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NOVARTIS GROUP INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

As filed with the Securities and Exchange Commission on January 26, 2010

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

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FORM 20-F

Commission file number 1-15024

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

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

Switzerland
(Jurisdiction of incorporation or organization)

Lichtstrasse 35
4056 Basel, Switzerland

(Address of principal executive offices)

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

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

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

None

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

None

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

2,274,353,351 shares

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

Yes ý No o

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

Yes o No ý

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

Yes ý No o

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

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

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

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

Item 17 o Item 18 o

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

Yes o No ý

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INTRODUCTION

        Novartis AG and its consolidated affiliates (Novartis or the Group) publish consolidated financial statements expressed in US dollars. Our consolidated financial statements found in Item 18 of this annual report on Form 20-F (Form 20-F) are those for the year ended December 31, 2009 and are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

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USE OF CERTAIN TERMS

        In this Form 20-F, references to "US dollars," "$" or "USD" are to the lawful currency of the United States of America, and references to "CHF" are to Swiss francs; references to the "United States" or to "US" are to the United States of America, references to the European Union (EU) are to the European Union and its 27 member states and references to "Americas" are to North, Central (including the Caribbean) and South America, unless the context otherwise requires; references to "ADS" or "ADSs" are to Novartis American Depositary Shares; references to "associates" are to employees of our affiliates; references to the "FDA" are to the US Food and Drug Administration, and references to "EMEA" are to the European Medicines Agency, an agency of the EU. All product names appearing in italics are trademarks owned by or licensed to Group companies. Product names identified by a "®" or a "™" are trademarks that are not owned by or licensed to Group companies. You will find the words "we," "our," "us" and similar words or phrases in this Form 20-F. We use those words to comply with the requirement of the US Securities and Exchange Commission to use "plain English" in public documents like this Form 20-F. For the sake of clarification, each Group company is legally separate from all other Group companies and manages its business independently through its respective board of directors or other top local management body. No Group company operates the business of another Group company nor is any Group company the agent of any other Group company. Each executive identified in this Form 20-F reports directly to other executives of the Group company which employs the executive, or to that Group company's board of directors.

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FORWARD LOOKING STATEMENTS

        This Form 20-F contains certain "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by terminology such as "planned," "expected," "will," "potential," "pipeline," "outlook," or similar expressions, or by express or implied discussions regarding potential new products, potential new indications for existing products, or regarding potential future revenues from any such products, or potential future sales or earnings of the Novartis Group or any of its divisions or business units; or regarding the potential acquisition and merger with Alcon; or by discussions of strategy, plans, expectations or intentions. You should not place undue reliance on these statements. Such forward-looking statements reflect the current views of the Group regarding future events, and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. There can be no guarantee that any new products will be approved for sale in any market, or that any new indications will be approved for existing products in any market, or that such products will achieve any particular revenue levels. Nor can there be any guarantee that the Novartis Group, or any of its divisions or business units, will achieve any particular financial results. Neither can there be any guarantee that the proposed acquisition and merger with Alcon will be completed in the expected form or within the expected time frame or at all. Nor can there be any guarantee that Novartis will be able to realize any of the potential synergies, strategic benefits or opportunities as a result of the proposed acquisition. In particular, management's expectations could be affected by, among other things, unexpected clinical trial results,

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including additional analysis of existing clinical data or unexpected new clinical data; unexpected regulatory actions or delays or government regulation generally; the Group's ability to obtain or maintain patent or other proprietary intellectual property protection; uncertainties regarding actual or potential legal proceedings, including, among others, product liability litigation, litigation regarding sales and marketing practices, government investigations and intellectual property disputes; competition in general; government, industry, and general public pricing and other political pressures; uncertainties regarding the after-effects of the recent global financial and economic crisis; uncertainties regarding future global exchange rates and uncertainties regarding future demand for our products; uncertainties involved in the development of new pharmaceutical products; the impact that the foregoing factors could have on the values attributed to the Group's assets and liabilities as recorded in the Group's consolidated balance sheet. Some of these factors are discussed in more detail herein, including under "Item 3. Key Information—3.D. Risk factors," "Item 4. Information on the Company," and "Item 5. Operating and Financial Review and Prospects." Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Form 20-F as anticipated, believed, estimated or expected. We provide the information in this 20-F as of the date of its filing. We do not intend, and do not assume any obligation, to update any information or forward looking statements set out in this Form 20-F as a result of new information, future events or otherwise.

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PART I

Item 1.    Identity of Directors, Senior Management and Advisers

        Not applicable.

Item 2.    Offer Statistics and Expected Timetable

        Not applicable.

Item 3.    Key Information

3.A  Selected Financial Data

        The selected financial information set out below has been extracted from our consolidated financial statements prepared in accordance with IFRS as issued by the IASB. Our consolidated financial statements for the years ended December 31, 2009, 2008 and 2007 are included in "Item 18. Financial Statements" in this Form 20-F.

        The results of our Medical Nutrition and Gerber Business Units are shown as discontinued operations for all periods presented, following their divestment in 2007. See "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Factors Affecting Comparability of Year-on-Year Results of Operations" and "Item 18. Financial Statements—note 2" for more detailed discussion.

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

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Cash Dividends per Share

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

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Exchange Rates

        The following table shows, for the years and dates indicated, certain information concerning the rate of exchange of US dollar per Swiss franc based on exchange rate information found on Reuters Market System. The exchange rate in effect on January 19, 2010, as found on Reuters Market System, was CHF 1.00 = $0.97.

3.B  Capitalization and Indebtedness

        Not applicable.

3.C  Reasons for the offer and use of proceeds

        Not applicable.

3.D  Risk Factors

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

Risks Facing Our Business

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

        Our Pharmaceuticals Division's products are generally protected by patent rights, which are intended to provide us with exclusive rights to market the patented products. However, those patent rights are of

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varying strengths and durations. Loss of market exclusivity for one or more important products—which we will face in the near future—will have a material adverse effect on our results of operations.

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

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

        Some of our best-selling products are expected to face significant competition in the coming years due to the end of market exclusivity resulting from the expiry of patent protection.

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The patent on valsartan, the active ingredient of our top-selling drug, Diovan/Co-Diovan/Diovan HCT (high blood pressure), expires in the major countries of the EU during 2011, in the US in September 2012, and in Japan in 2013. Our sales may also be impacted in 2010 when a competitor product, Cozaar®, is expected to become the first branded medicine in the same therapeutic class as Diovan to lose market exclusivity. In addition, the active ingredient valsartan is also used in the single-pill combination therapies Exforge/Exforge HCT (high blood pressure). While there is an expectation that market exclusivities for Exforge/Exforge HCT will remain in the EU and Japan due to regulatory exclusivities, there is a risk that the product may face generic competition in the US in September 2012.



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



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Patents protecting the Sandostatin LAR (acromegaly) formulation, the long-acting version of this drug that represents a majority of our Sandostatin sales, expire in July 2010 in major markets outside the US, and in 2014 and beyond in the US.

        Some of our products are also the subject of ongoing patent litigation. In particular, zoledronic acid, the active ingredient in Zometa (cancer), as well as in Reclast/Aclasta (osteoporosis), is currently the subject of US patent litigation, with the possibility of an "at risk launch" of a generic version of Zometa by one or more generic competitors in December 2010, when the 30-month stay period expires, absent any court decision preventing such a launch before then.

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

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

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Our business is increasingly affected by pressures on drug pricing.

        The growth of overall healthcare costs as a percentage of gross domestic product in many countries means that governments and payors are under intense pressure to control spending even more tightly. These pressures are particularly strong given the lingering effects of the recent global economic and financial crisis. 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 include government-imposed industry-wide price reductions, mandatory pricing systems, an increase in imports of drugs from lower-cost countries to higher-cost countries, shifting of the payment burden to patients through higher co-payments, limiting physicians' ability to choose among competing medicines, mandatory substitution of generic drugs and growing pressure on physicians to reduce the prescribing of patented prescription medicines. We expect these efforts to continue as healthcare payors around the globe—in particular government-controlled health authorities, insurance companies and managed care organizations—step up initiatives to reduce the overall cost of healthcare, restrict access to higher-priced new medicines, increase the use of generics and impose overall price cuts. Such initiatives include the current efforts in the US to enact healthcare reform.

        These initiatives not only affect the results of our Pharmaceuticals Division, but also have an increasing impact on the prices we can charge for the generic drugs marketed by our Sandoz Division. This is particularly true in Europe and especially Germany, our second-largest market for generic products, where various measures have been introduced to require generic manufacturers to lower their prices. In addition, in the US, a combination of aggressive efforts by distributors and retailers to increase their profit margins on generic products that are considered commodities, intense and increasing competition between generic pharmaceutical manufacturers, and changes and potential future changes to government regulations, including state and federal regulations and regulations impacting Medicare and Medicaid, are increasing the downward pressure on our prices there. We expect these and other challenges to continue to put pressure on our revenues, and therefore they could have a material adverse effect on our business, financial condition and results of operations.

        For more information on pricing controls and on our challenging business environment see "Item 4. Information on the Company—Item 4.B Business Overview—Pharmaceuticals—Price Controls."

Our research and development efforts may not succeed in bringing high-potential products to market.

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

        The research and development process for a new pharmaceutical product can take up to 15 years, or even longer, from discovery to commercial product launch—and with a limited available patent life the longer it takes to develop a product, the less time there will be for us to recoup our development costs. New products need not only undergo intensive preclinical and clinical testing, but also must pass a highly complex, lengthy and expensive approval process. During each stage, there is a substantial risk that we will encounter serious obstacles which will further delay us and add substantial expense, or that we will not achieve our goals and, accordingly, may be forced to abandon a product in which we have invested substantial amounts of time and money. Reasons for delays may include: failure of the product candidate in preclinical studies; difficulty enrolling patients in clinical trials or delays or clinical trial holds at clinical trial sites; delays in completing formulation and other testing and work necessary to support an

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application for regulatory approval; adverse reactions to the product candidate or indications of other safety concerns; insufficient clinical trial data to support the safety or efficacy of the product candidate; our inability to manufacture sufficient quantities of the product candidate for development or commercialization activities in a timely and cost-efficient manner; and failure to obtain, or delays in obtaining, the required regulatory approvals for the product candidate or the facilities in which it is manufactured. Similar efforts are required to develop new products in our other divisions, as well, and similar risks apply. For a description of the approval processes which must be followed to market our products, see the sections headed "Regulation" included in the descriptions of our four operating divisions under "Item 4. Information on the Company—Item 4.B Business Overview."

        The pharmaceuticals industry has seen a dearth of regulatory approvals for new drugs in recent years, coupled with a significant increase in the cost per drug approved. For example, the FDA approved only 26 entirely new drugs (new molecular entities) in 2009. This follows 24 new approvals in 2008 and only 18 in 2007, one of the lowest single-year totals since 1983, when there were 14. These approval levels compare with the average annual approval rate of more than 30 new medicines per year in the period from 1996 to 2004. In addition, many of the new drugs approved in recent years have not been as financially successful as those approved in prior years. This relatively low level of research productivity comes at a time when the worldwide pharmaceuticals industry is estimated to be spending nearly $50 billion each year on research and development activities, according to the Tufts Center for the Study of Drug Development. As a result, industry research and development spending per new molecular entity approved has climbed more than 200% to $3.7 billion for 2006–2008 compared to only $1.2 billion for 1998–2000.

        If we are unable to maintain a flow of successful new products and new indications for existing products sufficient to cover our substantial research and development costs and to replace sales lost as older products are lost to generic competition, or displaced by competing products or therapies—including the significant number of important products likely to face generic competition in the near future—this could have a material adverse effect on our business, financial condition or results of operations.

        In addition, we invest a significant amount of effort and financial resources into research and development collaborations with third parties—organizations that we do not control. Many of these may be small companies that do not have the same resources and development expertise as Novartis. If these third parties fail to meet our expectations, we may lose our investment in the collaborations or fail to receive the expected benefits, which could have a material adverse effect on our business, financial condition or results of operations.

Increasing regulatory scrutiny of drug safety and efficacy may adversely affect us.

        Following several widely publicized issues in recent years, health regulators are increasingly focusing on product safety. Recently, the Obama Administration has publicly emphasized the importance of enforcing US drug safety regulations. In addition, authorities have paid increased attention to the risk/benefit profile of pharmaceutical products. 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 analysis of the trials. As a result, the already lengthy and expensive process of obtaining regulatory approvals for pharmaceutical products has become even more challenging.

        In addition, the post-approval regulatory burden has been increasing. Approved drugs have increasingly been subject to requirements such as risk evaluation and mitigation strategies, comparative effectiveness studies and requirements to conduct post-approval Phase IV clinical trials to gather far more detailed safety and other data on products. These requirements have the effect of making the maintenance of regulatory approvals increasingly expensive, and further heightening the risk of recalls or loss of market share.

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        These regulatory requirements, and any additional adverse regulatory developments in the approval process for new products or in the continued marketing of significant existing products, or any increases in regulation or major changes in the healthcare landscape, could have a material adverse effect on our business, financial condition and results of operations.

Legal proceedings may have a significant negative effect on our results of operations.

        We are obligated to comply with the laws of the approximately 140 countries in which we operate, covering an extremely wide range of activities. To that end, we have a strong global compliance with law program in place. Nonetheless, in recent years, there has been a trend of increasing litigation and government investigations against companies operating in the industries of which we are a part, especially in the US. A number of our subsidiaries are, and will likely continue to be, subject to various legal proceedings that arise from time to time, including proceedings regarding product liability, commercial disputes, employment and wrongful discharge, antitrust, securities, sales and marketing practices, health and safety, environmental, tax, privacy, and intellectual property matters. As a result, we may become subject to substantial liabilities that may not be covered by insurance. Litigation is inherently unpredictable, and large verdicts sometimes occur. As a consequence, we may in the future incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations or cash flows.

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

        Our businesses have been subject, from time to time, to such governmental investigations and information requests by regulatory authorities. For example, we have been cooperating with parallel civil and criminal investigations by the US Attorney's Office for the Eastern District of Pennsylvania (EDPA) into allegations of potential off-label marketing and promotion of our epilepsy drug, Trileptal, as well as certain payments made to healthcare providers in connection with this medicine. one of our affiliates recently entered into a plea agreement with the EDPA, which is contingent on court approval, to resolve criminal allegations. Pursuant to the plea agreement, the affiliate will plead guilty to a misdemeanor violation of the US Food, Drug and Cosmetic Act and pay $185 million. The affiliate is currently negotiating with the EDPA to resolve civil claims relating to Trileptal. In the fourth quarter of 2009, we increased provisions relating to the EDPA's Trileptal investigation by $318 million. Total provisions relating to the EDPA's civil and criminal Trileptal investigations were $397 million. Our affiliate is also cooperating with an investigation by the EDPA regarding potential off-label marketing and promotion as well as payments made to healthcare providers in connection with five other products: Diovan, Exforge, Sandostatin, Tekturna and Zelnorm. We are unable to assess with reasonable certainty the outcome of the investigation related to these five products or the amounts, which could be material, that we might be required to pay to resolve this investigation.

        At the same time, our Sandoz Division may, from time to time, seek approval to market a generic version of a product before the expiration of patents claimed by one of our competitors for the branded product. We do this in cases where we believe that the relevant patents are invalid, unenforceable, or

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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.

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

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

        In addition, in many countries, particularly less-developed markets, we rely heavily on third-party distributors and other agents for the marketing and distribution of our products. Many of these third parties are small and 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 negative effect on our reputation and our business.

        For more detail regarding specific legal matters currently pending against us and provisions for such matters, see "Item 18. Financial Statements—note 20."

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

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

        We regularly review our long-lived intangible and tangible assets, including identifiable intangible assets, investments in associated companies and goodwill, for impairment. Goodwill, acquired research and development, and acquired development projects not yet ready for use are subject to impairment review at least annually. Other long-lived assets are reviewed for impairment when there is an indication that an impairment may have occurred. Impairment testing under IFRS may lead to impairment charges in the future. Any significant impairment charges could have a material adverse effect on our results of operations. 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.A Operating Results—Critical Accounting Policies and Estimates—Impairment of Long-Lived Intangible and Tangible Assets" and "Item 18. Financial Statements—note 11."

Risks related to our expected acquisition of a majority interest in Alcon and subsequent merger with Alcon.

        On January 4, 2010, we announced that we had exercised our option obtained in 2008 to acquire Nestlé's remaining 52% majority stake in Alcon (such that, with the 25% we previously purchased from Nestlé, we would become a 77% shareholder of Alcon). We also separately proposed to enter into an all-share direct merger with Alcon to acquire the remaining 23% publicly-held stake.

        Our acquisition of the 52% majority stake from Nestlé is conditioned upon the receipt of certain governmental clearances or approvals, including the expiration or termination of the applicable waiting period under the US Hart-Scott-Rodino Act, the issuance by the European Commission (EC) of a

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decision under the EC Merger Regulation declaring the merger compatible with the common market, and the clearance or approval of the merger by the antitrust regulators in a number of other countries. While Nestlé and Novartis have agreed to use their reasonable best efforts to obtain these clearances and approvals, there can be no assurance that they will be obtained, or that the governmental authorities will not seek to impose material conditions on the acquisition or require the divestment of material assets.

        In addition, our proposed merger with Alcon is conditioned both on the completion of the 52% stake acquisition from Nestlé and on the approval by the Boards of Directors of Novartis and Alcon. The merger would also require two-thirds approval by the shareholders of Novartis and Alcon voting at their respective meetings. If the merger is delayed, the timing and/or realization of the anticipated benefits and cost savings from fully integrating the businesses of Novartis and Alcon will be adversely affected. Once the acquisition and merger with Alcon is approved and completed, its success will depend, in part, on the combined company's ability to realize these benefits and cost savings and to retain and motivate its executives and key employees.

Our indebtedness could adversely affect our operations.

        As of December 31, 2009 we had $8.7 billion of non-current financial debt and $5.3 billion of current financial debt. In addition, we expect to increase our indebtedness by $16 billion to finance our acquisition of Nestlé's 52% stake in Alcon. Our current and future debt requires us to dedicate a portion of our cash flow to service interest and principal payments and may limit our ability to engage in other transactions and otherwise place us at a competitive disadvantage to our competitors that have less debt. We may have difficulty refinancing our existing debt or incurring new debt on terms that we would consider to be commercially reasonable, if at all.

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

        At a time of slowing growth in sales of pharmaceuticals in industrialized countries, many emerging markets have experienced comparatively strong economies, leading to proportionally higher growth and an increasing contribution to the industry's global performance. In 2009, we generated approximately 65% (2008: 64%) of our net sales from continuing operations in the world's seven largest developed markets, while the six leading emerging markets—Brazil, China, India, Russia, South Korea and Turkey—contributed 9% (2008: 9%) of net sales. However, combined net sales in these six priority emerging markets grew 17% in local currency in 2009, compared to 10% sales growth in local currency in the seven largest developed markets during the same period. As a result of this trend, we have been taking steps to increase our presence in these priority emerging markets and in other emerging markets. For example, a cross-divisional operating structure is being expanded following its initial implementation in 2007 to accelerate growth in smaller emerging markets and better position the comprehensive presence of all Novartis products. These types of markets include Northern and Sub-Saharan Africa, Central Asia and some countries in Southeast Asia.

        There is no guarantee that our efforts to expand our sales in these countries will succeed, or that these countries will continue to experience growth rates in excess of the world's largest markets. Some emerging countries may be especially vulnerable to the after-effects of the recent global financial crisis, or may have very limited resources to spend on healthcare. See "—The after-effects of the recent economic and financial crisis may have a material adverse effect on our results" below. Many of these countries have a relatively limited number of persons with the skills and training suitable for employment at an enterprise such as ours. See also "—An inability to attract and retain qualified personnel could adversely affect our business" below. In other emerging countries, we may be required to rely on third-party agents, which may put us at risk of liability. See also "—Legal proceedings may have a significant negative effect on our results of operations" above. 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.

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

        Many of the world's largest economies and financial institutions continue to be impacted by the recent global economic and financial crisis, with some continuing to face financial difficulty, a decline in asset prices, liquidity problems and limited availability of credit. It is uncertain how long these effects will last, or whether economic and financial trends will worsen or improve. Such uncertain economic times may have a material adverse effect on our revenues, results of operations, financial condition and ability to raise capital. Some of our businesses, including the business units of our Consumer Health Division, may be particularly sensitive to declines in consumer spending. In addition, our Pharmaceuticals, Vaccines and Diagnostics, and Sandoz Divisions may not be immune to consumer cutbacks, particularly given the increasing requirements that patients pay a larger contribution toward their own healthcare costs. As a result, there is a risk that consumers may cut back on prescription drugs and vaccines, as well as consumer health products, to help cope with rising costs and difficult economic times.

        The economic crisis may also lead to a disruption or delay in the performance of third parties on which we rely for parts of our business, including licensees and collaboration partners, distributors, clinical trial providers and suppliers of products, intermediates and other goods or services. Such disruptions or delays could have an adverse effect on our business and results of operations.

        In addition, the varying impact of difficult economic times on the economies of different countries has impacted, and may continue to unpredictably impact, the translation of our operating results into US dollars, our reporting currency. The financial crisis may also cause the value of our investments in our pension plans to decrease, requiring us to increase our funding of those pension plans. In addition, the financial crisis may also result in a lower return on our financial investments, and a lower value on some of our assets. The financial crisis could also negatively impact the cost of financing or our ability to finance the second step of the Alcon acquisition on favorable terms.

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

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

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

Sandoz may not be able to realize the expected benefits of our significant investments in "biosimilar" drugs.

        Sandoz has made, and expects to continue to make, significant investments in the development of biotechnology-based products intended for sale as bioequivalent or "biosimilar" generic versions of

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currently marketed biotechnology products. The development of such products is costly and complex. In addition, to date, many countries, most notably the US, do not yet have a legislative or regulatory pathway which would permit such products to be sold in a manner in which the biosimilar product would be readily substitutable for the originator product. Significant delays in the development of such pathways, or significant impediments that may be built into such pathways, could diminish the value of the investments that Sandoz has made, and will continue to make, in its biotechnology operations.

        There is no guarantee that our efforts to develop and market these products will be successful or that we will be able to realize the expected benefits from our significant investment in this area. A failure to build and expand our position in biosimilars or to achieve the expected benefits from our investments in this area could have an adverse effect on our business, financial condition and results of operations.

A failure to develop differentiated vaccines or to bring key products to market in time for the relevant disease seasons could have an adverse effect on the success of our Vaccines and Diagnostics Division.

        The demand for some products marketed by our Vaccines and Diagnostics Division, such as influenza vaccines, is seasonal, while the demand for other vaccines, such as pediatric combination vaccines, depends on changes in birth rates in developed countries. Some vaccines that make an important contribution to the division's net sales and profits, particularly the key seasonal influenza vaccine products, are considered commodities, meaning that there are few therapeutic differences among the vaccines offered by competitors. As a result, these vaccines may suffer from price erosion due to excess product supply across the industry, or from intense price competition. In addition, the market for pandemic and seasonal influenza vaccines is experiencing an unprecedented period of significant volatility given the global A (H1N1) influenza pandemic. While deliveries of pandemic vaccines provided significant contributions to results in 2008 (from A (H5N1) vaccines) and 2009 (from A (H1N1) vaccines), no guarantee can be made that these types of influenza vaccines will provide contributions in 2010 and the future. The ability to develop differentiated, effective and safe vaccines, to gain approval for inclusion in national immunization recommendation lists, and to consistently produce and deliver high-quality vaccines in time for the relevant disease seasons are critical to the success of our Vaccines and Diagnostics Division. In particular, our Vaccines and Diagnostics Division has been working to develop two vaccines to combat different strains of meningococcal meningitis. These products are the primary products in the division's pipeline. If our Vaccines and Diagnostics Division were unable to successfully develop one or both of these products, or if the approval of either or both of these products were significantly delayed, it could have a material adverse effect on the medium- to long-term success of the division.

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

        The OTC Business Unit of our Consumer Health Division sells over-the-counter medicines, many of which contain ingredients also sold by competitors in the OTC industry. Particularly in the US, our branded OTC products compete against "store brand" products that are made with the same active ingredients as ours. These products do not carry our trusted brand names, but they also do not carry the burden of the expensive advertising and marketing that helped to establish demand for the product. As a result, the store brands may be sold at lower prices. In recent years, consumers have increasingly begun to purchase store brand OTC products instead of branded products. In addition, in recent years, significant questions have arisen regarding the safety, efficacy and potential for misuse of certain products sold by our OTC Business Unit and its competitors. As a result, health authorities around the world have begun to re-evaluate some important over-the-counter products, leading to restrictions on the sale of some of them and even the banning of certain products. For example, in October 2008, acting in consultation with the FDA, we voluntarily re-labeled our US cough and cold medicines to indicate that these products should not be used in children under four years of age. Litigation has often followed actions such as these, particularly in the US. Additional actions and litigation regarding OTC products are possible in the future. These trends have had, and may continue to have, a significant adverse effect on the success of our OTC

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Business Unit. See also "—The after-effects of the recent economic and financial crisis may have a material adverse effect on our results" above.

The manufacture of our products is highly regulated and complex, and may encounter a variety of issues that lead to supply disruptions.

        The products we market, distribute and sell are either manufactured at our own dedicated manufacturing facilities or by third parties. In either case, we need to ensure that manufacturing processes comply with applicable regulations and manufacturing practices, as well as our own high quality standards. In particular, the manufacture of our products is heavily regulated by governmental authorities around the world, including the FDA. If we or our third-party suppliers fail to comply fully with such regulations then there could be a government-enforced shutdown of production facilities or production lines, which in turn could lead to product shortages. A failure to comply fully with such regulations could also lead to a delay in the approval of new products. For example, in August 2008, our Wilson, North Carolina facility received a Warning Letter from the FDA that raised concerns regarding the Wilson facility's compliance with FDA Good Manufacturing Practice regulations, and stated that until the FDA confirmed that the deficiencies had been corrected, the FDA could recommend disapproval of any pending NDAs, abbreviated NDAs or export certificate requests submitted by our Sandoz US affiliate. Voluntary recalls were made in September and in the fourth quarter of 2008 as part of the FDA review of the facility. While this Warning Letter was resolved in August 2009 following a successful FDA inspection, there can be no guarantee that we will not face similar issues in the future, or that we will successfully manage such issues when they arise.

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

        A disruption in the supply of certain key products, or our failure to accurately predict demand, could have a material adverse effect on our business, financial condition or results of operations. And because our products are intended to promote the health of patients, for some of our products, a supply disruption could subject us to lawsuits or to allegations that the public health, or the health of individuals, has been endangered.

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

        We sponsor pension and other post-employment benefit plans in various forms. These plans cover a significant portion of our current and former associates. We are required to make significant assumptions and estimates about future events in calculating the present value of expected future expense and liability related to these plans. These include assumptions about discount rates we apply to estimated future liabilities, expected returns on plan assets and rates of future compensation increases. In addition, our actuarial consultants provide our management with historical statistical information such as withdrawal and mortality rates in connection with these estimates. Assumptions and estimates used by Novartis may differ materially from the actual results we experience due to changing market and economic conditions (including the effects of the recent global economic and financial crisis), higher or lower withdrawal rates, or longer or shorter life spans of participants, among other variables. For example, a decrease in the discount rate we apply in determining the present value of expected future obligations of one-half of one percent would have increased our year-end defined benefit obligation by $1.1 billion. Any differences between our assumptions and estimates and our actual experience could have a material effect on our results of operations and financial condition. For more information on obligations under retirement and other post-employment benefit plans and underlying actuarial assumptions, see "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Critical Accounting Policies and

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

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

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

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

        Increasingly, a significant portion of our global sales are made to a relatively small number of US drug wholesalers, retail chains and other purchasing organizations. For example, our three most important customers globally are all in the US, and accounted for approximately 8%, 7% and 6%, respectively, of Group net sales from continuing operations in 2009. The largest trade receivables outstanding were for these three customers, amounting to 9%, 6% and 6%, respectively, of the Group's trade receivables at December 31, 2009. The trend has been toward further consolidation among our distributors, especially in the US. As a result, our distributors are gaining additional purchasing leverage, which increases the pricing pressures facing our businesses. Moreover, we are exposed to a concentration of credit risk as a result of this concentration among our customers. If one or more of our major customers experienced financial difficulties, the effect on us would be substantially greater than in the past. This could have a material adverse effect on our business, financial condition and results of operations.

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

        We highly depend upon skilled personnel in key parts of our organization, and we invest heavily in recruiting and training qualified individuals. The loss of the service of key members of our organization—particularly senior members of our scientific and management teams—could delay or prevent the achievement of major business objectives. In addition, the success of our research and development activities is particularly dependent on our ability to attract and retain sufficient numbers of high-quality researchers and development specialists.

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

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

        We face intense competition for an increasingly limited pool of qualified individuals from numerous pharmaceutical and biotechnology companies, universities, governmental entities and other research

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institutions. As a result, we may be unable to attract and retain qualified individuals in sufficient numbers, which would have an adverse effect on our business, financial condition and results of operations.

Environmental liabilities may adversely impact our results of operations.

        The environmental laws of various jurisdictions impose actual and potential obligations on us to remediate contaminated sites. While we have set aside substantial provisions for worldwide environmental liabilities, there is no guarantee that additional costs will not be incurred beyond the amounts for which we have provided in the Group consolidated financial statements. If we are required to further increase our provisions for environmental liabilities in the future, or if we fail to properly manage environmental risks, this could have a material adverse effect on our business, financial condition and results of operations. For more detail regarding environmental matters, see "Item 4.D Property, Plants and Equipment—Environmental Matters" and "Item 18. Financial Statements—note 20."

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

        In the recent past, the US dollar, our reporting currency, has suffered significant decreases in value against other world currencies. Because a significant portion of our earnings and expenditures are in currencies other than the US dollar, these decreases have had a significant impact on our reported net sales and earnings. In 2009, 35% of our net sales from continuing operations were made in US dollars, 31% in euros, 8% in Japanese yen, 3% in Swiss francs and 23% in other currencies. During the same period, 33% of our expenses from continuing operations arose in US dollars, 31% in euros, 12% in Swiss francs, 4% in Japanese yen and 20% in other currencies. As has happened in the recent past, changes in exchange rates between the US dollar and other currencies can result in increases or decreases in our sales, costs and earnings. Fluctuations in exchange rates between the US dollar and other currencies may also affect the reported value of our assets measured in US dollars and the components of shareholders' equity. For more information on the effects of currency fluctuations on our consolidated financial statements and on how we manage currency risk, see "Item 5.A Operating Results—Effects of Currency Fluctuations" and "Item 11. Quantitative and Qualitative Disclosures about Non-Product-Related Market Risk." See also "—The after-effects of the recent economic and financial crisis may have a material adverse effect on our results" above.

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

        Our business is increasingly dependent on increasingly complex and interdependent information technology systems, including Internet-based systems, to support business processes as well as internal and external communications. The size and complexity of our computer systems make them potentially vulnerable to breakdown, malicious intrusion and computer viruses which may result in the loss of key information or impairment of production and business processes. Data security breaches—whether by employees or others—may expose sensitive data to unauthorized persons. Such disruptions and breaches of security could materially and adversely affect our business.

Earthquakes could adversely affect our business.

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

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Risks Related To Our ADSs

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

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

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

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

Item 4.    Information on the Company

4.A  History and Development of Novartis

Novartis AG

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

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

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

Important Corporate Developments 2007-January 2010

        The following is an overview of certain important developments between 2007 and January 2010:

2010

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

4.B  Business Overview

OVERVIEW

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

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

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Pharmaceuticals: Innovative patent-protected prescription medicines



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Vaccines and Diagnostics: Human vaccines and blood-testing diagnostics



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Sandoz: Generic pharmaceuticals



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

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        Our strategy is to strengthen this healthcare portfolio through sustained investments in innovation, as well as through targeted acquisitions. In April 2008, we announced a significant agreement with Nestlé S.A. providing the right to acquire 77% majority ownership of Alcon Inc. (NYSE: ACL) in two steps and add this world leader in eye care to our portfolio. In July 2008, the first step was completed when Novartis acquired a 25% stake in Alcon for $10.4 billion in cash. On January 4, 2010, Novartis announced its intention to gain full ownership of Alcon Inc. (NYSE: ACL) by first completing the April 2008 agreement with Nestlé S.A. by taking the second step and acquiring Nestlé's remaining 52% majority stake in Alcon, and subsequently entering into an all-share direct merger with Alcon for the remaining 23% minority stake. Novartis believes this proposed merger, which would be implemented under the Swiss Merger Act, is in the interest of all stakeholders and will provide the needed clarity on Alcon's future. Alcon is expected to strengthen the Group's portfolio focused on healthcare and provide greater access to the fast-growing global eye care sector. Following the expected successful completion of the merger, Alcon would be established as a new Novartis division that incorporates Novartis and Alcon's highly complementary eye care assets.

        Novartis completed the divestment of its remaining non-healthcare businesses in 2007 with the sale of the Medical Nutrition (effective July 1) and Gerber (effective September 1) Business Units, which were previously included in the Consumer Health Division. These businesses were sold in separate transactions to Nestlé S.A.

        Novartis achieved net sales of $44.3 billion in 2009, while net income amounted to $8.5 billion. We invested $7.5 billion in Research & Development in 2009.

        Headquartered in Basel, Switzerland, we employed 99,834 full-time equivalent associates as of December 31, 2009, and have operations in approximately 140 countries around the world.

Pharmaceuticals Division

        Our Pharmaceuticals Division researches, develops, manufactures, distributes and sells branded prescription medicines in the following therapeutic areas: Cardiovascular and Metabolism; Oncology; Neuroscience and Ophthalmics; Respiratory; Immunology and Infectious Diseases; and Other. The Pharmaceuticals Division is organized into global business franchises responsible for the development and marketing of various products, as well as a business unit called Novartis Oncology, responsible for the global development and marketing of oncology products. Novartis Oncology is not required to be disclosed separately as a segment since it shares common long-term economic perspectives, customers, research, development, production, distribution and regulatory factors with the rest of the division. In 2009, the Pharmaceuticals Division accounted for $28.5 billion, or 65%, of Group net sales, and for $8.4 billion, or 78%, of Group operating income (excluding Corporate income and expense, net).

Vaccines and Diagnostics Division

        Our Vaccines and Diagnostics Division researches, develops, manufactures, distributes and sells preventive vaccines and diagnostic tools. Novartis Vaccines is a leading global developer and manufacturer of human vaccines. Key products include influenza, meningococcal, pediatric and travel vaccines. Novartis Diagnostics is a blood testing and molecular diagnostics business dedicated to preventing the spread of infectious diseases through novel blood-screening tools that protect the world's blood supply. In 2009, the Vaccines and Diagnostics Division accounted for $2.4 billion, or 5%, of Group net sales, and provided $372 million, or 3%, of the Group's operating income (excluding Corporate income and expense, net).

Sandoz Division

        Our Sandoz Division is a leading global generic pharmaceuticals company that develops, manufactures, distributes and sells prescription medicines, as well as pharmaceutical and biotechnological active substances, which are not protected by valid and enforceable third-party patents. The Sandoz

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Division has activities in Retail Generics, Anti-Infectives, Biopharmaceuticals and Oncology Injectables (following the acquisition of EBEWE Pharma, which was completed in September 2009). In Retail Generics, Sandoz develops, manufacture, distributes and sells active ingredients and finished dosage forms of medicines, as well as supplying active ingredients to third parties. In Anti-Infectives, Sandoz develops, manufactures, distributes and sells active pharmaceutical ingredients and intermediates, mainly antibiotics, for internal use by Retail Generics and for sale to third-party customers. In Biopharmaceuticals, Sandoz develops, manufactures, distributes and sells protein- or biotechnology-based products (known as "biosimilars" or follow-on biologics) and sells biotech manufacturing services to other companies. In Oncology Injectables, Sandoz develops, manufactures, distributes and sells cytotoxic products for the hospital market. Sandoz offers approximately 1,000 compounds in more than 130 countries. In 2009, Sandoz accounted for $7.5 billion, or 17%, of Group net sales, and for $1.1 billion, or 10%, of Group operating income (excluding Corporate income and expense, net).

Consumer Health Division

        Our Consumer Health Division consists of three business units: OTC (over-the-counter medicines), Animal Health and CIBA Vision. Each has its own research, development, manufacturing, distribution and selling capabilities. However, none are material enough to the Group to be separately disclosed as a segment. OTC offers readily available consumer medicine. Animal Health provides veterinary products for farm and companion animals. CIBA Vision markets contact lenses and lens care products. The Medical Nutrition and Gerber Business Units, which were previously included in the Consumer Health Division, were divested during 2007. The results of these business units have been reclassified and disclosed in this Form 20-F as discontinued operations in all applicable periods. In 2009, the Consumer Health Division (excluding discontinued operations) accounted for $5.8 billion, or 13%, of Group net sales, and for $1.0 billion, or 9%, of Group operating income (excluding Corporate income and expense, net).

PHARMACEUTICALS

Overview

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

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

•

Cardiovascular and Metabolism



•

Oncology (including Hematology and Molecular Diagnostics)



•

Neuroscience and Ophthalmics



•

Respiratory



•

Immunology and Infectious Diseases



•

Other

        The Pharmaceuticals Division is organized into global business franchises responsible for the marketing of various products as well as a business unit called Novartis Oncology responsible for the global development and marketing of oncology products. The Oncology Business Unit is not required to be separately disclosed as a segment in our consolidated financial statements since it shares common long-term economic perspectives, customers, research, development, production, distribution and regulatory environments with the remainder of the Pharmaceuticals Division. The Pharmaceuticals Division is the largest contributor among the four divisions of Novartis and reported consolidated net sales of $28.5 billion in 2009, which represented 65% of the Group's net sales from continuing operations.

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        The division is made up of approximately 80 affiliated companies which together employed 56,310 full-time equivalent associates as of December 31, 2009, and sell products in approximately 140 countries. The product portfolio of the Pharmaceuticals Division includes more than 50 key marketed products, many of which are leaders in their respective therapeutic areas. In addition, the division's portfolio of development projects includes 145 potential new products, new indications or new formulations for existing products in various stages of clinical development.

Pharmaceuticals Division Products

        The following table and summaries describe certain key marketed products and recently launched products in our Pharmaceuticals Division. While we intend to sell all of our marketed products throughout the world, not all products and indications are currently available in every country. Compounds and new indications in development are, unless otherwise indicated, subject to required regulatory approvals and, in certain instances, contractual limitations. These compounds and indications are in various stages of development throughout the world. For some compounds, the development process is ahead in the US; for others, development in one or more other countries or regions is ahead of that in the US. It may not be possible to obtain regulatory approval for any or all of the new compounds and new indications referred to in this Form 20-F. In addition, for some of our products, we are required to conduct post-approval studies (Phase IV) to evaluate long-term effects or to gather information on the use of the products under special conditions. See "—Regulation" for further information on the approval process. Certain of the products listed below have lost patent protection or are otherwise subject to generic competition. Others are subject to patent challenges by potential generic competitors. See below and "—Intellectual Property" for further information on the patent status of our Pharmaceuticals Division's products.

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Key Marketed Products

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Selected Leading Products

Cardiovascular and Metabolism

•

Diovan (valsartan), together with Diovan HCT/Co-Diovan (valsartan and hydrochlorothiazide), is the world's No. 1 selling branded high blood pressure medicine (IMS data). Diovan is the only agent in its class approved to treat all of the following: high blood pressure (including children 6-16 years), high-risk heart attack survivors and patients with heart failure. First launched in 1996, Diovan is available in more than 120 countries for treating high blood pressure, in more than 90 countries for heart failure, and in more than 70 countries for heart attack survivors. First launched in 1997, Diovan HCT/Co-Diovan is approved in over 100 countries worldwide. In July 2008, the FDA approved Diovan HCT for the first-line treatment of hypertension in patients unlikely to achieve blood pressure control on a single agent. In January 2009, Co-Diovan was approved for treatment of high blood pressure in Japan.



•

Exforge (valsartan and amlodipine besylate) is a single-pill combination of the angiotensin receptor blocker Diovan and the calcium channel blocker amlodipine besylate. First approved in Switzerland in 2006, and in the US and EU in 2007 for the treatment of high blood pressure, it is now approved in over 90 countries and available in more than 70. In July 2008, the FDA approved Exforge for the first-line treatment of hypertension in patients likely to need multiple drugs to achieve their blood pressure goals. Exforge was approved in Japan in January 2010. Exforge HCT (valsartan, amlodipine besylate and hydrochlorothiazide) is a new single pill combining three widely prescribed high blood pressure treatments—ARB (valsartan), CCB (amlodipine) and HCT (hydrochlorothiazide). In April 2009, the FDA approved Exforge HCT for patients who have tried taking dual combinations of these classes without success. In September 2009, Exforge HCT was approved in Switzerland for patients uncontrolled on any dual therapy, and in October 2009 Exforge HCT was approved in the EU as substitution therapy for patients controlled on all three agents (individual or in combination).

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Tekturna/Rasilez (aliskiren), and Valturna (aliskiren and valsartan) are treatments for high blood pressure based on the first and only approved direct renin inhibitor. Tekturna/Rasilez was approved in the US and EU in 2007, and is now available in more than 80 countries. The product is known as Tekturna in the US and Rasilez in the rest of the world. We are investigating various Tekturna/Rasilez single-pill combination products. The first single-pill combination product, Tekturna/Rasilez with hydrochlorothiazide—called Tekturna HCT—was approved by the US in January 2008 and in the EU in January 2009, where it is known as Rasilez HCT. Another single-pill combination product, Tekturna/Rasilez with valsartan—called Valturna in the US (and to be called Rasival in the EU)—has been approved by the FDA and was launched in the US in October 2009. Rasival was filed with the EMEA in August 2009. In addition, we initiated the ASPIRE HIGHER clinical development program, the largest ongoing cardio-renal outcomes program worldwide, involving more than 35,000 patients in 14 trials. Data from the ALOFT (heart failure) and AVOID (kidney disease) studies, which are part of the ASPIRE HIGHER program, have been added to European product information. Also in Phase III development are Tekturna/Rasilez with the calcium channel blocker amlodipine besylate and a triple-combination therapy with Tekturna/Rasilez, amlodipine besylate and a diuretic.



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Galvus (vildagliptin), an oral treatment for type 2 diabetes, and Eucreas, a single-pill combination of vildagliptin and metformin, have shown promising results during the rollout in Europe following approvals in 2007. Eucreas was the first single-pill combination product including a DPP-4 inhibitor and another medication to be launched in Europe. Galvus is currently approved in approximately 70 countries and launched in 37 countries. Galvus was approved in Japan in January 2010 under the tradename Equa. Eucreas is currently approved in approximately 50 countries and launched in more than 40, including markets in the EU, Latin America and Asia.

Oncology

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Gleevec/Glivec (imatinib mesylate tablets/imatinib) is a signal transduction inhibitor approved to treat certain forms of chronic myeloid leukemia (CML) and gastrointestinal stromal tumors (GIST). First launched in 2001, Gleevec/Glivec is available in more than 90 countries. Gleevec/Glivec is indicated for the treatment of newly diagnosed adult and pediatric patients with a form of CML. Gleevec/Glivec is approved in the US, EU and Japan to treat Philadelphia chromosome positive (Ph+) acute lymphoblastic leukemia (ALL), a rapidly progressive form of leukemia; dermatofibrosarcoma protuberans, a rare solid tumor; hypereosinophilic syndrome and myelodysplastic/myeloproliferative diseases; and other rare blood disorders. In the US, Gleevec/Glivec is also approved for aggressive systemic mastocytosis. Gleevec/Glivec received EU and Swiss regulatory approval in 2009 as a post-surgery (adjuvant setting) therapy for GIST following the US approval in 2008. The Gleevec/Glivec International Patient Assistance Program is now available in 80 countries, and is currently providing access to Gleevec/Glivec for free to more than 20,000 patients worldwide.



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Tasigna (nilotinib) is a signal transduction inhibitor of the tyrosine kinase activity of Bcr-Abl, Kit and the PDGF-receptor. Since 2007, Tasigna has gained regulatory approval in more than 80 countries including the US, the EU, Switzerland and Japan, to treat a form of chronic myeloid leukemia (CML) in chronic and/or accelerated phase patients resistant or intolerant to existing treatment including Gleevec/Glivec. Japanese approval was achieved in January 2009.



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Zometa (zoledronic acid for injection/zoledronic acid 4 mg) is a leading treatment to reduce or delay skeletal-related events from bone metastases (cancer that has spread to the bones). First approved in the US in 2001, Zometa is available in more than 88 countries. Zometa is approved for the treatment of patients with multiple myeloma and patients with documented bone metastasis from solid tumors, including prostate, breast and lung tumors. Zometa is also approved in most key markets for the treatment of hypercalcemia of malignancy (tumor-induced excessive levels of

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calcium). Zoledronic acid, the active ingredient in Zometa, is also available under the trade names Reclast/Aclasta for use in non-oncology indications. Zometa and Reclast/Aclasta may face significant competition in 2010 from denosumab, a new product under development by Amgen.

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Femara (letrozole tablets/letrozole) is a once-daily oral aromatase inhibitor for the treatment of early stage or advanced breast cancer in postmenopausal women. Femara was first launched in 1996 and is currently available in more than 90 countries. Femara is approved in the US, EU and other countries as adjuvant therapy for postmenopausal women with hormone receptor-positive early breast cancer. It is also approved in the US, EU and other countries as extended adjuvant therapy for early breast cancer in postmenopausal women who are within three months of completing five years of adjuvant tamoxifen therapy. Femara is also approved in the US, EU and other countries as first-line treatment for postmenopausal women with hormone receptor-positive locally advanced or metastatic breast cancer, and as treatment for advanced breast cancer in postmenopausal women with disease progression following anti-estrogen therapy. In some countries, Femara is approved as neo-adjuvant (pre-operative) therapy for early stage breast cancer. In Japan, Femara is approved for the treatment of all hormone receptor-positive breast cancer in postmenopausal women.



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Sandostatin SC/Sandostatin LAR (octreotide acetate/octreotide acetate for injectable suspension) is indicated for the treatment of patients with acromegaly, a chronic disease caused by over-secretion of pituitary growth hormone in adults. Sandostatin is also indicated for the treatment of certain symptoms associated with carcinoid tumors and other types of gastrointestinal neuroendocrine and pancreatic tumors. Sandostatin was first launched in 1988 and is approved in more than 85 countries. Sandostatin SC faces worldwide generic competition. However, patent protection continues in major markets for Sandostatin LAR.



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Exjade (deferasirox) is an oral iron chelator approved for the treatment of chronic iron overload due to blood transfusions in patients who have a wide range of underlying anemias. Patients with congenital and acquired chronic anemias, such as thalassemia, sickle cell disease and myelodysplastic syndromes require transfusions as support for their anemia. Exjade was first approved in 2005 and is now approved in more than 90 countries including the US, EU and Japan. Approval in China anticipated in 2010. Exjade recently received regulatory approvals in the US, EU, Switzerland, and other countries for a new 40 mg/kg dose which provides a new option for patients who require higher dose titration for iron chelation. A New Drug Application for a potential competitive oral iron chelation product is under review by FDA, seeking broad labeling, including cardiac benefits, with possible late 2010 launch. We submitted new safety information to health authorities worldwide in July and August 2009 regarding the use of Exjade in myelodysplastic syndrome (MDS) and malignant disease patients. New labeling approved in the EU in November 2009 provides guidance on the selection of appropriate MDS and malignant disease patients for Exjade therapy. The review of this data is ongoing by the FDA and other health authorities.



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Afinitor (everolimus) is an oral inhibitor of the mTOR pathway. It was launched in March 2009 in the US following regulatory approval as the first therapy for patients with advanced renal cell carcinoma (advanced kidney cancer) after failure of treatment with sunitinib or sorafenib. European regulatory approval was received in August 2009 and Japanese approval was received in January 2010. Everolimus, the active ingredient in Afinitor, is also available outside of the US under the brand name Certican for use in transplantation.

Other Pharmaceuticals Products

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Lucentis (ranibizumab) is a recombinant humanized high affinity antibody fragment that binds to vascular endothelial growth factors. Lucentis is the first approved drug for wet age-related macular degeneration (AMD) that has been shown to improve vision and vision-related quality of life. Lucentis was approved in the US in June 2006 and the EU in January 2007. It is now approved in

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more than 75 countries. Lucentis is developed in collaboration with Genentech, which holds the rights to market the product in the US.

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



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



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



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



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



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Ritalin, Ritalin LA, Focalin, Focalin XR (methylphenidate HCl, methylphenidate HCl extended release, dexmethylphenidate HCl and dexmethylphenidate HCl extended release) are indicated for the treatment of attention deficit hyperactivity disorder (ADHD) in children and adults. Ritalin is also indicated for pediatric and adult narcolepsy. Ritalin was first marketed during the 1950's and is available in over 50 countries. Ritalin LA (long lasting) is available in 20 countries. Focalin comprises the active d-isomer of methylphenidate and therefore requires half the dose of Ritalin. Focalin and Focalin XR (extended release) are only available in the US, although Focalin XR was approved in Switzerland in December 2009. Immediate-release Focalin is subject to generic competition.

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Reclast/Aclasta (zoledronic acid 5 mg) is the first and only once-yearly bisphosphonate infusion for the treatment of different forms of osteoporosis. Sold as Reclast in the US and Aclasta in the rest of the world, the product is approved in 90 countries including the US, EU and Canada, and is the only osteoporosis treatment approved to reduce the incidence of fractures at all three key fracture sites (hip, spine and non-spine) in the treatment of postmenopausal osteoporosis. It is also approved in more than 80 countries for the treatment of Paget's disease of the bone for men and women. The Reclast/Aclasta label was expanded in the EU and US to include the reduction in the incidence of clinical fractures after a low trauma hip fracture. The EU has also approved Aclasta for the treatment of osteoporosis in men and for the treatment of osteoporosis associated with long-term systemic glucocorticoid therapy in post-menopausal women and in men at increased risk of fracture. Reclast is also approved in the US as a treatment to increase bone mass in men with osteoporosis, the prevention and treatment of glucocorticoid-induced osteoporosis in men and women as well as for the prevention of osteoporosis in postmenopausal women. Zoledronic acid, the active ingredient in Reclast/Aclasta, is also available under the trade name Zometa for use in oncology indications.



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Tegretol (carbamazepine) has been a mainstay for the treatment of epileptic seizures since 1962. Tegretol is also indicated in the US for the treatment of pain associated with trigeminal neuralgia, which is characterized by attacks of intense pain affecting the face, as well as for the treatment of acute mania and bipolar affective disorders in the EU. Tegretol is subject to generic competition.



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Foradil (formoterol fumarate) is a long-acting bronchodilator that offers a fast onset and a 12-hour duration of action for patients with asthma and chronic obstructive pulmonary disease (COPD). It was first registered and launched in Europe in 1994. US approval was granted in 2001, and in 2002 we licensed Foradil in the US to Merck (formerly Schering Plough). Novartis markets and distributes Foradil in other areas of the world. Foradil Aeroliser is a single-dose dry powder inhaler. A pressurized metered-dose inhaler is also available in some countries. The patent on Foradil has expired.



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



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Lotrel (amlodipine besylate and benazepril hydrochloride) is a high blood pressure treatment which is a single-pill combination of the angiotensin-converting enzyme (ACE) inhibitor benazepril, used in Lotensin/Cibacen, and the calcium channel blocker (CCB) amlodipine. Launched in 1995 and only available in the US, Lotrel received generic competition in May 2007 as a result of a "launch at risk" of a generic product by Teva Pharmaceuticals, despite a US patent valid until 2017. Our Sandoz Division has also launched an authorized generic version of this high blood pressure medicine. See "—Intellectual Property" for further information.



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Trileptal (oxcarbazepine) is an anti-epileptic drug for the treatment of partial seizures as adjunctive or monotherapy in both adults and children aged four years and above. In the US, Trileptal is approved for the treatment of epilepsy. Trileptal acts by stabilizing neuronal functions, thereby controlling and limiting the spread of seizures. It was first approved in Denmark in 1990, in the rest of the EU in 1999, and in the US in 2000. Today it is approved in over 100 countries. Trileptal is subject to generic competition.



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Xolair (omalizumab) is the first humanized monoclonal antibody approved for the treatment of moderate to severe allergic asthma in the US in adolescents (aged 12 and above) and adults. It is approved for severe allergic asthma in the EU in children (aged 6 and above), adolescents, and adults. Xolair is approved in more than 80 countries, including the US in 2003 and the EU in 2005.

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Xolair is being jointly developed with Genentech and is co-promoted in the US by Novartis and Genentech.

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Extavia (interferon beta-1b) is an injectable disease modifying therapy for relapsing forms of multiple sclerosis (MS). It is the Novartis brand of interferon beta-1b, a product also marketed by Bayer Healthcare Pharmaceuticals Inc. under the brand name Betaseron® in the US and by Bayer Schering Pharma under the brand name Betaferon® in the EU. Bayer Schering supplies the product to Novartis under a contract manufacturing arrangement. Extavia was approved in the EU in May 2008 and since January 2009 has been launched in more than 20 markets, including the US in September 2009. Additional launches are planned in 2010. Extavia represents the first entry of Novartis into the treatment of MS.



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Ilaris (canakinumab) is a fully human monoclonal antibody providing specific and highly selective blockade of interleukin-1b (IL-1b), a cytokine linked to inflammation. Ilaris began Phase III development in 2007 for cryopyrin-associated periodic syndrome (CAPS), a group of rare disorders characterized by chronic recurrent fever, urticaria, occasional arthritis, deafness, and potentially life threatening amyloidosis. Clinical studies in CAPS patients treated with Ilaris show rapid and long-lasting clinical response. Ilaris was approved in the US, the EU and some other markets to treat children four years and older and adults with CAPS.



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

Compounds in Development

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

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

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

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

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

        The following table and summaries describe certain key compounds and new indications for existing products currently in Confirmatory development within our Pharmaceuticals Division

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

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ABF656 (albinterferon alfa-2b) is a novel long-acting fusion protein with interferon alpha-type activity. The compound is in registration for the treatment of chronic hepatitis C in combination with ribavirin. ABF656 was licensed from, and is being co-developed with, Human Genome Sciences Inc. Novartis has co-promotion rights in the US and exclusive promotion and marketing rights in the rest of the world. Phase III clinical trial results show that 900-mcg albinterferon alfa-2b dosed every two weeks has efficacy comparable to weekly doses of Pegasys® (peginterferon alfa-2a) in treatment-naive patients with hepatitis C genotypes 1, 2 and 3, with a comparable rate of severe or serious adverse events and a safety profile that is generally similar in nature to that of this class of product. We submitted ABF656 to the EU for approval in December 2009. Human Genome Sciences submitted the product to the FDA for approval in November 2009. If approved by the respective health authorities, this product will be sold under the trade name Zalbin in the US and under the trade name Joulferon outside the US.



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ACZ885 (canakinumab): Phase III trials have been initiated for the treatment of systemic onset juvenile idiopathic arthritis. A Phase III program has started in refractory gout following Phase II data that show superior pain relief and a 94% reduced risk of flares compared to an injectable corticosteroid. A Phase II study is ongoing in prevention of acute flares in refractory gout/chronic gouty arthritis patients who have been started on allopurinol therapy. ACZ885 is also being investigated in Phase II for the treatment of Type 2 Diabetes. Inhibition of IL-1b may represent a novel approach to treat diabetes.

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



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AFQ056 is a metabotropic glutamate receptor 5 (mGluR5) antagonist in Phase II development for the treatment of Parkinson's disease levodopa-induced dyskinesia. No therapy has previously been approved for this condition, which represents a complication after dopamine-replacement therapy in Parkinson's patients and which is characterized by a variety of hyperkinetic movements.



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



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AIN457 is a monoclonal antibody neutralizing Interleukin-17A, a key pro-inflammatory cytokine expressed by TH17 cells. The compound is in Phase III development in uveitis. AIN457 is also in Phase II development in psoriasis and rheumatoid arthritis, where initial studies suggested that AIN457 provides a new mechanism of action for the treatment of immune-mediated diseases.



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ASA404 is a potentially first-in-class tumor-vascular disrupting agent being developed for non-small cell lung cancer (NSCLC). Two Phase III trials are evaluating ASA404 in combination with standard chemotherapy as a treatment for locally advanced or metastatic NSCLC of squamous or non-squamous histology. The ATTRACT-1 Phase III trial investigating ASA404 as first-line therapy completed enrollment in the third quarter of 2009. The ATTRACT-2 Phase III trial investigating ASA404 as second-line therapy is currently enrolling patients. Pending trial outcomes, regulatory submission for use in NSCLC is expected in 2011. ASA404 was licensed from Antisoma in 2007.



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



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Certican/Zortress (everolimus): In the US, everolimus is in registration for the prevention of organ rejection in kidney transplantation, under the brand name Zortress. The FDA issued a Complete Response letter in December 2009 requesting additional changes to proposed labeling and the proposed Risk Evaluations and Mitigations Strategies (REMS) for Zortress, as well as a safety update. But the FDA did not request additional clinical studies. We will work with the FDA to address all additional issues to finalize FDA's review of the product. In 2008, Phase III development was initiated worldwide for the prevention of organ rejection in liver transplantation. The active ingredient in Certican/Zortress, everolimus, is also sold for an oncology indication under the brand name Afinitor.



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Diovan (valsartan): Diovan and Starlix (nateglinide), oral type 2 diabetes medications, are being evaluated for the prevention of new-onset type 2 diabetes and cardiovascular disease in patients with impaired glucose tolerance.



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EPO906 (patupilone) is in Phase III development in platinum resistant/refractory ovarian cancer. With 829 patients enrolled this is the largest clinical trial ever conducted in this difficult-to-treat patient population. Final results are expected in the first half of 2010 with filing planned for the second half of 2010 assuming that data are positive.

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Femara (letrozole tablets/letrozole): In August 2009, The New England Journal of Medicine published results from the landmark BIG 1-98 study that affirmed five-year up-front use of Femara following surgery as a superior treatment approach versus tamoxifen for postmenopausal women with early stage breast cancer (hormone-receptor positive). Novartis submitted these data to the FDA and the EMEA requesting an update to the Femara prescribing information.



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FTY720 (fingolimod), a sphingosine 1-phosphate receptor modulator, is in registration as an oral disease-modifying treatment for patients with relapsing multiple sclerosis, a disabling neurological condition estimated to affect up to 2.5 million people worldwide. Two Phase III studies examining two doses of FTY720 (0.5 mg and 1.25 mg) in relapsing-remitting multiple sclerosis, have been completed. Results from the Phase III TRANSFORMS study showed superior relapse-related efficacy at one year compared to interferon beta-1a IM, a current standard of care. Results from the FREEDOMS Phase III study showed that FTY720 significantly reduced relapse rates and disability progression at two years compared to placebo. The trial showed no significant difference in efficacy between the two doses of FTY720. FTY720 was generally well tolerated with a lower incidence of certain adverse events at the 0.5 mg dose than the 1.25 mg dose. Phase III efficacy and safety data provided a positive benefit-risk profile for the 0.5 mg dose. The regulatory submissions in the US and EU were completed at the end of 2009. FTY720 is licensed from Mitsubishi Tanabe Pharma Corporation.



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Gleevec/Glivec (QTI571, imatinib mesylate tablets/imatinib): Gleevec/Glivec is currently in development for Pulmonary Arterial Hypertension (PAH). PAH is a rare, progressive, proliferative disease with high morbidity and mortality. A Phase III program in severe PAH patients started in 2009.



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INC424 is a Janus kinase (JAK) inhibitor. This oral targeted therapy is now in Phase III clinical trials for the treatment of myelofibrosis, a life-threatening neoplastic condition with no effective medical treatment that is characterized by varying degrees of bone marrow failure, splenomegaly (enlarged spleen) and debilitating symptoms. INC424 has the potential to become a first-in-class therapeutic agent for the treatment of this and other hematologic diseases. Long-term data regarding INC424 presented at the American Society of Hematology (ASH) in 2009 demonstrated durable clinical, functional and symptomatic responses with acceptable hematological safety in patients with myelofibrosis. Other data presented at ASH also show clinical activity in advanced polycythemia vera essential thrombocythemia refractory to hydroxyurea. We licensed the rights to develop and market this compound outside of the US from Incyte Corporation.



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Joicela (lumiracoxib) is an oral COX-2 inhibitor for osteoarthritis, which we formerly marketed under the brand name Prexige. Based on requests from several worldwide health authorities, most marketing authorizations for lumiracoxib were withdrawn due to concerns related to its post-marketing liver safety profile. As of November 30, 2009, lumiracoxib continues to be commercially available under the Prexige name in Mexico, Ecuador and the Bahamas. A specific genetic biomarker has recently been identified which predicts the risk of severe liver injury in patients. In December 2009, Novartis submitted a new marketing authorization application in the EU for lumiracoxib (100 mg once daily) under the brand name Joicela for symptomatic relief in the treatment of osteoarthritis of the knee and hip in patients who are non-carriers of this genetic biomarker. Similar recommendations related to pre-treatment genetic testing are being implemented wherever the product remains commercially available for osteoarthritis.



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LBH589 (panobinostat) is a highly potent pan-histone deacetylase inhibitor targeting multiple oncogenic pathways, with development focused on hematological disease. In Hodgkin's lymphoma, a pivotal Phase II third-line trial completed enrollment, with regulatory submissions planned for 2010, pending the outcome of the trial. A Phase III trial in Hodgkin's lymphoma is planned to start in 2010, while a Phase III trial for multiple myeloma began in December 2009.

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LCI699 is a potential first-in-class aldosterone synthase inhibitor. In Phase II studies with more than 500 patients, the compound has demonstrated potent aldosterone- and blood pressure-lowering efficacy in primary as well as in secondary hypertension. The compound is set to be further evaluated in Phase II studies for heart failure.



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LCQ908 is a diacylglycerol acyltransferase-1 (DGAT-1) inhibitor. DGAT-1 catalyzes the final committed step in triglyceride synthesis and is believed to play a key role in whole body energy homeostasis. Inhibition of DGAT-1 represents a novel approach to treat metabolic disease. LCQ908 is in Phase II development for the treatment of type 2 diabetes.



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LCZ696 is a dual-acting compound that blocks the angiotensin receptor and inhibits the neutral endopeptidase (NEP) enzyme. The compound entered Phase III development at the end of 2009 in the treatment of heart failure, an indication in which ACE inhibitors are the current standard of care. A Phase II pivotal study demonstrated that LCZ696 provides superior blood pressure lowering as compared to valsartan. LCZ696 was well tolerated.



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Lucentis (ranibizumab): We submitted a filing in Europe in December 2009 for the indication of treatment of visual impairment secondary to Diabetic Macular Edema. A Phase III development program for the Retinal Vein Occlusion indication is expected to start in 2010.



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Mycograb (efungumab) is an antibody fragment used in combination with antifungal agents for treatment of invasive candida infections. Mycograb was acquired as part of the Novartis acquisition of NeuTec Pharma in 2006. In 2007, the EU Committee for Medicinal Products for Human Use (CHMP) upheld its negative opinion from 2006 on the Mycograb submission by NeuTec, citing issues concerning the manufacturing process. We continue to address these concerns and plan to consult Health Authorities in 2010.



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



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PKC412 (midostaurin) is an oral, multi-targeted, kinase inhibitor in Phase III development for treatment of acute myeloid leukemia (AML) and in Phase II development for aggressive systemic Mastocytosis. PKC412 administered as single-agent treatment as well as in combination with standard chemotherapy (daunorubicin and high dose cytarabine) has demonstrated improved clinical response rates of FLT3-mutated AML patients compared to FLT-3 wild-type patients.



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PRT128 (elinogrel) is a P2Y12 inhibitor which is direct acting, reversible and offers both intravenous and oral routes of administration. The compound is set to enter Phase III develop-ment in late 2010 for acute coronary syndrome and chronic coronary heart disease (secondary prevention of atherothrombosis). Currently, PRT128 is in Phase II and results from this trial are expected in Q2 2010.



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PTK796 is a broad-spectrum antibiotic recently in-licensed from Paratek Pharmaceuticals Inc. The compound is an aminomethylcycline, derived from tetracycline, and has shown broad-spectrum in vitro activity against a wide range of bacteria, including both Gram-positive and Gram-negative strains and also atypical and anaerobic bacteria. PTK796 is currently in Phase III development as an intravenous infusion or oral tablet to treat complicated skin and skin structure infections. Clinical trials are planned in a number of other potential indications, including infections caused by highly resistant bacteria such as methicillin-resistant Staphylococcus aureus (MRSA) and multi-drug resistant Streptococcus pneumoniae. Novartis has gained exclusive worldwide rights to market PTK796.

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PTZ601 (razupenem) is a broad-spectrum carbapenem antibiotic for the treatment of complicated community and hospital infections, including infections caused by multidrug-resistant Gram-positive pathogens—methicillin-resistant staphylococcus aureus and vancomycin-resistant enterococci. PTZ601 was acquired through the acquisition of Protez Pharmaceuticals Inc. in 2008. The efficacy and safety of PTZ601 have been assessed in a Phase II complicated skin and skin structure infection study. Additional Phase I study is ongoing to further assess optimal dosing and safety profile.



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QAB149 (indacaterol) is a once-daily beta2-agonist that offers sustained 24-hour bronchodilation with fast onset of action for the treatment of chronic obstructive pulmonary disease (COPD). QAB149 is being developed in a single-dose dry-powder inhaler. Results from Phase III studies demonstrated a statistically significant improvement in lung function compared to placebo within five minutes of taking the first dose, and a favorable risk/benefit profile. QAB149 was submitted for regulatory approval in the US and EU in December 2008, and was approved by the EU in November 2009 for two dose strengths, 150 mcg and 300 mcg, for maintenance bronchodilator treatment in adult COPD patients. The FDA issued a Complete Response letter in October 2009 requesting that Novartis further characterize the QAB149 dose-response profile. Novartis is reviewing with the FDA the additional studies that will be required and has targeted the second half of 2010 for resubmission to the FDA.



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QMF149 is a once-daily fixed dose combination of the long-acting beta2-agonist QAB149 and the Merck (formerly Schering-Plough) product mometasone. The global collaboration with Merck was restructured on May 18, 2009, and under the new agreement Novartis assumes exclusive worldwide development and marketing rights to QMF149. Phase II development for asthma and COPD is currently ongoing.



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QVA149 is a once-daily fixed dose combination of the long-acting beta2-agonist QAB149 and the long-acting muscarinic antagonist NVA237 (glycopyrronium bromide). QVA149 is in Phase II development for the treatment of COPD, in a single-dose dry-powder inhaler. Results from Phase II demonstrated that the fixed dose combination QVA149 provided superior bronchodilation compared to QAB149 or placebo, which was sustained over 24 hours. The compound had a fast onset of action and was well tolerated with a good safety profile. Phase III development is scheduled to start in 2010.



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RAD001 (Afinitor): Positive early data show potential for RAD001 in breast cancer, gastric cancer, hepatocellular carcinoma, lymphoma and pancreatic neuroendocrine tumors. RAD001 is being studied in many cancer types: Enrollment has been completed in Phase III studies in neuroendocrine tumors with potential regulatory submissions planned by the end of 2010. Phase III studies are also underway in breast cancer, lymphoma, gastric cancer and tuberous sclerosis complex. A pivotal study in liver cancer is planned.



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Sandostatin SC/Sandostatin LAR (octreotide acetate/octreotide acetate for injectable suspension): Phase III data published in 2009 demonstrated a significant delay in tumor progression in patients with metastatic neuroendocrine tumors of the midgut who were treated with Sandostatin LAR. These data formed the basis of the 2009 US National Comprehensive Cancer Network (NCCN) update on treatment guidelines for neuroendocrine tumors.



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SBR759 is a novel calcium-free polymeric iron (III)-based phosphate binder for treating hyperphosphataemia in patients with end-stage renal disease undergoing dialysis. It was in-licensed from SeBo GmbH in 2005 and is currently in Phase II clinical development, with results expected in 2010.



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SOM230 (pasireotide) is a somatostatin analogue in development for Cushing's disease, acromegaly and carcinoid syndrome that is refractory/resistant to Sandostatin. Data from Phase II studies show significant hormone reductions in Cushing's disease and acromegaly patients, and

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achievement of partial or complete symptom control in patients with refractory/resistant carcinoid syndrome. Based on results from a pivotal trial in Cushing's disease, regulatory submission is planned for 2010. A Phase III trial for acromegaly recently reached its patient accrual target, while a Phase III trial in patients with carcinoid tumors is also ongoing.

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Tasigna (nilotinib): Results from the global, randomized Phase III trial called Evaluating Nilotinib Efficacy and Safety in Clinical Trials of Newly Diagnosed Ph+ CML Patients (ENESTnd), the largest head-to-head comparison of an oral therapy against Glivec ever conducted show that Tasigna produces faster and deeper responses than Glivec in adult patients with newly-diagnosed Ph+ CML. Tasigna showed superiority to Glivec in major molecular response at 12 months, complete cytogenetic response by 12 months, and showed a significant reduction in transformation to accelerated phase and blast crisis. Based on these data Tasigna was submitted to the FDA and EMEA for approval for first-line use in CML. Novartis is also investigating the potential of Tasigna for patients with GIST. Although a Phase III trial of Tasigna as a third-line therapy for GIST did not meet its primary endpoint, results showed a two-month improvement in median overall survival for patients on Tasigna. Based on these data, Novartis will not file for use of Tasigna in the third-line indication. However, a Phase III registration trial evaluating Tasigna versus Glivec as first-line treatment for unresectable or metastatic GIST is actively recruiting.



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Tekturna/Rasilez, Valturna/Rasival (aliskiren, aliskiren and valsartan): The single-pill combination of aliskiren and valsartan, to be called Rasival outside of the US, was filed with the EMEA in August 2009. In addition, we initiated the ASPIRE HIGHER clinical development program, the largest ongoing cardio renal outcomes program worldwide, involving more than 35,000 patients in 14 trials. Data from the ALOFT (heart failure) and AVOID (kidney disease) studies, which are part of the ASPIRE HIGHER program, have been added to European product information. Also in Phase III development are Tekturna/Rasilez with the calcium channel blocker amlodipine besylate and a triple combination therapy with Tekturna/Rasilez, amlodipine besylate and a diuretic.



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Xolair (omalizumab): We are pursuing an indication for Xolair to treat allergic asthma in children (aged 6 and older) in the US. The FDA issued a Complete Response letter in December 2009 which indicated that the submitted data do not provide a favorable risk/benefit balance to support the use Xolair in patients ages 6 through 11 years. Novartis and Genentech, Inc., a wholly-owned member of the Roche Group, will work closely with the FDA to determine appropriate next steps as the companies continue to evaluate this indication for Xolair. Separately, in February 2009, we received approval in the EU for a liquid formulation of Xolair. In September 2009, we submitted an expansion of the dosing table for European approval, and received a positive opinion from the EU Committee for Medicinal Products for Human Use (CHMP) in December 2009.



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Zometa (zoledronic acid for injection/zoledronic acid 4 mg): In 2008, new clinical trial results (ABCSG-12 trial) showed that when Zometa was used as an adjuvant breast cancer treatment in premenopausal women, the drug reduced the risk of breast cancer returning. Novartis filed these data with the FDA and the EMEA in December 2009, requesting an update to the Zometa prescribing information. Studies are underway to review the potential anti-cancer benefits of Zometa in multiple tumor types.

Projects Terminated in 2009

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ACZ885 (canakinumab) for Rheumatoid arthritis



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LBH589 (panobinostat) for Cutaneous T-Cell Lymphoma



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Galvus (vildagliptin) and Eucreas (vildagliptin and metformin). Resubmission for US approval is not currently planned.

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MFF258 (formoterol and mometasone furoate) for COPD and Asthma. MFF258 is the Schering-Plough product mometasone plus the Novartis product Foradil (formoterol fumarate). The global collaboration with Merck (formerly Schering-Plough) was restructured on May 18, 2009 and under the new agreement, Merck assumed exclusive rights to develop and commercialize MFF258.

Principal Markets

        The Pharmaceuticals Division has a commercial presence in approximately 140 countries worldwide, but net sales are generally concentrated in the US, Europe and Japan, which together accounted for 81% of 2009 net sales. At the same time, sales from fast growing "emerging growth markets" have become increasingly important to us. See "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Factors Affecting Results of Operations—Fundamental Drivers Remain Strong—Emerging Markets Grow Faster than Developed Countries." The following table sets forth certain data relating to our principal markets in the Pharmaceuticals Division.

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

Production

        The primary goal of our manufacturing and supply chain management program is to ensure the uninterrupted, timely and cost-effective supply of products that meet all product specifications. Pharmaceutical manufacturing is regulated by "Good Manufacturing Practices" (GMP) and other regulations, which are monitored by regulatory agencies such as the FDA in the US.

        We manufacture our products at five bulk chemical and 15 pharmaceutical production facilities as well as three biotechnology sites. Bulk chemical production involves the manufacture of therapeutically active compounds, mainly by chemical synthesis or by a biological process such as fermentation. Pharmaceutical production involves the manufacture of "galenical" forms of pharmaceutical products such as tablets, capsules, liquids, ampoules, vials and creams. Major bulk chemical sites are located in Basel, Switzerland; Grimsby, UK; Ringaskiddy, Ireland and Changshu, China. Significant pharmaceutical production facilities are located in Stein, Switzerland; Wehr, Germany; Torre, Italy; Barbera, Spain; Suffern, New York; Sasayama, Japan and in various other locations in Europe, including Huningue, France, Horsham, UK and Kurtkoy, Turkey. Our three biotechnology plants are in Huningue, France, Basel, Switzerland and Vacaville, California.

        During clinical trials, which can last several years, the manufacturing process for a particular product is rationalized and refined. By the time clinical trials are completed and products are launched, the

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manufacturing processes have been extensively tested and are considered stable. However, improvements to these manufacturing processes may continue over time.

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

        While we have not experienced material supply interruptions in the past, there can be no assurance that supply will not be interrupted in the future as a result of unforeseen circumstances. The manufacture of our products is heavily regulated, making supply never an absolute certainty. If we or our third-party suppliers fail to comply fully with regulations then there could be a product recall or an enforced shutdown of production facilities. We have implemented a global manufacturing strategy to maximize business continuity in case of such events or other unforeseen catastrophic events.

Marketing and Sales

        The Pharmaceuticals Division serves customers with approximately 5,426 field force representatives in the US (including supervisors), and an additional 18,338 in the rest of the world. These trained representatives, where permitted by law, present the therapeutic and economic benefits of our products to physicians, pharmacists, hospitals, insurance groups and managed care organizations. We are seeing the increasing influence of customer groups beyond the prescribers, and Novartis is responding by adapting our business practices.

        Although specific distribution patterns vary by country, Novartis generally sells its prescription drugs primarily to wholesale and retail drug distributors, hospitals, clinics, government agencies and managed healthcare providers.

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

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

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

Competition

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

        As is the case with other pharmaceutical companies selling patented pharmaceuticals, Novartis faces ever-increasing challenges from companies selling generic forms of our products following the expiry of

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patent protection, or of products which compete with our products. Generic companies may also gain entry to the market through successfully challenging our patents, but we vigorously use legally permissible remedies to defend our patent rights from generic challenges. In addition, we also face competition from over-the-counter (OTC) products that do not require a prescription from a physician.

Research and Development

        We are among the leaders in the pharmaceuticals industry in terms of research and development investment. In 2009, we invested approximately $5.8 billion in Pharmaceuticals Division research and development, which represented 20.5% of the division's total net sales. Our Pharmaceuticals Division invested $5.7 billion and $5.1 billion in research and development in 2008 and 2007 respectively. There are currently 145 projects in clinical development.

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

Research program

        Our Research program is responsible for the discovery of new drugs. In 2003, we established the Novartis Institutes for BioMedical Research (NIBR). NIBR is headquartered in Cambridge, Massachusetts, where more than 1,400 scientists and associates conduct research into disease areas such as cardiovascular and metabolism disease, infectious disease, oncology, muscle disorders and ophthalmology. The Cambridge-based discovery research platforms include Developmental and Molecular Pathways, NIBR Biologics Center and Global Discovery Chemistry. An additional 2,300 scientists and technology experts conduct research in Switzerland, UK, Japan, Austria, China and two other US sites. Research is conducted at these sites in the areas of neuroscience, autoimmune disease, oncology, cardiovascular disease, dermatology, gastrointestinal disease and respiratory disease. In addition, research platforms such as the Center for Proteomic Chemistry are headquartered in the NIBR site in Basel, Switzerland. In November 2009, we announced that we would invest $1 billion over the next five years to increase the size of the NIBR site in Shanghai, China, so that it would become the largest pharmaceutical research and development institute in China, and the third-largest Novartis research institute worldwide.

        Our principal goal is to discover new medicines for diseases with high unmet medical need. To do so we focus our work in areas where we have sufficient scientific understanding and believe we have the potential to dramatically change the practice of medicine. This requires the hiring and retention of the best talent, a focus on fundamental disease mechanisms that are relevant across different disease areas, continuous improvement in technologies for drug discovery and potential therapies, close alliance with clinical colleagues, and the establishment of appropriate external complementary alliances.

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

        Over the past five years, the output from NIBR has grown progressively. The portfolio of pre-clinical and early clinical New Molecular Entities has increased more than 50% in the last four years. Biologic medicines—antibodies and protein therapeutics—have grown to constitute 25% of NIBR's pre-clinical portfolio.

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Development program

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

Alliances and acquisitions

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

Regulation

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

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

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

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company or even reject the product. It is also possible that a drug may be approved for different indications in different countries.

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

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

United States

        In the US, applications for drug registration are submitted to and reviewed by the FDA. The FDA regulates the testing, manufacturing, labeling and approval for marketing of pharmaceutical products intended for commercialization in the US. The FDA continues to monitor the safety of pharmaceutical products after they have been approved for marketing in the US market. The pharmaceutical development and registration process is typically intensive, lengthy and rigorous. When a pharmaceutical company has gathered data which it believes sufficiently demonstrates a drug's quality, safety and efficacy, then the company may file a New Drug Application (NDA) or biologics license application (BLA), as applicable, for the drug. The NDA or BLA must contain all the scientific information that has been gathered about the drug and typically includes information regarding the clinical experiences of all 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 registered drug. Throughout the life cycle of a product, the FDA also requires compliance with standards relating to good laboratory, clinical and manufacturing practices.

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

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

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.

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

        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 authorization for the product.

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

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

Japan

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

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confirmation that the product has been manufactured in a plant compliant with Good Manufacturing Practices.

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

Price Controls

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

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Direct efforts to control prices.



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United States.    In the US, as a result of the current effort to pass health care reform legislation, there is a significant risk of legislative action to control prices. Specifically, there are provisions in both the Senate and House-passed bills that would increase Medicaid rebates and extend those rebates to Managed Care Organizations. In addition, language to apply Medicaid rebates to Medicare Part D dual-eligible beneficiaries was defeated during the Senate debate, but remains in the House-passed bill. The House bill also includes a requirement for the US government to use its significant purchasing power to demand additional discounts from pharmaceutical companies under the Medicare Part D program. Whatever the results of the current legislative debate, there is a risk that governmental officials will continue to search for ways to reduce or control prices.



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



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Japan.  In Japan, the government generally introduces price cut rounds every other year, and the government additionally mandates price decreases for specific products. In 2008, the National Health Insurance price calculation method for new products and the price revision rule for existing products were reviewed, and the resulting new drug tariffs were effective beginning April 2008. The Japanese government is currently undertaking a healthcare reform initiative with a goal of sustaining the universal coverage of the National Health Insurance program, and is addressing promotion of generic use and enhancement of pricing for new products.



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Rest of World.  Many other countries around the world are also taking steps to rein in prescription drug prices. As just one example, Turkey, one of our most important emerging growth markets, is imposing a 30% price reduction on prescription drugs in 2010.

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



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Cross-Border Sales. Price controls in one country can also have an impact in other countries as a result of cross-border sales. In the EU, products which we have sold to customers in countries with stringent price controls can in some instances legally be re-sold to customers in other EU countries with less stringent price controls, at a lower price than the price at which the product is otherwise available in the importing country. In North America, products which we have sold to customers in Canada, which has relatively stringent price controls, are sometimes re-sold into the US, again at a lower price than the price at which the product is otherwise sold in the US. Such imports from Canada and other countries into the US are currently illegal. However, political efforts continue at the US federal, state and local levels to change the legal status of such imports. During the Senate health care reform debate, amendments were introduced to allow importation into the US of medications from Europe, Canada, Switzerland, Australia, New Zealand and Japan. While these amendments did not garner the necessary votes for inclusion in the Senate's health care reform bill, members of the Senate have stated that they will continue to pursue this legislation.

        We expect that pressures on pricing will continue worldwide, and may increase. Because of these pressures, there can be no certainty that in every instance we will be able to charge prices for a product that, in a particular country or in the aggregate, enable us to earn an adequate return on our investment in that product.

Intellectual Property

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

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

        The following is a summary of the patent expiration dates for certain key products of our Pharmaceuticals Division. In addition, if a product is subject to significant patent litigation, we describe it below:

Cardiovascular and Metabolism

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Diovan/Co-Diovan/Diovan HCT.    We have patent protection (including extensions) on valsartan, the active ingredient used in our best-selling products Diovan, Co-Diovan and Diovan HCT, until

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2011 in the major countries of the EU (until February 2011 in Spain, and until May 2011 in France, Germany, Italy and the UK); until September 2012 in the US; and until 2013 in Japan. However, we have regulatory exclusivity for Co-Diovan in Japan until 2015. No litigation concerning the Diovan patents is currently ongoing in the US.

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



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Tekturna/Rasilez.    Patent protection for the active ingredient of Tekturna/Rasilez will expire in 2018 in the US and between 2015 and 2020 in other markets.



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Galvus.    Patent protection for the active ingredient of Galvus is estimated to expire, with extensions, in 2019-24 in markets outside of the US, and in 2024 in the US.

Oncology

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Gleevec/Glivec.    We have patent protection on imatinib, the active ingredient used in our leading product Gleevec/Glivec, until July 2015 in the US (including pediatric extension), until 2016 in the major EU countries, and until 2014 in Japan (including extensions). Patent protection on a new crystal form of imatinib has been challenged in the US, but no challenge has been made to the compound patent in the US. In Turkey, where Novartis does not have protection for the compound, we brought suit in 2007 for infringement of the imatinib formulation, indication and crystal form patents against a local company that had obtained generic marketing authorization for a generic version of Glivec. We obtained a preliminary injunction in Turkey, but it was lifted in 2008. That litigation is ongoing. In Russia, we have a patent covering the compound and we obtained a permanent injunction preventing a company that had filed for marketing authorization from launching a generic version of Glivec. This injunction was confirmed in a final decision by the Supreme Court.



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



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Zometa and Reclast/Aclasta.    Patent protection on zoledronic acid, the active ingredient in these products, will expire in 2013 in the US and 2012 in other major markets. Patent litigation against a generic manufacturer who has challenged the patent is on-going. An at-risk launch of a generic version of Zometa is possible in the US in December 2010 when the 30-month stay period expires, absent a court decision to the contrary before then. For Reclast, the 30-month stay period expires in May 2011.



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



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



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

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Afinitor/Certican/Zortress.    Patent protection for the active ingredient in Afinitor/Certican/Zortress is expected to expire in 2019 in the US and in 2018 in Europe and other major countries.

Other Pharmaceutical Products

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Lucentis.    Patent protection for the active ingredient in Lucentis expires in 2018-22 in the EU and Japan. In the US Lucentis is marketed by Genentech. In countries other than the US, Genentech has licensed Lucentis to Novartis.



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Exelon.    Patent protection for the active ingredient in Exelon, granted to Proterra and licensed to Novartis, will expire in 2012 in the US and in 2011 in most other major markets. Novartis holds a patent on a specific isomeric form of the active ingredient used in Exelon which expires in 2012-14 in major markets. Exelon Patch is further covered by a formulation patent expiring in 2019 in major markets. Generic manufacturers filed applications to market a version of Exelon capsules in the US, but not the Exelon Patch, and challenged our patents. The resulting US lawsuits have been settled. Under the terms of the settlement agreements, Novartis has granted the generic manufacturers a license to our US patents covering Exelon. The agreements generally permit the generic manufacturers to launch a generic version of Exelon capsules, but not of the Exelon Patch, prior to the patent expiration date. In some European countries generic manufacturers recently obtained marketing approvals for Exelon capsules and therefore could launch at risk.



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



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



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



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Comtan.    Patent protection for entacapone, the active ingredient in Comtan, which we licensed from Orion, will expire in the US in 2013 and in Europe in 2012. Other patents, such as a polymorph patent, have also been granted. Litigation concerning the patent on entacapone by Orion is ongoing in the US against generic manufacturers who have challenged these patents. Orion has settled the patent litigation with the first-to-file generic challenger. In the remaining patent litigation with the second generic challenger, absent a court decision to the contrary, an at-risk launch of a generic version of this product is possible in the US beginning in February 2010, at the expiration of the 30-month stay. Novartis is not party to the pending litigation.



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Stalevo.    One of the active ingredients in Stalevo is entacapone, the active ingredient in Comtan. Patent protection for entacapone will expire in 2012-13 (see above). Stalevo is protected by additional patents expiring up to 2020. Patent litigation by Orion is ongoing in the US against generic manufacturers who have challenged the patent on entacapone and Stalevo formulation patents. Orion has settled the patent litigation with one of the generic challengers. An at-risk launch of a generic version of this product is possible in the US beginning in October 2010, absent

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any court decision to the contrary in the remaining patent litigation with the other generic challenger before then. Novartis is not party to the pending litigation.

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Ritalin LA.    Patent protection for the active ingredient of Ritalin LA has expired. The formulation of Ritalin LA and its use is covered by patents granted to Celgene and Elan and licensed to Novartis, expiring up to 2018 in the US. Patent litigation against generic manufacturers who challenged these patents is ongoing in the US. An at-risk launch of a generic version of Ritalin LA in the US is possible as soon as the FDA grants approval of a generic version of this product. The 30-month stay has already expired, and, to date, the court has not issued any orders preventing such a launch.



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Focalin.    The formulation of Focalin XR and its use are covered by patents granted to Celgene and Elan and licensed to Novartis. Protection expires 2015-18 in the US and in other markets. Patent litigation against generic manufacturers who challenged these patents is ongoing in the US. An at-risk launch of a generic version of this product is possible in the US beginning in February 2010, at the expiration of the 30-month stay, absent a court decision to the contrary before then.



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Tegretol.    Patent protection for the active ingredient of Tegretol has expired worldwide.



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Foradil.    Patent protection for the active ingredient of Foradil has expired worldwide. However, a device patent is in place for the Foradil Aeroliser in the EU until 2019.



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



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Lotrel.    Lotrel is protected by a patent on compositions containing amlodipine besylate and benazepril in the US until 2017. Patent litigation challenging this patent is ongoing in the US. A trial is expected in 2010. Low-dose generic versions of Lotrel have been launched at-risk by one generics manufacturer.



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Trileptal.    Patent protection for the active ingredient of Trileptal has expired in most countries.



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



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Extavia.    Patent protection for the active ingredient of Extavia has expired.



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Famvir.    See "Item 18. Financial Statements—note 20."



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

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

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

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        In addition, even though we may own or license patents protecting our products, and conduct pre-launch freedom-to-operate analyses, a third party may nevertheless claim that one of our products infringes an unlicensed third-party patent.

VACCINES AND DIAGNOSTICS

        Our Vaccines and Diagnostics Division is a leader in the research, development, manufacturing and marketing of vaccines and diagnostic tools worldwide. As of December 31, 2009, the Vaccines and Diagnostics Division employed 5,416 full-time equivalent associates worldwide in 20 countries. In 2009, the Vaccines and Diagnostics Division had consolidated net sales of $2.4 billion representing 5% of total Group net sales from continuing operations.

        The Novartis Vaccines and Diagnostics Division is a leading manufacturer of human vaccines, and is growing at double-digit rates. Our vaccine products include influenza, meningococcal meningitis, pediatric, adult and travel vaccines. Our diagnostics business, which operates under the name Chiron, is dedicated to preventing the spread of infectious diseases through the development and marketing of novel blood-screening tools.

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

        Influenza vaccines are a core franchise of the Division, with brands that include Fluvirin, Fluad, Agrippal, Begrivac, Optaflu and AgriFlu. Today Novartis is among the world's largest producers of influenza vaccines, and a major supplier to the US, UK, Italy, Germany and other countries. According to the World Health Organization, every year an estimated 3 million to 5 million people worldwide become seriously ill from influenza, and as many as 500,000—primarily children and the elderly—die from the ensuing complications. This year, we completed our entire shipment of 27 million doses of seasonal influenza vaccine to the US for the 2009/2010 season in October, earlier than in previous years, in anticipation of demand for earlier vaccination with seasonal influenza vaccine created by the global A (H1N1) influenza pandemic.

        We also produced and shipped our first doses A (H1N1) vaccines within four months after the declaration of the A (H1N1) influenza pandemic by the World Health Organization on June 11, 2009. On September 15 the FDA approved Novartis Fluvirin Influenza (A) H1N1 monovalent vaccine. On September 25 Focetria A (H1N1) received a positive opinion from CHMP and was approved for marketing in Europe on October 1. And Celtura (adjuvanted cell-culture based vaccine) also received its first approvals in November, in Germany and Switzerland.

        This activity followed the November 2009 opening of the division's cell culture-based manufacturing facility at Holly Springs, North Carolina. This facility was constructed following the award by the US Department of Health and Human Services to Novartis Vaccines and Diagnostics of a contract to support the design, construction, validation and licensing of the facility, to provide a pre-pandemic supply of avian influenza vaccine, and to provide the capacity to manufacture 150 million doses of pandemic vaccine within six months of declaration of an influenza pandemic. In addition, the FDA approved the new Novartis Site 4 in Liverpool, UK, and production capacity was increased in Marburg, Germany to enable us to increase our production of vaccines.

        Menveo (MenACWY-CRM), a quadrivalent conjugate vaccine for the prevention of the A, C, Y and W-135 strains of meningococcal meningitis, was submitted for marketing authorization in the US and Europe in 2008 for use in individuals 11-55 years old. In December 2009, the CHMP recommended Menveo for approval in the EU. We expect a decision from the European Commission during the first quarter of 2010. In the US, we received a Complete Response letter from the FDA in June 2009, requesting additional information on the clinical and Chemistry Manufacturing and Control sections of

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the Biologics License Application. No new clinical trials were requested. We submitted full responses to all of FDA's questions in August 2009. US approval for the adolescent/adult indication is now expected in the first quarter of 2010. Our Menveo Phase III program for the additional indication of the prevention of the disease in persons aged 2 months to 10 years old is ongoing, and submission of Menveo for use in infants is expected in 2010 in Europe and 2011 in the US.

        The menB vaccine has shown potential to be the first vaccine to protect infants as young as six months from the B strain of meningococcal meningitis. Phase III studies are progressing in Europe, where patient enrollment has been completed and a regulatory submission remains on track for 2010. In the US, discussions are planned for 2010 with the FDA to determine the scope of Phase III clinical trials.

        Ixiaro vaccine for the prevention of Japanese encephalitis in travelers to Asia received FDA approval on March 30, 2009 and Marketing Authorization in Europe on April 2, 2009. It is the only licensed JE vaccine in the US, and as planned Ixiaro was launched starting in the first half of 2009 in the US, UK, Germany and other European countries.

        Novartis Vaccines continued to expand geographically, by offering our first vaccine in Japan, and with our announcement in November 2009, that we had entered into an agreement to acquire an 85% stake in the Chinese vaccines company Zhejiang Tianyuan Bio-Pharmaceutical Co., Ltd., which offers marketed vaccine products in China. In addition, Quinvaxem (for childhood diseases) continues to penetrate emerging markets, and we have had significant activity in Brazil, entering into an agreement in 2009 with the Fundação Ezequiel Dias in Brazil for meningitis C vaccine technology transfer, and commencing construction of a vaccines manufacturing facility in that country.

        Our diagnostics collaboration with Gen-Probe Inc. was extended in early 2009, until 2025. Gen-Probe and Novartis collaborate to develop, manufacture and sell equipment, tests and reagents to test blood donations for the presence of infectious diseases (HIV, HCV, HBV and WNV) using nucleic acid technologies (NAT). The previous agreement was set to expire in 2013. Novartis is responsible for world wide sales, marketing and distribution of instruments and assays used to detect HIV, HCV, HBV and WNV in donated blood. Gen-Probe manufactures these products. The two companies jointly conduct the R&D activities needed to support this product line. During 2009 Novartis also signed a multi-year agreement with the American Red Cross to begin additional testing of blood donations for hepatitis B virus (HBV) DNA using NAT. The division also expanded its line of nucleic acid testing products in Asia Pacific and following validation and testing the diagnostics product Ultrio Plus assay was launched in New Zealand and Hong Kong in October 2009.

Vaccines and Diagnostics Division Products

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

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Key Marketed Vaccine Products

Other Marketed Vaccine Products

        The Vaccines and Diagnostics Division also markets additional products in travel vaccines (e.g., Typhoral L, Havpur), pediatric vaccines (e.g., IPV-Virelon, TD-Virelon, Diftetall, Vaxem-Hib) and adult vaccines (e.g., Tetanol, Td-Virelon).

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Vaccine Key Products in Development

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Key Marketed Diagnostics Products

Diagnostic Products in Development

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