20-F 1 a20012920f.htm 20-F 20-F



As filed with the Securities and Exchange Commission on January 29, 2020
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
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2019
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)
Shannon Thyme Klinger
Group General Counsel
Novartis AG
CH 4056 Basel
Switzerland
Tel.: +41-61-324-1111
Fax: +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 each class
Trading Symbol(s)
Name of each exchange on which registered
American Depositary Shares
each representing 1 share
NVS
New York Stock Exchange
Ordinary shares, nominal value CHF 0.50 per share*
NOVN
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:
2,265,008,488 shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
   Yes    x   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    x
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
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    x   No    o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
   Yes    x   No    o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Emerging growth company o
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. o
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP o
International Financial Reporting Standards as issued by the International Accounting Standards Board x
Other o
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    x
* Not for trading but only in connection with the registration of American Depositary Shares representing such ordinary shares.

Table of contents




2



3

Introduction and use of certain terms

Novartis AG and its consolidated affiliates publish consolidated financial statements expressed in US dollars. Our consolidated financial statements responsive to Item 18 of this Annual Report on Form 20-F (Annual Report) are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). “Item 5. Operating and Financial Review and Prospects,” together with the sections on products in development and key development projects of our businesses (see “Item 4. Information on the Company—Item 4.B. Business overview”), constitute the Operating and Financial Review (“Lagebericht”), as defined by the Swiss Code of Obligations.
Unless the context requires otherwise, the words “we,” “our,” “us,” “Novartis,” “Group,” “Company,” and similar words or phrases in this Annual Report refer to Novartis AG and its consolidated affiliates. However, each Group company is legally separate from all other Group companies and manages its business independently through its respective board of directors or similar supervisory body or other top local management body, if applicable. Each executive identified in this Annual Report reports directly to other executives of the Group company that employs the executive, or to that Group company’s board of directors.
In this Annual Report, references to “US dollars,” “USD” or “$” are to the lawful currency of the United States of America, 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 “SEC” are to the US Securities and Exchange Commission; references to the “FDA” are to the US Food and Drug Administration; references to the “EMA” are to the European Medicines Agency, an agency of the EU, and references to the “CHMP” are to the Committee for Medicinal Products for Human Use of the EMA; references to “ADR” or “ADRs” are to Novartis American Depositary Receipts, and references to “ADS” or “ADSs” are to Novartis American Depositary Shares; references to the “NYSE” are to the New York Stock Exchange, and references to “SIX” are to the SIX Swiss Exchange; references to “ECN” are to the Executive Committee of Novartis; references to “GSK” are to GlaxoSmithKline plc, references to “AAA” are to Advanced Accelerator Applications S.A., references to “AveXis” are to AveXis, Inc., references to “Endocyte” are to Endocyte, Inc., and references to “Takeda” are to Takeda Pharmaceutical Company 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 and are the property of their respective owners.
4

Forward-looking statements

This Annual Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the United States Private Securities Litigation Reform Act of 1995, as amended. Other written materials filed with or furnished to the SEC by Novartis, as well as other written and oral statements made to the public, may also contain forward-looking statements. Forward-looking statements can be identified by words such as “potential,” “expected,” “will,” “planned,” “pipeline,” “outlook,” “may,” “could,” “would,” “anticipate,” “seek,” or similar terms, or by express or implied discussions regarding potential new products, potential new indications for existing products, or regarding potential future revenues from any such products; or regarding the potential outcome, or financial or other impact on Novartis, of the acquisition of The Medicines Company, the proposed divestiture of certain portions of our Sandoz Division business in the US, and other transactions described; or regarding the potential impact of share buybacks; or regarding potential future sales or earnings of the Group or any of its divisions or potential shareholder returns; or regarding potential future credit ratings of the Group; or by discussions of strategy, plans, expectations or intentions. Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. You should not place undue reliance on these statements.
In particular, our expectations could be affected by, among other things:
• Global trends toward healthcare cost containment, including ongoing government, payer and general public pricing and reimbursement pressures and requirements for increased pricing transparency;
• Uncertainties regarding potential significant breaches of information security or disruptions of our information technology systems;
• Uncertainties regarding the success of key products and commercial priorities;
• Our ability to obtain or maintain proprietary intellectual property protection, including the ultimate extent of the impact on Novartis of the loss of patent protection and exclusivity on key products that commenced in prior years and is expected to continue this year;
• Uncertainties in the research and development of new healthcare products, including clinical trial results and additional analysis of existing clinical data;
• Regulatory actions or delays or government regulation generally, including potential regulatory actions or delays with respect to the proposed transactions or the development of the products described in this Annual Report;
• Uncertainties regarding actual or potential legal proceedings, including, among others, litigation and other legal disputes with respect to the proposed transactions, product liability litigation, litigation and investigations regarding sales and marketing practices, intellectual property disputes and government investigations generally;
• Our reliance on outsourcing key business functions to third parties;
• Our ability to comply with data privacy laws and regulations, and uncertainties regarding potential significant breaches of data privacy;
• Safety, quality, data integrity or manufacturing issues;
• Uncertainties in the development or adoption of potentially transformational technologies and business models;
• The potential that the strategic benefits, synergies or opportunities expected from our recent and proposed future transactions may not be realized or may take longer to realize than expected;
• Uncertainties involved in predicting shareholder returns;
• Our performance on environmental, social and governance measures;
5

• Political, economic and trade conditions, including uncertainties regarding the effects of ongoing instability in various parts of the world;
• Uncertainties regarding the effects of recent and anticipated future changes in tax laws and their application to us;
• Uncertainties regarding future global exchange rates; and
• Uncertainties regarding future demand for our products.
Some of these factors are discussed in more detail in this Annual Report, including under “Item 3. Key Information—Item 3.D. Risk factors,” “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects.” Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Annual Report as anticipated, believed, estimated or expected. We provide the information in this Annual Report as of the date of its filing. We do not intend, and do not assume any obligation, to update any information or forward-looking statements set out in this Annual Report as a result of new information, future events or otherwise.
6

Part I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.
7

Item 2. Offer Statistics and Expected Timetable

Not applicable.
8

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, 2019, 2018 and 2017, are included in “Item 18. Financial Statements” in this Form 20-F.
All financial data should be read in conjunction with “Item 5. Operating and Financial Review and Prospects.” All financial data presented in this Form 20-F are qualified in their entirety by reference to the consolidated financial statements and their notes.
Year ended December 31,
(USD millions, except per share information)
2019
2018
2017
2016
2015
INCOME STATEMENT DATA1
Net sales to third parties from continuing operations
47 445
44 751
42 338
41 975
42 641
Operating income from continuing operations
9 086
8 403
8 702
8 248
8 522
Income from associated companies
659
6 438
1 108
703
266
Interest expense
– 850
– 932
– 750
– 675
– 637
Other financial income and expense
45
186
42
– 385
– 433
Income before taxes from continuing operations
8 940
14 095
9 102
7 891
7 718
Taxes
– 1 793
– 1 295
– 1 603
– 1 095
– 1 066
Net income from continuing operations
7 147
12 800
7 499
6 796
6 652
Net (loss) / income from discontinued operations before gain on distribution of Alcon Inc. to Novartis shareholders
– 101
– 186
204
– 98
376
Gain on distribution of Alcon Inc. to Novartis AG shareholders
4 691
Net income related to portfolio transformation transactions
10 766
Net income from discontinued operations
4 590
– 186
204
– 98
11 142
Group net income
11 737
12 614
7 703
6 698
17 794
Attributable to:
Shareholders of Novartis AG
11 732
12 611
7 703
6 712
17 783
Non-controlling interests
5
3
0
– 14
11
Basic earnings per share (USD)
Continuing operations
3.12
5.52
3.20
2.86
2.77
Discontinued operations
2.00
– 0.08
0.08
– 0.04
4.63
Total
5.12
5.44
3.28
2.82
7.40
Diluted earnings per share (USD)
Continuing operations
3.08
5.46
3.17
2.84
2.72
Discontinued operations
1.98
– 0.08
0.08
– 0.04
4.57
Total
5.06
5.38
3.25
2.80
7.29
Cash dividends2
6 645
6 966
6 495
6 475
6 643
Cash dividends per share in CHF3
2.95
2.85
2.80
2.75
2.70
Personnel cost from continuing operations4, 5
13 843
13 515
12 009
11 950
11 336
Full-time equivalent associates of continuing operations at year-end5
103 914
104 780
102 467
99 747
99 624
 
 1  Continuing operations include the businesses of the Innovative Medicines and Sandoz Divisions and Corporate activities. Discontinued operations include the Alcon business, which was divested in 2019; the Animal Health and Vaccines businesses divested in 2015; and the Consumer Health business, which was contributed also in 2015 into a new entity, GlaxoSmithKline Consumer Healthcare Holdings Ltd. (GSK Consumer Healthcare), where Novartis had a 36.5% interest. This newly created entity was sold during 2018 to GSK. To reflect these transactions, Novartis reported the Group’s financial results for 2019 to 2015 as “continuing operations” and “discontinued operations,” as required by IFRS.
 2  Cash dividends represent cash payments in the applicable year that generally relates to earnings of the previous year.
 3  Cash dividends per share represent dividends proposed that relate to earnings of the current year. Dividends for 2015 through 2018 were approved at the respective AGMs, and dividends for 2019 will be proposed to the Annual General Meeting on February 28, 2020, for approval.
 4  Personnel cost include wages, salaries, allowances, commissions and bonuses to staff, overtime, awards, holiday pay, severance payments and social welfare expenses.
 5  Own employees.
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Year ended December 31,
(USD millions)
2019
2018
2017
2016
2015
BALANCE SHEET DATA
Cash, cash equivalents, and marketable securities and derivative financial instruments
11 446
15 964
9 485
7 777
5 447
Inventories
5 982
6 956
6 867
6 255
6 226
Other current assets
11 235
11 836
11 856
10 899
11 172
Non-current assets
88 866
110 000
104 871
105 193
108 711
Assets of disposal group held for sale1
841
807
Total assets
118 370
145 563
133 079
130 124
131 556
Trade accounts payable
5 424
5 556
5 169
4 873
5 668
Other current liabilities
22 809
24 000
18 234
17 336
18 040
Non-current liabilities
34 555
37 264
35 449
33 024
30 726
Liabilities of disposal group held for sale1
31
51
Total liabilities
62 819
66 871
58 852
55 233
54 434
Issued share capital and reserves attributable to shareholders of Novartis AG
55 474
78 614
74 168
74 832
77 046
Non-controlling interests
77
78
59
59
76
Total equity
55 551
78 692
74 227
74 891
77 122
Total liabilities and equity
118 370
145 563
133 079
130 124
131 556
Net assets
55 551
78 692
74 227
74 891
77 122
Outstanding share capital
856
875
869
896
890
Total outstanding shares (millions)
2 265
2 311
2 317
2 374
2 374
 1  The disposal group held for sale relate to the assets and liabilities of the pending divestment of the Sandoz US dermatology business and generic US oral solids portfolio to Aurobindo Pharma USA Inc., as announced on September 6, 2018 (see “Item 18. Financial Statements—Note 2. Significant pending transactions").
 
 
Cash dividends per share
Cash dividends are translated into US dollars at the Bloomberg Market System Rate on the payment date. Because we pay dividends in Swiss francs, exchange rate fluctuations will affect the US dollar amounts received by holders of ADRs.

Year earned

Month and
year paid
Total dividend
per share
(CHF)
Total dividend
per share
(USD)
2015
March 2016
2.70
2.70
2016
March 2017
2.75
2.72
2017
March 2018
2.80
2.94
2018
March 2019
2.85
2.84
2019 1
March 2020
2.95
3.04 2
 
 1  Dividend to be proposed at the Annual General Meeting on February 28, 2020, and to be distributed March 5, 2020.
 2  Translated into US dollars at the December 31, 2019, rate of USD 1.032 to the Swiss franc. This translation is an example only, and should not be construed as a representation that the Swiss franc amount represents, or has been or could be converted into US dollars at that or any other rate.

3.B Capitalization and indebtedness

Not applicable.

3.C Reasons for the offer and use of proceeds

Not applicable.
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3.D Risk factors

Our businesses face significant risks and uncertainties. You should carefully consider all of the information set forth in this Annual Report and in other documents we file with or furnish to the SEC, including the following risk factors, before deciding to invest in or to maintain an investment in any Novartis securities. Our business, as well as our 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.
Pressures on pricing and reimbursement for our products affect our business and may impact our future financial results.
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 payers. The growth of overall healthcare costs as a percentage of gross domestic product in many countries means that governments and payers are under intense pressure to control healthcare spending even more tightly than in the past. These pressures are particularly strong given the increasing demand for healthcare resulting from the aging of the global population and associated increases in noncommunicable diseases, and the resulting impact on healthcare budgets. These pressures are further compounded by significant controversies and intense political debate and publicity about prices for pharmaceuticals that some consider excessive, including government regulatory efforts, funding restrictions, legislative proposals, policy interpretations, investigations and legal proceedings regarding pharmaceutical pricing practices. Global pressures on pricing may negatively impact, in parallel, both our product pricing and our market access.
In addition to ongoing public and political pressures to limit the prices we charge for our products, we face numerous cost-containment measures imposed by governments and other payers, including government-imposed industrywide price reductions, mandatory pricing systems, reference pricing systems, payers limiting access to treatments based on cost-benefit analyses, imports of drugs from lower-cost countries to higher-cost countries, shifting of the payment burden to patients through higher co-payments and co-pay accumulator programs, limiting physicians’ ability to choose among competing medicines, mandatory substitution of generic drugs for the patented equivalent, pressure on physicians to reduce the prescribing of patented prescription medicines, increasing pressure on intellectual property protections, and growing requirements for increased transparency on pricing. For more information on such price controls, see “Item 4. Information on the Company—Item 4.B Business overview—Innovative Medicines—Price controls.”
We expect these challenges to continue and to increase in 2020 and beyond, as political pressures mount and healthcare payers around the globe, including government-controlled health authorities, insurance companies and managed care organizations, step up initiatives to reduce the overall cost of healthcare, restrict access to higher-priced new medicines, increase the use of generics and impose overall price cuts. These factors may materially affect our ability to achieve an acceptable return on our investments in the research and development of our products, may impact our ability to invest in the research and development of new products, and could have a material adverse impact on our business, financial condition, or results of operations, as well as on our reputation.
Significant breaches of information security or disruptions of our information technology systems could adversely affect our business.
We are heavily dependent on critical, complex and interdependent information technology systems, including internet-based systems, some of which are managed by third-party service providers, to support our business processes. We routinely experience cybersecurity attacks and incidents on such networks and systems, and while to date none of these incidents have been material to us, like many companies, we expect to continue to experience similar cybersecurity threats and attacks in the future. Cybersecurity threats and attacks take many forms and the size, age and complexity of our information technology systems make them potentially vulnerable to external and internal security threats; outages; malicious intrusions and attacks; cybercrimes, including state-sponsored cybercrimes; malware; misplaced or lost data; programming or human errors; or other similar events. While we have devoted and continue to devote significant resources and management attention to cybersecurity, information management and business continuity efforts, we may not be able to prevent future outages, security incidents or other breaches in our systems from having a material adverse effect on our business, financial condition, results of operations, or reputation.
A significant information security or other event, such as a disruption or loss of availability of one or more of our information technology systems, could negatively impact important business processes, such as the conduct of scientific research and clinical trials, the submission of data and information to health authorities, our manufacturing and supply chain processes, our shipments to customers, our compliance with legal obligations, and communication between employees and with third parties. Information technology issues could also lead to the compromise of trade secrets or other intellectual property that could be sold and used by competitors to accelerate the development or manufacturing of competing products; to the compromise of personal financial and health information; and to the compromise of information technology security data such as usernames, passwords and encryption keys, as well as security strategies and information about network infrastructure, which could allow unauthorized parties to gain access to additional systems or data. In addition, mal-
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functions in software or other medical devices that make significant use of information technology could lead to a risk of direct harm to patients.
For business reasons we have outsourced significant parts of our IT infrastructure to third-party providers, and we currently use these providers to perform business-critical IT services for us. We are therefore vulnerable to service interruptions by these providers and we may experience interruptions, delays or outages in IT service availability in the future due to a variety of factors outside of our control. Outages and capacity constraints could arise from a number of causes such as technical failures, natural disasters, fraud or security attacks. Interruptions in the service provided by these third parties could affect our ability to perform critical tasks.
In addition, we face potential difficulties in integrating the IT systems of the businesses that we acquire, including replacing, integrating or working with separate IT systems used by such companies, and transferring relevant data from such separate systems and their third-party providers. See also “—We may not successfully achieve our goals in transactions or reorganizations,” below.
Our dependence upon information technology, breaches of data security, technology disruptions, or other impacts from the use of interconnected technologies, could disrupt our business operations and result in enforcement actions or liability, including potential government fines and penalties, claims for damages, and shareholders’ litigation. Any significant events of this type could require us to expend significant resources beyond those we already invest to remediate any damage, to further modify or enhance our protective measures, and to enable the continuity of our business, and could have a material adverse effect on our business, financial condition, results of operations, and reputation.
Our financial performance depends on the commercial success of key products and commercial priorities.
Our financial performance, including our ability to replace revenue and income lost to generic, biosimilar and other competition and to grow our business, depends heavily on the commercial success of our key products. If any of our major products were to become subject to problems such as changes in prescription growth rates, unexpected side effects, loss of intellectual property protection, data integrity issues, 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. The commercial success of our key products and launches in the face of increasing competition and pressures on pricing requires significant attention and focus from members of our key management. See also “—Pressures on pricing and reimbursement for our products affect our business and may impact our future financial results,” above, with regard to the impact of pricing and reimbursement issues on the commercial success of our products.
All of our businesses face intense competition from new products and technological advances from competitors, and physicians, patients and third-party payers 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. We cannot predict with accuracy the timing of the introduction of products that compete with ours or the related effect on our sales. However, products significantly competitive to our major products – including Cosentyx, Lucentis, Gilenya, Tasigna, Kisqali, Kymriah, Entresto and Beovu – are on the market, and others are in development. In addition, numerous companies from around the world are seeking to enter the healthcare field to take advantage of their expertise in digital and other new technologies. See “—We may fail to develop or take advantage of transformational technologies and business models,” below.
Such competitive products could significantly affect the revenue from our products and our results of operations. This impact could also be compounded to the extent such competition results in us making significant additional investments in research and development, or in marketing and sales.
Our products face losses of intellectual property protection.
Major products of our Innovative Medicines Division, 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 those products for a limited time 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, and they may be successfully challenged by third parties or governmental authorities. The resulting 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 or biosimilar competition for a patented branded medicine typically results in a significant and rapid reduction in net sales and operating income for the branded product because generic or biosimilar manufacturers typically offer their versions at sharply lower prices. Such competition can occur after successful challenges to intellectual property rights or the regular expiration of the patent term or other intellectual property rights. Such competition can also result from the entry of generic or biosimilar versions of another medicine in the same therapeutic class as one of our drugs or in a competing therapeutic class, from a Declaration of Public Interest or the compulsory licensing of our drugs by governments, or from a general weakening of intellectual property and governing laws in certain countries around the world. In addition, generic or biosimilar manufacturers may sometimes conduct so-called “launches at risk” of products that are still under legal challenge for infringement, or whose patents are still under legal challenge for validity, before final resolution of legal proceedings.
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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 or our other protective measures should fail, then 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, or from successful or otherwise resolved challenges to patent protection. 
• Our former top-selling product Gleevec/Glivec continues to face generic competition in major markets.
• Patent protection for Exjade in the US has expired. Generic versions of Exjade are available in the US.
• In the US, for Afinitor, we have resolved patent litigation. Generic versions of the three lower dosage strengths of Afinitor are available in the US; additional generic competition may start in mid-2020. We have resolved patent litigation relating to Afinitor Disperz.
• Patent protection for the marketed forms of our Sandostatin products has expired. Generic versions of Sandostatin SC are available in the US, the EU and Japan. While there is currently no generic competition in the US or Japan for Sandostatin LAR, the long-acting version of Sandostatin that represents the majority of our Sandostatin sales, such generic competition may arise in the future. Generic versions of Sandostatin LAR are available in some EU markets.
• Intellectual property protection for a number of additional major products is either being challenged or will expire at various times in the coming years, raising the possibility of generic or biosimilar competition. Among these products that may begin to face generic or biosimilar competition in one or more major markets during the next three years are our remaining everolimus products or their remaining dosage strengths (Afinitor/Votubia and Zortress/Certican), Jadenu, Lucentis and potentially Gilenya. For more information on the patent and generic competition 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 2020, we expect a potentially significant impact on our net sales from products that have already lost intellectual property protection, as well as products that may lose protection during the year. Because we typically have substantially reduced marketing and research and development expenses related to products that are in their final years of exclusivity, the initial loss of intellectual property protection for a product during the year could also have an impact on our operating income for that year in an amount corresponding to a significant portion of the product’s lost sales. The magnitude of the impact of generic or biosimilar competition on our income could depend on a number of factors, including the time of year at which the generic or biosimilar competitor is launched; the ease or difficulty of manufacturing a competitor product and obtaining regulatory approval to market it; the number of generic or biosimilar competitor products approved, including whether, in the US, a single competitor is granted an exclusive marketing period; whether an authorized generic is launched; the geographies in which generic or biosimilar competitor products are approved, including the strength of the market for generic or biosimilar pharmaceutical products in such geographies, and the comparative profitability of branded pharmaceutical products in such geographies; and our ability to successfully develop and launch profitable new products to replace the income lost to generic or biosimilar competition.
With respect to major products for which the patents are expiring or are successfully challenged, the loss of exclusivity of these products could have a material adverse effect on our business, financial condition, or 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, or results of operations, both due to the loss of revenue and earnings, and the difficulties in planning for such losses.
Our research and development efforts may not succeed.
We engage in extensive and costly research and development activities, both through our own dedicated resources and through collaborations with third parties, in an effort to identify and develop new products that address unmet and changing medical needs, are accepted by patients and physicians, are reimbursed by payers, and are commercially successful. Our ability to grow our business; to replace sales lost due to branded competition, entry of generics, or other reasons; and to bring to market products and medical advances that take advantage of new and potentially disruptive technologies, depends in significant part upon the success of these efforts. However, developing new healthcare products and bringing them to market is a 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 successful new products that will enable us to replace revenue and income lost to generic and other competition and to grow our business.
Research and development of new products of our Innovative Medicines Division can take approximately 10 to 15 years, from discovery to commercial product launch. Failure can occur at any point in the process, including in later stages after substantial investment. With limited available intellectual property protections, the longer it takes to develop a product, the less time there may 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 that can vary from country to country.
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Further, to achieve approvals of new products and new indications, regulatory authorities continue to establish new and increasingly rigorous requirements in the already lengthy and expensive process of obtaining regulatory approvals and reimbursement for pharmaceutical products.
Similarly, 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 for our products increasingly expensive, and further heightening the risk of recalls, product withdrawals, loss of market share, and loss of revenue and profitability.
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 potential new innovations.
Our Sandoz Division has made, and expects to continue to make, significant investments in the development of biotechnology-based, “biologic” medicines intended for sale as bioequivalent or “biosimilar” 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 significantly more costly and complex than that for typical small-molecule generic products. In addition, many countries do not yet have fully developed legislative or regulatory pathways to facilitate the development of biosimilars and permit their sale in a manner in which they are readily substitutable for the originator product. Further delays or difficulties that may arise in the development or marketing of biosimilars could put at risk the significant investments that Sandoz has made, and will continue to make, in its Biopharmaceuticals business. Sandoz also 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. Failure to obtain and maintain such exclusivity periods or to successfully develop and market biosimilars could have a material adverse effect on the success of the Sandoz Division and the Group as a whole.
Further, our research and development activities must be conducted in an ethical and compliant manner. Among other things, we must be concerned with patient safety, data privacy, Current Good Clinical Practices (cGCP) requirements, data integrity, the fair treatment of patients, 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 maintain a flow of successful, cost-effective new products and new indications for existing products that will sustain 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 further description of the approval processes that must be followed to market our products, see the sections headed “Regulation” included in the descriptions of our Innovative Medicines and Sandoz Divisions under “Item 4. Information on the Company—Item 4.B Business overview.”
We could be impacted by new laws and regulations; failures to comply with laws; legal proceedings; and government investigations.
We are obligated to comply with the laws of all of the countries in which we operate and sell products with respect to an extremely wide and growing range of activities. Such legal requirements are extensive and complex. New requirements may be imposed on us as a result of changing government and public expectations regarding the healthcare industry, and acceptable corporate behavior generally.
For example, we are faced with new laws and regulations requiring more transparency in 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 information relating to the costs and prices for our products. Such measures, including any additional such measures that may be put in place, could have a material adverse impact on our business, financial condition, or results of operations.
In addition, companies and executives in our industry continue to face significant government investigations, legal proceedings and law enforcement activities worldwide, and various US, federal and state, and international laws and regulations, including those pertaining to government benefit programs, reimbursement, rebates, price reporting and regulation, and healthcare fraud and abuse. Such activities can involve criminal proceedings, and can retroactively challenge practices previously considered to be legal. There is also a risk that governance for our medical and patient support activities, and our interactions with patient organizations, may be inadequate or fail, or that we may undertake activities based on improper or inadequate scientific justification. Our failure to comply with applicable requirements for such activities could result in adverse regulatory or legal action, damage our reputation, and have a significant negative impact on our financial results.
The laws and regulations relevant to the healthcare industry are broad in scope and are subject to change and evolving interpretations, which could require us to incur substantial costs associated with compliance or to alter one or more of our sales or marketing practices. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our business and results of operations. A number of our subsidiaries across each of our divisions are, or may in the future be, subject to var-
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ious investigations and legal proceedings, including proceedings regarding sales and marketing practices, pricing, corruption, trade regulation and embargo legislation, product liability, commercial disputes, employment and wrongful discharge, antitrust matters, securities, insider trading, occupational health and safety, environmental matters, tax, cybersecurity, data privacy and intellectual property.
In addition, our use of the internet, social media and mobile tools also carries risks related to potential violations of rules regulating the promotion of prescription medicines and the potential loss of confidential information, trade secrets or other intellectual property. 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, and as a result, despite our efforts to comply with applicable rules, there is a risk that our use of the internet, social media and mobile technologies may cause us to be found in violation of applicable regulations.
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 or unenforceable, or would not be infringed by our generic product. As a result, affiliates of our Sandoz Division frequently face patent litigation, and in certain circumstances, we may make the business decision to market a generic product even though patent infringement actions are still pending. Should we elect to do so and conduct a so-called “launch at risk,” we could face substantial damages if the final court decision is adverse to us.
For information on significant legal matters pending against us, see “Item 18. Financial Statements—Note 20. Provisions and other non-current liabilities” and “Item 18. Financial Statements—Note 28. Commitments and contingencies.”
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. 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.
Legal proceedings and investigations are inherently unpredictable, and large judgments sometimes occur. As a consequence, we may in the future incur judgments that could involve large payments, including the potential repayment of amounts allegedly obtained improperly, and other penalties, including treble damages. In addition, such legal proceedings and investigations, even if meritless, may affect our reputation, may create a risk of potential exclusion from government reimbursement programs in the US and other countries, and may lead to civil litigation. As a result, having taken into account all relevant factors, we have in the past and may again in the future enter into major settlements of such claims without bringing them to final legal adjudication by courts or other such bodies, despite having potentially significant defenses against them, in order to 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 extended periods.
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 reliance on outsourcing key business functions to third parties heightens the risks faced by our businesses.
For business reasons, we outsource the performance of certain key business functions to third parties, and invest a significant amount of effort and resources into doing so, including to manage and oversee such third parties. Such outsourced functions can include research and development collaborations, manufacturing operations, warehousing and distribution activities, certain finance functions, marketing activities, data management and others. We may particularly rely on third parties in developing countries, including for the sales, marketing and distribution of our products, and to obtain the intermediate and raw materials used in the manufacture of our products. Some of these third parties do not have internal compliance resources comparable to those within our organization.
Our reliance on outsourcing and third parties for the research and development or the manufacturing of our products poses certain risks, including misappropriation of our intellectual property, failure of the third party to comply with regulatory and quality assurance requirements, unexpected supply disruptions, breach of the research and development or manufacturing agreement by the third party, and the unexpected termination or nonrenewal of the agreement by the third party.
In addition, governments and the public expect major corporations, including Novartis, to take responsibility for and report on compliance with various human rights, responsible sourcing and environmental practices, as well as other actions of their third-party contractors around the world. Examples of this include the conflict minerals disclosure requirements in the US, and the UK Modern Slavery Act.
Ultimately, if third parties fail to meet their obligations to us, we may lose our investment in the collaborations or fail to receive the expected benefits of our agreements with such third parties. In addition, should any of these third parties fail to comply with the law or our standards, or should they otherwise act inappropriately in the course of their performance of services for us, there is a risk that we could be held responsible for their acts, that our reputation may suffer, and that penalties may be imposed upon us. Any such failures by third parties could have a material adverse effect on our business, financial condition, results of operations, or reputation.
Compliance with data privacy laws and regulations is complex and could expose us to a variety of risks.
We operate in an environment that relies on the collection, processing, analysis and interpretation of large sets
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of patients’ and other individuals’ personal information, including via social media and mobile technologies, and that also, in many situations, requires that data to freely flow across borders of numerous countries in which there are different, and potentially conflicting, data privacy laws in effect. For example, the EU General Data Protection Regulation (GDPR), which took effect in May 2018, and the California Consumer Privacy Act, which took effect in January 2020, impose stringent requirements on how we and third parties with whom we contract collect, share, export or otherwise process personal information, and provide for significant penalties for noncompliance. Breaches of our systems or those of our third-party contractors, or other failures to protect the data we collect from misuse or breach by third parties, could expose such personal information to unauthorized persons.
Any event involving the substantial loss of personal information or other privacy violations could give rise to significant liability, reputational harm, damaged relationships with business partners, and potentially substantial monetary penalties under laws enacted or being enacted around the world. Such events could also lead to restrictions on our ability to use personal information and/or transfer personal information across country borders.
The manufacture of our products is complex and highly regulated.
The manufacture of our products relies on technically complex processes and, in some cases, highly specialized raw materials, and is highly regulated. Deviations, difficulties or delays in production, or failure to obtain specialized raw materials, have in the past resulted in some of the following, and may in the future result in: shut-downs, work stoppages, approval delays, voluntary market withdrawals, product recalls, penalties, supply disruptions or shortages, increased costs, product liability or reputational harm. In addition, whether our products and the related raw materials 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. Failure to comply with cGMP requirements have in the past resulted in some of the following legal or regulatory actions, and may in the future result in possible legal or regulatory actions, such as warning letters, suspension of manufacturing, seizure of products, injunctions, voluntary recall of products, failure to secure product approvals, or debarment. Any of these events could have a material adverse effect on our business, financial condition and results of operations.
The technically complex manufacturing processes required to manufacture many of our products increase the risk of production failures and product recalls, and can increase the cost of producing our goods. Many of our products require a supply of highly specialized raw materials, such as cell lines, tissue samples, bacteria, viral strains and radioisotopes. For some of our products and raw materials, we rely on a single source of supply for ingredients or relevant components. In addition, we manufacture and sell a number of sterile products, biologic products and products involving advanced therapy platforms, such as CAR-T therapies, gene therapies and radioligand therapies, all of which are particularly complex and involve highly specialized manufacturing technologies. As a result, even slight deviations at any point in their production processes or in material used may lead to production failures or recalls. See also “—We may not successfully achieve our goals in transactions or reorganizations,” below, with regard to our efforts to reorganize our product manufacturing organization, and “—Climate change, extreme weather events, earthquakes and other natural disasters could adversely affect our business,” below.
We may fail to develop or take advantage of transformational technologies and business models.
Rapid progress in medical and digital technologies and in the development of sometimes radical new business models is substantially transforming numerous industries around the world, creating new businesses and new opportunities for revenue and profit, while sometimes quickly rendering established businesses uncompetitive or obsolete. Such transformations, both positive and negative, may impact the healthcare industry, and numerous companies from the digital technology and other industries are seeking to enter the healthcare field.
To take advantage of these opportunities, Novartis has embarked upon a digital transformation strategy, with the goal of making Novartis an industry leader in leveraging advanced analytics and other new technologies. We expect to invest substantial resources into efforts to improve the way we use data in drug discovery and development; to improve the ways we engage with patients, doctors and other stakeholders; and to automate business processes. Our success in these efforts will depend on many factors, including a cultural change among our employees, attracting and retaining employees with appropriate skills and mindsets, and successfully innovating across a variety of technology fields. However, there is no guarantee that these efforts will succeed, that we will successfully transform our business model, or that we will be able to do so at any particular cost or in the necessary time frame.
At the same time, other companies with specialized expertise or business models and substantial resources are entering the healthcare field, from research and development to pharmaceutical distribution, potentially disrupting our relationships with patients, healthcare professionals, customers, distributors and suppliers, with unknown potential consequences for us. In addition, we face new competitors from different regions of the world, including China, which is aggressively expanding its role in the sciences and in many industries. Such new competitors may successfully impact our share of the healthcare value chain, or even develop products or technologies that could make our products uncompetitive or obsolete.
If our digital transformation efforts, or our efforts to bring advanced therapy platforms to market, should fail, then there is a risk that we may fail to create the innovative new products, tools or techniques that the new medical and digital technologies may make possible, or that we may fail to create them as quickly and efficiently as such technologies may enable. We may also lose opportunities to engage with our stakeholders and to profit from improved business processes, and we may lose the
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resources devoted to these efforts to transform our business. At the same time, should third parties successfully enter the healthcare field with disruptive new technologies or business models, then we potentially may see our business supplanted in whole or in part by these new entrants. Any such events could have a material adverse effect on our business, financial condition, or results of operations.
We may not successfully achieve our goals in transactions or reorganizations.
As part of our strategy, from time to time we acquire and divest products or entire businesses, and enter into strategic alliances and collaborations. For example, we previously announced plans to divest the Sandoz US dermatology business and US oral solids portfolio, and we recently completed the spin-off of our Alcon Division, the acquisition of the assets associated with Xiidra, and the acquisition of The Medicines Company.
Our alliances and acquisitions are a significant source of our growth, yet our efforts may be impacted by our ability to identify products or businesses that are suitable for acquisition; by governmental regulation, including market concentration limitations; and by overtures from competitors that may increase the prices of potential targets. Once an acquisition is agreed upon with a third party, we may not be able to complete the acquisition in a timely manner or at all, nor can there be assurance that pre-acquisition due diligence will have identified all possible issues that might arise with regard to an acquisition. Our efforts on acquisitions and divestments can also divert management’s attention from our existing businesses.
Further, after an acquisition, efforts to develop and market acquired products, to integrate the acquired business or to achieve expected synergies may not meet expectations, or may otherwise not be successful, as a result of difficulties in retaining key personnel, customers and suppliers, or differences in corporate culture, standards, controls, processes and policies. Acquisitions can also result in liabilities being incurred that were not known at the time of acquisition, or the creation of tax or accounting issues. Acquired businesses are not always in full compliance with legal, regulatory or Company standards, including, for example, cGMP or cGCP standards, requiring remediation efforts that could be costly and time-consuming. Also, our strategic alliances and collaborations with third parties may not achieve their intended goals and objectives in any particular time frame, or at all.
Similarly, we cannot ensure that we will be able to successfully divest or spin off businesses or other assets that we have identified for this purpose, or that any completed divestment or spin-off will achieve the expected strategic benefits, operational efficiencies or opportunities, or that the divestment or spin-off will ultimately maximize shareholder value.
In addition, as part of our strategy, from time to time we reassess the optimal organization of our business, such as our ongoing efforts to centralize and optimize our manufacturing and business services organizations. The expected benefits of such reorganizations may never be fully realized or may take longer to realize than expected. There can be no certainty that the businesses and functions involved will be successfully integrated into the new organizations, that key personnel will be retained, or that we will be able to attract talent during ongoing transformations and reorganizations. Disruption from reorganizations may make it more difficult to maintain relationships with customers, employees or suppliers; could result in shortfalls in program oversight; could negatively impact our reputation; and may result in the Group not achieving the expected productivity and financial benefits.
If we fail to successfully 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, strategic alliance, spin-off or reorganization.
Environmental, social and governance matters may impact our business and reputation.
Increasingly, in addition to the importance of their financial performance, companies are being judged by their performance on a variety of environmental, social and governance (ESG) matters, which are considered to contribute to the long-term sustainability of companies’ performance.
A variety of organizations measure the performance of companies on such ESG topics, and the results of these assessments are widely publicized. In addition, investment in funds that specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of such ESG measures to their investment decisions. Topics taken into account in such assessments include, among others, the company’s efforts and impacts on climate change and human rights, ethics and compliance with law, and the role of the company’s board of directors in supervising various sustainability issues. In addition to the topics typically considered in such assessments, in our healthcare industry, issues of the public’s ability to access our medicines are of particular importance.
We actively manage a broad range of such ESG matters, taking into consideration their expected impact on the sustainability of our business over time, and the potential impact of our business on society and the environment. However, in light of investors’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet society’s expectations as to our proper role. Any failure or perceived failure by us in this regard could have a material adverse effect on our reputation and on our business, share price, financial condition, or results of operations, including the sustainability of our business over time.
See also “—Our reliance on outsourcing key business functions to third parties heightens the risks faced by our businesses,” above, and “—Climate change, extreme weather events, earthquakes and other natural disasters could adversely affect our business,” below.
Falsified products could harm our patients and reputation.
Our industry continues to be challenged by the vulnerability of distribution channels to falsified medicines
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(which includes counterfeit and stolen medicines under the definition of the World Health Organization). The presence of falsified medicines is growing in terms of the markets affected and on the internet. Falsified medicines pose patient safety risks and can be seriously harmful or life-threatening. They are often visually indistinguishable from genuine medicines and usually require a forensic authentication process of the packaging and/or the actual medicine to ascertain their falsified nature and determine their likely impact on patient safety. Reports of adverse events related to falsified medicines and increased levels of falsified medicines in the healthcare system affect patient confidence in our genuine medicines and in healthcare systems in general. These events could also cause us substantial reputational and financial harm, and potentially lead to litigation if the adverse event from the falsified medicine is mistakenly attributed to the genuine one. Thefts of our genuine products from warehouses or plants, or while in-transit, which are then not properly stored and are later sold through unauthorized channels, could adversely impact patient safety, our reputation and our business. Further, there is a direct financial loss when, for example, falsified medicines replace sales of genuine medicines, or genuine medicines are recalled following discovery of falsified products.
Political and economic instability may impact our results.
Unpredictable political conditions currently exist in various parts of the world, including a backlash in certain areas against free trade, anti-immigrant sentiment, anti-corporatist sentiment, social unrest, fears of terrorism, and the risk of direct conflicts between nations. In the US, for example, the presidential administration’s imposition of tariffs and opposition to free-trade agreements, including the recent tariffs imposed by the US and China, and the possibility of additional tariffs or other trade restrictions relating to trade between the US and other countries, could have a negative impact on international trade in general and our business in particular. Given that the status of trade negotiations remains subject to change, we cannot be certain of the nature or extent of the potential impact on our business. For example, if tariffs on pharmaceutical products or active pharmaceutical ingredients (APIs) were increased, this could impact the profitability of our products. Furthermore, significant conflicts continue in certain parts of the world. Collectively, such unstable conditions could, among other things, disturb the international flow of goods and increase the costs and difficulties of international transactions, which could significantly impact time to market and our ability to supply our products to patients in an un-disrupted fashion, and further erode reimbursement levels for innovative therapies.
As a result of the UK’s Brexit vote, the British government has been in the process of negotiating the terms of the UK’s future relationship with the EU, requiring us to make certain contingency plans for scenarios in which the UK and the EU do not reach a mutually satisfactory understanding as to that relationship. We cannot predict whether there will be any such understanding, or if such an understanding is reached, whether its terms will vary in ways that result in greater restrictions on imports and exports between the UK and EU countries, and increased regulatory complexities that could materially adversely impact our business operations in the UK.
In addition, local economic conditions may adversely affect the ability of payers, as well as our distributors, customers, suppliers and service providers, to pay for our products, or otherwise to buy necessary inventory or raw materials, and to perform their obligations under agreements with us. Although we make efforts to 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 or results of operations. These risks may be elevated with respect to our interactions with fiscally challenged government payers, or with third parties with substantial exposure to such payers.
Financial market issues may also result in a lower return on our financial investments, and a lower value on some of our assets. Alternatively, inflation could accelerate, which could lead to higher interest rates, increasing our costs of raising capital. Uncertainties around future central bank and other economic policies in the US and EU, as well as high debt levels in certain other countries, could also impact world trade. Sudden increases in economic, currency or financial market volatility in different countries have also impacted, and may continue to unpredictably impact, our business or results of operations, including the conversion of our operating results into our reporting currency, the US dollar, as well as the value of our investments in our pension plans. For further information on such risks, see “—Foreign exchange fluctuations may adversely affect our earnings and the value of some of our assets,” and “—Any inaccuracy in the assumptions and estimates used to calculate our pension plan and other post-employment obligations could substantially increase our pension-related expenses,” below. See also “Item 5. Operating and Financial Review and Prospects—Item 5.B Liquidity and capital resources—Effects of currency fluctuations,” “Item 5. Operating and Financial Review and Prospects—Item 5.B Liquidity and capital resources—Condensed consolidated balance sheets,” “Item 18. Financial Statements—Note 15. Trade receivables” and “Item 18. Financial Statements—Note 29. Financial instruments—additional disclosures.”
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 financial results” and “—An inability to attract and retain qualified personnel could adversely affect our business,” below.
Our business may be impacted by economic and financial conditions directly affecting consumers. Given the requirements in certain countries that patients directly pay an increasingly large portion of their own healthcare costs, there is a risk that consumers may cut back on prescription drugs to help cope with rising costs.
At the same time, significant changes and potential future volatility in the financial markets, in the consumer and business environment, in the competitive landscape, and in the global political and security landscape make
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it increasingly difficult for us to predict our revenues and earnings into the future. As a result, any revenue or earnings guidance or outlook that 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 incorrect.
Separately and collectively, such factors 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.
Our indebtedness could adversely affect our operations.
As of December 31, 2019, we had USD 20.4 billion of non-current financial debt and USD 7.0 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. As a result, our existing debt may limit our ability to use our cash flow to fund capital expenditures, to engage in transactions, or to meet other capital needs, or otherwise may place us at a competitive disadvantage relative to competitors that have less debt. Our debt could also limit our flexibility to plan for and react to changes in our business or industry, and increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates or a downturn in our business or the economy. We may also have difficulty refinancing our existing debt or incurring new debt on terms that we would consider to be commercially reasonable, if at all.
Intangible assets and goodwill on our books may lead to significant impairment charges.
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 including Xiidra, Endocyte, AveXis, AAA, and certain oncology assets from GSK. As a result, we may incur significant impairment charges in the future if the fair value of the intangible assets and the groupings of cash-generating units containing goodwill would be less than their carrying value on the Group’s consolidated balance sheet at any point in time.
We regularly review for impairment our long-lived intangible and tangible assets, including identifiable intangible assets, investments in associated companies, and goodwill. Goodwill, intangible assets with an indefinite useful life, acquired research projects not ready for use, 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 impairment charges could have a material adverse effect on our results of operations and financial condition. In 2019, for example, we recorded intangible asset impairment charges of USD 1.1 billion.
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,” “Item 18. Financial Statements—Note 1. Significant accounting policies” and “Item 18. Financial Statements—Note 11. Goodwill and intangible assets.”
Competition, failure to adapt to changing business conditions, and complexities in the development of biosimilars may impact the success of our Sandoz Division.
Sandoz faces intense competition from companies that market patented pharmaceutical products as well as strong competition from other generic and biosimilar pharmaceutical companies, which aggressively compete for market share, including through significant price competition. Such competitive actions may increase the costs and risks associated with our efforts to introduce and market such products, may delay the introduction or marketing of such products, and may further limit the prices at which we are able to sell these products and impact our results of operations. In particular, in the US in past years, industrywide price competition among generic pharmaceutical companies and consolidation of buyers caused significant declines in sales and profits of Sandoz. In light of this, we agreed to sell the Sandoz US dermatology business and generic US oral solids portfolio to Aurobindo Pharma USA Inc. This transaction is expected to be completed in the first quarter of 2020 pending regulatory approval. There is no certainty that the remaining Sandoz US business will be commercially successful. Sandoz has also announced a refined strategy, with the objective of being an industry leader as a focused generics company, which bears risk in a competitive environment in which other generics companies strive to also launch first and in which originators rigorously defend the exclusivity of their products. The refined strategy touches many fundamental areas of the Sandoz organization, including portfolio strategy, resource allocation, production, development, sales and governance. These changes may fail to achieve their intended goals, and may negatively affect the motivation of employees in certain parts of Sandoz.
In addition, Sandoz has invested heavily in the development of biosimilar drugs, with the expectation that such products offer the potential for higher profitability. If Sandoz should fail in its efforts to develop and market biosimilars, due to the fact that their development is more difficult and expensive than the development of standard generic drugs, or if the developing biosimilars regulations do not ultimately favor the development and sale of such products, or if we are unable to sell our biosimilar products for a sufficient price, then this could have an adverse effect on the success of our Sandoz Division, and 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” above, with regard to the risks involved in our efforts to develop biosimilars and differentiated
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generic products and to obtain exclusivity periods, and “—Ongoing consolidation among our distributors and retailers is increasing both the purchasing leverage of key customers and the concentration of credit risk,” below, with respect to the impact of such consolidation on our pricing.
Changes in tax laws or their application could adversely affect our financial results.
Our multinational operations are taxed under the laws of the countries and other jurisdictions in which we operate. However, the integrated nature of our worldwide operations can produce conflicting claims from revenue authorities in different countries as to the profits to be taxed in the individual countries, including potential disputes relating to the prices our subsidiaries charge one another for intercompany transactions, known as transfer pricing. The majority of the jurisdictions in which we operate have double tax treaties with other foreign jurisdictions, which provide a framework for mitigating the impact of double taxation on our revenues and capital gains. However, mechanisms developed to resolve such conflicting claims are largely untried, and can be expected to be very lengthy.
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 2015 Agenda) Action Plans to address issues of transparency, coherence and substance. In addition, in 2019 the OECD launched a new initiative on behalf of the G20 to minimize profit shifting by working toward a global tax framework that ensures that corporate income taxes are paid where consumption takes place and also introduces a global standard on minimum taxation combined with new tax dispute resolution processes. The respective principles are currently being evaluated.
Most of the rules of the EU Anti-Tax Avoidance Directive, which seeks to prevent tax avoidance by companies and to ensure that companies pay appropriate taxes in the markets where profits are effectively made and business is effectively performed, apply as of January 1, 2019. The EU also adopted a new Directive on Administrative Cooperation (DAC6) in 2018, which seeks additional reporting. In addition, the European Commission continues to extend the application of its policies seeking to limit fiscal aid by member states to particular companies, and the related investigation of the member states’ practices regarding the issuance of rulings on tax matters relating to individual companies.
These OECD and EU tax reform initiatives also need local country implementation, including in our home country of Switzerland, which may result in significant changes to established tax principles. Although we have taken steps to be in compliance with the evolving OECD and EU tax initiatives, and will continue to do so, significant uncertainties remain as to the outcome of these efforts.
In Switzerland, the Basel-Stadt Cantonal Tax Reform was approved by voters in February 2019, with parts retroactive from January 1, 2019. In May 2019, Swiss voters approved the Swiss Federal Tax Reform. With the enactment of this tax reform, new elements were introduced into law as of January 1, 2020. These include the abolishment of special taxed regimes, notional interest deduction, and an implementation of a Patent-Box, which provides tax advantages on income generated from intellectual property rights. Some of the new elements as well as the transition rules for the Swiss tax reform might be regarded as not completely aligned with OECD and EU regulations, and might require subsequent amendments, the need for and impact of which are difficult to predict.
In the US, the Tax Cuts and Jobs Act, enacted at the end of 2017, included significant changes to US corporate income tax law. Though we continue to monitor regulations and other guidance issued by the US Department of the Treasury, it is uncertain whether the application of new guidance, particularly with respect to the tax limitation of interest deductions and qualification of base erosion payments, will have a material effect on our financial position and results of operations.
In general, such tax reform efforts will require us to continually assess our organizational structure against tax policy trends, could lead to an increased risk of international tax disputes and an increase in our effective tax rate, and could adversely affect our financial results.
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, countries facing local financial difficulties, including countries experiencing high inflation rates and highly indebted countries facing large capital outflows, may impose controls on the exchange of foreign currency. In Argentina, for example, where we have subsidiary operations, the government authorized currency exchange controls in 2019. Currency exchange controls could limit our ability to distribute retained earnings from our local affiliates, or to pay intercompany payables due from those countries. See “—Political and economic instability may impact our results,” above.
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 our results of operations and financial condition, and may impact the reported value of our net sales, earnings, assets and liabilities. In addition, the timing and extent of such volatility can be difficult to predict. Further, depending on the movements of particular foreign exchange rates, we may be materially adversely affected at a time when the same
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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” and “Item 18. Financial Statements—Note 29. Financial instruments—additional disclosures.”
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 is 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 23%, 17% and 10%, respectively, of net sales in 2019. The largest trade receivables outstanding were for these three customers, amounting to 14%, 12% and 7%, respectively, of the Group’s trade receivables at December 31, 2019. The trend has been toward further consolidation among distributors and retailers, particularly in the US. As a result, we may be affected by fluctuations in the buying patterns of such customers, and these customers are gaining additional purchasing leverage, increasing the pricing pressures facing our businesses. These pressures can particularly impact our Sandoz Division, the generic products of which can often be obtained from numerous competitors. Moreover, we are exposed to a concentration of credit risk as a result of this concentration among our customers. If one or more of our major customers experienced financial 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. Such events could have a material adverse effect on our business, financial condition, or results of operations.
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, including significant efforts to enhance the diversity of our workforce. The loss of the service of key personnel – including senior members of our scientific and management teams, high-quality researchers and development specialists, and skilled personnel in developing countries – could delay or prevent the achievement of major business objectives.
Our future growth will demand talented associates and leaders, yet the market for talent has become increasingly competitive. Emerging Growth Markets, in particular China and India, are expected to continue to be an important source of growth, but in many of these countries 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, we are undertaking a cultural transformation to an “inspired, curious and unbossed” organization, which is a core organizational imperative. Inability to successfully implement this cultural change may result in cynicism and disengagement of our associates, as well as impede our ability to retain key talent in strategically important areas. This risk is augmented by ongoing organizational changes, as well as changes to our culture and leadership expectations that may conflict with some leaders’ preferred leadership styles. Consequently, we may fail to retain key talent, who may possess capabilities that are rare and highly sought in the marketplace, unless they are appropriately engaged, motivated and incentivized. The departure of key talent could have a material adverse effect on our business performance, results of operations and reputation.
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 near future. 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. 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 developing 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. See “—Political and economic instability may impact our results,” above.
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, or results of operations.
Environmental liabilities may adversely impact our financial results.
The environmental laws of various jurisdictions impose actual and potential obligations on us to remediate contaminated sites, including in connection with activities in the past by businesses that are no longer part of Novartis. In some cases, these remediation efforts may take 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 contam-
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ination related to our facilities or products adversely impacts 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 reputation.
See also “Item 4. Information on the Company—Item 4.D Property, plants and equipment—Environmental matters” and “Item 18. Financial Statements—Note 20. Provisions and other non-current liabilities.”
Climate change, 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, droughts and temperature changes have become more common. As a result, we are potentially exposed to varying natural disaster or extreme weather risks such as hurricanes, tornadoes, droughts or floods, or other events that may result from the impact of climate change on the environment, such as sea level rise. For example, some of our production facilities that depend on the availability of significant water supplies are located in areas where water is increasingly scarce. Other facilities are located in places that, because of increasingly violent weather events, sea level rise, or both, are increasingly at risk of substantial flooding. As a result, we could experience increased production or other costs, business interruptions, destruction of facilities, and loss of life, all of which could have a material adverse effect on our business, financial condition, or 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 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, or results of operations.
The potential impacts of climate change may also include increased operating costs associated with additional regulatory requirements and investments in reducing energy, water use and greenhouse gas emissions.
Any inaccuracy in the assumptions and estimates used to calculate our pension plan and other post-employment obligations could substantially increase our pension-related expenses.
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 participants in 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, higher or lower withdrawal rates, or longer or shorter life spans of participants, among other variables. For example, in 2019, a decrease in the interest rate we apply in determining the present value of expected future defined benefit obligations of one-quarter of 1% would have increased our year-end defined benefit pension obligation for plans in Switzerland, the US, the UK, Germany and Japan, which represent 95% of the Group total defined benefit pension obligation, by USD 0.8 billion. Any differences between our assumptions and estimates and our actual experience could require us to make additional contributions to our pension funds. Further, additional employer contributions might be required if plan funding falls below the levels required by local rules. Either such event could have a material effect on our results of operations and financial condition.
For more information on obligations under retirement and other post-employment benefit plans and underlying actuarial assumptions, see “Item 5. Operating and Financial Review and Prospects—Item 5.A Operating results—Critical accounting policies and estimates—Retirement and other post-employment benefit plans” and “Item 18. Financial Statements—Note 25. Post-employment benefits for associates.”
Holders of ADRs may not be able to exercise pre-emptive rights attached to shares underlying ADRs.
If a capital increase is approved, then our shareholders would generally have certain pre-emptive rights to obtain newly issued shares in an amount proportional to the nominal value of the shares they already hold. These pre-emptive rights could be excluded in certain limited circumstances with the approval of a resolution adopted at a general meeting of shareholders by a supermajority of two thirds of the votes. Pre-emptive rights, if not excluded, 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 pre-emptive 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 pre-emptive rights associated with the shares underlying their ADRs. We cannot guarantee that a registration statement would be filed or that, if filed, it would be declared effective. If pre-emptive rights could not be exercised by an ADR holder, JPMorgan Chase Bank, N.A., as depositary, would, if possible, sell the holder’s pre-emptive 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 pre-emptive 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: +41-61-324-1111
Web: www.novartis.com
Novartis is a multinational group of companies specializing in the research, development, manufacturing and marketing of healthcare products led by innovative pharmaceuticals and also including high-quality generic 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 “Item 18. Financial Statements—Note 32. Principal Group subsidiaries and associated companies.”
The SEC maintains an internet site at http://www.sec.gov that contains reports, information statements, and other information regarding issuers that file electronically with the SEC.
Important corporate developments 2017-January 2020
The following timeline includes all important corporate developments in 2019 and January 2020, and only significant acquisitions, divestments, alliances and related corporate activities in 2018 and 2017.
2020
January
Novartis announces that its Board of Directors is nominating Bridgette Heller for election to the Board at our Annual General Meeting on February 28, 2020. Bridgette Heller brings more than 35 years of experience at Fortune 100 companies and held several executive positions in the consumer goods and healthcare industry among others at Danone, Merck & Co as well as Johnson & Johnson.
On January 6 Novartis completed its previously announced acquisition of The Medicines Company for USD 85 per share, or a total consideration of approximately USD 9.7 billion in cash on a fully diluted basis. The acquisition broadened the Novartis cardiovascular portfolio by adding inclisiran, an investigational cholesterol-lowering therapy.
2019
November
Novartis announces that its Sandoz Division has entered into an agreement for the acquisition of the Japanese business of Aspen Global Incorporated (AGI). Under the agreement, Sandoz will acquire the shares in Aspen Japan K.K. and associated assets held by AGI. Pursuant to the agreed terms of the transaction, on closing we will pay an initial cash consideration of EUR 300 million (approximately USD 336 million). In addition, deferred consideration is due to AGI, upon fulfillment of certain conditions after closing, currently estimated at approximately EUR 100 million (approximately USD 112 million). We have received all relevant approvals and this transaction is expected to be completed in the first quarter of 2020.
October
Novartis announces that its Board of Directors is nominating Dr. Simon Moroney for election to the Board at our Annual General Meeting on February 28, 2020. Dr. Moroney is one of the co-founders of the Germany-based biotechnology company MorphoSys AG and served as its CEO until September 1, 2019.
Novartis announces that the previously announced share buyback of up to USD 5 billion was completed in the third quarter of 2019, with a total of 55.8 million shares for USD 5.0 billion repurchased since the announcement in June 2018.
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September
Novartis announces that its Sandoz Division has entered into a worldwide commercialization agreement with Polpharma Biologics to commercialize and distribute a proposed natalizumab biosimilar that is in Phase III clinical development for the treatment of relapsing-remitting multiple sclerosis (RRMS).
July
Novartis announces that it has completed the previously announced acquisition of the assets associated with Xiidra worldwide from Takeda Pharmaceutical Company Limited as of July 1, 2019. The purchase price consists of a USD 3.4 billion upfront payment, customary purchase price adjustments of USD 0.1 billion, and the potential milestone payments of up to USD 1.9 billion, which Takeda is eligible to receive upon the achievement of specified commercialization milestones.
June
Novartis announces the appointment of Marie-France Tschudin as President, Novartis Pharmaceuticals, and a member of the ECN, reporting to the CEO of Novartis, effective June 7, 2019. Marie-France Tschudin succeeds Paul Hudson, who left Novartis to take the CEO position of a multinational pharmaceuticals company.
May
Novartis announces the completion of the previously announced acquisition of IFM Tre, Inc., a privately held, US-based biopharmaceutical company focused on developing anti-inflammatory medicines targeting the NLRP3 inflammasome. The acquisition gives Novartis full rights to IFM Tre’s portfolio of NLRP3 antagonists.
April
Novartis announces that Sandoz has entered into an agreement with EirGenix, Inc., to commercialize in all markets, excluding China and Taiwan, a proposed trastuzumab biosimilar, currently in Phase III clinical development for treatment of human epidermal growth factor receptor 2-positive (HER2+) breast and specific gastric cancer tumors.
Novartis announces the appointment of Richard Saynor as CEO of Sandoz and a member of the ECN, reporting to the CEO of Novartis. Richard Saynor became CEO of Sandoz effective July 15, 2019, following the March 2019 announcement that Richard Francis would step down as CEO of Sandoz, effective on March 31, 2019.
Novartis announces the completion of the spin-off of its Alcon eye care devices business through a dividend in kind distribution to holders of Novartis shares and ADRs, with each holder receiving one Alcon share for every five Novartis shares or ADRs held on April 8, 2019, at the close of business.
Novartis announces that AveXis has signed an agreement to purchase an advanced biologics therapy manufacturing campus in Longmont, Colorado, for USD 30 million.
March
Novartis announces that on March 22, 2019, certain important conditions precedent for the 100% spin-off of the Alcon eye care business have been met, including receipt of certain necessary authorizations and rulings, and that the completion of the transaction, by way of a distribution of a dividend in kind to Novartis shareholders and ADR holders, is expected to occur on April 9, 2019.
Novartis announces that it is joining the Global Chagas Disease Coalition.
February
Novartis announces that on February 28, 2019, Novartis shareholders approved the proposed 100% spin-off of the Alcon eye care division, as previously endorsed by the Novartis Board of Directors, subject to certain conditions precedent, such as no material adverse events and receipt of necessary authorizations.
Novartis announces that shareholders authorized share buybacks within the framework of an eighth share repurchase program to repurchase shares for cancellation up to a maximum of CHF 10 billion until the Annual General Meeting of Novartis in 2022.
January
Novartis announces that its Board of Directors is nominating Patrice Bula for election to the Board at our Annual General Meeting on February 28, 2019. As executive vice president and head of strategic business units, marketing, sales and Nespresso, Mr. Bula is a member of the executive board of Nestlé SA, a position he took up in 2011.
2018
December
Novartis announces that on December 21, 2018, it completed the previously announced acquisition of Endocyte, a US-based biopharmaceutical company focused on developing radioligand and CAR-T therapies for cancer treatment, in a transaction valued at approximately USD 2.1 billion.
Novartis announces an offer to acquire CellforCure from LFB. CellforCure, a French company, is one of the first and largest contract development and manufacturing organizations producing cell and gene therapies in Europe.
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The acquisition was completed in March 2019 and CellforCure became a wholly owned Novartis manufacturing site managed by NTO.
November
Novartis announces that Alcon had filed an initial Form 20-F registration statement with the SEC in relation to the previously announced intention of Novartis to spin off the Alcon Division as an independent, publicly traded company.
October
Novartis announces that it has entered into a clinical development agreement with Pfizer Inc. (Pfizer) that will include a study combining tropifexor and one or more Pfizer compounds for the treatment of nonalcoholic steatohepatitis (NASH).
Novartis announces that it has entered into a licensing and equity agreement with Boston Pharmaceuticals for the development of three novel anti-infective drug candidates that are part of the Novartis Infectious Diseases portfolio, which have the potential to address the need for new agents to treat antibiotic-resistant Gram-negative infections. Under the terms of the agreement, Boston Pharmaceuticals acquired worldwide rights to two complementary candidates targeting carbapenem-resistant enterobacteriaceae (CRE), and one candidate targeting Pseudomonas infections.
September
Novartis announces it has agreed to sell selected portions of its Sandoz US portfolio, specifically the Sandoz US dermatology business and generic US oral solids portfolio, to Aurobindo Pharma USA Inc., for USD 0.8 billion in cash and potential earn-outs. This transaction is expected to be completed in the first quarter of 2020 pending regulatory approval.
Novartis announces that it plans to continue the transformation of its manufacturing network and services businesses, including a planned workforce reduction in Switzerland over a four-year period. Novartis also plans to continue the ongoing transfer of transactional activities to the five global service centers within Novartis Business Services, and to begin to transfer managerial service capabilities to these service centers.
July
Novartis announces that it has signed a renewed Memorandum of Understanding with the World Health Organization to extend its agreement for the donation of Egaten (triclabendazole) for the treatment of liver fluke (fascioliasis) until 2022.
Novartis announces that it has entered into an exclusive in-license agreement with Galapagos NV and MorphoSys AG for an investigational biologic compound, MOR106, a novel antibody directed against IL-17C. This transaction became effective on September 10, 2018. In October 2019, we announced the end of the clinical development program for MOR106 in atopic dermatitis.
June
Novartis announces its intention to seek shareholder approval for a 100% spin-off of its Alcon Division into a standalone public company.
Novartis announces that it will initiate a share buyback of up to USD 5 billion to be executed by the end of 2019.
Novartis announces the completion on June 1, 2018, of its previously announced divestment to GlaxoSmithKline PLC of its 36.5% stake in GSK Consumer Healthcare Holdings Ltd. for a payment of USD 13.0 billion in cash. The divestment brings to an end Novartis participation in its consumer healthcare joint venture with GSK, which was formed in 2015 as part of the Novartis portfolio transformation.
May
Novartis announces the completion of its previously announced cash tender offer to purchase all the outstanding shares of common stock of AveXis, a US-based clinical stage gene therapy company. This acquisition was completed on May 15, 2018.
April
Novartis announces that its Sandoz Division has entered into a collaboration with Pear Therapeutics to commercialize and continue development of novel prescription digital therapeutics, including reSET® for patients with substance use disorder and reSET-O® for patients with opioid use disorder who are currently receiving buprenorphine. Novartis announced the commercial launch of reSET® for patients with substance use disorder in November 2018 and announced FDA clearance of reSET-O® for patients with opioid use disorder in December 2018 and launch in January 2019. In October 2019, we announced that Pear will assume sole responsibility for commercializing both reSET® and reSET-O®.
Novartis announces a five-year commitment to the fight against malaria in conjunction with the 7th Multilateral Initiative on Malaria Conference and the Malaria Summit of the Commonwealth Heads of Government meeting. As part of its commitment, Novartis will invest more than USD 100 million over the next five years to advance research and development of next-generation treatments to combat emerging resistance to artemisinin and other currently
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used antimalarials. The Company will also implement an equitable pricing strategy to maximize patient access in malaria-endemic countries when these new treatments become available.
March
Novartis announces that it has entered into a collaboration and licensing agreement with the Wyss Institute for Biologically Inspired Engineering at Harvard University and the Dana-Farber Cancer Institute, both in the US, to develop biomaterial systems for its portfolio of immuno-oncology therapies.
Novartis announces an additional strategic alliance with Science 37 to design and initiate up to 10 new clinical trials over the next three years, which are intended to blend virtual and traditional clinical trial models, with increasing degrees of decentralization toward a mostly “site-less” model.
Novartis announces a collaboration with Pear Therapeutics to develop novel prescription digital therapeutics (software applications designed to effectively treat disease and improve clinical outcomes for patients) for schizophrenia and multiple sclerosis.
February
Novartis announces an alliance with the Bill & Melinda Gates Foundation to advance development of Novartis drug candidate KDU731 for the treatment of cryptosporidiosis.
Novartis completes euro (EUR) denominated bond offerings totaling EUR 2.25 billion.
January
Novartis announces successful completion of its previously announced tender offer and subsequent offering period for all of the then-outstanding ordinary shares, including ordinary shares represented by American Depositary Shares (ADSs), of AAA, a radiopharmaceutical company that develops, produces and commercializes molecular nuclear medicines – including Lutathera (lutetium Lu 177 dotatate/lutetium (177Lu) oxodotreotide), a first-in-class radioligand therapy product for neuroendocrine tumors – and diagnostic products. Following completion of the tender offer and subsequent offering period, Novartis ownership in AAA was 98.7% of all outstanding ordinary shares.
Novartis announces a licensing agreement and a manufacturing and supply agreement with Spark Therapeutics to develop, register and commercialize in markets outside the US voretigene neparvovec, a gene therapy approved as Luxturna in the EU in November 2018 for the treatment of patients with vision loss due to a genetic biallelic mutation of the RPE65 (retinal pigment epithelial 65kDa protein) gene and who have enough viable retinal cells.
Novartis announces a global collaboration between Sandoz and Biocon Ltd. to develop, manufacture and commercialize multiple biosimilars in immunology and oncology.
2017
November
Novartis announces an expanded collaboration with Amgen and the US-based Banner Alzheimer’s Institute to collaborate on a new Generation Study 2 to assess whether investigational BACE1 inhibitor CNP520 can prevent or delay the symptoms of Alzheimer’s disease in a high-risk population. In July 2019, we announced the decision to discontinue the investigation of CNP520 in two Phase II/III studies.
October
Novartis announces that it has made significant progress in its ongoing strategic review of the Alcon Division and has examined all options, ranging from retaining the business to a capital markets solution (e.g., an IPO or a spin-off).
Novartis announces that its over-the-counter ophthalmic products and certain surgical diagnostic products will transfer from the Innovative Medicines Division to the Alcon Division effective January 1, 2018.
September
Novartis announces a collaboration with the University of California, Berkeley to establish the Novartis-Berkeley Center for Proteomics and Chemistry Technologies.
June
Novartis announces that it has entered into a clinical research collaboration in which Bristol-Myers Squibb is to investigate the safety, tolerability and efficacy of Mekinist (trametinib) in combination with Opdivo® (nivolumab) and Opdivo® + Yervoy® (ipilimumab) regimen as a potential treatment option for metastatic colorectal cancer in patients with microsatellite stable tumors where the tumors are proficient in mismatch repair (MSS mCRC pMMR).
Novartis announces a collaboration with IBM Watson Health to explore development of a cognitive solution that uses real-world data and advanced analytical techniques, with the aim to provide better insights on the expected outcomes of breast cancer treatment options.
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May
Novartis announces the launch of Better Hearts Better Cities, an innovative initiative to address the high rates of high blood pressure in low-income urban communities.
April
Novartis announces an expanded collaboration agreement with Amgen to co-commercialize erenumab (AMG 334) in the US, currently being investigated for the prevention of migraine. This agreement builds on the previously announced 2015 global collaboration between Novartis and Amgen.
Novartis announces that it has entered into a clinical trial agreement with Allergan plc to conduct a Phase IIb study involving the combination of a Novartis FXR agonist and Allergan’s cenicriviroc for the treatment of nonalcoholic steatohepatitis (NASH).
Novartis announces that it has exercised an option to in-license ECF843, a recombinant form of human lubricin from Lubris, LLC, for ophthalmic indications worldwide (outside Europe). This transaction closed and Novartis received its exclusive license on April 21, 2017.
March
Novartis completes euro-denominated bond offerings totaling EUR 1.85 billion.
February
Novartis completes a USD 3 billion bond offering under its SEC Registration Statement on Form F-3.
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 best to maximize value for our shareholders.
Novartis announces that it is initiating a share buyback of up to USD 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 was completed on February 14, 2017.
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4.B Business overview

Overview
Our purpose is to reimagine medicine to improve and extend people’s lives. We use innovative science and technology to address some of society’s most challenging healthcare issues. We discover and develop breakthrough treatments and find new ways to deliver them to as many people as possible. We also aim to reward those who invest their money, time and ideas in our company. Our vision is to be a trusted leader in changing the practice of medicine. Our strategy is to build a leading, focused medicines company powered by advanced therapy platforms and data science. As we implement our strategy, we have five priorities to shape our future and help us continue to create value for our company, our shareholders and society: unleash the power of our people; deliver transformative innovation; embrace operational excellence; go big on data and digital; and build trust with society.
In 2019, Novartis achieved net sales from continuing operations of USD 47.4 billion, while net income from continuing operations amounted to USD 7.1 billion and total net income to USD 11.7 billion. Headquartered in Basel, Switzerland, our Group companies employed 104 000 full-time equivalent associates as of December 31, 2019. Our products are sold in approximately 155 countries around the world.
The Group comprises two global operating divisions:
• Innovative Medicines: innovative patent-protected prescription medicines
• Sandoz: generic pharmaceuticals and biosimilars
In April 2019, we completed the previously announced spin-off of Alcon into a separately traded standalone company. To comply with IFRS, Novartis has separated the Group’s reported financial data for the current and prior years into “continuing” and “discontinued” operations. Discontinued operations include the Alcon eye care devices business and certain Corporate activities attributable to the Alcon business prior to the spin-off, the gain on distribution of Alcon to Novartis AG shareholders and certain other expenses related to the spin-off. Except where noted, this Annual Report focuses on continuing operations that includes the businesses of our Innovative Medicines and Sandoz Divisions, as well as continuing Corporate activities.
Our divisions are supported by the following organizational units: the Novartis Institutes for BioMedical Research, Global Drug Development, Novartis Technical Operations and Novartis Business Services. The financial results of these organizational units are included in the results of the divisions for which their work is performed. The Novartis Institutes for BioMedical Research (NIBR) is the innovation engine of Novartis, which conducts drug discovery research and early clinical development trials for our Innovative Medicines Division. Approximately 5 600 full time equivalent scientists, physicians and business professionals at NIBR are working to discover new medicines for various diseases at sites located in the US, Switzerland and China. For more information about NIBR, see “—Innovative Medicines—Research and development—Research program” below.
Our Global Drug Development (GDD) organization oversees drug development activities for our Innovative Medicines Division and collaborates with our Sandoz Division on development of its biosimilars portfolio. GDD works collaboratively with NIBR and with the Innovative Medicines and Sandoz Divisions to execute our overall pipeline strategy. The GDD organization includes centralized global functions such as Regulatory Affairs and Global Development Operations, as well as Global Development units aligned with our business franchises. GDD includes approximately 11 000 full-time equivalent associates worldwide.
Novartis Technical Operations (NTO) manages manufacturing operations, supply chain, and quality across our Innovative Medicines and Sandoz Divisions. As the Novartis portfolio evolves, we continue to transform our operations to help ensure we can deliver the innovation and expertise needed to enable the production of new medical technologies, while increasing efficiency. NTO is expected to enhance capacity planning and adherence to quality standards, and to lower costs through simplification, standardization and external spend optimization. NTO includes approximately 25 100 full-time equivalent associates and 60 manufacturing sites across our Innovative Medicines and Sandoz Divisions.
Novartis Business Services (NBS), our shared services organization, 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 full-time equivalent associates in more than 30 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.
As of January 1, 2019, Novartis Internal Audit, our SpeakUp Office (formerly Business Practices Office) and Global Security were combined into one function called Novartis Business Assurance & Advisory (NBAA).
In 2019 we created a new Global Health and Corporate Responsibility (GH&CR) function to support the integration of our activities in the areas of ethics, pricing and access, global health and corporate responsibility into our core business strategy, and to help align our initiatives, funding and communications in these areas.
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Innovative Medicines Division
Our Innovative Medicines Division researches, develops, manufactures, distributes and sells patented prescription medicines to enhance health outcomes for patients and healthcare providers. Innovative Medicines is organized into two global business units: Novartis Oncology and Novartis Pharmaceuticals. Novartis Pharmaceuticals consists of the following global business franchises: Ophthalmology; Neuroscience; Immunology, Hepatology and Dermatology; Respiratory; Cardiovascular, Renal and Metabolism; and Established Medicines.
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 into three franchises: Retail Generics; Anti-Infectives and Biopharmaceuticals. In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of small molecule pharmaceuticals to third parties across a broad range of therapeutic areas, as well as finished dosage form anti-infectives sold to third parties. In Anti-Infectives, Sandoz manufactures and supplies active pharmaceutical ingredients and intermediates – mainly antibiotics – for internal use by Retail Generics and for sale to third-party customers. In Biopharmaceuticals, Sandoz develops, manufactures and markets protein- or other biotechnology-based products, including biosimilars, and provides biotechnology manufacturing services to other companies.
Alcon Division (discontinued operations)
Prior to the April 9, 2019 completion of the spin-off, our Alcon Division researched, developed, manufactured, distributed and sold a broad range of eye care products. Alcon was organized into two global business franchises; Surgical and Vision Care. Alcon also provided services, training, education and technical support for both the Surgical and Vision Care businesses.
Corporate activities
We separately report the results of Corporate activities. The financial results of our Corporate activities include the costs of the Group headquarters and those of 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.

Innovative Medicines

Overview
Our Innovative Medicines Division is a world leader in offering patent-protected medicines to patients and physicians. The Innovative Medicines Division researches, develops, manufactures, distributes and sells patented pharmaceuticals, and is composed of two global business units: Novartis Oncology and Novartis Pharmaceuticals.
The Novartis Oncology business unit is responsible for the commercialization of products in the areas of cancer and hematologic disorders. The Novartis Pharmaceuticals business unit is organized into the following global business franchises responsible for the commercialization of various products in their respective therapeutic areas: Ophthalmology; Neuroscience; Immunology, Hepatology and Dermatology; Respiratory; Cardiovascular, Renal and Metabolism; and Established Medicines.
The Innovative Medicines Division is the larger of our two divisions in terms of consolidated net sales. It reported consolidated net sales of USD 37.7 billion in 2019, which represented 79% of the Group’s net sales.
The product portfolio of the Innovative Medicines Division includes a significant number of key marketed products, many of which are among the leaders in their respective therapeutic areas.
Innovative Medicines Division products
The following summaries describe certain key marketed products in our Innovative Medicines Division, listed according to year-end net sales within each franchise. While we typically seek to sell our marketed products throughout the world, not all products and indications are available in every country. Therefore, the indications described in these summaries may vary by country. In addition, a product may be available under different brand names depending on country and indication. Some of the products described below have lost patent 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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Key marketed products
Novartis Oncology business unit
Oncology
Tasigna (nilotinib) is an oral signal transduction inhibitor of the BCR-ABL tyrosine kinase. Tasigna is approved in the US, the EU, Japan and other countries for the treatment of:
• Adults and children with Philadelphia chromosome-positive chronic myeloid leukemia (Ph+ CML) in the chronic and/or accelerated phase who are resistant or intolerant to existing treatment
• Newly diagnosed adults and children with Ph+ CML in the chronic phase
Sandostatin SC (octreotide acetate for injection) and Sandostatin LAR (octreotide acetate for injectable suspension) are somatostatin analogs approved in the US, the EU, Japan and other countries for the treatment of:
• Adults with acromegaly, a chronic disease caused by the oversecretion of growth hormone, whose condition is not adequately controlled by surgery or radiotherapy
• Patients with certain symptoms associated with carcinoid tumors and other types of functional gastrointestinal and pancreatic neuroendocrine tumors
Sandostatin LAR is also approved in:
• The EU and other countries for the treatment of patients with advanced neuroendocrine tumors of the midgut or of unknown primary tumor origin
• Japan for the treatment of patients with neuroendocrine tumors of the gastrointestinal tract
Afinitor/Votubia (everolimus) is an oral inhibitor of the mTOR pathway. Afinitor is approved in the US, the EU, Japan and other countries for oncology indications that vary by country. It is approved for the treatment of:
• Postmenopausal women with advanced hormone receptor-positive (HR+)/human epidermal growth factor receptor 2-negative (HER2-) breast cancer, in combination with the medicine exemestane, when certain other medicines have not worked
• Adults with renal cell carcinoma (advanced kidney cancer) when certain other medicines have not worked
• Adults with a type of cancer known as neuroendocrine tumor (NET) of the pancreas, and non-symptomatic NET of the stomach, intestine (gastrointestinal) or lung that has progressed and cannot be treated with surgery (Afinitor is not indicated for use in people with carcinoid tumors that actively produce hormones)
Everolimus is approved for additional indications as Afinitor/Afinitor Disperz in the US, Japan and other countries, and as Votubia (tablets and dispersible tablets) in the EU. The following indications vary by country:
• Adults with a kidney tumor called angiomyolipoma, which occurs with a genetic condition called tuberous sclerosis complex (TSC), when the tumor does not require immediate surgery (tablet formulation only)
• Adults and children who have TSC and a brain tumor called subependymal giant cell astrocytoma (SEGA) when the tumor cannot be removed completely by surgery
• Adults and children aged 2 years and older who have TSC and certain types of seizures (epilepsy), as an added treatment to other antiepileptic medicines (dispersible tablet formulation only)
Everolimus is available under the trade names Zortress/Certican for use in transplantation. It is exclusively licensed to Abbott Laboratories and sublicensed to Boston Scientific for use in drug-eluting stents.
Promacta/Revolade (eltrombopag) is a once-daily oral thrombopoietin receptor agonist that works by stimulating bone marrow cells to produce platelets. It is approved in the US, the EU, Japan and other countries for the treatment of:
• A bleeding disorder called chronic immune (idiopathic) thrombocytopenia in patients who have had an inadequate response or are intolerant to other treatments
• Thrombocytopenia in patients with chronic hepatitis C to allow them to initiate and maintain interferon-based therapy
Promacta/Revolade is also approved in:
• The US and other countries as first-line therapy for adults and children aged 2 years and older with severe aplastic anemia (SAA)
• Japan as first-line therapy for adults with SAA
• The EU and other countries for adults with SAA who are resistant to other treatments
Promacta/Revolade is marketed under a research, development and license agreement between Novartis and RPI Finance Trust (dba Royalty Pharma), as assignee of Ligand Pharmaceuticals.
Tafinlar + Mekinist (dabrafenib + trametinib) is an oral combination therapy. Tafinlar and Mekinist are kinase inhibitors of the BRAF and MEK1/2 proteins, respectively, approved in combination in the US, the EU, Japan and other countries for the treatment of:
• Adults with unresectable (not removable through surgery) or metastatic melanoma with a BRAF V600 mutation
• Adults with stage III melanoma with a BRAF V600 mutation as an adjuvant treatment
• Adults with advanced non-small cell lung cancer with a BRAF V600 mutation
Additionally, the combination is approved in the US and other countries for the treatment of:
• Adults with locally advanced or metastatic anaplastic thyroid cancer with a BRAF V600 mutation
Tafinlar and Mekinist are also indicated as single agents to treat patients with unresectable or metastatic melanoma with a BRAF V600 mutation. Novartis has worldwide exclusive rights to develop, manufacture and commercialize trametinib granted by Japan Tobacco Inc.
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Gleevec/Glivec (imatinib mesylate/imatinib) is an oral kinase inhibitor. Gleevec is approved in the US for the treatment of:
• Newly diagnosed adults and children with Ph+ CML in the chronic phase
• Adults in the chronic, accelerated or blast crisis phase of Ph+ CML after failure of interferon-alpha therapy
• Adults with relapsed or refractory Philadelphia chromosome-positive acute lymphoblastic leukemia (Ph+ ALL)
• Newly diagnosed children with Ph+ ALL, in combination with chemotherapy
• Adults with KIT (CD117)-positive gastrointestinal stromal tumors (GISTs) that cannot be surgically removed and/or have spread to other parts of the body
• Adults who have had their KIT (CD117)-positive GIST completely surgically removed
• Adults with advanced hypereosinophilic syndrome (HES) and/or chronic eosinophilic leukemia (CEL) who have a rearrangement of two genes called FIP1L1 and PDGFR-alpha
Glivec is approved in the EU, Japan and other countries for the treatment of:
• Newly diagnosed adults and children with Ph+ CML for whom bone marrow transplantation is not considered as the first line of treatment
• Adults and children in the chronic phase of Ph+ CML after failure of interferon-alpha therapy, or in the accelerated or blast crisis phase of Ph+ CML
• Adults with relapsed or refractory Ph+ ALL, as monotherapy
• Newly diagnosed adults and children with Ph+ ALL, in combination with chemotherapy
• Adults with KIT (CD117)-positive GISTs that cannot be surgically removed and/or have spread to other parts of the body
• Adults with advanced HES and/or chronic CEL with the FIP1L1-PDGFR-alpha rearrangement
• Adults who have had their KIT (CD117)-positive GIST completely surgically removed and who are at significant risk of relapse
Gleevec/Glivec is also approved in other rare cancers, including:
• In the US and the EU for the treatment of adults with myelodysplastic/myeloproliferative diseases, a group of diseases of the blood and bone marrow
• In the US for the treatment of adults with aggressive systemic mastocytosis (a form of mast cell disease), and adults with dermatofibrosarcoma protuberans (a rare skin cancer) when surgery is not possible or the disease has spread
Jakavi (ruxolitinib) is an oral inhibitor of the JAK1 and JAK2 tyrosine kinases that is the first therapy approved in the EU, Japan and other countries to treat two kinds of myeloproliferative neoplasms, a group of related and rare blood cancers characterized by the overproduction of blood cells in the bone marrow. It is approved for the treatment of:
• Adults with myelofibrosis, including primary myelofibrosis, post-polycythemia vera myelofibrosis and post-essential thrombocythemia myelofibrosis
• Adults with polycythemia vera who are resistant or intolerant to a medication called hydroxyurea
Novartis licensed ruxolitinib from Incyte Corporation for development and commercialization in the indications of oncology, hematology and graft-versus-host disease outside the US. Incyte Corporation markets ruxolitinib as Jakafi® in the US.
Exjade and Jadenu (deferasirox) are oral iron chelators approved in the US, the EU, Japan and other countries for the treatment of:
• Adults and children aged 2 years and older who have chronic iron overload due to blood transfusions
• Adults and children aged 10 years and older who have chronic iron overload with non-transfusion-dependent thalassemia (a group of blood disorders that do not require regular blood transfusions)
Votrient (pazopanib) is an oral tyrosine kinase inhibitor that targets a number of growth factors to limit new blood vessel and tumor growth. Votrient is approved in the US and Japan for the treatment of:
• Adults with advanced renal cell carcinoma (RCC)
• Adults with advanced soft tissue sarcoma (STS) who have received chemotherapy (it is not known if Votrient is effective in treating adipocytic STS or certain gastrointestinal tumors)
Votrient is also approved in the EU for the treatment of:
• Adults with advanced RCC as first-line therapy, and adults with advanced RCC who have received cytokine therapy for advanced disease
• Adults with certain subtypes of advanced STS who have received chemotherapy for metastatic disease or whose cancer has progressed within 12 months after neoadjuvant therapy
Kisqali (ribociclib) is an oral cyclin-dependent kinase inhibitor. It is approved in the US, the EU and other countries for the treatment of:
• Pre-, peri- and postmenopausal women with HR+/HER2- advanced or metastatic breast cancer, in combination with an aromatase inhibitor as initial endocrine-based therapy
• Postmenopausal women with HR+/HER2- locally advanced or metastatic breast cancer, in combination with fulvestrant as initial endocrine based-therapy or following disease progression on endocrine therapy
Kisqali was developed by the Novartis Institutes for BioMedical Research under a research collaboration with Astex Pharmaceuticals.
Lutathera (lutetium Lu 177 dotatate/lutetium (177Lu) oxodotreotide) is an intravenous radioligand therapy approved in the US for the treatment of:
• Adults with somatostatin receptor-positive gastroenteropancreatic neuroendocrine tumors (GEP-
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NETs), including foregut, midgut and hindgut neuroendocrine tumors
Lutathera is also approved in the EU and other countries for the treatment of:
• Adults with unresectable or metastatic, progressive, well-differentiated (G1 and G2), somatostatin receptor-positive GEP-NETs
Kymriah (tisagenlecleucel) suspension for intravenous infusion is a CD19-directed genetically modified autologous chimeric antigen receptor T-cell (CAR-T) therapy. Kymriah is approved in the US, the EU, Japan and other countries for the treatment of:
• Patients up to 25 years old with B-cell acute lymphoblastic leukemia that is refractory or in second or later relapse
• Adults with relapsed or refractory diffuse large B-cell lymphoma after two or more lines of systemic therapy
Piqray (alpelisib) is an oral kinase inhibitor. It is approved in the US and other countries for the treatment of:
• Postmenopausal women, and men, with HR+/HER2- advanced or metastatic breast cancer with a PIK3CA mutation, in combination with fulvestrant following disease progression on or after an endocrine-based regimen
Piqray received US approval in May 2019.
Adakveo (crizanlizumab) is a humanized monoclonal antibody that binds to P-selectin, a cell adhesion protein that plays a central role in the multicellular interactions that can lead to vaso-occlusion in sickle cell disease. Delivered as an intravenous infusion, Adakveo is approved in the US to:
• Reduce the frequency of vaso-occlusive crises (VOCs), or pain crises, in patients aged 16 years and older with sickle cell disease
Adakveo received US approval in November 2019.
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 protein that causes the growth of blood vessels in the eye, which can lead to vision loss. Lucentis is an injectable anti-VEGF therapy specifically designed for the eye, minimizing systemic exposure. It is approved in the EU, Japan and other countries. Approvals and indications vary by country:
• Adults with neovascular (wet) age-related macular degeneration (AMD)
• Adults with visual impairment due to choroidal neovascularization (CNV)
• Adults with CNV secondary to pathologic myopia
• Adults with visual impairment due to diabetic macular edema
• Adults with visual impairment due to macular edema secondary to retinal vein occlusion (branch and central retinal vein occlusion)
• Adults with moderately severe to severe non-proliferative diabetic retinopathy and proliferative diabetic retinopathy
• Preterm infants with retinopathy of prematurity (ROP) in zone I (stage 1+, 2+, 3 or 3+) or zone II (stage 3+), or aggressive posterior ROP
Lucentis is licensed from Genentech, and Novartis holds the rights to commercialize the product outside the US. Genentech holds the rights to commercialize Lucentis in the US. For further information, see “Item 18. Financial Statements—Note 27. Transactions with related parties—Genentech/Roche.”
Xiidra (lifitegrast) is a prescription eye drop designed to block the interaction between LFA-1 and ICAM-1, inhibiting the formation of the immunological synapse and reducing inflammation. Xiidra is approved in the US and other countries for the treatment of:
• The signs and symptoms of dry eye disease in patients over 17 years old
Novartis acquired Xiidra from Takeda Pharmaceutical Company Limited and began recording sales as of July 1, 2019. Xiidra is marketed in the US. It is not currently marketed in the EU or Japan.
Beovu (brolucizumab) is an injectable, humanized single-chain antibody fragment that acts as an anti-VEGF agent. It is approved in the US for the treatment of:
• Patients with neovascular (wet) age-related macular degeneration
Beovu received US approval in October 2019.
Immunology, Hepatology and Dermatology1
Cosentyx (secukinumab) is an injectable fully human monoclonal antibody that specifically inhibits interleukin-17A (IL-17A), a cytokine involved in the pathogenesis of psoriasis, ankylosing spondylitis and psoriatic arthritis. It is approved in the US, the EU, Japan and other countries for the treatment of:
• Adults with moderate-to-severe plaque psoriasis
• Adults with active ankylosing spondylitis
• Adults with active psoriatic arthritis
Cosentyx is also approved in Japan for the treatment of:
• Adults with pustular psoriasis
1 Xolair sales for all indications are reported in the Respiratory franchise.
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Ilaris (canakinumab) is an injectable, selective, high-affinity, fully human monoclonal antibody that inhibits interleukin-1 beta (IL-1 beta), a key cytokine (a type of protein) in the inflammatory pathway. Ilaris is approved in the US, the EU, Japan and other countries for the treatment of:
• Adults and children with cryopyrin-associated periodic syndromes
• Adults and children with tumor necrosis factor receptor-associated periodic syndrome
• Adults and children with hyperimmunoglobulin D syndrome/mevalonate kinase deficiency
• Adults and children with familial Mediterranean fever
• Adults and children with systemic juvenile idiopathic arthritis
Ilaris is also approved in the EU for the treatment of:
• Adults with Still’s disease
• Adults with refractory acute gouty arthritis
Neuroscience
Gilenya (fingolimod) is an oral sphingosine-1-phosphate (S1P) receptor modulator that has a reversible lymphocyte redistribution effect and readily crosses the blood-brain barrier to bind to the S1P receptors based in the central nervous system. It is approved in the US for the treatment of:
• Adults and children aged 10 years and older with relapsing forms of multiple sclerosis, including clinically isolated syndrome, relapsing-remitting multiple sclerosis (RRMS) and active secondary progressive multiple sclerosis (SPMS)
Gilenya is also approved in the EU for the treatment of:
• Adults and children aged 10 years and older who have highly active RRMS despite treatment with at least one disease-modifying agent, or who have rapidly evolving severe RRMS
Gilenya is licensed from Mitsubishi Tanabe Pharma Corporation.
Zolgensma (onasemnogene abeparvovec-xioi) is a gene therapy delivered as a single-dose intravenous infusion. It is designed to provide a functional copy of the human survival motor neuron (SMN) gene to halt disease progression through sustained SMN protein expression. Zolgensma is approved in the US for the treatment of:
• Children less than 2 years old who have spinal muscular atrophy with biallelic mutations in the SMN1 gene
Zolgensma received US approval in May 2019 and is marketed by AveXis, a Novartis company.
Aimovig (erenumab-aooe/erenumab) is a once-monthly injection that can be self-administered or administered by another trained person. It is specifically designed to block the calcitonin gene-related peptide receptor (CGRP-R), which plays a critical role in migraine. It is approved:
• In the US for the prevention of migraine in adults
• In the EU for the prevention of migraine in adults who have at least four migraine days per month
Aimovig is launched in 38 countries. Novartis and Amgen co-commercialize Aimovig in the US, where Amgen records sales. Novartis has exclusive commercialization rights for all ex-US territories, excluding Japan. The collaboration continues during the previously announced litigation between the companies and will remain in force until and unless a final court decision terminates the agreements.
Mayzent (siponimod) is an oral, selective S1P receptor modulator. It binds selectively to the S1P receptor subtypes 1 and 5, and penetrates the central nervous system, where it may impact central nervous system inflammation and repair mechanisms. Mayzent is approved:
• In the US for the treatment of adults with relapsing forms of multiple sclerosis, including clinically isolated syndrome, relapsing-remitting multiple sclerosis (RRMS) and active secondary progressive multiple sclerosis (SPMS)
• In the EU for the treatment of adults with SPMS with active disease
Mayzent received US approval in March 2019 and EU approval in January 2020.
Respiratory
Xolair (omalizumab) is an injectable prescription medicine and the only approved antibody designed to target and block immunoglobulin E (IgE). It is approved in the US, the EU, Japan and other countries for the treatment of:
• Adults and children aged 6 years and older with moderate-to-severe, or severe, persistent allergic asthma
• Adults and children aged 12 years and older with chronic spontaneous urticaria/chronic idiopathic urticaria (hives)
Xolair is also approved in Japan for the treatment of:
• Patients with severe seasonal allergic rhinitis (hay fever)
Xolair is provided as lyophilized powder for reconstitution, and as liquid formulation in a pre-filled syringe. Novartis co-promotes Xolair with Genentech in the US and shares a portion of operating income, but Novartis does not record any US sales. Novartis records all sales of Xolair outside the US. For further information, see “Item 18. Financial Statements—Note 27. Transactions with related parties—Genentech/Roche.”
Cardiovascular, Renal and Metabolism
Entresto (sacubitril/valsartan) is an oral, first-in-class angiotensin receptor/neprilysin inhibitor. It enhances the protective neurohormonal systems of the heart (the neprilysin system) while simultaneously suppressing the harmful system (the renin-angiotensin-aldosterone system). Entresto is approved in the US, the EU and other countries for the treatment of:
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• Adults who have symptomatic chronic heart failure with reduced ejection fraction (HFrEF)
Entresto is also approved in the US for the treatment of:
• Children aged 1 year and older who have symptomatic heart failure with systemic left ventricular systolic dysfunction
Entresto is approved in 112 countries.
Established Medicines
Galvus/Equa (vildagliptin) is an oral inhibitor of the DPP-4 enzyme. It is approved in the EU, Japan and other countries for the treatment of:
• Adults with type 2 diabetes when used as monotherapy; in dual combination with metformin, a sulfonylurea or a thiazolidinedione; in triple combination with a sulfonylurea and metformin; and as an add-on to insulin (with or without metformin)
An oral single-pill combination of vildagliptin and metformin, marketed as Eucreas/EquMet/GalvusMet, is also approved in the EU, Japan and other countries for the treatment of type 2 diabetes. Sumitomo Dainippon Pharma Co. Ltd. promotes Equa and EquMet in Japan.
Diovan (valsartan) is an oral angiotensin II receptor blocker (ARB). It is approved in the US, the EU, Japan and other countries for the treatment of:
• Adults and children with hypertension (high blood pressure)
• Patients with heart failure
• Patients with left ventricular failure and/or left ventricular systolic dysfunction following a myocardial infarction (heart attack)
• Hypertensive patients who have impaired glucose tolerance and are at risk of heart disease
An oral single-pill combination of valsartan and hydrochlorothiazide, marketed as Diovan HCT/Co-Diovan, is also approved in the US, the EU, Japan and other countries for the treatment of hypertension.
Exforge (valsartan and amlodipine besylate) is an oral single-pill combination of the ARB valsartan and the calcium channel blocker amlodipine besylate. It is approved in the US, the EU, Japan and other countries for the treatment of:
• Adults with hypertension
An oral single-pill combination of valsartan, amlodipine besylate and hydrochlorothiazide, marketed as Exforge HCT, is also approved in the US, the EU, Japan and other countries for the treatment of hypertension.
Zortress/Certican (everolimus) is an oral inhibitor of the mTOR pathway. It is approved in the US, the EU, Japan and other countries for the prophylaxis of:
• Organ rejection in adults at low to moderate immunological risk receiving an allogeneic kidney or liver transplant
It is also approved in the EU and Japan for the prophylaxis of:
• Organ rejection in adults receiving a heart transplant
Everolimus is available under the trade names Afinitor/Votubia for use in oncology. It is exclusively licensed to Abbott Laboratories and sublicensed to Boston Scientific for use in drug-eluting stents.
Egaten (triclabendazole) is an oral narrow-spectrum anthelmintic agent that inhibits a parasitic flatworm’s motility and interferes with the worm’s microtubular structure and function. Egaten is approved in the US, France and Egypt for the treatment of:
• Patients aged 6 years and older with fascioliasis, a parasitic infection commonly known as liver fluke infestation
Egaten received US approval in February 2019. It is the only medicine for fascioliasis recommended by the World Health Organization (WHO) and is on the WHO Model List of Essential Medicines. Novartis has been donating Egaten to the WHO for the treatment of fascioliasis since 2005.
Compounds in development
The following table and paragraph summaries provide an overview of the key Innovative Medicines Division projects currently in the Confirmatory Development stage and may also describe certain projects in the Exploratory Development stage. Projects are listed in alphabetical order by project code, or by product name where applicable. Projects include those seeking to develop potential uses of new molecular entities as well as potential additional indications or new formulations for already marketed products. The table below, entitled “Projects added to and subtracted from the development table since 2018,” highlights changes to the table entitled “Selected development projects” from the previous year.
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.
The year that each project entered the current phase of development disclosed below refers to 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 submitted to a health authority for marketing approval.
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Selected development projects



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ABL001
asciminib
BCR-ABL inhibitor
Chronic myeloid leukemia, 3rd line
Oncology
Oral
2016
2021/III
ACZ885
canakinumab
Anti-interleukin-1 beta monoclonal antibody
2nd line non-small cell lung cancer
Oncology
Subcutaneous injection
2017
2021/III
1st line non-small cell lung cancer
Oncology
Subcutaneous injection
2017
2021/III
Adjuvant non-small cell lung cancer
Oncology
Subcutaneous injection
2017
2022/III
AVXS-1011
onasemno- gene abepar- vovec
Survival motor neuron (SMN) gene replacement therapy
Spinal muscular atrophy (IV formulation)
Neuroscience
Intravenous infusion
2018
US approved EU registration
Spinal muscular atrophy (IT formulation)2
Neuroscience
Intrathecal injection
2018
2020/I
AVXS-201
TBD
Methyl-CpG binding protein 2 (MECP2) gene replacement therapy
Rett syndrome
Neuroscience
Intrathecal injection
2018
2023/I
BYL7193
alpelisib
PI3K-alpha inhibitor
PIK3CA mutant hormone receptor-positive (HR+)/human epidermal growth factor receptor 2-negative (HER2-) postmenopausal advanced breast cancer, 2nd line (+ fulvestrant)
Oncology
Oral
2018
US approved EU registration
PIK3CA-related overgrowth spectrum
Oncology
Oral
2019
2020/III
Triple negative breast cancer
Oncology
Oral
2019
2023/III
Hormone receptor-negative (HR-)/human epidermal growth factor receptor 2-positive (HER2+) advanced breast cancer
Oncology
Oral
2019
2023/III
Ovarian cancer
Oncology
Oral
2019
2023/III
Head and neck squamous cell carcinoma
Oncology
Oral
2019
≥2024/III
CEE321
TBD
Pan-JAK inhibitor
Atopic dermatitis
Immunology, Hepatology and Dermatology
Topical
2019
≥2024/II
CFZ533
iscalimab
Blocking, non-depleting, anti-CD40 monoclonal antibody
Solid organ transplantation
Immunology, Hepatology and Dermatology
Intravenous infusion
2017
2023/II
Sjögren's syndrome
Immunology, Hepatology and Dermatology
Intravenous infusion
2018
≥2024/II
Cosentyx
secukinumab
Anti-interleukin-17 monoclonal antibody
Non-radiographic axial spondyloarthritis
Immunology, Hepatology and Dermatology
Subcutaneous injection
2015
US/EU registration
Psoriatic arthritis head-to-head study versus Humira® (adalimumab)
Immunology, Hepatology and Dermatology
Subcutaneous injection
2015
2020/III
Ankylosing spondylitis head-to-head study versus Sandoz biosimilar Hyrimoz (adalimumab)
Immunology, Hepatology and Dermatology
Subcutaneous injection
2015
2022/III
Hidradenitis suppurativa
Immunology, Hepatology and Dermatology
Intravenous infusion
2017
2022/III
Giant cell arteritis
Immunology, Hepatology and Dermatology
Intravenous infusion
2018
≥2024/II
Lichen planus
Immunology, Hepatology and Dermatology
Intravenous infusion
2019
≥2024/II
CSJ117
TBD
Anti-thymic stromal lymphopoietin monoclonal antibody fragment
Severe asthma
Respiratory
Inhalation
2018
2023/II
ECF843
TBD
Boundary lubricant
Dry eye
Ophthalmology
Eye drops
2017
2022/II
Entresto
valsartan and sacubitril (as sodium salt complex)
Angiotensin receptor/ neprilysin inhibitor
Chronic heart failure with preserved ejection fraction
Cardiovascular, Renal and Metabolism
Oral
2012
2020/III
Post-acute myocardial infarction
Cardiovascular, Renal and Metabolism
Oral
2015
2021/III
               
 1  Approved in the US as Zolgensma for spinal muscular atrophy (IV formulation)
 2  The FDA has placed a partial clinical hold on AVXS-101 intrathecal trials for spinal muscular atrophy patients based on findings in a small preclinical animal study.
 3  Approved in the US as Piqray for PIK3CA mutant HR+/HER2- postmenopausal advanced breast cancer, 2nd line (+ fulvestrant)
35




Project/
product



Common
name



Mechanism
of action




Potential indication



Business
franchise


Formulation/
route of
administration
Year project
entered
current
development
phase


Planned filing
dates/current
phase
INC280
capmatinib
c-MET inhibitor
Non-small cell lung cancer
Oncology
Oral
2014
US registration
Solid tumors
Oncology
Oral
2019
≥2024/II
Jakavi
ruxolitinib
JAK1/2 inhibitor
Acute graft-versus-host disease
Oncology
Oral
2016
2021/III
Chronic graft-versus-host disease
Oncology
Oral
2016
2021/III
KAE609
cipargamin
PfATP4 inhibitor
Malaria
Established Medicines
Oral
2012
≥2024/II
Severe malaria
Established Medicines
Oral
2019
≥2024/II
KAF156
ganaplacide
Imidazolopiperazines derivative
Malaria
Established Medicines
Oral
2014
≥2024/II
Kisqali
ribociclib
CDK4/6 inhibitor
HR+/HER2- breast cancer (adjuvant)
Oncology
Oral
2018
2022/III
KJX839
inclisiran
Small-interfering RNA (PCSK9)
Hyperlipidemia
Cardiovascular, Renal and Metabolism
Subcutaneous injection
2019
US/EU registration
Secondary prevention of cardiovascular events in patients with elevated levels of LDL-C
Cardiovascular, Renal and Metabolism
Subcutaneous injection
2019
≥2024/III
Kymriah
tisagen- lecleucel
CD19-targeted chimeric antigen receptor T-cell immunotherapy
Relapsed/refractory follicular lymphoma
Oncology
Intravenous infusion
2017
2021/II
Relapsed/refractory diffuse large B-cell lymphoma in 1st relapse
Oncology
Intravenous infusion
2018
2021/III
Relapsed/refractory diffuse large B-cell lymphoma (+ pembrolizumab)
Oncology
Intravenous infusion
2017
≥2024/II
LAM320
clofazimine
Mycobacterial DNA binding
Multidrug-resistant tuberculosis
Established Medicines
Oral
2016
2021/III
LJC242
tropifexor, cenicriviroc (in fixed-dose combination)
FXR agonist and CCR2/5 inhibitor
Nonalcoholic steatohepatitis
Immunology, Hepatology and Dermatology
Oral
2017
≥2024/II
LJN452
tropifexor
FXR agonist
Nonalcoholic steatohepatitis
Immunology, Hepatology and Dermatology
Oral
2015
≥2024/II
LMI070
branaplam
SMN2 RNA splicing modulator
Spinal muscular atrophy
Neuroscience
Oral
2017
≥2024/II
LNP023
TBD
Factor B inhibitor
IgA nephropathy
Cardiovascular, Renal and Metabolism
Oral
2018
2023/II
C3 glomerulopathy
Cardiovascular, Renal and Metabolism
Oral
2018
2023/II
Paroxysmal nocturnal hemoglobinuria
Cardiovascular, Renal and Metabolism
Oral
2019
2023/II
Membranous nephropathy
Cardiovascular, Renal and Metabolism
Oral
2018
≥2024/II
LOU064
TBD
BTK inhibitor
Chronic spontaneous urticaria
Immunology, Hepatology and Dermatology
Oral
2017
2023/II
177Lu- PSMA-617
TBD
Targeted DNA destruction via beta-particle radiation
Metastatic castration-resistant prostate cancer
Oncology
Intravenous infusion
2018
2020/III
LXE408
TBD
Kinetoplastid proteasome inhibitor
Visceral leishmaniasis
Established Medicines
Oral
2019
≥2024/II
MBG453
TBD
TIM-3 antagonist
Myelodysplastic syndrome
Oncology
Intravenous infusion
2018
2021/II
Acute myeloid leukemia
Oncology
Intravenous infusion
2019
≥2024/II
OMB157
ofatumumab
Anti-CD20 monoclonal antibody
Relapsing multiple sclerosis
Neuroscience
Subcutaneous injection
2015
US/EU registration
PDR001
spartalizumab
Anti-PD-1 monoclonal antibody
Metastatic BRAF V600+ melanoma (w/ Tafinlar + Mekinist)
Oncology
Intravenous infusion
2017
2020/III
Metastatic melanoma (combo)
Oncology
Intravenous infusion
2017
2023/II
QBW251
TBD
CFTR potentiator
Chronic obstructive pulmonary disease
Respiratory
Oral
2017
≥2024/II
QGE031
ligelizumab
High-affinity anti-IgE monoclonal antibody
Chronic spontaneous urticaria/ chronic idiopathic urticaria
Immunology, Hepatology and Dermatology
Subcutaneous injection
2017
2021/III
QMF149
indacaterol, mometasone furoate (in fixed-dose combination)
Long-acting beta2- adrenergic agonist and inhaled corticosteroid
Asthma
Respiratory
Inhalation
2019
EU registration
36




Project/
product



Common
name



Mechanism
of action




Potential indication



Business
franchise


Formulation/
route of
administration
Year project
entered
current
development
phase


Planned filing
dates/current
phase
QVM149
indacaterol, mometasone furoate, glyco- pyrronium bromide (in fixed-dose combination)
Long-acting beta2- adrenergic agonist, long-acting muscarinic antagonist and inhaled corticosteroid
Asthma
Respiratory
Inhalation
2019
EU registration
RTH2584
brolucizumab
Anti-VEGF single-chain antibody fragment
Neovascular (wet) age-related macular degeneration
Ophthalmology
Intravitreal injection
2019
US approved EU registration
Diabetic macular edema
Ophthalmology
Intravitreal injection
2017
2021/III
Retinal vein occlusion
Ophthalmology
Intravitreal injection
2018
2023/III
Proliferative diabetic retinopathy
Ophthalmology
Intravitreal injection
2019
2023/III
SAF312
TBD
TRPV1 antagonist
Chronic ocular surface pain
Ophthalmology
Topical
2019
≥2024/II
SEG1015
crizanlizumab
P-selectin inhibitor
Sickle cell disease
Oncology
Intravenous infusion
2019
US approved EU registration
TQJ230
TBD
Anti-apo(a) antisense oligonucleotide
Secondary prevention of cardiovascular events in patients with elevated levels of lipoprotein(a)
Cardiovascular, Renal and Metabolism
Subcutaneous injection
2018
≥2024/III
UNR844
TBD
Reduction of disulfide bonds
Presbyopia
Cardiovascular, Renal and Metabolism
Eye drops
2017
≥2024/II
VAY736
ianalumab
Anti-BAFF (B-cell- activating factor) monoclonal antibody
Autoimmune hepatitis
Immunology, Hepatology and Dermatology
Subcutaneous injection
2016
≥2024/II
Primary Sjögren’s syndrome
Immunology, Hepatology and Dermatology
Subcutaneous injection
2015
≥2024/II
VPM087
TBD
Interleukin-1 beta neutralization monoclonal antibody
Colorectal cancer, 1st line; renal cell carcinoma, 1st line
Oncology
Intravenous infusion
2018
≥2024/I
Xolair
omalizumab
Anti-IgE monoclonal antibody
Nasal polyps
Respiratory
Subcutaneous injection
2017
US/EU registration
Food allergy
Respiratory
Subcutaneous injection
2019
2021/III
ZPL389
adriforant
Histamine H4 receptor antagonist
Atopic dermatitis
Immunology, Hepatology and Dermatology
Oral
2017
≥2024/II
               
 4  Approved in the US as Beovu for neovascular (wet) age-related macular degeneration
 5  Approved in the US as Adakveo for sickle cell disease
Key development projects
• ABL001 (asciminib) is an investigational oral BCR-ABL inhibitor that binds to the allosteric site of its target (BCR-ABL1). A broad clinical development program is investigating ABL001 as a monotherapy and as a combination therapy for the treatment of chronic myeloid leukemia (CML). This program includes the Phase III ASCEMBL third-line study, and the Phase II ASC4MORE first-line study of ABL001 plus imatinib in patients with CML in chronic phase without achieving deep molecular response. Novartis is studying ABL001 in patients with and without genetic mutations that make them resistant to many targeted CML therapies.
• ACZ885 (canakinumab) is an injectable human monoclonal antibody designed to bind to human interleukin-1 beta (IL-1 beta). ACZ885 was first approved as Ilaris in 2009 for cryopyrin-associated periodic syndromes, a group of rare auto-inflammatory disorders. At the 2017 European Society of Cardiology Congress, Novartis presented data from CANTOS, a Phase III study evaluating quarterly injections of ACZ885 in people with a prior heart attack and inflammatory atherosclerosis. A blinded, pre-planned analysis of these data revealed a 77% reduction in lung cancer mortality and a 67% reduction in lung cancer cases in patients treated with 300 mg of ACZ885. These findings suggest the potential benefit of inhibiting tumor-promoting inflammation in cancer treatment. Based on these CANTOS findings, Novartis initiated three Phase III studies of ACZ885 in lung cancer: the CANOPY trials. Study outcomes may begin to be reported in 2021. During 2019, Novartis presented Trials in Progress (TiP) updates at the American Society of Clinical Oncology (ASCO) annual meeting, and an overview of the Phase III CANOPY trials at the European Society for Medical Oncology (ESMO) Congress.
• AVXS-101 (onasemnogene abeparvovec, approved in the US as Zolgensma) is a gene therapy designed to address the genetic root cause of spinal muscular atrophy (SMA) by providing a functional copy of the human survival motor neuron (SMN) gene to halt disease progression through sustained SMN protein expression. The US Food and Drug Administration (FDA) approved the intravenous formulation of AVXS-101 as Zolgensma in May 2019 for the treatment of pediatric patients less than 2 years old who have SMA with biallelic mutations in the SMN1 gene. Regulatory reviews are underway in
37

Europe, with a CHMP opinion anticipated in the first quarter of 2020, and in Japan, with a decision anticipated in the first half of 2020. AVXS-101 is in ongoing clinical studies, including the global Phase III STR1VE clinical program (consisting of STR1VE-US, STR1VE-EU and STR1VE-AP) to evaluate the intravenous formulation of AVXS-101 in patients who have SMA type 1, and the multinational Phase III SPR1NT trial in presymptomatic patients who have SMA with two or three copies of the SMN2 gene. Additionally, AVXS-101 intrathecal administration is being studied in a Phase I/II STRONG trial in patients who have SMA type 2 and three copies of the SMN2 gene. The STRONG trial is currently on partial clinical hold based on findings in a small preclinical animal study, and the Company is working with the FDA to determine next steps to resume dosing. New data from trials were presented at 2019 congresses, including the American Academy of Neurology Annual Meeting.
• BYL719 (alpelisib, approved in the US as Piqray) is an orally bioavailable, alpha-specific PI3K inhibitor approved in combination with fulvestrant for the treatment of postmenopausal women, and men, with HR+/HER2-, PIK3CA-mutated, advanced or metastatic breast cancer. Piqray received FDA approval based on results of the Phase III SOLAR-1 trial, which showed that Piqray plus fulvestrant nearly doubled median progression-free survival compared to fulvestrant alone. Novartis is conducting a Phase II open-label trial, called BYLieve, to evaluate BYL719 plus fulvestrant or letrozole in patients with HR+/HER2-, PIK3CA-mutated advanced breast cancer who have progressed on prior therapy. Novartis is also planning to evaluate BYL719 in triple negative breast cancer; head and neck squamous cell carcinoma; ovarian cancer; and PIK3CA-related overgrowth spectrum, for which BYL719 received FDA breakthrough therapy designation.
• CFZ533 (iscalimab), delivered subcutaneously as an injection, is a fully human, Fc-silenced IgG1 monoclonal antibody that blocks the CD40 receptor. CFZ533 is in clinical development to prevent graft rejection after organ transplantation and to treat several autoimmune diseases, including Sjögren’s syndrome. In the proof-of-concept study, CFZ533 demonstrated the ability to preserve graft function and pristine histology, confirming preclinical in vivo data. Recruitment is underway for two Phase II studies in kidney and liver transplant recipients (CIRRUS I and CONTRAIL I, respectively), and for a Phase II study in patients with Sjögren’s syndrome (TWINSS).
Cosentyx (secukinumab) is an injectable fully human monoclonal antibody that specifically inhibits interleukin-17A (IL-17A). In August and December 2019, Novartis submitted positive data to the EMA and the FDA, respectively, from the Phase III PREVENT trial, which evaluated the efficacy and safety of Cosentyx in patients with non-radiographic axial spondyloarthritis. In November 2019, Novartis disclosed first results from the EXCEED head-to-head trial comparing Cosentyx to Humira® (adalimumab) in patients with active psoriatic arthritis (PsA). While narrowly missing statistical significance for superiority in ACR20, the primary endpoint of the EXCEED trial, Cosentyx showed numerically higher results versus Humira®. Cosentyx is in a Phase III head-to-head trial versus the Sandoz biosimilar Hyrimoz (adalimumab) in ankylosing spondylitis; Phase III trials in pediatric psoriasis, juvenile idiopathic arthritis and hidradenitis suppurativa; and a Phase II trial in giant cell arteritis.
Entresto (sacubitril/valsartan) is an oral, first-in-class angiotensin receptor/neprilysin inhibitor. Novartis is conducting multiple studies of sacubitril/valsartan as part of the FortiHFy clinical program, designed to generate additional data on sacubitril/valsartan and increase understanding of heart failure. The PIONEER-HF and TRANSITION studies both read out in 2018 and confirmed safety and superiority of Entresto versus enalapril in patients with chronic heart failure with reduced ejection fraction (HFrEF) who were stabilized following admission to the hospital for an acute decompensated heart failure event. The PROVE and EVALUATE trials read out in 2019. The PROVE-HF trial showed significant improvements in measures of cardiac structure and function at six months and one year in HFrEF patients; EVALUATE-HF results complemented PROVE-HF findings. The FortiHFy program also includes studies to investigate sacubitril/valsartan use in novel indications and expanded patient populations. These include PARAGON-HF and PARALLAX-HF, Phase III trials of sacubitril/valsartan in patients with chronic heart failure with preserved ejection fraction (HFpEF). Results of PARAGON-HF were published in September 2019, and while the trial narrowly missed its primary endpoint with a 13% treatment effect against an active valsartan comparator, the totality of evidence suggests that treatment with sacubitril/valsartan may result in clinically important benefits in HFpEF. US regulatory submission for HFpEF is on track for early 2020. PARALLAX-HF enrollment is complete and results are expected to be presented in 2020. Other trials include PARADISE-MI, a Phase III trial in patients at high risk of developing heart failure after a heart attack (post-acute myocardial infarction). Enrollment is ongoing and results are expected in 2020. Additionally, PARALLEL-HF is a Phase III trial for HFrEF patients in Japan (Novartis reported results in March 2019, and a marketing authorization submission in Japan is under review), and PANORAMA-HF is a Phase III trial in pediatric patients with heart failure (enrollment is ongoing and results are expected in 2021).
• INC280 (capmatinib) is an investigational oral, potent and selective MET inhibitor. The GEOMETRY trial – a Phase II study in adult patients with advanced non-small cell lung cancer (NSCLC) harboring MET exon 14 skipping mutations – is ongoing, as are additional early-stage studies in combination with other compounds. During 2019, Novartis presented primary efficacy results from the GEOMETRY trial at ASCO, and the FDA granted breakthrough therapy designation to INC280 as a first-line treatment for patients with metastatic MET exon 14 skipping-mutated (METex14) NSCLC. Breakthrough therapy designation covers both treatment-naive patients and patients previously
38

treated with platinum-based chemotherapy. INC280 is licensed by Novartis from Incyte Corporation. Under the Collaboration and License Agreement, Novartis has exclusive worldwide development and commercialization rights to INC280, and Incyte Corporation maintains certain rights to exercise options for both co-development and co-detailing in the US.
• KAF156 (ganaplacide) belongs to a novel class of antimalarial compounds called imidazolopiperazines. It has the potential to clear malaria infection, including resistant strains, and to block the transmission of the malaria parasite. As demonstrated in a Phase IIa proof-of-concept trial, the compound is fast-acting and potent across multiple stages of the parasite’s lifecycle, rapidly clearing both Plasmodium falciparum and Plasmodium vivax parasites. A Phase IIb study tested multiple dosing combinations and dosing schedules of KAF156 and lumefantrine in adults and adolescents, and confirmed good safety and efficacy of all doses. The safety and efficacy of the combination will now be evaluated in younger children.
Kisqali (ribociclib) is an oral, cyclin-dependent kinase inhibitor. Novartis continues to investigate Kisqali in patients with HR+/HER2- breast cancer, and it is the only CDK4/6 inhibitor to achieve statistically significant overall survival in two Phase III trials with two distinct patient populations. Novartis presented overall survival results from MONALEESA-7 at ASCO 2019 and from MONALEESA-3 at ESMO 2019, and continues to assess Kisqali in MONALEESA-2, COMPLEEMENT-1 and the NataLEE adjuvant trial. These trials are evaluating Kisqali in multiple endocrine therapy combinations across a broad range of patients, including men and premenopausal women. Kisqali was developed by the Novartis Institutes for BioMedical Research under a research collaboration with Astex Pharmaceuticals.
• KJX839 (inclisiran) is a long-acting, small-interfering RNA (siRNA) administered twice a year as a subcutaneous injection. It is in development in atherosclerotic cardiovascular disease and primary hyperlipidemia (including familial hypercholesterolemia) for patients who have already had an event like a heart attack or stroke, or who are risk-equivalent. Pivotal Phase III trial results were presented at the European Society of Cardiology Congress and the American Heart Association Scientific Sessions in 2019 by The Medicines Company, prior to its acquisition by Novartis. A cardiovascular outcomes study, ORION-4, is ongoing.
Kymriah (tisagenlecleucel) is a CD19-directed genetically modified autologous chimeric antigen receptor T-cell (CAR-T) therapy delivered as an intravenous infusion. Since 2018, Novartis has initiated six trials for new or expanded indications for Kymriah – diffuse large B-cell lymphoma (DLBCL) in second line, high-risk pediatric acute lymphoblastic leukemia (ALL), relapsed/refractory follicular lymphoma, pediatric non-Hodgkin lymphoma, relapsed/refractory DLBCL in combination with ibrutinib, and relapsed/refractory DLBCL in combination with pembrolizumab – as well as a study of Kymriah in adult ALL planned for a 2020 start. Novartis and the University of Pennsylvania’s Perelman School of Medicine developed Kymriah under a global collaboration. Please see “—Alliances and acquisitions” below for additional information related to our collaboration with the University of Pennsylvania.
• LJN452 (tropifexor) is an oral, highly potent and selective nonsteroidal multimodal farnesoid X receptor (FXR) agonist in development as both a monotherapy and a combination therapy for the treatment of nonalcoholic steatohepatitis (NASH). LJN452 is designed to target the three major facets of NASH (steatosis, inflammation and fibrosis), and has demonstrated the ability to reduce all three in animal models. Recruitment is complete for two Phase II studies: FLIGHT FXR (the monotherapy study) and TANDEM (the combination study with cenicriviroc). Additional collaborative studies are underway to explore the role of LJN452 as a backbone in combination therapies.
• LNP023 is an oral, selective factor B inhibitor of the alternative complement pathway. It is in development for the treatment of rare complement-driven renal diseases, including IgA nephropathy, membranous nephropathy and C3 glomerulopathy. LNP023 is also in development for the treatment of paroxysmal nocturnal hemoglobinuria. Phase II studies in all indications are initiated.
177Lu-PSMA-617, delivered as an intravenous infusion, is an investigational radioligand therapy in development for metastatic castration-resistant prostate cancer (mCRPC). Designed to target the prostate-specific membrane antigen present in most patients with mCRPC, 177Lu-PSMA-617 potentially offers a differentiated targeted treatment option. A Phase III study of 177Lu-PSMA-617 in patients with mCRPC, called VISION, is ongoing.
Lutathera (lutetium Lu 177 dotatate/lutetium (177Lu) oxodotreotide) is an intravenous radioligand therapy. A randomized Phase III trial called NETTER-1 continues to assess overall survival in patients who received Lutathera and long-acting octreotide to treat inoperable, progressive, well-differentiated (Grade 1 and Grade 2), somatostatin receptor-positive midgut neuroendocrine tumors.
• OMB157 (ofatumumab), administered as a subcutaneous injection, is a fully human monoclonal antibody that works by binding to the CD20 molecule on the B-cell surface and inducing B-cell depletion. OMB157 is in development to treat multiple sclerosis (MS). Novartis announced in August 2019 that the Phase III ASCLEPIOS I and II studies met their primary endpoints in patients with relapsing forms of MS. Compared to Aubagio® (teriflunomide), OMB157 showed a statistically significant reduction in the number of confirmed relapses, evaluated as the annualized relapse rate; highly significant suppression of both Gd+ T1 lesions and new or enlarging T2 lesions; and a relative risk reduction in three- and six-month confirmed disability worsening in pre-specified pooled analyses.
39

Novartis is conducting a registration study for OMB157 in Japan, which started in March 2018.
• PDR001 (spartalizumab), delivered as an intravenous infusion, is an investigational PD-1 antagonist that may restore the ability of immune cells to induce cell death and fight cancer. Novartis is evaluating PDR001 in combination with Tafinlar + Mekinist in a Phase III trial (COMBI-i) for unresectable or metastatic BRAF V600 mutation-positive melanoma, and presented results from the safety run-in part and biomarker cohort at ASCO in 2019. Novartis is also evaluating PDR001 as a combination therapy with other Novartis drugs in clinical trials for different tumor types, including metastatic melanoma.
• QAW039 (fevipiprant) is an investigational, novel, once-daily pill that blocks the DP2 pathway, a regulator of the inflammatory cascade. In December 2019, Novartis announced that development of QAW039 in asthma would be discontinued after the Phase III LUSTER-1 and LUSTER-2 core registration trials did not meet the clinically relevant threshold for reduction in asthma attacks (exacerbations) in moderate to severe patients with unresolved asthma despite treatment with inhaled therapies. In addition, as announced in October 2019, results of the Phase III ZEAL-1 and ZEAL-2 studies did not meet the primary efficacy endpoint of lung function (FEV1) improvement in patients with moderate asthma.
• QGE031 (ligelizumab), administered subcutaneously as a once-monthly single injection, is a next-generation, high-affinity anti-IgE monoclonal antibody that is highly potent in blocking the IgE/FceR1 pathway. QGE031 is in clinical development for the treatment of chronic spontaneous urticaria/chronic idiopathic urticaria (CSU/CIU). In a CSU/CIU Phase IIb study, a clear dose response was demonstrated and a higher percentage of CSU/CIU patients had complete symptom control with QGE031 72 mg or 240 mg than with omalizumab 300 mg or placebo. QGE031 is being investigated in two ongoing Phase III twin trials, PEARL 1 and PEARL 2, which are recruiting more than 2 000 patients across 48 countries.
• RTH258 (brolucizumab, approved in the US as Beovu) is an injectable, humanized, single-chain antibody fragment that acts as an anti-vascular endothelial growth factor (anti-VEGF) agent. The FDA approved RTH258 as Beovu in October 2019 for the treatment of neovascular (wet) age-related macular degeneration, and regulatory filings are under review in the EU, Japan and certain other countries. RTH258 is in clinical development for diabetic macular edema and retinal vein occlusion.
• SEG101 (crizanlizumab, approved in the US as Adakveo) is a humanized monoclonal antibody that binds to P-selectin, a cell adhesion protein that plays a central role in the multicellular interactions that can lead to vaso-occlusion in sickle cell disease. It is delivered as an intravenous infusion. The FDA approved SEG101 as Adakveo in November 2019 to reduce the frequency of vaso-occlusive crises (VOCs), or pain crises, in patients aged 16 years and older with sickle cell disease. Novartis continues to study SEG101 in sickle cell disease through the SENTRY clinical trial program, which includes SOLACE-adults, SOLACE-kids, STAND, SPARTAN and STEADFAST. These studies are evaluating SEG101 for the treatment of VOCs in children and adults, as well as priapism and other complications, such as sickle cell nephropathy.
• TQJ230 is an injectable antisense oligonucleotide designed to target elevated lipoprotein(a) (Lp(a)), which increases the risk of heart disease. The results of a Phase II trial announced in 2018 showed that TQJ230 reduced Lp(a) in patients by as much as 80%. The Lp(a)HORIZON trial, a Phase III trial in patients with established cardiovascular disease and elevated Lp(a), was initiated in December 2019. Results are expected in 2024. Novartis licensed TQJ230 from Akcea Therapeutics, Inc., an affiliate of Ionis Pharmaceuticals, Inc., in February 2019.
• UNR844 is a potential first-in-class topical treatment in development for presbyopia, 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) a challenge. UNR844 is believed to work through the reduction of disulfide bonds, softening the crystalline lens. 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 were treated with placebo. UNR844 showed a statistically significant difference to placebo in binocular distance-corrected near vision at all time points measured (from Day Eight). At Day 90, 82% of participants treated with UNR844 had 20/40 binocular 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.
• ZPL389 (adriforant) is a once-daily oral H4 receptor antagonist. It is in Phase II clinical development for the treatment of atopic dermatitis (AD) to evaluate its benefit on key outcomes, such as reduction of the severity of AD lesions and reduction of itch. The Phase II ZEST study is investigating the effect of several doses of ZPL389 versus placebo. ZPL389 has already demonstrated significant clinical and statistical improvements in eczema lesions, leading to a 50% reduction in Eczema Area and Severity Index (EASI) score compared to placebo after eight weeks of treatment, with a favorable safety profile in the proof-of-concept study.
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Projects added to and subtracted from the development table since 2018
Project/product
Potential indication
Change
Reason
ABL001
Chronic myeloid leukemia, 1st line
Removed
Development discontinued
AVXS-101
Spinal muscular atrophy type 1 (IV formulation)
Now disclosed as spinal muscular atrophy (IV formulation)
Spinal muscular atrophy type 2/3 (IT formulation)
Now disclosed as spinal muscular atrophy (IT formulation)
BAF312
Secondary progressive multiple sclerosis
Commercialized as Mayzent
BYL719
Hormone receptor-positive (HR+)/human epidermal growth factor receptor 2-negative (HER2-) advanced breast cancer (postmenopausal women), 2nd line (+ fulvestrant)
Now disclosed as PIK3CA mutant hormone receptor-positive (HR+)/human epidermal growth factor receptor 2-negative (HER2-) postmenopausal advanced breast cancer, 2nd line (+ fulvestrant)
PIK3CA-related overgrowth spectrum
Added
Entered Confirmatory Development
Triple negative breast cancer
Added
Entered Confirmatory Development
Hormone receptor-negative (HR-)/human epidermal growth factor receptor 2-positive (HER2+) advanced breast cancer
Added
Entered Confirmatory Development
Ovarian cancer
Added
Entered Confirmatory Development
Head and neck squamous cell carcinoma
Added
Entered Confirmatory Development
CAD106
Alzheimer’s disease
Removed
Development discontinued
CEE321
Atopic dermatitis
Added
Entered Confirmatory Development
CNP520
Alzheimer’s disease
Removed
Development discontinued
Cosentyx
Giant cell arteritis
Added
Entered Confirmatory Development
Lichen planus
Added
Entered Confirmatory Development
EMA401
Peripheral neuropathic pain
Removed
Development discontinued
HDM201
Acute myeloid lymphoma
Removed
Development discontinued
INC280
Non-small cell lung cancer (EGFR mutation)
Removed
Development discontinued
Solid tumors
Added
Entered Confirmatory Development
KAE609
Severe malaria
Added
Entered Confirmatory Development
KJX839
Hyperlipidemia
Added
Acquired with acquisition of The Medicines Company
Secondary prevention of cardiovascular events in patients with elevated levels of LDL-C
Added
Acquired with acquisition of The Medicines Company
Kymriah
Chronic lymphocytic leukemia
Removed
Development discontinued
LCI699
Cushing's disease
Removed
Divested to Recordati S.p.A.
LNP023
C3 glomerulopathy
Added
Entered Confirmatory Development
Paroxysmal nocturnal hemoglobinuria
Added
Entered Confirmatory Development
Lucentis
Retinopathy of prematurity
Commercialized
Diabetic retinopathy
Commercialized
LXE408
Visceral leishmaniasis
Added
Entered Confirmatory Development
MBG453
Myelodysplastic syndrome
Added
Entered Confirmatory Development
Acute myeloid leukemia
Added
Entered Confirmatory Development
MOR106
Atopic dermatitis
Removed
Development discontinued
PDR001
Malignant melanoma (combo)
Now disclosed as metastatic melanoma (combo)
Promacta/ Revolade
Severe aplastic anemia, 1st line
Removed
Development discontinued
QAW039
Asthma
Removed
Development discontinued
RTH258
Neovascular age-related macular degeneration
Now disclosed as neovascular (wet) age-related macular degeneration
Proliferative diabetic retinopathy
Added
Entered Confirmatory Development
Rydapt
Acute myeloid leukemia (FLT3 wild type)
Removed
Development discontinued
SAF312
Chronic ocular surface pain
Added
Entered Confirmatory Development
TQJ230
Secondary prevention of cardiovascular events in patients with elevated levels of lipoprotein(a)
Added
Entered Confirmatory Development
VAY785
Nonalcoholic steatohepatitis
Removed
Development discontinued
Xolair
Food allergy
Added
Entered Confirmatory Development
Principal markets
The Innovative Medicines Division sells products in approximately 155 countries worldwide. Net sales are generally concentrated in the US, Europe, Japan and China. The following table sets forth the aggregate 2019 net sales of the Innovative Medicines Division by region:
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Innovative Medicines
2019 net sales to third parties
USD millions
%
United States
13 789
37
Europe
12 818
34
Asia, Africa, Australasia
8 458
22
Canada and Latin America
2 649
7
Total
37 714
100
Of which in Established Markets *
28 573
76
Of which in Emerging Growth Markets *
9 141
24
 *  Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand.
Many of our Innovative Medicines Division products are used for chronic conditions that require patients to consume the product over long periods of time, ranging from months to years. However, certain of our marketed products and development projects, such as gene therapies, are administered only once. Net sales of the vast majority of our products are not subject to material changes in seasonal demand.
Production
Our primary goal is to ensure the uninterrupted, timely and cost-effective supply of products that meet all product specifications and quality standards. The manufacturing of our products is highly 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 highly specialized raw materials.
We manufacture our products at facilities worldwide, producing active pharmaceutical ingredients in our own facilities or purchasing them from third-party suppliers (see also “—Item 4.D Property, plants and equipment”). Across our network, we maintain state-of-the-art processes, with quality as a priority, and require our suppliers to adhere to the same high standards we expect from our own people and processes. Those processes include fermentation, chemical syntheses and precipitation, as well as sterile processing. We are constantly working to improve our existing manufacturing processes and to develop new ones, and to review and adapt our manufacturing network to meet our needs and those of our patients and customers.
We produce raw materials for manufacturing in-house or we purchase them from a number of third-party 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 applicable regulations and Novartis quality standards.
Because the manufacturing of our products is complex and highly 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 disruption to 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. However, we have implemented a global manufacturing strategy to maximize business continuity in case of such events.
Marketing and sales
The Innovative Medicines Division serves customers with 24 779 field force representatives, as of December 31, 2019, including supervisors and administrative personnel. These trained representatives present the therapeutic risks and benefits of our products to physicians, pharmacists, hospitals, insurance groups, managed care organizations and other healthcare professionals.
The marketplace for healthcare is evolving: Customer groups beyond prescribers have increasing influence on treatment decisions and guidelines, while patients continue to become more informed stakeholders in their healthcare decisions and look for solutions to meet their changing needs. Novartis is responding by adapting our business practices to engage appropriately with patients, customer groups and other stakeholders, including by delivering innovative solutions to drive education, access and improved patient care. Additionally, in the US, certain products can be advertised via digital and traditional media channels, including the internet, television, newspapers and magazines.
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 economically attractive.
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In the US, the US Centers for Medicare & Medicaid Services (CMS) is the largest single payer for healthcare services as a result of continuing changes in healthcare economics and an aging population. In addition, both commercial and government-sponsored managed care organizations continue to be among the largest groups of payers for healthcare services in the US. In other countries, national health services are often the only significant payer 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 use cost-benefit analyses to determine whether or not newly approved drugs will be added to a formulary and/or the level of reimbursement for that drug, and to determine whether or not to continue to reimburse existing drugs. We have dedicated teams that actively seek to optimize patient access, including formulary positions, for our products.
The trend toward consolidation among distributors and retailers of Innovative Medicines Division products continues in the US and internationally, both within country and across countries. This has increased our customers’ purchasing leverage and resulted in increased pricing pressure on our products. Moreover, we are exposed to increased concentration of credit risk as a result of the consolidation among our customers.
In addition, drug pricing is an increasingly prominent issue in many countries as healthcare spending continues to rise. Pricing is a particularly complex issue for cell and gene therapies because of their high costs and the expectation that one treatment will have a long-term, if not lifelong, benefit.
In 2019, AveXis, a Novartis company, formed an agreement with Accredo Health Group, Inc. in the US to offer a pay-over-time option of up to five years for Zolgensma to help ease possible short-term budget constraints for customers. Additionally, AveXis offers payers outcome-based agreements for Zolgensma based on measures included in the clinical trial program, and has these agreements in place with both commercial and Medicaid contracts. In these agreements, if a patient has a significant negative outcome during a five-year period, AveXis reimburses a percentage of the cost of the therapy relative to the time passed.
Also in the US, Novartis has established an outcome-based framework for one of the approved indications of Kymriah, whereby the product invoice is linked to a successful outcome for each patient at an agreed milestone. Novartis also offers outcome-based agreements for approved indications of Kymriah in certain countries other than the US. These typically involve a full upfront payment of the product with a partial refund in case of failed outcomes, or installment payments based on successful patient outcomes at agreed milestones for one or both of the approved indications of Kymriah. In addition, Novartis is in discussions with payers about potentially offering similar agreements for Luxturna.
Competition
The global pharmaceutical market is highly competitive. We compete against other major international corporations that have substantial financial and other resources, as well as against smaller companies that operate regionally or nationally. Competition within the industry is intense and extends across a wide range of activities, including pricing, product characteristics, customer service, sales and marketing, and research and development.
Like other companies selling patented pharmaceuticals, Novartis faces challenges from companies selling competing patented products. Generic forms of our products may follow the expiry of intellectual property protection, and generic companies may also gain entry to the market through successfully challenging our intellectual property rights. We use legally permissible measures to defend those rights. See also “—Intellectual property” below. We also may face competition from over-the-counter (OTC) products that do not require a prescription from a physician.
There is ongoing consolidation in the 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 seeking to benefit from the increasing importance of data and data management in our industry.
Research and development
The discovery and development of a new drug usually requires approximately 10 to 15 years from the initial research to bringing a drug to market. This includes approximately six to eight years from Phase I clinical 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 the development of 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. These include the medical indications for which it is being developed, the number of indications being pursued, whether the molecule is of a chemical or biological nature, the stage of development, and the level of evidence necessary to demonstrate clinical efficacy and safety.
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Research program
Our research program is conducted by the Novartis Institutes for BioMedical Research (NIBR), which was established in 2002 and is the research and early development innovation engine of Novartis. NIBR is responsible for the discovery of new medicines for diseases with unmet medical need. We focus our work in areas where we believe we can have the most impact for patients. This requires the hiring and retention of highly talented employees, a focus on 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 strategic external alliances.
Approximately 5 600 full-time-equivalent scientists, physicians and business professionals work at NIBR sites in Basel, Switzerland; Cambridge, Massachusetts; East Hanover, New Jersey; San Diego, California; Emeryville, California; and Shanghai, China. They contribute to research into disease areas such as cardiovascular and metabolic diseases, neuroscience, oncology, muscle disorders, ophthalmology, autoimmune diseases and respiratory diseases. Research at the Friedrich Miescher Institute and the Genomics Institute of the Novartis Research Foundation focuses on basic genetic and genomic research, and the Novartis Institute for Tropical Diseases (NITD), in Emeryville, California, focuses on discovering new medicines to fight tropical diseases, including malaria and cryptosporidiosis.
All drug candidates go through 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 July 2018, we announced the decision to exit antibacterial and antiviral research. While the science for these programs is compelling, we decided to prioritize our resources in other areas where we believe we are better positioned to develop innovative medicines that will have a positive impact for patients. Since then, we have executed two out-licensing deals with Gilead and Boston Pharmaceuticals for assets from our infectious diseases portfolio. The San Francisco Bay Area remains home to NITD and global drug discovery teams focused on “undruggable” targets in collaboration with the Novartis-Berkeley Center for Proteomics and Chemistry Technologies.
In November 2019, we announced that we will discontinue early discovery research at NIBR’s Shanghai site and focus our research and development activities there on expanding the scale and scope of our early clinical development and later-stage clinical trial operations to help accelerate the development of new medicines.
Development program
Our Global Drug Development (GDD) organization oversees drug development activities for our Innovative Medicines Division. GDD works collaboratively with NIBR to execute our overall pipeline strategy. The 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 11 000 full-time equivalent associates worldwide.
The traditional model of development consists of three phases:
Phase I: The first clinical trials of a new compound – generally performed in a small number of healthy human volunteers – to assess the drug’s safety profile, 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, we have tailored the development process to be simpler, more flexible and efficient. We divide the development process into two stages: Exploratory Development to establish proof of concept, followed by Confirmatory Development to confirm the concept in large numbers of patients. Exploratory Development consists of clinical proof-of-concept (PoC) studies, which are small clinical trials (typically involving in the range of between five and 15 patients) that combine elements of traditional Phase I/II testing. NIBR conducts these customized trials, which are designed to give early insights into issues such as safety, efficacy and toxicity for a drug in a given indication. 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. This stage can also include trials that compare the drug to the current standard of care for the disease in order to evaluate the drug’s overall benefit-risk profile. Further, with new treatment approaches such as gene therapy for rare diseases, elements of Exploratory and Confirmatory Development may be combined and suffice for registration under certain conditions such as high unmet medical need and clinical data showing highly favorable benefit-risk. In these cases, additional post-approval studies may be required by the regulatory authorities to continue to gather important data to further support approval.
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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.”
Our Innovation Management Board (IMB) manages our activities at each phase of clinical development. The IMB is responsible for all major aspects of our development portfolio and oversees our drug development budget as well as major project phase transitions and milestones following a positive proof-of-concept outcome, including transitions to Confirmatory Development and the decision to submit a regulatory application to the health authorities. The IMB is also responsible for the endorsement of overall development strategy, the endorsement of development project priorities, and decisions on project discontinuations. Our Chief Executive Officer chairs the IMB, and other representatives from Novartis senior management, with expertise spanning multiple fields, are among its core and extended membership.
Alliances and acquisitions
Our Innovative Medicines Division enters into business development agreements with other pharmaceutical and biotechnology companies and with academic and other institutions to develop new products and access new markets. We license products that complement our current product line and are appropriate to our business strategy. We focus on strategic alliances and acquisition activities for key disease areas and indications that we expect to be growth drivers in the future. We review products and compounds we are considering licensing, using the same criteria that we use for our own internally discovered drugs.
In January 2020, we completed the acquisition of US-based biopharmaceutical company The Medicines Company. The acquisition broadened the Novartis cardiovascular portfolio by adding KJX839 (inclisiran), an investigational cholesterol-lowering therapy.
In October 2019, we announced the discontinuation of the clinical development program for MOR106 in atopic dermatitis. We announced an exclusive licensing agreement in July 2018 with biotech companies Galapagos NV and MorphoSys AG regarding this compound. Under the agreement, Novartis acquired the exclusive global development and marketing rights to MOR106 for atopic dermatitis and all other potential indications. This transaction became effective on September 10, 2018.
In October 2019, certain affiliates of Recordati S.p.A. acquired the worldwide rights from Novartis to Signifor®, Signifor® LAR and LCI699 (osilodrostat). This transaction supports our oncology strategy to focus on medicines that have the potential to transform the standard of care for patients in four distinct cancer treatment platforms: targeted therapies, radioligand therapies, cell and gene therapies, and immunotherapies.
In October 2019, we announced a multiyear research and development collaboration with Microsoft. This alliance is expected to bolster our artificial intelligence capabilities to help accelerate the discovery, development and commercialization of medicines for patients worldwide.
In September 2019, Novartis and the University of Pennsylvania (Penn) entered into a new focused agreement on chimeric antigen receptor T-cell (CAR-T) clinical trials and concluded our seven-year research and development alliance, per the contractual terms. The new agreement allows each organization to pursue its own research in cell and gene therapies. Novartis and Penn will continue to collaborate on certain CAR-T research trials.
In September 2019, we signed a collaboration and exclusive option agreement with IFM Due, Inc., a subsidiary of IFM Therapeutics LLC, to develop a group of immunotherapies that inhibit the cGAS/STING pathway for the potential treatment of serious inflammatory and autoimmune diseases.
In July 2019, we announced the decision to discontinue the investigation of the BACE1 inhibitor CNP520 (umibecestat) in two Phase II/III studies in the Alzheimer’s Prevention Initiative Generation Program. This study was launched through an expanded collaboration with Amgen Inc. and Banner Alzheimer’s Institute, announced in November 2017, to assess whether CNP520 can prevent or delay the symptoms of Alzheimer’s disease in a high-risk population.
In July 2019, we announced that we completed the acquisition of Xiidra (lifitegrast) from Takeda Pharmaceutical Company Limited, and we began recording sales as of July 1, 2019. Xiidra is the first and only prescription treatment approved to treat both signs and symptoms of dry eye by inhibiting inflammation caused by the disease. For additional information, see “Item 18. Financial Statements—Note 2. Significant transactions—Significant transactions in 2019—Innovative Medicines – acquisition of Xiidra.”
In May 2019, we completed the acquisition of IFM Tre, Inc., a subsidiary of IFM Therapeutics LLC focused on developing anti-inflammatory medicines targeting the NLRP3 inflammasome (a key component of the innate immune system). This acquisition includes full rights to IFM Tre’s portfolio of NLRP3 inhibitors. For additional information, see “Item 18. Financial Statements—Note 2. Significant transactions—Significant transactions in 2019—Innovative Medicines – acquisition of IFM Tre, Inc.”
In April 2019, Novartis completed a USD 75 million investment in Poseida Therapeutics, a privately held biotechnology company focused on gene therapies. Poseida Therapeutics has a pipeline of next-generation CAR-T product candidates, including a BCMA CAR-T in Phase II clinical development for the treatment of relapsed/refractory multiple myeloma. Our investment entitles us to appoint a director to the company’s board of directors.
In February 2019, Novartis announced that it is exercising its option to license the rights to develop and commercialize TQJ230 from Akcea Therapeutics, Inc., an affiliate of Ionis Pharmaceuticals, Inc., for targeted cardiovascular therapy. If approved, TQJ230 could be the first treatment that specifically targets elevated levels of lipoprotein(a).
In February 2019, we completed the acquisition of CellforCure, a French company specializing in the development and manufacture of cell and gene therapies. This acquisition strengthened our CAR-T therapy manufacturing capacity and builds on a previous agreement with
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CellforCure to produce CAR-T therapies, including Kymriah (tisagenlecleucel).
For additional information, see “Item 18. Financial Statements—Note 2. Significant transactions—Significant transactions in 2018.”
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 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, the 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. Even if a drug is registered and marketed in one country, the registration authority in another country may request additional information from the pharmaceutical company prior to registration or even reject the product. A drug may be approved for different indications in different countries.
The registration process generally takes between six months and several years, depending on the country, the quality of the data submitted, the efficiency of the 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, the US, the EU and Japan have made efforts 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 payers can substantially extend the time until a product may finally be available to patients.
The following provides a summary of the regulatory processes in the principal markets served by Innovative Medicines Division affiliates:
United States
In the US, applications for drug registration are 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 that it believes sufficiently demonstrates a drug’s safety, efficacy and quality, then the company may file a New Drug Application (NDA) or Biologics License Application (BLA), as applicable, for the drug. The NDA or BLA must contain all the scientific information that has been gathered about the drug. This typically includes information regarding the clinical 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, including experts in biopharmaceutics, chemistry, clinical microbiology, pharmacology/toxicology, and statistics. After a complete review, these content experts provide written evaluations of the NDA or BLA. These recommendations are consolidated and are used by senior FDA staff in its final evaluation of the NDA or BLA. Based on that final evaluation, the FDA then provides to the NDA or BLA’s sponsor an approval, or a “complete response” letter if the NDA or BLA application is not approved. If not approved, the letter will state the specific deficiencies in the NDA or BLA that need to be addressed. The sponsor must then submit an 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 and other healthcare providers 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 specified conditions.
Throughout the life cycle of a product, the FDA requires compliance with standards relating to good laboratory, clinical and manufacturing practices. The FDA also requires compliance with rules pertaining to the manner in which we may promote our products.
European Union
In the EU, there are three main procedures for application for authorization to market pharmaceutical products in more than one EU member state at the same time: the centralized procedure, the mutual recognition procedure and the decentralized procedure. It is also possible to obtain a national authorization for products intended for
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commercialization in a single EU member state only, or for additional indications for licensed products. The procedure used for first authorization must continue to be followed for subsequent changes, e.g., to add an indication for a licensed product.
Under the centralized procedure, applications are made to the EMA for an authorization that is valid for the European Union (all member states). The centralized procedure is mandatory for all biotechnology products; new chemical entities in cancer, neurodegenerative disorders, diabetes, AIDS, autoimmune diseases and other immune dysfunctions; advanced therapy medicines, such as gene therapy, somatic cell therapy and tissue-engineered medicines; and orphan medicines (medicines for rare diseases). It is optional for other new chemical entities, innovative medicinal products, and medicines for which authorization would be in the interest of public health. When a pharmaceutical company has gathered data that it believes sufficiently demonstrates a drug’s safety, efficacy and quality, the company may submit an application to the EMA. The EMA then receives and validates the application, and the specialized committee for human medicines, the CHMP, appoints a rapporteur and co-rapporteur to review it. The entire review cycle must be completed within 210 days, although there is a “clock stop” at Day 120 to allow the company to respond to questions set forth in the rapporteur and co-rapporteur’s assessment report. When the 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 CHMP will issue further questions at Day 180, and may also request an oral explanation, in which case the sponsor must not only respond to the further questions but also appear before the committee to justify its responses. On Day 210, the CHMP will take a vote to recommend the approval or non-approval of the application, and their opinion is transferred to the EC. The final EC decision under this centralized procedure is a decision that is applicable to all member states. This decision occurs 60 days, on average, after a positive CHMP recommendation.
Under both the mutual recognition procedure (MRP) and the decentralized procedure (DCP), the assessment is led by one member state, called the reference member state (RMS) which then liaises with other member states, known as the concerned member states. In the MRP, the company first obtains a marketing authorization in the RMS, which is then recognized by the concerned member states in 90 days. In the DCP, the application is done simultaneously in the RMS and all concerned member states. During the DCP, the RMS drafts an assessment report within 120 days. Within an additional 90 days, the concerned member states review the application and can issue objections or requests for additional information. On Day 90, each concerned member state must be assured that the product is safe and effective, and that it will cause no risks to the public health. Once an agreement has been reached, each member state grants national marketing authorizations for the product.
After receiving the marketing authorizations, the company must submit periodic safety reports to the relevant health authority (EMA for the centralized procedure, national health authorities for DCP or MRP). In addition, pharmacovigilance measures must be implemented and monitored, including the collection, evaluation and expedited reporting of adverse events, and updates to risk management plans. For some medications, post-approval studies (Phase IV) may be imposed 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. The holder of the marketing authorization must actively apply for its renewal after this first five-year period. As part of the renewal procedure, the competent authority will perform a full benefit-risk review of the product. Should the authority conclude that the benefit-risk balance is no longer positive, the marketing authorization can be suspended or revoked. Once renewed, the marketing authorization is valid for an unlimited period. If the holder does not apply for renewal, the marketing authorization automatically lapses. Any marketing authorization that is not followed within three years of its granting by the actual placing on the market of the corresponding medicinal product ceases to be valid.
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, which consists of specialized officials of the PMDA, including those with expertise in chemistry, manufacturing, clinical and non-clinical development, and biostatistics. While a team evaluation is carried out, a data reliability survey and inspections for good clinical practice (GCP), good laboratory practice (GLP) and good manufacturing practice (GMP) are carried out by the Office of Non-clinical and Clinical Compliance of the PMDA. Preliminary team evaluation results are passed to the PMDA’s external experts, who then provide their opinion about approvability to the PMDA. After a further team evaluation, a report is provided to the Ministry of Health, Labor and Welfare (MHLW); the MHLW 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 the company is capable of managing manufacturing and distribution appropriately per the business license for the type of drug concerned, and to confirm the accreditation of manufacturing sites and testing facilities for the applied new product.
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 intensive surveillance (called early post-marketing phase vigilance) for six months after launch, and/or additional post-approval studies (Phase IV) to further evaluate safety and/or to gather information on the use of the product under specified conditions. The MHLW also requires the drug’s sponsor to submit periodic safety update reports. Within three months from the specified re-examination period,
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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 and MHLW.
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 remain robust – and potentially even to be strengthened – and to have a continued negative influence on the prices we are able to charge for our products.
Direct governmental efforts to control prices
United States: In the US, President Donald Trump and Congressional leaders declared the reduction of drug prices as a key priority in 2019. Among the various proposals introduced by the Administration, House of Representatives or Senate were options that would impose price controls, introduce reference pricing to countries outside the US, permit medicine imports from Canada, and make changes to drug reimbursement in Medicare Parts B/D and Medicaid. It is anticipated that focus on drug pricing will continue at the federal level in 2020. Additionally, by the end of 2019, 17 US states had passed legislation intended to impact pricing or requiring price transparency reporting. These states are California, Connecticut, Colorado, Delaware, Indiana, Louisiana, Maine, Maryland, Massachusetts, Nevada, New Hampshire, New York, Ohio, Oregon, Texas, Vermont and Washington. The disclosure requirements vary by state. Many states require multiple types of reporting, including for new drug applications, new drug launches, prior notice of price increases, and quarterly or annual reporting. It is expected in 2020 that state legislatures will continue to focus on drug pricing and that similar bills will be passed in more states.
Europe: In Europe, our operations are subject to significant price and marketing regulations. Many governments are introducing healthcare reforms in a further attempt to curb increasing healthcare costs. In some member states, these include reforms to permit the reimbursed use of off-label medicines, despite the presence of licensed alternatives on the market. 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 patients. The downward pressure on healthcare costs in general in the EU, particularly with regard to prescription drugs, is intense. Increasingly strict analyses are applied when evaluating the entry of new products, and as a result, access to innovative medicines is limited based on strict cost-benefit assessments. In addition, prices for marketed products are referenced within member states and across international borders, further impacting individual EU member state pricing. Member states also collaborate to enhance pricing transparency and have started conducting joint health technology assessments, joint pricing negotiations and/or joint purchasing. As an additional control for healthcare budgets, some EU countries have passed legislation to impose further mandatory rebates for pharmaceutical products and/or financial claw-backs on the pharmaceutical industry. The calculation of these rebates and claw-backs may lack transparency in some cases and can be difficult to predict.
Japan: In 2019, the MHLW introduced a cost-effectiveness assessment and implemented an ad-hoc price revision to coincide with a consumption tax increase on October 1. That followed new drug tariffs that became effective from April 2018 after the Japanese government reviewed the National Health Insurance (NHI) price calculation methods for new products and the price revision rule for existing products. Also in 2018, the MHLW implemented a price maintenance scheme with a narrower scope and fewer products, and increased the frequency of price cuts from every other year to annually beginning in 2021. The Japanese government is continuing deliberations on healthcare reform with the goal of sustaining universal coverage under the NHI program, and is addressing the efficient use of drugs, including promoting the use of generic drugs.
Rest of world: Many other countries are taking steps to control prescription drug prices. China – one of our most important Emerging Growth Markets – conducted national price negotiations in 2017 for 36 drugs without any generic equivalent, and in 2018 for 17 oncology drugs directly linked to national drug reimbursement, which applied to over 1.3 billion residents covered by the employee and resident medical insurance scheme. It also conducted a national procurement pilot on certain generic drugs at the end of 2018 and in 2019. These efforts resulted in price reductions of more than 50% on average for the drugs subject to these programs. In November 2019, the National Healthcare Security Administration announced that 70 additional drugs have obtained reimbursement access through negotiations, with an average price reduction of 60.7%. Drug prices in China may further decline due to ongoing national health reform. However, reimbursement access is accelerating and broadening coverage as the government aims to resolve the public issue of accessibility and the high cost of healthcare services. In August 2019, Canada published amendments to its patented medicines regulations to introduce three new economics-based price regulatory factors and the concept of affordability in price assessments; to update the schedule of comparator countries to include 11 countries with similar consumer protection priorities, economic wealth and marketed medicines as Canada and to exclude Switzerland and the US from the list; and to require reporting of all confidential discounts and rebates. These changes have a planned effective date of July 1, 2020. Innovative Medicines Canada (IMC), the local industry association, and 16 member companies (including Novartis) are contesting the changes via an Application for Judicial Review with the Federal Court. The Patented Medicine Prices
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Review Board (PMPRB) issued its draft guidelines to the new amendments of the patented medicines regulations; a written consultation period is now open, providing stakeholders with 60 days (until January 31, 2020) to provide their perspectives on the draft. In Colombia, the government took steps in 2016 to unilaterally reduce the price of Glivec by up to 43% through a local procedural mechanism called a Declaration of Public Interest. We continue to contest the appropriateness of the government’s unprecedented use of this mechanism to control the price of a prescription drug and to manage its healthcare budget. 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, most governments and private medical care providers have established reimbursement schemes that favor the substitution of generic pharmaceuticals for more expensive brand-name pharmaceuticals. All US states have generic substitution statutes. These statutes permit or require the dispensing pharmacist to substitute a less expensive generic drug instead of an original patented drug. Other countries, including many European countries, have similar laws. We expect that the pressure for generic substitution will continue to increase. In addition, the US, the EU and other jurisdictions are increasingly crafting laws and 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 have an impact in other countries as a result of cross-border sales. In the EU, products that we have sold to customers in countries with stringent price controls can be legally resold to customers in other EU countries at a lower price than the price at which the product is otherwise available in the importing country (known as parallel trade). In North America, products that we have sold to customers in Canada – which has relatively stringent price controls – are sometimes resold into the US, again at a lower price than the price at which the product is otherwise sold in the US. Such imports from Canada and other countries into the US are currently illegal. However, given the increased focus on pharmaceutical prices in the US, the Trump Administration, certain members of the US Congress, and several US states continue to explore regulatory and legislative ways to allow the safe importation of pharmaceutical products into the US from select countries, including Canada. Four US states (Colorado, Florida, Maine and Vermont) have enacted drug importation laws, but the US Secretary of the Department of Health and Human Services must certify that each state’s importation plan is safe and cost-effective before it can be implemented.
We expect that pressures on pricing will continue worldwide and will likely increase. Because of these pressures, there can be no certainty that in every instance we will be able to charge prices for a product that, in a particular country or in the aggregate, would enable us to earn an adequate return on our investment in that product.
Intellectual property
We attach great importance to intellectual property – including patents, trademarks, copyrights, know-how and research data – in order to protect our investment in research and development, manufacturing and marketing. For example, 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 or ingredients and its formulation. Patents may cover processes for manufacturing a product, including processes for manufacturing intermediate substances used in the manufacture of the product. Patents may also cover particular uses of a product, such as its use to treat a particular disease, or its dosage regimen. In addition, patents may cover assays or tests for certain diseases or biomarkers – which can improve patient outcomes when administered with certain drugs – as well as assays, research tools and other techniques used to identify new drugs. The protection afforded, which may vary from country to country, depends upon the type of patent, its duration and its scope of coverage.
In the US and other countries, the law recognizes that product development and review by the FDA and other health authorities can take an extended period, and permits an extension of patent term for a period related to the time taken for the conduct of clinical trials and for the health authority’s review. However, the length of this extension and the patents to which it applies cannot be known in advance and can only be determined after the product is approved. In practice, it is not uncommon for patent term extensions (PTEs) to not fully compensate the owner of a patent for the time it took to develop the product and receive marketing authorization. As a result, it is rarely the case that a product will have a full patent term at the time it is approved by the FDA and other health authorities.
In addition to patent protection, various countries offer data or marketing exclusivities for a prescribed period of time. Data exclusivity generally precludes a potential competitor from filing a regulatory application that relies on the sponsor’s clinical trial data, or the regulatory authority from approving the application for a set period of time. 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, may preclude a competitor from obtaining marketing approval for a product even if a competitor’s application relies on its own data. Data exclusivity and market exclusivity periods generally run from the date a product is approved, and so their expiration dates cannot be known with certainty until the product approval date is known.
United States
Patents
In the US, a patent issued for an application filed today will receive a term of 20 years from the earliest 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
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that claims a product, method of treatment using a product, or method of manufacturing a product may also be eligible for a PTE. This type of extension may only extend the patent term for a maximum of five years, and may not extend the patent term beyond 14 years from regulatory approval. Only one patent may be extended for any product based on FDA delay.
Data and market exclusivity
In addition to patent exclusivities, the FDA may provide data or market exclusivity, which runs in parallel to any patent protection.
• A new small-molecule active pharmaceutical ingredient receives five years of regulatory data exclusivity, during which time a competitor generally may not submit or obtain approval of an application to the FDA based on a sponsor’s clinical data.
• For a small-molecule active pharmaceutical ingredient, the FDA may also request that a sponsor conduct pediatric studies and, in exchange, it will grant an additional six-month period of pediatric market exclusivity if the FDA accepts the data, the sponsor makes a timely application for approval for pediatric treatment, and the sponsor has either a patent-based or regulatory-based exclusivity period for the product that can be extended.
• Orphan drug exclusivity provides seven years of market exclusivity for drugs designated by the FDA as orphan drugs, meaning drugs that treat rare diseases. During this period, a potential competitor generally may not market the same or similar drug for the same indication even if the competitor’s application does not rely on data from the sponsor.
• A new biologic active pharmaceutical ingredient receives 12 years of market exclusivity, during which time a competitor generally may not market the same or similar drug.
European community
Patents
Patent applications in Europe may be filed in the 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 earliest application filing date. 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 of a product 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 five years. The SPC duration may be extended by a further six months if the product is the subject of an agreed pediatric investigation plan. The post-grant phase of patents, including the SPC system, is currently administered on a country-by-country basis under national laws that, while differing, are intended to (but do not always) have the same effect.
Data and market exclusivity
In addition to patent exclusivity, the EU provides a system of regulatory data exclusivity for authorized human medicines that 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 eight years of data exclusivity, during which a competitor cannot rely on the relevant data; a further period of two years of market exclusivity, during which the data can be used to support applications for marketing authorization but a competitive product cannot be launched; and a possible one-year extension of the market exclusivity period if, during the initial eight-year data exclusivity period, the sponsor registered a new therapeutic indication with “significant clinical benefit.” This system applies both to national and centralized authorizations.
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 an application for the same or similar medicine for the same indication will not generally be accepted or granted. Under certain circumstances, this exclusivity can be extended with a two-year pediatric extension.
Japan
Patents
In Japan, the patent term granted is 20 years from the earliest application filing date, subject to potential PTEs. A PTE can be granted for up to five years to compensate for the time needed to obtain the Japanese marketing authorization. A Japanese PTE may apply to only a subset of the approved indications for a particular product.
Data and market exclusivity
Japan has a regulatory data protection system called a “re-examination period” of eight years for new chemical entities and of four to six 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, including pediatric extensions and orphan drug exclusivity, 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 Abbreviated New Drug Application (ANDA) provisions of the Hatch-Waxman Act or the Biologics Price Competition and Innovation Act (BPCIA). In the EU, patents may be challenged through oppositions in the EPO, or national patents may be challenged in national courts or national patent offices. In Japan, patents may be challenged in the Japan Patent Office and
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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 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 intellectual property protections for pharmaceutical products, or on the extent to which such protections may be enforced. For example, a review of several intellectual property rights is currently ongoing in the EU (orphan drug exclusivity, pediatric extensions and SPCs), which could lead to legislative changes in the scope and/or term of protection under those rights. 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 additional details regarding intellectual property protection for certain Innovative Medicines Division products and compounds in development. For each, we identify issued, unexpired patents by general subject matter and, in parentheses, years of expiry in, if relevant, the US, the EU and Japan. The identified patents are owned, co-owned or exclusively in-licensed by Novartis and relate to the product or to the method of treatment or its use as it is currently approved and marketed or, in the case of a compound in development, as it is currently submitted to the FDA and/or the EMA for approval. Identification of an EU patent refers to national patents in EU countries and/or to the national patents that have been derived from a patent granted by the EPO. Novartis may own or control additional patents, for example, relating to compound forms, methods of treatment or use, formulations, processes, synthesis, purification and detection.
We identify unexpired regulatory data protection periods and, in parentheses, years of expiry if the relevant marketing authorizations have been authorized or granted. The term “RDP” refers to regulatory data protection, regulatory data exclusivity, and data re-examination protection systems. We identify certain unexpired patent term extensions and marketing exclusivities and, in parentheses, years of expiry if they are granted; their subject matter scope may be limited and is not specified. Marketing exclusivities and patent term extensions include orphan drug exclusivity (ODE), pediatric exclusivity (PE), patent term extension (PTE) and supplementary protection certificate (SPC). We 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, identification of a patent, patent term extension, marketing exclusivity or data protection means grant, authorization and maintenance in at least one country and possibly pending or found invalid in others.
For each product below, we indicate whether there is current generic or biosimilar competition for one or more product versions in one or more approved 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, including IPRs if instituted by the USPTO. 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 in one or more EU countries, may include settlement agreements under which Novartis permits or does not permit future launch of generic versions of our products before expiration of that 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
Tasigna. US: Patent on compound (2023), PE (2024); three patents on salt forms (2026, 2027, 2028), three PEs (2027, 2028, 2029); patent on polymorph compound form (2026), PE (2027); two patents on capsule form (2026, 2027), two PEs (2027, 2028); patent on method of treatment (2032), PE (2032). EU: Patent on compound (2023); patent on salt form (2026); patent on polymorph compound form (2026); patent on capsule form (2027); patent on method of treatment (2030). Japan: Patent on compound (2023), two PTEs (2024, 2028); patent on salt form (2026), PTE (2031); patent on polymorph compound form (2026), two PTEs (2030, 2031); patent on capsule form (2027), two PTEs (2030, 2031); patent on method of use (2030).
There is no generic competition in the US, the EU or Japan. In the US, generic manufacturers have filed ANDAs challenging certain patents other than the compound patent. The EU method-of-treatment patent and the capsule form patent are being opposed in the EPO. The EU polymorph compound form patent was upheld as valid by the Opposition Division at the EPO.
Sandostatin SC and Sandostatin LAR.
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Sandostatin SC. There is no patent protection in the US, the EU or Japan. There is generic competition in the US, the EU and Japan.
Sandostatin LAR. There is no patent protection in the US, the EU or Japan. There is generic competition in some EU markets but no generic competition in the US 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), PE (2020); patent on tuberous sclerosis complex (TSC)/subependymal giant cell astrocytoma (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). EU: Patent on dispersible tablet formulation (2022); two patents on breast cancer use (2022, 2022); patent on renal cell carcinoma use (2022); patent on neuroendocrine tumors of pancreatic origin (2022); patent on TSC/SEGA use (2022); patent on neuroendocrine tumors of lung origin use (2022); patent on TSC/SEGA and TSC/acute myeloid leukemia (AML) use (2027); ODE (Votubia, tuberous sclerosis) (2021). Japan: Patent on dispersible tablet formulation (2022); patent on breast cancer use (2022); patent on pancreatic neuroendocrine tumor use (2026); patent on renal cell carcinoma use (2022); patent on gastrointestinal and lung neuroendocrine tumor use (2026), PTE (2027); patent on TSC/SEGA and TSC/AML use (2027); ODE (tuberous sclerosis tablet) (2022); ODE (tuberous sclerosis dispersible tablet) (2022).
There is no generic competition in Japan. There is generic competition in the EU and the US. In the US, the compound patent and renal cell carcinoma use patent were challenged in ANDA proceedings against generic manufacturers, and the patents were upheld. The US pancreatic neuroendocrine tumor use patent is being challenged in IPR proceedings in the USPTO. In the US, Novartis has resolved patent litigation with certain generic manufacturers. There is generic competition in the US for the three lower-dosage strengths for Afinitor. Additional generic competition in the US may start in mid-2020. Novartis has resolved patent litigation relating to Afinitor Disperz. The EU breast cancer use patent, the EU TSC/SEGA use patent, the EU renal cell carcinoma use patent, and the EU patents on neuroendocrine tumors of pancreatic origin and of lung origin are being opposed in the EPO. National enforcement and validity actions are also ongoing on some of these patents in certain countries.
Promacta/Revolade. US: Patent on compound (2021), PTE (2022), PE (2023); two patents on compound (2021, 2021), two PEs (2021, 2021); patent on thrombocytopenia use (2021), PE (2021); patent on method of enhancing platelet production (2021), PE (2021); patent on method of enhancing platelet production (2023), PE (2023); patent on salt form (2025); PE (2026); four patents on tablet formulations of different dose strengths (2027) (4), PE (2028) (4); ODE on severe aplastic anemia patients with an insufficient response to immunosuppressive therapy (2021), PE (2022); ODE on severe aplastic anemia patients in combination with standard immunosuppressive therapy (2025). 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), PTE (2023); patent on formulation (2027); RDP (2020). There is no generic competition in the US, the EU or Japan. In the US, generic manufacturers have filed ANDAs challenging certain patents other than the compound patent. The EU formulation patent is being opposed in the EPO.
Tafinlar and Mekinist.
Tafinlar. US: Two patents on compound (2030, 2030); patent on method of treatment (2029); ODE (2020). EU: Patent on compound (2029); RDP (2023). Japan: Patent on compound (2031). There is no generic competition in the US, the EU or Japan.
Mekinist. US: Patent on compound (2025), PTE (2027); patent on method of treatment (2025); three patents on formulation (2032) (3); ODE (2020). EU: Patent on compound (2025), SPC (2029); RDP (2025). Japan: Patent on compound (2025); patent on method of use (2025); patent on formulation (2031). There is no generic competition in the US, the EU or Japan.
Use of Mekinist with Tafinlar or Tafinlar with Mekinist. US: Patent on combination (2030); patent on method of use of combination (2030); RDP (2020); ODE on melanoma with certain mutations (2021); ODE on non-small cell lung cancer (2024). EU: RDP (2025). Japan: Patent on method of use of combination (2030). There is no generic competition in the US, the EU or Japan.
Gleevec/Glivec. US: Patent on gastrointestinal stromal tumor (GIST) use (2021), PE (2022). EU: Patent on GIST use (2021); patent on tablet formulation (2023). Japan: Patent on GIST use (2021); patent on tablet formulation (2023).
There is generic competition in the US, the EU and Japan. Novartis is taking steps in some EU countries to enforce the GIST use patent. The EU GIST use patent is being challenged in one EU country. The EU tablet formulation patent is being challenged in the EPO.
Jakavi. EU: Patent on compound (2026), SPC (2027); patent on salt form (2028); patent on compound for polycythemia vera (PV) use (2026); patent on salt form for PV use (2028); RDP (2023). Japan: Patent on compound (2026), three PTEs (2028, 2030, 2031); patent on salt form (2028), three PTEs (2028, 2030, 2031); patent on method of use (2026), two PTEs (2027, 2028); RDP (2022). There is no generic competition in the EU or Japan. The EU salt patent is being opposed in the EPO. The EU patent on salt form for PV use is also being opposed in the EPO.
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Exjade and Jadenu.
Exjade. US: There is no patent protection for Exjade in the US. EU: Patent on compound (2017), SPC (2021), PE (2022); patent on dispersible tablet formulation (2023). Japan: Patent on compound (2017), PTE (2021); patent on dispersible tablet formulation (2023). There is generic competition in the US. There is no generic competition in the EU or Japan.
Jadenu (marketed as Exjade FCT in the EU and Japan). The compound patents for Exjade also protect Exjade FCT (EU/Japan). US: Patent on film-coated tablet formulation (2034). EU: Two patents on film-coated tablet formulation (2034, 2034). There is generic competition in the US. There is no generic competition in the EU or Japan. In the US, Novartis has resolved patent litigation relating to the US formulation patent with a generic manufacturer. In the EU, the formulation patents are being opposed in the EPO.
Votrient. US: Patent on compound (2021), PTE (2023); two patents on compound (2021, 2021). EU: Patent on compound (2021), SPC (2025); RDP (2021). Japan: Patent on compound (2021), two PTEs (2025, 2026). There is no generic competition in the US, the EU or Japan.
Kisqali. US: Three patents on compound (2028, 2030, 2031), pending PTE (2031); three patents on methods of treatment (2029, 2029, 2031); patent on salt form (2031); RDP (2022). EU: Patent on compound (2027); patent on compound (2029), SPC (2032); patent on methods of use (2029); RDP (2027). Japan: Two patents on compound (2027, 2029). Kisqali is not marketed in Japan. There is no generic competition in the US or the EU.
Lutathera. US: RDP (2023); ODE (2025). EU: RDP (2027); ODE (2027). Lutathera is not marketed in Japan. There is no generic competition in the US or the EU.
Kymriah. US: Seven patents on cells and/or pharmaceutical compositions comprising the cells (2031) (7); four patents on methods of use of cells and/or pharmaceutical compositions comprising the cells (2031) (4); RDP (2029), PE (2030); ODE for relapsed or refractory (r/r) pediatric acute lymphoblastic leukemia (2024), PE (2025); ODE for r/r diffuse large B-cell lymphoma (2025), PE (2025). EU: One patent on methods of use (2031), SPC (2033); RDP (2028); ODE (2028), PE (2030). Japan: Two patents on pharmaceutical compositions (2031, 2031), PTE (2034); two patents on cells, pharmaceutical compositions and use (2031, 2031), PTE (2033); two patents on CAR-T-associated cytokine release syndrome use (2033, 2033); ODE (2029). There is no generic competition in the US, the EU or Japan.
Piqray. US: Patent on compound (2029); patent on compound and use (2030); RDP (2024). EU: Patent on compound and use (2029). Japan: Patent on compound and use (2029). Piqray is not marketed in the EU or Japan. There is no generic competition in the US.
Adakveo. US: Patent on composition of matter (2028), PTE pending (2032); patent on method of use (2027); RDP (2031). EU: Patent on composition of matter (2027). Japan: There is no patent protection for Adakveo in Japan. Adakveo is not marketed in the EU or Japan. There is no generic competition in the US.
Novartis Pharmaceuticals business unit
Ophthalmology
Lucentis. EU: Patent on composition of matter (2018), SPC (2022). Japan: Patent on composition of matter (2018), PTE for pathologic myopia (2021), PTE for retinal vein occlusion (2023), PTE for diabetic macular edema (2023). There is no generic competition in the EU or Japan.
Xiidra. US: Patent on compound (2024); three patents on compound and use (2024) (2), (2025); patent on formulation (2024); five patents on method of treatment (2024, 2024, 2026, 2029, 2029); two patents on polymorph compound form (2029, 2029); RDP (2021). PTE pending. EU: Three patents on compound and use of compound (2024, 2026, 2026). Japan: Patent on compound (2024); patent on the use of the compound and formulation (2026); patent on formulation (2033). There is no generic competition in the US. Xiidra is not marketed in the EU or Japan.
Beovu. US: Patent on composition of matter (2029), PTE pending (2033); patent on method of treatment (2029); patent on nucleic acid molecule (2029); patent on antibodies (2023); patent on dosing regimen (2035); RDP (2031). EU: Patent on composition of matter (2029); patent on antibodies (2023). Japan: Patent on composition of matter (2029); patent on antibodies (2023). There is no generic competition in the US. Beovu is not marketed in the EU or Japan.
Immunology, Hepatology and Dermatology
Cosentyx. US: Patent on composition of matter (2026), PTE (2029); patent on psoriasis use (2032); patent on ankylosing spondylitis use (2033); RDP (2027). EU: Patent on composition of matter (2025), SPC (2030), PE (2030); patent on psoriasis use (2031); RDP (2026). Japan: Patent on composition of matter (2025), three PTEs (2026, 2028, 2029); patent on psoriasis use (2031), three PTEs (2032, 2032, 2033); patent on psoriatic arthritis use (2031); RDP (2022). There is no generic competition in the US, the EU or Japan.
Ilaris. US: Patent on composition of matter (2024); patent on cryopyrin-associated periodic syndromes (CAPS) use (2026); patent on familial Mediterranean fever (FMF) use (2026); patent on systemic onset juvenile idiopathic arthritis (SJIA) use (2027); patent on hyperimmunoglobulin D syndrome (HIDS) and tumor necrosis factor receptor-associated periodic syndrome (TRAPS) use (2028); patent on formulation (2029); RDP (2021). EU: Patent on composition of matter (2021), SPC (2024), PE (2025); patent on SJIA use (2026); patent on FMF use (2026); patent on formulation (2029); RDP (2020). Japan: Patent on composition
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of matter (2021), two PTEs (2024, 2026); patent on familial cold urticaria, neonatal onset multisystem inflammatory disease, SJIA and FMF use (2026); patent on Muckle-Wells syndrome use (2026); patent on formulation (2029); ODE for CAPS (2021); ODE for FMF, HIDS and TRAPS (2026); ODE for SJIA (2028). There is no generic competition in the US, the EU or Japan.
Neuroscience
Gilenya. US: Patent on dosage regimen (2027), PE (2027); patent on 0.25 mg formulation (2032), PE (2032); patent on method of treatment (2027); RDP for pediatric use and 0.25 mg (2021), PE (2021). EU: RDP (2022); patent on formulation (2024), SPC (2026); patent on 0.25 mg formulation (2032). Japan: ODE (2021); two patents on formulation (2024, 2024). There is no generic competition in the US, the EU or Japan. In the US, the ANDA proceedings challenging the compound patent and extensions expiring in 2019 have been resolved and the patent upheld. The dosage regimen patent is being challenged in ANDA proceedings against generic manufacturers. In parallel, an appeal against a USPTO decision upholding the patent in IPR proceedings is ongoing. Novartis is taking steps to enforce the US dosage regimen patent and the method of treatment patent against generic manufacturers.
Zolgensma. US: Two patents on vector (2024, 2026); ODE for spinal muscular atrophy (SMA) in patients less than 2 years old with biallelic mutations in the SMN1 gene (2026); RDP (2031). EU: Two patents on vector (2024, 2028); two patents on method of use (2028, 2028). Japan: Patent on vector (2024); patent method of use (2028). Zolgensma is not marketed in the EU or Japan. There is no generic competition in the US.
Aimovig. US (co-commercialized with Amgen): Patent on composition of matter (2031); patent on dose/regimen for migraine prevention (2036); RDP (2030). EU: Patent on composition of matter (2029), SPC (2033); RDP (2028). There is no generic competition in the US or the EU.
Mayzent. US: Patent on compound (2024); RDP (2024); patent on treatment initiation use (2030). PTE pending. EU: Patent on compound (2024); patent on solid form (2029); patent on treatment initiation use (2029); patent on formulation (2032); RDP (2030). Japan: Patent on compound (2024); patent on solid form (2029); two patents on formulation (2032, 2032); patent on patient subgroup use (2033). Mayzent is not marketed in Japan. There is no generic competition in the US or the EU.
Respiratory
Xolair. US: Two patents on syringe formulation (2021, 2024). EU: Two patents on syringe formulation (2021, 2024). Japan: Two patents on syringe formulation (2021, 2024). There is no generic competition in the US, the EU or Japan.
Cardiovascular, Renal and Metabolism
Entresto. US: Four patents on combination (2023) (4), PE (2023 (3), 2024); two patents on complex (2026, 2027), PE (2027, 2027); RDP (2020), PE (2021); RDP for new pediatric patient population (2022), PE (2023). PTE pending. EU: Patent on combination (2023), SPC (2028); patent on complex (2026), SPC (2030); RDP (2025). Japan: Patent on combination (2023); patent on complex (2026); patent on formulation (2028). There is no generic competition in the US or the EU. Entresto is not marketed in Japan. The EU complex patent is being opposed in the EPO. In the US, the combination and complex patents are being challenged in ANDA proceedings against generic manufacturers.
Established Medicines
Galvus and Eucreas. EU: Patent on compound (2019), SPC (2022); patent on combination (2021), SPC (2022); patent on Galvus formulation (2025); patent on Eucreas formulation (2026). Japan: Patent on compound (2019), three PTEs (2022, 2024, 2024); patent on combination (2021); patent on Galvus formulation (2025), PTE (2025); patent on Eucreas formulation (2026), PTE (2028). Galvus/Eucreas is not marketed in the US. There is generic competition for Galvus and Eucreas in some EU countries. There is no generic competition in Japan. The EU Galvus and Eucreas formulation patents are being opposed in the EPO.
Diovan and Co-Diovan/Diovan HCT. Diovan: There is generic competition in the US, the EU and Japan. Co-Diovan/Diovan HCT: There is generic competition in the US, the EU and Japan.
Exforge and Exforge HCT.
Exforge. US: There is no patent protection for Exforge combination in the US. EU: There is no patent protection for Exforge combination in the EU. Japan: There is no patent protection for Exforge combination in Japan. There is generic competition in the US, the EU and Japan.
Exforge HCT. US: Patent on Exforge HCT combination (2023); patent on formulation (2023). EU: There is no patent protection for Exforge HCT combination in the EU. Japan: Patent on Exforge HCT combination (2023). There is generic competition in the US and the EU. There is no generic competition in Japan.
Zortress/Certican. US: Patent on compound (2014), PTE (2019), PE (2020); patent on dispersible tablet formulation (2022), PE (2023); patent on antioxidant (2019), PE (2020). EU: Patent on dispersible tablet formulation (2022). Japan: Patent on dispersible tablet formulation (2022). There is no generic competition in the US, the EU or Japan. In the US, the compound patent has been upheld as valid after a challenge in ANDA proceedings against generic manufacturers.
Egaten. US: RDP (2024); ODE (2026). EU: There is no patent protection for Egaten in the EU. Japan: There is no patent protection for Egaten in Japan. Egaten is not
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marketed in Japan. There is no generic competition in the US or the EU.
Compounds in development
We provide the following patent information for non-marketed compounds in development that have been submitted to the FDA and/or the EMA for registration but have not yet been approved by either agency. Unless noted, the information below does not include anticipated or potential patent term extensions (PTEs or SPCs), or RDP, both of which generally are not applied for or granted until a product is approved or marketed. For these products, Novartis will seek all appropriate RDP, will continue to seek additional intellectual property protection for significant product developments, and will apply for patent term extensions in keeping with the great importance we attach to intellectual property to protect our investments in research and development, manufacturing and marketing.
• INC280 (capmatinib). US: Patent on compound (2027); patent on salt form (2031); patent on method of use (2029); patent on formulation (2035). EU: Patent on compound (2027); patent on salt form (2029). Japan: Patent on compound (2027); patent on salt form (2029).
• KJX839 (inclisiran). US: Patent on composition of matter (2034), anticipated PTE (2035). EU: Patent on composition of matter (2033), anticipated SPC (2036). Japan: Patent on composition of matter (2033).
• OMB157 (ofatumumab, for multiple sclerosis). US: Patent on compound (2031). EU: Three patents on compound (2023 (3)); two patents on formulation (2028, 2028). Japan: Two patents on compound (2023, 2023); two patents on formulation (2028, 2028).
• QMF149 (indacaterol acetate/mometasone furoate). US: Patent on compound (2020); three patents on combination (2020, 2021, 2023); three patents on formulation (2020, 2020, 2021); patent on device (2028); patent on salt form (2029). EU: Patent on compound (2020); patent on formulation (2020); patent on combination (2021); patent on device (2025); patent on salt form (2027). Japan: Patent on compound (2020); patent on device (2025); patent on salt form (2027).
• QVM149 (indacaterol acetate/glycopyrronium bromide/mometasone furoate). US: Patent on compound (2020); five patents on combination (2020 (3), 2021, 2023); eight patents on formulation (2020 (3), 2021 (5)); two patents on method of use (2021, 2021); patent on device (2028); patent on salt form (2029). EU: Patent on compound (2020); patent on formulation (2020); patent on combination (2021); patent on device (2025); patent on salt form (2027). Japan: Patent on compound (2020); two patents on formulation (2025, 2025); patent on combination (2025); patent on device (2025); patent on salt form (2027).

Sandoz

Our Sandoz Division is a global leader in generic pharmaceuticals and biosimilars, and sells products in well over 100 countries. In 2019, the Sandoz Division achieved consolidated net sales of USD 9.7 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 into three franchises: Retail Generics, Anti-Infectives and Biopharmaceuticals. In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of small molecule pharmaceuticals to third parties across a broad range of therapeutic areas, as well as finished dosage form anti-infectives sold to third parties. In Anti-Infectives, Sandoz manufactures and supplies active pharmaceutical ingredients and intermediates – mainly antibiotics – for internal use by Retail Generics and for sale to third-party customers. In Biopharmaceuticals, Sandoz develops, manufactures and markets protein- or other biotechnology-based products, including biosimilars, and provides biotechnology manufacturing services to other companies.
The Sandoz strategic ambition is to be the world’s leading and most valued generics company (including biosimilars). Under Sandoz CEO Richard Saynor, the divisional strategy has been refined to focus on three areas: developing a broad and consistent pipeline of off-patent launches across key geographies and major therapeutic areas; positioning Sandoz to be “first in” by having a strong pipeline with a concentration on being first to market, and to be “last out” by way of competitive costs and stable supply; and instilling a true “generic mindset,” with a focus on priorities, simple and rapid decision-making, and focused resource allocation.
In 2018, Novartis announced an agreement to sell selected portions of its Sandoz US portfolio, specifically the Sandoz US dermatology business and generic US oral solids portfolio, to Aurobindo Pharma USA Inc., for USD 0.8 billion in cash and potential earn-outs. These businesses had net sales of approximately USD 1.1 billion in 2019. The sale includes the Sandoz US generic and branded dermatology businesses as well as its dermatology development center. As part of the transaction, Aurobindo will acquire the manufacturing facilities in Wilson, North Carolina, and in Hicksville and Melville, New York. Following the transaction, the Sandoz US portfolio
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will include primarily biosimilars and complex generics such as injectable, respiratory and ophthalmic products. The transaction is expected to be completed in the first quarter of 2020 pending regulatory approval.
Sandoz is a market leader in biosimilars, with a total of eight approved and marketed products and a pipeline of over 10 molecules, including publicly announced commercialization agreements with BioCon, Gan & Lee, EirGenix and Polpharma Biologics. Availability of our biosimilars varies by country.
In November 2019, we announced the planned acquisition of the Japanese business of Aspen Global Incorporated. Aspen’s portfolio in Japan consists of off-patent medicines with a focus on anesthetics and specialty brands. We have received all relevant approvals and this transaction is expected to be completed in the first quarter of 2020.
We received a CRL from the FDA in 2018 for our submission for a generic form of fluticasone propionate and salmeterol inhalation powder, for oral inhalation (GSK’s Advair®). In January 2020 we decided to discontinue the generic Advair® development program in the US, following a recent review of data read-outs.
Key marketed products
The Sandoz global portfolio covers a wide range of therapeutic areas. The following are some of the Sandoz key marketed products in each of its franchises (availability varies by market):
Retail Generics
Product
Originator drug
Description
Amoxicillin/clavulanic acid
Augmentin®
Antibiotic
Zoledronic acid
Aclasta
Osteoporosis treatment
Acetylsteine
Various
Mucolytic agent
Fentanyl
Various
Pain 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, ascomysin, rapamycin, mycophenolic acid, etc.
Biopharmaceuticals
Product
Originator drug
Description
Omnitrope
Genotropin®
Recombinant human growth hormone
Binocrit and Epoetin alfa Hexal
Eprex®/Erypo®
Recombinant protein used for anemia
Zarzio, Zarxio and Filgrastim Hexal
Neupogen®
Recombinant protein used in oncology
Glatopa
Copaxone®
Treatment for multiple sclerosis (MS)
Erelzi 1
Enbrel®
Treatment for multiple inflammatory diseases
Rixathon
MabThera®
Treatment for blood cancers and immunological diseases
Hyrimoz
Humira®
Treatment for multiple inflammatory diseases
Zessly
Remicade®
Treatment for gastroenterological, rheumatological and dermatological diseases
Ziextenzo
Neulasta®
Treatment to reduce duration of chemotherapy-induced neutropenia and incidence of chemotherapy-induced febrile neutropenia with the exception of chronic myeloid leukemia and myelodysplastic syndromes
 1  Approved in the US in 2016. Launch in the US pending final resolution of litigation with Amgen, which markets Enbrel®. The US District Court of New Jersey ruled against Sandoz on August 9, 2019; Sandoz respectfully disagrees with the ruling and submitted an appeal. The appeals court hearing is scheduled for March 4, 2020.
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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 1
Common
name

Mechanism of action

Potential indication/indications

Therapeutic areas
Route of
administration

Current phase
GP2017
adalimumab
TNF-α inhibitor
Arthritides (rheumatoid arthritis, ankylosing spondylitis, psoriatic arthritis), plaque psoriasis and others (same as originator)
Immunology
Subcutaneous
EU: Approved US: Approved2
GP2411 3
denosumab
RANKL inhibitor
Osteoporosis, bone loss, prevention of bone complications in cancer that has spread to the bone (indications vary in US and EU)
Endocrinology, Neurology
Subcutaneous
Phase III
EGI014A1 4
trastuzumab
Anti HER2 monoclonal antibody
Breast and gastric tumors
Oncology
Intravenous
Phase III
DST356A1 5
natalizumab
Anti-Alpha 4 (α4) integrin monoclonal antibody
Monotherapy for remitting relapsing forms of multiple sclerosis (RRMS); in US second line treatment for active Crohn’s disease
Neurology, Immunology (US only)
Intravenous
Phase III
 1  LA-EP2006 (pegfilgrastim) was approved and launched in the EU as Ziextenzo in November 2018 and was approved and launched in the US in November 2019.
 2  Launched as Hyrimoz in the EU in October 2018. Also in October 2018, we announced a global resolution of all intellectual property-related litigation with AbbVie concerning adalimumab. Under the terms of the agreement, AbbVie grants us a non-exclusive license to AbbVie’s intellectual property relating to Humira®, beginning on certain dates in certain countries in which AbbVie has intellectual property. We are not entitled to launch Hyrimoz in the US until the second half of 2023.
 3  Development in collaboration with Hexal AG.
 4  Development in collaboration with EirGenix, Inc.
 5  Development in collaboration with Polpharma Biologics.
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 2019 net sales of Sandoz by region:
Sandoz
2019 net sales to third parties
USD millions
%
Europe
5 115
53
United States
2 491
26
Asia, Africa, Australasia
1 341
14
Canada and Latin America
784
7
Total
9 731
100
Of which in Established Markets *
7 111
73
Of which in Emerging Growth Markets *
2 620
27
 *  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 and over-the-counter cough and cold 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
For information on the production of our products, see “—Item 4.B Business overview—Innovative Medicines—Production.”
Due to impurities found in the active ingredients batches sourced from third-party manufacturers, we recalled Sandoz valsartan, losartan and ibersartan products in the second half of 2018 and first quarter of 2019, and ranitidine film-coated tablets in the second half of 2019, from several markets, in line with our quality standards for all of our marketed products.
Marketing and sales
Sandoz sells a broad portfolio of 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 reimburse-
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ment schemes that favor the substitution of bioequivalent generic versions of originator pharmaceutical products, such as those sold by our Retail Generics franchise. In the US, statutes have been enacted by all states that permit or require pharmacists to substitute a less 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.
Recent trends have been toward continued consolidation among distributors and retailers of Sandoz products, both in the US and internationally, which has increased our customers’ purchasing leverage.
Legislative or regulatory changes can have a significant impact on our business in a country. In Germany, for example, 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. As a result, in many of these markets, 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 encouraged more generic product launches, resulting in increased competition among the companies selling generic pharmaceutical products, leading to ongoing price pressure. In particular, Sandoz faces increased industrywide pressure on prices for generic products, particularly in the US, driven by factors including customer consolidation and growing competition from other manufacturers of generic medicines. These factors contributed to a decline in US sales that began in 2017 and continued through 2019.
In addition, research-based pharmaceutical companies are participating directly in the generic conversion process by licensing their patented products to generic companies (so-called “authorized generics”). Consequently, generic companies that were not otherwise in a position to launch a specific product may participate in the market using the innovator’s product authorization. Authorized generics serve as a business opportunity for Sandoz when the product of a research-based pharmaceutical company loses patent protection and Sandoz secures a license from the research-based pharmaceutical company to launch the authorized generic of that product.
Development and registration
Development of Sandoz Biopharmaceuticals is jointly overseen by Sandoz and by GDD and is mostly executed by GDD. Development and registration activities for Retail Generics products, and certain registration activities for Biopharmaceuticals products, continue to be overseen directly by Sandoz.
Before a generic pharmaceutical may be marketed, intensive technical and clinical development work must be performed to demonstrate, in bioavailability studies, the bioequivalence of the generic product to the reference product. Nevertheless, research and development costs associated with generic pharmaceuticals are much lower than those of the originator pharmaceuticals, as no preclinical studies or clinical trials on dose finding, safety and efficacy must be performed by the generic company. As a result, generic pharmaceutical products can be offered for sale at prices often much lower than those of products protected by patents and data exclusivity, which must recoup substantial 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 biological reference medicine. Due to the inherent variability and complexity of biologic products, including batch-to-batch differences and variations following manufacturing changes, the development and the regulatory pathway of biosimilars differ significantly from that of generics.
The development of a biosimilar product is much more technically challenging than the development of a typical generic small molecule pharmaceutical. While generic pharmaceuticals normally do not require clinical studies in patients, regulators worldwide do require such targeted studies for biosimilar products. Biosimilars are engineered to match the reference medicine in quality, safety and efficacy. This is achieved by systematically defining the target range of the reference medicine and then comparing the biosimilar to the reference medicine at various development stages to confirm biosimilarity and to establish that there are no clinically meaningful differences between the proposed biosimilar and the 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 a reference biologic. Therefore, the cost of development for a biosimilar is usually less than that of a reference biologic.
The Development and Registration staff employed by affiliates of the Sandoz Division are based worldwide, including at facilities in Holzkirchen, Germany; Rudolstadt, Germany; Kundl, Austria; Ljubljana, Slovenia; Melville, New York; and Hicksville, New York. In 2018, the divestment of the Boucherville, Canada, development (and associated manufacturing) facility to Avara Pharmaceutical Services was announced. In 2019, the Superior Court of Quebec granted Sandoz the right to reacquire the site, which had subsequently gone into receivership, in order to maintain stable operations pending a decision about the site’s long-term future. Sepa-
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rately, in 2019, Sandoz confirmed the opening of a new development center in Hyderabad, India, initially focused on oral solid medicines. In May 2019, we announced the planned closure of the Holzkirchen development and registration site.
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 reference products, so long as the generic version could be shown to be therapeutically equivalent to the reference product.
In the US, the decision on whether a generic pharmaceutical is therapeutically equivalent to the original 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, for example, regarding the interpretation of bioequivalence study data, labeling requirements for the generic product, or qualifying the supply of active ingredients. In addition, the Hatch-Waxman Act requires a generic manufacturer to certify in certain situations that the generic product does not infringe on any current applicable patents on the product held by the holder of the marketing authorization for the reference product, or to certify that such patents are invalid. This certification often results in a patent infringement lawsuit being brought against the generic company. In the event of such a lawsuit, the Hatch-Waxman Act imposes an automatic 30-month delay in the approval of the ANDA to allow the parties to resolve the intellectual property issues. For generic applicants who are the first to file their ANDA containing a certification claiming non-infringement or patent invalidity, the Hatch Waxman Act generally provides those applicants with 180 days of marketing exclusivity to recoup the expense of challenging the patents on the reference product. However, generic applicants must launch their products within certain timeframes or risk losing the marketing exclusivity that they had gained by being a first-to-file applicant.
In the EU, decisions on the granting of a marketing authorization are made either by the European 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 innovator company for the reference product, 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 company in support of its application for a marketing authorization for the reference product will be protected for 10 years after the first grant of 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 preclinical and clinical trials filed by the innovator company that show a significant clinical benefit in comparison to the existing therapies.
Biosimilars
The regulatory pathways for approval of biosimilar medicines are still being developed and established in many countries of the world. A regulatory framework for the approval of biosimilars has been established in the EU, Japan, Canada and the US, while the World Health Organization (WHO) has issued guidance. Sandoz has successfully registered and launched the first biosimilar (or biosimilar-type) medicine in Europe, the US, Canada, Japan, Taiwan, Australia, and many countries in Latin America and Asia. Sandoz was the first company to secure approval for and launch a biosimilar under the US biosimilar pathway that was established as part of the Biologics Price Competition and Innovation Act (BPCIA).
The approval of biosimilars in Europe follows a 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 reference medicine 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 that allows the regulators to conclude that there are no clinically meaningful differences between the reference medicine and the biosimilar.
In the US, under the BPCIA, a biosimilar must be highly similar with no clinically meaningful differences compared to the reference medicine. Approval of a biosimilar in the US requires the submission of an ABLA to the FDA, including an assessment of immunogenicity, and pharmacokinetics or pharmacodynamics. The ABLA for a biosimilar can be submitted as soon as four years after the initial approval of the reference biologic, but can only be approved 12 years after the initial approval of the reference biologic.
Intellectual property
We take all reasonable steps to ensure that our products do not infringe valid intellectual property rights held by others. Nevertheless, competing companies commonly assert patent and other intellectual property rights. As a result, we can become involved in significant litigation regarding our products. If we are unsuccessful in defending these suits, we could be subject to injunctions preventing us from selling our products and to potentially substantial damages.
Wherever possible, our products are protected by our own patents. Among other things, patents may cover the products themselves, including the product’s formu-
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lation, or the processes for manufacturing a product. However, there can be no assurance that our intellectual property will protect our products or that we will be able to avoid adverse effects from the loss of intellectual property protection in the future.

4.C Organizational structure

Organizational structure
See “Item 4. Information on the Company—Item 4.A History and development of Novartis,” and “Item 4. Information on the Company—Item 4.B Business overview—Overview.”
Significant subsidiaries
See “Item 18. Financial Statements—Note 32. Principal Group subsidiaries and associated companies.”

4.D Property, plants and equipment

Our principal executive offices are located in Basel, Switzerland. Our divisions operate through a number of affiliates that have offices, research and development facilities, and production sites throughout the world.
We generally own our facilities or have entered into long-term lease arrangements for them. Some of our principal facilities are subject to mortgages and other security interests granted to secure indebtedness to certain financial institutions.
NTO manages the production and supply chains of our Innovative Medicines and Sandoz Division products through a network of 60 manufacturing sites, as well as through external suppliers, and warehouse and distribution centers. AAA manages four sites for radioligand therapies production, and certain other small sites for diagnostics and enriched water production. AveXis manages six sites for research and development, production, warehousing, its headquarters and administrative offices. Endocyte manages two sites for research and its headquarters and administrative offices.
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” and “—Item 4.B Business overview—Sandoz—Production” for a discussion of our manufacturing processes.
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Major facilities

Location
Size of site (in
square meters)

Major activity
Basel, Switzerland – St. Johann
589 000
Global Group headquarters; global Innovative Medicines Division headquarters; Global Sandoz Division; research and development; production of drug substances and drug intermediates
Kundl and Schaftenau, Austria
480 000
Production of biotechnological products, drug products and finished products, anti-infectives, active drug substances, product development
East Hanover, New Jersey
391 000
Innovative Medicines Division US headquarters, research and development
Barleben, Germany
340 000
Production of broad range of generics finished dosage forms
Cambridge, Massachusetts
205 000
Research and development
Shanghai, China
106 500
Research and development
Ljubljana, Slovenia
83 000
Production of broad range of finished solid and sterile dosage forms
Hyderabad, India
80 500
General administrative and development global service center
Longmont, Colorado
65 032
Production, warehouse, and administrative offices for AveXis
Stein, Switzerland
64 700
Production of sterile vials, pre-filled syringes and ampoules; inhalation capsules, tablets and transdermals; active pharmaceutical ingredients, and cell and gene therapies
Holzkirchen, Germany
64 200
Global Sandoz Division headquarters, production of oral films, transdermal delivery systems, matrix patches, product development
Menges, Slovenia
62 400
Production of drug substances and drug intermediates
Stryków, Poland
45 000
Production of broad range of bulk oral solid forms and packaging
Huningue, France
35 000
Production of drug substances for clinical and commercial supply
Singapore
35 000
Production for Innovative Medicines solids and biologics
Barbera, Spain
33 000
Production of tablets, capsules and inhalation products
Basel, Switzerland – Schweizerhalle
31 700
Production of drug substances and drug intermediates
Rueil-Malmaison, France
29 500
Administrative offices for Innovative Medicines
Puurs, Belgium
27 500
Production for Innovative Medicines ophthalmic products
Tokyo, Japan
20 000
Administrative offices for Innovative Medicines and Sandoz
Morris Plains, New Jersey
15 600
Production for Innovative Medicines Division cell and gene therapies
Princeton, New Jersey
14 300
Sandoz Division US headquarters
Libertyville, Illinois
9 800
Production, warehouse, and administrative offices for AveXis
Targu Mures, Romania
9 070
Production of solids for Innovative Medicines and Sandoz
Les Ulis, France
5 920
Production for Innovative Medicines Division cell and gene therapies
Millburn, New Jersey
1 400
AAA primary production site for radioligand therapy
Colleretto Giacosa/Ivrea, Italy
1 200
AAA primary production site for radioligand therapy
As our product portfolio evolves, NTO is adapting our manufacturing capacity and capabilities to meet our changing needs, shifting from high-volume products toward lower-volume, customized and personalized medicines. As of December 31, 2019 we have closed, exited or sold, or announced the closure, exit or sale of 19 facilities since 2016. We have also continued to expand our capacity in personalized medicines and complex biologic drugs, such as in Stein, Switzerland, as well as investing in new facilities to provide cell and gene therapies, such as in Les Ulis, France. We are leveraging innovation to increase the reliability and productivity of our manufacturing network, including using data and digital technologies. We continue to seek opportunities to manage our production facilities as efficiently as possible, optimize external spend, and simplify and standardize across our manufacturing network to help us lower costs and help optimize the value of our products. At the same time, we are working to improve our environmental sustainability, for example by reducing energy and water consumption at our sites.
In 2012, we announced the construction of a new state-of-the-art production facility to produce solid dosage form medicines for the Innovative Medicines Division in Stein, Switzerland. In addition, we invested in new technologies and packaging facilities for pharmaceuticals at Stein. Both projects became fully operational in 2019. As of December 31, 2019, the total amount paid and committed to be paid on the Stein projects is equivalent to approximately USD 0.6 billion.
In 2012, we announced the planned construction of a new state-of-the-art biotechnology production site in Singapore. The facility became operational in 2019 and is focused on drug substance manufacturing based on cell culture technology. The facility is co-located with the pharmaceutical production site based in Tuas, Singapore. As of December 31, 2019, the total amount paid and committed to be paid on this project is equivalent to USD 0.8 billion.
In 2018, AveXis initiated construction of a new 15800-square-meter state-of-the-art gene therapy manufacturing facility in Durham, North Carolina. The new facility is expected to complement the existing AveXis site in Libertyville, Illinois, and allow for production of multiple gene therapy products simultaneously. The site is expected to be operational in 2020. We expect our investment in this facility to exceed USD 0.2 billion. As of December 31, 2019, the total amount paid and com-
61

mitted to be paid on this project is approximately USD 0.2 billion.
In 2018, we announced our plan to establish a European cell and gene therapy hub in Stein, Switzerland, and the facility was officially opened in November 2019. We expect our investment in this project to exceed USD 0.1 billion. As of December 31, 2019, the total amount paid and committed to be paid on this project is equivalent to USD 0.1 billion.
In 2018, we announced the construction of a new state-of-the-art advanced integrated biologics manufacturing facility in Schaftenau, Austria. We expect our investment in this facility to exceed USD 0.2 billion. We expect phase one of this project to be operational in 2020. As of December 31, 2019, the total amount paid and committed to be paid on this project is equivalent to approximately USD 0.1 billion.
In April 2019, AveXis purchased a former AstraZeneca site in Longmont, Colorado. The new facility is expected to complement the AveXis sites in Libertyville, Illinois, and Durham, North Carolina, and to allow for production of gene therapy products. The site became operational in 2020. We expect our investment in this facility to exceed USD 0.1 billion. As of December 31, 2019, the total amount paid and committed to be paid on this project (excluding the acquisition costs) is approximately USD 0.1 billion.
In November 2019, we began to expand our existing biologics drug substance manufacturing based on cell culture technology in Schaftenau, Austria. We expect our total investment in this project to amount to USD 0.2 billion. We expect this project to be operational in 2022. As of December 31, 2019, the total amount paid and committed to be paid on this project is equivalent to approximately USD 0.1 billion.
Environmental matters
We integrate core values of environmental protection into our business strategy to protect the environment, add value to the business, manage risk and enhance our reputation. For example, our Executive Committee has endorsed targets for environmental sustainability related to our carbon footprint, waste production and water sustainability, and we are party to a virtual power purchase agreement for renewable energy.
We are subject to laws and regulations concerning the environment, safety matters, regulation of chemicals, and product safety in the countries where we manufacture and sell our products or otherwise operate our business. These requirements include regulation of the handling, manufacture, transportation, use and disposal of materials, including the discharge of pollutants into the environment. In the normal course of our business, we are exposed to risks relating to possible releases of hazardous substances into the environment that could cause environmental or property damage or personal injuries, and that could require remediation of contaminated soil and groundwater – in some cases over many years – regardless of whether the contamination was caused by us or by previous occupants of the property.
See “Item 3. Key Information—Item 3.D Risk factors—Environmental, social and governance matters may impact our business and reputation,” “Item 3. Key Information—Item 3.D Risk factors—Environmental liabilities may adversely impact our financial results,” and “Item 3. Key Information—Item 3.D Risk factors—Climate change, extreme weather events, earthquakes and other natural disasters could adversely affect our business.” See also “Item 18. Financial Statements—Note 20. Provisions and other non-current liabilities.”
62

Item 4A. Unresolved Staff Comments

Not applicable.
63

Item 5. Operating and Financial Review and Prospects

5.A Operating results

This operating and financial review should be read with the Group’s consolidated financial statements in this Annual Report, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board (see “Item 18. Financial Statements”). “Item 5. Operating and Financial Review and Prospects” with the sections on compounds in development and key development projects of our divisions (see “Item 4. Information on the Company—Item 4.B Business overview”) constitute the Operating and Financial Review (Lagebericht), as defined by the Swiss Code of Obligations.
Overview
Our purpose is to reimagine medicine to improve and extend people’s lives. We use innovative science and technology to address some of society’s most challenging healthcare issues. We discover and develop breakthrough treatments and find new ways to deliver them to as many people as possible. We also aim to reward those who invest their money, time and ideas in our company. Our vision is to be a trusted leader in changing the practice of medicine. Our strategy is to build a leading, focused medicines company powered by advanced therapy platforms and data science. As we implement our strategy, we have five priorities to shape our future and help us continue to create value for our company, our shareholders and society: unleash the power of our people; deliver transformative innovation; embrace operational excellence; go big on data and digital; and build trust with society.
The businesses of Novartis are divided operationally on a worldwide basis into two identified reporting segments:
• Innovative Medicines: innovative patent-protected prescription medicines
• Sandoz: generic pharmaceuticals and biosimilars
In addition, we separately report the results of Corporate activities. The financial results of our Corporate activities include the costs of the Group headquarters and those of corporate coordination functions in major countries. Corporate also 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.
Our divisions are supported by the following organizational units: the Novartis Institutes for BioMedical Research, Global Drug Development, Novartis Technical Operations and Novartis Business Services. The financial results of these organizational units are included in the results of the divisions for which their work is performed.
As part of our long-term strategy we announced and/or completed several acquisitions and divestments during 2019:
In April 2019, we completed the spin-off of the Alcon business into a separately-traded standalone company.
In May 2019, we acquired IFM Tre, Inc., a privately held, US-based biopharmaceutical company focused on developing anti-inflammatory medicines targeting the NLRP3 inflammasome.
In May 2019, we entered into an agreement with Takeda to acquire the assets associated with Xiidra worldwide. This transaction closed on July 1, 2019.
In November 2019, we entered into a binding agreement for the acquisition of the Japanese business of Aspen Global Incorporated (AGI). We have received all relevant approvals and this transaction is expected to be completed in the first quarter of 2020.
In November 2019, we entered into an agreement and plan of merger with The Medicines Company, a US-based pharmaceutical company headquartered in Parsippany, New Jersey. The transaction closed in January 2020.
For a description of these and other significant transactions, refer to “Item 4. Information on the Company—Item4.A History and development of Novartis— Important corporate developments 2017– January 2020”, “Item 18. Financial Statements—Note 2. Significant transactions”, “Item 18.Financial Statements—Note 3 Segmentation of key figures 2019, 2018 and 2017,” and “Item 18.Financial Statements—Note 30. Discontinued operations.”
As a result of the spin-off of the Alcon business, Novartis has separated the Group’s reported financial data for the current and prior years into “continuing” and “discontinued” operations, to comply with International Financial Reporting Standards (IFRS). Continuing operations include the businesses of the Innovative Medicines and Sandoz Divisions, and the continuing Corporate activities. Discontinued operations include the Alcon eye care devices business and certain Corporate activities attributable to the Alcon business prior to the spin-off, the gain on distribution of Alcon Inc. to Novartis AG shareholders and certain other expenses related to the spin-off.
In 2019, Novartis achieved net sales from continuing operations of USD 47.4 billion, of which 25%, came from Emerging Growth Markets, and 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.
Innovative Medicines accounted for USD 37.7 billion, or 79%, of Group net sales, and for USD 9.3 billion, or 94%, of Group operating income (excluding Corporate income and expense, net).
Sandoz accounted for USD 9.7 billion, or 21%, of Group net sales, and for USD 551 million, or 6%, of Group operating income (excluding Corporate income and expense, net).
64

Opportunity and risk summary
Our financial results are affected to varying degrees by external factors. The healthcare industry is in a phase of significant progress and change. We believe biomedical innovation has the potential to continue to accelerate over the next two decades, – potentially leading to new treatments and treatment modalities for previously untreatable conditions. We see this as an opportunity given our strong internal research capabilities, and we expect to sustain long-term growth in part through our 15 ongoing and upcoming major launches.
The rapid expansion in data science and digital technologies has the potential to transform a wide range of activities in healthcare, from drug research and development, to the ways in which doctors diagnose and treat diseases, and patients’ involvement in their own care. These trends could help society address the changing healthcare needs of aging populations and produce better health outcomes for patients.
In addition, drug pricing is an increasingly prominent issue in many countries as healthcare spending continues to rise. This impacts our ability to establish satisfactory rates of reimbursement for our products by governments, insurers and other payers, which could affect our ability to generate returns and invest for the future.
We expect loss of market exclusivity and the introduction of branded and generic competitors to continue to significantly erode sales of our products. Our ability to grow depends on the success of our research and development efforts to replenish our pipeline, as well as on the commercial acceptance of our products.
We may also fail to take advantage of rapid progress in new technologies and in the development of new business models. Third parties may enter the healthcare field, which could increase the competition we face or supplant portions of our business. Our manufacturing processes are technically complex and subject to strict regulatory requirements, which introduce a greater chance for supply disruptions and liabilities.
We have a significant global compliance program in place, but any failure to comply with local laws could lead to substantial liabilities and harm our business and our reputation. We carry a significant amount of goodwill and other intangible assets on our consolidated balance sheet, and may incur significant impairment charges in the future.
Tax authorities around the world have increased their scrutiny of company tax filings. In addition, tax reform initiatives by the Organization for Economic Co-operation and Development (OECD), the EU, Switzerland and the US will require us to continually assess our organizational structure against tax policy trends. This could lead to an increased risk of international tax disputes and an increase in our effective tax rate.
For more details on these trends and how they could impact our results, see “—Factors affecting results of operations” below.
65

Results of operations
2019 compared to 2018
Key figures1

(USD millions unless indicated otherwise)


Year ended
Dec 31, 2019


Year ended
Dec 31, 2018

Change
in USD
%
Change in
constant
currencies
% 2
Net sales to third parties from continuing operations
47 445
44 751
6
9
Sales to discontinued operations
53
82
– 35
– 31
Net sales from continuing operations
47 498
44 833
6
9
Other revenues
1 179
1 266
– 7
– 7
Cost of goods sold
– 14 425
– 14 510
1
– 2
Gross profit from continuing operations
34 252
31 589
8
12
Selling, general and administration
– 14 369
– 13 717
– 5
– 8
Research and development
– 9 402
– 8 489
– 11
– 13
Other income
2 031
1 629
25
27
Other expense
– 3 426
– 2 609
– 31
– 33
Operating income from continuing operations
9 086
8 403
8
14
Return on net sales (%)
19.2
18.8
Income from associated companies
659
6 438
nm
nm
Interest expense
– 850
– 932
9
8
Other financial income and expense
45
186
– 76
– 69
Income before taxes from continuing operations
8 940
14 095
– 37
– 33
Taxes
– 1 793
– 1 295
– 38
– 46
Net income from continuing operations
7 147
12 800
– 44
– 41
Net loss from discontinued operations before gain on distribution of Alcon Inc. to Novartis AG shareholders
– 101
– 186
nm
nm
Gain on distribution of Alcon Inc. to Novartis AG shareholders
4 691
Net income/(loss) from discontinued operations
4 590
– 186
nm
nm
Net income
11 737
12 614
– 7
– 3
Attributable to:
Shareholders of Novartis AG
11 732
12 611
– 7
– 3
Non-controlling interests
5
3
nm
nm
Basic earnings per share from continuing operations (USD)
3.12
5.52
– 43
– 40
Basic earnings per share from discontinued operations (USD)
2.00
– 0.08
nm
nm
Total basic earnings per share (USD)
5.12
5.44
– 6
– 2
Net cash flows from operating activities from continuing operations
13 547
13 049
4
Free cash flow from continuing operations 2
12 937
11 256
15
 1  Continuing operations include the businesses of the Innovative Medicines and Sandoz divisions and the continuing Corporate activities and discontinued operations include the Alcon eye care devices business and certain Corporate activities attributable to the Alcon business prior to the spin-off, the gain on distribution of Alcon Inc. to Novartis AG shareholders in 2019 and certain other expenses related to the distribution. See “Item 18. Financial Statements—Note 1. Significant accounting principles”, “Item 18.Financial Statements—Note 2. Significant transactions—Significant transactions in 2019,” and “Item 18.Finanacial Statements—Note 30. Discontinued operations.”
 2  For an explanation of non-IFRS measures and reconciliation tables, see "Item 5.A Operating results—Non-IFRS measures as defined by Novartis."
nm = not meaningful
Group overview
In 2019, Novartis delivered strong sales performance, margin expansion and breakthrough innovation launching five new molecular entities.
Net sales to third parties for Novartis continuing operations were USD 47.4 billion, up 6% in reported terms and up 9% measured in constant currencies (cc) to remove the impact of exchange rate movements. Sales growth was driven by volume growth of 12 percentage points, mainly driven by Cosentyx, Entresto, and Zolgensma for the Novartis Pharmaceuticals business unit and Promacta/Revolade, Kisqali and Lutathera for the Novartis Oncology business unit. The strong volume growth was partly offset by the negative impacts of pricing (2 percentage points) and generic competition (1 percentage point).
By division, Innovative Medicines delivered net sales of USD 37.7 billion (+8%, +11% cc). Sandoz net sales were USD 9.7 billion (-1%, +2% cc), driven by growth in biopharmaceuticals, partly offset by continued industrywide pricing pressures on retail generics, mainly in the US.
66

In emerging growth markets, which comprise all markets excluding the US, Canada, Western Europe, Japan, Australia and New Zealand, sales from continuing operations were USD 11.8 billion (+4%, +10% cc) driven by China (USD 2.2 billion) growing 13%, (+19% cc).
Operating income from continuing operations was USD 9.1 billion (+8%, +14% cc), mainly driven by higher sales, higher divestments and productivity programs, which were partly offset by growth investments, legal provisions and higher impairments. Operating income margin from continuing operations was 19.2% of net sales, increasing by 0.4 percentage points (+0.9 percentage points cc).
Net income from continuing operations was USD 7.1 billion, compared to USD 12.8 billion in 2018 as the prior year benefited from a USD 5.7 billion net gain recognized from the sale of our stake in the GlaxoSmithKline (GSK) consumer healthcare joint venture. Earnings per share from continuing operations were USD 3.12, compared to USD 5.52 in the prior year, declining less than net income, driven by the lower weighted average number of shares outstanding.
Cash flows from operating activities from continuing operations amounted to USD 13.5 billion (+4%), compared to USD 13.0 billion in the prior year. This increase was driven by higher net income adjusted for non-cash items and other adjustments, including divestment gains. It was partly offset by lower dividends received from associated companies due to the divestment of the GSK consumer healthcare joint venture in the second quarter of 2018, higher taxes paid, provision payments and working capital, which included the receipt of a GSK sales milestone from the divested Vaccines business of USD 0.4 billion in the prior year.
Free cash flow from continuing operations amounted to USD 12.9 billion (+15%), compared to USD 11.3 billion in the prior year. The increase was mainly driven by higher operating income adjusted for non-cash items.
We also present our core results, which exclude the impact of amortization, impairments, disposals, acquisitions, restructurings and other significant items, to help investors understand our underlying performance.
Core operating income from continuing operations was USD 14.1 billion (+12%, +17% cc), mainly driven by higher sales and productivity programs, which were partly offset by growth investments. Core operating income margin was 29.7% of net sales, increasing by 1.6 percentage points (+1.9 percentage points cc).
Core net income from continuing operations was USD 12.1 billion (+11%, +15% cc), driven by growth in core operating income, which was partly offset by the discontinuation of core income from the GSK consumer healthcare joint venture. Core earnings per share from continuing operations were USD 5.28 (+12%, +17% cc), growing faster than core net income driven by the lower weighted average number of shares outstanding.
Discontinued operations net sales were USD 1.8 billion, and operating income amounted to USD 71 million. Net income from discontinued operations was USD 4.6 billion, and included a non-taxable non-cash net gain on distribution of Alcon Inc. to Novartis AG shareholders of USD 4.7 billion.
For the total Group, net income amounted to USD 11.7 billion, and basic earnings per share were USD 5.12. Cash flow from operating activities for the total Group was USD 13.6 billion, and free cash flow was USD 12.9 billion.
Net sales by segment
The following table provides an overview of net sales to third parties by segment:

(USD millions)


Year ended
Dec 31, 2019


Year ended
Dec 31, 2018

Change
in USD
%
Change in
constant
currencies
%
Innovative Medicines
37 714
34 892
8
11
Sandoz
9 731
9 859
– 1
2
Net sales to third parties from continuing operations
47 445
44 751
6
9
67

Innovative Medicines
The Innovative Medicines Division delivered net sales of USD 37.7 billion in 2019, up 8% in reported terms and 11% in constant currencies (cc). The Novartis Pharmaceuticals Business Unit delivered net sales of USD 23.3 billion in 2019 growing 9% (+12% cc), driven by Cosentyx reaching USD 3.6 billion, Entresto USD 1.7 billion and Zolgensma USD 0.4 billion. The Novartis Oncology Business Unit delivered net sales of USD 14.4 billion growing 7% (+10% cc), driven by Lutathera reaching USD 0.4 billion Promacta/Revolade reaching USD 1.4 billion and Kisqali USD 0.5 billion. Volume contributed 13 percentage points to sales growth. Generic competition had a negative impact of 1 percentage point. Net pricing had a negative impact of 1 percentage point.
Regionally, the US (USD 13.8 billion, +16%) delivered a strong performance driven by Cosentyx, Entresto, Lutathera and Zolgensma. Europe sales (USD 12.8 billion, +4%, +10% cc) benefited from the continued strong performance of Entresto, Tafinlar + Mekinist, Kisqali, Kymriah and Jakavi. Japan sales were USD 2.4 billion (+2%, 0% cc). Emerging Growth Markets sales grew (+6%, +12% cc), led by double-digit growth in China, including the launches of Cosentyx and Entresto.
The following table provides an overview of net sales to third parties by business franchise in the Innovative Medicines Division:

(USD millions)


Year ended
Dec 31, 2019


Year ended
Dec 31, 2018

Change
in USD
%
Change in
constant
currencies
%
Total Novartis Oncology business unit
14 370
13 428
7
10
Total Novartis Pharmaceuticals business unit
23 344
21 464
9
12
Ophthalmology
4 776
4 558
5
8
Immunology, Hepatology and Dermatology
4 222
3 392
24
27
Neuroscience
3 773
3 429
10
13
Respiratory
1 825
1 767
3
9
Cardiovascular, Renal and Metabolism
1 750
1 050
67
70
Established Medicines
6 998
7 268
– 4
0
Total Innovative Medicines
37 714
34 892
8
11
 
 
68

The following table provides the top 20 Innovative Medicines Division product net sales in 2019:
US
Rest of world
Total

Brands


Business franchise


Indication


USD m
%
change
USD/cc 2


USD m
%
change
USD
%
change
cc 2


USD m
%
change
USD
%
change
cc 2
Cosentyx
Immunology, Hepatology and Dermatology
Psoriasis, ankylosing spondylitis and psoriatic arthritis
2 220
33
1 331
14
20
3 551
25
28
Gilenya
Neuroscience
Relapsing multiple sclerosis
1 736
– 2
1 487
– 6
0
3 223
– 4
– 1
Lucentis
Ophthalmology
Age-related macular degeneration
2 086
2
7
2 086
2
7
Tasigna
Oncology
Chronic myeloid leukemia
804
0
1 076
1
5
1 880
0
3
Entresto
Cardiovascular, Renal and Metabolism
Chronic heart failure
925
66
801
70
77
1 726
68
71
Sandostatin
Oncology
Carcinoid tumors and acromegaly
881
8
704
– 9
– 3
1 585
0
2
Afinitor/Votubia
Oncology
Breast cancer/TSC
1 003
8
536
– 15
– 10
1 539
– 1
1
Promacta/Revolade
Oncology
Immune thrombocytopenia (ITP), severe aplastic anemia (SAA)
691
19
725
22
27
1 416
21
23
Tafinlar + Mekinist
Oncology
BRAF V600+ metastatic and adjuvant melanoma; advanced non-small cell lung cancer (NSCLC)
481
5
857
23
30
1 338
16
20
Galvus Group
Established Medicines
Diabetes
1 297
1
5
1 297
1
5
Gleevec/Glivec
Oncology
Chronic myeloid leukemia and GIST
334
– 24
929
– 17
– 14
1 263
– 19
– 17
Xolair 1
Respiratory
Severe Allergic Asthma (SAA) and Chronic Spontaneous Urticaria (CSU)
1 173
13
19
1 173
13
19
Jakavi
Oncology
Myelofibrosis (MF), polycytomia vera (PV)
1 114
14
20
1 114
14
20
Diovan Group
Established Medicines
Hypertension
86
2
978
4
10
1 064
4
9
Exforge Group
Established Medicines
Hypertension
13
– 32
1 012
3
8
1 025
2
7
Exjade/Jadenu
Oncology
Chronic iron overload
450
– 14
525
– 9
– 6
975
– 11
– 9
Votrient
Oncology
Renal cell carcinoma
332
– 18
423
0
5
755
– 9
– 6
Ilaris
Immunology, Hepatology and Dermatology
Auto-inflammatory (CAPS, TRAPS, HIDS/MKD, FMF, SJIA, AOSD and gout)
304
16
367
26
33
671
21
25
Zortress/Certican
Established Medicines
Transplantation
169
17
316
– 1
4
485
5
8
Kisqali
Oncology
HR+/HER2- metastatic breast cancer
250
45
230
nm
nm
480
104
111
Top 20 products total
10 679
11
17 967
5
11
28 646
7
11
Rest of portfolio
3 110
39
5 958
– 1
4
9 068
10
13
Total division sales
13 789
16
23 925
4
9
37 714
8
11
 1  Net sales reflect Xolair sales for all indications.
 2  Constant currencies (cc) is a non-IFRS measure. For an explanation of non-IFRS measures, see " —Item 5.A Operating results—Non-IFRS measures as defined by Novartis."
 
For information about the approved indications for the products described, see “Item 4. Information on the Company—Item 4.B Business overview—Innovative Medicines—Key marketed products.”
Novartis Oncology business unit
Tasigna (USD 1.9 billion, 0%, +3% cc) grew across most regions, mainly driven by Emerging Growth Markets including China.
Sandostatin (USD 1.6 billion, 0%, +2% cc) grew mainly driven by the US and Emerging Growth Markets, including China, partly offset by competitive pressure in other regions, including first generic competitors entering the market in Europe and Japan.
Afinitor/Votubia (USD 1.5 billion, -1%, +1% cc) sales were broadly in line with prior year, driven by growth in the US in the TSC indication, offset by generic competition in other regions.
Promacta/Revolade (USD 1.4 billion, +21%, +23% cc) grew at a double-digit rate across all regions driven by increased use in chronic immune thrombocytopenia (ITP) and uptake as first-line treatment for severe aplastic anemia (SAA) in the US and Japan.
Tafinlar + Mekinist (USD 1.3 billion, +16%, +20% cc) saw double-digit growth in metastatic and adjuvant melanoma as well as non-small cell lung cancer (NSCLC),
69

with ongoing uptake of the adjuvant melanoma indication in the US and Europe.
Gleevec/Glivec (USD 1.3 billion, -19%, -17% cc) declined due to generic competition in most major markets.
Jakavi (USD 1.1 billion, +14%, +20% cc) saw double-digit growth across all regions driven by demand in the myelofibrosis and polycythemia vera indications.
Exjade/Jadenu (USD 975 million, -11%, -9% cc) declined mainly due to pressure from new generic competition in the US and in other regions.
Votrient (USD 755 million, -9%, -6% cc) sales declined mainly due to competitive pressure in the US.
Kisqali (USD 480 million, +104%, +111% cc) showed solid growth in the US driven by use in metastatic breast cancer patients, independent of menopausal status or combination partner, with strong uptake and patient share gain in Europe and other regions, benefitting from the impact of overall survival data from the MONALESSA-7 and MONALEESA-3 trials.
Lutathera (USD 441 million, +164%, +160% cc) continued to grow led by the US, with over 170 centers actively treating patients, and ongoing launches in Europe. Sales from all AAA brands (including Lutathera and radiopharmaceutical diagnostic products) were USD 679 million.
Kymriah (USD 278 million) strong demand continued and sales increased primarily driven by ongoing uptake in Europe and the US. There are over 200 qualified treatment centers and more than 20 countries worldwide have coverage for at least one indication, including Japan, making Kymriah the only CAR-T approved in Asia. We have significantly increased our global manufacturing capacity. Three additional facilities in Les Ulis, Stein, and Japan have started manufacturing clinical batches. We have also signed a licensing agreement with Cellular Biomedicine Group (CBMG) in China with plans to expand further.
Piqray (USD 116 million) US launch progressed well. Piqray was approved by the FDA as the first and only treatment for patients with a PIK3CA mutation in hormone receptor-positive (HR+)/human epidermal growth factor receptor 2-negative (HER2-) advanced breast cancer.
Novartis Pharmaceuticals business unit
Ophthalmology
Sales in the Ophthalmology franchise were USD 4.8 billion (+5%, +8 cc), mainly driven by the acquisition of Xiidra and growth of Lucentis, while benefitting from the launch of Beovu.
Lucentis (USD 2.1 billion, +2%, +7% cc) grew driven by strong execution of a focused commercial strategy supported by new head-to-head evidence enabling an improved efficacy and durability perception in an overall strongly growing Retina market. Lucentis received approval for the treatment of retinopathy of prematurity (ROP) in premature infants in the EU and Japan in the second half of 2019, making Lucentis the first licensed pharmacological therapy to treat the condition. Lucentis also received approval for the treatment of proliferative diabetic retinopathy (PDR) in the EU in October, becoming the first licensed pharmacological therapy to treat adults with PDR ex-US.
Xiidra (USD 192 million) is the only prescription eye drop solution marketed in the US and Canada to treat the signs and symptoms of dry eye disease. It is dosed twice per day, approximately 12 hours apart, in each eye. Xiidra is approved in multiple markets including the US, Canada and Australia. It is under regulatory review in a number of additional markets. Novartis acquired Xiidra from Takeda and began recording sales as of July 1st, 2019.
Beovu (USD 35 million, brolucizumab, formerly RTH258) was launched in the US following FDA approval in October, offering patients with wet age-related macular degeneration (AMD) in the US a new treatment option with demonstrated robust vision gains. Beovu is the only anti-VEGF in wet AMD approved in the US to maintain eligible patients on up to three month dosing intervals immediately after the loading phase. Beovu received a positive CHMP opinion in the EU in December 2019 and a permanent J-code from CMS on January 1, 2020.
Immunology, Hepatology and Dermatology
Sales in the Immunology, Hepatology and Dermatology franchise reached USD 4.2 billion (+24%, +27% cc), of which Cosentyx delivered USD 3.6 billion.
Cosentyx (USD 3.6 billion, +25%, +28% cc) continued momentum in the US (+33%) and in the rest of the world (+14%, +20% cc), driven by strong demand across indications and regions and broad first line access in all three indications. In March, Cosentyx was the first IL-17A inhibitor to be approved in China for the treatment of psoriasis. In September, Novartis announced positive new data from the Phase III PREVENT trial evaluating the efficacy and safety of Cosentyx in patients with non-radiographic axial spondyloarthritis (nr-axSpA). Novartis has submitted the data to EMA and to the FDA. Nr-axSpA would be the fourth indication for Cosentyx.
Ilaris (USD 671 million, +21%, +25% cc) sales were driven by strong double-digit volume growth, mostly in Europe.
Xolair sales for all indications are reported in the Respiratory franchise. Dermatology teams help support commercial efforts of Xolair in chronic spontaneous urticaria/chronic idiopathic urticaria.
Neuroscience
Sales in the Neuroscience franchise were USD 3.8 billion (+10%, +13% cc), mainly driven by the launch of Zolgensma and sales growth of Aimovig, partly offset by sales decline of Gilenya.
Gilenya (USD 3.2 billion, -4%, -1% cc) declined mainly due to competitive pressures.
Zolgensma (USD 361 million, formerly AVXS-101) is an adeno-associated virus vector-based gene therapy designed to address the genetic root cause of spinal muscular atrophy (SMA) by providing a functional copy of the human survival motor neuron (SMN) gene to halt disease progression through sustained SMN protein expression. The FDA approved the intravenous formulation of AVXS-101 as Zolgensma in May 2019 for the treatment of pediatric patients less than 2 years old who have SMA with biallelic mutations in the SMN1 gene. Regulatory reviews are underway in Europe, with a CHMP opinion anticipated in Q1 2020, and Japan, with a deci-
70

sion anticipated in 1H 2020. AVXS-101 is in ongoing clinical studies, including the global Phase III STR1VE clinical program (consisting of STR1VE-US, STR1VE-EU and STR1VE-AP) to evaluate the intravenous (IV) formulation of AVXS-101 in patients who have SMA Type 1, and the multinational Phase III SPR1NT trial in presymptomatic patients who have a genetic diagnosis of SMA with two or three copies of the SMN2 gene. Additionally, AVXS-101 intrathecal administration is being studied in a Phase I/II STRONG trial in patients who have SMA Type 2 and three copies of the SMN2 gene. New data from trials were presented at 2019 congresses, including the American Academy of Neurology Annual Meeting.
Aimovig (USD 103 million, ex-US, ex-Japan) is the most prescribed anti-CGRP worldwide, with more than 350,000 patients prescribed worldwide in the post-trial setting. It has now been launched in 38 countries for the preventive treatment of migraine and additional launches are underway. Aimovig is co-commercialized with Amgen in the US, where Amgen records sales and Novartis has exclusive rights in all ex-US territories excluding Japan. Amgen issued a termination notice in April 2019, based on an alleged material breach of the collaboration agreements, and this notice, as well as other ancillary matters, are the subject of legal proceedings between Novartis and Amgen. Novartis disputes Amgen’s allegations vig-orously. The collaboration continues during the litigation between the companies, and will remain in force until and unless a final court decision terminates the agreements.
Mayzent (USD 26 million) launch is progressing and efforts are ongoing to accelerate patient on-boarding and drive urgency to treat. Mayzent was approved by the FDA on March 26, 2019 and is indicated for the treatment of relapsing forms of multiple sclerosis (MS), to include clinically isolated syndrome, relapsing-remitting disease, and active secondary progressive MS, in adults. Mayzent is the only FDA approved oral therapy for active SPMS based on evidence from a pivotal prospective Phase III clinical trial (EXPAND) in a broad SPMS population. Mayzent received EU approval in January 2020 for the treatment of adult patients with secondary progressive multiple sclerosis (SPMS) with active disease.
Respiratory
Sales in the Respiratory franchise were USD 1.8 billion (+3%, +9% cc), of which Xolair delivered USD 1.2 billion.
Xolair (USD 1.2 billion, +13%, +19% cc) continued to grow in both indications Severe Allergic Asthma (SAA) and Chronic Spontaneous Urticaria (CSU). Growth for both indications benefited from the recent approval of Xolair for home-use in Europe and strong performance in Emerging Growth Markets. We co-promote Xolair with Genentech in the US and share a portion of operating income, but we do not record any US sales.
Ultibro Breezhaler (USD 427 million, -6%, -1% cc), an inhaled LABA/LAMA, sales declined mainly due to competition.
Seebri Breezhaler (USD 121 million, -18%, -14% cc) an inhaled LAMA, and Onbrez Breezhaler (USD 82 million, -19%, -14% cc) an inhaled LABA, declined mainly due to competition.
Cardiovascular, Renal and Metabolism
Sales in the Cardiovascular, Renal and Metabolism franchise were USD 1.8 billion (+67%, +70% cc).
Entresto (USD 1.7 billion, +68%, +71% cc) continued strong momentum across geographies, fueled by increased demand in both hospital and ambulatory settings. New data presented at American Heart Association (AHA) Scientific Sessions 2019 on reverse cardiac remodeling, in-hospital use and quality of life, further reinforce Entresto as an essential, first-choice treatment for heart failure with reduced ejection fraction.
Established Medicines
The Established Medicines franchise had sales of USD 7.0 billion (-4%, 0% cc).
Galvus Group (USD 1.3 billion, +1%, +5% cc) grew, led by solid performance in Emerging Growth Markets, including China.
Diovan Group (USD 1.1 billion, +4%, +9% cc) grew in Europe and Emerging Growth Markets, partially offset by a decline in Japan.
Exforge Group (USD 1.0 billion, +2%, +7% cc) grew in Emerging Growth Markets, offset by a decline in Europe, Japan and the US due to generic competition.
Zortress/Certican (USD 485 million, +5%, +8% cc) continued to grow in most regions.
Neoral/Sandimmun(e) (USD 419 million, -10%, -7% cc) declined due to generic competition and mandatory price reductions.
Voltaren/Cataflam (USD 417 million, -6%, -4% cc) sales declined mainly due to generic competition.
71

Sandoz
Sandoz net sales in 2019 were USD 9.7 billion (-1%, +2% cc) driven by strong volume growth of 8 percentage points which was partially offset by 6 percentage points of price erosion. Excluding the US, net sales grew strongly (+2%, +7% cc).
Sales in Europe were USD 5.1 billion (+3%, +9% cc), mainly driven by biosimilars. Sales in the US were USD 2.5 billion declining 10%, mainly due to continued industrywide pricing pressure. Sales in Asia, Africa and Australasia were USD 1.3 billion (-2%, +1% cc). Sales in Canada and Latin America were USD 784 million (+1%, +6% cc).

(USD millions)


Year ended
Dec 31, 2019


Year ended
Dec 31, 2018

Change
in USD
%
Change in
constant
currencies
%
Retail Generics1
7 590
7 880
– 4
0
Biopharmaceuticals
1 607
1 436
12
16
Anti-Infectives (partner label/API)
534
543
– 2
2
Total Sandoz
9 731
9 859
– 1
2
 
 1  Of which USD 784 million (2018: USD 826 million) represents anti-infectives sold under the Sandoz name
Retail Generics
In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of small molecule pharmaceuticals to third parties across a broad range of therapeutic areas, as well as finished dosage form of anti-infectives sold to third parties. Retail Generics sales in 2019 were USD 7.6 billion (-4%, 0% cc), in line with prior year as first-to-market launches offset the impact of US pricing pressure.
Biopharmaceuticals
In Biopharmaceuticals, Sandoz develops, manufactures and markets protein- or other biotechnology-based products, including biosimilars, and provides biotechnology manufacturing services to other companies. The Biopharmaceuticals business also includes Glatopa, a generic version of Copaxone®, which treats relapsing forms of multiple sclerosis and is marketed in the US. Global sales of Biopharmaceuticals grew to USD 1.6 billion (+12%, +16% cc), driven by continued strong double-digit growth in Europe from Hyrimoz (adalimumab), Rixathon (rituximab) and Erelzi (etanercept). Launch roll-outs in Asia, Africa and Australasia also contributed to growth.
Anti-Infectives
In Anti-Infectives, Sandoz manufactures and supplies active pharmaceutical ingredients and intermediates, mainly antibiotics, for internal use by Retail Generics and for sale to third-party customers. Sales of anti-infectives sold to third parties under their own name were USD 534 million, down 2% (+2% cc). Total Anti-Infectives franchise sales were USD 1.3 billion (-4%, 0% cc), including USD 784 million finished dosage forms sold under the Sandoz name.
Operating income from continuing operations
The following table provides an overview of operating income from continuing operations by segment:

(USD millions)


Year ended
Dec 31, 2019


% of
net sales


Year ended
Dec 31, 2018


% of
net sales

Change
in USD
%
Change in
constant
currencies
%
Innovative Medicines
9 287
24.6
7 871
22.6
18
24
Sandoz
551
5.7
1 332
13.5
– 59
– 53
Corporate
– 752
– 800
6
4
Operating income from continuing operations
9 086
19.2
8 403
18.8
8
14
 
Operating income from continuing operations was USD 9.1 billion (+8%, +14% cc), mainly driven by higher sales, higher divestments and productivity programs, which were partly offset by growth investments, legal provisions and higher impairments. Operating income margin from continuing operations was 19.2% of net sales, increasing by 0.4 percentage points (+0.9 percentage points cc).
72

Core operating income from continuing operations key figures1

(USD millions unless indicated otherwise)


Year ended
Dec 31, 2019


Year ended
Dec 31, 2018

Change
in USD
%
Change in
constant
currencies
%
Core gross profit from continuing operations
37 392
34 886
7
10
Selling, general and administration
– 14 319
– 13 690
– 5
– 7
Research and development
– 8 386
– 8 154
– 3
– 5
Other income
495
558
– 11
– 9
Other expense
– 1 070
– 1 043
– 3
– 5
Core operating income from continuing operations
14 112
12 557
12
17
As % of net sales
29.7
28.1
 1  For an explanation of non-IFRS measures and reconciliation tables, see "Item 5.A Operating results—Non-IFRS measures as defined by Novartis."
The adjustments made to operating income from continuing operations to arrive at core operating income from continuing operations amounted to USD 5.0 billion (compared to USD 4.2 billion in the prior year). For details please see “Item 5. – 2019, 2018 and 2017 reconciliation from IFRS results to core results.”
Core operating income from continuing operations was USD 14.1 billion (+12%, +17% cc), mainly driven by higher sales and productivity programs, partly offset by growth investments. Core operating income margin was 29.7% of net sales, increasing by 1.6 percentage points (+1.9 percentage points cc).
The following table provides an overview of core operating income by segment:

(USD millions)


Year ended
Dec 31, 2019


% of
net sales


Year ended
Dec 31, 2018


% of
net sales

Change
in USD
%
Change in
constant
currencies
%
Innovative Medicines
12 650
33.5
11 151
32.0
13
18
Sandoz
2 094
21.5
2 002
20.3
5
10
Corporate
– 632
– 596
– 6
– 9
Core operating income from continuing operations
14 112
29.7
12 557
28.1
12
17
 
Innovative Medicines
Operating income was USD 9.3 billion (+18%, +24% cc), mainly driven by continued strong sales growth and productivity, partly offset by growth investments. Operating income margin was 24.6% of net sales, increasing 2.0 percentage points (+2.5 percentage points cc).
Core adjustments were USD 3.4 billion, mainly due to USD 2.4 billion of amortization. Prior year core adjustments were USD 3.3 billion. Core adjustment were broadly in line with the prior year as higher legal provisions were offset by higher divestment income and lower restructuring.
Core operating income was USD 12.7 billion (+13%, +18% cc), mainly driven by higher sales, partly offset by higher growth investments. Core operating income margin was 33.5% of net sales, increasing 1.5 percentage points (+1.8 percentage points cc).
Core gross margin was broadly in line with prior year as productivity improvements were offset the ramp up of capacity for cell / gene therapies and lower other revenue (-0.8 percentage points cc). Core R&D expenses decreased by 1.2 percentage points (cc), mainly driven by the higher net sales, productivity and portfolio prioritization. Core selling, general and administration (SG&A) expenses declined by 0.7 percentage points (cc), mainly driven by sales leverage and productivity. Core other income and expense did not have a material impact on margin.
Sandoz
Operating income was USD 551 million (-59%, -53% cc), impacted by higher impairments of intangible assets and property, plant and equipment related to the discontinuation of the generic Advair® development program in the US and higher restructuring charges mainly from the ongoing business transformation. Operating income margin was 5.7% of net sales, declining 7.8 percentage points (-7.3 percentage points cc).
Core adjustments were USD 1.5 billion, including USD 314 million of amortization. Prior year core adjustments were USD 670 million. The change in core adjustments compared to prior year was driven mainly by higher impairments of intangible assets and property, plant and equipment, higher restructuring charges mainly from the ongoing transformation, net changes in legal settlements and lower divestment income.
Core operating income was USD 2.1 billion (+5%, +10% cc), as sales growth and continued gross margin improvements were partly offset by price erosion and lower divestment income. Core operating income margin was 21.5% of net sales, increasing 1.2 percentage points (1.5 percentage points cc).
73

Core gross margin increased by 1.6 percentage points (cc), as favorable product and geographic mix and ongoing productivity improvements, were partly offset by the impact of price erosion. Core R&D expenses were in line with prior year, while core SG&A expenses decreased by 0.6 percentage points (cc). Core other income and expense decreased the margin by 0.7 percentage points (cc), mainly due to lower divestment income.
Corporate income and expense, net
Corporate income and expense, which includes the cost of Group headquarters and coordination functions, amounted to an expense of USD 752 million in 2019 compared to USD 800 million in the prior year, mainly driven by lower impairment charges from the Novartis Venture Fund financial asset, partly offset by higher restructuring costs.
Innovative Medicines Division research and development
The following table provides an overview of the reported and core research and development expense of the Innovative Medicines Division:

(USD millions unless indicated otherwise)


Year ended
Dec 31, 2019


Year ended
Dec 31, 2018

Change
in USD
%
Change in
constant
currencies
%
Research and exploratory development
– 2 855
– 2 770
– 3
– 4
Confirmatory development
– 5 297
– 4 905
– 8
– 10
Total Innovative Medicines Division research and development expense
– 8 152
– 7 675
– 6
– 8
As % of Innovative Medicines net sales to third parties
21.6
22.0
Core research and exploratory development1
– 2 706
– 2 665
– 2
– 2
Core confirmatory development1
– 4 879
– 4 675
– 4
– 6
Total core Innovative Medicines Division research and development expense
– 7 585
– 7 340
– 3
– 5
As % of Innovative Medicines net sales to third parties
20.1
21.0
 1  Core excludes impairments, amortization and certain other items. For an explanation of non-IFRS measures and reconciliation tables, see " —Item 5.A Operating results—Non-IFRS measures as defined by Novartis."        
Innovative Medicines Division research and exploratory development expense increased by 3% (–4% cc) to USD 2.9 billion, and confirmatory development expense amounted to USD 5.3 billion, increasing by 8% (-10% cc) versus prior year. This was mainly due to higher pipeline investments, including Zolgensma, and higher impairments of intangible assets.
Total core research and development expense in the Innovative Medicines Division as a percentage of sales decreased by 0.9 percentage points (1.2 percentage points cc) to 20.1% of net sales, mainly driven by the higher net sales, productivity and portfolio prioritization.
74

Non-operating income and expense
The term “non-operating income and expense” includes all income and expense items outside operating income. The following table provides an overview of non-operating income and expense from continuing operations:

(USD millions unless indicated otherwise)


Year ended
Dec 31, 2019


Year ended
Dec 31, 2018

Change
in USD
%
Change in
constant
currencies
%
Operating income from continuing operations
9 086
8 403
8
14
Income from associated companies
659
6 438
nm
nm
Interest expense
– 850
– 932
9
8
Other financial income and expense
45
186
– 76
– 69
Income before taxes from continuing operations
8 940
14 095
– 37
– 33
Taxes
– 1 793
– 1 295
– 38
– 46
Net income from continuing operations
7 147
12 800
– 44
– 41
Net loss from discontinued operations before gain on distribution of Alcon Inc. to Novartis AG shareholders
– 101
– 186
nm
nm
Gain on distribution of Alcon Inc. to Novartis AG shareholders
4 691
Net income from discontinued operations
4 590
– 186
nm
nm
Net income
11 737
12 614
– 7
– 3
Attributable to:
Shareholders of Novartis AG
11 732
12 611
– 7
– 3
Non-controlling interests
5
3
nm
nm
Basic earnings per share from continuing operations (USD)
3.12
5.52
– 43
– 40
Basic earnings per share from discontinued operations (USD)
2.00
– 0.08
nm
nm
Total basic earnings per share (USD)
5.12
5.44
– 6
– 2
nm = not meaningful
Income from associated companies
Income from associated companies amounted to USD 659 million in 2019 compared to USD 6.4 billion in prior year. This decrease is mainly due to the pre-tax gain of USD 5.8 billion recognized on the divestment of the 36.5% stake in the GSK consumer healthcare joint venture in 2018.
The share of income from Roche was USD 662 million compared to USD 526 million in the prior year. The estimated income for Roche Holding AG was USD 748 million compared to USD 651 million in the prior year and was partly offset by the negative prior year true up of USD 129 million in the first quarter of 2019, compared to a negative prior year true up of USD 125 million recognized in the first quarter of 2018. In addition, a USD 43 million income from revaluation of deferred tax liability, recognized upon initial accounting of the Roche investment, was recorded in the first quarter of 2019, following a change in the enacted tax rate in February 2019 of the Swiss Canton Basel-Stadt, effective January 1, 2019.
Interest expense and other financial income and expense
Interest expense decreased to USD 850 million from USD 932 million in the prior year, driven by lower outstanding debts partly offset by the additional interest expense on lease liabilities of USD 66 million, following the implementation of IFRS 16 Leases as of January 1, 2019.
Other financial income and expense, net amounted to an income of USD 45 million compared to USD 186 million in the prior year. The decrease is mainly due to lower interest income and higher currency losses.
Taxes
The tax rate from continuing operations in 2019 was 20.1% compared to 9.2% in the prior year. The 2019 tax rate was negatively impacted by a one-time, non-cash deferred tax expense resulting from legal entity reorganizations, a prior year item and an increase to an uncertain tax position, partially offset by the deferred tax credit from Swiss tax reform. The prior year tax rate was positively impacted by the divestment of the 36.5% stake in the GSK consumer healthcare joint venture. Excluding these impacts, the tax rate from continuing operations would have been 15.4% compared to 14.9% in the prior year. The increase compared to prior year is mainly the result of a change in profit mix.
Net income from continuing operations
Net income from continuing operations amounted to USD 7.1 billion, compared to USD 12.8 billion in the prior year, as the prior year benefited from a USD 5.7 billion net gain recognized from the sale of our stake in the GSK consumer healthcare joint venture.
Earnings per share
Basic earnings per share from continuing operations were USD 3.12, compared to USD 5.52 in the prior year, declining less than net income due to the lower weighted average number of shares outstanding.
75

Core non-operating income and expense from continuing operations1
The following table provides an overview of core non-operating income and expense from continuing operations:

(USD millions unless indicated otherwise)


Year ended
Dec 31, 2019


Year ended
Dec 31, 2018

Change
in USD
%
Change in
constant
currencies
%
Core operating income from continuing operations
14 112
12 557
12