20-F 1 a2230622z20-f.htm 20-F

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As filed with the Securities and Exchange Commission on January 25, 2017

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 20-F


o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2016
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-15024

NOVARTIS AG
(Exact name of Registrant as specified in its charter)

NOVARTIS Inc.
(Translation of Registrant's name into English)

Switzerland
(Jurisdiction of incorporation or organization)

Lichtstrasse 35
4056 Basel, Switzerland

(Address of principal executive offices)

Felix R. Ehrat
Group General Counsel
Novartis AG

CH-4056 Basel
Switzerland
Tel.: 011-41-61-324-1111
Fax: 011-41-61-324-7826
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered pursuant to Section 12(b) of the Act:

Title of class		Name of each exchange on which registered

American Depositary Shares each representing 1 share Ordinary shares, nominal value CHF 0.50 per share*		New York Stock Exchange New York Stock Exchange*

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

2,374,059,013 shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ý No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer ý Accelerated filer o Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:



o U.S. GAAP		ý International Financial Reporting Standards as issued by the International Accounting Standards Board		o Other

If "Other" has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No ý

*: Not for trading but only in connection with the registration of American Depositary Shares representing such ordinary shares.

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TABLE OF CONTENTS


INTRODUCTION AND USE OF CERTAIN TERMS				4
FORWARD-LOOKING STATEMENTS				4
PART I				7
	Item	1.	Identity of Directors, Senior Management and Advisers	7
	Item	2.	Offer Statistics and Expected Timetable	7
	Item	3.	Key Information	7
		3.A	Selected Financial Data	7
		3.B	Capitalization and Indebtedness	9
		3.C	Reasons for the offer and use of proceeds	9
		3.D	Risk Factors	9
	Item	4.	Information on the Company	26
		4.A	History and Development of Novartis	26
		4.B	Business Overview	29
			Innovative Medicines	32
			Sandoz	72
			Alcon	79
		4.C	Organizational Structure	85
		4.D	Property, Plants and Equipment	85
	Item	4A.	Unresolved Staff Comments	89
	Item	5.	Operating and Financial Review and Prospects	89
		5.A	Operating Results	89
		5.B	Liquidity and Capital Resources	156
		5.C	Research & Development, Patents and Licenses	168
		5.D	Trend Information	169
		5.E	Off-Balance Sheet Arrangements	169
		5.F	Tabular Disclosure of Contractual Obligations	169
	Item	6.	Directors, Senior Management and Employees	170
		6.A	Directors and Senior Management	170
		6.B	Compensation	170
		6.C	Board Practices	170
		6.D	Employees	170
		6.E	Share Ownership	171
	Item	7.	Major Shareholders and Related Party Transactions	172
		7.A	Major Shareholders	172
		7.B	Related Party Transactions	174
		7.C	Interests of Experts and Counsel	174
	Item	8.	Financial Information	174
		8.A	Consolidated Statements and Other Financial Information	174
		8.B	Significant Changes	175
	Item	9.	The Offer and Listing	176
		9.A	Offer and Listing Details	176
		9.B	Plan of Distribution	177
		9.C	Markets	177
		9.D	Selling Shareholders	177
		9.E	Dilution	177
		9.F	Expenses of the Issue	177

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	Item	10.	Additional Information	177
		10.A	Share Capital	177
		10.B	Memorandum and Articles of Association	177
		10.C	Material Contracts	182
		10.D	Exchange Controls	183
		10.E	Taxation	183
		10.F	Dividends and Paying Agents	187
		10.G	Statement by Experts	187
		10.H	Documents on Display	187
		10.I	Subsidiary Information	188
	Item	11.	Quantitative and Qualitative Disclosures about Market Risk	188
	Item	12.	Description of Securities Other than Equity Securities	188
		12.A	Debt Securities	188
		12.B	Warrants and Rights	188
		12.C	Other Securities	188
		12.D	American Depositary Shares	189
PART II				190
	Item	13.	Defaults, Dividend Arrearages and Delinquencies	190
	Item	14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	190
	Item	15.	Controls and Procedures	190
	Item	16A.	Audit Committee Financial Expert	190
	Item	16B.	Code of Ethics	191
	Item	16C.	Principal Accountant Fees and Services	191
	Item	16D.	Exemptions from the Listing Standards for Audit Committees	191
	Item	16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	191
	Item	16F.	Change in Registrant's Certifying Accountant	192
	Item	16G.	Corporate Governance	192
	Item	16H.	Mine Safety Disclosure	192
PART III				193
	Item	17.	Financial Statements	193
	Item	18.	Financial Statements	193
	Item	19.	Exhibits	196

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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 (Form 20-F) are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Pursuant to Rule 12b-23 of the Securities Exchange Act of 1934, as amended, we incorporate information for certain items of this Form 20-F by reference to the "Excerpts from Novartis Annual Report 2016" included as Exhibit 99.1 to Form 6-K furnished to the SEC on January 25, 2017. Therefore the information in this Form 20-F should be read in conjunction with the "Excerpts from Novartis Annual Report 2016," as furnished to the SEC on Form 6-K on January 25, 2017. References to content not contained within the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on January 25, 2017, shall not be deemed to be incorporated by reference.

Unless the context requires otherwise, the words "we," "our," "us," "Novartis," "Group," "Company," and similar words or phrases in this Form 20-F 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. No Group company operates the business of another Group company. Each executive identified in this Form 20-F reports directly to other executives of the Group company which employs the executive, or to that Group company's board of directors.

In this Form 20-F, references to "US dollars" or "$" are to the lawful currency of the United States of America, and references to "CHF" are to Swiss francs; 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 28 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 "FDA" are to the US Food and Drug Administration, references to "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 the "SIX" are to the SIX Swiss Exchange; references to "GSK" are to GlaxoSmithKline plc, references to "Lilly" are to Eli Lilly and Company, and references to "CSL" are to CSL Limited.

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.

FORWARD-LOOKING STATEMENTS

This Form 20-F contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Other written materials filed with or furnished to the US Securities and Exchange Commission (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 "potential," "expected," "will," "planned," "pipeline," "outlook," or similar terms, or by express or implied discussions regarding potential new products, potential new indications for existing products, or regarding potential future revenues from any such products; potential shareholder returns or credit ratings; or regarding the potential outcome of the announced review of options being undertaken to maximize shareholder value of the Alcon Division; or regarding the potential financial or other impact on Novartis or any of our divisions of the significant reorganizations of recent years, including the creation of the Pharmaceuticals and Oncology business units to form the Innovative Medicines Division, the creation of the Global Drug Development organization and Novartis Operations (including Novartis Technical Operations and Novartis Business Services), the transfer of the Ophthalmic Pharmaceuticals products of our Alcon Division to the Innovative Medicines Division, the transfer of selected mature, non-promoted pharmaceutical products from the Innovative Medicines Division to the Sandoz Division, and the transactions

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with GSK, Lilly and CSL; or regarding the potential impact of the share buyback plan; or regarding potential future sales or earnings of the Novartis Group or any of its divisions; or by discussions of strategy, plans, expectations or intentions. You should not place undue reliance on these statements.

Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. There can be no guarantee that any new products will be approved for sale in any market, or that any new indications will be approved for any existing products in any market, or that any approvals which are obtained will be obtained at any particular time, or that any such products will achieve any particular revenue levels. Nor can there be any guarantee that the review of options being undertaken to maximize shareholder value of the Alcon Division will reach any particular results, or at any particular time. Neither can there be any guarantee that Novartis will be able to realize any of the potential strategic benefits, synergies or opportunities as a result of the significant reorganizations of recent years, including the creation of the Pharmaceuticals and Oncology business units to form the Innovative Medicines Division, the creation of the Global Drug Development organization and Novartis Operations (including Novartis Technical Operations and Novartis Business Services), the transfer of the Ophthalmic Pharmaceuticals products of our Alcon Division to the Innovative Medicines Division, the transfer of selected mature, non-promoted pharmaceutical products from the Innovative Medicines Division to the Sandoz Division, and the transactions with GSK, Lilly and CSL. Neither can there be any guarantee that shareholders will achieve any particular level of shareholder returns. Nor can there be any guarantee that the Group, or any of its divisions, will be commercially successful in the future, or achieve any particular credit rating or financial results.

In particular, management's expectations could be affected by, among other things:

•: regulatory actions or delays or government regulation generally;
•: the potential that the strategic benefits, synergies or opportunities expected from the significant reorganizations of recent years, including the creation of the Pharmaceuticals and Oncology business units to form the Innovative Medicines Division, the creation of the Global Drug Development organization and Novartis Operations (including Novartis Technical Operations and Novartis Business Services), the transfer of the Ophthalmic Pharmaceuticals products of our Alcon Division to the Innovative Medicines Division, the transfer of selected mature, non-promoted pharmaceutical products from the Innovative Medicines Division to the Sandoz Division, and the transactions with GSK, Lilly and CSL may not be realized or may take longer to realize than expected;
•: the inherent uncertainties involved in predicting shareholder returns or credit ratings;
•: the uncertainties inherent in the research and development of new healthcare products, including clinical trial results and additional analysis of existing clinical data;
•: our ability to obtain or maintain proprietary intellectual property protection, including the ultimate extent of the impact on Novartis of the loss of patent protection and exclusivity on key products which commenced in prior years and will continue this year;
•: safety, quality or manufacturing issues;
•: global trends toward health care cost containment, including ongoing pricing and reimbursement pressures, such as from increased publicity on pharmaceuticals pricing, including in certain large markets;
•: uncertainties regarding actual or potential legal proceedings, including, among others, actual or potential product liability litigation, litigation and investigations regarding sales and marketing practices, intellectual property disputes and government investigations generally;
•: general economic and industry conditions, including uncertainties regarding the effects of the persistently weak economic and financial environment in many countries;
•: uncertainties regarding future global exchange rates;
•: uncertainties regarding future demand for our products; and

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•: uncertainties regarding potential significant breaches of data security or data privacy, or disruptions of our information technology systems.

Some of these factors are discussed in more detail in this Form 20-F, including under "Item 3. Key Information—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 Form 20-F as anticipated, believed, estimated or expected. We provide the information in this Form 20-F 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 Form 20-F as a result of new information, future events or otherwise.

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PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

3.A Selected Financial Data

The selected financial information set out below has been extracted from our consolidated financial statements prepared in accordance with IFRS as issued by the IASB. Our consolidated financial statements for the years ended December 31, 2016, 2015 and 2014, are included under "Novartis Group consolidated financial statements" on pages 178 to 247 of the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on January 25, 2017, and in "Item 18. Financial Statements" in this Form 20 F.

All financial data should be read in conjunction with "Item 5. Operating and Financial Review and Prospects". All financial data presented in this Form 20-F are qualified in their entirety by reference to the consolidated financial statements and their notes.

	Year Ended December 31,

	2016			2015			2014			2013			2012
	($ millions, except per share information)
INCOME STATEMENT DATA
Net sales to third parties from continuing operations		48,518			49,414			52,180			51,869			51,080

Operating income from continuing operations		8,268			8,977			11,089			10,983			11,507
Income from associated companies		703			266			1,918			599			549
Interest expense		(707	)		(655	)		(704	)		(683	)		(724	)
Other financial income and expense		(447	)		(454	)		(31	)		(92	)		(96	)

Income before taxes from continuing operations		7,817			8,134			12,272			10,807			11,236
Taxes		(1,119	)		(1,106	)		(1,545	)		(1,498	)		(1,706	)

Net income from continuing operations		6,698			7,028			10,727			9,309			9,530
Net income/(loss) from discontinued operations					10,766			(447	)		(17	)		(147	)

Group net income		6,698			17,794			10,280			9,292			9,383



Attributable to:
Shareholders of Novartis AG		6,712			17,783			10,210			9,175			9,270
Non-controlling interests		(14	)		11			70			117			113
Basic earnings per share ($)
Continuing operations		2.82			2.92			4.39			3.76			3.89
Discontinued operations					4.48			(0.18	)		0.00			(0.06	)
Total		2.82			7.40			4.21			3.76			3.83
Diluted earnings per share ($)
Continuing operations		2.80			2.88			4.31			3.70			3.85
Discontinued operations					4.41			(0.18	)		0.00			(0.06	)
Total		2.80			7.29			4.13			3.70			3.79
Cash dividends⁽¹⁾		6,475			6,643			6,810			6,100			6,030
Cash dividends per share in CHF⁽²⁾		2.75			2.70			2.60			2.45			2.30

⁽¹⁾: Cash dividends represent cash payments in the applicable year that generally relates to earnings of the previous year.
⁽²⁾: Cash dividends per share represent dividends proposed that relate to earnings of the current year. Dividends for 2012 through 2015 were approved at the respective AGMs and dividends for 2016 will be proposed to the Annual General Meeting on February 28, 2017 for approval.

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	Year Ended December 31,

	2016		2015		2014		2013		2012
	($ millions)
BALANCE SHEET DATA
Cash, cash equivalents and marketable securities & derivative financial instruments.		7,777		5,447		13,862		9,222		8,119
Inventories		6,255		6,226		6,093		7,267		6,744
Other current assets		10,899		11,172		10,805		13,294		13,141
Non-current assets		105,193		108,711		87,826		95,712		96,187
Assets related to discontinued operations						6,801		759

Total assets		130,124		131,556		125,387		126,254		124,191



Trade accounts payable		4,873		5,668		5,419		6,148		5,593
Other current liabilities		17,336		18,040		19,136		20,170		18,458
Non-current liabilities		33,024		30,726		27,570		25,414		30,877
Liabilities related to discontinued operations						2,418		50

Total liabilities		55,233		54,434		54,543		51,782		54,928

Issued share capital and reserves attributable to shareholders of Novartis AG		74,832		77,046		70,766		74,343		69,137
Non-controlling interests		59		76		78		129		126

Total equity		74,891		77,122		70,844		74,472		69,263

Total liabilities and equity		130,124		131,556		125,387		126,254		124,191



Net assets		74,891		77,122		70,844		74,472		69,263
Outstanding share capital		896		890		898		912		909
Total outstanding shares (millions)		2,374		2,374		2,399		2,426		2,421

Cash Dividends per Share

Cash dividends are translated into US dollars at the Bloomberg Market System Rate on the payment date. Because we pay dividends in Swiss francs, exchange rate fluctuations will affect the US dollar amounts received by holders of ADRs.

Year Earned	Month and Year Paid

2012	March 2013	2.30	2.44
2013	March 2014	2.45	2.76
2014	March 2015	2.60	2.67
2015	March 2016	2.70	2.70
2016⁽¹⁾	March 2017	2.75	2.69	⁽²⁾

⁽¹⁾: Dividend to be proposed at the Annual General Meeting on February 28, 2017 and to be distributed March 6, 2017
⁽²⁾: Translated into US dollars at the December 31, 2016 rate of $0.978 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.

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Exchange Rates

The following table shows, for the years and dates indicated, certain information concerning the rate of exchange of US dollar per Swiss franc based on exchange rate information found on Bloomberg Market System. The exchange rate in effect on January 17, 2017, as found on Bloomberg Market System, was CHF 1.00 = $0.99.

Year ended December 31, ($ per CHF)

2012	1.09	1.07	1.02	1.12
2013	1.12	1.08	1.05	1.12
2014	1.01	1.09	1.01	1.13
2015	1.01	1.04	0.97	1.08
2016	0.98	1.01	0.98	1.04
Month
August 2016			1.02	1.05
September 2016			1.02	1.04
October 2016			1.01	1.03
November 2016			0.98	1.03
December 2016			0.97	0.99
January 2017 (through January 17, 2017)			0.97	0.99

⁽¹⁾: Represents the average of the exchange rates on the last day of each month during the year.
⁽²⁾: Represents the lowest, respectively highest, of the exchange rates on the last day of each month during the year.

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 on Form 20-F 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 financial condition or results of operations 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.

Risks Facing Our Business

Our products face important patent expirations and losses of intellectual property protection.

Major products of our Innovative Medicines and Alcon Divisions, as well as certain products of our Sandoz Division, are protected by patent and other intellectual property rights, which provide us with exclusive rights to market the products, and give us an opportunity to recoup our investments in research and development. However, the strength and duration of those intellectual property rights can vary significantly from product to product and country to country. Loss of market exclusivity for one or more important products has had, and can be expected to continue to have a material adverse effect on our results of operations.

The introduction of generic competition for a patented medicine typically results in a significant and rapid reduction in net sales and net income for the patented product because generic manufacturers typically offer their unpatented versions at sharply lower prices. Such competition can occur after successful challenges to intellectual property rights or the regular expiration of the term of the patent or other intellectual property rights. Such competition can also result from the entry of generic versions of another medicine in the same therapeutic class as

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one of our drugs or in another competing therapeutic class, from a Declaration of Public Interest or the compulsory licensing of our drugs by governments, or from a general weakening of intellectual property laws in certain countries around the world. In addition, generic manufacturers sometimes take an aggressive approach to challenging patents, including conducting so-called "launches at risk" of products that are still under legal challenge for patent infringement, before final resolution of legal proceedings.

We also rely in all aspects of our businesses on unpatented proprietary technology, know-how, trade secrets and other confidential information, which we seek to protect through various measures including confidentiality agreements with licensees, employees, third-party collaborators, and consultants who may have access to such information. If these agreements are breached, our contractual or other remedies may not be adequate to cover our losses.

Some of our best-selling products have begun or are about to face significant competition due to the end of market exclusivity resulting from the expiry of patent or other intellectual property protection.

•: We faced generic competition in the US, Japan and some EU countries for our best-selling product Gleevec/Glivec during most of 2016. In the remaining EU countries, certain of our Glivec intellectual property rights expired in December 2016, and generic competition there has begun.
•: Patent protection for our Sandostatin products has expired. Generic versions of Sandostatin SC are available in the US, EU and Japan. There is currently no generic competition in the US, EU or Japan for Sandostatin LAR, the long-acting version of Sandostatin which represents the majority of our Sandostatin sales.
•: Diovan and Co-Diovan/Diovan HCT, which had long been our best-selling product, has generic competitors in the US, EU and Japan. In addition, the single pill combination products Exforge and Exforge HCT, which contain valsartan, the active ingredient in Diovan, face generic competition despite the existence of separate intellectual property covering those products. Exforge has generic competition in the US and Japan, and Exforge HCT, which is not marketed in Japan, has generic competition in the US. Generic competition for Exforge began in some countries in Europe in January 2017.
•: Certain intellectual property protecting our major products Afinitor and Gilenya will expire in 2018, 2019 and 2020. In addition, some of the patents protecting these products are being challenged in the US, raising the possibility of an earlier entry of generic competition.

For more information on the patent status of our Innovative Medicines Division's products see "Item 4. Information on the Company—Item 4.B Business Overview—Innovative Medicines—Intellectual Property."

In 2017, we expect an impact on our net sales of about $2.5 billion as a result of the loss of intellectual property protection for our products, including Gleevec/Glivec. Because we typically have substantially reduced marketing and research and development expenses related to products that are in their final year of exclusivity, we expect that this loss of intellectual property protection also will have an impact on our 2017 operating income in an amount corresponding to a significant portion of the products' lost sales. The magnitude of the impact of generic competition could depend on a number of factors, including the time of year at which such exclusivity would be lost; the ease or difficulty of manufacturing a competitor product and obtaining regulatory approval to market it; the number of generic competitor products approved, including whether, in the US, a single competitor is granted an exclusive marketing period, and whether an authorized generic is launched; and the geographies in which generic competitor products are approved, including the strength of the market for generic pharmaceutical products in such geographies and the comparative profitability of branded pharmaceutical products in such geographies.

Clearly, with respect to major products for which the patent terms are expiring, the loss of exclusivity of these products can be expected to have a material adverse effect on our business, financial condition and results of operations. In addition, should we unexpectedly lose exclusivity on additional products as a result of patent litigation or other reasons, this could also have a material adverse effect on our business, financial condition and results of operations, both due to the loss of revenue and earnings, and the difficulties in planning for such losses.

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Our financial performance depends on the commercial success of key products.

Our financial performance, including our ability to replace revenue and income lost to generic and other competition and to grow our business, depends heavily on the commercial success of certain key products, known as our Growth Products. We consider our Growth Products to be an indicator of the rejuvenation of our portfolio of products. Growth Products consist of products launched in a key market (EU, US, Japan) in 2011 or later, or products with exclusivity in key markets until at least 2020 (except Sandoz, which includes only products launched in the last 24 months). In 2016, our Growth Products contributed $17.1 billion, or 35% of our total net sales.

If these products or any of our other major products were to become subject to problems such as changes in prescription growth rates, unexpected side effects, loss of intellectual property protection, supply chain issues or other product shortages, regulatory proceedings, changes in labeling, publicity affecting doctor or patient confidence in the product, material product liability litigation, or pressure from new or existing competitive products, the adverse impact on our revenue and profit could be significant. In addition, our revenue and profit could be significantly impacted by the timing and rate of commercial acceptance of key new products.

All of our businesses are broadly faced with intense competition from new products and technological advances from competitors, including new competitors from other industries such as Alphabet and IBM that are entering the healthcare field. Physicians, patients and third-party payors may choose our competitors' products instead of ours if they perceive them to be safer, more effective, easier to administer, less expensive, more convenient, or more cost-effective.

Products that compete with ours, including products competing against our Growth Products or other major products, are launched from time to time. We cannot predict with accuracy the timing of the introduction of such competitive products or their possible effect on our sales. However, products significantly competitive to our major products Cosentyx, Lucentis, Gilenya and Afinitor have been launched. Such products, and other competitive products, could significantly affect the revenue from our products and our results of operations. In addition, the impact on our results of operations could be compounded to the extent such competition results in us making significant additional investments in marketing and sales.

Similarly, our Alcon Division, a leader in the eye care industry, has suffered declining sales and profits due in part to increased competition for its products. To counter this, we are continuing efforts to improve the division's revenues and profits. Our efforts under this plan are expected to take time to succeed. As a result, such competition and the costs of our efforts to improve Alcon's performance, as well as other factors, can be expected to affect Alcon's business, financial condition or results of operations in the near term. In addition, despite the devotion of significant resources to our efforts to improve Alcon's performance, those efforts may prove insufficient. Should our efforts fail to accomplish their goals, or fail to do so in a timely manner, it could have a material adverse impact on our business, financial condition or results of operations beyond the near term, as well. See also the discussion of Alcon's new product development efforts in "—Our research and development efforts may not succeed in bringing new products to market, or may fail to do so cost efficiently enough, or in a manner sufficient to grow our business, replace lost revenue and income and take advantage of new technologies," below, and the discussion of the impact of competition on our Sandoz Division in "—Failure to obtain marketing exclusivity periods for new generic products, or to develop biosimilars and other differentiated products, as well as intense competition from patented and generic pharmaceuticals companies, may have an adverse effect on the success of our Sandoz Division," below.

Our research and development efforts may not succeed in bringing new products to market, or may fail to do so in a cost-efficient manner, or in a manner sufficient to grow our business, replace lost revenue and income and take advantage of new technologies.

Our ability to continue to maintain and grow our business, to replace sales lost due to competition, entry of generics or other reasons, and to bring to market products and medical advances that take advantage of new, and potentially disruptive technologies depends in significant part upon the success of our research and development activities in identifying, and successfully and cost-effectively developing new products that address unmet medical needs, are accepted by patients and physicians, and are reimbursed by payors. To accomplish this, we commit substantial effort, funds and other resources to research and development, both through our own dedicated resources and through collaborations with third parties. Developing new healthcare products and bringing them to market, however, is a highly costly, lengthy and uncertain process. In spite of our significant investments, there can be no guarantee that our research and development activities will produce commercially viable new products that will enable us to replace revenue and income lost to generic and other competition and to grow our business. See also "—We may not successfully achieve our goals in strategic transactions or reorganizations," below, with regard to our recent reorganization of our pharmaceutical product development organization.

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Using the products of our Innovative Medicines Division as an example, the research and development process for a new product can take up to 15 years, or even longer, from discovery to commercial product launch—and with limited available intellectual property protections, the longer it takes to develop a product, the less time there will be for us to recoup our research and development costs. New products must undergo intensive preclinical and clinical testing, and must be approved by means of highly complex, lengthy and expensive approval processes which can vary from country to country. During each stage, there is a substantial risk that we will encounter serious obstacles that will further delay us and add substantial expense, that we will develop a product with limited potential for commercial success, or that we will be forced to abandon a product in which we have invested substantial amounts of time and money. These risks may include failure of the product candidate in preclinical studies, difficulty enrolling patients in clinical trials, clinical trial holds or other delays in completing clinical trials, delays in completing formulation and other testing and work necessary to support an application for regulatory approval, adverse reactions to the product candidate or other safety concerns, insufficient clinical trial data to support the safety or efficacy of the product candidate or to differentiate our product candidate from competitors, an inability to manufacture sufficient quantities of the product candidate for development or commercialization activities in a timely and cost-effective manner, and failure to obtain, or delays in obtaining, the required regulatory approvals for the product candidate or the facilities in which it is manufactured.

In addition, following a series of widely publicized issues, health regulators have increased their focus on product safety. Governmental authorities and payors around the world have also paid increased attention to whether new products offer a significant benefit over other products in the same therapeutic class. These developments have led to requests for more clinical trial data, for the inclusion of significantly higher numbers of patients in clinical trials, and for more detailed analyses of the trials. As a result, the already lengthy and expensive process of obtaining regulatory approvals and reimbursement for pharmaceutical products has become even more challenging.

There is also the risk that we may fail to identify significant new product candidates for development or potentially disruptive new technologies, and so may fail to take advantage of a potential new wave of innovation.

For the same reason, the post-approval regulatory burden has also increased. Approved drugs are subject to various requirements such as risk evaluation and mitigation strategies (REMS), risk management plans, comparative effectiveness studies, health technology assessments, and requirements to conduct post-approval Phase IV clinical trials to gather additional safety and other data on products. These requirements have the effect of making the maintenance of regulatory approvals and of achieving reimbursement for our products increasingly expensive, and further heightening the risk of recalls, product withdrawals, loss of market share, and loss of revenue and profitability.

Our Alcon Division faces similar challenges in developing new products and bringing them to market. Alcon's Surgical and Vision Care products face medical device development and approval processes that are often similarly difficult. Alcon is taking steps to increase its innovation power and the success of its research and development efforts. But this can be expected to be costly and to require extensive efforts over time. There can be no certainty that Alcon will be successful in these efforts, in either the short- or the long-term, and if Alcon is not successful, there could be a material adverse effect on the success of the Alcon Division, and on the Group as a whole. See also the discussion of Alcon in "—Our products face important patent expirations and significant competition" above.

In addition, our Sandoz Division has made, and expects to continue to make, significant investments in the development of differentiated, "difficult-to-make" generic products, including biotechnology-based, "biologic" medicines intended for sale as bioequivalent or "biosimilar" generic versions of currently-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 often significantly more costly and complex than those for non-differentiated generic products. In addition, despite significant efforts by us and others, to date many countries do not yet have fully-developed legislative or regulatory pathways to facilitate the development of biosimilars and permit biosimilars to be sold in a manner in which the biosimilar product would be readily substitutable for the originator product. Further delays in the development and completion of such regulatory pathways, or any significant impediments that may ultimately be built into such pathways, or any other significant difficulties that may arise in the development or marketing of biosimilars or other differentiated products, could put at risk the significant investments that Sandoz has made, and will continue to make, in the development of differentiated products in general, and in its biopharmaceuticals business in particular, and could have a material

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adverse effect on the long-term success of the Sandoz Division and the Group as a whole. See also "—Failure to obtain marketing exclusivity periods for new generic products, or to develop biosimilars and other differentiated products, as well as intense competition from patented and generic pharmaceuticals companies, may have an adverse effect on the success of our Sandoz Division," below.

Further, in all of our divisions, our research and development activities must be conducted in an ethical and compliant manner. Among other things, we must be concerned with patient safety, Good Clinical Practices requirements, data integrity requirements, the fair treatment of patients in developing countries, and animal welfare requirements. Should we fail to properly manage such issues, we risk injury to third parties, damage to our reputation, negative financial consequences as a result of potential claims for damages, sanctions and fines, and the potential that our investments in research and development activities could have no benefit to the Group.

If we are unable to cost-effectively maintain a flow of successful new products and new indications for existing products sufficient to maintain and grow our business, cover our substantial research and development costs and the decline in sales of older products that become subject to generic or other competition, and take advantage of technological and medical advances, then this could have a material adverse effect on our business, financial condition or results of operations. For a description of the approval processes which must be followed to market our products, see the sections headed "Regulation" included in the descriptions of our operating divisions under "Item 4. Information on the Company—Item 4.B Business Overview."

Our business is affected by pressures on pricing and reimbursement for our products.

Our businesses are operating in an ever more challenging environment, with 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 payors. The growth of overall healthcare costs as a percentage of gross domestic product in many countries means that governments and payors are under intense pressure to control healthcare spending even more tightly than in the past. These pressures are particularly strong given the persistently weak economic and financial environment in many countries and the increasing demand for healthcare resulting from the aging of the global population and associated increases in non-communicable diseases. These pressures are further compounded by consolidation among distributors, retailers, private insurers, managed care organizations and other private payors, which can increase their negotiating power. In addition, these pressures are augmented by intense publicity regarding the pricing of pharmaceuticals by our competitors, as well as government investigations and legal proceedings regarding pharmaceutical pricing practices.

As a result, even though the pharmaceutical industry's share of overall healthcare costs is comparatively low, we face numerous cost-containment measures by governments and other payors, including government-imposed industry-wide price reductions, mandatory pricing systems, reference pricing systems, payors limiting access to treatments based on cost-benefit analyses, an increase in imports of drugs from lower-cost countries to higher-cost countries, shifting of the payment burden to patients through higher co-payments, limiting physicians' ability to choose among competing medicines, mandatory substitution of generic drugs for the patented equivalent, and growing pressure on physicians to reduce the prescribing of patented prescription medicines. For more information on such price controls see "Item 4. Information on the Company—Item 4.B Business Overview—Innovative Medicines—Price Controls." See also "—Ongoing consolidation among our distributors and retailers is increasing both the purchasing leverage of key customers and the concentration of credit risk," below, with regard to the impact on pricing of the consolidation among our customers, and "—The persistently weak global economic and financial environment in many countries and increasing political and social instability may have a material adverse effect on our results," below, with regard to the impact of economic conditions on our pricing.

We expect these challenges to continue—and potentially to increase in 2017 and following years—as political pressures mount, and healthcare payors around the globe, including government-controlled health authorities, insurance companies and managed care organizations, step up initiatives to reduce the overall cost of healthcare, restrict access to higher-priced new medicines, increase the use of generics and impose overall price cuts. Such pressures could have a material adverse impact on our business, financial condition or results of operations, as well as on our reputation.

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Failure to comply with law, legal proceedings and government investigations may have a significant negative effect on our results of operations.

We are obligated to comply with the laws of all of the countries around the world in which we operate and sell products with respect to an extremely wide and growing range of activities. Such legal requirements can vary from country to country and new requirements may be imposed on us from time to time as government and public expectations regarding acceptable corporate behavior change. For example, we are faced with increasing pressures, including new laws and regulations from around the world, to be more transparent with respect to how we do business, including with respect to our interactions with healthcare professionals and 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 proposals that we be required to disclose the methods that we use to set the prices for our products.

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 acceptable manner. Nonetheless, despite our efforts, any 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, and could affect our business, financial position and reputation.

In particular, in recent years, there has been a trend of increasing government investigations, legal proceedings and law enforcement activities against companies and executives operating in our industry, both in the US and in countries around the world. Increasingly, such activities can involve criminal proceedings. A number of our subsidiaries across each of our divisions are, or may in the future be subject to various investigations and legal proceedings that arise or may arise from time to time, such as proceedings regarding sales and marketing practices, pricing, corruption, trade regulation and embargo legislation, product liability, commercial disputes, employment and wrongful discharge, antitrust (including for so-called "pay for delay" patent settlements), securities, insider trading, occupational health and safety, environmental, tax, cybersecurity, data privacy and intellectual property matters, and are increasingly challenging practices previously considered to be legal.

Such proceedings are inherently unpredictable, and large judgments sometimes occur. As a consequence, we may in the future incur judgments that could involve large cash payments, including the potential repayment of amounts allegedly obtained improperly, and other penalties, including treble damages. In addition, such proceedings may affect our reputation, 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 despite having potentially significant defenses against them, in order limit the risks they pose to our business and reputation. Such settlements may require us to pay significant sums of money, and to enter into corporate integrity or similar agreements, which are intended to regulate company behavior for a period of years.

Any such judgments or settlements, and any accruals that we may take with respect to potential judgments or settlements, could have a material adverse impact on our business, financial condition or results of operations, as well as on our reputation.

Our businesses are and have been subject to a number of these types of cases and governmental investigations. For example, in 2013, the US government filed a civil complaint in intervention to an individual qui tam action against our affiliate Novartis Pharmaceuticals Corporation (NPC) in the United States District Court for the Southern District of New York (SDNY) involving several of NPC's cardiovascular medications. The complaint, as subsequently amended, asserts federal False Claims Act and common law claims with respect to speaker programs and other promotional activities for certain NPC cardiovascular medications allegedly serving as mechanisms to provide kickbacks to healthcare professionals. It seeks unspecified damages, which according to the complaint are "substantial," including treble damages and maximum civil penalties per claim, as well as disgorgement of Novartis profits from the alleged unlawful conduct. In 2013, New York State filed a civil complaint in intervention asserting similar claims. The individual relator continues to litigate the kickback claims on behalf of other states and municipalities.

See also "Note 20. Provisions and other non-current liabilities" and "Note 28. Commitments and contingencies" in the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on

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January 25, 2017 for information on other significant legal matters also are pending against us, and see "—Our reliance on outsourcing and third parties for the performance of key business functions heightens the risks faced by our businesses" below.

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 that the relevant patents are invalid, 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 elect to market a generic product even though patent infringement actions are still pending. Should we elect to proceed in this manner and conduct a "launch at risk," we could face substantial damages if the final court decision is adverse to us.

Adverse judgments or settlements in any of the significant investigations or cases against us could have a material adverse effect on our business, financial condition, results of operations and reputation.

The manufacture of our products is highly regulated and complex, and may result in a variety of issues that could lead to extended supply disruptions and significant liability.

The manufacture of our products is heavily regulated by governmental health authorities around the world, including the FDA. Whether our products are manufactured at our own dedicated manufacturing facilities or by third parties, we must ensure that all manufacturing processes comply with current Good Manufacturing Practices (cGMP) and other applicable regulations, as well as with our own high quality standards. In recent years, health authorities have substantially intensified their scrutiny of manufacturers' compliance with such requirements.

If we or our third-party suppliers fail to comply fully with these requirements and the health authorities' expectations, then we could be required to shut down our production facilities or production lines, or could be prevented from importing our products from one country to another. This could lead to product shortages, or to our being entirely unable to supply products to patients for an extended period of time. Such shortages or shut downs have led to and could continue to lead to significant losses of sales revenue and to potential third-party litigation. In addition, health authorities have in some cases imposed significant penalties for such failures to comply with cGMP. A failure to comply fully with cGMP could also lead to a delay in the approval of new products to be manufactured at the impacted site.

In order to meet increasing health authority expectations and our own high quality standards, we are devoting substantial time and resources to remediate issues, improve quality and assure consistency of product supply at our manufacturing sites around the world. Ultimately, there can be no guarantee of the outcome of these efforts. Nor can there be any guarantee that we will not again face significant manufacturing issues, or that we will successfully manage such issues when they arise.

In addition to regulatory requirements, many of our products involve technically complex manufacturing processes or require a supply of highly specialized raw materials. For some products and raw materials, we may rely on a single source of supply. Because of these complexities, we are required to plan our production activities well in advance. If we should underestimate market demand for a product, or should fail to accurately predict when the product would be approved for sale, then we may not be able to increase production sufficiently to meet demand. Alternately, if we overestimate the quantity or timing of product to be produced, then we may be required to dispose of excess product, which would result in the loss of the resources spent to produce it.

A significant portion of our portfolio are "biologic" products. Unlike traditional "small-molecule" drugs, biologic drugs or other biologic-based products cannot be manufactured synthetically, but typically must be produced from living plant or animal micro-organisms. As a result, the production of biologic-based products which meet all regulatory requirements is especially complex. Even slight deviations at any point in the production process may lead to production failures or recalls. In addition, because the production process is based on living plant or animal micro-organisms, the process could be affected by contaminants that could impact those micro-organisms. As a result, the inherent fragility of certain of our raw material supplies and production processes may cause the production of one or more of our products to be disrupted, potentially for extended periods of time.

We also manufacture and sell a number of sterile products, including oncology products, which are technically complex to manufacture, and require sophisticated environmental controls. Because the production

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process for such products is so complex and sensitive, the chance of production failures and lengthy supply interruptions is increased.

In addition, because our products are intended to promote the health of patients, for some of our products, a supply disruption or other production issue could endanger our reputation and subject us to lawsuits or to allegations that the public health, or the health of individuals, has been harmed.

In sum, a disruption in the supply of certain key products—whether as a result of a failure to comply with applicable regulations or health authority expectations, the fragility of the production process, inability to obtain product or raw materials from a sole source of supply, natural or man-made disasters at one of our facilities or at a critical supplier or vendor, or our failure to accurately predict demand—could have a material adverse effect on our business, financial condition or results of operations, as well as our reputation. See also "—We may not successfully achieve our goals in strategic transactions or reorganizations," below, with regard to our recent reorganization of our product manufacturing organization, and "—Extreme weather events, earthquakes and other natural disasters could adversely affect our business," below.

Foreign exchange fluctuations may adversely affect our earnings and the value of some of our assets.

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 significantly impact the value of their currencies. Such steps could include "quantitative easing" measures and potential withdrawals by countries from common currencies. In addition, certain countries are or may experience periods of high inflation. This could lead these countries to devalue their currencies, and to set exchange controls, as, for example, Venezuela has done. Such steps taken by Venezuela have impacted our financial results. See "—The persistently weak global economic and financial environment in many countries and increasing political and social instability may have a material adverse effect on our results" above. Ongoing conditions in Venezuela and other such countries could continue to lead to further devaluations of their currencies, which could in turn result in significant additional financial losses to the Group in the future.

Despite measures undertaken to reduce, or hedge against, foreign currency exchange risks, because a significant portion of our earnings and expenditures are in currencies other than the US dollar, including expenditures in Swiss francs that are significantly higher than our revenue in Swiss francs, any such exchange rate volatility may negatively and materially impact the Group's business, 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 volatility can be difficult to predict. Further, depending on the movements of particular foreign exchange rates, the Group may be materially adversely affected at a time when the same currency movements are benefiting some of our competitors.

For more information on the effects of currency fluctuations on our consolidated financial statements and on how we manage currency risk, see "Item 5. Operating and Financial Review and Prospects—Item 5.B Liquidity and Capital Resources—Effects of Currency Fluctuations" "Item 11. Quantitative and Qualitative Disclosures about Market Risk", and "Note 29. Financial Instruments—Additional Disclosures" in the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on January 25, 2017.

We may not successfully achieve our goals in transactions or reorganizations.

As part of our strategy, from time to time we evaluate and pursue potential business acquisitions and divestitures to expand or complement our existing businesses, or to enable us to focus more sharply on our strategic businesses. We cannot ensure that suitable acquisition candidates will be identified. Acquisition activities can be thwarted by governmental regulation, including market concentration limitations, political interference, overtures from competitors for the targeted assets, potentially increasing prices demanded by sellers, and other issues. Once an acquisition is agreed upon with a third party, we may not be able to complete the acquisition in the expected form or within the expected time frame, or at all, due to a failure to obtain required regulatory approvals or a failure to achieve contractual or other required closing conditions. Further, after an acquisition, efforts to integrate the business may not meet expectations, or may otherwise not be successful, as a result of differences in corporate culture, difficulties in retaining key personnel, customers and suppliers, difference in

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standards, controls, processes and policies, or other reasons. Acquisitions and divestments can also divert management's attention from our existing businesses, and could result in the existing businesses failing to achieve expected results, or in liabilities being incurred that were not known at the time of acquisition, or the creation of tax or accounting issues.

Similarly, we cannot ensure that suitable buyers will be identified for businesses or other assets that we might want to divest. Neither can we ensure that we will correctly select businesses or assets as candidates for divestiture, that we will be able to successfully complete any agreed upon divestments, or that any expected strategic benefits, synergies or opportunities will arise as a result of any divestiture.

In 2015, we completed a series of transactions intended to transform our portfolio of businesses. In these transactions, we acquired GSK oncology products and certain related assets; created a joint venture with GSK in consumer healthcare of which Novartis owns 36.5%; divested our vaccines business (excluding the influenza vaccines business) to GSK; divested our Animal Health business to Lilly; and divested our influenza vaccines business to CSL. In 2014, we had also divested the blood transfusion diagnostics unit to Grifols S.A. that had been part of our former Vaccines and Diagnostics Division. In agreeing to these transactions, we expected to achieve certain strategic benefits, synergies and opportunities, including certain financial results. There can be no certainty that such expected benefits will be fully realized or that they will be realized at any particular time.

In addition, as part of our strategy, from time to time we reassess the optimal organization of our business, including the allocation of products by division and the level of centralization and simplification of certain functions across the Group, to better align those products and functions with the capabilities and expertise required for competitive advantage. As an example of this, in May 2016, we announced changes to focus our former Pharmaceuticals Division by creating two business units: Novartis Pharmaceuticals and Novartis Oncology. These business units formed the Innovative Medicines Division of Novartis, reporting to the CEO of Novartis. Similarly, in January 2016 we announced a series of strategic actions intended to further focus our divisions, including focusing our Alcon Division on its Surgical and Vision Care franchises, strengthening our ophthalmic medicines business by transferring Alcon's Ophthalmic Pharmaceuticals products to our Innovative Medicines Division, and shifting selected mature pharmaceutical products from our Innovative Medicines Division into Sandoz. We also announced steps during the course of 2016 to increase Group-wide coordination of drug development, and to improve efficiency with an integrated manufacturing operation and more shared commercial and medical services at the country level. Similarly, in 2014 we created a shared services organization, Novartis Business Services (NBS). NBS consolidates a number of business support services previously spread across divisions, including Information Technology, Financial Reporting and Accounting Operations, Real Estate & Facility Services, Procurement, Payroll and Personnel Administration and the Innovative Medicines Global Business Services. We expect these actions to further strengthen our competitive position, enable us to maintain our leading position in research and development, and free resources for our growth priorities. But the expected benefits of these reorganizations may never be fully realized or may take longer to realize than expected. There can be no certainty that the numerous businesses and functions involved will be successfully integrated into the new organizations or that key personnel will be retained. Disruption from the reorganizations may make it more difficult to maintain relationships with customers, employees or suppliers, and the reorganizations may result in the Group not achieving the expected productivity and financial benefits, shortfalls in program oversight, or, potentially, sales declines and lost profits.

Both with respect to the transactions and reorganizations previously announced, and to potential future transactions and reorganizations, if we fail to timely recognize or address these risks, or to devote adequate resources to them, we may fail to achieve our strategic objectives, including our growth strategy, or otherwise may not realize the intended benefits of the acquisition, divestiture or reorganization.

Significant breaches of data security or disruptions of information technology systems and the use of Internet, social media and mobile technologies could adversely affect our business and breach the privacy rights of third parties.

Our business is heavily dependent on critical, complex and interdependent information technology systems, including Internet-based systems, to support business processes. In addition, Novartis and our employees rely on internet and social media tools and mobile technologies as a means of communications, and to gather information. We are also increasingly seeking to develop technology-based products such as mobile applications that go "beyond the pill" to improve patient welfare in a variety of ways, which could also result in us gathering information about patients and others electronically.

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The size and complexity of our information technology systems, and, in some instances, their age, make them potentially vulnerable to external or internal security breaches, breakdowns, malicious intrusions, malware, misplaced or lost data, programming or human errors, or other similar events. Although we have devoted and continue to devote significant resources and management attention to the protection of our data and information technology, like many companies, we have experienced such events and expect to continue to experience them in the future. We believe that the information security breaches we have experienced to date have not resulted in significant disruptions to our operations, and will not have a significant adverse effect on our current or future results of operations. However, we may not be able to prevent future breakdowns or breaches in our systems that could have a material adverse effect on our business, financial condition, results of operation or reputation.

Any such events could negatively impact important business processes, such as the conduct of scientific research and clinical trials, the submission of the results of such efforts to health authorities in support of requests for product approvals, the functioning of our manufacturing and supply chain processes, our compliance with legal obligations and other key business activities. Such potential information technology issues could lead to the loss of important information such as trade secrets or other intellectual property and could accelerate the development or manufacturing of competing products by third parties. In addition, malfunctions in software or devices that make significant use of information technology, including our Alcon surgical equipment, could lead to a risk of harm to patients.

Our use of information technologies, including Internet, social media, mobile technologies, and technology-based medical devices, as well as other routine business operations, sometimes involve our gathering personal information (including sensitive personal information) regarding our patients, vendors, customers, employees, collaborators and others. Breaches of our systems or other failures to protect such information could expose the personal information of third parties to unauthorized persons. Any such information or other privacy breaches could give rise to significant potential liability and reputational harm. In addition, we make substantial efforts to ensure that any international transfers of personal data are done in compliance with applicable law. Any restrictions that may be placed on our ability to transfer such data could have a material adverse effect on our business, financial condition, results of operations and reputation.

In addition, we use Internet, social media and mobile tools as a means to communicate with the public about our products or about the diseases our products are intended to treat. However, such uses risk the loss of trade secrets or other intellectual property. In addition, there continue to be significant uncertainties as to the rules that apply to such communications, and as to the interpretations that health authorities will apply in this context to the rules that do exist. As a result, despite our efforts to comply with applicable rules, there is a significant risk that our use of Internet, social media and mobile technologies for such purposes may cause us to nonetheless be found in violation of them.

Our dependence upon information technology, including any breaches of data security, technology disruptions, privacy violations, or other uses of interconnected technologies could give rise to the loss of trade secrets or other intellectual property, to the public exposure of personal information, and to interruptions to our operations, and could result in enforcement actions or liability, including potential shareholders' litigation, which could require us to expend significant resources to continue to modify or enhance our protective measures and to remediate any damage. Such events could have a material adverse effect on our business, financial condition, results of operations and reputation.

Intangible assets and goodwill on our books may lead to significant impairment charges in the future.

We carry a significant amount of goodwill and other intangible assets on our consolidated balance sheet, primarily due to acquisitions, including, in particular, substantial goodwill and other intangible assets obtained as a result of our acquisitions of Alcon and the oncology assets from GSK. As a result, we may incur significant impairment charges in the future if the expected fair value of the goodwill and other intangible assets would be less than their carrying value on the Group's consolidated balance sheet at any point in time.

We regularly review our long-lived intangible and tangible assets, including identifiable intangible assets, investments in associated companies and goodwill, for impairment. Goodwill, acquired research and development, and acquired development projects not yet ready for use are subject to impairment review at least annually. Other long-lived assets are reviewed for impairment when there is an indication that an impairment may have occurred. Impairment testing under IFRS may lead to impairment charges in the future. Any significant

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impairment charges could have a material adverse effect on our results of operations and financial condition. In 2016, for example, we recorded intangible asset impairment charges of $591 million. For a detailed discussion of how we determine whether an impairment has occurred, what factors could result in an impairment and the impact of impairment charges on our results of operations, see "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Critical Accounting Policies and Estimates—Impairment of Goodwill, Intangible Assets and Property, Plant and Equipment" and "Note 1. Significant Accounting Policies" and "Note 11. Goodwill and Intangible Assets Movements" in the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on January 25, 2017.

The persistently weak global economic and financial environment in many countries and increasing political and social instability may have a material adverse effect on our results.

Many of the world's largest economies and financial institutions continue to be impacted by a weak ongoing global economic and financial environment, with some continuing to face financial difficulty, liquidity problems and limited availability of credit. In addition, we continue to see weak economic growth or a slowing of economic growth rates in certain emerging growth markets, such as China, Russia, Brazil and India. It is uncertain how long these effects will last, or whether economic and financial trends will worsen or improve.

In particular, financial weakness in certain countries has increased pressures on those countries, and on payors in those countries, to force healthcare companies to decrease the prices at which we may sell them our products. See also "Item 4. Information on the Company—Item 4.B Business Overview—Innovative Medicines—Price Controls." Concerns continue that payors and customers in some countries, including Greece, Italy, Portugal, Spain, Brazil, Russia and Saudi Arabia may not be able to pay us in a timely manner.

Certain other countries are experiencing high inflation rates and have taken steps to introduce exchange controls and limit companies from distributing retained earnings or paying intercompany payables due from those countries. The most significant country in this respect is Venezuela, where we are exposed to a potential devaluation loss in the income statement with our subsidiaries in the country. The Group's subsidiaries in Venezuela are experiencing a significant reduction in approvals for remittance of US dollars outside the country at the exchange rate available for imports of specific goods and services of national priority, including medicines and medical supplies. As a result, in November 2016, the Group changed the exchange rate applied to translate the financial statements of its Venezuelan subsidiaries to the floating rate of DICOM (Systema de Divisa Complementaria) which was VEF 658 per US dollar as of November 1, 2016. A corresponding $0.3 billion revaluation loss on the outstanding intercompany balances was recognized in the fourth quarter of 2016. Due to the recorded reserves against the intercompany balances, the net outstanding intercompany payable balance of Venezuela subsidiaries reduced to an insignificant amount as per December 31, 2016.

Ongoing conditions in Venezuela and other such countries could continue to lead to further devaluations of their currencies, which could in turn result in significant additional financial losses to the Group in the future. See also "Item 5. Operating and Financial Review and Prospects—Item 5.B Liquidity and Capital Resources—Effects of Currency Fluctuations" and "—Condensed Consolidated Balance Sheets," and "Note 15. Trade Receivables" and "Note 29. Financial Instruments—Additional Disclosures" in the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on January 25, 2017.

Current economic conditions may also adversely affect the ability of our distributors, customers, suppliers and service providers to obtain the liquidity required to pay for our products, or otherwise to buy necessary inventory or raw materials, and to perform their obligations under agreements with us, which could disrupt our operations and could negatively impact our business and cash flow. Although we make efforts to monitor these third parties' financial condition and their liquidity, 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, which could negatively impact our business and results of operations. These risks may be elevated with respect to our interactions with third parties with substantial operations in countries where current economic conditions are the most severe, particularly where such third parties are themselves exposed to payment risks from business interactions directly with fiscally-challenged government payers. See also "—Our reliance on outsourcing and third parties for the performance of key business functions heightens the risks faced by our businesses" below.

In addition, the varying effects of difficult economic times on the economies, currencies and financial markets of different countries has impacted, and may continue to unpredictably impact, our business and results

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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. See "—Foreign exchange fluctuations may adversely affect our earnings and the value of some of our assets," below, and "—If any of numerous key assumptions and estimates in calculating our pension plan obligations turn out to be different from our actual experience, we may be required to increase substantially our contributions to pension plans as well as our pension-related costs in the future," below. In addition, the financial situation may also result in a lower return on our financial investments, and a lower value on some of our assets. Alternately, inflation could accelerate, which could lead to higher interest rates, which would increase our costs of raising capital.

To the extent that the economic and financial conditions directly affect consumers, some of our businesses, including the elective surgical and contact lens businesses of our Alcon Division, may be particularly sensitive to declines in consumer spending. In addition, our Innovative Medicines and Sandoz Divisions may not be immune to declines in consumer spending, particularly given the increasing requirements in certain countries that patients pay a larger contribution toward their own healthcare costs. As a result, there is a risk that consumers may cut back on prescription drugs and medical devices to help cope with rising costs and difficult economic times.

These issues may be further impacted by unpredictable political conditions currently existing in various parts of the world, including a backlash in certain areas against free trade, the ongoing refugee crisis, anti-immigrant sentiment, social unrest and fears of terrorism. In the US, opposition to free trade agreements was a significant issue in the recent presidential election. Similarly, uncertainties remain in Europe following the UK's "Brexit" vote and the rise of populist movements in various EU countries. And significant conflicts continue in parts of the Middle East and places such as Ukraine.

Collectively, such difficult conditions can, among other things, interfere with free trade in goods, increase the costs and difficulties of international transactions and potentially disturb the international flow of goods, and thus may have a material adverse effect on our revenues, results of operations, financial condition and, if circumstances worsen, our ability to raise capital at reasonable rates.

At the same time, significant changes and 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 into the future. As a result, any revenue or earnings guidance or outlook which we have given or might give may be overtaken by events, or may otherwise turn out to be inaccurate. 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 conditions, there is a significant risk that such guidance or outlook will turn out to be, or to have been, incorrect.

Similarly, increased scrutiny of corporate taxes and executive pay may lead to significant business disruptions or other adverse business conditions, and may interfere with our ability to attract and retain qualified personnel. See "—Changes in tax laws or their application could adversely affect our results of operation" and "—An inability to attract and retain qualified personnel could adversely affect our business" below.

Our indebtedness could adversely affect our operations.

As of December 31, 2016 we had $17.9 billion of non-current financial debt and $5.9 billion of current financial debt. Our current and long-term debt requires us to dedicate a portion of our cash flow to service interest and principal payments and, if interest rates rise, this amount may increase. In addition, our existing debt may limit our ability to engage in transactions or otherwise may place us at a competitive disadvantage relative to competitors that have less debt. We may also have difficulty refinancing our existing debt or incurring new debt on terms that we would consider to be commercially reasonable, if at all.

Our reliance on outsourcing key business functions to third parties heightens the risks faced by our businesses.

We invest a significant amount of effort and resources into outsourcing the performance of certain key business functions to third parties, including research and development collaborations, manufacturing operations, warehousing, distribution activities, certain finance functions, marketing activities, data management and others. Our reliance on outsourcing and third parties for certain functions, such as the research and development or manufacturing of products, may limit the potential profitability of such products. In addition, despite contractual relationships with the third parties to whom we outsource these functions, we cannot ultimately control how they perform their contracts. Nonetheless, we depend on these third parties to achieve results which may be significant

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to us. If the third parties fail to meet their obligations or to comply with the law, we may lose our investment in the collaborations and fail to receive the expected benefits. In addition, should any of these third parties fail to comply with the law in the course of their performance of services for us, there is a risk that we could be held responsible for such violations of law, as well, and that our reputation may suffer. Any such failures by third parties could have a material adverse effect on our business, financial condition, results of operations or reputation.

In particular, in many countries, including many developing markets, we rely heavily on third party distributors and other agents for the marketing and distribution of our products. Many of these third parties do not have internal compliance resources comparable to those within our organization. Some of these countries are plagued by corruption. If our efforts to detect cases of potential misconduct fail, we could be held responsible for the noncompliance of these third parties with applicable laws and regulations, which may have a material adverse effect on our reputation and on our business, financial condition or results of operations.

We may not be able to realize the expected benefits of our significant investments in Emerging Growth Markets.

At a time of slowing growth in sales of healthcare products in industrialized countries, many emerging markets have in recent years experienced proportionately higher sales growth and an increasing contribution to the industry's global performance. In 2016, our Continuing Operations generated $11.9 billion, or approximately 25% (2015: 25%) of our net sales from Emerging Growth Markets—which comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand—as compared with $36.6 billion, or approximately 75% (2015: 75%) of our net sales, in the Established Markets. However, combined net sales in the Emerging Growth Markets grew 4% in constant currencies in 2016, compared to –1% sales growth in constant currencies in the Established Markets during the same period. As a result of this trend, we continue to take steps to increase our activities in the Emerging Growth Markets, and have been making significant investments in our businesses in those countries.

In the past two years, however, certain of these Emerging Growth Market countries, including Brazil, India, China and Russia, have experienced economic slowdowns. As a result, there can be no guarantee that our efforts to expand our sales in these countries will succeed, or that these countries will once again experience growth rates significantly in excess of the world's largest markets. In particular, some Emerging Growth Market countries may be especially vulnerable to the effects of the persistently weak global financial environment, may have very limited resources to spend on healthcare or may be susceptible to political and social instability. See "—The persistently weak global economic and financial environment in many countries and increasing political and social instability may have a material adverse effect on our results" above. Many of these countries are subject to increasing political and social pressures, including from a growing middle class seeking increased access to healthcare. Such pressures on local government may in turn result in an increased focus by the governments on our pricing, and may put at risk our intellectual property. See "—Our business is increasingly affected by pressures on pricing for our products," and "Our products face important patent expirations and significant competition" above.

These countries also may have a relatively limited number of persons with the skills and training suitable for employment at an enterprise such as ours. See "—An inability to attract and retain qualified personnel could adversely affect our business" below. In some Emerging Growth Market countries, a culture of compliance with law may not be as fully developed as in the Established Markets—China's investigations of the activities of multinational healthcare companies, for example, have been well publicized—standards of acceptable behavior may be lower than such standards in Established Markets, or we may be required to rely on third-party agents, in each case putting us at risk of liability and reputational damage. See "—Failure to comply with law, and resulting investigations and legal proceedings may have a significant negative effect on our results of operations," and "—Our reliance on outsourcing and third parties for the performance of key business functions heightens the risks faced by our businesses," above.

In addition, many of these countries have currencies that may fluctuate substantially. If these currencies devalue significantly against the US dollar and we cannot offset the devaluations with price increases, then our products may become less profitable, or may otherwise impact our reported financial results. Currency devaluation risk may also exist in countries with high inflation economies. Should these countries take steps that cause their currencies to be devalued, we may realize a significant financial loss. See "—The persistently weak global economic and financial environment in many countries and increasing political and social instability may have a material adverse effect on our results" and "—Foreign exchange fluctuations may adversely affect our

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earnings and the value of some of our assets," above. Ongoing conditions in such high inflation countries could lead to further devaluations of their currencies, which could in turn result in significant additional financial losses to the Group in the future.

For all these reasons, our sales to Emerging Growth Markets carry significant risks. A failure to continue to expand our business in Emerging Growth Markets could have a material adverse effect on our business, financial condition or results of operations.

Failure to obtain marketing exclusivity periods for new generic products, or to develop biosimilars and other differentiated products, as well as intense competition from patented and generic pharmaceuticals companies, may have an adverse effect on the success of our Sandoz Division.

Our Sandoz Division achieves significant revenue opportunities when it secures and maintains exclusivity periods granted for generic products in certain markets—particularly the 180-day exclusivity period granted in the US by the Hatch-Waxman Act for first-to-file generics—and when it is able to develop biosimilars and other differentiated products with few, if any, generic competitors. Failure to obtain and maintain these market opportunities could have an adverse effect on the success of Sandoz.

In addition, the division faces intense competition both from companies that market patented pharmaceutical products, which sometimes take aggressive steps to prevent or delay the introduction of generic medicines, to limit the availability of exclusivity periods or to reduce their value, and from other generic pharmaceuticals companies, which aggressively compete for exclusivity periods and for market share of generic products that may be identical to certain of our generic products. These activities may increase the costs and risks associated with our efforts to introduce generic products, may further limit the prices at which we are able to sell these products, and may delay or entirely prevent their introduction. See also "—Failure to comply with law, legal proceedings and government investigations may have a significant negative effect on our results of operations" above, with regard to the risks of damages involved in our efforts to market generic versions of patented products.

Sandoz has also invested heavily in the development of biosimilar drugs, despite the fact that regulations concerning their approval, marketing and sale in certain countries, including in the US, are still under development or not entirely clear. If, despite ongoing efforts by us and others to encourage the development of such regulations, such regulations do not ultimately favor the development and sale of biosimilar products, then we may fail to achieve expected returns on the investments by Sandoz in the development of biosimilars. See also "—Our research and development efforts may not succeed in bringing new products to market, or may fail to do so cost-efficiently enough, or in a manner sufficient to grow our business and replace lost revenue and income" above, with regard to the risks involved in our efforts to develop differentiated generic products.

If any of numerous key assumptions and estimates in calculating our pension plan obligations turn out to be different from our actual experience, we may be required to increase substantially our contributions to pension plans as well as the amount we pay toward pension-related expenses in the future.

We sponsor pension and other post-employment benefit plans in various forms. These plans cover a significant portion of our current and former associates. While most of our plans are now defined contribution plans, certain of our associates remain under defined benefits plans. For these defined benefits plans, we are required to make significant assumptions and estimates about future events in calculating the present value of expected future plan expenses and liabilities. These include assumptions used to determine the discount rates we apply to estimated future liabilities and rates of future compensation increases. Assumptions and estimates used by Novartis may differ materially from the actual results we experience in the future, due to changing market and economic conditions (including the effects of the persistently weak global financial environment, which, to date, have resulted in extremely low or negative interest rates in many countries), higher or lower withdrawal rates, or longer or shorter life spans of participants, among other variables. For example, a decrease in the interest rate we apply in determining the present value of expected future defined benefit obligations of one-quarter of one percent would have increased our year-end defined benefit pension obligation for plans in Switzerland, US, UK, Germany and Japan, which represent about 95% of the Group total defined benefit pension obligation, by $0.8 billion. Any differences between our assumptions and estimates and our actual experience could have a material effect on our results of operations and financial condition. Further, additional employer contributions might be required if plan funding falls below the levels required by local rules. For more information on obligations under retirement and other post-employment benefit plans and underlying actuarial assumptions, see

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"Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Critical Accounting Policies and Estimates—Retirement and other post-employment benefit plans" and "Note 25. Post-Employment Benefits for Associates" in the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on January 25, 2017. See also "—The persistently weak global economic and financial environment in many countries and increasing political and social instability may have a material adverse effect on our results" above.

Changes in tax laws or their application could adversely affect our results of operations.

Our worldwide operations are taxed under laws in the jurisdictions in which we operate. However, the integrated nature of our worldwide operations can produce conflicting claims from revenue authorities as to the determination of profits to be taxed in individual countries. The majority of the jurisdictions in which we operate have double tax treaties with other foreign jurisdictions, which provide a framework for mitigating the incidence of double taxation on our revenues and capital gains. But in recent years, tax authorities around the world have increased their scrutiny of company tax filings, and have become more rigid in exercising any discretion they may have. As part of this, the Organization for Economic Co-operation and Development (OECD) has proposed a number of tax law changes under its Base Erosion and Profit Shifting (BEPS) Action Plans to address issues of transparency, coherence and substance. At the same time, the European Commission is finalizing the Anti Tax Avoidance Directive and continues to extend the application of the fiscal state aid policy and respective investigation on tax ruling practices. These tax reform initiatives on the OECD and European levels also need local country implementation, including in our home country of Switzerland, which may result in significant changes to established tax principles and could lead to an increased risk of international tax disputes.

Although we have taken steps to be in compliance with the evolving OECD and European tax initiatives, and will continue to do so, significant uncertainties remain as to the outcome of the Swiss and other countries' tax reform efforts. Such efforts, including with respect to tax base or rate, transfer pricing, intercompany dividends, cross border transactions, controlled corporations, and limitations on tax relief allowed on the interest on intercompany debt, could require us to adapt our tax structure, increase our effective tax rate and adversely affect our financial results.

Counterfeit versions of our products could harm our patients and reputation.

Our industry continues to be challenged by the vulnerability of distribution channels to illegal counterfeiting and the presence of counterfeit products in a growing number of markets and over the Internet. Counterfeit products are frequently unsafe or ineffective, and can potentially be life-threatening. To distributors and patients, counterfeit products may be visually indistinguishable from the authentic version. Reports of adverse reactions to counterfeit drugs or increased levels of counterfeiting could materially affect patient confidence in the authentic product, and harm the business of companies such as ours or lead to litigation. In addition, it is possible that adverse events caused by unsafe counterfeit products could mistakenly be attributed to the authentic product. If a product of ours was the subject of counterfeits, we could incur substantial reputational and financial harm.

Ongoing consolidation among our distributors and retailers is increasing both the purchasing leverage of key customers and the concentration of credit risk.

Increasingly, a significant portion of our global sales are made to a relatively small number of drug wholesalers, retail chains and other purchasing organizations. For example, our three most important customers globally are all in the US, and accounted for approximately 16%, 12% and 6%, respectively, of Group net sales in 2016. The largest trade receivables outstanding were for these three customers, amounting to 14%, 9% and 6%, respectively, of the Group's trade receivables at December 31, 2016. The trend has been toward further consolidation among distributors and retailers, both in the US and internationally. As a result, our customers are gaining additional purchasing leverage, which increases the pricing pressures facing our businesses. 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 difficulties, the effect on us would be substantially greater than in the past, and could include a substantial loss of sales and an inability to collect amounts owed to us. This could have a material adverse effect on our business, financial condition and results of operations.

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An inability to attract and retain qualified personnel could adversely affect our business.

We highly depend upon skilled personnel in key parts of our organization, and we invest heavily in recruiting, training and retaining qualified individuals. The loss of the service of key members of our organization—including senior members of our scientific and management teams, high-quality researchers and development specialists, and skilled personnel in emerging markets—could delay or prevent the achievement of major business objectives.

Future economic growth will demand talented associates and leaders, yet the market for talent has become increasingly competitive. In particular, emerging markets are expected to continue to be a driving force in global growth, but in countries like Russia and China there is a limited pool of executives with the training and international experience needed to work successfully in a global organization like Novartis.

In addition, shifting demographic trends are expected to result in fewer students, fewer graduates and fewer people entering the workforce in the Western world in the next 10 years. Moreover, many members of younger generations around the world have changing expectations toward careers, engagement and the integration of work in their overall lifestyles.

The supply of talent for certain key functional and leadership positions is decreasing, and a talent gap is visible for some professions and geographies—engineers in Germany, for example. Recruitment is increasingly regional or global in specialized fields such as clinical development, biosciences, chemistry and information technology. In addition, the geographic mobility of talent is expected to decrease in the future, with talented individuals in developed and emerging countries anticipating ample career opportunities closer to home than in the past. This decrease in mobility may be worsened by anti-immigrant sentiments in many countries, and laws discouraging immigration.

In addition, our ability to hire qualified personnel also depends on the flexibility to reward superior performance and to pay competitive compensation. Laws and regulations on executive compensation, including legislation in our home country, Switzerland, may restrict our ability to attract, motivate and retain the required level of qualified personnel.

We face intense competition for an increasingly limited pool of qualified individuals from numerous pharmaceutical and biotechnology companies, universities, governmental entities, other research institutions, other companies seeking to enter the healthcare space, and companies in other industries. As a result, despite significant efforts on our part, we may be unable to attract and retain qualified individuals in sufficient numbers, which could have an adverse effect on our business, financial condition and results of operations.

Environmental liabilities may adversely impact our results of operations.

The environmental laws of various jurisdictions impose actual and potential obligations on us to remediate contaminated sites, in some cases over many years. While we have set aside substantial provisions for worldwide environmental liabilities, there is no guarantee that additional costs will not be incurred beyond the amounts for which we have provided in the Group consolidated financial statements. If environmental contamination caused by us adversely impact third parties, if we fail to properly manage the safety of our facilities and the environmental risks, or if we are required to further increase our provisions for environmental liabilities in the future, this could have a material adverse effect on our business, financial condition, results of operations, and on our reputation. See also "Item 4.D Property, Plants and Equipment—Environmental Matters" and "Note 20. Provisions and other non-current liabilities" in the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on January 25, 2017.

Extreme weather events, earthquakes and other natural disasters could adversely affect our business.

In recent years, extreme weather events and changing weather patterns such as storms, flooding, drought, and temperature changes, appear to have become more common. We operate in countries around the world. As a result, we are potentially exposed to varying natural disaster or extreme weather risks like hurricanes, tornadoes or floods, or other events that may result from the impact of climate change on the environment. As a result of such events, we could experience business interruptions, destruction of facilities and loss of life, all of which could have a material adverse effect on our business, financial condition and results of operations.

In addition, our corporate headquarters, the headquarters of our Innovative Medicines Division, and certain of our major Innovative Medicines Division production and research facilities are located near earthquake fault

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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, all of which could have a material adverse effect on our business, financial condition and results of operations. See also "—The manufacture of our products is highly regulated and complex, and may result in a variety of issues that could lead to extended supply disruptions and significant liability," above.

Risks Related To Our ADRs

The price of our ADRs and the US dollar value of any dividends may be negatively affected by fluctuations in the US dollar/Swiss franc exchange rate.

Our American Depositary Shares (ADSs) each representing one Novartis share and evidenced by American Depositary Receipts (ADRs) trade on the NYSE in US dollars. Since the shares underlying the ADRs are listed in Switzerland on the SIX Swiss Exchange (SIX) and trade in Swiss francs, the value of the ADRs may be affected by fluctuations in the US dollar/Swiss franc exchange rate. In addition, since dividends that we may declare will be denominated in Swiss francs, exchange rate fluctuations will affect the US dollar equivalent of dividends received by holders of ADRs. If the value of the Swiss franc decreases against the US dollar, the price at which our ADRs trade may—and the value of the US dollar equivalent of any dividend will—decrease accordingly.

Holders of ADRs may not be able to exercise preemptive rights attached to shares underlying ADRs.

Under Swiss law, shareholders have preemptive rights to subscribe for issuances of new shares on a pro rata basis. Shareholders may waive their preemptive rights in respect of any offering at a general meeting of shareholders. Preemptive rights, if not previously waived, are transferable during the subscription period relating to a particular offering of shares and may be quoted on the SIX. US holders of ADRs may not be able to exercise the preemptive rights attached to the shares underlying their ADRs unless a registration statement under the US Securities Act of 1933 is effective with respect to such rights and the related shares, or an exemption from this registration requirement is available. In deciding whether to file such a registration statement, we would evaluate the related costs and potential liabilities, as well as the benefits of enabling the exercise by ADR holders of the preemptive rights associated with the shares underlying their ADRs. We cannot guarantee that a registration statement would be filed, or, if filed, that it would be declared effective. If preemptive rights could not be exercised by an ADR holder, JPMorgan Chase Bank, N.A., as depositary, would, if possible, sell the holder's preemptive rights and distribute the net proceeds of the sale to the holder. If the depositary determines, in its discretion, that the rights could not be sold, the depositary might allow such rights to lapse. In either case, the interest of ADR holders in Novartis would be diluted and, if the depositary allowed rights to lapse, holders of ADRs would not realize any value from the preemptive rights.

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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 governed by the laws of Switzerland. Our registered office is located at the following address:

Novartis AG
Lichtstrasse 35
CH-4056 Basel, Switzerland
Telephone: 011-41-61-324-1111
Web: www.novartis.com

Novartis is a multinational group of companies specializing in the research, development, manufacturing and marketing of a broad range of healthcare products led by innovative pharmaceuticals. 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 "Note 32. Principal Group Subsidiaries and Associated Companies" in the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on January 25, 2017.

Important Corporate Developments 2014-January 2017



*2017*
January		Novartis announces that it is considering options for the Alcon Division. The review will explore all options, ranging from retaining all or part of the business to separation via a capital markets transaction (e.g. IPO or spin-off), in order to determine how to best maximize value for our shareholders. The review will be conducted during the course of 2017 and in a manner such that Alcon Division associates can fully focus on the unit's return to growth. The ophthalmic pharmaceutical portfolio is now fully integrated into our Innovative Medicines Division and will not be part of the review.
		Novartis announces that it is initiating a share buyback of up to $5.0 billion in 2017 under existing shareholder authority.
		Novartis announces that it has entered into a collaboration and option agreement with Ionis Pharmaceuticals, Inc. (Ionis), and its affiliate Akcea Therapeutics, Inc. (Akcea), to license two investigational treatments with the potential to significantly reduce cardiovascular risk in patients suffering from high levels of lipoproteins known as Lp(a) and ApoCIII. In addition, Novartis entered into a stock purchase agreement with Ionis and Akcea. This transaction is subject to customary closing conditions, including regulatory approval.
*2016*
December		Novartis announces that it has entered into a definitive agreement for the acquisition of Encore Vision, Inc., a privately-held company focused on the development of UNR844 (formerly EV06), an investigational, first-in-class potentially disease modifying topical treatment for presbyopia. This acquisition was completed on January 20, 2017.
		Novartis announces the signing of an exclusive option, collaboration and license agreement with Conatus Pharmaceuticals Inc., for the global rights to emricasan, an investigational, first-in-class, oral, pan-caspase inhibitor for the treatment of non-alcoholic steatohepatitis (NASH) with advanced fibrosis and cirrhosis of the liver. Upon exercise of the option, Novartis will obtain an exclusive, worldwide license to develop and commercialize products containing emricasan. The exercise of the option is subject to customary closing conditions, including regulatory approval.
		Novartis announces that it has entered into a definitive agreement for the acquisition of Ziarco Group Limited, a privately held company focused on the development of novel treatments in dermatology including ZPL389, a once-daily oral H₄ receptor antagonist in development for atopic dermatitis. This acquisition was completed on January 20, 2017.

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November		Novartis announces that it has acquired Selexys Pharmaceuticals Corporation and SEG101 (crizanlizumab, formerly SelG1) for reduction of pain crises in sickle cell disease.
September		Novartis completes two euro (EUR) denominated bond offerings totaling EUR 1.75 billion.
June		Novartis announces that it has entered into a collaboration and licensing agreement with Xencor for the development of bispecific antibodies for treating cancer.
		Novartis announces that it will further expand its long-standing partnership with Medicines for Malaria Venture. Novartis will lead the development of antimalarial compound KAF156 with scientific and financial support from Medicines for Malaria Venture in collaboration with the Bill & Melinda Gates Foundation.
May		Novartis announces changes to focus its Pharmaceuticals Division by creating two business units: Novartis Pharmaceuticals and Novartis Oncology. These business units form the Innovative Medicines Division of Novartis. The CEO of each business unit reports directly to the CEO of Novartis and both joined the Executive Committee of Novartis (ECN) effective July 1, 2016.
February		Shareholders authorize the Novartis Board of Directors to execute share buybacks within the framework of a seventh share repurchase program that will allow Novartis to repurchase shares for cancellation up to a maximum of CHF 10 billion.
		Novartis announces that it has entered into an agreement to acquire Transcend Medical, Inc., a privately-held, US-based company focused on developing minimally-invasive surgical devices to treat glaucoma, such as the CyPass Micro-Stent. This acquisition was completed on March 23, 2016.
		Novartis announces that it has acquired from Pfizer the rights for the development and commercialization of PF-06438179 (biosimilar infliximab) in the European Economic Area.
January		Novartis announces leadership changes effective February 1, 2016. Mike Ball has been appointed Division Head and CEO Alcon, succeeding Jeff George; Dr. Vas Narasimhan has been appointed Global Head Drug Development and Chief Medical Officer, a new position in the ECN; and André Wyss has been appointed President, Novartis Operations.
		Novartis announces that it is taking a number of steps to further build on its strategy, including focusing the Alcon Division on its Surgical and Vision Care franchises and strengthening the ophthalmic medicines business by transferring Alcon's Ophthalmic Pharmaceuticals products to the Innovative Medicines Division, and by shifting selected mature, non-promoted pharmaceutical products from the Innovative Medicines Division into the Sandoz Division, which changes were operationally completed as of April 1, 2016; and by centralizing manufacturing operations across divisions within a single technical operations unit; increasing Group-wide coordination of drug development by establishing a single Global Head of Drug Development and centralizing certain common functions such as the Chief Medical Office, which changes were operationally completed as of July 1, 2016.
		Novartis announces a collaboration and licensing agreement with Surface Oncology, which gives Novartis access to four pre-clinical programs in immuno-oncology.
*2015*
November		Novartis completes a $3 billion bond offering under its US SEC Registration Statement on Form F-3.
October		Novartis announces the acquisition of Admune Therapeutics LLC to broaden its portfolio of cancer immunotherapies.
September		Novartis announces the appointment of Dr. James E. Bradner as President of the Novartis Institutes for BioMedical Research and a member of the ECN, effective March 1, 2016, concurrent with the retirement of Dr. Mark C. Fishman, who reached his contractual retirement age in March 2016.
		Novartis announces the launch of Novartis Access, a portfolio of affordable medicines to treat chronic diseases in lower-income countries offered to governments, non-governmental organizations and other public-sector healthcare providers for $1 per treatment, per month.
		Novartis announces that it has entered into a global collaboration with Amgen to commercialize and develop neuroscience treatments.
August		Novartis announces an agreement to acquire all remaining rights to GSK's ofatumumab to develop treatments for multiple sclerosis and other autoimmune indications. This transaction was completed on December 21, 2015.

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July		Novartis announces a swap of three mid-stage clinical assets for equity and a share of milestones and royalties on future commercial sales with Mereo BioPharma Group Limited.
June		Novartis announces that it has entered into an agreement to acquire Spinifex Pharmaceuticals, Inc., a US and Australian-based, privately held development stage company focused on developing a peripheral approach to treat neuropathic pain such as EMA401, a novel angiotensin II Type 2 receptor (AT2R) antagonist. This acquisition was completed on July 24, 2015.
March		Novartis announces entry into an alliance with Aduro Biotech focused on discovery and development of next-generation cancer immunotherapies targeting the STING signaling pathway, and the launch of a new immuno-oncology research group.
February		Novartis completes a CHF 1.375 billion bond offering listed on the SIX Swiss Exchange.
*2014*
October		Novartis announces a definitive agreement with CSL of Australia to divest its influenza vaccines business for $275 million. This divestment was completed effective July 31, 2015.
		Novartis announces changes to the Novartis Executive Committee. Three members of the Executive Committee of Novartis, George Gunn, Brian MacNamara and Andrin Oswald, would leave the Company following the completion of the relevant portfolio transactions announced in April 2014.
		Novartis announces that it has entered into a collaboration with Bristol-Myers Squibb Company to evaluate three molecularly targeted compounds in combination with Bristol-Myers Squibb's investigational PD-1 immune checkpoint inhibitor, Opdivo® (nivolumab), in Phase I/II trials of patients with non-small cell lung cancer.
August		Novartis appoints a Chief Ethics, Compliance and Policy Officer reporting directly to the CEO.
July		Novartis announces that its Alcon Division has entered into an agreement with a division of Google Inc., to in-license its "smart lens" technology for all ocular medical uses.
June		Novartis announces that the FDA licensed its manufacturing facility in Holly Springs, North Carolina for the commercial production of cell-culture influenza vaccines, with the capacity to significantly increase production in the event of an influenza pandemic.
May		Novartis enters into a licensing and commercialization agreement with Ophthotech Corporation for the exclusive rights to market pegpleranib outside the US. In November 2015, Genentech entered into an agreement with Novartis to participate in certain financial rights related to the Novartis licensing and commercialization agreement with Ophthotech Corporation for pegpleranib.
April		Novartis announces a set of definitive inter-conditional agreements with GSK. Under these agreements, Novartis would acquire GSK oncology products and certain related assets, would be granted a right of first negotiation over the co-development or commercialization of GSK's current and future oncology R&D pipeline (excluding oncology vaccines) and would divest the Vaccines Division (excluding its influenza vaccines business) to GSK. The two companies would also create a joint venture in consumer healthcare, of which Novartis would own 36.5%. These transactions were completed on March 2, 2015.
		Novartis also announces a definitive agreement with Lilly to divest the Company's Animal Health Division. This divestment was completed on January 1, 2015.
		Novartis announces the creation of a shared services organization, Novartis Business Services (NBS). NBS consolidates a number of business support services previously spread across divisions, including Information Technology, Financial Reporting and Accounting Operations, Real Estate & Facility Services, Procurement, Payroll and Personnel Administration and the Pharmaceuticals Global Business Services. This reorganization was designed to improve profitability and free up resources that could be reinvested in growth and innovation, and to allow our divisions to focus more on customer-facing activities. NBS became effective on July 1, 2014.
February		Novartis announces the acquisition of CoStim Pharmaceuticals Inc., a Cambridge, Massachusetts-based, privately held biotechnology company focused on cancer immunotherapy. The acquisition brings to Novartis late discovery stage immunotherapy programs directed to several targets, including PD-1.
		Novartis appoints a Global Head, Corporate Responsibility reporting directly to the CEO.

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January		Novartis implements several changes to its governance structure. These include elimination of the Chairman's Committee of the Novartis AG Board of Directors; transfer of operational responsibilities that previously rested with the Chairman or the Chairman's Committee, such as approval authority for management compensation, to the CEO or the Executive Committee; and establishment of the Research and Development Committee of the Novartis AG Board of Directors to oversee Novartis research and development strategy and advise the Board on scientific trends and activities.

For information on our principal expenditures on property, plants and equipment, see "Item 4. Information on the Company—4.D Property, Plants and Equipment." For information on our significant expenditures in research and development, see the sections headed "Research and Development" included in the descriptions of our Innovative Medicines Division and Alcon Division, and the section headed "Development and Registration" included in the description of our Sandoz Division under "Item 4. Information on the Company—4.B Business Overview." For information on other principal capital expenditures and divestitures, see "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Factors Affecting Comparability of Year-On-Year Results of Operations." For more information on the transactions with GSK, Lilly or CSL, see "Item 4.B Business Overview—Overview" and "Item 10.C Material Contracts."

4.B Business Overview

OVERVIEW

Novartis provides healthcare solutions that address the evolving needs of patients and societies worldwide. Our broad portfolio includes innovative pharmaceuticals and oncology medicines, generic and biosimilar medicines and eye care devices. Our mission is to discover new ways to improve and extend people's lives. Our vision is to be a trusted leader in changing the practice of medicine. Our strategy is to use science-based innovation to deliver better patient outcomes in growing areas of healthcare.

Following the completion of a series of transactions in 2014 and 2015, the Group's continuing operations comprise three global operating divisions, Innovative Medicines, Sandoz and Alcon. We also separately report the results of Corporate activities. The disclosure in this Form 20-F focuses on these continuing operations unless otherwise specified. From March 2, 2015, the date of the completion of a series of transactions with GSK, continuing operations also includes the results from the oncology assets acquired from GSK and the 36.5% interest in GSK Consumer Healthcare Holdings Ltd. for the period from March 2015 (the latter reported as an investment in associated companies). We sold on March 2, 2015, our Vaccines Division, excluding our influenza vaccines business, to GSK. Our influenza vaccines business was sold on July 31, 2105 to CSL and our Animal Health Division was sold on January 1, 2015 to Lilly. For more detail on certain of these transactions see, "Item 10.C Material Contracts."

Continuing Operations:

•: Innovative Medicines (formerly named Pharmaceuticals): Innovative patent-protected prescription medicines
•: Sandoz: Generic pharmaceuticals and biosimilars
•: Alcon: Surgical and vision care products
•: Corporate activities

Discontinued Operations:

•: Vaccines and Diagnostics: Preventive human vaccines and blood-testing diagnostics
•: Consumer Health: OTC (over-the-counter medicines) and Animal Health
•: Corporate: certain transactional and other expenses related to the portfolio transformation

Novartis has leading positions globally in the areas of each of our three divisions. To maintain our competitive positioning across these segments of the healthcare industry, we place a strong focus on innovating to meet the evolving needs of patients around the world, working to grow our presence in new and emerging markets, and to enhance our productivity to invest for the future and increase returns to shareholders. The

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financial results of our continuing Corporate activities include the costs of the Group headquarters and those of corporate coordination functions in major countries. In addition, 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, charitable activities, donations and sponsorships.

The Group is organized into three divisions, Innovative Medicines, Sandoz and Alcon, as well as Corporate activities. Our divisions are supported by the following cross-divisional organizational units: Novartis Institutes for BioMedical Research, Global Drug Development and Novartis Operations, which includes Novartis Technical Operations and Novartis Business Services.

The Novartis Institutes for BioMedical Research (NIBR) is the innovation engine of Novartis, which supports our Innovative Medicines Division and also collaborates with our Sandoz Division. More than 6,000 scientists and associates at NIBR conduct research into various disease areas at sites located in the US, Switzerland, Singapore and China. For more information about NIBR, see "—Innovative Medicines—Research and Development—Research program," below.

Effective February 1, 2016, Mike Ball was appointed Division Head and CEO Alcon, and as a member of the Executive Committee of Novartis (ECN). Mike Ball succeeded Jeff George, who decided to leave Novartis.

Effective April 1, 2016, Alcon's Ophthalmic Pharmaceuticals products were transferred to our Innovative Medicines Division. At the same time, selected mature, non-promoted pharmaceutical products were shifted from our Innovative Medicines Division to Sandoz, which has proven experience in managing mature products successfully. Following these changes our Alcon Division is now focused on its Surgical and Vision Care franchises.

In January 2017, we announced that we are considering options for the Alcon Division. The review will explore all options, ranging from retaining all or part of the business to separation via a capital markets transaction (e.g. IPO or spin-off), in order to determine how to best maximize value for our shareholders. The review will be conducted during the course of 2017 and in a manner such that Alcon Division associates can fully focus on the unit's return to growth. The ophthalmic pharmaceutical portfolio is now fully integrated into our Innovative Medicines Division and will not be part of the review.

In May 2016, Novartis announced changes to focus its former Pharmaceuticals Division by creating two business units, Novartis Pharmaceuticals and Novartis Oncology, to form the Innovative Medicines Division. Effective July 1, 2016, Paul Hudson was appointed CEO, Novartis Pharmaceuticals and Bruno Strigini was appointed CEO, Novartis Oncology, both as members of the Executive Committee of Novartis. Mr. Hudson and Mr. Strigini report to Joseph Jimenez, CEO of Novartis.

In July 2016, we established the Global Drug Development (GDD) organization to oversee all drug development activities for our Innovative Medicines Division and the biosimilars portfolio of our Sandoz Division. Development of products for the Surgical and Vision Care franchises within our Alcon Division and of small molecule generics for our Sandoz Division are not included in GDD. GDD works collaboratively with NIBR, Innovative Medicines and Sandoz to execute our overall pipeline strategy and takes an enterprise approach to pipeline portfolio management. GDD incorporates centralized global functions such as Regulatory Affairs and Global Development Operations, as well as Global Development units aligned with our business franchises. GDD was created to increase Group-wide coordination of drug development and to improve resource allocation, technology implementation and process standardization with a goal of further increasing innovation. Dr. Vas Narasimhan was appointed Global Head Drug Development and Chief Medical Officer, a newly created position in the ECN and reports to the CEO of Novartis. GDD includes approximately 10,000 associates worldwide.

In 2016, André Wyss, already a member of the ECN, Head Novartis Business Services (NBS) and Country President for Switzerland, was appointed President, Novartis Operations. In his new role, he assumed responsibility for the integrated Novartis Technical Operations (NTO) organization as well as for Global Public & Government Affairs, in addition to his previous responsibilities, and he continues to report to the CEO Novartis. NTO was established effective July 1, 2016, in order to centralize management of our manufacturing operations across our Innovative Medicines and Sandoz Divisions, with a goal of further improving efficiency. Manufacturing for Alcon's Surgical and Vision Care franchises continues to be managed by our Alcon Division. NTO is expected to optimize capacity planning and adherence to quality standards, and to lower costs through simplification,

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standardization and external spend optimization. Centralization is also expected to improve our ability to develop next generation technologies, implement continuous manufacturing and share best practices across divisions. NTO includes approximately 28,000 associates and 67 manufacturing sites across our Innovative Medicines and Sandoz Divisions.

NBS, our shared service organization, was also made a part of Novartis Operations in 2016. NBS delivers integrated solutions to all Novartis divisions and units worldwide. NBS seeks to drive efficiency and effectiveness across Novartis by simplifying and standardizing services across six service domains: human resources, real estate and facility services, procurement, information technology, commercial and medical support activities, and financial reporting and accounting operations. NBS has approximately 10,000 associates in more than 50 countries. NBS works to leverage the full scale of Novartis to create value across the company and to free up resources to invest in innovation and our product pipeline. NBS continues to transfer the delivery of selected services to its five Global Service Centers in Dublin, Ireland; Hyderabad, India; Kuala Lumpur, Malaysia; Mexico City, Mexico; and Prague, Czech Republic.

In 2016, Novartis continuing operations achieved net sales of $48.5 billion, while net income from continuing operations amounted to $6.7 billion. Of total net sales from continuing operations, $11.9 billion, or 25%, came from Emerging Growth Markets, and $36.6 billion, or 75%, came from Established Markets. Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand. Research & Development expenditure in 2016 amounted to $9.0 billion ($8.5 billion excluding impairment and amortization charges).

Headquartered in Basel, Switzerland, our Group companies employed 118,393 full-time equivalent associates as of December 31, 2016. Our products are sold in approximately 155 countries around the world.

Innovative Medicines Division

Innovative Medicines (formerly named the Pharmaceuticals Division) researches, develops, manufactures, distributes and sells patented prescription medicines to enhance health outcomes for patients and health-care providers. The Innovative Medicines Division is organized into two global business units: Novartis Oncology and Novartis Pharmaceuticals. Novartis Pharmaceuticals consists of the global business franchises Ophthalmology, Neuroscience, Immunology and Dermatology, Respiratory, Cardio-Metabolic and Established Medicines.

In 2016, the Innovative Medicines Division accounted for $32.6 billion, or 67%, of Group net sales, and for $7.4 billion, or 85%, of Group operating income (excluding Corporate income and expense, net).

Sandoz Division

Our Sandoz Division develops, manufactures, distributes and sells prescription medicines, as well as pharmaceutical active substances that are not protected by valid and enforceable third-party patents. Sandoz is organized globally in three franchises: Retail Generics, Anti-Infectives, and Biopharmaceuticals. In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of pharmaceuticals to third parties. Retail Generics includes the areas of dermatology, respiratory, oncology, ophthalmics, cardiovascular, metabolism, central nervous system, pain, gastrointestinal, and hormonal therapies, as well as finished dosage form anti-infectives sold to third parties. In Anti-Infectives, Sandoz manufactures active pharmaceutical 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 biotechnology based products, including biosimilars, and provides biotechnology manufacturing services to other companies.

In 2016, Sandoz accounted for $10.1 billion, or 21%, of Group net sales, and for $1.4 billion, or 17%, of Group operating income (excluding Corporate income and expense, net).

Alcon Division

Our Alcon Division researches, develops, manufactures, distributes and sells eye care products. Alcon is a global leader in eye care with product offerings in eye care devices and vision care. Alcon is organized into two global business franchises: Surgical and Vision Care. The Surgical franchise includes technologies and devices for cataract, retinal, glaucoma and refractive surgery, as well as intraocular lenses to treat cataracts and refractive errors, like presbyopia and astigmatism. Alcon also provides viscoelastics, surgical solutions, surgical packs, and

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other disposable products for cataract and vitreoretinal surgery. The Vision Care franchise comprises daily disposable, monthly replacement, and color-enhancing contact lenses, as well as a complete line of contact lens care products including multi-purpose and hydrogen-peroxide based solutions, rewetting drops and daily protein removers.

In 2016, Alcon accounted for $5.8 billion, or 12%, of Group net sales, and for $–0.1 billion, or –2%, of Group operating income (excluding Corporate income and expense, net).

INNOVATIVE MEDICINES

Overview

Our Innovative Medicines Division is a world leader in offering innovation-driven, patent-protected medicines to patients and physicians. The Innovative Medicines Division researches, develops, manufactures, distributes and sells patented pharmaceuticals, and is composed of two business units: Novartis Oncology and Novartis Pharmaceuticals.

The Novartis Oncology business unit is responsible for the commercialization of products in the therapeutic area of oncology. In August 2016, we decided to re-integrate activities conducted by Cell and Gene Therapies, previously a separate franchise in the Innovative Medicines Division (formerly named the Pharmaceuticals Division), into the Novartis Oncology business unit.

The Novartis Pharmaceuticals business unit is organized into global business franchises responsible for the commercialization of various products in the following therapeutic areas: Ophthalmology, Neuroscience, Immunology and Dermatology, Respiratory, Cardio-Metabolic and Established Medicines.

On March 2, 2015, we completed the acquisition of the oncology products of GSK, together with certain related assets. In addition, we acquired a right of first negotiation over the co-development or commercialization of GSK's current and future oncology R&D pipeline, excluding oncology vaccines. The right of first negotiation is for a period of twelve and one half years from the acquisition closing date.

Following an internal reorganization announced on January 27, 2016, nineteen mature products were transferred from our Innovative Medicines Division to the Retail Generics franchise of our Sandoz Division, and Alcon's Ophthalmic Pharmaceuticals products were transferred to our Innovative Medicines Division. In compliance with IFRS, Novartis updated its segment financial information to reflect these transfers, both for the current and prior years, to aid comparability of year-on-year results. As a result, all comparisons of divisional results from 2016, 2015 and 2014 in this Form 20-F reflect this new divisional structure.

The Innovative Medicines Division is the largest contributor among the divisions of Novartis and reported consolidated net sales of $32.6 billion in 2016, which represented 67% of the Group's net sales.

The product portfolio of the Innovative Medicines Division includes more than 60 key marketed products, many of which are leaders in their respective therapeutic areas.

Innovative Medicines Division Products

The following table and summaries describe certain key marketed products in our Innovative Medicines Division. While we intend to sell our marketed products throughout the world, not all products and indications are currently available in every country. Compounds and new indications in development are subject to required regulatory approvals and, in certain instances, contractual limitations. 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. Some of the products listed below have lost patent protection 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 regulatory data protection, and for further information on the status of patents and exclusivity for Innovative Medicines Division products.

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Selected Marketed Products

Novartis Oncology Business Unit

Business franchise	Product	Common name	Indications (vary by country and/or formulation)	Formulation


*Oncology*	Afinitor/Votubia and Afinitor Disperz/Votubia dispersible tablets	everolimus	Advanced renal cell carcinoma after failure of treatment with VEGF-targeted therapy Advanced neuroendocrine tumors of gastrointestinal, lung or pancreatic origin Hormone receptor-positive advanced breast cancer in combination with an aromatase inhibitor, after prior endocrine therapy Subependymal giant cell astrocytoma associated with tuberous sclerosis complex (TSC) in patients not requiring immediate surgery Renal angiomyolipoma associated with TSC in patients not requiring immediate surgery	Tablet Dispersible tablet for oral suspension

	Arzerra	ofatumumab	Treatment of patients with chronic lymphocytic leukemia (CLL) who are refractory to fludarabine and alemtuzumab In combination with an alkylator-based regimen for the treatment of patients with CLL who have not received prior therapy and are not eligible for fludarabine-based therapy Maintenance/extended treatment for patients with CLL who are in complete or partial response after at least two lines of induction therapy In combination with fludarabine and cyclophosphamide for the treatment of patients with relapsed CLL	Intravenous infusion

	Exjade and Jadenu	deferasirox	Chronic iron overload due to blood transfusions and non-transfusion dependent thalassemia	Dispersible tablet for oral suspension Oral film-coated tablet

	Farydak	panobinostat	Relapsed and/or refractory multiple myeloma, in combination with bortezomib and dexamethasone, after at least two prior regimens including bortezomib and an immunomodulatory agent	Capsule

	Femara	letrozole	Hormone receptor-positive early breast cancer in postmenopausal women following surgery (upfront adjuvant therapy) Early breast cancer in post-menopausal women following standard tamoxifen therapy (extended adjuvant therapy) Advanced breast cancer in post-menopausal women (both as first- and second-line therapies)	Tablet

	Gleevec/Glivec	imatinib mesylate/ imatinib	Certain forms of Ph+ chronic myeloid leukemia Certain forms of KIT+ gastrointestinal stromal tumors Certain forms of acute lymphoblastic leukemia Dermatofibrosarcoma protuberans Hypereosinophilic syndrome Aggressive systemic mastocytosis Myelodysplastic/myeloproliferative diseases	Tablet Capsule

	Jakavi	ruxolitinib	Disease-related splenomegaly or symptoms in adult patients with primary myelofibrosis (also known as chronic idiopathic myelofibrosis), post-polycythemia vera myelofibrosis or post-essential thrombocythemia myelofibrosis Polycythemia vera in adult patients who are resistant to or intolerant of hydroxyurea	Tablet

	Odomzo⁽¹⁾	sonidegib	Locally advanced basal cell carcinoma that has recurred following surgery or radiation therapy, or is not a candidate for surgery or radiation therapy	Capsule

⁽¹⁾: Subject to divestment pending closing of sale to Sun Pharma.

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Product	Common name	Indications (vary by country and/or formulation)	Formulation


Proleukin	aldesleukin	Metastatic renal cell carcinoma Metastatic melanoma	Powder for injection or infusion

Promacta/Revolade	eltrombopag	Thrombocytopenia in adult and pediatric patients one year and older with chronic immune (idiopathic) thrombocytopenia who have had insufficient response to corticosteroids, immunoglobulins, or splenectomy Thrombocytopenia in patients with chronic hepatitis C to allow initiation and maintenance of interferon-based therapy Severe aplastic anemia in patients who have had an insufficient response to immunosuppressive therapy	Tablet Eltrombopag for oral suspension

Sandostatin LAR and Sandostatin SC	octreotide acetate	Acromegaly Symptom control for certain forms of neuroendocrine tumors Delay of tumor progression in patients with midgut tumors	Vial Ampoule/pre-filled syringe

Signifor and Signifor LAR	pasireotide	Cushing's disease Acromegaly	Solution for subcutaneous injection in ampoule Powder and solvent for suspension for IM injection

Tafinlar + Mekinist	dabrafenib + trametinib	Patients with unresectable or metastatic melanoma with BRAF V600E or V600K mutations as detected by a validated test	Capsule (Tafinlar) Tablet (Mekinist)

Tasigna	nilotinib	Certain forms of chronic myeloid leukemia in patients resistant or intolerant to prior treatment including Gleevec/Glivec First-line chronic myeloid leukemia	Capsule

Tykerb	lapatinib	In combination with capacitabine for the treatment of patients with HER2+ advanced or metastatic breast cancer who have progressed on prior trastuzumab therapy In combination with an aromatase inhibitor (specifically letrozole in US) for the treatment of patients with hormone sensitive metastatic breast cancer In combination with trastuzumab for patients with HR-negative metastatic disease that has progressed on prior trastuzumab therapy(ies) plus chemotherapy In combination with paclitaxel for first line treatment of patients with HER2+ metastatic breast cancer for whom trastuzumab is not appropriate	Tablet

Votrient	pazopanib	Advanced renal cell carcinoma Certain types of advanced soft tissue sarcoma after prior chemotherapy	Tablet

Zometa	zoledronic acid	Skeletal-related events from bone metastases Hypercalcemia of malignancy	Vial/4mg Ready-to-use

Zykadia	ceritinib	Anaplastic lymphoma kinase-positive metastatic non-small cell lung cancer post crizotinib	Capsule

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Novartis Pharmaceuticals Business Unit

Business franchise	Product	Common name	Indications (vary by country and/or formulation)	Formulation


*Ophthalmology*	Azarga/Azorga	brinzolamide and timolol	Decrease of intraocular pressure in adult patients with open-angle glaucoma or ocular hypertension for whom monotherapy provides insufficient intraocular pressure reduction	Eye drops

	Duotrav	travoprost and timolol	Reduction of elevated intraocular pressure in patients with open-angle glaucoma or who have ocular hypertension	Eye drops

	Durezol	difluprednate	Treatment of inflammation and pain associated with ocular surgery Treatment of endogenous anterior uveitis	Eye drops

	Lucentis	ranibizumab	Neovascular age-related macular degeneration Visual impairment due to diabetic macular edema Visual impairment due to macular edema secondary to central retinal vein occlusion Visual impairment due to macular edema secondary to branch retinal vein occlusion Visual impairment due to choroidal neovascularization secondary to pathologic myopia Visual impairment due to choroidal neovascularization secondary to other pathologies	Intravitreal injection

	Pataday and Pazeo	olopatadine	Signs and symptoms of allergic conjunctivitis Ocular itching associated with allergic conjunctivitis	Eye drops

	Patanol	olopatadine	Signs and symptoms of allergic conjunctivitis	Eye drops

	Simbrinza	brinzolamide and brimonidine tartrate	Decrease of elevated intraocular pressure in adult patients with open-angle glaucoma or hypertension for whom monotherapy provides insufficient intraocular pressure reduction	Eye drops

	Systane and Systane Ultra	polyethylene glycol 400 and propylene glycol	Temporary relief of burning and irritation due to dryness of the eye	Eye drops

	Systane Balance	propylene glycol	Temporary relief of burning and irritation due to dryness of the eye	Eye drops

	Systane Hydration	polyethylene glycol 400, propylene glycol and hyaluronic acid	Temporary relief of burning and irritation due to dryness of the eye	Eye drops

	Travatan, Travatan Z, Travatan BAK-Free, Izba	travoprost	Reduction of elevated intraocular pressure in patients with open-angle glaucoma or who have ocular hypertension	Eye drops

*Neuroscience*	Extavia	interferon beta-1b	Relapsing remitting and/or relapsing forms of multiple sclerosis in adult patients	Subcutaneous injection

	Gilenya	fingolimod	Relapsing forms of multiple sclerosis	Capsule

*Immunology and Dermatology*	Cosentyx	secukinumab	Active ankylosing spondylitis Active psoriatic arthritis Moderate-to-severe plaque psoriasis Pustular psoriasis	Lyophilized, pre-filled syringe; Auto-injector

	Ilaris	canakinumab	Cryopyrin-associated periodic syndromes Tumor necrosis factor-receptor associated periodic syndrome Hyperimmunoglobulin D syndrome / mevalonate kinase deficiency Familial Mediterranean fever Systemic juvenile idiopathic arthritis Gouty arthritis Adult-onset Still's disease	Lyophilized powder for reconstitution for subcutaneous injection Solution for injection

	Myfortic	mycophenolic acid (as mycophenolate sodium)	Prophylaxis of organ rejection in patients receiving allogeneic renal transplants	Gastro-resistant tablet

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Business franchise	Product	Common name	Indications (vary by country and/or formulation)	Formulation


	Neoral/Sandimmune	cyclosporine, USP Modified	Prevention of rejection following certain organ transplantation Non-transplantation autoimmune conditions such as severe psoriasis and severe rheumatoid arthritis	Capsule Oral solution Intravenous (Sandimmune)

	Simulect	basiliximab	Prevention of acute organ rejection in de novo renal transplantation	Vial for injection or infusion

	Xolair	omalizumab	Chronic spontaneous urticaria/chronic idiopathic urticaria See also, "Respiratory"	Lyophilized powder in vial and liquid formulation in pre-filled syringe

	Zortress/ Certican	everolimus	Prevention of organ rejection (heart, liver and kidney)	Tablet Dispersible tablet

*Respiratory*	Onbrez Breezhaler	indacaterol	Chronic obstructive pulmonary disease	Inhalation powder hard capsules

	Seebri Breezhaler	glycopyrronium bromide	Chronic obstructive pulmonary disease	Inhalation powder hard capsules

	Ultibro Breezhaler	indacaterol and glycopyrronium bromide	Chronic obstructive pulmonary disease	Inhalation powder hard capsules

	Xolair	omalizumab	Severe allergic asthma See also, "Immunology and Dermatology"	Lyophilized powder in vial and liquid formulation in pre-filled syringe

*Cardio-Metabolic*	Entresto	sacubitril and valsartan	Symptomatic chronic heart failure with reduced ejection fraction	Tablet

	Eucreas	vildagliptin and metformin	Type 2 diabetes	Tablet

	Galvus	vildagliptin	Type 2 diabetes	Tablet

*Established Medicines*	Cibacen	benazepril hydrochloride	Hypertension Adjunct therapy in congestive heart failure Progressive chronic renal insufficiency	Tablet

	Comtan	entacapone	Parkinson's disease patients who experience end-of-dose motor (or movement) fluctuations	Tablet

	Diovan	valsartan	Hypertension Heart failure Post-myocardial infarction	Tablet Capsule Oral solution

	Diovan HCT/Co-Diovan	valsartan and hydrochlorothiazide	Hypertension	Tablet

	Exelon	rivastigmine	Mild-to-moderate Alzheimer's disease dementia Severe Alzheimer's disease dementia Dementia associated with Parkinson's disease	Capsule Oral solution Transdermal patch

	Exforge	valsartan and amlodipine besylate	Hypertension	Tablet

	Exforge HCT	valsartan, amlodipine besylate and hydrochlorothiazide	Hypertension	Tablet

	Focalin and Focalin XR	dexmethylphenidate HCl and dexmethylphenidate extended release	Attention deficit hyperactivity disorder	Tablet Capsule

	Lamisil	terbinafine (terbinafine hydrochloride)	Fungal infection of the skin and nails caused by dermatophyte fungi tinea capitis Fungal infections of the skin for the treatment of tinea corporis, tinea cruris, tinea pedis and yeast infections of the skin caused by the genus candida Onychomycosis of the toenail or fingernail due to dermatophytes	Tablet

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Product	Common name	Indications (vary by country and/or formulation)	Formulation


Lescol and Lescol XL	fluvastatin sodium	Hypercholesterolemia and mixed dyslipidemia in adults Secondary prevention of major adverse cardiac events Slowing the progression of atherosclerosis Heterozygous familial hypercholesterolemia in children and adolescents	Capsule (Lescol) Tablet (Lescol XL)

Ritalin	methylphenidate HCl	Attention deficit hyperactivity disorder and narcolepsy	Tablet

Ritalin LA	methylphenidate HCl modified release	Attention deficit hyperactivity disorder	Capsule

Stalevo	carbidopa, levodopa and entacapone	Parkinson's disease patients who experience end-of-dose motor (or movement) fluctuations	Tablet

Tegretol	carbamazepine	Epilepsy Pain associated with trigeminal neuralgia Acute mania and bipolar affective disorders Alcohol withdrawal syndrome Painful diabetic neuropathy Diabetes insipidus centralis Polyuria and polydipsia of neurohormonal origin	Tablet Chewable tablet Oral suspension Suppository

TOBI and TOBI Podhaler	tobramycin	Pseudomonas aeruginosa infection in cystic fibrosis	Nebulizer solution (TOBI) Inhalation powder (TOBI Podhaler)

Trileptal	oxcarbazepine	Epilepsy	Tablet Oral suspension

Tyzeka/Sebivo	telbivudine	Chronic hepatitis B	Tablet Oral solution

Voltaren/Cataflam	diclofenac sodium/potassium/resinate/free acid	Inflammatory and degenerative forms of rheumatism Post traumatic and post-operative pain, inflammation and swelling Painful and/or inflammatory conditions in gynecology Other painful and/or inflammatory conditions such as renal and biliary colic, migraine attacks and as adjuvant in severe ear, nose and throat infections	Tablet Capsule Oral drops/oral suspension Ampoule for injection Suppository Gel Powder for oral solution Transdermal patch

Key Marketed Products

Novartis Oncology Business Unit

Oncology

•: Gleevec/Glivec (imatinib mesylate/imatinib) is a kinase inhibitor approved as a targeted therapy for Philadelphia chromosome-positive (Ph+) chronic myeloid leukemia (CML) and to treat patients with metastatic and/or unresectable KIT (CD117) positive (KIT+) gastrointestinal stromal tumors (GIST), and as an adjuvant treatment for certain adult patients following resection of KIT+ GIST. First launched in 2001, Gleevec/Glivec is approved in more than 110 countries. Gleevec/Glivec is also approved in the US, EU and Japan to treat Ph+ acute lymphoblastic leukemia, a rapidly progressive form of leukemia. In addition, Gleevec/Glivec is approved in the US and EU to treat dermatofibrosarcoma protuberans, a rare solid tumor; hypereosinophilic syndrome; myelodysplastic/myeloproliferative diseases and other rare blood disorders. In the US, Gleevec is also approved for aggressive systemic mastocytosis. Gleevec/Glivec has received approvals in more than 80 countries as a post-surgery (adjuvant setting) therapy for certain adult patients with KIT+ GIST. Following approval by the FDA in 2013, the EMA approved Gleevec/Glivec in July 2013 for pediatric patients with newly diagnosed Ph+ acute lymphoblastic leukemia in combination with chemotherapy.

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•: Tasigna (nilotinib) is a signal transduction inhibitor of the BCR-ABL tyrosine kinase. Since its launch in 2007, Tasigna has been approved in more than 125 countries to treat patients with Ph+ CML in the chronic and/or accelerated phase who are resistant or intolerant to existing treatment, including Gleevec/Glivec. It is also approved in more than 120 markets, including the US, EU member states, Switzerland and Japan, to treat newly diagnosed patients in the chronic phase.
•: Sandostatin SC and Sandostatin LAR (octreotide acetate/octreotide acetate for injectable suspension) are somatostatin analogues indicated for the treatment of patients with acromegaly, a chronic disease caused by over-secretion of pituitary growth hormone in adults. Sandostatin is also indicated for the treatment of patients with certain symptoms associated with carcinoid tumors and other types of gastrointestinal and pancreatic neuroendocrine tumors. Additionally, Sandostatin LAR is approved in more than 60 countries for treatment of patients with advanced neuroendocrine tumors of the midgut or unknown primary tumor location. Sandostatin was first launched in 1988 and is approved in more than 100 countries.
•: Afinitor/Votubia (everolimus) is an oral inhibitor of the mTOR pathway. Afinitor is approved in more than 120 countries including the US, EU member states and Japan for patients with advanced renal cell carcinoma following vascular endothelial growth factor-targeted therapy (in the US, after failure of sunitinib or sorafenib). Afinitor is also approved in more than 110 countries, including the US, EU member states and Japan for the treatment of locally advanced, metastatic or unresectable progressive neuroendocrine tumors (NET) of pancreatic origin. Afinitor was approved in the US in February 2016 and the EU in June 2016 for the treatment of patients with progressive, well-differentiated, nonfunctional NET of gastrointestinal or lung origin that are unresectable, locally advanced or metastatic, and is now approved for this indication in more than 40 countries worldwide. In addition, Afinitor is approved in more than 110 countries for hormone receptor-positive advanced breast cancer in combination with an aromatase inhibitor, after prior endocrine therapy. Everolimus, under the trade name Afinitor in the US and Votubia in the EU, is also approved in more than 95 countries to treat patients with tuberous sclerosis complex (TSC) who have subependymal giant cell astrocytoma not requiring immediate surgery, and in more than 90 countries to treat patients with TSC who have renal angiomyolipoma not requiring immediate surgery. A dispersible tablet for oral suspension formulation is approved for patients with TSC who have SEGA in more than 40 countries including the US (under the trade name Afinitor Disperz), EU member states (under the trade name Votubia) and Japan (under the trade name Afinitor). Everolimus, the active ingredient in Afinitor, is also available under the trade names Zortress/Certican for use in transplantation in the US and EU, respectively, and is exclusively licensed to Abbott and sublicensed to Boston Scientific for use in drug-eluting stents.
•: Exjade and Jadenu (deferasirox) is an oral iron chelator approved for the treatment of chronic iron overload due to blood transfusions in patients two years of age and older, as well as chronic iron overload in patients with non-transfusion dependent thalassemia in patients 10 years of age and older. Patients with chronic anemia from diseases such as thalassemia, sickle cell disease and myelodysplastic syndromes require repeated transfusions, which puts them at risk of iron overload. Exjade, a dispersible tablet for oral suspension, was first approved in 2005 and is now approved in more than 100 countries, including the US, EU member states and Japan. An oral film-coated tablet formulation that can be swallowed or crushed is approved in the US and Canada under the tradename Jadenu. It was approved by EMA in 2016 under the tradename of Exjade. Regulatory applications have been submitted in Switzerland and other countries. In addition to the film-coated tablet formulation, a new formulation has also been developed as granules for patients who cannot swallow tablets, using the same composition as the film-coated tablet formulation. Regulatory applications for the granules formulation have been submitted under the name Jadenu in the US and Japan and under the name Exjade in the EU.
•: Votrient (pazopanib) is a small molecule tyrosine kinase inhibitor that targets a number of intracellular proteins to limit tumor growth and cell survival. Votrient is approved in the US for the treatment of patients with advanced renal cell carcinoma (aRCC), and in the EU for first-line treatment of adult patients with aRCC and for patients who have received prior cytokine therapy for advanced disease. RCC is the most common type of kidney cancer in adults, and nearly one-fifth of patients have aRCC at the time of diagnosis. Votrient is also indicated for the treatment of patients with advanced soft tissue sarcoma (STS) who have received prior chemotherapy (efficacy in adipocytic STS or gastrointestinal stromal tumors has not been demonstrated). STS is a type of cancer which can arise from a wide variety of soft

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tissues including muscle, fat, blood vessel and nerves. Votrient is approved in more than 100 countries worldwide for aRCC and in more than 90 countries for advanced STS. Votrient was acquired from GSK.

•: Tafinlar + Mekinist (dabrafenib + trametinib) is the first combination of its kind for the treatment of patients with BRAF V600 mutation positive unresectable or metastatic melanoma, as detected by a validated test, in the US, EU and several other markets. Tafinlar targets the serine/threonine kinase BRAF in the RAS/RAF/MEK/ERK pathway and Mekinist targets the threonine/tyrosine kinases MEK1 and MEK2 in the MAP kinase pathway, resulting in dual blockade of this pathway. This is the first combination of a BRAF and a MEK inhibitor to demonstrate an overall survival benefit over BRAF inhibitor monotherapy after three years in two Phase III studies in BRAF V600 mutation positive unresectable or metastatic melanoma patients. Tafinlar and Mekinist are each also approved as single agents for the treatment of patients with unresectable or metastatic melanoma in more than 60 and 40 countries worldwide, respectively. Tafinlar and Mekinist were each acquired from GSK. As part of our purchase of oncology products from GSK, we obtained the worldwide exclusive rights granted by Japan Tobacco Inc., to develop, manufacture, and commercialize trametinib.
•: Promacta/Revolade (eltrombopag) is a once-daily oral thrombopoietin receptor agonist that works by stimulating bone marrow cells to produce platelets. It is the only approved once-daily oral thrombopoietin receptor agonist, and is marketed under the brand name Promacta in the US and Revolade in most countries outside the US. It is approved in more than 100 countries for the treatment of thrombocytopenia in adult patients with chronic immune (idiopathic) thrombocytopenia (ITP) who have had an inadequate response or are intolerant to other treatments. In the US and EU, Promacta/Revolade is approved for patients one year and older with chronic ITP who have had an inadequate response to other treatments. Promacta/Revolade may be considered as second-line treatment for adult non-splenectomised patients where surgery is contraindicated. Promacta/Revolade is also approved in 45 countries for the treatment of patients with severe aplastic anemia (SAA) who are refractory to other treatments (in the US for the treatment of patients with SAA who have had an insufficient response to immunosuppressive therapy and in the EU for the treatment of adults with acquired SAA who were either refractory to prior immunosuppressive therapy or heavily pretreated and are unsuitable for hematopoietic stem cell transplant). In addition, Promacta/Revolade is approved in more than 50 countries for the treatment of thrombocytopenia in patients with chronic hepatitis C to allow them to initiate and maintain interferon-based therapy. Promacta/Revolade is marketed under a collaboration agreement between Ligand Pharmaceuticals, Inc., and Novartis. Promacta/Revolade was acquired from GSK.
•: Jakavi (ruxolitinib) is an oral inhibitor of the JAK1 and JAK2 tyrosine kinases. It is the first JAK inhibitor indicated for the treatment of disease-related splenomegaly or symptoms in adult patients with primary myelofibrosis, post-polycythemia vera myelofibrosis or post-essential thrombocythemia myelofibrosis and adult patients with polycythemia vera who are resistant to or intolerant of hydroxyurea. Jakavi is currently approved in more than 100 countries for patients with myelofibrosis and in more than 65 countries for patients with polycythemia vera, including EU member states and Japan. A five year follow-up of the two pivotal trials, COMFORT-I and COMFORT-II suggests an overall survival advantage for patients randomized to Jakavi compared to placebo or best available therapy, respectively. Novartis licensed ruxolitinib from Incyte Corporation for development and commercialization in the indications of oncology, hematology and Graft-versus-host disease outside the US. Ruxolitinib, marketed in the US as Jakafi® by Incyte Corporation, is approved by the FDA for the treatment of patients with polycythemia vera who have had an inadequate response to or are intolerant of hydroxyurea. Jakafi® is also approved by the FDA for treatment of patients with intermediate or high-risk myelofibrosis, including primary myelofibrosis, post-polycythemia vera myelofibrosis and post-essential thrombocythemia myelofibrosis.

Novartis Pharmaceuticals Business Unit

Ophthalmology

•: Lucentis (ranibizumab) is a recombinant humanized high affinity antibody fragment that binds to vascular endothelial growth factor A (VEGF-A), a key mediator of intraocular neovascularization. Lucentis is an anti-VEGF therapy licensed for six ocular indications: neovascular age-related macular degeneration (nAMD), visual impairment due to diabetic macular edema (DME), visual impairment due to macular edema secondary to branch retinal vein occlusion (BRVO), visual impairment due to macular edema

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secondary to central retinal vein occlusion (CRVO), visual impairment due to choroidal neovascularization secondary to pathologic myopia (myopic CNV) and visual impairment due to choroidal neovascularization (CNV) secondary to other pathologies. Approval in visual impairment due to CNV secondary to other pathologies was received in Europe in November 2016, and submissions for this indication have been filed in 22 other countries. In April 2016 the label of Lucentis was updated to include the treatment of RVO patients with retinal ischemia. Lucentis is the only anti-VEGF treatment available in a pre-filled syringe and approved for a treat and extend regimen in the first year of therapy. Since its launch, there have been more than 4.3 million patient-treatment years of exposure for Lucentis and more than 26.8 million injections. Novartis licensed Lucentis from Genentech for development and commercialization outside of the US. For further information see "Note 27. Transactions with related parties—Genentech/Roche" in the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on January 25, 2017.

•: Travatan (travoprost), Travatan Z (travoprost) and Duotrav (travoprost/timolol) are indicated for the reduction of elevated intraocular pressure (IOP) in patients with open-angle glaucoma or who have ocular hypertension. Single agent travoprost products (Travatan, Travatan Z, Travatan BAK-Free and Izba) are prescribed as first-line agents and are marketed in more than 140 countries, including the US, countries of the EU, Canada and China. Duotrav is a fixed-dose combination solution of the prostaglandin analogue travoprost with the beta-blocker timolol, and is approved as a second-line treatment in adults for the reduction of IOP in patients with open-angle glaucoma or ocular hypertension who are insufficiently responsive to topical beta-blockers or prostaglandin analogues. Duotrav is currently marketed in more than 140 countries, including countries of the EU, Canada and China.
•: Systane (polyethylene glycol 400 and propylene glycol) and most other Systane branded products are indicated for the temporary relief of burning and irritation due to dryness of the eye. The Systane portfolio includes products for daily and nighttime relief, as well as products for everyday lid hygiene, and for discomfort associated with contact lens wear. Systane Ultra (polyethylene glycol 400 and propylene glycol) is sold in more than 80 countries, including the US, Canada and countries of the EU, Latin America and Asia. Systane Balance (propylene glycol) is sold in more than 60 countries. Systane Hydration (polyethylene glycol 400, propylene glycol and hyaluronic acid) was launched in March 2015 and is now sold in more than 35 countries across Europe, plus Canada and Australia.
•: Patanol (olopatadine), Pataday (olopatadine) and Pazeo (olopatadine) are olopatadine hydrochloride ophthalmic solutions of different concentrations that are approved to treat the signs and symptoms of allergic conjunctivitis (Patanol), as well as ocular itching associated with allergic conjunctivitis (Pataday and Pazeo). Olopatadine products are marketed in more than 100 countries, including the US, countries of the EU, Canada and China.

Neuroscience

•: Gilenya (fingolimod) is the first oral therapy approved to treat relapsing forms of multiple sclerosis (RMS) and the first in a new class of compounds called sphingosine 1-phosphate receptor modulators. In the US, Gilenya is indicated for relapsing forms of MS. In the EU, Gilenya is indicated for adult patients with high disease activity despite treatment with at least one disease modifying agent, or rapidly evolving severe relapsing-remitting MS. Gilenya impacts four key measures of disease activity: relapses, MRI lesions, brain shrinkage (brain volume loss) and disability progression. Its effectiveness on all of these measures has been consistently shown in multiple controlled clinical studies and in the real-world setting. As of November 2016, more than 180,000 patients have been treated in clinical trials and in a post-marketing setting, with more than 395,000 total patient-years of exposure. Gilenya is currently approved in more than 80 countries around the world. Gilenya is licensed from Mitsubishi Tanabe Pharma Corporation.

Immunology and Dermatology

•: Cosentyx (secukinumab) is a fully human monoclonal antibody that selectively neutralizes circulating interleukin 17A (IL-17A). Cosentyx has been approved in over 75 markets, including the US and countries of the EU, for the treatment of moderate-to-severe plaque psoriasis. Cosentyx is also approved in the EU for the treatment of adults with ankylosing spondylitis who have responded inadequately to conventional therapy, such as non-steroidal anti-inflammatory drugs, and for the treatment of active psoriatic arthritis in adults when the response to disease modifying anti-rheumatic drug therapy is unsatisfactory. In January

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2016, Cosentyx was approved in the US for the treatment of adults with active ankylosing spondylitis and for the treatment of adults with active psoriatic arthritis. Cosentyx is approved in more than 65 countries for the treatment of adults with ankylosing spondylitis and psoriatic arthritis, including the US, countries of the EU, Canada and Australia. Cosentyx is approved in Japan for the treatment of moderate-to-severe plaque psoriasis, pustular psoriasis, and both psoriasis vulgaris and psoriatic arthritis in adults who are not adequately responding to systemic therapies (except for biologics).

•: Neoral (cyclosporine, USP Modified) is an immunosuppressant to prevent organ rejection following a kidney, liver, or heart transplant. Neoral is also approved for use in lung transplant in many countries outside of the US. This micro-emulsion formulation of cyclosporine is also indicated for treating selected autoimmune disorders such as psoriasis and rheumatoid arthritis. First launched in 1995, Neoral is marketed in approximately 100 countries.
•: Zortress/Certican (everolimus) is an oral inhibitor of the mTOR pathway, indicated to prevent organ rejection following solid organ transplantation. Under the trade name Certican, it is approved in more than 90 countries to prevent organ rejection for renal and heart transplant patients, and in addition, in more than 70 countries worldwide to prevent organ rejection for liver transplant patients. In the US, under the trade name Zortress, the drug is approved for the prophylaxis of organ rejection in adult patients at low-moderate immunologic risk receiving a kidney transplant as well as for the prophylaxis of allograft rejection in adult liver transplant recipients. Everolimus is also available from Novartis in different dosage strengths and for different uses in non-transplant patient populations under the brand names Afinitor, Afinitor Disperz and Votubia. Everolimus is also exclusively licensed to Abbott and sublicensed to Boston Scientific for use in drug-eluting stents.
•: Myfortic (enteric-coated formulation of mycophenolate sodium) is approved in more than 90 countries for the prevention of acute rejection of kidney allografts, and is indicated in combination with cyclosporine and corticosteroids. Myfortic was first approved in the US in 2004 and in the EU in 2003.
•: Ilaris (canakinumab) is a human monoclonal antibody that selectively binds and neutralizes interleukin-1b (IL-1b), a pro-inflammatory cytokine. Since 2009, Ilaris has been approved in more than 70 countries for the treatment of children and adults suffering from cryopyrin-associated periodic syndromes, a group of rare disorders characterized by chronic recurrent fever, urticaria, occasional arthritis, deafness, and potentially life-threatening amyloidosis. In 2013, Ilaris was approved in the EU for the treatment of acute gouty arthritis in patients who cannot be managed with standard of care, and in the US, EU and other countries for the treatment of systemic juvenile idiopathic arthritis. In 2016, the FDA granted three simultaneous approvals for the expanded use of Ilaris to treat three rare and distinct types of periodic fever syndromes: tumor necrosis factor-receptor associated periodic syndrome, hyperimmunoglobulin D syndrome / mevalonate kinase deficiency and familial Mediterranean fever. Ilaris is the first and only FDA approved biologic treatment for these rare autoinflammatory diseases, which are also referred to as Hereditary Periodic Fevers. In December 2016, the CHMP recommended approval of the same three Periodic Fever Syndromes. In 2016, the European Commission also approved a license extension for Ilaris to treat patients with Adult-Onset Still's Disease.
•: Xolair (omalizumab) is a recombinant, DNA-derived, humanized IgG1K monoclonal antibody. Xolair is designed to block IgE, which limits the release of mediators in the early and late phases of the allergic inflammatory cascade. Xolair is currently approved in the EU, Switzerland and more than 80 countries as a treatment for chronic spontaneous urticaria (CSU)/chronic idiopathic urticaria (CIU) including approvals in the EU as add-on therapy for the treatment of CSU in adult and adolescent (12 years and above) patients with inadequate response to H1 antihistamine treatment, and, in the US, for the treatment of adults and adolescents (12 years of age and above) with CIU who remain symptomatic despite H1 antihistamine treatment. See also, Xolair in "Respiratory" below. We co-promote Xolair with Genentech in the US and share a portion of operating income, but we do not record any US sales. Novartis records all sales of Xolair outside the US. For further information see "Note 27. Transactions with related parties—Genentech/Roche" in the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on January 25, 2017.

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Respiratory

•: Xolair (omalizumab) is approved for the treatment of moderate-to-severe, or severe, persistent allergic asthma in more than 90 countries, including the US since 2003, the EU since 2005, and Japan since 2009. Xolair is provided as lyophilized powder for resolution, and in addition as liquid formulation in a pre-filled syringe in most European countries. See also, Xolair in "Immunology and Dermatology" above. We co-promote Xolair with Genentech in the US and share a portion of operating income, but we do not record any US sales. Novartis records all sales of Xolair outside the US. For further information see "Note 27. Transactions with related parties—Genentech/Roche" in the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on January 25, 2017.
•: Ultibro Breezhaler (indacaterol/glycopyrronium bromide) / Utibron Neohaler (indacaterol/ glycopyrrolate) is a fixed-dose combination of the long-acting beta₂-adrenergic agonist (LABA) indacaterol and the long-acting muscarinic antagonist (LAMA) glycopyrronium bromide. Ultibro Breezhaler was approved in the EU in 2013 as a once-daily maintenance bronchodilator treatment to relieve symptoms in adult patients with chronic obstructive pulmonary disease (COPD), and in Japan the MHLW approved Ultibro Inhalation Capsules delivered through the low resistance Breezhaler inhalation device, for relief of various symptoms due to airway obstruction in COPD (chronic bronchitis, emphysema). In October 2015 the combination was approved in the US under the name Utibron Neohaler as a twice-daily dual bronchodilator for the long-term maintenance treatment of airflow obstruction in patients with COPD, including chronic bronchitis and/or emphysema. The combination is approved in more than 90 countries and launched in more than 50 countries. The LAMA glycopyrronium bromide is approved individually as once-daily Seebri Breezhaler in the EU, Seebri (glycopyrronium) Inhalation Capsules 50 mcg administered through the Breezhaler device in Japan, and twice-daily Seebri Neohaler in the US, where the active ingredient is known as glycopyrrolate. It is now approved in more than 90 countries worldwide. Glycopyrronium bromide and certain use and formulation intellectual property were exclusively licensed to Novartis in April 2005 by Sosei and Vectura. The LABA indacaterol is approved individually as once-daily Onbrez Breezhaler in the EU, Onbrez Inhalation Capsules delivered through the Breezhaler inhalation device in Japan, and Arcapta Neohaler in the US. It is now approved in more than 100 countries worldwide. In December 2016, Sunovion Pharmaceuticals Inc., acquired the US commercialization rights for Utibron Neohaler, Arcapta Neohaler and Seebri Neohaler. Novartis will continue to market Ultibro Breezhaler, Onbrez Breezhaler and Seebri Breezhaler outside of the US.

Cardio-Metabolic

•: Galvus (vildagliptin), an oral DPP-4 inhibitor, and Eucreas, a vildagliptin and metformin single-pill combination, are indicated for the treatment of type 2 diabetes. The products were first approved in 2007. Galvus is currently approved in more than 130 countries, including EU member states, Japan (as Equa) and countries in Latin America and Asia-Pacific. Eucreas was the first single-pill combination of a DPP-4 inhibitor and metformin approved in Europe, and also under the trade name Galvus Met, and is currently approved in more than 125 countries. In 2012, Galvus received approval in the EU for expanded use as a second-line monotherapy for type 2 diabetes patients who cannot take metformin. In 2012, the EC approved the use of Galvus and Eucreas in combination with other diabetes treatments. The first approval was for the use of vildagliptin in combination with insulin, with or without metformin, for patients with type 2 diabetes when diet, exercise and a stable dose of insulin do not result in glycemic control. The second approval was for the use of vildagliptin in triple combination with metformin and a sulphonylurea for the treatment of type 2 diabetes when diet and exercise plus dual therapy with these two agents do not provide adequate glycemic control. Galvus monotherapy indication was approved in China in April 2015. Eucreas was approved in Japan in September 2015 under the name Equmet as the first single-pill combination metformin/DPP-4 inhibitor approved in that country.
•: Entresto (sacubitril/valsartan) is a first-in-class angiotensin receptor/neprilysin inhibitor indicated for the treatment of symptomatic chronic heart failure with reduced ejection fraction (HFrEF). It acts to enhance the protective neurohormonal systems of the heart (neprilysin system) while simultaneously suppressing the harmful system (the renin-angiotensin-aldosterone system, or RAAS). Entresto was approved and launched in the US in July 2015 as a treatment for HFrEF. It was approved in Switzerland in September 2015 and in the EU in November 2015. Entresto is now approved in more than 70 countries, and launched in more than 30 countries, for the treatment of HFrEF, including the US, countries of the EU, Switzerland, Canada and Australia. Both ESC HF and US HF guidelines have given a class I recommendation, the strongest class of recommendation, for the use of sacubitril/valsartan in patients with HFrEF.

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Established Medicines

•: Diovan (valsartan), together with Diovan HCT/Co-Diovan (valsartan and hydrochlorothiazide), is an angiotensin II receptor blocker (ARB). Diovan is the only agent in its class approved to treat all of the following: high blood pressure (including children 6 to 18 years), high-risk heart attack survivors and patients with heart failure. First launched in 1996, Diovan is available in more than 120 countries for treating high blood pressure, in more than 90 countries for heart failure, and in more than 70 countries for heart attack survivors. First launched in 1997, Diovan HCT/Co-Diovan is approved in more than 100 countries worldwide.
•: Exforge (valsartan and amlodipine besylate) is a single-pill combination of the ARB Diovan and the calcium channel blocker amlodipine besylate. First approved for the treatment of high blood pressure in Switzerland in 2006, and in the US and EU in 2007, it is now available in more than 100 countries. Exforge HCT (valsartan, amlodipine besylate and hydrochlorothiazide) is a single pill combining three widely prescribed high blood pressure treatments: an ARB, a calcium channel blocker and a diuretic (hydrochlorothiazide). Exforge HCT was approved in the EU and the US in 2009, and is now available in more than 75 countries.
•: Voltaren/Cataflam (diclofenac sodium/potassium/resinate/free acid) is a leading non-steroidal anti-inflammatory drug (NSAID) for the relief of symptoms in rheumatic diseases such as rheumatoid arthritis and osteoarthritis, and for various other inflammatory and pain conditions. Voltaren/Cataflam was first registered in 1973 and is available in more than 140 countries. This product is marketed by the Innovative Medicines Division in a wide variety of dosage forms including tablets, drops, suppositories, ampoules and topical therapy. Our Sandoz Division also markets generic versions of the product in various countries. In addition, we have licensed the Voltaren trademarks to our consumer healthcare joint venture with GSK to be used in the marketing of low dose oral forms and the topical forms of Voltaren as over-the-counter products.
•: Exelon (rivastigmine tartrate) and Exelon Patch (rivastigmine transdermal system) are cholinesterase inhibitors indicated for the treatment of Alzheimer's disease (AD) dementia and Parkinson's disease (PD) dementia. They are the oral and transdermal formulations, respectively, of the cholinesterase inhibitor rivastigmine. Exelon capsules have been available since 1997 to treat mild to moderate AD dementia and are approved in more than 85 countries. In 2006, Exelon became the only cholinesterase inhibitor to be approved for mild to moderate PD dementia in addition to AD in both the US and EU. Exelon Patch was approved in 2007 in the US and EU and has been approved for the treatment of mild-to-moderate AD in more than 85 countries, including more than 20 countries where it is also approved for Parkinson's disease dementia. The once-daily formulation Exelon Patch has shown comparable efficacy and superior tolerability to the highest recommended doses of Exelon capsules, with significant improvement in cognition and overall functioning compared to placebo. In 2013, the FDA expanded the approved indication for Exelon Patch to also include the treatment of patients with severe Alzheimer's disease. In 2013, European Marketing Authorization was obtained for the higher dose in mild-to-moderate AD. The higher dose has been approved in more than 50 countries. The severe indication has now been approved in more than 10 countries.
•: Ritalin, Ritalin LA, Focalin and Focalin XR (methylphenidate HCl, methylphenidate HCl extended release, dexmethylphenidate HCl and dexmethylphenidate HCl extended release) are indicated for the treatment of attention deficit hyperactivity disorder (ADHD) in children. Ritalin LA and Focalin XR are additionally indicated for ADHD in adults. Ritalin is also indicated for narcolepsy. Ritalin was first marketed during the 1950s and is available in more than 70 countries. Ritalin LA is available in more than 30 countries. Focalin comprises the active d-isomer of methylphenidate and therefore requires half the dose of Ritalin. Focalin and Focalin XR are available in the US.

Compounds in Development

The following table and paragraph summaries provide an overview of the key projects currently in the Confirmatory Development stage within our Innovative Medicines Division, including projects seeking to develop potential uses of new molecular entities as well as potential additional indications or new formulations for already marketed products. The year that each project entered the current phase of development disclosed below reflects

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the year in which the decision to enter the phase was made. This may be different from the year in which the first patient received the first treatment in the related clinical trial. A reference to a project being in registration means that an application has been filed with a health authority for marketing approval.

Selected Development Projects

Project/Product	Common name	Mechanism of action	Potential indication/ Disease area	Business franchise	Formulation/ Route of administration	Year Project Entered Current Development Phase	Planned filing dates/Current phase


ABL001	asciminib	BCR-ABL inhibitor	Chronic myeloid leukemia, 3rd line	Oncology	Oral	2015	2020/I

ACZ885	canakinumab	Anti-interleukin-1b monoclonal antibody	Secondary prevention of cardiovascular events	Cardio-Metabolic	Subcutaneous injection	2011	2017/III

Afinitor/Votubia	everolimus	mTOR inhibitor	Tuberous sclerosis complex seizures	Oncology	Oral	EU: 2016 US: 2013	EU (registration) US 2017/III

AMG 334	erenumab	Selective CGRP receptor antagonist	Migraine	Neuroscience	Subcutaneous injection	2015	2017/III

Arzerra	ofatumumab	Anti-CD20 monoclonal antibody	Refractory non-Hodgkin's lymphoma	Oncology	Oral	2010	2018/III

BAF312	siponimod	Sphingosine-1-phosphate receptor modulator	Secondary progressive multiple sclerosis	Neuroscience	Oral	2012	2019/III⁽¹⁾

BYL719	alpelisib	PI3Ka inhibitor	Hormone receptor-positive, HER2-negative advanced breast cancer (postmenopausal women), 2nd line (+ fulvestrant)	Oncology	Oral	2015	2019/III

BYM338	bimagrumab	Inhibitor of activin receptor Type II	Hip fracture	Neuroscience	Intravenous infusion	2013	³2021/II

			Sarcopenia	Neuroscience	Intravenous infusion	2014	³2021/II

CAD106	amilomotide	Beta-amyloid-protein therapy	Alzheimer's disease	Neuroscience	Intramuscular injection	2008	³2021/ II/III

CJM112	TBD	Anti-interleukin-17 monoclonal antibody	Immune disorders	Immunology and Dermatology	Subcutaneous injection	2015	³2021/II

CNP520	TBD	BACE inhibitor	Alzheimer's disease	Neuroscience	Oral	2015	³2021/ I/II

Cosentyx	secukinumab	Anti-interleukin-17 monoclonal antibody	Non-radiographic axial spondyloarthritis	Immunology and Dermatology	Subcutaneous injection	2015	2018/III

			Psoriatic arthritis head-to-head study vs. adalimumab	Immunology and Dermatology	Subcutaneous injection	2016	2020/III

			Ankylosing spondylitis head-to-head study vs. adalimumab	Immunology and Dermatology	Subcutaneous injection	2016	³2021/III

CTL019	tisagenlecleucel-T	CD19-targeted chimeric antigen receptor T-cell immunotherapy	Pediatric acute lymphoblastic leukemia	Oncology	Intravenous infusion	2012	2017/II

			Diffuse large B-cell lymphoma	Oncology	Intravenous infusion	2014	2017/II

⁽¹⁾: Ongoing discussions with health authorities to agree on next steps.

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Project/Product	Common name	Mechanism of action	Potential indication/ Disease area	Business franchise	Formulation/ Route of administration	Year Project Entered Current Development Phase	Planned filing dates/Current phase


EMA401	TBD	Angiotensin II receptor antagonist	Neuropathic pain	Neuroscience	Oral	2011	³2021/II

Entresto	valsartan and sacubitril (as sodium salt complex)	Angiotensin receptor/ neprilysin inhibitor	Chronic heart failure with preserved ejection fraction	Cardio-Metabolic	Oral	2013	2019/III

			Post-acute myocardial infarction	Cardio-Metabolic	Oral	2015	2020/III

FTY720	fingolimod	Sphingosine-1-phosphate receptor modulator	Pediatric multiple sclerosis	Neuroscience	Oral	2013	2017/III

Ilaris	canakinumab	Anti-interleukin-1b monoclonal antibody	Periodic fever syndromes	Immunology and Dermatology	Subcutaneous injection	2016	US (approved) EU (registration)

INC280	capmatinib	c-MET inhibitor	Non-small cell lung cancer	Oncology	Oral	2013	2018/II

			Non-small cell lung cancer EGFR mutation	Oncology	Oral	2016	³2021/II

Jakavi	ruxolitinib	JAK1/JAK2 inhibitor	Early myelofibrosis	Oncology	Oral	2016	2020/III

			Graft-versus-host disease	Oncology	Oral	2016	2019/III

KAE609	cipargamin	PfATP4 inhibitor	Malaria	Established Medicines	Oral	2012	³2021/II

KAF156	TBD	Imidazolopiperazines derivative	Malaria	Established Medicines	Oral	2013	³2021/II

LAM320	clofazimine	Mycobacterial DNA binding	Multi-drug resistant tuberculosis	Established Medicines	Oral	2016	2018/III

LCI699	osilodrostat	Aldosterone synthase inhibitor	Cushing's disease	Oncology	Oral	2011	2018/III

LEE011	ribociclib	CDK4/6 inhibitor	Hormone receptor-positive, HER2-negative advanced breast cancer (postmenopausal women), 1st line (+ letrozole)	Oncology	Oral	2016	US/EU (registration)

			Hormone receptor-positive, HER2-negative advanced breast cancer (postmenopausal women), 1st/2nd line (+ fulvestrant)	Oncology	Oral	2015	2018/III

			Hormone receptor-positive, HER2-negative advanced breast cancer (premenopausal women), 1st line, (+ tamoxifen + goserelin or NSAI + goserelin)	Oncology	Oral	2014	2018/III

			Hormone receptor-positive, HER2-negative breast cancer (adjuvant)	Oncology	Oral	2016	³2021/III

LIK066	TBD	SGLT 1/2 inhibitor	Weight loss	Cardio-Metabolic	Oral	2016	³2021/II

LJN452	TBD	FXR agonist	Non-alcoholic steatohepatitis	Immunology and Dermatology	Oral	2015	³2021/II

Lucentis	ranibizumab	Anti-VEGF monoclonal antibody fragment	Retinopathy of prematurity	Ophthalmology	Intravitreal injection	2014	2018/III

OMB157	ofatumumab	Anti-CD20 monoclonal antibody	Relapsing multiple sclerosis	Neuroscience	Subcutaneous injection	2016	2019/III

PIM447	TBD	Pan-PIM inhibitor	Hematologic tumors	Oncology	Oral	2015	³2021/I

PKC412	midostaurin	Signal transduction inhibitor	Acute myeloid leukemia	Oncology	Oral	2016	US/EU (registration)

			Advanced systemic mastocytosis	Oncology	Oral	2016	US/EU (registration)

			Acute myeloid leukemia (FLT3 wild type)	Oncology	Oral	2016	³2021/III

Promacta/Revolade	eltrombopag	Thrombopoietin receptor agonist	Severe aplastic anemia, 1st line	Oncology	Oral	2016	2017/III

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Project/Product	Common name	Mechanism of action	Potential indication/ Disease area	Business franchise	Formulation/ Route of administration	Year Project Entered Current Development Phase	Planned filing dates/Current phase


QAW039	fevipiprant	CRTH2 antagonist	Asthma	Respiratory	Oral	2010	2019/III

			Atopic dermatitis	Immunology and Dermatology	Oral	2013	³2021/II

QBW251	TBD	CFTR potentiator	Cystic fibrosis	Respiratory	Oral	2016	³2021/II

QGE031	ligelizumab	High affinity anti-IgE monoclonal antibody	Chronic spontaneous urticaria/ chronic idiopathic urticaria	Immunology and Dermatology	Subcutaneous injection	2015	2020/II

QMF149	indacaterol, mometasone furoate (in fixed dose combination)	Long-acting beta2-adrenergic agonist and inhaled corticosteroid	Asthma	Respiratory	Inhalation	2015	2019/III

QVM149	indacaterol, mometasone furoate, glycopyrronium bromide (in fixed dose combination)	Long-acting beta2-adrenergic agonist, long-acting muscarinic antagonist and inhaled corticosteroid	Asthma	Respiratory	Inhalation	2015	2019/III

RLX030	serelaxin	Recombinant form of human relaxin-2 hormone	Acute heart failure	Cardio-Metabolic	Intravenous infusion	2009	2017/III

RTH258	brolucizumab	Anti-VEGF single-chain antibody fragment	Neovascular age-related macular degeneration	Ophthalmology	Intravitreal injection	2014	2018/III

			Diabetic macular edema	Ophthalmology	Intravitreal injection	2016	2020/III

SEG101	crizanlizumab	P-selectin inhibitor	Sickle cell disease	Oncology	Intravenous infusion	2016	2020/III

Signifor LAR	pasireotide	Somatostatin analogue	Cushing's disease	Oncology	Long-acting release/ intramuscular injection	2016	US⁽²⁾ /EU (registration)

Tafinlar + Mekinist	dabrafenib + trametinib	BRAF inhibitor + MEK inhibitor	BRAF V600+ non-small cell lung cancer	Oncology	Oral	2016	US/EU (registration)

			BRAF V600+ melanoma (adjuvant)	Oncology	Oral	2013	2018/III

			BRAF V600+ colorectal cancer	Oncology	Oral	2012	2020/ I/II

Tasigna	nilotinib	BCR-ABL inhibitor	Chronic myeloid leukemia treatment-free remission	Oncology	Oral	EU: 2016 US: 2012	EU (registration) US 2017/III

UNR844	TBD	Reduction of disulfide bonds	Presbyopia	Ophthalmology	Eye drops	2016	³2021/II

VAY736	TBD	Anti-BAFF (B-cell activating factor) monoclonal antibody	Primary Sjoegren's syndrome	Immunology and Dermatology	Subcutaneous injection	2015	³2021/II

ZPL389	TBD	Histamine H₄ receptor antagonist	Atopic dermatitis	Immunology and Dermatology	Oral	2016	³2021/II

Zykadia	ceritinib	ALK inhibitor	ALK+ advanced non-small cell lung cancer (1st line, treatment naïve)	Oncology	Oral	2016	US/EU (registration)

			ALK+ advanced non-small cell lung cancer (brain metastases)	Oncology	Oral	2015	2019/II

⁽²⁾: Submission pending acceptance by FDA.

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Key Development Projects

•: ACZ885 (canakinumab) was first approved in 2009 for cryopyrin-associated periodic syndromes as Ilaris. ACZ885 is currently being investigated in the fully enrolled pivotal Phase III CANTOS study to determine whether ACZ885 can reduce the risk of recurrent cardiovascular events (cardiovascular death, non-fatal myocardial infarction, non-fatal stroke) in patients with history of myocardial infarction and elevated inflammatory burden versus placebo when administered quarterly in addition to standard of care. Results from the CANTOS study are expected mid-2017.
•: Afinitor/Votubia and Afinitor Disperz (everolimus) are oral inhibitors of the mTOR pathway. The EXIST-3 Phase III clinical trial in patients with tuberous sclerosis complex (TSC) who have refractory partial-onset seizures (uncontrollable seizures localized to a specific area of the brain) found that adjunctive therapy with everolimus significantly reduced refractory seizures associated with TSC compared to placebo in patients receiving a stable regimen of 1 - 3 anti-epileptic drugs. This data was published in The Lancet in September 2016. In December 2016, Votubia was recommended by the CHMP for approval as an adjunctive treatment of patients aged two years and older whose refractory partial-onset seizures, with or without secondary generalization, are associated with TSC.
•: AMG 334 (erenumab) is a fully human monoclonal antibody designed to block the calcitonin gene-related peptide (CGRP) receptor, which is believed to play a critical role in mediating the incapacitating pain of migraine. In 2016, we announced positive results for a Phase II study of AMG 334 in chronic migraine prevention and for two Phase III studies of AMG 334 in episodic migraine prevention. In these studies, patients who received AMG 334 experienced fewer monthly migraine days than patients who received placebo. The safety profile of AMG 334 was comparable to placebo in the trials. AMG 334 is being co-developed by Novartis and Amgen. Novartis has commercial rights to AMG 334 outside of the US, Canada and Japan.
•: Arzerra (ofatumumab) is a human monoclonal antibody that is designed to target the CD20 molecule found on the surface of chronic lymphocytic leukemia (CLL) cells and normal B lymphocytes. Results from the Phase III PROLONG study evaluating ofatumumab maintenance therapy versus no further treatment (observation) in patients with relapsed CLL who responded to induction treatment at relapse formed the basis for submissions made in 2015 to the EMA and FDA for this indication. In September 2015, the FDA granted Priority Review for ofatumumab as maintenance therapy in relapsed CLL, and in January 2016 the FDA approved Arzerra for extended treatment of patients who are in complete or partial response after at least two lines of therapy for recurrent or progressive CLL. In the EU, the CHMP did not recommend approval for Arzerra as maintenance treatment for patients with relapsed CLL. Results from the Phase III COMPLEMENT 2 study in 2015 showed that treatment with ofatumumab plus fludarabine and cyclophosphamide significantly improved median progression-free survival by 54% compared to treatment with fludarabine and cyclophosphamide alone in patients with relapsed CLL. Results of this study were submitted to the EMA and FDA in 2016. In May 2016, the FDA granted Priority Review for ofatumumab in combination with fludarabine and cyclophosphamide in relapsed CLL and approved this indication in August 2016. In November 2016, the CHMP issued a positive opinion for ofatumumab in combination with fludarabine and cyclophosphamide in relapsed CLL, which was followed in December 2016 by European Commission approval of the product for use in this indication. A Phase III trial is also underway to investigate ofatumumab in refractory non-Hodgkin's lymphoma. Arzerra is marketed under a license agreement between Genmab A/S and Novartis. Novartis is also investigating ofatumumab (disclosed as OMB157) in two Phase III studies for relapsing multiple sclerosis.
•: BAF312 (siponimod) is an oral, second-generation sphingosine 1-phosphate receptor modulator in Phase III development for secondary progressive multiple sclerosis. BAF312 binds selectively to the sphingosine 1-phosphate receptor subtypes 1 and 5, and distributes effectively to the brain where it may modulate central S1P1,5 receptors to impact central nervous system inflammation and repair mechanisms. Results from the EXPAND Phase III study, evaluating the efficacy and safety of BAF312 for secondary progressive multiple sclerosis, were announced in August 2016. EXPAND met its primary endpoint and showed that treatment with BAF312 reduced the risk of three-month confirmed disability progression by 21% and six-month confirmed disability progression by 26% compared with placebo. A consistent reduction in the risk of confirmed disability progression was seen across predefined subgroups, including patients without relapses. BAF312 was generally safe and well tolerated, with a profile comparable to

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other drugs in the same class. Novartis is currently in discussions with health authorities about next steps with BAF312.

•: BYL719 (alpelisib) is an orally bioavailable, alpha isoform-specific PI3K inhibitor. In breast cancer cell lines harboring PIK3CA mutations, BYL719 has been shown to inhibit the PI3K/AKT/mTOR pathway and have anti-proliferative effects. In addition, cancer cell lines with PIK3CA mutations were more sensitive to alpelisib than those without the mutation across a broad range of different cancers. BYL719 is being studied in the Phase III SOLAR-1 trial in combination with fulvestrant in men and postmenopausal women with hormone receptor-positive advanced breast cancer who received prior treatment with aromatase inhibitor and a Phase II trial to determine the maximum tolerated dose in combination with fulvestrant in PIK3CA mutated estrogen receptor-positive breast cancer patients.
•: Cosentyx (secukinumab) is a fully human monoclonal antibody that selectively neutralizes circulating IL-17A. In January 2016, Cosentyx was approved by the FDA for the treatment of adults with ankylosing spondylitis (AS) and for the treatment of adults with psoriatic arthritis (PsA). In October 2016, the Swiss health authority Swissmedic also approved Cosentyx for the treatment of AS and PsA. New results for Cosentyx published in the Journal of the American Academy of Dermatology from the head-to-head CLEAR study showed that Cosentyx remains superior to Stelara® in sustaining skin clearance (PASI 90 to PASI 100) at 52 weeks for adults with moderate-to-severe psoriasis. In addition, long-term data from the Phase III SCULPTURE study presented at a European medical meeting in October 2016 showed that Cosentyx delivers high and long-lasting skin clearance in patients with moderate-to-severe plaque psoriasis out to four years of treatment. Secukinumab is also in Phase III development for non-radiographic axial spondyloarthritis, and new head-to-head clinical trials have been initiated in AS and PsA to compare Cosentyx versus adalimumab.
•: CTL019 (tisagenlecleucel-T) is an investigational therapy that utilizes chimeric antigen receptors (CARs) to use the patient's own immune system to fight certain types of cancer. CARs are engineered proteins that transform a patient's own T cells into antigen-specific cells which seek out target proteins present on a patient's cancerous tumor. When these cells are re-introduced into the patient's blood, they demonstrate the potential to bind to the cancer cells and destroy them. CTL019 targets a protein called CD19 that is associated with a number of B-cell malignancies. Data presented in December 2016 from the pivotal global Phase II ELIANA trial of CTL019 in relapsed/refractory pediatric and young adult patients with B-cell acute lymphoblastic leukemia showed that 82% of infused patients achieved complete remission or complete remission with incomplete blood count recovery at three months post CTL019 infusion. For all patients with complete remission, no minimal residual disease was detected. In addition, the estimated relapse-free rate among responders was 60% six months after infusion with CTL019. We plan to submit a BLA to the FDA on the basis of this data in early 2017. CTL019 is also being studied in a Phase II trial in diffuse large B-cell lymphoma with an FDA filing planned in 2017.
•: EMA401 is a novel angiotensin II Type 2 receptor (AT₂R) antagonist in Phase II development. Targeting AT₂R is an emerging approach to neuropathic pain treatment. AT₂R antagonists block the pain signaling pathways in the peripheral nervous system. Positive results from a Phase II clinical trial of EMA401 in post-herpetic neuralgia, a painful condition that develops in some people following herpes zoster (shingles), were published in a major medical journal in February 2014. In addition, thus far, EMA401 has not been associated with central nervous system side effects such as dizziness or confusion, which are typically associated with existing therapies. Novartis expects to start two Phase II studies to assess the potential of EMA401 in peripheral neuropathic pain in 2017.
•: Entresto (sacubitril/valsartan) is a first-in-class angiotensin receptor/neprilysin inhibitor approved and marketed for the treatment of chronic heart failure with reduced ejection fraction (HFrEF). In addition, Novartis is conducting multiple studies of Entresto as part of the FortiHFy clinical program. This includes two large outcome studies. The first, PARAGON-HF, a Phase III trial of Entresto in patients with chronic heart failure with preserved ejection fraction, has completed enrollment with results expected in 2019. Novartis has commenced recruitment in PARADISE-MI, a Phase IIIb trial for patients at high risk for heart failure after an acute myocardial infarction, with results expected in 2020.
•: FTY720 (fingolimod) is a sphingosine 1-phosphate receptor modulator approved for the treatment of relapsing forms of multiple sclerosis as Gilenya. A Phase III study of fingolimod in pediatric multiple sclerosis was initiated in 2013. Results from the study are anticipated in 2017.

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•: Jakavi (ruxolitinib) is an oral inhibitor of the JAK 1 and JAK 2 tyrosine kinases. The Phase III study ReTHINK was initiated in the first quarter of 2016 to evaluate the efficacy and safety of Jakavi in early myelofibrosis patients. Novartis licensed ruxolitinib from Incyte Corporation for development and commercialization in the indications of oncology and hematology outside the US. In the second quarter of 2016 the license was amended to also include rights to research, develop and commercialize ruxolitinib in graft-versus-host disease outside the US. Ruxolitinib is marketed in the US as Jakafi® by Incyte Corporation.
•: LEE011 (ribociclib) is a selective cyclin dependent kinase inhibitor that inhibits two proteins called cyclin dependent kinase 4 and 6 (CDK4/6). Results from the pivotal Phase III MONALEESA-2 study showed LEE011 plus letrozole significantly extended progression-free survival (PFS) compared to a standard of care, letrozole, as a first-line treatment in post-menopausal women with HR+/HER2– advanced breast cancer. LEE011 plus letrozole reduced the risk of disease progression or death by 44% over letrozole alone, significantly extending PFS across all patient subgroups. Results from additional analyses from the Phase III MONALEESA-2 study showed that LEE011 plus letrozole significantly prolonged PFS across various pre-planned patient subgroups with HR+/HER2– advanced or metastatic breast cancer, including post-menopausal women diagnosed de novo, those with visceral metastases (liver and/or lung involvement), and those with bone-only disease. These findings demonstrate the potential impact of LEE011 plus letrozole in the first-line setting, showing that treatment benefit was evident across relevant patient subgroups regardless of their disease burden or tumor location, including those patients with more aggressive disease. We presented this data at the San Antonio Breast Cancer Symposium in December 2016. In November 2016, Novartis announced that the FDA granted Priority Review for LEE011 as first-line treatment of postmenopausal women with HR+/HER2– advanced or metastatic breast cancer in combination with letrozole following a Breakthrough Therapy designation from the FDA in August 2016. Novartis also announced in November that the EMA has accepted for review the marketing authorization application for LEE011 plus letrozole in the same patient population. Novartis is continuing to assess LEE011 through the MONALEESA clinical trial program, which includes MONALEESA-2, MONALEESA-3 and MONALEESA-7. These trials are evaluating LEE011 in multiple endocrine therapy combinations across a broad range of patients, including men and premenopausal women. LEE011 was developed by Novartis as part of a drug discovery collaboration with Astex Pharmaceuticals.
•: LIK066 is an inhibitor of the sodium-glucose co-transporter-1 (SGLT1) and sodium-glucose co-transporter-2 (SGLT2). The dual mechanism (renal and intestinal) acts to improve multiple metabolic end points including glycemic control, weight, blood pressure and lipid bio markers. We expect to initiate Phase II dose ranging studies for weight loss in the first half of 2017.
•: LJN452 is a potent, non-bile acid, Farnesoid X receptor (FXR) agonist, which is being developed for the treatment of nonalcoholic steatohepatitis (NASH). LJN452 has been shown to reduce steatosis, inflammation, and fibrosis in animal models, alongside a favorable safety profile in first in-human studies. This oral treatment is designed to break the cycle of fatty build-up in the liver and harness the body's built-in mechanisms for coping with excess bile acid. Recruitment is underway for the first LJN452 clinical study in NASH patients.
•: OMB157 (ofatumumab) is a fully human monoclonal antibody administered by subcutaneous injection in development for multiple sclerosis (MS). OMB157 works by binding to the CD20 molecule on the B cell surface and inducing B cell depletion. Positive Phase IIb results in MS patients were presented in 2014 and showed significant reduction in the number of new brain lesions in the first 24 weeks after ofatumumab administration. Novartis initiated a Phase III program for OMB157 in relapsing MS in August 2016. We expect to complete the Phase III program in MS in 2019. Ofatumumab is marketed by Novartis for oncology indications as intravenous infusion under the brand name Arzerra.
•: Pegpleranib is an oligo-nucleotide aptamer that inhibits the action of platelet-derived growth factor (PDGF). The pegpleranib Phase III program originally consisted of three clinical trials to evaluate the safety and efficacy of pegpleranib in combination with anti-VEGF drugs for the treatment of neovascular age related macular degeneration (nAMD). In December 2016, Novartis announced initial topline results from two pivotal Phase III clinical studies evaluating the safety and efficacy of pegpleranib in combination with Lucentis (ranibizumab) for the treatment of nAMD. These studies, OPH1002 and OPH1003, sponsored by Ophthotech Corporation, did not meet the primary endpoint of superiority for the

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pegpleranib and ranibizumab combination therapy, measured as best corrected visual acuity in terms of additional letter gains over ranibizumab monotherapy. In November 2015, Genentech entered into an agreement with Novartis to participate in certain financial rights related to the Novartis licensing and commercialization agreement with Ophthotech Corporation for pegpleranib. We continue to hold the license for the rights to develop and exclusively market pegpleranib outside the US.

•: PKC412 (midostaurin) is an oral, multi-targeted kinase inhibitor in Phase III development for treatment of patients with FLT3-mutated acute myeloid leukemia (AML) and for advanced systemic mastocytosis (SM). In February 2016, the FDA granted PKC412 Breakthrough Therapy designation for FLT3-mutated AML, which was primarily based upon the positive results from the Phase III randomized versus placebo RATIFY clinical trial and in November 2016, the FDA granted Priority Review to the PKC412 new drug application for the treatment of newly diagnosed FLT3 mutation-positive AML and advanced SM. In the RATIFY study, patients who received PKC412 plus standard induction and consolidation chemotherapy and as monotherapy up to one year for maintenance experienced a 23% improvement in overall survival compared to those treated with standard induction/consolidation chemotherapy and placebo. The median overall survival for patients in the PKC412 treatment group was 74.7 months, versus 26.0 months for patients in the placebo group. PKC412 is the first compound to illustrate an overall survival benefit targeting FLT3 in AML. In an advanced SM pivotal Phase II study, PKC412 demonstrated an overall response rate, defined as a major or partial response, of 60% in patients. The median duration of response for all responders in the primary efficacy population was 24.1 months. These data are the basis for the worldwide regulatory filings for PKC412 for newly diagnosed, FLT3-mutated AML and for advanced SM, including the FDA and EMA.
•: QAW039 (fevipiprant) is a small molecule being investigated in the reduction of frequency and duration of asthma attacks, particularly in patients with severe asthma. This compound is designed to block the activity of T-helper type-2 (Th2) cells, which are thought to contribute to the disease by releasing signals that maintain eosinophilic airway inflammation. In a Phase II study completed in August 2015, QAW039 reduced eosinophils, drivers of airway inflammation in patients with persistent moderate-to-severe asthma. Pivotal Phase III trials are underway in severe asthma.
•: QVM149 (indacaterol, glycopyrronium, mometasone furoate) is a once daily fixed-dose triple combination therapy being investigated in moderate-to-severe asthma patients who are uncontrolled on a long-acting beta-agonist (LABA) combined with an inhaled corticosteroid (ICS) or who are already taking a triple combination LABA, long-acting muscarinic antagonist (LAMA) and ICS. QVM149 consists of indacaterol (a LABA), glycopyrronium (a LAMA) and mometasone furoate (an ICS) delivered via the Breezhaler device. QVM149 is currently in Phase III clinical trials. This Phase III program is also designed to deliver data to support regulatory filings by Novartis for QMF149, a once daily combination of indacaterol and mometasone fuorate. This Phase III program is to support registration of QVM149 and QMF149 outside the US only.
•: RLX030 (serelaxin), is a novel recombinant form of the human hormone relaxin 2, and is believed to act through multiple mechanisms to reduce stress on the heart, kidneys and other organs. Results from the Phase III RELAX-AHF study showed that RLX030 improved symptoms and reduced mortality in patients with acute heart failure (AHF). Data were presented at the American Heart Association congress in 2012 and published simultaneously in The Lancet. In 2014, the FDA and CHMP decided that further data were required for marketing authorizations to be granted and a second confirmatory Phase III study, RELAX-AHF-2, is currently underway. The study's primary endpoint is a reduction in cardiovascular mortality, and top line results are expected in the first half of 2017. Based on the first study RELAX-AHF, RLX030 was approved and launched in Russia in 2014 under the trade name Reasanz.
•: RTH258 (brolucizumab) is a novel anti-vascular endothelial growth factor (anti-VEGF) agent that is currently being tested in neovascular age-related macular degeneration (nAMD) patients. RTH258 is a single chain antibody fragment that may be longer-acting than currently approved treatments for AMD, potentially enabling patients to extend the time between treatments. We expect the results of two Phase III trials in 2017.
•: SEG101 (crizanlizumab, formerly SelG1) is a humanized anti-P-selectin monoclonal antibody that is being investigated in the reduction of vaso-occlusive pain crises in patients with sickle cell disease (SCD). SCD is a hereditary blood disorder characterized by sickle-shaped red blood cells. Novartis acquired SEG101 in

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2016 by exercising its right to acquire Selexys Pharmaceuticals Corporation following receipt of results of the Phase II SUSTAIN study. Results from the SUSTAIN study showed that SEG101 reduced the median annual rate of sickle cell-related pain crises compared to placebo in patients with or without hydroxyurea therapy.

•: Signifor LAR (pasireotide) is a somatostatin analogue in development as a long-acting release formulation for patients with Cushing's disease. Applications have been submitted to the FDA and EMA for this indication.
•: Tafinlar (dabrafenib) targets the serine/threonine kinase BRAF in the RAS/RAF/MEK/ERK pathway and Mekinist (trametinib) targets the threonine/tyrosine kinases MEK1 and MEK2 in the MAP kinase pathway, resulting in dual blockade of this pathway, which is the main escape mechanism for resistance. Tafinlar + Mekinist is the first combination of BRAF and MEK inhibitors to report three years of follow-up survival data in two Phase III studies in BRAFv600+ unresectable or metastatic patients. A Phase III study is also underway for BRAF V600 mutation positive melanoma patients in the adjuvant setting. Phase II studies are also underway to evaluate the efficacy and safety of Tafinlar + Mekinist in patients with BRAF V600 mutation positive non-small cell lung cancer (NSCLC). Tafinlar has a Breakthrough Therapy designation from the FDA for treatment of NSCLC patients with BRAF V600E mutations who have received at least one prior line of platinum-containing chemotherapy. In July 2015, the combination therapy Tafinlar + Mekinist also received Breakthrough Therapy designation from the FDA for NSCLC patients with BRAF V600E mutations. In November 2016, the FDA granted Priority Review to Tafinlar + Mekinist for the treatment of BRAF positive NSCLC, as detected by an FDA-approved test, with disease progression on or after platinum-containing chemotherapy.
•: Tasigna (nilotinib) is a selective tyrosine-kinase inhibitor that inhibits the BCR-ABL protein produced by the Philadelphia chromosome, which is found in most people who have chronic myeloid leukemia (CML). Novartis has an ongoing global clinical trial program to evaluate the potential for Philadelphia chromosome positive (Ph+) CML patients to maintain deep molecular response after stopping nilotinib. ENESTfreedom, ENESTop, ENESTgoal, and ENESTpath are designed to evaluate the feasibility of stopping treatment, and achieving successful treatment-free remission in patients with Ph+ CML in the chronic phase and deep molecular response on nilotinib. Data from ENESTfreedom and ENESTop were presented at major US and European medical congresses in 2016. An application was filed with the EMA for the inclusion of the ENESTfreedom and ENESTop data in the Summary of Product Characteristics of Tasigna.
•: UNR844 is a potential first-in-class topical treatment in development for presbyopia. Presbyopia is a common age-related loss of near distance vision characterized by a progressive inability to focus on objects nearby, making everyday activities, such as reading, challenging. In a phase I/II masked, placebo-controlled proof of concept study, 50 patients were treated daily for 90 days with topical UNR844 and 25 patients with placebo. UNR844 showed a statistically significant difference to placebo in distant corrected near vision at all time points measured (from day 8). At day 90, 82% of participants treated with UNR844 had 20/40 near vision (or 0.30 LogMAR) versus 48% in the placebo group. Near vision of 20/40 allows for the majority of near vision tasks in most people. UNR844 was acquired by Novartis through the acquisition of Encore Vision, Inc., in January 2017.
•: VAY736 is a highly specific and potent monoclonal antibody against the B-cell activating factor receptor with enhanced antibody-dependent cell-mediated cytotoxicity against B cells. VAY736 is in Phase II development for the treatment of primary Sjoegren's syndrome, a systemic autoimmune disorder characterized by progressive lymphocytic destruction of exocrine glands and other organs resulting not only in eye and mouth dryness, but frequently complicated by severe fatigue and extraglandular organ involvement.
•: ZPL389 is a once-daily oral H₄ receptor antagonist in development for atopic dermatitis, commonly known as eczema. ZPL389 is a potential first-in-class oral treatment for moderate-to-severe eczema. In a proof of concept study, ZPL389 showed a clinically and statistically significant reduction of eczema. After eight weeks of treatment, the compound reduced the Eczema Area and Severity Index (EASI) score by 50% in a study of 98 patients. In clinical studies conducted to date, ZPL389 has a favorable safety profile. ZPL389 was acquired by Novartis through the acquisition of Ziarco Group Limited in January 2017.

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•: Zykadia (ceritinib) is a potent and highly selective oral anaplastic lymphoma kinase (ALK) inhibitor that is in development for ALK positive (ALK+) cancers. Two Phase III clinical trials comparing ceritinib with chemotherapy in treatment-naïve and in previously-treated non-small cell lung cancer (NSCLC) patients have demonstrated a statistically significant and clinically meaningful benefit. Results from the Phase III ASCEND-4 study found that patients with ALK+ advanced NSCLC treated with first-line Zykadia had a median progression-free survival of 16.6 months, compared to 8.1 months in patients treated with standard first-line chemotherapy with maintenance. The study findings were presented in December 2016 at the World Conference on Lung Cancer. Results from the randomized Phase III ASCEND-5 study of Zykadia were presented at the European Society for Medical Oncology (ESMO) congress in October 2016. The ASCEND-5 study assessed median progression-free survival (PFS) in patients previously treated with crizotinib and one or two prior regimens of cytotoxic chemotherapy (including platinum doublet), who then received Zykadia or standard chemotherapy. There was a statistically significant and clinically meaningful improvement in median PFS for patients taking Zykadia versus chemotherapy as determined by a blinded independent review committee. In addition, updated results from the Phase II ASCEND-3 study were presented at the ESMO congress in October 2016 which demonstrated that patients with ALK+ NSCLC taking Zykadia as their first ALK inhibitor (post-chemotherapy) had a median PFS of 18.4 months. In December 2016, applications were submitted in the US and EU for Zykadia as a first-line treatment for patients with ALK+NSCLC based on the results of the ASCEND-4 trial.

Projects Added To And Subtracted From The Development Table Since 2015

Project/Product	Potential indication/ Disease area	Change	Reason


ABL001	Chronic myeloid leukemia	Now disclosed as chronic myeloid leukemia, 3rd line

Afinitor/Votubia	Non-functioning GI and lung neuroendocrine tumors	Commercialized

	Diffuse large B-cell lymphoma	Removed	Development discontinued

Arzerra	Chronic lymphocytic	US: Commercialized	Approved in US
	leukemia (extended	EU: Removed	Development
	treatment)		discontinued in EU

	Chronic lymphocytic leukemia (relapse)	Commercialized

ASB183	Solid and hematological tumors	Removed	Development discontinued

BGJ398	Solid tumors	Removed	Development discontinued

BKM120	Metastatic breast cancer, hormone receptor-positive, aromatase inhibitor resistant/mTOR naïve, 2nd line (+ fulvestrant)	Removed	Development discontinued

	Metastatic breast cancer, hormone receptor-positive, aromatase inhibitor and mTOR inhibitor resistant, 3rd line (+ fulvestrant)	Removed	Development discontinued

	Solid tumors	Removed	Development discontinued

BYL719	Solid tumors	Removed	Development discontinued

BYM338	Sporadic inclusion body myositis	Removed	Development discontinued

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Project/Product	Potential indication/ Disease area	Change	Reason


Cosentyx	Psoriatic arthritis head-to-head study vs. adalimumab	Added	Entered confirmatory development

	Ankylosing spondylitis head-to-head study vs. adalimumab	Added	Entered confirmatory development

EGF816	Solid tumors	Removed	Development discontinued

Exjade film-coated tablet (FCT)	Iron overload	Commercialized

FCR001	Renal transplant	Removed	Development discontinued

FTY720	Pediatric multiple sclerosis	Added	Pediatric indication disclosed

Gilenya	Chronic inflammatory demyelinating polyradiculoneuropathy	Removed	Development discontinued

HSC835	Stem cell transplantation	Removed	Development discontinued

INC280	Non-small cell lung cancer EGFR mutation	Added	Entered confirmatory development

Ilaris (ACZ885)	Hereditary periodic fevers	Now disclosed as periodic fever syndromes

Jakavi	Early myelofibrosis	Added	Entered confirmatory development

	Graft-versus-host disease	Added	Extended licensing agreement with Incyte Corporation

LAM320	Multi-drug resistant tuberculosis	Added	Entered confirmatory development

LEE011	Hormone receptor-positive, HER2-negative breast cancer (adjuvant)	Added	Entered confirmatory development

	Solid tumors	Removed	Development discontinued

LIK066	Weight loss	Added	Entered confirmatory Development

LJM716	Solid tumors	Removed	Development discontinued

Lucentis	Choroidal neovascularization secondary to conditions other than age-related macular degeneration and pathologic myopia	Commercialized

pegpleranib	Neovascular age-related macular degeneration	Removed	Development in combination with Lucentis discontinued

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Project/Product	Potential indication/ Disease area	Change	Reason


PKC412	Aggressive systemic mastocytosis	Now disclosed as advanced systemic mastocytosis

	Acute myeloid leukemia (FLT3 wild type)	Added	Entered confirmatory development

Promacta/Revolade	Pediatric immune thrombocytopenia	Commercialized

	Severe aplastic anemia, 1st line	Added	Entered confirmatory development

QAX576	Allergic diseases	Removed	Development discontinued

QBW251	Cystic fibrosis	Added	Entered confirmatory Development

QGE031	Chronic spontaneous urticaria/ Inducible urticaria	Now disclosed as chronic spontaneous urticaria/ chronic idiopathic urticaria

RTH258	Neovascular age-related macular degeneration	Added	Transferred from Alcon Division

	Diabetic macular edema	Added	Transferred from Alcon Division

SEG101	Sickle cell disease	Added	Acquired with acquisition of Selexys Pharmaceuticals Corporation

UNR844	Presbyopia	Added	Acquired with acquisition of Encore Vision, Inc.

Votrient	Renal cell carcinoma (adjuvant)	Removed	Development discontinued

ZPL389	Atopic dermatitis	Added	Acquired with acquisition of Ziarco Group Limited

Principal Markets

The Innovative Medicines Division sells products in approximately 155 countries worldwide. Net sales are generally concentrated in the US, Europe and Japan. However, sales from Emerging Growth Markets have

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become increasingly important to us. The following table sets forth the aggregate 2016 net sales of the Innovative Medicines Division by region:

Innovative Medicines	2016 Net sales to third parties

	$ millions		%
Europe		11,217		34
United States		10,897		33
Asia, Africa, Australasia		7,696		24
Canada and Latin America		2,752		9

Total		32,562		100



Of which in Established Markets*		24,416		75
Of which in Emerging Growth Markets*		8,146		25

*: 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's products are used for chronic conditions that require patients to consume the product over long periods of time, ranging from months to years. Net sales of the vast majority of our products are not subject to material changes in seasonal demand. Sales of certain ophthalmic pharmaceutical products, including those for allergies, anti-inflammation and dry eye, are subject to seasonal variation.

Production

The primary goal of our manufacturing and supply chain management program is to ensure the uninterrupted, timely and cost-effective supply of products that meet all product specifications and quality standards. The manufacture of our products is heavily regulated by governmental health authorities around the world, including the FDA and EMA. In addition to regulatory requirements, many of our products involve technically complex manufacturing processes or require a supply of highly specialized raw materials.

We manufacture our products at facilities worldwide. See also "—Item 4.D Property, Plants and Equipment." Active pharmaceutical ingredients are manufactured in our own facilities or purchased from third-party suppliers. We maintain state-of-the-art and cost-competitive processes with quality as a primary goal within our own production network. Those processes include fermentation, chemical syntheses and precipitation processes, such as sterile processing. Many biologic medicines are manufactured using recombinant DNA derived technology, by which a gene is introduced into a host cell, which then produces a human protein. This manufacturing process requires sophisticated technical expertise. We are constantly working to improve current, and to develop new, manufacturing processes.

Raw materials for the manufacturing process are either produced in-house or purchased from a number of third party suppliers. Where possible, we maintain multiple supply sources so that the business is not dependent on a single 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 Novartis quality standards.

Because the manufacture of our products is complex and heavily regulated by governmental health authorities, 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 shutdown or disruption of our production activities. We have experienced supply interruptions for our products in the past, and there can be no assurance that supply will not be interrupted again in the future as a result of unforeseen circumstances. We have implemented a global manufacturing strategy to maximize business continuity in case of such events or other unforeseen catastrophic events. However, there can be no guarantee that we will always be able to successfully manage such issues when they arise.

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Marketing and Sales

The Innovative Medicines Division serves customers with 3,234 field force representatives in the US, and an additional 20,965 in the rest of the world, as of December 31, 2016, including supervisors and administrative personnel. These trained representatives, where permitted by law, present the therapeutic risks and benefits of our products to physicians, pharmacists, hospitals, insurance groups and managed care organizations. We continue to see increasing influence of customer groups beyond prescribers, and Novartis is responding by adapting our business practices to engage appropriately with such constituencies.

The marketplace for healthcare is also evolving with patients becoming more informed stakeholders in their healthcare decisions and looking for solutions to meet their changing needs. Where permitted by law, Novartis seeks to assist the patient, delivering innovative solutions to drive education, access, and improved patient care.

Although specific distribution patterns vary by country, Novartis generally sells its prescription drugs primarily 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 engagement with specialty pharmacies. In the US, specialty pharmacies continue to grow as a distribution channel for specialty products, with an increasing number of health plans mandating use of specialty pharmacies to monitor specialty drug utilization and costs.

Novartis pursues co-promotion/co-marketing opportunities as well as licensing and distribution agreements with other companies in various markets, when legally permitted and economically attractive. In the US, certain products can be advertised by way of internet, television, newspaper and magazine advertising.

As a result of continuing changes in healthcare economics and an aging population, the US Centers for Medicare & Medicaid Services (CMS) is now the largest single payor for healthcare services in the US. In addition, both commercial and government sponsored managed care organizations continue to be one of the largest groups of payors for healthcare services in the US. In other territories, national health services are often the only significant payor for healthcare services. In an effort to control prescription drug costs, almost all managed care organizations 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 increasingly utilize various 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 whether or not to continue to reimburse existing drugs. We have dedicated teams that actively seek to optimize formulary positions for our products.

Competition

The global pharmaceutical market is highly competitive, and we compete against other major international corporations which have substantial financial and other resources, as well as against smaller companies which operate regionally or nationally. Competition within the industry is intense and extends across a wide range of commercial activities, including pricing, product characteristics, customer service, sales and marketing, and research and development.

In addition, as is the case with other pharmaceutical companies selling patented pharmaceuticals, Novartis faces ever-increasing challenges from companies selling products which compete with our products, including competing patented products and generic forms of our products following the expiry of intellectual property protection. Generic companies may also gain entry to the market through successfully challenging our intellectual property rights, but we vigorously use legally permissible measures to defend those rights. See also "—Intellectual Property" below. We also face competition from over-the-counter (OTC) products that do not require a prescription from a physician. See also "—Regulation—Price Controls" below.

There is ongoing consolidation in the pharmaceutical industry. At the same time, new entrants are looking to use their expertise to establish or expand their presence in healthcare, including technology companies hoping to benefit as data and data management become increasingly important in our industry.

Research and Development

The discovery and development of a new drug is a lengthy process, usually requiring approximately 10 to 15 years from the initial research to bringing a drug to market, including approximately six to eight years from

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Phase I clinical trials to market entry. At each of these steps, there is a substantial risk that a compound will not meet the requirements to progress further. In such an event, we may be required to abandon a compound in which we have made a substantial investment.

We manage our research and development expenditures across our entire portfolio in accordance with our strategic priorities. We make decisions about whether or not to proceed with development projects on a project-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 development investment required will be driven by many factors, including 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 evidence necessary to demonstrate clinical efficacy and safety.

We are a leader in the pharmaceuticals industry in terms of research and development, including the level of our investment. For information about research and development expenditures by our Innovative Medicines Division over the last three years, please see "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Results of Operations—2016 Compared to 2015—Innovative Medicines—Research and development of Innovative Medicines Division," and "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Results of Operations—2015 Compared to 2014—Innovative Medicines—Research and development."

Research program

Our research program is conducted by the Novartis Institutes for BioMedical Research (NIBR), which is responsible for the discovery of new medicines. We established NIBR in 2002. The principal goal of our research program is to discover new medicines for diseases with unmet medical need. To do this, we focus our work in areas where we have sufficient scientific understanding and believe we have the potential to change the practice of medicine. This requires the hiring and retention of the best talent, a focus on fundamental disease mechanisms that are relevant across different disease areas, continuous improvement in technologies for drug discovery and potential therapies, close alliances with clinical colleagues, and the establishment of appropriate external complementary alliances.

At NIBR sites in Basel, Switzerland, Cambridge, Massachusetts, and three other US locations, Singapore and China, more than 6,000 scientists, physicians and business professionals contribute to research into disease areas such as cardiovascular and metabolic diseases, neuroscience, oncology, muscle disorders, ophthalmology, autoimmune diseases, and respiratory diseases. Research platforms such as the Center for Proteomic Chemistry are headquartered at the NIBR site in Basel, Switzerland. In addition, the Novartis Institute for Tropical Diseases, the Friedrich Miescher Institute, and the Genomics Institute of the Novartis Research Foundation focus on basic genetic and genomic research as well as research into diseases of the developing world such as malaria, dengue and African sleeping sickness.

All drug candidates are taken to the clinic via "proof-of-concept" trials to enable an early assessment of the safety and efficacy 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 March 2016, Dr. Mark Fishman, President of NIBR, reached his contractual retirement age and retired. Dr. James E. Bradner, a physician-scientist from Dana Farber Cancer Institute and Harvard Medical School succeeded Dr. Fishman in that role.

In October 2016, we announced a new strategic plan for research that includes the creation of a unified early discovery research group based in Basel, Switzerland and Cambridge, Massachusetts, the creation of two centers of excellence for bio-therapeutic research in Basel, Switzerland and Cambridge, Massachusetts, the creation of an enterprise wide pharmacokinetics sciences group and growth of our respiratory diseases research group. As part of this plan, the Novartis Institute for Tropical Diseases (NITD) will move research programs and operations from Singapore to Emeryville, California, where it will be co-located with our infectious diseases research team. We also plan to complete the exit of all internal non-human primate research. These changes will result in the

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closure of a biologics group in Shanghai, China and a team focused on non-human primate research in Fort Worth, Texas. We also plan to close ESBATech, a biologics group in Schlieren, Switzerland, subject to all appropriate consultation.

Development program

Effective July 1, 2016, we established a Global Drug Development (GDD) organization to oversee drug development activities for our Innovative Medicines Division. GDD works collaboratively with NIBR to execute our overall pipeline strategy and takes an enterprise approach to pipeline portfolio management. The new GDD organization 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 allocation, technology implementation and process standardization to further increase innovation. GDD includes approximately 10,000 associates worldwide.

Under our Global Drug Development unit, the focus of our development program is to determine the safety and efficacy of a potential new medicine in humans.

The traditional model of development comprises three phases, which are defined as follows:

Phase I: These are 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, including the safe dosage range. These trials also determine how a drug is absorbed, distributed, metabolized and excreted, and the duration of its action.

Phase II: Clinical studies performed with patients who have the target disease, with the aim of continuing the Phase I safety assessment in a larger group, assessing the efficacy of the drug in the patient population, and determining the appropriate doses for further evaluation.

Phase III: Large-scale clinical studies with several hundred to several thousand patients, which are conducted to establish the safety and efficacy of the drug in specific indications for regulatory approval. Phase III trials may also be used to compare a new drug against a current standard of care to evaluate the overall benefit-risk relationship of the new medicine.

In each of these phases, physicians monitor volunteer patients closely to assess the potential new drug's safety and efficacy.

Though we use this traditional model as a platform, we have tailored the development process to be simpler, more flexible and efficient. We view the development process as generally consisting of Exploratory Development where "proof of concept" is established, and Confirmatory Development where this concept is confirmed in large numbers of patients. Exploratory Development consists of clinical "proof of concept" (PoC) studies, which are small clinical trials (typically 5-15 patients) that combine elements of traditional Phase I/II testing. These customized trials are designed to give early insights into issues such as safety, efficacy and toxicity for a drug in a given indication and are conducted by NIBR. Once a positive proof of concept has been established, the drug moves to the Confirmatory Development stage and becomes the responsibility of GDD. Confirmatory Development has elements of traditional Phase II/III testing and includes trials aimed at confirming the safety and efficacy of the drug in the given indication leading up to submission of a dossier to health authorities for approval. Like traditional Phase III testing, this stage can also include trials which compare the drug to the current standard of care for the disease, in order to evaluate the drug's overall risk/benefit profile.

The vast amount of data that must be collected and evaluated makes clinical testing the most time-consuming 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."

At each phase of clinical development, our activities are managed by our Innovation Management Board (IMB). The IMB is responsible for oversight over all major aspects of our development portfolio and oversees our drug development budget. In particular, the IMB is responsible for the endorsement of proposals to commence the first clinical trials of a development compound, and of major project phase transitions and milestones following a positive proof of concept outcome, including transitions to full development and the decision to submit a regulatory application to the health authorities. The IMB is also responsible for project discontinuations, for the endorsement of overall development strategy and the endorsement of development project priorities. The

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IMB is chaired by our Global Head of Drug Development and Chief Medical Officer and has representatives from Novartis senior management, as well as experts from a variety of fields among its core members and extended membership.

Alliances and acquisitions

Our Innovative Medicines Division enters into business development agreements with other pharmaceutical and biotechnology companies and with academic institutions in order to develop new products and access new markets. We license products that complement our current product line and are appropriate to our business strategy. Therapeutic area strategies have been established to focus on alliances and acquisition activities for key disease areas and indications that are expected to be growth drivers in the future. We review products and compounds we are considering licensing using the same criteria as we use for our own internally discovered drugs.

In January 2017, we entered into a collaboration and option agreement with Ionis Pharmaceuticals, Inc. (Ionis), and its affiliate Akcea Therapeutics, Inc. (Akcea), to license two investigational treatments with the potential to significantly reduce cardiovascular risk in patients suffering from high levels of lipoproteins known as Lp(a) and ApoCIII. The two investigational antisense therapies developed by Ionis—called AKCEA-APO(a)-L_Rx and AKCEA-APOCIII-L_Rx—have the potential to lower both lipoproteins up to 90% and significantly reduce cardiovascular risk in high-risk patient populations. In addition, Novartis entered into a stock purchase agreement with Ionis and Akcea. This transaction is subject to customary closing conditions, including regulatory approval.

In December 2016, we entered into a definitive agreement for the acquisition of Encore Vision, Inc., a privately-held company focused on the development of UNR844 (formerly EV06), an investigational, first-in-class potentially disease modifying topical treatment for presbyopia. This acquisition was completed on January 20, 2017.

In December 2016, we signed an exclusive option, collaboration and license agreement with Conatus Pharmaceuticals Inc., for the global rights to emricasan, an investigational, first-in-class, oral, pan-caspase inhibitor for the treatment of non-alcoholic steatohepatitis (NASH) with advanced fibrosis and cirrhosis of the liver. Upon exercise of the option, Novartis will obtain an exclusive, worldwide license to develop and commercialize products containing emricasan. The exercise of the option is subject to customary closing conditions, including regulatory approval.

In December 2016, we entered into a definitive agreement for the acquisition of Ziarco Group Limited, a privately held company focused on the development of novel treatments in dermatology including ZPL389, a once-daily oral H₄ receptor antagonist in development for atopic dermatitis. This acquisition was completed on January 20, 2017.

In November 2016, we acquired Selexys Pharmaceuticals Corporation and SEG101 (crizanlizumab, formerly SelG1), an anti-P-selectin antibody being investigated in the reduction of vaso-occlusive pain crises in patients with sickle cell disease.

In June 2016, we announced a collaboration and licensing agreement with Xencor for the development of bispecific antibodies for treating cancer. We plan to collaborate with Xencor to co-develop their two bispecific T cell engaging antibodies targeting CD3xCD123 and CD3xCD20 for the treatment of acute myeloid leukemia and B-cell malignancies. As part of the agreement, Novartis also receives the right to develop four additional bispecific antibodies and to use other Xencor proprietary antibody engineering technology for up to ten additional biotherapeutic programs across the Novartis research and development portfolio.

In January 2016, we announced a collaboration and licensing agreement with Surface Oncology, which gives Novartis access to four pre-clinical programs in immuno-oncology. These programs target regulatory T cell populations, inhibitory cytokines, and immunosuppressive metabolites in the tumor microenvironment.

In March 2015, we entered into a collaboration with Aduro Biotech focused on the discovery and development of next generation cancer immunotherapies targeting the STING signaling pathway. STING is a signaling pathway that when activated is known to initiate broad innate and adaptive immune responses in tumors. Aduro's novel small molecule cyclic dinucleotides (CDNs) have proven to generate an immune response in preclinical models that specifically attacks tumor cells.

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In January 2015, we announced collaboration and licensing agreements with Intellia Therapeutics for the discovery and development of new medicines using CRISPR genome editing technology and Caribou Biosciences for the development of drug discovery tools. CRISPR, an acronym that stands for clustered regularly interspaced short palindromic repeats, is an approach that allows scientists to easily and precisely edit the genes of targeted cells. In a short period of time it has proven to be a powerful tool for creating very specific models of disease for use in drug discovery and has potential for use as a therapeutic modality for treating disease at the genetic level by deleting, repairing or replacing the genes that cause disease.

In February 2014, we acquired CoStim Pharmaceuticals Inc., a Cambridge, Massachusetts-based, privately held biotechnology company focused on harnessing the immune system to eliminate immune-blocking signals from cancer. This acquisition enhanced our late discovery stage immunotherapy programs directed to several targets, including PD-1.

In 2012, Novartis and the University of Pennsylvania (Penn) announced an exclusive global research and development collaboration to develop and commercialize targeted chimeric antigen receptor (CAR) immunotherapies for the treatment of cancers. The research component of this collaboration focuses on accelerating the discovery and development of additional therapies using CAR immunotherapy. In September 2014, as part of its alliance with Novartis, Penn announced plans for the construction of the Center for Advanced Cellular Therapeutics (CACT) on the Perelman School of Medicine campus in Philadelphia, Pennsylvania. The CACT opened in February 2016 and is a first of its kind research and development center established specifically to develop and manufacture adoptive T cell immunotherapies under the research collaboration guided by scientists and clinicians from NIBR and Penn.

Regulation

The international pharmaceutical industry is highly regulated. Regulatory authorities around the world administer numerous laws and regulations regarding the testing, approval, manufacturing, importing, labeling and marketing of drugs, and also review the safety and efficacy of pharmaceutical products. Extensive controls exist on the non-clinical and clinical development of pharmaceutical 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, EU and Japan, 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 maintained. 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, efficacy 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. It is possible that a drug can be registered and marketed in one country while the registration authority in another country may, prior to registration, request additional information from the pharmaceutical company or even reject the product. It is also possible that 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 registration authority's procedures and the nature of the product. Many countries provide for accelerated processing of registration applications for innovative products of particular therapeutic interest. In recent years, efforts have been made among the US, the EU and Japan to harmonize registration requirements in order to achieve shorter development and registration times for medical products. However, the requirement in many countries to negotiate selling prices or reimbursement levels with government regulators and other payors can substantially extend the time until a product may finally be available to patients.

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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 submitted to and reviewed by the FDA. The FDA regulates the testing, manufacturing, labeling and approval for marketing of pharmaceutical products intended for commercialization 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 intensive, lengthy and rigorous. When a pharmaceutical company has gathered data which it believes sufficiently demonstrates a drug's safety, efficacy and quality, then the company may file a New Drug Application (NDA) or Biologics License Application (BLA), as applicable, for the drug. The NDA or BLA must contain all the scientific information that has been gathered about the drug and typically includes information regarding the clinical experiences of patients tested in the drug's clinical trials. A Supplemental New Drug Application (sNDA) or BLA amendment must be filed for new indications for a previously approved drug.

Once an application is submitted, the FDA assigns reviewers from its staff in biopharmaceutics, chemistry, clinical microbiology, pharmacology/toxicology, and statistics. After a complete review, these content experts then 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 application is not approved. If not approved, the letter will state the specific deficiencies in the NDA or BLA which need to be addressed. The sponsor must then submit an adequate response to the deficiencies in order to restart the review procedure.

Once the FDA has approved an NDA, BLA, sNDA or BLA amendment, the company can make the new drug available for physicians to prescribe. The drug owner must submit periodic reports to the FDA, including any cases of adverse reactions. For some medications, the FDA requires additional post-approval studies (Phase IV) to evaluate long-term effects or to gather information on the use of the product under special conditions.

Throughout the life cycle of a product, the FDA also requires compliance with standards relating to good laboratory, clinical, manufacturing and promotional practices.

European Union

In the EU, there are three main procedures for application for authorization to market pharmaceutical products in the EU Member States, the Centralized Procedure, the Mutual Recognition Procedure and the Decentralized Procedure. It is also possible to obtain a national authorization for products intended for commercialization in a single EU member state only, or for additional indications for licensed products.

Under the Centralized Procedure, applications are made to the EMA for an authorization which is valid for the European Community. The Centralized Procedure is mandatory for all biotechnology products and for new chemical entities in cancer, neurodegenerative disorders, diabetes and AIDS, autoimmune diseases or other immune dysfunctions and optional for other new chemical entities or innovative medicinal products or in the interest of public health. When a pharmaceutical company has gathered data which it believes sufficiently demonstrates a drug's safety, efficacy and quality, then the company may submit an application to the EMA. The EMA then receives and validates the application, and appoints a Rapporteur and Co-Rapporteur to review it. The entire review cycle must be completed within 210 days, although there is a "clock stop" at day 120, to allow the company to respond to questions set forth in the Rapporteur and Co-Rapporteur's Assessment Report. When the company's complete response is received by the EMA, the clock restarts on day 121. If there are further aspects of the dossier requiring clarification, the EMA will then request an Oral Explanation on day 180, in which case the sponsor must appear before the CHMP to provide the requested additional information. On day 210, the CHMP will then take a vote to recommend the approval or non-approval of the application. The final decision under this Centralized Procedure is a European Community decision which is applicable to all Member States. This decision occurs on average 60 days after a positive CHMP recommendation.

Under the Mutual Recognition Procedure (MRP), the company first obtains a marketing authorization from a single EU member state, called the Reference Member State (RMS). In the Decentralized Procedure (DCP)

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the application is done simultaneously in selected or all Member States if a medicinal product has not yet been authorized in a Member State. During the DCP, the RMS drafts an Assessment Report within 120 days. Within an additional 90 days the Concerned Member States (CMS) review the application and can issue objections or requests for additional information. On Day 90, each CMS 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 the Marketing Authorizations have been granted, the company must submit periodic safety reports to the EMA (if approval was granted under the Centralized Procedure) or to the National Health Authorities (if approval was granted under the DCP or the MRP). In addition, several pharmacovigilance measures must be implemented and monitored including Adverse Event collection, evaluation and expedited reporting and implementation, as well as update Risk Management Plans. For some medications, post approval studies (Phase IV) may be required to complement 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. After this time, the Marketing Authorization may be renewed by the competent authority on the basis of re-evaluation of the risk/benefit balance. Once renewed the Marketing Authorization is valid for an unlimited period. Any Marketing Authorization which is not followed within three years of its granting by the actual placing on the market of the corresponding medicinal product ceases to be valid.

Japan

In Japan, applications for new products are made through the Pharmaceutical and Medical Devices Agency (PMDA). Once an NDA is submitted, a review team is formed consisting of specialized officials of the PMDA, including chemistry/manufacturing, non-clinical, clinical and biostatistics. While a team evaluation is carried out, a data reliability survey and Good Clinical Practice/Good Laboratory Practice/Good Manufacturing Practice inspection are carried out by the Office of Conformity Audit and Office of GMP/GQP Inspection of the PMDA. Team evaluation results are passed to the PMDA's external experts who then report back to the PMDA. After a further team evaluation, a report is provided to the Ministry of Health, Labor and Welfare (MHLW), which makes a final determination for approval and refers this to the Council on Drugs and Foods Sanitation which then advises the MHLW on final approvability. Marketing and distribution approvals require a review to determine whether or not the product in the application is suitable as a drug to be manufactured and distributed by a person who has obtained a manufacturing and distribution business license for the type of drug concerned and confirmation that the product has been manufactured in a plant compliant with Good Manufacturing Practices.

Once the MHLW has approved the application, the company can make the new drug available for physicians to prescribe. After that, the MHLW lists its national health insurance price within 60 days (or 90 days) from the approval, and physicians can obtain reimbursement. For some medications, the MHLW requires additional post-approval studies (Phase IV) to evaluate safety, effects and/or to gather information on the use of the product under special conditions. The MHLW also requires the drug's sponsor to submit periodic safety update reports. Within three months from the specified re-examination period, which is designated at the time of the approval of the application for the new product, the company must submit a re-examination application to enable the drug's safety and efficacy to be reassessed against approved labeling by the PMDA.

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 programs with varying price control mechanisms. Due to increasing political pressure and governmental budget constraints, we expect these mechanisms to continue to remain robust—and to potentially even be strengthened—and to have a negative influence on the prices we are able to charge for our products.

Direct efforts to control prices

United States. In the US, as a result of the Patient Protection and Affordable Care Act (ACA), the recurring focus on deficit reduction, and public pressure on elected officials based on recent price increases

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by certain pharmaceutical manufacturers, there is a significant likelihood of continued actions to control prices. Specifically, one proposal that has been repeatedly advanced would impose a government-mandated pricing formula on both patented and generic medications provided through the Medicare prescription drug benefit (Medicare Part D). In addition, the ACA mandated the creation of a new entity, the Independent Payment Advisory Board (IPAB), which has been granted unprecedented authority to implement broad actions to reduce future costs of the Medicare program. This could include required prospective prescription drug discounts or rebates, which could limit net prices for our products. The Medicare Trustees' Report from June 2016 predicted that the projected 5-year average growth in per capita Medicare program spending is likely to exceed a specified target level in 2017. If the Chief Actuary for CMS determines that the projected 5-year average growth rate exceeds the target, the IPAB would then develop savings proposals in 2018 based on a savings target set by the Chief Actuary, to be implemented in 2019. There is also a possibility that government officials will continue to search for additional ways to reduce or control prices, including state legislation mandating drug price controls, which could include limits on annual price increases or maximum price levels.

Europe. In Europe, our operations are subject to significant price and marketing regulations. Many governments are introducing healthcare reforms in a further attempt to curb increasing healthcare costs. In the EU, governments 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 consumers. The downward pressure on healthcare costs in general in the EU, particularly with regard to prescription drugs, has become very 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 marketed products are referenced within Member States and across Member State borders, including new EU Member States, further impacting individual EU Member State pricing.

Japan. In 2016, the National Health Insurance price calculation method for new products and the price revision rule for existing products were reviewed, and the resulting new drug tariffs became effective beginning April 2016. In addition, the MHLW implemented extraordinary price cuts in 2016 for certain products the sales of which have increased more than 100 billion Japanese Yen (one and one half times more than official forecasts). The Japanese government is currently undertaking a healthcare reform initiative with a goal of sustaining the universal coverage of the National Health Insurance program, and is addressing the efficient use of drugs, including promotion of generic use. Meanwhile, the government tentatively initiated a premium system which basically maintains the price of patented drugs for unmet medical needs in order to promote innovative new drug creation and the solution of the unapproved indication issue. The continuance of this system will be reviewed as a part of price reforms in 2018. In December 2016, the Japanese government announced basic reform principles for fundamental reforms of the drug pricing system in 2018. These include an increase in the frequency of price cuts from every other year to annually, beginning after the next regular price revision scheduled for April 2018. The government's practice of mandating additional price decreases for specific products will continue.

Rest of World. Many other countries around the world are also taking steps to control prescription drug prices. For example, in 2016, China, one of our most important emerging growth markets, organized national price negotiations for certain products directly linked to local drug reimbursement without further bidding, which will apply nationwide both in public and military hospitals, with drug price reductions of more than 50% in some cases. Drug prices in China may further decline due to a stated national policy of reducing healthcare costs, including continued strategic initiatives specifically designed to reduce drug prices. In addition, the Colombian government has taken steps to unilaterally reduce the price of Glivec by up to 43% through a local procedural mechanism called a Declaration of Public Interest. While the government's use of this exceptional mechanism as a tool to control the price of a prescription drug and to generally manage its healthcare budget is unprecedented, and we are contesting its appropriateness with respect to Glivec in Colombia, its use could become more widespread if upheld in this case, potentially leading to a more systemic impact on drug pricing.

Regulations favoring generics and biosimilars

In response to rising healthcare costs, many governments and private medical care providers, such as Health Maintenance Organizations, have instituted reimbursement schemes that favor the substitution of

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generic pharmaceuticals for more expensive brand-name pharmaceuticals. In the US, generic substitution statutes have been enacted by virtually all states and permit or require the dispensing pharmacist to substitute a less expensive generic drug instead of an original patented drug. Other countries have similar laws, including numerous European countries. We expect that the pressure for generic substitution will continue to increase. In addition, the US, EU and other jurisdictions are increasingly developing laws and regulations 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 also have an impact in other countries as a result of cross-border sales. In the EU, products which we have sold to customers in countries with stringent price controls can in some instances legally be re-sold to customers in other EU countries with less stringent price controls at a lower price than the price at which the product is otherwise available in the importing country. In North America, products which we have sold to customers in Canada, which has relatively stringent price controls, are sometimes re-sold 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. Given the increased focus on pharmaceutical prices in the US, members of the US Congress continue to explore legislation to allow the safe importation of pharmaceutical products into the US from select countries, including Canada.

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 including patents, trademarks, copyrights, know-how and research data in order to protect our investment in research and development, manufacturing and marketing. In general, we seek intellectual property 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(s) 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 assays or tests for certain diseases or biomarkers, which will improve patient outcomes when administered certain drugs, as well as assays, research tools and other techniques used to identify new drugs. The protection offered by such patents extends for varying periods depending on the grant and duration of patents in the various countries or region. The protection afforded, which may vary from country to country, depends upon the type of patent and its scope of coverage.

In addition to patent protection, various countries offer data or marketing exclusivities for a prescribed period of time. Data exclusivity may be available which would preclude a potential competitor from filing a regulatory application for a set period of time that relies on the sponsor's clinical trial data, or the regulatory authority from approving the application. The data exclusivity period can vary depending upon the type of data included in the sponsor's application. When it is available, market exclusivity, unlike data exclusivity, precludes a competitor from obtaining marketing approval for a product even if a competitor's application relies on its own data. Data exclusivity and other regulatory exclusivity periods generally run from the date a product is approved, and so their expiration dates cannot be known with certainty until the product approval date is known.

In the US and other countries, pharmaceutical products are eligible for a patent term extension for patent periods lost during product development and regulatory review. The law recognizes that product development and review by the FDA and other health authorities can take an extended period, and permits an extension of the 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, but can only be determined after the product is approved.

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United States

Patents

In the US, a patent issued for an application filed today will receive a term of 20 years from the application filing date, subject to potential patent term adjustments for delays in patent issuance based upon certain delays in prosecution by the United States Patent and Trademark Office (USPTO). A US pharmaceutical patent which claims a product, method of treatment using a product, or method of manufacturing a product, may also be eligible for a patent term extension based on the time the FDA took to approve the product. This type of extension may only extend the patent term for a maximum of 5 years, and may not extend the patent term beyond 14 years from regulatory approval. Only one patent may be extended for any product based on FDA delay.

In practice, however, it is not uncommon for significantly more than the 5 year maximum patent extension period to pass between the time that a patent application is filed for a product and the time that the product is approved by the FDA. As a result, it is rarely the case that, at the time a product is approved by FDA, it will have the full 20 years of remaining patent life. Rather, in our experience, it is not uncommon that, at the date of approval, a product will have from 13 to 16 years of patent life remaining, including all extensions available at that time.

Data and Market Exclusivity

In addition to patent exclusivities, the FDA may provide data or market exclusivity for a new chemical entity or an "orphan drug," each of which run in parallel to any patent protection. Regulatory data protection or exclusivity prevents a potential generic competitor from relying on clinical trial data which were generated by the sponsor when establishing the safety and efficacy of its competing product. Market exclusivity prohibits any marketing of the same drug for the same indication.

•: A new small-molecule active pharmaceutical ingredient shall have 5 years of regulatory data exclusivity, during which time a competitor generally may not submit an application to the FDA based on a sponsor's clinical data.
•: Orphan drug exclusivity provides 7 years of market exclusivity for drugs designated by the FDA as "orphan drugs," meaning drugs that treat rare diseases, as designated by the FDA. During this period, a potential competitor may not market the same drug for the same indication even if the competitor's application does not rely on data from the sponsor.
•: A new biologic active pharmaceutical ingredient shall have 12 years of market exclusivity, during which time a competitor may not market the same drug for the same indication.
•: The FDA may also request that a sponsor conduct pediatric studies, and in exchange will grant an additional 6-month period of pediatric market exclusivity, if the FDA accepts the data, the sponsor makes a timely application for approval for pediatric treatment, and the sponsor has either a patent-based or regulatory-based exclusivity period for the product which can be extended.

European Community

Patents

Patent applications in Europe may be filed in the European Patent Office (EPO) or in a particular country in Europe. The EPO system permits a single application to be granted for the EU, plus other non-EU countries, such as Switzerland and Turkey. When the EPO grants a patent, it is then validated in the countries that the patent owner designates. The term of a patent granted by the EPO or a European country office is generally 20 years from the filing date of the patent application on which the patent is based, subject to potential patent term extensions and adjustments. Pharmaceutical patents can be granted a further period of exclusivity under the Supplementary Protection Certificate (SPC) system. SPCs are designed to compensate the owner of the patent for the time it took to receive marketing authorization by the European Health Authorities. An SPC may be granted to provide, in combination 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 5 years. The SPC duration can additionally be extended by a further Pediatric Extension of 6 months if the product is the subject of an agreed pediatric investigation plan. The post-grant phase of patents, including the SPC system, is currently administered

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on a country-by-country basis under national laws which, while differing, are intended to, but do not always, have the same effect.

In practice, as in the US, it is not uncommon for patent term extensions to not fully compensate the owner of a patent for the time it took to develop the product and receive marketing authorization by the European health authorities. Accordingly, it is not uncommon that a pharmaceutical product, at the date of approval, will have a patent lifetime of 10 to 15 years, including extensions available at that time.

Data and Market Exclusivity

In addition to patent exclusivity, the EU also provides a system of regulatory data exclusivity for authorized human medicines, which runs in parallel to any patent protection. The system for drugs being approved today is usually referred to as "8+2+1" because it provides: an initial period of 8 years of data exclusivity, during which a competitor cannot rely on the relevant data; a further period of 2 years of market exclusivity, during which the data can be used to support applications for marketing authorization, but the competitive product cannot be launched; and a possible 1-year extension of the market exclusivity period if, during the initial 8-year data exclusivity period, the sponsor registered a new therapeutic indication with "significant clinical benefit." This system applies both to national and centralized authorizations. This system has been in force since 2005, therefore some medicines remain covered by the previous system in which EU member states provided either 6 or 10 years of data exclusivity.

The EU also has an orphan drug exclusivity system for medicines similar to the US system. 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 a similar medicine for the same indication will not receive marketing authorization. Under certain circumstances, this exclusivity can be extended with a 2-year Pediatric Extension.

Japan

Patents

In Japan, a patent can be issued for active pharmaceutical ingredients. Although methods of treatment, such as dosage and administration, are not patentable in Japan, pharmaceutical compositions for a specific dosage or administration method are patentable. Processes to make a pharmaceutical composition are also patentable. The patent term granted is generally 20 years from the filing date of the patent application on which the patent is based, subject to potential patent term extensions and adjustments. A patent term extension can be granted for up to 5 years under the Japanese Patent Act to compensate for erosion against the patent term caused by the time needed to obtain marketing authorization from the MHLW. As in the US and EU, patent term extensions in Japan may not fully compensate for the time necessary to develop a product and obtain a marketing authorization. As a result, it is not uncommon for the effective term of patent protection for an active pharmaceutical ingredient in Japan to be approximately 10 to 15 years, including available extensions.

Data and Market Exclusivity

Japan also has a regulatory data protection system called a "re-examination period" of 8 years for new chemical entities and 4-6 years for new indications and formulations and a 10 year orphan drug exclusivity system.

Third Party Patents and Challenges to Intellectual Property

Third parties can challenge our patents, patent term extensions and marketing exclusivities through various proceedings. For example, patents in the US can be challenged in the USPTO through various proceedings, including Inter Partes Review (IPR) proceedings. They may also be challenged through patent infringement litigation under the Hatch-Waxman Act. See generally, "—Sandoz—Intellectual Property" In the EU, EU patents may be challenged through oppositions in the EPO or national patents may be challenged in national courts or national patent offices. In Japan, patents may be challenged in the Japanese patent office and in national courts. The outcomes of such challenges can be difficult to predict.

In addition to directly challenging our intellectual property rights, in some circumstances a competitor may be able to market a generic version of one of our products by, for example, designing around our intellectual property or marketing the generic product for non-protected indications. Despite data exclusivity protections, a

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competitor could opt to incur the costs of conducting its own clinical trials and preparing its own regulatory application, and avoid our data exclusivity protection altogether. There is a risk that some countries may seek to impose limitations on the availability of patent protection for pharmaceutical products, or on the extent to which such protections may be enforced. Also, even though we may own, co-own or in-license patents protecting our products, and conduct pre-launch freedom-to-operate analyses, a third party may nevertheless claim that one of our products infringes a third party patent for which we do not have a license.

As a result, there can be no assurance that our intellectual property will protect our products or that we will be able to avoid adverse effects from the loss of intellectual property protection or from third party patents in the future.

Intellectual Property Protection for Certain Key Marketed Products and Compounds in Development

We present below certain additional details regarding intellectual property protection for certain Innovative Medicines Division products and compounds in development. For each product and compound in development below, we identify issued, unexpired patents by general subject matter and, in parentheses, years of expiry in, if relevant, the US, EU and Japan that are owned, co-owned or exclusively in-licensed by Novartis and that relate to the product or to the method of its use as it is currently approved and marketed or, in the case of a compound in development, as it is currently filed with the FDA and/or the EMA for approval. Novartis may own or control additional patents relating to compound forms, methods of use, formulations, processes, synthesis, purification and detection. Identification of an EU patent refers to national patents in EU countries and/or to the national patents that have been derived from a patent granted by the EPO.

We identify unexpired regulatory data protection periods and, in parentheses, years of expiry for the products and compounds in development below if the relevant marketing authorizations have been authorized or granted. The term "RDP" refers to regulatory data protection, regulatory data exclusivity (which in the EU refers to the protections under "8+2+1" regulatory data exclusivity), and to data re-examination protection systems. We identify certain unexpired patent term extensions, SPCs and marketing exclusivities and, in parentheses, years of expiry if they are granted; their subject matter scope may be limited, and is not specified. We designate them as "pending" if they have been applied for but not granted and years of expiry are estimable. Such pending applications may or may not ultimately be granted. In the case of the EU, grant or authorization of a patent, patent term extension, marketing exclusivity or data protection means grant or authorization in at least one country and possibly pending in others. Marketing exclusivities and patent term extensions include orphan drug exclusivity (ODE), pediatric exclusivity (PE), patent term extension (PTE) and SPC.

For each product below, we indicate whether there is current generic competition, which in the case of products containing biologics refers to biosimilar competition, for one or more product versions in one or more approved indications in each of the major markets for which intellectual property is disclosed. We identify ongoing challenges to the disclosed intellectual property that have not been finally resolved. 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 intellectual property, which in the EU may involve intellectual property of one or more EU countries, may include settlement agreements under which Novartis permits or does not permit future launch of generic versions of our products before expiration of that intellectual property. We identify certain material terms of such settlement agreements where they could have a material adverse effect on our business. In other cases, such settlement agreements may contain confidentiality obligations restricting what may be disclosed.

For additional information regarding commercial arrangements with respect to these products, see "—Key Marketed Products."

Novartis Oncology Business Unit

Oncology

•: Gleevec/Glivec. US: Patent on polymorphic compound form (2019), PE (2019); patent on GIST method of use (2021), PE (2022); patent on tablet formulation (2018). EU: Patent on polymorphic compound form (2018); patent on GIST method of use (2021); patent on tablet formulation (2023). Japan: Patent on polymorphic compound form (2019); patent on GIST method of use (2021); patent on tablet formulation (2023).

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There is generic competition in the US, EU and Japan. In the US, Novartis has resolved patent litigation with certain generic manufacturers. An additional generic manufacturer has filed an ANDA challenging the US polymorphic compound form patent; the automatic 30-month stay preventing FDA approval will expire in March 2018. Novartis is taking steps in some EU countries to enforce the polymorphic compound form patent and the GIST method of use patent. The EU GIST method of use patent and polymorphic compound patent are being challenged in the patent offices and courts of several EU countries.

•: Tasigna. US: Patent on compound (2023); patents on salt forms (2026, 2027, 2028); patent on polymorph compound form (2026). EU: Patent on compound (2023); patent on salt form (2026); patent on polymorph compound form (2026); ODE (2017). Japan: Patent on compound (2023), PTE (2024); patent on salt form (2026); patent on polymorph compound form (2026). There is currently no generic competition in the US, EU or Japan. The EU salt form patent and polymorph compound form patent are being opposed in the EPO.
•: Sandostatin SC and Sandostatin LAR.

Sandostatin SC: There is no patent protection in the US, EU or Japan. There is generic competition in the US, EU and Japan.

Sandostatin LAR: There is no patent protection in the US, EU or Japan. There is currently no generic competition in the US, EU or Japan.

•: Afinitor/Votubia and Afinitor Disperz/Votubia dispersible tablets. US: Patent on compound (2014), PTE (2019), PE (2020); patent on dispersible tablet formulation (2022), PE (2023); patent on antioxidant (2019); patent on antioxidant (2019), PE (2020); patent on TSC/SEGA use (2022), PE (2022); patent on breast cancer use (2022), PE (2022); patent on renal cell carcinoma use (2025), PE (2026); patent on pancreatic neuroendocrine tumor use (2028); RDP for NET of gastrointestinal or lung origin (2019), PE 2019; ODE for TSC/SEGA use (2017), PE (2018); ODE for pancreatic neuroendocrine tumors use (2018), PE (2018); ODE for TSC/renal angiomyolipoma (2019), PE (2019). EU: Patent on compound (2013), SPC (2018), PE (2019); patent on dispersible tablet formulation (2022); patent on antioxidant (2019); patent on breast cancer use (2022); patent on pancreatic neuroendocrine tumor use (2026); ODE (Votubia) (2021). Japan: Patent on compound (2013), PTE (2018); patent on dispersible tablet formulation (2022); patent on antioxidant (2019); patent on breast cancer use (2022); patent on pancreatic neuroendocrine tumor use (2026); patent on renal cell carcinoma use (2022); ODE (tuberous sclerosis) (2022); RDP (2018).

There is currently no generic competition in the US, EU or Japan. In the US, generic manufacturers have filed ANDAs challenging several patents; the earliest automatic 30-month stay preventing FDA approval will expire in April 2018. The US compound patent is being challenged in IPR proceedings in the USPTO.

•: Exjade and Jadenu.

Exjade: US: Patent on compound (2019); patent on method of use (2017). EU: Patent on compound (2017), SPC (2021); patent on tablet formulation (2023). Japan: Patent on compound (2017), SPC (2021). There is currently no generic competition in the US, EU or Japan. In the US, Novartis has resolved patent litigation with generic manufacturers relating to Exjade.

Jadenu: The compound patents in the US, EU and Japan and the US method of use patent identified for Exjade also protect Jadenu. There is currently no generic competition in the US, EU or Japan. In the US, generic manufacturers have filed ANDAs challenging the US compound patent; the earliest automatic 30-month stay preventing FDA approval will expire in May 2018.

•: Votrient. US: Patent on compound (2021), PTE (2023), ODE (2019). EU: Patent on compound (2021), SPC (2025); RDP (2020). Japan: patent on compound (2021), PTE (2025); RDP (2020). There is currently no generic competition in the US, EU or Japan.
•: Tafinlar and Mekinist.

Tafinlar: US: Patent on compound (2030); RDP (2018); ODE (2020). EU: RDP (2023). Japan: Patent on compound (2029). There is currently no generic competition in the US, EU or Japan.

Mekinist: US: Patent on compound (2025), pending PTE (2027); patent on method of use (2025); patent on formulation (2032); RDP (2018); ODE (2020). EU: Patent on compound and method of use (2025),

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SPC (2029); RDP (2025). Japan: Patent on compound (2025); patent on method of use (2025); patent on formulation (2031). There is currently no generic competition in the US, EU or Japan.

Use of Mekinist with Taflinar or Taflinar with Mekinist: US: Patent on use of Tafinlar and Mekinist (2030); RDP (2017); ODE 2021. EU: RDP (2025). Japan: Patent on use of Tafinlar and Mekinist (2030). There is currently no generic competition in the US, EU or Japan.

•: Promacta/Revolade. US: Patent on compound (2021), PTE (2022), PE (2023); patent on salt form (2025); patent on formulation (2027). EU: Patent on compound (2021), SPC (2025); patent on salt form (2023); patent on formulation (2027); RDP (2020). Japan: Patent on compound (2021), PTE (2025); patent on salt form (2023); patent on formulation (2027); RDP (2018). There is currently no generic competition in the US, EU or Japan. The EU formulation patent is being opposed in the EPO.
•: Jakavi. EU: Patent on compound (2026), SPC (2027); patent on salt (2028); RDP (2023). Japan: Patent on compound (2026), PTE (2028), PTE (2030); patent on salt (2028), PTE (2028), PTE (2030); patent on compositions for medical uses (2026), PTE (2027); RDP (2022). There is currently no generic competition in the EU or Japan. The EU salt patent is being opposed in the EPO.

Novartis Pharmaceuticals Business Unit

Ophthalmology

•: Lucentis. EU: Patent on compound (2018), SPC (2022). Japan: Patent on compound (2018), PTE (AMD indication) (2019), PTE (other indications) (2023). There is currently no generic competition in the EU or Japan.
•: Duotrav, Travatan and Travatan Z.

Duotrav. EU: Patent on methods of use (2014), SPC (2016), PE (2017); two patents on formulations (2029). Japan: Patent on methods of use (2014), PTE (2018); two patents on formulations (2029). Duotrav is not marketed in the US. There is currently no generic competition in the EU or Japan. In the EU, the formulation patents are being opposed in the EPO.

Travatan. EU: Patent on method of use (2014), SPC (2016), PE (2017); two patents on formulations (2029). Travatan is not marketed in the US or Japan. There is generic competition in some EU countries. In the EU, the formulation patents are being opposed in the EPO.

Travatan Z. US: Three patents on formulations (2027(2), 2029). Japan: Patent on formulation (2027). Travatan Z is not marketed in the EU. There is currently no generic competition in the US or Japan. In the US, Novartis has resolved patent litigation with certain generic manufacturers.

•: Systane Ultra, Systane Original, Systane Balance and Systane Hydration.

Systane Ultra. US: Three patents on formulation (2017, 2018, 2028). EU: Two patents on formulation (2017, 2018). Japan: Three patents on formulation (2017, 2018, 2029). There is currently no generic competition in the US, EU or Japan.

Systane Original. US: Patent on formulation (2018). EU: Patent on formulation (2018). Japan: Patent on formulation (2018). There is currently no generic competition in the US, EU or Japan.

Systane Balance. US: Patent on formulation (2018). EU: Two patents on formulation (2018, 2030). Japan: Two patents on formulation (2018, 2030). There is currently no generic competition in the US, EU or Japan.

Systane Hydration. US: Two patents on formulation (2018, 2024). EU: Two patents on formulation (2018, 2024). Japan: Two patents on formulation (2018, 2024). There is currently no generic in the US, EU or Japan.

•: Patanol, Pataday and Pazeo.

Patanol. EU: Patent on method of use (2016), SPC (2017). Japan: Patent on method of use (2016), PTE (2021). There is generic competition in the US and some EU countries. There is currently no generic

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competition in Japan. The Japanese method of use patent is being challenged in the Japanese Patent Office.

Pataday. US: Patent on formulation (2022), PE (2022); patent on formulation (2023), PE (2024). Pataday is not marketed in the EU or Japan. There is currently no generic competition in the US. In the US, Novartis has resolved patent litigation with certain generic manufacturers. In the US, an additional generic manufacturer has filed an ANDA challenging the formulation patents; the automatic 30-month stay preventing FDA approval will expire in April 2019.

Pazeo. US: Patent on formulation (2032); New Product Exclusivity, PE (2018). Pazeo is not marketed in the EU or Japan. There is currently no generic competition in the US. In the US, generic manufacturers have filed ANDAs challenging the formulation patent; the earliest automatic 30-month stay preventing FDA approval will expire in May 2018.

Neuroscience

•: Gilenya. US: Patent on compound (2014), PTE (2019); patent on formulation (2026); patent on dose (2027). EU: Patent on compound (2013), SPC (2018); RDP (2021); patent on formulation (2024), SPC (2026). There is currently no generic competition in the US or EU. In the US, certain generic manufacturers have filed ANDAs challenging the US compound patent and formulation patent; the earliest automatic 30-month stays preventing FDA approval will expire in March 2018. The US formulation patent is being challenged in an IPR proceeding in the USPTO.

Immunology and Dermatology

•: Cosentyx. US: Patent on compound (2027), pending PTE (2029); RDP (2027). EU: Patent on compound (2025), pending SPC (2030), pending PE (2030); RDP (2026). Japan: Patent on compound (2025), PTE (2029); patent on method of use (2031), PTE (2032); RDP (2022). There is currently no generic competition in the US, EU, or Japan.
•: Neoral. There is no patent protection for Neoral in the US, EU or Japan. There is generic competition in the US, EU and Japan.
•: Zortress/Certican. US: Patent on compound (2014), PTE (2019), PE (2020); patent on dispersible tablet formulation (2022), PE (2023); patent on antioxidant (2019); patent on antioxidant (2019), PE (2020); patent on methods of use (2017), PE (2018); patent on methods of use (2017), PE (2018). EU: Patent on compound (2013), SPC (2018), PE (2019); two patents on methods of use (2017); patent on dispersible tablet formulation (2022); patent on antioxidant (2019). Japan: Patent on compound (2013), PTE (2018); patent on dispersible tablet formulation (2022); patent on antioxidant (2019).

There is currently no generic competition in the US, EU or Japan. In the US, generic manufacturers have filed ANDAs challenging several patents; the earliest automatic 30-month stay preventing FDA approval will expire in March 2017. The US compound patent is being challenged in IPR proceedings in the USPTO.

•: Myfortic. US: Patent on formulation (2017), PTE (2018); patent on particle size (2024). EU: Patent on formulation (2017), SPC (2017); patent on formulation (2022); patent on particle size (2024). There is generic competition in the US. There is currently no generic competition in the EU. In the EU, Novartis has resolved patent litigation with certain generic manufacturers. The EU formulation patent and particle size patent are being opposed in the EPO.
•: Xolair. US: Patent on compound (2018); patent on lyophilized formulation (2016), PTE (2017); patents on syringe formulation (2021, 2024). EU: Patent on compound (2012), SPC (2017); patents on syringe formulation (2021, 2024). Japan: Patent on compound (2012), PTE (2017); patents on syringe formulation (2021, 2024). There is currently no generic competition in the US, EU or Japan. The EU syringe formulation patent (2021) is being opposed in the EPO.

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Respiratory

•: Xolair. The information set forth in the IP paragraph for Xolair under the "Immunology and Dermatology" heading also applies to Xolair for respiratory indications.
•: Ultibro Breezhaler/Utibron Neohaler, Onbrez Breezhaler/Arcapta Neohaler and Seebri Breezhaler/Neohaler.

Ultibro Breezhaler/Utibron Neohaler. US: Patent on compound (2020), PTE (2025); three patents on methods of use (2021); patent on device (2025); RDP (2018). EU: Patent on compound (2020), SPC (2024); patent on device (2025); patent on method of use (2021), SPC (2026); RDP (2023). Japan: Patent on compound (2020), PTE (2025); patent on device (2025); patent on method of use (2021); RDP (2019). There is currently no generic competition in the US, EU or Japan.

Onbrez Breezhaler/Arcapta Neohaler. US: Patent on compound (2020), PTE (2025); patent on device (2025). EU: Patent on compound (2020), SPC (2024); patent on device (2025); RDP (2019). Japan: Patent on compound (2020), PTE (2025); patent on device (2025); RDP (2019). There is currently no generic competition in the US, EU or Japan.

Seebri Breezhaler/Neohaler. US: Patent on device (2025); three patents on uses (2021); RDP (2018). EU: Patent on formulation (2027); patent on device (2025); patent on use (2021), SPC (2026); RDP (2022). Japan: four patents on formulations (2025 (2), 2026 (2)); patent on device (2027); patent on use (2021); RDP (2020). There is currently no generic competition in the US, EU or Japan.

Cardio-Metabolic

•: Galvus and Eucreas. EU: Patent on compound (2019), SPC (2022); patent on combination (2021), SPC (2022); patent on Eucreas formulation (2026); RDP (2017). Japan: Patent on compound (2019), PTE (2024), pending PTE (2024); patent on combination (2021); patent on Galvus formulation (2025), PTE (2025); patent on Eucreas formulation (2026), pending PTE (2028); Galvus RDP (2018); Eucreas RDP (2019). Galvus/Eucreas is not marketed in the US. There is currently no generic competition in the EU or Japan. The EU Eucreas formulation patent is being opposed in the EPO.
•: Entresto. US: Patents on combination (2023); patents on complex (2026, 2027); RDP (2020). EU: Patent on combination (2023), SPC (2028); patent on complex (2026), SPC (2030); patents on formulation (2028 (2)); RDP (2025). Japan: Patent on combination (2023); patent on complex (2026); patent on formulation (2028). There is currently no generic competition in the US, EU or Japan. The EU complex patent and the EU formulation patent are being opposed in the EPO.

Established Medicines

•: Diovan and Co-Diovan/Diovan HCT. Diovan: US: Patent on formulation (2017), PE (2017). There is generic competition in the US, EU and Japan. Co-Diovan/Diovan HCT: US: Patent on formulation (2017), PE (2017). Japan: Patent on formulation (2017). There is generic competition in the US, EU and Japan.
•: Exforge and Exforge HCT.

Exforge: US: Patent on Exforge combination (2019). EU: Patent on Exforge combination/Exforge HCT combination (2019), SPC (2021). There is generic competition in the US, EU and Japan. The EU Exforge combination/Exforge HCT combination patent is being challenged in the EPO and in the patent offices of some EU countries. In the EU, Novartis has resolved patent litigation with certain generic manufacturers. We are taking steps to enforce the EU Exforge combination/Exforge HCT combination patent against generic manufacturers.

Exforge HCT: US: Patent on Exforge HCT combination (2023). EU: patent on Exforge combination/Exforge HCT combination (2019), SPC (2021); RDP (2019). Japan: Patent on Exforge HCT combination (2023). There is generic competition in the US. There is currently no generic competition in the EU. Exforge HCT is not currently marketed in Japan. The EU Exforge combination/Exforge HCT combination patent is being challenged in the EPO and in the patent offices of some EU countries.

•: Voltaren/Cataflam. There is no patent protection in the US, EU or Japan. There is generic competition in the US, EU and Japan.

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•: Exelon and Exelon Patch.

Exelon: There is no patent protection for Exelon capsules in the US, EU or Japan. There is generic competition in the US, EU and Japan.

Exelon Patch: US: Patents on formulations (2019). EU: Patent on formulation (2019); patent on transdermal dosage regime (2026). Japan: Patent on formulation (2019); RDP (2019). There is generic competition in the US and in most EU countries. There is currently no generic competition in Japan. We are taking steps in several countries to enforce our EU transdermal dosage regime patent against generic competitors. In the EU, we have resolved patent litigation with certain generic manufacturers. The EU transdermal dosage regime patent is being opposed in the EPO and several national patents are being challenged in national courts. In the US, Novartis has resolved patent litigation with certain generic manufacturers. The US formulation patents are being challenged in an IPR proceeding in the USPTO.

•: Ritalin LA/Focalin XR. US: Patent on drug-delivery formulation (2019). EU: Patent on dose (2018); patent on drug-delivery formulations (2019). Japan: Patent on dose (2018); patent on drug-delivery formulation (2019). There is generic competition in the US for Ritalin LA and Focalin XR. There is currently no generic competition in the EU or Japan. The EU formulation patent is being opposed in the EPO.

Compounds in Development

We provide the following information for non-marketed compounds in development that have been filed with the FDA and/or the EMA for registration but have not yet been approved by either agency for any indication.

•: LEE011. US: Three patents on compound (2028, 2030, 2031); two patents on methods of use (2029); patent on salt (2031). EU: Patent on compound (2029); patent on methods of use (2029). Japan: Two patents on compound (2027, 2029); two patents on methods of use (2027, 2029).
•: PKC412. US: Three patents on methods of use (2022, 2024, 2030). EU: Two patents on methods of use (2022, 2024); patent on formulation (2020). Japan: Two patents on methods of use (2022, 2024); patent on formulation (2020).

SANDOZ

Our Sandoz Division is a global leader in generic pharmaceuticals and biosimilars and sells products in more than 150 countries. In 2016, the Sandoz Division achieved consolidated net sales of $10.1 billion, representing 21% of the Group's total net sales. Sandoz develops, manufactures and markets finished dosage form medicines as well as intermediary products including active pharmaceutical ingredients.

Sandoz is organized globally in three franchises: Retail Generics, Anti-Infectives, and Biopharmaceuticals. In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of pharmaceuticals to third parties. Retail Generics includes the areas of dermatology, respiratory, oncology and ophthalmics, cardiovascular, metabolism, central nervous system, pain, gastrointestinal and hormonal therapies, 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 Biopharmaceuticals, Sandoz develops, manufactures and markets protein- or other biotechnology-based products, including biosimilars, and provides biotechnology manufacturing services to other companies.

Sandoz products reached more than 500 million patients worldwide in 2016 and Sandoz strategy is to further increase patient access by driving sustainable and profitable growth. Sandoz executes on its divisional strategy by focusing on several key priorities, including investing in key markets and therapeutic areas, increasing the performance of its small-molecule Development and Regulatory organization and maximizing opportunities in biosimilars. Sandoz focuses on products that add more value for patients, payors and healthcare professionals than standard generics.

Examples of marketed products in the Sandoz portfolio include multiple sclerosis treatment Glatopa (glatiramer acetate injection) 20mg/mL, respiratory inhaler therapy AirFluSal Forspiro (fluticasone salmeterol), and pain medication fentanyl, which is delivered using a transdermal patch.

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Sandoz also has a strong and continued strategic focus on biosimilars, which it began developing in 1996 and today sells in more than 60 countries. Sandoz is the market leader in biosimilars and all three of its biosimilars continue to demonstrate strong growth in their respective categories—Omnitrope, a human growth hormone; Binocrit, an erythropoiesis-stimulating agent used to treat anemia; and filgrastim for neutropenia under the brand names Zarzio outside the US and Zarxio in the US.

The FDA approved biosimilar Erelzi (etanercept-szzs) to treat multiple inflammatory diseases. A confirmatory clinical safety and efficacy study demonstrated that Erelzi is equivalent to reference product Enbrel®. The biosimilar launch is pending litigation with Amgen, the manufacturer of Enbrel®.

Our biosimilar Binocrit (epoetin alfa) was approved in the EU for a new route of administration, based on data from a study in pre-dialysis and dialysis patients with anemia associated with chronic kidney disease. Filings were accepted in the EU in 2016 for our pegfilgrastim and rituximab biosimilars. We plan to make regulatory filings for adalimumab in the US and EU, rituximab in the US, and infliximab in the EU in 2017. We received a complete response letter for pegfilgrastim from the from FDA in June 2016, and plan to submit additional data for pegfilgrastim to the FDA in 2018.

According to IMS Health, Sandoz holds the global number one position in sales of biosimilars and of generic anti-infectives, ophthalmics and transplantation medicines. In addition, Sandoz holds leading global positions in key therapeutic areas such as generic injectables, dermatology, respiratory, cardiovascular, metabolism, central nervous system, pain and gastrointestinal.

In 2016, key product launches in the US included amphetamine salts extended release (Shire's Adderall XR®), linezolid solution for infusion/injection (Pfizer's Zyvox®), mometasone furoate (Merck & Co. Inc.'s Nasonex® nasal spray), and oxiconazole nitrate (Oxistat).

In 2016, key product launches in various European countries included imatinib mesylate (Glivec), ACC solution for injection, buprenorphine 4 and 7 day transdermal therapeutic system, matrix patch (Mundipharma's BuTrans®, Norspan®), calcipotriol bethametasone ointment (Leo Pharma's Dovobet®), fluticasone salmeterol powder dose inhaler (GSK's Seretide®) and linezolid film coated tablet (Pfizer's Zyvoxid®).

Following an internal reorganization announced on January 27, 2016, nineteen mature products were transferred from our Innovative Medicines Division (formerly named the Pharmaceuticals Division) to the Retail Generics franchise of Sandoz. In compliance with IFRS, Novartis updated its segment financial information to reflect these transfers, both for the current and prior years, to aid comparability of year-on-year results. As a result, all comparisons of divisional results from 2016, 2015 and 2014 in this Form 20-F reflect this new divisional structure.

Effective as of April 1, 2016, operational control for the Novartis Malaria Initiative was transferred from our Innovative Medicines Division to Sandoz. In addition, Sandoz has assumed operational responsibility for Novartis Access, launched in September 2015, which comprises an initial portfolio of fifteen medicines to treat chronic diseases in low and middle income countries. The portfolio, the majority of which are Sandoz medicines, addresses cardiovascular diseases, diabetes, respiratory illnesses and breast cancer, and is offered to governments, non-governmental organizations (NGOs) and other public-sector health providers for one US dollar per treatment, per month. The existing Sandoz tuberculosis business, as well as Novartis Social Business, which includes the Arogya Parivar "Healthy Families" initiative, is also operationally managed by the same unit, under the Sandoz Global Commercial Operations function.

New Products

Sandoz launched a number of important products in various countries in 2016, including:

•: ACC solution for injection
•: Amphetamine salts extended release (Shire's Adderall XR®)
•: Buprenorphine 4 and 7 day transdermal therapeutic system, matrix patch (Mundipharma's BuTrans®, Norspan®)
•: Calcipotriol bethametasone ointment (Leo Pharma's Dovobet®)
•: Esomeprazole MUT (Astra Zeneca's Nexium®)

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•: Fluticasone salmeterol powder dose inhaler (GSK's Seretide®)
•: Linezolid solution for infusion/injection (Pfizer's Zyvox®)/ Linezolid film coated tablet (Pfizer's Zyvoxid®)
•: Mometasone furoate (Merck & Co. Inc.'s Nasonex® nasal spray)
•: Oxiconazole nitrate (Oxistat)

Key Marketed Products

Sandoz markets approximately 1000 molecules in countries around the world. The following are some of the Sandoz key marketed products in each of its franchises (availability varies by market):

Retail Generics

Product	Originator Drug	Description

Amoxicillin/clavulanic acid	Augmentin®	Antibiotic
Zoledronic acid	Aclasta	Osteoporosis treatment
Potassium	Klor-Con®	Hypokalemia treatment
Fentanyl	various	Pain treatment
Cyclophosmamide	Endoxan®	Breast, ovarian and non-small cell cancer treatment
Levothyroxine sodium	Synthroid®; Levoxyl®	Hypothyroidism treatment

Anti-Infectives

Active Ingredients		Description

Oral and sterile penicillins		Anti-infectives
Oral and sterile cephalosporins		Anti-infectives
Clavulanic acid and mixtures with clavulanic acid		ß-lactam inhibitors
Classical and semisynthetic erythromycins		Anti-infectives

Intermediates		Description

Various cephalosporin intermediates		Anti-infectives
Erythromycin base		Anti-infectives
Various crude compounds produced by fermentation		Cyclosporine, ascomysine, rapamycine, mycophenolic acid, etc.

Biopharmaceuticals

Product	Originator Drug	Description

Binocrit and Epoetin alfa Hexal	Eprex®/Erypo®	Recombinant protein used for anemia
Omnitrope	Genotropin®	Recombinant human growth hormone
Zarzio, Zarxio and Filgrastim Hexal	Neupogen®	Recombinant protein used in oncology
Glatopa	Copaxone® 20 mg	Multiple sclerosis treatment

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Biosimilars in Phase III Development and Registration

The following table describes Sandoz biosimilar projects that are in Phase III clinical trials (including filing preparation) and registration:

Project/product	Common name	Mechanism of action	Potential indication/ indications	Therapeutic areas	Route of administration	Current phase


GP1111	infliximab	TNF-a inhibitor	Inflammatory bowel disease, rheumatoid arthritis and plaque psoriasis (same as originator)	Immunology	Intravenous	EU: III

GP2013	rituximab	Anti-CD20 antibody	Non-Hodgkin's lymphoma, chronic lymphocytic leukemia, rheumatoid arthritis, granulomatosis with polyangiitis, and microscopic polyangiitis (same as originator)	Oncology and Immunology	Intravenous	EU: Registration US: III

GP2015	etanercept	TNF-a inhibitor	Arthritides (rheumatoid arthritis, ankylosing spondylitis, psoriatic arthritis), plaque psoriasis and others (same as originator)	Immunology	Subcutaneous	EU: Registration US: Approved

GP2017	adalimumab	TNF-a inhibitor	Arthritides (rheumatoid arthritis, ankylosing spondylitis, psoriatic arthritis), plaque psoriasis and others (same as originator)	Immunology	Subcutaneous	III

HX575	epoetin alfa	Erythropoiesis-stimulating agent	Anemia in chronic kidney disease, chemotherapy-induced anemia and others (same as originator)	Oncology and Nephrology	Subcutaneous and intravenous	US: III

LA-EP2006	pegfilgrastim	Pegylated granulocyte colony-stimulating factor	Chemotherapy-induced neutropenia and others (same as originator)	Oncology	Subcutaneous	III⁽¹⁾⁽²⁾

⁽¹⁾: Withdrawal of EU filing in January 2017 with planned re-filing in 2017.
⁽²⁾: Resubmission planned for 2018 to address FDA complete response letter.

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 2016 net sales of Sandoz by region:

Sandoz	2016 Net Sales to third parties

	$ millions		%
Europe		4,354		43
United States		3,708		37
Asia, Africa, Australasia		1,418		14
Canada and Latin America		664		6

Total		10,144		100



Of which in Established Markets*		7,580		75
Of which in Emerging Growth Markets*		2,564		25

*: 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 periods of time, from months to years. Sales of our anti-infective products are subject to seasonal variation. Sales of the vast majority of our other products are not subject to material changes in seasonal demand.

Production

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In October 2015, our Sandoz Division received a Warning Letter from the FDA with respect to our Kalwe and Turbhe, India manufacturing sites. The Warning Letter observations follow an FDA inspection at both sites in August 2014 and are related to deficiencies in current good manufacturing practice (cGMP) for finished pharmaceuticals. The Warning Letter did not contain any new issues in addition to the 483 observations issued following the August 2014 inspection. Sandoz plans to continue to collaborate with the FDA to resolve the Warning Letter observations.

In September 2015, the FDA confirmed that it closed out the May 2013 Warning Letter relating to our Sandoz Division oncology injectables manufacturing facility in Unterach, Austria. That Warning Letter contained two observations which followed an FDA inspection at the site in October 2012, and were related to historical visual inspection practices for products manufactured at the site. A follow up inspection by the FDA in 2014 resulted in no observations.

In July 2014, the FDA confirmed that it had decided to close out the Warning Letter issued in November 2011 against three Sandoz North American facilities in Broomfield, Colorado; Wilson, North Carolina; and Boucherville, Canada. The Warning Letter, which followed inspections at all three sites in the course of 2011, had raised concerns regarding these facilities' compliance with FDA cGMP regulations. The FDA observations in the Warning Letter related primarily to general documentation, validation and investigation practices. Novartis took steps in collaboration with the FDA to correct the observations in the Warning Letter with respect to all three sites.

Marketing and Sales

Sandoz sells a broad portfolio of generic pharmaceutical products, including the products of our Retail Generics franchise and biosimilars, 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 country.

In response to rising healthcare costs, many governments and private medical care providers, such as health maintenance organizations, have instituted reimbursement schemes that favor the substitution of bioequivalent generic products, such as products sold by our Retail Generics franchise, for patented pharmaceutical products. In the US, statutes have been enacted by virtually all states that permit or require pharmacists to substitute a less expensive 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.

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Legislative or regulatory changes can have a significant impact on our business in a country. In Germany, for example, the generic market has experienced a major transition in recent years and healthcare reforms have increasingly shifted decision making from physicians to insurance funds.

Our Anti-Infectives franchise supplies active pharmaceutical ingredients and intermediates—mainly antibiotics—for internal use by Retail Generics and for sale to the pharmaceutical industry worldwide.

Our Biopharmaceuticals franchise operates in an emerging business environment, particularly in the US. Regulatory pathways for approving biosimilar products are either relatively new or still in development, and policies have not yet been fully defined or implemented for the automatic substitution and reimbursement of biosimilars in many markets, including the US (see "—Regulation"). As a result, in many of these markets, including the US, our biosimilar products are marketed 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 expenditures and numerous patent and data exclusivity period expirations have created a favorable market environment for the generics industry. This positive market trend, however, brings increased competition among the companies selling generic pharmaceutical products, leading to ongoing price pressure on generic pharmaceuticals.

In addition, research-based pharmaceutical companies have responded to increased competition from generic products by licensing their patented products to generic companies (so-called "authorized generics"). By doing so, research-based pharmaceutical companies participate directly in the generic conversion process. Consequently, generic companies that were not in a position to compete on a specific product may enter the generic market using the innovator's product. In the US, the authorized generic is not subject to the US Hatch-Waxman Act rules regarding exclusivity (see "—Regulation"). The company that launches an authorized generic typically launches its product at the same time as the generic exclusivity holder. Authorized generics serve as a business opportunity for Sandoz when the product of a research-based pharmaceutical company loses patent protection and Sandoz secures a license from the research-based pharmaceutical company to launch the authorized generic of that product. However, because they are not subject to the Hatch-Waxman Act rules on exclusivity, authorized generics also reduce the value of the exclusivity for the company that invested in creating the first generic medicine to compete with the originator product. Furthermore, certain research-based companies continually seek new ways to protect their products and to decrease the impact of generic competition, thus potentially limiting the profit that the generic companies can earn on the competing generic product.

Development and Registration

Effective July 1, 2016, development of Sandoz Biopharmaceuticals products is jointly overseen by Sandoz and Novartis Global Drug Development. Development and registration activities for Retail Generics products, and certain registration activities for Biopharmaceuticals products, continue to be overseen directly by Sandoz.

Before a generic pharmaceutical may be marketed, intensive technical and clinical development work must be performed to demonstrate, in bioavailability studies, the bioequivalence of the generic product to the reference product. Nevertheless, research and development costs associated with generic pharmaceuticals generally are much lower than those of the originator pharmaceuticals, as no pre-clinical studies or clinical trials on dose finding, safety and efficacy must be performed by the generic company. As a result, pharmaceutical products for which the patent and data exclusivity period has expired can be offered for sale at prices often much lower than those of products protected by patents and data exclusivity, which must recoup substantial basic research and development costs through higher prices over the life of the product's patent and data exclusivity period.

While generic pharmaceuticals are follow-on versions of chemically synthesized molecules, "biosimilar" products contain a version of the active substance of an already approved original biological medicine. Due to the inherent variability of biologic products and their higher complexity, the development and the regulatory pathway of biosimilars differ significantly from that of generics.

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Development of a biosimilar product is much more technically challenging than the development of a generic pharmaceutical. Unlike generic pharmaceuticals, development of biosimilars requires clinical studies in patients. Biosimilars are engineered to match the reference product in quality, safety and efficacy. This is achieved by systematically defining the target of the reference product and then comparing the biosimilar to the reference product at various development stages to confirm biosimilarity and to establish that there are no clinically meaningful differences between the proposed biosimilar and the reference biologic. Because the purpose of a biosimilar clinical 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 an originator biologic. Therefore, the cost of development for a biosimilar is usually less than that of an originator biologic.

The Development and Registration staff employed by affiliates of the Sandoz Division are based worldwide, including facilities in Holzkirchen, Germany; Rudolstadt, Germany; Unterach, Austria; Melville, New York; Hicksville, New York; and Boucherville, Canada. In 2016, Sandoz expensed $0.8 billion (on a core basis $0.8 billion) in product development, which amounted to 8% of the division's net sales. Sandoz expensed $0.8 billion (on a core basis $0.8 billion) and $0.8 billion (on a core basis $0.8 billion) in 2015 and 2014, respectively. Core results includes impairments, amortization and certain exceptional items. For additional information, see "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Non-IFRS Measures as Defined by Novartis—Core Results."

Regulation

Generics

The Hatch-Waxman Act in the US (and similar legislation in the EU and in other countries) eliminated the requirement that manufacturers of generic pharmaceuticals repeat the extensive clinical trials required for originator products, so long as the generic version could be shown in bioavailability studies to be of identical quality and purity, and to be therapeutically equivalent to the reference product.

In the US, the decision whether a generic pharmaceutical is bioequivalent to the original patented product is made by the FDA based on an Abbreviated New Drug Application (ANDA) filed by the generic product's manufacturer. The process typically takes nearly two years from the filing of the ANDA until FDA approval. However, delays can occur if issues arise 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 innovator, or to certify that such patents are invalid or the product is non-infringing. This certification often results in a patent infringement lawsuit being brought by the patent holder against the generic company. In the event of such a lawsuit, the Hatch-Waxman Act imposes an automatic 30 month delay in the approval of the generic product in order 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 invalidity, the Hatch-Waxman Act provides those applicants with 180 days of marketing exclusivity to recoup the expense of challenging the innovator patents. However, 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 Commission based on a positive recommendation by the EMA under the Centralized Procedure, or by a single Member State under the national or decentralized procedure. See "—Innovative Medicines—Regulation—European Union." Companies may submit Abridged Applications for approval of a generic medicinal product based upon its "essential similarity" to a medicinal product authorized and marketed in the EU following the expiration of the product's data exclusivity period. In such cases, the generic company is able to submit its Abridged Application based on the data submitted by the medicine's innovator, without the need to conduct 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 submitted throughout the EU. However, the data submitted by the innovator in support of its application for a marketing authorization for the reference product will be protected for ten years after the first grant of marketing authorization in all Member States, and can be extended for an additional year if a further innovative indication has been authorized for that product, based on pre-clinical and clinical trials filed by the innovator that show a significant clinical benefit in comparison to the existing therapies.

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Biosimilars

The regulatory pathways for approval of biosimilar products are 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 US, while the WHO has issued guidance. Sandoz has successfully registered and launched the first biosimilar (or biosimilar type) product in Europe, the US, Canada, Japan, Taiwan, Australia and many countries in Latin America and Asia. Sandoz has three approved biosimilar products in more than 60 countries, and is the first company to secure approval for and launch a biosimilar under the US biosimilar pathway, which 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 centralized procedure because they are manufactured using recombinant DNA technology. As part of the approval process in the EU, biosimilars have to demonstrate comparability to the originator product in terms of safety, efficacy and quality through an extensive comparability exercise, based on strict guidelines set by the authorities. Regulators will only approve a biosimilar based on data which allows the regulators to conclude that there are no clinically meaningful differences between the reference product and the biosimilar.

Under the BPCIA, a biosimilar must be highly similar with no clinically meaningful differences compared to the reference product. Approval of a biosimilar in the US requires the submission of a BLA to the FDA, including an assessment of immunogenicity, and pharmacokinetics or pharmacodynamics. 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 biologic. This pathway is still relatively new and some aspects remain untried, controversial and subject to ongoing litigation.

Intellectual Property

We take all reasonable steps to ensure that our products do not infringe valid intellectual property rights held by others. Nevertheless, competing companies commonly assert patent and other intellectual property rights. As a result, we can become involved in significant litigation regarding our products. If we are unsuccessful in defending these suits, we could be subject to injunctions preventing us from selling our products and to potentially substantial damages, which in some instances can be measured in terms of the competing company's profits.

Wherever possible, our products are protected by our own patents. Among other things, patents may cover the products themselves, including the product's formulation, or the processes for manufacturing a product. However, there can be no assurance that our intellectual property will protect our products or that we will be able to avoid adverse effects from the loss of intellectual property protection in the future.

ALCON

Our Alcon Division researches, develops, manufactures, distributes and sells eye care products. Alcon is a global leader in eye care with product offerings in eye care devices and vision care. Its products are sold in more than 145 countries. In 2016, the Alcon Division had consolidated net sales of $5.8 billion representing 12% of total Group net sales.

To meet the needs of patients, ophthalmologists, surgeons, optometrists, opticians and physician specialists, Alcon operates with two global business franchises: Surgical and Vision Care. Each business franchise operates with specialized sales forces and marketing support.

Following an internal reorganization announced on January 27, 2016, Alcon's Ophthalmic Pharmaceuticals products were transferred to our Innovative Medicines Division. In compliance with IFRS, Novartis updated its segment financial information to reflect these transfers, both for the current and prior years, to aid comparability of year-on-year results. As a result, all comparisons of divisional results from 2016, 2015 and 2014 in this Form 20-F reflect this new divisional structure.

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focus on the unit's return to growth. The ophthalmic pharmaceutical portfolio is now fully integrated into our Innovative Medicines Division and will not be part of the review.

In April 2016, Alcon entered into a strategic alliance with PowerVision to develop an accommodating IOL that has the potential to change focus via a fluid-driven shape-changing technology.

In March 2016, Alcon acquired Transcend Medical, the developer of CyPass Micro-Stent, a micro invasive glaucoma surgery (MIGS) device to treat patients with glaucoma. The CyPass Micro-Stent was initially launched in the US in October 2016.

In February 2016, Alcon entered into an exclusive agreement in the field of ophthalmology with TrueVision to distribute NGENUITY 3D, a 3D visualization system which combines a high-dynamic 3D camera, advanced high-speed image optimization, polarizing surgeon glasses, and an ultra-high definition 4K OLED 3D display to create a platform for Digitally Assisted Vitreoretinal Surgery (DAVS) to help improve visualization of the delicate tissues in the back of the eye.

In October 2014, Alcon acquired WaveTec Vision. This acquisition provided Alcon with the ORA System, the first commercialized intra-operative guidance system for cataract surgeons implanting IOLs. Alcon has integrated the ORA System into its existing Cataract Refractive Suite by Alcon.

In July 2014, Alcon entered into an agreement with Verily (formerly Google Life Sciences and Google [x]) to license its "smart lens" technology with the potential to address ocular conditions.

Alcon Division Products

Surgical

Our Alcon Division's Surgical franchise is the market leader in global ophthalmic surgical product revenues, offering ophthalmic surgical equipment, instruments, disposable products and intraocular lenses for use in surgical procedures to address cataracts, vitreoretinal conditions, glaucoma and refractive errors.

Alcon's Surgical portfolio includes the Cataract Refractive Suite by Alcon, a suite of equipment to help plan and perform some of the most challenging steps of cataract surgery with automation and precision. It is comprised of the Centurion vision system phacoemulsification technology platform; the LenSx laser, a femtosecond laser for increased precision and reproducibility for the corneal incision, capsulorhexis and lens fragmentation steps of the procedure; the Verion image guided system, an ocular surgical planning, imaging and guidance technology; the ORA System, an intra-operative guidance system for IOL implantation during cataract surgery; and the LuxOR LX3 surgical microscope for greater visualization during surgery. Alcon's Surgical portfolio also includes the Wavelight refractive suite portfolio for LASIK treatments and other refractive procedures, including topography-guided procedures marketed under the Contoura name, the Constellation vision system for retinal operations, and the Infiniti vision system to perform cataract surgeries, which is the phacoemulsification platform introduced prior to the Centurion vision system. Alcon also offers the AcrySof family of intraocular lenses (IOLs) to treat cataracts, including monofocal, toric (astigmatism-correcting), and multifocal (presbyopia-correcting) options. The AcrySof IQ PanOptix presbyopia-correcting IOL is a hydrophobic acrylic trifocal IOL designed to provide exceptional functional vision from near to intermediate, in addition to providing distance vision comparable to that of a monofocal lens. In addition, Alcon provides advanced viscoelastics, surgical solutions, surgical packs and other disposable products for cataract and vitreoretinal surgery.

Vision Care

Our Alcon Division's Vision Care franchise develops and markets contact lenses and lens care products. Alcon's broad portfolio of silicone hydrogel, daily disposable and color contact lenses includes our Air Optix, Dailies and Freshlook brands. Our Dailies product line includes the Dailies Total1 lens, a first-of-its-kind water gradient contact lens, which is also offered in a multifocal option for patients with presbyopia. Our Air Optix monthly replacement product line features silicone hydrogel contact lenses in monofocal, astigmatism-correcting, and multifocal options, as well as Air Optix Colors and Air Optix plus HydraGlyde contact lenses. Our contact lens care solutions business includes the Opti-Free line of multi-purpose disinfecting solutions, as well as the Clear Care and AOSept Plus line of hydrogen peroxide lens care solutions.

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New Products

Alcon received a number of approvals and launched a number of products in 2016, including:

•: CyPass Micro-Stent, a micro invasive glaucoma surgery (MIGS) device, was launched in the US to treat patients with mild to moderate primary open-angle glaucoma in conjunction with cataract surgery.
•: NGENUITY 3D Visualization System was launched in the US and EU to provide surgeons improved visualization by combining a high-dynamic 3D camera, advanced high-speed image optimization, polarizing surgeon glasses and an ultra-high definition 4K OLED 3D display to create a platform for Digitally Assisted Vitreoretinal Surgery (DAVS).
•: AcrySof IQ ReSTOR 3.0D Toric IOL, was approved by the FDA to address presbyopia and preexisting astigmatism at the time of cataract surgery in adult patients who desire improved near, intermediate, and distance vision with an increased potential for spectacle independence.
•: Air Optix plus HydraGlyde, an innovation upgrade to silicon hydrogel contact lenses featuring HydraGlyde Moisture Matrix technology for longer lasting lens surface wettability, was launched in the US and EU.
•: Dailies Total1 Multifocal contact lenses were launched in the US and EU to provide refractive correction with distance, intermediate and near vision for people with presbyopia.

Key Marketed Products

The following tables set forth certain key marketed products in our Alcon Division. While we intend to sell our marketed products throughout the world, not all products and indications are currently available in every country.

Surgical


Cataract		AcrySof family of intraocular lenses includes:
		AcrySof IQ Monofocal, AcrySof IQ Toric, AcrySof IQ ReSTOR Multifocal, AcrySof IQ ReSTOR Toric, AcrySof IQ ReSTOR Multifocal Toric, and AcrySof IQ PanOptix Multifocal IOLs
		Cataract Refractive Suite by Alcon designed to streamline the cataract surgical procedure through surgical planning and execution
		Centurion vision system for phacoemulsification and cataract removal
		Infiniti vision system for phacoemulsification and cataract removal
		LenSx laser used for specific steps in the cataract surgical procedure
		LuxOR microscope used for ophthalmic surgical procedures
		ORA System intra-operative guidance system for use with cataract surgery
		UltraSert pre-loaded delivery system for intraocular lenses
		Verion imaged-guided system for use during cataract surgery
Vitreoretinal		Constellation vision system for vitreoretinal operations
		Grieshaber surgical instruments
		NGENUITY 3D high-resolution visualization system for vitreoretinal surgery
		Purepoint laser system and probes
		Ultravit vitrectomy probes

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Refractive		WaveLight EX500 excimer laser for LASIK and PRK vision correction
		Allegretto Wave Eye-Q excimer laser for LASIK and PRK vision correction
		WaveLight FS200 femtosecond laser for refractive surgery
Glaucoma		CyPass Micro-Stent for the treatment of glaucoma during cataract surgery
		EX-PRESS glaucoma filtration device

In addition, Alcon provides advanced viscoelastic, surgical solutions, surgical packs and other disposable products for cataract and vitreoretinal surgery.

Vision Care


Contact Lenses		Air Optix family of silicone hydrogel contact lenses (including Air Optix Colors and Air Optix plus HydraGlyde lenses)
		Dailies family of daily disposable contact lenses (including Dailies Total1 lenses)
		FreshLook family of color contact lenses
Contact Lens Care		Clear Care family of hydrogen peroxide lens care solution (AOSept Plus outside of North America)
		Opti-Free family of multi-purpose disinfecting solution

Selected Development Projects

The following tables provide an overview of certain key projects currently in development within our Alcon Division for the US and/or the EU. Alcon also has projects in development for markets outside the US and the EU, as well as less significant projects in development for markets throughout the world, including the US and EU.

Surgical

Project/Product	Description	Product Category	Planned Submission	Current Phase

A02238	Mid-tier phacoemulsification device	Cataract Equipment	US 2018 EU 2018	Advanced Advanced
AcrySof IQ PanOptix IOL	Trifocal IOL	Cataract Implant	US 2019	Advanced
AcrySof IQ PanOptix Toric IOL	Trifocal IOL for astigmatism	Cataract Implant	US 2019	Advanced
AcrySof IQ ReSTOR 2.5D Toric IOL	Multifocal IOL for astigmatism	Cataract Implant	US	Submitted
Clareon Monofocal IOL	Next-generation IOL	Cataract Implant	EU 2017	Advanced
			US 2019	Advanced
CyPass Micro-Stent	Micro-invasive glaucoma surgical device for implant during cataract surgery	Glaucoma Implant	EU 2017	Advanced

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Vision Care

Project/Product	Description	Product Category	Planned Submission	Current Phase

A00717	Daily disposable line extension	Contact Lens	EU 2018	Advanced
			US 2018	Advanced
A01660	New daily disposable lens	Contact Lens	EU 2018	Advanced
			US 2018	Advanced

Principal Markets

The principal markets for our Alcon Division include the US, Canada and Latin America, Japan and Europe. The following table sets forth the aggregate 2016 net sales of the Alcon Division by region:

Alcon	2016 Net Sales to third parties

	$ millions		%
Europe		1,508		26
United States		2,512		43
Asia, Africa, Australasia		1,327		23
Canada and Latin America		465		8

Total		5,812		100



Of which in Established Markets*		4,630		80
Of which in Emerging Growth Markets*		1,182		20

*: Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand.

Sales of the majority of our Alcon Division products are not subject to material changes in seasonal demand.

Research and Development

In 2016, our Alcon Division expensed $0.5 billion (on a core basis $0.5 billion) in research and development, which amounted to 9% of the Division's net sales. The Alcon Division expensed $0.5 billion (on a core basis $0.5 billion) and $0.5 billion (on a core basis $0.5 billion) in research and development in 2015 and 2014, respectively. Core results includes impairments, amortization and certain exceptional items. For additional information, see "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Non-IFRS Measures as Defined by Novartis—Core Results."

Research and development activities for Alcon's Surgical franchise are focused on expanding intraocular lens capabilities to further improve surgical and refractive outcomes and on developing equipment and instrumentation for cataract, vitreoretinal, glaucoma and corneal refractive surgeries. The focus for the Vision Care franchise is on the research and development of new contact lens materials, coatings and designs to improve patient comfort, and on lens care solutions that provide the safety, disinfecting and cleaning power needed to help maintain ocular health.

Alcon continues to seek opportunities to collaborate with third parties on advanced technologies for various ocular medical uses. These include the potential to provide accommodative contact and intraocular lenses for patients living with presbyopia.

Production

The products of Alcon's Surgical business franchise are manufactured at facilities located in the United States, Belgium, Switzerland, Ireland, Germany and Israel. Alcon's Vision Care business franchise production facilities are located in the US, Germany, Singapore, Malaysia and Indonesia.

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The goal of our supply chain strategy is to efficiently produce and distribute high quality products. The manufacture of our products is heavily regulated by governmental health authorities around the world, including the FDA. In addition to regulatory requirements, many of our products involve technically complex manufacturing processes or require a supply of highly specialized raw materials. For some products and raw materials, we may also rely on a single source of supply.

The manufacture of our products is complex and heavily regulated, which means that supply is never guaranteed. Like some of our competitors, our Alcon Division has faced manufacturing issues and has received Warning Letters relating to such manufacturing issues. In particular, in December 2012, Alcon received an FDA Warning Letter following an inspection at the LenSx laser manufacturing site in Aliso Viejo, California. Alcon responded in writing to the FDA, and in February 2013, FDA responded to Alcon acknowledging that the corrective actions described in Alcon's written response appear to address the items identified in the Warning Letter. The Warning Letter was lifted in May 2014 after all corrective actions were completed. The items noted in the Warning Letter did not affect the safety or effectiveness of the LenSx laser, or impact Alcon's ability to sell the product. If we or our third-party suppliers fail to comply fully with regulations then there could be a product recall or other shutdown or disruption of our production activities. We have implemented a global manufacturing strategy to maximize business continuity in case of such events or other unforeseen catastrophic events. However, there can be no guarantee that we will be able to successfully manage such issues when they arise.

Marketing and Sales

Our Alcon Division conducts sales and marketing activities around the world organized under five operating regions (Europe/Middle East/Africa, North America, Latin America/Caribbean, Asia and Russia, and Japan). The Alcon Division's global commercial capability is organized around sales and marketing organizations dedicated to the Surgical and Vision Care franchises.

Most of our global Alcon marketing efforts are supported by advertising in trade publications and by marketing and sales representatives attending regional and national medical conferences. Marketing efforts are reinforced by targeted and timely promotional materials and direct mail to eye care practitioners in the office, hospital or surgery center setting. Technical service after the sale is provided and an integrated customer relationship management system is in place in many markets. Where applicable, we also rely on direct-to-consumer marketing campaigns to promote selected products or treatment options.

While our Alcon Division markets all of its products by calling on medical professionals, direct customers and distribution methods differ across business lines. Alcon surgical products are sold directly to hospitals and ambulatory surgical centers, although Alcon sells through distributors in certain markets outside the US. In most countries, contact lenses are available only by prescription. Our contact lenses can be purchased from eye care professionals, optical chains and large retailers, subject to country regulation. Lens care products can be found in major drugstores, food, mass merchandising and optical retail chains globally, subject to country regulations.

Competition

The eye care industry is highly competitive and subject to rapid technological change and evolving industry requirements and standards. Our Alcon Division typically competes with different companies across its two franchises—Surgical and Vision Care. Companies within this industry compete on technological leadership and innovation, quality and efficacy of their products, relationships with eye care professionals and healthcare providers, breadth and depth of product offering and pricing. The presence of these factors varies across our Alcon Division's product offerings, which provides a broad line of proprietary eye care products. Our principal competitors also sometimes form strategic alliances and enter into co-marketing agreements in an effort to better compete with us.

Regulation

Most of our Surgical and Vision Care products are regulated as medical devices in the US and the EU. These jurisdictions each have risk-based classification systems that determine the type of information that must be provided to the local regulatory bodies in order to obtain the right to market a product. In the US, safety and effectiveness information for Class II and III devices must be reviewed by the FDA. There are two review procedures: a Pre-Market Approval (PMA) for Class III devices, and a Pre-Market Notification (510(k))

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submission for Class II devices. Under a PMA, the manufacturer must submit to the FDA supporting evidence sufficient to prove the safety and effectiveness of the device. Under a Pre-Market Notification (510(k)) submission, the manufacturer notifies the FDA that it intends to commence marketing the product, with data that establishes the product as substantially equivalent to another Class II product already on the market.

In the EU, the CE marking is required for all medical devices sold. By affixing the CE marking, the manufacturer certifies that a product is in compliance with provisions of the EU's Medical Device Directive. Most such products are subject to a self-certification process by the manufacturer, which requires the manufacturer to confirm that the product performs to appropriate standards. This allows the manufacturer to issue a Declaration of Conformity and to notify competent authorities in the EU that the manufacturer intends to market the product. In order to comply with European regulations, our Alcon Division maintains a full Quality Assurance system and is subject to routine auditing by a certified third party (a "notified body") to ensure that this quality system is in compliance with the requirements of the EU's Medical Device Directive as well as the requirements of the ISO quality systems' standard ISO 13485.

Intellectual Property

The protection offered by such patents extends for varying periods depending on the legal life of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent and its scope of coverage. We monitor our competitors and typically challenge infringements of our intellectual property. We also defend challenges through litigation and administrative proceedings to the validity of our intellectual property. However, because the outcomes of intellectual property challenges can be difficult to predict, there can be no assurance that we will be able to successfully protect our intellectual property rights in all cases. If we are unsuccessful in defending such challenges, we may face loss of exclusivity and increased competition in the affected territories. See generally "—Innovative Medicines—Intellectual Property."

We take reasonable steps to ensure that our products do not infringe valid intellectual property rights held by others. Nevertheless, third parties may assert patent and other intellectual property rights against our products. As a result, we can become involved in significant intellectual property litigation regarding our products. If we are unsuccessful in defending these suits, we could be subject to injunctions preventing us from selling our products and to damages, which may be substantial.

Worldwide, all of our major products are sold under trademarks that we consider in the aggregate to be important to our business as a whole. We consider trademark protection to be particularly important in the protection of our investment in the sales and marketing of our Surgical and Vision Care franchises. The scope and duration of trademark protection varies widely throughout the world. In some countries, trademark protection continues only as long as the mark is used. Other countries require registration of trademarks and the payment of registration fees. Trademark registrations are generally for fixed, but renewable, terms.

We rely on copyright protection in various jurisdictions to protect the exclusivity of the code for the software used in our surgical equipment. The scope of copyright protection for computer software varies throughout the world, although it is generally for a fixed term which begins on the date of copyright registration.

4.C Organizational Structure

See "Item 4. Information on the Company—4.A History and Development of Novartis," and "Item 4. Information on the Company—4.B Business Overview—Overview."

4.D Property, Plants and Equipment

Our principal executive offices are located in Basel, Switzerland. Our divisions operate through a number of affiliates having offices, research facilities and production sites throughout the world.

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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 indebtedness to certain financial institutions.

Effective July 1, 2016, Novartis Technical Operations was formed to manage the production and supply chains of our Innovative Medicines and Sandoz Division products through a network of warehouse and distribution centers, 67 manufacturing sites, as well as through external suppliers. Our 16 Alcon Surgical and Vision Care manufacturing sites continue to be managed by the Alcon Division.

The following table sets forth our major headquarters and most significant production, research and development and administrative facilities. See also "—Item 4.B Business Overview—Innovative Medicines—Production," "—Item 4.B Business Overview—Sandoz—Production" and "—Item 4.B Business Overview—Alcon—Production" for a discussion of our manufacturing processes.

Major facilities

Location	Size of Site (in square meters)	Major Activity


Kundl and Schaftenau, Austria	480,000	Production of biotechnological products, anti-infectives, active drug substances, product development

East Hanover, New Jersey	400,000	Innovative Medicines Division US headquarters, research and development

Barleben, Germany	340,000	Production of broad range of finished dosage forms

Basel, Switzerland—St. Johann	274,000	Global Group headquarters, global Innovative Medicines Division headquarters, research and development, production of drug substances and drug intermediates

Fort Worth, Texas	262,000	Alcon Division headquarters, production, research and development for Alcon Vision Care, Surgical franchises

Changshu (Suzhou), China	230,000	Techn