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TABLE OF CONTENTS
PART III
NOVARTIS GROUP INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on January 27, 2016


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



FORM 20-F


o

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2015

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-15024

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

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

Switzerland
(Jurisdiction of incorporation or organization)

Lichtstrasse 35
4056 Basel, Switzerland

(Address of principal executive offices)

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

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

Title of class
 
Name of each exchange on which registered
American Depositary Shares
each representing 1 share
Ordinary shares, nominal value CHF 0.50 per share*
  New York Stock Exchange

New York Stock Exchange*

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

None

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

None

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

2,373,894,817 shares

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

Yes ý    No o

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

Yes o    No ý

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

Yes ý    No o

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

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

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

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

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

Item 17 o         Item 18 o

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

Yes o    No ý


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

   


Table of Contents


TABLE OF CONTENTS

  INTRODUCTION AND USE OF CERTAIN TERMS     4  

 

FORWARD-LOOKING STATEMENTS

 

 

4

 

 

PART I

 

 

6

 

 

 

 

Item

 

1.

 

Identity of Directors, Senior Management and Advisers

 

 

6

 

 

 

 

Item

 

2.

 

Offer Statistics and Expected Timetable

 

 

6

 

 

 

 

Item

 

3.

 

Key Information

 

 

6

 
          3.A   Selected Financial Data     6  
          3.B   Capitalization and Indebtedness     8  
          3.C   Reasons for the offer and use of proceeds     8  
          3.D   Risk Factors     8  

 

 

 

Item

 

4.

 

Information on the Company

 

 

27

 
          4.A   History and Development of Novartis     27  
          4.B   Business Overview     31  
              Pharmaceuticals     34  
              Alcon     80  
              Sandoz     90  
          4.C   Organizational Structure     98  
          4.D   Property, Plants and Equipment     98  

 

 

 

Item

 

4A.

 

Unresolved Staff Comments

 

 

103

 

 

 

 

Item

 

5.

 

Operating and Financial Review and Prospects

 

 

103

 
          5.A   Operating Results     103  
          5.B   Liquidity and Capital Resources     178  
          5.C   Research & Development, Patents and Licenses     192  
          5.D   Trend Information     192  
          5.E   Off-Balance Sheet Arrangements     192  
          5.F   Tabular Disclosure of Contractual Obligations     193  

 

 

 

Item

 

6.

 

Directors, Senior Management and Employees

 

 

193

 
          6.A   Directors and Senior Management     193  
        6.B   Compensation     202  
          6.C   Board Practices     245  
          6.D   Employees     277  
          6.E   Share Ownership     278  

 

 

 

Item

 

7.

 

Major Shareholders and Related Party Transactions

 

 

279

 
          7.A   Major Shareholders     279  
          7.B   Related Party Transactions     281  
          7.C   Interests of Experts and Counsel     281  

 

 

 

Item

 

8.

 

Financial Information

 

 

282

 
          8.A   Consolidated Statements and Other Financial Information     282  
          8.B   Significant Changes     283  

 

 

 

Item

 

9.

 

The Offer and Listing

 

 

283

 
          9.A   Offer and Listing Details     283  
          9.B   Plan of Distribution     284  
          9.C   Markets     285  

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          9.D   Selling Shareholders     285  
          9.E   Dilution     285  
          9.F   Expenses of the Issue     285  

 

 

 

Item

 

10.

 

Additional Information

 

 

285

 
          10.A   Share Capital     285  
          10.B   Memorandum and Articles of Association     285  
          10.C   Material Contracts     290  
          10.D   Exchange Controls     291  
        10.E   Taxation     291  
          10.F   Dividends and Paying Agents     296  
          10.G   Statement by Experts     296  
          10.H   Documents on Display     297  
          10.I   Subsidiary Information     297  

 

 

 

Item

 

11.

 

Quantitative and Qualitative Disclosures about Market Risk

 

 

297

 

 

 

 

Item

 

12.

 

Description of Securities Other than Equity Securities

 

 

297

 
          12.A   Debt Securities     297  
          12.B   Warrants and Rights     297  
          12.C   Other Securities     297  
          12.D   American Depositary Shares     298  

 

PART II

 

 

300

 

 

 

 

Item

 

13.

 

Defaults, Dividend Arrearages and Delinquencies

 

 

300

 

 

 

 

Item

 

14.

 

Material Modifications to the Rights of Security Holders and Use of Proceeds

 

 

300

 

 

 

 

Item

 

15.

 

Controls and Procedures

 

 

300

 

 

 

 

Item

 

16A.

 

Audit Committee Financial Expert

 

 

300

 

 

 

 

Item

 

16B.

 

Code of Ethics

 

 

301

 

 

 

 

Item

 

16C.

 

Principal Accountant Fees and Services

 

 

301

 

 

 

 

Item

 

16D.

 

Exemptions from the Listing Standards for Audit Committees

 

 

301

 

 

 

 

Item

 

16E.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

 

302

 

 

 

 

Item

 

16F.

 

Change in Registrant's Certifying Accountant

 

 

302

 

 

 

 

Item

 

16G.

 

Corporate Governance

 

 

302

 

 

 

 

Item

 

16H.

 

Mine Safety Disclosure

 

 

302

 

 

PART III

 

 

303

 

 

 

 

Item

 

17.

 

Financial Statements

 

 

303

 

 

 

 

Item

 

18.

 

Financial Statements

 

 

303

 

 

 

 

Item

 

19.

 

Exhibits

 

 

304

 

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INTRODUCTION AND USE OF CERTAIN TERMS

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

        Unless the context requires otherwise, the words "we," "our," "us," "Novartis," "Group," "Company," and similar words or phrases in this Form 20-F refer to Novartis AG and its consolidated affiliates. However, each Group company is legally separate from all other Group companies and manages its business independently through its respective board of directors or other top local management body. No Group company operates the business of another Group company. Each executive identified in this Form 20-F reports directly to other executives of the Group company which employs the executive, or to that Group company's board of directors.

        In this Form 20-F, references to "US dollars" or "$" are to the lawful currency of the United States of America, and references to "CHF" are to Swiss francs; references to the "United States" or to "US" are to the United States of America, references to the "European Union" or to "EU" are to the European Union and its 28 member states, references to "Latin America" are to Central and South America, including the Caribbean, and references to "Australasia" are to Australia, New Zealand, Melanesia, Micronesia and Polynesia, unless the context otherwise requires; references to the "EC" are to the European Commission; references to "associates" are to employees of our affiliates; references to the "FDA" are to the US Food and Drug Administration, references to "EMA" are to the European Medicines Agency, an agency of the EU, and references to the "CHMP" are to the Committee for Medicinal Products for Human Use of the EMA; references to "ADR" or "ADRs" are to Novartis American Depositary Receipts, and references to "ADS" or "ADSs" are to Novartis American Depositary Shares; references to the "NYSE" are to the New York Stock Exchange, and references to the "SIX" are to the SIX Swiss Exchange; references to "GSK" are to GlaxoSmithKline plc, references to "Lilly" are to Eli Lilly and Company, and references to "CSL" are to CSL Limited.

        All product names appearing in italics are trademarks owned by or licensed to Group companies. Product names identified by a "®" or a "™" are trademarks that are not owned by or licensed to Group companies.




FORWARD-LOOKING STATEMENTS

        This Form 20-F contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Other written materials filed with or furnished to the US Securities and Exchange Commission (SEC) by Novartis, as well as other written and oral statements made to the public, may also contain forward-looking statements. Forward-looking statements can be identified by words such as "potential," "expected," "will," "planned," "pipeline," "outlook," or similar terms, or by express or implied discussions regarding potential new products, potential new indications for existing products, or regarding potential future revenues from any such products; potential shareholder returns or credit ratings; or regarding the potential financial or other impact on Novartis or any of our divisions of the strategic actions announced in January 2016 to focus our divisions, integrate certain functions and leverage our scale; or regarding any potential financial or other impact on Novartis as a result of the creation and operation of NBS; or regarding the potential financial or other impact on Novartis of the transactions with GSK, Lilly or CSL; or regarding potential future sales or earnings of the Novartis Group or any of its divisions; or by discussions of strategy, plans, expectations or intentions. You should not place undue reliance on these statements.

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        Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. There can be no guarantee that any new products will be approved for sale in any market, or that any new indications will be approved for any existing products in any market, or that any approvals which are obtained will be obtained at any particular time, or that any such products will achieve any particular revenue levels. Nor can there be any guarantee that Novartis will be able to realize any of the potential strategic benefits, synergies or opportunities as a result of the strategic actions announced in January 2016, the creation and operation of NBS, or the transactions with GSK, Lilly or CSL. Neither can there be any guarantee that Novartis will achieve any particular financial results in the future. Nor can there be any guarantee that shareholders will achieve any particular level of shareholder returns. Neither can there be any guarantee that the Group, or any of its divisions, will be commercially successful in the future, or achieve any particular credit rating.

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

        Some of these factors are discussed in more detail in this Form 20-F, including under "Item 3. Key Information—3.D. Risk factors," "Item 4. Information on the Company," and "Item 5. Operating and Financial Review and Prospects." Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Form 20-F as anticipated, believed, estimated or expected. We provide the information in this Form 20-F as of the date of its filing. We do not intend, and do not assume any obligation, to update any information or forward-looking statements set out in this Form 20-F as a result of new information, future events or otherwise.

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PART I

Item 1.    Identity of Directors, Senior Management and Advisers

        Not applicable.

Item 2.    Offer Statistics and Expected Timetable

        Not applicable.

Item 3.    Key Information

3.A    Selected Financial Data

        The selected financial information set out below has been extracted from our consolidated financial statements prepared in accordance with IFRS as issued by the IASB. Our consolidated financial statements for the years ended December 31, 2015, 2014 and 2013 are included in "Item 18. Financial Statements" in this Form 20-F.

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

 
  Year Ended December 31,  
 
  2015   2014   2013   2012   2011  
 
  ($ millions, except per share information)
 

INCOME STATEMENT DATA

                               

Net sales to third parties from continuing operations

    49,414     52,180     51,869     51,080     51,939  

Operating income from continuing operations

    8,977     11,089     10,983     11,507     10,293  

Income from associated companies

    266     1,918     599     549     526  

Interest expense

    (655 )   (704 )   (683 )   (724 )   (751 )

Other financial income and expense

    (454 )   (31 )   (92 )   (96 )   (2 )

Income before taxes from continuing operations

    8,134     12,272     10,807     11,236     10,066  

Taxes

    (1,106 )   (1,545 )   (1,498 )   (1,706 )   (1,381 )

Net income from continuing operations

    7,028     10,727     9,309     9,530     8,685  

Net income/(loss) from discontinued operations

    10,766     (447 )   (17 )   (147 )   387  

Group net income

    17,794     10,280     9,292     9,383     9,072  

Attributable to:

                               

Shareholders of Novartis AG

    17,783     10,210     9,175     9,270     8,940  

Non-controlling interests

    11     70     117     113     132  

Basic earnings per share ($)

   
 
   
 
   
 
   
 
   
 
 

Continuing operations

    2.92     4.39     3.76     3.89     3.59  

Discontinued operations

    4.48     (0.18 )   0.00     (0.06 )   0.16  

Total

    7.40     4.21     3.76     3.83     3.75  

Diluted earnings per share ($)

   
 
   
 
   
 
   
 
   
 
 

Continuing operations

    2.88     4.31     3.70     3.85     3.54  

Discontinued operations

    4.41     (0.18 )   0.00     (0.06 )   0.16  

Total

    7.29     4.13     3.70     3.79     3.70  

Cash dividends(1)

    6,643     6,810     6,100     6,030     5,368  

Cash dividends per share in CHF(2)

    2.70     2.60     2.45     2.30     2.25  

(1)
Cash dividends represent cash payments in the applicable year that generally relates to earnings of the previous year.

(2)
Cash dividends per share represent dividends proposed that relate to earnings of the current year. Dividends for 2011 through 2014 were approved at the respective AGMs and dividends for 2015 will be proposed to the Annual General Meeting on February 23, 2016 for approval.

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  Year Ended December 31,  
 
  2015   2014   2013   2012   2011  
 
  ($ millions)
 

BALANCE SHEET DATA

                               

Cash, cash equivalents and marketable securities & derivative financial instruments

    5,447     13,862     9,222     8,119     5,075  

Inventories

    6,226     6,093     7,267     6,744     5,930  

Other current assets

    11,172     10,805     13,294     13,141     13,079  

Non-current assets

    108,711     87,826     95,712     96,187     93,384  

Assets related to discontinued operations

          6,801     759              

Total assets

    131,556     125,387     126,254     124,191     117,468  

Trade accounts payable

    5,668     5,419     6,148     5,593     4,989  

Other current liabilities

    18,040     19,136     20,170     18,458     18,159  

Non-current liabilities

    30,726     27,570     25,414     30,877     28,331  

Liabilities related to discontinued operations

          2,418     50              

Total liabilities

    54,434     54,543     51,782     54,928     51,479  

Issued share capital and reserves attributable to shareholders of Novartis AG

    77,046     70,766     74,343     69,137     65,893  

Non-controlling interests

    76     78     129     126     96  

Total equity

    77,122     70,844     74,472     69,263     65,989  

Total liabilities and equity

    131,556     125,387     126,254     124,191     117,468  

Net assets

    77,122     70,844     74,472     69,263     65,989  

Outstanding share capital

    890     898     912     909     895  

Total outstanding shares (millions)

    2,374     2,399     2,426     2,421     2,407  

Cash Dividends per Share

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

Year Earned
  Month and
Year Paid
  Total Dividend
per share
(CHF)
  Total Dividend
per share
($)
 

2011

  March 2012     2.25     2.48  

2012

  March 2013     2.30     2.44  

2013

  March 2014     2.45     2.76  

2014

  March 2015     2.60     2.67  

2015(1)

  March 2016     2.70     2.73 (2)

(1)
Dividend to be proposed by the Board of Directors to the Annual General Meeting on February 23, 2016 and to be distributed February 29, 2016

(2)
Translated into US dollars at the Bloomberg Market System December 31, 2015 rate of $1.011 to the Swiss franc. This translation is an example only, and should not be construed as a representation that the Swiss franc amount represents, or has been or could be converted into US dollars at that or any other rate.

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Exchange Rates

        The following table shows, for the years and dates indicated, certain information concerning the rate of exchange of US dollar per Swiss franc based on exchange rate information found on Bloomberg Market System. The exchange rate in effect on January 20, 2016, as found on Bloomberg Market System, was CHF 1.00 = $0.998.

Year ended December 31,
($ per CHF)
  Period End   Average(1)   Low(2)   High(2)  

2011

    1.06     1.13     1.06     1.25  

2012

    1.09     1.07     1.02     1.12  

2013

    1.12     1.08     1.05     1.12  

2014

    1.01     1.09     1.01     1.13  

2015

    1.01     1.04     0.97     1.08  

Month

   
 
   
 
   
 
   
 
 

August 2015

                1.02     1.07  

September 2015

                1.02     1.04  

October 2015

                1.01     1.05  

November 2015

                0.97     1.01  

December 2015

                0.97     1.02  

January 2016 (through January 20, 2016)

                0.99     1.01  

(1)
Represents the average of the exchange rates on the last day of each month during the year.

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

3.B    Capitalization and Indebtedness

        Not applicable.

3.C    Reasons for the offer and use of proceeds

        Not applicable.

3.D    Risk Factors

        Our businesses face significant risks and uncertainties. You should carefully consider all of the information set forth in this annual report on Form 20-F and in other documents we file with or furnish to the SEC, including the following risk factors, before deciding to invest in or to maintain an investment in any Novartis securities. Our business, as well as our financial condition or results of operations could be materially adversely affected by any of these risks, as well as other risks and uncertainties not currently known to us or not currently considered material.

Risks Facing Our Business

Our products face important patent expirations and significant competition.

        The products of our Pharmaceuticals and Alcon Divisions, as well as certain key products of our Sandoz Division, are generally protected by patent and other intellectual property rights, which are intended to provide us with exclusive rights to market the products. However, those intellectual property rights have varying strengths and durations. Loss of market exclusivity for one or more important products has had, and can be expected to continue to have a material adverse effect on our results of operations.

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        The introduction of generic competition for a patented medicine typically results in a significant and rapid reduction in net sales and net income for the patented product because generic manufacturers typically offer their unpatented versions at sharply lower prices. Such competition can occur after successful challenges to intellectual property rights or the regular expiration of the term of the patent or other intellectual property rights. Such competition can also result from the entry of generic versions of another medicine in the same therapeutic class as one of our drugs, or in another competing therapeutic class, from the compulsory licensing of our drugs by governments, or from a general weakening of intellectual property laws in certain countries around the world. In addition, generic manufacturers sometimes take an aggressive approach to challenging patents, conducting so-called "launches at risk" of products that are still under legal challenge for patent infringement, before final resolution of legal proceedings.

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

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

        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".

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        In 2016, we expect an impact on our net sales of approximately $3.2 billion as a result of the loss of intellectual property protection for our products, including Gleevec/Glivec. Because we typically have substantially reduced marketing and research and development expenses related to products that are in their final year of exclusivity, we expect that this loss of intellectual property protection also will have an impact on our 2016 operating income in an amount corresponding to a significant portion of the products' lost sales. The magnitude of the impact of generic competition could depend on a number of factors, including the time of year at which such exclusivity would be lost; the ease or difficulty of manufacturing a competitor product and obtaining regulatory approval to market it; the number of generic competitor products approved, including whether, in the US, a single competitor is granted an exclusive marketing period, and whether an authorized generic is launched; and the geographies in which generic competitor products are approved, including the strength of the market for generic pharmaceutical products in such geographies and the comparative profitability of branded pharmaceutical products in such geographies.

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

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

        Products that compete with ours, including products competing against some of our best-selling products, are launched from time to time. We cannot predict with accuracy the timing of the introduction of such competitive products or their possible effect on our sales. However, products significantly competitive to our major products Lucentis, Gilenya and Afinitor have been launched. Such products, and other competitive products, could significantly affect the revenues from our products and our results of operations.

        Similarly, our Alcon Division, a leader in the eye care industry, has recently suffered declining growth rates due in part to increased competition for its products, across all of its business franchises. To counter this, we are taking steps to accelerate growth to improve the division's sales and profits. Our efforts under this plan are expected to take time to succeed. As a result, such competition and other factors can be expected to affect Alcon's business, financial condition or results of operations in the near term. In addition, despite the implementation of the growth acceleration plan, our efforts to improve Alcon's performance may prove insufficient. Should our growth acceleration efforts fail to accomplish its goals, or fail to do so in a timely manner, it could have a material adverse impact on our business, financial condition or results of operations beyond the near term, as well. See also the discussion of Alcon's new product development efforts in "—Our research and development efforts may not succeed in bringing new products to market, or may fail to do so cost efficiently enough, or in a manner sufficient to grow our business, replace lost revenues and income and take advantage of new technologies" below.

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

        Our ability to continue to maintain and grow our business, to replace sales lost due to competition, entry of generics or other reasons, and to bring to market products and medical advances that take advantage of new, and potentially disruptive technologies depends in significant part upon the success of our research and development activities in identifying, and successfully and cost-effectively developing

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new products that address unmet medical needs, are accepted by patients and physicians, and are reimbursed by payors. To accomplish this, we commit substantial effort, funds and other resources across our divisions to research and development, both through our own dedicated resources and through collaborations with third parties. Developing new healthcare products and bringing them to market, however, is a highly costly, lengthy and uncertain process. In spite of our significant investments, there can be no guarantee that our research and development activities will produce commercially viable new products that will enable us to grow our business and replace revenues and income lost to generic and other competition.

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

        In addition, following a series of widely publicized issues, health regulators have increased their focus on product safety. Governmental authorities and payors around the world have also paid increased attention to whether new products offer a significant benefit over other products in the same therapeutic class. These developments have led to requests for more clinical trial data, for the inclusion of 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 and reimbursement for pharmaceutical products has become even more challenging.

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

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

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

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

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

Our business is affected by pressures on pricing 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 healthcare spending even more tightly. These pressures are particularly strong given the persistently weak economic and financial environment in many countries and the increasing demand for healthcare resulting from the aging of the global population and the prevalence of behaviors that increase the risk of obesity and other chronic diseases. In addition, in certain countries, governments, patients, healthcare providers and the media are increasingly raising questions about healthcare pricing issues. 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 divisions, and involve a number of cost-containment measures, such as government-imposed industry-wide price reductions, mandatory pricing systems, reference pricing systems, payors limiting access to treatments based on cost-benefit analyses, an increase in imports of drugs from lower-cost countries to higher-cost countries, shifting of the payment burden to patients through higher co-payments, limiting physicians' ability to choose among competing medicines, mandatory substitution of generic drugs for the patented equivalent, and growing pressure on physicians to reduce the prescribing of patented prescription medicines. For more information on such price controls see "Item 4. Information on the Company—Item 4.B Business Overview—Pharmaceuticals—Price Controls."

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        As a result of such measures, we faced downward pricing pressures on our patented and generic drugs in countries around the world in 2015. These pressures ranged from efforts by many governments and proposals by politicians to reduce the amounts we would be paid for our medicines, intense publicity regarding the pricing of pharmaceuticals, including publicity and pressure resulting from prices charged by competitors and peer companies for new products as well as price increases by competitors and peer companies on older products that the public deemed excessive, and government investigations into pharmaceutical pricing practices.

        We expect these challenges to continue and possibly increase in 2016 as political pressures mount, and healthcare payors around the globe, including government-controlled health authorities, insurance companies and managed care organizations, step up initiatives to reduce the overall cost of healthcare, restrict access to higher-priced new medicines, increase the use of generics and impose overall price cuts. Such pressures could have a material adverse impact on our business, financial condition or results of operations, as well as on our reputation.

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

        We are obligated to comply with the laws of all of the countries around the world in which we operate and sell products with respect to an extremely wide and growing range of activities. Such legal requirements can vary from country to country and new requirements may be imposed on us from time to time as government and public expectations regarding acceptable corporate behavior change. For example, there are new laws in the US and in other countries around the world that require us to be more transparent with respect to our interactions with healthcare professionals. To help us in our efforts to comply with the many requirements that impact us, we have a significant global ethics and compliance program in place, and we devote substantial time and resources to efforts to ensure that our business is conducted in a lawful and publicly acceptable manner. Nonetheless, despite our efforts, any actual or alleged failure to comply with law or with heightened public expectations could lead to substantial liabilities that may not be covered by insurance, or to other significant losses, and could affect our business and reputation.

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

        Such proceedings are inherently unpredictable, and large judgments sometimes occur. As a consequence, we may in the future incur judgments or enter into settlements of claims that could involve large cash payments, including the potential repayment of amounts allegedly obtained improperly, and other penalties, including treble damages. In addition, such proceedings may affect our reputation, create a risk of potential exclusion from government reimbursement programs in the US and other countries, may lead to civil litigation and otherwise subject us to monetary penalties. Further, judgments and settlements sometimes require companies to enter into corporate integrity or similar agreements, which are intended to regulate company behavior for a period of years. Any such resolutions could have a material adverse impact on our business, financial condition or results of operations, as well as on our reputation.

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        Our businesses are and have been subject to a number of these types of cases and governmental investigations, including the following:

A number of significant legal matters remain pending against us. For more detail see "Item 18. Financial Statements—Note 20." See also "—Our reliance on outsourcing and third parties for the performance of key business functions heightens the risks faced by our businesses" below.

        In addition, our Sandoz Division may from time to time seek approval to market a generic version of a product before the expiration of patents claimed by the marketer of the patented product. We do this in cases where we believe that the relevant patents are invalid, unenforceable, or would not be infringed by our generic product. As a result, affiliates of our Sandoz Division frequently face patent litigation, and in certain circumstances, we may elect to market a generic product even though patent infringement actions are still pending. Should we elect to proceed in this manner and conduct a "launch at risk," we could face substantial damages if the final court decision is adverse to us.

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

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

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

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

        Like many of our competitors, we have faced significant manufacturing issues in recent years. As a result of such issues, we were unable to supply certain products to the market for significant periods of time, and suffered significant losses in sales and market share. In October 2015, the FDA issued a warning letter to our Sandoz Division concerning their sites in Kalwe and Turbhe, India, relating to documentation practices in Kalwe and sterile manufacturing practices in Turbhe that were identified during an inspection in August 2014. Though we have taken steps to respond to the warning letter, there can be no guarantee that FDA's concerns will be met.

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

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

        Also as part of the Group's portfolio of products, we have a number of sterile products, including oncology products, which are technically complex to manufacture, and require sophisticated environmental controls. Because the production process for such products is so complex and sensitive, the chance of production failures and lengthy supply interruptions is increased.

        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 production issue could endanger our reputation and subject us to lawsuits or to allegations that the public health, or the health of individuals, has been harmed.

        In sum, a disruption in the supply of certain key products—whether as a result of a failure to comply with applicable regulations or health authority expectations, the fragility of the production process, inability to obtain product or raw materials from a sole source of supply, natural or man-made disasters at one of our facilities or at a critical supplier or vendor, or our failure to accurately predict demand—could have a material adverse effect on our business, financial condition or results of operations, as well as our reputation. See also "—Earthquakes and other natural disasters could adversely affect our business," below.

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

        Many of the world's largest economies and financial institutions continue to be impacted by a weak ongoing global economic and financial environment, with some continuing to face financial difficulty, liquidity problems and limited availability of credit. In addition, we continue to see weak economic growth or a slowing of economic growth rates in certain emerging growth markets, such as China, Russia, Brazil and India. It is uncertain how long these effects will last, or whether economic and financial trends will worsen or improve. In addition, these issues may be further impacted by the unsettled political conditions currently existing in the US and Europe, as well as the difficult conditions existing in parts of the Middle East and places such as Ukraine, as well as the ongoing refugee crisis, anti-immigrant activities, social unrest and fears of terrorism that have followed in many countries. Such uncertain times may have a material adverse effect on our revenues, results of operations, financial condition and, if circumstances worsen, our ability to raise capital at reasonable rates. For example, financial weakness in certain countries has increased pressures on those countries, and on payors in those countries, to force healthcare companies to decrease the prices at which we may sell them our products. See also "Item 4. Information on the Company—Item 4.B Business Overview—Pharmaceuticals—Price Controls."

        Concerns continue that payors in some countries, including Greece, Italy, Portugal and Spain, may not be able to pay us in a timely manner. Certain other countries are experiencing high inflation rates and have taken steps to introduce exchange controls and limit companies from distributing retained earnings or paying intercompany payables due from those countries. The most significant country in this respect is Venezuela, where we are exposed to a potential devaluation loss in the income statement on our total intercompany balances with our subsidiaries there, which at December 31, 2015 amounted to $0.3 billion. In November 2015, one of our Venezuelan subsidiaries agreed with Venezuelan authorities to settle a substantial part of our existing intercompany trade payables dated on or before December 31, 2014 in a transaction that, in turn, required us to use a significantly devalued US dollar/Venezuela bolivar exchange rate for consolidation of the financial statements of our Venezuela subsidiaries. The use of the new exchange rate resulted in a $211 million loss from the re-measurement of the intra-Group and third party liabilities. Ongoing conditions in Venezuela and other such countries could continue to lead to further devaluations of their currencies, which could in turn result in significant additional financial losses to the Group in the future. See also "Item 5. Operating and Financial Review and Prospects—Item 5.B Liquidity and Capital Resources—Effects of Currency Fluctuations" and "—Condensed Consolidated Balance Sheets," and "Item 18. Financial Statements—Notes 15 and 29."

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

        In addition, the varying effects of difficult economic times on the economies, currencies and financial markets of different countries has impacted, and may continue to unpredictably impact, our business and results of operations including the conversion of our operating results into our reporting currency, the US dollar, as well as the value of our investments in our pension plans. See "—Foreign exchange fluctuations may adversely affect our earnings and the value of some of our assets," below, and "—If any of numerous

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

        To the extent that the economic and financial conditions directly affect consumers, some of our businesses, including the elective surgical business of our Alcon Division, may be particularly sensitive to declines in consumer spending. In addition, our Pharmaceuticals and Sandoz Divisions, and the remaining businesses of our Alcon Division, 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 medical devices to help cope with rising costs and difficult economic times.

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

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

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

        Changes in exchange rates between the US dollar, our reporting currency, and other currencies can result in significant increases or decreases in our reported sales, costs and earnings as expressed in US dollars, and in the reported value of our assets, liabilities and cash flows.

        In 2015, the US dollar continued its significant increase in value against most currencies. In particular, the average value of the euro, the Japanese yen and emerging market currencies (especially the ruble) decreased in 2015 against the US dollar. However, in January 2015, following an announcement by the Swiss National Bank that it was discontinuing its minimum exchange rate with the euro, the value of the Swiss franc increased substantially. In addition, in 2015, China took steps to devalue its currency, and the value of its currency against the US dollar has continued to decline.

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

        Despite measures undertaken to reduce, or hedge against, foreign currency exchange risks, because a significant portion of our earnings and expenditures are in currencies other than the US dollar, including

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expenditures in Swiss francs that are significantly higher than our revenues in Swiss francs, such exchange rate volatility may negatively and materially impact the Group's business, results of operations and financial condition, and may impact the reported value of our net sales, earnings, assets and liabilities. In addition, the timing and extent of such volatility can be difficult to predict. Further, depending on the movements of particular foreign exchange rates, the Group may be materially adversely affected at a time when the same currency movements are benefiting some of our competitors.

        For more information on the effects of currency fluctuations on our consolidated financial statements and on how we manage currency risk, see "Item 5. Operating and Financial Review and Prospects—Item 5.B Liquidity and Capital Resources—Effects of Currency Fluctuations" "Item 11. Quantitative and Qualitative Disclosures about Market Risk", and "Item 18. Financial Statements—Note 29."

We may not successfully achieve our goals in strategic transactions or reorganizations, including the portfolio transformation transactions, the strategic reorganizations we announced in January 2016, and the formation of Novartis Business Services.

        As part of our strategy, from time to time we evaluate and pursue potential strategic business acquisitions and divestitures to expand or complement our existing businesses, or to enable us to focus more sharply on our strategic businesses. We cannot ensure that suitable acquisition candidates will be identified. Acquisition activities can be thwarted by overtures from competitors for the targeted assets, potentially increasing prices demanded by sellers, governmental regulation (including market concentration limitations) and replacement product developments in our industry. Once an acquisition is agreed upon with a third party, we may not be able to complete the acquisition in the expected form or within the expected time frame, or at all, due to a failure to obtain required regulatory approvals or a failure to achieve contractual or other required closing conditions. Further, after an acquisition, efforts to integrate the business may not meet expectations, or may otherwise not be successful, as a result of corporate cultural differences, difficulties in retention of key personnel, customers and suppliers, coordination with other products and processes, or other reasons. Also, acquisitions and divestments could divert management's attention from our existing businesses, and could result in the existing businesses failing to achieve expected results, or in liabilities being incurred that were not known at the time of acquisition, or the creation of tax or accounting issues.

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

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

        In addition, as part of our strategy, from time to time we reassess the optimal organization of our business, including the allocation of products by division and the level of centralization and simplification of certain functions across the Group, to better align those products and functions with the capabilities and expertise required for competitive advantage. As an example of this, in January 2016 we announced a series of strategic actions intended to further focus our divisions, including focusing our Alcon Division on its Surgical and Vision Care franchises, strengthening our ophthalmic medicines business by transferring Alcon's Ophthalmic Pharmaceuticals products to our Pharmaceuticals Division, and shifting selected

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mature pharmaceutical products from our Pharmaceuticals Division into Sandoz. We also announced steps to increase Group-wide coordination of drug development, and to improve efficiency with an integrated manufacturing operation and more shared commercial and medical services at the country level. We expect these actions to further strengthen our competitive position, enable us to maintain our leading position in research and development, and free resources for our growth priorities. But the expected benefits of this reorganization may never be fully realized or may take longer to realize than expected. There can be no certainty that the numerous businesses and functions involved will be successfully integrated into the new organizations and that key personnel will be retained. Disruption from the reorganizations may make it more difficult to maintain relationships with customers, employees or suppliers, and may result in the Group not achieving the expected productivity and financial benefits, including potential sales declines and lost profits.

        Similarly, in 2014 we created a shared services organization, Novartis Business Services (NBS). NBS consolidates a number of business support services previously spread across divisions, including Information Technology, Financial Reporting and Accounting Operations, Real Estate & Facility Services, Procurement, Payroll and Personnel Administration and the Pharmaceuticals Global Business Services. This reorganization was designed to improve profitability and free up resources that could be reinvested in growth and innovation, and to allow our divisions to focus more on customer-facing activities. But the expected benefits of this reorganization may never be fully realized or may take longer to realize than expected. There can be no certainty that the numerous business functions involved will be successfully integrated into a single organization and that key personnel will be retained. Disruption from the reorganization may make it more difficult to maintain relationships with customers, employees or suppliers, and may result in the Group not achieving the expected productivity and financial benefits.

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

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

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

        We regularly review our long-lived intangible and tangible assets, including identifiable intangible assets, investments in associated companies and goodwill, for impairment. Goodwill, acquired research and development, and acquired development projects not yet ready for use are subject to impairment review at least annually. Other long-lived assets are reviewed for impairment when there is an indication that an impairment may have occurred. Impairment testing under IFRS may lead to impairment charges in the future. Any significant impairment charges could have a material adverse effect on our results of operations and financial condition. In 2015, for example, we recorded intangible asset impairment charges of $347 million. 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 Goodwill, Intangible Assets and Property, Plant and Equipment" and "Item 18. Financial Statements—Notes 1 and 11."

Our indebtedness could adversely affect our operations.

        As of December 31, 2015 we had $16.3 billion of non-current financial debt and $5.6 billion of current financial debt. Our current and long-term debt requires us to dedicate a portion of our cash flow to service interest and principal payments and, if interest rates rise, this amount may increase. In addition, our

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existing debt may limit our ability to engage in transactions or otherwise may place us at a competitive disadvantage relative to competitors that have less debt. We may also have difficulty refinancing our existing debt or incurring new debt on terms that we would consider to be commercially reasonable, if at all.

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

        We invest a significant amount of effort and 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. Our reliance on outsourcing and third parties for certain functions, such as the research and development or manufacturing of products, may limit the potential profitability of such products. In addition, despite contractual relationships with the third parties to whom we outsource these functions, we cannot ultimately control how they perform their contracts. Nonetheless, we depend on these third parties to achieve results which may be significant to us. If the third parties fail to meet their obligations or to comply with the law, we may lose our investment in the collaborations and fail to receive the expected benefits. In addition, should any of these third parties fail to comply with the law in the course of their performance of services for us, there is a risk that we could be held responsible for such violations of law, as well and that our reputation may suffer. Any such failures by third parties could have a material adverse effect on our business, financial condition, results of operations or reputation.

        In particular, in many countries, including many developing markets, we rely heavily on third party distributors and other agents for the marketing and distribution of our products. Many of these third parties do not have internal compliance resources comparable to those within our organization. Some of these countries are plagued by corruption. If our efforts to 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 on our business, financial condition or results of operations.

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

        At a time of slowing growth in sales of healthcare products in industrialized countries, many emerging markets have in recent years experienced proportionately higher sales growth and an increasing contribution to the industry's global performance. In 2015, our Continuing Operations generated $12.4 billion, or approximately 25% (2014: 26%) of our net sales from Emerging Growth Markets—which comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand—as compared with $37.0 billion, or approximately 75% (2014: 74%) of our net sales, in the Established Markets. However, combined net sales in the Emerging Growth Markets grew 7% in constant currencies in 2015, compared to 4% sales growth in constant currencies in the Established Markets during the same period. As a result of this trend, we continue to take steps to increase our activities in the Emerging Growth Markets, and have been making significant investments in our businesses in those countries.

        In the past year, however, certain of these Emerging Growth Market countries, including Brazil, India, China and Russia, have experienced economic slowdowns. As a result, there can be no guarantee that our efforts to expand our sales in these countries will succeed, or that these countries will once again experience growth rates significantly in excess of the world's largest markets. In particular, some Emerging Growth Market countries may be especially vulnerable to the effects of the persistently weak global financial environment, may have very limited resources to spend on healthcare or may be susceptible to political and social instability. See "—The persistently weak global economic and financial environment in many countries and increasing political and social instability may have a material adverse effect on our results" above. Many of these countries are subject to increasing political and social pressures, including

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from a growing middle class seeking increased access to healthcare. Such pressures on local government may in turn result in an increased focus by the governments on our pricing, and may put at risk our intellectual property. See "—Our business is increasingly affected by pressures on pricing for our products," and "Our products face important patent expirations and significant competition" above.

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

        In addition, many of these countries have currencies that may fluctuate substantially. If these currencies devalue significantly against the US dollar—as happened in China and Russia, among others, in the past year—and we cannot offset the devaluations with price increases, then our products may become less profitable, or may otherwise impact our reported financial results. Currency devaluation risk may also exist in countries with high inflation economies. Should these countries take steps that cause their currencies to be devalued, we may realize a significant financial loss. See "—The persistently weak global economic and financial environment in many countries and increasing political and social instability may have a material adverse effect on our results" and "—Foreign exchange fluctuations may adversely affect our earnings and the value of some of our assets," above. Ongoing conditions in such high inflation countries could continue to lead to further devaluations of their currencies, which could in turn result in significant additional financial losses to the Group in the future.

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

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

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

        In addition, the division faces intense competition from companies that market patented pharmaceutical products, which sometimes take aggressive steps to prevent or delay the introduction of generic medicines, to limit the availability of exclusivity periods or to reduce their value, and from other generic pharmaceuticals companies, which aggressively compete for exclusivity periods and for market share of generic products that may be identical to certain of our generic products. These activities may increase the costs and risks associated with our efforts to introduce generic products and may delay or entirely prevent their introduction.

        Sandoz has also invested heavily in the development of biosimilar drugs, despite the fact that regulations concerning their marketing and sale in certain countries, including in the US, are still under development or not entirely clear. If, despite ongoing efforts by us and others to encourage the

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development of such regulations, such regulations do not ultimately favor the development and sale of biosimilar products, then we may fail to achieve expected returns on the investments by Sandoz in the development of biosimilars. See also "—Our research and development efforts may not succeed in bringing new products to market, or may fail to do so cost-efficiently enough, or in a manner sufficient to grow our business and replace lost revenues and income" above, with regard to the risks involved in our efforts to develop differentiated generic products.

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

        We sponsor pension and other post-employment benefit plans in various forms. These plans cover a significant portion of our current and former associates. While most of our plans are now defined contribution plans, certain of our associates remain under defined benefits plans. For these defined benefits plans, we are required to make significant assumptions and estimates about future events in calculating the present value of expected future expenses and liabilities related to these plans. These include assumptions used to determine the discount rates we apply to estimated future liabilities 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 persistently weak global financial environment, which, to date, have resulted in extremely low or negative interest rates in many countries), higher or lower withdrawal rates, or longer or shorter life spans of participants, among other variables. For example, a decrease in the interest rate we apply in determining the present value of expected future defined benefit obligations of one-quarter of one percent would have increased our year-end defined benefit pension obligation for plans in Switzerland, US, UK, Germany and Japan, which represent about 95% of the Group total defined benefit pension obligation, by $0.8 billion. Any differences between our assumptions and estimates and our actual experience could have a material effect on our results of operations and financial condition. Further, additional employer contributions might be required if plan funding falls below the levels required by local rules. For more information on obligations under retirement and other post-employment benefit plans and underlying actuarial assumptions, see "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Critical Accounting Policies and Estimates—Retirement and other post-employment benefit plans" and "Item 18. Financial Statements—Note 25". See also "—The persistently weak global economic and financial environment in many countries and increasing political and social instability may have a material adverse effect on our results" above.

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

        The integrated nature of our worldwide operations enables us to achieve an attractive effective tax rate on our earnings because a portion of our earnings are earned in jurisdictions that tax profits at more favorable rates. In recent years, tax authorities around the world have increased their scrutiny of company tax structures, and have become more rigid in exercising any discretion they may have. As a result, companies' flexibility to optimally structure their organizations for business and tax purposes may be significantly reduced. In addition, the public is increasingly taking an interest in what the tax burden of multinational companies should be. Any changes in tax laws or in the laws' application that may result from this, including with respect to tax base or rate, transfer pricing, intercompany dividends and cross-border transactions, 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.

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

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

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

        Increasingly, a significant portion of our global sales are made to a relatively small number of drug wholesalers, retail chains and other purchasing organizations. For example, our three most important customers globally are all in the US, and accounted for approximately 14%, 11% and 5%, respectively, of Group net sales in 2015. The largest trade receivables outstanding were for these three customers, amounting to 13%, 9% and 6%, respectively, of the Group's trade receivables at December 31, 2015. The trend has been toward further consolidation among distributors and retailers, both in the US and internationally. As a result, our customers are gaining additional purchasing leverage, which increases the pricing pressures facing our businesses. Moreover, we are exposed to a concentration of credit risk as a result of this concentration among our customers. If one or more of our major customers experienced financial difficulties, the effect on us would be substantially greater than in the past. 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, training and retaining qualified individuals. The loss of the service of key members of our organization—including senior members of our scientific and management teams, high-quality researchers and development specialists, and skilled personnel in emerging markets—could delay or prevent the achievement of major business objectives.

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

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

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

        In addition, our ability to hire qualified personnel also depends on the flexibility to reward superior performance and to pay competitive compensation. Laws and regulations on executive compensation,

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including legislation in our home country, Switzerland, may restrict our ability to attract, motivate and retain the required level of qualified personnel.

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

Significant breaches of data security or disruptions of information technology systems, including by cyber-attack or other security breach, and breaches of the privacy rights of third parties could adversely affect our business.

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

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

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

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

        In addition, to the extent that we seek as a company to use internet, social media and mobile tools as a means to communicate with the public about our products or about the diseases our products are intended to treat, there continue to be significant uncertainties as to the rules that apply to such

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communications, and as to the interpretations that health authorities will apply in this context to the rules that do exist. As a result, despite our efforts to comply with applicable rules, there is a significant risk that our use of social media and mobile technologies for such purposes may cause us to nonetheless be found in violation of them.

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

Environmental liabilities may adversely impact our results of operations.

        The environmental laws of various jurisdictions impose actual and potential obligations on us to remediate contaminated sites, in some cases over many years. While we have set aside substantial provisions for worldwide environmental liabilities, there is no guarantee that additional costs will not be incurred beyond the amounts for which we have provided in the Group consolidated financial statements. If environmental contamination caused by us adversely impact third parties, if we fail to properly manage the safety of our facilities and the environmental risks, or if we are required to further increase our provisions for environmental liabilities in the future, this could have a material adverse effect on our business, financial condition, results of operations, and on our reputation. See also "Item 4.D Property, Plants and Equipment—Environmental Matters" and "Item 18. Financial Statements—Note 20."

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

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

        In addition, our corporate headquarters, the headquarters of our Pharmaceuticals Division, and certain of our major Pharmaceuticals Division production and research facilities are located near earthquake fault lines in Basel, Switzerland. Other major facilities are located near major earthquake fault lines in various locations around the world. In the event of a major earthquake, we could experience business interruptions, destruction of facilities and loss of life, all of which could have a material adverse effect on our business, financial condition and results of operations. See also "—The manufacture of our products is highly regulated and complex, and may result in a variety of issues that could lead to extended supply disruptions and significant liability," above.

Risks Related To Our ADRs

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

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

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decreases against the US dollar, the price at which our ADRs trade may—and the value of the US dollar equivalent of any dividend will—decrease accordingly.

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

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

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Item 4.    Information on the Company

4.A History and Development of Novartis

Novartis AG

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

        Novartis is a multinational group of companies specializing in the research, development, manufacturing and marketing of a broad range of healthcare products led by innovative pharmaceuticals. Novartis AG, our Swiss holding company, owns, directly or indirectly, all of our significant operating companies. For a list of our significant operating subsidiaries, see "Item 18. Financial Statements—Note 32."

Important Corporate Developments 2013-January 2016

 
   
2016    

January

 

Novartis announces leadership changes effective February 1, 2016. Mike Ball has been appointed Division Head and CEO Alcon, succeeding Jeff George; Dr. Vas Narasimhan has been appointed Global Head Drug Development and Chief Medical Officer; and André Wyss has been appointed President, Novartis Operations.

 

 

Novartis announces that it is taking a number of steps to further build on its strategy, including focusing the Alcon Division on its Surgical and Vision Care franchises, with specific actions identified to accelerate growth, and strengthening the ophthalmic medicines business by transferring Alcon's Ophthalmic Pharmaceuticals products to the Pharmaceuticals Division; centralizing manufacturing operations across divisions within a single technical operations unit; increasing Group-wide coordination of drug development by establishing a single Global Head of Drug Development and centralizing certain common functions such as the Chief Medical Office; and shifting selected mature, non-promoted pharmaceutical products from the Pharmaceuticals Division into the Sandoz Division.

 

 

Novartis announces a collaboration and licensing agreement with Surface Oncology, which gives Novartis access to four pre-clinical programs in immuno-oncology.

2015

 

 

November

 

Novartis completes a $3 billion bond offering under its US SEC Registration Statement on Form F-3.

October

 

Novartis announces the acquisition of Admune Therapeutics to broaden its portfolio of cancer immunotherapies.

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September   Novartis announces the appointment of Dr. James E. Bradner as President of the Novartis Institutes for BioMedical Research and a member of the Executive Committee of Novartis, to be effective March 1, 2016, concurrent with the retirement of Dr. Mark C. Fishman, who will reach his contractual retirement age in March 2016.

 

 

Novartis announces the launch of Novartis Access, a portfolio of affordable medicines to treat chronic diseases in lower-income countries offered to governments, non-governmental organizations and other public-sector healthcare providers for $1 per treatment, per month.

 

 

Novartis announces that it has entered into a global collaboration with Amgen to commercialize and develop neuroscience treatments.

August

 

Novartis announces an agreement to acquire all remaining rights to GSK's ofatumumab to develop treatments for multiple sclerosis and other autoimmune indications. This transaction was completed on December 21, 2015.

July

 

Novartis announces a swap of three mid-stage clinical assets for equity and a share of milestones and royalties on future commercial sales with Mereo BioPharma Group Limited.

June

 

Novartis announces that it has entered into an agreement to acquire Spinifex Pharmaceuticals, Inc., a US and Australian-based, privately held development stage company focused on developing a peripheral approach to treat neuropathic pain such as EMA401, a novel angiotensin II Type 2 receptor (AT2R) antagonist. This acquisition was completed on July 24, 2015.

March

 

Novartis announces entry into an alliance with Aduro Biotech focused on discovery and development of next-generation cancer immunotherapies targeting the STING signaling pathway, and the launch of a new immuno-oncology research group.

February

 

Novartis completes a CHF 1.375 billion bond offering listed on the SIX Swiss Exchange.

2014

 

 

October

 

Novartis announces a definitive agreement with CSL of Australia to divest its influenza vaccines business for $275 million. This divestment was completed effective July 31, 2015.

 

 

Novartis announces changes to the Novartis Executive Committee. Three members of the Executive Committee of Novartis, George Gunn, Brian MacNamara and Andrin Oswald, would leave the Company following the completion of the relevant portfolio transactions announced in April 2014.

 

 

Novartis announces that it has entered into a collaboration with Bristol-Myers Squibb Company to evaluate three molecularly targeted compounds in combination with Bristol-Myers Squibb's investigational PD-1 immune checkpoint inhibitor, Opdivo® (nivolumab), in Phase I/II trials of patients with non-small cell lung cancer.

August

 

Novartis appoints a Chief Ethics, Compliance and Policy Officer reporting directly to the CEO.

July

 

Novartis announces that its Alcon Division has entered into an agreement with a division of Google Inc., to in-license its "smart lens" technology for all ocular medical uses.

June

 

Novartis announces that the FDA licensed its manufacturing facility in Holly Springs, North Carolina for the commercial production of cell-culture influenza vaccines, with the capacity to significantly increase production in the event of an influenza pandemic.

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May   Novartis enters into a licensing and commercialization agreement with Ophthotech Corporation for the exclusive rights to market Fovista (pegpleranib; OAP030, anti-PDGF aptamer) outside the US. In November 2015, Genentech entered into an agreement with Novartis to participate in certain rights related to the Novartis licensing and commercialization agreement with Ophthotech Corporation for OAP030.

April

 

Novartis announces a set of definitive inter-conditional agreements with GSK. Under these agreements, Novartis would acquire GSK oncology products and certain related assets, would be granted a right of first negotiation over the co-development or commercialization of GSK's current and future oncology R&D pipeline (excluding oncology vaccines) and would divest the Vaccines Division (excluding its influenza vaccines business) to GSK. The two companies would also create a joint venture in consumer healthcare, of which Novartis would own 36.5%. These transactions were completed on March 2, 2015.

 

 

Novartis also announces a definitive agreement with Lilly to divest the Company's Animal Health Division. This divestment was completed on January 1, 2015.

 

 

Novartis announces the creation of a shared services organization, Novartis Business Services (NBS). NBS consolidates a number of business support services previously spread across divisions, including Information Technology, Financial Reporting and Accounting Operations, Real Estate & Facility Services, Procurement, Payroll and Personnel Administration and the Pharmaceuticals Global Business Services. This reorganization was designed to improve profitability and free up resources that could be reinvested in growth and innovation, and to allow our divisions to focus more on customer-facing activities. NBS became effective on July 1, 2014.

February

 

Novartis announces the acquisition of CoStim Pharmaceuticals Inc., a Cambridge, Massachusetts-based, privately held biotechnology company focused on cancer immunotherapy. The acquisition brings to Novartis late discovery stage immunotherapy programs directed to several targets, including PD-1.

 

 

Novartis appoints a Global Head, Corporate Responsibility reporting directly to the CEO.

January

 

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

2013

 

 

November

 

Novartis announces a $5.0 billion share buyback. The buyback begins on the date of the announcement and will be executed over two years on the second trading line.

 

 

Novartis announces a definitive agreement to divest its blood transfusion diagnostics unit to Grifols S.A. of Spain, for $1.7 billion. This transaction was completed on January 9, 2014.

 

 

Novartis announces that it will co-locate certain scientific resources in order to improve the efficiency and effectiveness of its global research organization. Changes include establishing a respiratory research group in Cambridge, Massachusetts, a proposal to close the Horsham, UK, research site, a plan to exit from the Vienna, Austria research site, consolidation of the US-based component of oncology research from Emeryville, California to Cambridge, Massachusetts, closure of the biotherapeutics development unit in La Jolla, California, and a plan to exit research in topical applications for dermatology.

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September   Novartis announces that it has entered into an exclusive global licensing and research collaboration agreement with Regenerex LLC, a biopharmaceutical company based in Louisville, Kentucky, for use of the company's novel Facilitating Cell Therapy (FCRx) platform.

August

 

Joerg Reinhardt, Ph.D., assumes role of Chairman of the Board of Directors of Novartis AG on August 1.

July

 

The Novartis Board of Directors announces a final agreement with its former Chairman, Dr. Daniel Vasella. From the date of the Annual General Meeting held on February 22, 2013, until October 31, 2013, Dr. Vasella was to provide certain transitional services, including select Board mandates with subsidiaries of Novartis and support of the ad-interim Chairman and the new Chairman. For his transitional services during such period, Dr. Vasella would receive cash of CHF 2.7 million, and 31,724 unrestricted shares as of October 31, 2013 (the market value of the shares as of the date of the announcement was approximately CHF 2.2 million). In addition, from November 1, 2013, to December 31, 2016, Dr. Vasella will receive a minimum of $250,000 per annum in exchange for making himself available to Novartis, at Novartis' request and discretion, to provide specific consulting services, such as the coaching of high-potential associates of Novartis and speeches at key Novartis events at a daily fee rate of $25,000, which will be offset against the $250,000 minimum annual payment. During November and December 2013, Dr. Vasella did not provide any coaching to associates and did not receive any compensation for this period.

 

 

Novartis announces that it has entered into a development and licensing agreement with Biological E Limited (BioE), a biopharmaceutical company based in India, for two vaccines to protect against typhoid and paratyphoid fevers. The agreement advances the Novartis goal to deliver accessible and affordable vaccines that address unmet medical need in endemic regions.

April

 

Novartis and Malaria No More, a leading global charity determined to end malaria deaths, announce that they are joining forces on the Power of One campaign to help close the treatment gap and accelerate progress in the fight against malaria. Over the next three years, Novartis will support the campaign financially and also donate up to three million full courses of its pediatric antimalarial drug to match the treatments donated by the public, doubling the impact of these donations.

February

 

Novartis announces that the Novartis AG Board of Directors and Dr. Vasella agreed to cancel his non-competition agreement and all related conditional compensation. The agreement was to take effect after Dr. Vasella stepped down as Chairman of the Board at the Novartis Annual General Meeting on February 22, 2013.

January

 

Novartis announces that, at his own wish, Novartis AG Chairman of the Board of Directors Dr. Daniel Vasella will not stand for re-election as a member of the Board of Directors at the Annual General Meeting to be held on February 22, 2013. The Board of Directors proposed the election of, among others, Joerg Reinhardt, Ph.D., as a member of the Board for a term of office beginning on August 1, 2013, and ending on the day of the Annual General Meeting in 2016. The Board announced its intention to elect Joerg Reinhardt as Chairman of the Board of Directors as from August 1, 2013. The Board of Directors further announced its intention to elect its current Vice-Chairman, Ulrich Lehner, Ph.D., as Chairman of the Board of Directors for the period from February 22, 2013, until the new Chairman took office.

        For information on our principal expenditures on property, plants and equipment, see "Item 4. Information on the Company—4.D Property, Plants and Equipment." For information on our significant expenditures in research and development, see the sections headed "Research and Development" included in the descriptions of our Pharmaceuticals Division and Alcon Division, and the section headed "Development and Registration" included in the description of our Sandoz Division under "Item 4.

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Information on the Company—4.B Business Overview." For information on other principal capital expenditures and divestitures, see "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Factors Affecting Comparability of the Year-On-Year Results of Operations." For more information on the transactions with GSK, Lilly or CSL, see "Item 4.B Business Overview—Overview" and "Item 10.C Material Contracts."

4.B Business Overview

OVERVIEW

        Novartis provides healthcare solutions that address the evolving needs of patients and societies worldwide. Our broad portfolio includes innovative medicines, eye care products and cost-saving generic pharmaceuticals.

        Following the completion of a series of transactions in 2014 and 2015, the Group's portfolio is organized into three global operating divisions. In addition, we separately report the results of Corporate activities. The disclosure in this Item focuses on these continuing operations, which are made up of Pharmaceuticals, Alcon, Sandoz and Corporate activities. In addition, from March 2, 2015, the date of the completion of a series of transactions with GSK, continuing operations also includes the results from the oncology assets acquired from GSK and the 36.5% interest in the GSK consumer healthcare joint venture (the latter reported as an investment in associated companies). We sold our Vaccines Division, excluding our influenza business, to GSK. Our influenza vaccines business was sold to CSL and our Animal Health Division was sold to Lilly. For more detail on these transactions see, "Item 10.C Material Contracts."

Continuing Operations:

Discontinued Operations:

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

        We separately report the financial results of our Corporate activities as part of our continuing operations. Income and expenses from Corporate activities include the costs of the Group headquarters and those of corporate coordination functions in major countries. In addition, Corporate includes other items of income and expense which are not attributable to specific segments such as certain expenses related to post-employment benefits, environmental remediation liabilities, charitable activities, donations and sponsorships.

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        Our continuing operations are supported by the Novartis Institutes for BioMedical Research and Novartis Business Services.

        Our continuing operations achieved net sales of $49.4 billion in 2015, while net income from continuing operations amounted to $7.0 billion. Research & Development expenditure in 2015 amounted to $8.9 billion ($8.7 billion excluding impairment and amortization charges). Of total net sales from continuing operations, $12.4 billion, or 25%, came from Emerging Growth Markets, and $37.0 billion, or 75%, came from Established Markets. Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand.

        Headquartered in Basel, Switzerland, our Group companies employed 118,700 full-time equivalent associates as of December 31, 2015. Our products are available in approximately 180 countries around the world.

        In September 2015, Novartis announced the launch of Novartis Access, a portfolio of 15 medicines to treat chronic diseases in low- and middle-income countries. The portfolio addresses cardiovascular diseases, diabetes, respiratory illnesses, and breast cancer and will be offered to governments, non-governmental organizations (NGOs) and other public-sector healthcare providers for $1 per treatment, per month.

        In 2016, having completed our portfolio transformation and operationalized NBS, we are taking further steps to build on our strategy. We are focusing our Alcon Division on its Surgical and Vision Care franchises. Within these franchises, we have identified key actions to accelerate growth in 2016 and beyond. These include optimizing intraocular lens (IOL) innovation and commercial execution; prioritizing and investing in promising pipeline opportunities; ensuring best-in-class service, training and education for eye care professionals; improving sales force effectiveness; and investing in direct to consumer activities for key brands.

        We are strengthening our ophthalmic medicines business by transferring Alcon's Ophthalmic Pharmaceuticals products to our Pharmaceuticals Division. This is expected to simplify our ophthalmic medicines business, leverage Alcon's strong brand with Pharmaceuticals Division development and marketing capabilities, and help us accelerate innovation and growth in eye care.

        At the same time, we are shifting selected mature, non-promoted pharmaceutical products from our Pharmaceuticals Division into Sandoz, which has proven experience in managing mature products successfully.

        To increase innovation even further, we are increasing Group-wide coordination of drug development. We are establishing a single Global Head of Drug Development to improve resource allocation and standards across our divisions. We are also centralizing certain common functions, such as the Chief Medical Office, which will cover safety and pharmacovigilance policy for the Group.

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        To further improve efficiency, we are centralizing our manufacturing operations across our divisions within a single technical operations unit. The new unit is expected to optimize capacity planning and lower costs through simplification, standardization and external spend optimization. Centralization is also expected to improve our ability to develop next-generation technologies, implement continuous manufacturing and share best practices across divisions.

        We expect these changes to generate over $1.0 billion in annual cost savings from 2020, with the ramp-up starting in 2016. Associated with these changes we expect one-time restructuring costs of approximately $1.4 billion spread over five years. We plan to use the net savings to fund innovation and improve our profit margins.

        In addition, we announced leadership changes effective February 1, 2016. Mike Ball has been appointed Division Head and CEO Alcon, and will be a member of the Executive Committee of Novartis (ECN). Mr. Ball joins Novartis from Hospira, where he was CEO from 2011 until recently. Mr. Ball succeeds Jeff George, who has decided to leave Novartis. Dr. Vas Narasimhan has been appointed Global Head Drug Development and Chief Medical Officer, a new position in the ECN. André Wyss, already a member of the ECN, Head NBS and Country President for Switzerland, has been appointed President, Novartis Operations. In his new role, he will assume responsibility for the integrated Technical Operations organization as well as for Global Public & Government Affairs, in addition to his current responsibilities.

        Except as described above and as briefly described in "—Alcon" below, and "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Results of Operations—Alcon," this Form 20-F reflects the organization of the Group prior to the changes described above.

Continuing Operations:

Pharmaceuticals Division

        Pharmaceuticals researches, develops, manufactures, distributes and sells patented prescription medicines and is organized in the following franchises: Oncology, Cardio-metabolic, Immunology and Dermatology, Retina, Respiratory, Neuroscience and Established Medicines. Our Pharmaceuticals Division also includes a franchise focused on the development and commercialization of Cell and Gene Therapies.

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

        In 2015, the Pharmaceuticals Division accounted for $30.4 billion, or 62%, of Group net sales, and for $7.6 billion, or 81%, of Group operating income (excluding Corporate income and expense, net).

Alcon Division

        Our Alcon Division researches, develops, manufactures, distributes and sells eye care products and technologies to serve the full life cycle of eye care needs. Alcon offers a broad range of products to treat many eye diseases and conditions, and is organized into three franchises: Surgical, Ophthalmic Pharmaceuticals and Vision Care. The Surgical portfolio includes technologies and devices for cataract, retinal, glaucoma and refractive surgery, as well as intraocular lenses to treat cataracts and refractive errors, like presbyopia and astigmatism. Alcon also provides viscoelastics, surgical solutions, surgical packs, and other disposable products for cataract and vitreoretinal surgery. In Ophthalmic Pharmaceuticals, the portfolio includes treatment options for elevated intraocular pressure caused by glaucoma, anti-infectives to aid in the treatment of bacterial infections and bacterial conjunctivitis, and ophthalmic solutions to treat inflammation and pain associated with ocular surgery, as well as an intravitreal injection for vitreomacular traction including macular hole. The Ophthalmic Pharmaceuticals

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portfolio also includes eye and nasal allergy treatments, as well as over-the-counter dry eye relief and ocular vitamins. The Vision Care portfolio comprises daily disposable, monthly replacement, and color-enhancing contact lenses, as well as a complete line of contact lens care products including multi-purpose and hydrogen-peroxide based solutions, rewetting drops and daily protein removers.

        In 2015, Alcon accounted for $9.8 billion, or 20%, of Group net sales, and for $0.8 billion, or 9%, of Group operating income (excluding Corporate income and expense, net).

Sandoz Division

        Our Sandoz Division focuses primarily on developing, manufacturing, distributing and selling prescription medicines that are not protected by valid and enforceable third-party patents, and intermediary products including active pharmaceutical ingredients. Sandoz is organized globally in three franchises: Retail Generics, Anti-Infectives, and Biopharmaceuticals & Oncology Injectables. In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of pharmaceuticals to third parties. Retail Generics includes the areas of dermatology, respiratory and ophthalmics, as well as the areas of cardiovascular, metabolism, central nervous system, pain, gastrointestinal, and hormonal therapies. Finished dosage form anti-infectives sold to third parties are also part of Retail Generics. In Anti-Infectives, Sandoz supplies generic antibiotics to a broad range of customers, as well as active pharmaceutical ingredients and intermediates to the pharmaceutical industry worldwide. In Biopharmaceuticals, Sandoz develops, manufactures and markets protein or other biotechnology based products known as biosimilars and provides biotechnology manufacturing services to other companies, and in Oncology Injectables, Sandoz develops, manufactures and markets cytotoxic products for the hospital market.

        In 2015, Sandoz accounted for $9.2 billion, or 18%, of Group net sales, and for $1.0 billion, or 11%, of Group operating income (excluding Corporate income and expense, net).

Discontinued Operations:

Vaccines and Diagnostics Division

        Prior to the completion of certain transactions in 2014 and 2015, our Vaccines and Diagnostics Division researched, developed, manufactured, distributed and sold human vaccines and blood-testing products worldwide. On January 9, 2014, we completed the divestment of our blood transfusion diagnostics unit to Grifols S.A. On March 2, 2015, we completed the divestment of our Vaccines Division (excluding its influenza vaccines business) to GSK. On July 31, 2015, we completed the divestment of our influenza vaccines business to CSL Limited.

Consumer Health

        Prior to the completion of certain transactions in 2015, Consumer Health consisted of our OTC (Over-the-Counter) and Animal Health Divisions. On January 1, 2015 we completed the divestment of our Animal Health Division to Lilly. On March 2, 2015, we completed the divestment of our OTC Division, which we contributed to a new consumer healthcare joint venture with GSK, of which we own 36.5%.

PHARMACEUTICALS

Overview

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

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

        The Pharmaceuticals Division is organized into global business franchises responsible for the commercialization of various products. Our Pharmaceuticals Division also includes a franchise focused on the development and commercialization of Cell and Gene Therapies.

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

        The Pharmaceuticals Division is the largest contributor among the divisions of Novartis and reported consolidated net sales of $30.4 billion in 2015, which represented 62% of the Group's net sales.

        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 135 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 in our Pharmaceuticals Division. While we intend to sell our marketed products throughout the world, not all products and indications are currently available in every country. Compounds and new indications in development are subject to required regulatory approvals and, in certain instances, contractual limitations. These compounds and indications are in various stages of development throughout the world. It may not be possible to obtain regulatory approval for any or all of the new compounds and new indications referred to in this Form 20-F in any country or in every country. See "—Regulation" for further information on the approval process. Some of the products listed below have lost patent protection or are otherwise subject to generic competition. Others are subject to patent challenges by potential generic competitors. Please see "—Intellectual Property" for general information on intellectual property and regulatory data protection, and for further information on the status of patents and exclusivity for Pharmaceuticals Division products.

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Selected Marketed Products

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

Oncology

  Afinitor/Votubia and
Afinitor
Disperz/Votubia

dispersible tablets
  everolimus   Advanced renal cell carcinoma after failure of treatment with VEGF-targeted therapy

Advanced pancreatic neuroendocrine tumors

SEGA associated with tuberous sclerosis

Renal angiomyolipoma associated with tuberous sclerosis

Advanced breast cancer in post-menopausal HR+/HER2– women in combination with exemestane, after failure of anastrozole or letrozole

  Tablet Dispersible tablets for oral suspension
     

  Arzerra   ofatumumab   In combination with chlorambucil for first- line chronic lymphocytic leukemia (CLL)

In combination with chlorambucil or bendamustine for first-line CLL

CLL refractory to fludarabine and alemtuzumab

Extended treatment of patients who are in complete or partial response after at least two lines of therapy for recurrent or progressive CLL

  Intravenous infusion
     

  Atriance/Arranon   nelarabine   Relapsed and/or refractory T-cell acute lymphoblastic leukemia and T-cell lymphoblastic lymphoma   Solution for infusion
     

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

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

  Femara   letrozole   Hormone receptor-positive early breast cancer in postmenopausal women following surgery (upfront adjuvant therapy)

Early breast cancer in post-menopausal women following standard tamoxifen therapy (extended adjuvant therapy)

Advanced breast cancer in post-menopausal women (both as first- and second-line therapies)

  Tablet
     

  Gleevec/Glivec   imatinib mesylate/imatinib   Certain forms of Ph+ chronic myeloid leukemia

Certain forms of KIT+ gastrointestinal stromal tumors

Certain forms of acute lymphoblastic leukemia Dermatofibrosarcoma protuberans

Hypereosinophilic syndrome

Aggressive systemic mastocytosis

Myelodysplastic/myeloproliferative diseases

  Tablet
Capsules
     

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

  Hycamtin   topotecan   Relapsed small cell lung cancer

Metastatic carcinoma of the ovary after failure of initial or subsequent chemotherapy

  Capsule
Powder for infusion

         

Small cell lung cancer sensitive disease after failure of first-line chemotherapy

Combination therapy with cisplatin for Stage IV-B, recurrent, or persistent carcinoma of the cervix which is not amenable to curative treatment with surgery and/or radiation therapy

 

 

     

  Jakavi   ruxolitnib   Disease-related splenomegaly or symptoms in adult patients with primary myelofibrosis (also known as chronic idiopathic myelofibrosis), post-polycythemia vera myelofibrosis or post-essential thrombocythemia myelofibrosis

Polycythemia vera in adult patients who are resistant to or intolerant of hydroxyurea

  Tablet
     

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

  Proleukin   aldesleukin   Metastatic renal cell carcinoma

Metastatic melanoma

  Powder for injection or infusion
     

  Promacta/Revolade   eltrombopag   Thrombocytopenia in adult and pediatric patients one year and older with chronic immune (idiopathic) thrombocytopenia who have had insufficient response to corticosteroids, immunoglobulins, or splenectomy

Thrombocytopenia in patients with chronic hepatitis C to allow initiation and maintenance of interferon-based therapy

Severe aplastic anemia in patients who have had an insufficient response to immunosuppressive therapy

  Tablet Eltrombopag for oral suspension
     

  Sandostatin LAR and Sandostatin SC   octreotide acetate   Acromegaly

Symptom control for certain forms of neuroendocrine tumors

Delay of tumor progression in patients with midgut tumors

  Vial
Ampoule/pre-filled syringe
     

  Signifor and Signifor LAR   pasireotide   Cushing's disease

Acromegaly

  Solution for subcutaneous injection in ampoule
Powder and solvent for suspension for IM injection
     

  Tafinlar + Mekinist   dabrafenib + trametinib   BRAF V600+ metastatic melanoma   Capsule (Tafinlar)
Tablet (
Mekinist)
     

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

First-line chronic myeloid leukemia

  Capsule
     

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

  Tykerb   lapatinib   In combination with capacitabine for the treatment of patients with HER2+ advanced or metastatic breast cancer who have progressed on prior trastuzumab therapy

In combination with trastuzumab for patients with HR-negative metastatic disease that has progressed on prior trastuzumab therapy(ies) plus chemotherapy

In combination with paclitaxel for first line treatment of patients with HER2+ metastatic breast cancer for whom trastuzumab is not appropriate

In combination with an aromatase inhibitor for the treatment of patients with hormone sensitive metastatic breast cancer

  Tablet
     

  Votrient   pazopanib   Advanced renal cell carcinoma

Certain types of advanced soft tissue sarcoma after prior chemotherapy

  Tablet
     

  Zofran   ondansetron   Use in children and adults for the prevention of chemotherapy induced nausea and vomiting and prevention of post-operative nausea and vomiting, and in adults for the prevention of radiation-induced nausea and vomiting   Tablet
Oral solution
Orally disintegrating tablets
Solution for injection/infusion
     

  Zometa   zoledronic acid   Skeletal-related events from bone metastases (cancer that has spread to the bones)

Hypercalcemia of malignancy

  Vial/4mg Ready-to-use
     

  Zykadia   ceritinib   Anaplastic lymphoma kinase-positive metastatic non-small cell lung cancer   Capsules
     

Cardio-Metabolic

  Entresto   sacubitril/valsartan   Chronic heart failure with reduced ejection fraction   Tablet
     

  Galvus and Eucreas   Galvus: vildagliptin Eucreas: vildagliptin and metformin   Type 2 diabetes   Tablet
     

Immunology and Dermatology

  Cosentyx   secukinumab   Active ankylosing spondylitis in adults who have responded inadequately to conventional therapy

Active psoriatic arthritis in adult patients when the response to previous disease-modifying anti-rheumatic drug therapy has been inadequate Moderate-to-severe plaque psoriasis in adult patients who are candidates for systemic therapy or phototherapy

Moderate-to-severe plaque psoriasis in adults who are candidates for systemic therapy

Psoriasis vulgaris and psoriatic arthritis in adults who are not adequately responding to systemic therapies (except for biologics)

  Lyophilized pre-filled syringe; Auto-injector
     

  Ilaris   canakinumab   Cryopyrin-associated periodic syndromes

Systemic juvenile idiopathic arthritis

Gouty arthritis

  Lyophilized powder for reconstitution for subcutaneous injection
     

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

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

  Neoral and Sandimmune   cyclosporine, USP Modified   Prevention of rejection following certain organ transplantation

Non-transplantation autoimmune conditions such as severe psoriasis and severe rheumatoid arthritis

  Capsule
Oral solution Intravenous (
Sandimmune)
     

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

  Xolair   omalizumab   Chronic spontaneous urticaria/

Chronic idiopathic urticaria

See also, "Respiratory"

  Lyophilized powder in vial and liquid formulation in pre-filled syringes
     

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

Retina

  Lucentis   ranibizumab   Neovascular age-related macular degeneration

Visual impairment due to diabetic macular edema Visual impairment due to macular edema secondary to central retinal vein occlusion

Visual impairment due to macular edema secondary to branch retinal vein occlusion

Visual impairment due to choroidal neovascularization secondary to pathologic myopia

  Intravitreal injection
     

Respiratory

  Arcapta Neohaler/ Onbrez Breezhaler   indacaterol   Chronic obstructive pulmonary disease   Inhalation powder hard capsules
     

  Seebri Neohaler/ Seebri Breezhaler   glycopyrronium bromide (glycopyrrolate)   Chronic obstructive pulmonary disease   Inhalation powder hard capsules
     

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

  Utibron Neohaler/ Ultibro Breezhaler   indacaterol / glycopyrronium bromide (glycopyrrolate)   Chronic obstructive pulmonary disease   Inhalation powder hard capsules
     

  Xolair   omalizumab   Severe allergic asthma

See also, "Immunology and Dermatology"

  Lyophilized powder in vial and liquid formulation in pre-filled syringes
     

Neuroscience

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

  Exelon   rivastigmine   Mild-to-moderate Alzheimer's disease dementia

Severe Alzheimer's disease dementia
Dementia associated with Parkinson's disease

  Capsule
Oral solution Transdermal patch
     

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

  Gilenya   fingolimod   Relapsing forms of multiple sclerosis   Capsule
     

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

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

Established Medicines

  Cibacen   benazepril hydrochloride   Hypertension

Adjunct therapy in congestive heart failure

Progressive chronic renal insufficiency

  Tablet
     

  Clozaril/Leponex   clozapine   Treatment-resistant schizophrenia

Prevention and treatment of recurrent suicidal behavior in patients with schizophrenia and psychotic disorders

  Tablet
     

  Coartem/Riamet   artemether and lumefantrine   Plasmodium falciparum malaria or mixed infections that include Plasmodium falciparum

Standby emergency malaria treatment

  Tablet Dispersible tablet for oral suspension
     

  Diovan   valsartan   Hypertension

Heart failure

Post-myocardial infarction

  Tablets
Capsules
Oral solution
     

  Diovan HCT and Co-Diovan   valsartan and hydrochlorothiazide   Hypertension   Tablet
     

  Exforge and
Exforge HCT
  valsartan and amlodipine besylate   Hypertension   Tablet
     

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

  Foradil   formoterol   Asthma

Chronic obstructive pulmonary disease

  Aerolizer (capsules) Aerosol
     

  Lamisil   terbinafine (terbinafine hydrochloride)   Fungal infection of the skin and nails caused by dermatophyte fungi tinea capitis Fungal infections of the skin for the treatment of tinea corporis, tinea cruris, tinea pedis and yeast infections of the skin caused by the genus candida

Onychomycosis of the toenail or fingernail due to dermatophytes

  Tablet
     

  Lescol and Lescol XL   fluvastatin sodium   Hypercholesterolemia and mixed dyslipidemia in adults

Secondary prevention of major adverse cardiac events

Slowing the progression of atherosclerosis

Heterozygous familial hypercholesterolemia in children and adolescents

  Capsule (Lescol)
Tablet (
Lescol XL)
     

  Reclast/Aclasta   zoledronic acid 5 mg   Treatment of osteoporosis in postmenopausal women

Treatment of osteoporosis in men Treatment and prevention of glucocorticoid-induced osteoporosis

Prevention of postmenopausal osteoporosis

Treatment of Paget's disease of the bone

  Intravenous—solution for infusion
     

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

  Ritalin   methylphenidate HCl   Attention deficit hyperactivity disorder and narcolepsy   Tablet
     

  Ritalin LA   methylphenidate HCl modified release   Attention deficit hyperactivity disorder   Capsule
     

  Tegretol   carbamazepine   Epilepsy

Pain associated with trigeminal neuralgia

Acute mania and bipolar affective disorders

Alcohol withdrawal syndrome Painful diabetic neuropathy

Diabetes insipidus centralis

Polyuria and polydipsia of neurohormonal origin

  Tablet
Chewable tablet
Oral suspension Suppository
     

  Tekamlo/Rasilamlo   aliskiren and amlodipine besylate   Hypertension   Tablet
     

  Tekturna/Rasilez   aliskiren   Hypertension   Tablet
     

  Tekturna HCT/ Rasilez HCT   aliskiren and hydrochlorothiazide   Hypertension   Tablet
     

  Trileptal   oxcarbazepine   Epilepsy   Tablet
Oral suspension
     

  Tyzeka/Sebivo   telbivudine   Chronic hepatitis B   Tablet
Oral solution
     

  Vivelle-Dot/Estradot   estradiol hemihydrate   Estrogen replacement therapy for the treatment of the symptoms of natural or surgically induced menopause

Prevention of postmenopausal osteoporosis

  Transdermal patch
     

  Voltaren/Cataflam   diclofenac sodium/potassium/resinate/free acid   Inflammatory and degenerative forms of rheumatism

Post traumatic and post-operative pain, inflammation and swelling

Painful and/or inflammatory conditions in gynecology

Other painful and/or inflammatory conditions such as renal and biliary colic, migraine attacks and as adjuvant in severe ear, nose and throat infections

  Tablet
Capsule
Oral drops/oral suspension Ampoule for injection Suppository
Gel
Powder for oral solution Transdermal patch
 

Key Marketed Products

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Compounds in Development

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

        Though we use this traditional model as a platform, we have tailored the process to be simpler, more flexible and efficient. Our development paradigm consists of two parts: Exploratory Development 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. The year that each project entered the current phase of development disclosed below reflects the year in which the decision to enter the phase was made. This may be different from the year in which the first patient received the first treatment in the related clinical trial. A reference to a project being in registration means that an application has been filed with a health authority for marketing approval.

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Selected Development Projects

 
Project/Product
  Common name   Mechanism of action   Potential indication/
Disease area
  Business
franchise
  Formulation/
Route of
administration
  Year Project
Entered
Current
Development
Phase
  Planned filing
dates/Current
phase
ABL001   TBD   BCR-ABL inhibitor   Chronic myeloid leukemia   Oncology   Oral   2015   ³2020/I
 
ACZ885   canakinumab   Anti-interleukin-1b monoclonal antibody   Hereditary periodic fevers   Immunology and Dermatology   Subcutaneous injection   2013   2016/III
             
            Secondary prevention of cardiovascular events   Cardio-Metabolic   Subcutaneous injection   2011   2017/III
 
Afinitor/Votubia (RAD001)   everolimus   mTOR inhibitor   Non-functioning GI and lung neuroendocrine tumors   Oncology   Oral   2015   US/EU (registration)
             
            Tuberous sclerosis complex seizures   Oncology   Oral   2013   2016/III
             
            Diffuse large B-cell lymphoma   Oncology   Oral   2009   2016/III
 
AMG 334   TBD   Selective CGRP receptor antagonist   Migraine   Neuroscience   Subcutaneous injection   2015   III
 
Arzerra   ofatumumab   Anti-CD20 monoclonal antibody   Chronic lymphocytic leukemia (extended treatment)   Oncology   Intravenous infusion   2015   EU (registration)
US (approved)
             
            Chronic lymphocytic leukemia (relapse)   Oncology   Intravenous infusion   2009   2016/III
             
            Refractory non-Hodgkin's lymphoma   Oncology   Intravenous infusion   2010   2017/III
 
ASB183   afuresertib   AKT inhibitor   Solid and hematologic tumors   Oncology   Oral   2011   ³ 2020/I
 
BAF312   siponimod   Sphingosine-1-phosphate receptor modulator   Secondary progressive multiple sclerosis   Neuroscience   Oral   2012   2019/III
 
BGJ398   infigratinib   Pan-FGF receptor kinase inhibitor   Solid tumors   Oncology   Oral   2012   ³ 2020/II
 
BKM120   buparlisib   PI3K inhibitor   Metastatic breast cancer, hormone receptor-positive, aromatase inhibitor resistant/mTOR naïve, 2nd line (+ fulvestrant)   Oncology   Oral   2011   2016/III
             
            Metastatic breast cancer, hormone receptor-positive, aromatase inhibitor and mTOR inhibitor resistant, 3rd line (+ fulvestrant)   Oncology   Oral   2011   2016/III
             
            Solid tumors   Oncology   Oral   2011   ³ 2020/I
 
BYL719   alpelisib   PI3Ka inhibitor   Hormone receptor-positive, HER2 negative advanced breast cancer (postmenopausal women), 2nd line (+ fulvestrant)   Oncology   Oral   2015   2019/III
             
            Solid tumors   Oncology   Oral   2010   ³2020/I
 

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Project/Product
  Common name   Mechanism of action   Potential indication/
Disease area
  Business
franchise
  Formulation/
Route of
administration
  Year Project
Entered
Current
Development
Phase
  Planned filing
dates/Current
phase
BYM338   bimagrumab   Inhibitor of activin receptor Type II   Sporadic inclusion body myositis   Neuroscience   Intravenous infusion   2013   2016/III
             
            Hip fracture   Neuroscience   Intravenous infusion   2013   ³2020/II
             
            Sarcopenia   Neuroscience   Intravenous infusion   2014   ³2020/II
 
CAD106   TBD   Beta-amyloid-protein therapy   Alzheimer's disease   Neuroscience   Intramuscular injection   2008   ³2020/ II/III
 
CJM112   TBD   Anti-IL-17 monoclonal antibody   Immune disorders   Immunology and Dermatology   Subcutaneous injection   2015   ³2020/II
 
CNP520   TBD   BACE inhibitor   Alzheimer's Disease   Neuroscience   Oral   2015   ³2020/ I/II
 
Cosentyx (AIN457)   secukinumab   Anti-IL-17 monoclonal antibody   Non-radiographic axial spondyloarthritis   Immunology and Dermatology   Subcutaneous injection   2015   2018/III
 
CTL019   tisagenlecleucel-T   CD19-targeted chimeric antigen receptor T-cell immunotherapy   Pediatric acute lymphoblastic leukemia   Cell and Gene Therapies   Intravenous   2012   2017/II
             
            Diffuse large B-cell lymphoma   Cell and Gene Therapies   Intravenous   2014   2017/II
 
EGF816   TBD   Epidermal growth factor receptor inhibitor   Solid tumors   Oncology   Oral   2014   2018/ I/II
 
EMA401   TBD   Angiotensin II receptor antagonist   Neuropathic Pain   Neuroscience   Oral   2011   ³2020/II
 
Entresto (LCZ696)   valsartan and sacubitril (as sodium salt complex)   Angiotensin receptor/ neprilysin inhibitor   Chronic heart failure with preserved ejection fraction   Cardio-Metabolic   Oral   2013   2019/III
             
            Post-acute myocardial infarction   Cardio-Metabolic   Oral   2015   ³ 2020/III
 
Exjade film-coated tablet (FCT)   deferasirox   Iron chelator   Iron overload   Oncology   Oral film-coated tablet   2015   EU (registration) US (approved as Jadenu)
 
FCR001   TBD   Inducing stable donor chimerism and immunological tolerance   Renal transplant   Cell and Gene Therapies   Intravenous   2009   ³2020/II
 
Gilenya   fingolimod   Sphingosine-1-phosphate receptor modulator   Chronic inflammatory demyelinating polyradiculoneuropathy   Neuroscience   Oral   2012   2017/III
 
HSC835   TBD   Stem cell regeneration   Stem cell transplantation   Cell and Gene Therapies   Intravenous   2012   ³2020/II
 
INC280   capmatinib   c-MET inhibitor   Non-small cell lung cancer   Oncology   Oral   2013   2018/II
 
KAE609   cipargamin   PfATP4 inhibitor   Malaria   Established Medicines   Oral   2012   ³2020/II
 
KAF156   TBD   Imidazolopiperazines derivative   Malaria   Established Medicines   Oral   2013   2019/II
 
LCI699   osilodrostat   Aldosterone synthase inhibitor   Cushing's disease   Oncology   Oral   2011   2017/III
 
LEE011   ribociclib   CDK4/6 inhibitor   Hormone receptor-positive, HER2 negative advanced breast cancer (postmenopausal women), 1st line (+ letrozole)   Oncology   Oral   2013   2016/III
             

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Project/Product
  Common name   Mechanism of action   Potential indication/
Disease area
  Business
franchise
  Formulation/
Route of
administration
  Year Project
Entered
Current
Development
Phase
  Planned filing
dates/Current
phase
            Hormone receptor-positive, HER2 negative advanced breast cancer (postmenopausal women), 1st/2nd line (+ fulvestrant)   Oncology   Oral   2015   2018/III
             
            Hormone receptor-positive, HER2 negative advanced breast cancer (premenopausal women), 1st line, (+ tamoxifen + goserelin or NSAI + goserelin)   Oncology   Oral   2014   2018/III
             
            Solid tumors   Oncology   Oral   2011   ³2020/I
 
LJM716   elgemtumab   HER3 monoclonal antibody   Solid tumors   Oncology   Intravenous infusion   2012   ³2020/I
 
LJN452   TBD   FXR agonist   Non-alcoholic steatohepatitis   Immunology and Dermatology   Oral   2015   ³2020/II
 
Lucentis   ranibizumab   Anti-VEGF monoclonal antibody fragment   Choroidal neovascularization secondary to conditions other than age-related macular degeneration and pathologic myopia   Retina   Intravitreal injection   2013   2016/III
             
            Retinopathy of Prematurity   Retina   Intravitreal injection   2014   2018/III
 
OAP030 (also known as Fovista / E10030)   pegpleranib   Aptamer anti-platelet-derived growth factor (PDGF)   Neovascular age-related macular degeneration   Retina   Solution   2013   2017/III
 
OMB157   ofatumumab   Anti-CD-20 monoclonal antibody   Relapsing multiple sclerosis   Neuroscience   Subcutaneous injection   2008   2019/II
 
PIM447   TBD   Pan-PIM inhibitor   Hematologic tumors   Oncology   Oral   2015   ³2020/I
 
PKC412   midostaurin   Signal transduction inhibitor   Acute myeloid leukemia   Oncology   Oral   2008   2016/III
             
            Aggressive systemic mastocytosis   Oncology   Oral   2008   2016/II
 
Promacta/ Revolade   eltrombopag   Thrombopoietin receptor agonist   Pediatric immune thrombocytopenia   Oncology   Oral and oral suspension   2015   EU (registration) US (approved)
 
QAW039   fevipiprant   CRTH2 antagonist   Asthma   Respiratory   Oral   2010   2019/III
             
            Atopic dermatitis   Immunology and Dermatology   Oral   2013   ³2020/II
 
QAX576   TBD   Anti-interleukin-13 monoclonal antibody   Allergic diseases   Immunology and Dermatology; Respiratory   Subcutaneous injection   2013   ³2020/II
 
QGE031   ligelizumab   High affinity anti-IgE monoclonal antibody   Chronic spontaneous urticaria/ Inducible urticaria   Immunology and Dermatology   Subcutaneous injection   2015   ³2020/II
 
QMF149   indacaterol, mometasone furoate (in fixed dose combination)   Long-acting beta2-adrenergic agonist and inhaled corticosteroid   Asthma   Respiratory   Inhalation   2015   2018/III
 
QVM149   indacaterol, mometasone furoate, glycopyrronium bromide (in fixed dose combination)   Long-acting beta2-adrenergic agonist, Long-acting muscarinic antagonist and inhaled corticosteroid   Asthma   Respiratory   Inhalation   2015   2018/III
 
RLX030   serelaxin   Recombinant form of human relaxin-2 hormone   Acute heart failure   Cardio-Metabolic   Intravenous infusion   2009   2017/III
 

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Project/Product
  Common name   Mechanism of action   Potential indication/
Disease area
  Business
franchise
  Formulation/
Route of
administration
  Year Project
Entered
Current
Development
Phase
  Planned filing
dates/Current
phase
Signifor LAR (SOM230)   pasireotide   Somatostatin analogue   Cushing's disease   Oncology   Long-acting release/ intramuscular injection   2011   2016/III
 
Tafinlar+Mekinist   dabrafenib + trametinib   BRAF inhibitor + MEK inhibitor   BRAF V600+ non-small cell lung cancer   Oncology   Oral   2011   2016/II
             
            BRAF V600+ melanoma (adjuvant)   Oncology   Oral   2013   2017/III
             
            BRAF V600+ colorectal cancer   Oncology   Oral   2012   ³ 2020/ I/II
 
Tasigna   nilotinib   BCR-ABL inhibitor   Chronic myeloid leukemia treatment-free remission   Oncology   Oral   2012   2016/III
 
VAY736   TBD   Anti BAFF (B-cell activating factor) antibody   Primary Sjoegren's syndrome   Immunology and Dermatology   Subcutaneous injection   2015   ³2020/II
 
Votrient   pazopanib   Angiogenesis inhibitor   Renal cell carcinoma (adjuvant)   Oncology   Oral   2010   2016/III
 
Zykadia (LDK378)   ceritinib   ALK inhibitor   ALK + advanced non-small cell lung cancer (first line, treatment naïve)   Oncology   Oral   2013   2017/III
             
            ALK + advanced non-small cell lung cancer (brain metastases)   Oncology   Oral   2015   2019/II
 

Key Development Projects

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Projects Added To And Subtracted From The Development Table Since 2014

 
Project/Product
  Potential indication/
Disease area
  Change   Reason
ABL001   Chronic myeloid leukemia   Added   Entered Confirmatory Development
 
AMG 334   Migraine   Added   Collaboration with Amgen announced in September 2015
 
Arzerra   Chronic lymphocytic leukemia (extended treatment)   Added   Acquired from GSK
     
    Chronic lymphocytic leukemia (relapse)   Added   Acquired from GSK
     
    Refractory non-Hodgkin's lymphoma   Added   Acquired from GSK
 

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Project/Product
  Potential indication/
Disease area
  Change   Reason
ASB183   Solid and hematologic tumors   Added   Acquired from GSK
 
BCT197   Chronic obstructive pulmonary disease   Removed   Transferred to Mereo BioPharma Group Limited
 
BGS649   Obese hypogonadotropic hypogonadism   Removed   Transferred to Mereo BioPharma Group Limited
 
BKM120   Metastatic breast cancer, hormone receptor-positive, aromatase inhibitor resistant, mTOR inhibitor naïve   Now disclosed as metastatic breast cancer, hormone receptor-positive, aromatase inhibitor resistant/mTOR naïve, 2nd line (+ fulvestrant)    
     
    Metastatic breast cancer, hormone receptor-positive, aromatase inhibitor and mTOR inhibitor resistant   Now disclosed as metastatic breast cancer, hormone receptor-positive, aromatase inhibitor and mTOR inhibitor resistant, 3rd line (+ fulvestrant)    
 
BYL719   Hormone receptor-positive, HER2 negative advanced breast cancer (postmenopausal women), 2nd line (+ fulvestrant)   Added   Entered Confirmatory Development
 
CNP520   Alzheimer's disease   Added   Entered Confirmatory Development
 
CTL019   Adult and pediatric acute lymphoblastic leukemia   Now disclosed as pediatric acute lymphoblastic leukemia    
 
Cosentyx (AIN457)   Non-radiographic axial spondyloarthritis   Added   Entered Confirmatory Development
     
    Psoriatic arthritis   Commercialized    
     
    Ankylosing spondylitis   Commercialized    
 
EMA401   Neuropathic Pain   Added   Acquired in acquisition of Spinifex Pharmaceuticals, Inc.
 
Entresto (LCZ696)   Chronic heart failure with reduced ejection fraction   Commercialized    
     

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Project/Product
  Potential indication/
Disease area
  Change   Reason
    Post-acute myocardial infarction   Added   Entered Confirmatory Development
 
Jakavi   Polycythemia vera   Commercialized    
 
LBH589 (Farydak)   Relapsed or relapsed-and-refractory multiple myeloma   Commercialized    
 
LCQ908   Familial chylomicronemia syndrome   Removed   Development discontinued
 
LDE225 (Odomzo)   Advanced basal cell carcinoma   Commercialized    
 
LEE011   Hormone receptor-positive, HER2 negative advanced breast cancer (postmenopausal women)   Now disclosed as hormone receptor-positive, HER2 negative advanced breast cancer (postmenopausal women), 1st line (+ letrozole)    
     
    Hormone receptor-positive, HER2 negative advanced breast cancer (postmenopausal women), 1st/2nd line (+ fulvestrant)   Added   Entered Confirmatory Development
     
    Hormone receptor-positive, HER2 negative advanced breast cancer (premenopausal women)   Now disclosed as hormone receptor-positive, HER2 negative advanced breast cancer (premenopausal women), 1st line, (+ tamoxifen + goserelin or NSAI + goserelin)    
 
LGX818   Solid tumors   Removed   Divested to Array BioPharma Inc.
 
LIK066   Type 2 diabetes   Removed   Development discontinued
 
LJN452   Non-alcoholic steatohepatitis   Added   Entered Confirmatory Development
 

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Project/Product
  Potential indication/
Disease area
  Change   Reason
Lucentis   Choroidal neovascularization and macular edema secondary to conditions other than age-related macular degeneration, diabetic macular edema, retinal vein occlusion and pathologic myopia   Now disclosed as choroidal neovascularization secondary to conditions other than age-related macular degeneration and pathologic myopia    
 
MEK162   NRAS mutant melanoma   Removed   Rights returned to Array BioPharma Inc.
     
    Low-grade serous ovarian cancer   Removed   Rights returned to Array BioPharma Inc.
     
    Solid tumors   Removed   Rights returned to Array BioPharma Inc.
 
MEK162 and LGX818   BRAF mutant melanoma   Removed   MEK162 rights returned to Array BioPharma Inc.
            LGX818 divested to Array BioPharma Inc.
 
OAP030 (also known as Fovista/E10030)   Wet age-related macular degeneration   Now disclosed as neovascular age-related macular degeneration    
 
OMB157   Relapsing multiple sclerosis   Added   Acquired from GSK
 
PIM447   Hematologic tumors   Added   Entered Confirmatory Development
 
Promacta/Revolade   Pediatric immune thrombocytopenia   Added   Acquired from GSK
 
QGE031   Asthma   Removed   Development discontinued
     
    Chronic spontaneous urticaria/ Inducible urticaria   Added   Entered Confirmatory Development
 
QMF149   Asthma   Added   Entered Confirmatory Development
 
QVM149   Asthma   Added   Entered Confirmatory Development
 
Seebri (NVA237)   Chronic obstructive pulmonary disease   Commercialized    
 

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Project/Product
  Potential indication/
Disease area
  Change   Reason
Tafinlar + Mekinist   BRAF V600+ non-small-cell lung cancer   Added   Acquired from GSK
     
    BRAF V600+ melanoma (adjuvant)   Added   Acquired from GSK
     
    BRAF V600+ colorectal cancer   Added   Acquired from GSK
 
Tekturna   Reduction of cardiovascular death/ hospitalizations in chronic heart failure patients   Removed   Development discontinued
 
Ultibro (QVA149)   Chronic obstructive pulmonary disease   Commercialized    
 
Votrient   Renal cell carcinoma (adjuvant)   Added   Acquired from GSK
 
VAY736   Primary Sjoegren's syndrome   Added   Entered Confirmatory Development
 
Zykadia (LDK378)   ALK + advanced non-small cell lung cancer (brain metastases)   Added   Entered Confirmatory Development
     
    ALK + advanced non-small cell lung cancer (post chemotherapy and post crizotinib)   Commercialized    
     
    ALK + advanced non-small cell lung cancer (chemotherapy naïve, crizotinib naïve)   Now disclosed as ALK + advanced non-small cell lung cancer (first line, treatment naïve)    

Principal Markets

        The Pharmaceuticals Division sells products in approximately 155 countries worldwide. Net sales are generally concentrated in the US, Europe and Japan. However, sales from expanding "emerging growth

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markets" have become increasingly important to us. The following table sets forth the aggregate 2015 net sales of the Pharmaceuticals Division by region:

Pharmaceuticals
  2015
Net sales to
third parties
 
 
  $ millions
  %
 

Europe

    10,139     33  

United States

    10,279     34  

Asia, Africa, Australasia

    7,224     24  

Canada and Latin America

    2,803     9  

Total

    30,445     100  

Of which in Established Markets*

    22,615     74  

Of which in Emerging Growth Markets*

    7,830     26  

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

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

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 eleven pharmaceutical and four bulk chemical production facilities, as well as one biotechnology site. 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 "galenic" forms of pharmaceutical products such as tablets, capsules, liquids, ampoules, vials and creams. Major bulk chemical sites are located in Schweizerhalle, Switzerland; Grimsby, UK; Ringaskiddy, Ireland and Changshu, China. Significant pharmaceutical production facilities are located in Stein, Switzerland; Wehr, Germany; Singapore; Torre, Italy; Barbera, Spain and in various other locations. Operational responsibility for biologics manufacturing at our facilities in Huningue, France and Singapore, and at our Sandoz Division facilities in Kundl and Schaftenau, Austria, and Menges, Slovenia, has been brought together within our Pharmaceuticals Division. In addition, we own and operate a Good Manufacturing Practices quality cell processing site in Morris Plains, New Jersey. In 2015, we announced the closing of our site in Resende, Brazil and the downsizing of our site in Ringaskiddy, Ireland, and finalized the divestment of our manufacturing site in Taboão de Serra, Brazil.

        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, we maintain multiple supply sources so that the business is not dependent on a single or limited number of suppliers. However, our ability to do so may at times be limited by regulatory or other requirements. We monitor market developments that could have an adverse effect on the supply of essential materials. Our suppliers of raw materials are required to comply with Novartis quality standards.

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        The manufacture of our products is complex and heavily regulated by governmental health authorities, which means that supply is never guaranteed. If we or our third party suppliers fail to comply with applicable regulations then there could be a product recall or other shutdown or disruption of our production activities. We have 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 nearly 2,000 field force representatives in the US, and an additional nearly 20,000 in the rest of the world, as of December 31, 2015, including supervisors and administrative personnel. These trained representatives, where permitted by law, present the therapeutic risks and benefits of our products to physicians, pharmacists, hospitals, insurance groups and managed care organizations. We continue to see increasing influence of customer groups beyond prescribers, and Novartis is responding by adapting our business practices to engage appropriately with such constituencies.

        Although specific distribution patterns vary by country, Novartis generally sells its prescription drugs primarily to wholesale and retail drug distributors, hospitals, clinics, government agencies and managed healthcare providers. The growing number of so-called "specialty" drugs in our portfolio has resulted in increased engagement with specialty pharmacies. In the US, specialty pharmacies continue to grow as a distribution channel for specialty products, with an increasing number of health plans mandating use of specialty pharmacies to monitor specialty drug utilization and costs.

        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 and economically attractive.

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

        As a result of continuing changes in healthcare economics and an aging population, the US Centers for Medicare & Medicaid Services (CMS) is now the largest single payor for healthcare services in the US. In addition, both commercial and government sponsored managed care organizations continue to be one of the largest groups of payors for healthcare services in the US. In other territories, national health services are often the only significant payor for healthcare services. In an effort to control prescription drug costs, almost all managed care organizations and national health services use formularies that list specific drugs that may be reimbursed, and/or the level of reimbursement for each drug. Managed care organizations and national health services also increasingly utilize various cost-benefit analyses to determine whether or not newly-approved drugs will be added to a formulary and/or the level of reimbursement for that drug, and whether or not to continue to reimburse existing drugs. We have dedicated teams that actively seek to optimize formulary positions for our products.

Competition

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

        In addition, as is the case with other pharmaceutical companies selling patented pharmaceuticals, Novartis faces ever-increasing challenges from companies selling products which compete with our

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products, including competing patented products and generic forms of our products following the expiry of patent protection. Generic companies may also gain entry to the market through successfully challenging our patents, but we vigorously use legally permissible measures to defend our patent rights. We also face competition from over-the-counter (OTC) products that do not require a prescription from a physician. See also "—Regulation—Price Controls", below.

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

Research and Development

        We are a leader in the pharmaceuticals industry in terms of research and development, including the level of our investment. In 2015, our Pharmaceuticals Division expensed $7.2 billion (on a core basis $7.1 billion) in research and development, which amounted to 24% of the division's net sales. For additional information about research and development expenditures by our Pharmaceuticals Division over the last three years, please see "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Results of Operations—Research and development."

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

        We manage our research and development expenditures across our entire portfolio in accordance with our strategic priorities. We make decisions about whether or not to proceed with development projects on a project-by-project basis. These decisions are based on the project's potential to meet a significant unmet medical need or to improve patient outcomes, the strength of the science underlying the project, and the potential of the project (subject to the risks inherent in pharmaceutical development) to generate significant positive financial results for the Company. Once a management decision has been made to proceed with the development of a particular molecule, the level of research and development investment required will be driven by many factors, including the medical indications for which it is being developed, the number of indications being pursued, whether the molecule is of a chemical or biological nature, the stage of development, and the level of evidence necessary to demonstrate clinical efficacy and safety.

Research program

        Our Research program is conducted by the Novartis Institutes for BioMedical Research (NIBR), which is responsible for the discovery of new medicines. We established NIBR in 2003. The principal goal of our research program is to discover new medicines for diseases with unmet medical need. To do this we focus our work in areas where we have sufficient scientific understanding and believe we have the potential to change the practice of medicine. This requires the hiring and retention of the best talent, a focus on fundamental disease mechanisms that are relevant across different disease areas, continuous improvement in technologies for drug discovery and potential therapies, close alliance with clinical colleagues, and the establishment of appropriate external complementary alliances.

        At NIBR's headquarters in Cambridge, Massachusetts, and at sites in Switzerland, Singapore, China and three other US locations, more than 6,000 scientists, physicians and business professionals contribute to research into disease areas such as cardiovascular and metabolism disease, neuroscience, oncology, muscle disorders, ophthalmology, autoimmune diseases, and gastrointestinal diseases. Research platforms such as the Center for Proteomic Chemistry are headquartered at the NIBR site in Basel, Switzerland. In addition, the Novartis Institute for Tropical Diseases, the Friedrich Miescher Institute, and the Genomics

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Institute of the Novartis Research Foundation focus on basic genetic and genomic research as well as research into diseases of the developing world such as malaria, dengue and African sleeping sickness.

        All drug candidates are taken to the clinic via "proof-of-concept" trials to enable 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. Following proof-of-concept, our Pharmaceuticals Division conducts confirmatory trials on the drug candidates.

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

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

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

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

        In September 2015, we announced that NIBR's President Dr. Mark Fishman will retire when he reaches his contractual retirement age in March 2016. Dr. James E. Bradner, a physician-scientist from Dana Farber Cancer Institute and Harvard Medical School has been named Dr. Fishman's successor.

        In January 2016, we announced a collaboration and licensing agreement with Surface Oncology, which gives Novartis access to four pre-clinical programs in immuno-oncology.

Development program

        The focus of our Development program is to determine the safety and efficacy of a potential new medicine in humans. As previously described (see "—Compounds in Development"), we view the development process as generally consisting of an Exploratory phase where "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 subjects. The

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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 efficacy and safety, and to establish the appropriate therapeutic dose. In Phase III clinical trials, the drug is further tested in larger numbers of volunteer patients in clinics and hospitals. In each of these phases, physicians monitor volunteer patients closely to assess the potential new 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."

        At each of these phases of clinical development, our activities are managed by our Innovation Management Board (IMB). The IMB is responsible for oversight over all major aspects of our development portfolio. In particular, the IMB is responsible for the endorsement of proposals to commence the first clinical trials of a development compound, and of major project phase transitions and milestones following a positive proof of concept outcome, including transitions to full development and the decision to submit a regulatory application to the health authorities. The IMB is also responsible for project discontinuations, for the endorsement of overall development strategy and the endorsement of development project priorities. The IMB is chaired by the Head of Development of our Pharmaceuticals Division and has representatives from Novartis senior management, as well as experts from a variety of fields among its core members and extended membership.

Cell and Gene Therapies

        In 2014, Novartis Pharmaceuticals created a franchise focused on the development and commercialization of Cell and Gene Therapies. The Cell and Gene Therapies franchise aims to develop a new approach to treating or potentially curing some patients suffering from a variety of life-threatening diseases, including blood-borne cancers, sickle cell disease, thalassemias and other diseases of the blood by developing a portfolio of new treatments that replace, repopulate and/or reprogram cells, and potentially selectively regulate the immune system. The franchise will initially focus on novel cell therapies and cell-based gene therapies including: Chimeric Antigen Receptor T-Cell technology in immuno-oncotherapy with CTL019, Facilitated Cell Therapy Platform (FCRx) in renal transplantation with FCR001 and stem cell expansion and transplantation with HSC835.

Diagnostics

        Recent advances in biology and bioinformatics have led to a much deeper understanding of the underlying genetic drivers of disease and the molecular pathways cancer uses to progress. Novartis is developing new therapies that specifically target the mechanisms responsible for disease. To support these advances, Novartis is developing innovative diagnostic tests that could potentially improve physicians' ability to administer the appropriate treatment to those patients who have the greatest potential to benefit from them. Our Pharmaceuticals Division has two units that support our commitment to advancing precision medicine.

        Our Companion Diagnostics (CDx) function works as an integrated part of the drug development process. CDx brings internal capabilities and resources to bear in the development of new diagnostic tests to support our global program teams and efforts in various disease areas. Additionally, the CDx team forms strategic collaborations with third parties to secure access to technologies and capabilities that fit the requirements of our drug development programs. The CDx unit develops tests to meet high regulatory standards for the approval of companion diagnostics around the world.

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        In 2011, Novartis acquired Genoptix Medical Laboratory, located in Carlsbad, California. This organization provides comprehensive diagnostics and informatics services to community-based hematologists and oncologists in the US. As one of the largest hematopathology centers in the US, Genoptix offers comprehensive testing solutions in hematology and solid tumor molecular profiling. Their mission is to create value for the patient and the healthcare system by transforming diagnostic information into actionable clinical insights. Genoptix also provides services to support Novartis and third-party clinical trials.

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 and indications that are expected to be growth drivers in the future. We review products and compounds we are considering licensing using the same criteria as we use for our own internally discovered drugs.

Regulation

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

        Health authorities, including those in the US, EU and Japan, have high standards of technical evaluation. The introduction of new pharmaceutical products generally entails a lengthy approval process. In all major countries, products must be authorized or registered prior to marketing, and such authorization or registration must subsequently be maintained. In recent years, the registration process has required increased testing and documentation for the approval of new drugs, with a corresponding increase in the expense of product introduction.

        To register a pharmaceutical product, a registration dossier containing evidence establishing the safety, efficacy and quality of the product must be submitted to regulatory authorities. Generally, a therapeutic product must be registered in each country in which it will be sold. In every country, the submission of an application to a regulatory authority does not guarantee that approval to market the product will be granted. Although the criteria for the registration of therapeutic drugs are similar in most countries, the formal structure of the necessary registration documents and the specific requirements, including risk tolerance, of the local health authorities can vary significantly from country to country. It is possible that a drug can be registered and marketed in one country while the registration authority in another country may, prior to registration, request additional information from the pharmaceutical company or even reject the product. It is also possible that a drug may be approved for different indications in different countries.

        The registration process generally takes between six months and several years, depending on the country, the quality of the data submitted, the efficiency of the registration authority's procedures and the nature of the product. Many countries provide for accelerated processing of registration applications for innovative products of particular therapeutic interest. In recent years, intensive efforts have been made among the US, the EU and Japan to harmonize registration requirements in order to achieve shorter

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development and registration times for medical products. However, the requirement in many countries to negotiate selling prices or reimbursement levels with government regulators and other payors can substantially extend the time until a product may finally be available to patients.

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

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

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

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

European Union

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

        Under the Centralized Procedure, applications are made to the EMA for an authorization which is valid for the European Community. The Centralized Procedure is mandatory for all biotechnology products and for new chemical entities in cancer, neurodegenerative disorders, diabetes and AIDS, autoimmune diseases or other immune dysfunctions and optional for other new chemical entities or innovative medicinal products or in the interest of public health. When a pharmaceutical company has gathered data which it believes sufficiently demonstrates a drug's safety, efficacy and quality, then the company may submit an application to the EMA. The EMA then receives and validates the application, and appoints a Rapporteur and Co-Rapporteur to review it. The entire review cycle must be completed

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within 210 days, although there is a "clock stop" at day 120, to allow the company to respond to questions set forth in the Rapporteur and Co-Rapporteur's Assessment Report. When the company's complete response is received by the EMA, the clock restarts on day 121. If there are further aspects of the dossier requiring clarification, the EMA will then request an Oral Explanation on day 180, in which case the sponsor must appear before the CHMP to provide the requested additional information. On day 210, the CHMP will then take a vote to recommend the approval or non-approval of the application. The final decision under this Centralized Procedure is a European Community decision which is applicable to all Member States. This decision occurs on average 60 days after a positive CHMP recommendation.

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

        After the Marketing Authorizations have been granted, the company must submit periodic safety reports to the EMA (if approval was granted under the Centralized Procedure) or to the National Health Authorities (if approval was granted under the DCP or the MRP). In addition, several pharmacovigilance measures must be implemented and monitored including Adverse Event collection, evaluation and expedited reporting and implementation, as well as update Risk Management Plans. For some medications, post approval studies (Phase IV) may be required to complement available data with additional data to evaluate long term effects (called a Post Approval Safety Study, or PASS) or to gather additional efficacy data (called a Post Approval Efficacy Study, or PAES).

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

Japan

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

        Once the MHLW has approved the application, the company can make the new drug available for physicians to prescribe. After that, the MHLW lists its national health insurance price within 60 days (or 90 days) from the approval, and physicians can obtain reimbursement. For some medications, the MHLW requires additional post-approval studies (Phase IV) to evaluate safety, effects and/or to gather information on the use of the product under special conditions. The MHLW also requires the drug's

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sponsor to submit periodic safety update reports. Within three months from the specified re-examination period, which is designated at the time of the approval of the application for the new product, the company must submit a re-examination application to enable the drug's safety and efficacy to be reassessed against approved labeling by the PMDA.

Price Controls

        In most of the markets where we operate, the prices of pharmaceutical products are subject to both direct and indirect price controls and to drug reimbursement programs with varying price control mechanisms. Due to increasing political pressure and governmental budget constraints, we expect these mechanisms to continue to remain robust—and to 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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We expect that pressures on pricing will continue worldwide, and will likely increase. Because of these pressures, there can be no certainty that, in every instance, we will be able to charge prices for a product that, in a particular country or in the aggregate, would enable us to earn an adequate return on our investment in that product.

Intellectual Property

        We attach great importance to patents, trademarks, copyrights and know-how, including research data, 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, as well as assays, research tools and other techniques used to identify new drugs. The protection offered by such patents extends for varying periods depending on the grant and duration of patents in the various countries or region. The protection afforded, which may vary from country to country, depends upon the type of patent and its scope of coverage. Even though we may own, co-own or in-license patents protecting our products,

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and conduct pre-launch freedom-to-operate analyses, a third party may nevertheless claim that one of our products infringes a third party patent for which we do not have a license.

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

        In the US and other countries, pharmaceutical products are eligible for a patent term extension for patent periods lost during product development and regulatory review. The law recognizes that product development and review by the FDA and other health authorities can take an extended period, and permits an extension of the patent term for a period related to the time taken for the conduct of clinical trials and for the health authority's review. However, the length of this extension and the patents to which it applies cannot be known in advance, but can only be determined after the product is approved.

        Patents, patent term extensions and marketing exclusivities can be challenged through various proceedings that depend on the country. For example, patents in the US can be challenged in the United States Patent and Trademark Office (USPTO) through various proceedings, including Inter Partes Review (IPR) proceedings. They may also be challenged through patent infringement litigation under the Hatch-Waxman Act. See generally, "—Sandoz—Intellectual Property" In the EU, EU patents may be challenged through oppositions in the European Patent Office (EPO) or national patents may be challenged in national courts or national patent offices. In Japan, patents may be challenged in the Japanese patent office and in national courts.

United States

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

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

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

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European Community

        Patent applications in Europe may be filed in the EPO or in a particular country in Europe. The EPO system permits a single application to be granted for the EU, plus other non-EU countries, such as Switzerland and Turkey. When the EPO grants a patent, it is then validated in the countries that the patent owner designates. A patent granted by the EPO or a European country office will expire no later than 21 years from the earliest patent application on which the patent is based. Pharmaceutical patents can also be granted a further period of exclusivity under the Supplementary Protection Certificate (SPC) system. SPCs are designed to compensate the owner of the patent for the time it took to receive marketing authorization by the European Health Authorities. An SPC may be granted to provide, in combination with the patent, up to 15 years of exclusivity from the date of the first European marketing authorization. However, an SPC cannot last longer than 5 years. The SPC duration can additionally be extended by a further 6 months if the product is the subject of an agreed pediatric investigation plan. The post-grant phase of patents, including the SPC system, is currently administered on a country-by-country basis under national laws which, while differing, are intended to, but do not always, have the same effect.

        As in the US, in practice, it is not uncommon for the granting of an SPC to not fully compensate the owner of a patent for the time it took to receive marketing authorization by the European health authorities. Rather, since it can often take from 5 to 10 years to obtain a granted patent in Europe after the filing of the application, and since it can commonly take longer than this to obtain a marketing authorization for a pharmaceutical product in Europe, it is not uncommon that a pharmaceutical product, at the date of approval, will have a patent lifetime of 10 to 15 years, including all extensions available at that time.

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

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        The EU also has an orphan drug exclusivity system for medicines similar to the US system. If a medicine is designated as an "orphan drug," then it benefits from 10 years of market exclusivity after it is authorized, during which time a similar medicine for the same indication will not receive marketing authorization.

Japan

        In Japan, a patent can be issued for active pharmaceutical ingredients. Although methods of treatment, such as dosage and administration, are not patentable in Japan, pharmaceutical compositions for a specific dosage or administration method are patentable. Processes to make a pharmaceutical composition are also patentable. The patent term granted is generally 20 years from the filing date of the patent application on which the patent is based. A patent term extension can be granted for up to 5 years under the Japanese Patent Act to compensate for erosion against the patent term caused by the time needed to obtain marketing authorization from the MHLW. Japan also has an 8-year regulatory data protection system called a "re-examination period" and a 10-year orphan drug exclusivity system.

        Typically, it takes approximately 7 to 8 years to obtain marketing authorization in Japan. A patent application on a pharmaceutical substance is usually filed shortly before or at the time when clinical testing begins. Regarding compound patents, it commonly takes approximately 4 to 5 years or more from the patent application filing date to the date that the patent is ultimately granted. As a result, it is not uncommon for the effective term of patent protection for an active pharmaceutical ingredient in Japan to be approximately 10 to 15 years, if duly extended.

        The following are certain additional details regarding intellectual property protection for selected Pharmaceuticals Division products and compounds in development. Administrative proceedings or litigation to obtain intellectual property, to enforce intellectual property or to resolve challenges to intellectual property are uncertain and unpredictable. In some circumstances a competitor may be able to market a generic version of one of our products despite the existence of our intellectual property by, for example, designing around our intellectual property or marketing the generic product for non-protected indications. Despite data exclusivity protections, a competitor could opt to incur the costs of conducting its own clinical trials and preparing its own regulatory application, and avoid our data exclusivity protection altogether. There is also a risk that some countries may seek to impose limitations on the availability of patent protection for pharmaceutical products, or on the extent to which such protections may be enforced. As a result, there can be no assurance that our intellectual property will protect our products or that we will be able to avoid adverse effects from the loss of intellectual property protection in the future.

        For each selected product or compound in development, we identify certain issued, unexpired patents by general subject matter and, in parentheses, years of expiry in, if relevant, the US, EU and Japan that are owned, co-owned or exclusively in-licensed by Novartis and that relate to one or more forms of the product or methods of use. Novartis may own or control additional patents relating to compound forms, formulations, processes, synthesis, purification and detection. For additional information regarding commercial arrangements with respect to these products, see "—Key Marketed Products." Identification of an EU patent refers to national patents in EU countries and/or to the national patents that have been derived from a patent granted by the EPO. We identify unexpired regulatory data protection periods and, in parentheses, years of expiry for selected products and compounds in development if the relevant marketing authorizations have been authorized or granted. The term "RDP" refers to regulatory data protection, regulatory data exclusivity (which in the EU refers to the protections under "8+2+1" regulatory data exclusivity), and to data re-examination protection systems. We also identify certain unexpired patent term extensions, SPCs and marketing exclusivities and, in parentheses, years of expiry if they are granted; their subject matter scope may be limited, and is not specified. We designate them as "pending" if they have been applied for but not granted and years of expiry are estimable. Such pending applications may or may not ultimately be granted. In the case of the EU, grant or authorization of a patent term extension, marketing exclusivity or data protection means grant or authorization in at least

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one country and possibly pending in others. Marketing exclusivities and patent term extensions include orphan drug exclusivity (ODE), pediatric exclusivity (PE), patent term extension (PTE) and SPC. For each selected product and compound in development, we indicate whether there is current generic competition for one or more product versions or approved indications in each of the major markets for which intellectual property is identified. We also identify ongoing challenges to the disclosed intellectual property that have not been finally resolved without indicating the likelihood of success in each individual case. Resolution of such challenges may include agreements under which Novartis grants licenses permitting marketing of generic versions of our products before expiration of the relevant intellectual property. We disclose certain material terms of certain settlement agreements relating to certain selected products and compounds in development where they could have a material adverse effect on our business. In other cases, certain settlement agreements may contain confidentiality obligations restricting what may be disclosed.

Oncology

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Cardio-Metabolic

Immunology and Dermatology

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Retina

Neuroscience

Established Medicines

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Compounds in Development

        We provide the following information regarding our compounds in Phase III clinical development, if any, that have been submitted for registration to the FDA or the EMA: As of the date of this 20-F, the only compounds that we have in Phase III clinical development that have been submitted for registration to the FDA or the EMA are compounds that have previously been approved by FDA or EMA, and have been submitted for the approval of one or more additional indications. See above for intellectual property information regarding our selected Pharmaceuticals Division products.

ALCON

        Our Alcon Division is a leader in the research, development, manufacturing and marketing of eye care products worldwide, and its products are available in more than 180 markets. In 2015, the Alcon Division had consolidated net sales of $9.8 billion representing 20% of total Group net sales.

        Alcon offers an extensive breadth of products serving the full lifecycle of patient needs across eye diseases, vision conditions and refractive errors. To meet the needs of patients, ophthalmologists, surgeons, optometrists, opticians and physician specialists, Alcon operates with three franchises: Surgical, Ophthalmic Pharmaceuticals and Vision Care. Each franchise operates with specialized sales forces and marketing support.

        To accelerate growth, we are taking concerted action on two fronts. For the Surgical and Vision Care franchises, we have identified key actions as part of a growth plan. They include steps to optimize innovation in intraocular lenses (IOLs) for cataract surgery, prioritizing and investing in the development of promising new products, and improving the effectiveness of our sales force.

        In addition, we plan to strengthen our ophthalmic medicines business by transferring Ophthalmic Pharmaceuticals products from Alcon to our Pharmaceuticals Division, combining expertise in pharmaceuticals development and marketing with the strong Alcon brand.

        Alcon's dedication to research and development is important to our growth plans. As part of our efforts, the Alcon Division works together with the Novartis Institutes for BioMedical Research (NIBR), our global pharmaceutical research organization. This collaboration allows our Alcon Division to leverage the resources of NIBR in an effort to discover and expand ophthalmic pharmaceutical research targets and to develop chemical and biologic compounds for the potential treatment of diseases of the eye, with a particular focus on diseases such as glaucoma and macular degeneration.

        In July 2014, Alcon entered into an agreement with Verily (formerly Google Life Sciences) to license its "smart lens" technology with the potential to address ocular conditions. In October 2014, Alcon acquired WaveTec Vision. The acquisition provided Alcon with the ORA System, the first commercialized intra-operative guidance system for cataract surgeons implanting IOLs. Alcon has integrated the ORA System into its existing Cataract Refractive Suite by Alcon.

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Alcon Division Products

Surgical

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

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

Ophthalmic Pharmaceuticals

        Our Alcon Division's Ophthalmic Pharmaceuticals franchise develops and markets a broad range of pharmaceuticals to treat chronic and acute conditions of the eye including glaucoma, elevated intraocular pressure (associated with glaucoma), eye infection and inflammation, eye allergies, dry eye and retinal diseases. Ophthalmic Pharmaceuticals also oversees the line of professionally driven over-the-counter brands that include artificial tears and ocular vitamins. Product highlights within the Ophthalmic Pharmaceuticals portfolio include Ilevro ophthalmic suspension for the treatment of pain and inflammation associated with cataract surgery; Simbrinza suspension to lower intraocular pressure as a fixed-dose combination; Azopt, Azarga, Travatan Z and DuoTrav, each ophthalmic solutions for the treatment of elevated intraocular pressure associated with open-angle glaucoma or ocular hypertension; Vigamox ophthalmic solution for bacterial conjunctivitis; Pazeo and Pataday ophthalmic solutions for ocular itching associated with allergic conjunctivitis; Nevanac ophthalmic suspension for eye pain and inflammation following cataract surgery and to reduce the risk of macular edema associated with cataract surgery in diabetic patients; the Systane family of over-the-counter products for dry eye relief; and Jetrea intravitreal injection for treating vitreomacular traction.

Vision Care

        Our Alcon Division's Vision Care franchise develops and markets contact lenses and lens care products. Alcon's broad portfolio of silicone hydrogel, daily disposables and color contact lenses includes our Air Optix, Dailies and Freshlook brands. Our Dailies product line includes Dailies Total1 lenses, a first-of-its-kind water gradient contact lens. Our Air Optix monthly contact lens product line includes Air Optix Colors silicone hydrogel contact lenses. Our contact lens care solutions business includes the Opti-Free line of multi-purpose disinfecting solutions and drops, as well as the Clear Care and AOSept Plus hydrogen peroxide lens care solutions.

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New Products

        Alcon received a number of approvals and launched a number of products in 2015, including:

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Key Marketed Products

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

Surgical

Cataract

  AcrySof family of intraocular lenses includes but is not limited to:

  AcrySof IQ ReSTOR, AcrySof IQ PanOptix, AcrySof IQ Toric and

  AcrySof IQ ReSTOR Toric advanced technology intraocular lenses that correct cataracts and distance vision with presbyopia and/or astigmatism

  Cataract Refractive Suite by Alcon designed to streamline the cataract surgical procedure through surgical planning and execution

  Centurion vision system intelligent phacoemulsification technology platform with cataract removal capabilities

  Infiniti vision system with the OZil torsional hand piece for cataract procedures

  LenSx laser used for specific steps in the cataract surgical procedure

  LuxOR microscope used for ophthalmic surgical procedures

  ORA System intra-operative guidance system for intraocular lens implant during cataract surgery

  UltraSert pre-loaded delivery system for intraocular lenses that correct cataracts

  Verion imaged-guided system for use during cataract surgery

Vitreoretinal

  Constellation vision system for vitreoretinal operations

  Ultravit vitrectomy probes

  23+, 25+ and 27+ vitrectomy packs

  Purepoint laser system and probes

  Finesse flex loop

  Grieshaber surgical instruments

  Edgeplus blade trocar cannula system

  Ispan gas, Perfluron, Silkon oil: Retina stabilizing adjuncts

Refractive

  Allegretto Wave Eye-Q excimer laser for LASIK vision correction

  Contoura vision for LASIK vision correction in patients with myopia and astigmatism

  WaveLight FS200 laser for specific steps in LASIK surgical procedures

  WaveLight EX500 laser for LASIK vision correction

Glaucoma

  Ex-press glaucoma filtration device

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

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Ophthalmic Pharmaceuticals

Glaucoma

  Simbrinza suspension to lower intraocular pressure without a beta blocker

  Izba, Travatan and Travatan Z ophthalmic solutions to lower intraocular pressure

  Azopt ophthalmic suspension to lower intraocular pressure

  DuoTrav ophthalmic solution to lower intraocular pressure (outside US markets)

  Azarga/Azorga ophthalmic suspension to lower intraocular pressure (outside US markets)

Anti-Infectives

  Vigamox and Moxeza ophthalmic solution for treatment of bacterial conjunctivitis

Anti-Inflammation

  Ilevro suspension to treat pain and inflammation following cataract surgery

  Nevanac ophthalmic suspension to treat pain and inflammation following cataract surgery, and to reduce the risk of macular edema associated with cataract surgery in diabetic patients

  Durezol emulsion to treat pain and inflammation associated with eye surgery, and to treat endogenous anterior uveitis

  TobraDex and TobraDex ST ophthalmic suspensions, combination anti-infective/anti-inflammatory products

  Voltaren ophthalmic solution to treat post-operative inflammation after cataract surgery, and for temporary relief of pain and photophobia after refractive surgery

Dry Eye

  The Systane family of over-the-counter dry eye products:

  Systane lubricant eye drops

  Systane Balance lubricant eye drops

  Systane Hydration lubricant eye drops

  Systane Ultra lubricant eye drops

  Systane gel drops

  Systane lid wipes

  Lubricants for eye dryness, discomfort or ocular fatigue:

  GenTeal lubricant eye drops

  Tears Naturale lubricant eye drops

Allergy

  Pazeo, Patanol and Pataday ophthalmic solutions for ocular itching associated with allergic conjunctivitis

  Patanase nasal spray for seasonal nasal allergy symptoms

  Zaditor antihistamine eye drops for temporary relief of itchy eyes associated with eye allergies (over-the-counter in the US)

  Zaditen Ophtha an H1-antagonist to fight allergic conjunctivitis

  Livostin an H1-antagonist to fight allergic conjunctivitis (Canada only)

Ear Infections

  Ciprodex* otic suspension to treat middle and outer ear infections

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Ocular Nutrition

  ICaps eye vitamin dietary supplements provide essential dietary ingredients to support eye health

  Vitalux nutrient supplements to help patients with age-related macular degeneration maintain their vision (outside US markets)

Retinal

  Jetrea (ocriplasmin) intravitreal injection for the treatment of vitreomacular traction, including macular hole

  Triesence suspension for visualization during vitrectomy

*
Ciprodex is a registered trademark of Bayer Intellectual Property GmbH.

Vision Care

Contact Lenses

  Air Optix family of silicone hydrogel contact lenses (including Air Optix Colors lenses)

  Dailies family of daily disposable contact lenses (including Dailies Total1 lenses)

  FreshLook family of color contact lenses

Contact Lens Care

  Opti-Free PureMoist MPDS

  Opti-Free RepleniSH MPDS

  Opti-Free Express MPDS

  Clear Care Plus cleaning and disinfecting solution (AOSept Plus outside of North America)

Selected Development Projects

Surgical

Project/Product(1)
  Mechanism of
action
  Potential indication   Planned submission
date/Current Phase
AcrySof IQ ReSTOR Toric 2.5D IOL   Multifocal, aspheric and cylinder correcting intraocular lens   Cataractous lens replacement with or without presbyopia, and with astigmatism   2016 US/Advanced development
AcrySof IQ ReSTOR Toric 3.0D IOL   Multifocal, aspheric and cylinder correcting intraocular lens   Cataractous lens replacement with or without presbyopia, and with astigmatism   US/Submitted(2)
AcrySof IQ Aspheric IOL with UltraSert   Pre-loaded intraocular lens delivery device   Cataractous lens replacement   Japan/Submitted(3)

(1)
AcrySof IQ ReSTOR Toric 3.0D diopter range expansion IOL was terminated in July 2015, as clinical data did not support submissions in the US or Japan.

(2)
Submitted to the FDA in 2014. Additional information regarding clinical data has been requested by the FDA.

(3)
Submission pending acceptance by regulatory authority.

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Ophthalmic Pharmaceuticals

Project/Product
  Mechanism of
action
  Potential indication   Route of
Administration
  Planned submission
date/Current Phase
EXE844b (finafloxacin)   Anti-infective   Otitis media-tympanostomy tube surgery   Topical   2016 US/III
Jetrea Ready-Diluted Injection (ocriplasmin)   Alpha-2 antiplasmin reducer   Retina (vitreomacular traction)   Intravitreal injection   2017 Japan/III
Ilevro (nepafenac 0.3%)   Anti-inflammation   Postsurgical macular edema in patients with diabetes   Topical   EU Submitted† 2018 US/III
RTH258 (brolucizumab)   Anti-VEGF single-chain antibody fragment   Wet age-related macular degeneration   Intravitreal injection   ³ 2018/III

Submission pending acceptance by regulatory authority.

Vision Care

Project/Product
  Mechanism of
action
  Potential indication   Planned submission
date/Current Phase
AOSept Plus/Clear Care Plus with HydraGlyde   Disinfection and cleaning   Contact lens care   2017 Japan/Advanced development

Principal Markets

        The principal markets for our Alcon Division include the US, Canada and Latin America, Japan and Europe. The following table sets forth the aggregate 2015 net sales of the Alcon Division by region:

Alcon Division
  2015 Net
Sales to
third parties
 
 
  $ millions
  %
 

Europe

    2,408     25  

United States

    4,275     44  

Asia, Africa, Australasia

    2,154     22  

Canada and Latin America

    975     9  

Total

    9,812     100  

Of which in Established Markets*

    7,423     76  

Of which in Emerging Growth Markets*

    2,389     24  

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

        Sales of certain ophthalmic pharmaceutical products, including those for allergies, anti-inflammatory and dry eye, are subject to seasonal variation. Sales of the majority of our other products are not subject to material changes in seasonal demand.

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Research and Development

        In 2015, our Alcon Division expensed $0.9 billion (on a core basis $0.9 billion) in research and development, which amounted to 9% of the Division's net sales. The Alcon Division expensed $0.9 billion (on a core basis $0.9 billion) and $1.0 billion (on a core basis $0.9 billion) in research and development in 2014 and 2013, respectively. Core results exclude impairments, amortization and certain exceptional items. For additional information, see "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Non-IFRS Measures as Defined by Novartis—Core Results."

        Our Alcon Division associates in research and development work to address diseases and conditions that affect vision, such as cataracts, glaucoma, retina diseases, dry eye, infection, ocular allergies and refractive errors. Alcon's pipeline strategy is built around a proof-of-concept qualification process, which quickly identifies opportunities that have the best chance for technical success and advances those projects, while terminating others with a low probability of success.

        In addition, the Novartis Institutes for BioMedical Research (NIBR) is the Novartis global pharmaceutical research organization that works to discover innovative medicines to treat disease and improve human health. See "—Pharmaceuticals—Research and Development." For Alcon's Ophthalmic Pharmaceuticals franchise, NIBR engages in research activities in an effort to discover and expand ophthalmic research targets, and to develop chemical and biologic compounds for the potential treatment of diseases of the eye, with a particular focus on diseases such as glaucoma and macular degeneration. The costs for these activities are allocated to Alcon.

        Research and development activities for Alcon's Surgical franchise are focused on expanding intraocular lens capabilities to improve refractive outcomes and on developing instruments for cataract, vitreoretinal and corneal refractive surgeries. The focus for the Vision Care franchise is on the research and development of new contact lens materials, coatings and designs to improve patient comfort, and on lens care solutions that provide the safety, disinfecting and cleaning power needed to help maintain ocular health. As announced in 2014, Alcon is also collaborating with Verily (formerly Google Life Sciences), and has licensed its smart lens technology for ocular medical uses, including the potential to provide an accommodative contact lens/intraocular lens for patients living with presbyopia and to monitor glucose levels in diabetic patients. The Ophthalmic Pharmaceuticals franchise is focused on the development of products for the treatment of retinal diseases, glaucoma (intraocular pressure lowering) and dry eye.

Production

        We manufacture our Alcon Division's pharmaceutical products at six facilities in the United States, Belgium, Spain, Brazil and Singapore. Our Alcon Division's surgical equipment and other surgical medical devices are manufactured at nine facilities in the United States, Belgium, Switzerland, Ireland, Germany and Israel. Our Alcon Division's contact lens and certain lens care production facilities are in the US, Canada, Germany, Singapore, Malaysia and Indonesia.

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

        The manufacture of our products is complex and heavily regulated, which means that supply is never guaranteed. Like some of our competitors, our Alcon Division has faced manufacturing issues and has received Warning Letters relating to such manufacturing issues. In particular, in December 2012, Alcon received an FDA Warning Letter following an inspection at the LenSx laser manufacturing site in Aliso Viejo, California. Alcon responded in writing to the FDA, and in February 2013, FDA responded to Alcon acknowledging that the corrective actions described in Alcon's written response appear to address the items identified in the Warning Letter. The Warning Letter was lifted in May 2014 after all corrective

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actions were completed. The items noted in the Warning Letter did not affect the safety or effectiveness of the LenSx laser, or impact Alcon's ability to sell the product. If we or our third-party suppliers fail to comply fully with regulations then there could be a product recall or other shutdown or disruption of our production activities. We have implemented a global manufacturing strategy to maximize business continuity in case of such events or other unforeseen catastrophic events. However, there can be no guarantee that we will be able to successfully manage such issues when they arise.

Marketing and Sales

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

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

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

        As a result of changes in healthcare economics, managed care organizations are now one of the largest groups of payors for healthcare services in the US. In an effort to control prescription drug costs, almost all managed care organizations use a formulary that lists specific drugs that can be prescribed and/or the amount of reimbursement for each drug. We have a dedicated managed care team that actively seeks to optimize formulary positions for our products.

Competition

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

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Regulation

        Our Ophthalmic Pharmaceuticals products are subject to the same regulatory procedures as are the products of our Pharmaceuticals Division. See "—Pharmaceuticals—Regulation."

        Our Surgical and Vision Care products are regulated as medical devices in the US and the EU. These jurisdictions each have risk-based classification systems that determine the type of information that must be provided to the local regulators in order to obtain the right to market a product. In the US, safety and effectiveness information for Class II and III devices must be reviewed by the FDA. There are two review procedures: a Pre-Market Approval (PMA) and a Pre-Market Notification (510(k)) submission. Under a PMA, the manufacturer must submit to the FDA supporting evidence sufficient to prove the safety and effectiveness of the device. The FDA review of a PMA usually takes 180 days from the date of filing of the application. Under Pre-Market Notification (510(k)), the manufacturer submits notification to the FDA that it intends to commence marketing the product, with data that establishes the product as substantially equivalent to another product already on the market. The FDA usually determines whether the device is substantially equivalent within 90 days.

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

Intellectual Property

        We attach great importance to patents, trademarks, copyrights and know-how in order to protect our investment in research and development, manufacturing and marketing. It is our policy to seek the broadest possible protection for significant product developments in all major markets. Among other things, patents may cover the products themselves, including the product's active substance, its use and its formulation. Patents may also cover the 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.

        The protection offered by such patents extends for varying periods depending on the legal life of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent and its scope of coverage. We monitor our competitors and typically challenge infringements of our intellectual property. We also defend challenges, often by generic manufacturers, to the validity of our intellectual property. However, because the outcome of intellectual property litigation is uncertain and unpredictable, there can be no assurance that we will be able to successfully protect our intellectual property rights in all cases. See generally "—Pharmaceuticals—Intellectual Property."

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

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unsuccessful in such proceedings, we may face loss of exclusivity and increased competition in the affected territories.

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

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

SANDOZ

        Our Sandoz Division is a leader in generic pharmaceuticals and biosimilars and sells products in products in more than 160 countries. In 2015, the Sandoz Division achieved consolidated net sales of $9.2 billion, representing 18% of the Group's total net sales.

        Sandoz is organized globally in three franchises: Retail Generics, Anti-Infectives, and Biopharmaceuticals & Oncology Injectables. In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of pharmaceuticals to third parties. Retail Generics includes the areas of dermatology, respiratory and ophthalmics, as well as cardiovascular, metabolism, central nervous system, pain, gastrointestinal, and hormonal therapies. Finished dosage form anti-infectives sold to third parties are also a part of Retail Generics.

        In Anti-Infectives, Sandoz manufactures active pharmaceutical ingredients and intermediates—mainly antibiotics—for internal use by Retail Generics and for sale to third-party customers. In Biopharmaceuticals, Sandoz develops, manufactures and markets protein- or other biotechnology-based products known as biosimilars and provides biotechnology manufacturing services to other companies, and in Oncology Injectables, Sandoz develops, manufactures and markets cytotoxic products for the hospital market.

        Sandoz develops, produces and markets finished dosage form medicines as well as intermediary products including active pharmaceutical ingredients. Nearly half of the Sandoz portfolio, in terms of sales, is in differentiated products—products that are scientifically more difficult to develop and manufacture than standard generics. Examples of differentiated products in the Sandoz portfolio are the multiple sclerosis treatment Glatopa (glatiramer acetate injection), the cardiovascular polypill Sincronium (acetylsalicylic acid, atorvastatin and ramipril), and the pain medication fentanyl, which is difficult to manufacture because its delivery mechanism is a transdermal patch. Differentiated products also include biosimilars, which Sandoz began developing in 1996 and today sells in more than 60 countries. Sandoz is the market leader in biosimilars and all three of its biosimilars continue to demonstrate strong growth in their respective categories—Omnitrope, a human growth hormone; Binocrit, an erythropoiesis-stimulating agent used to treat anemia; and filgrastim for neutropenia under the brand names Zarzio outside the US and Zarxio in the US. According to IMS Health, Sandoz holds the global #1 position in terms of sales in biosimilars and generic anti-infectives, as well as in ophthalmics and transplanattion medicines. In addition, Sandoz holds leading global positions in key therapeutic areas ranging from generic injectables, dermatology and respiratory to cardiovascular, metabolism, central nervous system, pain and gastrointestinal.

        Sandoz is focused on several key priorities, including investing in key markets and therapeutic areas, increasing the performance of its Development & Regulatory organization, optimizing its manufacturing network and maximizing opportunities in biosimilars.

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        In 2015, key product launches in the US included Glatopa, the first generic version of Teva's Copaxone® 20mg (glatiramer acetate injection), the biosimilar Zarxio (filgrastim-sndz), and budesonide inhalation suspension (Astra Zeneca's Pulmicort Respules®), as well as authorized generic versions of the The Medicine Company's Angiomax® (bivalirudin) and our Pharmaceutical Division's Exelon Patch (rivastigmine patch).

        In 2015, key product launches in various European countries included aripiprazole TAB (Atsuka's Abilify®), duloxetine (Eli Lilly's Cymbalta®) pregabalin HGC (Pfizer's Lyrica®) and valganciclovir FCT (Roche's Valcyte®). In addition, the global rollout of AirFluSal Forspiro continued with launches across Europe. As of December 31, 2015, AirFluSal Forspiro was marketed in 24 countries.

        In 2015, Sandoz continued to accelerate its efforts across Sub-Saharan Africa, supported by a strong product portfolio that comprises anti-infectives, tuberculosis treatments, maternal and child health products, and medicines to address non-communicable diseases.

New Products

        Sandoz launched a number of important products in various countries in 2015, including:

Key Marketed Products

        The following tables describe key marketed products for Sandoz (availability varies by market):

Retail Generics

Product
  Originator Drug   Description
Acetylcysteine   Fluimucil®   Respiratory system
Amoxicillin/clavulanic acid   Augmentin®   Anti-infective
Atorvastatin   Lipitor®   Blood cholesterol reduction
Diclofenac   Voltaren   Analgesic
Fentanyl   Duragesic®   Analgesic
Levothyroxine Sodium   Synthroid®; Levoxyl®   Hypothyroidism treatment
Omeprazole   Prilosec®   Ulcer and heartburn treatment
Pantoprazole   Protonix®   Gastrointestinal
Potassium   Klor-Con®   Hypokalemia
Tacrolimus   Prograf®   Transplantation

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Anti-Infectives

Active Ingredients
  Description

Oral and sterile penicillins

  Anti-infectives

Oral and sterile cephalosporins

  Anti-infectives

Clavulanic acid and mixtures with clavulanic acid

  ß-lactam inhibitors

Classical and semisynthetic erythromycins

  Anti-infectives

 

Intermediates
  Description

Various cephalosporin intermediates

  Anti-infectives

Erythromycin base

  Anti-infectives

Various crude compounds produced by fermentation

  Cyclosporine, ascomysine, rapamycine, mycophenolic acid, etc.

Biopharmaceuticals

Product
  Originator Drug   Description
Binocrit and Epoetin alfa Hexal   Eprex®/Erypo®   Recombinant protein used for anemia
Omnitrope   Genotropin®   Recombinant human growth hormone
Zarzio, Zarxio and Filgrastim Hexal   Neupogen®   Recombinant protein used in oncology

Oncology Injectables

Product
  Originator Drug   Description
Azacitidine   Vidaza®   Bone marrow cancer, leukemia
Bortezomib   Velcade®   Multiple myeloma, lymphoma
Cyclophosphamide   Endoxan®   Breast, ovarian and non-small cell lung cancer
Decitabine   Dacogen®   Bone marrow cancer, leukemia
Docetaxel   Taxotere®   Breast, ovarian and non-small cell lung cancer
Gemcitabine   Gemzar®   Bladder, pancreas, lung, ovarian, and breast cancer
Leuprorelin   Lupron®, Eligard®   Prostate cancer
Levoleucovorin Calcium   Fusilev®   Rescue after methotrexate high-dose therapy
Methotrexate   Folex®, Rheumatrex®   Arthritis; breast, lung, cervix and ovarian cancer, and others
Paclitaxel   Taxol®   Breast, lung and ovarian cancer, Kaposi sarcoma

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Biosimilars in Phase III Development and Registration

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

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

GP2013

  rituximab   Anti-CD20 antibody   Non-Hodgkin lymphoma, chronic lymphocytic leukemia, rheumatoid arthritis, granulomatosis with polyangiitis (also known as Wegener's granulomatosis), and microscopic polyangiitis and others (same as originator)   Oncology and Immunology   Intravenous   II and III
 

GP2015

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

GP2017

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

HX575*

  epoetin alfa   Erythropoiesis-stimulating agent   Chronic kidney disease, chemotherapy-induced anemia and others (same as originator)   Oncology and Nephrology   Subcutaneous and intravenous   III
 

HX575 s.c.**

  epoetin alfa   Erythropoiesis-stimulating agent   Chronic kidney disease   Nephrology   Subcutaneous   EU: Registration
 

LA-EP2006

  pegfilgrastim   Pegylated granulocyte colony-stimulating factor   Chemotherapy-induced neutropenia and others (same as originator)   Oncology   Subcutaneous   US: Registration EU: III
 
*
Planned submission for US.

**
Filing in the EU for the addition of the subcutaneous (s.c.) route of administration for Binocrit nephrology indications.

Principal Markets

        The two largest generics markets in the world—the US and Europe—are the principal markets for Sandoz, although Sandoz sells products in more than 160 countries. The following table sets forth the aggregate 2015 net sales of Sandoz by region:

Sandoz
  2015 Net Sales
to
third parties
 
 
  $ millions
  %
 

Europe

    3,925     43  

United States

    3,525     38  

Asia, Africa, Australasia

    1,150     13  

Canada and Latin America

    557     6  

Total

    9,157     100  

Of which in Established Markets*

    6,972     76  

Of which in Emerging Growth Markets*

    2,185     24  

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

        Many Sandoz products are used for chronic conditions that require patients to consume the product over long periods of time, from months to years. Sales of our anti-infective products are subject to seasonal variation. Sales of the vast majority of our other products are not subject to material changes in seasonal demand.

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