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TABLE OF CONTENTS
NOVARTIS GROUP INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on January 27, 2011

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

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FORM 20-F

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)

Thomas Werlen
Group General Counsel
Novartis AG
CH-4056 Basel
Switzerland
011-41-61-324-2745
thomas.werlen@novartis.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

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:

2,289,445,178 shares

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

Yes ý    No o

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

Yes o    No ý

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

Yes ý    No o

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

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

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

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

Item 17 o    Item 18 o

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

Yes o    No ý

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INTRODUCTION

        Novartis AG and its consolidated affiliates (Novartis or the Group) publish consolidated financial statements expressed in US dollars. Our consolidated financial statements found in Item 18 of this annual report on Form 20-F (Form 20-F) are those for the year ended December 31, 2010 and are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

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USE OF CERTAIN TERMS

        In this Form 20-F, references to "Alcon" are to Alcon, Inc.; references to "US dollars," "$" or "USD" 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 (EU) are to the European Union and its 27 member states and references to "Americas" are to North, Central (including the Caribbean) and South America, unless the context otherwise requires; references to "associates" are to employees of our affiliates; references to the "FDA" are to the US Food and Drug Administration, references to "EMA" are to the European Medicines Agency, an agency of the EU, and references to the CHMP are to the EMA's Committee for Medicinal Products for Human Use; references to "ADS" or "ADSs" are to Novartis American Depositary Shares, and references to "ADR" or "ADRs" are to Novartis American Depositary Receipts; references to the NYSE are to the New York Stock Exchange, and references to the SIX are to the SIX Swiss Exchange. 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. You will find the words "we," "our," "us" and similar words or phrases in this Form 20-F. We use those words to comply with the requirement of the US Securities and Exchange Commission to use "plain English" in public documents like this Form 20-F. For the sake of clarification, each Group company is legally separate from all other Group companies and manages its business independently through its respective board of directors or other top local management body. No Group company operates the business of another Group company nor is any Group company the agent of any other Group company. Each executive identified in this Form 20-F reports directly to other executives of the Group company which employs the executive, or to that Group company's board of directors.

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FORWARD LOOKING STATEMENTS

        This Form 20-F contains certain "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by terminology such as "planned," "expected," "will," "potential," "pipeline," "outlook," or similar expressions, 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 potential growth opportunities from the acquisition of a 77% majority ownership in Alcon, Inc. or regarding the expected merger with Alcon, or the potential impact on Alcon or Novartis of the expected merger; or regarding potential future sales or earnings of the Novartis Group or any of its divisions as a result of the expected merger or otherwise, or of Alcon, or any potential synergies, strategic benefits or opportunities as a result of the expected merger; or by discussions of strategy, plans, expectations or intentions. You should not place undue reliance on these statements. Such forward-looking statements reflect the current views of the Group regarding future events, and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. There can be no guarantee that any new products will be approved for sale in any market, or that any new indications will be approved for existing products in any market, or that such products will achieve any

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particular revenue levels. Nor can there be any guarantee that the expected merger with Alcon will be completed in the expected form or within the expected time frame or at all. Nor can there be any guarantee that Novartis will be able to realize any of the potential synergies, strategic benefits or opportunities as a result of either Novartis' acquisition of a 77% majority ownership in Alcon, Inc., or as a result of the expected merger with Alcon. Nor can there be any guarantee that the Novartis Group, or any of its divisions, or Alcon will achieve any particular financial results, whether as a result of the merger or otherwise. In particular, management's expectations could be affected by, among other things, unexpected regulatory actions or delays or government regulation generally; unexpected clinical trial results, including additional analyses of existing clinical data or unexpected new clinical data; the Group's ability to obtain or maintain patent or other proprietary intellectual property protection; disruptions from the Alcon 77% implementation and the expected merger making it more difficult to maintain business and operational relationships, and relationships with key employees; unexpected product manufacturing issues; uncertainties regarding actual or potential legal proceedings, including, among others, litigation seeking to prevent the merger from taking place, product liability litigation, litigation regarding sales and marketing practices, government investigations and intellectual property disputes; competition in general; government, industry, and general public pricing and other political pressures; uncertainties regarding the after-effects of the recent global financial and economic crisis; uncertainties regarding future global exchange rates and uncertainties regarding future demand for our products; uncertainties involved in the development of new pharmaceutical products; and the impact that the foregoing factors could have on the values attributed to the Group's assets and liabilities as recorded in the Group's consolidated balance sheet. Some of these factors are discussed in more detail herein, including under "Item 3. Key Information—3.D. Risk factors," "Item 4. Information on the Company," and "Item 5. Operating and Financial Review and Prospects." Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Form 20-F as anticipated, believed, estimated or expected. We provide the information in this 20-F as of the date of its filing. We do not intend, and do not assume any obligation, to update any information or forward looking statements set out in this Form 20-F as a result of new information, future events or otherwise.

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PART I

Item 1.    Identity of Directors, Senior Management and Advisers

        Not applicable.

Item 2.    Offer Statistics and Expected Timetable

        Not applicable.

Item 3.    Key Information

3.A    Selected Financial Data

        The selected financial information set out below has been extracted from our consolidated financial statements prepared in accordance with IFRS as issued by the IASB. Our consolidated financial statements for the years ended December 31, 2010, 2009 and 2008 are included in "Item 18. Financial Statements" in this Form 20-F.

        The results of our Medical Nutrition and Gerber Business Units are shown as discontinued operations for all periods presented, following their divestment in 2007.

        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.

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⁽¹⁾

Cash dividends represent cash payments in the applicable year that generally relate to earnings of the previous year.

⁽²⁾

Cash dividends per share represent dividends proposed that relate to earnings of the current year. Dividends for 2010 will be proposed to the Annual General Meeting on February 22, 2011 for approval.

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Cash Dividends per Share

        Cash dividends are translated into US dollars at the Reuters 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 ADSs.

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⁽¹⁾

Dividend to be proposed at the Annual General Meeting on February 22, 2011 and to be distributed March 1, 2011.

⁽²⁾

Translated into US dollars at the 2010 Reuters Market System period end rate of $1.06 to the Swiss franc. This translation is an example only, and should not be construed as a representation that the Swiss franc amount represents, or has been or could be converted into US dollars at that or any other rate.

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Exchange Rates

        The following table shows, for the years and dates indicated, certain information concerning the rate of exchange of US dollar per Swiss franc based on exchange rate information found on Reuters Market System. The exchange rate in effect on January 25, 2011, as found on Reuters Market System, was CHF 1.00 = $1.06.

3.B    Capitalization and Indebtedness

        Not applicable.

3.C    Reasons for the offer and use of proceeds

        Not applicable.

3.D    Risk Factors

        Our businesses face significant risks and uncertainties. You should carefully consider all of the information set forth in this annual report on Form 20-F and in other documents we file with or furnish to the SEC, including the following risk factors, before deciding to invest in 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 deemed to be material.

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Risks Facing Our Business

Our Pharmaceuticals Division faces and will continue to face important patent expirations and aggressive generic competition.

        Our Pharmaceuticals Division's products are generally protected by patent rights, which are intended to provide us with exclusive rights to market the patented products. However, those patent rights are of varying strengths and durations. Loss of market exclusivity for one or more important products—including the loss of exclusivity on Diovan, our best-selling product, which we face in the EU this year, and in the US in 2012 and in Japan in 2013—will have a material adverse effect on our results of operations.

        The introduction of a generic version of a branded medicine typically results in a significant and rapid reduction in net sales for the branded product because generic manufacturers typically offer their unbranded versions at sharply lower prices. Such competition can result from the regular expiration of the term of the patent. Such competition can also result from the entry of generic versions of another medicine in the same therapeutic class as one of our drugs, or in another competing therapeutic class. In addition, generic manufacturers frequently take an aggressive approach to challenging patents, conducting so-called "launches at risk" of products that are still under legal challenge for patent infringement, before final resolution of legal proceedings.

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

        Some of our best-selling products are expected to face significant competition beginning as early as this year due to the end of market exclusivity resulting from the expiry of patent protection.

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The patent on valsartan, the active ingredient of Diovan/Co-Diovan/Diovan HCT (high blood pressure), expires in the major countries of the EU during 2011, in the US in September 2012, and in Japan in 2013. In addition, the active ingredient valsartan is also used in the single-pill combination therapies Exforge/Exforge HCT (high blood pressure). While there is an expectation that market exclusivities for Exforge/Exforge HCT will remain in the EU and Japan due to regulatory exclusivities, there is a risk that the product may face generic competition in the US beginning in September 2012.



•

The patent on zoledronic acid, the active ingredient in Zometa (cancer), as well as in Reclast/Aclasta (osteoporosis), will expire in 2013 in the US and in 2012 and 2013 in other major markets.



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The patent on Femara (cancer) will expire in 2011 in the US and in major European markets, while generic versions have already been launched in some smaller European markets.

        For more information on the patent status of our Pharmaceuticals Division's products see "Item 4. Information on the Company—Item 4.B Business Overview—Pharmaceuticals—Intellectual Property" and "Item 18. Financial Statements—note 20".

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

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Our research and development efforts may not succeed in bringing high-potential products to market, or to do so cost-efficiently enough, or in sufficient numbers.

        Our ability to continue to grow our business and to replace sales lost due to the end of market exclusivity depends upon the success of our research and development activities in identifying, and successfully and cost-effectively developing high-potential breakthrough products that address unmet needs, are accepted by patients and physicians, and are reimbursed by payors. To accomplish this, we commit substantial effort, funds and other resources across all our divisions to research and development, both through our own dedicated resources and through various collaborations with third parties. Developing new healthcare products and bringing them to market, however, is a highly costly, lengthy and uncertain process. In spite of our significant investments, there can be no guarantee that our research and development activities will produce a sufficient number of commercially viable new products.

        Using the products of our largest division as an example, the research and development process for a new pharmaceutical product can take up to 15 years, or even longer, from discovery to commercial product launch—and with a limited available patent life the longer it takes to develop a product, the less time there will be for us to recoup our development costs. New products need not only undergo intensive preclinical and clinical testing, but also must be approved by means of highly complex, lengthy and expensive approval processes which can vary from country to country. During each stage, there is a substantial risk that we will encounter serious obstacles which will further delay us and add substantial expense, or that we will not achieve our goals and, accordingly, may be forced to abandon a product in which we have invested substantial amounts of time and money. Reasons for delays may include: failure of the product candidate in preclinical studies; difficulty enrolling patients in clinical trials or delays or clinical trial holds at clinical trial sites; delays in completing formulation and other testing and work necessary to support an application for regulatory approval; adverse reactions to the product candidate or indications of other safety concerns; insufficient clinical trial data to support the safety or efficacy of the product candidate; our inability to manufacture sufficient quantities of the product candidate for development or commercialization activities in a timely and cost-efficient manner; and failure to obtain, or delays in obtaining, the required regulatory approvals for the product candidate or the facilities in which it is manufactured. In addition, FDA and other governmental health authorities have recently begun to intensify their scrutiny of pharmaceutical companies' compliance with regulations related to the development of new products, thus adding to the obstacles and costs we face in bringing new products to market.

        Our Vaccines and Diagnostics Division faces challenges similar to those faced by our Pharmaceuticals Division in developing and bringing to market new vaccines. In particular, our Vaccines and Diagnostics Division has been working to fully develop and bring to market two vaccines, Menveo and Bexsero, to combat different strains of meningococcal disease in patients of a wide range of age groups. These products are the primary products in the division's pipeline. If our Vaccines and Diagnostics Division were unable to successfully develop one or both of these products, or if the partial or full approvals of either or both of these products were significantly delayed, it could have a material adverse effect on the medium to long-term success of the division, and of the Group as a whole.

        In addition, 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" generic versions of currently-marketed biotechnology products. While the development of such products can be somewhat less costly and complex than the development of originator biologic medicines, to date many countries do not yet have an established legislative or regulatory pathway which would permit such products to be sold in a manner in which the biosimilar product would be readily substitutable for the originator product. Significant delays in the development of such pathways, or significant impediments that may ultimately be built into such pathways, could diminish the value of the investments that Sandoz has made, and will continue to make, in its biotechnology operations, and could have a material adverse effect on the long-term success of the Group as a whole.

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        If we are unable to cost-effectively maintain an adequate flow of successful new products and new indications for existing products sufficient to cover our substantial research and development costs and to replace sales lost as older products are lost to generic competition (including the significant number of important products likely to face generic competition in the near future), or are displaced by competing products or therapies, this could have a material adverse effect on our business, financial condition or results of operations. For a description of the approval processes which must be followed to market our products, see the sections headed "Regulation" included in the descriptions of our four operating divisions under "Item 4. Information on the Company—Item 4.B Business Overview."

Increasing regulatory scrutiny of drug safety and efficacy has and is likely to continue to adversely affect us.

        Following several widely publicized issues in recent years, health regulators are increasingly focusing on product safety. Recently, the Obama Administration has publicly emphasized the importance of enforcing US drug safety regulations. In addition, authorities have paid increased attention to the risk/benefit profile of pharmaceutical products with an increasing emphasis on product safety and the value-added of products. These developments have led to requests for more clinical trial data, for the inclusion of a significantly higher number of patients in clinical trials, and for more detailed analyses of the trials. As a result, the already lengthy and expensive process of obtaining regulatory approvals for pharmaceutical products has become even more challenging.

        In addition, for the same reason, the post-approval regulatory burden has been increasing. Approved drugs have increasingly been subject to 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 far more detailed safety and other data on products. These requirements have the effect of making the maintenance of regulatory approvals and achieving reimbursement for our products increasingly expensive, and further heightening the risk of recalls, product withdrawals, or loss of market share.

        Like our industry peers, we have been required by health authorities to conduct additional clinical trials, and to submit additional analyses of our data in order to obtain product approvals. We have had REMS and other such requirements imposed as a condition of approval of our new drugs. By increasing the costs of, and causing delays in obtaining approvals—and creating a risk that safe and efficacious products will not be approved, or will be removed from the market after previously having been approved—these regulatory requirements have had, and likely will continue to have, a material adverse effect on our business, financial condition and results of operations.

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

        The growth of overall healthcare costs as a percentage of gross domestic product in many countries means that governments and payors are under intense pressure to control spending even more tightly. These pressures are particularly strong given the lingering effects of the recent global economic and financial crisis, including the ongoing debt crisis in certain countries in Europe. As a result, our businesses and the healthcare industry in general are operating in an ever more challenging environment with very significant pricing pressures. These ongoing pressures affect all of our businesses that rely on reimbursement—including Pharmaceuticals, Sandoz and Vaccines—and involve government-imposed industry-wide price reductions, mandatory pricing systems, reference pricing initiatives, an increase in imports of drugs from lower-cost countries to higher-cost countries, shifting of the payment burden to patients through higher co-payments, limiting physicians' ability to choose among competing medicines, mandatory substitution of generic drugs and growing pressure on physicians to reduce the prescribing of patented prescription medicines. Such initiatives include the 2010 enactment of healthcare reform in the US, and its forthcoming implementation.

        As a result of such measures, we faced downward pricing pressures on our branded and generic drugs in many countries in 2010. For example, Greece imposed temporary price cuts of from 3-27%. Germany

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increased the required rebate for certain products from 6-16%. Turkey imposed a discount on certain products of from 11-23%. And Spain imposed a discount of 7.5% on branded drugs and a discount of 25% on generic drugs.

        We expect these efforts to continue in 2011 as healthcare payors around the globe—in particular 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. For more information on price controls and on our challenging business environment see "Item 4. Information on the Company—Item 4.B Business Overview—Pharmaceuticals—Price Controls."

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

        We are obligated to comply with the laws of the approximately 140 countries in which we operate, covering an extremely wide range of activities. To that end, we have a strong global compliance with law program in place. Nonetheless, despite our efforts, any failure to comply with law could lead to substantial liabilities that may not be covered by insurance, and could affect our business and reputation.

        In particular, in recent years, there has been a trend of increasing litigation and government investigations against companies operating in the industries of which we are a part, especially in the US. A number of our subsidiaries are, and will likely continue to be, subject to various legal proceedings that arise from time to time, including proceedings regarding product liability, commercial disputes, employment and wrongful discharge, antitrust, securities, sales and marketing practices, health and safety, environmental, tax, privacy, and intellectual property matters. Such proceedings are inherently unpredictable, and large verdicts sometimes occur. As a consequence, we may in the future incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations or cash flows.

        In addition, governments and regulatory authorities have been stepping up their compliance and law enforcement activities in recent years in key areas, including corruption, marketing practices, insider trading, antitrust and trade restrictions. Responding to such investigations is costly, and a significant diversion of management's attention from our business. In addition, such investigations may affect our reputation and create a risk of potential exclusion from government reimbursement programs in the US and other countries. These factors have contributed to decisions by us and other companies in our industry to enter into settlement agreements with governmental authorities around the world. Those settlements have involved and may continue to involve large cash payments, including the potential repayment of amounts allegedly obtained improperly and penalties up to treble damages. In addition, settlements of healthcare fraud cases often require companies to enter into a corporate integrity agreement, which is intended to regulate company behavior for a period of years. Also, matters underlying governmental investigations and settlements may be the subject of separate private litigation.

        Our businesses have been subject, from time to time, to governmental investigations and information requests by regulatory authorities. For example, our US affiliate Novartis Pharmaceuticals Corporation (NPC) recently settled parallel civil and criminal investigations by the US government into allegations of potential inappropriate marketing and promotion of six Novartis drugs. As part of the settlement, NPC agreed to plead guilty to one misdemeanor, and to resolve civil charges against it, agreeing to pay a total of $422.5 million, and to enter into a five-year Corporate Integrity Agreement.

        At the same time, 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 one of our competitors for the branded product. We do this in cases where we believe that the relevant patents are invalid, unenforceable, or would not be infringed by our generic product. As a result, affiliates of our Sandoz Division frequently face patent litigation, and in certain circumstances, we may elect to market a generic product even though

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patent infringement actions are still pending. Should we elect to proceed in this manner and conduct a "launch at risk," we could face substantial damages if the final court decision is adverse to us.

        Separately, the US affiliates of our Pharmaceuticals and Sandoz Divisions are the subjects of lawsuits brought by private plaintiffs and a number of state and local governments alleging that they have fraudulently overstated the Average Wholesale Price and "best price," which are, or have been, used by the US federal and state governments in the calculation of, respectively, US Medicare reimbursements and Medicaid rebates. While a Novartis affiliate was successful on appeal in one of these actions, juries have awarded plaintiffs substantial damages in three trials against Novartis affiliates to date. More trials are expected in the future.

        In addition, the US affiliate of our Pharmaceuticals Division was sued by certain of its pharmaceutical sales representatives alleging that the affiliate violated wage and hour laws by failing to pay them overtime compensation. These lawsuits are part of a number of actions pending against pharmaceutical companies that challenge the industry's long-term practice of treating pharmaceutical sales representatives as salaried employees. In January 2009, the trial court held that the pharmaceutical sales representatives were not entitled to overtime pay under the federal Fair Labor Standards Act and corresponding state wage and hour laws. Plaintiffs appealed the judgment to the US Court of Appeals, which vacated the judgment of the trial court in July 2010, and remanded the case to the SDNY for further proceedings. We have sought the US Supreme Court's permission to appeal the Court of Appeals' reversal of the trial court's decision. Should we fail to succeed in defeating the pharmaceutical sales representatives' suit, we would be required to comply with orders which may be disruptive and costly to our business.

        Adverse judgments or settlements in any of these cases could have a material adverse effect on our business, financial condition and results of operations.

        For more detail regarding specific legal matters currently pending against us and provisions for such matters, see "Item 18. Financial Statements—note 20." See also "—Our reliance on third parties for the performance of key business functions heightens the risks faced by our businesses" below.

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

        The products we market and sell are either manufactured at our own dedicated manufacturing facilities or by third parties. In either case, we must ensure that all manufacturing processes comply with current Good Manufacturing Practices (cGMP) and other applicable regulations, as well as with our own high quality standards. The manufacture of our products is heavily regulated by governmental health authorities around the world, including the FDA, and such health authorities have recently begun to intensify their scrutiny of manufacturers' compliance with such requirements. If we or our third-party suppliers fail to comply fully with these requirements then there could be a regulatorily-required shutdown of production facilities or production lines, which in turn could lead to product shortages, or to our being entirely unable to supply product to patients for an extended duration. This, in turn, could lead to a significant loss of sales revenue. In addition, health authorities have begun to impose significant penalties for such failures to comply with cGMP. A failure to comply fully with cGMP could also lead to a delay in the approval of new products to be manufactured at the impacted site.

        Like our competitors, we have faced significant manufacturing issues, and have received Warning Letters relating to such manufacturing issues. For example, in December 2010, a CIBA Vision manufacturing facility in Cidra, Puerto Rico received a Warning Letter from the FDA, primarily as a result of questions involving the testing methods used for certain contact lenses manufactured there. As a result, CIBA Vision recalled the product. An action plan is under development and will be presented to the FDA. However, there can be no guarantee of the outcome of this matter. Nor can there be any guarantee that we will not face similar such issues in the future, or that we will successfully manage such issues when they arise.

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        In addition to regulatory requirements, many of our products involve technically complex manufacturing processes or require a supply of highly specialized raw materials. For some products and raw materials, we may also rely on a single source of supply. As a result, the inherent fragility of certain of our production processes may cause the production of one or more of our products to be disrupted from time to time.

        In particular, an increasing portion of our portfolio, including products from our Pharmaceuticals, Vaccines and Diagnostics, and Sandoz Divisions, are "biologic" products. Unlike traditional "small-molecule" drugs, biologic drugs cannot be manufactured synthetically, but typically must be produced from living plant or animal micro-organisms. As a result, the production of biologic drugs which meet all regulatory requirements is especially complex. Even slight deviations at any point in the production process may lead to batch failures or recalls. In addition, because the production process is based on living micro-organisms, the process could be affected by contaminants which could impact those micro-organisms. In such an event, production shutdowns and extensive and extended decontamination efforts may be required.

        Finally, in addition to potential liability for government penalties, because our products are intended to promote the health of patients, for some of our products, any supply disruption, or other charges regarding production issues, could subject us to lawsuits or to allegations that the public health, or the health of individuals, has been endangered.

        In sum, a disruption in the supply of certain key products—whether as a result of a failure to comply with applicable regulations, the fragility of the production process, or our failure to accurately predict demand—could have a material adverse effect on our business, financial condition or results of operations.

The after-effects of the recent global economic and financial crisis may have a material adverse effect on our results.

        Many of the world's largest economies and financial institutions continue to be impacted by the recent global economic and financial crisis, with some continuing to face financial difficulty, a decline in asset prices, liquidity problems and limited availability of credit. It is uncertain how long these effects will last, or whether economic and financial trends will worsen or improve. Such uncertain economic times may have a material adverse effect on our revenues, results of operations, financial condition and ability to raise capital. For example, the ongoing debt crisis in certain countries in Europe have increased pressures on those countries, and on payors in those countries to force healthcare companies to decrease the prices at which we may sell them our products. The debt crisis has also given rise to concerns that some countries may not be able to pay us for our products at all.

        In addition, the varying impact of difficult economic times on the economies of different countries has impacted, and may continue to unpredictably impact, the translation of our operating results into US dollars, our reporting currency. This is particularly so given recent financial troubles in many European economies, and the resultant investor concerns about the future of the Euro. The financial and debt crises may also cause the value of our investments in our pension plans to decrease, requiring us to increase our funding of those pension plans. In addition, the financial crisis may also result in a lower return on our financial investments, and a lower value on some of our assets. Alternately, the financial crisis may result in a return to inflation, which could lead to higher interest rates, which would increase our costs of raising capital. See also "—If any of numerous key assumptions and estimates in calculating our pension plan obligations turn out to be different from our actual experience, we may be required to increase substantially our contributions to pension plans as well as our pension-related costs in the future" below, and "—Foreign exchange fluctuations may adversely affect our earnings and the value of some of our assets" below.

        To the extent that the economic and financial crisis is directly affecting consumers, some of our businesses, including the business units of our Consumer Health Division, may be particularly sensitive to

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declines in consumer spending. In addition, our Pharmaceuticals, Vaccines and Diagnostics, and Sandoz Divisions may not be immune to consumer cutbacks, particularly given the increasing requirements in certain countries that patients pay a larger contribution toward their own healthcare costs. As a result, there is a risk that consumers may cut back on prescription drugs and vaccines, as well as consumer health products, to help cope with rising costs and difficult economic times.

        To the extent that the economic and financial crisis is directly affecting businesses, it may also lead to a disruption or delay in the performance of third parties on which we rely for parts of our business, including licensees and collaboration partners, distributors, clinical trial providers and suppliers of products, intermediates and other goods or services. Such disruptions or delays could have an adverse effect on our business and results of operations. See also "—Our reliance on third parties for the performance of key business functions heightens the risks faced by our businesses" below.

        At the same time, significant changes and volatility in the equity, credit and foreign exchange markets, in the consumer and business environment, and in the competitive landscape make it increasingly difficult for us to predict our revenues and earnings into the future. As a result, any revenue or earnings guidance or outlook which we have given or might give may be overtaken by events, or may otherwise turn out to be inaccurate. Though we endeavor to give reasonable estimates of future revenues and earnings at the time we give such guidance, under current market conditions there is a significant risk that such guidance or outlook will turn out to be, or to have been, incorrect.

Risks related to our acquisition of a majority interest in Alcon, Inc. and our proposed merger with Alcon.

        On August 25, 2010, we completed our acquisition of Nestlé's remaining 52% majority stake in Alcon. This acquisition, on top of the 25% stake in Alcon which we had previously purchased from Nestlé, resulted in our becoming the 77% majority shareholder of Alcon. Afterwards, on December 15, 2010, we announced that we had entered into a definitive agreement with Alcon to merge Alcon into Novartis, subject to certain approvals and conditions, which when completed would cause Alcon to be 100% owned by Novartis and enable Alcon to become a new division of Novartis.

        The merger is currently expected to be completed during the first half of 2011 and is conditional on clearance of a registration statement by the US Securities and Exchange Commission, two-thirds approval by the shareholders of each of Novartis and Alcon voting at their respective meetings and other customary closing conditions. If the merger is delayed, the timing and/or realization of the anticipated benefits and cost savings from fully integrating the businesses of Novartis and Alcon will be adversely affected, with the delay making it more difficult to maintain business and operational relationships, and relationships with key employees. Once the merger with Alcon is approved and completed, its success will depend, in part, on the combined company's ability to realize the expected benefits and cost savings and to retain and motivate its executives and key employees. See also "Item 18. Financial Statements—note 20" for information regarding pending litigation between Alcon's shareholders and Novartis.

An increasing amount of intangible assets and goodwill on our books may lead to significant impairment charges in the future.

        The amount of goodwill and other intangible assets on our consolidated balance sheet has increased significantly in recent years, primarily due to acquisitions. Although no significant additional impairments are currently anticipated, impairment testing could lead to material impairment charges in the future.

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

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operations. In 2010, for example, we recorded an intangible asset impairment charge of $704 million after we decided not to pursue further development of Pharmaceuticals Division pipeline products albinterferon alfa-2b, Mycograb and ASA404. For a detailed discussion of how we determine whether an impairment has occurred, what factors could result in an impairment and the increasing 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 Long-Lived Intangible and Tangible Assets" and "Item 18. Financial Statements—note 11."

Our indebtedness could adversely affect our operations.

        As of December 31, 2010 we had $14.4 billion of non-current financial debt and $8.6 billion of current financial debt. Our current and future debt requires us to dedicate a portion of our cash flow to service interest and principal payments and may limit our ability to engage in other transactions and otherwise places us at a competitive disadvantage to our competitors that have less debt. We may have difficulty refinancing our existing debt or incurring new debt on terms that we would consider to be commercially reasonable, if at all.

Our reliance on third parties for the performance of key business functions heightens the risks faced by our businesses.

        We invest a significant amount of effort and financial resources into outsourcing and offshoring certain key business functions with third parties, including research and development collaborations, manufacturing operations, warehousing, distribution activities, certain finance functions, marketing activities, data management and others. We do not control the third parties to whom we outsource these functions, but we depend on them to achieve results which may be significant to us. If these third parties fail to meet our expectations, we may lose our investment in the collaborations and fail to receive the expected benefits. In addition, should any of these third parties fail to comply with the law in the course of their performance of services for us, there is a risk that we could be held responsible for such violations of law, as well. Any such failures by third parties could have a material adverse effect on our business, financial condition or results of operations.

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

We may not be able to realize the expected benefits of our significant investments in emerging growth markets.

        At a time of slowing growth in sales of pharmaceuticals in industrialized countries, many emerging markets have experienced comparatively strong economies, leading to proportionally higher growth and an increasing contribution to the industry's global performance. In 2010, we generated $4.6 billion, or approximately 10% (2009: 9%) of net sales (excluding Alcon) from our six priority emerging markets—Brazil, China, India, Russia, South Korea and Turkey—as compared with $30.8 billion, or approximately 64% (2009: 65%) of our net sales, in the world's seven largest developed markets. However, combined net sales in the six priority emerging markets grew 12% in constant currency in 2010, compared to 8% sales growth in constant currency in the seven largest developed markets during the same period. As a result of this trend, we have been taking steps to increase our presence in these priority emerging markets and in other emerging markets. For example, we continue to expand a cross-divisional operating structure to accelerate growth in smaller emerging markets and better position the comprehensive presence of all

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Novartis products in these markets. These types of markets include Northern and Sub-Saharan Africa, Central Asia and some countries in Southeast Asia.

        There is no guarantee that our efforts to expand our sales in these countries will succeed, or that these countries will continue to experience growth rates in excess of the world's largest markets. Some emerging countries may be especially vulnerable to the after-effects of the recent global financial crisis, or may have very limited resources to spend on healthcare. See "—The after-effects of the recent economic and financial crisis may have a material adverse effect on our results" below. Many of these countries have a relatively limited number of persons with the skills and training suitable for employment at an enterprise such as ours. See also "—An inability to attract and retain qualified personnel could adversely affect our business" below. In other emerging countries, we may be required to rely on third-party agents, which may put us at risk of liability. See also "—Legal proceedings may have a significant negative effect on our results of operations" above. In addition, many of these countries have currencies that fluctuate substantially. If currencies devalue and we cannot offset the devaluations with price increases, our products may become less profitable.

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

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

        Our Sandoz Division achieves significant revenue opportunities when it secures and maintains exclusivity periods granted for generic products in certain markets—particularly the 180-day exclusivity period granted in the US by the Hatch-Waxman Act—and when it is able to develop differentiated products with few, if any, generic competitors. Failure to obtain and maintain these market opportunities could have an adverse effect on the success of Sandoz. In addition, the division faces intense competition from branded pharmaceuticals companies, which commonly take aggressive steps to limit the availability of exclusivity periods or to reduce their value. These activities may increase the costs and risks associated with our efforts to introduce generic products and may delay or entirely prevent their introduction.

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

        We sponsor pension and other post-employment benefit plans in various forms. These plans cover a significant portion of our current and former associates. We are required to make significant assumptions and estimates about future events in calculating the present value of expected future expense and liability related to these plans. These include assumptions about discount rates we apply to estimated future liabilities, expected returns on plan assets and rates of future compensation increases. In addition, our actuarial consultants provide our management with historical statistical information such as withdrawal and mortality rates in connection with these estimates. Assumptions and estimates used by Novartis may differ materially from the actual results we experience due to changing market and economic conditions (including the effects of the recent global economic and debt crisis, which, to date, have resulted in extremely low interest rates), higher or lower withdrawal rates, or longer or shorter life spans of participants, among other variables. For example, a decrease in the discount rate we apply in determining the present value of expected future obligations of one-half of one percent would have increased our year-end defined benefit obligation by $1.1 billion. Any differences between our assumptions and estimates and our actual experience could have a material effect on our results of operations and financial condition. 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—

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Item 5.A Operating Results—Critical Accounting Policies and Estimates—Retirement and other post-employment plans" and "Item 18. Financial Statements—note 25". See also "—The after-effects of the recent economic and financial crisis may have a material adverse effect on our results" above.

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

        The integrated nature of our worldwide operations enables us to reduce the effective tax rate on our earnings because a portion of our earnings are taxed at more favorable rates in some jurisdictions. Changes in tax laws or their application with respect to matters such as transfer pricing, intercompany dividends, controlled corporations, and limitations on tax relief allowed on the interest on intercompany debt, could increase our effective tax rate and adversely affect our financial results.

Our OTC Business Unit faces adverse impacts from increased competition, as well as potential questions of safety and efficacy.

        The OTC Business Unit of our Consumer Health Division sells over-the-counter medicines, many of which contain ingredients also sold by competitors in the OTC industry. Particularly in the US, our branded OTC products compete against "store brand" products that are made with the same active ingredients as ours. These products do not carry our trusted brand names, but they also do not carry the burden of the expensive advertising and marketing that helped to establish demand for the product. As a result, the store brand products may be sold at lower prices. In recent years, consumers have increasingly begun to purchase store brand OTC products instead of branded products. In addition, in recent years, significant questions have arisen regarding the safety, efficacy and potential for misuse of certain products sold by our OTC Business Unit and its competitors. As a result, health authorities around the world have begun to re-evaluate some important over-the-counter products, leading to restrictions on the sale of some of them and even the banning of certain products. For example, in 2010, the FDA undertook a review of one cough medicine ingredient to consider whether over-the-counter sales of the ingredient remained appropriate. While FDA has not, to date, changed the ingredient's status, further regulatory or legislative action may follow, and litigation has often followed actions such as these, particularly in the US. Additional actions and litigation regarding OTC products are possible in the future. These trends have had, and may continue to have, a significant adverse effect on the success of our OTC Business Unit. See also "—The after-effects of the recent economic and financial crisis may have a material adverse effect on our results" above.

Ongoing consolidation among our distributors may increase both the purchasing leverage of key customers and the concentration of credit risk.

        Increasingly, a significant portion of our global sales are made to a relatively small number of US 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 8%, 8% and 7%, respectively, of Group net sales in 2010. The largest trade receivables outstanding were for these three customers, amounting to 9%, 5% and 6%, respectively, of the Group's trade receivables at December 31, 2010. The trend has been toward further consolidation among our distributors, especially in the US. As a result, our distributors are gaining additional purchasing leverage, which increases the pricing pressures facing our businesses. Moreover, we are exposed to a concentration of credit risk as a result of this concentration among our customers. If one or more of our major customers experienced financial difficulties, the effect on us would be substantially greater than in the past. This could have a material adverse effect on our business, financial condition and 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 and training qualified individuals. The loss of the service of key members of our organization—

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particularly senior members of our scientific and management teams—could delay or prevent the achievement of major business objectives. In addition, the success of our research and development activities is particularly dependent on our ability to attract and retain sufficient numbers of high-quality researchers and development specialists.

        Future economic growth will demand more talented associates and leaders, yet the market for talent will become increasingly competitive. Shifting demographic trends will result in fewer students, fewer graduates and fewer people entering the workforce in the Western world in the next 10 years. The supply of talent for key functional and leadership positions is decreasing, and a talent gap is clearly visible for some professions and geographies—engineers in Germany, for example. Recruitment is increasingly regional or global in specialized fields such as clinical development, biosciences, chemistry and information technology.

        Emerging markets are expected to be a driving force in global growth, but in countries like Russia and China there is a limited pool of executives with the training and international experience needed to work successfully in a global organization like Novartis. Moreover, younger generations around the world have changing expectations toward careers, engagement and the integration of work in their overall lifestyles. Geographic mobility is expected to decrease, and talent in emerging countries anticipate ample career opportunities closer to home than in the past.

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

Environmental liabilities may adversely impact our results of operations.

        The environmental laws of various jurisdictions impose actual and potential obligations on us to remediate contaminated sites. 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 we are required to further increase our provisions for environmental liabilities in the future, or if we fail to properly manage environmental risks, this could have a material adverse effect on our business, financial condition and results of operations. For more detail regarding environmental matters, see "Item 4.D Property, Plants and Equipment—Environmental Matters" and "Item 18. Financial Statements—note 20."

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

        In the past year, the US dollar, our reporting currency, has suffered significant decreases in value against other world currencies. Because a significant portion of our earnings and expenditures are in currencies other than the US dollar, these decreases have had a significant impact on our reported net sales and earnings. In 2010, 36% of our net sales were made in US dollars, 29% in euros, 8% in Japanese yen, 2% in Swiss francs and 25% in other currencies. During the same period, 34% of our expenses arose in US dollars, 27% in euros, 13% in Swiss francs, 4% in Japanese yen and 22% in other currencies. As has happened in the recent past, changes in exchange rates between the US dollar and other currencies can result in increases or decreases in our sales, costs and earnings. Fluctuations in exchange rates between the US dollar and other currencies may also affect the reported value of our assets measured in US dollars and the components of shareholders' equity. For more information on the effects of currency fluctuations on our consolidated financial statements and on how we manage currency risk, see "Item 5.A Operating Results—Effects of Currency Fluctuations" and "Item 11. Quantitative and Qualitative Disclosures about Non-Product-Related Market Risk." See also "—The after-effects of the recent economic and financial crisis may have a material adverse effect on our results" above.

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Significant disruptions of information technology systems or breaches of data security could adversely affect our business.

        Our business is increasingly dependent on critical, complex and interdependent information technology systems, including Internet-based systems, to support business processes as well as internal and external communications. The size and complexity of our computer systems make them potentially vulnerable to breakdown, malicious intrusion and computer viruses which may result in the impairment of production and key business processes.

        In addition, our systems are potentially vulnerable to data security breaches—whether by employees or others—which may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information (including sensitive personal information) of our employees, clinical trial patients, customers and others.

        Such disruptions and breaches of security could have a material adverse effect on our business, financial condition and results of operations.

Increasing use of social media could give rise to liability or breaches of data security.

        Novartis and our associates are increasingly relying on social media tools as a means of communications. To the extent that we seek as a company to use these tools as a means to communicate about our products or about the diseases our products are intended to treat, there are significant uncertainties as to either the rules that apply to such communications, or as to the interpretations that health authorities will apply to the rules that exist. As a result, despite our efforts to comply with applicable rules, there is a significant risk that our use of social media for such purposes may cause us to nonetheless be found in violation of them. In addition, because of the universal availability of social media tools, our associates may make use of them in ways that may not be sanctioned by the company, and which may give rise to liability, or which could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information (including sensitive personal information) of our employees, clinical trial patients, customers and others. In either case, such uses of social media could have a material adverse effect on our business, financial condition and results of operations.

Earthquakes could adversely affect our business.

        Our corporate headquarters, the headquarters of our Pharmaceuticals and Consumer Health Divisions, and certain of our major Pharmaceuticals Division production facilities are located near earthquake fault lines in Basel, Switzerland. In addition, other major facilities of our Pharmaceuticals, Vaccines and Diagnostics, Sandoz and Consumer Health Divisions are located near major earthquake fault lines in various locations around the world. In the event of a major earthquake, we could experience business interruptions, destruction of facilities and loss of life, all of which could have a material adverse effect on our business, financial condition and results of operations.

Risks Related To Our ADSs

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

        Our American Depositary Shares (ADSs) trade on the New York Stock Exchange (NYSE) in US dollars. Since the shares underlying the ADSs are listed in Switzerland on the SIX Swiss Exchange (SIX) and trade in Swiss francs, the value of the ADSs may be affected by fluctuations in the US dollar/Swiss franc exchange rate. In addition, since any dividends that we may declare will be denominated in Swiss francs, exchange rate fluctuations will affect the US dollar equivalent of dividends received by holders of ADSs. If the value of the Swiss franc decreases against the US dollar, the price at

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which our ADSs trade may—and the value of the US dollar equivalent of any dividend will—decrease accordingly.

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

        Under Swiss law, shareholders have preemptive rights to subscribe for cash for issuances of new shares on a pro rata basis. Shareholders may waive their preemptive rights in respect of any offering at a general meeting of shareholders. Preemptive rights, if not previously waived, are transferable during the subscription period relating to a particular offering of shares and may be quoted on the SIX. US holders of ADSs may not be able to exercise the preemptive rights attached to the shares underlying their ADSs 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 ADS holders of the preemptive rights associated with the shares underlying their ADSs. We cannot guarantee that a registration statement would be filed, or, if filed, that it would be declared effective. If preemptive rights could not be exercised by an ADS holder, JPMorgan Chase Bank, N.A., as depositary, would, if possible, sell the holder's preemptive rights and distribute the net proceeds of the sale to the holder. If the depositary determines, in its discretion, that the rights could not be sold, the depositary might allow such rights to lapse. In either case, the interest of ADS holders in Novartis would be diluted and, if the depositary allowed rights to lapse, holders of ADSs would not realize any value from the granting of preemptive rights.

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Item 4.    Information on the Company

4.A History and Development of Novartis

Novartis AG

        Novartis AG was incorporated on February 29, 1996 under the laws of Switzerland as a stock corporation (Aktiengesellschaft) with an indefinite duration. On December 20, 1996, our predecessor companies, Ciba-Geigy and Sandoz, merged into this new entity, creating Novartis. We are domiciled in and governed by the laws of Switzerland. Our registered office is located at the following address:

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

        The Novartis Group is a multinational group of companies specializing in the research, development, manufacturing and marketing of a broad range of healthcare products led by innovative pharmaceuticals. Novartis AG, our Swiss holding company, owns, directly or indirectly, 100% of most significant operating companies, with the particular exception of Alcon, Inc. and its subsidiaries, which are currently majority owned. For a list of our significant operating subsidiaries, see "Item 18. Financial Statements—note 31."

Important Corporate Developments 2008-January 2011

        The following is an overview of certain important developments between 2008 and January 2011:

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        For information on our principal expenditures on property, plants and equipment, see "Item 4. Information on the Company—4.D Property, Plants & Equipment." For information on our significant investments in research and development, see the sections headed "Research and Development" included in the descriptions of our four operating divisions under "Item 4. Information on the Company—4.B Business Overview."

4.B Business Overview

OVERVIEW

        Novartis provides healthcare solutions that address the evolving needs of patients and societies worldwide. Our broad portfolio includes innovative medicines, preventive vaccines and diagnostic tools, generic pharmaceuticals and consumer health products. Novartis is the only company to have leadership positions in each of these areas.

        The Group's wholly-owned businesses are organized in four global operating divisions:

•

Pharmaceuticals: Innovative patent-protected prescription medicines



•

Vaccines and Diagnostics: Human vaccines and blood-testing diagnostics



•

Sandoz: Generic pharmaceuticals



•

Consumer Health: OTC (over-the-counter medicines), Animal Health and CIBA Vision (contact lenses and lens-care products)

        In addition, the Group's healthcare portfolio is complemented by 77% ownership of Alcon, Inc, which discovers and develops innovative eye care products to improve the quality of life by helping people see better.

        Our strategy is to strengthen our healthcare portfolio through sustained investments in innovation, as well as through targeted acquisitions. In April 2008, we announced a significant agreement with Nestlé S.A. providing the right to acquire 77% majority ownership of Alcon in two steps and add this world leader in eye care to our portfolio. In July 2008, the first step was completed when Novartis acquired a 25% stake in Alcon for $10.4 billion in cash. The second step was subsequently completed on August 25, 2010 when we acquired Nestle's 52% majority stake for $28.3 billion in cash. Afterwards, on December 15, 2010, we announced that we had entered into a definitive agreement with Alcon to merge Alcon into Novartis, subject to certain approvals and conditions, which when completed would cause Alcon to be 100% owned by Novartis and enable Alcon to become a new division of Novartis focused on eye care. Under the terms of the agreement, the merger consideration will include up to 2.8 Novartis shares and a Contingent Value Amount (CVA) to be settled in cash that will in aggregate equal $168 per share. If the value of 2.8 Novartis shares is more than $168 the number of Novartis shares will be reduced accordingly. The total merger consideration for the non-controlling interest will be $12.9 billion, comprising of up to 215 million Novartis shares and a potential CVA to be settled in cash.

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        The merger is currently expected to be completed during the first half of 2011 and is conditional on clearance of a registration statement by the US Securities and Exchange Commission, two-thirds approval by the shareholders of each of Novartis and Alcon voting at their respective meetings and other customary closing conditions. Following the expected successful completion of the merger, Alcon is planned to be established as a new Novartis division that will include CIBA Vision and selected ophthalmic medicines.

        Novartis achieved net sales of $50.6 billion in 2010, while net income amounted to $10.0 billion. We invested $9.1 billion ($8.1 billion excluding impairment and amortization charges) in Research & Development in 2010.

        Headquartered in Basel, Switzerland, we employed 119,418 full-time equivalent associates, including 16,700 Alcon associates, as of December 31, 2010, and have operations in approximately 140 countries around the world.

Pharmaceuticals Division

        Our Pharmaceuticals Division researches, develops, manufactures, distributes and sells branded prescription medicines in the following therapeutic areas: Cardiovascular and Metabolism; Oncology; Neuroscience and Ophthalmics; Respiratory; Integrated Hospital Care; and Other additional products. The Pharmaceuticals Division is organized into global business franchises responsible for the development and marketing of various products, as well as a business unit called Novartis Oncology, responsible for the global development and marketing of oncology products. In 2010, the Pharmaceuticals Division accounted for $30.6 billion, or 60%, of Group net sales, and for $8.8 billion, or 72%, of Group operating income (excluding Corporate income and expense, net).

Vaccines and Diagnostics Division

        Our Vaccines and Diagnostics Division researches, develops, manufactures, distributes and sells preventive vaccines and diagnostic tools. Novartis Vaccines is a leading global developer and manufacturer of human vaccines. Key products include influenza, meningococcal, pediatric and travel vaccines. Novartis Diagnostics is a blood testing and molecular diagnostics business dedicated to preventing the spread of infectious diseases through novel blood-screening tools that protect the world's blood supply. In 2010, the Vaccines and Diagnostics Division accounted for $2.9 billion, or 6%, of Group net sales, and provided $612 million, or 5%, of the Group's operating income (excluding Corporate income and expense, net).

Sandoz Division

        Our Sandoz Division is a leading global generic pharmaceuticals company that develops, manufactures, distributes and sells prescription medicines, as well as pharmaceutical and biotechnological active substances, which are not protected by valid and enforceable third-party patents. The Sandoz Division has activities in Retail Generics, Anti-Infectives, Biopharmaceuticals and Oncology Injectables. In Retail Generics, Sandoz develops, manufactures, distributes and sells active ingredients and finished dosage forms of medicines, as well as supplying active ingredients to third parties. In Anti-Infectives, Sandoz develops, manufactures, distributes and sells 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, distributes and sells protein- or biotechnology-based products (known as "biosimilars" or follow-on biologics) and sells biotech manufacturing services to other companies. In Oncology Injectables, Sandoz develops, manufactures, distributes and sells cytotoxic products for the hospital market. Sandoz offers approximately 1,000 compounds in more than 130 countries. In 2010, Sandoz accounted for $8.5 billion, or 17%, of Group net sales, and for $1.3 billion, or 10%, of Group operating income (excluding Corporate income and expense, net).

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Consumer Health Division

        Our Consumer Health Division consists of three business units: OTC (over-the-counter medicines), Animal Health and CIBA Vision. Each has its own research, development, manufacturing, distribution and selling capabilities. However, none are material enough to the Group to be separately disclosed as a segment. OTC offers readily available consumer medicine. Animal Health provides veterinary products for farm and companion animals. CIBA Vision markets contact lenses and lens care products. In 2010, the Consumer Health Division accounted for $6.2 billion, or 12%, of Group net sales, and for $1.2 billion, or 10%, of Group operating income (excluding Corporate income and expense, net).

Alcon, Inc

        Alcon, Inc. is an independent corporation listed on the New York Stock Exchange (NYSE: ACL), which discovers and develops innovative eye care products to improve the quality of life by helping people see better. Since our acquisition of Nestlé's remaining 52% share in Alcon on August 25, 2010, Novartis has been the 77% majority owner of Alcon. With the achievement of the 77% majority ownership, Novartis and Alcon have sought to create greater value together for all stakeholders through collaborations that would benefit both companies. On December 15, 2010, Novartis announced that it had entered into a definitive agreement with Alcon to merge Alcon into Novartis, subject to clearance of a registration statement by the US Securities and Exchange Commission, two-thirds approval by the shareholders of each of Novartis and Alcon voting at their respective meetings, and other customary closing conditions. Since the achievement of the 77% majority ownership, and until a 100% merger is completed, all collaborations between the companies are within the framework of arm's length transactions. In 2010, Alcon (consolidated since August 25, 2010) accounted for $2.4 billion, or 5%, of Group net sales, and for $323 million, or 3%, of Group operating income (excluding Corporate income and expense, net). For more information about Alcon see Alcon's 20-F at Item 4.B.

PHARMACEUTICALS

Overview

        Our Pharmaceuticals Division is a world leader in offering innovation-driven, patent-protected medicines to patients and physicians.

        The Pharmaceuticals Division researches, develops, manufactures, distributes and sells branded pharmaceuticals in the following therapeutic areas:

•

Cardiovascular and Metabolism



•

Oncology (including Hematology)



•

Molecular Diagnostics



•

Neuroscience and Ophthalmics



•

Respiratory



•

Integrated Hospital Care



•

Other additional products

        The Pharmaceuticals Division is organized into global business franchises responsible for the marketing of various products as well as a business unit called Novartis Oncology responsible for the global development and marketing of oncology products. The Pharmaceuticals Division is the largest contributor among the four divisions of Novartis and reported consolidated net sales of $30.6 billion in 2010, which represented 60% of the Group's net sales.

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        The division is made up of approximately 80 affiliated companies which together employed 58,424 full-time equivalent associates as of December 31, 2010, and sell products in approximately 140 countries. The product portfolio of the Pharmaceuticals Division includes more than 60 key marketed products, many of which are leaders in their respective therapeutic areas. In addition, the division's portfolio of development projects includes 147 potential new products, and new indications or new formulations for existing products in various stages of clinical development.

Pharmaceuticals Division Products

        The following table and summaries describe certain key marketed products and recently launched products in our Pharmaceuticals Division. While we intend to sell all of our marketed products throughout the world, not all products and indications are currently available in every country. Compounds and new indications in development are subject to required regulatory approvals and, in certain instances, contractual limitations. These compounds and indications are in various stages of development throughout the world. For some compounds, the development process is ahead in the US; for others, development in one or more other countries or regions is ahead of that in the US. 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 every country, or at all. In addition, for some of our products, we are required to conduct post-approval studies (Phase IV) to evaluate long-term effects or to gather information on the use of the products under special conditions. See "—Regulation" for further information on the approval process. Certain of the products listed below have lost patent protection or are otherwise subject to generic competition. Others are subject to patent challenges by potential generic competitors. See below and "—Intellectual Property" for further information on the patent status of our Pharmaceuticals Division's products.

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Key Marketed Products

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Selected Leading Products

Cardiovascular and Metabolism

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Diovan (valsartan), together with Diovan HCT/Co-Diovan (valsartan and hydrochlorothiazide), is the world's number one selling branded high blood pressure medication (IMS October 2010). Diovan is the only agent in its class approved to treat all of the following: high blood pressure (including children 6 to 16 years), high-risk heart attack survivors and patients with heart failure. First launched in 1996, Diovan is available in more than 120 countries for treating high blood pressure, in more than 90 countries for heart failure, and in more than 70 countries for heart attack survivors. First launched in 1997, Diovan HCT/Co-Diovan is approved in over 100 countries worldwide. In July 2008, the FDA approved Diovan HCT for the first-line treatment of hypertension in patients unlikely to achieve blood pressure control on a single agent. In 2009, Co-Diovan was approved for treatment of high blood pressure in Japan. In September 2010, all 27 European Union (EU) member states locally approved Diovan for use in children aged 6 to 18 years. We expect that Diovan will face generic challenges in 2011 when the patent on its active ingredient, valsartan, expires in the major countries of the EU, with patent expirations in the US and Japan to follow in 2012 and 2013 respectively. See "—Intellectual Property" below for further information on the patent status of Diovan.



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Exforge (valsartan and amlodipine besylate) is a single-pill combination of the angiotensin receptor blocker Diovan and the calcium channel blocker amlodipine besylate. First approved for the treatment of high blood pressure in Switzerland in 2006, and in the US and EU in 2007, it is now available in more than 80 countries. In 2008, the FDA approved Exforge for the first-line treatment of hypertension in patients likely to need multiple drugs to achieve their blood pressure goals. In January 2010, Exforge was approved in Japan and also launched in China. Exforge HCT (valsartan, amlodipine besylate and hydrochlorothiazide) is a single pill combining three widely prescribed high blood pressure treatments: ARB (valsartan), CCB (amlodipine) and HCT (hydrochlorothiazide). Exforge HCT was approved in the EU and the US in 2009, and is now available in more than 20 countries.



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Tekturna/Rasilez (aliskiren) is a treatment for high blood pressure, and the first and only approved direct renin inhibitor. Tekturna/Rasilez was approved in the US and EU in 2007, and is now available in more than 80 countries. The product is known as Tekturna in the US and Rasilez in the rest of the world. There are various Tekturna/Rasilez single-pill combination products. The first single-pill combination product, Tekturna/Rasilez with hydrochlorothiazide—called Tekturna HCT—

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was approved by the US in 2008 and in the EU in 2009, where it is known as Rasilez HCT. Another single-pill combination product, Tekturna/Rasilez with valsartan—called Valturna in the US (and to be called Rasival outside of the US)—has been approved by the FDA and was launched in the US in 2009. In September 2010, we withdrew our application for EU Marketing Authorization for Rasival. The application was withdrawn following a CHMP request to provide additional data satisfying the relevant EU guidelines. We were unable to provide the requested data within the timeframe of the review process. The single-pill combination of Tekturna/Rasilez with the calcium channel blocker amlodipine besylate, known as Tekamlo in the US (and to be called Rasilamlo in the EU) was approved by the FDA in August 2010 and was filed with the European Medicines Agency (EMA) in December 2009. The single-pill triple combination of Tekturna/Rasilez with amlodipine besylate and hydrochlorothiazide was approved in December 2010 in the US under the product name Amturnide. It was filed with the EMA in May 2010.

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Galvus (vildagliptin), an oral treatment for type 2 diabetes, and Eucreas, a single-pill combination of vildagliptin and metformin, have shown promising results during the rollout in Europe following approvals in 2007. Galvus is currently approved in 75 countries and launched in 43 countries. The product was approved in Japan in January 2010 under the trade name Equa. Eucreas was the first single-pill combining a DPP-4 inhibitor and another medication to be launched in Europe. Eucreas is currently approved in 57 countries and launched in 32 countries, including the countries of the EU, as well as countries in Latin America and Asia.

Oncology

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Gleevec/Glivec (imatinib mesylate tablets/imatinib) is a signal transduction inhibitor approved to treat patients with certain forms of chronic myeloid leukemia (CML) and gastrointestinal stromal tumors (GIST). First launched in 2001, Gleevec/Glivec is available in more than 110 countries. Gleevec/Glivec is indicated for the treatment of newly diagnosed adult and pediatric patients with a form of CML. Gleevec/Glivec is also approved in the US, EU and Japan to treat Philadelphia chromosome positive (Ph+) acute lymphoblastic leukemia (ALL), a rapidly progressive form of leukemia; dermatofibrosarcoma protuberans, a rare solid tumor; hypereosinophilic syndrome and myelodysplastic/myeloproliferative diseases; and other rare blood disorders. In the US, Gleevec/Glivec is also approved for aggressive systemic mastocytosis. Gleevec/Glivec has received approvals as a post-surgery (adjuvant setting) therapy for GIST in more than 57 countries, including the US and EU.



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Tasigna (nilotinib) is a signal transduction inhibitor of the tyrosine kinase activity of Bcr-Abl, Kit and the PDGF-receptor. Since 2007, Tasigna has gained regulatory approval in more than 85 countries including the US, the EU, Switzerland and Japan, to treat patients with a form of chronic myeloid leukemia (CML) in chronic and/or accelerated phase patients resistant or intolerant to existing treatment including Gleevec/Glivec. Results from the global, randomized Phase III trial called ENESTnd (Evaluating Nilotinib Efficacy and Safety in Clinical Trials of Newly Diagnosed Ph+ CML Patients), a head-to-head comparison against Glivec, show that Tasigna produced faster and deeper responses than Glivec in adult patients with newly-diagnosed Ph+ CML. The ENESTnd 24-month follow-up presented at the American Society of Hematology (ASH) confirmed that Tasigna continued to surpass Glivec in inducing deeper and more durable cytogenetic and molecular response and showed a lower incidence in transformation to accelerated phase and blast crisis. Based on the 12-month ENESTnd data, applications were submitted to health authorities worldwide for first-line CML. Tasigna is now approved in the US, EU, Japan, Switzerland and other countries for the treatment of adult patients with a form of newly diagnosed CML. Trials are also underway examining the use of Tasigna in patients with metastatic GIST and with c-Kit mutated, advanced melanoma.

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Zometa (zoledronic acid for injection/zoledronic acid 4 mg) is a leading treatment to reduce or delay skeletal-related events (SREs), including pathologic fracture, spinal cord compression, and/or requirement of radiation therapy or surgery to bone in patients with bone metastases (cancer that has spread to the bones) from solid tumors and multiple myeloma. First approved in the US in 2001 for the treatment of hypercalcemia of malignancy (tumor-induced excessive levels of calcium), Zometa is approved in more than 100 countries for this indication as well as for the treatment of patients with multiple myeloma and patients with bone metastasis from solid malignancies, including prostate, breast and lung cancer. Zoledronic acid, the active ingredient in Zometa, is also available under the trade names Reclast/Aclasta for use in non-oncology indications. Zometa and Reclast/Aclasta may face significant competition from denosumab, a new Amgen product recently approved for the treatment of postmenopausal osteoporosis, and in the US oncology setting for SRE reduction or delay in patients with advanced malignancy involving bone. Denosumab is not approved in the multiple myeloma setting.



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Femara (letrozole) is a once-daily oral aromatase inhibitor for the treatment of early stage or advanced breast cancer in postmenopausal women. Femara was first launched in 1996 and is currently available in more than 90 countries. Femara is approved in the US, EU and other countries in the adjuvant, extended adjuvant and neoadjuvant settings for early stage breast cancer. Femara is also approved in the US and other countries as adjuvant therapy for locally advanced breast cancer and for advanced breast cancer following antigen estrogen therapy. Femara is approved as neo-adjuvant (pre-operative) therapy for early stage breast cancer in a limited number of countries. In Japan, Femara is approved for the treatment of all hormone receptor-positive breast cancer in postmenopausal women. In 2010, the US and EU prescribing information for Femara was updated to reflect the results of the BIG 1-98 clinical trial. We expect that Femara will face generic challenges in 2011 when the patent on its active ingredient, letrozole, expires in the US and major countries in Europe. See "—Intellectual Property" below for further information on the patent status of Femara.



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Sandostatin SC/Sandostatin LAR (octreotide acetate/octreotide acetate for injectable suspension) is indicated for the treatment of patients with acromegaly, a chronic disease caused by over-secretion of pituitary growth hormone in adults. Sandostatin is also indicated for the treatment of patients with certain symptoms associated with carcinoid tumors and other types of gastrointestinal and neuroendocrine pancreatic tumors. Sandostatin was first launched in 1988 and is approved in more than 85 countries. Sandostatin SC faces worldwide generic competition. Formulation patents covering Sandostatin LAR expired in July 2010 in all countries except the US, where the expiration of formulation patents begins from the end of 2014. The expiration of the last formulation patent in the US will be in January 2017. There are currently no generic versions of Sandostatin LAR approved in major markets.



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Exjade (deferasirox) is an oral iron chelator approved for the treatment of chronic iron overload due to blood transfusions in patients over two years of age who have a wide range of underlying anemias. Patients with congenital and acquired chronic anemia, such as thalassemia, sickle cell disease and myelodysplastic syndromes require transfusions, which puts them at risk of iron overload. Exjade was first approved in 2005 and is now approved in more than 100 countries including the US, EU and Japan. In June 2010, Exjade received regulatory approval in China.



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Afinitor (everolimus) is an oral inhibitor of the mTOR pathway. It was launched in the US and the EU in 2009 following regulatory approval as the first therapy for patients with advanced renal cell carcinoma (advanced kidney cancer) after failure of treatment with sunitinib or sorafenib (in the US) or after failure of treatment with VEGF-targeted therapy (in the EU). Japanese approval was received in 2010. In October 2010, Afinitor received accelerated approval in the US for patients with subependymal giant cell astrocytomas (SEGA) associated with tuberous sclerosis (TS) who require therapeutic intervention, but are not candidates for curative surgical reaction. Everolimus

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is under review in the EU for indications in SEGA under the trade name Votubia. Afinitor is also in development or being studied in other potential oncology indications. See "—Compounds in Development". Everolimus, the active ingredient in Afinitor, is also available under the trade names Zortress/Certican for use in transplantation, and is exclusively licensed to Abbott and sublicensed to Boston Scientific for use in drug-eluting stents.

Neuroscience and Ophthalmics

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Lucentis (ranibizumab) is a recombinant humanized high affinity antibody fragment that binds to vascular endothelial growth factors. Lucentis is the first approved drug for wet age-related macular degeneration that has been shown to improve vision and vision-related quality of life. Lucentis was approved in the EU in 2007. It is now approved in more than 85 countries. In January 2011, the European Commission granted Novartis a new indication for Lucentis for the treatment of visual impairment due to diabetic macular edema, and since August 2010 it has been filed for this same indication elsewhere around the world, outside of the US. In October 2010, Novartis also filed an application to treat people within the EU with Lucentis for visual impairment due to macular edema secondary to retinal vein occlusion. Lucentis is developed in collaboration with Genentech, which holds the rights to market the product in the US.



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Exelon (rivastigmine tartrate) and Exelon Patch (rivastigmine transdermal system): Exelon capsules have been available since 1997 to treat mild to moderate Alzheimer's disease (AD) in more than 70 countries. In 2006, Exelon became the only cholinesterase inhibitor to be approved for mild to moderate Parkinson's disease dementia in addition to AD in both the US and EU. Exelon Patch was approved in 2007 in the US and EU and has been launched in more than 60 countries. The once-daily Exelon Patch has shown comparable efficacy to the highest recommended doses of Exelon capsules, with significant improvement in cognition and overall functioning compared to placebo. Exelon capsules are now subject to generic competition in several markets, including the US.



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Extavia (interferon beta-1b) is an injectable disease modifying therapy for relapsing forms of multiple sclerosis (MS). It is the Novartis brand of interferon beta-1b, a product also marketed by Bayer Healthcare Pharmaceuticals Inc. under the brand name Betaseron® in the US and by Bayer Schering Pharma under the brand name Betaferon® in the EU. Bayer Schering supplies the product to Novartis under an agreement reached in 2007. Extavia was first approved in the EU in 2008 and since 2009 has been launched in more than 20 markets, including the US.



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Gilenya (fingolimod) is the first in a new class of multiple sclerosis (MS) therapy called sphingosine 1- phosphate receptor modulators. Gilenya is the first approved oral disease-modifying treatment for MS in the US, a major advance for people with relapsing MS, the most common forms of the disease. Gilenya showed superior efficacy by reducing relapses by 52% at one year (p < .001) compared to interferon beta-1a IM, a current standard of care. A two-year, placebo-controlled study showed that Gilenya significantly reduced the risk of disability progression. Gilenya has a well-studied safety and tolerability profile with over 2,600 MS clinical trial patients included in the FDA regulatory review, with some patients in their seventh year of treatment. Gilenya was approved as a first line treatment for relapsing or relapsing-remitting multiple sclerosis in the US, Australia, Switzerland, Russia and the United Arab Emirates. In January 2011, Gilenya received a positive opinion from the EU's CHMP as a disease modifying therapy in patients with highly active relapsing-remitting multiple sclerosis (RRMS) despite treatment with beta interferon, or in patients with rapidly evolving severe RRMS. Gilenya is currently under regulatory review with health authorities worldwide, including Canada, Turkey and Brazil. Gilenya is licensed from Mitsubishi Tanabe Pharma Corporation.



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Comtan and Stalevo (entacapone and carbidopa, levodopa and entacapone) are indicated for the treatment of Parkinson's disease. Stalevo (carbidopa, levodopa and entacapone) is indicated for

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certain Parkinson's disease patients who experience end-of-dose motor (or movement) fluctuations, known as "wearing off". Stalevo was approved in the US and EU in 2003, and is available from Novartis in more than 50 countries. Comtan (entacapone) is also indicated for the treatment of Parkinson's disease patients who experience end-of-dose wearing off and is marketed in approximately 50 countries under a licensing agreement with the Orion Corporation. Stalevo and Comtan were developed and are manufactured by Orion, and are marketed by Novartis and Orion in their respective territories.

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Fanapt (iloperidone) is a dopamine type 2 (D2) and serotonin type 2 (5-HT2A) receptor antagonist antipsychotic agent. Fanapt is indicated in the US for the acute treatment of schizophrenia in adults and was launched in January 2010. Fanapt belongs to the class of medication for schizophrenia known as atypical antipsychotics.

Respiratory

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Xolair (omalizumab) is the first humanized monoclonal antibody approved for the treatment of moderate to severe allergic asthma in the US in adolescents (aged 12 and above) and adults. It is approved for severe allergic asthma in the EU in children (aged six and above), adolescents, and adults. Xolair is approved in more than 80 countries, including the US in 2003 and the EU in 2005. Xolair is being jointly developed with Genentech and is co-promoted in the US by Novartis and Genentech.



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Onbrez Breezhaler (QAB149, indacaterol) is a once-daily beta2-agonist delivered in a single dose dry powder inhaler that offers sustained 24-hour bronchodilation with a fast onset of action for the treatment of chronic obstructive pulmonary disease (COPD). In November 2010, Novartis announced results of the blinded Phase III INTENSITY study showing that Onbrez Breezhaler 150 mcg is as effective as tiotropium in improving lung function in patients with COPD, while providing greater clinical benefits in terms of reduced breathlessness, lower use of rescue medication and improved health status. While the trial met these secondary endpoints relating to key patient outcomes, it did not meet the secondary endpoint of superiority to tiotropium in terms of lung function. Onbrez Breezhaler was approved in the EU in December 2009 for two dose strengths, 150 mcg and 300 mcg, for maintenance bronchodilator treatment in adult COPD patients. Seventeen regulatory approvals have been granted and are valid in over 40 countries, including the EU, Switzerland, and parts of South East Asia and Latin America. See "—Compounds in Development" below for details of US registration.

Integrated Hospital Care

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Reclast/Aclasta (zoledronic acid 5 mg) is the first and only once-yearly bisphosphonate infusion for the treatment of different forms of osteoporosis, and for the treatment of Paget's disease of the bone in men and women. Sold as Reclast in the US and Aclasta in the rest of the world, the product is approved in more than 90 countries including the US, EU and Canada, and is the only bisphosphonate approved to reduce the incidence of fractures at all three key fracture sites (hip, spine and non-spine) in the treatment of postmenopausal osteoporosis. The Reclast/Aclasta label was expanded in the EU and US to include the reduction in the incidence of clinical fractures after a low trauma hip fracture. The EU has also approved Aclasta for the treatment of osteoporosis in men at increased risk of fracture and for the treatment of osteoporosis associated with long-term systemic glucocorticoid therapy in post-menopausal women and in men at increased risk of fracture. Reclast is also approved in the US as a treatment to increase bone mass in men with osteoporosis, the prevention and treatment of glucocorticoid- induced osteoporosis in men and women, as well as for the prevention of osteoporosis in postmenopausal women. Zoledronic acid, the active ingredient in Reclast/Aclasta, is also approved in a number of countries in a different dosage under the trade name Zometa for certain oncology indications.

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Zortress/Certican (everolimus) is an mTOR inhibitor indicated for the treatment of transplant rejection in combination with cyclosporine and corticosteroids. It has been sold as Zortress in the US since April 2010 and as Certican in the rest of the world since 2003. It is approved in the US for the prophylaxis of organ rejection in adult patients at low to moderate immunological risk receiving an allogenic renal transplant, and launched in more than 85 countries for the prophylaxis of organ rejection in adult patients at low to moderate immunological risk receiving an allogenic renal or cardiac transplant. Everolimus, the active ingredient in Zortress/Certican, is also available under the trade name Afinitor for the treatment of patients with advanced renal cell carcinoma after failure with certain treatments, and is exclusively licensed to Abbott and sublicensed to Boston Scientific for use in drug-eluting stents.



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Ilaris (canakinumab) is a fully human monoclonal antibody that selectively binds and neutralizes interleukin-1b (IL-1b), a pro-inflammatory cytokine. Since 2009, Ilaris has been approved in over 40 countries for the treatment of children aged four years and older and adults suffering from cryopyrin associated periodic syndrome (CAPS), a group of rare disorders characterized by chronic recurrent fever, urticaria, occasional arthritis, deafness, and potentially life threatening amyloidosis.



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Neoral (cyclosporine, USP Modified) is an immunosuppressant to prevent organ rejection following a kidney, liver, heart or lung transplant. This micro-emulsion formulation of cyclosporine is also indicated for treating selected autoimmune disorders such as psoriasis and rheumatoid arthritis. First launched in 1995, Neoral is marketed in approximately 100 countries. This product is subject to generic competition.



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Myfortic (enteric-coated formulation of mycophenolate sodium) is approved in more than 90 countries for the prevention of acute rejection of kidney allografts, and is indicated in combination with cyclosporine and corticosteroids. Myfortic was first approved in the US in 2004 and in the EU in 2003.

Other Pharmaceuticals Products

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Voltaren/Cataflam (diclofenac sodium/potassium/resinate/free acid) is a leading non-steroidal anti-inflammatory drug (NSAID) for the relief of symptoms in rheumatic diseases such as rheumatoid arthritis and osteoarthritis, and for various other inflammatory and pain conditions. Voltaren/Cataflam was first launched in 1973 and is available in more than 140 countries. This product, which is subject to generic competition, is marketed by the Pharmaceuticals Division in a wide variety of dosage forms, including tablets, drops, suppositories, ampoules and topical therapy. In addition, in various countries, our Consumer Health Division's OTC Business Unit markets low-dose oral forms and the topical therapy of Voltaren as over-the-counter products.



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Lescol/Lescol XL (fluvastatin sodium) are lipid-lowering drugs used to reduce cholesterol. Lescol/Lescol XL are indicated as an adjunct to diet for the treatment of hypercholesterolemia and mixed dyslipidemia in adults, and to reduce cholesterol in children over nine years and adolescents with heterozygous familial hypercholestrolemia. In addition, for patients with coronary artery disease, Lescol/Lescol XL are indicated for secondary prevention of major adverse cardiac events and to slow the progression of coronary atherosclerosis. Lescol was first launched in 1994 and Lescol XL in 2000. Both are available in more than 90 countries.



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Ritalin, Ritalin LA, Focalin and Focalin XR (methylphenidate HCl, methylphenidate HCl extended release, dexmethylphenidate HCl and dexmethylphenidate HCl extended release) are indicated for the treatment of attention deficit hyperactivity disorder (ADHD) in children and Focalin XR is additionally indicated for adults. Ritalin and Ritalin LA are also indicated for pediatric and adult narcolepsy. Ritalin was first marketed during the 1950s and is available in over 50 countries. Ritalin LA is available in over 20 countries. Focalin comprises the active d-isomer of

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methylphenidate and therefore requires half the dose of Ritalin. Focalin XR is now approved in Switzerland. Focalin and Focalin XR is available in the US. Immediate-release Focalin is subject to generic competition.

Compounds in Development

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

Phase I: First clinical trials of a new compound, generally performed in a small number of healthy human volunteers, to assess the clinical safety, tolerability as well as metabolic and pharmacologic properties of the compound.

Phase II: Clinical studies that are performed on patients with the targeted disease, to continue the Phase I safety assessment in a larger group, to assess the efficacy of the drug in the patient population, and to determine the appropriate doses for further testing.

Phase III: Large scale clinical studies to establish the safety and effectiveness of the drug for regulatory approval for indicated uses. Phase III trials may also be used to compare a new drug against a current standard of care, in order to evaluate the overall risk/benefit relationship of the new drug.

        Novartis, while essentially using the same model as a platform, has tailored the process to be simpler, more flexible and efficient. Our development paradigm consists of two parts: Exploratory and Confirmatory development. Exploratory development consists of clinical "proof of concept" (PoC) studies which are small clinical trials (typically 5-15 patients) that combine elements of traditional Phase I/II testing. These customized trials are designed to give early insights into issues such as safety, efficacy and toxicity for a drug in a given indication. Once a positive proof of concept has been established, the drug moves to the Confirmatory development stage. Confirmatory development has elements of traditional Phase II/III testing and includes trials aimed at confirming the safety and efficacy of the drug in the given indication leading up to submission of a dossier to health authorities for approval. Like traditional Phase III testing, this stage can also include trials which compare the drug to the current standard of care for the disease, in order to evaluate the drug's overall risk/benefit profile.

        The following table and paragraph summaries provide an overview of the key projects currently in the Confirmatory development stage within our Pharmaceuticals Division, including projects seeking to develop potential uses of new molecular entities, as well as potential additional indications or new formulations for already marketed products.

Selected Development Projects

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Key Compounds in Development (select products in Phases II, III and Registration)

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ACZ885 (canakinumab) was filed in the EU in December 2010 for the treatment of acute attack in gouty arthritis and is planned to be filed in the US early in 2011. The Phase III program in gouty arthritis followed a Phase II program that showed superior pain relief and a much reduced risk of flares compared to an injectable corticosteroid. Phase III trials are ongoing for the treatment of systemic onset juvenile idiopathic arthritis. ACZ885 is also being investigated in Phase II for the treatment of type 1 and type 2 diabetes. A Phase III program in secondary prevention of cardiovascular events is also planned to be initiated in 2011.



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AEB071 (sotrastaurin) is a low molecular weight, selective inhibitor of protein kinase-C (PKC). Inhibition of PKC reduces T-cell activation through a novel calcineurin-independent pathway. The molecule is in Phase II clinical development for the treatment of autoimmune indications (including psoriasis) and for the prevention of solid organ allograft rejection (kidney and liver transplantation).



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AFQ056 is a metabotropic glutamate receptor 5 (mGluR5) antagonist in Phase II development for the treatment of Parkinson's disease levodopa-induced dyskinesia. No therapy has previously been approved for this condition, which represents a complication after dopamine-replacement therapy in Parkinson's patients and which is characterized by a variety of hyperkinetic movements. A phase II study in adult patients with Fragile X syndrome was initiated in the fourth quarter of 2010.



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AGO178 (agomelatine) is an MT1/MT2 receptor agonist and 5-HT2c antagonist for the treatment of major depressive disorder. It has a novel, synergistic mechanism of action. Three Phase III trials have recently been completed in the US. Data from these trials confirmed the known efficacy and safety profile of the drug. An oral dispersible formulation of AGO178 will now be studied in additional phase III trials to further explore its risk/benefit and pharmacokinetic profile. Novartis licensed from Servier the exclusive rights to develop and market the compound in the US and several other countries.

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AIN457 (secukinumab) is a human monoclonal antibody neutralizing interleukin-17A, a key pro-inflammatory cytokine expressed by TH17 cells. The compound is in Phase III development in uveitis and in Phase II development in psoriasis and arthritidies (rheumatoid arthritis, ankylosing spondylitis and psoriatic arthritis), where initial studies suggested that AIN457 provides a new mechanism of action for the treatment of immune-mediated diseases. The Phase III study examining AIN457 for non-infectious uveitis in patients with Behcet's disease did not meet its primary endpoint and the data do not support submission of AIN457 for this indication.



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BAF312 is an oral, second-generation sphingosine 1-phosphate receptor modulator in Phase II development for relapsing-remitting multiple sclerosis. BAF312 binds selectively to the sphingosine 1-phosphate receptor subtypes 1 and 5, and has a relatively short half life.



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DEB025 (alisporivir) is a cyclophilin inhibitor for the treatment of Hepatitis C virus infection (HCV). DEB025 was in-licensed from Debiopharma in early 2010. A Phase IIb study in HCV genotype 1 treatment-naïve patients was completed in 2010 and the results of sustained viral response at 24 weeks were presented to health authorities during the fourth quarter. The FDA and EMA supported a Phase III program for DEB025, which is planned to start in early 2011. In 2010, we also initiated a clinical trial with DEB025 in HCV G1 treatment-experienced patients, and a clinical trial with a novel study design in HCV G2/3 patients where interferon-free/interferon-sparing regimens are being investigated.



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INC424 is a Janus kinase (JAK) inhibitor. This oral targeted therapy is now in Phase III clinical trials for the treatment of myelofibrosis, a life-threatening neoplastic condition with no effective medical treatment that is characterized by varying degrees of bone marrow failure, splenomegaly (enlarged spleen) and debilitating symptoms. Novartis has licensed the rights to INC424 from Incyte for development and potential commercialization outside the US. Two Phase III clinical trials, COMFORT-1 and COMFORT-2 have been completed. In December, first interpretable results of COMFORT-1 showed the trial met its primary and secondary endpoints. Results from COMFORT-2 are expected in the first half of 2011. Long-term data regarding INC424 was published in September and demonstrated durable clinical, functional and symptomatic responses with acceptable hematological safety in patients with myelofibrosis. In October, the first US patient was dosed in the Phase III RESPONSE trial comparing INC424 with best available treatment in Polycythemia Vera. This trial is managed by Incyte in the US and by Novartis in the rest of the world. First patients outside the US are expected to be dosed in early 2011.



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Joicela (lumiracoxib) is an oral COX-2 inhibitor for osteoarthritis, which Novartis formerly marketed under the brand name Prexige. Based on requests from several worldwide health authorities, most marketing authorizations for lumiracoxib were withdrawn due to concerns related to its post-marketing liver safety profile. A specific genetic biomarker has recently been identified which predicts the risk of severe liver injury in patients. In 2009, Novartis submitted a new marketing authorization application in the EU for lumiracoxib (100 mg once daily) under the brand name Joicela for symptomatic relief in the treatment of osteoarthritis of the knee and hip in patients who are non-carriers of this genetic biomarker. Similar recommendations related to pre-treatment genetic testing are being implemented wherever the product remains commercially available for osteoarthritis.



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LBH589 (panobinostat) is a highly potent pan deacetylase inhibitor targeting the epigenetic regulation of multiple oncogenic pathways, with development focused on hematological disease. In Hodgkin's lymphoma, final analysis of a pivotal Phase II study in relapsed/refractory patients was presented at ASH and LBH589 was filed in Hodgkin's lymphoma in the US based on the results from this study. Regulatory submissions in Hodgkin's lymphoma are also planned worldwide. A Phase III trial in patients in complete response after an autologous stem cell transplantation for Hodgkin's lymphoma (PATH) was started in June 2010, while a Phase III trial for multiple

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myeloma began in December 2009 (PANORAMA-1). We anticipate filing LBH589 in multiple myeloma in 2013.

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LCQ908 is a diacylglycerol acyltransferase-1 (DGAT-1) inhibitor. DGAT-1 catalyzes the final committed step in triglyceride synthesis and is believed to play a key role in whole body energy homeostasis. Inhibition of DGAT-1 represents a novel approach to treat metabolic disease and LCQ908 is currently in Phase II development for the treatment of diabetes and other metabolic disorders.



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LCZ696 is a first-in-class angiotensin receptor neprilysin inhibitor (ARNI), a dual-acting compound that delivers concomitant inhibition of neprilysin (NEPI) and blockage of the angiotensin type 1 (AT1) receptor (ARB). The compound entered Phase III development at the end of 2009 for the treatment of heart failure, an indication in which ACE inhibitors are the current standard of care.



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Lucentis (ranibizumab) was approved in the EU in January 2011 for the treatment of visual impairment secondary to diabetic macular edema. A file for the retinal vein occlusion indication was submitted in the EU in October 2010. A Phase III program for the Pathologic myopia indication was initiated with first patient visit in October 2010.



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NVA237 (glycopyrronium bromide), a long-acting muscarinic antagonist (LAMA) providing sustained bronchodilation, is being developed as a once-daily treatment for COPD in a single-dose dry-powder inhaler. Phase II trials have concluded successfully, indicating that NVA237 has a comparable efficacy profile compared to tiotropium, the only LAMA presently on the market, with the potential for improved tolerability and a faster onset of action. A Phase III study commenced in 2009 and first submissions are planned in 2011.



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PKC412 (midostaurin) is an oral, multi-targeted, kinase inhibitor in Phase III development for treatment of patients with acute myeloid leukemia (AML) and in Phase II development for aggressive systemic mastocytosis (ASM). Filing is expected for ASM with Phase II data in 2013 and for an indication in FLT3-mutated AML with Phase III data by 2014.



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PRT128 (elinogrel), a P2Y12 inhibitor, is a direct-acting, reversible antiplatelet agent that is being developed with both an oral and an intravenous route for administration for the treatment of patients with chronic coronary heart disease and acute coronary syndrome to reduce the risk of recurrent cardiovascular events. The results of the INNOVATE-PCI Phase II study were presented at the European Society of Cardiology congress in August 2010 and PRT128 is expected to enter Phase III development in 2011.



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PTK796 (omadacycline) is an antibiotic in-licensed from Paratek Pharmaceuticals Inc. The compound is an aminomethylcycline, derived from tetracycline, which is not affected by the common mechanisms of tetracycline resistance and has demonstrated in vitro activity against resistant bacterial pathogens that most commonly cause complicated skin and skin structure infections (Staphylococcus aureus) and community acquired pneumonia (Streptococcus pneumoniae). The antibiotic is also active against Haemophilus influenzae, atypical pathogens (such as Legionella pneumophila), and many anaerobes. PTK796 is currently entering Phase III development as an intravenous infusion with oral tablet follow-on to treat complicated skin and skin structure infections. Clinical trials are planned in a number of other potential indications, including community acquired pneumonia, and diabetic foot infections, caused by highly resistant bacteria such as methicillin-resistant Staphylococcus aureus and multi-drug resistant Streptococcus pneumoniae. Novartis has gained exclusive worldwide rights to market PTK796.



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QAB149 (indacaterol) has been submitted for regulatory consideration in Japan, China and a number of other countries to treat chronic obstructive pulmonary disease (COPD). In the US, following a Complete Response Letter received from the FDA in October 2009, Novartis has

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completed additional studies to further characterize the dosing regimen for indacaterol. Incremental benefits have been observed with indacaterol in escalating doses from 75 mcg up to 300 mcg, with higher doses showing increasing benefit for patients, particularly those with more severe cases. Following an FDA request to explore the lower part of the dose response curve, data supporting the 75 mcg and 150 mcg doses were submitted in the US at the end of September 2010. The application for US approval (under the brand-name Arcapta Neohaler) is due to be reviewed by an FDA Advisory Committee in March 2011.

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QMF149 is a once-daily fixed dose combination of the long-acting beta2-agonist QAB149 and the Merck (formerly Schering-Plough) inhaled corticosteroid mometasone delivered in a single-dose dry-powder inhaler. Phase II development for asthma and chronic obstructive pulmonary disease is currently ongoing. Filing in the EU is expected in 2014. Activities directly related to US development will not be initiated.



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QVA149 is a once-daily fixed dose combination of the long-acting beta2-agonist QAB149 and the long-acting muscarinic antagonist NVA237 (glycopyrronium bromide) which is being investigated for the treatment of chronic obstructive pulmonary disease, in a single-dose dry-powder inhaler. Phase II studies have been successfully completed and results demonstrated that fixed dose combination QVA149 provided superior bronchodilation compared to QAB149 or placebo, which was sustained over 24 hours. The compound had a fast onset of action and was well tolerated with a good safety profile. Phase III development commenced in 2010 and first submission is planned in 2012.



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QTI571 (Glivec, imatinib mesylate tablets/imatinib), an inhibitor of the tyrosine kinase activity, is currently in development for pulmonary arterial hypertension (PAH). PAH is a rare, progressive, proliferative disease with high morbidity and mortality. A Phase III program in severe PAH patients started in 2009 and first regulatory submission is planned for 2011.



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RAD001 (Afinitor, everolimus) is an oral inhibitor of the mTOR pathway. Phase III studies are underway in patients with breast cancer, lymphoma, gastric cancer and tuberous sclerosis (TS). Everolimus is under review in the EU for patients with subependymal giant cell astrocytomas (SEGA) associated with TS, based on 28-patient Phase II data that showed meaningful reduction in SEGA volume. It was approved for this indication in the US in October 2010. Also, a Phase III study has completed and is underway to explore the clinical benefits of everolimus for patients with SEGA associated with TS. Regulatory submissions have been completed in the US, EU and Japan in advanced neuroendocrine tumors (NET). RADIANT-3 (RAD001 In Advanced Neuroendocrine Tumors), a Phase III study in pancreatic NET met its primary endpoint of progression-free survival (PFS). RADIANT-2 did not meet its primary endpoint of PFS. Results showed that everolimus plus octreotide LAR extended the median time without tumor growth when compared to placebo plus octreotide LAR. In addition, results from a randomized Phase II study showed the addition of everolimus to the hormonal therapy tamoxifen in patients with advanced metastatic breast cancer delayed disease progression compared to tamoxifen alone.



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RLX030 is a recombinant form of human relaxin-2. The molecule was obtained upon the acquisition of the US biotech Corthera Inc. in February 2010. It is being developed for patients hospitalized for acute heart failure. The Phase II data in this population indicated rapid and sustained symptom relief along with an outcome benefit, following a continuous intravenous infusion, on top of standard of care. The ongoing Phase III development program will test the short- and long-term efficacy and safety.



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SOM230 (pasireotide) is a somatostatin analogue in development for patients with Cushing's disease, acromegaly and refractory/resistant carcinoid syndrome. Data from a pivotal study in Cushing's disease showing significant reduction of cortisol secretions are the basis for regulatory submissions of SOM230 in subcutaneous formulation. Data from a Phase II study suggest

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reduction of growth hormone in acromegaly patients, and achievement of partial or complete symptom control in patients with refractory/resistant carcinoid syndrome. A Phase III trial comparing SOM230 LAR against Sandostatin LAR in patients with acromegaly is anticipated to report results in 2011. In addition, a Phase III trial comparing SOM230 LAR against Sandostatin LAR in patients with carcinoid tumors refractory/resistant to somatostatin analogues is also ongoing. Applications have been submitted to the EU and Swiss regulatory authorities for the use of SOM230 in Cushing's disease and a response is expected by the end of 2011.

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Tasigna (nilotinib) is to be studied in patients with GIST and melanoma, and a Phase III registration trial evaluating Tasigna versus Glivec as first-line treatment for unresectable or metastatic GIST is actively recruiting. A separate trial for patients with cKIT mutated melanoma began in April 2010.



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TKI258 (dovitinib) is a multi-targeted kinase inhibitor of FGFR, VEGFR and PDGFR. With a unique preclinical profile its development is focused on FGFR driven diseases. Clinical proof of concept was recently demonstrated in renal cell carcinoma (RCC). A Phase III registration trial in patients with RCC is planned to start in 2011.



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Xolair (omalizumab), Following approval in the EU for a liquid formulation of Xolair, preparation is ongoing for the launch. Novartis and Genentech have started development of omalizumab in a new indication, Chronic Idiopathic Urticaria, with Phase III studies due to start in 2011.



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Zometa (zoledronic acid) is a leading treatment to reduce or delay skeletal-related events, including pathologic fracture, spinal cord compression, and/or the requirement of radiation therapy or surgery to bone, in patients with bone metastases (cancer that has spread to the bones). In 2008, new clinical trial results (ABCSG-12) showed that Zometa reduced the risk of breast cancer returning when used as an adjuvant breast cancer treatment in premenopausal women who received Zometa following curative surgery and hormone therapy, including goserelin treatment to suppress ovarian function and induce menopause. Novartis filed these data in the US and EU in December 2009, requesting an update to the Zometa prescribing information. In December 2010, the results of the AZURE trial, which was conducted to determine if Zometa's adjuvant therapy had a benefit in preventing recurrences in premenopausal and postmenopausal women with early breast cancer, did not meet the primary endpoint in the overall patient population. In a subgroup of women with well-established menopause, an improvement in disease-free survival and overall survival was shown in the Zometa arm. Based on AZURE, the US and European regulatory files for the potential use of Zometa for adjuvant breast cancer treatment have been withdrawn. Novartis will discuss next steps with Health Authorities based on the subgroup analysis by menopausal status of the AZURE trial. Positive results from the multiple myeloma IX trial, which showed Zometa significantly improved both progression-free survival and overall survival when compared to regimen including oral clodronate, were presented at three major medical meetings and published in The Lancet in 2010.



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Zortress/Certican (everolimus) is an mTOR inhibitor with immune/non-immune cell proliferation inhibition being developed for prevention of solid organ transplant rejection. In 2008, Phase III development was initiated worldwide for the prevention of organ rejection in liver transplantation.

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Projects Terminated in 2010

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ABF656 (albinterferon alfa-2b) for chronic hepatitis C



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ASA404 (vadimezan) for non-small cell lung cancer



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Diovan/Starlix for prevention of new onset type 2 diabetes, cardiovascular morbidity and mortality



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EPO906 (patupilone) for ovarian cancer



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LCI699 for heart failure



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Mycograb (efungumab) for invasive candida infections



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PTZ601 for staphylococcal skin and soft tissue infections



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QAX028 for chronic obstructive pulmonary disease



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SBR759 (in western population) for hyperphosphatemia in chronic kidney disease



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Valturna/Rasival single-pill-combination for hypertension.

Principal Markets

        The Pharmaceuticals Division has a commercial presence in approximately 140 countries worldwide, but net sales are generally concentrated in the US, Europe and Japan, which together accounted for 80% of 2010 net sales. At the same time, sales from fast growing "emerging growth markets" have become increasingly important to us. See "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Factors Affecting Results of Operations—Fundamental Drivers Remain Strong—Growth of Emerging Markets." The following table sets forth certain data relating to our principal markets in the Pharmaceuticals Division.

        Many of our Pharmaceuticals Division's products are used for chronic conditions that require patients to consume the product over long periods of time, from months to years. Net sales of the vast majority of our products are not subject to material changes in seasonal demand.

Production

        The primary goal of our manufacturing and supply chain management program is to ensure the uninterrupted, timely and cost-effective supply of products that meet all product specifications. We manufacture our products at 6 bulk chemical and 13 pharmaceutical production facilities as well as three biotechnology sites. Bulk chemical production involves the manufacture of therapeutically active compounds, mainly by chemical synthesis or by biological processes such as fermentation. Pharmaceutical production involves the manufacture of "galenical" forms of pharmaceutical products such as tablets, capsules, liquids, ampoules, vials and creams. Major bulk chemical sites are located in Schweizerhalle,

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Switzerland; Grimsby, UK; Ringaskiddy, Ireland and Changshu, China. Significant pharmaceutical production facilities are located in Stein, Switzerland; Wehr, Germany; Singapore; Torre, Italy; Barbera, Spain; Suffern, New York; Sasayama, Japan and in various other locations. Our three biotechnology plants are in Huningue, France; Basel, Switzerland and Vacaville, California.

        During clinical trials, which can last several years, the manufacturing process for a particular product is rationalized and refined. By the time clinical trials are completed and products are launched, the manufacturing processes have been extensively tested and are considered stable. However, improvements to these manufacturing processes may continue over time.

        Raw materials for the manufacturing process are either produced in-house or purchased from a number of third-party suppliers. Where possible, our policy is to maintain multiple supply sources so that the business is not dependent on a single or limited number of suppliers. However, our ability to do so may at times be limited by regulatory or other requirements. We monitor market developments that could have an adverse effect on the supply of essential materials. Our suppliers of raw materials are required to comply with Novartis quality standards.

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

        We have implemented a global manufacturing strategy to maximize business continuity in case of such events or other unforeseen catastrophic events. However, there can be no guarantee that we will be able to successfully manage such issues when they arise.

Marketing and Sales

        The Pharmaceuticals Division serves customers with approximately 5,107 field force representatives in the US (including supervisors), and an additional 19,296 in the rest of the world, as of December 31, 2010. These trained representatives, where permitted by law, present the therapeutic and economic benefits of our products to physicians, pharmacists, hospitals, insurance groups and managed care organizations. We are seeing the increasing influence of customer groups beyond the prescribers, and Novartis is responding by adapting our business practices.

        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.

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

        Since the implementation of a new US business model in 2008, Novartis has been able to better address customer needs and differences in local market dynamics. The model allows the regional sales forces to be tailored to reach healthcare practitioners in different ways. New account manager positions focused on reaching numerous stakeholders in the treatment decision pathway have been created, and we have geographically adjusted the placement of our representatives to match the local demand for products.

        The marketplace for healthcare is evolving with the consumer becoming a more influential stakeholder in their healthcare decisions and looking for solutions to meet their changing needs. Where permitted by law, Novartis is seeking to tap into the power of the patient, delivering innovative solutions to drive loyalty and engagement.

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Competition

        The global pharmaceutical market is highly competitive, and we compete against other major international corporations with substantial financial and other resources, which sell branded prescription pharmaceutical products. Competition within the industry is intense and extends across a wide range of commercial activities, including pricing, product characteristics, customer service, sales and marketing, and research and development.

        As is the case with other pharmaceutical companies selling patented pharmaceuticals, Novartis faces ever-increasing challenges from companies selling generic forms of our products following the expiry of patent protection, or of products which compete with our products. Generic companies may also gain entry to the market through successfully challenging our patents, but we vigorously use legally permissible remedies to defend our patent rights from generic challenges. In addition, we also face competition from over-the-counter (OTC) products that do not require a prescription from a physician.

Research and Development

        We are among the leaders in the pharmaceuticals industry in terms of research and development investment. In 2010, we invested approximately $7.1 billion ($6.2 billion excluding impairment and amortization charges) in Pharmaceuticals Division research and development, which represented 23% of the division's total net sales. Our Pharmaceuticals Division invested $5.8 billion ($5.7 billion excluding impairment and amortization charges) and $5.7 billion ($5.3 billion excluding impairment and amortization charges) in research and development in 2009 and 2008 respectively. There are currently 147 projects in clinical development.

        The discovery and development of a new drug is a lengthy process, usually requiring 10 to 15 years from the initial research to bringing a drug to market, including six to eight years from Phase I clinical trials to market. At each of these steps, there is a substantial risk that a compound will not meet the requirements to progress further. In such an event, we may be required to abandon a compound in which we have made a substantial investment.

Research program

        Our Research program is responsible for the discovery of new medicines. In 2003, we established the Novartis Institutes for BioMedical Research (NIBR).

        At NIBR's headquarters in Cambridge, Massachusetts, more than 1,850 scientists and associates conduct research into disease areas such as cardiovascular and metabolism disease, infectious disease, oncology, muscle disorders and ophthalmology. An additional 4,500 scientists and technology experts conduct research in Switzerland, UK, Austria, Italy, Singapore, China and three other US sites. Research is conducted at these sites in the areas of neuroscience, autoimmune disease, oncology, cardiovascular disease, dermatology, gastrointestinal disease and respiratory disease. In addition, research platforms such as the Center for Proteomic Chemistry are headquartered in the NIBR site in Basel, Switzerland. In January 2010, Novartis integrated four Corporate Research Institutes into NIBR: the Novartis Institute for Tropical Diseases (NITD) in Singapore; Novartis Vaccines for Global Health (NVGH) in Siena, Italy; the Frederich Miescher Institute (FMI), in Basel, Switzerland; and the Genomics Institute of the Novartis Research Foundation, in La Jolla, California. These four institutes focus on basic genetic and genomic research as well as research into diseases of the developing world such as malaria, tuberculosis, dengue and typhoid fever.

        In October 2010, we announced that we would invest $600 million over the next five years to build new laboratory and office space in Cambridge on an area of land close to our research facilities on Massachusetts Avenue.

        Our principal goal is to discover new medicines for diseases with high unmet medical need. To do this we focus our work in areas where we have sufficient scientific understanding and believe we have the

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potential to dramatically change the practice of medicine. This requires the hiring and retention of the best talent, a focus on fundamental disease mechanisms that are relevant across different disease areas, continuous improvement in technologies for drug discovery and potential therapies, close alliance with clinical colleagues, and the establishment of appropriate external complementary alliances.

        All drug candidates are taken to the clinic via "proof-of-concept" trials to enable rapid testing of the fundamental efficacy of the drug while collecting basic information on pharmacokinetics, safety and tolerability, and adhering to the guidance for early clinical testing set forth by health authorities.

        Over the past five years, the output from NIBR has grown progressively. The portfolio of pre-clinical and early clinical New Molecular Entities has increased more than 60%, and 50% of compounds from NIBR are succeeding in Phase II clinical trials. In addition, biologic medicines—antibodies and protein therapeutics—have grown to constitute 30% of NIBR's pre-clinical portfolio.

Development program

        The focus of our Development program is to determine whether new drugs are safe and effective in humans. As previously described (see "—Compounds in Development"), we view the development process as generally consisting of an Exploratory phase where a "proof of concept" is established, and a Confirmatory phase where this concept is confirmed in large numbers of patients. Within this paradigm, clinical trials of drug candidates generally proceed through the traditional three phases: I, II and III. In Phase I clinical trials, a drug is usually tested with about 5 to 15 patients. The tests study the drug's safety profile, including the safe dosage range. The studies also determine how a drug is absorbed, distributed, metabolized and excreted, and the duration of its action. In Phase II clinical trials, the drug is tested in controlled studies of approximately 100 to 300 volunteer patients to assess the drug's effectiveness and safety, and to establish a proper dose. In Phase III clinical trials, the drug is further tested on larger numbers of volunteer patients in clinics and hospitals. In each of these phases, physicians monitor volunteer patients closely to assess the drug's safety and efficacy. 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. See "—Regulation."

Novartis Molecular Diagnostics

        Recent advances in biology and bioinformatics have lead to a much deeper understanding of the genetic underpinnings of disease and drug targets. Novartis Molecular Diagnostics (MDx), an integrated unit within Novartis Pharmaceuticals, is working to capitalize on these scientific advances to develop innovative diagnostic tests which potentially could improve physicians' ability to optimize patient outcomes and may enable physicians to administer the right treatment to the right patient at the right time.

        At its core, Novartis MDx is rooted in the company's leadership in drug discovery and development, and advancing "personalized medicine" is a key component of the company's strategy. Working closely with, and building on the strong science of NIBR and our Pharmaceuticals Division, MDx works to bring the full power of our internal capabilities and resources to bear in an effort to develop and commercialize important new diagnostic tests to support our development products and disease areas. Additionally, MDx strategically works with external collaborators to leverage technologies and capabilities that fit our diagnostic requirements.

        Our strategy is focused on addressing unmet medical need regardless of market size, and we have a robust and expanding portfolio of molecular diagnostic programs. MDx is aiming for multiple launches over the next few years.

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Alliances and acquisitions

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

Regulation

        The international pharmaceutical industry is highly regulated. Regulatory authorities around the world administer numerous laws and regulations regarding the testing, approval, manufacturing, importing, labeling and marketing of drugs, and also review the safety and efficacy of pharmaceutical products. In particular, extensive controls exist on the non-clinical and clinical development of pharmaceutical products. These regulatory requirements, and the implementation of them by local health authorities around the globe, are a major factor in determining whether a substance can be developed into a marketable product, and the amount of time and expense associated with that development.

        Health authorities, including those in the US, EU, Switzerland and Japan, have high standards of technical evaluation. The introduction of new pharmaceutical products generally entails a lengthy approval process. Of particular importance is the requirement in all major countries that products be authorized or registered prior to marketing, and that such authorization or registration be subsequently maintained. In recent years, the registration process has required increased testing and documentation for clearance 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 quality, safety and efficacy 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 varies significantly from country to country. It is possible that a drug can be registered and marketed in one country while the registration authority in another country may, prior to registration, request additional information from the pharmaceutical company or even reject the product. It is also possible that a drug may be approved for different indications in different countries.

        The registration process generally takes between six months and several years, depending on the country, the quality of the data submitted, the efficiency of the registration authority's procedures and the nature of the product. Many countries provide for accelerated processing of registration applications for innovative products of particular therapeutic interest. In recent years, intensive efforts have been made among the US, the EU and Japan to harmonize registration requirements in order to achieve shorter development and registration times for medical products. However, the requirement in many countries to negotiate selling prices or reimbursement levels with government regulators can substantially extend the time until a product may finally be launched to the market.

        The following provides a summary of the regulatory processes in the principal markets served by Pharmaceuticals 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

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intended for commercialization in the US. The FDA continues to monitor the safety of pharmaceutical products after they have been approved for marketing in the US market. The pharmaceutical development and registration process is typically intensive, lengthy and rigorous. When a pharmaceutical company has gathered data which it believes sufficiently demonstrates a drug's quality, safety and efficacy, then the company may file a New Drug Application (NDA) or biologics license application (BLA), as applicable, for the drug. The NDA or BLA must contain all the scientific information that has been gathered about the drug and typically includes information regarding the clinical experiences of patients tested in the drug's clinical trials. A Supplemental New Drug Application (sNDA) or BLA amendment must be filed for new indications for a previously approved drug.

        Once an NDA or BLA is submitted, the FDA assigns reviewers from its biopharmaceutics, chemistry, clinical microbiology, pharmacology/toxicology, and statistics staff. After a complete review, these content experts then provide written evaluations of the NDA or BLA. These recommendations are consolidated and are used by the Senior FDA staff in its final evaluation of the NDA/BLA. Based on that final evaluation, FDA then provides to the NDA or BLA's sponsor an approval, or a "complete response" letter if the NDA or BLA application is not approved. If not approved, the letter will state the specific deficiencies in the NDA or BLA which need to be addressed. The sponsor must then submit an adequate response to the deficiencies in order to restart the review procedure.

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

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

European Union

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

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

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        Under the Mutual Recognition Procedure (MRP), the company first obtains a marketing authorization from a single EU member state, called the Reference Member State (RMS). In the Decentralized Procedure (DCP) the application is done simultaneously in selected or all Member States if a medicinal product has not yet been authorized in a Member State. During the DCP, the RMS drafts an Assessment Report within 120 days. Within an additional 90 days the Concerned Member States (CMS) review the application and can issue objections or requests for additional information. On Day 90, each CMS must be assured that the product is safe and effective, and that it will cause no risks to the public health. Once an agreement has been reached, each Member State grants national marketing authorizations for the product.

        After the Marketing Authorizations have been granted, the company must submit periodic safety reports to the EMA (if approval was granted under the Centralized Procedure) or to the National Health Authorities (if approval was granted under the DCP or the MRP). In addition, several Pharmacovigilance measures must be implemented and monitored including Adverse Event collection, evaluation and expedited reporting and implementation as well as up-date of Risk Management Plans.

        European Marketing Authorizations have an initial duration of five years. After this time, the Marketing Authorization may be renewed by the competent authority on the basis of re-evaluation of the risk/benefit balance. Once renewed the Marketing Authorization is valid for an unlimited period. Any Marketing Authorization which is not followed within three years of its granting by the actual placing on the market of the corresponding medicinal product shall cease to be valid.

Japan

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

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

Price Controls

        In most of the markets where we operate, the prices of pharmaceutical products are subject to both direct and indirect price controls and to drug reimbursement programs with varying price control mechanisms. Due to increasing political pressure and governmental budget constraints, we expect these mechanisms to remain in place—and to perhaps even be strengthened—and to have a negative influence on the prices we are able to charge for our products.

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Direct efforts to control prices.



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United States.    In the US, as a result of the recently passed health care reform legislation, there is a significant risk of future actions to control prices. Specifically, there is a newly created entity, the Independent Payment Advisory Board, which has unprecedented authority to implement broad actions to reduce future costs of the Medicare program. This could include required prescription drug discounts or rebates, which could limit net prices for our products. In addition, the legislation included language authorizing significant increases in Medicaid rebates, effective in 2010, and new required discounts in the Medicare Part D program, effective in 2011. There is a risk that governmental officials will continue to search for ways to reduce or control prices.



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Europe.    In Europe, our operations are subject to significant price and marketing regulations. Many governments are introducing healthcare reforms in a further attempt to curb increasing healthcare costs. In the EU, governments influence the price of pharmaceutical products through their control of national healthcare systems that fund a large part of the cost of such products to consumers. The downward pressure on healthcare costs in general in the EU, particularly with regard to prescription drugs, has become very intense. Increasingly high barriers are being erected against the entry of new products. In addition, prices for marketed products are referenced within Member States and across Member State borders, including new EU Member States.



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Japan.    In Japan, the government generally introduces price cut rounds every other year, and the government additionally mandates price decreases for specific products. In 2010, the National Health Insurance price calculation method for new products and the price revision rule for existing products were reviewed, and the resulting new drug tariffs were effective beginning April 2010. The Japanese government is currently undertaking a healthcare reform initiative with a goal of sustaining the universal coverage of the National Health Insurance program, and is addressing the promotion of generic use and enhancement of pricing for new products. Meanwhile, the government tentatively initiated a premium system which basically maintains the price of patented drugs for unmet medical needs in order to promote innovative new drug creation and the solution of the unapproved indication issue. The continuance of this system will be reviewed as a part of price reforms in 2012.



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Rest of World.    Many other countries around the world are also taking steps to rein in prescription drug prices. As just one example, in 2010, Turkey, one of our most important emerging growth markets, imposed a price reduction on prescription drugs ranging from 11-23%.



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Regulations favoring generics.    In response to rising healthcare costs, many governments and private medical care providers, such as Health Maintenance Organizations, have instituted reimbursement schemes that favor the substitution of generic pharmaceuticals for more expensive brand-name pharmaceuticals. In the US, generic substitution statutes have been enacted by virtually all states and permit or require the dispensing pharmacist to substitute a less expensive generic drug instead of an original branded drug. Other countries have similar laws. We expect that the pressure for generic substitution will continue to increase.



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Cross-Border Sales.    Price controls in one country can also have an impact in other countries as a result of cross-border sales. In the EU, products which we have sold to customers in countries with stringent price controls can in some instances legally be re-sold to customers in other EU countries with less stringent price controls at a lower price than the price at which the product is otherwise available in the importing country. In North America, products which we have sold to customers in Canada, which has relatively stringent price controls, are sometimes re-sold into the US, again at a lower price than the price at which the product is otherwise sold in the US. Such imports from

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Canada and other countries into the US are currently illegal. However, political efforts continue at the US federal, state and local levels to change the legal status of such imports.

        We expect that pressures on pricing will continue worldwide, and may 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, enable us to earn an adequate return on our investment in that product.

Intellectual Property

        We attach great importance to patents, trademarks, and know-how in order to protect our investment in research and development, manufacturing and marketing. It is our policy to seek the broadest protection available under applicable laws for significant product developments in all major markets. Among other things, patents may cover the products themselves, including the product's active ingredient and its formulation. Patents may cover processes for manufacturing a product, including processes for manufacturing intermediate substances used in the manufacture of the products. Patents may also cover particular uses of a product, such as its use to treat a particular disease, or its dosage regimen. In addition, patents may cover assays or tests for certain diseases or biomarkers, which will improve patient outcomes when administered certain drugs.

        The protection offered by such patents extends for varying periods depending on the grant, duration and enforceability of patents in the various countries. The protection afforded, which may vary from country to country, depends upon the type of patent and its scope of coverage. The duration of the protection will further depend on the patent expiry date and on the availability of patent term extensions, as well as other regulatory provisions for exclusivity such as data exclusivity, orphan drug status and pediatric exclusivity.

        The following is a summary of the patent expiration dates for certain key products of our Pharmaceuticals Division:

Cardiovascular and Metabolism

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Diovan/Co-Diovan/Diovan HCT.    We have patent protection (including extensions) on valsartan, the active ingredient used in our best-selling products Diovan and Co-Diovan/ Diovan-HCT, until 2011 in the major countries of the EU (Patent expiry in February 2011, with an extension to May 2011 in France, Germany, Italy and the UK, and a pediatric extension to November 2011 already granted in some countries, and pending in others); until September 2012 in the US; and until 2013 for Diovan and 2016 for Co-Diovan in Japan. Patent litigations are ongoing against generic manufacturers in Europe and Asia.



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Exforge.    Exforge is a single-pill combination of amlodipine besylate and valsartan. The valsartan patent expires 2011-13 (see above), except that, in Japan, the valsartan patent was extended for the Exforge product only, to 2015. The patent on amlodipine besylate has expired. The patent covering the Exforge product will expire in 2019 and has been challenged in both the US and Europe. We have regulatory exclusivity for the data generated for Exforge in Europe until 2017 and in Japan until 2014.



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Tekturna/Rasilez, Valturna and Tekamlo.    Patent protection for aliskiren, the active ingredient of Tekturna/Rasilez, and the only patented active ingredient in Valturna and Tekamlo, will expire in 2018 in the US (not including pediatric extension) and between 2015 and 2020 in other markets.



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Galvus and Eucreas.    Patent protection for vildagliptin, the active ingredient of Galvus, and the patented active ingredient in Eucreas, is estimated to expire, with extensions, in 2019-24 in markets outside of the US, and in 2024 in the US (not including pediatric extension).

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Oncology

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Gleevec/Glivec.    We have patent protection on imatinib, the active ingredient used in our leading product Gleevec/Glivec, until July 2015 in the US (including pediatric extension), until 2016 in the major EU countries (including pediatric extension), and until 2014 in Japan (including extensions). Patent protection on a new crystal form of imatinib has been challenged in the US, but no challenge has been made to the compound patent in the US. In Turkey, where we do not have protection for the compound, we brought suit in 2007 for infringement of the imatinib formulation, indication and crystal form patents against a local company that had obtained generic marketing authorization for a generic version of Glivec. We obtained a preliminary injunction in Turkey, but it was lifted in 2008. Litigation is ongoing. In Canada, a generic company has challenged the compound patent.



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Tasigna.    Patent protection for the active ingredient in Tasigna will expire in 2023 in the US and other major markets.



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Zometa and Reclast/Aclasta.    Patent protection on zoledronic acid, the active ingredient in these products, will expire in 2013 in the US and 2012-2013 in other major markets. We have settled patent litigation which we brought in the US against a generic manufacturer who challenged our patent on zoledronic acid. Under the settlement agreement, the generic manufacturer has dropped the challenge against the Novartis patent and will not launch zoledronic acid in the US until after the patent covering Zometa and Reclast expires in March 2013.



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Femara.    Patent protection for the active ingredient in Femara will expire in 2011 in the US as well as in major European markets, and in 2012 in Japan. Data exclusivity in Japan expires in 2014. Patent litigation against a generic manufacturer who challenged the patent for the Femara active ingredient in the US has been settled. Generic versions of Femara are available in a limited number of EU countries, as well as in several developing country markets.



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Sandostatin.    Patent protection for the active ingredient of Sandostatin has expired. Generic versions of Sandostatin SC are available in the US and elsewhere. Patents protecting the Sandostatin LAR formulation, the long-acting version of Sandostatin which represents a majority of our Sandostatin sales, expire in 2014 and beyond in the US, but expired in July 2010 in key markets outside the US.



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Exjade.    Patent protection for the active ingredient in Exjade will expire in 2019 in the US and 2021 in other markets.



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Afinitor and Zortress/Certican.    Patent protection for everolimus, the active ingredient in these products, and licensed to Abbott and sublicensed to Boston Scientific for use in drug-eluting stents, is expected to expire in 2020 in the US and in 2018 - 2019 in Europe and other major countries.

Neuroscience and Ophthalmics

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Lucentis.    Patent protection for the active ingredient in Lucentis expires in 2018-22 in the EU and Japan. We do not have rights to market the product in the US. In December 2009, MedImmune filed a patent infringement suit against us in the UK and elsewhere in Europe, alleging that Lucentis infringes MedImmune's patents. MedImmune's European patents expire in 2011, but some may be extended to 2016. We have filed countersuits throughout Europe alleging non-infringement and invalidity.



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Exelon.    Patent protection for the active ingredient in Exelon, granted to Proterra and licensed to Novartis, will expire in 2012 in the US and in 2011 in most other major markets. We hold a patent on a specific isomeric form of the active ingredient used in Exelon which expires in 2012-14 in major markets. Exelon Patch is further covered by a formulation patent expiring in 2019 in major markets. Generic manufacturers filed applications to market a version of Exelon capsules in the US, but not the Exelon Patch, and challenged our patents. The resulting US lawsuits were settled.

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Under the terms of the settlement agreements, Novartis granted the generic manufacturers a license to our US patents covering Exelon. As a result, two generic manufacturers launched Exelon capsules in July 2010. The agreements do not permit the generic manufacturers to launch a generic version of the Exelon Patch prior to the patent expiration date. In some European countries generic manufacturers recently obtained marketing approvals for an oral Exelon formulation. In June 2010, several generic manufacturers in Spain were enjoined from selling generic versions of the oral formulation.

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Extavia.    Patent protection for the active ingredient of Extavia has expired. In May 2010, Biogen Idec filed a patent infringement suit in the US against Novartis, alleging that Extavia infringes its patent. The recently-granted patent will expire in September 2026. The litigation is ongoing.



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Comtan.    Patent protection for entacapone, the active ingredient in Comtan, which we licensed from Orion, will expire in the US in 2013 and in Europe in 2012. Other patents, such as a polymorph patent, have also been granted. Litigation concerning the patent on entacapone by Orion against generic manufacturers who have challenged these patents has been settled. Under the terms of the settlement agreements, the first to file generic challenger may launch a generic version of Comtan in September 2012, prior to the expiration of the entacapone compound patent. The second generic challenger can launch a generic version of Comtan in April 2013. Novartis was not a party to the litigation.



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Stalevo.    One of the active ingredients in Stalevo is entacapone, the active ingredient in Comtan. Patent protection for entacapone will expire in 2012-13 (see above). Stalevo is protected by additional patents expiring up to 2020. Patent litigation by Orion in the US against generic manufacturers who have challenged the patent on entacapone and Stalevo formulation patents has been settled, allowing the generic challengers to launch generic versions of Stalevo in April 2012, prior to the expiration of the entacapone compound patent. Novartis was not a party to the litigation.



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Gilenya.    Patent protection for fingolimod, the active ingredient in Gilenya (licensed from Mitsubishi Tanabe Pharma Corporation), is expected to expire in 2019 in the US (including a 5-year Patent Term Extension) and in 2018 in Europe. Patent protection for the commercial formulation of Gilenya will expire in 2024 in most major markets.

Respiratory

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Xolair.    Patent protection for the active ingredient in Xolair will expire in 2018 in the US and in 2017 in other markets.



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Onbrez.    Patent protection for the active ingredient of Onbrez is expected to expire in the US and EU in 2024 and in 2020 in various other markets.

Integrated Hospital Care

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Ilaris.    Patent protection for the active ingredient in Ilaris is expected to expire in 2023 in the US and in 2024 in Europe.



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Neoral/Sandimmune.    Patent protection for the cyclosporin ingredient of Neoral/Sandimmune has expired worldwide.



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Myfortic.    There is no patent protection for the active ingredient in Myfortic. Patents covering the formulation will expire in 2017. Patent litigation against the generic manufacturers which challenged these patents is ongoing in the US.

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Other Pharmaceutical Products

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Voltaren/Cataflam.    Patent protection for the active ingredient in Voltaren has expired worldwide.



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Lescol/Lescol XL.    Patent protection for the active ingredient in Lescol will expire in 2012 (including pediatric exclusivity) in the US and has already expired in 2008 in major European markets. Formulation patents will expire in 2012 and beyond. Patent litigation under the compound patent is ongoing against a generic manufacturer who filed for marketing authorization for a generic version of Lescol in the US, challenging the patent on the active ingredient and one formulation patent. An at-risk launch of a generic version of this product is possible in the US beginning in February 2011, at the expiration of the 30-month stay, absent a court decision to the contrary before then. Other generic manufacturers have filed for marketing authorization challenging formulation patents for Lescol XL in the US. In Europe, several generic manufacturers have challenged the validity of formulation patents for Lescol XL that expire in 2017. The European Patent Office (EPO), the UK and the Netherlands have revoked the patent, and the UK decision has been confirmed on appeal. The Dutch and EPO decisions are now on appeal. Generic manufacturers have launched generic products in several European markets.

        The loss of patent protection can have a significant adverse impact on our Pharmaceuticals Division. We work to offset these negative effects by developing process and product improvements, protecting those improvements with patents, by positioning many of our products in specific market niches, and marshalling our efforts to discover new therapeutic compounds. However, there can be no assurance that these strategies will be effective in the future to ensure competitive advantage, or that we will be able to avoid substantial adverse effects from the loss of patent protection in the future.

        There is also a risk that some countries, particularly countries in the developing world, may seek to impose limitations on the availability of patent protection for pharmaceutical products, or on the extent to which such protections may be enforced. In countries that adopt such measures, generic manufacturers will be able to introduce competing products earlier than they otherwise would under a patent protection regime.

        In addition, even though we may own or 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 an unlicensed third-party patent.

VACCINES AND DIAGNOSTICS

        Our Vaccines and Diagnostics Division is a leader in the research, development, manufacturing and marketing of vaccines and diagnostic tools worldwide. As of December 31, 2010, the Vaccines and Diagnostics Division employed 5,394 full-time equivalent associates worldwide in 30 countries. In 2010, the Vaccines and Diagnostics Division had consolidated net sales of $2.9 billion representing 6% of total Group net sales.

        The Novartis Vaccines and Diagnostics Division is a leading manufacturer of human vaccines, and is growing at double-digit rates. Novartis Vaccines' products include influenza, meningococcal, pediatric, adult and travel vaccines. Novartis Diagnostics is dedicated to preventing the spread of infectious diseases through the development and marketing of nucleic acid technology blood-screening products, and is also creating innovative diagnostics to detect, prevent, and predict disease and improve medical outcomes.

        The current product portfolio of our Vaccines and Diagnostics Division includes more than 20 marketed products. In addition, the division's portfolio of development projects includes more than 15 potential new products in various stages of clinical development.

        Influenza vaccines are a core franchise of the Division, with brands that include Fluvirin, Fluad, Agrippal, AgriFlu and Optaflu. Additionally, during the 2009-2010 A (H1N1) pandemic, Novartis offered three pandemic products, an A (H1N1) non-adjuvanted vaccine manufactured using the Fluvirin platform,

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Focetria and Celtura. Today Novartis is among the world's largest producers of influenza vaccines, and a major supplier to the US, UK, Italy, Germany and other countries. According to the World Health Organization, every year an estimated 3 million to 5 million people worldwide become seriously ill from influenza, and as many as 500,000—primarily children and the elderly—die from the ensuing complications. This year, we began shipping seasonal vaccine in August, and completed our entire shipment of 45 million doses to the US for the 2010/2011 season in October 2010, earlier than in previous years and ahead of many competitors.

        We continued to see strong clinical results supporting licensing applications for the broader use of Fluad, our adjuvanted seasonal vaccine currently available for the elderly in Europe and in countries in other regions. In October 2010, we presented data that demonstrated Fluad provided increased clinical protection against seasonal influenza in children as compared to traditional non-adjuvanted trivalent seasonal influenza vaccine, thus supporting potential expansion of its age indication and into additional markets including the US.

        In the first half of 2010, we completed the distribution of A (H1N1) vaccine, meeting our commitments to government customers and helping to protect millions against the pandemic virus strain. The rapid production and distribution of these vaccines—which began within four months of the World Health Organization's pandemic declaration on June 11, 2009—was an unprecedented, one-time event. While the A (H1N1) pandemic has concluded, we continue our work of developing pre-pandemic vaccines with the potential to protect the global population against possible future pandemics. In September 2010, the CHMP issued a positive opinion for Aflunov, an investigational pre-pandemic avian influenza vaccine, for active immunization against H5N1 subtype of Influenza A virus in adults 18 years of age and older. H5N1 (commonly referred to as avian or bird flu) accounts for most avian influenza outbreaks globally and is a serious health concern given its potential to evolve into a deadly pandemic strain at any time. In general, a pre-pandemic vaccine is intended to be used to protect against disease from circulating subtypes of influenza virus not included in the seasonal products, but which causes human disease or carries the potential to cause a pandemic.

        The Novartis meningococcal franchise is expected to be a cornerstone of future growth for the division. Our marketed and candidate vaccines have the potential to protect millions against meningococcal disease, which causes approximately 50,000 deaths a year globally. Because almost all cases of infection are caused by five serogroups—A, B, C, W-135 and Y—and the distribution of strains varies greatly over time and location, Novartis is working to deliver vaccines with broad coverage and the potential to protect all age groups at risk.

        Menveo (MenACWY-CRM), a quadrivalent conjugate vaccine for the prevention of the A, C, Y and W-135 strains of meningococcal meningitis, was approved in 2010 in the US for use in individuals 11-55 years old and in the EU for individuals 11 years and up. Our Menveo development program to expand the age range for which Menveo is indicated—to cover persons aged 2 months to 10 years old in the US and EU—is ongoing, and biologics license applications for use of Menveo in infants and toddlers were submitted in the US in 2010 with similar filings expected in Europe in 2011. Menveo has also received Halal certification in the US and Indonesia, facilitating its use for pilgrims from those and other countries to the Hajj and Umrah, where there is a history and increased risk of outbreaks of meningococcal disease.

        Bexsero, the Novartis investigational multicomponent meningococcal serogroup B vaccine (4CMenB), has shown the potential to be the first vaccine to provide broad coverage against meningococcal B disease. In September 2010, Novartis released pivotal Phase III data that indicated that a large majority of infants vaccinated with Bexsero achieved a robust immune response against all vaccine antigens. In the trial involving more than 3,600 infants, results showed that Bexsero met its primary endpoints, and exhibited an acceptable tolerability profile when co-administered with other routine infant vaccinations, thus supporting potential use of this vaccine in the first year of life when the medical need is considered to be the greatest. Additional data published in November in the Proceedings of the National Academy of

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Sciences showed that antibodies induced by Bexsero killed 85% of a large collection of MenB strains in adults and 74% in infants, who are at the highest risk for meningococcal disease.

        Novartis Vaccines continued to expand geographically, nearing completion of the acquisition of an 85% stake in the vaccines company Zhejiang Tianyuan Bio-Pharmaceutical Co., Ltd., which offers marketed vaccine products in China. In addition, we have achieved significant milestones in Brazil, entering into an agreement in 2009 with the Fundação Ezequiel Dias in Brazil for meningitis C vaccine technology transfer. This agreement has helped the vaccine be made available to all children in the country under two as part of a national immunization program starting in 2010.

        The Diagnostics business continued to grow in 2010. EFS, the French national blood service, began using Novartis nucleic acid testing (NAT) systems to screen the entire French blood supply for HIV and Hepatitis. (Previously, EFS used Novartis systems to screen 30% of its blood supply.) EFS is testing its blood donations in individual donor format (vs. pools of multiple donors) to ensure maximum analytical sensitivity, and at the same time eliminate the pooling and pool-resolution stages. Also during 2010, Novartis signed a long-term agreement with Creative Testing Solutions, the second-largest blood-testing laboratory in the United States, which will expand its use of Novartis NAT blood screening products, including the addition of testing blood donations for hepatitis B virus DNA using NAT.

        We also expanded our line of nucleic acid testing products in Asia Pacific with approval of the Procleix Ultrio test in China. The test detects HIV Type 1, Hepatitis B virus, and Hepatitis C virus in donated blood in a single assay. Novartis signed a collaboration and license agreement with Smiths Detection (UK) in April 2010 under which Novartis is granted exclusive rights to market Smiths Detection's Bio-Seeq instrument and the associated LATE PCR DNA analysis technology in the area of infectious disease diagnostics. Smiths Detection will leverage its expertise in instrument development and point-of-care diagnostic devices to further enhance the Bio-Seeq platform and sample preparation consumables and to develop a range of diagnostic tests. Novartis Diagnostics will be responsible for clinical trials, regulatory affairs, sales and marketing. Payments to Smiths Detection will be linked to product development and commercial milestones.

Vaccines and Diagnostics Division Products

        The summary and the tables that follow describe key marketed products and potential products in development in our Vaccines and Diagnostics Division. Subject to required regulatory approvals and, in certain instances, contractual limitations, we intend to sell our marketed products throughout the world. However, our Vaccines and Diagnostics Division products are not currently available in every country. Regarding our products in development, these products and indications are in various stages of development throughout the world. For some products, the development process is ahead in the US; for others, development in one or more other countries or regions is ahead of that in the US. Due to the uncertainties associated with the development process, and due to regulatory restrictions in some countries, it may not be possible to obtain regulatory approval for any or all of the new products referred to in this Form 20-F. See "—Regulation" for further information on the approval process.

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Key Marketed Vaccine Products

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In collaboration with Intercell

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In collaboration with Crucell

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Vaccine Key Products in Development

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Key Marketed Diagnostics Products

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