.
We continued to make steady progress toward our Equal Pay International Coalition (EPIC) pledge to achieve
gender balance in management by 2023. The percentage of women in management overall rose to 45% in 2020
(from 44% a year earlier) and to 33% for Novartis Top Leaders (up 2%, slightly below the 2020 aspiration). Novartis
has a global median pay gap of -3.1% and a global mean pay gap of +3.6% (available data at the time of disclosure).
While we acknowledge this percentage is influenced by worldwide workforce demographics, this is significantly
ahead of the Bloomberg benchmarks of +19% median and +23% mean. We introduced an inclusion index and
achieved a 74 score versus a global benchmark of 71 and a pharmaceutical industry benchmark of 70.
Building trust with society (including access to healthcare, reputation and other ESG topics) (20%)
The Company’s ESG strategy comprises four key pillars. Some particular highlights for 2020 include the settling
of historic litigations matters, issuing a sustainability-linked bond, committing to achieve full carbon neutrality by
2030, and integrating ESG across all functions. These efforts contributed to improvements in our scores on a
number of ESG indices from external agencies. Namely, we were sector leaders for Sustainalytics and FTSE-
4Good, and received an “A” rating from MSCI in the most recent reporting cycle. Additional information on these
achievements is provided below and in the Novartis in Society ESG Report 2020.
ETHICAL STANDARDS
In June 2020, Novartis reached settlements for the investigations into historical conduct by the Company and
its subsidiaries dating back to 2012. With these agreements, all legacy compliance-related allegations against
Novartis are closed. Our new Code of Ethics was rolled out in September, providing our associates with a robust
framework for decision-making to help navigate situations that are complex or unclear. Third-party risk assess-
ments were conducted for 100% of new eligible suppliers and distributors.
PRICING AND ACCESS
Compared to 2019, we increased our reach with strategic innovative therapies to patients in low- and middle-in-
come countries (LMICs) by 27%, a significant step toward reaching our 2025 goal (200% increase in patient reach).
In 2020, we launched 22 emerging market brands, and 100% of new launches have an access strategy in place.
Piqray in India, for instance, was one month ahead of the first European country launch thanks to early planning and
more formalized processes. In response to the COVID-19 pandemic, Novartis partnered with the Africa Medical
Supplies Platform (AMSP) to facilitate the supply of 15 Sandoz medicines to 55 African and 15 CARICOM-eligible
countries. In 2020, Novartis issued a sustainability bond linked to our access targets for strategic innovative the-
rapies and our flagship programs, becoming the first healthcare company to issue a corporate bond of this kind.
GLOBAL HEALTH
The four Novartis global health flagship programs in leprosy, malaria, Chagas disease and sickle cell disease focus
on diseases where there is a market failure and where we have the ability to innovate. Progress in this area was
delayed, as the pandemic limited accessibility to clinics. However, we were able to treat approximately 5 000 pati-
ents with sickle cell disease in sub-Saharan Africa and expand the rollout of the Africa sickle cell disease program
to Kenya, Tanzania and Uganda.
RESPONSIBLE CITIZENSHIP
Novartis advanced its ambition to reduce its environmental impact, aiming to achieve full carbon, plastic and water
neutrality by 2030. In 2020, we reduced our carbon emissions, waste disposal and water consumption compared
to 2019 by an estimated 16%, 21% and 25%, respectively – well ahead of our 8% target in each of the three areas.
We made measurable progress toward our public equity pledges, preparing to go live with pay transparency in 10
new countries from February 2021, and eliminating the use of historical salary data in 75% of cases when making
internal and external hiring decisions. To address racial inequalities, our Novartis US Foundation has shifted focus
and is dedicated to tackling this issue.
Overall assessment of strategic objectives
Overall assessment of CEO balanced scorecard
Met
Met
ANNUAL INCENTIVE PAYOUT
Payout
Based on the overall assessment, the Board of Directors decided on an Annual Incentive resulting in a payout
for the CEO amounting to CHF 2 636 550, which is 100% of target, within the range of 0–200%.
101
Item 6. Directors, Senior Management and Employees
Long-Term Incentive plans, 2018-2020 cycle
• The Long-Term Performance Plan (LTPP) is the first of two LTI plans operated over the 2018-2020 cycle and
rewards creation of long-term value and innovation.
• The Long-Term Relative Performance Plan (LTRPP) is the second of two LTI plans operated over the 2018-2020
cycle and rewards competitive shareholder return relative to the global healthcare peer group.
The structure of the two plans is summarized below.
OVERVIEW OF LONG-TERM INCENTIVE PLANS
Grant formula
At the start of the performance cycle, performance share units (PSUs) are granted under each of the Long-
Term Incentive plans, as follows:
Step 1
Annual base
salary
Step 2
Grant value
x
/
Target
incentive %
Share price
=
=
Grant value
Target number of
PSUs
On-target opportunity
LTPP:
• CEO: 200% of annual base salary
• Other Executive Committee members: between 130% and 190% of annual base salary
Payout range
Award vehicle
LTRPP:
• CEO: 125% of annual base salary
• Other Executive Committee members: between 30% and 80% of annual base salary
• From 0% to 200% of the on-target amount based on performance
PSUs granted at the beginning of the cycle vest at the end of the three-year performance cycle and are
converted into Novartis shares.
PSUs carry dividend equivalents that are paid in shares at the end of the cycle to the extent that
performance conditions have been met.
Payout formula:
Target number of
PSUs
x
Performance factor
+
Dividend
equivalents
=
Realized PSUs
Policy information in “—Treatment of variable compensation for Executive Committee leavers” provides
details on the treatment of Long-Term Incentive awards for leavers.
102
Item 6. Directors, Senior Management and Employees
LTPP performance outcomes
NOVARTIS CASH VALUE ADDED (NCVA) (75% OF LTPP)
Description
NCVA incentivizes sales growth and margin improvement as well as asset efficiency. It is calculated as follows:
Group performance outcome
for the 2018-2020 cycle
INNOVATION (25% OF LTPP)
Description
Group performance outcome
for the 2018-2020 cycle
Operating income
+
Amortization, impairments, and adjusting for
gains/losses from non-operating assets
–
Taxes
–
Capital charge (based on WACC1) on
gross operational assets
=
NCVA2
1 WACC = weighted average cost of capital
2 NCVA = (cash flow return on investment % – WACC) x gross operational assets in constant currencies
The NCVA performance factor is based on a 1:3 payout curve, whereby a 1% deviation in realization versus
target leads to a 3% change in payout (for example, a realization of 105% leads to a payout factor of 115%).
Accordingly, if performance over the three-year vesting period falls below 67% of target, no payout is made
for this portion of the LTPP. Conversely, if performance over the three-year vesting period is above 133% of
target, payout for this portion of the LTPP is capped at 200% of target.
For the last three cycles, the Board of Directors has set increasingly ambitious NCVA targets to promote
improvements to operational efficiencies. During the 2018-2020 cycle, Novartis delivered an NCVA of USD
9.6 billion, 16% ahead of a target of USD 8.3 billion in constant currencies.
When setting the target for the 2018-2020 cycle, which increased by USD 2.2 billion (i.e., 37% versus the 2017-2019
cycle), the Compensation Committee took into account the following:
• An expected increase in operational performance
• Key business transformation investments and restructuring costs, particularly in the manufacturing and
business services organizations
The 2018-2020 NCVA performance was mainly driven by the following:
• Out-performance of sales targets over the three-year cycle (predominantly in 2019) by Innovative Medicines (+USD
1.3 billion, mainly driven by Entresto, Promacta/Revolade, and Tafinlar + Mekinist)
• Significant increase in productivity, mainly in manufacturing (with core production cost of goods sold as a
percentage of sales improving by 2% points in constant currencies), marketing and sales, and research and
development. This allowed for targeted launch investments and increased core operating income margin in constant
currencies
No adjustments were made to the target to reflect the impact of the COVID-19 pandemic.
Following the application of the agreed payout curve, the 116% achievement versus target generates a
performance factor of 147% of target for this part of the LTPP.
This will be the last year NCVA is considered in our LTI plans. For LTPP cycles starting from 2019, NCVA has
been replaced with a combination of a three-year net sales compound annual growth rate (CAGR) and core
operating income CAGR.
Innovation is a key value driver for shareholders and is critical to our future. At the beginning of the cycle, the
Science & Technology Committee (formerly the Research & Development Committee) determines the most
important target milestones, considering the following:
• The expected future potential revenue
• The potential qualitative impact of research and development on science and medicine
• The potential impact of research and development on the treatment or care of patients
For the cycle 2018-2020, innovation performance is based on group-wide innovation using a combination of
Novartis Institutes for BioMedical Research (NIBR) and Global Drug Development (GDD) targets.
At the end of the cycle, the Compensation Committee determines the payout factor based on the
performance assessment made by the Science & Technology Committee. In the healthcare industry,
achievement of 60% to 80% of pipeline targets set at the beginning of a three-year cycle is considered good
performance. The payout range 0% to 150% of target is based on the achievement of the target milestones,
and payout above 150% of target is only delivered for truly exceptional performance.
In the 2018-2020 period, Novartis exceeded its innovation performance targets. We achieved a number of readouts
and submissions in the Innovative Medicines Division, including approvals for Mayzent in the US and the EU to
treat multiple sclerosis (MS); Kesimpta in the US to treat MS; Beovu in the US and the EU to treat neovascular (wet)
age-related macular degeneration; Piqray in the US and the EU to treat HR+/HER2- advanced breast cancer with a
PIK3CA mutation; Atectura and Enerzair in the EU to treat asthma; and Adakveo in the US and the EU to treat sickle
cell disease. Entresto for heart failure with preserved ejection fraction (US) and Cosentyx for non-radiographic axial
spondyloarthritis (US and EU) were also approved. Although the readout for QAW039 (fevipiprant) in asthma was
attained, the program failed to meet its goals in Phase III clinical trials and was therefore terminated. Overall, Novartis
achieved nine approvals for new molecular entities over the cycle.
Sandoz achieved US approval for long-acting oncology supportive care biosimilar Ziextenzo (pegfilgrastim-bmez),
becoming the first and only company to offer US patients long- and short-acting filgrastim biosimilar treatment
options. NIBR achieved its targets, discovering eight new first-in-class potential targets for liver diseases and initiating
first-in-human studies of a CD19-targeted CAR-T therapy with an advanced manufacturing process.
Following input from the Science & Technology Committee, the Board of Directors approved an innovation
performance factor for the CEO and Executive Committee members of 131% of target.
LTPP PAYOUT
Payout
Overall, the Board of Directors approved an LTPP payout for the CEO amounting to CHF 5 605 100, which is
143% of target, within the range of 0–200%. This includes dividend equivalents of CHF 459 895.
103
Item 6. Directors, Senior Management and Employees
LTRPP performance outcomes
RELATIVE TOTAL SHAREHOLDER RETURN (TSR) (100% OF LTRPP)
Description
Performance is based on our TSR relative to a global healthcare peer group. Outperformance of this peer
group is a key indicator that Novartis is delivering long-term value to its shareholders.
The peer group and payout matrix for the 2018-2020 performance cycle are as follows:
2018-2020 peer group
(14 companies, excluding Novartis)
Novartis position
in the peer group
Payout range
(% of target)
AbbVie
Biogen
Amgen
AstraZeneca
Position 1 – 2
Bristol-Myers Squibb
Eli Lilly & Co.
Position 3 – 5
GlaxoSmithKline
Gilead Sciences
Johnson & Johnson
Position 6 – 8
Novo Nordisk
Merck & Co.
Pfizer
Position 9 – 15
170% – 200%
130% – 160%
80% – 120%
0%
Roche
Sanofi
The payout matrix includes a significant reduction (including scope to reduce to nil) when Novartis does not
outperform the majority of the companies in the group. At the end of the performance cycle, all companies
are ranked in order of highest to lowest TSR in USD. As communicated in the 2019 Annual Report, for the
2018-2020 cycle, a one-day pricing approach was taken to determine the share value at the start of the
performance cycle, and a three-month averaging method was then used at the end of the cycle.
The Compensation Committee uses its discretion to determine the payout factor within the ranges shown
above, and takes into consideration factors such as absolute TSR, overall economic conditions, currency
fluctuations and other unforeseeable economic situations.
Group performance outcome
for the 2018-2020 cycle
Novartis TSR over the three-year period (2018-2020) was 29.4% using the methodology described above.
When compared to the global healthcare peer group, Novartis TSR ranked No. 7 out of 15 companies.
LTRPP PAYOUT FOR THE 2018-2020 CYCLE
Payout
Based on the ranking, the Board of Directors approved an LTRPP payout of 100% of target for the CEO,
resulting in CHF 2 449 823, which includes dividend equivalents of CHF 201 005.
Combined LTI (LTPP and LTRPP) outcomes for the 2018-2020 cycle
Payout
When considering both the LTPP and LTRPP, the total combined LTI payout was 126% of target for the CEO,
resulting in CHF 8 054 923, compared to 157% last year. This amount includes CHF 660 900 of dividend
equivalents accrued over the three-year cycle and CHF 784 497 in Alcon Keep Whole awards. Further detail
can be found in the tables “2018-2020 LTPP performance cycle” and “2018-2020 LTRPP performance
cycle.”
104
Item 6. Directors, Senior Management and Employees
Realized compensation
To aid shareholders’ understanding of the link between pay and performance, the Compensation Committee dis-
closes the realized compensation for the CEO individually, and for the other members of the Executive Committee
on an aggregated basis. Disclosing realized compensation means that the Annual Incentive and the LTI are dis-
closed at the end of their respective performance cycles, reflecting actual payouts based on performance.
The total actual payout may vary year on year depending on multiple factors, including the composition of the
Executive Committee and the tenure of its members (as new members may not have a vested LTI), compensation
increases, payout of variable compensation based on actual performance, share price fluctuations of the LTI, and
dividend equivalents.
As communicated in the 2018 and 2019 Annual Reports, all Novartis shareholders received a dividend in kind
in Alcon shares at the spin-off date, which created immediate and significant value to shareholders. However,
unvested performance share units (PSUs), such as the LTPP and LTRPP, were not entitled to such dividend in kind.
To ensure equal treatment relative to shareholders, PSU holders were instead awarded Alcon Keep Whole awards
of similar value to the dividend in kind. These are only realized at the same time as the underlying PSUs, and are
subject to the same performance conditions. The vesting of these Alcon Keep Whole awards will be considered in
the realized compensation of the CEO and ECN members.
2020 realized compensation for the CEO and other Executive Committee members
The Board reconsidered the executive incentive targets set prior to the pandemic and concluded that no changes
should be made.
To determine the appropriateness of the 2020 CEO and executive compensation payouts under the Annual
Incentive and LTI plans, the Board of Directors and the Compensation Committee reviewed management’s perfor-
mance and contribution, taking the following into consideration:
• No COVID-19-related government support or employee redundancies
• Supportive treatment of associates and responsible societal approach adopted throughout the pandemic
• Resilient operational and financial performance against targets
• Strong progress toward strengthening our global product portfolio
• Accomplishments across all strategic pillars, with careful attention to ESG targets
• 29.4% shareholder return over cycle 2018-2020, when considering a three-month price averaging at the end of
the cycle (40.4% when considering the spot rate on December 31, 2020)
On this basis, the Board of Directors determined that no discretionary judgments were required to the resulting
payouts. More detail on the performance of the CEO can be found in “—2020 CEO balanced scorecard.”
The Board of Directors awarded the CEO a 2020 Annual Incentive of CHF 2 636 550, which is 100% of target,
within the payout range of 0% to 200%.
The 2018-2020 LTI plans comprise the LTPP and the LTRPP. The 2018-2020 LTPP delivered strong results,
with Cash Value Added and innovation above target (see “—LTPP performance outcomes”). For the 2018-2020
LTRPP, Novartis ranked above median at position 7 out of a total of 15 global healthcare peers (including Novartis),
on three-year relative TSR. Overall, when considering both plans, the Board of Directors awarded the CEO a total
LTI payout of CHF 8 054 923, corresponding to a 126% payout against a maximum of 200%.
These incentive performance outcomes, combined with base salary and other benefits, pension, Alcon Keep
Whole awards and dividend equivalents, resulted in 2020 total realized compensation for the CEO of CHF 12 724 166.
105
Item 6. Directors, Senior Management and Employees
The following table reports fixed and other compensation for the year, including the Annual Incentive for the 2020
performance year, the realized LTI for the 2018-2020 performance cycle, and any buyouts vesting in 2020. The
portion of the Annual Incentive paid in shares for the year 2020 is disclosed using the underlying value of Novartis
shares at the date of grant, while the realized values of any other equity awards (including dividend equivalents and
Alcon Keep Whole awards) are calculated using the share price on the date of vesting.
2020 realized compensation for the CEO and other Executive Committee members
2020 annual base
salary
2020 pension
benefits1
2020 Annual Incentive
Long-Term Incentives
LTPP 2018-2020
cycle
LTRPP 2018-2020
cycle
Currency
Cash (amount)
Amount
Cash
Equity2
Equity (value
at vesting date)3
Equity (value
at vesting date)3
Other 2020
compensation
Total realized
compensation
(incl. share
Amount2,4,5 price movement)6
Executive Committee members
Vasant Narasimhan (CEO)
CHF
1 743 750
175 102
1 318 275
1 318 275
5 605 100
2 449 823
113 841 12 724 166
Aggregate realized
compensation of the other 12
Executive Committee
members 7
Total
CHF
9 792 833
CHF 11 536 583
2 320 106
2 495 208
4 901 015
6 219 290
5 997 169 14 416 662
7 315 444 20 021 762
3 863 980
6 313 803
4 803 881 46 095 647
4 917 722 58 819 813
See 2019 realized compensation for the CEO and other Executive Committee members for 2019 comparative figures.
1 Includes mandatory employer contributions of CHF 8 336 for the CEO and CHF 59 591 for the other Executive Committee members paid by Novartis to governmental social security
systems. This amount is out of total employer contributions of CHF 6 088 770 paid in 2020 for all Executive Committee members, and provides a right to the maximum future insured
government pension benefit for the Executive Committee members.
2 The portion of the Annual Incentive delivered in equity is rounded up to the nearest share, based on the closing share price on the grant date (January 20, 2021) of CHF 86.01 per
Novartis share and USD 96.92 per ADR.
3 The amounts represent the underlying share value of the 245 786 LTPP PSUs and 75 714 LTRPP PSUs vesting on January 18, 2021, to the CEO and other Executive Committee
members for the performance cycle 2018-2020, inclusive of earned Alcon Keep Whole awards and dividend equivalents for the three-year cycle (for details see LTPP performance
cycle and LTRPP performance cycle). The taxable value is determined using the closing share price on the day the Novartis Board of Directors approved the final LTPP and LTRPP
performance factors (i.e., January 20, 2021) of CHF 86.01 per Novartis share and USD 96.92 per ADR. Bertrand Bodson, Shannon Thyme Klinger, Steffen Lang, Susanne Schaffert
and Marie-France Tschudin were promoted to the Executive Committee during the course of the performance period 2018-2020, and as such, the information disclosed reflects their
pro-rata LTPP and LTRPP 2018-2020 payouts attributable to the period in which they were a member of the Executive Committee. Klaus Moosmayer, John Tsai and Richard Saynor
joined Novartis after the 2018 LTI awards being made and hence did not receive LTPP and LTRPP awards for the 2018-2020 performance period.
4 Includes any other perquisites, benefits in kind, international assignment benefits as per the global mobility policy (e.g., housing, international health insurance, children’s school fees,
tax equalization). The 2020 tax payments for Richard Saynor were CHF 1 181 889 and for Susanne Schaffert were CHF 431 180.
5 Includes 6 128 vested RSUs (CHF 471 666), of which 698 vested on March,13 2020, and 5 430 on July 28, 2020, as well as 4 022 vested PSUs (CHF 281 379) on March 13, 2020, to
John Tsai in lieu of the LTI that he forfeited when leaving his previous employer. Also includes 2 421 vested RSUs (USD 229 487) on January 4, 2020, to James Bradner in lieu of the
LTI that he forfeited when leaving his previous employer and 6 011 vested PSUs (CHF 550 788) on January 17, 2020, to Klaus Moosmayer in lieu of the LTI he forfeited when leaving his
previous employer. Lastly, includes 2 348 vested RSUs (CHF 224 516) and 2 178 vested PSUs (CHF 208 260) on February 15, 2020, to Richard Saynor in lieu of the LTI that he
forfeited when leaving his previous employer. The PSUs had the same performance measures as the LTPP for the 2017-2019 performance cycle (NCVA and long-term innovation).
6 All amounts are before deduction of the social security contribution and income tax due by the Executive Committee member.
7 Amounts for Executive Committee members paid in USD were converted at a rate of USD 1.00 = CHF 0.939, which is the same average exchange rate used in the Group’s 2020
consolidated financial statements (similar rule applies in case of payments made in other currencies during the year).
The table and information below provide additional details on awards granted as part of the 2018-2020 LTPP and
LTRPP performance cycle, including the number of shares awarded and delivered, following the application of the
payout factor and the addition of dividend equivalent shares.
2018-2020 LTPP performance cycle
PSUs at grant
Shares delivered at vesting
PSUs
(target number)
PSUs
(target value
at grant date)
2
(CHF)
Executive Committee members 1
Performance shares
Payout factor Performance shares delivered at vesting
equivalent shares delivered at vesting
for LTPP delivered at vesting (value at vesting date) delivered at vesting (value at vesting date)
(CHF)
(CHF)
(number)
(number)
(% of target)
Dividend
3
4
Dividend
Total shares
equivalent shares delivered at vesting
(value at
vesting date)
(CHF)
Vasant Narasimhan
41 833
3 467 956
143%
59 821
5 145 204
5 347
459 895
5 605 100
Other 12 Executive Committee
members
106 674
8 800 729
143%
152 457 13 285 757
12 984
1 147 618 14 416 662
Total
148 507 12 268 684
212 278 18 430 962
18 331
1 607 514 20 021 762
1 Bertrand Bodson, Shannon Thyme Klinger, Steffen Lang, Susanne Schaffert and Marie-France Tschudin joined the Executive Committee during the course of the performance
period 2018-2020. As such, the information disclosed reflects their pro-rata LTPP 2018-2020 payout attributable to the period they were a member of the Executive Committee.
Klaus Moosmayer, John Tsai and Richard Saynor joined Novartis post the 2018 LTPP awards being made and hence did not receive an LTPP award for the 2018-2020 performance
period.
2 The shown amounts represent the underlying share value of the target number of PSUs granted to each Executive Committee member for the performance period 2018-2020,
based on the closing share price on the grant date (January 18, 2018) of CHF 82.9 per Novartis share and USD 86.41 per ADR (pre-Alcon spin-off share price).
3 The shown amounts, inclusive of earned Alcon Keep Whole awards and dividend equivalents, represent the underlying share value of the target number of PSUs vested for the
performance period 2018-2020, based on the last closing share price on the day the Novartis Board of Directors approved the final LTPP and LTRPP performance payout factors
(i.e., January 20, 2021) of CHF 86.01 per Novartis share and USD 96.92 per ADR.
4 Dividend equivalent shares are calculated on the dividend each member of the Executive Committee would have received, based on the actual number of shares delivered at the end
of the performance period 2018-2020. At vesting, the dividend equivalents are credited in shares or ADRs.
106
Item 6. Directors, Senior Management and Employees
2018-2020 LTRPP performance cycle
PSUs at grant
Shares delivered at vesting
PSUs
(target number)
PSUs
(target value
at grant date)
2
(CHF)
Executive Committee members 1
Performance shares
Payout factor Performance shares delivered at vesting
equivalent shares delivered at vesting
for LTRPP delivered at vesting (value at vesting date) delivered at vesting (value at vesting date)
(CHF)
(CHF)
(number)
(number)
(% of target)
Dividend
3
4
Dividend
Total shares
equivalent shares delivered at vesting
(value at
vesting date)
(CHF)
Vasant Narasimhan
26 146
2 167 503
100%
26 146
2 248 817
2 337
201 005
2 449 823
Other 12 Executive Committee
members
40 722
3 355 831
100%
40 722
3 559 493
3 486
309 988
3 863 980
Total
66 868
5 523 335
66 868
5 808 310
5 823
510 993
6 313 803
1 Shannon Thyme Klinger, Steffen Lang, Susanne Schaffert and Marie-France Tschudin joined the Executive Committee during the course of the performance period 2018-2020. As
such, the information disclosed reflects their pro-rata LTRPP 2018-2020 payout attributable to the period they were a member of the Executive Committee. Klaus Moosmayer, John
Tsai and Richard Saynor joined Novartis post the 2018 LTRPP awards being made and hence did not receive an LTRPP award for the 2018-2020 performance period.
2 The shown amounts represent the underlying share value of the target number of PSUs granted to each Executive Committee member for the performance period 2018-2020,
based on the closing share price on the grant date (January 18, 2018) of CHF 82.9 per Novartis share and USD 86.41 per ADR (pre-Alcon spin-off share price).
3 The shown amounts, inclusive of earned Alcon Keep Whole awards and dividend equivalents, represent the underlying share value of the target number of PSUs vested for the
performance period 2018-2020, based on the last closing share price on the day the Novartis Board of Directors approved the final LTPP and LTRPP performance payout factors
(i.e., January 20, 2021) of CHF 86.01 per Novartis share and USD 96.92 per ADR.
4 Dividend equivalent shares are calculated on the dividend each member of the Executive Committee would have received, based on the actual number of shares delivered at the end
of the performance period 2018-2020. At vesting, the dividend equivalents are credited in shares or ADRs.
107
Item 6. Directors, Senior Management and Employees
The table and information below provide details on the 2019 realized compensation for the CEO and other Exec-
utive Committee members, for comparative purposes.
2019 realized compensation for the CEO and other Executive Committee members
2019 annual base
salary
2019 pension
benefits1
2019 Annual Incentive
Long-Term Incentives
LTPP
2017-2019 cycle
LTRPP
2017-2019 cycle
Currency
Cash (amount)
Amount
Cash
Equity2
Equity (value
at vesting date)3
Equity (value
at vesting date)3
Other 2019
compensation
Total realized
compensation
(incl. share
Amount2,4,5 price movement)6
Executive Committee members
Vasant Narasimhan (CEO)
CHF
1 653 333
165 547
2 008 800
2 008 839
3 510 963
1 107 806
160 452 10 615 740
Aggregate realized
compensation of the other 14
Executive Committee
members, including the two members
who stepped down
during financial year 2019 7, 8
Total
CHF
9 370 547
CHF 11 023 880
2 131 905
2 297 452
5 809 455
7 818 255
7 013 842 17 932 704
9 022 682 21 443 667
6 383 700
7 491 506
7 233 594 55 875 748
7 394 046 66 491 488
1 Includes mandatory employer contributions of CHF 4 373 for the CEO and CHF 63 461 for the other Executive Committee members paid by Novartis to governmental social security
systems. This amount is out of total employer contributions of CHF 3 923 070 paid in 2019 for all Executive Committee members, and provides a right to the maximum future insured
government pension benefit for the Executive Committee members.
2 The portion of the Annual Incentive delivered in equity is rounded up to the nearest share, based on the closing share price on the grant date (January 21, 2020) of CHF 92.89 per
Novartis share and USD 95.19 per ADR.
3 The amounts represent the underlying share value of the 232 425 LTPP PSUs and 77 904 LTRPP PSUs vesting on January 17, 2020, to the CEO and other Executive Committee
members for the performance cycle 2017-2019, inclusive of earned dividend equivalents for the three-year cycle (details in ‘’LTPP performance cycle and LTRPP performance cycle”).
The taxable value is determined using the closing share price on the day the Novartis Board of Directors approved the final LTPP and LTRPP performance factors (i.e., January 21,
2020) of CHF 92.89 per Novartis share and USD 95.19 per ADR. Shannon Thyme Klinger, Steffen Lang, Susanne Schaffert and Marie-France Tschudin were promoted to the
Executive Committee during the course of the performance period 2017-2019, and as such, the information disclosed reflects their pro-rata LTPP and LTRPP 2017-2019 payouts
attributable to the period they were a member of the Executive Committee. Bertrand Bodson, Klaus Moosmayer, John Tsai, Robert Weltevreden and Richard Saynor joined Novartis
post the 2017 LTI awards were made and hence did not receive LTPP and LTRPP awards for the 2017-2019 performance period.
4 Includes any other perquisites, benefits in kind, international assignment benefits as per the global mobility policy (e.g., housing, international health insurance, children’s school fees,
tax equalization) as well as vested shares under LTPP and LTRPP after the ‘’step down’’ date.
5 Includes 5 430 vested RSUs (CHF 502 003) on July 28, 2019, to John Tsai, in lieu of the LTI that he forfeited when leaving his previous employer and 1 323 vested RSUs (CHF
123 092) and 14 470 vested PSUs (CHF 1 346 289) on March 24, 2019, to Paul Hudson in lieu of the LTI that he forfeited when leaving his previous employer. The PSUs had the same
performance measures as the LTPP for the 2016-2018 performance cycle (NCVA and long-term innovation).
6 All amounts are before deduction of the social security contribution and income tax due by the Executive Committee member.
7 Comprises the compensation of Richard Francis, the former CEO of Sandoz including the vesting of his Long-Term Incentives for performance cycle 2017-2019, as per the plan rules.
Unvested shares for Paul Hudson were forfeited upon his departure from the Company.
8 Amounts for Executive Committee members paid in USD were converted at a rate of USD 1.00 = CHF 0.9938, which is the same average exchange rate used in the Group’s 2019
consolidated financial statements.
Realized compensation for the CEO and other Executive Committee members for 2020 compared to 2019
When comparing the 2020 CEO realized pay to 2019, there is an overall increase of 19.9%. The change is driven
by a significant increase in realized LTI due to the following:
• The vesting of the CEO’s first LTI granted following his appointment to CEO. For the 2018-2020 cycle, Vasant
Narasimhan received an increase in target LTI to reflect his promotion from Global Head of Drug Development to
CEO.
• The vesting of the CEO’s Alcon Keep Whole awards. The total vesting value of these Alcon Keep Whole awards
was CHF 784 497, which is included in the corresponding LTPP and LTRPP values in the prior tables.
The increase was partly offset by the lower variable incentive performance payout for the 2020 Annual Incentive
(100% versus 160% in 2019) and the LTI cycle 2018-2020 (126% for the LTPP and LTRPP combined versus 157%
for cycle 2017-2019).
The 2020 total realized compensation for the Executive Committee members (comprising the CEO and the other
12 active Executive Committee members) was CHF 58 819 813. This is a decrease compared to the prior year and
can be attributed to (i) lower Annual Incentive payouts on average and lower 2018-2020 LTI payouts as well as (ii)
a reduction in members reported (two members stepped down and were replaced in 2019, whereas no members
stepped down in 2020).
Forecasts for 2021 realized compensation for the other Executive Committee members
A number of current members joined the Executive Committee, both from internal and external positions, during
2018. The LTPP 2019-2021 will therefore be their first annual LTI to be realized/fully reported since their appoint-
ment. It may therefore be reasonable to expect an increase in realized compensation for these members next year,
depending on the performance of the plan against target and the evolution of the share price.
108
Item 6. Directors, Senior Management and Employees
Compensation at grant value
In accordance with the Swiss Ordinance against Excessive Compensation in Listed Companies, Novartis continues
to disclose total compensation at grant value for the CEO and other Executive Committee members. The following
tables disclose for the CEO and other Executive Committee members:
• Fixed 2020 compensation (base salary and benefits)
• The actual cash portion and the deferred portion granted in equity of the 2020 Annual Incentive
• 2020-2022 LTPP performance cycle awards, which are reported at target value at grant date under the assump-
tion that the awards will vest at 100% achievement, excluding any share price movement and dividend equivalents
that may be accrued over the performance cycle. The future payout will be determined only after the performance
cycle concludes in three years (i.e., the end of 2022), with a payout range of 0% to 200% of the target value.
• Other compensation for 2020, which includes other benefits, either paid in cash or granted in equity in the year
To assess CEO actual pay for performance in 2020, including the Annual Incentive payout for the 2020
performance year and the LTI payouts for the 2018-2020 performance cycle, shareholders should refer to the
2020 realized compensation table in “—2020 realized compensation for the CEO and other Executive Commit-
tee members.”
2020 compensation at grant value for the CEO and other Executive Committee members
Fixed compensation and
pension benefits
Variable compensation
Actual compensation paid or granted for 2020
Long-Term Incentive
2020-2022 cycle
grants at target
2020 annual base
salary
2020 pension
benefits
2020 Annual Incentive
(performance achieved)
LTPP 2020-2022 cycle
Other 2020
compensation
Total
compensation
paid, promised
or granted 2020
Currency
Cash
(amount)
Amount
1
Cash
(amount)
Equity
(value at
2
grant date)
PSUs
(target value
3
at grant date)
Amount
4
5
Amount
Executive Committee members active on December 31, 2020
Vasant Narasimhan
Steven Baert
Bertrand Bodson
James Bradner 6
Harry Kirsch
Shannon Thyme Klinger
Steffen Lang
Klaus Moosmayer
Richard Saynor
Susanne Schaffert
John Tsai
Marie-France Tschudin
Robert Weltevreden
Total
CHF
CHF
CHF
USD
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
1 743 750
798 617
634 834
1 203 654
1 063 433
862 500
758 333
520 833
778 333
871 250
868 333
871 250
634 834
11 536 583
175 102
167 294
177 088
373 063
171 930
182 852
171 130
184 884
190 372
173 111
182 517
182 216
186 392
2 495 208
1 318 275
480 000
256 000
768 900
585 750
525 000
228 000
241 500
390 000
341 445
478 500
437 750
215 040
6 219 290
1 318 275
480 022
256 052
768 963
585 814
525 005
684 038
241 516
390 055
796 797
478 560
437 791
399 430
5 712 549
1 679 265
1 152 115
2 911 862
2 769 330
1 925 517
1 367 619
840 004
1 482 060
2 013 669
2 175 855
2 013 669
1 152 115
7 315 444 27 018 132
85 587
131 745
88 472
50 294
32 773
12 918
29 496
1 737 100
581 188
104 669
–
2 925
113 841 10 381 793
3 690 785
2 607 834
6 114 914
5 226 551
4 053 647
3 222 037
2 058 233
4 967 920
4 777 460
4 288 434
3 942 677
2 590 735
2 965 615 57 550 273
Based on assumption of
100% payout at target.
Actual payout (0–200% of
target) will be known at
the end of the three-year
cycle in January 2023
See next page for 2019 comparative figures.
1 Includes mandatory employer contributions of CHF 8 336 for the CEO and CHF 59 591 for the other Executive Committee members paid by Novartis to governmental social security systems. This amount is out
of total employer contributions of CHF 6 088 770 paid in 2020 for all Executive Committee members, and provides a right to the maximum future insured government pension benefit for the Executive
Committee members.
2 The portion of the Annual Incentive delivered in equity is rounded up to the nearest share, based on the closing share price on the grant date (January 20, 2021) of CHF 86.01 per Novartis share and USD 96.92
per ADR.
3 The amounts represent the underlying share value of the target number of PSUs granted to Executive Committee members for the performance cycle 2020-2022, based on the closing share price on the grant
date (January 21, 2020) of CHF 92.89 per Novartis share and USD 95.19 per ADR for all members.
4 Includes any other perquisites, benefits in kind, and international assignment benefits as per the global mobility policy (e.g., housing, international health insurance, children’s school fees, tax equalization)
5 All amounts are before deduction of the social security contribution and income tax due by the Executive Committee member.
6 Amounts in USD for James Bradner were converted at a rate of CHF 1.00 = USD 1.0649, which is the average rate used in the Group’s 2020 consolidated financial statements.
109
Item 6. Directors, Senior Management and Employees
2019 compensation at grant value for the CEO and other Executive Committee members
For comparative purposes, the table below provides the compensation at grant value for 2019.
Executive Committee member compensation at grant for financial year 2019
Fixed compensation and
pension benefits
Variable compensation
Actual compensation paid or granted for 2019
Long-Term Incentive
2019-2021 cycle
grants at target
2019 annual base
salary
2019 pension
benefits
2019 Annual Incentive
(performance achieved)
LTPP
2019-2021 cycle
Other 2019
compensation
Total
compensation
paid, promised
or granted 2019
Currency
Cash
(amount)
Amount
1
Cash
(amount)
Equity
(value at
2
grant date)
PSUs
(target value
3
at grant date)
Amount
4
5
Amount
Executive Committee members active on December 31, 2019
Vasant Narasimhan
Steven Baert
Bertrand Bodson
James Bradner 6
Harry Kirsch
Shannon Thyme Klinger
Steffen Lang
Klaus Moosmayer
Richard Saynor (from July 15, 2019) 7
Susanne Schaffert 7
John Tsai
Marie-France Tschudin (from June 7, 2019) 7
Robert Weltevreden
Subtotal
CHF
CHF
CHF
USD
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
1 653 333
789 750
607 500
1 126 781
1 053 000
783 333
745 000
500 000
356 021
850 000
858 333
481 667
607 500
10 405 223
Executive Committee members who stepped down during 2019
Richard Francis (until March 19, 2019) 8, 9
Paul Hudson (until June 7, 2019) 9, 10
CHF
CHF
179 315
439 342
165 547
161 454
170 178
359 961
164 467
188 990
167 815
125 483
87 118
167 096
181 048
92 090
157 423
2 186 434
2 008 800
633 360
341 040
951 720
1 045 044
468 000
408 000
260 000
179 315
459 000
602 000
290 630
158 340
7 799 341
2 008 839
633 417
341 092
951 805
1 045 105
468 073
612 145
260 092
179 371
1 071 115
602 020
290 653
475 132
5 440 530
1 662 585
974 476
2 832 511
2 744 591
1 600 005
1 200 026
800 047
–
1 870 066
2 064 063
968 249
974 476
8 932 950 23 114 040
160 452 11 437 501
4 005 545
124 979
2 572 111
137 826
6 308 275
85 498
6 079 865
27 658
3 619 776
111 375
3 142 796
9 810
2 117 371
171 749
2 752 732
1 950 908
4 577 528
160 252
4 685 007
377 544
2 123 289
–
2 377 731
4 860
3 322 378 55 760 366
36 025
74 994
18 914
–
37 435
–
720 460
270 451
3 808 445
2 885 164
4 800 594
3 669 950
Subtotal
Total
618 657
11 023 880
111 018
2 297 452
18 914
7 818 255
37 435
8 470 543
8 970 384 24 104 951 10 015 988 64 230 910
6 693 609
990 910
Based on assumption of
100% payout at target.
Actual payout (0–200% of
target) will be known at
the end of the three-year
cycle in January 2022.
1 Includes mandatory employer contributions of CHF 4 373 for the CEO and CHF 63 461 for the other Executive Committee members paid by Novartis to governmental social security systems. This amount is out
of total employer contributions of CHF 3 923 070 paid in 2019 for all Executive Committee members, and provides a right to the maximum future insured government pension benefit for the Executive
Committee member.
2 The portion of the Annual Incentive delivered in equity is rounded up to the nearest share, based on the closing share price on the grant date (January 21, 2020) of CHF 92.89 per Novartis share and USD 95.19
per ADR.
3 The amounts represent the underlying share value of the target number of PSUs granted to Executive Committee members for the performance cycle 2019-2021, based on the closing share price on the grant
date (January 22, 2019) of CHF 88.14 per Novartis share and USD 88.32 per ADR for all members except for Richard Saynor, who was not part of the Company at the annual grant date and hence did not receive
an LTPP award.
4 Includes any other perquisites, benefits in kind, and international assignment benefits as per the global mobility policy (e.g., housing, international health insurance, children’s school fees, tax equalization).
5 All amounts are before deduction of the social security contribution and income tax due by the Executive Committee member.
6 Amounts in USD for James Bradner were converted at a rate of CHF 1.00 = USD 1.006, which is the average rate used in the Group’s 2019 consolidated financial statements.
7 For those members who joined the Executive Committee in 2019, the information under the columns “Actual compensation paid or granted for 2019” and “Long-Term Incentive 2019-2021 cycle grants at target”
includes their pro-rata compensation from the date they joined the Executive Committee to December 31, 2019, or to the end of the performance cycle in the case of the “Long-Term Incentive 2019-2021 cycle
grants at target.”
8 Richard Francis stepped down as CEO, Sandoz on March 19, 2019, and left the Company on March 31, 2020, in line with his contractual notice period. Until the end of the notice period, he received further
contractual compensation that includes the base salary, Annual Incentive and pension benefits. In accordance with the plan rules, the LTPP 2019-2021 cycle grant (21 217 PSUs), included in full in the above
table, will vest on the normal vesting date pro-rata based on the number of months of Novartis employment during the performance cycle. The vesting of this grant is subject to performance conditions assessed
at the end of the period.
9 For those members leaving the Executive Committee in 2019, the columns under “Actual compensation paid or granted for 2019” and “Long-Term Incentive 2019-2021 cycle grants at target” reflect the pro-rata
compensation for their period as Executive Committee member. The column “Other 2019 compensation” includes inter alia their pro-rata compensation from the date they left the Executive Committee to
December 31, 2019, or to the end of the performance cycle in the case of the “Long-Term Incentive 2019-2021 cycle grants at target”. See “—2019 Executive Committee member departures” for details.
10 Paul Hudson stepped down as CEO, Novartis Pharmaceuticals on June 7, 2019, and left the Company on August 31, 2019, in line with his reduced contractual notice period (for more details “—2019 Executive
Committee member departures.”) The Annual Incentive and LTPP 2019-2021 cycle grant (31 553 PSUs), included in the table above, were forfeited in full upon his departure.
110
Item 6. Directors, Senior Management and Employees
Compensation at grant value for the CEO and other Executive Committee for 2020 compared to 2019
Grant compensation delivered to the CEO decreased slightly by CHF 1.1 million from 2019 to 2020, largely due to
the lower Annual Incentive payout, which was partly offset by a 5% increase in annual base salary from March 31,
2020, as reported in Item 6.B of the 2019 Annual Report. There was no change to his target Annual Incentive or his
target Long-Term Incentive, as a percentage of annual base salary, in 2020.
Similarly, there is an overall decrease when comparing the 2020 Executive Committee total compensation at grant
value of CHF 57. 6 million to the 2019 grant value of CHF 64.2 million. This reduction can be largely explained by the
fact that two members stepped down in 2019, whereas no members stepped down in 2020.
111
Item 6. Directors, Senior Management and Employees
Additional disclosures for the CEO and other Executive Committee members
This section provides additional disclosures, including information about the shareholdings of the CEO and the
other Executive Committee members.
Malus and clawback
Per our “—Executive Committee compensation philosophy and principles,” in 2020, there was no legal or factual
basis on which to exercise malus or clawback for current or former Executive Committee members.
Number of equity instruments granted to the CEO and other Executive Committee members for financial
year 2020
Executive Committee members active on December 31, 2020
Vasant Narasimhan
Steven Baert
Bertrand Bodson
James Bradner
Harry Kirsch
Shannon Thyme Klinger
Steffen Lang
Klaus Moosmayer
Richard Saynor
Susanne Schaffert
John Tsai
Marie-France Tschudin
Robert Weltevreden
Total
Variable compensation1
2020 Annual Incentive
(performance achieved)
LTPP
2020-2022 cycle
Other
Equity
(number) 2
PSUs
(target number) 3
Equity/PSUs
(number)
15 327
5 581
2 977
7 934
6 811
6 104
7 953
2 808
4 535
9 264
5 564
5 090
4 644
61 498
18 078
12 403
30 590
29 813
20 729
14 723
9 043
15 955
21 678
23 424
21 678
12 403
84 592
292 015
0
0
0
0
0
0
0
0
0
0
0
0
0
0
See next page for 2019 comparative figures.
1 The values of the awards are reported in the table “2020 compensation at grant value for the CEO and other Executive Committee members.”
2 Vested shares, restricted shares and/or RSUs granted under the Annual Incentive for performance period 2020.
3 Target number of PSUs granted under the LTPP as applicable for the performance cycle 2020-2022.
112
Item 6. Directors, Senior Management and Employees
Number of equity instruments granted to the CEO and other Executive Committee members for financial
year 2019 (comparative information)
Executive Committee members active on December 31, 2019
Vasant Narasimhan
Steven Baert
Bertrand Bodson
James Bradner
Harry Kirsch
Shannon Thyme Klinger
Steffen Lang
Klaus Moosmayer
Richard Saynor (from July 15, 2019) 4
Susanne Schaffert
John Tsai
Marie-France Tschudin (from June 7, 2019) 4
Robert Weltevreden
Subtotal
Executive Committee members who stepped down during 2019
Richard Francis (until March 19, 2019) 5, 6
Paul Hudson (until June 7, 2019) 5, 7
Subtotal
Total
Variable compensation1
2019 Annual Incentive
(performance achieved)
LTPP
2019-2021 cycle
Other
Equity
(number) 2
PSUs
(target number) 3
Equity/PSUs
(number)
21 626
6 819
3 672
9 999
11 251
5 039
6 590
2 800
1 931
11 531
6 481
3 129
5 115
61 726
18 863
11 056
32 071
31 139
18 153
13 615
9 077
0
0
0
0
0
0
0
0
0
11 452
21 217
23 418
11 085
11 056
0
0
0
0
95 983
262 476
11 452
403
0
8 841
4 525
403
96 386
13 366
275 842
0
0
0
11 452
1 The values of the awards are reported in the table “2019 compensation at grant value for the CEO and other Executive Committee members.”
2 Vested shares, restricted shares and/or RSUs granted under the Annual Incentive for performance period 2019.
3 Target number of PSUs granted under the LTPP as applicable for the performance cycle 2019-2021.
4 For those members who joined the Executive Committee in 2019, the information under the column “Variable compensation” includes their pro-rata number of equity instruments
from the date they joined the Executive Committee to December 31, 2019, or to the end of the performance cycle in the case of the “LTPP 2019-2021 cycle.”
5 For those members leaving the Executive Committee in 2019, the column under “Variable compensation” reflects the pro-rata number of equity instruments for their period as
Executive Committee member. The column “Other” includes their pro-rata compensation from the date they left the Executive Committee to December 31, 2019, or to the end of the
performance cycle in the case of the “LTPP 2019-2021 cycle.” See “2019 Executive Committee member departures” for details.
6 Richard Francis stepped down as CEO, Sandoz on March 19, 2019, and left the Company on March 31, 2020, in line with his contractual notice period. In accordance with the plan
rules, the LTPP 2019-2021 cycle grant (21 217 PSUs), included in full in the above table, will vest on the normal vesting date pro-rata based on the number of months of Novartis
employment during the performance cycle. The vesting of this grant is subject to performance conditions assessed at the end of the period.
7 Paul Hudson stepped down as CEO, Novartis Pharmaceuticals on June 7, 2019, and left the Company on August 31, 2019, in line with his reduced contractual notice period (for more
details “—2019 Executive Committee member departures”). The 2019 Annual Incentive and LTPP 2019-2021 cycle grant (31 553 PSUs), included in the table above, were forfeited in
full upon his departure.
113
Item 6. Directors, Senior Management and Employees
Share ownership requirements for the CEO and
other Executive Committee members
Executive Committee members are required to own at
least a minimum multiple of their annual base salary in
Novartis shares or RSUs within five years of hire or pro-
motion, as set out in the table below. In addition, the CEO
and CFO are required to hold the equity vesting under
the LTPP plan (granted since 2020) for a minimum of
two years after the vesting date. In the event of a sub-
stantial rise or drop in the share price, the Board of Direc-
tors may, at its discretion, amend that time period accord-
ingly.
FUNCTION
OWNERSHIP LEVEL
CEO
5 x base compensation
Other Executive Committee members
3 x base compensation
The determination of equity amounts against the share
ownership requirements is defined to include vested and
unvested Novartis shares or American Depositary
Receipts (ADRs), and RSUs acquired under the Compa-
ny’s compensation plans. However, unvested matching
shares granted under former matching programs, such
as the Leveraged Share Savings Plan (LSSP), and any
unvested PSUs are excluded. The determination also
includes other shares and vested options of Novartis
shares or ADRs that are owned directly or indirectly by
“persons closely linked” to an Executive Committee
member. The Compensation Committee reviews com-
pliance with the share ownership guideline on an annual
basis.
Shares, ADRs and other equity rights owned by Executive Committee members at December 31, 20201
The following table shows, in alphabetical order after the CEO, the total number of shares, ADRs and other equity
rights owned by the CEO and the other Executive Committee members and “persons closely linked” to them as of
December 31, 2020. As of December 31, 2020, no members of the Executive Committee, either individually or
together with “persons closely linked” to them, owned 1% or more of the outstanding shares or ADRs of Novartis.
As of December 31, 2020, all members who have served at least five years on the Executive Committee have met
or exceeded their personal Novartis share ownership requirements.
Vested shares
Unvested shares
and ADRs 1 and other equity rights 2
as a multiple of Unvested target PSUs
(e.g., LTPP/LTRPP) 4
annual base salary 3
Matching shares
under the LSSP 5
Equity ownership level
Vasant Narasimhan
104 277
Steven Baert
Bertrand Bodson
James Bradner
Harry Kirsch
Shannon Thyme Klinger
Steffen Lang
Klaus Moosmayer
Richard Saynor
69 679
10 403
69 551
198 331
29 128
81 714
6 011
0
Susanne Schaffert
106 981
John Tsai
Marie-France Tschudin
Robert Weltevreden
17 783
12 300
2 734
90 466
28 773
9 869
41 274
37 457
23 248
26 413
5 824
13 746
30 548
28 981
29 212
12 395
9x
10x
2x
8x
18x
5x
11x
1x
1x
13x
4x
3x
1x
159 962
3 342
51 501
24 193
83 724
82 446
37 547
31 543
16 153
9 578
45 844
32 896
46 636
30 050
0
0
0
0
1 884
3 726
0
0
0
0
0
0
Total at
December 31,
2020
358 047
149 953
44 465
194 549
318 234
91 807
143 396
27 988
23 324
183 373
79 660
88 148
45 179
Total
708 892
378 206
652 073
8 952
1 748 123
1 Includes holdings of “persons closely linked” to Executive Committee members (see definition “Persons closely linked”)
2 Includes unvested shares and ADRs as well as other equity rights applicable for the determination of equity amounts for the share ownership requirements, as per the definition
above. Also includes unvested Alcon Keep Whole shares received in connection to the Alcon spin-off.
3 The multiple is calculated based on the full-year annual base salary and the closing share price as at the end of the 2020 financial year. The share price on the final trading day of
2020 was CHF 83.65 / USD 94.43 as at December 31, 2020.
4 The target number of PSUs is disclosed pro-rata to December 31, 2020, unless the award qualified for full vesting under the relevant plan rules.
5 Matching shares under the Leveraged Share Savings Plan (LSSP) are disclosed pro-rata to December 31, 2020, unless the award qualified for full vesting under the plan rules. LSSP
participation for Executive Committee members ceased in 2014, although some current members received later grants under this plan prior to becoming members of the Executive
Committee. Outstanding awards will vest five years from the grant date, subject to the LSSP plan rules.
114
Item 6. Directors, Senior Management and Employees
Fixed and variable compensation
The CEO and other Executive Committee members’
annual base salary and variable compensation mix at
grant value for financial year 2020:
Vasant Narasimhan
Steven Baert
Bertrand Bodson
James Bradner
Harry Kirsch
Shannon Thyme Klinger
Steffen Lang
Klaus Moosmayer
Richard Saynor
Susanne Schaffert
John Tsai
Marie-France Tschudin
Robert Weltevreden
Total
Annual
Variable
base salary 1 compensation 2
17.1%
22.7%
26.1%
21.0%
21.0%
22.3%
24.9%
27.8%
16.3%
18.9%
21.1%
23.2%
26.4%
21.0%
82.9%
77.3%
73.9%
79.0%
79.0%
77.7%
75.1%
72.2%
83.7%
81.1%
78.9%
76.8%
73.6%
79.0%
1 Excludes pension and other benefits.
2 See the table ‘’2020 compensation at grant value for the CEO and other Executive
Committee members’’ with regard to the disclosure principles of variable
compensation.
Other payments to Executive Committee members
During 2020, no other payments or waivers of claims
other than those set out in the tables (including their foot-
notes) contained in this Compensation Report were
made to Executive Committee members or to “persons
closely linked” to them.
Payments to former Executive Committee
members
Under the former Executive Committee members’ con-
tracts and in line with the Company’s LTI plan rules, pay-
ments were made to 8 former members. Of this, CHF
11 559 192 relates to the vesting of the LTPP and LTRPP
for the 2018-2020 performance cycle and the vesting of
buyout awards. In addition, contractual amounts totaling
643 065 were made (comprising base salary, the Annual
Incentive and other benefits), and 3 individuals received
CHF 3 147 567 in tax equalization on incentive compen-
sation granted during an international assignment.
No other payments (or waivers of claims) were made
to former Executive Committee members or to “persons
closely linked” to them during 2020.
Loans to Executive Committee members
Our policy does not allow loans to be granted to current
or former members of the Executive Committee or to
“persons closely linked” to them. Therefore, no loans
were granted in 2020, and none were outstanding as of
December 31, 2020.
Persons closely linked
“Persons closely linked” are (i) their spouse, (ii) their chil-
dren below age 18, (iii) any legal entities that they own or
otherwise control, and (iv) any legal or natural person
who is acting as their fiduciary.
Note 27 to the Group’s audited consolidated
financial statements
The total expense for the year for compensation awarded
to Executive Committee and Board members, using
International Financial Reporting Standards (IFRS) mea-
surement rules, is presented in Note 27 to the Group’s
audited consolidated financial statements.
Award and delivery of equity to Novartis associates
During 2020, 14.7 million unvested restricted shares (or
ADRs), RSUs and target PSUs were granted, and 13.8
million Novartis vested shares (or ADRs) were delivered
to Novartis associates under various equity-based par-
ticipation plans. Current unvested equity instruments
(restricted shares, RSUs and target PSUs) and outstand-
ing equity options held by associates represent 1.38%
of issued shares. Novartis delivers treasury shares to
associates to fulfill these obligations, and aims to offset
the dilutive impact from its equity-based participation
plans.
115
Item 6. Directors, Senior Management and Employees
Interim update regarding ongoing LTI performance cycles
Below we report how performance is tracking against target for our ongoing LTI performance cycles.
2019-2021 LTPP
This will be the first cycle vesting under the new system
of four equally weighted measures: net sales CAGR, core
operating income CAGR, innovation and relative TSR.
After the first two years of the three-year LTI perfor-
mance cycle, net sales CAGR is tracking above target
despite a slowdown in sales in 2020, due to a significant
over-delivery in 2019. Core operating income is exceed-
ing expectations and is currently above target. Innovation
for the cycle is currently tracking at target, with a num-
ber of target filings already achieved. Forecasts at the
end of December place the Novartis relative TSR at
median among our global healthcare peer group.
PERFORMANCE MEASURES
Net sales growth CAGR (25%)
Core operating income CAGR (25%)
Innovation (25%)
Relative TSR (25%)
CAGR = compound annual growth rate
TRACKING
Above target
Above target
At target
At median
2020-2022 LTPP
After the first year of the three-year performance cycle,
net sales CAGR is tracking below target. This is largely
due to the impact of the pandemic on our sales execu-
tion. Core operating income CAGR is tracking above tar-
get, mainly driven by gross margin improvements and
lower-than-planned function costs. Innovation is track-
ing at target, against the selected development projects
in Innovative Medicines published in Item 4.B of this
report. Relative TSR is currently positioned 11 out of a
peer group of 15 (including Novartis).
PERFORMANCE MEASURES
Net sales growth CAGR (25%)
Core operating income CAGR (25%)
Innovation (25%)
Relative TSR (25%)
CAGR = compound annual growth rate
TRACKING
Below target
Above target
At target
Below median
116
Item 6. Directors, Senior Management and Employees
2021 Executive Committee compensation
Executive Committee member appointments and departures
Appointment of Head of Customer & Technology Solutions – Robert Weltevreden
Robert Weltevreden joined the Executive Committee on June 1, 2018 as Head of Novartis Business Services (NBS).
Effective February 1, 2021, the Digital function will be merged with NBS to form a new Customer and Technology
Solutions unit, which Mr. Weltevreden has been appointed to lead. Effective March 1, 2021, Mr. Weltevreden will
receive an annual base salary of CHF 680 000, a target Annual Incentive of 80%, and a target Long-Term Incen-
tive of 190%. This represents an increase in annual base salary of 6.3% and a 10% increase in target LTI, as a per-
centage of his annual base salary. There is no change to his target Annual Incentive.
Departure of Chief Digital Officer – Bertrand Bodson
Mr. Bodson will step down from the Executive Committee on February 1, 2021. Mr. Bodson will be treated as a good
leaver for compensation purposes in line with the policy outlined in the “—Treatment of variable compensation for
Executive Committee leavers”. During his contractual notice period, which ends on January 31, 2022, he will receive
his annual base salary, benefits and Annual Incentive at target level in accordance with the Annual Incentive plan
rules. He did not receive a Long-Term Performance Plan grant in January 2021 for the 2021-2023 performance
cycle.
Mr. Bodson’s unvested Long-Term Incentives for outstanding performance cycles will be pro-rated for time
employed during the three-year performance periods. In line with the plan rules, there will be no accelerated vest-
ing, as awards will remain subject to performance over the full cycle. Clawback and malus, and non-compete restric-
tions as defined by the plan rules will apply. No severance or non-compete payments will be made.
2021 Executive Committee member compensation increases
As outlined in “—Executive Committee appointments compensation policy,” some members were appointed with
total target compensation below external market median level. Each year, we collaborate with our advisors to bench-
mark the compensation levels of the members of the Executive Committee. Taking the current climate of the pan-
demic into consideration, while bearing in mind the need to ensure our competitiveness in a global competitive tal-
ent market, the following members will receive an increase in total target compensation for 2021, in line with their
demonstrated performance and ability in their respective roles.
Steffen Lang, Head of Novartis Technical Operations
Steffen Lang led the manufacturing and supply chain function to a very strong financial and operational perfor-
mance in 2020. Highlights included the uninterrupted supply during the pandemic, the further improvement of our
manufacturing network utilization and footprint, the upscaling of data and digital technologies in NTO and an out-
standing improvement in our environmental impact. Effective March 1, 2021, Mr. Lang will receive an annual base
salary increase of 3.3% and an increase in target Annual Incentive of 10%, as a percentage of annual base salary.
He will also receive a target Long-Term Incentive (LTI) increase of 20%, as a percentage of annual base salary.
Klaus Moosmayer, Chief Ethics, Risk and Compliance Officer
Having joined Novartis in December 2018, Mr. Moosmayer is a globally recognized leader in compliance and risk
management. He plays a key role in Novartis trust with society priority. Mr. Moosmayer is leading the roll-out of
the Code of Ethics and advancing our Third Party Risk Management practice as well as coordinating our COVID-
19 risk management, enabling the organization to function seamlessly. Effective March 1, 2021, Mr. Moosmayer will
receive an annual base salary increase of 9.5% and a 20% increase in target LTI, as a percentage of annual base
salary.
Another two ECN members will receive a 10% increase for their LTI target 2021-2023 (in addition to an annual base
salary increase in line with local market increases), leading to an overall increase in target compensation not exceed-
ing 3%. The LTI is subject to three-year performance conditions and provides for an overall payout between 0%
and 200%.
All other Executive Committee members, including the CEO, were awarded annual base salary increases in line
with the annual compensation review applicable to all associates in Switzerland and, where applicable, the US.
117
Item 6. Directors, Senior Management and Employees
Implementation of a Global Employee
Share Plan
In 2020, the Board of Directors approved the implemen-
tation of a global Employee Share Purchase Plan (ESPP).
Novartis aims to launch in country waves over the next
five years, which will provide associates, including Exec-
utive Committee members, the option to invest up to 15%
of their base salary (capped at USD 25 000) to purchase
Novartis shares at a 15% discount. The shares purchased
under this plan will be subjected to a minimum manda-
tory two-year holding period.
118
Item 6. Directors, Senior Management and Employees
2020 Board compensation
Philosophy and benchmarking
Other Board members
Aligned with market practice in Switzerland, the Board
of Directors sets compensation for its members at a level
that allows for the attraction of high-caliber individuals,
including both Swiss and international members, who
have global experience.
Board members do not receive variable compensa-
tion, in line with their focus on corporate strategy, super-
vision and governance. Each year at the AGM, share-
holders are requested to approve, in a binding vote, the
total compensation of the Board of Directors until the
following AGM.
The Board of Directors sets the level of compensa-
tion for its Chairman and the other members to be in line
with relevant benchmark companies, which include other
large Switzerland-based multinational companies: ABB,
Credit Suisse, Lafarge Holcim, Nestlé, Roche and UBS.
This peer group was chosen for Board compensation
due to the comparability of Swiss legal requirements,
including broad personal and individual liabilities under
Swiss law (and new criminal liability under Swiss rules
regarding board and executive committee compensa-
tion related to the Ordinance against Excessive Com-
pensation in Listed Companies), and under US law (due
to the Company’s secondary listing on the New York
Stock Exchange). The Board of Directors reviews the
compensation of its members, including the Chairman,
each year based on a proposal by the Compensation
Committee and on advice from its independent advisor,
including relevant benchmarking information. The peer
group used for the Board of Directors is different than
that used for the Executive Committee to ensure inde-
pendence of decision-making.
The Chairman’s contract and the Board of Directors
compensation policy do not provide for any termina-
tion-related payments.
Chairman of the Board
As Chairman, Joerg Reinhardt receives total annual com-
pensation valued at CHF 3.8 million. The total compen-
sation is comprised equally of cash and shares, as fol-
lows:
• Cash compensation: CHF 1.9 million per year
• Share compensation: annual value equal to CHF 1.9
million of unrestricted Novartis shares
For 2020, the Chairman voluntarily waived the increase
in compensation to which he is contractually entitled,
which is an amount not lower than the average annual
compensation increase awarded to associates based in
Switzerland (0.8% for 2020).
The annual fee rates for Board membership and addi-
tional functions are included in the table below. These
were approved by the Board of Directors with effect from
the 2020 AGM. Aggregate Board compensation is
aligned with other large Swiss companies.
CHF 000s
Chairman of the Board
Board membership
Vice Chairman
Chair of the Audit and Compliance Committee
Chair of the Compensation Committee
Chair of the following committees:
• Governance, Nomination and
Corporate Responsibilities Committee
• Science & Technology Committee
• Risk Committee
Membership of the Audit
and Compliance Committee
Membership of the following committees:
• Compensation Committee
• Governance, Nomination and
Corporate Responsibilities Committee
• Science & Technology Committee
• Risk Committee
2020-2021 AGM
annual fee
3 800
280
50
130
90
70
70
40
In addition, the following policies apply regarding Board
compensation:
• 50% of compensation is delivered in cash, paid on a
quarterly basis in arrears. Board members may choose
to receive more of their compensation in shares instead
of cash.
• At least 50% of compensation is delivered in shares in
two installments: one six months after the AGM, and
one 12 months after the AGM.
Board members bear the full cost of their employee
social security contributions, if any, and do not receive
share options or pension benefits.
2021 Board compensation
In 2020, the Compensation Committee reviewed, with
its independent advisor, the Board of Directors’ compen-
sation system against the Swiss Market Index.
They found that the Chairman and retainer fees of
the other Board members are well positioned and com-
petitive among the benchmarked companies in relation
to the Company’s size, operational complexity and cor-
porate headquarters location. The Board of Directors
compensation system and fee levels will therefore remain
unchanged in 2021.
The Lead Independent Director Role is currently
combined with the Vice Chair role, and no additional
compensation will be paid. It is expected that the Lead
Independent Director role will evolve going forward and
compensation for this role will be kept under review.
119
Item 6. Directors, Senior Management and Employees
Board member total compensation earned for the financial year 2020
Board
membership Committee
Audit and
Science &
Compliance Compensation Responsibilities Technology
Committee
Committee
Committee
Risk
Committee
Shares
1
(number)
Cash
(CHF)
(A)
Shares
(CHF)
(B)
Other
(CHF)
2
(C)
Total
(CHF)
3
(A)+(B)+(C)
Governance,
Nomination
and Corporate
Board members active on December 31, 2020
Joerg Reinhardt 4
Enrico Vanni
Nancy C. Andrews
Ton Buechner
Patrice Bula
Srikant Datar
Elizabeth Doherty
Ann Fudge
Bridgette Heller 5
Frans van Houten
Simon Moroney 5
Andreas von Planta
Charles L. Sawyers
William T. Winters
Subtotal
Chair
Vice Chair
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Chair
•
Chair
22 629 1 900 000 1 900 000 4 501 3 804 501
Chair
•
3 156 265 000 265 000 3 614 533 614
•
•
•
•
•
Chair
•
• 5
•
•
•
•
•
•
•
2 143 180 000 180 000
– 360 000
3 508
29 167 354 167 4 501 387 835
2 750 133 333 186 666 4 501 324 500
Chair
3 348 153 333 306 666
– 459 999
•
3 424 131 250 318 750
– 450 000
2 249 183 333 183 333
– 366 666
1 059 133 333 133 333
– 266 666
3 810
– 320 000
– 320 000
1 059 133 333 133 333 4 501 271 167
•
2 739 230 000 230 000 4 501 464 501
2 143 180 000 180 000
– 360 000
4 287
– 360 000
– 360 000
58 304 3 652 082 5 051 248 26 118 8 729 448
See next page for 2019 comparative figures.
1 The shown amounts represent the gross number of shares delivered to each Board member in 2020 for the respective Board member’s service period. The number of shares
reported in this column represent: (i) the second and final equity installment delivered in February 2020 for the services from the 2019 AGM to the 2020 AGM, and (ii) the first of two
equity installments delivered in August 2020 for the services from the 2020 AGM to the 2021 AGM. The second and final equity installment for the services from the 2020 AGM to the
2021 AGM will take place in February 2021.
2 Includes an amount of CHF 26 118 for mandatory employer contributions for all Board members paid by Novartis to governmental social security systems. This amount is out of total
employer contributions of CHF 430 023 , and provides a right to the maximum future insured government pension benefit for the Board member.
3 All amounts are before deduction of the social security contribution and income tax due by the Board member.
4 No additional committee fees for chairing the Science & Technology Committee were delivered to Joerg Reinhardt.
5 From February 28, 2020.
120
Item 6. Directors, Senior Management and Employees
Board member total compensation earned for the financial year 2019
Governance,
Nomination
Board
membership Committee
Audit and
and Corporate Research &
Compliance Compensation Responsibilities Development
Committee
Committee
Committee
Risk
Committee
Shares
1
(number)
Cash
(CHF)
(A)
Shares
(CHF)
(B)
Other
(CHF)
2
(C)
Total
(CHF)
3
(A)+(B)+(C)
Board members active on December 31, 2019
Joerg Reinhardt 4
Enrico Vanni
Nancy Andrews
Ton Buechner
Patrice Bula 5
Srikant Datar
Elizabeth Doherty
Ann Fudge
Frans van Houten
Andreas von Planta
Charles L. Sawyers
William T. Winters
Total
Chair
Vice Chair
•
•
•
•
•
•
•
•
•
•
•
•
•
Chair
•
Chair
21 498 1 900 000 1 900 000 4 373 3 804 373
Chair
•
4 494 220 833 309 166 3 512 533 511
•
•
2 035 180 000 180 000
– 360 000
2 967 145 833 204 166 4 373 354 372
1 813
– 266 667 4 373 271 040
Chair
2 602 230 000 230 000
– 460 000
•
Chair
•
• 5
•
•
•
•
•
2 544 225 000 225 000
– 450 000
2 262 200 000 200 000
– 400 000
2 716
26 667 293 334
– 320 001
2 602 230 000 230 000 4 373 464 373
2 035 180 000 180 000
– 360 000
3 620
– 353 333
– 353 333
51 188 3 538 333 4 571 666 21 002 8 131 001
•
•
•
•
1 The shown amounts represent the gross number of shares delivered to each Board member in 2019 for the respective Board member’s service period. The number of shares
reported in this column represent: (i) the second and final equity installment delivered in February 2019 for the services from the 2018 AGM to the 2019 AGM, and (ii) the first of two
equity installments delivered in August 2019 for the services from the 2019 AGM to the 2020 AGM.
2 Includes an amount of CHF 21 002 for mandatory employer contributions for all Board members paid by Novartis to governmental social security systems. This amount is out of total
employer contributions of CHF 413 985 , and provides a right to the maximum future insured government pension benefit for the Board member.
3 All amounts are before deduction of the social security contribution and income tax due by the Board member.
4 No additional committee fees for chairing the Research & Development Committee were delivered to Joerg Reinhardt.
5 From February 28, 2019.
6 Until February 28, 2019.
121
Item 6. Directors, Senior Management and Employees
Loans to Board members
Our policy does not allow loans to be granted to current
or former members of the Board of Directors or to “per-
sons closely linked” to them. Therefore, no loans were
granted in 2020, and none were outstanding as of
December 31, 2020.
Other payments to Board members
During 2020, no payments (or waivers of claims) other
than those set out in the Board member compensation
table titled “Board member total compensation earned
for the financial year 2020” (including its footnotes) were
made to current members of the Board or to “persons
closely linked” to them.
Payments to former Board members
During 2020, no payments (or waivers of claims) were
made to former Board members or to “persons closely
linked” to them, except for the payments reported in Note
27 to the Group’s audited consolidated financial state-
ments.
Additional disclosures
Share ownership requirements for Board members
The Chairman is required to own a minimum of 30 000
Novartis shares, and other members of the Board of
Directors are required to own at least 5 000 Novartis
shares within five years after joining the Board of Direc-
tors, to ensure their interests are aligned with those of
shareholders.
Board members are prohibited from hedging or
pledging their ownership positions in Novartis shares
that are part of their guideline share ownership require-
ment, and are required to hold these shares for 12 months
after retiring from the Board of Directors. As of Decem-
ber 31, 2020, all current and former members of the
Board of Directors who were required to meet the mini-
mum share ownership requirements did so.
Shares, ADRs and share options owned by Board
members
The total number of vested Novartis shares and ADRs
owned by members of the Board of Directors and “per-
sons closely linked” to them as of December 31, 2020,
is shown in the table below. As of December 31, 2020,
no members of the Board, either individually or together
with “persons closely linked” to them, owned 1% or more
of the outstanding shares (or ADRs) of Novartis. As of
the same date, no members of the Board of Directors
held any share options to purchase Novartis shares.
Joerg Reinhardt
Enrico Vanni
Nancy C. Andrews
Ton Buechner
Patrice Bula
Srikant Datar
Elizabeth Doherty
Ann Fudge
Bridgette Heller
Frans van Houten
Simon Moroney
Andreas von Planta
Charles L. Sawyers
William T. Winters
Total
Number of shares
at December 31, 2020 1,2
586 326
28 847
8 872
14 338
4 621
43 845
8 744
15 201
794
7 621
731
163 834
12 593
21 289
917 656
1 Includes holdings of “persons closely linked” to Board members (see definition
“Persons closely linked”).
2 Each share provides entitlement to one vote.
122
Item 6. Directors, Senior Management and Employees
Compensation governance
Legal framework
The Swiss Code of Obligations and the Corporate Gover-
nance Guidelines of the SIX Swiss Exchange require listed
companies to disclose certain information about the com-
pensation of Board of Directors and Executive Committee
members, their equity participation in the Group, and loans
made to them. This Annual Report fulfills that requirement.
In addition, the Annual Report is in line with the principles
of the Swiss Code of Best Practice for Corporate Gover-
nance of the Swiss Business Federation (economiesuisse).
Risk management principles
The Compensation Committee, with support from its
independent advisor, reviews market trends in compen-
sation, and changes in corporate governance rules and
best practices. Together with the Risk Committee, it also
reviews the Novartis compensation systems to ensure
that they do not encourage inappropriate or excessive
risk-taking, and instead encourage behaviors that sup-
port sustainable value creation. A summary of the risk
management principles is outlined below.
RISK MANAGEMENT PRINCIPLES
• Rigorous performance
management process, with
approval of targets and
evaluation of performance
for the CEO by the Board of
Directors
• Balanced mix of short-term
and long-term variable com-
pensation elements
• Values and Behaviors are a
key component of the Annual
Incentive and are embedded in
our culture
• Clawback and malus principles
apply to all elements of the
variable compensation
• Performance-vesting Long-
Term Incentives only, with
three-year cycles
• All variable compensation is
capped at 200% of target
• Contractual notice period of
12 months
• Post-contractual non-compete
period limited to a maximum
of 12 months from the end
of employment. Resulting
compensation is limited to the
annual base salary plus the
prior-year Annual Incentive as
per contract, if applicable
• Good and bad leaver
provisions apply to variable
compensation of leavers
• No severance payments or
change-of-control clauses
• Share ownership requirements;
no hedging or pledging of
Novartis share ownership
Executive Committee employment contracts provide for
a notice period of up to 12 months and contain no change-
of-control clauses or severance provisions (for example,
agreements concerning special notice periods, lon-
ger-term contracts, “golden parachutes,” waiver of
lockup periods for equities and bonds, shorter vesting
periods, and additional contributions to occupational
pension schemes). For share ownership requirements,
please refer to “—Share ownership requirements for the
CEO and other Executive Committee members.”
Compensation decision-making authorities
Authority for decisions related to compensation is gov-
erned by the Articles of Incorporation, Board Regulations
and the Compensation Committee Charter, which are all
published on the Company website: www.novartis.com/
investors/company-overview/corporate-governance. The
Compensation Committee serves as the supervisory and
governing body for compensation policies and plans within
Novartis, and has overall responsibility for determining,
reviewing and proposing compensation policies and plans
for approval by the Board of Directors in line with the Com-
pensation Committee Charter. A summary of discussions
and conclusions of each committee meeting is delivered
to the full Board of Directors. A summary of the compen-
sation decision-making authorities is set out below.
Compensation authorization levels within the
parameters set by the shareholders’ meeting
DECISION ON
DECISION-MAKING AUTHORITY
Compensation of Chairman and
other Board members
Compensation of CEO
Compensation of other Executive
Committee members
Board of Directors
Board of Directors
Compensation Committee
Committee member independence
The Compensation Committee is composed exclusively
of members of the Board of Directors who meet the inde-
pendence criteria set forth in the Board Regulations. From
the 2020 AGM, the Compensation Committee had the fol-
lowing five members: Patrice Bula, Bridgette Heller (from
the 2020 AGM), Srikant Datar, Enrico Vanni and William
Winters. Simon Moroney also attended each Compen-
sation Committee meeting after the 2020 AGM as a per-
manent guest. Mr. Vanni has served as a member since
2011 and as Chair since 2012.
Role of the Compensation Committee’s
independent advisor
The Compensation Committee retained Mercer Limited
during the financial year 2020 as its independent external
compensation advisor to support the committee in determin-
ing the design and implementation of compensation and ben-
efits. The advisor was hired directly by the Compensation
Committee in 2017, and the Compensation Committee has
been fully satisfied with the performance and independence
of the advisor since its engagement. In determining whether
to renew the engagement with the advisor, the Compensa-
tion Committee evaluates, at least annually, the quality of the
consulting service, the independence of the advisor, and the
benefits of rotating advisors. Mercer Limited also provides
services related to management development at the mid- and
frontline leader level and in respect of corporate pensions.
The individual Mercer Limited consultants who advise and
support the committee are not responsible or rewarded for
work beyond support to the Compensation Committee and
the People & Organization function on senior compensation.
Meetings held in 2020 and self-evaluation
In 2020, the Compensation Committee held six formal
meetings. In line with prior years, it collaborated with the
Science & Technology Committee to review and endorse
for approval by the Board of Directors the innovation tar-
gets and achievements of the Annual Incentive and LTPP.
The assessment of the Compensation Committee was
included in the Board’s overall 2020 self-evaluation.
123
Item 6. Directors, Senior Management and Employees
Report of the statutory auditor
on the Compensation Report of Novartis AG
To the General Meeting of Novartis AG, Basel
We have audited the 2020 realized compensation for the
CEO and other Executive Committee members on pages
105-108, the 2020 compensation at grant value for the
CEO and other Executive Committee members on pages
109-111, and additional disclosures for the CEO and other
Executive Committee members on pages 112-115, as well
as the 2020 Board Compensation on pages 119-121 and
the additional disclosures on page 122; of the accompa-
nying Compensation Report of Novartis AG for the year
ended December 31, 2020; hereinafter referred to as
“disclosures made on the pages defined as subject to
audit”.
Board of Directors’ responsibility
The Board of Directors is responsible for the prepara-
tion and overall fair presentation of the Compensation
Report in accordance with Swiss law and the Ordinance
against Excessive Compensation in Stock Exchange
Listed Companies (Ordinance). The Board of Directors
is also responsible for designing the remuneration sys-
tem and defining individual remuneration packages.
Auditor’s responsibility
Our responsibility is to express an opinion on the accom-
panying disclosures made on the pages defined as sub-
ject to audit. We conducted our audit in accordance with
Swiss Auditing Standards. Those standards require that
we comply with ethical requirements and plan and per-
form the audit to obtain reasonable assurance about
whether the disclosures made on the pages defined as
subject to audit comply with Swiss law and articles 14–16
of the Ordinance.
An audit involves performing procedures to obtain audit
evidence on the disclosures made on the pages defined
as subject to audit with regard to compensation, loans
and credits in accordance with articles 14–16 of the Ordi-
nance. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of mate-
rial misstatements in the disclosures made on the pages
defined as subject to audit, whether due to fraud or error.
This audit also includes evaluating the reasonableness
of the methods applied to value components of remu-
neration, as well as assessing the overall presentation
of the disclosures made on the pages defined as subject
to audit.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opin-
ion.
Opinion
In our opinion, the disclosures made on the pages defined
as subject to audit of the accompanying Compensation
Report of Novartis AG for the year ended December 31,
2020 comply with Swiss law and articles 14–16 of the
Ordinance.
PricewaterhouseCoopers AG
Luc Schulthess
Audit expert
Auditor in charge
Kris Muller
Global relationship
partner
Basel, January 25, 2021
124
Item 6. Directors, Senior Management and Employees
6.C Board practices
Corporate governance
Framework
Novartis is committed to effective corporate governance,
and our corporate governance framework is intended to
support sustainable financial performance and long-
term value creation for our shareholders, patients,
employees and other stakeholders based on our Values
and Behaviors.
The Novartis corporate governance principles are further
described in key governance documents, in particular in
our Articles of Incorporation and the Regulations of
the Board, the Board Committees and the Executive
Committee (Board Regulations) (www.novartis.com/
investors/company-overview/corporate-governance).
The Governance, Nomination and Corporate Responsi-
bilities Committee (GNCRC) regularly reviews both the
corporate governance principles and the key governance
documents against evolving best practice standards and
new developments in line with our commitment to main-
taining the highest standards.
Governance bodies
GENERAL MEETING OF SHAREHOLDERS
Approves operating and financial review, Novartis Group consolidated financial statements, and financial
statements of Novartis AG; decides appropriation of available earnings and dividend; approves compensation
of Board and Executive Committee; elects Board members, Chairman, Compensation Committee members,
Independent Proxy and external auditor; adopts and modifies Articles of Incorporation
BOARD OF DIRECTORS
Sets strategic direction of Novartis, appoints and oversees key executives, approves major transactions
and investments
EXECUTIVE COMMITTEE
Responsible for operational management of Novartis
EXTERNAL AUDITOR
Provides opinion on
compliance of Novartis
Group consolidated
financial statements and
the financial statements
of Novartis AG with
applicable standards and
Swiss law, on compliance
of the Compensation
Report with applicable law,
on effectiveness of internal
controls over financial
reporting, and on the
corporate responsibility
reporting of Novartis
125
AUDIT AND COMPLIANCE COMMITTEECOMPENSATION COMMITTEERISK COMMITTEESCIENCE & TECHNOLOGY COMMITTEEGOVERNANCE, NOMI NATION AND CORPORATE RESPONSIBILITIES COMMITTEE
Item 6. Directors, Senior Management and Employees
Group structure and shareholders
Group structure
Novartis AG and Group companies
Novartis AG, the Group’s holding company, is a corpo-
ration organized under Swiss law with issued registered
shares and registered office at Lichtstrasse 35, CH-4056
Basel, Switzerland.
The principal subsidiaries and associated companies
of the Novartis Group are shown in “Item 18. Financial
Statements—Note 32. Principal Group subsidiaries and
associated companies.”
Divisions
Novartis has two focused, customer-facing divisions:
Innovative Medicines, which includes the Novartis
Pharmaceuticals and Novartis Oncology business units;
and Sandoz, the generics and biosimilars division. The
divisions are supported by the Novartis Institutes for
BioMedical Research (NIBR), Global Drug Development
(GDD), Novartis Technical Operations (NTO), Novartis
Business Services (NBS) and corporate functions. A
detailed review of the 2020 business results can be found
in “Item 18. Financial Statements—Note 3. Segmentation
of key figures 2020, 2019 and 2018.”
e
a ti v
v
s
In n o
te functio n
a
r
o
p
r
o
C
M e d i c i nes/Pharmaceutic
Busin
als
e
s
s
s
e
r
v
i
c
e
s
(
N
B
S
)
S
a
n
d
o
z
y
y
g
g
olo
dicin es/Oncolo
dicines/Onc
M
anufacturin g ( N T O )
I n n o v a t i v
In n o v a t i v
e M e
e M e
Shareholdings
Majority holdings in publicly traded Group companies
The Novartis Group owns 70.7% of Novartis India Ltd.,
with registered office in Mumbai, India, and listing on the
Bombay Stock Exchange (ISIN INE234A01025, symbol:
HCBA). The total market value of the 29.3% free float of
Novartis India Ltd. was USD 67.8 million on December 31,
2020, using the quoted market share price at year-end.
Applying this share price to all the shares of the com-
pany, the market capitalization of the whole company
was USD 231.4 million, and that of the shares owned by
Novartis was USD 163.6 million.
Significant minority shareholding owned by the Group
The Novartis Group owns 33.3% of the bearer shares of
Roche Holding AG, with registered office in Basel, Swit-
zerland, and listing on the SIX Swiss Exchange (ISIN
CH0012032113, symbol: RO). The market value of the
Group’s interest in Roche Holding AG, as of December 31,
2020, was USD 18.8 billion. The total market value of
Roche Holding AG was USD 302.8 billion. Novartis does
not exercise control over Roche Holding AG, which is
independently governed, managed and operated.
Shareholders
Significant shareholders
According to the Share Register, as of December 31,
2020, the following registered shareholders, including
nominees and the American Depositary Share (ADS)
depositary, held more than 2% of the total share capital,
with the right to vote all their shares based on exemp-
tions granted by the Board of Directors (“Board”) (see
“—Item 6.C Board practices—Shareholder participation—
Voting rights, restrictions and representation—Registra-
tion restrictions”):1
Shareholders registered for their own account:
Emasan AG, Basel
UBS Fund Management (Switzerland) AG, Basel
Credit Suisse Funds AG, Zurich
Shareholders registered as nominees:
Chase Nominees Ltd., London
The Bank of New York Mellon, New York
Through The Bank of New York Mellon, Everett
Through The Bank of New York Mellon, New York
Through The Bank of New York Mellon, SA/NV, Brussels
Nortrust Nominees Ltd., London
% holding of
share capital
Dec 31, 2020
3.6
2.3
2.0
% holding of
share capital
Dec 31, 2020
9.6
3.4
1.7
1.2
0.5
4.2
Shareholder acting as American Depositary Share (ADS) depositary:
JPMorgan Chase Bank, N.A., New York
11.7
1 Excluding 4.3% of the share capital held as treasury shares by Novartis AG or its fully
owned subsidiaries
126
Item 6. Directors, Senior Management and Employees
According to a disclosure notification filed with
Novartis AG, Norges Bank (Central Bank of Norway),
Oslo, held 2.3% of the share capital but was not regis-
tered in the Share Register as of December 31, 2020.
According to a disclosure notification filed with Novartis AG
and the SIX Swiss Exchange, BlackRock, Inc., New York,
held between 3% and 5%, but was registered with less than
2% of the share capital as of December 31, 2020.
Disclosure notifications pertaining to shareholdings
filed with Novartis AG and the SIX Swiss Exchange are
published on the latter’s electronic publication platform:
www.six-exchange-regulation.com/en/home/publications/
significant-shareholders.html.
Duty to make an offer
According to the Swiss Federal Act on Financial Infra-
structures, anyone who – directly, indirectly or acting in
concert with third parties – acquires equity securities
exceeding 33 1/3% of the voting rights of a company
(whether or not such rights are exercisable) is required
to make an offer to acquire all listed equity securities of
that company. A company may raise this threshold up to
49% of the voting rights (“opting up”) or may, under cer-
tain circumstances, waive the threshold (“opting out”).
Novartis AG has not adopted any such measures.
Cross shareholdings
Novartis AG has no cross shareholdings in excess of
5% of capital, or voting rights with any other company.
Overview on shareholder structure
The following tables relate only to registered share-
holders and cannot be assumed to represent the entire
investor base because nominees and JPMorgan Chase
Bank, N.A., as ADS depositary, are registered as share-
holders for a large number of beneficial owners.
As of December 31, 2020, Novartis AG had approxi-
mately 176 000 registered shareholders.
Number of registered shareholders/shares
As of December 31, 2020 1
1–100
101–1 000
1 001–10 000
10 001–100 000
100 001–1 000 000
1 000 001–5 000 000
5 000 001 or more 2
Number of
registered
shareholders
% of
share capital
31 457
104 629
36 429
3 230
478
64
32
0.07
1.73
4.10
3.39
5.81
4.72
48.13
67.95
32.05
100.00
Total registered shareholders/shares
176 319
Unregistered shares
Total
1 At the record date of the 2020 Annual General Meeting of Shareholders (AGM),
unregistered shares amounted to 15%.
2 Including significant registered shareholders as listed above
Registered shareholders by type
As of December 31, 2020
Shareholders in %
Shares in %
Individual shareholders
Legal entities 1
Nominees, fiduciaries
and ADS depositary
Total
96.61
3.34
0.05
100.00
14.00
34.51
51.49
100.00
1 Excluding 4.3% of the share capital held as treasury shares by Novartis AG or its fully
owned subsidiaries
Registered shareholders by country1
As of December 31, 2020
Shareholders in %
Shares in %
Belgium
France
Germany
Japan
Luxembourg
Switzerland 2
United Kingdom
United States
Other countries
Total
0.12
2.01
5.68
0.20
0.06
87.45
0.59
0.28
3.61
1.03
0.31
1.80
0.59
0.69
44.08
25.09
24.36
2.05
100.00
100.00
1 Registered shares held by nominees are shown in the country where the company/
affiliate entered in the Share Register as shareholder has its registered seat.
2 Excluding 4.3% of the share capital held as treasury shares by Novartis AG or its fully
owned subsidiaries
127
Item 6. Directors, Senior Management and Employees
Capital structure
Share capital
Convertible securities and options
Novartis AG has not issued convertible or exchange-
able bonds, warrants, options or other securities grant-
ing rights to shares, other than options (or similar instru-
ments such as stock appreciation rights) granted under
or in connection with equity-based participation plans of
associates. Novartis AG does not grant any new stock
options under these plans.
Limitation on transferability
No transferability restrictions are imposed on shares (for
registration restrictions, see “—Item 6.C Board practices—
Shareholder participation—Voting rights, restrictions and
representation—Registration restrictions”). The registra-
tion of shareholders in the Share Register or in the ADR
register kept by JPMorgan Chase Bank, N.A., does not
affect the tradability of shares or ADRs.
As of December 31, 2020, the share capital amounted
to CHF 1 233 530 460 fully paid-in and divided into
2 467 060 920 registered shares with a nominal value
of CHF 0.50 each.
Shares are listed on the SIX Swiss Exchange (ISIN
CH0012005267, symbol: NOVN) and on the New York
Stock Exchange (NYSE) in the form of American Depos-
itary Receipts (ADRs) representing American Deposi-
tary Shares (ADSs) (ISIN US66987V1098, symbol: NVS).
No authorized and conditional capital exists as of
December 31, 2020.
Shares, participation certificates,
non-voting equity securities, profit-
sharing certificates
Shares are issued as uncertificated securities (in the
sense of the Swiss Code of Obligations) and as book
entry securities (in terms of the Swiss Act on Intermedi-
ated Securities). All shares have equal voting rights and
carry equal entitlements to dividends. No participation
certificates, non-voting equity securities (Genuss scheine)
or profit-sharing certificates have been issued.
Changes to share capital
AGM
Shareholder decision
2018
• Capital reduction by CHF 33.11 million (from CHF 1 308 422 410 to CHF 1 275 312 410)
2019
• Capital reduction by CHF 11.63 million (from CHF 1 275 312 410 to CHF 1 263 687 410)
• Authorization of the Board to repurchase shares up to a maximum of CHF 10 billion
until the 2022 AGM under an eighth share repurchase program
Shares canceled
66 220 000
23 250 000
2020
• Capital reduction by CHF 30.16 million (from CHF 1 263 687 410 to CHF 1 233 530 460)
60 313 900
AGM
Proposal to the shareholders
Shares to be canceled
2021
• Capital reduction by CHF 16.3 million (from CHF 1 233 530 460 to CHF 1 217 210 460)
• Authorization of the Board to repurchase shares as deemed appropriate from time to time
up to a maximum of CHF 10 billion between the 2021 AGM and the 2024 AGM
32 640 000
1 All shares were repurchased on the SIX Swiss Exchange second trading line.
Average repurchase
share price (CHF) 1
78.34
79.08
88.18
Average repurchase
share price (CHF) 1
80.57
Key Novartis share data
Issued shares
Treasury shares 1
Outstanding shares at December 31
2020
2019
2018
2 467 060 920
2 527 374 820
2 550 624 820
210 238 872
262 366 332
239 453 391
2 256 822 048
2 265 008 488
2 311 171 429
Weighted average number of shares outstanding
2 277 041 940
2 290 792 782
2 319 322 369
1 Approximately 103 million treasury shares (2019: 118 million; 2018: 122 million) are held in Novartis entities that restrict their availability for use.
128
Item 6. Directors, Senior Management and Employees
Per-share information1
Basic earnings per share from continuing operations (USD)
Basic earnings per share from discontinued operations (USD)
Total basic earnings per share (USD)
Diluted earnings per share from continuing operations (USD)
Diluted earnings per share from discontinued operations (USD)
Total diluted earnings per share (USD)
Net cash flow from operating activities of continuing operations (USD)
Year-end equity for Novartis AG shareholders (USD)
Dividend (CHF) 2
1 Calculated on the weighted average number of shares outstanding, except year-end equity
2 2020: proposal to shareholders for approval at the AGM on March 2, 2021
2020
3.55
3.55
3.52
3.52
5.99
2019
3.12
2.00
5.12
3.08
1.98
5.06
5.91
25.07
24.49
3.00
2.95
2018
5.52
– 0.08
5.44
5.46
– 0.08
5.38
5.63
34.01
2.85
Key ratios – December 31
Share price (CHF)
Year-end share price
High 2
Low 2
2020 1
83.65
95.82
69.96
2019 1
91.90
96.04
77.03
2018
84.04
91.84
72.42
Year-end market capitalization
(USD billions) 3
Year-end market capitalization
(CHF billions) 3
214.3
214.8
197.0
188.8
208.2
194.2
1 2020 and 2019 exclude the business of Alcon, which was spun off in April 2019 into a
separately traded standalone company.
2 Based on the daily closing prices
3 Market capitalization is calculated based on the number of shares outstanding
(excluding treasury shares). Market capitalization in USD is based on the market
capitalization in CHF converted at the year-end CHF/USD exchange rate.
Price/earnings ratio 1
Price/earnings ratio from
continuing operations 1
Dividend yield (%) 1
2020
26.7
26.7
3.6
2019
18.5
30.4
3.2
2018
15.7
15.4
3.4
1 Based on the Novartis share price at December 31 of each year
Key data on ADRs issued in the US
Year-end ADR price (USD)
High 2
Low 2
Number of
ADRs outstanding 3
2020 1
94.43
99.01
70.67
2019 1
94.69
96.14
75.40
2018
85.81
93.91
72.44
288 755 853 315 073 094 338 641 387
1 2020 and 2019 exclude the business of Alcon, which was spun off in April 2019 into a
separately traded standalone company.
2 Based on the daily closing prices
3 The depositary, JPMorgan Chase Bank, N.A., holds one Novartis AG share for every
ADR issued.
129
Item 6. Directors, Senior Management and Employees
Shareholder participation
Shareholder engagement
Shareholder engagement is fundamental to our commit-
ment to governance and transparency, and the feedback
we receive during these engagements helps us create
long-term and sustainable value.
We concentrate our outreach efforts on our largest
100 shareholders – portfolio managers; buy-side profes-
sionals; stewardship teams; and environmental, social
and governance (ESG) analysts – who represent 60% of
our ownership. While the Chairman, CEO and CFO
together with Investor Relations are accountable for
ensuring effective shareholder engagement, other senior
managers from within and outside the Executive Com-
mittee also participate in the meetings. We conduct reg-
ular outreach to investors throughout the year.
TYPES OF ENGAGEMENTS (SELECT EXAMPLES):
• AGM and quarterly results teleconferences (TCs)
• Bank conferences and management roadshows
• “Meet Novartis Management” capital markets event
• Oncology pipeline update
• Governance and compensation roadshow, and governance TCs
• Chairman’s lunch in Zurich, and TCs for US and UK investors
• ESG Investor Day and roadshows, including sustainability-linked
bond roadshow
TOPICS DISCUSSED WITH SHAREHOLDERS DURING 2020:
INNOVATION:
• Progress and milestones
• Data of pipeline projects (e.g., 177Lu-PSMA-617, ABL001, ACZ885,
LNP023)
• Launches (e.g., Kesimpta, Tabrecta)
OPERATIONAL EXECUTION:
• Financial prudence and supply chain resilience during COVID-19
• Progress on financial, strategic and operational performance
• Long-term sustainability of financial performance
• Capital allocation strategy
• Policy and pricing environment
• Lifecycle management
DATA AND DIGITAL:
• New initiatives and progress
BUILDING TRUST WITH SOCIETY AND CULTURE (ESG):
• COVID-19 response to address all stakeholder needs
• Board accountability on ESG, and integration of ESG and
compensation
• Strong governance, enhanced process and focus on material ESG
factors, leading to improved rating agency scores
• New ESG targets: full carbon neutrality, patient access targets for
strategic innovative therapies, and global health flagship programs
• New ESG index to improve primary ESG data
• Sustainability-linked bond demonstrating ESG innovation
• Key resolutions (settlements with US DOJ and SEC resolving all
Foreign Corrupt Practices Act investigations including Greece,
resolution with DOJ Antitrust Division concerning US generics
industry investigation, settlement concerning speaker program
litigation with Southern District of New York)
• Progress on culture and metrics
COMPENSATION AND GOVERNANCE:
• Diversity of the Board, the Executive Committee and the Company
• Board refreshment, succession planning and evaluation
• Link of compensation system to key strategic priorities
• Risk oversight
• Independence of some Board members and the external auditor
• Overboarding
We appreciate the value that shareholders attach to ESG
matters. We will continue to integrate ESG into our strategy
and to promote transparency through our comprehensive
ESG engagement program. We have more than doubled
the number of investor engagements on ESG matters in
recent years, and in 2020, our CEO led our ESG Inves-
tor Day for the second time (marking our seventh dedi-
cated ESG event for investors since 2014). We also held
our second ESG roadshow in the Netherlands, and our
first ESG roadshows in France, the US and Switzerland.
We are the first company in the healthcare industry to
issue an innovative sustainability-linked bond, and the first
company to issue such a bond based on social targets.
Voting rights, restrictions and
representation
REGISTRATION
Shareholders have the right to vote and to execute all
other rights as granted under Swiss law and the Arti-
cles of Incorporation (see, in particular, articles 17 and
18 of the Articles of Incorporation: www.novartis.com/
investors/company-overview/corporate-governance).
Each share registered with the right to vote by the
third business day before the General Meeting entitles
the holder to one vote at General Meetings. To be regis-
tered with voting rights, a shareholder must declare that
he or she acquired the shares in his or her own name
and for his or her own account. According to article 5,
paragraph 3 of the Articles of Incorporation (www.novartis.
com/investors/company-overview/corporate-gover-
nance), the Board may register nominees with the right
to vote. The Share Register is an internal, non-public reg-
ister subject to statutory confidentiality and data privacy.
REGISTRATION RESTRICTIONS
Article 5, paragraph 2 of the Articles of Incorporation (www.
novartis.com/investors/company-overview/corporate-gov-
ernance) provides that no shareholder shall be registered
with the right to vote for more than 2% of the share capital.
Given that shareholder representation at General Meetings
traditionally has been rather low in Switzerland, Novartis AG
considers registration restrictions ne cessary to prevent a
minority shareholder from dominating a General Meeting.
The Board may, upon request, grant an exemption. Con-
siderations include whether the shareholder supports our
goal of creating sustainable value and has a long-term
investment horizon. Exemptions are in force for the regis-
tered shareholders listed in “—Item 6.C Board practices—
Group structure and shareholders—Shareholders—Signifi-
cant shareholders.” These include Credit Suisse Funds AG,
Zurich, which received an exemption in 2020 based on the
fulfillment of the requirements. Exemptions also apply to the
Novartis Foundation for Employee Participation, Basel, which
as of December 31, 2020, was registered in the Share Reg-
ister with less than 2% of the share capital, and to Norges
Bank (Central Bank of Norway), Oslo, which as of Decem-
ber 31, 2020, was not registered but held 2.3% according
to a disclosure notification filed with Novartis AG. The same
restrictions indirectly apply to ADR holders.
130
Item 6. Directors, Senior Management and Employees
Article 5, paragraph 3 of the Articles of Incorporation
provides that no nominee shall be registered with the right
to vote for more than 0.5% of the registered share capital.
The Board may, upon request, grant an exemption from
this restriction if the nominee discloses the names,
addresses and number of shares of the persons for whose
account it holds 0.5% or more of the registered share cap-
ital. Exemptions are in force for the nominees listed in “—
Item 6.C Board practices—Group structure and sharehold-
ers—Shareholders—Significant shareholders,” and for the
nominee Citibank, London, which in 2015 requested an
exemption, but as of December 31, 2020, was not regis-
tered in the Share Register. The same restrictions indirectly
apply to ADR holders.
Shareholders, ADR holders, or nominees who are
linked to each other or who act in concert to circumvent
registration restrictions are treated as one person or nom-
inee for the purposes of the restrictions on registration.
The registration restrictions may be changed by res-
olution of the General Meeting, with approval of at least
two-thirds of the votes represented at the meeting.
REPRESENTATION AND SHERPANY PLATFORM
Normally, shareholders can vote their shares by them-
selves or appoint another shareholder or the Indepen-
dent Proxy to vote on their behalf. However, in accor-
dance with Swiss legislation passed in response to the
COVID-19 pandemic, the Board has decided that voting
rights at our 2021 AGM can only be exercised through
the Independent Proxy. It will not be possible to phys-
ically attend our 2021 AGM. All shareholders (who are
not yet registered on the online platform) will receive an
invitation with a form to appoint the Independent Proxy.
On this form, shareholders can also instruct the Indepen-
dent Proxy to vote on alternative or additional motions
related to the agenda items either (i) following the rec-
ommendations of the Board for such alternative or addi-
tional motions, or (ii) against such alternative or additional
motions. They can also abstain from voting.
Shareholders can use the online Sherpany platform to
receive invitations to General Meetings exclusively by email
and to exercise their voting rights. Not-yet-registered share-
holders can sign up with the account opening document
that will be sent to them with the invitation to the 2021 AGM
or by ordering the document from the Share Registry. Share-
holders can deactivate their online account at any time and
again receive invitations in paper form.
ADR HOLDERS
ADR holders have the rights enumerated in the deposit
agreement (such as the right to give voting instruc-
tions and to receive dividends). The ADS depositary of
Novartis AG – JPMorgan Chase Bank, N.A., New York –
holds the shares underlying the ADRs and is registered
as a shareholder in the Share Register. An ADR is not a
share, and an ADR holder is not a Novartis AG shareholder.
Each ADR represents one share. ADR holders exercise
their voting rights by instructing the depositary to exer-
cise their voting rights. The ADS depositary exercises
the voting rights for registered shares underlying ADRs
for which no voting instructions have been given by pro-
viding a discretionary proxy to an uninstructed indepen-
dent designee. Such designee has to be a shareholder.
General Meeting
CONVENING
The AGM must be held within six months after the end of
our financial year (December 31), and normally takes place
in late February/early March. Extraordinary General Meet-
ings may be requested by the Board, the external auditor, or
shareholders representing at least 10% of the share capital.
AGENDA
Shareholders representing shares with an aggregate
nominal value of at least CHF 1 million may request that
an item be included in a General Meeting agenda. Such
requests must be made in writing at least 45 days before
the meeting, specifying the requested item and proposal.
POWERS
The following powers are vested exclusively in the
General Meeting:
• Adoption and amendment of the Articles of Incorporation
• Election and removal of the Chairman, the Board and
Compensation Committee members, the Independent
Proxy and the external auditor
• Approval of the management report and of the consol-
idated financial statements
• Approval of the financial statements of Novartis AG,
and decision on the appropriation of available earn-
ings shown on the balance sheet, including dividends
• Approval of the maximum aggregate compensation of
the Board (from an AGM until the next AGM) and of the
Executive Committee (for the financial year following
the AGM). If the maximum aggregate amount of com-
pensation already approved by the AGM is not sufficient
to cover the compensation of newly appointed or pro-
moted Executive Committee members, Novartis may use
up to 40% of the amount last approved for the newly
appointed or promoted Executive Committee members.
• Discharge of Board and Executive Committee members
• Decision on other matters that are reserved by law or
by the Articles of Incorporation (e.g., advisory vote on
the Compensation Report) to the General Meeting
STATUTORY QUORUMS
The General Meeting passes resolutions and elections with
the absolute majority of the votes represented at the meet-
ing. However, under article 18 of the Articles of Incorporation
(www.novartis.com/investors/company -overview/
corporate -governance), the approval of two-thirds of the
votes represented at the meeting is required for:
• Alteration of the purpose of Novartis AG
• Creation of shares with increased voting powers
• Implementation of restrictions on the transfer of registe red
shares, and the removal of such restrictions
• Authorized or conditional increase of the share capital
• Increase of the share capital out of equity, by contribution
in kind, for the purpose of an acquisition of property or
the grant of special rights
• Restriction or cancellation of subscription rights
• Change of the registered office of Novartis AG
• Dissolution of Novartis AG
In addition, the law provides for a qualified majority for
other resolutions, such as a merger or demerger.
131
Item 6. Directors, Senior Management and Employees
Board of Directors
Composition (as per December 31, 2020)
CHAIRMAN: J. Reinhardt
VICE CHAIRMAN: E. Vanni1
N. Andrews
T. Buechner
P. Bula
S. Datar
E. Doherty
A. Fudge
B. Heller
F. van Houten
S. Moroney
A. von Planta
C. Sawyers
W. Winters
AUDIT AND COMPLIANCE
COMMITTEE
COMPENSATION
COMMITTEE
E. Doherty (Chair)
T. Buechner
S. Datar
A. von Planta
E. Vanni
E. Vanni (Chair)
P. Bula
S. Datar
B. Heller
W. Winters
GOVERNANCE, NOMINATION
AND CORPORATE RESPON-
SIBILITIES COMMITTEE
A. von Planta (Chair)
A. Fudge
C. Sawyers
E. Vanni
W. Winters
RISK COMMITTEE
SCIENCE & TECHNOLOGY
COMMITTEE
S. Datar (Chair)
N. Andrews
T. Buechner
E. Doherty
A. von Planta
J. Reinhardt (Chair)
N. Andrews
A. Fudge
F. van Houten
S. Moroney
C. Sawyers
1 In addition to his role as Vice Chairman, Enrico Vanni was appointed Lead Independent Director as of January 1, 2021.
Election and term of office
Succession planning
Board members (including the Chairman) and Com-
pensation Committee members are elected individually
by shareholders at the General Meeting for a one-year
term of office. The term of office expires at the end of
the next AGM.
There is currently no mandatory term limit for Board
members. However, Board members who are 70 years
old as of the General Meeting are no longer eligible for
re-election to the Board (see article 20, paragraph 3 of
the Articles of Incorporation: www.novartis.com/inves-
tors/company-overview/corporate-governance). The
General Meeting may, under special circumstances, grant
exceptions to this rule.
At the 2021 AGM, the Board will propose to share-
holders an amendment to the Articles of Incorporation
that for future re-elections would replace the current age
limit with a term limit. The proposal foresees that a mem-
ber shall not serve on the Board for more than 12 years.
The Board may recommend to shareholders exceptions
under certain circumstances and if deemed to be in the
best interests of the Company.
The proposed term limit supports our commitment
to renew the Board on an ongoing basis. It also follows
international best practice, which increasingly asks for
an overall tenure of no more than 12 years. We believe
age is still a relevant factor in Board composition, and
the GNCRC will consider this and other factors – includ-
ing gender and ethnicity – when evaluating candidates
and exploring ways to improve Board diversity.
The Chairman, supported by the GNCRC, ensures effective
succession plans for the Board, the CEO and the Execu-
tive Committee. These plans are discussed by the Board
in private meetings without management. A search for a
new Board member is launched – normally with the sup-
port of a professional executive search company – with
individual selection criteria defined based on the evolv-
ing needs of the Company and a continuing focus on
diversity. The set of competencies (further explained in
“—Item 6.C Board practices—Board of Directors—Board
skills”) is also an important criterion for the GNCRC when
evaluating new candidates. Candidates are interviewed
by the Chairman, members of the GNCRC, other Board
members, and members of the Executive Committee.
The GNCRC then makes a recommendation to the full
Board, and the Board ultimately decides who should be
proposed for election at the upcoming AGM.
Independence
All Board members – including the Chairman – are non-ex-
ecutive and independent, pursuant to applicable corpo-
rate governance rules and Novartis independence criteria,
which are outlined in Appendix II to the Board Regula-
tions (www.novartis.com/investors/company-overview/
corporate-governance). In particular, no Board member
is or was a member of the management of Novartis AG
or of any other Novartis Group company in the last three
financial years up to December 31, 2020, or has a signif-
icant business relationship with Novartis AG or with any
other Novartis Group company. We assess independence
annually. Because all Board members are independent,
no separate meetings of independent Board members
were held in 2020.
132
NATIONALITY
NATIONALITY
GENDER
GENDER
EXECUTIVE/NON-EXECUTIVE
EXECUTIVE/NON-EXECUTIVE
INDEPENDENCE
INDEPENDENCE
Item 6. Directors, Senior Management and Employees
Diversity
Diversity is a key factor to success and Board effective-
ness. A diverse Board ensures that the appropriate bal-
ance of skills, expertise and experience is represented
to discharge responsibilities to shareholders, and helps
create long-term value. We are continuously looking for
opportunities to improve our Board diversity, including
gender and ethnic diversity. Last year, we disclosed our
aspiration to find female candidates for two of the next
three nominations. At the 2020 AGM, our Board welcomed
its fourth female member, Bridgette Heller. Compared to
last year, the female representation on our Board rose
to 29% from 25%. The GNCRC is focused on achieving
even greater diversity when identifying new Board mem-
ber candidates and aims to further increase the number
of women on the Board.
Diversity profile
NATIONALITY
NATIONALITY
Nationality1
BACKGROUND/EXPERIENCE
GENDER
BACKGROUND/EXPERIENCE
Gender
GENDER
AGE
AGE
EXECUTIVE/NON-EXECUTIVE
EXECUTIVE/NON-EXECUTIVE
Age
TENURE
TENURE
Tenure
INDEPENDENCE
INDEPENDENCE
p American
36%
p Swiss
28%
p British
11%
p Dutch
11%
p German
11%
p New Zealander 3%
p Male
p Female
71%
29%
p 55–60
p 61–65
p >65
29%
50%
21%
p <3 y
p 3–6 y
p 7–9 y
p >9 y
21%
29%
29%
21%
1 Please note that four Board members have two nationalities. Each of these nationalities is counted as a half in the above chart.
BACKGROUND/EXPERIENCE
BACKGROUND/EXPERIENCE
Board skills
AGE
AGE
TENURE
TENURE
Board skill distribution
Upon proposal by the GNCRC, the Board has determined
a diverse set of competencies for its members that align
with our status as a listed company as well as our busi-
ness portfolio, geographic reach and culture. Based on
this set of competencies, our Board members were asked
to identify their most relevant skills highlighted by their
educational background, professional experience and
personal achievements.
The GNCRC assesses the set of competencies as
well as the individual skills annually to ensure that an
appropriate balance of skills, expertise, experience and
diversity is represented on the Board.
To learn more about our Board members’ biographies
and their individual skills, see “—Item 6.C Board practices—
Board of Directors—Members of the Board of Directors.”
Medicine/healthcare/R&D
50% 7/14
Leadership/management
86% 12/14
Finance/accounting
50% 7/14
Law/regulatory/risk management 50% 7/14
Data/digital
Environmental, social
and governance (ESG)
21% 3/14
43% 6/14
133
Item 6. Directors, Senior Management and Employees
Members of the Board of Directors
Joerg Reinhardt, Ph.D.
Chairman since 2013 | Nationality: German | Year of birth: 1956
Joerg Reinhardt is a healthcare industry veteran whose career spans nearly 40 years. After receiving his
doctorate in pharmaceutical sciences, Mr. Reinhardt joined Sandoz Pharma Ltd., a predecessor to Novartis,
in 1982. He held a number of senior leadership positions at Novartis, including Chief Operating Officer and
Head of the Vaccines and Diagnostics Division. Additionally, he led Bayer HealthCare AG as chairman of the
board of management and the executive committee from 2010 to 2013.
Professional experience
• Chairman of the board of management and the executive committee, Bayer HealthCare AG,
Germany (2010–2013)
• Chief Operating Officer, Novartis AG, Switzerland (2008–2010)
• Head of the Vaccines and Diagnostics Division, Novartis AG, Switzerland (2006–2008)
• Various managerial positions at Sandoz Pharma Ltd. and Novartis AG, Switzerland (1982–2006)
Mandates
• Senate member, Helmholtz Association of German Research Centres, Germany
• Chairman of the board of trustees, Institute of Molecular and Clinical Ophthalmology Basel (IOB),
Switzerland
• Chairman of the board of trustees, Novartis Foundation, Switzerland
• Board member, Swiss Re AG, Switzerland
• Member of the European Advisory Panel, Temasek Holdings Private Ltd., Singapore
• Board member, Lonza Group AG, Switzerland (2012–2013)
• Chairman, Genomics Institute of the Novartis Research Foundation, US (2000–2010)
Education
• Doctorate in pharmaceutical sciences, Saarland University, Germany
Key skills
x Medicine/healthcare/R&D g Leadership/management l Law/regulatory/risk management
Enrico Vanni, Ph.D.
Vice Chairman since 2011 | Lead Independent Director since January 1, 2021 | Nationality: Swiss | Year of birth: 1951
Enrico Vanni is an expert in business management, healthcare and technology who began his career as a
research engineer at the International Business Machines Corp. (IBM) in the US. He later joined McKinsey &
Co. in Switzerland, where he managed the Geneva office and led the firm’s European pharmaceutical practice.
Since retiring in 2007, Mr. Vanni has continued to support leaders of pharmaceutical and biotechnology
companies on core strategic challenges facing the healthcare industry.
Professional experience
• Independent consultant supporting leaders of pharmaceutical and biotechnology companies (2008–2015)
• Director, consulting in pharmaceutical, consumer and financial sectors, McKinsey & Co.,
Switzerland (1994–2007)
• Head of the Geneva office, McKinsey & Co., Switzerland (1988–2004)
Mandates
• Board member, Advanced Oncotherapy PLC, UK
• Board member, Lombard Odier & Cie SA, Switzerland
• Board member, Banque Privée BCP (Suisse) SA, Switzerland
• Board member, Eclosion2 SA, Switzerland (2009–2017)
• Board member, Alcon Inc., Switzerland (2010–2011)
• Board member, Actavis PLC, Ireland (2010)
Education
• Master of Business Administration, INSEAD, France
• Doctorate in physical chemistry, University of Lausanne, Switzerland
• Engineering degree in chemistry, Federal Polytechnic School of Lausanne, Switzerland
Key skills
x Medicine/healthcare/R&D m Finance/accounting
134
Item 6. Directors, Senior Management and Employees
Nancy C. Andrews, M.D., Ph.D.
Board member since 2015 | Nationality: American/Swiss | Year of birth: 1958
Nancy C. Andrews has extensive experience as a physician, scientist, professor and senior administrator at
leading academic institutions and hospitals. Her distinguished career spans more than 30 years, with
leadership roles at both Harvard Medical School and the Duke University School of Medicine. Dr. Andrews
currently chairs the board of the American Academy of Arts and Sciences, and is credited with conducting
research that led to advances in understanding iron biology and iron diseases.
Professional experience
• Dean emerita, Duke University School of Medicine, and vice chancellor emerita for academic affairs,
Duke University, US (2017–present)
• Dean, Duke University School of Medicine, and vice chancellor for academic affairs,
Duke University, US (2007–2017)
• Professor of pediatrics, pharmacology and cancer biology, Duke University, US (2007–present)
• Dean for basic sciences and graduate studies, Harvard Medical School, US (2003–2007)
• Director, Harvard/MIT M.D.-Ph.D. Program, US (1999–2003)
• Biomedical research investigator, Howard Hughes Medical Institute, US (1993–2006)
Mandates
• Board member, Charles River Laboratories Inc., US
• Member of the executive committee of the Corporation, Massachusetts Institute of Technology, US
• Council member, National Academy of Sciences, US
• Former council member (2013–2019) and member, National Academy of Medicine, US
• Chair of the board, American Academy of Arts and Sciences, US
• Member of the Scientific Advisory Board, Dyne Therapeutics Inc., US
• Board member and former chair, Burroughs Wellcome Fund, US (2011–2019)
• Member of the Scientific Management Review Board, National Institutes of Health, US (2014–2019)
Education
• Doctor of medicine, Harvard Medical School, US
• Doctorate in biology, Massachusetts Institute of Technology, US
• Master of Science and Bachelor of Science in molecular biophysics and biochemistry, Yale University, US
Key skills
x Medicine/healthcare/R&D g Leadership/management
Ton Buechner
Board member since 2016 | Nationality: Dutch/Swiss | Year of birth: 1965
Ton Buechner is an engineer by training who started his career in the oil and gas construction industry. He
spent almost two decades at Sulzer AG, and held leadership roles including CEO and divisional president.
Mr. Buechner most recently served as chairman and CEO of the executive board of AkzoNobel NV, a company
widely recognized as a leader in sustainability, where he implemented significant ESG policies.
Professional experience
• CEO and chairman of the executive board, AkzoNobel NV, Netherlands (2012–2017)
• CEO, Sulzer AG, Switzerland (2007–2011)
• President, Sulzer Pumps, Switzerland (2003–2006)
• President, Sulzer Turbomachinery Services, Switzerland (2000–2002)
• Various managerial positions at Sulzer AG, China and Switzerland (1994–2000)
Mandates
• Chairman of the board of directors, Burckhardt Compression AG, Switzerland
• Chairman of the board of directors, Swiss Prime Site AG, Switzerland
• Advisor, Ammega, Switzerland
• Member of the presidential and shareholder committees, Voith GmbH & Co. KGaA, Germany (2014–2020)
• Member of the supervisory board, Voith GmbH & Co. KGaA, Germany (2014–2018)
Education
• Master of Business Administration, IMD business school, Switzerland
• Master of Science in civil engineering, Delft University of Technology, Netherlands
Key skills
g Leadership/management m Finance/accounting l Law/regulatory/risk management
z Environmental, social and governance (ESG)
135
Item 6. Directors, Senior Management and Employees
Patrice Bula
Board member since 2019 | Nationality: Swiss | Year of birth: 1956
Patrice Bula has 40 years of global management experience and is a leader in the consumer goods industry
across established and emerging markets. He has served in various senior roles at Nestlé SA, including as
general manager of its businesses in China, Germany and South Africa. In his current position, he has success-
fully led the Nestlé Group’s brand strategies, digital marketing transformation and Nespresso business.
Professional experience
• Executive vice president and head of strategic business units, marketing, sales and Nespresso,
Nestlé SA, Switzerland (2011–February 2021)
• Market head of the Greater China region, Nestlé SA, Switzerland (2007–2011)
• Market head of Germany, Nestlé SA, Switzerland (2003–2007)
• Head of the confectionery and biscuits strategic business unit, Nestlé SA, Switzerland (2000–2003)
• Various managerial positions at Nestlé SA, Switzerland (1980–2000)
Mandates
• Board member, Schindler AG, Switzerland
• Co-chairman, Cereal Partners Worldwide SA, Switzerland (Nestlé representative)
• Chairman, Froneri Lux Topco Sarl, Luxembourg (as of January 1, 2021)
• Board member, Froneri Lux Topco Sarl, Luxembourg (Nestlé representative) (2016–2020)
• Board member, Bobst Group SA, Switzerland (2017–2019)
• Chairman, Blue Bottle Coffee Inc., US (Nestlé representative) (2017–2019)
• Chairman, Nestlé Nespresso SA, Switzerland (Nestlé representative) (2011–2019)
• Board member, Hsu Fu Chi Food Companies, China (Nestlé representative) (2011–2019)
Education
• Program for Executive Development, IMD business school, Switzerland
• Master’s degree in economic sciences, HEC Lausanne, Switzerland
Key skills
g Leadership/management m Finance/accounting y Data/digital
Srikant Datar, Ph.D.
Board member since 2003 | Nationality: American | Year of birth: 1953 |
Audit Committee Financial Expert
Srikant Datar has extensive academic experience in accounting, governance, finance, innovative thinking,
machine learning and other business areas. He has served as a professor at Harvard Business School, the
Stanford Graduate School of Business, and Carnegie Mellon University, and has co-authored the leading
cost accounting textbook, many research papers, and cases on companies. In 2020, he was selected by the
National Association of Corporate Directors as public company director of the year for his outstanding contri-
butions in the boardroom. He was appointed dean of Harvard Business School, effective January 1, 2021.
Professional experience
• Dean, Harvard Business School, US (as of January 1, 2021)
• Professor of business administration, Harvard Business School, US (1996–present)
• Faculty chair, Harvard Innovation Labs, US (2015–2020)
• Senior associate dean for university affairs, Harvard Business School, US (2015–2020)
• Professor of accounting and management, Stanford Graduate School of Business, US (1989–1996)
• Professor of industrial administration, Carnegie Mellon University (1986–1988)
Mandates
• Board member and chair of the governance and nominating committee, ICF International Inc., US
• Board member, Stryker Corp., US
• Board member and chair of the audit committee, T-Mobile US Inc., US
• Former board member (2012–2014) and strategic advisor, HCL Technologies Ltd., India
• Board member, KPIT Cummins Infosystems Ltd., India (2007–2012)
Education
• Doctorate in business (accounting), Stanford University, US
• Master of Arts in economics, Stanford University, US
• Master of Science in statistics, Stanford University, US
• Postgraduate diploma in business management, Indian Institute of Management, India
• Bachelor of Science in mathematics and economics, Bombay University, India
Key skills
g Leadership/management m Finance/accounting
136
Item 6. Directors, Senior Management and Employees
Elizabeth (Liz) Doherty
Board member since 2016 | Nationality: British | Year of birth: 1957 |
Audit Committee Financial Expert
Elizabeth (Liz) Doherty is an expert in finance and accounting who has broad operational experience in inter-
national consumer and retail businesses. She began her career in internal audit at Unilever PLC and has held
senior finance and accounting roles there and at other companies including Tesco PLC and Reckitt Benckiser
Group PLC.
Professional experience
• CFO (interim), Cognita Schools Ltd., UK (2014–2015)
• CFO and board member, Reckitt Benckiser Group PLC, UK (2011–2013)
• CFO (interim), City Inn, UK (2010)
• CFO, Brambles Ltd., Australia (2007–2009)
• Group international finance director, Tesco PLC, UK (2001–2007)
• Various managerial positions at Unilever PLC, UK (1981–2001)
Mandates
• Board member, Corbion NV, Netherlands
• Member of the supervisory board and chair of the audit committee, Royal Philips NV, Netherlands
• Advisor, Affinity Petcare SA and GB Foods SA, Spain
• Board member, Dunelm Group PLC, UK (2013–2019)
• Board member, HM Courts & Tribunals Service, UK (2015–2019)
• Board member, Ministry of Justice, UK (2015–2019)
• Board member, Delhaize Group, Belgium (2013–2016)
• Board member, Nokia Corp., Finland (2013–2016)
• Board member, Brambles Ltd., Australia (2007–2009)
• Board member, SABMiller PLC, UK (2004–2010)
Education
• Fellow, Chartered Institute of Management Accountants, UK
• Bachelor’s degree in liberal studies in science (physics), University of Manchester, UK
Key skills
g Leadership/management m Finance/accounting l Law/regulatory/risk management
Ann Fudge
Board member since 2008 | Nationality: American | Year of birth: 1951
Ann Fudge has a track record of success across global technology and consumer goods companies, and is
widely considered one of the most influential women in American business. Before serving as chairman and
CEO of Young & Rubicam Brands, Ms. Fudge spent 15 years in leadership roles at Kraft Foods Inc. She is
deeply committed to social initiatives, including the Executive Leadership Council, a nonprofit focused on
helping African American leaders positively impact business and communities. With WGBH Public Media,
she has brought greater focus to more diverse media programming and broadening the reach of communi-
ty-based initiatives. More recently, she has consulted with companies and educational institutions as they
develop social justice initiatives.
Professional experience
• Chairman and CEO, Young & Rubicam Brands, US (2003–2007)
• President of the Beverages, Desserts and Post Division brands, Kraft Foods Inc., US (2000–2001)
• Various managerial positions at Kraft Foods Inc., US (1986–2000)
Mandates
• Senior trustee, the Brookings Institution, US
• Member, American Academy of Arts and Sciences, US
• Board member, Northrop Grumman Corp., US
• Chair of the board of trustees, WGBH Public Media, US
• Chair of the United States Program Advisory Panel, Bill & Melinda Gates Foundation, US (2007–2019)
• Member of the visiting committee, Harvard Business School, US (2014–2019)
• Board member and former vice chair, Unilever PLC and NV, UK and Netherlands (2009–2018)
• Board member, General Electric Co., US (1999–2015)
Education
• Master of Business Administration, Harvard Business School, US
• Bachelor’s degree in management, Simmons College, US
Key skills
g Leadership/management z Environmental, social and governance (ESG)
137
Item 6. Directors, Senior Management and Employees
Bridgette Heller
Board member since February 28, 2020 | Nationality: American | Year of birth: 1961
Bridgette Heller has proven experience in the standalone divisions of companies such as Johnson & Johnson,
Merck & Co. Inc. and Danone SA, and has served on the audit committees of ADT Corp. and Tech Data Corp.
During her career, she has overseen the performance of CFOs and made decisions on strategic R&D prior-
ities. Ms. Heller is an advocate for diversity, equity and inclusion, and traveled globally to reinforce Danone’s
commitment to infant and maternal health, inclusive diversity, an equitable workforce for women, and
sustainable communities. She is co-founder and CEO of the Shirley Proctor Puller Foundation, an education
and youth empowerment nonprofit, and devotes much of her time to strengthening education and sustain-
ability in an underserved community in the US.
Professional experience
• Co-founder and CEO, Shirley Proctor Puller Foundation, US (2019–present)
• EVP and president of specialized nutrition, Danone SA, Netherlands (2017–2019)
• EVP of early life nutrition, Danone SA, Netherlands (2016–2019)
• EVP and president of consumer care, Merck & Co. Inc., US (2010–2015)
• Global president of the baby global business unit, Johnson & Johnson, US (2007–2009)
• President of the US baby, kids and wound care business and of global innovation development, Johnson
& Johnson, US (2005–2007)
• Managing partner, Heller Associates: Ideas for Growth Inc., US (2004–2005)
• CEO, Chung’s Gourmet Foods, US (2003–2004)
• Various managerial positions at Kraft Foods Inc., US (1985–2003)
Mandates
• Board member, Dexcom Inc., US
• Board member, Newman’s Own Inc., US
• Member of the board of trustees, Northwestern University, US
• Member of the advisory board, Kellogg School of Management at Northwestern University, US
• Board member, Shirley Proctor Puller Foundation, US
• Board member, Tech Data Corp., US (2016–2020)
• Board member, ADT Corp., US (2012–2016)
• Board member, Girls Inc., US (2002–2014)
Education
• Master’s degree in marketing and management policy, Kellogg School of Management at Northwestern
University, US
• Bachelor’s degree in economics and computer studies, Northwestern University, US
Key skills
x Medicine/healthcare/R&D g Leadership/management m Finance/accounting
z Environmental, social and governance (ESG)
Frans van Houten
Board member since 2017 | Nationality: Dutch | Year of birth: 1960
Frans van Houten is passionate about purpose-driven innovation, entrepreneurship and business transfor-
mation to drive competitiveness and customer value. Under his leadership as CEO, Royal Philips NV has
transformed into a focused health technology leader through targeted divestments, acquisitions and organic
business development. Royal Philips NV has also adopted a comprehensive set of commitments across all
the ESG dimensions, and is today carbon neutral in its operations and recycles 90% of its operational waste.
Mr. van Houten was an initiator of The Compact for Responsive and Responsible Leadership, which aims to
create a corporate governance framework with a focus on the long-term sustainability of corporations and
the long-term goals of society.
Professional experience
• CEO and chairman of the executive committee and the board of management, Royal Philips NV,
Netherlands (2011–present)
• Interim management, ING Group NV, Netherlands (2009–2010)
• CEO and chairman of the management board, NXP Semiconductors NV (formerly Philips
Semiconductors NV), Netherlands (2004–2009)
• Various managerial positions at Royal Philips Electronics NV, Netherlands (1986–2004)
Mandates
• Member of the steering committee, European Round Table for Industry (ERT), Belgium
• Vice chairman and member of the supervisory board, Philips Lighting, Netherlands (2016–2017)
Education
• Master of Science in economics and business management, Erasmus University Rotterdam, Netherlands
• Bachelor of Science in economics, Erasmus University Rotterdam, Netherlands
Key skills
x Medicine/healthcare/R&D g Leadership/management l Law/regulatory/risk management
y Data/digital z Environmental, social and governance (ESG)
138
Item 6. Directors, Senior Management and Employees
Simon Moroney, D.Phil.
Board member since February 28, 2020 | Nationality: German/New Zealander | Year of birth: 1959
As co-founder and CEO of MorphoSys AG, Simon Moroney played a central role in establishing the company
as a force in the field of therapeutic antibodies, with one of the broadest pipelines of drug candidates in the
industry. Mr. Moroney holds both a doctorate and a Master of Science in chemistry.
Professional experience
• Co-founder and CEO, MorphoSys AG, Germany (1992–2019)
• Research associate, Department of Pharmacology, University of Cambridge, UK (1991–1992)
• Assistant professor, Department of Chemistry, University of British Columbia, Canada (1989–1990)
Education
• Doctorate in chemistry, University of Oxford, UK
• Master of Science in chemistry, University of Waikato, New Zealand
Key skills
x Medicine/healthcare/R&D g Leadership/management l Law/regulatory/risk management
Andreas von Planta, Ph.D.
Board member since 2006 | Nationality: Swiss | Year of birth: 1955
Andreas von Planta is a leading expert in corporate governance, corporate law and stock exchange regulation.
He advises boards of public companies on corporate governance matters and is a sought-after speaker and
writer on these topics. He has co-authored the Switzerland chapter of the International Comparative Legal
Guide to Corporate Governance for many years.
Professional experience
• Senior counsel, Lenz & Staehelin, Switzerland (2017–present)
• Partner, Lenz & Staehelin, Switzerland (1988–2017)
Mandates
• Board member, Helvetia Holding AG, Switzerland
• Board member, A.P. Moller Finance SA, Switzerland
• Board member, Helvetia Schweizerische Lebensversicherungsgesellschaft AG, Switzerland
• Board member, Helvetia Schweizerische Versicherungsgesellschaft AG, Switzerland
• Chairman, HSBC Private Bank (Suisse) SA, Switzerland
• Chairman, HSBC Private Banking Holdings (Suisse) SA, Switzerland
• Board member, Socotab Frana SA, Switzerland
• Chairman of the regulatory board, SIX Swiss Exchange AG, Switzerland
• Board member, Burberry (Suisse) SA, Switzerland
• Chairman of the audit committee, International Road Transport Union, Switzerland
• Board member, Raymond Weil SA, Switzerland (2007–2018)
• Board member and former chairman, Clinique Générale-Beaulieu SA, Switzerland (2008–2016)
• Board member and former chairman, Schweizerische National Versicherungs AG, Switzerland (1997–2015)
• Board member, Holcim AG, Switzerland (2003–2014)
Education
• Master of Laws, Columbia Law School, US
• Bar examination, Switzerland
• Doctorate in law, University of Basel, Switzerland
• Licentiatus iuris, University of Basel, Switzerland
Key skills
l Law/regulatory/risk management z Environmental, social and governance (ESG)
139
Item 6. Directors, Senior Management and Employees
Charles L. Sawyers, M.D.
Board member since 2013 | Nationality: American | Year of birth: 1959
Charles L. Sawyers is a highly accomplished expert and leader in cancer research. As a physician and
prominent scientist, he has a deep understanding of the benefits of drugs for patients and society at large,
and the importance of access to medicines. Dr. Sawyers co-developed the Novartis cancer drug Gleevec/
Glivec and has received numerous honors and awards, including the Lasker-DeBakey Clinical Medical
Research Award.
Professional experience
• Chair of the Human Oncology and Pathogenesis Program, Memorial Sloan Kettering Cancer Center, US
(2006–present)
• Professor of medicine (2008–present), and professor of cell and developmental biology (2011–present),
Weill Cornell Graduate School of Medical Sciences, US
• Investigator, Howard Hughes Medical Institute, US (2002–2006 and 2008–present)
• Associate chief, Division of Hematology-Oncology, University of California, Los Angeles, US (1996–2006)
Mandates
• Member, National Academy of Medicine, US
• Member, National Academy of Sciences, US
• Investigator, Howard Hughes Medical Institute, US
• Science advisor for the following US companies: Agios Pharmaceuticals Inc.; Arsenal Capital Partners;
BeiGene Ltd.; Blueprint Medicines Corp.; Foghorn Therapeutics Inc.; Housey Pharmaceutical Research
Laboratories; KSQ Therapeutics Inc.; Nextech Invest Ltd.; ORIC Pharmaceuticals Inc.; PMV
Pharmaceuticals Inc.; The Column Group
• Member, National Cancer Advisory Board, US (2012–2020)
• President, American Association for Cancer Research, US (2013–2014)
Education
• Doctor of medicine, Johns Hopkins University School of Medicine, US
• Bachelor of Arts, Princeton University, US
Key skills
x Medicine/healthcare/R&D g Leadership/management z Environmental, social and governance (ESG)
William T. Winters
Board member since 2013 | Nationality: British/American | Year of birth: 1961
William T. Winters has extensive leadership experience in the financial sector. He began his career at JPMorgan
Chase & Co. in 1983 and has held management roles across several market areas and in corporate finance.
Mr. Winters founded Renshaw Bay LLP, an alternative asset management firm, and now serves as CEO of
Standard Chartered PLC, where he is leading a digital transformation of the global bank.
Professional experience
• CEO, Standard Chartered PLC, UK (2015–present)
• Chairman and CEO, Renshaw Bay LLP, UK (2011–2015)
• Co-CEO of the Investment Bank, JPMorgan Chase & Co., UK (2004–2010)
• Various managerial positions at JPMorgan Chase & Co., UK and US (1983–2004)
Mandates
• Board member, Standard Chartered Bank PLC, UK
• Board member, International Rescue Committee, UK
• Chair of the board of trustees, The Coronet Theatre, UK
• Commissioner, Independent Commission on Banking, UK (2010–2011)
Education
• Master of Business Administration, Wharton School of the University of Pennsylvania, US
• Bachelor’s degree in international relations, Colgate University, US
Key skills
g Leadership/management m Finance/accounting l Law/regulatory/risk management y Data/digital
Corporate Secretary
Charlotte Pamer-Wieser, Ph.D.
140
Item 6. Directors, Senior Management and Employees
Self-assessment
Trainings
Our Board receives regular briefings and trainings on
ethics, risks and compliance, and other relevant topics.
In 2020, each Board member completed the following
e-learning courses:
• Data Privacy
• Novartis Code of Ethics
• Fit to Commit, focusing on our ethical commitments
around anti-bribery, antitrust and fair competition,
insider trading and third-party risk management
Our Chief Legal Officer also provides regular updates to our
Board members on developments related to insider trad-
ing laws and regulations. In addition, the Company offers
to its Board members a broad set of external trainings.
Role of the Board and its committees
The Board is responsible for the overall direction
and oversight of management, and holds the ultimate
decision-making authority, with the exception of deci-
sions reserved for shareholders.
The Board has delegated certain of its duties and
responsibilities to its five committees led by a Board-elected
committee chair, as set out in the Board Regulations (www.
novartis.com/investors/company-overview/corporate-gov-
ernance). In some cases, these responsibilities are of an
advisory or preparatory nature (A/P). In other cases, the
committee has decision-making power that is subject to
final Board approval (FBA), or the responsibilities have
been fully delegated to the committee (FD). All commit-
tees have the authority to retain external consultants.
Any Board member may request a Board or committee
meeting and the inclusion of an agenda item. Before
meetings, Board members receive materials to help them
prepare the discussions and decision-making.
The Board and its committees conduct a self-assess-
ment once a year, covering topics including Board com-
position, purpose, scope and responsibilities; Board pro-
cesses and governance; Board meetings and pre-reading
material; team effectiveness; and Chairman and peer
evaluation. Every third year, this process is conducted by
an independent external consultant. This last happened
in 2017 and was repeated in 2020 with the consulting
firm Egon Zehnder.
As part of the 2020 self-assessment, each Board
member filled out a questionnaire prepared by Egon
Zehnder, and then participated in an interview to share
his or her perspectives on current strengths and poten-
tial areas for development, best practices exhibited by
other boards, the contributions of each Board member,
and the interaction between the Board and the Execu-
tive Committee. Additionally, representatives from Egon
Zehnder met with each Executive Committee member
to capture his or her perspectives on how the Board
functions as a whole and interacts with the Executive
Committee, and to solicit ideas on how the Board can be
even more effective. Egon Zehnder representatives also
observed parts of a Board meeting.
In a meeting with the Chairman, Egon Zehnder first
shared the preliminary results of the in-depth assess-
ment. Thereafter, Egon Zehnder led a qualitative review
with the Board, sharing its key observations and recom-
mendations, and held individual feedback sessions with
each Board member.
The results of the 2020 in-depth assessment by Egon
Zehnder determined that the Board and its committees
are perceived as functioning well, and that the Board is
evolving positively, both in how it operates and in its com-
position. Board meetings are considered to have a high
level of transparency, and provide clarity around deci-
sions. The feedback from management on the Board’s
evaluation showed that the Executive Committee wel-
comes the longer-term perspective of the Board and the
level of strategic discussion, as well as the interactions
with individual Board members.
The report did make a number of recommendations
for the Board’s consideration, including succession plan-
ning (the right degree of continuity, diversity, and breadth
of skills), and where the Board should focus its attention,
factoring in the current challenges posed by the pandemic.
141
Item 6. Directors, Senior Management and Employees
Board of Directors
Primary responsibilities
• Strategy: decides on the ultimate direction of the Group’s business (including portfolio, markets, acquisitions and divestments)
• Structure and organization: determines major changes in the Group’s structure and organization
• Culture: oversees the strategy and implementation of the corporate culture
• Ethics and compliance: oversees the Group’s ethics and compliance framework, including the approval of fundamental
corporate policies such as the Novartis Code of Ethics
• Risk management: oversees the Group’s risk management system, the most significant risks and how these risks are managed
• Finance: determines the Group’s accounting system, financial controls and financial planning;
reviews and approves the Annual Report (including the Compensation Report)
• People and organization: nominates or appoints, removes, and determines responsibilities of key executives,
and succession planning
Key activities in 2020
• Oversaw the overall Company strategy focused on the five strategic pillars
Strategic priorities5
p i e d s
• Oversaw the COVID-19 response plan at Novartis and closely monitored, together with
the Executive Committee, the implementation of innovative solutions (e.g., the Choice
with Responsibility working model)
• Reviewed the Company’s ESG strategy and efforts, also as reflected in external ESG rankings s
• Reviewed and discussed the culture transformation and efforts to strengthen Novartis
leadership, focusing on sustainability and talent management with “big bet” solutions
(e.g., unbossed leadership experience)
p e
• Followed up on the NTO and NBS transformation programs powered by data, digital
and technology
p s
i e d
• Discussed longer-term Board succession planning and required profiles, and approved
the creation of a Lead Independent Director role1
• Agreed to propose a term limit for Board members at the 2021 AGM2
p
p
engagement and operation, and on ensuring high-quality data and clear data governance
• Focused on accelerating our drive to scale up data and digital through innovation,
• Discussed and reviewed the annual Board self-evaluation conducted by an external consultant p
i e d
Meetings
Number of meetings held
Number of members
Approximate average duration (hours)
Meeting attendance
10
14
4:46
99%
The Board met 10 times in 2020. This includes regular meet-
ings in January, April, June, August, October and December,
and additional special meetings to deal with ad hoc matters.
Board committees typically meet the day before the meetings
of the full Board. In response to the COVID-19 pandemic, the
Board seamlessly moved to virtual meetings as of April 2020.
J. Reinhardt (Chair)
E. Vanni (Vice Chairman, Lead Independent Director3)
N. Andrews
T. Buechner
P. Bula
S. Datar
E. Doherty
A. Fudge
B. Heller4
F. van Houten
S. Moroney4
A. von Planta
C. Sawyers
W. Winters
10
10
10
10
10
10
10
10
8
9
8
10
10
9
Documents
• Articles of Incorporation of Novartis AG
• Board Regulations
www.novartis.com/investors/company-overview/corporate-governance
1 See “—Item 6.C Board practices—Board of Directors—Vice Chairman and Lead Independent Director”
2 See “—Item 6.C Board practices—Board of Directors—Election and term of office”
3 As of January 1, 2021
4 Ms. Heller and Mr. Moroney were elected at the 2020 AGM and have attended all Board meetings since their election.
5 Strategic priorities:
p Unleash the power of
our people
i Deliver transformative
innovation
e Embrace operational
excellence d Go big on data and
digital
s Build trust with society
142
Item 6. Directors, Senior Management and Employees
Audit and Compliance Committee
Primary responsibilities
• Supervises the external auditor, and selects and nominates the external auditor for election by the shareholders (FD)**
• Oversees Internal Audit (FD)**
• Oversees accounting policies, financial controls, and compliance with accounting and internal control standards (FD)**
• Approves financial statements for the first three quarters of each calendar year and the corresponding financial results
releases (FD)**, and reviews the annual financial statements and the corresponding financial results releases (FBA)***
• Oversees internal control and compliance processes and procedures (FD)**
• Oversees compliance with laws, regulations and internal policies falling into its subject matter expertise (FD)**
Key activities in 2020
Strategic priorities2
• Tendered the external audit mandate for the selection of an audit firm to be proposed
to shareholders for election at the 2022 AGM1
• Evaluated the performance and nomination of the external auditor
Pricewaterhouse Coopers AG (PwC) for re-election at the 2021 AGM
• Reviewed the accounting and financial reporting, focusing in particular on those areas
involving significant risk or judgment
e
e
e
and assessed its operational stability
• Reviewed progress on the transformation of Group Financial Reporting & Accounting (FRA),
• Received the risk assessment of high-risk countries and associated plans to mitigate the risks e s
• Received reports and updates from Internal Audit; Quality; Ethics, Risk & Compliance (ERC);
e
the SpeakUp Office; Health, Safety and Environment (HSE); Tax; and Legal, and
discussed progress on identifying and remedying the root causes of issues
p s
Meetings
Number of meetings held
Number of members
Approximate average duration (hours)
Meeting attendance
Documents
8
5
2:43
100%
E. Doherty (Chair, Audit Committee Financial Expert)
T. Buechner
S. Datar (Audit Committee Financial Expert)
A. von Planta
E. Vanni
8
8
8
8
8
• Board Committees Charter, Appendix I to the Board Regulations
www.novartis.com/investors/company-overview/corporate-governance
* A/P = advisory or preparatory task
** FD = fully delegated task
*** FBA = task subject to final Board approval
1 See “—Item 6.C Board practices—Auditors—Auditor tender process”
2 Strategic priorities:
p Unleash the power of
our people
i Deliver transformative
innovation
e Embrace operational
excellence d Go big on data and
digital
s Build trust with society
143
Item 6. Directors, Senior Management and Employees
Compensation Committee
Primary responsibilities
• Designs, reviews and recommends to the Board the compensation policies and programs (FBA)***
• Advises the Board on the compensation of Board members and of the CEO (A/P)*
• Decides on the compensation of Executive Committee members (FD)**
• Prepares the Compensation Report and the Say-on-Pay brochure, and submits them to the Board for approval (FBA)***
Key activities in 2020
• Made decisions relating to Executive Committee compensation during the year
Strategic priorities3
p
innovation and ESG) to be considered in the 2020 incentive plan targets
• Determined the critical performance measures (including financial, strategic, operational,
• Reviewed the achievement of incentive plan targets for the Executive Committee members p s
• Reviewed shareholder and proxy advisor feedback related to Novartis compensation
p s
s
• Considered additional disclosures in the 2020 Compensation Report
practices and disclosures
p i e s
• Proposed appropriate peer companies for comparisons of board and executive committee
compensation, and assessed the Company’s level of compensation against the peer group s
Meetings
Number of meetings held
Number of members
Approximate average duration (hours)
Meeting attendance
Documents
6
5
2:11
100%
E. Vanni (Chair)1
P. Bula
S. Datar
B. Heller2
W. Winters
6
6
6
5
6
• Board Committees Charter, Appendix I to the Board Regulations
www.novartis.com/investors/company-overview/corporate-governance
* A/P = advisory or preparatory task
** FD = fully delegated task
*** FBA = task subject to final Board approval
1 At the 2021 AGM, Mr. Vanni will stand for re-election as member of the Compensation Committee, but will step down as committee chair. The Board proposes to shareholders the
election of Mr. Moroney as new member of the Compensation Committee. Subject to his election, the Board intends to designate Mr. Moroney as successor of Mr. Vanni in the role of
the chair. Mr. Moroney attended each Compensation Committee meeting after the 2020 AGM as a permanent guest.
2 Ms. Heller was elected at the 2020 AGM and has attended all Compensation Committee meetings since her election.
3 Strategic priorities:
p Unleash the power of
our people
i Deliver transformative
innovation
e Embrace operational
excellence d Go big on data and
digital
s Build trust with society
144
Item 6. Directors, Senior Management and Employees
Governance, Nomination and Corporate Responsibilities Committee
Primary responsibilities
• Oversees the Company’s strategy, governance and progress on ESG, global health and corporate responsibility (FBA)***
• Recommends to the Board corporate governance best practices (FBA)***
• Reviews periodically the Articles of Incorporation and Board Regulations, with a view to fostering shareholder rights (FD)**
• Reviews regularly the composition and size of the Board and its committees (FBA)***
• Identifies new Board member candidates and recommends to the Board whether existing Board members
should stand for re-election (FBA)***
• Prepares and reviews succession plans for the Chairman, the Vice Chairman, the Lead Independent Director,
Board members, committee members and chairs, and the CEO (FBA)***
• Reviews annually the independence of each Board member (FBA)***
• Reviews directorships and agreements of Board members for conflicts of interest, and deals with conflicts of interest (FBA)***
Key activities in 2020
Strategic priorities3
• Evaluated sustainability at Novartis, focusing on material ESG factors, strategy and
corresponding short- and mid-term ESG targets, and ways to leverage Novartis ESG efforts s
s
• Assessed ESG rating agency scores and identified potential gaps
• Reviewed access-to-medicine and global health targets announced in September, as well as
the issuance of an innovative sustainability-linked bond
• Discussed the progress of the Global Health & Corporate Responsibility function,
including the COVID-19 response such as the creation of donation funds worth up to
USD 40 million to support communities impacted by the pandemic
• Received an update on the patient advocacy key achievements in 2020 and discussed
the priorities for 2021
• Discussed the succession of Board and committee members (including committee chairs),
taking into account upcoming retirements and the desire to increase diversity
• Discussed and recommended to the Board the creation of a Lead Independent Director role1
and the introduction of a term limit for Board members2
• Reviewed the skill matrix and independence of the Board
• Discussed the format of the 2021 AGM
s
s
s
p
p
p
s
Meetings
Number of meetings held
Number of members
Approximate average duration (hours)
Meeting attendance
Documents
4
5
1:53
100%
A. von Planta (Chair)
A. Fudge
C. Sawyers
E. Vanni
W. Winters
4
4
4
4
4
• Board Committees Charter, Appendix I to the Board Regulations
www.novartis.com/investors/company-overview/corporate-governance
* A/P = advisory or preparatory task
** FD = fully delegated task
*** FBA = task subject to final Board approval
1 See “—Item 6.C Board practices—Board of Directors—Vice Chairman and Lead Independent Director”
2 See “—Item 6.C Board practices—Board of Directors—Election and term of office”
3 Strategic priorities:
p Unleash the power of
our people
i Deliver transformative
innovation
e Embrace operational
excellence d Go big on data and
digital
s Build trust with society
145
Item 6. Directors, Senior Management and Employees
Risk Committee
Primary responsibilities
• Oversees the risk management system and processes (FBA)***
• Reviews, together with management, the prioritization and handling of risks, the risk portfolio,
and actions implemented by management (FBA)***
• Performs deep dives into key risk areas and fosters a culture of smart risk-taking (FBA)***
Key activities in 2020
• Reviewed and discussed the Company’s Third-Party Risk Management program
• Analyzed the Company’s launch excellence, including risks and challenges
• Discussed the culture transformation and how to engage Novartis leaders in the process
• Received two updates on cybersecurity from the Chief Information Security Officer
• Evaluated various risks and their coverage (e.g., developments in EU data privacy)
• Analyzed pricing developments
• Reviewed the NTO transformation and the risk management framework
• Reviewed the Enterprise Risk Management (ERM) results
Strategic priorities1
e s
i e
p s
d
e
e
i e
e
Meetings
Number of meetings held
Number of members
Approximate average duration (hours)
Meeting attendance
Documents
4
5
2:10
100%
S. Datar (Chair)
N. Andrews
T. Buechner
E. Doherty
A. von Planta
4
4
4
4
4
• Board Committees Charter, Appendix I to the Board Regulations
www.novartis.com/investors/company-overview/corporate-governance
* A/P = advisory or preparatory task
** FD = fully delegated task
*** FBA = task subject to final Board approval
1 Strategic priorities:
p Unleash the power of
our people
i Deliver transformative
innovation
e Embrace operational
excellence d Go big on data and
digital
s Build trust with society
146
Item 6. Directors, Senior Management and Employees
Science & Technology Committee
Primary responsibilities
• Monitors emerging scientific, data-related, technological and research trends and issues,
and brings recommendations to the Board (FBA)***
• Periodically informs the Board about critical developments for the success of the portfolio and for scientific,
technological and research activities as well as benchmarking (A/P)*
• Assists the Board with setting the Company’s strategy for science, data, technology and research (A/P)*
• Assists the Board with oversight and evaluation of the performance of the Company’s scientific, technological,
and research and development activities (FBA)***
• Reviews performance and proposed targets in the area of science, technology and research (FD)**
• Reviews such other matters in relation to science, data, technology and research as the committee may,
in its own discretion, deem desirable in connection with its responsibilities (A/P)*
Key activities in 2020
Strategic priorities2
• Expanded its scope to digital technology and implemented name change from
Research & Development Committee to Science & Technology Committee
• Reviewed the Company’s digitization process and discussed the further development
of the digital investment
• Reviewed an external assessment of the portfolio and productivity of Novartis research
and development
• Discussed the cardiovascular, renal and metabolism; ophthalmology; and
d
i d
i e
i
hematology portfolios
Meetings
Number of meetings held
Number of members
Approximate average duration (hours)
Meeting attendance
3
6
7:10
100%
J. Reinhardt (Chair)
N. Andrews
A. Fudge
F. van Houten
S. Moroney1
C. Sawyers
3
3
3
3
3
3
Documents
• Board Committees Charter, Appendix I to the Board Regulations
www.novartis.com/investors/company-overview/corporate-governance
* A/P = advisory or preparatory task
** FD = fully delegated task
*** FBA = task subject to final Board approval
1 Mr. Moroney was elected at the 2020 AGM and has attended all Science & Technology Committee meetings since his election.
2 Strategic priorities:
p Unleash the power of
our people
i Deliver transformative
innovation
e Embrace operational
excellence d Go big on data and
digital
s Build trust with society
147
Item 6. Directors, Senior Management and Employees
Chairman
The Chairman leads the Board to represent the interests
of all stake holders, and ensures an appropriate balance
of power between the Board and the Executive Commit-
tee. In this role, he:
• Provides leadership to the Board
• Supports and mentors the CEO
• Ensures that the Board and its committees work
effectively
• Sets the agenda, style and tone of Board discus-
sions, promoting constructive dialogue and effective
decision-making
• Ensures onboarding programs for new Board members,
and continuing education and specialization for all Board
members
• Ensures the Board’s annual performance evaluation
• Promotes effective relationships and communication
between Board and Executive Committee members
• Ensures effective communication with the Company’s
shareholders, other stakeholders and the public
Vice Chairman and
Lead Independent Director
The roles of the Vice Chairman and the Lead Inde-
pendent Director can be held by two Board members or
by one Board member (combined role).
The Board appointed Enrico Vanni as Vice Chairman
and Lead Independent Director (combined role) effec-
tive as of January 1, 2021. With his long-standing expe-
rience, Mr. Vanni will help shape the role of the Lead Inde-
pendent Director during his remaining time on the Board.
Honorary Chairmen
Alex Krauer and Daniel Vasella have been appointed Hon-
orary Chairmen in recognition of their significant achieve-
ments on behalf of Novartis. They are not provided with
Board documents and do not attend Board meetings.
Mandates outside the Novartis Group
According to article 34, paragraph 1 of the Articles of
Incorporation
(www.novartis.com/investors/company-
overview/corporate-governance), the following limitations
on mandates apply:
Maximum number
of mandates
10
4
Until December 31, 2020, the Vice Chairman had the fol-
lowing responsibilities:
• Leads the Board in case and as long as the Chairman
Mandates
Other listed companies 1
is incapacitated
• Chairs the sessions of the independent Board mem-
bers, and leads the independent Board members if and
as long as the Chairman is not independent
• Leads the yearly session of the Board members to
evaluate the performance of the Chairman, during which
the Chairman is not present
To support adequate control mechanisms, the Board
amended, with effect as of January 1, 2021, the Board
Regulations (www.novartis.com/investors/company-over-
view/corporate-governance) to introduce the additional
role of the Lead Independent Director with the follow-
ing duties:
• Chairs the sessions of the independent Board members
• Leads the independent Board members in case of a
crisis or matter requiring their separate consideration
or decision
The Vice Chairman will continue to lead the Board in case
and as long as the Chairman is incapacitated. In addition,
the Vice Chairman leads the Board’s annual assessment
of the Chairman.
1 Chairmanship of the board of directors in other listed companies counts as two
mandates.
According to article 34, paragraph 3 of the Articles of
Incorporation (www.novartis.com/investors/company-
overview/corporate-governance), the following man-
dates are not subject to the above-mentioned limitations:
Maximum number
of mandates
Mandates in companies that are controlled by Novartis AG
No limit
Mandates held at the request of Novartis AG
or companies controlled by it
Mandates in associations, charitable organizations,
foundations, trusts and employee welfare foundations
5
10
“Mandates” means those in the supreme governing body
of a legal entity that is required to be registered in the
commercial register or a comparable foreign register.
Mandates in different legal entities that are under joint
control are deemed one mandate.
148
Item 6. Directors, Senior Management and Employees
Executive Committee
Composition (as per December 31, 2020)
Vasant (Vas) Narasimhan
Chief Executive Officer
Steven Baert
Chief People &
Organization Officer
Shannon Thyme Klinger
Chief Legal Officer
Bertrand Bodson1
Chief Digital Officer
James (Jay) Bradner
President of the Novartis Institutes
for BioMedical Research (NIBR)
Harry Kirsch
Chief Financial Officer
Steffen Lang
Global Head of Novartis
Technical Operations (NTO)
Klaus Moosmayer
Chief Ethics, Risk
& Compliance Officer
Susanne Schaffert
President of
Novartis Oncology
John Tsai
Head of Global Drug Development
and Chief Medical Officer
Marie-France Tschudin
President of
Novartis Pharmaceuticals
Richard Saynor
Chief Executive Officer
of Sandoz
Robert Weltevreden1
Head of Novartis
Business Services (NBS)
1 Effective February 1, 2021, the Digital function will be merged with NBS to form a new Customer & Technology Solutions (CTS) unit, which Mr. Weltevreden has been appointed to
lead. Mr. Bodson will step down from the Executive Committee on February 1, 2021.
Role of the Executive Committee
CEO
The Board has appointed the Executive Committee
members and delegated to them the overall responsi-
bility for and oversight of the operational management
of Novartis, including:
• Recruiting, appointing and promoting senior management
• Ensuring the efficient operation of the Group and the
achievement of optimal results
• Promoting an active internal and external communi cations
policy
• Developing policies and strategic plans for Board
approval, and implementing those approved
• Submitting the following to the Board for approval:
investments, divestments, transactions, contracts and
litigations with a value exceeding USD 500 million, cap-
ital market and other important financing transactions,
as well as all other matters of fundamental significance
to the Novartis Group
With the support of the Executive Committee, the CEO is
responsible for the operational management of Novartis.
This includes effectively implementing the Company strat-
egy, delivering financial results, and shaping a corporate
culture of empowerment and responsibility to help drive
innovation, performance and reputation.
In addition to other Board-assigned duties, the CEO
leads the Executive Committee, building and maintaining
an effective executive team. With the support of the
Executive Committee, the CEO is responsible for:
• Ensuring Novartis has the capabilities to achieve its
long-term strategic objectives
• Developing robust management succession and devel-
opment plans for presentation to the Board
• Promoting effective communication with shareholders
and other stakeholders
• Ensuring Novartis conducts its business in a legal and
• Preparing and submitting quarterly and annual reports
ethical manner
to the Board and its committees
• Developing an effective risk control framework for all
• Informing the Board of all matters of fundamental sig-
business activities
nificance to the businesses
• Ensuring the flow of information to the Board is accurate,
• Dealing with any other matters delegated by the Board
timely and clear
There are no contracts between Novartis and third par-
ties whereby Novartis would delegate any business man-
agement tasks to such third parties.
149
NATIONALITY
NATIONALITY
GENDER
GENDER
EXECUTIVE/NON-EXECUTIVE
EXECUTIVE/NON-EXECUTIVE
INDEPENDENCE
INDEPENDENCE
Item 6. Directors, Senior Management and Employees
Diversity
The composition as of December 31, 2020, in terms of nationality, gender, age and length of tenure, is shown in
the following charts:
Diversity profile
NATIONALITY
NATIONALITY
Nationality1
BACKGROUND/EXPERIENCE
GENDER
BACKGROUND/EXPERIENCE
Gender
GENDER
AGE
AGE
EXECUTIVE/NON-EXECUTIVE
EXECUTIVE/NON-EXECUTIVE
Age
TENURE
TENURE
Tenure
INDEPENDENCE
INDEPENDENCE
p American
p German
p Swiss
p Belgian
p Dutch
p British
31%
23%
15%
15%
8%
8%
p Male
p Female
77%
23%
p <45
p 45–50
p >50
8%
38%
54%
p <2 y
p 2–4 y
p >4 y
23%
62%
15%
1 Please note that two Executive Committee members have two nationalities. Each of these nationalities is counted as a half in the above chart.
BACKGROUND/EXPERIENCE
BACKGROUND/EXPERIENCE
Mandates outside the Novartis Group
AGE
AGE
According to article 34, paragraph 2 of the Articles of
Incorporation (www.novartis.com/investors/company-
overview/corporate-governance), the following limitations
on mandates apply:
TENURE
According to article 34, paragraph 3 of the Articles of
TENURE
Incorporation (www.novartis.com/investors/company-
overview/corporate-governance), the following mandates
are not subject to above-mentioned limitations:
Maximum number
of mandates
Mandates
Other listed companies 1
Maximum number
of mandates
6
2
Mandates in companies that are controlled by Novartis AG
No limit
Mandates held at the request of Novartis AG
or companies controlled by it
Mandates in associations, charitable organizations,
foundations, trusts and employee welfare foundations
5
10
1 Chairmanship of the board of directors in other listed companies is not allowed.
“Mandates” means those in the supreme governing body
of a legal entity that is required to be registered in the
commercial register or a comparable foreign register.
Mandates in different legal entities that are under joint
control are deemed one mandate.
150
Item 6. Directors, Senior Management and Employees
Members of the Executive Committee
Vasant (Vas) Narasimhan, M.D.
Chief Executive Officer of Novartis since 2018 | Nationality: American | Year of birth: 1976
Professional experience
• Global Head of Drug Development and Chief Medical Officer, Novartis AG, Switzerland (2016–2018)
• Global Head of Development, Novartis Pharmaceuticals, Switzerland (2014–2016)
• Global Head of Biopharmaceuticals and Oncology Injectables, Sandoz International, Germany (2014)
• Global Head of Development, Novartis Vaccines, US (2012–2014)
• North America Region Head, Novartis Vaccines, and US Country President, Novartis Vaccines and
Diagnostics, US (2008–2012)
• Joined Novartis in 2005
Mandates
• Member, National Academy of Medicine, US
• Board member, African Parks Network, South Africa
• Committee member, Biopharmaceutical CEOs Roundtable (BCR), International Federation of
Pharmaceutical Manufacturers & Associations (IFPMA), Switzerland
• Member of the board of fellows, Harvard Medical School, US
• Board member, Pharmaceutical Research and Manufacturers of America (PhRMA), US
Education
• Doctor of medicine, Harvard Medical School, US
• Master’s degree in public policy, John F. Kennedy School of Government, Harvard University, US
• Bachelor’s degree in biological sciences, University of Chicago, US
Steven Baert
Chief People & Organization Officer of Novartis since 2014 | Nationality: Belgian | Year of birth: 1974
Professional experience
• Global Head of Human Resources, Novartis Oncology, Switzerland (2012–2014)
• Head of Human Resources for the US and Canada, Novartis Pharmaceuticals, US (2009–2012)
• Head of Human Resources for Emerging Growth Markets, Novartis Pharmaceuticals,
Switzerland (2008–2009)
• Head of Human Resources Global Functions, Novartis Pharmaceuticals, Switzerland (2006–2008)
Mandates
• Board member, WeSeeHope charity, US
• Represented Novartis on the board of GlaxoSmithKline Consumer Healthcare Holdings Ltd. (2015–2018)
Education
• Master of Business Administration, Vlerick Business School, Belgium
• Master of Laws, Katholieke Universiteit Leuven, Belgium
• Bachelor of Laws, Katholieke Universiteit Brussels, Belgium
Bertrand Bodson
Chief Digital Officer of Novartis from 2018 through January 31, 2021 | Mr. Bodson will step down from the Executive
Committee on February 1, 2021 | Nationality: Belgian | Year of birth: 1975
Professional experience
• Chief digital and marketing officer, Sainsbury’s Argos, UK (2013–2017)
• Executive vice president of the global digital business, EMI Music, UK (2010–2013)
• Co-founder and CEO, Bragster.com, UK (2006–2010)
• Senior group product manager, Amazon Inc., US and UK (2003–2006)
Mandates
• Member of the supervisory board, Wolters Kluwer NV, Netherlands
• Board member, Electrocomponents PLC, UK (2015–2021)
Education
• Master of Business Administration, Harvard Business School, US
• Master’s degree in commercial engineering, Solvay Business School, Belgium/McGill University, Canada
151
Item 6. Directors, Senior Management and Employees
James (Jay) Bradner, M.D.
President of the Novartis Institutes for BioMedical Research (NIBR) since 2016 | Nationality: American |
Year of birth: 1972
Professional experience
• Associate professor, Department of Medicine, Harvard Medical School, US (2014–2016)
• Assistant professor, Department of Medicine, Harvard Medical School, US (2010–2014)
• Attending physician, Department of Medical Oncology, Dana-Farber Cancer Institute, US (2005–2015)
• Co-founder of five biotechnology companies
• Co-author of more than 250 scientific publications and 50 US patent applications
Mandates
• Science advisor for the Abdul Latif Jameel Clinic for Machine Learning in Health, Massachusetts
Institute of Technology, US, and for Brigham and Women’s Hospital, US
• Chairman, Genomics Institute of the Novartis Research Foundation, US
Education
• Doctor of medicine, University of Chicago Pritzker School of Medicine, US
• Bachelor’s degree in biochemistry, Harvard University, US
• Postdoctoral training in chemistry and chemical biology, Harvard University, US
• Fellowship in medical oncology and hematology, Dana-Farber Cancer Institute, US
• Residency in medicine, Brigham and Women’s Hospital, US
Harry Kirsch
Chief Financial Officer of Novartis since 2013 | Nationality: German/Swiss | Year of birth: 1965
Professional experience
• Chief Financial Officer of the Pharmaceuticals Division (now known as the Innovative Medicines Division),
Novartis Pharmaceuticals, Switzerland (2010-2013)
• Chief Financial Officer of Pharma Europe, Novartis Pharmaceuticals, Switzerland (2008–2010)
• Head of Business Planning & Analysis for the Pharmaceuticals Division, Novartis Pharmaceuticals,
Switzerland (2005–2008)
• Joined Novartis in 2003 as Head Finance Global Primary Care, and over the years held positions of
increasing responsibility within Finance
Mandates
• Represented Novartis on the board of GlaxoSmithKline Consumer Healthcare Holdings Ltd. (2015–2018)
Education
• Diploma degree in industrial engineering and economics, University of Karlsruhe, Germany
Shannon Thyme Klinger
Chief Legal Officer of Novartis since 2018 | Nationality: American | Year of birth: 1971
Professional experience
• Chief Ethics, Risk & Compliance Officer, Novartis AG, Switzerland (April–May 2018)
• Chief Ethics and Compliance Officer and Global Head of Litigation, Novartis AG, Switzerland (2016–2018)
• General Counsel and Global Head of Legal, Sandoz International, Germany (2012–2016)
• General Counsel for North America, Sandoz Inc., US (2011–2012)
• Partner, Mayer Brown LLP, US (2010–2011)
• General counsel and senior vice president, Solvay Pharmaceuticals Inc., US (2008–2010)
Mandates
• Board member, SwissHoldings, the Swiss federation of industrial and service groups, Switzerland
• Board member, SIX Group, Switzerland (2016–2020)
Education
• Bar memberships: State of Georgia, District of Columbia, US
• Juris doctor with honors, University of North Carolina at Chapel Hill, US
• Bachelor’s degree in psychology, University of Notre Dame, US
Steffen Lang, Ph.D.
Global Head of Novartis Technical Operations (NTO) since 2017 | Nationality: German/Swiss | Year of birth: 1967
Professional experience
• Global Head of Biologics Technical Development and Manufacturing, Novartis Technical Operations,
Switzerland (2015–2017)
• Global Head of Technical Research and Development, Novartis Pharmaceuticals, Switzerland (2009–2015)
• Joined Novartis in 1994 as Head of Laboratory in Research, and over the years held positions of
increasing responsibility within Pharmaceuticals Development
Mandates
• Board member, Bachem Holding AG, Switzerland
Education
• Doctorate in pharmaceutical technology, Swiss Federal Institute of Technology, Switzerland
• Master’s degree in pharmaceutical sciences, University of Heidelberg, Germany
152
Item 6. Directors, Senior Management and Employees
Klaus Moosmayer, Ph.D.
Chief Ethics, Risk & Compliance Officer of Novartis since 2018 | Nationality: German | Year of birth: 1968
Professional experience
• Chief compliance officer, Siemens AG, Germany (2014–2018)
• Chief counsel compliance, Siemens AG, Germany (2009–2013)
• Compliance operating officer, Siemens AG, Germany (2007–2009)
Mandates
• Vice chair, Business at OECD (BIAC) executive board, Paris
• Member of the advisory panel, Pharmaceutical Supply Chain Initiative, US
• Co-founder and board member, European Chief Compliance and Integrity Officers’ Forum
• Chair of the Anti-Corruption Committee of the Business and Industry Advisory Committee (BIAC),
Organization for Economic Co-operation and Development (OECD), Paris (2013–2020)
• Co-chair, B20 Integrity & Compliance Task Force under the G20 presidency of Saudi Arabia (2020)
• Co-chair, B20 Integrity & Compliance Task Force under the G20 presidency of Argentina (2018)
• Chair, B20 Integrity & Compliance Task Force under the G20 presidency of Germany (2017)
Education
• First and second state examination in law, Germany
• Doctor of jurisprudence, University of Freiburg, Germany
Richard Saynor
Chief Executive Officer of Sandoz since 2019 | Nationality: British | Year of birth: 1967
Professional experience
• Senior vice president of classic and established products, and commercial and digital platforms,
GlaxoSmithKline (GSK) Pte. Ltd., UK (March–June 2019)
• Senior vice president and global head of classic and established products, GSK, UK (2014–2019)
• Senior vice president and global head of established products, GSK, UK (2013–2014)
• Senior vice president of classic brands and generics for Europe, Japan, and the emerging markets and
Asia-Pacific (EMAP) region, GSK, Singapore (2010–2013)
• Region Head of Asian Markets, Sandoz International, Singapore (2008–2010)
• Region Head of Asia-Pacific, Latin America, Canada and Turkey, Sandoz International, Germany (2005–2008)
Mandates
• Member, Royal Pharmaceutical Society, UK
• Board member, GSK India, India (2018–2019)
Education
• Bachelor of Pharmacy, University of Bradford, UK
Susanne Schaffert, Ph.D.
President of Novartis Oncology since 2019 | Nationality: German | Year of birth: 1967
Professional experience
• Chairperson and President, Advanced Accelerator Applications, Switzerland (2018–2019)
• General Manager of Europe, Novartis Oncology, Italy (2012–2018)
• Global Head of Investor Relations, Novartis AG, Switzerland (2010–2012)
• Global Franchise Head for Immunology and Infectious Diseases, Novartis AG, Switzerland (2009–2010)
• General Manager of Northern and Central Europe, Novartis Oncology, Italy (2007–2009)
• General Manager of Germany, Novartis Oncology, Germany (2004–2007)
Mandates
• Board member, Novartis AG, Germany
• Board and executive committee member, European Federation of Pharmaceutical Industries and
Associations (EFPIA), Belgium
• Represented Novartis on the board of GlaxoSmithKline Consumer Healthcare Holdings Ltd. (2015–2018)
Education
• Doctorate in organic chemistry, University of Erlangen, Germany
John Tsai, M.D.
Head of Global Drug Development and Chief Medical Officer for Novartis since 2018 | Nationality: American |
Year of birth: 1967
Professional experience
• Chief medical officer and senior vice president of Global Medical, Amgen Inc., US (2017–2018)
• Global head of clinical development for marketed products, Bristol-Meyers Squibb Co. (BMS), US (2016–2017)
• Full development team leader in oncology, BMS, US (2015–2016)
• Head of Worldwide Medical, BMS, US (2014–2015)
• Chief medical officer for Europe, BMS, France (2012–2014)
• Vice president of US Medical, BMS, US (2010–2012)
• Vice president of Cardiovascular Medical, BMS, US (2006–2010)
Education
• Doctor of medicine, University of Louisville School of Medicine, US
• Bachelor of Science in electrical engineering, Washington University in St. Louis, US
153
Item 6. Directors, Senior Management and Employees
Marie-France Tschudin
President of Novartis Pharmaceuticals since 2019 | Nationality: Swiss | Year of birth: 1971
Professional experience
• President, Advanced Accelerator Applications, France (March–June 2019)
• Europe Region Head, Novartis Pharmaceuticals, Switzerland (2017–2019)
• Corporate vice president of hematology and oncology for Europe, the Middle East and Africa, Celgene
International, Switzerland (2014–2016)
• Regional vice president of northern Europe, Celgene International, Switzerland (2012–2014)
• General manager of Austria, Switzerland, the Czech Republic, Poland, Slovenia and Slovakia, Celgene
International, Switzerland (2009–2011)
• Country manager of Switzerland, Celgene International, Switzerland (2008–2009)
Mandates
• Board member, AXA, France
Education
• Master of Business Administration, IMD business school, Switzerland
• Bachelor of Science, Georgetown University, US
Robert Weltevreden
Head of Novartis Business Services (NBS) from 2018 through January 31, 2021 | Head of Customer &
Technology Solutions (CTS) as of February 1, 2021 | Nationality: Dutch | Year of birth: 1969
Professional experience
• Head of business services, Syngenta AG, Switzerland (2015–2017)
• Head of business process management, Syngenta AG, Switzerland (2014)
• Head of finance services, Syngenta AG, Switzerland, (2009–2014)
• Chief financial officer of the Asia-Pacific region, Syngenta Crop Protection AG, Singapore (2007–2009)
Education
• Master’s degree in international finance, economics and business administration, Erasmus University
Rotterdam, Netherlands
• Master of Business Administration in financial management, Vlerick Business School, Belgium
154
Item 6. Directors, Senior Management and Employees
Information and control systems
The Board’s information and control systems vis-à-vis man-
agement include a steady flow of information from senior
management; monthly financial reports; a comprehensive
and integrated risk management framework; an integrated
assurance framework; and the independent evaluation of
our risk management and internal control framework by
Novartis Business Assurance & Advisory (NBAA).
Information from senior management
The Board ensures that it receives sufficient information
from the Executive Committee through:
• Monthly CEO reporting (including detailed written
updates from each division and business unit head),
frequent communications from the CEO on current
developments, and a yearly presentation
• Executive Committee meeting minutes
• Regular meetings/teleconferences by the Board and/
or Board committees with the CEO and/or other mem-
bers of the Executive Committee (e.g., the CFO, the
Chief Legal Officer, the Chief Ethics, Risk & Compli-
ance Officer), and occasional meetings/teleconfer-
ences with senior management (e.g., the Global Head
of NBAA and Head of Internal Audit)
• Information from Executive Committee members or
other Novartis associates, and visits to Novartis sites
To get an outside view, the Board and/or Board com-
mittees occasionally invite external advisors (e.g., the
independent advisor of the Compensation Committee,
the external auditor) to attend a meeting and/or repre-
sent a specific topic.
Monthly financial reports
Novartis produces comprehensive, consolidated (unau-
dited) financial statements on a monthly basis for the
Group and its operating divisions. These are typically
available within 10 days after the end of the month, and
include the following:
• Consolidated income statement of the month and year to
date, in accordance with International Financial Report-
ing Standards (IFRS), as well as adjustments to arrive
at core results, as defined by Novartis (see “Item 5.
Operating and Financial Review and Prospects—Item
5.A Operating results—Non-IFRS measures as defined
by Novartis”). The IFRS and core figures are compared
to the prior-year period and targets in both USD and
on a constant currency basis.
• Supplementary data on a monthly and year-to-date
basis, such as free cash flow and earnings per share
on a USD basis
Management information related to the consolidated
income statements and free cash flow is made available
to Board members through the monthly CEO Report,
including an analysis of key deviations from the prior
year or target.
Prior to the release of each quarter’s results, the Board
receives the actual consolidated financial statement infor-
mation and an outlook of the full-year results in accor-
dance with IFRS and core results (as defined by Novartis),
together with related commentary.
Annually, in the middle of the year, the Board approves
the Company’s strategic plan for the next three years. In
the fourth quarter of the year, the Board approves the
operating targets for the following year as well as the
financial targets for the following three-year period,
including a projected consolidated income statement in
USD prepared in accordance with IFRS and non-IFRS
measures as defined by Novartis (core results).
The Board does not have direct access to the Novartis
financial and management reporting systems but can, at
any time, request more detailed information.
155
Item 6. Directors, Senior Management and Employees
Enterprise Risk Management framework
The Ethics, Risk & Compliance (ERC) function provides
an integrated ERM framework to obtain a holistic view of
Company risks and drive a culture of smart risk-taking.
Under the leadership of the Chief Ethics, Risk & Compli-
ance Officer, the Risk & Resilience team is responsible
for the overall ERM process. This process covers, but is
not limited to covering, risks associated with:
• The research, development, manufacturing, marketing
and sales of products
• Finance; taxes; intellectual property; compliance with law
and regulations; security; product safety; human resources;
and health, safety and environmental protection
• Business objectives and strategies, including mergers
and acquisitions
• External factors such as the social, political and eco-
nomic environment
The ERM process continued to evolve in 2020 based on
the Company’s changing needs. The Risk & Resilience
team conducted risk workshops and collaborated with
all risk assurance functions to identify key risks across
the Company. Each Novartis unit organized a focused
risk workshop at the leadership team level. In parallel,
risk workshops were held in the top 11 countries (by rev-
enue) and in certain focus markets. Once key risks were
identified, mitigation action plans were created to effec-
tively address them. The findings from these workshops
were consolidated into the Novartis Risk Compass, which
enables senior management, the Executive Committee
and the Board to focus discussions on key risks and more
closely align our corporate strategy with our risk expo-
sure and ways of working.
In 2020, we strengthened our ERM framework within
the Novartis Risk & Resilience organization by further
developing certain components. In addition to the ERM,
Business Continuity Management (BCM) and Novartis
Emergency Management (NEM) functions, we now have
a Risk & Internal Control department to provide a holis-
tic control framework, and a team to support Enterprise
Policy Management (EPM).
Risk management
Overview
At Novartis, our continued success depends on our ability
to manage risk. Our Board has ultimate oversight of the
Enterprise Risk Management (ERM) system and regularly
reviews the most significant risks and how these risks are
managed. As further explained below, the Board is sup-
ported by its committees. Furthermore, our NBAA function
provides an independent evaluation of risk management
(see “—Item 6.C Board practices—Information and con-
trol systems—Novartis Business Assurance & Advisory”).
BOARD COMMITTEES
RISK COMMITTEE
• Oversees the risk management system and processes
• Reviews, together with management, the prioritization and handling
of risks, the risk portfolio, and actions implemented by management
• Performs deep dives into key risk areas and fosters a culture of
smart risk-taking
• Receives updates at its four annual meetings from designated risk
owners as well as the Chief Ethics, Risk & Compliance Officer and/
or the Head of Risk & Resilience
AUDIT AND COMPLIANCE COMMITTEE
• Ensures that Internal Audit plans are aligned with key risks and that
the function provides independent assurance and insights around
these risks
• Works closely with the Risk Committee to minimize gaps in
risk coverage
• Reviews the integrated assurance report with the Chief Ethics,
Risk & Compliance Officer and the Global Head of NBAA
and Head of Internal Audit
• Receives biannually a presentation from the Chief Ethics,
Risk & Compliance Officer
• Pays particular attention to financial risk
• Has closed sessions individually with the Chief Ethics,
Risk & Compliance Officer and the Global Head of NBAA
and Head of Internal Audit
COMPENSATION COMMITTEE
• Works closely with the Risk Committee to ensure that the
compensation system does not lead to excessive risk-taking
(see “—Item 6.B Compensation—Compensation governance—
Risk management principles”)
EXECUTIVE COMMITTEE OF NOVARTIS
• Regularly assesses risks and fosters a culture of risk awareness,
in line with the Novartis Values and Behaviors and the Novartis
Code of Ethics
ETHICS, RISK & COMPLIANCE
• Governs the Novartis Code of Ethics
• Provides an integrated ERM framework (further described in the
following section)
• Governs the global compliance program within Novartis
SENIOR LEADERS OF DIVISIONS, ORGANIZATIONAL UNITS
AND GROUP FUNCTIONS, AT ALL LEVELS
• Provide appropriate risk management within their area of
responsibility
• Establish adequate risk prevention and mitigation strategies when
risk exposure is identified, including tracking progress and providing
resources for possible actions
• Assess emerging risks, trends and overall exposure as part of the
ERM process
156
Item 6. Directors, Senior Management and Employees
Novartis Business Assurance
& Advisory
NBAA brings together the SpeakUp Office, Internal Audit
and Global Security. NBAA supports Novartis in achiev-
ing its objectives and culture transformation; identifying
and managing major risks; and complying with policies,
laws and regulations. NBAA conducts fair, timely and
thorough investigations, and proactively shares insights,
best practices, ongoing findings and root causes with the
business to foster continuous learning.
SpeakUp Office
Our SpeakUp Office provides a safe place for associates
to report potential misconduct. They have the option to
do so anonymously.
Internal Audit
Our Internal Audit function executes the risk-based annual
audit plan approved by the ACC at the Group and entity
levels, and reports the results to the audited units, the
Executive Committee and the ACC (in the form of formal
quarterly presentations and audit report executive sum-
maries). Potential material irregularities are escalated to
the ACC and to the SpeakUp Office for triage and possi-
ble investigation, and action plans are developed together
with the audited units. Internal Audit conducts desktop
follow-up for high-risk findings prior to the due date for
remediation actions. If the audit opinion is “needs major
improvement,” a follow-up audit takes place the next year.
Audit findings and action plans are stored and monitored
in a single application to enable efficient follow-up.
In 2020, a larger portion of the audit plan was dedi-
cated to advisories, enabling more proactive risk man-
agement and forward-looking collaboration with the busi-
ness. Additionally, Internal Audit developed a new approach
called “internal reviews” to cover smaller markets, units
that have not been audited for more than five years, and
follow-up visits on “needs improvement” audits. The fol-
lowing outlines the number of audits, internal reviews
and advisories performed in 2020, and key topics that
we repeatedly observed in our work.
2020 INTERNAL AUDIT ACTIVITIES AND OBSERVATIONS
AUDITS
39
INTERNAL REVIEWS
6
ADVISORIES
17
Recurring observations relate to:
3 Governance of data, data
management, and oversight of
digital initiatives
3 IT security
3 Third-party management
3 Design of commercial
processes, and applications
of systems and policies
3 Patient support programs and
managed access programs
We performed 81% of planned activities (equating to
62 engagements) in 2020, most conducted remotely,
despite the obstacles created by COVID-19. These engage-
ments comprised 39 audits, 17 advisories and six internal
reviews covering the entire value chain of Novartis and
key risks. Internal Audit continues to invest in and refine
its remote audit methodology.
NBAA and ERC continue to work toward integrated
assurance by improving collaboration with other Novartis
risk and assurance providers. This includes the coordi-
nation of internal plans, alignment on messaging and
reporting, and increased communication around poten-
tial issues and risks.
NBAA leadership
Our Global Head of NBAA and Head of Internal Audit
reports administratively to the CEO, and functionally to
the Chair of the ACC, and meets with the latter and the
Chairman of the Board at least quarterly. She has full
access to the ACC and the Chairman of the Board, and
confirms the organizational independence of the Inter-
nal Audit function annually to the ACC.
157
Item 6. Directors, Senior Management and Employees
Auditors
Duration of the mandate
and terms of office
On behalf of the Board, the ACC selects and nominates
an independent auditor for election at the AGM. PwC
assumed its existing auditing mandate for Novartis in
1996. Luc Schulthess, auditor in charge, began serving in
his role in 2018, and Kris Muller, global relationship part-
ner, began serving in her role in 2019. The ACC together
with PwC ensure that these partners are rotated at least
every five years.
Auditing fees and additional fees
The ACC monitors and preapproves the fees paid to the
external auditor for all audit and non-audit services. It has
developed and approved a policy with clear guidelines on
the engagement of the independent auditor firm. This pol-
icy is designed to help ensure that the independence of the
external auditor is maintained. It limits the scope of ser-
vices that the external auditor may provide to the Group,
stipulating certain permissible types of audit-related and
non-audit services, including tax services and other ser-
vices that have been preapproved by the ACC. The ACC
preapproves all other services on a case-by-case basis.
The external auditor is required to report periodically
to the ACC about the scope of the services it has pro-
vided to the Group and the fees for the services it has
performed to date. PwC fees for professional services
related to the 12-month periods ended December 31,
2020, and December 31, 2019, are as follows:
Audit services
Audit-related services
Tax services
Other services
Total
2020
USD million
2019
USD million
20.5
1.4
0.4
1.2
23.5
21.2
1.0
0.7
1.4
24.3
Audit services include work performed to issue opinions
on consolidated financial statements and parent com-
pany financial statements of Novartis AG, to issue opin-
ions related to the effectiveness of the Group’s internal
control over financial reporting, and to issue reports on
local statutory financial statements. Also included are
audit services that generally can only be provided by the
statutory auditor, such as the audit of the Compensation
Report, audits of the adoption of new accounting policies,
audits of information systems and the related control envi-
ronment, as well as reviews of quarterly financial results.
Audit-related services include other assurance ser-
vices provided by the independent auditor but not
restricted to those that can only be provided by the stat-
utory auditor. They include services such as audits of
pension and other employee benefit plans; audits in con-
nection with non-recurring transactions; contract audits
of third-party arrangements; corporate responsibility
assurance; and other audit-related services.
Tax services represent tax compliance, assistance
with historical tax matters, and other tax-related services.
Other services include procedures related to corpo-
rate integrity agreements, benchmarking studies, and
license fees for use of accounting and other reporting
guidance databases.
Information to the Board and the ACC
The ACC, acting on behalf of the Board, is responsible for
overseeing the activities of PwC. In 2020, this commit-
tee held eight meetings. PwC was invited to six of these
meetings to attend the discussions on auditing matters
and any other matters relevant to its audit.
The ACC recommended to the Board to approve the
audited consolidated financial statements and the sep-
arate parent company financial statements of Novartis AG
for the year ended December 31, 2020. The Board pro-
posed the acceptance of these financial statements for
approval by the shareholders at the next AGM.
The ACC regularly evaluates the performance of PwC
and, based on this, once a year determines whether PwC
should be proposed to the shareholders for re-election.
To assess the performance of PwC, the ACC holds pri-
vate meetings with the CFO and the Global Head of NBAA
and Head of Internal Audit and, if necessary, obtains an
independent external assessment. Criteria applied for
the performance assessment of PwC include an evalu-
ation of its technical and operational competence; its
independence and objectivity; the sufficiency of the
resources it has employed; its focus on areas of signifi-
cant risk to Novartis; its willingness to probe and chal-
lenge; its ability to provide effective, practical recommen-
dations; and the openness and effectiveness of its
communications and coordination with the ACC, the
Internal Audit function and management.
Once a year, the auditor in charge and the global
relationship partner report to the Board on PwC’s activ-
ities during the current year and on the audit plan for the
coming year.
On an annual basis, PwC provides the ACC with writ-
ten disclosures required by the US Public Company
Accounting Oversight Board, and the committee and
PwC discuss PwC’s independence from Novartis.
158
Item 6. Directors, Senior Management and Employees
Auditor tender process
In April 2020, the ACC decided to invite several audit
firms, including PwC, to participate in a tender process
that would lead to the selection of an external audit firm
to be proposed for election at the 2022 AGM.
Key criteria in identifying potential participant firms
included their expertise, experience and footprint to audit
a company with our global scale and complexity of oper-
ations. The ACC determined that PwC, KPMG, Deloitte,
and Ernst & Young met these criteria and invited them to
participate in the tender process. The audit tender was
conducted through a fair, transparent and balanced pro-
cess according to defined selection criteria under a strong
governance structure, ensuring that all audit firms had
equal access to management and information.
In the first phase of the tender process, the firms had
an introductory meeting with the CFO and the Head of
Group FRA, were granted access to a data room con-
taining both financial and organizational information, and
met with select members of Group management. In the
second phase, the firms submitted written proposals and
made presentations to select members of Group man-
agement, including the CEO, the CFO and the Chief Legal
Officer, and met with the Chair of the ACC. In the third
phase, the entire ACC evaluated management’s assess-
ment of the four firms against the selection criteria and
shortlisted two firms to present to the entire ACC, the
Chairman, the CEO, the CFO, the Chief Legal Officer and
the Head of Group FRA.
Based on the assessment of the two shortlisted firms
against the selection criteria, the ACC plans to propose
to the shareholders at the 2022 AGM the election of
KPMG AG as the external auditor commencing for the
2022 financial year.
For the 2021 financial year, the ACC will propose to the
shareholders at the 2021 AGM the re-election of PwC.
159
Item 6. Directors, Senior Management and Employees
Information policy
Novartis is committed to open and transparent commu-
nication with shareholders, investors, financial analysts,
customers, suppliers and other stakeholders. Novartis
disseminates information about material developments in
its businesses in a broad and timely manner that complies
with the rules of the SIX Swiss Exchange and the NYSE.
Communications
Novartis publishes this Annual Report to provide infor-
mation on the Group’s results and operations. Novartis
discloses financial results in accordance with IFRS on a
quarterly basis, and issues press releases from time to
time regarding business developments.
Novartis publishes press releases related to financial
results and material events to the US Securities and
Exchange Commission (SEC) via Form 6-K. An archive
containing annual reports, US SEC Form 20-F, quarterly
results releases, and all related materials – including pre-
sentations and conference call webcasts – is available
at www.novartis.com/investors.
Novartis also publishes a Novartis in Society ESG
Report, available at www.novartis.com/nisreport2020,
which details progress on ESG topics and demonstrates
the company’s commitment in global health and corpo-
rate responsibility. The Novartis in Society ESG Report
has been prepared in accordance with the Global Report-
ing Initiative (GRI) Standards: Core option, and fulfills the
Company’s reporting requirement as a signatory of the
United Nations Global Compact.
The information on Board and Executive Committee
compensation is outlined in the Compensation Report
(see “—Item 6.B Compensation” in general, and for cer-
Website information
Topic
Share capital
Shareholder rights
Annual General Meeting of Shareholders
Board Regulations
Novartis code for senior financial officers
Novartis in Society ESG Report
Novartis financial data
Press releases
tain compensation information with respect to our Board
that is responsive to Item 6.C.2 of Form 20-F, see “—Item
6.B Compensation—2020 Board compensation—Philos-
ophy and benchmarking”). Please also refer to articles
29-35 of the Articles of Incorporation (www.novartis.com/
investors/company- overview/corporate-governance).
There are no change-of-control and “golden parachute”
clauses benefiting Board members, Executive Commit-
tee members, or other members of senior management.
Employment contracts with Executive Committee mem-
bers are either for a fixed term not exceeding one year or
for an indefinite period with a notice period not exceed-
ing 12 months, and do not contain commissions for the
acquisition or transfer of enterprises or severance pay-
ments. No loans or credits are granted to Board and Exec-
utive Committee members.
Information contained in reports and releases issued
by Novartis is only correct and accurate at the time of
release. Novartis does not update past releases to reflect
subsequent events, and advises against relying on them
for current information.
Investor Relations
Investor Relations manages the Group’s interactions with
the international financial community. Several events are
held each year to provide institutional investors and analysts
with various opportunities to learn more about Novartis.
Investor Relations is based at the Group’s head quarters
in Basel. Part of the team is located in the US to coor-
dinate interaction with US investors. More information is
available at www.novartis.com/investors.
Information
Articles of Incorporation of Novartis AG
www.novartis.com/investors/company-overview/corporate-governance
Novartis key share data
www.novartis.com/key-share-data
Articles of Incorporation of Novartis AG
www.novartis.com/investors/company-overview/corporate-governance
Annual General Meeting of Shareholders
www.novartis.com/investors/shareholder-information/annual-general-meeting
Board Regulations
www.novartis.com/investors/company-overview/corporate-governance
Novartis Code of Ethical Conduct for CEO and Senior Financial Officers
www.novartis.com/investors/company-overview/corporate-governance
Novartis in Society ESG Report
www.novartis.com/nisreport2020
Novartis financial data
www.novartis.com/investors/financial-data
Press releases
www.novartis.com/news/news-archive?type=press_release
Free email service
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Additional information
(including Novartis investors event calendar, registered office,
contact and email addresses, phone numbers, etc.)
Novartis Investor Relations
www.novartis.com/investors
160
Item 6. Directors, Senior Management and Employees
6.D Employees
The table below sets forth the breakdown of the total year-end number of our full-time equivalent employees by
main category of activity and geographic area for the past three years.
For the year ended
December 31, 2020
(full-time equivalents)
USA
Canada and Latin America
Europe
Asia/Africa/Australasia
Total
For the year ended
December 31, 2019
(full-time equivalents)
USA
Canada and Latin America
Europe
Asia/Africa/Australasia
Total
For the year ended
December 31, 2018
(full-time equivalents)
USA
Canada and Latin America
Europe
Asia/Africa/Australasia
Total
Total
15 942
6 524
820
401
2 852
52 095
1 119
31 233
Total
14 979
5 975
763
397
2 666
52 787
1 026
30 173
Marketing and Production and Research and
supply development
sales
General and
NBS 1 administration
5 978
3 405
2 954
1 286
5 554
504
16 066
18 628
10 043
17 240
3 346
4 537
636
928
4 506
4 991
42 689
26 214
20 638
11 061
5 192
105 794
Marketing and Production and Research and
supply development
sales
General and
NBS 1 administration
5 360
3 396
2 830
5 412
838
16 395
19 386
17 455
3 163
480
9 988
4 296
614
864
4 352
4 233
42 606
26 217
20 176
10 063
4 852
103 914
Marketing and Production and Research and
supply development
sales
General and
NBS 1 administration
6 825
4 584
7 524
6 700
1 467
960
508
19 608
21 397
10 049
20 099
6 636
3 977
Total
23 427
7 441
911
490
2 780
58 679
1 289
35 614
899
4 845
3 613
51 116
36 517
21 234
10 824
5 470
125 161
Thereof continuing operations2
Thereof discontinued operations2
43 954
25 862
19 803
10 824
4 337
104 780
7 162
10 655
1 431
–
1 133
20 381
1 NBS relates to full-time equivalent employees from our Novartis Business Services organizational unit.
2 Continuing operations include the businesses of the Innovative Medicines and Sandoz Divisions and the continuing Corporate activities, and
discontinued operations include the Alcon eye care devices business and certain corporate activities attributable to Alcon prior to the
spin-off. See “Item 18. Financial Statements—Note 2. Significant transactions—Significant transactions in 2019.”
As of December 31, 2019, the number of our full-time equivalent employees decreased by 21 247 compared to
December 31, 2018, mainly due to the April 2019 completion of the Alcon spin-off. For more information on this
transaction, please see “Item 18. Financial Statements—Note 2. Significant transactions in 2019.”
A significant number of our associates are represented by unions or works councils. We have not experienced
any material work stoppages in recent years, and we consider our employee relations to be good.
6.E Share ownership
The information set forth under “Item 6. Directors, Senior
Management and Employees—Item 6.B Compensa-
tion—2020 Executive Committee compensation—Addi-
tional disclosures for the CEO and other Executive Com-
mittee members—Shares, ADRs and other equity rights
owned by Executive Committee members at Decem-
ber 31, 2020” and under “Item 6. Directors, Senior Man-
agement and Employees—Item 6.B Compensa-
Board
tion—2020
compensation—Additional
disclosures—Shares, ADRs and share options owned by
Board members” is incorporated by reference. For more
information on our equity-based participation plans, see
the information set forth under “Item 18. Financial State-
ments—Note 26. Equity-based participation plans for
associates,” which is incorporated by reference.
161
Item 7. Major Shareholders and Related Party Transactions
Item 7. Major Shareholders and Related Party
Transactions
7.A Major shareholders
Novartis shares are widely held. As of December 31,
2020, Novartis had approximately 176 000 sharehold-
ers listed in the Novartis Share Register, representing
approximately 67.9% of issued shares. Based on the
Novartis Share Register and excluding treasury shares,
approximately 44.1% of the shares registered by name
were held in Switzerland, and approximately 24.4% were
held in the US. Approximately 14% of the shares regis-
tered in our share register were held by individual inves-
tors, while approximately 34.5% were held by legal enti-
ties (excluding 4.3% of our share capital held as treasury
shares by Novartis AG or its fully owned subsidiaries),
and 51.5% by nominees, fiduciaries and the ADS depos-
itary.
Based on our share register, we believe that we are
not directly or indirectly owned or controlled by another
corporation or government, or by any other natural or
legal persons. There are no arrangements that may result
in a change of control.
The tables below set forth information with respect
to our major shareholders according to our share regis-
ter as of December 31, 2020, excluding 4.3% of our share
capital held as treasury shares by Novartis AG or its fully
owned subsidiaries. The following registered sharehold-
ers (including nominees and the ADS depositary) held
more than 2% of the total share capital of Novartis with
the right to vote all their Novartis shares based on an
exemption granted by the Board of Directors:
Shareholders registered for their own account:
Emasan AG, Basel, Switzerland
Novartis Foundation for Employee Participation, Basel, Switzerland 1
UBS Fund Management (Switzerland) AG, Basel, Switzerland
Credit Suisse Funds AG, Zurich, Switzerland
% of respective share capital beneficially owned
as of:
Ordinary shares
beneficially owned as of
Dec 31, 2020 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
89 135 960
-
56 764 402
50 187 090
3.6
<2.0
2.3
2.0
3.5
2.1
2.1
3.5
2.3
2.2
<2.0
<2.0
1 The Novartis Foundation for Employee Participation (the “Employee Foundation”) is a special purpose entity that was founded by, but is
independent from, Novartis.
Shareholders registered as nominees:
Chase Nominees Ltd., London, England
The Bank of New York Mellon, New York, NY
Through The Bank of New York Mellon, Everett, MA
Through The Bank of New York Mellon, New York, NY
Through The Bank of New York Mellon, SA/NV, Brussels, Belgium
Nortrust Nominees Ltd., London, England
Shareholder acting as American Depositary Share (ADS) depositary:
% of respective share capital held as of:
Ordinary shares
held as of
Dec 31, 2020 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
237 417 808
83 805 997
41 574 113
28 683 674
13 548 210
104 327 562
9.6
3.4
1.7
1.2
0.5
4.2
10.4
3.8
2.0
1.2
0.6
3.9
9.8
4.1
2.1
1.3
0.7
3.6
JPMorgan Chase Bank, N.A., New York, NY
288 785 853
11.7
12.5
13.3
According to a disclosure notification filed with Novartis
AG, Norges Bank (Central Bank of Norway), Oslo, Nor-
way, held 2.3% of the share capital of Novartis AG, or
56 513 527 shares, as of December 31, 2020, but was
not registered in our share register as of December 31,
2020. Provided that these shares are registered in the
share register on the record date of the Annual General
Meeting, Norges Bank will have full voting rights for all
of these shares.
According to a disclosure notification filed with
Novartis AG and the SIX Swiss Exchange, Black-
Rock, Inc., New York, NY, held between 3% and 5%, but
was registered with less than 2% of the share capital of
Novartis AG in our share register as of December 31,
2020.
According to disclosure notifications filed with
Novartis AG and the SIX Swiss Exchange, The Capital
Group Companies, Inc., Los Angeles, California, held
162
Item 7. Major Shareholders and Related Party Transactions
between 3% and 5%, but was not registered in our share
register as of December 31, 2019, and December 31,
2018.
As of December 31, 2020, no other shareholder was
registered as owner of more than 2% of the registered
share capital.
The Articles of Incorporation provide that no share-
holder shall be registered with the right to vote shares
comprising more than 2% of the registered share capi-
tal. The Board of Directors may, upon request, grant an
exemption from this restriction. Considerations include
whether the shareholder supports the Novartis goal of
creating sustainable value and has a long-term invest-
ment horizon. In 2020, the Board approved an exemp-
tion requested by Credit Suisse Funds AG, Zurich, based
on the fulfilment of the requirements described above.
Exemptions are in force for the registered major share-
holders as described above. Novartis has not entered
into any agreement with any shareholder regarding the
voting or holding of Novartis shares.
7.B Related party transactions
The information set forth under “Item 18. Financial Statements—Note 27. Transactions with related parties” is incor-
porated by reference.
7.C Interests of experts and counsel
Not applicable.
163
Item 8. Financial Information
Item 8. Financial Information
8.A Consolidated statements and other financial
information
See “Item 18. Financial Statements.”
Dividend policy
Subject to the dividend policy described below, our
Board of Directors expects to recommend the payment
of a dividend in respect of each financial year. If approved
by our shareholders at the relevant annual shareholders’
meeting, the dividends will be payable shortly following
such approval. Any shareholder who purchases our
shares before the ex-dividend date and holds the shares
until that date shall be deemed to be entitled to receive
the dividends approved at that meeting. Dividends are
reflected in our financial statements in the year in which
they are approved by our shareholders.
Our dividend policy is to pay a growing annual divi-
dend in Swiss francs. This policy is subject to our finan-
cial conditions and outlook at the time, the results of our
operations, and other factors.
The Board will propose a dividend of CHF 3.00 per
share to the shareholders for approval at the Annual
General Meeting to be held on March 2, 2021. Because
we pay dividends in Swiss francs, exchange rate fluctu-
ations will affect the US dollar amounts received by hold-
ers of ADRs. For a summary of dividends we paid in the
past five years, see “Item 3. Key Information—Item 3.A
Selected financial data—Cash dividends per share.”
Disclosure pursuant to Section 219 of the Iran
Threat Reduction & Syria Human Rights Act (ITRA)
At Novartis, our purpose is to reimagine medicine to
improve and extend people’s lives, regardless of where
they live. This includes the compliant sale of medicines
and other healthcare products worldwide. To help us ful-
fill this mission, we have for many years maintained two
representative offices located in Iran.
As of October 18, 2010, a non-US affiliate within our
Innovative Medicines Division entered into a non-bind-
ing Memorandum of Understanding (MoU) with the Min-
istry of Health and Medical Education of the Islamic
Republic of Iran. Pursuant to the MoU, the Iranian Minis-
try of Health acknowledges certain benefits that may
apply to sales of certain Innovative Medicines Division
medicines by third-party distributors in Iran. These
include fast-track registration, market exclusivity,
end-user subsidies, and exemptions from customs tar-
iffs. Novartis receives no payments from the Iranian Min-
istry of Health under the MoU, and the MoU creates no
obligations on the part of either Novartis or the Iranian
Ministry of Health.
From time to time, including in 2020, non-US affiliates
in our Innovative Medicines and Sandoz Divisions made
payments to government entities in Iran related to pat-
ents, trademarks, exit fees and other transactions ordi-
narily incident to travel by doctors and other medical pro-
fessionals resident in Iran to attend conferences or other
events outside Iran.
From time to time, including in 2020, non-US affiliates
in our Innovative Medicines and Sandoz Divisions enter
into agreements with hospitals, research institutes, med-
ical associations and universities in Iran to provide grants
and sponsor congresses, seminars and symposia, and
with doctors and other healthcare professionals for con-
sulting services, including participation in advisory
boards and investigator services for observational
(non-interventional) studies. Some hospitals and
research institutes are owned or controlled by the gov-
ernment of Iran, and some doctors and healthcare pro-
fessionals are employed by hospitals that may be public
or government-owned.
Because our Innovative Medicines and Sandoz Divi-
sions have operations in Iran, including employees, they
obtain services and have other dealings incidental to
their activities in that country, including paying taxes and
salaries either directly or indirectly through a service pro-
vider, and obtaining office rentals, insurance, electricity,
water and telecommunications services, office and sim-
ilar supplies, and customs-related services from Iranian
companies that may be owned or controlled by the gov-
ernment of Iran. In addition, from time to time, represen-
tatives of our non-US affiliates participate in meetings
with Iranian officials to discuss issues relevant to our
business and the pharmaceutical industry.
Non-US affiliates in our Innovative Medicines and
Sandoz Divisions maintain local accounts at banks that
are, as of November 5, 2018, on the Specially Designated
Nationals and Blocked Persons List (SDN List). These
non-US affiliates make local transactions for employee
payroll and local vendor payment purposes. These trans-
actions are conducted for the purpose of facilitating the
provision of medicine to Iran, in line with the humanitar-
ian exceptions contained in Section 11 of Executive Order
13902 and other applicable sanctions by legal authori-
ties. No transactions are made with an Iranian financial
institution designated on the SDN List in connection with
Iran’s support for international terrorism or proliferation
of weapons of mass destruction.
164
Item 8. Financial Information
8.B Significant changes
None.
165
Item 9. The Offer and Listing
Item 9. The Offer and Listing
9.A Offer and listing details
Our shares are listed in Switzerland on the SIX Swiss
Exchange (SIX).
Our ADRs have been listed on the NYSE since May 2000
and are traded under the symbol NVS.
ADSs, each representing one share, have been avail-
able in the US through an ADR program since Decem-
ber 1996. This program was established pursuant to a
deposit agreement that we entered into with JPMorgan
Chase Bank, N.A., as depositary (“Deposit Agreement”).
The depositary has informed us that as of Janu-
ary 20, 2021, there were 289 million ADRs outstanding,
each representing one Novartis share (approximately
12% of total Novartis shares issued). On January 20,
2021, the closing price per share on the SIX was CHF
86.01 and USD 96.92 per ADR on the NYSE.
9.B Plan of distribution
Not applicable.
9.C Markets
See “—Item 9.A Offer and listing details.”
9.D Selling shareholders
Not applicable.
9.E Dilution
Not applicable.
9.F Expenses of the issue
Not applicable.
166
Item 10. Additional Information
Item 10. Additional Information
10.A Share capital
Not applicable.
10.B Memorandum and articles of association
The following is a non-exhaustive summary of certain
provisions of our Articles of Incorporation (“Articles”),
our Regulations of the Board, the Board Committees and
the Executive Committee (“Board Regulations”) and of
Swiss law, particularly the Swiss Code of Obligations
(“Swiss CO”), and is qualified in its entirety by reference
to the Articles and the Board Regulations, which are an
exhibit to this Form 20-F, and to Swiss law.
10.B.1 Company purpose
Novartis AG is registered in the commercial register of
the canton of Basel-Stadt, Switzerland, under number
CHE-103.867.266. Our business purpose, as stated in
Article 2 of the Articles, is to hold interests in enterprises
in the area of healthcare or nutrition. We may also hold
interests in enterprises in the areas of biology, chemis-
try, physics, information technology or related areas. We
may acquire, mortgage, liquidate or sell real estate and
intellectual property rights in Switzerland or abroad. In
pursuing our business purpose, we strive to create sus-
tainable value.
10.B.2 Directors
According to our Articles, the Board of Directors
(“Board”) consists of a minimum of eight and a maximum
of 16 members. The members of the Board (including the
Chairman) are elected individually by the General Meet-
ing of Shareholders (“General Meeting”) for a one year
term of office lasting until completion of the next Annual
General Meeting of Shareholders (“AGM”).
(a) A board resolution requires the affirmative majority of
the votes cast. According to our Board Regulations,
a member of our Board (“Director”) may not partici-
pate in decisions and resolutions on matters that
affect, or reasonably might affect, the Director’s inter-
ests or the interests of a person close to the Direc-
tor.
(b) Compensation of the Directors is subject to the
approval of the aggregate amounts of such compen-
sation by a shareholders’ resolution under the Ordi-
nance against Excessive Compensation in Public
Companies of the Swiss Federal Council.
(c) The Articles prohibit the granting of loans or credits
to Directors.
(d) Directors who have turned 70 years of age at the date
of the General Meeting may no longer be elected as
members of the Board. The General Meeting may,
under special circumstances, grant exceptions to this
rule.
(e) Our Directors are not required to be shareholders at
the time of the election by the General Meeting. How-
ever, according to our share ownership guidelines,
the Chairman is required to own a minimum of 30 000
Novartis AG shares, and other Directors are required
to own at least 5 000 Novartis AG shares within five
years after joining the Board, to ensure their interests
are aligned with those of our shareholders.
10.B.3 Shareholder rights
Because Novartis AG has only one class of registered
shares, the following information applies to all sharehold-
ers.
(a) Under the Swiss CO, we may only pay dividends out
of balance sheet profits or out of distributable
reserves. In any event, under the Swiss CO, while the
Board may propose that a dividend be paid, we may
only pay dividends upon shareholders’ approval at a
General Meeting. Furthermore, the Swiss CO requires
us to accrue general legal reserves under certain cir-
cumstances so long as these reserves amount to less
than 20% of our registered share capital, and Swiss
law and the Articles permit us to accrue additional
reserves beyond the statutory reserves. Our auditors
must confirm that the dividend proposal of our Board
conforms with the Swiss CO and the Articles. Our
Board expects to recommend the payment of a divi-
dend in respect of each financial year. See “Item 3. Key
Information—Item 3.A. Selected financial data—Cash
dividends per share” and “Item 8. Financial Informa-
tion—Item 8.A. Consolidated statements and other
financial information—Dividend policy.”
Dividends are usually due and payable shortly after
the shareholders have passed a resolution approving
the payment. Dividends that have not been claimed
within five years after the due date revert to us and are
allocated to our general reserves. For information
about deduction of the withholding tax or other duties
from dividend payments, see “—Item 10.E Taxation.”
(b) Each share is entitled to one vote at a General Meet-
ing. Voting rights may only be exercised for shares
registered with the right to vote on the record date
167
Item 10. Additional Information
for the applicable General Meeting. In order to do so,
the shareholder must file a share registration form
with us, setting forth the shareholder’s name, address
and citizenship (or, in the case of a legal entity, its reg-
istered office). If the shareholder has not timely reg-
istered its shares, then the shareholder may not vote
at, or participate in, a General Meeting.
To vote its shares, the shareholder must also
explicitly declare that it has acquired the shares in its
own name and for its own account. If the shareholder
refuses to make such a declaration, the shares may
not be voted unless the Board recognizes such share-
holder as a nominee.
The Articles provide that no shareholder shall be
registered with the right to vote shares comprising
more than 2% of the registered share capital. The
Board may, upon request, grant an exemption from
this restriction. Considerations include whether the
shareholder supports our goal of creating sustainable
value and has a long-term investment horizon. Fur-
thermore, the Articles provide that no nominee shall
be registered with the right to vote shares compris-
ing more than 0.5% of the registered share capital.
The Board may, upon request, grant an exemption
from this restriction if the nominee discloses the
names, addresses and number of shares of the per-
sons for whose account it holds 0.5% or more of the
registered share capital. The same restrictions indi-
rectly apply to ADR holders. We have in the past
granted exemptions from the 2% rule for sharehold-
ers and the 0.5% rule for nominees.
For purposes of the 2% rule for shareholders and
the 0.5% rule for nominees, groups of companies and
groups of shareholders acting in concert are consid-
ered to be one shareholder. These rules also apply to
shares acquired or subscribed by the exercise of sub-
scription, option or conversion rights.
After hearing the registered shareholder or nom-
inee, the Board may cancel, with retroactive effect as
of the date of registration, the registration of the
shareholders if the registration was effected based
on false information.
Registration restrictions in the Articles may only
be removed upon a resolution carrying a two-thirds
majority of the votes represented at a General Meet-
ing.
Except as noted below, shareholders’ resolutions
require the approval of an absolute majority of the
votes present at a General Meeting. As a result,
abstentions have the effect of votes against such res-
olutions. Some examples of shareholders’ resolutions
requiring a vote by such “absolute majority of the
votes” are:
• Adoption and amendment of the Articles
• Election and removal of the Chairman, the Board
and Compensation Committee members, the Inde-
pendent Proxy and the external auditor
• Approval of the management report and of the con-
solidated financial statements
• Approval of the financial statements of Novartis AG,
and decision on the appropriation of available earn-
ings shown on the balance sheet, including divi-
dends, if any
• Approval of the maximum aggregate compensation
of the Board (from an AGM until the next AGM) and
of the Executive Committee (for the financial year
following the AGM)
• Discharge of Board and Executive Committee
members from liability for matters disclosed to the
General Meeting
• Decision on other matters that are reserved by law
or by the Articles (e.g., advisory vote on the Com-
pensation Report) to the General Meeting
According to the Articles and Swiss law, the fol-
lowing matters require the approval of a “superma-
jority” of at least two-thirds of the votes present at a
General Meeting:
• Alteration of the purpose of Novartis AG
• Creation of shares with increased voting powers
• Implementation of restrictions on the transfer of
registe red shares, and the removal of such restric-
tions
• Authorized or conditional increase of the share cap-
ital
• Increase of the share capital out of equity, by con-
tribution in kind, for the purpose of an acquisition
of property or the grant of special rights
• Restriction or cancellation of subscription rights
• Change of the registered office of Novartis AG
• Dissolution of Novartis AG
In addition, the law provides for a qualified major-
ity for other resolutions, such as a merger or demerger.
Our shareholders are required to annually elect
all Directors (including the Chairman), the Compen-
sation Committee members, the external auditor and
the Independent Proxy. The Articles do not provide
for cumulative voting of shares.
At a General Meeting, shareholders can be repre-
sented by a proxy, which must either be the sharehold-
er’s legal representative, another shareholder with the
right to vote, or the Independent Proxy. Votes are taken
either by a show of hands or by electronic voting, unless
the General Meeting resolves to have a ballot or where
a ballot is ordered by the chair of the meeting. How-
ever, in accordance with Swiss legislation passed in
response to the COVID-19 pandemic, the Board has
decided that voting rights at our 2021 AGM can only
be exercised through the Independent Proxy. It will
not be possible to physically attend our 2021 AGM.
168
Item 10. Additional Information
ADSs, each representing one Novartis AG share
and evidenced by ADRs, are issued by our depositary
JPMorgan Chase Bank, N.A., New York, and not by
us. The ADR is vested with rights defined and enu-
merated in the Deposit Agreement (such as the rights
to vote, to receive a dividend and to receive a share
of Novartis AG in exchange for a certain number of
ADRs). The enumeration of rights, including any lim-
itations on those rights in the Deposit Agreement, is
final. There are no other rights given to the ADR hold-
ers. Only the ADS depositary, holding our shares
underlying the ADRs, is registered as shareholder in
our share register. An ADR is not a Novartis AG share
and an ADR holder is not a Novartis AG shareholder.
The Deposit Agreement between our depositary,
the ADR holder and us has granted certain indirect
rights to vote to the ADR holders. ADR holders may
not attend a General Meeting in person. ADR holders
exercise their voting rights by instructing JPMorgan
Chase Bank, N.A., our depositary, to exercise the vot-
ing rights attached to the registered shares underly-
ing the ADRs. Each ADR represents one Novartis AG
share. JPMorgan Chase Bank, N.A., exercises the vot-
ing rights for registered shares underlying ADRs for
which no voting instructions have been given by pro-
viding a discretionary proxy to an uninstructed inde-
pendent designee. Such designee has to be a share-
holder of Novartis AG. The same voting restrictions
apply to ADR holders as to those holding Novartis AG
shares (i.e., the right to vote up to 2% of the Novartis
AG registered share capital – unless otherwise
granted an exemption by the Board – and the disclo-
sure requirement for nominees).
(c) Shareholders have the right to allocate the profit
shown on our balance sheet and to distribute divi-
dends by vote taken at the General Meeting, subject
to the legal requirements described in “Item 10.B.3(a)
Shareholder rights.”
(d) Under the Swiss CO, any surplus arising out of a liq-
uidation of Novartis AG (i.e., after the settlement of all
claims of all creditors) would be distributed to the
shareholders in proportion to the paid-in nominal
value of their shares.
(e) The Swiss CO limits a corporation’s ability to hold or
repurchase its own shares. We and our subsidiaries
may only repurchase shares if we have sufficient
freely disposable equity in the amount of the pur-
chase price of the acquired shares. The aggregate
nominal value of all Novartis AG shares held by us and
our subsidiaries may not exceed 10% of our regis-
tered share capital. However, it is accepted that a
Swiss corporation may repurchase its own shares
beyond the statutory limit of 10% if the repurchased
shares are clearly earmarked for cancellation. In addi-
tion, we are required to recognize a negative position,
or if our subsidiaries acquire our shares, to create a
special reserve on our balance sheet in the amount
of the purchase price of the acquired shares. Repur-
chased shares held by us or our subsidiaries do not
carry any rights to vote at a General Meeting, but are
entitled to the economic benefits generally con-
nected with the shares. The definition of subsidiaries,
and therefore, treasury shares, for purposes of the
above described reserves requirement and voting
restrictions differs from the definition of subsidiaries
for purposes of consolidation in our consolidated
financial statements. The definition in the consoli-
dated financial statements requires consolidation for
financial reporting purposes of special purpose enti-
ties in instances where we have the power to govern
the financial and operating policies of the entity so as
to obtain benefits from its activities. Therefore, our
consolidated financial statements include special
purpose entities, mainly foundations, which do not
qualify as subsidiaries subject to the reserve require-
ments and voting restrictions of the Swiss CO because
we do not hold a majority participation in these spe-
cial purpose entities. Accordingly, no reserve require-
ments apply to shares held by such special purpose
entities, and such entities are not restricted from inde-
pendently voting their shares.
Under the Swiss CO, we may not cancel treasury
shares without the approval of a capital reduction by
our shareholders.
(f) Not applicable.
(g) Since all of our issued and outstanding shares have
been fully paid in, our shareholders are not obliged to
make further contributions with respect to their
shares.
(h) See “—Item 10.B.3(b) Shareholder rights” and “—
Item 10.B.7 Change in control.”
10.B.4 Changes to shareholder rights
Under the Swiss CO, we may not issue new shares with-
out the prior approval of a capital increase by our share-
holders. If a capital increase is approved, then our share-
holders would generally have certain pre-emptive rights
to obtain newly issued shares in an amount proportional
to the nominal value of the shares they already hold.
These pre-emptive rights could be excluded in certain
limited circumstances with the approval of a resolution
adopted at a General Meeting by a supermajority of
two-thirds of the votes. In addition, we may not create
shares with increased voting powers or place restrictions
on the transfer of registered shares without the approval
of a resolution adopted at a General Meeting by a super-
majority of votes. In addition, see “—Item 10.B.3(b) Share-
holder rights” with regard to the Board’s ability to cancel
the registration of shares under limited circumstances.
10.B.5 Shareholder meetings
Under the Swiss CO and the Articles, we must hold an
AGM within six months after the end of our financial year.
A General Meeting may be convened by the Board or, if
necessary, by the external auditor. The Board is further
required to convene an extraordinary General Meeting
if so resolved by a General Meeting, or if so requested
by shareholders representing at least 10% of the share
capital, specifying the items for the agenda and their
proposals. Shareholders representing shares with an
aggregate nominal value of at least CHF 1 000 000 may
request that an item be included in a General Meeting
agenda. A General Meeting is convened by publishing a
notice in the Swiss Official Gazette of Commerce
169
Item 10. Additional Information
10.B.8 Disclosure of shareholdings
Under the Swiss Financial Market Infrastructure Act, per-
sons who directly, indirectly or in concert with other par-
ties acquire or dispose of our shares or purchase or sale
rights relating to our shares are required to notify us and
the SIX of the level of their holdings whenever such hold-
ings reach, exceed or fall below certain thresholds – 3%,
5%, 10%, 15%, 20%, 25%, 33 1/3%, 50% and 66 2/3% –
of the voting rights represented by our share capital
(whether exercisable or not). This also applies to anyone
who has discretionary power to exercise voting rights
associated with our shares. Following receipt of such
notification, we are required to inform the public by pub-
lishing the information via the electronic publication plat-
form operated by the SIX.
An additional disclosure obligation exists under the
Swiss CO that requires us to disclose, once a year in the
notes to the financial statements published in our Annual
Report, the identity of all of our shareholders (or related
groups of shareholders) who have been granted exemp-
tion entitling them to vote more than 2% of our registered
share capital, as described in “—Item 10.B.3(b) Share-
holder rights.”
10.B.9 Differences in the law
See the references to Swiss law throughout this “—
Item 10.B Memorandum and articles of association.”
10.B.10 Changes in capital
The requirements of the Articles regarding changes in
capital are not more stringent than the requirements of
Swiss law.
(Schweizerisches Handelsamtsblatt) at least 20 days
prior to such meeting. Shareholders may also be informed
by mail. Neither the Swiss CO nor the Articles require a
quorum for a General Meeting. In addition, see “—
Item 10.B.3(b) Shareholder rights” regarding conditions
for exercising a shareholder’s right to vote at a General
Meeting.
10.B.6 Limitations
There are no limitations under the Swiss CO or our Arti-
cles on the right of non-Swiss residents or nationals to
own or vote shares other than the restrictions applica-
ble to all shareholders. But see “—Item 10.B.3(b) Share-
holder rights” regarding conditions for exercising an ADR
holder’s right to vote at a shareholder meeting.
10.B.7 Change in control
The Articles and the Board Regulations contain no pro-
vision that would have an effect of delaying, deferring or
preventing a change in control of Novartis AG and that
would operate only with respect to a merger, acquisition
or corporate restructuring involving us or any of our sub-
sidiaries.
According to the Swiss Merger Act, shareholders
may pass a resolution to merge with another corpora-
tion at any time. Such a resolution would require the con-
sent of at least two-thirds of all votes present at the nec-
essary General Meeting.
Under the Swiss Financial Market Infrastructure Act,
shareholders and groups of shareholders acting in con-
cert who acquire more than 33 1/3% of our shares would
be under an obligation to make an offer to acquire all
remaining Novartis AG shares. Novartis AG has neither
opted out from the mandatory takeover offer obligation
nor opted to increase the threshold for mandatory take-
over offers in its Articles.
10.C Material contracts
Alcon spin-off
In connection with the spin-off of our Alcon business, we
entered into a Separation and Distribution Agreement, a
Tax Matters Agreement and several other agreements
with Alcon to effect the separation of the Alcon business
and provide a framework for our relationship with Alcon
after the spin-off.
The Separation and Distribution Agreement sets
forth the parties’ agreements regarding the principal
actions to be taken in connection with the separation of
the Alcon business and the spin-off, including the con-
ditions of the spin-off and the rights and obligations of
the parties with respect to the distribution. The Separa-
tion and Distribution Agreement identifies the assets to
be transferred, liabilities to be assumed and contracts
to be assigned to each of Novartis and Alcon as part of
the internal transactions effected prior to the distribu-
tion, and provides for when and how such transfers,
assumptions and assignments should occur.
The Tax Matters Agreement imposes certain restric-
tions and indemnity obligations on Alcon designed to
preserve the tax-neutral nature of the spin-off for Swiss
tax and US federal income tax purposes. The Tax Mat-
ters Agreement also provides that Alcon will generally
indemnify Novartis for any taxes of Novartis and its sub-
sidiaries to the extent such taxes are attributable to the
Alcon business, and Novartis will generally indemnify
Alcon for any of Alcon’s or its subsidiaries’ taxes to the
extent such taxes are attributable to the Novartis retained
businesses.
In connection with the spin-off, we also entered into
an employee matters agreement, a transition services
agreement, forward and reverse manufacturing supply
agreements, and certain intellectual property agree-
ments, each of which is not material to Novartis.
170
Item 10. Additional Information
Acquisition of The Medicines
Company
On November 23, 2019, we entered into an Agreement
and Plan of Merger (the “Merger Agreement”) with
US-based pharmaceutical company The Medicines
Company. Pursuant to the Merger Agreement, on Decem-
ber 5, 2019, Novartis, through a subsidiary, commenced
a tender offer to acquire all outstanding shares of The
Medicines Company for USD 85 per share, or a total con-
sideration of approximately USD 9.6 billion in cash on a
fully diluted basis. The tender offer expired on January
3, 2020, and on January 6, 2020, the acquiring subsid-
iary merged with and into The Medicines Company,
resulting in The Medicines Company becoming an indi-
rect wholly owned subsidiary of Novartis. This merger
broadens our cardiovascular portfolio by adding incli-
siran, an investigational cholesterol-lowering therapy.
10.D Exchange controls
There are no Swiss governmental laws, decrees or reg-
ulations that affect – in a manner material to Novartis AG
– the export or import of capital, including the availabil-
ity of cash and cash equivalents for use by Novartis or
any foreign exchange controls that affect the remittance
of dividends, interest or other payments to non-residents
or non-citizens of Switzerland who hold Novartis AG
securities.
10.E Taxation
The taxation discussion set forth below is intended only
as a descriptive summary and does not purport to be a
complete analysis or listing of all potential tax effects rel-
evant to the ownership or disposition of our shares or
ADRs. The statements of US and Swiss tax laws set forth
below are based on the laws and regulations in force as
of the date of this 20-F – including the current Conven-
tion Between the US and the Swiss Confederation for
the Avoidance of Double Taxation with Respect to Taxes
on Income, entered into force on December 19, 1997 (“the
Treaty”); the US Internal Revenue Code of 1986, as
amended (“the Code”); Treasury regulations; rulings; judi-
cial decisions; and administrative pronouncements – and
may be subject to any changes in US and Swiss law, and
in any double taxation convention or treaty between the
US and Switzerland occurring after that date, which
changes may have retroactive effect.
Swiss taxation
Swiss residents
Withholding Tax on dividends and distributions. Divi-
dends that we pay and similar cash or in-kind distribu-
tions that we may make to a holder of shares or ADRs
(including distributions of liquidation proceeds in excess
of the nominal value, stock dividends and, under certain
circumstances, proceeds from repurchases of shares
by us in excess of the nominal value) are generally sub-
ject to a Swiss federal withholding tax (“the Withholding
Tax”) at a current rate of 35%. Under certain circum-
stances, distributions out of capital contribution reserves
made by shareholders after December 31, 1996, are
exempt from the Withholding Tax. We are required to
withhold Withholding Tax due from the gross distribution
and to pay the Withholding Tax to the Swiss Federal Tax
Administration. The Withholding Tax is refundable in full
to Swiss tax residents who are the beneficial owners of
the taxable distribution at the time it is resolved and duly
report the gross distribution received on their personal
tax return or in their financial statements for tax pur-
poses, as the case may be.
Income tax on dividends. A Swiss tax resident who
receives dividends and similar distributions (including
stock dividends and liquidation surplus) on shares or
ADRs is required to include such amounts in the share-
holder’s personal income tax return. However, distribu-
tions out of qualified capital contribution reserves are
not subject to income tax. A corporate shareholder may
claim substantial relief from taxation of dividends and
similar distributions received if the shares held represent
a fair market value of at least CHF 1 million.
Capital gains tax upon disposal of shares. Under current
Swiss tax law, the gain realized on shares held by a Swiss
resident who holds shares or ADRs as part of his private
property is generally not subject to any federal, cantonal
or municipal income taxation on gains realized on the
sale or other disposal of shares or ADRs. However, gains
realized upon a repurchase of shares by us may be char-
acterized as taxable dividend income if certain condi-
tions are met. Book gains realized on shares or ADRs
held by a Swiss corporate entity or by a Swiss resident
individual as part of the shareholder’s business property
are, in general, included in the taxable income of such
person. However, the Federal Law on the Direct Federal
Tax of December 14, 1990, and several cantonal laws on
direct cantonal taxes provide for exceptions for Swiss
corporate entities holding more than 10% of our voting
stock for more than one year.
Residents of other countries
Recipients of dividends and similar distributions on our
shares who are neither residents of Switzerland for tax
purposes nor holding shares as part of a business con-
ducted through a permanent establishment situated in
Switzerland (“Non-Resident Holders”) are not subject to
171
Item 10. Additional Information
Swiss income taxes in respect of such distributions.
Moreover, gains realized by such recipients upon the dis-
posal of shares are not subject to Swiss income taxes.
Non-Resident Holders of shares are, however, sub-
ject to the Withholding Tax on dividends and similar dis-
tributions mentioned above and, under certain circum-
stances, to the Stamp Duty described below. Such
Non-Resident Holders may be entitled to a partial refund
of the Withholding Tax if the country in which they reside
has entered into a bilateral treaty for the avoidance of
double taxation with Switzerland. Non-Resident Holders
should be aware that the procedures for claiming treaty
refunds (and the time frame required for obtaining a
refund) may differ from country to country. Non-Resident
Holders should consult their own tax advisors regarding
receipt, ownership, purchase, sale or other dispositions
of shares or ADRs, and the procedures for claiming a
refund of the Withholding Tax.
As of January 1, 2021, Switzerland has entered into bilateral treaties for the avoidance of double taxation with
respect to income taxes with the following countries, whereby a part of the above-mentioned Withholding
Tax may be refunded (subject to the limitations set forth in such treaties):
Albania
Algeria
Argentina
Armenia
Australia
Austria
Azerbaijan
Bahrain
Bangladesh
Belarus
Belgium
Bulgaria
Canada
Chile
China
Colombia
Croatia
Cyprus
Czech Republic
Denmark
Ecuador
Egypt
Estonia
Finland
France
Georgia
Germany
Ghana
Greece
Hong Kong
Hungary
Iceland
India
Indonesia
Iran
Republic of Ireland
Israel
Italy
Ivory Coast
Jamaica
Japan
Kazakhstan
Republic of Korea
(South Korea)
Kosovo
Kuwait
Kyrgyzstan
Latvia
Liechtenstein
Lithuania
Luxembourg
Macedonia
Malaysia
Malta
Mexico
Moldova
Mongolia
Montenegro
Morocco
Netherlands
New Zealand
Norway
Oman
Pakistan
Peru
Philippines
Poland
Portugal
Qatar
Romania
Russia
Serbia
Singapore
Slovak Republic
Slovenia
South Africa
Spain
Sri Lanka
Sweden
Taiwan
Tajikistan
Thailand
Trinidad and Tobago
Tunisia
Turkey
Turkmenistan
Ukraine
United Arab Emirates
United Kingdom
United States of America
Uruguay
Uzbekistan
Venezuela
Vietnam
Zambia
The tax treaty with Bahrain is not applicable to the healthcare industry. Tax treaty negotiations are underway, or
have been conducted, with Bahrain, Bosnia and Herzegovina, Brazil, Costa Rica, Ethiopia, Libya, North Korea, Saudi
Arabia, Senegal, Syria and Zimbabwe. Tax treaty negotiations between Switzerland and some of the countries listed
in the immediately preceding sentence have been ongoing for an extended period of time, and we are not certain
when or if such negotiations will be completed, and when or if the corresponding treaties will come into effect.
A Non-Resident Holder of shares or ADRs will not be lia-
ble for any Swiss taxes other than the Withholding Tax
described above and, if the transfer occurs through or
with a Swiss bank or other Swiss securities dealer, the
Stamp Duty described below. If, however, the shares or
ADRs of Non-Resident Holders can be attributed to a
permanent establishment or a fixed place of business
maintained by such person within Switzerland during the
relevant tax year, the shares or ADRs may be subject to
Swiss income taxes in respect of income and gains real-
ized on the shares or ADRs, and such person may qual-
ify for a full refund of the Withholding Tax based on Swiss
tax law.
Residents of the US. A Non-Resident Holder who is a
resident of the US for purposes of the Treaty is eligible
for a reduced rate of tax on dividends equal to 15% of
the dividend, provided that such holder (i) qualifies for
benefits under the Treaty, (ii) is not a company (or, if it is
a company, such company directly holds less than 10%
of our voting stock), and (iii) does not conduct business
through a permanent establishment or fixed base in Swit-
zerland to which the shares or ADRs are attributable.
Such an eligible holder must apply for a refund of the
amount of the Withholding Tax in excess of the 15%
Treaty rate. A Non-Resident Holder who is a resident of
the US for purposes of the Treaty is eligible for a reduced
rate of tax on dividends equal to 5% of the dividend, pro-
vided that such holder (i) is a company, (ii) qualifies for
benefits under the Treaty, (iii) holds directly at least 10%
of our voting stock, and (iv) does not conduct business
through a permanent establishment or fixed place of
business in Switzerland to which the shares or ADRs are
attributable. Such an eligible holder must apply for a
172
Item 10. Additional Information
refund of the amount of the Withholding Tax in excess
of the 5% Treaty rate. Claims for refunds must be filed
on Swiss Tax Form 82 (82C for corporations; 82I for indi-
viduals; 82E for other entities), which may be obtained
from any Swiss Consulate General in the US or from the
Federal Tax Administration of Switzerland at the address
below, together with an instruction form. Four copies of
the form must be duly completed, signed before a notary
public of the US, and sent to the Federal Tax Adminis-
tration of Switzerland, Eigerstrasse 65, CH-3003 Bern,
Switzerland. The form must be accompanied by suitable
evidence of deduction of Swiss tax withheld at source,
such as certificates of deduction, signed bank vouchers
or credit slips. The form may be filed on or after July 1 or
January 1 following the date the dividend was payable,
but no later than December 31 of the third year following
the calendar year in which the dividend became payable.
For US resident holders of ADRs, JPMorgan Chase Bank,
N.A., as depositary, will comply with these Swiss proce-
dures on behalf of the holders, and will remit the net
amount to the holders.
Stamp Duty upon transfer of securities. The sale of
shares, whether by Swiss residents or Non-Resident
Holders, may be subject to federal securities transfer
Stamp Duty of 0.15%, calculated on the sale proceeds,
if the sale occurs through or with a Swiss bank or other
Swiss securities dealer, as defined in the Swiss Federal
Stamp Duty Act. The Stamp Duty has to be paid by the
securities dealer and may be charged to the parties in a
taxable transaction who are not securities dealers.
Stamp Duty may also be due if a sale of shares occurs
with or through a non-Swiss bank or securities dealer,
provided (i) such bank or dealer is a member of the SIX,
and (ii) the sale takes place on the SIX. In addition to this
Stamp Duty, the sale of shares by or through a member
of the SIX may be subject to a minor stock exchange
levy.
US federal income taxation
The following is a general discussion of the material US
federal income tax consequences of the ownership and
disposition of our shares or ADRs that may be relevant
to you if you are a US Holder (as defined below). Because
this discussion does not consider any specific circum-
stances of any particular holder of our shares or ADRs,
persons who are subject to US taxation are strongly
urged to consult their own tax advisors as to the overall
US federal, state and local tax consequences, as well as
to the overall Swiss and other foreign tax consequences,
of the ownership and disposition of our shares or ADRs.
In particular, additional or different rules may apply to US
expatriates; banks and other financial institutions; regu-
lated investment companies; traders in securities who
elect to apply a mark-to-market method of accounting;
dealers in securities or currencies; tax-exempt entities;
insurance companies; broker-dealers; investors liable for
alternative minimum tax; investors that hold shares or
ADRs as part of a straddle, hedging or conversion trans-
action; holders whose functional currency is not the US
dollar; partnerships or other pass-through entities; per-
sons who acquired our shares pursuant to the exercise
of employee stock options or otherwise as compensa-
tion; and persons who hold, directly, indirectly or by attri-
bution, 10% or more of our outstanding shares. This dis-
cussion generally applies only to US Holders who hold
the shares or ADRs as a capital asset (generally, for
investment purposes), and whose functional currency is
the US dollar. Investors are urged to consult their own
tax advisors concerning whether they are eligible for
benefits under the Treaty.
For purposes of this discussion, a US Holder is a ben-
eficial owner of our shares or ADRs who is (i) an individ-
ual who is a citizen or resident of the US for US federal
income tax purposes; (ii) a corporation (or other entity
taxable as a corporation for US federal income tax pur-
poses) created or organized in or under the laws of the
US or a state thereof or the District of Columbia; (iii) an
estate the income of which is subject to US federal
income taxation regardless of its source; or (iv) a trust
(i) subject to the primary supervision of a US court and
the control of one or more US persons, or (ii) that has a
valid election in place to be treated as a US person. If a
partnership (or other entity treated as a partnership for
US federal income tax purposes) holds shares or ADRs,
the tax treatment of a partner generally will depend upon
the status of the partner and the activities of the part-
nership. Partners in a partnership that holds shares or
ADRs are urged to consult their own tax advisor regard-
ing the specific tax consequences of the owning and
disposing of such shares or ADRs by the partnership.
For US federal income tax purposes, a US Holder of
ADRs generally will be treated as the beneficial owner
of our shares represented by the ADRs. However, see
the discussion below under “—Dividends” regarding cer-
tain statements made by the US Treasury concerning
depositary arrangements.
This discussion assumes that each obligation in the
Deposit Agreement and any related agreement will be
performed in accordance with its terms.
Dividends. US Holders will be required to include in gross
income, as an item of ordinary income, the full amount
(without reduction for any Withholding Tax) of the divi-
dend paid with respect to our shares or ADRs at the time
that such dividend is received by the US Holder, in the
case of shares, or by the depositary, in the case of ADRs.
For this purpose, a “dividend” will include any distribu-
tion paid by us with respect to our shares or ADRs (other
than certain pro rata distributions of our capital stock)
paid out of our current or accumulated earnings and prof-
its, as determined under US federal income tax princi-
ples. To the extent the amount of a distribution by us
exceeds our current and accumulated earnings and prof-
its, such excess will first be treated as a tax-free return
of capital to the extent of a US Holder’s tax basis in the
shares or ADRs (with a corresponding reduction in such
tax basis), and thereafter will be treated as capital gain,
which will be long-term capital gain if the US Holder held
our shares or ADRs for more than one year. Under the
Code, dividend payments by us on the shares or ADRs
are not eligible for the dividends received deduction gen-
erally allowed to corporate shareholders.
Dividend income in respect of our shares or ADRs
will constitute income from sources outside the US for
US foreign tax credit purposes. Subject to the limitations
173
Item 10. Additional Information
and conditions provided in the Code, US Holders gener-
ally may claim as a credit against their US federal income
tax liability, any Withholding Tax withheld from a dividend.
The rules governing the foreign tax credit are complex.
Each US Holder is urged to consult its own tax advisor
concerning whether, and to what extent, a foreign tax
credit will be available with respect to dividends received
from us. Alternatively, a US Holder may claim the With-
holding Tax as a deduction for the taxable year within
which the Withholding Tax is paid or accrued, provided
a deduction is claimed for all of the foreign income taxes
the US Holder pays or accrues in the particular year. A
deduction does not reduce US tax on a dollar-for-dollar
basis like a tax credit. The deduction, however, is not
subject to the limitations applicable to foreign tax cred-
its, but may be subject to other limitations, and each US
Holder is urged to consult its own tax advisor.
The US Treasury has expressed concern that parties
to whom ADRs are released may be taking actions incon-
sistent with the claiming of foreign tax credits for US
Holders of ADRs. Accordingly, the summary above of the
creditability of the Withholding Tax could be affected by
future actions that may be taken by the US Treasury.
In general, a US Holder will be required to determine
the amount of any dividend paid in Swiss francs, includ-
ing the amount of any Withholding Tax imposed thereon,
by translating the Swiss francs into US dollars at the spot
rate on the date the dividend is actually or constructively
received by a US Holder, in the case of shares, or by the
depositary, in the case of ADRs, regardless of whether
the Swiss francs are in fact converted into US dollars. If
a US Holder converts the Swiss francs so received into
US dollars on the date of receipt, the US Holder gener-
ally should not recognize foreign currency gain or loss
on such conversion. If a US Holder does not convert the
Swiss francs so received into US dollars on the date of
receipt, the US Holder will have a tax basis in the Swiss
francs equal to the US dollar value on such date. Any for-
eign currency gain or loss that a US Holder recognizes
on a subsequent conversion or other disposition of the
Swiss francs generally will be treated as US source ordi-
nary income or loss.
For a non-corporate US Holder, the US dollar amount
of any dividends paid that constitute qualified dividend
income generally will be taxable at a maximum rate of
15% (or 20% in the case of taxpayers with annual income
that exceeds certain thresholds), provided that the US
Holder meets certain holding period and other require-
ments. In addition, the dividends could be subject to a
3.8% net investment income tax. This tax is applied
against the lesser of the US Holder’s net investment
income or the amount by which modified adjusted gross
income exceeds a statutory threshold amount based on
filing status. We currently believe that dividends paid with
respect to our shares and ADRs will constitute qualified
dividend income for US federal income tax purposes,
provided that the US Holder meets certain holding period
and other requirements. US Holders of shares or ADRs
are urged to consult their own tax advisors regarding the
availability to them of the reduced dividend rate in light
of their own particular situation and the computations of
their foreign tax credit limitation with respect to any qual-
ified dividends paid to them, as applicable.
Sale or other taxable disposition. Upon a sale or other
taxable disposition of shares or ADRs, US Holders gen-
erally will recognize capital gain or loss in an amount
equal to the difference between the US dollar value of
the amount realized on the disposition and the US Hold-
er’s tax basis (determined in US dollars) in the shares or
ADRs. This capital gain or loss generally will be US
source gain or loss and will be treated as long-term cap-
ital gain or loss if the holding period in the shares or ADRs
exceeds one year. In the case of a non-corporate US
Holder, any long-term capital gain generally will be sub-
ject to US federal income tax at preferential rates, with
a maximum rate of 15% (or 20% in the case of taxpayers
with annual income that exceeds certain thresholds). In
addition, the gains could be subject to a 3.8% investment
income tax. This tax is applied against the lesser of the
US Holder’s net investment income or the amount by
which modified adjusted gross income exceeds a stat-
utory threshold amount based on filing status. The
deductibility of capital losses is subject to significant lim-
itations under the Code. Deposits or withdrawals of our
shares by US Holders in exchanges for ADRs will not
result in the realization of gain or loss for US federal
income tax purposes.
US information reporting and backup withholding. Divi-
dend payments with respect to shares or ADRs and pro-
ceeds from the sale, exchange or other disposition of
shares or ADRs received in the United States or through
US-related financial intermediaries may be subject to
information reporting to the US Internal Revenue Service
(IRS) and possible US backup withholding. Certain
exempt recipients (such as corporations) are not subject
to these information reporting and backup withholding
requirements. Backup withholding will not apply to a US
Holder who furnishes a correct taxpayer identification
number and makes any other required certification or
who is otherwise exempt from backup withholding. Any
US Holders required to establish their exempt status
generally must provide a properly executed IRS Form W-9
(Request for Taxpayer Identification Number and Certi-
fication). Backup withholding is not an additional tax.
Amounts withheld as backup withholding may be cred-
ited against a US Holder’s US federal income tax liabil-
ity, and a US Holder may obtain a refund of any excess
amounts withheld under the backup withholding rules by
timely filing the appropriate claim for refund with the IRS
and furnishing any required information.
10.F Dividends and paying agents
Not applicable.
174
Item 10. Additional Information
10.G Statement by experts
Not applicable.
10.H Documents on display
Any statement in this Form 20-F about any of our con-
tracts or other documents is not necessarily complete.
If the contract or document is filed as an exhibit to the
Form 20-F, the contract or document is deemed to mod-
ify the description contained in this Form 20-F. You must
review the exhibits themselves for a complete descrip-
tion of the contract or document.
The SEC maintains an internet site at http://www.sec.
gov that contains reports and other information regard-
ing issuers that file electronically with the SEC. These
SEC filings are also available to the public from commer-
cial document retrieval services.
We are required to file or furnish reports and other
information with the SEC under the Exchange Act and
regulations under that act. As a foreign private issuer, we
are exempt from the rules under the Exchange Act pre-
scribing the form and content of proxy statements, and
our officers, directors and principal shareholders are
exempt from the reporting and short swing profit recov-
ery provisions contained in Section 16 of the Exchange
Act.
10.I Subsidiary information
Not applicable.
175
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 11. Quantitative and Qualitative
Disclosures About Market Risk
The major financial risks facing the Group are managed
centrally by Group Treasury. We have a written Treasury
Directive and have implemented a strict segregation of
front-office and back-office controls. The Group does
regular reconciliations of its positions with its counter-
parties. In addition, the Treasury function is included in
management’s internal control assessment.
For information about the effects of currency fluctu-
ations and how we manage currency risk, see “Item 5.
Operating and Financial Review and Prospects—Item 5.B
Liquidity and capital resources.”
The information set forth under “Item 18. Financial
Statements—Note 29. Financial instruments—additional
disclosures” is incorporated by reference.
176
Item 12. Description of Securities Other Than Equity Securities
Item 12. Description of Securities Other Than
Equity Securities
12.A Debt securities
Not applicable.
12.B Warrants and rights
Not applicable.
12.C Other securities
Not applicable.
12.D American Depositary Shares
Fees payable by ADR holders
According to our Deposit Agreement with the ADS depositary, JPMorgan Chase Bank, N.A. (JPMorgan), holders
of our ADRs may have to pay to JPMorgan, either directly or indirectly, fees or charges up to the amounts set forth
below:
Category
Depositary actions
Depositing or substituting Acceptance of shares surrendered, and issuance of ADRs in exchange,
underlying shares
including surrenders and issuances in respect of:
— Share distributions
— Stock split
— Rights
— Merger
— Exchange of shares or any other transaction or event or other distribution
affecting the ADSs or the deposited shares
Acceptance of ADRs surrendered for withdrawal of deposited shares
Distribution or sale of shares, the fee being in an amount equal to the fee
for the execution and delivery of ADRs that would have been charged
as a result of the deposit of such shares
Associated fee
USD 5.00 for each 100 ADSs
(or portion thereof)
evidenced by the new
ADRs delivered
USD 5.00 for each 100 ADSs
(or portion thereof)
evidenced by the ADRs
surrendered
USD 5.00 for each 100 ADSs
(or portion thereof)
Transfers, combining or grouping of depositary receipts
USD 1.50 per ADR
Expenses incurred on behalf of holders in connection with:
— Compliance with foreign exchange control regulations or any law or
regulation relating to foreign investment
— The depositary’s or its custodian’s compliance with applicable law,
rule or regulation
— Stock transfer or other taxes and other governmental charges
— Cable, telex and facsimile transmission and delivery
— Expenses of the depositary in connection with the conversion of foreign
currency into US dollars (which are paid out of such foreign currency)
— Any other charge payable by any of the depositary or its agents
Expenses payable at the sole
discretion of the depositary
by billing holders or by
deducting charges from one
or more cash dividends or
other cash distributions
Advance tax relief
Tax relief/reclamation process for qualified holders
A depositary service charge
of USD 0.008 per ADS
177
Withdrawing
underlying shares
Selling or
exercising rights
Transferring,
splitting or
grouping receipts
Expenses of the
depositary
Item 12. Description of Securities Other Than Equity Securities
Fees payable by the depositary to the
issuer
Pursuant to an agreement effective as of May 11, 2017
(“the Agreement”), JPMorgan, as our ADS depositary,
has agreed to make an annual contribution payment to
Novartis at the end of each 12-month period beginning
on the effective date of the Agreement and on each sub-
sequent anniversary of the effective date of the Agree-
ment (each such 12-month period is a “Contract Year”).
This annual contribution payment will equal: (a)(1) USD
1.7 million less (a)(2) the custody costs, fees and expenses
(including, without limitation, any central securities
depository fees, charges and expenses) incurred during
the applicable Contract Year (the items in (a)(2) collec-
tively are the “Custody Costs”) plus (b) 70% of the gross
issuance and cancellation fees collected by JPMorgan
under the Deposit Agreement during such Contract Year
minus (c) that portion (if any) of JPMorgan’s legal fees,
charges and out-of-pocket expenses in excess of USD
50 000 for such Contract Year. To the extent that the
Custody Costs for a Contract Year exceed USD 1.7 mil-
lion, these costs would be capped at USD 1.7 million.
JPMorgan has further agreed to waive the USD 0.05
per ADS issuance fees that would normally be owed by
Novartis in connection with our deposits of shares as
part of our employee stock ownership and employee par-
ticipation plans. Novartis is responsible for reimbursing
JPMorgan for all taxes and governmental charges
required to have been withheld and/or paid, and not so
withheld and/or paid, arising from such waived fees.
178
Item 13. Defaults, Dividend Arrearages and Delinquencies
PART II
Item 13. Defaults, Dividend Arrearages and
Delinquencies
None.
179
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 14. Material Modifications to the Rights
of Security Holders and Use of Proceeds
None.
180
Item 15. Controls and Procedures
Item 15. Controls and Procedures
Report of Novartis Management on Internal Control Over Financial Reporting
Novartis AG’s Chief Executive Officer and Chief Finan‑
cial Officer, after evaluating the effectiveness of our dis‑
closure controls and procedures (as defined in Exchange
Act Rule 13a‑15(e)) as of the end of the period covered
by this Annual Report, have concluded that, as of such
date, our disclosure controls and procedures were effec‑
tive.
The Board of Directors and management of the
Group are responsible for establishing and maintaining
adequate internal control over financial reporting. The
Group’s internal control system was designed to provide
reasonable assurance to the Group’s management and
Board of Directors regarding the reliability of financial
reporting and the preparation and fair presentation of its
published consolidated financial statements.
All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even
those systems determined to be effective may not pre‑
vent or detect misstatements and can provide only rea‑
sonable assurance with respect to financial statement
preparation and presentation. Also, projections of any
evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compli‑
ance with the policies or procedures may deteriorate.
Group management assessed the effectiveness of
the Group’s internal control over financial reporting as
of December 31, 2020. In making this assessment, it used
the criteria established in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsor‑
ing Organizations of the Treadway Commission (COSO).
Based on our assessment, management concluded that,
as of December 31, 2020, the Group’s internal control
over financial reporting is effective based on those cri‑
teria.
PricewaterhouseCoopers AG, Switzerland, an inde‑
pendent registered public accounting firm, has issued
an unqualified opinion on the effectiveness of the Group’s
internal control over financial reporting, which is included
in this Annual Report under “Item 18. Financial State‑
ments—Report of
independent registered public
accounting firm.”
See the report of PwC, an independent registered
public accounting firm, included under “Item 18. Finan‑
cial Statements—Report of independent registered pub‑
lic accounting firm.”
There were no changes to our internal control over
financial reporting that occurred during the period cov‑
ered by this Annual Report that have materially affected,
or are reasonably likely to materially affect, our internal
control over financial reporting.
Vas Narasimhan
Chief Executive Officer
Harry Kirsch
Chief Financial Officer
Basel, January 25, 2021
181
Item 16A. Audit Committee Financial Expert
Item 16A. Audit Committee Financial Expert
Our Audit and Compliance Committee has determined
that Srikant Datar and Elizabeth Doherty each possess
specific accounting and financial management expertise
and that each is an Audit Committee Financial Expert as
defined by the SEC. The Board of Directors has also
determined that Srikant Datar and Elizabeth Doherty are
each “independent” in accordance with the applicable
requirements of Rule 10A‑3 of the Exchange Act, and
that other members of the Audit and Compliance Com‑
mittee have sufficient experience and ability in finance
and compliance matters to enable them to adequately
discharge their responsibilities.
182
Item 16B. Code of Ethics
Item 16B. Code of Ethics
In addition to our Code of Ethics and Professional Prac‑
tices Policy, which are applicable to all of our associates,
we have adopted Ethical Conduct Requirements that
impose additional obligations on our principal executive
officer, principal financial officer, principal accounting
officer, and persons performing similar functions. This
document is accessible on our internet website at:
https://www.novartis.com/investors/company‑over‑
view/corporate‑governance
183
Item 16C. Principal Accountant Fees and Services
Item 16C. Principal Accountant Fees and
Services
The information set forth under “Item 6. Directors, Senior Management and Employees—Item 6.C Board practices—
Corporate governance—Auditors” is incorporated by reference.
184
Item 16D. Exemptions from the Listing Standards for Audit Committees
Item 16D. Exemptions from the Listing
Standards for Audit Committees
Not applicable.
185
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16E. Purchases of Equity Securities by
the Issuer and Affiliated Purchasers
Total number
of shares
purchased
as part of
publicly
announced
plans or
programs
(c) 2
Average price
Total number of paid per share
in USD
(b)
shares purchased
(a) 1
1 127 034
315 761
28 093
67 831
7 990
22 601
13 275
95.09
95.18
89.61
83.63
85.29
86.85
87.91
0
0
0
0
0
0
0
1 806 646
87.15 1 800 000
12 951 800
88.85 12 917 162
9 896 929
87.06 9 882 838
1 350 036
89.71 1 340 000
6 715 051
91.22 6 700 000
34 303 047
88.99 32 640 000
Maximum
approximate
value of
shares that
may yet be
purchased
under the
plans or
programs
(CHF millions)
(d)
Maximum
approximate
value of
shares that
may yet be
purchased
under the
plans or
programs
(USD millions)
(e) 3
4 752
4 752
4 752
4 752
4 752
4 752
4 752
4 610
3 559
2 774
2 665
2 122
4 897
4 913
4 937
4 881
4 932
4 989
5 245
5 102
3 862
3 032
2 953
2 409
2020
Jan. 1‑31
Feb. 1‑28
Mar. 1‑31
Apr. 1‑30
May 1‑31
Jun. 1‑30
Jul. 1‑31
Aug. 1‑31
Sep. 1‑30
Oct. 1‑31
Nov. 1‑30
Dec. 1‑31
Total
1 Column (a) shows shares repurchased on the SIX Swiss Exchange second trading line plus shares we purchased from employees who had
obtained the shares through a Novartis Employee Ownership Plan. See “Item 18. Financial Statements – Note 26 Equity‑based participation
plans for associates.”
2 Column (c) shows shares repurchased on the SIX Swiss Exchange second trading line under the eighth CHF 10 billion share buyback
authority approved at the 2019 AGM. See “Item 6. Directors, Senior Management and Employees – Item 6C. Board Practices – Our capital
structure – Changes in capital.”
3 Column (e) shows the Swiss franc amount from column (d) converted into US dollars as of the month‑end, using the Swiss franc/US dollar
exchange rate at the applicable month‑end
186
Item 16F. Change in Registrant’s Certifying Accountant
Item 16F. Change in Registrant’s Certifying
Accountant
Not applicable.
187
Item 16G. Corporate Governance
Item 16G. Corporate Governance
Novartis AG is subject to and compliant with the laws
and regulations of Switzerland (in particular, Swiss com‑
pany and securities laws, SIX Swiss Exchange rules and
the Swiss Code of Best Practice for Corporate Gover‑
nance) and the securities laws of the United States,
including New York Stock Exchange (NYSE) rules, as
applicable to foreign private issuers of securities. The
following summarizes some significant ways in which our
corporate governance practices differ from those fol‑
lowed by domestic listed US companies under the list‑
ing standards of the NYSE:
• Novartis AG shareholders do not receive written
reports directly from Board committees.
• External auditors are appointed by shareholders at the
Annual General Meeting of Shareholders (AGM), as
opposed to being appointed by the Audit and Compli‑
ance Committee.
• While shareholders cannot vote on all equity compen‑
sation plans, they are entitled to hold separate, yearly
binding votes on Board and Executive Committee com‑
pensation.
• The Board has set up a separate Risk Committee that
oversees the risk management system and processes,
as opposed to delegating this responsibility to the Audit
and Compliance Committee.
• The full Board is responsible for overseeing the
performance evaluation of the Board and Executive
Committee.
• The full Board is responsible for setting objectives rel‑
evant to the CEO’s compensation and for evaluating
his performance.
188
Item 16H. Mine Safety Disclosure
Item 16H. Mine Safety Disclosure
Not applicable.
189
Item 17. Financial Statements
PART III
Item 17. Financial Statements
See response to “Item 18. Financial Statements.”
190
Item 18. Financial Statements
Item 18. Financial Statements
The following financial statements are filed as part of this Annual Report.
Consolidated income statements
Consolidated statements of comprehensive income
Consolidated balance sheets
Consolidated statements of changes in equity
Consolidated statements of cash flows
Notes to the Novartis Group consolidated financial statements
1. Significant accounting policies
2. Significant transactions
3. Segmentation of key figures 2020, 2019 and 2018
4. Associated companies
5. Interest expense and other financial income and expense
6. Taxes
7. Earnings per share
8. Changes in consolidated statements of comprehensive income
9. Property, plant and equipment
10. Right‑of‑use assets and lease liabilities
11. Goodwill and intangible assets
12. Deferred tax assets and liabilities
13. Financial and other non‑current assets
14. Inventories
15. Trade receivables
16. Marketable securities, commodities, time deposits, derivative financial instruments,
and cash and cash equivalents
17. Other current assets
18. Equity
19. Non‑current financial debt
20. Provisions and other non‑current liabilities
21. Current financial debt and derivative financial instruments
22. Provisions and other current liabilities
23. Details to the consolidated statements of cash flows
24. Acquisitions of businesses
25. Post‑employment benefits for associates
26. Equity‑based participation plans for associates
27. Transactions with related parties
28. Commitments and contingencies
29. Financial instruments – additional disclosures
30. Discontinued operations
31. Events subsequent to the December 31, 2020, consolidated balance sheet date
32. Principal Group subsidiaries and associated companies
Report of the statutory auditor on the consolidated financial statements of Novartis AG
Financial statements of Novartis AG
Notes to the financial statements of Novartis AG
Appropriation of available earnings and reserves of Novartis AG
Report of the statutory auditor on the financial statements of Novartis AG
Page
F‑1
F‑2
F‑3
F‑4
F‑5
F‑6
F‑6
F‑15
F‑19
F‑29
F‑30
F‑31
F‑32
F‑33
F‑34
F‑36
F‑37
F‑40
F‑42
F‑42
F‑42
F‑44
F‑44
F‑44
F‑47
F‑48
F‑52
F‑53
F‑55
F‑58
F‑59
F‑63
F‑66
F‑67
F‑69
F‑78
F‑82
F‑83
F‑85
A‑1
A‑3
A‑11
A‑12
191
Item 19. Exhibits
Item 19. Exhibits
The SEC maintains an internet site at http://www.sec.gov that contains reports and other information regarding
issuers that file electronically with the SEC. These SEC filings are also available to the public from commercial doc‑
ument retrieval services.
1.1 Articles of Incorporation of Novartis AG, as amended February 28, 2020 (English translation) (incorpo‑
rated by reference to Exhibit 4.1 to Novartis AG’s registration statement on Form S‑8 (File No. 333‑250207)
as filed with the SEC on November 19, 2020).
1.2 Regulations of the Board of Directors, the Board Committees and the Executive Committee of Novartis
AG, effective January 1, 2021.
2.1 Amended and Restated Deposit Agreement, dated as of May 11, 2000, among Novartis AG, JPMorgan
Chase Bank (fka Morgan Guaranty Trust Company of New York), as depositary, and all holders from time
to time of ADRs issued thereunder (incorporated by reference to Exhibit (a)(1) to Post‑Effective Amend‑
ment No. 1 to Novartis AG’s registration statement on Form F‑6 (File No. 333‑11758) as filed with the SEC
on September 8, 2000).
2.2 Amendment No. 1 to the Amended and Restated Deposit Agreement (incorporated by reference to
Exhibit (a)(2) to Post‑Effective Amendment No. 1 to Novartis AG’s registration statement on Form F‑6
(File No. 333‑11758) as filed with the SEC on September 8, 2000).
2.3 Amendment No. 2 to the Amended and Restated Deposit Agreement (incorporated by reference to
Exhibit (a)(3) to Novartis AG’s registration statement on Form F‑6 (File No. 333‑13446) as filed with the
SEC on May 3, 2001).
2.4 Restricted Issuance Agreement, dated as of January 11, 2002, among Novartis AG, JPMorgan Chase
Bank, as depositary, and all holders from time to time of ADRs representing ADSs issued thereunder
(incorporated by reference to Exhibit 4 to the Registration Statement on Form F‑3 (File No. 333‑81862)
as filed with the SEC on January 31, 2002).
2.5 Letter Agreement, dated December 14, 2007, between Novartis AG and JPMorgan Chase Bank, as depos‑
itary (incorporated by reference to Exhibit 2.4 to the Form 20‑F for the year ended December 31, 2007,
as filed with the SEC on January 28, 2008).
2.6 Form of American Depositary Receipt (incorporated by reference to Exhibit (a)(7) to the Registration
Statement on Form F‑6 (File No. 333‑198623) as filed with the SEC on September 8, 2014).
2.7 The total amount of long‑term debt securities authorized under any instrument does not exceed 10% of
the total assets of the Company and its subsidiaries on a consolidated basis. We hereby agree to furnish
to the SEC, upon its request, a copy of any instrument defining the rights of holders of long‑term debt of
the Company or of its subsidiaries for which consolidated or unconsolidated financial statements are
required to be filed.
2.8 Description of Securities registered under Section 12 of the Exchange Act.
8.1 For a list of all of our principal Group subsidiaries and associated companies, see “Item 18. Financial
Statements—Note 32. Principal Group subsidiaries and associated companies.”
12.1 Certification of Vasant Narasimhan, Chief Executive Officer of Novartis AG, pursuant to Section 302 of
the Sarbanes‑Oxley Act of 2002.
12.2 Certification of Harry Kirsch, Chief Financial Officer of Novartis AG, pursuant to Section 302 of the Sar‑
banes‑Oxley Act of 2002.
13.1 Certification of Vasant Narasimhan, Chief Executive Officer of Novartis AG, pursuant to Section 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.
192
Item 19. Exhibits
13.2 Certification of Harry Kirsch, Chief Financial Officer of Novartis AG, pursuant to Section 18 U.S.C. Sec‑
tion 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.
15.1 Consent of PricewaterhouseCoopers AG.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
193
(This page has been left blank intentionally.)
194
Novartis Group consolidated financial statements
Novartis Group
consolidated financial statements
Consolidated income statements
(For the years ended December 31, 2020, 2019 and 2018)
(USD millions unless indicated otherwise)
Net sales to third parties from continuing operations
Sales to discontinued segment
Net sales from continuing operations
Other revenues
Cost of goods sold
Gross profit from continuing operations
Selling, general and administration
Research and development
Other income
Other expense
Operating income from continuing operations
Income from associated companies
Interest expense
Other financial income and expense
Income before taxes from continuing operations
Taxes
Net income from continuing operations
Net loss from discontinued operations before gain on
distribution of Alcon Inc. to Novartis AG shareholders
Gain on distribution of Alcon Inc. to Novartis AG shareholders
Net income/(loss) from discontinued operations
Net income
Attributable to:
Shareholders of Novartis AG
Non-controlling interests
Basic earnings per share (USD) from continuing operations
Basic earnings per share (USD) from discontinued operations
Total basic earnings per share (USD)
Diluted earnings per share (USD) from continuing operations
Diluted earnings per share (USD) from discontinued operations
Total diluted earnings per share (USD)
The accompanying Notes form an integral part of the consolidated financial statements.
Note
2020
2019
2018
3
48 659
47 445
44 751
53
82
48 659
47 498
44 833
3
1 239
1 179
1 266
– 15 121
– 14 425
– 14 510
34 777
34 252
31 589
– 14 197
– 14 369
– 13 717
– 8 980
– 9 402
– 8 489
1 742
2 031
1 629
– 3 190
– 3 426
– 2 609
10 152
9 086
673
– 869
– 78
659
– 850
45
4
5
5
8 403
6 438
– 932
186
9 878
8 940
14 095
6
– 1 807
– 1 793
– 1 295
8 071
7 147
12 800
30
2
30
– 101
4 691
4 590
– 186
– 186
8 071
11 737
12 614
8 072
11 732
12 611
– 1
5
3
3.55
7
3.55
3.52
7
3.52
3.12
2.00
5.12
3.08
1.98
5.06
5.52
– 0.08
5.44
5.46
– 0.08
5.38
F-1
Novartis Group consolidated financial statements
Consolidated statements of comprehensive income
(For the years ended December 31, 2020, 2019 and 2018)
(USD millions)
Net income
Note
2020
2019
2018
8 071
11 737
12 614
Other comprehensive income to be eventually recycled into the consolidated income statement:
Fair value adjustments on debt securities, net of taxes
Fair value adjustments on deferred cash flow hedges, net of taxes
Total fair value adjustments on financial instruments, net of taxes
Novartis share of other comprehensive income
recognized by associated companies, net of taxes
Net investment hedge
Currency translation effects
Total of items to eventually recycle
Other comprehensive income never to be recycled into the consolidated income statement:
Actuarial gains/(losses) from defined benefit plans, net of taxes
Fair value adjustments on equity securities, net of taxes
Total of items never to be recycled
Total comprehensive income
Attributable to:
Shareholders of Novartis AG
Continuing operations
Discontinued operations
Non-controlling interests
The accompanying Notes form an integral part of the consolidated financial statements.
8
8
4
8
8
8
8
– 56
– 201
3 194
2 937
143
250
393
1
1
2
– 94
44
352
304
– 467
– 47
– 514
12
12
– 482
95
315
– 60
– 359
13
– 346
11 401
11 527
12 208
11 403
11 525
12 210
11 403
6 948
12 417
4 577
– 207
– 2
2
– 2
F-2
Novartis Group consolidated financial statements
Consolidated balance sheets
(At December 31, 2020 and 2019)
(USD millions)
Assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Goodwill
Intangible assets other than goodwill
Investments in associated companies
Deferred tax assets
Financial assets
Other non-current assets
Total non-current assets
Current assets
Inventories
Trade receivables
Income tax receivables
Marketable securities, commodities, time deposits and derivative financial instruments
Cash and cash equivalents
Other current assets
Total current assets without disposal group
Assets of disposal group held for sale
Total current assets
Total assets
Equity and liabilities
Equity
Share capital
Treasury shares
Reserves
Equity attributable to Novartis AG shareholders
Non-controlling interests
Total equity
Liabilities
Non-current liabilities
Financial debts
Lease liabilities
Deferred tax liabilities
Provisions and other non-current liabilities
Total non-current liabilities
Current liabilities
Trade payables
Financial debts and derivative financial instruments
Lease liabilities
Current income tax liabilities
Provisions and other current liabilities
Total current liabilities without disposal group
Liabilities of disposal group held for sale
Total current liabilities
Total liabilities
Total equity and liabilities
The accompanying Notes form an integral part of the consolidated financial statements.
F-3
Note
2020
2019
9
10
11
11
4
12
13
13
14
15
16
16
17
2
12 263
12 069
1 676
1 677
29 999
26 524
36 809
28 787
9 632
8 214
2 901
892
8 644
7 909
2 518
738
102 386
88 866
7 131
8 217
239
1 905
5 982
8 301
254
334
9 658
11 112
2 523
2 680
29 673
28 663
841
29 673
29 504
132 059
118 370
18
18
913
– 53
936
– 80
55 738
54 618
56 598
55 474
68
77
56 666
55 551
19
10
12
20
21
10
26 259
20 353
1 719
7 422
6 934
1 703
5 867
6 632
42 334
34 555
5 403
9 785
286
5 424
7 031
246
2 458
2 194
22
15 127
13 338
33 059
28 233
2
31
33 059
28 264
75 393
62 819
132 059
118 370
Novartis Group consolidated financial statements
Consolidated statements of changes in equity
(For the years ended December 31, 2020, 2019 and 2018)
Note
8
8
18.1
18.1
18.2
18
18.2
18.2
18.2
(USD millions)
Total equity at December 31, 2017, as
previously reported
Impact of change in accounting policies
Restated equity at January 1, 2018
Net income
Other comprehensive income
Total comprehensive income
Dividends
Purchase of treasury shares
Reduction of share capital
Exercise of options and employee transactions
Other share sales
Equity-based compensation
Increase of treasury share repurchase
18.3
obligation under a share buyback trading plan
18.8
Transaction costs, net of taxes
8
Fair value adjustments on financial assets sold
Impact of change in ownership of consolidated entities 18.5
18.6
Changes in non-controlling interests
18.7
Other movements
Total of other equity movements
Total equity at December 31, 2018, as
previously reported
Impact of change in accounting policies
Restated equity at January 1, 2019
Net income
Other comprehensive income
Total comprehensive income
Dividends
Dividend in kind to effect the
spin-off of Alcon Inc.
Purchase of treasury shares
Reduction of share capital
Exercise of options and employee transactions
Equity-based compensation
Shares delivered to Alcon employees
as a result of the Alcon spin-off
Taxes on treasury share transactions
Decrease of treasury share repurchase
18.3
obligation under a share buyback trading plan
18.8
Transaction costs, net of taxes
8
Fair value adjustments on financial assets sold
Impact of change in ownership of consolidated entities 18.5
18.6
Changes in non-controlling interests
8
Fair value adjustments related to divestments
18.7
Other movements
Total of other equity movements
Total equity at December 31, 2019
Net income
Other comprehensive income
Total comprehensive income
Dividends
Purchase of treasury shares
Reduction of share capital
Exercise of options and employee transactions
Repurchase of options
Equity-based compensation
Shares delivered to Alcon employees
as a result of the Alcon spin-off
Taxes on treasury share transactions
Increase of treasury share repurchase
18.3
obligation under a share buyback trading plan
8
Fair value adjustments on financial assets sold
8
Fair value adjustments related to divestments
Impact of change in ownership of consolidated entities 18.5
18.7
Other movements
Total of other equity movements
Total equity at December 31, 2020
18.1
18.2
18
18.2
18.4
18.2
2
18.2
18
18.2
18.2
18.2
18.2
8
Share
capital
Treasury
shares
969
– 100
969
– 100
– 25
– 13
34
4
2
4
– 25
31
944
– 69
944
– 69
Reserves
Equity
attributable
Retained Total value
to Novartis
earnings adjustments shareholders
Non-
controlling
interests
77 639
237
77 876
12 611
– 482
12 129
– 6 966
– 1 960
– 9
430
261
752
– 284
– 79
16
– 13
38
– 7 814
82 191
3
82 194
11 732
– 94
11 638
– 6 645
– 4 340
– 177
– 4 517
81
81
– 16
– 16
– 4 452
– 4 452
– 113
– 113
74 168
60
74 228
12 611
– 401
12 210
– 6 966
– 1 973
434
263
756
– 284
– 79
– 13
38
– 7 824
78 614
3
78 617
11 732
– 207
11 525
– 6 645
59
59
3
– 5
– 2
22
– 1
21
78
78
5
– 3
2
Total
equity
74 227
60
74 287
12 614
– 406
12 208
– 6 966
– 1 973
434
263
756
– 284
– 79
9
– 1
38
– 7 803
78 692
3
78 695
11 737
– 210
11 527
– 6 645
– 8
– 23 434
– 5 480
– 4
207
828
– 31
12
3
5
18
– 189
284
– 253
95
– 3
– 3
22
– 11 – 34 557
59 275
– 80
8 072
– 56
8 016
– 6 987
– 3 038
– 8
798
– 89
724
– 18
31
8
6
0
30
32
– 1 769
150
– 2
7
18
27 – 10 134
57 157
– 53
– 8
936
– 23
– 23
913
– 23 434
– 5 511
– 23 434
– 5 511
210
833
18
– 189
284
– 253
– 3
– 95
3
– 4 657
22
– 92 – 34 668
55 474
8 072
3 331
11 403
– 6 987
– 3 056
3 387
3 387
806
– 89
730
30
32
210
833
18
– 189
284
– 253
– 5
– 1
– 2
– 1
22
– 3 – 34 671
55 551
77
8 071
– 1
3 330
– 1
11 401
– 2
– 6 987
– 3 056
806
– 89
730
30
32
– 1 769
– 1 769
– 150
2
– 1
6
18
– 149 – 10 279
56 598
– 1 419
– 7
– 1
18
– 7 – 10 286
56 666
68
The accompanying Notes form an integral part of the consolidated financial statements.
F-4
Novartis Group consolidated financial statements
Consolidated statements of cash flows
(For the years ended December 31, 2020, 2019 and 2018)
(USD millions)
Net income from continuing operations
Adjustments to reconcile net income from continuing operations to
net cash flows from operating activities from continuing operations
Note
2020
2019
2018
8 071
7 147
12 800
Reversal of non-cash items and other adjustments
23.1
9 881
9 122
1 486
Dividends received from associated companies and others
Interest received
Interest paid
Other financial receipts
Other financial payments
Taxes paid
Net cash flows from operating activities from continuing operations before
working capital and provision changes
490
47
463
214
719
241
– 703
– 793
– 816
464
– 39
28
– 33
218
– 31
23.2
– 1 833
– 1 876
– 1 506
16 378
14 272
13 111
Payments out of provisions and other net cash movements in non-current liabilities
– 2 437
– 924
Change in net current assets and other operating cash flow items
23.3
– 291
199
– 638
576
Net cash flows from operating activities from continuing operations
13 650
13 547
13 049
Net cash flows from operating activities from discontinued operations
Total net cash flows from operating activities
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchases of intangible assets
Proceeds from sale of intangible assets
Purchases of financial assets
Proceeds from sale of financial assets
Purchases of other non-current assets
Proceeds from sale of other non-current assets
Acquisitions and divestments of interests in associated companies, net
Acquisitions and divestments of businesses, net
Purchases of marketable securities and commodities
Proceeds from sale of marketable securities and commodities
Net cash flows used in investing activities from continuing operations
78
1 223
13 650
13 625
14 272
– 1 275
– 1 379
– 1 254
88
857
102
– 1 310
– 878
– 1 394
380
– 230
723
– 61
2
– 7
973
– 302
1 152
– 60
3
– 6
823
– 205
165
– 39
9
12 854
– 9 957
– 3 760
– 13 683
– 1 900
– 228
– 2 440
492
2 561
472
– 13 055
– 1 067
– 4 590
23.4
23.5
Net cash flows used in investing activities from discontinued operations
30
– 127
– 1 159
– 1 001
Total net cash flows used in investing activities
Dividends paid to shareholders of Novartis AG
Acquisitions of treasury shares
Proceeds from exercised options and other treasury share transactions, net
Increase in non-current financial debts
Repayments of non-current financial debts
Change in current financial debts
Payments of lease liabilities, net
Impact of change in ownership of consolidated entities
Other financing cash flows, net
– 13 182
– 2 226
– 5 591
– 6 987
– 6 645
– 6 966
– 2 842
– 5 533
– 2 036
748
7 126
201
93
– 2 003
– 3 195
2 261
– 1 582
– 312
– 273
– 2
– 147
– 6
56
700
2 856
– 366
1 687
– 19
67
23.6
23.6
23.6
23.6
Net cash flows used in financing activities from continuing operations
– 2 158
– 16 884
– 4 077
Net cash flows used in/from financing activities from discontinued operations
30
– 50
3 257
– 167
Total net cash flows used in financing activities
– 2 208
– 13 627
– 4 244
Net change in cash and cash equivalents before effect of exchange
rate changes
Effect of exchange rate changes on cash and cash equivalents
Total net change in cash and cash equivalents
Cash and cash equivalents at January 1
Cash and cash equivalents at December 31
The accompanying Notes form an integral part of the consolidated financial statements.
– 1 740
– 2 228
286
69
– 1 454
– 2 159
11 112
13 271
4 437
– 26
4 411
8 860
9 658
11 112
13 271
F-5
Notes to the Novartis Group consolidated financial statements
Notes to the Novartis
Group consolidated financial statements
1. Significant accounting policies
The Novartis Group (Novartis or Group) is a multinational
group of companies specializing in the research, devel-
opment, manufacturing and marketing of a broad range
of innovative pharmaceuticals and cost-saving generic
medicines. The Group is headquartered in Basel, Swit-
zerland.
The consolidated financial statements of the Group
are prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the Interna-
tional Accounting Standards Board (IASB). They are pre-
pared in accordance with the historical cost convention,
except for items that are required to be accounted for
at fair value.
The Group’s financial year-end is December 31, which
is also the annual closing date of the individual entities’
financial statements incorporated into the Group’s con-
solidated financial statements.
The preparation of financial statements requires
management to make certain estimates and assump-
tions, either at the balance sheet date or during the year,
which affect the reported amounts of revenues, expenses,
assets, liabilities and contingent amounts.
Estimates are based on historical experience and
other assumptions that are considered reasonable under
the given circumstances and are regularly monitored.
Actual outcomes and results could differ from those esti-
mates and assumptions. Revisions to estimates are rec-
ognized in the period in which the estimate is revised.
Listed below are accounting policies of significance to
Novartis or, in cases where IFRS provides alternatives,
the option adopted by Novartis.
Scope of consolidation
The consolidated financial statements include all enti-
ties, including structured entities, over which Novartis
AG, Basel, Switzerland, directly or indirectly has control
(generally as a result of owning more than 50% of the
entity’s voting interest). Consolidated entities are also
referred to as “subsidiaries.”
In cases where Novartis does not fully own a subsid-
iary, it has elected to value any remaining outstanding
non-controlling interest at the time of acquiring control
of the subsidiary at its proportionate share of the fair
value of the net identified assets.
The contribution of a business to an associate or joint
venture is accounted for by applying the option under
IFRS that permits the accounting for the retained inter-
est of the business contributed at its net book value at
the time of the contribution.
Investments in associated companies (generally
defined as investments in entities in which Novartis holds
between 20% and 50% of voting shares or over which it
otherwise has significant influence) and joint ventures
are accounted for using the equity method, except for
selected venture fund investments for which the Group
has elected to apply the method of fair value through the
consolidated income statement.
Foreign currencies
The consolidated financial statements of Novartis are
presented in US dollars (USD). The functional currency
of subsidiaries is generally the local currency of the
respective entity. The functional currency used for the
reporting of certain Swiss and foreign finance entities is
USD instead of their respective local currencies. This
reflects the fact that the cash flows and transactions of
these entities are primarily denominated in these curren-
cies.
For subsidiaries not operating in hyperinflationary
economies, the subsidiary’s results, financial position
and cash flows that do not have USD as their functional
currency are translated into USD using the following
exchange rates:
• Income, expense and cash flows using for each month
the average exchange rate, with the US dollar values
for each month being aggregated during the year
• Balance sheets using year-end exchange rates
• Resulting exchange rate differences are recognized in
other comprehensive income
For subsidiaries operating in hyperinflationary econo-
mies, the impact of the restatement of the non-monetary
assets and liabilities with the general price index at the
beginning of the period is recorded in retained earnings
in equity. The subsequent gains or losses resulting from
the restatement of non-monetary assets are recorded
in “Other financial income and expense” in the consoli-
dated income statement.
Non-current assets held for sale or
held for distribution to owners
Non-current assets are accounted for as assets held for
sale or related to discontinued operations when their
carrying amount is to be recovered principally through
a sale transaction or distribution to owners and a sale or
distribution to owners is considered highly probable.
They are stated at the lower of carrying amount and fair
value less costs to sell with any resulting impairment rec-
ognized. Assets related to discontinued operations and
assets of disposal group held for sale are not depreci-
ated or amortized. The prior year consolidated balance
sheet is not restated.
If in a subsequent period, the criteria for classifica-
tion as held for sale are no longer met, the recoverable
amount of assets and liabilities are reclassified out of
F-6
Notes to the Novartis Group consolidated financial statements
assets held for sale into the respective balance sheet
lines, prior year consolidated balance sheet is not
restated. The cumulative amount of depreciation and
amortization not recorded since the date of their classi-
fication to assets held for sale, and any required adjust-
ments to the recoverable amounts of assets are recog-
nized in the consolidated income statement.
Distribution of Alcon Inc. to Novartis
AG shareholders
During the first quarter of 2019, at the Annual General
Meeting (AGM) of Novartis AG shareholders, held on
February 28, 2019, the Novartis AG shareholders
approved a special distribution by way of a dividend in
kind to effect the spin-off of Alcon Inc.
The February 28, 2019, shareholder approval for the
spin-off required the Alcon Division and selected por-
tions of corporate activities attributable to Alcon’s busi-
ness (the “Alcon business”) to be reported as discontin-
ued operations.
The shareholder approval to spin off the Alcon busi-
ness also required the recognition of a distribution liabil-
ity at the fair value of the Alcon business. The Group
elected to measure the distribution liability at the fair
value of the Alcon business net assets taken as a whole.
The distribution liability was recognized through a reduc-
tion in retained earnings. It was required to be adjusted
at each balance sheet date for changes in its estimated
fair value, up to the date of the distribution to sharehold-
ers through retained earnings. Any resulting impairment
of the business assets to be distributed would have been
recognized in the consolidated income statements in
“Other expense” of discontinued operations, at the date
of initial recognition of the distribution liability or at sub-
sequent dates resulting from changes of the distribution
liability valuation. At the April 8, 2019 distribution settle-
ment date, the resulting gain, which was measured as
the excess amount of the distribution liability over the
then-carrying value of the net assets of the business dis-
tributed, was recognized on the line “Gain on distribution
of Alcon Inc. to Novartis AG shareholders” in the income
statement of discontinued operations.
The recognition of the distribution liability required
the use of valuation techniques for purposes of impair-
ment testing of the Alcon business’ assets to be distrib-
uted and for the measurement of the fair value of the dis-
tribution liability. These valuations required the use of
management assumptions and estimates related to the
Alcon business’ future cash flows, market multiples to
estimate day one market value, and control premiums to
apply in estimating the Alcon business fair value. These
fair value measurements were classified as “Level 3” in
the fair value hierarchy. The section “—Impairment of
goodwill and intangible assets” in this Note 1 provides
additional information on key assumptions that are highly
sensitive in the estimation of fair values using valuation
techniques.
For additional disclosures, refer to “Note 2. Signifi-
cant transactions—Significant transactions in 2019—
Completion of the spin-off of the Alcon business through
a dividend in kind distribution to Novartis AG sharehold-
ers,” and “Note 30. Discontinued operations.”
Acquisition of assets and businesses
Assets separately acquired are recorded at cost, which
includes the purchase price and any directly attributable
costs for bringing the asset into the condition to operate
as intended. Expected costs for obligations to disman-
tle and remove property, plant and equipment when they
are no longer used are included in their cost.
Acquired businesses are accounted for using the
acquisition method, unless the optional concentration
test is applied. The optional concentration test allows for
the election on a transaction-by-transaction basis to
account for the acquired business as an asset separately
acquired when substantially all of the fair value of the
gross assets acquired is concentrated in a single iden-
tifiable asset or group of similar identifiable assets.
The acquisition method requires that the assets
acquired and liabilities assumed be recorded at their
respective fair values on the date the Group obtains con-
trol. The excess of the fair value of the total purchase
consideration transferred and the fair value of the
acquired assets and assumed liabilities is recognized as
goodwill. The related valuations are based on informa-
tion available at the acquisition date. Acquisition related
costs are expensed as incurred.
The application of the acquisition method requires
certain estimates and assumptions to be made, espe-
cially concerning the fair values of the acquired intangi-
ble assets, inventories, property, plant and equipment
and the liabilities assumed at the acquisition date, and
the useful lives of the intangible assets and property,
plant and equipment. Estimates of fair value require the
use of valuation techniques. These valuations require the
use of management assumptions and estimates, includ-
ing value of comparable assets in the market, amount
and timing of future cash flows, outcomes and costs of
research and development activities, probability of
obtaining regulatory approval, long-term sales forecasts,
actions of competitors, discount rates and terminal
growth rates. The section “—Impairment of goodwill and
intangible assets” in this Note 1 provides additional infor-
mation on key assumptions that are highly sensitive in
the estimation of fair values using valuation techniques.
Property, plant and equipment
Property, plant and equipment are depreciated on a
straight-line basis in the consolidated income statement
over their estimated useful lives. Freehold land is not
depreciated. The related depreciation expense is
included in the costs of the functions using the asset.
Transaction costs that were directly attributable to
the distribution (spin-off) of Alcon to the Novartis share-
holders, and that would otherwise have been avoided,
were recorded as a deduction from equity.
Property, plant and equipment are assessed for
impairment whenever there is an indication that the
balance sheet carrying amount may not be recoverable
using cash flow projections for the useful life.
F-7
Notes to the Novartis Group consolidated financial statements
The following table shows the respective useful lives
for property, plant and equipment:
Buildings
Machinery and other equipment
Machinery and equipment
Furniture and vehicles
Computer hardware
Useful life
20 to 40 years
7 to 20 years
5 to 10 years
3 to 7 years
Government grants obtained for construction activities,
including any related equipment, are deducted from the
gross acquisition cost to arrive at the balance sheet car-
rying value of the related assets.
Leases and right-of-use assets
From January 1, 2019, with the adoption of IFRS 16
Leases, the Group adopted the following accounting pol-
icies for leases and right-of-use assets:
As lessee, the Group assesses whether a contract
contains a lease at inception of a contract and upon the
modification of a contract. The Group elected to allocate
the consideration in the contract to the lease and non-
lease components on the basis of the relative standalone
price.
The Group recognizes a right-of-use asset and a cor-
responding lease liability for all arrangements in which
it is a lessee, except for leases with a term of 12 months
or less (short-term leases) and low-value leases. For
these short-term and low-value leases, the Group rec-
ognizes the lease payments as an operating expense on
a straight-line basis over the term of the lease.
The lease liability is initially measured at the present
value of the future lease payments as from the com-
mencement date of the lease to the end of the lease term.
The lease term includes the period of any lease exten-
sion that in management’s assessment is highly proba-
ble to be exercised by the Group. The lease payments
are discounted using the interest rate implicit in the lease
or, if not readily determinable, the Novartis incremental
borrowing rate for the asset subject to the lease in the
respective markets.
The Group remeasures the lease liability (and makes
a corresponding adjustment to the related right-of-use
asset) whenever there is a change to the lease terms or
expected payments under the lease, or a modification
that is not accounted for as a separate lease.
The portion of the lease payments attributable to the
repayment of lease liabilities is recognized in cash flows
used in financing activities, and the portion attributable
to the payment of interest is included in cash flows from
operating activities.
Right-of-use assets are initially recognized on the bal-
ance sheet at cost, which comprises the amount of the
initial measurement of the corresponding lease liability,
adjusted for any lease payments made at or prior to the
commencement date of the lease, any lease incentive
received and any initial direct costs incurred by Novartis,
and expected costs for obligations to dismantle and
remove right-of-use assets when they are no longer
used.
Right-of-use assets are depreciated on a straight-line
basis from the commencement date of the lease over
the shorter of the useful life of the right-of-use asset or
the end of the lease term.
Right-of-use assets are assessed for impairment
whenever there is an indication that the balance sheet
carrying amount may not be recoverable using cash flow
projections for the useful life.
In arrangements where the Group is the lessor, it
determines at lease inception whether the lease is a
finance lease or an operating lease. Leases that trans-
fer substantially all of the risk and rewards incidental to
ownership of the underlying asset to the counterparty
(the lessee) are accounted for as finance leases. Leases
that do not transfer substantially all of the risks and
rewards of ownership are accounted for as operating
leases. Lease payments received under operating leases
are recognized on a straight-line basis over the lease
term in the consolidated income statement in either “net
sales” or “other income,” depending on the nature of and
underlying asset to the lease arrangement.
Prior to January 1, 2019, the Group applied the following
accounting policies for leases:
Leases that transferred substantially all of the risks
and rewards of ownership were recognized as finance
leases, with the leased asset measured initially at an
amount equal to the lower of their fair value and the pres-
ent value of the minimum lease payments. Minimum lease
payments were the payments over the lease term that
the Group, as leasee, was required to make, excluding
contingent rent. The underlying asset was accounted for
in accordance with the accounting policy applicable to
that asset.
Leases that did not transfer substantially all of the
risks and rewards of ownership were accounted for as
operating leases and were not recognized in the consol-
idated balance sheet. Payments made under operating
leases were recognized in the consolidated income
statement on a straight-line basis over the term of the
lease. Lease incentives received were deferred and rec-
ognized as a component of lease expense over the term
of the lease. The future undiscounted lease payments
under operating leases were disclosed as commitments
in the notes to the consolidated financial statements.
Lessor accounting policies were not substantially dif-
ferent from those applied upon the adoption of IFRS 16
Leases, as described above.
The section “—Impact of adopting significant new IFRS
standards in 2019” in this Note 1 provides additional dis-
closures on the impact of adoption of IFRS 16 Leases.
Goodwill and intangible assets
Goodwill
Goodwill arises in the acquisition of a business when
applying the acquisition method and is the excess of the
fair value of the consideration transferred to acquire a
business over the underlying fair value of the net identi-
fied assets acquired. It is allocated to groups of cash-gen-
erating units (CGUs), which are usually represented by
the reported segments. Goodwill is tested for impairment
F-8
Notes to the Novartis Group consolidated financial statements
annually at the level of these groups of CGUs, and any
impairment charges are recorded under “Other expense”
in the consolidated income statement.
Intangible assets available for use
Novartis has the following classes of available for use
intangible assets: currently marketed products; technol-
ogies; other intangible assets (including computer soft-
ware).
Currently marketed products represent the compos-
ite value of acquired intellectual property (IP), patents,
distribution rights and product trade names.
Technologies represent identified and separable
acquired know-how used in the research, development
and production processes.
Significant investments in internally developed and
acquired computer software are capitalized and included
in the “Other” category, and amortized once available for
use.
Intangible assets available for use with a definite use-
ful life are amortized over their estimated useful lives on
a straight-line basis and are evaluated for potential
impairment whenever facts and circumstances indicate
that their carrying value may not be recoverable.
The following table shows the respective useful lives
for intangible assets available for use and the location in
the consolidated income statement in which the respec-
tive amortization and any potential impairment charge is
recognized:
Income statement location
for amortization and
impairment charges
Useful life
Currently marketed products 5 to 20 years
“Cost of goods sold”
Technologies
10 to 20 years
Other (including
computer software)
3 to 7 years
“Cost of goods sold”
or “Research
and development”
In the respective
functional expense
Intangible assets not yet available for use
Acquired research and development intangible assets
that are still under development and have accordingly
not yet obtained marketing approval are recognized as
in-process research and development (IPR&D).
IPR&D is not amortized, but is evaluated for potential
impairment on an annual basis or when facts and circum-
stances warrant. Any impairment charge is recorded in
the consolidated income statement under “Research and
development.” Once a project included in IPR&D has
been successfully developed, it is transferred to the
“Currently marketed products” category.
Impairment of goodwill and intangible
assets
An asset is considered impaired when its balance sheet
carrying amount exceeds its estimated recoverable
amount, which is defined as the higher of its fair value
less costs of disposal and its value in use. Usually,
Novartis applies the fair value less costs of disposal
method for its impairment assessment. In most cases,
no directly observable market inputs are available to
measure the fair value less costs of disposal. Therefore,
an estimate is derived indirectly and is based on net pres-
ent value techniques utilizing post-tax cash flows and
discount rates. In the limited cases where the value-in-
use method would be applied, net present value tech-
niques would be applied using pre-tax cash flows and
discount rates.
Fair value less costs of disposal reflects estimates of
assumptions that market participants would be expected
to use when pricing the asset or CGUs, and for this pur-
pose, management considers the range of economic
conditions that are expected to exist over the remaining
useful life of the asset.
The estimates used in calculating the net present val-
ues are highly sensitive and depend on assumptions spe-
cific to the nature of the Group’s activities with regard
to:
• Amount and timing of projected future cash flows
• Long-term sales forecasts
• Actions of competitors (launch of competing products,
marketing initiatives, etc.)
• Sales erosion rates after the end of patent or other
intellectual property rights protection, and timing of the
entry of generic competition
• Outcome of research and development activities (com-
pound efficacy, results of clinical trials, etc.)
• Amount and timing of projected costs to develop IPR&D
into commercially viable products
• Profit margins
• Probability of obtaining regulatory approval
• Future tax rate
• Appropriate terminal growth rate
• Appropriate discount rate
Generally, for intangible assets with a definite useful life,
Novartis uses cash flow projections for the whole useful
life of these assets. For goodwill, Novartis generally uti-
lizes cash flow projections for a five-year period based
on management forecasts, with a terminal value based
on cash flow projections usually in line with inflation rates
for later periods. Probability-weighted scenarios are
typically used.
Discount rates used consider the Group’s estimated
weighted average cost of capital, adjusted for specific
asset, country and currency risks associated with cash
flow projections, to approximate the discount rate that
market participants would use to value the asset.
Due to the above factors, actual cash flows and val-
ues could vary significantly from forecasted future cash
flows and related values derived using discounting tech-
niques.
Impairment of associated companies
accounted for at equity
Novartis considers investments in associated compa-
nies for impairment evaluation whenever objective evi-
dence indicates the net investment may be impaired,
including when a quoted share price indicates a fair value
less than the per-share balance sheet carrying value for
the investment.
F-9
Notes to the Novartis Group consolidated financial statements
If the recoverable amount of the investment is esti-
mated to be lower than the balance sheet carrying
amount, an impairment charge is recognized for the dif-
ference in the consolidated income statement under
“Income from associated companies.”
Cash and cash equivalents
Cash and cash equivalents include highly liquid invest-
ments with original maturities of three months or less,
which are readily convertible to known amounts of cash.
Bank overdrafts are usually presented within current
financial debts on the consolidated balance sheet,
except in cases where a right of offset has been agreed
with a bank, which then allows for presentation on a net
basis.
Marketable securities, commodities
and non-current financial assets
Commodities, which include gold bullion or coins, are
valued at the lower of cost or fair value using current
market prices. The changes in fair value below cost are
immediately recorded in “Other financial income and
expense.”
Marketable securities are financial assets held for
short-term purposes which are principally traded in liq-
uid markets and are classified within current assets on
the consolidated balance sheet. The financial impacts
related to these financial assets are recorded in “Other
financial income and expense” in the consolidated
income statement. Non-current financial assets held for
long-term strategic purposes are classified within
non-current assets on the consolidated balance sheet.
The financial impacts related to these financial assets
are recorded in “Other income” and “Other expense” in
the consolidated income statement.
Marketable securities and non-current financial
assets are initially recorded at fair value on their trade
date, which is different from the settlement date when
the transaction is ultimately effected. Quoted securities
are remeasured at each reporting date to fair value based
on current market prices. If the market for a financial
asset is not active or no market is available, fair values
are established using valuation techniques. The major-
ity of non-quoted investments are valued initially at fair
value through the established purchase price between
a willing buyer and seller. Non-quoted investments are
subsequently adjusted based on values derived from dis-
counted cash flow analysis or other pricing models.
These investment values are classified as “Level 3” in
the fair value hierarchy.
The Group classifies and accounts for its marketable
securities and non-current financial assets in the follow-
ing categories:
• Debt securities are valued at fair value through other
comprehensive income with subsequent recycling into
the consolidated income statement, as they meet both
the “solely payment of principal and interest” and the
business model criteria. Unrealized gains and losses,
except exchange gains and losses, are recorded as a
fair value adjustment in the consolidated statement of
comprehensive income. They are recognized in the
consolidated income statement when the debt instru-
ment is sold, at which time the gain is transferred to
“Other financial income and expense.” Exchange gains
and losses related to debt instruments are immediately
recognized in the consolidated income statement to
“Other financial income and expense.”
• Fund investments and equity securities of the Novartis
venture fund are valued at fair value through profit and
loss (FVPL). Unrealized gains and losses, including
exchange gains and losses, are recognized in the con-
solidated income statement to “Other income” for gains
and “Other expense” for losses.
• Equity securities held as strategic investments, typi-
cally held outside of the Novartis venture fund, are gen-
erally designated at the date of acquisition as financial
assets valued at fair value through other comprehen-
sive income with no subsequent recycling through
profit and loss. Unrealized gains and losses, including
exchange gains and losses, are recorded as a fair value
adjustment in the consolidated statement of compre-
hensive income. They are reclassified to retained earn-
ings when the equity security is sold. If these equity
securities are not designated at the date of acquisition
as financial assets valued at fair value through other
comprehensive income, they are valued at FVPL, as
described above.
• Other non-current financial assets, such as loans and
long-term receivables from customers, advances and
other deposits, are valued at amortized cost, which
reflects the time value of money less any allowances
for expected credit losses.
The Group assesses on a forward-looking basis the
expected credit losses associated with its debt securi-
ties valued at fair value through other comprehensive
income. Impairments on debt securities are recorded in
“Other financial income and expense.”
For other financial assets valued at amortized cost,
impairments, which are based on their expected credit
losses, and exchange rate losses are included in “Other
expense” in the consolidated income statement.
Exchange rate gains and interest income, using the effec-
tive interest rate method, are included in “Other income”
or “Other financial income” in the consolidated income
statement, depending on the nature of the item.
Derivative financial instruments
Derivative financial instruments are initially recognized
in the balance sheet at fair value and are remeasured to
their current fair value at the end of each subsequent
reporting period. The valuation of a forward exchange
rate contract is based on the discounted cash flow
model, using interest curves and spot rates at the report-
ing date as observable inputs.
Options are valued based on a modified Black-
Scholes model using volatility and exercise prices as
major observable inputs.
The Group utilizes derivative financial instruments for
the purpose of hedging to reduce the volatility in the
Group’s performance due to the exposure to various
business related risks. To mitigate these risks, the Group
F-10
Notes to the Novartis Group consolidated financial statements
enters into certain derivative financial instruments. The
risk reduction is obtained because the derivative’s value
or cash flows are expected, wholly or partly, to offset
changes in the value or cash flows of the recognized
assets or liabilities. The overall strategy is aiming to mit-
igate the currency and interest rate risk of positions that
are contractually agreed, and to partially mitigate the
exposure risk of selected anticipated transactions.
Certain derivative financial instruments meet the
criteria for hedge accounting treatment. A prerequisite
for obtaining this accounting-hedge relationship is exten-
sive documentation on inception and proving on a regu-
lar basis that the economic hedge is effective for account-
ing purposes. Other derivative financial instruments do
not meet the criteria to qualify for hedge accounting.
Changes in the fair value of these derivative instruments
are recognized immediately in “Other financial income
and expense” in the consolidated income statement.
In addition, the Group has designated certain long-
term debt components as hedges of the translation risk
arising on certain net investments in foreign operations.
On consolidation, foreign currency differences arising
on long-term debt designated as net investment hedges
of a foreign operation are recognized in other compre-
hensive income and accumulated in currency translation
effects, to the extent that the hedge is effective. The for-
eign currency differences arising from hedge ineffective-
ness are recognized in the income statement in “Other
financial income and expense.”
When a hedged net investment is disposed of, the
proportionate portion of the cumulative amount recog-
nized in equity in relation to the hedged net investment
is transferred to the consolidated income statement as
an adjustment to the gain or loss on disposal.
Inventories
Inventory is valued at the lower of acquisition or produc-
tion cost determined on a first-in, first-out basis and net
realizable value. This value is used for the “Cost of goods
sold” in the consolidated income statement. Unsaleable
inventory is fully written off in the consolidated income
statement under “Cost of goods sold.”
Trade receivables
Trade receivables are initially recognized at their invoiced
amounts, including any related sales taxes less adjust-
ments for estimated revenue deductions such as rebates,
chargebacks and cash discounts.
The provisions for doubtful trade receivables are
established using an expected credit loss model (ECL).
The provisions are based on a forward-looking ECL,
which includes possible default events on the trade
receivables over the entire holding period of the trade
receivable. These provisions represent the difference
between the trade receivable’s carrying amount in the
consolidated balance sheet and the estimated collect-
ible amount. Charges for doubtful trade receivables are
recorded as marketing and selling costs recognized in
the consolidated income statement within “Selling, gen-
eral and administration” expenses.
Legal and environmental liabilities
Novartis and its subsidiaries are subject to contingen-
cies arising in the ordinary course of business, such as
patent litigation, environmental remediation liabilities and
other product-related litigation, commercial litigation,
and governmental investigations and proceedings.
Provisions are recorded where a reliable estimate can
be made of the probable outcome of legal or other dis-
putes against the subsidiary.
Contingent consideration
In an acquisition or a divestment of a business, it is nec-
essary to recognize contingent future amounts due to
previous owners, representing contractually defined
potential amounts as a liability or an asset. Usually for
Novartis, these are linked to milestone or royalty pay-
ments related to certain assets and are recognized as a
financial liability or financial asset at fair value, which is
then remeasured at each subsequent reporting date.
These estimations typically depend on factors such as
technical milestones or market performance, and are
adjusted for the probability of their likelihood of payment,
and are appropriately discounted to reflect the impact
of time.
Changes in the fair value of contingent consideration
liabilities in subsequent periods are recognized in the
consolidated income statement in “Cost of goods sold”
for currently marketed products and in “Research and
development” for IPR&D. Changes in contingent consid-
eration assets are recognized in “Other income” or
“Other expense,” depending on their nature.
The effect of unwinding the discount over time is rec-
ognized for contingent liabilities in “Interest expense”
and for contingent assets as interest income recognized
in the consolidated income statement within “Other
financial income and expense.”
Defined benefit pension plans
and other post-employment benefits
The liability in respect of defined benefit pension plans
and other post-employment benefits is the defined ben-
efit obligation calculated annually by independent actu-
aries using the projected unit credit method. The current
service cost for such post- employment benefit plans is
included in the personnel expenses of the various func-
tions in which associates are employed, while the net
interest on the net defined benefit liability or asset is
recognized as “Other expense” or “Other income.”
Treasury shares
Treasury shares are initially recorded at fair value on their
trade date, which is different from the settlement date,
when the transaction is ultimately effected. Treasury
shares are deducted from consolidated equity at their
nominal value of CHF 0.50 per share. Differences
between the nominal amount and the transaction price
on purchases or sales of treasury shares with third par-
F-11
Notes to the Novartis Group consolidated financial statements
ties, or the value of services received for the shares allo-
cated to associates as part of share-based compensa-
tion arrangements, are recorded in “Retained earnings”
in the consolidated statement of changes in equity.
Revenue recognition
Revenue on the sale of Novartis Group products and ser-
vices, which is recorded as “Net sales” in the consoli-
dated income statement, is recognized when a contrac-
tual promise to a customer (performance obligation) has
been fulfilled by transferring control over the promised
goods and services to the customer, substantially all of
which is at the point in time of shipment to or receipt of
the products by the customer or when the services are
performed. If contracts contain customer acceptance
provisions, revenue is recognized upon the satisfaction
of the acceptance criteria. If products are stockpiled at
the request of the customer, revenue is only recognized
once the products have been inspected and accepted
by the customer, and there is no right of return or replen-
ishment on product expiry. The amount of revenue rec-
ognized is based on the consideration Novartis expects
to receive in exchange for its goods and services, when
it is highly probable that a significant reversal will not
occur. If a contract contains more than one performance
obligation, the consideration is allocated based on the
standalone selling price of each performance obligation.
The consideration Novartis receives in exchange for
its goods or services may be fixed or variable. Variable
consideration is only recognized when it is highly prob-
able that a significant reversal will not occur. The most
common elements of variable consideration are listed
below.
• Rebates and discounts granted to government agen-
cies, wholesalers, retail pharmacies, managed health-
care organizations and other customers, as well as
chargebacks are provisioned and recorded as a reve-
nue deduction at the time the related revenues are
recorded or when the incentives are offered. They are
calculated on the basis of historical experience, regu-
lations, the specific terms in the individual agreements,
product pricing and the mix of products, contracts,
channels and payors.
• Refunds granted to healthcare providers under
innovative pay-for-performance agreements (i.e., out-
come based arrangements) are provisioned and
recorded as a revenue deduction at the time the related
sales are recorded. They are calculated on the basis
of historical experience and clinical data available for
the product, as well as the specific terms in the indi-
vidual agreements. In cases where historical experi-
ence and clinical data are not sufficient for a reliable
estimation of the outcome, revenue recognition is
deferred until the uncertainty is resolved or until such
history is available.
• Cash discounts are offered to customers to encourage
prompt payment and are provisioned and recorded as
revenue deductions at the time the related sales are
recorded.
• Shelf stock adjustments are generally granted to cus-
tomers, primarily of the Sandoz Division, to cover the
inventory held by them at the time a price decline
becomes effective. Revenue deduction provisions for
shelf stock adjustments are recorded when the price
decline is anticipated, based on the impact of the price
decline on the customer’s estimated inventory levels.
• Sales returns provisions are recognized and recorded
as revenue deductions when there is historical expe-
rience of Novartis agreeing to customer returns and
Novartis can reasonably estimate expected future
returns. In doing so, the estimated rate of return is
applied, determined on the basis of historical experi-
ence of customer returns and considering any other
relevant factors. This is applied to the amounts invoiced,
also considering the amount of returned products to
be destroyed versus products that can be placed back
in inventory for resale. Where shipments are made on
a resale or return basis, without sufficient historical
experience for estimating sales returns, revenue is only
recorded when there is evidence of consumption or
when the right of return has expired.
Net sales and provisions for revenue deductions are
adjusted to actual amounts as rebates, refunds, dis-
counts and returns are processed. The provision rep-
resents estimates of the related obligations, requiring
the use of judgment when estimating the effect of these
sales deductions.
“Other revenue” includes income from profit-sharing
arrangements with our collaboration partners, and roy-
alty and milestone income from the out-licensing of intel-
lectual property when Novartis retains an interest in the
intellectual property through a license. Royalty income
earned through a license is recognized when the under-
lying sales have occurred. Milestone income is recog-
nized at the point in time when it is highly probable that
the relevant milestone event criteria are met, and the risk
of reversal of revenue recognition is remote. Other rev-
enue also includes revenue from activities such as man-
ufacturing or other services rendered, to the extent such
revenue is not recorded under net sales, and is recog-
nized when control transfers to the third party and our
performance obligations are satisfied.
Research and development
Internal research and development (R&D) costs are fully
charged to “Research and development” in the consol-
idated income statement in the period in which they are
incurred. The Group considers that regulatory and other
uncertainties inherent in the development of new prod-
ucts preclude the capitalization of internal development
expenses as an intangible asset until marketing approval
from a regulatory authority is obtained in a major market
such as the United States, the European Union, Switzer-
land or Japan.
Payments made to third parties, such as contract
research and development organizations in compensa-
tion for subcontracted R&D, that are deemed not to
transfer intellectual property to Novartis are expensed
as internal R&D expenses in the period in which they are
incurred. Such payments are only capitalized if they meet
the criteria for recognition of an internally generated
intangible asset, usually when marketing approval has
F-12
Notes to the Novartis Group consolidated financial statements
been achieved from a regulatory authority in a major mar-
ket.
to forfeiture during the vesting period, is expensed on a
straight-line basis over the respective vesting period.
Payments made to third parties to in-license or
acquire intellectual property rights, compounds and
products, including initial upfront and subsequent mile-
stone payments, are capitalized, as are payments for
other assets, such as technologies to be used in R&D
activities. If additional payments are made to the origi-
nator company to continue to perform R&D activities, an
evaluation is made as to the nature of the payments. Such
additional payments will be expensed if they are deemed
to be compensation for subcontracted R&D services not
resulting in an additional transfer of intellectual property
rights to Novartis. Such additional payments will be cap-
italized if they are deemed to be compensation for the
transfer to Novartis of additional intellectual property
developed at the risk of the originator company. Subse-
quent internal R&D costs in relation to IPR&D and other
assets are expensed, since the technical feasibility of
the internal R&D activity can only be demonstrated by
the receipt of marketing approval for a related product
from a regulatory authority in a major market.
Costs for post-approval studies performed to sup-
port the continued registration of a marketed product
are recognized as marketing expenses. Costs for activ-
ities that are required by regulatory authorities as a con-
dition for obtaining marketing approval are capitalized
and recognized as currently marketed products.
Inventory produced ahead of regulatory approval is
fully provisioned, and the charge is included in “Other
expense” in the consolidated income statement, as its
ultimate use cannot be assured. If this inventory can be
subsequently sold, the provision is released to “Other
income” in the consolidated income statement, either on
approval by the appropriate regulatory authority or,
exceptionally in Europe, on recommendation by the
Committee for Medicinal Products for Human Use
(CHMP), if approval is virtually certain.
Share-based compensation
Vested Novartis shares and American Depositary
Receipts (ADRs) that are granted as compensation are
valued at their market value on the grant date and are
immediately expensed in the consolidated income state-
ment.
The fair values of unvested restricted shares (RSs),
restricted share units (RSUs) and performance share
units (PSUs) in Novartis shares and ADRs granted to
associates as compensation are recognized as an
expense over the related vesting period. The expense
recorded in the consolidated income statement is
included in the personnel expenses of the various func-
tions in which the associates are employed.
Unvested restricted shares, restricted ADRs and
RSUs are only conditional on the provision of services
by the plan participant during the vesting period. They
are valued at fair value on the grant date. As RSUs do
not entitle the holder to dividends, the fair value is based
on the Novartis share price at the grant date adjusted
for the net present value of the dividends expected to
be paid during the holding period. The fair value of these
grants, after making adjustments for assumptions related
PSUs are subject to the achievement of certain per-
formance criteria during the vesting period and require
plan participants to provide services during this period.
The following paragraphs provide an overview of the
accounting policies for the share-based compensation
plans that grant PSUs.
For PSUs granted under plans that are subject to per-
formance criteria based on Novartis internal perfor-
mance metrics and that are conditional on the provision
of service by plan participants during the vesting period,
the expense is recognized on a straight-line basis over
the vesting period, and is determined based on assump-
tions concerning the expected performance against the
internal performance metrics throughout the vesting
period. The assumptions are based on the Group’s tar-
gets for those performance metrics, and the expected
forfeitures due to plan participants not meeting their ser-
vice conditions. The assumptions are periodically
adjusted over the vesting period. Any change in esti-
mates for past services is recorded immediately as an
expense or income in the consolidated income state-
ment, and amounts for the remaining vesting period are
expensed on a straight-line basis. As a result, at the end
of the vesting period, the charge during the entire vest-
ing period represents the amount that will finally vest.
The number of equity instruments that finally vest is
determined at the vesting date.
For PSUs granted under plans that are subject to per-
formance criteria based on variables that can be
observed in the market, which for Novartis plans is the
Novartis total shareholder return (TSR) relative to a spe-
cific peer group of companies over the vesting period,
and that are conditional on the provision of services by
the plan participants during the vesting period, the
expense is recognized on a straight-line basis over the
vesting period, and is determined based on the total fair
value of the grant over the vesting period. IFRS requires
that these variables that can be observed in the market
are taken into account in determining the fair value of the
PSUs at the grant date. Novartis determined the fair value
of these PSUs at the date of grant using a Monte Carlo
simulation model. Adjustments to the number of equity
instruments granted are only made if a plan participant
does not fulfill the service conditions.
For PSUs granted under plans that are subject to both
performance criteria based on Novartis internal perfor-
mance metrics and Novartis TSR relative to a specific
peer group of companies over the vesting period and
that are conditional on the provision of service by plan
participants during the vesting period, the expense is
recognized on a straight-line basis over the vesting
period, and is determined based on a bifurcation into the
components based on the performance criteria related
to Novartis internal performance metrics and TSR, as
described in the paragraphs above.
Measuring the fair values of PSUs granted that
include TSR performance criteria requires use of esti-
mates. The Monte Carlo simulation used to determine
the fair value of the PSUs TSR performance criteria
requires the probability of factors related to uncertain
future events; the term of the award; the grant price of
underlying shares or ADRs; expected volatilities; the
F-13
Notes to the Novartis Group consolidated financial statements
expected correlation matrix of the underlying equity
instruments with those of the peer group of companies;
and the risk-free interest rate as input parameters.
If a plan participant leaves Novartis for reasons other
than retirement, disability or death, then unvested
restricted shares, restricted ADRs, RSUs and PSUs are
forfeited, unless determined otherwise by the provision
of the plan rules or by the Compensation Committee of
the Novartis Board of Directors, for example, in connec-
tion with a reorganization or divestment.
Government grants
Grants from governments or similar organizations are
recognized at their fair value when there is a reasonable
assurance that the grant will be received and the Group
will comply with all attached conditions.
Government grants received to compensate for cost
are deferred and recognized in the consolidated income
statement over the period necessary to match them
against the related costs that they are intended to com-
pensate.
The accounting policy for property, plant and equip-
ment describes the treatment of any related grants.
Restructuring charges
Restructuring provisions are recognized for the direct
expenditures arising from the restructuring, where the
plans are sufficiently detailed and where appropriate
communication to those affected has been made.
Charges to increase restructuring provisions are
included in “Other expense” in the consolidated income
statements. Corresponding releases are recorded in
“Other income” in the consolidated income statement.
Healthcare contributions
Healthcare contribution levies and fees under govern-
mental programs that require the Group to contribute to
a country’s healthcare costs, other than programs
described in Revenue recognition in this Note 1, are rec-
ognized in Other expense in the consolidated income
statement. Provisions for healthcare contributions are
adjusted to the actual amounts levied. The provision rep-
resents estimates of the related obligations, requiring
the use of judgment when estimating the effect of these
healthcare contributions.
Taxes
and associated companies, where the timing of their
reversal can be controlled and it is probable that the dif-
ference will not reverse in the foreseeable future. Since
the retained earnings are reinvested, withholding or other
taxes on eventual distribution of a subsidiary’s retained
earnings are only taken into account when a dividend
has been planned.
The estimated amounts for current and deferred tax
assets or liabilities, including any amounts related to any
uncertain tax positions, are based on currently known
facts and circumstances. Tax returns are based on an
interpretation of tax laws and regulations, and reflect
estimates based on these judgments and interpretations.
The tax returns are subject to examination by the com-
petent taxing authorities, which may result in an assess-
ment being made requiring payments of additional tax,
interest or penalties. Inherent uncertainties exist in the
estimates of the tax positions.
Impact of adopting significant new
IFRS standard in 2020
The following new IFRS standard has been adopted by
Novartis from January 1, 2020:
IFRS 3 Business Combination amendments
The IASB issued amendments to IFRS 3 Business Com-
binations that revised the definition of a business, which
assist entities with the evaluation of when an asset or
group of assets acquired should be considered a busi-
ness. This amended standard has been applied to trans-
actions entered into on or after January 1, 2020. The
amended standard allows an entity to apply an optional
concentration test, on a transaction-by-transaction
basis, to evaluate whether substantially all of the fair
value of the gross assets acquired is concentrated in a
single identifiable asset or group of similar identifiable
assets. If this optional concentration test is met, the set
of activities and assets is determined not to be a busi-
ness. The adoption of this amended standard on Janu-
ary 1, 2020 did not have a significant impact on our con-
solidated financial statements and is not expected to
have a significant impact in future periods. However, this
will depend on the facts and circumstances of future
transactions and if the Group decides to apply the
optional concentration test in the assessment of whether
an acquired set of activities and assets is or is not a busi-
ness.
There are no other IFRS standards or interpretations not
yet effective that would be expected to have a material
impact on the Group.
Taxes on income are provided in the same periods as
the revenues and expenses to which they relate and
include interest and penalties incurred during the period.
Deferred taxes are determined using the comprehensive
liability method and are calculated on the temporary dif-
ferences that arise between the tax base of an asset or
liability and its carrying value in the balance sheet pre-
pared for consolidation purposes, except for those tem-
porary differences related to investments in subsidiaries
Impact of adopting significant new
IFRS standard in 2019
The following new IFRS standard has been adopted by
Novartis from January 1, 2019:
IFRS 16 Leases
IFRS 16 Leases substantially changed the financial state-
ments, as the majority of leases for which the Group is
F-14
Notes to the Novartis Group consolidated financial statements
the lessee became on-balance sheet liabilities with cor-
responding right-of-use assets also recognized on the
balance sheet. The lease liability reflects the net pres-
ent value of the remaining lease payments, and the right-
of-use asset corresponds to the lease liability, adjusted
for payments made before the commencement date,
lease incentives and other items related to the lease
agreement. The standard replaces IAS 17 Leases and
related interpretations.
Upon adoption of the new standard, a portion of the
annual operating lease costs, which was previously fully
recognized as functional expenses, as a component of
operating income, is recorded as interest expense. In
addition, the portion of the lease payments that rep-
resents the reduction of the lease liability is recognized
in the cash flow statement as an outflow from financing
activities, which was previously fully recognized as an
outflow from operating activities. Given the leases
involved, these effects are not significant to the consol-
idated income statement and consolidated statement of
cash flow.
The Group implemented the new standard on Janu-
ary 1, 2019, and applied the modified retrospective
method, with right-of-use assets measured at an amount
equal to the lease liability, adjusted by the amount of the
prepaid or accrued lease payments relating to those
leases recognized in the balance sheet immediately
before the date of initial application and did not restate
prior years.
Results of our impact assessment:
The undiscounted operating lease commitments as of
December 31, 2018, amounted to USD 3.6 billion. This
includes approximately USD 0.1 billion of leases with a
commencement date in 2019, as well as short-term
leases and low-value leases that are recognized from
January 1, 2019, upon adoption of IFRS 16, on a straight-
line basis as expense in profit and loss. This also includes
USD 0.2 billion lease commitments related to the Alcon
Division, which is attributable to discontinued operation
in 2019. For the remaining undiscounted lease commit-
ments attributable to continuing operations of USD 3.3
billion, the Group recognized on January 1, 2019, lease
liabilities of USD 1.74 billion and right-of-use assets of
USD 1.55 billion (after the reclassification of USD 0.1 bil-
lion from property, plant and equipment, and net adjust-
ments for the USD 0.3 billion recognition of sublease
receivables, prepayments, and accrued lease payments
recognized as at December 31, 2018). For the lease com-
mitments attributable to discontinued operations, the
Group recognized on January 1, 2019, lease liabilities and
right-of-use assets of USD 0.2 billion. This does not
include the discontinued operations right-of-use assets
and lease liability on finance lease agreements of USD
75 million and USD 89 million, respectively. There was
an insignificant increase to retained earnings upon adop-
tion of IFRS 16 of USD 3 million that arose from subleases
that were accounted for as operating lease agreements
under IAS 17 and are accounted for as finance leases
under IFRS 16.
As a lessor, the Group had no significant impact upon
adoption.
For additional significant accounting policies applicable
to the discontinued operations business see Note 30.
2. Significant transactions
Significant transactions in 2020
The Group applied the acquisition method of account-
ing for businesses acquired, and did not elect to apply
the optional concentration test to account for acquired
business as an asset separately acquired.
Innovative Medicines – acquisition of
The Medicines Company
On November 23, 2019, Novartis entered into an agree-
ment and plan of merger (the Merger Agreement) with
The Medicines Company, a US-based pharmaceutical
company headquartered in Parsippany, New Jersey USA.
Pursuant to the Merger Agreement, on December 5,
2019, Novartis, through a subsidiary, commenced a ten-
der offer to acquire all outstanding shares of The
Medicines Company for USD 85 per share, or a total con-
sideration of approximately USD 9.6 billion in cash on a
fully diluted basis, including the equivalent share value
related to The Medicines Company’s convertible notes,
in accordance with their terms. The tender offer expired
on January 3, 2020, and on January 6, 2020, the acquir-
ing subsidiary merged with and into The Medicines Com-
pany, resulting in The Medicines Company becoming an
indirect wholly owned subsidiary of Novartis. Novartis
financed the transaction through available cash, and
short- and long-term borrowings.
The Medicines Company is focused on the develop-
ment of inclisiran, a potentially first-in-class, twice yearly
therapy that allows administration during patients’ rou-
tine visits to their healthcare professionals and will poten-
tially contribute to improved patient adherence and sus-
tained lower LDL-C levels.
The fair value of the total purchase consideration was
USD 9.6 billion. The purchase price allocation resulted
in net identifiable assets of approximately USD 7.1 billion,
consisting of USD 8.5 billion intangible assets, USD 1.4
billion net deferred tax liabilities and goodwill of approx-
imately USD 2.5 billion.
Results of operations since the date of acquisition
were not material.
F-15
Notes to the Novartis Group consolidated financial statements
Sandoz – acquisition of the Japanese business of
Aspen Global Incorporated
On November 11, 2019, Sandoz entered into an agree-
ment for the acquisition of the Japanese business of
Aspen Global Incorporated (AGI), a wholly owned sub-
sidiary of Aspen Pharmacare Holdings Limited. Under
the agreement, Sandoz acquired the shares in Aspen
Japan K.K. and associated assets held by AGI. The trans-
action closed on January 31, 2020.
Aspen’s portfolio in Japan consists of off-patent
medicines with a focus on anesthetics and specialty
brands. The acquisition will enable Sandoz to expand its
presence in the third-largest worldwide generics mar-
ketplace.
The purchase price consists of EUR 274 million (USD
303 million) upfront payment, less customary purchase
price adjustment of EUR 27 million (USD 30 million), plus
potential milestone payments of up to EUR 70 million
(USD 77 million), which AGI is eligible to receive upon the
achievement of specified milestones.
The fair value of the total purchase consideration was
EUR 294 million (USD 324 million). The amount consisted
of a cash payment of EUR 247 million (USD 273 million)
and the fair value of contingent consideration of EUR 47
million (USD 51 million), which AGI is eligible to receive
upon the achievement of specified milestones. The pur-
chase price allocation resulted in net identifiable assets
of USD 238 million, consisting of USD 196 million intan-
gible assets, USD 26 million other net assets, USD 16
million net deferred tax assets. Goodwill amounted to
USD 86 million. Results of operations since the date of
acquisition were not material.
Sandoz – retention of US dermatology business
and generic US oral solids portfolio, previously
planned to be divested
On September 6, 2018, Novartis announced that it
entered into a stock and asset purchase agreement
(SAPA) with Aurobindo Pharma USA Inc. (Aurobindo) for
the sale of selected portions of its Sandoz US portfolio,
specifically the Sandoz US dermatology business and
generic US oral solids portfolio, for USD 0.8 billion in
cash and potential earnouts. The closing was conditional
on obtaining regulatory approval.
In March 2020, Novartis took the decision to retain
the Sandoz US generic oral solids and dermatology busi-
nesses and on April 2, 2020 entered into a mutual agree-
ment with Aurobindo to terminate the transaction. The
decision was taken as approval from the US Federal
Trade Commission for the transaction was not obtained
within the agreed timelines.
The cumulative amount of the depreciation on prop-
erty, plant and equipment (USD 38 million) and amorti-
zation on intangible assets (USD 102 million), not recorded
in the consolidated income statement since the date of
classification as held for sale was recognized in the con-
solidated income statement in the first quarter of 2020.
In addition, an impairment of currently marketed prod-
ucts of USD 42 million was recognized in the first quar-
ter of 2020 consolidated income statement.
As at March 31, 2020, the assets and liabilities of the
Sandoz US generic oral solids and dermatology busi-
nesses were reclassified out of assets and liabilities of
disposal group held for sale. The prior year balance sheet
is not required to be restated.
In the Group’s consolidated balance sheet at Decem-
ber 31, 2019, the assets and liabilities classified as dis-
posal group assets and liabilities held for sale consisted
of the following:
(USD millions)
Assets of disposal group classified as held for sale
Property, plant and equipment
Intangible assets other than goodwill
Deferred tax assets
Other non-current assets
Inventories
Other current assets
Total
December 31,
2019
169
475
11
2
181
3
841
(USD millions)
Liabilities of disposal group classified as held for sale
December 31,
2019
Deferred tax liabilities
Provisions and other non-current
liabilities
Provisions and other current liabilities
Total
2
4
25
31
There were no cumulative income or expenses included
in the other comprehensive income relating to the dis-
posal group.
Significant transactions in 2019
Completion of the spin-off of the Alcon business
through a dividend in kind distribution to Novartis
AG shareholders
On June 29, 2018, Novartis announced its intention to
seek shareholder approval for the spin-off of the Alcon
business into a separately traded standalone company,
following the complete structural separation of the Alcon
business into a standalone company (the Alcon business
or Alcon Inc.).
The Novartis AG shareholders approved the spin-off
of the Alcon business at the 2019 Annual General Meet-
ing held on February 28, 2019, subject to completion of
certain conditions precedent to the distribution. Upon
shareholder approval, the Alcon business was reported
as discontinued operations, and the fair value of the
Alcon business exceeded the carrying value of its net
assets.
The conditions precedent to the spin-off were met
and on April 8, 2019 the spin-off of the Alcon business
was effected by way of a distribution of a dividend in kind
of Alcon Inc. shares to Novartis AG shareholders and
ADR (American Depositary Receipt) holders (the Distri-
bution), which amounted to USD 23.4 billion and is rec-
ognized as a reduction to retained earnings. Through the
F-16
Notes to the Novartis Group consolidated financial statements
Distribution, each Novartis AG shareholder received one
Alcon Inc. share for every five Novartis AG shares/ADRs
they held on April 8, 2019, close of business. As of April
9, 2019, the shares of Alcon Inc. are listed on the SIX
Swiss Exchange (SIX) and on the New York Stock
Exchange (NYSE) under the symbol “ALC.”
The dividend in kind distribution liability to effect the
spin-off of the Alcon business (the distribution liability)
amounted to USD 26.4 billion at March 31, 2019,
unchanged from its initial recognition on February 28,
2019, and was in excess of the carrying value of the Alcon
business net assets as of February 28, 2019, and as of
March 31, 2019. The net assets of the Alcon business
amounted to USD 23.1 billion as at March 31, 2019.
On March 6, 2019, Alcon entered into financing
arrangements with a syndicate of banks under which it
borrowed on April 2, 2019, a total amount of USD 3.2 bil-
lion. These borrowings consisted of approximately USD
2.8 billion and the equivalent of USD 0.4 billion in EUR in
bridge and other term loans under such Alcon facilities
agreement. In addition, approximately USD 0.3 billion of
borrowings under a number of local bilateral facilities in
different countries, with the largest share of borrowings
in Japan, were raised. This resulted in a total gross debt
of USD 3.5 billion. These outstanding borrowings of the
Alcon legal entities were recorded in the balance sheet
and financing cash flow from discontinued operations.
Prior to the spin-off, through a series of intercompany
transactions, Alcon legal entities paid approximately
USD 3.1 billion in cash to Novartis and its affiliates.
At the April 8, 2019 Distribution, the fair value of the
distribution liability of the Alcon business amounted to
USD 23.4 billion, a decrease of USD 3.0 billion from
March 31, 2019. As mentioned above, prior to the spin-
off, through a series of intercompany transactions, Alcon
legal entities incurred additional net financial debt and
paid approximately USD 3.1 billion in cash to Novartis and
its affiliates. This additional net debt and transactions
resulted in a decrease in Alcon’s net assets to USD 20.0
billion at the date of the Distribution of the dividend in
kind to Novartis AG shareholders on April 8, 2019. The
distribution liability at April 8, 2019, remained in excess
of the then-carrying value of the Alcon business net
assets.
Certain consolidated foundations own Novartis AG
dividend-bearing shares restricting their availability for
use by the Group. These Novartis AG shares are
accounted for as treasury shares. Through the Distribu-
tion, these foundations received Alcon Inc. shares rep-
resenting an approximate 4.7% equity interest in Alcon
Inc. Upon the loss of control of Alcon Inc. through the
Distribution, the financial investment in Alcon Inc. was
recognized at its fair value based on the opening traded
share price of Alcon Inc. on April 9, 2019 (a Level 1 hier-
archy valuation). At initial recognition, its fair value of USD
1.3 billion was reported on the Group’s consolidated bal-
ance sheet as a financial asset. Management has des-
ignated this investment at fair value through other com-
prehensive income.
The total non-taxable, non-cash gain recognized at
the distribution date of the spin-off of the Alcon business
amounted to USD 4.7 billion consisting of:
(USD millions)
Net assets derecognized 1
Derecognition of distribution liability
Difference between net assets and distribution liability
Recognition of Alcon Inc. shares obtained
through consolidated foundations
Currency translation gains recycled into
the consolidated income statement
Transaction costs recognized in the
consolidated income statement
Gain on distribution of Alcon Inc. to
Novartis AG shareholders
1 See Note 30 for additional information.
April 8,
2019
– 20 025
23 434
3 409
1 273
123
– 114
4 691
For additional disclosures on discontinued operations,
refer to Note 30.
Innovative Medicines – acquisition of IFM Tre, Inc.
On May 7, 2019, Novartis acquired IFM Tre, Inc., a pri-
vately held, US-based biopharmaceutical company
focused on developing anti-inflammatory medicines tar-
geting the NLRP3 inflammasome. The acquisition gives
Novartis full rights to IFM Tre, Inc.’s portfolio of NLRP3
antagonists. The NLRP3 antagonists portfolio consists
of one clinical program and two preclinical programs:
IFM-2427, a first-in-class, clinical-stage systemic antag-
onist for an array of chronic inflammatory disorders,
including atherosclerosis and nonalcoholic steatohepa-
titis (NASH); a preclinical-stage gut-directed molecule
for the treatment of inflammatory bowel disease; and a
preclinical-stage central nervous system (CNS)-pene-
trant molecule.
The previously held interest of 9% was adjusted to
its fair value of USD 33 million through the consolidated
income statement at acquisition date. This remeasure-
ment resulted in a gain of USD 14 million. The fair value
of the total purchase consideration for acquiring the 91%
stake Novartis did not already own amounted to USD 361
million. The amount consisted of an initial cash payment
of USD 285 million, and the fair value of the contingent
consideration of USD 76 million due to the IFM Tre, Inc.
shareholders, which they are eligible to receive upon the
achievement of specified development and commercial-
ization milestones. The purchase price allocation resulted
in net identifiable assets of USD 355 million, mainly intan-
gible assets, and goodwill of USD 39 million. The 2019
results of operations since the date of acquisition were
not material.
Innovative Medicines – acquisition of Xiidra
On May 8, 2019, Novartis entered into an agreement with
Takeda Pharmaceutical Company Limited (Takeda) to
acquire the assets associated with Xiidra (lifitegrast oph-
thalmic solution) 5% worldwide. Xiidra is the first and only
prescription treatment approved to treat both signs and
symptoms of dry eye by inhibiting inflammation caused
by the disease. The transaction bolsters the Novartis
front-of-the-eye portfolio and ophthalmic leadership.
The transaction closed on July 1, 2019. The purchase
price consists of a USD 3.4 billion upfront payment, cus-
tomary purchase price adjustments of USD 0.1 billion,
and the potential milestone payments of up to USD 1.9
F-17
Notes to the Novartis Group consolidated financial statements
billion, which Takeda is eligible to receive upon the
achievement of specified commercialization milestones.
The fair value of the total purchase consideration is
USD 3.7 billion. The amount consists of an initial cash
payment of USD 3.5 billion, and the fair value of the con-
tingent consideration of USD 0.2 billion, which Takeda
is eligible to receive upon the achievement of specified
commercialization milestones.
The purchase price allocation resulted in net identi-
fiable assets of approximately USD 3.6 billion, consist-
ing mainly of intangible assets of USD 3.6 billion, and
goodwill amounted to approximately USD 0.1 billion. In
2019, from the date of acquisition, the business gener-
ated net sales of USD 0.2 billion. Management estimates
that net sales for the entire year of 2019 would have
amounted to USD 0.3 billion, had the business been
acquired at the beginning of the 2019 reporting period.
The 2019 results of operations since the date of acqui-
sition were not material.
Significant transactions in 2018
Innovative Medicines – acquisition of Advanced
Accelerator Applications S.A.
On October 30, 2017, Novartis entered into a binding
memorandum of understanding with Advanced Acceler-
ator Applications S.A. (AAA), a company headquartered
in Saint-Genis-Pouilly, France, under which Novartis
agreed to commence a tender offer for 100% of the share
capital of AAA subject to certain conditions. Novartis
commenced the tender offer on December 7, 2017, to
purchase all of the outstanding ordinary shares for a
price of USD 41 per share and USD 82 per American
Depositary Share (ADS), each representing two ordinary
shares of AAA, which expired on January 19, 2018. The
offer valued AAA’s equity at USD 3.9 billion, on a fully
diluted basis.
As of January 19, 2018, the expiration date of the ten-
der offer, approximately 97% of the then-outstanding
fully diluted ordinary shares, including ordinary shares
represented by ADSs (hereinafter collectively referred
to as “the outstanding shares”), were validly tendered.
On January 22, 2018, Novartis accepted and paid USD
3.9 billion for the outstanding shares tendered in the
offer. On January 22, 2018, Novartis commenced a sub-
sequent offering period that expired on January 31, 2018.
As of the expiration of the subsequent offering period,
an additional 1.8% of the outstanding shares were validly
tendered. Novartis accepted and paid approximately
USD 60 million, resulting in an increase in Novartis own-
ership in AAA to 98.7%.
The fair value of the total purchase consideration was
USD 3.9 billion. The purchase price allocation resulted
in net identifiable assets of approximately USD 1.9 bil-
lion, consisting of USD 2.5 billion intangible assets, USD
0.6 billion net deferred tax liabilities, and goodwill of
approximately USD 2.0 billion. In 2018, from the date of
the acquisition, the business generated net sales of USD
0.4 billion. Management estimated that net sales for the
entire year of 2018 would have amounted to USD 0.4 bil-
lion had AAA been acquired at the beginning of 2018.
The 2018 results from operations since the acquisition
were not material.
As of December 31, 2020, Novartis held 99.2% of the
then-outstanding fully diluted ordinary shares, including
ordinary shares represented by ADSs.
AAA is a radiopharmaceutical company that devel-
ops, produces and commercializes molecular nuclear
medicines – including Lutathera (USAN: lutetium Lu 177
dotatate/INN: lutetium (177Lu) oxodotreotide), a first-in-
class radioligand therapy product for neuroendocrine
tumors – and a portfolio of diagnostic products. Radio-
pharmaceuticals, such as Lutathera, are unique medici-
nal formulations containing radioisotopes, which are
used clinically for both diagnosis and therapy.
Innovative Medicines – acquisition of AveXis, Inc.
On April 6, 2018, Novartis entered into an agreement and
plan of merger with AveXis, Inc., a US-based clinical
stage gene therapy company, under which Novartis com-
menced on April 17, 2018, a tender offer to purchase all
outstanding common stock of AveXis, Inc. for USD 218
per share in cash. On May 15, 2018, Novartis completed
the acquisition of the common stock of AveXis, Inc. and
paid a total of USD 8.7 billion.
The fair value of the total purchase consideration was
USD 8.7 billion. The purchase price allocation resulted
in net identifiable assets of approximately USD 7.2 bil-
lion, consisting of USD 8.5 billion intangible assets, USD
1.6 billion net deferred tax liabilities and other net assets
of USD 0.3 billion, and goodwill of approximately USD
1.5 billion. The 2018 results of operations since the date
of acquisition were not material.
AveXis, Inc. is focused on developing and commer-
cializing novel treatments for patients suffering from rare
and life-threatening neurological genetic diseases.
AveXis, Inc.’s initial product candidate, AVXS-101, is a pro-
prietary gene therapy currently in development for the
treatment of spinal muscular atrophy (SMA) type 1 – the
leading genetic cause of infant mortality – and SMA
types 2 and 3. In addition, AveXis, Inc. has a pipeline of
other novel treatments for rare neurological diseases,
including Rett syndrome (RTT) and a genetic form of
amyotrophic lateral sclerosis (ALS) caused by mutations
in the superoxide dismutase 1 (SOD1) gene.
Innovative Medicines – acquisition of Endocyte, Inc.
On October 18, 2018, Novartis entered into an agree-
ment and plan of merger with Endocyte, Inc. (Endocyte),
a US-based biopharmaceutical company focused on
developing targeted therapeutics for cancer treatment.
The transaction was completed on December 21, 2018.
Under the terms of the agreement, Novartis acquired all
outstanding shares of Endocyte common stock for USD
24 per share. The total consideration amounted to USD
2.1 billion.
The fair value of the total purchase consideration was
USD 2.1 billion. The purchase price allocation resulted in
net identifiable assets of approximately USD 1.5 billion,
consisting of USD 1.5 billion intangible assets, USD 0.3
billion net deferred tax liabilities and other net assets of
USD 0.3 billion, and goodwill of approximately USD 0.6
billion. The purchase price allocation was preliminary at
December 31, 2018, as the transaction closed on Decem-
ber 21, 2018, which was close to the Group’s year-end
and therefore did not provide sufficient time to complete
the valuation of the intangible assets, deferred taxes,
F-18
Notes to the Novartis Group consolidated financial statements
assumed liabilities and goodwill. During 2019, there were
no significant revisions to the purchase price allocation.
Endocyte uses drug conjugation technology to
develop targeted therapies with companion imaging
agents, including 177Lu-PSMA-617, a potential first-in-
class investigational radioligand therapy for the treat-
ment of metastatic castration-resistant prostate cancer
(mCRPC).
Corporate – divestment of 36.5% stake in
GlaxoSmithKline Consumer Healthcare Holdings Ltd.
On March 27, 2018, Novartis entered into an agreement
with GlaxoSmithKline plc (GSK) to divest its 36.5% stake
in GlaxoSmithKline Consumer Healthcare Holdings Ltd.
to GSK for USD 13.0 billion in cash. As a result, Novartis
discontinued the use of equity method accounting start-
ing from April 1, 2018.
On June 1, 2018, the transaction closed and Novartis
realized a pre-tax gain of USD 5.8 billion, recorded in
income from associated companies.
For significant transactions in 2019 for discontinued
operations, see Note 30. There were no significant trans-
actions in 2020 for discontinued operations.
3. Segmentation of key figures 2020, 2019 and 2018
The businesses of Novartis are divided operationally on
a worldwide basis into two identified reporting segments:
Innovative Medicines and Sandoz. In addition, we sepa-
rately report Corporate activities.
Reporting segments are presented in a manner con-
sistent with the internal reporting to the chief operating
decision-maker, which is the Executive Committee of
Novartis. The reporting segments are managed sepa-
rately because they each research, develop, manufac-
ture, distribute and sell distinct products that require dif-
fering marketing strategies.
The Executive Committee of Novartis is responsible
for allocating resources and assessing the performance
of the reporting segments.
The reporting segments are as follows:
Innovative Medicines researches, develops, manu-
factures, distributes and sells patented prescription
medicines. The Innovative Medicines Division is orga-
nized into two global business units: Novartis Oncology
and Novartis Pharmaceuticals. Novartis Oncology con-
sists of the global business franchise Oncology, and
Novartis Pharmaceuticals consists of the global business
franchises Immunology, Hepatology and Dermatology;
Ophthalmology; Neuroscience; Cardiovascular, Renal
and Metabolism; Respiratory; and Established Medicines.
Sandoz develops, manufactures and markets finished
dosage form medicines as well as intermediary products
including active pharmaceutical ingredients. Sandoz is
organized globally into three franchises: Retail Generics,
Anti-Infectives and Biopharmaceuticals. In Retail Gener-
ics, Sandoz develops, manufactures and markets active
ingredients and finished dosage forms of small molecule
pharmaceuticals to third parties across a broad range
of therapeutic areas, as well as finished dosage form of
anti-infectives sold to third parties. In Anti-Infectives,
Sandoz manufactures and supplies active pharmaceuti-
cal 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 biotechnol-
ogy-based products, including biosimilars, and provides
biotechnology manufacturing services to other compa-
nies.
Income and expenses relating to Corporate include
the costs of the Group headquarters and those of cor-
porate coordination functions in major countries. In addi-
tion, Corporate includes other items of income and
expense that are not attributable to specific segments,
such as certain revenues from intellectual property
rights, certain expenses related to post-employment
benefits, environmental remediation liabilities, charitable
activities, donations and sponsorships. Usually, no allo-
cation of Corporate items is made to the segments. As
a result, Corporate assets and liabilities principally con-
sist of net liquidity (cash and cash equivalents, market-
able securities less financial debts), investments in asso-
ciated companies, and current and deferred taxes and
non-segment-specific environmental remediation and
post-employment benefit liabilities.
Our divisions are supported by the Novartis Institutes for
BioMedical Research, Global Drug Development,
Novartis Technical Operations and Novartis Business
Services organizations.
• The Novartis Institutes for BioMedical Research (NIBR)
conducts research activities for the Innovative
Medicines Division and also collaborates with Sandoz.
• The Global Drug Development organization oversees
all drug development activities for our Innovative
Medicines Division and collaborates with our Sandoz
Division on the development of its biosimilars portfo-
lio.
• The Novartis Technical Operations organization man-
ages our manufacturing operations across our
Innovative Medicines and Sandoz Divisions.
• Novartis Business Services (NBS) is our shared ser-
vices organization that delivers business support ser-
vices across the Group, such as information technol-
ogy, real estate and facility services, procurement,
product lifecycle services, human resources, and finan-
cial reporting and accounting operations.
F-19
Notes to the Novartis Group consolidated financial statements
Following the February 28, 2019, shareholders’ approval
of the spin-off of the Alcon business (refer to Notes 1, 2
and 30 for further details), the Group reported its con-
solidated financial statements as “continuing operations”
and “discontinued operations.”
Continuing operations comprise the activities of the
Innovative Medicines and Sandoz Divisions, and the con-
tinuing Corporate activities.
Discontinued operations include the operational
results from the Alcon eye care devices business and
certain corporate activities attributable to the Alcon busi-
ness prior to the spin-off, the gain on distribution of Alcon
Inc. to Novartis AG shareholders, and certain other
expenses related to the Distribution (refer to Notes 1, 2
and 30 for further details).
The accounting policies mentioned in Note 1 are used
in the reporting of segment results. Inter-segmental sales
are made at amounts that are considered to approximate
arm’s length transactions. The Executive Committee of
Novartis evaluates segmental performance and allo-
cates resources among the segments based on a num-
ber of measures, including net sales, operating income
and net operating assets. Segment net operating assets
consist primarily of property, plant and equipment; right-
of-use assets; intangible assets; goodwill; inventories;
and trade and other operating receivables less operat-
ing liabilities.
Segmentation – consolidated income statements
Innovative Medicines
Sandoz
Corporate
(including eliminations)
Group
(USD millions)
2020
2019
2020
2019
2020
2019
2020
2019
Net sales to third parties from continuing operations
39 013 37 714
9 646
9 731
48 659 47 445
Sales to continuing and discontinued segments
792
783
189
141
– 981
– 871
53
Net sales from continuing operations
39 805 38 497
9 835
9 872
– 981
– 871 48 659 47 498
Other revenues
Cost of goods sold
1 018
1 092
53
63
168
24
1 239
1 179
– 10 927 – 10 050 – 5 252 – 5 334
1 058
959 – 15 121 – 14 425
Gross profit from continuing operations
29 896 29 539
4 636
4 601
245
112 34 777 34 252
Selling, general and administration
– 11 657 – 11 617 – 2 076 – 2 218
– 464
– 534 – 14 197 – 14 369
Research and development
– 8 118 – 8 152
– 862 – 1 250
– 8 980 – 9 402
Other income
Other expense
922
1 586
176
167
644
278
1 742
2 031
– 1 871 – 2 069
– 831
– 749
– 488
– 608 – 3 190 – 3 426
Operating income from continuing operations
9 172
9 287
1 043
551
– 63
– 752 10 152
9 086
Income from associated companies
1
1
2
2
670
656
673
659
Interest expense
Other financial income and expense
Income before taxes from continuing operations
Taxes
Net income from continuing operations
Net loss from discontinued operations before gain on
distribution of Alcon Inc. to Novartis AG shareholders
Gain on distribution of Alcon Inc. to Novartis AG shareholders
Net income from discontinued operations
Net income
Attributable to:
Shareholders of Novartis AG
Non-controlling interests
Included in net income from continuing operations are:
Interest income
– 869
– 850
– 78
45
9 878
8 940
– 1 807 – 1 793
8 071
7 147
– 101
4 691
4 590
8 071 11 737
8 072 11 732
– 1
5
91
245
Depreciation of property, plant and equipment
– 912
– 952
– 282
– 283
– 124
– 110 – 1 318 – 1 345
Depreciation of right-of-use assets
Amortization of intangible assets
– 273
– 247
– 41
– 41
– 3 080 – 2 509
– 370
– 315
– 16
– 12
– 17
– 330
– 305
– 12 – 3 462 – 2 836
Impairment charges on property, plant and equipment, net
– 324
– 100
– 116
– 101
– 1
– 440
– 202
Impairment charges on intangible assets, net
– 768
– 632
– 141
– 506
– 5
– 914 – 1 138
Impairment charges and fair value
changes on financial assets, net
153
18
Additions to restructuring provisions
– 217
– 229
– 98
– 165
182
– 39
20
335
38
– 98
– 354
– 492
Equity-based compensation of Novartis equity plans
– 714
– 761
– 64
– 67
– 180
– 239
– 958 – 1 067
F-20
Notes to the Novartis Group consolidated financial statements
Innovative Medicines
Sandoz
Corporate
(including eliminations)
Group
(USD millions)
2019
2018
2019
2018
2019
2018
2019
2018
Net sales to third parties from continuing operations
37 714 34 892
9 731
9 859
47 445 44 751
Sales to continuing and discontinued segments
783
741
141
177
– 871
– 836
53
82
Net sales from continuing operations
38 497 35 633
9 872 10 036
– 871
– 836 47 498 44 833
Other revenues
Cost of goods sold
1 092
1 188
63
62
– 10 050 – 9 870 – 5 334 – 5 530
Gross profit from continuing operations
29 539 26 951
4 601
4 568
24
959
112
16
1 179
1 266
890 – 14 425 – 14 510
70 34 252 31 589
Selling, general and administration
– 11 617 – 10 907 – 2 218 – 2 305
– 534
– 505 – 14 369 – 13 717
Research and development
– 8 152 – 7 675 – 1 250
– 814
– 9 402 – 8 489
Other income
Other expense
1 586
977
167
505
278
147
2 031
1 629
– 2 069 – 1 475
– 749
– 622
– 608
– 512 – 3 426 – 2 609
Operating income from continuing operations
9 287
7 871
551
1 332
– 752
– 800
9 086
8 403
Income from associated companies
1
1
2
5
656
6 432
659
6 438
Interest expense
Other financial income and expense
Income before taxes from continuing operations
Taxes
Net income from continuing operations
Net loss from discontinued operations before gain on
distribution of Alcon Inc. to Novartis AG shareholders
Gain on distribution of Alcon Inc. to Novartis AG shareholders
Net income/(loss) from discontinued operations
Net income
Attributable to:
Shareholders of Novartis AG
Non-controlling interests
Included in net income from continuing operations are:
Interest income
– 850
– 932
45
186
8 940 14 095
– 1 793 – 1 295
7 147 12 800
– 101
– 186
4 691
4 590
– 186
11 737 12 614
11 732 12 611
5
3
245
292
Depreciation of property, plant and equipment
– 952 – 1 075
– 283
– 285
– 110
– 122 – 1 345 – 1 482
Depreciation of right-of-use assets 1
– 247
– 41
Amortization of intangible assets
– 2 509 – 2 214
– 315
– 366
Impairment charges on property, plant and equipment, net
– 100
– 239
– 101
– 60
– 17
– 12
– 1
– 305
– 7 – 2 836 – 2 587
– 2
– 202
– 301
Impairment charges on intangible assets, net
– 632
– 592
– 506
– 249
– 1 138
– 841
Impairment charges and fair value
changes on financial assets, net
18
107
20
– 113
38
– 6
Additions to restructuring provisions
– 229
– 395
– 165
– 32
– 98
– 94
– 492
– 521
Equity-based compensation of Novartis equity plans
– 761
– 645
– 67
– 53
– 239
– 220 – 1 067
– 918
1 Depreciation of right-of-use assets recognized from January 1, 2019, the date of implementation of IFRS 16 Leases. Note 1 provides additional disclosures.
F-21
Notes to the Novartis Group consolidated financial statements
Segmentation – consolidated balance sheets
(USD millions)
Total assets
Total liabilities
Total equity
Net debt 1
Innovative Medicines
Sandoz
Corporate
(including eliminations)
Group
2020
2019
2020
2019
2020
2019
2020
2019
83 112 71 225 16 825 16 468 32 122 30 677 132 059 118 370
– 15 472 – 15 332 – 3 786 – 3 804 – 56 135 – 43 683 – 75 393 – 62 819
56 666 55 551
24 481 15 938 24 481 15 938
Net operating assets
67 640 55 893 13 039 12 664
468
2 932 81 147 71 489
Included in assets and liabilities are:
Total property, plant and equipment
9 863
9 632
1 849
1 888
551
549 12 263 12 069
Additions to property, plant
and equipment 2
Total right-of-use assets
Additions to right-of-use assets 2
926
1 114
1 489
1 487
264
454
229
133
67
217
136
49
110
143
1 265
1 474
54
15
54
1 676
1 677
34
346
537
Total goodwill and intangible assets
56 839 46 336
9 817
8 892
152
83 66 808 55 311
Additions to goodwill and
intangible assets 2
Total investment in associated
companies
Additions to investment in associated
companies
Cash and cash equivalents, marketable securities,
commodities, time deposits and derivative
financial instruments
Financial debts and derivative
financial instruments
Current income tax and deferred tax liabilities
1 Note 29 provides additional disclosures related to net debt
2 Excluding the impact of business acquisitions
1 235
647
105
68
85
52
1 425
767
194
128
8
7
9 430
8 509
9 632
8 644
24
44
7
11
31
55
11 563 11 446 11 563 11 446
36 044 27 384 36 044 27 384
9 880
8 061
9 880
8 061
The following table shows countries that accounted for more than 5% of at least one of the respective Group totals,
as well as regional information for net sales to third parties for the years ended December 31, 2020, 2019 and 2018,
and for selected non-current assets for the years ended December 31, 2020 and 2019:
2020
%
2019
%
2018
%
2020
%
2019
Net sales1
Total of selected non-current assets2
United States
16 484
34
16 280
34
14 618
33
39 889
800
2
848
2
795
2
34 904
(USD millions)
Country
Switzerland
France
Germany
Japan
China
Other
Group
Region
Europe
Americas
2 442
4 518
2 804
2 573
19 038
48 659
18 715
19 725
Asia/Africa/Australasia
10 219
39
44
5
3
1
8
33 032
28 893
3 933
2 554
309
684
8 296
%
43
37
5
3
1
11
5
9
6
5
2 442
4 120
2 656
2 214
5
9
6
5
2 505
3 972
2 575
1 953
6
9
6
4
4 115
2 607
313
714
39
18 885
39
18 333
40
7 837
100
47 445
100
44 751
100
90 379
100
77 701
100
38
41
21
17 933
19 713
9 799
38
41
21
17 259
18 032
9 460
39
39
22
47 798
40 391
2 190
53
45
2
46 103
29 389
2 209
59
38
3
Group
48 659
100
47 445
100
44 751
100
90 379
100
77 701
100
1 Net sales to third party from continuing operations by location of customer
2 Total of property, plant and equipment; right-of-use assets; goodwill; intangible assets and investment in associated companies
F-22
Notes to the Novartis Group consolidated financial statements
The Group’s largest, second-largest and third-largest cus-
tomers account for approximately 17%, 11% and 6% of net
sales, respectively (2019: 18%, 13% and 8%, respectively;
2018: 18%, 14% and 8%, respectively). All segments had
sales to these customers in 2020, 2019 and 2018.
The highest amounts of trade receivables outstanding
were for these same three customers and amounted to
approximately 14%, 12% and 6%, respectively, of the trade
receivables at December 31, 2020 (2019: 14%, 12% and
7%, respectively).
Segmentation – Net sales by region1
Innovative Medicines
Europe
US
Asia/Africa/Australasia
Canada and Latin America
Total
Of which in Established Markets
Of which in Emerging Growth Markets
Sandoz
Europe
US
Asia/Africa/Australasia
Canada and Latin America
Total
Of which in Established Markets
Of which in Emerging Growth Markets
Group
Europe
US
Asia/Africa/Australasia
Canada and Latin America
Total
Of which in Established Markets
Of which in Emerging Growth Markets
2020
USD m
2019
USD m
13 484
12 818
14 342
13 789
8 718
2 469
8 458
2 649
39 013
37 714
29 643
28 573
9 370
9 141
5 231
2 142
1 501
772
9 646
7 089
2 557
5 115
2 491
1 341
784
9 731
7 111
2 620
18 715
17 933
16 484
16 280
10 219
3 241
9 799
3 433
48 659
47 445
36 732
35 684
11 927
11 761
Change
(2019
to 2020)
USD %
5
4
3
– 7
3
4
3
2
– 14
12
– 2
– 1
0
– 2
4
1
4
– 6
3
3
1
Change
(2018
to 2019)
USD %
4
16
4
1
8
9
6
3
– 10
– 2
1
– 1
– 2
0
4
11
4
1
6
7
4
2018
USD m
12 296
11 864
8 097
2 635
34 892
26 258
8 634
4 963
2 754
1 363
779
9 859
7 233
2 626
17 259
14 618
9 460
3 414
44 751
33 491
11 260
1 Net sales to third parties from continuing operations by location of customer. Emerging Growth Markets comprise all markets other than the Established Markets of the US,
Canada, Western Europe, Japan, Australia and New Zealand.
F-23
Notes to the Novartis Group consolidated financial statements
Innovative Medicines Division net sales by business franchise
Change
(2019 to
2020)
USD m USD %
2019
Change
(2018 to
2018 2019)
USD m USD %
2020
USD m
Change
(2019 to
2020)
USD m USD %
2019
Change
(2018 to
2018 2019)
USD m USD %
2020
USD m
Oncology
Tasigna
1 958
1 880
4
1 874
Promacta/Revolade
1 738
1 416
23
1 174
Tafinlar + Mekinist
1 542
1 338
15
1 155
Sandostatin
1 439
1 585
– 9
1 587
Jakavi
1 339
1 114
20
977
0
21
16
0
14
Cardiovascular, Renal and Metabolism
Entresto
Other
2 497
1 726
45
1 028
68
1
24
– 96
22
9
Total Cardiovascular,
Renal and Metabolism 2 498
1 750
43
1 050
67
Gleevec/Glivec
1 188
1 263
– 6
1 561 – 19
Afinitor/Votubia
1 083
1 539
– 30
1 556
– 1
Respiratory
Xolair 1
Ultibro Group
Other
1 251
1 173
7
1 039
13
623
630
26
22
– 1
18
703 – 10
25 – 12
Total Respiratory
1 900
1 825
4
1 767
3
687
653
635
474
445
320
105
35
480
43
235 104
975
– 33
1 099 – 11
755
– 16
828
– 9
nm
76
167 164
278
441
116
1
71
1
176
nm
nm
1 070
1 189
– 10
1 139
nm
nm
nm
4
Established Medicines
Galvus Group
Diovan Group
1 199
1 297
– 8
1 284
1 003
1 064
– 6
1 023
Exforge Group
980
1 025
– 4
1 002
1
4
2
5
14 711 14 370
2 13 428
7
Zortress/Certican
Neoral/Sandimmun(e)
Voltaren/Cataflam
452
393
360
485
419
– 7
– 6
464
463 – 10
417
– 14
445
– 6
Other
1 916
2 291
– 16
2 587 – 11
25
21
nm
Total Established
Medicines
Total Novartis
Pharmaceuticals
business unit
6 303
6 998
– 10
7 268
– 4
24 302 23 344
4 21 464
9
Total division
net sales
39 013 37 714
3 34 892
8
1 Net sales reflect Xolair sales for all indications.
nm = not meaningful
2
nm
nm
23
5
– 4
nm
nm
nm
nm
Kisqali
Exjade/Jadenu
Votrient
Kymriah
Lutathera
Piqray
Adakveo
Tabrecta
Other
Total Novartis
Oncology
business unit
Ilaris
Other
Total Immunology,
Hepatology and
Dermatology
Ophthalmology
Lucentis
Xiidra
Beovu
Other
Neuroscience
Gilenya
Zolgensma
Mayzent
Aimovig
Kesimpta
Other
Immunology, Hepatology and Dermatology
Cosentyx
3 995
3 551
13
2 837
873
671
30
554
1
4 868
4 222
15
3 392
24
1 933
2 086
– 7
2 046
376
190
192
35
96
nm
1 911
2 463
– 22
1 995
Total Ophthalmology
4 410
4 776
– 8
4 558
3 003
3 223
– 7
3 341
920
170
164
15
51
361
155
26
103
nm
59
nm
8
60
– 15
80 – 25
Total Neuroscience
4 323
3 773
15
3 429
10
F-24
US
USD m
Rest of
world
USD m
Total
USD m
2 516
1 479
1 562
1 441
1 277
1 220
859
1 099
1 933
3 995
3 003
2 497
1 958
1 933
833
905
1 738
569
837
973
602
1 542
1 439
1 339
1 339
1 251
1 199
873
439
879
964
461
473
369
515
376
1 251
1 199
1 188
1 083
1 003
980
920
873
687
653
635
315
644
124
16
459
400
318
138
259
11 126
18 790
29 916
3 216
5 881
9 097
14 342
24 671
39 013
Notes to the Novartis Group consolidated financial statements
Top 20 Innovative Medicines Division product net sales – 2020
Brands
Business franchise
Key indication
Promacta/Revolade
Oncology
Cosentyx
Gilenya
Entresto
Tasigna
Lucentis
Tafinlar + Mekinist
Sandostatin
Jakavi
Xolair 1
Galvus Group
Gleevec/Glivec
Afinitor/Votubia
Diovan Group
Exforge Group
Zolgensma
Ilaris
Kisqali
Exjade/Jadenu
Votrient
Immunology, Hepatology
and Dermatology
Psoriasis, ankylosing
spondylitis, psoriatic
arthritis and
non-radiographic axial
spondyloarthritis
Neuroscience
Relapsing multiple sclerosis
Cardiovascular, Renal
and Metabolism
Oncology
Ophthalmology
Oncology
Oncology
Oncology
Respiratory
Chronic heart failure
Chronic myeloid leukemia
Age-related macular degeneration
Immune thrombocytopenia (ITP),
severe aplastic anemia (SAA)
BRAF V600+ metastatic and
adjuvant melanoma; advanced
non-small cell lung cancer (NSCLC)
Carcinoid tumors and acromegaly
Myelofibrosis (MF),
polycythemia vera (PV)
Severe allergic asthma (SAA)
and chronic spontaneous urticaria
(CSU) and nasal polyps
Established Medicines
Type 2 diabetes
Oncology
Oncology
Established Medicines
Established Medicines
Chronic myeloid leukemia and GIST
Breast cancer/TSC
Hypertension
Hypertension
Neuroscience
Spinal muscular atrophy (SMA)
Immunology, Hepatology
and Dermatology
Oncology
Oncology
Oncology
Auto-inflammatory (CAPS,
TRAPS, HIDS/MKD, FMF, SJIA,
AOSD and gout)
HR+/HER2- metastatic breast cancer
Chronic iron overload
Renal cell carcinoma
Top 20 products total
Rest of portfolio
Total division sales
1 Net sales reflect Xolair sales for all indications.
F-25
US
USD m
Rest of
world
USD m
2 220
1 331
1 736
1 487
2 086
804
1 076
925
881
1 003
801
704
536
Total
USD m
3 551
3 223
2 086
1 880
1 726
1 585
1 539
691
725
1 416
481
857
1 297
1 338
1 297
1 263
1 173
1 173
1 114
978
1 012
525
423
367
316
230
1 114
1 064
1 025
975
755
671
485
480
86
13
450
332
304
169
250
10 679
17 967
28 646
3 110
5 958
9 068
13 789
23 925
37 714
Promacta/Revolade
Oncology
Tafinlar + Mekinist
Oncology
Established Medicines
Type 2 diabetes
Oncology
Chronic myeloid leukemia and GIST
334
929
Notes to the Novartis Group consolidated financial statements
Top 20 Innovative Medicines Division product net sales – 2019
Brands
Business franchise
Key indication
Immunology, Hepatology
and Dermatology
Psoriasis, ankylosing
spondylitis and psoriatic arthritis
Cosentyx
Gilenya
Lucentis
Tasigna
Entresto
Sandostatin
Afinitor/Votubia
Galvus Group
Gleevec/Glivec
Xolair 1
Jakavi
Diovan Group
Exforge Group
Exjade/Jadenu
Votrient
Ilaris
Neuroscience
Ophthalmology
Oncology
Cardiovascular, Renal
and Metabolism
Oncology
Oncology
Relapsing multiple sclerosis
Age-related macular degeneration
Chronic myeloid leukemia
Chronic heart failure
Carcinoid tumors and acromegaly
Breast cancer/TSC
Immune thrombocytopenia (ITP),
severe aplastic anemia (SAA)
BRAF V600+ metastatic and
adjuvant melanoma; advanced
non-small cell lung cancer (NSCLC)
Respiratory
Oncology
Severe allergic asthma (SAA)
and chronic spontaneous urticaria
(CSU)
Myelofibrosis (MF),
polycythemia vera (PV)
Established Medicines
Established Medicines
Hypertension
Hypertension
Oncology
Oncology
Immunology, Hepatology
and Dermatology
Chronic iron overload
Renal cell carcinoma
Auto-inflammatory (CAPS,
TRAPS, HIDS/MKD, FMF, SJIA,
AOSD and gout)
Zortress/Certican
Established Medicines
Transplantation
Kisqali
Oncology
HR+/HER2- metastatic breast cancer
Top 20 products total
Rest of portfolio
Total division sales
1 Net sales reflect Xolair sales for all indications.
F-26
Business franchise
Neuroscience
Key indication
US
USD m
Rest of
world
USD m
Total
USD m
Relapsing multiple sclerosis
1 765
1 576
3 341
1 674
1 163
806
817
440
929
2 046
1 068
770
1 121
627
1 284
2 837
2 046
1 874
1 587
1 561
1 556
1 284
581
593
1 174
457
521
698
578
1 155
1 099
1 039
1 039
472
939
983
977
424
1 028
1 023
1 002
977
828
556
84
19
404
262
292
554
194
145
323
319
517
464
9 654
17 292
26 946
2 210
5 736
7 946
11 864
23 028
34 892
Notes to the Novartis Group consolidated financial statements
Top 20 Innovative Medicines Division product net sales – 2018
Brands
Gilenya
Cosentyx
Lucentis
Tasigna
Sandostatin
Gleevec/Glivec
Afinitor/Votubia
Galvus Group
Immunology, Hepatology
and Dermatology
Psoriasis, ankylosing
spondylitis and psoriatic arthritis
Ophthalmology
Age-related macular degeneration
Oncology
Oncology
Oncology
Oncology
Chronic myeloid leukemia
Carcinoid tumors and acromegaly
Chronic myeloid leukemia and GIST
Breast cancer/TSC
Established Medicines
Type 2 diabetes
Promacta/Revolade
Oncology
Tafinlar + Mekinist
Exjade/Jadenu
Oncology
Oncology
Xolair 1
Respiratory
Entresto
Diovan Group
Exforge Group
Jakavi
Votrient
Ilaris
Cardiovascular, Renal
and Metabolism
Established Medicines
Established Medicines
Oncology
Oncology
Immunology, Hepatology
and Dermatology
Travoprost Group
Ophthalmology
Immune thrombocytopenia (ITP),
severe aplastic anemia (SAA)
BRAF V600+ metastatic and
adjuvant melanoma; advanced
non-small cell lung cancer (NSCLC)
Chronic iron overload
Severe allergic asthma (SAA)
and chronic spontaneous urticaria
(CSU)
Chronic heart failure
Hypertension
Hypertension
Myelofibrosis (MF),
polycythemia vera (PV)
Renal cell carcinoma
Auto-inflammatory (CAPS,
TRAPS, HIDS/MKD, FMF, SJIA,
AOSD and gout)
Reduction of elevated intraocular
pressure
Zortress/Certican
Established Medicines
Transplantation
Top 20 products total
Rest of portfolio
Total division sales
1 Net sales reflect Xolair sales for all indications.
F-27
Notes to the Novartis Group consolidated financial statements
Sandoz Division net sales by business
franchise
Change
(2019 to
2020)
USD m USD %
2019
Change
(2018 to
2018 2019)
USD m USD %
2020
USD m
Retail Generics 1
7 244
7 590
– 5
7 880
Biopharmaceuticals
1 928
1 607
20
1 436
Anti-Infectives
474
534
– 11
543
Total division net sales 9 646
9 731
– 1
9 859
– 4
12
– 2
– 1
1 Of which USD 694 million (2019: USD 784 million; 2018: USD 826 million) represents
anti-infectives sold under the Sandoz name
The product portfolio of Sandoz is widely spread in 2020, 2019 and 2018.
Segmentation – other revenue
(USD millions)
Profit-sharing income
Royalty income
Milestone income
Other 1
Total other revenues
Innovative Medicines
Sandoz
Corporate
(including eliminations)
Group
2020
2019
2020
2019
2020
2019
2020
2019
835
107
39
37
732
104
201
55
1 018
1 092
2
19
30
12
63
25
11
17
53
168
24
835
300
50
54
734
147
231
67
168
24
1 239
1 179
1 Other includes revenue from activities such as manufacturing or other services rendered, to the extent such revenue is not recorded under net sales.
(USD millions)
Profit-sharing income
Royalty income
Milestone income
Other 1
Total other revenues
Innovative Medicines
Sandoz
Corporate
(including eliminations)
Group
2019
2018
2019
2018
2019
2018
2019
2018
732
104
201
55
874
162
128
24
1 092
1 188
2
19
30
12
63
3
10
45
4
62
24
16
734
147
231
67
877
188
173
28
24
16
1 179
1 266
1 Other includes revenue from activities such as manufacturing or other services rendered, to the extent such revenue is not recorded under net sales.
F-28
Notes to the Novartis Group consolidated financial statements
4. Associated companies
Net income statement effect
Other comprehensive income effect
Total comprehensive income effect
(USD millions)
Roche Holding AG, Switzerland
GlaxoSmithKline Consumer
Healthcare Holdings Ltd., UK
2020
677
2019
662
2018
526
2020
– 56
2019
– 94
5 910
2018 1
75
– 557
2020
621
2019
568
2018
601
5 353
Others
– 4
– 3
2
– 4
– 3
2
Associated companies
related to continuing operations
673
659
6 438
– 56
– 94
– 482
617
565
5 956
1 In 2018, Novartis share of other comprehensive income recognized by associated companies, net of taxes of USD 511 million was recycled into the consolidated income statement
as a result of the divestment of the investment in GSK Consumer Healthcare Holdings Ltd. No Novartis share of other comprehensive income recognized by associated companies,
net of taxes was recycled into the consolidated income statement in 2020 and 2019.
Novartis has a significant investment in Roche Holding
AG, Basel (Roche), as well as certain other smaller invest-
ments that are accounted for as associated companies.
The investment in GlaxoSmithKline Consumer Health-
care Holdings Ltd., Brentford, Middlesex, UK, was
divested on June 1, 2018, to GlaxoSmithKline plc, Great
Britain.
A purchase price allocation was performed on the basis
of publicly available information at the time of acquisition
of the investment. The December 31, 2020, balance
sheet value allocation is as follows:
(USD millions)
Novartis share of Roche’s estimated net assets
(USD millions)
Roche Holding AG, Switzerland
Others
Total
Roche Holding AG
Balance sheet value
Novartis share of reappraised intangible assets
December 31, December 31,
2019
2020
9 407
8 445
225
199
9 632
8 644
Implicit Novartis goodwill
Current value of share in net identifiable assets
and goodwill
Accumulated equity accounting
adjustments and translation
effects less dividends received
Balance sheet value
December 31,
2020
2 585
117
3 233
5 935
3 472
9 407
The Group’s holding in Roche voting shares was 33.3%
at December 31, 2020, 2019 and 2018. This investment
represents approximately 6.2% of Roche’s total out-
standing voting and non-voting equity instruments at
December 31, 2020, 2019 and 2018.
Since full-year 2020 financial data for Roche is not
available when Novartis produces its consolidated finan-
cial results, a survey of analyst estimates is used to esti-
mate the Group’s share of Roche’s net income. Any dif-
ferences between these estimates and actual results will
be adjusted in the Group’s 2021 consolidated financial
statements when available.
The following tables show summarized financial infor-
mation for Roche, including current values of fair value
adjustments made at the time of the acquisition of the
shares, for the year ended December 31, 2019, and for
the six months ended June 30, 2020 (since full-year
2020 data is not yet available):
(CHF billions)
Current assets
Non-current
assets
Current Non-current
liabilities
liabilities
December 31, 2019
June 30, 2020
31.3
27.7
56.4
55.7
24.1
22.5
23.1
23.1
(CHF billions)
Total
comprehen- comprehen-
Revenue Net income sive income sive income
Other
December 31, 2019
June 30, 2020
63.8
30.4
12.3
7.2
– 0.9
– 0.7
11.4
6.5
The identified intangible assets principally relate to the
value of currently marketed products and are amortized
on a straight-line basis over their estimated average use-
ful life of 20 years.
In 2020, dividends received from Roche in relation to
the distribution of its 2019 net income amounted to
USD 487 million (2019: USD 460 million in relation to the
distribution of its 2018 net income).
The consolidated income statement effects from
applying Novartis accounting principles for this invest-
ment in 2020, 2019 and 2018 are as follows:
(USD millions)
2020
2019
2018
Novartis share of Roche’s
estimated current-year
consolidated net income
Prior-year adjustment
Amortization of fair value
adjustments relating to
intangible assets, net of taxes
of USD 26 million (2019: USD 24
million; 2018: USD 40 million)
Partial release of deferred tax
liability recognized
913
– 64
910
– 129
799
– 125
– 172
– 162
– 148
Net income effect
677
43
662
526
The publicly quoted market value of the Novartis inter-
est in Roche (SIX symbol: RO) at December 31, 2020,
was USD 18.8 billion (2019: USD 16.9 billion).
F-29
Notes to the Novartis Group consolidated financial statements
GlaxoSmithKline Consumer
Healthcare Holdings Ltd.
On March 27, 2018, Novartis entered into an agreement
with GlaxoSmithKline plc, Great Britain (GSK), to divest
its 36.5% stake in GSK Consumer Healthcare Holdings
Ltd. (GSK Consumer Healthcare) to GSK for USD 13.0
billion in cash. As a result, Novartis discontinued the use
of equity method accounting starting from April 1, 2018.
The divestment transaction closed on June 1, 2018, and
Novartis realized a pre-tax gain of USD 5.8 billion,
recorded in income from associated companies. See
Note 2.
GSK Consumer Healthcare was formed in March
2015 via contribution of businesses from both Novartis
and GSK.
Until June 1, 2018, Novartis had a 36.5% interest in
GSK Consumer Healthcare and had four of 11 seats on
the GSK Consumer Healthcare board of directors. Fur-
thermore, Novartis had customary minority rights as well
as exit rights at a predefined, market-based pricing
mechanism.
The consolidated income statement effects from
applying Novartis accounting principles for this invest-
ment in 2018 are as follows:
(USD millions)
Novartis share of
GSK Consumer Healthcare’s
estimated current-year
consolidated net income
Prior-year adjustment
Amortization of fair value
adjustments relating to
intangible assets and inventory,
net of taxes of USD 1 million
Pre-tax gain on divestment of
GSK Consumer Healthcare
Net income effect
2018
119
4
– 3
5 790
5 910
5. Interest expense
and other financial income and expense
Interest expense
Other financial income and expense
(USD millions)
Interest expense
2020
– 708
Interest expense on lease liabilities
– 67
2019
– 714
– 66
2018
(USD millions)
– 877
Interest income
Expense arising from
discounting long-term liabilities
and capitalized borrowing costs
Total interest expense
from continuing operations
– 94
– 70
– 55
– 869
– 850
– 932
Other financial income
Financial expense
Currency result, net
Total other financial income
and expense from
continuing operations
2020
91
18
– 52
– 135
2019
245
12
– 52
– 160
2018
292
1
– 39
– 68
– 78
45
186
F-30
Notes to the Novartis Group consolidated financial statements
6. Taxes
Income before taxes
(USD millions)
Switzerland
Foreign
Income before taxes
from continuing operations
2020
2019
2018
9 786
8 097
11 887
92
843
2 208
(As a percentage)
Applicable tax rate
2020
2019
2018
13.6 11.7 14.3
Effect of disallowed expenditures
4.6
4.8
1.7
Effect of utilization of tax losses
brought forward from prior periods
– 0.3 – 0.1 – 0.1
Effect of income taxed at reduced rates
– 0.3 – 0.7 – 0.4
9 878
8 940
14 095
Effect of income not subject to tax 1
– 0.7
0.0 – 3.7
Current and deferred income tax expense
(USD millions)
Switzerland
Foreign
2020
2019
– 932
– 1 186
– 1 168
– 961
2018
– 615
– 988
Current income tax expense
– 2 100
– 2 147
– 1 603
Switzerland
Foreign
Deferred tax income
Income tax expense
from continuing operations
– 137
430
293
– 93
447
354
– 120
428
308
– 1 807
– 1 793
– 1 295
Analysis of tax rate
Novartis has a substantial business presence in many
countries and is therefore subject to different income
and expense items that are non-taxable (permanent dif-
ferences) or are taxed at different rates in those tax juris-
dictions. This results in a difference between our appli-
cable tax rate and effective tax rate.
The main elements contributing to the difference
between the Group’s overall applicable tax rate (which
can change each year since it is calculated as the
weighted average tax rate based on the pre-tax income
of each subsidiary) and the effective tax rate are shown
in the following table:
Effect of tax credits and allowances
– 2.3 – 2.3 – 2.3
Effect of release of
contingent consideration liability
Effect of tax rate change
on current and deferred
tax assets and liabilities 2
– 0.2 – 0.5 – 0.2
0.3 – 1.4 – 0.1
Effect of write-off of deferred tax assets 3
0.2
4.0
0.2
Effect of write-down and reversal of
write-down of investments in subsidiaries
– 0.8 – 0.6
0.0
Effect of prior-year items
Effect of other items 4
2.3
1.9
2.2 – 0.5
3.0
Effective tax rate for continuing operations 18.3 20.1
0.3
9.2
1 Included in 2018 is the effect of income not subject to tax (-3.7%) arising from the
portion of the non-taxable gain on the divestment of the Group’s investment in GSK
Consumer Healthcare Holdings Ltd. attributable to Switzerland.
2 2019 is mainly related to the revaluation of the deferred tax assets and liabilities
resulting from the tax reforms enacted in Switzerland in 2019. Refer to Note 12 for
additional disclosures.
3 2019 is primarily related to a non-cash, one-time deferred tax expense for the
write-off of a deferred tax asset resulting from legal entity reorganizations.
4 In 2020, other items (+1.9%) include changes in uncertain tax positions (+2.0%) and
other items (-0.1%).
In 2019, other items (+3.0%) include changes in uncertain tax positions (+2.6%) and
other items (+0.4%).
The utilization of tax-loss carry-forwards lowered the tax
charge by USD 29 million in 2020, by USD 11 million in
2019, and by USD 19 million in 2018.
For the amount of taxes attributable to discontinued
operations, see Note 30.
F-31
Notes to the Novartis Group consolidated financial statements
7. Earnings per share
Net income attributable to shareholders of Novartis AG (USD millions)
- Continuing operations
- Discontinued operations
Total
Number of shares (in millions)
2020
2019
2018
8 072
7 142
12 797
4 590
– 186
8 072
11 732
12 611
Weighted average number of shares outstanding used in basic earnings per share
2 277
2 291
2 319
Adjustment for vesting of restricted shares, restricted share units and dilutive shares from options
19
28
25
Weighted average number of shares in diluted earnings per share
2 296
2 319
2 344
Basic earnings per share (USD)
- Continuing operations
- Discontinued operations
Total
Diluted earnings per share (USD)
- Continuing operations
- Discontinued operations
Total
3.55
3.55
3.52
3.52
3.12
2.00
5.12
3.08
1.98
5.06
5.52
– 0.08
5.44
5.46
– 0.08
5.38
Basic earnings per share (EPS) is calculated by dividing
net income attributable to shareholders of Novartis AG
by the weighted average number of shares outstanding
in a reporting period. This calculation excludes the aver-
age number of issued shares purchased by the Group
and held as treasury shares.
For diluted EPS, the weighted average number of
shares outstanding is adjusted to assume the vesting of
all restricted shares, restricted share units, and the
conversion of all potentially dilutive shares arising from
options on Novartis shares that have been issued.
No options were excluded from the calculation of
diluted EPS in 2020, 2019 or 2018, as all options were
dilutive in all years.
F-32
Notes to the Novartis Group consolidated financial statements
8. Changes in consolidated statements
of comprehensive income
The consolidated statements of comprehensive income
include the Group’s net income for the year as well as all
other valuation adjustments recorded in the Group’s con-
solidated balance sheet which under IFRS are not
recorded in the consolidated income statement. These
include fair value adjustments to financial instruments,
actuarial gains or losses on defined benefit pension
plans, and currency translation effects, net of tax.
(USD millions)
Value adjustments at December 31, 2017,
as previously reported
Impact of adoption of IFRS 9 on retained
earnings and OCI
Fair value
Actuarial
adjustments gains/(losses)
on financial
from defined
instruments benefit plans
Note
Cumulative
Total value
adjustments
currency attributable to
translation Novartis AG
effects shareholders
Non-
controlling
interest
Total value
adjustments
395
– 5 064
329
– 4 340
– 21
– 4 361
– 177
– 177
– 177
Restated value adjustments at January 1, 2018
218
– 5 064
329
– 4 517
– 21
– 4 538
Fair value adjustments on deferred cash flow
hedges, net of taxes of USD -1 million
Fair value adjustments on equity securities,
net of taxes of USD -5 million 1
Net investment hedge
Defined benefit plans, net of taxes
of USD 69 million
12
13
– 359
Currency translation effects
8.1
Total value adjustments in 2018
25
– 359
Fair value adjustments on equity securities
sold, reclassified to retained earnings
Value adjustments at December 31, 2018
Fair value adjustments on deferred cash
flow hedges
Fair value adjustments on debt securities
Fair value adjustments on equity securities,
net of taxes of USD 47 million 1
Net investment hedge
Defined benefit plans, net of taxes
of USD -313 million 2
Currency translation effects
8.1
Total value adjustments in 2019
Fair value adjustments on equity securities
sold, reclassified to retained earnings
Fair value adjustments related to divestments
– 16
227
1
1
– 47
– 466
– 45
– 466
– 95
33
– 30
95
320
415
12
13
95
– 359
320
81
– 16
12
13
95
– 359
315
76
– 16
– 5
– 5
44
354
398
1
1
– 47
44
– 466
354
– 113
– 95
3
1
1
– 47
44
– 467
352
– 116
– 95
3
– 1
– 2
– 3
– 5 423
744
– 4 452
– 26
– 4 478
Value adjustments at December 31, 2019
120
– 5 919
1 142
– 4 657
– 29
– 4 686
Fair value adjustments on equity securities,
net of taxes of USD -36 million 1
250
Net investment hedge
Defined benefit plans, net of taxes
of USD -3 million
145
250
– 201
– 201
Currency translation effects
8.1
Total value adjustments in 2020
250
145
3 193
2 992
Fair value adjustments on equity securities
sold, reclassified to retained earnings
Fair value adjustments related to divestments
Impact of change in ownership of consolidated entities
– 150
2
– 1
250
– 201
143
3 194
3 386
– 150
2
145
3 193
3 387
– 150
2
– 1
– 2
1
– 1
1
Value adjustments at December 31, 2020
220
– 5 773
4 134
– 1 419
– 29
– 1 448
1 Includes fair value adjustments on equity securities designated as financial assets valued at fair value through other comprehensive income with no subsequent recycling into the
consolidated income statement
2 Included in 2019 is a USD -358 million impact related to the revaluation of deferred tax assets on Swiss post-employment benefits that were previously recognized through other
comprehensive income. This revaluation resulted from the Swiss tax reforms enacted by the voters in 2019. Refer to Note 12 for additional disclosures.
F-33
Notes to the Novartis Group consolidated financial statements
8.1) In 2020, no currency translation losses or gains were
recycled through the income statement.
In 2019, cumulative currency translation gains of
USD 129 million were recycled through the income state-
ment mainly as a result of the spin-off of the Alcon busi-
ness through a dividend in kind distribution to Novartis
AG shareholders. See Notes 2 and 30.
In 2018, cumulative currency translation losses of
USD 946 million were recycled through the income state-
ment as a result of the divestment of the investment in
GSK Consumer Healthcare Holdings Ltd. See Notes 2
and 4.
9. Property, plant and equipment
The following table summarizes the movements of property, plant and equipment during 2020:
(USD millions)
Cost
January 1, 2020
Cost of assets reclassified out of assets of
disposal group held for sale 1
Impact of acquisitions of businesses
Reclassifications
Additions
Disposals and derecognitions
Currency translation effects
December 31, 2020
Accumulated depreciation
January 1, 2020
Accumulated depreciation on assets reclassified out of assets of
disposal group held for sale 1
Accumulated depreciation on disposals and derecognitions
Depreciation charge 2
Impairment charge
Reversal of impairment charge
Currency translation effects
December 31, 2020
Net book value at December 31, 2020
Commitments for purchases of property, plant and equipment
Capitalized borrowing costs
Land
Buildings
Construction
in progress
Machinery
and other
equipment
Total
512
11 463
1 350
13 674
26 999
11
2
10
7
– 23
36
117
19
433
115
– 465
695
36
– 1 038
847
– 57
110
168
5
595
296
332
26
1 265
– 1 656
– 2 201
956
1 797
555
12 377
1 248
14 038
28 218
– 20
– 5 124
– 60
– 9 726
– 14 930
17
– 15
– 58
433
– 491
– 194
– 4
11
– 101
1 543
– 163
2 004
– 827
– 1 318
– 10
– 228
– 447
7
7
– 1
– 373
– 3
– 731
– 1 108
– 19
– 5 807
– 66
– 10 063
– 15 955
536
6 570
1 182
3 975
12 263
256
2
1 Note 2 provides additional disclosures related to the reclassification out of assets of the disposal group held for sale.
2 Depreciation charge includes USD 38 million (USD 20 million for buildings and USD 18 million for machinery and other equipment), representing the cumulative amount of
depreciation charge on the disposal group held for sale for property, plant and equipment from the date of classification to held for sale, September 2018, to March 31, 2020, the
date of reclassification out of assets of disposal group held for sale. See Note 2 for further details.
F-34
Notes to the Novartis Group consolidated financial statements
The following table summarizes the movements of property, plant and equipment during 2019:
(USD millions)
Cost
January 1, 2019
Cost of assets related to discontinued operations 1
Reclassification to right-of-use assets 2
Cost of assets related to disposal group held for sale 3
Impact of acquisitions of businesses
Reclassifications
Additions
Disposals and derecognitions
Currency translation effects
December 31, 2019
Accumulated depreciation
January 1, 2019
Accumulated depreciation on assets related to discontinued operations 1
Reclassification to right-of-use assets 2
Accumulated depreciation on assets related to disposal group held for sale 3
Accumulated depreciation on disposals and derecognitions
Depreciation charge 4
Impairment charge 5
Reversal of impairment charge
Currency translation effects
December 31, 2019
Net book value at December 31, 2019
Commitments for purchases of property, plant and equipment
Capitalized borrowing costs
Land
Buildings
Construction
in progress
Machinery
and other
equipment
Total
696
– 61
– 122
10
57
6
14 135
2 042
17 155
34 028
– 1 615
– 655
– 2 678
– 5 009
– 3
– 3
24
332
112
– 12
1
– 1 019
1 001
– 2
– 8
9
630
355
– 127
– 23
44
1 474
– 75
– 1 551
– 9
– 1 774
– 3 409
1
32
1
– 13
21
512
11 463
1 350
13 674
26 999
– 43
– 6 328
– 37
– 11 924
– 18 332
8
26
– 10
– 1
562
7
1 541
2 118
2
1 170
– 447
– 51
1
– 33
26
2
2
1 674
2 846
– 898
– 1 345
– 34
– 110
– 205
2
– 9
3
– 43
– 20
– 5 124
– 60
– 9 726
– 14 930
492
6 339
1 290
3 948
12 069
220
4
1 Represents the cost of assets and accumulated depreciation at January 1, 2019, related to the Alcon business reported as discontinued operations. Notes 1, 2 and 30 provide
information related to discontinued operations.
2 Reclassification to right-of-use assets at January 1, 2019, upon adoption of IFRS 16 Leases. Refer to Note 1 for additional disclosure.
3 Note 2 provides additional disclosures related to disposal group held for sale.
4 No depreciation charge in the disposal group held for sale for the period from January 1, 2019, to December 31, 2019, was recorded.
5 Impairments in the disposal group held for sale for the period from January 1, 2019, to December 31, 2019, were USD 2 million.
F-35
Notes to the Novartis Group consolidated financial statements
10. Right-of-use assets and lease liabilities
The following table summarizes the movements of the
right-of-use assets of continuing operations:
(USD millions)
Right-of-use assets at January 1
Impact of acquisitions of businesses
Additions
Depreciation charge
Lease contract terminations 1
Impact of divestments
Currency translation effects
2020
1 677
32
346
– 330
– 63
– 32
46
2019
1 554
537
– 305
– 98
– 17
6
Total right-of-use assets at December 31 2
1 676
1 677
1 Lease contract terminations also includes modifications to existing leases that result
in reductions to the right-of-use assets, and reductions due to sub-leasing.
2 No impairment charge was recorded in 2020 (2019: nil).
The following table shows the right-of-use assets carry-
ing value and depreciation charge of continuing opera-
tions at December 31, 2020 and 2019, by underlying
class of asset:
(USD millions)
Land
Buildings
Vehicles
December 31, Depreciation December 31, Depreciation
charge
2019
2019
2020 carrying value
2020
carrying value
charge
528
963
155
11
207
100
537
990
129
14
194
87
Machinery and
equipment, and
other assets
Total right-of-use
assets
30
12
21
10
1 676
330
1 677
305
The following table shows the lease liabilities of continuing operations by maturity at December 31, 2020 and 2019:
(USD millions)
Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
Total lease liabilities
Less current portion of lease liabilities
Non-current portion of lease liabilities
At December 31, 2020 and December 31, 2019, there
were no material future cash outflows, including exten-
sion options, excluded from the measurement of lease
liabilities. The Group’s most material lease with a lease
term extension, representing a lease liability value of USD
0.6 billion (2019: USD 0.6 billion), has a determined lease
term end date of 2071 (2019: 2071).
In 2019, the Group completed sale and leaseback
transactions for certain property, plant and equipment
as part of its plans to consolidate sites. Transactions
resulted in net cash inflows of USD 0.7 billion and the
recognition of USD 96 million of lease liabilities, and USD
37 million of right-of-use assets. The right-of-use assets
value reflects the proportion of the property, plant and
equipment retained for a period of one to five years, with
two five-year extension periods for certain right-of-use
assets. The liabilities reflect the net present value of
future lease payments. The net gain on the sale and
leaseback transactions amounted to USD 478 million.
There were no significant sale and leaseback transac-
tions completed in 2020.
The following table provides additional disclosures
related to right-of-use assets and lease liabilities of con-
tinuing operations for 2020 and 2019:
Lease liabilities
Lease liabilities
Lease liabilities undiscounted Lease liabilities undiscounted
2019
2019
2020
2020
286
229
186
148
129
1 027
2 005
– 286
1 719
338
274
226
183
160
2 326
3 507
– 338
3 169
(USD millions)
Interest expense on lease liabilities 1
Expense on short-term leases
Expense on low-value leases
246
202
163
138
119
1 081
1 949
– 246
1 703
2020
67
4
7
295
246
202
173
150
2 419
3 485
– 295
3 190
2019
66
7
8
Total cash outflows for leases
379
339
Thereof:
Cash outflows for short-term leases
and low-value leases 2
Payments of interest 3
Payments of lease liabilities 4
11
56
312
15
51
273
1 The weighted average interest rate is 3.4% (2019: 3.9%).
2 Cash flows from short-term and low-value leases are included within total net cash
flows from operating activities. The portfolio of short-term leases to which the Group
is committed to at December 31, 2020 and 2019, is similar to the portfolio of
short-term leases the Group entered into during 2020 and 2019.
3 Included within total net cash flows from operating activities.
4 Reported as cash outflows used in financing activities net of lease incentives received
of USD nil (2019: USD 33 million).
The net investment held and income from subleasing
right-of-use assets were not significant for 2020 and
2019. Income from leasing Novartis property, plant and
equipment to third parties for both 2020 and 2019 was
not significant.
Note 30 provides additional disclosures on discon-
tinued operations.
F-36
Notes to the Novartis Group consolidated financial statements
11. Goodwill and intangible assets
The following table summarizes the movements of goodwill and intangible assets in 2020:
Goodwill
Intangible assets other than goodwill
(USD millions)
Cost
January 1, 2020
Cost of assets reclassified out of assets of
disposal group held for sale 1
Impact of acquisitions of businesses
Reclassifications 2
Additions 3
Disposals and derecognitions 4
Currency translation effects
December 31, 2020
Accumulated amortization
January 1, 2020
Accumulated amortization on assets reclassified
out of assets of disposal group held for sale 1
Amortization charge 5
Accumulated amortization on disposals
and derecognitions 4
Impairment charge 6
Currency translation effects
December 31, 2020
In-process
research and
Total development Technologies
Currently
marketed
products
Other
intangible
assets
Total
26 825
7 429
884
43 548
1 558
53 419
10
276
1 112
2
1 400
2 580
8 600
196
218
9 014
– 9 272
– 2
9 274
339
– 421
– 101
674
– 39
916
208
58
2 568
412
– 11
205
1 425
– 572
3 039
30 321
6 893
1 115
57 333
2 384
67 725
– 301
– 2 005
– 721 – 20 969
– 937 – 24 632
– 2
– 107
– 816
– 925
– 72
– 3 215
– 175
– 3 462
421
– 515
101
– 40
39
6
567
– 338
– 21
– 914
– 21
– 92
– 46
– 1 267
– 145
– 1 550
– 322
– 2 193
– 885 – 26 566
– 1 272 – 30 916
Net book value at December 31, 2020
29 999
4 700
230
30 767
1 112
36 809
1 Note 2 provides additional disclosures related to the reclassification out of assets of disposal group held for sale as of March 31, 2020.
2 Reclassifications between various asset categories as a result of product launches of acquired in-process research and development and completion of software development
3 No addition for the disposal group held for sale for the period from January 1, 2020, to March 31, 2020
4 Derecognition of assets that are no longer being used or developed and are not considered to have a significant disposal value or other alternative use
5 Amortization charge includes USD 102 million (USD 73 million for currently marketed products and USD 29 million for technologies), representing the cumulative amount of
amortization charge for the disposal group held for sale for intangible assets from the date of reclassification to held for sale, September 6, 2018, to March 31, 2020, the date of
reclassification out of assets of disposal group held for sale. See Note 2 for further details.
6 Impairment charge includes USD 42 million on currently marketed products that were previously classified within assets of disposal group held for sale. See Note 2 for further
details.
F-37
Notes to the Novartis Group consolidated financial statements
The following table summarizes the movements of goodwill and intangible assets in 2019:
Goodwill
Intangible assets other than goodwill
(USD millions)
Cost
January 1, 2019
Cost of assets related to
discontinued operations 1
In-process
research and
Alcon
Total development brand name Technologies
Currently
marketed Marketing
know-how
products
Other
intangible
assets
Total
35 700
16 167
2 980
6 253
35 412
5 960
2 253
69 025
– 9 000
– 249
– 2 980
– 5 369
– 4 440
– 5 960
– 572 – 19 570
Cost of assets related to disposal group
held for sale, net 2
Impact of acquisitions of businesses
186
Reclassifications 3
Additions 4
Disposals and derecognitions 5
Currency translation effects
– 61
– 1
342
– 9 069
265
– 75
49
4
3 550
9 069
243
– 544
254
December 31, 2019
26 825
7 429
884
43 548
3
22
3 914
259
767
– 436
– 1 055
32
335
1 558
53 419
Accumulated amortization
January 1, 2019
Accumulated amortization
on assets related to discontinued operations 1
Amortization charge 6
Accumulated amortization on disposals
and derecognitions 5
Impairment charge 6
Reversal of impairment charge
Currency translation effects
– 406
– 1 120
– 4 758 – 21 218
– 1 906
– 1 304 – 30 306
101
3
4 184
2 592
1 906
128
8 813
– 42
– 2 657
– 137
– 2 836
70
– 984
37
– 11
4
– 105
494
– 54
– 126
419
983
– 32
– 1 175
37
– 11
– 148
– 937 – 24 632
621
28 787
December 31, 2019
– 301
– 2 005
Net book value at December 31, 2019
26 524
5 424
– 721 – 20 969
163
22 579
1 Represents the cost of assets and accumulated amortization at January 1, 2019, related to the Alcon business reported as discontinued operations. Notes 1, 2 and 30 provide
information related to discontinued operations.
2 Note 2 provides additional disclosures related to assets of disposal group held for sale.
3 Reclassifications between various asset categories as a result of product launches of acquired in-process research and development and completion of software development
4 No addition in the disposal group held for sale for the period from January 1, 2019, to December 31, 2019
5 Derecognition of assets that are no longer being used or developed and are not considered to have a significant disposal value or other alternative use
6 No amortization or impairment charges related to the disposal group held for sale for the period from January 1, 2019, to December 31, 2019.
The following table summarizes the allocation of the net book values of goodwill and intangible assets by report-
ing segment at December 31, 2020:
Goodwill
Intangible assets other than goodwill
(USD millions)
Innovative Medicines
Sandoz
Corporate
In-process
research and
Total development Technologies
Currently
marketed
products
Other
intangible
assets
Total
21 718
4 548
3
29 645
925
35 121
8 274
152
227
1 122
42
1 543
7
145
145
Net book value at December 31, 2020
29 999
4 700
230
30 767
1 112
36 809
The following table summarizes the allocation of the net book values of goodwill and intangible assets by report-
ing segment at December 31, 2019:
Goodwill
Intangible assets other than goodwill
(USD millions)
Innovative Medicines
Sandoz
Corporate
In-process
research and
Total development Technologies
Currently
marketed
products
Other
intangible
assets
Total
18 750
5 339
7
21 720
520
27 586
7 767
85
156
859
7
25
76
1 125
76
Net book value at December 31, 2019
26 524
5 424
163
22 579
621
28 787
F-38
Notes to the Novartis Group consolidated financial statements
The Innovative Medicines and Sandoz Divisions’
cash-generating units, to which goodwill is allocated,
each comprise a group of smaller cash-generating units.
The valuation method of the recoverable amount of the
cash-generating units, to which goodwill is allocated, is
based on the fair value less costs of disposal.
The following assumptions are used in the calcula-
tions:
(As a percentage)
Terminal growth rate
Discount rate (post-tax)
Innovative
Medicines
1.5
6.5
Sandoz
1.5
6.5
The discount rates for all divisions consider the Group’s
weighted average cost of capital, adjusted to approxi-
mate the weighted average cost of capital of a compa-
rable market participant.
The fair value less costs of disposal, for all cash-gen-
erating units containing goodwill, is reviewed for the
impact of reasonably possible changes in key assump-
tions. In particular, we considered an increase in the dis-
count rate, a decrease in the terminal growth rate, and
certain negative impacts on the forecasted cash flows.
These reasonably possible changes in key assumptions
did not indicate an impairment.
“Note 1. Significant accounting policies—Impairment
of goodwill and intangible assets” provides additional
disclosures on how the Group performs goodwill and
intangible asset impairment testing.
The following table shows the intangible asset and
goodwill impairment charges for continuing opera-
tions for 2020, 2019 and 2018:
(USD millions)
Innovative Medicines 1
Sandoz 2
Corporate
Total
2020
– 768
– 141
– 5
2019
– 669
– 506
2018
– 592
– 249
– 914
– 1 175
– 841
1 2020 includes an impairment of USD 485 million related to the write-down of IPR&D
related to cessation of clinical development program ZPL389 for atopic dermatitis
and USD 181 million related to a partial write-down of the Votrient currently marketed
product.
2019 includes an impairment of USD 416 million related to the write-down of IPR&D
related to cessation of clinical development program EMA401 and a USD 108 million
write-down related to the cessation of clinical development program for MOR106 for
atopic dermatitis.
2018 includes an impairment of USD 400 million related to a partial write-down of the
Votrient currently marketed product.
2 2019 includes an impairment of USD 442 million related to the write-down of IPR&D
related to the discontinuation of the generic Advair® development program.
2018 includes impairments of USD 220 million related to the write-down of the
allocated goodwill (USD 183 million) and the currently marketed products (USD 37
million) related to the retained Sandoz US dermatology business and generic US oral
solids portfolio. See Note 2.
In 2020, there were no reversals of prior-year impairment
charges (2019: USD 37 million; 2018: nil).
Note 30 provides additional disclosures on discontinued
operations.
F-39
Notes to the Novartis Group consolidated financial statements
12. Deferred tax assets and liabilities
(USD millions)
Property,
plant and
equipment
Pensions and
other benefit
Intangible obligations
assets of associates
Tax loss Other assets,
provisions
forwards and accruals
carry-
Total
Inventories
Gross deferred tax assets at January 1, 2020
108
1 469
1 078
2 446
255
2 596
7 952
Gross deferred tax liabilities at January 1, 2020
– 390
– 3 610
– 291
– 287
– 7
– 1 325
– 5 910
Net deferred tax balance at January 1, 2020
– 282
– 2 141
787
2 159
248
1 271
2 042
At January 1, 2020
Credited/(charged) to income
Charged to equity
Charged to other comprehensive income
– 282
– 2 141
89
110
787
– 25
– 3
2 159
248
1 271
2 042
212
– 164
71
9
– 36
293
9
– 39
Impact of acquisitions of businesses
5
– 1 945
Other movements
– 53
58
38
– 3
– 25
408
34
– 1 501
5
– 35
Net deferred tax balance at December 31, 2020
– 241
– 3 918
797
2 343
497
1 314
– 12
792
Gross deferred tax assets at December 31, 2020
189
1 351
1 137
2 502
507
2 658
8 344
Gross deferred tax liabilities at December 31, 2020
– 430
– 5 269
– 340
– 159
– 10
– 1 344
– 7 552
Net deferred tax balance at December 31, 2020
– 241
– 3 918
797
2 343
497
1 314
792
After offsetting the following amount of deferred tax assets and liabilities within the same tax jurisdiction, the balance amounts to:
Deferred tax assets at December 31, 2020
Deferred tax liabilities at December 31, 2020
Net deferred tax balance at December 31, 2020
130
8 214
– 7 422
792
Gross deferred tax assets at January 1, 2019
191
1 233
1 188
3 722
273
2 175
8 782
Gross deferred tax liabilities at January 1, 2019
– 622
– 5 384
– 273
– 474
– 805
– 7 558
Net deferred tax balance at January 1, 2019
– 431
– 4 151
915
3 248
273
1 370
1 224
At January 1, 2019
– 431
– 4 151
915
3 248
1 370
1 224
Net deferred tax balance related to discontinued operations 1
Credited/(charged) to income
Charged to equity
Charged to other comprehensive income
Impact of acquisitions of businesses
Other movements
82
74
1 403
– 123
– 248
– 217
605
308
– 818
– 113
298
273
– 39
8
– 313
75
– 166
24
– 289
3
– 10
– 45
39
– 23
21
31
– 26
– 12
– 47
25
858
354
– 83
Net deferred tax balance at December 31, 2019
– 282
– 2 141
787
2 159
248
1 271
2 042
Gross deferred tax assets at December 31, 2019
108
1 469
1 078
2 446
255
2 596
7 952
Gross deferred tax liabilities at December 31, 2019
– 390
– 3 610
– 291
– 287
– 7
– 1 325
– 5 910
Net deferred tax balance at December 31, 2019
– 282
– 2 141
787
2 159
248
1 271
2 042
After offsetting the following amount of deferred tax assets and liabilities within the same tax jurisdiction, the balance amounts to:
Deferred tax assets at December 31, 2019
Deferred tax liabilities at December 31, 2019
Net deferred tax balance at December 31, 2019
1 Notes 1, 2 and 30 provide information related to discontinued operations.
43
7 909
– 5 867
2 042
F-40
Notes to the Novartis Group consolidated financial statements
The following table presents deferred tax assets and
deferred tax liabilities, which are expected to have an
impact on current taxes payable after more than
12 months:
(USD billions)
2020
2019
(USD millions)
One year
Two years
Three years
Four years
Five years
Expected to have an impact on current tax
payable after more than 12 months
– Deferred tax assets
– Deferred tax liabilities
4.5
7.0
4.3
5.2
More than five years
Not subject to expiry
Total
Not capitalized
Capitalized
2019 total
14
28
28
16
127
125
310
648
0
0
6
46
37
14
28
34
62
164
2 214
2 339
35
345
2 338
2 986
Deferred tax liabilities have not been recognized for the
withholding tax and other taxes that would be payable
on the remittance of earnings of foreign subsidiaries, as
the Group has the ability to control any future reversal
and the unremitted earnings are retained in the foreign
subsidiaries for reinvestment. The total unremitted earn-
ings retained for reinvestment in the Group’s foreign sub-
sidiaries that would be subject to withholding tax or other
taxes if remitted to the Group are estimated at approxi-
mately USD 27 billion in 2020 (2019: USD 26 billion).
Temporary differences on which no deferred tax has
been provided as they are permanent in nature related
to:
(USD billions)
Investments in subsidiaries
Goodwill from acquisitions
2020
5
– 27
2019
3
– 24
The gross value of tax-loss carry-forwards that have or
have not been capitalized as deferred tax assets, with
their expiry dates, is as follows:
Not capitalized
Capitalized
2020 total
(USD millions)
One year
Two years
Three years
Four years
Five years
20
1
2
23
11
5
6
40
20
6
8
23
51
5 691
1 006
6 805
More than five years 1
3 400
2 291
Not subject to expiry
323
683
Total
3 780
3 025
1 Not capitalized more than five years includes USD 3.2 billion attributable to US state
tax-loss carry-forwards, of which USD 1.6 billion relates to The Medicines Company,
which was acquired in 2020 (see Note 2).
(USD millions)
2020
2019
2018
Tax losses carried forward
that expired
14
9
8
Deferred tax assets related to taxable losses of relevant
Group entities are recognized to the extent it is consid-
ered probable that future taxable profits will be available
against which such losses can be utilized in the foresee-
able future.
The Basel-Stadt cantonal tax reform was approved by
voters in February 2019, with parts of the reform retro-
actively enacted per January 1, 2019. The newly enacted
tax rate resulted in a decrease of the blended cantonal
and federal tax rate from 22% to 13%. This change
impacted the Group’s Basel-Stadt-domiciled operating
subsidiaries.
The Swiss federal tax reform was approved by vot-
ers in May 2019. The enactment of the Swiss federal tax
reform required the abolishment of the holding company
tax regimes as of January 1, 2020. As a result, the hold-
ing company tax rate increased from the current 8% to
13%, effective January 1, 2020.
The enactment of these Swiss tax reforms required
a revaluation of the deferred tax assets and liabilities to
the newly enacted tax rates at the date of enactment.
The following table shows the impact on the revalu-
ation of deferred assets and liabilities in 2019, as at the
respective dates of the enactment of the Swiss tax
reforms:
Income
statement
continuing
operations
Equity
Total
(USD millions)
Deferred tax asset
and liability revaluation
Items previously recognized
in consolidated income statement 234
234
Items previously recognized
in other comprehensive income 1
Total revaluation of deferred
tax assets and liabilities
1 Related to post-employment benefits
– 358
– 358
234
– 358
– 124
F-41
Notes to the Novartis Group consolidated financial statements
13. Financial and other non-current assets
Financial assets
Other non-current assets
(USD millions)
Equity securities
Debt securities
Fund investments
2020
2019
(USD millions)
2020
2019
1 577
1 524
Deferred compensation plans
36
366
33
233
Prepaid post-employment benefit plans
Other non-current assets
471
202
219
892
414
148
176
738
Total financial investments
1 979
1 790
Total other non-current assets
Long-term receivables from finance subleases
Other long-term receivables
Contingent consideration receivables 1
83
125
625
Long-term loans, advances and security deposits
89
66
104
399
159
Total financial assets
2 901
2 518
1 Note 29 provides additional disclosures related to contingent considerations.
14. Inventories
(USD millions)
Raw material, consumables
Work in progress
Finished products
Total inventories
2020
967
3 324
2 840
7 131
2019
751
3 024
2 207
5 982
The following table shows the amount of inventory rec-
ognized as an expense in “Cost of goods sold” in the
consolidated income statements from continuing oper-
ations:
(USD billions)
Cost of goods sold
2020
– 8.5
2019
– 8.5
2018
– 8.3
The following table shows the recognized amount of
inventory provision and reversals of inventory provision
recorded in the consolidated income statements from
continuing operations:
(USD millions)
Inventory provisions
2020
– 702
Reversals of inventory provisions
255
2019
– 752
218
2018
– 603
216
The reversals mainly result from the release of products
initially requiring additional quality control inspections
and from the reassessment of inventory values manu-
factured prior to regulatory approval but for which
approval was subsequently received.
15. Trade receivables
(USD millions)
Total gross trade receivables
Provisions for doubtful trade receivables
Total trade receivables, net
2020
8 310
– 93
2019
8 396
– 95
8 217
8 301
F-42
Notes to the Novartis Group consolidated financial statements
The following table summarizes the movement in the provision for doubtful trade receivables:
(USD millions)
January 1
Provisions related to discontinued operations 1
Impact of acquisitions of businesses
2020
– 95
2019
– 126
54
Provisions for doubtful trade receivables charged to the consolidated income statement 2
– 59
– 89
Utilization of provisions for doubtful trade receivables
Reversal of provisions for doubtful trade receivables credited to the consolidated income statement 3
Currency translation effects
December 31
1 Notes 1, 2 and 30 provide information related to discontinued operations.
2 Provisions charged to the consolidated income statement from continuing operations were USD 30 million in 2018.
3 Reversal of provisions credited to the consolidated income statement from continuing operations were USD 44 million in 2018.
2018
– 190
– 1
– 47
39
61
12
13
53
– 5
12
53
1
– 93
– 95
– 126
The following table shows the trade receivables that are
not overdue as specified in the payment terms and con-
ditions established with Novartis customers, as well as
an analysis of overdue amounts and related provisions
for doubtful trade receivables:
(USD millions)
Not overdue
Past due for not more than one month
Past due for more than one month
but less than three months
Past due for more than three months
but less than six months
Past due for more than six months
but less than one year
Past due for more than one year
Provisions for doubtful trade receivables
2020
7 714
150
2019
7 763
161
118
102
77
149
– 93
123
103
96
150
– 95
Total trade receivables, net
8 217
8 301
Trade receivable balances represent amounts due from
our customers, which are mainly drug wholesalers, retail-
ers, private health systems, government agencies, man-
aged care providers, pharmacy benefit managers and
government-supported healthcare systems. Novartis
continues to monitor sovereign debt issues and eco-
nomic conditions in the countries in which it operates,
particularly in Argentina, Brazil, Greece, Italy, Portugal,
Russia, Saudi Arabia, Spain and Turkey, and evaluates
trade receivables in these countries for potential collec-
tion risks. The majority of the outstanding trade receiv-
ables from Portugal, Saudi Arabia, Spain and Greece are
due directly from local governments or from govern-
ment-funded entities. Deteriorating credit and economic
conditions as well as other factors in these closely mon-
itored countries have resulted in, and may continue to
result in, an increase in the average length of time that it
takes to collect these trade receivables, and may require
the Group to re-evaluate the expected credit loss amount
of these trade receivables in future periods.
The following table shows the gross trade receiv-
ables balance from these closely monitored countries at
December 31, 2020 and 2019; the amounts that are past
due for more than one year; and the related provisions
that have been recorded:
(USD millions)
Total balance of gross trade
receivables from closely
monitored countries
Past due for more than one year
Provisions
2020
2019
1 505
1 588
55
27
61
24
At December 31, 2020, amounts past due for more than
one year are not significant in any of these countries on
a standalone basis.
Total trade receivables include amounts denomi-
nated in the following major currencies:
(USD millions)
US dollar (USD)
Euro (EUR)
Japanese yen (JPY)
Russian ruble (RUB)
Chinese yuan (CNY)
British pound (GBP)
Australian dollar (AUD)
Brazilian real (BRL)
Canadian dollar (CAD)
Swiss franc (CHF)
Other currencies
Total trade receivables, net
2020
3 311
1 668
2019
3 466
1 384
437
288
208
191
153
148
125
124
466
341
279
202
125
165
129
89
1 564
8 217
1 655
8 301
F-43
Notes to the Novartis Group consolidated financial statements
16. Marketable securities, commodities, time deposits,
derivative financial instruments, and cash and cash
equivalents
Marketable securities, commodities, time deposits and derivative financial instruments
(USD millions)
Marketable securities
Commodities
Time deposits and short-term investments with original maturity more than 90 days
Derivative financial instruments
Total marketable securities, commodities, time deposits and derivative financial instruments
Cash and cash equivalents
(USD millions)
Current accounts
Time deposits and short-term investments with original maturity less than 90 days
Total cash and cash equivalents
17. Other current assets
(USD millions)
VAT receivable
Withholding tax recoverable
Prepaid expenses
Receivables from associated companies
Other receivables and current assets
Total other current assets
2020
26
111
1 609
159
1 905
2019
61
110
61
102
334
2020
3 750
5 908
2019
3 247
7 865
9 658
11 112
2020
544
73
943
963
2 523
2019
508
108
898
1
1 165
2 680
18. Equity
The following table shows the movement in the share capital:
(USD millions)
Share capital
Treasury shares
Outstanding share capital
Jan 1, 2018
Movement
in year
Dec 31, 2018
Movement
in year
Dec 31, 2019
Movement
in year
Dec 31, 2020
969
– 100
869
– 25
31
6
944
– 69
875
– 8
– 11
– 19
936
– 80
856
– 23
27
4
913
– 53
860
F-44
Notes to the Novartis Group consolidated financial statements
The following table shows the movement in the shares:
2020
2019
2018
Number of outstanding shares
(in millions)
Note
Total
Novartis
shares
Total
Total
treasury outstanding
shares
shares 1
Total
Novartis
shares
Total
Total
treasury outstanding
shares
shares 1
Total
Novartis
shares
Total
Total
treasury outstanding
shares
shares 1
Balance at beginning of year
2 527.3
– 262.3 2 265.0 2 550.6
– 239.4 2 311.2 2 616.8
– 299.3 2 317.5
Shares canceled for capital
reduction 2
Shares acquired to be
canceled 3
Other share purchases 4
Exercise of options
and employee transactions 5 18.9
Equity-based compensation 5
Shares delivered to Alcon
employees
Other share sales
Total movements
– 60.3
60.3
– 23.3
23.3
– 66.2
66.2
– 32.6
– 32.6
– 1.7
– 1.7
14.7
11.0
14.7
11.0
– 60.3
– 60.3
– 1.7
– 1.7
5.5
9.4
5.5
9.4
0.4
0.4
0.9
0.9
– 23.3
– 23.3
– 1.2
– 1.2
7.8
7.4
7.8
7.4
3.0
3.0
– 60.3
52.1
– 8.2
– 23.3
– 22.9
– 46.2
– 66.2
59.9
– 6.3
Balance at end of year
2 467.0
– 210.2 2 256.8 2 527.3
– 262.3 2 265.0 2 550.6
– 239.4 2 311.2
1 Approximately 103.0 million treasury shares (2019: 117.6 million; 2018: 121.6 million) are held in Novartis entities that restrict their availability for use.
2 Novartis reduced its share capital by canceling shares that were repurchased on the SIX Swiss Exchange second trading line during previous years.
3 Shares repurchased on the SIX Swiss Exchange second trading line under a CHF 10 billion share buyback authority approved at the 2016 Annual General Meeting (AGM) for
transactions before February 28, 2019, and under a new CHF 10 billion share buyback authority approved at the 2019 AGM for transactions after such date
4 Shares acquired from employees, which were previously granted to them under the respective equity-based participation plans
5 Shares delivered as a result of options being exercised and physical share deliveries related to equity-based participation plans.
18.1) The amount available for distribution as a dividend
to shareholders is based on the available distributable
retained earnings of Novartis AG determined in accor-
dance with the legal provisions of the Swiss Code of
Obligations.
Dividend per share (in CHF)
Total dividend payment
(in USD billion)
2020
2.95
2019
2.85
2018
2.80
7.0
6.6
7.0
18.2) The following table summarizes the treasury shares movements:
2020
2019
2018
Number of
outstanding
Number of
outstanding
Number of
outstanding
Note
shares Equity impact
USD m
(in millions)
shares Equity impact
USD m
(in millions)
shares Equity impact
USD m
(in millions)
Shares acquired to be canceled 1
– 32.6
– 2 897
– 60.3
– 5 351
– 23.3
– 1 859
Other share purchases 2
Purchase of treasury shares
– 1.7
– 159
– 1.7
– 160
– 1.2
– 114
– 34.3
– 3 056
– 62.0
– 5 511
– 24.5
– 1 973
Exercise of options and employee transactions 3
18.9
Equity-based compensation 4
Shares delivered to Alcon employees
Other share sales
Total
14.7
11.0
0.4
806
730
30
5.5
9.4
0.9
210
833
18
– 8.2
– 1 490
– 46.2
– 4 450
7.8
7.4
434
756
3.0
– 6.3
263
– 520
1 Shares repurchased on the SIX Swiss Exchange second trading line under a CHF 10 billion share buyback authority approved at the 2016 AGM for transactions before February
28, 2019, and under a new CHF 10 billion share buyback authority approved at the 2019 AGM for transactions after such date
2 Shares acquired from employees, which were previously granted to them under the respective equity-based participation plans
3 Shares delivered as a result of options being exercised related to equity-based participation plans and the delivery of treasury shares. The average share price of the shares
delivered was significantly below market price, reflecting the strike price of the options exercised.
4 Equity-settled share-based compensation is expensed in the consolidated income statement in accordance with the vesting period of the share-based compensation plans. The
value for the shares and options granted is credited to consolidated equity over the respective vesting period. In addition, tax benefits arising from tax-deductible amounts
exceeding the expense recognized in the income statement are credited to equity.
F-45
Notes to the Novartis Group consolidated financial statements
18.3) In November 2020, Novartis entered into an irrevo-
cable, non-discretionary arrangement with a bank to
repurchase Novartis shares on the second trading line
under its up-to USD 2.5 billion share buyback. Novartis
is able to cancel this arrangement at any time but could
be subject to a 90-day waiting period. The commitment
under this arrangement therefore reflects the obligated
purchases by the bank under such trading plan over a
rolling 90-day period, or if shorter, until the maturity date
of such trading plan.
The commitment under this arrangement amounted
to USD 1.8 billion as of December 31, 2020.
In August 2020, Novartis entered into an irrevocable,
non-discretionary arrangement with a bank to repur-
chase Novartis shares to mitigate dilution related to par-
ticipation plans of associates. Novartis was able to can-
cel this arrangement at any time but would have been
subjected to a 90-day waiting period.
This trading plan commitment was fully executed and
expired, and as a consequence, there is no contingent
liability related to this plan recognized as of December
31, 2020.
In 2019, Novartis entered into a similar irrevocable,
non-discretionary arrangement with a bank to repur-
chase Novartis shares on the second trading line under
its up-to USD 5 billion share buyback and to repurchase
Novartis shares to mitigate dilution related to participa-
tion plans of associates. The commitment under this
arrangement therefore reflects the obligated purchases
by the bank under such trading plan over a rolling 90-day
period, or if shorter, until the maturity date of such trad-
ing plan.
The trading plan commitment was fully executed and
expired, and as a consequence, there is no contingent
liability related to this plan recognized as of December
31, 2019.
In 2018, Novartis entered into a similar irrevocable,
non-discretionary arrangements with a bank to repur-
chase Novartis shares. The commitments under this
arrangement reflected the expected purchases by the
bank under such trading plan over a rolling 90-day
period.
The commitment under this arrangement amounted
to USD 284 million as of December 31, 2018.
18.4) In October 2020, Novartis entered into an agree-
ment with the market maker for its employee options to
repurchase a portion of the outstanding written call
options. A total of 3.7 million options were repurchased
under this agreement. This agreement was terminated
in November 2020.
18.5) The impact of change in ownership of consolidated
entities represents the excess of the amount paid to
non-controlling interest over their carrying value and
equity allocation to non-controlling interest due to
change in ownership percentage.
18.6) Changes in non-controlling interests represent the
impact on the non-controlling interest of transactions
with minority shareholders, such as change in ownership
percentage, dividend payments and other equity trans-
actions.
18.7) Other movements includes, for subsidiaries in
hyperinflationary economies, the impact of the restate-
ment of the non-monetary assets and liabilities with the
general price index at the beginning of the period as well
as the restatement of the equity balances of the current
year. In 2020, the amount recorded in equity related to
hyperinflation accounting was USD 18 million (2019: USD
22 million; 2018: USD 38 million). See Note 29 for addi-
tional disclosures.
18.8) In 2019, transaction costs of USD 253 million (2018:
USD 79 million) net of tax of USD 36 million (2018: USD
20 million), that are directly attributable to the distribu-
tion (spin-off) of Alcon Inc. to Novartis shareholders and
that would otherwise have been avoided, were recorded
as a deduction from equity. See Note 1 for further details.
No transaction costs were recorded as a deduction from
equity in 2020.
18.9) At December 31, 2020, the market maker held 1 mil-
lion (2019: 13 million; 2018: 11 million) written call options,
originally issued as part of the share-based compensa-
tion for associates, that have not yet been exercised. The
weighted average exercise price of these options is USD
60.09 (2019: USD 63.90; 2018: USD 62.70), and they
have contractual lives of 10 years, with remaining lives
up to three years (2019: four years; 2018: five years).
In December 2018, Novartis entered into an agree-
ment with the market maker for its employee options to
repurchase a portion of the outstanding written call
options that are not exercised in exchange for treasury
shares. During 2019, this agreement was fully executed.
F-46
Notes to the Novartis Group consolidated financial statements
19. Non-current financial debt
(USD millions)
Straight bonds
Liabilities to banks and other financial institutions 1
Total, including current portion of non-current financial debt
Less current portion of non-current financial debt
Total non-current financial debt
1 Average interest rate 0.3% (2019: 0.2%)
2020
2019
28 298
22 167
233
188
28 531
22 355
– 2 272
– 2 002
26 259
20 353
All bonds are initially recorded at the amount of proceeds
received, net of transaction costs. They are subsequently
carried at amortized cost, with the difference between
the proceeds, net of transaction costs, and the amount
due on redemption being recognized as a charge to the
consolidated income statement over the period of the
relevant bond. Financial debts, including current finan-
cial debts, contain only general default covenants. The
Group is in compliance with these covenants.
The percentage of fixed-rate financial debt to total
financial debt was 79% at December 31, 2020, and 82%
at December 31, 2019.
The average interest rate on total financial debt in
2020 was 2.0% (2019: 2.4%).
Note 29 contains a maturity table of the Group’s
future contractual interest payments commitments.
The following table provides a breakdown of straight bonds:
Nominal
amount
Currency (millions)
Issuance
year
Maturity
year
Issuer
2019
(USD
Issue price millions) millions)
2020
(USD
Coupon
4.400%
2.400%
3.700%
3.400%
4.400%
0.750%
1.625%
0.250%
0.625%
1.050%
3.000%
4.000%
0.125%
0.625%
1.800%
2.400%
3.100%
0.000%
1.125%
0.500%
1.375%
1.700%
1.750%
2.000%
2.200%
2.750%
USD
USD
USD
USD
USD
EUR
EUR
CHF
CHF
CHF
USD
USD
EUR
EUR
USD
USD
USD
EUR
EUR
EUR
EUR
EUR
USD
USD
USD
USD
1 000
1 500
500
2 150
1 850
600
600
500
550
325
1 750
1 250
1 250
500
1 000
1 000
1 000
1 250
600
750
750
750
1 000
1 250
1 500
1 250
0.000% 1 EUR
1 850
Total straight bonds
2010
2012
2012
2014
2014
2014
2014
2015
2015
2015
2015
2015
2016
2016
2017
2017
2017
2017
2017
2018
2018
2018
2020
2020
2020
2020
2020
2020 Novartis Capital Corporation, New York, United States
99.237%
1 000
2022 Novartis Capital Corporation, New York, United States
99.225% 1 497 1 495
2042 Novartis Capital Corporation, New York, United States
98.325%
490
489
2024 Novartis Capital Corporation, New York, United States
99.287% 2 142 2 139
2044 Novartis Capital Corporation, New York, United States
99.196% 1 826 1 825
2021 Novartis Finance S.A., Luxembourg, Luxembourg
2026 Novartis Finance S.A., Luxembourg, Luxembourg
2025 Novartis AG, Basel, Switzerland
2029 Novartis AG, Basel, Switzerland
2035 Novartis AG, Basel, Switzerland
99.134%
99.697%
100.640%
100.502%
100.479%
737
735
568
625
369
670
670
517
568
336
2025 Novartis Capital Corporation, New York, United States
99.010% 1 737 1 735
2045 Novartis Capital Corporation, New York, United States
98.029% 1 220 1 219
2023 Novartis Finance S.A., Luxembourg, Luxembourg
99.127% 1 530 1 392
2028 Novartis Finance S.A., Luxembourg, Luxembourg
98.480%
607
553
2020 Novartis Capital Corporation, New York, United States
99.609%
1 000
2022 Novartis Capital Corporation, New York, United States
99.449%
2027 Novartis Capital Corporation, New York, United States
99.109%
998
992
996
990
2021 Novartis Finance S.A., Luxembourg, Luxembourg
99.133% 1 536 1 396
2027 Novartis Finance S.A., Luxembourg, Luxembourg
2023 Novartis Finance S.A., Luxembourg, Luxembourg
2030 Novartis Finance S.A., Luxembourg, Luxembourg
2038 Novartis Finance S.A., Luxembourg, Luxembourg
99.874%
99.655%
99.957%
99.217%
2025 Novartis Capital Corporation, New York, United States
99.852%
670
837
838
832
735
919
920
913
996
2027 Novartis Capital Corporation, New York, United States
99.909% 1 245
2030 Novartis Capital Corporation, New York, United States
99.869% 1 493
2050 Novartis Capital Corporation, New York, United States
97.712% 1 213
2028 Novartis Finance S.A., Luxembourg, Luxembourg
99.354% 2 255
28 298 22 167
1 The EUR 1 850 million bond issued in 2020 features a coupon step-up of 0.25% commencing with the first interest payment date after December 31, 2025, if one or both of the
2025 Patient Access Targets are not met. These 2025 Patient Access Targets are the 2025 Flagship Programs Patient Reach Target and the 2025 Strategic Innovative Therapies
Patient Reach Target, as defined in the bond prospectus. As of December 31, 2020, there is no indication that these 2025 Patient Access Targets will not be met.
F-47
Notes to the Novartis Group consolidated financial statements
The following tables provide a breakdown of total non-current financial debt, including current portion by maturity
and currency:
The following table shows the comparison of balance
sheet and fair value of total non-current financial debt,
including current portion:
(USD millions)
2020
Balance
sheet
2020
Fair
values
2019
Balance
sheet
2019
Fair
values
Straight bonds
28 298
31 359
22 167
23 701
Others
Total
233
233
188
188
28 531
31 592
22 355
23 889
The fair values of straight bonds are determined by
quoted market prices. Other financial debts are recorded
at notional amounts, which are a reasonable approxima-
tion of the fair values.
Breakdown by maturity:
(USD millions)
2020
2021
2022
2023
2024
2025
After 2025
Total
Breakdown by currency:
(USD millions)
US dollar (USD)
Euro (EUR)
Japanese yen (JPY)
Swiss franc (CHF)
Others
Total
2020
2 272
2 631
2 546
2 142
3 302
15 638
2019
2 002
2 067
2 583
2 321
2 139
2 252
8 991
28 531
22 355
2020
2019
15 848
12 889
10 888
7 861
194
184
1 563
1 421
38
28 531
22 355
20. Provisions and other non-current liabilities
(USD millions)
Accrued liability for employee benefits:
Defined benefit pension plans 1
Other long-term employee benefits and deferred compensation
Other post-employment benefits 1
Environmental remediation provisions
Provisions for product liabilities, governmental investigations and other legal matters
Contingent consideration 2
Other non-current liabilities
2020
2019
3 538
3 469
637
543
642
181
984
409
546
612
592
200
958
255
Total provisions and other non-current liabilities
6 934
6 632
1 Note 25 provides additional disclosures related to post-employment benefits.
2 Note 29 provides additional disclosures related to contingent consideration.
Novartis believes that its total provisions are adequate
based upon currently available information. However,
given the inherent difficulties in estimating liabilities in
this area, Novartis may incur additional costs beyond the
amounts provided. Management believes that such addi-
tional amounts, if any, would not be material to the
Group’s financial condition but could be material to the
results of operations or cash flows in a given period.
F-48
Notes to the Novartis Group consolidated financial statements
Environmental remediation
provisions
The following table shows the movements in the envi-
ronmental liability provisions:
(USD millions)
January 1
Cash payments
Releases 1
Additions 2
Currency translation effects
December 31
2020
714
– 10
– 27
82
50
809
2019
692
– 30
– 83
124
11
714
Less current provision
– 167
– 122
2018
761
– 48
– 21
7
– 7
692
– 58
Non-current environmental
remediation provisions
at December 31
642
592
634
1 Releases of provisions credited to the consolidated income statement from
continuing operations were USD 21 million in 2018.
2 Additions to provisions charged to the consolidated income statement from
continuing operations were USD 7 million in 2018.
The material components of the environmental remedi-
ation provisions consist of costs to sufficiently clean and
refurbish contaminated sites to the extent necessary and
to continue surveillance at sites where the environmen-
tal remediation exposure is less significant.
A substantial portion of the environmental remedia-
tion provisions relate to the remediation of Basel regional
landfills in the adjacent border areas in Switzerland, Ger-
many and France. The provisions are reassessed on a
yearly basis and adjusted as necessary.
In the United States, Novartis has been named under
federal legislation (the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as
amended) as a potentially responsible party (PRP) in
respect of certain sites. Novartis actively participates in,
or monitors, the cleanup activities at the sites in which it
is a PRP. The provision takes into consideration the num-
ber of other PRPs at each site as well as the identity and
financial position of such parties in light of the joint and
several nature of the liability.
The expected timing of the related cash outflows as
of December 31, 2020, is currently projected as follows:
the outflow. These provisions represent the Group’s cur-
rent best estimate of the total financial effect for the mat-
ters described below and for other less significant mat-
ters. Potential cash outflows reflected in a provision
might be fully or partially offset by insurance in certain
circumstances.
Novartis has not established provisions for potential
damage awards for certain additional legal claims against
its subsidiaries if Novartis currently believes that a pay-
ment is either not probable or cannot be reliably esti-
mated. In total, these not-provisioned-for matters include
more than 3 000 individual product liability cases and
certain other legal matters. Plaintiffs’ alleged claims in
these matters, which Novartis does not believe to be
entirely remote but which do not fulfill the conditions for
the establishment of provisions, currently aggregate to,
according to the current best belief of Novartis, approx-
imately USD 0.5 billion. In addition, in some of these mat-
ters there are claims for punitive or multiple (treble) dam-
ages, civil penalties and disgorgement of profits that in
the view of Novartis are either wholly or partially unspec-
ified, or wholly or partially unquantifiable at present; the
Group believes that information about these amounts
claimed by plaintiffs generally is not meaningful for pur-
poses of determining a reliable estimate of a loss that is
probable or more than remote.
A number of other legal matters are in such early
stages or the issues presented are such that the Group
has not made any provisions since it cannot currently
estimate either a potential outcome or the amount of any
potential losses. For these reasons, among others, the
Group generally is unable to make a reliable estimate of
possible loss with respect to such cases. It is therefore
not practicable to provide information about the poten-
tial financial impact of those cases.
There might also be cases for which the Group was
able to make a reliable estimate of the possible loss or
the range of possible loss, but the Group believes that
publication of such information on a case-by-case basis
would seriously prejudice the Group’s position in ongo-
ing legal proceedings or in any related settlement dis-
cussions. Accordingly, in such cases, information has
been disclosed with respect to the nature of the contin-
gency, but no disclosure is provided as to an estimate of
the possible loss or range of possible loss.
Note 28 contains additional information on contin-
(USD millions)
Due within two years
Due later than two years, but within five years
Due later than five years, but within 10 years
Due after 10 years
Total environmental remediation liability provisions
Expected
cash outflows
gencies.
181
210
338
80
809
Summary of significant legal
proceedings
The following is a summary of significant legal proceed-
ings to which Novartis or its subsidiaries are currently a
party, or were a party and that concluded in 2020.
Provisions for product liabilities,
governmental investigations and
other legal matters
Novartis has established provisions for certain product
liabilities, governmental investigations and other legal
matters where a potential cash outflow is probable and
Novartis can make a reliable estimate of the amount of
Investigations and related litigations
Southern District of New York (S.D.N.Y.) Gilenya
marketing practices investigation and litigation
In 2013, Novartis Pharmaceuticals Corporation (NPC)
received a civil investigative demand from the United
States Attorney’s Office (USAO) for the S.D.N.Y. request-
ing the production of documents and information relat-
ing to marketing practices for Gilenya, including the
F-49
Notes to the Novartis Group consolidated financial statements
remuneration of healthcare providers in connection
therewith. In 2017, the S.D.N.Y. and New York State
declined to intervene in claims raised by an individual
relator in a qui tam complaint, which continue to be vig-
orously contested.
Government generic pricing antitrust investigations,
antitrust class actions
Since 2016, Sandoz Inc. has received a grand jury sub-
poena and a civil investigative demand and interrogato-
ries from the Antitrust and Civil Divisions of the US
Department of Justice (DOJ), and a subpoena and inter-
rogatories from the Attorney General of the State of Con-
necticut in connection with those agencies’ investigation
into alleged price fixing and market allocation of generic
drugs in the US market as well as alleged federal False
Claims Act (FCA) violations. In 2020, Sandoz Inc. reached
a resolution with the DOJ Antitrust Division, pursuant to
which Sandoz Inc. agreed to pay USD 195 million and
entered into a deferred prosecution agreement. The
Sandoz resolution related to instances of misconduct at
the company between 2013 and 2015 with regard to cer-
tain generic drugs sold in the United States. Under the
terms of that agreement, Sandoz Inc. will continue to take
steps to enhance its compliance program, employee
training and monitoring, and will continue to cooperate
with the US government’s ongoing investigation into the
generic pharmaceutical industry. Sandoz Inc. is also in
negotiations with the DOJ Civil Division to resolve poten-
tial related claims and has recorded a provision of USD
187 million.
Since the third quarter of 2016, Sandoz Inc. and Foug-
era Pharmaceuticals Inc. have been sued alongside other
generic pharmaceutical companies in numerous individ-
ual and putative class action complaints by direct and
indirect private purchasers and by 54 states and US ter-
ritories, represented by their respective Attorneys Gen-
eral. Plaintiffs claim that defendants, including Sandoz,
engaged in price fixing and market allocation of generic
drugs in the US market, and seek damages and injunc-
tive relief. The actions contain product-specific com-
plaints as well as complaints alleging the existence of an
overarching industry conspiracy, and assert violations
of federal and state antitrust laws as well as consumer
protection laws. The cases have been consolidated for
pretrial purposes in the United States District Court
(USDC) for the Eastern District of Pennsylvania, and the
claims are being vigorously contested.
Lucentis/Avastin® matters
In connection with an investigation into whether Novartis
entities, F. Hoffmann-La Roche AG, Genentech Inc. and
Roche S.p.A. colluded to artificially preserve the market
positions of Avastin® and Lucentis, in 2014 the Italian
Competition Authority (ICA) imposed a fine equivalent
to USD 125 million on the Novartis entities. Novartis paid
the fine, subject to the right to later claim recoupment,
and appealed before the Consiglio di Stato (CdS). In 2014
and 2015, the Italian Ministry of Health and the Lombar-
dia region sent letters with payment requests for a total
equivalent of approximately USD 1.3 billion in damages
from Novartis and Roche entities based on these allega-
tions. In 2019, the CdS upheld the ICA decision and fine.
Following the CdS decision, several additional Italian
regions and hospitals sent letters claiming damages for
an aggregate amount of approximately USD 330 million.
None of these claims has been asserted in legal pro-
ceedings. Novartis continues to appeal the CdS deci-
sion. In 2019, the French Competition Authority (FCA)
issued a Statement of Objections against Novartis enti-
ties, alleging anti-competitive practices on the French
market for anti-vascular endothelial growth factor treat-
ments for wet age-related macular degeneration from
2008 to 2013. In 2020, the FCA issued a decision find-
ing that the Novartis entities had infringed competition
law by abusing a dominant position and imposing a fine
of EUR 385 million (equivalent to approximately USD 452
million). Novartis paid the fine, again subject to recoup-
ment, and is appealing the FCA’s decision. Novartis con-
tinues to vigorously contest all claims in Italy and France.
Novartis is also challenging policies and regulations
allowing off-label/unlicensed use and reimbursement for
economic reasons in various countries, including Italy
and Turkey.
Japan investigation
In 2015, a trial started against a former Novartis Pharma
K.K. (NPKK) employee, and also against NPKK under the
dual liability concept in Japanese law, over allegations
brought by the Tokyo District Public Prosecutor Office
for alleged manipulation of data in sub-analysis publica-
tions of the Kyoto Heart Study regarding valsartan. The
charges against NPKK are subject to a maximum total
fine of JPY 4 million. In 2018, the Tokyo High Court upheld
a not-guilty ruling of the Tokyo District Court for both the
former NPKK employee and NPKK. A further appeal by
the Tokyo High Public Prosecutor Office remains pend-
ing.
South Korea investigation
In 2016, the Seoul Western District Prosecutor initiated
a criminal investigation into, among other things, allega-
tions that Novartis Korea utilized medical journals to pro-
vide inappropriate economic benefits to healthcare pro-
fessionals (HCPs). This resulted in a non-material fine in
January 2020, and the Prosecutor has appealed the fine.
The resolution of inquiries by the DOJ and the US Secu-
rities and Exchange Commission (SEC) regarding this
matter is described below in “Concluded legal matters
– US Government Foreign Corrupt Practices Act (FCPA)
investigations.”
Greece investigation
Novartis is providing information to the Greek authorities
investigating allegations of potentially inappropriate eco-
nomic benefits to HCPs, government officials and others
in Greece. These authorities include the Greek Coordi-
nating Body for Inspection and Control, and the Greek
Body of Prosecution of Financial Crime, from which the
Company received a summons in 2018 and 2020. The
resolution of inquiries by the DOJ and the SEC regard-
ing this matter is described below in “Concluded legal
matters – US Government Foreign Corrupt Practices Act
(FCPA) investigations.”
F-50
Notes to the Novartis Group consolidated financial statements
Antitrust class actions
Exforge
Since 2018, Novartis Group companies as well as other
pharmaceutical companies have been sued by various
direct and indirect purchasers of Exforge in multiple US
individual and putative class action complaints. They
claim that Novartis made a reverse payment in the form
of an agreement not to launch an authorized generic,
alleging violations of federal antitrust law and state anti-
trust, consumer protection and common laws, and seek-
ing damages as well as injunctive relief. The cases have
been consolidated in the S.D.N.Y. and the claims are
being vigorously contested.
Product liability litigation
Reclast
NPC is a defendant in more than 20 US product liability
actions involving Reclast and alleging atypical femur
fracture injuries, all of which are in New Jersey state or
federal court and in California state court, coordinated
with claims against other bisphosphonate manufactur-
ers. The claims are being vigorously contested.
Taxotere® (docetaxel)
Sandoz is a defendant in more than 3 000 US product
liability actions involving Taxotere® (docetaxel), an
oncology product, many of which have been transferred
to a multidistrict litigation in the Eastern District of Lou-
isiana. The complaints allege misleading marketing and
that Sanofi, as innovator, and several 505(b)(2) NDA hold-
ers (including Sandoz) failed to warn of the risk of per-
manent alopecia/hair loss. The claims are being vigor-
ously contested.
Amiodarone
Sandoz entities are named in less than five individual and
multi-plaintiff US product liability cases involving
amiodarone, a cardiac drug indicated to treat life-threat-
ening arrhythmias that have not responded to other treat-
ment. The complaints allege failure to warn, off-label pro-
motion and failure to include medication guides to
pharmacies. The claims are being vigorously contested.
Sartans and ranitidine
Since 2018, claims have been brought against Sandoz
and other pharmaceutical companies alleging injury from
carcinogenic impurities found in valsartan and valsartan/
HCT film-coated tablets and/or losartan marketed or
manufactured by Sandoz. These claims include several
putative class actions in Canada. Claims have also been
brought alleging injury from carcinogenic impurities in
ranitidine-containing medicines. These claims also
include several putative class actions in Canada and a
multidistrict litigation in Florida. All of these claims are
being vigorously contested.
Tasigna
NPC is a defendant in more than 80 US product liability
actions involving Tasigna, alleging that the product
caused various cardiovascular effects and that NPC
failed to provide adequate warnings about those alleged
side effects. The actions are pending in New Jersey state
court and in federal courts in various jurisdictions. The
claims are being vigorously contested.
Other matters
Average Wholesale Price (AWP) litigation
Lawsuits have been brought, the latest in February 2016,
by various US state governmental entities and private
parties against various pharmaceutical companies,
including NPC, alleging that they fraudulently overstated
the AWP that is or has been used by payors, including
state Medicaid agencies, to calculate reimbursements
to healthcare providers. NPC remains a defendant in a
putative class action brought by private payors in New
Jersey, and vigorously contests those claims.
Aimovig–Amgen dispute
In 2015 and 2017, Novartis and Amgen entered into
agreements regarding the development and commer-
cialization of Aimovig, which the companies co-commer-
cialize in the US and to which Novartis has exclusive
rights in all territories outside the US, excluding Japan.
Amgen issued a termination notice in April 2019 based
on an alleged material breach of the collaboration agree-
ments, and this notice, as well as other ancillary matters,
are the subject of legal proceedings between Novartis
and Amgen. Novartis disputes Amgen’s allegations vig-
orously. In 2020, the court ruled that Amgen did not have
grounds to terminate the 2017 agreement and dismissed
that portion of their lawsuit. The collaboration continues
during the litigation between the companies, and will
remain in force until and unless a final court decision ter-
minates the agreements.
Shareholder Derivative Lawsuit
In 2021, NPC, Sandoz Inc., Novartis Capital Corporation
and certain present and former directors and officers of
Novartis were named as defendants, and Novartis was
named as a nominal defendant, in a purported share-
holder derivative lawsuit filed in New York state court.
The plaintiff, derivatively as a purported Novartis share-
holder on behalf of Novartis, seeks damages and other
remedies based on alleged conduct by the corporate
and individual defendants. The claims are being vigor-
ously contested.
Concluded legal matters
S.D.N.Y. marketing practices investigation and
litigation
In 2013, the US government filed a civil complaint in inter-
vention to an individual qui tam action against NPC in the
USDC for the S.D.N.Y. The complaint, as subsequently
amended, asserted federal FCA and common law claims
with respect to speaker programs and other promotional
activities for certain NPC cardiovascular medications
(Lotrel, Starlix and Valturna) allegedly serving as mech-
anisms to provide kickbacks to HCPs. Also in 2013, New
York State filed a civil complaint in intervention assert-
ing similar claims. In 2020, Novartis finalized its settle-
ment agreement with the S.D.N.Y, the New York State
Attorney General and the individual relator to resolve
their claims. As part of this settlement, Novartis agreed
to pay USD 0.7 billion, and has agreed to new corporate
integrity obligations with the Office of Inspector General
of the US Department of Health and Human Services.
F-51
Notes to the Novartis Group consolidated financial statements
U.S. Government Foreign Corrupt Practices Act
(FCPA) investigations
In 2020, Novartis reached settlements with the DOJ and
the SEC resolving all FCPA investigations into historical
conduct by Novartis and its subsidiaries. These investi-
gations were previously disclosed in Note 20 to the Con-
solidated Financial Statements in our 2019 Annual
Report and 2019 Form 20-F under the headings “Inves-
tigations and related litigations – Greece investigation,”
“Investigations and related litigations – South Korea
investigation” and “Investigations and related litigations
– Asia/Russia investigation.” As part of the coordinated
resolution of these investigations, Novartis and certain
of its current and former subsidiaries agreed to pay USD
0.3 billion. To resolve the DOJ investigation, both Novartis
Hellas S.A.C.I. and Alcon Pte Ltd., a former Novartis sub-
sidiary, entered into separate deferred prosecution
agreements (DPA) with the DOJ. The Novartis Hellas
DPA contained no allegations relating to any bribery of
Greek politicians, which is consistent with what Novartis
found in its own internal investigation. To resolve the SEC
investigation, Novartis AG reached an agreement per-
taining to internal controls and books and records viola-
tions in Greece, Vietnam and South Korea, which also
addressed certain internal controls and books and
records issues related to Alcon China’s placement of
surgical devices. Other developments in Greece and
South Korea are described above in “Investigations and
related litigations – Greece investigation” and “Investi-
gations and related litigations – South Korea investiga-
tion,” respectively. The matters disclosed in Note 20 to
the Consolidated Financial Statements in our 2019
Annual Report and 2019 Form 20-F under the heading
“Investigations and related litigations – Asia/Russia
investigation” are now concluded.
Enoxaparin
In 2015, Sandoz and Momenta Pharmaceuticals were
sued in a putative antitrust class action in federal court
in Tennessee alleging that Momenta and Sandoz
engaged in anticompetitive and unfair business conduct
with regard to sales of enoxaparin. In 2019, Sandoz
agreed to pay USD 85 million to resolve the class action.
The matter is now concluded.
Summary of product liability, governmental
investigations and other legal matters provision
movements
(USD millions)
January 1
Provisions related to
discontinued operations 1
2020
1 369
Impact of acquisitions of businesses 11
Cash payments
Releases of provisions 2
– 1 863
– 31
2019
340
– 42
10
– 116
– 52
Additions to provisions 3
1 018
1 230
Currency translation effects
December 31
– 17
487
– 1
1 369
2018
351
– 118
– 107
220
– 6
340
Less current portion
– 306
– 1 169
– 126
Non-current product
liabilities, governmental
investigations and other
legal matters provisions
at December 31
181
200
214
1 Notes 1, 2 and 30 provide information related to discontinued operations.
2 Releases of provisions credited to the consolidated income statement from
continuing operations were USD 107 million in 2018.
3 Additions to provisions charged to the consolidated income statement from
continuing operations were USD 220 million in 2018.
Novartis believes that its total provisions for investiga-
tions, product liability, arbitration and other legal matters
are adequate based upon currently available information.
However, given the inherent difficulties in estimating lia-
bilities, there can be no assurance that additional liabil-
ities and costs will not be incurred beyond the amounts
provided.
21. Current financial debt
and derivative financial instruments
(USD millions)
Interest-bearing accounts of associates
payable on demand 1
Bank and other financial debt 2
Commercial paper
Current portion of non-current financial debt
Derivative financial instruments
2020
2019
2 085
1 836
976
4 258
2 272
194
719
2 289
2 002
185
Total current financial debt and derivative
financial instruments
9 785
7 031
1 Weighted average interest rate 0.4% (2019: 0.5%)
2 Weighted average interest rate 5.0% (2019: 12.9%)
The consolidated balance sheet amounts of current
financial debt, other than the current portion of non-
current financial debt, approximate the estimated fair
value due to the short-term nature of these instruments.
Details on commercial papers and short term bor-
rowings are provided under “Liquidity risk” in Note 29.
F-52
Notes to the Novartis Group consolidated financial statements
22. Provisions and other current liabilities
(USD millions)
Taxes other than income taxes
Restructuring provisions
Accrued expenses for goods and services received but not invoiced
Accruals for royalties
Accrued interests on financial debt
Provisions for deductions from revenue
Accruals for compensation and benefits, including social security
Environmental remediation liabilities
Deferred income
Provisions for product liabilities, governmental investigations and other legal matters 1
Accrued share-based payments
Contingent considerations 2
Commitment for repurchase of own shares 3
Other payables
Total provisions and other current liabilities
1 Note 20 provides additional disclosures related to legal provisions.
2 Note 29 provides additional disclosures related to contingent considerations.
3 Note 18 provides additional disclosures related to commitment for repurchase of own shares.
2020
749
459
2019
471
438
1 167
1 046
732
133
6 256
2 286
167
56
306
269
62
1 769
716
653
98
5 595
2 464
122
114
1 169
326
78
764
15 127
13 338
Provisions are based upon management’s best estimate and adjusted for actual experience. Such adjustments to
historic estimates have not been material.
F-53
Notes to the Novartis Group consolidated financial statements
Provisions for deductions from revenue
The following table shows the movement of the provisions for deductions from revenue:
Revenue
deductions
provisions
related to
Revenue
deductions
Effect of
currency
translation
provisions at discontinued and business
operations1 combinations
January 1
Income statement charge2
Payments/ Adjustments
utilizations of prior years Current year
Change in
provisions
offset against
Revenue
deductions
gross trade provisions at
receivables December 31
1 981
1 769
1 845
5 595
– 5 560
– 107
5 739
2 053
167
– 2 597
7
2 940
– 14
2 272
67
– 11 137
– 51
11 094
234
– 19 294
– 151
19 773
113
99
1 931
6 256
1 883
0
– 5 183
– 193
5 474
1 981
1 625
– 28
– 19
– 2 467
– 2
2 659
1
1 769
1 754
5 262
– 166
– 194
9
– 11 698
– 25
11 868
– 10
– 19 348
– 220
20 001
103
104
1 845
5 595
(USD millions)
2020
US-specific healthcare plans
and program rebates
Non-US-specific healthcare plans
and program rebates
Non-healthcare plans
and program-related rebates,
returns and other deductions
Total 2020
2019
US-specific healthcare plans
and program rebates
Non-US-specific healthcare plans
and program rebates
Non-healthcare plans
and program-related rebates,
returns and other deductions
Total 2019
2018
US-specific healthcare plans
and program rebates
Non-US-specific healthcare plans
and program rebates
Non-healthcare plans
and program-related rebates,
returns and other deductions
Total 2018
1 590
1 356
1 726
4 672
– 4 158
– 90
4 541
1 883
– 78
– 2 182
83
2 555
– 109
1 625
– 51
– 12 227
– 129
– 18 567
– 91
– 98
11 956
19 052
441
332
1 754
5 262
1 Notes 1, 2 and 30 provide information related to discontinued operations.
2 Charges to the consolidated income statement from continuing operations were USD 18 248 million in 2018.
Restructuring provisions movements
(USD millions)
January 1
Provisions related to
discontinued operations 1
Additions 2
Cash payments
Releases 3
Currency translation effects
December 31
2020
438
354
2019
507
– 8
492
– 268
– 479
– 87
22
459
– 72
– 2
438
2018
153
534
– 145
– 33
– 2
507
1 Notes 1, 2 and 30 provide information related to discontinued operations.
2 Additions to provisions charged to the consolidated income statement from
continuing operations were USD 521 million in 2018.
3 Reversal of provisions credited to the consolidated income statement from continuing
operations were USD 31 million in 2018.
In 2020, additions to provisions of USD 354 million were
mainly related to the following reorganizations:
• The Innovative Medicines Division restructured its field
force and supporting functions in Region Europe.
• The Sandoz Division initiatives to realign its organiza-
tional structures to improve competiveness that com-
menced in 2019 continued.
• Group-wide initiatives to streamline Novartis Technical
Operations through the setup of operations centers
and implementation of new technologies, in the
Innovative Medicines Division and the Sandoz Division,
continued. In addition, Novartis Business Services con-
tinued the phased implementation of the new operat-
ing model to change outsourcing structures and tran-
sition activities to service centers.
In 2019, additions to provisions of USD 492 million were
mainly related to the following reorganizations:
• The Innovative Medicines Division restructured its field
force and supporting functions in Latin America, and
following the Xiidra acquisition, its Ophthalmology field
force in the US.
• The Sandoz Division initiatives to realign its organiza-
tional structures to improve competiveness. These ini-
F-54
Notes to the Novartis Group consolidated financial statements
tiatives include reduction in its headquarters, global
functions and countries workforce, and the closure of
its development center in Holzkirchen, Germany.
• Group-wide initiatives to streamline Novartis Technical
Operations and implement new technologies, mainly
in the Innovative Medicines Division and in the Sandoz
Division, continued. In addition, Novartis Business Ser-
vices launched the next phase of the new operating
model to change outsourcing structures and transition
activities to service centers.
In 2018, additions to provisions of USD 534 million were
mainly related to the following reorganizations:
• The Innovative Medicines Division’s Oncology business
unit initiative to streamline its organizational structure.
The objective was to enhance agility and efficiency,
resulting in an acceleration of operational execution.
In addition, a program to reorganize the Japanese busi-
ness model was launched. Region Europe transformed
its approach to market in light of the changing product
portfolio. The objective was to speed up patient access.
• Group-wide initiatives to streamline Novartis Technical
Operations and implement new technologies, mainly
in the Innovative Medicines Division and in the Sandoz
Division, continued. In addition, Novartis Business Ser-
vices launched an initiative to reorganize its organiza-
tional structure to achieve cost efficiencies by shifting
activities to global service centers.
23. Details to the consolidated statements of cash flows
23.1) Reversal of non-cash items and other adjustments from continuing operations
(USD millions)
Depreciation, amortization and impairments on:
Property, plant and equipment
Right-of-use assets 1
Intangible assets
Financial assets 2
Change in provisions and other non-current liabilities
Equity-settled compensation expense
Income from associated companies 3
Taxes
Net financial expense
Total
2020
2019
2018
1 758
1 547
1 783
330
4 376
– 335
1 411
738
– 673
1 807
947
305
3 974
3 428
– 38
1 871
758
6
895
– 902
673
– 659
– 6 438
1 793
1 295
805
746
9 881
9 122
1 486
Gains on disposal and other adjustments on property, plant and equipment; intangible assets;
financial assets; and other non-current assets, net
– 478
– 1 234
1 Depreciation of right-of-use assets recognized from January 1, 2019, the date of implementation of IFRS 16 Leases. See Note 1.
2 Includes fair value adjustments
3 2018 included a reversal of a pre-tax gain (USD 5.8 billion) recognized from the divestment of the investment in GSK Consumer Healthcare Holdings Ltd. (see Note 2). The net cash
proceed of USD 13.0 billion from the divestment was included in the consolidated statements of cash flows in the line “Acquisitions and divestments of interests in associated
companies, net.”
23.2) Total amount of taxes paid
In 2020, the total amount of taxes paid was USD 1.9 billion, of which USD 1.8 billion was included within “Net cash
flows from operating activities from continuing operations”, and USD 88 million was included within “Net cash flows
used in investing activities from discontinued operations.”
In 2019, the total amount of taxes paid was USD 2.0 billion, of which USD 1.9 billion was included within “Net
cash flows from operating activities from continuing operations”, USD 38 million was included within “Net cash
flows from operating activities from discontinued operations,” and USD 79 million was included within “Net cash
flows used in investing activities from discontinued operations.”
In 2018, the total amount of taxes paid was USD 1.8 billion, of which USD 1.5 billion was included within “Net
cash flows from operating activities from continuing operations”, USD 164 million was included within “Net cash
flows from operating activities from discontinued operations,” and USD 139 million was included within “Net cash
flows used in investing activities from continuing operations.”
F-55
Notes to the Novartis Group consolidated financial statements
23.3) Cash flows from changes in working capital and other operating items included in
the net cash flows from operating activities from continuing operations
(USD millions)
(Increase) in inventories
Decrease/(increase) in trade receivables
(Decrease)/increase in trade payables
Change in other current assets
Change in other current liabilities
Other adjustments, net
Total
2020
– 543
137
– 324
229
211
– 1
– 291
2019
– 382
– 980
553
– 160
1 167
1
199
2018
– 387
– 544
252
316
941
– 2
576
23.4) Cash flows arising from acquisitions and divestments of interests in associated
companies, net
In 2018, acquisitions and divestments of interests in associated companies included USD 12 855 million net of taxes
(USD 12 994 million before taxes) from the divestment of the investment in GSK Consumer Healthcare Holdings
Ltd. (see Note 2).
23.5) Cash flows arising from acquisitions and divestments of businesses, net
The following table is a summary of the cash flow impact of acquisitions and divestments of businesses. The most
significant trans actions are described in Note 2.
(USD millions)
Net assets recognized as a result of acquisitions of businesses
Fair value of previously held equity interests
Contingent consideration payables, net
Payments, deferred consideration and other adjustments, net
Cash flows used for acquisitions of businesses
Cash flows from divestments of businesses, net 1
Cash flows used for acquisitions and divestments of businesses, net
Note
2020
2019
2018
24
– 10 173
– 4 124
– 13 660
7
98
62
33
242
– 2
– 5
– 36
– 10 006
– 3 851
– 13 701
49
91
18
– 9 957
– 3 760
– 13 683
1 In 2020, USD 49 million represented the net cash inflows from divestments in previous years.
In 2019, the USD 91 million included USD 4 million of net cash outflows from divestments in previous years, and USD 95 million net cash inflows from business divestments in 2019.
The net identifiable assets of the 2019 divested businesses amounted to USD 196 million, comprised of non-current assets of USD 159 million; current assets of USD 96 million,
including USD 11 million cash and cash equivalents; non-current liabilities of USD 18 million; and current liabilities of USD 41 million.
In 2018, USD 18 million represented the net cash inflows from divestments in previous years.
Notes 2 and 24 provide further information regarding acquisitions and divestments of businesses. All acquisitions
were for cash.
F-56
Notes to the Novartis Group consolidated financial statements
23.6) Reconciliation of liabilities arising from financing activities
(USD millions)
January 1, 2020
Increase in non-current financial debts
Repayments of non-current financial debts
Change in current financial debts
Payments of lease liabilities, net
Interest payments for amounts included in lease liabilities
classified as cash flows from operating activities
New leases
Impact of acquisitions of businesses
Changes in fair values, and other changes, net
Amortization of bonds discount
Currency translation effects
Reclassification from non-current to current, net
December 31, 2020
(USD millions)
January 1, 2019
Impact of adoption of IFRS 16 Leases continuing operations 1
Impact of adoption of IFRS 16 Leases discontinued operations 2
Financial debts and lease liabilities related to discontinued operations 3
Increase in non-current financial debts
Repayments of non-current financial debts
Change in current financial debts
Payments of lease liabilities, net
Interest payments for amounts included in lease liabilities
classified as cash flows from operating activities
New leases
Impact of acquisitions and divestments of businesses
Changes in fair values, and other changes, net
Amortization of bonds discount
Currency translation effects
Reclassification from non-current to current, net
December 31, 2019
Current
financial
debts and
derivative
financial Non-current Current lease
liabilities
instruments lease liabilities
Non-current
financial
debts
20 353
7 031
1 703
246
7 126
– 2 003
2 261
– 1
16
832
– 2 067
26 259
32
5
392
2 067
9 785
221
36
– 30
39
– 250
1 719
– 312
– 56
73
8
65
12
250
286
Current
financial
debts and
derivative
financial Non-current Current lease
liabilities
instruments lease liabilities
Non-current
financial
debts
22 470
9 678
– 2
– 89
93
– 1
1 471
246
– 47
– 246
268
40
– 40
– 3 195
– 1 582
2
129
44
2 003
7 031
– 273
– 51
131
– 6
20
1
156
246
362
– 11
33
4
– 156
1 703
25
– 141
– 2 003
20 353
1 Lease liabilities recognized on January 1, 2019, the date of implementation of IFRS 16 Leases. See Note 1.
2 In 2018, financial debts included USD 89 million for previously reported finance lease obligations of the Alcon business that were reclassified on January 1, 2019, to lease liabilities,
with the adoption of IFRS 16 Leases. Note 30 provides additional disclosures.
3 Represents the financial debts and lease liabilities at January 1, 2019, related to the Alcon business reported as discontinued operations. See Notes 1, 2 and 30.
F-57
Notes to the Novartis Group consolidated financial statements
(USD millions)
January 1, 2018
Increase in non-current financial debts 1
Repayments of non-current financial debts 2
Change in current financial debts 3
Impact of acquisitions of businesses
Changes in fair values, and other changes
Amortization of bonds discount
Currency translation effects
Current portion of non-current financial debt
December 31, 2018
Current
financial
debts and
derivative
financial
instruments
Non-current
financial
debts
23 224
5 308
2 856
– 366
1 681
4
– 48
2
– 93
3 190
9 678
10
5
27
– 462
– 3 190
22 470
1 Increase in non-current financial debts was only recorded in the consolidated statements of cash flows from continuing operations.
2 Repayment of non-current financial debts was only recorded in the consolidated statements of cash flows from continuing operations.
3 Changes in current financial debts included in the consolidated statements of cash flows from continuing operations were USD 1 687 million.
For net cash flows used in investing activities from discontinued operations, see Note 30.
24. Acquisitions of businesses
Fair value of assets and liabilities arising from acquisitions of businesses
(USD millions)
Property, plant and equipment
Right-of-use assets
Currently marketed products
Acquired research and development
Other intangible assets
Deferred tax assets
Non-current financial and other assets
Inventories
Trade receivables and financial and other current assets
Cash and cash equivalents
Deferred tax liabilities
Current and non-current financial debts
Current and non-current lease liabilities
Trade payables and other liabilities
Net identifiable assets acquired
Acquired cash and cash equivalents
Non-controlling interests
Goodwill
Net assets recognized as a result of acquisitions of businesses 1
2020
26
32
2019
44
2018
137
196
3 550
2 531
8 600
342
10 224
218
476
49
84
109
76
22
60
8
195
4
1
381
19
20
90
1 112
– 1 977
– 107
– 2 874
– 32
– 44
– 144
7 669
– 76
– 2
– 14
– 178
– 627
3 938
11 000
– 1 112
– 26
2 580
186
4 084
10 173
4 124
13 946
1 In 2018, net assets recognized as a result of acquisitions of businesses in the consolidated balance sheet from continuing operations were USD 13 660 million.
Note 2 details significant acquisitions of businesses, spe-
cifically, The Medicines Company and the Japanese
business of AGI in 2020; Xiidra and IFM Tre, Inc. in 2019;
and AAA, AveXis and Endocyte in 2018. The goodwill
arising out of these acquisitions is attributable to the
buyer specific synergies, the assembled workforce, and
the accounting for deferred tax liabilities on the acquired
assets. Goodwill of USD 74 million in 2020 (2019: USD
98 million, 2018: nil) is tax deductible.
F-58
Notes to the Novartis Group consolidated financial statements
25. Post-employment benefits for associates
Defined benefit plans
In addition to the legally required social security schemes,
the Group has numerous independent pension and other
post-employment benefit plans. In most cases, these
plans are externally funded in entities that are legally
separate from the Group. For certain Group companies,
however, no independent plan assets exist for the pen-
sion and other post-employment benefit obligations of
associates. In these cases, the related unfunded liability
is included in the balance sheet. The defined benefit obli-
gations (DBOs) of all major pension and other post-em-
ployment benefit plans are reappraised annually by inde-
pendent actuaries. Plan assets are recognized at fair
value. The major plans are based in Switzerland, the
United States, the United Kingdom, Germany and Japan,
which represent 95% of the Group’s total DBO for pen-
sion plans. Details of the plans in the two most signifi-
cant countries, Switzerland and the United States, which
represent 81% of the Group’s total DBO for post-employ-
ment benefit plans, are provided below.
Swiss-based pension plans represent the most sig-
nificant portion of the Group’s total DBO and plan assets.
For the active insured members born on or after Janu-
ary 1, 1956, or having joined the plans after December
31, 2010, the benefits are partially linked to the contribu-
tions paid into the plan. Certain features of Swiss pen-
sion plans required by law preclude the plans from being
categorized as defined contribution plans. These factors
include a minimum interest guarantee on retirement sav-
ings accounts, a predetermined factor for converting the
accumulated savings account balance into a pension,
and embedded death and disability benefits.
All benefits granted under Swiss-based pension
plans are vested, and Swiss legislation prescribes that
the employer has to contribute a fixed percentage of an
associate’s pay to an external pension fund. Additional
employer contributions may be required whenever the
plan’s statutory funding ratio falls below a certain level.
The associate also contributes to the plan. The pension
plans are run by separate legal entities, each governed
by a board of trustees that – for the principal plans – con-
sists of representatives nominated by Novartis and the
active insured associates. The boards of trustees are
responsible for the plan design and asset investment
strategy.
In December 2020 the Board of Trustees of the
Novartis Swiss Pension Fund agreed to adjust the annu-
ity conversion rate at retirement with effect from Janu-
ary 1, 2022. This amendment does not affect existing
pensioners, and its impact on existing plan participants
will be mitigated by way of defined compensatory mea-
sures. This amendment resulted in a net pre-tax curtail-
ment gain of USD 101 million (CHF 90 million).
The United States pension plans represent the sec-
ond-largest component of the Group’s total DBO and
plan assets. The principal plans (Qualified Plans) are
funded, whereas plans providing additional benefits for
executives (Restoration Plans) are unfunded. Employer
contributions are required for Qualified Plans whenever
the statutory funding ratio falls below a certain level.
Furthermore, in certain countries, associates are cov-
ered under other post-employment benefit plans and
post-retirement medical plans.
In the US, other post-employment benefit plans con-
sist primarily of post-employment healthcare benefits,
which have been closed to new members since 2015.
Part of the costs of these plans is reimbursable under
the Medicare Prescription Drug, Improvement, and Mod-
ernization Act of 2003. There is no statutory funding
requirement for these plans. The Group is funding these
plans to the extent that it is tax efficient.
F-59
Notes to the Novartis Group consolidated financial statements
The following tables are a summary of the funded and unfunded defined benefit obligation for pension and other
post-employment benefit plans of associates at December 31, 2020 and 2019:
(USD millions)
Benefit obligation at January 1
Benefit obligations related to discontinued operations 1
Current service cost
Interest cost
Past service costs and settlements
Administrative expenses
Remeasurement losses/(gains) arising from changes in financial assumptions
Remeasurement (gains)/losses arising from changes in demographic assumptions
Experience-related remeasurement losses/(gains)
Currency translation effects
Benefit payments
Contributions of associates
Effect of acquisitions, divestments or transfers
Benefit obligation at December 31
Fair value of plan assets at January 1
Plan assets related to discontinued operations 1
Interest income
Return on plan assets excluding interest income
Currency translation effects
Novartis Group contributions
Contributions of associates
Settlements
Benefit payments
Effect of acquisitions, divestments or transfers
Fair value of plan assets at December 31
Funded status
Limitation on recognition of fund surplus at January 1
Change in limitation on recognition of fund surplus (incl. exchange rate differences)
Interest income on limitation of fund surplus
Limitation on recognition of fund surplus at December 31
Pension plans
Other post-employment
benefit plans
2020
2019
23 066
22 179
2020
746
372
222
– 662
336
330
– 102
– 168
24
1 166
– 28
159
1 810
24
1 791
– 193
184
283
– 1 264
– 1 256
186
– 9
169
49
25 602
23 066
19 810
18 838
166
1 318
1 620
464
186
15
– 424
257
1 656
304
420
169
– 193
11
20
1
40
– 13
– 132
– 7
– 33
– 1
632
134
4
4
– 20
– 1 264
– 1 256
– 33
2
39
22 317
19 810
89
2019
1 073
– 385
13
29
76
– 9
– 22
– 30
1
746
119
– 40
3
10
74
– 30
– 2
134
– 3 285
– 3 256
– 543
– 612
– 65
16
– 2
– 51
– 68
7
– 4
– 65
Net liability in the balance sheet at December 31
– 3 336
– 3 321
– 543
– 612
1 Notes 1, 2 and 30 provide information related to discontinued operations.
F-60
Notes to the Novartis Group consolidated financial statements
The reconciliation of the net liability from January 1 to December 31 is as follows:
(USD millions)
Net liability at January 1
Less: net liability related to discontinued operations 1
Current service cost
Net interest expense
Administrative expenses
Past service costs and settlements
Remeasurements
Currency translation effects
Novartis Group contributions
Effect of acquisitions, divestments or transfers
Change in limitation on recognition of fund surplus
Net liability at December 31
Amounts recognized in the consolidated balance sheet
Prepaid benefit cost
Accrued benefit liability
1 Notes 1, 2 and 30 provide information related to discontinued operations.
Pension plans
Other post-employment
benefit plans
2020
2019
– 3 321
– 3 409
2020
– 612
238
– 372
– 336
– 58
– 24
117
21
– 190
464
11
16
– 77
– 24
– 25
– 126
21
420
– 10
7
– 11
– 16
– 1
109
7
– 20
1
2019
– 954
345
– 13
– 26
– 35
74
– 3
– 3 336
– 3 321
– 543
– 612
202
148
– 3 538
– 3 469
– 543
– 612
The following table shows a breakdown of the DBO for pension plans by geography and type of member, and the
breakdown of plan assets into the geographical locations in which they are held:
(USD millions)
Switzerland
United
States
Rest of
the world
Total Switzerland
United
States
Rest of
the world
Total
Benefit obligation at December 31
16 807
3 788
5 007
25 602
15 106
3 552
4 408
23 066
2020
2019
Thereof unfunded
By type of member
Active
Deferred pensioners
Pensioners
701
516
1 217
670
466
1 136
6 837
665
1 573
9 075
6 167
630
1 400
8 197
1 290
1 819
3 109
1 205
1 517
2 722
9 970
1 833
1 615
13 418
8 939
1 717
1 491
12 147
Fair value of plan assets at December 31
16 396
2 487
3 434
22 317
14 457
2 311
3 042
19 810
Funded status
– 411
– 1 301
– 1 573
– 3 285
– 649
– 1 241
– 1 366
– 3 256
The following table shows a breakdown of the DBO for other post-employment benefit plans by geography and
type of member, and the breakdown of plan assets into the geographical locations in which they are held:
(USD millions)
Benefit obligation at December 31
Thereof unfunded
By type of member
Active
Deferred pensioners
Pensioners
Fair value of plan assets at December 31
United
States
543
454
80
17
446
89
2020
Rest of
the world
89
89
25
0
64
0
United
States
658
524
121
15
522
134
2019
Rest of
the world
88
88
36
0
52
0
Total
632
543
105
17
510
89
Total
746
612
157
15
574
134
Funded status
– 454
– 89
– 543
– 524
– 88
– 612
F-61
Notes to the Novartis Group consolidated financial statements
The following table shows the principal weighted average actuarial assumptions used for calculating defined ben-
efit plans and other post- employment benefits of associates:
Weighted average assumptions used to determine
benefit obligations at December 31
Discount rate
Expected rate of pension increase
Expected rate of salary increase
Interest on savings account
Current average life expectancy
for a 65-year-old male in years
Current average life expectancy
for a 65-year-old female in years
Pension plans
Other post-employment
benefit plans
2020
2019
2018
2020
2019
2018
0.6%
0.3%
2.7%
0.1%
22
24
1.0%
0.3%
2.8%
0.3%
22
24
1.6%
0.4%
2.8%
0.8%
22
24
2.9%
3.6%
4.4%
21
23
21
23
21
23
Changes in the aforementioned actuarial assumptions
can result in significant volatility in the accounting for the
Group’s pension plans in the consolidated financial state-
ments. This can result in substantial changes in the
Group’s other comprehensive income, long-term liabili-
ties and prepaid pension assets.
The DBO is significantly impacted by assumptions
regarding the rate that is used to discount the actuari-
ally determined post-employment benefit liability. This
rate is based on yields of high-quality corporate bonds
in the country of the plan. Decreasing corporate bond
yields decrease the discount rate, so that the DBO
increases and the funded status decreases.
In Switzerland, an increase in the DBO due to lower
discount rates is slightly offset by lower future benefits
expected to be paid on the associate’s savings account
where the assumption on interest accrued changes in
line with the discount rate.
The impact of decreasing interest rates on a plan’s
assets is more difficult to predict. A significant part of
the plan assets is invested in bonds. Bond values usually
rise when interest rates decrease and may therefore par-
tially compensate for the decrease in the funded status.
Furthermore, pension assets also include significant
holdings of equity instruments. Share prices tend to rise
when interest rates decrease and therefore often coun-
teract the negative impact of the rising defined benefit
obligation on the funded status (although the correlation
of interest rates with equities is not as strong as with
bonds, especially in the short term).
The expected rate for pension increases significantly
affects the DBO of most plans in Switzerland, Germany
and the United Kingdom. Such pension increases also
decrease the funded status, although there is no strong
correlation between the value of the plan assets and
pension/inflation increases.
Assumptions regarding life expectancy significantly
impact the DBO. An increase in longevity increases the
DBO. There is no offsetting impact from the plan assets,
as no longevity bonds or swaps are held by the pension
funds. Generational mortality tables are used where this
data is available.
The following table shows the sensitivity of the
defined benefit pension obligation to the principal actu-
arial assumptions for the major plans in Switzerland, the
United States, the United Kingdom, Germany and Japan
on an aggregated basis:
Change in 2020 year-end
defined benefit pension obligation
(USD millions)
25 basis point increase in discount rate
25 basis point decrease in discount rate
One-year increase in life expectancy
25 basis point increase in rate of pension increase
25 basis point decrease in rate of pension increase
25 basis point increase of interest on savings account
25 basis point decrease of interest on savings account
25 basis point increase in rate of salary increase
25 basis point decrease in rate of salary increase
– 885
942
993
589
– 143
62
– 30
61
– 61
The healthcare cost trend rate assumptions used for
other post- employment benefits are as follows:
Healthcare cost trend rate
assumed for next year
Rate to which the cost trend
rate is assumed to decline
Year that the rate reaches
the ultimate trend rate
2020
2019
2018
6.3% 6.5% 7.0%
4.5% 4.5% 4.5%
2028 2028 2028
The following table shows the weighted average plan
asset allocation of funded defined benefit pension plans
at December 31, 2020 and 2019:
(as a percentage)
Equity securities
Debt securities
Real estate
Alternative investments
Cash and other investments
Total
Pension plans
Long-term Long-term
target
minimum maximum
target
2020
2019
15
20
5
0
0
40
60
20
20
15
28
34
17
13
8
27
36
17
15
5
100
100
Cash and most of the equity and debt securities have a
quoted market price in an active market. Real estate and
F-62
Notes to the Novartis Group consolidated financial statements
alternative investments, which include hedge fund, pri-
vate equity, infrastructure and commodity investments,
usually have a quoted market price or a regularly updated
net asset value.
The strategic allocation of assets of the different pen-
sion plans is determined with the objective of achieving
an investment return that, together with the contributions
paid by the Group and its associates, is sufficient to main-
tain reasonable control over the various funding risks of
the plans. Based upon the market and economic envi-
ronments, actual asset allocations may temporarily be
permitted to deviate from policy targets. The asset allo-
cation currently includes investments in shares of
Novartis AG as per the below table:
December 31, December 31,
2019
2020
The expected future cash flows in respect of pension
and other post-employment benefit plans at December
31, 2020, were as follows:
(USD millions)
Pension plans
Novartis Group contributions
2021 (estimated)
Expected future benefit payments
2021
2022
2023
2024
2025
2026–2030
404
1 245
1 198
1 191
1 182
1 165
5 651
Other post-
employment
benefit plans
40
40
41
41
40
40
181
Investment in shares of Novartis AG
Number of shares (in millions)
Market value (in USD billions)
2.3
0.2
2.3
0.2
Defined contribution plans
The weighted average duration of the defined benefit
obligation is 15.4 years (2019: 15.2 years).
The Group’s ordinary contribution to the various pen-
sion plans is based on the rules of each plan. Additional
contributions are made whenever this is required by stat-
ute or law (i.e., usually when statutory funding levels fall
below predetermined thresholds). The only significant
plans that are foreseen to require additional funding are
those in the United Kingdom and Germany.
In many subsidiaries, associates are covered by defined
contribution plans. Contributions charged to the consol-
idated income statement for the defined contribution
plans were:
(USD millions)
2020
2019
2018
Contributions for defined contribution plans
continuing operations
501
422
443
For defined contribution plans for discontinued opera-
tions, see Note 30.
26. Equity-based participation plans for associates
The expense related to all equity-based participation
plans and the liabilities arising from equity-based pay-
ment transactions were as follows:
(USD millions)
2020
2019
2018
Expense related to equity-based
participation plans
958
1 067
Liabilities arising from equity-based
payment transactions
269
326
918
273
Equity-based participation plans can be separated into
the following plans:
Annual Incentive
The Annual Incentive for the Novartis Group CEO and
other Executive Committee members (ECN) is paid 50%
in cash and 50% in Novartis restricted shares (RSs) or
restricted share units (RSUs). For the Novartis Top Lead-
ers (NTLs), the Annual Incentive is paid 70% in cash and
30% in RSs or RSUs. Both the ECN and NTLs can opt
to invest up to the maximum cash portion of their Annual
Incentive to receive further RSs or RSUs. Any cash is
paid out during February or March in the year following
the end of the performance period, and the shares are
granted during January in the year following the end of
the performance period.
Share savings plans
Associates in certain countries and certain key execu-
tives worldwide are encouraged to invest their Annual
Incentive in a share savings plan.
Under the share savings plan, participants may elect
to receive their relevant compensation fully or partially
in Novartis shares in lieu of cash. As a reward for their
participation in the share savings plan, at no additional
cost to the participant, Novartis matches their invest-
ments in shares after a holding period of three or five
years.
Novartis operates share savings plans for which associ-
ates may only participate in one of the share savings
F-63
Notes to the Novartis Group consolidated financial statements
plans in any given year. The most significant are listed
below:
• In Switzerland, Employee Share Ownership Plan
(ESOP) participants may choose to receive their Annual
Incentive (i) 100% in shares, (ii) 50% in shares and 50%
in cash, or (iii) 100% in cash. After expiration of a three-
year holding period for Novartis shares invested under
the ESOP, participants will receive one matching share
for every two invested shares. Associates eligible for
the equity plan “Select” are not eligible to receive ESOP
matching shares starting with the 2017 performance
period.
• The Leveraged Share Savings Plan (LSSP) was avail-
able to key executives for performance periods prior
to 2016. At the participant’s election, the Annual Incen-
tive was awarded partly or entirely in shares. The
elected number of shares is subject to a holding period
of five years. At the end of the holding period, Novartis
will match the invested shares at a ratio of 1-to-1 (i.e.,
one share awarded for each invested share). In the
United States, both the LSSP award and the corre-
sponding match are cash settled.
The Novartis Group CEO, the other Executive Commit-
tee members from 2014, and the NTLs from 2016 are
not eligible to participate in the share savings plans.
Novartis equity plan “Select”
The equity plan “Select” is a global equity incentive plan
under which eligible associates may annually be awarded
a grant subject to a three-year, and for selected units a
four-year, staggered vesting period. No awards are
granted for performance ratings below a certain thresh-
old. Executive Committee members and NTLs are not
eligible to participate in the equity plan “Select”.
The equity plan “Select” currently allows participants
in Switzerland to choose the form of their equity com-
pensation in RSs or RSUs. In all other jurisdictions, RSs
or RSUs are granted unilaterally. Until 2013, participants
could also choose to receive part or the entire grant in
the form of tradable share options.
Tradable share options expire on their 10th anniver-
sary from the grant date. Each tradable share option enti-
tles the holder to purchase after vesting (and before the
10th anniversary from the grant date) one Novartis share
at a stated exercise price that equals the closing market
price of the underlying share at the grant date. As the
exercise price does not reflect the decrease in the
Novartis share due to the Alcon spin, one-fifth of an Alcon
share will also be awarded to the option holder upon
exercise.
Options under Novartis equity plan “Select”
outside North America
The following table shows the activity associated with
the share options during the period. The weighted aver-
age prices in the table below are translated from Swiss
francs into USD at historical rates.
2020
2019
Weighted
average
exercise
Options
(millions)
price Options
(USD) (millions)
Weighted
average
exercise
price
(USD)
Options outstanding
at January 1
3.4
60.9
5.6
59.9
Sold or exercised
– 0.8
57.3
– 2.2
58.4
Outstanding at December 31
Exercisable at December 31
2.6
2.6
62.0
62.0
3.4
3.4
60.9
60.9
All share options were granted at an exercise price that
was equal to the closing market price of the Group’s
shares at the grant date. The weighted average share
price at the dates of sale or exercise was USD 91.7.
The following table summarizes information about
share options outstanding at December 31, 2020:
Options outstanding
Total/
weighted
average
Number outstanding (millions)
Remaining contractual life (years)
0.4
0.0
0.8
1.0
1.4
2.0
2.6
1.4
Exercise price (USD)
57.0
57.6
66.0
62.0
Options under Novartis equity plan “Select” for
North America
The following table shows the activity associated with
the ADR options during the period:
2020
2019
Weighted
average
ADR exercise
options
(millions)
price options
(USD) (millions)
Weighted
average
ADR exercise
price
(USD)
Options outstanding
at January 1
9.6
61.9
15.2
60.7
Sold or exercised
– 2.9
59.6
– 5.6
58.6
Outstanding at December 31
Exercisable at December 31
6.7
6.7
62.9
62.9
9.6
9.6
61.9
61.9
All ADR options were granted at an exercise price that
was equal to the closing market price of the ADRs at the
grant date. The weighted average ADR price at the dates
of sale or exercise was USD 92.2.
The following table summarizes information about
ADR options outstanding at December 31, 2020:
ADR options outstanding
Total/
weighted
average
Number outstanding (millions)
Remaining contractual life (years)
0.4
0.0
2.3
1.0
4.0
2.0
6.7
1.5
Exercise price (USD)
57.0
58.3
66.1
62.9
F-64
Notes to the Novartis Group consolidated financial statements
Long-Term Performance Plan
Long-Term Relative Performance Plan
The Long-Term Performance Plan (LTPP) is an equity plan
for the ECN, the NTLs and employees of Group units with
specific targets.
Participants are granted a target number of perfor-
mance share units (PSUs) at the beginning of every per-
formance period, which are converted into unrestricted
Novartis shares after the performance period. The actual
payout depends on the achievement of the performance
measures and ranges between 0% and 200% of the
granted amount. PSUs granted under the LTPP do not
carry voting rights, but do carry dividend equivalents that
are paid in unrestricted Novartis shares at the end of the
performance period.
The LTPP awards are subject to a three-year perfor-
mance and vesting period. Until 2018, the performance
criteria were based on Novartis internal performance
metrics. Starting in 2019, for new grants the performance
criteria are based on both Novartis internal performance
metrics and variables that can be observed in the mar-
ket, which is the ranking of the Novartis total shareholder
return (TSR) relative to a global healthcare peer group
of 14 other companies, over rolling three-year perfor-
mance periods.
TSR for Novartis and the peer companies is calcu-
lated as the change in the company share price, which
is translated to USD at the relevant exchange rate, includ-
ing the reinvestment return of dividends, over the three-
year performance period. The calculation is based on
Bloomberg standard published TSR data, which is pub-
licly available. The position of Novartis in the peer group
determines the payout range based on a payout matrix.
The LTRPP is an equity plan for the Novartis ECN and
NTLs. The last grant under this plan was made in 2018.
The LTRPP performance criteria are based on variables
that can be observed in the market, which is the ranking
of the Novartis TSR relative to a global healthcare peer
group of 14 other companies, over rolling three-year per-
formance periods. The TSR for Novartis and the peer
companies is calculated as described in the LTPP sec-
tion above.
Other share awards
Selected associates, excluding the ECN members, may
exceptionally receive Special Share Awards of RSs or
RSUs. These Special Share Awards provide an oppor-
tunity to reward outstanding achievements or excep-
tional performance, and aim to retain key contributors.
They are based on a formal internal selection process,
through which the individual performance of each can-
didate is thoroughly assessed at several management
levels. Special Share Awards have a minimum three-year
vesting period. In exceptional circumstances, Special
Share Awards may be awarded to attract special exper-
tise and new talents to the organization.
Worldwide, associates at different levels in the orga-
nization were awarded RSs and RSUs in 2020, 2019 and
2018.
In addition, in 2020, 2019 and 2018, Board members
received unrestricted shares as part of their regular com-
pensation.
Summary of non-vested share movements
The table below provides a summary of non-vested share
movements (RSs, RSUs and PSUs) for all plans:
Non-vested shares at January 1
25.8
71.1
1 835
25.7
77.1
1 981
2020
Number
Weighted
Fair value at
average fair
of shares value at grant grant date in
date in USD USD millions
in millions
2019
Weighted
Number
average fair Fair value at
of shares value at grant grant date in
date in USD USD millions
in millions
Granted
– Annual Incentive
– Share savings plans
– Select North America
– Select outside North America
– Long-Term Performance Plan
– Long-Term Relative Performance Plan 1
– Other share awards
Vested
Forfeited
Non-vested shares at December 31
1.1
4.2
3.3
2.0
2.5
0.2
1.5
– 13.8
– 2.0
24.8
93.7
95.0
86.7
89.4
85.1
0.0
78.0
74.2
75.3
78.9
103
399
286
179
213
0
117
1.1
4.2
5.3
2.6
2.5
0.1
1.9
– 1 024
– 13.3
– 151
1 957
– 4.3
25.8
78.4
83.0
64.0
67.4
68.9
0.0
67.7
80.3
76.3
71.1
86
349
339
175
172
0
129
– 1 068
– 328
1 835
1 LTRPP grants in 2020 represent incremental payouts based on performance criteria under the plan. In 2019 the LTRPP grants are keep whole awards granted due to the spin-off of
the Alcon business.
F-65
Notes to the Novartis Group consolidated financial statements
At April 8, 2019, the Alcon spin-off date, all RSU and PSU
holders, who were not entitled to the dividend in kind in
the form of Alcon shares received keep whole awards in
Novartis shares to compensate for the loss of the Alcon
value from their Novartis shares. These keep whole
awards were accounted for as a modification. As they
did not increase the value of the original grant, they did
not lead to additional expense. In the table above, this is
reflected by a zero fair value at grant date amount.
27. Transactions with related parties
Roche Holding AG
Novartis has two agreements with Genentech, Inc.,
United States (Genentech), and one agreement with
Spark Therapeutics, Inc., United States (Spark). Both
companies are subsidiaries of Roche Holding AG
(Roche), which is indirectly included in the consolidated
financial statements using equity accounting since
Novartis holds 33.3% of the outstanding voting shares
of Roche (see Note 4).
Lucentis
Novartis has licensed from Genentech/Roche the exclu-
sive rights to develop and market Lucentis outside the
United States for indications related to diseases of the
eye. Novartis pays royalties on the net sales of Lucentis
products outside the United States. In 2020, Lucentis
sales of USD 1.9 billion (2019: USD 2.1 billion; 2018:
USD 2.0 billion) were recognized by Novartis.
Xolair
Novartis and Genentech/Roche are co-promoting Xolair
in the United States, where Genentech/Roche records
all sales. Novartis records sales outside the United
States.
Novartis markets Xolair and records all sales and
related costs outside the United States as well as co-pro-
motion costs in the US. Genentech/Roche and Novartis
share the resulting profits from sales in the United States,
Europe and other countries, according to agreed prof-
it-sharing percentages. In 2020, Novartis recognized
total sales of Xolair of USD 1.3 billion (2019: USD 1.2 bil-
lion; 2018: USD 1.0 billion), including sales to Genentech/
Roche for the United States market.
Luxturna
In 2018, Novartis entered into an exclusive licensing and
commercialization agreement and a supply agreement
with Spark for Luxturna outside the United States. The
agreements include regulatory and sales milestones as
well as royalties payable to Spark on ex-US sales. On
December 17, 2019, Roche acquired Spark.
The net income for royalties, cost sharing and profit shar-
ing arising out of the Lucentis, Xolair and Luxturna agree-
ments with Roche totaled USD 217 million in 2020 (net
income in 2019: USD 101 million; net expense in 2018:
USD 34 million).
Furthermore, Novartis has several patent license,
supply and distribution agreements with Roche.
Novartis Pension Fund
In 2018, a Group subsidiary provided an uncommitted
overnight credit facility to the Novartis Pension Fund,
Switzerland, for up to USD 500 million with interest at
the US Federal Funds Rate. This credit facility was not
utilized during the years 2020, 2019 and 2018.
Executive Officers and Non-Executive Directors compensation
During 2020, there were 13 Executive Committee
members (“Executive Officers”). There were 15 Exec-
utive Officers in 2019 and 17 Executive Officers in 2018,
including those who stepped down.
The total compensation for Executive Committee members and the 14 Non-Executive Directors (13 in 2019 and
2018) using the Group’s accounting policies for equity-based compensation and pension benefits was as follows:
(USD millions)
Cash and other compensation
Post-employment benefits
Equity-based compensation
Total
Executive Officers
Non-Executive Directors
Total
2020
25.6
2.7
41.1
69.4
2019
20.7
2.6
40.6
63.9
2018
22.5
2.5
42.5
67.5
2020
4.6
2019
2018
4.1
4.0
5.2
9.8
4.6
8.7
4.8
8.8
2020
30.2
2.7
46.3
79.2
2019
24.8
2.6
45.2
72.6
2018
26.5
2.5
47.3
76.3
F-66
Notes to the Novartis Group consolidated financial statements
During 2020, the IFRS compensation expense increased
due to higher cash and other compensation. This
increase in cash compensation is mainly attributable to
ECN members who joined the ECN during 2019, as a
result 2019 represented only a portion of their annual
compensation. Other compensation increased on
account of higher social security payments on vested
equity-based compensation.
During 2019, the IFRS compensation expense
decreased due to lower cash buyout payments to new
executive officers and the forfeiture of equity-based
compensation as a result of the resignation of an exec-
utive officer. These effects were partially offset by higher
equity based compensation of executive officers
appointed over the last three years.
The Annual Incentive award, which is fully included
in equity- based compensation even when paid out in
cash, is granted in January in the year following the
reporting period.
The disclosures on Board and executive compensa-
tion required by the Swiss Code of Obligations and in
accordance with the Swiss Ordinance against Excessive
Compensation in Stock Exchange Listed Companies are
shown in the Compensation Report of the Group.
Transactions with former members of the Board of
Directors
During 2020, 2019 and 2018, the following payments (or
waivers of claims) were made to former Board members
or to “persons closely” linked to them:
Currency
2020
2019
2018
Dr. Krauer
Dr. Vasella
CHF
CHF
60 000
60 000
60 000
18 228
Dr. Alex Krauer, Honorary Chairman, is entitled to an
amount of CHF 60 000 for annual periods from one AGM
to the next. This amount was fixed in 1998 upon his
departure from the Board in 1999, and has not been
revised since that date.
28. Commitments and contingencies
Research and development
commitments
The Group has entered into long-term research and
development agreements with various institutions, which
provide for potential milestone payments by Novartis that
may be capitalized. As of December 31, 2020, the Group’s
commitments to make payments under those agree-
ments, and their estimated timing, were as follows:
Commitments for capital calls
The Group holds investments in funds in which it has
committed to invest further upon future capital calls. As
of December 31, 2020, the total uncalled capital com-
mitments for the Group’s investments in funds amounts
to USD 87 million. Note 29 contains further information
on the Group’s investments in funds.
(USD millions)
2021
2022
2023
2024
2025
Thereafter
Total
2020
449
691
325
483
281
3 003
5 232
Other commitments
The Group has entered into various purchase commit-
ments for services and materials as well as for equip-
ment in the ordinary course of business. These commit-
ments are generally entered into at current market prices
and reflect normal business operations. For disclosure
of property, plant and equipment purchase commit-
ments, see Note 9.
In addition in November 2020 and in January 2021,
Novartis entered into long-term research and develop-
ment agreements, both of which did not close as of Jan-
uary 25, 2021. These agreements provide for potential
milestones payments by Novartis that may be capital-
ized. Based on their estimated timing, the payments for
these transactions are expected to amount to USD 549
million in 2021, USD 248 million in 2022, USD 160 million
in 2023, USD 415 million in 2024, USD 515 million in 2025,
USD 1 409 million later than 2025, for a total of USD
3 296 million.
Guarantees issued
The Group has issued guarantees to third parties in the
ordinary course of business, mostly for tax, customs or
other governmental agencies.
In addition, Novartis AG is guarantor of the Group’s
issued bonds, credit facilities and commercial paper pro-
grams.
F-67
Notes to the Novartis Group consolidated financial statements
Contingencies
Group companies have to observe the laws, government
orders and regulations of the country in which they
operate.
A number of Novartis companies are, and will likely
continue to be, subject to various legal proceedings and
investigations that arise from time to time, including pro-
ceedings regarding product liability; sales and market-
ing practices; commercial disputes; employment and
wrongful discharge; and antitrust, securities, health and
safety, environmental, tax, international trade, privacy
and intellectual property matters. As a result, the Group
may become subject to substantial liabilities that may
not be covered by insurance and that could affect our
business, financial position and reputation. While Novartis
does not believe that any of these legal proceedings will
have a material adverse effect on its financial position,
litigation is inherently unpredictable and large judgments
sometimes occur. As a consequence, Novartis may in
the future incur judgments or enter into settlements of
claims that could have a material adverse effect on its
results of operations or cash flow.
Governments and regulatory authorities around the
world have been stepping up their compliance and law
enforcement activities in recent years in key areas,
including marketing practices, pricing, corruption, trade
restrictions, embargo legislation, insider trading, anti-
trust, cyber security and data privacy. Further, when one
government or regulatory authority undertakes an inves-
tigation, it is not uncommon for other governments or
regulators to undertake investigations regarding the
same or similar matters. Responding to such investiga-
tions is costly and requires an increasing amount of man-
agement’s time and attention. In addition, such investi-
gations may affect our reputation, create a risk of
potential exclusion from government reimbursement
programs in the United States and other countries, and
lead to (or arise from) litigation. These factors have con-
tributed to decisions by Novartis and other co mpanies
in the healthcare industry, when deemed in their interest,
to enter into settlement agreements with governmental
authorities around the world prior to any formal decision
by the authorities or a court. These government settle-
ments have involved and may in the future involve large
cash payments, sometimes in the hundreds of millions
of dollars or more, including the potential repayment of
amounts allegedly obtained improperly and other pen-
alties, including treble damages. In addition, settlements
of government healthcare fraud cases often require
companies to enter into corporate integrity agreements,
which are intended to regulate company behavior for a
period of years. Our affiliate Novartis Corporation is a
party to such an agreement, which will expire in 2025.
Also, matters underlying governmental investigations
and settlements may be the subject of separate private
litigation.
While provisions have been made for probable losses,
which management deems to be reasonable or appro-
priate, there are uncertainties connected with these
estimates.
Note 20 contains additional information on these
matters.
A number of Group companies are involved in legal
proceedings concerning intellectual property rights. The
inherent unpredictability of such proceedings means
that there can be no assurances as to their ultimate out-
come. A negative result in any such proceeding could
potentially adversely affect the ability of certain Novartis
companies to sell their products, or require the payment
of substantial damages or royalties.
In the opinion of management, however, the outcome
of these actions will not materially affect the Group’s
financial position but could be material to the results of
operations or cash flow in a given period.
The Group’s potential environmental remediation lia-
bility is assessed based on a risk assessment and inves-
tigation of the various sites identified by the Group as at
risk for environmental remediation exposure. The Group’s
future remediation expenses are affected by a number
of uncertainties. These uncertainties include, but are not
limited to, the method and extent of remediation, the per-
centage of material attributable to the Group at the reme-
diation sites relative to that attributable to other parties,
and the financial capabilities of the other potentially
responsible parties.
Note 20 contains additional information on environ-
mental liabilities.
F-68
Notes to the Novartis Group consolidated financial statements
29. Financial instruments – additional disclosures
The following tables show the carrying values of finan-
cial instruments by measurement categories as of
December 31, 2020 and 2019. Except for straight bonds
(see Note 19), the carrying values are equal to, or a rea-
sonable approximation of, the fair values.
2020
Financial
Financial instruments at
fair value
through the
instruments at through other consolidated
income
statement
amortized comprehensive
income
instruments at
fair value
Financial
costs
Note
Other
financial
liabilities
16
16
15
17
16
13
13
13
13
16
13
21
21
21
19
19
18/22
21
10
9 658
1 609
8 217
963
297
26
1 111
466
36
366
211
159
625
20 744
1 173
1 827
2 085
976
4 258
28 298
233
5 403
1 769
43 022
1 069
194
1 263
2 005
2 005
(USD millions)
Cash and cash equivalents
Time deposits and short-term investments with original maturity more than 90 days
Trade receivables
Other current assets
Marketable securities – debt securities
Long-term financial investments – equity securities
Long-term financial investments – debt securities
Long-term financial investments – fund investments
Long-term loans, advances, security deposits and other long-term receivables
Associated companies at fair value through profit and loss
Derivative financial instruments
Contingent consideration receivables
Total financial assets
Interest-bearing accounts of associates payable on demand
Bank and other short-term financial debt
Commercial paper
Straight bonds
Long-term liabilities to banks and other financial institutions
Trade payables
Commitment for repurchase of own shares
Contingent consideration liabilities (see Note 20/22) and other financial liabilities
Derivative financial instruments
Lease liabilities
Total financial liabilities
F-69
Notes to the Novartis Group consolidated financial statements
2019
(USD millions)
Cash and cash equivalents
Time deposits and short-term investments with original maturity more than 90 days
Trade receivables
Other current assets
Marketable securities – debt securities
Marketable securities – fund investments
Long-term financial investments – equity securities
Long-term financial investments – debt securities
Long-term financial investments – fund investments
Long-term loans, advances, security deposits and other long-term receivables
Associated companies at fair value through profit and loss
Derivative financial instruments
Contingent consideration receivables
Total financial assets
Interest-bearing accounts of associates payable on demand
Bank and other short-term financial debt
Commercial paper
Straight bonds
Long-term liabilities to banks and other financial institutions
Trade payables
Contingent consideration liabilities (see Note 20/22) and other financial liabilities
Derivative financial instruments
Lease liabilities
Total financial liabilities
Financial
Financial instruments at
fair value
through the
instruments at through other consolidated
income
statement
amortized comprehensive
income
instruments at
fair value
Financial
costs
Note
Other
financial
liabilities
16
16
15
17
16
16
13
13
13
13
16
13
21
21
21
19
19
21
10
11 112
61
8 301
2 036
329
24
1 158
33
37
366
233
186
102
399
21 839
1 215
1 323
1 836
719
2 289
22 167
188
5 424
32 623
1 065
185
1 250
1 949
1 949
Derivative financial instruments
The following tables show the contract or underlying
principal amounts and fair values of derivative financial
instruments analyzed by type of contract at Decem-
ber 31, 2020 and 2019. Contract or underlying principal
amounts indicate the gross volume of business outstand-
ing at the consolidated balance sheet date and do not
represent amounts at risk. The fair values are determined
by reference to market prices or standard pricing mod-
els that use observable market inputs at December
31, 2020 and 2019.
(USD millions)
Forward foreign exchange rate contracts
Commodity purchase contract
Options on equity securities
Contract or underlying
principal amount
2020
2019
13 679
10 779
11
70
9
269
Positive fair values
Negative fair values
2020
151
8
2019
96
6
2020
– 165
2019
– 75
– 29
– 110
Total derivative financial instruments included in
marketable securities and in current financial debts
13 760
11 057
159
102
– 194
– 185
The following table shows by currency contract or underlying principal amount the derivative financial instruments
at December 31, 2020 and 2019:
(USD millions)
Forward foreign exchange rate contracts
Commodity purchase contract
Options on equity securities
Total derivative financial instruments
EUR
2020
USD
Other
Total
2 432
6 376
4 871
13 679
11
70
11
70
2 432
6 457
4 871
13 760
F-70
Notes to the Novartis Group consolidated financial statements
(USD millions)
Forward foreign exchange rate contracts
Commodity purchase contract
Options on equity securities
Total derivative financial instruments
EUR
2019
USD
Other
Total
1 373
7 760
1 646
10 779
9
250
19
9
269
1 373
8 019
1 665
11 057
Derivative financial instruments effective for hedge
accounting purposes
At the end of 2020 and 2019, there were no open hedg-
ing instruments for anticipated transactions.
Fair value by hierarchy
As required by IFRS, financial assets and liabilities
recorded at fair value in the consolidated financial state-
ments are categorized based upon the level of judgment
associated with the inputs used to measure their fair
value. There are three hierarchical levels, based on
increasing subjectivity associated with the inputs to
derive fair valuation for these assets and liabilities, which
are as follows:
The assets carried at Level 1 fair value are equity and
debt securities listed in active markets.
The assets generally included in Level 2 fair value
hierarchy are foreign exchange and interest rate deriva-
tives, and certain debt securities. Foreign exchange and
interest rate derivatives are valued using corroborated
market data. The liabilities generally included in this fair
value hierarchy consist of foreign exchange and interest
rate derivatives.
Level 3 inputs are unobservable for the asset or lia-
bility. The assets generally included in Level 3 fair value
hierarchy are various investments in hedge funds and
unquoted equity security investments. Contingent con-
sideration carried at fair value is included in this cate-
gory.
(USD millions)
Financial assets
Debt securities
Total marketable securities
Derivative financial instruments
Total marketable securities and derivative financial instruments
Debt and equity securities
Fund investments
Contingent consideration receivables
Total long-term financial investments
Associated companies at fair value through profit and loss
Financial liabilities
Contingent consideration payables
Other financial liabilities
Derivative financial instruments
Total financial liabilities at fair value
2020
Level 1
Level 2
Level 3
Total
1 153
1 153
26
26
159
185
26
26
159
185
1 613
366
625
460
366
625
1 451
2 604
211
211
– 1 046
– 1 046
– 23
– 23
– 194
– 194
– 194
– 1 069
– 1 263
F-71
Notes to the Novartis Group consolidated financial statements
(USD millions)
Financial assets
Debt securities
Fund investments
Total marketable securities
Derivative financial instruments
Total marketable securities and derivative financial instruments
Debt and equity securities
Fund investments
Contingent consideration receivables
Total long-term financial investments
Associated companies at fair value through profit and loss
Financial liabilities
Contingent consideration payables
Other financial liabilities
Derivative financial instruments
Total financial liabilities at fair value
2019
Level 1
Level 2
Level 3
Total
37
37
37
976
976
24
24
102
126
24
37
61
102
163
1 557
233
399
581
233
399
1 213
2 189
186
186
– 1 036
– 1 036
– 29
– 29
– 185
– 185
– 185
– 1 065
– 1 250
The change in carrying values associated with Level 3 financial instruments, using significant unobservable inputs
during the year ended December 31, is set forth below:
2020
(USD millions)
January 1
Fair value gains and other adjustments,
including from divestments recognized
in the consolidated income statement
Fair value losses (including impairments and
amortizations) and other adjustments recognized
in the consolidated income statement
Fair value adjustments recognized in the consolidated statement
of comprehensive income, including currency translation effects
Purchases
Cash receipts and payments
Disposals
Reclassification
December 31
Associated
companies at
fair value through
profit and loss investments investments receivables
Fund
Long-term Contingent Contingent
financial consideration consideration
payables
Other
financial
liabilities
186
233
581
399
– 1 036
– 29
57
151
34
173
206
– 18
– 8
– 39
– 90
– 3
– 2
4
24
– 23
– 19
211
3
17
33
123
40
43
– 62
– 123
– 30
63
11
– 61
– 109
31
– 163
– 4
366
460
625
– 1 046
– 23
Total of fair value gains and losses recognized
in the consolidated income statement for assets
and liabilities held at December 31, 2020
39
143
– 5
173
116
– 3
F-72
Notes to the Novartis Group consolidated financial statements
2019
Associated
companies at
fair value through
profit and loss investments investments receivables
Fund
Long-term Contingent Contingent
financial consideration consideration
payables
Other
financial
liabilities
(USD millions)
January 1
Impact from discontinued operations 1
Fair value gains and other adjustments,
including from divestments recognized
in the consolidated income statement
Fair value losses (including impairments and
amortizations) and other adjustments recognized
in the consolidated income statement
Fair value adjustments recognized in the consolidated statement
of comprehensive income
Purchases
Cash receipts and payments
Disposals
Reclassification
December 31
Total of fair value gains and losses recognized
in the consolidated income statement for assets
and liabilities held at December 31, 2019
1 Notes 1, 2 and 30 provide information related to discontinued operations.
During 2020, there were several individually non-signif-
icant transfers of financial investments from Level 3 to
Level 1 for USD 166 million (2019: USD 64 million), mainly
due to initial public offerings of the invested companies.
Realized gains and losses associated with Level 3
long-term financial investments measured at fair value
through the consolidated income statement are recorded
in the consolidated income statement under “Other
income” or “Other expense,” respectively. Realized gains
and losses associated with Level 3 long-term financial
investments measured at fair value through other com-
prehensive income are not recycled through the consol-
idated income statement but are instead reclassified to
retained earnings.
During the year, the net loss and net gain recorded
on associated companies, fund investments and long-
term financial investments at fair value through profit and
loss were USD 92 million and USD 427 million, respec-
tively.
If the pricing parameters for the Level 3 input were
to change for associated companies at fair value through
profit and loss, fund investments and long-term financial
investments by 10% positively or negatively, this would
change the amounts recorded in the 2020 consolidated
statement of comprehensive income by USD 104 million.
To determine the fair value of a contingent
consideration, various unobservable inputs are used. A
change in these inputs might result in a significantly
higher or lower fair value measurement. The inputs used
are, among others, the probability of success, sales fore-
cast and assumptions regarding the discount rate and
timing and different scenarios of triggering events. The
inputs are interrelated. The significance and usage of
these inputs to each contingent consideration may vary
due to differences in the timing and triggering events for
payments or in the nature of the asset related to the con-
tingent consideration.
145
251
– 28
488
– 19
396
– 907
– 10
163
12
6
35
195
1
– 15
– 89
– 48
49
28
– 30
– 3
10
186
233
– 6
229
– 53
– 64
581
– 401
– 32
3
– 5
33
399
– 1 036
– 29
– 15
12
6
35
106
– 47
If the most significant parameters for the Level 3 input
were to change by 10% positively or negatively, or where
the probability of success (POS) is the most significant
input parameter, 10% were added or deducted from the
applied probability of success, for contingent consider-
ation payables, other financial liabilities and contingent
consideration receivables, this would change the
amounts recorded in the 2020 consolidated income
statement by USD 260 million and USD 324 million,
respectively.
Equity securities measured at fair
value through other comprehensive
income
Equity securities held as strategic investments, typically
held outside the Novartis Venture Fund, are generally
designated at date of acquisition as financial assets val-
ued at fair value through other comprehensive income
with no subsequent recycling through profit and loss.
Except for the investment in Alcon Inc. with a fair value
of USD 71 million at December 31, 2020 (2019: USD 382
million), these are made up of individually non-significant
investments. At December 31, 2020, the Group holds 56
non-listed equity securities (December 31, 2019: 53) and
34 listed equity securities (December 31, 2019: 29) in
this category with the following fair values:
(USD millions)
Listed equity securities
Non-listed equity securities
Total equity securities
2020
862
249
2019
843
315
1 111
1 158
There were no dividends recognized during 2020 and
2019 from these equity securities. In 2020, in accor-
F-73
Notes to the Novartis Group consolidated financial statements
dance with the consolidated foundations Alcon Inc.
shares divestment plans, Alcon Inc. shares with a fair
value of USD 331 million were sold (2019: USD 976 mil-
lion), and the USD 13 million gain on disposal (2019: USD
62 million gain) was transferred from other comprehen-
sive income to retained earnings during 2020. In addi-
tion, in 2020, equity securities that were no longer con-
sidered strategic, with a fair value of USD 206 million
(2019: USD 33 million), were sold, and the USD 137 mil-
lion gain on disposal (2019: USD 33 million gain) was
transferred from other comprehensive income to retained
earnings (see Note 8).
Nature and extent of risks arising
from financial instruments
Market risk
Novartis is exposed to market risk, primarily related to
foreign currency exchange rates, interest rates, and the
market value of the investments of liquid funds. The
Group actively monitors and seeks to reduce, where it
deems it appropriate to do so, fluctuations in these expo-
sures. It is the Group’s policy and practice to enter into
a variety of derivative financial instruments to manage
the volatility of these exposures and to enhance the yield
on the investment of liquid funds. It does not enter into
any financial transactions containing a risk that cannot
be quantified at the time the transaction is concluded. In
addition, it does not sell short assets it does not have, or
does not know it will have, in the future. The Group only
sells existing assets or enters into transactions and
future transactions (in the case of anticipatory hedges)
that it confidently expects it will have in the future, based
on past experience. In the case of liquid funds, the Group
writes call options on assets it has, or writes put options
on positions it wants to acquire and has the liquidity to
acquire. The Group expects that any loss in value for
these instruments generally would be offset by increases
in the value of the underlying transactions.
Foreign currency exchange rate risk
The Group uses the US dollar as its reporting currency.
As a result, the Group is exposed to foreign currency
exchange movements, primarily in European, Japanese
and emerging market currencies. Fluctuations in the
exchange rates between the US dollar and other curren-
cies can have a significant effect on both the Group’s
results of operations, including reported sales and earn-
ings, as well as on the reported value of our assets, lia-
bilities and cash flows. This, in turn, may significantly
affect the comparability of period-to-period results of
operations.
Because our expenditures in Swiss francs are sig-
nificantly higher than our revenues in Swiss francs, vol-
atility in the value of the Swiss franc can have a signifi-
cant impact on the reported value of our earnings, assets
and liabilities, and the timing and extent of such volatility
can be difficult to predict.
There is also a risk that certain countries could
devalue their currency. If this occurs, it could impact the
effective prices we would be able to charge for our prod-
ucts and also have an adverse impact on both our con-
solidated income statement and balance sheet.
Subsidiaries whose functional currencies have expe-
rienced a cumulative inflation rate of more than 100%
over the past three years apply the rules of IAS 29 “Finan-
cial reporting in Hyperinflationary Economies”. The
hyperinflationary economies in which Novartis operates
are Argentina and Venezuela. Venezuela was hyperinfla-
tionary for all years presented, and Argentina became
hyperinflationary effective July 1, 2018, requiring retro-
active implementation of hyperinflation accounting as of
January 1, 2018. The impacts of applying IAS 29 were
not significant in all years presented.
The Group manages its global currency exposure by
engaging in hedging transactions where management
deems appropriate. Novartis may enter into various con-
tracts that reflect the changes in the value of foreign cur-
rency exchange rates to preserve the value of assets,
commitments and anticipated transactions. Novartis also
uses forward contracts and foreign currency option con-
tracts to hedge.
Net investments in subsidiaries in foreign countries
are long-term investments. Their fair value changes
through movements of foreign currency exchange rates.
The Group has designated a certain portion of its long-
term euro-denominated straight bonds as hedges of the
translation risk arising on certain of these net invest-
ments in foreign operations with euro functional cur-
rency. As of December 31, 2020, long-term financial debt
with a carrying amount of EUR 1.8 billion (USD 2.3 billion)
(December 31, 2019: USD 2.1 billion), has been desig-
nated as a hedge instrument. During 2020, USD 201 mil-
lion of unrealized loss (unrealized income in 2019: USD
44 million) was recognized in other comprehensive
income and accumulated in currency translation effects
in relation with this net investment hedge. The hedge
remained effective since inception, and no amount was
recognized in the consolidated income statement in
2020, 2019 and 2018.
Commodity price risk
The Group has only a very limited exposure to price risk
related to anticipated purchases of certain commodities
used as raw materials by the Group’s businesses. A
change in those prices may alter the gross margin of a
specific business, but generally by not more than 10% of
the margin and thus below the Group’s risk management
tolerance levels. Accordingly, the Group does not enter
into significant commodity futures, forward or option
contracts to manage fluctuations in prices of anticipated
purchases.
Interest rate risk
The Group addresses its net exposure to interest rate
risk mainly through the ratio of its fixed-rate financial
debt to variable-rate financial debt contained in its total
financial debt portfolio. To manage this mix, Novartis may
enter into interest rate swap agreements, in which it
exchanges periodic payments based on a notional
amount and agreed-upon fixed and variable interest
rates.
Equity risk
The Group may purchase equities as investments of its
liquid funds. As a policy, it limits its holdings in an unre-
lated company to less than 5% of its liquid funds. Poten-
F-74
Notes to the Novartis Group consolidated financial statements
tial investments are thoroughly analyzed. Call options
are written on equities that the Group owns, and put
options are written on equities that the Group wants to
buy and for which cash is available.
Credit risk
Credit risks arise from the possibility that customers may
not be able to settle their obligations as agreed. To man-
age this risk, the Group periodically assesses country
and customer credit risk, assigns individual credit limits,
and takes actions to mitigate credit risk where appropri-
ate.
The provisions for expected credit losses for cus-
tomers are based on a forward-looking expected credit
loss, which includes possible default events on the trade
receivables over the entire holding period of the trade
receivables.
In measuring the expected credit losses, trade receiv-
ables are grouped based on shared credit risk charac-
teristics (such as private versus public receivables) and
days past due. In determining the expected credit loss
rates, the Group considers current and forward-looking
macroeconomic factors that may affect the ability of the
customers to settle the receivables, and historical loss
rates for each category of customers.
The Group’s largest customer accounted for approx-
imately 17% of net sales, and the second largest and third
largest customers accounted for 11% and 6% of net sales,
respectively (2019: 18%, 13% and 8%, respectively; 2018:
18%, 14% and 8%, respectively).
The highest amounts of trade receivables outstand-
ing were for these same three customers and amounted
to 14%, 12% and 6%, respectively, of the Group’s trade
receivables at December 31, 2020 (2019: 14%, 12% and
7%, respectively). There is no other significant concen-
tration of customer credit risk.
Counterparty risk
Counterparty risk encompasses issuer risk on market-
able securities and money market instruments; credit risk
on cash, time deposits and derivatives; as well as settle-
ment risk for different instruments. Issuer risk is reduced
by only buying securities that are at least A- rated. Coun-
terparty credit risk and settlement risk are reduced by a
policy of entering into transactions with counterparties
(banks or financial institutions) that feature a strong
credit rating. Exposure to these risks is closely moni-
tored and kept within predetermined parameters. The
limits are regularly assessed and determined based upon
credit analysis, including financial statement and capital
adequacy ratio reviews. In addition, reverse repurchas-
ing agreements are contracted, and Novartis has entered
into credit support agreements with various banks for
derivative transactions. To further reduce the settlement
risk, the Group has implemented a multi-currency sys-
tem, CLS (Continuous Linked Settlement), providing mul-
tilateral netting (payment-versus-payment settlement)
of cash flows from foreign exchange transactions.
The Group’s cash and cash equivalents are held with
major regulated financial institutions; the three largest
ones hold approximately 14.1%, 12.6% and 9.7%, respec-
tively (2019: 12.6%, 10.4% and 8.3%, respectively).
The Group does not expect any losses from non-per-
formance by these counterparties and does not have any
significant grouping of exposures to financial sector or
country risk.
Liquidity risk
Liquidity risk is defined as the risk that the Group could
not be able to settle or meet its obligations associated
with financial liabilities that are settled by delivering cash
or another financial asset. Group Treasury is responsi-
ble for liquidity, funding and settlement management. In
addition, liquidity and funding risks, and related pro-
cesses and policies, are overseen by management.
Novartis manages its liquidity risk on a consolidated
basis according to business needs and tax, capital or
regulatory considerations, if applicable, through numer-
ous sources of financing in order to maintain flexibility.
Certain countries have legal or economic restrictions
on the ability of subsidiaries to transfer funds to the
Group in the form of cash dividends, loans or advances,
but these restrictions do not have an impact on the abil-
ity of the Group to meet its cash obligations.
Management monitors the Group’s net debt or liquid-
ity position through rolling forecasts on the basis of
expected cash flows.
Novartis has two US commercial paper programs
under which it can issue up to USD 9.0 billion in the
aggregate of unsecured commercial paper notes.
Novartis also has a Japanese commercial paper program
under which it can issue up to JPY 150 billion (approxi-
mately USD 1.5 billion) of unsecured commercial paper
notes. Commercial paper notes totaling USD 4.3 billion
under these three programs were outstanding as per
December 31, 2020 (2019: USD 2.3 billion). Novartis fur-
ther has a committed credit facility of USD 6.0 billion,
which was renewed in September 2019. This credit facil-
ity is provided by a syndicate of banks and is intended
to be used as a backstop for the US commercial paper
programs. The facility matures in September 2024 and
was undrawn as per December 31, 2020, and December
31, 2019.
In December 2019, Novartis entered into a short-term
credit facility of USD 7 billion, with a maturity date of June
30, 2020 with a syndicate of banks. On January 7, 2020,
Novartis borrowed USD 7 billion under the facility with
interest based on the USD LIBOR. On February 14, 2020,
Novartis repaid the full USD 7 billion initially borrowed.
The facility expired on June 30, 2020.
F-75
Notes to the Novartis Group consolidated financial statements
The following table sets forth how management monitors net debt or liquidity based on details of the remaining
contractual maturities of current financial assets and liabilities, excluding trade receivables and payables as well
as contingent considerations at December 31, 2020, and December 31, 2019:
2020
(USD millions)
Current assets
Due later than Due later than Due later than
one year
Due within but less than but less than but less than
five years
one month
three months
three months
one month
one year
Due after
five years
Total
Marketable securities, time deposits and short-term
investments with original maturity more than 90 days
13
1 571
25
Commodities
Derivative financial instruments and accrued interest
Cash and cash equivalents
Total current financial assets
Non-current liabilities
Financial debt
Financial debt – undiscounted
Total non-current financial debt
Current liabilities
Financial debt
Financial debt – undiscounted
Derivative financial instruments
Total current financial debt
38
8 558
8 609
110
1 100
2 781
4
29
5
4
9
21
111
3
1 635
111
159
9 658
135
11 563
– 10 621
– 15 638
– 26 259
– 10 661
– 15 802
– 26 463
– 10 621
– 15 638
– 26 259
– 4 195
– 2 218
– 3 178
– 4 195
– 2 219
– 3 179
– 93
– 84
– 17
– 4 288
– 2 302
– 3 195
– 9 591
– 9 593
– 194
– 9 785
Net debt
4 321
479
– 3 166
– 10 612
– 15 503
– 24 481
(USD millions)
Current assets
2019
Due later than Due later than Due later than
one year
one month three months
Due within but less than but less than but less than
five years
one month three months
one year
Due after
five years
Marketable securities, time deposits and short-term
investments with original maturity more than 90 days
20
26
16
Total
122
110
102
57
110
3
11 112
170
11 446
3
3
6
14
9 712
9 746
79
1 400
1 505
3
19
Commodities
Derivative financial instruments and accrued interest
Cash and cash equivalents
Total current financial assets
Non-current liabilities
Financial debt
Financial debt – undiscounted
Total non-current financial debt
Current liabilities
Financial debt
Financial debt – undiscounted
Derivative financial instruments
Total current financial debt
– 9 110
– 11 243
– 20 353
– 9 150
– 11 355
– 20 505
– 9 110
– 11 243
– 20 353
– 4 243
– 1 373
– 1 230
– 4 243
– 1 373
– 1 230
– 130
– 29
– 26
– 4 373
– 1 402
– 1 256
– 6 846
– 6 846
– 185
– 7 031
Net debt
5 373
103
– 1 237
– 9 104
– 11 073
– 15 938
The consolidated balance sheet amounts of financial lia-
bilities included in the above analysis are not materially
different to the contractual amounts due on maturity. The
positive and negative fair values on derivative financial
instruments represent the net contractual amounts to
be exchanged at maturity.
F-76
Notes to the Novartis Group consolidated financial statements
The Group’s contractual undiscounted potential cash flows from derivative financial instruments to be settled
on a gross basis are as follows:
(USD millions)
Derivative financial instruments and accrued interest on derivative
financial instruments
2020
Due later than Due later than
one month
three months
Due within but less than but less than
one month
one year
three months
Total
Potential outflows in various currencies – from financial derivative liabilities
– 930
– 4 096
– 719
– 5 745
Potential inflows in various currencies – from financial derivative assets
904
4 114
710
5 728
(USD millions)
Derivative financial instruments and accrued interest on derivative
financial instruments
2019
Due later than Due later than
one month three months
Due within but less than but less than
one month three months
one year
Total
Potential outflows in various currencies – from financial derivative liabilities
– 814
– 4 624
– 952
– 6 390
Potential inflows in various currencies – from financial derivative assets
807
4 656
922
6 385
Other contractual liabilities that are not part of management’s monitoring of the net debt or liquidity consist of the
following items:
2020
(USD millions)
Contractual interest on non-current liabilities
Lease liabilities
Trade payables
Commitment for repurchase of own shares
Contingent consideration liabilities
(USD millions)
Contractual interest on non-current liabilities
Lease liabilities
Trade payables
Contingent consideration liabilities
Due later than Due later than
one year
Due within but less than but less than
five years
one year
three months
three months
Due after
five years
Total
– 82
– 77
– 5 239
– 1 769
– 468
– 1 846
– 4 251
– 6 647
– 209
– 164
– 692
– 1 027
– 2 005
– 5 403
– 1 769
– 24
– 38
– 639
– 345
– 1 046
2019
Due later than Due later than
one year
three months
Due within but less than but less than
five years
one year
three months
Due after
five years
Total
– 36
– 65
– 5 222
– 428
– 1 531
– 3 439
– 5 434
– 181
– 202
– 622
– 1 081
– 1 949
– 5 424
– 62
– 9
– 582
– 383
– 1 036
Capital risk management
Value at risk
Novartis strives to maintain a strong credit rating. In man-
aging its capital, Novartis focuses on maintaining a
strong balance sheet. As of December 31, 2020, Moody’s
Investor Service rated the Company A1 for long-term
maturities and P-1 for short-term maturities and S&P
Global Ratings rated the company AA- for long-term
maturities and A-1+ for short-term maturities.
The Group uses a value at risk (VAR) computation to esti-
mate the potential 10-day loss in the fair value of its finan-
cial instruments.
A 10-day period is used because of an assumption
that not all positions could be undone in one day given
the size of the positions. The VAR computation includes
F-77
Notes to the Novartis Group consolidated financial statements
all financial assets and financial liabilities as set forth in
the table on page F-69, except:
• Trade receivables
• Other current assets
• Long-term loans and receivables, advances and secu-
rity deposits
• Contingent considerations
• Lease liabilities
• Commitment for repurchase of own shares
• Trade payables
The VAR estimates are made assuming normal market
conditions, using a 95% confidence interval. The Group
uses a “Delta Normal” model to determine the observed
interrelationships between movements in interest rates,
stock markets and various currencies. These interrela-
tionships are determined by observing interest rate
movements, stock market movements and foreign cur-
rency rate movements over a 60-day period for the cal-
culation of VAR amounts.
The estimated potential 10-day loss in the fair value
of the Group’s foreign currency positions (including for-
eign exchange translation risk), the estimated potential
10-day loss of its equity holdings, and the estimated
potential 10-day loss in fair value of its interest rate-sen-
sitive instruments (primarily financial debt and invest-
ments of liquid funds under normal market conditions),
as calculated in the VAR model, are the following:
(USD millions)
All financial instruments
Analyzed by components:
Instruments sensitive to foreign
currency exchange rates
Instruments sensitive to equity
market movements
Instruments sensitive to interest rates
2020
587
2019
355
199
62
197
89
31
187
The average, high and low VAR amounts are as follows:
(USD millions)
All financial instruments
Analyzed by components:
Instruments sensitive to foreign
currency exchange rates
Instruments sensitive to equity
market movements
Instruments sensitive to
interest rates
2020
Average
568
High
659
225
515
78
261
Low
322
71
21
329
912
173
(USD millions)
All financial instruments
Analyzed by components:
Instruments sensitive to foreign
currency exchange rates
Instruments sensitive to equity
market movements
Instruments sensitive to
interest rates
Average
348
2019
High
385
143
195
36
81
Low
303
86
16
233
303
187
The VAR computation is a risk analysis tool designed to
statistically estimate the potential 10-day loss from
adverse movements in foreign currency exchange rates,
equity prices and interest rates under normal market
conditions. The computation does not purport to repre-
sent actual losses in fair value on earnings to be incurred
by the Group, nor does it consider the effect of favorable
changes in market rates. The Group cannot predict
actual future movements in such market rates, and it
does not claim that these VAR results are indicative of
future movements in such market rates or are represen-
tative of any actual impact that future changes in market
rates may have on the Group’s future results of opera-
tions or financial position.
30. Discontinued operations
Discontinued operations include the operational results
from the Alcon eye care devices business and certain
Corporate activities attributable to the Alcon business
prior to the spin-off, the gain on distribution of Alcon Inc.
to Novartis AG shareholders, and certain other expenses
related to the Distribution (refer to Notes 1 and 2 for fur-
ther details).
The Alcon eye care devices business researched,
discovered, developed, manufactured, distributed and
sold a broad range of eye care products. Alcon was orga-
nized into two global business franchises, Surgical and
Vision Care. Alcon also provided services, training, edu-
cation and technical support for both the Surgical and
Vision Care businesses.
F-78
Notes to the Novartis Group consolidated financial statements
Consolidated income statement
(USD millions)
Net sales to third parties from
discontinued operations
Sales to continuing segments
Net sales from discontinued operations
Cost of goods sold
Gross profit from discontinued operations
Selling, general and administration
Research and development
Other income
Other expense
Operating income/(loss) from discontinued operations
Interest expense
Other financial income and expense
Income/(loss) before taxes from discontinued operations
Taxes
Net loss from discontinued operations
before gain on distribution of Alcon Inc.
to Novartis AG shareholders
Gain on distribution of Alcon Inc.
to Novartis AG shareholders 2
Net income/(loss) from discontinued operations
2019 1
2018
1 777
7 149
32
4
1 809
7 153
– 860
– 3 983
949
3 170
– 638
– 2 754
– 142
– 585
15
– 113
71
– 10
– 3
58
– 159
61
– 126
– 234
– 25
– 1
– 260
74
– 101
– 186
4 691
4 590
– 186
1 The consolidated income statement amounts are for the period from January 1, 2019, to the completion of the spin-off.
2 See Note 2 for further details on the non-taxable, non-cash gain on distribution of Alcon Inc. to Novartis AG shareholders.
Supplemental disclosures related to the Alcon business distributed to
Novartis AG shareholders
Additional significant accounting
policies
The accounting policies mentioned in Note 1 were used
for the reporting of discontinued operations. The follow-
ing additional significant accounting policies were appli-
cable to discontinued operations.
Intangible assets available for use
In addition to currently marketed products, technologies
and other intangible assets (including computer soft-
ware), discontinued operations intangible assets avail-
able for use also included marketing know-how and the
Alcon brand name.
Marketing know-how represents the value attribut-
able to the expertise acquired for marketing and distrib-
uting Alcon surgical products.
The Alcon brand name was shown separately, as it
was the only Novartis intangible asset that was available
for use with an indefinite useful life. Novartis considers
that it was appropriate that the Alcon brand name had
an indefinite life since Alcon-branded products had a
history of strong revenue and cash flow performance,
and Novartis had the intent and ability to support the
brand with spending to maintain its value for the fore-
seeable future. The Alcon brand name was not amor-
tized as it had an indefinite useful life, but was evaluated
for potential impairment annually.
The following table shows the respective useful lives
for available-for-use intangible assets and the location
in the consolidated income statement in which the
respective amortization and any potential impairment
charge were recognized:
Income statement location
for amortization and
impairment charges
Useful life
Marketing know-how
25 years
“Cost of goods sold”
Alcon brand name
Not amortized,
indefinite useful life
“Other expense”
The estimates used in calculating the net present values
are highly sensitive and depend on assumptions specific
to the nature of the activities and more specifically on
appropriate royalty rate for the Alcon brand name.
Revenue recognition
In the Alcon Division, which is reported as discontinued
operations, surgical equipment may have been sold
together with other products and services under a sin-
gle contract. Revenues were recognized upon satisfac-
tion of each of the performance obligations in the con-
tract and the consideration was allocated based on the
standalone selling price of each performance obligation.
For surgical equipment, in addition to cash and install-
ment sales, revenue was recognized under finance and
operating lease arrangements. Arrangements in which
substantially all the risks and rewards incidental to own-
ership transfers to the customer were treated as finance
lease arrangements. Revenue from finance lease
arrangements was recognized at amounts equal to the
fair value of the equipment, which approximated the
present value of the minimum lease payments under the
arrangements. As interest rates embedded in lease
F-79
Notes to the Novartis Group consolidated financial statements
arrangements were approximately market rates, revenue
under finance lease arrangements was comparable to
revenue for outright sales. Finance income for arrange-
ments longer than 12 months was deferred and subse-
quently recognized based on a pattern that approxi-
mated to the use of the effective interest method and
was recorded in “Other income.” Operating lease reve-
nue for equipment rentals was recognized on a straight-
line basis over the lease term.
Net income
Included in net income from discontinued operations are:
(USD millions)
Interest income
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Impairment charges on property, plant and equipment
Impairment charges on intangible assets 1
Additions to restructuring provisions
Equity-based compensation of Novartis equity plans
2019
– 42
– 9
2018
2
– 235
– 174
– 1 052
– 3
– 391
– 13
– 93
– 9
1 2018 includes an impairment of USD 337 million related to the write-down of the CyPass currently marketed product, which was acquired with the Alcon Division 2016 acquisition
of Transcend Medical, Inc.
Balance sheet
The following were in the balance sheet from discontinued operations for the period from January 1, 2019, to the
date of reclassification:
(USD millions)
Additions to property, plant and equipment
Additions to right-of-use assets
Additions to goodwill and intangible assets
2019
113
3
36
Cash flows used in investing activities
from discontinued operations
Cash flows from financing activities
from discontinued operations
Cash flows used in investing activities from discontinued
operations include the investing activities of the Alcon
business and cash outflows for transaction-related
expenditures attributable to the series of portfolio trans-
formation transactions completed in 2015.
(USD millions)
2020
2019
2018
Payments attributable
to the spin-off of the
Alcon business
Divested cash and cash equivalents
– 39
– 29
– 628
Cash flows attributable to the
spin-off of the Alcon business
– 39
– 657
– 88
– 502
– 1 001
Other cash flows used in
investing activities, net
Net cash flows used in investing
activities from discontinued
operations
In 2020, the net cash outflows used in financing activi-
ties from discontinued operations of USD 50 million was
for transaction cost payments directly attributable to the
distribution (spin-off) of the Alcon business to Novartis
AG shareholders.
In 2019, the net cash inflows from financing activities
from discontinued operations of USD 3.3 billion (2018:
USD 167 million net cash outflows) included mainly USD
3.5 billion (2018: nil) cash inflows from Alcon borrowings
in connection with the distribution (spin-off) of the Alcon
business to Novartis AG shareholders, partly offset by
USD 0.2 billion (2018: USD 0.1 billion) transaction cost
payments directly attributable to the distribution (spin-
off) of the Alcon business to Novartis AG shareholders
(see Notes 1 and 2).
– 127
– 1 159
– 1 001
Leases
The lease liabilities recorded in discontinued operations
on January 1, 2019, the date of implementation of IFRS
16 Leases (see Note 1), were USD 286 million, and the
right-of-use assets were USD 276 million, including USD
F-80
Notes to the Novartis Group consolidated financial statements
89 million and USD 75 million, respectively, for the pre-
viously reported finance lease obligations. For discon-
tinued operations, there were no impairments or signif-
icant contract terminations of right-of-use assets for the
period from January 1, 2019, to February 28, 2019, the
date of shareholder approval for the Alcon spin-off.
Net assets derecognized
The following table presents the Alcon business net assets at the date of spin-off at April 8, 2019:
(USD millions)
Property, plant and equipment
Right-of-use assets
Goodwill
Intangible assets other than goodwill
Deferred tax assets
Financial and other non-current assets
Inventories
Trade receivables and other current assets
Cash and cash equivalents
Deferred tax liabilities
Current and non-current lease liabilities
Current and non-current financial debts
Trade payables, provisions and other liabilities
Net assets derecognized
2019
2 858
269
8 906
11 121
732
526
1 469
1 787
628
– 1 713
– 269
– 3 538
– 2 751
20 025
Defined contribution plans
In many subsidiaries, associates are covered by defined
contribution plans. Contributions charged to the consol-
idated income statement for the defined contribution
plans were:
(USD millions)
Contributions for defined
contribution plans
discontinued operations
2019
2018
33
104
Significant transactions
In March 2019, Alcon acquired PowerVision, Inc.
(PowerVision), a privately held, US-based medical device
development company focused on developing accom-
modative, implantable intraocular lenses. The fair value
of the total purchase consideration was USD 424 million.
The amount consisted of an initial cash payment of USD
289 million and the fair value of the contingent consid-
eration of USD 135 million, due to PowerVision share-
holders, which they are eligible to receive upon the
achievement of specified regulatory and commercializa-
tion milestones. The purchase price allocation resulted
in net identifiable assets of USD 418 million, consisting
of intangible assets of USD 505 million, net deferred tax
liabilities of USD 93 million, other net assets of USD 6
million, and goodwill of USD 6 million. The 2019 results
of operations since the date of the acquisition were not
material.
For additional information related to the distribution
(spin-off) of the Alcon business to Novartis AG
shareholders, effected through a dividend in kind
distribution that was completed on April 8, 2019, refer to
Note 1 and Note 2.
F-81
Notes to the Novartis Group consolidated financial statements
31. Events subsequent to the December 31, 2020,
consolidated balance sheet date
Significant transactions not closed as of
January 25, 2021
In November 2020 and in January 2021, Novartis entered
into long-term research and development agreements,
both of which did not close as of January 25, 2021. For
additional information see Note 28.
Significant transaction closed in January 2021
In December 2020, Novartis entered into a business
acquisition agreement that closed on January 21, 2021,
with an estimated fair value purchase price of USD 235
million.
Dividend proposal for 2020 and approval of the
Group’s 2020 consolidated financial statements
On January 25, 2021, the Novartis AG Board of Direc-
tors proposed the acceptance of the 2020 consolidated
financial statements of the Novartis Group for approval
by the Annual General Meeting on March 2, 2021. Fur-
thermore, also on January 25, 2021, the Board proposed
a dividend of CHF 3.00 per share to be approved at the
Annual General Meeting on March 2, 2021. If approved,
total dividend payments would amount to approximately
USD 7.7 billion (2019: USD 7.0 billion), using the CHF/USD
December 31, 2020, exchange rate.
F-82
Notes to the Novartis Group consolidated financial statements
32. Principal Group subsidiaries
and associated companies
The following table lists the principal subsidiaries controlled by Novartis, associated companies in which Novartis
is deemed to have significant influence, and foundations required to be consolidated under IFRS. It includes all sub-
sidiaries, associated companies and consolidated foundations with total assets or net sales to third parties in excess
of USD 25 million. The equity interest percentage shown in the table also represents the share in voting rights in
those entities, except where explicitly noted.
Share
capital
Equity
1 interest
As at December 31, 2020
Share
capital
Equity
1 interest
As at December 31, 2020
Algeria
Société par actions SANDOZ, Algiers
Argentina
Novartis Argentina S.A., Buenos Aires
Australia
Novartis Australia Pty Ltd, Macquarie Park, NSW
Novartis Pharmaceuticals
Australia Pty Ltd, Macquarie Park, NSW
Sandoz Pty Ltd, Macquarie Park, NSW
Austria
Novartis Austria GmbH, Vienna
Novartis Pharma GmbH, Vienna
Sandoz GmbH, Kundl
EBEWE Pharma Ges.m.b.H Nfg. KG, Unterach am Attersee
Bangladesh
Novartis (Bangladesh) Limited, Gazipur
Belgium
Novartis Pharma NV, Vilvoorde
Sandoz NV, Vilvoorde
Alcon – Couvreur NV, Puurs
Bermuda
Novartis Investment Ltd., Hamilton
Novartis Securities Investment Ltd., Hamilton
Novartis Finance Services Ltd., Hamilton
Triangle International Reinsurance Limited, Hamilton
Trinity River Insurance Co Ltd., Hamilton
DZD
650.0 m
100%
ARS
906.1 m
100%
AUD
AUD
AUD
EUR
EUR
EUR
EUR
2
100%
3.8 m
11.6 m
100%
100%
1.0 m
1.1 m
32.7 m
1.0 m
100%
100%
100%
100%
BDT
162.5 m
60%
EUR
EUR
EUR
7.1 m
19.2 m
110.6 m
100%
100%
100%
12 000
30 000
20 000
USD
CHF
CHF
CHF
USD 370 000
1.0 m
100%
100%
100%
100%
100%
Brazil
Novartis Biociências S.A., São Paulo
Sandoz do Brasil Indústria Farmacêutica Ltda., Cambé, PR
BRL
BRL
265.0 m
190.0 m
100%
100%
Canada
Novartis Pharmaceuticals Canada Inc., Dorval, Quebec
Sandoz Canada Inc., Boucherville, Quebec
Sandoz Manufacturing Inc., Boucherville, Quebec
Chile
Novartis Chile S.A., Santiago de Chile
China
Beijing Novartis Pharma Co., Ltd., Beijing
Novartis Pharmaceuticals (HK) Limited, Hong Kong
China Novartis Institutes for
BioMedical Research Co., Ltd., Shanghai
Suzhou Novartis Technical
Development Co., Ltd., Changshu
Shanghai Novartis Trading Ltd., Shanghai
Sandoz (China) Pharmaceutical
Co., Ltd., Zhongshan
Colombia
Novartis de Colombia S.A., Santafé de Bogotá
Croatia
Sandoz d.o.o. farmaceutska industrija, Zagreb
Czech Republic
Novartis s.r.o., Prague
Sandoz s.r.o., Prague
Denmark
Novartis Healthcare A/S, Copenhagen
Sandoz A/S, Copenhagen
Ecuador
Novartis Ecuador S.A., Quito
Egypt
Novartis Pharma S.A.E., Cairo
Sandoz Egypt Pharma S.A.E., New Cairo City
Finland
Novartis Finland Oy, Espoo
CAD
CAD
CAD
1.2 m
80.8 m
100
100%
100%
100%
CLP
2.0 bn
100%
USD
HKD
30.0 m
200
100%
100%
USD
320.0 m
100%
USD
USD
12.0 m
3.2 m
100%
100%
USD
57.6 m
100%
COP
7.9 bn
100%
HRK
25.6 m
100%
CZK
CZK
DKK
DKK
51.5 m
44.7 m
100%
100%
14.0 m
12.0 m
100%
100%
USD
4.0 m
100%
EGP
EGP 250 000
193.8 m 99.77%
100%
EUR 459 000
100%
France
Novartis Groupe France S.A., Rueil-Malmaison
Novartis Pharma S.A.S., Rueil-Malmaison
Advanced Accelerator Applications S.A., Saint-Genis-Pouilly
CELLforCURE, Les Ulis
Sandoz S.A.S., Levallois-Perret
EUR
EUR
EUR
EUR
EUR
903.0 m
43.4 m
76 734
4.2 m
5.4 m
100%
100%
99.2%
100%
100%
Germany
Novartis Deutschland GmbH, Nuremberg
Novartis Business Services GmbH, Wehr
Novartis Pharma GmbH, Nuremberg
Novartis Pharma Produktions GmbH, Wehr
Sandoz International GmbH, Holzkirchen
1 A Pharma GmbH, Oberhaching
HEXAL AG, Holzkirchen
Salutas Pharma GmbH, Barleben
Aeropharm GmbH, Rudolstadt
Greece
Novartis (Hellas) S.A.C.I., Metamorphosis / Athens
Hungary
Novartis Hungary Healthcare Limited Liability
Company, Budapest
Sandoz Hungary Limited Liability Company, Budapest
India
Novartis India Limited, Mumbai
Novartis Healthcare Private Limited, Mumbai
Sandoz Private Limited, Mumbai
Indonesia
PT. Novartis Indonesia, Jakarta
155.5 m
25.6 m
2.0 m
25 000
EUR
EUR
EUR
EUR
EUR 100 000
EUR
26 000
EUR
EUR
EUR
26 000
93.7 m
42.1 m
100%
100%
100%
100%
100%
100%
100%
100%
100%
EUR
233.9 m
100%
HUF
HUF
545.6 m
883.0 m
100%
100%
INR
INR
INR
123.5 m 70.68%
100%
60.0 m
100%
32.0 m
IDR
7.7 bn
100%
Ireland
EUR
Novartis Ireland Limited, Dublin
Novartis Integrated Services Limited, Ringaskiddy, County Cork EUR
EUR
Novartis Ringaskiddy Limited, Ringaskiddy, County Cork
EUR
Novartis Gene Therapies EU Limited, Dublin
25 000
100
2.0 m
100
100%
100%
100%
100%
Israel
Novartis Israel Ltd., Tel Aviv
Italy
Novartis Farma S.p.A., Origgio
Advanced Accelerator Applications (Italy) S.r.l., Pozzilli
Sandoz S.p.A., Origgio
Japan
Novartis Pharma K.K., Tokyo
Ciba-Geigy Japan Limited, Tokyo
Sandoz K.K., Tokyo
Aspen Japan K.K. Tokyo
Latvia
Novartis Baltics SIA, Riga
Luxembourg
Novartis Investments S.à r.l., Luxembourg City
Novartis Finance S.A., Luxembourg City
ILS
1 000
100%
EUR
EUR
EUR
18.2 m
119 000
1.7 m
100%
99.2%
100%
JPY
JPY
JPY
JPY
6.0 bn
8.5 bn
100.0 m
2.2 bn
100%
100%
100%
100%
EUR
3.0 m
100%
USD
USD 100 000
100.0 m
100%
100%
Malaysia
Novartis Corporation (Malaysia) Sdn. Bhd., Kuala Lumpur
MYR
3.3 m
100%
Mexico
Novartis Farmacéutica, S.A. de C.V., Mexico City
Sandoz, S.A. de C.V., Mexico City
Morocco
Novartis Pharma Maroc SA, Casablanca
Netherlands
Novartis Netherlands B.V., Amsterdam
Novartis Pharma B.V., Amsterdam
IDB Holland BV, Baarle-Nassau
Sandoz B.V., Almere
New Zealand
Novartis New Zealand Ltd, Auckland
MXN
MXN
205.0 m
468.2 m
100%
100%
MAD
80.0 m
100%
1.4 m
4.5 m
EUR
EUR
EUR
18 000
EUR 907 560
100%
100%
99.2%
100%
NZD 820 000
100%
F-83
Notes to the Novartis Group consolidated financial statements
As at December 31, 2020
Norway
Novartis Norge AS, Oslo
Pakistan
Novartis Pharma (Pakistan) Limited, Karachi
Panama
Novartis Pharma (Logistics), Inc., Panama City
Peru
Novartis Biosciences Perú S.A., Lima
Philippines
Novartis Healthcare Philippines, Inc., Makati City
Sandoz Philippines Corporation, Makati City
Poland
Novartis Poland Sp. z o.o., Warsaw
Sandoz Polska Sp. z o.o., Warsaw
Lek S.A., Strykow
Share
capital
Equity
1 interest
NOK
1.5 m
100%
PKR
6.7 bn 99.99%
USD
10 000
100%
PEN
6.1 m
100%
PHP
PHP
PLN
PLN
PLN
298.8 m
30.0 m
100%
100%
44.2 m
25.6 m
11.4 m
100%
100%
100%
As at December 31, 2020
Taiwan
Novartis (Taiwan) Co., Ltd., Taipei
Thailand
Novartis (Thailand) Limited, Bangkok
Turkey
Novartis Saglik, Gida ve Tarim Ürünleri Sanayi
ve Ticaret A.S., Istanbul
Farmanova Saglik Hizmetleri Ltd. Sti., Istanbul
Sandoz Ilaç Sanayi ve Ticaret A.S., Istanbul
Sandoz Grup Saglik Ürünleri
Ilaçlari Sanayi ve Ticaret A.S., Gebze – Kocaeli
Ukraine
Sandoz Ukraine LLC, Kyiv
United Arab Emirates
Novartis Middle East FZE, Dubai
Share
capital
Equity
1 interest
TWD
170.0 m
100%
THB
302.0 m
100%
TRY
TRY
TRY
98.0 m
6.7 m
100%
100%
265.0 m 99.99%
TRY
50.0 m
100%
UAH
8.0 m
100%
AED
7.0 m
100%
United Kingdom
GBP
Novartis UK Limited, London
GBP
Novartis Pharmaceuticals UK Limited, London
GBP
Novartis Grimsby Limited, London
GBP
Advanced Accelerator Applications (UK & Ireland), London
GBP
Neutec Pharma Limited, London
GBP
Ziarco Group Limited, London
Sandoz Limited, Frimley / Camberley
GBP
Coalesce Product Development Limited, Cambridge, Cambs GBP
United States of America
Novartis Corporation, East Hanover, NJ
Novartis Finance Corporation, East Hanover, NJ 3
Novartis Capital Corporation, East Hanover, NJ
Novartis Services, Inc., East Hanover, NJ
Novartis US Foundation, East Hanover, NJ 4
Novartis Pharmaceuticals Corporation, East Hanover, NJ 3
Advanced Accelerator Applications USA, Inc., Millburn, NJ
Novartis Gene Therapies, Inc., Bannockburn, IL
Novartis Technology LLC, East Hanover, NJ
Novartis Institutes for BioMedical
Research, Inc., Cambridge, MA
Novartis Optogenetics Research, Inc., East Hanover, NJ
CoStim Pharmaceuticals Inc., Cambridge, MA
Endocyte, Inc., East Hanover, NJ
Navigate BioPharma Services, Inc., Carlsbad, CA
The Medicines Company, East Hanover, NJ
Sandoz Inc., Princeton, NJ
Amblyotech Inc., East Hanover, NJ
Oriel Therapeutics, Inc., Durham, NC
Fougera Pharmaceuticals Inc., Melville, NY
Eon Labs, Inc., Princeton, NJ
Novartis Vaccines and Diagnostics, Inc., East Hanover, NJ
Venezuela
Novartis de Venezuela, S.A., Caracas
Vietnam
Novartis Vietnam Company Limited, Ho Chi Minh City
25.5 m
5.4 m
250.0 m
100
7.7 m
3 904
2.0 m
6.0 m
72.2 m
1 000
1
1
--
650
1
1
--
1
1
1
1
1
1 000
25 000
50
50.0 m
1
1
3
100%
100%
100%
99.2%
100%
100%
100%
40%
100%
100%
100%
100%
--
100%
99.2%
100%
--
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
USD
USD
USD
USD
--
USD
USD
USD
--
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
VES
14
100%
VND
70 bn
100%
In addition, the Group is represented by subsidiaries and associated companies with
total assets or net sales to third parties below USD 25 million in the following countries:
Bosnia and Herzegovina, Bulgaria, Dominican Republic, Guatemala, Kenya, Kuwait,
North Macedonia, Nigeria, Puerto Rico and Uruguay
1 Share capital may not reflect the taxable share capital and does not include any
paid-in surplus.
2 Approximately 33.3% of voting shares; approximately 6.2% of total net income and
equity attributable to Novartis.
3 Significant subsidiary under SEC Regulation S-X Rule 1-02(w)
4 Fully consolidated Foundation
m = million; bn = billion
Portugal
Novartis Portugal, S.G.P.S., Lda., Porto Salvo
Novartis Farma – Produtos Farmacêuticos, S.A., Porto Salvo
Sandoz Farmacêutica, Lda., Porto Salvo
EUR 500 000
EUR
EUR 499 900
2.4 m
100%
100%
100%
Romania
Novartis Pharma Services Romania S.R.L., Bucharest
Sandoz S.R.L., Targu-Mures
Russian Federation
Novartis Pharma LLC, Moscow
Novartis Neva LLC, St. Petersburg
ZAO Sandoz, Moscow
Saudi Arabia
Novartis Saudi Ltd., Riyadh
Singapore
Novartis (Singapore) Pte Ltd., Singapore
Novartis Singapore Pharmaceutical
Manufacturing Pte Ltd, Singapore
Novartis Asia Pacific Pharmaceuticals
Pte Ltd, Singapore
Slovakia
Novartis Slovakia s.r.o., Bratislava
Slovenia
Lek Pharmaceuticals d.d., Ljubljana
Sandoz Pharmaceuticals d.d., Ljubljana
South Africa
Novartis South Africa (Pty) Ltd, Midrand
Sandoz South Africa (Pty) Ltd, Kempton Park
South Korea
Novartis Korea Ltd., Seoul
Spain
Novartis Farmacéutica, S.A., Barcelona
Advanced Accelerator Applications
Iberica, S.L.U., Barcelona
Catalana de Dispensacion sau
(Cadisa), Esplugues de Llobregat
Sandoz Farmacéutica S.A., Madrid
Sandoz Industrial Products
S.A., Les Franqueses del Vallés / Barcelona
Alcon Cusi, S.A., El Masnou / Barcelona
Abadia Retuerta S.A., Sardón de Duero / Valladolid
Sweden
Novartis Sverige AB, Stockholm
RON
RON
3.0 m
105.2 m
100%
100%
RUB
RUB
RUB
20.0 m
500.0 m
57.4 m
100%
100%
100%
SAR
30.0 m
100%
SGD 100 000
100%
SGD
45.0 m
100%
SGD
39.0 m
100%
EUR
2.0 m
100%
EUR
EUR
ZAR
ZAR
48.4 m
1.5 m
100%
100%
86.3 m
3.0 m
100%
100%
KRW
24.5 bn 98.55%
EUR
63.0 m
100%
EUR
22.6 m 99.2%
EUR 450 750
EUR 270 450
99.2%
100%
EUR
EUR
EUR
9.3 m
10.1 m
6.0 m
100%
100%
100%
SEK
5.0 m
100%
100%
100%
100%
100%
--
--
--
--
10.0 m
100.2 m
--
--
--
--
CHF
CHF
CHF 100 000
CHF 100 000
--
--
--
--
Switzerland
Novartis International AG, Basel
Novartis Holding AG, Basel 3
Novartis International Pharmaceutical Investment AG, Basel
Novartis Bioventures AG, Basel
Novartis Forschungsstiftung, Basel 4
Novartis Stiftung für Kaderausbildung, Basel 4
Novartis Mitarbeiterbeteiligungsstiftung, Basel 4
Novartis Stiftung für Mensch und Umwelt, Basel 4
Stiftung der Novartis AG für Erziehung,
Ausbildung und Bildung, Basel 4
Novartis Overseas Investments AG, Basel
Japat AG, Basel
Novartis Pharma AG, Basel 3
Novartis Pharma Services AG, Basel
Novartis Pharma Schweizerhalle AG, Muttenz
Novartis Pharma Stein AG, Stein
Novartis Pharma Schweiz AG, Risch
Novartis Ophthalmics AG, Fribourg
Advanced Accelerator Applications International SA, Geneva CHF
CHF
Sandoz AG, Basel
CHF 100 000
Sandoz Pharmaceuticals AG, Risch
CHF
Roche Holding AG, Basel
--
CHF
CHF
CHF
CHF
CHF
CHF 251 000
CHF
CHF 100 000
50 000
--
1.0 m
350.0 m
20.0 m
18.9 m
--
100%
100%
100%
100%
100%
100%
100%
100%
9.3 m 99.2%
100%
5.0 m
100%
160.0 m 33%/6%
5.0 m
2
F-84
Report of the statutory auditor
Report of the statutory auditor
to the General Meeting of
Novartis AG
Basel
Report on the audit of the
consolidated financial statements
Opinion
We have audited the consolidated financial statements
of Novartis AG and its subsidiaries (the “Group”), which
comprise the consolidated balance sheet as at Decem-
ber 31, 2020 and the consolidated income statement,
consolidated statement of comprehensive income, con-
solidated statement of changes in equity and consoli-
dated statement of cash flows for the year then ended,
and notes to the consolidated financial statements,
including a summary of significant accounting policies.
In our opinion, the consolidated financial statements
(pages F-1 to F-84) give a true and fair view of the con-
solidated financial position of the Group as at December
31, 2020 and its consolidated financial performance and
its consolidated cash flows for the year then ended in
accordance with International Financial Reporting Stan-
dards (IFRS) and comply with Swiss law.
Basis for opinion
We conducted our audit in accordance with Swiss law,
International Standards on Auditing (ISAs) and Swiss
Auditing Standards. Our responsibilities under those pro-
visions and standards are further described in the “Audi-
tor’s responsibilities for the audit of the consolidated
financial statements” section of our report.
We are independent of the Group in accordance with
the provisions of Swiss law and the requirements of the
Swiss audit profession, as well as the International Code
of Ethics for Professional Accountants (including Inter-
national Independence Standards) of the International
Ethics Standards Board for Accountants (IESBA Code),
and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that
the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Our audit approach
specified procedures was performed at 20 reporting
entities in 12 countries.
• Our audit scope addressed 65% of the Group’s net
sales and 86% of Group’s total assets.
As key audit matters, the following areas of focus have
been identified:
• Intangible Assets Impairment Assessments – Innovative
Medicines Division Currently Marketed Products
• US Managed Care, Medicare Part D and Medicaid
Rebates
Materiality
The scope of our audit was influenced by our applica-
tion of materiality. Our audit opinion aims to provide rea-
sonable assurance that the consolidated financial state-
ments are free from material misstatement. Misstatements
may arise due to fraud or error. They are considered
material if, individually or in aggregate, they could rea-
sonably be expected to influence the economic deci-
sions of users taken on the basis of the consolidated
financial statements.
Based on our professional judgment, we determined
certain quantitative thresholds for materiality, including
the overall Group materiality for the consolidated finan-
cial statements as a whole as set out below. These,
together with qualitative considerations, helped us to
determine the scope of our audit and the nature, timing
and extent of our audit procedures and to evaluate the
effect of misstatements, if any, both individually and in
aggregate, on the consolidated financial statements as
a whole.
Overall Group materiality
USD 490 million
How we determined it
5% of profit before tax from continuing operations
Rationale for the materiality benchmark applied
We chose income before taxes from continuing opera-
tions as the materiality measure because, in our view, it
is the measure against which the performance of the
Group is most commonly assessed and is a generally
accepted benchmark.
We agreed with the Audit and Compliance Committee
that we would report to them misstatements identified
during our audit above USD 20 million as well as any mis-
statements below that amount which, in our view, war-
ranted reporting for qualitative reasons.
Overview
• Overall Group materiality was USD 490 million, which
represents approximately 5% of income before taxes
from continuing operations.
• We conducted full scope audit work at the Group’s two
operating divisions. We also conducted full scope audit
work at four reporting entities in two countries. In addi-
tion, full scope audit work on account balances or
Audit scope
We designed our audit by determining materiality and
assessing the risks of material misstatement in the con-
solidated financial statements. In particular, we consid-
ered areas where subjective judgments were made, such
as significant accounting estimates that involved making
assumptions and consideration of future events that are
inherently uncertain. As in all of our audits, we also
F-85
Report of the statutory auditor
addressed the risk of management override of internal
controls, including – among other matters – consider-
ation of whether there was evidence of bias that repre-
sented a risk of material misstatement due to fraud.
How we tailored the audit scope
We tailored the scope of our audit in order to perform
sufficient work to enable us to provide an opinion on the
consolidated financial statements as a whole, taking into
account the structure of the Group, the accounting pro-
cesses and controls, and the industry in which the Group
operates.
The Group financial statements are a consolidation
of over 200 reporting entities. We identified four report-
ing entities that, in our view, required an audit of their
complete financial information due to their size or risk
characteristics. We worked very closely with and received
full scope reporting from the divisional audit teams for
Innovative Medicines and Sandoz, each being a global
business. To obtain appropriate coverage of material bal-
ances, we also received 19 full scope reports from report-
ing entity audit teams for the full scope audit work per-
formed on account balances and one specified
procedures report. None of the reporting entities
excluded from our Group audit scope individually con-
tributed more than 5% to net sales or total assets. Audit
procedures were also performed by the Group audit
team over the Group’s Corporate activities, certain Group
functions (including accounting for associated compa-
nies, taxation, treasury, certain employee benefits, gov-
ernment investigations and litigation) and Group consol-
idation.
To exercise the appropriate direction and supervision
over the work of the divisional and reporting entity audit
teams, the Group audit team reviewed audit working
papers, virtually participated in meetings between the
divisional and reporting entity audit teams, and virtually
attended selected meetings between divisional manage-
ment and divisional audit teams.
Key Audit Matters
Key audit matters are those matters that, in our profes-
sional judgment, were of most significance in our audit
of the consolidated financial statements of the current
period. These matters were addressed in the context of
our audit of the consolidated financial statements as a
whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Intangible Assets Impairment Assessments –
Innovative Medicines Division Currently Marketed
Products
Key audit matter
As described in Notes 1 and 11 to the consolidated finan-
cial statements, the Group has intangible assets in its
Innovative Medicines Division other than goodwill total-
ing USD 35.1 billion at December 31, 2020, including cur-
rently marketed products of USD 29.6 billion. The Group
recognized impairments of intangible assets in its
Innovative Medicines Division other than goodwill of USD
768 million during the year. In most cases, no directly
observable market inputs are available to measure the
fair value less costs of disposal that is used to determine
if the asset is impaired. Therefore, an estimate is derived
indirectly and is based on net present value techniques
utilizing post-tax cash flows and discount rates. The esti-
mates that management used in calculating the net pres-
ent values depend on assumptions specific to the nature
of the Innovative Medicines Division’s activities with
regard to the amount and timing of projected future cash
flows; long-term sales forecasts; actions of competitors
(launch of competing products, marketing initiatives,
etc.); sales erosion rates after the end of patent or other
intellectual property rights protection, and timing of the
entry of generic competition; outcome of research and
development activities (compound efficacy, results of
clinical trials, etc.); amount and timing of projected costs
to develop IPR&D into commercially viable products;
profit margins; probability of obtaining regulatory
approval; future tax rate; and discount rate.
The principal considerations for our determination
that performing procedures relating to the intangible
assets impairment assessments of the Innovative
Medicines Division currently marketed products is a key
audit matter are the significant judgment by management
when developing the net present value of the intangible
assets. This in turn led to a high degree of auditor judg-
ment, subjectivity, and effort in performing procedures
and evaluating management’s significant assumptions
related to the amount and timing of projected future cash
flows (specifically the long-term sales forecasts and the
probability of obtaining regulatory approval) and the dis-
count rate. In addition, the audit effort involved the use
of professionals with specialized skill and knowledge.
How our audit addressed the key audit matter
Addressing the matter involved performing procedures
and evaluating audit evidence in connection with form-
ing our overall opinion on the consolidated financial
statements. These procedures included testing the
effectiveness of controls relating to management’s intan-
gible assets impairment assessments, including controls
over the Innovative Medicines Division currently mar-
keted products. These procedures also included, among
others, testing management’s process for developing the
fair value estimate; evaluating the appropriateness of the
net present value techniques; testing the completeness
and accuracy of underlying data used in the model; and
evaluating the significant assumptions used by manage-
ment, including the amount and timing of projected future
cash flows and the discount rate. Evaluating manage-
ment’s assumptions related to the amount and timing of
projected future cash flows and the discount rate involved
evaluating whether the assumptions used by manage-
ment were reasonable considering the current and past
performance of the intangible assets, the consistency
with external market and industry data, and whether
these assumptions were consistent with evidence
obtained in other areas of the audit. Professionals with
specialized skill and knowledge were used to assist in
the evaluation of the discount rate.
F-86
Report of the statutory auditor
As a result of our procedures, we did not propose any
adjustments to the amount of impairment recognized in
2020. For Innovative Medicines Division currently mar-
keted products where management determined that no
impairment was required, we found that the assessments
made by management were based upon reasonable
assumptions, consistently applied.
US Managed Care, Medicare Part D and Medicaid
Rebates
Key audit matter
As described in Note 1 and 22 to the consolidated finan-
cial statements, the consideration Novartis receives in
exchange for its goods or services may be fixed or vari-
able. Variable consideration is only recognized when it
is highly probable that a significant reversal will not occur.
Rebates and discounts granted to government agencies,
wholesalers, retail pharmacies, managed healthcare
organizations and other customers, as well as charge-
backs are provisioned and recorded as a revenue deduc-
tion at the time the related revenues are recorded or
when the incentives are offered. They are calculated on
the basis of historical experience, regulations, the spe-
cific terms in the individual agreements, product pricing
and the mix of products, contracts, channels and pay-
ors. The provision reported as of December 31, 2020 for
revenue deductions amounted to USD 6.3 billion, a sig-
nificant portion of which related to US Managed Care,
Medicare Part D and Medicaid rebates.
The principal considerations for our determination
that performing procedures relating to the US Managed
Care, Medicare Part D and Medicaid rebates is a key
audit matter are the significant judgment by management
due to the significant measurement uncertainty involved
in developing these provisions, as the provisions are
based on assumptions developed using historical expe-
rience, regulations, the specific terms in the individual
agreements, product pricing and the mix of products,
contracts, channels and payors. This in turn led to a high
degree of auditor judgment, subjectivity and effort in
applying procedures relating to these assumptions.
How our audit addressed the key audit matter
Addressing the matter involved performing procedures
and evaluating audit evidence in connection with form-
ing our overall opinion on the consolidated financial
statements. These procedures included testing the
effectiveness of controls relating to provisions for the
US Managed Care, Medicare Part D and Medicaid rebate
programs, including controls over the assumptions used
to estimate these rebates. These procedures also
included, among others, developing an independent esti-
mate of the rebates by utilizing third-party information
on price and market conditions in the US, the terms of
the specific rebate programs, and the historical trend of
actual rebate claims paid; comparing the independent
estimate to management’s estimates; and testing rebate
claims processed by the Group, including evaluating
those claims for consistency with the contractual and
mandated terms of the Group’s rebate arrangements.
We did not identify any material differences between
our expectations and the accruals, and we found the
judgments made by management to be reasonable.
Other information in the Annual
Report
The Board of Directors is responsible for the other infor-
mation in the Annual Report. The other information com-
prises all information included in the Annual Report, but
does not include the consolidated financial statements,
the standalone financial statements and the compensa-
tion report of Novartis AG and our auditor’s reports
thereon.
Our opinion on the consolidated financial statements
does not cover the other information in the Annual
Report, and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the consolidated finan-
cial statements, our responsibility is to read the other
information in the Annual Report and, in doing so, con-
sider whether the other information is materially incon-
sistent with the consolidated financial statements or our
knowledge obtained in the audit, or otherwise appears
to be materially misstated. If, based on the work we have
performed, we conclude that there is a material misstate-
ment of this other information, we are required to report
that fact. We have nothing to report in this regard.
Responsibilities of the Board of
Directors for the consolidated
financial statements
The Board of Directors is responsible for the prepara-
tion of the consolidated financial statements that give a
true and fair view in accordance with IFRS and the pro-
visions of Swiss law, and for such internal control as the
Board of Directors determines is necessary to enable
the preparation of consolidated financial statements that
are free from material misstatement, whether due to
fraud or error.
In preparing the consolidated financial statements,
the Board of Directors is responsible for assessing the
Group’s ability to continue as a going concern, disclos-
ing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the
Board of Directors either intends to liquidate the Group
or to cease operations, or has no realistic alternative but
to do so.
Auditor’s responsibilities for the audit
of the consolidated financial
statements
Our objectives are to obtain reasonable assurance about
whether the consolidated financial statements as a
whole are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit
conducted in accordance with Swiss law, ISAs and Swiss
Auditing Standards will always detect a material mis-
statement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected
F-87
Report of the statutory auditor
to influence the economic decisions of users taken on
the basis of these consolidated financial statements.
As part of an audit in accordance with Swiss law, ISAs
and Swiss Auditing Standards, we exercise professional
judgment and maintain professional skepticism through-
out the audit. We also:
• Identify and assess the risks of material misstatement
of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for
our opinion. The risk of not detecting a material mis-
statement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or
the override of internal control.
• Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances.
• Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made.
• Conclude on the appropriateness of the Board of
Directors’ use of the going concern basis of account-
ing and, based on the audit evidence obtained, whether
a material uncertainty exists related to events or con-
ditions that may cast significant doubt on the Group’s
ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related dis-
closures in the consolidated financial statements or, if
such disclosures are inadequate, to modify our opin-
ion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. How-
ever, future events or conditions may cause the Group
to cease to continue as a going concern.
• Evaluate the overall presentation, structure and con-
tent of the consolidated financial statements, including
the disclosures, and whether the consolidated finan-
cial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding
the financial information of the entities or business
activities within the Group to express an opinion on the
consolidated financial statements. We are responsible
for the direction, supervision and performance of the
Group audit. We remain solely responsible for our audit
opinion.
of the audit and significant audit findings, including any
significant deficiencies in internal control that we iden-
tify during our audit.
We also provide the Board of Directors with a state-
ment that we have complied with relevant ethical require-
ments regarding independence, and communicate with
them all relationships and other matters that may rea-
sonably be thought to bear on our independence, and
where applicable, actions taken to eliminate threats or
safeguards applied.
From the matters communicated with the Board of
Directors, we determine those matters that were of most
significance in the audit of the consolidated financial
statements of the current period and are therefore the
key audit matters. We describe these matters in our audi-
tor’s report unless law or regulation precludes public dis-
closure about the matter or when, in extremely rare cir-
cumstances, we determine that a matter should not be
communicated in our report because the adverse con-
sequences of doing so would reasonably be expected
to outweigh the public interest benefits of such commu-
nication.
Report on other legal and regulatory
requirements
In accordance with article 728a paragraph 1 item 3 CO
and Swiss Auditing Standard 890, we confirm that an
internal control system exists which has been designed
for the preparation of consolidated financial statements
according to the instructions of the Board of Directors.
We recommend that the consolidated financial state-
ments submitted to you be approved.
PricewaterhouseCoopers AG
Luc Schulthess
Audit Expert
Auditor in charge
Kris Muller
Global relationship
partner
We communicate with the Board of Directors, mostly
through the Audit and Compliance Committee, regard-
ing, among other matters, the planned scope and timing
Basel, January 25, 2021
F-88
Financial statements of Novartis AG
Financial statements of Novartis AG
Income statements
(For the years ended December 31, 2020 and 2019)
(CHF millions)
Income from investment in Group subsidiaries
License income
Other income
Total income
Amortization of goodwill
Litigation and settlement costs
General and administrative expenses
Total expenses
Operating income
Financial income
Financial expenses
Extraordinary expenses
Income before taxes
Direct taxes
Net income of the year
The accompanying Notes form an integral part of these financial statements.
Note
2020
2019
8 882
15 318
217
2
221
2
9 101
15 541
– 252
– 117
– 13
– 382
– 474
– 13
– 487
8 719
15 054
466
– 220
– 11
512
– 260
– 86
8 954
15 220
– 87
– 40
8 867
15 180
3
4
5
5
6
A-1
Financial statements of Novartis AG
Balance sheets
(At December 31, 2020 and 2019)
(CHF millions)
Assets
Current assets
Cash and cash equivalents
Interest-bearing current receivables
Group subsidiaries
Other current receivables
Group subsidiaries
Third parties
Total current assets
Non-current assets
Financial assets
Group subsidiaries
Investments
Group subsidiaries
Goodwill
Total non-current assets
Total assets
Liabilities and equity
Current liabilities
Interest-bearing current liabilities
Group subsidiaries
Other current liabilities
Group subsidiaries
Third parties
Accrued expenses
Total current liabilities
Non-current liabilities
Interest-bearing non-current liabilities
Bonds
Non-current provisions
Total non-current liabilities
Total liabilities
Equity
Share capital
Legal capital reserves – capital contribution reserve
General legal reserve
Legal reserve for treasury shares held by subsidiaries
Total legal reserves
Free reserves
Retained earnings
Net income of the year
Retained earnings available for distribution at the end of the year
Total unappropriated earnings and free reserves
Treasury shares held by Novartis AG
Total equity
Total liabilities and equity
The accompanying Notes form an integral part of these financial statements.
A-2
Note
2020
2019
3
3
5 607
4 078
62
64
1
5 672
4 146
12 632
14 966
7
3
14 252
14 251
2 419
2 671
29 303
31 888
34 975
36 034
4 275
4 635
36
193
53
42
4
118
4 557
4 799
8
1 377
1 377
482
1 859
6 416
482
1 859
6 658
9
10
11
12
1 234
1 264
179
320
1 389
1 709
2 256
16 969
179
320
1 984
2 304
6 949
8 844
8 867
15 180
25 836
24 024
28 092
30 973
11
– 2 655
– 5 344
28 559
29 376
34 975
36 034
Notes to the financial statements of Novartis AG
Notes to the financial statements
of Novartis AG
1. Introduction
The financial statements of Novartis AG, with its regis-
tered office in Basel, comply with the requirements of
the Swiss accounting legislation of the Swiss Code of
Obligations (SCO).
Novartis AG is presenting consolidated financial
statements according to IFRS. Therefore, Novartis AG
has applied the exemption included in article 961d, para-
graph 1 SCO, and has not prepared additional disclo-
sures, a separate cash flow statement and a manage-
ment report for SCO purposes.
Significant transactions in 2019
The Novartis AG shareholders approved the spin-off of
the Alcon business at the 2019 Annual General Meeting
held on February 28, 2019, subject to completion of cer-
tain conditions precedent to the distribution.
The conditions precedent to the spin-off were met,
and on April 8, 2019, the spin-off of the Alcon business
was effected by way of a distribution of a dividend in kind
of Alcon Inc. shares to Novartis AG shareholders and
ADR (American Depositary Receipt) holders (“the Dis-
tribution”).
Through the Distribution, each Novartis AG share-
holder received one Alcon Inc. share for every five
Novartis AG shares/ADRs they held on April 8, 2019,
close of business. As of April 9, 2019, the shares of Alcon
Inc. are listed on the SIX Swiss Exchange (SIX) and on
the New York Stock Exchange (NYSE) under the sym-
bol “ALC.”
At the date of the distribution, the book value of Alcon
Inc. was CHF 17 288 million and consisted of goodwill
(CHF 10 081 million), investments in Group subsidiaries
(CHF 7 188 million) and cash (CHF 19 million). The Dis-
tribution was made at the book value of Alcon Inc. and
was recognized as a reduction to free reserves (CHF
17 269 million) and legal capital reserves – capital con-
tribution reserves (CHF 19 million).
2. Accounting policies
Financial income and expenses
Investments
Current assets and current liabilities denominated in
foreign currencies are converted at year-end exchange
rates. Realized exchange gains and losses, and all
unreali zed exchange losses arising from these as well
as those from business transactions, are recorded net
as financial income or financial expenses.
Derivative financial instruments
Derivative financial instruments are used for hedging pur-
poses. These instruments are valued at fair value. When
different accounting policies apply for the hedged item
and the derivative financial instrument, hedge accounting
is applied through measuring the hedged item together
with the derivative financial instrument.
Financial assets
Investments are initially recognized at cost. Investments
in Novartis Group subsidiaries are assessed annually
and, in case of an impairment, adjusted to their recover-
able amount within their category.
Goodwill
Goodwill is capitalized and amortized over a period of
20 years. Goodwill is reviewed for impairment on a yearly
basis. If necessary, an impairment loss is recognized.
Bonds
Bonds are valued at nominal value. Any bond premium
is accrued over the duration of the bond so that at
maturity, the balance sheet amount will equal the amount
that is due to be paid.
Financial assets are valued at acquisition cost less
adjustments for foreign currency losses and any other
impairment of value.
Provisions
Provisions are made to cover general business risks of
the Group.
A-3
Notes to the financial statements of Novartis AG
3. Goodwill
(CHF millions)
Goodwill
January 1
Derecognition as a result of the Alcon Inc. spin-off
December 31
Accumulated amortization
January 1
Accumulated amortization on assets related to derecognition as a result of the Alcon Inc. spin-off
Amortization charges
December 31
Net book value at December 31
2020
2019
4 939
22 350
– 17 411
4 939
4 939
– 2 268
– 9 124
– 252
7 330
– 474
– 2 520
– 2 268
2 419
2 671
4. Litigation and settlement costs
In 2020, Novartis resolved some legacy legal matters.
Foreign Corrupt Practices Act (FCPA) investigations into
Novartis are now closed, as settlements were reached
with the US Department of Justice (DOJ) and the US
Securities and Exchange Commission (SEC). As part of
the settlements, Novartis AG agreed to pay USD 9 mil-
lion to the DOJ and USD 113 million to the SEC.
The French Competition Authority (FCA) conducted
an investigation into Lucentis against several Novartis
subsidiaries. Novartis AG was jointly held liable for a fine
of EUR 308 million. As Lucentis is not commercialized
by Novartis AG itself, but by Novartis subsidiaries,
Novartis AG was fully reimbursed by the operational sub-
sidiary.
5. Financial income and expenses
(CHF millions)
Interest
Foreign exchange
Others
Total
2020
2019
Income
Expenses
Income
Expenses
466
– 215
512
– 4
– 1
– 191
– 69
466
– 220
512
– 260
6. Extraordinary expenses
In 2020 and 2019, extraordinary expenses were related to the transaction costs attributable to the spin-off of Alcon
Inc.
A-4
Notes to the financial statements of Novartis AG
7. Investments
The principal direct and indirect subsidiaries and other
holdings of Novartis AG are shown in Note 32 to the
Group’s consolidated financial statements.
In 2019, various participations in Group companies,
including Alcon-related participations, were distributed
by subsidiaries to Novartis AG, which in turn contributed
them to Alcon Inc. The participation in Alcon Inc. was
distributed as a dividend in kind to the Novartis AG share-
holders and ADR (American Depositary Receipt) hold-
ers on April 8, 2019.
8. Bonds
Straight bonds
Coupon
0.250%
0.625%
1.050%
Nominal
Currency amount
Issuance
year
Maturity
year
Issuer
CHF
CHF
CHF
500
550
325
2015
2015
2015
2025 Novartis AG, Basel, Switzerland
2029 Novartis AG, Basel, Switzerland
2035 Novartis AG, Basel, Switzerland
Total straight bonds
Breakdowns by maturity
(CHF millions)
2025
After 2025
Total
2019
CHF
Issue price millions millions
2020
CHF
100.640%
100.502%
100.479%
501
551
325
501
551
325
1 377 1 377
2020
501
876
2019
501
876
1 377
1 377
Comparison of balance sheet and fair value
(CHF millions)
Straight bonds
Total
2020
Balance sheet
2020
2019
Fair value Balance sheet
2019
Fair value
1 377
1 377
1 470
1 470
1 377
1 377
1 454
1 454
9. Share capital
January 1
2 527 374 820
1 263.7
2 550 624 820
Number of shares canceled/capital reduced during the period
– 60 313 900
– 30.2
– 23 250 000
December 31
2 467 060 920
1 233.5
2 527 374 820
2020
Number
of shares
Share capital
CHF millions
2019
Number
of shares
Share capital
CHF millions
1 275.3
– 11.6
1 263.7
The Novartis AG share capital consists of registered
shares with a nominal value of CHF 0.50 each.
The total share capital decreased from CHF 1 263.7
million at December 31, 2019, to CHF 1 233.5 million at
December 31, 2020, due to a share capital reduction as
A-5
Notes to the financial statements of Novartis AG
a result of the cancellation of 60.3 million repurchased
shares with a nominal value of CHF 30.2 million. The
cancellation was approved at the Annual General Meeting
on February 28, 2020, and became effective on May 7,
2020. During 2019, the total share capital decreased
from CHF 1 275.3 million at December 31, 2018, to
CHF 1 263.7 million at December 31, 2019, due to a share
capital reduction as a result of the cancellation of 23.3
million repurchased shares with a nominal value of
CHF 11.6 million. The cancellation was approved at the
Annual General Meeting on February 28, 2019, and
became effective on May 8, 2019.
10. Legal capital reserves – capital contribution
reserve
The existing capital contribution reserve of CHF 178 837 279 is intended to be fully used for Novartis AG share buy-
back program, which has been approved at the Annual General Meeting on February 28, 2019. That use of the cap-
ital contribution reserve is in line with the new provisions on Swiss withholding tax applicable as of January 1, 2020,
(article 4a, paragraph 4 VStG).
11. Treasury shares
Treasury shares held by subsidiaries 1
January 1
Number of shares purchased/sold; reserves transferred
December 31
1 Excluding foundations
2020
2019
Legal reserve for
treasury shares
held by subsidiaries
CHF millions
Number
of shares
Legal reserve for
treasury shares
held by subsidiaries
CHF millions
Number
of shares
33 097 002
– 9 771 344
23 325 658
1 984
43 229 470
– 595
– 10 132 468
1 389
33 097 002
2 596
– 612
1 984
2020
2019
Deduction from equity
for treasury shares
held by Novartis AG
CHF millions
Number
of shares
Deduction from equity
for treasury shares
held by Novartis AG
CHF millions
Number
of shares
Treasury shares held by Novartis AG
January 1
111 621 358
5 344
74 557 458
Number of shares purchased/canceled; reserves transferred
– 27 673 900
– 2 689
37 063 900
December 31
83 947 458
2 655
111 621 358
1 864
3 480
5 344
Total treasury shares 1
January 1
Total number of shares purchased/sold or canceled;
reserves transferred
December 31
1 Excluding foundations
2020
Number of
shares
Total
treasury shares
CHF millions
2019
Number
of shares
Total
treasury shares
CHF millions
144 718 360
7 328
117 786 928
– 37 445 244
107 273 116
– 3 284
26 931 432
4 044
144 718 360
4 460
2 868
7 328
A-6
Notes to the financial statements of Novartis AG
Novartis AG has met the legal requirements for legal
reserves under articles 659 et. seq. and 663b.10 SCO
for the treasury shares.
Treasury share purchases during 2020 totaled 34.3
million (2019: 62.0 million), with an average purchase
price of CHF 81 (2019: CHF 88). No treasury share sales
were executed during 2020 (2019: 1.7 million treasury
share sales, with an average sale price of CHF 62), and
share-based compensation transactions totaled 11.4 mil-
lion shares (2019: 10.2 million shares).
The number of treasury shares held by the Company
and its subsidiaries meet the definitions and require-
ments of article 659b SCO. At December 31, 2020,
treasury shares held by Novartis AG and its subsidiaries
totaled 107 273 116. As per the dividend payment date,
Novartis AG and its subsidiaries are expected to hold
112 226 406 shares. These shares are non- dividend-
bearing shares. It should be noted that within the Novartis
Group’s IFRS consolidated financial statements, some
Novartis entities are included in the consolidation scope.
These entities are mainly foundations, which do not qual-
ify as subsi diaries in the sense of article 659b SCO.
12. Free reserves
(CHF millions)
January 1
Special distribution by way of a dividend in kind to effect the spin-off of Alcon Inc.
Free reserves after Alcon Inc. spin-off
Reduction due to cancellation of treasury shares (CHF 5 318 million / CHF 1 839 million of repurchased shares
less their nominal value of CHF 30 million / CHF 12 million)
Transfer from legal reserve for treasury shares
December 31
2020
2019
6 949
25 433
– 17 269
6 949
8 164
– 5 288
– 1 827
595
612
2 256
6 949
13. Contingent liabilities
(CHF millions)
Guarantees in favor of subsidiaries to cover capital and interest of bonds, credit facilities and commercial paper
programs – total maximum amount CHF 44 035 million (2019: CHF 41 356 million)
Other guarantees in favor of subsidiaries, associated companies and others –
total maximum amount CHF 1 903 million (2019: CHF 1 870 million)
Total contingent liabilities
Dec 31, 2020 Dec 31, 2019
27 482
22 471
595
495
28 077
22 966
Novartis AG is part of the Swiss Novartis value-added tax (VAT) group and is therefore jointly liable for existing and
future VAT claims from the Swiss Federal Tax Administration.
A-7
Notes to the financial statements of Novartis AG
14. Registration, voting restrictions
and major shareholders
The Company’s Articles of Incorporation state that no
person or entity shall be registered with the right to vote
for more than 2% of the share capital, as set forth in the
commercial register. In particular cases, the Board of
Directors may allow exemptions from the limitation for
registration in the Novartis Share Register.
According to the Novartis Share Register, sharehold-
ers who owned 2% or more of the Company’s capital at
December 31, 2020, and were entitled to voting rights
on all of their shares, excluding treasury shares held by
Novartis AG or its fully owned subsidiaries, were as fol-
lows:
% holding of % holding of
share capital share capital
Dec 31, 2020 Dec 31, 2019
Shareholders registered as nominees:
Chase Nominees Ltd., London
The Bank of New York Mellon, New York
Through The Bank of New York Mellon, Everett
Through The Bank of New York Mellon, New York
Through The Bank of New York Mellon,
SA/NV, Brussels
Nortrust Nominees Ltd., London
9.6
3.4
1.7
1.2
0.5
4.2
10.4
3.8
2.0
1.2
0.6
3.9
Shareholder acting as American Depositary Share (ADS) depositary:
JPMorgan Chase Bank, N.A., New York
11.7
12.5
Shareholders registered for
their own account:
Emasan AG, Basel
UBS Fund Management
(Switzerland) AG, Basel
Credit Suisse Funds AG, Zurich
Novartis Foundation for Employee
Participation, Basel
% holding of % holding of
share capital share capital
Dec 31, 2020 Dec 31, 2019
3.6
2.3
2.0
3.5
2.1
<2.0
<2.0
2.1
Furthermore, there were the following other significant
share holders:
The following shareholder was disclosed through a noti-
fication filed with Novartis AG, but was not registered as
of December 31, 2020, in the Novartis Share Register:
• Norges Bank (Central Bank of Norway), Oslo, which
held 2.3% (2019: 2.1%)
The following shareholder was disclosed through a
notification filed with Novartis AG and the SIX Swiss
Exchange, but was registered with less than 2% of the
share capital as of December 31, 2020, in the Novartis
Share Register:
• BlackRock, Inc., New York, which held between 3% and
5%
A-8
Notes to the financial statements of Novartis AG
15. Equity instrument disclosures for the Board of
Directors and Executive Committee members
Share ownership requirements for Board members
The Chairman is required to own a minimum of 30 000
Novartis shares, and other members of the Board of
Directors are required to own at least 5 000 Novartis
shares within five years after joining the Board of Direc-
tors, to ensure their interests are aligned with those of
shareholders.
Board members are prohibited from hedging or
pledging their ownership positions in Novartis shares
that are part of their guideline share ownership require-
ment, and are required to hold these shares for 12 months
after retiring from the Board of Directors. As at Decem-
ber 31, 2020, all current and former members of the
Board of Directors who were required to meet the mini-
mum share ownership requirements did so.
Shares, ADRs and share options owned by Board
members
As at December 31, 2020, no member of the Board of
Directors, either individually or together with “persons
closely linked”1 to them, owned 1% or more of the out-
standing shares (or ADRs) of Novartis. As at the same
date, no member of the Board of Directors held any share
options to purchase Novartis shares.
The total number of vested Novartis shares and ADRs
owned by members of the Board of Directors and
“ persons closely linked”1 to them as at December 31,
2020, and as at December 31, 2019, is shown in the table
below.
Shares and ADRs owned by Board members1
Number of shares 1,2
At
At
December 31, December 31,
2019
2020
Joerg Reinhardt
Enrico Vanni
Nancy C. Andrews
Ton Buechner
Patrice Bula
Srikant Datar
Elizabeth Doherty
Ann Fudge
Bridgette Heller
Frans van Houten
Simon Moroney
Andreas von Planta
Charles L. Sawyers
William T. Winters
Total
586 326
563 697
28 847
26 645
8 872
7 265
14 338
10 950
4 621
1 946
43 845
41 334
8 744
15 201
794
7 621
731
6 765
14 114
n.a
4 764
n.a.
163 834
161 035
12 593
21 289
10 986
18 170
917 656
867 671
na – not applicable
1 Includes holdings of “persons closely linked” to Board members (see definition in
“—Persons closely linked”)
2 Each share provides entitlement to one vote.
Share ownership requirements for Executive
Committee members
Executive Committee members are required to own at
least a minimum multiple of their annual base salary in
Novartis shares or RSUs within five years of hire or pro-
motion, as set out in the table below. In the event of a
substantial rise or drop in the share price, the Board of
Directors may, at its discretion, amend that time period
accordingly.
Function
CEO
Ownership level
5 x base compensation
Other Executive Committee members
3 x base compensation
The determination of equity amounts against the share
ownership requirements is defined to include vested and
unvested Novartis shares or ADRs, and RSUs acquired
under the Company’s compensation plans. However,
unvested matching shares granted under former match-
ing programs, such as the Leveraged Share Savings Plan
(LSSP), and any unvested PSUs are excluded. The deter-
mination also includes other shares and vested options
of Novartis shares or ADRs that are owned directly or
indirectly by “persons closely linked” to an Executive
Committee member. The Compensation Committee
reviews compliance with the share ownership guideline
on an annual basis.
As at December 31, 2020, all members who have
served at least five years on the Executive Committee
have met or exceeded their personal Novartis share own-
ership requirements.
Shares, ADRs, equity rights and share options
owned by Executive Committee members
As at December 31, 2020, no member of the Executive
Committee, either individually or together with “persons
closely linked”1 to them, owned 1% or more of the out-
standing shares (or ADRs) of Novartis. As at the same
date, no member of the Executive Committee held any
share options to purchase Novartis shares.
The following table shows the total number of shares,
ADRs and other equity rights owned by Executive
Committee members and “persons closely linked”1 to
them as at December 31, 2020, and as at December 31,
2019.
1 “Persons closely linked” are (i) their spouse, (ii) their children below age 18, (iii) any
legal entities that they own or otherwise control, and (iv) any legal or natural person
who is acting as their fiduciary.
A-9
Notes to the financial statements of Novartis AG
Shares, ADRs and other equity rights owned by Executive Committee members1
Vested
shares
and ADRs
Unvested
shares
Total at
and other December 31,
2020
equity rights 2
Vested
shares
Unvested
shares
Total at
and other December 31,
2019
and ADRs equity rights 2
Vasant Narasimhan
Steven Baert
Bertrand Bodson
James Bradner
Harry Kirsch
104 277
253 770
358 047
59 983
209 934
269 917
69 679
80 274
149 953
39 785
96 428
136 213
10 403
34 062
44 465
4 600
26 529
31 129
69 551
124 998
194 549
21 794
150 910
172 704
198 331
119 903
318 234
108 193
143 452
251 645
Shannon Thyme Klinger
29 128
62 679
91 807
12 193
58 633
70 826
Steffen Lang
Klaus Moosmayer
Susanne Schaffert
Richard Saynor
John Tsai
Marie-France Tschudin
Robert Weltevreden
Total 3
81 714
61 682
143 396
56 063
51 565
107 628
6 011
21 977
27 988
0
15 050
15 050
106 981
76 392
183 373
43 770
64 082
107 852
0
23 324
23 324
0
11 001
11 001
17 783
61 877
79 660
11 859
42 057
53 916
12 300
75 848
88 148
5 500
69 793
75 293
2 734
42 445
45 179
150
19 137
19 287
708 892 1 039 231 1 748 123
363 890
958 571 1 322 461
na – not applicable.
1 Includes holdings of “persons closely linked” to Executive Committee members (see definition in “—Persons closely linked.”)
2 Includes restricted shares, RSUs and target number of PSUs. Matching shares under the ESOP and LSSP, and target number of PSUs are disclosed pro-rata to December 31,
unless the award qualified for full vesting under the relevant plan rules. Awards under all other incentive plans are disclosed in full.
3
A-10
Appropriation of available earnings and reserves of Novartis AG
Appropriation of available earnings and
reserves of Novartis AG
1. Appropriation of available earnings of Novartis AG
as per balance sheet and declaration of dividend
(CHF)
Available unappropriated earnings
Balance brought forward
Net income of the year
Total available earnings at the disposal of the Annual General Meeting
Appropriation proposed by the Board of Directors (cash dividend)
2020
2019
16 968 847 688
8 844 268 955
8 867 439 410
15 179 937 729
25 836 287 098
24 024 206 684
Payment of a gross dividend (before taxes and duties) of CHF 3.00 (2019: CHF 2.95) on 2 354 834 514
(2019: 2 393 660 246) dividend-bearing shares1 with a nominal value of CHF 0.50 each
– 7 064 503 542
– 7 061 297 726
Total available earnings after appropriation of cash dividends
18 771 783 556
16 962 908 958
Dividend waived for additional treasury shares held by the Company
5 938 730
Balance to be carried forward after cash dividends
18 771 783 556
16 968 847 688
1 No dividend will be declared on treasury shares held by Novartis AG or its fully owned subsidiaries.
If this proposal is approved, the dividend will be paid as from March 8, 2021. The last trading day with entitlement
to receive the dividend is March 3, 2021. As from March 4, 2021, the shares will be traded ex-dividend.
2. Special distribution by way of a dividend in kind to
effect the spin-off of Alcon Inc. on April 8, 2019
(CHF)
Available reserves before special distribution
Capital contribution reserves
Free reserves
Special distribution by way of a dividend in kind to effect the spin-off of Alcon Inc.
Thereof appropriation from capital contribution reserves
Thereof appropriation from free reserves
Total distributable reserves after special distribution by way of dividend in kind to effect the spin-off of Alcon Inc.
Capital contribution reserves
Free reserves
2019
198 385 279
25 432 646 806
– 19 548 000
– 17 269 355 019
178 837 279
8 163 291 787
Novartis shareholders approved the proposed 100%
spin-off of Alcon Inc. at the Annual General Meeting on
February 28, 2019. The conditions precedent to the spin-
off were met, and on April 8, 2019, the spin-off of Alcon
Inc. was affected by the way of a distribution of dividend
in kind of Alcon Inc. shares to Novartis AG shareholders
and ADR (American Depositary Receipt) holders.
Through the distribution, each Novartis AG shareholder
received one Alcon Inc. share for every five dividend-bear-
ing shares of Novartis AG/ADRs they held on April 8,
2019, close of business.
A-11
Report of the statutory auditor
Report of the statutory auditor
to the General Meeting of
Novartis AG
Basel
Report on the audit of the financial
statements
Opinion
We have audited the financial statements of Novartis AG,
which comprise the balance sheet as at December 31,
2020, income statement and notes to the financial state-
ments for the year then ended, including a summary of
significant accounting policies.
In our opinion, the financial statements (pages A1 to A11)
as at December 31, 2020 comply with Swiss law and the
company’s articles of incorporation.
Basis for opinion
We conducted our audit in accordance with Swiss law
and Swiss Auditing Standards. Our responsibilities under
those provisions and standards are further described in
the “Auditor’s responsibilities for the audit of the finan-
cial statements” section of our report.
We are independent of the entity in accordance with the
provisions of Swiss law and the requirements of the
Swiss audit profession and we have fulfilled our other
ethical responsibilities in accordance with these require-
ments. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis
for our opinion.
Our audit approach
Materiality
The scope of our audit was influenced by our applica-
tion of materiality. Our audit opinion aims to provide rea-
sonable assurance that the financial statements are free
from material misstatement. Misstatements may arise
due to fraud or error. They are considered material if,
individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users
taken on the basis of the financial statements.
Based on our professional judgement, we determined
certain quantitative thresholds for materiality, including
the overall materiality for the financial statements as a
whole as set out in the table below. These, together with
qualitative considerations, helped us to determine the
scope of our audit and the nature, timing and extent of
our audit procedures and to evaluate the effect of mis-
statements, both individually and in aggregate, on the
financial statements as a whole.
• Overall materiality: CHF 432 million
• How we determined it: With reference to our bench-
mark of 5% of income before taxes and for consistency
with the Novartis Group consolidated financial state-
ments, we determined materiality at CHF 432 million
which is 5% of income before taxes.
• Rationale for the materiality benchmark applied: We
chose income before taxes as the benchmark because,
in our view, it is the benchmark against which the per-
formance of the Group is most commonly measured,
and it is a generally accepted benchmark.
We agreed with the Audit and Compliance Committee
that we would report to them misstatements above CHF
18 million identified during our audit as well as any mis-
statements below that amount which, in our view, war-
ranted reporting for qualitative reasons.
Audit scope
We designed our audit by determining materiality and
assessing the risks of material misstatement in the finan-
cial statements. In particular, we considered where sub-
jective judgements were made; for example, in respect
of significant accounting estimates that involved making
assumptions and considering future events that are
inherently uncertain. As in all of our audits, we also
addressed the risk of management override of internal
controls, including among other matters consideration
of whether there was evidence of bias that represented
a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform
sufficient work to enable us to provide an opinion on the
financial statements as a whole, taking into account the
structure of the entity, the accounting processes and
controls, and the industry in which the entity operates.
Report on key audit matters based on
the circular 1/2015 of the Federal
Audit Oversight Authority
We have determined that there are no key audit matters
to communicate in our report.
Responsibilities of the Board of
Directors for the financial statements
The Board of Directors is responsible for the prepara-
tion of the financial statements in accordance with the
provisions of Swiss law and the company’s articles of
incorporation, and for such internal control as the Board
of Directors determines is necessary to enable the
preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
A-12
Report of the statutory auditor
In preparing the financial statements, the Board of Direc-
tors is responsible for assessing the entity’s ability to
continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going
concern basis of accounting unless the Board of Direc-
tors either intends to liquidate the entity or to cease oper-
ations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and
to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance
with Swiss law and Swiss Auditing Standards will always
detect a material misstatement when it exists. Misstate-
ments can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic deci-
sions of users taken on the basis of these financial state-
ments.
As part of an audit in accordance with Swiss law and
Swiss Auditing Standards, we exercise professional
judgment and maintain professional skepticism through-
out the audit. We also:
• Identify and assess the risks of material misstatement
of the financial statements, whether due to fraud or
error, design and perform audit procedures responsive
to those risks, and obtain audit evidence that is suffi-
cient and appropriate to provide a basis for our opin-
ion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the over-
ride of internal control.
• Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the pur-
pose of expressing an opinion on the effectiveness of
the entity’s internal control.
• Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made.
• Conclude on the appropriateness of the Board of
Directors’ use of the going concern basis of account-
ing and, based on the audit evidence obtained, whether
a material uncertainty exists related to events or con-
ditions that may cast significant doubt on the entity’s
ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related dis-
closures in the financial statements or, if such disclo-
sures are inadequate, to modify our opinion. Our con-
clusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future
events or conditions may cause the entity to cease to
continue as a going concern.
We communicate with the Board of Directors, mostly
through the Audit and Compliance Committee, regard-
ing, among other matters, the planned scope and timing
of the audit and significant audit findings, including any
significant deficiencies in internal control that we iden-
tify during our audit.
We also provide the Board of Directors with a statement
that we have complied with relevant ethical requirements
regarding independence, and communicate with them
all relationships and other matters that may reasonably
be thought to bear on our independence, and where
applicable, actions taken to eliminate threats or safe-
guards applied.
From the matters communicated with the Board of Direc-
tors, we determine those matters that were of most sig-
nificance in the audit of the financial statements of the
current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless
law or regulation precludes public disclosure about the
matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in
our report because the adverse consequences of doing
so would reasonably be expected to outweigh the pub-
lic interest benefits of such communication.
Report on other legal and regulatory
requirements
In accordance with article 728a paragraph 1 item 3 CO
and Swiss Auditing Standard 890, we confirm that an
internal control system exists which has been designed
for the preparation of financial statements according to
the instructions of the Board of Directors.
We further confirm that the proposed appropriation of
available earnings complies with Swiss law and the com-
pany’s articles of incorporation. We recommend that the
financial statements submitted to you be approved.
PricewaterhouseCoopers AG
Luc Schulthess
Audit expert
Auditor in charge
Kris Muller
Global relationship
partner
Basel, January 25, 2021
A-13