Annual Report
2021
Annual Report
2021
Chairman’s letter
Novartis delivered a solid performance in 2021. Strong
demand for heart failure medicine Entresto, psoriasis and
autoimmune disease treatment Cosentyx, and recently
launched therapies such as multiple sclerosis drug
Kesimpta helped us increase sales and net profit as we
maintained cost discipline. Looking ahead, we are con-
fident we can maintain our momentum as we remain
focused on operational excellence and science-based
innovation.
With more than 12 new drug approvals by the US Food
and Drug Administration in the past five years, we are
committed to our long-term research and development
(R&D) strategy, which is aimed at creating breakthrough
therapies for patients with high unmet medical needs.
We strive to build leading market positions in fast-grow-
ing areas of medicine and broaden patient reach to
deliver on our purpose to improve and extend people’s
lives around the world.
Last year we continued to make significant investments
in R&D, including in cutting-edge medical technologies
such as radioligand therapy and small-interfering RNA.
Our clinical pipeline covers a diverse area of noncommu-
nicable diseases such as cancer and heart disease. This
is positioning us well for the future amid the rising global
need for innovative chronic therapies as we continue to
strengthen patient engagement.
We started a strategic review of our Sandoz generics divi-
sion with the goal of strengthening its operational perfor-
mance and maximizing shareholder return. Also, we
divested our investment in Roche Holding AG, reflecting
our strategy to create a focused medicines company.
Acute pressure on societies and healthcare systems due
to the COVID-19 pandemic remains high. In this challeng-
ing environment, our focus on operational excellence and
shift to flexible working by our employees continued to
help us navigate the crisis. In a post-pandemic world, these
lessons will enable us to maintain high levels of resilience
and operational efficiency while continuing to position us
as an employer of choice in a changing work environment.
We also made further progress in our environmental,
social and governance (ESG) activities, which are an
essential part of our strategy and an important reputa-
tion driver. Besides our progress in reducing our environ-
mental footprint, we broadened patient access to our
I
strategic medicines and launched a new program in the
United States to address health disparities – all with the
intention to create more equitable and sustainable health-
care systems and support the United Nations’ efforts to
achieve the Sustainable Development Goals.
The Board of Directors took further action to strengthen
governance. We paved the way for comprehensive ESG
oversight and changed the leadership of the Compensa-
tion Committee and the Governance, Nomination and
Corporate Responsibilities Committee. We also nomi-
nated a new Board member. Together with the Executive
Committee, the Board of Directors will continue the inten-
sive dialogue with all stakeholder groups with a view to
further strengthen trust in society and to maximize share-
holder return.
I thank you for the confidence you have placed in our
company and am pleased to be able to propose a divi-
dend increase of 3.3% to CHF 3.10 at the next Annual
General Meeting.
Sincerely,
Joerg Reinhardt
Chairman of the Board of Directors
CEO’s letter
2021 was another year of rapid change for the biopharma-
ceutical industry and the world. The pandemic continues
to disrupt care for patients across the spectrum of disease,
creating a syndemic, or confluence of epidemics, that
requires healthcare systems to cope with COVID-19 while
caring for patients with chronic diseases.
Through the challenges ahead, there are reasons to be
optimistic a healthier future is within our grasp – includ-
ing the ways our industry has brought to this crisis the
power of technology and shown once again the extraor-
dinary ability of science to overcome humanity’s greatest
tests.
As we reimagine medicine at Novartis, our unwavering
focus on our strategy and purpose enabled us to continue
creating value for patients, healthcare professionals,
healthcare systems, employees, shareholders and soci-
ety.
The adaptability and commitment of our employees,
together with the resilience of our operations and capa-
bilities in data science and tech nology, minimized disrup-
tions to our business. Many changes, such as hybrid work-
ing, are now business as usual.
Our impact on the world remains extraordinary, with 766
million patients reached in 2021. We received 21 approv-
als in the US, the EU, Japan and China, including two new
mole cular entities. Our siRNA therapy Leqvio is now
approved in more than 50 countries, including the US. We
also demonstrated the strength of our in-market portfo-
lio, with medicines like Cosentyx, Entresto, Zolgensma,
Kesimpta and Kisqali driving growth.
Our pipeline promises innovation for years to come. We
have built depth in five therapeutic areas and are building
scale in five next-generation technology platforms. 2021
saw important data readouts, including for Kisqali in HR+/
HER2- advanced breast cancer, and for 177Lu-PSMA-617,
our investigational targeted radioligand therapy for
patients with advanced prostate cancer, which received
breakthrough therapy designation by the US Food and
Drug Administration (FDA). We also received approval for
Scemblix, a novel stamp inhibitor for the treatment of
chronic myeloid leukemia.
We have a promising mid- and late-stage portfolio, with
more than 20 assets with expected approval by 2026 that
each have sales potential over USD 1 billion. We also initi-
ated a share buyback of up to USD 15 billion, underscor-
ing our confidence in our mid- and long-term pipeline and
growth outlook.
Progressing on our journey to build trust with society and
furthering our legacy in global health and access, in 2021
Novartis reached the milestone of delivering a staggering
1 billion courses of malaria treatment to people in endemic
countries. We continue delivering on our longstanding
commitment to expand access, narrowing the time it takes
II
to scale our latest innovations. Our progress was under-
scored by improved environmental, social and gover-
nance (ESG) ratings, and we once again ranked second
in the Access to Medicine Index.
We continued to go big on data science and digital tech-
nologies, integrating our data and digital teams within
Customer & Technology Solutions to maximize efficiency
as we scale value-driving projects. For example, AI Nurse,
developed in collaboration with Tencent, helps patients
with heart failure and other cardiovascular diseases man-
age disease progression. It is used by 300 000 patients
in China.
Novartis also continued doing our part to end the pan-
demic, quickly scaling up production of COVID-19 vac-
cines. We’re proud to have helped develop a potential new
treatment option with Molecular Partners.
Our financial performance highlights the progress we’ve
made and drives confidence for the future – with 4%
growth in net sales and 6% growth in core operating
income from the previous year. We’re confident we’ll drive
consistent growth to 2030 and beyond. We’ve also initi-
ated a strategic review of Sandoz to enable Sandoz to be
positioned as a long-term leader in the generics industry.
Emerging from the COVID-19 pande mic, I remain optimis-
tic about a new era in medicine. Stakeholders like you play
an important role in that. On behalf of all of us at Novartis,
we’re grateful for your contributions on the journey of
reimagining medicine.
Sincerely,
Vas Narasimhan
Chief Executive Officer
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 .....................................................................................................................................................9
3.C Reasons for the offer and use of proceeds ..............................................................................................................................9
3.D Risk factors ................................................................................................................................................................................................9
Information on the Company ..........................................................................................................................................................22
4.A History and development of Novartis ........................................................................................................................................22
4.B Business overview ...............................................................................................................................................................................22
Innovative Medicines ..........................................................................................................................................................................23
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 ..................................................................................................................................................... 74
5.C Research and development, patents and licenses .............................................................................................................85
5.D Trend information .................................................................................................................................................................................85
5.E Critical accounting estimates ........................................................................................................................................................85
Item 6. Directors, Senior Management and Employees ..................................................................................................................89
6.A Directors and senior management .............................................................................................................................................89
6.B Compensation .......................................................................................................................................................................................90
6.C Board practices.................................................................................................................................................................................. 121
6.D Employees ............................................................................................................................................................................................157
6.E Share ownership................................................................................................................................................................................157
Item 7. Major Shareholders and Related Party Transactions ....................................................................................................158
7.A Major shareholders ..........................................................................................................................................................................158
7.B Related party transactions ...........................................................................................................................................................159
Interests of experts and counsel ..............................................................................................................................................159
7.C
Financial Information .......................................................................................................................................................................160
8.A Consolidated statements and other financial information ...........................................................................................160
8.B Significant changes .........................................................................................................................................................................161
The Offer and Listing ......................................................................................................................................................................162
9.A Offer and listing details ..................................................................................................................................................................162
9.B Plan of distribution ............................................................................................................................................................................162
9.C Markets ...................................................................................................................................................................................................162
9.D Selling shareholders ........................................................................................................................................................................162
9.E Dilution ....................................................................................................................................................................................................162
9.F Expenses of the issue ....................................................................................................................................................................162
Item 10. Additional Information .....................................................................................................................................................................163
10.A Share capital ........................................................................................................................................................................................163
10.B Memorandum and articles of association ............................................................................................................................163
10.C Material contracts .............................................................................................................................................................................166
10.D Exchange controls............................................................................................................................................................................167
10.E Taxation ..................................................................................................................................................................................................167
10.F Dividends and paying agents ...................................................................................................................................................... 170
10.G Statement by experts ..................................................................................................................................................................... 170
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.H Documents on display .................................................................................................................................................................... 171
10.I Subsidiary information .................................................................................................................................................................... 171
Item 11. Quantitative and Qualitative Disclosures About Market Risk .................................................................................... 172
Item 12. Description of Securities Other Than Equity Securities............................................................................................... 173
12.A Debt securities ................................................................................................................................................................................... 173
12.B Warrants and rights.......................................................................................................................................................................... 173
12.C Other securities ................................................................................................................................................................................. 173
12.D American Depositary Shares ...................................................................................................................................................... 173
PART II
175
Item 13. Defaults, Dividend Arrearages and Delinquencies .......................................................................................................... 175
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds ............................................. 176
Item 15. Controls and Procedures ..............................................................................................................................................................177
Item 16A. Audit Committee Financial Expert ........................................................................................................................................... 178
Item 16B. Code of Ethics .................................................................................................................................................................................... 179
Item 16C. Principal Accountant Fees and Services ..............................................................................................................................180
Item 16D. Exemptions from the Listing Standards for Audit Committees ................................................................................ 181
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers .............................................................182
Item 16F. Change in Registrant’s Certifying Accountant ..................................................................................................................183
Item 16G. Corporate Governance ..................................................................................................................................................................184
Item 16H. Mine Safety Disclosure ..................................................................................................................................................................185
PART III
186
Item 17. Financial Statements.......................................................................................................................................................................186
Item 18. Financial Statements.......................................................................................................................................................................187
Item 19. Exhibits ...................................................................................................................................................................................................188
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., and refer-
ences 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 any of the 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 share-
holder returns; or regarding potential future credit ratings of the Group; or by discussions of strategy, plans, expec-
tations or intentions. Such forward-looking statements are based on the current beliefs and expectations of man-
agement regarding future events, and are subject to significant known and unknown risks and uncertainties. Should
one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual
results may vary materially from those set forth in the forward-looking statements. You should not place undue reli-
ance 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;
• The potential that the strategic benefits, operational efficiencies or opportunities expected from our recent trans-
actions or the business transformation of our Sandoz Division, including any proposed actions arising from the
strategic review of the Sandoz Division, may not be realized or may take longer to realize than expected;
• 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;
• Our performance on environmental, social and governance measures;
• Uncertainties in the development or adoption of potentially transformational digital 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;
• Safety, quality, data integrity or manufacturing issues;
• Uncertainties surrounding the implementation of our new Enterprise Resource Planning system and Enterprise
Data Management implementation;
• 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;
5
Forward-looking statements
• Our ability to comply with data privacy laws and regulations, and uncertainties regarding potential significant
breaches of data privacy;
• 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
Not applicable.
3.B Capitalization and indebtedness
Not applicable.
3.C Reasons for the offer and use of proceeds
Not applicable.
3.D Risk factors
Our businesses face significant risks and uncertainties.
You should carefully consider all of the information set
forth in this Annual Report 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.
Healthcare professionals, patients and payers may
choose competitor products instead of ours for various
reasons, including if they perceive them to be better in
terms of efficacy, safety, cost, convenience or other rea-
sons. The commercial success of our key products and
launches in the face of increasing competition 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 both our product pricing and the availabil-
ity of our products.
9
Item 3. Key Information
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, importation 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 intensify in 2022
and beyond as political and budget pressures mount,
and healthcare payers around the globe, including gov-
ernment-controlled health authorities, insurance com-
panies and managed care organizations, step up initia-
tives to reduce the overall 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 invest-
ments 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
continue to face intense 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.
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 a
highly complex, lengthy and expensive approval pro-
cesses 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 prod-
ucts increasingly expensive, and further heighten the risk
of recalls, product withdrawals, change to product spec-
ifications, loss of market share, and loss of revenue and
profitability. The clinical testing, regulatory processes
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 authorities to inspect
sites. For a further description of the research and devel-
opment 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
10
Item 3. Key Information
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 con-
ducted in an ethical and compliant manner. Among other
things, we are concerned with patient safety (both pre-
and post-product approval), data privacy, Current Good
Clinical Practices (cGCP) requirements, data integrity,
the fair treatment of patients, and animal welfare. Should
we fail to properly manage such issues, we risk injury to
third parties, damage to our reputation, negative finan-
cial consequences as a result of potential claims for dam-
ages, sanctions and fines, and the potential that invest-
ments 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 pan-
demics, such as the COVID-19 pandemic. This is primar-
ily due to safety-related restrictions on the ability of lab-
oratory scientists to work in research laboratories, and
impacts our ability to collaborate with academic and
commercial research organizations facing similar chal-
lenges and restrictions.
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 Feb-
ruary 2021, we closed the in-licensing of tislelizumab
from an affiliate of BeiGene, Ltd. for North America,
Europe and Japan. This strategy depends in part on our
ability to identify strategic external business opportuni-
ties 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.
After a transaction, efforts to develop and market
acquired or licensed products, to integrate the acquired
business 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; fail-
ure 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. Transactions 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-
ties, or that the divestment or spin-off will ultimately max-
imize shareholder value.
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 our purpose of reimagining
medicine by sustainably financing our research and
development. However, the strength and duration of
those rights can vary significantly from product to prod-
uct and country to country, and they may be success-
fully challenged by third parties or governmental author-
ities.
Loss of intellectual property protection and the intro-
duction of generic or biosimilar competition for a pat-
ented branded medicine in a country typically result in a
significant and rapid reduction in net sales and operat-
ing income for the branded product. Such competition
can occur after successful challenges to intellectual
property rights or the regular expiration of the patent
term or other intellectual property rights. Such compe-
tition can also result from the entry of generic or biosim-
ilar versions of another medicine in the same therapeu-
tic class as one of our drugs or in a competing
therapeutic class, from a Declaration of Public Interest
or the compulsory licensing of our intellectual property
by governmental authorities, or as a result of a general
weakening of intellectual property and governing laws in
certain countries around the world. In addition, generic
or biosimilar 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 res-
olution 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-
11
Item 3. Key Information
laborators and consultants who may have access to such
information. If these agreements are breached or our
other protective measures should fail, then our contrac-
tual 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 future royalties or damages, for example for patent
infringement, and may also involve injunctive relief requir-
ing removal of one or more dosage strengths of a prod-
uct from the market (or removal of a therapeutic indica-
tion from the product’s approved labeling) for some
period of time or throughout the life of the asserted intel-
lectual property right. Such damages or such an injunc-
tion 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 new products for patients
that may also offset the income lost to generic or bio-
similar competition. 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—Intellectual property.”
Environmental, social and governance matters
Risk description
Failure to meet environmental, social and governance
expectations
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 our com-
panies’ performance. An inability to successfully perform
on ESG matters and meet societal expectations can
result in negative impacts to our reputation, recruitment,
retention, operations, financial results and share price.
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 purpose
statement or societal expectations, our performance 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. We recently created an ESG Management
Office, which is tasked with developing our ESG strategy
and tracking our performance against our ESG targets.
However, in light of investors’ increasing focus on ESG
matters and rapidly changing views on acceptable lev-
els of action across a range of topics, there can be no
certainty that we will manage such issues successfully,
that the ESG standards we use to create our ESG tar-
gets and currently use to measure our performance
against will remain the same, or that we will successfully
meet society’s or investors’ expectations.
Sandoz business transformation
Risk description
Inability to drive sustainable growth mid-term by pursu-
ing biosimilars and inorganic growth opportunities
Context and potential impact
Our Sandoz Division operates in a challenging generics
and biosimilars market, where it faces intense competi-
tion and continued pricing pressures as it seeks to
increase its market share and achieve sustainable and
profitable growth mid-term. To achieve this objective, we
are implementing a strategy for Sandoz focused on sev-
eral goals, including accelerating biosimilars growth in
the long term, rebuilding the Sandoz US business, and
achieving inorganic growth by identifying and success-
fully executing on merger and acquisition and strategic
in-licensing partnership opportunities on acceptable
terms. There is no guarantee that we will achieve our
strategic goals for Sandoz within the expected time
12
Item 3. Key Information
frame, or at all. Concurrently with implementing this strat-
egy, in October 2021 we announced the commencement
of a strategic review of our Sandoz Division. This review
will explore all options, ranging from retaining the busi-
ness to separation, to determine how best to maximize
value for our shareholders. As a result, our inability to
achieve these strategic goals or to successfully imple-
ment any proposed actions arising out of the strategic
review could have a material adverse effect on the suc-
cess of the Sandoz Division and the Group as a whole,
and may have a material adverse effect on our results of
operations and financial condition. In addition, the stra-
tegic review itself will utilize additional employee and
management time as well as Company resources that
could be allocated to other areas of our business, which
may negatively impact our overall Company perfor-
mance. See also “—Pricing, reimbursement and access”
with regards to the price competition for our Sandoz Divi-
sion, “—Research and development” with regards to our
research and development efforts related to the biosim-
ilars market, and “—Alliances, acquisitions and divest-
ments.”
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 the healthcare industry overall.
Numerous tech companies are seeking to enter into the
healthcare field, from research and development to phar-
maceutical distribution and the delivery of care, which
generates opportunities for technology partnerships
that may accelerate innovation and complement our
capabilities. However, this may also potentially disrupt
our relationships with patients, healthcare professionals,
customers, distributors and suppliers, with potentially
negative consequences for us.
To take advantage of these opportunities, we have
embarked upon a digital transformation strategy, with
the goal of becoming an industry leader in leveraging
advanced analytics and digital technologies, which was
accelerated by the COVID-19 pandemic. We expect to
invest substantial resources into efforts to improve the
way we use data in drug discovery and development; to
gain insights into customer preferences and behaviors
via data science; to improve the ways we engage with
patients, doctors and other stakeholders; and to auto-
mate business processes. Our success in these efforts
will depend on many factors, including data quality, tech-
nology architecture, partnering with the right technology
companies, training our employees to fully capitalize on
the new capabilities, attracting and retaining employees
with appropriate skills and mindsets, and successfully
innovating across a variety of technology fields. Our
efforts in some of these initiatives have started to gain
significant traction. However, we do not yet know if these
changes will be sustainable as we scale and make them
part of our ways of working. As a result, we may ultimately
fail to either create innovative new products, tools or
techniques in an adequate time frame, or fail to differen-
tiate our products and business models via digital tech-
nologies.
Furthermore, our increasing use of social media and
other digital engagement platforms carries risks related
to potential violations of rules regulating the promotion
of prescription 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 of social media and other digital engage-
ment platforms has increased and is expanding into new
uses. There continue to be uncertainties as to the rules
that apply to such communications and as to the inter-
pretations that health authorities will apply in this con-
text, and as a result, despite our efforts to comply with
applicable rules, there is a risk that our use of social
media and other digital engagement platforms may
cause us to be found in violation of applicable regula-
tions.
In addition, the market for our products is evolving
rapidly with frequent changes in scientific evidence, sig-
nificant advances in availability and utilization of real-
world evidence (RWE), and the acceleration in the adop-
tion of virtual and social media and other digital
engagement platforms by customers, patients and other
stakeholders, which may allow us to (i) better understand
the appropriate utilization of our products through RWE,
(ii) engage and appropriately educate customers,
patients and other stakeholders about the benefits and
risks associated with our products, and (iii) increase the
efficiency of our engagement with customers. Failure to
effectively utilize these increasingly important channels
and sources of evidence can result in the inadequate
education of customers regarding the benefits and risks
of our products and the loss of market share. In addition,
there is risk of inappropriate utilization of this data and
these channels by our employees or vendors.
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
13
Item 3. Key Information
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 led to, and
could in the future lead to, the compromise of trade
secrets or other intellectual property that could be sold
and used by competitors to accelerate the development
or manufacturing of competing products; to the compro-
mise 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
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 in order to
deliver novel therapies to patients with unmet needs
while ensuring patient safety. Failure to comply with reg-
ulatory requirements has resulted in, and may in the
future result in, warning letters, suspension of manufac-
turing, seizure of products, injunctions, product recalls,
failure to secure product approvals, or debarment.
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’
14
Item 3. Key Information
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.
Fragmented IT landscape and Enterprise Resource
Planning (ERP) and Enterprise Data Management
(EDM) implementation
Risk description
Fragmented business processes and unclear data own-
ership may impact future digital opportunities, including
the implementation of the new ERP system and EDM
governance
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. Historically, while there are highly over-
lapping data strategy and architectural needs across our
business units, we have taken the approach of building
distinct solutions across both business units and geog-
raphies, which may cause disruptions to our operational
stability. We are currently in the design and planning
phase for the implementation of a new global ERP sys-
tem that seeks to simplify, standardize and digitize pro-
cesses in our commercial and finance functions and our
Novartis Technical Operations unit to help ensure effi-
cient and compliant business operations across busi-
ness units and geographies as well as the availability of
high-quality data necessary to aid our decision-making.
We expect the first implementation of our new ERP sys-
tem to begin in the second half of 2023, with full imple-
mentation by 2028, when our current system is out of
maintenance by the software provider. Implementing and
operating a new ERP system involves certain risks,
including a failure of the new system to operate as
expected, a failure to properly integrate with other sys-
tems we use, potential loss of data or information, com-
pliance issues, cost overruns and delays, and operational
disruptions. Any disruptions or malfunctions of our new
ERP system could cause critical information we use to
be delayed, defective, corrupted, inadequate or inacces-
sible. In addition, if the design or implementation of our
new ERP system is deficient, it could adversely affect
our operations, and could negatively impact the effec-
tiveness of our internal controls.
Talent management
Risk description
Inability to attract, integrate and retain key personnel and
qualified individuals
Context and potential impact
We rely on a diverse, highly skilled workforce across our
businesses and functions. Novartis invests in attracting,
integrating and retaining talented individuals to achieve
our business objectives. If we are unable to sufficiently
attract, integrate and retain key personnel – including
senior members of our scientific and management
teams, high-quality researchers and development spe-
cialists, and skilled personnel in key markets – our abil-
ity to achieve our major business objectives may be
adversely affected, our brand and reputation could be
negatively impacted, and the diversity of our workforce
may decline.
Our future growth will depend on our ability to retain
key talent and leaders while also recruiting new talent
who bring new skills and perspectives. The market for
skilled talent has become increasingly competitive. We
are experiencing challenges in attracting and retaining
skilled talent in several areas, including biology, chemis-
try, clinical development, drug manufacturing, IT and, in
particular, our Oncology business unit and advanced
technology platforms (i.e., our chimeric antigen receptor
T-cell (CAR-T) therapies, gene therapies and radioligand
therapies). In addition, biotechnology companies have
seen and continue to see a significant inflow of capital,
and are not only competing with us to attract the same
skilled talent but are also aggressively pursuing our
experienced talent, threatening our ability to sustain a
skilled talent supply to deliver on our business priorities.
The constraints associated with lockdowns during
the COVID-19 pandemic accelerated the need for more
flexible working models. We addressed this need through
our program called Choice with Responsibility, which
now gives many employees the flexibility to determine,
in consultation with their teams, where, when and how
they work, while remaining in compliance with any tax,
legal and other limitations. Our transition toward a more
flexible working model accelerated our efforts to expand
our recruitment of talent from an increasingly global pool.
However, the external supply of new talent is especially
limited in many of the geographies that are expected to
be sources of growth for Novartis, particularly China and
the US. In China, the US and several other markets, the
geographic mobility of talent is decreasing, with ample
career opportunities available closer to home for tal-
ented individuals, who often have increasing expecta-
tions that they may choose where they work.
The risks associated with drawing from the external
supply of talent will be exacerbated if we are unable to
retain and effectively develop our key personnel and
maintain a sustainable pipeline of talent and senior lead-
ers with the critical skills and experiences necessary to
deliver on our business priorities. As a result, our ability
to retain critical talent, reward performance, incentivize
our employees, pay competitive compensation and suc-
cessfully implement our key personnel succession plans
is essential. Our inability to integrate, engage and moti-
vate employees, in particular those in leadership posi-
tions, may jeopardize our succession plans and our abil-
ity to achieve our business priorities.
Legal, ethics and compliance
Risk description
Challenges in keeping up with legal and regulatory
requirements, and evolving societal expectations regard-
ing ethical behavior
Context and potential impact
We are obligated to comply with the laws of all countries
in which we operate and sell products with respect to an
15
Item 3. Key Information
extremely wide and growing range of activities. Such
legal requirements are extensive and complex.
ments, which are intended to regulate company behav-
ior for extended periods.
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-
For information on significant legal matters pending
against us, see “Item 18. Financial Statements—Note 20.
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
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; Brazil’s General Personal
Data Protection Law, which entered into force in Sep-
tember 2020; and the Personal Information Protection
Law in China, which took effect in November 2021,
impose stringent requirements on how we and third par-
ties with whom we contract collect, share, export or oth-
16
Item 3. Key Information
erwise process personal information, and provide for sig-
nificant penalties for noncompliance. 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 parties, could expose such personal
information to unauthorized 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 products 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 could 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
Impact of geo- and socio-political threats and macro-
economic developments
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;
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)
17
Item 3. Key Information
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 the 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.”
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. Most of the jurisdictions in
which we operate have double tax treaties with other
foreign jurisdictions, which provide a framework for mit-
igating the impact of double taxation on our revenues
and capital gains. However, mechanisms developed to
resolve such conflicting claims are largely untried and
can be expected to be very lengthy. Accruals for tax con-
tingencies are made based on experience, interpreta-
tions of tax law, and judgments about potential actions
by tax authorities. However, due to the complexity of tax
contingencies, the ultimate resolution of any tax matter
may result in payments materially different from the
amounts accrued.
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. This project achieved OECD political consensus
in October 2021, and the detailed principles are still
under discussion. The OECD expects that the implemen-
tation of these new principles will begin globally in 2023.
The EU also adopted a new Directive on Administrative
Cooperation (DAC6) in 2018, which seeks additional
reporting as of July 2020. During 2021, all EU member
states implemented this EU directive as part of their
respective local laws and regulations. In 2020, the EU
announced it will introduce new centralized taxation
powers to address the financial impact of the COVID-19
pandemic, which has not yet occurred. In addition, the
European Commission continues to extend the applica-
tion of its policies seeking to limit fiscal aid by member
states to particular companies, and the related investi-
gation of the member states’ practices regarding the
18
Item 3. Key Information
issuance of rulings on tax matters relating to individual
companies.
recorded intangible asset impairment charges of USD
403 million.
Although we have taken steps to comply with evolv-
ing initiatives like that of the OECD and the EU, 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 6. Income taxes” and “Item 18. Financial
Statements—Note 12. Deferred tax assets and liabilities.”
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 18. Finan-
cial Statements—Note 1. Significant accounting policies”
and “Item 18. Financial Statements—Note 11. Goodwill
and intangible assets.”
General risks
Indebtedness
Risk description
Our indebtedness could adversely affect our operations
Context and potential impact
As of December 31, 2021, we had USD 22.9 billion of
non-current financial debt, and USD 6.3 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.
Goodwill and intangible assets
Risk description
Goodwill and intangible assets 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,
including, in particular, substantial goodwill and other
intangible assets obtained through acquisitions, includ-
ing most recently through our acquisitions of The
Medicines Company, Xiidra, Endocyte, Novartis Gene
Therapies, 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 groupings of cash-generating units con-
taining goodwill would be less than their carrying value
on the Group’s consolidated balance sheet at any point
in time.
We regularly review our intangible and tangible assets
for impairment, including identifiable intangible assets
and goodwill. Any significant impairment charges could
have a material adverse effect on our results of opera-
tions and financial condition. In 2021, for example, we
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
19
Item 3. Key Information
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 2021. The largest trade receivables
outstanding were for these three customers, amounting
to 16%, 12% and 7%, respectively, of the Group’s trade
receivables at December 31, 2021. 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
provisions for known worldwide environmental 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 Group con-
solidated financial statements. If environmental contam-
ination resulting from our facility operations, business
activities or products adversely impacts third parties or
if we fail to properly manage the safety of our facilities,
including the safety of our employees and contractors,
and the environmental risks, we may face substantial
one-time and recurring costs and other penalties, and
be required to increase our provisions for environmen-
tal 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.”
Climate change
Risk description
Climate change and increased risk of major natural disas-
ters
Context and potential impact
Novartis is exposed to climate risks such as physical
risks (e.g., heat, water scarcity, sea level rise, flooding
from severe weather events) and transition risks (e.g.,
regulatory frameworks, carbon pricing, cost of and
access to capital), which could vary in magnitude and
impact country by country.
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 may result in increased costs, business
interruptions, destruction of facilities, loss of life, and dis-
ruption to healthcare systems that patients use to access
our medicines.
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
could increase our direct operating costs and result in
the same impact across our supply chain. As a result of
these transition risks, we are committed to becoming
carbon neutral in our own operations by 2025, and car-
bon neutral across our value chain by 2030. In addition,
we are committed to achieving net zero across our value
chain by 2040. Any failure to achieve these commitments
in the expected time frame, or at all, could result in neg-
ative impacts to our reputation, our operations, and the
price of our shares.
Furthermore, 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.
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 employees. 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-
20
Item 3. Key Information
vide our management with historical statistical informa-
tion, such as withdrawal and mortality rates in connection
with these estimates.
such differences could have a material effect on our total
equity and may require us to make additional contribu-
tions to our pension funds.
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,
For more information on obligations under retirement
and other post-employment benefit plans and underly-
ing actuarial assumptions, see “Item 18. Financial State-
ments—Note 25. Post-employment benefits for associ-
ates.”
21
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, 2019, 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 focused
medicines company powered by technology leadership
in research and development, world-class commercial-
ization, global access and data science. As we imple-
ment our strategy, we have five priorities to shape our
future and help us continue to create value for our Com-
pany, our shareholders and society: unleash the power
of our people, deliver transformative innovation, embrace
operational excellence, go big on data and digital, and
build trust with society.
In 2021, Novartis achieved net sales from continuing
operations of USD 51.6 billion, and total net income
amounted to USD 24.0 billion. Headquartered in Basel,
Switzerland, our Group companies employed approxi-
mately 110 000 full-time equivalent employees as of
December 31, 2021. Our products are sold in approxi-
mately 155 countries around the world.
The Group comprises two global operating divisions:
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 Customer &
Technology Solutions (CTS) (formerly named Novartis
Business Services). 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 CTS, see “Item 18. Financial Statements—Note 3.
Segmentation of key figures 2021, 2020 and 2019.”
Corporate activities
• Innovative Medicines: innovative patent-protected pre-
scription medicines
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-
22
Item 4. Information on the Company
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 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 business
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, and consists of the global
business franchises Hematology and Solid Tumor. The
Novartis Pharmaceuticals business unit is organized into
the following global business franchises responsible for
the commercialization of various products in their respec-
tive therapeutic areas: Immunology, Hepatology and Der-
matology; Neuroscience; Ophthalmology; Cardiovascu-
lar, Renal and Metabolism; Respiratory and Allergy; 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 42.0 billion in
2021, which represented 81.3% 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
Hematology
• 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.
• 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-
23
Item 4. Information on the Company
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 marrow
• 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.
• Adakveo (crizanlizumab) is a humanized monoclonal
antibody that binds to P-selectin, a cell adhesion protein
that plays a central role in the multicellular interactions
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 countries to:
• Prevent or reduce the frequency of vaso-occlusive
crises (VOCs), or pain crises, in patients aged 16
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
Solid Tumor
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
• Adults with locally advanced or metastatic anaplastic
thyroid cancer with a BRAF V600 mutation and no
satisfactory treatment options. Anaplastic thyroid
cancer is a rare and aggressive form of thyroid cancer
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.
• 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, and men
(US), with hormone receptor-positive (HR+)/human
epidermal growth factor receptor 2-negative (HER2-)
locally advanced or metastatic breast cancer, in com-
bination with an aromatase inhibitor as initial endo-
crine-based therapy. HR+/HER2- breast cancer is
the most common subtype of breast cancer
• Postmenopausal women, and men (US), with HR+/
HER2- locally advanced or metastatic breast cancer,
in combination with fulvestrant, as first- or sec-
ond-line therapy
Kisqali was developed by the Novartis Institutes for
BioMedical Research under a research collaboration
with Astex 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
• Lutathera (lutetium Lu 177 dotatate/lutetium (177Lu) oxodo-
treotide) is an intravenous targeted radioligand therapy
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-
24
Item 4. Information on the Company
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
Novartis Pharmaceuticals business unit
Immunology, Hepatology and Dermatology1
• Cosentyx (secukinumab) is an injectable, fully human
monoclonal antibody that selectively 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:
• Adults and children aged 6 years and older with mod-
erate-to-severe plaque psoriasis. Psoriasis is a debil-
itating systemic inflammatory disease that is charac-
terized by the appearance of raised, red patches on
the skin
• Adults with active ankylosing spondylitis (AS). AS is
a progressive inflammatory disease that is charac-
terized by chronic back pain, is generally visible on
X-rays, and can cause structural damage to the
bones and joints
• 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 progressive inflammatory arthritis that results
in swollen and painful joints and tendons, which can
cause structural damage to the bones and joints
Additionally, Cosentyx was approved in the US in 2021
to treat active juvenile psoriatic arthritis in patients
aged 2 years and older, and active enthesitis-related
arthritis (ERA) in patients aged 4 years and older. ERA
is an inflammatory disease characterized by joint swell-
ing and pain.
• Ilaris (canakinumab) is an injectable, selective, high-af-
finity, fully human monoclonal antibody that inhibits
interleukin-1 beta (IL-1 beta), a key cytokine in the
inflammatory pathway. It is approved in the US, the EU
and other countries to treat patients with certain debil-
itating autoinflammatory disorders, including:
• Adults and children with periodic fever syndromes.
Periodic fever syndromes are a set of rare disorders
characterized by recurrent episodes of illness, with
fever as the main symptom
• Patients with Still’s disease, including systemic juve-
nile idiopathic arthritis and adult-onset Still’s disease.
Still’s disease is a disorder that causes fevers, rash
and joint pain
• Adults with gouty arthritis. Gouty arthritis is a type
of arthritis characterized by pain, redness, tender-
ness and swelling in one or more joints
Approved indications vary by country.
1 Xolair sales for all indications are reported in the Respiratory and Allergy franchise.
Neuroscience
• Gilenya (fingolimod) is an oral sphingosine-1-phos-
phate (S1P) receptor modulator that inhibits the move-
ment of lymphocytes (a type of white blood cell) out of
the lymph nodes into the central nervous system,
thereby preventing nerve inflammation and nervous tis-
sue damage. 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
• 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 mul-
tiple sclerosis, including clinically isolated syndrome,
relapsing-remitting multiple sclerosis (RRMS) and
active secondary 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 with relapsing forms of mul-
tiple sclerosis with active disease defined by clinical
or imaging features (i.e., relapse, disability, or lesions
detected by MRI scans)
Approved indications vary across other countries. Ofa-
tumumab was originally developed by Genmab and
licensed to GlaxoSmithKline (GSK). Novartis obtained
the rights to ofatumumab from GSK across all indica-
tions.
• 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
25
Item 4. Information on the Company
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
SPMS with active disease
Approved indications vary across other countries.
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 damages the macula
• Adults with proliferative diabetic retinopathy, moder-
ately severe to severe non-proliferative diabetic ret-
inopathy, and/or diabetic macular edema. These con-
ditions 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
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 block the interaction of
two key proteins called ICAM-1 and LFA-1, thereby
reducing inflammation. 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.
It 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.
Beovu is an anti-VEGF therapy that is injected into the
eye. It is approved in the US, the EU and other coun-
tries 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 damages the macula
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 heart failure with
reduced ejection fraction (HFrEF). HFrEF is a dis-
ease in which the heart cannot pump enough blood
In 2021, Entresto was granted an expanded chronic
heart failure indication in the US and other countries,
allowing for the treatment of most heart failure patients
with preserved ejection fraction (another disease in
which the heart cannot pump enough blood). Addition-
ally, Entresto was approved in China and Japan in 2021
to treat patients with essential hypertension (a type of
high blood pressure).
• Leqvio (inclisiran) is the first and only small-interfering
RNA therapy to reduce LDL cholesterol, a risk factor
for atherosclerotic cardiovascular disease (ASCVD),
which is caused by plaque buildup in the arteries.
Leqvio is administered by a healthcare professional
twice a year as an injection, following an initial dose
and a dose at three months. It is approved:
• In the EU and other countries to treat adults with pri-
mary hypercholesterolemia (heterozygous familial
and non-familial) or mixed dyslipidemia. It is used in
combination with a statin or a statin with other lip-
id-lowering therapies in patients unable to reach LDL
cholesterol goals with the maximum tolerated dose
of a statin, or alone or in combination with other lip-
id-lowering therapies in patients who are statin-in-
tolerant or for whom a statin is contraindicated. Pri-
mary hypercholesterolemia and mixed dyslipidemia
are disorders characterized by high levels of fats in
the blood
• In the US to treat adults with clinical ASCVD or het-
erozygous familial hypercholesterolemia (HeFH), as
an adjunct to diet and maximally tolerated statin ther-
apy, who require additional lowering of LDL choles-
terol. HeFH is an inherited disorder that causes dan-
gerously high levels of LDL cholesterol. (The effect
of Leqvio on cardiovascular morbidity and mortality
has not yet been determined)
Novartis obtained global rights to develop, manufac-
ture and commercialize inclisiran under a license and
collaboration agreement with Alnylam Pharmaceuticals,
Inc.
Respiratory and Allergy
• Xolair (omalizumab) is an injectable prescription medicine
and the only approved antibody designed to target and
26
Item 4. Information on the Company
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 severe chronic rhinosi-
nusitis with nasal polyps (CRSwNP). CRSwNP is a
chronic inflammation 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, in combination with diet
and exercise. It can be used as monotherapy when
metformin (another antidiabetic medicine) is inap-
propriate due to contraindications or intolerance. It
can also be used to treat diabetes in combination
with other medicines, including insulin, when these
do not adequately control a patient’s blood sugar
Approved indications vary by country. An oral single-pill
combination of vildagliptin and metformin, marketed as
Eucreas/GalvusMet, is also approved in the EU and
other countries to treat adults with type 2 diabetes.
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 2020,” 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 before
the Confirmatory Development stage. Prior to 2020, we
reported the current phase based on the year in which
the decision to enter the phase was made. To maintain
continuity, we have included certain previously disclosed
projects, noted below, that have not yet achieved “first
patient, first visit” in any Phase I-III study for the reported
indication and route of administration. We have disclosed
these projects using our previous reporting criteria.
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.
27
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
ABL0011
asciminib
BCR-ABL inhibitor
Chronic myeloid leukemia, 3rd line
Hematology
Oral
Chronic myeloid leukemia, 1st line2
Hematology
Oral
2021
2021
ACZ885
canakinumab IL-1 beta inhibitor
Non-small cell lung cancer, adjuvant
Solid Tumor
Subcutaneous injection 2018
AVXS-101 onasemno- Survival motor neuron Spinal muscular atrophy
(OAV101)
(IT formulation)3
gene abepar- (SMN) gene therapy
vovec
Neuroscience
Intrathecal injection
2021
Beovu
brolucizumab VEGF inhibitor
Diabetic macular edema
Ophthalmology
Intravitreal injection
2021
US approved
EU registration
2025/III
2023/III
2025/III
US/EU
registration
Diabetic retinopathy
Ophthalmology
Intravitreal injection
2020
2025/III
BYL719
alpelisib
PI3K-alpha inhibitor
PIK3CA-related overgrowth spectrum
Solid Tumor
Triple negative breast cancer
Human epidermal growth factor
receptor 2-positive (HER2+)
advanced breast cancer
Solid Tumor
Solid Tumor
Oral
Oral
Oral
2021
2020
2020
US registration
2023/III
2025/III
Ovarian cancer
Solid Tumor
Oral
2021
2023/III
CFZ533
iscalimab
CD40 inhibitor
Liver transplantation
Sjögren’s syndrome
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Intravenous infusion
2019
≥2026/II
Subcutaneous injection 2019
≥2026/II
Coartem
artemether + PGH-1
lumefantrine
Malaria, uncomplicated (<5 kg patients)
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 nephritis
Psoriatic arthritis (IV formulation)
Ankylosing spondylitis (IV formulation)
CSJ117
TBD
TSLP inhibitor
Asthma
1 Approved in the US as Scemblix for chronic myeloid leukemia
2 Project added to selected development projects table in 2021 – entered Confirmatory Development
3 Clinical hold lifted; pivotal confirmatory study initiating
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Respiratory and
Allergy
Subcutaneous injection 2019
2022/III
Subcutaneous injection 2021
2024/III
Subcutaneous injection 2020
2025/II
Subcutaneous injection 2020
≥2026/III
Intravenous infusion
2019
2022/III
Intravenous infusion
2019
2023/III
Inhalation
2020
≥2026/II
28
Item 4. Information on the Company
Compound/ Common
product
name
Mechanism
of action
Potential indication
Business
franchise
Formulation/
route of
administration
Jakavi
ruxolitinib
JAK1/2 inhibitor
Acute graft-versus-host disease
Hematology
Chronic graft-versus-host disease
Hematology
KAE609
cipargamin PfATP4 inhibitor
Malaria, uncomplicated
Malaria, severe
KAF156
ganaplacide
Imidazolopiperazines Malaria, uncomplicated
derivative
Kisqali
ribociclib
CDK4 inhibitor
Hormone receptor-positive
(HR+)/human epidermal growth
factor receptor 2-negative (HER2-)
early breast cancer (adjuvant)
Year project
entered
current
Planned filing
development dates/current
phase
phase
2021
2021
2017
EU registration4
EU registration5
≥2026/II
20196
≥2026/II
2017
≥2026/II
Oral
Oral
Oral
Oral
Oral
Established
Medicines
Established
Medicines
Established
Medicines
Solid Tumor
Oral
2018
2023/III
Kymriah
tisagen-
lecleucel
Leqvio
inclisiran
CD19 CAR-T
Relapsed/refractory follicular lymphoma Hematology
Intravenous infusion
2021
siRNA
(regulation of LDL-C)
Secondary prevention of cardiovascular Cardiovascular, Subcutaneous injection 2018
Renal
events in patients with elevated levels
and Metabolism
of LDL-C
US/EU
registration
≥2026/III
LJN452
FXR agonist and
tropifexor,
licogliflozin SGLT1/2 inhibitor
(in fixed-dose
combination)
Nonalcoholic steatohepatitis
Immunology,
Hepatology and
Dermatology
Oral
2019
≥2026/II
LMI070
branaplam mRNA splicing
Huntington’s disease7
Neuroscience
Oral
2021
≥2026/II
LNA043
TBD
ANGPTL3 agonist
Knee osteoarthritis8
modulator
LNP023
iptacopan
CFB inhibitor
IgA nephropathy
C3 glomerulopathy
Immunology,
Hepatology and
Dermatology
Intra-articular
2021
≥2026/II
Cardiovascular, Oral
Renal
and Metabolism
Cardiovascular, Oral
Renal
and Metabolism
2021
2023/III
2021
2023/III
2021
2019
2021
2021
2023/III
≥2026/II
2025/III
2024/III
2019
≥2026/II
Paroxysmal nocturnal hemoglobinuria
Hematology
Oral
Membranous nephropathy
Cardiovascular, Oral
Renal
and Metabolism
Atypical hemolytic uremic syndrome9
Hematology
LOU064
remibrutinib BTK inhibitor
Chronic spontaneous urticaria
Sjögren’s syndrome
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Oral
Oral
Oral
Multiple sclerosis10
Neuroscience
Oral
2021
Lutathera
Radioligand therapy
targeting SSTR
lutetium
Lu 177
dotatate/
lutetium
(177Lu)
oxodotreotide
Gastroenteropancreatic
neuroendocrine tumors,
1st line in G2/3 tumors
Solid Tumor
Intravenous infusion
2020
2025/III
2023/III
4 US filing by Incyte Corporation
5 US filing by Incyte Corporation
6 Reflects the year in which the decision to enter the disclosed phase was made; “first patient, first visit” has not yet occurred
7 Project added to selected development projects table in 2021 – entered Confirmatory Development
8 Project added to selected development projects table in 2021 – entered Confirmatory Development
9 Project added to selected development projects table in 2021 – entered Confirmatory Development
10 Project added to selected development projects table in 2021 – entered Confirmatory Development
29
Item 4. Information on the Company
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
177Lu-
lutetium
PSMA-617 Lu 177
Radioligand therapy
targeting PSMA
Metastatic castration-resistant
prostate cancer, post-taxane11
Solid Tumor
Intravenous infusion
2021
US/EU
registration
vipivotide
tetraxetan/
lutetium
(177Lu)
vipivotide
tetraxetan
Metastatic castration-resistant
prostate cancer, pre-taxane12
Metastatic hormone-sensitive
prostate cancer13
Solid Tumor
Intravenous infusion
2021
2023/III
Solid Tumor
Intravenous infusion
2021
2024/III
LXE408
TBD
Proteasome inhibitor
Visceral leishmaniasis
Established
Medicines
Oral
201914
≥2026/II
MBG453
sabatolimab TIM-3 antagonist
Myelodysplastic syndrome
Hematology
Intravenous infusion
2020
2022/2023/III
MIJ821
TBD
NR2B negative
allosteric modulator
Unfit acute myeloid leukemia
Hematology
Intravenous infusion
2020
2024/II
Major depressive disorder15
Neuroscience
Intravenous infusion
2021
≥2026/II
NIS793
TBD
TGF-beta 1 inhibitor
Pancreatic cancer, 1st line16
Solid Tumor
Intravenous infusion
2021
QBW251
icenticaftor CFTR potentiator
Chronic obstructive pulmonary disease
Respiratory and Oral
Allergy
2019
2025/III
2025/II
QGE031
ligelizumab
IgE inhibitor
Chronic spontaneous urticaria
Chronic inducible urticaria18
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Subcutaneous injection 2018
TBD17/III
Subcutaneous injection 2021
2025/III
Food allergy19
Respiratory and Subcutaneous injection 2021
Allergy
2025/III
SAF312
libvatrep
TRPV1 antagonist
Chronic ocular surface pain
Ophthalmology Topical
2016
≥2026/II
SKO13620
ensovibep Multispecific DARPin
Coronavirus infection
Established
Medicines
Intravenous infusion
Not applicable 2022/II
(N/A)
TQJ230
pelacarsen ASO targeting
UNR844
TBD
lipoprotein(a)
Reduction of
disulfide bonds
Secondary prevention of cardiovascular Cardiovascular, Subcutaneous injection 2019
events in patients with elevated levels
of lipoprotein(a)
Renal and
Metabolism
2025/III
Presbyopia
Ophthalmology Topical
2019
2024/II
VAY736
ianalumab
BAFF-R inhibitor
Autoimmune hepatitis
Sjögren’s syndrome
Immunology,
Hepatology and
Dermatology
Immunology,
Hepatology and
Dermatology
Subcutaneous injection 2018
≥2026/II
Subcutaneous injection 2017
≥2026/II
VDT48221
tislelizumab Anti-PD-1 monoclonal Esophageal cancer, 2nd line
Solid Tumor
Intravenous infusion
N/A
US registration22
antibody
Non-small cell lung cancer
Solid Tumor
Intravenous infusion
Nasopharyngeal carcinoma, 1st line
Solid Tumor
Intravenous infusion
Gastric cancer, 1st line
Solid Tumor
Intravenous infusion
Esophageal cancer, 1st line
Solid Tumor
Intravenous infusion
Localized esophageal cancer
Solid Tumor
Intravenous infusion
Hepatocellular carcinoma, 1st line
Solid Tumor
Intravenous infusion
Small cell lung cancer, 1st line
Solid Tumor
Intravenous infusion
Bladder urothelial cell carcinoma, 1st line
Solid Tumor
Intravenous infusion
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
VPM087
gevokizumab IL-1 beta antagonist
Colorectal cancer, 1st line
Solid Tumor
Intravenous infusion
2019
Xolair
omalizumab
IgE inhibitor
Food allergy
Respiratory and Subcutaneous injection 2019
Allergy
11 Previously disclosed as metastatic castration-resistant prostate cancer
12 Project added to selected development projects table in 2021 – entered Confirmatory Development
13 Project added to selected development projects table in 2021 – entered Confirmatory Development
14 Reflects the year in which the decision to enter the disclosed phase was made; “first patient, first visit” has not yet occurred
15 Project added to selected development projects table in 2021 – entered Confirmatory Development
16 Project added to selected development projects table in 2021 – entered Confirmatory Development
17 Phase III PEARL data in evaluation
18 Project added to selected development projects table in 2021 – entered Confirmatory Development
19 Project added to selected development projects table in 2021 – entered Confirmatory Development
20 In-licensed from Molecular Partners in 2021 (option deal)
21 In-licensed from an affiliate of BeiGene, Ltd. in 2021
22 Biologics License Application (BLA) submitted by BeiGene, Ltd. to the FDA
2022/III
2022/III
2023/III
2023/III
2023/III
2023/III
2024/III
2024/III
≥2026/I
2023/III
30
Chronic heart failure with preserved
ejection fraction
Commercialized
Post-acute myocardial infarction
Removed
Development discontinued
Reason
Development discontinued
Development discontinued
Development discontinued
Development discontinued
Development discontinued
Development discontinued
Development discontinued
Development discontinued
Development discontinued
Development discontinued
Development discontinued
Development discontinued
Development discontinued
CFZ533
ECF843
Entresto
KJX839
Kymriah
LJC242
LMI070
Item 4. Information on the Company
Projects removed from the development table since 2020
Compound/
product
Potential indication
Change
ACZ885
Non-small cell lung cancer, 2nd line
AVXS-201
(OAV201)
Beovu
BYL719
Non-small cell lung cancer, 1st line
Rett syndrome
Retinal vein occlusion
Head and neck squamous cell carcinoma,
2nd and 3rd line
CEE321
Atopic dermatitis
Renal transplantation
Dry eye
Removed
Removed
Removed
Removed
Removed
Removed
Removed
Removed
Hyperlipidemia
Commercialized as Leqvio
Relapsed/refractory diffuse large B-cell
lymphoma in 1st relapse
Nonalcoholic steatohepatitis
Spinal muscular atrophy
Removed
Removed
Removed
OMB157
Relapsing multiple sclerosis
Commercialized as Kesimpta
PDR001
Malignant melanoma (combo)
Tabrecta
Solid tumors
Removed
Removed
31
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 2021 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
2021 net sales
to third parties
USD millions
14 999
14 919
9 304
2 773
41 995
31 459
10 536
%
36
36
22
6
100
75
25
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 2021, we integrated Novartis Gene Therapies into
our existing manufacturing and supply structure, created
a new ophthalmology supply unit, and launched a con-
tract manufacturing organization in biotechnology and
cell and gene therapy services. We manufacture our
products across the following platforms at facilities
worldwide: large molecules, small molecules, Sandoz
Technical Operations, cell and gene therapy, and oph-
thalmology and local market manufacturing (see also “—
Item 4.D Property, plants and equipment”). In our manu-
facturing network, we maintain state-of-the-art
processes, with quality as a priority, and require our sup-
pliers to adhere to the same high standards we expect
from our own people and processes. Those processes
include chemical and biological syntheses; sterile pro-
cessing, including CAR-T cell processing; and formula-
tion and packaging. We are constantly working to improve
our existing manufacturing processes, 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
23 243 field force representatives, as of December 31,
2021, including supervisors and administrative person-
nel. These trained representatives present the therapeu-
tic benefits and risks 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.
32
Item 4. Information on the Company
The marketplace for healthcare is evolving: Customer
groups beyond prescribers have increasing influence on
treatment decisions and guidelines, while patients con-
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 is working
to implement a new customer engagement model that
combines traditional face-to-face visits with digital meth-
ods of engaging healthcare professionals. We are simi-
larly changing our approach to engaging healthcare sys-
tems, payers and other healthcare 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 2021, Novartis reached an agreement with the
National Health Service (NHS) in England to implement
a first-of-its-kind population health management
approach designed to provide faster and broader access
to Leqvio for certain high-risk patients with atheroscle-
rotic cardiovascular disease. Novartis is exploring simi-
lar collaborations in other countries.
Additionally, 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, outcome-based rebates, and
collaborations with healthcare systems to optimize dis-
ease management. These efforts have expanded glob-
ally, and we now have multiple early access agreements
and pay-for-performance agreements (i.e., out-
come-based arrangements) in place in various markets
around the world. Zolgensma is approved in over 40
countries.
Novartis has established an outcome-based frame-
work in the US for one of the approved indications of our
oncology product 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.
33
Item 4. Information on the Company
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
seeking to benefit from the increasing importance of
data and data management in our industry.
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 (i.e., drug or biologic)
or other therapeutic candidate will not meet the require-
ments to progress further. In such an event, we may be
required to abandon the development of a potential ther-
apy 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 5 200 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, renal and metabolic diseases; neuroscience;
oncology; muscle disorders; ophthalmology; autoim-
mune diseases; and respiratory and allergic 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, focuses on discovering new
medicines to fight tropical diseases, including malaria
and cryptosporidiosis.
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 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.
In response to the current pandemic, we are pursu-
ing potential therapeutic strategies to help combat
COVID-19. Chief among these are our efforts to discover
a novel therapy targeting the main protease – an enzyme
essential to the replication of many coronaviruses,
including SARS-CoV-2 – and our collaboration with
Molecular Partners to develop ensovibep, a potential new
treatment option for COVID-19 that targets the virus
using proprietary DARPin technology to neutralize
SARS-CoV-2. The topline results of a Phase II study
reported in early 2022 showed that a single intravenous
dose of ensovibep reduced viral load through Day Eight,
shortened symptom duration, reduced emergency room
visits and/or hospitalizations related to COVID-19, and
reduced deaths, compared to placebo. In separate stud-
ies, it maintained potent in-vitro pan-variant activity
against all variants of concern identified so far, including
Omicron.
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 12 400 full-time equivalent employees
worldwide.
The traditional model of clinical 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
34
Item 4. Information on the Company
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
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 safety and efficacy of a
potential new drug or indication.
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 between five and 15 patients) that com-
bine 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 indication. Once a pos-
itive proof of concept has been established, the drug
moves to the Confirmatory Development stage and
becomes the responsibility of GDD. Confirmatory Devel-
opment has elements of traditional Phase II/III testing
and includes trials aimed at confirming the safety and
efficacy of the drug in the given indication, leading up to
submission of a dossier to health authorities for approval.
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 Confir-
matory 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-approval
studies may be required by the regulatory authorities to
continue to gather important data to further support
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 December 2021, Novartis announced the signing
of an option, collaboration and license agreement with
an affiliate of BeiGene, Ltd. for ociperlimab, a late-stage
TIGIT inhibitor that may be active against a wide range
of solid tumors. This partnership strengthens the Com-
pany’s immunotherapy pipeline and expands develop-
ment opportunities with the PD-1 inhibitor tislelizumab.
Novartis announced in February 2021 that it closed the
in-licensing of tislelizumab from an affiliate of BeiGene,
Ltd. for North America, Europe and Japan. Novartis is
advancing tislelizumab as a potential bridge to synergis-
tic drug combinations, with the goal of extending survival
for more patients across tumors and lines of therapy.
For information about recent business acquisitions, see
“Item 18. Financial Statements—Note 2. Significant trans-
actions.”
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-
35
Item 4. Information on the Company
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
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 compound. The NDA or BLA must contain all the sci-
entific information that has been gathered about the
compound. This typically includes information regarding
the clinical experiences of patients tested in the drug’s
clinical trials. A Supplemental New Drug Application
(sNDA) or Supplemental Biologics License Application
(sBLA) must be filed for new indications for a previously
approved drug.
Once an application is submitted, the FDA assigns
reviewers from its staff, including experts in 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
sBLA, 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 reactions. For some med-
ications, the FDA requires additional post-approval stud-
ies (Phase IV) to evaluate long-term effects or to gather
information on the use of the product under specified
conditions.
Throughout the life cycle of a product, the FDA
requires compliance with standards relating to good 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. The
procedure used for first authorization must continue to
be followed for subsequent changes, e.g., to add an indi-
cation 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. They use
experts from their countries to carry out the assessment
but can also draw expertise from other member states
(“multinational teams”). The entire review cycle must be
completed within 210 days, although there are “clock
stops” to allow the company to respond to questions set
forth in the rapporteur and co-rapporteur’s assessment
36
Item 4. Information on the Company
report and agreed with the CHMP. The first clock stop
is at Day 120 and the clock restarts on Day 121, when the
company’s complete response is received by the EMA.
If there are further aspects of the dossier requiring clar-
ification, the CHMP will issue further 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 jus-
tify its responses. On Day 210, the CHMP will take a vote
to recommend the approval or non-approval of the appli-
cation, and their opinion is transferred to the EC. The
final EC decision under this centralized procedure is a
single decision that is applicable to all member states.
This decision occurs 60 days, on average, after a posi-
tive 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, unless it is determined that the product must
be further monitored for safety reasons. In this case, the
authority may require another renewal at 10 years. If the
holder does not apply for renewal, the marketing autho-
rization automatically lapses. Any marketing authoriza-
tion that is not followed within three years of its granting
by the actual placing on the market of the correspond-
ing 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: President Biden has made comprehen-
sive drug pricing reform a priority in the US. Lacking 60
votes in the US Senate, Democrats pursued legislation
through a procedure known as budget reconciliation to
mandate a negotiation process for drugs covered in
Medicare Part D and, eventually, Medicare Part B; rede-
sign the Medicare Part D benefit with an out-of-pocket
cap for seniors; and impose penalties for drug prices that
increase faster than inflation. This legislation did not pass
before the end of the 2021 calendar year. However, Dem-
ocrats said they plan to revisit it in early 2022 and would
like to pass drug pricing reform legislation before cam-
paigning for the November mid-term elections begins.
Further, by December 31, 2021, 20 US states had passed
legislation intended to impact pricing or requiring man-
ufacturer price transparency reporting, with eight of
these states also allowing for drug affordability (i.e., 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 2022 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-
cial claw-backs on the pharmaceutical industry. The
37
Item 4. Information on the Company
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
Biden administration, certain members of the US Con-
gress, and several US states continued to explore regu-
latory and legislative ways to allow the safe importation
of pharmaceutical products into the US from select coun-
tries, including Canada. Six US states have enacted drug
importation laws, but the Secretary of the US Depart-
ment of Health and Human Services (HHS) must certify
that each state’s importation plan is safe and cost-effec-
tive 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 pro-
vides 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) or supplementary protec-
tion certificates (SPCs) to not fully account for the time
it took to develop the product and receive marketing
authorization. As a result, for example, it is rarely the case
that a product’s active ingredient(s) will have a full pat-
ent term at the time the product is approved by the FDA
and other health authorities.
In addition to patent protection, various countries pro-
vide regulatory data protection (RDP) or regulato-
ry-based marketing exclusivities for a prescribed period
of time. RDP is a distinct type of IP right providing exclu-
sivity that precludes a potential competitor from filing a
regulatory application that relies on the sponsor’s clini-
cal 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 exclusivity, unlike RDP, may preclude a
competitor from obtaining marketing approval for a prod-
uct even if a competitor’s application relies on its own
data. RDP and market exclusivity periods generally run
from the date a product is approved, and so their expi-
ration 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
38
Item 4. Information on the Company
the patent term for a maximum of five years, and may not
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 regulatory-based 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.
• A new biologic active pharmaceutical ingredient
receives 12 years of regulatory-based market exclusiv-
ity, during which time a competitor generally may not
market the same or similar drug.
• The FDA may also request that a sponsor conduct
pediatric studies and, in exchange, it will grant an addi-
tional 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 a patent-based and/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.
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, Turkey and the UK. When the EPO
grants a patent, it is then validated in the countries that
the patent owner designates. The term of a patent
granted by the EPO or a European country office is
20 years from the earliest application filing date. Phar-
maceutical patents can be granted a further period of
exclusivity under the SPC system. SPCs are designed,
in part, to account for the time it took to receive market-
ing authorization of a product by the European health
authorities. An SPC may be granted to provide, in com-
bination with the patent, up to 15 years of exclusivity from
the date of the first European marketing authorization.
However, an SPC cannot last longer than five years. The
SPC duration may be extended by a further six months
if the product is the subject of an agreed pediatric inves-
tigation plan. The post-grant phase of patents, including
the SPC system, is currently administered on a coun-
try-by-country basis under national laws that, while dif-
fering, 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 new drugs being approved today
is usually referred to as “8+2+1” because it provides an
initial 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
marketing authorization but a competitive product can-
not be launched; and a possible one-year extension of
the market exclusivity period if, during the initial eight-year
data exclusivity period, the sponsor registered a new
therapeutic indication with “significant clinical benefit.”
This system applies both to national and centralized
authorizations in the EU plus other non-EU countries
such as the UK.
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, or
filing a separate New Drug Application (NDA) under the
Hatch-Waxman Act (typically referred to as a 505(b)(2)
application). Despite RDP, a competitor could opt to incur
the costs of conducting its own clinical trials and prepar-
ing 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 pat-
ents protecting our products, and conduct free-
dom-to-operate analyses, a third party may nevertheless
assert that one of our products infringes a third-party
patent for which we do not have a license, seeking rem-
39
Item 4. Information on the Company
edies such as monetary damages or an injunction against
our continued marketing of the product.
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.
Intellectual property protection for certain key
marketed products and compounds in development
We present below additional details regarding certain IP
protection for the listed Innovative Medicines Division
products. For each, we identify issued, unexpired pat-
ents by their general 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. Iden-
tification 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
treatment or use, formulations, devices, processes, prod-
uct-by-process, synthesis, 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 EU country or the UK.
However, it could be pending, not granted, expired 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 one or more EU countries, if IP
is otherwise disclosed. We identify certain enforcement
actions, or ongoing challenges to the disclosed IP, includ-
ing IPRs or PGRs if instituted by the USPTO, that have
not been finally resolved (including appeals) unless
noted. Challenges identified as being in administrative
entities, such as national patent offices, include judicial
appeals from decisions of those entities. Resolution of
challenges to the disclosed IP, which in the EU may
involve IP in one or more EU countries, may include set-
tlement 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
Hematology
• 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 capsule form patent is
being opposed in the EPO.
• Promacta/Revolade. US: Patent on compound (2021),
PTE (2022), PE (2023); patent on method of enhanc-
ing platelet production using salt (2023), PE (2023);
patent on salt form and thrombocytopenia use (2025),
PE (2026); five patents on tablet formulations of differ-
ent dose strengths (2027) (5), five PEs (2028) (5); ODE
on severe aplastic anemia patients with an insufficient
response to immunosuppressive therapy (2021), PE
(2022); ODE on severe aplastic anemia patients in com-
bination with standard immunosuppressive therapy
(2025). EU: Patent on compound (2021), SPC (2025),
PE (2025); patent on salt form (2023); 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 man-
ufacturers have filed ANDAs challenging certain pat-
ents other than the compound patent.
• 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 tab-
let formulation (2023). There is generic competition in
the US and the EU.
• Adakveo. US: Patent on composition of matter (2028);
patent on methods of treatment (2027); RDP (2031),
PE (2032); ODE (2026). PTE pending. EU: Patent on
composition of matter (2027), SPC (2032); patent on
dissociation use (2031); RDP (2030); ODE (2030).
There is no generic competition in the US or the EU.
40
Item 4. Information on the Company
Solid Tumor
• 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); three patents on
method of use of combination (2025, 2030, 2033);
ODE on non-small cell lung cancer (2024); ODE on
adjuvant treatment of melanoma (2025); ODE on ana-
plastic thyroid cancer (2025). EU: Patent on combina-
tion (2030); RDP (2025). There is no generic competi-
tion in the US or the EU. In the EU, the combination
patent is being opposed in the EPO.
• 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 most
EU markets but no generic competition in the US.
• 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); patent for tablet formulation (2036); 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. In
the US, the three compound patents, the three method
of treatment patents, the salt patent and the formula-
tion patent are being challenged in ANDA proceedings
against generic manufacturers.
• Lutathera. US: Two patents on formulation (2038,
2038); RDP (2023); ODE (2025). EU: RDP (2027); ODE
(2027). There is no generic competition 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.
position of matter (2025), SPC (2030), PE (2030); pat-
ent on psoriasis use (2031); patent on ankylosing spon-
dylitis use (2031); RDP (2026). There is no generic
competition in the US or the EU. In the EU, the patent
on ankylosing spondylitis use is being opposed in the
EPO.
• Ilaris. US: Patent on composition of matter (2024); pat-
ent on cryopyrin-associated periodic syndromes use
(2026); patent on familial Mediterranean fever (FMF)
use (2026); patent on systemic onset juvenile idiopathic
arthritis (SJIA) use (2027); patent on hyperimmuno-
globulin D syndrome and tumor necrosis factor recep-
tor-associated periodic syndrome use (2028); patent
on formulation (2029). EU: Patent on composition of
matter (2021), SPC (2024), PE (2025); patent on SJIA
use (2026); patent on FMF use (2026); patent on for-
mulation (2029). 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). 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 was challenged in ANDA proceedings
against a generic manufacturer and was found valid
and infringed, a decision that was upheld by the US
Court of Appeals for the Federal Circuit in January
2022. 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. Novartis
is also enforcing the dosage regimen patent and the
method of treatment patent against manufacturers of
a generic form and a 505(b)(2) tablet form of 0.5 mg
Gilenya.
• Zolgensma. US: Four patents on composition of mat-
ter (2024, 2024, 2026, 2033), PTE pending (2029);
three patents on methods of treatment (2028, 2028,
2029); ODE for spinal muscular atrophy (SMA) in
patients less than 2 years old with biallelic mutations
in the SMN1 gene (2026); RDP (2031). EU: Three pat-
ents on composition of matter (2024, 2024, 2028), SPC
(2029), two SPCs pending (2029, 2033); patent on
methods of use (2028), SPC pending (2033); ODE for
SMA in patients with a biallelic mutation in the SMN1
gene and a clinical diagnosis of SMA type 1, 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.
Novartis Pharmaceuticals business unit
Immunology, Hepatology and Dermatology
• Cosentyx. US: Patent on composition of matter (2026),
PTE (2029); patent on psoriatic arthritis use (2031);
patent on psoriasis use (2032); patent on ankylosing
spondylitis use (2033); RDP (2027). EU: Patent on com-
• Kesimpta. US: Patent on compound (2031); patent on
dosing regimen (2037). EU: Patent on compound
(2023); patent on use (2023), SPC (2028); patent on
formulation (2028), patent on formulation and use
(2028), SPC (2033); patent on dosing regimen (2037).
There is no generic competition in the US or the EU.
41
Item 4. Information on the Company
• 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); two patents on treatment initiation use
(2029, 2029), SPC (2034); two patents on formulation
(2032, 2035); RDP (2030). There is no generic com-
petition in the US or the EU. In the EU, one treatment
initiation use patent is being opposed in the EPO.
Ophthalmology
• Lucentis. EU: Patent on composition of matter (2018),
SPC (2022), PE (2022). There is no generic competi-
tion in the EU.
• Xiidra. US: Four patents on compound (2024, 2024,
2025, 2026); two patents on formulation (2024, 2033);
five patents on method of treatment (2024, 2024, 2026,
2029, 2029); one patent on polymorph compound form
(2029). PTE pending. There is no generic competition
in the US. Xiidra is not marketed in the EU. In the US,
the compound, compound and use, formulation,
method of treatment, and polymorph compound form
patents are being challenged in ANDA proceedings
against generic manufacturers.
• 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); two patents on dosing regimen
(2035, 2035); RDP (2031). EU: Two patents on compo-
sition of matter (2029, 2029), SPC (2034); two patents
on antibodies (2023, 2029); RDP (2030). There is no
generic competition in the US or the EU.
Cardiovascular, Renal and Metabolism
• Entresto. US: Four patents on combination (2023) (4),
PTE (2025), four PEs (2023, 2023, 2024, 2025); two
patents on complex (2026, 2027), two PEs (2027,
2027); three patents on methods of treatment (2033)
(3); patent on dosage regimen (2036); RDP for new
pediatric patient population (2022), PE (2023); RDP for
labeling changes related to new clinical investigation
(2024). EU: Patent on combination (2023), SPC (2028);
two patents on complex (2026, 2026), two SPCs
(2030, 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, the two
complex patents, the three method of treatment pat-
ents, and the dosage regimen patent are being chal-
lenged in ANDA proceedings against generic manu-
facturers. In the EU, one complex patent and the use
patent are being opposed in the EPO.
• Leqvio. US: Two patents on composition of matter
(2027, 2034), anticipated PTE (2035); two patents on
method of treatment and dosing regimen (2027, 2036);
RDP (2026). EU: Two patents on composition of mat-
ter (2027, 2033), SPC (2035); RDP (2030). There is no
generic competition in the US or the EU.
Respiratory and Allergy
• Xolair. US: Two patents on syringe formulation (2024,
2025). EU: Two patents on syringe formulation (2024,
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);
two patents on Galvus formulation (2025, 2025).
Galvus/Eucreas is not marketed in the US. There is
generic competition for Galvus and Eucreas in some
EU countries. In the EU, the Galvus formulation patents
are being opposed in the EPO.
Compounds in development
We provide certain patent information for non-marketed
compounds in development that have been submitted to
the FDA and/or the EMA for registration but have not yet
been approved by either agency. For these products,
Novartis will seek all appropriate RDP, will continue to
seek additional intellectual property protection for sig-
nificant product developments, and will apply for PTEs
and SPCs in keeping with the great importance we attach
to intellectual property.
• 177Lu-PSMA-617 (lutetium Lu 177 vipivotide tetraxetan/
lutetium (177Lu) vipivotide tetraxetan). US: Two patents
on composition of matter (2028, 2034). EU: Patent on
composition of matter (pending).
• VDT482 (tislelizumab). US: Patent on composition of
matter (2033). EU: Patent on composition of matter
(2033).
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 2021, the Sandoz Division
achieved consolidated net sales of USD 9.6 billion, rep-
resenting 18.7% 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- and 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
generic and biosimilar launches across key geographies
and across a broad range of therapeutic areas; position-
ing 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 decision-making, and focused resource allocation.
Sandoz is a 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, Polpharma Biologics and
Bio-Thera Solutions Ltd. Availability of our biosimilars
varies by country.
Sandoz is also the global market leader in generic
antibiotics by volume. Its Kundl, Austria, manufacturing
site is the hub of the last vertically integrated antibiotics
production chain in Europe, which offers certain com-
Key marketed products
petitive advantages including added supply chain resil-
ience.
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.
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. In May 2021, Sandoz con-
firmed details of its investment of EUR 100 million in its
Kundl, Austria, manufacturing site and announced an
additional EUR 50 million investment in a new sterile pro-
duction line in Palafolls, Spain. In October 2021, Sandoz
announced that its planned acquisition of GSK’s global
cephalosporin antibiotics business, first announced in
February 2021, had been successfully closed.
On October 1, 2021, Sandoz Inc., the US subsidiary
of Sandoz, entered into a settlement agreement with the
Civil Division of the US Department of Justice (DOJ) con-
cerning the department’s yearslong pricing investigation
into the US generic drug industry. This settlement was
an expected outcome of the resolution the company
reached in March 2020 with the DOJ Antitrust Division
regarding the same investigation and underlying con-
duct. As part of the settlement, Sandoz agreed to cer-
tain corporate integrity obligations as part of a corporate
integrity agreement with the Office of Inspector General
of the US Department of Health and Human Services.
The latest settlement contains no new factual allegations
against Sandoz and, in 2020, the Group fully provisioned
for this settlement and disclosed the agreement in prin-
ciple as part of the March 2020 resolution. For more
information, see “Item 18. Financial Statements—Note
20. Provisions and other non-current liabilities.”
In October 2021, we announced the commencement
of a strategic review of our Sandoz Division. This review
will explore all options, ranging from retaining the busi-
ness to separation, to determine how to best maximize
value for our shareholders.
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
Beta-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, short-acting) used in oncology
Treatment for relapsing forms of multiple sclerosis
Fusion protein (TNF-alpha 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-alpha antibody) to treat multiple
immune-mediated inflammatory diseases
Monoclonal antibody (TNF-alpha antibody) to treat multiple
immune-mediated inflammatory diseases
PEGylated form of a recombinant human granulocyte
colony-stimulating factor (long-acting) to
reduce duration of chemotherapy-induced neutropenia
and incidence of chemotherapy-induced febrile
neutropenia
1 Approved in the US in 2016. In patent litigation with Amgen, which markets Enbrel®, the US District Court of New Jersey ruled against Sandoz in August 2019, which was upheld on
appeal. The decision is now final and Sandoz cannot launch its Erelzi product in the US until 2029.
Selected development projects – biosimilars in Phase III development and
registration
The following table describes Sandoz biosimilar projects that are in registration trial or in registration with a regu-
latory agency (including filing preparation):
Project/
product
Common
name (INN)
GP2411
denosumab
Mechanism of action
Potential indication/indications
Therapeutic areas
Anti-RANKL
monoclonal antibody
Osteoporosis (same as originator)
Endocrinology,
Neurology
Route of
administration
Current phase
Subcutaneous
Phase III
SOK583
aflibercept
Recombinant fusion protein Ophthalmology indication (same as originator)
that blocks VEGF-A
Ophthalmology
Intravitreal
Phase III
HER2+ cancer tumors
Oncology
Intravenous
Registration
EGI014A11
trastuzumab
DST356A12 natalizumab
Anti-HER2 recombinat
IgG1, humanized
monoclonal antibody
Anti-alpha4 integrin
monoclonal antibody
insulin glargine, Long-acting (HFT896)/
lispro, aspart
rapid-acting insulin
Diabetes
HFT896,
SMQ969,
PYB1063
VVF3794
Multiple sclerosis and Crohn’s disease
Neurology,
Immunology (US only)
Intravenous
Phase III
Endocrinology,
Diabetology
Subcutaneous
Phase III/
Phase I
bevacizumab Recombinant humanized
monoclonal antibody that
blocks VEGF
Solid tumors
Oncology
Intravenous
Phase III
1 Development in collaboration with EirGenix, Inc.
2 Development in collaboration with Polpharma Biologics
3 Development in collaboration with Gan & Lee
4 Development in collaboration with Bio-Thera Solutions
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 2021 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
2021 net sales
to third parties
USD millions
5 278
1 819
1 662
872
9 631
6 855
2 776
%
55
19
17
9
100
71
29
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 material changes in seasonal demand, while sales of the vast majority of our other products are
not. The COVID-19 pandemic has substantially impacted seasonal variation.
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 focuses 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 the first quarter of
2019, and ranitidine film-coated tablets in the second
half of 2019, from several markets, in line with our qual-
ity standards for all of our marketed products. The dis-
covery of nitrosamines in some types of drug products
led several health regulators (e.g., EMA, FDA and others)
to conduct a detailed analysis of these impurities in
affected medicinal products. Novartis works with health
authorities around the world to continuously review all
chemical and biological human medicines for the possi-
ble 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 concluded
in March 2021 for chemical human medicines and in July
2021 for biological human medicines. Any products iden-
tified with a potential risk for nitrosamines will undergo
further testing. For these products, the final outcome of
this testing and potentially necessary control strategies
will be submitted to the EMA and other health authori-
ties by September 2022.
Beginning in September 2021, we initiated a volun-
tary recall of all finished product batches of losartan and
losartan HCT products exceeding or potentially exceed-
ing acceptable regulatory limits of the azido impurity in
the losartan drug substance. This impurity, which is an
industrywide issue, is a mutagen that may increase the
risk of cancer over time if allowed to rise above certain
levels. This recall is unrelated to the nitrosamine-related
recalls described above, and we are working to re-es-
tablish supply as soon as practicable.
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-
45
Item 4. Information on the Company
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
already mature market framework in Europe and some
other markets, while the business environment is rapidly
evolving in the US and many international markets. Reg-
ulatory pathways for approving biosimilar products are
at various stages of maturity by market, but in some
cases are still relatively new or still in development. Pol-
icies have not yet been fully defined or implemented
regarding the substitution and reimbursement of biosim-
ilars in many markets, including the US. As a result, in
many of these markets, our biosimilar products are mar-
keted as branded competitors to the originator products.
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 industrywide US sales that began
in 2017 and continued through 2021.
Development and registration
Development of Sandoz Biopharmaceuticals is jointly
overseen by Sandoz and GDD, and is governed by the
IMB. Development and registration activities for Retail
Generics products, and registration activities for Bio-
pharmaceuticals products, are also overseen 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 gen-
erally much lower than those of the originator
pharmaceuticals, as no original drug discovery, preclin-
ical studies or clinical trials on dose finding, safety and
efficacy are typically performed by the generics com-
pany. As a result, the different focus and lower costs of
the generic pharmaceutical model ultimately allow
generic pharmaceutical products to be offered at lower
prices, which support and contribute to the cost contain-
ment goals of healthcare systems.
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 was com-
pleted in December 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, Canada, which were
completed in April 2021 and June 2021, respectively.
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.
46
Item 4. Information on the Company
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. An ANDA is generally permitted to
be filed four years after the initial approval of the refer-
ence product and generally cannot be fully approved by
the FDA until any regulatory exclusivity of the reference
product has expired. The process typically takes nearly
two years from the filing of the ANDA until FDA approval.
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
generics 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,
enabling such generic applicants to exclusively market
their product alongside the reference product at a cer-
tain point in time, which is generally after any intellectual
property issues have been resolved. However, after such
point in time, the generic applicants must launch their
products within certain time frames or risk losing the
marketing exclusivity that they had gained by being a
first-to-file applicant.
In the EU, decisions on the granting of a marketing
authorization are made either by the European 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
generics company is able to submit its abridged appli-
cation 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
is generally protected for 10 years after the first grant of
marketing authorization in all member states, and can be
extended for an additional year if, during the initial
eight-year data exclusivity period, the innovator company
registers a new therapeutic indication with “significant
clinical benefit.” In the case of orphan drugs, it may be
extended with a two-year pediatric extension. See “—
Item 4.B Business overview—Innovative Medicines—
Intellectual property.”
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 process
similar to that followed for small molecules. However,
biosimilars usually have to be approved through the cen-
tralized procedure because they are manufactured using
recombinant DNA technology. As part of the approval
process in the EU, biosimilars have to demonstrate com-
parability to the reference medicine in terms of safety,
efficacy and quality through an extensive comparability
exercise, based on strict guidelines set by the authori-
ties. Regulators will only approve a biosimilar based on
data that allows the regulators to conclude that there are
no clinically meaningful differences between the refer-
ence 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 a BLA to the
FDA, including an assessment of immunogenicity and
pharmacokinetics; an efficacy study; and possibly a phar-
macodynamics study. The BLA for a biosimilar can be
submitted as soon as four years after the initial approval
of the reference biologic, but can only be approved
12 years after the initial approval of the reference bio-
logic.
Intellectual property
We take all reasonable steps to ensure that our products
do not infringe valid intellectual property rights held by
others, including taking steps to proactively challenge
intellectual property rights that we believe should not
have been granted. Nevertheless, competing companies
commonly assert patent and other intellectual property
rights. As a result, we can become involved in significant
litigation regarding our products. If we are unsuccessful
in defending these suits, we could be subject to injunc-
tions preventing us from selling our products and to
potentially substantial damages.
Wherever possible, our products are protected by
our own patents. Among other things, patents may cover
the products themselves, including the product’s 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
47
Item 4. Information on the Company
to avoid adverse effects from the loss of intellectual prop-
erty protection in the future.
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 53 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 therapy production. Endo-
cyte manages one site for research and its headquar-
ters 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
(in square meters) Major activity
Size of site
Basel, Switzerland – St. Johann
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 and nucleic acids; 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
Menges, Slovenia
Shanghai, China
Stein, Switzerland
133 763
Production of drug substances and drug intermediates
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 Sandoz Division production of transdermal delivery systems and certain international
Huningue, France
Princeton, New Jersey
Libertyville, Illinois
and global service functions.
35 000
Production of drug substances for clinical and commercial supply
14 300 Sandoz Division US headquarters
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, 2021, we have closed,
exited or sold 18 manufacturing sites since 2018 and have
announced the closure, exit or sale of 10 additional man-
ufacturing sites. We have continued to invest in new tech-
nologies implemented at our sites, such as the nucleic
acid facility in Kundl, Austria, and our first small-interfer-
48
Item 4. Information on the Company
ing RNA (siRNA) oligonucleotide manufacturing facility
in Schweizerhalle, Switzerland. We are leveraging inno-
vation to increase the reliability and productivity of our
manufacturing network, including using data and digital
technologies. We continue to seek opportunities to man-
age our production facilities as efficiently as possible,
optimize external spend, and simplify and standardize
across our manufacturing network to help us increase
our cost competitiveness and optimize the value of our
products. At the same time, we are working to improve
our environmental sustainability, for example by reduc-
ing energy, waste disposal and water consumption at our
sites by making our manufacturing processes more effi-
cient and switching to clean and renewable energy solu-
tions.
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 matters—
Failure to meet increasingly challenging environmental,
social and governance expectations,” “Item 3. Key Infor-
mation—Item 3.D Risk factors—Environmental matters—
Impact of environmental liabilities,” and “Item 3. Key Infor-
mation—Item 3.D Risk factors—Climate change—Climate
change and increased risk of major natural disasters.”
See also “Item 18. Financial Statements—Note 22. 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, 2019, and year-to-year comparison
between fiscal year ended December 31, 2020, and
December 31, 2019, 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, 2020, which is incorporated
by reference herein.
Overview
merly named Novartis Business Services). The financial
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 2021, 2020 and 2019,” 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” to com-
ply with IFRS. Continuing operations include the busi-
nesses of the Innovative Medicines and Sandoz Divisions,
and the continuing Corporate 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 Statements—Note 2. Significant trans-
actions” and “Item 18. Financial Statements—Note 30. Dis-
continued operations.”
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 Customer & Technology Solutions (for-
Our business environment
We operate in a complex, fast-moving environment. Inno-
vation is accelerating, driven by better understanding of
the genetic and biological roots of disease, and surging
use of data analytics and digital technology in health-
care. At the same time, people around the world are liv-
ing longer, fueling a rise in chronic diseases. Together,
these factors are increasing demand for high-quality
care and pressuring healthcare systems to restrain
spending growth.
• Healthcare demand and associated spending are
expected to rise, post-COVID-19. Global demand for
healthcare will continue to grow over the next five
years, supported by renewed economic growth and
increased investment in healthcare in many countries
after the COVID-19 pandemic. We see future growth
for our business in many markets around the world,
including in the US and – over the longer term – in China.
Meanwhile, pressure on pharmaceutical pricing is
expected to continue as payers around the world step
up initiatives to reduce the overall cost of healthcare.
• Innovation continues to accelerate. Medical innovation
is accelerating, as technologies like gene therapy and
artificial intelligence open new paths to scientific dis-
covery. Increased cooperation within the industry, high-
lighted by the development of COVID-19 vaccines and
therapeutics, could lead to a new era of open science.
At the same time, innovation is getting harder, with new
discoveries requiring significant long-term investment.
51
Item 5. Operating and Financial Review and Prospects
• Use of data and technology is expanding across our
industry. The use of data science and digital technolo-
gies is increasing rapidly across our industry – in every-
thing from clinical trials and manufacturing to patient
diagnostics and treatment. COVID-19 has accelerated
this trend. Meanwhile, customers want more efficient
and personalized ways to connect with pharmaceuti-
cal companies. Against this backdrop, data privacy and
cybersecurity are growing in importance.
• Access to healthcare remains a global challenge.
According to the World Health Organization (WHO),
almost a third of the world’s population does not have
access to the medicines they need. For the past five
years, access rates in the poorest countries have been
declining. Meanwhile, the COVID-19 pandemic has
highlighted deep health inequities in both developed
and developing countries. Access can be improved by
integrating access strategies into how we research,
develop and deliver our new medicines globally.
• Aging populations are driving a rise in noncommunica-
ble diseases. As the complexity of the world’s health-
care challenges grows, the nature of the global disease
burden is also changing. Aging populations are fueling
a rise in noncommunicable conditions such as heart
disease and cancer, driving an increase in disability and
putting additional pressure on healthcare systems.
• New ways of working are here to stay even after COVID-
19. COVID-19 changed our work habits. Post-pandemic,
many employees continue to want more flexibility in
how they work. Within our own workforce, there is more
emphasis on digital skills, which are in increasingly
short supply across the economy. At the same time,
workplace diversity has become more important than
ever to attract and retain talented employees, and sup-
port innovation.
• Climate crisis is threatening to undermine global health
gains. Climate change is already causing extreme heat
and poor air quality in some areas, which threaten to
exacerbate pre-existing health conditions such as
respiratory diseases. In addition, an increase in tem-
perature and humidity may cause a proliferation of
insects that carry vector-borne diseases, including
dengue fever and malaria. Ultimately, climate change
could undermine decades of progress in improving
human health at a time when antimicrobial resistance
is also rising.
• There is an opportunity to build public trust in wake of
the COVID-19 pandemic. COVID-19 has brought an
opportunity to reset public trust in our industry, with
companies working together to end the pandemic.
Trust matters for our industry: Our success depends
on patents and trademarks that are granted by society
and protect the long-term investments required for our
business. Trust also matters for patient engagement,
for working with regulators and policymakers, and for
attracting talented employees.
Our strategy
Our strategy is to build a focused medicines company
powered by technology leadership in research and
development (R&D), world-class commercialization,
global access and data science. In 2021, we continued
to execute on this strategy, as reflected by our com-
mencement of a strategic review of our Sandoz Division
and the divestment of our investment in Roche in a bilat-
eral transaction with Roche (see “Item 18. Financial
Statements—Note 2. Significant transactions”). 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:
Deliver transformative innovation
In our pursuit of transformative treatments, we seek to
find new ways to cure disease, intervene earlier in chronic
illnesses and improve patients’ quality of life. We have
one of the strongest clinical development programs in
the industry, with more than 275 research programs as
well as 98 assets in development spanning around 50
diseases – from heart disease and cancer to rare but
debilitating genetic disorders – and 71 new molecular
entities, with the potential to transform the standard of
care for patients.
We invest in technology platforms – including cell and
gene therapies and radioligand therapies – that offer
more targeted approaches to fighting and, in some
cases, potentially curing serious diseases. We invested
USD 9.5 billion in research and development in 2021, or
approximately 18.5% of our net sales. We use data and
digital strategies in our research and development oper-
ations to open new paths to scientific discovery, improve
patient outcomes and streamline the development pro-
cess. We also focus our R&D capabilities on global health
challenges like malaria and sickle cell disease.
Embrace operational excellence
We work to improve the productivity of our operations
while maintaining high standards of patient safety and
environmental sustainability. Our efforts cut across the
Company, with special emphasis on manufacturing and
our supply chain, new product launches and business
services. These activities underpin our investment in
innovation and support our financial performance, while
helping to build trust with stakeholders. In our commer-
cial operations, we are taking steps to deliver more
focused and consistent launches across key markets to
support our long-term financial performance and pro-
vide better outcomes for patients and customers.
We are transforming our manufacturing operations
to support our strategy, while reducing the environmen-
tal footprint of our facilities and helping to produce vac-
cines for COVID-19. In addition, patient health and safety
is fundamental to our purpose, and our activities in this
regard are focused on three areas: product quality, phar-
macovigilance and combating falsified medicines. Our
supply chain is key to the resilience of our operations:
We identify, assess, monitor and mitigate risk associated
with suppliers through our Third-Party Risk Management
framework, which promotes ethical behavior and fosters
sustainability. With a view toward delivering efficient and
effective business services, in 2021 we merged all busi-
ness services and technology operations into a new
organization called Customer & Technology Solutions
(CTS). CTS will further accelerate productivity improve-
52
Item 5. Operating and Financial Review and Prospects
ments while investing to support the business to imple-
ment our strategy.
Go big on data and digital
Our aim is to transform Novartis into a medicines com-
pany powered by data science and digital technologies.
Using data, we believe, can improve efficiency, drive sales
and innovation, and ultimately increase the value of our
pipeline of new medicines. We plan to achieve this by
focusing on four areas: (i) accelerating innovation by
embracing data analytics and applying artificial intelli-
gence and other technologies to the challenge of dis-
covering new medicines, and forming partnerships with
technology companies big and small; (ii) engaging cus-
tomers by investing in digital tools to provide personal-
ization and better experiences, while also providing dig-
ital health solutions for patients; (iii) embedding data and
digital in our operations by using technologies like arti-
ficial intelligence to drive greater efficiency and cost sav-
ings across our own operations, and to promote training
opportunities to develop digital skills among our employ-
ees; and (iv) using data responsibly and securely to
ensure the ethical use of new technologies and prioritize
effective data privacy and cybersecurity.
Unleash the power of people
We continue to transform our corporate culture to sup-
port our long-term performance. We want every employee
to feel inspired by our purpose, be curious about new
ideas, and work in an unbossed environment that encour-
ages initiative and teamwork. We are exploring new ways
of working, post-pandemic, to give employees greater
flexibility, while maintaining a focus on productivity and
innovation, and ensure we continue to attract world-class
talent. At the same time, we are making progress in diver-
sity and inclusion to support employee engagement and
bring us closer to the diverse perspectives of patients
and other stakeholders. We aim to achieve gender bal-
ance in management and fulfill our United Nations (UN)
pay equity and transparency pledge by 2023.
Build trust with society
Building trust with customers, patients, partners and our
employees is critical to delivering on our purpose. It
defines our approach to managing our key environmen-
tal, social and corporate governance (ESG) topics: being
a part of the solution on pricing and access, addressing
global health challenges, being a responsible citizen, and
holding ourselves to high ethical standards. We seek to
expand access to our medicines to patients in both devel-
oped and developing countries, while addressing major
global health challenges. We reached 56.2 million
patients in 2021 through access initiatives, and we have
set ambitious targets to reinforce our commitments to
access and global health. We focus our global health
efforts on the control or elimination of four priority dis-
eases: (i) sickle cell disease, (ii) Chagas disease, (iii)
malaria and (iv) leprosy.
In 2020, Novartis committed to increase patient
reach with our strategic innovative therapies by at least
200% by 2025 (compared with 2019), and we aim to
increase patient reach of our four global health flagship
programs by at least 50% over the same period. To rein-
force our commitment to these targets, we issued a EUR
1.85 billion sustainability-linked bond (SLB) in 2020. The
bond is the first of its kind in the healthcare industry and
the first SLB incorporating social targets, with bondhold-
ers entitled to receive a higher amount of interest if
Novartis fails to meet its access targets. Our stakehold-
ers expect us to follow high ethical standards wherever
we operate: We are making progress in embedding our
Code of Ethics across the organization and supporting
employees to do what is right when faced with ethical
dilemmas. We are also committed to being a responsi-
ble corporate citizen by reducing the environmental foot-
print of our Company. We are committed to becoming
carbon neutral in our own operations by 2025 and car-
bon neutral across our value chain by 2030. In addition,
we are committed to achieving net zero across our value
chain by 2040. We also aim to be water and plastic neu-
tral by 2030.
53
Item 5. Operating and Financial Review and Prospects
Results of operations
Financial year 2021 compared to 2020
Key figures1
(USD millions unless indicated otherwise)
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
Income taxes
Net income
Attributable to:
Shareholders of Novartis AG
Non-controlling interests
Total basic earnings per share (USD)
Net cash flows from operating activities from continuing operations
Free cash flow 1
Year ended
Year ended
Dec 31, 2021 Dec 31, 2020
Change
in USD
%
Change in
constant
currencies
% 1
51 626
48 659
1 251
1 239
– 15 867
– 15 121
37 010
34 777
– 14 886
– 14 197
– 9 540
– 8 980
1 852
1 742
– 2 747
– 3 190
11 689
10 152
22.6
15 339
– 811
– 80
20.9
673
– 869
– 78
26 137
9 878
– 2 119
– 1 807
24 018
8 071
24 021
8 072
– 3
10.71
– 1
3.55
15 071
13 650
13 282
11 691
6
1
– 5
6
– 5
– 6
6
14
15
nm
7
– 3
165
– 17
198
198
– 200
202
10
14
4
1
– 3
5
– 3
– 5
6
14
13
nm
6
44
163
– 17
195
195
– 200
200
1 For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS measures as defined by Novartis.”
nm = not meaningful
54
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 employees and patients.
During the year, the COVID-19 situation normalized
in most geographies and therapeutic areas, however we
still saw a slight impact on parts of our business, mainly
in oncology and generics. Our operations remain stable
and cash collections continue to be according to our nor-
mal trade terms, with days sales outstanding at normal
levels. Novartis remains well positioned to meet its ongo-
ing 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”).
In 2021, Novartis delivered sales growth, margin
expansion, and advanced its pipeline.
Net sales to third parties for Novartis continuing oper-
ations were USD 51.6 billion, up 6% in reported terms
and up 4% measured in constant currencies (cc) to
remove the impact of exchange rate movements. Sales
growth was driven by volume growth of 8 percentage
points, mainly driven by Entresto, Cosentyx, Zolgensma
and Kesimpta for the Novartis Pharmaceuticals business
unit, and Promacta/Revolade, Kisqali, Jakavi and Tafinlar
+ Mekinist for the Novartis Oncology business unit. The
strong volume growth was partly offset by the negative
impacts of pricing (2 percentage points) and generic
competition (2 percentage points).
By division, Innovative Medicines delivered net sales
of USD 42.0 billion (+8%, +6% cc). Sandoz net sales were
USD 9.6 billion (0%, –2% cc), as growth from Biophar-
maceuticals and 1 percentage point relating to contract
manufacturing revenue reclassification was more than
offset by negative price impact and softer Retail Gener-
ics demand.
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 13.3 billion (+12%, +11% cc) driven by
China (USD 3.1 billion) growing 19% (+11% cc).
Operating income from continuing operations was
USD 11.7 billion (+15%, +13% cc), mainly driven by higher
sales and lower legal expenses, partly offset by increased
M&S and R&D investments and higher amortization.
Operating income margin was 22.6% of net sales,
increasing by 1.7 percentage points (+1.8 percentage
points cc).
Net income was USD 24.0 billion compared to USD
8.1 billion in the prior year benefiting from the USD 14.6
billion gain from the divestment of our investment in
Roche Holding AG, Basel (Roche)1. Earnings per share
were USD 10.71 compared to USD 3.55 in the prior year.
Net cash flows from operating activities from con-
tinuing operations amounted to USD 15.1 billion, com-
pared to USD 13.6 billion in 2020. This increase was
mainly driven by higher net income adjusted for non-cash
items and other adjustments, including divestment gains,
and lower payments out of provisions, mainly due to legal
matters in the prior year. This was partly offset by unfa-
vorable hedging results.
Free cash flow increased to USD 13.3 billion (+14%
USD). This was mainly driven by higher operating income
adjusted for non-cash items and lower payments for legal
provisions, partly offset by USD 650 million upfront pay-
ment to in-license tislelizumab from an affiliate of Bei-
Gene, Ltd.
We also present our core results2, 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 16.6 billion (+8%, +6% cc) benefiting from
higher sales, partly offset by increased M&S and R&D
investments. Core operating income margin was 32.1%
of net sales, increasing by 0.4 percentage points (+0.5
percentage points cc).
Core net income was USD 14.1 billion (+7%, +5% cc).
Core EPS was USD 6.29 (+9%, +7% cc), growing faster
than core net income and benefiting from lower weighted
average number of shares outstanding.
1 For further information, see “Item 18. Financial Statements—Note 2. Significant
transactions” and “Item 18. Financial Statements—Note 4. Associated companies.”
2 For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS
measures as defined by Novartis.”
55
Item 5. Operating and Financial Review and Prospects
Net sales from continuing operations 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, 2021 Dec 31, 2020
41 995
39 013
9 631
9 646
51 626
48 659
Change
in USD
%
Change in
constant
currencies
%
8
0
6
6
– 2
4
The Innovative Medicines Division delivered net sales of
USD 42.0 billion, up 8% in reported terms and 6% in con-
stant currencies (cc). The Novartis Pharmaceuticals
business unit delivered net sales of USD 26.5 billion,
growing 9% (+7% cc), driven by Entresto, Cosentyx,
Zolgensma, and Kesimpta partly offset by generic com-
petition mainly for Ciprodex and Diovan. Growth drivers
and Launches, contributed 52% of sales, up from 43%
in the prior year. The Novartis Oncology business unit
delivered net sales of USD 15.5 billion, growing 5% (+4%
cc), driven by Promacta/Revolade, Kisqali, Jakavi, Tafinlar
+ Mekinist and Kymriah partially offset by generic com-
petition mainly for Afinitor, Gleevec/Glivec and Exjade.
Growth drivers and Launches, contributed 51% of sales,
up from 45% in the prior year. Volume contributed 9 per-
centage points to growth. Generic competition had a
negative impact of 3 percentage points. Pricing had a
negligible impact on sales growth.
Regionally, US sales (USD 15.0 billion, +5%) grew
driven by Entresto, Cosentyx and Kesimpta. Europe sales
(USD 14.9 billion, +11%, +8% cc) grew driven by Zolgensma,
Entresto, Kisqali, Jakavi and Lucentis. Emerging Growth
Markets grew 12% (+11% cc) driven by China with sales
of USD 2.8 billion (+18%, +10% cc) with the launches of
Entresto and Cosentyx.
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
Hematology
Solid Tumor
Total Novartis Pharmaceuticals business unit
Immunology, Hepatology and Dermatology
Neuroscience
Ophthalmology
Cardiovascular, Renal and Metabolism
Respiratory and Allergy
Established Medicines
Total Innovative Medicines
Year ended
Year ended
Dec 31, 2021 Dec 31, 2020
15 476
14 711
8 363
7 113
7 782
6 929
26 519
24 302
5 777
5 052
4 330
3 560
2 065
5 735
4 868
4 323
4 410
2 498
1 900
6 303
41 995
39 013
Change
in USD
%
Change in
constant
currencies
%
5
7
3
9
19
17
– 2
43
9
– 9
8
4
6
2
7
18
15
– 4
40
6
– 10
6
56
Item 5. Operating and Financial Review and Prospects
The following table provides the top 20 Innovative Medicines Division product net sales in 2021 as well as the
change compared to 2020:
US
Rest of world
Total
Brands
Business franchise
Key indication
%
change
USD m USD/cc 2
%
%
change change
cc 2
USD
USD m
%
%
change change
cc 2
USD
USD m
Psoriasis, ankylosing
spondylitis,
psoriatic arthritis
and non-radiographic
axial spondyloarthritis
2 883
15
1 835
24
20
4 718
18
17
Immunology,
Hepatology and
Dermatology
Cardiovascular,
Renal and
Metabolism
Cosentyx
Entresto
Gilenya
Lucentis
Tasigna
40
– 9
8
4
46
– 8
Chronic heart failure
1 712
34
1 836
50
45
3 548
42
Neuroscience
Relapsing multiple sclerosis
1 427
– 9
1 360
– 6
– 8
2 787
– 7
Ophthalmology
Age-related
macular degeneration
2 160
12
Hematology
Chronic myeloid leukemia
882
3
1 178
7
8
5
2 160
12
2 060
5
Promacta/Revolade Hematology
Tafinlar + Mekinist
Solid Tumor
Jakavi
Hematology
Immune
thrombocytopenia (ITP),
severe aplastic anemia (SAA)
BRAF V600+ metastatic
and adjuvant melanoma;
advanced non-small cell
lung cancer (NSCLC)
Myelofibrosis (MF),
polycythemia vera (PV)
Severe allergic asthma (SAA),
chronic spontaneous urticaria
947
14
1 069
18
17
2 016
16
15
606
7
1 087
12
9
1 693
10
8
1 595
19
16
1 595
19
16
Xolair 1
Respiratory and Allergy (CSU) and nasal polyps
1 428
14
12
1 428
14
12
Sandostatin
Solid Tumor
Zolgensma
Neuroscience
Carcinoid tumors
and acromegaly
Spinal muscular atrophy
(SMA)
843
1
570
– 5
– 8
1 413
– 2
– 3
469
2
882
91
90
1 351
47
Galvus Group
Established Medicines Type 2 diabetes
1 092
– 9
– 8
1 092
– 9
Ilaris
Immunology,
Hepatology and
Dermatology
Auto-inflammatory (CAPS,
TRAPS, HIDS/MKD, FMF,
SJIA, AOSD and gout)
Gleevec/Glivec
Hematology
Chronic myeloid
leukemia and GIST
501
25
558
18
19
1 059
21
22
263 – 17
761 – 13 – 15
1 024 – 14 – 15
Afinitor/Votubia
Solid Tumor
Breast cancer/TSC
521 – 19
417
– 5
– 6
938 – 13 – 14
Kisqali
Solid Tumor
HR+/HER2-
metastatic breast cancer
339
7
598
62
61
937
36
36
Exforge Group
Established Medicines Hypertension
14 – 13
887
– 8 – 11
901
– 8 – 11
Diovan Group
Established Medicines Hypertension
51 – 59
722 – 18 – 20
773 – 23 – 25
Kymriah
Hematology
r/r pediatric and young
adults ALL, DLBCL
Chronic obstructive
pulmonary disease
230
12
357
33
30
587
24
22
Ultibro Group
Respiratory and Allergy (COPD)
584
– 6 – 10
584
– 6 – 10
Top 20 products total
Rest of portfolio
Total division sales
11 688
7 20 976
12
9 32 664
10
3 311
– 3
6 020
14 999
5 26 996
2
9
0
9 331
7 41 995
0
8
8
– 1
6
1 Net sales reflect Xolair sales for all indications.
2 For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS measures as defined by Novartis.”
For the table providing the top 20 Innovative Medicines Division product net sales in 2020, see “Item 18. Financial
statements—Note 3. Segmentation of key figures 2021, 2020 and 2019.”
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
Hematology
Sales in the Hematology franchise reached USD 8.4 bil-
lion (+7%, +6% cc), of which Tasigna delivered USD 2.1
billion, Promacta/Revolade USD 2.0 billion and Jakavi
USD 1.6 billion. The highest growth coming from
Promacta/Revolade, followed by Jakavi, Kymriah, offset-
ting decline in Gleevec/Glivec and Exjade/Jadenu.
Tasigna (USD 2.1 billion, +5%, +4% cc) sales grew due
to a solid performance in the US and Emerging Growth
57
Item 5. Operating and Financial Review and Prospects
Markets, partly offset by a decline seen in Europe and
Japan.
Promacta/Revolade (USD 2.0 billion, +16%, +15% 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. In
the first quarter, the US prescribing information was
updated to include “persistent” ITP, per clinical treatment
guidelines.
Jakavi (USD 1.6 billion, +19%, +16% 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
are under review and approvals are expected in 2022.
Gleevec/Glivec (USD 1.0 billion, –14%, –15% cc)
declined due to increased generic competition.
Kymriah (USD 587 million, +24%, +22% cc) grew
strongly in all regions. Coverage continued to expand,
with more than 350 qualified treatment centers and 30
countries having coverage for at least one indication. The
US Food and Drug Administration (FDA) granted regen-
erative medicine advanced therapy designation and
orphan drug status for Kymriah in follicular lymphoma.
At the interim analysis, the Phase II ELARA trial in patients
with relapsed or refractory follicular lymphoma met its
primary endpoint of complete response rate. Manufac-
turing for Kymriah was expanded through regulatory
approvals in Switzerland, France and Japan.
Exjade/Jadenu (USD 563 million, –14%, –16% cc)
declined mainly due to pressure from generic competi-
tion in all regions.
Adakveo (USD 164 million, +56%, +56% cc) world-
wide launch continued to progress well, with continuous
double-digit growth in cumulative patients in the US in
2021, despite COVID-19 challenges. In the US, more than
95% of insured lives have a payer coverage policy in
place across Medicaid, Medicare, and Commercial seg-
ments. In the UK, NICE recommendation was received
in October 2021.
Solid Tumor
Sales in the Solid Tumor franchise reached USD 7.1 bil-
lion (+3%, +2% cc), of which Tafinlar + Mekinist delivered
USD 1.7 billion, Sandostatin USD 1.4 billion, Afinitor/
Votubia USD 0.9 billion and Kisqali USD 0.9 billion. The
highest growth coming from Kisqali, followed by Tafinlar
+ Mekinist, and Tabrecta, offsetting decline in Afinitor/
Votubia, Votrient and other mature brands.
Tafinlar + Mekinist (USD 1.7 billion, +10%, +8% cc), the
worldwide targeted therapy leader in BRAF/MEK-inhibi-
tion, continued to deliver strong growth driven by demand
in both BRAF+ adjuvant / metastatic melanoma and
BRAF+ advanced non-small cell lung cancer (NSCLC).
Tafinlar + Mekinist is the first and only targeted therapy
to achieve both five-year overall survival (OS) in meta-
static melanoma and five-year relapse-free survival
(RFS) in adjuvant melanoma.
Sandostatin (USD 1.4 billion, –2%, –3% cc) sales
declined due to ongoing competitive pressure in Europe
and Japan.
Afinitor/Votubia (USD 938 million, –13%, –14% cc)
declined due to generic competition in the US, Europe
and Emerging Growth Markets. In the US, generic com-
petition for the 10 mg and disperse formulation entered
in October 2021.
Kisqali (USD 937 million, +36%, +36% cc) sales grew
across all geographies driven by the longest overall sur-
vival benefit ever reported in HR+/HER2- advanced
breast cancer. New overall survival data presented at
The San Antonio Breast Cancer Symposium provide fur-
ther evidence of the Kisqali unique benefit across the
most common intrinsic subtypes, including HER2-en-
riched subtype, suggesting that Kisqali re-sensitizes
ET-resistent tumors to hormonal therapy and support-
ing the scientific rationale for the Phase III HARMONIA
trial comparing Kisqali to palbociclib. Kisqali is approved
in 96 countries.
Votrient (USD 577 million, –9%, –10% cc) declined
due to increased competition in the US, Europe and
Japan.
Lutathera (USD 475 million, +7%, +6% cc) sales grew
in all the regions. There are 450 centers now actively
treating patients globally. Sales from all AAA brands
(including Lutathera and radiopharmaceutical diagnos-
tic products) were USD 717 million.
Piqray (USD 329 million, +3%, +3% cc) grew in Europe
and Emerging Growth Markets, partially offset by a
decline in the US. Piqray in combination with fulvestrant
received European Commission (EC) approval to treat
HR+/HER2- advanced breast cancer with a PIK3CA
mutation. Piqray is the first and only therapy specifically
for the approximately 40% of HR+/HER2- advanced
breast cancer patients who have a PIK3CA mutation,
which is associated with poor prognosis. Piqray is
approved in more than 60 countries.
Tabrecta (USD 90 million, +157%, +155% cc) US
launch continues to progress well. All leading lung can-
cer institutions have started patients on treatment with
more than 1,000 unique prescribers LTD and Tabrecta
maintains its strong position as the number one pre-
scribed MET inhibitor for NSCLC in the US. Tabrecta is
the first and only therapy approved by the FDA to spe-
cifically target metastatic NSCLC with a mutation that
leads to MET exon 14 skipping (METex14), as detected
by an FDA-approved test using tissue and blood. Tabrecta
is approved in nine countries.
Novartis Pharmaceuticals business unit
Immunology, Hepatology and Dermatology
Sales in the Immunology, Hepatology and Dermatology
franchise reached USD 5.8 billion (+19%, +18% cc), of
which Cosentyx delivered USD 4.7 billion.
Cosentyx (USD 4.7 billion, +18%, +17% cc) saw strong
growth driven by sustained underlying demand across
indications in the US and Europe and volume growth in
China following National Reimbursement Drug List
(NRDL) listing in the first quarter of 2021. In 2021, Novartis
received an EU label update for Cosentyx to include effi-
cacy data on axial manifestations in patients with psori-
atic arthritis, based upon data from the MAXIMISE trial.
Cosentyx received approval in the US and China for mod-
erate to severe plaque psoriasis in pediatric patients
aged six years and older. Cosentyx also received US
58
Item 5. Operating and Financial Review and Prospects
approval for the treatment of active enthesitis-related
arthritis (ERA) in patients aged four years and older, and
active juvenile psoriatic arthritis (JPsA) in patients aged
two years and older. Two hidradenitis suppurativa (HS)
Phase III studies (SUNRISE and SUNSHINE) met their
primary endpoint, with more patients treated with
Cosentyx achieving an HS Clinical Response (HiSCR),
compared with placebo, at week 16.
Ilaris (USD 1.1 billion, +21%, +22% cc) strong sales
were driven by continued growth across all regions. Con-
tributors to continuing growth include launch of adult-on-
set Still’s disease, the other adult rheumatology indica-
tions in the US and Periodic Fever Syndromes (PFS)
indications in Europe.
Neuroscience
Sales in the Neuroscience franchise were USD 5.1 billion
(+17%, +15% cc), mainly driven by the sales growth of
Kesimpta and Zolgensma, partly offset by sales decline
of Gilenya.
Gilenya (USD 2.8 billion, –7%, –9% cc) sales declined
due to increased competition.
Zolgensma (USD 1.4 billion, +47%, +46% cc) access
continued to expand globally throughout 2021. Zolgensma
had a strong fourth quarter with year-over-year growth
driven by expanding access in Europe and Emerging
Growth Markets, combined with steady US sales.
Zolgensma is now approved in 42 countries.
Kesimpta (USD 372 million) sales were driven by
strong access and increased demand. To initiate access,
Kesimpta is being provided free of charge for US patients
who are eligible for reimbursement until they are covered
by their insurance. The share of free goods is decreas-
ing as reimbursement progresses. In March, Kesimpta
received EC approval. Kesimpta is now approved in 64
countries.
Mayzent (USD 281 million, +65%, +65% cc) contin-
ued to grow, driven by fulfilling an important unmet need
in multiple sclerosis (MS) patients showing signs of pro-
gression despite being on other treatments. Mayzent is
the first and only oral disease modifying therapy (DMT)
studied and proven to delay disease progression in a
broad secondary progressive multiple sclerosis (SPMS)
patient population. Mayzent is now approved in 67 coun-
tries.
Aimovig (USD 215 million, ex-US, ex-Japan +31%,
+27% cc). Effective January 1, 2022, Novartis and Amgen
reached an agreement to settle all remaining claims in
the litigation between the companies. Novartis returns
its Aimovig US rights to Amgen, which is now exclusively
commercializing Aimovig in the US. Novartis’ ex-US rights
remain unaffected and Novartis will continue to commer-
cialize Aimovig in the rest of the world, with the excep-
tion of Japan. Amgen will no longer pay royalties to
Novartis on sales of Aimovig in the United States, and
the parties’ cost sharing for commercialization of Aimovig
in the United States ceases. The parties will continue to
share development expenses worldwide in accordance
with the relevant agreements. Other terms of the settle-
ment are confidential. Aimovig has been prescribed to
over 620,000 patients worldwide in the post-trial setting.
See also “Item 18. Financial Statements—Note 20. Pro-
visions and other non-current liabilities.”
Ophthalmology
Sales in the Ophthalmology franchise were USD 4.3 bil-
lion (–2%, –4% cc).
Lucentis (USD 2.2 billion, +12%, +8% cc) sales growth
was driven by Europe and Emerging Growth Markets,
partly offset by decline in Japan.
Xiidra (USD 468 million, +24%, +24% cc) showed dou-
ble-digit growth, driven by a solid and sustainable
increased brand awareness among diagnosed patients
suffering from signs and symptoms of dry eye disease
and a lower prior year base due to COVID-19.
Beovu (USD 186 million, –2%, –3% cc) sales declined
in the US partly offset by growth in other markets versus
prior year following continued geographic expansion.
Beovu is now approved in 73 countries.
Other Ophthalmology products declined due to generic
impacts in the US, primarily for Travatan and Ciprodex.
Cardiovascular, Renal and Metabolism
Sales in the Cardiovascular, Renal and Metabolism fran-
chise were USD 3.6 billion (+43%, +40% cc).
Entresto (USD 3.5 billion, +42%, +40% cc) sustained
strong growth with increased patient share across mar-
kets, driven by demand as the essential first-choice ther-
apy for heart failure patients (with reduced ejection frac-
tion). Sales in the US continue to benefit from FDA
approval in February of an expanded indication in patients
with left ventricular ejection fraction (LVEF) below nor-
mal, making Entresto the first therapy indicated for heart
failure with reduced ejection fraction (HFrEF) and most
heart failure patients with preserved ejection fraction
(HFpEF). The European Society of Cardiology heart fail-
ure guidelines and the American College of Cardiology
Expert Consensus Decision Pathway recommend
Entresto as first-line heart failure therapy. In China,
Entresto has been listed in the National Reimbursement
Drug List (NRDL) for both HFrEF and hypertension,
effective January 2022.
Leqvio (USD 12 million) is the first and only small-in-
terfering RNA therapy to reduce LDL cholesterol, a risk
factor for atherosclerotic cardiovascular disease
(ASCVD), which is caused by plaque buildup in the arter-
ies. Leqvio is administered by a healthcare professional
twice a year as an injection, following an initial dose and
a dose at three months. On December 22, 2021, it was
approved in the US to treat adults with clinical ASCVD
or heterozygous familial hypercholesterolemia (HeFH),
as an adjunct to diet and maximally tolerated statin ther-
apy, who require additional lowering of LDL cholesterol.
In the EU and other countries, it is approved to treat
adults with primary hypercholesterolemia (heterozygous
familial and non-familial) or mixed dyslipidemia. It is used
in combination with a statin or a statin with other lip-
id-lowering therapies in patients unable to reach LDL
cholesterol goals with the maximum tolerated dose of a
statin, or alone or in combination with other lipid-lower-
ing therapies in patients who are statin-intolerant or for
whom a statin is contraindicated.
Respiratory and Allergy
Sales in the Respiratory and Allergy franchise were USD
2.1 billion (+9%, +6% cc), of which Xolair delivered USD
1.4 billion.
59
Item 5. Operating and Financial Review and Prospects
Xolair (USD 1.4 billion, +14%, +12% cc) continued
growth, mainly driven by the chronic spontaneous urti-
caria (CSU) and severe allergic asthma (SAA) indica-
tions. The indication of nasal polyps has been approved
and currently launched in the US, Germany, Canada and
several other countries. In April 2021 the FDA approved
Xolair for self-injection; this formulation in the US in the
second quarter of 2021. Novartis co-promotes Xolair with
Genentech in the US and shares a portion of operating
income, but does not record any US sales.
Ultibro Group (USD 584 million, –6%, –10% cc) sales
declined mainly in Europe due to competition. Ultibro
Group consists of Ultibro Breezhaler, Seebri Breezhaler
and Onbrez Breezhaler.
Galvus Group (USD 1.1 billion, –9%, –8% cc) declined
across all regions, mainly in Emerging Growth Markets
due to generic competition and in Japan due to the exclu-
sive promotion agreement.
Exforge Group (USD 901 million, –8%, –11% cc)
declined mainly due to generic competition and the
impact of Volume-Based procurement in China.
Diovan Group (USD 773 million, –23%, –25% cc)
declined mainly due to generic competition and the
impact of Volume- Based procurement in China.
Zortress/Certican (USD 431 million, –5%, –6% cc)
declined mainly due to generic competition in the US.
Voltaren/Cataflam (USD 373 million, +4%, +3% cc)
grew in Emerging Growth Markets, partially offset by
decline in Europe and Japan.
Established Medicines
The Established Medicines franchise had sales of USD
5.7 billion (–9%, –10% cc).
Neoral/Sandimmun(e) (USD 368 million, –6%, –8%
cc) declined across all markets mainly due to generic
competition.
Sandoz
Net sales were USD 9.6 billion (0%, –2% cc). Volume
increased by 7 percentage points from growth in Bio-
pharmaceuticals and 1 percentage point relating to con-
tract manufacturing revenue reclassification, partly off-
set by the impact of softer Retail demand, with a weak
cough and cold season in the first half. Volume growth
was more than offset by a negative price effect of 9 per-
centage points mainly due to increasing competition and
the impact of prior year off-contract sales in the US. We
continue to see an impact of COVID-19, particularly for
the Retail Generics and third-party Anti-Infectives busi-
nesses. However, the effects have been more moderate
in recent months and the Sandoz business is continuing
to normalize.
Sales in Europe were USD 5.3 billion (+1%, –2% cc),
in the US USD 1.8 billion (–15%), in Asia / Africa / Austral-
asia USD 1.7 billion (+11%, +9% cc) and in Canada and
Latin America USD 872 million (+13%, +10% cc). Sales in
Europe declined due to the impact of COVID-19 on the
Retail Generics business. The sales decline in the US
was due to the negative price effect in the Retail Gener-
ics business, especially oral solids, which were addition-
ally impacted by partnership terminations, as well as prior
year Biopharmaceuticals off-contract sales.
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, 2021 Dec 31, 2020
Retail Generics1
7 092
Biopharmaceuticals 2 116
7 244
1 928
Anti-Infectives
(partner label/API)1
423
474
Total Sandoz
9 631
9 646
Change
in USD
%
– 2
10
– 11
0
Change in
constant
currencies
%
– 4
7
– 12
– 2
1 Sandoz total anti-infectives net sales amounted to USD 1.1 billion (2020: USD 1.2
billion), of which USD 707 million (2020: USD 694 million) is sold through the Retail
Generics business franchise and USD 423 million (2020: USD 474 million) is sold to
other third-party companies through the Anti-Infectives business franchise.
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 are, as well as finished dos-
age form of anti-infectives sold to third parties.
Retail sales were USD 7.1 billion (–2%, –4% cc), declin-
ing due to the above-mentioned factors.
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 2.1 billion (+10%, +7% cc), driven by contin-
ued growth outside the US and Ziextenzo (pegfilgrastim)
US.
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 1.1 bil-
lion (–3%, –5% cc) impacted by softer retail demand.
These sales were including finished dosage forms sold
under the Sandoz name (USD 707 million, 2%, 0% cc)
and Anti-Infectives sold to third-parties for sale under
their own name (USD 423 million, –11%, –12% cc).
On October 26, 2021, Novartis has announced that it will
commence a strategic review of the Sandoz Division. The
review will explore all options, ranging from retaining the
business to separation, in order to determine how to best
maximize value for our shareholders.
60
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, 2021
10 688
1 600
– 599
% of
net sales
to third
Year ended
parties Dec 31, 2020
25.5
16.6
9 172
1 043
– 63
% of
net sales
to third
parties
23.5
10.8
Operating income from continuing operations
11 689
22.6
10 152
20.9
Change
in USD
%
Change in
constant
currencies
%
17
53
nm
15
15
48
nm
13
Operating income from continuing operations was USD 11.7 billion (+15%, +13% cc), mainly driven by higher sales
and lower legal expenses, partly offset by increased M&S and R&D investments and higher amortization.
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, 2021 Dec 31, 2020
41 097
38 663
– 14 815
– 14 093
– 9 041
– 8 484
421
323
– 1 074
– 993
16 588
15 416
32.1
31.7
Change
in USD
%
Change in
constant
currencies
%
6
– 5
– 7
30
– 8
8
5
– 3
– 5
29
– 8
6
1 For an explanation of non-IFRS measures and reconciliation tables, see “—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 4.9 billion
(compared to USD 5.3 billion in the prior year). For details,
please see “—Non-IFRS measures as defined by
Novartis—2021 and 2020 reconciliation from IFRS
results to core results.”
Core operating income from continuing operations
was USD 16.6 billion (+8%, +6% cc) benefiting from
higher sales, partly offset by increased M&S and R&D
investments. Core operating income margin was 32.1%
of net sales, increasing by 0.4 percentage points (+0.5
percentage 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, 2021
15 215
2 064
– 691
% of
net sales
to third
Year ended
parties Dec 31, 2020
36.2
21.4
13 645
2 334
– 563
% of
net sales
to third
parties
35.0
24.2
Core operating income from continuing operations
16 588
32.1
15 416
31.7
Change
in USD
%
12
– 12
– 23
8
Change in
constant
currencies
%
10
– 14
– 20
6
Innovative Medicines
Operating income was USD 10.7 billion (+17%, +15% cc),
mainly driven by sales growth, lower impairments and
lower legal expenses, partly offset by higher spend,
amortization and restructuring. Operating income mar-
gin was 25.5% of net sales, increasing 2.0 percentage
points (+2.0 percentage points cc).
Core adjustments were USD 4.5 billion, mainly due
to amortization. Core adjustments were in line with prior
year (USD 4.5 billion) as lower impairments and lower
legal expenses were offset by higher amortization and
restructuring.
Core operating income was USD 15.2 billion (+12%,
+10% cc) mainly driven by sales growth and productiv-
61
Item 5. Operating and Financial Review and Prospects
ity, partly offset by higher spend. Core operating income
margin was 36.2% of net sales, increasing 1.2 percent-
age points (+1.3 percentage points cc).
lower sales. Core operating income margin was 21.4%
of net sales, decreasing 2.8 percentage points (-2.9 per-
centage points cc) versus prior year.
Core gross margin increased by 0.6 percentage
points (cc). Core R&D expenses as a percentage of net
sales decreased by 0.2 percentage points (cc). Core sell-
ing, general and administration (SG&A) expenses as a
percentage of net sales decreased by 0.6 percentage
points (cc). Core other income and expense decreased
the margin by 0.1 percentage points (cc).
Sandoz
Operating income was USD 1.6 billion (+53%, +48% cc),
mainly driven by lower legal settlements, lower impair-
ments and lower amortization partly offset by unfavor-
able gross margin and lower sales. Operating income
margin increased by 5.6 percentage points in constant
currencies. Currency had a positive impact of 0.2 per-
centage points, resulting in a net increase of 5.8 percent-
age points to 16.6% of net sales.
Core adjustments were USD 464 million, including
USD 236 million of amortization. Prior year core adjust-
ments were USD 1.3 billion. The change in core adjust-
ments compared to prior year was driven by lower legal
settlements, lower impairments and lower amortization.
Core operating income was USD 2.1 billion (–12%,
–14% cc), declining due to unfavorable gross profit and
Core gross margin as a percentage of sales decreased
by 2.4 percentage points (cc), due to unfavorable price
effects and product and geographic mix. Core R&D
expenses as a percentage of net sales increased by 0.4
percentage points (cc) driven by biopharmaceutical
pipeline investments. Core SG&A expenses increased
by 0.3 percentage points (cc) mainly due to lower sales.
Core other income and expense increased the margin
by 0.2 percentage points (cc) driven by higher divest-
ment income.
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 599 million, compared
to an expense of USD 63 million in prior year, mainly
driven by royalty settlement gains related to intellectual
property rights in the prior year, lower contributions from
the Novartis Venture Fund, prior year fair value adjust-
ment on contingent receivables related to intellectual
property rights and adjustments to provision on M&A
transactions.
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, 2021 Dec 31, 2020
– 3 209
– 2 737
– 5 432
– 5 381
– 8 641
– 8 118
20.6
20.8
– 2 809
– 2 682
– 5 341
– 4 954
– 8 150
– 7 636
19.4
19.6
Change
in USD
%
– 17
– 1
– 6
– 5
– 8
– 7
Change in
constant
currencies
%
– 16
1
– 5
– 4
– 6
– 5
1 Core results exclude impairments, amortization and certain other items. For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS measures as defined
by Novartis.”
Innovative Medicines Division research and exploratory
development expense increased by 17% (+16% cc) to
USD 3.2 billion, mainly due to higher impairment charges.
Confirmatory development expense amounted to USD
5.4 billion, in line with prior year.
Total core research and development expense in the
Innovative Medicines Division as a percentage of sales
decreased by 0.2 percentage points (0.2 percentage
points cc) to 19.4% of net sales, mainly driven by higher
net sales.
62
Item 5. Operating and Financial Review and Prospects
Non-operating income and expense from continuing operations
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
Income taxes
Net income
Attributable to:
Shareholders of Novartis AG
Non-controlling interests
Total basic earnings per share (USD)
nm = not meaningful
Year ended
Year ended
Dec 31, 2021 Dec 31, 2020
11 689
10 152
15 339
– 811
– 80
673
– 869
– 78
26 137
9 878
– 2 119
– 1 807
24 018
8 071
Change
in USD
%
Change in
constant
currencies
%
15
nm
7
– 3
165
– 17
198
13
nm
6
44
163
– 17
195
24 021
8 072
– 3
10.71
– 1
3.55
198
– 200
202
195
– 200
200
Income from associated companies
Income from associated companies increased to USD
15.3 billion in the current year from USD 673 million in
the prior year, an increase of USD 14.7 billion. This
increase was mainly due to the gain of USD 14.6 billion
recognized on the divestment of our investment in Roche.
As a result of the decision to divest our investment in
Roche, the Group discontinued the recognition of its
share of income of Roche from November 3, 2021.
Excluding the divestment gain from our investment
in Roche, income from associated companies increased
to USD 783 million, compared to USD 673 million in prior
year, mainly due to the increase in the share of income
from Roche. The estimated income for Roche through
November 3, 2021, net of amortization, was USD 745 mil-
lion compared to USD 741 million in prior full year period.
A positive prior year true up of USD 40 million has been
recognized in the first quarter of 2021, compared to a
negative true up of USD 64 million in the first quarter of
2020.
Interest expense and other financial income and
expense
Interest expense decreased to USD 811 million from USD
869 million in prior year, mainly due to lower interest
expense on financial debts.
Other financial income and expense amounted to a
net expense of USD 80 million in line with a net expense
of USD 78 million in the prior year.
Income taxes
The tax rate was 8.1% compared to 18.3% in the prior
year. In the current year, the tax rate decreased due to
the impact of the divestment gain recognized on the sale
of our investment in Roche, partially offset by uncertain
tax positions and prior year items. The prior year tax rate
was impacted by the effect of non-deductible legal
charges and uncertain tax positions.
Excluding these impacts, the rate would have been
15.7% compared to 15.6% in the prior year. The increase
from prior year was mainly the result of a change in profit
mix.
Net income
Net income was USD 24.0 billion, benefiting from the
USD 14.6 billion gain from the divestment of our invest-
ment in Roche.
Earnings per share
Basic earnings per share were USD 10.71 compared to
USD 3.55 in the prior year.
63
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 income taxes
Core net income
Core basic earnings per share (USD)
Change
in USD
%
Change in
constant
currencies
%
Year ended
Year ended
Dec 31, 2021 Dec 31, 2020
16 588
15 416
993
– 811
– 41
1 097
– 869
– 83
16 729
15 561
8
– 9
7
51
8
– 2 635
– 2 403
– 10
14 094
13 158
6.29
5.78
7
9
6
– 9
6
39
6
– 8
5
7
Core income from associated companies
Core income from associated companies decreased to
USD 1.0 billion from USD 1.1 billion in prior year due to a
lower estimated core income contribution from Roche
for the current period due to the discontinuance of the
recognition of the Group’s share of income of Roche from
November 3, 2021, as a result of the decision to divest
our investment in Roche.
Core interest expense and other financial income
and expense
Core interest expense decreased to USD 811 million from
USD 869 million in prior year, mainly due to lower inter-
est expense on financial debts.
Core other financial income and expense amounted
to a net expense of USD 41 million compared to a net
expense of USD 83 million in the prior year mainly due
to lower currency losses.
Core income taxes
The core tax rate (core taxes as a percentage of core
income before tax from continuing operations) was
15.8% compared to 15.4% in the prior year. The increase
from prior year was mainly the result of a change in profit
mix.
Core net income
Core net income was USD 14.1 billion (+7%, +5% cc).
Core earnings per share
Core EPS was USD 6.29 (+9%, +7% cc), growing faster
than core net income and benefiting from lower weighted
average number of shares outstanding.
1 For an explanation of non-IFRS measures and reconciliation tables, see “—Non-IFRS
measures as defined by Novartis.”
64
Item 5. Operating and Financial Review and Prospects
Factors affecting comparability of year-on-year results
of operations
Significant transactions
in 2021 and 2020
long-term strategy to focus Novartis as a leading
medicines company, we announced and/or completed
several acquisitions and divestments during 2021 and
2020.
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
2021 and 2020, can be found in “Item 18. Financial State-
ments—Note 2. Significant transactions.”
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, 2021. 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.”
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.
65
Item 5. Operating and Financial Review and Prospects
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 per-
formance management process is not solely restricted
to these metrics. A limitation of the core results mea-
sures is that they provide a view of the Group’s opera-
tions without including all events during a period, such
as the effects of an acquisition, divestment, or amortiza-
tion/impairments of purchased intangible assets, impair-
ments to property, plant and equipment and restructur-
ings and related items.
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.
Free cash flow
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, commodities,
time deposits and net cash flows from financing activi-
ties.
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.
66
Item 5. Operating and Financial Review and Prospects
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.
Additional information
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)
2021
2020
Operating income from continuing operations 11 689
10 152
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 total Group
1 208
1 318
318
330
3 903
3 462
684
1 354
17 802
16 616
1 There were no impairments of right-of-use assets in 2021 and 2020.
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, 2021 Dec 31, 2020
196 107
214 269
167
68
22 902
26 259
6 295
9 785
– 15 922
– 1 905
– 12 407
– 9 658
197 142
238 818
67
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.
2021 and 2020 reconciliation from IFRS results to core results
(USD millions unless indicated otherwise)
2021
2020
2021
2020
2021
2020
2021
2020
IFRS operating income from continuing operations
10 688
9 172
1 600
1 043
– 599
– 63 11 689 10 152
Amortization of intangible assets
3 528
2 999
236
366
3 764
3 365
Innovative Medicines
Sandoz
Corporate
Group
Impairments
Intangible assets
Property, plant and equipment related to the Group-wide
rationalization of manufacturing sites
Other property, plant and equipment
Total impairment charges
Acquisition or divestment of businesses and related items
- Income
- Expense
Total acquisition or divestment of
businesses and related items, net
Other items
Divestment gains
360
759
27
141
387
900
219
321
7
112
40
2
619
1 080
34
255
226
433
40
2
653
1 335
– 2
– 5
1
107
– 64
106
– 73
89
– 66
107
– 78
218
22
– 1
102
22
42
16
41
140
– 649
– 348
– 4
– 27
– 75
– 39
– 728
– 414
Financial assets – fair value adjustments
– 43
– 153
5
– 183
– 38
– 336
Restructuring and related items
- Income
- Expense
Legal-related items
- Income
- Expense
Additional income
Additional expense
Total other items
Total adjustments
– 32
833
– 36
484
– 36
193
– 30
252
– 6
32
– 28
– 74
35
1 058
– 94
771
170
555
– 139
– 264
– 11
53
– 1
406
– 26
– 11
223
935
– 6
– 138
– 361
– 278
– 631
241
381
54
53
48
86
292
194
648
– 134
– 516
289
441
193
424
4 527
4 473
464
1 291
– 92
– 500
4 899
5 264
Core operating income from continuing operations
15 215 13 645
2 064
2 334
– 691
– 563 16 588 15 416
as % of net sales
36.2% 35.0% 21.4% 24.2%
32.1% 31.7%
Income from associated companies
5
1
2
2 15 332
670 15 339
Core adjustments to income from associated companies, net of tax
– 14 346
424 – 14 346
673
424
Interest expense
Other financial income and expense
Core adjustments to other financial income and expense
Income taxes, adjusted for above items (core income taxes)
Core net income
Core net income attributable to shareholders of Novartis AG
Core basic EPS (USD) 1
1 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
– 811
– 869
– 80
– 78
39
– 5
– 2 635 – 2 403
14 094 13 158
14 097 13 159
6.29
5.78
68
Item 5. Operating and Financial Review and Prospects
2021 and 2020 reconciliation from IFRS results to core results – Group
2021 (USD millions unless indicated otherwise)
Gross profit from continuing operations
Operating income from continuing operations
Income before taxes from continuing operations
Income taxes 5
Net income
Basic EPS (USD) 6
Amortization
of intangible
assets 1
IFRS results
Acquisition or
divestment of
businesses and
related items 3
Impairments 2
Other
items 4 Core results
37 010
11 689
26 137
– 2 119
24 018
10.71
3 655
3 764
3 974
18
653
41
653
– 14 531
414
441
496
41 097
16 588
16 729
– 2 635
14 094
6.29
The following are adjustments to arrive at core gross profit
Cost of goods sold
– 15 867
3 655
18
414
– 11 780
The following are adjustments to arrive at core operating income
Selling, general and administration
Research and development
Other income
Other expense
– 14 886
– 9 540
1 852
– 2 747
109
369
– 100
366
71
21
– 14 815
– 9 041
– 66
107
– 1 265
421
1 200
– 1 074
The following are adjustments to arrive at core income before taxes
Income from associated companies
Other financial income and expense
15 339
210
– 14 556
– 80
– 16
55
993
– 41
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 210 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 and other expense include reversals of
impairment charges and impairment charges related to property, plant and equipment
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income includes adjustments to portfolio transformation and Alcon
spin-off accruals; other income and other expense include transitional service-fee income and expenses related to the Alcon distribution; other expense also includes adjustments
to provisions; income from associated companies includes the gain related to the divestment of our investment in Roche; other financial income and expense includes other
financial gains related to the divestment of our investment in Roche
4 Other items: cost of goods sold, research and development, 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, other income and other expense include other restructuring income and charges and related items;
cost of goods sold, research and development, other income and other expense also include adjustments to contingent considerations; selling, general and administration,
research and development, other income and other expense include adjustments to provisions; other income and other expense also include gains and losses from the divestment
of products and financial assets and fair value adjustments on financial assets, adjustments to environmental provisions and legal-related items; other financial income and
expense includes a charge related to the monetary loss due to hyperinflation in Argentina and Venezuela and 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 of USD 9.4 billion to arrive at the core results before tax amounts to USD 516 million. Excluding the gain on the
divestment of our investment in Roche, the tax on the total adjustments of USD 5.2 billion to arrive at the core results before tax amounts to USD 516 million and the average tax
rate on the adjustments was 10.0%.
6 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
69
Item 5. Operating and Financial Review and Prospects
2020 (USD millions unless indicated otherwise)
Gross profit from continuing operations
Operating income from continuing operations
Income before taxes from continuing operations
Income taxes 5
Net income
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
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
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 Income 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.
70
Item 5. Operating and Financial Review and Prospects
2021 and 2020 reconciliation from IFRS results to core results – Innovative Medicines
2021
(USD millions)
Gross profit
Operating income
Amortization
of intangible
assets 1
IFRS results
32 218
10 688
3 419
3 528
Acquisition or
divestment of
businesses and
related items 3
Impairments 2
619
– 1
Other
items 4 Core results
344
381
35 981
15 215
The following are adjustments to arrive at core gross profit
Cost of goods sold
– 11 751
3 419
344
– 7 988
The following are adjustments to arrive at core operating income
Selling, general and administration
Research and development
Other income
Other expense
– 12 306
– 8 641
1 149
– 1 732
109
360
– 45
304
71
22
– 12 235
– 8 150
– 2
1
– 837
781
265
– 646
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 related to intangible assets; other income and other expense include reversals of impairment charges and
impairment charges related to property, plant and equipment
3 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
4 Other items: cost of goods sold, research and development, 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, other income and other expense include other restructuring income and charges and related items;
cost of goods sold, research and development and other expense include adjustments to contingent considerations; selling, general and administration, research and development
and other expense include adjustments to provisions; other income and other expense include gains and losses from the divestment of products and financial assets and fair value
adjustments on financial assets; other expense also includes legal-related items and adjustments to environmental provisions
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
71
Item 5. Operating and Financial Review and Prospects
2021 and 2020 reconciliation from IFRS to core results – Sandoz
2021
(USD millions)
Gross profit
Operating income
Amortization
of intangible
assets 1
IFRS results
Acquisition or
divestment of
businesses and
related items
Impairments 2
4 725
1 600
236
236
18
34
Other
items 3 Core results
70
194
5 049
2 064
The following are adjustments to arrive at core gross profit
Cost of goods sold
– 5 147
236
18
70
– 4 823
The following are adjustments to arrive at core operating income
Research and development
Other income
Other expense
– 899
233
– 397
9
– 55
62
– 1
– 51
176
– 891
127
– 159
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 and other expense include reversals of
impairment charges and impairment charges related to property, plant and equipment
3 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 and
other restructuring income and charges and related items; research and development includes adjustments to provisions; other income includes net gains from the divestment of a
product; other income and other expense include legal-related items
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
72
Item 5. Operating and Financial Review and Prospects
2021 and 2020 reconciliation from IFRS results to core results – Corporate
Amortization
of intangible
assets
IFRS results
Acquisition or
divestment of
businesses and
related items 1
Impairments
2021
(USD millions)
Gross profit
Operating loss
The following are adjustments to arrive at core operating loss
Other income
Other expense
67
– 599
470
– 618
Other
items 2 Core results
67
42
– 134
– 691
– 64
106
– 377
29
243
– 269
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 includes adjustments to portfolio transformation and Alcon
spin-off accruals; other income and other expense include transitional service fee income and expenses related to the Alcon distribution; other expense also includes adjustments
to provisions
2 Other items: other income includes an adjustment to a contingent consideration receivable; 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
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
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
73
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/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 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
2021
2020
15 071
13 650
4 208
– 13 055
– 127
– 16 264
– 2 158
– 266
– 50
286
2 749
– 1 454
14 017
1 571
6 847
– 8 660
23 613
– 8 543
– 24 481
– 15 938
– 868
– 24 481
Financial year 2021 compared to 2020
Net cash flows from operating activities from continuing
operations amounted to USD 15.1 billion, compared to
USD 13.6 billion in 2020. This increase was mainly driven
by higher net income adjusted for non-cash items and
other adjustments, including divestment gains, and lower
payments out of provisions, mainly due to legal matters
in the prior year. This was partly offset by unfavorable
hedging results.
USD 0.3 billion); USD 1.4 billion for net purchases of mar-
ketable securities, commodities and time deposits; USD
1.3 billion for purchases 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 (includ-
ing USD 0.3 billion proceeds from the sale of Alcon Inc.
shares) and USD 0.4 billion from the sale of intangible
assets.
Net cash inflows from investing activities from con-
tinuing operations amounted to USD 4.2 billion, com-
pared to net cash outflows of USD 13.1 billion in 2020.
Net cash outflows used in financing activities from
continuing operations amounted to USD 16.3 billion,
compared to USD 2.2 billion in 2020.
The current year cash inflows were driven by pro-
ceeds of USD 20.7 billion from the divestment of our
investment in Roche; USD 2.3 billion from the sale of mar-
ketable securities, commodities and time deposits; and
USD 1.4 billion from the sale of intangible assets, finan-
cial assets and property, plant and equipment. These
cash inflows were partly offset by USD 16.4 billion cash
outflows for purchases of marketable securities and time
deposits, mainly due to the investment of a portion of the
proceeds from the divestment of our investment in
Roche; USD 1.6 billion for purchases of intangible assets
(including the upfront payment to in-license tislelizumab
from an affiliate of BeiGene, Ltd); USD 1.4 billion for pur-
chases of property, plant and equipment; USD 0.6 billion
for acquisitions and divestments of businesses, net
(including the acquisition of GSK’s cephalosporin anti-
biotics business for USD 351 million); and USD 0.2 billion
for purchases of financial assets.
In 2020, net cash outflows used in investing activi-
ties from continuing operations of USD 13.1 billion 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
Japanese business of Aspen Global Incorporated for
The current year cash outflows were driven by USD
7.4 billion for the dividend payment; USD 3.0 billion for
net treasury share transactions; USD 3.5 billion net
decrease in current financial debts; and USD 2.2 billion
for the repayment of two bonds denominated in euro
(notional amount of EUR 1.25 billion and of EUR 0.6 bil-
lion) at maturity. Payments of lease liabilities and other
financing cash flows resulted in a net cash outflow of
USD 0.2 billion.
In 2020, net cash outflows used in financing activi-
ties from continuing operations of USD 2.2 billion 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 matu-
rity; USD 0.3 billion net payments for lease liabilities; and
USD 0.2 billion 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 finan-
cial 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.
74
Item 5. Operating and Financial Review and Prospects
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” for further information.
The following table is a reconciliation of the three major categories of the IFRS consolidated statements of cash
flows to free cash flow:
(USD millions)
Net cash flows from operating activities from
continuing operations
Net cash flows from/used in investing activities from
continuing operations 1,2
Net cash flows used in investing activities from
discontinued operations 3
2021
2020
IFRS
cash flow Adjustments
Free
cash flow
IFRS
cash flow Adjustments
15 071
15 071
13 650
Free
cash flow
13 650
4 208
– 5 997
– 1 789
– 13 055
11 096
– 1 959
– 127
127
0
Net cash flows from/used in investing activities
4 208
– 5 997
– 1 789
– 13 182
11 223
– 1 959
Net cash flows used in financing activities
from continuing operations 4
Net cash flows used in financing activities from
discontinued operations 3
– 16 264
16 264
0
– 2 158
2 158
– 50
50
Net cash flows used in financing activities
– 16 264
16 264
0
– 2 208
2 208
0
0
0
Free cash flow
13 282
11 691
1 Excluded from the free cash flow are cash flows from investing activities associated with acquisitions and divestments of businesses and of interest in associated companies,
purchases and sales of marketable securities, commodities and time deposits.
2 For the free cash flow in 2020, proceeds from the sale of financial assets exclude 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.
3 Net cash flows used in investing activities from discontinued operations are activities associated with acquisitions and divestments of businesses which are excluded from the free
cash flow. Net cash flows used in financing activities from discontinued operations are excluded from free cash flow. Free cash flow from discontinued operations was nil in 2021
and 2020.
4 Net cash flows used in financing activities are excluded from the free cash flow.
75
Item 5. Operating and Financial Review and Prospects
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 from continuing operations adjusted for non-cash items
Dividends received from associated companies and others
Interest and other financial receipts
Interest and other financial payments
Income 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
2021
2020
11 689
10 152
6 075
896
59
6 129
1 411
260
18 719
17 952
525
13
490
511
– 966
– 742
– 2 342
– 1 833
– 1 119
– 2 437
– 329
570
– 730
439
15 071
13 650
– 1 378
– 1 275
240
88
– 1 593
– 1 310
748
– 191
442
– 61
4
380
– 230
447
– 61
2
13 282
11 691
1 For the free cash flow in 2020, proceeds from the sale of financial assets exclude 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. See “Item 18. Financial Statements–Note 2. Significant transactions–Significant
transactions in 2019.”
Financial year 2021 compared to 2020
Free cash flow amounted to USD 13.3 billion (+14% USD), compared to USD 11.7 billion in 2020. This increase was
mainly driven by higher operating income adjusted for non-cash items and other adjustments, and lower payments
out of provisions, mainly due to legal matters in the prior year, partly offset by USD 650 million upfront payment to
in-license tislelizumab from an affiliate of BeiGene, Ltd.
76
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 receivables
Marketable securities, commodities, time deposits and derivative financial instruments
Cash and cash equivalents
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
Total current liabilities
Total liabilities
Total equity and liabilities
Dec 31, 2021 Dec 31, 2020 1
11 545
12 263
1 561
1 676
29 595
29 999
34 182
36 809
205
3 743
5 246
9 632
3 933
3 793
86 077
98 105
6 666
8 005
2 718
15 922
12 407
7 131
8 217
2 762
1 905
9 658
45 718
29 673
131 795
127 778
67 822
56 666
22 902
26 259
1 621
3 070
6 172
1 719
3 141
6 934
33 765
38 053
5 553
6 295
275
5 403
9 785
286
18 085
17 585
30 208
33 059
63 973
71 112
131 795
127 778
1 The December 31, 2020 deferred tax assets and deferred tax liabilities balances have been adjusted to conform with the 2021 presentation, see “Item 18. Financial Statements–
Note 12. Deferred tax assets and liabilities.”
Assets
Total non-current assets of USD 86.1 billion at Decem-
ber 31, 2021, decreased by USD 12.0 billion compared to
December 31, 2020.
Intangible assets other than goodwill decreased by
USD 2.6 billion as net additions (including the in-licens-
ing of tislelizumab from an affiliate of BeiGene, Ltd) and
acquisitions were more than offset by amortization, unfa-
vorable currency translation adjustments and impair-
ments.
Goodwill decreased by USD 0.4 billion, mainly due to
unfavorable currency translation adjustments, only par-
tially offset by additions.
Property, plant and equipment decreased by USD 0.7
billion, as net additions were more than offset by depre-
ciation, unfavorable currency translation adjustments
and net impairments.
Investments in associated companies decreased by
USD 9.4 billion mainly due to the divestment of our invest-
ment in Roche.
These decreases were partly offset by an increase
in financial and other non-current assets of USD 1.5 bil-
lion, driven by an increase in the prepaid post-employ-
ment benefit plans of USD 1.2 billion, resulting from actu-
arial gains primarily from valuation impact on plan assets
and changes in the discount rates used to calculate the
actuarial defined benefit obligations.
Right-of-use assets and deferred tax assets were
broadly in line with December 31, 2020.
Total current assets of USD 45.7 billion at December
31, 2021, increased by USD 16.0 billion compared to
December 31, 2020.
Cash and cash equivalents increased by USD 2.7 bil-
lion and marketable securities, commodities, time depos-
its and derivative financial instruments increased by USD
14.0 billion, mainly driven by the cash generated through
operating activities and the proceeds of USD 20.7 billion
from the divestment of our investment in Roche, partially
offset by the dividend payment, the purchase of treasury
shares and the repayment of a financial debt.
77
Item 5. Operating and Financial Review and Prospects
Inventories, trade receivables and other current
assets and income tax receivables were broadly in line
with December 31, 2020.
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, 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 December 31, 2021,
amounted to USD 1.3 billion (2020: USD 1.5 billion), of
which USD 27 million is past due for more than one year
(2020: USD 55 million), and for which provisions of
USD 24 million have been recorded (2020: USD 27 mil-
lion). At December 31, 2021, 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, Spain and Greece
are due directly from local governments or govern-
ment-funded entities.
For a table showing an overview of the aging analy-
sis of total trade receivables and the total amount of the
provision for doubtful trade receivables as of December
31, 2021 and 2020, see “Item 18. Financial Statements—
Note 15. Trade receivables.”
There is also a risk that certain countries could
devalue their currency. Currency exposures are
described in more detail in “—Effects of currency fluctu-
ations.”
Liabilities
Total non-current liabilities of USD 33.8 billion decreased
by USD 4.3 billion compared to December 31, 2020.
Non-current financial debts decreased by USD 3.4
billion mainly due to the reclassification of USD 2.6 bil-
lion from non-current to current financial debts, primar-
ily two USD denominated bonds with notional amounts
of USD 1.0 billion and USD 1.5 billion maturing in 2022,
and favorable currency translation adjustments of USD
0.8 billion.
Provisions and other non-current liabilities decreased
by USD 0.8 billion, primarily due to a USD 0.9 billion
decrease in accrued liabilities for defined benefit pen-
sion plans mainly due to actuarial gains primarily from
valuation impact on plan assets and the changes in dis-
count rates used to calculate the actuarial defined ben-
efit obligations.
Non-current lease liabilities and deferred tax liabili-
ties were broadly in line with December 31, 2020.
Total current liabilities of USD 30.2 billion decreased
by USD 2.9 billion compared to December 31, 2020.
Provisions and other current liabilities and current
income tax liabilities increased by USD 0.5 billion mainly
due to an increase in the treasury share repurchase obli-
gation of USD 1.0 billion, which was partially offset by a
decrease of USD 0.4 billion in other current provisions.
Current financial debts and derivative financial instru-
ments decreased by USD 3.5 billion mainly due to the
repayment of a USD 1.5 billion bond denominated in euro
(notional amount of EUR 1.25 billion) and USD 0.7 billion
bond denominated in euro (notional amount of EUR 0.6
billion) at maturity, repayments of current financial debts
of USD 3.5 billion and favorable currency translation
adjustments of USD 0.3 billion, partly offset by the reclas-
sification from non-current to current financial debts of
USD 2.6 billion.
Current lease liabilities and trade payables were
broadly in line with December 31, 2020.
In our key countries, Switzerland and the United
States, assessments have been agreed by the tax author-
ities up to 2016 in Switzerland and up to 2014 in the
United States, 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 acquisi-
tion, has an open position related to the tax years 2014
and 2015. Uncertainties also exist on the application of
a taxing right based on a German non-resident tax reg-
ulation for specific revenues derived from German reg-
istered 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 11.2 billion to USD
67.8 billion at December 31, 2021, compared to Decem-
ber 31, 2020.
This increase was mainly due to the net income of
USD 24.0 billion, net actuarial gains of USD 1.8 billion,
equity-based compensation of USD 0.7 billion and the
net favorable fair value adjustments on financial instru-
ments of USD 0.2 billion.
This was partially offset by the cash-dividend pay-
ment of USD 7.4 billion, purchases of treasury shares of
USD 2.9 billion, the increase of the treasury share repur-
chase obligation of USD 1.0 billion and unfavorable cur-
rency translation differences of USD 4.8 billion.
78
Item 5. Operating and Financial Review and Prospects
Summary of equity movements attributable to Novartis AG shareholders
Balance at beginning of year
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
Increase of treasury share repurchase
obligation under a share buyback trading plan
Transaction costs, net of taxes
Dividends
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 1
Balance at end of year
Number of outstanding shares
(in millions)
Equity attributable to
Novartis AG shareholders
2021
2020
2021
2020 USD millions USD millions
2 256.8
2 265.0
56 598
55 474
– 30.7
– 32.6
– 2 775
– 2 897
– 1.5
0.6
9.6
0.1
– 1.7
14.7
11.0
0.4
– 145
– 159
39
745
17
1
806
– 89
730
30
32
– 1 040
– 1 769
12
– 7 368
– 6 987
24 021
– 2 493
– 5
48
8 072
3 331
6
18
2 234.9
2 256.8
67 655
56 598
1 Impact of hyperinflationary economies (see “Item 18. Financial Statements—Note 1. Significant accounting policies”).
In 2021, Novartis repurchased a total of 30.7 million
shares for USD 2.8 billion on the SIX Swiss Exchange
second trading line, including 19.6 million shares (USD
1.8 billion) under the up-to USD 2.5 billion share buyback
announced in November 2020, 8.6 million shares (USD
0.8 billion) to mitigate dilution related to participation
plans of employees and 2.5 million shares (USD 0.2 bil-
lion) under the up-to USD 15 billion share buyback
announced in December 2021. In addition, 1.5 million
shares (USD 0.1 billion) were repurchased from employ-
ees. In the same period, 10.3 million shares (for an equity
value of USD 0.8 billion) were delivered as a result of
options exercised and share deliveries related to partic-
ipation plans of employees. Consequently, the total num-
ber of shares outstanding decreased by 21.9 million ver-
sus December 31, 2020. These treasury share
transactions resulted in a decrease in equity of USD 2.1
billion and a net cash outflow of USD 3.0 billion.
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 employees. In addition, 1.7 million
shares (USD 0.2 billion) were repurchased from employ-
ees. 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 employees. 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.
Treasury shares
At December 31, 2021, our holding of treasury shares
amounted to 199.5 million shares, or approximately 8%
of the total number of issued shares. Approximately
102.5 million treasury shares were held in entities that
restrict their availability for use.
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
103.0 million treasury shares were held in entities that
restrict their availability for use.
79
Item 5. Operating and Financial Review and Prospects
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 2021 and 2020, for currencies most important to the Group:
Currency
US dollar (USD)
Euro (EUR)
Swiss franc (CHF)
Chinese yuan (CNY)
Japanese yen (JPY)
Canadian dollar (CAD)
British pound (GBP)
Russian ruble (RUB)
Brazilian real (BRL)
Australian dollar (AUD)
Other currencies
2021
2020
Net sales
%
Operating
expenses
% 1
Net sales
%
Operating
expenses
% 1
35
29
2
6
5
3
3
2
1
1
13
35
26
18
3
3
2
2
1
1
1
8
36
29
2
5
6
3
2
2
2
1
12
34
27
18
3
3
1
3
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 opera-
tions as well as the reported value of our assets, liabili-
ties and cash flows. This in turn may significantly affect
reported earnings (both positively and negatively) and
the comparability of period-to-period results of opera-
tions.
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
currencies 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.
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. In 2021
and 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 cur-
rency 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 policies,” “Item 18. Financial State-
ments—Note 5. Interest expense and other financial
income and expense,” “Item 18. Financial Statements—
Note 15. Trade receivables,” “Item 18. Financial State-
ments—Note 28. Commitments and contingencies” and
“Item 18. Financial Statements—Note 29. Financial instru-
ments – additional disclosures.”
80
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
2021
0.752
0.186
0.798
1.094
0.155
1.183
1.376
0.912
1.357
2020 Change in %
0.690
0.196
0.746
1.066
0.145
1.141
1.283
0.937
1.389
9
– 5
7
3
7
4
7
– 3
– 2
2021
0.726
0.180
0.785
1.093
0.157
1.131
1.351
0.868
1.336
2020 Change in %
0.771
0.193
0.784
1.135
0.153
1.229
1.365
0.970
1.337
– 6
– 7
0
– 4
3
– 8
– 1
– 11
0
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. For additional information on the constant currency calculation (“cc”),
see “—Item 5.A Operating results—Non-IFRS measures as defined by Novartis—Constant currencies”.
Currency impact on key figures
Total Group
Net sales to third parties from continuing operations
Operating income from continuing operations
Net income
Basic earnings per share (USD)
Core operating income from continuing operations
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
Change in
USD %
2021
Change in
Percentage
constant point currency
impact
2021
currencies %
2021
6
15
198
202
8
7
9
8
17
12
0
53
– 12
4
13
195
200
6
5
7
6
15
10
– 2
48
– 14
2
2
3
2
2
2
2
2
2
2
2
5
2
Operating loss from continuing operations
Core operating loss from continuing operations
nm
– 23
nm
– 20
nm
– 3
nm = not meaningful
Change in
Change in
Percentage
constant point currency
impact
2020
USD % currencies %
2020
2020
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
106
15
nm
14
0
– 7
– 7
– 7
– 4
– 3
– 4
– 1
– 5
– 3
– 1
– 17
– 4
nm
– 3
For additional information on the effects of currency fluctuations, see “Item 18. Financial Statements—Note 29.
Financial instruments – additional disclosures.”
81
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
2021
2020
– 22 902
– 26 259
– 6 295
– 9 785
– 29 197
– 36 044
12 407
9 658
15 922
1 905
28 329
11 563
– 868
– 24 481
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 2021
Group net debt at December 31, 2021, decreased to
USD 0.9 billion, compared to USD 24.5 billion at Decem-
ber 31, 2020.
Total financial debts amounted to USD 29.2 billion at
December 31, 2021, compared to USD 36.0 billion at
December 31, 2020. Non-current financial debts
decreased by USD 3.4 billion mainly due to the reclassi-
fication of USD 2.6 billion from non-current to current
financial debts, primarily two USD denominated bonds
with notional amounts of USD 1.0 billion and USD 1.5 bil-
lion maturing in 2022, and favorable currency translation
adjustments of USD 0.8 billion.
Current financial debts and derivative financial instru-
ments decreased by USD 3.5 billion mainly due to the
repayment of a USD 1.5 billion bond denominated in euro
(notional amount of EUR 1.25 billion) and USD 0.7 billion
bond denominated in euro (notional amount of EUR 0.6
billion) at maturity, repayments of current financial debts
of USD 3.5 billion and favorable currency translation
adjustments of USD 0.3 billion, partly offset by the reclas-
sification from non-current to current financial debts of
USD 2.6 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 1.3 billion) of unsecured commercial paper
notes. Commercial paper notes totaling USD 0.9 billion
under these three programs were outstanding as per
December 31, 2021 (2020: USD 4.3 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, 2021, and
December 31, 2020.
Total liquidity increased to USD 28.3 billion compared
to USD 11.6 billion at December 31, 2020, mainly driven
by the cash proceeds received from the divestment of
our investment in Roche.
As of year-end 2021, 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, 2021 and Decem-
ber 31, 2020, 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 “—Liquid-
ity/short-term funding” and “Item 18. Financial State-
ments—Note 29. Financial instruments – Additional dis-
closures—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 2021
and 2020 and an indication of the general purpose of
such commitments and the anticipated sources of funds
needed to fulfill such commitments are provided in “—
Material short- and long-term cash requirements.”
82
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 % 2021 1
Liquidity
in % 2020 1
Financial
debt in %
2021 2
Financial
debt in %
2020 2
92
4
2
2
100
57
11
23
9
100
57
12
27
1
3
55
10
30
2
3
100
100
1 Liquidity includes cash and cash equivalents and marketable securities, including debt securities, commodities and time deposits.
2 Financial debt includes non-current and current financial debt.
Bonds
In March 2021, a 4-year EUR bond of EUR 1.25 billion
with a coupon of 0.00% was repaid at maturity.
In November 2021, a 7-year EUR bond of EUR 0.6 bil-
lion with a coupon of 0.75% was repaid at maturity.
In February 2020, a 3-year USD bond of USD 1.0 bil-
lion 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.
Liquidity/short-term funding
The Group’s liquidity amounted to USD 28.3 billion at
December 31, 2021, compared to USD 11.6 billion at
December 31, 2020. Total non-current and current finan-
cial debts, including derivatives, amounted to USD 29.2
billion at December 31, 2021, compared to USD 36.0 bil-
lion at December 31, 2020.
The debt/equity ratio decreased to 0.43:1 at Decem-
ber 31, 2021, compared to 0.64:1 at December 31, 2020.
The net debt decreased to USD 0.9 billion at December
31, 2021, compared to USD 24.5 billion at December 31,
2020, mainly driven by the USD 20.7 billion cash pro-
ceeds received from the divestment of our investment
in Roche.
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,
and raised funds through our commercial paper pro-
grams.
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.”
83
Item 5. Operating and Financial Review and Prospects
Material short- and long-term cash requirements
The following table summarizes the Group’s material short- and long-term cash requirements:
(USD millions)
Payments due by period
Total
Less than
1 year
2–3 years
4–5 years
After
5 years
Non-current financial debt, including current portion
25 523
2 621
4 486
3 977
14 439
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
Commitments for leases not yet commenced
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 on transaction
entered into but not closed in 2021 1
6 063
1 896
1 453
134
1 614
6 743
1 075
204
527
275
49
2
110
602
119
159
913
378
78
10
214
1 560
304
41
715
261
65
22
207
742
213
1
1 500
800
300
3 908
982
1 261
100
1 083
3 839
439
3
400
Total contractual cash obligations
46 205
5 264
8 284
6 203
26 454
1 Please refer to “Item 18. Financial Statements – Note 2 Significant transactions” for additional information.
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.”
84
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 9.5 billion and USD 9.0 bil-
lion (Core research and development USD 9.0 billion and
USD 8.5 billion) for the years 2021 and 2020, 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 Critical accounting estimates
Our consolidated financial statements are prepared in
accordance with International Financial Reporting Stan-
dards (IFRS) as issued by the International Accounting
Standards Board (IASB). The preparation of financial
statements requires management to make certain esti-
mates and assumptions, either at the balance sheet date
or during the year, which affect the reported amounts of
revenues, expenses, assets, liabilities and contingent
amounts. Our significant accounting policies that are set
out in “Item 18. Financial Statements—Note 1. Significant
accounting policies” include a description of the esti-
mates, assumptions and judgments applied in the prepa-
ration of the consolidated financial statements of the
Group.
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.
Management believes that the estimation uncertain-
ties described below did not have or are not reasonably
likely to have a material impact on the Group’s financial
condition but could be material to the results of opera-
tions or cash flows in a given period.
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
85
Item 5. Operating and Financial Review and Prospects
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
We enter into innovative pay-for-performance arrange-
ments (i.e. outcome based arrangements) with certain
healthcare providers and governments. Under these
agreements, we may be required to make refunds, defer
a portion of the sales price until anticipated treatment
outcomes meet predefined targets, or to provide addi-
tional medicines free of charge if anticipated treatment
outcomes do not meet predefined targets.
The impact of potential refunds, deferral of a portion
of the sales price, or the delivery of additional medicines
at no cost is estimated and recorded as a deduction from
revenue at the time the related revenues are recorded.
Estimates are based on historical experience and clini-
cal data. In cases where historical experience and clini-
cal data are not sufficient for a reliable estimation of the
outcome, revenue recognition is deferred until such his-
tory is available.
These provisions for revenue deductions are adjusted
periodically based on established processes and actual
experience, including the products actual outcomes
achieved compared to the anticipated predefined tar-
gets.
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 2021, 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-
86
Item 5. Operating and Financial Review and Prospects
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-
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.
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
For the table showing the worldwide extent of our reve-
nue deductions provisions and related payment experi-
ences for the Group see “Item 18. Financial Statements—
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
2020
2021
Innovative Medicines gross sales subject to deductions
60 336
100.0
56 067
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 1
Innovative Medicines net sales
– 5 125
– 4 399
– 8.5
– 5 412
– 7.3
– 3 746
– 8 817
– 14.6
– 7 896
– 18 341
– 30.4
– 17 054
41 995
69.6
39 013
– 9.7
– 6.7
– 14.0
– 30.4
69.6
1 The gross-to-net sales adjustments are charged through revenue deduction provisions or charged directly to the income statement without being recorded in revenue deduction
provisions.
Impairment of goodwill, intangible
assets and property, plant and
equipment
We review long-lived intangible assets, plant and equip-
ment for impairment whenever events or changes in cir-
cumstance indicate that the asset’s balance sheet car-
rying 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 based on our
impairment assessment and review of reasonable pos-
sible changes in key assumptions to the respective
impairment assessment, future impairment evaluation
could lead to material impairment charges in the future.
For more information, see “Item 18. Financial State-
ments—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.”
87
Item 5. Operating and Financial Review and Prospects
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.
For additional information, see “Item 18. Financial
Statements—Note 29. Financial instruments – additional
disclosures.”
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 employees. 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-employment benefit plans and underly-
ing actuarial assumptions, see “Item 18. Financial State-
ments—Note 25. Post-employment benefits for employ-
ees.”
Income 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.
For more information, see “Item 18. Financial State-
ments—Note 6. Income taxes” and “Item 18. Financial
Statements—Note 12. Deferred tax assets and liabilities.”
Provisions and contingencies
A number of Group companies are involved in various
government investigations and legal proceedings (intel-
lectual property, sales and marketing practices, product
liability, commercial, employment and wrongful dis-
charge, environmental claims, etc.) arising out of the nor-
mal conduct of their businesses.
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.
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.
For more information, see “Item 18. Financial State-
ments—Note 20. Provisions and other non-current liabil-
ities” and “Item 18. Financial Statements—Note 28. Com-
mitments and contingencies.”
88
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.
89
Item 6. Directors, Senior Management and Employees
6.B Compensation
Dear shareholder,
I am pleased to share with you the 2021 Compensation
Report of Novartis AG.
I would like to start by thanking Enrico Vanni for his
valuable contribution during his tenure as Chair of the
Compensation Committee and express my sincerest grat-
itude for his support and advice since I took over the role.
At Novartis, our compensation system seeks to
reward our executives for delivering sustainable growth,
successful outcomes on our financial and strategic tar-
gets and value creation for our shareholders. We aim to
be transparent in how we link executive compensation
to performance and have continued to engage with
shareholders and proxy advisors in this effort.
2021 changes to Executive Committee
compensation system and disclosures
The year completes the first three-year performance
cycle of the new Long-Term Performance Plan (LTPP),
following the combination of the previous LTPP and the
Long-Term Relative Performance Plan (LTRPP), as com-
municated in our 2018 Compensation Report. The com-
bined plan focuses on four equally weighted perfor-
mance metrics: net sales compound annual growth rate
(CAGR), core operating income CAGR, innovation, and
relative total shareholder return (TSR).
In 2021, we reviewed our Compensation Report for-
mat with a view to increase its accessibility while main-
taining its depth of disclosure. We chose to develop our
“—Compensation at a glance” section to incorporate a
more graphical illustration of the 2021 CEO pay out-
comes and provide a summary of our executive compen-
sation framework for the year ahead. In addition, we offer
further visibility into the 2019-2021 LTPP targets, show-
ing the threshold, target and maximum opportunity for
each performance metric.
2021 performance highlights
2021 was a year of solid performance, with growth across
sales, profits, margins and cash flow. Sales growth driv-
ers were Entresto (USD 3.5 billion), Cosentyx (USD 4.7
billion), and Zolgensma (USD 1.4 billion), along with ther-
apies like Kesimpta, Promacta/Revolade, Kisqali and
Jakavi. These growth brands, along with other launch
products, represent 52% of Innovative Medicines sales,
up from 44% in 2020. While overall sales performance
was on target, COVID-19 continued to have an impact on
parts of our business, specifically Oncology and Sandoz.
We continued to deliver innovation to patients in 2021
with 21 approvals, including Leqvio (US, EU) and Scem-
blix (US), and 34 submissions made across our top four
markets. However, the year was not without setbacks,
as some clinical trials of experimental compounds –
including Kymriah for blood cancer, ACZ885 (canaki-
numab) for lung cancer, and CFZ533 (iscalimab) in kid-
ney transplant patients – did not meet their primary goals.
90
We progressed our efforts to deliver next-generation
medicines while driving our environmental, social and gov-
ernance (ESG) agenda. Pursuing new health equity initia-
tives in clinical trial diversity, advancing access to medicines,
and using data and digital technologies in underserved
regions in Africa, South America and Asia are some exam-
ples of our long-term commitment to transforming global
health. More details on our ESG efforts can be found in
the Novartis in Society Integrated Report 2021.
Performance against the incentive targets, combined
with base salary and other benefits, pension, Alcon
Keep Whole awards and dividend equivalents, resulted
in 2021 total realized compensation for the CEO of
CHF 11 224 727. This is a reduction of 11.8% compared
to 2020. Overall, while the financial and operational tar-
gets were met or surpassed, some of the innovation tar-
gets were missed, which led to a reduction in long-term
growth potential. This is reflected in a TSR performance
below the peer group median. The reduced contribution
of innovation and relative TSR to the 2019-2021 LTPP
cycle were the main drivers of the lower total realized
compensation in 2021 versus 2020. (For more informa-
tion, please see “—LTPP performance outcomes”)
2022 Board compensation and Annual General
Meeting (AGM)
The Board is planning to split the Vice Chairman and
Lead Independent Director (LID) roles, and to appoint
separate board members to these roles as from the 2022
AGM. The Board has approved the introduction of an LID
fee. More information can be found in “—2022 Board
compensation” and “—Vice Chairman and Lead Indepen-
dent Director” in Item 6.C of this Annual Report.
In line with our Articles of Incorporation, we put to a
vote the maximum aggregate amount of compensation
for the Board of Directors from the 2022 AGM to the
2023 AGM, and the maximum aggregate amount of com-
pensation for the Executive Committee for the financial
year 2023. We also request your advisory vote on this
Compensation Report.
We deeply value our ongoing dialogue with you and
other stakeholders. As always, we welcome your feed-
back, which is extremely valuable in driving improve-
ments in our compensation system and practices.
Finally, I would like to acknowledge and thank my fel-
low committee members for their diligence and service
during the year.
Simon Moroney, D.Phil.
Chair of the Compensation Committee
Item 6. Directors, Senior Management and Employees
Compensation at a glance
2021 outcomes
CEO pay for performance
2021 Annual Incentive
Long-Term Performance Plan (2019–2021 performance)
% of target
% of target
200%
Maximum
200%
Maximum
150%
150%
100%
Target
Payout: 100% of target
100%
Target
Payout:
107% of target
50%
0%
50%
0%
{
• Net sales CAGR
(119% of target)
• Core operating income CAGR
(200% of target)
• Innovation
(109% of target)
• Relative TSR
(0% of target)
CEO total realized compensation
The 2021 total realized compensation for Vasant Narasimhan was CHF 11 224 727. It includes payouts of the Annual
Incentive and LTPP based on actual performance assessed for the cycles concluding in 2021. More information on
the overall assessment of the CEO by the Board of Directors can be found in “—2021 CEO balanced scorecard.”
Fixed pay
and benefits
(CHF 000s)
Variable pay:
Performance-related (CHF 000s)
1 769
442
2 657
20% of total
24% of total
6 3561
56% of total
Total realized compensation: CHF 11 224 727
Annual base salary
Pension and other benefits
2021 Annual Incentive
LTPP 2019–2021 cycle
1 The shown amounts represent the underlying share value of the total number of shares vested (including Alcon Keep Whole awards of CHF 612 696 as well as dividend equivalents
of CHF 581 198) to the CEO for the 2019-2021 LTPP performance cycle.
Board compensation
Total actual compensation earned by Board members in the 2021 financial year is shown in the table below.
CHF 000s
Chairman of the Board
Other members of the Board
Total
2021
total compensation 1,2
3 805
4 764
8 569
1 Includes an amount of CHF 25 580 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 435 204 and provides a right to the maximum future insured government pension benefit for the Board member.
2 No additonal compensation was paid for the Lead Independent Director role.
91
Item 6. Directors, Senior Management and Employees
2022 compensation systems
An overview of the 2022 compensation systems for the Executive Committee and the Board of Directors is given below.
Executive Committee compensation system
There are no changes planned to the Executive Committee compensation system for 2022.
2022 fixed pay and benefits
Performance-related variable pay
Annual base salary
Pension and
other benefits
2022
Annual Incentive
Purpose
Reflects responsibilities,
experience and skill sets
Provide retirement and
risk insurances (tailored
to local market practices/
regulations)
Rewards performance
against short-term
financial and strategic
objectives, and Values and
Behaviors
Long-Term Incentive
awards cycle 2022-2024
LTPP1
Rewards long-term share-
holder value creation and
innovation in line with our
strategy
Form of payment
Cash
Country/individual-
specific and aligned with
other employees
50% cash
50% equity2 deferred
for three years3
Equity, vesting following a
three-year performance
period
Performance measures
–
–
Balanced scorecard
comprising:
• Financial measures
(60%)
• Strategic objectives4
(40%)
• Net sales
CAGR (25%)
• Core operating income
CAGR (25%)
• Innovation (25%)
• Relative TSR (25%)
1 LTPP = Long-Term Performance Plan
2 Executive Committee members may elect to receive more of their Annual Incentive in equity instead of cash.
3 The Annual Incentive deferred in equity is granted under the Deferred Share Bonus Plan (DSBP).
4 Strategic objectives are aligned with the five strategic pillars: innovation, operational excellence, data and digital, people and culture, and building trust with society.
Board compensation system
The compensation system applicable to the Board of Directors for the 2022-2023 AGM shown below includes the
compensation introduced for the Lead Independent Director role (for more information, see “—2022 Board com-
pensation”). 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
Lead Independent Director
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
92
AGM 2022-2023
annual fee
3 800
280
50
20
130
90
70
70
40
Item 6. Directors, Senior Management and Employees
Executive Committee
compensation philosophy and principles
Novartis compensation philosophy
Approach to market benchmarking
Our compensation philosophy aims to ensure that we
attract and retain outstanding Executive Committee
members and reward them according to their success
in implementing the Company strategy, and their contri-
bution to Company performance and long-term value
creation. The main elements of our compensation phi-
losophy are set out in the table below.
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
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. In
2021, the Compensation Committee decided to maintain
the same primary peer group of 14 global healthcare
companies, as presented in the table below.
GLOBAL HEALTHCARE PEER GROUP
AbbVie
Biogen
Amgen
AstraZeneca
Bristol-Myers Squibb
Eli Lilly & Co.
• They underpin the assessment of overall
performance for the Annual Incentive
GlaxoSmithKline
Gilead Sciences
Johnson & Johnson
Novo Nordisk
Merck & Co.
Pfizer
Competitive
compensation
• Total compensation must be sufficient to
attract and retain key global talent
Roche
Sanofi
• Overarching emphasis on pay for
performance
Alignment with Company strategy
Our strategy is to build a focused medicines company
powered by technology leadership in research and
development, world-class commercialization, global
access and data science. We foster a company culture
that is inspired, curious and unbossed. We believe these
elements drive continued innovation and will support the
creation of value over the long term for our Company,
employees, society and shareholders.
To continue to align the compensation system with
this strategy and to ensure that Novartis is a high-
performing organization, the Company operates both a
short-term Annual Incentive plan and a Long-Term Incen-
tive (LTI) plan with a balanced set of measures and tar-
gets. The Board of Directors determines specific, mea-
surable and time-bound performance measures for the
Annual Incentive and LTI plans. The Compensation Com-
mittee reviewed the existing compensation system and
determined that it continues to support our strategy.
The companies in this peer group reflect our industry
and are similar to Novartis in terms of both size and scope
of operations. 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 talent globally, especially from the US.
For consideration of European and local practices,
the Compensation Committee also reviewed in 2021 a
cross-industry peer group of Europe-headquartered
multinational companies, selected based on compara-
bility to Novartis in terms of industry, size, global scope
of operations, and economic influence. Based on this
review, the selected European peers were Anheus-
er-Busch InBev, AstraZeneca, Bayer, BMW, GlaxoSmith-
Kline, L’Oréal, Merck KgaA, Nestlé, Novo Nordisk, Reck-
itt Benckiser (new), Roche, Siemens (new), Sanofi and
Unilever.
93
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 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 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 the local country pension plan 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.
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). This includes ongoing US state income tax liabilities on behalf of US citizens locally employed
outside the US who have US workdays and therefore, US state taxable compensation which generates a
US state tax liability.
International mobility
94
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.
Voluntary resignation or termination by the Company for misconduct or poor performance
Annual Incentive is fully forfeited.
Annual Incentive – mandatory
deferral into restricted shares/
RSUs
Retirement, termination by the Company for reasons other than performance or conduct, and change
of control
Awards are released on the original blocking end date. There is no accelerated vesting. All awards are
subject to forfeiture in case a leaver joins a competitor company as defined in the applicable plan rules,
before the end of the three-year blocking date, starting from the date of grant.
Annual Incentive – voluntary
restricted shares/RSUs/ADRs
(ADRs applicable for
US employees only)
Long-Term Incentive
(LTPP)
Death or long-term disability
Accelerated vesting is applied.
Voluntary resignation or termination by the Company for misconduct or poor performance
Unvested restricted shares and restricted share units (RSUs) are forfeited.
Awards are not subject to forfeiture during the deferral period.
Retirement, termination by the Company for reasons other than performance or conduct, and change
of control
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. All awards are subject to
forfeiture in case a leaver joins a competitor company as defined in the applicable plan rules, until the
vesting date.
Death or long-term disability
Accelerated vesting at target is applied.
Voluntary resignation or termination by the Company for misconduct or poor performance
All of the award is forfeited.
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.
95
Item 6. Directors, Senior Management and Employees
Executive Committee performance management process
To foster a high-performance culture, the Company
applies a performance management process based on
quantitative and qualitative criteria. The CEO and the
other Executive Committee members are subject to a
formal three-step process: objective setting, perfor-
mance evaluation and compensation determination. This
process is explained in the chart 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 tar-
gets include:
• Internal and external market expectations
• Novartis strategic priorities
• 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.
96
Item 6. Directors, Senior Management and Employees
2021 Executive Committee compensation
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.
2021 annual base salaries
The 2021 annual base salaries were as follows:
• CEO (effective March 1, 2021): CHF 1 771 500.
• OTHER EXECUTIVE COMMITTEE MEMBERS (effective March 1, 2021): All other members of the
Executive Committee were awarded increases in line with the average of all Novartis employees, with the
exception of five individuals as disclosed in Item 6.B of the 2020 Annual Report.
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 employees 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 860 400. No supplementary pension plans or savings plans are
provided. The CEO’s employer pension contributions represent 9.99% 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.
97
Item 6. Directors, Senior Management and Employees
2021 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 2021 balanced scorecard targets and achievements of the CEO are detailed on the next page.
• The 2021 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
Payout vehicle
Annual base
salary
x
Target incentive
(% of base salary)
x
Payout factor (% of
target: 0%–200%)
=
Realized
Annual Incentive
• 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 “—Executive Committee compensation system”).
• 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.
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.
98
Item 6. Directors, Senior Management and Employees
2021 CEO BALANCED SCORECARD
This section presents the balanced scorecard for the CEO. Balanced scorecard performance is measured in constant cur-
rencies (cc) to reflect operational performance that can be influenced. The Board of Directors uses a stringent process to set
ambitious financial targets to incentivize superior performance. 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.
Target
Achievement versus
target
CEO achievements – 2021
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
50 010 million
| 10 805 million
| 24.9%
8.1%
|
|
|
|
|
Met
Above
Above
Below
Met
Below
Above
Met
Strategic objectives – 40% of total Annual Incentive, comprising:
Innovation (20%)
Novartis continued to deliver a range of innovations to patients in 2021. Major approvals included Leqvio (US, EU),
Scemblix (US), and Kesimpta (EU). Amongst our critical clinical trials, Cosentyx met primary efficacy endpoint in
two hidradenitis suppurativa Phase III studies, and the US Food and Drug Administration (FDA) granted Breakth-
rough Therapy designation to LU-PSMA based on Phase III studies that demonstrated significant positive results
in the treatment of metastatic castration-resistant prostate cancer.
Thirty-four submissions were made across our top four markets: the US, the EU, China and Japan. We advanced
our diverse pipeline of investigational therapies, with 20 clinical data readouts and seven transitions into our Global
Drug Development (GDD) organization. In our early-stage development activities, we secured 12 proofs of concept
(POCs)/ proofs of mechanism (POMs). We continued to invest in technology platforms with the initiation of Phase
III trials for Zolgensma for older children and advancing two rapid CAR-Ts into pivotal trials following positive POC
results. We also continued to expand our portfolio of radio-ligand therapies and siRNA therapeutics.
The year was however not without setbacks, as several clinical trials of experimental compounds did not meet their
primary goals, including Kymriah for second line diffuse large B-cell lymphoma (DLBCL), canakinumab for lung
cancer, iscalimab in kidney transplant patients, and the program on ECF843 for treatment of dry eye.
The biosimilars pipeline was expanded with one late-stage alliance program and early-stage internal programs,
strengthening our 15-plus molecule pipeline.
The pipeline was further advanced through partnerships with BeiGene, Alnylam, Molecular Partners and UCB;
bolt-on acquisitions such as Gyroscope Therapeutics and Arctos Medical; and the out-licensing of products out-
side of our core areas.
Operational excellence (20%)
Financial performance in 2021 improved from last year on core operating income and core margin, to USD 16.0
billion and 32.0% in constant currencies respectively. Net income exceeded target. The gain from the divestment
of the investment in Roche Holding AG was not considered in any of the performance assessments. The financial
performance was largely driven by growth brands Cosentyx and Entresto, which together generated USD 8.3
billion in sales as well as other growth drivers like Zolgensma, Promacta/Revolade, Kisqali, and Kesimpta. However,
the effects of the pandemic were still apparent in Oncology and Sandoz as we continued to see delays in cancer
care and a weak flu season dampened generics sales.
Key launches were successfully executed in 2021 with Entresto (US; to treat heart failure with preserved ejection
fraction) and Kesimpta (EU, Japan) achieving their sales goals.
We continue to optimize our network of manufacturing sites and testing labs worldwide, adjusting our production
capacity to match our changing product mix. Overall, our year-end footprint was consolidated to 53 sites, with a
number of other site exits planned.
Data and digital (20%)
Using data science and digital technology, we opened new paths to treat disease, engage with customers, support
patients and streamline our operations. Our industry-leading data42 platform continued to expand, integrating
additional external data sets and making data from more than 2 700 clinical trials, as well as data from real-world
settings, available to data scientists and researchers across Novartis.
In partnership with Microsoft, we rolled out a new artificial intelligence platform that connects data sets and levera-
ges information from past formulations which was used by our development team for formulation development and
early manufacturing of investigational medicines. Usage of AI Nurse, our cardiovascular disease app developed in
collaboration with Tencent, grew to more than 300 000 patients and more than 5 000 healthcare professionals
across 1 000 hospitals in China using it.
SpotOn, a platform in our manufacturing operations, was expanded to five sites providing multiple digital solutions
to help maximize economy of scale, reduce throughput times, and optimize inventories.
99
Item 6. Directors, Senior Management and Employees
|
|
2021 CEO BALANCED SCORECARD − CONTINUED
People and culture (20%)
We made progress on our Equal Pay International Coalition (EPIC) pledge to achieve gender balance in manage-
ment by 2023 and ensure pay equity and transparency for all our employees globally. The percentage of women in
management increased to 46% in 2021 (from 45% in 2020). In addition to our prior year progress, we achieved pay
transparency in a further 10 countries in 2021, including Switzerland and the US bringing the total to 16 countries
where employees can compare their pay to external benchmarks. Additionally, we eliminated historical salary data
from 80% of global hiring to reduce the risk of bias when making job offers. Based on the data available at the
time of disclosure, Novartis has a global mean pay gap of +3.3%, compared with 3.6% in the prior year. While we
acknowledge this percentage is influenced by worldwide workforce demographics, this is significantly ahead of
the Bloomberg benchmarks of +21% mean for the same period.
We continued our progress on building a curious and learning culture, and achieved an employee engagement
score of 78, which is five points higher than the industry benchmark. In 2021 we had an additional 5 000 managers
taking part in the ‘Unbossed Leadership Experience’, a development program for leaders.
Building trust with society (including access to healthcare, reputation and other ESG topics) (20%)
ETHICAL STANDARDS
In 2021, we completed the integration of human rights into the risk areas (labor rights, health and safety, data pri-
vacy, and anti-bribery and corruption) of our Third-Party Risk Management (TPRM) process. All our new suppliers
have been assessed against all of these TPRM risks.
Novartis participated in a collective action initiated by Norges Bank Investment Management (NBIM) to jointly
develop a reporting standard on anti-corruption. We published our first anti-bribery report for 2021 based on the
guidance issued by NBIM and aligned with principles such as the United Nations (UN) Global Compact and the
OECD Guidelines for Multinational Enterprises.
PRICING AND ACCESS
We made progress on health equity with 100% of US Phase III studies evaluating diversity and inclusion principles
in feasibility planning since mid-2021.
A global access strategy is defined for 100% of our new Innovative Medicines launches. In 2021, we launched a
total of 31 new emerging market brands (EMBs) across this portfolio and reduced the time lag between launches
in Europe and low- and middle-income countries (LMICs). For example, Kesimpta was launched in Brazil within 4
months of first launch in Europe; Tabrecta EMB was launched in India 6 months ahead of planned first launch in
Europe, and Adakveo EMB was launched simultaneously in India and Germany.
In 2021 we reached more than 56 million patients through our access approaches including flagship programs,
emerging market brands, support programs and donations.
The Access to Medicine Foundation recognized our efforts in this area, ranking us second in the 2021 Access to
Medicine Index.
GLOBAL HEALTH
Our flagship programs reached more than 32 million patients in LMICs. We continued to make important contri-
butions to improving global health by focusing on the control or elimination of four priority diseases (sickle cell
disease, Chagas disease, malaria, and leprosy). We achieved several of our Global Health pipeline milestones
in 2021; for example, positive results were reported for the Phase IIb study of KAF156, a Novartis compound for
malaria, and its partner medicine, lumefantrine, in adults and children with malaria. We also expanded our sickle
cell disease (SCD) program rollout in India, which has the world’s highest burden of SCD outside of Africa, and in
Ghana and Uganda.
RESPONSIBLE CITIZENSHIP
In 2021, we committed to a 2040 goal to become net zero across our value chain, leveraging our efforts to be
carbon neutral across our value chain by 2030. In this pursuit, we exceeded our targets with a 34% reduction in
Scope 1 and 2 emissions, and 40% and 56% reduction in our water consumption and waste respectively, versus
the 2016 baseline.
Overall assessment of strategic objectives
Overall assessment of CEO balanced scorecard
Met
Met
Met
Met
ANNUAL INCENTIVE PAYOUT
Payout
The 2021 CEO performance showed solid financial results, including sales and profit growth at or above
target and most strategic objectives were achieved or exceeded. Productivity improvements in Technical
Operations were a particular highlight. However, several clinical trial failures resulted in a disappointing share
price development. On balance, based on the overall assessment, the Board of Directors decided on an
Annual Incentive payout for the CEO amounting to CHF 2 657 267, which is 100% of target, within the range
of 0–200%.
100
Item 6. Directors, Senior Management and Employees
Long-Term Performance Plan, 2019-2021 cycle
As communicated in the 2018 Compensation Report, for
awards granted effective 2019, the existing LTPP and
LTRPP were combined into a single Long-Term Perfor-
mance Plan. The aim was to introduce a simplified LTI
program that compensates executives more directly on
performance linked to the Group’s strategic imperatives
of accelerating growth and margin expansion to drive
long-term value.
The previous financial performance measure was
replaced by net sales CAGR and core operating income
CAGR in the simplified LTPP. The long-term innovation
and relative TSR performance measures were retained,
and an equal weighting applies to each of the aforemen-
tioned measures. Each of the four measures has a max-
imum payout of 200% of target.
OVERVIEW OF LONG-TERM PERFORMANCE PLAN
Award vehicle
Performance share units (PSUs) are granted at the beginning of the three-year performance cycle and vest
at the end of the cycle to the extent that performance conditions have been met. At the time of vesting, they
are converted into Novartis shares.
PSUs carry dividend equivalents that are paid in shares at the end of the cycle.
Grant formula
At the start of the performance cycle, PSUs are granted under the Long-Term Incentive plan, as follows:
Step 1
Annual base
salary
Step 2
Grant value
x
/
Target
incentive %
Share price
=
=
Grant value
Target number of
PSUs
Target opportunity
• CEO: 325% of annual base salary
• Other Executive Committee members: between 180% and 260% of annual base salary
Performance measures
• Net sales CAGR
• Core operating income CAGR
• Innovation metrics
• Relative TSR
Target setting
Payout range
Financial targets: Targets for net sales CAGR and core operating income CAGR are set based on the
strategic plan of the Company.
Innovation: Global Drug Development (GDD) targets are based on targeted filings communicated at the start
of each performance cycle. The Science & Technology Committee determines the most important Novartis
Institutes for BioMedical Research (NIBR) milestones.
Financial targets: When assessing performance, achievements for threshold, target and maximum payout are
defined for each metric and a payout curve is applied to determine the corresponding payout between 0–200%
against target.
Innovation: At the end of the cycle, the Compensation Committee determines the payout factor in the range
of 0–150% based on the performance assessment made by the Science & Technology Committee. A payout
between 150–200% of target is only delivered for truly exceptional performance.
Relative TSR: Performance on TSR is assessed relative to a global healthcare peer group, as outlined below.
As disclosed in the 2018 Compensation Report, the share value for the 2019-2021 cycle is determined by
using the one-day pricing approach for the start of the performance cycle and the three-month averaging
method at the end of the cycle. (From cycles 2020-2022 onwards, a three-month averaging method will be
used for both the start and the end of the cycle.) Companies are then ranked in order of highest to lowest
TSR in USD.
Global healthcare peer group
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 Compensation Committee may use its discretion on each metric, including deciding on the payout
within the ranges where appropriate. In doing so, it takes into consideration factors such as the underlying
assumptions of the targets set at the beginning of the cycle, overall economic conditions, currency
fluctuations and other unforeseeable situations.
Payout formula
Target number of
PSUs
x
Performance factor
+
Dividend
equivalents
=
Realized PSUs
101
Item 6. Directors, Senior Management and Employees
LTPP performance outcomes
The charts below illustrate the performance of the 2019-2021 LTPP against target.
NET SALES CAGR
(25% weighting)
CORE OPERATING INCOME (COI) CAGR
(25% weighting)
Vesting range 0–200% of target
Vesting range 0–200% of target
Maximum (200%): 7.3% (CAGR)
Actual: 5.2% (CAGR)
Target: 4.3% (CAGR)
Net sales
growth payout
119% of target
Threshold (0%): 2.3% (CAGR)
6%
4%
2%
0%
Maximum (200%): 13.0% (CAGR),
Actual: 13.2% (CAGR)
COI growth payout
200% of target
Target: 7.0% (CAGR)
Threshold (0%): 3.0% (CAGR)
12%
8%
4%
0%
Note: Actual performance was adjusted for mergers and acquisitions as well as business development and licensing
projects not included in the target.
Novartis achieved a net sales CAGR of 5.2% (in constant currencies –
cc) against the 4.3% target set at the beginning of the performance
cycle. The strong performance was mainly driven by Entresto, Gilenya,
Cosentyx and Zolgensma, and partly offset by pricing pressures in our
retail generics business.
Novartis achieved a COI CAGR of 13.2% (cc) against the 7.0% target
set at the beginning of the performance cycle. This was mainly driven
by
• Higher Innovative Medicines sales over the three-year cycle (pre-
dominantly in 2019)
Following the application of the payout curve, the net sales CAGR
(cc) achievement generates a payout factor of 119% for this part of the
LTPP.
• Continued transformation of our manufacturing network, and pro-
ductivity improvements in marketing and sales as well as research
and development
INNOVATION
(25% weighting)
The following developments were considered in our 2019-2021 LTPP
innovation performance:
• US and EU approvals for Leqvio to treat hyperlipidemia
• US and EU approvals for Kesimpta to treat multiple sclerosis and for
Adakveo to treat sickle cell disease
• US approval for Scemblix to treat chronic myeloid leukemia, and US
Following the application of the payout curve, and plan rules on limiting
payout to the maximum of the range, the COI CAGR (cc) achievement
generates the maximum payout factor of 200% for this part of the LTPP.
RELATIVE TOTAL SHAREHOLDER RETURN (TSR)
(25% weighting)
Novartis position
in the peer group
Payout range
(% of target)
Position 1 – 2
Position 3 – 5
170% – 200%
130% – 160%
80% – 120%
and EU submission of 177Lu-PSMA-617 to treat prostate cancer
Position 6 – 8
• The first FDA filing acceptance for VDT482 (tislelizumab), to treat
esophageal cancer
• The Phase III BELINDA study on Kymriah and the Phase III CANOPY-2
study evaluating ACZ885 (canakinumab), which did not meet their
primary endpoints and were terminated
In NIBR, two novel cell therapies and two novel renal medicines were
brought to clinical phase, and three transcription factor targeting
projects identified as development candidates
•
Based on input from the Science & Technology Committee, the Board
of Directors approved an innovation performance factor of 109% of tar-
get.
2019-2021 LTPP PAYOUT
Position 9 – 15
0%
Actual ranking
12th = 0% of target
TSR for the 2019-2021 cycle was 22.2%. As a result, Novartis ranked
No. 12 out of 15 healthcare companies (including Novartis). Considering
that the relative TSR rank is below median, there was a zero payout for
this metric.
Overall, the Board of Directors approved a 2019-2021 LTPP payout at 107% of target, within the range of 0–200%. No adjustments, pandemic-
related or otherwise, were made in the evaluation of performance. This resulted in an LTPP payout of CHF 6 356 128 for the CEO, including Alcon
Keep Whole awards of CHF 612 696 and dividend equivalents of CHF 581 198.
Net sales CAGR
119% x 25%
+
COI CAGR
200% x 25%
+
Innovation
109% x 25%
+
Relative TSR
0% x 25%
Final vesting
107% of target
102
Item 6. Directors, Senior Management and Employees
Compensation for joining and departing Executive Committee members in
2021
2021 Executive Committee member appointments
In 2021, two new appointments were made to the Executive Committee.
Karen L. Hale, Chief Legal Officer, was appointed a member of the Executive Committee on May 15, 2021. A
buyout award in cash of CHF 111 975 was granted to replace compensation forfeited from her former employer as
a result of her appointment at Novartis, in line with our policy (see “—Executive Committee appointments compen-
sation policy”).
Robert Kowalski was promoted internally as Chief People & Organization (P&O) Officer on September 1, 2021.
2021 Executive Committee member departures
In determining the compensation arrangements for departing Executive Committee members, the Compensation
Committee ensures that contractual entitlements are respected, and all payments are in line with our plan rules
and the Swiss Ordinance against Excessive Compensation in Listed Companies.
All Executive Committee members have a 12-month notice period during which they are entitled to their con-
tractual base salary, pension, Annual Incentive and other benefits. No new LTPP grants are made during the notice
period.
The plan rules require that any equity vesting will occur on the normal vesting date (i.e., there is no accelerated
vesting, with the exception of termination due to death or long-term disability, and malus and clawback as well as
non-compete restrictions will continue to apply). No severance or non-compete payments are made to departing
Executive Committee members. Further details on the policy treatment of variable compensation for departing
Executive Committee members can be found in “—Treatment of variable compensation for Executive Committee
leavers.”
Former Chief Legal Officer of Novartis, Shannon Klinger, resigned from the Executive Committee as of March
15, 2021. The Board of Directors agreed to shorten her 12-month notice period and decided on a cool-off period
until May 31, 2021, during which she had no access to any confidential information concerning the Company. Strictly
in line with the Novartis incentive plan rules, her Annual Incentive for the 2021 performance year; unvested LTPP
for cycles 2019-2021, 2020-2022 and 2021-2023; and unvested DSBP awarded in 2019, 2020 and 2021 were all
forfeited in full.
Former Chief Digital Officer of Novartis, Bertrand Bodson, left the Executive Committee on February 1, 2021,
and former Chief People & Organization Officer of Novartis, Steven Baert, left the Executive Committee on June
30, 2021. Both departed under good leaver conditions.
Subsequently, the Board of Directors agreed to shorten the 12-month notice period for both Mr. Bodson and
Mr. Baert to allow them to take on new positions on December 1, 2021, and October 1, 2021, respectively, with com-
panies that are not in the Novartis comparator peer group as defined in the applicable variable pay plan rules. Out-
standing LTI grants will vest at the end of the relevant performance cycles on a pro-rata basis, per their contrac-
tual agreements and in line with the said plan rules.
103
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 previous Compensation 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. Unvested per-
formance share units (PSUs), such as the LTPP, were not entitled to such dividend in kind. To ensure equal treat-
ment 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 per-
formance conditions. The vesting of these Alcon Keep Whole awards will be disclosed in the realized compensa-
tion of the CEO and Executive Committee members.
2021 realized compensation for the CEO and other Executive Committee members
The table below reports fixed and other compensation for the year, including the Annual Incentive for the 2021 per-
formance year, the realized LTI for the 2019-2021 performance cycle, and any buyouts vesting in 2021. The portion
of the Annual Incentive paid in shares for the year 2021 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) are cal-
culated using the share price on the date of vesting.
To determine the appropriateness of the 2021 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:
• Operational and financial performance against targets
• Progress toward strengthening our global product portfolio
• Accomplishments across all strategic pillars, with careful attention to ESG targets
The incentive performance outcomes, combined with base salary and other benefits, pension, Alcon Keep Whole
awards and dividend equivalents, resulted in 2021 total realized compensation for the CEO of CHF 11 224 727.
2021 realized compensation for the CEO and other Executive Committee members
2021 annual base
salary
2021 pension
benefits1
2021 Annual Incentive
Long-Term
Incentives
Other 2021
compensation
Currency
Cash (amount)
Amount
Cash
Equity2
LTPP 2019-2021
cycle
Equity (value
at vesting date)3
Total realized
compensation
(incl. share
Amount4,5 price movement)6
CHF
1 769 200
176 731
1 328 625
1 328 642
6 356 128
265 401 11 224 727
8 983 841
CHF
CHF 10 753 041
2 065 561
2 242 292
4 174 006
5 502 631
5 400 015 18 770 029
6 728 657 25 126 157
6 021 712 45 415 164
6 287 113 56 639 891
Executive Committee members
Vasant Narasimhan (CEO)
Aggregate realized compensation of the
other 14 Executive Committee members,
including the members who stepped down
during the financial year 2021 7,8
Total
See 2020 realized compensation for the CEO and other Executive Committee members for 2020 comparative figures.
1 Includes mandatory employer contributions of CHF 5 498 for the CEO and CHF 53 693 for the other Executive Committee members paid by Novartis to governmental social security
systems. This amount is out of total employer contributions of CHF 4 966 397 paid in 2021 for all Executive Committee members, and provides a right to the maximum future insured
government pension benefit.
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 26, 2022) of CHF 78.16 per
Novartis share and USD 84.24 per ADR.
3 The amounts represent the underlying share value of the 296 741 LTPP PSUs vesting on January 22, 2022, to the CEO and other Executive Committee members for the 2019-2021
performance cycle, inclusive of earned Alcon Keep Whole awards and dividend equivalents for the three-year cycle (for details, see ‘’—LTPP performance outcomes’’). The taxable
value is determined using the closing share price on the day the Novartis Board of Directors approved the final LTPP performance factor (i.e., January 26, 2022) of CHF 78.16 per
Novartis share and USD 84.24 per ADR. Marie-France Tschudin and Robert Kowalski were promoted to the Executive Committee during the course of the 2019-2021 performance
period, and as such, the information disclosed reflects their pro-rata LTPP 2019-2021 payout attributable to the period in which they were members of the Executive Committee.
Richard Saynor and Karen Hale joined Novartis after the 2019 LTI awards were made and hence did not receive an LTPP award for the 2019-2021 performance period.
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). The 2021 tax payments were CHF 127 009 for Mr. Saynor, as well as CHF 822 808 for Susanne Schaffert, and CHF 156 788 for Vas Narasimhan.
5 Includes 6 128 vested RSUs and 3 546 PSUs (for a total value of CHF 782 649), which vested partially on March 13, 2021, and partially on July 28, 2021, to John Tsai in lieu of the LTI
that he forfeited when leaving his previous employer. Also includes 2 584 vested RSUs and 2 043 vested PSUs (for a total value of CHF 379 414), which vested on February 14, 2021,
to Mr. Saynor in lieu of the LTI that he forfeited when leaving his previous employer, and 4 313 vested PSUs (CHF 370 961) on January 18, 2021, to Klaus Moosmayer in lieu of the LTI
he forfeited when leaving his previous employer.
6 All amounts are before deduction of the social security contribution and income tax due from the Executive Committee member.
7 Includes the first six weeks of Karen Hale’s compensation, before her appointment to the Executive Committee, under other compensation. Comprises the compensation of Bertrand
Bodson, former Chief Data Officer and Steven Baert, former Chief People & Organization Officer, including the vesting of their Long-Term Incentives for 2019-2021 performance
cycle, as per the plan rules. The compensation and benefits elements related to the period after the step-down dates are reported under the other compensation column. Unvested
shares for Shannon Klinger were forfeited upon her departure from the Company. See “—2021 Executive Committee member departures” for details.
8 Amounts for Executive Committee members paid in USD were converted at a rate of USD 1.00 = CHF 0.9139, which is the same average exchange rate used in the Group’s 2021
consolidated financial statements (a similar rule applies to payments made in other currencies during the year).
104
Item 6. Directors, Senior Management and Employees
The table and information below provide additional details on awards granted as part of the 2019-2021 LTPP per-
formance cycle, including the number of shares awarded and delivered, following the application of the payout fac-
tor and the addition of dividend equivalent shares.
2019-2021 LTPP performance cycle
PSUs at grant
Shares delivered at vesting
PSUs
(target number)
PSUs
(target value
at grant date)
2
(CHF)
Performance shares
Payout factor Performance shares delivered at vesting
equivalent shares delivered at vesting
for ECN LTPP delivered at vesting (value at vesting date) delivered at vesting (value at vesting date)
(CHF)
(% of target)
(number)
Dividend
(number)
(CHF)
3
4
Dividend
Total shares
equivalent shares delivered at vesting
(value at
vesting date)
(CHF)
Executive Committee members 1
Vasant Narasimhan
69 052
6 086 243
107%
73 886
5 774 930
7 436
581 198
6 356 128
Other 14 Executive Committee members,
including the members who stepped
down during the financial year 2021 5
202 990 17 625 412
107%
218 916 17 071 653
21 880
1 733 318 18 770 029
Total
272 042 23 711 655
292 802 22 846 583
29 316
2 314 516 25 126 157
1 Marie-France Tschudin and Robert Kowalski joined the Executive Committee during the course of the 2019-2021 performance period. As such, the information disclosed reflects
their pro-rata LTPP 2019-2021 attributable to the period in which they were members of the Executive Committee. Richard Saynor and Karen Hale joined Novartis after the
2019-2021 LTPP awards were made and hence did not receive an LTPP award for this 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 2019-2021 performance period,
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 (pre-Alcon spin-off share price).
3 The shown amounts, inclusive of earned Alcon Keep Whole awards, represent the underlying share value of the number of PSUs vested for the 2019-2021 performance period,
based on the closing share price on the day the Novartis Board of Directors approved the final LTPP performance payout factor (i.e., January 26, 2022) of CHF 78.16 per Novartis
share and USD 84.24 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 2019-2021 performance period. At vesting, the dividend equivalents are credited in shares or ADRs.
5 Includes the LTPP vesting for Bertrand Bodson, former Chief Data Officer and Steven Baert, former Chief People Officer for 2019-2021 performance cycle, as per the plan rules.
The LTPP vesting for Shannon Klinger were forfeited upon her departure from the Company on May 31, 2021.
105
Item 6. Directors, Senior Management and Employees
The table and information below provide details on the 2020 realized compensation for the CEO and other Exec-
utive Committee members, for comparative purposes. When comparing this with the 2021 realized compensation,
it is important to recognize that the two LTI plans (LTPP and LTRPP) were combined into a single LTPP from the
2019-2021 cycle.
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 CHF
Total
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
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 vested 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. 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).
Realized compensation for the CEO and other Executive Committee members for 2021 compared to 2020
The 2021 total realized compensation for the CEO was CHF 11 224 727. This is a reduction of 11.8% compared to
the prior year, mainly due to the lower performance payout of the 2019-2021 LTPP (107% compared to the 126%
combined payout for the 2018-2020 LTPP and LTRPP). During the 2019-2021 LTPP performance cycle, the TSR
ranking for Novartis, which is weighted 25% of the overall LTPP opportunity, was below median, which resulted in
zero payout for this measure. Long-term Innovation performance, also weighted 25%, was also lower (109% com-
pared to 131% in 2018-2020). For more detail, please refer to “—LTPP performance outcomes.”
The 2021 total realized compensation for the Executive Committee members, including the CEO, was CHF 56 639 891.
The small decrease compared to the prior year can be mainly attributed to the lower 2019-2021 LTPP payout com-
pared to the 2018-2020 cycle and, to a lesser extent, lower annual incentive payouts on average for Executive
Committee members for 2021 compared to the prior performance year. The lower performance payouts were par-
tially offset by vesting of the first LTI for some Executive Committee members, granted to them following their
respective appointments three years ago.
106
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 2021 compensation (base salary and benefits)
• The actual cash portion and the deferred portion granted in equity of the 2021 Annual Incentive
• 2021-2023 LTPP performance cycle awards, which are reported at target grant date value, under the assumption
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 2023), with a payout range of 0% to 200% of the target value
• Other compensation for 2021, which includes other benefits, either paid in cash or granted in equity in the year
To assess CEO actual pay for performance in 2021, including the Annual Incentive payout for the 2021 performance
year and the LTI payouts for the 2019-2021 performance cycle, shareholders should refer to the 2021 realized
compensation table in “—2021 realized compensation for the CEO and other Executive Committee members.”
2021 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 2021
Long-Term Incentive
2021-2023 cycle
grants at target
2021 annual base
salary
2021 pension
benefits
2021 Annual Incentive
(performance achieved)
LTPP 2021-2023 cycle
Other 2021
compensation
Total
compensation
paid, promised
or granted 2021
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, 2021
Vasant Narasimhan
James Bradner 6
Karen Hale (from May 15, 2021) 7
Harry Kirsch
Robert Kowalski (from September 1, 2021) 8
Steffen Lang
Klaus Moosmayer
Richard Saynor
Susanne Schaffert
John Tsai
Marie-France Tschudin
Robert Weltevreden
Total
CHF
USD
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
1 769 200
1 184 462
519 750
1 072 084
233 333
780 833
566 667
785 000
881 333
875 834
881 333
673 333
10 121 211
176 731
367 246
85 987
177 174
49 692
180 413
198 992
190 263
180 837
186 807
164 980
171 352
2 098 866
1 328 625
712 802
261 062
354 255
105 288
508 680
253 000
196 500
88 250
306 950
706 000
299 200
5 059 259
1 328 642
712 839
261 133
1 062 820
105 360
763 076
253 004
196 572
794 262
307 012
706 019
299 275
5 757 423
2 970 016
1 442 371
2 791 111
448 824
1 570 027
1 035 044
1 493 478
2 118 082
2 192 567
2 029 750
1 292 042
6 728 657 24 885 096
265 401 10 626 023
6 039 652
3 112 992
5 501 060
1 122 925
3 817 459
2 356 557
3 278 506
4 919 415
4 070 477
4 488 083
2 735 202
2 655 408 51 548 498
92 286
542 689
43 617
180 428
14 430
49 850
416 693
856 650
201 307
–
–
Executive Committee members who stepped down during 2021
CHF
Steven Baert (until June 30, 2021) 9
Bertrand Bodson (until January 31, 2021) 10
CHF
Shannon Thyme Klinger (until March 15, 2021) 11 CHF
400 277
54 451
177 102
87 753
15 240
40 434
399 887
43 485
–
–
–
–
422 223
–
279 791
1 831 302
1 339 471
2 018 161
3 141 442
1 452 647
2 515 487
Subtotal
Total
631 830
10 753 041
143 427
2 242 292
443 372
5 502 631
0
702 014
6 728 657 25 587 110
5 188 934
7 109 576
7 844 343 58 658 074
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 2024
See next page for 2020 comparative figures.
1 Includes mandatory employer contributions of CHF 5 498 for the CEO and CHF 53 693 for the other Executive Committee members paid by Novartis to governmental social security systems. This amount is out
of total employer contributions of CHF 4 966 397 paid in 2021 for all Executive Committee members, and provides a right to the maximum future insured government pension benefit.
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 26, 2022) of CHF 78.16 per Novartis share and USD 84.24
per ADR.
3 The amounts represent the underlying share value of the target number of PSUs granted to Executive Committee members for the 2021-2023 performance cycle, 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 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). The
compensation and benefits elements related to the period after the step-down dates are also reported under ‘other 2021 compensation’.
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 1.0942, which is the average rate used in the Group’s 2021 consolidated financial statements.
7 Karen Hale received a pro-rata LTPP award of 18 639 PSUs on Apr-2, 2021 (at CHF 81.15 share price at grant) upon joining the organization, as per contractual entitlement. The other compensation amount
includes the first six weeks of compensation before her appointment to the Executive Committee.
8 Robert Kowalski received his 2021 LTPP grant before his appointment to Executive Committee, therefore the reported LTPP amount is pro-rated to reflect his time as Executive Committee member over the full
performance cycle.
9 Steven Baert left the Executive Committee on June 30, 2021 and ended his notice period on September 30, 2021, in line with his reduced contractual notice period (for more details, see “—2021 Executive
Committee member departures”). He received his 2021 Annual Incentive 100% in cash on a pro-rata basis, and the LTPP grant for the 2021-2023 performance cycle, included in the table above, will vest at the
end of the performance cycle on a pro-rata basis subject to the plan rules.
10 Bertrand Bodson left the Executive Committee on January 31, 2021 and ended his notice period on November 30, 2021, in line with his reduced contractual notice period (for more details, see “—2021 Executive
Committee member departures”). He received his 2021 Annual Incentive 100% in cash on a pro-rata basis, and no LTPP was granted for the 2021-2023 performance cycle.
11 Shannon Klinger resigned as Chief Legal Officer as of March 15, 2021, and left the Company on May 31, 2021, in line with her reduced contractual notice period (for more details, see “—2021 Executive
Committee member departures”). The 2021 Annual Incentive and LTPP 2021-2023 cycle grant (23 586 PSUs), displayed at pro-rata value for the time she was in her role in 2021, were forfeited in full upon her
departure.
107
Item 6. Directors, Senior Management and Employees
2020 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 2020.
Executive Committee member compensation at grant for financial year 2020
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.
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.
Compensation at grant value for the CEO and other Executive Committee members for 2021 compared to
2020
Grant compensation delivered in 2021 to the CEO and the other Executive Committee members, including those
who stepped down, remained broadly similar to that in 2020.
108
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 2021 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 2021
Executive Committee members active on December 31, 2021
Vasant Narasimhan
James Bradner
Karen Hale (from May 15, 2021)
Harry Kirsch
Robert Kowalski (from September 1, 2021)
Steffen Lang
Klaus Moosmayer
Richard Saynor
Susanne Schaffert
John Tsai
Marie-France Tschudin
Robert Weltevreden
Total
Executive Committee members who stepped down during 2021
Steven Baert (until June 30, 2021) 4
Bertrand Bodson (until January 31, 2021) 5
Shannon Thyme Klinger (until March 15, 2021) 6
Subtotal
Total
Variable compensation1
2021 Annual Incentive
(performance achieved)
LTPP
2021-2023 cycle
Other
Equity
(number) 2
PSUs
(target number) 3
Equity/PSUs
(number)
16 999
8 462
3 341
13 598
1 348
9 763
3 237
2 515
10 162
3 928
9 033
3 829
66 939
30 644
17 823
32 451
5 067
18 254
12 034
17 364
24 626
25 492
23 599
15 022
86 215
289 315
0
0
0
0
–
4 909
0
3 253
8 162
8 162
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
See next page for 2020 comparative figures.
1 The values of the awards are reported in the table “2021 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 the 2021 performance period.
3 Target number of PSUs granted under the LTPP as applicable for the 2021-2023 performance cycle.
4 Steven Baert left the Executive Committee on June 30, 2021 and ended his notice period on September 30, 2021, in line with his reduced contractual notice period (for more details,
see “—2021 Executive Committee member departures”). The LTPP grant for the 2021-2023 performance cycle, included in the table above, will vest at the end of the performance
cycle on a pro-rata basis subject to the plan rules.
5 Bertrand Bodson left the Executive Committee on January 31, 2021 and ended his notice period on November 30, 2021, in line with his reduced contractual notice period (for more
details, see “—2021 Executive Committee member departures”). No LTPP was granted for the 2021-2023 performance cycle.
6 Shannon Klinger resigned as Chief Legal Officer as of March 15, 2021, and left the Company on May 31, 2021, in line with her reduced contractual notice period (for more details, see
“—2021 Executive Committee member departures”). The LTPP 2021-2023 cycle grant (23 586 PSUs), displayed at pro-rata value for the time she was in her role in 2021, was
forfeited in full upon her departure.
109
Item 6. Directors, Senior Management and Employees
Number of equity instruments granted to the CEO and other Executive Committee members for financial
year 2020 (comparative information)
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
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 the 2020 performance period.
3 Target number of PSUs granted under the LTPP as applicable for the 2020-2022 performance cycle.
110
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 here. In addition, the CEO
and CFO are required to hold the equity vesting under
the LTPP plan (granted since 2021) for a minimum of two
years after the vesting date. 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 accord-
ingly.
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 American Depositary
Receipts (ADRs), and RSUs acquired under the Compa-
ny’s compensation plans. However, 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 compliance with the share owner-
ship guideline on an annual basis.
Shares, ADRs and other equity rights owned by Executive Committee members at December 31, 20211
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, 2021. As of December 31, 2021, 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, 2021, 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) 4
annual base salary 3
Equity ownership level
Total at
December 31,
2021
Vasant Narasimhan
James Bradner
Karen Hale (from May 15, 2021)
Harry Kirsch
Robert Kowalski (from September 1, 2021)
Steffen Lang
Klaus Moosmayer
Richard Saynor
Susanne Schaffert
John Tsai
Marie-France Tschudin
Robert Weltevreden
Total
170111
43 744
0
285 186
0
125 286
8 312
0
116 173
23 382
39 353
27 758
74 194
38 099
3 977
41 395
21 186
32 082
9 061
13 913
37 190
26 781
31 007
16 224
11x
6x
0x
24x
2x
16x
2x
1x
13x
4x
6x
5x
144 632
72 709
5 082
71 715
16 376
33 836
25 671
19 800
50 611
60 680
53 856
27 840
388 937
154 552
9 059
398 296
37 562
191 204
43 044
33 713
203 974
110 843
124 216
71 822
839 305
345 109
582 808
1 767 222
1 Includes holdings of “persons closely linked” to Executive Committee members (see the ‘persons closely linked’ definition).
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 2021 financial year. The share price on the final trading day of
2021 was CHF 80.28 / USD 87.47 as at December 31, 2021.
4 The target number of PSUs is disclosed pro-rata to December 31, 2021, unless the award qualified for full vesting under the relevant plan rules.
111
Item 6. Directors, Senior Management and Employees
Fixed and variable compensation
The following table summarizes the annual base salary
and variable compensation mix at grant value for finan-
cial year 2021 for the CEO and other Executive Commit-
tee members.
Vasant Narasimhan
James Bradner
Karen Hale (from May 15, 2021)
Harry Kirsch
Robert Kowalski (from September 1, 2021)
Steffen Lang
Klaus Moosmayer
Richard Saynor
Susanne Schaffert
John Tsai
Marie-France Tschudin
Robert Weltevreden
Total 3
Annual
Variable
base salary 1 compensation 2
16.9%
20.9%
17.2%
20.1%
21.7%
21.5%
26.3%
25.4%
18.6%
22.6%
20.4%
26.3%
20.5%
83.1%
79.1%
82.8%
79.9%
78.3%
78.5%
73.7%
74.6%
81.4%
77.4%
79.6%
73.7%
79.5%
1 Excludes pension and other benefits and is pro-rated for ECN time.
2 See the table “2021 compensation at grant value for the CEO and other Executive
Committee members” with regard to the disclosure principles of variable
compensation.
3 Excludes members, who stepped down during the year.
Other payments to Executive Committee members
During 2021, 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’
contracts and in line with the Company’s LTI plan rules,
payments were made to 7 former members. Of this,
CHF 1 496 357 relates to the vesting of the LTPP 2019-
2021 performance cycle and the vesting of buyout
awards. In addition, contractual amounts totalling
CHF 150 137 were made (comprising base salary, the
Annual Incentive and other benefits), and 5 individuals
had tax equalization on their variable compensation
granted during an international assignment amounting
to a total of CHF 399 593.
No other payments (or waivers of claims) were made
to former Executive Committee members or to “persons
closely linked” to them during 2021.
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 2021, and none were outstanding as of
December 31, 2021.
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 employees
During 2021, 11.1 million unvested restricted shares (or
ADRs), RSUs and target PSUs were granted, and 10.4
million Novartis vested shares (or ADRs) were delivered
to Novartis employees under various equity-based par-
ticipation plans. Current unvested equity instruments
(restricted shares, RSUs and target PSUs) and outstand-
ing equity options held by employees represent 1.21% of
issued shares. Novartis delivers treasury shares to
employees to fulfill these obligations and aims to offset
the dilutive impact from its equity-based participation
plans.
112
Item 6. Directors, Senior Management and Employees
Interim update regarding ongoing LTI performance cycles
Below we report how performance is tracking against our stretch targets for our ongoing LTI performance cycles.
2020-2022 LTPP
After the first two years of the three-year LTPP perfor-
mance cycle, both net sales CAGR and operating income
CAGR are tracking behind target, driven mainly by the
negative and unexpected impact of COVID-19 in 2020
and 2021 as well as the safety update on Beovu. Innova-
tion is on track with some filings already submitted and
others in the pipeline. At the end of 2021, the relative TSR
for Novartis was below median among our global health-
care peer group.
PERFORMANCE MEASURES
TRACKING
Net sales CAGR (25%)
Core operating income CAGR (25%)
Innovation (25%)
Relative TSR (25%)
CAGR = compound annual growth rate
M
M
T
M
2021-2023 LTPP
After the first year of the three-year LTPP performance
cycle, net sales CAGR is tracking at target and core oper-
ating income CAGR is slightly behind target, while inno-
vation performance is on target. At the end of 2021, the
relative TSR for Novartis was below median among our
global healthcare peer group.
PERFORMANCE MEASURES
TRACKING
Net sales CAGR (25%)
Core operating income CAGR (25%)
Innovation (25%)
Relative TSR (25%)
CAGR = compound annual growth rate
T On or ahead of target M Slightly behind or behind target
T
M
T
M
113
Item 6. Directors, Senior Management and Employees
2022 Executive Committee compensation
2022 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 this into consideration and to
ensure our competitiveness in the market, the total target compensation for these members has been assessed,
and increases have been made for 2022 in line with their demonstrated performance and ability in their respective
roles.
For the Executive Committee members not outlined below, including the CEO, the compensation review was
applied based on the principles applicable to associates in Switzerland and, where applicable, the US.
Marie-France Tschudin, President of Novartis Pharmaceuticals
Ms. Tschudin delivered a very strong year financially in 2021, with growth drivers Cosentyx and Entresto exceed-
ing sales targets and continuing to build a strong market share. Targeted launches in the US and Japan were suc-
cessful and pre-launch preparation for a number of brands was well executed. Effective March 1, 2022, Ms. Tschudin
will receive an increase in annual base salary of 4.8% to CHF 925 000, a 10% increase in her Annual Incentive tar-
get to 110% and a 10% increase in target LTI to 240%, as a percentage of annual base salary.
Steffen Lang, Global Head of Novartis Technical Operations
Mr. Lang delivered very strong financial and operational performance in 2021. Under his leadership, the Technical
Operations function built new capabilities and streamlined processes in our manufacturing activities, while con-
tinuing to ensure quality and compliance. Effective March 1, 2022, he will receive an increase in annual base salary
of 4.5% to CHF 820 000, a 10% increase in both the target Annual Incentive and LTI to 100% and 210% respec-
tively, as a percentage of his annual base salary.
Robert Weltevreden, Head of Customer & Technology Solutions
Mr. Weltevreden’s role was expanded in February 2021 when we merged our Digital function with our business ser-
vices. To recognize these additional responsibilities and his strong delivery of improved efficiencies across the
organization, Mr. Weltevreden will receive a 10% increase in both the target Annual Incentive and LTI to 90% and
200% respectively, as a percentage of his annual base salary.
Susanne Schaffert, President of Novartis Oncology
Ms. Schaffert led strong performance of our inline Oncology brands in 2021 and took important strategic decisions
to focus on key cancers through targeted therapy programs. Ms. Schaffert will receive a 10% increase to her 2022
Annual Incentive target to 110%, as a percentage of annual base salary.
Klaus Moosmayer, Chief Ethics, Risk & Compliance Officer
Mr. Moosmayer has continued to drive the ethical transformation of the company, establishing a robust approach
to the active management of risks and compliance, as demonstrated to external regulators. Mr. Moosmayer will
receive a 10% increase to his 2022 Annual Incentive target, to 90%, as a percentage of annual base salary.
114
Item 6. Directors, Senior Management and Employees
2021 Board compensation
Philosophy and benchmarking
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, 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 criminal liability under Swiss rules regarding board
and executive committee compensation related to the
Ordinance against Excessive Compensation 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 mem-
bers, including the Chairman, each year based on a pro-
posal by the Compensation Committee and on advice
from its independent advisor, including relevant bench-
marking information. The peer group used for the Board
of Directors is different than that used for the Executive
Committee to ensure independence 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 2021, 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 employees based in
Switzerland (1.0% for 2021).
Other Board members
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 2021 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
2021-2022 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.
2022 Board compensation
The Board of Directors fee levels will remain the same
in 2022 with one exception. Since the 2021 AGM, the
roles of Vice Chairman and Lead Independent Director
(LID) have been held by the same Board member and no
additional compensation was paid for the LID role. From
the 2022 AGM, the roles will be held by separate Board
members. For more information on the roles, please refer
to “—Vice Chairman and Lead Independent Director” in
Item 6.C of this Annual Report.
The Board has approved an annual fixed fee of CHF
20 000 for the LID role. As per the Board compensa-
tion policy, at least 50% of the fee will be paid in Novartis
shares and the remainder will be paid in cash. When
determining the compensation principles and the amount,
the designated LID candidate was excused from any dis-
cussion.
115
Item 6. Directors, Senior Management and Employees
Board member total compensation earned for the financial year 2021
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, 2021
Joerg Reinhardt 4
Chairman
Chair
22 830 1 900 000 1 900 000 4 560 3 804 560
Enrico Vanni
Nancy C. Andrews
Ton Buechner
Patrice Bula
Elizabeth Doherty
Ann Fudge
Bridgette Heller
Frans van Houten
Simon Moroney
Andreas von Planta
Charles L. Sawyers
William T. Winters
Subtotal
Vice Chairman /
Lead Independent
Director7
•
•
Chair
• 6
• 6
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Chair 6
•
Chair
•
•
Board members who stepped down at the 2021 AGM
Srikant Datar 5
Subtotal
Total
•
•
•
•
•
3 035 244 167 244 167 3 670 492 004
•
2 162 180 000 180 000
– 360 000
Chair 6
3 625 175 000 240 000 4 560 419 560
1 922 160 000 160 000 4 560 324 560
•
3 391 206 250 243 750
– 450 000
2 162 180 000 180 000
– 360 000
2 128 189 167 189 167
– 378 334
4 257
– 378 333
– 378 333
2 187 197 500 197 500 4 560 399 560
•
2 556 200 833 200 833 3 670 405 336
2 162 180 000 180 000
– 360 000
4 325
– 360 000
– 360 000
56 742 3 812 917 4 653 750 25 580 8 492 247
1 970
23 000
53 667
–
–
–
–
–
76 667
–
58 712 3 835 917 4 707 417 25 580 8 568 914
See next page for 2020 comparative figures.
1 The shown amounts represent the gross number of shares delivered to each Board member in 2021 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 2021 for the services from the 2020 AGM to the 2021 AGM, and (ii) the first of two
equity installments delivered in August 2021 for the services from the 2021 AGM to the 2022 AGM. The second and final equity installment for the services from the 2021 AGM to the
2022 AGM will take place in February 2022.
2 Includes an amount of CHF 25 580 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 435 204 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 Until March 2, 2021.
6 From March 2, 2021.
7 No additonal compensation was paid for the Lead Independent Director role.
116
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
Total
Chairman
Chair
22 629 1 900 000 1 900 000 4 501 3 804 501
Vice Chairman
•
Chair
•
3 156 265 000 265 000 3 614 533 614
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Chair
•
•
•
•
•
•
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
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 took 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.
117
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 2021, and none were outstanding as of Decem-
ber 31, 2021.
Other payments to Board members
During 2021, 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 2021” (including its footnotes) were
made to current members of the Board or to “persons
closely linked” to them.
Payments to former Board members
During 2021, 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, 2021, all current and former members of the Board
of Directors who were required to meet the minimum
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, 2021, is
shown in the table below. As of December 31, 2021, 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
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, 2021 1,2
418 706
30 965
7 257
17 856
6 543
10 743
13 222
2 655
10 813
2 240
166 390
14 214
24 436
726 040
1 Includes holdings of “persons closely linked” to Board members (see definition
“Persons closely linked”).
2 Each share provides entitlement to one vote.
118
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 and executive committee members,
their equity participation, 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 Governance of the
Swiss Business Federation (economiesuisse).
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.
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 is 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/
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 2021 AGM, the Compensation Committee had the fol-
lowing five members: Simon Moroney (as Chair), Patrice
Bula, Bridgette Heller, Enrico Vanni and William Winters.
Role of the Compensation Committee’s
independent advisor
The Compensation Committee retained Mercer Limited
during the financial year 2021 as its independent external
compensation advisor to support the committee in determin-
ing the design and implementation of compensation and ben-
efits. The advisor from Mercer Limited was hired directly by
the Compensation Committee in 2017, and the Compensa-
tion 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 advi-
sor, the Compensation Committee evaluates, at least annu-
ally, 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 devel-
opment at the mid- and frontline leader level and in respect
of corporate pensions. The independent advisor and his team
that advises and supports 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 2021 and self-evaluation
In 2021, the Compensation Committee held seven 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 Compensation Committee conducted a self-evaluation
in 2021.
119
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 2021 realized compensation for the
CEO and other Executive Committee members on pages
104-106, the 2021 compensation at grant value for the
CEO and other Executive Committee members on pages
107-108, and additional disclosures for the CEO and
other Executive Committee members on pages 109-112,
as well as the 2021 Board compensation on pages 115-
117 and the additional disclosures on page 118 of the
accompanying Compensation Report of Novartis AG for
the year ended December 31, 2021, 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,
2021, comply with Swiss law and articles 14–16 of the
Ordinance.
PricewaterhouseCoopers AG
Claudia Benz
Audit expert
Auditor in charge
Kris Muller
Global Relationship
Partner
Basel, February 1, 2022
120
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 Respon-
sibilities 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, adopts and modifies Board Regulations
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
121
AUDIT AND COMPLIANCE COMMITTEECOMPENSATION COMMITTEERISK COMMITTEESCIENCE & TECHNOLOGY COMMITTEEGOVERNANCE, NOMINATION 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), Customer
& Technology Solutions (CTS),1 and corporate functions.
A detailed review of 2021 business results can be found
in “Item 18. Financial Statements—Note 3. Segmentation
of key figures 2021, 2020 and 2019.”
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
(
C
T
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
USD 75.7 million on December 31, 2021, using the quoted
market share price at year-end. Applying this share price
to all the shares of the company, the market capitalization
of the whole company was USD 258.1 million, and that
of the shares owned by Novartis was USD 182.4 million.
Significant minority shareholding owned by the Group
On November 3, 2021, the Novartis Group agreed to sell
53.3 million (approximately 33%) 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) in a bilateral transaction
to Roche Holding AG for USD 20.7 billion. The transac-
tion was approved by the shareholders of Roche Hold-
ing AG on November 26, 2021, and was consummated
on December 6, 2021.
Shareholders
Significant shareholders
According to the Share Register, as of December 31,
2021, 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”):2
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, 2021
3.7
2.3
2.1
% holding of
share capital
Dec 31, 2021
8.8
3.0
1.6
1.1
0.3
4.2
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
BSE (formerly known as the Bombay Stock Exchange)
(ISIN INE234A01025, symbol: HCBA). The total market
value of the 29.3% free float of Novartis India Ltd. was
Shareholder acting as American Depositary Share (ADS) depositary:
JPMorgan Chase Bank, N.A., New York
11.1
1 In 2021, Novartis Business Services (NBS) was merged with the Digital function to
form the new CTS unit.
2 Excluding 4% of the share capital held as treasury shares by Novartis AG or its fully
owned subsidiaries
122
Item 6. Directors, Senior Management and Employees
According to a disclosure notification filed with
Novartis AG, Norges Bank (Central Bank of Norway),
Oslo, held 2.1% of the share capital but was not regis-
tered in the Share Register as of December 31, 2021.
According to a disclosure notification filed with Novartis AG
and the SIX Swiss Exchange, BlackRock, Inc., New York,
held 5% but was registered with less than 2% of the share
capital as of December 31, 2021.
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, 2021, Novartis AG had approxi-
mately 186 000 registered shareholders.
Number of registered shareholders/shares
As of December 31, 2021 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
33 572
110 453
38 146
3 293
481
66
29
0.08
1.84
4.34
3.44
5.95
5.38
45.25
66.28
33.72
100.00
Total registered shareholders/shares
186 040
Unregistered shares
Total
1 At the record date of the 2021 Annual General Meeting of Shareholders (AGM),
unregistered shares amounted to 16.8%.
2 Including significant registered shareholders as listed above
Registered shareholders by type
As of December 31, 2021
Shareholders in %
Shares in %
Individual shareholders
Legal entities 1
Nominees, fiduciaries
and ADS depositary
Total
96.72
3.24
0.04
100.00
15.06
35.71
49.23
100.00
1 Excluding 4% of the share capital held as treasury shares by Novartis AG or its fully
owned subsidiaries
Registered shareholders by country1
As of December 31, 2021
Shareholders in %
Shares in %
Belgium
France
Germany
Japan
Luxembourg
Switzerland 2
United Kingdom
United States
Other countries
Total
0.12
1.97
5.60
0.18
0.06
87.31
0.60
0.25
3.91
0.69
0.34
1.72
0.45
0.73
46.17
24.26
23.56
2.08
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% of the share capital held as treasury shares by Novartis AG or its fully
owned subsidiaries
123
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
employees. 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, 2021, the share capital amounted
to CHF 1 217 210 460 fully paid-in and divided into
2 434 420 920 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 Depositary
Receipts (ADRs) representing American Depositary
Shares (ADSs) (ISIN US66987V1098, symbol: NVS).
No authorized and conditional capital exists as of
December 31, 2021.
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
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
2020
• Capital reduction by CHF 30.16 million (from CHF 1 263 687 410 to CHF 1 233 530 460)
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 up to a maximum of CHF 10 billion
between the 2021 AGM and the 2024 AGM
Shares canceled
23 250 000
60 313 900
32’640’000
Average repurchase
share price (CHF) 1
79.08
88.18
80.57
AGM
Proposal to the shareholders
2022
• Capital reduction by CHF 15.3 million (from CHF 1 217 210 460 to CHF 1 201 860 626)
• Authorization of the Board to repurchase shares up to a maximum of CHF 10 billion
between the 2022 AGM and the 2025 AGM2
1 All shares were repurchased on the SIX Swiss Exchange second trading line.
2 In addition to the remaining authorization from the 2021 AGM
Shares to be canceled
30 699 668
Average repurchase
share price (CHF) 1
81.82
Key Novartis share data
Issued shares
Treasury shares 1
Outstanding shares at December 31
2021
2020
2019
2 434 420 920
2 467 060 920
2 527 374 820
199 480 972
210 238 872
262 366 332
2 234 939 948
2 256 822 048
2 265 008 488
Weighted average number of shares outstanding
2 242 601 173
2 277 041 940
2 290 792 782
1 Approximately 102 million treasury shares (2020: 103 million; 2019: 118 million) are held in Novartis entities that restrict their availability for use.
124
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 flows from operating activities from continuing operations (USD)
Year-end equity for Novartis AG shareholders (USD)
Dividend (CHF) 2
Dividend (USD) 3
2021
10.71
10.71
10.63
10.63
6.72
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
30.31
25.07
24.49
3.10
3.39
3.00
3.20
2.95
3.12
1 Calculated on the weighted average number of shares outstanding, except year-end equity
2 2021: proposal to shareholders for approval at the AGM on March 4, 2022.
3 Translated into US dollars at the December 31, 2021, rate of USD 1.093 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. 2020 and 2019, dividends are translated into US dollars at the
Bloomberg Market System Rate on the payment date.
Key ratios – December 31
Share price (CHF)
Year-end share price
High 2
Low 2
2021 1
80.28
86.75
73.44
2020 1
83.65
95.82
69.96
2019 1
91.90
96.04
77.03
Year-end market capitalization
(USD billions) 3
Year-end market capitalization
(CHF billions) 3
196.1
214.3
214.8
179.4
188.8
208.2
1 2021, 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
2021
8.2
8.2
3.9
2020
26.7
26.7
3.6
2019
18.5
30.4
3.2
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
2021 1
87.47
98.47
79.70
2020 1
94.43
99.01
70.67
2019 1
94.69
96.14
75.40
269 891 321 288 755 853 315 073 094
1 2021, 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.
125
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 ESG analysts – who rep-
resent 60% of our ownership. While the Chairman, CEO
and CFO together with Investor Relations are account-
able for ensuring effective shareholder engagement,
other senior managers from within and outside the Executive
Committee also participate in the meetings. We conduct
regular 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
• R&D Day
• Oncology pipeline update
• Governance roadshow and TCs
• Chairman’s TCs for US and UK investors
• ESG Investor Day and roadshows
TOPICS DISCUSSED WITH SHAREHOLDERS DURING 2021:
INNOVATION:
• Progress and milestones
• Data of pipeline projects
• Replacement power
• Launches (e.g., Kesimpta, Cosentyx, Entresto, Leqvio)
• Progress on key mergers and acquisitions (M&A) investments
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
• Life cycle management
DATA AND DIGITAL:
• New initiatives and progress on cybersecurity, artificial intelligence
and technology
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
• ESG targets: full carbon neutrality, patient access targets for
strategic innovative therapies, and global health flagship programs
• Sustainability-linked bond demonstrating ESG innovation
• Progress on culture and metrics
• Integrated, sustainable business models and access principles to
help address access and inequities
COMPENSATION AND GOVERNANCE:
• Diversity of the Board, the Executive Committee and the Company
• Board renewal, succession planning and evaluation
• Link of compensation system to key strategic priorities
• Risk oversight
• Stakeholder expectations from the Board on ESG
• 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 2021, our CEO led our ESG Inves-
tor Day for the third time (marking our eighth dedicated
ESG event for investors since 2014). We also held virtual
roadshows in 2021 as part of our engagement with North
American, European and Asian investors.
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 Articles
of Incorporation (see, in particular, articles 17 and 18 of
the Articles of Incorporation).
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. Article 5, paragraph 2 of the
Articles of Incorporation provides that to be registered 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, the Board may register nominees with the right
to vote. The Share Register is an internal, non-public register
subject to statutory confidentiality and data privacy.
The Articles of Incorporation are available at www.
novartis.com/investors/company-overview/corpo-
rate-governance.
REGISTRATION RESTRICTIONS
Article 5, paragraph 2 of the Articles of Incorporation 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 registra-
tion restrictions necessary to prevent a minority shareholder
from dominating a General Meeting. The Board may, upon
request, grant an exemption. Considerations include whether
the shareholder supports our goal of creating sustainable
value and has a long-term investment horizon. Exemptions
are in force for the registered shareholders listed in “—Item
6.C Board practices—Group structure and shareholders—
Shareholders—Significant shareholders.” Exemptions also
apply to the Novartis Foundation for Employee Participa-
tion, Basel, which as of December 31, 2021, was registered
in the Share Register with less than 2% of the share capital,
and to Norges Bank (Central Bank of Norway), Oslo, which
as of December 31, 2021, was not registered but held 2.1%
according to a disclosure notification filed with Novartis AG.
No further exemptions were requested in 2021. The same
restrictions indirectly apply to ADR holders.
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 capital. Exemp-
tions are in force for the nominees listed in “—Item 6.C Board
126
Item 6. Directors, Senior Management and Employees
practices—Group structure and shareholders—Sharehold-
ers—Significant shareholders,” and for the nominee Citibank,
London, which in 2015 requested an exemption, but as of
December 31, 2021, was not registered in the Share Regis-
ter. The same restrictions indirectly apply to ADR holders.
According to article 5, paragraph 4 of the Articles of
Incorporation, 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.
The Articles of Incorporation are available at www.
novartis.com/investors/company-overview/corpo-
rate-governance.
REPRESENTATION AND ONLINE VOTING PLATFORM
Registered shareholders will receive personal invitations
to the General Meetings along with a registration/proxy
form as well as a personal one-time password and a QR
code to log in to our online voting platform. By returning
the registration/proxy form or using the online voting
platform, shareholders would normally be able to order
an admission card for the General Meeting or appoint
another shareholder or the Independent Proxy to vote
their shares on their behalf. However, in accordance with
Swiss legislation passed in response to the COVID-19
pandemic, physical attendance at the 2021 Annual General
Meeting (AGM) was not possible, and shareholders could
exercise their voting rights only through the Independent
Proxy. Due to the challenging and unpredictable situation
regarding COVID-19, the Board decided in December
2021 to also hold the 2022 AGM without shareholders
being physically present.
If the Independent Proxy is appointed, shareholders
can also give voting instructions on alternative or addi-
tional motions related to the agenda items either (i) fol-
lowing the recommendations of the Board for such alter-
native or additional motions, or (ii) opposing such
alternative or additional motions. They can also abstain
from voting.
Shareholders choosing not to receive the compre-
hensive invitation materials will be informed of upcoming
General Meetings through a letter containing the login
credentials to access the online platform as well as a ref-
erence to www.novartis.com/investors/shareholder-in-
formation/general-meetings, where all relevant informa-
tion is available.
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
According to article 17 of the Articles of Incorporation
(www.novartis.com/investors/company-overview/corpo-
rate-governance), the following powers are vested exclu-
sively 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 Incorpora-
tion (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.
127
Item 6. Directors, Senior Management and Employees
Board of Directors
Composition (as per December 31, 2021)
CHAIRMAN: J. Reinhardt
VICE CHAIRMAN,
LEAD INDEPENDENT DIRECTOR: E. Vanni
N. Andrews
T. Buechner
P. Bula
E. Doherty
A. Fudge
B. Heller
F. van Houten
S. Moroney
A. von Planta1
C. Sawyers
W. Winters
AUDIT AND
COMPLIANCE
COMMITTEE
E. Doherty (Chair)
T. Buechner
B. Heller
F. van Houten
E. Vanni
COMPENSATION
COMMITTEE
S. Moroney (Chair)
P. Bula
B. Heller
E. Vanni
W. Winters
GOVERNANCE,
NOMINATION AND
CORPORATE RESPON
SIBILITIES COMMITTEE
A. von Planta (Chair)
A. Fudge
C. Sawyers
E. Vanni
W. Winters
1 Mr. von Planta will not stand for re-election at the 2023 AGM.
RISK COMMITTEE
SCIENCE & TECHNOLOGY
COMMITTEE
T. Buechner (Chair)
N. Andrews
E. Doherty
A. von Planta
J. Reinhardt (Chair)
N. Andrews
A. Fudge
F. van Houten
S. Moroney
C. Sawyers
Changes to the Board of Directors
Succession planning
Srikant Datar, Board member since 2003, did not stand
for re-election at the 2021 AGM following his appoint-
ment as dean of Harvard Business School in the US. Mr.
Datar’s CV can be found in the 2020 Annual Report (page
136), available at www.novartis.com/media-library/novar-
tis-annual-report-2020.
Election and term of office
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.
As adopted by the 2021 AGM, the previous age limit
set forth in the Articles of Incorporation was replaced by
a term limit. Accordingly, a member shall not serve on
the Board for more than 12 years. Under special circum-
stances and if deemed to be in the best interest of the
Company, the Board may recommend exceptions to the
shareholders (see article 20, paragraph 3 of the Articles
of Incorporation: www.novartis.com/investors/compa-
ny-overview/corporate-governance).
The 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 – including gender, nationality and
ethnicity – when evaluating candidates and exploring
ways to increase Board diversity.
The Chairman, supported by the GNCRC, ensures effec-
tive succession plans for the Board, the CEO and the
Executive Committee. These plans are discussed by the
Board in private meetings. A search for a new Board mem-
ber is launched – normally with the support of a profes-
sional executive search company – with individual selec-
tion criteria defined based on the evolving 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 Chair-
man, 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.
The Board will propose to the shareholders Ana de
Pro Gonzalo as new Board member for election at the
2022 AGM. Andreas von Planta already announced that
he will not stand for re-election at the 2023 AGM. To
ensure an orderly transition, the Board will also propose
the re-election of Mr. von Planta by granting an excep-
tion pursuant to article 20, paragraph 3 of the Articles
of Incorporation, as he will exceed the 12-year term limit
introduced last year.
128
Item 6. Directors, Senior Management and Employees
Independence
Diversity
NATIONALITY
All Board members – including the Chairman – are non -
executive and independent, pursuant to applicable corpo-
rate governance rules and Novartis independence criteria,
NATIONALITY
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, 2021, or has a signifi-
cant business relationship with Novartis AG or with any
other Novartis Group company. Because all Board mem-
bers are independent, no separate meetings of indepen-
dent Board members were held in 2021.
GENDER
EXECUTIVE/NON-EXECUTIVE
EXECUTIVE/NON-EXECUTIVE
Diversity of culture, experience and opinion is a key fac-
tor to success and Board effectiveness. A diverse Board
GENDER
ensures that the appropriate balance 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 increase our
Board diversity, including gender, age, nationality and
ethnicity. The female representation on our Board cur-
rently amounts to 31%. The GNCRC is focused on achiev-
ing even greater diversity when identifying new Board
member candidates.
INDEPENDENCE
INDEPENDENCE
Independence is assessed annually. Each Board mem-
ber completes an independence questionnaire that is
subject to review by the GNCRC. The GNCRC then sub-
mits a proposal to the full Board, and the Board deter-
mines the independence status of each Board member.
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 Male
p Female
p American
30%
p Swiss
30%
p Dutch
12%
p German
12%
p British
8%
p Irish
4%
p New Zealander 4%
1 Please note that five Board members have dual nationalities. Each of these nationalities is counted as a half in the above chart.
p 55–60
p 61–65
p >65
23%
54%
23%
69%
31%
p <3 y
p 3–6 y
p 7–9 y
p >9 y
23%
31%
23%
23%
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 aligns
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
54% 7/13
Leadership/management
85% 11/13
Finance/accounting
46% 6/13
Law/regulatory/risk management 54% 7/13
Data/digital
Environmental, social
and governance (ESG)
23% 3/13
46% 6/13
129
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 (2009–2021)
• 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
130
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
• Executive vice president and chief scientific officer, Boston Children’s Hospital, US (December 2021–
present)
• Dean emerita, Duke University School of Medicine, and vice chancellor emerita for academic affairs,
Duke University, US (2017–2021)
• 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 (2007–2021)
• 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, Maze Therapeutics Inc., US
• Board member and chair of the Science and Technology Committee, Charles River Laboratories
International Inc., US
• Council member, National Academy of Sciences, US
• Former council member (2013–2019) and member, National Academy of Medicine, US
• Member of the executive committee of the Corporation, Massachusetts Institute of Technology, 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. Before
becoming the CEO of Sulzer AG, he held several divisional leadership roles at the company and worked in
markets including Asia. Mr. Buechner most recently served as CEO and chairman of the executive board of
AkzoNobel NV, where he introduced industry-leading 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 and the sustainability board, Swiss Prime Site AG, Switzerland
• Chairman of the board of directors and the Strategy and Sustainability Committee, Burckhardt
Compression 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)
131
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. Most recently, he successfully 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 (2011–2021)
• 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
• Chairman, Froneri Lux Topco Sarl, Luxembourg
• Board member, Schindler AG, Switzerland
• Co-chairman (2020–2021) and board member (2015–2021), Cereal Partners Worldwide SA, Switzerland
(Nestlé representative)
• 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
Elizabeth (Liz) Doherty
Board member since 2016 | Nationality: British/Irish | 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 and chair of the Audit Committee, 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
132
Item 6. Directors, Senior Management and Employees
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
• Board member, Northrop Grumman Corp., US
• Board member, Catalyst Partners Acquisition Corp., US
• Senior trustee, the Brookings Institution, US
• Member, American Academy of Arts and Sciences, 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)
Bridgette Heller
Board member since 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, Integral Ad Science Inc., US
• Board member, Aramark, US
• 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, Newman’s Own 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)
133
Item 6. Directors, Senior Management and Employees
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
• Chairman of the supervisory board, Erasmus Trust Foundation, Netherlands
• Chairman, Graduate Entrepreneur Foundation, Netherlands
• Chairman, NL2025 Foundation, Netherlands
• 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)
Simon Moroney, D.Phil.
Board member since 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)
Mandates
• Chairman of the board of directors and the Remuneration and Nomination Committee, Biotalys NV,
Belgium
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
134
Item 6. Directors, Senior Management and Employees
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
• Member of the board of trustees, Novartis Foundation, Switzerland
• Vice chairman of the board of directors, 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, Société Immobilière Quai Gustave Ador 50 SA, 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)
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)
135
Item 6. Directors, Senior Management and Employees
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
• Member of the board of overseers, 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.
136
Item 6. Directors, Senior Management and Employees
Self-assessment
The Board and its committees conduct a self-assess-
ment once a year, covering topics including Board compo-
sition, purpose, scope and responsibilities; Board processes
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 2020 with the
consulting firm Egon Zehnder.
Anonymous survey
Qualitative review
Outcome
• Each Board member fills out an
• Based on the results, the Chairman
anonymous survey.
• A report identifying key strengths and
challenges is produced for the Board
and its committees.
and the committee chairs each lead a
qualitative review with their colleagues
and then with the entire Board.
• In addition, the Board, without its
Chairman, discusses the Chairman’s
performance, and then provides him
with feedback.
• The last self-assessment of November
2021 determined that the Board and its
committees are functioning effectively
and efficiently.
• The feedback confirmed that the Board
has an open culture, fostering a broad
range of viewpoints.
• The results also identified key areas
on which to focus, such as further
development of the Group strategy,
oversight of a range of challenging
technology projects, and the impact
on persistent pricing pressure in the
US and Europe.
Trainings
Role of the Board and its committees
Our Board receives regular briefings and trainings on
ethics, risks and compliance, and other relevant topics.
In 2021, each Board member completed the following
e-learning courses:
• Diversity & Inclusion
• Adverse Events
• Fit to Commit, focusing on our ethical commitments
around our Professional Practices Policy (P3), insider
trading, data privacy, and digital engagement for per-
sonal use
Our Chief Legal Officer also provides regular updates to
our Board members on developments related to insider
trading laws and regulations, and annually briefs the mem-
bers of the Board and the Executive Committee on their
insider trading duties. In addition, the Company offers
to its Board members a broad set of external trainings.
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.
137
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 2021
• Oversaw the Company’s five strategic pillars and the strategic focus on certain therapeutic
areas and technology platforms, key geographic areas and the generics business
• Received a key strategy review for the US and China markets
• Reviewed and discussed strategic considerations around mergers and acquisitions, and the
Company’s larger strategic moves to drive sustainable growth
• Discussed and approved the divestment of the Company’s investment in Roche Holding AG
• Initiated a strategic review of Sandoz to maximize shareholder value
• Reviewed the Company’s ESG strategy, plans and developments
• Discussed the strategy on cybersecurity and how Novartis is prepared to respond in case of
an incident
• Discussed longer-term Board succession planning and required profiles, proposing one new
Board member candidate to be elected at the 2022 AGM
• Discussed and reviewed the annual Board self-evaluation
Strategic priorities1
p i e d s
p i e d s
p i e d s
e
e s
p i e d s
i e d
p
p
Meetings
Number of meetings held
Number of members
Approximate average duration (hours)
Meeting attendance
9
13
5:15
99%
The Board met nine times in 2021. 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 held virtual, hybrid and physical meetings, with partici-
pants joining in person when possible.
J. Reinhardt (Chairman)
E. Vanni (Vice Chairman, Lead Independent Director)
N. Andrews
T. Buechner
P. Bula
E. Doherty
A. Fudge
B. Heller
F. van Houten
S. Moroney
A. von Planta
C. Sawyers
W. Winters
9
9
9
9
9
9
9
9
9
9
9
8
9
Documents
• Articles of Incorporation of Novartis AG
• Board Regulations
www.novartis.com/investors/company-overview/corporate-governance
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
138
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 2021
Strategic priorities3
• Closely monitored and followed up on the external auditor transition process for the
nomination and election of KPMG AG (“KPMG”) at the 2022 AGM1
• Evaluated the performance of the external auditor Pricewaterhouse Coopers AG (PwC) during
2021
• Reviewed the accounting and financial reporting, focusing in particular on those areas
involving significant risk or judgment
e
e
e
• Received reports and updates from Internal Audit; Quality; Ethics, Risk & Compliance; the
SpeakUp Office; Health, Safety & Environment; Tax (particularly on G7 tax proposals); and
Legal, and discussed progress on identifying and remedying the root causes of issues
p e s
Meetings
Number of meetings held
Number of members
Approximate average duration (hours)
Meeting attendance
Documents
8
5
2:13
100%
E. Doherty (Chair, Audit Committee Financial Expert)
T. Buechner
B. Heller2
F. van Houten2
E. Vanni
8
8
6
6
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 Ms. Heller and Mr. von Houten became members of the Audit and Compliance Committee after the 2021 AGM and have attended all Audit and Compliance Committee meetings since
that time.
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
139
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 2021
• Made decisions relating to Executive Committee compensation during the year
• Determined the critical performance measures (including financial, strategic, operational,
innovation and ESG) to be considered in the 2021 incentive plan targets
• Reviewed the achievement of incentive plan targets for the Executive Committee members
• Reviewed shareholder and proxy advisor feedback related to Novartis compensation
practices and disclosures
• Reviewed options for streamlining the Novartis Compensation Report
• Proposed appropriate peer companies for comparisons of board and executive committee
compensation, and assessed the Company’s level of compensation against the peer group
• Reviewed incentive plan rules to secure pay-for-performance alignment while preserving
Strategic priorities2
p
p i e d s
p s
p s
s
p s
p e
market competitiveness
Meetings
Number of meetings held
Number of members
Approximate average duration (hours)
Meeting attendance
Documents
7
5
2:05
100%
S. Moroney (Chair)1
P. Bula
B. Heller
E. Vanni
W. Winters
6
7
7
7
7
• 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 2021 AGM as a new member of the Compensation Committee and designated by the Board as Chair. Mr. Moroney has attended all Compensation
Committee meetings since his election. For the period from the 2020 AGM to the 2021 AGM, Mr. Moroney attended all Compensation Committee meetings as a permanent guest.
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
140
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 (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 2021
Strategic priorities2
• Evaluated progress on sustainability at Novartis, focusing on material ESG factors, strategy
and corresponding short- and mid-term ESG targets, and ways to further enhance Novartis
ESG efforts
• Received updates on the priorities and activities of the ESG Management Office
• Reviewed progress on access-to-medicine and global health targets
• Received updates on environmental sustainability and reviewed progress on the Company’s
carbon strategy and targets for Scope 1, 2 and 3 emissions as well as its objectives regarding
waste reduction and water consumption
• Received an update on key patient engagement achievements in 2021 and discussed
the priorities going forward
• Assessed ESG rating agency scores and identified potential for further improvement
• Received updates on ESG and governance roadshows held in 2021 as well as the 2021 ESG
Investor Day
• Evaluated the 2021 AGM held without physical shareholder attendance in response to the
COVID-19 pandemic
• Discussed and recommended to the Board an amendment to the Board Regulations to better
reflect the Board’s evolving role and responsibilities in sustainability and ESG matters
p i e d s
p i e d s
e s
e s
i e s
s
p i e d s
s
p i e d s
• Regularly discussed the composition of, and the succession for, the Board and its committees p
p
• Reviewed the skills matrix and independence of the Board
Meetings
Number of meetings held
Number of members
Approximate average duration (hours)
Meeting attendance
Documents
3
5
2:08
100%
A. von Planta (Chair)1
A. Fudge
C. Sawyers
E. Vanni
W. Winters
3
3
3
3
3
• 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 2022 AGM, Mr. von Planta will step down as Chair and remain a member of the Governance, Nomination and Corporate Responsibilities Committee. The Board has designated
Patrice Bula as Mr. von Planta’s successor in the role of Chair.
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
141
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 2021
Strategic priorities1
• Received updates on Enterprise Risk Management mitigation measures and results
• Reviewed the risks associated with research and development (R&D), and the mitigation
measures in place
• Reviewed the NTO risk management system to ensure the highest manufacturing and product
quality standards
• Evaluated the risks associated with the Choice with Responsibility working model in response
to the COVID-19 pandemic, with the aim to build upon positive trends
• Analyzed the IT landscape and the remediation processes in place
e
i e
i e s
p e s
e d
China markets
• Analyzed and discussed the business risks and opportunities associated with the US and
p i e d s
i e
• Evaluated risks and opportunities for Sandoz
• Received an overview of the top three public affairs risks and the mitigation measures in place e s
e d
• Evaluated and discussed enterprise data governance and management
Meetings
Number of meetings held
Number of members
Approximate average duration (hours)
Meeting attendance
Documents
4
4
2:12
100%
T. Buechner (Chair)
N. Andrews
E. Doherty
A. von Planta
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
142
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 R&D 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 2021
Strategic priorities1
• Reviewed the emergence of new categories of patient-derived data and their applications to
drug discovery, development and commercialization
• Received an external assessment of the portfolio and productivity of Novartis R&D, and
discussed the implications for future R&D strategy
• Discussed the Novartis R&D pipeline overall, and conducted an in-depth review of top priority
programs
Meetings
i e d
i
i e
Number of meetings held
Number of members
Approximate average duration (hours)
Meeting attendance
2
6
7:37
100%
J. Reinhardt (Chair)
N. Andrews
A. Fudge
F. van Houten
S. Moroney
C. Sawyers
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 Strategic priorities:
p Unleash the power of
our people
i Deliver transformative
innovation
e Embrace operational
excellence d Go big on data and
digital
2
2
2
2
2
2
s Build trust with society
143
Item 6. Directors, Senior Management and Employees
Chairman
Honorary Chairmen
The Chairman leads the Board to represent the interests
of all stakeholders and ensures an appropriate balance of
power between the Board and the Executive Committee.
In this role, the Chairman:
• 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
Alex Krauer and Daniel Vasella were appointed Honorary
Chairmen in recognition of their significant achievements
on behalf of Novartis.
On December 5, 2021, Mr. Krauer passed away at the
age of 90. Mr. Krauer, chairman of Ciba-Geigy from 1987
to 1996, was a driving force behind the merger between
Ciba-Geigy and Sandoz to create Novartis in 1996. After
the merger, he served as Chairman of the Board of
Directors of Novartis until 1999, when he was appointed
Honorary Chairman.
Honorary Chairmen 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:
Vice Chairman and
Lead Independent Director
Vice Chairman
The Vice Chairman has the following responsibilities:
• Leads the Board in case and as long as the Chairman
is incapacitated
• Leads the yearly session of the Board members to eval-
uate the performance of the Chairman, during which
the Chairman is not present
The Vice Chairman also provides advice and support to
the Chairman.
Lead Independent Director
To support adequate control mechanisms, the Board
Regulations outline the role of the Lead Independent
Director. The Lead Independent Director has the follow-
ing responsibilities:
• 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 roles of the Vice Chairman and the Lead Indepen-
dent 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.
Mandates
Other listed companies 1
Maximum number
of mandates
10
4
1 Holding a chair position 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.
144
Item 6. Directors, Senior Management and Employees
Executive Committee
Composition (as per December 31, 2021)
Vasant (Vas) Narasimhan
Chief Executive Officer
James (Jay) Bradner
President of the Novartis Institutes
for BioMedical Research (NIBR)
Karen L. Hale
Chief Legal Officer
Harry Kirsch
Chief Financial Officer
Steffen Lang
Global Head of Novartis
Technical Operations (NTO)
Klaus Moosmayer
Chief Ethics, Risk
& Compliance Officer
Richard Saynor
Chief Executive Officer of Sandoz
John Tsai
Head of Global Drug Development
and Chief Medical Officer
Marie-France Tschudin
President of
Novartis Pharmaceuticals
Robert Weltevreden
Head of Customer &
Technology Solutions (CTS)
Robert (Rob) Kowalski
Chief People &
Organization Officer
Susanne Schaffert
President of
Novartis Oncology
Changes to the Executive Committee
Bertrand Bodson, Chief Digital Officer of Novartis since
2018, stepped down from his role following the decision to
merge the Digital function with NBS to form the new CTS
unit, effective February 1, 2021. Shannon Thyme Klinger,
Chief Legal Officer of Novartis since 2018, stepped down
from her role as of March 15, 2021. From March 15, 2021,
until May 14, 2021, Thomas Kendris, Global Head Liti-
gation and US Country President, served as ad interim
Chief Legal Officer but was not a member of the Execu-
tive Committee. Karen L. Hale became Chief Legal Offi-
cer of Novartis effective May 15, 2021. Steven Baert,
Chief People & Organization Officer of Novartis since
2014, stepped down from his role as of June 30, 2021.
From July 1, 2021, until August 31, 2021, Vicki Rawlinson,
Head of People & Organization for Novartis in the US,
served as ad interim Chief People & Organization Offi-
cer but was not a member of the Executive Committee.
Robert (Rob) Kowalski became Chief People & Organiza-
tion Officer of Novartis effective September 1, 2021. The
CVs of the former members of the Executive Commit-
tee can be found in the 2020 Annual Report (pages 151
and 152), available at www.novartis.com/media-library/
novartis-annual-report-2020.
Role of the Executive Committee
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
• Submitting the following to the Board for approval: invest-
ments, divestments, transactions, contracts and litigations
with a value exceeding USD 500 million, capital market and
other important financing transactions, as well as all other
matters of fundamental significance to the Novartis Group
• Preparing and submitting quarterly and annual reports
to the Board and its committees
• Informing the Board of all matters of fundamental sig-
nificance to the businesses
• Dealing with any other matters delegated by the Board
There are no contracts between Novartis and third
parties whereby Novartis would delegate any business
management tasks to such third parties.
CEO
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
development plans for presentation to the Board
• Promoting effective communication with shareholders
and other stakeholders
• Ensuring Novartis conducts its business in a legal and
achievement of optimal results
ethical manner
• Promoting an active internal and external communi cations
• Developing an effective risk control framework for all
policy
business activities
• Developing policies and strategic plans for Board
• Ensuring the flow of information to the Board is accurate,
approval, and implementing those approved
timely and clear
145
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, 2021, 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 British
p Dutch
42%
25%
17%
8%
8%
p Male
p Female
75%
25%
p 45–50
p >50
25%
75%
p <2 y
p 2–4 y
p >4 y
17%
66%
17%
1 Please note that two Executive Committee members have dual 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 Holding a chair position 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.
146
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 and treasurer, 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
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
Karen L. Hale
Chief Legal Officer of Novartis since May 15, 2021 | Nationality: American | Year of birth: 1968
Professional experience
• Vice president, deputy general counsel, AbbVie Inc., US (2019–2021)
• Vice president, chief ethics and compliance officer, AbbVie Inc., US (2013–2019)
• Vice president, litigation and legal specialty operations, AbbVie Inc., US (2013)
• Divisional vice president, commercial litigation, Abbott Laboratories, US (2006–2012)
• Began practicing law in 1994 and joined Abbott in 1997
Education
• Bar memberships: Illinois and Virginia, US
• Juris doctor, William & Mary Law School, US
• Bachelor’s degree in economics, Duke University, 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
147
Item 6. Directors, Senior Management and Employees
Robert (Rob) Kowalski
Chief People & Organization Officer of Novartis since September 1, 2021 | Nationality: American | Year of birth: 1968
Professional experience
• Executive Vice President and Global Head of Regulatory Affairs (2018–2021), and US Head of Global
Drug Development (2009–2015 and 2017–2021), Novartis Pharmaceuticals Corporation, US
• Ad interim President, Novartis Corporation, US (March–May 2021)
• Ad interim Head of Global Drug Development and Chief Medical Officer, Novartis AG, Switzerland
(February–April 2018)
• Senior Vice President and Head of Regulatory Affairs, Novartis Pharmaceuticals Corporation, US
(2009–2015 and 2017–2018)
• Senior Vice President and Head of Regulatory Affairs, Novartis Pharma AG, Switzerland (2015–2017)
• Global Head of Country Medical Development, Novartis Pharmaceuticals Corporation, US (2010–2011)
• Previously held regulatory leadership roles at Schering-Plough Corporation (now Merck) and Pharmacia
Corporation (now Pfizer)
Mandates
• Member of the advisory board, Industry Pharmacists Organization, US
Education
• Doctor of pharmacy, University of Wisconsin-Madison, US
• Bachelor of Science in pharmaceutical sciences, University of Wisconsin-Madison, 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
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
• Board member, SwissHoldings, the Swiss federation representing Swiss-based multinational companies,
Switzerland
• Co-chair, B20 Integrity & Compliance Task Force under the G20 presidency of Indonesia (2022)
• 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
• Co-chair, B20 Integrity & Compliance Task Force under the G20 presidency of Italy (2021)
• 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
148
Item 6. Directors, Senior Management and Employees
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 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
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, IMD Foundation, Switzerland
• Board member, AXA, France
Education
• Master of Business Administration, IMD business school, Switzerland
• Bachelor of Science, Georgetown University, US
Robert Weltevreden
Head of Customer & Technology Solutions (CTS) for Novartis since February 1, 2021 | Nationality: Dutch | Year of
birth: 1969
Professional experience
• Head of Novartis Business Services (NBS), Novartis AG, Switzerland (2018-2021)
• 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
149
Item 6. Directors, Senior Management and Employees
Information and control systems
The Board’s information and control systems vis-à-vis
management include a steady flow of information from
senior management; monthly financial reports; a compre-
hensive and integrated risk management framework; an
integrated assurance framework; and the independent
evaluation of our risk management and internal control
framework by Internal Audit, a function of Novartis Busi-
ness Assurance & Advisory (NBAA) (see “Item 15. Con-
trols and Procedures”).
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 members
of the Executive Committee (e.g., the CFO, the Chief
Legal Officer, the Chief Ethics, Risk & Compliance Offi-
cer), and regular meetings/teleconferences with senior
management (e.g., the Global Head of NBAA and Head
of Internal Audit)
• Information from Executive Committee members or
other Novartis employees, 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.
150
Item 6. Directors, Senior Management and Employees
Risk management
Overview
At Novartis, our continued success depends on our abil-
ity to manage risk. Our Board has ultimate oversight of
the Enterprise Risk Management (ERM) system and reg-
ularly reviews the most significant risks and how these
risks are managed. As further explained below, the Board
is supported by its committees. Furthermore, our Inter-
nal Audit function provides an independent evaluation of
risk management (see “—Item 6.C Board practices—Infor-
mation and control systems—Novartis Business Assur-
ance & Advisory”).
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
BOARD COMMITTEES
and acquisitions
• External factors such as the social, political and eco-
nomic environment
The ERM process continued to evolve in 2021. The Risk
& Resilience team conducted risk workshops and col-
laborated with all risk assurance/monitoring 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 revenue) and in certain focus mar-
kets. Once key risks were identified, mitigation action
plans were created to effectively address them. The find-
ings from these workshops were consolidated into the
Novartis Risk Compass, which enables senior manage-
ment, the Executive Committee and the Board to focus
discussions on key risks and more closely align our corpo-
rate strategy with our risk exposure and ways of working.
In 2021, we further matured our ERM framework within
the Novartis Risk & Resilience organization, developed
additional risk management trainings, and integrated
other critical risk management functions (like Third-Party
Risk Management) into the Risk & Resilience department.
Furthermore, a new team was established to coordinate
and harmonize monitoring activities across the Company.
The Enterprise Policy Management and Internal Control
teams are progressing as planned to generate a holistic
framework.
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 a biannual presentation from the Chief Ethics,
Risk & Compliance Officer
• Receives a quarterly presentation from the Global Head of NBAA
and Head of Internal Audit on the progress of the risk-based audit
plan and key insights from audit and advisory activities
• Pays particular attention to financial risk
• Has closed sessions individually with the Global Head of NBAA and
Head of Internal Audit and, upon request, with the Chief Ethics, Risk
& Compliance Officer
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
• Administers the Enterprise Policy Management and global Internal
Controls framework
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
151
Item 6. Directors, Senior Management and Employees
Novartis Business Assurance
& Advisory
NBAA brings together the independent functions of
Global Security and Internal Audit, with Quality, Data
Analytics, Operations and Strategy (QDOS) as their sup-
port and excellence function. It provides the business,
management and Board with protection, independent
advice and assurance so Novartis can better manage
risks and opportunities, make more informed decisions,
and achieve its objectives. NBAA also proactively shares
insights through learnings from audits, advisories, reviews,
investigations and anti-counterfeit activities to enable the
business to better detect and address emerging risks,
trends and developments.
SpeakUp Office
Our SpeakUp Office provides a safe place for employ-
ees to report potential misconduct. They have the option
to do so anonymously. The SpeakUp Office moved from
NBAA to ERC in 2021 to further support an integrated
and holistic compliance system.
Internal Audit
The purpose of Internal Audit is to assist the Board and
the Executive Committee in discharging their gover-
nance responsibilities by providing independent assur-
ance and advice on the effectiveness, efficiency and ade-
quacy of processes and controls that support Novartis
in achieving its objectives, managing its major risks, and
ensuring compliance with applicable policies, laws and
regulations. The Internal Audit function executes the
risk-based annual audit plan approved by the Audit and
Compliance Committee (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 for-
mal quarterly updates).
Potential material irregularities are escalated to the
ACC and to the SpeakUp Office for triage and possible
investigation, and action plans are developed together
with the audited units. Moreover, Internal Audit conducts
follow-up for high-risk findings prior to the due date for
remediation actions. Overdue high-risk findings are
reported to the ACC on a quarterly basis. 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 2021, a larger proportion of the plan was focused
on assurance in comparison to 2020, with good cover-
age of ERM Group risks as well as emerging topics includ-
ing digital, gene therapies and business continuity man-
agement. More flexibility and agility were built into the
plan, meaning Internal Audit could respond to new risks
and business requests throughout the year, adding ten
new engagements and progressing toward its real-time
assurance aspiration. The following outlines the number
of audits, internal reviews and advisories performed in
2021, and key topics repeatedly observed.
2021 INTERNAL AUDIT ACTIVITIES AND OBSERVATIONS
AUDITS
46
INTERNAL REVIEWS
10
ADVISORIES
14
Recurring observations relate to:
3 Data governance and management;
oversight of digital initiatives
3 Third-party management, including
subcontracting oversight
3 Design of some commercial and R&D
processes, and cross-functional
collaboration over complex programs,
such as Enterprise Resource Planning
(ERP) implementation
3 Patient support program, including
monitoring of external service providers
Internal Audit performed 100% of planned activities
(equating to 70 engagements) in 2021, most conducted
remotely, despite the obstacles created by COVID-19.
These engagements comprised 46 audits, 14 advisories
and 10 internal reviews covering the entire value chain of
Novartis and key strategic and operational risks. Inter-
nal Audit has developed a hybrid model for engagement
delivery, choosing between remote and in-person auditing
based on the engagement scope and COVID-19 situation
within the audited entity.
NBAA and ERC continue to work toward integrated
assurance by improving collaboration across all Novartis
risk and assurance/monitoring providers. This includes the
coordination of internal plans; alignment on terminology
(e.g., root cause analysis) and risk areas; development
of the integrated assurance map with aligned messag-
ing and reporting; and increased communication around
potential issues and risks. On a quarterly basis, to increase
the level of assurance provided, NBAA reports to the
ACC and the Executive Committee on key insights from
all risk and monitoring functions, including key risks iden-
tified, emerging trends and monitoring coverage, com-
paring it with the Internal Audit insights.
Global Security
Global Security proactively collects and shares threat intel-
ligence to protect Novartis from situations that may com-
promise the safety of people, products and assets, and
the reputation of our organization. Global Security pro-
tects patients from counterfeit products and, as part of the
SpeakUp process, performs fair and timely investigations
into high-risk cases of alleged internal misconduct. It also
provides personal security advice and support for Novartis
executives and other employees with utmost discretion.
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 at least quarterly. She is a standing guest at
the Executive Committee meetings. She has full access
to the ACC and the Chairman, and confirms the orga-
nizational independence of the Internal Audit function
annually to the ACC.
152
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. Claudia Benz, auditor in charge, began serving in
her role in 2021, 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
policy is designed to help ensure that the independence
of the external auditor is maintained. It limits the scope of
services 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,
2021, and December 31, 2020, are as follows:
Audit services
Audit-related services
Tax services
Other services
Total
2021
USD million
2020
USD million
22.2
1.5
0.1
1.4
25.2
20.5
1.4
0.4
1.2
23.5
Audit services include work performed to issue opinions
on consolidated financial statements and parent company
financial statements of Novartis AG, to issue opinions 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 infor-
mation systems and the related control environment, as
well as reviews of quarterly financial results.
Audit-related services include other assurance services
provided by the independent auditor but not restricted to
those that can only be provided by the statutory auditor.
They include services such as audits of pension and
other employee benefit plans; audits in connection 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 the external auditor. In 2021,
this committee held eight meetings. PwC was invited to
all of these meetings to attend the discussions on audit-
ing matters and any other matters relevant to its audit.
The ACC recommended to the Board to approve the
audited consolidated financial statements and the separate
parent company financial statements of Novartis AG for the
year ended December 31, 2021. The Board proposed the
acceptance of these financial statements for approval
by the shareholders at the next AGM.
The ACC regularly evaluates the performance of the
external auditor and, based on this, once a year deter-
mines whether the external auditor should be proposed
to the shareholders for re-election. To assess the per-
formance of the external auditor, the ACC holds private
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 the external auditor
include an evaluation of its technical and operational
competence; its independence and objectivity; the suf-
ficiency of the resources it has employed; its focus on
areas of significant risk to Novartis; its willingness to
probe and challenge; its ability to provide effective, prac-
tical recommendations; and the openness and effective-
ness 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 the external
auditor’s activities during the current year and on the
audit plan for the coming year.
On an annual basis, the external auditor provides the
ACC with written disclosures required by the US Public
Company Accounting Oversight Board, and the commit-
tee and the external auditor discuss the external audi-
tor’s independence from Novartis.
153
Item 6. Directors, Senior Management and Employees
Auditor tender process
In April 2020, upon proposal by the ACC, the Board
decided to invite several audit firms, including PwC, to
participate in a tender process that would lead to the
selection of an external auditor to be proposed for elec-
tion at the 2022 AGM. The audit tender was conducted
through a fair, transparent and balanced process accord-
ing to defined selection criteria under a strong gover-
nance structure, ensuring that all audit firms had equal
access to management and information. Based on the
results of this tendering process, the ACC shortlisted
two firms and, based on the assessment of those two
firms against the selection criteria, the Board decided
to propose to the shareholders at the 2022 AGM the
election of KPMG as the external auditor commencing
for the 2022 financial year. If KPMG is elected as our
new external auditor at the 2022 AGM, PwC’s mandate
as our external auditor will end at the conclusion of the
2022 AGM, and KPMG will serve as our external auditor
for the 2022 financial year.
154
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 Inte-
grated Report, available at www.reporting.novartis.com,
which highlights progress on the Company’s five strate-
gic priorities and describes how Novartis creates value
for diverse stakeholders. The Novartis in Society Inte-
grated Report has been prepared in accordance with
the Global Reporting 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 Integrated 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—2021 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/investors/share-data-analysis
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 Integrated Report
www.reporting.novartis.com
Novartis financial data
www.novartis.com/investors/financial-data
Press releases
www.novartis.com/news/news-archive?type=media_release
Free email service
www.novartis.com/news/stay-up-to-date
Additional information
(including Novartis investor event calendar, registered office,
contact and email addresses, phone numbers, etc.)
Novartis Investor Relations
www.novartis.com/investors
155
Item 6. Directors, Senior Management and Employees
Quiet periods
According to our Global Insider Policy, employees who
have access to material non-public information on a reg-
ular basis are designated as Continuing Insiders and are
banned from trading in Novartis securities during quiet
periods. Limited exemptions for the expiry of options or
warrants within a quiet period apply. Our quarterly quiet
periods commence at the beginning of the last trading
day of each calendar quarter and end at the beginning
of the first trading day after the subsequent release of
the quarterly and/or annual results.
In 2021, the following quiet periods applied:
• December 30, 2020, until (and including) January 26,
2021
• March 31, 2021, until (and including) April 27, 2021
• June 30, 2021, until (and including) July 21, 2021
• September 30, 2021, until (and including) October 26,
2021
• December 30, 2021, until (and including) February 2,
2022
156
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, 2021
(full-time equivalents)
USA
Canada and Latin America
Europe
Asia/Africa/Australasia
Total
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
Marketing and Production and Research and
supply development
sales
Technology General and
Solutions 1 administration
Customer &
6 074
3 116
1 938
1 426
5 324
510
15 163
17 630
10 307
16 927
3 570
4 812
879
1 116
5 108
5 696
41 280
24 564
20 953
12 799
4 727
104 323
Marketing and Production and Research and
supply development
sales
Technology General and
Solutions 1 administration
Customer &
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
Technology General and
Solutions 1 administration
Customer &
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
Total
14 869
6 538
654
370
2 613
50 821
1 090
32 095
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
1 relates to full-time equivalent employees from our Customer & Technology Solutions (formerly named Novartis Business Services)
organizational unit.
A significant number of our employees 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—2021 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, 2021” and under “Item 6. Directors, Senior Man-
agement and Employees—Item 6.B Compensation—2021
Board 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 Statements—Note 26.
Equity-based participation plans for associates,” which
is incorporated by reference.
157
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,
2021, Novartis had approximately 186 000 shareholders
listed in the Novartis Share Register, representing
approximately 66.3% of issued shares. Based on the
Novartis Share Register and excluding treasury shares,
approximately 46.2% of the shares registered by name
were held in Switzerland, and approximately 23.6% were
held in the US. Approximately 15.1% of the shares regis-
tered in our share register were held by individual inves-
tors, while approximately 35.7% were held by legal enti-
ties (excluding 4.0% of our share capital held as treasury
shares by Novartis AG or its fully owned subsidiaries),
and 49.2% were held by nominees, fiduciaries and the
ADS depositary.
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, 2021, excluding 4.0% 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, 2021 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
89 135 960
-
55 730 682
50 012 984
3.7
<2.0
2.3
2.1
3.6
<2.0
2.3
2.0
3.5
2.1
2.1
<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, 2021 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
213 861 528
72 781 460
38 915 733
25 990 663
7 875 064
102 224 686
8.8
3.0
1.6
1.1
0.3
4.2
9.6
3.4
1.7
1.2
0.5
4.2
10.4
3.8
2.0
1.2
0.6
3.9
JPMorgan Chase Bank, N.A., New York, NY
269 889 074
11.1
11.7
12.5
According to a disclosure notification filed with Novartis
AG, Norges Bank (Central Bank of Norway), Oslo, Nor-
way, held 2.1% of the share capital of Novartis AG, or 50
487 229 shares, as of December 31, 2021, but was not
registered in our share register as of December 31, 2021.
Provided that these shares are registered in the share
register on the record date of the Annual General Meet-
ing, 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 5%, but was registered
with less than 2% of the share capital of Novartis AG in
our share register as of December 31, 2021.
According to disclosure notifications filed with
Novartis AG and the SIX Swiss Exchange, The Capital
Group Companies, Inc., Los Angeles, California, held
between 3% and 5%, but was not registered in our share
158
Item 7. Major Shareholders and Related Party Transactions
register as of December 31, 2019, and December 31,
2018.
As of December 31, 2021, 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. Exemptions are in force for the registered
major shareholders 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.
159
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 3.10 per
share to the shareholders for approval at the Annual
General Meeting to be held on March 4, 2022. Because
we pay dividends in Swiss francs, exchange rate fluctu-
ations will affect the US dollar amounts received by hold-
ers of ADRs. For the amount of dividends we paid in the
past three years, see “Item 18. Financial Statements—
Note 18—Equity.”
Disclosure pursuant to Section 219 of the Iran
Threat Reduction and 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 2021, 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 2021, 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 legal authorities.
No transactions are made with an Iranian financial insti-
tution designated on the SDN List in connection with
Iran’s support for international terrorism or proliferation
of weapons of mass destruction.
160
Item 8. Financial Information
8.B Significant changes
None.
161
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 January
26, 2022, there were 273 million ADRs outstanding, each
representing one Novartis share (approximately 11% of
total Novartis shares issued). On January 26, 2022, the
closing price was CHF 78.16 per share on the SIX, and
USD 84.24 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.
162
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
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) The Articles provide that a Director shall not serve on
the Board for more than 12 years. The Board may,
under certain circumstances and if deemed in the
best interests of the Company, recommend excep-
tions to this rule to the General Meeting.
(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 6.
Directors, Senior Management and Employees—Item
6.C Board Practices—Capital Structure—Limitation
on transferability—Per-share
information” and
“Item 8. Financial Information—Item 8.A. Consoli-
dated 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.”
163
Item 10. Additional Information
(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
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, in December
2021 the Board has decided that voting rights at our
2022 AGM can only be exercised through the Inde-
pendent Proxy. It will not be possible to physically
attend our 2022 AGM.
164
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
165
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
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.
Divestment of Roche shares
On November 3, 2021, we entered into a Share Repur-
chase Agreement with Roche under which we agreed to
sell 53.3 million (approximately 33%) of Roche bearer
shares in a bilateral transaction to Roche for a total con-
sideration of USD 20.7 billion. The transaction was
approved by the shareholders of Roche on Novem-
ber 26, 2021, and closed on December 6, 2021.
166
Item 10. Additional Information
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
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.
167
Item 10. Additional Information
As of January 1, 2022, 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
Brazil
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
Malaysia
Malta
Mexico
Moldova
Mongolia
Montenegro
Morocco
Netherlands
New Zealand
North Macedonia
Norway
Oman
Pakistan
Peru
Philippines
Poland
Portugal
Qatar
Romania
Russia
Saudi Arabia
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
Tax treaty negotiations are underway, or have been conducted, with Bosnia and Herzegovina, Cameroon, Costa
Rica, Ethiopia, Kenya, Libya, Nigeria, Rwanda, Senegal, Syria and Zimbabwe. Tax treaty negotiations between Swit-
zerland 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 corre-
sponding 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
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-
168
Item 10. Additional Information
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 that (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.
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.
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
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
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-
169
Item 10. Additional Information
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.
10.G Statement by experts
Not applicable.
170
Item 10. Additional Information
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.
171
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, which has established pro-
cesses and procedures to identify, aggregate and man-
age our financial risk exposure. The Group 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.
172
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
173
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.
174
Item 13. Defaults, Dividend Arrearages and Delinquencies
PART II
Item 13. Defaults, Dividend Arrearages and
Delinquencies
None.
175
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.
176
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, 2021. 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, 2021, 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, February 1, 2022
177
Item 16A. Audit Committee Financial Expert
Item 16A. Audit Committee Financial Expert
Our Audit and Compliance Committee has determined
that Elizabeth Doherty possesses specific accounting
and financial management expertise and that she is an
Audit Committee Financial Expert as defined by the SEC.
The Board of Directors has also determined that Eliza‑
beth Doherty is “independent” in accordance with the
applicable requirements of Rule 10A‑3 of the Exchange
Act, and that other members of the Audit and Compli‑
ance Committee have sufficient experience and ability
in finance and compliance matters to enable them to
adequately discharge their responsibilities.
178
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 employees,
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
179
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.
180
Item 16D. Exemptions from the Listing Standards for Audit Committees
Item 16D. Exemptions from the Listing
Standards for Audit Committees
Not applicable.
181
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
7 732 607
94.95 6 700 000
7 257 307
90.14 7 035 000
5 903 009
85.17 5 874 668
17 477
18 391
87.51
87.04
8 614 128
91.82 8 600 000
10 091
65 881
26 306
37 854
23 040
90.67
91.72
92.02
83.19
84.65
2 508 872
86.98 2 490 000
32 214 963
90.58 30 699 668
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
1 558
990
9 534
9 534
9 534
8 819
8 819
8 819
8 819
8 819
8 819
8 620
1 752
1 094
10 114
10 495
10 596
9 574
9 725
9 635
9 444
9 670
9 578
9 426
2021
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 CHF 10 billion share buyback authority
approved at the 2019 AGM for transactions before March 2, 2021 and under the CHF 10 billion share buyback authority approved at the 2021
AGM for transactions after such date. 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
182
Item 16F. Change in Registrant’s Certifying Accountant
Item 16F. Change in Registrant’s Certifying
Accountant
On behalf of the Board, the ACC selects and nominates
an independent external auditor for election at the AGM
by our shareholders, who must elect the external audi‑
tor on an annual basis via shareholder resolutions that
require the approval of an absolute majority of the votes
present at the AGM. 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 auditor to be proposed for election at the 2022
AGM. The audit tender was conducted through a fair,
transparent and balanced process according to defined
selection criteria under a strong governance structure,
ensuring that all audit firms had equal access to man‑
agement and information. Based on the results of this
tendering process, the Board decided to propose to the
shareholders at the 2022 AGM the election of KPMG AG
(“KPMG”) as the external auditor commencing for the
2022 fiscal year. As disclosed in our Form 20‑F for the
fiscal year ended December 31, 2020, we notified PwC
that they would not be proposed for re‑election as exter‑
nal auditor at the AGM on March 4, 2022. If KPMG is
elected as our new external auditor at the 2022 AGM,
KPMG would then serve as our external auditor for the
2022 fiscal year.
In respect of fiscal years 2020 and 2021 and the sub‑
sequent interim period through February 1, 2022:
• PwC has not issued any reports on our consolidated
financial statements or on the effectiveness of our
internal control over financial reporting that contained
an adverse opinion or a disclaimer of opinion. The rel‑
evant PwC auditor’s reports were not qualified or mod‑
ified as to uncertainty, audit scope or accounting prin‑
ciples.
• There has not been any disagreement with PwC on any
matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures
which disagreement, if not resolved to PwC’s satisfac‑
tion, would have caused PwC to make reference to the
subject matter of the disagreement in connection with
its auditor’s reports, or any reportable event as
described in Item 16F(a)(1)(v) of Form 20‑F.
We have provided PwC with a copy of the foregoing dis‑
closure and have requested that the firm furnish us with
a letter addressed to the US Securities and Exchange
Commission stating whether PwC agrees with such dis‑
closure and, if not, stating the respects in which it does
not agree. A copy of PwC’s letter, dated February 2, 2022,
in which PwC stated that the firm agrees with such dis‑
closure, is filed as Exhibit 16.1.
During fiscal years 2020 and 2021, and the subse‑
quent interim period through February 1, 2022, we did
not consult with KPMG regarding: (i) the application of
accounting principles to any specified transaction, either
completed or proposed, or the type of audit opinion that
might be rendered on our financial statements, and nei‑
ther was a written report or oral advice provided to us
by KPMG that KPMG concluded was an important fac‑
tor considered by us in reaching a decision as to an
accounting, auditing or financial reporting issue, or (ii)
any matter that was either the subject of a disagreement
or reportable event as described in Item 16F(a)(1) of Form
20‑F.
183
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.
• 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.
• 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.
• The full Board is responsible for setting objectives rel‑
evant to the CEO’s compensation and for evaluating
his performance.
184
Item 16H. Mine Safety Disclosure
Item 16H. Mine Safety Disclosure
Not applicable.
185
Item 17. Financial Statements
PART III
Item 17. Financial Statements
See response to “Item 18. Financial Statements.”
186
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 2021, 2020 and 2019
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, 2021, 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‑18
F‑28
F‑29
F‑30
F‑31
F‑32
F‑33
F‑35
F‑36
F‑39
F‑41
F‑41
F‑41
F‑43
F‑43
F‑43
F‑46
F‑47
F‑51
F‑52
F‑54
F‑57
F‑58
F‑62
F‑64
F‑65
F‑67
F‑77
F‑79
F‑80
F‑82
A‑1
A‑3
A‑11
A‑12
187
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 March 2, 2021 (English translation) (incorporated
by reference to Exhibit 4.1 to Novartis AG’s registration statement on Form S‑8 (File No. 333‑258081) as
filed with the SEC on July 22, 2021).
1.2 Regulations of the Board of Directors, the Board Committees and the Executive Committee of Novartis
AG, effective January 1, 2021 (incorporated by reference to Exhibit 1.2 to Novartis AG’s Annual Report
on Form 20‑F (File No. 001‑15024) as filed with the SEC on January 26, 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.
188
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.
16.1 Letter from PricewaterhouseCoopers AG regarding change in registrants’ certifying accountant.
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
104 Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).
189
(This page has been left blank intentionally.)
190
Novartis Group consolidated financial statements
Novartis Group
consolidated financial statements
Consolidated income statements
(For the years ended December 31, 2021, 2020 and 2019)
(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
Income 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
Note
2021
2020
2019
3
51 626
48 659
47 445
51 626
48 659
47 498
3
1 251
1 239
1 179
53
– 15 867
– 15 121
– 14 425
37 010
34 777
34 252
– 14 886
– 14 197
– 14 369
– 9 540
– 8 980
– 9 402
1 852
1 742
2 031
– 2 747
– 3 190
– 3 426
11 689
10 152
4
5
5
15 339
– 811
– 80
673
– 869
– 78
9 086
659
– 850
45
26 137
9 878
8 940
6
– 2 119
– 1 807
– 1 793
24 018
8 071
7 147
30
2
30
– 101
4 691
4 590
24 018
8 071
11 737
24 021
8 072
11 732
– 3
– 1
5
Basic earnings per share (USD) from continuing operations
Basic earnings per share (USD) from discontinued operations
10.71
3.55
Total basic earnings per share (USD)
7
10.71
3.55
Diluted earnings per share (USD) from continuing operations
Diluted earnings per share (USD) from discontinued operations
10.63
3.52
Total diluted earnings per share (USD)
7
10.63
3.52
The accompanying Notes form an integral part of the consolidated financial statements.
3.12
2.00
5.12
3.08
1.98
5.06
F-1
Novartis Group consolidated financial statements
Consolidated statements of comprehensive income
(For the years ended December 31, 2021, 2020 and 2019)
(USD millions)
Net income
Other comprehensive income
Items that are or may be 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, net of taxes
Currency translation effects, net of taxes
Total of items that are or may be recycled
Items that will never 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 that will never 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.
Note
2021
2020
2019
24 018
8 071
11 737
8
8
4
8
8
8
8
1
1
2
– 94
44
352
304
46
216
– 4 762
– 4 500
– 56
– 201
3 194
2 937
1 809
194
2 003
143
250
393
– 467
– 47
– 514
21 521
11 401
11 527
21 528
11 403
11 525
21 528
11 403
– 7
– 2
6 948
4 577
2
F-2
Novartis Group consolidated financial statements
Consolidated balance sheets
(At December 31, 2021 and 2020)
(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
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
Total liabilities
Total equity and liabilities
Note
2021
2020 1
9
10
11
11
4
12
13
13
14
15
16
16
17
11 545
12 263
1 561
1 676
29 595
29 999
34 182
36 809
205
3 743
3 036
2 210
9 632
3 933
2 901
892
86 077
98 105
6 666
8 005
278
15 922
12 407
2 440
7 131
8 217
239
1 905
9 658
2 523
45 718
29 673
131 795
127 778
18
18
901
– 48
913
– 53
66 802
55 738
67 655
56 598
167
68
67 822
56 666
19
10
12
20
21
10
22 902
26 259
1 621
3 070
6 172
1 719
3 141
6 934
33 765
38 053
5 553
6 295
275
5 403
9 785
286
2 415
2 458
22
15 670
15 127
30 208
33 059
63 973
71 112
131 795
127 778
The accompanying Notes form an integral part of the consolidated financial statements.
1 The December 31, 2020 deferred tax assets and deferred tax liabilities balances have been adjusted to conform with the 2021 presentation, see Note 12 for additional disclosures.
F-3
Novartis Group consolidated financial statements
Consolidated statements of changes in equity
(For the years ended December 31, 2021, 2020 and 2019)
Note
8
8
18.2
18.1
2
18.2
18
18.2
18.2
(USD millions)
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
Net income
Other comprehensive income
Total comprehensive income
Dividends
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
Increase of treasury share repurchase
18.3
obligation under a share buyback trading plan
18.8
Transaction costs, net of taxes
18.6
Changes in non-controlling interests
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, 2021
18.1
18.2
18
18.2
18.4
18.2
18.1
18.2
18
18.2
18.2
18.2
18.2
8
Share
capital
Treasury
shares
944
– 69
944
– 69
Reserves
Equity
attributable
Retained Total value
to Novartis
earnings adjustments shareholders
Non-
controlling
interests
82 191
3
82 194
11 732
– 94
11 638
– 6 645
– 4 452
– 4 452
– 113
– 113
78 614
3
78 617
11 732
– 207
11 525
– 6 645
78
78
5
– 3
2
Total
equity
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
– 53
– 1 769
150
– 2
7
18
27 – 10 134
57 157
24 021
46
24 067
– 7 368
– 2 902
– 6
39
740
– 18
18
0
5
0
17
1
– 1 040
12
164
65
– 5
48
5 – 10 235
70 989
– 48
– 8
936
– 23
– 23
913
– 12
– 12
901
– 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
– 1 419
6
18
– 149 – 10 279
56 598
24 021
– 2 493
21 528
– 7 368
– 2 920
– 2 539
– 2 539
39
745
17
1
– 1 040
12
– 164
– 65
0
– 5
48
– 229 – 10 471
67 655
– 4 187
– 7
– 1
18
– 7 – 10 286
56 666
68
24 018
– 3
– 2 497
– 4
21 521
– 7
– 7 368
– 2 920
39
745
17
1
– 1 040
12
– 1
– 1
107
102
48
106 – 10 365
67 822
167
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, 2021, 2020 and 2019)
(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
2021
2020
24 018
8 071
2019
7 147
Reversal of non-cash items and other adjustments
23.1
– 5 299
9 881
9 122
Dividends received from associated companies and others
Interest received
Interest paid
Other financial receipts
Other financial payments
Income taxes paid
Net cash flows from operating activities from continuing operations before
working capital and provision changes
525
13
490
47
463
214
– 664
– 703
– 793
– 302
464
– 39
28
– 33
23.2
– 2 342
– 1 833
– 1 876
15 949
16 378
14 272
Payments out of provisions and other net cash movements in non-current liabilities
– 1 119
– 2 437
Change in net current assets and other operating cash flow items
23.3
241
– 291
– 924
199
Net cash flows from operating activities from continuing operations
15 071
13 650
13 547
Net cash flows from operating activities from discontinued operations
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
Divestments and acquisitions of interests in associated companies, net
Acquisitions and divestments of businesses, net
Purchases of marketable securities, commodities and time deposits
Proceeds from sale of marketable securities, commodities and time deposits
Net cash flows from/used in investing activities from continuing operations
78
15 071
13 650
13 625
– 1 378
– 1 275
– 1 379
240
88
– 1 593
– 1 310
748
380
– 191
– 230
442
– 61
4
20 669
723
– 61
2
– 7
857
– 878
973
– 302
1 152
– 60
3
– 6
– 567
– 9 957
– 3 760
– 16 403
– 1 900
2 298
492
– 228
2 561
4 208
– 13 055
– 1 067
23.4
23.5
Net cash flows used in investing activities from discontinued operations
30
– 127
– 1 159
Net cash flows from/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
4 208
– 13 182
– 2 226
– 7 368
– 6 987
– 6 645
– 3 057
– 2 842
– 5 533
53
16
748
7 126
201
93
– 2 162
– 2 003
– 3 195
– 3 524
2 261
– 1 582
– 316
– 312
– 273
– 3
97
– 2
– 147
– 6
56
23.6
23.6
23.6
23.6
Net cash flows used in financing activities from continuing operations
– 16 264
– 2 158
– 16 884
Net cash flows used in/from financing activities from discontinued operations
30
– 50
3 257
Net cash flows used in financing activities
– 16 264
– 2 208
– 13 627
Net change in cash and cash equivalents before effect of exchange
rate changes
Effect of exchange rate changes on cash and cash equivalents
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.
3 015
– 1 740
– 2 228
– 266
286
69
2 749
– 1 454
– 2 159
9 658
11 112
13 271
12 407
9 658
11 112
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.
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 a subsidiary is generally the local currency of that
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 this currency.
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 for each month using
the average exchange rate, with the US dollar values
for each month being aggregated during the year
• Balance sheet 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 as 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 and any resulting impairment is
recognized. Assets related to discontinued operations
and assets of a disposal group held for sale are not
depreciated 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
assets held for sale into the respective balance sheet
lines and the prior year consolidated balance sheet is
not restated. The cumulative amount of depreciation and
amortization not recorded since the date of their classi-
fication as assets held for sale, and any required adjust-
ments to the recoverable amounts of assets are recog-
nized in the consolidated income statement.
F-6
Notes to the Novartis Group consolidated financial statements
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.
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 to equity.
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 and restore
the site when it is no longer used are included in their
cost.
Acquired businesses are accounted for by applying
the acquisition method, unless the optional concentra-
tion test is applied. The optional concentration test
allows for an 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 identifiable 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 over the fair value of the
acquired assets and assumed liabilities is recognized as
goodwill. The valuations are based on information avail-
able 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 the 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 is depreciated on a
straight-line basis in the consolidated income statement
over the estimated useful life of the individual asset. Free-
hold land is not depreciated. The related depreciation
expense is included in the costs of the functions using
the asset.
Property, plant and equipment is assessed for impair-
ment whenever there is an indication that the balance
sheet carrying amount may not be recoverable using
cash flow projections over the useful life.
F-7
Notes to the Novartis Group consolidated financial statements
The following table shows the estimated useful life
by major categories 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
As lessee, at inception and upon the modification of a
contract the Group assesses whether the contract con-
tains a lease. The Group elected to allocate the consid-
eration in the contract to the lease and non-lease com-
ponents on the basis of the relative standalone price of
each component.
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 management assess as reasonably certain to
be exercised by the Group. The lease payments are dis-
counted using the interest rate implicit in the lease or, if
not readily determinable, the Novartis incremental bor-
rowing rate for the asset subject to the lease in the rel-
evant market.
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. Operating lease payments received are recog-
nized 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 the underly-
ing asset to the lease arrangement.
Goodwill and intangible assets
Goodwill
Goodwill arises on applying the acquisition method on
the acquisition of a business and is the excess of the fair
value of the consideration transferred to acquire the
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
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 and other intangible assets (including computer
software).
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
F-8
Notes to the Novartis Group consolidated financial statements
impairment whenever facts and circumstances indicate
that their carrying value may not be recoverable.
The following table shows the estimated useful life
by major categories for intangible assets available for
use and the line in the consolidated income statement
in which the amortization and any potential impairment
charge is recognized:
Useful life
Income statement line
for amortization and
impairment charges
Currently marketed products 5 to 20 years
“Cost of goods sold”
Technologies
10 to 20 years
Other (including
computer software)
3 to 12 years
“Cost of goods sold”
or “Research
and development”
In the relevant
functional expense
Intangible assets not yet available for use
Acquired research and development intangible assets
that have not yet obtained marketing approval are rec-
ognized 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
received marketing approval from a regulatory authority,
it is transferred to the “Currently marketed products” cat-
egory.
Impairment of goodwill and intangible
assets
An asset, a CGU or a grouping of CGUs 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 dis-
posal and its value in use. Usually, Novartis applies the
fair value less costs of disposal method for its impair-
ment 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 indi-
rectly and is based on net present value techniques uti-
lizing post-tax cash flows and discount rates. In the lim-
ited 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 CGU, 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.
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 allows for presentation on a net basis.
F-9
Notes to the Novartis Group consolidated financial statements
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 initially valued at fair
value through the purchase price established 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 in
“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 in “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
generally designated at the date of acquisition as finan-
cial assets valued at fair value through other compre-
hensive 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 forward rates at the
reporting 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
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.
F-10
Notes to the Novartis Group consolidated financial statements
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.
Provisions for doubtful trade receivables are estab-
lished using a forward-looking expected credit loss
model (ECL), which includes possible default events on
the trade receivables over the entire holding period of
the trade receivable. These provisions represent the dif-
ference between the trade receivable’s carrying amount
in the consolidated balance sheet and the estimated col-
lectible amount. Charges for doubtful trade receivables
are recorded as marketing and selling costs recognized
in the consolidated income statement within “Selling,
general 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 and commercial litigation, and gov-
ernmental investigations and proceedings. A provision
is recorded where a reliable estimate can be made of the
probable outcome of legal or other disputes against the
subsidiary.
Contingent consideration
In an acquisition or 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 employees 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-
ties, or the value of services received for the shares allo-
cated to employees 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
F-11
Notes to the Novartis Group consolidated financial statements
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 revenue
deductions 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, 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 specific terms of the individual
agreements. In cases where historical experience 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 avail-
able.
• 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 from a license is recognized when the underly-
ing sales have occurred. Milestone income is recognized
at the point in time when it is highly probable that the rel-
evant milestone event criteria are met, and the risk of
reversal of revenue recognition is remote. Other revenue
also includes revenue from activities such as manufac-
turing or other services rendered, to the extent such rev-
enue is not recorded under net sales, and is recognized
when control transfers to the third party and our perfor-
mance 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
been received from a regulatory authority in a major mar-
ket.
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 performing 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-
F-12
Notes to the Novartis Group consolidated financial statements
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 in a major market
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 sub-
sequently be 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
employees 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 employees 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
to forfeiture during the vesting period, is expensed on a
straight-line basis over the respective vesting period.
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 that are subject to performance criteria
based on Novartis internal performance metrics and that
are conditional on the provision of service by plan par-
ticipants during the vesting period, the expense is rec-
ognized on a straight-line basis over the vesting period,
and is determined based on assumptions concerning the
expected performance against the internal performance
metrics throughout the vesting period. The assumptions
are based on the Group’s targets for those performance
metrics, and the expected forfeitures due to plan partic-
ipants not meeting their service conditions. The assump-
tions are periodically adjusted over the vesting period.
Any change in estimates for past services is recorded
immediately as an expense or income in the consolidated
income statement, and amounts for the remaining vest-
ing period are expensed on a straight-line basis. As a
result, at the end of the vesting period, the charge during
the entire vesting period represents the amount that will
finally vest. The number of equity instruments that finally
vest is determined at the vesting date.
For PSUs that are subject to performance 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 specific peer group of compa-
nies 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 deter-
mined 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 ser-
vice 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
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 reasonable
F-13
Notes to the Novartis Group consolidated financial statements
assurance that the grant will be received and the Group
will comply with all attached conditions.
Government grants received to compensate costs
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
recognized in “Other expense” in the consolidated
income statement. Provisions for healthcare contribu-
tions are adjusted to the actual amounts levied. The pro-
vision represents estimates of the related obligations,
requiring the use of judgment when estimating the effect
of these healthcare contributions.
Income taxes
Taxes on income are recorded 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
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 2021
The following new IFRS standard has been adopted by
Novartis from January 1, 2021:
Interest Rate Benchmark Reform – Phase 2,
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and
IFRS 16 (Interest Benchmark Reform Amendments)
Interest Benchmark Reform Amendments became effec-
tive from January 1, 2021. These amendments address
issues that might affect financial reporting when an exist-
ing interest rate benchmark (i.e. Interbank offered rate –
IBOR) is replaced with an alternative benchmark inter-
est rate. The effects of interest rate benchmark reform
on the Group’s financial instruments and risk manage-
ment strategies did not have a material impact on the
Group’s consolidated financial statements and are not
expected to have a significant impact in future periods.
There are no other IFRS standards or interpretations not
yet effective that would be expected to have a material
impact on the Group.
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 Combinations 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.
F-14
Notes to the Novartis Group consolidated financial statements
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
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, was 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. The Group 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
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.
Significant transactions in 2021
Sandoz – acquisition of GSK’s cephalosporin
antibiotics business
On February 10, 2021, Sandoz entered into an agreement
with certain subsidiaries of GlaxoSmithKline plc (GSK)
for the acquisition of the GSK’s cephalosporin antibiot-
ics business.
Under the agreement, Sandoz acquired the global
rights to three established brands (Zinnat®, Zinacef® and
Fortum®) in more than 100 markets. It excluded the rights
in the US, Australia and Germany to certain of those
brands, which were previously divested by GSK, and the
rights in India, Pakistan, Egypt, Japan (to certain of the
brands) and China, which will be retained by GSK. The
transaction closed on October 8, 2021.
The purchase price consisted of a USD 350 million
upfront payment paid at closing and potential milestone
payments up to USD 150 million, which GSK will be eli-
gible to receive upon the achievement of certain annual
sales milestones for the portfolio.
The fair value of the total purchase consideration was
USD 415 million. The amount consisted of a payment of
USD 351 million, including purchase price adjustments,
and the fair value of contingent consideration of USD 64
million, which GSK is eligible to receive upon the achieve-
ment of specified milestones. The purchase price allo-
F-15
Notes to the Novartis Group consolidated financial statements
cation resulted in net identifiable assets of USD 308 mil-
lion, consisting of USD 292 million intangible assets and
USD 16 million deferred tax assets. Goodwill amounted
to USD 107 million.
The results of operations since the date of acquisi-
tion are not material.
Corporate – divestment of the investment in Roche
Holding AG
On November 3, 2021, Novartis entered into a Share
Repurchase Agreement with Roche Holding AG under
which Novartis agreed to sell 53.3 million (approximately
33.3%) bearer shares of Roche Holding AG voting shares
in a bilateral transaction to Roche Holding AG for a total
consideration of USD 20.7 billion. As a result, Novartis
discontinued the use of equity method accounting start-
ing from November 3, 2021.
The transaction closed on December 6, 2021.
Novartis realized a gain of USD 14.6 billion, recorded in
income from associated companies.
Significant pending transactions
Innovative Medicines – acquisition of Gyroscope
Therapeutics Holdings plc
On December 22, 2021, Novartis entered into an agree-
ment to acquire Gyroscope Therapeutics Holdings plc
(Gyroscope), a UK-based ocular gene therapy company.
Gyroscope focuses on the discovery and development
of gene therapy treatments for retinal indications.
The purchase price will consist of a cash payment of
USD 0.8 billion, subject to certain purchase adjustments,
and potential additional milestone payments of up to USD
0.7 billion, upon achievement of specified milestones.
The acquisition is expected to close in the first quar-
ter of 2022. Completion of the acquisition is subject to
customary closing conditions.
Significant transactions in 2020
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
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, 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.
The 2020 results of operations since the date of
acquisition were not material.
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 consisted 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 consisted of EUR 274 million
(USD 303 million) upfront payment, less customary pur-
chase price adjustment of EUR 27 million (USD 30 mil-
lion), 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 and USD
16 million net deferred tax assets. Goodwill amounted to
USD 86 million.
The 2020 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
F-16
Notes to the Novartis Group consolidated financial statements
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
was not required to be restated.
There were no cumulative income or expenses
included in the other comprehensive income relating to
the disposal 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 Dis-
tribution”), which amounted to USD 23.4 billion and was
recognized as a reduction to retained earnings. Through
the 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.
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
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
April 8,
2019
– 20 025
23 434
3 409
1 273
123
– 114
4 691
On March 6, 2019, Alcon entered into financing
arrangements with a syndicate of banks under which it
For additional disclosures on discontinued operations,
refer to Note 30.
F-17
Notes to the Novartis Group consolidated financial statements
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 gave
Novartis full rights to IFM Tre, Inc.’s portfolio of NLRP3
antagonists. The NLRP3 antagonists portfolio consisted
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 bolstered the Novartis
front-of-the-eye portfolio and ophthalmic leadership.
The transaction closed on July 1, 2019. The purchase
price consisted of a USD 3.4 billion upfront payment,
customary purchase price adjustments of USD 0.1 bil-
lion, and the potential milestone payments of up to USD
1.9 billion, which Takeda is eligible to receive upon the
achievement of specified commercialization milestones.
The fair value of the total purchase consideration was
USD 3.7 billion. The amount consisted 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 estimated
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
acquisition were not material.
3. Segmentation of key figures 2021, 2020 and 2019
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 franchises Hematology and
Solid Tumor, and Novartis Pharmaceuticals consists of
the global business franchises Immunology, Hepatology
and Dermatology; Neuroscience; Ophthalmology; Car-
diovascular, Renal and Metabolism; Respiratory and
Allergy; 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-
F-18
Notes to the Novartis Group consolidated financial statements
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 debt (cash and cash equivalents, marketable
securities less financial debts), investments in associ-
ated 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 Customer & Technol-
ogy Solutions (formerly named Novartis Business Ser-
vices).
• 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.
• Customer & Technology Solutions (CTS), formerly
named Novartis Business Services, 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, talent and people solutions,
financial reporting and accounting operations, and
communication and engagement.
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 included 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.
F-19
Notes to the Novartis Group consolidated financial statements
Segmentation – consolidated income statements
(USD millions)
Net sales to third parties
Sales to other segments
Net sales
Other revenues
Cost of goods sold
Gross profit
Innovative Medicines
Sandoz
Corporate
(including eliminations)
Group
2021
2020
2021
2020
2021
2020
2021
2020
41 995 39 013
9 631
9 646
51 626 48 659
795
792
180
189
– 975
– 981
42 790 39 805
9 811
9 835
– 975
– 981 51 626 48 659
1 179
1 018
61
53
11
168
1 251
1 239
– 11 751 – 10 927 – 5 147 – 5 252
1 031
1 058 – 15 867 – 15 121
32 218 29 896
4 725
4 636
67
245 37 010 34 777
Selling, general and administration
– 12 306 – 11 657 – 2 062 – 2 076
– 518
– 464 – 14 886 – 14 197
Research and development
– 8 641 – 8 118
– 899
– 862
– 9 540 – 8 980
Other income
Other expense
Operating income
1 149
922
233
176
470
644
1 852
1 742
– 1 732 – 1 871
– 397
– 831
– 618
– 488 – 2 747 – 3 190
10 688
9 172
1 600
1 043
– 599
– 63 11 689 10 152
Income from associated companies
5
1
2
2 15 332
670 15 339
673
Interest expense
Other financial income and expense
Income before taxes
Income taxes
Net income
Attributable to:
Shareholders of Novartis AG
Non-controlling interests
Included in net income are:
Interest income
– 811
– 869
– 80
– 78
26 137
9 878
– 2 119 – 1 807
24 018
8 071
24 021
8 072
– 3
– 1
71
91
Depreciation of property, plant and equipment
– 859
– 912
– 210
– 282
– 139
– 124 – 1 208 – 1 318
Depreciation of right-of-use assets
Amortization of intangible assets
– 265
– 273
– 39
– 41
– 3 638 – 3 080
– 238
– 370
Impairment charges on property, plant and equipment, net
– 271
– 324
– 9
– 116
Impairment charges on intangible assets, net
– 367
– 768
– 28
– 141
– 14
– 27
– 1
– 8
– 16
– 318
– 330
– 12 – 3 903 – 3 462
– 281
– 440
– 5
– 403
– 914
Impairment charges and fair value
changes on financial assets, net
Additions to restructuring provisions
Equity-based compensation of Novartis equity plans
43
153
– 5
182
38
335
– 240
– 217
– 721
– 714
– 62
– 65
– 98
– 26
– 39
– 328
– 354
– 64
– 193
– 180
– 979
– 958
F-20
Notes to the Novartis Group consolidated financial 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
Income 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-21
Notes to the Novartis Group consolidated financial statements
Segmentation – consolidated balance sheets
(USD millions)
Total assets 1
Total liabilities 1
Total equity
Net debt 2
Innovative Medicines
Sandoz
Corporate
(including eliminations)
Group
2021
2020
2021
2020
2021
2020
2021
2020
79 220 83 112 16 192 16 825 36 383 27 841 131 795 127 778
– 15 929 – 15 472 – 3 632 – 3 786 – 44 412 – 51 854 – 63 973 – 71 112
67 822 56 666
868 24 481
868 24 481
Net operating assets
63 291 67 640 12 560 13 039 – 7 161
468 68 690 81 147
Included in assets and liabilities are:
Total property, plant and equipment
9 168
9 863
1 901
1 849
476
551 11 545 12 263
Additions to property, plant
and equipment 3
Total right-of-use assets
Additions to right-of-use assets 3
991
926
1 349
1 489
222
264
349
104
26
229
133
67
90
110
1 430
1 265
108
73
54
1 561
1 676
15
321
346
Total goodwill and intangible assets
53 919 56 839
9 603
9 817
255
152 63 777 66 808
Additions to goodwill and
intangible assets 3
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
1 491
1 235
102
105
143
85
1 736
1 425
170
194
7
8
28
9 430
205
9 632
24
24
19
7
43
31
28 329 11 563 28 329 11 563
29 197 36 044 29 197 36 044
5 485
5 599
5 485
5 599
1 The December 31, 2020 total assets, total liabilities and deferred tax liabilities have been adjusted from the previously reported amounts due to a change in the presentation of the
deferred tax assets and deferred tax liabilities on the consolidated balance sheet, to conform with the 2021 presentation (see Note 12 for additional disclosures).
2 Note 29 provides additional disclosures related to net debt
3 Excluding the impact of business acquisitions
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, 2021, 2020 and 2019,
and for selected non-current assets for the years ended December 31, 2021 and 2020:
2021
%
2020
%
2019
%
2021
%
2020
Net sales1
Total of selected non-current assets2
United States
16 818
33
16 484
34
16 280
34
37 054
873
2
800
2
848
2
25 770
(USD millions)
Country
Switzerland
France
Germany
China
Japan
Other
Group
Region
Europe
Americas
2 522
4 870
3 052
2 683
20 808
51 626
20 197
20 463
Asia/Africa/Australasia
10 966
33
48
34 904
39 889
5
3
1
4 115
2 607
714
313
%
39
44
5
3
1
8
5
9
6
5
2 442
4 518
2 573
2 804
5
9
5
6
2 442
4 120
2 214
2 656
5
9
5
6
3 615
2 378
703
217
40
19 038
39
18 885
39
7 351
10
7 837
100
48 659
100
47 445
100
77 088
100
90 379
100
39
40
21
18 715
19 725
10 219
38
41
21
17 933
19 713
9 799
38
41
21
37 525
37 522
2 041
49
49
2
47 798
40 391
2 190
53
45
2
Group
51 626
100
48 659
100
47 445
100
77 088
100
90 379
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 (2020: 17%, 11% and 6%, respectively;
2019: 18%, 13% and 8%, respectively). All segments had
sales to these customers in 2021, 2020 and 2019.
The highest amounts of trade receivables outstanding
were for these same three customers and amounted to
approximately 16%, 12% and 7%, respectively, of the trade
receivables at December 31, 2021 (2020: 14%, 12% and
6%, 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
2021
USD m
2020
USD m
Change
(2020
to 2021)
USD %
Change
(2019
to 2020)
USD %
2019
USD m
14 919
13 484
11
12 818
14 999
14 342
9 304
2 773
8 718
2 469
41 995
39 013
31 459
29 643
5
7
12
8
6
13 789
8 458
2 649
37 714
28 573
10 536
9 370
12
9 141
5 278
1 819
1 662
872
9 631
6 855
2 776
5 231
2 142
1 501
772
9 646
7 089
2 557
20 197
18 715
16 818
16 484
10 966
10 219
3 645
3 241
51 626
48 659
38 314
36 732
1
– 15
11
13
0
– 3
9
8
2
7
12
6
4
5 115
2 491
1 341
784
9 731
7 111
2 620
17 933
16 280
9 799
3 433
47 445
35 684
13 312
11 927
12
11 761
5
4
3
– 7
3
4
3
2
– 14
12
– 2
– 1
0
– 2
4
1
4
– 6
3
3
1
1 Net sales to third parties 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
(2020 to
2021)
USD m USD %
2020
Change
(2019 to
2019 2020)
USD m USD %
2021
USD m
Change
(2020 to
2021)
USD m USD %
2020
Change
(2019 to
2019 2020)
USD m USD %
2021
USD m
Hematology
Tasigna
2 060
1 958
5
1 880
Promacta/Revolade
2 016
1 738
16
1 416
Jakavi
1 595
1 339
19
1 114
Gleevec/Glivec
1 024
1 188
– 14
1 263
Kymriah
Exjade/Jadenu
Adakveo
Other
587
563
164
354
Total Hematology
8 363
7 782
Solid Tumor
474
24
278
653
– 14
975 – 33
105
327
56
8
7
306
7 233
Tafinlar + Mekinist
1 693
1 542
10
1 338
Sandostatin
1 413
1 439
– 2
1 585
Cardiovascular, Renal and Metabolism
4
23
20
– 6
71
Entresto
Leqvio
Other
3 548
2 497
42
1 726
45
12
nm
nm
1
24 – 96
Total Cardiovascular,
Renal and Metabolism 3 560
2 498
43
1 750
43
1
nm
Respiratory and Allergy
Xolair 1
1 428
1 251
14
1 173
Ultibro Group
584
623
– 6
630
Other
53
26
104
22
7
– 1
18
Total Respiratory and
Allergy
2 065
1 900
9
1 825
4
7
8
15
– 9
Afinitor/Votubia
938
1 083
– 13
1 539 – 30
Established Medicines
Kisqali
Votrient
Lutathera
Piqray
Tabrecta
Other
937
577
475
329
90
687
635
445
320
36
– 9
7
3
480
43
755 – 16
441
1
116 176
35
157
nm
661
743
– 11
883 – 16
Exforge Group
Diovan Group
Zortress/Certican
Voltaren/Cataflam
Neoral/Sandimmun(e)
Total Solid Tumor
7 113
6 929
3
7 137
– 3
Contract manufacturing
108
– 8
– 4
– 6
– 7
901
980
– 8
1 025
773
1 003
– 23
1 064
431
373
368
452
360
393
– 5
485
4
417 – 14
419
– 6
– 6
nm
Galvus Group
1 092
1 199
– 9
1 297
Total Novartis Oncology
business unit
15 476 14 711
5 14 370
2
Total Established
Medicines
5 735
6 303
– 9
6 998 – 10
Other
1 689
1 916
– 12
2 291 – 16
Immunology, Hepatology and Dermatology
Cosentyx
Ilaris
Total Immunology,
Hepatology and
Dermatology
Neuroscience
Gilenya
Zolgensma
Kesimpta
Mayzent
Aimovig
Other
4 718
3 995
18
3 551
1 059
873
21
671
13
30
5 777
4 868
19
4 222
15
2 787
3 003
– 7
3 223
– 7
1 351
920
15
170
164
372
281
215
46
47
nm
65
31
361 155
nm
nm
59
26
103
51
– 10
60 – 15
Total Novartis
Pharmaceuticals
business unit
26 519 24 302
9 23 344
Total division net sales 41 995 39 013
8 37 714
4
3
1 Net sales reflect Xolair sales for all indications.
nm = not meaningful
Total Neuroscience
5 052
4 323
17
3 773
15
Ophthalmology
Lucentis
Xiidra
Beovu
Other
2 160
1 933
12
2 086
468
186
376
190
24
– 2
192
35
– 7
96
nm
1 516
1 911
– 21
2 463 – 22
Total Ophthalmology
4 330
4 410
– 2
4 776
– 8
F-24
Chronic heart failure
1 712
1 836
3 548
Relapsing multiple sclerosis
1 427
1 360
2 787
US
USD m
Rest of
world
USD m
Total
USD m
2 883
1 835
4 718
2 160
2 160
882
1 178
2 060
947
1 069
2 016
606
1 087
1 693
1 595
1 595
1 428
1 428
843
570
1 413
469
882
1 351
1 092
1 092
501
558
1 059
263
521
339
14
51
761
417
598
887
722
1 024
938
937
901
773
230
357
587
584
584
11 688
20 976
32 664
3 311
6 020
9 331
14 999
26 996
41 995
Notes to the Novartis Group consolidated financial statements
Top 20 Innovative Medicines Division product net sales – 2021
Brands
Business franchise
Key indication
Cosentyx
Entresto
Gilenya
Lucentis
Tasigna
Immunology,
Hepatology and
Dermatology
Cardiovascular,
Renal and
Metabolism
Neuroscience
Ophthalmology
Hematology
Promacta/Revolade
Hematology
Tafinlar + Mekinist
Solid Tumor
Jakavi
Xolair 1
Hematology
Respiratory and Allergy
Sandostatin
Solid Tumor
Psoriasis, ankylosing
spondylitis,
psoriatic arthritis
and non-radiographic
axial spondyloarthritis
Age-related
macular degeneration
Chronic myeloid leukemia
Immune
thrombocytopenia (ITP),
severe aplastic anemia (SAA)
BRAF V600+ metastatic
and adjuvant melanoma;
advanced non-small cell
lung cancer (NSCLC)
Myelofibrosis (MF),
polycythemia vera (PV)
Severe allergic asthma (SAA),
chronic spontaneous urticaria
(CSU) and nasal polyps
Carcinoid tumors
and acromegaly
Spinal muscular atrophy
(SMA)
Zolgensma
Galvus Group
Ilaris
Gleevec/Glivec
Afinitor/Votubia
Kisqali
Exforge Group
Diovan Group
Neuroscience
Established Medicines
Type 2 diabetes
Immunology,
Hepatology and
Dermatology
Hematology
Solid Tumor
Solid Tumor
Auto-inflammatory (CAPS,
TRAPS, HIDS/MKD, FMF,
SJIA, AOSD and gout)
Chronic myeloid
leukemia and GIST
Breast cancer/TSC
HR+/HER2-
metastatic breast cancer
Established Medicines
Established Medicines
Hypertension
Hypertension
Kymriah
Hematology
Ultibro Group
Respiratory and Allergy
Top 20 products total
Rest of portfolio
Total division sales
1 Net sales reflect Xolair sales for all indications.
r/r pediatric and young
adults ALL, DLBCL
Chronic obstructive
pulmonary disease
(COPD)
F-25
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
3 995
3 003
2 497
1 958
1 933
1 933
833
905
1 738
569
973
1 542
837
602
1 439
1 339
1 339
1 251
1 199
873
439
879
964
461
1 251
1 199
1 188
1 083
1 003
980
920
315
644
124
16
459
400
473
873
318
138
259
369
515
376
687
653
635
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
Cosentyx
Gilenya
Entresto
Tasigna
Lucentis
Immunology, Hepatology
and Dermatology
Psoriasis, ankylosing
spondylitis,
psoriatic arthritis
and non-radiographic
axial spondyloarthritis
Neuroscience
Relapsing multiple sclerosis
Cardiovascular, Renal
and Metabolism
Chronic heart failure
Hematology
Chronic myeloid leukemia
Ophthalmology
Promacta/Revolade
Hematology
Tafinlar + Mekinist
Solid Tumor
Sandostatin
Solid Tumor
Jakavi
Xolair 1
Hematology
Respiratory and Allergy
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
Galvus Group
Established Medicines
Type 2 diabetes
Hematology
Solid Tumor
Established Medicines
Established Medicines
Chronic myeloid
leukemia and GIST
Breast cancer/TSC
Hypertension
Hypertension
Neuroscience
Spinal muscular atrophy (SMA)
Immunology, Hepatology
and Dermatology
Solid Tumor
Hematology
Solid Tumor
Auto-inflammatory (CAPS,
TRAPS, HIDS/MKD, FMF,
SJIA, AOSD and gout)
HR+/HER2-
metastatic breast cancer
Chronic iron overload
Renal cell carcinoma
Gleevec/Glivec
Afinitor/Votubia
Diovan Group
Exforge Group
Zolgensma
Ilaris
Kisqali
Exjade/Jadenu
Votrient
Top 20 products total
Rest of portfolio
Total division sales
1 Net sales reflect Xolair sales for all indications.
F-26
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
Neuroscience
Relapsing multiple sclerosis
Cosentyx
Gilenya
Lucentis
Tasigna
Entresto
Ophthalmology
Hematology
Cardiovascular, Renal
and Metabolism
Sandostatin
Afinitor/Votubia
Solid Tumor
Solid Tumor
Promacta/Revolade
Hematology
Tafinlar + Mekinist
Solid Tumor
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)
Galvus Group
Established Medicines
Type 2 diabetes
Gleevec/Glivec
Hematology
Xolair 1
Jakavi
Diovan Group
Exforge Group
Exjade/Jadenu
Votrient
Ilaris
Respiratory and Allergy
Hematology
Established Medicines
Established Medicines
Hematology
Solid Tumor
Immunology, Hepatology
and Dermatology
Chronic myeloid
leukemia and GIST
Severe allergic asthma (SAA)
and chronic spontaneous urticaria
(CSU)
Myelofibrosis (MF),
polycythemia vera (PV)
Hypertension
Hypertension
Chronic iron overload
Renal cell carcinoma
Auto-inflammatory (CAPS,
TRAPS, HIDS/MKD, FMF,
SJIA, AOSD and gout)
Zortress/Certican
Established Medicines
Transplantation
Kisqali
Solid Tumor
HR+/HER2-
metastatic breast cancer
Top 20 products total
Rest of portfolio
Total division sales
1 Net sales reflect Xolair sales for all indications.
Sandoz Division net sales by business franchise
US
USD m
Rest of
world
USD m
2 220
1 331
1 736
1 487
2 086
804
1 076
Total
USD m
3 551
3 223
2 086
1 880
925
801
1 726
881
1 003
704
536
1 585
1 539
691
725
1 416
481
857
1 297
1 338
1 297
334
929
1 263
1 173
1 173
1 114
978
1 012
525
423
1 114
1 064
1 025
975
755
367
316
671
485
86
13
450
332
304
169
250
230
480
10 679
17 967
28 646
3 110
5 958
9 068
13 789
23 925
37 714
Retail Generics 1
Biopharmaceuticals
Anti-Infectives 1
Total division net sales
2021
USD m
7 092
2 116
423
2020
USD m
7 244
1 928
474
Change
(2020 to
2021)
USD %
– 2
10
– 11
2019
USD m
7 590
1 607
534
9 631
9 646
0
9 731
Change
(2019 to
2020)
USD %
– 5
20
– 11
– 1
1 Sandoz total anti-infectives net sales amounted to USD 1.1 billion (2020: USD 1.2 billion; 2019: USD 1.3 billion), of which USD 707 million (2020: USD 694 million; 2019: USD 784
million) is sold through the Retail Generics business franchise and USD 423 million (2020: USD 474 million; 2019: USD 534 million) is sold to other third-party companies through
the Anti-Infectives business franchise.
F-27
Notes to the Novartis Group consolidated financial statements
The product portfolio of Sandoz is widely spread in 2021, 2020 and 2019.
Segmentation – other revenue
Innovative Medicines
Sandoz
Corporate
(including eliminations)
Group
(USD millions)
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
Profit-sharing income
873
Royalty income
Milestone income
Other 1
74
127
105
835
107
39
37
732
104
201
55
Total other revenues 1 179
1 018
1 092
24
28
9
61
25
11
17
53
2
19
30
12
63
11
168
24
873
109
155
114
835
300
50
54
734
147
231
67
11
168
24
1 251
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.
4. Associated companies
Net income statement effect
Other comprehensive income effect 1
Total comprehensive income effect
(USD millions)
2021
2020
2019
2021
Roche Holding AG, Switzerland
15 341
Others
– 2
677
– 4
662
– 3
46
2020
– 56
2019
2021
2020
– 94
15 387
– 2
621
– 4
2019
568
– 3
Associated companies
related to continuing operations
15 339
673
659
46
– 56
– 94
15 385
617
565
1 In 2021, Novartis share of other comprehensive income recognized by associated companies, net of taxes of USD 3 million was recycled into the consolidated income statement as
a result of the divestment of the investment in Roche Holding AG. No Novartis share of other comprehensive income recognized by associated companies was recycled to the
consolidated income statement in 2020 and 2019.
Novartis has certain non-significant investments and had
a significant investment in Roche Holding AG, Basel
(Roche), which was divested on December 6, 2021, to
Roche, that are accounted for as associated companies.
The divestment transaction closed on December 6,
2021, and Novartis realized a gain of USD 14.6 billion,
recorded in income from associated companies. See
Note 2.
Balance sheet value
December 31, December 31,
2020
2021
205
205
9 407
225
9 632
(USD millions)
Roche Holding AG, Switzerland
Others
Total
Roche Holding AG
On November 3, 2021, Novartis entered into an agree-
ment with Roche Holding AG to divest its 33.3% of Roche
Holding AG (Roche) voting shares, representing approx-
imately 6.2% of Roche’s total outstanding voting and
non-voting equity instruments, to Roche for USD 20.7
billion in cash. As a result, Novartis discontinued the use
of equity method accounting starting from November 3,
2021.
The Group’s holding in Roche voting shares was
33.3% at December 31, 2020 and 2019. This investment
represented approximately 6.2% of Roche’s total out-
standing voting and non-voting equity instruments at
December 31, 2020 and 2019.
Since full-year financial data for Roche is not avail-
able when Novartis produces its consolidated financial
results, a survey of analyst estimates is used to estimate
the Group’s share of Roche’s net income. Any differences
between these estimates and actual results were
adjusted in the Group’s consolidated financial state-
ments when available. As Novartis discontinued the use
of equity method accounting starting from November 3,
2021, and the divestment closed on December 6, 2021,
no such adjustment will be made to the 2022 Group’s
consolidated financial statements.
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
F-28
Notes to the Novartis Group consolidated financial statements
shares, for the year ended December 31, 2020, and for
the six months ended June 30, 2021:
The consolidated income statement effects from
applying Novartis accounting principles for this invest-
ment in 2021, 2020 and 2019 are as follows:
(CHF billions)
Current assets
Non-current
assets
Current Non-current
liabilities
liabilities
December 31, 2020
June 30, 2021
32.9
31.3
54.8
57.5
25.4
25.2
21.0
21.3
(CHF billions)
Total
comprehen- comprehen-
Revenue Net income sive income sive income
Other
December 31, 2020
June 30, 2021
60.3
32.1
12.5
– 1.8
7.6
1.6
10.7
9.2
In 2021, dividends received from Roche in relation to
the distribution of its 2020 net income amounted to
USD 522 million (2020: USD 487 million in relation to the
distribution of its 2019 net income).
(USD millions)
2021
2020
2019
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 10 million (2020: USD 26
million; 2019: USD 24 million)
Partial release of deferred tax
liability recognized
815
40
913
– 64
910
– 129
– 70
– 172
– 162
Gain on divestment of the
investment in Roche 1
Net income effect
14 556
15 341
43
677
662
1 The gain on divestment of the investment in Roche includes the recycling of currency
translation effects (see Note 8.1) and other comprehensive income effects totaling
USD 3.2 billion.
5. Interest expense
and other financial income and expense
Interest expense
Other financial income and expense
(USD millions)
Interest expense
2021
– 651
Interest expense on lease liabilities
– 62
2020
– 708
– 67
2019
(USD millions)
– 714
Interest income
– 66
Other financial income
Expense arising from
discounting long-term liabilities
and capitalized borrowing costs
– 98
– 94
Total interest expense
– 811
– 869
Financial expense
Currency result, net
Total other financial income
and expense
– 70
– 850
2021
2020
71
12
– 94
– 69
91
18
– 52
– 135
2019
245
12
– 52
– 160
– 80
– 78
45
F-29
Notes to the Novartis Group consolidated financial statements
6. Income taxes
Income before taxes
(USD millions)
Switzerland 1
Foreign
Income before taxes
from continuing operations
2021
2020
22 028
9 786
4 109
92
2019
8 097
843
weighted average tax rate based on the pre-tax income
of each subsidiary) and the effective tax rate are shown
in the following table:
(As a percentage)
Applicable tax rate
2021
2020
2019
14.8 13.6 11.7
26 137
9 878
8 940
Effect of disallowed expenditures
1.0
4.6
4.8
1 The 2021 income before taxes in Switzerland includes a USD 14.6 billion non-taxable
gain on the divestment of the Group’s investment in Roche Holding AG (see Note 2
and Note 4).
Effect of utilization of tax losses
brought forward from prior periods
0.0 – 0.3 – 0.1
Effect of income taxed at reduced rates
– 0.1 – 0.3 – 0.7
Effect of income not subject to tax 1
– 7.5 – 0.7
0.0
Effect of tax credits and allowances
– 1.4 – 2.3 – 2.3
Current and deferred income tax expense
Effect of release of
contingent consideration liability
– 0.1 – 0.2 – 0.5
The significant components of the provision for income
taxes are as follows:
(USD millions)
Switzerland
Foreign
2021
– 958
2020
2019
– 932
– 1 186
– 1 470
– 1 168
– 961
Effect of tax rate change
on current and deferred
tax assets and liabilities 2
Effect of write-off of deferred tax assets 3
Effect of write-down and reversal of
write-down of investments in subsidiaries
Effect of prior-year items
Effect of other items 4
0.0
0.0
0.3 – 1.4
0.2
4.0
0.0 – 0.8 – 0.6
0.1
1.3
2.3
1.9
2.2
3.0
Current income tax expense
– 2 428
– 2 100
– 2 147
Effective tax rate for continuing operations
8.1 18.3 20.1
Switzerland
Foreign
Deferred tax income
Income tax expense
from continuing operations
23
286
309
– 137
430
293
– 93
447
354
– 2 119
– 1 807
– 1 793
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
1 2021 includes the effect of income not subject to tax (– 7.3%) arising from the
non-taxable gain on the divestment of our investment in Roche. See Notes 2 and 4 for
further details.
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 2021, other items include changes in uncertain tax positions (+1.3%).
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 5 million in 2021, by USD 29 million in
2020, and by USD 11 million in 2019.
For the amount of income taxes attributable to dis-
continued operations, see Note 30.
F-30
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)
2021
2020
2019
24 021
8 072
7 142
4 590
24 021
8 072
11 732
Weighted average number of shares outstanding used in basic earnings per share
2 243
2 277
2 291
Adjustment for vesting of restricted shares, restricted share units and dilutive shares from options
17
19
28
Weighted average number of shares in diluted earnings per share
2 260
2 296
2 319
Basic earnings per share (USD)
- Continuing operations
- Discontinued operations
Total
Diluted earnings per share (USD)
- Continuing operations
- Discontinued operations
Total
10.71
3.55
10.71
3.55
10.63
3.52
10.63
3.52
3.12
2.00
5.12
3.08
1.98
5.06
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 2021, 2020 or 2019, as all options were
dilutive in all years.
F-31
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 on financial instruments,
actuarial gains or losses on defined benefit pension
plans, and currency translation effects, net of taxes.
(USD millions)
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
Value adjustments at December 31, 2018
227
– 5 423
744
– 4 452
– 26
– 4 478
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,
net of taxes of USD 2 million
Total value adjustments in 2019
Fair value adjustments on equity securities
sold, reclassified to retained earnings
Fair value adjustments related to divestments
1
1
– 47
1
1
– 47
44
44
1
1
– 47
44
– 466
– 466
– 1
– 467
8.1
– 45
– 466
– 95
33
– 30
354
398
354
– 113
– 95
3
– 2
– 3
352
– 116
– 95
3
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
250
– 201
– 201
250
– 201
145
145
– 2
143
8.1
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
3 193
3 387
– 150
2
– 1
3 194
3 386
– 150
2
1
– 1
1
Value adjustments at December 31, 2020
220
– 5 773
4 134
– 1 419
– 29
– 1 448
Fair value adjustments on equity securities,
net of taxes of USD -44 million 1
Net investment hedge, net of taxes
of USD 33 million
Defined benefit plans, net of taxes
of USD -323 million
Currency translation effects,
net of taxes of USD 17 million
Total value adjustments in 2021
Fair value adjustments on equity securities
sold, reclassified to retained earnings
net of taxes of USD 48 million
Fair value adjustments related to divestments
Value adjustments at December 31, 2021
194
194
216
216
194
216
1 808
1 808
1
1 809
8.1
– 4 757
– 4 757
194
1 808
– 4 541
– 2 539
– 5
– 4
– 4 762
– 2 543
– 164
– 62
188
– 3
– 164
– 65
– 164
– 65
– 3 968
– 407
– 4 187
– 33
– 4 220
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-32
Net investment hedge
Defined benefit plans, net of taxes
of USD -3 million
Currency translation effects,
net of taxes of USD 10 million
Total value adjustments in 2020
Notes to the Novartis Group consolidated financial statements
8.1) In 2021, net cumulative currency translation gains of
USD 3.2 billion were recycled through the income state-
ment as a result of the divestment of the investment in
Roche. See Notes 2 and 4. No currency translation losses
or gains were recycled through the income statement in
2020.
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.
9. Property, plant and equipment
The following table summarizes the movements of property, plant and equipment during 2021:
(USD millions)
Cost
January 1, 2021
Reclassifications
Additions
Disposals and derecognitions
Currency translation effects
December 31, 2021
Accumulated depreciation
January 1, 2021
Accumulated depreciation on disposals and derecognitions
Depreciation charge
Impairment charge
Reversal of impairment charge
Currency translation effects
December 31, 2021
Net book value at December 31, 2021
Commitments for purchases of property, plant and equipment
Capitalized borrowing costs
Land
Buildings
Construction
in progress
Machinery
and other
equipment
Total
555
12 377
1 248
14 038
28 218
197
109
– 437
– 427
– 610
1 027
– 70
– 87
413
293
1 430
– 699
– 1 246
– 717
– 1 255
11 819
1 508
13 328
27 147
1
– 40
– 24
492
– 19
– 5 807
– 66
– 10 063
– 15 955
10
– 4
5
1
359
– 453
– 137
70
224
58
669
1 096
– 755
– 1 208
– 76
– 167
– 384
16
3
12
518
103
746
– 7
– 5 744
– 65
– 9 786
– 15 602
485
6 075
1 443
3 542
11 545
204
4
F-33
Notes to the Novartis Group consolidated financial statements
The following table summarizes the movements of property, plant and equipment during 2020:
(USD millions)
Cost
January 1, 2020
Cost of assets related to 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 related to 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 At March 31, 2020, the property, plant and equipment of the Sandoz US generic oral solids and dermatology businesses were reclassified out of assets of disposal group held for
sale. See Note 2 for further details.
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.
The following table shows the property, plant and equipment impairment charges and reversals for continuing oper-
ations by reporting segment:
Impairment charges
Impairment reversals
(USD millions)
Innovative Medicines
Sandoz
Corporate
Total
2021
2020
2019
2
5
7
2
1
3
2021
– 315
– 68
– 1
2020
– 326
– 121
2019
– 102
– 102
– 1
44
59
– 384
– 447
– 205
103
F-34
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:
The following table shows the right-of-use assets carry-
ing value and depreciation charge at December 31, 2021
and 2020, by underlying class of asset:
(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
2021
1 676
321
– 318
– 66
– 52
2020
1 677
32
346
– 330
– 63
– 32
46
Total right-of-use assets at December 31 2
1 561
1 676
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 2021 (2020: nil).
(USD millions)
Land
Buildings
Vehicles
December 31, Depreciation December 31, Depreciation
charge
2020
2020
2021 carrying value
2021
carrying value
charge
522
866
136
11
192
105
528
963
155
11
207
100
Machinery and
equipment, and
other assets
Total right-of-use
assets
37
10
30
12
1 561
318
1 676
330
The following table shows the lease liabilities by maturity at December 31, 2021 and 2020:
(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
Commitments for leases not yet commenced
Lease liabilities
Lease liabilities
Lease liabilities undiscounted Lease liabilities undiscounted
2020
2020
2021
2021
275
216
162
139
122
982
1 896
– 275
1 621
324
258
198
172
154
2 243
3 349
– 324
3 025
134
286
229
186
148
129
1 027
2 005
– 286
1 719
338
274
226
183
160
2 326
3 507
– 338
3 169
4
At December 31, 2021, and December 31, 2020, 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 (2020: USD 0.6 billion), has a determined lease
term end date of 2071 (2020: 2071). Non-enforceable
extension options of up to 10 years have not been
included within the measurement of this lease liability,
and do not have a material impact to the carrying value
of the lease for both 2021 and 2020. Should the landlord
agree to a lease extension, rent will be referenced to the
market rates as at the commencement of the extension
period. There were no significant sale and leaseback
transactions in 2021 or 2020.
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.
The following table provides additional disclosures
related to right-of-use assets and lease liabilities for
2021, 2020 and 2019:
(USD millions)
2021
Interest expense on lease liabilities 1
62
Expense on short-term leases
Expense on low-value leases
6
7
2020
67
4
7
2019
66
7
8
Total cash outflows for leases
381
379
339
Thereof:
Cash outflows for short-term leases
and low-value leases 2
Payments of interest 3
13
52
Payments of lease liabilities 4
316
11
56
312
15
51
273
1 The weighted average interest rate is 3.2% (2020: 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, 2021, 2020 and 2019, is similar to the portfolio of
short-term leases the Group entered into during 2021, 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 (2020: nil, 2019: USD 33 million)
F-35
Notes to the Novartis Group consolidated financial statements
The net investment held and income from subleasing
right-of-use assets were not significant for 2021 and
2020. Income from leasing Novartis property, plant and
equipment to third parties for both 2021 and 2020 was
not significant.
11. Goodwill and intangible assets
The following table summarizes the movements of goodwill and intangible assets in 2021:
Goodwill
Intangible assets other than goodwill
(USD millions)
Cost
January 1, 2021
In-process
research and
Total development Technologies
Currently
marketed
products
Other
intangible
assets
Total
30 321
6 893
1 115
57 333
2 384
67 725
Impact of acquisitions of businesses
238
Reclassifications 1
Additions
Disposals and derecognitions 2
Currency translation effects
December 31, 2021
Accumulated amortization
January 1, 2021
Amortization charge
Accumulated amortization on disposals
and derecognitions 2
Impairment charge
Currency translation effects
December 31, 2021
262
– 20
958
15
292
5
270
– 433
98
652
508
– 22
1 736
– 455
– 659
– 80
– 50
– 1 254
– 63
– 1 447
29 900
8 013
1 080
56 213
2 905
68 211
– 322
– 2 193
– 885 – 26 566
– 1 272 – 30 916
– 41
– 3 607
– 255
– 3 903
– 350
29
– 17
40
17
397
– 1
670
21
418
– 35
– 403
36
775
– 305
– 2 514
– 903 – 29 107
– 1 505 – 34 029
Net book value at December 31, 2021
29 595
5 499
177
27 106
1 400
34 182
1 Reclassifications between various asset categories as a result of product launches of acquired in-process research and development and completion of software development
2 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
F-36
Notes to the Novartis Group consolidated financial statements
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 At March 31, 2020, intangible assets of the Sandoz US generic oral solids and dermatology businesses were reclassified out of assets of disposal group held for sale. See Note 2
for further details.
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.
The following table summarizes the allocation of the net book values of goodwill and intangible assets by report-
ing segment at December 31, 2021:
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
21 562
5 313
15
25 938
1 091
32 357
8 026
186
162
1 168
61
1 577
7
248
248
Net book value at December 31, 2021
29 595
5 499
177
27 106
1 400
34 182
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
F-37
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 and reversals for continu-
ing operations by reporting segment:
(USD millions)
Innovative Medicines 1
Sandoz 2
Corporate
Total
Impairment charges
2021
– 367
– 28
– 8
2020
– 768
– 141
– 5
2019
– 669
– 506
– 403
– 914
– 1 175
Impairment reversals
2021
2020
2019
37
37
1 2021 includes an impairment of USD 201 million related to the write-down of IPR&D related to cessation of clinical development program GTX312.
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.
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.
Note 30 provides additional disclosures on discontinued operations.
F-38
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 employees
Tax loss Other assets,
provisions
forwards and accruals
carry-
Total
Inventories
Gross deferred tax assets at January 1, 2021
189
1 351
1 137
2 502
507
2 658
8 344
Gross deferred tax liabilities at January 1, 2021
– 430
– 5 269
– 340
– 159
– 10
– 1 344
– 7 552
Net deferred tax balance at January 1, 2021
– 241
– 3 918
797
2 343
497
1 314
792
At January 1, 2021
Credited/(charged) to income
Charged to equity
– 241
– 3 918
– 27
567
797
– 22
2 343
497
1 314
– 215
– 121
127
– 35
792
309
– 35
Credited/(charged) to other comprehensive income
– 323
6
– 317
Impact of acquisitions of businesses
Other movements
– 58
12
12
Net deferred tax balance at December 31, 2021
– 256
– 3 397
– 17
435
– 3
2 125
12
– 14
374
– 20
1 392
– 46
– 30
673
Gross deferred tax assets at December 31, 2021
125
1 307
1 026
2 273
374
2 727
7 832
Gross deferred tax liabilities at December 31, 2021
– 381
– 4 704
– 591
– 148
– 1 335
– 7 159
Net deferred tax balance at December 31, 2021
– 256
– 3 397
435
2 125
374
1 392
673
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, 2021
Deferred tax liabilities at December 31, 2021
Net deferred tax balance at December 31, 2021
4 089
3 743
– 3 070
673
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: 1
Deferred tax assets at December 31, 2020
Deferred tax liabilities at December 31, 2020
Net deferred tax balance at December 31, 2020
4 411
3 933
– 3 141
792
1 The December 31, 2020 offsetting amount and deferred tax assets and deferred tax liabilities after offsetting the deferred tax assets and liabilities within the same tax jurisdiction
have been adjusted from the previously reported amounts, due to a change in the presentation of the deferred tax assets and deferred tax liabilities on the consolidated balance
sheet, to conform with the 2021 presentation. The net deferred tax balance at December 31, 2020 did not require adjustment (see the paragraphs below in this Note 12 for
additional disclosures).
F-39
Notes to the Novartis Group consolidated financial statements
The December 31, 2020, presentation of deferred tax
liabilities and deferred tax assets on the consolidated
balance sheet has been adjusted. This adjustment was
made to conform with the December 31, 2021, presen-
tation to offset all deferred tax liabilities and deferred tax
assets within the same tax jurisdiction and when a legally
enforceable right to offset current tax assets against
current tax liabilities exists.
In the December 31, 2020, consolidated balance
sheet, deferred tax liabilities and deferred tax assets
were presented on gross basis and not fully netted as
required for presentation in the consolidated balance
sheet, because only certain portions of deferred tax
amounts were offset.
The correction resulted in a decrease in the previ-
ously reported December 31, 2020, deferred tax liabili-
ties, total non-current liabilities, total liabilities, and total
equity and liabilities by USD 4.3 billion and a correspond-
ing USD 4.3 billion decrease in deferred tax assets, total
non-current assets, and total assets. The correction
resulted only in the net presentation of these deferred
tax amounts in the consolidated balance sheet, with no
impact to the consolidated income statement, statement
of comprehensive income, statement of changes in
equity and statement of cash flows, and management
concluded the item was not material to the previously
issued consolidated financial statements.
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 29 billion in 2021 (2020: USD 27 billion).
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
2021 total
(USD millions)
One year
Two years
Three years
Four years
Five years
15
14
37
26
146
4
6
10
11
20
19
20
47
37
166
5 408
1 102
6 799
More than five years
3 536
1 872
Not subject to expiry
418
684
Total
4 192
2 607
(USD millions)
One year
Two years
Three years
Four years
Five years
Not capitalized
Capitalized
2020 total
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)
2021
2020
2019
Tax losses carried forward
that expired
18
14
9
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-40
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
2021
2020
(USD millions)
1 663
1 577
Deferred compensation plans
34
366
36
366
Prepaid post-employment benefit plans
Other non-current assets
Total financial investments
2 063
1 979
Total other non-current assets
2021
520
1 415
275
2 210
2020
471
202
219
892
Long-term receivables from finance subleases
Other long-term receivables
Contingent consideration receivables 1
70
184
641
Long-term loans, advances and security deposits
78
83
125
625
89
Total financial assets
3 036
2 901
1 Note 29 provides additional disclosures related to contingent considerations.
14. Inventories
(USD millions)
Raw material, consumables
Work in progress
Finished products
Total inventories
2021
870
3 160
2 636
6 666
2020
967
3 324
2 840
7 131
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
2021
– 8.8
2020
– 8.5
2019
– 8.5
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
2021
– 573
Reversals of inventory provisions
158
2020
– 702
255
2019
– 752
218
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
2021
8 088
– 83
2020
8 310
– 93
8 005
8 217
F-41
(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
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
2021
– 93
2020
– 95
Provisions for doubtful trade receivables charged to the consolidated income statement
– 39
– 59
Utilization of provisions for doubtful trade receivables
Reversal of provisions for doubtful trade receivables credited to the consolidated income statement
Currency translation effects
December 31
1 Notes 1, 2 and 30 provide information related to discontinued operations.
2019
– 126
54
– 89
12
53
1
9
34
6
13
53
– 5
– 83
– 93
– 95
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:
trade receivables, and may require the Group to re-eval-
uate 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, 2021 and 2020; the amounts that are past
due for more than one year; and the related provisions
for doubtful trade receivables that have been recorded:
2021
7 639
162
2020
7 714
150
99
63
28
97
(USD millions)
Total balance of gross trade
receivables from closely
monitored countries
Past due for more than one year
Provisions for doubtful
trade receivables
118
102
77
149
– 93
2021
2020
1 336
1 505
27
24
55
27
Provisions for doubtful trade receivables
– 83
Total trade receivables, net
8 005
8 217
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, Spain and Turkey, and evaluates trade receiv-
ables in these countries for potential collection risks. The
majority of the outstanding trade receivables from Por-
tugal, Spain and Greece are due directly from local gov-
ernments or from government-funded entities. Deterio-
rating credit and economic conditions as well as other
factors in these closely monitored countries have
resulted in, and may continue to result in, an increase in
the average length of time that it takes to collect these
At December 31, 2021, 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)
Russian ruble (RUB)
Japanese yen (JPY)
British pound (GBP)
Chinese yuan (CNY)
Australian dollar (AUD)
Canadian dollar (CAD)
Brazilian real (BRL)
Swiss franc (CHF)
Other currencies
Total trade receivables, net
2021
3 344
1 408
2020
3 311
1 668
473
383
200
197
139
139
129
106
288
437
191
208
153
125
148
124
1 487
8 005
1 564
8 217
F-42
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)
Commodities
Debt securities
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
2021
111
2 741
2020
111
26
12 965
1 609
105
159
15 922
1 905
The vast majority of debt security, time deposits and short-term investment with an original maturity of more than
90 days was denominated in USD as of December 31, 2021 and in EUR as of December 31, 2020.
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
Other receivables and current assets
Total other current assets
2021
3 396
9 011
12 407
2020
3 750
5 908
9 658
2021
487
58
1 102
793
2020
544
73
943
963
2 440
2 523
18. Equity
The following table shows the movement in the share capital:
(USD millions)
Share capital
Treasury shares
Outstanding share capital
Jan 1, 2019
Movement
in year
Dec 31, 2019
Movement
in year
Dec 31, 2020
Movement
in year
Dec 31, 2021
944
– 69
875
– 8
– 11
– 19
936
– 80
856
– 23
27
4
913
– 53
860
– 12
5
– 7
901
– 48
853
F-43
Notes to the Novartis Group consolidated financial statements
The following table shows the movement in the shares:
2021
2020
2019
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
2 467.0
– 210.2 2 256.8 2 527.3
– 262.3 2 265.0 2 550.6
– 239.4 2 311.2
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
– 32.6
32.6
– 60.3
60.3
– 23.3
23.3
– 30.7
– 30.7
– 1.5
– 1.5
0.6
9.6
0.6
9.6
– 32.6
– 32.6
– 1.7
– 1.7
14.7
11.0
14.7
11.0
0.1
0.1
0.4
0.4
– 60.3
– 60.3
– 1.7
– 1.7
5.5
9.4
0.9
5.5
9.4
0.9
Total movements
– 32.6
10.7
– 21.9
– 60.3
52.1
– 8.2
– 23.3
– 22.9
– 46.2
Balance at end of year
2 434.4
– 199.5 2 234.9 2 467.0
– 210.2 2 256.8 2 527.3
– 262.3 2 265.0
1 Approximately 102.5 million treasury shares (2020: 103.0 million; 2019: 117.6 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, under a CHF 10 billion share buyback authority approved at the 2019 AGM for transactions after February 28, 2019 until March 2, 2021, and
under a new CHF 10 billion share buyback authority approved at the 2021 AGM for transactions after March 2, 2021
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)
2021
3.00
2020
2.95
2019
2.85
7.4
7.0
6.6
18.2) The following table summarizes the treasury shares movements:
2021
2020
2019
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
– 30.7
– 2 775
– 32.6
– 2 897
– 60.3
– 5 351
Other share purchases 2
Purchase of treasury shares
Exercise of options and employee transactions 3
18.9
Equity-based compensation 4
Shares delivered to Alcon employees
Total
– 1.5
– 145
– 1.7
– 159
– 1.7
– 160
– 32.2
– 2 920
– 34.3
– 3 056
– 62.0
– 5 511
0.6
9.6
0.1
39
745
17
14.7
11.0
0.4
806
730
30
5.5
9.4
0.9
210
833
18
– 21.9
– 2 119
– 8.2
– 1 490
– 46.2
– 4 450
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, under a CHF 10 billion share buyback authority approved at the 2019 AGM for transactions after February 28, 2019 until March 2, 2021, and under a new CHF 10 billion
share buyback authority approved at the 2021 AGM for transactions after March 2, 2021
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.
18.3) In December 2021, 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 15.0 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 liability under this arrangement amounted to USD
2.8 billion as of December 31, 2021.
F-44
Notes to the Novartis Group consolidated financial statements
In June 2021, 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 employees. Novartis would have been
able to cancel this arrangement at any time but would
have been subject to a 90-day waiting period.
This trading plan commitment was fully executed and
expired in June 2021, and as a consequence, there is no
liability related to this plan recognized as of December
31, 2021.
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
would have been able to cancel this arrangement at any
time, but would have been subject to a 90-day waiting
period. The commitment under this arrangement there-
fore reflected 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. This trading
plan commitment was fully executed and expired in
March 2021, and as a consequence, there is no liability
related to this plan recognized as of December 31, 2021.
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 employees. Novartis would have been
able to cancel 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 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 employees. 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 liability
related to this plan recognized as of December 31, 2019.
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 include, for subsidiaries in hyper-
inflationary economies, the impact of the restatement 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.
See Note 29 for additional disclosures.
18.8) Transaction costs that were directly attributable to
the distribution (spin-off) of Alcon Inc. to Novartis AG
shareholders and that would otherwise have been
avoided, were recorded to equity, see Note 1 for further
details.
18.9) At December 31, 2021, the market maker held 3 mil-
lion (2020: 1 million; 2019: 13 million) written call options,
originally issued as part of the share-based compensa-
tion for employees, that have not yet been exercised. The
weighted average exercise price of these options is USD
61.45 (2020: USD 60.09; 2019: USD 63.90), and they
have contractual lives of 10 years, with remaining lives
up to two years (2020: three years; 2019: four 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-45
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 0.9% (2020: 0.3%)
2021
2020
25 296
28 298
227
233
25 523
28 531
– 2 621
– 2 272
22 902
26 259
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 87% at December 31, 2021, and 79%
at December 31, 2020.
The average interest rate on total financial debt in
2021 was 1.9% (2020: 2.0%).
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
2020
(USD
Issue price millions) millions)
2021
(USD
Coupon
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%
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
EUR
EUR
CHF
CHF
CHF
USD
USD
EUR
EUR
USD
USD
EUR
EUR
EUR
EUR
EUR
USD
USD
USD
USD
1 500
500
2 150
1 850
600
600
500
550
325
1 750
1 250
1 250
500
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
2012
2012
2014
2014
2014
2014
2015
2015
2015
2015
2015
2016
2016
2017
2017
2017
2017
2018
2018
2018
2020
2020
2020
2020
2020
2022 Novartis Capital Corporation, New York, United States
99.225% 1 498 1 497
2042 Novartis Capital Corporation, New York, United States
98.325%
490
490
2024 Novartis Capital Corporation, New York, United States
99.287% 2 144 2 142
2044 Novartis Capital Corporation, New York, United States
99.196% 1 826 1 826
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
676
547
602
356
2025 Novartis Capital Corporation, New York, United States
99.010% 1 740 1 737
2045 Novartis Capital Corporation, New York, United States
98.029% 1 220 1 220
2023 Novartis Finance S.A., Luxembourg, Luxembourg
99.127% 1 409 1 530
2028 Novartis Finance S.A., Luxembourg, Luxembourg
98.480%
559
2022 Novartis Capital Corporation, New York, United States
99.449% 1 000
2027 Novartis Capital Corporation, New York, United States
99.109%
993
607
998
992
2021 Novartis Finance S.A., Luxembourg, Luxembourg
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
99.133%
99.874%
99.655%
99.957%
99.217%
2025 Novartis Capital Corporation, New York, United States
99.852%
1 536
677
846
846
840
998
735
919
920
913
996
2027 Novartis Capital Corporation, New York, United States
99.909% 1 246 1 245
2030 Novartis Capital Corporation, New York, United States
99.869% 1 493 1 493
2050 Novartis Capital Corporation, New York, United States
97.712% 1 214 1 213
2028 Novartis Finance S.A., Luxembourg, Luxembourg
99.354% 2 076 2 255
25 296 28 298
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, 2021, there is no indication that these 2025 Patient Access Targets will not be met.
F-46
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)
2021
Balance
sheet
2021
Fair
values
2020
Balance
sheet
2020
Fair
values
Straight bonds
25 296
27 079
28 298
31 359
Others
Total
227
227
233
233
25 523
27 306
28 531
31 592
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)
2021
2022
2023
2024
2025
2026
After 2026
Total
Breakdown by currency:
(USD millions)
US dollar (USD)
Euro (EUR)
Japanese yen (JPY)
Swiss franc (CHF)
Others
Total
2021
2 621
2 342
2 144
3 284
693
2020
2 272
2 631
2 546
2 142
3 302
735
14 439
14 903
25 523
28 531
2021
2020
15 862
15 848
7 930
10 888
174
194
1 505
1 563
52
38
25 523
28 531
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
2021
2020
2 640
3 538
662
487
567
341
956
519
637
543
642
181
984
409
Total provisions and other non-current liabilities
6 172
6 934
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-47
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
Additions
Currency translation effects
December 31
Less current provision
Non-current environmental
remediation provisions
at December 31
2021
809
– 169
– 105
105
– 24
616
– 49
2020
714
– 10
– 27
82
50
809
2019
692
– 30
– 83
124
11
714
– 167
– 122
567
642
592
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, 2021, is currently projected as follows:
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.
94
199
275
48
616
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 2021.
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
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-
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
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
F-48
Notes to the Novartis Group consolidated financial statements
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’ investiga-
tions into alleged price fixing and market allocation of
generic drugs in the United States as well as alleged fed-
eral False Claims Act (FCA) violations. In 2020, Sandoz
Inc. reached a resolution with the DOJ Antitrust Division,
pursuant to which Sandoz Inc. paid USD 195 million and
entered into a deferred prosecution agreement. The
Sandoz Inc. resolution related to instances of miscon-
duct at the company between 2013 and 2015 with regard
to certain 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 investiga-
tion into the generic pharmaceutical industry. Sandoz
Inc. also finalized a resolution with the DOJ Civil Division
and in 2021 paid USD 185 million plus interest from the
date of the agreement in principle, to settle related claims
arising under the FCA, and entered into a corporate
integrity agreement with the Office of Inspector General
(OIG) of the US Department of Health and Human Ser-
vices (HHS). This resolution with the DOJ resolves all
federal government matters related to price fixing alle-
gations.
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 US states and ter-
ritories, represented by their respective Attorneys Gen-
eral. Plaintiffs claim that defendants, including Sandoz
Inc., engaged in price fixing and market allocation of
generic drugs in the United States, and seek damages
and injunctive relief. The litigation includes complaints
alleging product-specific conspiracies, as well as com-
plaints alleging the existence of an overarching industry
conspiracy, and assert claims for damages and penal-
ties under federal and state antitrust and consumer pro-
tection acts. The cases have been consolidated for pre-
trial 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 that 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 have been asserted in legal pro-
ceedings and no further letters have been sent since.
Novartis continues to appeal the CdS decision. In 2019,
the French Competition Authority (FCA) issued a State-
ment of Objections against Novartis entities, alleging
anti-competitive practices on the French market for
anti-vascular endothelial growth factor treatments for
wet age-related macular degeneration from 2008 to
2013. In 2020, the FCA issued a decision finding that the
Novartis entities had infringed competition law by abus-
ing a dominant position and imposing a fine equivalent
to approximately USD 452 million. Novartis paid the fine,
again subject to recoupment, and is appealing the FCA’s
decision. Novartis continues 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.
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,
which the prosecutor appealed. In 2021, the appellate
court upheld the fine, and the prosecutor has appealed
that decision.
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 (SDOE), from
which the Company received a summons in 2018 and
2020. In 2021, SDOE imposed on Novartis Hellas a fine
equivalent to approximately USD 1.2 million, which
Novartis Hellas has appealed.
340B Drug Pricing Program investigation
In 2021, NPC received a civil investigative subpoena from
the Office of the Attorney General of the State of Ver-
mont. The subpoena requested the production of docu-
ments and information concerning NPC’s participation
in the 340B Drug Pricing Program in Vermont. NPC pro-
vided documents and information to the Office of the
Attorney General. Also in 2021, NPC received a notifica-
tion from the US Health Resources and Services Admin-
istration (HRSA) stating that HRSA believes NPC’s con-
tract pharmacy policy, which was revised in 2020 to
establish a geographic limitation on contract pharmacy
eligibility, but maintained eligibility for pharmacies
located within a 40-mile radius of the parent 340B hos-
pital, violates the 340B statute. HRSA also threatened
an enforcement action. NPC believes its policy is con-
sistent with the 340B program’s original intent to sup-
F-49
Notes to the Novartis Group consolidated financial statements
port vulnerable patients. Accordingly, NPC sued HRSA
in the USDC for the District of Columbia to challenge
HRSA’s determination and to enjoin HRSA from taking
action with respect to NPC’s contract pharmacy policy.
HRSA then referred the matter regarding NPC’s contract
pharmacy policy to OIG, which could result in the impo-
sition of civil monetary penalties on NPC. In November
2021, the USDC issued a decision rejecting HRSA’s inter-
pretation of the 340B statute, vacated the violation noti-
fication and remanded the matter to HRSA. HRSA has
filed an appeal.
Entresto matter
In 2021, NPC received a civil investigative demand from
the DOJ seeking information from 2016 to the present
regarding the marketing and pricing of Entresto, includ-
ing remuneration provided to HCPs. NPC is cooperating
with the DOJ’s inquiry.
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 more 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 300 US product liabil-
ity actions involving Tasigna, alleging that the product
caused various cardiovascular effects and that NPC
failed to provide adequate warnings about those alleged
side effects. State court actions are pending in a multi-
county litigation in Bergen County, New Jersey, and fed-
eral cases are pending in a multidistrict litigation in the
Middle District of Florida. 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 payers, including
state Medicaid agencies, to calculate reimbursements
to healthcare providers. NPC remains a defendant in a
putative class action brought by private payers in New
Jersey, and vigorously contests those claims.
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 plaintiffs, derivatively as purported Novartis share-
holders on behalf of Novartis, seek damages and other
remedies based on alleged conduct by the corporate
and individual defendants. The claims are being vigor-
ously contested.
Concluded legal matters
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
F-50
Notes to the Novartis Group consolidated financial statements
charges against NPKK were 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 in 2017 for
both the former NPKK employee and NPKK, and that rul-
ing was appealed to the Supreme Court of Japan. In
2021, the Supreme Court issued its decision dismissing
the prosecutors’ appeal and upholding the Tokyo Dis-
trict Court’s not-guilty ruling. This matter is now con-
cluded.
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-
cialized 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,
were the subject of legal proceedings between Novartis
and Amgen. Novartis disputed 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. In 2022, the parties reached
a confidential agreement to settle all remaining claims in
the litigation. Novartis returned its Aimovig US rights to
Amgen, which is now exclusively commercializing
Aimovig in the US. Novartis will continue to commercial-
ize Aimovig in the rest of the world, with the exception of
Japan. This 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
2021
487
2020
1 369
Impact of acquisitions of businesses
11
Cash payments
– 292
– 1 863
2019
340
– 42
10
– 116
– 52
1 230
– 1
1 369
– 44
251
– 5
397
– 56
– 31
1 018
– 17
487
– 306
– 1 169
Releases of provisions
Additions to provisions
Currency translation effects
December 31
Less current portion
Non-current product
liabilities, governmental
investigations and other
legal matters provisions
at December 31
341
181
200
1 Notes 1, 2 and 30 provide information related to discontinued operations.
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 employees
payable on demand 1
2021
2020
1 814
2 085
Bank and other financial debt 2
Commercial paper
899
893
Current portion of non-current financial debt
2 621
Derivative financial instruments
68
976
4 258
2 272
194
Total current financial debt and derivative
financial instruments
6 295
9 785
1 Weighted average interest rate 0.25% (2020: 0.4%)
2 Weighted average interest rate 6.1% (2020: 5.0%)
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-51
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.
2021
619
345
2020
749
459
1 089
1 167
752
127
6 481
2 260
49
123
56
253
119
732
133
6 256
2 286
167
56
306
269
62
2 809
1 769
588
716
15 670
15 127
Provisions are based upon management’s best estimate and adjusted for actual experience. Such adjustments to
historic estimates have not been material.
F-52
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 charge
Payments/ Adjustments
utilizations of prior years Current year
Change in
provisions
offset against
Revenue
deductions
gross trade provisions at
receivables December 31
2 053
2 272
1 931
6 256
1 981
1 769
1 845
5 595
– 5 326
– 202
5 675
2 200
– 154
– 3 439
20
3 451
5
2 155
– 64
– 11 073
– 63
11 287
– 218
– 19 838
– 245
20 413
108
113
2 126
6 481
– 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)
2021
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 2021
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
1 Notes 1, 2 and 30 provide information related to discontinued operations.
Restructuring provisions movements
(USD millions)
January 1
Provisions related to
discontinued operations 1
Additions
Cash payments
Releases
Transfers
Currency translation effects
December 31
2021
459
2020
438
328
– 344
– 54
– 27
– 17
345
354
– 268
– 87
22
459
2019
507
– 8
492
– 479
– 72
– 2
438
1 Notes 1, 2 and 30 provide information related to discontinued operations.
In 2021, additions to provisions of USD 328 million were
mainly related to the following reorganizations:
• The Innovative Medicines Division commenced a plan
to restructure its field force and supporting functions
in response to changes in its go-to-market structure
with increased utilization of digital technology.
• Group-wide initiatives to streamline Novartis Technical
Operations and implement new technologies contin-
ued. In addition, Customer & Technology Solutions con-
tinued the phased implementation of the new operat-
ing model to transition activities to service centers.
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 competitiveness 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, Customer & Technology Solu-
tions continued the phased implementation of the new
operating model to change outsourcing structures and
transition activities to service centers.
F-53
Notes to the Novartis Group consolidated financial statements
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 competitiveness. These
initiatives 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, Customer & Technol-
ogy Solutions launched the next phase of the new oper-
ating model to change outsourcing structures and tran-
sition activities to 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
Intangible assets
Financial assets 1
Change in provisions and other non-current liabilities
Gains on disposal and other adjustments on property, plant and equipment; intangible assets;
financial assets; and other non-current assets, net
Equity-settled compensation expense
Income from associated companies 2
Income taxes
Net financial expense
Total
1 Includes fair value adjustments
2 2021 includes the gain of USD 14.6 billion recognized from the divestment of the Group’s investment in Roche (see Notes 2 and 4).
2021
2020
2019
1 489
1 758
1 547
318
4 306
– 38
896
330
4 376
– 335
1 411
305
3 974
– 38
1 871
– 677
– 478
– 1 234
736
– 15 339
2 119
891
738
– 673
1 807
947
758
– 659
1 793
805
– 5 299
9 881
9 122
23.2) Total amount of income taxes paid
In 2021, the total amount of income taxes paid was USD 2.3 billion, which was included within “Net cash flows from
operating activities from continuing operations.”
In 2020, the total amount of income 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 income 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.”
F-54
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)
Decrease/(increase) in inventories
(Increase)/decrease in trade receivables
(Decrease)/increase in trade payables
Change in other current and non-current assets
Change in other current liabilities
Other adjustments, net
Total
2021
81
– 389
– 21
– 202
772
0
2020
– 543
137
– 324
229
211
– 1
241
– 291
2019
– 382
– 980
553
– 160
1 167
1
199
23.4) Cash flows arising from divestments and acquisitions of interests in associated
companies, net
In 2021, divestments and acquisitions of interests in associated companies, net included USD 20.7 billion proceeds
from the divestment of the Group’s investment in Roche (see Notes 2 and 4).
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
24
2021
2020
2019
– 735
– 10 173
– 4 124
42
59
1
7
98
62
33
242
– 2
– 633
– 10 006
– 3 851
66
49
91
– 567
– 9 957
– 3 760
1 In 2021, USD 66 million included USD 52 million net cash inflows from divestments in previous years, and a USD 14 million net cash inflow from a business divestment in 2021,
comprised of intangible assets.
In 2020, USD 49 million represented the net cash inflows from divestments in previous years.
In 2019, 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.
Notes 2 and 24 provide further information regarding acquisitions and divestments of businesses. All acquisitions
were for cash.
F-55
Notes to the Novartis Group consolidated financial statements
23.6) Reconciliation of liabilities arising from financing activities
(USD millions)
January 1, 2021
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, modified and terminated leases, net
Impact of acquisitions of businesses
Changes in fair values, lease interest and other changes, net
Amortization of bonds discount
Currency translation effects
Reclassification from non-current to current, net
December 31, 2021
(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, modified and terminated leases, net
Impact of acquisitions of businesses
Changes in fair values, lease interest and other changes, net
Amortization of bonds discount
Currency translation effects
Reclassification from non-current to current, net
December 31, 2020
Current
financial
debts and
derivative
financial Non-current Current lease
liabilities
instruments lease liabilities
Non-current
financial
debts
26 259
9 785
1 719
286
16
– 2 162
– 3 524
– 316
– 52
61
62
– 13
247
275
192
– 43
– 247
1 621
1
– 124
4
– 309
2 624
6 295
Current
financial
debts and
derivative
financial Non-current Current lease
liabilities
instruments lease liabilities
25
– 774
– 2 624
22 902
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
F-56
Notes to the Novartis Group consolidated financial statements
(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, modified and terminated leases, net
Impact of acquisitions and divestments of businesses
Changes in fair values, lease interest 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
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.
3 Represents the financial debts and lease liabilities at January 1, 2019, related to the Alcon business reported as discontinued operations. See Notes 1 and 2.
For net cash flows used in investing and financing 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
F-57
2021
2020
26
32
2019
44
292
262
98
28
1
10
196
3 550
8 600
342
218
476
49
84
109
76
22
60
8
195
4
– 74
– 1 977
– 107
– 1
– 4
612
– 10
– 105
238
735
– 32
– 44
– 144
7 669
– 76
– 2
– 178
3 938
2 580
186
10 173
4 124
Notes to the Novartis Group consolidated financial statements
Note 2 details significant acquisitions of businesses, spe-
cifically, the acquisition of the cephalosporin antibiotics
business from GSK in 2021; The Medicines Company
and the Japanese business of AGI in 2020 and Xiidra
and IFM Tre, Inc. in 2019. The goodwill arising out of these
acquisitions is attributable to the buyer-specific syner-
gies, the assembled workforce, and the accounting for
deferred tax liabilities on the acquired assets. Goodwill
of USD 107 million in 2021 (2020: USD 74 million; 2019:
USD 98 million) is tax deductible.
25. Post-employment benefits for employees
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
employees. 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 80% of the Group’s total DBO for post-em-
ployment 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
employee’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 employee 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 employees. 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, employees 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-58
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 employees at December 31, 2021 and 2020:
(USD millions)
Benefit obligation at January 1
Current service cost
Interest cost
Past service costs and settlements
Administrative expenses
Remeasurement (gains)/losses 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 employees
Effect of acquisitions, divestments or transfers
Benefit obligation at December 31
Fair value of plan assets at January 1
Interest income
Return on plan assets excluding interest income
Currency translation effects
Novartis Group contributions
Contributions of employees
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
2021
2020
25 602
23 066
415
151
63
24
– 713
– 377
531
372
222
– 102
24
1 166
– 28
159
– 865
1 810
– 1 450
– 1 264
179
23
186
– 9
23 583
25 602
22 317
19 810
105
1 512
– 726
490
179
– 7
166
1 318
1 620
464
186
15
2021
632
11
16
– 3
– 20
4
– 47
– 1
– 32
560
89
2
7
7
2020
746
11
20
1
40
– 13
– 132
– 7
– 33
– 1
632
134
4
4
– 20
– 1 450
– 1 264
– 32
– 33
2
22 420
22 317
73
89
– 1 163
– 3 285
– 487
– 543
– 51
– 10
– 1
– 62
– 65
16
– 2
– 51
Net liability in the balance sheet at December 31
– 1 225
– 3 336
– 487
– 543
The reconciliation of the net liability from January 1 to December 31 is as follows:
(USD millions)
Net liability at January 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
F-59
Pension plans
Other post-employment
benefit plans
2021
2020
– 3 336
– 3 321
– 415
– 372
– 47
– 24
– 70
2 071
139
490
– 23
– 10
– 58
– 24
117
21
– 190
464
11
16
2021
– 543
– 11
– 14
3
70
1
7
2020
– 612
– 11
– 16
– 1
109
7
– 20
1
– 1 225
– 3 336
– 487
– 543
1 415
202
– 2 640
– 3 538
– 487
– 543
Notes to the Novartis Group consolidated financial statements
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
15 268
3 645
4 670
23 583
16 807
3 788
5 007
25 602
2021
2020
Thereof unfunded
By type of member
Active
Deferred pensioners
Pensioners
688
439
1 127
701
516
1 217
6 478
620
1 412
8 510
6 837
665
1 573
9 075
1 208
1 730
2 938
1 290
1 819
3 109
8 790
1 817
1 528
12 135
9 970
1 833
1 615
13 418
Fair value of plan assets at December 31
16 436
2 551
3 433
22 420
16 396
2 487
3 434
22 317
Funded status
1 168
– 1 094
– 1 237
– 1 163
– 411
– 1 301
– 1 573
– 3 285
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
473
400
60
13
400
73
2021
Rest of
the world
87
87
23
0
64
0
United
States
543
454
80
17
446
89
2020
Rest of
the world
89
89
25
0
64
0
Total
560
487
83
13
464
73
Total
632
543
105
17
510
89
Funded status
– 400
– 87
– 487
– 454
– 89
– 543
The following table shows the principal weighted average actuarial assumptions used for calculating defined ben-
efit plans and other post- employment benefits of employees:
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
2021
2020
2019
2021
2020
2019
0.9%
0.5%
2.7%
0.5%
22
24
0.6%
0.3%
2.7%
0.1%
22
24
1.0%
0.3%
2.8%
0.3%
22
24
3.3%
2.9%
3.6%
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 employee’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
F-60
Notes to the Novartis Group consolidated financial statements
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:
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 employees, 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:
Investment in shares of Novartis AG
Number of shares (in millions)
Market value (in USD billions)
December 31, December 31,
2020
2021
2.3
0.2
2.3
0.2
Change in 2021 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
– 790
839
869
512
– 136
58
– 58
54
– 54
The weighted average duration of the defined benefit
obligation is 14.9 years (2020: 15.4 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.
The expected future cash flows in respect of pension
and other post-employment benefit plans at December
31, 2021, were as follows:
The healthcare cost trend rate assumptions used for
other post- employment benefits are as follows:
2021
2020
2019
(USD millions)
Pension plans
Novartis Group contributions
6.0% 6.3% 6.5%
2022 (estimated)
Expected future benefit payments
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
4.5% 4.5% 4.5%
2028 2028 2028
2022
2023
2024
2025
2026
2027–2031
The following table shows the weighted average plan
asset allocation of funded defined benefit pension plans
at December 31, 2021 and 2020:
Other post-
employment
benefit plans
39
39
39
39
39
38
178
424
1 234
1 237
1 167
1 147
1 134
5 454
(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
15
20
5
0
0
40
60
30
20
15
2021
2020
27
33
19
15
6
28
34
17
13
8
Defined contribution plans
In many subsidiaries, employees are covered by defined
contribution plans. Contributions charged to the consol-
idated income statement for the defined contribution
plans were:
(USD millions)
2021
2020
2019
100
100
Contributions for defined contribution plans
continuing operations
523
501
422
Cash and most of the equity and debt securities have a
quoted market price in an active market. Real estate and
For defined contribution plans for discontinued opera-
tions, see Note 30.
F-61
Notes to the Novartis Group consolidated financial statements
26. Equity-based participation plans for employees
The expense related to all equity-based participation
plans and the liabilities arising from equity-based pay-
ment transactions were as follows:
(USD millions)
2021
2020
2019
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.
Expense related to equity-based
participation plans
Liabilities arising from equity-based
payment transactions
979
958
1 067
253
269
326
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.
Equity-based participation plans can be separated into
the following plans:
Novartis equity plan “Select”
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
Employees 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 employ-
ees may only participate in one of the share savings 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. Employees 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
The equity plan “Select” is a global equity incentive plan
under which eligible employees 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.
2021
2020
Weighted
average
exercise
Options
(millions)
price Options
(USD) (millions)
Weighted
average
exercise
price
(USD)
Options outstanding
at January 1
2.6
62.0
3.4
60.9
Sold or exercised
– 0.9
58.9
– 0.8
57.3
Outstanding at December 31
Exercisable at December 31
1.7
1.7
63.6
63.6
2.6
2.6
62.0
62.0
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 90.0.
F-62
Notes to the Novartis Group consolidated financial statements
The following table summarizes information about
share options outstanding at December 31, 2021:
Options outstanding
Number outstanding (millions)
Remaining contractual life (years)
Exercise price (USD)
Total/
weighted
average
0.5
0.0
1.2
1.0
1.7
0.7
57.6
66.1
63.6
Options under Novartis equity plan “Select” for
North America
The following table shows the activity associated with
the ADR options during the period:
2021
2020
Weighted
average
ADR exercise
options
(millions)
price options
(USD) (millions)
Weighted
average
ADR exercise
price
(USD)
Options outstanding
at January 1
6.7
62.9
9.6
61.9
Sold or exercised
– 2.7
60.7
– 2.9
59.6
Outstanding at December 31
Exercisable at December 31
4.0
4.0
64.4
64.4
6.7
6.7
62.9
62.9
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 91.5.
The following table summarizes information about
ADR options outstanding at December 31, 2021:
ADR options outstanding
Number outstanding (millions)
Remaining contractual life (years)
Exercise price (USD)
Total/
weighted
average
0.8
0.0
3.2
1.0
4.0
0.8
58.3
65.9
64.4
Long-Term 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, following the combination of
the two LTPP and LTRPP, for new grants the perfor-
mance criteria are based on both Novartis internal per-
formance metrics and variables that can be observed in
the market, 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
performance 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.
Long-Term Relative Performance Plan
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 employees may exceptionally receive Special
Share Awards of RSs or RSUs. These Special Share
Awards provide an opportunity to reward outstanding
achievements or exceptional performance, and aim to
retain key contributors. They are based on a formal inter-
nal selection process, through which the individual per-
formance of each candidate is thoroughly assessed at
several management levels. Special Share Awards have
a minimum three-year vesting period. In exceptional cir-
cumstances, Special Share Awards may be awarded to
attract special expertise and new talents to the
organization. Externally recruited ECN members are eli-
gible only for special awards that are “buyouts” in the
case that it is to replace equity forfeited with their for-
mer employer. The equity is provided on a like-for-like
basis as the forfeited equity, at the same value with the
same vesting period, and with or without a performance
condition.
Worldwide, employees at different levels in the orga-
nization were awarded RSs and RSUs in 2021, 2020 and
2019.
In addition, in 2021, 2020 and 2019, Board members
received unrestricted shares as part of their regular com-
pensation.
F-63
Notes to the Novartis Group consolidated financial statements
Summary of non-vested share grants
The table below provides a summary of non-vested share grants (RSs, RSUs and PSUs) for all plans:
Annual Incentive
– RSU
– Restricted shares
Share savings plans
– RSU
– Shares
Select North America (RSU)
Select outside North America
– RSU
– Restricted shares
Long-Term Performance Plan (PSU)
Long-Term Relative Performance Plan 1
Other share awards
– RSU
– Restricted shares
– Shares
1 LTRPP grants in 2020 represent incremental payouts based on performance criteria under the plan.
2021
2020
Number
Weighted
average fair
of shares value at grant
date in USD
in millions
Number
Weighted
average fair
of shares value at grant
date in USD
in millions
0.2
0.1
0.4
1.1
4.3
1.8
0.6
1.8
87.5
97.0
86.9
97.0
86.9
86.9
97.0
89.5
0.6
78.4
0.1
91.9
0.3
0.1
0.4
1.4
3.3
1.5
0.5
2.5
0.2
1.3
0.1
0.1
86.8
96.0
87.0
96.0
86.7
87.0
96.0
85.1
0.0
77.0
88.7
88.5
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 were indirectly included in the consoli-
dated financial statements using equity accounting until
November 3, 2021, when Novartis entered into an agree-
ment with Roche to divest its 33.3% of Roche voting
shares. On December 6, 2021, Novartis divested its
investment in Roche, on which date Roche ceased to be
a related party (see Notes 2 and 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. From January 1, 2021
until December 6, 2021, Lucentis sales of USD 2.0 billion
(2020: USD 1.9 billion; 2019: USD 2.1 billion) were recog-
nized 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. From January 1, 2021 until
December 6, 2021, Novartis recognized total sales of
Xolair of USD 1.3 billion (2020: USD 1.3 billion; 2019:
USD 1.2 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 188 million from January
1, 2021 until December 6, 2021 (net income in 2020:
USD 217 million; net income in 2019: USD 101 million).
Furthermore, Novartis has several patent license,
supply and distribution agreements with Roche.
F-64
Notes to the Novartis Group consolidated financial statements
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 current and past years.
Executive Officers and Non-Executive Directors compensation
At December 31, 2021, there were 12 Executive Com-
mittee members (“Executive Officers”). During 2021, 3
Executive Officers stepped down. At December 31,
2020, there were 13 Executive Officers. At December
31, 2019, there were 13 Executive Officers. During 2019,
2 Executive Officers stepped down.
The total compensation for Executive Committee members and the 14 Non-Executive Directors (14 in 2020 and
13 in 2019) using the Group’s accounting policies for equity-based compensation and pension benefits was as fol-
lows:
(USD millions)
Cash and other compensation
Post-employment benefits
Equity-based compensation
Total
Executive Officers
Non-Executive Directors
Total
2021
20.3
2.5
37.3
60.1
2020
25.6
2.7
41.1
69.4
2019
20.7
2.6
40.6
63.9
2021
4.7
2020
2019
4.6
4.1
5.2
9.9
5.2
9.8
4.6
8.7
2021
25.0
2.5
42.5
70.0
2020
30.2
2.7
46.3
79.2
2019
24.8
2.6
45.2
72.6
During 2021, the IFRS compensation expense decreased
due to one role less at the ECN, and lower cash and
equity compensation attributable to former ECN mem-
bers, partially offset by the net increase of the IFRS com-
pensation expense of current ECN members.
During 2020, the IFRS compensation expense
increased due to higher cash and other compensation.
This increase in cash compensation is mainly attribut-
able 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.
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 2021, 2020 and 2019, the following payments (or
waivers of claims) were made to former Board members
or to “persons closely” linked to them:
Dr. Krauer
CHF
60 000
60 000
60 000
Currency
2021
2020
2019
Dr. Alex Krauer, Honorary Chairman, was 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 related
to intangible assets, which provide for potential mile-
stone payments by Novartis. As of December 31, 2021,
the Group’s commitments to make payments under those
agreements, and their estimated timing, were as follows:
(USD millions)
2022
2023
2024
2025
2026
Thereafter
Total
F-65
2021
602
1 088
472
629
113
3 839
6 743
Notes to the Novartis Group consolidated financial statements
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, 2021, the total uncalled capital commit-
ments for the Group’s investments in funds amounts to
USD 71 million. Note 29 contains further information on
the Group’s investments in funds.
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.
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.
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-66
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, 2021 and 2020. Except for straight bonds
(see Note 19), the carrying values are equal to, or a rea-
sonable approximation of, the fair values.
2021
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
(USD millions)
Cash and cash equivalents 1
Time deposits and short-term investments with original maturity more than 90 days
Trade receivables
Other receivables and 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 employees 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
16
16
15
17
16
13
13
13
13
16
13
21
21
21
19
19
18/22
21
10
10 397
2 010
12 965
8 005
793
332
2 741
1 195
34
468
366
192
105
641
32 492
5 980
1 772
1 814
899
893
25 296
227
5 553
2 809
37 491
1 094
68
1 162
1 896
1 896
1 Includes short-term highly rated government-backed debt securities, with an original maturity of three months or less
F-67
Notes to the Novartis Group consolidated financial statements
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
(USD millions)
Cash and cash equivalents
Time deposits and short-term investments with original maturity more than 90 days
Trade receivables
Other receivables and 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 employees 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
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
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, 2021 and 2020. 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, 2021 and 2020.
Contract or underlying
principal amount
Positive fair values
Negative fair values
(USD millions)
2021
2020
2021
Forward foreign exchange rate contracts
13 248
13 679
17
82
11
70
92
13
2020
151
8
2021
– 35
2020
– 165
– 33
– 29
Commodity purchase contract
Options on equity securities
Total derivative financial instruments included in
marketable securities and in current financial debts
13 347
13 760
105
159
– 68
– 194
The following table shows by currency contract or underlying principal amount the derivative financial instruments
at December 31, 2021 and 2020:
(USD millions)
Forward foreign exchange rate contracts
Commodity purchase contract
Options on equity securities
Total derivative financial instruments
EUR
2021
USD
Other
Total
1 485
5 158
6 605
13 248
17
82
17
82
1 485
5 257
6 605
13 347
F-68
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
2020
USD
Other
Total
2 432
6 376
4 871
13 679
11
70
11
70
2 432
6 457
4 871
13 760
Derivative financial instruments effective for hedge
accounting purposes
At the end of 2021 and 2020, 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 1
Cash and cash equivalents
Marketable securities – 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
1 Includes short-term highly rated government-backed debt securities, with an original maturity of three months or less
2021
Level 1
Level 2
Level 3
Total
2 010
2 010
2 719
2 719
2 719
1 080
28
1 108
22
22
105
127
2 010
2 010
2 741
2 741
105
2 846
1 697
366
641
617
338
641
1 596
2 704
192
192
– 1 075
– 1 075
– 19
– 19
– 68
– 1 094
– 1 162
– 68
– 68
F-69
Notes to the Novartis Group consolidated financial statements
(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
30
1 183
26
26
159
185
26
26
159
185
1 613
366
625
460
336
625
1 421
2 604
211
211
– 1 046
– 1 046
– 23
– 23
– 194
– 194
– 194
– 1 069
– 1 263
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:
2021
Associated
companies at
fair value through
profit and loss investments investments receivables
Fund
Long-term Contingent Contingent
financial consideration consideration
payables
211
366
460
625
– 1 046
2
70
69
124
182
– 26
– 8
– 13
– 44
– 189
– 2
34
– 27
192
– 1
12
– 71
– 30
338
51
137
– 43
– 44
617
– 22
– 42
22
– 88
44
641
– 1 075
– 24
62
56
80
– 7
(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
Total of fair value gains and losses recognized
in the consolidated income statement for assets
and liabilities held at December 31, 2021
F-70
Notes to the Novartis Group consolidated financial statements
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
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
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
– 3
– 2
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
During 2021, there were several individually non-signifi-
cant transfers of equity securities from Level 3 to Level
1 for USD 73 million (2020: USD 166 million), due to Ini-
tial Public Offerings of the invested companies. During
2021, there was a transfer of equity securities of USD 29
million from Level 1 to Level 3 due to de-listing (2020:
nil).
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 173 million and USD 212 million, respec-
tively.
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.
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 and contingent consideration receivables,
this would change the amounts recorded in the 2021
consolidated income statement by USD 246 million and
USD 198 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.
These are made up of individually non-significant invest-
ments. At December 31, 2021, the Group holds 60 non-
listed equity securities (December 31, 2020: 56) and 40
listed equity securities (December 31, 2020: 34) in this
category with the following fair values:
(USD millions)
Listed equity securities
Non-listed equity securities
Total equity securities
2021
888
307
2020
862
249
1 195
1 111
During 2021, dividends received from these equity secu-
rities were insignificant (2020: nil). In 2021, in accordance
with the consolidated foundations Alcon Inc. shares
divestment plans, Alcon Inc. shares with a fair value of
USD 9 million were sold (2020: USD 331 million), and the
USD 1 million gain on disposal (2020: USD 13 million gain)
was transferred from other comprehensive income to
retained earnings during 2021. In addition, in 2021, equity
securities that were no longer considered strategic, with
a fair value of USD 254 million (2020: USD 206 million),
were sold, and the USD 211 million gain on disposal
(2020: USD 137 million gain) was transferred from other
comprehensive income to retained earnings (see Note
8).
F-71
Notes to the Novartis Group consolidated financial statements
Nature and extent of risks arising
from financial instruments
Market risk
Market risk in general comprises currency risk, interest
rate risk and price risk, such as commodity and equity
prices. Novartis is exposed to market risk, primarily
related to foreign currency exchange rates, interest rates
and the market value of the investments. The Group
actively monitors and seeks to reduce, where it deems
it appropriate to do so, fluctuations in these exposures.
It is the Group’s policy and practice to enter into a vari-
ety of derivative financial instruments to manage the vol-
atility of these exposures. It does not enter into any finan-
cial 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.
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 may enter into foreign cur-
rency option contracts 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, 2021, long-term financial debt
with a carrying amount of EUR 1.8 billion (USD 2.1 billion;
December 31, 2020: USD 2.3 billion), has been desig-
nated as a hedge instrument. During 2021, USD 216 mil-
lion of net of taxes unrealized income (unrealized loss in
2020: USD 201 million) was recognized in other compre-
hensive 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 2021, 2020 and 2019.
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-
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.
F-72
Notes to the Novartis Group consolidated financial statements
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 (2020: 17%, 11% and 6%, respectively; 2019:
18%, 13% and 8%, respectively).
The highest amounts of trade receivables outstand-
ing were for these same three customers and amounted
to 16%, 12% and 7%, respectively, of the Group’s trade
receivables at December 31, 2021 (2020: 14%, 12% and
6%, 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, Continuous Linked Settlement (CLS), providing mul-
tilateral netting (payment-versus-payment settlement)
of cash flows from foreign exchange transactions.
The Group’s cash and cash equivalents include short-
term highly rated government-backed debt securities,
with an original maturity of three months or less, for
approximately 16% (2020: nil) as well as cash and cash
equivalents held with major regulated financial institu-
tions; the three largest ones hold approximately 9.7%,
9.7% and 7.6%, respectively (2020: 14.1%, 12.6% and
9.7%, 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 one Japanese commercial paper pro-
gram under which it can issue up to JPY 150 billion
(approximately USD 1.3 billion) of unsecured commercial
paper notes. Commercial paper notes totaling USD 0.9
billion under these three programs were outstanding as
per December 31, 2021 (2020: USD 4.3 billion). Novartis
further 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, 2021, and December
31, 2020.
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-73
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, 2021, and December 31, 2020:
2021
(USD millions)
Current assets
Marketable securities, time deposits and short-term
investments with original maturity more than 90 days
and accrued interest
Commodities
Derivative financial instruments
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
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
11
14 585
1 088
4
18
15 706
21
64
7
7 406
5 001
111
13
111
105
12 407
7 438
19 650
1 095
4
142
28 329
– 8 464
– 14 438
– 22 902
– 8 490
– 14 587
– 23 077
– 8 464
– 14 438
– 22 902
– 2 780
– 521
– 2 926
– 2 780
– 521
– 2 928
– 50
– 16
– 2
– 2 830
– 537
– 2 928
– 6 227
– 6 229
– 68
– 6 295
Net debt
4 608
19 113
– 1 833
– 8 460
– 14 296
– 868
(USD millions)
Current assets
2020
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
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
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-74
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
2021
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
– 843
– 5 482
– 461
– 6 786
Potential inflows in various currencies – from financial derivative assets
847
5 516
457
6 820
(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 three months
one year
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
Other contractual liabilities that are not part of management’s monitoring of the net debt or liquidity consist of the
following items:
2021
(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
Commitment for repurchase of own shares
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
– 78
– 5 373
– 2 809
– 445
– 1 628
– 3 908
– 6 063
– 197
– 180
– 639
– 982
– 1 896
– 5 553
– 2 809
– 54
– 65
– 517
– 439
– 1 075
2020
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
– 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
Capital risk management
Sensitivity analysis
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, 2021, 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.
The Group uses sensitivity analysis disclosures to pro-
vide quantitative information about market risks to which
it is exposed.
The sensitivity analysis disclosures are in line with
the Group’s financial risk management policy, and
enhance disclosures by moving to a one-parameter risk
model that considers a one-factor linear relationship
between risk factors and exposures, as compared to a
F-75
Notes to the Novartis Group consolidated financial statements
multi-parameter model under Value-at-risk which was
disclosed in prior years. The sensitivity analysis disclo-
sures consider aggregated risk exposure arising from
the most significant risk factors (currency risk, interest
rate risk and equity prices risk) and includes all financial
assets and financial liabilities as set forth in the table on
page F-67.
The disclosures below illustrate the potential impact
on the Group’s consolidated financial statements as a
result of hypothetical market movements in foreign cur-
rency exchange rates, interest rates and equity prices.
The range of variables chosen reflects management’s
view of changes that are reasonably possible over a one-
year period.
Foreign currency exchange rate sensitivity
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, as well as in the Swiss
franc. A strengthening (weakening) of the US dollar
against these currencies as of December 31, 2021 and
2020 would have affected the measurement of financial
instruments denominated in these foreign currencies.
This analysis assumes that all other variables, in partic-
ular interest rates, remain constant. A hypothetical 5%
increase or decrease in the foreign currency exchange
rates against the US dollar would have impacted the
Group’s consolidated income statement as presented
below:
(USD millions)
2021
2020
5% increase in currency exchange rates
against USD
5% decrease in currency exchange rates
against USD
3
– 3
5
– 5
As of December 31, 2021, the Group designated EUR 1.8
billion (December 31, 2020: EUR 1.8 billion) of its long-
term euro-denominated straight bonds as hedges of the
translation risk arising on certain net investments in for-
eign operations with euro functional currency. This anal-
ysis assumes that all other variables, in particular inter-
est rates, remain constant. A hypothetical 5% increase,
or decrease, in the foreign currency exchange rates
against the US dollar, without considering the translation
effect of these net investments, would have impacted
the Group’s consolidated equity as presented below:
(USD millions)
2021
2020
Interest rate sensitivity
Our portfolio of fixed-income instruments as of Decem-
ber 31, 2021, was mainly composed of time deposits and
debt securities.
Novartis uses duration models to approximate the
possible change in the value of fixed-income instru-
ments. Based on these models, management believes
that a 100-basis point change in interest is deemed a
reasonable possible change over a one-year period.
Based on exposures in 2021 and 2020, a hypotheti-
cal 100-basis point increase (decrease) in interest rates
would not have resulted in a significant increase
(decrease) in the fair values of the fixed-income instru-
ments. In addition, a hypothetical 100-basis point
increase (decrease) in interest rates would not have
resulted in a material increase (decrease) of cash flows
attributable to such fixed-income instruments.
The vast majority of our outstanding financial debts
are with fixed interest rates and are therefore not affected
by movements in interest rates.
Equity price sensitivity
Fund investments and equity securities held by the
Novartis Venture Fund are valued at fair value through
profit and loss. Equity securities held as strategic invest-
ments, typically held outside the Novartis Venture Fund,
are generally designated at date of acquisition as finan-
cial assets valued at fair value through other compre-
hensive income with no subsequent recycling through
profit and loss.
The fair value of these fund investments and equity
securities was USD 2.2 billion as of December 31, 2021
(December 31, 2020: USD 2.2 billion). The fair values of
these investments are impacted by the volatility of the
stock market, valuation parameters applied (for non-
listed equities) and changes in general economic factors.
This analysis assumes that all other variables, in partic-
ular interest rates, remain constant. A hypothetical
increase or decrease of 15% in the risk factors would
have impacted the Group’s consolidated income state-
ment as presented below:
(USD millions)
15% increase in equity prices
2021
154
2020
156
15% decrease in equity prices
– 154
– 156
A hypothetical increase or decrease of 15% in the risk
factors would have impacted the Group’s consolidated
equity as presented below:
5% increase in currency exchange rates
against USD
5% decrease in currency exchange rates
against USD
99
108
(USD millions)
– 104
– 114
15% increase in equity prices
2021
179
2020
167
15% decrease in equity prices
– 179
– 167
F-76
Notes to the Novartis Group consolidated financial statements
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.
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 from discontinued operations
Interest expense
Other financial income and expense
Income before taxes from discontinued operations
Income 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 from discontinued operations
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.
2019 1
1 777
32
1 809
– 860
949
– 638
– 142
15
– 113
71
– 10
– 3
58
– 159
– 101
4 691
4 590
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.
F-77
Notes to the Novartis Group consolidated financial statements
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
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)
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Equity-based compensation of Novartis equity plans
2019
– 42
– 9
– 174
– 9
Cash flows used in investing 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)
Payments attributable to the
spin-off of the Alcon business
Divested cash and cash equivalents
Cash flows attributable to the
spin-off of the Alcon business
Other cash flows used in
investing activities, net
Net cash flows used in investing
activities from discontinued
operations
2020
2019
– 39
– 29
– 628
– 39
– 657
– 88
– 502
– 127
– 1 159
Cash flows from financing 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 included
mainly USD 3.5 billion cash inflows from Alcon borrow-
ings in connection with the distribution (spin-off) of the
Alcon business to Novartis AG shareholders, partly off-
set by USD 0.2 billion transaction cost payments directly
attributable to the distribution (spin-off) of the Alcon
business to Novartis AG shareholders (see Notes 1 and
2).
Defined contribution plans
In many subsidiaries, employees 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
33
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-78
Notes to the Novartis Group consolidated financial statements
31. Events subsequent to the December 31, 2021,
consolidated balance sheet date
Aimovig–Amgen dispute
On January 31, 2022 Novartis and Amgen entered into
a settlement agreement related to Aimovig litigation. For
additional information see Note 20.
Dividend proposal for 2021 and approval of the
Group’s 2021 consolidated financial statements
On February 1, 2022, the Novartis AG Board of Directors
proposed the acceptance of the 2021 consolidated
financial statements of the Novartis Group for approval
by the Annual General Meeting on March 4, 2022. Fur-
thermore, also on February 1, 2022, the Board proposed
a dividend of CHF 3.10 per share to be approved at the
Annual General Meeting on March 4, 2022. If approved,
total dividend payments would amount to approximately
USD 7.6 billion (2020: USD 7.4 billion), using the CHF/
USD December 31, 2021, exchange rate.
F-79
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.
Share
capital
Equity
1 interest
As at December 31, 2021
Share
capital
Equity
1 interest
As at December 31, 2021
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 2
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
507.1 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
CAD
CAD
CAD
1.2 m
80.8 m
65.7 m
100%
100%
100%
CLP
2.0 bn
100%
USD
HKD
30.0 m
200
100%
100%
BioMedical Research Co., Ltd., Shanghai
USD
320.0 m
100%
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
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
1.3 bn 99.96%
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
100%
100%
9.6 m 99.23%
100%
4.2 m
100%
5.4 m
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
Ireland
Novartis Ireland Limited, Dublin
Novartis Integrated Services Limited, Cork City
Novartis Ringaskiddy Limited, Ringaskiddy, County Cork
Novartis Gene Therapies EU Limited, Dublin
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
Sandoz Pharma K.K. Tokyo
Latvia
Novartis Baltics SIA, Riga
Luxembourg
Novartis Investments S.à r.l., Luxembourg City 2
Novartis Finance S.A., Luxembourg City
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%
EUR
EUR
EUR
EUR
25 000
100
2.0 m
100
100%
100%
100%
100%
ILS
1 000
100%
EUR
EUR
EUR
18.2 m
119 000
1.7 m
100%
99.23%
100%
JPY
JPY
JPY
JPY
100.0 m
100.0 m
100.0 m
100.0 m
100%
100%
100%
100%
EUR
3.0 m
100%
USD
USD 100 000
100.0 m
100%
100%
Malaysia
Novartis Corporation (Malaysia) Sdn. Bhd., Petaling Jaya
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%
99.23%
100%
NZD 820 000
100%
F-80
Notes to the Novartis Group consolidated financial statements
As at December 31, 2021
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
1.4 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, 2021
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
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%
Ilaçlari Sanayi ve Ticaret A.S., Gebze – Kocaeli
TRY
50.0 m
100%
Ukraine
Sandoz Ukraine LLC, Kyiv
United Arab Emirates
Novartis Middle East FZE, Dubai
UAH
8.0 m
100%
AED
7.0 m
100%
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
JSC 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., Esplugues de Llobregat
Sandoz Farmacéutica S.A., Madrid
Sandoz Industrial Products
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
100%
EUR
63.0 m
100%
EUR
EUR 270 450
22.6 m 99.23%
100%
S.A., Les Franqueses del Vallés / Barcelona
Abadia Retuerta S.A., Sardón de Duero / Valladolid
EUR
EUR
9.3 m
6.0 m
100%
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 2
Novartis Capital Corporation, East Hanover, NJ
Novartis Services, Inc., East Hanover, NJ
Novartis US Foundation, East Hanover, NJ 3
Novartis Pharmaceuticals Corporation, East Hanover, NJ 2
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
Kedalion Therapeutics, Inc., Menlo Park, CA
Novartis Optogenetics Research, Inc., East Hanover, NJ
Cadent Therapeutics, Cambridge, MA
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
100%
100%
100%
99.23%
100%
100%
100%
40%
72.2 m
1 000
1
1
--
650
1
1
--
100%
100%
100%
100%
--
100%
99.23%
100%
--
1
100%
26.1 m 23.4%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
1
0.1
1
1
1
1 000
25 000
50
50.0 m
1
1
3
USD
USD
USD
USD
--
USD
USD
USD
--
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
VES
0
100%
VND
70 bn
100%
Sweden
Novartis Sverige AB, Stockholm
Switzerland
Novartis International AG, Basel
Novartis Holding AG, Basel 2
Novartis International Pharmaceutical Investment AG, Basel
Novartis Bioventures AG, Basel
Novartis Forschungsstiftung, Basel 3
Novartis Stiftung für Kaderausbildung, Basel 3
Novartis-Mitarbeiterbeteiligungsstiftung, Basel 3
Novartis Stiftung für Mensch und Umwelt, Basel 3
Stiftung der Novartis AG für Erziehung,
Ausbildung und Bildung, Basel 3
SEK
5.0 m
100%
10.0 m
100.2 m
CHF
CHF
CHF 100 000
CHF 100 000
--
--
--
--
--
--
--
--
100%
100%
100%
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, Ghana, Guatemala, Ivory
Coast, Kenya, Kuwait, North Macedonia, Nigeria, Puerto Rico, Senegal and Uruguay
1 Share capital may not reflect the taxable share capital and does not include any
paid-in surplus.
2 Significant subsidiary under SEC Regulation S-X Rule 1-02(w)
3 Fully consolidated Foundation
m = million; bn = billion
50 000
--
1.0 m
Novartis Overseas Investments AG, Basel
Japat AG, Basel
Novartis Pharma AG, Basel 2
Novartis Pharma Services AG, Basel
Novartis Pharma Schweizerhalle AG, Muttenz
Novartis Pharma Stein AG, Stein
Novartis Pharma Schweiz AG, Risch
Cellerys AG, Zûrich
Arctos Medical AG, Bern
Novartis Ophthalmics AG, Fribourg
Advanced Accelerator Applications International SA, Geneva CHF
CHF
Sandoz AG, Basel
CHF 100 000
Sandoz Pharmaceuticals AG, Risch
--
CHF
CHF
CHF
CHF
CHF
CHF 251 000
CHF
CHF
129 630
CHF 360 020
CHF 100 000
--
100%
100%
100%
100%
100%
100%
100%
20%
100%
100%
9.3 m 99.23%
100%
5.0 m
100%
350.0 m
20.0 m
18.9 m
5.0 m
F-81
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 income statement and con-
solidated statement of comprehensive income for the
year ended December 31, 2021, the consolidated bal-
ance sheet as at December 31, 2021, and the consoli-
dated statement of changes in equity and consolidated
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-81) give a true and fair view of the con-
solidated financial position of the Group as at December
31, 2021 and its consolidated financial performance and
its consolidated cash flows for the year then ended in
accordance with the International Financial Reporting
Standards (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
Overview
• Overall Group materiality was USD 575 million
• 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
specified procedures was performed at 19 reporting
entities in 13 countries.
• Our audit scope addressed 64% 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 575 million
Benchmark applied
Profit before tax
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 measured and it 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 25 million as well as any mis-
statements below that amount which, in our view, war-
ranted reporting for qualitative reasons.
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.
F-82
Report of the statutory auditor
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 judgement, 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 32.4 billion at December 31, 2021, including cur-
rently marketed products of USD 25.9 billion. The Group
recognized impairments of intangible assets in its
Innovative Medicines Division other than goodwill of USD
367 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 in-process research and development into
commercially viable products; profit margins; probability
of obtaining regulatory approval; future tax rate; and dis-
count 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).
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. Evaluating management’s assumptions
related to the amount and timing of projected future cash
flows involved evaluating whether the assumptions used
by management were reasonable considering the cur-
rent and past performance of the intangible assets, the
consistency with external market and industry data, and
whether these assumptions were consistent with evi-
dence obtained in other areas of the audit.
As a result of our procedures, we did not propose any
adjustments to the amount of impairment recognized in
2021. 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
F-83
Report of the statutory auditor
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, 2021 for
revenue deductions amounted to USD 6.5 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 stand-alone financial statements and the remunera-
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
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.
F-84
Report of the statutory auditor
• 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.
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 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
Claudia Benz
Audit Expert
Auditor in charge
Kris Muller
Global relationship
partner
Basel, February 1, 2022
F-85
Financial statements of Novartis AG
Financial statements of Novartis AG
Income statements
(For the years ended December 31, 2021 and 2020)
(CHF millions)
Income from investment in Group subsidiaries
License income
Other income
Total income
Amortization of goodwill
Impairment of investment in Group subsidiaries
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
3
4
5
5
2021
8 082
228
2
8 312
– 252
– 85
– 13
– 350
7 962
442
– 160
– 1
8 243
– 69
8 174
2020
8 882
217
2
9 101
– 252
– 117
– 13
– 382
8 719
466
– 220
– 11
8 954
– 87
8 867
A-1
Financial statements of Novartis AG
Balance sheets
(At December 31, 2021 and 2020)
(CHF millions)
Assets
Current assets
Cash and cash equivalents
Interest-bearing current receivables
Group subsidiaries
Other current receivables
Group subsidiaries
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
2021
2020
3
3
2 777
5 607
63
62
2 843
5 672
14 933
12 632
6
3
14 172
14 252
2 167
2 419
31 272
29 303
34 115
34 975
4 907
4 275
51
90
46
36
193
53
5 094
4 557
7
1 377
1 377
482
1 859
6 953
482
1 859
6 416
8
9
10
11
1 217
1 234
320
907
1 227
739
179
320
1 389
1 709
2 256
18 342
16 969
8 174
8 867
26 516
25 836
27 255
28 092
10
– 2 537
– 2 655
27 162
28 559
34 115
34 975
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.
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
Gross cost 1
Accumulated amortization
January 1
Amortization charges
December 31
Net book value at December 31
1 There was no change during 2021 and 2020.
2021
2020
4 939
4 939
– 2 520
– 2 268
– 252
– 252
– 2 772
– 2 520
2 167
2 419
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
2021
2020
Income
Expenses
Income
Expenses
428
14
– 159
466
– 215
– 1
– 4
– 1
442
– 160
466
– 220
6. 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.
A-4
Notes to the financial statements of Novartis AG
7. 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 2026
Total
2020
CHF
Issue price millions millions
2021
CHF
100.640%
100.502%
100.479%
501
551
325
501
551
325
1 377 1 377
2021
501
876
2020
501
876
1 377
1 377
Comparison of balance sheet and fair value
(CHF millions)
Straight bonds
Total
2021
Balance sheet
2021
2020
Fair value Balance sheet
2020
Fair value
1 377
1 377
1 438
1 438
1 377
1 377
1 470
1 470
8. Share capital
January 1
2 467 060 920
1 233.5
2 527 374 820
Number of shares canceled/capital reduced during the period
– 32 640 000
– 16.3
– 60 313 900
December 31
2 434 420 920
1 217.2
2 467 060 920
1 263.7
– 30.2
1 233.5
2021
2020
Number
of shares
Share capital
CHF millions
Number
of shares
Share capital
CHF millions
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 1 233.5
million at December 31, 2020, to CHF 1 217.2 million at
December 31, 2021, due to a share capital reduction as
a result of the cancellation of 32.6 million repurchased
shares with a nominal value of CHF 16.3 million. The
cancellation was approved at the Annual General Meeting
on March 2, 2021, and became effective on July 8, 2021.
During 2020, 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 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.
A-5
Notes to the financial statements of Novartis AG
9. Legal capital reserves – capital contribution reserve
The capital contribution reserve as of December 31,
2020, of CHF 178 837 279 has been fully used for the
repurchase and cancellation of Novartis AG shares
bought back under the authority granted by the Annual
General Meeting on February 28, 2019. That use of the
capital contribution reserve is in line with the provisions
on Swiss withholding tax applicable as of January 1,
2020 (article 4a, paragraph 4 VStG).
10. Treasury shares
Treasury shares held by subsidiaries 1
January 1
Number of shares purchased/sold; reserves transferred
December 31
1 Excluding foundations
2021
2020
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
23 325 658
– 8 337 855
14 987 803
1 389
– 482
33 097 002
– 9 771 344
907
23 325 658
1 984
– 595
1 389
2021
2020
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
83 947 458
2 655
111 621 358
Number of shares purchased/canceled; reserves transferred
– 1 940 332
– 118
– 27 673 900
December 31
82 007 126
2 537
83 947 458
5 344
– 2 689
2 655
Total treasury shares 1
January 1
Total number of shares purchased/sold or canceled;
reserves transferred
December 31
1 Excluding foundations
2021
Number of
shares
Total
treasury shares
CHF millions
2020
Number
of shares
Total
treasury shares
CHF millions
107 273 116
4 044
144 718 360
7 328
– 10 278 187
96 994 929
– 600
– 37 445 244
3 444
107 273 116
– 3 284
4 044
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 2021 totaled 32.2
million (2020: 34.3 million), with an average purchase
price of CHF 82 (2020: CHF 81). No treasury share sales
were executed during 2021 and 2020, and share-based
compensation transactions totaled 9.9 million shares
(2020: 11.4 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, 2021,
treasury shares held by Novartis AG and its subsidiaries
totaled 96 994 929. As per the dividend payment date,
Novartis AG and its subsidiaries are expected to hold
107 848 581 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.
A-6
Notes to the financial statements of Novartis AG
11. Free reserves
(CHF millions)
January 1
Reduction due to cancellation of treasury shares (CHF 2 016 million / CHF 5 318 million of repurchased shares
less their nominal value of CHF 16 million / CHF 30 million)
Transfer from legal reserve for treasury shares 1
December 31
1 Transfer from legal reserve for treasury shares (including expired dividends)
2021
2 256
2020
6 949
– 2 000
– 5 288
483
739
595
2 256
12. 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 42 329 million (2020: CHF 44 035 million)
Other guarantees in favor of subsidiaries, associated companies and others –
total maximum amount CHF 1 966 million (2020: CHF 1 903 million)
Total contingent liabilities
Dec 31, 2021 Dec 31, 2020
22 739
27 482
632
595
23 371
28 077
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.
In December 2021, Novartis AG entered into an irre-
vocable, non-discretionary arrangement with a bank to
repurchase Novartis AG shares on the second trading
line under its up-to USD 15.0 billion share buyback.
Novartis AG 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, based on Novartis AG share
price at December 31, 2021, amounted to CHF 2.6 billion
as of December 31, 2021.
A-7
Notes to the financial statements of Novartis AG
13. 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, 2021, 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, 2021 Dec 31, 2020
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
8.8
3.0
1.6
1.1
0.3
4.2
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
11.1
11.7
Shareholders registered for
their own account:
Emasan AG, Basel
UBS Fund Management
(Switzerland) AG, Basel
Credit Suisse Funds AG, Zurich
% holding of % holding of
share capital share capital
Dec 31, 2021 Dec 31, 2020
3.7
2.3
2.1
3.6
2.3
2.0
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, 2021, in the Novartis Share Register:
• Norges Bank (Central Bank of Norway), Oslo, which
held 2.1% (2020: 2.3%)
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, 2021, in the Novartis
Share Register:
• BlackRock, Inc., New York, which held 5%
A-8
Notes to the financial statements of Novartis AG
14. 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, 2021, all current and former members of the Board
of Directors who were required to meet the minimum
share ownership requirements did so.
Shares, ADRs and share options owned by Board
members
As at December 31, 2021, 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,
2021, and as at December 31, 2020, is shown in the table
below.
Shares and ADRs owned by Board members1
Number of shares 1,2
At
At
December 31, December 31,
2020
2021
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
418 706
586 326
30 965
28 847
7 257
8 872
17 856
14 338
6 543
4 621
n.a.
43 845
10 743
13 222
2 655
10 813
2 240
8 744
15 201
794
7 621
731
166 390
163 834
14 214
24 436
12 593
21 289
726 040
917 656
na – not applicable
1 Includes holdings of “persons closely linked” to Board members (see the “persons
closely linked” definition).
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 addition, the CEO
and CFO are required to hold the equity vesting under
the LTPP plan (granted since 2021) for a minimum of two
years after the vesting date. 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 accord-
ingly.
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 American Depositary
Receipts (ADRs), and RSUs acquired under the Compa-
ny’s compensation plans. However, 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 compliance with the share owner-
ship guideline on an annual basis.
As at December 31, 2021, 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, 2021, 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, 2021, and as at December 31,
2020.
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,
2021
equity rights 2
Vested
shares
Unvested
shares
Total at
and other December 31,
2020
and ADRs equity rights 2
Vasant Narasimhan
James Bradner
170 111
218 826
388 937
104 277
253 770
358 047
43 744
110 808
154 552
69 551
124 998
194 549
Karen Hale (from May 15, 2021)
0
9 059
9 059
0
0
0
Harry Kirsch
285 186
113 110
398 296
198 331
119 903
318 234
Robert Kowalski (from September 1, 2021)
0
37 562
37 562
0
0
0
Steffen Lang
Klaus Moosmayer
Richard Saynor
Susanne Schaffert
John Tsai
Marie-France Tschudin
Robert Weltevreden
Total 3
125 286
65 918
191 204
81 714
61 682
143 396
8 312
34 732
43 044
6 011
21 977
27 988
0
33 713
33 713
0
23 324
23 324
116 173
87 801
203 974
106 981
76 392
183 373
23 382
87 461
110 843
17 783
61 877
79 660
39 353
84 863
124 216
12 300
75 848
88 148
27 758
44 064
71 822
2 734
42 445
45 179
839 305
927 917 1 767 222
599 682
862 216 1 461 898
1 Includes holdings of “persons closely linked” to Executive Committee members (see “—persons closely linked” definition).
2 Includes restricted shares, RSUs and target number of PSUs. 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 Excludes members who stepped down during the year
A-10
Appropriation of available earnings and reserves of Novartis AG
Appropriation of available earnings and
reserves of Novartis AG
Appropriation of available earnings of Novartis AG as
per balance sheet and declaration of dividend
(CHF)
Available unappropriated earnings
Balance brought forward before capital reduction
Reduction due to cancellation of treasury shares1
Net income of the year
Total available earnings at the disposal of the Annual General Meeting
Appropriation proposed by the Board of Directors
2021
2020
18 776 584 858
16 968 847 688
– 434 511 117
8 173 868 621
8 867 439 410
26 515 942 362
25 836 287 098
Payment of a gross dividend (before taxes and duties) of CHF 3.10 (2020: CHF 3.00) on 2 326 572 339
(2020: 2 354 834 514) dividend-bearing shares2 with a nominal value of CHF 0.50 each
– 7 212 374 251
– 7 064 503 542
Total available earnings after appropriation
Dividend waived for additional treasury shares held by the Company
Balance to be carried forward
1 Based on the Annual General Meeting resolution of March 2, 2021
2 No dividend will be declared on treasury shares held by Novartis AG or its fully owned subsidiaries
19 303 568 111
18 771 783 556
4 801 302
19 303 568 111
18 776 584 858
If this proposal is approved, the dividend will be paid as from March 10, 2022. The last trading day with entitlement
to receive the dividend is March 7, 2022. As from March 8, 2022, the shares will be traded ex-dividend.
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,
2021, income statement and notes for the year then
ended, including a summary of significant accounting
policies.
In our opinion, the financial statements (pages A-1 to A-11)
as at December 31, 2021 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 412 million
Benchmark applied
Profit before tax
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 performance of Novartis AG is most commonly mea-
sured, and it is a generally accepted benchmark.
We agreed with the Audit and Compliance Committee
that we would report to them misstatements above CHF
23 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 scepticism 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
Claudia Benz
Audit expert
Auditor in charge
Kris Muller
Global relationship
partner
Basel, February 1, 2022
A-13