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

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As filed with the Securities and Exchange Commission on January 23, 201327, 2016

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

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)

Felix R. Ehrat
Group General Counsel
Novartis AG
CH-4056 Basel
Switzerland
011-41-61-696-9511Tel.: 011-41-61-324-1111
felix.ehrat@novartis.comFax: 011-41-61-324-7826
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

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:

2,420,620,1742,373,894,817 shares

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

Yes ý    No o

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

Yes o    No ý

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

Yes ý    No o

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

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

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

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

Item 17 o         Item 18 o

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

Yes o    No ý

*

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

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INTRODUCTION AND USE OF CERTAIN TERMS

        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 prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

USE OF CERTAIN TERMS

        In this Form 20-F, references to "US dollars" or "$" are to the lawful currency of the United States of America, and references to "CHF" are to Swiss francs; references to the "United States" or to "US" are to the United States of America, references to the European Union (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        Unless the context requires otherwise, requires; references to "associates" are to employees of our affiliates; references to the "FDA" are to the US Food and Drug Administration, references to "EMA" are to the European Medicines Agency, an agency of the EU, and references to the CHMP are to the EMA's Committee for Medicinal Products for Human Use; references to "ADS" or "ADSs" are to Novartis American Depositary Shares, and references to "ADR" or "ADRs" are to Novartis American Depositary Receipts; references to the NYSE are to the New York Stock Exchange, and references to the SIX are to the SIX Swiss Exchange. All product names appearing in italics are trademarks owned by or licensed to Group companies. Product names identified by a "®" or a "™" are trademarks that are not owned by or licensed to Group companies. You will find the words "we," "our," "us""us," "Novartis," "Group," "Company," and similar words or phrases in this Form 20-F. We use those words20-F refer to comply with the requirement of the US SecuritiesNovartis AG and Exchange Commission to use "plain English" in public documents like this Form 20-F. For the sake of clarification,its consolidated affiliates. However, each Group company is legally separate from all other Group companies and manages its business independently through its respective board of directors or other top local management body. No Group company operates the business of another Group company. Each executive identified in this Form 20-F reports directly to other executives of the Group company which employs the executive, or to that Group company's board of directors.

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

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

FORWARD LOOKINGFORWARD-LOOKING STATEMENTS

        This Form 20-F contains certain "forward looking"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, whichamended. Other written materials filed with or furnished to the US Securities and Exchange Commission (SEC) by Novartis, as well as other written and oral statements made to the public, may also contain forward-looking statements. Forward-looking statements can be identified by terminologywords such as "planned,"potential," "expected," "will," "potential,"planned," "pipeline," "outlook," or similar expressions,terms, or by express or implied discussions regarding potential new products, potential new indications for existing products, or regarding potential future revenues from any such products; potential outcomesshareholder returns or credit ratings; or regarding the potential financial or other impact on Novartis or any of our effortsdivisions of the strategic actions announced in January 2016 to improvefocus our divisions, integrate certain functions and leverage our scale; or regarding any potential financial or other impact on Novartis as a result of the quality standards at anycreation and operation of NBS; or allregarding the potential financial or other impact on Novartis of our manufacturing sites;the transactions with GSK, Lilly or CSL; or regarding potential future sales or earnings of the Novartis Group or any of its divisions in the near- and long-term;divisions; or by discussions of strategy, plans, expectations or intentions. You should not place undue reliance on these statements.

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        Such forward-looking statements reflectare based on the current viewsbeliefs and expectations of the Groupmanagement regarding future events, and involveare subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties and other factors that may causematerialize, or should underlying assumptions prove incorrect, actual results to bemay vary materially different from any future results, performance or achievements expressed or implied by suchthose set forth in the forward-looking statements. There can be no guarantee that any new products will be approved for sale in any market, or that any new indications will be approved for any existing products in any market, or that any approvals which are obtained will be obtained at any particular time, or that any such products will achieve any particular revenue levels. Nor can there be any guarantee that the GroupNovartis will be successfulable to realize any of the potential strategic benefits, synergies or opportunities as a result of the strategic actions announced in its efforts to improveJanuary 2016, the quality standards atcreation and operation of NBS, or the transactions with GSK, Lilly or CSL. Neither can there be any or all of our manufacturing sites, orguarantee that weNovartis will succeed in restoring or maintaining production atachieve any particular sites.financial results in the future. Nor can there be any guarantee that shareholders will achieve any particular level of shareholder returns. Neither can there be any guarantee that the Group, or any of its divisions, will be commercially successful in the future, or achieve any particular financial results, either in

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the near-term or in the long-term.        In particular, management's expectations could be affected by, among other things, things:

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unexpected regulatory actions or delays or government regulation generally;



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the potential that the strategic benefits, synergies or opportunities expected from the strategic actions announced in January 2016, the creation and operation of NBS, or the transactions with GSK, Lilly or CSL may not be realized or may take longer to realize than expected;



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the inherent uncertainties involved in predicting shareholder returns or credit ratings;



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the uncertainties inherent in research and development, including unexpected clinical trial results includingand additional analysesanalysis of existing clinical data or unexpected new clinical data; the Group's



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our ability to obtain or maintain patent or other proprietary intellectual property protection, including the ultimate extent of the impact on the GroupNovartis of the loss of patent protection and exclusivity on key products which commenced last yearin prior years and will continue this year;



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unexpected productsafety, quality or manufacturing and quality issues,issues;



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global trends toward health care cost containment, including the potential outcomes of our efforts at the Sandoz and Alcon sites that are subject to Warning Letters, and with respect to our efforts to restart production of products formerly produced at the Consumer Health manufacturing facility at Lincoln, Nebraska; government, industry, and general publicongoing pricing pressures; pressures, in particular from increased publicity on pharmaceuticals pricing;



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uncertainties regarding actual or potential legal proceedings, including, among others, actual or potential product liability litigation, litigation and investigations regarding sales and marketing practices, shareholder litigation, government investigations and intellectual property disputes; competition in general;



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general economic and industry conditions, including uncertainties regarding the effects of the ongoing globalpersistently weak economic and financial and economic crisis, including the financial troublesenvironment in certain Eurozonemany countries;



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uncertainties regarding future global exchange rates; rates, including the continued significant increase in value of the US dollar, our reporting currency, against a number of currencies;



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uncertainties regarding future demand for our products; uncertainties necessarily involved in long-term financial projections;



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uncertainties involved in the development of new healthcare 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.



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uncertainties regarding potential significant breaches of data security or disruptions of our information technology systems.

        Some of these factors are discussed in more detail herein,in this Form 20-F, including under "Item 3. Key Information—3.D. Risk factors," "Item 4. Information on the Company," and "Item 5. Operating and Financial Review and Prospects." Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Form 20-F as anticipated, believed, estimated or expected. We provide the information in this Form 20-F as of the date of its filing. We do not intend, and do not assume any obligation, to update any information or forward lookingforward-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, 2012, 20112015, 2014 and 20102013 are included in "Item 18. Financial Statements" in this Form 20-F.

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

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

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Cash Dividends per Share

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

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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/Bloomberg Market System. The exchange rate in effect on January 17, 2013,20, 2016, as found on ReutersBloomberg Market System, was CHF 1.00 = $1.07.$0.998.

3.B    Capitalization and Indebtedness

        Not applicable.

3.C    Reasons for the offer and use of proceeds

        Not applicable.

3.D    Risk Factors

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

Risks Facing Our Business

Our patented pharmaceuticals businesses, and other key products face, and will continue to face important patent expirations and aggressive genericsignificant competition.

        The products of our Pharmaceuticals and Alcon Divisions, as well as certain key products fromof our other divisions,Sandoz Division, are generally protected by patent and other intellectual property rights, which are intended to provide us with exclusive rights to market the patented products. However, those patentintellectual property rights are ofhave varying strengths and durations. Loss of market exclusivity for one or more important products—including the loss of exclusivity onDiovan, our best-selling product, which began in the EU in 2011, and occurred in the US in 2012 and will continue in Japan in 2013—haveproducts has had, and can be expected to continue to have a material adverse effect on our results of operations.

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

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

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

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TheWe already face generic competition in Japan and some EU countries for our best-selling productGleevec/Glivec (cancer). In the US, we have resolved patent on valsartan, the active ingredientlitigation with certain generic manufacturers. We have licensed one generic manufacturer to market a generic version ofDiovan/Gleevec in the US as of February 1, 2016. In the EU, ourGlivec intellectual property rights also are being challenged by generic manufacturers.



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Diovan andCo-Diovan/Diovan HCT (high blood pressure), expired in the major countries of the EU in November 2011, andwhich had long been our best-selling product, has generic competitors have launched there. In addition, patent protection expired in the US in September 2012, and generic versions ofDiovan HCT have launched in the US. Generic versions ofDiovan monotherapy have not yet launched in the US but could potentially launch at any time. In addition, patent protection forDiovan is scheduled toin the US, EU and Japan and forCo-Diovan/Diovan HCT in the US and EU. In Japan, Novartis has resolved patent litigation with a generic manufacturer. Patent protection forCo-Diovan will expire in Japan in 2013, and 2016 forCo-Diovan (including patent term extensions). The2016. In addition, valsartan, the active ingredient valsartaninDiovan, is also used in the single-pill combination therapiesExforge andExforge/Exforge HCT (high blood pressure). While market exclusivities for, and despite the existence of separate patents covering the product,Exforge/Exforge HCT will remainfaces generic competition in the US. OurExforge patents also face challenges in the EU.



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Patent protection for octreotide acetate, the active ingredient inSandostatin, has expired. Generic versions ofSandostatin SC are available in the US, EU and Japan. A US patent protectsSandostatin LAR, the long-acting version ofSandostatin which represents a majority of ourSandostatin US sales. This patent is expected to expire in 2017. Patents protecting theSandostatin LAR formulation in the EU and Japan due to regulatory exclusivities, therehave expired. There is a risk thatcurrently no generic manufacturers may circumvent regulatory exclusivity and gain approval of a combination valsartan-amlodipine productcompetition forSandostatin LAR in Europe. In the US, under a license agreement with a generics manufacturer, the product is expected to face generic competition beginning in October 2014.EU or Japan.



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The patentPatent protection on rivastigmine, the active ingredient inFemaraExelon, has expired andExelon (cancer) expiredcapsules are subject to generic competition in 2011major markets, including the US, Japan and all of Europe. We hold additional patents with respect toExelon Patch, which makes up a substantial portion of ourExelon sales, but generic versions ofExelon Patch are on the market in the US and in major European markets, and generic competitors have launched in those markets.most EU countries.



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The patent on zoledronic acid, the active ingredient inCertain patents and extensions protecting our top-selling products,ZometaAfinitor (cancer), as well as inandReclast/AclastaGilenya (osteoporosis), expired in 2012 in a limited number of smaller markets, and will begin to expire in 2013 in2018 and 2019, and some of the US and in other major markets. However, certain forms or uses ofpatents protecting these products are covered by additional patents with later expiration dates in certain markets.



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The patent on the active ingredient inGleevec/Glivec (cancer) will expire in 2015being challenged in the US, in 2016 in the major EU countries and 2014 in Japan, in each case including extensions. However, the product is protected by additional patents claiming innovative features ofGleevec/Glivec.US.

        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—noteNote 20".

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        In 2013, the2016, we expect an impact of generic competition on our net sales is expected to beof approximately $3.2 billion as much as $3.5 billion.a result of the loss of intellectual property protection for our products, includingGleevec/Glivec. Because we typically have substantially reduced marketing and research and development expenses related to a productproducts that are in itstheir final year of exclusivity, it is expectedwe expect that thethis loss of patentintellectual property protection also will have an impact on our 2016 operating income which can be expected to correspondin an amount corresponding to a significant portion of the product'sproducts' lost sales. The magnitude of such anthe impact of generic competition could depend on a number of factors, including:including the time of year at which such exclusivity would be lost; the ease or difficulty of manufacturing a competitor

product and obtaining regulatory approval to market it; the number of generic competitor products approved, andincluding whether, in the US, a single competitor is granted an exclusive marketing period;period, and whether an authorized generic is launched; and the geographies in which generic competitor products are approved, including the strength of the market for generic pharmaceutical products in such geographies and the comparative profitability of branded pharmaceutical products in such geographies.

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

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

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

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

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

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

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

        Using the products of our Pharmaceuticals Division as an example, the research and development process for a new pharmaceutical product can take up to 15 years, or even longer, from discovery to commercial product launch—and with a limited available patent life,intellectual property protections, the longer it takes to develop a product, the less time there will be for us to recoup our research and development costs. New products need not onlymust undergo intensive preclinical and clinical testing, but alsoand must be approved by means of highly complex, lengthy and expensive approval processes which can vary from country to country. During each stage, there is a substantial risk that we will encounter serious obstacles whichthat will further delay us and add substantial expense, that we will develop a product with limited potential for commercial success, 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 delaysThese risks may include:include failure of the product candidate in preclinical studies;studies, difficulty enrolling patients in clinical trials, or delays or clinical trial holds ator other delays in completing clinical trial sites;trials, delays in completing formulation and other testing and work necessary to support an application for regulatory approval;approval, adverse reactions to the product candidate or indications or other safety concerns;concerns, insufficient clinical trial data to support the safety or efficacy of the product candidate;candidate, an inability to manufacture sufficient quantities of the product candidate for development or commercialization activities in a timely and cost-effective manner;manner, and failure to obtain, or delays in obtaining, the required regulatory approvals for the product candidate or the facilities in which it is manufactured. In addition, FDA and other governmental health authorities have recently begun to intensify their scrutiny of pharmaceutical companies' clinical development activities, both with respect to compliance with regulations related to the conduct of clinical trials, and with respect to their interpretations of the clinical trial requirements necessary to support a product submission. This has added to the obstacles and costs we face in bringing new products to market.

        Our other divisions face similar challenges in developing and bringing to market new products. Alcon's Ophthalmic Pharmaceuticals products, Vaccines and Diagnostics' Vaccine products, and Animal Health products all must be developed and approved in accordance with essentially the same processes as faced by our Pharmaceuticals Division. Nearly all of our other products face similarly difficult

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development and approval processes. At Alcon, management has announced plans to make significant investments in research and development in the coming years to develop new eyecare products to replace sales lost to generic competition and to grow its business. Vaccines and Diagnostics has, and continues to expend considerable time and resources to fully develop and bring to market new vaccines, including two,Menveo andBexsero, to combat different strains of meningococcal disease in patients of a wide range of age groups. Our Animal Health Division seeks to bring new products to market from time to time. If these efforts do not bear significant fruit, they could have a material adverse effect on the medium to long-term success of the divisions, and of the Group as a whole.

        In addition, our Sandoz Division has made, and expects to continue to make, significant investments in the development of differentiated, "difficult-to-make" generic products, including biotechnology-based, "biologic" medicines intended for sale as bioequivalent or "biosimilar" generic versions of currently-marketed biotechnology products. While the development of such products can be significantly less costly and complex than the development of the equivalent originator medicines, it can often be significantly more costly and complex than for non-differentiated generic products. In addition, to date, many countries do not yet have an established legislative or regulatory pathway which would permit biosimilars to be brought to market or sold in a manner in which the biosimilar product would be readily substitutable for the originator product. Significant difficulties in the development of differentiated products, further delays in the development of such regulatory pathways, or any significant impediments that may ultimately be built into such pathways, could put at risk the significant investments that Sandoz has made, and will continue to make, in the development of differentiated products in general, and in its biotechnology operations in particular, and could have a material adverse effect on the long-term success of the Sandoz Division and the Group as a whole.

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

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

        Followingfollowing a series of widely publicized issues, in recent years, health regulators are increasingly focusinghave increased their focus on product safety. The Obama Administration has publicly emphasized the importance of enforcing US drug safety regulations. In addition, governmentalGovernmental authorities and payors around the world have also paid increased attention to the risk/benefit profile of pharmaceutical products with an increasing emphasis on product safety and on examining whether new products offer a significant benefit over olderother products in the same therapeutic class. These developments have led to requests for more clinical trial data, for the inclusion of a significantly higher number of patients in clinical trials, and for more detailed analyses of the trials. As a result, the already lengthy and expensive process of obtaining regulatory approvals and reimbursement for pharmaceutical products has become even more challenging.

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

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

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

        Further, in all of our divisions, our research and development activities must be conducted in an ethical and compliant manner. Among other things, we must be concerned with patient safety, Good Clinical Practices requirements, data integrity requirements, the fair treatment of patients in orderdeveloping countries, and animal welfare requirements. Should we fail to obtain product approvals or reimbursement by government or private payors. We have had REMS and otherproperly manage such requirements imposedissues, we risk injury to third parties, damage to our reputation, negative financial consequences as a conditionresult of approvalpotential claims for damages, sanctions and fines, and the potential that our investments in research and development activities could have no benefit to the Group.

        If we are unable to cost-effectively maintain an adequate flow of successful new products and new indications for existing products sufficient to maintain and grow our new drugs. By increasingbusiness, cover our substantial research and development costs and the costsdecline in sales of older products that become subject to generic or other competition, and causing delays in obtaining approvals,take advantage of technological and by creating an increased risk that products either will not be approved, or will be removed from the market after previously having been approved, these regulatory developments have had, and can be expected to continue tomedical advances, then this could have a material adverse effect on our business, financial condition andor results of operations. For a description of the approval processes which must be followed to market our products, see the sections headed "Regulation" included in the descriptions of our operating divisions under "Item 4. Information on the Company—Item 4.B Business Overview."

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

        The growth of overall healthcare costs as a percentage of gross domestic product in many countries means that governments and payors are under intense pressure to control healthcare spending even more tightly. These pressures are particularly strong given the ongoing effects of the recent globalpersistently weak economic and financial crisis, includingenvironment in many countries and the continuing debt crisisincreasing demand for healthcare resulting from the aging of the global population and the prevalence of behaviors that increase the risk of obesity and other chronic diseases. In addition, in certain countries, in Europe,governments, patients, healthcare providers and the risk of a similar crisis in the US.media are increasingly raising questions about healthcare pricing issues. As a result, our businesses and the healthcare industry in general are operating in an ever more challenging environment with very significant pricing pressures. These ongoing pressures affect all of our businesses that rely on reimbursement—including Pharmaceuticals, Alcon, Sandozdivisions, and Vaccines and Diagnostics—and involve a number of cost-containment measures, such as government-imposed industry-wide price reductions, mandatory pricing systems, reference pricing systems, payors limiting access to innovative medicinestreatments based on cost-benefit analyses, an increase in imports of drugs from lower-cost countries to higher-cost countries, shifting of the payment burden to patients through higher co-payments, limiting physicians' ability to choose among competing medicines, mandatory substitution of generic drugs for the patented equivalent, and growing pressure on physicians to reduce the prescribing of patented prescription medicines. Such initiatives includeFor more information on such price controls see "Item 4. Information on the 2010 enactmentCompany—Item 4.B Business Overview—Pharmaceuticals—Price Controls."

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        As a result of such measures, we faced downward pricing pressures on our patented and generic drugs in countries around the world in 2015. These pressures ranged from efforts by many countries in 2012. For example, in November 2012,governments and proposals by politicians to reduce the UK's National Instituteamounts we would be paid for Healthour medicines, intense publicity regarding the pricing of pharmaceuticals, including publicity and Clinical Excellence (NICE) recommendedpressure resulting from prices charged by competitors and peer companies for new products as well as price increases by competitors and peer companies on older products that the UK National Health Service cease funding the use of our productXolair to treat asthma, on cost-effectiveness grounds, despite a prior 2007 finding by NICE that use ofXolair was cost-effective. Similarly, in November 2011, NICE declined on cost-effectiveness grounds to recommend National Health Service funding of the use of our productLucentis to treat diabetic macular edema, despite the product's having been approved by the relevant health authorities for the indication. Subsequently, in October 2012, NICE reversed its decision, recommending thatLucentis be reimbursed for a limited subset of patients with this condition, but only after we offered NICE a significant discount on pricing. Similarly, depending on the outcome of recently initiated preliminary court proceedings, a Germanpublic deemed excessive, and government agency, theInstitut für Qualität und Wirtschaftlichkeit im Gesundheitswesen (IQWiG), may shortly begin a Health Technology Assessment of our productsGalvus andEucreas for Type 2 Diabetes, which can be a step towards a request that we significantly reduce the prices at which we sell the products. In China, the National Development and Reform Commission imposed a price cut on our Oncology productFemara. In the US, under the Affordable Care Act, there is a newly created entity, the Independent Payment Advisory Board, which has been granted unprecedented authority to implement broad actions to reduce future costs of the Medicare program. This could include required prescription drug discounts or rebates.investigations into pharmaceutical pricing practices.

        We expect these efforts to control costschallenges to continue and possibly increase in 20132016 as political pressures mount, and healthcare payors around the globe, including government-controlled health authorities, insurance companies and managed care organizations, step up initiatives to reduce the overall cost of healthcare, restrict access to higher-priced new medicines, increase the use of generics and impose overall price cuts. For more information on price controls andSuch pressures could have a material adverse impact on our challenging business, environment see "Item 4. Informationfinancial condition or results of operations, as well as on the Company—Item 4.B Business Overview—Pharmaceuticals—Price Controls."

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

        We are obligated to comply with the laws of all of the approximately 140 countries around the world in which we operate and sell products coveringwith respect to an extremely wide and growing range of activities. Such legal requirements can vary from country to country and new requirements may be imposed on us from time to time as government and public expectations regarding acceptable corporate behavior change. For example, there are new laws in the US and in other countries around the world that require us to be more transparent with respect to our interactions with healthcare professionals. To help us in our efforts to comply with the many requirements that end,impact us, we have a significant global ethics and compliance with law program in place.place, and we devote substantial time and resources to efforts to ensure that our business is conducted in a lawful and publicly acceptable manner. Nonetheless, despite our efforts, any actual or alleged failure to comply with law or with heightened public expectations could lead to substantial liabilities that may not be covered by insurance, or to other significant losses, and could affect our business and reputation.

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

        Such proceedings are inherently unpredictable, and large judgments sometimes occur. As a consequence, we may in the future incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations or cash flows.

        In addition, governments and regulatory authorities around the world have been stepping up their compliance and law enforcement activities in recent years in key areas, including corruption, marketing practices, insider trading, antitrust, trade restrictions, embargo legislation and data privacy. Responding to such investigations is costly, and requires an increasing amount of management's time and attention. In addition, such investigations may affect our reputation, create a risk of potential exclusion from government reimbursement programs in the US and other countries, and may lead to litigation. These factors have contributed to recent decisions by us and other companies in our industry, when deemed in their interest, to enter into settlement agreements with governmental authorities around the world prior to any formal decision by the authorities. These settlements have involved and may continue to involve large cash payments, including the potential repayment of amounts allegedly obtained improperly, and other penalties, including treble damages. In addition, such proceedings may affect our reputation, create a risk of potential exclusion from government reimbursement programs in the US and other countries, may lead to civil litigation and otherwise subject us to monetary penalties. Further, judgments and settlements of healthcare fraud cases oftensometimes require companies to enter into corporate integrity or similar agreements, which are intended to regulate company behavior for a period of years. Also, matters underlying governmental investigations and settlements may be the subjectAny such resolutions could have a material adverse impact on our business, financial condition or results of separate private litigation.operations, as well as on our reputation.

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

•

In 2014, the Tokyo District Public Prosecutor Office indicted our Japanese affiliate, Novartis Pharma K.K. (NPKK), as well as a former NPKK employee on certain charges relating to the alleged manipulation of data in certain clinical trials. The charges against NPKK are subject to a maximum total fine of JPY 4 million. Trial in this matter commenced in December 2015. In addition, in February 2015, the Japanese Ministry of Health, Labor and information requestsWelfare (MHLW) issued a business suspension order for failure to report adverse events, which required NPKK to halt manufacturing and sales in Japan for the period from March 5 to 19, 2015. NPKK is implementing a corrective and preventive action plan in response to a business improvement order and instruction issued by regulatory authorities. Seethe MHLW in the fourth quarter of 2015 regarding additional instances of delayed adverse events reporting.



•

In 2013 and 2014, the US government and certain states filed civil charges against our US affiliate, Novartis Pharmaceuticals Corporation (NPC) in federal court in the Southern District of New York, asserting federal False Claims Act and state law claims related to alleged unlawful contractual discounts and rebates to specialty pharmacies in connection with certain of our products. The US government alleged substantial damages, including treble damages and civil penalties of up to $11,000 per claim, which according to the government could exceed $2 billion. In the second half of 2015, NPC reached a settlement with all plaintiffs, including the United States Department of Justice, 45 states (made up of the eleven intervening states, as well as all the other states which were either part of the relator's complaint, or which reimbursed prescriptions ofMyfortic andExjade during the relevant time period), the District of Columbia and the qui tam relator. This resolves all the above-described claims related toMyfortic,Exjade,Tasigna,GleevecandTOBI.As part of the settlement, NPC agreed to pay $390 million plus additional legal expenses to plaintiffs, and agreed with the Office of Inspector General of the US Department of Health & Human Services on an amendment and extension of its current Corporate Integrity Agreement until 2020.

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

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

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

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

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

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

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

        Like many of our competitors, we have faced and continue to face, significant manufacturing issues. For example,issues in November 2011, we received a Warning Letter from the FDA with respect to three of our Sandoz Division's facilities—in Broomfield, Colorado, Wilson, North Carolina, and Boucherville, Canada. The Warning Letter raised concerns regarding these facilities' compliance with FDA cGMP regulations. It stated that until the FDA confirms that the deficiencies have been corrected, the FDA can recommend disapproval of any pending applications or supplements listing Novartis affiliates as a drug manufacturer. In addition, FDA may refuse requests to issue export certificates to our Sandoz US affiliate, or import certificates to our Sandoz Canada affiliates. The letter further states that other federal agencies may take the Warning Letter into account when considering the award of contracts. In the fourth quarter of 2012, Sandoz announced that the FDA upgraded the compliance status of its Broomfield, Colorado site. The division is on track to meet its remediation commitments for the other two sites as well.

        In addition, in December 2011, we suspended operations and shipments from the OTC Division facility located at Lincoln, Nebraska, which also produces certain products for our Animal Health Division. This action was taken to accelerate maintenance and other improvement activities at the site. Subsequently, in January 2012, we recalled certain OTC Division products that were produced at the Lincoln facility. We made progress in 2012 in the remediation of quality issues at Lincoln, and have outsourced the production of certain Lincoln products. However, as of the date of this Form 20-F, it is not possible to determine when the plant will resume significant operations.

        In December 2012, our Alcon Division received an FDA Warning Letter following an inspection at theLenSx laser manufacturing site in Aliso Viejo, California. Alcon has responded in writing to the FDA and is committed to addressing these observations and collaborating with the Agency to ensure that they are fully resolved. The items noted in the Warning Letter do not affect the safety or effectiveness of theLenSx laser, or impact our ability to sell the product.

recent years. As a result of such manufacturing issues, we havewere unable to supply certain products to the market for significant periods of time, and suffered and may continue to suffer significant losses in sales and market share. In addition,October 2015, the FDA issued a warning letter to our Sandoz Division concerning their sites in Kalwe and Turbhe, India, relating to documentation practices in Kalwe and sterile manufacturing practices in Turbhe that were identified during an inspection in August 2014. Though we have been requiredtaken steps to expend considerable resources onrespond to the remediation of the issues at these sites. Should we fail to complete the planned improvements at the sites in agreement with the FDA in a timely manner, then we may suffer significant additional losses in sales and drainage of resources, and we couldwarning letter, there can be subject to legal action without further notice including, without limitation, seizure and injunction.no guarantee that FDA's concerns will be met.

        In addition,order to meet increasing health authority expectations and our own high quality standards, we currently have several other manufacturing sites which are being upgradeddevoting substantial time and resources to address advances in technology,remediate issues, improve quality and assure consistency of product supply either at our own initiative, or in accordance with commitments to FDA and other health authoritiesmanufacturing sites around the world. Such efforts have required us to make significant investments in our production facilities. Ultimately, there can

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be no guarantee of the outcome of any of these matters.efforts. Nor can there be any guarantee that we will not again face similar suchsignificant manufacturing issues, in the future, or that we will successfully manage such issues when they arise.

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

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

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

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

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

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

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

        Current economic conditions may adversely affect the ability of our distributors, customers, suppliers and service providers to obtain the liquidity required to pay for our products, or otherwise to buy necessary inventory or raw materials, and to perform their obligations under agreements with us, which could disrupt our operations, and could negatively impact our business and cash flow. Although we make efforts to monitor these third parties' financial condition and their liquidity, our ability to do so is limited, and some of them may become unable to pay their bills in a timely manner, or may even become insolvent,

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which could negatively impact our business and results of operations. These risks may be elevated with respect to our interactions with third parties with substantial operations in countries where current economic conditions are the most severe, particularly where such third parties are themselves exposed to sovereign riskpayment risks from business interactions directly with fiscally-challenged government payers. See also "—Our reliance on outsourcing and third parties for the performance of key business functions heightens the risks faced by our businesses" below.

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

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

        To the extent that the economic and financial crisis isconditions directly affectingaffect consumers, some of our businesses, including the elective surgical business of our Alcon Division, and our OTC and Animal Health Divisions, may be particularly sensitive to declines in consumer spending. In addition, our Pharmaceuticals Vaccines and Diagnostics, and Sandoz Divisions, and the remaining businesses of our Alcon Division, may not be immune to consumer cutbacks, particularly given the increasing requirements in certain countries that patients pay a larger contribution toward their own healthcare costs. As a result, there is a risk that consumers may cut back on prescription drugs and vaccines, as well as consumer health products,medical devices to help cope with rising costs and difficult economic times.

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

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

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

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

        In 2015, the US dollar continued its significant increase in value against other worldmost currencies. In particular, the average value of the euro, the Japanese yen and emerging market currencies (especially the ruble) decreased in 2015 against the US dollar. However, in January 2015, following an announcement by the prior year,Swiss National Bank that it was discontinuing its minimum exchange rate with the US dollar suffered significant decreases in value. In addition, in recent years, unresolved fiscal issues ineuro, the US and in many European economies, and investor concerns about the future of the Euro, have led to the flight of investor capital to the perceived safetyvalue of the Swiss franc causingincreased substantially. In addition, in 2015, China took steps to devalue its currency, and the Swiss francvalue of its currency against the US dollar has continued to risedecline.

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

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

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expenditures in Swiss francs whichthat are significantly higher than our revenues in Swiss francs, thissuch exchange rate volatility can have a significantmay negatively and often unpredictablematerially impact on our reported net salesthe Group's business, results of operations and earnings. In 2012, 36% of our net sales were made in US dollars, 25% in euros, 9% in Japanese yen, 2% in Swiss francsfinancial condition, and 28% in other currencies. During the same period, 39% of our expenses arose in US dollars, 25% in euros, 13% in Swiss francs, 5% in Japanese yen and 18% 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 as expressed in US dollars. Fluctuations in exchange rates between the US dollar and other currencies may also affectimpact the reported value of our net sales, earnings, assets measured in US dollars and the components of shareholders' equity.liabilities. In addition, there isthe timing and extent of such volatility can be difficult to predict. Further, depending on the movements of particular foreign exchange rates, the Group may be materially adversely affected at a risk that certain countries could devalue their currency. If this occurs then it could impacttime when the effective prices we would be able to charge forsame currency movements are benefiting some of our

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products and also have an adverse impact on both our consolidated income statement and currency translation adjustments included in our consolidated 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.A5. Operating Results—and Financial Review and Prospects—Item 5.B Liquidity and Capital Resources—Effects of Currency Fluctuations" "Item 11. Quantitative and Qualitative Disclosures about Market Risk", and "Item 18. Financial Statements—note 16.Note 29."

We may not successfully completeachieve our goals in strategic transactions or reorganizations, including the portfolio transformation transactions, the strategic reorganizations we announced in January 2016, and integrate strategic acquisitions to expand or complement our business.the formation of Novartis Business Services.

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

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

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

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

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

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

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

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

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

        We regularly review our long-lived intangible and tangible assets, including identifiable intangible assets, investments in associated companies and goodwill, for impairment. Goodwill, acquired research and development, and acquired development projects not yet ready for use are subject to impairment review at least annually. Other long-lived assets are reviewed for impairment when there is an indication that an impairment may have occurred. Impairment testing under IFRS may lead to impairment charges in the future. Any significant impairment charges could have a material adverse effect on our results of operations and financial condition. In 2012,2015, for example, we recorded intangible asset impairment charges of $286$347 million. These relate to impairment charges of $211 million for various impairment charges in the Pharmaceuticals Division and $75 million in all other divisions. For a detailed discussion of how we determine whether an impairment has occurred, what factors could result in an impairment and the increasing impact of impairment charges on our results of operations, see "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Critical Accounting Policies and Estimates—Impairment of Long-LivedGoodwill, Intangible Assets and Tangible Assets"Property, Plant and Equipment" and "Item 18. Financial Statements—noteNotes 1 and 11."