Use these links to rapidly review the document
TABLE OF CONTENTSPartPART III
NOVARTIS GROUP INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
OR | ||
ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, | |
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
OR | ||
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-15024
NOVARTIS AG
(Exact name of Registrant as specified in its charter)
NOVARTIS Inc.
(Translation of Registrant's name into English)
Switzerland
(Jurisdiction of incorporation or organization)
Lichtstrasse 35
4056 Basel, Switzerland
(Address of principal executive offices)
Felix R. Ehrat
Group General Counsel
Novartis AG
CH-4056 Basel
Switzerland011-41-61-696-9511Tel.: 011-41-61-324-1111felix.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:
Title of class | Name of each exchange on which registered | |
---|---|---|
American Depositary Shares each representing 1 share Ordinary shares, nominal value CHF 0.50 per | New York Stock Exchange New York Stock Exchange* |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:
2,420,620,1742,373,894,817 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:
| | | ||
---|---|---|---|---|
o U.S. GAAP | ý International Financial Reporting Standards as issued by the International Accounting Standards Board | o Other |
If "Other" has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 o Item 18 o
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No ý
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).
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.
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
Table of Contentscredit rating.
the near-term or in the long-term. In particular, management's expectations could be affected by, among other things, things:
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.
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
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.
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2009 | 2008 | 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||||||
| ($ millions, except per share information) | ($ millions, except per share information) | ||||||||||||||||||||||||||||||
INCOME STATEMENT DATA | ||||||||||||||||||||||||||||||||
Net sales from continuing operations | 56,673 | 58,566 | 50,624 | 44,267 | 41,459 | |||||||||||||||||||||||||||
Net sales to third parties from continuing operations | 49,414 | 52,180 | 51,869 | 51,080 | 51,939 | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Operating income from continuing operations | 11,511 | 10,998 | 11,526 | 9,982 | 8,964 | 8,977 | 11,089 | 10,983 | 11,507 | 10,293 | ||||||||||||||||||||||
Income from associated companies | 552 | 528 | 804 | 293 | 441 | 266 | 1,918 | 599 | 549 | 526 | ||||||||||||||||||||||
Interest expense | (724 | ) | (751 | ) | (692 | ) | (551 | ) | (290 | ) | (655 | ) | (704 | ) | (683 | ) | (724 | ) | (751 | ) | ||||||||||||
Other financial (expense)/income | (96 | ) | (2 | ) | 64 | 198 | 384 | |||||||||||||||||||||||||
Other financial income and expense | (454 | ) | (31 | ) | (92 | ) | (96 | ) | (2 | ) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Income before taxes from continuing operations | 11,243 | 10,773 | 11,702 | 9,922 | 9,499 | 8,134 | 12,272 | 10,807 | 11,236 | 10,066 | ||||||||||||||||||||||
Taxes | (1,625 | ) | (1,528 | ) | (1,733 | ) | (1,468 | ) | (1,336 | ) | (1,106 | ) | (1,545 | ) | (1,498 | ) | (1,706 | ) | (1,381 | ) | ||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Net income from continuing operations | 9,618 | 9,245 | 9,969 | 8,454 | 8,163 | 7,028 | 10,727 | 9,309 | 9,530 | 8,685 | ||||||||||||||||||||||
Net income from discontinued operations | 70 | |||||||||||||||||||||||||||||||
Net income/(loss) from discontinued operations | 10,766 | (447 | ) | (17 | ) | (147 | ) | 387 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Group net income | 9,618 | 9,245 | 9,969 | 8,454 | 8,233 | 17,794 | 10,280 | 9,292 | 9,383 | 9,072 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||||||||
Shareholders of Novartis AG | 9,505 | 9,113 | 9,794 | 8,400 | 8,195 | 17,783 | 10,210 | 9,175 | 9,270 | 8,940 | ||||||||||||||||||||||
Non-controlling interests | 113 | 132 | 175 | 54 | 38 | 11 | 70 | 117 | 113 | 132 | ||||||||||||||||||||||
Operating income from discontinued operations | 70 | |||||||||||||||||||||||||||||||
Basic earnings per share ($): | ||||||||||||||||||||||||||||||||
—Continuing operations | 3.93 | 3.83 | 4.28 | 3.70 | 3.59 | |||||||||||||||||||||||||||
—Discontinued operations | 0.03 | |||||||||||||||||||||||||||||||
—Total | 3.93 | 3.83 | 4.28 | 3.70 | 3.62 | |||||||||||||||||||||||||||
Diluted earnings per share ($): | ||||||||||||||||||||||||||||||||
—Continuing operations | 3.89 | 3.78 | 4.26 | 3.69 | 3.56 | |||||||||||||||||||||||||||
—Discontinued operations | 0.03 | |||||||||||||||||||||||||||||||
—Total | 3.89 | 3.78 | 4.26 | 3.69 | 3.59 | |||||||||||||||||||||||||||
Basic earnings per share ($) | ||||||||||||||||||||||||||||||||
Continuing operations | 2.92 | 4.39 | 3.76 | 3.89 | 3.59 | |||||||||||||||||||||||||||
Discontinued operations | 4.48 | (0.18 | ) | 0.00 | (0.06 | ) | 0.16 | |||||||||||||||||||||||||
Total | 7.40 | 4.21 | 3.76 | 3.83 | 3.75 | |||||||||||||||||||||||||||
Diluted earnings per share ($) | ||||||||||||||||||||||||||||||||
Continuing operations | 2.88 | 4.31 | 3.70 | 3.85 | 3.54 | |||||||||||||||||||||||||||
Discontinued operations | 4.41 | (0.18 | ) | 0.00 | (0.06 | ) | 0.16 | |||||||||||||||||||||||||
Total | 7.29 | 4.13 | 3.70 | 3.79 | 3.70 | |||||||||||||||||||||||||||
Cash dividends(1) | 6,030 | 5,368 | 4,486 | 3,941 | 3,345 | 6,643 | 6,810 | 6,100 | 6,030 | 5,368 | ||||||||||||||||||||||
Cash dividends per share in CHF(2) | 2.30 | 2.25 | 2.20 | 2.10 | 2.00 | 2.70 | 2.60 | 2.45 | 2.30 | 2.25 |
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2009 | 2008 | 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||||||
| ($ millions) | ($ millions) | ||||||||||||||||||||||||||||||
BALANCE SHEET DATA | ||||||||||||||||||||||||||||||||
Cash, cash equivalents and marketable securities & derivative financial instruments | 8,119 | 5,075 | 8,134 | 17,449 | 6,117 | 5,447 | 13,862 | 9,222 | 8,119 | 5,075 | ||||||||||||||||||||||
Inventories | 6,744 | 5,930 | 6,093 | 5,830 | 5,792 | 6,226 | 6,093 | 7,267 | 6,744 | 5,930 | ||||||||||||||||||||||
Other current assets | 13,141 | 13,079 | 12,458 | 10,412 | 8,972 | 11,172 | 10,805 | 13,294 | 13,141 | 13,079 | ||||||||||||||||||||||
Non-current assets | 96,212 | 93,412 | 96,633 | 61,814 | 57,418 | 108,711 | 87,826 | 95,712 | 96,187 | 93,384 | ||||||||||||||||||||||
Assets related to discontinued operations | 6,801 | 759 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Total assets | 124,216 | 117,496 | 123,318 | 95,505 | 78,299 | 131,556 | 125,387 | 126,254 | 124,191 | 117,468 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Trade accounts payable | 5,593 | 4,989 | 4,788 | 4,012 | 3,395 | 5,668 | 5,419 | 6,148 | 5,593 | 4,989 | ||||||||||||||||||||||
Other current liabilities | 18,458 | 18,159 | 19,870 | 15,458 | 13,109 | 18,040 | 19,136 | 20,170 | 18,458 | 18,159 | ||||||||||||||||||||||
Non-current liabilities | 30,946 | 28,408 | 28,891 | 18,573 | 11,358 | 30,726 | 27,570 | 25,414 | 30,877 | 28,331 | ||||||||||||||||||||||
Liabilities related to discontinued operations | 2,418 | 50 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Total liabilities | 54,997 | 51,556 | 53,549 | 38,043 | 27,862 | 54,434 | 54,543 | 51,782 | 54,928 | 51,479 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Issued share capital and reserves attributable to shareholders of Novartis AG | 69,093 | 65,844 | 63,196 | 57,387 | 50,288 | 77,046 | 70,766 | 74,343 | 69,137 | 65,893 | ||||||||||||||||||||||
Non-controlling interests | 126 | 96 | 6,573 | 75 | 149 | 76 | 78 | 129 | 126 | 96 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Total equity | 69,219 | 65,940 | 69,769 | 57,462 | 50,437 | 77,122 | 70,844 | 74,472 | 69,263 | 65,989 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Total liabilities and equity | 124,216 | 117,496 | 123,318 | 95,505 | 78,299 | 131,556 | 125,387 | 126,254 | 124,191 | 117,468 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Net assets | 69,219 | 65,940 | 69,769 | 57,462 | 50,437 | 77,122 | 70,844 | 74,472 | 69,263 | 65,989 | ||||||||||||||||||||||
Outstanding share capital | 909 | 895 | 832 | 825 | 820 | 890 | 898 | 912 | 909 | 895 | ||||||||||||||||||||||
Total outstanding shares (millions) | 2,421 | 2,407 | 2,289 | 2,274 | 2,265 | 2,374 | 2,399 | 2,426 | 2,421 | 2,407 |
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.
Year Earned | Month and Year Paid | Total Dividend per share (CHF) | Total Dividend per share ($) | ||||||
---|---|---|---|---|---|---|---|---|---|
2008 | February 2009 | 2.00 | 1.72 | ||||||
2009 | March 2010 | 2.10 | 1.95 | ||||||
2010 | March 2011 | 2.20 | 2.37 | ||||||
2011 | March 2012 | 2.25 | 2.48 | ||||||
2012(1) | March 2013 | 2.30 | 2.51 | (2) |
Year Earned | Month and Year Paid | Total Dividend per share (CHF) | Total Dividend per share ($) | ||||||
---|---|---|---|---|---|---|---|---|---|
2011 | March 2012 | 2.25 | 2.48 | ||||||
2012 | March 2013 | 2.30 | 2.44 | ||||||
2013 | March 2014 | 2.45 | 2.76 | ||||||
2014 | March 2015 | 2.60 | 2.67 | ||||||
2015(1) | March 2016 | 2.70 | 2.73 | (2) |
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.$0.998.
Year ended December 31, ($ per CHF) | Period End | Average(1) | Low | High | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 | 0.94 | 0.93 | 0.82 | 1.02 | |||||||||
2009 | 0.97 | 0.92 | 0.84 | 1.00 | |||||||||
2010 | 1.06 | 0.96 | 0.86 | 1.07 | |||||||||
2011 | 1.06 | 1.13 | 1.06 | 1.25 | |||||||||
2012 | 1.09 | 1.07 | 1.02 | 1.12 | |||||||||
Month | |||||||||||||
August 2012 | 1.02 | 1.05 | |||||||||||
September 2012 | 1.04 | 1.08 | |||||||||||
October 2012 | 1.06 | 1.08 | |||||||||||
November 2012 | 1.05 | 1.08 | |||||||||||
December 2012 | 1.07 | 1.10 | |||||||||||
January 2013 (through January 17, 2013) | 1.07 | 1.10 |
Year ended December 31, ($ per CHF) | Period End | Average(1) | Low(2) | High(2) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2011 | 1.06 | 1.13 | 1.06 | 1.25 | |||||||||
2012 | 1.09 | 1.07 | 1.02 | 1.12 | |||||||||
2013 | 1.12 | 1.08 | 1.05 | 1.12 | |||||||||
2014 | 1.01 | 1.09 | 1.01 | 1.13 | |||||||||
2015 | 1.01 | 1.04 | 0.97 | 1.08 | |||||||||
Month | |||||||||||||
August 2015 | 1.02 | 1.07 | |||||||||||
September 2015 | 1.02 | 1.04 | |||||||||||
October 2015 | 1.01 | 1.05 | |||||||||||
November 2015 | 0.97 | 1.01 | |||||||||||
December 2015 | 0.97 | 1.02 | |||||||||||
January 2016 (through January 20, 2016) | 0.99 | 1.01 |
3.B Capitalization and Indebtedness
Not applicable.
3.C Reasons for the offer and use of proceeds
Not applicable.
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.
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.
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.
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".
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
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
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.
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."
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."
Table of Contentsour reputation.
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.
Our businesses are currentlyand have been subject to a number of these types of cases and governmental investigations, including the following:
A number of significant legal matters remain pending against us. For more detail see "Item 18. Financial Statements—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.
Table of Contentsreputation.
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
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
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.
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,
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
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
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
Table of Contents competitors.
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
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."
Our indebtedness could adversely affect our operations.
As of December 31, 20122015 we had $13.8$16.3 billion of non-current financial debt and $5.9$5.6 billion of current financial debt. Our current and futurelong-term debt requires us to dedicate a portion of our cash flow to service interest and principal payments and, if interest rates rise, this amount may increase. In addition, our
existing debt may limit our ability to engage in other transactions andor otherwise may place us at a competitive disadvantage relative to our competitors that have less debt. We may also have difficulty refinancing our existing debt or incurring new debt on terms that we would consider to be commercially reasonable, if at all.
Our reliance on outsourcing and third parties for the performance of key business functions heightens the risks faced by our businesses.
We invest a significant amount of effort and resources into outsourcing and offshoring certain key business functions with third parties, including research and development collaborations, manufacturing operations, warehousing, distribution activities, certain finance functions, marketing activities, data management and others. DespiteOur reliance on outsourcing and third parties for certain functions, such as the research and development or manufacturing of products, may limit the potential profitability of such products. In addition, despite contractual relationships with the third parties to whom we outsource these functions, we cannot ultimately control how they perform their contracts. Nonetheless, we depend on these third parties to achieve results which may be significant to us. If the third parties fail to meet their obligations or to comply with the law, we may lose our investment in the collaborations and fail to receive the expected benefits. In addition, should any of these third parties fail to comply with the law in the course of their performance of services for us, there is a risk that we could be held responsible for such violations of law, as well.well and that our reputation may suffer. Any such failures by third parties could have a material adverse effect on our business, financial condition, or results of operations.operations or reputation.
In particular, in many countries, including many less-developeddeveloping markets, we rely heavily on third party distributors and other agents for the marketing and distribution of our products. Many of these third parties do not have internal compliance resources comparable to those within our organization. Some of these countries are plagued by corruption. If our efforts to screen our third party agents and detect cases of potential misconduct fail, we could be held responsible for the noncompliance of these third parties with applicable laws and regulations, which may have a material adverse effect on our reputation and on our business, financial condition or results of operations.
We may not be able to realize the expected benefits of our significant investments in Emerging Growth Markets.
At a time of slowing growth in sales of healthcare products in industrialized countries, many emerging markets have in recent years experienced comparatively strong economies, leading to proportionately higher sales growth and an increasing contribution to the industry's global performance. In 2012, we2015, our Continuing Operations generated $13.8$12.4 billion, or approximately 24% (2011: 24%25% (2014: 26%) of our net sales from Emerging Growth Markets—which includecomprise all markets exceptother than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand and Japan—Zealand—as compared with $42.8$37.0 billion, or approximately 76% (2011: 76%75% (2014: 74%) of our net sales, in the Established Markets. However, combined net sales in the Emerging Growth Markets grew 5.9%7% in constant currencycurrencies in 2012,2015, compared to -1.7%4% sales growth in constant currencycurrencies in the Established Markets during the same period. As a result of this trend, we have been takingcontinue to take steps to increase our presenceactivities in the Emerging Growth Markets. For example, in order to bolster our ability to recruit and train commercial associates in China, we have created the Novartis China University to systematically train all Novartis commercial associates in the science of the Novartis medicines for which they are responsible. In Russia, we are working with the Yaroslavl region northeast of Moscow,Markets, and have establishedbeen making significant investments in our businesses in those countries.
In the past year, however, certain of these Emerging Growth Market countries, including Brazil, India, China and Russia, have experienced economic slowdowns. As a new Regional Hypertension Center and a public education campaign. Three pilot sites now offer hypertension intervention tools. In addition, we are also focusing our efforts on Africa, where we expect rising demand for healthcare.
There isresult, there can be no guarantee that our efforts to expand our sales in these countries will succeed, or that these countries will continue toonce again experience growth rates significantly in excess of the world's largest markets. SomeIn particular, some Emerging Growth Market countries may be especially vulnerable to the effects of the ongoingpersistently weak global financial crisis, orenvironment, may have very limited resources to spend on healthcare.healthcare or may be susceptible to political and social instability. See "—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" above. Many of these countries are subject to increasing political and social pressures, including
from a growing middle class seeking increased access to healthcare. Such pressures on local government may in turn result in an increased focus by the governments on our pricing, and may put at risk our intellectual property. See "—Our business is increasingly affected by pressures on pricing for our products," and "Our products face important patent expirations and significant competition" above.
These countries also may have a relatively limited number of persons with the skills and training suitable for employment at an enterprise such as ours. See "—An inability to attract and retain qualified personnel could adversely affect our business" below. In some Emerging Growth Market countries, a culture of compliance with law may not be as fully developed as in the Established Markets—China's investigations of the activities of multinational healthcare companies, for example, have been well publicized—standards of acceptable behavior may be lower than such standards in Established Markets, or we may be required to rely on third-party agents, in eithereach case putting us at risk of liability.liability and reputational damage. See "—LegalFailure to comply with law, and resulting investigations and legal proceedings may have a significant
negative effect on our results of operations," and "—Our reliance on outsourcing and third parties for the performance of key business functions heightens the risks faced by our businesses," above.
In addition, many of these countries have currencies that may fluctuate substantially. If these currencies devalue significantly against the US dollar, dollar—as happened in China and Russia, among others, in the past year—and we cannot offset the devaluations with price increases, then our products may become less profitable.profitable, or may otherwise impact our reported financial results. Currency devaluation risk may also exist in countries with high inflation economies. Should these countries take steps that cause their currencies to be devalued, we may realize a significant financial loss. See "—The persistently weak global economic and financial environment in many countries and increasing political and social instability may have a material adverse effect on our results" and "—Foreign exchange fluctuations may adversely affect our earnings and the value of some of our assets," above. Ongoing conditions in such high inflation countries could continue to lead to further devaluations of their currencies, which could in turn result in significant additional financial losses to the Group in the future.
For all these reasons, our sales to Emerging Growth Markets carry significant risks. A failure to continue to expand our business in Emerging Growth Markets could have a material adverse effect on our business, financial condition or results of operations.
Failure to obtain marketing exclusivity periods for new generic products, or to develop biosimilars and other differentiated products, as well as intense competition from patented and generic pharmaceuticals companies, may have an adverse effect on the success of our Sandoz Division.
Our Sandoz Division achieves significant revenue opportunities when it secures and maintains exclusivity periods granted for generic products in certain markets—particularly the 180-day exclusivity period granted in the US by the Hatch-Waxman Act—Act for first-to-file generics—and when it is able to develop biosimilars and other differentiated products with few, if any, generic competitors. Failure to obtain and maintain these market opportunities could have an adverse effect on the success of Sandoz.
In addition, the division faces intense competition from companies that market patented pharmaceuticals companies,pharmaceutical products, which commonlysometimes take aggressive steps to prevent or delay the introduction of generic medicines, to limit the availability of exclusivity periods or to reduce their value, and from other generic pharmaceuticals companies, which aggressively compete for exclusivity periods and for market share of generic products whichthat may be identical to certain of our generic products. These activities may increase the costs and risks associated with our efforts to introduce generic products and may delay or entirely prevent their introduction.
Sandoz has also invested heavily in the development of biosimilar drugs, despite the fact that regulations concerning their marketing and sale in certain countries, including in the US, are still under development or not entirely clear. If, despite ongoing efforts by us and others to encourage the
development of such regulations, such regulations do not ultimately favor the development and sale of biosimilar products, then we may fail to achieve expected returns on the investments by Sandoz in the development of biosimilars. See also "—Our research and development efforts may not succeed in bringing new products to market, or may fail to do so cost-efficiently enough, or in a manner sufficient to grow our business and replacedreplace lost revenues and income" above, with regard to the risks involved in our efforts to develop differentiated generic products.
If any of numerous key assumptions and estimates in calculating our pension plan obligations turn out to be different from our actual experience, we may be required to increase substantially our contributions to pension plans as well as the amount we pay toward pension-related expenses in the future.
We sponsor pension and other post-employment benefit plans in various forms. These plans cover a significant portion of our current and former associates. WeWhile most of our plans are now defined contribution plans, certain of our associates remain under defined benefits plans. For these defined benefits plans, we are required to make significant assumptions and estimates about future events in calculating the present value of expected future expenseexpenses and liabilityliabilities related to these plans. These include assumptions aboutused to determine the discount rates we apply to estimated future liabilities and rates of future compensation increases. In addition, our actuarial consultants provide our management with historical statistical information such as withdrawal and mortality rates in connection with these estimates. Assumptions and estimates used by Novartis may differ materially from the actual results we experience due to changing market and economic conditions (including the effects of the ongoingpersistently weak global economic and debt crisis,financial environment, which, to date, have resulted in extremely low or negative interest rates)rates in many countries), higher or lower withdrawal rates, or longer or shorter life spans of participants, among other variables. For example, a decrease in the discountinterest rate we apply in determining the present value of expected future defined benefit obligations of one-quarter of one percent would have increased our year-end defined benefit pension obligation for plans in Switzerland, US, UK, Germany and Japan, which represent about 95% of the Group total defined benefit pension obligation, by $838 million.$0.8 billion. Any differences between our assumptions and estimates and our actual experience could have a material effect on our results of operations and financial condition. Further, additional employer contributions might be required if theplan funding level determined based on local rules falls below a pre-determined level.the levels required by local rules. For more information on obligations under retirement and other post-employment benefit plans and underlying actuarial assumptions, see "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Critical Accounting Policies and Estimates—Retirement and
other post-employment benefit plans" and "Item 18. Financial Statements—noteNote 25". See also "—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" above.
Changes in tax laws or their application could adversely affect our results of operations.
The integrated nature of our worldwide operations enables us to achieve an attractive effective tax rate on our earnings because a portion of our earnings are earned in jurisdictions whichthat tax profits at more favorable rates. ChangesIn recent years, tax authorities around the world have increased their scrutiny of company tax structures, and have become more rigid in exercising any discretion they may have. As a result, companies' flexibility to optimally structure their organizations for business and tax purposes may be significantly reduced. In addition, the public is increasingly taking an interest in what the tax burden of multinational companies should be. Any changes in tax laws or in the laws' application that may result from this, including with respect to tax base or rate, transfer pricing, intercompany dividends and cross-border transactions, controlled corporations, and limitations on tax relief allowed on the interest on intercompany debt, could increase our effective tax rate and adversely affect our financial results.
Our OTC Division faces adverse impacts from increased competition, as well as potential questionsTable of safety and efficacy.Contents
Our OTC Division sells over-the-counter medicines, many of which contain ingredients also sold by competitors in the OTC industry. Particularly in the US, our branded OTC products compete against "store brand" products that are made with the same active ingredients as ours. These products do not carry our trusted brand names, but they also do not carry the burden of the expensive advertising and marketing that helped to establish demand for the product. As a result, the store brand products may be sold at lower prices. In recent years, consumers have increasingly begun to purchase store brand OTC products instead of branded products. In addition, in recent years, significant questions have arisen regarding the safety, efficacy and potential for misuse of certain products sold by our OTC Division and its competitors. As a result, health authorities around the world have begun to re-evaluate some important over-the-counter products, leading to restrictions on the sale of some of them and even the banning of certain products. For example, in 2010, the FDA undertook a review of one cough medicine ingredient to consider whether over-the-counter sales of the ingredient remained appropriate. While FDA has not, to date, changed the ingredient's status, further regulatory or legislative action may follow, and litigation has often followed actions such as these, particularly in the US. Additional actions and litigation regarding OTC products are possible in the future. These trends have had, and may continue to have, a significant adverse effect on the success of our OTC Division. See also "—The continuing economic and financial crisis may have a material adverse effect on our results" above.
Counterfeit versions of our products could harm our patients and reputation.
Our industry has been increasinglycontinues to be challenged by the vulnerability of distribution channels to illegal counterfeiting and the presence of counterfeit products in a growing number of markets and over the Internet. Counterfeit products are frequently unsafe or ineffective, and can potentially be potentially life-threatening. To distributors and patients, counterfeit products may be visually indistinguishable from the authentic version. Reports of adverse reactions to counterfeit drugs or increased levels of counterfeiting could materially affect patient confidence in the authentic product, and harm the business of companies such as ours. Additionally,ours or lead to litigation. In addition, it is possible that adverse events caused by unsafe counterfeit products wouldcould mistakenly be attributed to the authentic product. If a product of ours was the subject of counterfeits, we could incur substantial reputational and financial harm in the longer term.harm.
Ongoing consolidation among our distributors may increaseand retailers is increasing both the purchasing leverage of key customers and the concentration of credit risk.
Increasingly, a significant portion of our global sales are made to a relatively small number of 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 10%14%, 9%11% and 8%5%, respectively, of Group net sales in 2012.2015. The largest trade receivables outstanding were for these three customers, amounting to 8%13%, 7%9% and 6%, respectively, of the Group's trade receivables at December 31, 2012.2015. The
trend has been toward further consolidation among our distributors especiallyand retailers, both in the US.US and internationally. As a result, our distributorscustomers are gaining additional purchasing leverage, which increases the pricing pressures facing our businesses. Moreover, we are exposed to a concentration of credit risk as a result of this concentration among our customers. If one or more of our major customers experienced financial difficulties, the effect on us would be substantially greater than in the past. This could have a material adverse effect on our business, financial condition and results of operations.
An inability to attract and retain qualified personnel could adversely affect our business.
We highly depend upon skilled personnel in key parts of our organization, and we invest heavily in recruiting, training and trainingretaining qualified individuals. The loss of the service of key members of our organization—particularlyincluding senior members of our scientific and management teams—teams, high-quality researchers and development specialists, and skilled personnel in emerging markets—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 willhas 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.
EmergingIn particular, emerging markets are expected to be a driving force in global growth, but in countries like Russia and China there is a limited pool of executives with the training and international experience needed to work successfully in a global organization like Novartis.
In addition, shifting demographic trends are expected to result in fewer students, fewer graduates and fewer people entering the workforce in the Western world in the next 10 years. Moreover, many members of younger generations around the world have changing expectations toward careers, engagement and the integration of work in their overall lifestyles. Geographic
The supply of talent for certain key functional and leadership positions is decreasing, and a talent gap is visible for some professions and geographies—engineers in Germany, for example. Recruitment is increasingly regional or global in specialized fields such as clinical development, biosciences, chemistry and information technology. In addition, the geographic mobility of talent is expected to decrease in the future, with talented individuals in developed and talent in emerging countries anticipateanticipating ample career opportunities closer to home than in the past. This decrease in mobility may be worsened by anti-immigrant sentiments in many countries, and laws discouraging immigration.
In addition, our ability to hire qualified personnel also depends on the flexibility to reward superior performance and to pay competitive compensation. Laws and regulations on executive compensation,
including legislative proposalslegislation in our home country, Switzerland, may restrict our ability to attract, motivate and retain the required level of qualified personnel.
We face intense competition for an increasingly limited pool of qualified individuals from numerous pharmaceutical and biotechnology companies, universities, governmental entities, and other research institutions.institutions, other companies seeking to enter the healthcare space, and companies in other industries. As a result, despite significant efforts on our part, we may be unable to attract and retain qualified individuals in sufficient numbers, which wouldcould have an adverse effect on our business, financial condition and results of operations.
Environmental liabilities may adversely impact our resultsSignificant breaches 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,data security 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."
Significant disruptions of information technology systems, including by cyber-attack or other security breach, and breaches of data securitythe privacy rights of third parties could adversely affect our business.
Our business is increasinglyheavily dependent on critical, complex and interdependent information technology systems, including Internet-based systems, to support business processesprocesses. In addition, Novartis and our employees rely on internet and social media tools and mobile technologies as wella means of communications, and to gather information. We are also increasingly seeking to develop technology-based products such as internalmobile applications that go "beyond the pill" to improve patient welfare in a variety of ways, which could result in us gathering information about patients and external communications.others electronically.
The size and complexity of our computerinformation technology systems, and, in some instances, their age, make them potentially vulnerable to breakdown,external or internal security breaches, breakdowns, malicious intrusionintrusions malware, misplaced or lost data, programming or human errors, or other similar events. Although we have devoted and computer viruses, which may resultcontinue to devote significant resources and management attention to the protection of our data and information technology, like many companies, we have experienced such events and expect to continue to experience them in the impairment of production and key business processes.
In addition, our systems are potentially vulnerable to data security breaches—whether by employees or others—which may expose sensitive data to unauthorized persons. Suchfuture. We believe that the data security breaches could leadwe have experienced to the lossdate have not resulted in significant disruptions to our operations, and will not have a significant adverse effect on our current or future results of trade secretsoperations. However, we may not be able to prevent breakdowns or other intellectual property, or could lead to the public exposure of personal information (including sensitive personal information) ofbreaches in our employees, clinical trial patients, customers and others.
Such disruptions and breaches of securitysystems that could have a material adverse effect on our business, financial condition, and results of operations.operation or reputation.
Increasing Any such events could negatively impact important business processes, such as the conduct of scientific research and clinical trials, the submission of the results of such efforts to health authorities in support of requests for product approvals, the functioning of our manufacturing and supply chain processes, our compliance with legal obligations and other key business activities. Such potential information technology issues could lead to the loss of important information such as trade secrets or other intellectual property and could accelerate development or manufacturing of competing products by third parties. In addition, malfunctions in software or devices that make significant use of information technology, including our Alcon surgical equipment, could lead to a risk of harm to patients.
Our use of information technologies, including internet, social media, and mobile technologies, and technology-based medical devices, as well as other routine business operations, sometimes involve our gathering personal information (including sensitive personal information) regarding our patients, vendors, customers, employees, collaborators and others. Breaches of our systems or other failures to protect such information could expose the personal information of third parties to unauthorized persons. Any such information or other privacy breaches could give rise to significant potential liability or breachesand reputational harm. In addition, we make substantial efforts to ensure that any international transfers of personal data security.are done in compliance with applicable law. Any restrictions that may be placed on our ability to transfer such data could have a material adverse effect on our business, financial condition, results of operations and reputation.
Novartis and our associates are increasingly relying on social media tools and mobile technologies as a means of communications. ToIn addition, to the extent that we seek as a company to use theseinternet, social media and mobile tools as a means to communicate with the public about our products or about the diseases our products are intended to treat, there arecontinue to be significant uncertainties as to the rules that apply to such
communications, and as to the interpretations that health authorities will apply in this context to the rules that do exist. As a result, despite our efforts to comply with applicable rules, there is a significant risk that our use of social media and mobile technologies for such purposes may cause us to nonetheless be found in violation of them. In addition, because
Any such breaches of the universal availability of social media tools and mobile technologies, our associates may use them in ways that may not be sanctioned by the company, and which maydata security or information technology disruptions or privacy violations could give rise to liability, or which could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information, (including sensitive personal information) ofand to interruptions to our employees, clinical trial patients, customersoperations, and others.could result in liability or enforcement actions, which could require us to expend significant resources to continue to modify or enhance our protective measures and to remediate any damage. Such uses of social media and mobile technologiesevents could have a material adverse effect on our business, reputation, financial condition, results of operations and reputation.
Environmental liabilities may adversely impact our results of operations.
The environmental laws of various jurisdictions impose actual and potential obligations on us to remediate contaminated sites, in some cases over many years. While we have set aside substantial provisions for worldwide environmental liabilities, there is no guarantee that additional costs will not be incurred beyond the amounts for which we have provided in the Group consolidated financial statements. If environmental contamination caused by us adversely impact third parties, if we fail to properly manage the safety of our facilities and the environmental risks, or if we are required to further increase our provisions for environmental liabilities in the future, this could have a material adverse effect on our business, financial condition, results of operations, and on our reputation. See also "Item 4.D Property, Plants and Equipment—Environmental Matters" and "Item 18. Financial Statements—Note 20."
Climate changeExtreme weather events, earthquakes and earthquakesother natural disasters could adversely affect our business.
In recent years, extreme weather events and changing weather patterns such as storms, flooding, drought, and temperature changes, appear to have become more common. We operate in countries around the world. As a result, we are potentially exposed to varying natural disaster or extreme weather risks as alike hurricanes, tornadoes or floods, or other events that may result of these weather patterns. These risks include: (i) a potential reduction in ice and snow cover, potentially leading to a reduced availability of cooling water for our facilities in Europe; (ii) potential changes in precipitation extremes and droughts, potentially leading to flooding, which may affect sites in Europe, China and India, while drought may affect sites infrom the UK, India and Australia; (iii) potentially rising sea levels, which could affect sites in Singapore, Shanghai and Bangladesh; (iv) potential tropical cyclones, which could affect operations in the US and Asia; (v) potential changes in the availability of natural resources, which could affect, among other things, the availability of biological ingredients for our products, and the generation of electricity in countries heavily dependent upon hydro-electricity. As a result of these and other potential impactsimpact of climate change on the environment,environment. As a result of such events, we could experience business interruptions, destruction of facilities and loss of life, all of which could have a material adverse effect on our business, financial condition and results of operations could be put at risk.operations.
OurIn addition, our corporate headquarters, the headquarters of our Pharmaceuticals and Animal Health Divisions,Division, and certain of our major Pharmaceuticals Division production and research facilities are located near earthquake fault lines in Basel, Switzerland. In addition, otherOther major facilities of our Pharmaceuticals, Alcon, and Vaccines and Diagnostics 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. See also "—The manufacture of our products is highly regulated and complex, and may result in a variety of issues that could lead to extended supply disruptions and significant liability," above.
The price of our ADSsADRs and the US dollar value of any dividends may be negatively affected by fluctuations in the US dollar/Swiss franc exchange rate.
Our American Depositary Shares (ADSs) each representing one Novartis share and evidenced by American Depositary Receipts (ADRs) trade on the New York Stock Exchange (NYSE)NYSE in US dollars. Since the shares underlying the ADSsADRs are listed in Switzerland on the SIX Swiss Exchange (SIX) and trade in Swiss francs, the value of the ADSsADRs may be affected by fluctuations in the US dollar/Swiss franc exchange rate. In addition, since dividends that we may declare will be denominated in Swiss francs, exchange rate fluctuations will affect the US dollar equivalent of dividends received by holders of ADSs.ADRs. If the value of the Swiss franc
decreases against the US dollar, the price at which our ADSsADRs trade may—and the value of the US dollar equivalent of any dividend will—decrease accordingly.
Holders of ADSsADRs may not be able to exercise preemptive rights attached to shares underlying ADSs.ADRs.
Under Swiss law, shareholders have preemptive rights to subscribe for issuances of new shares on apro 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 ADSsADRs may not be able to exercise the preemptive rights attached to the shares underlying their ADSsADRs 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 ADSADR holders of the preemptive rights associated with the shares underlying their ADSs.ADRs. We cannot guarantee that a registration statement would be filed, or, if filed, that it would be declared effective. If preemptive rights could not be exercised by an ADSADR 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 ADSADR holders in Novartis would be diluted and, if the depositary allowed rights to lapse, holders of ADSsADRs would not realize any value from the preemptive rights.
Item 4. Information on the Company
4.A History and Development of Novartis
Novartis AG was incorporated on February 29, 1996 under the laws of Switzerland as a stock corporation (Aktiengesellschaft) with an indefinite duration. On December 20, 1996, our predecessor companies, Ciba-Geigy AG and Sandoz AG, merged into this new entity, creating Novartis. We are domiciled in and governed by the laws of Switzerland. Our registered office is located at the following address:
Novartis AG
Lichtstrasse 35
CH-4056 Basel, Switzerland
Telephone: 011-41-61-324-1111
Web: www.novartis.com
Novartis is a multinational group of companies specializing in the research, development, manufacturing and marketing of a broad range of healthcare products led by innovative pharmaceuticals. Novartis AG, our Swiss holding company, owns, directly or indirectly, all of our significant operating companies. For a list of our significant operating subsidiaries, see "Item 18. Financial Statements—note 31.Note 32."
Important Corporate Developments 2010-January 20132013-January 2016
2016 | ||
January | Novartis announces leadership changes effective February 1, 2016. Mike Ball has been appointed Division Head and CEO Alcon, succeeding Jeff George; Dr. Vas Narasimhan has been appointed Global Head Drug Development and Chief Medical Officer; and André Wyss has been appointed President, Novartis Operations. | |
Novartis announces that it is taking a number of steps to further build on its strategy, including focusing the Alcon Division on its Surgical and Vision Care franchises, with specific actions identified to accelerate growth, and strengthening the ophthalmic medicines business by transferring Alcon's Ophthalmic Pharmaceuticals products to the Pharmaceuticals Division; centralizing manufacturing operations across divisions within a single technical operations unit; increasing Group-wide coordination of drug development by establishing a single Global Head of Drug Development and centralizing certain common functions such as the Chief Medical Office; and shifting selected mature, non-promoted pharmaceutical products from the Pharmaceuticals Division into the Sandoz Division. | ||
Novartis announces a collaboration and licensing agreement with Surface Oncology, which gives Novartis access to four pre-clinical programs in immuno-oncology. | ||
2015 | ||
November | Novartis completes a $3 billion bond offering under its US SEC Registration Statement on Form F-3. | |
October | Novartis announces the acquisition of Admune Therapeutics to broaden its portfolio of cancer immunotherapies. |
September | Novartis announces the appointment of Dr. James E. Bradner as President of the Novartis Institutes for BioMedical Research and a member of the Executive Committee of Novartis, to be effective March 1, 2016, concurrent with the retirement of Dr. Mark C. Fishman, who will reach his contractual retirement age in March 2016. | |
Novartis announces the launch of Novartis Access, a portfolio of affordable medicines to treat chronic diseases in lower-income countries offered to governments, non-governmental organizations and other public-sector healthcare providers for $1 per treatment, per month. | ||
Novartis announces that it has entered into a global collaboration with Amgen to commercialize and develop neuroscience treatments. | ||
August | Novartis announces an agreement to acquire all remaining rights to GSK's ofatumumab to develop treatments for multiple sclerosis and other autoimmune indications. This transaction was completed on December 21, 2015. | |
July | Novartis announces a swap of three mid-stage clinical assets for equity and a share of milestones and royalties on future commercial sales with Mereo BioPharma Group Limited. | |
June | Novartis announces that it has entered into an agreement to acquire Spinifex Pharmaceuticals, Inc., a US and Australian-based, privately held development stage company focused on developing a peripheral approach to treat neuropathic pain such as EMA401, a novel angiotensin II Type 2 receptor (AT2R) antagonist. This acquisition was completed on July 24, 2015. | |
March | Novartis announces entry into an alliance with Aduro Biotech focused on discovery and development of next-generation cancer immunotherapies targeting the STING signaling pathway, and the launch of a new immuno-oncology research group. | |
February | Novartis completes a CHF 1.375 billion bond offering listed on the SIX Swiss Exchange. | |
2014 | ||
October | Novartis announces a definitive agreement with CSL of Australia to divest its influenza vaccines business for $275 million. This divestment was completed effective July 31, 2015. | |
Novartis announces changes to the Novartis Executive Committee. Three members of the Executive Committee of Novartis, George Gunn, Brian MacNamara and Andrin Oswald, would leave the Company following the completion of the relevant portfolio transactions announced in April 2014. | ||
Novartis announces that it has entered into a collaboration with Bristol-Myers Squibb Company to evaluate three molecularly targeted compounds in combination with Bristol-Myers Squibb's investigational PD-1 immune checkpoint inhibitor, Opdivo® (nivolumab), in Phase I/II trials of patients with non-small cell lung cancer. | ||
August | Novartis appoints a Chief Ethics, Compliance and Policy Officer reporting directly to the CEO. | |
July | Novartis announces that its Alcon Division has entered into an agreement with a division of Google Inc., to in-license its "smart lens" technology for all ocular medical uses. | |
June | Novartis announces that the FDA licensed its manufacturing facility in Holly Springs, North Carolina for the commercial production of cell-culture influenza vaccines, with the capacity to significantly increase production in the event of an influenza pandemic. |
May | Novartis enters into a licensing and commercialization agreement with Ophthotech Corporation for the exclusive rights to marketFovista (pegpleranib; OAP030, anti-PDGF aptamer) outside the US. In November 2015, Genentech entered into an agreement with Novartis to participate in certain rights related to the Novartis licensing and commercialization agreement with Ophthotech Corporation for OAP030. | |
April | Novartis announces a set of definitive inter-conditional agreements with GSK. Under these agreements, Novartis would acquire GSK oncology products and certain related assets, would be granted a right of first negotiation over the co-development or commercialization of GSK's current and future oncology R&D pipeline (excluding oncology vaccines) and would divest the Vaccines Division (excluding its influenza vaccines business) to GSK. The two companies would also create a joint venture in consumer healthcare, of which Novartis would own 36.5%. These transactions were completed on March 2, 2015. | |
Novartis also announces a definitive agreement with Lilly to divest the Company's Animal Health Division. This divestment was completed on January 1, 2015. | ||
Novartis announces the creation of a shared services organization, Novartis Business Services (NBS). NBS consolidates a number of business support services previously spread across divisions, including Information Technology, Financial Reporting and Accounting Operations, Real Estate & Facility Services, Procurement, Payroll and Personnel Administration and the Pharmaceuticals Global Business Services. This reorganization was designed to improve profitability and free up resources that could be reinvested in growth and innovation, and to allow our divisions to focus more on customer-facing activities. NBS became effective on July 1, 2014. | ||
February | Novartis announces the acquisition of CoStim Pharmaceuticals Inc., a Cambridge, Massachusetts-based, privately held biotechnology company focused on cancer immunotherapy. The acquisition brings to Novartis late discovery stage immunotherapy programs directed to several targets, including PD-1. | |
Novartis appoints a Global Head, Corporate Responsibility reporting directly to the CEO. | ||
January | Novartis implements several changes to its governance structure. These include elimination of the Chairman's Committee of the Novartis AG Board of Directors; transfer of operational responsibilities that previously rested with the Chairman or the Chairman's Committee, such as approval authority for management compensation, to the CEO or the Executive Committee; and establishment of the Research and Development Committee of the Novartis AG Board of Directors to oversee Novartis research and development strategy and advise the Board on scientific trends and activities. | |
2013 | ||
November | Novartis announces a $5.0 billion share buyback. The buyback begins on the date of the announcement and will be executed over two years on the second trading line. | |
Novartis announces a definitive agreement to divest its blood transfusion diagnostics unit to Grifols S.A. of Spain, for $1.7 billion. This transaction was completed on January 9, 2014. | ||
Novartis announces that it will co-locate certain scientific resources in order to improve the efficiency and effectiveness of its global research organization. Changes include establishing a respiratory research group in Cambridge, Massachusetts, a proposal to close the Horsham, UK, research site, a plan to exit from the Vienna, Austria research site, consolidation of the US-based component of oncology research from Emeryville, California to Cambridge, Massachusetts, closure of the biotherapeutics development unit in La Jolla, California, and a plan to exit research in topical applications for dermatology. |
September | Novartis announces that it has entered into an exclusive global licensing and research collaboration agreement with Regenerex LLC, a biopharmaceutical company based in Louisville, Kentucky, for use of the company's novel Facilitating Cell Therapy (FCRx) platform. | |
August | Joerg Reinhardt, Ph.D., assumes role of Chairman of the Board of Directors of Novartis AG on August 1. | |
July | The Novartis Board of Directors announces a final agreement with its former Chairman, Dr. Daniel Vasella. From the date of the Annual General Meeting held on February 22, 2013, until October 31, 2013, Dr. Vasella was to provide certain transitional services, including select Board mandates with subsidiaries of Novartis and support of the ad-interim Chairman and the new Chairman. For his transitional services during such period, Dr. Vasella would receive cash of CHF 2.7 million, and 31,724 unrestricted shares as of October 31, 2013 (the market value of the shares as of the date of the announcement was approximately CHF 2.2 million). In addition, from November 1, 2013, to December 31, 2016, Dr. Vasella will receive a minimum of $250,000 per annum in exchange for making himself available to Novartis, at Novartis' request and discretion, to provide specific consulting services, such as the coaching of high-potential associates of Novartis and speeches at key Novartis events at a daily fee rate of $25,000, which will be offset against the $250,000 minimum annual payment. During November and December 2013, Dr. Vasella did not provide any coaching to associates and did not receive any compensation for this period. | |
Novartis announces that it has entered into a development and licensing agreement with Biological E Limited (BioE), a biopharmaceutical company based in India, for two vaccines to protect against typhoid and paratyphoid fevers. The agreement advances the Novartis goal to deliver accessible and affordable vaccines that address unmet medical need in endemic regions. | ||
April | Novartis and Malaria No More, a leading global charity determined to end malaria deaths, announce that they are joining forces on the Power of One campaign to help close the treatment gap and accelerate progress in the fight against malaria. Over the next three years, Novartis will support the campaign financially and also donate up to three million full courses of its pediatric antimalarial drug to match the treatments donated by the public, doubling the impact of these donations. | |
February | Novartis announces that the Novartis AG Board of Directors and Dr. Vasella agreed to cancel his non-competition agreement and all related conditional compensation. The agreement was to take effect after Dr. Vasella stepped down as Chairman of the Board at the Novartis Annual General Meeting on February 22, 2013. | |
January | Novartis announces that, at his own wish, Novartis AG Chairman of the Board of Directors Dr. Daniel Vasella | |
For information on our principal expenditures on property, plants and equipment, see "Item 4. Information on the Company—4.D Property, Plants &and Equipment." For information on our significant investmentsexpenditures in research and development, see the sections headed "Research and Development" included in the descriptions of our six operating divisionsPharmaceuticals Division and Alcon Division, and the section headed "Development and Registration" included in the description of our Sandoz Division under "Item 4.
Information on the Company—4.B Business Overview." For information on other principal capital expenditures and divestitures, see "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Factors Affecting Comparability of the Year-On-Year Results of Operations." For more information on the transactions with GSK, Lilly or CSL, see "Item 4.B Business Overview—Overview" and "Item 10.C Material Contracts."
Novartis provides healthcare solutions that address the evolving needs of patients and societies worldwide. Our broad portfolio includes innovative medicines, eye care products and cost-saving generic pharmaceuticals, preventive vaccinespharmaceuticals.
Following the completion of a series of transactions in 2014 and diagnostic tools, over-the-counter and animal health products.
The2015, the Group's wholly-owned businesses areportfolio is organized into sixthree global operating divisions,divisions. In addition, we separately report the results of Corporate activities. The disclosure in this Item focuses on these continuing operations, which are made up of Pharmaceuticals, Alcon, Sandoz and we report ourCorporate activities. In addition, from March 2, 2015, the date of the completion of a series of transactions with GSK, continuing operations also includes the results from the oncology assets acquired from GSK and the 36.5% interest in the following five segments:GSK consumer healthcare joint venture (the latter reported as an investment in associated companies). We sold our Vaccines Division, excluding our influenza business, to GSK. Our influenza vaccines business was sold to CSL and our Animal Health Division was sold to Lilly. For more detail on these transactions see, "Item 10.C Material Contracts."
Continuing Operations:
Discontinued Operations:
Novartis is the only healthcare company globally withhas leading positions globally in each of these areas.the three areas of our continuing operations. To maintain our competitive positioning across these growing segments of the healthcare industry, we place a strong focus on innovating to meet the evolving needs of patients around the world, growing our presence in new and emerging markets, and enhancing our productivity to invest for the future and increase returns to shareholders.
We separately report the financial results of our Corporate activities as part of our continuing operations. Income and expenses from Corporate activities include the costs of the Group headquarters and those of corporate coordination functions in major countries. In addition, Corporate includes other items of income and expense which are not attributable to specific segments such as certain expenses related to post-employment benefits, environmental remediation liabilities, charitable activities, donations and sponsorships.
Our continuing operations are supported by the Novartis Institutes for BioMedical Research and Novartis Business Services.
Our continuing operations achieved net sales of $56.7$49.4 billion in 2012,2015, while net income from continuing operations amounted to $9.6$7.0 billion. Research & Development expenditure in 20122015 amounted to $9.3$8.9 billion ($9.18.7 billion excluding impairment and amortization charges). Of the Group's total net sales $13.9from continuing operations, $12.4 billion, or 24%25%, came from Emerging Growth Markets, and $42.8$37.0 billion, or 76%75%, came from Established Markets. Emerging Growth Markets arecomprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand and Western Europe.Zealand.
Headquartered in Basel, Switzerland, our Group companies employed approximately 128,000118,700 full-time equivalent associates as of December 31, 2012, and sell2015. Our products are available in approximately 140180 countries around the world.
On January 23, 2012,In September 2015, Novartis announced the launch of Novartis Access, a portfolio of 15 medicines to treat chronic diseases in low- and middle-income countries. The portfolio addresses cardiovascular diseases, diabetes, respiratory illnesses, and breast cancer and will be offered to governments, non-governmental organizations (NGOs) and other public-sector healthcare providers for $1 per treatment, per month.
In 2016, having completed our portfolio transformation and operationalized NBS, we announced that, at his own wish, Novartis AG Chairmanare taking further steps to build on our strategy. We are focusing our Alcon Division on its Surgical and Vision Care franchises. Within these franchises, we have identified key actions to accelerate growth in 2016 and beyond. These include optimizing intraocular lens (IOL) innovation and commercial execution; prioritizing and investing in promising pipeline opportunities; ensuring best-in-class service, training and education for eye care professionals; improving sales force effectiveness; and investing in direct to consumer activities for key brands.
We are strengthening our ophthalmic medicines business by transferring Alcon's Ophthalmic Pharmaceuticals products to our Pharmaceuticals Division. This is expected to simplify our ophthalmic medicines business, leverage Alcon's strong brand with Pharmaceuticals Division development and marketing capabilities, and help us accelerate innovation and growth in eye care.
At the same time, we are shifting selected mature, non-promoted pharmaceutical products from our Pharmaceuticals Division into Sandoz, which has proven experience in managing mature products successfully.
To increase innovation even further, we are increasing Group-wide coordination of the Board of Directors Daniel Vasella, M.D. will not stand for re-election asdrug development. We are establishing a member of the Board of Directors at the Annual General Meeting to be held on February 22, 2013. The Board of Directors proposes the election of, among others, Joerg Reinhardt, Ph.D. as a member of the Board for a term of office beginning on August 1, 2013 and ending on the day of the Annual General Meeting in 2016. The Board intends to elect Joerg Reinhardt as Chairman of the Board of Directors as from August 1, 2013. From February 22, 2013 until the designation of a new Chairman, the Board of Directors intends to elect its current Vice-Chairman, Ulrich Lehner, Ph.D., as Chairman of the Board of Directors.
Joerg Reinhardt joined our predecessor company, Sandoz, in 1982 and held positions of increasing responsibility for Novartis, including serving assingle Global Head of PharmaceuticalDrug Development Head ofto improve resource allocation and standards across our divisions. We are also centralizing certain common functions, such as the VaccinesChief Medical Office, which will cover safety and Diagnostics Division and, commencing in 2008, Group Chief Operating Officer, a position he held until January 31, 2010. Since August 15, 2010, Joerg Reinhardt has been Chairman ofpharmacovigilance policy for the Board of Management of Bayer HealthCare AG and Chairman of the Bayer HealthCare Executive Committee. If elected to the Board of Directors of Novartis, he would step down from these positions at Bayer prior to August 1, 2013.Group.
To further improve efficiency, we are centralizing our manufacturing operations across our divisions within a single technical operations unit. The new unit is expected to optimize capacity planning and lower costs through simplification, standardization and external spend optimization. Centralization is also expected to improve our ability to develop next-generation technologies, implement continuous manufacturing and share best practices across divisions.
We expect these changes to generate over $1.0 billion in annual cost savings from 2020, with the ramp-up starting in 2016. Associated with these changes we expect one-time restructuring costs of approximately $1.4 billion spread over five years. We plan to use the net savings to fund innovation and improve our profit margins.
In addition, we announced leadership changes effective February 1, 2016. Mike Ball has been appointed Division Head and CEO Alcon, and will be a member of the Executive Committee of Novartis (ECN). Mr. Ball joins Novartis from Hospira, where he was CEO from 2011 until recently. Mr. Ball succeeds Jeff George, who has decided to leave Novartis. Dr. Vas Narasimhan has been appointed Global Head Drug Development and Chief Medical Officer, a new position in the ECN. André Wyss, already a member of the ECN, Head NBS and Country President for Switzerland, has been appointed President, Novartis Operations. In his new role, he will assume responsibility for the integrated Technical Operations organization as well as for Global Public & Government Affairs, in addition to his current responsibilities.
Except as described above and as briefly described in "—Alcon" below, and "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Results of Operations—Alcon," this Form 20-F reflects the organization of the Group prior to the changes described above.
Continuing Operations:
Pharmaceuticals researches, develops, manufactures, distributes and sells patented prescription medicines and is organized in the following business franchises: Oncology; Primary Care, consisting of Primary Care medicinesOncology, Cardio-metabolic, Immunology and Dermatology, Retina, Respiratory, Neuroscience and Established Medicines; and Specialty Care, consisting of Ophthalmology, Neuroscience, Integrated Hospital Care, and Critical Care medicines. Novartis Oncology is organized asMedicines. Our Pharmaceuticals Division also includes a business unit, responsible forfranchise focused on the global development and marketingcommercialization of Cell and Gene Therapies.
On March 2, 2015, we completed the acquisition of the oncology products.products of GSK, together with certain related assets. In 2012,addition, we acquired a right of first negotiation over the co-development or commercialization of GSK's current and future oncology R&D pipeline, excluding oncology vaccines. The right of first negotiation is for a period of twelve and one half years from the acquisition closing date.
In 2015, the Pharmaceuticals Division accounted for $32.2$30.4 billion, or 56.7%62%, of Group net sales, and for $9.6$7.6 billion, or 80.3%81%, of Group operating income (excluding Corporate income and expense, net).
Our Alcon Division researches, develops, manufactures, distributes and sells eye care products and technologies to serve the full life cycle of eye care needs. Alcon offers a broad range of products to treat many eye diseases and conditions, and is organized into three businesses:franchises: Surgical, Ophthalmic Pharmaceuticals and Vision Care. The Surgical portfolio includes technologies and devices for cataract, retinal, glaucoma and refractive surgery, as well as intraocular lenses to treat cataracts and refractive errors, like presbyopia and astigmatism. Alcon also provides viscoelastics, surgical solutions, surgical packs, and other disposable products for cataract and vitreoretinal surgery. In Ophthalmic Pharmaceuticals, the portfolio coversincludes treatment options for elevated intraocular pressure caused by glaucoma, anti-infectives to aid in the treatment of bacterial infections and bacterial conjunctivitis, and ophthalmic solutions to treat inflammation and pain associated with ocular surgery.surgery, as well as an intravitreal injection for vitreomacular traction including macular hole. The pharmaceutical product Ophthalmic Pharmaceuticals
portfolio also includes eye and nasal allergy treatments, as well as over-the-counter dry eye relief and ocular vitamins. DailyThe Vision Care portfolio comprises daily disposable, monthly replacement, and color-enhancing contact lenses, as well as a complete line of contact lens care products including multi-purpose and hydrogen-peroxide based solutions, rewetting drops and daily protein removers, comprise the portfolio in Vision Care.removers.
In 2012,2015, Alcon accounted for $10.2$9.8 billion, or 18.0%20%, of Group net sales, and for $1.5$0.8 billion, or 12.3%9%, of Group operating income (excluding Corporate income and expense, net).
Our Sandoz Division develops, manufactures, distributesfocuses primarily on developing, manufacturing, distributing and sellsselling prescription medicines as well as pharmaceutical and biotechnological active substances, whichthat are not protected by valid and enforceable third-party patents.patents, and intermediary products including active pharmaceutical ingredients. Sandoz has activitiesis organized globally in three franchises: Retail Generics, Anti-Infectives, and Biopharmaceuticals & Oncology Injectables. In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of pharmaceuticals to third parties. Retail Generics includes the areas of dermatology, respiratory and ophthalmics, as well as the areas of cardiovascular, metabolism, central nervous system, pain, gastrointestinal, and hormonal therapies. Finished dosage form anti-infectives sold to third parties are also part of Retail Generics. In Anti-Infectives, Sandoz manufacturessupplies generic antibiotics to a broad range of customers, as well as active pharmaceutical ingredients and intermediates—mainly antibiotics—for internal use by Retail Generics and for saleintermediates to third-party customers.the pharmaceutical industry worldwide. In Biopharmaceuticals, Sandoz develops, manufactures and markets protein-protein or other biotechnology-basedbiotechnology based products (knownknown as biosimilars or follow-on biologics) and sellsprovides biotechnology manufacturing services to other companies. Incompanies, and in Oncology Injectables, Sandoz develops, manufactures and markets cytotoxic products for the hospital market. Sandoz Ophthalmics, which was formed through the integration of Alcon's generic division Falcon, develops, manufactures and markets generic ophthalmic and otic products.
In addition, Sandoz expanded its presence in Respiratory through the acquisition of Oriel Therapeutics in 2010, and expanded its presence in Dermatology through the acquisition of specialty dermatology company Fougera Pharmaceuticals in 2012. In 2012,2015, Sandoz accounted for $8.7$9.2 billion, or 15.4%18%, of Group net sales, and for $1.1$1.0 billion, or 9.1%11%, of Group operating income (excluding Corporate income and expense, net).
Discontinued Operations:
Vaccines and Diagnostics Division
OurPrior to the completion of certain transactions in 2014 and 2015, our Vaccines and Diagnostics Division researches, develops, manufactures, distributesresearched, developed, manufactured, distributed and sells preventivesold human vaccines and novel blood-screening diagnostic tools, which help protectblood-testing products worldwide. On January 9, 2014, we completed the world's
our blood supply by preventingtransfusion diagnostics unit to Grifols S.A. On March 2, 2015, we completed the spreaddivestment of infectious diseases. In 2012,our Vaccines Division (excluding its influenza vaccines business) to GSK. On July 31, 2015, we completed the Vaccines and Diagnostics Division accounted for $1.9 billion, or 3.3%,divestment of Group net sales, and an operating loss of $250 million.our influenza vaccines business to CSL Limited.
Prior to the completion of certain transactions in 2015, Consumer Health consistsconsisted of two Divisions: Over-the-Counter (OTC) and Animal Health. Each has its own research, development, manufacturing, distribution and selling capabilities, but neither is material enough to the Group to be separately disclosed as a segment.our OTC offers readily available consumer medicine,(Over-the-Counter) and Animal Health provides veterinary products for farm and companion animals. In 2012, ConsumerDivisions. On January 1, 2015 we completed the divestment of our Animal Health accounted for $3.7 billion, or 6.6%,Division to Lilly. On March 2, 2015, we completed the divestment of Group net sales, and for $48 million, or 0.4%,our OTC Division, which we contributed to a new consumer healthcare joint venture with GSK, of Group operating income (excluding Corporate income and expense, net)which we own 36.5%.
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 patented pharmaceuticals in the following therapeutic areas:
The Pharmaceuticals Division is organized into global business franchises responsible for the commercialization of various products as well as Novartis Oncology,products. Our Pharmaceuticals Division also includes a business unit responsible forfranchise focused on the global development and commercialization of Cell and Gene Therapies.
On March 2, 2015, we completed the acquisition of the oncology products.products of GSK, together with certain related assets. In addition, we acquired a right of first negotiation over the co-development or commercialization of GSK's current and future oncology R&D pipeline, excluding oncology vaccines. The right of first negotiation is for a period of twelve and one half years from the acquisition closing date.
The Pharmaceuticals Division is the largest contributor among the six divisions of Novartis and reported consolidated net sales of $32.2$30.4 billion in 2012,2015, which represented 56.7%62% of the Group's net sales.
The division is made up of approximately 80 affiliated companies which together employed 61,268 full-time equivalent associates as of December 31, 2012, and sell products in approximately 140 countries. The product portfolio of the Pharmaceuticals Division includes more than 5060 key marketed products, many of which are leaders in their respective therapeutic areas. In addition, the division's portfolio of development projects includes 130135 potential new products and new indications or new formulations for existing products in various stages of clinical development.
Pharmaceuticals Division Products
The following table and summaries describe certain key marketed products in our Pharmaceuticals Division. While we intend to sell our marketed products throughout the world, not all products and indications are currently available in every country. Compounds and new indications in development are
subject to required regulatory approvals and, in certain instances, contractual limitations. These compounds and indications are in various stages of development throughout the world. It may not be possible to obtain regulatory approval for any or all of the new compounds and new indications referred to in this Form 20-F in any country or in every country. 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. Some of the products listed below have lost patent protection or are otherwise subject to generic competition. Others are subject to patent challenges by potential generic competitors. See below andPlease see "—Intellectual Property" for general information on intellectual property and regulatory data protection, and for further information on the patent status of ourpatents and exclusivity for Pharmaceuticals Division'sDivision products.
KeySelected Marketed Products
Business franchise | Product | Common name | formulation) | Formulation | ||||
---|---|---|---|---|---|---|---|---|
Oncology | Afinitor/Votubia and Afinitor Disperz/Votubia dispersible tablets | everolimus | Advanced renal cell carcinoma after failure of treatment with VEGF-targeted therapy Advanced pancreatic neuroendocrine tumors SEGA associated with tuberous sclerosis Renal angiomyolipoma associated with tuberous sclerosis Advanced breast cancer in post-menopausal HR+/ | Tablet Dispersible tablets for oral suspension | ||||
Arzerra | ofatumumab | In combination with chlorambucil for first- line chronic lymphocytic leukemia (CLL) In combination with chlorambucil or bendamustine for first-line CLL CLL refractory to fludarabine and alemtuzumab Extended treatment of patients who are in complete or partial response after at least two lines of therapy for recurrent or progressive CLL | Intravenous infusion | |||||
Atriance/Arranon | nelarabine | Relapsed and/or refractory T-cell acute lymphoblastic leukemia and T-cell lymphoblastic lymphoma | Solution for infusion | |||||
Exjade andJadenu | deferasirox | Chronic iron overload due to blood transfusions and non-transfusion dependent thalassemia | Dispersible tablet for oral suspension Oral film-coated tablet | |||||
Farydak | panobinostat | Relapsed and/or refractory multiple myeloma, in combination with bortezomib and dexamethasone, after at least two prior regimens including bortezomib and an immunomodulatory agent | Capsules | |||||
Femara | letrozole | Hormone Early breast cancer in post-menopausal women following standard tamoxifen therapy (extended adjuvant therapy) Advanced breast cancer in post-menopausal women (both as first- and second-line therapies) | Tablet | |||||
Gleevec/ Glivec | imatinib mesylate/imatinib | Certain forms of Ph+ chronic myeloid leukemia Certain forms of KIT+ gastrointestinal stromal tumors Certain forms of acute lymphoblastic leukemia Hypereosinophilic syndrome Aggressive systemic mastocytosis Myelodysplastic/myeloproliferative diseases | Tablet Capsules | |||||
Business franchise | Product | Common name | Indications (vary by country and/or formulation) | Formulation | ||||
---|---|---|---|---|---|---|---|---|
Hycamtin | topotecan | Relapsed small cell lung cancer Metastatic carcinoma of the ovary after failure of initial or subsequent chemotherapy | Capsule Powder for infusion | |||||
Small cell lung cancer sensitive disease after failure of first-line chemotherapy Combination therapy with cisplatin for Stage IV-B, recurrent, or persistent carcinoma of the cervix which is not amenable to curative treatment with surgery and/or radiation therapy | ||||||||
Jakavi | ruxolitnib | Disease-related splenomegaly or symptoms in adult patients with primary Polycythemia vera in adult patients who are resistant to or intolerant of hydroxyurea | Tablet | |||||
Odomzo | sonidegib | Locally advanced basal cell carcinoma that has recurred following surgery or radiation therapy, or is not a candidate for surgery or radiation therapy | Capsule | |||||
Proleukin | aldesleukin | Metastatic renal cell carcinoma Metastatic melanoma | Powder for injection or infusion | |||||
Promacta/Revolade | eltrombopag | Thrombocytopenia in adult and pediatric patients one year and older with chronic immune (idiopathic) thrombocytopenia who have had insufficient response to corticosteroids, immunoglobulins, or splenectomy Thrombocytopenia in patients with chronic hepatitis C to allow initiation and maintenance of interferon-based therapy Severe aplastic anemia in patients who have had an insufficient response to immunosuppressive therapy | Tablet Eltrombopag for oral suspension | |||||
Sandostatin LAR andSandostatin SC | octreotide acetate | Acromegaly Symptom control for certain forms of neuroendocrine tumors Delay of tumor progression in patients with midgut tumors | Vial Ampoule/pre-filled syringe | |||||
Signifor andSignifor LAR | Cushing's disease Acromegaly | Powder and solvent for suspension for IM injection | ||||||
Tafinlar + Mekinist | dabrafenib + trametinib | BRAF V600+ metastatic melanoma | Capsule (Tafinlar) Tablet (Mekinist) | |||||
Tasigna | nilotinib | Certain forms of chronic myeloid leukemia in patients resistant or intolerant to prior treatment includingGleevec/Glivec First-line chronic myeloid leukemia | Capsule | |||||
Business franchise | Product | Common name | formulation) | Formulation | ||||
---|---|---|---|---|---|---|---|---|
| In combination with trastuzumab for patients with HR-negative metastatic disease that has progressed on prior trastuzumab therapy(ies) plus chemotherapy In combination with paclitaxel for first line treatment of patients with HER2+ metastatic breast cancer for whom trastuzumab is not appropriate In combination with an aromatase inhibitor for the treatment of patients with hormone sensitive metastatic breast cancer | Tablet | ||||||
pazopanib | ||||||||
Certain types of advanced soft tissue sarcoma after prior chemotherapy | Tablet | |||||||
Zofran | ondansetron | Use in children and adults for the prevention of chemotherapy induced nausea and vomiting and prevention of post-operative nausea and vomiting, and in adults for the prevention of radiation-induced nausea and vomiting | Tablet Oral solution Orally disintegrating tablets Solution for injection/infusion | |||||
Zometa | zoledronic acid | Skeletal-related events from bone metastases (cancer that has spread to the bones) Hypercalcemia of malignancy | Vial/4mg Ready-to-use | |||||
Zykadia | ceritinib | Anaplastic lymphoma kinase-positive metastatic non-small cell lung cancer | Capsules | |||||
Cardio-Metabolic | Entresto | sacubitril/valsartan | Chronic heart failure with reduced ejection fraction | Tablet | ||||
Galvus andEucreas | Galvus: vildagliptinEucreas: vildagliptin and metformin | Type 2 diabetes | Tablet | |||||
Immunology and Dermatology | ||||||||
secukinumab | Active psoriatic arthritis in adult patients when the response to previous disease-modifying anti-rheumatic drug therapy has been inadequate Moderate-to-severe plaque psoriasis in adult patients who are candidates for systemic therapy or phototherapy Moderate-to-severe plaque psoriasis in adults who are candidates for systemic therapy Psoriasis vulgaris and psoriatic arthritis in adults who are not adequately responding to systemic therapies (except for biologics) | |||||||
| Systemic juvenile idiopathic arthritis Gouty arthritis | |||||||
Business franchise | Product | Common name | formulation) | Formulation | ||||
---|---|---|---|---|---|---|---|---|
| ||||||||
| ||||||||
cyclosporine, USP Modified | Prevention of rejection following certain organ transplantation Non-transplantation autoimmune conditions such as severe psoriasis and severe rheumatoid arthritis | Capsule Oral solution Intravenous | ||||||
Simulect | basiliximab | Prevention of acute organ rejection in de novo renal transplantation | Vial for injection or infusion | |||||
Xolair | omalizumab | Chronic spontaneous urticaria/ Chronic idiopathic urticaria See also, "Respiratory" | Lyophilized powder in vial and liquid formulation in pre-filled syringes | |||||
Zortress/Certican | everolimus | Prevention of organ rejection (heart, liver and kidney) | Tablet Dispersible tablet | |||||
Retina | Lucentis | ranibizumab | Neovascular age-related macular degeneration Visual impairment due to diabetic macular edema Visual impairment due to macular edema secondary to central retinal vein occlusion Visual impairment due to macular edema secondary to branch retinal vein occlusion Visual impairment due to choroidal neovascularization secondary to pathologic myopia | Intravitreal injection | ||||
Respiratory | Arcapta Neohaler/ Onbrez Breezhaler | indacaterol | Chronic obstructive pulmonary disease | Inhalation powder hard capsules | ||||
Seebri Neohaler/ Seebri Breezhaler | glycopyrronium bromide (glycopyrrolate) | Chronic obstructive pulmonary disease | Inhalation powder hard capsules | |||||
TOBI andTOBI Podhaler | tobramycin | Pseudomonas aeruginosa infection in cystic fibrosis | Nebulizer solution (TOBI), Inhalation powder (TOBI Podhaler) | |||||
Utibron Neohaler/ Ultibro Breezhaler | indacaterol / glycopyrronium bromide (glycopyrrolate) | Chronic obstructive pulmonary disease | Inhalation powder hard capsules | |||||
Xolair | omalizumab | Severe allergic asthma See also, "Immunology and Dermatology" | Lyophilized powder in vial and liquid formulation in pre-filled syringes | |||||
Neuroscience | Comtan | entacapone | Parkinson's disease patients who experience end-of-dose motor (or movement) fluctuations | Tablet | ||||
Exelon | rivastigmine | Mild-to-moderate Alzheimer's disease dementia Severe Alzheimer's disease dementia | Capsule Oral solution Transdermal patch | |||||
Extavia | interferon beta-1b | Relapsing remitting and/or relapsing forms of multiple sclerosis in adult patients | Subcutaneous injection | |||||
Gilenya | fingolimod | Relapsing forms of multiple sclerosis | Capsule | |||||
Business franchise | Product | Common name | Indications (vary by country and/or formulation) | Formulation | ||||
---|---|---|---|---|---|---|---|---|
Stalevo | carbidopa, levodopa and entacapone | Parkinson's disease patients who experience end-of-dose motor (or movement) fluctuations | Tablet | |||||
Established Medicines | Cibacen | benazepril hydrochloride | Hypertension Adjunct therapy in congestive heart failure Progressive chronic renal insufficiency | Tablet | ||||
Clozaril/Leponex | clozapine | Treatment-resistant schizophrenia Prevention and treatment of recurrent suicidal behavior in patients with schizophrenia and psychotic disorders | Tablet | |||||
Coartem/Riamet | artemether and lumefantrine | Plasmodium falciparum malaria or mixed infections that include Plasmodium falciparum Standby emergency malaria treatment | Tablet Dispersible tablet for oral suspension | |||||
Diovan | valsartan | Hypertension Heart failure Post-myocardial infarction | Tablets Capsules Oral solution | |||||
Diovan HCT andCo-Diovan | valsartan and hydrochlorothiazide | Hypertension | Tablet | |||||
Exforge and Exforge HCT | valsartan and amlodipine besylate | Hypertension | Tablet | |||||
Focalin and Focalin XR | dexmethylphenidate HCl and dexmethylphenidate extended release | Attention deficit hyperactivity disorder | Tablet Capsule | |||||
Foradil | formoterol | Asthma Chronic obstructive pulmonary disease | Aerolizer (capsules) Aerosol | |||||
Lamisil | terbinafine (terbinafine hydrochloride) | Fungal infection of the skin and nails caused by dermatophyte fungi tinea capitis Fungal infections of the skin for the treatment of tinea corporis, tinea cruris, tinea pedis and yeast infections of the skin caused by the genus candida Onychomycosis of the toenail or fingernail due to dermatophytes | Tablet | |||||
Lescol andLescol XL | fluvastatin sodium | Hypercholesterolemia and mixed dyslipidemia in adults Secondary prevention of major adverse cardiac events Slowing the progression of atherosclerosis Heterozygous familial hypercholesterolemia in children and adolescents | Capsule (Lescol) Tablet (Lescol XL) | |||||
Reclast/Aclasta | zoledronic acid 5 mg | Treatment of osteoporosis in postmenopausal women Treatment of osteoporosis in men Treatment and prevention of glucocorticoid-induced osteoporosis Prevention of postmenopausal osteoporosis Treatment of Paget's disease of the bone | Intravenous—solution for infusion | |||||
Business franchise | Product | Common name | Indications (vary by country and/or formulation) | Formulation | ||||
---|---|---|---|---|---|---|---|---|
Ritalin | methylphenidate HCl | Attention deficit hyperactivity disorder and narcolepsy | Tablet | |||||
Ritalin LA | methylphenidate HCl modified release | Attention deficit hyperactivity disorder | Capsule | |||||
Tegretol | carbamazepine | Epilepsy Pain associated with trigeminal neuralgia Acute mania and bipolar affective disorders Alcohol withdrawal syndrome Painful diabetic neuropathy Diabetes insipidus centralis Polyuria and polydipsia of neurohormonal origin | Tablet Chewable tablet Oral suspension Suppository | |||||
Tekamlo/Rasilamlo | aliskiren and amlodipine besylate | Hypertension | Tablet | |||||
Tekturna/Rasilez | aliskiren | Hypertension | Tablet | |||||
Tekturna HCT/ Rasilez HCT | aliskiren and hydrochlorothiazide | Hypertension | Tablet | |||||
Trileptal | oxcarbazepine | Epilepsy | Tablet Oral suspension | |||||
Tyzeka/Sebivo | telbivudine | Chronic hepatitis B | Tablet Oral solution | |||||
Estrogen replacement therapy for the treatment of the symptoms of natural or surgically induced menopause Prevention of | ||||||||
Post traumatic and post-operative pain, inflammation and swelling Painful and/or inflammatory conditions in Other painful and/or inflammatory conditions such as renal and biliary colic, migraine attacks and as adjuvant in severe ear, nose and throat infections | ||||||||
Capsule Oral drops/oral suspension Ampoule for Gel Powder for oral solution Transdermal patch | ||||||||
Selected LeadingKey Marketed Products
Oncology
Zometais approved in more than 100 countries for this indication as well as for the treatment of patients with multiple myeloma and patients with bone metastasis from solid malignancies, including prostate, breast and lung cancer. Zoledronic acid, the active ingredient in Zometa, is also available under the trade names Reclast/Aclastafor use in non-oncology indications. Zometais expected to face generic challenges in 2013 when the patent on its active ingredient, zoledronic acid, will expire in the US and other major markets. See "—Intellectual Property" below for further information on the patent status of Zometa.
for advanced disease. RCC is the most common type of kidney cancer in adults, and nearly one-fifth of patients have aRCC at the time of diagnosis.Votrient is also indicated for the treatment of patients with advanced soft tissue sarcoma (STS) who have received prior chemotherapy (efficacy in adipocytic STS or gastrointestinal stromal tumors has not been demonstrated). STS is a type of cancer which can arise from a wide variety of soft tissues including muscle, fat, blood vessel and nerves.Votrient is approved in more than 95 countries worldwide for aRCC and in more than 85 countries for aSTS.Votrient was acquired from GSK.
Primary Care
Primary Care
countries. In 2008,patients with chronic hepatitis C to allow the FDA approvedinitiation and maintenance of interferon-based therapy, and for the treatment of patients with severe aplastic anemia (SAA) who have had an insufficient response to immunosuppressive therapy.ExforgeRevolade is approved in more than 100 countries worldwide for the first-line treatment of hypertensionadult chronic ITP splenectomised patients who are refractory to other treatments (e.g., corticosteroids, immunoglobulins).Revolade may be considered as second line treatment for adult non-splenectomised patients where surgery is contraindicated. In December 2015, the CHMP adopted a positive opinion recommending a change to the adult ITP indication to remove language which limitedRevolade use only to splenectomised patients who are refractory to other treatments. The EC decision is expected in patients likely to need multiple drugs to achieve their blood pressure goals. In January 2010,February 2016.ExforgeRevolade is also indicated in more than 45 countries worldwide in adult patients with chronic hepatitis C virus infection for the treatment of thrombocytopenia, where the degree of thrombocytopenia is the main factor preventing the initiation or limiting the ability to maintain optimal interferon-based therapy. In September 2015,Revolade was approved in Japanby the EC for the treatment of adults with acquired SAA who were either refractory to prior immunosuppressive therapy or heavily pretreated and also launched in China.are unsuitable for hematopoietic stem cell transplant.Exforge HCTPromacta/Revolade (valsartan, amlodipine besylateis marketed under a collaboration agreement between Ligand Pharmaceuticals, Inc., and hydrochlorothiazide) is a single pill combining three widely prescribed high blood pressure treatments: an ARB (valsartan), calcium channel blocker (amlodipine) and a diuretic (hydrochlorothiazide).Novartis.Exforge HCTPromacta/Revolade was acquired from GSK.
Cardio-Metabolic
the use of vildagliptin in triple combination with metformin and a sulphonylurea for the treatment of type 2 diabetes when diet and exercise plus dual therapy with these two agents do not provide adequate glycemic control. In 2013, a German agency, the Gemeinsamer Bundesausschuss (G-BA), initiated an analysis of the benefits of drugs approved prior to 2011. As part of that analysis, the G-BA concluded that
Galvus andEucreas did not provide an added benefit over certain other medicines indicated for the treatment of that disease. As a result, we were unable to reach agreement with the head organization of the German statutory health insurance funds, GKV-Spitzenverband, on an acceptable price forGalvus andEucreas, and in 2014 we stopped distribution of these products in Germany. In 2014,Eucreas (850/50mg and 1000/50mg) was approved in China as the first high-dose single-pill combination metformin/DPP-4 inhibitor approved in that country.Galvus monotherapy indication was approved in China in April 2015.Eucreas was approved in Japan in September 2015 under the nameEquMet as the first single-pill combination metformin/DPP-4 inhibitor approved in that country.
Novartis announced the termination of the ALTITUDE study which was investigatingTekturna/Rasilez in a high-risk population of patients with type 2 diabetes and renal impairment. This action was taken on the recommendation of the independent Data Monitoring Committee overseeing the trial, after the likelihood of showing a benefit ofTekturna/Rasilez treatment in this population was seen to be extremely low, and a higher risk of adverse events was identified in patients receivingTekturna/Rasilez than those on placebo. In 2012, theTekturna/Rasilez product information was updated in the EU, US, Japan and other countries to include the addition of a contraindication against the combined use of aliskiren with an ACE inhibitor or an ARB in patients with diabetes, and a contraindication/warning against the combined use of aliskiren with an ACE inhibitor or an ARB in patients with renal impairment. In August 2012, the European Commission renewed the Rasilez Marketing Authorization. Novartis voluntarily ceased marketingValturna, a single pill combination containing aliskiren and the ARB valsartan, in the US as of July 2012. ALTITUDE end of treatment results confirmed the preliminary findings and were presented in August at the European Society of Cardiology Congress 2012. Patient safety is the highest priority for Novartis and the Company is sharing the end of treatment results with health authorities as required. Aliskiren products remain available for appropriate patients.
Established Medicines
Specialty Care
Ophthalmology
NeuroscienceImmunology and Dermatology
Integrated Hospital Care
occasional arthritis, deafness, and potentially life-threatening amyloidosis. In 2013,Ilaris was approved in the EU for the treatment of acute gouty arthritis in patients who cannot be managed with standard of care, and in the US, EU and other countries for the treatment of systemic juvenile idiopathic arthritis.Ilaris is also being developed for hereditary periodic fever syndromes.
Retina
Critical CareRespiratory
Neuroscience
mild to moderate AD dementia and are approved in more than 90 countries. In 2006,Exelon became the only cholinesterase inhibitor to be approved for mild to moderate PD dementia in addition to AD in both the US and EU.Exelon Patch was approved in 2007 in the US and EU and has been approved for the treatment of mild-to-moderate AD in more than 90 countries, including more than 20 countries where it is also approved for Parkinson's disease dementia. The once-dailyExelon Patch has shown comparable efficacy and safety.superior tolerability to the highest recommended doses ofTOBI PodhalerExelon capsules, with significant improvement in cognition and overall functioning compared to placebo. In 2013, the FDA expanded the approved indication forExelon Patch to also include the treatment of patients with severe Alzheimer's disease. In 2013, European Marketing Authorization was obtained for the higher dose in mild-to-moderate AD. The higher dose has been approved in more than 50 countries. In 2013, the FDA expanded the approved indication forExelon Patch to also include the treatment of patients with severe Alzheimer's disease. The severe indication has now been approved in more than 10 countries.
Established Medicines
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 and tolerability as well as metabolic and pharmacologic properties of the compound.
Phase II: Clinical studies that are performed onwith patients who have the target disease, with the targeted disease, to continueaim of continuing the Phase I safety assessment in a larger group, to assessassessing the efficacy of the drug in the patient population, and to determinedetermining the appropriate doses for further testing.evaluation.
Phase III: Large scaleLarge-scale clinical studies with several hundred to several thousand patients, which are conducted to establish the safety and effectivenessefficacy of the drugdrug-specific indications for regulatory approval for indicated uses.approval. Phase III trials may also be used to compare a new drug against a current standard of care in order to evaluate the overall risk/benefitbenefit-risk relationship of the new drug.medicine.
Though we use this traditional model as a platform, we have tailored the process to be simpler, more flexible and efficient. Our development paradigm consists of two parts: Exploratory developmentDevelopment and Confirmatory development.Development. Exploratory developmentDevelopment 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 developmentDevelopment stage. Confirmatory developmentDevelopment has elements of traditional Phase II/III testing and includes trials aimed at confirming the safety and efficacy of the drug in the given indication leading up to submission of a dossier to health authorities for approval. Like traditional Phase III testing, this stage can also include trials which compare the drug to the current standard of care for the disease, in order to evaluate the drug's overall risk/benefit profile.
The following table and paragraph summaries provide an overview of the key projects currently in the Confirmatory developmentDevelopment stage within our Pharmaceuticals Division, including projects seeking to develop potential uses of new molecular entities, as well as potential additional indications or new formulations for already marketed products.
The year that each project entered the current phase of development disclosed below reflects the year in which the decision to enter the phase was made. This may be different from the year in which the first patient received the first treatment in the related clinical trial. A reference to a project being in registration means that itan application has been submitted tofiled with a health authority for marketing approval.
Selected Development Projects
Project/Product | Common name | Mechanism of action | Potential indication/ Disease area | Business franchise | Formulation/ Route of administration | Year Project Entered Current Development Phase | Planned filing dates/Current phase | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ABL001 | TBD | BCR-ABL inhibitor | Chronic myeloid leukemia | Oncology | Oral | 2015 | ³2020/I | |||||||||
ACZ885 | canakinumab | Subcutaneous injection | ||||||||||||||
Secondary prevention of cardiovascular events | Subcutaneous injection | 2011 | 2017/III | |||||||||||||
Afinitor/Votubia (RAD001) | everolimus | mTOR inhibitor | Non-functioning GI and lung neuroendocrine tumors | Oncology | Oral | 2015 | US/EU (registration) | |||||||||
Tuberous sclerosis complex seizures | Oral | |||||||||||||||
Oncology | Oral | 2009 | 2016/III | |||||||||||||
AMG 334 | TBD | Selective CGRP receptor antagonist | Migraine | Neuroscience | Subcutaneous injection | 2015 | III | |||||||||
Arzerra | ofatumumab | Anti-CD20 monoclonal antibody | Chronic lymphocytic leukemia (extended treatment) | Oncology | Intravenous infusion | 2015 | EU (registration) US (approved) | |||||||||
Chronic lymphocytic leukemia (relapse) | ||||||||||||||||
Oncology | Intravenous infusion | 2010 | 2017/III | |||||||||||||
ASB183 | afuresertib | AKT inhibitor | Solid and hematologic tumors | Oncology | Oral | 2011 | ||||||||||
BAF312 | siponimod | Sphingosine-1-phosphate receptor modulator | Secondary progressive multiple sclerosis | Neuroscience | Oral | 2012 | 2019/III | |||||||||
BGJ398 | infigratinib | Pan-FGF receptor kinase inhibitor | Solid tumors | Oncology | Oral | 2012 | ³ 2020/II | |||||||||
BKM120 | buparlisib | PI3K inhibitor | Metastatic breast cancer, hormone receptor-positive, aromatase inhibitor resistant/mTOR naïve, 2nd line (+ fulvestrant) | Oncology | Oral | 2011 | 2016/III | |||||||||
Oncology | Oral | 2011 | ||||||||||||||
Solid tumors | Oncology | Oral | 2011 | ³ | ||||||||||||
Hormone receptor-positive, HER2 negative advanced breast cancer (postmenopausal women), 2nd line (+ fulvestrant) | Oncology | Oral | 2015 | 2019/III | ||||||||||||
Solid tumors | Oncology | 2010 | ³ | |||||||||||||
Project/Product | Common name | Mechanism of action | Potential indication/ Disease area | Business franchise | Formulation/ Route of administration | Year Project Entered Current Development Phase | Planned filing dates/Current phase | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Neuroscience | 2016/ | |||||||||||||
Neuroscience | Intravenous infusion | 2013 | ³2020/II | |||||||||||
Sarcopenia | Neuroscience | Intravenous infusion | 2014 | ³ | ||||||||||
TBD | Alzheimer's disease | Neuroscience | Intramuscular injection | 2008 | ³2020/ II/III | |||||||||
CJM112 | TBD | Anti-IL-17 monoclonal antibody | Immune disorders | Immunology and Dermatology | Subcutaneous injection | 2015 | ³2020/II | |||||||
CNP520 | TBD | BACE inhibitor | Neuroscience | Oral | 2015 | ³2020/ I/II | ||||||||
Cosentyx (AIN457) | secukinumab | Anti-IL-17 monoclonal antibody | Non-radiographic axial spondyloarthritis | Immunology and Dermatology | Subcutaneous injection | 2015 | 2018/III | |||||||
CTL019 | tisagenlecleucel-T | CD19-targeted chimeric antigen receptor T-cell immunotherapy | Pediatric acute lymphoblastic leukemia | Cell and Gene Therapies | Intravenous | 2012 | 2017/II | |||||||
Diffuse large B-cell lymphoma | Cell and Gene Therapies | Intravenous | 2014 | 2017/II | ||||||||||
EGF816 | TBD | Epidermal growth factor receptor inhibitor | Solid tumors | Oncology | Oral | |||||||||
TBD | Angiotensin | Oral | ||||||||||||
Entresto (LCZ696) | valsartan and sacubitril (as sodium salt complex) | Angiotensin receptor/ neprilysin inhibitor | Chronic heart failure with preserved ejection fraction | Cardio-Metabolic | Oral | 2013 | 2019/III | |||||||
Oral | 2015 | ³ 2020/III | ||||||||||||
Exjade film-coated tablet (FCT) | deferasirox | Iron chelator | Iron overload | Oncology | Oral film-coated tablet | 2015 | EU (registration) US (approved asJadenu) | |||||||
FCR001 | TBD | Inducing stable donor chimerism and immunological tolerance | Renal transplant | Cell and Gene Therapies | Intravenous | 2009 | ³2020/II | |||||||
Gilenya | fingolimod | Sphingosine-1-phosphate receptor modulator | Chronic inflammatory demyelinating polyradiculoneuropathy | Neuroscience | Oral | 2012 | ||||||||
TBD | Stem cell transplantation | Cell and Gene Therapies | Intravenous | 2012 | ³2020/II | |||||||||
INC280 | capmatinib | c-MET inhibitor | Oncology | Oral | 2013 | 2018/II | ||||||||
KAE609 | cipargamin | PfATP4 inhibitor | Malaria | Established Medicines | Oral | 2012 | ³2020/II | |||||||
KAF156 | TBD | Imidazolopiperazines derivative | Malaria | Established Medicines | Oral | 2013 | 2019/II | |||||||
LCI699 | osilodrostat | Aldosterone synthase inhibitor | Cushing's disease | Oncology | Oral | 2011 | ||||||||
LEE011 | ribociclib | CDK4/6 inhibitor | Hormone receptor-positive, HER2 negative advanced breast cancer (postmenopausal women), 1st line (+ letrozole) | Oncology | Oral | 2013 | 2016/III | |||||||
Project/Product | Common name | Mechanism of action | Potential indication/ Disease area | Business franchise | Formulation/ Route of administration | Year Project Entered Current Development Phase | Planned filing dates/Current phase | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Hormone receptor-positive, HER2 negative advanced breast cancer (postmenopausal women), 1st/2nd line (+ fulvestrant) | Oncology | Oral | 2015 | 2018/III | ||||||||||
Hormone receptor-positive, HER2 negative advanced breast cancer (premenopausal women), 1st line, (+ tamoxifen + goserelin or NSAI + goserelin) | Oncology | Oral | 2014 | 2018/III | ||||||||||
Solid tumors | ||||||||||||||
Oncology | ||||||||||||||
Oral | 2011 | ³ | ||||||||||||
LJM716 | elgemtumab | HER3 monoclonal antibody | Solid tumors | Oncology | Intravenous infusion | 2012 | ³2020/I | |||||||
LJN452 | TBD | FXR agonist | Non-alcoholic steatohepatitis | Immunology and Dermatology | Oral | 2015 | ³2020/II | |||||||
Lucentis | ranibizumab | Anti-VEGF monoclonal antibody fragment | Choroidal neovascularization secondary to | Intravitreal injection | ||||||||||
Intravitreal injection | ||||||||||||||
OAP030 (also known asFovista / E10030) | pegpleranib | Aptamer anti-platelet-derived growth factor (PDGF) | Neovascular age-related macular degeneration | Retina | Solution | 2013 | 2017/III | |||||||
OMB157 | ofatumumab | Anti-CD-20 monoclonal antibody | Relapsing multiple sclerosis | Neuroscience | Subcutaneous injection | 2008 | 2019/II | |||||||
TBD | Oncology | Oral | ||||||||||||
PKC412 | midostaurin | Signal transduction inhibitor | Oncology | Oral | 2008 | |||||||||
Oncology | Oral | 2008 | 2016/II | |||||||||||
Promacta/ Revolade | eltrombopag | Thrombopoietin receptor agonist | Pediatric immune thrombocytopenia | Oncology | Oral and oral suspension | 2015 | EU (registration) US (approved) | |||||||
QAW039 | fevipiprant | CRTH2 antagonist | Asthma | Respiratory | Oral | 2010 | 2019/III | |||||||
Atopic dermatitis | Immunology and Dermatology | Oral | 2013 | ³2020/II | ||||||||||
TBD | ³ | |||||||||||||
QGE031 | High affinity anti-IgE monoclonal antibody | Subcutaneous injection | ³ | |||||||||||
QMF149 | indacaterol, mometasone furoate (in fixed dose combination) | Long-acting beta2-adrenergic agonist and inhaled corticosteroid | Asthma | Respiratory | Inhalation | 2015 | 2018/III | |||||||
QVM149 | indacaterol, mometasone furoate, glycopyrronium bromide (in fixed dose combination) | Long-acting beta2-adrenergic agonist, Long-acting muscarinic antagonist and inhaled corticosteroid | Asthma | Respiratory | Inhalation | 2015 | 2018/III | |||||||
RLX030 | serelaxin | Recombinant form of human relaxin-2 hormone | Acute heart failure | Cardio-Metabolic | Intravenous infusion | 2009 | 2017/III | |||||||
Project/Product | Common name | Mechanism of action | Potential indication/ Disease area | Business franchise | Formulation/ Route of administration | Year Project Entered Current Development Phase | Planned filing dates/Current phase | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Somatostatin analogue | Cushing's disease | Oncology | Long-acting | |||||||||||
Tafinlar+Mekinist | Oncology | Oral | 2011 | 2016/II | ||||||||||
Oncology | ||||||||||||||
Oncology | Oral | |||||||||||||
Tasigna | nilotinib | BCR-ABL inhibitor | Chronic myeloid leukemia treatment-free remission | Oncology | Oral | 2012 | 2016/III | |||||||
VAY736 | TBD | Anti BAFF (B-cell activating factor) antibody | Primary Sjoegren's syndrome | Immunology and Dermatology | Subcutaneous injection | 2015 | ³2020/II | |||||||
Votrient | pazopanib | Angiogenesis inhibitor | Renal cell carcinoma (adjuvant) | Oncology | Oral | 2010 | 2016/III | |||||||
Zykadia (LDK378) | ceritinib | ALK inhibitor | ALK + advanced non-small cell lung cancer (first line, treatment naïve) | Oncology | Oral | 2013 | 2017/III | |||||||
Oncology | Oral | |||||||||||||
Key Compounds in Development (select products in Phases II, III and Registration)Projects
with other agents, including two Phase III trials in hormone receptor-positive (HR+) advanced breast cancer. Results from the Phase III BELLE-2 trial of BKM120 in patients with HR+, HER2 negative advanced breast cancer were presented in December 2015 at a US breast cancer symposium. In this trial, BKM120 plus fulvestrant led to 6.9 months of progression free survival compared to 5.0 months for placebo plus fulvestrant, a statistically significant difference. The subpopulation of patients with ctDNA PIK3CA mutation experienced a 3.8 month progression-free survival improvement when adding BKM120 to fulvestrant compared to the placebo plus fulvestrant arm. The results of this trial are being discussed with regulatory authorities.
lymphomas, an overall response rate of 73% (8/11) was observed in patients with follicular lymphoma and an overall response rate of 47% (7/15) in patients with diffuse large B-cell lymphoma. Four patients developed cytokine-release syndrome of grade 3 or higher at peak T cell expansion.
2014 and showed significant reduction in the number of new brain lesions in the first 24 weeks after ofatumumab administration. Novartis plans to initiate a Phase III program for OMB157 in MS in 2016. We expect to make regulatory filings in MS in 2019. Ofatumumab is marketed by Novartis for oncology indications under the brand nameArzerra.
MAP kinase pathway, resulting in dual blockade of this pathway, which is the main escape mechanism for resistance. Phase II studies are underway to evaluate the efficacy and safety ofTafinlar + Mekinist in patients with acromegaly,BRAF V600 mutation positive non-small cell lung cancer (NSCLC).Tafinlar has a chronic hormonal disorderBreakthrough Therapy designation from the FDA for treatment of NSCLC patients with BRAF V600E mutations who have received at least one prior line of platinum-containing chemotherapy. In July 2015, the combination therapyTafinlar + Mekinist also received Breakthrough Therapy designation from the FDA for NSCLC patients with BRAF V600E mutations. A Phase III study is also underway for BRAF V600 mutation positive melanoma patients in the adjuvant setting. Results from a pooled data analysis showed that occurspatients with BRAF V600E/K mutation-positive unresectable or metastatic melanoma treated withTafinlar + Mekinist experienced longer progression-free survival and overall survival when excess growth hormone is produced,baseline lactate dehydrogenase (LDH) levels were normal compared to those with elevated LDH levels, further validating the current standard of care,Sandostatin LAR. A study of SOM230 LAR versus octreotide LAR incombination for BRAF positive patients with metastatic carcinoid tumors whose disease-related symptoms are inadequately controlleda better prognosis (indicated by somatostatin analogues was closed based on a futility analysis showing that it was unlikely to meet its primary endpoint. No new or unexpected serious adverse events were identified for SOM230 and safety was not a factor in the decision to close the study. Other studies evaluating SOM230 as a tumor control agent continue unaffected by this decision.normal LDH level).
Projects Added To And Subtracted From The Development Table Since 20112014
Project/Product | Potential indication/ Disease area | Change | Reason | |||
---|---|---|---|---|---|---|
AMG 334 | Migraine | Added | Collaboration with Amgen announced in September 2015 | |||
Arzerra | Chronic lymphocytic leukemia (extended treatment) | Added | Acquired from GSK | |||
Added | ||||||
Added | ||||||
Project/Product | Potential indication/ Disease area | Change | Reason | |||
---|---|---|---|---|---|---|
Solid and hematologic tumors | Added | Acquired from GSK | ||||
BCT197 | Chronic obstructive pulmonary disease | Removed | Transferred to Mereo BioPharma Group Limited | |||
BGS649 | Obese hypogonadotropic hypogonadism | Removed | Transferred to Mereo BioPharma Group Limited | |||
BKM120 | Metastatic breast cancer, hormone receptor-positive, aromatase inhibitor resistant, mTOR inhibitor naïve | Now disclosed as | ||||
Metastatic breast cancer, hormone receptor-positive, aromatase inhibitor and mTOR inhibitor resistant | Now disclosed as metastatic breast cancer, hormone receptor-positive, aromatase inhibitor and mTOR inhibitor resistant, 3rd line (+ fulvestrant) | |||||
BYL719 | Hormone receptor-positive, HER2 negative advanced breast cancer (postmenopausal women), 2nd line (+ fulvestrant) | Added | Entered Confirmatory Development | |||
CNP520 | Alzheimer's disease | Added | Entered Confirmatory Development | |||
CTL019 | Adult and pediatric acute lymphoblastic leukemia | Now disclosed as pediatric acute lymphoblastic leukemia | ||||
Cosentyx (AIN457) | Non-radiographic axial spondyloarthritis | Added | Entered Confirmatory Development | |||
Psoriatic arthritis | Commercialized | |||||
Ankylosing spondylitis | Commercialized | |||||
EMA401 | Neuropathic Pain | Added | Acquired in acquisition of Spinifex Pharmaceuticals, Inc. | |||
Entresto (LCZ696) | Chronic heart failure with reduced ejection fraction | Commercialized | ||||
Project/Product | Potential indication/ Disease area | Change | Reason | |||
---|---|---|---|---|---|---|
Post-acute myocardial infarction | Added | Entered Confirmatory Development | ||||
Jakavi | Polycythemia vera | Commercialized | ||||
LBH589 (Farydak) | Relapsed or relapsed-and-refractory multiple myeloma | Commercialized | ||||
LCQ908 | Development discontinued | |||||
LDE225 (Odomzo) | Advanced basal cell carcinoma | Commercialized | ||||
Hormone receptor-positive, HER2 negative advanced breast cancer (postmenopausal women), 1st/2nd line (+ fulvestrant) | Added | Entered Confirmatory Development | ||||
Hormone receptor-positive, HER2 negative advanced breast cancer (premenopausal women) | Now disclosed as hormone receptor-positive, HER2 negative advanced breast cancer (premenopausal women), 1st line, (+ tamoxifen + goserelin or NSAI + goserelin) | |||||
LGX818 | Solid tumors | Removed | Divested to Array BioPharma Inc. | |||
LIK066 | Type 2 diabetes | Removed | Development discontinued | |||
LJN452 | Non-alcoholic steatohepatitis | Added | Entered Confirmatory Development | |||
Project/Product | Potential indication/ Disease area | Change | Reason | |||
---|---|---|---|---|---|---|
Lucentis | Choroidal neovascularization and macular edema secondary to conditions other than age-related macular degeneration, diabetic macular edema, retinal vein occlusion and pathologic myopia | Now disclosed as choroidal neovascularization secondary to conditions other than age-related macular degeneration and pathologic myopia | ||||
MEK162 | NRAS mutant melanoma | Removed | Rights returned to Array BioPharma Inc. | |||
Low-grade serous ovarian cancer | Removed | Rights returned to Array BioPharma Inc. | ||||
Solid tumors | Rights returned to Array BioPharma Inc. | |||||
MEK162 and LGX818 | BRAF mutant melanoma | Removed | MEK162 rights returned to Array BioPharma Inc. | |||
LGX818 divested to Array BioPharma Inc. | ||||||
OAP030 (also known asFovista/E10030) | Wet age-related macular degeneration | Now disclosed as neovascular age-related macular degeneration | ||||
Added | Acquired from GSK | |||||
PIM447 | Hematologic tumors | Added | Entered | |||
Added | ||||||
QGE031 | ||||||
Added | Entered Confirmatory Development | |||||
QMF149 | Asthma | Added | Entered Confirmatory Development | |||
QVM149 | Asthma | Added | Entered Confirmatory Development | |||
Seebri (NVA237) | Chronic obstructive pulmonary disease | Commercialized | ||||
Project/Product | Potential indication/ Disease area | Change | Reason | |||
---|---|---|---|---|---|---|
Tafinlar + Mekinist | BRAF V600+ non-small-cell lung cancer | Added | Acquired from GSK | |||
Added | ||||||
Acquired from GSK | ||||||
Tekturna | Reduction of cardiovascular death/ hospitalizations in chronic heart failure patients | Removed | Development discontinued | |||
Ultibro (QVA149) | Chronic obstructive pulmonary disease | Commercialized | ||||
Acquired from GSK | ||||||
VAY736 | Primary Sjoegren's syndrome | Added | Entered Confirmatory Development | |||
ALK + advanced non-small cell lung cancer (brain metastases) | Added | Entered Confirmatory Development | ||||
The Pharmaceuticals Division sells products in approximately 140155 countries worldwide, but networldwide. Net sales are generally concentrated in the US, Europe and Japan, which together accounted for 76.6% of the division's 2012 net sales. At the same time,Japan. However, sales from expanding "emerging growth
markets" have become increasingly important to us. See "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Factors Affecting Results of Operations—Fundamental Drivers Remain Strong—Growth of Emerging Markets." The following table sets forth certain data relating to our principal markets inthe aggregate 2015 net sales of the Pharmaceuticals Division.Division by region:
Pharmaceuticals | 2012 Net sales to third parties | 2015 Net sales to third parties | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ millions | % | $ millions | % | ||||||||||
Europe | 10,139 | 33 | ||||||||||||
United States | 10,392 | 32.3 | 10,279 | 34 | ||||||||||
Americas (except the United States) | 3,089 | 9.7 | ||||||||||||
Europe | 10,238 | 31.8 | ||||||||||||
Rest of the World | 8,434 | 26.2 | ||||||||||||
Asia, Africa, Australasia | 7,224 | 24 | ||||||||||||
Canada and Latin America | 2,803 | 9 | ||||||||||||
| | | | | | | | |||||||
Total | 32,153 | 100.0 | 30,445 | 100 | ||||||||||
$ millions | % | |||||||||||||
Established Markets* | 24,778 | 77.1 | ||||||||||||
Emerging Growth Markets* | 7,375 | 22.9 | ||||||||||||
Total | 32,153 | 100.0 | ||||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | | |||||||
Of which in Established Markets* | 22,615 | 74 | ||||||||||||
Of which in Emerging Growth Markets* | 7,830 | 26 |
Many of our Pharmaceuticals Division's products are used for chronic conditions that require patients to consume the product over long periods of time, ranging from months to years. Net sales of the vast majority of our products are not subject to material changes in seasonal demand.
The primary goal of our manufacturing and supply chain management program is to ensure the uninterrupted, timely and cost-effective supply of products that meet all product specifications. We manufacture our products at 6eleven pharmaceutical and four bulk chemical and 13 pharmaceutical production facilities, as well as threeone biotechnology sites.site. Bulk chemical production involves the manufacture of therapeutically active compounds, mainly by chemical synthesis or by biological processes such as fermentation. Pharmaceutical production involves the manufacture of "galenical""galenic" forms of pharmaceutical products such as tablets, capsules, liquids, ampoules, vials and creams. Major bulk chemical sites are located in Schweizerhalle, Switzerland; Grimsby, UK; Ringaskiddy, Ireland and Changshu, China. Significant pharmaceutical production facilities are located in Stein, Switzerland; Wehr, Germany; Singapore; Torre, Italy; Barbera, Spain; Suffern, New York; Sasayama, JapanSpain and in various other locations. Our three biotechnology plants areOperational responsibility for biologics manufacturing at our facilities in Huningue, France; Basel, SwitzerlandFrance and Vacaville, California.Singapore, and at our Sandoz Division facilities in Kundl and Schaftenau, Austria, and Menges, Slovenia, has been brought together within our Pharmaceuticals Division. In addition, we own and operate a Good Manufacturing Practices quality cell processing site in Morris Plains, New Jersey. In 2015, we announced the closing of our site in Resende, Brazil and the downsizing of our site in Ringaskiddy, Ireland, and finalized the divestment of our manufacturing site in Taboão de Serra, Brazil.
During clinical trials, which can last several years, the manufacturing process for a particular product is rationalized and refined. By the time clinical trials are completed and products are launched, the manufacturing processes have been extensively tested and are considered stable. However, improvements to these manufacturing processes may continue over time.
Raw materials for the manufacturing process are either produced in-house or purchased from a number of third-partythird party suppliers. Where possible, our policy is towe maintain multiple supply sources so that
the business is not dependent on a single or limited number of suppliers. However, our ability to do so may at times be limited by regulatory or other requirements. We monitor market developments that could have an adverse effect on the supply of essential materials. Our suppliers of raw materials are required to comply with Novartis quality standards.
The manufacture of our products is complex and heavily regulated by governmental health authorities, which means that supply is never guaranteed. If we or our third-partythird party suppliers fail to comply fully with applicable regulations then there could be a product recall or other shutdown or disruption of our production activities. We have implemented a global manufacturing strategy to maximize business continuity in case of such events or other unforeseen catastrophic events. However, there can be no guarantee that we will be able to successfully manage such issues when they arise.
The Pharmaceuticals Division serves customers with 1,717nearly 2,000 field force representatives in the US, (including supervisors), and an additional 16,752nearly 20,000 in the rest of the world, as of December 31, 2012.2015, including supervisors and administrative personnel. These trained representatives, where permitted by law, present the therapeutic risks and benefits of our products to physicians, pharmacists, hospitals, insurance groups and managed care organizations. We are seeing thecontinue to see increasing influence of customer groups beyond the prescribers, and Novartis is responding by adapting our business practices. In addition, in January 2012, we announced that our US affiliate, Novartis Pharmaceuticals Corporation, plannedpractices to restructure its business to strengthen its competitive position in light of the impending loss in the US of our patent onDiovan, and the expected impact on worldwide sales ofTekturna/Rasilez after the ALTITUDE study termination. This restructuring resulted in a reduction of approximately 1,630 field force positions in the US in 2012, alongengage appropriately with an additional 330 US headquarters positions.such constituencies.
Although specific distribution patterns vary by country, Novartis generally sells its prescription drugs primarily to wholesale and retail drug distributors, hospitals, clinics, government agencies and managed healthcare providers. The growing number of so-called "specialty" drugs in our portfolio has resulted in increased engagement with specialty pharmacies. In the US, specialty pharmacies continue to grow as a distribution channel for specialty products, with an increasing number of health plans mandating use of specialty pharmacies to monitor specialty drug utilization and costs.
In the US, certain products can be advertised by way of television, newspaper and magazine advertising. Novartis also pursues co-promotion/co-marketing opportunities as well as licensing and distribution agreements with other companies when legally permitted and economically attractive.
The marketplace for healthcare is evolving with the consumerconsumers becoming a more informed stakeholderstakeholders in their healthcare decisions and looking for solutions to meet their changing needs. Where permitted by law, Novartis is seekingseeks to tap into the power ofassist the patient, delivering innovative solutions to drive loyaltyeducation, access, and engagement.improved patient care.
As a result of continuing changes in healthcare economics and an aging population, the US Centers for Medicare & Medicaid Services (CMS) is now the largest single payor for healthcare services in the US. In addition, both commercial and government sponsored managed care organizations continue to be one of the largest groups of payors for healthcare services in the US. In other territories, national health services are often the only significant payor for healthcare services. In an effort to control prescription drug costs, almost all managed care organizations and national health services use formularies that list specific drugs that may be reimbursed, and/or the level of reimbursement for each drug. Managed care organizations and national health services also increasingly utilize various cost-benefit analyses to determine whether or not newly-approved drugs will be added to a formulary and/or the level of reimbursement for that drug, and whether or not to continue to reimburse existing drugs. We have dedicated teams that actively seek to optimize formulary positions for our products.
The global pharmaceutical market is highly competitive, and we compete against other major international corporations which sell patented prescription pharmaceutical products, and which have substantial financial and other resources. Competition within the industry is intense and extends across a wide range of commercial activities, including pricing, product characteristics, customer service, sales and marketing, and research and development.
AsIn addition, as is the case with other pharmaceutical companies selling patented pharmaceuticals, Novartis faces ever-increasing challenges from companies selling products which compete with our
products, including competing patented products and generic forms of our products following the expiry of patent protection, or of products which compete with our products.protection. Generic companies may also gain entry to the market through successfully challenging our patents, but we vigorously use legally permissible
measures to defend our patent rights from generic challenges. In addition, werights. We also face competition from over-the-counter (OTC) products that do not require a prescription from a physician. See also "—Regulation—Price Controls", below.
There is ongoing consolidation in the pharmaceutical industry. At the same time, new entrants are looking to use their expertise to establish or expand their presence in healthcare, including technology companies hoping to benefit as data and data management become increasingly important in our industry.
We are among the leadersa leader in the pharmaceuticals industry in terms of research and development, including the level of our investment. Our Pharmaceuticals Division invested the following amounts in research and development:
| 2012 | 2011 | 2010(1) | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ millions | Core R&D(2) $ millions | $ millions | Core R&D(2) $ millions | $ millions | Core R&D(2) $ millions | |||||||||||||
Research and Exploratory Development | 2,584 | 2,530 | 2,676 | 2,625 | 2,368 | 2,311 | |||||||||||||
Confirmatory Development | 4,334 | 4,167 | 4,556 | 4,235 | 4,908 | 4,033 | |||||||||||||
Total | 6,918 | 6,697 | 7,232 | 6,860 | 7,276 | 6,344 | |||||||||||||
OurIn 2015, our Pharmaceuticals Division expensed $6.9$7.2 billion (on a core basis $6.7$7.1 billion) in research and development, in 2012. This represented 21.5% (on a core basis 20.8%) of the division's total net sales. The Pharmaceuticals Division currently has 138 projects in clinical development.
Innovation is criticalwhich amounted to long-term success in the pharmaceutical industry. In 2011, the industry's average spend of pharmaceutical companies on research and development activities was 15% of net sales, but that number is declining as many companies opt to outsource research and development, in-license products and establish option- or risk-sharing deals with other companies. On the development side, many companies are entrusting the conduct of clinical trials to contract research organizations in an effort to cut costs. At Novartis, we have historically made the discovery and development of innovative medicines that address unmet patient needs a priority, and we plan to continue to do so. Our Pharmaceuticals Division research and development investment—in excess of 20%24% of the division's net sales in 2012, 2011sales. For additional information about research and 2010—reflects this.
development expenditures by our Pharmaceuticals Division over the last three years, please see "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Results of Operations—Research and Exploratory Development expenditure was $2.6 billion in 2012, practically unchanged from the 2011 amount of $2.7 billion. In 2011, Research and Exploratory Development expenditure increased to $2.7 billion from $2.4 billion in 2010, reflecting our investment in scientific talent.
Confirmatory Development expenditures in 2012 decreased by 5% to $4.3 billion as compared against 2011. This included $0.1 billion in impairments of intangible assets in 2012 (2011: $0.3 billion). On a core basis, Confirmatory Development expenditure remained unchanged at $4.2 billion in 2012 and represented 13.0% of net sales as in the prior year.
Confirmatory Development expenditures in 2011 decreased by 7% to $4.6 billion as compared against 2010. This included $0.3 billion in impairments of intangible assets in 2011 (2010: $0.9 billion). On a core basis, Confirmatory Development expenditure increased to $4.2 billion in 2011 (2010: $4.0 billion) and represented 13.0% of net sales (2010: 13.3% of net sales).development."
The discovery and development of a new drug is a lengthy process, usually requiring approximately 10 to 15 years from the initial research to bringing a drug to market, including approximately six to eight years from Phase I clinical trials to market.market entry. At each of these steps, there is a substantial risk that a compound will not meet the
requirements to progress further. In such an event, we may be required to abandon a compound in which we have made a substantial investment.
We manage our research and development expenditures across our entire portfolio in accordance with our internalstrategic priorities. We make decisions about whether or not to proceed with development projects on a project-by-project basis. These decisions are based on the project's potential to meet a significant unmet medical need or to improve patient outcomes, the strength of the science underlying the project, and the potential of the project (subject to the risks inherent in pharmaceutical development) to generate significant positive financial results for the Company. Once a management decision has been made to proceed with the development of a particular molecule, the level of research and development investment required will be driven by many factors, including the medical indications for which it is being developed;developed, the number of indications being pursued;pursued, whether the molecule is of a chemical or biological nature;nature, the stage of development;development, and the level of evidence necessary to demonstrate clinical efficacy and safety.
Research program
Our Research program is conducted by the Novartis Institutes for BioMedical Research (NIBR), which is responsible for the discovery of new medicines. We established NIBR in 2003. The principal goal of our research program is to discover new medicines for diseases with unmet medical need. To do this we focus our work in areas where we have sufficient scientific understanding and believe we have the potential to change the practice of medicine. This requires the hiring and retention of the best talent, a focus on fundamental disease mechanisms that are relevant across different disease areas, continuous improvement in technologies for drug discovery and potential therapies, close alliance with clinical colleagues, and the establishment of appropriate external complementary alliances.
At NIBR's headquarters in Cambridge, Massachusetts, and at sites in Switzerland, Singapore, China and three other US locations, more than 6,000 scientists, physicians and business professionals contribute to research into disease areas such as cardiovascular and metabolism disease, neuroscience, oncology, muscle disorders, ophthalmology, autoimmune diseases, and gastrointestinal diseases. Research platforms such as the Center for Proteomic Chemistry are headquartered at the NIBR site in Basel, Switzerland. In addition, the Novartis Institute for Tropical Diseases, the Friedrich Miescher Institute, and the Genomics
Institute of the Novartis Research Foundation focus on basic genetic and genomic research as well as research into diseases of the developing world such as malaria, dengue and African sleeping sickness.
All drug candidates are taken to the clinic via "proof-of-concept" trials to enable rapid testing of the fundamental efficacy of the drug while collecting basic information on pharmacokinetics, safety and tolerability, and adhering to the guidance for early clinical testing set forth by health authorities. Following proof-of-concept, our Pharmaceuticals Division conducts confirmatory trials on the drug candidates.
In 2003, we established the Novartis Institutes for BioMedical Research (NIBR). At NIBR's headquarters in Cambridge, Massachusetts, more than 1,700 scientists and associates conduct research into disease areas such as cardiovascular and metabolism disease, infectious disease, oncology, muscle disorders and ophthalmology. An additional 5,000 scientists and technology experts conduct research in Switzerland, UK, Italy, Singapore, China and five other US sites. Research is conducted at these sites in the areas of neuroscience, autoimmune disease, oncology, cardiovascular disease, gastrointestinal disease and respiratory disease. Research platforms such as the Center for Proteomic Chemistry are headquartered in the NIBR site in Basel, Switzerland. In addition, The Novartis Institute for Tropical Diseases, Novartis Vaccines for Global Health, the Frederich Miescher Institute, and the Genomics Institute of the Novartis Research Foundation, focus on basic genetic and genomic research as well as research into diseases of the developing world such as malaria, tuberculosis, dengue and typhoid fever.
In August 2012, Novartis and the University of Pennsylvania (Penn) announced an exclusive global research and development collaboration to develop and commercialize targeted chimeric antigen receptor (CAR) immunotherapies for the treatment of cancers. The research component of this collaboration will focusfocuses on accelerating the discovery and development of additional therapies using CAR immunotherapy. In addition, NIBR andSeptember 2014, as part of its alliance with Novartis, Penn will buildannounced plans for the construction of the Center for Advanced Cellular Therapies at PennTherapeutics (CACT) on the PennPerelman School of Medicine campus in Philadelphia.Philadelphia, Pennsylvania. The CACT willis planned to be a first-of-itsfirst of its kind research and development center established specifically to develop and manufacture adoptive T cell immunotherapies under the research collaboration guided by scientists and clinicians from NIBR and Penn. Construction of the CACT is expected to be completed in 2016.
In June 2011,February 2014, we acquired CoStim Pharmaceuticals Inc., a Cambridge, Massachusetts-based, privately held biotechnology company focused on harnessing the ophthalmologyimmune system to eliminate immune-blocking signals from cancer. This acquisition enhanced our late discovery stage immunotherapy programs directed to several targets, including PD-1.
In January 2015, we announced collaboration and licensing agreements with Intellia Therapeutics for the discovery and development of new medicines using CRISPR genome editing technology and Caribou Biosciences for the development of drug discovery tools. CRISPR, an acronym that stands for clustered regularly interspaced short palindromic repeats, is an approach that allows scientists to easily and precisely edit the genes of targeted cells. In a short period of time it has proven to be a powerful tool for creating very specific models of disease research groupfor use in drug discovery and has potential for use as a therapeutic modality for treating disease at our Alcon Division joined NIBR's ophthalmology research group. Research continues to focusthe genetic level by deleting, repairing or replacing the genes that cause disease.
In March 2015, we entered into a collaboration with Aduro Biotech focused on the discovery and development of chemicalnext generation cancer immunotherapies targeting the STING signaling pathway. STING is a signaling pathway that when activated is known to initiate broad innate and biological compounds for treating diseases of the eye, withadaptive immune responses in tumors. Aduro's novel small molecule cyclic dinucleotides (CDNs) have proven to generate an immune response in preclinical models that specifically attacks tumor cells. In addition, we launched a particular focus on diseases such as glaucoma and macular degeneration. The costs for these activities are allocatednew research group dedicated to Alcon.
Table of Contentsimmuno-oncology.
In April 2011,September 2015, we announced that the gastrointestinal research teams basedNIBR's President Dr. Mark Fishman will retire when he reaches his contractual retirement age in Horsham, UK would be co-located with teams in BaselMarch 2016. Dr. James E. Bradner, a physician-scientist from Dana Farber Cancer Institute and Cambridge.Harvard Medical School has been named Dr. Fishman's successor.
In October 2011,January 2016, we announced proposals that would impact our Basel-based associates workinga collaboration and licensing agreement with Surface Oncology, which gives Novartis access to four pre-clinical programs in Neuroscience, pre-clinical safety respiratory, kinase, translational medicine and siRNA research. Both announcements are part of our ongoing effort to co-locate teams, pursue new scientific directions and take advantage of outsourcing opportunities.
In October 2010, we announced that we would invest $600 million over the next five years to build new laboratory and office space in Cambridge on an area of land close to our research facilities on Massachusetts Avenue.immuno-oncology.
Development program
The focus of our Development program is to determine whetherthe safety and efficacy of a potential new drugs are safe and effectivemedicine 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.subjects. 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 effectivenessefficacy and safety, and to establish a properthe appropriate therapeutic dose. In Phase III clinical trials, the drug is further tested onin larger numbers of volunteer patients in clinics and hospitals. In each of these phases, physicians monitor volunteer patients closely to assess the potential new drug's safety and efficacy. The vast amount of data that must be collected and evaluated makes clinical testing the most time-consuming and expensive part of new drug development. The next stage in the drug development process is to seek registration for the new drug. See "—Regulation."
At each of these phases of clinical development, our activities are managed by our Innovation Management Board (IMB). The IMB is responsible for oversight over all major aspects of our development portfolio. In particular, the IMB is responsible for the endorsement of proposals to commence the first clinical trials of a development compound, and of major project phase transitions and milestones following a positive Proofproof of Conceptconcept outcome, including transitions to full development and the decision to submit a drugregulatory application to the health authorities. The IMB is also responsible for project discontinuations, for the endorsement of overall development strategy and the endorsement of development project priorities. The IMB is chaired by the Head of Development of our Pharmaceuticals Division and has representatives from Novartis senior management, as well as experts from a variety of fields among its core members and extended membership.
Companion Cell and Gene Therapies
In 2014, Novartis Pharmaceuticals created a franchise focused on the development and commercialization of Cell and Gene Therapies. The Cell and Gene Therapies franchise aims to develop a new approach to treating or potentially curing some patients suffering from a variety of life-threatening diseases, including blood-borne cancers, sickle cell disease, thalassemias and other diseases of the blood by developing a portfolio of new treatments that replace, repopulate and/or reprogram cells, and potentially selectively regulate the immune system. The franchise will initially focus on novel cell therapies and cell-based gene therapies including: Chimeric Antigen Receptor T-Cell technology in immuno-oncotherapy with CTL019, Facilitated Cell Therapy Platform (FCRx) in renal transplantation with FCR001 and stem cell expansion and transplantation with HSC835.
Diagnostics & Genoptix Medical Laboratory
Recent advances in biology and bioinformatics have led to a much deeper understanding of the underlying genetic underpinningsdrivers of disease and drug targets.the molecular pathways cancer uses to progress. Novartis is working to capitalize ondeveloping new therapies that specifically target the mechanisms responsible for disease. To support these scientific advances, to developNovartis is developing innovative diagnostic tests whichthat could potentially could improve physicians' ability to optimize patient outcomes and to administer the rightappropriate treatment to those patients who have the right patient at the right time.greatest potential to benefit from them. Our Pharmaceuticals Division has two units that support our commitment to advancing precision medicine.
Companion Diagnostics
Advancing "personalized medicine" is a core to our overall drug discovery and development strategy. To further strengthen the alignment between our drug programs and our companion diagnostic development activities, in 2012 we realigned the Molecular Diagnostics function and embedded it within Oncology Global Development. Now known asOur Companion Diagnostics (CDx), function works as an integrated part of the function is accountable for front-to-enddrug development and manufacturing of regulated companion diagnostics and of registrational assays in pivotal clinical trials for both Oncology and GenMeds.process. CDx works to harness the full power of ourbrings internal capabilities and resources to bear in an effort to develop and commercialize importantthe development of new diagnostic tests to support our development productsglobal program teams and efforts in various disease areas. Additionally, the CDx team forms strategic collaborations with third parties to secure access to technologies and capabilities that fit the requirements of our drug development programs. The CDx unit develops tests to meet high regulatory standards for the approval of companion diagnostics around the world.
strategically works with external collaborators to leverage technologies and capabilities that fit our diagnostic requirements.Genoptix Medical Laboratory
In 2011, Novartis acquired Genoptix Medical Laboratory, remains within our global Pharmaceuticals Divisionlocated in Carlsbad, California. This organization provides comprehensive diagnostics and continues to provide comprehensive laboratoryinformatics services to community-based hematologists and oncologists in the US. Our aimAs one of the largest hematopathology centers in the US, Genoptix offers comprehensive testing solutions in hematology and solid tumor molecular profiling. Their mission is to improve health outcomescreate value for patientsthe patient and the healthcare system by advancing the ability of physicians to define and monitor individualized treatment programs.
As the number of compounds comingtransforming diagnostic information into development increases, streamlined and centralized management of our assays is vital to the success of our development activities. As a result, we have expanded our Clinical Trial Assay (CTA) capabilities through the creation of the CTA Center of Excellence within Genoptix. This expansion leverages the existing internal capability and expands their business potential as an end-to-end solution for managing Clinical Trial Assays across programs.
Novartis remains committed to addressing unmet medical need regardless of market size. We continue to build our broad suite of diagnostic tools andactionable clinical insights. Genoptix also provides services to improve patient outcomes. Using cutting-edge technologies such as Next Generation Sequencing, we have developed a robustsupport Novartis and expanding portfolio of molecular diagnostic programs. We aim for multiple launches over the next few years to expand on the current offerings to our patients and our customers.third-party clinical trials.
Alliances and acquisitions
Our Pharmaceuticals Division enters into business development agreements with other pharmaceutical and biotechnology companies and with academic institutions in order to develop new products and access new markets. We license products that complement our current product line and are appropriate to our business strategy. Therapeutic area strategies have been established to focus on alliances and acquisition activities for key disease areas/areas and indications that are expected to be growth drivers in the future. We review products and compounds we are considering licensing using the same criteria as we use for our own internally discovered drugs.
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, extensiveExtensive 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 inIn all major countries, that products must be authorized or registered prior to marketing, and that such authorization or registration must subsequently be subsequently maintained. In recent years, the registration process has required increased testing and documentation for clearancethe approval of new drugs, with a corresponding increase in the expense of product introduction.
To register a pharmaceutical product, a registration dossier containing evidence establishing the quality, safety, efficacy and efficacyquality 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 variescan vary significantly from country to country. It is possible that a drug can be registered and marketed in one country while the registration authority in
another country may, prior to registration, request additional information from the pharmaceutical company or even reject the product. It is also possible that a drug may be approved for different indications in different countries.
The registration process generally takes between six months and several years, depending on the country, the quality of the data submitted, the efficiency of the registration authority's procedures and the nature of the product. Many countries provide for accelerated processing of registration applications for innovative products of particular therapeutic interest. In recent years, intensive efforts have been made among the US, the EU and Japan to harmonize registration requirements in order to achieve shorter
development and registration times for medical products. However, the requirement in many countries to negotiate selling prices or reimbursement levels with government regulators and other payors can substantially extend the time until a product may finally be launchedavailable to the market.patients.
The following provides a summary of the regulatory processes in the principal markets served by Pharmaceuticals Division affiliates:
United States
In the US, applications for drug registration are submitted to and reviewed by the FDA. The FDA regulates the testing, manufacturing, labeling and approval for marketing of pharmaceutical products intended for commercialization in the US. The FDA continues to monitor the safety of pharmaceutical products after they have been approved for marketingsale 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, efficacy and efficacy,quality, then the company may file a New Drug Application (NDA) or biologics license applicationBiologics License Application (BLA), as applicable, for the drug. The NDA or BLA must contain all the scientific information that has been gathered about the drug and typically includes information regarding the clinical experiences of patients tested in the drug's clinical trials. A Supplemental New Drug Application (sNDA) or BLA amendment must be filed for new indications for a previously approved drug.
�� Once an NDA or BLAapplication is submitted, the FDA assigns reviewers from its staff in biopharmaceutics, chemistry, clinical microbiology, pharmacology/toxicology, and statistics staff.statistics. After a complete review, these content experts then provide written evaluations of the NDA or BLA. These recommendations are consolidated and are used by the Seniorsenior FDA staff in its final evaluation of the NDA/NDA or BLA. Based on that final evaluation, the FDA then provides to the NDA or BLA's sponsor an approval, or a "complete response" letter if the NDA or BLA application is not approved. If not approved, the letter will state the specific deficiencies in the NDA or BLA which need to be addressed. The sponsor must then submit an adequate response to the deficiencies in order to restart the review procedure.
Once the FDA has approved an NDA, BLA, sNDA or BLA amendment, the company can make the new drug available for physicians to prescribe. The drug owner must submit periodic reports to the FDA, including any cases of adverse reactions. For some medications, the FDA requires additional post-approval studies (Phase IV) to evaluate long-term effects or to gather information on the use of the product under special conditions.
Throughout the life cycle of a product, the FDA also requires compliance with standards relating to good laboratory, clinical, manufacturing and promotional practices.
European Union
In the EU, there are three main procedures for application for authorization to market pharmaceutical products in the EU Member States, the Centralized Procedure, the Mutual Recognition Procedure and the Decentralized Procedure. It is also possible to obtain a national authorization for products intended for commercialization in a single EU member state only, or for additional indications for licensed products.
Under the Centralized Procedure, applications are made to the European Medicines Agency (EMA)EMA for an authorization which is valid for the European Community. The Centralized Procedure is mandatory for all biotechnology products and for new chemical entities in cancer, neurodegenerative disorders, diabetes and AIDS, autoimmune diseases or other immune dysfunctions and optional for other new chemical entities or innovative medicinal products or in the interest of public health. When a pharmaceutical company has gathered data which it believes sufficiently demonstrates a drug's quality, safety, efficacy and efficacy,quality, then the company may submit an application to the EMA. The EMA then receives and validates the application, and appoints a Rapporteur and Co-Rapporteur to review it. The entire review cycle must be completed
within 210 days, although there is a "clock stop" at day 120, to allow the company to respond to questions set forth in the Rapporteur and Co-Rapporteur's Assessment Report. When the company's complete response is received by the EMA, the clock restarts on day 121. If there are further aspects of the dossier requiring clarification, the EMA will then request an Oral Explanation on day 180, in which case the sponsor must appear before the EMA's Scientific Committee (the CHMP)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 EUa European Community decision which is applicable to all Member States. This decision occurs on average 60 days after a positive CHMP recommendation.
Under the Mutual Recognition Procedure (MRP), the company first obtains a marketing authorization from a single EU member state, called the Reference Member State (RMS). In the Decentralized Procedure (DCP) the application is done simultaneously in selected or all Member States if a medicinal product has not yet been authorized in a Member State. During the DCP, the RMS drafts an Assessment Report within 120 days. Within an additional 90 days the Concerned Member States (CMS) review the application and can issue objections or requests for additional information. On Day 90, each CMS must be assured that the product is safe and effective, and that it will cause no risks to the public health. Once an agreement has been reached, each Member State grants national marketing authorizations for the product.
After the Marketing Authorizations have been granted, the company must submit periodic safety reports to the EMA (if approval was granted under the Centralized Procedure) or to the National Health Authorities (if approval was granted under the DCP or the MRP). In addition, several Pharmacovigilancepharmacovigilance measures must be implemented and monitored including Adverse Event collection, evaluation and expedited reporting and implementation, as well as up-date ofupdate Risk Management Plans. For some medications, post approval studies (Phase IV) may be required to complement available data with additional data to evaluate long term effects (called a Post Approval Safety Study, or PASS) or to gather additional efficacy data (called a Post Approval Efficacy Study, or PAES).
European Marketing Authorizations have an initial duration of five years. After this time, the Marketing Authorization may be renewed by the competent authority on the basis of re-evaluation of the risk/benefit balance. Once renewed the Marketing Authorization is valid for an unlimited period. Any Marketing Authorization which is not followed within three years of its granting by the actual placing on the market of the corresponding medicinal product shall ceaseceases to be valid.
Japan
In Japan, applications for new products are made through the Pharmaceutical and Medical Devices Agency (PMDA). Once an NDA is submitted, a review team is formed consisting of specialized officials of the PMDA, including chemistry/manufacturing, non-clinical, clinical and biostatistics. While a team evaluation is carried out, a data reliability survey and Good Clinical Practice/Good Laboratory Practice/Good Manufacturing Practice inspection are carried out by the Office of Conformity Audit and Office of GMP/GQP Inspection of the PMDA. Team evaluation results are passed to the PMDA's external experts who then report back to the PMDA. After a further team evaluation, a report is provided to the Ministry of Health, Labor and Welfare (MHLW), which makes a final determination for approval and refers this to the Council on Drugs and Foods Sanitation which then advises the MHLW on final approvability. Marketing and distribution approvals require a review to determine whether or not the product in the application is suitable as a drug to be manufactured and distributed by a person who has obtained a manufacturing and distribution business license for the type of
drug concerned and confirmation that the product has been manufactured in a plant compliant with Good Manufacturing Practices.
Once the MHLW has approved the application, the company can make the new drug available for physicians to prescribe. After that, the MHLW has listedlists its national health insurance price within 60 days (or 90 days) from the approval, and physicians can obtain reimbursement. For some medications, the MHLW requires additional post-approval studies (Phase IV) to evaluate safety, effects and/or to gather information on the use of the product under special conditions. The MHLW also requires the drug's
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.
In most of the markets where we operate, the prices of pharmaceutical products are subject to both direct and indirect price controls and to drug reimbursement programs with varying price control mechanisms. Due to increasing political pressure and governmental budget constraints, we expect these mechanisms to continue to remain robust—and to perhaps even be strengthened—and to have a negative influence on the prices we are able to charge for our products.
Direct efforts to control prices.prices
United States.In the US, as a result of health care reform legislation enacted in 2010the Patient Protection and Affordable Care Act (ACA), the recurring focus on deficit reduction, and public pressure on elected officials based on recent price increases by certain pharmaceutical manufacturers, there is a significant risklikelihood of continued actions to control prices. Specifically, one proposal that has been repeatedly advanced would impose a government-mandated pricing formula on both patented and generic medications provided through the Medicare prescription drug benefit (Medicare Part D). As to health care reform, there isIn addition, the ACA mandated the creation of a newly creatednew entity, the Independent Payment Advisory Board (IPAB), 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, which could limit net prices for our products. In addition,The Medicare Trustees' Report from July 2015 predicted that the health care reform legislation included language authorizing significant increasesprojected 5-year average growth in Medicaid rebatesper capita Medicare program spending could exceed a specified target level as early as 2017. If the Chief Actuary for CMS determines that were effectivethe projected 5-year average growth rate exceeds the target, the IPAB would then develop savings proposals in 2010,2018 based on a new excise tax on prescription drugs financedsavings target set by government programs, and new required discountsthe Chief Actuary, to be implemented in the Medicare Part D program, all effective in 2011.2019. There is also a riskpossibility that government officials will continue to search for additional ways to reduce or control prices.
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 barriersstrict analyses are being erected againstapplied when evaluating the entry of new products, and, as a result, payors are more frequently limiting access to innovative medicines based on these strict cost-benefit analyses. In addition, prices for marketed products are referenced within Member States and across Member State borders, including new EU Member States. There is also a risk that certain Member States, which currently use the euro as their currency, could cease to do so and issue their own de-valued currency. If this occurs then it could impact the effective prices we would be able to charge for our products. If the exitingfurther impacting individual EU Member State also serves as a reference country for other countries, then this devaluation could further substantially impact the effective prices we would be able to charge in such other countries.pricing.
Rest of World.Many other countries around the world are also taking steps to rein incontrol prescription drug prices. As an example, in 2012, China, one of our most important emerging growth markets, cut retail ceilingorganized tendering in every province, with requested drug price reductions of up to 20% in 2015. Drug prices in China may further decline due to a stated national policy of reducing healthcare costs, including recent strategic initiatives implemented at the province level specifically designed to reduce drug prices. China has also been monitoring drug pricing for irregularities in the market. Although the ultimate impact of this monitoring on 95 cancer, hematologythe regulatory and immunology drugs, including ourFemara. Thepricing framework is not yet clear, China is developing a new pricing framework in which price cuts averaged approximately 17%, and more cuts are expected next year.reductions remain a consistent national priority.
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 patented drug. Other countries have similar laws.laws, including numerous European countries. We expect that the pressure for generic substitution will continue to increase. In addition, the US, EU and other jurisdictions are increasingly developing laws and regulations encouraging the development of biosimilar versions of biologic drugs, which can also be expected to have an impact on pricing.
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.
We expect that pressures on pricing will continue worldwide, and maywill likely increase. Because of these pressures, there can be no certainty that, in every instance, we will be able to charge prices for a product that, in a particular country or in the aggregate, would enable us to earn an adequate return on our investment in that product.
We attach great importance to patents, trademarks, copyrights and know-how, including research data, in order to protect our investment in research and development, manufacturing and marketing. It is our policy to seek the broadest protection available under applicable laws for significant product developments in all major markets. Among other things, patents may cover the products themselves, including the product's active ingredient and its formulation. Patents may cover processes for manufacturing a product, including processes for manufacturing intermediate substances used in the manufacture of the products. Patents may also cover particular uses of a product, such as its use to treat a particular disease, or its dosage regimen. In addition, patents may cover assays or tests for certain diseases or biomarkers, which will improve patient outcomes when administered certain drugs, as well as assays, research tools and other techniques used to identify new drugs. The protection offered by such patents extends for varying periods depending on the grant and duration of patents in the various countries or
region. The protection afforded, which may vary from country to country, depends upon the type of patent and its scope of coverage. Even though we may own, co-own or in-license patents protecting our products,
and conduct pre-launch freedom-to-operate analyses, a third party may nevertheless claim that one of our products infringes a third party patent for which we do not have a license.
In addition to patent protection, various countries offer data or marketing exclusivities for a proscribedprescribed period of time. Data exclusivity may be available which would preclude a potential competitor from filing a regulatory application for a set period of time that relies on the sponsor's clinical trial data, or the regulatory authority from approving the application. The data exclusivity period can vary depending upon the type of data included in the sponsor's application. When it is available, market exclusivity, unlike data exclusivity, precludes a competitor from obtaining FDAmarketing approval for a product even if a competitor's application relies on its own data. Data exclusivity and other regulatory exclusivity periods generally run from the date a product is approved, and so their expiration dates cannot be known with certainty until the product approval date is known.
In the US and other countries, pharmaceutical products are eligible for a patent term extension for patent periods lost during product development and regulatory review. The law recognizes that product development and review by the FDA and other health authorities can take an extended period, and permits an extension of the patent term for a period related to the time taken for the conduct of clinical trials and for the health authority's review. However, the length of this extension and the patents to which it applies cannot be known in advance, but can only be determined after the product is approved.
Patents, patent term extensions and marketing exclusivities can be challenged through various proceedings that depend on the country. For example, patents in the US can be challenged in the United States Patent and Trademark Office (USPTO) through various proceedings, including Inter Partes Review (IPR) proceedings. They may also be challenged through patent infringement litigation under the Hatch-Waxman Act. See generally, "—Sandoz—Intellectual Property" In the EU, EU patents may be challenged through oppositions in the European Patent Office (EPO) or national patents may be challenged in national courts or national patent offices. In Japan, patents may be challenged in the Japanese patent office and in national courts.
United States
Patents
Patents. In the US, a patent issued for an application filed today will receive a term of 20 years from the application filing date, subject to potential patent term adjustments for Patent OfficeUSPTO delay. A US pharmaceutical patent which claims a product, method of treatment using a product, or method of manufacturing a product, may also be eligible for an extension of thea patent term extension based on the time the FDA took to approve the product. This type of extension may only extend the patent term for a maximum of 5 years, and may not extend the patent term beyond 14 years from regulatory approval. Only one patent may be extended for any product based on FDA delay.
In practice, however, it is not uncommon for significantly more than the 5 year maximum patent extension period to pass between the time that a patent application is filed for a product and the time that the product is approved by the FDA. As a result, it is rarely the case that, at the time a product is approved by FDA, it will have the full 20 years of remaining patent life. Rather, in our experience, it is not uncommon that, at the date of approval, a product will have from 13 to 16 years of patent life remaining, including all extensions available at that time.
Data and Market Exclusivity.Exclusivity
In addition to patent exclusivities, the FDA may provide data or market exclusivity for a new chemical entity or an "orphan drug," each of which run in parallel to any patent protection. DataRegulatory data protection or exclusivity prevents a potential generic competitor from relying on clinical trial data which were generated by the sponsor when establishing the safety and efficacy of its competing product. Market exclusivity prohibits any marketing of the same drug for the same indication.
European Community
Patents
Patents. Patent applications in Europe may be filed in the European Patent Office (EPO)EPO or in a particular country in Europe. The EPO system permits a single application to be granted for the whole of the EU, plus other non-EU countries, such as Switzerland and Turkey. When the EPO grants a patent, it is then validated in the countries that the patent owner designates. A patent granted by the EPO or a European country office will expire no later than 21 years from the earliest patent application on which the patent is based. Pharmaceutical patents can also be granted a further period of exclusivity under the Supplementary Protection Certificate (SPC) system. SPCs are designed to compensate the owner of the patent for the time it took to receive marketing authorization by the European Health Authorities. An SPC may be granted to provide, in combination with the patent, up to 15 years of exclusivity from the date of the first European marketing authorization. But theHowever, an SPC cannot last longer than 5 years. The SPC duration can additionally be extended by a further 6 months if the product is the subject of an agreed pediatric investigation plan. The post-grant phase of patents, including the SPC system, is currently administered on a country-by-country basis under national laws which, while differing, are intended to, but do not always, have the same effect.
As in the US, in practice, however, it is not uncommon for the granting of an SPC to not fully compensate the owner of a patent for the time it took to receive marketing authorization by the European Health Authorities.health authorities. Rather, since it can often take from 5 to 10 years to obtain a granted patent in Europe after the filing of the application, and since it can commonly take longer than this to obtain a marketing authorization for a pharmaceutical product in Europe, it is not uncommon that a pharmaceutical product, at the date of approval, will have a patent lifetime of 10 to 15 years, including all extensions available at that time.
Data and Market Exclusivity.Exclusivity
In addition to patent exclusivity, the EU also provides a system of regulatory data exclusivity for authorized human medicines, which runs in parallel to any patent protection. The system for drugs being approved today is usually referred to as "8+2+1" because it provides: an initial period of 8 years of data exclusivity, during which a competitor cannot rely on the relevant data; a further period of 2 years of market exclusivity, during which the data can be used to support applications for marketing authorization, but the competitive product cannot be launched; and a possible 1 year1-year extension of the market exclusivity period if, during the initial 8 year8-year data exclusivity period, the sponsor registered a new therapeutic indication with "significant clinical benefit." This system applies both to national and centralized authorizations. Since thisThis system has been in force only since late 2005, the first 8 year period of data exclusivity has not yet expired, and manytherefore some medicines are insteadremain covered by the previous system in which EU member states provided either 6 or 10 years of data exclusivity.
The EU also has an orphan drug exclusivity system for medicines similar to the US system. If a medicine is designated as an orphan"orphan drug," then it benefits from 10 years of market exclusivity after it is authorized, during which time a similar medicine for the same indication will not receive marketing authorization.
Japan
In Japan, a patent can be issued for active pharmaceutical ingredients. Although methods of treatment, such as dosage and administration, are not patentable in Japan, pharmaceutical compositions for a specific dosage or administration method are patentable. Processes to make a pharmaceutical composition are also patentable. The patent term granted is generally 20 years from the filing date of the patent application on which the patent is based. ItA patent term extension can be extendedgranted for up to 5 years under the Japanese Patent Act to compensate for erosion against the patent term caused by the time needed to obtain marketing authorization from the MHLW. Japan also has an 8-year regulatory data protection system called a "re-examination period" and a 10-year orphan drug exclusivity system.
Typically, it takes approximately 7 to 8 years to obtain marketing authorization in Japan. A patent application on a pharmaceutical substance is usually filed shortly before or at the time when clinical testing begins. Regarding compound patents, it commonly takes approximately 4 to 5 years or more from the patent application filing date to the date that the patent is
ultimately granted. As a result, it is not uncommon for the effective term of patent protection for an active pharmaceutical ingredient in Japan to be approximately 2010 to 2115 years, if duly extended.
The following are certain additional details regarding intellectual property protection for selected Pharmaceuticals Division products and compounds in development. Administrative proceedings or litigation to obtain intellectual property, to enforce intellectual property or to resolve challenges to intellectual property are uncertain and unpredictable. In some circumstances a competitor may be able to market a generic version of one of our products despite the existence of our intellectual property by, for example, designing around our intellectual property or marketing the generic product for non-protected indications. Despite data exclusivity protections, a competitor could opt to incur the costs of conducting its own clinical trials and preparing its own regulatory application, and avoid our data exclusivity protection altogether. There is also a summaryrisk that some countries may seek to impose limitations on the availability of patent protection for pharmaceutical products, or on the extent to which such protections may be enforced. As a result, there can be no assurance that our intellectual property will protect our products or that we will be able to avoid adverse effects from the loss of intellectual property protection in the future.
For each selected product or compound in development, we identify certain issued, unexpired patents by general subject matter and, in parentheses, years of expiry in, if relevant, the US, EU and Japan that are owned, co-owned or exclusively in-licensed by Novartis and that relate to one or more forms of the product or methods of use. Novartis may own or control additional patents relating to compound forms, formulations, processes, synthesis, purification and detection. For additional information regarding commercial arrangements with respect to these products, see "—Key Marketed Products." Identification of an EU patent expiration datesrefers to national patents in EU countries and/or to the national patents that have been derived from a patent granted by the EPO. We identify unexpired regulatory data protection periods and, in parentheses, years of expiry for selected products and compounds in development if the relevant marketing authorizations have been authorized or granted. The term "RDP" refers to regulatory data protection, regulatory data exclusivity (which in the EU refers to the protections under "8+2+1" regulatory data exclusivity), and to data re-examination protection systems. We also identify certain key productsunexpired patent term extensions, SPCs and marketing exclusivities and, in parentheses, years of expiry if they are granted; their subject matter scope may be limited, and is not specified. We designate them as "pending" if they have been applied for but not granted and years of expiry are estimable. Such pending applications may or may not ultimately be granted. In the case of the EU, grant or authorization of a patent term extension, marketing exclusivity or data protection means grant or authorization in at least
one country and possibly pending in others. Marketing exclusivities and patent term extensions include orphan drug exclusivity (ODE), pediatric exclusivity (PE), patent term extension (PTE) and SPC. For each selected product and compound in development, we indicate whether there is current generic competition for one or more product versions or approved indications in each of the major markets for which intellectual property is identified. We also identify ongoing challenges to the disclosed intellectual property that have not been finally resolved without indicating the likelihood of success in each individual case. Resolution of such challenges may include agreements under which Novartis grants licenses permitting marketing of generic versions of our Pharmaceuticals Division:products before expiration of the relevant intellectual property. We disclose certain material terms of certain settlement agreements relating to certain selected products and compounds in development where they could have a material adverse effect on our business. In other cases, certain settlement agreements may contain confidentiality obligations restricting what may be disclosed.
Oncology
There is currently no generic competition in the active ingredient usedUS. There is generic competition in our leading productJapan and some EU countries. In the US, Novartis has resolved patent litigation with certain generic manufacturers. Novartis has licensed a subsidiary of Sun Pharmaceutical Industries to market a generic version ofGleevec/GlivecGleevec, until July 2015 in the US (including pediatric extension), until 2016as of February 1, 2016. Additional generic manufacturers have filed ANDAs challenging the US polymorphic compound form patent; the earliest automatic 30-month stay preventing FDA approval will expire in the majorDecember 2016. Novartis is taking steps in some EU countries to enforce the EU compound patent, the EU polymorphic compound form patent and until September 2014 for the main indications in Japan with generics authorized for a minor indication expected from December 2013. Additional patents were granted in more than 40 countries includingEU GIST method of use patent against generic manufacturers. The EU compound patent PE and the US, Japan, France, Germany, UK, Italy and Spain, claiming innovative featuresEU GIST method ofGleevec/Glivec, including crystal form (expiry 2018), tablet formulation (expiry 2023) and process (expiry 2023). Patent protection on a new crystal form of imatinib has been use patent are being challenged in the US, butpatent offices and courts of several EU countries.
Afinitor/Votubia andAfinitor Disperz/Votubia dispersible tablets: US: Patent on compound (2014), PTE (2019), PE (2020); patent on tablet formulation (2016), PE (2017); patent on dispersible tablet formulation (2022), PE (2023); patents on antioxidant (2019), PE (2020); patent on TSC/SEGA use (2022), PE 2022); patent on breast cancer use (2022), PE (2022); patent on renal cell carcinoma use (2025), PE (2026); patent on pancreatic neuroendocrine tumor use (2028). EU: Patent on compound (2013), SPC (2018); patent on tablet formulation (2016); patent on dispersible tablet formulation (2022); patent on antioxidant (2019); patent on breast cancer use (2022); patent on pancreatic neuroendocrine tumor use (2026); ODE (Votubia) (2021). Japan: Patent on compound (2013), PTE (2018); patent on tablet formulation (2016); patent on dispersible tablet formulation (2022); patent on antioxidant (2019); patent on breast cancer use (2022); patent on pancreatic neuroendocrine tumor use (2026); patent on renal cell carcinoma use (2022); ODE (tuberous sclerosis) (2022); RDP (2018).
There is currently no challenge has been made to the compound patentgeneric competition in the US.US, EU or Japan. In Turkey,the US, generic competition launched in 2012, despite extended litigation. In Canada and Russia,manufacturers have filed ANDAs challenging several patents; the compound patentearliest automatic 30-month stay preventing FDA approval will expire in April 2013. LitigationOctober 2017. The US compound patent and antioxidant patents are being challenged in IPR proceedings in the USPTO.
Zortress/Certican: US: Patent on compound (2014), PTE (2019), PE (2020); patent on tablet formulation (2016), PE (2017); patent on dispersible tablet formulation (2022), PE (2023); two patents on antioxidant (2019, 2019); patents on methods of use (2017, PE (2018)). EU: Patent on compound (2013), SPC (2018); patent on tablet formulation (2016); patent on dispersible tablet formulation (2022); patent on antioxidant (2019). Japan: Patent on compound (2013), PTE (2018); patent on tablet formulation (2016); patent on dispersible tablet formulation (2022); patent on antioxidant (2019).
There is ongoingcurrently no generic competition in both countries.the US, EU or Japan. In the US, generic manufacturers have filed ANDAs challenging several patents; the earliest automatic 30-month stay preventing FDA approval will expire in March 2017. The US compound patent and a method of use patent are being challenged in IPR proceedings in the USPTO.
Jadenu: formulation, the long-acting version ofSandostatin which represents a majority of ourSandostatin sales, expire in 2014 and beyondThe compound patents in the US, but expiredEU and Japan and the US method of use patent identified forExjade also protectJadenu. There is currently no generic competition in July 2010the US, EU or Japan. In the US, a generic manufacturer has filed an ANDA challenging the US compound patent; the earliest automatic 30-month stay preventing FDA approval will expire in key markets outsideMay 2018.
(2022). There is currently no generic competition in the EU or Japan. The EU salt patent is being opposed in the EPO.
Cardio-Metabolic
Immunology and Dermatology
Japan. The EU syringe formulation patent and lyophilized formulation patent are being opposed in the EPO.
Retina
Neuroscience
Primary CareEstablished Medicines
Primary Care
competition in the US. There is currently no generic competition in the EU.Established MedicinesExforge HCT is not currently marketed in Japan.
Specialty Care
Ophthalmology
Neuroscience
Integrated Hospital Care
Critical Care
Compounds in Development
We file patent applications on our Compounds in Development during the course of the development process. The length of the term of any patents on our Compounds in Development cannot be known with certainty until after a compound is approved for marketing by a health authority. This is so because patent applications for many of the compounds will be pending during the course of the development process, but not yet granted. In addition, while certain patents may be applied for early in the development process, such as for the compound itself, it is not uncommon for additional patent applications to be applied for throughout the development process, such as for formulations, or additional uses. Further, in certain countries, data exclusivity and other regulatory exclusivity periods may be available, and may impact the period during which we would have the exclusive right to sell a product. These exclusivity periods generally run from the date the products are approved, and so their expiration dates cannot be known with certainty until the product approval dates are known. Finally, in the US and other countries, pharmaceutical products are eligible for a patent term extension for patent periods lost during product development and regulatory review. The law recognizes that product development and review by the FDA and other health authorities can take an extended period, and permits an extension of the patent term for a period related to the time taken for the conduct of clinical trials and for the health authority's review. However, the length of this extension and the patents to which it applies cannot be known in advance, but can only be determined after the product is approved.
Subject to these uncertainties, we provide the following information regarding our Compoundscompounds in Phase III Clinical Development,clinical development, if any, whichthat have been submitted for registration to the FDA or the EU's EMA:
The loss of patent protection can have a significant adverse impact on our Pharmaceuticals Division. 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 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. In addition, despite data exclusivity, a competitor could opt to incur the costs of conducting its own clinical trials and preparing its own regulatory application, and avoid data exclusivity altogether. As a result, there can be no assurance that our efforts to protect our intellectual property will be effective, or that we will be able to avoid substantial adverse effects from the loss of patent protection in the future.information regarding our selected Pharmaceuticals Division products.
Our Alcon Division is a leader in the research, development, manufacturing and marketing of eye care products worldwide. As of December 31, 2012, the Alcon Division employed 23,874 full-time equivalent associates worldwide, and its products are available in 75 countries.more than 180 markets. In 2012,2015, the Alcon Division had consolidated net sales of $10.2$9.8 billion representing 18.0%20% of total Group net sales.
Alcon is a global leader in eye care and with the April 2011 completion of the merger of Alcon into Novartis, eye care became our fifth growth platform alongside innovative pharmaceuticals, generics, vaccines and diagnostics, and consumer health. The 2011 merger united the strengths of Alcon, CIBA Vision and Novartis Ophthalmics into one eye care business. See "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Acquisitions, Divestments and Other Significant Transactions—Acquisitions in 2011—Corporate—Alcon, Inc." Our Alcon Division offers an extensive breadth of products serving the full lifecycle of patient needs across eye diseases, vision conditions and refractive errors, and is our second largest Division based on sales.
errors. To meet the needs of patients, ophthalmologists, surgeons, optometrists, opticians and physician specialists, Alcon operates with three businesses:franchises: Surgical, Ophthalmic Pharmaceuticals and Vision Care. Alcon sells products in 180 markets, and runs operations in 75 countries. Each businessfranchise operates with specialized sales forces and marketing support.
To accelerate growth, we are taking concerted action on two fronts. For the Surgical and Vision Care franchises, we have identified key actions as part of a growth plan. They include steps to optimize innovation in intraocular lenses (IOLs) for cataract surgery, prioritizing and investing in the development of promising new products, and improving the effectiveness of our sales force.
In addition, we plan to strengthen our ophthalmic medicines business by transferring Ophthalmic Pharmaceuticals products from Alcon to our Pharmaceuticals Division, combining expertise in pharmaceuticals development and marketing with the strong Alcon brand.
Alcon's dedication to research and development is important to our growth plans. As part of our efforts, the Alcon Division works together with the Novartis Institutes for BioMedical Research (NIBR), our global pharmaceutical research organization. This collaboration allows our Alcon Division to leverage
the resources of NIBR in an effort to discover and expand ophthalmic pharmaceutical research targets and to develop chemical and biologic compounds for the potential development intreatment of diseases of the eye, with a particular focus on diseases such as glaucoma and macular degeneration.
In March 2012,July 2014, Alcon gained exclusive rights from ThromboGenicsentered into an agreement with Verily (formerly Google Life Sciences) to commercialize ocriplasmin outsidelicense its "smart lens" technology with the US. Ocriplasmin is potentiallypotential to address ocular conditions. In October 2014, Alcon acquired WaveTec Vision. The acquisition provided Alcon with theORA System, the first pharmacological treatmentcommercialized intra-operative guidance system for vitreomacular traction and macular hole in Europe. Ocriplasmincataract surgeons implanting IOLs. Alcon has been submitted for approval in the EU under the brand nameJetrea, and in January 2013 received a positive CHMP opinion. In October 2012, ocriplasmin was approved by the FDA.
In the summer of 2012, Alcon acquired Endure Medical Systems. The acquisition enables Alcon to enter into the ophthalmic microscopy field through the addition ofintegrated theLuxORORA System Microscope, which has applications for both cataract, as well vitreoretinal surgeries. Products are expected to be introduced globally in 2013.into its existingCataract Refractive Suite by Alcon.
To further improve patient outcomes in cataract surgery, Alcon acquired the ophthalmic divisionTable of SensoMotoric Instruments in November 2012, providing Alcon with leading ocular surgical guidance technology. Alcon also agreed to acquire, from Jack Holladay, MD, and software developer Athanassios Kontos, the rights to certain surgical guidance and planning software used in cataract procedures.
In April 2011, Alcon's portfolio of generic ophthalmic medicines sold through its Falcon business unit primarily in the US, was integrated into our Sandoz Division. Alcon will continue to manufacture the Falcon generics products and supply them to Sandoz. See "—Sandoz."Contents
Surgical
Our Alcon Division's Surgical businessfranchise is the market leader in global ophthalmic surgical product revenues, according to Market Scope, offering ophthalmic surgical equipment, instruments, disposable products and intraocular lenses for surgical procedures that address cataracts, vitreoretinal conditions, glaucoma and refractive errors.
Alcon's Surgical portfolio includes theInfinitiCataract Refractive Suite by Alcon, a suite of equipment to help plan and perform some of the most challenging steps of cataract surgery with automation and precision. It is comprised of theCenturion vision system to performphacoemulsification technology platform; theLenSx laser, a femtosecond laser for increased precision and reproducibility for the corneal incision, capsulorhexis and lens fragmentation steps of the procedure; theVerion image guided system, an ocular surgical planning, imaging and guidance technology; theORA System, an intra-operative guidance system for IOL implantation during cataract surgeries,surgery; and theLuxOR LX3 surgical microscope for greater visualization during surgery. The portfolio also includesContoura vision, the latest vision system in theWavelight refractive suite portfolio for refractive procedures and LASIK treatments, theConstellation vision system for retinal operations, and theWavelightInfiniti refractive suite for refractive procedures.vision system to perform cataract surgeries, which is the phacoemulsification platform introduced prior to theCenturion vision system. Alcon also offers theAcrySof family of intraocular lenses (IOLs) to treat cataracts, including theAcrySof IQ IQ,,AcrySof IQ ReSTOR, PanOptix,AcrySof IQ Toric andAcrySof IQ ReSTOR Toric IOLs, as well as theLenSx femtosecond laser, a cataract surgery technology that increases precision and reproducibility for the corneal incision, capsulorhexis and lens fragmentation steps of the procedure.IOLs. In addition, Alcon provides advanced viscoelastics, surgical solutions, surgical packs and other disposable products for cataract and vitreoretinal surgery.
Ophthalmic Pharmaceuticals
Our Alcon Division's Ophthalmic Pharmaceuticals business combines Alcon'sfranchise develops and markets a broad range of pharmaceuticals with selected ophthalmic products (excludingLucentis) previously marketed by the Novartis Pharmaceuticals Division. The productsto treat chronic and acute conditions of the eye including glaucoma, elevated intraocular pressure (associated with glaucoma), eye infection and inflammation, eye allergies, dry eye and dry eye. Our Alcon Division'sretinal diseases. Ophthalmic Pharmaceuticals business also oversees the line of professionally driven over-the-counter brands that include artificial tears and ocular vitamins. Product highlights within our Alcon Division'sthe Ophthalmic Pharmaceuticals portfolio includeIlevro ophthalmic suspension for the treatment of pain and inflammation associated with cataract surgery;Simbrinza suspension to lower intraocular pressure as a fixed-dose combination;Azopt,Azarga,Travatan Z ophthalmic solution andDuoTrav, each ophthalmic solutionsolutions for the treatment of elevated intraocular pressure associated with glaucoma;open-angle glaucoma or ocular hypertension;Vigamox ophthalmic solution for bacterial conjunctivitis;Pazeo andPataday ophthalmic solutionsolutions for ocular itching associated with allergic conjunctivitis;Nevanac ophthalmic suspension for eye pain and inflammation following cataract surgery and to reduce the risk of macular edema associated with cataract surgery in diabetic patients; theSystane family of over-the-counter products for dry eye relief.relief; and
Table of ContentsJetrea intravitreal injection for treating vitreomacular traction.
Vision Care
Our Alcon Division's Vision Care business combines the portfolio offranchise develops and markets contact lenses and lens care products formerly sold byproducts. Alcon's broad portfolio of silicone hydrogel, daily disposables and color contact lenses includes our former CIBA Vision Business Unit, with Alcon'sAir Optix,Dailies andFreshlook brands. OurDailies product line includesDailies Total1 lenses, a first-of-its-kind water gradient contact lens. OurAir Optix monthly contact lens product line includesAir Optix Colors silicone hydrogel contact lenses. Our contact lens care solution portfolio. Thissolutions business includes theOpti-Free line of multi-purpose disinfecting solutions and drops, as well as theClear Care andAOSept Plus hydrogen peroxide lens care solutions. Alcon also offers a broad portfolio
Table of silicone hydrogel, daily disposables and color contact lenses, including ourAir Optix,Dailies andFreshlook brands, as well as our latest innovation ofDailies Total1. Through the integration of CIBA Vision products, Alcon is now one of the largest manufacturers across contact lenses and lens care products.Contents
Alcon received a number of approvals and launched a number of significant products in 2012, and also received a number of key approvals,2015, including:
The new indication for prevention of post-surgical macular edema will treat the inflammatory response in the retina that limits achieving quality vision post cataract surgery.
Key Marketed Alcon Products
The following tables set forth certain key marketed products in our Alcon Division. While we intend to sell our marketed products throughout the world, not all products and indications are currently available in every country.
Surgical
Cataract | AcrySof family of intraocular lenses includes but is not limited to: | |
AcrySof IQ ReSTOR, AcrySof IQ PanOptix, AcrySof IQ Toric and | ||
AcrySof IQ ReSTOR Toric advanced technology intraocular lenses that correct cataracts and distance vision with presbyopia and/or astigmatism | ||
Cataract Refractive Suite by Alcon designed to streamline the cataract surgical procedure through surgical planning and execution | ||
Centurion vision system intelligent phacoemulsification technology platform with cataract removal capabilities | ||
Infiniti vision system with theOZil torsional hand piece for cataract procedures | ||
LenSx | ||
LuxOR | ||
UltraSert pre-loaded delivery system for intraocular lenses that correct cataracts | ||
Verion imaged-guided system for use during cataract surgery | ||
Vitreoretinal | Constellation vision system for vitreoretinal operations | |
probes | ||
23+, vitrectomy packs | ||
Purepoint laser system and probes | ||
Finesse flex loop | ||
Grieshaber surgical instruments | ||
Edgeplus | ||
Ispan gas,Perfluron, Silkon oil: Retina stabilizing adjuncts | ||
Refractive | Allegretto Wave Eye-Q | |
Contoura vision for LASIK vision correction in patients with myopia and astigmatism | ||
Glaucoma |
|
In addition, Alcon provides advanced viscoelastics, surgical solutions, surgical packs and other disposable products for cataract and vitreoretinal surgery.
Ophthalmic Pharmaceuticals
Glaucoma | Simbrinza suspension to lower intraocular pressure without a beta blocker | |
Izba, Travatan andTravatan Z | ||
Azopt | ||
Anti-Infectives | Vigamox andMoxeza | |
Anti-Inflammation |
| |
Nevanac ophthalmic suspension to treat pain and inflammation following cataract surgery, and to reduce the risk of macular edema associated with cataract surgery in diabetic patients | ||
Durezol and to treat endogenous anterior uveitis | ||
TobraDex andTobraDex ST | ||
Voltaren | ||
Dry Eye | TheSystane family of over-the-counter dry eye products: | |
Systane lubricant eye drops | ||
Systane Balance lubricant eye drops | ||
Systane Hydration lubricant eye drops | ||
Systane Ultra lubricant eye drops | ||
Systane gel drops | ||
Systane lid wipes | ||
Lubricants for eye dryness, discomfort or ocular fatigue: | ||
lubricant eye drops | ||
Tears Naturale | ||
Allergy | Pazeo, Patanol andPataday | |
Patanase nasal spray for seasonal nasal allergy symptoms | ||
Zaditor | ||
Zaditen Ophtha an H1-antagonist to fight allergic conjunctivitis | ||
Livostin an H1-antagonist to fight allergic conjunctivitis (Canada only) | ||
Ear Infections | Ciprodex* | |
|
|
|
| |
Vitalux nutrient supplements to help patients with age-related macular degeneration maintain their vision (outside US markets) | ||
Retinal | Jetrea (ocriplasmin) intravitreal injection for the treatment of | |
Triesence suspension for visualization during vitrectomy |
Vision Care
Contact Lenses | Air Optix family of silicone hydrogel contact lenses (includingAir Optix Colors lenses) | |
Dailies family of daily disposable contact lenses (includingDailies Total1 lenses) | ||
FreshLook family of color | ||
Contact Lens Care | Opti-Free PureMoist MPDS | |
Opti-Free RepleniSH MPDS | ||
Opti-Free Express MPDS | ||
Clear Care Plus |
Selected Development Projects
Surgical
Project/Product(1) | Mechanism of action | Potential indication | Planned submission date/Current Phase | |||
---|---|---|---|---|---|---|
AcrySof IQ ReSTOR Toric 2.5D IOL | Multifocal, aspheric and cylinder correcting intraocular lens | Cataractous lens replacement with or without presbyopia, and with astigmatism | 2016 US/Advanced development | |||
AcrySof IQ ReSTOR Toric 3.0D IOL | Multifocal, aspheric and cylinder correcting intraocular lens | Cataractous lens replacement with or without presbyopia, and with astigmatism | US/Submitted(2) | |||
AcrySof IQ Aspheric IOL with UltraSert | Pre-loaded intraocular lens delivery device | Cataractous lens replacement | Japan/Submitted(3) |
Alcon Products in DevelopmentOphthalmic Pharmaceuticals
Project/Product | Mechanism of action | Potential indication | Route of Administration | Planned submission date/Current Phase | ||||
---|---|---|---|---|---|---|---|---|
EXE844b (finafloxacin) | Anti-infective | Otitis media-tympanostomy tube surgery | Topical | 2016 US/III | ||||
Jetrea Ready-Diluted Injection (ocriplasmin) | Alpha-2 antiplasmin reducer | Retina (vitreomacular traction) | Intravitreal injection | 2017 Japan/III | ||||
Ilevro (nepafenac 0.3%) | Anti-inflammation | Postsurgical macular edema in patients with diabetes | Topical | EU Submitted† 2018 US/III | ||||
RTH258 (brolucizumab) | Anti-VEGF single-chain antibody fragment | Wet age-related macular degeneration | Intravitreal injection | ³ 2018/III |
Vision Care
action | Planned | submission date/Current | ||||||
---|---|---|---|---|---|---|---|---|
Contact lens care | ||||||||
2017 Japan/Advanced development | ||||||||
The principal markets for our Alcon Division include the US, Americas (except the US),Canada and Latin America, Japan and Europe. The following table sets forth the aggregate 20122015 net sales of the Alcon Division by region:
Alcon Division | 2012 Net Sales to third parties | 2015 Net Sales to third parties | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ millions | % | $ millions | % | ||||||||||
Europe | 2,408 | 25 | ||||||||||||
United States | 4,016 | 39.3 | 4,275 | 44 | ||||||||||
Americas (except the United States) | 1,104 | 10.8 | ||||||||||||
Europe | 2,710 | 26.5 | ||||||||||||
Rest of the World | 2,395 | 23.4 | ||||||||||||
Asia, Africa, Australasia | 2,154 | 22 | ||||||||||||
Canada and Latin America | 975 | 9 | ||||||||||||
| | | | | | | | |||||||
Total | 10,225 | 100.0 | 9,812 | 100 | ||||||||||
$ millions | % | |||||||||||||
Established Markets* | 7,805 | 76.3 | ||||||||||||
Emerging Growth Markets* | 2,420 | 23.7 | ||||||||||||
Total | 10,225 | 100.0 | ||||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | | |||||||
Of which in Established Markets* | 7,423 | 76 | ||||||||||||
Of which in Emerging Growth Markets* | 2,389 | 24 | ||||||||||||
| | | | | | | |
Sales of certain eye care ophthalmic pharmaceutical products, including those for allergies, anti-inflammatory and dry eye, are subject to seasonal variation. Sales of the majority of our other products are not subject to material changes in seasonal demand.
In 2012, the2015, our Alcon Division expensed $975 million$0.9 billion (on a core basis $950 million)$0.9 billion) in research and development, which amounted to 9.5%9% of the Division's net sales. The Alcon Division expensed $892 million$0.9 billion (on a core basis $869 million)$0.9 billion) and $352 million$1.0 billion (on a core basis $351 million)$0.9 billion) in research and development in 20112014 and 2010,2013, respectively. Core results exclude impairments, amortization and certain exceptional items. For additional information, see "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Non-IFRS Measures as Defined by Novartis—Core Results."
TheOur Alcon Division has more than 2,100 associates dedicated toin research and development workingwork to address diseases and conditions that affect vision, such as cataracts, glaucoma, retina diseases, dry eye, infection, ocular allergies and refractive error. Our Alcon Division plans to invest more than $5 billion over the next five years to drive research and new product development in eye care.errors. Alcon's pipeline strategy is built around a proof-of-concept qualification process, which quickly identifies opportunities that have the best chance for technical success and advances those projects, while terminating others with a low probability of success.
TheIn addition, the Novartis Institutes for BioMedical Research (NIBR) is the Novartis global pharmaceutical research organization that works to discover innovative medicines thatto treat disease and improve human health. See "—Pharmaceuticals—Research and Development." For Alcon's pharmaceutical business,Ophthalmic Pharmaceuticals franchise, NIBR engages in research activities in an effort to discover and expand ophthalmic research targets, and to develop chemical and biologic compounds for the potential development intreatment of diseases of the eye, with a particular focus on diseases such as glaucoma and macular degeneration. The costs for these activities are allocated to Alcon.
Research and development activities for Alcon's surgical businessSurgical franchise are focused on expanding intraocular lens capabilities to improve refractive outcomes and on developing instruments for cataract, vitreoretinal and corneal refractive surgeries. The focus for the Vision Care businessfranchise is on the research and development of new contact lens materials, coatings and designs to improve patient comfort, and on lens care solutions that provide the safety, disinfecting and cleaning power needed to help maintain ocular health. As announced in 2014, Alcon is also collaborating with Verily (formerly Google Life Sciences), and has licensed its smart lens technology for ocular medical uses, including the potential to provide an accommodative contact lens/intraocular lens for patients living with presbyopia and to monitor glucose levels in diabetic patients. The Ophthalmic Pharmaceuticals franchise is focused on the development of products for the treatment of retinal diseases, glaucoma (intraocular pressure lowering) and dry eye.
We manufacture our Alcon Division's pharmaceutical products at eightsix facilities in the United States, Belgium, France, Spain, Brazil Mexico and Singapore. Our Alcon Division's surgical equipment and other surgical medical devices are manufactured at tennine facilities in the United States, Belgium, Switzerland, Ireland, Germany and Israel. Our Alcon Division's contact lens and certain lens care production facilities are in the US, Canada, Germany, Singapore, Malaysia and Indonesia.
The goal of our supply chain strategy is to efficiently produce and distribute high quality products. The manufacture of our products is heavily regulated by governmental health authorities around the world, including the FDA. In addition to regulatory requirements, many of our products involve technically complex manufacturing processes or require a supply of highly specialized raw materials. For some products and raw materials, we may also rely on a single source of supply.
The manufacture of our products is complex and heavily regulated, which means that supply is never guaranteed. Like some of our competitors, our Alcon Division has faced manufacturing issues and has received Warning Letters relating to such manufacturing issues. In particular, in December 2012, Alcon received an FDA Warning Letter following an inspection at theLenSx laser manufacturing site in Aliso Viejo, California. Alcon has responded in writing to the FDA, and is committedin February 2013, FDA responded to addressing these observations and collaborating withAlcon acknowledging that the Agencycorrective actions described in Alcon's written response appear to ensure that they are fully resolved.address the items identified in the Warning Letter. The Warning Letter was lifted in May 2014 after all corrective
actions were completed. The items noted in the Warning Letter dodid not affect the safety or effectiveness of theLenSx laser, or impact Alcon's ability to sell the product.
If we or our third-party suppliers fail to comply fully with regulations then there could be a product recall or other shutdown or disruption of our production activities. We have implemented a global manufacturing strategy to maximize business continuity in case of such events or other unforeseen
catastrophic events. However, there can be no guarantee that we will be able to successfully manage such issues when they arise.
Our Alcon Division conducts sales and marketing activities around the world in 75 countries organized under five operating regions (US, and Canada, Europe/Middle East/Africa, Latin America/Caribbean,Caribbean/Canada, Asia and Japan). The Alcon Division's global sales forcecommercial capability is organized around sales and marketing organizations dedicated to the Surgical, Ophthalmic Pharmaceuticals and Vision Care businesses.franchises.
Most of our global Alcon marketing efforts are supported by advertising in trade publications and by marketing and sales representatives attending regional and national medical conferences. Marketing efforts are reinforced by targeted and timely promotional materials and direct mail to eye care practitioners in the office, hospital or surgery center setting. Technical service after the sale is provided and an integrated customer relationship management system is in place in many markets. Where applicable in our PharmaceuticalOphthalmic Pharmaceuticals and Vision Care business,franchises, direct-to-consumer marketing campaigns are executed to promote selected products.
While our Alcon Division markets all of its products by calling on medical professionals, direct customers and distribution methods differ across business lines. Although physicians write prescriptions, distributors, wholesalers, hospitals, government agencies and large retailers are the main direct customers for Alcon ophthalmic pharmaceutical products. Alcon surgical products are sold directly to hospitals and ambulatory surgical centers, although Alcon sells through distributors in certain markets outside the US. In most countries, contact lenses are available only by prescription. Our contact lenses can be purchased from eye care professionals, optical chains and large retailers, subject to country regulation. Lens care products can be found in major drugstores, food, mass merchandising and optical retail chains globally, subject to country regulations. In addition, mail order and Internet sales of contact lenses are becoming increasingly important channels in major markets worldwide.
As a result of the changes in healthcare economics, managed care organizations have becomeare now one of the largest groupgroups of payors for healthcare services in the US. In an effort to control prescription drug costs, almost all managed care organizations use a formulary that lists specific drugs that can be prescribed and/or the amount of reimbursement for each drug. We have a dedicated managed care sales team that actively seeks to optimize formulary positions for our products.
The eye care industry is highly competitive and subject to rapid technological change and evolving industry requirements and standards. Our Alcon Division typically competes with different companies across its three respective franchises—Ophthalmic Pharmaceuticals, Surgical and Vision Care. Companies within this industry compete on technological leadership and innovation, quality and efficacy of their products, relationships with eye care professionals and healthcare providers, breadth and depth of product offering and pricing. The presence of these factors varies across our Alcon Division's product offerings, which provides a broad line of proprietary eye care products and competes in all major product categories in the eye care market, with the exception of eyeglasses.
Even if our Our principal competitors generally do not have a comparable range of products, they can, and often do,also sometimes form strategic alliances and enter into co-marketing agreements in an effort to achieve comparable coverage of the ophthalmic market. Particularly in the US, our branded OTC productsbetter compete against "store brand" products that are made with similar active ingredients as Alcon's. These products do not carry our Alcon Division's trusted brand names, but they also do not carry the burden of the expensive advertising and marketing which helped to establish a 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.us.
Our Ophthalmic Pharmaceuticals products are subject to the same regulatory procedures as are the products of our Pharmaceuticals Division. See "—Pharmaceuticals—Regulation."
Our Surgical and Vision Care products are regulated as medical devices in the US and the EU. These jurisdictions each have risk-based classification systems that determine the type of information whichthat must be provided to the local regulators in order to obtain the right to market a product. In the US, safety and effectiveness information for Class II and III devices must be reviewed by the FDA. There are two review procedures: a Pre-Market Approval (PMA) and a Pre-Market Notification (510(k)) submission. Under a PMA, the manufacturer must submit to the FDA supporting evidence sufficient to prove the safety and effectiveness of the device. The FDA review of a PMA usually takes 180 days from the date of filing of the application. Under Pre-Market Notification (510(k)), the manufacturer submits notification to the FDA that it intends to commence marketing the product, with data that establishes the product as substantially equivalent to another product already on the market. The FDA usually determines whether the device is substantially equivalent within 90 days.
In the EU, the CE marking is required for all medical devices sold. By affixing the CE marking, the manufacturer certifies that a product is in compliance with provisions of the EU's Medical Device Directive. Most such products are subject to a self-certification process by the manufacturer, which requires the manufacturer to confirm that the product performs to appropriate standards. This allows the manufacturer to issue a Declaration of Conformity and to notify competent authorities in the EU that the manufacturer intends to market the product. In order to comply with European regulations, our Alcon Division maintains a full Quality Assurance system and is subject to routine auditing by a certified third party (a "notified body") to ensure that this quality system is in compliance with the requirements of the EU's Medical Device Directive as well as the requirements of the ISO quality systems' standard ISO 13485.
We attach great importance to patents, trademarks, copyrights and know-how in order to protect our investment in research and development, manufacturing and marketing. It is our policy to seek the broadest possible protection for significant product developments in all major markets. Among other things, patents may cover the products themselves, including the product's active substance, its use and its formulation. Patents may also cover the processes for manufacturing a product, including processes for manufacturing intermediate substances used in the manufacture of the products. Patents may also cover particular uses of a product, such as its use to treat a particular disease, or its dosage regimen.
The protection offered by such patents extends for varying periods depending on the legal life of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent and its scope of coverage. We monitor our competitors and vigorouslytypically challenge infringements of our intellectual property. We also defend challenges, often by generic manufacturers, to the validity of our intellectual property. However, because the outcome of intellectual property litigation is uncertain and unpredictable, there can be no assurance that we will be able to successfully protect our intellectual property rights in all cases. See generally "—Pharmaceuticals—Intellectual Property."
We take reasonable steps to ensure that our products do not infringe valid intellectual property rights held by others. Nevertheless, third parties may assert patent and other intellectual property rights against our products. As a result, we can become involved in significant intellectual property litigation regarding our products. If we are unsuccessful in defending these suits, we could be subject to injunctions preventing us from selling our products and to damages, which may be substantial. Litigation or administrative proceedings challenging the validity of our intellectual property is similarly unpredictable. If we are
unsuccessful in such proceedings, we may face loss of exclusivity and increased competition in the affected territories.
Worldwide, all of our major products are sold under trademarks that we consider in the aggregate to be important to our businessesbusiness as a whole. We consider trademark protection to be particularly important in the protection of our investment in the sales and marketing of our Surgical, PharmaceuticalOphthalmic Pharmaceuticals and Vision Care businesses.franchises. The scope and duration of trademark protection varies widely throughout the world. In some countries, trademark protection continues only as long as the mark is used. Other countries require registration of trademarks and the payment of registration fees. Trademark registrations are generally for fixed, but renewable, terms.
We rely on copyright protection in various jurisdictions to protect the exclusivity of the code for the software used in our surgical equipment. The scope of copyright protection for computer software varies throughout the world, although it is generally for a fixed term which begins on the date of copyright registration.
Our Sandoz Division is a leader in developing, manufacturinggeneric pharmaceuticals and marketing generic pharmaceutical products, follow-on biopharmaceutical products and drug substances that are not protected by valid and enforceable third-party patents. As of December 31, 2012, affiliates of the Sandoz Division employed 25,835 full-time equivalent associates worldwide,biosimilars and sells products in approximately 140products in more than 160 countries. In 2012,2015, the Sandoz Division achieved consolidated net sales of $8.7$9.2 billion, representing 15.4%18% of the Group's total net sales.
The Sandoz Division 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. Sandoz has activitiesis organized globally in three franchises: Retail Generics, Anti-Infectives, and Biopharmaceuticals & Oncology Injectables, Ophthalmis, Respiratory and Dermatology.Injectables. In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of pharmaceuticals to third parties. Retail Generics includes the areas of dermatology, respiratory and ophthalmics, as well as cardiovascular, metabolism, central nervous system, pain, gastrointestinal, and hormonal therapies. Finished dosage form anti-infectives sold to third parties are also a part of Retail Generics.
In Anti-Infectives, Sandoz manufactures active pharmaceutical ingredients and intermediates—mainly antibiotics—for internal use by Retail Generics and for sale to third-party customers. In Biopharmaceuticals, Sandoz develops, manufactures and markets protein- or other biotechnology-based products (knownknown as biosimilars or follow-on biologics) and sellsprovides biotechnology manufacturing services to other companies. Incompanies, and in Oncology Injectables, Sandoz develops, manufactures and markets cytotoxic products for the hospital market.
Sandoz Ophthalmics, which was formed through the integration of Alcon's generic division Falcon, develops, manufacturesproduces and markets generic ophthalmicfinished dosage form medicines as well as intermediary products including active pharmaceutical ingredients. Nearly half of the Sandoz portfolio, in terms of sales, is in differentiated products—products that are scientifically more difficult to develop and otic products. In addition, Sandoz expanded its presence in Respiratory through the acquisitionmanufacture than standard generics. Examples of Oriel Therapeutics in 2010, and expanded its presence in Dermatology through the acquisition of specialty dermatology company Fougera Pharmaceuticals in 2012.
Sandoz has three strategic priorities: to be first-to-market as originators' substance patents expire or become unenforceable, to be cost competitive by leveraging economies of scale in production and development, and to differentiate Sandoz based on its extensive global reach and advanced technical expertisedifferentiated products in the development, manufacturingSandoz portfolio are the multiple sclerosis treatmentGlatopa (glatiramer acetate injection), the cardiovascular polypillSincronium (acetylsalicylic acid, atorvastatin and marketingramipril), and the pain medication fentanyl, which is difficult to manufacture because its delivery mechanism is a transdermal patch. Differentiated products also include biosimilars, which Sandoz began developing in 1996 and today sells in more than 60 countries. Sandoz is the market leader in biosimilars and all three of differentiated genericsits biosimilars continue to demonstrate strong growth in their respective categories—Omnitrope, a human growth hormone;Binocrit, an erythropoiesis-stimulating agent used to treat anemia; and biosimilars.
filgrastim for neutropenia under the brand namesZarzio outside the US andZarxio in the US. According to IMS Health, Sandoz is the second-largest company in worldwide generic sales and isholds the global leader#1 position in terms of sales in biosimilars with three marketed medicines accounting for approximately half of all biosimilarsand generic anti-infectives, as well as in the combined regions of North America, Europe, Japanophthalmics and Australia. In addition, we have a pipeline of eight to ten biosimilar molecules including biosimilar rituximab (sold by Roche under the brand names Rituxan®/Mabthera®) and other monoclonal antibodies at various stages of development. Our 2010 launch of generic enoxaparin sodium (sold by Sanofi under the brand name Lovenox®) in the US, for which we recorded more than $1 billion net sales in its first 12 months on the market, also helped Sandoz to achieve a global leadership position in generic injectables, based on IMS Health figures. With the integration of Falcon Pharmaceuticals, Sandoz is now positioned as a leading seller of generic ophthalmictransplanattion medicines. In addition, Sandoz remains oneholds leading global positions in key therapeutic areas ranging from generic injectables, dermatology and respiratory to cardiovascular, metabolism, central nervous system, pain and gastrointestinal.
Sandoz is focused on several key priorities, including investing in key markets and therapeutic areas, increasing the performance of the leading manufacturers of antibiotics worldwide.
In July 2012, Sandoz completed the acquisition of Fougera Pharmaceuticals for $1.525 billionits Development & Regulatory organization, optimizing its manufacturing network and maximizing opportunities in an all-cash transaction. This acquisition makes Sandoz a leader in generic dermatology medicines globally, and further strengthens Sandoz's differentiated products strategy. Fougera is a specialty dermatology business which had 2011 net sales of $429 million. Fougera Pharmaceuticals operated two main businesses: Fougera, a leading player in the US dermatology generics sector with 45 products and more than 200 SKUs, and PharmaDerm, a branded specialty pharmaceuticals business with 17 brands and over 40 SKUs.
In 2012, key product launches in the US, the single largest market for Sandoz, included generic valsartan HCT (an authorized generic of the Pharmaceuticals Division'sDiovan HCT), atorvastatin (a generic version of Pfizer's Lipitor®), voriconazole for injection (Pfizer's Vfend®), an authorized generic of sumatriptan (GlaxoSmithKline's Imitrex®) and calcipotriene (LEO Pharma's Dovonex®). Key productbiosimilars.
In 2015, key product launches in the US includedGlatopa, the first generic version of Teva's Copaxone® 20mg (glatiramer acetate injection), the biosimilarZarxio (filgrastim-sndz), and budesonide inhalation suspension (Astra Zeneca's Pulmicort Respules®), as well as authorized generic versions of the The Medicine Company's Angiomax® (bivalirudin) and our Pharmaceutical Division'sExelon Patch (rivastigmine patch).
In 2015, key product launches in various European countries include valsartan/valsartan HCT, atorvastatin (Lipitor®included aripiprazole TAB (Atsuka's Abilify®), candesartan (AstraZeneca's Atacand®duloxetine (Eli Lilly's Cymbalta®), pregabalin HGC (Pfizer's Lyrica®) and irbesartan (Sanofi and Bristol-Myers Squibb's Aprovel®valganciclovir FCT (Roche's Valcyte®). In addition, the global rollout ofAirFluSal Forspiro continued with launches across Europe. As of December 31, 2015,AirFluSal Forspiro was marketed in 24 countries.
In Biopharmaceuticals,2015, Sandoz continued to strengthenaccelerate its global leadership in biosimilars, and to drive its contract manufacturing base business. Recombinant growth hormoneOmnitrope, which was first launched in Europe in 2006 and in 2007 in the US, was launched in Colombia and Turkey in 2012, and is now marketed in over 40 countries. According to IMS data,Omnitrope recently became the second-largest human growth hormone in the US, outselling four of the five originator products. The rollout of high-dosage oncology formulations continued to drive growth of anemia medicineBinocrit in several European countries, complementing the base nephrology business. Sandoz G-CSF biosimilar,Zarzio, which was approved in the EU in 2009 for the treatment of neutropenia, continued to grow rapidly in Europe.
Sandoz made significant progress on its biosimilar pipeline in 2012, with the start of Phase III clinical trials for two molecules. Sandoz now has four molecules in Phase III trials, including the division's first monoclonal antibody, a biosimilar version of the originator compound rituximab (Roche's Rituxan®/MabThera®), which is currently in a Phase III clinical trial for the treatment of follicular lymphoma, and a Phase II trial for rheumatoid arthritis. The other molecules undergoing Phase III testing are biosimilar versions of pegfilgrastim (Amgen's Neulasta®), filgrastim for US registration (Amgen's Neupogen®), and epoetin alfa (Janssen's Procrit®).
In 2012, Sandoz accelerated its efforts to build a leading, sustainable and lasting presence across Sub-Saharan Africa, where it is already the number one provider of generics medicine across French West Africa. Asupported by a strong product portfolio includingthat comprises anti-infectives, tuberculosis treatments, and maternal and child health products, support the objective to expand on the continent and address the needs of African patients. The Division also undertook close collaborations with local partners through several corporate responsibility projects, including the development of "Health Shops" in Zambia in collaboration with the Zambian Ministry of Health to improve access to essential medicines in rural areas, collaboration with Ethiopian authorities to set up a regional bioequivalence laboratory in Ethiopia, and a partnership with a local manufacturer in Cameroon to increase availability of high-quality essential drugs. Sandoz is developing plans to expand its production capacity in Sub-Saharan Africa to address a growing demand for high-quality drugs.non-communicable diseases.
Sandoz launched a number of important products in various countries in 2012,2015, including:
The following tables describe key marketed products for Sandoz (availability varies by market):
Retail Generics
Product | Originator Drug | Description | ||
---|---|---|---|---|
Amoxicillin/clavulanic acid | Augmentin® | Anti-infective | ||
Atorvastatin | Lipitor® | Blood cholesterol reduction | ||
Diclofenac | Voltaren | Analgesic | ||
Fentanyl | Duragesic® | Analgesic | ||
Levothyroxine Sodium | Synthroid®; Levoxyl® | Hypothyroidism treatment | ||
Omeprazole | Prilosec® | Ulcer and heartburn treatment | ||
Tacrolimus | Prograf® | Transplantation | ||
Anti-Infectives
Active Ingredients | Description | |
---|---|---|
Oral and sterile penicillins | Anti-infectives | |
Oral and sterile | Anti-infectives | |
Clavulanic acid and mixtures with clavulanic acid | ß-lactam inhibitors | |
Classical and semisynthetic erythromycins | Anti-infectives | |
| ||
| ||
| ||
|
Intermediates | Description | |
---|---|---|
Various cephalosporin intermediates | Anti-infectives | |
Erythromycin base | Anti-infectives | |
Various crude compounds produced by fermentation | Cyclosporine, ascomysine, rapamycine, mycophenolic acid, etc. |
Biopharmaceuticals
Product | Originator Drug | Description | ||
---|---|---|---|---|
Binocrit and Epoetin alfa | Eprex®/Erypo® | Recombinant protein used for anemia | ||
Omnitrope | Genotropin® | Recombinant human growth hormone | ||
Zarzio,Zarxio and Filgrastim | Neupogen® | Recombinant protein used in oncology |
Oncology Injectables
Product | Originator Drug | Description | ||
---|---|---|---|---|
Multiple myeloma, lymphoma | ||||
Cyclophosphamide | Endoxan® | Breast, ovarian and non-small cell lung cancer | ||
Decitabine | Dacogen® | Bone marrow cancer, leukemia | ||
Docetaxel | Taxotere® | Breast, ovarian | ||
Gemcitabine | Gemzar® | Bladder, pancreas, lung, ovarian, and breast cancer | ||
Leuprorelin | Lupron®, Eligard® | Prostate cancer | ||
Levoleucovorin Calcium | Fusilev® | Rescue after methotrexate high-dose therapy | ||
Methotrexate | Folex®, Rheumatrex® | Arthritis; breast, lung, cervix and ovarian cancer, and others | ||
Paclitaxel | Taxol® | Breast, lung and ovarian cancer, Kaposi sarcoma |
Biosimilars in Phase III Development and Registration
The following table describes Sandoz biosimilar projects that are in Phase III clinical trials (including filing preparation) and registration:
Project/product | Common name | Mechanism of action | Potential indication/ indications | Therapeutic areas | Route of administration | Current phase | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
GP2013 | Non-Hodgkin lymphoma, chronic lymphocytic leukemia, rheumatoid arthritis, granulomatosis with polyangiitis (also known as Wegener's granulomatosis), and | Oncology and Immunology | Intravenous | II and III | ||||||||
GP2015 | etanercept | TNF-a inhibitor | Arthritidies (rheumatoid arthritis, ankylosing spondylitis, psoriatic arthritis), plaque psoriasis and others (same as originator) | Immunology | Subcutaneous | US/EU: Registration | ||||||
GP2017 | adalimumab | TNF-a inhibitor | Arthritidies (rheumatoid arthritis, ankylosing spondylitis, psoriatic arthritis), plaque psoriasis and others (same as originator) | Immunology | Subcutaneous | III | ||||||
HX575* | epoetin alfa | Erythropoiesis-stimulating agent | Chronic kidney disease, chemotherapy-induced anemia and others (same as originator) | Oncology and Nephrology | Subcutaneous and intravenous | III | ||||||
HX575 s.c.** | epoetin alfa | Erythropoiesis-stimulating agent | Chronic kidney disease | Nephrology | Subcutaneous | EU: Registration | ||||||
LA-EP2006 | pegfilgrastim | Pegylated granulocyte colony-stimulating factor | Chemotherapy-induced neutropenia and others (same as originator) | Oncology | Subcutaneous | US: Registration EU: III | ||||||
The two largest generics markets in the world—the US and Europe—are the principal markets for Sandoz, although Sandoz sells products in more than 140160 countries. ThisThe following table sets forth the aggregate 20122015 net sales of Sandoz by region:
Sandoz | 2012 Net Sales to third parties | 2015 Net Sales to third parties | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ millions | % | $ millions | % | ||||||||||
Europe | 3,925 | 43 | ||||||||||||
United States | 2,786 | 32.0 | 3,525 | 38 | ||||||||||
Americas (except the United States) | 634 | 7.3 | ||||||||||||
Europe | 4,225 | 48.6 | ||||||||||||
Rest of the World | 1,057 | 12.1 | ||||||||||||
Asia, Africa, Australasia | 1,150 | 13 | ||||||||||||
Canada and Latin America | 557 | 6 | ||||||||||||
| | | | | | | | |||||||
Total | 8,702 | 100.0 | 9,157 | 100 | ||||||||||
$ millions | % | |||||||||||||
Established Markets* | 6,402 | 73.6 | ||||||||||||
Emerging Growth Markets* | 2,300 | 26.4 | ||||||||||||
Total | 8,702 | 100.0 | ||||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | | |||||||
Of which in Established Markets* | 6,972 | 76 | ||||||||||||
Of which in Emerging Growth Markets* | 2,185 | 24 | ||||||||||||
| | | | | | | |
Many Sandoz products are used for chronic conditions that require patients to consume the product over long periods of time, from months to years. Sales of our anti-infective products are subject to seasonal variation. Sales of the vast majority of our other products are not subject to material changes in seasonal demand.
The goal of our supply chain strategy is to produce and distribute high-quality products efficiently. The manufacture of our products is heavily regulated by governmental health authorities around the world, including the FDA.FDA and EMA. In addition to regulatory requirements, many of our products involve technically complex manufacturing processes or require a supply of highly specialized raw materials.
We manufacture and package our Sandoz products at 45 manufacturing sites across 19 countries.countries, supplying more than 160 countries globally. Among these, our principalmost significant production facilities are located in Barleben and Rudolstadt, Germany; Kundl, Schaftenau and Unterach, Austria; Ljubljana and Menges, and Ljubljana, Slovenia; Broomfield, Colorado; Wilson, North Carolina; Stryków, Poland; KalwePoland. In 2015, we announced that we were exiting our manufacturing sites in Frankfurt and Mahad, India; Boucherville, Canada; Cambé , Brazil; GebzeGerlingen, Germany, as well as in Turbhe, India. We anticipate that these site exits will be completed by the end of 2016. Our global manufacturing strategy focuses on building a high-quality manufacturing network that optimizes cost, service, technology and Syntex, Turkey; Hicksville and Melville, New York. In December 2010, Novartis announced the signing of a Memorandum of Understanding, confirming its intention to build a new, full-scale pharmaceutical manufacturing plant in St. Petersburg, Russia. Construction began in 2011 and the plant is expected to produce approximately 1.5 billion units per year (oral solid dosage forms), of which the majority is anticipated to be generic products. Our total investment in the plant is expected to be approximately $140 million.geography.
Active pharmaceutical ingredients are manufactured in our own facilities or purchased from third-party suppliers. We maintain state-of-the-art and cost-competitive processes within our own production network. Those processes include fermentation, chemical syntheses and precipitation processes, such as sterile processing. Many follow-on biologicsbiosimilars are manufactured using recombinant DNA derived technology, by which a gene is introduced into a host cell, which then produces thea human protein. This manufacturing process requires sophisticated technical expertise. We are constantly working to improve current, and to develop new, manufacturing processes.
Where possible, our policy iswe strive to maintain multiple supply sources so that the business is not dependent on a single or limited number of suppliers, and competitive material sourcing can be assured. 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 active pharmaceutical ingredients. All active pharmaceutical ingredients we purchase must comply with high quality standards.
We obtain agricultural, chemical and other raw materials from suppliers around the world. The raw materials we purchase are generally subject to market price fluctuations. We seek to avoid these fluctuations, where possible, through the use of long-term supply contracts. We also proactively monitor markets and developments that could have an adverse effect on the supply of essential materials. All raw materials we purchase must comply with our quality standards.
For some products and raw materials, we may also rely on a single source of supply.
In November 2011,October 2015, we received a Warning Letter from the FDA with respect to our Kalwe and Turbhe, India manufacturing sites. The Warning Letter observations follow an FDA inspection at both sites in August 2014 and are related to deficiencies in current good manufacturing practice (cGMP) for finished pharmaceuticals. The Warning Letter did not contain any new issues in addition to the 483 observations issued following the August 2014 inspection. Sandoz plans to continue to collaborate with the FDA to resolve the Warning Letter observations.
In September 2015, the FDA confirmed that it closed out the May 2013 Warning Letter relating to our oncology injectables manufacturing facility in Unterach, Austria. That Warning Letter contained two observations which followed an FDA inspection at the site in October 2012, and were related to historical visual inspection practices for products manufactured at the site. A follow up inspection by the FDA in 2014 resulted in no observations.
In July 2014, the FDA confirmed that it had decided to close out the Warning Letter issued in November 2011 against three of our Sandoz Division's facilities—North American facilities in Broomfield, Colorado,Colorado; Wilson, North Carolina,Carolina; and Boucherville, Canada. The letterWarning Letter, which followed inspections at all three sites in the course of 2011, andhad raised concerns regarding these facilities' compliance with FDA cGMP regulations. The FDA observations in the letterWarning Letter related primarily to general documentation,
validation and investigation practices. It states 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. Sandoz is collaboratingtook steps in collaboration with the FDA to promptly correct all concerns raisedthe observations in the Warning Letter andwith respect to ensure that our products are safe and effective and meet highest quality standards. In the fourth quarter of 2012, Sandoz announced that the FDA upgraded the compliance status of its Broomfield, Colorado site. Nonetheless, if we fail to fully resolve the issues raised in the Warning Letter then we could be subject to legal action without further notice including, without limitation, seizure and injunction.all three sites.
Our Sandoz Division has experienced significant supply interruptions in the past, and there can be no assurance that supply will not be interrupted again in the future as a result of unforeseen circumstances. The manufacture of our products is complex and heavily regulated, making supply never an absolute certainty. If we or our third-party suppliers fail to comply fully with regulations or other unforeseen challenges occur, then there could be a product recall or other shutdown or disruption of our production activities. We have implemented a global manufacturing strategy to maximize business continuity in case of business interruptions or other
unforeseen catastrophic events. However, there can be no guarantee that we will be able to successfully manage such issues when theyand maintain continuous supply if such issues arise.
Sandoz sells a broad portfolio of generic pharmaceutical products and biosimilars to wholesalers, pharmacies, hospitals and other healthcare outlets. Sandoz adapts its marketing and sales approach to local decision making processes, depending on the structure of the market in each country.
In response to rising healthcare costs, many governments and private medical care providers, such as health maintenance organizations, have instituted reimbursement schemes that favor the substitution of bioequivalent generic products for patented pharmaceutical products. In the US, statutes have been enacted by virtually all states that permit or require pharmacists to substitute a less expensive generic product for the brand-name version of a drug that has been prescribed to a patient. Generic use is growing in Europe, but penetration rates in many EU countries are(as a percentage of volume) remain well below those in the US because reimbursement practices do not create efficient incentives for substitution.US. Legislative or regulatory changes can have a significant impact on our business in a country. In Germany, for example, the generic market is in transition asand healthcare reforms have increasingly shiftshifted decision making from physicians to insurance funds. A new German Pharmaceutical Law (AMNOG), introduced in January 2011, has driven implementation of the "single-molecule" tender contract system by promoting automatic substitution at pharmacy level. In January 2012 the second part of AMNOG came into force changing the drug price ordinance for prescription-only drugs. As a consequence of the new regulation, as of January 1, 2012, pharmacies' costs of purchasing medicines significantly increased. In anticipation of the change, there was an industry-wide stock-in of products by pharmacists at the end of 2011, which impacted Sandoz sales in the first quarter of 2012.
Our Anti-Infectives businessfranchise supplies Retail Generics and the pharmaceutical industry worldwide withgeneric antibiotics to a broad range of customers, as well as active pharmaceutical ingredients and intermediates mainly into the field of antibiotics.pharmaceutical industry worldwide.
Our Biopharmaceuticals businessfranchise operates in an emerging business environment. Regulatory pathways for approving biosimilar products are either relatively new or still in development, and policies have not yet been fully defined or implemented for the automatic substitution and reimbursement of biosimilars in many markets, including the US.US (see "—Regulation"). As a result, in many of these markets, including the US, our biosimilar products are marketed as branded competitors to the originator products.
The market for generic products is characterized by increasing demand for high-quality pharmaceuticals that can be marketed at lower costs due to comparatively minimal initial research and development investments. Increasing pressure on healthcare expenditures and numerous patent and data exclusivity period expirations have created a favorable market environment for the generics industry. This positive market trend, however, brings increased competition among the companies selling generic pharmaceutical products, leading to ongoing price pressure on generic pharmaceuticals.
In addition, research-based pharmaceutical companies have responded to increased competition from generic products by licensing their patented products to generic companies (the so-called(so-called "authorized generic"generics"). By doing so, research-based pharmaceutical companies participate directly in the conversion of their patented product once generic conversion begins.process. Consequently, generic companies that were not in a position to compete on a specific product may enter the generic market using the innovator's product. In the US, the authorized generic is not subject to the US Hatch-Waxman Act rules regarding exclusivity (See(see "—Regulation"). The company that launches an authorized generic typically launches its product at the same time as the generic exclusivity holder. While this mayAuthorized generics serve as a business opportunity tofor Sandoz when our Pharmaceuticals Division's products losethe product of a
research-based pharmaceutical company loses patent protection this tendsand Sandoz secures a license from the research-based pharmaceutical company to launch the authorized generic of that product. However, because they are not subject to the Hatch-Waxman Act rules on exclusivity, authorized generics also reduce the value of the exclusivity for the company that invested in creating the first generic medicine to
compete with the originator product. Furthermore, certain research-based companies continually seek new ways to protect their market franchise and to decrease the impact of generic competition. For example, some research-based pharmaceutical companies have reacted to generic competition by decreasing the prices of their patented product, or engaging in other tactics to preserve the sales of their branded products, thus possiblypotentially limiting the profit that the generic companies can earn on the competing generic product.
Before a generic pharmaceutical may be marketed, intensive technical as well asand clinical development work must be performed to demonstrate, in bio-availabilitybioavailability studies, the bio-equivalencybioequivalency of the generic product to the reference product. Nevertheless, research and development costs associated with generic pharmaceuticals generally are much lower than those of the originator pharmaceuticals, as no pre-clinical studies or clinical trials on dose finding, safety and efficacy must be performed by the generic company. As a result, pharmaceutical products for which the patent and data exclusivity period has expired can be offered for sale at prices often much lower than those of products protected by patents and data exclusivity, which must recoup substantial basic research and development costs through higher prices over the life of the product's patent and data exclusivity period.
ForWhile generic pharmaceuticals are follow-on versions of chemically synthesized molecules, "biosimilar" products contain a version of the active substance of an already approved original biological medicine. Due to the inherent variability of biologic products and their higher complexity, the development and the regulatory pathway of biosimilars differ significantly from that of generics.
Development of a biosimilar product is much more technically challenging than the development of a generic pharmaceutical. Unlike generic pharmaceuticals, development of biosimilars requires clinical studies in patients. Biosimilars are engineered to match the reference product in quality, safety and efficacy. This is achieved by systematically defining the target of the reference product and then comparing the biosimilar to the reference product at various development stages to confirm biosimilarity and to establish that there are no clinically meaningful differences between the proposed biosimilar and the reference biologic. Because the purpose of a biosimilar clinical development program is to confirm biosimilarity and not establish efficacy and safety de novo, the clinical studies required are less than those required for an originator biologic. Therefore, the cost of development for a biosimilar is usually less than that of an originator biologic.
The regulatory pathways for approving suchapproval of biosimilar products are still in development, or pending final implementation,being developed and established in many countries outside Europe. However, at leastof the world. A regulatory framework for certain biopharmaceutical products, a certain numberthe approval of carefully targeted clinical trialsbiosimilars has been established in patients to determine safetythe EU, Japan, Canada and efficacy do appear to be required.US, while the WHO issued guidance. Sandoz has successfully registered and launched the first biosimilar (or biosimilar type) product in Europe, the US, Canada, Japan, Taiwan, Australia and severalmany countries in Latin American countries, as well as two furtherand Asia. Sandoz has three approved biosimilar products in Europe.
Currently, the affiliatesmore than 60 countries of the world, and is the first company to secure approval for a biosimilar under the US biosimilar pathway which was established as part of the Biologics Price Competition and Innovation Act (BPCIA).
The Sandoz Division employ more than 2,600 Development and Registration staff who exploreexplores alternative routes for the manufacture of known compounds and developdevelops innovative dosage forms of well-established medicines. These associatesThe Development and Registration staff employed by affiliates of the Sandoz Division are based worldwide, including major facilities in Holzkirchen and Rudolstadt, Germany; Kundl, Schaftenau and Unterach, Austria; Ljubljana and Menges,Mengeš, Slovenia; Kalwe, India; Boucherville, Canada; and East Hanover, New Jersey. In 2012,2015, Sandoz expensed $695 million$0.8 billion (on a core basis $749 million, as a result, in part, of a decrease of a contingent consideration liability related to a business combination)$0.8 billion) in product development, which amounted to 8.0%8% of the division's net sales. Sandoz
expensed $640 million$0.8 billion (on a core basis $724 million, as a result, in part, of a decrease of a contingent consideration liability related to a business combination)$0.8 billion) and $658 million$0.8 billion (on a core basis $618 million)$0.8 billion) in 20112014 and 20102013, respectively. Core results exclude impairments, amortization and certain exceptional items. For additional information, see "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Non-IFRS Measures as Defined by Novartis—Core Results."
The Hatch-Waxman Act in the US (and similar legislation in the EU and in other countries) eliminated the requirement that manufacturers of generic pharmaceutical manufacturerspharmaceuticals repeat the extensive clinical trials required for originator products, so long as the generic version could be shown in bioavailability studies to be of identical quality and purity, and to be therapeutically equivalent to the reference product.
In the US, the decision whether a generic pharmaceutical is bioequivalent to the original patented product is made by the FDA based on an Abbreviated New Drug Application (ANDA) filed by the generic product's manufacturer. The process typically takes nearly two years from the filing of the ANDA until FDA approval. However, delays can occur if issues arise regarding the interpretation of bioequivalence study data, labeling requirements for the generic product, or qualifying the supply of active ingredients. In addition, the Hatch-Waxman Act requires a generic manufacturer to certify in certain situations that the generic product does not infringe on any current applicable patents on the product held by the innovator, or to certify that such patents are invalid or the product is non-infringing. This certification often results in a patent infringement lawsuit being brought by the patent holder against the generic company. In the event of such a lawsuit, the Hatch-Waxman Act imposes an automatic 30-month
30 month delay in the approval of the generic product in order to allow the parties to resolve the intellectual property issues. For generic applicants who are the first to file their ANDA containing a certification claiming non-infringement or patent invalidity, the Hatch-Waxman Act provides those applicants with 180 days of marketing exclusivity to recoup the expense of challenging the innovator patents. However, generic applicants must launch their products within certain time frames or risk losing the marketing exclusivity that they had gained by being a first-to-filefirst to file applicant.
In the EU, decisions on the granting of a marketing authorization are made either by the European Commission based on a positive recommendation by the EMA under the Centralized Procedure, or by a single Member State under the national or decentralized procedure. See "—Pharmaceuticals—Regulation—European Union." Companies may submit Abridged Applications for approval of a generic medicinal product based upon its "essential similarity" to a medicinal product authorized and marketed in the EU following the expiration of the product's data exclusivity period. In such cases, the generic company is able to submit its Abridged Application based on the data submitted by the medicine's innovator, without the need to conduct extensive Phase III clinical trials of its own. For all products that received a marketing authorization in the EU after late 2005, the Abridged Application can be submitted throughout the EU. However, the data submitted by the innovator in support of its application for a marketing authorization for the reference product will be protected for ten years after the first grant of marketing authorization in all Member States, and can be extended for an additional year if a further innovative indication has been authorized for that product, based on pre-clinical and clinical trials filed by the innovator that show a significant clinical benefit in comparison to the existing therapies. Approval of biosimilars in Europe follows the same process. However, biosimilars usually have to be approved through the centralized procedure because they are manufactured using recombinant DNA technology. As part of the approval process in the EU, biosimilars have to demonstrate comparability to the originator product in terms of safety, efficacy and quality through an extensive comparability exercise, based on strict guidelines set by the authorities. Regulators will only approve a biosimilar based on data which allows the regulators to conclude that there are no clinically meaningful differences between the reference product and the biosimilar.
In the US, the regulatory pathway for the approval of a biosimilar product was established under the BPCIA, signed into law in March 2010. Under the BPCIA, a biosimilar must be highly similar with no clinically meaningful differences compared to the reference product. Approval of a biosimilar in the US requires the submission of a BLA to the FDA, including an assessment of immunogenicity, and pharmacokinetics or pharmacodynamics. The BLA for a biosimilar can be submitted as soon as four years after the initial approval of the reference biologic, but can only be approved 12 years after the initial approval of the reference biologic. This pathway is still relatively new and some aspects remain untried, controversial and subject to litigation.
Wherever possible, our generic products are protected by our own patents. Among other things, patents may cover the products themselves, including the product's active substance and its formulation. Patents may also cover the processes for manufacturing a product, including processes for manufacturing intermediate substances used in the manufacture of the products. Patents also may cover particular uses of a product, such as its use to treat a particular disease or its dosage regimen. It is our policy to seek the broadest possible protection for significant product developments in all major markets.
We take all reasonable steps to ensure that our generic products do not infringe valid intellectual property rights held by others. Nevertheless, originatingoriginator companies commonly assert patent and other intellectual property rights in an effort to delay or prevent the launch of competing generic products. As a result, we can become involved in significant litigation regarding our generic products. If we are unsuccessful in defending these suits, we could be subject to injunctions preventing us from selling our generic products orand to damages, which may be substantial.
Our Vaccines and Diagnostics Division is a leader in the research, development, manufacturing and marketing of vaccines and diagnostic products used worldwide. As of December 31, 2012, the Vaccines and Diagnostics Division employed 6,391 full-time equivalent associates worldwide in 30 countries. In 2012, the Vaccines and Diagnostics Division had consolidated net sales of $1.9 billion representing 3.3% of total Group net sales.
Novartis Vaccines' products include meningococcal, influenza, pediatric, adult and travel vaccines. Novartis Diagnostics is dedicated to increasing transfusion safety with NAT blood testing products and immunoassay reagents that detect infectious disease worldwide and through distribution of research use blood genotyping products in select markets.
The current product portfolio of our Vaccines and Diagnostics Division includes more than 20 marketed products. In addition, the division's portfolio of development projects includes more than 15 potential new products in various stages of clinical development.
The Novartis meningococcal franchise is expected to be a cornerstone of future growth for the division. Meningococcal disease causes approximately 50,000 deaths a year globally. Because almost all cases of infection are caused by five serogroups—A, B, C, W-135 and Y—and the distribution of strains varies greatly over time and location, we are working to deliver vaccines with broad coverage and the potential to protect all age groups at risk.
In January 2013,Bexsero, the Novartis investigational Meningococcal Group B Vaccine (rDNA, component, adsorbed) received EU approval, following a positive opinion from the CHMP in November 2012. With this approvalBexsero becomes the first broad coverage vaccine to help prevent the leading cause of meningitis in Europe. Global incidence of meningococcal Group B disease (MenB) is estimated to be between 20,000 and 80,000 cases per year, with an approximate 10 percent fatality rate. In the UK, MenB is the cause of the majority (55%) of all meningitis and septicemia, and the cause of 96% of cases in infants.Bexsero has also been submitted for approval to health authorities in Canada, Brazil and Australia. We are working with health authorities in the EU to provide access toBexsero as soon as possible.
Menveo (MenACWY-CRM), a quadrivalent conjugate vaccine for the prevention of the A, C, Y and W-135 strains of meningococcal disease, was approved in 2010 in the US for use in individuals 11-55 years old and in the EU for individuals 11 years and older. In 2011,Menveo gained approval for use in individuals 2-10 years old in the US, and in 2012 gained approval in the EU for individuals 2 years and older. In June 2011, the FDA accepted for review a supplemental Biologics License Application to expand theMenveo indication to include infants and toddlers from 2 months of age. In February 2012, Novartis received a complete response letter from the FDA with respect to this application. We plan to resubmit our application to the agency in early 2013.
Influenza vaccines are an important franchise of the division. Today, we are among the world's largest producers of influenza vaccines. Influenza vaccination is one of the most effective public health interventions, sparing millions of people from complications, including death, from this infectious disease. In November 2012, the FDA approvedFlucelvax, the first cell-culture derived influenza vaccine approved in the US, to help protect adults 18 years and older against seasonal influenza. Cell-culture technology marks the most significant advance in influenza vaccine manufacturing in the US in more than 40 years, and is an alternative to traditional egg-based production.Flucelvax does not contain any preservatives, such as thimerosal, or antibiotics.
In 2012, Novartis announced that it would deliverFluvirin, its seasonal influenza vaccine, to the US market and ship more than 30 million doses to US customers for the 2012/2013 season. Almost 90% of these doses were shipped by September, in time for the start of public vaccination programs. Early arrival of seasonal influenza vaccines ensures that healthcare professionals are equipped to provide the earliest possible protection against influenza.
Young children and older adults are among the most vulnerable to influenza.Fluad, our adjuvanted seasonal influenza vaccine, has been approved for more than a decade in Europe to enhance the immune response in older adults, helping to overcome their naturally occurring immune vulnerability and enabling effective protection against influenza.
In June 2012, Novartis was awarded a contract under the HHS Centers for Innovation in Advanced Development and Manufacturing by the US Department of Health and Human Services (HHS). Under the terms of the contract, our production facility in Holly Springs, NC will provide late-stage development and manufacturing expertise and capabilities to support HHS-driven projects, including development of new biodefense agents and rapid manufacturing response in the event of a public health emergency. In addition, Novartis remains dedicated to working with the World Health Organization and other stakeholders to support global pandemic preparedness, including affordable and equitable access to pandemic vaccines for developing countries.
In 2012, Novartis informed the WHO and other public health partners that, due to adequate supply and decreased global demand, it would cease oral polio vaccine (OPV) manufacturing by 2013. All current
supply commitments for 2013 will be fulfilled as contracted. Novartis has been proud to have provided a significant proportion of the global supply of OPV for more than 20 years and is a longtime supporter of the Global Polio Eradication Initiative. Novartis will continue to support polio eradication and other key global immunization initiatives.
Novartis Vaccines continues to expand geographically through the 2011 completion of the acquisition of an 85% stake in the vaccines company Zhejiang Tianyuan Bio-Pharmaceutical Co., Ltd. Zhejiang Tianyuan offers marketed vaccine products in China. Novartis will collaborate with Tianyuan on strengthening its existing product portfolio and expanding its innovation capabilities. This acquisition is also expected to facilitate the introduction of additional Novartis vaccines into China where there continues to be tens of thousands of new cases of vaccine-preventable diseases each year.
The Diagnostics business maintains its market leadership in blood safety and Hepatitis C antigen manufacturing. OurProcleix portfolio of highly sensitive nucleic acid-based tests and automation platforms, developed in collaboration with Gen-Probe, Inc. (now owned by Hologic, Inc.) are used in markets around the world to screen donated blood for HIV-1, HIV-2, Hepatitis types B and C, and West Nile Virus.
We continue to expand our line of nucleic acid testing products in global markets through a combination of regulatory approvals and ongoing investment in new assays and next-generation automation platforms. In 2011, the company received FDA approval ofProcleix Ultrio Plus Assay, a highly sensitive 3-in-1 assay for detection of HIV-1, Hepatitis B, and Hepatitis C viruses in donated blood. The assay, like others in theProcleix family, feature a unique 2-region detection of HIV Type 1 to reduce the risk of missed HIV infections in the blood supply.
In September, 2012 Novartis commercially launched the fully automated and integratedProcleix Panther system andProcleix Ultrio Elite 4-in-1 assay for detection of HIV-1, HIV-2, Hepatitis B, and Hepatitis C virus in the European Union.
The use of our NAT blood and plasma screening products continues to grow in new markets, with blood banks in China, Korea and Malaysia recently coming online with Novartis platforms.
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.
Key Marketed Vaccine Products
| ||
|
| |
|
| |
|
| |
|
| |
|
| |
| ||
|
| |
|
| |
|
| |
| ||
|
| |
|
| |
|
| |
| ||
|
| |
|
|
Vaccine Key Products in Development
Key Marketed Diagnostics Products
Diagnostics Key Products in Development
The principal markets for our Vaccines and Diagnostics Division include the US and Europe. The following table sets forth the aggregate 2012 net sales of the Vaccines and Diagnostics Division by region:
Vaccines and Diagnostics | 2012 Net Sales to third parties | ||||||
---|---|---|---|---|---|---|---|
| $ millions | % | |||||
United States | 746 | 40.2 | |||||
Americas (except the United States) | 181 | 9.7 | |||||
Europe | 658 | 35.4 | |||||
Rest of the World | 273 | 14.7 | |||||
Total | 1,858 | 100.0 | |||||
$ millions | % | ||||||
Established Markets* | 1,434 | 77.2 | |||||
Emerging Growth Markets* | 424 | 22.8 | |||||
Total | 1,858 | 100.0 | |||||
Sales of certain vaccines, including influenza and tick borne encephalitis vaccines, are subject to seasonal variation. Sales of the majority of our other products are not subject to material changes in seasonal demand.
In 2012, the Vaccines and Diagnostics Division expensed $453 million (on a core basis $429 million) in research and development, which amounted to 24.4% of the division's net sales. The Vaccines and Diagnostics Division expensed $523 million (on a core basis $494 million) and $523 million (on a core basis $506 million) in research and development in 2011 and 2010 respectively.
While research and development costs for vaccines traditionally have not been as high as for pharmaceuticals, a robust clinical program including Phase I to Phase III must be performed by the manufacturer to obtain a license for commercialization. See "—Pharmaceuticals—Compounds in Development" and "—Pharmaceuticals—Research and Development." Similarly, our NAT blood screening research and development efforts, which we perform in collaboration with Gen-Probe, Inc., as well as our other diagnostic research and development efforts, require extensive and expensive research and testing of potential products. At each step, there is a substantial risk that we will not achieve our goals. In such an event, we may decide or be required to abandon a product or program in which we have made a substantial investment.
The goal of our supply chain strategy is to produce and distribute high quality products efficiently. The manufacture of our products is heavily regulated by governmental health authorities around the world, including the FDA. In addition to regulatory requirements, many of our products involve technically complex manufacturing processes or require a supply of highly specialized raw materials. For some products and raw materials, we may also rely on a single source of supply.
We manufacture our vaccines products at six facilities in Europe, the US and Asia. Our principal production facilities are located in Liverpool, UK; Marburg, Germany; Siena and Rosia, Italy; Ankleshwar, India; and Holly Springs, North Carolina. We continue to invest and upgrade our existing sites to ensure that previously initiated remediation efforts are completed and meet quality standards. In addition, certain conjugation and chemistry activities for vaccines are performed at our Emeryville, California site. At our Emeryville site we manufacture antigens and associated conjugates as both intermediates, and in final kits for diagnostics and blood donation screening around the world. We are the world leader in GMP production of HCV antigens used for clinical diagnostic and blood donation screening products sold by other companies. Companies in these markets, including our long-standing collaboration partners Ortho Clinical Diagnostics purchase these products which we manufactured for use in their blood testing assays. Our NAT products for blood and plasma screening are manufactured by Gen-Probe, Inc., with sales, marketing, and distribution by Novartis Diagnostics.
Each year new seasonal influenza vaccines need to be produced in order to help induce protection against the current circulating strains of the virus, which can change from year to year. Global surveillance of influenza viruses is conducted throughout the year by the World Health Organization (WHO) Influenza Surveillance Network, which provides information on currently circulating strains and identifies the appropriate strains to be included in next season's influenza vaccine. Each year, the EMA and the US Centers for Disease Control then confirm the vaccine composition for the coming season for the northern hemisphere and the Australian Therapeutic Goods Administration for the southern hemisphere. There can be no guarantee that the division will succeed in producing and having approved an updated flu vaccine within the timeframes necessary to commercialize the vaccine for the applicable flu season.
The manufacture of our products is complex and heavily regulated, which means that supply is never guaranteed. Like our competitors, our Vaccines and Diagnostics Division has faced significant manufacturing issues. If we or our third-party suppliers fail to comply fully with regulations then there could be a product recall or other shutdown or disruption of our production activities. We have implemented a global manufacturing strategy to maximize business continuity in case of such events or other unforeseen catastrophic events. However, there can be no guarantee that we will be able to successfully manage such issues when they arise.
Our main Vaccines marketing and sales organizations are based in Switzerland, Germany, UK, Italy and the US. We are also seeking to expand operations in China, India, Europe and Latin America. In the US, we market influenza, meningococcal, Japanese Encephalitis and rabies vaccines through a network of wholesalers and distributors as well as direct to key customers. Direct sales efforts are focused on public health and distributor channels, and on non-traditional channels, such as employers, chain drug headquarters and service providers.
The main Diagnostics marketing and sales organizations are based in the US, Switzerland, and Hong Kong. Sales efforts for NAT products are focused on blood banks and plasma fractionators, with some marketing efforts in the US and Canada focused on sales of research-use red blood cell genotyping products from Progenika, Inc., through an agreement with Grifols SA of Spain. With about 40% of the 90 million blood donations made worldwide each year not being tested with nucleic acid screening, the company will continue to focus on increasing adoption of NAT testing in emerging markets of the world.
The global market for products of the type sold by our Vaccines and Diagnostics Division is highly competitive, and we compete against other major international corporations with substantial financial and other resources. Competition within the industry is intense and extends across a wide range of commercial activities, including pricing, product characteristics, customer service, sales and marketing, and research and development.
There is no guarantee that any product, even with patent protection, will remain successful if another company develops a new product offering significant improvements over existing products.
Our vaccines products are subject to essentially the same regulatory procedures as are the products of our Pharmaceuticals Division. See "—Pharmaceuticals—Regulation." In the US, a company seeking approval of a vaccine submits a Biologics License Application (BLA) for the vaccine, rather than an NDA. Subsequently, the BLA follows substantially the same path for approval as does an NDA. In addition, license applications for seasonal flu vaccines must be submitted annually.
Our diagnostics products are regulated as medical devices in the US and the EU. See "—Alcon—Regulation." However, in the US, for specific diagnostics products that are sold into blood banks, or sold for diagnosis of HIV-1 infection, applications are submitted for review by the FDA's Center for Biologics Evaluation and Research (CBER). Under such review, the product is considered a biologic until such time as approval is received, at which time the product becomes a medical device. For products used specifically for screening of blood donors, or biologic reagents sold for further manufacturing use, the medical device is subject to Licensure by CBER. The submission for this purpose follows the same requirements as Vaccines; a Biologic License Application is submitted to CBER. CBER usually takes 240 days to review a BLA. In the EU, Diagnostics products are specifically covered by the EU In Vitro Diagnostic (IVD) Directive. Under that Directive, certain products are subject to review and prior approval by a "notified body." Others are subject to the manufacturer self-certification process.
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 possible protection for significant product developments in all major markets. Among other things, patents may cover the products themselves, including the product's active substance and its formulation. Patents may also cover the processes for manufacturing a product, including processes for manufacturing intermediate substances used in the manufacture of the products. Patents may also cover particular uses of a product, such as its use to treat a particular disease, or its dosage regimen.
The protection offered by such patents extends for varying periods depending on the legal life of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent and its scope of coverage. We monitor our competitors and vigorously challenge infringements of our intellectual property.
Consumer Health is a leader in the research, development, manufacturing and marketing of a wide range of competitively differentiated products that restore, maintain or improve the health and well-being of consumers, as well as pets and livestock. The business of Consumer Health is conducted by a number of affiliated companies throughout the world. Consumer Health consists of the following two divisions:
Each division has its own research, development, manufacturing, distribution and selling capabilities. However, neither division is material enough to the Group to be separately disclosed as a segment. As of December 31, 2012, the affiliates of Consumer Health employed 8,752 full-time equivalent associates worldwide. In 2012, the affiliates of Consumer Health achieved consolidated net sales of $3.7 billion, which represented 6.6% of the Group's total net sales.
The divisions of Consumer Health place considerable emphasis on the development of strong, consumer-oriented and trustworthy brands. To deliver accelerated sales growth and to achieve leadership positions in the fields in which we compete, the divisions of Consumer Health seek to give voice to the consumer and to determine the needs and desires of consumers.
In the dynamic world of consumer healthcare, consumers are becoming more knowledgeable about health and the benefits of self-medication. The success of each division depends upon its ability to anticipate and meet the needs of consumers and health professionals worldwide.
The following is a description of the two Consumer Health divisions:
The principal markets for Consumer Health are the US and Europe. The following table sets forth the aggregate 2012 net sales of Consumer Health by region:
Consumer Health | 2012 Net Sales to third parties | ||||||
---|---|---|---|---|---|---|---|
| $ millions | % | |||||
United States | 652 | 17.4 | |||||
Americas (except the United States) | 429 | 11.5 | |||||
Europe | 1,877 | 50.3 | |||||
Rest of the World | 777 | 20.8 | |||||
Total net sales | 3,735 | 100.0 | |||||
$ millions | % | ||||||
Established Markets* | 2,415 | 64.7 | |||||
Emerging Growth Markets* | 1,320 | 35.3 | |||||
Total net sales | 3,735 | 100.0 | |||||
Sales of our OTC Division are marked by a high degree of seasonality, with our cough, cold and allergy brands significantly affected by the timing and severity of the annual cold and flu and allergy seasons. Sales of our Animal Health Division's livestock segment can also fluctuate seasonally, and can be significantly affected by climatic and economic conditions, or by changing health or reproduction rates of animal populations. Sales of most of our other products are not subject to material changes in seasonal demand.
The goal of our supply chain strategy is to produce and distribute high quality products efficiently. The manufacture of our products is heavily regulated by governmental health authorities around the world, including the FDA. In addition to regulatory requirements, many of our products involve technically complex manufacturing processes or require a supply of highly specialized raw materials. For some products and raw materials, we may also rely on a single source of supply.
OTC: Products for our OTC Division are produced by the division's own plants, strategic third-party suppliers and other Group plants (which are predominantly owned and operated by the Pharmaceuticals Division). The primary OTC plants are located in Lincoln, Nebraska; Nyon, Switzerland; Humacao, Puerto Rico; and Jamshoro, Pakistan.
Animal Health: Approximately 80% of our production volume is manufactured by third parties and Novartis affiliates in other divisions. Animal Health has production facilities of its own located around the world, with main sites in Wusi Farm, China; Dundee, UK; Larchwood, Iowa; Charlottetown, Canada; and Huningue, France.
While production practices may vary from division to division, we generally obtain our raw materials, intermediates and active ingredients from suppliers around the world. The raw materials, intermediates and active ingredients we purchase are generally subject to market price fluctuations. We seek to avoid these fluctuations, where possible, through the use of long-term supply contracts. We also proactively
monitor markets and developments that could have an adverse effect on the supply of essential materials. All raw materials we purchase must comply with our quality standards.
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 significant progress in 2012 in the remediation of quality issues at Lincoln, and have out-sourced 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. As a result of the manufacturing issues at Lincoln, we have suffered and may continue to suffer significant losses in sales and market share. In addition, we have been required to expend considerable resources on the remediation of the issues at this site. Should we fail to complete the planned improvements at the site in agreement with FDA in a timely manner, then we may suffer a significant additional losses in sales and drainage of resources, and we could be subject to legal action without further notice.
As a result of the activities at Lincoln, Consumer Health has experienced, and continues to experience, significant supply interruptions, and there can be no assurance that supply will not be interrupted again in the future as a result of unforeseen circumstances. The manufacture of our products is complex and heavily regulated, which means that supply is never guaranteed. If we or our third-party suppliers fail to comply fully with regulations then there could be another product recall or other shutdown or disruption of our production activities. We have implemented a global manufacturing strategy to maximize business continuity in case of business interruptions or other unforeseen catastrophic events. However, there can be no guarantee that we will be able to successfully manage such issues when they arise.
OTC: OTC aims to be a leading global participant in fulfilling the needs of patients and consumers for self-medication healthcare. Strong, leading brands and products, innovation led by a worldwide research and development organization, and in-house marketing and sales organizations are key strengths in pursuing this objective. We engage in general public relations activities, including media advertisements, brand websites and other direct advertisements of brands, to the extent permitted by law in each country. We distribute our products through various channels such as pharmacies, food, drug and mass retail outlets.
Animal Health: Animal Health's products are mostly prescription-only treatments for both farm and companion animals. The major distribution channel is veterinarians, either directly or through wholesalers of veterinary products. Primary marketing efforts are targeted at veterinarians using such marketing tools as targeted personal selling, printed materials, direct mail, advertisements, articles in the veterinary specialty press, and conferences and educational events for veterinarians. In addition, we engage in general public relations activities and media advertising, including brand websites and other direct advertisements of brands, to the extent permitted by law in each country.
The global market for products of the type sold by Consumer Health is highly competitive, and we compete against other major international corporations with substantial financial and other resources. Competition within the industry is intense and extends across a wide range of commercial activities, including pricing, product characteristics, customer service, sales and marketing, and research and development. 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 which helped to establish a 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.
OTC: At OTC, the focus of research and development activities is primarily on analgesics, cough/cold/respiratory and digestive health treatments. OTC also works closely with the Pharmaceuticals Division to evaluate appropriate products that can be switched from prescription to OTC status. The development of line extensions to leverage brand equities is also of high importance. These extensions can take many forms including new flavors, new galenical forms and more consumer-friendly packaging.
Animal Health: Novartis Animal Health has dedicated research and development facilities in Switzerland, North America and Australia. The main focus for research is identification of potential new parasiticides and therapeutics in key areas of internal medicine. In addition, in the US and Canada, we devote resources to the quest for new pharmaceuticals and vaccines for farm animals and cultivated fish. Also, our researchers exploit synergy with other Novartis businesses and collaborate with external partners to develop veterinary therapeutics and vaccines. Drug delivery projects, some in collaboration with external partners, concentrate on key treatment areas and aim to improve efficacy and ease of use.
In 2012, Consumer Health expensed $291 million (on a core basis $291 million) in research and development, which amounted to 7.8% of the division's net sales. Consumer Health expensed $296 million (on a core basis $292 million) and $261 million (on a core basis $261 million) in research and development in 2011 and 2010 respectively.
OTC: For OTC products, the primary regulatory process for bringing a product to market consists of preparing and filing a detailed dossier with the appropriate national or international registration authority and obtaining approval of the applicable health authority. See "—Pharmaceuticals—Regulation." In the US, in addition to the NDA process, which also is used to approve prescription pharmaceutical products, an OTC product may be sold if the FDA has determined that the product's active ingredient is generally recognized as safe and effective. FDA makes this determination through a regulatory process known as the OTC Drug Review. In the OTC Drug Review, the FDA has established, in a series of monographs, the conditions under which particular active ingredients may be recognized as safe and effective for OTC use. Pharmaceutical companies can market products containing these active ingredients without the necessity of filing an NDA and going through its formal approval process, so long as the company complies with the terms of the published monograph. Outside the US, countries have their own regulatory processes for approving or allowing the sale of pharmaceutical products, including prescription, OTC, and switching from prescription to OTC status. These processes vary from country to country, but essentially are all built on the principle of requiring an assessment of product efficacy, quality and safety before any marketing activities can be undertaken. In addition, a process similar to the US monograph system exists in some countries, such as Canada and Japan.
Animal Health: The registration procedures for animal medicines are similar to those for human medicines. An animal drug application for product registration must be accompanied by extensive data on target animal and user safety, environmental fate and toxicology, efficacy in laboratory and clinical studies, information on manufacturing, quality control and labeling as well as on residues and food safety if applied to food-producing animals. In the US, animal health products are generally regulated by the FDA's Center for Veterinary Medicine. Certain product categories are regulated by the Environmental Protection Agency, and vaccines are under the control of the US Department of Agriculture. In the EU, veterinary medicinal products need marketing authorization from the competent authority of a member-state (national authorization) or from the EU Commission (community authorization) following either the Centralized Procedure, Mutual Recognition Procedure or the Decentralized Procedure. See "—Pharmaceuticals—Regulation."
Our Consumer Health divisions are strongly brand-oriented. As a result, we consider our trademarks to be of utmost value. Enforceable trademarks protect most of our brands in the majority of the markets where these brands are sold, and we vigorously protect these trademarks from infringement. Our most important trademarks are used in a number of countries. Local variations of these international trademarks are employed where legal or linguistic considerations require the use of an alternative.
Wherever possible, our generic products are protected by our own patents. Among other things, patents may cover the products themselves, including the product's active substance and its formulation. Patents may also coverformulation, or the processes for manufacturing a product, including processes for manufacturing intermediate substances used in the manufacture of the products. Patents may also cover particular uses of a product, such as its use to treat a particular disease, or its dosage regimen. It is our policy to seek the broadest possible protection for significant product developments in all major markets.
Our Consumer Health divisions also sell products which are not currently covered by patents. Some of these products have never been patent-protected and others have lost protection due to patent expiry.product.
See "Item 4. Information on the Company—4.A History and Development of Novartis," and "Item 4. Information on the Company—4.B Business Overview—Overview."
4.D Property, Plants and Equipment
Our principal executive offices are located in Basel, Switzerland. Our divisions and business units operate through a number of affiliates having offices, research facilities and production sites throughout the world.
We generally own our facilities. However, some sites are leased under long-term leases. Some of our principal facilities are subject to mortgages and other security interests granted to secure indebtedness to certain financial institutions. We believe that
For a discussion of our production plantsmanufacturing facilities, see "—Item 4.B Business Overview—Pharmaceuticals—Production," "—Alcon—Production," and research facilities are well maintained and generally adequate to meet our needs for the foreseeable future.
"—Sandoz—Production." The following table sets forth our major headquarters and most significant production and research facilities.and development
facilities by division. A number of the facilities associated with our former Vaccines, OTC and Animal Health Divisions were transferred as part of the portfolio transformation transactions completed in 2015.
Location/Division | Size of Site (in square meters) | Major Activity | ||
---|---|---|---|---|
Major | ||||
Pharmaceuticals | ||||
Changshu (Suzhou), China | 230,000 | Technical research, development and manufacturing of drug substances and drug intermediates | ||
Cambridge, Massachusetts | 212,000 | Global NIBR headquarters, research and development | ||
Basel, Switzerland—St. Johann | 200,000 | Global Group headquarters, global division headquarters, research and development, production of drug substances and drug intermediates | ||
Ringaskiddy, Ireland | 85,000 | Production of drug substances and drug intermediates | ||
Stein, Switzerland | 64,700 | Production of sterile vials, pre-filled syringes and ampoules, and of inhalation capsules, tablets and transdermals, and of active pharmaceutical ingredients | ||
Grimsby, UK | 64,000 | |||
Basel, Switzerland—Schweizerhalle | ||||
Wehr, Germany | 31,700 | Production of tablets, creams and ointments | ||
Location/Division | Size of Site (in square meters) | Major Activity | ||
---|---|---|---|---|
Alcon | ||||
Fort Worth, | ||||
Grosswallstadt, Germany | 82,400 | Production, research and development for Vision Care | ||
Johns Creek, Georgia | 73,400 | Production, research and development for Vision Care | ||
Puurs, Belgium | 55,000 | |||
Houston, Texas | Production for Surgical | |||
Huntington, West Virginia | 24,600 | Production for Surgical | ||
Irvine, California | ||||
Production for Surgical | ||||
Sandoz | ||||
Kundl and Schaftenau, Austria | ||||
Barleben, Germany | ||||
Ljubljana, Slovenia | 83,000 | |||
Holzkirchen, Germany | ||||
| ||||
| ||||
Rudolstadt, Germany | ||||
| ||||
| ||||
In the fourth quarter of 2010, we announced a Group-wide review of our manufacturing footprint. In 20122015, and continuing into 2016, we continued to optimize our manufacturing footprint, bringing the total number of production
sites that have been or are in the process of being restructured, exited or divested as part of these activities to 15. This has and is expected to enable25 for our continuing operations. These steps help us to reduce excessbalance production capacity and to shift strategic product to technology competence centers.further increase efficiency. We have recorded exceptional charges related to exits, impairment charges and inventory write-offs of $68$375 million in 2012,2015, bringing the total charges to $400$950 million since the program began.
The current phasebegan for our continuing operations. As part of this initiative we announced in 2015 the long-term redevelopmentclosing of our Pharmaceuticals Division facility in Resende, Brazil and plans to exit our Sandoz Division plants in Gerlingen and Frankfurt, Germany, and Turbhe, India. We also announced downsizing at a Pharmaceutical Division site in Ringaskiddy, Ireland. In addition, we finalized the divestment of our Alcon Division manufacturing operations in Kaysersberg, France, and the divestment of our pharmaceutical manufacturing site in Taboão da Serra, Brazil.
Our St. Johann headquarters site in Basel, Switzerland, is expected to be finalized in 2015. Thisour largest research and development site as well as the headquarters for the Group and for the Pharmaceuticals Division. A project called "Campus," was started in 2001, known as "Campus," with the aim of transforming the site into a center of knowledge, innovation and encounter with a primary emphasis on international corporate functions and research activities. At that time, changes needed to be made to the Campus,site, since the siteit had originally been designed primarily for pharmaceuticals production, but Researchresearch and Developmentdevelopment had come to account for a greater proportion of our activities there. The Campus project is progressing as planned. By the end of 2015, 17 new buildings had begun operations, eight of them laboratory buildings. The current phase of the long term redevelopment of our St. Johann site is expected to be completed in 2016. In addition, the Novartis Board of Directors has approved planning for the next phase of the campus extension after 2015 in line with the overall plan for the site. A large laboratory building is planned for the northern end of the site and construction is expected to begin in 2016. In October 2014, the Basel "Grand Council" approved the second part of a high-rise building zone at the St. Johann site, which will allow us to plan a third high-rise building on the site. Through December 31, 2012,2015, the total amount paid and committed to be paid on the Campus Project was
$2.1project is equivalent to $2.2 billion. We expect that, through 2015, we will spendNovartis expects to have spent more than $2.3the equivalent of $2.2 billion on the Campus project and to transferthe relocation of production facilities from the Campus to other sites in the Basel region. Preparations for plans beyond 2015 are currently under discussion.region through 2017. We intend to fund these expenditures from internally developedgenerated resources.
In 2007, NIBR opened a start-up facility for our new R&D center in Shanghai, China (CNIBR). In 2008, we broke ground on Phase 1 of a new facility that was originally to be home to approximately 400 R&D scientists and approximately 400 other Pharmaceuticals Division personnel. In 2009, we announced that we would expand the scope of the site and invest $1 billion over the next five years to increase the size of our operations in Shanghai. Based on a re-evaluation of the site conducted in 2010, the current Phase 1one has been extended by two buildings to fulfill the requirements for the cross-divisional Shanghai campus to house 800 offices and 400 laboratory work places. As of December 31, 2012, structural works have been finished at CNIBR,2015, two laboratory buildings and two office buildings of the first above groundphase of the project are completed. In addition, the other two office buildings have begun to be built.which are part of phase one are nearly complete with testing, commissioning and resolution of punch list items in progress. Through December 31, 2012,2015, the total amount paid and committed to be paid on the CNIBR Project is $345equivalent to $844 million.
In 2010, we announced that we would invest $600 million over the next five years to build new laboratory and office space for NIBR in Cambridge, Massachusetts on an area of land close to the existing NIBR research facilities on Massachusetts Avenue. In 2011 we finalized design plans for the new buildings, received necessary zoning changes from the cityCity of Cambridge and began preparing the site for construction. Construction began on the site in April 2012.2012, and as of the end of 2015, construction is complete and associates will begin moving into the new buildings. Through December 31, 2012,2015, the total amount paid and committed to be paid on the NIBR Project is $164$743 million.
In 2012, Novartis announced the fourth quarterconstruction of a new state-of-the-art production facility to produce solid dosage form medicines for the Pharmaceuticals Division in Stein, Switzerland. We expect our investment in this facility to exceed $600 million. The new facility is planned to replace an older facility. In addition, Novartis plans to invest in new technologies and packaging facilities for pharmaceuticals at Stein. Stein is planned to be a technological competence center for both sterile and solid dosage form drugs,
while Novartis plans to expand the site's strategic role as a key platform for global launches of new pharmaceutical products. Through December 31, 2015, the total amount paid and committed to be paid on this project is equivalent to $554 million.
In 2012, we announced the planned construction of a new state-of-the-art biotechnology production site in Singapore with ana planned investment valued atof over $500$700 million. The new facility will focus on drug substance manufacturing based on cell culture technology. Construction is planned to commenceGround was broken in February 2013 and construction was completed in the site is expectedthird quarter of 2015 for phase one of the project. We expect phase one of this project to be fully operational in 2016.2017 and phase two in 2019. It will be co-located with the pharmaceutical production site based in Tuas, Singapore. In the future, Singapore is expected to be a technological competence center for both biotechnology and pharmaceutical manufacturing at Novartis. Commencement of construction at the site is planned for 2013. Through December 31, 2012,2015, the total amount paid and committed to be paid on this project is $22.5equivalent to $452 million.
In the second quarter of 2012, Novartis announced the construction of a new state-of-the-art production facility to produce solid dosage form medicines for the Pharmaceuticals Division in Stein, Switzerland. We expect our investment in this facility to exceed CHF 500 million. The new facility is planned to replace an older facility which will be partially demolished by 2016. Stein is planned to be a technological competence center for both sterile and solid dosage form drugs, while Novartis plans to expand the site's strategic role as a key platform for global launches of new pharmaceutical products. Through December 31, 2012, the total amount paid and committed to be paid on this project is $90 million.
During 2012, the Pharmaceuticals Division commenced a series of projects in which we expect to invest over $300 million over the next five years. These projects are in the following three areas: implementation of a serialization product tracking program across its pharmaceutical operations network, providing a health, safety and environment/Good Manufacturing Practices upgrade for its milling and blending center at Stein, Switzerland, and for the upgrade of change control systems.
In 2010, we commenced a construction project on the campus of Novartis Pharmaceuticals Corporation (NPC) in East Hanover, New Jersey. This project is expected to continue through 2013. It involves construction of three new office buildings, a parking garage, and upgrades to the site entrances. The purpose of the project is to consolidate NPC personnel on one site to drive innovation, collaboration and productivity. The consolidation is also expected to achieve long-term cost savings resulting from the elimination of off-campus leases. We expect that through 2013 we will spend more than $545 million to complete the construction and consolidate operations onto the campus. As of December 31, 2012, the total amount paid and committed to be paid on this project was $442 million.
In December 2012, we acquired a 16,000 square meter FDA-approved manufacturing facility in Morris Plains, NJ,New Jersey, from Dendreon Corporation for $43 million. In particular, we purchased all fixed assets at the site, including all equipment, machinery, utilities, and cell therapy related plant infrastructure, while the land and building will continue to be leased from a third party. The facility, and certainthe former Dendreon personnel whom we intend to retain,retained, will support both clinical and commercial production of potential new products and therapies that emerge from the Novartis-University of Pennsylvania (Penn) collaboration announced in August 2012, including CTL019. The facility space and infrastructure could also accommodate future chimeric antigen receptor production activities, in addition to CTL019.
In 2008, the Vaccines and Diagnostics Division broke ground on a new rabies and tick-borne encephalitis manufacturing facility in Marburg, Germany which is expected to require a total investment of approximately $330 million. Construction is complete and the facility is in the process of executing the necessary validation activities. Regulatory approvals for products are planned for 2012 and 2013. As of Through December 31, 2012, the total amount paid and committed to be paid on this project was $303 million.
In 2009, the Vaccines and Diagnostics Division opened the division's new cell culture-based influenza vaccine manufacturing site in Holly Springs, North Carolina. As of December 31, 2012, the total amount spent on the project was $426 million, net of grants reimbursed by the US government. The total investment in this new facility is expected to be least $900 million, partly supported by grants from the US government and prior investments in flu cell culture technologies at the Novartis Vaccines site in Marburg, Germany.
The Vaccines and Diagnostics Division has commenced a project for a new vaccine manufacturing facility in Recife, Brazil. The manufacturing plant is part of Novartis Vaccines' strategy to enter the Brazilian market, and is aligned with the government's goal to become self-sufficient in vaccine production. Our total investment in the facility is expected to be approximately $475 million. The technical start up of the facility is planned for approximately 2015. As of December 31, 2012, the total amount paid and committed to be paid on this project was $23 million.
In 2010, Novartis announced the signing of a Memorandum of Understanding, confirming its intention to build a new full-scale pharmaceutical manufacturing plant in St. Petersburg, Russia. In June 2011 we announced the commencement of construction. The plant is expected to produce approximately 1.5 billion units per year (oral solid dosage forms), of which the majority is anticipated to be generic products. Product registration for production at the site is expected to begin in 2014. Our total investment in the plant is expected to be approximately $140 million. As of December 31, 2012, the total amount paid and committed to be paid on this project was $30 million.
In 2012, the Alcon Division began the expansion of its Duluth, Georgia facility for contact lens manufacturing. The capital cost for the expansion is expected to be $250 million, and production is scheduled to begin at the site in September 2013. Construction will add 6,500 square meters to the existing facility, and is expected to take place over the next three to five years. As of December 31, 2012,2015, the total amount paid and committed to be paid on this project is $78.3$33 million.
In June 2012, the Alcon Division announced the A second expansion of its Irvine, California operations to increase capabilitiesthe Johns Creek, Georgia facility was approved in the areasthird quarter of pharmaceutical development2014 to add nine production lines forDailies and clinical trials. Alcon signed an 11-year lease for three buildings, covering 17,000 square meters, which areDailies Total1 contact lenses. This project is expected to open in early 2013. Asbe completed by the third quarter of 2017. Through December 31, 2012,2015, the total amount paid and committed to be paid on this project is $10.5$219 million.
The Alcon Division began an expansion of its Singapore facility in 2014 for contact lens manufacturing. The expansion is expected to add 16,000 square meters to the existing production lines. Through December 31, 2015, the total amount paid and committed to be paid on this project is equivalent to $95 million.
We integrate core values of environmental protection into our business strategy to add value to the business, manage risk and enhance our reputation.
We are subject to laws and regulations concerning the environment, safety matters, regulation of chemicals and product safety in the countries where we manufacture and sell our products or otherwise operate our business. These requirements include regulation of the handling, manufacture, transportation, use and disposal of materials, including the discharge of pollutants into the environment. In the normal course of our business, we are exposed to risks relating to possible releases of hazardous substances into the environment which could cause environmental or property damage or personal injuries, and which could require remediation of contaminated soil and groundwater. Under certain laws, we may be required to remediate contamination at third party sites, or at certain of our propertiesgroundwater, in some cases over many years, regardless of whether the contamination was caused by us, or by previous occupants of the property.
See also "Item 3. Key Information—Item 3.D Risk Factors—Environmental liabilities may adversely impact our results of operations" and "Item 18. Financial Statements—noteNote 20."
Item 4A. Unresolved Staff Comments
Not applicable.
Item 5. Operating and Financial Review and Prospects
This operating and financial review should be read together with the Group's consolidated financial statements in this Annual Report, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board.
Novartis provides healthcare solutions that address the evolving needs of patients and societies worldwide. Our focused, diversifiedbroad portfolio includes innovative medicines, eye care products and cost-saving generic pharmaceuticals.
Following the completion of businessesa series of transactions in 2014 and 2015, the Group's portfolio is organized into three global operating divisions. In addition, we separately report the results of Corporate activities. The disclosure in this Item focuses on these continuing operations, which are made up of six global operating divisionsPharmaceuticals, Alcon, Sandoz and reports itsCorporate activities. In addition, from March 2, 2015, the date of the completion of a series of transactions with GSK, continuing operations also includes the results from the oncology assets acquired from GSK and the 36.5% interest in five segments:the GSK consumer healthcare joint venture (the latter reported as an investment in associated companies). We sold our Vaccines Division, excluding our influenza business, to GSK. Our influenza vaccines business was sold to CSL and our Animal Health Division was sold to Lilly. For more detail on these transactions see, "Item 10.C Material Contracts."
Continuing Operations:
Discontinued Operations:
The Group established its newest and second largest division, Alcon, after securing 100% ownership of Alcon, Inc., on April 8, 2011. The new division includes the CIBA Vision contact lens and lens care business and selected ophthalmic medicines from the Pharmaceuticals Division and is a world leader in eye care, offering the widest spectrum of innovative surgical, pharmaceutical and vision care products to address the world?s eye care needs.
Novartis has leadershipleading positions globally in each of the five businesses, giving us the capacity to address customer and patient needsthree areas of our continuing operations. To maintain our competitive positioning across these growing segments of the healthcare marketplace. We believe that our abilityindustry, we place a strong focus on innovating to innovate in all these segments will allow us to tailor our portfolio in response to market opportunities and will enable Novartis to continue as an industry leader.
Headquartered in Basel, Switzerland,meet the Novartis Group companies employed approximately 128,000 full-time equivalent associates asevolving needs of December 31, 2012, with operations in more than 140 countriespatients around the world.world, growing our presence in new and emerging markets, and enhancing our productivity to invest for the future and increase returns to shareholders.
We separately report the financial results of our Corporate activities as part of our continuing operations. Income and expenses from Corporate activities include the costs of the Group headquarters and those of corporate coordination functions in major countries. In addition, Corporate includes other items of income and expense which are not attributable to specific segments such as certain expenses
related to post-employment benefits, environmental remediation liabilities, charitable activities, donations and sponsorships.
Our continuing operations are supported by the Novartis Institutes for BioMedical Research and Novartis Business Services.
Our continuing operations achieved net sales of $49.4 billion in 2015, while net income from continuing operations amounted to $7.0 billion. Research & Development expenditure in 2015 amounted to $8.9 billion ($8.7 billion excluding impairment and amortization charges). Of total net sales from continuing operations, $12.4 billion, or 25%, came from Emerging Growth Markets, and $37.0 billion, or 75%, came from Established Markets. Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand.
Headquartered in Basel, Switzerland, our Group companies employed 118,700 full-time equivalent associates as of December 31, 2015. Our products are available in approximately 180 countries around the world.
In September 2015, Novartis announced the launch of Novartis Access, a portfolio of 15 medicines to treat chronic diseases in low- and middle-income countries. The portfolio addresses cardiovascular diseases, diabetes, respiratory illnesses, and breast cancer and will be offered to governments, non-governmental organizations (NGOs) and other public-sector healthcare providers for $1 per treatment, per month.
BUSINESS AND OPERATING ENVIRONMENT
Continuing Operations:
Opportunity and Risk Summary Pharmaceuticals Division
Our financial results are affected, to varying degrees, by the following external factors.
Transformational changes fueling demand
Aging population and shifting behaviors: The aging of the world population, as well as the increasing prevalence of obesity and other unhealthy lifestyle factors, is driving demand for treatments that address conditions disproportionately afflicting the elderly as well as other chronic diseases.
Rise in healthcare spending: The global healthcare market continues to grow, led by emerging economies, where access and demand for healthcare are expanding.
Scientific advances: Personalized medicine is opening new opportunities for targeted therapies, helping improve patient outcomes and reduce costs.
New technologies: Social and mobile technologies are facilitating the delivery of care and enhancing communication with patients, providers and payors.
Shift to generics and over-the-counter products: Faced with rising healthcare costs, governments around the world are encouraging consumers to substitute generics for patented pharmaceuticals. Consumers, too, are shifting to over-the-counter products in an effort to keep costs down.
Increasingly Challenging Business Environment
Patent expirations and generic competition: The loss of market exclusivity and the introduction of generic competitors can significantly erode sales of our innovative products.
Regulatory and safety hurdles: The costs associated with bringing a drug to market have increased as a result of heightened regulatory requirements. Even after a drug is approved, there is a possibility that safety events could occur and materially affect our results.
Manufacturing quality and complexity: The manufacture of our products is both highly regulated and complex, and may result in a variety of issues that could lead to extended supply disruptions and significant liability.
Financial crisis: As challenges from the 2008 financial crisis continue to affect the global economy, governments and patients worldwide are seeking to minimize healthcare costs.
Legal proceedings: There is a trend of increasing government investigations and litigations against companies in the healthcare industry. Despite our best efforts to comply with the laws of the approximately 140 countries in which we sell products, any failure in compliance could have a material adverse effect on our business and reputation.
For more detail on these trends and how they impact our results, see "Factors Affecting Results of Operations" below.
The Novartis Group strategy for sustainable, long-term growth is based on focused diversification, in which we seek to access multiple, growing segments of the healthcare market. Reflecting our leadership positions across these segments, the Group's businesses are divided on a worldwide basis into six global operating divisions, which report results in five segments (Pharmaceuticals, Alcon, Sandoz, Vaccines and Diagnostics, and Consumer Health), and Corporate activities. Except for Consumer Health, which
comprises two divisions (Over-the-Counter, or OTC, and Animal Health) that are not material enough to the Group to be reported on an individual basis, these segments reflect the Group's internal management structure and are disclosed separately because they research, develop, manufacture, distribute and sell distinct products that require different marketing strategies.
Pharmaceuticals
Pharmaceuticals researches, develops, manufactures, distributes and sells patented prescription medicines and is organized in the following business franchises: Oncology; Primary Care, consisting of Primary Care medicinesOncology, Cardio-Metabolic, Immunology and Dermatology, Retina, Respiratory, Neuroscience and Established Medicines; and Specialty Care, consisting of Ophthalmology, Neuroscience, Integrated Hospital Care, and Critical Care medicines. Novartis Oncology is organized asMedicines. Our Pharmaceuticals Division also includes a business unit, responsible forfranchise focused on the global development and marketingcommercialization of oncology products.Cell and Gene Therapies.
On March 2, 2015, we completed the acquisition of the oncology products of GSK, together with certain related assets. In addition, we acquired a right of first negotiation over the co-development or commercialization of GSK's current and future oncology R&D pipeline, excluding oncology vaccines. The right of first negotiation is for a period of twelve and one half years from the acquisition closing date.
In 2015, the Pharmaceuticals is the largest contributor among the segments, and in 2012Division accounted for $32.2$30.4 billion, or 57%62%, of Group net sales, and $9.6for $7.6 billion, or 81%, of Group operating income (excluding Corporate Incomeincome and Expense,expense, net).
As the global leader in eye care,Our Alcon Division researches, develops, manufactures, distributes and sells eye care products and technologies to serve the full life cycle of eye care needs. Alcon offers a broad range of products to treat many eye diseases and conditions, and is organized into three businesses:franchises: Surgical, Ophthalmic Pharmaceuticals and Vision Care.
The Surgical portfolio includes technologies and devices for cataract, retinal, glaucoma and refractive surgery, as well as intraocular lenses to treat cataracts and refractive errors, like presbyopia and astigmatism. Alcon also provides viscoelastics, surgical solutions, surgical packs, and other disposable products for cataract and vitreoretinal surgery. In Ophthalmic Pharmaceuticals, the portfolio coversincludes treatment options for elevated intraocular pressure caused by glaucoma, anti-infectives to aid in the treatment of bacterial infections and bacterial conjunctivitis, and ophthalmic solutions to treat inflammation and pain associated with ocular surgery.surgery, as well as an intravitreal injection for vitreomacular traction including macular hole. The Ophthalmic Pharmaceuticals product portfolio also includes eye and nasal allergy treatments, as well as over-the-counter dry eye relief and ocular vitamins. DailyThe Vision Care portfolio comprises daily disposable, monthly replacement, and color-enhancing contact lenses, as well as a complete line of contact lens care products including multi-purpose and hydrogen-peroxide based solutions, rewetting drops and daily protein removers, comprise the portfolio in Vision Care.removers.
In 2012,2015, Alcon accounted for $10.2$9.8 billion, or 18%20%, of Group net sales, and $1.5for $0.8 billion, or 12%8%, of Group operating income (excluding Corporate Incomeincome and Expense,expense, net).
Our Sandoz develops, manufactures, distributesDivision focuses primarily on developing, manufacturing, distributing and sellsselling prescription medicines as well as pharmaceutical and biotechnological active substances, whichthat are not protected by valid and enforceable third-party patents.patents, and intermediary products including active pharmaceutical ingredients. Sandoz has activitiesis organized globally in three franchises: Retail Generics, Anti-Infectives, and Biopharmaceuticals & Oncology Injectables, Ophthalmics, Respiratory and Dermatology.Injectables. In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of pharmaceuticals to third parties. Retail Generics includes the areas of dermatology, respiratory and ophthalmics, as well as the areas of cardiovascular, metabolism, central nervous system, pain, gastrointestinal, and hormonal therapies. Finished dosage form anti-infectives sold to third parties are also part of Retail Generics. In Anti-Infectives, Sandoz manufacturessupplies generic antibiotics to a broad range of customers, as well as active pharmaceutical ingredients and intermediates—mainly antibiotics—for internal use by Retail Generics and for saleintermediates to third-party customers.the pharmaceutical industry worldwide. In Biopharmaceuticals, Sandoz develops, manufactures and markets protein-protein or other biotechnology-basedbiotechnology based products (knownknown as biosimilars or follow-on biologics) and sellsprovides biotechnology manufacturing services to other companies. Incompanies, and in Oncology Injectables, Sandoz develops, manufactures and markets cytotoxic products for the hospital market.
In 2015, Sandoz Ophthalmics, which was formed throughaccounted for $9.2 billion, or 18%, of Group net sales, and for $1.0 billion, or 11%, of Group operating income (excluding Corporate income and expense, net).
Discontinued Operations:
Vaccines and Diagnostics Division
Prior to the integrationcompletion of Falcon, Alcon's generic division, develops, manufacturescertain transactions in 2014 and markets generic ophthalmic2015, our Vaccines and otic products. In addition, Sandoz is active in Respiratory followingDiagnostics Division researched, developed, manufactured, distributed and sold human vaccines and blood-testing products worldwide. On January 9, 2014, we completed the divestment of our blood transfusion diagnostics unit to Grifols S.A. On March 2, 2015, we completed the divestment of our Vaccines Division (excluding its acquisitioninfluenza vaccines business) to GSK. On July 31, 2015, we completed the divestment of Oriel Therapeutics in 2010, andour influenza vaccines business to CSL Limited.
expanded its presence in Dermatology through the acquisition of specialty dermatology company Fougera Pharmaceuticals, Inc. in 2012.
In 2012, Sandoz accounted for $8.7 billion, or 15%, of Group net sales and $1.1 billion, or 9% of Group operating income (excluding Corporate Income and Expense, net).
Vaccines and Diagnostics Consumer Health
Vaccines and Diagnostics researches, develops, manufactures, distributes and sells preventive human vaccines and novel blood-screening diagnostic tools, which help protectPrior to the world's blood supply by preventing the spreadcompletion of infectious diseases.
In 2012, Vaccines and Diagnostics accounted for $1.9 billion, or 3%, of Group net sales and generated an operating loss of $250 million.
Consumer Health
certain transactions in 2015, Consumer Health consistsconsisted of two divisions:our OTC and Animal Health. Each has its own research, development, manufacturing, distribution and selling capabilities, but neither is material enough to the Group to be separately disclosed as a segment. OTC offers readily-available consumer medicine,(Over-the-Counter) and Animal Health provides veterinary products for farm and companion animals.
In 2012, Consumer Health accounted for $3.7 billion, or 7%, of Group net sales and $48 million, or slightly below 1%, of Group operating income (excluding Corporate Income and Expense, net).
Corporate
Corporate activities include certain functions—such as Financial Reporting & Accounting, Treasury, Internal Audit, IT, Legal, Tax and Investor Relations—that are managed atDivisions. On January 1, 2015 we completed the Corporate level and provide support to the organization but are not attributable to specific divisions. Corporate also includes the costsdivestment of our headquarters and corporate coordination functions in major countries.Animal Health Division to Lilly. On March 2, 2015, we completed the divestment of our OTC Division, which we contributed to a new consumer healthcare joint venture with GSK, of which we own 36.5%.
NOVARTIS STRATEGY FOR SUSTAINABLE GROWTH
As the only healthcare company globally with leading positions in pharmaceuticals, eye care, generics, vaccines and diagnostics, over-the-counter medicines and animal health, we believe that Novartis is uniquely positioned to capture growth opportunities across the healthcare marketplace and to mitigate the impact of challenges in particular sectors.
Our Priorities: Innovation, Growth and Productivity OPPORTUNITY AND RISK SUMMARY
Our strategy, whichfinancial results are affected to varying degrees by external factors. The aging of the global population and rising rates of chronic diseases are driving demand for healthcare worldwide, as well as for treatments that Novartis provides. Continued growth in healthcare spending is basedcontributing to increased scrutiny on drug pricing by governments, media and consumers, but also to increased demand for lower-cost treatment options, such as those produced by our generics division, Sandoz. Advances in science and technology are opening new opportunities to develop treatments tailored for individual patients.
At the focused diversificationsame time, the loss of market exclusivity and the introduction of branded and generic competitors could significantly erode sales of our healthcare portfolio, requires a consistent focus on three core priorities: (1) extending our lead in innovation through the research and development of new offeringsinnovative products. Heightened regulatory requirements and the expansioninherent complexity of applicationsour industry could lead to difficulties in bringing products to market, while increased pressure on pricing could impact our ability to generate returns and invest for existing offerings; (2) accelerating growththe future. The growing trend of government investigations and litigations against healthcare companies, despite our best efforts to comply with new launcheslocal laws, could also have an adverse effect on our business and a greater presence in Emerging Growth Markets;reputation.
For more detail on these trends and (3) enhancing productivity through efficiency initiatives that free up resources for reinvestment and shareholder returns.
Extending Our Lead in Innovation
We believe that innovation is a competitive advantage for Novartis. In 2012, we maintainedhow they impact our investment in R&D as a percentageresults, see "Factors Affecting Results of sales at the upper level for our industry. Our Pharmaceuticals Division, for example, invested 21% of net sales in innovation.
Benefiting from our continued focus on innovation, Novartis has one of the industry's most competitive pipelines, delivering the highest number of new molecular entities (NMEs) between 2007 and 2011, according to Credit Suisse. As of the end of 2012, the Novartis Institutes for BioMedical Research (NIBR, our global pharmaceutical research organization whose costs are allocated to the Pharmaceuticals and Alcon divisions) had 92 NMEs in research and exploratory development prior to proof-of-concept (POC) determination. In 2012, NIBR delivered 12 positive POC studies, which we use to get an early read on a drug's safety and effectiveness.Operations" below.
Number of pre-POC NMEs from NIBR(1)
Since its integration into the Novartis Group, Alcon has leveraged NIBR to gain access to a range of technologies, from biologics to structural biology and high throughput screening, that previously were only available to it through external partners. With expanded R&D capabilities, Alcon has prioritized glaucoma and macular degeneration in drug discovery efforts.
Sandoz also continues to innovate in the fast-growing biosimilars segment, where it is the global leader with three marketed products. With Phase III clinical trials for epoetin alfa (biosimilar Epogen®/Procrit®) and rituximab (biosimilar Rituxan®/Mabthera®) underway, Sandoz continued to advance its biosimilars pipeline in 2012.
In Vaccines and Diagnostics, we achieved important pipeline milestones in 2012, including a positive European Committee for Medicinal Products for Human Use (CHMP) opinion forBexsero, our meningococcal serogroup B vaccine, for use in children over two months old, followed by EU approval in January 2013, and FDA approval forFlucelvax, the first cell-culture vaccine to help protect against seasonal influenza in the United States.
In terms of advancing innovative products through clinical trials, Novartis has a probability of success that is five times the industry median from 2007 to 2011, as calculated by biopharmaceutical benchmarking company KMR. Benefitting from our strength in this area, our robust pipeline has helped to rejuvenate our portfolio. For example, in 2012, our Pharmaceuticals Division received 11 approvals for innovative medicines and new indications in the United States and European Union, including EMA and FDA approval forAfinitor (everolimus) in combination with exemestane as a treatment for postmenopausal women with a specific type of advanced breast cancer, which affects approximately 220 000 women each year. These approvals, which were based on Phase III trial data showing thatAfinitor plus exemestane more than doubled the time women with the HR+/HER2- type of advanced breast
cancer lived without tumor growth, marks the first major breakthrough in the treatment of this disease in 15 years.
Focus: Results of R&D investments in Pharmaceuticals
71 NMEs in post-POC clinical development
138 projects in clinical development
11 major approvals achieved in the US and EU including:
Accelerating Growth Across Six Divisions
Building on our strength in innovation, Novartis seeks to drive growth across the portfolio by working to deliver new treatments quickly and efficiently to customers and patients in need. Since an increasing proportion of these customers and patients are found in emerging markets where demand for and access to healthcare are rising, Novartis continues to strengthen its presence in these fast-growing markets.
In 2012, innovative products continued to make a major contribution to the Group's overall performance, with recently launched products (products launched since 2007, except Sandoz products launched in last 24 months) generating $16.3 billion or 29% of total net sales. These products, which includeGilenya,Lucentis,Tasigna andAfinitor, grew 13% over the previous year.
Emerging Growth Markets, which we define as all markets except the United States, Canada, Western Europe, Australia, New Zealand and Japan, were also a key contributor to growth in 2012, contributing $13.8 billion or 24% of total net sales. We also committed $500 million in 2012 to build a new state-of-the-art biotechnology production site in Singapore, which offers a wide range of advantages due to its strong local biomedical presence and knowledge, skilled labor, and proximity to growth markets in Asia. We expect this facility will significantly expand our footprint in this high-growth region.
Enhancing Productivity
Novartis continually seeks to operate as efficiently as possible to reduce costs and enhance margins, in order to provide flexibility to invest for the future and increase returns to shareholders. Ongoing productivity initiatives relate to procurement and resource allocation across the portfolio, as well as our manufacturing network and supporting infrastructure.
We have made our Procurement function an important source of savings. By leveraging our scale, implementing global category management and creating country Centers of Excellence in key markets, we generated annual savings of approximately $1.3 billion in 2012.
We continued to optimize our Marketing & Sales function by reallocating resources and streamlining processes while investing in new launches for growth brands. In Pharmaceuticals, Marketing & Sales
expenses in constant currencies decreased as a percentage of net sales to 26.6% for 2012 from 27.5% in 2011.
We also continued to optimize our manufacturing footprint in 2012 as part of a Group-wide review we initiated in 2010. The review has two aims: first, to establish a worldwide manufacturing network of technology Centers of Excellence, and second, to optimize the cost structure across divisions and enhance utilization rates at strategic sites to 80% of capacity. As of the end of 2012, we have 15 production sites in the process of being restructured or divested.
Lastly, with Alcon fully integrated as the second largest division in the Novartis Group portfolio, we realized merger-related cost synergies of approximately $370 million cumulatively, achieving our initial savings target one year ahead of time.
Taken together, our productivity initiatives allowed us to exceed our annual productivity target of 3.5 to 4.0% of net sales.
In evaluating the Group's performance, we consider not only the IFRS results, but also additionalcertain non-IFRS measures, in particularincluding core results and constant currency results. These measures assist us in evaluating our ongoing performance from year to year and we believe this additional information is useful to investors in understanding our business.
The Group's core results exclude the amortization of intangible assets, impairment charges, expenses relating to divestments, the integration of acquisitions, restructuring charges that exceed a threshold of $25 million, as well as other income and expense items that management deems exceptional and that are or are expected to accumulate within the year to be over a $25 million threshold that management deems exceptional.threshold. For a reconciliation between IFRS results and core results see "Core Results""—core results," below.
We present information about our revenuenet sales and various values and componentsother key figures relating to operating income and net income in constant currencies (cc). We calculate constant currency net sales and operating income measures by applying the prior-year average exchange rates to current financial data expressed in non-US dollarslocal currencies in order to estimate an elimination of the impact of foreign exchange rate movements.
TheseThe core results, constant currencies and other non-IFRS measures are explained in more detail below, see "non-IFRS measures"Non-IFRS Measures as definedDefined by Novartis"Novartis," below and are not intended to be substitutes for the equivalent measures of financial performance prepared in accordance with IFRS. These measures may differ from similarly titled non-IFRS measures of other companies.
| Year ended Dec 31, 2012 | Year ended Dec 31, 2011 | Change in $ | Change in constant currencies | Year ended Dec 31, 2015 | Year ended Dec 31, 2014 | Change in $ | Change in constant currencies | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | $ m | $ m | % | % | ||||||||||||||||||
Net sales | 56,673 | 58,566 | (3 | ) | 0 | |||||||||||||||||||||
Net sales to third parties from continuing operations | 49,414 | 52,180 | (5 | ) | 5 | |||||||||||||||||||||
Sales to discontinued segments | 26 | 239 | (89 | ) | (88 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Net sales from continuing operations | 49,440 | 52,419 | (6 | ) | 4 | |||||||||||||||||||||
Other revenues | 888 | 809 | 10 | 11 | 947 | 1,215 | (22 | ) | (22 | ) | ||||||||||||||||
Cost of goods sold | (18,756 | ) | (18,983 | ) | (1 | ) | 2 | (17,404 | ) | (17,345 | ) | 0 | (8 | ) | ||||||||||||
Gross profit | 38,805 | 40,392 | (4 | ) | (1 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Gross profit from continuing operations | 32,983 | 36,289 | (9 | ) | 2 | |||||||||||||||||||||
Marketing & Sales | (14,353 | ) | (15,079 | ) | (5 | ) | (1 | ) | (11,772 | ) | (12,377 | ) | 5 | (5 | ) | |||||||||||
Research & Development | (9,332 | ) | (9,583 | ) | (3 | ) | 0 | (8,935 | ) | (9,086 | ) | 2 | (3 | ) | ||||||||||||
General & Administration | (2,937 | ) | (2,970 | ) | (1 | ) | 3 | (2,475 | ) | (2,616 | ) | 5 | (1 | ) | ||||||||||||
Other income | 1,187 | 1,354 | (12 | ) | (6 | ) | 2,049 | 1,391 | 47 | 55 | ||||||||||||||||
Other expense | (1,859 | ) | (3,116 | ) | (40 | ) | (37 | ) | (2,873 | ) | (2,512 | ) | (14 | ) | (24 | ) | ||||||||||
Operating income | 11,511 | 10,998 | 5 | 8 | ||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Operating income from continuing operations | 8,977 | 11,089 | (19 | ) | (2 | ) | ||||||||||||||||||||
Return on net sales (%) | 18.2 | 21.3 | ||||||||||||||||||||||||
Income from associated companies | 552 | 528 | 5 | 5 | 266 | 1,918 | (86 | ) | (86 | ) | ||||||||||||||||
Interest expense | (724 | ) | (751 | ) | (4 | ) | (1 | ) | (655 | ) | (704 | ) | 7 | 2 | ||||||||||||
Other financial income and expense | (96 | ) | (2 | ) | nm | nm | (454 | ) | (31 | ) | nm | nm | ||||||||||||||
Income before taxes | 11,243 | 10,773 | 4 | 7 | ||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Income before taxes from continuing operations | 8,134 | 12,272 | (34 | ) | (17 | ) | ||||||||||||||||||||
Taxes | (1,625 | ) | (1,528 | ) | 6 | 8 | (1,106 | ) | (1,545 | ) | 28 | 10 | ||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Net income from continuing operations | 7,028 | 10,727 | (34 | ) | (18 | ) | ||||||||||||||||||||
Net income/loss from discontinued operations | 10,766 | (447 | ) | nm | nm | |||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Net income | 9,618 | 9,245 | 4 | 7 | 17,794 | 10,280 | 73 | 91 | ||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Attributable to: | ||||||||||||||||||||||||||
Shareholders of Novartis AG | 9,505 | 9,113 | 4 | 8 | 17,783 | 10,210 | 74 | 92 | ||||||||||||||||||
Non-controlling interests | 113 | 132 | (14 | ) | (14 | ) | 11 | 70 | (84 | ) | (84 | ) | ||||||||||||||
Basic earnings per share | 3.93 | 3.83 | 3 | 6 | ||||||||||||||||||||||
Basic earnings per share ($) from continuing operations | 2.92 | 4.39 | (33 | ) | (17 | ) | ||||||||||||||||||||
Basic earnings per share ($) from discontinued operations | 4.48 | (0.18 | ) | nm | nm | |||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Total basic earnings per share ($) | 7.40 | 4.21 | 76 | 94 | ||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Free cash flow from continuing operations | 9,259 | 10,934 | (15 | ) | ||||||||||||||||||||||
Free cash flow | 11,383 | 12,503 | (9 | ) | 9,029 | 10,762 | (16 | ) |
nm = not meaningful
Core Key Figures
Novartis delivered solid financial performance in 2015, driven by our continued success with growth products and expansion in emerging growth markets, which helped offset the effects of generic competition of approximately $2.2 billion. As a result, we achieved net sales to third parties from continuing operations of $49.4 billion (–5%, +5% cc). Growth in constant currencies has been more than
| Year ended Dec 31, 2012 | Year ended Dec 31, 2011 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Core gross profit | 41,847 | 43,839 | (5 | ) | (2 | ) | |||||||
Marketing & Sales | (14,352 | ) | (15,077 | ) | (5 | ) | (1 | ) | |||||
Research & Development | (9,116 | ) | (9,239 | ) | (1 | ) | 2 | ||||||
General & Administration | (2,923 | ) | (2,957 | ) | (1 | ) | 3 | ||||||
Other income | 813 | 443 | 84 | 100 | |||||||||
Other expense | (1,109 | ) | (1,100 | ) | 1 | 9 | |||||||
Core operating income | 15,160 | 15,909 | (5 | ) | (2 | ) | |||||||
Core net income | 12,811 | 13,490 | (5 | ) | (3 | ) | |||||||
Core basic earnings per share | 5.25 | 5.57 | (6 | ) | (3 | ) |
Net sales amounted to $56.7 billion (-3%, 0% cc), as growth in recently launched products (products launched since 2007, except Sandoz products launched in last 24 months) absorbed patent expiries. Currency depressed resultsoffset by 3 percentage points as a result ofnegative currency impacts driven by the strengthening of the dollar against most currencies.
Across the Group's diversified healthcare portfolio, recently launched products continued to perform strongly and in 2012 comprised 29% of Group net sales, up from 25% a year ago.
Operating income increased 5% (+8% cc) to $11.5 billion. The strengthening of the US dollar resulted in a negative currency impact of 3 percentage points. Cost of goods soldversus the euro, Japanese yen and major emerging market currencies.
Operating income decreased by 1% (+2% cc)in constant currencies to $18.8$9.0 billion in 2012, but represented an increase of 0.7 percentage points(–19%, –2% cc), mainly due to 33.1% of net sales. This led to a reduction in the gross margin by 0.5 percentage points (cc) to 68.5%. Marketing & Sales expenses decreased 5% (-1% cc) to $14.4 billion, improving 0.4 percentage points to 25.3% of net sales, as productivity improvements and changes in the portfolio mix were partly offset by investments in new launch products. R&D expenses decreased by 3% (0% cc) in 2012 to $9.3 billion. This included $109 million in impairments of intangible assets. General & Administration expenses decreased by 1% (+3% cc) to $2.9 billion. Other income was down 12% (-6% cc) to $1.2 billion and largely consisted of aTekturna/Rasilez provision reduction, divestment gains and restructuring provision releases. Other expense was down 40% (-37% cc) to $1.9 billion and included acquisition-related charges and restructuring costs.
In 2012, the adjustments made to Group operating income to arrive at core operating income amounted to $3.6 billion (2011: $4.9 billion). These adjustments included the amortization of intangiblethe new oncology assets of $2.9 billion (2011: $3.0 billion) andin Pharmaceuticals. In addition, an exceptional net expense of $773 million (2011: $1.9 billion).
The significant exceptional expense items, net, in 2012 were $149$400 million for a United States restructuringsettlement of the specialty pharmacies case in Pharmaceuticals and $265 millionthe Southern District of Alcon integration costs, which were offset by exceptional gainsNew York was recorded in 2015, whereas the prior-year benefitted from a one-time commercial settlement gain of $472 million. The previous year benefited from exceptional product divestment and other gains of $1.0 billion, offset by a number of exceptional expense items totaling $2.9 billion, principally theTekturna/Rasilez-related impairment and other charges of $903 million, restructuring charges of $487$302 million and $248 million gain from selling a legal settlement of $204 million.
Core operating income, which excludes exceptional items and amortization of intangible assets, decreased 5% (-2% cc) to $15.2 billion. Core operatingNovartis Venture Fund investment. Operating income margin in constant currencies decreased by 0.7 percentage points. A positive currency impact of 0.2 percentage points resulted in a core operating income margin of 26.7%was 18.2 percent of net sales.
Net income increased 4% (+7%from continuing operations was $7.0 billion, declining more than operating income (–34%, –18% cc) mainly due to $9.6higher financial expense driven by $0.4 billion following the increase in operating income. EPS increased 3% (+6% cc)exceptional charges related to $3.93Venezuela and lower income from $3.83associated companies, which included in the prior year.
Core net income was down 5% (-3% cc) to $12.8year a gain of $0.8 billion in line with core operating income. Core EPS declined 6% (-3% cc) to $5.25.
Free cash flow of $11.4 billion was $1.1 billion lower than the prior year mainly on account of higher investments in property, plant and equipment as well as in intangible and other non-current assets and lower proceeds from the sale of non-current assets whichthe shares of Idenix Pharmaceuticals, Inc., US (Idenix) to Merck & Co., US, and a gain of $0.4 billion from the divestment of the shareholding in LTS Lohmann Therapie-Systeme AG, Germany (LTS).
Basic earnings per share from continuing operations decreased 33% (–17% cc) to $2.92, declining less than net income from continuing operations due to the lower number of average outstanding shares.
Free Cash Flow from continuing operations decreased 15% to $9.3 billion, primarily due to negative currency impact on operations.
Net income from discontinued operations amounted to $0.5$10.8 billion in 2015, which included $12.7 billion of pre-tax divestment gains and the current periodoperational results of the divested businesses until the respective dates of completion of the transactions, compared to $0.8a net loss of $447 million in 2014. For more information on discontinued operations see "—Factors Affecting Comparability of Year-On-Year Results of Operations", below and "Item 18. Financial Statements—Note 30".
For the total Group, net income amounted to $17.8 billion in 2015 compared to $10.3 billion in 2014, impacted by the previous year.exceptional divestment gains included in net income from the discontinued operations. Basic earnings per share increased to $7.40 from $4.21 in the prior year and free cash flow for the total Group amounted to $9.0 billion.
Across our divisions, our portfolio of growth products continued to support performance in 2015. Sales of growth products increased 17% to $16.6 billion, or 34% of net sales, demonstrating our ability to renew our product portfolio and helping offset the impact of patent expirations. In our Pharmaceuticals Division, sales of growth products increased 33% (cc) and accounted for 44% of net sales, up from 36% in 2014.
Pharmaceutical growth products in 2015 includedGilenya ($2.8 billion, +21% cc), our oral therapy for multiple sclerosis;Tasigna ($1.6 billion, +16% cc), a treatment for chronic myeloid leukemia; andAfinitor ($1.6 billion, +10% cc), a treatment for several types of cancer.
Although overall Alcon performance lagged in 2015, some products continued to do well. Alcon saw continued growth in sales of its innovativeDailies Total1 contact lenses, as well as double-digit growth in glaucoma fixed-dose combination products andSystane for dry eye. Sales of disposable cataract and vitreoretinal surgical supplies also grew.
In the Sandoz Division, sales of biopharmaceuticals, including biosimilar follow-on versions of complex biologic drugs, rose 39% (cc) to $772 million globally.
Efforts to expand in emerging growth markets2 such as those in Asia, Africa and Latin America continued to deliver results, although growth moderated as overall economic activity slowed in China, Brazil, India and elsewhere. Net sales in emerging markets rose 7% (cc) to $12.4 billion, led by Turkey, up 14% (cc), and Brazil, up 12% (cc).
Last year Novartis continued to find synergies across divisions in our ongoing effort to improve productivity. Total productivity gains reached $3.2 billion in 2015, 6% of net sales. Novartis Business Services (NBS), the cross-divisional services organization that ramped up last year, played a key role in achieving this result. NBS continues to scale up the offshoring of services to global service centers, while outsourcing selected services to third parties.
The biggest savings came from our procurement efforts, through which we saved more than $1.7 billion on goods and services, or about 8% of the spending managed by Novartis procurement organizations.
An ongoing effort begun in 2010 to optimize our global manufacturing network continues to yield results. In 2015, we announced plans to exit Sandoz manufacturing sites in Frankfurt and Gerlingen, Germany, as well as in Turbhe, India. We also closed a Pharmaceuticals Division facility in Resende, Brazil, divested an Alcon site in Kaysersberg, France, as well as a pharmaceutical site in Taboão da Serra, Brazil, and announced the downsizing of a Pharmaceuticals Division site in Ringaskiddy, Ireland. To date, 25 sites in our continuing operations have been or are being restructured or divested. These steps help us balance production capacity and further increase efficiency.
The following table provides an overview of net sales to third parties by segment:
| Year ended Dec 31, 2012 | Year ended Dec 31, 2011 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Pharmaceuticals | 32,153 | 32,508 | (1 | ) | 2 | ||||||||
Alcon | 10,225 | 9,958 | 3 | 5 | |||||||||
Sandoz | 8,702 | 9,473 | (8 | ) | (4 | ) | |||||||
Vaccines and Diagnostics | 1,858 | 1,996 | (7 | ) | (4 | ) | |||||||
Consumer Health | 3,735 | 4,631 | (19 | ) | (16 | ) | |||||||
Net sales | 56,673 | 58,566 | (3 | ) | 0 | ||||||||
| Year ended Dec 31, 2012 | Year ended Dec 31, 2011 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Established Markets* | 42,834 | 44,774 | (4 | ) | (2 | ) | |||||||
Emerging Growth Markets* | 13,839 | 13,792 | 0 | 6 | |||||||||
Net Sales | 56,673 | 58,566 | (3 | ) | 0 | ||||||||
| Year ended Dec 31, 2015 | Year ended Dec 31, 2014 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Pharmaceuticals | 30,445 | 31,791 | (4 | ) | 6 | ||||||||
Alcon | 9,812 | 10,827 | (9 | ) | (1 | ) | |||||||
Sandoz | 9,157 | 9,562 | (4 | ) | 7 | ||||||||
| | | | | | | | | | | | | |
Net sales to third parties from continuing operations | 49,414 | 52,180 | (5 | ) | 5 | ||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Pharmaceuticals
Net Pharmaceuticals delivered net sales were $32.2of $30.4 billion (-1%(–4%, +2% cc), driven by 8 percentage points of volume growth, partially offset+6% in constant currencies, byor cc) as increased volumes, including from the negativeoncology portfolio acquired from GlaxoSmithKline (GSK) in 2015, countered the impact of greater generic competition, ($1.9which reduced sales by 7.0 percentage points.
Growth products generated $13.5 billion -6 percentage points) and slightly negative pricing. Recently launched major products (products launched since 2007, includingLucentis, Tasigna, Exjade, Sebivo/Tyzeka, Exforge, Galvus, Aclasta/Reclast, Cubicin, ExelonPatch,Afinitor/Votubia, Tekturna/Rasilez, Onbrez, Gilenya, FanaptandIlaris) contributed $11.4 billion or 35% of division net sales, for the division,growing 33% (cc) compared to 28% in 2011.
Regionally, Europe ($10.2 billion, -5% cc) saw a strong performance of recently launched products but was impacted by generic competition, mainly forlast year. These products—which includeDiovanGilenya, and by negative price effects. Performance in the United States ($10.4 billion, +4% cc) benefited from robust growth forTasigna,GilenyaUltibro, the combination ofTafinlar + Mekinist,Jakavi, Revolade andAfinitorCosentyx—contributed 44% of division net sales, compared to 36% in 2014.
Sales in emerging growth markets increased 9% (cc) to $7.8 billion.
Highlights in 2015 included regulatory approval in the US and EU forEntresto (formerly LCZ696) for chronic heart failure;Farydak for multiple myeloma; andTafinlar + Mekinist, the first combination therapy for metastatic melanoma.Cosentyx, which was successfully launched in the US and EU in 2015 to treat psoriasis, also received approval in Europe to treat psoriatic arthritis and ankylosing spondylitis.
Oncology
Oncology sales rose 15% (+24% cc) to $13.5 billion, boosted by the newly acquired portfolio from GSK and continued growth in our existing products. By brand, growth drivers includedAfinitor, up 10% (cc) to $1.6 billion;Tasigna, up 16% (cc) to $1.6 billion; andJakavi, up 71% (cc) to $410 million.
Neuroscience
Neuroscience sales were $3.9 billion (–4%, +5% cc), withGilenya rising 12% (+21% cc) to $2.8 billion and more than offsetting declines inExelon/Exelon Patch due to generic competition.
Retina
Sales in Retina were $2.1 billion (–16%, –3% cc), driven mainly by lower sales ofLucentis, which faced increased competitive pressure in Japan and some European markets.
Immunology and Dermatology
Sales in Immunology and Dermatology were $2.1 billion (0%, +11% cc).Cosentyx made a strong start after launching in February, reaching sales of $261 million. Additionally,Zortress/Certican rose 2% (+17% cc) to $335 million, andIlaris increased 19% (+30% cc), helping offset declines in other products primarily stemming from generic competition.
Respiratory
Respiratory sales were $1.6 billion (+1%, +17% cc). We had sales of $0.6 billion (+19%, +40% cc) for our portfolio of drugs for chronic obstructive pulmonary disease (COPD), includingOnbrez Breezhaler/Arcapta Neohaler,Seebri Breezhaler andUltibro Breezhaler. Sales ofXolair reached $0.8 billion (–3%, +14% cc), including as a treatment for chronic hives.
Cardio-Metabolic
Entresto was launched in the US in the third quarter and full-year sales reached $21 million.Galvus sales were $1.1 billion (–7%, +8% cc).
Established Medicines
Established medicines such asDiovan ($1.3 billion, –40% cc) andExforge ($1.0 billion, –15% cc) continued to see declines as a result of generic competition.
TOP 20 PHARMACEUTICALS DIVISION PRODUCT NET SALES—20122015
| | US | Rest of world | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Brands | Business franchise | Indication | Net sales United States | Change in constant currencies | Net sales Rest of world | Change in constant currencies | Total net sales | Change in $ | Change in constant currencies | Business Franchise | Indication | $ m | % change in constant currencies | $ m | % change in constant currencies | $ m | % change in $ | % change in constant currencies | ||||||||||||||||||||||||||||||||||
| | | $ m | % | $ m | % | $ m | % | % | |||||||||||||||||||||||||||||||||||||||||||
Gleevec/Glivec | Oncology | Chronic myeloid leukemia | 1,698 | 16 | 2,977 | (2 | ) | 4,675 | 0 | 4 | Oncology | Chronic myeloid leukemia and GIST | 2,533 | 17 | 2,125 | (5 | ) | 4,658 | (2 | ) | 5 | |||||||||||||||||||||||||||||||
Gilenya | Neuroscience | Relapsing multiple sclerosis | 1,497 | 26 | 1,279 | 17 | 2,776 | 12 | 21 | |||||||||||||||||||||||||||||||||||||||||||
Lucentis | Retina | Age-related macular degeneration | 2,060 | (2 | ) | 2,060 | (16 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||
Tasigna | Oncology | Chronic myeloid leukemia | 661 | 22 | 971 | 12 | 1,632 | 7 | 16 | |||||||||||||||||||||||||||||||||||||||||||
Sandostatin | Oncology | Carcinoid tumors and Acromegaly | 823 | 10 | 807 | 5 | 1,630 | (1 | ) | 7 | ||||||||||||||||||||||||||||||||||||||||||
Afinitor/Votubia | Oncology | Breast cancer / TSC | 892 | 11 | 715 | 9 | 1,607 | 2 | 10 | |||||||||||||||||||||||||||||||||||||||||||
Diovan/Co—Diovan | Primary care | Hypertension | 2,087 | (11 | ) | 2,330 | (28 | ) | 4,417 | (22 | ) | (21 | ) | Established Medicines | Hypertension | 254 | (74 | ) | 1,030 | (17 | ) | 1,284 | (45 | ) | (40 | ) | ||||||||||||||||||||||||||
Lucentis | Ophthalmics | Age-related macular degeneration | 2,398 | 22 | 2,398 | 17 | 22 | |||||||||||||||||||||||||||||||||||||||||||||
Sandostatin | Oncology | Acromegaly | 649 | 13 | 863 | 5 | 1,512 | 5 | 8 | |||||||||||||||||||||||||||||||||||||||||||
Galvus | Cardio-Metabolic | Diabetes | 1,140 | 8 | 1,140 | (7 | ) | 8 | ||||||||||||||||||||||||||||||||||||||||||||
Exforge | Primary care | Hypertension | 358 | 10 | 994 | 18 | 1,352 | 12 | 16 | Established Medicines | Hypertension | 67 | (76 | ) | 980 | 1 | 1,047 | (25 | ) | (15 | ) | |||||||||||||||||||||||||||||||
Zometa | Oncology | Cancer complications | 561 | (13 | ) | 727 | (10 | ) | 1,288 | (13 | ) | (11 | ) | |||||||||||||||||||||||||||||||||||||||
Gilenya | Neuroscience | Relapsing multiple sclerosis | 727 | 90 | 468 | nm | 1,195 | 142 | 147 | |||||||||||||||||||||||||||||||||||||||||||
Exjade | Oncology | Chronic iron overload | 365 | 19 | 552 | 3 | 917 | (1 | ) | 8 | ||||||||||||||||||||||||||||||||||||||||||
Xolair(1) | Respiratory | Asthma | 755 | 14 | 755 | (3 | ) | 14 | ||||||||||||||||||||||||||||||||||||||||||||
Exelon/ExelonPatch | Neuroscience | Alzheimer's disease | 428 | 14 | 622 | (4 | ) | 1,050 | (2 | ) | 2 | Neuroscience | Alzheimer's disease | 340 | (30 | ) | 388 | (13 | ) | 728 | (28 | ) | (21 | ) | ||||||||||||||||||||||||||||
Tasigna | Oncology | Chronic myeloid leukemia | 351 | 38 | 647 | 47 | 998 | 39 | 44 | |||||||||||||||||||||||||||||||||||||||||||
Galvus | Primary care | Diabetes | 910 | 43 | 910 | 34 | 43 | |||||||||||||||||||||||||||||||||||||||||||||
Exjade | Oncology | Iron chelator | 251 | (3 | ) | 619 | 11 | 870 | 2 | 7 | ||||||||||||||||||||||||||||||||||||||||||
Neoral/Sandimmun | Integrated Hospital Care | Transplantation | 64 | (10 | ) | 757 | (6 | ) | 821 | (9 | ) | (6 | ) | |||||||||||||||||||||||||||||||||||||||
Afinitor/Votubia | Oncology | Breast cancer | 412 | 142 | 385 | 49 | 797 | 80 | 85 | |||||||||||||||||||||||||||||||||||||||||||
Voltaren(excl. OTC) | Additional products | Inflammation/pain | 1 | (75 | ) | 758 | 1 | 759 | (4 | ) | 0 | |||||||||||||||||||||||||||||||||||||||||
Reclast/Aclasta | Established medicines | Osteoporosis | 354 | (8 | ) | 236 | 9 | 590 | (4 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||||
Neoral/Sandimmun(e) | Immunology and Dermatology | Transplantation | 47 | (15 | ) | 523 | (5 | ) | 570 | (17 | ) | (6 | ) | |||||||||||||||||||||||||||||||||||||||
Votrient | Oncology | Renal cell carcinoma | 287 | nm | 278 | nm | 565 | nm | nm | |||||||||||||||||||||||||||||||||||||||||||
Voltaren (excl. other divisions) | Established Medicines | Inflammation/pain | 558 | 0 | 558 | (12 | ) | 0 | ||||||||||||||||||||||||||||||||||||||||||||
Tafinlar/Mekinist | Oncology | Melanoma | 267 | nm | 186 | nm | 453 | nm | nm | |||||||||||||||||||||||||||||||||||||||||||
Myfortic | Integrated Hospital Care | Transplantation | 239 | 20 | 340 | 14 | 579 | 12 | 16 | Immunology and Dermatology | Transplantation | 109 | (27 | ) | 332 | 0 | 441 | (19 | ) | (8 | ) | |||||||||||||||||||||||||||||||
Jakavi | Oncology | Myelofibrosis | 410 | 71 | 410 | 47 | 71 | |||||||||||||||||||||||||||||||||||||||||||||
Promacta/Revolade | Oncology | Immune thrombocytopenic purpura | 196 | nm | 206 | nm | 402 | nm | nm | |||||||||||||||||||||||||||||||||||||||||||
Ritalin/Focalin | Additional products | Attention deficit/ hyperactivity disorder | 402 | 1 | 152 | 8 | 554 | 1 | 3 | Established Medicines | Attention deficit/ hyperactivity disorder | 226 | (31 | ) | 139 | 1 | 365 | (26 | ) | (20 | ) | |||||||||||||||||||||||||||||||
Comtan/Stalevo | Neuroscience | Parkinson's disease | 147 | (31 | ) | 383 | 0 | 530 | (14 | ) | (11 | ) | ||||||||||||||||||||||||||||||||||||||||
Xolair | Critical Care | Asthma | 504 | 15 | 504 | 5 | 12 | |||||||||||||||||||||||||||||||||||||||||||||
Femara | Oncology | Breast cancer | 22 | (90 | ) | 416 | (37 | ) | 438 | (52 | ) | (50 | ) | |||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
Top 20 products total | 8,751 | 6 | 17,486 | 3 | 26,237 | 0 | 4 | 8,564 | 7 | 15,434 | 7 | 23,998 | (3 | ) | 7 | |||||||||||||||||||||||||||||||||||||
Rest of portfolio | 1,641 | (3 | ) | 4,275 | (5 | ) | 5,916 | (7 | ) | (4 | ) | 1,715 | (2 | ) | 4,732 | 4 | 6,447 | (9 | ) | 2 | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
Total Division sales | 10,392 | 4 | 21,761 | 1 | 32,153 | (1 | ) | 2 | 10,279 | 5 | 20,166 | 6 | 30,445 | (4 | ) | 6 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
nm = not meaningful
Pharmaceuticals Division Product Highlights—Leading Products
Net sales growth data below refer to 2012 worldwide performance. Growth rates are not provided for some recently launched products since they are not meaningful.
Gleevec/Glivec ($4.7 billion, +4%+5% cc) continued to grow asis a treatment for adult patients with metastatic and/or unresectable KIT+ gastrointestinal stromal tumors (GIST), as an adjuvant treatment for certain adult patients following resection of KIT+ GIST, and as a targeted therapy for Philadelphia chromosome-positive chronic myeloid leukemia (Ph+ CML). Our Bcr-Abl franchise, which consistsSales growth were driven mainly by the US, and more than compensated for the loss of patent exclusivity in some markets. In the US, Novartis Pharmaceuticals Corporation has settled its litigation with a subsidiary of Sun Pharmaceutical Industries Ltd. relating to Novartis patents covering the use of certain polymorphic forms ofGleevec/Glivec and, which expire in 2019 (including pediatric exclusivity). The basic compound patent forTasigna, grew strongly in 2012, reaching net sales of $5.7 billion (+9% cc).
DiovanGleevec/Glivec Group ($4.4 billion, -21% cc), consistingexpired in the US on July 4, 2015. As a result of mono-substancethe settlement, Novartis will permit Sun's subsidiary to market a generic version ofDiovanGleevec/Glivec and combination productDiovan HCT, saw worldwide sales decline due to the loss of exclusivity of both products in the European Union, Canada and the United States. Performance was sustained in key Emerging Growth Markets such as China, as well as select countries in Latin America, Asia Pacific, Middle East and Africa.US commencing on February 1, 2016.
Gilenya ($2.8 billion, +21% cc), the first once-daily oral therapy to treat relapsing forms of multiple sclerosis (RMS), continued to outgrow the market, achieving double-digit growth in 2015 in recognition of strong trends towards oral treatments with higher efficacy. Growth was also fueled by an increasing acceptance of the role of high-efficacy treatments when used earlier in the course of the disease.Gilenya continues to see volume growth through new patient initiations in both the US and non-US markets. In the US,Gilenya is indicated for relapsing forms of MS. In the EU,Gilenya is indicated for adult patients with high disease activity despite treatment with at least one disease modifying agent, or rapidly evolving severe relapsing remitting MS. In an expanding oral market with multiple options,Gilenya is the only oral disease-modifying therapy (DMT) to impact the course of RMS with high efficacy across four key measures of disease activity: relapses, MRI lesions, brain shrinkage (brain volume loss) and disability progression.Gilenya has an overall positive benefit-risk profile with over ten years of safety experience. As of November 30, 2015,Gilenya has been used to treat approximately 134,000 patients in clinical trials and in a post-marketing setting, with a total patient exposure of approximately 289,000 patient years.Gilenya is currently approved in over 80 countries around the world.Gilenya is licensed from Mitsubishi Tanabe Pharma.
Lucentis ($2.42.1 billion, +22%–2% cc) grew strongly assales were impacted by increased competition in Japan and in some European markets, which offset growth opportunities in Emerging Markets.Lucentis maintained a strong ex-US market position across indications but was impacted by competitive pressures in the onlyneovascular age-related macular degeneration (nAMD) and diabetic macular edema (DME) indications, partially offset by continued growth in macular edema secondary to central and branch retinal vein occlusion (CRVO and BRVO), and choroidal neovascularization secondary to pathologic myopia (mCNV) indications.Lucentis is an anti-VEGF therapy licensed in many countries for threethe treatment of the following five ocular indications: wet age-related macular degeneration (wet AMD), visual impairment due to diabetic macular edema (DME),nAMD, DME, CRVO, BRVO, and visual impairment due to macular edema secondary to retinal vein occlusion (RVO). In wet AMD,mCNV.Lucentis is approved in more than 100 countries to treat patients with the first four conditions, and individualized treatment consistent with its EU labelin more than 80 countries for mCNV. In 2015,Lucentis obtained reimbursement for DME and RVO in Australia. It is the standardonly anti-VEGF treatment delivered in a pre-filled syringe and approved for a treat & extend regimen across all indications in Europe. Since its launch in 2006, there have been more than 3.7 million patient-treatment years of care.exposure forLucentis with more than 22 million injections.Lucentis is approvedan anti-VEGF therapy specifically designed for the treatment of visual impairment due to DMEeye, minimizing systemic exposure, that has demonstrated significant efficacy with individualized dosing in its five licensed indications and visual impairment due to macular edema secondary to RVO in more than 80 countries. In Septemberhas a well-established safety profile supported by extensive clinical studies and October of 2012, we filed regulatory submissions in the European Union and Japan forreal-world experience.Lucentis as a treatment for visual impairment due to choroidal neovascularization secondary to pathological myopia. Genentech/Rocheis licensed from Genentech, and Novartis holds the rights to commercialize the product outside the US. Genentech holds the rights to commercializeLucentis in the United States.US.
SandostatinTasigna ($1.5 billion, +8% cc), a somatostatin analogue used as a treatment for patients with functional gastroenteropancreatic tumors as well as acromegaly, continued to benefit from increasing use ofSandostatin LAR in key markets. A new presentation ofSandostatin LAR, which includes an enhanced diluent, safety needle and vial adapter, has been approved in 26 countries to date with additional filings underway.Sandostatin is also approved in more than 39 countries for the delay of disease progression in patients with advanced neuroendocrine tumors of the midgut or unknown primary tumor location.
Exforge Group ($1.41.6 billion, +16% cc), which includesExforge andExforge HCT, continued to grow at a solid double-digit rate, fueled performance was driven by continued demandstrong growth in the United States, Asia PacificUS and Middle East, as well as ongoingother markets.Exforge HCT launches in Asia and Latin America.Exforge delivered double-digit growth globally and is now available for patients in more than 100 countries.Exforge HCT, which consists ofExforge with a diuretic in a single pill, is now available in over 60 countries.
Zometa ($1.3 billion, -11% cc), which is used in an oncology setting to reduce or delay skeletal-related events in patients with bone metastases from solid tumors and multiple myeloma, declined as anticipated in 2012 due to competition.
Gilenya ($1.2 billion, +147% cc) continued to show rapid growth as the first once-daily oral therapy approved for relapsing remitting and/or relapsing forms of multiple sclerosis (MS and RRMS) in adult patients, and achieved blockbuster status in 2012 with $1.2 billion in annual sales.Gilenya is indicated in the United States for relapsing forms of MS, and in the European Union for adult patients with highly active RRMS, defined as either high disease activity despite treatment with beta interferon, or rapidly evolving severe RRMS. As of December 2012, there are approximately 56,000 patients who have been treated withGilenya in clinical trials and in a post-marketing setting, and approximately 62,000 patient years of exposure. In April 2012, following completion of their safety reviews, the FDA and EMA both confirmed the positive benefit-risk profile ofGilenya when used in accordance with updated product information, which for both regions includes additional requirements (such as blood pressure monitoring and electrocardiograms) for the existing six-hour observation period following the first dose and more specific guidance on patient selection parameters to aid in the identification of patients suitable forGilenya treatment. In particular situations, it is recommended that the first dose monitoring period be extended.GilenyaTasigna is currently approved in over 65 countries around the world, and is licensed from Mitsubishi Tanabe Pharma Corporation.
Exelon/Exelon Patch ($1.1 billion, +2% cc) combined sales increased slightly in 2012 as a therapy for mild-to-moderate forms of Alzheimer's disease dementia as well as dementia linked with Parkinson's disease.Exelon Patch, the novel transdermal form of the medicine launched in 2007 and now available in more than 80 countries worldwide, generated the majority of the sales. In August 2012, the FDA approved a higher dose ofExelon Patch for the treatment of people with mild-to-moderate Alzheimer's disease and mild to moderate Parkinson's disease dementia. In November 2012, CHMP issued a positive opinion for the approval of the higher dose ofExelon Patch for the treatment of patients with mild-to-moderately severe Alzheimer's disease in Europe.
Tasigna($1.0 billion, +44% cc) grew rapidly as a more effective, targeted therapy for certain adult patients with Ph+ CML. It is currently approved as first-line therapy for newly diagnosed patients with Ph+ CMLPhiladelphia chromosome-positive (Ph+) chronic myeloid leukemia (CML) in the chronic phase in more than 8085 countries globally, including the United States, European Union,US, EU, Japan and Switzerland, with additional submissions pending worldwide.Tasigna (nilotinib) is also approved in more than 100110 countries as a second-line treatment for patients with Ph+ CML in chronic and/or accelerated phase who are resistant or intolerant to existing treatment, such asGleevec/Glivec. Tasignamarket share continues to rise in both the first-line and second-line settings. This product is part of our Bcr-Abl franchise with net sales of $5.7 billion, (+9% cc), which also includes Gleevec/Glivec.
GalvusSandostatin Group ($910 million, +43%1.6 billion, +7% cc), which includes continued to benefit from the increasing use ofGalvusSandostatin LAR (vildagliptin), an oral treatment for type 2 diabetes, andEucreas, a single-pill combination of vildagliptin and metformin, delivered strong growth(long acting release) in key markets particularlyand from the launch of the enhanced presentation (now approved in Europe, Japan, Latin America69 countries) which includes a diluent, safety needle and Asia Pacific. Performance was driven byvial adapter.Sandostatin is a continued focus onsomatostatin analogue used to treat patients whose diabetes remains uncontrolled on metformin,with acromegaly as well as an expansionneuroendocrine tumors (NET). In NET, it is used for both the treatment of usage in new patient segments based on new indications.Galvus is currentlypatients with symptoms of carcinoid syndrome and those with advanced NET of the midgut or unknown primary tumor location (currently approved in more than 100 countries.Eucreas was the first single-pill combining a DPP-4 inhibitor and metformin to be launched in Europe and is currently approved in more than 85 countries.
Exjade ($870 million, +7% cc), a once-daily oral therapy for blood transfusion iron overload approved in more than 100 countries, saw steady sales growth as a decline in the United States was more than offset by growth in Europe, Latin America, Canada and Japan. Worldwide regulatory filings are underway and the EMA has approvedExjade as a treatment for patients with non-transfusion-dependent thalassemia syndromes, a diverse group of genetic disorders that cause anemia, with a first approval achieved in Canada.
Neoral/Sandimmun ($821 million, -6% cc), an immunosuppressant primarily used to prevent organ rejection following a kidney, liver or heart transplant, experienced only modestly declining sales, despite ongoing generic competition, due to its pharmacokinetic profile, reliability and use in treating a life-threatening condition.Neoral is also approved for use in lung transplant patients in many countries outside the United States, and is also indicated for treatment of select autoimmune disorders such as psoriasis and rheumatoid arthritis.Neoral is marketed in approximately 100 countries.60 countries).
Afinitor/Votubia ($797 million, +85%1.6 billion, +10% cc), performance was driven by strong growth in the US, Japan and other markets.Afinitor is an oral inhibitor of the mTOR pathway accelerated its strong growth trajectoryapproved in 2012 following FDA and EMA approvals incombination with exemestane for the treatment of patients with HR+/HER2-HER2– advanced breast cancer.cancer after failure with a
non-steroidal aromatase inhibitor (NSAI), for advanced renal cell carcinoma (RCC) following vascular endothelial growth factor-targeted therapy (after failure of sunitinib and sorafenib in the US) and for the treatment of advanced pancreatic neuroendocrine tumors (NET).Afinitor is also approved for treatment of patients with subependymal giant cell astrocytoma (SEGA) and renal angiomyolipoma associated with tuberous sclerosis complex (TSC), including as a dispersible tablet formulation in the US and EU for SEGA. Everolimus is also in Phase III development for patients with nonfunctional gastrointestinal and lung NET, HER2+ breast cancer, diffuse large B-cell lymphoma and TSC-related seizures. Everolimus, the active ingredient inAfinitor/Afinitor/Votubia, was also approved in the United States asAfinitor and in the European Union asVotubia for the treatment of adult patients with renal angiomyolipomas and subependymal giant cell astrocytomas (SEGAs) associated with tuberous sclerosis complex who do not require immediate surgery. The FDA also granted approval for a new formulation,Afinitor Disperz tablets, for patients with SEGAs.Afinitor/Votubia is now approved in five indications in the United States and four in the European Union. Everolimus is available under the trade namesZortress/Certican for use in other non-oncology indications and is exclusively licensed to Abbott and sublicensed to Boston Scientific for use in drug-eluting stents.
VoltarenDiovanGroup ($1.3 billion, –40% cc), consisting ofDiovan monotherapy and the combination productCo-Diovan/Diovan HCT, continues to retain a blockbuster status despite generic competition in most markets, including the US (following July 7, 2014Diovan monotherapy generic entry), many EU countries and Japan (generic entry in June 2014). Sales continued to grow in Emerging Growth Markets, including China and selected countries in Latin America, Asia Pacific and Africa, partially compensating for loss of exclusivity in the US and the EU.
GalvusGroup ($1.1 billion, +8% cc), includesGalvus, an oral treatment for type 2 diabetes, andEucreas, a single-pill combination of vildagliptin (the active ingredient inGalvus) and metformin.Galvus delivered solid growth with major milestones including approval of theGalvus monotherapy indication in China in April 2015. In September 2015, the Japanese HA PMDA approvedEucreas (EquMet), the first single-pill combination of a DPP4 inhibitor and metformin approved in this market. The focus forGalvus remains on patients whose diabetes remains uncontrolled on metformin, earlier treatment intensification as well as on an expansion of usage in key segments such as elderly and renal-impaired patients.Galvus Group is currently approved in more than 125 countries.
ExforgeGroup ($1.0 billion, –15% cc) includes two medicines approved for the treatment of hypertension:Exforge, a single-pill combination of the angiotensin receptor blocker (ARB) valsartan and the calcium channel blocker amlodipine besylate; andExforgeHCT, a single pill combining an ARB (valsartan), calcium channel blocker (amlodipine) and a diuretic (hydrochlorothiazide) three widely prescribed blood pressure treatments.Exforge lost exclusivity in October 2014 andExforgeHCT in November 2014 in the US. Outside the US,Exforge HCT is growing across all regions, showing significantly high growth in emerging markets.Exforge continues to grow with double-digit growth in China and a number of emerging markets.Exforge is now available in more than 100 countries andExforgeHCT is available in over 77 countries.
Exjade ($917 million, +8% cc), a once-daily dispersible tablet for chronic transfusional iron overload saw sales increases in the US and Asia augmented by the March 2015 approval in the US ofJadenu, an oral tablet formulation that can be swallowed or crushed, and was approved by the FDA in 2015. Regulatory applications forJadenu have been submitted in the EU, Canada, Switzerland, and many other countries.Exjade, first approved in 2005 and now approved in more than 100 countries, is also approved for the treatment of chronic iron overload in patients with non-transfusion-dependent thalassemia in more than 70 countries, with additional regulatory reviews underway.Jadenu is also approved for the treatment of chronic iron overload in patients with non-transfusion-dependent thalassemia in the US.
Xolair ($755 million, +14% cc), a biologic drug for appropriate patients with severe persistent allergic asthma in Europe and moderate-to-severe persistent allergic asthma in the US, is currently approved in more than 90 countries. Its sales continued to grow strongly in Canada, Europe and Latin America.Xolair is also approved in the EU, Switzerland and over 40 other countries as a treatment for chronic spontaneous urticaria (CSU), also known as chronic idiopathic urticaria (CIU), for which it is approved in the US and now Canada and Australia. Novartis co-promotesXolair with Genentech in the US and shares a portion of the operating income, but does not book US sales.
Exelon/Exelon Patch ($728 million, –21% cc) sales declined due to generic competition forExelonPatch in the EU and now in the US.ExelonPatch is approved for the treatment of mild-to-moderate Alzheimer's disease dementia (AD) in more than 90 countries, including more than 20 countries where it is also approved for Parkinson's disease dementia.ExelonPatch is also indicated for the treatment of patients with severe AD in 14 countries, including the US.
Neoral/Sandimmun ($570 million, –6% cc), a micro-emulsion formulation of cyclosporine, is an immunosuppressant to prevent organ rejection following a kidney, liver or heart transplant.Neoral is also approved for use in lung transplant in many countries outside of the US. Additionally, it is indicated for treating selected autoimmune disorders such as psoriasis and rheumatoid arthritis. First launched in 1995,Neoral is marketed in approximately 100 countries. Although sales are declining due to generic competition and mandatory price reductions, most notably in Europe and Japan, the decrease is not as rapid as has been the case in other therapeutic areas, due to the special characteristics of the solid organ transplant market.
Votrient ($565 million) is a small molecule tyrosine kinase inhibitor that targets a number of intracellular proteins to limit tumor growth and cell survival. Acquired from GSK in 2015,Votrient is approved in the US for the treatment of patients with advanced renal cell carcinoma (aRCC), and in the EU for first-line treatment of adult patients with aRCC and for patients who have received prior cytokine therapy for advanced disease. RCC is the most common type of kidney cancer in adults, and nearly one-fifth of patients have aRCC at the time of diagnosis.Votrient is also indicated for patients with advanced soft tissue sarcoma (STS) who have received prior chemotherapy. The efficacy ofVotrient for the treatment of patients with adipocytic STS or gastrointestinal stromal tumors has not been demonstrated. STS is a type of cancer which can arise from a wide variety of soft tissues including muscle, fat, blood vessel and nerves.Votrient is approved in 99 countries worldwide for aRCC and in 87 countries for aSTS.
Voltaren/Cataflam ($759558 million, 0% cc), is a leading non-steroidal anti-inflammatory drug available in more than 140 countries, saw stable sales as competition was offset by continued growth in regions such as Latin America, the Middle East, Africa and Asia based on long-term trust in the brand. Indicated(NSAID) for the relief of symptoms in rheumatic diseases likesuch as rheumatoid arthritis and osteoarthritis, and for various other inflammatory and pain conditions,conditions.Voltaren/Cataflam was first registered 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.forms, including tablets, drops, suppositories, ampoules and topical therapy. In addition, in various countries, our OTCSandoz Division markets low-dose oral formsgeneric versions of the product and the topical therapy ofour Alcon Division marketsVoltaren as over-the-counter products.for ophthalmic indications.
Reclast/AclastaTafinlar + Mekinist ($590 million, -2% cc), a once-yearly bisphosphonate infusion453 million) achieved strong growth in sales. Acquired from GSK in 2015, this combination is the first of its kind for the treatment of certain formspatients with BRAF V600 mutation-positive unresectable or metastatic melanoma, as detected by a validated test, in the US, EU, Canada and several other markets. In August, the combination of osteoporosisTafinlar + Mekinist was approved in Europe for the treatment of adult patients with unresectable or metastatic melanoma with a BRAF V600 mutation and Paget's diseasein November, this combination received regular approval in the US based on the completion of two Phase III confirmatory trials. The combination was previously approved in the US under accelerated approval.Tafinlar targets the serine/threonine kinase BRAF in the RAS/RAF/MEK/ERK pathway andMekinist targets the threonine/tyrosine kinases MEK1 and MEK2 in the MAP kinase pathway, resulting in dual blockade of this pathway, improving the clinical efficacy of the bone, saw sales decline slightlytreatment. This is the first combination of BRAF/MEK inhibitors to achieve a median overall survival of more than two years in 2012. Sold astwo Phase III studies in BRAF V600 mutation positive unresectable or metastatic melanoma patients.ReclastTafinlar in the United States and+ AclastaMekinist inare also approved as single agents for the resttreatment of the world, the product is approvedpatients with unresectable or metastatic melanoma in more than 10045 and 30 countries worldwide, respectively. In addition,Tafinlar also has Breakthrough Therapy designation from the FDA for up to six indications. It istreatment of non-small cell lung cancer (NSCLC) patients with BRAF V600E mutations who have received at least one prior line of platinum-containing chemotherapy. In July, the combination therapyTafinlar + Mekinist also received Breakthrough Therapy designation from the only bisphosphonate approved to reduce the incidence ofFDA for NSCLC patients with BRAF V600E mutations.
fractures at all three key fracture sites (hip, spine and non-spine) in the treatment of postmenopausal osteoporosis. Zoledronic acid, the active ingredient inReclast/Aclasta, is also approved in a number of countries in a different dosage under the trade nameZometa for certain oncology indications.
Myfortic ($579441 million, +16%–8% cc), a transplantation medicine, continued to grow as a treatment for the prevention of acute rejection of kidney allografts. It is approved for this indication, in combination with cyclosporine and corticosteroids,available in more than 90 countries to prevent organ rejection in adult kidney transplant patients. Although it has experienced declining sales after the expected launch of generic competition in the US in early 2014, the decrease is not as rapid as has been the case in other therapeutic areas, due to the special characteristics of the solid organ transplant market.Myfortic continued to grow in some geographies where generic competition has not yet begun. Marketing authorizations for generic competitors have been granted in European countries.
RitalinJakavi/ ($410 million, +71% cc) performance was driven by strong volume growth across multiple markets.Jakavi is an oral inhibitor of the JAK 1 and JAK 2 tyrosine kinases. It is the first JAK inhibitor indicated for the treatment of disease-related splenomegaly or symptoms in adult patients with primary myelofibrosis (also known as chronic idiopathic myelofibrosis), post-polycythemia vera myelofibrosis or post-essential thromboycythemia myelofibrosis.Jakavi is currently approved in more than 95 countries, including EU member states, Japan and Canada. In March 2015, the EC approvedJakavi for the treatment of adult patients with polycythemia vera (PV) who are resistant to or intolerant of hydroxyurea.Jakavi is the first targeted treatment approved by the EC for these patients. More than 45 countries have approvedJakavi in the PV indication, including Switzerland, Canada and Japan, and regulatory applications have been submitted in other countries. Novartis licensed ruxolitinib from Incyte Corporation for development and commercialization outside the US.
Promacta/Revolade ($402 million) performance was driven by strong growth in the US and other markets. Acquired from GSK in 2015,Promacta is marketed under the brand namePromacta in the US andRevolade in most countries outside the US. It is the only approved once-daily oral thrombopoietin receptor agonist. In August 2015, the US FDA approved an expanded use forPromacta to include children 1 year of age and older with chronic immune thrombocytopenia (ITP) who have had an insufficient response to corticosteroids, immunoglobulins or splenectomy. The updated label includes a new oral suspension formulation ofPromacta that is designed for younger children who may not be able to swallow tablets.Revolade is currently under review for this same indication with the EMA. In December, Novartis received a positive CHMP opinion on a potential update to the adult chronic ITP indication with regards to the use ofRevolade in non-splenectomised patients; the EMA decision is expected in February 2016.Revolade was approved by the European Commission in September 2015 for the treatment of adults with acquired severe aplastic anemia (SAA) who were either refractory to prior immunosuppressive therapy or heavily pretreated and are unsuitable for hematopoietic stem cell transplant.
Ritalin/Focalin ($554365 million, +3%–20% cc) continued to grow asis a treatment for attention deficit hyperactivity disorder (ADHD) in children.Ritalin andRitalin LA are available in more than 70 and 30 countries, respectively, and are also indicated for narcolepsy. To date in 2015,Ritalin LA has been granted the adult ADHD indication in over 20 countries.Focalin andFocalin XR XR are available in the United States,US andFocalin XR, whichXR is additionally indicated for adults,adults.Focalin XR is also approved in Switzerland.Ritalin Immediate releaseRelease has generic competition in most countries. Most strengths ofRitalin LA andFocalin are subject to generic competition in the US.
Alcon
Alcon net sales in 2015 were $9.8 billion (–9%, –1% in constant currencies, or cc). Regionally, sales were flat in Japan and rose in Latin America and the Caribbean. In Europe, the Middle East and Africa, sales rose 1% (cc), with strong sales of recently launched contact lenses, includingDailies Total1 andAir Optix Colors, offset by declines in surgical equipment.
Sales in North America declined 3%, mainly due to increased generic competition for some pharmaceutical products and soft surgical equipment sales. In Asia and Russia, sales declined 5% (cc), driven by a significant market slowdown, with weak performance in China, India and Southeast Asia.
To accelerate growth, we are taking concerted action on two fronts. For the Surgical and Vision Care businesses, we have identified key actions as part of a growth plan. They include steps to optimize
innovation in intraocular lenses (IOLs) for cataract surgery, prioritizing and investing in the development of promising new products, and improving the effectiveness of our sales force.
In addition, we plan to strengthen our ophthalmic medicines business by transferring pharmaceutical products from Alcon to our Pharmaceuticals Division, combining expertise in pharmaceuticals development and marketing with the strong Alcon brand.
| Year ended Dec 31, 2015 | Year ended Dec 31, 2014 | Change in $ | Constant currencies change | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Surgical | |||||||||||||
Cataract products | 2,853 | 3,174 | (10 | ) | (2 | ) | |||||||
of which IOLs | 1,099 | 1,264 | (13 | ) | (4 | ) | |||||||
Vitreoretinal products | 594 | 615 | (3 | ) | 6 | ||||||||
Refractive/other | 251 | 284 | (12 | ) | (5 | ) | |||||||
| | | | | | | | | | | | | |
Total | 3,698 | 4,073 | (9 | ) | (1 | ) | |||||||
| | | | | | | | | | | | | |
Ophthalmic Pharmaceuticals | |||||||||||||
Glaucoma | 1,196 | 1,319 | (9 | ) | 2 | ||||||||
Allergy/otic/nasal | 780 | 887 | (12 | ) | (8 | ) | |||||||
Infection/inflammation | 1,011 | 1,066 | (5 | ) | 2 | ||||||||
Dry eye | 583 | 608 | (4 | ) | 6 | ||||||||
Other | 243 | 331 | (27 | ) | (15 | ) | |||||||
| | | | | | | | | | | | | |
Total | 3,813 | 4,211 | (9 | ) | 0 | ||||||||
| | | | | | | | | | | | | |
Vision Care | |||||||||||||
Contact lenses | 1,743 | 1,897 | (8 | ) | 1 | ||||||||
Contact lens care | 558 | 646 | (14 | ) | (8 | ) | |||||||
| | | | | | | | | | | | | |
Total | 2,301 | 2,543 | (10 | ) | (2 | ) | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total net sales | 9,812 | 10,827 | (9 | ) | (1 | ) | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Surgical
Surgical franchise sales were $3.7 billion (–9%, –1% cc). Solid sales of cataract and vitreoretinal disposable surgical supplies were offset by competitive pressure on IOL sales, as well as a slowdown in equipment purchases in the US and emerging markets, particularly Asia. Launches in 2015 of ourUltraSert pre-loaded andPanOptix trifocal IOLs in Europe, as well as regulatory approval ofUltraSert pre-loaded IOLs in the US, provide an opportunity to renew growth in this segment.
Ophthalmic Pharmaceuticals
Ophthalmic Pharmaceuticals sales were $3.8 billion (–9%, 0% cc). In glaucoma products, strong performance of fixed-dose combination products, includingAzarga andSimbrinza, was offset by generic competition for monotherapies.Systane eye drops to treat the symptoms of dry eye saw sales grow in the US and Europe, the Middle East and Africa, with softer sales across emerging markets. Sales of allergy, nasal and ear medicines declined, driven by continued generic competition in the US.
Vision Care
Vision Care sales were $2.3 billion (–10%, –2% cc). Contact lens sales reached $1.7 billion (–8%, +1% cc), with strong sales of innovative lenses, particularlyDailies Total1 andAir Optix Colors, offset by
declines in older products. Sales of contact lens solutions were $0.6 billion (–14%, –8% cc), affected by ongoing market shifts to daily disposable lenses, as well as competitive pressure in the US.
Sandoz
In 2015, Sandoz had net sales of $9.2 billion (–4%, +7% in constant currencies, or cc, from the prior year), driven by a 15.0 percentage-point increase in volume, more than offsetting 8.0 percentage points of price erosion. Performance was driven by strong sales growth in the US (+10% cc), Asia Pacific (+13% cc), Latin America (+18% cc), and Middle East and Africa (+13% cc). Sales in Western Europe grew 3% (cc), with Germany growing 5% (cc).
Sandoz continued to strengthen its global leadership position in biopharmaceuticals, which include medicines that are difficult to develop and manufacture. In June, Sandoz launchedGlatopa—the first generic competitor to Copaxone® 20 mg—in the US. And in September in the US, Sandoz also launchedZarxio, which is the first biosimilar approved by the US Food and Drug Administration (FDA) under new regulations.
| Year ended Dec 31, 2015 | Year ended Dec 31, 2014 | Change in $ | Constant currencies change | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Retail Generics | 7,199 | 7,933 | (9 | ) | 2 | ||||||||
Biopharmaceuticals & Oncology Injectables | 1,378 | 1,094 | 26 | 39 | |||||||||
Anti-Infectives | 580 | 535 | 9 | 18 | |||||||||
| | | | | | | | | | | | | |
Total | 9,157 | 9,562 | (4 | ) | 7 | ||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Retail Generics
In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of pharmaceuticals. This franchise includes the specialty areas of dermatology, respiratory and ophthalmics, as well as finished dosage forms of anti-infective products sold under the Sandoz name. Retail Generics sales worldwide were $7.2 billion (–9%, +2% cc). New product launches included US-authorized generics of our Pharmaceuticals Division'sExelon Patch andExforge, as well as bivalirudin, an injectable anticoagulant.
Biopharmaceuticals and Oncology Injectables
In Biopharmaceuticals, Sandoz develops, manufactures and markets protein- and biotechnology-based products known as biosimilars, as well asGlatopa. Sandoz also provides biotechnology manufacturing services to other companies. Sales of biopharmaceuticals rose 25% (+39% cc) to $772 million. Sandoz further strengthened its leadership in biosimilars in 2015 with the US approval ofZarxio (filgrastim), used to fight infection in cancer patients receiving chemotherapy.
Sandoz is the global market leader in biosimilars with three products that continue to see strong growth in their respective categories:Omnitrope, a human growth hormone;Binocrit, an erythropoiesis-stimulating agent; and filgrastim under the brand namesZarzio outside the US andZarxio in the US. We continued in 2015 to build our portfolio of biosimilars. The FDA and European Medicines Agency confirmed acceptance of our applications for etanercept, a proposed biosimilar to Amgen's Enbrel®, which treats autoimmune diseases such as rheumatoid arthritis and psoriasis. The FDA also accepted our applications for pegfilgrastim, a proposed biosimilar to Amgen's Neulasta®, used to reduce the chance of infection in cancer patients receiving chemotherapy. Sandoz has five biosimilars in Phase III development or registration preparation.
Sandoz also develops, manufactures and markets cytotoxic products for traditional cancer chemotherapy. The Oncology Injectables business now includes a portfolio of more than 25 products.
Anti-Infectives
Sandoz manufactures pharmaceutical ingredients and intermediates—mainly antibiotics—for sale under the Sandoz name and to third-party customers. Total Anti-Infectives sales were $1.4 billion, up 9% (cc) driven by a strong flu season and restored production capacity after 2014 quality upgrades. Sales of finished dosage forms sold under the Sandoz name reached $860 million. Anti-Infectives sold to third parties for sale under their own name reached $580 million.
Operating Income from Continuing Operations
Operating income from continuing operations was $9.0 billion (–19%,–2% cc), mainly due to amortization of the new oncology assets in Pharmaceuticals. The current year includes an exceptional expense of $400 million for a settlement of the specialty pharmacies case in the Southern District of New York, whereas the prior-year benefitted from a one-time commercial settlement gain of $302 million and $248 million gain from selling a Novartis Venture Fund investment. The negative currency impact of 17 percentage points was mainly due to the strong $ versus the euro, Japanese yen and emerging market currencies. Operating income margin in constant currencies decreased 1.4 percentage points; currency had a negative impact of 1.7 percentage points resulting in a net decrease of 3.1 percentage points to 18.2 percent of net sales.
The following table provides an overview of operating income by segment:
| Year ended Dec 31, 2015 | % of net sales | Year ended Dec 31, 2014 | % of net sales | Change in $ | Change in constant currencies | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | | $ m | | % | % | |||||||||||||
Pharmaceuticals | 7,597 | 25.0 | 8,471 | 26.6 | (10 | ) | 5 | ||||||||||||
Alcon | 794 | 8.1 | 1,597 | 14.8 | (50 | ) | (20 | ) | |||||||||||
Sandoz | 1,005 | 11.0 | 1,088 | 11.4 | (8 | ) | 1 | ||||||||||||
Corporate | (419 | ) | (67 | ) | nm | nm | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Operating income from continuing operations | 8,977 | 18.2 | 11,089 | 21.3 | (19 | ) | (2 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
nm = not meaningful
Core Operating Income key figures(1)
| Year ended Dec 31, 2015 | Year ended Dec 31, 2014 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Core gross profit from continuing operations | 36,900 | 38,821 | (5 | ) | 5 | ||||||||
Marketing & Sales | (11,729 | ) | (12,355 | ) | 5 | (5 | ) | ||||||
Research & Development | (8,738 | ) | (8,723 | ) | 0 | (6 | ) | ||||||
General & Administration | (2,389 | ) | (2,552 | ) | 6 | 0 | |||||||
Other income | 823 | 563 | 46 | 59 | |||||||||
Other expense | (1,077 | ) | (1,281 | ) | 16 | 7 | |||||||
| | | | | | | | | | | | | |
Core operating income from continuing operations | 13,790 | 14,473 | (5 | ) | 10 | ||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
as % of net sales | 27.9 | % | 27.7 | % |
The adjustments made to operating income to arrive at core operating income from continuing operations amounted to $4.8 billion (2014: $3.4 billion). The increase was mainly driven by higher amortization of the new oncology assets in Pharmaceuticals, higher legal settlement expense and higher acquisition-related expense, whereas 2014 included a commercial settlement gain of $302 million, partially offset by the provision of $204 million for the US healthcare reform fee.
Excluding these items, core operating income from continuing operations decreased 5% (+10% cc) to $13.8 billion. Core operating income margin in constant currencies increased 1.3 percentage points mainly due to higher sales and productivity initiatives; currency had a negative impact of 1.1 percentage points, resulting in a margin of 27.9% of net sales, compared to 27.7% in 2014.
The following table provides an overview of core operating income by segment:
| Year ended Dec 31, 2015 | % of net sales | Year ended Dec 31, 2014 | % of net sales | Change in $ | Change in constant currencies | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | | $ m | | % | % | |||||||||||||
Pharmaceuticals | 9,420 | 30.9 | 9,514 | 29.9 | (1 | ) | 14 | ||||||||||||
Alcon | 3,063 | 31.2 | 3,811 | 35.2 | (20 | ) | (7 | ) | |||||||||||
Sandoz | 1,659 | 18.1 | 1,571 | 16.4 | 6 | 17 | |||||||||||||
Corporate | (352 | ) | (423 | ) | 17 | 11 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Core operating income from continuing operations | 13,790 | 27.9 | 14,473 | 27.7 | (5 | ) | 10 | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Operating income was $7.6 billion (–10%, +5% cc) and included the effects of the acquisition of GSK's oncology portfolio, among other exceptional items.
Core operating income, which excludes certain exceptional items, was $9.4 billion (–1%, +14% cc), helped by our ongoing efforts to improve productivity and control costs. Core operating income margin improved by 2.4 percentage points in constant currencies. However, that was offset by 1.4 percentage points of negative impact from currency exchange rates, yielding a core margin of 30.9% of net sales.
Research and development
The following table provides an overview on the reported and core Research and Development expense of the Pharmaceuticals Division:
| Year ended Dec 31, 2015 | Year ended Dec 31, 2014 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Research and Exploratory Development | (2,565 | ) | (2,724 | ) | 6 | 3 | |||||||
Confirmatory Development | (4,667 | ) | (4,607 | ) | (1 | ) | (7 | ) | |||||
| | | | | | | | | | | | | |
Total Pharmaceuticals Division Research and Development expense | (7,232 | ) | (7,331 | ) | 1 | (3 | ) | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
as % of Pharmaceuticals net sales to third parties | 23.8 | % | 23.1 | % | |||||||||
Core Research and Exploratory Development(1) | (2,493 | ) | (2,654 | ) | 6 | 3 | |||||||
Core Confirmatory Development(1) | (4,560 | ) | (4,343 | ) | (5 | ) | (11 | ) | |||||
| | | | | | | | | | | | | |
Total Core Pharmaceuticals Division Research and Development expense | (7,053 | ) | (6,997 | ) | (1 | ) | (5 | ) | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
as % of Pharmaceuticals net sales to third parties | 23.2 | % | 22.0 | % |
Pharmaceuticals Division Research and Exploratory Development expenditure amounted to $7.2 billion in 2015, a decrease of 1% (–3% cc) compared to 2014. Confirmatory Development expenditures increased by 1% (–7% cc) to $4.7 billion, compared to $4.6 billion in 2014, mainly driven by the additional development expense for the new oncology assets acquired from GSK.
Core R&D expense in the Pharmaceuticals Division as percent of sales decreased by 0.1 percentage points in constant currencies, which was offset by negative currency movements of 1.3 percentage points mainly from the sales base, as the Core R&D expenses are primarily denominated in US dollars and Swiss francs, which resulted in a net increase of 1.2 percentage points to 23.2% of net sales.
Operating income was $0.8 billion (–50%,–20% cc).
Core operating income, which excludes certain items, was $3.1 billion (–20%,–7% cc), impacted by lower sales, higher spending (primarily on marketing and sales), investments in product development, and increased provisions for bad debt in Asia. Core operating income margin declined 2.1 percentage points in constant currencies and currency exchange rates had a negative impact of 1.9 percentage points, yielding a core margin of 31.2% of net sales.
Operating income was $1.0 billion (–8%, +1% cc).
Core operating income, which excludes certain exceptional items, increased 6% (+17% cc) to $1.7 billion. Core operating income margin increased 1.5 percentage points in constant currencies and currency exchange rates had a positive impact of 0.2 percentage points, yielding a core margin of 18.1% of net sales.
Corporate Income and Expense, Net
Corporate income and expense amounted to a net expense of $419 million in 2015 compared to a net expense of $67 million in the prior year. The increased expense was mainly due to the $302 million commercial settlement gain and a $248 million gain from selling Novartis Venture Fund investments recorded in 2014, partially offset by the gain on the sale of real estate in Switzerland of $54 million, lower share-based compensation accruals and lower provisions in the captive insurance companies in 2015.
Non-Operating Income and Expense
The following table provides an overview of non-operating income and expense:
| Year ended Dec 31, 2015 | Year ended Dec 31, 2014 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Operating income from continuing operations | 8,977 | 11,089 | (19 | ) | (2 | ) | |||||||
Income from associated companies | 266 | 1,918 | (86 | ) | (86 | ) | |||||||
Interest expense | (655 | ) | (704 | ) | 7 | 2 | |||||||
Other financial income and expense | (454 | ) | (31 | ) | nm | nm | |||||||
| | | | | | | | | | | | | |
Income before taxes from continuing operations | 8,134 | 12,272 | (34 | ) | (17 | ) | |||||||
Taxes | (1,106 | ) | (1,545 | ) | 28 | 10 | |||||||
| | | | | | | | | | | | | |
Net income from continuing operations | 7,028 | 10,727 | (34 | ) | (18 | ) | |||||||
Net income/loss from discontinued operations | 10,766 | (447 | ) | nm | nm | ||||||||
| | | | | | | | | | | | | |
Net income | 17,794 | 10,280 | 73 | 91 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Basic EPS ($) from continuing operations | 2.92 | 4.39 | (33 | ) | (17 | ) | |||||||
Basic EPS ($) from discontinued operations | 4.48 | (0.18 | ) | nm | nm | ||||||||
| | | | | | | | | | | | | |
Total basic EPS ($) | 7.40 | 4.21 | 76 | 94 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
nm = not meaningful
The following table provides an overview of core non-operating income and expense:
| Year ended Dec 31, 2015 | Year ended Dec 31, 2014 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Core operating income from continuing operations | 13,790 | 14,473 | (5 | ) | 10 | ||||||||
Income from associated companies | 981 | 943 | 4 | 4 | |||||||||
Interest expense | (655 | ) | (704 | ) | 7 | 2 | |||||||
Other financial income and expense | (24 | ) | (31 | ) | 23 | nm | |||||||
| | | | | | | | | | | | | |
Core income before taxes from continuing operations | 14,092 | 14,681 | (4 | ) | 10 | ||||||||
Taxes | (2,051 | ) | (2,028 | ) | (1 | ) | (16 | ) | |||||
| | | | | | | | | | | | | |
Core net income from continuing operations | 12,041 | 12,653 | (5 | ) | 9 | ||||||||
Core net income/loss from discontinued operations | (256 | ) | 102 | nm | nm | ||||||||
| | | | | | | | | | | | | |
Core net income | 11,785 | 12,755 | (8 | ) | 6 | ||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Core basic EPS ($) from continuing operations | 5.01 | 5.19 | (3 | ) | 10 | ||||||||
Core basic EPS ($) from discontinued operations | (0.11 | ) | 0.04 | nm | nm | ||||||||
| | | | | | | | | | | | | |
Core basic EPS ($) | 4.90 | 5.23 | (6 | ) | 7 | ||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
nm = not meaningful
Income from associated companies
Income from associated companies from continuing operations amounted to $266 million in 2015, compared to $1.9 billion in 2014. The prior-year benefited from a pre-tax gain of $0.8 billion recognized on the sale of the shares of Idenix to Merck, a gain of $0.4 billion from the divestment of the shareholding in LTS and from the gain of $64 million recorded on the Novartis Venture Funds investments.
In addition, the estimated income from Roche Holding AG declined from $599 million in the prior-year period to $343 million in 2014, due to an adjustment of $157 million recognized in the first quarter of 2015 when Roche published full year results, as well as a lower estimated income contribution from Roche for 2015 due to an announced restructuring.
The estimated share in net results from the GSK Consumer Healthcare joint venture amounted to a loss of $17 million, as income from operations was more than offset by integration charges. This estimate will be adjusted based on actual results in the first quarter of 2016. In addition, in 2015, we finalized the purchase price allocation for the investment in the GSK Consumer Healthcare joint venture which is accounted for as associated company and recognized amortization of purchase price adjustments of $62 million, resulting in a total estimated loss of $79 million for our share in the net results from the GSK Consumer Healthcare joint venture for the year.
Core income from associated companies increased to $981 million compared to $943 million in 2014. Our estimated share in core results from the consumer healthcare joint venture with GSK, which amounted to $213 million in 2015, was offset by decreases in our estimated share of core results from Roche (from $856 million to $766 million) and prior-year income from associated companies of the Novartis Venture Fund.
Interest Expense and other financial income and expense
Interest expense from continuing operations decreased by 7% (–2% cc) to $655 million from $704 million in the prior year.
Other financial income and expense amounted to an expense of $454 million compared to $31 million in the prior-year period mainly on account of the exceptional charges of $410 million related to Venezuela due to foreign exchange losses of $211 million and monetary losses from hyperinflation accounting of $72 million and a loss of $127 million on the sale of PDVSA bonds received to settle a portion of intra-group payables.
Core other financial income and expense, which exclude the exceptional charges of $410 million related to Venezuela, amounted to a net expense of $24 million, compared to $31 million in 2014.
Taxes
The tax rate for continuing operations (taxes as percentage of pre-tax income) in 2015 increased to 13.6% from 12.6% in the prior year, as a result of a change in profit mix from lower to higher tax jurisdictions.
The core tax rate from continuing operations (core tax as a percentage of core pre-tax income) increased to 14.6% from 13.8% in 2014, mainly as a result of a change in profit mix from lower to higher tax jurisdictions.
Net Income
Net income from continuing operations of $7.0 billion was down 34% (–18% cc) declining more than operating income mainly due to the exceptional charges related to Venezuela in the current year and the prior-year gains of $0.8 billion from the sale of Idenix shares and $0.4 billion from the sale of LTS shares.
Core net income from continuing operations of $12.0 billion was down 5% (+9% cc), in line with core operating income.
EPS
Basic earnings per share (EPS) from continuing operations was $2.92 per share, down 33% (–17% cc), declining less than net income from continuing operations due to the lower number of outstanding shares.
Core basic EPS from continuing operations was $5.01 (–3%, +10% cc), growing ahead of core net income due to lower average outstanding shares and lower minority interests.
| Year ended Dec 31, 2015 | Year ended Dec 31, 2014 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Net sales to third parties from discontinued operations | 601 | 5,816 | |||||
Operating income/loss from discontinued operations | 12,477 | (353 | ) | ||||
Net income/loss from discontinued operations | 10,766 | (447 | ) | ||||
Attributable to: | |||||||
Shareholders of Novartis AG | 10,758 | (444 | ) | ||||
Non-controlling interests | 8 | (3 | ) | ||||
Basic earnings per share ($) from discontinued operations | 4.48 | (0.18 | ) | ||||
Free cash flow from discontinued operations | (230 | ) | (172 | ) |
Operational results for discontinued operations in 2015 include the results from the Vaccines influenza business, prior to its divestment to CSL Limited on July 31, 2015, as well as results from the Vaccines non-influenza business and OTC until March 2, 2015. Operational results from the Animal Health business, which was divested on January 1, 2015 include only the divestment gain. The prior year included the results of all divested units during the full year.
Discontinued operations also include the exceptional pre-tax gains of $12.7 billion from the divestment of Animal Health ($4.6 billion) and the transactions with GSK ($2.8 billion for the Vaccines non-influenza business and $5.9 billion arising from the contribution of Novartis OTC into the GSK Consumer Healthcare joint venture). In addition, the GSK transactions resulted in $0.6 billion of additional transaction-related costs that were expensed.
Net sales to third parties of the discontinued operations in 2015 amounted to $0.6 billion compared to $5.8 billion in 2014.
Operating income from discontinued operations in 2015 amounted to an income of $12.5 billion which was mainly driven by the exceptional pre-tax gains from the portfolio transformation. Excluding the divestment gains, the remaining operating loss from discontinued operations was $0.2 billion, representing the operating performance of the Vaccines influenza business up to July 31, 2015 as well as the Vaccines non-influenza business and OTC until their respective divestment dates, and is net of the partial reversal of $0.1 billion of the impairment of the assets of Vaccines influenza business recorded in 2014.
The prior year operating loss of $353 million included an exceptional impairment charge of $1.1 billion for the Vaccines influenza business which was partially offset by an exceptional pre-tax gain of $0.9 billion from the divestment of our blood transfusion diagnostics unit.
Net income from discontinued operations amounted to $10.8 billion in 2015 compared to a net loss $447 million in 2014. For more information on discontinued operations see "—Factors Affecting Comparability of Year-On-Year Results of Operations", below and "Item 18. Financial Statements—Note 30".
For the total Group, net income amounted to $17.8 billion compared to $10.3 billion in 2014, impacted by the exceptional divestment gains included in the net income from the discontinued operations. Basic earnings per share increased to $7.40 from $4.21.
Following the announcement of the transactions with GlaxoSmithKline plc (GSK) and Eli Lilly and Company (Lilly) on April 22, 2014 (and the subsequent announcement of the transaction with CSL Limited (CSL)), in which we agreed to divest our Vaccines, OTC and Animal Health businesses to those companies, the businesses to be divested were accounted for as discontinued operations and were not included in our results from continuing operations for 2013 and 2014. In addition, on January 9, 2014, Novartis completed the divestment to Grifols S.A. of our former blood transfusion diagnostics unit, which had been included in our former Vaccines and Diagnostics Division. The results of this divested business were also accounted for as discontinued operations and not included in our results from continuing operations. See "—Factors Affecting Comparability Of Year-On-Year Results Of Operations."
| Year ended Dec 31, 2014 | Year ended Dec 31, 2013 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Net sales to third parties from continuing operations | 52,180 | 51,869 | 1 | 3 | |||||||||
Sales to discontinued segments | 239 | 221 | 8 | 8 | |||||||||
| | | | | | | | | | | | | |
Net sales from continuing operations | 52,419 | 52,090 | 1 | 3 | |||||||||
Other revenues | 1,215 | 626 | 94 | 94 | |||||||||
Cost of goods sold | (17,345 | ) | (16,579 | ) | (5 | ) | (6 | ) | |||||
| | | | | | | | | | | | | |
Gross profit from continuing operations | 36,289 | 36,137 | 0 | 3 | |||||||||
Marketing & Sales | (12,377 | ) | (12,638 | ) | 2 | 0 | |||||||
Research & Development | (9,086 | ) | (9,071 | ) | 0 | 0 | |||||||
General & Administration | (2,616 | ) | (2,603 | ) | 0 | (1 | ) | ||||||
Other income | 1,391 | 1,205 | 15 | 15 | |||||||||
Other expense | (2,512 | ) | (2,047 | ) | (23 | ) | (23 | ) | |||||
| | | | | | | | | | | | | |
Operating income from continuing operations | 11,089 | 10,983 | 1 | 7 | |||||||||
Return on net sales (%) | 21.3 | 21.2 | |||||||||||
Income from associated companies | 1,918 | 599 | 220 | 221 | |||||||||
Interest expense | (704 | ) | (683 | ) | (3 | ) | (6 | ) | |||||
Other financial income and expense | (31 | ) | (92 | ) | 66 | 31 | |||||||
| | | | | | | | | | | | | |
Income before taxes from continuing operations | 12,272 | 10,807 | 14 | 19 | |||||||||
Taxes | (1,545 | ) | (1,498 | ) | (3 | ) | (8 | ) | |||||
| | | | | | | | | | | | | |
Net income from continuing operations | 10,727 | 9,309 | 15 | 21 | |||||||||
Net income/loss from discontinued operations | (447 | ) | (17 | ) | nm | nm | |||||||
| | | | | | | | | | | | | |
Net income | 10,280 | 9,292 | 11 | 17 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Attributable to: | |||||||||||||
Shareholders of Novartis AG | 10,210 | 9,175 | 11 | 18 | |||||||||
Non-controlling interests | 70 | 117 | (40 | ) | (41 | ) | |||||||
Basic earnings per share ($) from continuing operations | 4.39 | 3.76 | 17 | 22 | |||||||||
Basic earnings per share ($) from discontinued operations | (0.18 | ) | 0.00 | nm | nm | ||||||||
| | | | | | | | | | | | | |
Total basic earnings per share ($) | 4.21 | 3.76 | 12 | 18 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Free cash flow from continuing operations | 10,934 | 9,521 | 15 | ||||||||||
Free cash flow | 10,762 | 9,945 | 8 |
nm = not meaningful
Novartis delivered solid financial performance in 2014, driven by our continued success with growth products and expansion in emerging growth markets, which helped offset the effects of generic competition of approximately $2.4 billion. As a result, we achieved net sales from continuing operations of $52.2 billion (+1%, +3% cc). Operating income from continuing operations amounted to $11.1 billion (+1%, +7% cc). Operating income margin was 21.3% of net sales. Net income from continuing operations rose 15% (+21% cc) to $10.7 billion. Earnings per share (EPS) from continuing operations rose 17% (+22% cc) to $4.39. In 2014, free cash flow from continuing operations increased by $1.4 billion to $10.9 billion, mainly due to higher cash flows from operating activities.
In addition, to help investors' understanding of the performance of our business, we present our core results, which exclude the exceptional impact of significant disposals and acquisitions, as well as other significant exceptional items. In 2014, our core operating income from continuing operations increased 2% (+7% cc) to $14.5 billion. Core operating income margin increased 0.3 percentage points to 27.7% of net sales, as our efforts to enhance productivity helped to offset 0.8 percentage points of negative impact from changing currency exchange rates. Core net income from continuing operations was $12.7 billion, up 3% (+8% cc), and core basic earnings per share from continuing operations rose 4% (+9% cc) to $5.19.
Across divisions, our portfolio of growth products and presence in emerging growth markets continued to fuel performance in 2014. Growth products comprise products launched in 2009 or later, or products with exclusivity until at least 2018 in key markets (EU, US, Japan) (except Sandoz, which includes only products launched in the last 24 months).
Sales of growth products increased 18% to $18.6 billion, or 36% of net sales. In the Pharmaceuticals Division, growth products accounted for 43% of net sales, up from 37% in 2013—demonstrating how we are rejuvenating our portfolio and mitigating the impact of patent expirations on key products.
Top-performing Pharmaceuticals products in 2014 includedGilenya ($2.5 billion, +30% cc), our oral therapy for multiple sclerosis;Afinitor ($1.6 billion, +22% cc), a treatment for several types of cancer including breast and kidney; andTasigna ($1.5 billion, +24% cc), a treatment for chronic myeloid leukemia.
At Alcon, surgical equipment was a key growth driver, following the launch in late 2013 of theCenturion vision system and continued growth of theLenSx femtosecond laser for cataract surgery. Disposable products for cataract and vitreoretinal surgery also showed strong growth.
In the Sandoz Division, biosimilars—which are follow-on versions of complex biologic drugs—made a strong contribution to growth, with sales rising 23% (cc) to $514 million globally.
In addition, efforts to expand our presence in emerging growth markets such as Asia, Africa and Latin America continued to show good results. Emerging growth markets comprise all markets except the US, Canada, Western Europe, Japan, Australia and New Zealand. Net sales in those markets rose 11% (cc) to $15.3 billion, led by China, up 15% (cc), and by Brazil, up 18% (cc).
Novartis made solid progress in 2014 in generating synergies across divisions to improve productivity. Overall savings reached approximately $2.9 billion, exceeding our target. In 2014, we also created Novartis Business Services (NBS), a shared services organization designed to enhance profitability by harmonizing and simplifying the provision of services to the divisions. NBS is expected to play a key role in accelerating our productivity gains.
The most significant savings of $1.6 billion came from ongoing efforts in procurement to manage spending on goods and services across all our divisions. That represents 7% of the annual spending of $22 billion managed by the procurement organization.
An area where we made significant progress in 2014 was travel, where we reduced spending by about 23% across the company. We primarily achieved this by increasing the use of virtual meetings among Novartis colleagues, in lieu of travel. We aim to continue increasing the use of videoconferences and other technology for internal meetings to make these savings sustainable.
We also made strides in managing capital spending for equipment at manufacturing sites worldwide. In 2014, we began adopting standard technical requirements for machinery across our divisions. For instance, we now have uniform specifications for tablet presses, a common type of equipment previously purchased individually by each manufacturing site. This standardization enabled us to negotiate better prices from our supplier and will help reduce future costs related to such things as commissioning new equipment and maintenance.
Additionally, our multi-year plan begun in 2010 to optimize our global manufacturing network is on track. In 2014, we announced several further steps, including the closure of our pharmaceuticals manufacturing site in Suffern, New York, in the US and the planned sale of our pharmaceuticals manufacturing site in Taboão da Serra, Brazil—bringing the total number of production sites that have been or are being restructured or divested to 24. These changes are helping us balance capacity, reducing it where no longer needed and adding new capacity for the products and technologies of the future.
We continued to find synergies to increase sales through our Customers First program, which delivered $1.6 billion in revenues in 2014, generating 2.8% of total Group net sales. This program aims to serve our customers more effectively by ensuring they have access to a full range of Novartis products from all divisions.
| Year ended Dec 31, 2014 | Year ended Dec 31, 2013 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Pharmaceuticals | 31,791 | 32,214 | (1 | ) | 1 | ||||||||
Alcon | 10,827 | 10,496 | 3 | 6 | |||||||||
Sandoz | 9,562 | 9,159 | 4 | 7 | |||||||||
| | | | | | | | | | | | | |
Net sales to third parties from continuing operations | 52,180 | 51,869 | 1 | 3 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Pharmaceuticals
Pharmaceuticals delivered net sales of $31.8 billion (–1%, +1% in constant currencies, or cc) as strong sales of growth products countered the impact of greater generic competition forDiovan and other products, particularly in the US and Japan. Generic competition reduced sales by seven percentage points.
Growth products generated $13.7 billion of division net sales, growing 17% (cc) compared to last year. These products—which includeGilenya,Afinitor,Tasigna,Galvus,Lucentis,Xolair,Jakavi and our portfolio of products for the treatment of chronic obstructive pulmonary disease (COPD)—contributed 43% of division net sales, compared to 37% in 2013.
Sales in emerging growth markets increased 11% (cc) to $8.1 billion.
Oncology
Oncology sales rose 4% (+6% cc) to $11.7 billion, despite increased generic competition forZometa ($264 million,–55% cc). By brand, growth was driven mainly byAfinitor, up 22% (cc) to $1.6 billion;Tasigna, up 24% (cc) to $1.5 billion; andJakavi, up 72% (cc) to $279 million.
Primary Care
Sales in Primary Care, which includes mainly cardiovascular, metabolic and respiratory products amounted to $8.0 billion in 2014, down 12% (–10% cc). Excluding older, established medicines such asDiovan ($2.3 billion,–32% cc), sales rose 13% (+16%) to $2.8 billion. The recently launched COPD portfolio, for example, which includesOnbrez Breezhaler/Arcapta Neohaler,Seebri Breezhaler, andUltibro Breezhaler, grew 93% (cc) to $484 million. Other key products include theGalvus Group, up 6% (cc) to $1.2 billion; andXolair, up 30% (cc) to $777 million.
Specialty Care
Sales in Specialty Care, which includes our Neuroscience, Integrated Hospital Care and Ophthalmics products, amounted to $10.1 billion.Gilenya, our oral multiple sclerosis therapy, grew 30% (cc) to $2.5 billion, with strong volume growth through new patient initiations in the US and elsewhere. Sales ofLucentis, for ocular conditions, rose 5% (cc) to $2.4 billion, driven by increased use in new indications beyond wet age-related macular degeneration.
TOP 20 PHARMACEUTICALS DIVISION PRODUCT NET SALES—2014
| | | US | Rest of world | Total | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Brands | Business Franchise | Indication | $ m | % change in constant currencies | $ m | % change in constant currencies | $ m | % change in $ | % change in constant currencies | |||||||||||||||||
Gleevec/Glivec | Oncology | Chronic myeloid leukemia | 2,170 | 12 | 2,576 | (5 | ) | 4,746 | 1 | 2 | ||||||||||||||||
Gilenya | Neuroscience | Relapsing multiple sclerosis | 1,190 | 16 | 1,287 | 45 | 2,477 | 28 | 30 | |||||||||||||||||
Lucentis | Ophthalmics | Age-related macular degeneration | 2,441 | 5 | 2,441 | 2 | 5 | |||||||||||||||||||
Diovan/Co-Diovan | Primary Care | Hypertension | 960 | (43 | ) | 1,385 | (22 | ) | 2,345 | (33 | ) | (32 | ) | |||||||||||||
Sandostatin | Oncology | Acromegaly | 751 | 6 | 899 | 6 | 1,650 | 4 | 6 | |||||||||||||||||
Afinitor/Votubia | Oncology | Breast cancer | 805 | 16 | 770 | 29 | 1,575 | 20 | 22 | |||||||||||||||||
Tasigna | Oncology | Chronic myeloid leukemia | 540 | 26 | 989 | 23 | 1,529 | 21 | 24 | |||||||||||||||||
Exforge | Primary Care | Hypertension | 284 | (20 | ) | 1,112 | 4 | 1,396 | (4 | ) | (2 | ) | ||||||||||||||
Galvus | Primary Care | Diabetes | 1,224 | 6 | 1,224 | 2 | 6 | |||||||||||||||||||
Exelon/ExelonPatch | Neuroscience | Alzheimer's disease | 485 | 6 | 524 | (6 | ) | 1,009 | (2 | ) | (1 | ) | ||||||||||||||
Exjade | Oncology | Iron chelator | 307 | 16 | 619 | 1 | 926 | 4 | 6 | |||||||||||||||||
Xolair(1) | Primary Care | Asthma | 777 | 30 | 777 | 27 | 30 | |||||||||||||||||||
Neoral/Sandimmun | Integrated Hospital Care | Transplantation | 55 | (2 | ) | 629 | (6 | ) | 684 | (9 | ) | (6 | ) | |||||||||||||
Voltaren(excl. other divisions) | Established medicines | Inflammation/pain | 632 | (3 | ) | 632 | (6 | ) | (3 | ) | ||||||||||||||||
Myfortic | Integrated Hospital Care | Transplantation | 149 | (45 | ) | 394 | 14 | 543 | (15 | ) | (11 | ) | ||||||||||||||
Ritalin/Focalin | Established medicines | Attention deficit/ hyperactivity disorder | 327 | (25 | ) | 165 | 8 | 492 | (17 | ) | (16 | ) | ||||||||||||||
Femara | Oncology | Breast cancer | 27 | 42 | 353 | 0 | 380 | (1 | ) | 2 | ||||||||||||||||
Comtan/Stalevo | Neuroscience | Parkinson's disease | 19 | (42 | ) | 352 | (1 | ) | 371 | (7 | ) | (4 | ) | |||||||||||||
Tegretol | Established medicines | Epilepsy | 82 | 19 | 264 | 1 | 346 | 1 | 4 | |||||||||||||||||
Zortress/Certican | Integrated Hospital Care | Transplantation | 60 | 88 | 267 | 28 | 327 | 31 | 36 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Top 20 products total | 8,211 | (3 | ) | 17,659 | 4 | 25,870 | 0 | 2 | ||||||||||||||||||
Rest of portfolio | 1,561 | (13 | ) | 4,360 | 0 | 5,921 | (6 | ) | (4 | ) | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Division sales | 9,772 | (5 | ) | 22,019 | 3 | 31,791 | (1 | ) | 1 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Gleevec/Glivec ($4.7 billion, +2% cc) sales grew slightly in 2014.Gleevec/Glivec is a treatment for adult patients with metastatic and/or unresectable KIT+ gastrointestinal stromal tumors (GIST), as an adjuvant treatment for certain adult patients following resection of KIT+ GIST, and as a targeted therapy for Philadelphia chromosome-positive chronic myeloid leukemia (Ph+ CML). Sales were driven mainly by the US, and more than compensated for the loss of patent exclusivity in some markets. In the US, Novartis Pharmaceuticals Corporation has settled its litigation with a subsidiary of Sun Pharmaceutical Industries Ltd. relating to Novartis patents covering the use of certain polymorphic forms ofGleevec/Glivec, which expire in 2019 (including pediatric exclusivity). The basic compound patent forGleevec/Glivec expires in the US on July 4, 2015. As a result of the settlement, Novartis will permit Sun's subsidiary to market a generic version ofGleevec/Glivec in the US beginning on February 1, 2016.
Gilenya ($2.5 billion, +30% cc), the first once-daily oral therapy to treat relapsing forms of multiple sclerosis (MS), continued to outgrow the market, achieving double-digit growth in 2014 in recognition of strong trends towards oral treatments with higher efficacy. Growth was also fueled by an increasing acceptance of the role of high-efficacy treatments when used earlier in the course of the disease. Gilenya continues to see volume growth through new patient initiations in both the US and non-US markets. In the US,Gilenya is indicated for relapsing forms of MS. In the EU,Gilenya is indicated for adult patients with high disease activity despite treatment with at least one disease modifying agent, or rapidly evolving severe relapsing remitting MS.Gilenya is currently approved in over 80 countries around the world.Gilenya is licensed from Mitsubishi Tanabe Pharma.
Lucentis ($2.4 billion, +5% cc) saw volume growth driven by the uptake in non-Age-Related macular degeneration (AMD) indications (such as visual impairment due to diabetic macular edema; macular edema secondary to central and branch retinal vein occlusion; and choroidal neovascularization secondary to pathologic myopia). In addition, theLucentis pre-filled syringe was successfully launched in all key European countries, as well as Japan and Australia. Non-AMD indications contributed 41% ofLucentis sales in 2014, compared to 27% for 2013, and became a blockbuster in Q4. Emerging growth markets contributed 18% ofLucentis sales versus 16% last year. Emerging growth markets comprise all markets except the US, Canada, Western Europe, Japan, Australia and New Zealand. At the same time,Lucentis sales in the wet AMD indication, impacted by competition, are stabilizing in some markets.Lucentis is the only anti-VEGF therapy licensed in most countries for the treatment of the following ocular indications: wet AMD, visual impairment due to diabetic macular edema, visual impairment due to macular edema secondary to retinal vein occlusion and secondary to branch retinal vein occlusion, and visual impairment due to choroidal neovascularization secondary to pathologic myopia (mCNV).Lucentis is approved in more than 100 countries to treat patients with the first four conditions, and in more than 70 countries for mCNV. Genentech/Roche holds the rights toLucentis in the US.
Diovan Group ($2.3 billion, –32% cc), consisting ofDiovan monotherapy and the combination productCo-Diovan/Diovan HCT, saw a continued sales decline worldwide due to generic competition in most markets, including the US (following July 7, 2014Diovan monotherapy generic entry), many EU countries and Japan (generic entry in June 2014), compounded in Japan by the impact of issues related to investigator initiated trials. Sales continued to grow in Emerging Growth Markets, including China and selected countries in Latin America, Asia Pacific and Africa.
Sandostatin ($1.7 billion, +6% cc) continued to benefit from the increasing use ofSandostatin LAR (long acting release) in key markets.Sandostatin is a somatostatin analogue used to treat patients with acromegaly as well as neuroendocrine tumors (NET). In NET, it is used for both the treatment of patients with symptoms of carcinoid syndrome and those with advanced NET of the midgut or unknown primary tumor location (currently approved in 47 countries). An enhanced presentation ofSandostatin LAR, which includes an improved diluent, safety needle and vial adapter, has been approved in 58 countries, with additional filings underway.
Afinitor/Votubia ($1.6 billion, +22% cc) performance was driven by strong growth in the US, Japan and other markets.Afinitor is an oral inhibitor of the mTOR pathway approved for the treatment of
patients with HR+/HER2– advanced breast cancer after failure with a non-steroidal aromatase inhibitor, for advanced renal cell carcinoma following vascular endothelial growth factor-targeted therapy and for the treatment of advanced pancreatic neuroendocrine tumors.Afinitor is also approved for subependymal giant cell astrocytoma (SEGA) and renal angiomyolipoma associated with tuberous sclerosis complex (TSC). Everolimus, the active ingredient inAfinitor/Votubia, is also available in more than 60 countries for the treatment of renal angiomyolipomas and/or SEGA associated with TSC, including as a dispersible tablet formulation in the US and EU for SEGA. Everolimus, the active ingredient inAfinitor/Votubia, is available under the trade namesZortress/Certican for use in other non-oncology indications and is exclusively licensed to Abbott and sublicensed to Boston Scientific for use in drug-eluting stents.
Tasigna ($1.5 billion, +24% cc) performance was driven by strong growth in the US and other markets.Tasigna is a more effective, targeted therapy thanGleevec/Glivec for adult patients newly diagnosed with Ph+ CML in the chronic phase or for adult patients in the chronic or accelerated phase who are resistant or intolerant to at least one prior therapy includingGleevec/Glivec. It is currently approved as a first-line therapy for newly diagnosed patients with Ph+ CML in the chronic phase in more than 85 countries globally, including the US, EU, Japan and Switzerland, with additional submissions pending worldwide.Tasigna (nilotinib) is also approved in more than 110 countries as a second-line treatment for patients with Ph+ CML in chronic and/or accelerated phase who are resistant or intolerant to existing treatment, such asGleevec/Glivec.
Exforge Group ($1.4 billion, –2% cc), includes two medicines approved for the treatment of hypertension:Exforge, a single-pill combination of the angiotensin receptor blocker (ARB) valsartan and the calcium channel blocker amlodipine besylate; andExforge HCT, a single pill combining an ARB (valsartan), calcium channel blocker (amlodipine) and a diuretic (hydrochlorothiazide).Exforge lost exclusivity in October 2014 andExforge HCT in November 2014 in the US. Outside the US,Exforge continues to grow, with double-digit growth in China and a number of emerging growth markets. Emerging growth markets comprise all markets except the US, Canada, Western Europe, Japan, Australia and New Zealand.Exforge is now available in more than 100 countries.Exforge HCT is available in over 60 countries.
Galvus Group ($1.2 billion, +6% cc), which includesGalvus, an oral treatment for type 2 diabetes, and Eucreas, a single-pill combination of vildagliptin (the active ingredient inGalvus) and metformin, continued to grow in 2014 despite the distribution stop in the German market on July 1, 2014. Sales for the first six months of 2014 in Germany were $57 million.Galvus delivered a solid performance with strong growth coming from emerging markets. The focus forGalvus remains on patients whose diabetes remains uncontrolled on metformin, as well as on an expansion of usage in new patient segments based on new indications.Galvus Group is currently approved in more than 120 countries.
Exelon/Exelon Patch ($1.0 billion, –1% cc) sales declined slightly, due to generic competition forExelon Patch in the EU offsetting a solid performance forExelon Patch in the US.Exelon Patch is approved for the treatment of mild-to-moderate Alzheimer's disease dementia (AD) in more than 90 countries, including more than 20 countries where it is also approved for Parkinson's disease dementia.Exelon Patch is also indicated for the treatment of patients with severe AD in 11 countries, including the US. In Europe, the high-dose patch (15 cm2) for mild-to-moderately severe AD was launched in several markets in 2013.
Exjade ($926 million, +6% cc), a once-daily oral therapy for chronic transfusional iron overload first approved in 2005 and now approved in more than 100 countries, saw sales increases in the US and Asia.Exjade is also approved for the treatment of chronic iron overload in patients with non-transfusion-dependent thalassemia in more than 70 countries.
Xolair ($777 million, +30% cc), a biologic drug for appropriate patients with severe persistent allergic asthma in Europe and moderate-to-severe persistent allergic asthma in the US, is currently approved in more than 90 countries as a treatment for moderate-to-severe or severe persistent allergic asthma. Its
sales continued to grow strongly in Canada, Europe and Latin America.Xolair is also approved in the EU, Switzerland and 35 other countries as a treatment for chronic spontaneous urticaria, also known as chronic idiopathic urticaria, for which it is approved in the US and now Canada and Australia. Novartis co-promotesXolair with Genentech/Roche in the US and shares a portion of the operating income, but does not book US sales.
Neoral/Sandimmun ($684 million, –6% cc), a micro-emulsion formulation of cyclosporine, is an immunosuppressant to prevent organ rejection following a kidney, liver or heart transplant.Neoral is also approved for use in lung transplant in many countries outside of the US. Additionally, it is 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.
ComtanVoltaren/Cataflam/ ($632 million, –3% cc), 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 registered 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 Sandoz Division markets generic versions ofVoltaren, our Alcon Division marketsVoltaren for ophthalmic indications, and our OTC Division markets low-dose oral forms and the topical therapy ofVoltaren as over-the-counter products. Total sales across all divisions ofVoltaren/Cataflam (diclofenac) amounted to $1.6 billion in 2014 and grew 7.5% in constant currencies against the prior year.
Myfortic ($543 million, –11% cc), a transplantation medicine, is available in more than 90 countries to prevent organ rejection in adult kidney transplant patients. It has experienced a sales decline after the expected launch of generic competition in the US in early 2014.Myfortic continues to grow in geographies without generic competition.
Ritalin/Focalin ($492 million, –16% cc) is a treatment for attention deficit hyperactivity disorder (ADHD) in children.Ritalin andRitalin LA are available in more than 70 and 30 countries, respectively, and are also indicated for narcolepsy.Ritalin LA has been granted in 2014 the "adult ADHD indication" in several countries (16 to date).Focalin andFocalin XR are available in the US andFocalin XR is additionally indicated for adults.Focalin XR is also approved in Switzerland.Ritalin Immediate Release has generic competition in most countries. Some strengths ofRitalin andFocalin are subject to generic competition in the US.
Femara ($380 million, +2% cc), a treatment for early stage and advanced breast cancer in postmenopausal women, experienced steady sales despite multiple generic entries in the US, Europe and other key markets.
Comtan/Stalevo ($530371 million, -11%–4% cc), indicated for the treatment of Parkinson's disease, saw sales decline in 20122014 due to generic competition in some markets.Stalevo (carbidopa, levodopa and entacapone) is indicated for certain Parkinson's disease patients who experience end-of-dose motor fluctuations, known as "wearing off".off." In July 2014,Stalevo was granted marketing authorization for the treatment of Parkinson's disease in Japan.Stalevo is available in more than 5090 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 5042 countries. Both products are marketed by Novartis under a licensing agreement with the Orion Corporation.
XolairTegretol ($504346 million, +12%+4% cc), a biologic drug for severe persistent allergic asthma in Europe and moderate-to-severe persistent allergic asthma in the United States, is now approved in more than 90 countries and continued to grow strongly in Europe, Japan, Canada and Latin America. Novartis co-promotesXolair with Genentech/Roche in the United States and shares a portion of operating income, but does not book United States sales. A Phase III trial is progressing to support registration in China. Omalizumab, the active ingredient inXolair, is also in Phase III development for the treatment of a debilitating skin disease called chronic idiopathic urticaria, with regulatory filing planned in 2013.
Femara ($438 million, -50% cc), a treatment for early stageepilepsy (partial seizures and advanced breast cancergeneralized tonic-clonic seizures) and for several other neuro-psychiatric diseases including bipolar disorders or neuropathic pain, was launched in postmenopausal women, experienced a decline1962. It is marketed in approximately 129 countries and, although it faces generic competition in most of them, sales continue to be very stable due to multiple generic entries in the United States, Europe and other key markets.
Other Products of Significance
Tekturna/its established position as a gold-standard, first-line treatment.RasilezTegretol ($383 million, -29% cc) sales declined following label updates inis also listed as an 'essential medicine' by the European Union, United States and Japan. The label updates followed our decision in December 2011 to halt the ALTITUDE study. Patient safety is the highest priority for Novartis and we are sharing the end-of-treatment results which confirmed the preliminary findings with health authorities worldwide as required. Novartis voluntarily ceased to marketValturna, a single-pill combination containing aliskiren and valsartan, in the United States as of July 2012.
TOBI ($317 million, +9% cc) sales, including bothTOBI nebulizer solution andTOBI Podhaler formulations of the antibiotic tobramycin, continued to grow withTOBI Podhaler capturing 13% of total sales in 2012. Both products are used for the management of Pseudomonas aeruginosa infection in cystic fibrosis patients aged six years and older.TOBI Podhaler, approved in the European Union, Canada, Switzerland and other countries can be delivered using a portable, pocket-sized inhaler that reduces administration time by approximately 70% relative toTOBI. In the United States, Novartis has responded to the FDA's October 2012 Complete Response Letter forTOBI Podhaler (the provisional US trade name) in October 2012 and anticipates an FDA action in the middle of 2013. An FDA Advisory Committee previously voted 13 to 1 that there was adequate evidence of efficacy and safety to support its use in the proposed indication.World Health Organization.
Zortress/Certican ($210327 million, +20%+36% cc), a transplantation medicine available in more than 90 countries to prevent organ rejection in adult heart and kidney transplant patients, continued to generate robust growth.show strong growth in 2014. It is also approved to prevent organ rejectionin over 70 countries for liver transplant patients, inincluding the European Union (as of October 2012), Argentina, ChileUS and Philippines.EU countries. Everolimus, the active ingredient inZortress/Certican, is marketed for other indications under the trade namesAfinitor/Votubia. Everolimus is exclusively licensed to Abbott and sublicensed to Boston Scientific for use in drug-eluting stents.
Other Products of Significance
HRT Range ($297 million, –8% cc), encompassesExtaviaVivelle-Dot/Estradot ($159 million, +9% cc), the Novartis-branded version of Betaferon®/Betaseron® (interferon beta-1b) for relapsing forms of MS, continued to grow in key markets.ExtaviaEstalis/CombiPatch,SequidotandEstracomb MX. Vivelle-Dot/Estradot, which makes up the bulk of the HRT Range sales, is available in more than 35 countries, including the United States.
Arcapta Neohaler/Onbrez Breezhaler ($134 million, +39% cc) continued to grow strongly worldwide as a once-daily long-acting beta2-agonist (LABA) for the maintenance bronchodilator treatmenttransdermal patch formulation of airflow obstruction in adult patients with chronic obstructive pulmonary disease (COPD). Indacaterol, the active ingredient inArcapta Neohaler/Onbrez Breezhaler,estradiol hemihydrate. This estrogen replacement therapy is now approved in more than 90 countries.
Ilaris ($72 million, +56% cc) showed strong growth as a treatment for adults and children suffering from cryopyrin-associated periodic syndrome (CAPS), a group of rare disorders characterized by chronic recurrent fever, urticaria, occasional arthritis, deafness, and potentially life threatening amyloidosis.Ilaris is approvedused for the treatment of CAPSthe symptoms of natural or surgically induced menopause and the prevention of postmenopausal osteoporosis. First launched in over 60 countries.
In January 2013, the CHMP of the EMA has adopted a positive opinion ofMay 1999,IlarisVivelle-Dot/Estradot(canakinumab) foris marketed in approximately 29 countries. This product is subject to generic competition outside the treatment of patients whose acute gouty arthritis cannot be managed with standard of care. Approval by the European Commission is expected in the first half of 2013.US.
Jakavi ($30 million) sales grew as279 million, +72% cc), is an oral inhibitor of the JAK 1 and JAK 2 tyrosine kinases and was approved inkinases. It is the European Union and Canada in the second half of 2012first JAK inhibitor indicated for the treatment of disease-related splenomegaly or symptoms in adult patients with primary myelofibrosis (also known as chronic idiopathic myelofibrosis), post-polycythemia vera myelofibrosis or post-essential thrombocythemiathromboycythemia myelofibrosis. Jakavi is currently approved in more than 65 countries worldwide. Novartis licensed ruxolitinib from Incyte Corporation for development and commercialization outside the US.
JakaviZometa ($264 million, –55% cc), which is availableused in 31 countriesan oncology setting to reduce or delay skeletal-related events in patients with additional worldwide regulatory filings underway. Incyte holds the rights forbone metastases from solid tumors and multiple myeloma, continued to decline as anticipated in 2014 due to generic competition following patent expirations in 2013 on its active ingredient, zoledronic acid.
JakaviTrileptal ($265 million, +6% cc), a treatment for epilepsy partial seizures (and generalized tonic-clonic seizures in some countries) was launched in 1973. It is marketed in approximately 97 countries and, although it faces generic competition in most of them, sales are stable due to the United States where it is sold as Jakavi®.continued sales growth outside the EU offsetting the price pressure from generics.
Alcon
Net Alcon net sales rosein 2014 grew 3% (+5%6% in constant currencies, or cc) to $10.2 billion,$10.8 billion. Growth was driven by sales growth in Surgical (+5%, +8% cc), Ophthalmic Pharmaceuticals (+2%, +5% cc), and Vision Care (+1%, +4% cc) compared to the prior year.
Surgical sales growth was led by robust sales of Cataract, Vitreoretinal and Refractive equipment, advanced technology IOLs and procedural growth in Emerging Growth Markets. Ophthalmic Pharmaceuticals sales benefited from growth of thekey product launches, such asSystaneCenturionandLenSx (Dry Eye),for cataract surgery,Nevanac (Inflammation) andDurezol (Inflammation) brands, as well as strong growth in combination glaucoma brandsDuoTravAzarga andAzarga. The Ophthalmic Pharmaceuticals performance was offset by sales ofTravatanSimbrinza infor the United States withtreatment of glaucoma,Ilevro to treat ocular inflammation, as well asAirOptix Colorsand the generic entry of latanoprost into the glaucoma category. Vision Care maintained its solid sales performance with growth ofAir Optix, a strong launch uptakecontinued rollout ofDailies Total1 lensescontact lenses.
Regionally, sales were driven by strong performance in Europe,emerging growth markets, led by Asia (+13% cc), particularly in China (+23% cc) and modestRussia (+27% cc).
Latin America delivered robust growth (+17% cc), driven by the Surgical and Ophthalmic Pharmaceuticals franchises.
North America (+4% cc) accelerated its growth in the lens care solution business.
Alcon division net salesSurgical franchise, offset by product category:
| Year ended Dec 31, 2012 | Year ended Dec 31, 2011 | Change in $ | Constant currencies change | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Surgical | |||||||||||||
Cataract products | 2,932 | 2,858 | 3 | 6 | |||||||||
of which cataract IOLs | 1,281 | 1,276 | 0 | 4 | |||||||||
Vitreoretinal products | 578 | 529 | 9 | 12 | |||||||||
Refractive/other | 242 | 200 | 21 | 24 | |||||||||
Total | 3,752 | 3,587 | 5 | 8 | |||||||||
Ophthalmic Pharmaceuticals | |||||||||||||
Glaucoma | 1,259 | 1,287 | (2 | ) | 1 | ||||||||
Allergy/otic/nasal | 901 | 884 | 2 | 3 | |||||||||
Infection/inflammation | 1,011 | 967 | 5 | 8 | |||||||||
Dry eye/other | 848 | 810 | 5 | 8 | |||||||||
Total | 4,019 | 3,948 | 2 | 5 | |||||||||
Vision Care | |||||||||||||
Contact lenses | 1,732 | 1,701 | 2 | 5 | |||||||||
Solutions/other | 722 | 722 | 0 | 2 | |||||||||
Total | 2,454 | 2,423 | 1 | 4 | |||||||||
Total net sales | 10,225 | 9,958 | 3 | 5 | |||||||||
Alcon Division Franchise Highlights
Net sales growth data below refer to 2012 worldwide performance.
Surgical
In 2012, global Surgical net sales were $3.8 billion, up 5% (+8% cc) oversoftness in the previous year. Advanced technology IOLs showed continued strong growth of 13% (+16% cc), led byAcrySof IQ Toric. The launch of theAcrySof IQ ReSTOR +2.5D Multifocal IOL andAcrySof IQ ReSTOR +2.5D Multifocal Toric IOLOphthalmic Pharmaceuticals franchise. Sales in Europe, also contributed to growth.
Global sales ofLenSx femtosecond cataract refractive lasers grew 234% (cc), continued global launches contributing to strongLenSx uptake.LenSx lasers have now been installed or shipped to more than 40 marketsthe Middle East and more than 1,000 surgeons have been trained to use this innovative technology. In addition, theLenSx SoftFit Patient Interface, Alcon's latestLenSx laser platform, was launchedAfrica (+3% cc) were driven by moderate performance in the United States for use during cataract surgery.
Surgical also experienced growth in the Vitreoretinal category, driven by sales ofConstellation equipment, which grew 28% (cc) in markets outside the United States. The Refractive/Other segment also grew, driven byWavelight FS200andEX500 product launches, offering faster treatment times during refractive surgery.
Ophthalmic Pharmaceuticals
Global net sales of Ophthalmic Pharmaceuticals products increased by 2% (+5% cc) in 2012, driven by non-US glaucoma product sales, inflammation productsDurezol andNevanac, and theSystane dry eye portfolio.Travatan/DuoTrav solution sales in glaucoma grew by 12% (cc) in markets outside the Unitedfranchises. Japan
States, offset by the impact of generic competitionsales (+3% cc) grew moderately in the United States. Infection/Inflammation product sales grew 10% (cc), led by strongSurgical franchise, offsetting weaker growth of theDurezol emulsion andNevanac ophthalmic suspension.Systane Ultra andSystane Balance were key growth drivers in the Dry Eye segment in Europe, Latin America, the Caribbean, Canada and Asia, with total product portfolio growth of 10% (cc).
Further strengthening growth prospects for Ophthalmic Pharmaceuticals Alcon received FDA approval forDurezol to treat uveitis in 2012. Originally indicated for use as an anti-inflammatory post-surgery, this additional indication will treat inflammation in the uvea near the middle of the eye.Nevanac received EU approval for the indication of post-surgical macular edema to treat the inflammatory response in the retina following cataract surgery. In addition, FDA approval was received forNepafenac ophthalmic suspension 0.3% for the treatment of pain and inflammation associated with cataract surgery. Alcon expanded its pharmaceutical offering by entering into a strategic licensing agreement with ThromboGenics to commercializeJetrea (ocriplasmin) outside the United States. Ocriplasmin, which received a positive CHMP opinion in January 2013, may become the first pharmaceutical treatment for vitreomacular traction and macular hole in Europe. In October 2012,Jetrea was approved by the FDA.
Vision Care
The Vision Care business continued to grow, with global net sales up 1% (+4% cc, with 5% cc growth in contact lenses and 2% cc growth in lens care products) versus prior year. This growth was driven by the United States and Japan, as well as the continued strong performance of theAir Optix portfolio, which leads the marketplace in the multifocal segment and achieved 19% (cc) growth in 2012. Alcon also saw strongDailies growth in the United States, up 14% (cc) over the previous year.Dailies Total1, the industry's first and only water gradient contact lens, was launched in Germany, Austria, Italy and France, gaining new users and market share in the silicone hydrogel daily disposable category, and was also approved in the United States and Japan. In lens care, Alcon achieved 10% (cc) growth of theClear Care disinfecting solution.
Sandoz
Sandoz net sales decreased by 8% (-4% cc) in 2012 to $8.7 billion as a result of declines in the United States retail generics and biosimilars (-17% cc) and Germany (-7% cc), partly offset by double-digit sales growth in biosimilars (+36%), the rest of Western Europe (+10% cc) and Asia (+17% cc). Total sales volume decreased 1 percentage point and price erosion was 5 percentage points primarily due to increased competition on United States sales of enoxaparin ($451 million in 2012 compared to $1.0 billion in 2011). Fougera contributed 2 additional percentage points of growth from the inclusion of approximately five months of sales in 2012.
Vaccines and Diagnostics
Net sales were $1.9 billion (-7%, -4% cc) in 2012 compared to $2.0 billion in 2011. 2011 was impacted by the release of bulk pediatric shipments that had been delayed from the fourth quarter of 2010 and a one-time pre-pandemic sale.
The growth of our Meningococcal franchise was underpinned byMenveo, which continues to gain market share both in the United States and in the rest of the world, with sales of over $164 million (+18% cc) in 2012.
Consumer Health
Consumer Health net sales declined 19% ( -16% cc) mainly due to the impact of the suspension of production at the United States manufacturing site in Lincoln, Nebraska, where operations were suspended at the end of 2011 for quality upgrades and improvements.
OTC's net sales declined sharply versus the previous year primarily due to Lincoln. Also contributing to the sales decline was a weak cough-and-cold season in early 2012, as well as continued economic deterioration and government austerity measures in several European markets. Despite weak economic conditions, OTC gained market share in most European countries and is growing significantly ahead of the market in key Emerging Growth Markets, notably Russia and China. Increased advertising and promotion investments in growth brands likeVoltaren andOtrivin, the launch of line extensions, and the improvement of commercial execution are the key drivers for these market share gains.
Animal Health reported a net sales decline as a result of limited sales of companion animal products manufactured at Lincoln. Excluding the Lincoln brands, Animal Health maintained strong single-digit growth. The United States continued to show strong momentum, delivering double-digit sales growth excluding the Lincoln brands, mainly driven byDenagard,Atopica andCapstar. Emerging Growth Markets posted high single-digit sales growth with particularly strong performances in China, India, Russia and Brazil.
Operating Income by Segments
Care.
| Year ended Dec 31, 2012 | % of net sales | Year ended Dec 31, 2011 | % of net sales | Change in $ | Change in constant currencies | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | | $ m | | % | % | |||||||||||||
Pharmaceuticals | 9,598 | 29.9 | 8,296 | 25.5 | 16 | 19 | |||||||||||||
Alcon | 1,465 | 14.3 | 1,472 | 14.8 | 0 | 6 | |||||||||||||
Sandoz | 1,091 | 12.5 | 1,422 | 15.0 | (23 | ) | (24 | ) | |||||||||||
Vaccines and Diagnostics | (250 | ) | (13.5 | ) | (249 | ) | (12.5 | ) | 0 | 13 | |||||||||
Consumer Health | 48 | 1.3 | 727 | 15.7 | (93 | ) | (89 | ) | |||||||||||
Corporate income & expenses, net | (441 | ) | (670 | ) | (34 | ) | (31 | ) | |||||||||||
Operating income | 11,511 | 20.3 | 10,998 | 18.8 | 5 | 8 | |||||||||||||
| Year ended Dec 31, 2014 | Year ended Dec 31, 2013 | Change in $ | Constant currencies change | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Surgical | |||||||||||||
Cataract products | 3,174 | 3,037 | 5 | 7 | |||||||||
of which IOLs | 1,264 | 1,297 | (3 | ) | 0 | ||||||||
Vitreoretinal products | 615 | 592 | 4 | 7 | |||||||||
Refractive/other | 284 | 268 | 6 | 8 | |||||||||
| | | | | | | | | | | | | |
Total | 4,073 | 3,897 | 5 | 7 | |||||||||
| | | | | | | | | | | | | |
Ophthalmic Pharmaceuticals | |||||||||||||
Glaucoma | 1,319 | 1,265 | 4 | 7 | |||||||||
Allergy/otic/nasal | 887 | 939 | (6 | ) | (4 | ) | |||||||
Infection/inflammation | 1,066 | 1,019 | 5 | 7 | |||||||||
Dry eye | 608 | 558 | 9 | 12 | |||||||||
Other | 331 | 327 | 1 | 6 | |||||||||
| | | | | | | | | | | | | |
Total | 4,211 | 4,108 | 3 | 5 | |||||||||
| | | | | | | | | | | | | |
Vision Care | |||||||||||||
Contact lenses | 1,897 | 1,793 | 6 | 7 | |||||||||
Contact lens care | 646 | 698 | (7 | ) | (5 | ) | |||||||
| | | | | | | | | | | | | |
Total | 2,543 | 2,491 | 2 | 4 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total net sales | 10,827 | 10,496 | 3 | 6 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Core Operating Income by Segments
| Year ended Dec 31, 2012 | % of net sales | Year ended Dec 31, 2011 | % of net sales | Change in $ | Change in constant currencies | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | | $ m | | % | % | |||||||||||||
Pharmaceuticals | 10,213 | 31.8 | 10,040 | 30.9 | 2 | 5 | |||||||||||||
Alcon | 3,698 | 36.2 | 3,492 | 35.1 | 6 | 9 | |||||||||||||
Sandoz | 1,503 | 17.3 | 1,921 | 20.3 | (22 | ) | (21 | ) | |||||||||||
Vaccines and Diagnostics | (75 | ) | (4.0 | ) | 135 | 6.8 | nm | nm | |||||||||||
Consumer Health | 159 | 4.3 | 873 | 18.9 | (82 | ) | (78 | ) | |||||||||||
Corporate income & expenses, net | (338 | ) | (552 | ) | (39 | ) | (35 | ) | |||||||||||
Core operating income | 15,160 | 26.7 | 15,909 | 27.2 | (5 | ) | (2 | ) | |||||||||||
nm = not meaningful
Pharmaceuticals
Pharmaceuticals reported an operating income of $9.6 billion (+16%, +19% cc). The operating income margin increased by 4.3 percentage points (cc) with a positive currency impact of 0.1 percentage points resulting in an operating income margin of 29.9% of net sales.
Adjustments to arrive at core operating income amounted to $615 million, consisting of $322 million for the amortization of intangible assets, $238 million of impairments and $55 million of other exceptional charges. The prior year adjustments amounted to $1.7 billion, principally related to impairments and other charges of $903 million forTekturna/Rasilez and restructuring charges of $420 million offset by a $334 million gain due to the divestment of Elidel®.
Core operating income was $10.2 billion (+2%, +5% cc). Constant currency core operating income margin improved by 0.7 percentage points due to continuing productivity efforts. Currency movements had a positive impact of 0.2 percentage points resulting in a core operating income margin of 31.8% of net sales. The underlying gross margin decreased by 1.1 percentage points (cc), mainly driven by royalties and product mix, while R&D expenses improved margin by 0.3 percentage points (cc). As a percentage of net sales, Marketing & Sales and General & Administration expenses improved operating income margin by 0.8 percentage points (cc). Other Income and Expense, net also improved margin by 0.7 percentage points (cc).
As shown below, Pharmaceuticals expensed $6.9 billion (on a core basis $6.7 billion) in research and development in 2012. This represented 21.5% (on a core basis 20.8%) of Pharmaceuticals' total net sales. Pharmaceuticals currently has 138 projects in clinical development.
Research and Exploratory Development expenditure was $2.6 billion in 2012, practically unchanged from the 2011 amount of $2.7 billion. Confirmatory Development expenditures in 2012 decreased by 5% to $4.3 billion as compared against 2011. This included $0.1 billion (2011: $0.3 billion) in impairments of intangible assets. On a core basis, Confirmatory Development expenditure remained unchanged at $4.2 billion in 2012 and represented 13.0% of net sales as in the prior year.
Pharmaceuticals Research and Development Expenditure
| 2012 | Core R&D 2012(1) | 2011 | Core R&D 2011(1) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | |||||||||
Research and Exploratory Development | 2,584 | 2,530 | 2,676 | 2,625 | |||||||||
Confirmatory Development | 4,334 | 4,167 | 4,556 | 4,235 | |||||||||
Total | 6,918 | 6,697 | 7,232 | 6,860 | |||||||||
Alcon
Operating income of $1.5 billion (0%, +6% cc) included amortization of intangible assets of $1.9 billion and integration costs of $264 million, whereas 2011 included an exceptional income of $268 million.
Adjustments to arrive at core operating income amounted to $2.2 billion (2011: $2.0 billion), mainly driven by the amortization of intangible assets of $1.9 billion (2011: $1.9 billion).
Alcon increased core operating income to $3.7 billion (+6%, +9% cc), delivering strong operating leverage through productivity gains and the realization of merger-related cost synergies (2012: $297 million), while continuing to invest in Emerging Growth Markets and R&D. Core operating margin in constant currencies increased by 1.1 percentage points to 36.2% of net sales. Gross margin in
constant currencies improved 0.4 percentage points to 74.6% of net sales driven by procurement savings and productivity initiatives. Marketing & Sales expenses, which represented 24.1% of net sales, improved by 1.4 percentage points (cc) due to synergies. General & Administration expenses improved 0.1 percentage points (cc) to 4.9% of net sales. Investments in R&D represented 9.1% of net sales, decreasing 0.4 percentage points (cc) from the prior year.
Sandoz
Operating income at Sandoz was $1.1 billion (-23%, -24% cc). The operating income margin fell by 3.1 percentage points in constant currencies, with a positive currency impact of 0.6 percentage points resulting in an operating income margin of 12.5% of net sales, as a result of enoxaparin-driven price erosion and continued investments into quality assurance and manufacturing as well as into the development of future biosimilar and respiratory products.
Adjustments to arrive at core operating income amounted to $412 million (2011: $499 million). These consist principally of amortization of intangible assets of $364 million (2011: $383 million) and costs related to the Fougera acquisition of $62 million. These were partly offset by a reduction of contingent consideration of $59 million related to a business combination (2011: $106 million) and lower legal settlement costs compared to prior year of $204 million.
Core operating income decreased by 22% (-21% cc) to $1.5 billion. The addition of the Fougera business contributed 1.0 percentage points (cc) to core operating income. Core operating income margin in constant currencies decreased by 3.7 percentage points, partly offset by a positive currency impact of 0.7 percentage points, resulting in a core operating income margin of 17.3% of net sales. Gross margin decreased by 0.9 percentage points (cc), driven primarily by continued investments in quality assurance and manufacturing. R&D expenses (-1.1 percentage points cc) increased as a result of development investments in biosimilars and respiratory products. As a percentage of net sales, Marketing & Sales expenses increased by 1.5 percentage points (cc) as a consequence of investments into growing businesses in biosimilars, Western Europe outside of Germany and Emerging Growth Markets. R&D expenses increased by 1.1 percentage points (cc) as a result of our investments into our biosimilars and respiratory pipeline and General & Administration expenses increased by 0.2 percentage points (cc). Other Income and Expense, net was unchanged compared to 2011.
Vaccines and Diagnostics
Reported operating loss was $250 million (2011: $249 million loss) as a result of lower sales and the manufacturing ramp-up for upcoming launches ofBexsero andFlucelvax. 2012 included a licensing settlement benefit of $56 million, while 2011 included an impairment of $135 million related to a financial asset.
Core operating loss in 2012 was $75 million compared to a core operating income of $135 million in 2011.
Consumer Health
Consumer Health reported an operating income of $48 million versus a prior-year income of $727 million largely due to the impact of the suspension of production and quality upgrade investments at Lincoln, as well as higher income in 2011 from the divestment of OTC non-core brands.
The operating income margin declined 14.4 percentage points to 1.3% of net sales, including a negative currency impact of 0.6 percentage points. Core operating income declined 82% (-78% cc) to $159 million and core operating income margin declined 14.6 percentage points to 4.3% of net sales.
Gross margin decreased 9.4 percentage points (cc) mainly due to disruptions in supply, idle capacity charges at Lincoln as well as one-time quality upgrade investments at the manufacturing facility. As a percentage of net sales, Marketing & Sales expenses increased 2.4 percentage points (cc), R&D expenses
increased 1.4 percentage points (cc) and General & Administration expenses increased 0.9 percentage points (cc) largely as a result of lower sales that more than offset the positive impact from cost savings programs. During 2012, both Consumer Health businesses continued to increase overall R&D spending to support their future pipelines and also increased Marketing & Sales spend into products and markets that were not affected by the supply shortage. Other Income and Expense, net increased by 0.1 percentage points (cc).
Corporate Income and Expense, Net
Corporate income and expense, which includes the cost of Group management and central services, amounted to a $441 million net expense, compared to $670 million in 2011, principally due to reductions in environmental, restructuring and other provisions and an exceptional gain of $51 million from the sale of financial assets. Taking into account 2012 core adjustments of $103 million, core corporate income and expense decreased to a net expense of $338 million (2011: $552 million).
Non-Operating Income and Expense
| Year ended Dec 31, 2012 | Year ended Dec 31, 2011 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Operating income | 11,511 | 10,998 | 5 | 8 | |||||||||
Income from associated companies | 552 | 528 | 5 | 5 | |||||||||
Interest expense | (724 | ) | (751 | ) | (4 | ) | (1 | ) | |||||
Other financial income and expense | (96 | ) | (2 | ) | nm | nm | |||||||
Income before taxes | 11,243 | 10,773 | 4 | 7 | |||||||||
Taxes | (1,625 | ) | (1,528 | ) | 6 | 8 | |||||||
Group net income | 9,618 | 9,245 | 4 | 7 | |||||||||
Attributable to: | |||||||||||||
Shareholders of Novartis AG | 9,505 | 9,113 | 4 | 8 | |||||||||
Non-controlling interests | 113 | 132 | (14 | ) | (14 | ) | |||||||
Basic EPS ($) | 3.93 | 3.83 | 3 | 6 |
Core Non-Operating Income and Expense
| Year ended Dec 31, 2012 | Year ended Dec 31, 2011 | Change in $ | Change in constant currencies % | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Core operating income | 15,160 | 15,909 | (5 | ) | (2 | ) | |||||||
Income from associated companies | 755 | 779 | (3 | ) | (3 | ) | |||||||
Interest expense | (724 | ) | (751 | ) | (4 | ) | (1 | ) | |||||
Other financial income and expense | (96 | ) | (2 | ) | nm | nm | |||||||
Core income before taxes | 15,095 | 15,935 | (5 | ) | (3 | ) | |||||||
Taxes | (2,284 | ) | (2,445 | ) | (7 | ) | (5 | ) | |||||
Core net income | 12,811 | 13,490 | (5 | ) | (3 | ) | |||||||
Attributable to: | |||||||||||||
Shareholders of Novartis AG | 12,698 | 13,273 | (4 | ) | (2 | ) | |||||||
Non-controlling interests | 113 | 217 | (48 | ) | (48 | ) | |||||||
Core basic EPS ($) | 5.25 | 5.57 | (6 | ) | (3 | ) |
nm = not meaningful
Income From Associated Companies
The income from associated companies increased from $528 million in 2011 to $552 million in 2012.
The following is a summary of the individual components included in the income from associated companies:
| 2012 | 2011 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Novartis share of Roche's estimated current-year consolidated net income | 691 | 661 | |||||
Amortization of additional intangible assets recognized by Novartis on initial accounting for the equity interest | (153 | ) | (162 | ) | |||
Net income effect from Roche | 538 | 499 | |||||
Net income from other associated companies | 14 | 29 | |||||
Income from associated companies | 552 | 528 | |||||
The Group's 33.3% interest in Roche's voting shares, which represents a 6.4% interest in Roche's total equity, generated income of $538 million in 2012, up from $499 million in 2011. The 2012 contribution reflects an estimated $741 million share of Roche's net income in 2012. This contribution, however, was reduced by an exceptional charge of $50 million taken in 2012 as part of Roche's restructuring charges and $153 million for the amortization of intangible assets arising from the allocation of the purchase price paid by Novartis for this investment to Roche's intangible assets. A survey of analyst estimates is used to estimate the Group's share of net income in Roche. Any differences between these estimates and actual results will be adjusted in the 2013 consolidated financial statements.
Adjusting for the exceptional items in both years, core income from associated companies decreased 3% from $779 million to $755 million.
Interest Expense and other Financial Income/Expense
The interest expense decreased to $724 million in 2012 from $751 million in 2011 as a result of lower average gross financial debt compared to the prior year. Other financial income and expense amounted to a net expense of $96 million compared to a net expense of $2 million in 2011, mainly as a result of currency losses.
Taxes
Tax expenses in 2012 were $1.6 billion, an increase of 6% (8% cc) from 2011. The tax rate (taxes as a percentage of income before taxes) increased slightly to 14.5% in 2012 from 14.2% in 2011. The core tax rate (taxes as percentage of core income before taxes) decreased to 15.1% in 2012 from 15.3% in 2011.
For further information on the main elements contributing to the difference, see "—Core Results" and "Item 18. Financial Statements—note 6".
| Year ended Dec 31, 2011 | Year ended Dec 31, 2010 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Net sales | 58,566 | 50,624 | 16 | 12 | |||||||||
Other revenues | 809 | 937 | (14 | ) | (15 | ) | |||||||
Cost of goods sold | (18,983 | ) | (14,488 | ) | 31 | 25 | |||||||
Gross profit | 40,392 | 37,073 | 9 | 7 | |||||||||
Marketing & Sales | (15,079 | ) | (13,316 | ) | 13 | 9 | |||||||
Research & Development | (9,583 | ) | (9,070 | ) | 6 | (2 | ) | ||||||
General & Administration | (2,970 | ) | (2,481 | ) | 20 | 12 | |||||||
Other income | 1,354 | 1,234 | 10 | (4 | ) | ||||||||
Other expense | (3,116 | ) | (1,914 | ) | 63 | 48 | |||||||
Operating income | 10,998 | 11,526 | (5 | ) | 1 | ||||||||
Income from associated companies | 528 | 804 | (34 | ) | (34 | ) | |||||||
Interest expense | (751 | ) | (692 | ) | 9 | 5 | |||||||
Other financial income and expense | (2 | ) | 64 | (103 | ) | (140 | ) | ||||||
Income before taxes | 10,773 | 11,702 | (8 | ) | (2 | ) | |||||||
Taxes | (1,528 | ) | (1,733 | ) | (12 | ) | (6 | ) | |||||
Net income | 9,245 | 9,969 | (7 | ) | (2 | ) | |||||||
Attributable to: | |||||||||||||
Shareholders of Novartis AG | 9,113 | 9,794 | (7 | ) | (1 | ) | |||||||
Non-controlling interests | 132 | 175 | (25 | ) | (25 | ) | |||||||
Basic earnings per share | 3.83 | 4.28 | (11 | ) | (5 | ) |
| Year ended Dec 31, 2011 | Year ended Dec 31, 2010 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Core gross profit | 43,839 | 38,517 | 14 | 11 | |||||||||
Marketing & Sales | (15,077 | ) | (13,315 | ) | 13 | 9 | |||||||
Research & Development | (9,239 | ) | (8,080 | ) | 14 | 7 | |||||||
General & Administration | (2,957 | ) | (2,477 | ) | 19 | 11 | |||||||
Other income | 443 | 485 | (9 | ) | (43 | ) | |||||||
Other expense | (1,100 | ) | (1,124 | ) | (2 | ) | (19 | ) | |||||
Core operating income | 15,909 | 14,006 | 14 | 16 | |||||||||
Core net income | 13,490 | 12,029 | 12 | 15 | |||||||||
Core basic earnings per share | 5.57 | 5.15 | 8 | 11 |
The Group's core results exclude the amortization of intangible assets, impairment charges, expenses relating to the integration of acquisitions as well as other items that are, or are expected to accumulate within the year to be, over a $25 million threshold that management deems exceptional.
Net sales rose 16% (+12% cc) to $58.6 billion in 2011, with a positive currency impact of 4% arising from the weakness of the US dollar against most major currencies during much of 2011. Sales of recently launched products (products launched since 2007, except Sandoz products launched in last 24 months) grew 38% (in $, excluding the A(H1N1) pandemic flu vaccine including Alcon on a pro forma basis for 2010) over 2010 to $14.4 billion. These products contributed 25% of Group net sales, up from 19% in 2010.
Operating income was down 5% (+1% cc) to $11.0 billion. The weakness of the US dollar, combined with the strong Swiss franc, resulted in a negative currency impact of 6 percentage points. Cost of goods sold rose by 31% (25% cc) to $19.0 billion in 2011, increasing by 3.8 percentage points to 32.4% of net sales. This led to a reduction in the gross margin by 4.2% to 69.0%. Marketing & Sales rose 13% (9% cc) to $15.1 billion, improving 0.6 percentage points to 25.7% of net sales, as productivity improvements and changes in the portfolio mix were partly offset by investments in new launch products. Research & Development expenses increased by 6% ( -2% cc) in 2011 to $9.6 billion. This included $341 million in impairments of intangible assets. General & Administration expenses increased 20% (12% cc) to $3.0 billion. Other income was up 10% ( -4% cc) to $1.4 billion and largely consists of gains from product disposals, legal settlements and certain items of net periodic pension cost. Other expense was up 63% (48% cc) to $3.1 billion and includes impairment of financial assets as well as property plant and equipment, litigation settlement costs, restructuring and related charges and acquisition related integration expenses.
Core operating income, which excludes exceptional items and amortization of intangible assets, was up 14% (16% cc) to $15.9 billion. Core operating income margin in constant currencies increased by 1.1 percentage points. However, this improvement was more than offset by a negative currency impact of 1.6 percentage points, resulting in a net decrease in core operating income margin of 0.5 percentage points to 27.2% of net sales. Total net exceptional income and expense adjusted in core results in the various line items in 2011 amounted to $1.9 billion expense compared to $1.3 billion in the prior year. It comprised charges of $2.9 billion (2010: $2.1 billion) partly offset by exceptional income of $1.0 billion (2010: $732 million). Exceptional charges included:Tekturna/Rasilez ($903 million); $348 million related to the discontinuation of the PRT128 (elinogrel), SMC021 (oral calcitonin), AGO178 (agomelatine), and PTK796 (omadacycline) development programs; a charge of $115 million related to the temporary suspension of production at one of our US Consumer Health sites; other intangible asset impairment
charges of $71 million principally relating to development projects; financial asset impairment charges of $192 million; integration charges of $250 million (mainly for Alcon); and restructuring and related costs of $492 million. Exceptional income includes divestment proceeds ($480 million) and a $106 million reduction of a contingent consideration obligation in Sandoz. In 2011, amortization of intangible assets amounted to $3.0 billion compared to $1.1 billion in 2010 as a result of a full year of incorporating Alcon.
Net income decreased 7% ( -2% cc) to $9.2 billion, more than the decline in operating income as a result of lower associated company income, higher financing costs following the Alcon acquisition, partly offset by a lower tax rate (14.2% compared to 14.8%). EPS declined 11% ( -5% cc), more than the decline in net income, mainly as a result of the increase in issued shares following the Alcon merger, partially offset by a lower impact from non-controlling interests.
Core net income grew 12% (+15% cc) to $13.5 billion broadly in line with core operating income. Core EPS was up by 8% (+11% cc): a lower rate than net income as a result of a higher number of outstanding shares in 2011.
The average number of shares outstanding in 2011 rose 4% to 2,382 million from 2,286 million in the year ago, while a total of 2,407 million shares were outstanding at December 31, 2011.
Free cash flow reached $12.5 billion (2010: $12.3 billion), an increase of 1% over the previous year. Free cash flow in 2010 included substantial cash flows from sales of A(H1N1) amounting to $1.8 billion.
| Year ended Dec 31, 2011 | Year ended Dec 31, 2010(1) | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Pharmaceuticals | 32,508 | 30,306 | 7 | 4 | |||||||||
Alcon | 9,958 | 4,446 | 124 | 118 | |||||||||
Sandoz | 9,473 | 8,592 | 10 | 7 | |||||||||
Vaccines and Diagnostics | 1,996 | 2,918 | (32 | ) | (34 | ) | |||||||
Consumer Health | 4,631 | 4,362 | 6 | 3 | |||||||||
Net sales | 58,566 | 50,624 | 16 | 12 | |||||||||
Pharmaceuticals net sales grew 7% (+4% cc) to $32.5 billion, and Alcon net sales of $10.0 billion rose 10% (+7% cc) on a pro forma basis. Sandoz net sales also grew 10% (+7% cc) to $9.5 billion. Vaccines and Diagnostics net sales were down 32% (-34% cc) to $2.0 billion, mainly due to $1.3 billion of A(H1N1) pandemic flu vaccine sales in 2010. Net sales of the two Consumer Health businesses together grew 6% (+3% cc) to $4.6 billion.
Pharmaceuticals
Net sales expanded 7% (+4% cc) to $32.5 billion in 2011 driven by 9 percentage points of increased volume, partly offset by a negative pricing impact of 1 percentage point and the combined impact of generic entries and product divestments of an additional 4 percentage points. Recently launched products (products launched since 2007) contributed $9.2 billion of net sales, growing 35% in constant currencies over the previous year. These products now represent 28% of division sales compared to 22% in 2010.
Europe remained the largest region ($11.6 billion, +2% cc) for Pharmaceuticals, particularly benefiting from recently launched products, which generated 35% of net sales, more than offsetting health care cost-containment measures and generic erosion. The US ($10.0 billion, 0% cc) contributed 31% of
net sales for the division. Japan's performance ($3.9 billion, +7% cc) improved versus the prior year due to new launches. Latin America and Canada ($3.0 billion, +10% cc) achieved strong growth rates. The top six emerging markets ($3.2 billion, +7% cc) were led by double-digit growth from China and India.
TOP 20 PHARMACEUTICALS DIVISION PRODUCT NET SALES—2011
Brands | Business Franchise | Indication | Net sales United States | Change in constant currencies | Net sales rest of world | Change in constant currencies | Total net sales | Change in $ | Change in constant currencies | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | $ m | % | $ m | % | $ m | % | % | |||||||||||||||||
Diovan/Co—Diovan | Primary care | Hypertension | 2,333 | (7 | ) | 3,332 | (11 | ) | 5,665 | (6 | ) | (9 | ) | |||||||||||||
Gleevec/Glivec | Oncology | Chronic myeloid leukemia | 1,459 | 14 | 3,200 | 2 | 4,659 | 9 | 5 | |||||||||||||||||
Lucentis | Ophthalmics | Age-related macular degeneration | 2,050 | 26 | 2,050 | 34 | 26 | |||||||||||||||||||
Zometa | Oncology | Cancer complications | 642 | (11 | ) | 845 | 0 | 1,487 | (2 | ) | (5 | ) | ||||||||||||||
Sandostatin | Oncology | Acromegaly | 574 | 12 | 869 | 7 | 1,443 | 12 | 9 | |||||||||||||||||
Exforge | Primary care | Hypertension | 325 | 14 | 884 | 36 | 1,209 | 34 | 30 | |||||||||||||||||
Exelon/ExelonPatch | Neuroscience | Alzheimer's disease | 375 | (1 | ) | 692 | 7 | 1,067 | 6 | 4 | ||||||||||||||||
Femara | Oncology | Breast cancer | 219 | (66 | ) | 692 | (11 | ) | 911 | (34 | ) | (37 | ) | |||||||||||||
Neoral/Sandimmun | Integrated Hospital Care | Transplantation | 71 | (13 | ) | 832 | (1 | ) | 903 | 4 | (2 | ) | ||||||||||||||
Exjade | Oncology | Iron chelator | 259 | (2 | ) | 591 | 13 | 850 | 12 | 8 | ||||||||||||||||
Voltaren (excl. OTC) | Additional products | Inflammation/pain | 4 | 0 | 790 | 1 | 794 | 0 | 2 | |||||||||||||||||
Tasigna | Oncology | Chronic myeloid leukemia | 255 | 90 | 461 | 66 | 716 | 79 | 74 | |||||||||||||||||
Galvus | Primary care | Diabetes | 677 | 66 | 677 | 73 | 66 | |||||||||||||||||||
Comtan/Stalevo | Neuroscience | Parkinson's disease | 214 | (7 | ) | 400 | 3 | 614 | 2 | (1 | ) | |||||||||||||||
Reclast/Aclasta | Established medicines | Osteoporosis | 386 | (2 | ) | 227 | 18 | 613 | 6 | 5 | ||||||||||||||||
Tekturna/Rasilez | Primary care | Hypertension | 216 | 4 | 341 | 41 | 557 | 27 | 24 | |||||||||||||||||
Ritalin/Focalin | Additional products | Attention Deficit/Hyperactive Disorder | 398 | 17 | 152 | 14 | 550 | 19 | 17 | |||||||||||||||||
Myfortic | Integrated Hospital Care | Transplantation | 200 | 23 | 318 | 11 | 518 | 17 | 15 | |||||||||||||||||
Gilenya | Neuroscience | Relapsing Multiple Sclerosis | 383 | nm | 111 | nm | 494 | nm | nm | |||||||||||||||||
Xolair | Critical Care | Asthma | 15 | (38 | ) | 463 | 35 | 478 | 30 | 29 | ||||||||||||||||
Top 20 products total | 8,328 | 2 | 17,927 | 8 | 26,255 | 9 | 6 | |||||||||||||||||||
Rest of portfolio | 1,645 | (9 | ) | 4,608 | (1 | ) | 6,253 | 0 | (4 | ) | ||||||||||||||||
Total Division sales | 9,973 | 0 | 22,535 | 6 | 32,508 | 7 | 4 | |||||||||||||||||||
nm = not meaningful
Pharmaceuticals Division Product Highlights—Selected Leading Products
Net sales growth data below refer to 2011 worldwide performance. Growth rates are not provided for some recently launched products since they are not meaningful.
Cardiovascular and Metabolism
Diovan Group ( -6% to $5.7 billion, -9% cc) worldwide sales declined due to loss of exclusivity in the EU.Diovan Group remains the top-selling anti-hypertensive medication worldwide, with 13.27% of the global hypertension market.
Exforge Group (+34% to $1.2 billion, +30% cc), showed strong worldwide growth fueled by continued prescription demand in the EU, US and other key regions, as well as ongoingExforge HCT launches in Europe, Asia and Latin America.Exforge, a single-pill combination ofDiovan and the calcium channel blocker amlodipine, has delivered excellent growth globally and is now available in over 80 countries.Exforge HCT,Exforge with a diuretic (hydrochlorothiazide) in a single pill, is now available for patients in over 40 countries with additional launches expected in 2012.
Tekturna/Rasilez (+27% to $557 million, +24% cc), the first in a class of medicines known as direct renin inhibitors to treat high blood pressure, has been growing consistently since its launch in 2007. However, in late December, following the seventh interim review of data from the ALTITUDE study withTekturna/Rasilez, Novartis announced that the trial was halted on the recommendation of the independent Data Monitoring Committee (DMC) overseeing the study. The DMC concluded that patients were unlikely to benefit from treatment on top of standard anti-hypertensive medicines, and identified higher adverse events in patients receivingTekturna/Rasilez in addition to standard of care as part of the trial. Novartis has written to healthcare professionals worldwide recommending that hypertensive patients with diabetes should not be treated withTekturna/Rasilez, or combination products containing aliskiren (the active ingredient inTekturna/Rasilez), if they are also receiving an angiotensin-converting enzyme (ACE) inhibitor or angiotensin receptor blocker (ARB). As an additional precautionary measure, Novartis has ceased promotion ofTekturna/Rasilez-based products for use in combination with an ACE inhibitor or ARB. In 2011, single-pill combinationsRasilamlo, a dual combination of aliskiren and amlodipine, andRasitrio, a triple combination of aliskiren, amlodipine and hydrochlorothiazide, were approved in the EU. These single-pill combinations were also launched in the US in 2011 under the brand namesTekamlo andAmturnide, respectively.
Galvus/Eucreas (+73% to $677 million, +66% cc), which includes oral treatments with vildagliptin for type 2 diabetes, has shown strong growth in Japan and many European, Latin American and Asian Pacific markets since launch in 2007. The single-pill combinationEucreas/GalvusMet (vildagliptin and metformin) accounted for the majority of sales, with the expanded use ofGalvus in elderly patients over 75 years old in the EU also fueling growth in 2011. Additional EU approvals for use in moderate or severe renally impaired type 2 diabetes patients are expected to drive growth in 2012. Vildagliptin is now approved in more than 90 countries with an additional launch expected in China in 2012.
Oncology
Gleevec/Glivec (+9% to $4.7 billion, +5% cc), a targeted therapy for some forms of chronic myeloid leukemia (CML) and gastrointestinal stromal tumors (GIST), maintained solid growth based on its leadership position in treating these cancers. New clinical data showing significant survival benefits for adult patients with resected KIT+ GIST who received adjuvant (post-surgery) treatment withGleevec/Glivec (imatinib) for three years compared to one year following surgery served as the basis for worldwide regulatory filings to update the label.Gleevec/Glivec was approved in 2008 for use in certain adjuvant (post-surgery) KIT+ GIST patients and is now approved in more than 60 countries for this indication.
Tasigna (+79% to $716 million, +74% cc), has shown rapid growth as a next-generation targeted therapy for newly diagnosed Ph+ CML patients following approvals in more than 50 markets globally including the US, EU, Japan and Switzerland, with additional submissions pending worldwide.Tasigna market share continues to rise in Ph+ CML in the second-line indication with approvals in over 95 countries.
Zometa (-2% to $1.5 billion, -5% cc) is an intravenous bisphosphonate therapy for patients with certain types of cancer that has spread to the bones. Zoledronic acid, the active ingredient inZometa (4 mg), is also available under the trade namesReclast/Aclasta (5 mg) for use in non-oncology indications with different dosing.Zometa is facing new competition from denosumab, a product of Amgen.
Femara (-34% to $911 million, -37% cc), a treatment for early stage and advanced breast cancer in postmenopausal women, experienced a decline in sales due to multiple generic entries in the US, Europe and other key markets.
Sandostatin (+12% to $1.4 billion, +9% cc) benefited from the increasing use ofSandostatin LAR in treating symptoms of patients with neuroendocrine tumors as well as approvals in 25 countries for the delay of tumor progression in patients with midgut carcinoid tumors. It is currently under review in more than 20 additional countries for this indication.
Exjade (+12% to $850 million, +8% cc) continued to expand with strong growth based on new patients and expanded access led by Asia and Europe.Exjade is currently approved in more than 100 countries as the only once-daily oral therapy for transfusional iron overload. Filings for a potential new indication in the treatment of non-transfusion-dependent thalassemia were submitted in the US and EU.
Afinitor/Votubia (+82% to $443 million, +77% cc) is an oral inhibitor of the mTOR pathway used across multiple diseases.Afinitor continues to achieve strong growth in key markets as the only approved treatment for patients with advanced renal cell carcinoma following VEGF-targeted therapy.Afinitor expanded its indications with approvals in the US, EU and Japan for the treatment of advanced pancreatic neuroendocrine tumors. Everolimus, the active ingredient inAfinitor, is also approved in the US asAfinitor and in the EU asVotubia for the treatment of subependymal giant cell astryocytomas associated with tuberous sclerosis complex (TSC). A Phase III study of everolimus in patients with non-cancerous kidney tumors, or angiomyolipomas, associated with TSC formed the basis of regulatory filings currently underway for this potential indication. In addition, results of another Phase III study, which showedAfinitor plus exemestane met the primary endpoint of progression-free survival versus exemestane alone in postmenopausal women with HR+/HER2- advanced breast cancer, are supporting worldwide regulatory filings for this potential indication. Everolimus is also available under the trade namesZortress/Certican for use in other non-oncology indications and is exclusively licensed to Abbott and sublicensed to Boston Scientific for use in drug-eluting stents.
Neuroscience and Ophtalmics
Lucentis (+34% to $2.0 billion, +26% cc) is a biotechnology eye therapy now approved in more than 100 countries for the treatment of wet age-related macular degeneration, and in more than 50 countries for the treatment of visual impairment due to diabetic macular edema.Lucentis was approved in June 2011 in Europe for visual impairment due to macular edema secondary to branch- and central-retinal vein occlusion, and is now approved for this indication in more than 50 countries, including China. Genentech/Roche holds the US rights to this medicine.
Exelon/Exelon Patch (+6% to $1.1 billion, +4% cc) is a therapy for mild to moderate forms of Alzheimer's disease dementia as well as dementia linked with Parkinson's disease. The majority of sales are forExelon Patch, the novel skin patch launched in 2007 which is now available in more than 80 countries worldwide for Alzheimer's disease dementia, including more than 20 countries where it is also approved for dementia associated with Parkinson's disease.
Extavia (+24% to $154 million, +19% cc), available in the US and more than 35 other countries for relapsing forms of multiple sclerosis (MS), marked the entry of Novartis into the field of MS.Extavia is the Novartis-branded version of Betaferon®/Betaseron®.
Gilenya ($494 million) is approved in more than 55 countries and showed continued rapid growth as a once-daily, oral disease-modifying treatment for relapsing remitting and/or relapsing forms of MS in adult patients.Gilenya was approved in the EU in March 2011 as a disease modifying therapy in patients with highly active relapsing-remitting multiple sclerosis (RRMS) despite treatment with beta interferon, or in patients with rapidly evolving severe RRMS. Novartis also received approval forGilenya in September 2011 in Japan for the prevention of relapse and delay of progression of physical disability in adults with MS. It is licensed from Mitsubishi Tanabe Pharma Corporation.
Respiratory
Xolair (+30% to $478 million, +29% cc, ex-US), a biotechnology drug approved for severe persistent allergic asthma in Europe and moderate to severe persistent allergic asthma in the US, gained blockbuster status when annual global sales (including US sales recorded by Genentech/Roche) reached $1 billion in November 2011.Xolair is now approved in 90 countries and has shown strong growth during 2011 in Europe, major Latin American markets and Japan. A Phase III trial is progressing to support registration in China. Launches are continuing across Europe forXolair Liquid, a new formulation in pre-filled syringes that enables easier administration than the original lyophilized formulation. Phase III studies are also being conducted in an additional potential indication, chronic idiopathic urticaria. Novartis co-promotesXolair with Genentech/Roche in the US and shares a portion of operating income, but does not record any US sales. Novartis has the sole rights to marketXolair outside the US.
Onbrez Breezhaler/Arcapta Neohaler ($103 million) has shown strong sales growth since its approval in the EU in November 2009 as a once-daily long-acting beta2-agonist (LABA) for the maintenance bronchodilator treatment of airflow obstruction in adult patients with chronic obstructive pulmonary disease (COPD).Onbrez Breezhaler (indacaterol, formerly QAB149) is now approved in more than 80 countries, including the US (under the trade nameArcapta Neohaler) as of July 2011 and Japan (under the trade nameOnbrez Inhalation Capsules), where it has been co-promoted with Eisai Co. Ltd. since December 2011. Results of two Phase III studies announced in February 2011 showed that patients treated with once-dailyOnbrez Breezhaler in conjunction with once-daily tiotropium 18 mcg experienced a significantly greater improvement in lung function than those treated with tiotropium alone, adding to the growing body of evidence supporting the use ofOnbrez Breezhaler as an effective treatment for COPD. Sales in Germany were negatively impacted in the fourth quarter of 2011 following a reference pricing review in which the reimbursed price ofOnbrez Breezhaler was reduced below that of generic LABAs. Novartis has maintained prices forOnbrez Breezhaler in Germany, since it offers additional benefits over existing LABAs as described in the EU-approved label. An additional co-payment forOnbrez Breezhaler is now required for many patients in Germany.
TOBI Podhaler ($296 million, includingTOBI nebulizer solution) was approved in the EU in July 2011 as a suppressive therapy for chronic Pseudomonas aeruginosa lung infections in patients with cystic fibrosis (CF) aged six years and older.TOBI Podhaler (tobramycin inhalation powder) is a dry powder formulation of the antibiotic tobramycin, developed using novelPulmoSphere technology. This means that instead of using a nebulizer, treatment can be delivered using a more convenient, patient-friendly device that reduces administration time by 72% relative toTOBI (nebulizer solution), with comparable efficacy.TOBI Podhaler is designed to help CF patients, who are often young, to comply with treatment and lead more independent lives.
Integrated Hospital Care
Zortress/Certican (+30% to $187 million, +25% cc) is a transplantation medicine indicated to prevent organ rejection in adult kidney and heart transplant patients. It generated solid growth based on its availability in more than 85 countries, including the US, where it was launched in April 2010 for adult kidney transplantation under the brand nameZortress. This medicine, which has the same active ingredient asAfinitor (everolimus), has demonstrated immunosuppressive efficacy and a well characterized side-effect profile.
Ilaris (+85% to $48 million, +82% cc) is a fully human monoclonal antibody that selectively binds and neutralizes interleukin-1ß (IL-1ß), a proinflammatory cytokine. Since 2009,Ilaris has been approved in over 50 countries for the treatment of children and adults suffering from cryopyrin-associated periodic syndrome (CAPS), a group of rare auto-inflammatory disorders characterized by chronic recurrent fever, urticaria, occasional arthritis, deafness and potentially life threatening amyloidosis. Novartis has filed for regulatory approval ofIlaris in the EU and the US for the treatment of acute attacks in gouty arthritis based on data from two Phase III registration studies that met their primary endpoints. In August 2011,
Novartis received a Complete Response letter from the FDA requesting additional information, including clinical data to evaluate the benefit risk profile in refractory gouty arthritis patients. Novartis is currently working with the FDA to determine next steps for ACZ885 in gouty arthritis. Novartis is also pursuing other diseases in which IL-1ß may play a prominent role, such as systemic juvenile idiopathic arthritis, secondary prevention of cardiovascular events and diabetes. Select subsets of patients with these diseases would be eligible for treatment withIlaris, if approved.
Neoral/Sandimmun (+4% to $903 million, -2% cc), for organ transplantation and autoimmune diseases, has experienced only modestly declining sales despite ongoing generic competition in recent years due to its pharmacokinetic profile, reliability and use in treating a life-threatening condition.
Myfortic (+17% to $518 million, +15% cc), a transplantation medicine, is approved in more than 90 countries for the prevention of acute rejection of kidney allografts and is indicated in combination with cyclosporine and corticosteroids.Myfortic was first approved in the US in 2004 and in the EU in 2003.
Other
Reclast/Aclasta(+6% to $613 million, +5% cc), a once-yearly infusion therapy for osteoporosis, continues to expand on increasing patient access to infusion centers and a broad range of use in patients with various types of this debilitating bone disease. Approvals have been received in over 100 countries for up to six indications, including the treatment of osteoporosis in men and postmenopausal women. Six year data from a pivotal fracture trial reinforced the long-term efficacy and safety profile of Reclast/Aclasta. Zoledronic acid, the active ingredient in Reclast/Aclasta, is also available in a number of countries in a different dosage for use in oncology indications under the trade name Zometa.
Voltaren (0% at $794 million, +2% cc, excluding OTC sales), a treatment for various inflammation and pain conditions, no longer has patent protection in key markets around the world, but has continued to generate growth in regions such as Latin America, the Middle East, Africa and Asia based on long-term trust in the brand.
Ritalin/Focalin (+19% to $550 million, +17% cc), for treatment of Attention Deficit/Hyperactivity Disorder (ADHD), has benefited from the use of long-actingRitalin LA andFocalin XR patent-protected formulations that involve methylphenidate, the active ingredient inRitalin faces generic competition in many countries.
Alcon
Net sales in 2011 of Alcon increased by 124% to $10.0 billion on a restated basis. Since however the 2010 base only includes the net sales of Alcon, Inc. from August 25, 2010, as indicated above, a comparison on a 2010 pro forma basis is more meaningful.
Net sales of $10.0 billion rose 10% (+7% cc) on a pro forma basis, driven by strong global Ophthalmic Pharmaceuticals product growth of 12% (+10% cc), Surgical products growth of 11% (+8% cc), and by the top six emerging markets, which grew 26% (+22% cc) over 2010.
Alcon division pro forma net sales by product category:
| Year ended Dec 31, 2011 | Year ended Dec 31, 2010 | Change in $ | Constant currencies change | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Surgical | |||||||||||||
Cataract products | 2,858 | 2,668 | 7 | 4 | |||||||||
of which Cataract IOLs | 1,276 | 1,207 | 6 | 3 | |||||||||
Vitreoretinal products | 529 | 424 | 25 | 21 | |||||||||
Refractive/Other | 200 | 129 | 55 | 51 | |||||||||
Total | 3,587 | 3,221 | 11 | 8 | |||||||||
Ophthalmic Pharmaceuticals | |||||||||||||
Glaucoma | 1,287 | 1,136 | 13 | 10 | |||||||||
Allergy/Otic/Nasal | 884 | 813 | 9 | 7 | |||||||||
Infection/inflammation | 967 | 839 | 15 | 14 | |||||||||
Dry Eye/Other | 810 | 727 | 11 | 10 | |||||||||
Total | 3,948 | 3,515 | 12 | 10 | |||||||||
Vision Care | |||||||||||||
Contact lenses | 1,701 | 1,579 | 8 | 3 | |||||||||
Solutions/Other | 713 | 716 | (4 | ) | |||||||||
Total | 2,414 | 2,295 | 5 | 1 | |||||||||
Total net sales | 9,949 | 9,031 | 10 | 7 | |||||||||
Alcon Division Franchise Highlights
Net sales growth data below refer to 2011 worldwide performance on a pro forma basis.
Surgical
In 2011, global Surgical netfranchise sales were $3.6 billion, anrose 5% (+7% cc) to $4.1 billion. The increase of 11% (+8% cc) over the previous year. Emerging markets grew strongly, while intraocular lens unitwas driven by strong equipment sales, (IOL) in the US showed slower growth versus 2010. Global sales of advanced technology intraocular lenses rose 16% (+15% cc), mostly due to strong sales ofled by theAcrySof IQ ToricCenturion andAcrySof IQ ReSTOR+3.0 intraocular lenses. The successful launchvision system for phacoemulsification cataract surgery, the continued growth of theLenSx femtosecond laser for refractive cataract laser, with over 500 surgeons now trained to use this cutting-edge technology, expandssurgery, strong sales of vitreoretinal and cataract disposable surgical equipment, as well as the cataract surgical market opportunities for Alcon. Thelaunch of theConstellation Verion vitreoretinal surgical system contributed to robustimage-guided system.
Alcon experienced a more modest increase in intraocular lens (IOL) sales, growth within the vitreoretinal category. Strong growthdriven by strong competition in the refractive segment was driven both by sales of equipmentUS, Japan and increased market share in the US.EU.
Ophthalmic Pharmaceuticals
Global net sales of Ophthalmic Pharmaceuticals products increased 12%sales grew 3% (+10%5% cc) to $3.9$4.2 billion despite a weak allergy season in 2011. Glaucoma product sales rose 13% (+10% cc), with growth driventhe US. Sales were led by non-US combinationglaucoma products such asDuoTrav, Azarga and the newly-launchedSimbrinza. Systane eye drops to treat the symptoms of dry eye saw double-digit growth.
Within the Infection/Inflammation segment, sales growth (+7% cc) was driven byIlevro andAzargaDurezol.Jetrea, with a combined growth of 41% (+34% cc). Infection/inflammation product sales advanced 15% (+14% cc) led by strong growth ofNevanac ophthalmic suspension, as well as solid performance ofDurezol ophthalmic suspension. Allergy, otic,first-in-class treatment for symptomatic vitreomacular adhesion/traction, continued to gain regulatory approvals, notably in Latin America and nasal products showed solid growth, led by thePatanol/Pataday franchise. Dry eye productsSystane andSystane Balance were the key contributors to growth in that product segment.Asia.
Vision Care
Global net sales of Vision Care products rose 5%sales increased 2% (+1%4% cc) in 2011 to $2.4$2.5 billion. Contact lens growth wassales rose 6% (+7% cc), driven by the continued strong performancekey launches ofAir OptixAirOptix Colors, which leads the marketplace in the multifocal segment and achieved 18% (cc) growth over the previous year, and by strongDailies AquaComfort Plus growth in the US. Sales of contact lenses were impacted by the discontinuation of the Specialty contact lens business(DACP) Toric, andDACP Multifocal, as well as slower market growth in European countries. Contact lens solutions sales were led by strong growththe continued rollout of theClear CareDailies Total1 hydrogen peroxide solution, offsetworldwide.
At the same time, contact lens care solutions declined (–7% cc), driven by weaknessmarket shifts to daily disposable lenses, as well as competitive pressure in the category for multi-purpose product sales.US.
Sandoz
Sandoz achieved stronghad net sales growthof $9.6 billion in 20112014, up 4% (+10% to $9.5 billion, +7%7% in constant currencies, or cc) versusfrom the prior year, driven by significant growtha 15 percentage points increase in USvolume, more than offsetting 8 percentage points of price erosion. Performance was driven by strong retail generics and biosimilars sales growth in Asia (excluding Japan) (+22%15% cc), with sales of over $1 billion for enoxaparin. Strong performances in Canadathe US (+13%14% cc), Western Europe (+13% cc),and Latin America (+12%10% cc). Sales growth in Western Europe (excluding Germany) was solid at 4% (cc).
Sandoz continued to strengthen its global leadership position in differentiated generics, including medicines that are difficult to develop and manufacture. Differentiated generics accounted for 45% of Sandoz sales.
| Year ended Dec 31, 2014 | Year ended Dec 31, 2013 | Change in $ | Constant currencies change | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Retail Generics | 7,933 | 7,663 | 4 | 6 | |||||||||
Biopharmaceuticals & Oncology Injectables | 1,094 | 888 | 23 | 25 | |||||||||
Anti-Infectives | 535 | 608 | (12 | ) | (12 | ) | |||||||
| | | | | | | | | | | | | |
Total | 9,562 | 9,159 | 4 | 7 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Retail Generics
In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of pharmaceuticals. It includes the specialty areas of Dermatology, Respiratory and Ophthalmics. Retail Generics sales worldwide rose 4% (+6% cc) to $7.9 billion. US sales grew 10% (cc), dampened by customer consolidation. Sales in Western Europe (excluding Germany) rose 3% (cc), driven by strong growth in Italy, Nordics and the United Kingdom. German sales were down 1% (cc) due to weak market demand. Emerging growth markets grew strongly, driven by Asia (+12% cc) and(excluding Japan), up 14% (cc); Central and Eastern Europe, (+6% cc) also contributed to growth in 2011. Germany retail genericsup 4% (cc); and biosimilars declined (-13% cc) in a market that is estimated to have contracted 17% in net terms due to the impact of statutory health insurance tenders and new lower reference prices. Biosimilars grew 37% in constant currencies to $261 million globally. Sales volume expanded 14 percentage points due to new product launches, and Falcon (transferred from Alcon) contributed 2 additional percentage points of growth, more than compensating price erosion of 9 percentage points.Latin America, up 8% (cc).
Vaccines and DiagnosticsBiopharmaceuticals & Oncology Injectables
Net sales declined 32%In Biopharmaceuticals, Sandoz develops, manufactures and markets protein- and other biotechnology-based products, which are known as biosimilars, or follow-on biologics. Sandoz also provides biotechnology manufacturing services to $2.0 billionother companies. Sales of Biopharmaceuticals & Oncology Injectables rose 23% (+25% cc) to $1.1 billion. In 2014, Sandoz continued to strengthen its global leadership position in 2011 (-34% cc) comparedbiosimilars. In May, Sandoz was the first to $2.9 billion in 2010. The primary driverapply for approval of the net sales variance against the prior year was $1.3 billion of A(H1N1) pandemic flu vaccine sales in 2010 not repeated in 2011.
Excluding the impact of A(H1N1) pandemic flu vaccines sales in 2010, net sales growth was 22% in constant currencies, driven by growth across all strategic franchises, with a particularly strong contribution from our meningococcal disease franchise.
The growth of our meningococcal disease franchise was underpinned byMenveo, which continues to gain market share bothbiosimilar in the US and worldwide, with net sales of $142 million in 2011.
Consumer Health
Consumer Health (comprising OTC and Animal Health) delivered combined 2011 net sales of $4.6 billion producing growth of 6% (+3% cc).
OTC delivered low-single-digit growth driven by emerging markets and priority brands. In nine out ofunder the top ten countries for OTC, volume growth outpaced the market. Cough and cold brands, includingTheraflu, grew strongly behind sustained investment and a stronger season in several markets compared to 2010.Voltaren continued to grow through the use of innovative commercial models and a focus on marketing fundamentals, whilePrevacid24HR benefitted from normalized stock movements compared to 2010. In the US,Excedrin sales declinednew biosimilar pathway created in the fourth quarter dueBiologics Price Competition and Innovation Act of 2009, with filgrastim, which is used to decrease the temporary suspensionincidence of operationsinfection among cancer patients receiving chemotherapy. In January 2015, a US Food and voluntary product recall at OTC's Lincoln, Nebraska, USA site. Expired distribution contracts and divested brands also negatively impacted net sales growth versusDrug Administration advisory body recommended approval. Sandoz leads the prior year.
Animal Health contributed mid-single-digit net sales growth over the previous year, driven by Germany, Japan, Australia and emerging markets.CliK andVetrazin retained their leadership positionsindustry with six biosimilars in the sheep market in Australia and the UK.Milbemax delivered double-digit growth as the number one cat and dog de-wormer in Europe, whileOnsior gained market share across key European markets and Japan.Phase III clinical trials or registration.
In Three Sandoz biosimilar products occupy the swine business,number one position in market share in their respective categories—DenagardOmnitrope, a human growth hormone;Binocrit for anemia; and filgrastim under the brand nameZarzio. Biosimilars sales in 2014 amounted to $514 million, up 23% (cc) from the previous year, mainly due to continued strong growth across all our brands and regions.
Sandoz also develops, manufactures and markets cytotoxic products for traditional cancer chemotherapy. The Oncology Injectables business now includes a portfolio of more than 25 products. Oncology Injectables sales in 2014 amounted to drive strong double-digit growth led by$477 million, up 29% (cc) from the previous year, mainly due to recent launches in the US. Total US
Anti-Infectives
In Anti-Infectives, Sandoz manufactures active pharmaceutical ingredients and intermediates—mainly antibiotics—for sale under the Sandoz name and by third-party customers. Anti-Infectives sales in 2014 amounted to $535 million, down 12% (cc) from the previous year, as production capacities were flat despite the negative impact of a competitor entry in the heartworm and flea categories.temporarily constrained due to quality upgrades.
Operating Income by Segmentsfrom Continuing Operations
| Year ended Dec 31, 2011 | % of net sales | Year ended Dec 31, 2010(1) | % of net sales | Change in $ | Change in constant currencies | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | | $ m | | % | % | |||||||||||||
Pharmaceuticals | 8,296 | 25.5 | 8,471 | 28.0 | (2 | ) | 4 | ||||||||||||
Alcon | 1,472 | 14.8 | 796 | 17.9 | 85 | 67 | |||||||||||||
Sandoz | 1,422 | 15.0 | 1,321 | 15.4 | 8 | 10 | |||||||||||||
Vaccines and Diagnostics | (249 | ) | (12.5 | ) | 612 | 21.0 | (141 | ) | (131 | ) | |||||||||
Consumer Health | 727 | 15.7 | 778 | 17.8 | (7 | ) | 4 | ||||||||||||
Corporate income & expenses, net | (670 | ) | (452 | ) | |||||||||||||||
Operating income | 10,998 | 18.8 | 11,526 | 22.8 | (5 | ) | 1 | ||||||||||||
Core Operating Income by Segments
| Year ended Dec 31, 2011 | % of net sales | Year ended Dec 31, 2010(1) | % of net sales | Change in $ | Change in constant currencies | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | | $ m | | % | % | |||||||||||||
Pharmaceuticals | 10,040 | 30.9 | 9,586 | 31.6 | 5 | 8 | |||||||||||||
Alcon | 3,492 | 35.1 | 1,350 | 30.4 | 159 | 146 | |||||||||||||
Sandoz | 1,921 | 20.3 | 1,742 | 20.3 | 10 | 11 | |||||||||||||
Vaccines and Diagnostics | 135 | 6.8 | 1,066 | 36.5 | (87 | ) | (85 | ) | |||||||||||
Consumer Health | 873 | 18.9 | 845 | 19.4 | 3 | 12 | |||||||||||||
Corporate income & expenses, net | (552 | ) | (583 | ) | |||||||||||||||
Core operating income | 15,909 | 27.2 | 14,006 | 27.7 | 14 | 16 | |||||||||||||
Pharmaceuticals
Operating income decreased 2% (+4% cc) in 2011 to $8.3 billion. Exceptional items including amortizationfrom continuing operations amounted to a net $1.7$11.1 billion expense compared to $1.1 billion expense in 2010. Exceptional items includeTekturna/Rasilez charges(+1%, +7% cc). The negative currency impact of $903 million, restructuring charges of $420 million and other intangible asset impairments of $302 million (mainly AGO178, PTK796, PRT128 and SMC021). These were partly offset by higher prior-year impairment charges, and divestment income from Elidel® ($324 million) and from ophthalmic pharmaceutical products related6 percentage points was mainly due to the Alcon acquisition ($81 million).
Core operating income in 2011 grew 5% (+8% cc) to $10.0 billion. In constantweakening of emerging market currencies core operating(especially the ruble) and the yen against the US dollar. Operating income margin increased by 1.4was 21.3% of net sales, which was 0.1 percentage points due to continuing productivity efforts. However, this improvementhigher than the prior year. A 0.9 percentage point increase (in constant currencies) from the prior year, was more than offset by a negative currency impact of 2.10.8 percentage points, resulting in a net decrease in corepoints.
The following table provides an overview of operating income margin of 0.7 percentage points to 30.9% of net sales.
The underlying gross margin decreased by 0.6 percentage points (cc) mainly driven by increased royalties. Functional costs—which include General & Administration, Marketing & Sales and R&D expenses—improved by 2.0 percentage points, driven by productivity gains in Marketing & Sales and R&D despite significant investments in new product launches. Other Income & Expense, net, remained flat in constant currencies.
Alcon
In 2011, Alcon operating income increased 85% to $1.5 billion on a restated basis. Since however the 2010 base only includes Alcon, Inc. from August 25, 2010, as indicated above, a comparison on a 2010 pro forma basis is more meaningful.
Operating income in 2011 of $1.5 billion rose 24% (+14% cc) on a pro forma basis. Operating income was impacted by the inclusion of exceptional income from a litigation settlement ($183 million), amortization of intangible assets ($1.9 billion), integration costs ($221 million), and the impact of manufacturing optimization ($57 million).
Core operating income in 2011 of $3.5 billion increased by 13% (+9% cc) on a pro forma basis. Core operating income margin in constant currencies increased by 0.7 percentage points on a pro forma basis. In addition, there was a positive currency impact of 0.1 percentage points, resulting in a net increase in core operating income margin of 0.8 percentage points to 35.1% of net sales.
Sandoz
Operating income grew 8% (+10% cc) over the prior year to $1.4 billion. The operating income margin improved by 0.5 percentage points in constant currencies, more than offset by a negative currency impact of 0.9 percentage points, resulting in a net decrease of 0.4 percentage points to 15.0% of net sales. The constant currency margin improvement was the result of productivity improvements, the addition of the Falcon business and income from reduction of a contingent consideration obligation, partly offset by charges and provisions for legal cases in the US ($204 million) as well as price erosion.
In 2011, core operating income rose 10% (+11% cc) to $1.9 billion, as declining prices were more than offset by additional sales volume, new product launches and productivity improvements in all areas. Core operating income margin in constant currencies increased by 0.8 percentage points to 21.2% of net sales. Currency had a negative impact, resulting in a 20.3% core operating income margin.
Vaccines and Diagnostics
Operating loss was $249 million for 2011 compared to an operating income of $612 million in 2010, due in large part to the operating income associated with A(H1N1) pandemic flu vaccine sales from the prior year not repeated in 2011.
Excluding the impact of A(H1N1), profitability improved, despite continued investment in our pipeline and meningococcal disease franchise, driven by solid underlying sales growth. 2011 included impairments of $143 million related to financial and intangible assets compared to $98 million in 2010; 2010 also included charges related to a legal settlement of $45 million and restructuring charges of $52 million.
Core operating income for the year was $135 million compared to $1.1 billion for 2010. Excluding the impact of A(H1N1), core operating income also improved over 2010.
Consumer Health
Operating income for 2011 decreased 7% to $727 million (but increased 4% cc), with operating income margin in constant currencies increasing by 0.2 percentage points, more than offset by a negative currency impact of 2.3 percentage points, resulting in an operating income margin of 15.7% of net sales.
Core operating income in 2011 increased by 3% (+12% cc) to $873 million. Core operating income excludes the $115 million exceptional charge related to the product recall. Core operating income margin in constant currencies increased by 1.8 percentage points. This result demonstrates strong operating leverage with core operating income growing significantly ahead of net sales. $73 million of the product recall exceptional charge relates to sales returns. As no corresponding adjustment was made at the net sales level, it had a beneficial impact of 0.4 percentage points on the core operating income margin. Currency negatively impacted core operating income margin by 2.3 percentage points, resulting in a net core operating income margin decrease of 0.5 percentage points to 18.9% of net sales.
Gross margin improved slightly by 0.1 percentage points (cc) driven by productivity gains that were partially offset by product mix. Marketing & Sales expenses decreased by 0.7 percentage points (cc) versus prior year driven by efficiency improvements in OTC partially offset by increased investment in the Animal Health business. R&D expenses decreased by 0.1 percentage points (cc) from productivity measures that more then offset continued investment in innovation. General & Administrative expenses decreased by 0.2 percentage points (cc) due to strong cost control. Other Income and Expense, net, improved by 0.3 percentage points (cc) largely driven by income from smaller product divestments.
Corporate Income & Expense, Net
Corporate income & expense, net, includes the costs of Group headquarters. These net expenses of $670 million in 2011 were 48% higher than in 2010 primarily due to an exceptional pension curtailment gain of $265 million in the prior year.
Non-Operating Income and Expense
segment:
| Year ended Dec 31, 2014 | % of net sales | Year ended Dec 31, 2013 | % of net sales | Change in $ | Change in constant currencies | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | | $ m | | % | % | |||||||||||||
Pharmaceuticals | 8,471 | 26.6 | 9,376 | 29.1 | (10 | ) | (5 | ) | |||||||||||
Alcon | 1,597 | 14.8 | 1,232 | 11.7 | 30 | 43 | |||||||||||||
Sandoz | 1,088 | 11.4 | 1,028 | 11.2 | 6 | 14 | |||||||||||||
Corporate | (67 | ) | (653 | ) | nm | nm | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Operating income from continuing operations | 11,089 | 21.3 | 10,983 | 21.2 | 1 | 7 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Year ended Dec 31, 2011 | Year ended Dec 31, 2010 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Operating income | 10,998 | 11,526 | (5 | ) | 1 | ||||||||
Income from associated companies | 528 | 804 | (34 | ) | (34 | ) | |||||||
Interest expense | (751 | ) | (692 | ) | 9 | 5 | |||||||
Other financial income and expense | (2 | ) | 64 | (103 | ) | (140 | ) | ||||||
Income before taxes | 10,773 | 11,702 | (8 | ) | (2 | ) | |||||||
Taxes | (1,528 | ) | (1,733 | ) | (12 | ) | (6 | ) | |||||
Group net income | 9,245 | 9,969 | (7 | ) | (2 | ) | |||||||
Attributable to: | |||||||||||||
Shareholders of Novartis AG | 9,113 | 9,794 | (7 | ) | (1 | ) | |||||||
Non-controlling interests | 132 | 175 | (25 | ) | (25 | ) | |||||||
Basic EPS ($) | 3.83 | 4.28 | (11 | ) | (5 | ) |
nm = not meaningful
Core Operating Income key figures(1)
| Year ended Dec 31, 2014 | Year ended Dec 31, 2013 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Core gross profit from continuing operations | 38,821 | 38,792 | 0 | 3 | |||||||||
Marketing & Sales | (12,355 | ) | (12,611 | ) | 2 | 0 | |||||||
Research & Development | (8,723 | ) | (8,885 | ) | 2 | 2 | |||||||
General & Administration | (2,552 | ) | (2,578 | ) | 1 | 0 | |||||||
Other income | 563 | 648 | (13 | ) | (13 | ) | |||||||
Other expense | (1,281 | ) | (1,159 | ) | (11 | ) | (10 | ) | |||||
| | | | | | | | | | | | | |
Core operating income from continuing operations | 14,473 | 14,207 | 2 | 7 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
as % of net sales | 27.7 | % | 27.4 | % |
The adjustments made to operating income to arrive at core operating income from continuing operations amounted to $3.4 billion (2013: $3.2 billion). These adjustments include amortization of intangible assets of $2.7 billion; the exceptional non tax deductible US Healthcare Fee levy of $204 million in the year due to a change in regulations; impairment charges of $0.4 billion and net restructuring charges of $0.7 billion. These were partly offset by a $302 million commercial settlement gain; and a $248 million gain from selling a Novartis Venture Fund investment.
Excluding these items, core operating income from continuing operations increased 2% (+7% cc) to $14.5 billion. Core operating income margin in constant currencies increased 1.1 percentage points; currency had a negative impact of 0.8 percentage points, resulting in a net increase of 0.3 percentage points to 27.7% of net sales. Additional comments on the changes in the core operating income by division, see "—Non IFRS Measures as Defined by Novartis".
The following table provides an overview of core operating income by segment:
| Year ended Dec 31, 2014 | % of net sales | Year ended Dec 31, 2013 | % of net sales | Change in $ | Change in constant currencies | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | | $ m | | % | % | |||||||||||||
Pharmaceuticals | 9,514 | 29.9 | 9,523 | 29.6 | 0 | 4 | |||||||||||||
Alcon | 3,811 | 35.2 | 3,694 | 35.2 | 3 | 8 | |||||||||||||
Sandoz | 1,571 | 16.4 | 1,541 | 16.8 | 2 | 7 | |||||||||||||
Corporate | (423 | ) | (551 | ) | 23 | 25 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Core operating income from continuing operations | 14,473 | 27.7 | 14,207 | 27.4 | 2 | 7 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Operating income was $8.5 billion (–10%,–5% cc), with the decline mainly due to restructuring and other exceptional charges.
Core operating income, which excludes certain exceptional items, was $9.5 billion (0%, +4% cc). Core operating income margin improved by 0.3 percentage points to 29.9% of net sales, despite the negative effect of 0.8 percentage points of changing currency exchange rates.
Research and development
Research and development for continuing operations totaled $9.1 billion, in line with the prior-year level. As shown in the following table, in the Pharmaceuticals Division, Research and Exploratory Development expenditure amounted to $2.7 billion in 2014, up by 2% from 2013, and Confirmatory Development expenditures amounted to $4.6 billion, practically unchanged from 2013.
| Year ended Dec 31, 2014 | Year ended Dec 31, 2013 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Research and Exploratory Development | (2,724 | ) | (2,664 | ) | (2 | ) | (2 | ) | |||||
Confirmatory Development | (4,607 | ) | (4,578 | ) | (1 | ) | (1 | ) | |||||
| | | | | | | | | | | | | |
Total Pharmaceuticals Division Research and Development expense | (7,331 | ) | (7,242 | ) | (1 | ) | (1 | ) | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
as % of Pharmaceuticals net sales to third parties | 23.1 | 22.5 | |||||||||||
| | | | | | | | | | | | | |
Core Research and Exploratory Development(1) | (2,654 | ) | (2,611 | ) | (2 | ) | (1 | ) | |||||
Core Confirmatory Development(1) | (4,343 | ) | (4,550 | ) | 5 | 4 | |||||||
| | | | | | | | | | | | | |
Total Core Pharmaceuticals Division Research and Development expense | (6,997 | ) | (7,161 | ) | 2 | 2 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
as % of Pharmaceuticals net sales to third parties | 22.0 | % | 22.2 | % |
Operating income increased 30% (+43% cc) to $1.6 billion, driven by operational performance, as well as the ending in 2013 of charges related to the acquisition of Alcon.
Core operating income, which excludes certain items, rose +3% (+8% cc) to $3.8 billion. Core operating income margin increased 0.6 percentage points in constant currencies, however that was fully offset by a 0.6 percentage point negative currency effect, resulting in a stable core margin of 35.2% of sales.
Operating income increased 6% (+14% cc) to $1.1 billion. Core operating income, which excludes certain exceptional items, was $1.6 billion (+2%, +7% cc), impacted by high price erosion. Core operating income margin decreased by 0.4 percentage points to 16.4% of net sales, mainly due to a negative impact of 0.5 percentage points due to changing currency exchange rates.
Corporate Income and Expense, Net
Corporate income and expense of continuing operations amounted to a net expense of $67 million in 2014 compared to $653 million in the prior year, mainly due to a $456 million increase in other revenues principally related to the retained Vaccines intellectual property rights, including a $302 million commercial settlement gain and a $248 million gain from the sale of a Novartis Venture Fund investment.
Non-Operating Income and Expense
| Year ended Dec 31, 2011 | Year ended Dec 31, 2010 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Core operating income | 15,909 | 14,006 | 14 | 16 | |||||||||
Income from associated companies | 779 | 1,041 | (25 | ) | (28 | ) | |||||||
Interest expense | (751 | ) | (692 | ) | 9 | 5 | |||||||
Other financial income and expense | (2 | ) | 64 | (103 | ) | (140 | ) | ||||||
Core income before taxes | 15,935 | 14,419 | 11 | 13 | |||||||||
Taxes | (2,445 | ) | (2,390 | ) | 2 | 5 | |||||||
Core net income | 13,490 | 12,029 | 12 | 15 | |||||||||
Attributable to: | |||||||||||||
Shareholders of Novartis AG | 13,273 | 11,767 | 13 | 16 | |||||||||
Non-controlling interests | 217 | 262 | (17 | ) | (17 | ) | |||||||
Core basic EPS ($) | 5.57 | 5.15 | 8 | 11 |
Income from Associated Companies
Associated companies are accounted for using the equity method generally when Novartis holds between 20% and 50% of the voting shares of these companies, or where Novartis has otherwise significant influence over them. Income from associated companies is mainly derived from the Group's investments in Roche Holding AG and, prior to August 25, 2010, Alcon.
The income from associated companies fell from $804 million in 2010 to $528 million in 2011, as since August 25, 2010 Alcon, Inc. is fully consolidated and no longer accounted for as an associated company.
The following is a summarytable provides an overview of the individual components included in thenon-operating income from associated companies:and expense:
| 2011 | 2010 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Share of estimated Roche reported net income | 702 | 648 | |||||
Restructuring impact (2011 includes $41 million from 2010; 2010 includes $43 million from 2009) | (41 | ) | (132 | ) | |||
Amortization of intangible assets | (162 | ) | (136 | ) | |||
Net income effect from Roche | 499 | 380 | |||||
Share of Alcon net income | 385 | ||||||
Catch-up for actual Alcon previous year net income | 2 | ||||||
Revaluation of initial 25% interest to fair value | 378 | ||||||
Recycling of losses accumulated in comprehensive income from July 7, 2008 to August 25, 2010 | (43 | ) | |||||
Amortization of intangible assets | (289 | ) | |||||
Net income effect from Alcon (in 2010 up to August 25, 2010) | 433 | ||||||
Net income from other associated companies | 29 | (9 | ) | ||||
Income from associated companies | 528 | 804 | |||||
| Year ended Dec 31, 2014 | Year ended Dec 31, 2013 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Operating income from continuing operations | 11,089 | 10,983 | 1 | 7 | |||||||||
Income from associated companies | 1,918 | 599 | 220 | 221 | |||||||||
Interest expense | (704 | ) | (683 | ) | (3 | ) | (6 | ) | |||||
Other financial income and expense | (31 | ) | (92 | ) | 66 | 31 | |||||||
| | | | | | | | | | | | | |
Income before taxes from continuing operations | 12,272 | 10,807 | 14 | 19 | |||||||||
Taxes | (1,545 | ) | (1,498 | ) | (3 | ) | (8 | ) | |||||
| | | | | | | | | | | | | |
Net income from continuing operations | 10,727 | 9,309 | 15 | 21 | |||||||||
Net loss from discontinued operations | (447 | ) | (17 | ) | nm | nm | |||||||
| | | | | | | | | | | | | |
Net income | 10,280 | 9,292 | 11 | 17 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Basic EPS ($) from continuing operations | 4.39 | 3.76 | 17 | 22 | |||||||||
Basic EPS ($) from discontinued operations | (0.18 | ) | 0.00 | nm | nm | ||||||||
| | | | | | | | | | | | | |
Total basic EPS ($) | 4.21 | 3.76 | 12 | 18 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following table provides an overview of core non-operating income and expense:
| Year ended Dec 31, 2014 | Year ended Dec 31, 2013 | Change in $ | Change in constant currencies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | % | |||||||||
Core operating income from continuing operations | 14,473 | 14,207 | 2 | 7 | |||||||||
Income from associated companies | 943 | 876 | 8 | 8 | |||||||||
Interest expense | (704 | ) | (683 | ) | (3 | ) | (6 | ) | |||||
Other financial income and expense | (31 | ) | (48 | ) | 35 | 31 | |||||||
| | | | | | | | | | | | | |
Core income before taxes from continuing operations | 14,681 | 14,352 | 2 | 7 | |||||||||
Taxes | (2,028 | ) | (2,057 | ) | 1 | (3 | ) | ||||||
| | | | | | | | | | | | | |
Core net income from continuing operations | 12,653 | 12,295 | 3 | 8 | |||||||||
Core net income from discontinued operations | 102 | 238 | (57 | ) | (34 | ) | |||||||
| | | | | | | | | | | | | |
Core net income | 12,755 | 12,533 | 2 | 7 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Core basic EPS ($) from continuing operations | 5.19 | 4.99 | 4 | 9 | |||||||||
Core basic EPS ($) from discontinued operations | 0.04 | 0.10 | nm | nm | |||||||||
| | | | | | | | | | | | | |
Core basic EPS ($) | 5.23 | 5.09 | 3 | 8 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
nm = not meaningful
Income from associated companies
Income from associated companies from continuing operations amounted to $1.9 billion in 2014, compared to $599 million in 2013. The Group's 33.3% interest in Roche's votingincrease was mainly due to the gains recognized on the sale of shares of LTS Lohmann Therapie-Systeme AG, Germany, (LTS) and on the sale of the shares of Idenix Pharmaceuticals, Inc., US, (Idenix) which represents a 6.3% interest in Roche's total equity, generatedamounted to $421 million and $812 million, respectively. An additional income of $499$64 million was recorded on investments in 2011, upassociated companies held by the Novartis Venture Funds, which have been accounted at fair value from $380 million in 2010.January 1, 2014 onwards, consistent with other investments held by these Funds, instead of using the equity method of accounting. The 2011 contribution reflects an estimated $702 million share of Roche's net income in 2011. This contribution, however, was reduced by $162 million for the amortization of intangible assets arising from the allocationinvestment in Roche of $599 million was approximately in line with the purchase price paid by Novartis for this investment to Roche's intangible assets and an exceptional charge of $41 million taken in 2011 as part of Roche's restructuring charges.prior-year level.
The 2010 result from Alcon includes the net income up to August 25, 2010 of $385 million and a positive prior-year adjustment of $2 million which were reduced by $289 million for the amortization of intangible assets.
Adjusting for the exceptional items in both years, coreCore income from associated companies decreased 25%from continuing operations increased to $779 million.
A survey of analyst estimates is used to estimate the Group's share of net income in Roche. Any differences between these estimates and actual results will be adjusted$943 million from $876 million in the 2012 consolidated financial statements.prior-year period.
Interest Expense and other Financial Income/Expensefinancial income and expense
In 2011, interestInterest expense from continuing operations increased by 9%slightly to $704 million from $692$683 million to $751 million.in the prior year. Other financial income/income and expense wasamounted to a net expense of $2$31 million, downcompared to $92 million in 2013, mainly as a result of hedging gains.
Taxes
The tax rate for continuing operations in the full year of 2014 decreased to 12.6% from a net income of $64 million13.9% in the prior year, mainly due to lower earningsthe impact of taxes on the various exceptional gains which occurred during the year.
The core tax rate from investments as a result of thecontinuing operations decreased average liquidity. The currency result remained stable.slightly to 13.8% from 14.3% in 2013.
TaxesNet Income
Tax expenses in 2011 were $1.5Net income from continuing operations of $10.7 billion a 12% (6%was up 15% (+21% cc) decrease from 2010. The tax rate (taxes as a percentage, growing ahead of operating income before taxes) decreased to 14.2% in 2011 from 14.8% in 2010 mainly due to higher income from associated companies, which included a gain of $0.8 billion from the favorable impactsale of the Alcon, Inc. mergershares of Idenix to Merck & Co., and as a resultgain of $0.4 billion from the ability to undertake a relateddivestment of the shareholding in LTS, partly offset by an increase in tax structure reorganization. For the same reason the core tax rate (taxes as percentageexpense.
Core net income from continuing operations of $12.7 billion was up 3% (+8% cc), growing slightly ahead of core operating income before taxes) decreased to 15.3% in 2011(2%, 7% cc).
EPS
Earnings per share (EPS) from 16.6% in 2010. The effective tax rate is different to the expected tax ratecontinuing operations was $4.39 per share, up 17% (+22% cc), growing ahead of net income due to various adjustments madelower average outstanding shares and lower minority interests.
Core EPS from continuing operations was $5.19 (+4%, +9% cc), growing ahead of core net income due to the IFRS results to arrive at taxable income. For further information on the main elements contributing to the difference, see "—Core Results as Defined by Novartis"lower average outstanding shares and "Item 18. Financial Statements—note 6".lower minority interests.
| Year ended Dec 31, 2014 | Year ended Dec 31, 2013 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Net sales to third parties from discontinued operations | 5,816 | 6,051 | |||||
Operating loss from discontinued operations | (353 | ) | (73 | ) | |||
Net loss from discontinued operations | (447 | ) | (17 | ) | |||
Attributable to: | |||||||
Shareholders of Novartis AG | (444 | ) | (14 | ) | |||
Non-controlling interests | (3 | ) | (3 | ) | |||
Basic earnings per share ($) from discontinued operations | (0.18 | ) | 0 | ||||
Free cash flow from discontinued operations | (172 | ) | 424 |
Net sales to third parties of the discontinued operations in 2014 declined –4% (–1% in cc) to $5.8 billion from $6.1 billion in 2013.
Operating loss from discontinued operations amounted to $353 million in 2014 compared to $73 million in 2013. The operating loss of $353 million in 2014 included an exceptional impairment charge of $1.1 billion for the influenza vaccines business which was partially offset by an exceptional pre-tax gain of $0.9 billion from the divestment of our blood transfusion diagnostics unit.
Net loss from discontinued operations amounted to $447 million in 2014 compared to a net loss $17 million in 2013.
For the total Group, net income amounted to $10.3 billion compared to $9.3 billion in 2013., impacted by the exceptional divestment gains included in the net income. Basic earnings per share increased to $4.21 from $3.76.
FACTORS AFFECTING COMPARABILITY OF YEAR-ON-YEAR RESULTS OF OPERATIONS
Significant transactions in 2015
The comparability of the year-on-year results of our operations for the total Group can be significantly affected by acquisitions and divestments. The transactions of significance during 2015 and 2014 are mentioned below.
Acquisitions and Divestments in 2015
PORTFOLIO TRANSFORMATION TRANSACTIONS
Transaction with Eli Lilly and Company
On January 1, 2015, Novartis closed its transaction with Eli Lilly and Company, USA (Lilly) announced in April 2014 to divest its Animal Health business for $5.4 billion in cash. This resulted in a pre-tax gain of $4.6 billion which is recorded in operating income from discontinued operations.
Transactions with GlaxoSmithKline plc
On March 2, 2015, Novartis closed its transactions with GlaxoSmithKline plc, Great Britain (GSK) announced in April 2014 with the following consequences:
Pharmaceuticals—Acquisition of GSK oncology products
Novartis acquired GSK's oncology products and certain related assets for an aggregate cash consideration of $16.0 billion. Up to $1.5 billion of this cash consideration at the acquisition date is contingent on certain development milestones. The fair value of this potentially refundable consideration is $0.1 billion. In addition, under the terms of the agreement, Novartis is granted a right of first negotiation over the co-development or commercialization of GSK's current and future oncology R&D pipeline, excluding oncology vaccines. The right of first negotiation is for a period of 12.5 years from the acquisition closing date. The purchase price allocation of the fair value of the consideration of $15.9 billion resulted in net identified assets of $13.5 billion and goodwill of $2.4 billion. Since the acquisition the business generated net sales of $1.8 billion. Management estimates net sales for the entire year 2015 would have amounted to $2.1 billion had the Oncology products been acquired at the beginning of the 2015 reporting period. The net results from operations on a reported basis since the acquisition date were not significant, mainly due to amortization of intangible assets.
Vaccines—Divestment
Novartis has divested its Vaccines business (excluding its Vaccines influenza business) to GSK for up to $7.1 billion, plus royalties. The $7.1 billion consists of $5.25 billion paid at closing and up to $1.8 billion in future milestone payments. The fair value of the contingent future milestones and royalties is $1.0 billion, resulting in a fair value of consideration received of $6.25 billion. Included in this amount is a $450 million milestone payment received in late March 2015. The sale of this business resulted in a pre-tax gain of $2.8 billion which is recorded in operating income from discontinued operations.
Novartis's Vaccines influenza business is excluded from the GSK Vaccines business acquisition. However, GSK entered into a future option arrangement with Novartis in relation to the Vaccines influenza business, pursuant to which Novartis could have unilaterally required GSK to acquire the entire or certain parts of its Vaccines influenza business for consideration of up to $250 million (the Influenza Put Option) if the divestment to CSL Limited, Australia (CSL), discussed below, had not been completed. The option period was 18 months from the closing date of the GSK transaction, but terminated with the sale of the Vaccines influenza business to CSL on July 31, 2015. Novartis paid GSK a fee of $5 million in consideration for the grant of the Influenza Put Option.
Consumer Health—Combination of Novartis OTC with GSK Consumer Healthcare in a joint venture
Novartis and GSK agreed to create a combined consumer healthcare business through a joint venture between Novartis OTC and GSK Consumer Healthcare. On March 2, 2015, a new entity was formed via contribution of businesses from both Novartis and GSK. Novartis has a 36.5% interest in the newly created entity. Novartis has valued the contribution of 63.5% of its OTC Division in exchange for 36.5% of the GSK Consumer Healthcare business at fair value.
Based on the estimates of the fair values exchanged, an investment in an associated company of $7.6 billion was recorded. The resulting pre-tax gain, net of transaction-related costs, of $5.9 billion is recorded in operating income from discontinued operations.
Novartis has four of eleven seats on the joint venture entity's Board of Directors. Furthermore, Novartis has customary minority rights and also exit rights at a pre-defined, market-based pricing mechanism.
The investment is accounted for using the equity method of accounting using estimated results for the last quarter of the year. Any differences between this estimate and actual results, when available, will be adjusted in the Group's 2016 consolidated financial statements.
Additional GSK related cost
The GSK transaction resulted in $0.6 billion of additional transaction-related costs that were expensed.
On October 26, 2014, Novartis entered into an agreement with CSL to sell its Vaccines influenza business to CSL for $275 million. Entering into the separate divestment agreement with CSL resulted in the Vaccines influenza business being classified as a separate disposal group consisting of a group of cash generating units within the Vaccines Division, requiring the performance of a separate valuation of the Vaccines influenza business net assets. This triggered the recognition of an exceptional impairment charge in 2014 of $1.1 billion, as the estimated net book value of the Vaccines influenza business net assets was above the $275 million consideration.
The transaction with CSL was completed on July 31, 2015, resulting in a partial reversal of the impairment recorded in 2014 in the amount of $0.1 billion, which is included in operating income from discontinued operations.
Other significant Transactions in 2015
Pharmaceuticals—Acquisition of Spinifex Pharmaceuticals, Inc.
On June 29, 2015 Novartis entered into an agreement to acquire Spinifex Pharmaceuticals, Inc. (Spinifex), a US and Australian-based, privately held development stage company, focused on developing a peripheral approach to treat neuropathic pain. The transaction closed on July 24, 2015, and the total purchase consideration was $312 million. The amount consisted of an initial cash payment of $196 million and the net present value of the contingent consideration of $116 million due to previous Spinifex shareholders, which they are eligible to receive upon achievement of specified development and commercialization milestones. The purchase price allocation resulted in net identifiable assets of $263 million and goodwill of $49 million. Results of operations since the date of acquisition were not material.
Pharmaceuticals—Acquisition Admune Therapeutics LLC.
On October 16, 2015, Novartis acquired Admune Therapeutics LLC (Admune), a US-based, privately held company, broadening Novartis' pipeline of cancer immunotherapies. The total purchase consideration amounted to $258 million. This amount consists of an initial cash payment of $140 million and the net present value of the contingent consideration of $118 million due to Admune's previous owners, which they are eligible to receive upon the achievement of specified development and commercialization milestones. The purchase price allocation resulted in net identifiable assets of $258 million. No goodwill was recognized. Results of operations since the date of acquisition were not material.
Acquisitions and Divestments in 2014
Vaccines—Divestment of blood transfusion diagnostics unit
On January 9, 2014, Novartis completed the divestment of its blood transfusion diagnostics unit to the Spanish company Grifols S.A. for $1.7 billion in cash. The pre-tax gain on this transaction was approximately $0.9 billion and was recorded in operating income from discontinued operations.
Pharmaceuticals—Acquisition of CoStim Pharmaceuticals, Inc.
On February 17, 2014, Novartis acquired all of the outstanding shares of CoStim Pharmaceuticals Inc., a Cambridge, Massachusetts, US-based, privately held biotechnology company focused on harnessing the immune system to eliminate immune-blocking signals from cancer, for a total purchase consideration of $248 million (excluding cash acquired). This amount consists of an initial cash payment and the net present value of contingent consideration of $153 million due to previous CoStim shareholders, which they are eligible to receive upon the achievement of specified development and commercialization milestones. The purchase price allocation resulted in net identified assets of $152 million (excluding cash acquired) and goodwill of $96 million. Results of operations since the date of acquisition were not material.
Pharmaceuticals—Divestment of Idenix Pharmaceuticals, Inc. (Idenix) Shareholding
On August 5, 2014, Merck & Co., USA completed a tender offer for Idenix. As a result, Novartis divested its 22% shareholding in Idenix and realized a gain of approximately $0.8 billion which was recorded in income from associated companies.
Alcon—Acquisition of WaveTec Vision Systems, Inc. (WaveTec)
On October 16, 2014, Alcon acquired all of the outstanding shares of WaveTec, a privately held company, for $350 million in cash. The purchase price allocation resulted in net identified assets of $180 million and goodwill of $170 million. Results of operations since the date of acquisition were not material.
Corporate—Divestment of LTS Lohmann Therapie-Systeme AG (LTS) Shareholding
On November 5, 2014, Novartis divested its 43% shareholding in LTS and realized a gain of approximately $0.4 billion which was recorded in income from associated companies.
Classification as continuing operations and discontinued operations
Following the April 22, 2014 announcement of the portfolio transformation transactions with Lilly and GSK, as described above, Novartis reported the Group's financial statements for the current and prior years as "continuing operations" and "discontinued operations".
Continuing operations comprise the activities of the Pharmaceuticals, Alcon and Sandoz Divisions and the continuing Corporate activities. Continuing operations also include the results from Oncology assets acquired from GSK and the estimated results from the 36.5% interest in the GSK/Novartis consumer healthcare joint venture for the period from March 2, 2015 to December 31, 2015 (the latter reported as part of income from associated companies).
Discontinued operations include in 2015 the operational results from the Vaccines influenza business, prior to its divestment to CSL Limited on July 31, 2015, as well as results from the Vaccines non-influenza business and OTC business until March 2, 2015. Operational results from the Animal Health business, which was divested on January 1, 2015, include only the divestment gain.
Discontinued operations in 2015 also include the exceptional pre-tax gain of $12.7 billion from the divestment of Animal Health ($4.6 billion) and the transactions with GSK ($2.8 billion for the Vaccines non-influenza business and $5.9 billion arising from the contribution of Novartis OTC into the GSK Consumer Healthcare joint venture). In addition the GSK transactions resulted in $0.6 billion of additional transaction-related expenses reported in Corporate discontinued operations.
In 2014, discontinued operations include the results of the Vaccines influenza and non-influenza business, OTC and Animal Health for the full year. Results also included an exceptional impairment
charge of $1.1 billion for the Vaccines influenza business, which was reduced by $0.1 billion in 2015 upon closing of the CSL transaction and an exceptional pre-tax gain of $0.9 billion arising from the $1.7 billion divestment of the blood transfusion diagnostics unit to Grifols S.A., completed on January 9, 2014.
Excluded from discontinued operations are certain intellectual property rights and related other revenues of the Vaccines Division, which are retained by Novartis and are now reported under Corporate activities.
As required by IFRS, results of the discontinued operations exclude any further depreciation and amortization related to discontinued operations from the date of the portfolio transformation announcement of April 22, 2014.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our principalsignificant accounting policies are set out in note 1 to the Group's consolidated financial statements,"Item 18. Financial Statements—Note 1", which are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Given the uncertainties inherent in our business activities, we must make certain estimates and assumptions that require difficult, subjective and complex judgments. Because of uncertainties inherent in such judgments, actual outcomes and results may differ from our assumptions and estimates, which could materially affect the Group's consolidated financial statements. Application of the following accounting policies requires certain assumptions and estimates that have the potential for the most significant impact on our consolidated financial statements.
As is typical in the pharmaceuticals industry, our gross sales are subject to various deductions which are composed primarily of rebates and discounts to retail customers, government agencies, wholesalers, health insurance companies and managed healthcare organizations. These deductions represent estimates of the related obligations, requiring the use of judgment when estimating the effect of these sales
deductions on gross sales for a reporting period. These adjustments are deducted from gross sales to arrive at net sales.
The following summarizes the nature of some of these deductions and how the deduction is estimated. After recording these, net sales represent our best estimate of the cash that we expect to ultimately collect. The United StatesUS market has the most complex arrangements related to revenue deductions.
United States specific healthcare plans and program rebates
The United States Medicaid Drug Rebate Program is administered by State governments using State and Federal funds to provide assistance to certain vulnerable and needy individuals and families. Calculating the rebates to be paid related to this Program involves interpreting relevant regulations, which are subject to challenge or change in interpretative guidance by government authorities. Provisions for estimating Medicaid rebates are calculated using a combination of historical experience, product and population growth, product price increases and the mix of contracts and specific terms in the individual State agreements. These provisions are adjusted based on established processes and experiences from re-filingfiling data with individual States.
The United States Federal Medicare program,Program, which funds healthcare benefits to individuals age 65 or older, provides prescription drug benefits under Part D of the program. This benefit is provided through private prescription drug plans. Provisions for estimating Medicare Part D rebates are calculated based on the terms of individual plan agreements, product sales and population growth, product price increases and the mix of contracts, and are adjusted periodically.
We offer rebates to key managed healthcare plans in an effort to sustain and increase market share forsales of our products. These rebate programs provide payors a rebate after they attain certain performance parameters related to product purchases, formulary status or pre-established market share milestones relative to competitors.have demonstrated they have met all terms and conditions set forth in their contract with us. These rebates are estimated based on the terms of individual agreements, historical experience and projected product growth rates. We adjust provisions related to these rebates periodically to reflect actual experience.
There is often a time lag of several months between us recording the revenue deductions and our final accounting for them.
Non-United States specific healthcare plans and program rebates
In certain countries other than the United StatesUS, we provide rebates to governments and other entities. These rebates are often mandated by laws or government regulations.
In several countries we enter into innovative pay-for-performance arrangements with certain healthcare providers, especially in Europe and Australia. Under these agreements, we may be required to make refunds to the healthcare providers or to provide additional medicines free of charge if anticipated treatment outcomes do not meet predefined targets. Potential refunds and the delivery of additional medicines at no cost are estimated and recorded as a deduction of revenue at the time the related revenues are recorded. Estimates are based on historical experience and clinical data. In cases where historical experience and clinical data are not sufficient for a reliable estimation of the outcome, revenue recognition would be deferred until such history would be available. In addition, we offer global patient assistant programs.
There is often a time lag of several months between us recording the revenue deductions and our final accounting for them.
Non-healthcare plans and program rebates, returns and other deductions
Charge-backs occur where our subsidiaries have arrangements with indirect customers to sell products at prices that are lower than the price charged to wholesalers. A chargebackcharge-back represents the difference between the invoice price to the wholesaler and the indirect customer's contract price. We account for vendor charge-backs by reducing revenue by an amount equal to our estimate of charge-backs attributable to a sale and they are generally settled within one to three months of incurring the liability. Provisions for estimated charge-backs are calculated using a combination of factors such as historical experience, product growth rates, payments, level of inventory in the distribution channel, the terms of individual agreements and our estimate of the claims processing time lag.
We offer rebates to purchasing organizations and other direct and indirect customers to sustain and increase market share for our products. Since rebates are contractually agreed upon, rebates are estimated based on the terms of the individual agreements, historical experience, and projected product growth rates.
When we sell a product providing a customer the right to return a product,it, we record a provision for estimated sales returns based on our sales returns policy and historical rates. Other factors considered include actual product recalls, expected marketplace changes, and the remaining shelf life of the product, and the expected entry of generic products. In 2012,2015, sales returns amounted to approximately 1% of gross product sales. If sufficient experience is not available, sales are only recorded based on evidence of product consumption or when the right of return has expired.
We enter into distribution service agreements with major wholesalers, which provide a financial disincentive for the wholesalers to purchase product quantities exceedingin excess of current customer demand. Where possible, we adjust shipping patterns for our products to maintain wholesalers' inventories level consistent with underlying patient demand.
We offer cash discounts to customers to encourage prompt payment. Cash discounts are estimated and accrued at the time of invoicing and deducted from revenue.
Following a decrease in the price of a product, we generally grant customers a "shelf stock adjustment" for a customer's existing inventory for the involvedrelevant product. Provisions for shelf stock adjustments, which are primarily relevant within the Sandoz Division, are determined at the time of the price decline or at the point of sale, if the impact of a price decline on the products sold can be reasonably estimated based on the customer's inventory levels of the relevant product.
Other sales discounts, such as consumer coupons and co-pay discount cards, are offered in some markets. TheseThe estimated amount of these discounts are recorded at the time of sale, or when the coupon is issued, and are estimated utilizing historical experience and the specific terms for each program. If a discount for a probable future transaction is offered as part of a sales transaction then an appropriate portion of revenue is deferred to cover this estimated obligation.
We adjust provisions for revenue deductions periodically to reflect actual experience. To evaluate the adequacy of provision balances, we use internal and external estimates of the level of inventory in the distribution channel, actual claims data received and the time lag for processing rebate claims. Management also estimates the level of inventory of the relevant product held by retailers and in transit. External data sources include reports of wholesalers and third-party market data purchased by Novartis.
The following table shows the worldwide extent of our revenue deductions provisions and related payment experiences:experiences for the Pharmaceuticals, Alcon and Sandoz divisions:
PROVISIONS FOR REVENUE DEDUCTIONS
| | | | | | Change in provisions offset against gross trade receivables | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Effect of currency translation and business combinations | | Income statement charge | | |||||||||||||||||
| Revenue deductions provisions at January 1 | | Revenue deductions provisions at December 31 | |||||||||||||||||||
| Payments/ utilizations | Adjustments of prior years | Current year | |||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||||
2012 | ||||||||||||||||||||||
US specific healthcare plans and program rebates | 1,440 | 17 | (3,191 | ) | (46 | ) | 3,222 | 1,442 | ||||||||||||||
Non-US specific healthcare plans and program rebates | 766 | 15 | (1,423 | ) | 94 | 1,514 | 966 | |||||||||||||||
Non-healthcare plans and program related rebates, returns and other deductions | 1,536 | 176 | (7,324 | ) | (143 | ) | 7,509 | (90 | ) | 1,664 | ||||||||||||
Total 2012 | 3,742 | 208 | (11,938 | ) | (95 | ) | 12,245 | (90 | ) | 4,072 | ||||||||||||
2011 | ||||||||||||||||||||||
US specific healthcare plans and program rebates | 1,162 | (2,860 | ) | (19 | ) | 3,157 | 1,440 | |||||||||||||||
Non-US specific healthcare plans and program rebates | 575 | (24 | ) | (1,043 | ) | (23 | ) | 1,281 | 766 | |||||||||||||
Non-healthcare plans and program related rebates, returns and other deductions | 1,360 | (68 | ) | (6,846 | ) | (7 | ) | 7,324 | (227 | ) | 1,536 | |||||||||||
Total 2011 | 3,097 | (92 | ) | (10,749 | ) | (49 | ) | 11,762 | (227 | ) | 3,742 | |||||||||||
2010 | ||||||||||||||||||||||
US specific healthcare plans and program rebates | 755 | 226 | (1,949 | ) | (8 | ) | 2,138 | 1,162 | ||||||||||||||
Non-US specific healthcare plans and program rebates | 455 | (34 | ) | (444 | ) | (9 | ) | 607 | 575 | |||||||||||||
Non-healthcare plans and program related rebates, returns and other deductions | 884 | 163 | (5,779 | ) | (32 | ) | 6,056 | 68 | 1,360 | |||||||||||||
Total 2010 | 2,094 | 355 | (8,172 | ) | (49 | ) | 8,801 | 68 | 3,097 | |||||||||||||
| | | | Income statement charge | | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Effect of currency translation and business combinations | | Change in provisions offset against gross trade receivables | | |||||||||||||||||
| Revenue deductions provisions at January 1 | | Revenue deductions provisions at December 31 | |||||||||||||||||||
| Payments/ utilizations | Adjustments of prior years | Current year | |||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||||
2015 | ||||||||||||||||||||||
US-specific healthcare plans and program rebates | 1,097 | (2,823 | ) | (90 | ) | 2,981 | 1,165 | |||||||||||||||
Non-US-specific healthcare plans and program rebates | 1,015 | (109 | ) | (1,716 | ) | (3 | ) | 1,846 | (9 | ) | 1,024 | |||||||||||
Non-healthcare plans and program-related rebates, returns and other deductions | 1,421 | (69 | ) | (10,679 | ) | (124 | ) | 10,993 | 59 | 1,601 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total continuing operations 2015 | 3,533 | (178 | ) | (15,218 | ) | (217 | ) | 15,820 | 50 | 3,790 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
2014 | ||||||||||||||||||||||
US-specific healthcare plans and program rebates | 1,376 | (3,118 | ) | (186 | ) | 3,025 | 1,097 | |||||||||||||||
Non-US-specific healthcare plans and program rebates | 1,145 | (124 | ) | (1,743 | ) | (19 | ) | 1,787 | (31 | ) | 1,015 | |||||||||||
Non-healthcare plans and program-related rebates, returns and other deductions | 1,427 | (83 | ) | (9,046 | ) | (52 | ) | 9,564 | (389 | ) | 1,421 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total continuing operations 2014 | 3,948 | (207 | ) | (13,907 | ) | (257 | ) | 14,376 | (420 | ) | 3,533 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
2013 | ||||||||||||||||||||||
US-specific healthcare plans and program rebates | 1,434 | (2,990 | ) | (74 | ) | 3,006 | 1,376 | |||||||||||||||
Non-US-specific healthcare plans and program rebates | 942 | 10 | (1,634 | ) | (45 | ) | 1,935 | (63 | ) | 1,145 | ||||||||||||
Non-healthcare plans and program-related rebates, returns and other deductions | 1,444 | (10 | ) | (7,745 | ) | (34 | ) | 7,934 | (162 | ) | 1,427 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total continuing operations 2013 | 3,820 | 0 | (12,369 | ) | (153 | ) | 12,875 | (225 | ) | 3,948 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
The table below shows the gross to net sales reconciliation for our Pharmaceuticals Division:
GROSS TO NET SALES RECONCILIATION
| Income statement charge | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Charged through revenue deduction provisions | Charged directly without being recorded in revenue deduction provisions | Total | In % of gross sales | |||||||||
| $ m | $ m | $ m | | |||||||||
2012 | |||||||||||||
Pharmaceuticals gross sales subject to deductions | 39,912 | 100.0 | |||||||||||
US specific healthcare plans and program rebates | (2,358 | ) | (2,358 | ) | (5.9 | ) | |||||||
Non-US specific healthcare plans and program rebates | (1,096 | ) | (842 | ) | (1,938 | ) | (4.8 | ) | |||||
Non-healthcare plans and program related rebates, returns and other deductions | (1,579 | ) | (1,884 | ) | (3,463 | ) | (8.7 | ) | |||||
Total Pharmaceuticals gross to net sales adjustments | (5,033 | ) | (2,726 | ) | (7,759 | ) | (19.4 | ) | |||||
Pharmaceuticals net sales 2012 | 32,153 | 80.6 | |||||||||||
2011 | |||||||||||||
Pharmaceuticals gross sales subject to deductions | 40,004 | 100.0 | |||||||||||
US specific healthcare plans and program rebates | (2,424 | ) | (2,424 | ) | (6.0 | ) | |||||||
Non-US specific healthcare plans and program rebates | (801 | ) | (408 | ) | (1,209 | ) | (3.0 | ) | |||||
Non-healthcare plans and program related rebates, returns and other deductions | (1,631 | ) | (2,232 | ) | (3,863 | ) | (9.7 | ) | |||||
Total Pharmaceuticals gross to net sales adjustments | (4,856 | ) | (2,640 | ) | (7,496 | ) | (18.7 | ) | |||||
Pharmaceuticals net sales 2011 | 32,508 | 81.3 | |||||||||||
2010 | |||||||||||||
Pharmaceuticals gross sales subject to deductions | 36,400 | 100.0 | |||||||||||
US specific healthcare plans and program rebates | (2,029 | ) | (2,029 | ) | (5.6 | ) | |||||||
Non-US specific healthcare plans and program rebates | (298 | ) | (263 | ) | (561 | ) | (1.5 | ) | |||||
Non-healthcare plans and program related rebates, returns and other deductions | (1,585 | ) | (1,919 | ) | (3,504 | ) | (9.6 | ) | |||||
Total Pharmaceuticals gross to net sales adjustments | (3,912 | ) | (2,182 | ) | (6,094 | ) | (16.7 | ) | |||||
Pharmaceuticals net sales 2010 | 30,306 | 83.3 | |||||||||||
| Income statement charge | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Charged through revenue deduction provisions | Charged directly without being recorded in revenue deduction provisions | Total | In % of gross sales | |||||||||
| $ m | $ m | $ m | | |||||||||
2015 | |||||||||||||
Pharmaceuticals gross sales subject to deductions | 37,853 | 100.0 | |||||||||||
| | | | | | | | | | | | | |
US-specific healthcare plans and program rebates | (1,422 | ) | (1,422 | ) | (3.8 | ) | |||||||
Non-US-specific healthcare plans and program rebates | (1,150 | ) | (779 | ) | (1,929 | ) | (5.1 | ) | |||||
Non-healthcare plans and program-related rebates, returns and other deductions | (2,241 | ) | (1,816 | ) | (4,057 | ) | (10.7 | ) | |||||
| | | | | | | | | | | | | |
Total Pharmaceuticals gross to net sales adjustments | (4,813 | ) | (2,595 | ) | (7,408 | ) | (19.6 | ) | |||||
| | | | | | | | | | | | | |
Pharmaceuticals net sales 2015 | 30,445 | 80.4 | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
2014 | |||||||||||||
Pharmaceuticals gross sales subject to deductions | 39,529 | 100.0 | |||||||||||
| | | | | | | | | | | | | |
US-specific healthcare plans and program rebates | (1,800 | ) | (1,800 | ) | (4.6 | ) | |||||||
Non-US-specific healthcare plans and program rebates | (1,200 | ) | (877 | ) | (2,077 | ) | (5.3 | ) | |||||
Non-healthcare plans and program-related rebates, returns and other deductions | (1,873 | ) | (1,989 | ) | (3,862 | ) | (9.8 | ) | |||||
| | | | | | | | | | | | | |
Total Pharmaceuticals gross to net sales adjustments | (4,873 | ) | (2,866 | ) | (7,739 | ) | (19.6 | ) | |||||
| | | | | | | | | | | | | |
Pharmaceuticals net sales 2014 | 31,790 | 80.4 | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
2013 | |||||||||||||
Pharmaceuticals gross sales subject to deductions | 40,188 | 100.0 | |||||||||||
| | | | | | | | | | | | | |
US-specific healthcare plans and program rebates | (2,125 | ) | (2,125 | ) | (5.3 | ) | |||||||
Non-US-specific healthcare plans and program rebates | (1,368 | ) | (802 | ) | (2,170 | ) | (5.4 | ) | |||||
Non-healthcare plans and program-related rebates, returns and other deductions | (1,731 | ) | (1,948 | ) | (3,679 | ) | (9.2 | ) | |||||
| | | | | | | | | | | | | |
Total Pharmaceuticals gross to net sales adjustments | (5,224 | ) | (2,750 | ) | (7,974 | ) | (19.8 | ) | |||||
| | | | | | | | | | | | | |
Pharmaceuticals net sales 2013 | 32,214 | 80.2 | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Impairment of Goodwill, Intangible Assets and Property, Plant and Equipment
We review long-lived intangible assets and property, plant and equipment for impairment whenever events or changes in circumstance indicate that the asset's balance sheet carrying amount may not be recoverable. Goodwill, the Alcon brand-name and other currently not amortized intangible assets are reviewed for impairment at least annually.
An asset is generally considered impaired when its balance sheet carrying amount exceeds its estimated recoverable amount, which is defined as the higher of its fair value less costs to sellof disposal and its value in use. Usually, Novartis adopts the fair value less costs to sellof disposal method for its impairment tests.evaluation. In most cases no directly observable market inputs are available to measure the fair value less costs to sell.
costs of disposal. Therefore an estimate of fair value less costs to sellof disposal is derived indirectly and is based on net present value techniques utilizing post-tax cash flows and discount rates. In the limited cases where the value in use method is applied, net present value techniques are utilized using pre-tax cash flows and discount rates.
Fair value reflects estimates of assumptions that market participants would be expected to use when pricing the asset and for this purpose management considers the range of economic conditions that are expected to exist over the remaining useful life of the asset. The estimates used in calculating net present values are highly sensitive, and depend on assumptions specific to the nature of the Group's activities with regard to:
Due to the above factors and those further described in "Item 18. Financial Statements—Note 1", actual cash flows and values could vary significantly from forecasted future cash flows and related values derived using discounting techniques.
The recoverable amount of a cash-generating unitunits and related goodwill is usually based on the fair value less costs of saledisposal derived from applying discounted future cash flows based on the key assumptions in the following table:
| Pharmaceuticals | Alcon | Sandoz | Vaccines and Diagnostics | Consumer Health | Pharmaceuticals | Alcon | Sandoz | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| % | % | % | % | % | % | % | % | ||||||||||||||||||
Sales growth rate assumptions after forecast period | 1.6 | 3 | 0 to 2 | 0.5 | 0 to 2 | |||||||||||||||||||||
Cash flows growth rate assumptions after forecast period | 1 | 3 | 0 to 2 | |||||||||||||||||||||||
Discount rate (post-tax) | 7 | 7 | 7 | 7 | 7 | 6 | 6 | 6 |
In 2012,2015, intangible asset impairment charges for continuing operations of $206 million were recognized, of which $120 million were recorded in the Alcon Division and $86 million in total in the Pharmaceuticals and Sandoz divisions.
In 2014, intangible asset impairment charges of $286continuing operations amounted to $347 million were recognized. These relate to impairment charges of $211($302 million in the Pharmaceuticals Division. Novartis also recorded various impairment charges of $75Division and $45 million in all other Divisions.
In 2011, intangible asset impairment charges of $627 million were recorded. $552 million of these arosetotal in the Pharmaceuticals Division, principally due toSandoz and Alcon divisions).
In 2015, the expected reduction in demand forTekturna/Rasilez (aliskiren) and discontinuation of PRT128 (elinogrel), SMC021 (oral calcitonin), PTK796 and AGO178 (agomelatine) development programs. $75 millionreversal of impairment charges aroserecorded in all other Divisions.
Reversal of prior year impairment chargesyears amounted to $3$40 million (2011: $8(2014: $70 million).
The amount of goodwillGoodwill and other intangible assets onrepresent a significant part of our consolidated balance sheet, has increased significantly in recent years, primarily due to acquisitions. Although no significant additional impairments are currently anticipated, impairment testingevaluation could lead to material impairment charges in the future. For more information, see "Item 18. Financial Statements—noteNote 11".
Additionally, net impairment charges for property, plant and equipment from continuing operations during 20122015 amounted to $39$68 million (2011: $413 million of which $403 million was in Pharmaceuticals primarily related to the expected reduction in demand forTekturna/Rasilez and the discontinuation of the SMC021 development program)(2014: $44 million).
Trade receivables are initially recognized at their invoiced amounts including any related sales taxes less adjustments for estimated revenue deductions such as rebates, chargebackscharge backs and cash discounts.
Provisions for doubtful trade receivables are established once there is an indication that it is likely that a loss will be incurred and representsincurred. These provisions represent the difference between the receivable valuetrade receivable's
carrying amount in the consolidated balance sheet and the estimated net collectible amount. Significant financial difficulties of a customer, such as probability of bankruptcy, or financial reorganization, default or default/delinquency in payments are considered indicators that recovery of the trade receivable is doubtful. Trade receivable balances include sales to drug wholesalers, retailers, private health systems, government agencies, managed care providers, pharmacy benefit managers and government-supported healthcare systems. Novartis continues to monitor sovereign debt issues and economic conditions in Greece, Italy, Portugal, Spain and other countries, in Europe and evaluates accounts receivabletrade receivables in these countries for potential collection risks. Substantially all of the trade receivables overdue from such countries are due directly from local governments or from government-funded entities. Deteriorating credit and economic conditions and other factors in these countries have resulted in, and may continue to result in an increase in the average length of time that it takes to collect these accounts receivabletrade receivables and may require Novartis to re-evaluate the collectability of these trade receivables in future periods.
In a business combination or divestment of a business, it is necessary to recognize contingent future payments to previous or from new owners representing contractually defined potential amounts as a liability or asset. Usually for Novartis these are linked to milestone or royalty payments related to certain assets and are recognized as a financial liability or asset at their fair value which is then re-measured at each subsequent reporting date. These estimations typically depend on factors such as technical milestones or market performance and are adjusted for the probability of their likelihood of payment and if material, appropriately discounted to reflect the impact of time. Changes in the fair value of contingent liabilities in subsequent periods are recognized in the consolidated income statement in "Cost of goods sold" for currently marketed products and in "Research & Development" for IPR&D. Changes in contingent assets are recognized in "Other income and expense". The effect of unwinding the discount over time is recognized in "Interest expense" in the consolidated income statement. Novartis does not recognize contingent consideration associated with asset purchases outside of a business combination that are conditional upon future events which are within its control until such time as there is an unconditional obligation. If the contingent consideration is outside the control of Novartis, a liability is recognized once it becomes probable that the contingent consideration will become due. In both cases, if appropriate, a corresponding asset is recorded.
Impairment of Associated Companies Accounted for at Equity
Novartis considers investments in associated companies for impairment evaluation whenever there is a quoted share price indicating a fair value less than the per-share balance sheet carrying value for the investment. For unquoted investments in associated companies, recent financial information is taken into account to assess whether an impairment evaluation is necessary.
If the recoverable amount of the investment is estimated to be lower than the balance sheet carrying amount an impairment charge is recognized for the difference in the consolidated income statement under "Income from associated companies".
Retirement and other post-employment benefit plansOther Post-Employment Benefit Plans
We sponsor pension and other post-employment benefit plans in various forms that cover a significant portion of our current and former associates. For post-employment plans with defined benefit obligations, we are required to make significant assumptions and estimates about future events in calculating the expense and the present value of the liability related to these plans. These include assumptions about the discountinterest rates we apply to estimate future liabilities, expected returns on plan assetsdefined benefit obligations and net periodic pension expense as well as rates of future pension 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 the Group may differ materially from the actual results we experience due to changing market and economic conditions, higher or lower withdrawal rates, and longer or longer/shorter life spans of participants among other factors. For example, in 2015, a decrease in the discountinterest rate we apply in determining the present value of the defined benefit obligations of aone quarter of one percent would have increased our year-end defined benefit pension obligation for plans in Switzerland, United States,US, UK, Germany and Japan, which represent about 95% of the Group total defined benefit pension obligation, by approximately $0.8 billion. IfSimilarly, if the 2012 discount2015 interest rate had been aone quarter of one percentage point lower than actually assumed, net periodic pension cost for pension plans in these countries, which represent about 75%88% of the Group's total net periodic pension cost for pension plans, would have decreasedincreased by approximately $13 million, and if the same decrease was also assumed for the expected return on plan assets for pension plans, the expected return on plan assets for pension plans in these five countries would have decreased by approximately $39$22 million. Depending on events, such differences could have a material effect on our total equity. For more information on obligations under retirement and other post-employment benefit plans and underlying actuarial assumptions, see "Item 18. Financial Statements—noteNote 25".
A number of our subsidiariesGroup companies are involved in various government investigations and legal proceedings (intellectual property, sales and marketing practices, product liability, commercial, employment and wrongful discharge, environmental claims, etc.) arising out of the normal conduct of their businesses. For more information, see "Item 18. Financial Statements—noteNote 20" to the Group's consolidated financial statements.
We record accruals for contingencies when it is probable that a liability has been incurred and the amount can be reliably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. For significant product liability claims, a significant portion ofcases the overall accrual is actuarially determined based on factors such as past experience, amount and number of claims reported, and estimates of claims incurred but not yet reported. We provide for individually significant cases when probable and the amount can be reliably estimated. Expected legal defense costs are accrued when the amount can be reliably estimated.
In some instances, the inherent uncertainty of litigation, the resources required to defend against governmental actions, the potential impact on our reputation, and the potential for exclusion from United States federalgovernment reimbursement programs in the US and other government reimbursement programscountries have contributed to decisions by Novartis and other companies in our industry to enter into settlement agreements with governmental authorities.authorities in the absence of an acknowledgement of legal liability. These settlements have had in the past, and may continue in the future, to involve large cash payments, including potential repayment of amounts that were allegedly improperly obtained and other penalties including treble damages. In addition, settlements of governmental healthcare fraud cases often require companies to enter into corporate integrity agreements, which are intended to regulate company behavior for a period of years. Our affiliate Novartis Pharmaceuticals Corporation is a party to such an agreement, which will expire in 2020. Also, matters underlying governmental investigations and settlements may be the subject of separate private litigation.
Provisions are recorded for environmental remediation costs when expenditure on remedial work is probable and the cost can be reliably estimated. Remediation costs are provided for under "Non-current liabilities" in the Group's consolidated balance sheet. They are estimated by calculating the present value of expected costs.
Provisions relating to estimated future expenditure for liabilities do not usually reflect any insurance or other claims or recoveries, since these are only recognized as assets when the amount is reasonably estimable and collection is virtually certain.
Internal Research & Development costs are fully charged to the consolidated income statement in the period in which they are incurred. We consider that regulatory and other uncertainties inherent in the development of new products preclude the capitalization of internal development expenses as an
intangible asset usually until marketing approval from the regulatory authority is obtained in a relevant major market, such as for the United States,US, the European Union,EU, Switzerland or Japan.
In many countries our subsidiaries are required to make contributions to the countries' healthcare costs as part of programs other than the ones mentioned above under deductions from revenue above.revenues. The amounts to be paid depend on various criteria such as the subsidiary's market share or sales volume compared to certain targets, compared to the competition or to the Group's market share. Theretargets. Considerable judgment is considerable judgment required in estimating these contributions.contributions as not all data is available when the estimates need to be made.
The most importantlargest of these healthcare contributions relaterelates to the United StatesUS Healthcare Reform fee, which was introduced in 2011. This fee is an annual feelevy to be paid by US pharmaceutical companies, including various Novartis subsidiaries, based on each company's qualifying sales as a percentage of the prior year's governmentgovernment-funded program sales. EffectiveThis pharmaceutical fee levy is recognized in "Other expense".
On July 25, 2014, the US Department of the Treasury and the US Internal Revenue Service issued final guidance on this pharmaceutical fee levy which stipulated that instead of a liability being estimated and recognized immediately with the first qualifying sale in the following fee year, as had been industry practice, the levy is owed in the year in which the sales occur.
As a result of this final guidance, in 2014, "Other expense" includes the recurring non-tax deductible annual expense of approximately $200 million for the 2014 pharmaceutical fee levy, as well as the non-tax deductible expense of $204 million for the 2013 pharmaceutical fee levy. $204 million of this charge has been considered as an additional exceptional charge in 2014 since it results from the change in timing of recognition of the pharmaceutical fee levy as required by the final guidance.
In addition, effective 2013, the United StatesUS government has also implemented a medical device sales tax which is expected to be applicable to Alcon's United Stateslevied on the Alcon Division's US sales of products thatwhich are considered surgical devices under the respective act. The Pharmaceutical fee andlaw. This medical device tax is initially included in the Medical Device Tax are recorded in "Other expenses" since they are considered to be an indirectcost of inventory as, for Alcon, the tax or in inventory andis usually levied on intercompany sales. It is expensed as cost of goods sold when the taxinventory is levied on intercompany sales. The annual expense for these United States taxes is approximately $150 million.sold to third parties.
We prepare and file our tax returns based on an interpretation of tax laws and regulations, and record estimates based on these judgments and interpretations. Our tax returns are subject to examination by the competent taxing authorities, which may result in an assessment being made requiring payments of additional tax, interest or penalties. Inherent uncertainties exist in our estimates of our tax positions. We
believe that our estimated amounts for current and deferred tax assets or liabilities, including any amounts related to any uncertain tax positions, are appropriate based on currently known facts and circumstances.
See "Item 18. Financial Statements—note1"Note 1".
EFFECTS OF CURRENCY FLUCTUATIONSInternal Control Over Financial Reporting
We transact our business in many currencies other thanThe Group's management has assessed the US dollar, our reporting currency.
effectiveness of internal control over financial reporting. The following providesGroup's independent statutory auditor also issued an overviewopinion on the effectiveness of net sales and expenses for 2012 and 2011 for currencies most important to the Group:
Currency | | 2012 | 2011 | 2010 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % | % | % | ||||||||
US dollar ($) | Net sales | 36 | 36 | 36 | ||||||||
Operating expenses | 39 | 38 | 36 | |||||||||
Euro (EUR) | Net sales | 25 | 27 | 28 | ||||||||
Operating expenses | 25 | 25 | 26 | |||||||||
Swiss franc (CHF) | Net sales | 2 | 2 | 2 | ||||||||
Operating expenses | 13 | 14 | 13 | |||||||||
Japanese yen (JPY) | Net sales | 9 | 9 | 8 | ||||||||
Operating expenses | 5 | 4 | 4 | |||||||||
Other currencies | Net sales | 28 | 26 | 26 | ||||||||
Operating expenses | 18 | 19 | 21 |
We prepare our consolidatedinternal control over financial statements in US dollars. As a result, fluctuations in the exchange rates between the US dollar and other currencies can have a significant effect on bothreporting. Both the Group's results of operations as well as onmanagement and its external auditors concluded that the reported value of our assets, liabilities and cash flows. ThisGroup maintained, in turn may significantly affect reported earnings (both positively and negatively) and the comparability of period-to-period results of operations.
For purposes of our consolidated balance sheets, we translate assets and liabilities denominated in other currencies into US dollars at the prevailing market exchange ratesall material respects, effective internal control over financial reporting as of the relevant balance sheet date. For purposes of the Group's consolidated income and cash flow statements, revenue, expense and cash flow items in local currencies are translated into US dollars at average exchange rates prevailing during the relevant period. As a result, even if the amounts or values of these items remain unchanged in the respective local currency, changes in exchange rates have an impact on the amounts or values of these items in our consolidated financial statements.
We seek to manage currency exposure by engaging in hedging transactions where management deems appropriate, after taking into account the natural hedging afforded by our global business activity. For 2012, we entered into various contracts that change in value with movements in foreign exchange rates in order to preserve the value of assets, commitments and expected transactions. We also use forward contracts and foreign currency options to hedge expected net revenues in foreign currencies. For more information on how these transactions affect our consolidated financial statements and on how foreign exchange rate exposure is managed, see "Item 18. Financial Statements—notes 1, 5 and 29" to the Group's consolidated financial statements.
There is however, also a risk that certain countries could devalue their currency. If this occurs then it could impact the effective prices we would be able to charge for our products and also have an adverseDecember 31, 2015.
impact on both our consolidated income statement and currency translation adjustments included in our consolidated equity.
The average value of the US dollar in 2012 increased against the EUR, CHF, and GBP. The following table sets forth the foreign exchange rates of the US dollar against these currencies, used for foreign currency translation when preparing the Group's consolidated financial statements:
| Average for year | | | | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Year-end | | ||||||||||||||||
| Change in % | Change in % | |||||||||||||||||
$ per unit | 2012 | 2011 | 2012 | 2011 | |||||||||||||||
EUR | 1.286 | 1.392 | (8 | ) | 1.319 | 1.294 | 2 | ||||||||||||
CHF | 1.067 | 1.130 | (6 | ) | 1.093 | 1.064 | 3 | ||||||||||||
GBP | 1.585 | 1.603 | (1 | ) | 1.616 | 1.543 | 5 | ||||||||||||
JPY (100) | 1.254 | 1.255 | 0 | 1.161 | 1.289 | (10 | ) |
| Average for year | | | | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Year-end | | ||||||||||||||||
| Change in % | Change in % | |||||||||||||||||
$ per unit | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
EUR | 1.392 | 1.327 | 5 | 1.294 | 1.324 | (2 | ) | ||||||||||||
CHF | 1.130 | 0.961 | 18 | 1.064 | 1.063 | 0 | |||||||||||||
GBP | 1.603 | 1.546 | 4 | 1.543 | 1.552 | (1 | ) | ||||||||||||
JPY (100) | 1.255 | 1.141 | 10 | 1.289 | 1.227 | 5 |
The following table provides a summary of the currency impact on key Group figures due to their conversion into $, the Group's reporting currency, of the financial data from entities reporting in non-US dollars. Constant currency (cc) calculations apply the exchange rates of the prior year to the current year financial data for entities reporting in non-US dollars. For further detail, see "Non-IFRS measures as defined by Novartis".
CURRENCY IMPACT ON KEY FIGURES
| Change in constant currencies % 2012 | Change in $ % 2012 | Percentage point currency impact 2012 | Change in constant currencies % 2011 | Change in $ % 2011 | Percentage point currency impact 2011 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales | 0 | (3 | ) | (3 | ) | 12 | 16 | 4 | |||||||||||
Operating income | 8 | 5 | (3 | ) | 1 | (5 | ) | (6 | ) | ||||||||||
Net income | 7 | 4 | (3 | ) | (2 | ) | (7 | ) | (5 | ) | |||||||||
Core operating income | (2 | ) | (5 | ) | (3 | ) | 16 | 14 | (2 | ) | |||||||||
Core net income | (3 | ) | (5 | ) | (2 | ) | 15 | 12 | (3 | ) |
For additional information on the effects of currency fluctuations, see "Item 18. Financial statements—note 29".
FACTORS AFFECTING RESULTS OF OPERATIONS
A number of key factors influenceLong-term demographic trends and changing lifestyles are driving increased demand for healthcare around the Group's results of operations and the development of our businesses.
We believe that healthcare remains a growth industry, driven by the rapid aging of the global population, expanding access to healthcare in emerging markets andworld, while advances in science and technology that create opportunitiesare opening new frontiers in patient treatments. In the coming years, these trends are expected to improve health outcomesdrive steady growth overall in the healthcare market and enhance qualityaccelerate growth in key segments of life for patients worldwide.our business. At the same time, challengingthe current business and regulatory conditions continueenvironment poses significant risks and potential impediments to impedeour growth acrossand to the growth of the healthcare industry.
Transformational Changes Fueling Demand
Aging population and shifting behaviors
Scientific advances and increased access to healthcare are contributing to a rise in life expectancy, increasing the proportion of elderly people worldwide. According to United Nations projections, the number of people over the age of 60 is expected to rise by 500 million, reaching 1.4 billion, by 2030.
The aging of the world's population has contributed to an increase in chronic illnesses that are prevalent among the elderly, such as cancer, heart disease, respiratory ailments, diabetes and eye disease. A global shift toward more sedentary lifestyles is also increasing demand for healthcare. In the last 20 years, obesity rates have doubled among adults and tripled among children.
Novartis has developed new treatments to address some of these growing health threats and we plan to continue research and development activities in these areas.
In 2015, for example, Novartis received approval from the US Food and Drug Administration (FDA) and the European Commission forEntresto in chronic heart failure with reduced ejection fraction, which affects more than two million people in the United States and more than five million people in Europe. Regulatory decisions were based on the PARADIGM-HF study, which showed a 20% reduction in cardiovascular deaths versus an ACE inhibitor, the current standard of care in heart failure.
Global rise in healthcare spending
Increased demand for healthcare around the world has translated into rising healthcare costs. If growth in healthcare spending were to continue at the current pace, global outlays could more than double by 2025 to $15 trillion. At the same time, economic uncertainty and tight budgets are prompting many governments, healthcare insurers and consumers to look for ways to moderate spending.
In the context of these trends, we believe that our portfolio spanning pharmaceuticals, generics and eye care, is well-positioned to meet the evolving needs of patients and healthcare systems. For example, the use of generic medicines and biosimilars helps reduce healthcare costs and free up resources for new innovative medicines. Indeed, the global biosimilars market is expected to reach $35 billion by 2020 from an estimated $1.3 billion in 2013, according to a report by Allied Market Research. Our Sandoz Division is a global leader in biosimilars, with three products on the market in Europe and ten major filings (including etanercept and pegfilgrastim, which were submitted in 2015) planned in the next three years. In 2015, Sandoz became the first company to win approval for a biosimilar in the United States under the pathway created by the Biologics Price Competition and Innovation Act.
Scientific advances opening new opportunities
As scientific research has become more sophisticated, we have developed a better understanding of the genetic basis of diseases. This has given rise to a new generation of innovative therapies that could more effectively target the underlying causes of disease.
AsFor example, our investigational therapy CTL019 works by reprogramming a patient's own T-cells to hunt cancer cells that express specific proteins. After they have been reprogrammed, the onlyT cells are re-introduced into the patient's blood; they proliferate and bind to the targeted cancer cells and destroy them.
Therapies like these have the potential to transform the treatment of disease. We believe that our ability to leverage scientific advances to generate innovative new treatments will enable us to create value over the long-term for society, patients and shareholders.
Convergence of healthcare and technology
From molecular diagnostics to clinical trial recruitment to real world data and analytics, technology continues to play an increasingly important role in the pharmaceutical industry. This is attracting new entrants to the sector. For instance, venture funding grew 200% for digital health companies between 2012 and 2014. Established technology companies such as Google are also using their expertise to expand into healthcare.
�� While new entrants may shift the competitive landscape, the growing role of technology in healthcare presents an opportunity to pharmaceutical companies like Novartis. Google, for example, is collaborating with our Alcon Division to develop an accommodating contact or intraocular lens for people living with presbyopia. Through the collaboration, we are marrying Google's expertise in miniaturized electronics and microfabrication with Alcon's expertise in the physiology of the eye, as well as clinical development and commercialization of contact and intraocular lenses, to advance a product that has the potential to make reading glasses obsolete.
We also formed a joint investment company with leading positionsQualcomm Ventures to support early stage companies with technologies, products or services that "go beyond the pill" to benefit physicians and patients. We recognize the potential of technology to enhance our ability to deliver the right medicine to the right patient at the right time, and seek to partner with experts in pharmaceuticals, eye care, generics, vaccines and diagnostics, over-the-counter medicines and animal health, we believe that Novartis is well-positionedemerging technologies to capture opportunities and mitigate risks across the healthcare landscape. We expect thatbuild our continued focus on innovation, growth and productivity across our broad, diversified portfolio will allow us to meet the evolving needs of patients and healthcare systems worldwide.expertise in these areas.
Transformational Changes Fueling Demand
Long-term trends in the composition and behavior of the worldwide population, as well as ongoing innovation in science and technology, are driving demand for and access to healthcare. These changes present opportunities for Novartis to expand its presence in new and established markets and meet the changing demands of patients around the world.
Aging Population and Shifting Behaviors
As the global life expectancy continues to rise, the UN Population Fund projects that the total number of people over 60 will exceed 1 billion worldwide in the next decade, an increase of approximately 200 million over 2012. By 2050, the over-60 population will be larger than the under-15 population, according to the United Nations Population Fund. This aging of the global population has accelerated demand for treatments addressing diseases and conditions—such as glaucoma, cataracts and wet age-related macular degeneration, among other eye diseases, which Novartis offers treatments to address—that disproportionately afflict the elderly.
At the same time, due to increasing economic prosperity and shifting nutritional habits, the global incidence of obesity is rising, and is now more than double the rate it was in 1980, according to the World Health Organization (WHO). This trend is particularly evident in dynamic, emerging markets: China, for example, has seen its number of obese people quintuple since 2005 to nearly 100 million today, according to Chinese government statistics.
Increased rates of obesity, as well as habits such as cigarette smoking and sedentary lifestyles, have, in turn, boosted the prevalence of chronic diseases—including cardiovascular disease, diabetes and chronic respiratory diseases—which now account for more than 60% of all deaths worldwide, according to the WHO. Novartis businesses, particularly Pharmaceuticals, Alcon and Sandoz, offer products that help patients suffering from chronic diseases, and we plan to continue to make investments in new treatments to address these growing health threats.
Global Rise in Healthcare Spending Led by Emerging Markets
Despite a difficult economic environment, global healthcare spending continues to climb, and is projected to reach nearly $1.2 trillion by 2016, according to industry research firm IMS Health.
While the US continues to outstrip all other countries in terms of healthcare expenditures, emerging markets are contributing an increasing proportion of total global spend. Driven by rising incomes, continued low cost for drugs and government sponsored programs to increase access to treatments, emerging markets are expected to double their spending on pharmaceuticals over the next five years and contribute 30% of global healthcare expenditures by 2016, according to IMS Health. Developed markets, by contrast, are expected to account for 57% of global healthcare spending in 2016, down from 73% in 2006.
Reflecting the importance of emerging markets within the Novartis growth strategy, we continue to expand our presence, not only in the so-called BRIC countries (Brazil, Russia, India and China), which are well-known to be large and growing markets, but in other fast-growing markets as well. The Middle East, for example, has become a growth engine for Novartis, due in part to our investments in Egypt, Saudi Arabia and the United Arab Emirates, where our Pharmaceuticals Division is growing ahead of the market. We also signed a Memorandum of Understanding with the Government of Malaysia to help
strengthen the country's healthcare capabilities. Our collaboration, the first of its kind in Malaysia, will likely include building technical capabilities, promoting clinical trials, expanding access to innovative medicines and quality generic products, and supporting healthcare start-up companies through the Novartis Venture Fund.
Scientific Advances Opening New Opportunities for Targeted Therapies
With scientific advances, there is a growing opportunity to personalize healthcare for individual patients to improve results and reduce costs. For example, it is estimated that up to 95% of the variability in patient drug response may be due to genetic differences, according to scientific studies. Tailoring treatments based on specific biological factors, or "biomarkers," that indicate whether or not a given drug will be effective for a particular patient can significantly enhance response rates and outcomes while reducing costs associated with unnecessary or ineffective treatments. The market for personalized medicine is expected to be a major growth driver for the industry, with around 11% annual growth projected in the coming years, according to PricewaterhouseCoopers.
Advancing personalized medicine is central to our overall drug discovery and development strategy. In 2012, we realigned our Molecular Diagnostics unit and embedded it within Oncology Global Development to coordinate the development of innovative new treatments for patients with cancers and other diseases, with the development of tests, also known as companion diagnostics, to pinpoint the patients who are most likely to benefit from those treatments. Our diagnostics function, now known as Companion Diagnostics (CDx), is responsible for developing and manufacturing regulated diagnostic tests and registrational assays for pivotal clinical trials across the Pharmaceuticals portfolio.
Also within our Pharmaceuticals Division, Genoptix Medical Laboratory, which we acquired in 2011, continues to provide comprehensive laboratory services to US community-based hematologists and oncologists, advancing their ability to define and monitor individualized treatment programs.
Additionally, across our R&D activities at NIBR and Sandoz, we require that all proposals for new drug targets include a "path to the clinic." This often includes a biomarker discovery phase to identify which individuals will benefit most from a potential treatment and which might have a negative or no response, helping direct medical decision-making and subsequent therapy assessments for patients.
New Technologies Changing the Delivery of Healthcare
The rise of social and mobile technology is making it easier for patients, providers and payors to address healthcare needs quickly and efficiently. For example, according to PricewaterhouseCoopers, one in three patients have sought information about other patient experiences with their disease and one in four have posted their health experience to social networks. On the provider side, more than 60% of physicians in the United States were using tablet computers as of May 2012, up from 35% a year previously (according to healthcare market research firm Manhattan Research), to research medical treatments and access electronic health records.
Health applications on mobile phones, known as mHealth applications, have also provided a low-cost, real-time way to track disease progression and facilitate communication with patients, providers and payors. The data collected through these applications are more reliable than self-reporting from patients and can help scientists and doctors gather evidence to guide their investigations and tailor treatment regimens for individual patients. Additionally, when mHealth applications are used in combination with GPS data, they can support early detection and warning systems for global outbreaks of illnesses related to environmental exposures or infectious agents. As applications like these continue to proliferate and advance, according to business intelligence firm Global Data, the global mHealth market is set to jump in value by around 40% to $11.7 billion in 2018, potentially changing the delivery of health services and providing Novartis with more opportunities to reach patients and improve quality of care.
Through our eHealth program, Novartis is using emerging technologies to radically rethink the way we deliver products and services to patients, doctors and payors. For example, we developed a medical patch forExelon, our Alzheimer's treatment, that integrates an electronic chip to signal when it is time for a replacement. Similarly, work is progressing on a proprietary smart inhaler for COPD patients, the "eBreezhaler," which sends reminders and motivational messages based on actual patient behavior to help improve adherence and outcomes.
Shift to Generics and OTC Products
While healthcare costs continue to rise as a percentage of GDP in countries around the world, consumer demand for affordable products—both in developed and developing economies—has also increased. The global generics industry has grown by roughly 9% per year on average between 2007 and 2011, according to industry research firm MarketLine, significantly higher than the equivalent growth rate for pharmaceuticals, and will likely accelerate as healthcare systems encourage the use of generics to keep costs down.
Similarly, over-the-counter products, which in the United States are used on a regular basis by 35% of adults (according to the American College of Preventative Medicine), have also seen an increase in demand (as calculated by market research firm Kalorama Information). With leadership positions in both generics and over-the-counter medicines, we believe that Novartis is well-positioned to take advantage of these trends.
Increasingly Challenging Business Environment
While demographicPatent expirations and socioeconomic trends, as well as scientific and technological innovation, have created valuable opportunities for us to grow our business and improve the health of patients globally, significant challenges continue to pressure the industry.
Patent Expirations and Generic Competition Pressuring Industryproduct competition
It is estimated that between 2013 and 2016, drugs worth $156 billion in sales globally willcommon for pharmaceutical companies to face generic erosion when their products lose market exclusivity, according to pharmaceutical sector research firm EvaluatePharma. In Japan, which has historically had relatively low generic penetration, generic drugs accounted for more than 25%—an all-time high—of the domestic prescription medicines market in 2012, according to the Japan Generic Medicines Association. In the weeks and months following patent expiry, sales of brand-name drugs typically fall dramatically, by as much as 90% in some markets.
The ability to secure and defend ouror other intellectual property protection, and Novartis is particularly crucial forno exception. The products of our Pharmaceuticals and Alcon divisions, where theDivisions are generally protected by patent or other intellectual property rights, allowing us to exclusively market those products. The loss of patent protection on one or more products canexclusivity has had, and will continue to have, a materialan adverse effect on the Group's results of operations. To counter these challenges, Novartis focuses on innovating in areas of unmet patient need in order to rejuvenate the portfolio with new products and therapies. We expect revenue from recently launched products (products launched since 2007, except Sandoz products launched in last 24 months), which comprised 29% of net sales in 2012, to balanceour results. In 2015, the impact of patent loss. We also take legally permissible stepsgeneric competition on our net sales amounted to defend our intellectual property rights, including initiating patent infringement lawsuits against generic drug manufacturers.$2.2 billion.
SomeLike other players in the pharmaceutical industry, some of our best-selling products have begun to face considerable competition due to the expiration of their patent protection:or other intellectual property protection. For example:
term extensions). The active ingredient valsartan To counter the impact of patent expirations, we continuously invest in research and development to rejuvenate our portfolio. For example, in 2015, we invested 18% of total net sales in research and development. One measure of the output of our efforts is also usedthe performance of our Growth Products—products launched in a key market (EU, US, Japan) in 2010 or later, or products with exclusivity in key markets until at least 2019 (except Sandoz, which includes only products launched in the single-pill combination therapiesExforge andExforge HCT (high blood pressure)last 24 months). While market exclusivitiesThese products accounted forExforge/Exforge HCT will remain in the European Union and Japan due to regulatory patent protection, there is a risk that generic manufacturers may circumvent regulatory exclusivity and gain approval 34% of a combination valsartan-amlodipine product in Europe. In the United States, under a license agreement with a generics manufacturer, the product is expected to face generic competition beginning in October 2014.
The patent onFemara (cancer) expired in 2011 in the United States and in major European markets, and generic competitors have launched in those markets.
The patent on zoledronic acid, the active ingredient inZometa (cancer), as well as inReclast/Aclasta (osteoporosis), expired in 2012 in a limited number of smaller markets, and will expire in 2013 in the United States and in other major markets. However, certain forms or uses of these products are also covered by additional patents with later expiration dates in certain markets.
The patent on the active ingredient inGleevec/Glivec (cancer) will expiretotal net sales in 2015, inup 17% from the United States, in 2016 inprevious year.
Moreover, while patent expirations present a significant challenge to our Pharmaceuticals and Alcon divisions, they also create an opportunity for Sandoz, our generics business. With our global footprint and advanced technical expertise, we expect Sandoz to help offset 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.
In 2013, thefinancial impact of generic competition on our net salesbranded portfolio.
Heightened regulatory and safety hurdles
Our ability to grow is expecteddependent on our ability to bebring new products to market. In recent years, health regulators have raised the bar on product innovation. They are increasingly focused on the benefit-risk profile of pharmaceutical products, emphasizing product safety and improvements over older products in the same therapeutic class. These developments have led to requests for more clinical trial data, the inclusion of significantly higher numbers of patients in those trials, and more detailed analyses of trial outcomes. As a result, the long and expensive process of obtaining regulatory approvals for pharmaceutical products has become even more challenging.
In addition, approved drugs have increasingly been subject to requirements such as much as $3.5 billion. As we typically have substantially reduced marketingrisk management plans, comparative effectiveness studies, health technology assessments and researchpost-approval Phase IV clinical trials, making the maintenance of regulatory approvals and development expenses related to aachievement of reimbursement for our products increasingly expensive. In addition, these requirements further heighten the risk of recalls, product in its final year of exclusivity, it is expected that thewithdrawals, or loss of patent protection will have an impact on our operating income which can be expected to correspond to a significant portion of the product's lost sales. The magnitude of such an impact could depend on a number of factors, including: the time of year at which such exclusivity would be lost; the ease or difficulty of manufacturing a competitor product and obtaining regulatory approval to market it; the number of generic competitor products approved, and whether, in the United States, a single competitor is granted an exclusive marketing period; 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 patented pharmaceutical products in such geographies.
While this wave of patent expiries represents a significant challenge for our Pharmaceuticals and Alcon divisions, it also presents an opportunity for Sandoz, which develops, manufactures, distributes and sells prescription medicines that are not protected by valid and enforceable third-party patents. Global spending on generics is expected to increase from $242 billion in 2011 to more than $400 billion by 2016 according to IMS Health, fueled by volume growth in emerging markets and increased demand in developed nations.
Heightended Regulatory and Safety Hurdles
The costs associated with bringing a new drug to market have continued to increase as requirements with respect to documentation proving efficacy and safety have become more stringent.
Even after a new drug is approved, there is a risk that safety events could occur in patients, despite our commitment to the highest standards of quality and safety across all of our divisions. Such events could not only harm our reputation and the trust we share with patients who depend on our products, but could also have a negative impact on our results, such as through a reduction in demand, product recalls or withdrawals, or legal proceedings.share.
Despite this risk, however, we expect that our focus on improvingaccelerating innovation in areas of unmet medical need and demonstrating real improvement in patient outcomes and understanding disease pathways will allow Novartis to continue to bring innovative, effective and safe medicines to market.
Increasing pressure on pricing
Against the backdrop of steadily rising healthcare costs, there has been increased scrutiny on drug pricing by governments, media and consumers. Following the launch of Gilead's Sovaldi® in hepatitis C, media focused on the price tag and lawsuits were filed against the company, alleging price-gouging. In 2015, the pricing debate reached a new level of intensity when Turing Pharmaceuticals acquired the rights to the decades-old medicine Daraprim® and raised the price by 5,000%.
We expect scrutiny on prices to continue in 2016 as political pressures mount and healthcare payors around the globe—including government-controlled health authorities, insurance companies and managed care organizations—step up initiatives to reduce the overall cost of healthcare, restrict access to higher-priced new medicines, increase the use of generics and impose overall price cuts.
In this environment, we believe that it is more important than ever to demonstrate the value that true innovation brings to the healthcare system. For example, with our psoriasis medicineCosentyx, we demonstrated superiority to Stelara® in a head-to-head study, but still adopted a similar price for our product. Similarly, withEntresto, an independent organization called the Institute for Clinical and Economic Review found that its US list price was "well-aligned with the degree of benefit it brings to patients." Furthermore, we expressed a willingness to work with our customers on flexible, performance-based pricing models, where we would only be fully compensated if the drug succeeded in meeting certain targets, such as reducing heart failure hospitalizations and associated costs.
Risk of Liability and Supply Disruption from Manufacturing Issues
The manufacture of our products is both highly regulated and complex, and may result To manage pricing pressure, we aim to invest in a variety of issues that could lead to extended supply disruptions and significant liability. Governmental health authorities around the world, including the FDA, closely regulate the manufacture of our products, and continue to intensify their scrutiny of manufacturers' compliance with their requirements. If we or our third party suppliers fail to comply fully with these requirements, then we could be required to shut down our production facilities or production lines. In this event, we could experience product shortages, or be unable to supply products to patients for an extended period of time, and such shortages or supply failures have led to, and could continue to lead to, significant losses of sales revenue and to potential third party litigation. Health authorities could also impose significant penalties on us.
Like our competitors, we have faced, and in some cases continue to face, significant manufacturing issues. For example, in 2012, we continued to progress quality remediation programs at three of Sandoz's North American manufacturing facilities (following an FDA warning letter in 2011) and at Consumer Health's manufacturing facility in Lincoln, Nebraska, United States, where we suspended operations and shipments at the end of 2011. Although we have made significant progress in 2012 at these sites, as a result of the manufacturing issues, we have suffered and may continue to suffer significant losses in sales and market share. In addition, we have been required to expend considerable resources on the remediation of these sites.
In addition to regulatory requirements, many of our products involve technically complex manufacturing processes or require a supply of highly specialized raw materials. For example, a significant portion of the Group's portfolio of products, including products from Pharmaceuticals, Sandoz, and Vaccines and Diagnostics, are "biologic" products, which cannot be manufactured synthetically, but typically must be produced from living plant or animal micro-organisms. In addition, the Group's portfolio includes a number of sterile products, including oncology treatments, which are considered to be technically complex to manufacture and require strict environmental controls. Because the production process for these products is so complex and sensitive, there is a greater chance of production failures and lengthy supply interruptions.
Finally, because our products are intended to promote the health of patients, any manufacturing issues that result in supply disruptions or other production problems could potentially subject us, not only to government penalties, but also to lawsuits or allegations that the public health, or the health of individuals, has been endangered.
Financial Crisis Increasing Pressures on Drug Prices
Despite hopes that the global economy would recover in 2012, challenges stemming from the 2008 financial crisis continue to weigh on the industry. The economies of Greece, Italy, Portugal and Spain in particular continued to contract under austerity measures, and with budgets under pressure, these governments have taken steps to keep costs down by introducing price reductions and rebates to make medications more affordable. These lower prices affect all of our businesses that rely on reimbursement, including Pharmaceuticals, Alcon, Sandoz, and Vaccines and Diagnostics.
In addition, consumer confidence remains low, and patients around the world are looking for ways to keep healthcare spending to a minimum. In the United States, for example, according to one study, 58% of people reported that they put off or went without necessary treatment in the previous year due to cost, up from 50% in 2011. To combat this trend, Novartis offers coupon programs and incentives for patented products to facilitate access to the most effective treatments at an affordable price. In Brazil, for example, ourreal-world data and analytics, explore new technologies and patient program "Vale mas Saude" provides value-added solutions for the treatment of several chronic conditions (such as hypertension, diabetes, chronic obstructive pulmonary disease, asthma,management services, and neurological disorders)partner with payors to almost 3 million patientsdevelop and over 50,000 participating physicians. Educational supportscale outcomes-based commercial models.
Potential liability arising from legal proceedings and progressive discounts mean more Brazilian patients have access to treatment. In addition,
Table of Contentsgovernment investigations
patient compliance to treatment has more than doubled in Brazil, along with increased visits to pharmacies.
Potential Liability Arising from Legal Proceedings
In recent years, there has been a trend of increasing government investigations and litigationslitigation against companies operating in the industries of which we are a part, bothour industry, including in the United StatesUS and in an increasing number of countries around the world.other countries. We are obligated to comply with the laws of the approximately 140all countries in which we operate, covering an extremely wide rangewith new requirements imposed on us as government and public expectations of activities. To that end, wecorporate behavior develop. We have a significant global compliance with law program in place. Nonetheless, despiteplace, and devote substantial time and resources to ensure that our business is conducted in a legal and publicly acceptable manner. Despite our efforts, any failure to comply with the law could lead to substantial liabilities that may not be covered by insurance and could affect our business and reputation.
A number of our subsidiaries are, and will likely continue to be, subject to various legal proceedings that arise from time to time, such as proceedings regarding product liability, commercial disputes, employment and wrongful discharge, antitrust, securities, sales and marketing practices, health and safety issues, environmental remediation, taxation, privacy and intellectual property matters. 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, governmentsGovernments and regulatory authorities around the world have been stepping up their complianceworldwide are also increasingly challenging practices previously considered to be legal and law enforcement activities in recent years in key areas, including corruption, marketing practices, insider trading, antitrust, trade restrictions, embargo legislation and data privacy. Respondingresponding to such investigationschallenges and new regulations is costly, and requires an increasing amount of our management's time and attention. In addition, suchcostly. Such investigations may affect our reputation, and create a risk of potential exclusion from government reimbursement programs in the United StatesUS and other countries.countries, and may lead to costly litigation.
These factors have contributed to recent decisions by us and other companies in our industry, when deemedtrends in the companies' interest,pharmaceutical industry to enter into settlement agreements with governmental authorities around the world prior to any formal decision by the authorities. These settlements have involvedFor example, in 2015, our affiliate Novartis Pharmaceuticals Corporation settled litigation in the Southern District of New York related to interactions with specialty pharmacies from 2004 to 2013. The settlement included payments totalling $390 million plus additional legal expenses to plaintiffs, and mayan agreement to amend and extend for five years an existing corporate integrity agreement (CIA) with the Office of Inspector General of the US Department of Health and Human Services. This resolution and the new CIA obligations provide clear guidelines as we continue to involve large cash payments, includingwork with independent specialty pharmacies in support of patient care.
Risk of liability and supply disruption from manufacturing issues
The manufacture of our products is both highly regulated and complex, which introduces a greater chance for disruptions and liabilities. Government authorities closely regulate our manufacturing processes, and if those processes fail to meet the potential repayment of amounts allegedly obtained improperlynecessary requirements, then there is a risk that our production facilities could be shut down. Disturbances in our supply chain can lead to product shortages, significant loss in sales revenue, and penalties of up to treble damages. In addition, settlements of healthcare fraud cases often require companies to enter into corporate integrity agreements, which are 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.
Adverse judgments Furthermore, any manufacturing issue compromising supply or settlements in any of the significant investigations or cases against usquality could have a material adverse effect onserious consequences for the health of our business, financial condition and results of operations.
Execution of Focused Diversification Strategy
patients.
To capture opportunities and mitigate risks, Novartis aims to maintain leadership positions in growing segments of the healthcare industry.
Researching Areas of Growing Unmet Medical Need
Patients are at the center of everything we do, and whileBeyond regulatory requirements, many of our competitors have outsourcedproducts involve technically complex manufacturing processes or partially outsourced their research and development activities, we have continued our efforts to expand and rejuvenate ourrequire a supply of highly specialized raw materials. For example, biologic products, produced from living plant or animal micro-organisms, comprise a significant portion of the portfolio through innovationacross the Group. For biologic-based products, even slight deviations at any point in order to bring new healthcare solutions to market in areas where currently available treatments do not meet patient needs.
Pharmaceuticals and Alcon conduct research through NIBR, which focuses on studying molecular signaling pathways that, when defective, canthe production process could lead to disease. When drugs pass initial safety and efficacy tests in one disease area, we frequently initiate parallel studies in other indications because illnesses can
Tableproduction failures or recalls. The Group's portfolio also includes a number of Contents
share a common underlying pathway. We also leverage our NIBR R&D investments in Animal Health,sterile products, such as many of the medicines developed for human patients also have applications for pets and farm animals.
Beyond our internal research activities, Novartis also collaborates with partners to develop and commercialize promising treatments that can improve patient outcomes. For example, in 2012, we announced an exclusive, multi-year collaboration with the University of Pennsylvania to research, develop and commercialize targeted chimeric antigen receptor (CAR) immunotherapies, a new frontier in oncology research that has the potential to transform the treatment of cancer. Also this year, Alcon entered into a licensing agreement with ThromboGenics to commercializeJetrea (ocriplasmin), the first pharmacological treatment for vitreomacular adhesion (VMA), outside of the United States. Ocriplasmin has been submitted for approval in the EU, and in January 2013 received a positive CHMP opinion. Ocriplasmin received FDA approval in October 2012. There are more than 300,000 VMA patients in Europe alone who could potentially benefit from ocriplasmin. If approved, Alcon plans to introduce ocriplasmin in more than 40 countries worldwide.
In addition, we have a significant pipeline of cardiovascular products in late-stage development, with both RLX030 in development for acute heart failure (from the acquisition of Corthera Inc. in 2010) and LCZ696 in development for hypertension and chronic heart failure. Both RLX030 and LCZ696 have the potential to address large patient populations, as the prevalence of heart failure is increasing. Chronic heart failure currently affects 20 million people worldwide and is projected to grow by 2.3% over the next decade. Of the 2 million people with acute heart failure who are discharged from the hospital each year in the United States and Europe, approximately 50% could be eligible for RLX030, if approved.
We believe that our focus on researching areas of unmet need will allow us to extend our lead in innovation. We continued our strong track record of bringing new medicines and indications to market in 2012, as our Pharmaceuticals Division secured 11 major approvals for new products and indications in the United States and European Union, on top of significant approvals in Alcon and Vaccines and Diagnostics.
Focusing on Patient Outcomes
Reflecting our commitment to patients, our strategy has moved from a transactional approach of simply selling pills to a more integrated approach that focuses on improving health outcomes and partnering with customers to deliver more services for patients.
We have developed support programs aimed at improving access and adherence to our treatments, which are expectedtechnically complex to improve health outcomesmanufacture and cut excess costs associatedrequire strict environmental controls. There is a greater chance of production failures and supply interruptions for these products.
Given the complexity of our manufacturing processes, we have had a multi-year effort in place to ensure adherence to a single high quality standard across the Group. This effort continued to yield steady improvement in 2015: regulatory agencies carried out 192 inspections of Novartis facilities worldwide last year, with low levels of adherence. For example, we established189 or 98.4% resulting in aGilenya support program good or acceptable outcome, in line with prior year. In addition, in September the United States that provides MS patients with a nurse navigator to help arrange medical tests and improve compliance by following up with patients on a monthly basis. We are alsoFDA closed out the May 2013 Warning Letter issued for our Sandoz site in the process of conducting patient segmentation market research to understand issues around MS treatment adherence, and plan to develop and offer an adherence program through the nurse navigator program later in the year.
Similarly, in Sandoz, we work to bring biopharmaceuticals to patients in need earlier in disease progression, aiming to help prevent the onset of serious or life-threatening complications. For example, in the UK, the introduction of biosimilar filgrastim moved the medication from a second-line to first-line treatment for febrile neutropenia associated with chemotherapy—a shift that significantly increased access to this important therapy for thousands of cancer patients.
Tailoring Commercial Models Around Customer Needs
In today's healthcare landscape, in which access to physicians is becoming increasingly restricted for sales representatives, Novartis collaborates with key customer segments in an effort to provide doctors and patients with the information and support they need. This partnership not only improves our relationships with important customers, but also may enable doctors to provide better care to patients.Unterach, Austria.
Our "Key Account Management" approach, for example, allows usDespite this progress, more work remains to be done. In October 2015, the FDA issued a Warning Letter to our Sandoz Division concerning its Indian sites in Kalwe and Turbhe. The letter related to documentation practices in Kalwe and sterile manufacturing practices in Turbhe that were identified during an inspection in August 2014. Novartis took action immediately and has addressed a majority of the issues.
Risk assessment and disclosures
The Risk Committee of the Board ensures the Group has implemented an appropriate and effective risk management system and process. It reviews with management and internal audit the identification, prioritization and management of the risks, the accountabilities and roles of the functions involved with risk management, the risk portfolio and the related actions implemented by management. The Risk Committee informs the Board of Directors on a periodic basis.
The Group Risk Office coordinates and aligns the risk management processes, and reports to the Risk Committee on a regular basis on risk assessment and risk management. Organizational and process measures have been designed to identify opportunitiesand mitigate risks at an early stage. Organizationally, the responsibility for risk assessment and management is allocated to collaboratethe divisions, with customers to help themspecialized Corporate functions—such as Group Finance, Group Quality Assurance, Corporate Health, Safety and Environment, Business Continuity Management, Integrity and Compliance, and the Business Practices Office—providing support patients and providers. In Taiwan, we instituted a patient education program along with one of our customers that helped to reduce stroke patient re-hospitalization rates from 23% to 15% while ensuring access to Novartis medications. We implemented a global franchise model within Alcon to encourage functional excellence, cross-functional collaboration and accelerated decision-making across R&D, commercial and manufacturing, enhancing innovation and speed-to-market of new products.
For doctors, our support comes incontrolling the form of education, raising awarenesseffectiveness of the latest advances in our understanding of disease pathways and treatment options so they can provide the highest quality of care to patients. For example, in Sandoz, we are growing our medical affairs outreach to educate physicians about biosimilars products and assist them in understanding the value that these treatment options can provide. Novartis is also committed to working with payors to enable eligible patients to benefit from access to our industry-leading portfolio and, to that end, has over 150 individual patient access programs around the world.
Engaging Patients in Their Care
In a recent survey, 50% of Americans said that texts, emails or smartphone applications with tips, reminders and encouragement could have helped them avoid a health problem in the past. To improve patient outcomes, Novartis is working to leverage the channels that patients use on a day-to-day basis to engage them in their own care. For example, in the UK, Sandoz launched a novel disease education tool that uses augmented reality to educate young children about growth hormone deficiencies.
Additionally, while patients could obtain better health outcomes by participating in clinical trials for new innovative treatments, very few of them do: only 2% of Americans get involved with clinical research each year and less than 4% of United States physicians ever participate, according to the Center for Information and Study on Clinical Research Participation. Novartis, in partnership with electronic health record (EHR)risk management companies, is piloting a process in which physicians are notified by the EHRdivisions and functions in these respective areas.
Financial risk management company about relevant ongoing clinical trials when they enter data into the EHR. By engaging patients at their point of care, we provide them with the information they need to make well-informed decisions about their health.
Alcon, too, has a long history of empowering patients by working with eye care professionals and policymakers to raise awareness about eye diseases and treatment options. For example,is described in Europe, Alcon works with policymakers to provide cataract patients with a choice between cataract surgery with a conventional intraocular lens (which is fully reimbursed), and cataract surgery with an advanced technology intraocular lens, which corrects refractive errors, such as presbyopia and astigmatism, while removing their cataract (which is available with a co-payment).
Enhancing Access to Healthcare
Access to healthcare is a global challenge, and bridging the access gap is a goal Novartis shares with governments, international agencies like the WHO, foundations and nongovernmental organizations.
At Novartis, enhancing access begins with medical research, continues with product donations and new business models, and is supported by action to strengthen healthcare in both developing and advanced economies. In 2012, our access-to-healthcare contributions and programs were valued at more than $2.0 billion, providing medicine to approximately 100 million patients and health education, infrastructure development and other programs to another 7.2 million people worldwide. Millions more purchased high-quality, low-cost generics from our Sandoz Division.
However, no single company—no matter how committed to patients—can bridge the access gap alone. Barriers to access can be overcome only with effective and coordinated action by all parties involved.
In 2012, Novartis extended its collaboration with the WHO and other organizations to eliminate leprosy. As part of a donation valued at more than $20 million, Novartis will continue to provide free multidrug therapy medicines to treat an estimated 850,000 people with leprosy through 2020. Similarly, Sandoz is working with the Zambian government to increase access to high-quality, affordable medicines across Africa by supporting small, independent health shops, the primary healthcare providers in rural areas. This support helps efforts to provide a consistent, reliable and safe supply of drugs for Zambia's patients, which in turn helps the country reach several of its UN Millennium Development Goals by 2015. In addition, Alcon supports more than 800 medical missions and numerous partnerships with non-profit organizations each year to bring eye care to places in which services and treatments are not yet available, train local physicians to perform state-of-the-art surgery and provide sustainable eye care.
In addition, following the success of its Arogya Parivar ("healthy family") program in India, Novartis launched Familia Nawiri in Kenya and Cung Song Khoe in Vietnam in 2012. These localized social business models aim to expand access to quality healthcare for people living at the bottom of the pyramid without consistent access to healthcare or health education.
FACTORS AFFECTING COMPARABILITY OF YEAR-ON-YEAR RESULTS OF OPERATIONS
detail, see "Item 18. Financial Statements—Note 29".
Recent Acquisitions and Divestments
The comparability of the year-on-year results of our operations for the total Group can be significantly affected by acquisitions and divestments. For more detail how transactions of significance have affected our results, see "Significant Transactions" below.
Acquisitions in 2012
Sandoz—Acquisition of Fougera Pharmaceuticals, Inc.
On July 20, 2012, Sandoz completed the acquisition of 100% of Fougera Pharmaceuticals, Inc. a specialty dermatology generics company based in Melville, New York, for $1.5 billion in cash. The acquisition of Fougera Pharmaceuticals, Inc. creates another strong global growth platform for Sandoz. Fougera has strong dermatology development and manufacturing expertise and employs approximately 700 people.
The final purchase price allocation resulted in net identified assets of $0.6 billion (excluding acquired cash) and goodwill of $0.9 billion. Results of operations since the acquisition date were not material.
Acquisitions 2011
Alcon majority control in 2010; full ownership and merger in 2011
On August 25, 2010, Novartis completed the acquisition of a further 52% interest in Alcon, Inc. (Alcon) following on from the January 4, 2010 announcement that Novartis had exercised its call option to acquire Nestlé's remaining 52% Alcon interest for approximately $28.3 billion or $180 per share. The overall purchase price of $38.7 billion included certain adjustments for Alcon dividends and interest due. This increased our interest in Alcon to a 77% controlling interest as Novartis had already acquired an initial 25% Alcon interest from Nestlé for $10.4 billion or $143 per share in July 2008.
On December 14, 2010, Novartis entered into a definitive agreement to merge Alcon into Novartis in consideration for Novartis shares and a Contingent Value Amount. The acquisition of the remaining outstanding non-controlling interests in Alcon were separate transactions following the previous acquisition of majority ownership in Alcon by Novartis in 2010.
On April 8, 2011 a Novartis Extraordinary General Meeting approved the merger of Alcon, Inc. with Novartis AG leading to the creation of the Alcon Division which became the fifth reported segment in
Novartis' strategically diversified healthcare portfolio. The Extraordinary General Meeting also authorized the issuance of 108 million new shares. Alcon shareholders received 2.9228 Novartis shares (which included a dividend adjustment) and $8.20 in cash for each share of Alcon, resulting in a total consideration of $168.00 per share.
For business combinations achieved in stages, IFRS requires that any previously held interest of an acquirer in an acquiree is adjusted to its fair value through the consolidated income statement as of the acquisition date. The agreement that Novartis entered into with Nestlé in 2008 specified an average price of up to $168 per share for all of the approximately 77% interest in Alcon held by Nestlé, including $143 per share for the initial 25% interest acquired by Novartis in 2008, and a maximum of $181 per share for the remaining 52%, including a premium for the change of majority ownership.
Novartis reassessed the fair value of the initial 25% non-controlling interest in Alcon it acquired from Nestlé in 2008. In 2010, Novartis recognized a revaluation gain of $378 million on its initial 25% equity-method investment in Alcon upon acquiring a 52% controlling interest in the second-stage purchase from Nestlé on August 25, 2010. This gain was based on Novartis concluding that the fair value of that interest had a corresponding per-share value of $139. On this date the quoted market price of Alcon on the NYSE was $160. Novartis measured this revaluation gain based on the estimated current fair value of its investment in Alcon, with the assistance of outside specialist investment bank advisors. This valuation demonstrated that, as at August 25, 2010, the quoted price for Alcon was affected by an anticipated premium on Novartis' eventual purchase of the 23% not owned at that time. Novartis concluded that this "premium" should not be included in the valuation of the previously held equity interest.
This gain was reduced by $43 million of accumulated losses recorded in the consolidated statement of comprehensive income of Novartis since the July 2008 acquisition date of the initial interest. These accumulated losses were recorded under the equity accounting method, which requires such accumulated losses to be recycled into the consolidated income statement at the time of acquiring majority ownership. The net amount of $335 million was recorded as a gain under "Income from Associated Companies".
At December 31, 2010 Novartis recorded the outstanding non-controlling interests in Alcon at their proportionate share of identifiable net assets which amounted to $6.3 billion. After the acquisition of majority ownership in Alcon, Inc. on August 25, 2010, Alcon contributed in 2010 net sales $2.4 billion and operating income of $323 million to the 2010 consolidated income statement.
During 2011, prior to the merger on April 8, 2011, 4.8% of the non-controlling interests in Alcon, Inc. were acquired for $2.4 billion. Completion of the acquisition of the outstanding 18.6% of Alcon Inc. on April 8, 2011 and subsequent merger, resulted in the issuance of Novartis shares with a fair value of $9.2 billion and a payment in cash of $0.5 billion to the Alcon, Inc. shareholders.
The final purchase price allocation was completed in 2011 and resulted in a fair value of net identifiable assets of $27.0 billion and goodwill of $18.0 billion. The excess of the value exchanged for the non-controlling interests in Alcon Inc, in 2011 over its recorded value together with merger related transaction costs resulted in a reduction in the Novartis consolidated equity of $5.7 billion.
For more detail on accounting for these transactions, see "Item 18. Financial Statements—note 1, 2 and 24".
Pharmaceuticals—Acquisition of Genoptix, Inc.
On March 7, 2011 Novartis completed the acquisition of 100% of Genoptix, Inc., a specialized laboratory providing personalized diagnostic services to United States community-based hematologists and oncologists for $458 million in cash. Genoptix employed approximately 500 people. The final purchase price allocation resulted in net identified assets of $237 million and goodwill of $221 million. Results of operations since the acquisition date in 2011 were not material.
Acquisitions in 2010 (additional to the Alcon transaction described above)
Pharmaceuticals—Acquisition of Corthera
On February 3, 2010 Novartis completed the 100% acquisition (announced on December 23, 2009) of the privately held US-based Corthera Inc., gaining worldwide rights to relaxin for the treatment of acute decompensated heart failure and assumed full responsibility for development and commercialization for a total purchase consideration of $327 million. This amount consists of an initial cash payment of $120 million and $207 million of deferred contingent consideration. The deferred contingent consideration initially recognized represented the net present value of the additional milestone payments due to Corthera's previous shareholders which they are eligible to receive contingent upon the achievement of specified development and commercialization milestones. The final purchase price allocation resulted in net identified assets of $309 million and goodwill of $18 million. Results of operations since the acquisition date were not material.
Sandoz—Acquisition of Oriel Therapeutics
On June 1, Sandoz completed the 100% acquisition of the privately held US-based Oriel Therapeutics Inc., to broaden its portfolio of projects in the field of respiratory drugs for a total purchase consideration of $332 million. This amount consists of an initial cash payment of $74 million and $258 million of deferred contingent consideration. Oriel's previous shareholders are eligible to receive milestone payments, which are contingent upon the company achieving future development steps, regulatory approvals and market launches, and sales royalties. The total $258 million of deferred contingent consideration initially recognized represented the net present value of expected milestone and royalty payments. The final purchase price allocation, including the valuation of the contingent payment elements of the purchase price, resulted in net identified assets of $281 million and goodwill of $51 million. Results of operations since the acquisition date were not material.
Other Significant Transactions in 2010
Pharmaceuticals—Divestment of Enablex®
On October 18, 2010 Novartis finalized the sale of the US rights for Enablex® (darifenacin) to Warner Chilcott Plc for $400 million and recongized a gain of $392 million.
Corporate—Change of pension plan in Switzerland
On April 23, 2010 the Board of Trustees of the Novartis Swiss Pension Fund agreed to amend the conditions and insured benefits of the current Swiss pension plan with effect from January 1, 2011. These amendments do not have an impact on existing pensions in payment or on plan members born before January 1, 1956. Under the previous rules, benefits from the plan are primarily linked to the level of salary in the years prior to retirement while under the new rules benefits are also partially linked to the level of contributions made by the members during their active service period up to their retirement. This has led to changes in the amounts that need to be included in the Group's consolidated financial statements prepared using IFRS in respect of the Swiss Pension Fund.
As part of this change, Novartis, supported by the Swiss Pension Fund, will make transitional payments, which vary according to the member's age and years of service. As a result, it is estimated that additional payments will be made over a ten-year period of up to approximately $481 million (CHF 453 million) depending on whether or not all current members affected by the change remain in the plan over this ten-year period.
The accounting consequence of this change in the Swiss pension plan rules results in the Group's consolidated financial statements prepared under IFRS reflecting a net pre-tax curtailment gain of $265 million (CHF 283 million) in 2010. This calculation only takes into account the discounted value of transition payments of $202 million (CHF 219 million) attributed to already completed years of service of the affected plan members as calculated in accordance with IFRS requirements. It does not take into account any amount for transitional payments related to their future years of service.
NON-IFRS MEASURES AS DEFINED BY NOVARTIS
The followingNovartis uses certain non-IFRS metrics are used by Novartis when measuring performance, especially when measuring current year results against prior periods:periods, including core results, constant currencies, free cash flow and net debt.
Despite the use of these measures by management in setting goals and measuring the Group's performance, these are non-IFRS measures that have no standardized meaning prescribed by IFRS. As a result, such measures have limits in their usefulness to investors.
Because of their non-standardized definitions, the non-IFRS measures (unlike IFRS measures) may not be comparable to the calculation of similar measures of other companies. These non-IFRS measures are presented solely to permit investors to more fully understand how the Group's management assesses underlying performance. These non-IFRS measures are not, and should not be viewed as, a substitute for IFRS measures.
As an internal measure of Group performance, these non-IFRS measures have limitations, and the Group's performance management process is not solely restricted to these metrics.
The Group's core results—including core operating income, core net income and core earnings per share—exclude the amortization of intangible assets, impairment charges, expenses relating to divestments, the integration of acquisitions and restructuring charges that exceed a threshold of $25 million, as well as other income and expense items that management deems exceptional and that are or are expected to accumulate within the year to be over a $25 million threshold that management deems exceptional.threshold.
Novartis believes that investor understanding of the Group's performance is enhanced by disclosing core measures of performance because, since they exclude these exceptional items which can vary significantly from year to
year, the core measures enable better comparison of business performance across years. For this same reason, Novartis uses these core measures in addition to IFRS and other measures as important factors in assessing the Group's performance.
The following are examples of how these core measures are utilized:
A limitation of the core measures is that they provide a view of the Group's operations without including all events during a period, such as the effects of an acquisition or amortization of purchased intangible assets.
Changes in the relative values of non-US currencies to the US dollar can affect the Group's financial results and financial position. To provide additional information that may be useful to investors, including changes in sales volume, we present information about our net sales and various values relating to operating and net income that are adjusted for such foreign currency effects.
Constant currency calculations have the goal of eliminating two exchange rate effects so that an estimate can be made of underlying changes in the consolidated income statement excluding the impact of fluctuations in exchange rates:
We calculate constant currency measures by translating the current year's foreign currency values of the netfor sales and earningsother income statement items into dollars$ using the average exchange rates from the prior year and comparing them to the prior year values in dollars.$.
�� We use these constant currency measures in evaluating the Group's performance, since they may assist us in evaluating our ongoing performance from year to year. However, in performing our evaluation, we also consider equivalent measures of performance which doare not take into accountaffected by changes in the relative value of currencies.
For ease of understanding, Novartis uses a sign convention for its growth rates such that a reduction in operating expenses or losses compared to the prior year is shown as a positive growth.
Novartis defines free cash flow as cash flow from operating activities excludingand cash flow associated with the purchase or sale of property, plant &and equipment, intangible, other non-current and financial assets. Cash flows in connection with the acquisition or divestment of subsidiaries, associated companies and non-controlling interests in subsidiaries are also excluded fromnot taken into account to determine free cash flow.
Free cash flow is presented as additional information because Novartis considers it to be a useful indicator of the Group's ability to operate without relyingreliance on additional borrowing or the use of existing cash. Free cash flow is a measure of the net cash generated that is available for dividend payments, debt repayment, and investment in strategic opportunities. The Groupopportunities and for returning to shareholders. Novartis uses free cash flow as a performance measure when makingin internal
comparisons of results from the results ofGroup's divisions. Free cash flow constitutes a non-IFRS financial measure, which means that it should not be interpreted as a measure determined under IFRS. Free cash flow is not intended to be a substitute measure for cash flow from operating activities (as determined under IFRS).
Novartis defines net debt as ourcurrent and non-current financial debt less cash and cash equivalents, current investments and derivative financial instrumentsinstruments. Net debt is presented as additional information because management believes it is a useful supplemental indicator of the Group's ability to pay dividends, to meet financial commitments and to invest in new strategic opportunities, including strengthening its balance sheet.
The Novartis Cash Value Added (NCVA) is a metric that is based on what the company assesses to be its cash flow return less interest-bearing loansa capital charge on gross operating assets. NCVA is used as the primary internal financial measure for determining payouts under the new Long-Term Performance Plan (LTPP) introduced in 2014. More information on NCVA is presented as part of the Compensation report, see "Item 6.B Compensation".
Novartis utilizes its own definition for measuring Novartis Economic Value Added (NVA), which is utilized for determining payouts under the Old Long-Term Performance Plan (OLTPP). The following table shows NVA for 2015 and borrowings.2014:
| Year ended Dec 31, 2015 | Year ended Dec 31, 2014 | Change in $ | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | |||||||
Operating income from continuing operations | 8,977 | 11,089 | (19 | ) | ||||||
Income from associated companies | 266 | 1,918 | (86 | ) | ||||||
Operating interest | (298 | ) | (306 | ) | 3 | |||||
Operating tax | (1,937 | ) | (2,565 | ) | 24 | |||||
Capital charge | (6,164 | ) | (5,938 | ) | (4 | ) | ||||
| | | | | | | | | | |
Novartis Economic Value Added from continuing operations | 844 | 4,198 | (80 | ) | ||||||
Novartis Economic Value Added from discontinued operations | 10,808 | (678 | ) | nm | ||||||
| | | | | | | | | | |
Total Novartis Economic Value Added | 11,652 | 3,520 | 231 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Operating interest is the internal charge on average working capital based on the short-term borrowing rules of the entity owning them.
Operating tax is the internal tax charge for each entity applying the applicable tax rate to the operational profit before tax unadjusted for tax-disallowed items or tax loss carryforwards.
The capital charge is the notional interest charge on the average non-current assets of operations based on an internally calculated weighted average cost of capital for the Group.
The NVA for continuing operations decreased to $844 million in 2015 from $4.2 billion in the prior-year, mainly on account of the negative currency effect on operating income and lower income from associated companies, which included in the prior year exceptional one-time gains from the sale of the shares of Idenix ($0.8 billion) and LTS ($0.4 billion).
The NVA for discontinued operations in 2015 was mainly driven by the $12.7 billion exceptional pre-tax gains form the portfolio transformation transactions with GSK and Lilly.
EBITDA
Novartis defines earnings before interest, tax, depreciation and amortization (EBITDA) as operating income from continuing operations excluding depreciation of property, plant and equipment (including any related impairment charges) and amortization of intangible assets (including any related impairment charges).
| 2015 | 2014 | Change | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Operating income from continuing operations | 8,977 | 11,089 | (2,112 | ) | ||||||
Depreciation of property, plant & equipment | 1,470 | 1,586 | (116 | ) | ||||||
Amortization of intangible assets | 3,755 | 2,775 | 980 | |||||||
Impairments of property, plant & equipment and intangible assets | 246 | 321 | (75 | ) | ||||||
| | | | | | | | | | |
EBITDA from continuing operations | 14,448 | 15,771 | (1,323 | ) | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Enterprise Value
Enterprise value represents the total amount that shareholders and debt holders have invested in Novartis, less the Group's liquidity.
| Dec 31, 2015 | Dec 31, 2014 | Change | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Market capitalization | 208,321 | 223,728 | (15,407 | ) | ||||||
Non-controlling interests | 76 | 78 | (2 | ) | ||||||
Financial debts and derivatives | 21,931 | 20,411 | 1,520 | |||||||
Liquidity | (5,447 | ) | (13,862 | ) | 8,415 | |||||
| | | | | | | | | | |
Enterprise value | 224,881 | 230,355 | (5,474 | ) | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Enterprise value/EBITDA | 16 | 15 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The following tables reconcile IFRS results to core results:
2012, 20112015, 2014 AND 20102013 RECONCILIATION OF IFRS RESULTS TO CORE RESULTS—GROUP
2012 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, restructuring and integration charges(3) | Exceptional items(4) | Core results | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2015 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, including restructuring and integration charges(3) | Other exceptional items(4) | Core results | ||||||||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||||||
Gross profit | 38,805 | 2,786 | 174 | 39 | 43 | 41,847 | ||||||||||||||||||||||||||||||||
Operating income | 11,511 | 2,876 | 356 | 330 | 87 | 15,160 | ||||||||||||||||||||||||||||||||
Income before taxes | 11,243 | 3,045 | 356 | 364 | 87 | 15,095 | ||||||||||||||||||||||||||||||||
Taxes | (1,625 | ) | (2,284 | )(5) | ||||||||||||||||||||||||||||||||||
Gross profit from continuing operations | 32,983 | 3,666 | 126 | 125 | 36,900 | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
Operating income from continuing operations | 8,977 | 3,709 | 369 | 182 | 553 | 13,790 | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Income before taxes from continuing operations | 8,134 | 4,132 | 369 | 182 | 1,275 | 14,092 | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Taxes from continuing operations(5) | (1,106 | ) | (2,051 | ) | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||||||
Net income from continuing operations | 7,028 | 12,041 | ||||||||||||||||||||||||||||||||||||
Net income/loss from discontinued operations(6) | 10,766 | (256 | ) | |||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||||||
Net income | 9,618 | 12,811 | 17,794 | 11,785 | ||||||||||||||||||||||||||||||||||
Basic earnings per share ($)(6) | 3.93 | 5.25 | ||||||||||||||||||||||||||||||||||||
The following are adjustments to arrive at Core Gross Profit | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||||||
Basic EPS from continuing operations ($)(7) | 2.92 | 5.01 | ||||||||||||||||||||||||||||||||||||
Basic EPS from discontinued operations ($)(7) | 4.48 | (0.11 | ) | |||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||||||
Total basic EPS ($)(7) | 7.40 | 4.90 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||||||
The following are adjustments to arrive at Core Gross Profit from continuing operations | ||||||||||||||||||||||||||||||||||||||
Other revenues | 888 | (56 | ) | 832 | 947 | (28 | ) | 919 | ||||||||||||||||||||||||||||||
Cost of goods sold | (18,756 | ) | 2,786 | 174 | 39 | 99 | (15,658 | ) | (17,404 | ) | 3,666 | 126 | 153 | (13,459 | ) | |||||||||||||||||||||||
The following are adjustments to arrive at Core Operating Income | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
The following are adjustments to arrive at Core Operating Income from continuing operations | ||||||||||||||||||||||||||||||||||||||
Marketing & Sales | (14,353 | ) | 1 | (14,352 | ) | (11,772 | ) | 43 | (11,729 | ) | ||||||||||||||||||||||||||||
Research & Development | (9,332 | ) | 87 | 109 | 20 | (9,116 | ) | (8,935 | ) | 43 | 40 | 114 | (8,738 | ) | ||||||||||||||||||||||||
General & Administration | (2,937 | ) | 14 | (2,923 | ) | (2,475 | ) | 86 | (2,389 | ) | ||||||||||||||||||||||||||||
Other income | 1,187 | (1 | ) | (373 | ) | 813 | 2,049 | (56 | ) | (283 | ) | (887 | ) | 823 | ||||||||||||||||||||||||
Other expense | (1,859 | ) | 3 | 74 | 290 | 383 | (1,109 | ) | (2,873 | ) | 259 | 465 | 1,072 | (1,077 | ) | |||||||||||||||||||||||
The following are adjustments to arrive at Core Income before taxes | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
The following are adjustments to arrive at Core Income before taxes from continuing operations | ||||||||||||||||||||||||||||||||||||||
Income from associated companies | 552 | 169 | 34 | 755 | 266 | 423 | 292 | 981 | ||||||||||||||||||||||||||||||
Other financial income and expense | (454 | ) | 430 | (24 | ) | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | |
impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related restructuring and integration items having a full tax impact. There is usually a tax impact on exceptional items although this is not always the case for items arising from legal settlements in certain jurisdictions. Adjustments related to income from associated companies are recorded net of any related tax effect. Due to these factors and the differing effective tax rates in the various jurisdictions, the tax on the total adjustments for continuing operations of $6.0 billion to arrive at the core results before tax amounts to $945 million. The average tax rate on the adjustments for continuing operations is 15.9%.
2014 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, including restructuring and integration charges(3) | Other exceptional items(4) | Core results | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Gross profit from continuing operations | 36,289 | 2,692 | (21 | ) | (139 | ) | 38,821 | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
Operating income from continuing operations | 11,089 | 2,743 | 433 | 33 | 175 | 14,473 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Income before taxes from continuing operations | 12,272 | 3,000 | 434 | 33 | (1,058 | ) | 14,681 | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
Taxes from continuing operations(5) | (1,545 | ) | (2,028 | ) | |||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Net income from continuing operations | 10,727 | 12,653 | |||||||||||||||||
Net income/loss from discontinued operations(6) | (447 | ) | 102 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Net income | 10,280 | 12,755 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Basic EPS from continuing operations ($)(7) | 4.39 | 5.19 | |||||||||||||||||
Basic EPS from discontinued operations ($)(7) | (0.18 | ) | 0.04 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total basic EPS ($)(7) | 4.21 | 5.23 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Gross Profit from continuing operations | |||||||||||||||||||
Other revenues | 1,215 | (302 | ) | 913 | |||||||||||||||
Cost of goods sold | (17,345 | ) | 2,692 | (21 | ) | 163 | (14,511 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Operating Income from continuing operations | |||||||||||||||||||
Marketing & Sales | (12,377 | ) | 22 | (12,355 | ) | ||||||||||||||
Research & Development | (9,086 | ) | 48 | 298 | 17 | (8,723 | ) | ||||||||||||
General & Administration | (2,616 | ) | 64 | (2,552 | ) | ||||||||||||||
Other income | 1,391 | (15 | ) | (813 | ) | 563 | |||||||||||||
Other expense | (2,512 | ) | 3 | 171 | 33 | 1,024 | (1,281 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Income before taxes from continuing operations | |||||||||||||||||||
Income from associated companies | 1,918 | 257 | 1 | (1,233 | ) | 943 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Other expense includes restructuring provision charges, charges for transforming IT and finance processes, an expense related toLucentis in Italy, the expense of $204 million related to the advancement of the timing of recording the US Healthcare Fee liability as a result of final regulations. Income from associated companies includes gains from the divestment of Idenix and LTS Lohmann Therapie-Systeme AG shareholdings.
2013 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, including restructuring and integration charges(3) | Other exceptional items(4) | Core results | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Gross profit from continuing operations | 36,137 | 2,615 | 20 | 20 | 38,792 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Operating income from continuing operations | 10,983 | 2,680 | 210 | 331 | 3 | 14,207 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Income before taxes from continuing operations | 10,807 | 2,939 | 210 | 349 | 47 | 14,352 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Taxes from continuing operations(5) | (1,498 | ) | (2,057 | ) | |||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Net income from continuing operations | 9,309 | 12,295 | |||||||||||||||||
Net income/loss from discontinued operations(6) | (17 | ) | 238 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Net income | 9,292 | 12,533 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
EPS from continuing operations ($)(7) | 3.76 | 4.99 | |||||||||||||||||
EPS from discontinued operations ($)(7) | 0.10 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
EPS ($)(7) | 3.76 | 5.09 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Gross Profit from continuing operations | |||||||||||||||||||
Cost of goods sold | (16,579 | ) | 2,615 | 20 | 20 | (13,924 | ) | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Operating Income from continuing operations | |||||||||||||||||||
Marketing & Sales | (12,638 | ) | 27 | (12,611 | ) | ||||||||||||||
Research & Development | (9,071 | ) | 61 | 86 | 39 | (8,885 | ) | ||||||||||||
General & Administration | (2,603 | ) | 25 | (2,578 | ) | ||||||||||||||
Other income | 1,205 | (52 | ) | (505 | ) | 648 | |||||||||||||
Other expense | (2,047 | ) | 4 | 156 | 331 | 397 | (1,159 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Income before taxes from continuing operations | |||||||||||||||||||
Income from associated companies | 599 | 259 | 18 | 876 | |||||||||||||||
Other financial income and expense | (92 | ) | 44 | (48 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | | |
an additional charge of $22 million for product recalls charges related to termination of a US production plant;co-promotional contract; Research & Development also includes a net $18 million increase of contingent consideration liabilities related to business combinations;acquisitions; General & Administration includes exceptional IT-related costs; Other income includes a provision reduction of $137 million mainly related toTekturna/Rasilez inventories, a product divestment gain of $93 million,gains, a reversal of prior yeara Corporate provision, income from post-retirement medical plan amendments and reduction in restructuring charges of $76 million, and a gain on divestment related to the Novartis Venture Funds of $51 million;charge provisions; Other expense includes principally a restructuring provision charge, of $149 million related to the US business,provisions for legal matters, and charges for transforming IT and finance processesprocesses; Other financial income and expense includes devaluation losses of $117 million.
2015, 2014 AND 2013 RECONCILIATION OF IFRS RESULTS TO CORE RESULTS—PHARMACEUTICALS
2011 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, restructuring and integration charges(3) | Exceptional items(4) | Core results | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2015 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, including restructuring and integration charges(3) | Other exceptional items(4) | Core results | ||||||||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||||||
Gross profit | 40,392 | 2,918 | 278 | 5 | 246 | 43,839 | 23,993 | 1,262 | (20 | ) | 88 | 25,323 | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
Operating income | 10,998 | 3,028 | 1,224 | 148 | 511 | 15,909 | 7,597 | 1,290 | 12 | 192 | 329 | 9,420 | ||||||||||||||||||||||||||
Income before taxes | 10,773 | 3,238 | 1,224 | 148 | 552 | 15,935 | ||||||||||||||||||||||||||||||||
Taxes | (1,528 | ) | (2,445 | )(5) | ||||||||||||||||||||||||||||||||||
Net income | 9,245 | 13,490 | ||||||||||||||||||||||||||||||||||||
Basic earnings per share ($)(6) | 3.83 | 5.57 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
The following are adjustments to arrive at Core Gross Profit | ||||||||||||||||||||||||||||||||||||||
Net sales | 58,566 | 117 | 58,683 | |||||||||||||||||||||||||||||||||||
Other revenues | 790 | (28 | ) | 762 | ||||||||||||||||||||||||||||||||||
Cost of goods sold | (18,983 | ) | 2,918 | 278 | 5 | 129 | (15,653 | ) | (7,379 | ) | 1,262 | (20 | ) | 116 | (6,021 | ) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
The following are adjustments to arrive at Core Operating Income | ||||||||||||||||||||||||||||||||||||||
Marketing & Sales | (15,079 | ) | 2 | (15,077 | ) | (7,789 | ) | 43 | (7,746 | ) | ||||||||||||||||||||||||||||
Research & Development | (9,583 | ) | 93 | 341 | (90 | ) | (9,239 | ) | (7,232 | ) | 28 | 39 | 112 | (7,053 | ) | |||||||||||||||||||||||
General & Administration | (2,970 | ) | 13 | (2,957 | ) | |||||||||||||||||||||||||||||||||
Other income | 1,354 | (3 | ) | (102 | ) | (806 | ) | 443 | 1,145 | (56 | ) | (22 | ) | (743 | ) | 324 | ||||||||||||||||||||||
Other expense | (3,116 | ) | 4 | 608 | 245 | 1,159 | (1,100 | ) | (1,583 | ) | 49 | 214 | 829 | (491 | ) | |||||||||||||||||||||||
The following are adjustments to arrive at Core Income before taxes | ||||||||||||||||||||||||||||||||||||||
Income from associated companies | 528 | 210 | 41 | 779 | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
the recurring amortization of the purchase price allocation related to intangible assets included in the Novartis equity-method accounting for Roche of $162 million and $48 million for the Novartis share of the estimated Roche core items.
2010 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, restructuring and integration charges(3) | Exceptional items(4) | Core results | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2014 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, including restructuring and integration charges(3) | Other exceptional items(4) | Core results | ||||||||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||||||
Gross profit | 37,073 | 1,061 | (90 | ) | 471 | 2 | 38,517 | 25,793 | 238 | (58 | ) | 127 | 26,100 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
Operating income | 11,526 | 1,135 | 981 | 600 | (236 | ) | 14,006 | 8,471 | 276 | 266 | 33 | 468 | 9,514 | |||||||||||||||||||||||||
Income before taxes | 11,702 | 1,560 | 981 | 280 | (104 | ) | 14,419 | |||||||||||||||||||||||||||||||
Taxes(5) | (1,733 | ) | (2,390 | ) | ||||||||||||||||||||||||||||||||||
Net income | 9,969 | 12,029 | ||||||||||||||||||||||||||||||||||||
Basic earnings per share ($)(6) | 4.28 | 5.15 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
The following are adjustments to arrive at Core Gross Profit | ||||||||||||||||||||||||||||||||||||||
Cost of goods sold | (14,488 | ) | 1,061 | (90 | ) | 471 | 2 | (13,044 | ) | (6,889 | ) | 238 | (58 | ) | 127 | (6,582 | ) | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
The following are adjustments to arrive at Core Operating Income | ||||||||||||||||||||||||||||||||||||||
Marketing & Sales | (13,316 | ) | 1 | (13,315 | ) | (8,178 | ) | 2 | (8,176 | ) | ||||||||||||||||||||||||||||
Research & Development | (9,070 | ) | 69 | 903 | 18 | (8,080 | ) | (7,331 | ) | 38 | 289 | 7 | (6,997 | ) | ||||||||||||||||||||||||
General & Administration | (2,481 | ) | 4 | (2,477 | ) | (1,009 | ) | 1 | (1,008 | ) | ||||||||||||||||||||||||||||
Other income | 1,234 | (10 | ) | (739 | ) | 485 | 734 | (13 | ) | (451 | ) | 270 | ||||||||||||||||||||||||||
Other expense | (1,914 | ) | 178 | 129 | 483 | (1,124 | ) | (1,538 | ) | 48 | 33 | 782 | (675 | ) | ||||||||||||||||||||||||
The following are adjustments to arrive at Core Income before taxes | ||||||||||||||||||||||||||||||||||||||
Income from associated companies | 804 | 425 | (320 | ) | 132 | 1,041 | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
2013 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Other exceptional items(3) | Core results | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Gross profit | 26,258 | 228 | 6 | 26,492 | ||||||||||||
| | | | | | | | | | | | | | | | |
Operating income | 9,376 | 278 | 74 | (205 | ) | 9,523 | ||||||||||
| | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Gross Profit | ||||||||||||||||
Cost of goods sold | (6,655 | ) | 228 | 6 | (6,421 | ) | ||||||||||
| | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Operating Income | ||||||||||||||||
Marketing & Sales | (8,514 | ) | 27 | (8,487 | ) | |||||||||||
Research & Development | (7,242 | ) | 50 | 29 | 2 | (7,161 | ) | |||||||||
Other income | 699 | (46 | ) | (390 | ) | 263 | ||||||||||
Other expense | (774 | ) | 91 | 150 | (533 | ) | ||||||||||
| | | | | | | | | | | | | | | | |
2012, 20112015, 2014 AND 20102013 RECONCILIATION OF IFRS RESULTS TO CORE RESULTS—PHARMACEUTICALSALCON
2012 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Other exceptional items(3) | Core results | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2015 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Other exceptional items(3) | Core results | |||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||
Gross profit | 26,323 | 270 | 120 | 54 | 26,767 | 4,729 | 2,049 | 119 | 4 | 6,901 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Operating income | 9,598 | 322 | 238 | 55 | 10,213 | 794 | 2,063 | 121 | 85 | 3,063 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
The following are adjustments to arrive at Core Gross Profit | ||||||||||||||||||||||||||||||||
Cost of goods sold | (6,578 | ) | 270 | 120 | 54 | (6,134 | ) | (5,153 | ) | 2,049 | 119 | 4 | (2,981 | ) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
The following are adjustments to arrive at Core Operating Income | ||||||||||||||||||||||||||||||||
Research & Development | (6,918 | ) | 52 | 91 | 78 | (6,697 | ) | (926 | ) | 14 | 1 | 2 | (909 | ) | ||||||||||||||||||
General & Administration | (544 | ) | 32 | (512 | ) | |||||||||||||||||||||||||||
Other income | 577 | (1 | ) | (303 | ) | 273 | 58 | (13 | ) | 45 | ||||||||||||||||||||||
Other expense | (755 | ) | 28 | 226 | (501 | ) | (125 | ) | 1 | 60 | (64 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | |
includes a provision reduction of $137 million mainly related toTekturna/Rasilez inventories, a product divestment gain of $93 million, and reversal of prior year restructuring charges of $70 million; Other expense includes a restructuring charge of $149 million related to the US business, an additional legal settlement provision of $19 million and an additional provision of $19 million related toTekturna/Rasilez clinical studies, and a restructuring charge of $42 million related to the European and Asian business.
2011 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, restructuring and integration charges(3) | Exceptional items(4) | Core results | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Gross profit | 26,632 | 369 | 249 | 115 | 27,365 | ||||||||||||||
Operating income | 8,296 | 423 | 985 | (81 | ) | 417 | 10,040 | ||||||||||||
The following are adjustments to arrive at Core Gross Profit | |||||||||||||||||||
Net sales to third parties | 32,508 | 44 | 32,552 | ||||||||||||||||
Cost of goods sold | (6,573 | ) | 369 | 249 | 71 | (5,884 | ) | ||||||||||||
The following are adjustments to arrive at Core Operating Income | |||||||||||||||||||
Research & Development | (7,232 | ) | 54 | 303 | 15 | (6,860 | ) | ||||||||||||
Other income | 697 | (3 | ) | (81 | ) | (436 | ) | 177 | |||||||||||
Other expense | (1,825 | ) | 436 | 723 | (666 | ) | |||||||||||||
2010(1) | IFRS results | Amortization of intangible assets(2) | Impairments(3) | Exceptional items(4) | Core results | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Gross profit | 25,613 | 421 | (100 | ) | 25,934 | |||||||||||
Operating income | 8,471 | 457 | 833 | (175 | ) | 9,586 | ||||||||||
The following are adjustments to arrive at Core Gross Profit | ||||||||||||||||
Cost of goods sold | (5,272 | ) | 421 | (100 | ) | (4,951 | ) | |||||||||
The following are adjustments to arrive at Core Operating Income | ||||||||||||||||
Research & Development | (7,276 | ) | 36 | 896 | (6,344 | ) | ||||||||||
Other income | 687 | (8 | ) | (474 | ) | 205 | ||||||||||
Other expense | (971 | ) | 45 | 299 | (627 | ) | ||||||||||
2012, 2011 AND 2010 RECONCILIATION OF IFRS RESULTS TO CORE RESULTS—ALCON RESTATED
2012 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, restructuring and integration charges(3) | Other exceptional items(4) | Core results | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2014 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Other exceptional items(3) | Core results | ||||||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||||
Gross profit | 5,716 | 1,906 | 1 | 16 | 7,639 | 5,717 | 2,056 | 26 | 7,799 | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
Operating income | 1,465 | 1,915 | 17 | 264 | 37 | 3,698 | 1,597 | 2,064 | 6 | 144 | 3,811 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | |||||||||||||||||||
The following are adjustments to arrive at Core Gross Profit | |||||||||||||||||||||||||||||||||||
Cost of goods sold | (4,618 | ) | 1,906 | 1 | 16 | (2,695 | ) | (5,193 | ) | 2,056 | 26 | (3,111 | ) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
The following are adjustments to arrive at Core Operating Income | |||||||||||||||||||||||||||||||||||
Marketing & Sales | (2,474 | ) | 20 | (2,454 | ) | ||||||||||||||||||||||||||||||
Research & Development | (975 | ) | 9 | 16 | (950 | ) | (928 | ) | 8 | 7 | 10 | (903 | ) | ||||||||||||||||||||||
General & Administration | (510 | ) | 14 | (496 | ) | (613 | ) | 45 | (568 | ) | |||||||||||||||||||||||||
Other income | 49 | (1 | ) | 48 | 79 | (1 | ) | (52 | ) | 26 | |||||||||||||||||||||||||
Other expense | (353 | ) | 264 | 8 | (81 | ) | (184 | ) | 95 | (89 | ) | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |
2011 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, restructuring and integration charges(3) | Exceptional items(4) | Core results | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Gross profit | 5,457 | 1,912 | 20 | 7,389 | |||||||||||||||
Operating income | 1,472 | 1,928 | 29 | 212 | (149 | ) | 3,492 | ||||||||||||
The following are adjustments to arrive at Core Gross Profit | |||||||||||||||||||
Cost of goods sold | (4,566 | ) | 1,912 | 20 | (2,634 | ) | |||||||||||||
The following are adjustments to arrive at Core Operating Income | |||||||||||||||||||
Research & Development | (892 | ) | 3 | 20 | (869 | ) | |||||||||||||
General & Administration | (509 | ) | 13 | (496 | ) | ||||||||||||||
Other income | 262 | (21 | ) | (229 | ) | 12 | |||||||||||||
Other expense | (309 | ) | 9 | 233 | 60 | (7 | ) | ||||||||||||
2010(1),(2) | IFRS results | Amortization of intangible assets(3) | Acquisition or divestment related items, restructuring and integration charges(4) | Core results | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | |||||||||
Gross profit | 2,734 | 60 | 459 | 3,253 | |||||||||
Operating income | 796 | 65 | 489 | 1,350 | |||||||||
The following are adjustments to arrive at Core Gross Profit | |||||||||||||
Cost of goods sold | (1,760 | ) | 60 | 459 | (1,241 | ) | |||||||
The following are adjustments to arrive at Core Operating Income | |||||||||||||
Research & Development | (352 | ) | 1 | (351 | ) | ||||||||
General & Administration | (255 | ) | 4 | (251 | ) | ||||||||
Other expense | (39 | ) | 30 | (9 | ) | ||||||||
2012, 2011 AND 2010 RECONCILIATION OF IFRS RESULTS TO CORE RESULTS—SANDOZ
2012 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, restructuring and integration charges(3) | Other exceptional items(4) | Core results | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2013 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, restructuring and integration charges(3) | Other exceptional items(4) | Core results | ||||||||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||||||
Gross profit | 3,867 | 356 | 46 | 36 | 4 | 4,309 | 5,673 | 1,980 | �� | 12 | 7,665 | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Operating income | 1,091 | 364 | 46 | 62 | (60 | ) | 1,503 | 1,232 | 1,989 | 61 | 330 | 82 | 3,694 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
The following are adjustments to arrive at Core Gross Profit | ||||||||||||||||||||||||||||||||||||||
Cost of goods sold | (5,126 | ) | 356 | 46 | 36 | 4 | (4,684 | ) | (4,900 | ) | 1,980 | 12 | (2,908 | ) | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||
The following are adjustments to arrive at Core Operating Income | ||||||||||||||||||||||||||||||||||||||
Marketing & Sales | (1,561 | ) | 1 | (1,560 | ) | |||||||||||||||||||||||||||||||||
Research & Development | (695 | ) | 8 | (3 | ) | (59 | ) | (749 | ) | (1,042 | ) | 9 | 57 | 37 | (939 | ) | ||||||||||||||||||||||
General & Administration | (589 | ) | 25 | (564 | ) | |||||||||||||||||||||||||||||||||
Other income | 74 | (10 | ) | 64 | 79 | (40 | ) | 39 | ||||||||||||||||||||||||||||||
Other expense | (244 | ) | 3 | 25 | 5 | (211 | ) | (437 | ) | 4 | 330 | 48 | (55 | ) | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
2015, 2014 AND 2013 RECONCILIATION OF IFRS RESULTS TO CORE RESULTS—SANDOZ
2015 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, including restructuring and integration charges(3) | Other exceptional items(4) | Core results | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Gross profit | 3,985 | 355 | 27 | 33 | 4,400 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Operating income | 1,005 | �� | 356 | 124 | 174 | 1,659 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Gross Profit | |||||||||||||||||||
Cost of goods sold | (5,325 | ) | 355 | 27 | 33 | (4,910 | ) | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Operating Income | |||||||||||||||||||
Research & Development | (777 | ) | 1 | (776 | ) | ||||||||||||||
Other income | 109 | (1 | ) | (4 | ) | 104 | |||||||||||||
Other expense | (381 | ) | 97 | 1 | 145 | (138 | ) | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
2011 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Exceptional items(3) | Core results | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2014 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Other exceptional items(3) | Core results | |||||||||||||||||||||||||||
| $ m | $ m | $ m | | $ m $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||
Gross profit | 4,356 | 368 | 18 | 4 | 4,746 | 4,109 | 398 | 37 | 10 | 4,554 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Operating income | 1,422 | 383 | 26 | 90 | 1,921 | 1,088 | 400 | 47 | 36 | 1,571 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
The following are adjustments to arrive at Core Gross Profit | ||||||||||||||||||||||||||||||||
Cost of goods sold | (5,445 | ) | 368 | 18 | 4 | (5,055 | ) | (5,751 | ) | 398 | 37 | 10 | (5,306 | ) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
The following are adjustments to arrive at Core Operating Income | ||||||||||||||||||||||||||||||||
Research & Development | (640 | ) | 15 | 7 | (106 | ) | (724 | ) | (827 | ) | 2 | 2 | (823 | ) | ||||||||||||||||||
Other income | 88 | (12 | ) | 76 | 97 | (1 | ) | (3 | ) | 93 | ||||||||||||||||||||||
Other expense | (422 | ) | 1 | 204 | (217 | ) | (190 | ) | 9 | 29 | (152 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | |
2010(1) | IFRS results | Amortization of intangible assets(2) | Impairments(3) | Acquisition or divestment related items, restructuring and integration charges(4) | Exceptional items(5) | Core results | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Gross profit | 3,997 | 278 | 4 | 12 | 4,291 | ||||||||||||||
Operating income | 1,321 | 293 | 11 | 12 | 105 | 1,742 | |||||||||||||
The following are adjustments to arrive at Core Gross Profit | |||||||||||||||||||
Cost of goods sold | (4,878 | ) | 278 | 4 | 12 | (4,584 | ) | ||||||||||||
The following are adjustments to arrive at Core Operating Income | |||||||||||||||||||
Research & Development | (658 | ) | 15 | 7 | 18 | (618 | ) | ||||||||||||
Other income | 77 | (1 | ) | 76 | |||||||||||||||
Other expense | (295 | ) | 1 | 87 | (207 | ) | |||||||||||||
2012, 2011 AND 2010 RECONCILIATION OF IFRS RESULTS TO CORE RESULTS—VACCINES AND DIAGNOSTICS
2012 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, restructuring and integration charges(3) | Other exceptional items(4) | Core results | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Gross profit | 755 | 197 | 3 | (56 | ) | 899 | |||||||||||||
Operating income | (250 | ) | 215 | 12 | 3 | (55 | ) | (75 | ) | ||||||||||
The following are adjustments to arrive at Core Gross Profit | |||||||||||||||||||
Other revenues | 331 | (56 | ) | 275 | |||||||||||||||
Cost of goods sold | (1,478 | ) | 197 | 3 | (1,278 | ) | |||||||||||||
The following are adjustments to arrive at Core Operating Income | |||||||||||||||||||
Research & Development | (453 | ) | 18 | 5 | 1 | (429 | ) | ||||||||||||
Other expense | (115 | ) | 7 | (108 | ) | ||||||||||||||
2011 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, restructuring and integration charges(3) | Exceptional items(4) | Core results | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Gross profit | 954 | 211 | 5 | 2 | 1,172 | ||||||||||||||
Operating income | (249 | ) | 231 | 145 | 5 | 3 | 135 | ||||||||||||
The following are adjustments to arrive at Core Gross Profit | |||||||||||||||||||
Cost of goods sold | (1,410 | ) | 211 | 5 | 2 | (1,192 | ) | ||||||||||||
The following are adjustments to arrive at Core Operating Income | |||||||||||||||||||
Research & Development | (523 | ) | 20 | 8 | 1 | (494 | ) | ||||||||||||
Other expense | (185 | ) | 137 | (48 | ) | ||||||||||||||
2010 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Exceptional items(3) | Core results | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Gross profit | 1,860 | 242 | 2 | 2,104 | ||||||||||||
Operating income | 612 | 259 | 112 | 83 | 1,066 | |||||||||||
The following are adjustments to arrive at Core Gross Profit | ||||||||||||||||
Cost of goods sold | (1,551 | ) | 242 | 2 | (1,307 | ) | ||||||||||
The following are adjustments to arrive at Core Operating Income | ||||||||||||||||
Research & Development | (523 | ) | 17 | (506 | ) | |||||||||||
Other expense | (273 | ) | 112 | 81 | (80 | ) | ||||||||||
2012, 2011 AND 2010 RECONCILIATION OF IFRS RESULTS TO CORE RESULTS—CONSUMER HEALTH
2012 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Other exceptional items(3) | Core results | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Gross profit | 2,050 | 57 | 7 | 25 | 2,139 | |||||||||||
Operating income | 48 | 57 | 10 | 44 | 159 | |||||||||||
The following are adjustments to arrive at Core Gross Profit | ||||||||||||||||
Cost of goods sold | (1,729 | ) | 57 | 7 | 25 | (1,640 | ) | |||||||||
The following are adjustments to arrive at Core Operating Income | ||||||||||||||||
Other income | 75 | (8 | ) | 67 | ||||||||||||
Other expense | (73 | ) | 3 | 27 | (43 | ) | ||||||||||
2011 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Exceptional items(3) | Core results | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2013 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Other exceptional items(3) | Core results | |||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | | $ m$ m | ||||||||||||||||||||||
Gross profit | 2,935 | 58 | 11 | 105 | 3,109 | 3,995 | 407 | 20 | 2 | 4,424 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Operating income | 727 | 59 | 16 | 71 | 873 | 1,028 | 409 | 17 | 87 | 1,541 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
The following are adjustments to arrive at Core Gross Profit | ||||||||||||||||||||||||||||||||
Net sales to third parties | 4,631 | 73 | 4,704 | |||||||||||||||||||||||||||||
Cost of goods sold | (1,735 | ) | 58 | 11 | 32 | (1,634 | ) | (5,476 | ) | 407 | 20 | 2 | (5,047 | ) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
The following are adjustments to arrive at Core Operating Income | ||||||||||||||||||||||||||||||||
Marketing & Sales | (1,674 | ) | 2 | (1,672 | ) | |||||||||||||||||||||||||||
Research & Development | (296 | ) | 1 | 3 | (292 | ) | (787 | ) | 2 | (785 | ) | |||||||||||||||||||||
Other income | 91 | (44 | ) | 47 | 106 | (6 | ) | 100 | ||||||||||||||||||||||||
Other expense | (38 | ) | 2 | 8 | (28 | ) | (240 | ) | 3 | 85 | (152 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | |
2015, 2014 AND 2013 RECONCILIATION OF IFRS RESULTS TO CORE RESULTS—CORPORATE
2015 | IFRS results | Impairments(1) | Acquisition or divestment related items, including restructuring and integration charges(2) | Other exceptional items(3) | Core results | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | | $ m | $ m | $ m$ m | |||||||||||
Gross profit | 276 | 276 | ||||||||||||||
| | | | | | | | | | | | | | | | |
Operating loss | (419 | ) | 112 | (10 | ) | (35 | ) | (352 | ) | |||||||
| | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Operating Loss | ||||||||||||||||
General & Administration | (648 | ) | 54 | (594 | ) | |||||||||||
Other income | 737 | (260 | ) | (127 | ) | 350 | ||||||||||
Other expense | (784 | ) | 112 | 250 | 38 | (384 | ) | |||||||||
| | | | | | | | | | | | | | | | |
2014 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Other exceptional items(3) | Core results | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | | $ m$ m | |||||||||||
Gross profit | 670 | (302 | ) | 368 | ||||||||||||
| | | | | | | | | | | | | | | | |
Operating loss | (67 | ) | 3 | 114 | (473 | ) | (423 | ) | ||||||||
| | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Gross Profit | ||||||||||||||||
Other revenues | 540 | (302 | ) | 238 | ||||||||||||
| | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Operating Loss | ||||||||||||||||
General & Administration | (618 | ) | 18 | (600 | ) | |||||||||||
Other income | 481 | (307 | ) | 174 | ||||||||||||
Other expense | (600 | ) | 3 | 114 | 118 | (365 | ) | |||||||||
| | | | | | | | | | | | | | | | |
2013 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, restructuring and integration charges(3) | Other exceptional items(4) | Core results | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Gross profit | 211 | 211 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Operating loss | (653 | ) | 4 | 58 | 1 | 39 | (551 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Operating Loss | |||||||||||||||||||
Other income | 321 | (75 | ) | 246 | |||||||||||||||
Other expense | (596 | ) | 4 | 58 | 1 | 114 | (419 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
2015, 2014 AND 2013 RECONCILIATION OF IFRS RESULTS TO CORE RESULTS—DISCONTINUED OPERATIONS
| | | | | | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Acquisition or divestment related items, including restructuring and integration charges(2) | | | |||||||||||
| IFRS results | | Other exceptional items(3) | Core results | ||||||||||||
2015 | Impairments(1) | |||||||||||||||
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Gross profit | 267 | 6 | 273 | |||||||||||||
| | | | | | | | | | | | | | | | |
Operating income/loss | 12,477 | (83 | ) | (12,627 | ) | 8 | (225 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Income/loss before taxes | 12,479 | (83 | ) | (12,627 | ) | 8 | (223 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Taxes(4) | (1,713 | ) | (33 | ) | ||||||||||||
| | | | | | | | | | | | | | | | |
Net income/loss | 10,766 | (256 | ) | |||||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
EPS ($)(5) | 4.48 | (0.11 | ) | |||||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Gross Profit | ||||||||||||||||
Cost of goods sold | (376 | ) | 6 | (370 | ) | |||||||||||
| | | | | | | | | | | | | | | | |
The following are adjustments to arrive at Core Operating Loss | ||||||||||||||||
Other income | 13,420 | (13,310 | ) | (1 | ) | 109 | ||||||||||
Other expense | (727 | ) | (83 | ) | 683 | 3 | (124 | ) | ||||||||
| | | | | | | | | | | | | | | | |
2010(1) | IFRS results | Amortization of intangible assets(2) | Impairments(3) | Core results | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2014 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, including restructuring and integration charges(3) | Other exceptional items(4) | Core results | ||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||
Gross profit | 2,871 | 60 | 6 | 2,937 | 2,886 | 65 | 302 | 19 | 3,272 | |||||||||||||||||||||||
Operating income | 778 | 61 | 6 | 845 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||
Operating loss/income | (353 | ) | 73 | 1,141 | (680 | ) | (38 | ) | 143 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||
Loss/income before taxes | (351 | ) | 73 | 1,141 | (680 | ) | (38 | ) | 145 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||
Taxes(5) | (96 | ) | (43 | ) | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||
Net loss/income | (447 | ) | 102 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||
EPS ($)(6) | (0.18 | ) | 0.04 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||
The following are adjustments to arrive at Core Gross Profit | ||||||||||||||||||||||||||||||||
Cost of goods sold | (1,560 | ) | 60 | 6 | (1,494 | ) | (3,073 | ) | 65 | 302 | 19 | (2,687 | ) | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||
The following are adjustments to arrive at Core Operating Income | ||||||||||||||||||||||||||||||||
Marketing & Sales | (1,569 | ) | 1 | (1,568 | ) | |||||||||||||||||||||||||||
Research & Development | (857 | ) | 8 | (849 | ) | |||||||||||||||||||||||||||
Other income | 1,007 | (1 | ) | (876 | ) | (89 | ) | 41 | ||||||||||||||||||||||||
Other expense | (1,146 | ) | 840 | 196 | 32 | (78 | ) | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
2012 and 2011 Reconciliationcharge in Corporate, for an in-process project which is pending divestment as a result of segment operating income to Core operating income
| Pharmaceuticals | Alcon | Sandoz | Vaccines and Diagnostics | Consumer Health | Corporate | Total | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||||||||||||||||||
Operating income | 9,598 | 8,296 | 1,465 | 1,472 | 1,091 | 1,422 | (250 | ) | (249 | ) | 48 | 727 | (441 | ) | (670 | ) | 11,511 | 10,998 | |||||||||||||||||||||||||
Amortization of intangible assets | 322 | 423 | 1,915 | 1,928 | 364 | 383 | 215 | 231 | 57 | 59 | 3 | 4 | 2,876 | 3,028 | |||||||||||||||||||||||||||||
Impairments | |||||||||||||||||||||||||||||||||||||||||||
Intangible assets | 211 | 552 | 17 | 20 | 43 | 25 | 5 | 8 | 7 | 14 | 283 | 619 | |||||||||||||||||||||||||||||||
Property, plant & equipment related to the Group-wide rationalization of manufacturing sites | 12 | 5 | 17 | ||||||||||||||||||||||||||||||||||||||||
Other property, plant & equipment | 25 | 391 | 3 | 1 | 6 | 2 | 3 | 2 | 2 | 39 | 396 | ||||||||||||||||||||||||||||||||
Financial assets | 2 | 30 | 4 | 1 | 135 | 31 | 23 | 34 | 192 | ||||||||||||||||||||||||||||||||||
Total impairment charges | 238 | 985 | 17 | 29 | 46 | 26 | 12 | 145 | 10 | 16 | 33 | 23 | 356 | 1,224 | |||||||||||||||||||||||||||||
Acquisition-related items | |||||||||||||||||||||||||||||||||||||||||||
—Gains | (81 | ) | (21 | ) | (102 | ) | |||||||||||||||||||||||||||||||||||||
—Expenses | 264 | 233 | 62 | 3 | 5 | 1 | 12 | 330 | 250 | ||||||||||||||||||||||||||||||||||
Total acquisition-related items, net | (81 | ) | 264 | 212 | 62 | 3 | 5 | 1 | 12 | 330 | 148 | ||||||||||||||||||||||||||||||||
Other exceptional items | |||||||||||||||||||||||||||||||||||||||||||
Exceptional divestment gains | (93 | ) | (334 | ) | (44 | ) | (51 | ) | (144 | ) | (378 | ) | |||||||||||||||||||||||||||||||
Restructuring items | |||||||||||||||||||||||||||||||||||||||||||
—Income | (70 | ) | (1 | ) | (10 | ) | (12 | ) | (8 | ) | (89 | ) | (12 | ) | |||||||||||||||||||||||||||||
—Expense | 240 | 420 | 24 | 52 | 4 | 4 | 1 | 3 | 3 | 8 | 272 | 487 | |||||||||||||||||||||||||||||||
Legal-related items | |||||||||||||||||||||||||||||||||||||||||||
—Income | (100 | ) | (229 | ) | (329 | ) | |||||||||||||||||||||||||||||||||||||
—Expense | 19 | 80 | 45 | 204 | 25 | 44 | 329 | ||||||||||||||||||||||||||||||||||||
Additional exceptional income | (137 | ) | (17 | ) | (59 | ) | (106 | ) | (56 | ) | (85 | ) | (252 | ) | (208 | ) | |||||||||||||||||||||||||||
Additional exceptional expense | 96 | 351 | 14 | 5 | 24 | 107 | 117 | 164 | 256 | 622 | |||||||||||||||||||||||||||||||||
Total other exceptional items | 55 | 417 | 37 | (149 | ) | (60 | ) | 90 | (55 | ) | 3 | 44 | 71 | 66 | 79 | 87 | 511 | ||||||||||||||||||||||||||
Total adjustments | 615 | 1,744 | 2,233 | 2,020 | 412 | 499 | 175 | 384 | 111 | 146 | 103 | 118 | 3,649 | 4,911 | |||||||||||||||||||||||||||||
Core operating income | 10,213 | 10,040 | 3,698 | 3,492 | 1,503 | 1,921 | (75 | ) | 135 | 159 | 873 | (338 | ) | (552 | ) | 15,160 | 15,909 | ||||||||||||||||||||||||||
Core return on net sales | 31.8 | % | 30.9 | % | 36.2 | % | 35.1 | % | 17.3 | % | 20.3 | % | -4.0 | % | 6.8 | % | 4.3 | % | 18.9 | % | 26.7 | % | 27.2 | % |
2011 and 2010 Reconciliation of segment operating income to Core operating income
| Pharmaceuticals | Alcon, Inc. | Sandoz | Vaccines and Diagnostics | Consumer Health | Corporate | Total | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010(2) | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||||||||||||||||||
Operating income | 8,296 | 8,471 | 1,472 | 796 | 1,422 | 1,321 | (249 | ) | 612 | 727 | 778 | (670 | ) | (452 | ) | 10,998 | 11,526 | ||||||||||||||||||||||||||
Amortization of intangible assets | 423 | 457 | 1,928 | 65 | 383 | 293 | 231 | 259 | 59 | 61 | 4 | 3,028 | 1,135 | ||||||||||||||||||||||||||||||
Impairments | |||||||||||||||||||||||||||||||||||||||||||
Intangible assets | 552 | 796 | 20 | 25 | 11 | 8 | 14 | 6 | 619 | 813 | |||||||||||||||||||||||||||||||||
Property, plant & equipment related to the Group-wide rationalization of manufacturing sites | 12 | 5 | 14 | 17 | 14 | ||||||||||||||||||||||||||||||||||||||
Other property, plant & equipment | 391 | (4 | ) | 1 | 2 | 2 | 396 | (4 | ) | ||||||||||||||||||||||||||||||||||
Financial assets | 30 | 41 | 4 | 135 | 98 | 23 | 19 | 192 | 158 | ||||||||||||||||||||||||||||||||||
Total impairment charges | 985 | 833 | 29 | 26 | 11 | 145 | 112 | 16 | 6 | 23 | 19 | 1,224 | 981 | ||||||||||||||||||||||||||||||
Acquisition-related items | |||||||||||||||||||||||||||||||||||||||||||
—Gains | (81 | ) | (21 | ) | (102 | ) | |||||||||||||||||||||||||||||||||||||
—Expenses | 233 | 489 | 12 | 5 | 12 | 99 | 250 | 600 | |||||||||||||||||||||||||||||||||||
Total acquisition-related items, net | (81 | ) | 212 | 489 | 12 | 5 | 12 | 99 | 148 | 600 | |||||||||||||||||||||||||||||||||
Other exceptional items | |||||||||||||||||||||||||||||||||||||||||||
Exceptional divestment gains | (334 | ) | (425 | ) | (44 | ) | (378 | ) | (425 | ) | |||||||||||||||||||||||||||||||||
Restructuring items | |||||||||||||||||||||||||||||||||||||||||||
—Income | (1 | ) | (7 | ) | (12 | ) | (13 | ) | (7 | ) | |||||||||||||||||||||||||||||||||
—Expense | 421 | 118 | 52 | 4 | 49 | 3 | 38 | 8 | 488 | 205 | |||||||||||||||||||||||||||||||||
Legal-related items | |||||||||||||||||||||||||||||||||||||||||||
—Income | (100 | ) | (42 | ) | (229 | ) | (329 | ) | (42 | ) | |||||||||||||||||||||||||||||||||
—Expense | 80 | 181 | 45 | 204 | 56 | 45 | 329 | 282 | |||||||||||||||||||||||||||||||||||
Swiss pension curtailment gain | (265 | ) | (265 | ) | |||||||||||||||||||||||||||||||||||||||
Additional exceptional income | (17 | ) | (106 | ) | (85 | ) | (208 | ) | |||||||||||||||||||||||||||||||||||
Additional exceptional expense | 351 | 107 | 164 | 16 | 622 | 16 | |||||||||||||||||||||||||||||||||||||
Total other exceptional items | 417 | (175 | ) | (149 | ) | 90 | 105 | 3 | 83 | 71 | 79 | (249 | ) | 511 | (236 | ) | |||||||||||||||||||||||||||
Total adjustments | 1,744 | 1,115 | 2,020 | 554 | 499 | 421 | 384 | 454 | 146 | 67 | 118 | (131 | ) | 4,911 | 2,480 | ||||||||||||||||||||||||||||
Core operating income | 10,040 | 9,586 | 3,492 | 1,350 | 1,921 | 1,742 | 135 | 1,066 | 873 | 845 | (552 | ) | (583 | ) | 15,909 | 14,006 | |||||||||||||||||||||||||||
Core return on net sales | 30.9 | % | 31.6 | % | 35.1 | % | 30.4 | % | 20.3 | % | 20.3 | % | 6.8 | % | 36.5 | % | 18.9 | % | 19.4 | % | 27.2 | % | 27.7 | % |
ALCON SEGMENT RECONCILIATION FROM 2010 RESTATED TO PRO FORMA DATA
On August 25, 2010 Novartis acquiredthe partial reversal of a majority interest in Alcon, Inc.legal expense provision, and its results have been included in the consolidated IFRS results of the Novartis Group and the Alcon segment since then (for additional information, see "Item 18, Financial Statements—note 2").
Novartis believes that the presentation of pro forma information will assist investors in their understanding of the combined companies' operating performance by setting a base for comparison with the 2011 consolidated results of Alcon. Without these pro forma results, the Alcon 2010 restated results through August 25, 2010 would consist only of the results from CIBA Vision and those Pharmaceuticals ophthalmics products which were transferred to Alcon. As a result, it is considered a comparison between the 2011 Alcon results and the 2010 restated results would not be meaningful.
Therefore Novartis prepared pro forma information assuming the Alcon acquisition was completed on January 1, 2010. The pro forma information does not purport to present what the actual results of operations would have been had the transaction actually occurred on the date indicated.
The pro forma information includes the full 2010 consolidated income statement data for Alcon, Inc. from January 1, 2010 and adjusts for the impact of divestments required by regulators to approve the Alcon acquisition as well as for exceptional costs related to the acquisition of majority ownership of Alcon.
The following tables reconcile IFRS to pro forma core results for Alcon:
(in $ m) | 2010 Restated | Consolidated results of Alcon, Inc., from Jan. 1, 2010 to Aug. 25, 2010(1) | 2010 Pro forma | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Net sales to third parties | 4,446 | 4,585 | 9,031 | |||||||
Sales to other segments | 14 | 14 | ||||||||
Net sales of segments | 4,460 | 4,585 | 9,045 | |||||||
Other revenues | 34 | 5 | 39 | |||||||
Cost of goods sold | (1,760 | ) | (2,442 | ) | (4,202 | ) | ||||
Gross profit | 2,734 | 2,148 | 4,882 | |||||||
Marketing & Sales | (1,299 | ) | (1,060 | ) | (2,359 | ) | ||||
Research & Development | (352 | ) | (478 | ) | (830 | ) | ||||
General & Administration | (255 | ) | (255 | ) | (510 | ) | ||||
Other income | 7 | 7 | ||||||||
Other expense | (39 | ) | 30 | (9 | ) | |||||
Operating income | 796 | 385 | 1,181 | |||||||
as % of net sales | 17.9 | % | 8.4 | % | 13.1 | % | ||||
Core adjustments | ||||||||||
Cost of goods sold | 519 | 1,379 | 1,898 | |||||||
Research & Development | 1 | 3 | 4 | |||||||
General & Administration | 4 | 8 | 12 | |||||||
Other expense | 30 | (30 | ) | |||||||
Core Operating income | 1,350 | 1,745 | 3,095 | |||||||
as % of net sales | 30.4 | % | 38.1 | % | 34.3 | % |
the impact from a post-retirement medical plan amendment; Other expense also includes the write-off of a receivable as a result of the proposed portfolio transformation transactions.
| |||||||
| |||||||
| |||||||
| |||||||
| |||||||
| |||||||
| |||||||
| |||||||
| |||||||
| |||||||
2011 AND 2010 RECONCILIATION OF IFRS RESULTS TO CORE RESULTS—ALCON PRO FORMA
2011 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Acquisition or divestment related items, restructuring and integration charges(3) | Exceptional items(4) | Core results | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2013 | IFRS results | Amortization of intangible assets(1) | Impairments(2) | Other exceptional items(3) | Core results | ||||||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||||
Gross profit | 5,453 | 1,912 | 20 | 7,385 | 3,086 | 250 | 8 | 21 | 3,365 | ||||||||||||||||||||||||||
Operating income | 1,461 | 1,928 | 29 | 221 | (149 | ) | 3,490 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | |||||||||||||||||||
Operating loss/income | (73 | ) | 275 | 49 | 27 | 278 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | |||||||||||||||||||
Loss/income before taxes | (72 | ) | 275 | 49 | 27 | 279 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | |||||||||||||||||||||
Taxes(4) | 55 | (41 | ) | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||||||||
Net loss/income | (17 | ) | 238 | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||||||||
| | | | | | | | | | | | ||||||||||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||||||||
EPS ($)(5) | 0 | 0.10 | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||||||||
| | | | | | | | | | | | ||||||||||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||||||||
The following are adjustments to arrive at Core Gross Profit | |||||||||||||||||||||||||||||||||||
Cost of goods sold | (4,561 | ) | 1,912 | 20 | (2,629 | ) | (3,322 | ) | 250 | 9 | 21 | (3,042 | ) | ||||||||||||||||||||||
The following are adjustments to arrive at Core Operating Income | |||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | |||||||||||||||||||
The following are adjustments to arrive at Core Operating Loss | |||||||||||||||||||||||||||||||||||
Research & Development | (892 | ) | 3 | 20 | (869 | ) | (781 | ) | 24 | (757 | ) | ||||||||||||||||||||||||
General & Administration | (509 | ) | 13 | (496 | ) | ||||||||||||||||||||||||||||||
Other income | 241 | (229 | ) | 12 | 174 | (1 | ) | (1 | ) | 172 | |||||||||||||||||||||||||
Other expense | (296 | ) | 9 | 221 | 60 | (6 | ) | (184 | ) | 1 | 41 | 7 | (135 | ) | |||||||||||||||||||||
| | | | | | | | | | | | | | | | |
2015 and 2014 Reconciliation of segment operating income to Core Results
2010(1) | IFRS results | Amortization of intangible assets(2) | Core results | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Gross profit | 4,882 | 1,898 | 6,780 | |||||||
Operating income | 1,181 | 1,914 | 3,095 | |||||||
The following are adjustments to arrive at Core Gross Profit | ||||||||||
Cost of goods sold | (4,202 | ) | 1,898 | (2,304 | ) | |||||
The following are adjustments to arrive at Core Operating Income | ||||||||||
Research & Development | (830 | ) | 4 | (826 | ) | |||||
General & Administration | (510 | ) | 12 | (498 | ) | |||||
| Pharmaceuticals | Alcon | Sandoz | Corporate | Total Group | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||||
| $ millions | $ millions | $ millions | $ millions | $ millions | $ millions | $ millions | $ millions | $ millions | $ millions | |||||||||||||||||||||
IFRS Operating income from continuing operations | 7,597 | 8,471 | 794 | 1,597 | 1,005 | 1,088 | (419 | ) | (67 | ) | 8,977 | 11,089 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of intangible assets | 1,290 | 276 | 2,063 | 2,064 | 356 | 400 | 3 | 3,709 | 2,743 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Impairments | |||||||||||||||||||||||||||||||
Intangible assets | 19 | 231 | 120 | 7 | 27 | 39 | 166 | 277 | |||||||||||||||||||||||
Property, plant & equipment related to the Group-wide rationalization of manufacturing sites | 6 | 23 | 83 | 89 | 23 | ||||||||||||||||||||||||||
Other property, plant & equipment | (45 | ) | (8 | ) | 1 | (1 | ) | 14 | 7 | 21 | 23 | (9 | ) | 21 | |||||||||||||||||
Financial assets | 32 | 20 | 1 | 91 | 91 | 123 | 112 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total impairment charges | 12 | 266 | 121 | 6 | 124 | 47 | 112 | 114 | 369 | 433 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition or divestment related items | |||||||||||||||||||||||||||||||
—Income | (22 | ) | (1 | ) | (260 | ) | (283 | ) | |||||||||||||||||||||||
—Expense | 214 | 33 | 1 | 250 | 465 | 33 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total acquisition or divestment related items, net | 192 | 33 | (10 | ) | 182 | 33 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other exceptional items | |||||||||||||||||||||||||||||||
Exceptional divestment gains | (626 | ) | (237 | ) | (54 | ) | (294 | ) | (680 | ) | (531 | ) | |||||||||||||||||||
Restructuring items | |||||||||||||||||||||||||||||||
—Income | (27 | ) | (56 | ) | (7 | ) | (24 | ) | (3 | ) | (5 | ) | (39 | ) | (83 | ) | |||||||||||||||
—Expense | 391 | 632 | 60 | 95 | 121 | 21 | 57 | 1 | 629 | 749 | |||||||||||||||||||||
Legal-related items | |||||||||||||||||||||||||||||||
—Expense | 578 | 125 | 4 | 40 | (30 | ) | 30 | 592 | 155 | ||||||||||||||||||||||
Additional exceptional income | (119 | ) | (158 | ) | (5 | ) | (29 | ) | (2 | ) | (68 | ) | (315 | ) | (194 | ) | (502 | ) | |||||||||||||
Additional exceptional expense | 132 | 162 | 33 | 102 | 15 | 18 | 65 | 105 | 245 | 387 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other exceptional items | 329 | 468 | 85 | 144 | 174 | 36 | (35 | ) | (473 | ) | 553 | 175 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total adjustments | 1,823 | 1,043 | 2,269 | 2,214 | 654 | 483 | 67 | (356 | ) | 4,813 | 3,384 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Core operating income from continuing operations | 9,420 | 9,514 | 3,063 | 3,811 | 1,659 | 1,571 | (352 | ) | (423 | ) | 13,790 | 14,473 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
as % of net sales | 30.9 | % | 29.9 | % | 31.2 | % | 35.2 | % | 18.1 | % | 16.4 | % | 27.9 | % | 27.7 | % | |||||||||||||||
Income from associated companies | 812 | 2 | 4 | 264 | 1,102 | 266 | 1,918 | ||||||||||||||||||||||||
Core adjustments to income from associated companies, net of tax | (812 | ) | 715 | (163 | ) | 715 | (975 | ) | |||||||||||||||||||||||
Interest expense | (655 | ) | (704 | ) | |||||||||||||||||||||||||||
Other financial income and expense(1) | (24 | ) | (31 | ) | |||||||||||||||||||||||||||
Taxes (adjusted for above items) | (2,051 | ) | (2,028 | ) | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Core net income from continuing operations | 12,041 | 12,653 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Core net loss/income from discontinued operations(2) | (256 | ) | 102 | ||||||||||||||||||||||||||||
Core net income | 11,785 | 12,755 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Core net income attributable to shareholders | 11,774 | 12,685 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Core basic EPS from continuing operations ($)(3) | 5.01 | 5.19 | |||||||||||||||||||||||||||||
Core basic EPS from discontinued operations ($)(3) | (0.11 | ) | 0.04 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total core basic EPS ($)(3) | 4.90 | 5.23 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Novartis utilizes its own definition for measuring Novartis Economic Value Added (NVA), which
| Year ended December 31, 2012 | Year ended December 31, 2011 | Change in $ | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | % | |||||||
Operating income | 11,511 | 10,998 | 5 | |||||||
Income from associated companies | 552 | 528 | 5 | |||||||
Operating interest | (348 | ) | (284 | ) | 23 | |||||
Operating tax | (2,334 | ) | (2,296 | ) | 2 | |||||
Capital charge | (7,060 | ) | (7,397 | ) | (5 | ) | ||||
Novartis Economic Value Added | 2,321 | 1,549 | 50 | |||||||
Operating interest is the internal charge on average working capital basedcalculated on the short-term borrowing ratesamount of the entity owning them.
Operating tax is the internal tax charge for each entity applying the applicable tax ratenet income attributable to the profit before taxshareholders of each entity unadjusted for tax-disallowed items or tax loss carryforwards.
The capital charge2014 and 2013 Reconciliation of segment operating income to Core Results
| Pharmaceuticals | Alcon | Sandoz | Corporate | Total Group | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||||||||||
IFRS Operating income from continuing operations | 8,471 | 9,376 | 1,597 | 1,232 | 1,088 | 1,028 | (67 | ) | (653 | ) | 11,089 | 10,983 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of intangible assets | 276 | 278 | 2,064 | 1,989 | 400 | 409 | 3 | 4 | 2,743 | 2,680 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Impairments | |||||||||||||||||||||||||||||||
Intangible assets | 231 | 29 | 7 | 57 | 39 | 20 | 277 | 106 | |||||||||||||||||||||||
Property, plant & equipment related to the Group-wide rationalization of manufacturing sites | 23 | 1 | 23 | 1 | |||||||||||||||||||||||||||
Other property, plant & equipment | (8 | ) | 28 | (1 | ) | 4 | 7 | (3 | ) | 23 | 17 | 21 | 46 | ||||||||||||||||||
Financial assets | 20 | 16 | 1 | 91 | 41 | 112 | 57 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total impairment charges | 266 | 74 | 6 | 61 | 47 | 17 | 114 | 58 | 433 | 210 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition or divestment related items | |||||||||||||||||||||||||||||||
—Expense | 33 | 330 | 1 | 33 | 331 | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total acquisition or divestment related items, net | 33 | 330 | 1 | 33 | 331 | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other exceptional items | |||||||||||||||||||||||||||||||
Exceptional divestment gains | (237 | ) | (313 | ) | (294 | ) | (531 | ) | (313 | ) | |||||||||||||||||||||
Restructuring items | |||||||||||||||||||||||||||||||
—Income | (56 | ) | (40 | ) | (24 | ) | (3 | ) | (83 | ) | (40 | ) | |||||||||||||||||||
—Expense | 632 | 122 | 95 | 77 | 21 | 2 | 1 | 749 | 201 | ||||||||||||||||||||||
Legal-related items | |||||||||||||||||||||||||||||||
—Expense | 125 | 33 | 85 | 30 | 155 | 118 | |||||||||||||||||||||||||
Additional exceptional income | (158 | ) | (70 | ) | (29 | ) | (56 | ) | (4 | ) | (315 | ) | (75 | ) | (502 | ) | (205 | ) | |||||||||||||
Additional exceptional expense | 162 | 63 | 102 | 61 | 18 | 4 | 105 | 114 | 387 | 242 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other exceptional items | 468 | (205 | ) | 144 | 82 | 36 | 87 | (473 | ) | 39 | 175 | 3 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total adjustments | 1,043 | 147 | 2,214 | 2,462 | 483 | 513 | (356 | ) | 102 | 3,384 | 3,224 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Core operating income from continuing operations | 9,514 | 9,523 | 3,811 | 3,694 | 1,571 | 1,541 | (423 | ) | (551 | ) | 14,473 | 14,207 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
as % of net sales | 29.9 | % | 29.6 | % | 35.2 | % | 35.2 | % | 16.4 | % | 16.8 | % | 27.7 | % | 27.4 | % | |||||||||||||||
Income from associated companies | 812 | 4 | 2 | 1,102 | 597 | 1,918 | 599 | ||||||||||||||||||||||||
Core adjustments to income from associated companies, net of tax | (812 | ) | (163 | ) | 277 | (975 | ) | 277 | |||||||||||||||||||||||
Interest expense | (704 | ) | (683 | ) | |||||||||||||||||||||||||||
Other financial income and expense(1) | (31 | ) | (48 | ) | |||||||||||||||||||||||||||
Taxes (adjusted for above items) | (2,028 | ) | (2,057 | ) | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Core net income from continuing operations | 12,653 | 12,295 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Core net income from discontinued operations(2) | 102 | 238 | |||||||||||||||||||||||||||||
Core net income | 12,755 | 12,533 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Core net income attributable to shareholders | 12,685 | 12,416 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Core basic EPS from continuing operations ($)(3) | 5.19 | 4.99 | |||||||||||||||||||||||||||||
Core basic EPS from discontinued operations ($)(3) | 0.04 | 0.10 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total core basic EPS ($)(3) | 5.23 | 5.09 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
5.B Liquidity and Capital Resources
The following table sets forth certain information about the Group's cash flow and net debt/liquidity.
| 2012 | 2011 | 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Cash flows from operating activities | 14,194 | 14,309 | 14,067 | |||||||
Cash flows used in investing activities | (5,675 | ) | (792 | ) | (15,756 | ) | ||||
Cash flows used in financing activities | (6,675 | ) | (15,024 | ) | 4,116 | |||||
Currency translation effect on cash and cash equivalents | (1 | ) | (103 | ) | (2 | ) | ||||
Net change in cash and cash equivalents | 1,843 | (1,610 | ) | 2,425 | ||||||
Change in marketable securities | 1,201 | (1,449 | ) | (11,740 | ) | |||||
Change in current and non-current financial debt | 503 | 2,758 | (8,999 | ) | ||||||
Change in net debt | 3,547 | (301 | ) | (18,314 | ) | |||||
Net debt at January 1 | (15,154 | ) | (14,853 | ) | 3,461 | |||||
Net debt at December 31 | (11,607 | ) | (15,154 | ) | (14,853 | ) | ||||
Financial year 2012
In 2012, cash flow from operating activities amounted to $14.2 billion, only marginally lower than the prior year amount of $14.3 billion as the impactnet income attributable to shareholders of lower tax payments was offset by the payments from provisions created in earlier periods.
The cash flow used in investing activities amounted to $5.7 billion, $4.9 billion higher than 2011, which primarily reflected the amount spent for the acquisition of Fougera Pharmaceuticals, Inc. ($1.5 billion) and net investments in property, plant and equipment and other non-current assets, which amounted to $2.8 billion, while the net investment in marketable securities amounted to $1.1 billion. In 2011, the impact of the net investments in property, plant and equipment and in other non-current assets ($1.8 billion), as well as the cash used for acquisitions ($0.6 billion), were partially offset by the net proceeds from the sale of marketable securities ($1.6 billion).
In 2012, the cash used in financing activities amounted to $6.7 billion mainly on account of the dividend payment ($6.0 billion) and $0.5 billion net repayment of financial debt. This is a decrease of $8.3 billion compared to the prior year period. In 2011, the cash flow used in financing activities amounted to $15.0 billion mainly on account of the dividend payment ($5.4 billion), treasury share transactions ($3.5 billion), the acquisition of the non-controlling interest in Alcon ($3.2 billion) and $2.8 billion for the net repayment of financial debt.
Financial year 2011
In 2011, the cash flow from operating activities was $14.3 billion, a 2% increase from $14.1 billion in 2010 which included $1.8 billion of cash collections for A (H1N1) pandemic flu vaccines.
The strong increase in operating income after adjustments for non-cash items was partially mitigated by working capital requirements to fund business expansion.
Cash outflows for investing activities were $0.8 billion compared to $15.8 billion in the prior year period. Outflows for investments in property, plant and equipment ($2.2 billion) and intangible and financial assets ($0.4 billion) as well as acquisition of businesses ($0.6 billion), mainly Genoptix Inc., were partly compensated by net inflows from the sale of marketable securities ($1.6 billion) and proceeds from the sales of various assets ($0.8 billion, mainly Elidel® marketing rights).
In the prior year period, outflows for investments in property, plant and equipment ($1.7 billion) and in intangible and financial assets ($0.7 billion) as well as acquisition of businesses ($26.7 billion), mainly Alcon, were partially funded by the sale of marketable securities (net, $12.6 billion) and proceeds from the sales of various assets ($0.7 billion).
Net cash used for financing activities was $15.0 billion in 2011. It was comprised of outflows of $5.4 billion for the dividend payment, of a net $3.5 billion for treasury share repurchases, $3.2 billion for the acquisition of the Alcon non-controlling interests and net $2.8 billion for the repayment of financial debt and $0.1 billion other financing items. In 2010, the financing activities resulted in a net cash inflow of $4.1 billion on account of additional debt raised for the increased Alcon investment.
Financial year 2010
Cash flow from operating activities was $14.1 billion in 2010, a 15% increase from $12.2 billion in 2009. The additional cash flow of $1.9 billion generated by the strong business expansion and lower working capital requirements was partially offset by higher taxes and payments in connection with the resolution of certain legal matters.
The net cash outflow used for investing activities in 2010 amounted to $15.8 billion, $1.5 billion above the prior-year amount. The cash used for acquisitions was $26.7 billion. This amount is comprised of $26.1 billion (net of $2.2 billion cash acquired) for the purchase of the additional 52% investment in Alcon and of $0.5 billion for the acquisition of Corthera and Oriel as well as for deferred payments related to the EBEWE acquisition. The net cash used for investments in property, plant & equipment, intangible and other assets amounted to $1.7 billion. These outflows were partially offset by the net proceeds of marketable securities of $12.6 billon.
Net cash provided by financing activities increased by $1.3 billion to $4.1 billion in 2010 compared to $2.8 billion in 2009. The $8.3 billion proceeds from the bonds and commercial paper programs as well as other net inflows totaling $0.3 billion were partially offset by the payment of the 2009 dividend of $4.5 billion in 2010.
Condensed Consolidated Balance Sheets 5.B Liquidity and Capital Resources
The following tables summarize the Group's cash flow and net debt.
| Dec 31, 2012 | Dec 31, 2011 | Change | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Assets | ||||||||||
Property, plant and equipment | 16,939 | 15,627 | 1,312 | |||||||
Goodwill | 31,090 | 29,943 | 1,147 | |||||||
Intangible assets other than goodwill | 30,331 | 31,969 | (1,638 | ) | ||||||
Financial and other non-current assets | 17,852 | 15,873 | 1,979 | |||||||
Total non-current assets | 96,212 | 93,412 | 2,800 | |||||||
Inventories | 6,744 | 5,930 | 814 | |||||||
Trade receivables | 10,051 | 10,323 | (272 | ) | ||||||
Other current assets | 3,090 | 2,756 | 334 | |||||||
Cash, short-term deposits and marketable securities | 8,119 | 5,075 | 3,044 | |||||||
Total current assets | 28,004 | 24,084 | 3,920 | |||||||
Total assets | 124,216 | 117,496 | 6,720 | |||||||
Equity and liabilities | ||||||||||
Total equity | 69,219 | 65,940 | 3,279 | |||||||
Financial debt | 13,781 | 13,855 | (74 | ) | ||||||
Other non-current liabilities | 17,165 | 14,553 | 2,612 | |||||||
Total non-current liabilities | 30,946 | 28,408 | 2,538 | |||||||
Trade payables | 5,593 | 4,989 | 604 | |||||||
Financial debt and derivatives | 5,945 | 6,374 | (429 | ) | ||||||
Other current liabilities | 12,513 | 11,785 | 728 | |||||||
Total current liabilities | 24,051 | 23,148 | 903 | |||||||
Total liabilities | 54,997 | 51,556 | 3,441 | |||||||
Total equity and liabilities | 124,216 | 117,496 | 6,720 | |||||||
| 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Cash flows from operating activities from continuing operations | 12,085 | 13,898 | 12,617 | |||||||
Cash flows used in investing activities from continuing operations | (19,666 | ) | (8 | ) | (3,219 | ) | ||||
Cash flows from operating and investing activities from discontinued operations | 8,694 | 888 | 424 | |||||||
Cash flows used in financing activities | (9,176 | ) | (8,147 | ) | (8,769 | ) | ||||
Currency translation effect on cash and cash equivalents | (286 | ) | (295 | ) | 82 | |||||
| | | | | | | | | | |
Net change in cash and cash equivalents | (8,349 | ) | 6,336 | 1,135 | ||||||
Change in marketable securities, commodities, time deposits and derivative financial instruments | (66 | ) | (1,696 | ) | (32 | ) | ||||
Change in current and non-current financial debts and derivative financial instruments | (1,520 | ) | (2,393 | ) | 1,708 | |||||
| | | | | | | | | | |
Change in net debt | (9,935 | ) | 2,247 | 2,811 | ||||||
Net debt at January 1 | (6,549 | ) | (8,796 | ) | (11,607 | ) | ||||
| | | | | | | | | | |
Net debt at December 31 | (16,484 | ) | (6,549 | ) | (8,796 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Financial year 2015
Cash flow from operating activities of continuing operations decreased to $12.1 billion from $13.9 billion in 2014.
The decrease was primarily due to the negative currency impact on operations. The prior year also included higher proceeds from commercial settlements.
The cash outflow for investing activities from continuing operations amounted to $19.7 billion in 2015. This was primarily due to the outflow of $16.5 billion for acquisitions of businesses, mainly the oncology business from GSK for $16.0 billion, the net outflow of $2.8 billion for the purchase of property, plant and equipment, intangible and other non-current assets have increased duringand the yearnet outflow of $0.3 billion from the change in marketable securities.
In 2014, cash flows used in investing activities from continuing operations was a small net outflow of $8 million. This was primarily due to net outflows of $0.3 billion from the acquisition of businesses, $3.0 billion mainly from purchase of property, plant and equipment, offset by $2.8$1.4 billion to $96.2 billion at December 31, 2012 as a resultof proceeds from the sale of investments in manufacturingassociated companies, particularly LTS Lohmann Therapie-Systeme AG and R&D capabilities as well asIdenix Pharmaceuticals, Inc. and $1.9 billion proceeds from the Fougera acquisition.net sale of other marketable securities, including maturing long-term deposits.
TotalThe cash flows used in financing activities amounted to $9.2 billion, compared to $8.1 billion in 2014. The 2015 amount includes a cash outflow of $6.6 billion for the dividend payment and $4.5 billion for treasury share transactions, net. The net inflow from the increase in current assets increased by $3.9and non-current financial debt of $2.0 billion to $28.0 billion at December 31, 2012was mainly due to anthe issuance of three Swiss franc denominated bonds for a total amount of $1.5 billion in the first half of 2015, the issuance of two US dollar denominated bonds totaling $3.0 billion in the fourth quarter 2015 and the increase in commercial paper outstanding of $0.4 billion, partially offset by the repayment at maturity of a US dollar denominated bond of $2.0 billion and a Swiss franc denominated bond of $0.9 billion. In 2014, the cash short-term deposits and marketable securities of $3.0 billion. Inventory increased by $0.8outflows included $6.8 billion to $6.7 billion while trade receivables of $10.1 billion were slightly below last year's level.
Trade receivable balances include sales to drug wholesalers, retailers, private health systems, government agencies, managed care providers, pharmacy benefit managers and government-supported healthcare systems. We continue to monitor sovereign debt issues and economic conditions in Europe, in particular in Greece, Italy, Portugal, and Spain (GIPS countries), and evaluate accounts receivable in these countries for potential collection risks. A number of actions were taken to limit our credit risk exposure in these countries, including factoring without recourse and negotiating settlements with the governments or local authorities where we consider this makes economic sense. Deteriorating credit and economic conditions in these countries, among other factors may continue to result in an increase in the average length of time that it takes to collect these accounts receivables.dividend
payment and $4.5 billion for treasury share transactions, net. These outflows were partially offset by increase in the current and non-current financial debt of $3.3 billion.
The net cash inflows from discontinued operations of $8.7 billion in 2015 were mainly driven by the net proceeds of $8.9 billion from the divestments in connection with the portfolio transformation transactions. In 2014, the net cash inflow of $0.9 billion consisted mainly of proceeds from the divestment of the blood transfusion diagnostics unit to Grifols S.A.
Financial year 2014
Cash flow from operating activities of continuing operations increased to $13.9 billion from $12.6 billion in 2013, an increase of $1.3 billion. This was primarily due to higher operating income adjusted for non-cash items, despite negative currency effects and increased hedging gains, partially offset by payments for legal settlements and restructuring.
In 2014, cash flow used in investing activities of continuing operations was a small net outflow of $8 million compared to an outflow of $3.2 billion in 2013. In 2014, there were proceeds from the sale of investments in associated companies included, in particular LTS Lohmann Therapie-Systeme AG and Idenix Pharmaceuticals, Inc. of $0.6 billion and $0.8 billion respectively and of $1.9 billion from the net sale of other marketable securities including maturing long-term deposits. These inflows were offset by outflows of $2.6 billion for property, plant and equipment and a net amount of $0.7 billion for acquisition of businesses mainly the acquisition of WaveTec ($0.4 billion) and other non-current assets, primarily intangible assets. The prior year outflow for investing activities of $3.2 billion was primarily related to investments in property, plant and equipment of $2.9 billion and a net outflow of $0.3 billion for the acquisition of businesses and other non-current assets, mainly intangible assets.
In 2014, cash inflows from investing activities of discontinued operations amounted to $ 0.9 billion, mainly on account of the net proceeds from the divestment of the blood transfusion diagnostics unit to Grifols S.A.
The cash flows used in financing activities amounted to $8.1 billion, compared to $8.8 billion, in 2013. The 2014 amount includes the dividend payment of $6.8 billion, net treasury share transactions of $4.5 billion and a net increase in financial debt of $3.3 billion, principally due to the issuance of four bonds totaling $5.5 billion reduced by the repayment at maturity of a bond of $2.0 billion. In 2013, the dividend payment amounted to $6.1 billion, net treasury share transactions were $1.2 billion and financial debt decreased by a net amount of $1.3 billion.
Financial year 2013
�� In 2013, cash flow from operating activities of continuing operations amounted to $12.6 billion compared to $13.8 billion in the prior year, mainly due to lower operating income and higher working capital requirements.
In 2013, cash flow used in investing activities of continuing operations was $3.2 billion compared to $ 5.4 billion in the prior year. It includes investments in property, plant and equipment, which amounted to $2.9 billion compared to $2.5 billion in the prior year. These expenditures represent 5.6% and 4.8% of net sales in 2013 and 2012, respectively. The prior year cash flow used in investing activities of continuing operations included higher net investments in marketable securities of $1.1 billion and $1.7 billion for the acquisition of businesses mainly for the acquisition of Fougera Pharmaceuticals, Inc.
In 2013 the cash flow used in investing activities of discontinued operations amounted to $0.1 billion compared to $0.3 billion in the prior year, mainly on account of net investments in property, plant and equipment.
In 2013, cash flow used in financing activities amounted to $8.8 billion compared to $6.7 billion in 2012. The 2013 amount included a dividend payment of $6.1 billion, compared to $6.0 billion in 2012.
There was a further $2.7 billion cash outflow in 2013, mainly related to net repayments of financial debts of $1.3 billion as well as a net outflow of $1.2 billion for treasury share purchases. This net outflow results from $2.9 billion spent on the acquisition of treasury shares and $1.7 billion of proceeds mainly from exercised options. In 2012, besides the dividend payment the cash flow used in financing activities mainly includes a net repayment of financial debts of $0.5 billion and a net cash outflow of $0.1 billion for treasury share transactions.
Net debt constitutes a non-IFRS financial measure, which means that it should not be interpreted as a measure determined under International Financial Reporting Standards (IFRS). Net debt is presented as additional information as it is a useful indicator of the Group's ability to meet financial commitments and to invest in new strategic opportunities, including strengthening its balance sheet.
Financial year 2015
Total financial debt, including derivatives, amounted to $21.9 billion at December 31, 2015 compared to $20.4 billion at December 31, 2014.
Non-current financial debt increased by $2.5 billion to $16.3 billion at December 31, 2015, from $13.8 billion at December 31, 2014. The increase was mainly due to the issuance of three Swiss franc denominated bonds for a total amount of $1.5 billion and the issuance of two US dollar denominated bonds for a total of $3.0 billion, partially offset by the reclassification to current financial debt of a euro denominated bond of $1.6 billion.
Current financial debt decreased by $1.0 billion to $5.6 billion at December 31, 2015, from $6.6 billion at December 31, 2014. The decrease was mainly due to repayment at maturity of a US dollar denominated bond of $2.0 billion and a Swiss franc denominated bond of $0.9 billion, partially offset by the reclassification from non-current financial debt of the $1.6 billion euro denominated bond mentioned above.
Overall current financial debt consists of the current portion of non-current debt of $1.7 billion and other short-term borrowings (including derivatives and commercial paper) of $3.9 billion. Group net debt increased to $16.5 billion at the end of 2015 compared to $6.5 billion at the end of 2014.
Novartis has two US commercial paper programs under which it can issue up to $9 billion in the aggregate of unsecured commercial paper notes. Novartis also has a Japanese commercial paper program under which it can issue up to JPY 150 billion (approximately $1.25 billion) of unsecured commercial paper notes. Commercial paper notes totaling $1.1 billion under these three programs were outstanding as per December 31, 2015. Novartis further has a committed credit facility of $6 billion, entered into on September 23, 2015. This credit facility is provided by a syndicate of banks and is intended to be used as a backstop for the US commercial paper programs. It matures in September 2020 and was undrawn as per December 31, 2015.
The long-term credit rating for the company continues to be double-A (Moody's Aa3; Standard & Poor's AA–; Fitch AA).
Financial year 2014
In 2014, the total financial debt, including derivatives, increased by $2.4 billion, and amounted to $20.4 billion compared to $18.0 billion in 2013.
Non-current financial debt amounted to $13.8 billion which is a net increase of $2.6 billion compared to 2013, mainly due to the issuance of four bonds and additional long-term debt totaling $5.5 billion. This is partly offset by $2.9 billion bond and loan reclassification to current financial debt for the portion which
is due within the next twelve months. Non-current financial debt consists of bonds of $13.2 billion and other non-current financial debt of $0.6 billion.
Current financial debt decreased by $0.2 billion from $6.8 billion at December 31, 2013 to $6.6 billion at December 31, 2014, mainly due to a decrease of commercial paper and other financial debt, including derivatives, totaling $0.6 billion. This was partially offset by the reclassification of non-current financial debt of $3.0 billion, combined with repayments in 2014 of non-current financial debts amounting to $2.6 billion, totaling to a net increase of $0.4 billion.
Overall current financial debt consists of commercial paper of $0.6 billion, the current portion of non-current debt of $3.0 billion and other short-term borrowings (including derivatives) of $3.0 billion.
Net debt decreased to $6.5 billion at the end of 2014 compared to $8.8 billion at the end of 2013.
An overview of our current financial debt and related interest rates is set forth below:
| December 31 | Average interest rate at year end | Average balance during the year | Average interest rate during the year | Maximum balance during the year | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | % | $ m | % | $ m | |||||||||||
2015 | ||||||||||||||||
Interest-bearing accounts of associates payable on demand | 1,645 | 0.62 | 1,720 | 0.59 | 1,803 | |||||||||||
Other bank and financial debt | 1,185 | 5.98 | 1,280 | 5.54 | 2,785 | |||||||||||
Commercial paper | 1,085 | 0.62 | 3,545 | 0.19 | 5,686 | |||||||||||
Current portion of non-current financial debt | 1,659 | na | 1,916 | na | 3,044 | |||||||||||
Fair value of derivative financial instruments | 30 | na | 79 | na | 188 | |||||||||||
| | | | | | | | | | | | | | | | |
Total current financial debt | 5,604 | 8,540 | 13,506 | |||||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
2014 | ||||||||||||||||
Interest-bearing accounts of associates payable on demand | 1,651 | 1.00 | 1,792 | 1.00 | 1,891 | |||||||||||
Other bank and financial debt | 1,272 | 5.32 | 1,537 | 4.40 | 2,074 | |||||||||||
Commercial paper | 648 | 0.26 | 1,260 | 0.13 | 3,076 | |||||||||||
Current portion of non-current financial debt | 2,989 | na | 2,565 | na | 3,500 | |||||||||||
Fair value of derivative financial instruments | 52 | na | 50 | na | 92 | |||||||||||
| | | | | | | | | | | | | | | | |
Total current financial debt | 6,612 | 7,204 | 10,633 | |||||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
na = not applicable or available
Interest bearing accounts of associates payable on demand relate to employee deposits in CHF from the compensation of associates employed by Swiss entities (December 31, 2015 interest rate: 0.5%). Other bank and financial debt refer to usual lending and overdraft facilities.
The maturity schedule of our net debt is as follows:
December 31, 2015 | Due within one month | Due later than one month but less than three months | Due later than three months but less than one year | Due later than one year but less than five years | Due after five years | Total | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Current assets | |||||||||||||||||||
Marketable securities and time deposits | 22 | 11 | 200 | 247 | 62 | 542 | |||||||||||||
Commodities | 86 | 86 | |||||||||||||||||
Derivative financial instruments and accrued interest | 40 | 67 | 38 | 145 | |||||||||||||||
Cash and cash equivalents | 4,674 | 4,674 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total current financial assets | 4,736 | 78 | 238 | 247 | 148 | 5,447 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Non-current liabilities | |||||||||||||||||||
Financial debt | (4,664 | ) | (11,663 | ) | (16,327 | ) | |||||||||||||
Financial debt—undiscounted | (4,676 | ) | (11,797 | ) | (16,473 | ) | |||||||||||||
Total non-current financial debt | (4,664 | ) | (11,663 | ) | (16,327 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Current liabilities | |||||||||||||||||||
Financial debt | (3,258 | ) | (289 | ) | (2,027 | ) | (5,574 | ) | |||||||||||
Financial debt—undiscounted | (3,258 | ) | (289 | ) | (2,028 | ) | (5,575 | ) | |||||||||||
Derivative financial instruments | (8 | ) | (20 | ) | (2 | ) | (30 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Total current financial debt | (3,266 | ) | (309 | ) | (2,029 | ) | (5,604 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Net debt | 1,470 | (231 | ) | (1,791 | ) | (4,417 | ) | (11,515 | ) | (16,484 | ) | ||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
December 31, 2014 | Due within one month | Due later than one month but less than three months | Due later than three months but less than one year | Due later than one year but less than five years | Due after five years | Total | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Current assets | |||||||||||||||||||
Marketable securities and time deposits | 21 | 68 | 37 | 181 | 76 | 383 | |||||||||||||
Commodities | 97 | 97 | |||||||||||||||||
Derivative financial instruments and accrued interest | 161 | 126 | 72 | 359 | |||||||||||||||
Cash and cash equivalents | 9,623 | 3,400 | 13,023 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total current financial assets | 9,902 | 3,594 | 109 | 181 | 76 | 13,862 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Non-current liabilities | |||||||||||||||||||
Financial debt | (5,423 | ) | (8,376 | ) | (13,799 | ) | |||||||||||||
Financial debt—undiscounted | (5,434 | ) | (8,470 | ) | (13,904 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total non-current financial debt | (5,423 | ) | (8,376 | ) | (13,799 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Current liabilities | |||||||||||||||||||
Financial debt | (2,678 | ) | (335 | ) | (3,547 | ) | (6,560 | ) | |||||||||||
Financial debt—undiscounted | (2,678 | ) | (335 | ) | (3,549 | ) | (6,562 | ) | |||||||||||
Derivative financial instruments | (18 | ) | (32 | ) | (2 | ) | (52 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Total current financial debt | (2,696 | ) | (367 | ) | (3,549 | ) | (6,612 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Net debt | 7,206 | 3,227 | (3,440 | ) | (5,242 | ) | (8,300 | ) | (6,549 | ) | |||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
The following table provides a breakdown of liquidity and financial debt by currency as of December 31:
LIQUIDITY AND FINANCIAL DEBT BY CURRENCY
| Liquidity in % 2015(1) | Liquidity in % 2014(1) | Financial debt in % 2015(2) | Financial debt in % 2014(2) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
$ | 50 | 80 | 64 | 59 | |||||||||
EUR | 16 | 1 | 14 | 17 | |||||||||
CHF | 13 | 10 | 14 | 13 | |||||||||
JPY | 1 | 5 | 8 | ||||||||||
Other | 20 | 9 | 3 | 3 | |||||||||
| | | | | | | | | | | | | |
100 | 100 | 100 | 100 | ||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
EFFECTS OF CURRENCY FLUCTUATIONS
We transact our business in many currencies other than the US dollar, our reporting currency.
The following provides an overview of net sales and operating expenses for our continuing operations based on IFRS values for 2015, 2014 and 2013 for currencies most important to the Group:
| 2015 | 2014 | 2013 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Currency | Net sales | Operating expenses | Net sales | Operating expenses | Net sales | Operating expenses | |||||||||||||
| % | % | % | % | % | % | |||||||||||||
US dollar ($) | 40 | 42 | 36 | 39 | 36 | 40 | |||||||||||||
Euro (EUR) | 24 | 23 | 26 | 25 | 26 | 25 | |||||||||||||
Swiss franc (CHF) | 2 | 13 | 2 | 13 | 2 | 12 | |||||||||||||
Japanese yen (JPY) | 6 | 4 | 7 | 5 | 8 | 5 | |||||||||||||
Chinese yuan (CNY) | 4 | 3 | 3 | 3 | 3 | 3 | |||||||||||||
British pound (GBP) | 3 | 3 | 3 | 2 | 2 | 2 | |||||||||||||
Canadian dollar (CAD) | 3 | 1 | 3 | 1 | 3 | 1 | |||||||||||||
Brazilian real (BRL) | 2 | 2 | 2 | 2 | 2 | 2 | |||||||||||||
Australian dollar (AUD) | 2 | 1 | 2 | 1 | 2 | 1 | |||||||||||||
Russian ruble (RUB) | 1 | 1 | 2 | 1 | 2 | 1 | |||||||||||||
Other currencies | 13 | 7 | 14 | 8 | 14 | 8 |
Operating expenses in the above table include Cost of goods sold, Marketing & Sales, Research & Development, General & Administration, Other income and Other expense.
We prepare our consolidated financial statements in US dollars. As a result, fluctuations in the exchange rates between the US dollar and other currencies can have a significant effect on both the Group's results of operations as well as on the reported value of our assets, liabilities and cash flows. This in turn may significantly affect reported earnings (both positively and negatively) and the comparability of period-to-period results of operations.
For purposes of our consolidated balance sheets, we translate assets and liabilities denominated in other currencies into US dollars at the prevailing market exchange rates as of the relevant balance sheet
date. For purposes of the Group's consolidated income and cash flow statements, revenue, expense and cash flow items in local currencies are translated into US dollars at average exchange rates prevailing during the relevant period. As a result, even if the amounts or values of these items remain unchanged in the respective local currency, changes in exchange rates have an impact on the amounts or values of these items in our consolidated financial statements.
Because our expenditures in Swiss francs are significantly higher than our revenues in Swiss francs, volatility in the value of the Swiss franc can have a significant impact on the reported value of our earnings, assets and liabilities, and the timing and extent of such volatility can be difficult to predict. In addition, there is a risk that certain countries could take steps which could significantly impact the value of their currencies.
There is also a risk that certain countries could devalue their currency. If this occurs, then it could impact the effective prices we would be able to charge for our products and also have an adverse impact on both our consolidated income statement and balance sheet. The Group is exposed to a potential adverse devaluation risk on its intercompany funding and total investment in certain subsidiaries operating in countries with exchange controls.
The most significant country in this respect is Venezuela, where the Group is exposed to potential devaluation losses in the income statement on its total intercompany balances with its subsidiaries in Venezuela, which at December 31, 2015 amounted to $0.3 billion. The Group also has an equivalent of approximately $0.2 billion of cash in local currency, which is only slowly being approved for remittance outside of the country and which is subject to loss of purchase power due to high inflation in the country.
Subsidiaries whose functional currencies have experienced a cumulative inflation rate of more than 100% over the past three years apply the rules of IAS 29 "Financial Reporting in Hyperinflationary Economies". Gains and losses incurred upon adjusting the carrying amounts of non-monetary assets and liabilities for inflation are recognized in the income statement. The subsidiaries in Venezuela restate non-monetary items in the balance sheet in line with the requirements of IAS 29. The corresponding monetary loss of $72 million is included in the 2015 financial results.
In 2014 and through October 2015, the exchange rate used by the Group for consolidation of the financial statements of its Venezuela subsidiaries was the official exchange rate for the Venezuela bolivar (VEF) of VEF 6.3/$, which is available for imports of specific goods and services of national priority, including medicines and medical supplies, as published by the Centro Nacional de Comercio Exterior (CENCOEX, formerly CADIVI).
In November 2015, a Venezuela subsidiary of the Group agreed with CENCOEX to settle a substantial part of our intercompany trade payables dated on or before December 31, 2014 in a transaction that required the Venezuela subsidiary to purchase a $ denominated bond at par value issued by Petróleos de Venezuela (PDVSA), with a coupon rate of 6% per annum maturing in 2024. In Venezuela there are differing official exchange rates against the $ and for the settlement of these intercompany trade payables, through the purchase of the $ bond, CENCOEX set the exchange rate at VEF 11.0/$. As a result, from November 2015 the Group changed its exchange rate used for the consolidation of the financial statements of its Venezuela subsidiaries. The use of the new exchange rate by the Venezuela subsidiaries resulted in a $211 million loss from the re-measurement of the intra-Group and third party liabilities.
As agreed with CENCOEX, the Venezuela subsidiary purchased the PDVSA bond on December 9, 2015. The bond was sold on December 11, 2015. The proceeds from the sale of this bond were $73 million resulting in a loss of $127 million.
We seek to manage currency exposure by engaging in hedging transactions where management deems appropriate, after taking into account the natural hedging afforded by our global business activity. For 2015, we entered into various contracts that change in value with movements in foreign exchange rates in
order to preserve the value of assets, commitments and expected transactions. We use forward contracts and foreign currency options to hedge. For more information on how these transactions affect our consolidated financial statements and on how foreign exchange rate exposure is managed, see "Item 18. Financial Statements—Notes 1, 5, 16 and 29".
In 2015, the US dollar significantly increased in value against most currencies. In particular, the average value of the euro, Japanese yen and emerging market currencies (especially the Brazilian real and Russian ruble) decreased in 2015 against the $ dollar. In January 2015, following an announcement by the Swiss National Bank that it was discontinuing its minimum exchange rate with the euro, the value of the Swiss franc increased versus the euro and the $.
The following table sets forth the foreign exchange rates of the US dollar ($) against key currencies used for foreign currency translation when preparing the Group's consolidated financial statements:
| Average for year | | | | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Year-end | | ||||||||||||||||
| Change in % | Change in % | |||||||||||||||||
$ per unit | 2015 | 2014 | 2015 | 2014 | |||||||||||||||
AUD | 0.753 | 0.903 | (17 | ) | 0.731 | 0.819 | (11 | ) | |||||||||||
BRL | 0.305 | 0.426 | (28 | ) | 0.253 | 0.376 | (33 | ) | |||||||||||
CAD | 0.784 | 0.906 | (13 | ) | 0.721 | 0.861 | (16 | ) | |||||||||||
CHF | 1.040 | 1.094 | (5 | ) | 1.011 | 1.010 | 0 | ||||||||||||
CNY | 0.159 | 0.162 | (2 | ) | 0.154 | 0.161 | (4 | ) | |||||||||||
EUR | 1.110 | 1.329 | (16 | ) | 1.093 | 1.215 | (10 | ) | |||||||||||
GBP | 1.529 | 1.648 | (7 | ) | 1.483 | 1.556 | (5 | ) | |||||||||||
JPY (100) | 0.826 | 0.947 | (13 | ) | 0.831 | 0.836 | (1 | ) | |||||||||||
RUB (100) | 1.649 | 2.649 | (38 | ) | 1.362 | 1.722 | (21 | ) |
| Average for year | | | | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Year-end | | ||||||||||||||||
| Change in % | Change in % | |||||||||||||||||
$ per unit | 2014 | 2013 | 2014 | 2013 | |||||||||||||||
AUD | 0.903 | 0.968 | (7 | ) | 0.819 | 0.892 | (8 | ) | |||||||||||
BRL | 0.426 | 0.465 | (8 | ) | 0.376 | 0.424 | (11 | ) | |||||||||||
CAD | 0.906 | 0.971 | (7 | ) | 0.861 | 0.939 | (8 | ) | |||||||||||
CHF | 1.094 | 1.079 | 1 | 1.010 | 1.124 | (10 | ) | ||||||||||||
CNY | 0.162 | 0.163 | (1 | ) | 0.161 | 0.165 | (2 | ) | |||||||||||
EUR | 1.329 | 1.328 | 0 | 1.215 | 1.378 | (12 | ) | ||||||||||||
GBP | 1.648 | 1.564 | 5 | 1.556 | 1.653 | (6 | ) | ||||||||||||
JPY (100) | 0.947 | 1.026 | (8 | ) | 0.836 | 0.952 | (12 | ) | |||||||||||
RUB (100) | 2.649 | 3.142 | (16 | ) | 1.722 | 3.044 | (43 | ) |
The following table provides a summary of the currency impact on key Group figures due to their conversion into $, the Group's reporting currency, of the financial data from entities reporting in non-US dollars. Constant currency (cc) calculations apply the exchange rates of the prior year to the current year financial data for entities reporting in non-US dollars.
CURRENCY IMPACT ON KEY FIGURES
| Change in constant currencies % 2015 | Change in $ % 2015 | Percentage point currency impact 2015 | Change in constant currencies % 2014 | Change in $ % 2014 | Percentage point currency impact 2014 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales from continuing operations | 5 | (5 | ) | (10 | ) | 3 | 1 | (2 | ) | ||||||||||
Operating income from continuing operations | (2 | ) | (19 | ) | (17 | ) | 7 | 1 | (6 | ) | |||||||||
Net income from continuing operations | (18 | ) | (34 | ) | (16 | ) | 21 | 15 | (6 | ) | |||||||||
Core operating income from continuing operations | 10 | (5 | ) | (15 | ) | 7 | 2 | (5 | ) | ||||||||||
Core net income from continuing operations | 9 | (5 | ) | (14 | ) | 8 | 3 | (5 | ) |
For additional information on the effects of currency fluctuations, see "Item 18. Financial Statements—note 29".
Novartis defines free cash flow as cash flow from operating activities and cash flow associated with the purchase or sale of property, plant and equipment, intangible, other non-current and financial assets. Cash flows in connection with the acquisition or divestment of subsidiaries, associated companies and non-controlling interests in subsidiaries are not taken into account to determine free cash flow. The free
cash flow measure is a non-IFRS measure, see "—Non-IFRS Measures as Defined by Novartis" above. The following is a summary of the free cash flow:
| 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Operating income from continuing operations | 8,977 | 11,089 | 10,983 | |||||||
Reversal of non-cash items | ||||||||||
Depreciation, amortization and impairments | 5,575 | 4,751 | 4,462 | |||||||
Change in provisions and other non-current liabilities | 1,642 | 1,490 | 736 | |||||||
Other | (96 | ) | 122 | 307 | ||||||
| | | | | | | | | | |
Operating income adjusted for non-cash items | 16,098 | 17,452 | 16,488 | |||||||
Interest and other financial receipts | 1,180 | 1,067 | 539 | |||||||
Interest and other financial payments | (669 | ) | (692 | ) | (631 | ) | ||||
Taxes paid | (2,454 | ) | (2,179 | ) | (2,054 | ) | ||||
Payments out of provisions and other net cash movements in non-current liabilities | (1,207 | ) | (1,125 | ) | (947 | ) | ||||
Change in inventory and trade receivables less trade payables | (617 | ) | (731 | ) | (588 | ) | ||||
Change in other net current assets and other operating cash flow items | (246 | ) | 106 | (190 | ) | |||||
| | | | | | | | | | |
Cash flows from operating activities from continuing operations | 12,085 | 13,898 | 12,617 | |||||||
Purchase of property, plant & equipment | (2,367 | ) | (2,624 | ) | (2,903 | ) | ||||
Purchase of intangible assets | (1,138 | ) | (780 | ) | (475 | ) | ||||
Purchase of financial assets | (264 | ) | (239 | ) | (152 | ) | ||||
Purchase of other non-current assets | (82 | ) | (60 | ) | (38 | ) | ||||
Proceeds from sales of property, plant & equipment | 237 | 60 | 48 | |||||||
Proceeds from sales of intangible assets | 621 | 246 | 96 | |||||||
Proceeds from sales of financial assets | 166 | 431 | 313 | |||||||
Proceeds from sales of other non-current assets | 1 | 2 | 15 | |||||||
| | | | | | | | | | |
Free cash flow from continuing operations | 9,259 | 10,934 | 9,521 | |||||||
Free cash flow from discontinued operations | (230 | ) | (172 | ) | 424 | |||||
| | | | | | | | | | |
Free cash flow | 9,029 | 10,762 | 9,945 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Financial year 2015
In 2015, free cash flow from continuing operations decreased by 15% to $9.3 billion compared to $10.9 billion in 2014. This decrease was primarily due to the negative currency impact on operations. The prior year also included higher proceeds from Novartis Venture Fund divestments and commercial settlements. Total free cash flow including the continuing and discontinued operations was $9.0 billion in 2015 compared to $10.8 billion in 2014.
Financial year 2014
The free cash flow from continuing operations increased by $1.4 billion to $10.9 billion. This was primarily due to higher cash flows from operating activities, which mainly benefited from higher operating income adjusted for non-cash items, despite negative currency effects and increased hedging gains, partially offset by higher investments in intangible assets.
In 2014, free cash flow of the total Group increased by $0.8 billion to $10.8 billion compared to $9.9 billion in 2013.
Financial year 2013
In 2013, free cash flow from continuing operations amounted to $9.5 billion which was 15% below the prior year. Aside from the significant currency impact, major reasons for the decline were increased trade receivables and higher capital investments in manufacturing and research facilities.
In 2013, the total Group free cash flow of $9.9 billion was 13% below the prior year.
The total Group free cash flow was primarily used for the dividend payments to shareholders of $6.1 billion as well as a $1.3 billion net repayment of financial debt and for treasury share purchases of net $1.2 billion.
This allocation reflected management's intention to optimize shareholder returns whilst at the same time reinvesting surplus funds in the business to promote future growth.
CONDENSED CONSOLIDATED BALANCE SHEETS
| Dec 31, 2015 | Dec 31, 2014 | Change | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Assets | ||||||||||
Property, plant & equipment | 15,982 | 15,983 | (1 | ) | ||||||
Goodwill | 31,174 | 29,311 | 1,863 | |||||||
Intangible assets other than goodwill | 34,217 | 23,832 | 10,385 | |||||||
Financial and other non-current assets | 27,338 | 18,700 | 8,638 | |||||||
| | | | | | | | | | |
Total non-current assets | 108,711 | 87,826 | 20,885 | |||||||
| | | | | | | | | | |
Inventories | 6,226 | 6,093 | 133 | |||||||
Trade receivables | 8,180 | 8,275 | (95 | ) | ||||||
Other current assets | 2,992 | 2,530 | 462 | |||||||
Cash, marketable securities, commodities, time deposits and derivative financial instruments | 5,447 | 13,862 | (8,415 | ) | ||||||
Assets related to discontinued operations(1) | 0 | 6,801 | (6,801 | ) | ||||||
| | | | | | | | | | |
Total current assets | 22,845 | 37,561 | (14,716 | ) | ||||||
| | | | | | | | | | |
Total assets | 131,556 | 125,387 | 6,169 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Equity and liabilities | ||||||||||
Total equity | 77,122 | 70,844 | 6,278 | |||||||
| | | | | | | | | | |
Financial debts | 16,327 | 13,799 | 2,528 | |||||||
Other non-current liabilities | 14,399 | 13,771 | 628 | |||||||
| | | | | | | | | | |
Total non-current liabilities | 30,726 | 27,570 | 3,156 | |||||||
| | | | | | | | | | |
Trade payables | 5,668 | 5,419 | 249 | |||||||
Financial debts and derivatives | 5,604 | 6,612 | (1,008 | ) | ||||||
Other current liabilities | 12,436 | 12,524 | (88 | ) | ||||||
Liabilities related to discontinued operations(1) | 0 | 2,418 | (2,418 | ) | ||||||
| | | | | | | | | | |
Total current liabilities | 23,708 | 26,973 | (3,265 | ) | ||||||
| | | | | | | | | | |
Total liabilities | 54,434 | 54,543 | (109 | ) | ||||||
| | | | | | | | | | |
Total equity and liabilities | 131,556 | 125,387 | 6,169 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Total non-current assets of $108.7 billion at December 31, 2015 increased by $20.9 billion compared to December 31, 2014. Intangible assets other than goodwill increased by $10.4 billion to $34.2 billion, mainly on account of the new oncology assets acquired from GSK, which added product rights amounting to $13.0 billion to the intangible assets of the Group. This increase was partially offset by the amortization of intangible assets of $3.8 billion. Goodwill increased by $1.9 billion to $31.2 billion, mainly on account of the goodwill of $2.4 billion recorded on the new oncology assets, partially offset by currency translation adjustments of $0.6 billion.
Financial and other non-current assets increased by $8.6 billion to $27.3 billion, mainly on account of the 36.5% investment in the GSK consumer healthcare joint venture of $7.6 billion, while investments in property, plant and equipment were in line with the prior year.
Total current assets decreased by $14.7 billion to $22.8 billion at December 31, 2015, as cash and cash equivalents decreased by $8.4 billion to $5.4 billion, mainly on account of the net cash outflows from the portfolio transformation transactions as well as the dividend payment. The assets related to discontinued operations and held for sale reduced by $6.8 billion as a result of the closing of the portfolio transformation transactions in 2015. Trade receivables, inventories and other current assets were in line with the prior year.
Based on our current incurred loss provisioning approach, we consider that our doubtful debt provisions are adequate. However, we intend to continue to monitor the level of trade receivables in the GIPS countries.Greece, Italy, Portugal and Spain (the "GIPS countries"). Should there be a substantial deterioration in our economic exposure with respect to those countries, we may increase our level of provisions by moving to an expected loss provisioning approach or may change the terms of trade on which we operate.
The following table provides an overview of our aging analysis of our accounts receivabletrade receivables as of December 31, 20122015 and 2011:2014:
| 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | ||||||||||
Not overdue | 8,584 | 8,967 | 7,318 | 7,406 | ||||||||||
Past due for not more than one month | 552 | 498 | 265 | 334 | ||||||||||
Past due for more than one month but less than three months | 321 | 295 | 255 | 275 | ||||||||||
Past due for more than three months but less than six months | 301 | 249 | 193 | 174 | ||||||||||
Past due for more than six months but less than one year | 205 | 228 | 156 | 102 | ||||||||||
Past due for more than one year | 305 | 305 | 135 | 140 | ||||||||||
Provisions for doubtful trade receivables | (217 | ) | (219 | ) | (142 | ) | (156 | ) | ||||||
| | | | | | | | |||||||
Total trade receivables, net | 10,051 | 10,323 | 8,180 | 8,275 | ||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
With regard to the GIPS countries, the country with the largest outstanding trade receivables exposure is Italy. Substantially allmajority of the outstanding trade receivables from this countrythese countries are due directly from local governments or from government-funded entities. The movement in the outstandinggross trade receivables from this country during the year and the related outstanding accounts receivable and provisionGIPS countries at December 31, 20122015 amount to $920 million (2014: $915 million), of which $58 million are past due for more than one year (2014: $69 million) and 2011for which provisions of $37 million have been recorded (2014: $48 million). At December 31, 2015 amounts past due for more than one year are not significant in any of the GIPS countries on a standalone basis.
There is as follows:also a risk that certain countries could devalue their currency. The most significant exposure for Novartis in this respect is in Venezuela, which is described in more detail, see "—Effects of currency fluctuations" above.
| 2012 | 2011 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Gross trade receivables at December 31 | 712 | 761 | |||||
Past due for more than one year at December 31 | 68 | 91 | |||||
Provision at December 31 | 37 | 28 |
OtherTrade payables, other current and non-current liabilities amounted to $17.2of $32.5 billion increased by $0.8 billion compared to $14.6$31.7 billion in the prior year. A major portion of this increase of $2.6 billion arose from theat December 31, 2014. This change was due to an increase in the accrued liability for employee benefits related to our funded and unfunded defined benefit pension plans around the world, but principally in Switzerland and the United States, as well as unfunded and funded US post-retirement medical benefit schemes. The net unfunded deficit of $6.3 billion related to the defined benefit schemes comprises actuarially determinedother non-current liabilities of $26.8 billion partially offset by funded plan assets of $20.5 billion.
This deficit adjusted for non-vested past service costs as well as for the overfunding of certain plans is recognized in our provisions and fluctuates considerably from time to time. This is due to the fact that the assets consist of both marketable securities and other investments which are valued at their current market value. The actuarially calculated post-employment defined benefit obligations of $26.8 billion have an average duration of 14.1 years and are extremely sensitive to movements in discount rates which are currently at a historic low. The movements in these obligations are the principal reason for the increase in the provision by $2.3 billion over the year.
Trade payables of $5.6 billion and other current liabilities of $12.5 billion increased by $0.6 billion and $0.7 billion respectively.an increase in trade payables of $0.2 billion. The liabilities related to
discontinued operations and held for sale reduced by $2.4 billion as a result of the closing of the portfolio transformation transactions in 2015.
Included in other current liabilities are $2.1$1.7 billion relating to outstanding taxes. While there is some uncertainty about the final taxes to be assessed in our major countries, we consider this uncertainty to be limited since our tax assessments are generally relatively current. In our key countries Switzerland and the United States,US, assessments have been agreed by the tax authorities up to 2010 in Switzerland and in the US up to 2009, and 2006, respectively.with the exception of one open US position in 2007.
The Group's total equity roseincreased by $6.3 billion to $69.2$77.1 billion as ofat December 31, 2012,2015, compared to $65.9$70.8 billion at the endDecember 31, 2014. The increase was on account of 2011.
�� This increase is driven by comprehensive income of $8.6 billion, consisting ofour net income of $9.6$17.8 billion, share-based compensation of $0.8 billion and the settlement of the obligation under the share repurchase agreement of $0.7 billion. The increase was partially offset by the $6.6 billion dividend payment, net purchases of treasury shares of $4.5 billion, unfavorable currency translation differences of $1.7 billion and net actuarial losses from defined benefit plans of $1.8 billion and positive currency translation effects of $0.8 billion and an increase of $0.9 billion related$0.1 billion.
The Group's liquidity amounted to share-based compensation. These were partially offset by the dividend payment of $6.0 billion, with net sales of treasury shares and changes in non-controlling interests contributing an additional reduction of $0.2 billion.
As a result of the strong cash flow generation, the Group liquidity increased over the year to $8.1$5.4 billion at December 31, 2012 from $5.12015, compared to $13.9 billion at the prior year end even after repayment of the CHF 700 million bond that matured in 2012. The Group liquidity consists of $5.5 billion cash and cash equivalents and of $2.6 billion marketable securities and derivative financial instruments.
At December 31, 2011,2014, and net debt increased over the Group liquidity amountedsame period by $10.0 billion to $5.1 billion$16.5 billion. The debt/equity ratio decreased to 0.28:1 at December 31, 2015 compared to $8.1 billion0.29:1 at the end of 2010 and consists of $3.7 billion cash and cash equivalents and of $1.4 billion marketable securities and derivative financial instruments.
At December 31, 2010, the Group liquidity amounted to $8.1 billion and consists of $5.3 billion cash and cash equivalents and of $2.8 billion marketable securities and derivative financial instruments.2014.
Net Debt SUMMARY OF EQUITY MOVEMENTS ATTRIBUTABLE TO NOVARTIS AG SHAREHOLDERS
| Number of outstanding shares (in millions) | Issued share capital and reserves attributable to Novartis AG shareholders | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | Change | 2015 | 2014 | Change | |||||||||||||
| | | | $ m | $ m | $ m | |||||||||||||
Balance at beginning of year | 2,398.6 | 2,426.1 | (27.5 | ) | 70,766 | 74,343 | (3,577 | ) | |||||||||||
Shares acquired to be held in Group Treasury | (9.6 | ) | (46.8 | ) | 37.2 | (897 | ) | (4,057 | ) | 3,160 | |||||||||
Shares acquired to be canceled | (49.9 | ) | (27.0 | ) | (22.9 | ) | (4,805 | ) | (2,396 | ) | (2,409 | ) | |||||||
Other share purchases | (4.1 | ) | (5.4 | ) | 1.3 | (417 | ) | (473 | ) | 56 | |||||||||
Increase in equity from exercise of options and employee transactions | 27.0 | 41.4 | (14.4 | ) | 1,592 | 2,400 | (808 | ) | |||||||||||
Equity-based compensation | 11.9 | 10.3 | 1.6 | 815 | 1,143 | (328 | ) | ||||||||||||
Decrease/(Increase) of treasury share repurchase obligation under a share buy-back trading plan | 658 | (658 | ) | 1,316 | |||||||||||||||
Dividends | (6,643 | ) | (6,810 | ) | 167 | ||||||||||||||
Net income of the year attributable to shareholders of Novartis AG | 17,783 | 10,210 | 7,573 | ||||||||||||||||
Other comprehensive income attributable to shareholders of Novartis AG | (1,806 | ) | (2,936 | ) | 1,130 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Balance at end of year | 2,373.9 | 2,398.6 | (24.7 | ) | 77,046 | 70,766 | 6,280 | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
AsDuring 2015, 38.9 million treasury shares were delivered as a result of December 31, 2012, our total gross shortoptions being exercised and long-term debt was $19.7 billion, as compared with $20.2 billion as of December 31, 2011 and $23.0 billion as of December 31, 2010. Total gross short and long-term debt in 2012 decreased comparedphysical share deliveries related to 2011 by $0.5 billion. Total gross short and long-term debt in 2011 decreased compared to 2010 by $2.8 billion despite the funding of acquisitions and share repurchases.
We have $14.8 billion of bonds and Medium Term Notes and other long-term financial loans of $1.0 billion outstanding at December 31, 2012. We had $13.5 billion and $13.5 billion of bonds and Medium Term Notes outstanding at December 31, 2011 and at December 31, 2010, respectively. We had $1.1 billion and $1.0 billion of other long-term financial loans outstanding at December 31, 2011 and at December 31, 2010, respectively. For detailsequity-based participation plans (2014: 51.7 million shares). 9.6 million shares were repurchased on the maturity profile of debt, currency and interest rate structure, see "Item 18. Financial Statements—note 19".
As of December 31, 2012, we had current debt (excludingSIX Swiss Exchange first trading line (2014: 46.8 million), 4.1 million shares were acquired from employees which were previously granted to them under the current portion of non-current debt) of $3.9respective programs (2014: 5.4 million). In addition, Novartis repurchased 49.9 million shares on the SIX Swiss Exchange second trading line under the $5 billion as compared with $5.6 billion as of December 31, 2011, and $8.5 billion as of December 31, 2010. This current debt consists mainly of $2.8 billion (2011: $3.4 billion, 2010: $3.5 billion)share buyback announced in other bank and financial debt, including interest bearing employee accounts, $963 million (2011: $2.2 billion, 2010: $5.0 billion) of commercial paper and $162 million (2011: $30 million, 2010: $44 billion) of other current debt. For further details see "Item 18. Financial Statements—note 21".
Our net debt decreased to $11.6 billion at the end of 2012 from a net debt of $15.2 billion at the end of 2011. At the end of 2010 the net debt amounted to $14.9 billion.
Novartis strives to maintain a strong credit rating. In managing its capital, Novartis focuses on a strong balance sheet. Credit agencies in 2012 maintained their ratings for Novartis. Moody's rated the Group as Aa2 for long-term maturities and P-1 for short-term maturities and Standard & Poor's had a2013, which was completed
rating of AA- for long-termin November 2015, and A-1+ for short-term maturities. Fitch had a long-term rating of AA and a short-term rating of F1+.
The 2012 year-end debt/equity ratio decreasedalso to 0.28:1 from 0.31:1 in 2011 principally due to less current financial debt being outstanding under the commercial paper programs.
We are in compliance with all covenants or other requirements set forth in our financing agreements. We do not have any rating downgrade triggers that would accelerate maturity of our debt. For details of the maturity profile of debt, currency and interest rate structure, see "Item 18. Financial Statements—note 19".
Net debt/liquidity constitutes a non-IFRS financial measure, which means that it should not be interpreted as a measure determined under International Financial Reporting Standards (IFRS). Net debt/liquidity is presented as additional information as it is a useful indicator of the Group's ability to meet financial commitments and to invest in new strategic opportunities, including strengthening its balance sheet.
We use marketable securities and derivative financial instruments to manage the volatility of our exposures to market risk in interest rates and liquid investments. Our objective is to reduce, where appropriate, fluctuations in earnings and cash flows. We manage these risks by selling existing assets or entering into transactions and future transactions (in the case of anticipatory hedges) which we expect we will have in the future, based on past experience. We therefore expect that any loss in value for those securities or derivative financial instruments generally would be offset by increases in the value of those hedged transactions.
We use the US dollar as our reporting currency and we are therefore exposed to foreign exchange movements, primarily in European, Japanese and other Asian and Latin American currencies. Consequently, we enter into various contracts which change in value as foreign exchange rates change, to preserve the value of assets, commitments and anticipated transactions. We also use forward contracts and foreign currency option contracts to hedge certain anticipated net revenues in foreign currencies.
The following table provides a breakdown of liquidity and financial debt by currency:
| Liquidity in % 2012 | Liquidity in % 2011 | Liquidity in % 2010 | Financial debt in % 2012 | Financial debt in % 2011 | Financial debt in % 2010 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
$ | 72 | 60 | 82 | 63 | 56 | 64 | |||||||||||||
EUR | 5 | 2 | 3 | 11 | 13 | 13 | |||||||||||||
CHF | 15 | 33 | 11 | 13 | 15 | 13 | |||||||||||||
JPY | 10 | 14 | 8 | ||||||||||||||||
Other | 8 | 5 | 4 | 3 | 2 | 2 | |||||||||||||
100 | 100 | 100 | 100 | 100 | 100 | ||||||||||||||
Novartis defines free cash flow as cash flow from operating activities less purchase or sale of property, plant & equipment, intangible, other non-current and financial assets. Cash flows in connection with the acquisition or divestment of subsidiaries, associated companies and non-controlling interests are excluded
from free cash flow. For further information see "Non-IFRS measures as defined by Novartis—Free Cash Flow". The following is a summary of the Group's free cash flow:
| 2012 | 2011 | 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Operating income | 11,511 | 10,998 | 11,526 | |||||||
Reversal of non-cash items | ||||||||||
Depreciation, amortization and impairments | 4,954 | 5,980 | 3,577 | |||||||
Change in provisions and other non-current liabilities | 539 | 1,295 | 802 | |||||||
Other | 452 | 272 | 226 | |||||||
Operating income adjusted for non-cash items | 17,456 | 18,545 | 16,131 | |||||||
Interest and other financial receipts | 689 | 470 | 741 | |||||||
Interest and other financial payments | (616 | ) | (687 | ) | (670 | ) | ||||
Taxes paid | (2,022 | ) | (2,435 | ) | (2,616 | ) | ||||
Payments out of provisions and other net cash movements in non-current liabilities | (1,173 | ) | (1,471 | ) | (1,281 | ) | ||||
Change in inventory and trade accounts receivable less accounts payable | 183 | (492 | ) | 1,481 | ||||||
Change in other net current assets and other operating cash flow items | (323 | ) | 379 | 281 | ||||||
Cash flows from operating activities | 14,194 | 14,309 | 14,067 | |||||||
Purchase of property, plant and equipment | (2,698 | ) | (2,167 | ) | (1,678 | ) | ||||
Purchase of intangible assets | (370 | ) | (220 | ) | (554 | ) | ||||
Purchase of financial assets | (180 | ) | (139 | ) | (124 | ) | ||||
Purchase of other non-current assets | (57 | ) | (48 | ) | (15 | ) | ||||
Proceeds from sales of property, plant and equipment | 92 | 61 | 36 | |||||||
Proceeds from sales of intangible assets | 163 | 643 | 545 | |||||||
Proceeds from sales of financial assets | 221 | 59 | 66 | |||||||
Proceeds from sales of other non-current assets | 18 | 5 | 3 | |||||||
Group free cash flow | 11,383 | 12,503 | 12,346 | |||||||
Financial year 2012
In 2012, the free cash flow of $11.4 billion was $1.1 billion lower than the prior year mainly on account of higher investments in property, plant and equipment of $2.7 billion compared to $2.2 billion (4.8% of net sales compared to 3.7% in 2011) and lower divestment proceeds which amounted to $0.5 billion in 2012 compared to $0.8 billion in 2011.
This free cash flow was primarily used for dividend payments to shareholders of $6.0 billion (compared to $5.4 billion in 2011), for the recent acquisitions which on a net cash basis amounted to $1.7 billion (mainly Fougera Pharmaceuticals, Inc.), and for the reduction of net debt of $3.5 billion. This allocation reflects management's intention to optimize shareholder returns whilst at the same time reinvesting surplus fund in the business to assure future growth.
Financial year 2011
Free cash flow for 2011 was $12.5 billion, which represents an increase of 1% or $0.2 billion compared to 2010. Main contributors were Pharmaceuticals with $10.8 billion followed by Alcon with $3.5 billion while other divisions contributed in total $2.1 billion. Corporate had a free cash outflow of $3.9 billion mainly on account of interest and tax payments. Free cash flow of $12.5 billion was deployed for dividend payments of $5.4 billion and share repurchases of $5.9 billion (including $2.4 billion repurchased indirectly via Alcon, Inc. to reduce the dilutive impact offrom equity-based participation plans (2014: 27.0 million). With these transactions, the subsequent merger of
Alcon, Inc. into Novartis AG). In total dividends and share repurchases utilized 90% of the Group's 2011 free cash flow.
Financial year 2010
The free cash flow for 2010 was $12.3 billion, which represents an increase of 30.7% over 2009. The strong business expansion, lower working capital requirements, higher proceeds from the disposal of intangible assets as well as lower capital spending contributed to the growth of the free cash flow. Net investments in property, plant & equipment in 2010 were $1.6 billion, or 3.2% of net sales, down from 4.2% of net sales in 2009. Free cash flow in 2010 was mainly attributable to the Pharmaceuticals Division which contributed $10.7 billion to the Group total.
Free cash flow is presented as additional information because Novartis considers it is a useful indicator of the Group's ability to operate without relying on additional borrowing or the use of existing cash. Free cash flow is a measure of the net cash generated that is available for debt repayment and investment in strategic opportunities. The Group uses free cash flow as a performance measure when making internal comparisons of the results of divisions. Free cash flow constitutes a non-IFRS financial measure, which means that it should not be interpreted as a measure determined under IFRS. Free cash flow is not intended to be a substitute measure for cash flow from operating activities (as determined under IFRS).
Funding of the Alcon transaction—2010
On August 25, 2010, Novartis completed the acquisition of a further 52% interest in Alcon, Inc. following on from the January 4, 2010 announcement that Novartis had exercised its call option to acquire Nestlé's remaining 52% Alcon interest for approximately $28.3 billion or $180 per share. This increased the interest in Alcon to a 77% controlling interest as Novartis had already acquired an initial 25% Alcon interest from Nestlé for $10.4 billion or $143 per share in July 2008.
On December 14, 2010, Novartis entered into a definitive agreement to merge Alcon into Novartis for Novartis shares and a Contingent Value Amount (CVA). Under the terms of the agreement, the merger consideration will include up to 2.8 Novartis shares and a CVA to be settled in cash that will in aggregate equal $168 per share. If the value of 2.8 Novartis shares is more than $168 the number of Novartis shares will beoutstanding was reduced accordingly. The total merger consideration forby 24.7 million in 2015 (2014: reduction of 27.5 million shares) and the non-controlling interest will be $12.9 billion, comprising of up to 215 million Novartis shares and a potential CVA to be settled in cash.
The overall purchase price of $38.7 billion includes certain adjustments for Alcon dividends and interest due. Sources of financing for the 77% ownership, including the initial 25% stake purchased in mid-2008, were $17.0 billion of available cash, and $13.5 billion from bonds raised in March 2010 as well as in 2008 and 2009. In addition, during 2010, we raised funds of $8.2 billion through our commercial papersixth share buyback program, which was used for general corporate purposes ofapproved by the Novartis Group, as well as for intercompany financing purposes in connection with the acquisition of the 52% interest in Alcon.
Funding of the Alcon transaction—2011
During 2011, prior to the merger of Alcon, Inc. into Novartis AG on April 8, 4.8% of the non-controlling interests in Alcon, Inc. were acquired for $2.4 billion.
Completion of the acquisition of the outstanding 18.6% interest in Alcon on April 8, 2011 and subsequent merger, resulted in the issuance of Novartis shares with a fair value of $9.2 billion and a contingent value payment of $0.5 billion.
The final purchase price allocation was completed in 2011 and resulted in a fair value of net identifiable assets of $27.0 billion and goodwill of $18.0 billion. Also, the excess of the value exchanged for these 2011 transactions over the recorded value of the non-controlling interest together with merger related transaction costs resulted in a reduction in equity of $5.7 billion.
For additional information, see "Item 18, Financial Statements—note 2 and 24".
Share Repurchase Plans
During 2012, Novartis repurchased 4.6 million of its shares for $240 million on the first trading line on the SIX. These shares will be kept as treasury shares principally for future employee participation program purposes. Following the approval of our shareholders at the Annual General Meeting on February 23, 2012, all shares repurchased on the second trading line of the SIX during 2011 were cancelled (total of 39.4 million shares, which corresponded to 1.4% of the registered Novartis share capital), and the share capital was reduced accordingly.
In 2011, NovartisAGM 2008 has carried out the share repurchases committed to at the time of the Alcon merger announcement. These share repurchases amounted to $5.3 billion including the purchases of $2.4 billion of Alcon shares, a contingent value payment of $0.5 billion and repurchases of $2.4 billion of Novartis shares (39.4 million shares). All of these Novartis shares were repurchased on the second trading line during the first six months of 2011. In addition, in the second half of 2011, Novartis repurchased $1.1 billion (20.4 million shares) of own shares on the first trading line. These shares will be kept as treasury shares to mostly cover future employee participation programs.
No shares were cancelled in 2011 as none had been repurchased in the 12 months to December 2010.completed.
Treasury shares
At December 31, 2012,2015, our holding of treasury shares amounted to 285.6303.1 million shares or 11% of the total number of issued shares. Approximately 175137 million treasury shares are held in entities that limit their availability for use.
At December 31, 2011,2014, our holding of treasury shares amounted to 338.9307.6 million shares or 12%11% of the total number of issued shares. Approximately 181153 million treasury shares are held in entities that limit their availability for use.
At December 31, 2010,2013, our holding of treasury shares amounted to 348.2280.1 million shares or 13%10% of the total number of issued shares. Approximately 181149 million treasury shares are held in entities that limit their availability for use.
Bonds
In September 2012,February 2015, three Swiss franc bonds totaling CHF 1.375 billion were completed; a 10-year bond of CHF 0.5 billion with a coupon of 0.25%, a 14-year bond of CHF 0.550 billion with a coupon of 0.625% and a 20-year bond of CHF 0.325 billion with a coupon of 1.050%.
In November 2015, two US Dollar bonds totaling $3.0 billion were issued: a 10-year bond of $1.75 billion with a coupon of 3.0% and a 30-year bond of $1.25 billion with a coupon of 4.0%.
In 2015, a 2.9% US Dollar bond of $2.0 billion and a 3.625% CHF bond of 0.8 billion were repaid.
In February 2014, a $4.0 billion bond offering was completed in the United States. Two tranches were issued,States consisting of two tranches; one 10-year10 year bond of $1.5$2.15 billion with a coupon of 2.4%3.4% and the other at $0.5one 30 year bond of $1.85 billion 30-year bond with a coupon of 3.7%4.4%. Further, a 3.5% Swiss franc4.125% US Dollar bond of CHF 700 million$2 billion was repaid in 2012.at maturity.
In 2011 no bonds were issued or repaid.October 2014, a EUR 1.2 billion bond offering was completed consisting of two tranches; one 7 year bond of EUR 0.6 billion with a coupon of 0.75% and one 12 year bond of EUR 0.6 billion with a coupon of 1.625%.
On March 9, 2010, Novartis issuedIn April 2013, a three-tranche1.9% US Dollar bond totaling $5.0 billion registered with the US Securities and Exchange Commission as part of a shelf registration statement filed by Novartis in 2008. A 1.9% three-year tranche totaling $2.0 billion a 2.9% five-year tranche totaling $2.0 billion and a 4.4% 10-year tranche totaling $1.0 billion were issued by the Group's US entity, Novartis Capital Corp. All tranches are unconditionally guaranteed by Novartis AG.
Direct Share Purchase Plans
Since 2004, Novartis has offered a Direct Share Purchase Program to investors residing in Switzerland, Liechtenstein, France and the United Kingdom, which was the first of its kind in Europe. This plan offers an easy and inexpensive way for investors to directly purchase Novartis registered shares and for them to be held at no cost in a deposit account with SIX SAG AG. At the end of 2012, a total of 9,361 shareholders were enrolled in this program. Beginning in 2013, Novartis will continue to offer this program only for Swiss residents.
Novartis previously offered US investors an ADS Direct Share Purchase Plan. Novartis has terminated this Plan. JPMorgan will offer a similar program to US investors.repaid.
Liquidity/Short-term Funding—2012 and 2011Funding
We continuously track our liquidity position and asset/liability profile. This involves modeling expected cash flow maturity profilesflows based on both historical experiences and contractual expectations to project our liquidity requirements. We seek to preserve prudent liquidity and funding capabilities.
We are not aware of significant demands to change our level of liquidity needed to support our normal business activity. We intend to use part of our free cash flow to reduce our financial debt.activities. We make use of various borrowing facilities provided by several financial institutions. We also successfully issued various bonds in 2009, 2010, 2012, 2014 and 2012. In addition, we2015 and raised funds through our commercial paper programs. In addition, reverse repurchasing agreements are contracted and Novartis has entered into credit support agreements with various banks for derivative transactions. We have no commitments from repurchase or securities lending transactions. The principal reason fortransactions at the decrease in average current financialend of 2015. For details of the maturity profile of debt, in 2012 compared to 2011 is the decrease in commercial paper during 2012.currency and interest rate structure, see "Item 18. Financial Statements—Note 29".
An overview of the movements in our current financial debt and related interest rates is set forth below:
| December 31 | Average interest rate at year end | Average balance during the year | Average interest rate during the year | Maximum balance during the year | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | % | $ m | % | $ m | |||||||||||
2012 | ||||||||||||||||
Interest-bearing accounts of associates | 1,541 | 1.03 | 1,490 | 1.06 | 1,554 | |||||||||||
Other bank and financial debt | 1,270 | 3.99 | 1,662 | 3.05 | 2,049 | |||||||||||
Commercial paper | 963 | 0.66 | 3,738 | 0.17 | 6,287 | |||||||||||
Current portion of non-current financial debt | 2,009 | na | 1,597 | na | 2,009 | |||||||||||
Fair value of derivative financial instruments | 162 | na | 102 | na | 219 | |||||||||||
Total current financial debt | 5,945 | 8,589 | 12,118 | |||||||||||||
2011 | ||||||||||||||||
Interest-bearing accounts of associates | 1,357 | 1.36 | 1,463 | 1.25 | 1,626 | |||||||||||
Other bank and financial debt | 2,053 | 3.38 | 3,784 | 1.83 | 7,749 | |||||||||||
Commercial paper | 2,156 | 0.55 | 5,597 | 0.21 | 8,673 | |||||||||||
Current portion of non-current financial debt | 778 | na | 479 | na | 911 | |||||||||||
Fair value of derivative financial instruments | 30 | na | 97 | na | 184 | |||||||||||
Total current financial debt | 6,374 | 11,420 | 19,143 | |||||||||||||
Interest bearing accounts of associates relate to employee deposits in CHF from the compensation of associates employed by Swiss entities (actual interest rate: 1%). Other bank and financial debt refer to usual lending and overdraft facilities.
5.C Research & Development, Patents and Licenses
Our R&D spending for continuing operations totaled $9.3$8.9 billion, $9.6$9.1 billion and $9.1 billion ($9.18.7 billion, $9.2$8.7 billion and $8.1$8.9 billion excluding impairments and amortization charges) for the years 2012, 20112015, 2014 and 2010,2013, respectively. Each of our divisions has its own R&D and patents policies. Our divisions have numerous products in various stages of development. For further information on these policies and these products in development, see "Item 4. Information on the Company—4.B Business Overview."
As described in the "Risk Factors" section and elsewhere in this Form 20-F, our drug development efforts are subject to the risks and uncertainties inherent in any new drug development program. Due to the risks and uncertainties involved in progressing through pre-clinical development and clinical trials, and the time and cost involved in obtaining regulatory approvals, among other factors, we cannot reasonably estimate the timing, completion dates, and costs, or range of costs, of our drug development program, or of the development of any particular development compound, see "Item 3. Key Information—3.D Risk Factors." In addition, for a description of the research and development process for the development of
new drugs and our other products, and the regulatory process for their approval, see "Item 4. Information on the Company—4.B Business Overview."
Please see "—5.A Operating Results—Factors Affecting Results of Operations" and "Item 4, Information on the Company—4.B Business Overview" for trend information.
5.E Off-Balance Sheet Arrangements
We have no unconsolidated special purpose financing or partnership entities or other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that is material to investors.investors, see also "Item 18. Financial Statements—Note 28" and matters described in "Item 5.F Aggregate Contractual Obligations".
5.F Aggregate Contractual Obligations
The following table summarizes ourthe Group's contractual obligations and other commercial commitments at December 31, 2012 and2015, as well as the effect suchthese obligations and commitments are expected to have on ourthe Group's liquidity and cash flow in future periods:
| Payments due by period | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total | Less than 1 year | 2-3 years | 4-5 years | After 5 years | |||||||||||
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Non-current financial debt | 15,790 | 2,009 | 5,823 | 2,006 | 5,952 | |||||||||||
Operating leases | 3,145 | 372 | 467 | 293 | 2,013 | |||||||||||
Unfunded pensions and other post-retirement obligations | 2,144 | 97 | 195 | 207 | 1,645 | |||||||||||
Research & Development | ||||||||||||||||
—Unconditional commitments | 219 | 48 | 79 | 59 | 33 | |||||||||||
—Potential milestone commitments | 2,014 | 456 | 526 | 766 | 266 | |||||||||||
Purchase commitments | ||||||||||||||||
—Property, plant & equipment | 755 | 508 | 236 | 11 | ||||||||||||
Total contractual cash obligations | 24,067 | 3,490 | 7,326 | 3,342 | 9,909 | |||||||||||
| Payments due by period | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total | Less than 1 year | 2–3 years | 4–5 years | After 5 years | |||||||||||
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Non-current financial debt, including current portion | 17,986 | 1,659 | 505 | 5,460 | 10,362 | |||||||||||
Operating leases | 2,996 | 273 | 335 | 207 | 2,181 | |||||||||||
Unfunded pensions and other post-employment benefit plans | 2,165 | 113 | 234 | 251 | 1,567 | |||||||||||
Research & Development | ||||||||||||||||
Unconditional commitments | 650 | 88 | 147 | 265 | 150 | |||||||||||
Potential milestone commitments | 2,405 | 601 | 781 | 626 | 397 | |||||||||||
Purchase commitments | ||||||||||||||||
Property, plant & equipment | 359 | 304 | 55 | |||||||||||||
| | | | | | | | | | | | | | | | |
Total contractual cash obligations | 26,561 | 3,038 | 2,057 | 6,809 | 14,657 | |||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The Group intendsWe expect to fund the R&D and purchase commitments with internally generated resources.
For other contingencies, see "Item 4. Information on the Company—4.D Property, Plants and Equipment—Environmental Matters", "Item 8. Financial Information—8.A Consolidated Statements and Other Financial Information" and "Item 18. Financial Statements—note 20"Note 20 and 28".
Item 6. Directors, Senior Management and Employees
Item 6.A Directors and Senior Management
Daniel Vasella, M.D., Swiss,Joerg Reinhardt, Ph.D.
Chairman of the Board of Directors
German, age 59
Function at Novartis AG Daniel Vasella, M.D.Joerg Reinhardt, Ph.D., ishas been Chairman of the Board of Directors forof Novartis AG.since 2013. He served as Chief Executive Officer (CEO)is also Chairman of the Research & Development Committee and executive memberChairman of the Board of Directors for 14 years followingTrustees of the merger that created Novartis in 1996. Dr. Vasella was appointed Chairman in April 1999.Foundation.
Other activities Dr. Vasella isMr. Reinhardt previously was chairman of the board of management and the executive committee of Bayer HealthCare, Germany. Prior to that, he was Chief Operating Officer of Novartis from 2008 to 2010, and Head of the Vaccines and Diagnostics Division of Novartis from 2006 to 2008. He was also Chairman of the Board of the Genomics Institute of the Novartis Research Foundation in the United States from 2000 to 2010, a member of the boardssupervisory board of directors of US-based PepsiCo Inc.MorphoSys AG in Germany from 2001 to 2004, and American Express Co. He is also a member of the International Board of Governors of the Peres Center for Peace in Israel, the International Business Leaders Advisory Council for the Mayor of Shanghai, and is a foreign honorary member of the American Academy of Arts and Sciences. He further is a member of the board of trusteesdirectors of the Carnegie Endowment for International Peace. In addition, Dr. Vasella serves as a member of several industry associations and educational institutions.Lonza Group AG in Switzerland from 2012 to 2013.
Professional background Before the Novartis merger, Dr. Vasella was CEO ofMr. Reinhardt graduated with a Ph.D. in pharmaceutical sciences from Saarland University in Germany. He joined Sandoz Pharma Ltd. in 1982 and a memberheld various positions at Sandoz and later Novartis, including Head of the Sandoz Group Executive Committee. From 1988 to 1992, he was with Sandoz Pharmaceuticals Corporation in the United States, prior to which he held a number of medical positions in Switzerland. He graduated with an M.D. from the University of Bern in Switzerland and completed executive training at the Harvard Business School in the United States. He also was awarded an honorary doctorate by the University of Basel, Switzerland.Development.
Key knowledge/experienceLeadership, Biomedical Scienceglobal and Global Marketing experience—former CEO of Novartis; advisory panel member for international organizations.Industryindustry experience—former chairman of global healthcare company; former Chief Operating Officer of Novartis and former Chairman of Novartis research institution; former board member for global consumer goodsof leading biotechnology company and of global financial services company.supplier for pharmaceutical, healthcare and life sciences industries.
Ulrich Lehner,Enrico Vanni, Ph.D., German,
Vice Chairman of the Board of Directors
Swiss, age 6664
Function at Novartis AG Ulrich Lehner,Enrico Vanni, Ph.D., has been a member of the Board of Directors since 2002.2011. He qualifies as an independent Non-Executive Director. He serves asis Vice Chairman of the Board of Directors and Chairman of the Corporate Governance and NominationCompensation Committee. He is also a member of the Audit and Compliance Committee the Risk Committee, the Chairman's Committee, and the CompensationResearch & Development Committee. The Board of Directors has appointed him as Audit Committee Financial Expert.
Other activities Since his retirement as director of McKinsey & Company in 2007, Mr. LehnerVanni has been an independent consultant. He is a board member of the shareholders' committee of Henkel AGseveral companies in industries from healthcare to private banking—including Advanced Oncotherapy PLC in England, and non-listed companies such as Lombard Odier SA, Banque Privée BCP (Suisse) SA, Eclosion2, and Denzler & Co. KGaA, chairman of the supervisory board of Deutsche Telekom AG, and serves as a member of the supervisory boards of E.ON AG, ThyssenKrupp AG, Porsche Automobil Holding SE and Henkel Management AG,Partners SA, all based in Germany. He is also a member of the shareholders' committee of Dr. August Oetker KG and Krombacher Brauerei, both in Germany.Switzerland.
Professional background Mr. Lehner graduatedVanni holds an engineering degree in business administration and mechanical engineeringchemistry from the DarmstadtFederal Polytechnic School of Lausanne, Switzerland; a Ph.D. in chemistry from the University of Technology, Germany,Lausanne; and a Master of Business Administration from INSEAD in 1975. From 1975Fontainebleau, France. He began his career as a research engineer at the International Business Machines Corp. (IBM) in California, United States, and joined McKinsey in Zurich in 1980. He managed the Geneva office for McKinsey from 1988 to 1981, he was an auditor with KPMG Deutsche Treuhand-Gesellschaft AG2004, and consulted for companies in Duesseldorf. In 1981, he joined Henkel KGaA. After heading the controlling department of Fried. Krupp GmbH in Germany from 1983 to 1986, Mr. Lehner returned to Henkel aspharmaceutical, consumer and finance director. From 1991 to 1994, he headed Henkel Asia-Pacific Ltd. in Hong Kong,sectors. He led McKinsey's European pharmaceutical practice and from 1995 to 2000, he served as executive vice president, finance/logistics, of Henkel KGaA. From 2000 to 2008, Mr. Lehner served as chairmana member of the firm's partner review committee prior to his retirement in 2007. As an independent consultant, Mr. Vanni has continued to support leaders of pharmaceutical and biotechnology companies on core strategic challenges facing the healthcare industry.
Key knowledge/experienceGlobal and industry experience—senior consultant of global pharmaceutical/biotechnology and consumer goods companies, and financial institutions.Science experience—research engineer at technology company and manager of projects in global pharmaceutical R&D.Leadership experience—office management board of Henkel KGaA.global consulting company and leadership of its European pharmaceutical practice.
Nancy C. Andrews, M.D., Ph.D.
Member of the Board of Directors
American, age 57
Function at Novartis AG Nancy C. Andrews, M.D., Ph.D., has been a member of the Board of Directors since February 27, 2015. She qualifies as an independent Non-Executive Director and is a member of the Research & Development Committee.
Other activities Dr. Andrews is dean of the Duke University School of Medicine and vice chancellor for academic affairs at Duke University in the United States. She is also a professor of pediatrics, pharmacology and cancer biology at Duke. Prior to joining Duke, she was director of the Harvard/MIT M.D.-Ph.D. Program, and dean of basic sciences and graduate studies as well as professor of pediatrics at Harvard Medical School in the US. From 1993 to 2006, Dr. Andrews was a biomedical research investigator at the Howard Hughes Medical Institute, also in the US. Her research expertise is in iron homeostasis and mouse models of human diseases.
Professional background Dr. Andrews received her Ph.D. in biology from the Massachusetts Institute of Technology in the US and her M.D. from Harvard Medical School. She completed her residency and
fellowship trainings in pediatrics and hematology/oncology at Boston Children's Hospital and the Dana-Farber Cancer Institute, both in the US, and served as an attending physician at Boston Children's Hospital. Dr. Andrews also served as president of the American Society for Clinical Investigation. Additionally, she was elected as a fellow of the American Association for the Advancement of Science and to membership in the US National Academy of Sciences, the National Academy of Medicine, and the American Academy of Arts and Sciences. She serves on the council of the National Academy of Medicine and on the board of directors of the American Academy of Arts and Sciences.
Key knowledge/experienceLeadership and Global experience—chairman of supervisory board of global telecommunication company; former chairman of the management board of global consumer goods company.Industryhealthcare experience—dean of leading US university medical school; member of supervisory boards of global energy, automotivevarious medical, scientific and manufacturing technology companies.ethical institutions and commissions.Education and scientific experience—research scientist and professor at leading US universities.
Dimitri Azar, M.D.,
Member of the Board of Directors
American, age 5356
Function at Novartis AG Dimitri Azar, M.D., has been a member of the Board of Directors since February 2012. He qualifies as an independent Non-Executive Director.Director and is a member of the Audit and Compliance Committee and the Research & Development Committee.
Other activities Dr. Azar is dean of the College of Medicine and professor of ophthalmology, bioengineering and pharmacology at the University of Illinois at Chicago in the United States, where he formerly was head of the Department of Ophthalmology and Visual Sciences. He sits on the board of trustees of the Chicago Ophthalmological Society and the Association of Research in Vision and Ophthalmology. Dr. Azar is a member of the American Ophthalmological Society and holds multiple committee positions withis on the American Academyboards of Ophthalmology.trustees of the Chicago Medical Society, the Chicago Ophthalmological Society, the Association for Research in Vision and Ophthalmology, and the Tear Film and Ocular Surface Society.
Professional background Dr. Azar began his career at the American University of Beirut Medical Center Beirut,in Lebanon, and completed his fellowship and residency training at the Massachusetts Eye and Ear Infirmary at Harvard Medical School in the United States.US. His research on matrix-metalloproteinasesmatrix metalloproteinases in corneal wound healing and angiogenesis has been funded by the US National Institutes of Health since 1993. Dr. Azar practiced at the Wilmer OphthalmologicEye Institute at Thethe Johns Hopkins Hospital School of Medicine in the US, and then returned to the Massachusetts Eye and Ear Infirmary as director of the cornea and external disease. He became professor of ophthalmology with tenure at Harvard Medical School in 2003. Dr. Azar holds an Executive Master of Business Administration from the University of Chicago Booth School of Business.Business in the US.
Key knowledge/experienceLeadership, Healthcarehealthcare and Education experience—education experience—dean and professor ofat leading US university medical school.Biomedical Sciencescience experience—federally fundedfederally-funded clinician-scientist and research fellowship recipient.
William Brody,Verena A. Briner, M.D., Ph.D., American,
Member of the Board of Directors
Swiss, age 6864
Function at Novartis AG William Brody,Verena A. Briner, M.D., Ph.D., has been a member of the Board of Directors since 2009. He2013. She qualifies as an independent Non-Executive Director. HeDirector and is a member of the CompensationRisk Committee.
Other activities Dr. BrodyBriner is presidentprofessor of internal medicine at the University of Basel, and visiting professor at the University of Lucerne, both in Switzerland. She is chief medical officer and head of the Salk Institute for Biological Studies, La Jolla, California, United States. He is also a memberDepartment of Medicine at the boards of directors of the US-based International Business Machines Corp. and Kool Smiles Inc., and the mutual funds boards of T. Rowe Price. HeLucerne Cantonal Hospital in Switzerland. Additionally, she is a member of numerous professional associations,several medical and also serves onethical institutions and commissions, including the advisory boards of various government and nonprofit organizations.
Professional background Dr. Brody earned his bachelor's and master's degrees in electrical engineering from the Massachusetts Institute of Technology before completing his M.D. and Ph.D. at Stanford University, all in the United States. Following training in cardiovascular surgery and radiology he held various academic positions, including professor for radiology and electrical engineering at Stanford University, and directorboard of the departmentFoundation for the Development of radiology at The Johns Hopkins University. From 1996 to 2009, he was president of The Johns Hopkins University, and since 2009, presidentInternal Medicine in Europe, the senate of the Salk Institute for Biological Studies in the United States. He is a member of the US NationalSwiss Academy of EngineeringMedical Sciences, and the Institute of Medicine.
Key knowledge/experienceLeadership, Biomedical Science, Healthcare and Education experience—president of leading US scientific research institution; former president of leading US university.Global, Engineering and Technology experience—former board member of global technology company.
the journal of the inter-cantonal convention on highly-specialized medicine (IVHSM), Switzerland. She is also a member and former president of the Swiss Society of Internal Medicine.
Professional background Dr. Briner graduated with an M.D. from the University of Basel in 1978, and has a specialized degree in internal medicine and nephrology from the Swiss Medical Association. She has received several prestigious scholarships and scientific grants, including the President's Grant of the Swiss Society of General Internal Medicine in 2011. Additionally, she is a fellow of the Royal College of Physicians, United Kingdom, and an honorary fellow of the American College of Physicians, the European Federation of Internal Medicine, the Polish Society of Internal Medicine, and the Swiss Society of General Internal Medicine.
Key knowledge/experienceLeadership and healthcare experience—chief medical officer and department head at leading Swiss hospital; former president of Swiss medical society; member of various medical and ethical institutions and commissions.Education experience—professor and visiting professor at leading Swiss universities.
Srikant Datar, Ph.D.,
Member of the Board of Directors
American, age 5962
Function at Novartis AG Srikant Datar, Ph.D., has been a member of the Board of Directors since 2003. He qualifies as an independent Non-Executive Director. He is Chairman of the Audit and Compliance Committee, and a member of the Chairman's Committee, the Risk Committee and the Compensation Committee. The Board of Directors has appointed him as Audit Committee Financial Expert.
Other activities Mr. Datar is Arthur Lowes Dickinson Professor at the Graduate School of Business Administration at Harvard University.University in the United States. He is also a member of the boards of directors of ICF International Inc., Stryker Corp. and Stryker Corp., bothT-Mobile US, all in the United States, and of HCL Technologies in India.US.
Professional background Mr. Datar graduated in 1973 with distinction in mathematics and economics from the University of Bombay India, in 1973.India. He is a Chartered Accountant,chartered accountant, and holds two master's degrees and a doctorate from Stanford University.University in the US. Mr. Datar has worked as an accountant and planner in industry, and as a professor at Carnegie Mellon University, Stanford University and Harvard University, all in the United States.US. His research interests are in the areas of cost management, measurement of productivity, new product development, innovation, time-based competition, incentives and performance evaluation. He is the author of many scientific publications and has received several academic awards and honors. Mr. Datar has also advised and worked with numerous companies in research, development and training.
Key knowledge/experienceLeadership and Education experience—education experience—former senior associate dean and current professor ofat leading US university.Global and Industryindustry experience board member of global professional services firm; board member offirm, leading global leading medical technology company; board member of Indian high-techcompany, and major US telecommunications company.
Ann Fudge
Member of the Board of Directors
American, age 6164
Function at Novartis AG Ann Fudge has been a member of the Board of Directors since 2008. She qualifies as an independent Non-Executive Director. SheDirector and is a member of the Corporate Governance and Nomination Committee,Risk Committee; the Compensation Committee; and the RiskGovernance, Nomination and Corporate Responsibilities Committee.
Other activities Ms. Fudge serves on the boardsis vice chairman and senior independent director of directors of General Electric Co. in the United States; Unilever NV, London and Rotterdam, Netherlands; and Infosys Ltd., India.Rotterdam. She is a trustee of the New York-based Rockefeller Foundation and the Washington, D.C.-based Brookings Institution, and is chairmanchair of the US Programs Advisory Panel of the
Bill & Melinda Gates Foundation. Ms. Fudge is furtheralso a membertrustee of the Harvard University Corporation Committee on Finance. She is alsoWGBH public media and serves on the board of the Council on Foreign Relations.
Professional background Ms. Fudge received her bachelor's degree from Simmons College in the United States and her MastersMaster of Business Administration from Harvard University Graduate School of Business, also in the United States.US. She is former chairman and CEO of Young & Rubicam Brands, New York. Before that, she served as president of the Beverages, Desserts and Post Division of Kraft Foods Inc., Northfield, Illinois. in the US.
Key knowledge/experienceLeadership and Marketing experience—marketing experience—former chairman and CEO of global marketing communications company; former president of leading consumer products business unit.Global and Industryindustry experience—former board member of global technology company andcompany; board member of global consumer goods company.
Pierre Landolt, Ph.D.,
Member of the Board of Directors
Swiss, age 6568
Function at Novartis AG Pierre Landolt, Ph.D., has been a member of the Board of Directors since 1996. He qualifies as an independent Non-Executive Director. HeDirector and is a memberChairman of the Governance, Nomination and Corporate Governance and NominationResponsibilities Committee.
Other activities Mr. Landolt is currently chairman of the Sandoz Family Foundation, and oversees theoverseeing its development of the foundation in several investment fields. He is also a partner with unlimited liabilities
chairman of the Swiss private bank Landolt & Cie.Cie SA. In Switzerland, he is chairman of Emasan AG and Vaucher Manufacture Fleurier SA, and vice chairman of Parmigiani Fleurier SA. HeAdditionally, he is a member of the board of EcoCarbone SAS, France, and Amazentis SA, Switzerland. He is also vice chairman of the Montreux Jazz Festival Foundation.Foundation and a board member of Amazentis SA, Switzerland. In Brazil, Mr. Landolt serves asis president of AxialPar Ltda. and Moco Agropecuaria Ltda., the Instituto Fazenda Tamanduá, and the Instituto Estrela de Fomento ao Microcrédito, AxialPar Ltda. and Moco Agropecuaria Ltda.dito.
Professional background Mr. Landolt graduated with a bachelor's degree in law from the University of Paris—Assas. From 1974 to 1976, he worked for Sandoz Brazil. In 1977, he acquired an agricultural estate in the semi-arid Northeast Region of Brazil, and overwithin several years converted it into a model farm in organic and biodynamic production. Since 1997, Mr. Landolt has been associate and chairman of AxialPar Ltda,Ltda., Brazil, an investment company focused on sustainable development. In 2000, he co-founded EcoCarboneEco-Carbone SAS, a company active in the design and development of carbon-sequestration processes. In 2007, he co-founded Amazentis SA, a startup company active in the convergence space of medication and nutrition. In 2011, Mr. Landolt received the title of Docteur des Sciences Économiques Honoris Causa from the University of Lausanne in Switzerland.
Key knowledge/experienceBanking and Industry experience; Internationalindustry experience in international and Emerging Market experienceemerging markets—partnerchairman of private bank; chairman and vice chairman of luxury goods companies.companies; board member of agribusiness company.Leadership and Globalglobal experience—President chairman of large family investment holding; board member of global agribusiness company.
Enrico Vanni, Ph.D., Swiss, age 61
Function at Novartis AG Enrico Vanni, Ph.D., has been a member of the Board of Directors since 2011. He qualifies as an independent Non-Executive Director. He is Chairman of the Compensation Committee, and a member of the Audit and Compliance Committee.
Other activities Since his retirement as director of McKinsey & Company in 2007, Mr. Vanni has been an independent consultant. He is currently a member of several boards of directors, in industries from healthcare to private banking, for nonlisted companies including Eclosion2, Denzler & Partners SA and Banque Privée BCP (Suisse) SA, all based in Switzerland.
Professional background Mr. Vanni holds an engineering degree in chemistry from the Federal Polytechnic School of Lausanne, Switzerland, a Ph.D. in chemistry from the University of Lausanne, as well as a Master of Business Administration from INSEAD in Fontainebleau, France. He began his career as a research engineer at International Business Machines Corp. in California, United States, and joined McKinsey & Company in Zurich in 1980. He managed the Geneva office for McKinsey from 1988 to 2004, and consulted for companies in the pharmaceutical, consumer and finance sectors. He led McKinsey's European pharmaceutical practice and served as member of the partner review committee of the firm prior to his retirement in 2007. As an independent consultant, Mr. Vanni has continued to support leaders of pharmaceutical and biotechnology companies on core strategic challengesfacing the healthcare industry.
Key knowledge/experienceGlobal industry experience—senior consultant of global pharmaceutical/biotech companies, consumer goods and financial institutions.Science experience—research engineer in technology company and management of projects in global pharmaceutical R&D.Leadership experience—office management of global consultant company and leadership of its European pharmaceutical practice.holding.
Andreas von Planta, Ph.D.,
Member of the Board of Directors
Swiss, age 5760
Function at Novartis AG Andreas von Planta, Ph.D., has been a member of the Board of Directors since 2006. He qualifies as an independent Non-Executive Director. He is Chairman of the Risk Committee and is a member of the Audit and Compliance Committee as well asand the Governance, Nomination and Corporate GovernanceResponsibilities Committee.
Other activities Mr. von Planta is a board member of Helvetia Holding AG in Switzerland, and Nomination Committee.also serves on the boards of various Swiss subsidiaries of foreign companies and other non-listed Swiss
Other activities Mr. von Planta is chairman of the Schweizerische National-Versicherungs-Gesellschaft AGcompanies, including A.P. Moller Finance SA, HSBC Private Bank (Switzerland) SA, Socotab Frana SA, Raymond Weil SA and a board member of Holcim Ltd., both in Switzerland. He is also a board member of various Swiss subsidiaries of foreign companies and other nonlisted Swiss companies. He is a member of the Board of Editors of the "Swiss Review of Business Law" and is a former chairman of the Geneva Association of Business Law. Mr. von PlantaGénérale-Beaulieu Holding SA. Additionally, he is chairman of the regulatory board of the SIX Swiss Exchange AG.
Professional background Mr. von Planta holds lic. iur. and Ph.D. degrees from the University of Basel in Switzerland, and an LL.M. from Columbia University School of Law New York,in the United States. He passed his bar examinations in Basel in 1982. Since 1983, he has lived in Geneva and worked for the law firm Lenz & Staehelin, where he became a partner in 1988. His areas of specialization include corporate law, corporate governance, corporate finance, company reorganizations, and mergers and acquisitions.
Key knowledge/experienceLeadership and Global experience—global experiencechairman of insurance company; —board member of global construction materials manufacturer.insurance company.Industry experience—partner ofat leading Swiss law firm.
Dr. Ing. Wendelin Wiedeking, German,Charles L. Sawyers, M.D.
Member of the Board of Directors
American, age 6056
Function at Novartis AG Dr. Ing. Wendelin WiedekingCharles L. Sawyers, M.D., has been a member of the Board of Directors since 2003.2013. He qualifies as an independent Non-Executive Director. HeDirector and is a member of the Audit and ComplianceResearch & Development Committee and of the RiskGovernance, Nomination and Corporate Responsibilities Committee.
Other activities Mr. Wiedeking was chairmanIn the United States, Dr. Sawyers is chair of the executive boardHuman Oncology and Pathogenesis Program at Memorial Sloan Kettering Cancer Center, professor of Porsche Automobil Holding SEmedicine and of Dr. Ing. h.c. F. Porsche AG, both in Germany, until July 2009. Since then he has beencell and developmental biology at the Weill Cornell Graduate School of Medical Sciences, and an entrepreneur.investigator at the Howard Hughes Medical Institute. He serves on US President Barack Obama's National Cancer Advisory Board, and is former president of the American Association for Cancer Research and of the American Society for Clinical Investigation. He is also a member of the US National Academy of Sciences and Institute of Medicine.
Professional background Mr. Wiedeking graduatedDr. Sawyers received his M.D. from the Johns Hopkins School of Medicine in mechanical engineering in 1978the US, and worked as a scientific assistantat the Jonsson Comprehensive Cancer Center at the University of California, Los Angeles in the machine tool laboratoryUS for nearly 18 years before joining Memorial Sloan Kettering in 2006. An internationally-acclaimed cancer researcher, he co-developed the Novartis cancer drugGleevec/Glivec and has received numerous honors and awards, including the Lasker-DeBakey Clinical Medical Research Award in 2009. Dr. Sawyers is a member of the Rhine-Westphalian Collegescientific advisory board of Advanced Technology in Germany. His professional career began in 1983 in Germany as director's assistantAgios Pharmaceuticals Inc. in the production and materials management area of Dr. Ing. h.c. F. Porsche AG in Stuttgart-Zuffenhausen. In 1988, he moved to Glyco Metall-Werke KG in Wiesbaden as division manager, where he advanced by 1990 to the position of CEO and chairman of the board of management of Glyco AG. In 1991, he returned to Dr. Ing. h.c. F. Porsche AG as production director. A year later, the supervisory board appointed him spokesman of the executive board (CEO), then chairman in 1993.US.
Key knowledge/experienceLeadership, Globalhealthcare and Industry experience—former chairman and CEO of global automotive company.Engineering and Technologyscience experience—program chair at leading cancer treatment and research institution; member of US cancer advisory board; former chairmanpresident of scientific organization and CEO of manufacturing supply company.medical honor society.Education experience—professor at leading US university.
Marjorie Mun Tak Yang, Chinese,William T. Winters
Member of the Board of Directors
British/American, age 6054
Function at Novartis AG Marjorie Mun Tak YangWilliam T. Winters has been a member of the Board of Directors since 2008. She2013. He qualifies as an independent Non-Executive Director. SheDirector and is a member of the Compensation Committee.
Other activities Ms. YangMr. Winters is chairman of the Esquel Group, Hong Kong, China. She isCEO and a board member of the Executive CouncilStandard Chartered, based in London. He previously ran Renshaw Bay, an alternative asset management firm, and was co-CEO of the Hong Kong Special Administrative Region. In China, she isJPMorgan's investment bank from 2003 to 2010. Additionally, he was a member of the National Committee of the Chinese People's Political Consultative Conference. She currently servescommissioner on the boards of Swire Pacific Ltd.,UK Independent Commission on Banking in 2010 and The Hong Kong and Shanghai Banking Corp. Ltd. in Hong Kong, and on the boards of a number of nonlisted companies. In January 2010 she was appointed as Chairman of the Council of the Hong Kong Polytechnic University. She also serves on the advisory boards of Harvard Business School, and Tsinghua School of Economics and Management, in the United States and China, respectively. From 2001 to 2011, Ms. Yang was a member of the MIT Corporation.
Professional background Ms. Yang graduated with a bachelor's degree in mathematics from Massachusetts Institute of Technology and holds a master's degree from Harvard Business School, both in2011.
Professional background Mr. Winters received his bachelor's degree from Colgate University in the United States. From 1976 to 1978, she was an associateStates, and his Master of Business Administration from the Wharton School of the University of Pennsylvania, also in Corporate Finance, Mergersthe US. He joined JPMorgan in 1983 and Acquisitions, with the First Boston Corp.held management roles across several market areas and in New York, United States. In 1979, she returned to Hong Kong and becamecorporate finance. Mr. Winters is a foundingboard member of Esquel Group. She was appointed chairmanColgate University, and also serves on the boards of the GroupInternational Rescue Committee, the Young Vic theater and the Print Room theater in 1995.the United Kingdom. He was awarded the title of Commander of the Order of the British Empire in 2013.
Key knowledge/experienceLeadership Global and Industry experience—global experience CEO and executive director of leading international banking group; former chairman and CEO of alternative asset management firm; former co-CEO of investment banking at global textile manufacturing company.financial services firm.Education and Science experience—trusteeboard member of leading US research university; leadership roles at multiple universities.university.
Rolf M. Zinkernagel, M.D., Swiss, age 68Honorary Chairmen
Function at Novartis AG Rolf M. Zinkernagel, M.D., has been a member of the Board of Directors since 1999. He qualifies as an independent Non-Executive Director. He is a member of the Corporate Governance and Nomination Committee.
Other activities Dr. Zinkernagel was vice president of the International Union of Immunological Societies until 2010. He is a member of the scientific advisory boards of Bio-Alliance AG, Germany; Aravis General Partner Ltd., Cayman Islands and Switzerland; Telormedix, Switzerland; X-Biotech, Canada; Novimmune, Switzerland; Cancevir, Switzerland; MannKind, United States; and the Biomedical Sciences International Advisory Council, Singapore. Dr. Zinkernagel is also a science consultant to Chilka Ltd., Cayman Islands; Ganymed, Germany; and Zhen-Ao Group, China.
Professional background Dr. Zinkernagel graduated from the University of Basel, Switzerland, with an M.D. in 1970. From 1992 to 2008, he was a professor and director of the Institute of Experimental Immunology at the University of Zurich, and after retirement in 2008 continues to be active at the University of Zurich. Dr. Zinkernagel has received many awards and prizes for his work and contribution to science, notably the Nobel Prize in medicine, which he was awarded in 1996.
Key knowledge/experienceBiomedical Science and Education experience—former professor and director at leading Swiss university.Leadership and Global experience member of scientific advisory boards of numerous global biotech companies; member of major international research councils.Alex Krauer, Ph.D.
Daniel Vasella, M.D.
Corporate Secretary
Charlotte Pamer-Wieser, Ph.D.
Joseph Jimenez
Chief Executive Officer of Novartis
American, age 5356
Joseph Jimenez has been Chief Executive Officer (CEO) of Novartis since 2010. Under his leadership, and driven by a commitment to R&D investment, Novartis has developed one of the largest pipelines of self-originated drugs in the industry. Mr. Jimenez is responsible for leadinghas also transformed the company's diversified healthcare portfolio ofto focus on leading businesses with innovation power and global scale in innovative pharmaceuticals, eye care generics, vaccines and diagnostics, and OTC and animal health. Previouslygenerics.
Prior to serving as CEO of Novartis, Mr. Jimenez served asheld the position of Division Head, Novartis Pharmaceuticals. He led the transformation of the pharmaceutical portfolio to balance mass market and specialty products, and significantly increased the percentage of sales from newly launched products. Mr. Jimenez also worked to realign the division's commercial approach to focus on the individual needs of customers, and incorporated more technological tools to better connect with patients and customers. Mr. Jimenez joined Novartis in April 2007 as Division Head, Novartis Consumer Health.
Previously, heMr. Jimenez served as president and CEO of the North America businessAmerican and European businesses for the H.J. Heinz Company. Additionally, he served on the board of directors of Colgate-Palmolive Co., from 2009 to 2015, and as president and CEO of Heinz in EuropeAstraZeneca PLC from 2002 to 2006. Prior to joining Novartis, he was a nonexecutive director of AstraZeneca PLC, United Kingdom, from 2002 to 2007. He was also an adviser for the private equity organization Blackstone Group in the United States.
Mr. Jimenez is a member of the board of directors of Colgate-PalmoliveGeneral Motors Co., New York. He graduated in 1982 with a bachelor's degree from Stanford University and in 1984 with a Master of Business Administration from the University of California, Berkeley.
Table of ContentsBerkeley, both in the United States.
Juergen Brokatzky-Geiger, Ph.D., German,Steven Baert
Head of Human Resources of Novartis
Belgian, age 6041
Juergen Brokatzky-Geiger, Ph.D.,Steven Baert has been Head of Human Resources (HR) of Novartis since 2003.February 2014. He is a member of the Executive Committee of Novartis.
Mr. Brokatzky-GeigerBaert joined Ciba-Geigy Ltd.Novartis in 19832006 as a Ph.D. chemist in the Pharmaceuticals DivisionHead of Human Resources Global Functions in Switzerland. After a job rotation in the United States, heHe has held positions of increasing responsibility in Research and Development (R&D),several senior HR roles, including Group Leader of Process R&D, Head of Process R&D, Human Resources for Emerging Growth Markets,
and Global Head, Human Resources, Oncology. Mr. Baert also served as Head of Process DevelopmentHuman Resources, US and Pilot Plant Operations. During the merger of Ciba-GeigyCanada, for Novartis Pharmaceuticals Corporation.
Prior to joining Novartis, Mr. Baert held HR positions at Bristol-Myers Squibb Co. and Sandoz in 1996,Unilever.
Mr. Brokatzky-Geiger was appointed Integration Officer of Technical Operations. He later became the Head of Chemical and Analytical Development, and served as the Global Head of Technical R&D from 1999 to 2003. Mr. Brokatzky-Geiger is a member ofBaert represents Novartis on the board of Bachem AG in Switzerland.GSK Consumer Healthcare. He graduated withholds a Ph.D. in chemistryMaster of Business Administration from the University of Freiburg, Germany,Vlerick Business School in 1982.Belgium and a Master in Law from the Katholieke Universiteit Leuven, also in Belgium. Additionally, he has a Bachelor in Law from the Katholieke Universiteit Brussels.
Kevin Buehler, American,Felix R. Ehrat, Ph.D.
Group General Counsel of Novartis
Swiss, age 5558
Kevin BuehlerFelix R. Ehrat, Ph.D., has been Division Head, Alcon,Group General Counsel of Novartis since 2011. He is a member of the Executive Committee of Novartis. Mr. Buehler was president and CEO of Alcon Inc. from 2009 to 2011. He began his career with Alcon in 1984 as a regional sales manager in the Consumer Products Division, and held positions of increasing responsibility before being named director of sales and marketing. In 1996, he became director of Alcon's US Managed Care and Falcon Generic Pharmaceutical groups, and became vice president in 1998. The following year he returned to the US Consumer Products Division as vice president and general manager. Mr. Buehler moved to the International Division in 2002 as vice president and regional manager, Latin America and Caribbean. He was later named area vice president, Latin America, Canada, Australia and Far East. Mr. Buehler also served as senior vice president, global markets, and chief marketing officer. Prior to joining Alcon, he worked for The Gillette Co. and Snyder Drug Stores, both in the United States. Mr. Buehler holds a bachelor's degree from Carroll University in Waukesha, Wisconsin, in the United States, with concentrations in business administration and political science. He completed the Harvard Program for Management Development in 1993.
Felix R. Ehrat, Ph.D., Swiss, age 55
Felix R. Ehrat, Ph.D., has been Group General Counsel since October 2011. He is a member of the Executive Committee of Novartis. Mr. Ehrat is a leading practitioner of corporate, banking, and mergers and acquisitions law, as well as an expert in corporate governance and arbitration. He started his career as an associate with Baer & Karrer Ltd. in Zurich in 1987, became partner in 1992, and advanced to senior partner (2003 to 2011) and executive chairman of the board (2007 to 2011) of the firm. Mr. Ehrat is chairman of Globalance Bank AG in Switzerland, and chairman of SwissHoldings (Federation of Industrial and Service Groups in Switzerland). He is a board member of several organizations in the cultural field.Geberit AG and avenir suisse (a think tank for economic and social issues). Previously, Mr. Ehrathe was, among other things, chairman of Banca del Gottardo, and a board member of Julius Baer Holding AG, Austriamicrosystems AG, Charles Voegele Holding AGseveral listed and Carlo Gavazzi Holding AG.non-listed companies.
Mr. Ehrat was admitted to the Zurich bar in 1985 and received his doctorate of law from the University of Zurich in Switzerland in 1990. In 1986, he completed an LL.M. at McGeorge School of Law in the United States. HisSome of his past memberships and positions include:include the International Bar Association, where he was co-chair of the Committee on Corporate and M&A Law Committee from 2007 to 2008;2008, and Association Internationale des Jeunes Avocats, where he was president from 1998 to 1999; and the Swiss Arbitration Association, the Zurich Bar Association, and the Swiss Bar Association.1999.
David Epstein
Division Head, Novartis Pharmaceuticals
American, age 5154
David Epstein has been Division Head of Novartis Pharmaceuticals since 2010. He is a member of the Executive Committee of Novartis. Prior
Since taking this role, Mr. Epstein has set a course for Novartis Pharmaceuticals to his current appointment, Mr. Epsteindevelop into the world's best pharmaceutical business. He previously served as Head of Novartis Oncology, for nearlybuilding the Oncology business from start-up to number two in the world through six new drug approvals and more than 10 years. In addition, Mr. Epstein has led the Molecular Diagnostics Unit since its creation in 2008.indication expansions.
Before joining Novartis, Mr. Epstein was an associate in the strategy practice of the consulting firm Booz Allen Hamilton Inc. in the United States. Mr. EpsteinHe joined Sandoz, a
Novartis predecessor company, of Novartis, in 1989 and held various leadership positions of increasing responsibility, for the company, including Chief Operating Officer of Novartis Pharmaceuticals Corporation in the United StatesUS and Global Head of Novartis Specialty Medicines.
Mr. Epstein graduated withreceived a bachelor's degree in pharmacy, with honors, from Thethe Ernest Mario School of Pharmacy at Rutgers, The State University of New Jersey, in 1984, and withthe US in 1984. He received a Master of Business Administration in finance and marketing from New York's Columbia University Graduate School of Business, also in the US, in 1987.
Mark C. Fishman, M.D.,
President of the Novartis Institutes for BioMedical Research
American, age 6164
Mark C. Fishman, M.D., has been President of the Novartis Institutes for BioMedical Research (NIBR) since 2002. He is a member of the Executive Committee of Novartis.
Before joining Novartis in 2002, Dr. Fishman was chief of cardiology and director of the Cardiovascular Research Center at Massachusetts General Hospital, and wasas well as professor of medicine at Harvard Medical School, both in the United States. Dr. FishmanHe completed his internal medicine residency, chief residency and cardiology training at Massachusetts General Hospital.
Dr. Fishman graduated with a bachelor's degree from Yale College in the US in 1972, and with an M.D. from Harvard Medical School in 1976. He has been honored with many awards and distinguished lectureships, and is a memberserves on the council of the Institute of Medicine of the National Academies andin the US. Additionally, he is a Fellowfellow of the American Academy of Arts and Sciences, bothalso in the United States.US.
Jeff George, American,Richard Francis
Division Head, Sandoz
British, age 3947
Jeff GeorgeRichard Francis has been Division Head of Sandoz since 2008.May 2014. He is a member of the Executive Committee of Novartis.
Mr. Francis joined Novartis from Biogen Idec, where he held global and country leadership positions during his 13-year career with the company. Most recently, he was senior vice president of the company's US commercial organization. From 1998 to 2001, he was at Sanofi in the United Kingdom, where he held various marketing roles across the company's urology, analgesics and cardiovascular products. He has also held sales and marketing positions at Lorex Synthelabo and Wyeth.
Mr. Francis holds a B.A. in economics from the Manchester Metropolitan University, England.
Jeff George
Division Head, Alcon
American, age 42
Jeff George has been Division Head of Alcon since May 2014. He is a member of the Executive Committee of Novartis.
For more than five years prior to joining Alcon, Mr. George joinedled Sandoz, the Vaccines and Diagnostics Divisiongenerics division of Novartis in 2007 as Head of Commercial Operations for Western and Eastern Europe. He then advancedthe world's second-largest generics company with more than 26,000 associates across 164 countries. Prior to Sandoz, he was Head of Emerging Markets for the Middle East, Africa, Southeast Asia and CIS atfor Novartis Pharmaceuticals.
Mr. George joined Novartis in 2007 as Head of Commercial Operations for Western and Eastern Europe for Novartis Vaccines. Before joining Novartis, Mr. Georgehe was a Senior Directorsenior director of Strategystrategic planning and Business Developmentbusiness development at Gap Inc., in San Francisco, United States. FromBetween 2001 toand 2004, he was an Engagement Manager withworked at McKinsey & Company, also in San Francisco.Francisco, as an engagement manager.
Mr. George received a Master of Business Administration from Harvard University in the US in 2001. He graduated in 1999 with a master's degree from Thethe Johns Hopkins University's School of Advanced International Studies, also in the US, where he studied international economics and emerging markets political economy. In 1996, he received his bachelor's degree, magna cum laude, in international relations from Carleton College in Northfield, Minnesota, in the United States.US.
George Gunn, MRCVS, British,Harry Kirsch
Chief Financial Officer of Novartis
German, age 6250
George GunnHarry Kirsch has been Division Head,Chief Financial Officer (CFO) of Novartis Animal Health, and Head, Corporate Responsibility, since 2011.2013. He is a member of the Executive Committee of Novartis. Before joining Novartis,
Mr. Gunn was president of Pharmacia Animal Health, based in the United States. Previously, he spent more than 15 years in positions of increasing responsibility in healthcare companies. He worked as a veterinary surgeon for nine years before entering the industry. Mr. GunnKirsch joined Novartis in 2003 and, prior to his current position, served as CFO of the company's Pharmaceuticals Division. Under his leadership, the division's core operating income margin increased, in constant currencies, every quarter of 2011 and 2012 despite patent expirations. At Novartis, he also served as CFO of Pharma Europe, and as Head of Business Planning & Analysis and Financial Operations for the Pharmaceuticals Division. Mr. Kirsch joined Novartis Animal Health, North America. In 2004, he assumed his position as Head of the Animal Health Business Unit. In addition to this role, he was Division Head, Novartis Consumer Health, from 2008 to 2011. Mr. Gunn graduated with a bachelor of veterinary medicine and surgery degree from the Royal (Dick) School of Veterinary Studies in the United Kingdom in 1973. He graduated with a diploma in veterinary state medicine from the same school in 1978. In 2008, he received an honorary doctorate in veterinary medicine and surgery from the University of Edinburgh, Scotland.
Brian McNamara, American, age 46
Brian McNamara has been Division Head, Novartis OTC and a permanent attendee of the Executive Committee of Novartis since February 2012. As of January 1, 2013, he is a member of the Executive Committee of Novartis. Prior to this role, Mr. McNamara served as President, Americas Region, for Novartis OTC. Since joining Novartis OTC in 2004 as Senior Vice President and General Manager of
Novartis OTC North America, Mr. McNamara has worked on a number of strategic initiatives. Mr. McNamara also served as President of Novartis OTC Europe from 2007 until 2010. Mr. McNamara began his career at Procter & Gamble Co., Cincinnati,(P&G) in the United States, where he gained extensive experiencewas CFO of P&G's global pharmaceutical business. Prior to that, he held finance positions in different categories of P&G's consumer goods business, technical operations, and brand marketing, product supply, and customer leadership.Global Business Services organization.
Mr. McNamara has servedKirsch represents Novartis on the board of directorsGSK Consumer Healthcare. He studied industrial engineering and the executive committee of the Consumer Healthcare Products Association in the United States. He is also a former board member of the Association of the European Self-Medication Industry and chairman of its economic affairs committee. Mr. McNamara received a Master of Business Administration in Finance fromeconomics at the University of Cincinnati and a bachelor's degreeKarlsruhe in electrical engineering from Union College, both in the United States.Germany ("Diplom-Wirtschaftsingenieur").
Andrin Oswald, M.D.,André Wyss
Global Head, Novartis Business Services and Country President for Switzerland
Swiss, age 4148
Andrin Oswald, M.D.,André Wyss has been DivisionGlobal Head of Novartis Vaccines and Diagnostics,Business Services (NBS) since 2008.May 2014. In July 2014, he was also appointed Country President for Switzerland. He is a member of the Executive Committee of Novartis. Previously, Dr. Oswald was CEO of Speedel Holding AG and Global Head of Pharmaceutical Development Franchises in the Novartis Pharmaceuticals Division, both in Switzerland. Dr. Oswald
Mr. Wyss joined Novartis in 20051984 as Assistant to the Chairman and CEO.a chemistry apprentice. Before his appointment asbeing appointed Head of Development Franchises,NBS, he served as US Country Head and President of Novartis Pharmaceuticals Corporation. Prior to that, he was Head of the Country Pharmaceuticals Organization (CPO)Division Region Asia-Pacific, Middle East and African Countries (AMAC). Before leading AMAC, he served as Group Emerging Markets Head, and as Country President for Novartisand Head of Pharmaceuticals, Greece.
Mr. Wyss received a graduate degree in South Korea. Dr. Oswald joined Novartis from McKinsey & Company, Switzerland, where he was an associate principal. Between 2002 and 2003, he was a delegate of the International Committee of the Red Cross (ICRC) to Nepal. He holds a doctorate in medicineeconomics from the UniversitySchool of Geneva.
Jonathan Symonds, British, age 53
Jonathan Symonds has been Chief Financial Officer (CFO) of Novartis since 2010.Economics and Business Administration (HWV) in Switzerland in 1995. He is a member of the Executive Committeeboard of Novartis. Before joining Novartis in 2009, Mr. Symonds was partner and managing director of Goldman Sachs Group Inc. in the United Kingdom. He also has eight years of experience as CFO of AstraZeneca PLC, and previously held positions as Group Finance Director at Zeneca and partner at KPMG. From 2004 to 2007, Mr. Symonds was a director of Diageo PLC and chairman of the audit committee. Other previous roles include director and audit committee chairman of Qinetiq PLC, chairman of the 100 Group of Finance Directors, joint chairman of the Business Tax Forum, board member of the Accounting Standards Board, and founder of the Oxford University Centre for Business Taxation Research, all in the United Kingdom. Mr. Symonds graduated with a first-class degree in business finance from the University of Hertfordshire, United Kingdom, in 1980, and became a Fellow of Chartered Accountants in 1982. He is a Commander of the British Empire (CBE).economiesuisse.
Table of ContentsSecretary
As Chairman of the Compensation Committee of the Board of Directors, I am pleased to share with you the 2015 Compensation Report of Novartis aspiresAG.
At Novartis, our mission is to discover new ways to improve and extend people's lives. We use science-based innovation to address some of society's most challenging healthcare issues, discovering and developing breakthrough treatments and finding new ways to deliver them to as many people as possible. Our company also wants to be an employer of choice and to attract and retain best-in-class talent around the world.
Our compensation plans are designed to support our position as a preeminent global healthcare company. They provide competitive compensation and benefits for world-class talent in a competitive market. They are aligned with our business performance objectives that are keysuperior returns to our sustained success while being transparent, coherent and consistent with our pay-for-performance philosophy. Our compensation system aims to encourage innovation and entrepreneurship and, atshareholders. During the same time, deter excessive risk-taking at the expense of the long-term condition of the Group.
The Compensation Report describes our compensation system and philosophy, and provides details on the compensation related to 2012 performance.
Stakeholders outreach and engagement
Novartis compensation policies and practices aim to create long-term value for the Group through its talented and dedicated associates.
Our Board and management reach out regularly to our stakeholders to gather feedback on our compensation system. This includes telephone and in-person discussions with individual and institutional investors and proxy advisors. In addition, we answer and take into consideration all written queries and comments. We regularly analyze market practices and take advice from the Compensation Committee's independent advisors.
With the benefit of this feedback, in 2012,last two years, the Compensation Committee undertook a strategic review of our compensation system, and is proposing several fundamental changes to the compensation structure for the CEO and the members of the Executive Committee from 2014 onwards. These changes have been approved by the Board and will be submitted to a consultative shareholder vote at the Annual General Meeting in 2013. Further details of the proposed changes are set out in a separate summary attached to the Notice of Annual General Meeting 2013.
In addition, based on the Compensation Committee's annual review of our compensation system, in 2012, we have decided with immediate effectsignificant work to:
Novartis Performance in 2012 and CEO Compensation
In 2012, overall net sales for the Group were maintained in line with the prior year in constant currencies (cc), despite global economic challenges and the loss of our exclusivity ofDiovan. Core operating income was slightly below the prior year in cc. Strong new product launches helped rejuvenate our portfolio. Recently launched products accounted for 29% of Group net sales, includingGilenya,Tasigna,Lucentis andAfinitor in our Pharmaceuticals Division. Growth in emerging markets (i.e. 6% on average) contributed $13.8 billion to Group net sales.
The Pharmaceuticals Division exceeded its net sales goals and significantly surpassed its operating income targets, while Alcon, Sandoz and Animal Health performed in line with financial targets. Our OTC business and Vaccines and Diagnostics Division were below target, as both were impacted by quality issues and production bottlenecks.
The company continued to focus on driving growth through science-based innovation, which helped us maintain one of the industry's strongest pipelines: our Pharmaceutical R&D projects include 71 new compounds, which is among the highest in the industry. Sandoz had 12 first-to-files and further expanded its lead in differentiated products including biosimilars and dermatology. The Vaccines and Diagnostics Division received a positive opinion from the EMA's Committee for Medicinal Products for Human Use (CHMP)Bexsero—our groundbreaking meningococcal disease vaccine.
The company took significant measures to improve production quality. Quality issues at a US production site affected the performance of OTC and Animal Health, which together make up our Consumer Health Division. Both businesses are expected to return to growth in 2013 amid continued improvement measures.
Overall, the company delivered solid financial results and, for the 16th consecutive year, we propose to raise the annual dividend. Adding the share price appreciation to the dividend, we delivered a total shareholder return of 11.8% in CHF (and 15% in US dollars for ADS holders) over 2012.
The Board of Directors assessed that, under the CEO's leadership and with its strong pipeline of innovative products, the company is strategically well-positioned to operate successfully in the evolving healthcare industry.
The Board of Directors determined that the CEO met most of the objectives that were set at the start of the year in challenging market conditions and fully acknowledged the breakthroughs in innovation and the efficiency gains. For more details on the 2012 CEO performance, see —"2012 CEO performance" below.
Based on the assessment of both the company and individual performance, the Compensation Committee determined that the CEO earned an annual incentive payout of CHF 1.4 million and long-term incentive "Select" of CHF 4.8 million. In addition, based on the achievement of Novartis Economic Value Added over the last three years, the CEO earned 76,937 shares, representing a value of CHF 4.7 million. The CEO's total compensation for 2012 (i.e. base salary, variable compensation, pension and other benefits) was CHF 13.2 million. This represents a total reduction of 15.9% from 2011, or 9.8% excluding the value of the 2011 LSSP match (our leveraged share savings plan). The Compensation Committee determined that this was appropriate, given that the company's overall performance in 2012 was lower in certain areas than in 2011.
The CEO's total compensation for 2012 is set out in the table below.
It is important to note that not all of the 2012 compensation is finally acquired. A significant portion is deferred and prospectively payable at a future date subject to performance at the end of the performance cycle and employment conditions. If the CEO leaves Novartis for reasons other than retirement, disability or death, his unvested long-term incentive compensation is forfeited, even in case of termination without cause. The chart below sets out the portion acquired immediately ("realized") and the portion deferred and prospectively payable at a future date ("unrealized").
The Compensation Committee has determined that the CEO's annual base salary for 2013 is increased by 1.5% from 2012, in line with general salary increases for other Swiss associates.
Key features of our 2012executive compensation system for the CEO and the members of the Executive Committee
Pay-for-performance
Compensation of executives is strongly linked to our performance. Our compensation programs are designed to pay our executives relative to Novartis performance, measured against stretched financial goals, individual performance and behavior, as well as share performance.
Competitive compensation
Regular benchmarking ensures that compensation opportunities offered to executives enable Novartis to attract and retain top talent. Generally, Novartis compensation programs aim at compensating associates at the median level of compensation, with upper quartile (>75th percentile) for sustained superior performance.
Equity ownership
To align the interests of our management with our shareholders, we require our CEOlong-term business strategy and the members of the Executive Committee to hold a substantial value in company shares in relation to their annual compensation.
Safeguards
Our plans contain a number of features to ensure that business risks are appropriately managed, while delivering sustainable returns to shareholders. In particular, safeguards are maintained to limit circumstances in which inappropriate risks might be taken:
The Compensation Committee would like to acknowledge the strong shareholder support at the 2015 Annual General Meeting (AGM) for all of the remuneration-related resolutions, and express appreciation for the opportunity to engage many of our shareholders on compensation topics in 2015. The Compensation Committee would also like to thank Dr. Ulrich Lehner for his services on the Compensation Committee and welcome William Winters as a new member.
2015 company performance
In 2015, Novartis progressed in all of its key priorities. The company completed its portfolio transformation ahead of schedule, achieved major innovation milestones withEntresto,Cosentyx and biosimilars, captured cross-divisional synergies with the creation of the Novartis Business Services unit and continued to build a high-performing organization. Currencies had a very negative impact on our reported results in US dollars as the US dollar strengthened significantly vs. all major currencies in 2015. Operationally, in constant currencies, the company was marginally below its sales target but slightly above its net income and free cash flow targets. Pharmaceuticals and Sandoz delivered strong performances, while Alcon negatively impacted consolidated results. The company improved core margin despite the currency impact. Although, in US dollars, Novartis' TSR was –3.5% in 2015, TSR was +53.4% for the period 2013-2015, corresponding to the usual three-year cycle of our long-term plans.
2015 CEO compensation
For 2015, our CEO was awarded total compensation of CHF 11,596,560. This amount included an Annual Incentive of CHF 3,090,758 (representing 100% of target) based on a combination of his and our company's performance, as summarized above. Half of the Annual Incentive was delivered in cash, and the remaining half was delivered in restricted share units, which will have a three-year vesting period. His total compensation also included Long-Term Incentive grants with a target value of CHF 6,181,580, which will be subject to performance conditions for the 2015-2017 cycle.
Compensation systems
While the Compensation Committee continued to evaluate the effectiveness of our compensation program, 2015 was a year of stability and refinement of our existing compensation systems following major changes to the Swiss and international regulatory environment. During 2015, the Compensation Committee made only small changes to further align compensation to long-term business strategy and shareholder interests for all associates of Novartis. With effect from 2016, the new compensation system for Executive Committee members will be rolled out to all key executives. Our company has also embedded our Values and Behaviors in the talent framework and ensured that our rigorous performance management process is upheld at all levels of the organization. The new program has the full support of our Board of Directors. We believe that it provides a competitive advantage to Novartis in the marketplace for executive talent.
2016 AGM
The Compensation Committee is committed to continued engagement between shareholders and our company to fully understand diverse viewpoints and discuss the important connections between our company's compensation program, business strategy, and long-term financial and operating performance. As was the case last year and in line with our Articles of Incorporation, shareholders will be asked to approve the following:
Shareholders will also be asked to endorse this Compensation Report in an advisory vote.
On behalf of Novartis and the Compensation Committee, I would like to thank you for your continued support and feedback, which I consider extremely valuable in driving improvements in our compensation systems and practices. I invite you to send your comments to me at the following email address: investor.relations@novartis.com.
Respectfully,
Enrico Vanni, Ph.D.
Chairman of the Compensation Committee
Summary COMPENSATION REPORT AT A GLANCE
Executive Committee compensation
2015 Executive Committee Compensation System (see "—2015 Executive Committee Compensation System" below)
The following components are included:
Fixed compensation and benefits | Variable compensation | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Annual base compensation | Pension and other benefits | Annual Incentive | Long-Term Performance Plan (LTPP) | Long-Term Relative Performance Plan (LTRPP) | ||||||
Purpose | Reflects associates' responsibilities, job characteristics, experience and skill sets | Establish a level of security for associates and their dependents tailored to local market practices and regulations | Rewards performance against key short-term targets and Values & Behaviors | Rewards long-term shareholder value creation and long-term innovation | Rewards relative total shareholder return | |||||
Performance period | n/a | n/a | 1 year (2015) | 3 years (2015-2017) | 3 years (2015-2017) | |||||
Performance measures | n/a | n/a | Based on a payout matrix made up of: —Individual balanced scorecard, including financial targets and individual objectives —Assessed Values and Behaviors | Based on: —75% Novartis Cash Value Added —25% divisional long-term innovation milestones | Based on Novartis relative total shareholder Return vs. versus our peer group of 12 healthcare companies(1) | |||||
Delivery (at the end of the performance period for variable compensation) | Cash | Country specific | 50% cash 50% deferred equity(2) (3-year holding of restricted shares/ restricted share units) | Equity (includes dividend equivalents) | Equity (includes dividend equivalents) |
benefits | Variable compensation | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Annual base compensation | Performance Plan (LTPP) | Relative Performance Plan (LTRPP) | Total variable compensation | |||||||||||||
| Target: 450% (range 0-200% of target) | |||||||||||||||
| n/a | n/a | Target: 90%-120% (range 0-200% of | |||||||||||||
Target: | Target: 30%-90% (range 0-200% of | |||||||||||||||
Target: |
2015 Executive Committee Compensation (see "—2015 Executive Committee Compensation" below)
Amounts paid or granted during the 2015 financial year:
| Fixed compensation and benefits | Variable compensation | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Annual base compensation | Pension and other benefits | Annual Incentive | Long-Term Performance Plan (LTPP) | Long-Term Relative Performance Plan (LTRPP) | Total variable compensation | |||||||||||||
(CHF) | |||||||||||||||||||
Purpose | |||||||||||||||||||
CEO compensation | 2,060,500 | 263,721 | 3,090,758 | 4,121,054 | (1) | 2,060,527 | (1) | 11,596,560 | |||||||||||
Executive Committee compensation (excluding CEO) | 7,429,769 | 5,071,392 | 11,230,142 | 11,973,697 | (1) | 4,652,661 | (1) | 40,357,661 | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Total | 9,490,269 | 5,335,113 | (2) | 14,320,900 | 16,094,751 | 6,713,188 | 51,954,221 | (2) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
2016 Executive Committee Compensation System
Compensation opportunity
As for all associates, Executive Committee members may have received a merit increase, based on their 2015 performance, and/or an adjustment to benchmark.
Performance measures
Annual Incentive
No changes have been made to the performance measures under the Annual Incentive.
Long-Term Incentives
No changes have been made to the performance measures under either the Long-Term Performance Plan or the Long-Term Relative Performance Plan.
Board compensation
2015 Board Compensation System (see "—2015 Board Compensation System" below)
Delivery: 50% cash, 50% shares
Annual fee | ||||
---|---|---|---|---|
(CHF) | ||||
Chairman of the Board | 3,800,000 | (1) | ||
Board membership | 300,000 | |||
Vice Chairman | 50,000 | |||
Chairman of Audit and Compliance Committee | 120,000 | |||
Chairman of the following committees: | ||||
—Compensation Committee | ||||
—Governance, Nomination and Corporate Responsibilities Committee | ||||
—Research & Development Committee(2) | ||||
—Risk Committee | 60,000 | |||
Membership of Audit and Compliance Committee | 60,000 | |||
Membership of the following committees: | ||||
—Compensation Committee | ||||
—Governance, Nomination and Corporate Responsibilities Committee | ||||
—Research & Development Committee | ||||
—Risk Committee | 30,000 |
2015 Board Compensation (see "—2015 Board Compensation" below)
Amounts earned during the 2015 financial year
| Cash | Equity | Other benefits(1) | Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(CHF) | |||||||||||||
Chairman Dr. Joerg Reinhardt | 1,900,000 | 1,900,000 | 29,197 | 3,829,197 | |||||||||
Other Board members | 1,601,417 | 2,331,917 | 17,145 | 3,950,479 | |||||||||
| | | | | | | | | | | | | |
Total | 3,501,417 | 4,231,917 | 46,342 | 7,779,676 | (2) | ||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
future insured government pension benefit for the Board member. No occupational pension contributions have been provided to the Chairman from the 2015 AGM onwards.
2016 Board Compensation System
The Board compensation system will remain unchanged in 2016.
Compensation governance
Governance and risk management (see "—Compensation Governance" below)
Decision-making authorities with regard to compensation, within the parameters set by the shareholders' meeting
Decision on | Authority | |
---|---|---|
Compensation of Chairman and other Board members | Board of Directors | |
Compensation of CEO | Board of Directors | |
Compensation of Executive Committee members | Compensation Committee |
Executive Committee compensation risk management principles
EXECUTIVE COMMITTEE COMPENSATION OF EXECUTIVESPHILOSOPHY AND OTHER ASSOCIATESPRINCIPLES
2012 CEO PerformanceNovartis Compensation Philosophy
Introduction
The CEO's individualcompensation philosophy aims to ensure that the Executive Committee is rewarded according to its success in implementing the company strategy and to its contribution to company performance. The Executive Committee compensation system is designed in line with the following key elements:
Alignment With Company Strategy
The Novartis strategy is to use science-based innovation to deliver better patient outcomes. We aim to lead in growing areas of healthcare. To align the compensation system with this strategy, the Board of Directors determines specific, measurable and time-bound performance metrics, including financial metrics such as sales, profit and cash flow, as well as non-financial metrics, which indicate the success of its implementation. The Board of Directors then sets short-term and long-term targets for each of these performance metrics and compensates the Executive Committee according to the extent to which the targets are achieved. In line with the company's focus on science-based innovation, the Board of Directors sets a number of specific targets for each division to fulfill within specific timeframes. In line with the company's aim to lead in growing areas of healthcare, Novartis has focused its portfolio to have three market-leading divisions in innovative pharmaceuticals, eye care and generics. Finally, to ensure that Novartis is a high-performing organization over the long term, the Board of Directors also sets targets in areas such as quality, talent, integrity and reputation, which are reinforced by the Novartis Values and Behaviors.
Executive Committee Compensation Benchmarking
To attract and retain key talent, it is important for us to offer competitive compensation opportunities. Executives meeting their objectives are generally awarded target compensation at a level comparable to the median level of similar roles within the benchmark companies (see "—Benchmark Companies" below). In the event of under- or over-performance, the actual compensation may be lower or higher than the benchmark median.
While benchmarking information regarding executive pay is considered by the Compensation Committee, any decisions on compensation are ultimately based on the specific business needs of Novartis and the performance of the individual.
The Compensation Committee reviews the compensation of the CEO and Executive Committee members annually in comparison to the relevant compensation levels of similar positions at peer companies. For this purpose, the Compensation Committee uses benchmark data from publicly available sources, as well as reputable market data providers. All data is reviewed and evaluated by the Compensation Committee's independent advisor, who also provides independent research and advice regarding the compensation of the CEO and other Executive Committee members.
For the CEO and Executive Committee members, the company benchmarks against global competitors in the healthcare industry with similar business models, size and needs for 2012 weretalent and skills. The Compensation Committee reviews the companies in our compensation peer group annually and considers adjustments over time in line with the evolution of the competitive environment in the healthcare industry.
Within this peer group, Novartis is among the largest in key dimensions including market capitalization, sales and operating income.
2015 EXECUTIVE COMMITTEE COMPENSATION SYSTEM
The 2015 Executive Committee compensation system consists of the following components:
Fixed Compensation And Benefits
Annual Base Compensation
The level of base compensation reflects each associate's key responsibilities, job characteristics, experience and skill sets. It is paid in cash, typically monthly.
Base compensation is reviewed annually, and any increase reflects merit based on performance, as well as market movements.
Pension and Other Benefits
The primary purpose of pension and insurance plans is to establish a level of security for associates and their dependents with respect to age, health, disability and death. The level and scope of pension and insurance benefits provided are country-specific, influenced by local market practices and regulations.
Company policy is to change from defined-benefit pension plans to defined-contribution pension plans. All major plans have now been aligned with this policy as far as reasonably practicable. See also "Item 18. Financial Statements—Note 25."
Novartis may provide other benefits in a specific country according to local market practices and regulations, such as a company car, and tax and financial planning services. Executive Committee members who have been transferred on an international assignment also receive benefits (such as tax equalization) in line with the company's international assignment policies.
Annual Incentive
For the Annual Incentive of the CEO and Executive Committee members, a target incentive is defined as a percentage of base compensation at the beginning of each performance year. The target incentive is 150% of base compensation for the CEO, and ranges from 90% to 120% for other Executive Committee members. It is paid half in cash and half in shares deferred for three years. The formula for the target Annual Incentive is outlined below:
Performance measures
The Annual Incentive is based on a payout matrix made up of two elements: a balanced scorecard withand the Novartis Values and Behaviors, which are described in more detail below.
Balanced scorecard
The first element used to determine the payout of the Annual Incentive is a mixbalanced scorecard within which Group or divisional financial targets are weighted 60% and individual objectives are weighted 40%. As reported last year, as of quantitative and qualitative targets for2015, innovation was removed from the Group in four key areas; financial performance, innovation and growth, organizational health and customer satisfaction; and adherence to our values and behaviors. Below is a review of his 2012 performance in each area.
Financial Performance
The CEO's objectives for 2012 included financial targets basedof the Annual Incentive and instead included in the Long-Term Performance Plan, as the Compensation Committee's view is that innovation achievements are more effectively measured on a multiyear basis. For more details on the target-setting and performance management process, please refer to "—Executive Committee Performance Management Process."
Group or divisional financial targets
Within the Group or divisional financial targets, each measure such as sales or net income is weighted individually. The CEO and function heads share the same Group financial targets (described further below). In place of the Group targets, division heads have divisional targets that include divisional sales, operating income, earnings per share and free cash flow. Overallflow as a percentage of sales, and market share of peers. The Board of Directors sets the Group and divisional financial targets at the start of each performance year in constant currencies, and evaluates achievement against these targets at the end of that year.
Individual objectives
Individual objectives differ for each Executive Committee member depending on his responsibilities, and may include additional financial and non-financial targets. Examples of additional financial targets are implementation of growth, productivity and development initiatives. Non-financial targets may include
leadership and people management, workforce diversity, quality, social initiatives such as access to medicines, and ethical business practices.
By way of illustration, the balanced scorecard measures used for the GroupCEO in 2012 was2015 are set out in the following table:
2015 BALANCED SCORECARD MEASURES USED FOR THE CEO
Performance measures | Weight | Breakdown of performance measures | |||
---|---|---|---|---|---|
Group financial targets | 60 | % | Group net sales Corporate net result Group net income Group free cash flow as % of sales | ||
CEO individual objectives | 40 | % | Additional financial targets (e.g., EPS) Innovation and growth Portfolio review Cross-divisional synergies High-performing organization | ||
Overall total | 100 | % | |||
| | | | | |
| | | | | |
| | | | | |
Novartis Values and Behaviors
The second element used to determine the payout of the Annual Incentive ensures that the associate's performance is achieved in line with the highest standards of business conduct, as outlined in the Novartis Values and Behaviors. Novartis requires Executive Committee members to be action-oriented and full of energy to face challenging situations, to assign the highest priority to customer satisfaction, and to commit to honesty in every facet of behavior, demonstrating strong ethical and legal conduct. Novartis leaders are expected to live up to these behaviors on a daily basis, and to align and energize other associates to do the same. Novartis Values and Behaviors are an essential element in the annual assessment of Executive Committee members. For more details on the performance assessment process of the Novartis Values and Behaviors, please refer to "—Executive Committee Performance Management Process—Assessment of Values and Behaviors at Novartis."
Performance evaluation and payout determination
Following a thorough review of the two elements that compose the Annual Incentive—performance against the balanced scorecard objectives and an assessment against the Novartis Values and Behaviors—a rating from 1 to 3 is assigned to each.
The following payout matrix shows how the Annual Incentive performance factor is derived using a combination of performance against the balanced scorecard and demonstration of the Novartis Values and Behaviors. The Compensation Committee determines the final payout factor for Executive Committee members taking into account the ranges shown. Payouts are capped at 200% of target.
expectations
The payout matrix for the Annual Incentive equally recognizes performance against the objectives in the balanced scorecard, and the assessment against the Novartis Values and Behaviors.
Form and delivery of the award
The Annual Incentive is paid 50% in cash in March of the year following the performance period, and 50% in Novartis shares (or restricted share units, known as RSUs) that are deferred and restricted for three years. Each restricted share is entitled to voting rights and payment of dividends during the vesting period. Each RSU is equivalent in value to one Novartis share and is converted into one share at the vesting date. RSUs under this plan do not carry any dividend, dividend equivalent or voting rights. Following the vesting period, settlement is made in unrestricted Novartis shares or American Depositary Receipts (ADRs).
If a participant leaves Novartis due to voluntary resignation or misconduct, unvested shares (and RSUs) are forfeited. The Board of Directors and the Compensation Committee retain accountability for ensuring that rules are applied correctly, and for determining whether a different treatment should apply in exceptional circumstances. This is necessary to ensure that the treatment of any award in the event of cessation of employment is appropriate.
Executives may choose to receive some or all of the cash portion of their Annual Incentive in Novartis shares or ADRs (US only) that will not be subject to conditions. In the US, awards may also be delivered in cash under the US-deferred compensation plan.
Long-Term incentives
Novartis operates two Long-Term Incentives (the Long-Term Performance Plan and the Long-Term Relative Performance Plan) for the Executive Committee members, which function in an identical way except for the performance conditions applied.
Grant of Long-Term Incentives
At the beginning of every performance period, Executive Committee members are granted a target number of performance share units (PSUs) under each of the Long-Term Incentives according to the following formula:
Vesting of Long-Term Incentives
At the end of the three-year performance period, the Compensation Committee adjusts the number of PSUs realized based on actual performance against target.
The performance factor can range from 0% to 200% of target. Each realized PSU is converted into one Novartis share at the vesting date. PSUs do not carry voting rights, but do carry dividend equivalents that are reinvested in additional PSUs and paid at vesting to the extent that performance conditions have been met. In the US, awards may also be delivered in cash under the US-deferred compensation plan.
If a participant leaves Novartis due to voluntary resignation or termination by the company for misconduct, none of the awards vest. When a member is terminated by the company for reasons other than for performance or conduct, the award vests on a pro-rata basis for time spent with the company during the performance period. In such a case, the award will vest on the regular vesting date (no acceleration), will be subject to performance should an evaluation be possible, and will also be subject to other conditions such as observing the conditions of a non-compete agreement. Executives leaving Novartis due to approved retirement, including approved early retirement, death or disability, will receive full vesting of their award on the normal vesting date (acceleration will only apply in the case of death). The award will be subject to performance, should an evaluation be possible, and will also be subject to other conditions such as observing the conditions of a non-compete agreement. Further details can be found in "Item 18. Financial Statements—Note 26."
The Board of Directors and the Compensation Committee retain accountability for ensuring that rules are applied correctly, and for determining whether different treatment should apply in exceptional circumstances. This is necessary to ensure that the treatment of any award in the event of cessation of employment is appropriate.
Long-Term Performance Plan (LTPP)
This is the first of the two Long-Term Incentive plans.
Overview
The LTPP, as described below, was granted for the first time to the CEO and Executive Committee members in 2014. The target incentive is 200% of base compensation for the CEO, and ranges from 140%
to 190% for other Executive Committee members. Additional executives in key positions who have a significant impact on the long-term success of Novartis were invited to participate in the LTPP, as of 2015.
In the 2013 and earlier Compensation Reports, there was a different plan that was also called LTPP. In this Compensation Report (as in the 2014 Compensation Report), that plan has been renamed Old Long-Term Performance Plan (OLTPP), and is described under "—Performance Vesting of Old Long-Term Performance Plan (2013-2015)."
Performance measures
Awards under the LTPP are based on three-year performance objectives and split as follows:
Financial measure (Novartis Cash Value Added): 75% of LTPP
The Novartis Cash Value Added (NCVA) is a metric that incentivizes both sales growth and margin improvement as well as asset efficiency. A summary of the calculation is below:
The NCVA targets are determined considering expected growth rates in sales, operating income and return from invested capital, under foreseen economic circumstances.
At the end of the performance cycle, the NCVA performance factor is calculated in constant currencies. The NCVA performance factor is based on a 1:3 payout curve, where a 1% deviation in realization versus target leads to a 3% change in payout (for example, a realization of 105% leads to a payout factor of 115%). If performance over the three-year vesting period falls below 67% of target, no payout is made for this portion of LTPP. If performance over the three-year vesting period is above 133% of target, payout for this portion of LTPP is capped at 200% of target.
The calculated performance realization is adjusted for unplanned major events during the cycle (e.g., significant merger and acquisition transactions).
Innovation measure: 25% of LTPP
Innovation is a key element of the Novartis strategy. Divisional innovation targets are set at the beginning of the year, with strong performance fromcycle, comprised of up to 10 target milestones that represent the Pharmaceuticals Division, in particular, driving Group net sales in line with targets and the prior year in constant currencies (cc), and core operating income surpassing the target and only slightly below the prior year in cc. This is despite the loss of our exclusivity ofDiovan, our largest product. Alcon, Animal Health and Sandoz performed in line with financial targets. Due to quality issues and production bottlenecks, goals set for our OTC business and Vaccines and Diagnostics Division were not met.
Innovation and Growth
The CEO's objectives for 2012 included targets to extend our lead in innovation and accelerate growth, which are intended to deliver breakthroughs in areas of highest medical unmet need and help mitigate the effect of the loss of our exclusivity ofDiovan. Overall performance for the Group in 2012 exceeded the goals set by the Board. Novartis invested more than $9 billion inmost important research and development significantly advancing our promising pipeline projectsproject milestones for each division. These milestones are chosen because of the expected future impact to Novartis in terms of potential revenue, or due to their qualitative potential impact to science, medicine, and securing 17 major approvals across our portfoliothe treatment or care of patients.
A payout matrix has been established for this metric that allows a 0-150% payout for the achievement of target milestones. If all target milestones are achieved, a 150-200% payout may be awarded for extraordinary additional achievement. The CEO and function heads receive the weighted average of divisional innovation payouts.
The Research & Development Committee assists the Board of Directors and the Compensation Committee in 2012.setting the innovation targets and reviewing achievements at the end of the cycle.
Long-Term Relative Performance Plan (LTRPP)
This is the second of the two Long-Term Incentive plans.
Overview
The Novartis pharmaceuticals pipelineLTRPP was granted for the first time to the CEO and Executive Committee members in 2014. The target incentive is expected100% of base compensation for the CEO, and ranges from 30% to deliver a record number90% for other Executive Committee members.
Performance measure
The LTRPP is based on the achievement of near-term pivotal study readouts, filings and approvals which, together with recently launched products,long-term relative Group total shareholder return (TSR) versus the peer group of 12 companies in the healthcare industry over rolling three-year performance periods. TSR is expected to drive sales growth. In 2012, our Pharmaceutical R&D projects include 71 new compounds,calculated in US dollars as share price growth plus dividends over the three-year performance period. The calculation will be based on Bloomberg standard published TSR data, which is amongpublicly available.
The peer group for the 2015-2017 performance cycle is the same as for benchmarking the compensation of Executive Committee members and is comprised of: Abbott, AbbVie, Amgen, AstraZeneca, Bristol-Myers Squibb, Eli Lilly & Co., GlaxoSmithKline, Johnson & Johnson, Merck & Co., Pfizer, Roche and Sanofi.
At the end of the performance period, all companies are ranked in order of highest to lowest TSR, and the position in the industrypeer group determines the payout range as follows:
PAYOUT MATRIX Position in peer group | Payout range | |
---|---|---|
Positions 1-3 | 160-200% | |
Positions 4-6 | 100-140% | |
Positions 7-10 | 20-80% | |
Positions 11-13 | 0% | |
| | |
The Compensation Committee determines the payout within the ranges shown, and Sandoz had 12 first-to-filetakes into consideration factors such as absolute TSR, overall economic conditions, currency fluctuations and Vaccines and Diagnostics received a positive opinion from the EMA's Committee for Medicinal Products for Human Use (CHMP) forother unforeseeable situations.
Bexsero. Sales from recently launched products accounted for 29%Table of Group net sales, while continually improved growth in emerging markets contributed $13.8 billion to Group net sales.Contents
Organizational HealthTarget Disclosure
In line with our principle to allow shareholders to assess the relationship between company performance and pay, the financial, innovation and individual targets under the Annual Incentive plan and the LTPP will be disclosed in the Compensation Report with the achievements against such targets at the end of each performance cycle. Targets under the Annual Incentive plan and the LTPP are considered confidential at the time of setting. Communicating such targets before the end of the performance cycle would allow substantial insight into the company's forward-looking strategies and could therefore place the company at a competitive disadvantage.
2016 Executive Committee compensation system
The CEO's objectives for 2012 included goals for strengthening quality control, driving productivity, developing peopleCompensation Committee has evaluated the Executive Committee compensation system and enhancinghas decided that it will remain unchanged in 2016. The Compensation Committee believes that it is operating as intended, supports the Group's reputation. In 2012, Novartis made a significant investmentcompany's strategy, and strengthened measures toward achieving "quality beyond compliance." As a result, the vast majority of inspections by regulatory authorities were assessed as good or satisfactory. While there is still work to do at our Consumer Health facility in Lincoln, Nebraskaaligned with market and at some of the Sandoz sites, our Broomfield, Colorado site, which was under an FDA warning letter, had a satisfactory re-inspection by the FDA and achieved compliance. Productivity measures helped us to achieve overall savings of around $2.8 billion in 2012 for the Group. We further deepened and broadened programs to strengthen our leadership, to develop talent and to renew our focus on employee engagement.
Customer Satisfaction
In 2012, our "Customers First" initiative to improve cross-divisional collaboration and better serve our customers' needs delivered incremental sales of more than $0.8 billion, exceeding the objective.best practice.
Performance Evaluation system and compensation determination EXECUTIVE COMMITTEE PERFORMANCE MANAGEMENT PROCESS
To foster a high performancehigh-performance culture, Novartisthe company applies a uniform People Performance Managementperformance management process worldwide based on quantitative and qualitative criteria, including Novartis Values and Behaviors. Novartis associates, including the CEO and the members of the Executive Committee members, are subject to a three-tierthree-step formal process.process:
CEO Objective Setting
Objective setting for the CEO
At the beginning of each performancethe year, the Chairman meets withCEO presents the Group and divisional financial and innovation targets of our variable compensation plans to both the Compensation Committee and the Board of Directors for approval. At the same time, the CEO to discussdiscusses his individual objectives for the coming year following a balanced scorecard approach.with the Chairman of the Board of Directors.
The Board of Directors reviews and approves these objectives, which are incorporated into the Annual Incentive and ensures that they are in line with the Group's goals of fostering sustainable performance, balancing short- and long-term goals, and not rewarding inappropriate or excessive risk taking at the expense of the long-term condition of the Group.Long-Term Incentive plans.
Annual Incentive
The Group financial criteria for short-term performance appraisal ofand individual targets proposed by the CEO includeare challenged and approved by both the Compensation Committee and the Board of Directors. The targets set for the Annual Incentive support our ambition to be a leader in the healthcare industry.
Financial and innovation measure of LTPP
The NCVA target is based on the company's long-range strategic plan approved by the Board of Directors to deliver long-term sustainable growth objectives for net sales, operating income, net income, free cash flow, earnings per shareand productivity as well as relevant market shares. Forefficient use of its assets. The Compensation Committee believes that the NCVA target is ambitiously set to create long-term performance appraisal, the financial criterion is the Novartis Economic Value Added (NVA). NVA is a measurevalue for shareholders.
The innovation targets of the Group's performance, taking into account Group operating income adjusted for interest, taxesLTPP are largely aligned with the major development projects outlined in "Item. 4 Information on the Company—Item 4.B Business Overview—Pharmaceuticals—Selected Development Projects," "Item. 4 Information on the Company—Item 4.B Business Overview—Alcon—Selected Development Projects," and charge for"Item. 4 Information on the cost of capital or, more simply, the value createdCompany—Item 4.B Business Overview—Sandoz—Biosimilars in excess of the expected return of the company's investors (i.e. the shareholdersPhase III Development and debt holders). For more information regarding NVA calculation, see "Item 5. Operating and Financial Review and Prospects—Item 5.A. Operating Results—Novartis Economic Value Added".
Objective setting for the members of the Executive Committee and associates
At the beginning of each year, the CEO and each of the executives directly reporting to him determine together the business objectives and respective metrics applicable to each of the divisional and global functional leaders.Registration." The CEO then presents the business objectives of the members of the Executive Committee to the Board of Directors.
In the same manner, each line manager and each associate directly reporting to her or him set the objective and metrics applicable to the next-level associate. As a principle, all written objectivestargets are reviewed by two hierarchical levels, including the direct and the indirect supervisors.
Objectives are set each year at ambitious levels to motivate a high degree of business performance appropriately balancing the short- and long-term objectives.
Decisions and actions must be consistent with Novartis Values and Behaviors, which describe the desired conduct of associates and set boundaries and guidelines as an important building block for the culture of our Group. The Novartis Values and Behaviors focus on quality, innovation and integrity.
Novartis does not disclose specific business objectives for the upcoming years, as it would give our competitors insight into our key market strategies and areas that could be used against Novartis competitively by industry consultants or competitors targeting existing customers.
Performance Evaluation
Our performance management system and "pay-for-performance" principle have spurred a culture of meritocracy at Novartis. We believe that pay-for-performance is only sustainable when fair performance evaluation procedures ensure integrity and fairness. Performance evaluation is conducted at all levels of the organization.
The People Performance Management evaluation process consists of two reviews per year—a mid-year and a year-end review. During such formal meetings, associates and managers evaluate performance against the objectives set at the beginning of the year. In assessing performance, managers focus on results-oriented measures, as well as on how results were achieved. The "four eyes" principle ensures that associates' annual objectives and performance evaluations are reviewed separately by two levels of supervisors.
Our People Performance Management evaluation process is complemented with an annual Organizationrecommended by the divisions and Talent Review in which organizational needs and career aspirationsreviewed by the Research & Development Committee. The innovation targets are focused on challenging milestones of associates are discussed. The review includescritical importance to the assessment of strengths, weaknesses and potential for personal growth. The Organization and Talent Review has become an integral tool for top management in succession planning, and the scopelong-term success of the program has steadily expanded globally throughoutbusiness, and should be best- or first-in-class development projects that can significantly advance treatment outcomes for patients worldwide.
Relative TSR: 100% of LTRPP
The payout matrix for the organization.
Because performance appraisals impactLTRPP can be found in "—2015 Executive Committee Compensation System—Variable Compensation—Long-Term Incentives—Long-Term Relative Performance Plan (LTRPP)." The Compensation Committee believes that the LTRPP payout matrix is aligned with the company's pay-for-performance principle, including a very significant elements of reward, we review each yearreduction in the consistency of performance ratings acrossactual payout relative to target payout if the entire Group.
Process for performance evaluationcompany's TSR is below the median of the peer group.
The Board of Directors periodically assesses Group business performance as well as progress of the CEO against his objectives and incentive plan targets. At the endmid-year performance review, the performance of a business year,the CEO is reviewed by the Chairman of the Board of Directors.
For the year-end review, the CEO prepares and presents to the Chairman of the Board of Directors, and later to the full Board of Directors, the actual results against the previously agreed-upon objectives, taking into account the audited financial results as well as an assessment against the Novartis Values and Behaviors. On this basis,At the year-end review, the Board of Directors discusses the performance of the CEO without him being present. It evaluates the extent to which targeted objectives have been achieved and, to the extent possible, compares these results with peer industry companies, taking into account general economic and financial criteria and industry developments. The Board of Directors later shares its assessment with the CEO. In addition,
CEO Compensation determination
At its January meeting, following a recommendation from the Compensation Committee, the Board of Directors assesses periodicallydecides on the Group businessCEO's variable compensation for the prior performance cycles and progress ofon the target compensation for the coming year. This meeting takes place without the CEO against his objectives and incentive plan targets.being present. The Board of Directors later shares its decisions with the CEO.
ProcessPerformance management process for performance evaluation ofother Executive Committee members (excluding the members of the Executive CommitteeCEO)
In January,Executive Committee members propose the divisional financial and innovation targets for approval by the CEO and, subsequently, by the Board of Directors and Compensation Committee. In addition, each Executive Committee member agrees on individual objectives with the CEO, who also reviews members' performance at mid-year and year-end.
At year-end, following his evaluation, the CEO meets with the CEO to review and discuss the performance and objectivesChairman of the members of the Executive Committee for the previous year, taking into account the financial results, the level of achievement of financial and non-financial objectives, as well as Novartis Values and Behaviors and the general economic and business environment. In addition to the year-end review, the mid-year performance of the CEO is reviewed by the Chairman while the results of the members of the Executive Committee are evaluated by the CEO and then discussed with the Chairman. As for the CEO, the Board of Directors, assesses, periodicallywho reviews the Group or divisional business performance of Executive Committee members. Subsequently, the CEO presents and progressdiscusses at the Board of Directors meeting his recommended performance rating for each member.
Later, in the presence of the membersCEO and taking into consideration the recommendations of the Executive Committee against their objectives.
Compensation Determination
Compensation determination for the CEO
Based on the performance evaluation made by the Board of Directors, the Compensation Committee decides at its January meeting on the CEO's totalvariable compensation and the target compensationof Executive Committee members for the comingprior year without the presence of the CEO. In reaching its decision, the Compensation Committee takes into account other relevant factors, including available benchmark information and the advice of the Compensation Committee advisor.
Compensation determination for the members of the Executive Committee
In the presence of the CEO and based on his recommendations, the Compensation Committee decides on the variable compensation for the members of the Executive Committee and other selected key executives for the previous year. At the same meeting, the Compensation Committee decides on the target compensation for these executives for the coming year.
Compensation determination for other associates
Based on the year-end performance rating, line managers and next-level line managers determine the incentive awards for each associate under review, as well as thetheir target compensation for the coming year. The Compensation Committee determinesinforms the grants for all equity compensation plans in aggregate.Board of Directors of its final decisions, and the CEO later shares these decisions with Executive Committee members.
Executive compensation programAssessment of Values and structureBehaviors at Novartis
Philosophy Values and Compensation principles
Philosophy and goals
Since Novartis was created, management has forged a distinctive culture and inspired all associates with the shared aspiration of being oneBehaviors have been an integral part of the world's most respected healthcare companies. In order to realize this aspiration, Novartis must attract and retain the best-in-class talent worldwide and reward associates according to their performance.
Ourcompany's compensation system aimssince its foundation. In 2015, to foster personal accountability based on clear individual and organizational objectives, and also underlinesreinforce the importance of competence and integrity as drivers of sustainable business success. Consequently, compensation includes, in addition to a fixed base compensation, a significant variable compensation element. The sizeculture of the variable compensation element is based on Group or divisional resultscompany, Novartis rolled out new Values and on individual performance against a written set of objectives. Moreover, to further align our compensation programs with the interests of shareholders, a large proportion of variable compensation for executives is paid in the form of equity—Novartis shares (or similar equity instruments) or share options with a three-year vesting period.
The core principles of our compensation policy and people development have resulted in both sustained performance and superior leadership. Novartis has reported a strong performance year over year and, for the 16th consecutive year, propose to raise the annual dividend payout to shareholders.
Compensation principles
The compensation system for Novartis associates is based on the following five principles:
Principle I: Pay-for-Performance
Compensation of executives and associates is strongly linked to achievements of business and individual performance objectives. The objectives are set at ambitious levels each year to motivate a high degree of business performance with emphasis on short- and long-term quantifiable objectives.
Principle II: Competitive Compensation
Compensation at competitive levels are essential to attract and retain talented and diverse associates. Our target compensation levels reflect total compensation for comparable positions at relevant benchmark companies.
Principle III: Balanced Rewards to Create Sustainable Value
Shareholders expect their investment to deliver sustainable returns while ensuring that risks are appropriately managed. Novartis incentives underpin the long-term strategic planning that is essential to address the challenges of innovation and the long development and commercialization cycles that characterize our industry. We believe that the way in which we motivate and reward our associates encourages performance, loyalty and entrepreneurship, and creates sustainable value which is in the long-term interest of our shareholders, employees and communities.
Principle IV: Business Ethics
At Novartis, all associates are expected to achieve their business results through ethical practices, reflected also in our Code of Conduct. To ensure that these requirements are complied with, Novartis has implemented a number of safeguards, such as a stringent risk management policy and clawback provisions, for most compensation plans and for the majority of associates.
Principle V: Equity Ownership
Investors expect the leaders of the companies to act like owners. In the Board of Directors' view, that alignment works best when key executives have meaningful multiples of their base compensation invested in the equity of their company. Novartis grants equity compensation, which for the most senior executives represents a substantial portion of total compensation. Under this principle, Novartis sets share ownership guidelines for a number of key executives of the Group.
Setting compensation level and performance targets for variable pay
For Novartis to attract and retain key talent it is important to offer competitive compensation levels on a global basis. In line with the compensation philosophy of Novartis the CEO, a member of the Executive Committee, or an associate achieving their objectives is generally awarded a compensation level compared to the median level of the relevant benchmarks. In the event of under- or over-performance the actual compensation may be lower or higher than the benchmark median. In the event of exceptional and sustained performance actual compensation may be awarded at the top quartile of the market benchmarks of peer companies in order to encourage and reward superior performance.
The Compensation Committee reviews the compensation of the CEO and of the members of the Executive Committee annually and compares them to the relevant compensation level of similar positions at peer companies. For this purpose, Novartis uses benchmark data from well-known market data providers and other relevant data sources. In particular the mix of short-term and long-term incentives, the mix of cash and share-based compensation, the level of deferred compensation as well as current compensation policies are reviewed. Further, the data analysis conducted by the market data providers takes into account factors such as recent market trends and best practice in compensation. The Compensation Committee's independent advisor reviews and evaluates the data received, and provides additional insight and evaluation as appropriate.
The comparator companies consist of competitors in the healthcare industry Behaviors—which are operating on a global basisinnovation, quality, collaboration, performance, courage and have the same or similar business model, business size, international competition, and need for talent and skills.
Benchmark criteria (in $ billion) | Novartis(1) | Benchmark Peers Median(2) | |||||
---|---|---|---|---|---|---|---|
Net sales/Revenue | 56.7 | 44.2 | |||||
Market capitalization | 152.0 | 100.3 | |||||
Operating income | 11.5 | 10.3 | |||||
Net income | 9.6 | 6.8 | |||||
Total assets | 124.2 | 65.1 |
Source: S&P Research Insight, trailing four quarters
Compensation of the CEO and the members of the Executive Committee is benchmarked relative to the healthcare companies in the table above. For other executives, excluding the CEO and the members of the Executive Committee, compensation is benchmarked either relative to these healthcare companies or, for non-industry specific positions, to market data from companies outside of the healthcare industry with scope, size and complexity that approximate the size and nature of the Novartis business. This reflects the fact that competition for talent is not limited to only the healthcare industry.
Elements of our Compensation Programs
The primary elements of our compensation system are:
Annual Base Compensation (Salary)
The level of base compensation reflects each associate's key areas of responsibilities, job characteristics, seniority, experience and skill sets. It is paid in cash, typically monthly, and is set according to local practice, designed to provide our associates with fixed compensation to ensure a reasonable standard of living relative to that offered by our peer companies.
In general, base compensation is reviewed annually to ensure that competitive pay is maintained.
Variable Compensation
The goal of variable compensation is to reward Novartis associates according to their performance and in a manner consistent with the "pay-for-performance" principle.
At managerial levels, variable compensation is generally composed of annual cash incentive and an equity based long-term incentive. Novartis believes that variable compensation should specifically emphasize long-term incentives to align the interests of our associates with those of long-term shareholders. This also reflects the crucial importance of innovation and the long product development
and commercialization cycles that characterize our industry. The amount of variable compensation is based on results and calculated as a percentage (0-200%) of target variable compensation.
Short-term incentive
The annual incentive ensures that associates focus on individual objectives and objectives defined by the business over a single financial year. These include objectives such as market share, innovation, and people management, which also positively influence the long-term performance. It rewards performance in the last 12 months in relation to these objectives and reinforces the "pay-for-performance" principle.
In principle, the annual incentive is paid in cash and is capped at 200% of target. However, a number of associates in certain countries and certain key executives worldwide are encouraged to invest their annual incentive in a share savings plan. Under the share savings plan, they will receive their annual incentive awards fully or partially in Novartis shares in lieu of cash. As a reward for their participation in the share savings plan, Novartis matches their investments in shares after a holding period of three or five years. As a rule, no shares are matched under these plans if an associate leaves Novartis prior to the expiration of the holding period for reasons other than retirement, disability or death. Thus, through the participation in the share savings plan our associates are incentivized to remain with Novartis for the long-term, while sharing in the future financial success of Novartis and further aligning with the long-term interests of our shareholders.
Novartis currently has three share savings plans:
Leveraged Share Savings Plan (LSSP): Worldwide 29 key executives were invited to participate in a leveraged share savings plan based on their performance in 2012. Instead of cash, their annual incentive was awarded in shares and subject to a holding period of five years. At the end of the holding period, Novartis will match the invested shares at a ratio of 1-to-1 (i.e. one share awarded for each invested share).
Employee Share Ownership Plan (ESOP): In Switzerland, the ESOP is available to about 13,341 associates. Participants within this plan may choose to receive the incentive (i) 100% in shares, (ii) 50% in shares and 50% in cash or (iii) 100% in cash. After expiration of a three-year holding period of Novartis shares invested under the ESOP, each participant will receive one free matching share for every two Novartis shares invested. A total of 5,557 associates chose to receive shares under the ESOP for their performance in 2012.
United Kingdom Plan (ESOP UK): In the United Kingdom, 2,743 associates can invest up to 5% of their monthly salary in shares (up to a maximum of GBP 125) and also may be invited to invest all or part of their net annual incentive in shares. Two invested shares are matched with one share with a holding period of three years. During 2012, 1,576 associates elected to participate in this plan.
Associates may participate in only one of these plans in any given year.
Long-term incentive
The long-term incentive is designed to focus on our objective of long-term sustainable shareholder value creation and to support our "pay-for-performance" principle by using equity based compensation with a three year vesting period.
These long-term incentives awarded by Novartis aim at retaining our key talent, encouraging the realization of multi-year business objectives and aligning our associates with our shareholders' interests by tying the value realized to the change in the share price at vesting.
The equity based long-term incentive is subject to the achievement of predetermined performance objectives either at grant or at vesting.
Novartis offers two long-term incentive plans, the Equity Plan "Select" based on yearly results with a three-year vesting period and the Long-Term Performance Plan based on rolling three-year global performance objectives.
In exceptional cases, Novartis may also grant special share awards.
Novartis uses shares repurchased in the market to fulfill obligations to deliver shares as required by the variable compensation plans and special share awards, thus avoiding any dilution to shareholders.
Novartis does not have any approved conditional capital to obtain shares for delivery of our share awards.
Equity Plan "Select"
The Equity Plan "Select" is a global equity incentive plan under which eligible associates, including members of the Executive Committee, may annually be awarded a grant capped at 200% of target. The Equity Plan "Select" allows its participants to choose the form of their equity compensation in restricted shares (or, in some jurisdictions, RSUs(1)), tradable share options, or a combination of both, with a vesting period of three years.
Tradable share options expire on their 10th anniversary from grant date. Each tradable share option granted to associates entitles the holder to purchase after vesting (and before the 10th anniversary from grant date) one Novartis share at a stated exercise price that equals the closing market price of the underlying share at the grant date.
The terms of the tradable share options granted since 2009 are shown in the table below.
Terms of Share Options
integrity.
Grant year | Exercise price (CHF/$) | Vesting (years) (CH/other countries) | Term (years) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
2013 | 61.70/66.07 | 3/3 | 10 | |||||||
2012 | 54.20/58.33 | 3/3 | 10 | |||||||
2011 | 54.70/57.07 | 2/3 | 10 | |||||||
2010 | 55.85/53.70 | 2/3 | 10 | |||||||
2009 | 53.65/46.42 | 2/3 | 10 |
What we value | Observed behaviors | |
---|---|---|
Innovation by experimenting and delivering solutions | —Experiments and encourages others to do so | |
—Takes smart risks that benefit patients and customers | ||
—Delivers new solutions with speed and simplicity | ||
Quality by taking pride in doing ordinary things extraordinarily well | —Is always looking for better ways to do things | |
—Does not compromise on quality and safety, and strives for excellence | ||
—Continuously works to improve own strengths and weaknesses | ||
Collaboration by championing high-performing teams with diversity and inclusion | —Champions working together in high-performing teams | |
—Knows self and impact on others | ||
—Welcomes diversity and inclusion of styles, ideas and perspectives | ||
Performance by prioritizing and making things happen with urgency | —Is passionate to achieve goals and goes the extra mile | |
—Puts team results before own success and acknowledges contributions of others | ||
—Prioritizes, decides and makes things happen with urgency | ||
Courage by speaking up, giving and receiving feedback | —Speaks up and challenges the norm | |
—Acknowledges when things don't work and learns | ||
—Gives and accepts constructive feedback | ||
Integrity by advocating and applying high ethical standards every day | — Operates with high ethical standards | |
—Is humble and caring, and shows trust, respect and empathy | ||
—Lives by the Code of Conduct even when facing resistance or difficulties |
IfDuring 2015, we further improved the framework for measuring individual performance against our values, ensuring that fair, objective assessments can be made in a participant leaves Novartisuniform way across all levels of the organization. The assessment is part of a rigorous management process review in which observed Values and Behaviors are evaluated based on globally-defined principles. The assessment initially takes place during a discussion between associates and line managers, followed by a calibration and validation at multiple levels of the organization to allow for reasonsa fair, consistent, objective and transparent evaluation. During the calibration sessions, line managers share the proposed ratings of their direct reports with peers to ensure all apply a common framework, and they seek input and feedback on observed behaviors.
The Values and Behaviors assessment for the CEO and other than retirement, disability or death, unvested shares, RSUsExecutive Committee members is calibrated by the Board of Directors.
2015 EXECUTIVE COMMITTEE COMPENSATION
The 2015 compensation of the CEO is outlined in detail within this section:
Base salary: The CEO's base salary remained CHF 2,060,500 for 2015.
Benefits: The CEO received pension benefits of CHF 175,289 and share options are forfeited, unless determined otherwiseother benefits of CHF 88,432 during 2015.
Annual Incentive: The Annual Incentive performance is measured in constant currencies to reflect the operational performance that can be influenced. Overall, the company met most of its financial targets for the year set by the Board of Directors in constant currencies. Group results were negatively impacted by Alcon's performance and by the slow-down of emerging markets, offset by strong results from Pharmaceuticals and Sandoz. The Group was marginally behind its sales target, while Group net income was slightly ahead of target mainly due to strong cost management. Corporate net result was significantly ahead of target mainly due to lower corporate costs and taxes. Performance in Group free cash flow as a percentage of sales was slightly above target mainly due to higher cash flows from operating activities.
Currency movements had a significant negative impact on the reported results vs. target (in US dollars, sales: –5.2 billion, net income and free cash flow (FCF): –1.6 billion each) that were adjusted in the Annual Incentive calculation.
Group financial targets (60%) | Performance metrics for continuing operations (weight) | Target(1) | Achievement vs. target(2) (in constant currencies) | |||
---|---|---|---|---|---|---|
Group net sales (30%) | $55,289 m | Slightly below | ||||
Corporate net result(3) (20%) | $–2,284 m | Significantly exceeded | ||||
Group net income (30%) | $8,996 m | Slightly exceeded | ||||
Group FCF as % of sales (20%) | 20.5% | Slightly exceeded | ||||
Overall achievement for Group financial targets | Slightly above target | |||||
Individual objectives (40%) | Additional key financial targets for continuing operations Additional financial targets were not all met. Including adjustments, in constant currencies, core operating income, EPS and core EPS targets were met, while reported operating income was slightly missed. Emerging Market growth and Divisional share of peers (Pharmaceuticals, Alcon and Sandoz) were below target (for the latter mainly due to currency impact). | Slightly below | ||||
Continued |
Innovation and growth | Exceeded | |||||
2015 was another excellent year for innovation and growth. The company successfully achieved 20 major approvals and 14 major submissions. Novartis had the highest number of FDA approvals(4) in the industry (4 out of 45 novel drugs). Major innovation milestones were achieved in 2015 with Entresto (approved in the EU), Cosentyx (approved for AS and PsA in EU) and submission of biosimilars etanercept and pegfilgrastim. Zarxio was the first biosimilar approved under the BPCIA pathway. Sandoz also received US approval of Glatopa. The NIBR unit launched a new immuno-oncology research team that delivered significant progress in building a portfolio with several candidates already in clinical trials and more expected to enter the clinic by the end of 2016. | ||||||
Individual objectives (40%) | ||||||
---|---|---|---|---|---|---|
Individual objectives (40%) | Portfolio review With the announcement on March 2, 2015 of the completion of the transactions with GSK, and the announcement on July 31, 2015 of the divestment of the Vaccines influenza business to CSL, Novartis successfully completed its portfolio review ahead of schedule (target for completion: H2 2015). A total of 17,000 associates transferred from Novartis to GSK and CSL. The completion of the portfolio review has improved Novartis' competitive position resulting in a more focused company with leading positions in innovative pharmaceuticals, generics and eye care. | Slightly exceeded | ||||
Cross-divisional synergies Novartis Business Services, our shared services organization, continued to execute on its priorities and the transformation of the organization is developing as scheduled. The company generated approximately $3,216 million in total productivity gains (target: $2,746 million) by leveraging our scale. In 2015 we announced plans to close or divest 6 sites. All of these actions increased the productivity of the company. | Exceeded | |||||
High-performing organization (e.g., quality, talent) | At target | |||||
Across the Novartis network, for the full year, there were 192 inspections, including 31 conducted by the FDA. 189 of the 192 inspections in the full year were good or satisfactory. The outcomes of three inspections are still pending. In addition, the company continued to roll out the process of upgrading its compliance and integrity processes as well as Novartis Values and Behaviors. A new talent management strategy was established and some progress was made on the talent pipeline and talent management initiatives. The company was disappointed with certain compliance and reputational challenges. | ||||||
Overall achievement for individual objectives | At target | |||||
Following a thorough performance evaluation, including assessed Values and Behaviors (see "—Executive Committee Performance Management Process—Assessment of Values and Behaviors at Novartis" for further details of the performance management process and assessment of Values and Behaviors), the Compensation Committee (for example,determined that the CEO's Annual Incentive performance factor would be 100%. The value of his Annual Incentive award was determined as follows:
| Annual base salary CHF thousands | x | Target incentive % | x | Performance factor % | = | Final award CHF thousands | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Annual Incentive | 2,061 | x | 150 | % | x | 100 | % | = | 3,091 | (1) | |||||||||
The table below shows how the 2015 Long-Term Incentive grants of the CEO were determined. These grants were awarded under the LTPP and LTRPP, and will vest to the extent that performance conditions have been met for the 2015-2017 cycle. An overview of these plans is outlined in "—2015 Executive Committee Compensation System—Variable Compensation—Long-Term Incentives."
CEO LONG-TERM INCENTIVE GRANTS CYCLE 2015-2017
| Annual base salary CHF thousands | x | Target incentive % | = | Grant value CHF thousands | Target number of PSUs(1) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
LTPP | 2,061 | x | 200 | % | = | 4,122 | 48,626 | ||||||||||
LTRPP | 2,061 | x | 100 | % | = | 2,061 | 24,313 | ||||||||||
In January 2015, at target, the CEO's compensation was made up of 18% annual base compensation, 2% pension and other benefits, 27% Annual Incentive and 53% Long-Term Incentive. The Long-Term Incentive was split according to a ratio of 2:1 LTPP to LTRPP.
Executive Committee Compensation Tables (Audited)
Compensation of Executive Committee members for 2015
The following table discloses the compensation paid or granted to the CEO and other Executive Committee members for performance in 2015.
Alignment of reporting and performance
The compensation table synchronizes the reporting of Annual Incentive compensation with the performance in the given year (i.e., all amounts awarded for performance in 2015 are disclosed in full). This includes the restricted shares and RSUs granted under the Annual Incentive, which will vest three years following the grant based on plan rules. For awards granted under the LTPP and LTRPP, the target values (based on 100% achievement) at the time of grant are shown.
The performance and vesting value of the LTPP and LTRPP for the performance cycle 2015-2017 will be reported in the 2017 Compensation Report. The achievement against target and the vesting value of the OLTPP for the performance cycle 2013-2015 are shown in a separate table under "—Performance Vesting of Old Long-Term Performance Plan (2013-2015)."
Valuation principles
For the purpose of the tables contained within this Compensation Report, and to allow a comparison with other companies, Novartis shares and ADRs are disclosed at their market value on the date of grant. Market value is the quoted closing share price at that date. Restricted shares and RSUs are disclosed at the underlying value of Novartis shares and ADRs. PSUs are also valued for the purpose of this Compensation Report at the underlying value of the Novartis shares and ADRs at the grant date, and are disclosed at target value, assuming that they will vest at 100% achievement.
EXECUTIVE COMMITTEE MEMBER COMPENSATION FOR FINANCIAL YEAR 2015(1)
| | Fixed compensation and pension benefits | Variable compensation | | | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Base compensation | | | | LTPP 2015-2017 cycle | LTRPP 2015-2017 cycle | | | |||||||||||||||||||
| | Pension benefits | 2015 Annual Incentive | | Total compensation | |||||||||||||||||||||||
| | Other | ||||||||||||||||||||||||||
| | Cash (amount) | Cash (amount) | Equity (value at grant date)(3) | PSUs (target value at grant date)(4) | PSUs (target value at grant date)(4) | ||||||||||||||||||||||
| Currency | Amount(2) | Amount(5) | Amount(6) | ||||||||||||||||||||||||
Joseph Jimenez (CEO) | CHF | 2,060,500 | 175,289 | 1,545,375 | 1,545,383 | 4,121,054 | 2,060,527 | 88,432 | 11,596,560 | |||||||||||||||||||
Steven Baert | CHF | 653,333 | 158,099 | 543,900 | 543,953 | 960,048 | 256,030 | 94,716 | 3,210,079 | |||||||||||||||||||
Felix R. Ehrat | CHF | 892,500 | 153,054 | 648,875 | 648,917 | 1,521,517 | 447,565 | 12,669 | 4,325,097 | |||||||||||||||||||
David Epstein | $ | 1,400,000 | 362,819 | 1,428,000 | 1,428,054 | 2,520,001 | 1,260,050 | 569,737 | 8,968,661 | |||||||||||||||||||
Mark C. Fishman(7) | $ | 990,000 | 248,910 | 861,300 | 861,323 | 1,881,089 | 891,021 | 129,825 | 5,863,468 | |||||||||||||||||||
Richard Francis | CHF | 716,667 | 193,635 | 599,400 | 599,424 | 1,080,054 | 360,018 | 954,170 | 4,503,368 | |||||||||||||||||||
Jeff George | $ | 956,539 | 200,946 | 158,400 | 158,404 | 1,536,056 | 576,009 | 1,260,286 | 4,846,640 | |||||||||||||||||||
Harry Kirsch | CHF | 950,000 | 160,431 | 757,625 | 757,628 | 1,480,074 | 647,575 | 51,476 | 4,804,809 | |||||||||||||||||||
Brian McNamara (until March 1, 2015)(8) | $ | 131,154 | 69,008 | 115,100 | 0 | 58,361 | 11,751 | 40,670 | 426,044 | |||||||||||||||||||
Andrin Oswald (until March 1, 2015)(8) | CHF | 138,333 | 27,634 | 136,500 | 0 | 64,580 | 13,899 | 283,236 | 664,182 | |||||||||||||||||||
André Wyss | CHF | 735,000 | 127,237 | 0 | 1,176,053 | 1,102,513 | 294,083 | 83,688 | 3,518,574 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total(9) | CHF | 9,490,269 | 1,843,151 | 6,695,906 | 7,624,994 | 16,094,751 | 6,713,188 | 3,491,962 | 51,954,221 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See following table for 2014 compensation figures
Continued from page 223
EXECUTIVE COMMITTEE MEMBERS COMPENSATION FOR FINANCIAL YEAR 2014(1)
| | Fixed compensation and pension benefits | Variable compensation | | | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Base compensation | | | | LTPP 2014-2016 cycle | LTRPP 2014-2016 cycle | | | |||||||||||||||||||
| | Pension benefits | 2014 Annual Incentive | | Total compensation | |||||||||||||||||||||||
| | Other | ||||||||||||||||||||||||||
| | Cash (amount) | Cash (amount) | Equity (value at grant date)(3) | PSUs (target value at grant date)(4) | PSUs (target value at grant date)(4) | ||||||||||||||||||||||
| Currency | Amount(2) | Amount(5) | Amount(6) | ||||||||||||||||||||||||
Joseph Jimenez (CEO) | CHF | 2,060,500 | 165,584 | 2,009,000 | 2,009,084 | 4,121,003 | 2,060,501 | 222,818 | 12,648,490 | |||||||||||||||||||
Steven Baert (from February 26, 2014) | CHF | 482,426 | 68,963 | 309,212 | 309,253 | 709,328 | 136,438 | 103,147 | 2,118,767 | |||||||||||||||||||
Juergen Brokatzky-Geiger (until February 25, 2014)(7) | CHF | 110,650 | 22,454 | 0 | 0 | 0 | 0 | 3,245,256 | 3,378,360 | |||||||||||||||||||
Kevin Buehler (until April 30, 2014)(8) | $ | 382,691 | 82,991 | 230,400 | 230,384 | 729,614 | 345,620 | 4,139,920 | 6,141,620 | |||||||||||||||||||
Felix R. Ehrat | CHF | 875,000 | 154,299 | 0 | 1,408,037 | 1,496,019 | 440,066 | 8,928 | 4,382,349 | |||||||||||||||||||
David Epstein | $ | 1,400,000 | 343,460 | 1,260,000 | 1,260,050 | 2,520,002 | 1,260,001 | 277,804 | 8,321,317 | |||||||||||||||||||
Mark C. Fishman | $ | 990,000 | 294,572 | 1,009,800 | 1,009,818 | 1,881,034 | 891,033 | 78,369 | 6,154,626 | |||||||||||||||||||
Richard Francis (from May 1, 2014)(9) | CHF | 466,667 | 114,435 | 211,450 | 211,451 | 871,135 | 186,735 | 3,364,623 | 5,426,496 | |||||||||||||||||||
Jeff George | $ | 924,520 | 127,826 | 654,341 | 654,416 | 1,470,358 | 275,692 | 1,084,850 | 5,192,003 | |||||||||||||||||||
George Gunn(10) | CHF | 865,000 | 116,542 | 622,800 | 622,828 | 1,384,066 | 346,035 | 0 | 3,957,271 | |||||||||||||||||||
Harry Kirsch | CHF | 829,167 | 148,526 | 888,250 | 888,265 | 1,360,024 | 425,021 | 31,980 | 4,571,233 | |||||||||||||||||||
Brian McNamara | $ | 673,077 | 76,484 | 578,000 | 578,083 | 1,020,055 | 204,076 | 77,717 | 3,207,492 | |||||||||||||||||||
Andrin Oswald | CHF | 827,500 | 125,406 | 539,500 | 539,519 | 1,162,005 | 249,054 | 233,675 | 3,676,659 | |||||||||||||||||||
André Wyss (from May 1, 2014) | CHF | 466,667 | 59,703 | 0 | 736,223 | 935,003 | 249,349 | 58,045 | 2,504,990 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total(11) | CHF | 10,978,356 | 1,821,737 | 7,992,041 | 10,136,681 | 19,004,820 | 6,813,877 | 12,440,922 | 69,188,434 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As published in the 2014 Compensation Report
Continued from page 225
A totalTable of 12,352 participants received 0.8 millionContents
EXECUTIVE COMMITTEE MEMBERS—EQUITY AWARDS FOR FINANCIAL YEAR 2015 (Number of equity instruments)(1)
| Variable compensation | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2015 Annual Incentive | LTPP 2015-2017 cycle | LTRPP 2015-2017 cycle | |||||||
| Equity (number)(2) | PSUs (target number)(3) | PSUs (target number)(3) | |||||||
Joseph Jimenez | 19,390 | 48,626 | 24,313 | |||||||
Steven Baert | 6,825 | 11,328 | 3,021 | |||||||
Felix R. Ehrat | 8,142 | 17,953 | 5,281 | |||||||
David Epstein | 17,742 | 25,519 | 12,760 | |||||||
Mark C. Fishman | 10,701 | 19,049 | 9,023 | |||||||
Richard Francis | 7,521 | 12,744 | 4,248 | |||||||
Jeff George | 1,968 | 15,555 | 5,833 | |||||||
Harry Kirsch | 9,506 | 17,464 | 7,641 | |||||||
Brian McNamara (until March 1, 2015)(4) | 0 | 591 | 119 | |||||||
Andrin Oswald (until March 1, 2015)(4) | 0 | 762 | 164 | |||||||
André Wyss | 14,756 | 13,009 | 3,470 | |||||||
| | | | | | | | | | |
Total | 96,551 | 182,600 | 75,873 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
See table below for 2014 compensation figures
EXECUTIVE COMMITTEE MEMBERS—EQUITY AWARDS FOR PERFORMANCE YEAR 2014 (Number of equity instruments)(1)
| Variable compensation | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2014 Annual Incentive | LTPP 2014-2016 cycle | LTRPP 2014-2016 cycle | | |||||||||
| Other Equity/ Target PSUs (number) | ||||||||||||
| Equity (number)(2) | Target PSUs (number)(3) | Target PSUs (number)(3) | ||||||||||
Joseph Jimenez | 23,706 | 55,878 | 27,939 | 0 | |||||||||
Steven Baert (from February 26, 2014) | 3,649 | 9,618 | 1,850 | 0 | |||||||||
Juergen Brokatzky-Geiger (until February 25, 2014) | 0 | 0 | 0 | 30,953 | (4) | ||||||||
Kevin Buehler (until April 30, 2014) | 2,333 | 9,031 | 4,278 | 31,936 | |||||||||
Felix R. Ehrat | 16,614 | 20,285 | 5,967 | 0 | |||||||||
David Epstein | 12,760 | 31,192 | 15,596 | 0 | |||||||||
Mark C. Fishman | 10,226 | 23,283 | 11,029 | 0 | |||||||||
Richard Francis (from May 1, 2014) | 2,495 | 11,812 | 2,532 | 41,500 | (5) | ||||||||
Jeff George | 6,627 | 18,224 | 3,417 | 0 | |||||||||
George Gunn | 7,349 | 18,767 | 4,692 | 0 | |||||||||
Harry Kirsch | 10,481 | 18,441 | 5,763 | 0 | |||||||||
Brian McNamara | 5,854 | 12,626 | 2,526 | 0 | |||||||||
Andrin Oswald | 6,366 | 15,756 | 3,377 | 0 | |||||||||
André Wyss (from May 1, 2014) | 8,687 | 12,678 | 3,381 | 0 | |||||||||
| | | | | | | | | | | | | |
Total | 117,147 | 257,591 | 92,347 | 104,389 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
As published in the 2014 Compensation Report
EXECUTIVE COMMITTEE MEMBER COMPENSATION BASE AND VARIABLE COMPENSATION MIX FOR FINANCIAL YEAR 2015(1)
| Base salary | Variable compensation(2) | |||||
---|---|---|---|---|---|---|---|
Joseph Jimenez | 18.2 | % | 81.8 | % | |||
Steven Baert | 22.1 | % | 77.9 | % | |||
Felix R. Ehrat | 21.5 | % | 78.5 | % | |||
David Epstein | 17.4 | % | 82.6 | % | |||
Mark C. Fishman | 18.1 | % | 81.9 | % | |||
Richard Francis | 21.4 | % | 78.6 | % | |||
Jeff George | 28.3 | % | 71.7 | % | |||
Harry Kirsch | 20.7 | % | 79.3 | % | |||
André Wyss | 22.2 | % | 77.8 | % | |||
| | | | | | | |
Total | 20.1 | % | 79.9 | % | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Loans to Executive Committee members
No loans were granted to current or former Executive Committee members or to "persons closely linked" to them in 2015. No such loans were outstanding as of December 31, 2015.
Other payments to Executive Committee members
During 2015, no other payments (or waivers of claims) were made to Executive Committee members or to "persons closely linked" to them.
Payments to former Executive Committee members
During 2015, under the former Executive Committee members' contracts and in line with the company's plan rules and policies, payments were made to Kevin Buehler, the former Division Head of Alcon, and George Gunn, the former Division Head of Animal Health, who retired from the company on May 1, 2015 and on August 1, 2015, respectively. In 2015, an amount of $1,127,324 and CHF 1,214,583 was paid to Mr. Buehler and Mr. Gunn, respectively. These amounts exclude the value of the vested OLTPP awards for cycle 2013-2015 of Mr. Buehler and Mr. Gunn, who received, in accordance with the plan rules, $1,763,889 and CHF 1,527,285 (value of the shares delivered at vesting), respectively. In addition, in line with their performancecontracts and the company's policies, a total amount of CHF 24,116 was paid by the company for tax and financial services provided to two other former Executive Committee members. With the exception of the above amounts, during 2015, no other payments (or waivers of claims) were made to former Executive Committee members or to "persons closely linked."
James E. Bradner, future President of NIBR and Executive Committee member
As announced on September 24, 2015, James E. Bradner will succeed Mark Fishman as President of the Novartis Institutes for BioMedical Research (NIBR) and become an Executive Committee member with effect from March 1, 2016. Prior to joining Novartis, Dr. Bradner served as a board member and
advisor to many scientific companies he founded, and as a supervisory board member of another company. In reaching the terms of the offer for Dr. Bradner, the Board of Directors recognized the need to make up for compensation that Dr. Bradner would be forfeiting on joining Novartis. In extending our offer to Dr. Bradner, the following compensation for lost entitlements was agreed to attract him to Novartis:
Please also see the additional related disclosure made in "Item 18. Financial Statements—Note 27." These disclosures are made on a voluntary basis and will be further communicated in next year's annual report on Form 20-F.
Award and delivery of equity to Novartis associates
During 2015, 12.4 million unvested restricted shares (or ADRs), RSUs and target PSUs were granted and 14.4 million Novartis shares (or ADRs) were delivered to Novartis associates under various equity-based participation rateplans. Current unvested equity instruments (restricted shares, RSUs and target PSUs) as well as outstanding equity options held by associates represent 2.4% of about 10%shares issued of all full-time-equivalentNovartis. Novartis delivers treasury shares to associates worldwide.to fulfill these obligations and aims to offset the dilutive impact from its equity-based participation plans.
Share Ownership Requirements for Executive Committee members
Executive Committee members are required to own at least a minimum multiple of their annual base compensation in Novartis shares or share options within three years of hire or promotion, as set out in the table below.
CEO | 5 × base compensation | |
Executive Committee members | 3 × base compensation | |
| | |
In the event of a substantial rise or drop in the share price, the Board of Directors may, at its discretion, amend that time period accordingly.
The determination of equity amounts against the share ownership requirements is defined to include vested and unvested Novartis shares or ADRs, as well as RSUs acquired under the compensation plans, but excluding unvested matching shares granted under the Leveraged Share Savings Plan (LSSP) and the Employee Share Ownership Plan (ESOP), and unvested PSUs from LTPP and LTRPP. The determination includes other shares as well as vested options of Novartis shares or ADRs that are owned directly or indirectly by "persons closely linked" to them. The Compensation Committee reviews compliance with the share ownership guideline on an annual basis.
As of December 31, 2012, 95.3 million2015, all members who have served at least three years on the Executive Committee have met or exceeded their personal Novartis share ownership requirements.
As of January 1, 2016, to better align with prevalent market practice and the change to our compensation system, Executive Committee members will be required to meet their share ownership requirement within five years of hire/promotion.
Shares, ADRs, equity rights and share options owned by Executive Committee members
The following tables show the total number of shares, ADRs, other equity rights and share options owned by Executive Committee members and "persons closely linked" to them as of December 31, 2015.
As of December 31, 2015, no Executive Committee members together with "persons closely linked" to them owned 1% or more of the outstanding shares (or ADRs) of Novartis, either directly or through share options.
The market value of share options (previously granted) is calculated using an option pricing valuation model as at the grant date.
SHARES, ADRs AND OTHER EQUITY RIGHTS OWNED BY EXECUTIVE COMMITTEE MEMBERS(1)
| Vested shares and ADRs | Unvested shares and other equity rights(2) | Total at December 31, 2015 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Joseph Jimenez | 284,405 | 322,200 | 606,605 | |||||||
Steven Baert | 1,700 | 44,977 | 46,677 | |||||||
Felix R. Ehrat | 92,435 | 107,870 | 200,305 | |||||||
David Epstein | 70,371 | 230,535 | (3) | 300,906 | ||||||
Mark C. Fishman | 52,242 | 276,622 | (3) | 328,864 | ||||||
Richard Francis | 14,357 | 37,722 | 52,079 | |||||||
Jeff George | 119,247 | 99,373 | 218,620 | |||||||
Harry Kirsch | 46,579 | 100,359 | 146,938 | |||||||
André Wyss | 44,660 | 79,917 | 124,577 | |||||||
| | | | | | | | | | |
Total(4) | 725,996 | 1,299,575 | 2,025,571 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
SHARE OPTIONS OWNED BY EXECUTIVE COMMITTEE MEMBERS(1)
| Number of share options(2) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2011 | Other | Total at December 31, 2015 | |||||||
Jeff George | 141,396 | 0 | 141,396 | |||||||
André Wyss | 0 | 378,390 | 378,390 | |||||||
| | | | | | | | | | |
Total(3) | 141,396 | 378,390 | 519,786 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Approximately 4% of the total equity value awarded under the Equity Plan "Select" was granted to the members ofGlaxoSmithKline transaction, Brian McNamara and Andrin Oswald stepped down from the Executive Committee.Committee on March 1, 2015. At March 1, 2015, Brian McNamara and Andrin Oswald did not own any share options.
Persons closely linked
"Persons closely linked" are (I) their spouse, (II) their children below age 18, (III) any legal entities that they own or otherwise control, and (IV) any legal or natural person who is acting as their fiduciary.
PERFORMANCE VESTING OF OLD LONG-TERM PERFORMANCE PLAN (2013-2015)
Long-Term Overview
As of 2014, grants are no longer made under this plan to Executive Committee members, but performance for the last cycle of the OLTPP is reported in this Compensation Report. The performance for the first cycle of the LTPP and LTRPP (cycle 2014-2016) will be reported in the 2016 Compensation Report.
The OLTPP provided grants based on a target percentage of base compensation at the beginning of each plan cycle. It represented 175% of base salary for the CEO.
Form of award at grant
At the beginning of the performance period, participants were granted a target number of PSUs according to the following formula:
Performance Planmeasure
The Long-Term Performance Plan (LTPP) is an equity plan for key executives designed to foster long-term commitment by aligning the incentives of key executives to the performance of Novartis. The LTPP is offered to selected executives, who are in key positions and have a significant impact on the long-term success of Novartis. It is capped at 200% of target. For members of the Executive Committee, LTPP represents between 20% and 44% of their total variable compensation at target. The rewards arewere based on rolling three year globalthree-year Group performance objectives focused on the Novartis Economic Value Added (NVA) measured annually. The NVA is calculated based ontakes into account Group operating income adjusted for interest, taxes and cost of capital charge. The formula is included under "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Non-IFRS Measures as Defined by Novartis—Novartis Economic Value Added."
The NVA performance factor was based on a 1:5 payout curve, where a 1% deviation in realization versus target led to a 5% change in payout (for example, a performance ratio of 105% would have led to a plan cycle is obtained right afterperformance factor of 125%). If performance over the three-year vesting period would have fallen below 80% of target, no shares would have vested. The performance factor was capped at 200% of target, corresponding to an achievement of 20% above target.
Delivery at vesting
At the end of the third plan yearthree-year performance period, the target number of PSUs was multiplied by adding together the annual NVA realizations of all plan yearsperformance factor approved by the Compensation Committee. PSUs were converted into Novartis shares and immediately vested. In the US, awards may also have been delivered in cash under the US-deferred compensation plan.
Outcome of the plan cycle.Performance Cycle 2013-2015
Over the three-year performance period, 2013 to 2015, Novartis performed 3.5% ahead of the $7.4 billion NVA target, corresponding to a payout of 118% following the application of the 1:5 payout curve. This achievement was mainly driven by operating income performance and productivity initiatives. In arriving at the NVA performance score, the Compensation Committee excluded, as major items, the favorable impact from the delayed entry of generic competition forDiovan monotherapy in the US, income generated from the sale of the Idenix Pharmaceuticals Inc. and LTS Lohmann Therapie-Systeme AG stakes, the negative impact from executing the Group portfolio transformation (including an exceptional pre-tax impairment charge of $1.1 billion related to the divestment of the Vaccines influenza business). Over the entire three-year cycle, currency movements had a significant negative impact (more than $2.1 billion) in NVA well above the impact on the previous cycle of the OLTPP. Considering the total shareholder return of the three years (in US dollars, +53.4%), the Compensation Committee decided to exclude, on a discretionary basis, a portion of this currency impact.
The performance ratio for a plantable below shows the vesting of the OLTPP 2013-2015 cycle is obtained by dividing the performance realization for the plan cycle withCEO and other Executive Committee members.
PAYOUT SCHEDULE FOR OLTPP 2013-2015 PERFORMANCE CYCLE(1)
| Currency | PSUs (target value at grant date) | PSUs (target number) | Performance factor payout for OLTPP 2013-2015 cycle | Shares delivered at vesting (number) | Shares delivered at vesting (value at vesting price) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Joseph Jimenez | CHF | 3,605,933 | 58,443 | 118 | % | 68,963 | 5,496,351 | |||||||||||
Other 8 members of the Executive Committee(2) | CHF | 5,363,227 | 86,864 | 118 | % | 102,500 | 8,214,409 | |||||||||||
| | | | | | | | | | | | | | | | | | |
Total | CHF | 8,969,160 | 145,307 | 118 | % | 171,463 | 13,710,760 | |||||||||||
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
See below for 2014 compensation figures
To support the alignment of interestscourse of the members2013-2015 performance period, the information disclosed under this table reflects the pro-rata LTPP 2013-2015 payout attributable to the period they were a member of the Executive Committee with thoseCommittee.
For the Executive Committee members, including the CEO, the impact of our shareholders, the Long-Term Performance Planshare price appreciation over the vesting period on the total value realized at vesting was CHF 3.1 million. For the CEO, the impact of the share price appreciation was CHF 1.4 million. This represents a substantial and increasing portion25% of their variable compensation targets.the overall vesting value.
On January 17, 2013, 132 key executives earned 456,712 shares underFor comparative purposes, the Long-Term Performance Plan, based on NVA achievement that exceeded our target performancetable below shows the vesting of the OLTPP 2012-2014 cycle for the CEO and other Executive Committee members, as published in the 2014 Compensation Report.
PAYOUT SCHEDULE FOR OLTPP 2012-2014 PERFORMANCE CYCLE(1)
| Currency | PSUs (target value at grant date) | PSUs (target number) | Performance factor payout for OLTPP 2012-2014 cycle | Shares delivered at vesting (number) | Shares delivered at vesting (value at vesting price) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Joseph Jimenez | CHF | 3,605,926 | 66,530 | 168 | % | 111,771 | 9,472,592 | |||||||||||
Other 13 members of the Executive Committee | CHF | 7,783,335 | 142,747 | 168 | % | 239,822 | 20,539,978 | |||||||||||
| | | | | | | | | | | | | | | | | | |
Total | CHF | 11,389,261 | 209,277 | 168 | % | 351,593 | 30,012,570 | |||||||||||
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
As published in the 2014 Compensation Report
For the Executive Committee members, including the CEO, the impact of the share price appreciation over the vesting period of the OLTPP 2012-2014 cycle on the total value realized at vesting was CHF 10.9 million. For the CEO, the impact of the share price appreciation was CHF 3.4 million. This represents 36% of the overall vesting value.
Long-term Performance Plan Participants History 2015 BOARD COMPENSATION SYSTEM
Grant year = Target setting | Performance period | Award year = Payout in shares | Plan participants (number of key executives) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
2013 | 2013-2015 | 2016 | 133 | |||||||
2012 | 2012-2014 | 2015 | 136 | |||||||
2011 | 2011-2013 | 2014 | 136 | |||||||
2010 | 2010-2012 | 2013 | 132 | |||||||
2009 | 2009-2011 | 2012 | 138 |
Special Share AwardsBoard Compensation Philosophy and Benchmarking
Selected associates may exceptionallyThe Board of Directors sets compensation for its members at a level that allows for the attraction and retention of high-caliber individuals with global experience, including a mix of Swiss and international members. Board members do not receive special awardsvariable compensation, underscoring their focus on corporate strategy, supervision and governance.
The Board of restricted shares or RSUs. These Special Share Awards provide an opportunityDirectors sets the level of compensation for its Chairman and the other members to reward outstanding achievements or exceptional performancebe in line with relevant benchmark companies, which include other large Swiss-headquartered multinational companies, ABB, Credit Suisse, Holcim, Nestlé, Roche, Syngenta and aim at retaining key contributors. They areUBS. This peer group has been chosen for Board compensation due to the comparability of Swiss legal requirements, including broad personal and individual liabilities under Swiss law (and new criminal liability under the Swiss rules regarding compensation of Board and Executive Committee members related to the Ordinance Against Excessive Compensation in Stock Exchange Listed Companies) and under US law (due to the company's secondary listing on the New York Stock Exchange).
The Board of Directors reviews the compensation of its members, including the Chairman, each year based on a formal internal selection process, in whichproposal by the individual performance of each candidate is thoroughly assessed at several management levels. The CEOCompensation Committee and the membersadvice from its independent advisor, including relevant benchmarking information.
Compensation of the Executive CommitteeChairman of the Board of Directors
As Chairman, Dr. Joerg Reinhardt receives total annual compensation valued at CHF 3.8 million. The total compensation is comprised equally of cash and shares, as follows:
From the 2015 Annual General Meeting (AGM), Dr. Reinhardt voluntarily waived the company contribution for pension and insurance benefits. Until this date, the company made employer contributions regarding the Chairman's participation in the Novartis Swiss standard pension and life insurance benefit plans. These contributions amounted to CHF 24,840.
Dr. Reinhardt also receives compensation for lost entitlements at his former employer, with a total value of EUR 2.6 million, as reported in the 2014 and 2013 Compensation Reports. Payments are excludedstaggered based on the vesting period at his former employer, and extend over the period from receiving this type of award.2014-2016, provided that he remains in office as Chairman at the respective due dates. On January 31, 2015, he received EUR 871,251 in cash(1).
In exceptional circumstances, special equity grants may beFor 2015, the Chairman voluntarily waived the increase in compensation to which he is entitled, which is an amount not lower than the average annual compensation increase awarded to attract special expertise and new talent intoassociates based in Switzerland (1.5% for 2015). For the organization. These grants are consistent with market practice andyear 2016, the Novartis philosophy to attract, retain and motivate best-in-class talent aroundChairman will also voluntarily waive this increase.
Restricted special awards generally have a five-year vesting period. If an associate leaves Novartis for reasons other than retirement, disability or death, unvested shares or RSUs are generally forfeited. Worldwide 787 associates at different levels in the organization were awarded a total of 0.8 million shares or RSUs in 2012.
BenefitsBoard members
The primary purposeannual fee rates for Board membership and additional functions are included in the table below. These were approved by the Board of pensionDirectors with effect from the 2014 AGM and healthcare plans isalign our aggregate Board compensation to establish a levelthe current levels of security for associatesother large Swiss companies.
The Group has a policy to change from defined-benefit (DB) pension plans to defined-contribution (DC) pension plans. All the major plans have now been aligned with our benefits strategy as far as reasonably practicable, with the exception of the Alcon DB pension plans, for which Novartis has established a global timeline for their conversion into DC pension plans.
Novartis may provide other benefits in a specific country according to local market practice and regulations, including length-of service awards and perquisites. Associates who have been transferred on an international assignment can also receive benefits in line with Novartis policies.
Summary of Compensation System 2015 BOARD MEMBER ANNUAL FEE RATES
Annual fee (CHF) | ||||
---|---|---|---|---|
Chairman of the Board | 3,800,000 | (1) | ||
Board membership | 300,000 | |||
Vice Chairman | 50,000 | |||
Chair of Audit and Compliance Committee | 120,000 | |||
Chair of the following committees: | ||||
—Compensation Committee | ||||
—Governance, Nomination and Corporate Responsibilities Committee | ||||
—Research & Development Committee(2) | ||||
—Risk Committee | 60,000 | |||
Membership of Audit and Compliance Committee | 60,000 | |||
Membership of the following committees: | ||||
—Compensation Committee | ||||
—Governance, Nomination and Corporate Responsibilities Committee | ||||
—Research & Development Committee | ||||
—Risk Committee | 30,000 |
In addition, the following policies apply regarding their compensation:
The Board compensation system will remain unchanged in 2016.
2015 BOARD COMPENSATION
Board Member Compensation Table (Audited)
The following table discloses the 2015 Board member compensation. Board compensation is reported as the amount earned in the financial year.
BOARD MEMBER COMPENSATION EARNED FOR FINANCIAL YEAR 2015(1)
| Board membership | Vice Chairman | Audit and Compliance Committee | Compensation Committee | Governance, Nomination and Corporate Responsibilities Committee | Research & Development Committee | Risk Committee | Cash (CHF) (A) | Shares (CHF) (B) | Shares (number)(2) | Other (CHF) (C)(3) | Total (CHF) (A)+(B)+(C)(4) | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Joerg Reinhardt(5) | Chair | Chair | 1,900,000 | 1,900,000 | 19,397 | 29,197 | 3,829,197 | ||||||||||||||||||||||||||||||
Ulrich Lehner (until February 26, 2015) | · | · | · | · | · | 39,167 | 39,167 | 1,242 | 582 | 78,916 | |||||||||||||||||||||||||||
Enrico Vanni | · | · | · | Chair | · | 250,000 | 250,000 | 2,552 | 4,357 | 504,357 | |||||||||||||||||||||||||||
Nancy Andrews (from February 27, 2015) | · | · | 137,500 | 137,500 | 812 | — | 275,000 | ||||||||||||||||||||||||||||||
Dimitri Azar | · | · | · | 172,250 | 217,750 | 2,712 | — | 390,000 | |||||||||||||||||||||||||||||
Verena A. Briner | · | · | 165,000 | 165,000 | 1,684 | 4,357 | 334,357 | ||||||||||||||||||||||||||||||
Srikant Datar | · | Chair | · | · | 240,000 | 240,000 | 2,450 | — | 480,000 | ||||||||||||||||||||||||||||
Ann Fudge | · | · | · | · | 195,000 | 195,000 | 1,990 | — | 390,000 | ||||||||||||||||||||||||||||
Pierre Landolt(6) | · | Chair | — | 360,000 | 3,674 | 3,492 | 363,492 | ||||||||||||||||||||||||||||||
Charles L. Sawyers | · | · | (7) | · | 177,500 | 177,500 | 1,757 | — | 355,000 | ||||||||||||||||||||||||||||
Andreas von Planta | · | · | · | Chair | 225,000 | 225,000 | 2,296 | 4,357 | 454,357 | ||||||||||||||||||||||||||||
William T. Winters | · | · | (7) | — | 325,000 | 3,210 | — | 325,000 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | 3,501,417 | 4,231,917 | 43,776 | 46,342 | 7,779,676 | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See table below for 2014 compensation figures
BOARD MEMBER COMPENSATION EARNED FOR FINANCIAL YEAR 2014(1)
| Board membership | Vice Chairman | Audit and Compliance Committee | Compensation Committee | Governance, Nomination and Corporate Responsibilities Committee | Research & Development Committee(2) | Risk Committee | Chairman's Committee(2) | Delegated Board membership | Cash (CHF) (A) | Shares (CHF) (B) | Shares (number)(3) | Other (CHF) (C)(4) | Total (CHF) (A)+(B)+(C)(5) | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Joerg Reinhardt(6) | Chair | Chair | Chair | 2,058,334 | 1,741,666 | 12,180 | 157,844 | (7) | 3,957,844 | ||||||||||||||||||||||||||||||||||
Ulrich Lehner | · | · | · | · | · | · | (8) | · | 262,500 | 262,500 | 1,527 | 37,851 | (9) | 562,851 | |||||||||||||||||||||||||||||
Enrico Vanni | · | · | · | Chair | · | · | 267,500 | 267,500 | 1,625 | 11,173 | (9) | 546,173 | |||||||||||||||||||||||||||||||
Dimitri Azar | · | · | · | 86,250 | 313,750 | 2,154 | — | 400,000 | |||||||||||||||||||||||||||||||||||
Verena A. Briner | · | · | (10) | 166,667 | 166,667 | 1,073 | 7,468 | (9) | 340,802 | ||||||||||||||||||||||||||||||||||
William Brody (until February 25, 2014) | · | · | · | (11) | 43,750 | 43,750 | — | 83,333 | (12) | 170,833 | |||||||||||||||||||||||||||||||||
Srikant Datar | · | Chair | · | · | · | 260,000 | 260,000 | 1,560 | — | 520,000 | |||||||||||||||||||||||||||||||||
Ann Fudge | · | · | · | · | 204,167 | 204,167 | 1,268 | — | 408,334 | ||||||||||||||||||||||||||||||||||
Pierre Landolt(13) | · | Chair | — | 368,333 | 2,340 | 7,031 | (9) | 375,364 | |||||||||||||||||||||||||||||||||||
Charles L. Sawyers | · | · | 166,667 | 166,667 | 1,073 | — | 333,334 | ||||||||||||||||||||||||||||||||||||
Andreas von Planta | · | · | · | Chair | 234,167 | 234,167 | 1,462 | 9,175 | (9) | 477,509 | |||||||||||||||||||||||||||||||||
Wendelin Wiedeking (until February 25, 2014) | · | · | · | — | 75,000 | — | 4,482 | (9) | 79,482 | ||||||||||||||||||||||||||||||||||
William T. Winters | · | 29,167 | 279,167 | 1,950 | — | 308,334 | |||||||||||||||||||||||||||||||||||||
Rolf M. Zinkernagel (until February 25, 2014) | · | · | · | (14) | 54,167 | 54,167 | — | 175,870 | (9),(15) | 284,204 | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | 3,833,336 | 4,437,501 | 28,212 | 494,227 | 8,765,064 | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As published in the 2014 Compensation Report
| | | | | | ||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |||||||||||||||||||||||||||||||||||||||||||
Continued from page 238
Under both
The annual incentiveperiod from the 2014 AGM to the 2016 AGM.
The Award Calculation Formula under both the annual incentiveRECONCILIATION BETWEEN THE REPORTED BOARD COMPENSATION AND THE AMOUNT APPROVED BY SHAREHOLDERS AT THE AGM
(CHF) | Compensation earned during the financial year (A)(1) 2015 | Compensation earned for the period from January 1 to AGM (2 months) of the financial year (B) January 1, 2015 to 2015 AGM | Compensation to be earned for the period from January 1 to the AGM (2 months) in the year following the financial year (C) January 1, 2016 to 2016 AGM(2) | Total compensation earned from AGM to AGM (A)–(B)+(C) 2015 AGM to 2016 AGM | Amount approved/ endorsed by shareholders at the respective AGM 2015 AGM | Amount within the amount approved/ endorsed by shareholders at the AGM 2015 AGM | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Joerg Reinhardt | 3,829,197 | (658,174 | ) | 633,334 | 3,804,357 | 3,805,000 | Yes | ||||||||||||
Other Board members | 3,950,479 | (667,250 | ) | 653,334 | 3,936,563 | 3,940,000 | Yes | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total | 7,779,676 | (1,325,424 | ) | 1,286,668 | 7,740,920 | 7,745,000 | Yes | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| 2014 | January 1, 2014 to 2014 AGM(3) | January 1, 2015 to 2015 AGM | 2014 AGM to 2015 AGM | 2014 AGM | 2014 AGM | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Joerg Reinhardt | 3,957,844 | (670,497 | ) | 658,174 | 3,945,521 | 3,962,000 | Yes | ||||||||||||
Other Board members | 4,807,220 | (1,446,909 | )(4) | 667,250 | 4,027,561 | 4,060,000 | Yes | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total | 8,765,064 | (2,117,406 | ) | 1,325,424 | 7,973,082 | 8,022,000 | Yes | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
2014 Board member compensation.
Business
Performance measures that compriseright to the business performance factor drivemaximum future insured government pension benefit for the achievement of stretched annual financial and operational targets at Group, divisional and regional levels. These targets are determined based on each executive's area of responsibility, at either Group, divisional or regional level, and may include targets based on net sales, operating income, free cash flow, market share, personnel cost or milestones in research and development. These financial and operational targets have been selected because they define in a balanced way how successful we are in meeting our strategic objectives and creating sustainable value to our shareholders.
The individual performance factor comprises two separate elements. The first element drives the achievement of individually set financial and non-financial objectives. Depending on functional responsibility, non-financial objectives typically include innovation; product launches; successful implementation of growth and productivity initiatives; process improvements; leadership and people management and successful acquisitions, disposals and licensing transactions. The second element ensures that performance is achieved in line with the highest standards in business conduct, as outlined in the Novartis Values and Behaviors. Our leaders are expected to exhibit role-model behavior on a daily basis, and to inspire other associates to do the same.
Once performance has been evaluated, a matrix determines the individual performance factor which is derived from the combination of the two ratings received.
Typically, the annual incentive is paid out in February following the realization of the yearly objectives. Performance under the Equity Plan "Select" is further determined by the development of the share price over the following three-year vesting period, and is contingent on continued employment with Novartis.
For those who have chosen to receive their annual incentive under the LSSP or ESOPs plans, as well as for those receiving awards under the Equity Plan "Select" the number of shares awarded is determined by dividing the actual incentive amount by the closing price of the shares on the grant date. In North America, if associates choose to receive part or all of their grant under the Equity Plan "Select" in tradable share options on American Depositary Shares (ADSs), the resulting number of tradable share options is determined by dividing the respective incentive amount by a value that equals 95% of the value of the options on ADSs as determined in accordance with International Financial Reporting Standards (IFRS). For associates in other countries, the divisor equals 90% of the IFRS value of options on shares.
Board member.
LTPP drives the achievement of long-term shareholder value creation over rolling three year performance periods. The performance measure (NVA) is assessed annually and targets are set at the
beginning of each year. Following the three-year performance period, achievement against the three annual targets is aggregated in order to determine the final payout.
Depending on the role and the level of responsibility of the associates, the target incentive percentages may reach up to 175% of base compensation for LTPP. If performance over the three year vesting period falls below a predetermined threshold of 90% of target, or if the participant leaves Novartis during the performance period for reasons other than retirement, disability or death, none of the award vests. A maximum of 200% of the target award may vest for outstanding performance.
At the beginning of every performance period, plan participants are granted RSUs, which are converted into Novartis shares
At the end of the three-year performance period, the Compensation Committee adjusts the number of RSUs earned based on actual performance. RSUs2014 AGM by William Brody and Rolf M. Zinkernagel are converted into unrestricted Novartis shares without an additional vesting period. In the United States, awards may also be deliveredincluded in cash under the US deferred compensation plan.
Proposed Changes to the Compensation System for the CEO and the members of the Executive Committee from 2014
Our Board and management continually reach out to our stakeholders to gather feedback on our compensation system to see if there are ways we can better align with the interests of our shareholders and promote transparency.
Based on this the Compensation Committee has undertaken a strategic review of the compensation system over the last 12 months and the Board of Directors has approved a number of changes to apply from 2014 onwards, subject to a consultative shareholder vote at the Annual General Meeting in 2013.
The overall design of the proposed program includes an annual incentive plan and two separate long-term incentive plans.
Further details of the proposed changes are set out in a separate summary attached to the Notice of Annual General Meeting 2013.
Proposed ChangesLoans to the Compensation System for the CEO and theBoard members
No loans were granted to current or former members of the Executive Committee from 2014—KEY HIGHLIGHTS
As from January 2014, the following changesBoard of Directors or to the compensation programs for the CEO and the members of the Executive Committee would apply:
Summary of Proposed Program
Compensation of members of the Executive Committee for 2012
The following compensation table discloses the compensation earned by the CEO and the members of the Executive Committee for performance in 2012. The following paragraphs describe the principles underlying the data in the table.
Alignment of Reporting and Performance
The compensation table synchronizes the reporting of annual compensation with the performance in the given year, i.e., all amounts awarded for performance in 2012, including the future LSSP/ESOP match, are disclosed in full.
Disclosure Structure
The compensation table shows the compensation granted to the CEO and each member of the Executive Committee for performance in 2012 for all compensation elements—base compensation, variable compensation and benefits—as previously described.
The column "Future LSSP/ESOP match" reflects shares to be awarded in the future if the Executive Committee member remains with Novartis for at least three or five years, respectively.
Valuation Principles
In order to allow a comparison with other companies, the Compensation Committee decided to disclose shares, restricted shares, RSUs and ADS at their market value on the date of grant. Market value is the current quoted share price at which a director or an associate is granted a share, a restricted share or a restricted share unit at grant date. The market value of share options is calculated by using an option pricing valuation model as per grant date.
Executive Committee Member Market Value Compensation for Performance Year 2012(1)
| | Base compensation | Variable compensation | Benefits | Total | | Total compensation | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Short-term incentive plans | Long-term incentive plans | | | | | | |||||||||||||||||||||||||||
| | | | | Equity Plan "Select" | Long-Term Performance Plan | Pension benefits | Other benefits | | Future LSSP/ESOP match(9) | Including future LSSP/ESOP match(10,11) | |||||||||||||||||||||||||
| Currency | Cash (Amount) | Cash (Amount) | Shares (Market value)(2) | Shares (Market value)(3) | Options (Market value)(4) | Shares (Market value)(5) | (Amount)(6) | (Amount)(7) | (Amount)(8) | Shares (Market value) | (Amount) | ||||||||||||||||||||||||
Joseph Jimenez (Chief Executive Officer) | CHF | 2,025,000 | 1,370,300 | 0 | 4,795,941 | 0 | 4,747,013 | 161,200 | 128,734 | 13,228,188 | 0 | 13,228,188 | ||||||||||||||||||||||||
Juergen Brokatzky-Geiger | CHF | 708,750 | 0 | 625,330 | 1,250,536 | 0 | 731,145 | 148,594 | 10,084 | 3,474,439 | 625,330 | 4,099,769 | ||||||||||||||||||||||||
Kevin Buehler(12) | USD | 1,118,333 | 202,897 | 504,048 | 2,827,532 | 0 | 1,753,300 | 413,056 | 62,930 | 6,882,096 | 504,048 | 7,386,144 | ||||||||||||||||||||||||
Felix R. Ehrat | CHF | 743,333 | 0 | 750,149 | 1,500,112 | 0 | 432,702 | 158,498 | 0 | 3,584,794 | 750,149 | 4,334,943 | ||||||||||||||||||||||||
David Epstein | USD | 1,158,332 | 525,953 | 727,166 | 3,132,643 | 0 | 1,666,814 | 325,563 | 26,191 | 7,562,662 | 727,166 | 8,289,828 | ||||||||||||||||||||||||
Mark C. Fishman | USD | 990,000 | 23,265 | 966,736 | 3,960,038 | 0 | 1,547,029 | 242,832 | 118,319 | 7,848,219 | 966,736 | 8,814,955 | ||||||||||||||||||||||||
Jeff George | CHF | 791,667 | 220,000 | 220,022 | 880,027 | 0 | 636,250 | 111,932 | 55,412 | 2,915,310 | 110,011 | 3,025,321 | ||||||||||||||||||||||||
George Gunn | CHF | 862,500 | 716,300 | 0 | 1,193,710 | 0 | 1,213,762 | 108,382 | 0 | 4,094,654 | 0 | 4,094,654 | ||||||||||||||||||||||||
Naomi Kelman (until February 29, 2012)(13) | USD | 102,782 | 51,667 | 0 | 0 | 0 | 0 | 3,196 | 904,469 | 1,062,114 | 0 | 1,062,114 | ||||||||||||||||||||||||
Andrin Oswald | CHF | 791,667 | 0 | 304,058 | 608,054 | 0 | 636,250 | 118,132 | 38,520 | 2,496,681 | 304,058 | 2,800,739 | ||||||||||||||||||||||||
Jonathan Symonds | CHF | 916,667 | 0 | 621,011 | 1,552,557 | 0 | 1,377,021 | 161,817 | 17,135 | 4,646,208 | 621,011 | 5,267,219 | ||||||||||||||||||||||||
Brian McNamara (as from March 1, 2012)(14) | USD | 500,000 | 94,169 | 140,002 | 464,869 | 0 | 260,580 | 45,053 | 19,710 | 1,524,383 | 140,002 | �� | 1,664,385 | |||||||||||||||||||||||
Total(15) | CHF | 10,466,057 | 3,148,166 | 4,711,715 | 21,513,910 | 0 | 14,673,602 | 1,933,597 | 1,310,446 | 57,757,493 | 4,601,704 | 62,359,197 | ||||||||||||||||||||||||
not include dividend equivalents paid in 2012 to Kevin Buehler ($529,387) for pre Alcon merger RSUs grants, to David Epstein ($138,011), Mark C. Fishman ($189,845) and Brian McNamara ($17,122) for RSUs grants made in or prior to 2010.
Executive Committee Member Market Value Realized/Unrealized Compensation for Performance Year 2012(1)
| | Realized compensation | Unrealized compensation | Total | ||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Base compensation | Short- term incentive plans | Long-Term Performance Plan | Other benefits | | | Equity Plan "Select" | Future LSSP/ESOP match | | | | | | ||||||||||||||||||||||||||||
| Currency | Cash (Amount) | Cash (Amount) and Shares (Market value) | Shares (Market value) | (Amount) | (Amount) | %(2) | Shares and Options (Market value) | Shares (Market value) | (Amount) | %(2) | (Amount) | %(2) | (Amount) | ||||||||||||||||||||||||||||
Joseph Jimenez (Chief Executive Officer) | CHF | 2,025,000 | 1,370,300 | 4,747,013 | 128,734 | 8,271,047 | 63 | % | 4,795,941 | 0 | 4,795,941 | 36 | % | 161,200 | 1 | % | 13,228,188 | |||||||||||||||||||||||||
Juergen Brokatzky-Geiger | CHF | 708,750 | 625,330 | 731,145 | 10,084 | 2,075,309 | 51 | % | 1,250,536 | 625,330 | 1,875,866 | 46 | % | 148,594 | 3 | % | 4,099,769 | |||||||||||||||||||||||||
Kevin Buehler | USD | 1,118,333 | 706,945 | 1,753,300 | 62,930 | 3,641,508 | 49 | % | 2,827,532 | 504,048 | 3,331,580 | 45 | % | 413,056 | 6 | % | 7,386,144 | |||||||||||||||||||||||||
Felix R. Ehrat | CHF | 743,333 | 750,149 | 432,702 | 0 | 1,926,184 | 44 | % | 1,500,112 | 750,149 | 2,250,261 | 52 | % | 158,498 | 4 | % | 4,334,943 | |||||||||||||||||||||||||
David Epstein | USD | 1,158,332 | 1,253,119 | 1,666,814 | 26,191 | 4,104,456 | 50 | % | 3,132,643 | 727,166 | 3,859,809 | 47 | % | 325,563 | 3 | % | 8,289,828 | |||||||||||||||||||||||||
Mark C. Fishman | USD | 990,000 | 990,001 | 1,547,029 | 118,319 | 3,645,349 | 41 | % | 3,960,038 | 966,736 | 4,926,774 | 56 | % | 242,832 | 3 | % | 8,814,955 | |||||||||||||||||||||||||
Jeff George | CHF | 791,667 | 440,022 | 636,250 | 55,412 | 1,923,351 | 64 | % | 880,027 | 110,011 | 990,038 | 33 | % | 111,932 | 3 | % | 3,025,321 | |||||||||||||||||||||||||
George Gunn | CHF | 862,500 | 716,300 | 1,213,762 | 0 | 2,792,562 | 68 | % | 1,193,710 | 0 | 1,193,710 | 29 | % | 108,382 | 3 | % | 4,094,654 | |||||||||||||||||||||||||
Naomi Kelman (until February 29, 2012) | USD | 102,782 | 51,667 | 0 | 904,469 | 1,058,918 | 100 | % | 0 | 0 | 0 | 0 | % | 3,196 | 0 | % | 1,062,114 | |||||||||||||||||||||||||
Andrin Oswald | CHF | 791,667 | 304,058 | 636,250 | 38,520 | 1,770,495 | 63 | % | 608,054 | 304,058 | 912,112 | 33 | % | 118,132 | 4 | % | 2,800,739 | |||||||||||||||||||||||||
Jonathan Symonds | CHF | 916,667 | 621,011 | 1,377,021 | 17,135 | 2,931,834 | 56 | % | 1,552,557 | 621,011 | 2,173,568 | 41 | % | 161,817 | 3 | % | 5,267,219 | |||||||||||||||||||||||||
Brian McNamara (as from March 1, 2012) | USD | 500,000 | 234,171 | 260,580 | 19,710 | 1,014,461 | 61 | % | 464,869 | 140,002 | 604,871 | 36 | % | 45,053 | 3 | % | 1,664,385 | |||||||||||||||||||||||||
Total | CHF | 10,466,057 | 7,859,881 | 14,673,602 | 1,310,446 | 34,309,987 | 55 | % | 21,513,910 | 4,601,704 | 26,115,614 | 42 | % | 1,933,597 | 3 | % | 62,359,197 | |||||||||||||||||||||||||
Realized compensation is the portion that is earned and paid immediately.
Unrealized compensation is the portion that is deferred and prospectively payable at a future date, subject to performance and employment conditions at the end of the performance cycle.
Executive Committee Member—Equity Awards for Performance Year 2012 (Number of equity instruments)
| Variable compensation | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Short-term incentive plans | Long-term incentive plans | | |||||||||||||
| | Equity Plan "Select" | Long-Term Performance Plan | Future LSSP/ESOP match | ||||||||||||
| Shares (Number)(2) | Shares (Number)(3) | Options (Number)(3) | Shares (Number) | Shares (Number) | |||||||||||
Joseph Jimenez (Chief Executive Officer) | 0 | 77,730 | 0 | 76,937 | 0 | |||||||||||
Juergen Brokatzky-Geiger | 10,135 | 20,268 | 0 | 11,850 | 10,135 | |||||||||||
Kevin Buehler | 7,629 | 42,796 | 0 | 26,537 | 7,629 | |||||||||||
Felix R. Ehrat | 12,158 | 24,313 | 0 | 7,013 | 12,158 | |||||||||||
David Epstein | 11,006 | 47,414 | 0 | 25,228 | 11,006 | |||||||||||
Mark C. Fishman | 14,632 | 59,937 | 0 | 23,415 | 14,632 | |||||||||||
Jeff George | 3,566 | 14,263 | 0 | 10,312 | 1,783 | |||||||||||
George Gunn | 0 | 19,347 | 0 | 19,672 | 0 | |||||||||||
Naomi Kelman (until February 29, 2012) | 0 | 0 | 0 | 0 | 0 | |||||||||||
Andrin Oswald | 4,928 | 9,855 | 0 | 10,312 | 4,928 | |||||||||||
Jonathan Symonds | 10,065 | 25,163 | 0 | 22,318 | 10,065 | |||||||||||
Brian McNamara (as from March 1, 2012)(1) | 2,119 | 7,036 | 0 | 3,944 | 2,119 | |||||||||||
Total | 76,238 | 348,122 | 0 | 237,538 | 74,455 | |||||||||||
As the table below shows, most executive compensation is variable and awarded under the long-term incentive plans. This ensures alignment with the interests of Novartis and its shareholders.
Executive Committee Member Actual Compensation Mix in 2012—Base and Variable Compensation(1)
| Variable (%) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Base salary | Annual incentive | Long-term incentive(2) | |||||||
Joseph Jimenez | 15.7 | % | 10.6 | % | 73.8 | % | ||||
Juergen Brokatzky-Geiger | 21.4 | % | 18.9 | % | 59.8 | % | ||||
Kevin Buehler | 17.5 | % | 11.0 | % | 71.5 | % | ||||
Felix R. Ehrat | 21.7 | % | 21.9 | % | 56.4 | % | ||||
David Epstein | 16.1 | % | 17.4 | % | 66.6 | % | ||||
Mark C. Fishman | 13.2 | % | 13.2 | % | 73.6 | % | ||||
Jeff George | 28.8 | % | 16.0 | % | 55.2 | % | ||||
George Gunn | 21.6 | % | 18.0 | % | 60.4 | % | ||||
Andrin Oswald | 33.8 | % | 13.0 | % | 53.2 | % | ||||
Jonathan Symonds | 20.5 | % | 13.9 | % | 65.6 | % | ||||
Brian McNamara (as from March 1, 2012)(3) | 34.3 | % | 16.0 | % | 49.7 | % | ||||
Total(4) | 19.2 | % | 14.4 | % | 66.4 | % | ||||
Shares and Share Options owned by members of the Executive Committee
The following tables show the total number of vested and unvested Novartis shares (including share units but excluding unvested matching share units from leveraged share savings plans and unvested target units from the Long-Term Performance Plan) and the total number of share options owned by members of the Executive Committee as of January 17, 2013.
As of January 17, 2013, none of the members of the Executive Committee together with "persons closely linked" to them (see definitionduring 2015. No such loans were outstanding as of December 31, 2015.
Other payments to Board members
During 2015, no payments (or waivers of claims) other than those set out in the table entitled "Board Member Compensation Earned for Financial Year 2015" (including its footnotes) under "Share Ownership Requirements") owned 1% or more"—2015 Board Compensation—Board Member Compensation Table (Audited)" were made to current members of the outstandingBoard of Directors or to "persons closely linked" to them.
Share ownership requirements for Board members
The Chairman is required to own a minimum of 30,000 shares, and other members of the Board of Directors are required to own at least 4,000 Novartis either directlyshares within three years after joining the Board of Directors, to ensure alignment of their interests with shareholders. Board members are prohibited from hedging or throughpledging their ownership positions in Novartis shares that are part of their guideline share options.
Directors. As of December 31, 2012,2015, all members of the Executive CommitteeBoard of Directors who have served at least three years on the Executive CommitteeBoard of Directors have metcomplied with the share ownership guidelines.
Shares, ADRs and share options owned by Board members
The total number of vested Novartis shares and ADRs owned by members of the Board of Directors and "persons closely linked" to them as of December 31, 2015 is shown in the table below.
As of December 31, 2015, no members of the Board of Directors together with "persons closely linked" to them owned 1% or exceeded their personal Novartis ownership requirements.more of the outstanding shares (or ADRs) of Novartis. As of the same date, no members of the Board of Directors held any share options.
Shares Owned by Executive Committee Members SHARES AND ADRs OWNED BY BOARD MEMBERS(1)
| Number of | |||
---|---|---|---|---|
At December 31, 2015 | ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
54,866 | ||||
Charles L. Sawyers | 4,252 | |||
Andreas von Planta | 124,868 | |||
William T. Winters | 5,998 | |||
| | | | |
Total | ||||
| | | | |
| | | | |
| | | | |
Share Options Owned by Executive Committee Members
| Number of share options(1) | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2013 | 2012 | 2011 | 2010 | 2009 | Other | Total | |||||||||||||||
Joseph Jimenez | 552,076 | 157,266 | 709,342 | |||||||||||||||||||
Juergen Brokatzky-Geiger | 75,705 | 255,452 | 331,157 | |||||||||||||||||||
Kevin Buehler | 605,877 | (2) | 605,877 | |||||||||||||||||||
Felix R. Ehrat | ||||||||||||||||||||||
David Epstein | ||||||||||||||||||||||
Mark C. Fishman | 604,129 | 604,129 | ||||||||||||||||||||
Jeff George | 141,396 | 97,827 | 15,359 | 1,793 | 256,375 | |||||||||||||||||
George Gunn | 94,371 | 94,371 | ||||||||||||||||||||
Andrin Oswald | 5,633 | 5,633 | ||||||||||||||||||||
Jonathan Symonds | 54,348 | 54,348 | ||||||||||||||||||||
Brian McNamara (as from March 1, 2012)(3) | 88,005 | 88,005 | ||||||||||||||||||||
Total(4) | 0 | 0 | 141,396 | 152,175 | 643,140 | 1,812,526 | 2,749,237 | |||||||||||||||
by the Executive Committee members or "persons closely linked" to them (see definition under—Share and Share Options Owned by Members of the Board of Directors).
Loans to members of the Executive Committee
No loans were granted to current or former members of the Executive Committee during 2012. No such loans were outstanding as of December 31, 2012.
Other payments to members of the Executive Committee
During 2012, no payments (or waivers of claims) other than those set out in the Executive Committee Member Compensation table (including its footnotes) were made to current members of the Executive Committee or to "persons closely linked" to them (see definition under "Compensation of the Board of Directors—Shares and Share Options Owned by Members of the Board of Directors").
Payments to former Board members of the Executive Committee
During 2012,2015, no payments (or waivers of claims) were made to former Board members of the Executive Committee or to "persons closely linked" to them, (see definition under "Compensation ofexcept for the following amounts:
Item 18. Financial Statements—Note 27
The total expense for the year for the compensation awarded to Board and Executive Committee members using IFRS measurement rules is presented in relation to his obligation to refrain from activities that compete with any business of Novartis and an amount of CHF 31,414 as other benefits related to his Executive Committee tenure.the Financial Report in "Item 18. Financial Statements—Note 27."
The Swiss Code of Obligations as well asand the Corporate Governance Guidelines of the SIX Swiss Exchange require listed companies to disclose certain information about the compensation of members of the Board of Directors and members of the Executive Committee members, their equity participation in the Group, as well asand loans made to them. This Annual Report fulfills that requirement. In addition, ourthe Annual Report is in line with the principles of the Swiss Code of Best Practice for Corporate Governance of the Swiss Business Federation (economiesuisse).
Decision-makingCompensation decision-making authorities
Authority for decisions related to compensation areis governed by the Articles of Incorporation, the Board Regulations and the Compensation Committee Charter, which are all published on the Novartiscompany website: www.novartis.com/corporate-governance. The main responsibilities of the Compensation Committee are shown under "Corporate Governance Report—Our Board of Directors—Role of the Board of Directors and the Board Committees."
The Compensation Committee serves as the supervisory and governing body for compensation policies and plans within Novartis, and has overall responsibility for determining, reviewing and proposing compensation policies and plans for approval by the Board of Directors in line with the Compensation Committee Charter. The main discussion points and conclusions of each meeting of the Compensation Committee are summarized in a brief report to the next meeting of the full Board.
The Compensation Committee carefully analyzesCharter. A summary of discussions and discusses on an ongoing basis (but at least annually)conclusions of each committee meeting is delivered to the trends and developments in the fieldfull Board of compensation and corporate governance as well as all compensation plans and levels with guidance from outside experts and consultants. The goal is to strengthen the interrelation betweenDirectors. A summary of the compensation plans and the Group's performance. It also reviews the compensation system to ensure that it does not encourage inappropriate or excessive risk taking and instead encourages behaviors that support sustainable value creation.decision-making authorities is set out below:
COMPENSATION AUTHORIZATION LEVELS WITHIN THE PARAMETERS SET BY THE SHAREHOLDERS' MEETING
Decision on | Authority | |
---|---|---|
Compensation of Chairman and other Board members | Board of Directors | |
Compensation of CEO | Board of Directors | |
Compensation of Executive Committee members | Compensation Committee |
The Compensation Committee is composed exclusively of members of the Board of Directors who meet the independence criteria set forth in ourthe Board Regulations. In 2012,From the 2015 AGM, the Compensation Committee had the following four members: Ann Fudge, Enrico Vanni, Srikant Datar and William Winters. Enrico Vanni has been designated chairman of the Compensation Committee. Currently, the Compensation Committee has the following five members: Enrico Vanni (chair), William Brody, Srikant Datar,served as Chair since 2012. Ulrich Lehner and Marjorie M.T. Yang.
The Compensation Committee held six meetings in 2012.did not stand for re-election to the Board of Directors at the 2015 AGM.
Compensation Authorization Levels
The General Meeting holds a consultative vote on the Compensation System of Novartis. This vote takes place at least every third Annual General Meeting.
Role of the Compensation CommitteeCommittee's independent advisorsadvisor
The Compensation Committee usedretained Frederic W. Cook & Co,Co. Inc., as its independent external compensation advisor for 2012.2015. The advisor to the Compensation Committee iswas hired directly by the Compensation Committee in 2011, and the Compensation Committee has been fully satisfied with the performance and independence of the advisor since its engagement. Frederic W. Cook & Co. Inc. is independent of management and does not perform any other consulting work for Novartis. The key task of the advisor is to assist the Compensation Committee in ensuring that the Novartis compensation policies and plans are competitive, correspond to market practice, and are in line with our compensation principles.
The Compensation Committee enters into a consulting agreement with its independent advisor on an annual basis. In determining whether or not to renew the engagement with the advisor, the Compensation Committee evaluates, at least annually, the quality of the consulting service, the independence of the advisor, and the benefits of rotating advisors.
Compensation Committee meetings held in 2015
In addition,2015, the Compensation Committee assesses on an annual basis the projected scopeheld five formal meetings. The Compensation Committee conducted a performance self-evaluation in 2015 and a review of work for the comingits charter, as it does every year.
Compensation governance and risk management
The Compensation Committee, determinedwith support from its independent advisor, reviews market trends in compensation and changes in corporate governance rules. It also reviews, together with the Risk Committee, the Novartis compensation systems to ensure that the advisor is free of any relationshipit does not encourage inappropriate or excessive risk taking and instead encourages behaviors that would impair professional and objective judgment and advice to the Compensation Committee, and has never been hired for work by the management of Novartis.support sustainable value creation.
A summary of the risk management principles is outlined below:
Clawback
Any incentive compensation paid to senior executives, including members of the Executive Committee is subject to "clawback." This means that Novartis may choose not to pay future incentive compensation or seek to recover incentive compensation where the payout has been proven to conflict with internal management standards (including company policies and Novartis Values and Behaviors), accounting policies or a violation of law.
In line with our equity ownership principle, key executives are required to own at least a certain multiple of their annual base salary in Novartis shares or share options. The CEO is required to own Novartis equity worth 5 times, the members of the Executive Committee 3 times, and other key executives, 1 to 2 times (position-specific) their respective base compensation within three years of hire or promotion. In the event of a substantial drop in the share price, the Board of Directors may, at its discretion, extend that time period.
| ||
| ||
|
The determination of equity amounts against the share ownership requirements includes vested and unvested shares or ADSs acquired under the Novartis compensation plans, as well as RSUs, with the exception of unvested matching RSUs from leveraged share savings plans and unvested RSUs from the Long-Term Performance Plan. In addition, it includes other shares as well as vested options on Novartis shares or ADSs that are owned directly or indirectly by "persons closely linked"(1).
The Compensation Committee reviews compliance with the share ownership guideline on an annual basis.
We believe that our compensation system encourages performance, loyalty and entrepreneurship, and creates sustainable value that is in the interest of Novartis and our shareholders. However, shareholders also expect that risks are appropriately managed. At Novartis, appropriate objective setting combined with proper incentive-plan design and rigorous safeguard measures allow our leaders and associates to focus on long-term value creation.
The goal of our compensation system is to encourage high performance and entrepreneurship, but not to reward inappropriate or excessive risk taking or short-term profit maximization at the expense of the long-term health of Novartis. The following characteristics of our compensation system foster a culture of entrepreneurial risk management:
achievement of strategic and leadership objectives, and managing people, but also innovation as well as process and productivity improvement. Under the incentive plans, performance multipliers may not exceed 200% of target.
Malus and clawback
Any incentive compensation paid to Executive Committee as well as selected key executives are requiredmembers is subject to own"malus" and "clawback" rules. This means that the Board of Directors for the CEO, or the Compensation Committee for other Executive Committee members, may decide, subject to applicable law, not to pay any unpaid or unvested incentive compensation (malus), or seek to recover incentive compensation that has been paid in the past (clawback), where the payout has been proven to conflict with internal management standards including company policies and accounting policies or a certain multipleviolation of their annual base salary in Novartis shares or share options (see—"Compensation Governance—Share Ownership Requirements" on previous page).
COMPENSATION OF THE BOARD OF DIRECTORS 6.C Board Practices
Philosophy For the Board of Directors compensation DEAR SHAREHOLDER,
Today,In 2015, we took steps to further strengthen our corporate governance, reinforce the membersrole of boardsour Board in innovation, increase the diversity of directors of global companies face increasing responsibilitiesour Board, and have to deal with issues that require ever higher levels of expertise and engagement. As a global healthcare company, Novartis shareholders have elected members of the Board of Directors who bring these required skills. Novartis has set the compensation for the members of the Board of Directors at a level that allows for the attraction and retention of high-caliber individuals with global experience. The members of its Board of Directors do not receive variable compensation, underscoring their focus on long-term corporate strategy, supervision and governance.
Compensation Structure
| ||
|
Compensation of the members of the Board of Directors
embed strong values in our company's culture.
DescriptionOur mandate
TheOur Board is accountable for striving to create sustainable value as described in article 2 of Directors determinesNovartis AG's Articles of Incorporation. We achieve this by setting a clear strategy for Novartis and through effective governance focused on target setting, risk management, and performance optimization to provide accountability and control.
This requires an effective Board with the compensationright composition, structure and processes, and with a clear understanding of its members, other than the Chairman, each year, based on a proposal by the Compensation Committee and advice from its independent advisors.role. Our Board meets these requirements.
The compensation of the Chairman is based on a contract, which provides Dr. Daniel VasellaOur Board includes members with a fixed remuneration of CHF 12.4 million, indexed to the average compensation increase for associates baseddiverse educations, experiences, nationalities and interpersonal skills. This diversity was further strengthened when Nancy C. Andrews joined our Board in Switzerland. The2015. It will be further strengthened if Elizabeth Doherty and Ton Buechner are elected as new Board acknowledges that the compensation of the Chairman reflects his exceptional experience and significant on-going contribution to building the Group, representing our interests in the global business community and delivering sustainable value for our shareholders. One third of his total compensation is paid out in monthly cash installments; the remaining two-thirds are in the form of unrestricted Novartis shares that are granted to him each yearmembers at the closing market priceforthcoming Annual General Meeting. For more information on these two Board member candidates, please consult our Notice of the underlying share at the endAnnual General Meeting, dated January 27, 2016.
We emphasize training, performance evaluation, and ongoing improvement of the day at grant date,our Board and its members, as well as succession planning. To get an outside view on where we could improve further, in 2012 on January 19, 2012.
Following his tenure as Chairman, Dr. Vasella agreed to continue to make available his know-how to Novartis2014 we initiated a performance and to refrain from activities that compete with any business of Novartis for a multi-year period. Dr. Vasella will receive fair market compensation in return for his services and for complying with the restriction not to compete. Dr. Vasella carries forward tradable options, shares and benefits (including pension) aseffectiveness evaluation by an independent expert. In 2015, we conducted this performance evaluation in-house. As a result of his 14-year tenurethese evaluations, our Board launched a search for the above-mentioned two new Board members to strengthen the general management and finance expertise of our Board, and decided to further deepen the business understanding of our Board members by broadening their continuing education program.
All Board members are independent, as defined by our CEO. In his current capacity he receives no variable compensation, tradable options or equityrules and, with the exception of two of our Board members, those of key investors and proxy advisors. We have established processes to ensure our Board functions effectively. They promote efficient and balanced decision-making and seamless information transfer, enabling our Board to effectively fulfill its duties.
Our Board is primarily responsible for setting the strategic direction of Novartis and for appointing our CEO and the other thanExecutive Committee members. We assert independent judgment and work closely with our Executive Committee, making sure our strategy is properly implemented and our ethical standards are applied.
Important Board decisions
One of the shares that aremost important tasks of our Board is to set the strategic direction of Novartis, re-evaluate it each year, and make necessary changes in line with our mandate to create sustainable value. Active portfolio management is part of his remuneration as Chairman.this role.
To fulfill this task, our Board holds a dedicated two-day strategy meeting each August. In 2015, we completed our portfolio transformation, approved by our Board in 2014, to focus on our core businesses—Pharmaceuticals, Alcon and Sandoz—and to bring our Over-the-Counter business into a joint venture, with Novartis holding a significant minority stake. Our strategy for these businesses has not changed. It is to use science-based innovation to deliver better outcomes for patients. We aim to lead in growing areas of healthcare.
The othernew Research & Development Committee of the Board, created to oversee our research and development strategy and to strengthen the Board's role in innovation, met four times in 2015 to evaluate various aspects of the effectiveness and competitiveness of our research and development organization.
Novartis also implemented a Board decision to create a centralized services group, Novartis Business Services, to facilitate collaboration across our divisions, and drive efficiency and productivity gains.
Finally, in 2015 we endorsed a proposal from our Executive Committee to introduce a revised set of six values to guide our employees' behavior at work. They include integrity and collaboration, and I believe they are important to the long-term success of Novartis.
Role of the Chairman
As independent, non-executive Chairman, I provide direction to our Board and make sure we effectively collaborate with our CEO and Executive Committee.
I ensure that our Board and its committees work effectively, setting the agenda, style and tone of Board discussions; promoting constructive debate and effective decision-making; and ensuring that our performance is regularly evaluated and that our members are properly trained.
In addition, I support and mentor our CEO, but do not interfere with the operational management of Novartis. I also promote effective communication with shareholders, so that we understand your views. In this task, I am supported by our Vice Chairman, Enrico Vanni.
Strengthened governance framework
As of last year, we introduced annual elections of the Chairman of the Board, of Directors receive, in one installment, an annual fixedall Board membership feemembers, and additional feesof Compensation Committee members, and we instituted the option for committee chairmanships, committee memberships, and other functionsour shareholders to compensate forprovide their increased responsibilities and engagements. They do not receive additional fees for attending meetings. The annual fees cover the period from the Annual General Meeting of the year of disclosurevoting instructions to the next Annual General Meeting. These membersIndependent Proxy electronically. Moreover, we introduced yearly binding shareholder votes on the aggregate compensation of our Board and Executive Committee, as well as a yearly non-binding shareholder vote on the Compensation Report.
Importance of shareholder engagement
Shareholder engagement is critical to our company's long-term success. Our Board of Directors is dedicated to enhancing interactions with our shareholders. We conduct interactions in an atmosphere of trust and respect that promotes a collaborative dialogue between Novartis and our shareholders—with views and positions expressed openly to enhance mutual understanding. As part of these efforts, our governance specialists meet regularly with their peers from shareholder groups. I have also personally met with many of our shareholders and intend to continue this dialogue.
Joerg Reinhardt
Chairman of the Board of Directors are paid in unrestricted shares for at least 50% of their fees. If one of these Board of Directors members does not elect for a full grant in shares, the remaining part of the fee is paid in cash at the time the shares are delivered. The fees shown in the attached table reflects the full amount paid in cash or delivered as shares in the given year. With the exception of the Chairman, they do not have pension benefits. Members of the Board of Directors do not receive share options. The fee rates for Board membership and functional roles of other members of the Board of Directors are as follows:
SUMMARY OF OUR CORPORATE GOVERNANCE APPROACH
Board Member Annual Fee Rates (Excl. Chairman)Leadership Structure
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
Benchmarking of the Compensation of the Members of the Board of Directors
The level of compensation for the members of the Board of Directors is set based on benchmarks that include the remuneration of members of board of directors of comparable healthcare companies (see also the list of benchmark companies under "Compensation of ExecutivesIndependent, non-executive Chairman and other associates") and selected leading Swiss companies (i.e. UBS, Nestlé and Credit Suisse).separate CEO
Board Member Compensation in 2012(1)
| Board membership | Vice Chairman | Chairman's Committee | Audit and Compliance Committee | Risk Committee | Compensation Committee | Corporate Governance and Nomination Committee | Delegated board membership | Annual cash compensation (CHF) (A) | Shares (Market value) (CHF) (B)(2) | Shares (Number) | Other (CHF) (C) | Total (CHF) (A)+(B) +(C) | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Daniel Vasella | Chair | Chair | • | (3) | • | (3) | • | (3) | • | (3) | 4,110,750 | 8,241,815 | 152,063 | 715,027 | (4) | 13,067,592 | ||||||||||||||||||||||||
Ulrich Lehner | • | • | • | • | • | • | Chair | 405,000 | 405,037 | 7,473 | 43,070 | (5) | 853,107 | |||||||||||||||||||||||||||
Dimitri Azar | • | 140,000 | 210,025 | 3,875 | — | 350,025 | ||||||||||||||||||||||||||||||||||
William Brody(6) | • | • | • | 262,500 | 262,545 | 4,844 | — | 525,045 | ||||||||||||||||||||||||||||||||
Srikant Datar | • | • | Chair | • | • | 360,000 | 360,051 | 6,643 | — | 720,051 | ||||||||||||||||||||||||||||||
Ann Fudge | • | • | • | 225,000 | 225,038 | 4,152 | — | 450,038 | ||||||||||||||||||||||||||||||||
Pierre Landolt(7) | • | • | — | 400,050 | 7,381 | 23,977 | (5) | 424,027 | ||||||||||||||||||||||||||||||||
Enrico Vanni | • | • | Chair | 255,000 | 255,011 | 4,705 | 30,150 | (5) | 540,161 | |||||||||||||||||||||||||||||||
Andreas von Planta | • | • | Chair | • | 280,000 | 280,051 | 5,167 | 29,023 | (5) | 589,074 | ||||||||||||||||||||||||||||||
Wendelin Wiedeking | • | • | • | — | 500,049 | 9,226 | 29,607 | (5) | 529,656 | |||||||||||||||||||||||||||||||
Marjorie M.T. Yang | • | • | 200,000 | 200,052 | 3,691 | 24,177 | (5) | 424,229 | ||||||||||||||||||||||||||||||||
Rolf M. Zinkernagel(8) | • | • | • | 325,000 | 325,037 | 5,997 | 34,383 | (5) | 684,420 | |||||||||||||||||||||||||||||||
Total | 6,563,250 | 11,664,761 | 215,217 | 929,414 | 19,157,425 | |||||||||||||||||||||||||||||||||||
Shares and share Options Owned by members of the Board of Directors
Shareholders want Board members to align their interests with the rest of the shareholders. Among other requirements, the members of the Board of Directors are thus required to own at least 5,000 Novartis shares within three years after joining the Board of Directors. As of December 31, 2012, all members of the Board of Directors who have served at least three years on the Board of Directors have complied with the share ownership guidelines.
The last year in which Novartis granted share options to non-executive members of the Board of Directors was 2002. The total number of vested and unvested Novartis shares and share options owned by members of the Board of Directors and "persons closely linked"(1) to them as of January 17, 2013, is shown in the following tables.
As of January 17, 2013, none of the members of the Board of Directors together with "persons closely linked"(1) to them owned 1% or more of the outstanding shares of Novartis, either directly or through share options.
Shares and Share Options Owned by Board Members(1)
| Number of shares(2) | Number of share options(3) | |||||
---|---|---|---|---|---|---|---|
Daniel Vasella | 3,170,729 | 1,633,290 | (4) | ||||
Ulrich Lehner | 34,363 | ||||||
Dimitri Azar | 5,743 | ||||||
William Brody | 18,420 | ||||||
Srikant Datar | 31,080 | ||||||
Ann Fudge | 13,769 | ||||||
Pierre Landolt(5) | 52,356 | ||||||
Enrico Vanni | 12,501 | ||||||
Andreas von Planta | 121,334 | ||||||
Wendelin Wiedeking | 260,286 | ||||||
Marjorie M.T. Yang | 18,000 | ||||||
Rolf M. Zinkernagel | 45,948 | ||||||
Total | 3,784,529 | 1,633,290 | |||||
Loans to members of the Board of Directors
No loans were granted to current or former members of the Board of Directors during 2012. No such loans were outstanding as of December 31, 2012.
Other payments to members of the Board of Directors
During 2012, no payments (or waivers of claims) other than those set out in the Board Member Compensation table on the previous page (including its footnotes) were made to current members of the Board of Directors or to "persons closely linked" to them (see definition under "Compensation of the Board of Directors—Shares and Share Options Owned by Members of the Board of Directors").
Payments to former members of the Board of Directors
During 2012, no payments (or waivers of claims) were made to former Board members or to "persons closely linked" to them (see definition under "Compensation of the Board of Directors—Shares and Share Options Owned by Members of the Board of Directors"), except for an amount of CHF 62,346 that was paid to the Honorary Chairman.
Note 27 to the Group's audited consolidated financial statements
The total expense for the year for the compensation awarded to the members of the Board of Directors and the members of the Executive Committee using IFRS measurement rules is presented in note 27 to the Group's audited consolidated financial statements.
Novartis strives to create sustainable value. Our corporate governance framework is designed to support this. While it complies with all applicable laws and implements best corporate governance standards, it is tailor-made for Novartis.
The corporate governance framework of Novartis reflects a system of checks and balances between the powers of the shareholders, the Board of Directors and the management with the goal to safeguard the interests of Novartis and its shareholders while creating sustainable value.
Since the creation of Novartis in 1996, the Board of Directors has continuously improved the corporate governance framework of Novartis by proactively implementing emerging best corporate governance standards long before these were embedded in the Swiss Code of Best Practice for Corporate Governance ("the Swiss Code") or in the law.
In 1999, Novartis established the new position of Lead Director as a check and balance following the election of Chief Executive Officer Daniel Vasella, M.D., to the additional post of Chairman. Moreover, three new Board committees—the Compensation Committee, the Audit and Compliance Committee and the Corporate Governance and Nomination Committee—were created, composed exclusively of independent Board members.
In 2002, five years before legislation came into force in 2007, requiring companies to disclose the total compensation of their executive management group as well as the highest compensation attributed to a member of the executive management, Novartis had already implemented even more rigorous disclosure standards by reporting the individual annual compensation of all members of the Executive Committee.
In 2004, two years earlier than required for non-US corporations, Novartis complied with the challenging certification requirements under the US Sarbanes-Oxley Act, in particular Section 404 of this Act.
In 2009, the Board of Directors established a new Risk Committee that oversees the Group's enterprise risk management, strengthening the Board of Directors' supervisory function over management in this critical area. While fostering a culture of risk-adjusted decision making, the Risk Committee ensures that reasonable risk-taking and innovation are not constrained.
In 2010, the Chairman and CEO functions were separated. In addition several emerging best corporate governance standards were proactively implemented, including the introduction of a "say-on-pay" shareholder vote, and making changes to the executive compensation system to further strengthen the alignment of incentives with the long-term success of Novartis and a number of new disclosures, including on qualifications of Board members.
In 2011, the first "say-on-pay" vote was held, where the shareholders endorsed the compensation system of Novartis.
Novartis evaluates emerging best governance standards and adopts those that are found to be appropriate for Novartis. These standards are then tailored to Novartis, its business, management, stakeholders and shareholders with a view to create a corporate governance regime that supports the creation of sustainable value. This cannot be achieved by implementing corporate governance standards "as is" ("one size fits all approach") and becomes impossible if corporate governance standards (embedded in corporate governance codes) are converted into binding, "one size fits all" rules as is currently contemplated in Switzerland.
In Switzerland, there will be a popular vote on March 3, 2013, on the so-called "Minder Initiative". The Swiss voters will de facto have to choose between the Minder Initiative and the indirect counter-proposal to this initiative proposed by Parliament. The latter would likely enter into force, if the Minder
Initiative were defeated by the voters. Both proposals include binding shareholder votes on the compensation system and on Board and executive compensation, a ban or binding shareholder approval of certain extraordinary payments (such as "payments in advance" or "golden parachutes"), yearly re-election of all board members, and election of the Chairman by the shareholders.
However, while the Minder Initiative (that claims to strengthen shareholder rights) limits shareholder rights by mandatory rules that the shareholders cannot change, the indirect counter-proposal, while also shifting rights from the boards to the shareholders, does not patronize the shareholders as the Minder Initiative does, as it allows, for example, the shareholders to decide whether their vote on executive compensation shall be binding or non-binding or whether they want to elect the Chairman or not. Moreover, it does not contain certain additional rules as proposed under the Minder Initiative, such as an obligation of all pension plans to vote all their shares (which in practice would almost be impossible to do, except if pension plans "blindly" followed the voting recommendation of proxy advisory firms, making such firm de facto "super-shareholders"), and criminal sanctions (imprisonment of up to three years) for violations of the Minder rules. Therefore, the indirect counter-proposal is the better choice for shareholders. It offers them the same additional rights as the Minder Initiative but does not limit their choices. This also applies to Switzerland as the Minder Initiative would substantially damage the international competitiveness of Switzerland and of Swiss based companies. For example: A binding shareholder vote on executive compensation would make it difficult for Swiss based companies to hire top managers, who would not know when they sign an employment contract whether such contract could be honored by their employer. Moreover, while the indirect counter-proposal could be implemented rapidly, the wording of the Minder Initiative is too sketchy and imprecise to allow a rapid implementation.
Outside of Switzerland, we note an encouraging development in that regulators start to acknowledge and seem to become willing to regulate many corporate governance issues that have been highlighted by issuers for a long time but did not make it "on the corporate governance agenda" yet: The US Securities Exchange Commission in its "Concept Release on the U.S. Proxy System" and, the European Commission in its green paper entitled "The EU Corporate Governance Framework" have noted a number of such issues, including deficiencies in the proxy system, potential conflicts of interest and a lack of accuracy and transparency of proxy advisory firms, and what the European Commission called "inappropriate short-termism among investors."
On that last point, we note that in July 2012 John Kay, an economics professor at the London School of Economics, issued a report on the UK equity markets and long-term decision making, which had been commissioned by the UK Government. Kay's principal conclusion is that institutional investors focus too much on short-term profits. This may lead investors to not support corporate strategies designed to achieve long-term growth and to support activist hedge funds that want to pressure corporations in taking actions to increase short-term profits to the detriment of the long-term prospects of the company.
Kay proposes, among other points, that incentives of asset managers should encourage them to hold portfolios judged on the basis of the long-term absolute performance of companies, that misaligned incentives in the remuneration practices of both company executives and asset managers should be eliminated, that investment costs and stock lending practices should be disclosed, that the duty of Board members is directed to their company and not to its share price, and that companies should aim to develop relationships with investors rather than with 'the market'.
At the heart of good corporate governance lies a strong board of directors, which represents the interests of the shareholders and other stakeholders, and the professionalism and integrity of management, creating the foundation for sustainable value. While the size, composition and structure of the board of directors are easy to describe and can be easily checked from the outside, it is difficult to demonstrate that the core processes, like information flow and decision making, are state-of-the-art. It is even more difficult, if not impossible, to describe the prevailing board culture, although the latter is essential for its effective function. Novartis aims to foster an atmosphere in which Board members can pose challenging questions, voice dissenting views and secure access to independent information through
extensive contacts with senior Novartis executives—inside and outside the boardroom. Diversity of a board of directors is a critical success factor for its work. The Novartis Board of Directors today is diverse in terms of education, experience, geographical origin and interpersonal skills.
SUMMARY OF OUR CORPORATE GOVERNANCE REGIME
Separate Chairman and CEO
Structure
Independence: All Board members except Dr. Vasella, are independent. Dr. Vasella will benon-executive and independent as from February 1, 2013.
Board Committees:defined by our rules. The Board has delegated certain of its dutiesassigned responsibilities to five Board committees:
Composition
The Novartis Board of Directors ismembers have diverse in terms of education,educations, experience, geographical originnationalities and interpersonal skills. TheTheir biographies of the Board members (pages 199–204) set out(see "—Item 6.A Directors and Senior Management") describe their particularspecific qualifications.
Processes
The Board's processes of the Board have a decisivesignificantly influence on the effectiveness of the Board.its effectiveness. The Board has implemented best practices for all such processes. Important elements include the agenda of Board meetings (making sure that the Board deals withmeeting agendas (to address all important topics), information ofsubmitted to the Board (ensuring that(to ensure the Board receives sufficient information from management to perform its supervisory duty and to make decisions that are reserved for the Board)it), and Board roomboardroom behavior (ensuring(to promote an efficient and balanced decision makingdecision-making process).
Each share registered entitles the holder to one vote at General Meetings. The General Meeting passes resolutions and elections with the absolute majority of the votes represented at the meeting: The approval of two-thirds of the votes represented at the meeting is required by law for certain important resolutions.
Shareholders with 10% of the share capital may request an extraordinary General Meeting of shareholders and shareholders having shares with an aggregate nominal value of CHF 1 million can put items on the agenda of a General Meeting of shareholders.
Shareholders have the right to receive dividends, appoint proxies, and hold such other rights as are granted under Swiss Law.
Only shareholders registered in the Novartis share register may exercise their voting rights. The registration does not affect the tradability of Novartis shares.
Shareholders with shares in excess of 2% of the registered share capital that want to vote also those shares exceeding the 2% threshold need an approval from the Board. The purpose of this approval is to prevent that a minority shareholder can dominate the General Meeting to the disadvantage of the majority of the shareholders. This is necessary given that many shareholder do not register their shares and can therefore not vote their shares, and because shareholder representation at General Meetings has traditionally been low in Switzerland.
OUR CORPORATE GOVERNANCE FRAMEWORK
LawsBoard and RegulationsExecutive Committee Compensation
NovartisInformation on Board and Executive Committee compensation is subject to the lawsoutlined in our Compensation Report. See "—Item 6.B Compensation".
Full Implementation of Switzerland, in particular Swiss company and securities laws, and to the securities lawsMinder Ordinance
In 2015, all elements of the United States as applicable to foreign private issuers of securities.
In addition, Novartis is subject torules implementing the rulesMinder Initiative were fully introduced with the amendment of the Swiss Stock Exchange (SIX Swiss Exchange),Articles of Incorporation of Novartis AG. Key Articles of Incorporation content is presented in this Corporate Governance Report, including the Directive on Information relating to Corporate Governance.
Novartis is also subject to the rules of the New York Stock Exchange (NYSE) as applicable to foreign private issuers of securities. The NYSE requires Novartis to describe any material ways in which its corporate governance differs from that of domestic US companies listedinformation on the NYSE. These differences are:
Swiss Code of Best Practice for Corporate Governance
Novartis applies the Swiss Code of Best Practice for Corporate Governance.Shareholders (AGM).
Novartis Corporate Governance Standards
Novartis has incorporated the corporate governance standards described above into the Articles of Incorporation and the Regulations of the Board of Directors, its Committees and the Executive Committee (www.novartis.com/corporate-governance).
The Corporate Governance and Nomination Committee regularly reviews these standards and principles in the light of prevailing best practices and makes recommendations for improvements of the corporate governance framework of Novartis for consideration by the full Board of Directors.
Additional corporate governance information can be found on the Novartis website: http://www.novartis.com/corporate-governance
Printed copies of the Novartis Articles of Incorporation, Regulations of the Board and Charters of Board Committees can be obtained by writing to: Novartis AG, Attn: Corporate Secretary, Lichtstrasse 35, CH-4056 Basel, Switzerland.
OUR SHARES AND OUR SHAREHOLDERS
Share Capital of Novartis AG
TheAs of December 31, 2015, the share capital of Novartis AG is CHF 1,353,096,5001,338,496,500 fully paid-in and divided into 2,706,193,0002,676,993,000 registered shares, each with a nominal value of CHF 0.50. Novartis AG has neither authorized nor conditional capital. There are no preferential voting shares; all shares have equal voting rights. No participation certificates, non-voting equity securities (Genussscheine), or profit-sharing certificates have been issued.
Novartis shares are listed and traded on the SIX Swiss Exchange (Valor No. 001200526, ISIN(ISIN CH0012005267, symbol: NOVN), as well as on the NYSENew York Stock Exchange (NYSE) in the form of American Depositary Receiptsdepositary receipts (ADRs) representing Novartis American Depositary Sharesdepositary shares (ADSs) (Valor No. 567514, ISIN(ISIN US66987V1098, symbol: NVS).
The holder of an ADSADR has the rights enumerated in the Deposit Agreementdeposit agreement (such as the right to votegive voting instructions and to receive a dividend). The ADS depositary of Novartis AG—JPMorgan Chase Bank, New York, York—holding the Novartis shares underlying the ADSs,ADRs is registered as a shareholder in the share register of Novartis.Novartis Share Register. An ADSADR is not a Novartis share and an ADSADR holder is not a Novartis AG shareholder. ADSADR holders exercise their voting rights by instructing the depositary to exercise their voting rights. Each ADSADR represents one Novartis share.
Share Repurchase Programs
Novartis began repurchasing its shares in 1999. Since then, five share repurchase programs have been completed with the repurchase of shares worth CHF 19 billion. Shares repurchased under the first program were not cancelled. However, shares repurchased under the other four programs were cancelled. At the Annual General Meeting in February 2008, shareholders authorized the Board of Directors to launch a sixth program to repurchase shares up to a maximum amount of CHF 10 billion via a second trading line on the SIX Swiss Exchange. In 2008, a total of six million shares were repurchased at an average price of CHF 49.42 per share and cancelled. The share repurchase program was suspended in April 2008 in favor of debt repayment. In December 2010, the Board of Directors announced the reactivation of the share repurchase program to minimize dilution to existing Novartis shareholders in connection with the proposed merger of Alcon, Inc. into Novartis. In 2010, no shares were repurchased under the share repurchase program. In 2011, 39,430,000 shares were repurchased under the share repurchase program. In 2012, no shares were repurchased under the share repurchase program.
Changes in Share Capital
During the last three years, there were the following changes were made to the share capital of Novartis:Novartis AG:
In 2011, for the purpose of completing the merger of Alcon, Inc. into Novartis AG,2013 and 2014, the share capital was increased by CHF 54 million, from CHF 1,318,811,500 to CHF 1,372,811,500, through the issuance of 108,000,000 fully paid-in registered shares with a nominal value of CHF 0.50 each.
Novartis AG did not change. In 2012,2015, Novartis AG reduced its share capital by CHF 19,71514.6 million from(from CHF 1,372,811,5001,353,096,500 to CHF 1,353,096,5001,338,496,500) by cancelling 39.43canceling 29.2 million Novartis shares repurchased on the second trading line during 2011.
| Number of shares | | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year | As of January 1 | Changes in shares | As of December 31 | Changes in CHF | |||||||||
2010 | 2,637,623,000 | 2,637,623,000 | |||||||||||
2011 | 2,637,623,000 | 108,000,000 | 2,745,623,000 | 54,000,000 | |||||||||
2012 | 2,745,623,000 | (39,430,000 | ) | 2,706,193,000 | (19,715,000 | ) |
Capital Changes | | | | | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number of shares | | |||||||||||
Year | As of Jan 1 | Changes in shares | As of Dec 31 | Changes in CHF | |||||||||
2013 | 2,706,193,000 | 2,706,193,000 | |||||||||||
2014 | 2,706,193,000 | 2,706,193,000 | |||||||||||
2015 | 2,706,193,000 | (29,200,000 | ) | 2,676,993,000 | (14,600,000 | ) |
Convertible or Exchangeable Securities
Novartis AG has not issued convertible or exchangeable bonds, warrants, options or other securities granting rights to Novartis shares, other than options (and similar instruments such as stock appreciation rights) granted under or in connection with equity-based participation plans of associates. Novartis AG does not grant any new stock options under these plans.
Share Repurchase Programs
At the AGM in February 2008, shareholders approved the sixth share repurchase program authorizing the Board to associates asrepurchase Novartis shares up to a maximum of CHF 10 billion via a second trading line on the SIX Swiss Exchange. In 2008, a total of 6 million Novartis shares were repurchased at an elementaverage price of compensation.CHF 49.42 per Novartis share and canceled in 2009. In April 2008, the share repurchases were suspended in favor of debt repayment. In December 2010, the Board announced the reactivation of the share repurchases. In 2011, 39,430,000 Novartis shares were repurchased at an average price of CHF 52.81 per Novartis share and canceled in 2012. In 2012, no Novartis shares were repurchased. In 2013, 2,160,000 Novartis shares were repurchased at an average price of CHF 70.58 per Novartis share. In 2014, 27,040,000 Novartis shares were repurchased at an average price of CHF 81.18 per Novartis share. In 2015, 29,200,000 Novartis shares bought in 2013 and 2014 were canceled, and 49,878,180 Novartis shares were repurchased at an average price of CHF 93.24 per Novartis share. With those repurchases, the sixth share repurchase program has been completed.
Share Developments
Novartis shares finished at CHF 86.80, a decrease of 6% from the 2014 year-end closing price of CHF 92.35. Novartis ADRs decreased in 2015 by 7% to $86.04 from $92.66. The Swiss Market Index
(SMI) in comparison decreased by 1.8% in 2015, whereas the world pharmaceutical index (MSCI) grew by 2.6% during the year. Total shareholder return in 2015 was –3.4% in CHF and –3.5% in US dollars. Over a longer-term period, Novartis AG has consistently delivered a solid performance, providing a 9.9% compounded annual total shareholder return between January 1, 1996 and December 31, 2015, exceeding the 8.9% compounded returns of its large pharmaceutical peers (see "—Item 6.B Compensation—Benchmark Companies") or the returns of 9.2% of the MSCI.
The market capitalization of Novartis AG based on the number of Novartis shares outstanding (excluding Novartis treasury shares) amounted to $208 billion as of December 31, 2015, compared to $224 billion as of December 31, 2014.
Continuously rising dividend since 1996
The Board proposes a 4% increase in the dividend payment for 2015 to CHF 2.70 per Novartis share (2014: CHF 2.60) for approval at the AGM on February 23, 2016. This represents the 19th consecutive increase in the dividend paid per share since the creation of Novartis AG in December 1996. If the 2015 dividend proposal is approved by shareholders, dividends to be paid out will total approximately $6.6 billion (2014: $6.6 billion). This would result in an expected payout ratio of 93% of net income from continuing operations (2014: 62%) and 37% of net income attributable to shareholders of Novartis AG (2014: 65%). Based on the 2015 year-end share price of CHF 86.80, the dividend yield will be 3.1% (2014: 2.8%). The dividend payment date has been set for February 29, 2016.
Novartis AG offers a Direct Share Purchase Plan to investors residing in Switzerland. It provides an easy and inexpensive way for investors to directly purchase registered Novartis shares and for them to be held at no cost in a deposit account with SIX SAG AG. Due to legal restrictions, investors residing outside Switzerland may not participate in the plan. At the end of 2015, 7,814 shareholders were enrolled in this plan.
Key Novartis Share Data | 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Issued shares | 2,676,993,000 | 2,706,193,000 | 2,706,193,000 | |||||||
Treasury shares(1) | 303,098,183 | 307,566,743 | 280,108,692 | |||||||
Outstanding shares at December 31 | 2,373,894,817 | 2,398,626,257 | 2,426,084,308 | |||||||
Weighted average number of shares outstanding | 2,402,806,352 | 2,425,782,324 | 2,440,849,805 |
Per-share information(1) | 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Basic earnings per share (US dollars) from continuing operations | 2.92 | 4.39 | 3.76 | |||||||
Basic earnings per share (US dollars) from discontinued operations | 4.48 | (0.18 | ) | 0.00 | ||||||
Total basic earnings per share (US dollars) | 7.40 | 4.21 | 3.76 | |||||||
Diluted earnings per share (US dollars) from continuing operations | 2.88 | 4.31 | 3.70 | |||||||
Diluted earnings per share (US dollars) from discontinued operations | 4.41 | (0.18 | ) | 0.00 | ||||||
Total diluted earnings per share | 7.29 | 4.13 | 3.70 | |||||||
Operating cash flow (US dollars) from continuing operations | 5.03 | 5.73 | 5.17 | |||||||
Year-end equity for Novartis AG shareholders (US dollars) | 32.46 | 29.50 | 30.64 | |||||||
Dividend (CHF)(2) | 2.70 | 2.60 | 2.45 |
Key ratios—December 31 | 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Price/earnings ratio(1) | 11.9 | 22.2 | 21.3 | |||||||
Price/earnings ratio from continuing operations(1) | 30.1 | 21.3 | 21.3 | |||||||
Enterprise value/EBITDA from continuing operations | 16 | 15 | 13 | |||||||
Dividend yield (%)(1) | 3.1 | 2.8 | 3.4 |
Key data on ADRs issued in the US | 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Year-end ADR price ($) | 86.04 | 92.66 | 80.38 | |||||||
High(1) | 106.12 | 96.65 | 80.39 | |||||||
Low(1) | 83.96 | 78.20 | 63.70 | |||||||
Number of ADRs outstanding(2) | 299,578,398 | 307,623,364 | 317,193,803 |
Share price (CHF) | 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Year-end share price | 86.80 | 92.35 | 71.20 | |||||||
High(1) | 102.30 | 93.80 | 73.65 | |||||||
Low(1) | 82.20 | 70.65 | 58.70 | |||||||
Year-end market capitalization ($ billions)(2) | 208.3 | 223.7 | 194.2 | |||||||
Year-end market capitalization (CHF billions)(2) | 206.1 | 221.5 | 172.7 |
Significant Shareholders
According to the share register,Novartis Share Register, as of December 31, 2012,2015, the following registered shareholders (including nominees and the ADS depositary) held more than 2% of the total share capital of Novartis AG with the right to vote these shares:(1)1
According to a disclosure notification filed with Novartis AG, Norges Bank (Central Bank of Norway), Oslo, Norway, held 2.3% of the share capital of Novartis AG as of December 31, 2012.
According to disclosure notifications filed with Novartis AG and the SIX Swiss Exchange, each of the following shareholders held between 3% and 5% of the share capital of Novartis AG as of December 31, 2012:2015:
Disclosure notifications pertaining to shareholdings in Novartis AG that were filed with Novartis AG and the SIX Swiss Exchange are published on the latter's electronic publication platform, and can be accessed via the database search page:via:
http://www.six-exchange-regulation.com/obligations/disclosure/ major_shareholders_en.html
Novartis has not entered into any agreement with any shareholder regarding the voting or holding of Novartis shares.de/home/publications/significant-shareholders.html.
Cross Shareholdings
Novartis AG has no cross shareholdings in excess of 5% of capital or voting rights with any other company.
Distribution of Novartis Shares
The information in the following tables relates only to registered shareholders and does not include holders of unregistered shares. Also, the information provided in the tables below cannot be assumed to be representative ofrepresent the entire Novartis AG investor base sincebecause nominees and JPMorgan Chase Bank, as ADS depositary, are registered as shareholders for a large number of beneficial owners.
As of December 31, 2012,2015, Novartis AG had approximately 161000161,000 registered shareholders.
The following table provides information about the distribution of registered shareholders by number of shares held:
As of December 31, 2012 | Number of registered shareholders | % of registered share capital | |||||
---|---|---|---|---|---|---|---|
1-100 | 20,133 | 0.05 | |||||
101-1,000 | 95,483 | 1.58 | |||||
1,001-10,000 | 40,581 | 4.23 | |||||
10,001-100,000 | 3,740 | 3.57 | |||||
100,001-1,000,000 | 488 | 5.23 | |||||
1,000,001-5,000,000 | 74 | 6.06 | |||||
5,000,001 or more(1) | 34 | 54.01 | |||||
Total registered shareholders/shares | 160,533 | 74.73 | |||||
Unregistered shares | 25.27 | ||||||
Total | 100.00 | ||||||
Number of Shares Held As of December 31, 2015 | Number of registered shareholders | % of registered share capital | |||||
---|---|---|---|---|---|---|---|
1–100 | 24,096 | 0.06 | |||||
101–1,000 | 96,203 | 1.53 | |||||
1,001–10,000 | 36,616 | 3.83 | |||||
10,001–100,000 | 3,387 | 3.32 | |||||
100,001–1,000,000 | 470 | 5.16 | |||||
1,000,001–5,000,000 | 73 | 5.79 | |||||
5,000,001 or more(1) | 34 | 50.79 | |||||
| | | | | | | |
Total registered shareholders/shares | 160,879 | 70.48 | |||||
Unregistered shares | 29.52 | ||||||
| | | | | | | |
Total | 100.00 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The following table provides information about distribution of registered shareholders by type:
Registered Shareholders by Type
As of December 31, 2012 | Shareholders in % | Shares in % | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Registered Shareholders by Type As of December 31, 2015 | Shareholders in % | Shares in % | ||||||||||||
Individual shareholders | 96.07 | 12.08 | 96.14 | 11.76 | ||||||||||
Legal entities | 3.84 | 37.26 | 3.79 | 39.65 | ||||||||||
Nominees, fiduciaries and ADS depositary | 0.09 | 50.66 | 0.07 | 48.59 | ||||||||||
| | | | | | | | |||||||
Total | 100.00 | 100.00 | 100.00 | 100.00 | ||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
The following table provides information about registered shareholders by country:
Registered Shareholders by Country
As of December 31, 2012 | Shareholders in % | Shares in % | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Registered Shareholders by Country As of December 31, 2015 | Shareholders in % | Shares in % | ||||||||||||
France | 2.84 | 1.31 | 2.49 | 0.92 | ||||||||||
Germany | 4.56 | 3.55 | 5.21 | 1.91 | ||||||||||
Luxembourg | 0.03 | 1.08 | ||||||||||||
Switzerland(1) | 89.15 | 42.13 | 88.60 | 40.93 | ||||||||||
United Kingdom | 0.51 | 2.75 | 0.50 | 23.77 | ||||||||||
United States | 0.32 | 46.24 | 0.30 | 27.53 | ||||||||||
Other countries | 2.62 | 4.02 | 2.87 | 3.86 | ||||||||||
| | | | | | | | |||||||
Total | 100.00 | 100.00 | 100.00 | 100.00 | ||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
Registered shares held by nominees are shown in the country where the company/affiliate entered in the Novartis Share Register as shareholder has its registered seat
Shareholder Rights
Shareholders have the right to receive dividends, to vote and to execute such other rights as treasury sharesgranted under Swiss law and the Articles of Incorporation.
Right to Vote ("One Share, One Vote")vote
Each Novartis share registered with the right to vote entitles the holder to one vote at General Meetings. Novartis shares can only be voted if they are registered with voting rights with the Novartis Share Register by the third business day before the General Meeting (for shareholder registration and voting restrictions, see "—Shareholder Registration").
ADSADR holders may vote by instructing JPMorgan Chase Bank, the ADS depositary, to exercise the voting rights attached to the registered shares underlying the ADSs.ADRs. JPMorgan Chase Bank exercises the voting rights for registered shares underlying ADSsADRs for which no voting instructions have been given by providing a discretionary proxy to thean uninstructed independent proxy (unabhängiger Stimmrechtsvertreter) appointed bydesignee. Such designee has to be a Novartis pursuant to Swiss law.AG shareholder.
The following powers are vested exclusively in the General Meeting:
Resolutions and Electionselections at General Meetings
The General Meeting passes resolutions and elections with the absolute majority of the votes represented at the meeting. However, under the Articles of Incorporation (www.novartis.com/corporate-governance), the approval of two-thirds of the votes represented at the meeting is required for:
In addition, the law provides for a special quorum alsoqualified majority for other re-solutions,resolutions, such as for example, for a merger or spin-off.
Other Shareholder Rightsshareholder rights
Shareholders representing at least 10% of the share capital may request that an extraordinary General Meeting of shareholdersShareholders be convened. Shareholders representing Novartis shares with an aggregate nominal value of at least CHF 1 million may request that an item be included in the agenda of a General Meeting of shareholders.agenda. Such requests must be made in writing at least 45 days before the date ofmeeting, specify the General Meeting, specify theagenda item to be included, in the agenda and contain the proposal on which the shareholder requests a vote.
Shareholders havecan vote their Novartis shares by themselves or appoint another shareholder or the Independent Proxy to vote on their behalf. All shareholders (who are not yet registered on the Sherpany Platform; see "—Shareholder Registration" below) receive a General Meeting invitation letter with a proxy appointment form for the appointment of the Independent Proxy. On this form shareholders can instruct the Independent Proxy to vote on alternative or additional motions related to the agenda items either (i) according to the motions of the Board for such alternative or additional motions, or (ii) against such alternative or additional motions, or (iii) to abstain from voting.
Novartis AG offers shareholders the opportunity to use an online platform (the Sherpany Platform) to receive notices of future General Meetings exclusively by email and to electronically give their instructions to the Independent Proxy, grant powers of attorney to other shareholders, and order their admission cards online. The General Meeting registration form enables shareholders who are not yet registered on the Sherpany Platform to order detailed documents related to opening a Sherpany account. They may also do so by contacting the Novartis Share Register. Shareholders can deactivate their online account at any time and again receive invitations in paper form.
Other rights associated with a registered Novartis share may only be exercised by the shareholder, its legal representative, another shareholder with the right to receive dividends, appoint another shareholder,vote, or the corporate proxy, the independent proxyIndependent Proxy, or a custody proxy as proxy and hold such other rights as are granted under Swiss Law.
No restrictions apply onusufructuary (a person not the transferabilityowner of Novartis shares. However, only shareholdersthe share who is entitled to exercise the shareholder rights) or nominee who is registered in the Novartis share registerShare Register.
Shareholder Registration
Only shareholders, usufructuaries or nominees registered in the Novartis Share Register with voting rights may exercise their voting rights. In order toTo be registered with voting rights, a shareholder must declare that he or she acquired the shares in his or her own name and for his or her own account. TheAccording to the Articles of Incorporation, provide that the Board of Directors may register nominees with the right to vote. For restrictions on the registration of nominees, please see below.
The Articles of Incorporation provide that no shareholder shall be registered with the right to vote for more than 2% of the registered share capital. The Board of Directors may, upon request, grant an exemption from this restriction. Considerations include whether the shareholder supports the Novartis goal of creating sustainable value and has a long-term investment horizon. In 2015, no exemptions were requested. Exemptions are in force for the registered significant shareholders listed under "—Our Shareholders—Significant Shareholders, listed under—Our Shareholders—Shareholdings—Significant Shareholders. In 2012, an exemption was requested" and granted tofor Norges Bank (Central Bank of Norway), Oslo, Norway.which as of December 31, 2015, held less than 2% of the share capital of Novartis AG.
The same registration and voting restrictions indirectly apply to holders of ADSs as those holding Novartis shares.ADRs.
Given that shareholder representation at General Meetings traditionally has traditionally been rather low in Switzerland, Novartis AG considers the restriction on registration restrictions necessary to prevent a minority shareholder from dominating a General Meeting.
The Articles of Incorporation provide that no nominee shall be registered with the right to vote for more than 0.5% of the registered share capital. The Board of Directors may, upon request, grant an exemption from this restriction if the nominee discloses the names, addresses and the number of shares of the persons for whose account it holds 0.5% or more of the registered share capital. Exemptions are in force for the nominees listed under—under "—Our Shareholders—Shareholdings—Significant Shareholders.Shareholders," and for the nominee Citi Bank, London, which in 2015 requested an exemption, but as of December 31, 2015 was not registered in the Novartis Share Register.
The same restrictions indirectly apply to holders of ADSs as those holding Novartis shares.ADRs.
TheRegistration restrictions on registration contained in the Articles of Incorporation may only be removed bythrough a resolution of the General Meeting of shareholders,Shareholders, with approval of at least two-thirds of the votes represented at the meeting.
Shareholders, ADSADR holders or nominees thatwho are linked to each other or who act in concert to circumvent theregistration restrictions on registration are treated as one person or nominee for the purposes of the restrictions on registration.
No RestrictionRestrictions on Trading ofOf Shares
No restrictions are imposed on the transferability of Novartis shares. The registration of shareholders in the Novartis share registerShare Register or in the ADSADR register kept by JPMorgan Chase Bank does not affect the tradability of Novartis shares or ADSs. No restrictions are imposed by Novartis or JPMorgan Chase Bank on the trading of registered Novartis shares or ADSs.ADRs. Registered Novartis shareholders or ADSADR holders may, therefore, purchase or sell their Novartis shares or ADSsADRs at any time, including prior tobefore a General Meeting regardless of the record date. The record date serves only to determine the right to vote at a General Meeting of Novartis.Meeting.
Change-of-Control Provisions
Change-of-Control Provisions No opting up, no opting out
No Opting Up, No Opting Out
The According to the Swiss Stock Exchange Act provides that(as per January 1, 2016, according to the Swiss Federal Act on Financial Infrastructures), anyone who, who—directly, indirectly or acting in concert with third parties, parties—acquires equity securities exceeding 331/3% of the voting rights of a company—whethercompany (whether or not such rights are exercisable—exercisable) is required to make an offer to acquire all listed equity securities of that
company. A company may raise this threshold to 49% of the voting rights ("opting up") or may, under certain circumstances, waive the threshold ("opting out"). Novartis AG has not adopted any such measures.
Change-of-Control Clauses Change-of-control clauses
ThereIn accordance with good corporate governance and the rules implementing the Minder Initiative, there are no change-of-control clauses (including noand "golden parachutes", special provisions on the cancellationparachute" agreements benefiting Board members, Executive Committee members, or other members of contractual arrangements, agreements concerning specialsenior management. Furthermore, employment contracts with Executive Committee members do not contain notice periods or long-term contractscontract periods exceeding 12 months, waiversor commissions for the acquisition or transfer of lock-up periods for options, shorter vesting periods,enterprises or severance payments.
General Compensation Provisions
Non-executive members of the Board of Directors
Compensation of non-executive members of the Board includes fixed compensation elements only. In particular, non-executive members of the Board of Directors shall receive no company contributions to any pension plan, no performance-related elements, and no additional contributions to pension funds) benefiting Board members. With respect tofinancial instruments (e.g., options).
Members of the Executive Committee
The members of the Executive Committee see below under—Our Management—Contracts with Membersreceive fixed and variable performance-related compensation award. Fixed compensation comprises of the Executive Committee.base salary and may include other elements and benefits such as contributions to pension plans. Variable compensation may be structured into short-term and long-term compensation elements. Short-term variable compensation elements shall be governed by performance metrics that take into account the performance of Novartis and/or parts thereof, and/or individual targets. Achievements are generally measured based on the one-year period to which the short-term compensation relates. The long-term compensation plans are based on performance metrics that take into account strategic objectives of Novartis (such as financial, innovation, shareholder return and/or other metrics). Achievements are generally measured based on a period of not less than three years.
If the maximum aggregate amount of compensation already approved by the General Meeting is not sufficient to cover the compensation of newly appointed or promoted Executive Committee members, Novartis may pay out compensation, in a total amount up to 40% of the total maximum aggregate amount last approved for the Executive Committee per compensation period, to newly appointed or promoted Executive Committee members.
For detailed information on the compensation of the Board and Executive Committee, see "—Item 6.B Compensation".
All Board members, the Chairman, and Compensation Committee members are elected individually.
Board members are elected to terms of office of three years or lessannually and individually by shareholders at the General Meetings. The termsMeeting. Board members whose term of office among Board membershas expired are to be coordinated so that approximately one-third of all Board members are subject each year to re-election or election. Under Swiss law, a General Meeting of shareholders is entitled to remove any Board member at any time, regardless of his or her remaining term of office.immediately eligible for re-election.
The average tenure of Board members is eight years and the average age is 62.six years. A Board member must retire after reaching age 70. Under special circumstances, shareholders may grant an exemption from this rule and re-elect a Board member for additional terms of officeoffice. There is no mandatory term limit for Board members, so as not to lose the value of no more than three years at a time.the insight and knowledge of the company's operations and practices that long-serving Board members have developed.
Name | Nationality | Year of birth | First election at AGM | Last election at AGM | End of current Term | Nationality | Year of birth | First election at AGM | Last election at AGM | End of current term | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Daniel Vasella, M.D. | CH | 1953 | 1996 | 2010 | 2013 | |||||||||||||||||||||||||
Ulrich Lehner, Ph.D. | D | 1946 | 2002 | 2011 | 2014 | |||||||||||||||||||||||||
Joerg Reinhardt, Ph.D. | D | 1956 | 2013 | 2015 | 2016 | |||||||||||||||||||||||||
Enrico Vanni, Ph.D. | CH | 1951 | 2011 | 2015 | 2016 | |||||||||||||||||||||||||
Nancy C. Andrews, M.D., Ph.D | US | 1958 | 2015 | 2015 | 2016 | |||||||||||||||||||||||||
Dimitri Azar, M.D. | US | 1959 | 2012 | — | 2015 | US | 1959 | 2012 | 2015 | 2016 | ||||||||||||||||||||
William Brody, M.D., Ph.D. | US | 1944 | 2009 | 2012 | 2014 | |||||||||||||||||||||||||
Verena A. Briner, M.D. | CH | 1951 | 2013 | 2015 | 2016 | |||||||||||||||||||||||||
Srikant Datar, Ph.D. | US | 1953 | 2003 | 2012 | 2015 | US | 1953 | 2003 | 2015 | 2016 | ||||||||||||||||||||
Ann Fudge | US | 1951 | 2008 | 2011 | 2014 | US | 1951 | 2008 | 2015 | 2016 | ||||||||||||||||||||
Pierre Landolt, Ph.D. | CH | 1947 | 1996 | 2011 | 2014 | CH | 1947 | 1996 | 2015 | 2016 | ||||||||||||||||||||
Enrico Vanni, Ph.D. | CH | 1951 | 2011 | 2011 | 2014 | |||||||||||||||||||||||||
Andreas von Planta, Ph.D. | CH | 1955 | 2006 | 2012 | 2015 | CH | 1955 | 2006 | 2015 | 2016 | ||||||||||||||||||||
Dr. Ing. Wendelin Wiedeking | D | 1952 | 2003 | 2012 | 2015 | |||||||||||||||||||||||||
Marjorie M.T. Yang | CHN | 1952 | 2007 | 2010 | 2013 | |||||||||||||||||||||||||
Rolf M. Zinkernagel, M.D. | CH | 1944 | 1999 | 2012 | 2014 | |||||||||||||||||||||||||
Charles L. Sawyers, M.D. | US | 1959 | 2013 | 2015 | 2016 | |||||||||||||||||||||||||
William T. Winters | UK/US | 1961 | 2013 | 2015 | 2016 |
Board Member QualificationsProfile
Board Composition
The Corporate Governance and Nomination Committee determines the criteria for the selectioncomposition of the Board membersmust align with our status as a listed company, business portfolio, geographic reach and culture. The Board committee members. Factors considered include skills and knowledge, diversity of viewpoints, professional backgrounds and expertise, business and other experience relevant to the business of Novartis, the ability and willingness to commit adequate time and effort to Board and committee responsibilities, the extent to which personality, background, expertise, knowledgemust be diverse in all aspects. Knowledge and experience will interactin the
following fields must be represented on the Board: leadership and management; healthcare, life sciences and medicine; research and development; engineering and technology; marketing; banking, finance and accounting; human resources; legal and public affairs; and risk management.
Individual Board Member Profile
Board members should have the following personal qualities:
The biographiesinterest
Board members (pages 199–204) set outmembers' biographies (see "—Item 6.A Directors and Senior Management") highlight the particularspecific qualifications that led the Board of Directors to conclude that a Board member isthey are qualified to serve on the Board, of Directors, creating a Board that todaywhich is diverse in terms of background, qualifications,credentials, interests and skills.
DiversityThe diversity of a Boardboard of Directorsdirectors is a critical success factor forto its effectiveness and, thus,effectiveness. Thus, when the Governance, Nomination and Corporate Governance and NominationResponsibilities Committee of Novartis identifies new Board member candidates for the purpose of proposing these to thebe proposed to shareholders for election, to maintain or even improve diversitythe maintenance and improvement of the BoardBoard's diversity is an important criteria.criterion. The Board's aspiration is to have a diverse Board in all aspects of diversity.aspects. This includes diversity in terms of geographic origin,nationality, gender, background gender, race, faith, education,and experience, viewpoint,age, tenure, viewpoints, interests, and technical and interpersonal skills.
This has resulted in the Novartis Board being diverse in the above aspects.
Role of the Board of Directors and the Boardits Committees
The Board of Directors is responsible for the overall direction and supervision of the management and holds the ultimate decision-making authority for Novartis AG, except for those decisions reserved to thefor shareholders.
The Board of Directors has delegated certain responsibilities to five committees: Chairman's Committee, Compensation Committee, Audit and Compliance Committee, Corporate Governance and Nomination Committee and Risk Committeecommittees, as set out below (responsibilitiesbelow. Responsibilities described with the terms "overseeing" or "reviewing" are subject to final approval byBoard approval. The committees enable the Board to work in an efficient and effective manner, ensuring a thorough review and discussion of Directors).issues, while giving the Board more time for deliberation and decision-making. Moreover, committees
ensure that only Board members who are independent oversee audit and compliance, governance and compensation—as only independent Board members are delegated in the respective committees.
Responsibilities | Number of meetings held 2015/approximate average duration (hrs) of each meeting | Link | ||||
---|---|---|---|---|---|---|
| ||||||
The primary responsibilities of the Board of Directors include: | Nancy C. Andrews(3) Dimitri Azar Srikant Datar Ann Fudge Pierre Landolt Andreas von Planta | 8 10 10 10 | Articles of Incorporation of Novartis AG Regulations of the Board of Directors, its Committees and the Executive Committee of Novartis AG (Board Regulations) corporate-governance | |||
|
| |||||
The primary responsibilities of this committee include: | Srikant Datar(1),(2) Dimitri Azar Enrico Vanni Andreas von Planta | 7 7 7 7 | Charter of the Audit and Compliance Committee www.novartis.com/ corporate-governance | |||
Compensation Committee | 5/2:30 | |||||
The primary responsibilities of | Srikant Datar William T. Winters(4) | 5 5 5 4 | Charter of the corporate-governance |
Responsibilities | Membership comprises | Number of meetings held in 2015/approximate average duration (hrs) of each meeting attendance | Link | |||
---|---|---|---|---|---|---|
Governance, Nomination and Corporate Responsibilities Committee | 3/2:00 | |||||
The primary responsibilities of this committee include: | Pierre Landolt(1) Ann Fudge Charles L. Sawyers Andreas von Planta | 3 2 3 3 | Charter of the Governance, Nomination and Corporate Responsibilities Committee www.novartis.com/corporate-governance |
Responsibilities | Membership comprises | Number of meetings held 2015/approximate average duration (hrs) of each meeting | Link | |||
---|---|---|---|---|---|---|
|
| |||||
The primary responsibilities of this committee include: | Dimitri Azar Charles L. Sawyers Enrico Vanni | Charter of the | ||||
| 4/ | |||||
The primary responsibilities of this committee include: | Andreas von Planta(1) Verena A. Briner Srikant Datar Ann Fudge | 4 4 4 4 | Charter of the Risk Committee |
The Functioning of the Board of Directors
The Novartis Board of Directors takes decisions as a whole, supported by its five Board committees (Chairman's Committee, Compensation Committee, Audit and Compliance Committee, Corporate Governance and Nomination Committee and Risk Committee).committees. Each Board committee has a written charter outlining its duties and responsibilities, and is led by a Chair elected by the Board of Directors.Board-elected chairman.
The Board of Directors and its Board committees meet regularly throughout the year. The Chairschairmen set the agendas of their meetings.meeting agendas. Any Board member may request a Board or committee meeting, a meeting of a Board committee orand the inclusion of an item on the agenda of such meetings.item. Before meetings, Board members are provided, in advance of meetings, withreceive materials intended to help them prepare them to discuss the items on the agenda.discussions and decision-making.
Joerg Reinhardt has been independent, non-executive Chairman since August 1, 2013. He has both industry and Novartis experience, and meets the company's independence criteria. As independent Chairman, he can lead the Board to represent the interests of all stakeholders, being accountable to them and creating sustainable value through effective governance. The Chairman providesindependent chairmanship also ensures an appropriate balance of power between the Board and Executive Committee.
In this role, Joerg Reinhardt:
Enrico Vanni has been independent, non-executive Vice Chairman since February 22, 2013.
In this role, he:
The Board of Directors has meetings with the members of the Executive Committee members as well as private meetings without membersthem.
Table of the Executive Committee.
Topics addressed in the meetings with the Executive Committee include strategy, business reviews and major projects, investments and transactions. Topics addressed in private meetings include performance evaluation of top management, succession planning and Board self-evaluation.Contents
In 2012,2015, there were nine meetings of the10 Board of Directors and three meetings of the independent Board members. Given that as of February 1, 2013meetings. Because all Board members will beare independent, no separate meetings of the independent Board members led by the Vice Chairman, will bewere held going forward.in 2015.
Key activities of our Board and committees in 2015
The Board meeting agendas in 2015 included the following standard topics: strategy; Group targets; personal objectives of the CEO; mergers and acquisitions, and business development and licensing review; financial and business reviews; major projects; investments and transactions; the Annual Report; and the General Meeting agenda. Topics addressed during private meetings included Board self-evaluation and performance assessment of senior management, as well as succession planning.
In addition, in 2015 our Board and its committees focused on a number of special topics, including:
Board of Directors:
Our biosimilars development pipeline, the pricing and competitive environment in pharmaceuticals, the rollout of our new Values and Behaviors, a review of our brand identity, the proposal to revise our Articles of Incorporation and Board regulations to implement the "Minder Legislation," the analysis of the AGM 2015 and investor feedback from our corporate governance roadshow, the issue of new bonds, and the renewal of existing credit facilities.
Governance, Nomination and Corporate Responsibilities Committee:
Investor feedback from our corporate governance roadshow and how to address it; the search profile for and discussion of potential new Board members to strengthen the general management and financial expertise background of our Board; a review of our corporate responsibility activities, including the proposal to introduce an "Access Brand" (a first-of-its-kind portfolio of products aimed at increasing access to medicines in low- and low-middle-income countries); and reviewing the activities of the Novartis Foundation (a philanthropic organization pioneering innovative healthcare models that have a transformational impact on the health of the poorest populations).
Compensation Committee:
The metrics that underpin the Annual Incentive and the performance-based Long-Term Incentive plans; the constituents of the Novartis healthcare peer group used for benchmarking and variable compensation purposes; the rollout of the compensation system of Executive Committee members to the broader Novartis executive group, as well as approving the Long-Term Incentive plans for the rest of the Novartis employee population; investor feedback from the corporate governance roadshow; and expense policies.
Audit and Compliance Committee:
The accounting of the portfolio transformation, the Novartis IT security organization and challenges, the roles of the Audit and Compliance Committee and the Risk Committee to avoid potential gaps or overlaps, working toward integrated assurance, specific accounting and compliance topics, compensation disclosures, the revision of the Internal Audit Charter, and the definition of growth products.
Risk Committee:
Key business risks at Alcon; pharmacovigilance and quality preparedness; benchmarking the enterprise risk management organization and processes; risks related to pricing, data privacy, IT security, and data integrity in manufacturing and development; and risks and opportunities related to the Step Change program (a program evolving our approach to business practices and customer relationships to strengthen our focus on performance with integrity).
Research & Development Committee:
The Novartis portfolio of R&D projects in the following areas: respiratory diseases; infectious diseases; autoimmune, transplantation and immunological diseases; cardiovascular and metabolic diseases; immuno-oncology; and musculoskeletal diseases. The committee also supported the setting and evaluation of innovation-related long-term performance metrics.
Dr. Alex Krauer and Dr. Daniel Vasella have been appointed Honorary Chairmen in recognition of their significant achievements on behalf of Novartis. They are not provided with Board documents and do not attend Board meetings.
The independence of Board members is a key corporate governance issue. An independent Board member is one who is independent of management and has no business or relationship that could materially interfere with the exercise of objective, unfettered and independent judgment. Only with a majority of Board members being independent can the Board fulfill its obligation to represent the interests of shareholders, being accountable to them and creating sustainable value through an effective governance of Novartis. Accordingly, Novartis established independence criteria that are intended to reflectbased on international best-practice standards. These independence criteria (last revised on December 14, 2011) can be foundstandards and outlined on the Novartis website:www.novartis.com/investors/governance-documents.shtml
www.novartis.com/investors/governance-documents.shtml.
aware—not only the explicit formal independence criteria. This includes an assessment of whether a Board member is truly independent, in character and judgment, from any member of the senior management and from any of his/her current or former colleagues.
these activities are supervisory and not consultatory in nature and do not affect Dr. Zinkernagel's or Dr. Brody's independence as a Board member.
Relationship of Non-Executive Board Members with Novartis
With the exception of Dr. Vasella none of theNo Board membersmember is or was a member of the management of Novartis AG or of any other Novartis Group company in the last three financial years preceding 2012.
up to December 31, 2015. There are no significant
business relationships of any Board member with Novartis AG or with any other Novartis Group company.
Mandates Outside the Novartis Group
No Board member may hold more than 10 additional mandates in other companies, of which no more than four shall be in other listed companies. Chairmanships of the boards of directors of other listed companies count as two mandates. Each of these mandates is subject to Board approval.
The following mandates are not subject to these limitations:
"Mandates" means those in the supreme governing body of a legal entity that is required to be registered in the commercial register or a comparable foreign register. Mandates in different legal entities that are under joint control are deemed one mandate.
The Board may issue regulations that determine additional restrictions, taking into account the position of the respective member.
No loans or credits shall be granted to members of the Board.
Board Performance and Effectiveness Evaluation of the Board
Process
Every year theThe Board conducts an evaluation ofannual review to evaluate its performance and effectiveness. Thethat of individual committees and members. As part of this process, is kicked-off by each Board member completingcompletes a questionnaire on the performance and effectiveness of the Board and of each Board committee ofhis/her committees, which he/she is a member. This is thenlays the basisgroundwork for a deep, qualitative review of the Board's performance. The review is led by the Chairman. The Chairman who holds individualhas discussions with each Board member, followed-up by discussionsand then with the entire Board. Further, the committee evaluations are discussed by the full Boardrespective committee and by each Board Committee. Identified gaps and shortcomingsthe results are debriefed to the Board. Any suggestion for improvement is recorded and related remediation actions are agreed.agreed upon.
On a regular basisPeriodically, this internal process is extended to cover individual Board member assessments and/or the process is conducted by an independent outside consultant. In 2014, an independent performance and effectiveness evaluation of the Board and its committees, including an individual Board member assessment, was conducted by the independent expert company Russell Reynolds Associates. In 2015, the performance evaluation was conducted internally.
Content and Results
The performance review examinesexamined the performance and effectiveness, strengthand strengths and weaknesses, of individual Board members and forof the full Board and each Board committee. The
This review includes composition, structure,covered topics including Board composition; purpose, scope and responsibilities; processes tasks and governance of the Board and its committees, effectiveness ofcommittees; meetings behavior,and pre-reading material; team dynamics and interactions, quality of briefing materials and presentations, follow-up actions on decisions, relationship to senior management, and the roleeffectiveness; and leadership and culture.
The review also evaluated the ability and willingness of each Board member to commit adequate time and effort to his/her responsibilities as provided for in the charter of the Chairman.Governance, Nomination and Corporate Responsibilities Committee.
The listresults were discussed at the January 2016 meeting of performance criteria is customized for each committee, addressing their specific tasksthe Board. It was concluded that the Board and responsibilities.its committees operate effectively.
Information and Control Systems of the Board of Directors vis-à-visvis-a-vis Management
Information on the Management
The Board of Directors ensures that it receives sufficient information from the Executive Committee to perform its supervisory duty and to make decisions that are reserved for the Board of Directors. The authority of the Board of Directors to determine the compensation of the members of the Executive Committee is an important element to ensure the alignment of Executive Committee members with the interests of Novartis and its shareholders.
it. The Board of Directors obtains thethis information required to perform its duties through several means:
Board Committees
Board committees regularly meet with management and, at times, outside consultants to review the business, better understand applicable laws and policies affecting the Group, and support the Board of Directors and the management in meeting the requirements and expectations of stakeholders and shareholders.
In particular, the Chief Financial Officer (CFO), the Group General Counsel, and representatives of the external auditors are invited to meetings of the Audit and Compliance Committee. Furthermore,Committee meetings. Additionally, the Headsheads of Internal Audit, Financial Reporting and& Accounting, Compliance and Quality, as well as the Head of the Global Business Practices Officers,Office report on a regular basis to the Audit and Compliance Committee.
The Audit and Compliance Committee This committee reviews financial reporting processes on behalf of the Board of Directors.Board. For each quarterly and annual release of financial information, the Disclosure Review Committee reviewsis responsible for ensuring the release for accuracy and completeness of disclosures. The Disclosure Review Committee, which is a management committee, is chaired by the Chief Financial OfficerCFO and is attended byincludes the CEO; the Group General Counsel,Counsel; the Headsheads of the Divisions,divisions, Novartis Business Services (NBS) and the HeadsNovartis Institutes for BioMedical Research (NIBR); the heads of Financefinance of the Divisionsdivisions, NBS and NIBR; and the Headsheads of the following Corporate Functions:corporate functions: Treasury, Tax, Financial Reporting and& Accounting, Internal Audit and Investor Relations. DecisionsThe Audit and Compliance Committee reviews decisions made by the Disclosure Review Committee are reviewed by the Audit and Compliance Committee before publication of the quarterly and annual releases.releases are published.
The Risk Committee oversees the risk management system and processes, as well asand also reviews the risk portfolio of the Group to ensure appropriate and professional management of the risks.risk management. For this purpose, the CorporateGroup Risk Management functionOffice and the risk owners of the Divisionsdivisions report on a regular basis to the Risk Committee. The Group General Counsel, andthe Head of Group Risk, the Head of Internal Audit, and other senior executives are also invited to the meetings.these meetings on a regular basis.
Novartis Management Information System
Novartis produces comprehensive, consolidated (unaudited) financial statements on a monthly basis for the total Group and its divisions. These are typically available within ten10 days of the end of the month and include the following:
Constant currencies, core results, free cash flow, net debt and related target figures are non-IFRS measures. An explanation of non-IFRS measures can be found in "Item 5. Operating and Financial Review and Prospects—5.A Operating Results—Non-IFRS Measures as Defined by Novartis."
The above information is made available to theBoard members of the Board on a monthly basis. An analysis of the key deviations from the prior year or target is also provided.
The Board also receives ontwice a quarterly basisyear an outlook of the full yearfull-year results in accordance with IFRS and Core, togethercore, along with related commentary prior to the release of the quarterly results.
On an annual basis, in the fourth quarter of the year, the Board receives and approves the operating and financial targets for the following year.
In the middle of the year, the Board also reviews and approves the Strategic Planstrategic plan for the next five years, and thewhich includes a projected consolidated income statement in USDUS dollars prepared in accordance with IFRS and Corecore (as defined by Novartis) contained in the Plan..
The Board does not have direct access to Novartis'the company's financial and management reporting systems but can, at any time, request more detailed financial information on any aspect that is presented to it.
Internal Audit
The Internal Audit function carries out operational and system audits in accordance with an audit plan approved by the Audit and Compliance Committee; assistsCommittee. This function helps organizational units in the accomplishment ofaccomplish objectives by providing an independent approach to the evaluation, improvement and effectiveness of their internal control framework;framework. It prepares reports regardingon the audits it has performed;performed, and reports actual or suspected irregularities to the Audit and Compliance Committee and the Chairman.CEO. The Audit and Compliance Committee regularly reviews the scope of Internal Audit thescope, audit plans and the results of the internal audits.results.
Risk Management
The CorporateGroup Risk Management function reports toOffice is overseen by the Board's independent Risk Committee of the Board of Directors.Committee. The Compensation Committee works closely with the Risk Committee to ensure that the compensation system does not lead to excessive risk-taking by management (for details, see our Compensation Report)"—Item 6.B Compensation").
Organizational and process measures have been designedestablished to identify and mitigate risks at an early stage. Organizationally, the individual divisions and functions are responsible for risk and risk mitigation, with specialized corporate functions, functions—such as Group Finance, Group Quality Operations,Assurance, Corporate
Health, Safety and Environment, and Business Continuity Management and Integrity & Compliance, and the Business Practices Office—providing support and controlling the effectiveness of risk management by the Divisionsdivisions and functions in these respective areas.
Relations with Shareholders
Communication with shareholders allows the shareholders to be better informed on Novartis' strategy, business operations and governance, and the Board to learn about expectations and concerns of the shareholders and to address these.
The CEO, with the investor relations team and supported by the Chairman, is responsible for ensuring effective communication with shareholders.
Novartis communicates with its shareholders through the Annual General Meeting, meetings with groups of shareholders or with individual shareholders, and through written or electronic communication with shareholders.
At the Annual General Meeting the Chairman and the Vice-Chairman, the members of the Executive Committee and representatives of the external auditors are present and can answer questions of shareholders. Meetings with shareholders may be attended by the Chairman, CEO, CFO, members of the Executive Committee and other members of senior management.
Topics discussed with shareholders include strategy, business performance and corporate governance.
Composition of the Executive Committee Composition
The Executive Committee is headed by the Chief Executive Officer. TheCEO. Its members of the Executive Committee are appointed by the Board of Directors. The Chairman may appoint or remove non-voting Permanent Attendees to attend the meetings of the Executive Committee. As of December 31, 2012, there was 1 Permanent Attendee attending meetings of the Executive Committee.Board.
The organizational structureThere are no contracts between Novartis and the details of the responsibility of the Executive Committee are set forth in the Board Regulations (www.novartis.com/corporate-governance).
The Board of Directors has not concluded any contracts with third parties whereby Novartis would delegate any business management tasks to manage the business.such third parties.
Executive Committee Role and Functioning of the Executive Committee
The Board of Directors has delegated to the Executive Committee the coordinationoverall responsibility for and oversight of the Group's business operations.operational management of Novartis. This includes:
The Executive Committee is supported by two sub-committees: The Deal Committee (members are the CEO, CFO, Division Head Pharmaceuticals, Group General Counsel, and Head of DirectorsBiomedical Research) reviews important acquisitions and divestments of companies and businesses, and business development deals, and makes recommendations to the Executive Committee.
In additionDisclosure Committee (members are the CEO, CFO, and Group General Counsel) determines whether an event constitutes information that is material to other duties that may be assigned by the BoardGroup, determines the appropriate disclosure and update of Directors, the Chief Executive Officer, supported by the Executive Committee, is responsible overall for the managementsuch information, and reviews media releases concerning such information.
In addition to other Board-assigned duties, the business,CEO leads the Executive Committee, buildsbuilding and maintaining an effective executive team. With the support of the Executive Committee, the CEO:
Mandates Outside the Novartis with major customers, financial analysts, investorsGroup
No Executive Committee member may hold more than six additional mandates in other companies, of which no more than two additional mandates shall be in other listed companies. Each of these mandates is subject to Board approval. Executive Committee members are not allowed to hold chairmanships of the boards of directors of other listed companies.
The following mandates are not subject to these limitations:
"Mandates" means those in the media.supreme governing body of a legal entity that is required to be registered in the commercial register or a comparable foreign register. Mandates in different legal entities that are under joint control are deemed one mandate.
The Board may issue regulations that determine additional restrictions, taking into account the position of the respective member.
Contracts With Members of the Executive CommitteeLoans and Credits
In accordance with good corporate governance, employment contracts withNo loans or credits shall be granted to members of the Executive Committee do not contain unusually long notice periods, change-of-control clauses (including no "golden parachutes", special provisions on the cancellation of contractual arrangements, agreements concerning special notice periods or long-term contracts exceeding 12 months, waivers of lock-up periods for options, shorter vesting periods, and no additional contributions to pension funds) or severance payments.Committee.
OUR INDEPENDENT EXTERNAL AUDITORS
Duration of the Mandate and Terms of Office of the Auditors
Based on a recommendation by the Audit and Compliance Committee, the Board of Directors nominates an independent auditor for election at the Annual General Meeting.AGM. PricewaterhouseCoopers (PwC) assumed its existing auditing mandate for Novartis in 1996. Peter Kartscher,Bruno Rossi, auditor in charge, began serving in his role in 2013, and Michael P. Nelligan,Stephen Johnson, global relationship partner, began serving in their respective roleshis role in 2009.2014. The Audit and Compliance Committee ensures that the auditor in charge isthese partners are rotated at least every five years.
Information to the Board of Directors and the Audit and Compliance Committee
The independent auditor, PwC is responsible for opiningproviding an opinion on whether the audited consolidatedGroup-consolidated financial statements comply with International Financial Reporting Standards (IFRS)IFRS and Swiss law, and whether the separate parent company financial statements of Novartis AG comply with Swiss law. Additionally, PwC is responsible for opining on the effectiveness of internal control over financial reporting.reporting, on the Compensation Report as well as on the corporate responsibility reporting of Novartis.
The Audit and Compliance Committee, acting on behalf of the Board, of Directors, is responsible for overseeing the activities of PwC. During 2012, the Audit and Compliance CommitteeIn 2015, this committee held 6seven meetings. At eachPwC was invited to six of these meetings PwC was invited to attend during the discussion of agenda items that dealt with accounting, financial reporting or auditing matters, and any other matters relevant for theirto its audit.
On an annual basis, PwC provides to the Audit and Compliance Committee thewith written disclosures required by Rule 3526, "Communications with Audit Committees Concerning Independence," of the US Public Company Accounting Oversight Board (PCAOB), and the Audit and Compliance Committeecommittee and PwC discuss PwC's independence from Novartis and Novartis'its management.
The Audit and Compliance Committee recommended to the Board of Directors,to approve the audited Group-consolidated financial statements and the Board of Directors approved, inclusion of the auditedseparate parent company financial statements in the Annual Reportof Novartis AG for the year ended December 31, 2012.2015. The Board proposed the acceptance of these financial statements for approval by the AGM.
The Audit and Compliance Committee on a regular basis,regularly evaluates the performance of PwC and once yearly, based on a performance evaluation,year determines whether PwC should be proposed to the Annual General MeetingAGM for election. Also once yearly,a year, the auditor in charge and the global relationship partner report to the Board of Directors on thePwC's activities of PwC during the current year and on the audit plan for the coming year andyear. They also answer any questions or concerns Board members might have onabout the performance of PwC, or onabout the work PwCit has conducted or is planning to conduct.
In order toTo assess the performance of PwC, the Audit and Compliance Committee requires a self-evaluation report from PwC, holds private meetings with the Chief Executive Officer,CFO and the Chief Financial Officer and with theGlobal Head of Internal Audit and, if necessary, obtains an independent external assessment. The Board of Directors also meets with the auditor in charge and the global relationship
partner. Criteria applied for the performance assessment of PwC include an evaluation of its technical and operational competence, independentcompetence; its independence and objective view, sufficientobjectivity; the sufficiency of the resources employed,it has employed; its focus on areas of significant risk to Novartis,Novartis; its willingness to probe and challenge,challenge; its ability to provide effective, practical recommendationsrecommendations; and openthe openness and effective communicationeffectiveness of its communications and coordination with the Audit and Compliance Committee, the Internal Audit function, and management.
Pre-ApprovalApproval of Audit and Non-Audit Services
The Audit and Compliance Committee's pre-approval is requiredCommittee approves a budget for all services provided by PwC. These services may include audit services whether recurring or non-recurring in nature, as well as audit-related services tax services and other services.
Pre-approval is detailed asnot related to the particular services or categories of services, and is subject to a specific budget.internal controls over financial reporting. PwC and management report, on areports quarterly basis, to the Audit and Compliance Committee regarding the extent of services
provided in accordance with thisthe applicable pre-approval and the fees for the services performed to date. The Audit and Compliance Committee may also pre-approve additionalindividually approves all audit-related services on a case-by-case basis.relating to internal controls over financial reporting, tax services and other services prior to the start of work.
Auditing andAudit And Additional Fees
PwC charged the following fees for professional services rendered for the 12-month periods ended December 31, 20122015 and December 31, 2011:2014:
| 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ thousands | $ thousands | $ m | $ m | ||||||||||
Audit Services | 28,960 | 30,060 | 25.9 | 29.7 | ||||||||||
Audit-Related Services | 2,300 | 2,480 | 1.7 | 2.0 | ||||||||||
Tax Services | 500 | 1,550 | 0.0 | 0.2 | ||||||||||
Other Services | 190 | 190 | 0.1 | 0.1 | ||||||||||
| | | | | | | | |||||||
Total | 31,950 | 34,280 | 27.7 | 32.0 | ||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
Audit Services are defined as the standard auditservices include work performed each year in order to issue opinions on theGroup-consolidated financial statements and parent company and consolidated financial statements of the Group,Novartis AG, to issue opinions relating to the effectiveness of the Group's internal controlscontrol over financial reporting, and to issue reports on local statutory financial statements. Also included are audit services that generally can only be provided by the Groupstatutory auditor, such as auditingthe audit of the Compensation Report, audits of non-recurring transactions, and implementationaudits of the adoption of new accounting policies, audits of accounting infrastructure system controls, pre-issuanceinformation systems and the related control environment, reviews of quarterly financial results, as well as procedures required to issue consents and comfort letters and any other auditletters.
Audit-related services required for SEC or other regulatory filings.
Audit-Related Services include those other assurance services provided by the independent auditor but not restricted to those that can only be provided by the auditor signing the audit report.statutory auditor. They comprise amounts forinclude services such as acquisition due diligence and related audits, audits of pension and other employee benefit plans, IT infrastructure control assessments, contractualcontract audits of third-party arrangements, assurance services on corporate citizenship reporting andresponsibility assurance, compliance with corporate integrity agreements, and consultation regarding new accounting pronouncements.other audit-related services.
Tax Servicesservices represent tax compliance, tax returns, assistance with historical tax matters and other tax-related services.
Other Servicesservices include training in the finance area, advice for process improvements, benchmarking studies, assessment of certain non-financial processes and license fees for use of accounting and other reporting guidance databases.
OUR CORPORATE GOVERNANCE FRAMEWORK
Novartis AG is subject to the laws of Switzerland, in particular Swiss company and securities laws, and to the securities laws of the US as applicable to foreign private issuers of securities.
In addition, Novartis AG is subject to the rules of the SIX Swiss Exchange, including the Directive on Information Relating to Corporate Governance.
Novartis AG is also subject to the rules of NYSE as applicable to foreign private issuers of securities. NYSE requires Novartis AG to describe any material ways in which its corporate governance differs from that of domestic US companies listed on the exchange. These differences are:
Swiss Code of Best Practice for Corporate Governance
Novartis applies the Swiss Code of Best Practice for Corporate Governance.
Novartis Corporate Governance Standards
Novartis has incorporated the corporate governance standards described above into the Articles of Incorporation and the Regulations of the Board of Directors, its Committees and the Executive Committee of Novartis AG (www.novartis.com/corporate-governance).
The Governance, Nomination and Corporate Responsibilities Committee regularly reviews these standards and principles, taking into account best practices, and recommends improvements to the corporate governance framework for consideration by the full Board.
Additional corporate governance information can be found on the Novartis website: www.novartis.com/corporate-governance.
Printed copies of the Novartis Articles of Incorporation, Regulations of the Board, and Charters of Board Committees can be obtained by writing to: Novartis AG, Attn: Corporate Secretary, Lichtstrasse 35, CH-4056 Basel, Switzerland.
The Group Structure of Novartis
Novartis AG and Group Companies
Under Swiss company law, Novartis AG is organized as a corporation whichthat has issued shares of common stock to investors. The registered office of Novartis AG is Lichtstrasse 35, CH-4056 Basel, Switzerland.
Business operations are conducted through Novartis Group companies. Novartis AG, a holding company, owns or controls directly or indirectly all companiesentities worldwide belonging to the Novartis Group. Except as described below, the shares of these companies are not publicly traded. The most importantprincipal Novartis subsidiaries and associated companies are listed in "Item 18. Financial Statements—Note 31 to the Group's consolidated financial statements.32."
Divisions
The businesses of Novartis are divided on a worldwide basis into sixthree operating divisions,divisions: Pharmaceuticals, Alcon (eye care), Vaccines and Diagnostics, Sandoz (generics). In addition, there are NBS (shared services organization, delivering services to the divisions), Over-the-CounterNIBR (the company's global pharmaceutical research organization), and Group Corporate activities. In 2015, Animal Health and Corporate activities.Vaccines were divested, and OTC was brought into a joint venture with GlaxoSmithKline's (GSK) business in this area—with Novartis holding a 36.5% minority stake in this joint venture.
Majority Holdings in Publicly TradedPublicly-traded Group Companies
The Novartis AG holds 76%Group owns 75% of Novartis India Limited, with its registered office in Mumbai, India, and listed on the Bombay Stock Exchange (ISIN INE234A01025, symbol: HCBA). The total market value of the 24%25% free float of Novartis India Limited was $92.6$97.6 million at December 31, 2012,2015, using the quoted market share price at the year end. Applying this share price to all the shares of the company, the market capitalization of the whole company was $392.5$390.5 million and that of the shares owned by Novartis was $299.9$292.9 million.
Significant Minority Holdings in Publicly Traded CompaniesShareholding owned by the Novartis Group
The Novartis AG holds
The Novartis Group owns a 36.5% share of Idenix Pharmaceuticals, Inc., with its registered office in Delaware, USA,a joint venture created by GSK and listed on NASDAQ (Valor No. 1630029, ISIN US45166R2040, symbol: IDIX). The total market valueNovartis, which combined the Novartis OTC and the GSK Consumer Healthcare businesses. Novartis holds four of the 75.1% free float of Idenix Pharmaceuticals, Inc. was $487.7 million at December 31, 2012, using the quoted market share price at the year end. Applying this share price to all the shares11 seats of the company the market capitalizationjoint venture's board. Furthermore, Novartis has certain minority rights and exit rights, including a put option that is exercisable as of the whole company was $649.3 million and that of the shares owned by Novartis was $161.6 million. Novartis does not exercise control over Idenix Pharmaceuticals, Inc., which is independently governed, managed and operated.
Novartis makes political contributions to support the political dialogue on public policy issues of relevance to Novartis, such as healthcare innovation and access to medicines.
Political contributions made by Novartis are not intended to give rise to any obligations of the party receiving it. Moreover, rules and procedures are in place to make sure that political contributions are never made with the expectation of a direct or immediate return for Novartis, and that they fully comply with applicable laws, regulations and industry codes.
Novartis only makes political contributions in countries where such contributions by corporations are legal and where political contributions from corporations are considered to reflect "good corporate citizenship." Moreover, Novartis only makes modest political contributions so as to not create any dependency from the political parties receiving these contributions.
In 2015, Novartis made political contributions totaling approximately $1.13 million, thereof approximately $680,000 in Switzerland, $235,000 in the US, $150,000 in Japan, $45,000 in Australia, $11,000 in Canada, and $8,000 in the UK. In addition, in the US, a political action committee established by Novartis used funds received from Novartis employees (but not from the company) to make political contributions totaling approximately $280,000.
In Switzerland, Novartis supports political parties that have a political agenda and hold positions that support the strategic interests of Novartis, its shareholders and other stakeholders. Swiss political parties are completely privately financed and the contributions of companies are a crucial part thereof. This private financing of parties is a deeply-rooted trait of the Swiss political culture, and contributing to that system is an important element of being a good corporate citizen.
The CEO, with the CFO and Investor Relations team, supported by the Chairman, is responsible for ensuring effective communication with shareholders to keep them informed of the company's strategy, business operations and governance. Through communication, the Board also learns about and addresses shareholders' expectations and concerns.
Novartis communicates with its shareholders through the AGM, meetings with groups of shareholders and individual shareholders, and written and electronic communications.
At the AGM, the Chairman, CEO and other Executive Committee members, and representatives of the external auditors are present and can answer shareholders' questions. Other meetings with shareholders may be attended by the Chairman, CEO, CFO, Executive Committee members, and other members of senior management.
Topics discussed, in full respect of applicable laws, with shareholders may include strategy, business performance and corporate governance.
Information of ourfor Our Stakeholders
Introduction
Novartis is committed to open and transparent communication with shareholders, financial analysts, customers, suppliers and other stakeholders. Novartis aims to disseminate material developments in its
businesses in a broad and timely manner that complies with the rules of the SIX Swiss Exchange and the NYSE.
Communications
Novartis publishes an Annual Report each year that provides information on the Group's results and operations. In addition, to the Annual Report, Novartis prepares an annual report on Form 20-F that is filed with the SEC.US Securities and Exchange Commission (SEC). Novartis discloses quarterly financial results in accordance with IFRS, and issues press releases from time to time regarding developments in its businesses.business developments.
Novartis furnishes press releases relating to financial results and material events to the SEC via Form 6-K. An archive containing recent Annual Reports, annual reports on Form 20-F, and quarterly results releases, releases—as well as related materials such as slide presentations and conference call webcasts, webcasts—is on the Novartis Investor Relations website (www.novartis.com/investors). The archive is available onat www.novartis.com/investors.
Novartis also publishes a consolidated Corporate Responsibility Performance Report, which details progress and demonstrates the Novartis website: http://www.novartis.com/newsroom/media-releases/index.shtmlcompany's commitment to be a leader in corporate responsibility. This report reflects the best-in-class reporting standard, the Global Reporting Initiative's (GRI) G4 guidelines, and fulfills the company's reporting requirement as a signatory of the UN Global Compact.
Information contained in reports and releases issued by Novartis is only correct and accurate at the time of release. Novartis does not update past releases to reflect subsequent events, and advises against relying on them for current information.
Investor Relations Program
An Investor Relations team manages the Group's interaction with the international financial community. Several events are held each year to provide institutional investors and analysts with various opportunities to learn more about Novartis.
Investor Relations is based at the Group's headquarters in Basel, Switzerland. A partBasel. Part of the team is located in New Yorkthe US to coordinate interaction with US investors. Information is available on the Novartis website: www.novartis.com/investors. Investors are also welcome to subscribe to a free e-mailemail service on this site.
Topic | Information | |
---|---|---|
Share Capital | Articles of Incorporation of Novartis AG Novartis key share data | |
| | |
Shareholder Rights | Articles of Incorporation of Novartis AG Investor Relations information | |
| | |
Board Regulations | Board Regulations www.novartis.com/corporate-governance | |
| | |
Executive Committee | ||
| | |
Novartis Code for Senior Financial Officers | Novartis Code of Ethical Conduct for CEO and Senior Financial Officers | |
| | |
Additional Information | Novartis Investor Relations | |
| | |
The table below sets forth the breakdown of the total year-end number of our full time equivalent employees by main category of activity and geographic area for the past three years.
For the year ended December 31, 2012 (full time equivalents) | Research & Development | Production & Supply | Marketing & Sales | General & Administration | Total | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
For the year ended December 31, 2015 (full time equivalents) | Research & Development | Production & Supply | Marketing & Sales | General & Administration | Total | |||||||||||||||||||||||||||
USA | 8,056 | 8,693 | 7,073 | 2,882 | 26,704 | 7,684 | 6,735 | 6,027 | 2,236 | 22,682 | ||||||||||||||||||||||
Canada and Latin America | 554 | 2,875 | 5,626 | 1,254 | 10,309 | 469 | 1,470 | 4,756 | 1,313 | 8,008 | ||||||||||||||||||||||
Europe | 10,994 | 22,405 | 19,421 | 6,608 | 59,428 | 10,014 | 19,767 | 18,278 | 7,383 | 55,442 | ||||||||||||||||||||||
Asia/Africa/Australasia | 3,569 | 5,613 | 19,855 | 2,246 | 31,283 | 3,413 | 6,819 | 18,611 | 3,725 | 32,568 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Total | 23,173 | 39,586 | 51,975 | 12,990 | 127,724 | 21,580 | 34,791 | 47,672 | 14,657 | 118,700 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | |
For the year ended December 31, 2011 (full time equivalents) | Research & Development | Production & Supply | Marketing & Sales | General & Administration | Total | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
For the year ended December 31, 2014 (full time equivalents) | Research & Development | Production & Supply | Marketing & Sales | General & Administration | Total | |||||||||||||||||||||||||||
USA | 8,269 | 7,785 | 8,930 | 2,258 | 27,242 | 8,147 | 8,283 | 6,529 | 2,341 | 25,300 | ||||||||||||||||||||||
Canada and Latin America | 537 | 2,713 | 5,541 | 1,146 | 9,937 | 515 | 2,435 | 5,309 | 1,327 | 9,586 | ||||||||||||||||||||||
Europe | 11,203 | 20,384 | 19,532 | 6,434 | 57,553 | 11,052 | 23,997 | 20,884 | 7,134 | 63,067 | ||||||||||||||||||||||
Asia/Africa/Australasia | 3,509 | 4,725 | 18,551 | 2,169 | 28,954 | 3,693 | 7,739 | 21,454 | 2,574 | 35,460 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Total | 23,518 | 35,607 | 52,554 | 12,007 | 123,686 | 23,407 | 42,454 | 54,176 | 13,376 | 133,413 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Thereof Continuing Operations | 21,181 | 36,106 | 48,638 | 11,884 | 117,809 | |||||||||||||||||||||||||||
Thereof Discontinued Operations | 2,226 | 6,348 | 5,538 | 1,492 | 15,604 |
For the year ended December 31, 2010 (full time equivalents) | Research & Development | Production & Supply | Marketing & Sales | General & Administration | Total | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
For the year ended December 31, 2013 (full time equivalents) | Research & Development | Production & Supply | Marketing & Sales | General & Administration | Total | |||||||||||||||||||||||||||
USA | 7,995 | 7,186 | 9,942 | 2,464 | 27,587 | 8,255 | 8,600 | 7,253 | 2,963 | 27,071 | ||||||||||||||||||||||
Canada and Latin America | 555 | 2,660 | 5,435 | 1,064 | 9,714 | 570 | 2,943 | 5,611 | 1,325 | 10,449 | ||||||||||||||||||||||
Europe | 11,009 | 19,601 | 19,477 | 6,103 | 56,190 | 11,438 | 23,449 | 20,719 | 7,009 | 62,615 | ||||||||||||||||||||||
Asia/Africa/Australasia | 2,849 | 4,193 | 17,083 | 1,802 | 25,927 | 3,674 | 7,331 | 21,986 | 2,570 | 35,561 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Total | 22,408 | 33,640 | 51,937 | 11,433 | 119,418 | 23,937 | 42,323 | 55,569 | 13,867 | 135,696 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Thereof Continuing Operations | 21,658 | 35,847 | 49,643 | 12,214 | 119,362 | |||||||||||||||||||||||||||
Thereof Discontinued Operations | 2,279 | 6,476 | 5,926 | 1,653 | 16,334 |
As of December 31, 2015, the number of our full time equivalent employees decreased by approximately 15,000 compared to December 31, 2014, mainly due to the completion in 2015 of a series of transactions intended to transform our portfolio of businesses. For more information on these transactions see "Item 18. Financial Statements—Note 2."
Movements in full time equivalents | 2012 | 2011 | |||||
---|---|---|---|---|---|---|---|
Associates as of January 1 | 123,686 | 119,418 | |||||
Separations | (5,708 | ) | (4,572 | ) | |||
Retirements | (934 | ) | (751 | ) | |||
Resignations | (10,273 | ) | (8,297 | ) | |||
External hirings | 20,269 | 17,049 | |||||
Impact of major business combinations | 684 | 839 | |||||
Total associates as of December 31 | 127,724 | 123,686 | |||||
A significant number of our associates are represented by unions or works councils. We have not experienced any material work stoppages in recent years, and we consider our employee relations to be good.
The aggregate amount of our shares owned by currentour non-executive Directors and the current members of our Executive Committee and Permanent Attendeesin 2015 (including persons closely linked to them) as of January 17, 2013December 31, 2015 was 6,732,4661,688,920 shares. This excludes certain unvested shares and other equity rights (such as Restricted Stock Units and Phantom Shares) because such unvested shares and equity rights do not represent shares held by these persons as of December 31, 2015.
The aggregate amount of Novartis share and ADSADR options, including other information regarding the options, held by currentour non-executive Directors and the current members of our Executive Committee and Permanent Attendeesin 2015, as of January 17, 2013December 31, 2015 is set forth below:
Title of Options | Amount of shares called for by the options | Exercise Price(1) (CHF) | Purchase Price (if any) | Expiration Date | Total number of options held | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Novas14 Options | 1 | 57.45 | 0 | February 3, 2014 | 9,559 | |||||||||||
Novas15 Options | 1 | 57.45 | 0 | February 3, 2015 | 34,127 | |||||||||||
Novas16 Options | 1 | 71.30 | 0 | February 5, 2016 | 101,446 | |||||||||||
Novas17 Options | 1 | 72.85 | 0 | February 3, 2017 | 898,530 | |||||||||||
Novas18 Options | 1 | 64.05 | 0 | January 10, 2018 | 273,708 | |||||||||||
Novas19 Options | 1 | 53.65 | 0 | January 18, 2019 | 643,140 | |||||||||||
Novas20 Options | 1 | 55.85 | 0 | January 17, 2020 | 982,610 | |||||||||||
Novas21 Options | 1 | 54.70 | 0 | January 19, 2021 | 141,396 | |||||||||||
Novas22 Options | 1 | 54.20 | 0 | January 19, 2022 | 0 | |||||||||||
Novas23 Options | 1 | 61.70 | 0 | January 17, 2023 | 0 | |||||||||||
Total Novartis Share Options | 3,084,516 | |||||||||||||||
Novartis ADS Options Cycle VII | 1 | $ | 36.31 | 0 | February 4, 2013 | 0 | ||||||||||
Novartis ADS Options Cycle VIII | 1 | $ | 46.09 | 0 | February 3, 2014 | 0 | ||||||||||
Novartis ADS Options Cycle IX | 1 | $ | 47.84 | 0 | February 3, 2015 | 151,659 | ||||||||||
Novartis ADS Options Cycle X | 1 | $ | 54.70 | 0 | February 5, 2016 | 124,876 | ||||||||||
Novartis ADS Options Cycle XI | 1 | $ | 58.38 | 0 | February 3, 2017 | 170,933 | ||||||||||
Novartis ADS Options Cycle XII | 1 | $ | 57.96 | 0 | January 10, 2018 | 193,902 | ||||||||||
Novartis ADS Options Cycle XIII | 1 | $ | 46.42 | 0 | January 18, 2019 | 0 | ||||||||||
Novartis ADS Options Cycle XIV | 1 | $ | 53.70 | 0 | January 17, 2020 | 0 | ||||||||||
Novartis ADS Options Cycle XV | 1 | $ | 57.07 | 0 | January 19, 2021 | 0 | ||||||||||
Novartis ADS Options Cycle XVI | 1 | $ | 58.33 | 0 | January 19, 2022 | 50,764 | ||||||||||
Novartis ADS Options Cycle XVII | 1 | $ | 66.07 | 0 | January 17, 2023 | 0 | ||||||||||
Total Novartis ADS Options | 692,134 | |||||||||||||||
Title of Options | Amount of shares called for by the options | Exercise Price(1) | Purchase Price (if any) | Expiration Date | Total number of options held | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Novas16 Options | 1 | 71.30 | 0 | February 5, 2016 | 0 | |||||||||||
Novas17 Options | 1 | 72.85 | 0 | February 3, 2017 | 0 | |||||||||||
Novas18 Options | 1 | 64.05 | 0 | January 10, 2018 | 0 | |||||||||||
Novas19 Options | 1 | 53.65 | 0 | January 18, 2019 | 0 | |||||||||||
Novas20 Options | 1 | 55.85 | 0 | January 19, 2020 | 0 | |||||||||||
Novas21 Options | 1 | 54.70 | 0 | January 19, 2021 | 141,396 | |||||||||||
Novas22 Options | 1 | 54.20 | 0 | January 19, 2022 | 0 | |||||||||||
Novas23 Options | 1 | 61.70 | 0 | January 17, 2023 | 378,390 | |||||||||||
| | | | | | | | | | | | | | | | |
Total Novartis Share Options | 519,786 | |||||||||||||||
Novartis ADR Options Cycle X | 1 | $ | 54.70 | 0 | February 5, 2016 | 0 | ||||||||||
Novartis ADR Options Cycle XI | 1 | $ | 58.38 | 0 | February 3, 2017 | 0 | ||||||||||
Novartis ADR Options Cycle XII | 1 | $ | 57.96 | 0 | January 10, 2018 | 0 | ||||||||||
Novartis ADR Options Cycle XIII | 1 | $ | 46.42 | 0 | January 18, 2019 | 0 | ||||||||||
Novartis ADR Options Cycle XIV | 1 | $ | 53.70 | 0 | January 19, 2020 | 0 | ||||||||||
Novartis ADR Options Cycle XV | 1 | $ | 57.07 | 0 | January 19, 2021 | 0 | ||||||||||
Novartis ADR Options Cycle XVI | 1 | $ | 58.33 | 0 | January 19, 2022 | 0 | ||||||||||
Novartis ADR Options Cycle XVI | 1 | $ | 66.07 | 0 | January 17, 2023 | 0 | ||||||||||
| | | | | | | | | | | | | | | | |
Total Novartis ADR Options | 0 |
In addition, oneInformation above for any non-executive Directors and members of our Executive Committee member, Kevin Buehler, owns 605,877 otherwho stepped down during 2015 is reported as of the date of their resignation.
Since 2014, we no longer grant any new share or ADR options consistingto our non-executive Directors, the members of non tradable optionsour Executive Committee and share settled appreciation rights, resulting from the conversion of Alcon equity into Novartis equity.
our associates under our equity-based participation plans. For more information on the Novartis shares, and share options and other equity-based instruments owned by individual members of our Executive Committee and by our current non-executive Directors, see "—Item 6.B Compensation—Ownership of Novartis Shares, ADRs, equity rights and Share Optionshare options owned by Executive Committee Members." and "—Item 6.B Compensation—Ownership of Novartis Shares, ADRs and Share Optionshare options owned by Non-Executive Directors.Board members." For more information on our equity-based compensationparticipation plans, see "—Item 6.B Compensation—Compensation to Novartis Associates."Item 18. Financial Statements—Note 26."
Item 7. Major Shareholders and Related Party Transactions
Novartis shares are widely held. As of December 31, 2012,2015, Novartis had approximately 161,000 shareholders listed in its share register, representing 75%approximately 70.5% of issued shares. Based on the Novartis AG
share register and excluding treasury shares, approximately 42%40.9% of the shares registered by name were held in Switzerland and 46%approximately 27.5% were held in the US. Approximately 12%11.8% of the shares registered in the share register were held by individual investors, while 88%approximately 88.2% were held by legal entities, nominees, fiduciaries and fiduciaries.the ADS depositary.
Based on our share register, we believe that we are not directly or indirectly owned or controlled by another corporation or government, or by any other natural or legal persons. There are no arrangements that may result in a change of control.
2015
According to the share register, on December 31, 2012,2015, no person or entity was registered as the owner of more than 5% of our shares. As of that date, excluding 4.09%6.2% of our share capital held as treasury shares by Novartis AG and its entities that restrict their availability for use, the following registered shareholders (including nominees and the ADS depositary) held more than 2% of the total share capital of Novartis with the right to vote these shares:
According to disclosure notifications filed with Novartis AG and the SIX Swiss Exchange, each of the following shareholders held between 3% and 5% of the share capital of Novartis AG as of December 31, 2015:
As of December 31, 2015, no other shareholder was registered as owner of more than 2% of the registered share capital. Novartis has not entered into any agreement with any shareholder regarding the voting or holding of Novartis shares.
2014
According to the share register, on December 31, 2014, no person or entity was registered as the owner of more than 5% of our shares. As of that date, excluding 5.7% of our share capital held by Novartis AG, together with Novartis affiliates (excluding foundations), as treasury shares, the following registered shareholders (including nominees and the ADS depositary) held more than 2% of the total share capital of Novartis with the right to vote these shares:
According to a disclosure notification filed with Novartis AG, Norges Bank (Central BankTable of Norway), Oslo, Norway, held 2.3% of the share capital of Novartis AG as of December 31, 2012.Contents
According to disclosure notifications filed with Novartis AG and the SIX Swiss Exchange, each of the following shareholders held between 3% and 5% of the share capital of Novartis AG as of December 31, 2012:2014:
As of December 31, 2012,2014, no other shareholder was registered as owner of more than 2% of the registered share capital. Novartis has not entered into any agreement with any shareholder regarding the voting or holding of Novartis shares.
2013
According to the share register, on December 31, 2011,2013, no person or entity was registered as the owner of more than 5% of our shares. As of that date, excluding 5.76%4.9% of our share capital held by Novartis AG, together with Novartis affiliates (excluding foundations), as treasury shares, the following registered shareholders (including nominees and the ADS depositary) held more than 2% of the total share capital of Novartis with the right to vote these shares:
According to disclosure notifications filed with Novartis AG and SIX Swiss Exchange, Capital Group Companies, Inc., Los Angeles, CA held between 3% and 5% of the share capital of Novartis AG as of December 31, 2011.
As of December 31, 2011, no other shareholder was registered as owner of more than 2% of the registered share capital.
According to the share register, on December 31, 2010, no person or entity was registered as the owner of more than 5% of our shares. As of that date, excluding 6.3% of our share capital held by Novartis AG, together with Novartis affiliates, as treasury shares, the following shareholders (including nominees and the ADS depositary) held more than 2% of the total share capital of Novartis with the right to vote these shares:
According to a disclosure notification filed with Novartis AG, Norges Bank (Central Bank of Norway), Oslo, Norway, held 2.03% of the share capital of Novartis AG as of December 31, 2013.
According to disclosure notifications filed with Novartis AG and the SIX Swiss Exchange, each of the following shareholders held between 3% and 5% of the share capital of Novartis AG as of December 31, 2010:2013:
As of December 31, 2013, no other shareholder was registered as owner of more than 2% of the registered share capital. Novartis has not entered into any agreement with any shareholder regarding the voting or holding of Novartis shares.
7.B Related Party Transactions
See "Item 18. Financial Statements—noteNote 27".
7.C Interests of Experts and Counsel
Not applicable.
8.A Consolidated Statements and Other Financial Information
See "Item 18. Financial Statements."
Dividend policy
Subject to the dividend policy described below, our Board of Directors expects to recommend the payment of a dividend in respect of each financial year. If approved by our shareholders at the relevant annual Shareholders' Meeting, the dividends will be payable shortly following such approval. Any shareholder who purchasedpurchases our shares on or before the second trading day after the shareholders' meetingex-dividend date and holds the shares throughuntil that date shall be deemed to be entitled to receive the dividends approved at that meeting. Dividends are reflected in our financial statements in the year in which they are approved by our shareholders.
Our Board's stateddividend policy is that, over the long term, the size of the dividend should be geared to growth in our after-tax earnings. In December 2007, our Board establishedpay a growing annual dividend. This policy of paying dividends,is subject to shareholder approval, of between 35% and 60% of our net income from continuing operations.
In July 2011, in order to retain a good balance between attractive shareholder returns, investment in the business and a sound capital structure, our Board amended this policy by eliminating the 60% payout ceiling. However, all future dividends paid by us will depend upon our financial conditionconditions and outlook at the time, the results of our operations and other factors.
The Board will propose a dividend of CHF 2.302.70 per share to the shareholders for approval at the Annual General Meeting to be held on February 22, 2013.23, 2016. Because we pay dividends in Swiss francs, exchange rate fluctuations will affect the US dollar amounts received by holders of ADSs.ADRs. For a summary of dividends we paid in the past five years, see "Item 3. Key Information—3.A Selected Financial Data—Cash Dividends per Share." See also "Item 3. Key Information—3.D Risk Factors—The price of our ADSsADRs and the US dollar value of any dividends may be negatively affected by fluctuations in the US dollar/Swiss franc exchange rate."
Disclosure pursuant to Section 219 of the Iran Threat Reduction & Syria Human Rights Act (ITRA)
At Novartis, it is our mission to discover, develop and successfully market innovative products to prevent and cure diseases, to ease suffering and to enhance the quality of life of all people, regardless of where they live. As part of thatThis mission and in connection withincludes the compliant sale of medicines and other healthcare products worldwide. To help us fulfill this mission, we have representative offices located in Iran,Iran.
As of October 18, 2010, a non-US affiliate within our Pharmaceuticals Division has entered into a non-binding Memorandum of Understanding (MoU) with the Ministry of Health and Medical Education of the Islamic Republic of Iran, dated October 18, 2010.Iran. Pursuant to the MoU, the Iranian Ministry of Health acknowledges certain benefits that may apply to sales of certain Novartis Pharmaceuticals medicines by third-party distributors in Iran. These include fast-track registration, market exclusivity, end-user subsidies and exemptions from customs tariffs. Novartis receives no payments from the Iranian Ministry of Health under the MoU and the MoU creates no obligations on the part of either Novartis or the Iranian Ministry of Health.
ToIn 2015, non-US affiliates relating to our knowledge, none of our sales of productsPharmaceuticals and Sandoz Divisions made payments to government entities in Iran during 2012related to exit fees and other transactions ordinarily incident to travel by doctors and other medical professionals resident in Iran to attend conferences or other events outside Iran.
From time to time, including in 2015, non-US affiliates relating to our Pharmaceuticals and Sandoz Divisions enter into agreements with hospitals, research institutes, medical associations and universities in Iran to provide grants, sponsor congresses, seminars and symposia, and with doctors and other healthcare professionals for consulting services, including participation in advisory boards and investigator services for observational (non-interventional) studies. Some of these hospitals and research institutes are requiredowned or controlled by the government of Iran, and some of these doctors and healthcare professionals are employed by hospitals that may be public or government-owned.
Because our Pharmaceuticals and Sandoz Divisions have operations in Iran, including employees, they obtain services and have other dealings incidental to their activities in that country, including paying taxes and salaries, and obtaining office rentals, insurance, electricity, water and telecommunications services, office and similar supplies and customs-related services from Iranian companies that may be disclosed pursuantowned or controlled by the government of Iran.
Some beneficiaries of payments made by non-US affiliates relating to ITRA Section 219,our Pharmaceuticals and Sandoz Divisions in the course of the operations described above maintain accounts at banks that are included on the list of Specially Designated Nationals (SDNs). Nonetheless, since such payments relate to lawful and authorized transactions, use of a blocked Iranian financial institution is permitted in accordance with applicable laws and given that such institution is identified on the SDN List with the following possible exception: During 2012, non-US affiliates within our Vaccines and Diagnostics Division sold influenza vaccines and rabies vaccines to Medical Equipment and Pharmaceutical Holding Co. of Iran, which we understand is an affiliate of the Iranian Ministry of Health. Our gross sales of these influenza and rabies vaccines during 2012 were EUR 185,000 and EUR 1,362,500 respectively, and our net profits (gross sales minus cost of goods sold and commissions) from such sales were EUR 43,300 and EUR 397,501, respectively. We expect to continue to make sales of vaccines to this customer during 2013.tag [IRAN].
None.
Our shares are listed in Switzerland on the SIX Swiss Exchange (SIX).
American Depositary Shares (ADSs), each representing one share, have been available in the US through an American Depositary Receipts (ADR) program since December 1996. This program was established pursuant to a Deposit Agreement which we entered into with JPMorgan Chase Bank N.A. as Depositary (Deposit Agreement). Our ADSsADRs have been listed on the NYSE since May 2000, and are traded under the symbol "NVS."
The table below sets forth, for the periods indicated, the high and low closing sales prices for our shares traded in Switzerland and for ADSsADRs traded in US. The data below regarding our shares reflects price and volume information for trades completed by members of the SIX during the day as well as for inter-dealerinter- dealer trades completed off the SIX and certain inter-dealer trades completed during trading on the previous business day.
The following share data was taken from SIX; the ADSADR data was taken from Bloomberg:
| Shares | ADSs | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| High | Low | High | Low | Shares | ADRs | ||||||||||||||||||||
| CHF per share | $ per ADS | High CHF per share | Low CHF per share | High $ per ADR | Low $ per ADR | ||||||||||||||||||||
Annual information for the past five years | ||||||||||||||||||||||||||
2008 | 66.25 | 45.62 | 61.06 | 43.85 | ||||||||||||||||||||||
2009 | 56.90 | 39.64 | 56.16 | 33.96 | ||||||||||||||||||||||
2010 | 60.25 | 50.55 | 59.77 | 43.78 | ||||||||||||||||||||||
2011 | 55.80 | 39.99 | 64.52 | 51.65 | 55.80 | 39.99 | 64.52 | 51.65 | ||||||||||||||||||
2012 | 59.00 | 48.80 | 63.96 | 51.48 | 59.00 | 48.80 | 63.96 | 51.48 | ||||||||||||||||||
2013 | 73.65 | 58.70 | 80.39 | 63.70 | ||||||||||||||||||||||
2014 | 93.80 | 70.65 | 96.65 | 78.20 | ||||||||||||||||||||||
2015 | 102.30 | 82.20 | 106.12 | 83.96 | ||||||||||||||||||||||
Quarterly information for the past two years | ||||||||||||||||||||||||||
2012 | ||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||
First Quarter | 54.70 | 49.00 | 58.33 | 53.31 | 99.70 | 84.30 | 103.00 | 91.67 | ||||||||||||||||||
Second Quarter | 52.90 | 48.80 | 56.38 | 51.48 | 101.40 | 92.00 | 105.50 | 98.34 | ||||||||||||||||||
Third Quarter | 58.75 | 53.35 | 61.51 | 55.23 | 102.30 | 87.35 | 106.12 | 89.52 | ||||||||||||||||||
Fourth Quarter | 59.00 | 55.45 | 63.96 | 58.97 | 91.70 | 82.20 | 95.03 | 83.96 | ||||||||||||||||||
2011 | ||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||
First Quarter | 55.80 | 48.10 | 59.24 | 52.75 | 75.30 | 70.65 | 85.02 | 78.20 | ||||||||||||||||||
Second Quarter | 55.00 | 48.62 | 64.52 | 54.23 | 81.40 | 72.90 | 90.98 | 82.51 | ||||||||||||||||||
Third Quarter | 52.15 | 39.99 | 62.82 | 53.73 | 90.15 | 76.95 | 94.80 | 85.25 | ||||||||||||||||||
Fourth Quarter | 53.70 | 47.80 | 58.86 | 51.65 | 93.80 | 80.00 | 96.65 | 85.02 | ||||||||||||||||||
Monthly information for most recent six months | ||||||||||||||||||||||||||
August 2012 | 58.75 | 56.25 | 60.52 | 58.28 | ||||||||||||||||||||||
September 2012 | 57.65 | 55.60 | 61.51 | 58.53 | ||||||||||||||||||||||
October 2012 | 59.00 | 56.05 | 63.72 | 60.46 | ||||||||||||||||||||||
November 2012 | 57.65 | 55.45 | 62.05 | 58.97 | ||||||||||||||||||||||
December 2012 | 58.85 | 57.45 | 63.96 | 62.32 | ||||||||||||||||||||||
January 2013 (through January 17) | 61.70 | 58.70 | 66.07 | 63.70 | ||||||||||||||||||||||
August 2015 | 101.60 | 89.60 | 104.36 | 94.81 | ||||||||||||||||||||||
September 2015 | 94.80 | 87.35 | 97.96 | 89.52 | ||||||||||||||||||||||
October 2015 | 91.70 | 87.45 | 95.03 | 90.14 | ||||||||||||||||||||||
November 2015 | 90.35 | 87.05 | 91.04 | 85.24 | ||||||||||||||||||||||
December 2015 | 88.05 | 82.20 | 88.05 | 83.96 | ||||||||||||||||||||||
January 2016 (through January 20) | 86.45 | 79.70 | 86.21 | 80.23 |
Fluctuations in the exchange rate between the Swiss franc and the US dollar will affect any comparisons of Swiss share prices and US ADSADR prices.
The average daily volumes of shares traded on the SIX (ON/OFF exchange) for the years 2012, 20112015, 2014 and 20102013 were 4,637,552, 7,036,042,5,870,894, 4,963,517, and 6,216,952,4,568,858, respectively. These numbers are based on total annual turnover statistics supplied by the SIX via the Swiss Market Feed, which supplies such data to subscribers and to other information providers. The average daily volumes of ADRs traded in the US for the years 2012, 20112015, 2014 and 20102013 were 2,187,889, 3,492,488,1,787,735, 1,504,087, and 3,515,307,1,440,718, respectively.
The Depositary has informed us that as of January 17, 2013,20, 2016, there were 316,268,983 ADSs301,119,296 ADRs outstanding, each representing one Novartis share (approximately 12%11% of total Novartis shares issued). On January 17, 2013,20, 2016, the closing sales price per share on the SIX was CHF 61.7079.70 and $66.07$80.49 per ADSADR on the NYSE.
Not applicable.
Not applicable.
See "9.A Offer and Listing Details."
Not applicable.
Not applicable.
Not applicable.
Item 10. Additional Information
Not applicable.
10.B Memorandum and Articles of Association
The following is a summary of certain provisions of our Articles of Incorporation (Articles), our Regulations of the Board of Directors (Board Regulations) and of Swiss law, particularly, the Swiss Code of Obligations (Swiss Code)CO). This is not a summary of all the significant provisions of the Articles, the Board Regulations or of Swiss law.law and does not purport to be complete. This summarydescription is qualified in its entirety by reference to the Articles and the Board Regulations, which are an exhibit to this Form 20-F, and to Swiss law.
At our 2015 Annual General Meeting held on February 27, 2015, our shareholders approved amendments to our Articles to align with the Swiss Ordinance against Excessive Compensation in Stock Exchange Listed Companies on Board and Executive Compensation (the "Ordinance"). Key aspects of these amendments included determining (i) the maximum number of allowable external mandates for members of our Board of Directors (Board) and Executive Committee, (ii) the principles concerning the tasks and responsibilities of our Compensation Committee, (iii) the details concerning the procedure for the new yearly binding separate shareholder votes on the aggregate compensation of our Board and Executive Committee, and (iv) the principles of our compensation policy.
Novartis AG is registered in the commercial register of the Canton of Basel-Stadt, Switzerland, under number CH-270.3.002.061-2.CHE-103.867.266. Our business purpose, as stated in Article 2 of the Articles, is to hold interests in enterprises in the area of healthcarehealth care or nutrition. We may also hold interests in enterprises in the areas of biology, chemistry, physics, information technology or related areas. We may acquire, mortgage, liquidate or sell real estate and intellectual property rights in Switzerland or abroad. In pursuing our business purpose, we strive to create sustainable value.
(a) According to our Board Regulations, a member of our DirectorsBoard (Director) may not participate in deliberations or resolutions on matters which affect, or reasonably might affect, the Director's interests, or the interests of a person close to the Director. In addition, the Swiss CodeCO sets forth that if, in connection with the conclusion of a contract, the Company is represented by the person with whom it is concluding the contract, such contract shall be in writing. Furthermore, the Swiss CodeCO does require directors and members of senior management to safeguard the interests of the corporation and, in this connection, imposes a duty of care and a duty of loyalty on such persons. This rule is generally interpreted to mean that directors and members of senior management are disqualified from participating in decisions which affect them personally.
(b) A Board resolution requires the affirmative majority of the votes cast. As with any Board resolution, Directors may not vote on their own compensation unless at least a majority of the Directors are present.
Table Such votes are subject to the approval of Contentsthe aggregate amounts of compensation of the Directors and the members of the Executive Committee by a shareholders' resolution under the Ordinance.
(c) The Articles andprohibit the Board Regulations contain no specific provision permittinggranting of loans or prohibitingcredits to Directors.
(d) Directors from borrowing from us. The Boardwho have turned seventy years of Directors may take decisions on all matters which by law orage at the Articles are not allocated todate of the General Meeting of Shareholders.
(d) Directors must retire after the end of their seventieth year of age, but the retirement does not become effective until the dateShareholders may no longer be elected as members of the next Ordinary General Meeting of Shareholders.Board. The General Meeting of Shareholders may, under special circumstances, grant an exemption from this rule and may elect a Director for further terms of office of no more than three years at a time.rule.
(e) Under the Articles, each ofOur Directors are not required to be shareholders under our Directors must also be a shareholder. Ownership of one share is sufficient to satisfy this requirement.Articles.
Because we haveNovartis AG has only one class of registered shares, the following information applies to all shareholders.
(a) The Swiss CodeCO requires that at least 5% of our annual profit be retained as general reserves, so long as these reserves amount to less than 20% of our registered share capital. The law and the Articles permit us to accrue additional reserves.
Under the Swiss Code,CO, we may only pay dividends out of the balance sheet profit, or out of reserves created for this purpose.purpose or out of free reserves. In eitherany event, under the Swiss Code,CO, while the Board of Directors may propose that a dividend be paid, we may only pay dividends upon shareholders' approval at a General Meeting of Shareholders. Our auditors must confirm that the dividend proposal of our Board of Directors conforms with the Swiss CodeCO and the Articles. Our Board of Directors intends to propose a dividend once each year. See "Item 3. Key Information—3.A. Selected Financial Data—Cash Dividends per Share.Share" and "Item 8. Financial Information—8.A. Consolidated Financial Statements and Other Financial Information—Dividend Policy."
Dividends are usually due and payable shortly after the shareholders have passed a resolution approving the payment. Dividends which have not been claimed within five years after the due date revert to us, and are allocated to our general reserves. For information about deduction of the withholding tax or other duties from dividend payments, see "Item 10. Additional Information—10.E Taxation."
(b) Each share is entitled to one vote at a General Meeting of Shareholders. Voting rights may only be exercised for shares registered with the right to vote on the Record Date. In order to do so, the shareholder must file a share registration form with us, setting forth the shareholder's name, address and citizenship (or, in the case of a legal entity, its registered office). If the shareholder has not timely filed the form, then the shareholder may not vote at, or participate in, General Meetings of Shareholders.
To vote its shares, the shareholder must also explicitly declare that it has acquired the shares in its own name and for its own account. If the shareholder refuses to make such a declaration, the shares may not be voted unless the Board of Directors recognizes such shareholder as a nominee.
The Board of Directors may grant such nominees the right to vote up to 0.5% of the registered share capital as set forth in the commercial register.
Except as described below,Articles provide that no shareholder mayshall be registered with the right to vote shares composingcomprising more than 2% of ourthe registered share capital as set forth incapital. The Board may, upon request, grant an exemption from this restriction. Considerations include whether the commercial register. Ifshareholder supports our goal of creating sustainable value and has a shareholderlong-term investment horizon. Furthermore, the Articles provide that no nominee shall be registered with the right to vote shares comprising more than 0.5% of the registered share capital. The Board may, upon request, grant an exemption from this restriction if the nominee discloses the names, addresses and number of shares of the persons for whose account it holds more than 0.5% of the registered share capital. The same restrictions indirectly apply to holders of ADRs. We have in the past granted exemptions from the 2% rule for shareholders and the 0.5% rule for nominees. Under the Articles, the Board may delegate the power to grant such exemptions. The Board has delegated this power to the Chairman of Novartis' shares, that shareholder will be entitled to register the excess shares, but not to cast votes based upon them (registration without the right to vote).Board.
For purposes of the 2% rule for shareholders and the 0.5% rule for nominees, groups of companies and groups of shareholders acting in concert are considered to be one shareholder. The BoardThese rules also apply to shares acquired or subscribed by the exercise of Directors may, upon request, grant exemptions from both the 2% rule for shareholders and the 0.5% rule for nominees. The Board of Directors may delegate this power. Finally, the shareholders may cancel the registration restrictions upon a resolution carrying a two-thirds majority of the vote at a General Meeting of Shareholders.subscription, option or conversion rights.
After hearing the registered shareholder or nominee, the Board of Directors may cancel, with retroactive effect as of the date of registration, the registration of the shareholders if the registration was effected based on false information.
Table Registration restrictions in the Articles may only be removed upon a resolution carrying a two-thirds majority of Contentsthe votes represented at a General Meeting of Shareholders.
Shareholders' resolutions generally require the approval of a majority of the votes present at a General Meeting of Shareholders. As a result, abstentions have the effect of votes against the resolution. Shareholder resolutions requiring a vote by such "absolute majority"majority of the votes" include among others (1) amendments to the Articles; (2) elections of directorsDirectors, the Chairman, the Compensation Committee members, the independent proxy and the statutory auditors; (3) approval of the annualmanagement report and the annual accounts;financial statements; (4) setting the annual dividend; (5) approval of the aggregate amounts of compensation of the Directors and the members of the Executive Committee; (6) decisions to discharge directorsDirectors and management from liability for matters disclosed to the General Meeting of Shareholders; and (6)(7) the ordering of an independent investigation into specific matters proposed to the General Meeting of Shareholders.
According to the Articles and Swiss law, the following types of shareholders' resolutions require the approval of a "supermajority" of at least two-thirds of the votes present at a General Meeting of Shareholders: (1) an alteration of our corporate purpose; (2) the creation of shares with increased voting powers; (3) an implementation of restrictions on the transfer of registered shares and the removal of such restrictions; (4) an authorized or conditional increase of the share capital; (5) an increase of the share capital by conversion of equity, by contribution in kind, or for the purpose of an acquisition of property or the grant of special rights; (6) a restriction or an elimination of shareholders' preemptive rights; (7) a change of our domicile; (8) our dissolution; or (9) any amendment to the Articles which would create or eliminate a supermajority requirement.
The Directors' termsOur shareholders annually elect all of office shall be coordinated so that in each year approximately one-thirdthe members of all the Directors are subject to re-election or election.Board, as well as the Chairman of the Board, the members of the Compensation Committee and the independent proxy. Cumulative voting of shares is not permitted under Swiss law.
At General Meetings of Shareholders, shareholders can be represented by proxy. However, a proxy must either be the shareholder's legal representative, another shareholder with the right to vote, a proxy appointed by us, anor the independent representative nominated by us, or a depositary.proxy. Votes are taken either by a show of hands or by electronic voting, unless the General
Meeting of Shareholders resolves to have a ballot or where a ballot is ordered by the chairman of the meeting.
A holder of a Novartis American Depositary Receipt (ADR) has a paper receiptShares (ADSs) each representing one Novartis share and evidenced by American Depositary Receipts (ADRs) are issued by our depositary JPMorgan Chase Bank, New York, and not by us. The ADR is vested with rights defined and enumerated in the Deposit Agreement (such as the rights to vote, to receive a dividend and to receive a share of Novartis in exchange for a certain number of ADRs). The enumeration of rights, including any limitations on those rights in the Deposit Agreement, is final. There are no other rights given to the ADR holders. Only the ADRADS depositary, holding our shares underlying the ADRs, is registered as shareholder in our share register. An ADR is not a Novartis share and an ADR holder is not a Novartis shareholder.
The Deposit Agreement between our depositary, the ADR holder and us has granted the rightcertain indirect rights to vote to the ADR holders. ADR holders may not attend Novartis General Meetings in person. ADR holders exercise their voting rights by instructing JPMorgan Chase Bank, our depositary, to exercise the voting rights attached to the registered shares underlying the ADRs. Each ADR represents one Novartis share. JPMorgan Chase Bank exercises the voting rights for registered shares underlying ADRs for which no voting instructions have been given by providing a discretionary proxy to thean uninstructed independent proxy appointed by Novartisdesignee pursuant to paragraph 13 of the Deposit Agreement governing ADRs.form of ADR. Such designee has to be a shareholder of Novartis. The same voting restrictions apply to ADR holders as to those holding Novartis shares (i.e.(i.e., the right to vote up to 2% of the Novartis registered share capital—unless otherwise granted an exemption by the Board—and disclosure requirement for nominees).
(c) Shareholders have the right to allocate the profit shown on our balance sheet by vote taken at the General Meeting of Shareholders, subject to the legal requirements described in "Item 10.B.3(a) Shareholder Rights".
(d) Under the Swiss Code,CO, any surplus arising out of a liquidation of our companyCompany (i.ei.e.., after the settlement of all claims of all creditors) would be distributed to the shareholders in proportion to the paid-in nominal value of their shares.
(e) The Swiss CodeCO limits a corporation's ability to hold or repurchase its own shares. We and our subsidiaries may only repurchase shares if we have freely disposable equity, in the amount necessary for
this purpose, available. The aggregate nominal value of all Novartis shares held by us and our subsidiaries may not exceed 10% of our registered share capital. However, it is accepted that a corporation may repurchase its own shares beyond the statutory limit of 10%, if the repurchased shares are clearly dedicated for cancellation and if the shareholders passed a respective resolution at a General Meeting of Shareholders. In addition, we are required to create a special reserve on our balance sheet in the amount of the purchase price of the acquired shares. Repurchased shares held by us or our subsidiaries do not carry any rights to vote at a General Meeting of Shareholders, but are entitled to the economic benefits generally connected with the shares. It should be noted that the definition of what constitutes subsidiaries, and therefore, treasury shares, for purposes of the above described reserves requirement and voting restrictions differs from the definition included in the consolidated financial statements. The definition in the consolidated financial statements requires consolidation for financial reporting purposes of special purpose entities, irrespective of their legal structure, in instances where we have the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
Under the Swiss Code,CO, we may not cancel treasury shares without the approval of a capital reduction by our shareholders.
(f) Not applicable.
(g) Since all of our issued and outstanding shares have been fully paid in, we can make no further capital calls on our shareholders.
(h) See Items "10.B.3(b) Shareholder Rights" and "10.B.7 Change in Control".
10.B.4Changes To Shareholder Rights
Under the Swiss Code,CO, we may not issue new shares without the prior approval of a capital increase by our shareholders. If a capital increase is approved, then our shareholders would generally have certain preemptive rights to obtain newly issued shares in an amount proportional to the nominal value of the shares they already hold. These preemptive rights could be modified in certain limited circumstances with the approval of a resolution adopted at a General Meeting of Shareholders by a supermajority of votes. In addition, we may not create shares with increased voting powers or place restrictions on the transfer of registered shares without the approval of a resolution adopted at a General Meeting of Shareholders by a supermajority of votes. In addition, see Item 10.B.3(b) with regard to the Board of Directors'Board's ability to cancel the registration of shares under limited circumstances.
Under the Swiss CodeCO and the Articles, we must hold an annual ordinary General Meeting of Shareholders within six months after the end of our financial year. General Meetings of Shareholders may be convened by the Board of Directors or, if necessary, by the statutory auditors. The Board of Directors is further required to convene an extraordinary General Meeting of Shareholders if so resolved by a General Meeting of Shareholders, or if so requested by shareholders holding an aggregate of at least 10% of the registered shares, specifying the items for the agenda and their proposals. Shareholders holding shares with a nominal value of at least CHF 1,000,000 (i.e., 2,000,000 Novartis shares) have the right to request that a specific proposal be put on the agenda and voted upon at the next General Meeting of Shareholders. A General Meeting of Shareholders is convened by publishing a notice in the official Swiss Commercial Gazette (Schweizerisches Handelsamtsblatt) at least 20 days prior to such meeting. Shareholders may also be informed by mail. There is no provision in the Swiss CodeCO or our Articles requiring a quorum for the holding of a General Meeting of Shareholders. In addition, see "Item 10.B.3(b) Shareholder Rights" regarding conditions for exercising a shareholder's right to vote at a General Meeting of Shareholders.
There are no limitations under the Swiss CodeCO or our Articles on the right of non-Swiss residents or nationals to own or vote shares other than the restrictions applicable to all shareholders. But see "Item 10.B.3(b) Shareholder Rights" regarding conditions for exercising an ADR holder's right to vote at a shareholder meeting.
The Articles and the Board Regulations contain no provision that would have an effect of delaying, deferring or preventing a change in control of Novartis and that would operate only with respect to a merger, acquisition or corporate restructuring involving us or any of our subsidiaries.
According to the Swiss Merger Act, shareholders may pass a resolution to merge with another corporation at any time. Such a resolution would require the consent of at least two-thirds of all votes present at the necessary General Meeting of Shareholders.
Under the Swiss Stock ExchangeFinancial Market Infrastructure Act, shareholders and groups of shareholders acting in concert who acquire more than 331/3% of our shares would be under an obligation to make an offer to acquire all remaining Novartis shares.
10.B.8Disclosure of Shareholdings
Under the Swiss Stock ExchangeFinancial Market Infrastructure Act, holders of our voting shares acting alone or acting in concert with others are required to notify us and the SIX Swiss Exchange of the level of their holdings whenever such holdings reach or exceed, or in some cases, fall short of, certain thresholds—3%, 5%, 10%, 15%, 20%, 25%, 331/3%, 50% and 662/3%—of our registered share capital. Following receipt of such notification we are required to inform the public by publishing the information via the electronic publication platform operated by the competent Disclosure Office.
An additional disclosure obligation exists under the Swiss CodeCO which requires us to disclose, once a year in the notes to the financial statements published in our annual report, the identity of all of our shareholders (or related groups of shareholders) who have been granted exemption entitling them to vote more than 2% of our registered share capital, as described in "Item 10.B.3(b) Shareholder Rights".
See the references to Swiss law throughout this "Item 10.B Memorandum and Articles of Association".
The requirements of the Articles regarding changes in capital are not more stringent than the requirements of Swiss law.
InTransactions with GSK
On April 2008,22, 2014 (and as amended and restated on May 29, 2014), we entered into an overarching framework agreement (the "Implementation Agreement") with Nestlé S.A. of Switzerland under which we obtainedGSK for the right to acquire majority ownership in Alcon Inc. (NYSE: ACL) in two steps.Consumer Healthcare Joint Venture, the Vaccines Sale and the Oncology Acquisition (each as defined below and, together with the Influenza Put Option (as defined below), the "Transactions"). The first step wasConsumer Healthcare Joint Venture, the Vaccines Sale and the Oncology Acquisition were completed on July 7, 2008, when we acquired an initial 25% stake (74 million shares) from Nestlé for $10.4 billion in cash. This investment reflects a price of $140.68 per share (the initial transaction price of $143.18, later reduced to account for the dividend paid by Alcon in May 2008). In the second step, we had the right to acquire Nestlé's remaining 52% majority stake in Alcon between January 1, 2010 and July 31, 2011 for a fixed price of $181.00 per share, or approximately $28 billion. Novartis completed the second step, acquiring Nestlé's 52% stake, on August 25, 2010, for approximately $28.3 billion, or $180 per share.March 2, 2015.
Consumer Healthcare Joint Venture with GSK
On December 14, 2010,April 22, 2014 (and as amended and restated on May 29, 2014, and March 1, 2015), we entered into a definitive agreementContribution Agreement with AlconGSK under which GSK contributed its consumer healthcare business (the "GSK Consumer Healthcare Business") and we contributed our OTC Division, with certain limited exceptions which include the over-the-counter business of our Sandoz Division, into a newly-created joint venture which operates under the GSK Consumer Healthcare name (the "Consumer Healthcare Joint Venture"). In consideration for those contributions, GSK owns 63.5% of the issued share capital of the Consumer Healthcare Joint Venture and we own 36.5% of the issued share capital of the Consumer Healthcare Joint Venture.
The operation of the Consumer Healthcare Joint Venture is governed by a Shareholders' Agreement, under which GSK has the right to merge Alcon into Novartis. Duringappoint seven directors to the board of the Consumer Healthcare Joint Venture and we have the right to appoint four directors to the board of the Consumer Healthcare Joint Venture. The Shareholders' Agreement also contains certain minority shareholder protections, including the right to exit the Consumer Healthcare Joint Venture via a put option exercisable in certain windows in the period from Januarythe third to April 8, 2011, we acquired 4.8%the twentieth anniversary of the shares in Alcon for $2.4 billion. On April 8, 2011,creation of the Novartis Extraordinary General Meeting approvedConsumer Healthcare Joint Venture. The Shareholders' Agreement became operative concurrently with the merger with Alcon, Inc. creatingcreation of the global leader in eye care. As a result, the new Alcon Division became the fifthConsumer Healthcare Joint Venture on March 2, 2015.
growth platformSale of Vaccines Business (Excluding our Influenza Vaccines Business) to GSK
On April 22, 2014 (and as amended and restated on May 29, 2014, as further amended on October 9, 2014, and as further amended and restated on March 1, 2015), we entered into a Sale and Purchase Agreement with GSK under which we sold our Vaccines Division (with certain limited exceptions, and except for our influenza vaccines business) to GSK (the "Vaccines Sale") for up to $7.1 billion, consisting of $5.25 billion upfront and up to $1.8 billion in our strategically diversified healthcare portfolio. The Extraordinary General Meetingmilestones, of which we have received $450 million as of December 31, 2015, plus royalties. We completed the Vaccines Sale on March 2, 2015.
Oncology Acquisition from GSK
On April 22, 2014 (and as amended and restated on May 29, 2014, November 21, 2014, and March 1, 2015), we entered into a Sale and Purchase Agreement with GSK under which we acquired GSK oncology products and certain related assets (the "Oncology Acquisition"). GSK has also authorizedgranted us a right of first negotiation over the issuanceco-development and commercialization of 108 million new shares.
UnderGSK's current and future oncology R&D pipeline, excluding oncology vaccines, for a period of twelve and one half years from closing. We completed the termsOncology Acquisition on March 2, 2015. Novartis paid an aggregate cash consideration of $16 billion for the Oncology Acquisition. Up to $1.5 billion of the December 14, 2010 agreement, Alcon shareholders received 2.9228 Novartis shares (which amount includedcash consideration is contingent on certain development milestones and is potentially refundable.
Influenza Vaccines Business Put Option with GSK
On April, 22 2014 (and as amended and restated on May 29, 2014), we entered into a dividend adjustment) and $8.20 in cashPut Option Deed with GSK pursuant to which we had the right to unilaterally require GSK to acquire our Vaccines Division's influenza vaccines business for each share of Alcon, resulting in a total consideration of $168.00 per share. The completion$250 million, or certain parts of the acquisitioninfluenza vaccines business for a pro-rata amount (the "Influenza Put Option") if the divestment to CSL discussed below was not completed. The Influenza Put Option expired concurrently with the closing of the outstanding 18.6% non-controlling interest in Alcondivestment of our influenza vaccines business to CSL on July 31, 2015.
Sale of Influenza Vaccines Business to CSL
On October 26, 2014 (and as amended and restated on July 31, 2015), we entered into a Share and Business Sale Agreement with CSL under which we divested our Vaccines Division's influenza vaccines business to CSL for $275 million. This transaction was completed effective July 31, 2015.
Sale of Animal Health Division to Lilly
On April 822, 2014 (and as amended on December 17, 2014), we entered into a Stock and the subsequent merger resulted in the issuance of Novartis sharesAsset Purchase Agreement with a fair value of $9.2 billion, and a contingent value payment of $0.5Lilly. Under this agreement, Lilly agreed to purchase our Animal Health Division (with certain limited exceptions) for approximately $5.4 billion. This transaction was completed on January 1, 2015.
There are no Swiss governmental laws, decrees or regulations that restrict, in a manner material to Novartis, the export or import of capital, including any foreign exchange controls, or that generally affect the remittance of dividends or other payments to non-residents or non-citizens of Switzerland who hold Novartis' shares.
The taxation discussion set forth below is intended only as a descriptive summary and does not purport to be a complete analysis or listing of all potential tax effects relevant to the ownership or
disposition of our shares or ADSs.ADRs. The statements of US and Swiss tax laws set forth below are based on the laws and regulations in force as of the date of this 20-F, including the current Convention Between the United StatesUS and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income, entered into force on December 19, 1997 (the "Treaty"), and the US Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations, rulings, judicial decisions and administrative pronouncements, and may be subject to any changes in US and Swiss law, and in any double taxation convention or treaty between the United StatesUS and Switzerland occurring after that date, which changes may have retroactive effect.
Swiss Residents
Withholding Tax on Dividends and Distributions. Dividends which we pay and similar cash or in-kind distributions which we may make to a holder of shares or ADSsADRs (including distributions of liquidation proceeds in excess of the nominal value, stock dividends and, under certain circumstances, proceeds from repurchases of shares by us in excess of the nominal value) are generally subject to a Swiss federal withholding tax (the "Withholding Tax") at a current rate of 35%. Under certain circumstances distributions out of capital contribution reserves made by shareholders after December 31, 1996 are exempt from Withholding Tax. We are required to withhold this Withholding Tax from the gross distribution and to pay the Withholding Tax to the Swiss Federal Tax Administration. The Withholding Tax is refundable in full to Swiss residents who are the beneficial owners of the taxable distribution at the time it is resolved and duly report the gross distribution received on their personal tax return or in their financial statements for tax purposes, as the case may be.
Income Tax on Dividends. A Swiss resident who receives dividends and similar distributions (including stock dividends and liquidation surplus) on shares or ADSsADRs is required to include such amounts in the shareholder's personal income tax return. However, distributions out of qualified capital contribution reserves are not subject to income tax. A corporate shareholder may claim substantial relief from taxation of dividends and similar distributions received if the shares held represent a fair market value of at least CHF 1 million.
Capital Gains Tax upon Disposal of Shares. Under current Swiss tax law, the gain realized on shares held by a Swiss resident who holds shares or ADSsADRs as part of his private property is generally not subject to any federal, cantonal or municipal income taxation on gains realized on the sale or other disposal of shares or ADSs.ADRs. However, gains realized upon a repurchase of shares by us may be characterized as taxable dividend income if certain conditions are met. Book gains realized on shares or ADSsADRs held by a Swiss corporate entity or by a Swiss resident individual as part of the shareholder's business property are, in general, included in the taxable income of such person. However, the Federal Law on the Direct Federal Tax of December 14, 1990 and several cantonal laws on direct cantonal taxes provide for exceptions for Swiss corporate entities holding more than 10% of our voting stock for more than one year.
Residents of Other Countries
Recipients of dividends and similar distributions on theour shares who are neither residents of Switzerland for tax purposes nor holding shares as part of a business conducted through a permanent establishment situated in Switzerland ("Non-resident Holders") are not subject to Swiss income taxes in respect of such distributions. Moreover, gains realized by such recipients upon the disposal of shares are not subject to Swiss income taxes.
Non-resident Holders of shares are, however, subject to the Withholding Tax on dividends and similar distributions mentioned above and under certain circumstances to the Stamp Duty described below. Such Non-resident Holders may be entitled to a partial refund of the Withholding Tax if the country in which they reside has entered into a bilateral treaty for the avoidance of double taxation with Switzerland.
Non-resident Holders should be aware that the procedures for claiming treaty refunds (and the time frame required for obtaining a refund) may differ from country to country. Non-resident Holders should consult their own tax advisors regarding receipt, ownership, purchase, sale or other dispositions of shares or ADSsADRs and the procedures for claiming a refund of the Withholding Tax.
As of January 1, 2013,2016, Switzerland has entered into bilateral treaties for the avoidance of double taxation with respect to income taxes with the following countries, whereby a part of the above-mentioned Withholding Tax may be refunded (subject to the limitations set forth in such treaties):
Albania Algeria Argentina Armenia Australia Austria Azerbaijan Bahrain Bangladesh Belarus Belgium Bulgaria Canada Chile China Colombia Croatia Cyprus Czech Republic Denmark Ecuador Egypt Estonia | Finland France Germany Georgia Ghana Greece Hong Kong Hungary Iceland India Indonesia Iran Israel Italy Ivory Coast Republic of Ireland Jamaica Japan Kazakhstan Republic of Korea (South Korea) Kuwait Kyrgyzstan | Latvia Lithuania Luxembourg Macedonia Malaysia Malta Mexico Moldova Mongolia Montenegro Morocco Netherlands New Zealand Norway Pakistan Peru Philippines Poland Portugal Quatar Romania Russia Serbia | Singapore | |||
Slovak Republic | ||||||
Slovenia | ||||||
South Africa | ||||||
Spain | ||||||
Sri Lanka | ||||||
Sweden | ||||||
Taiwan | ||||||
Tajikistan | ||||||
Thailand | ||||||
Trinidad and Tobago | ||||||
Tunisia | ||||||
Turkey | ||||||
Turkmenistan Ukraine | ||||||
United Arab Emirates | ||||||
United Kingdom | ||||||
United States of America | ||||||
Uruguay | ||||||
Uzbekistan | ||||||
Venezuela | ||||||
Vietnam | ||||||
The tax treaty with Bahrain is not applicable to the healthcare industry. Tax treaty negotiations are under way, or have been concluded,conducted, with Argentina (treaty not yet in force but provisionally applicable as from January 1, 2001),Bosnia and Herzegovina, Brazil, Costa Rica, Libya, Liechtenstein, North Korea, Oman, Peru, Saudi Arabia, Senegal, Syria, Turkmenistan, and Zimbabwe. Tax treaty negotiations between Switzerland and some of the countries listed in the immediately preceding sentence have been ongoing for an extended period of time, and we are not certain when or if such negotiations will be completed, and when or if the corresponding treaties will come into effect.
A Non-resident Holder of shares or ADSsADRs will not be liable for any Swiss taxes other than the Withholding Tax described above and, if the transfer occurs through or with a Swiss bank or other Swiss securities dealer, the Stamp Duty described below. If, however, the shares or ADSsADRs of Non-resident Holders can be attributed to a permanent establishment or a fixed place of business maintained by such person within Switzerland during the relevant tax year, the shares or ADSsADRs may be subject to Swiss income taxes in respect of income and gains realized on the shares or ADSsADRs and such person may qualify for a full refund of the Withholding Tax based on Swiss tax law.
Residents of the United States.US. A Non-resident Holder who is a resident of the United StatesUS for purposes of the Treaty is eligible for a reduced rate of tax on dividends equal to 15% of the dividend, provided that such holder (i) qualifies for benefits under the Treaty, (ii) holds, directly and indirectly, less than 10% of our voting stock, and (iii) does not conduct business through a permanent establishment or fixed base in Switzerland
to which the shares or ADSsADRs are attributable. Such an eligible holder must apply for a refund of the amount of the Withholding Tax in excess of the 15% Treaty rate. A Non-resident Holder who is a resident of the United StatesUS for purposes of the Treaty is eligible for a reduced rate of tax on dividends equal to 5% of the dividend, provided that such holder (i) is a company, (ii) qualifies for benefits under the Treaty, (iii) holds directly at least 10% of our voting stock, and (iv) does not conduct business through a permanent establishment or fixed place of business in Switzerland to which the shares or ADSsADRs are attributable. Such an eligible holder must apply for a refund of the amount of the Withholding Tax in excess of the 5% Treaty rate. Claims for refunds must be filed on Swiss Tax Form 82 (82C for corporations; 82I for individuals; 82E for other entities), which may be obtained from any Swiss
Consulate General in the United StatesUS or from the Federal Tax Administration of Switzerland at the address below, together with an instruction form. Four copies of the form must be duly completed, signed before a notary public of the United States,US, and sent to the Federal Tax Administration of Switzerland, Eigerstrasse 65, CH-3003 Berne, Switzerland. The form must be accompanied by suitable evidence of deduction of Swiss tax withheld at source, such as certificates of deduction, signed bank vouchers or credit slips. The form may be filed on or after July 1 or January 1 following the date the dividend was payable, but no later than December 31 of the third year following the calendar year in which the dividend became payable. For US resident holders of ADSs,ADRs, JPMorgan Chase Bank, N.A., as Depositary, will comply with these Swiss procedures on behalf of the holders, and will remit the net amount to the holders.
Stamp Duty upon Transfer of Securities. The sale of shares, whether by Swiss residents or Non-resident Holders, may be subject to federal securities transfer Stamp Duty of 0.15%, calculated on the sale proceeds, if the sale occurs through or with a Swiss bank or other Swiss securities dealer, as defined in the Swiss Federal Stamp Duty Act. The Stamp Duty has to be paid by the securities dealer and may be charged to the parties in a taxable transaction who are not securities dealers. Stamp Duty may also be due if a sale of shares occurs with or through a non-Swiss bank or securities dealer, provided (i) such bank or dealer is a member of the SIX, and (ii) the sale takes place on the SIX. In addition to this Stamp Duty, the sale of shares by or through a member of the SIX may be subject to a minor stock exchange levy.
United States US Federal Income Taxation
The following is a general discussion of the material US federal income tax consequences of the ownership and disposition of our shares or ADSsADRs that may be relevant to you if you are a US Holder (as defined below). Because this discussion does not consider any specific circumstances of any particular holder of our shares or ADSs,ADRs, persons who are subject to US taxation are strongly urged to consult their own tax advisers as to the overall US federal, state and local tax consequences, as well as to the overall Swiss and other foreign tax consequences, of the ownership and disposition of our shares or ADSs.ADRs. In particular, additional or different rules may apply to US expatriates, banks and other financial institutions, regulated investment companies, traders in securities who elect to apply a mark-to-market method of accounting, dealers in securities or currencies, tax-exempt entities, insurance companies, broker-dealers, investors liable for alternative minimum tax, investors that hold shares or ADSsADRs as part of a straddle, hedging or conversion transaction, holders whose functional currency is not the US dollar, partnerships or other pass through entities, persons who acquired our shares pursuant to the exercise of employee stock options or otherwise as compensation and persons who hold directly, indirectly or by attribution, 10% or more of the voting power of our outstanding shares. This discussion generally applies only to US Holders who hold the shares or ADSsADRs as a capital asset (generally, for investment purposes), and whose functional currency is the US dollar. Investors are urged to consult their own tax advisors concerning whether they are eligible for benefits under the Treaty.
For purposes of this discussion, a "US Holder" is a beneficial owner of our shares or ADSsADRs who is (i) an individual who is a citizen or resident of the United StatesUS for US federal income tax purposes, (ii) a corporation (or other entity taxable as a corporation for US federal income tax purposes) created or organized in or under the laws of the US or a state thereof or the District of Columbia, (iii) an estate the income of which is subject to US federal income taxation regardless of its source, or (iv) a trust (i) subject
to the primary supervision of a US court and the control of one or more US persons or (ii) that has a valid election in place to be treated as a US person. If a partnership (or other entity treated as a partnership for US federal income tax purposes) holds shares or ADSs,ADRs, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. Partners in a partnership that holds shares or ADSsADRs are urged to consult their own tax advisor regarding the specific tax consequences of the owning and disposing of such shares or ADSsADRs by the partnership.
For US federal income tax purposes, a US Holder of ADSsADRs generally will be treated as the beneficial owner of our shares represented by the ADSs.ADRs. However, see the discussion below under "—Dividends" regarding certain statements made by the US Treasury concerning depositary arrangements.
This discussion assumes that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.
Dividends. US Holders will be required to include in gross income, as an item of ordinary income, the full amount (including the amount of any Withholding Tax) of a dividend paid with respect to our shares or ADSsADRs at the time that such dividend is received by the US Holder, in the case of shares, or by the Depository, in the case of ADSs.ADRs. For this purpose, a "dividend" will include any distribution paid by us with respect to our shares or ADSsADRs (other than certain pro rata distributions of our capital stock) paid out of our current or accumulated earnings and profits, as determined under US federal income tax principles. To the extent the amount of a distribution by us exceeds our current and accumulated earnings and profits, such excess will first be treated as a tax-free return of capital to the extent of a US Holder's tax basis in the shares or ADSsADRs (with a corresponding reduction in such tax basis), and thereafter will be treated as capital gain, which will be long-term capital gain if the US Holder held our shares or ADSsADRs for more than one year. Under the Code, dividend payments by us on the shares or ADSsADRs are not eligible for the dividends received deduction generally allowed to corporate shareholders.
Dividend income in respect of our shares or ADSsADRs will constitute income from sources outside the United StatesUS for US foreign tax credit purposes. Subject to the limitations and conditions provided in the Code, US Holders generally may claim as a credit against their US federal income tax liability, any Withholding Tax withheld from a dividend. The rules governing the foreign tax credit are complex. Each US Holder is urged to consult its own tax advisor concerning whether, and to what extent, a foreign tax credit will be available with respect to dividends received from us. Alternatively, a US Holder may claim the Withholding Tax as a deduction for the taxable year within which the Withholding Tax is paid or accrued, provided a deduction is claimed for all of the foreign income taxes the US Holder pays or accrues in the particular year. A deduction does not reduce US tax on a dollar-for-dollar basis like a tax credit. The deduction, however, is not subject to the limitations applicable to foreign tax credits.
The US Treasury has expressed concern that parties to whom ADSsADRs are released may be taking actions inconsistent with the claiming of foreign tax credits for US Holders of ADSs.ADRs. Accordingly, the summary above of the creditability of the Withholding Tax could be affected by future actions that may be taken by the US Treasury.
In general, a US Holder will be required to determine the amount of any dividend paid in Swiss francs, including the amount of any Withholding Tax imposed thereon, by translating the Swiss francs into US dollars at the spot rate on the date the dividend is actually or constructively received by a US Holder, in the case of shares, or by the Depositary, in the case of ADSs,ADRs, regardless of whether the Swiss francs are in fact converted into US dollars. If a US Holder converts the Swiss francs so received into US dollars on the date of receipt, the US Holder generally should not recognize foreign currency gain or loss on such conversion. If a US Holder does not convert the Swiss francs so received into US dollars on the date of receipt, the US Holder will have a tax basis in the Swiss francs equal to the US dollar value on such date. Any foreign currency gain or loss that a US Holder recognizes on a subsequent conversion or other disposition of the Swiss francs generally will be treated as US source ordinary income or loss.
For a non-corporate US Holder, the US dollar amount of any dividends paid to it prior to January 1, 2013 that constitute qualified dividend income generally will be taxable at a maximum rate of 15%. For tax years beginning after 2012, the top rate is 20% for taxpayers with incomes exceeding $400,000$413,200 ($450,000464,850 for joint filing taxpayers) provided that the US Holder meets certain holding period and other requirements. In addition, the dividends could be subject to a 3.8% net investment income tax. This tax is applied against the lesser of the US Holder's net investment income or modified adjusted gross income over $200,000 ($250,000 for joint filing taxpayers). We currently believe that dividends paid with respect to
our shares and ADSsADRs will constitute qualified dividend income for US federal income tax purposes. However, the US Treasury and the US Internal Revenue Service ("IRS") have announced their intention to promulgate rules pursuant to which US Holders of shares and ADSs,ADRs, among others, will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. US Holders of shares or ADSsADRs are urged to consult their own tax advisors regarding the availability to them of the reduced dividend rate in light of their own particular situation and the computations of their foreign tax credit limitation with respect to any qualified dividends paid to them, as applicable.
Sale or Other Taxable Disposition. Upon a sale or other taxable disposition of shares or ADSs,ADRs, US Holders generally will recognize capital gain or loss in an amount equal to the difference between the US dollar value of the amount realized on the disposition and the US Holder's tax basis (determined in US dollars) in the shares or ADSs.ADRs. This capital gain or loss generally will be US source gain or loss and will be treated as long-term capital gain or loss if the holding period in the shares or ADSsADRs exceeds one year. In the case of certain US Holders (including individuals), any long term capital gain generally will be subject to US federal income tax at preferential rates, which rates are subject to a maximum of 20% for taxpayers with incomes exceeding $400,000$413,200 ($450,000464,850 for joint filing taxpayers) for gains recognized after January 1, 2013. In addition, the gains could be subject to a 3.8% investment income tax. This tax is applied against the lesser of the US Holder's net investment income or modified adjusted gross income over $200,000 ($250,000 for joint filing taxpayers). The deductibility of capital losses is subject to significant limitations under the Code. Deposits or withdrawals of our shares by US Holders in exchanges for ADSsADRs will not result in the realization of gain or loss for US federal income tax purposes.
United StatesUS Information Reporting and Backup Withholding. Dividend payments with respect to shares or ADSsADRs and proceeds from the sale, exchange or other disposition of shares or ADSsADRs received in the United States or through US-related financial intermediaries, may be subject to information reporting to the IRS and possible US backup withholding. Certain exempt recipients (such as corporations) are not subject to these information reporting and backup withholding requirements. Backup withholding will not apply to a US Holder who furnishes a correct taxpayer identification number and makes any other required certification or who is otherwise exempt from backup withholding. Any US Holders required to establish their exempt status generally must provide a properly-executed IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a US Holder's US federal income tax liability, and a US Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS and furnishing any required information.
10.F Dividends and paying agents
Not applicable.
Not applicable.
Any statement in this Form 20-F about any of our contracts or other documents is not necessarily complete. If the contract or document is filed as an exhibit to the Form 20-F the contract or document is deemed to modify the description contained in this Form 20-F. You must review the exhibits themselves for a complete description of the contract or document.
You may review a copy of our filings with the SEC, as well as other information furnished to the SEC, including exhibits and schedules filed with it, at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information. In
addition, the SEC maintains an Internet site at http://www.sec.gov that contains reports and other information regarding issuers that file electronically with the SEC. These SEC filings are also available to the public from commercial document retrieval services.
We are required to file or furnish reports and other information with the SEC under the Securities Exchange Act of 1934 and regulations under that act. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the form and content of proxy statements and our officers, directors and principal shareholders are exempt from the reporting and short swing profit recovery provisions contained in Section 16 of the Exchange Act.
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
The major financial risks facing the Group are managed centrally by Group Treasury. We have a written Treasury PolicyDirective and have implemented a strict segregation of front office and back office controls. The Group does regular reconciliations of its positions with its counterparties. In addition the Treasury function is included in management's internal control assessment.
For information about the effects of currency fluctuations and how we manage currency risk, see "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Effects of Currency Fluctuations", "Item 5.A Operating Results—Currency Impact on Key Figures" and "Item 5.B Liquidity and Capital Resources".
For further information, see "Item 18. Financial Statements—note 16"Note 29".
Item 12. Description of Securities otherOther than Equity Securities
Not applicable.
Not applicable.
Not applicable.
12.D American Depositary Shares
Fees Payable By ADSADR Holders
According to our Deposit Agreement with the ADS depositary, JPMorgan Chase Bank (JPMorgan), holders of our ADSsADRs may have to pay to JPMorgan, either directly or indirectly, fees or charges up to the amounts set forth below:
Category | Depositary actions | Associated Fee | ||
---|---|---|---|---|
Depositing or substituting underlying shares | Acceptance of shares surrendered, and issuance of | $5.00 for each 100 ADSs (or portion thereof) evidenced by the new ADRs delivered | ||
—Share distributions | ||||
—Stock split | ||||
—Rights | ||||
—Merger | ||||
—Exchange of shares or any other transaction or event or other distribution affecting the ADSs or the deposited shares | ||||
Withdrawing underlying shares | Acceptance of | $5.00 for each 100 ADSs (or portion thereof) evidenced by the | ||
Selling or exercising rights | Distribution or sale of shares, the fee being in an amount equal to the fee for the execution and delivery of | $5.00 for each 100 ADSs (or portion thereof) | ||
Transferring, splitting or grouping receipts | Transfers, combining or grouping of depositary receipts | $ | ||
Expenses of the depositary | Expenses incurred on behalf of holders in connection with —compliance with foreign exchange control regulations or any law or regulation relating to foreign investment —the depositary's or its custodian's compliance with applicable law, rule or regulation. —stock transfer or other taxes and other governmental charges —cable, telex and facsimile transmission and delivery | Expenses payable at the sole discretion of the Depositary by billing Holders or by deducting charges from one or more cash dividends or other cash distributions. | ||
—expenses of the depositary in connection with the conversion of foreign currency into US dollars (which are paid out of such foreign currency) | ||||
—any other charge payable by any of the depositary or its agents | ||||
Advance tax relief | Tax relief/reclamation process for qualified holders. | A depositary service charge of |
Fees Payable By The Depositary To The Issuer
Pursuant to an agreement effective as of May 11, 2012, JPMorgan, as depositary, has agreed to reimburse Novartis $1.0 million per quarter, a total of $4.0 million per contract year, for expenses incurred directly related to our ADSADR program (the "Program") which were incurred during the contract year, including Program-related legal fees, expenses related to investor relations in the US, US investor presentations, ADS-relatedADR-related financial advertising and public relations, fees and expenses of JPMorgan as administrator of the ADS Direct Plan, reasonable accountants' fees in relation to our Form 20-F, maintenance and broker reimbursement expenses. Because our expenses related to these categories exceed $4.0 million (see, for example, the amount of our accountants' fees set forth at "Item 16C. Principal Accountant Fees and Services—Auditing and Additional Fees"), the $4.0 million cannot be deemed to have reimbursed us for any particular one or more of these expenses.
JPMorgan has further agreed not to seek reimbursement of up to $50,000 of out-of-pocket expenses incurred annually in providing such administrative services.
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
(a) Novartis AG's chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Form 20-F, have concluded that, as of such date, our disclosure controls and procedures were effective.
(b) Report of Novartis Management on Internal Control Over Financial Reporting: Novartis' Board of Directors and management of the Group are responsible for establishing and maintaining adequate internal control over financial reporting. The Group's internal control system was designed to provide reasonable assurance to the Group's management and Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of its published consolidated financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Group management assessed the effectiveness of the Group's internal control over financial reporting as of December 31, 2012.2015. In making this assessment, it used the criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment management concluded that, as of December 31, 2012,2015, Group's internal control over financial reporting is effective based on those criteria.
PricewaterhouseCoopers AG, Switzerland (PwC), an independent registered public accounting firm, has issued an unqualified opinion on the effectiveness of the Group's internal control over financial reporting which is included under "Item 18. Financial Statements" on page F-2.
(c) See the report of PwC, an independent registered public accounting firm, included under "Item 18. Financial Statements" on page F-2.
(d) There were no changes to our internal control over financial reporting that occurred during the period covered by this Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. Audit Committee Financial Expert
Our Audit and Compliance Committee has determined that Srikant Datar and Ulrich Lehner each possesspossesses specific accounting and financial management expertise and that eachhe is an Audit Committee Financial Expert as defined by the US Securities and Exchange Commission (SEC). The Board of Directors has also determined that Srikant Datar is "independent" in accordance with the applicable requirements of Rule 10A-3 of the US Securities Exchange Act of 1934, and that other members of the Audit and Compliance Committee have
Compliance Committee have sufficient experience and ability in finance and compliance matters to enable them to adequately discharge their responsibilities.
In addition to our Code of Conduct, which is applicable to all of our associates, we have adopted a Code of Ethical Conduct that imposes additional obligations on our principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions. This document is accessible on our Internet website at
http:https://www.novartis.com/investors/corporate-governance.shtmlcompany-overview/corporate-governance
Item 16C. Principal Accountant Fees and Services
Refer to "Item 6. Directors, Senior Management and Employees—Item 6.C Board Practices—TheOur Independent External Auditors."
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not Applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated PurchaserPurchasers
2012 | Total Number of Shares Purchased(1) (a) | Average Price Paid per Share in $ (b) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) (c) | Maximum Approximate Value of Shares that may yet be purchased under the Plans or Programs in CHF (d) | Maximum Approximate Value of Shares that may yet be purchased under the Plans or Programs in $(3) (e) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | (CHF millions) | ($ millions) | |||||||||||
Jan. 1-31 | 1,266,340 | 57.38 | 7,621 | 8,322 | ||||||||||||
Feb. 1-29 | 423,757 | 56.49 | 7,621 | 8,510 | ||||||||||||
Mar. 1-31 | 241,205 | 54.68 | 7,621 | 8,448 | ||||||||||||
Apr. 1-30 | 139,295 | 55.30 | 7,621 | 8,410 | ||||||||||||
May 1-31 | 3,369,524 | 52.04 | 7,621 | 7,861 | ||||||||||||
Jun. 1-31 | 1,851,876 | 52.10 | 7,621 | 7,980 | ||||||||||||
Jul. 1-31 | 434,763 | 56.44 | 7,621 | 7,784 | ||||||||||||
Aug. 1-31 | 306,345 | 59.30 | 7,621 | 7,936 | ||||||||||||
Sep. 1-30 | 175,615 | 60.09 | 7,621 | 8,137 | ||||||||||||
Oct. 1-31 | 203,560 | 62.36 | 7,621 | 8,184 | ||||||||||||
Nov. 1-30 | 60,526 | 60.21 | 7,621 | 8,237 | ||||||||||||
Dec. 1-31 | 171,265 | 63.02 | 7,621 | 8,328 | ||||||||||||
Total | 8,644,071 | 54.34 | ||||||||||||||
2015 | Total Number of Shares Purchased (a)(1) | Average Price Paid per Share in $ (b) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (c)(2) | Maximum Approximate Value of Shares that may yet be purchased under the Plans or Programs in CHF (d) | Maximum Approximate Value of Shares that may yet be purchased under the Plans or Programs in $ (e) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | (CHF millions) | ($ millions)(3) | |||||||||||
Jan. 1–31 | 3,937,701 | 96.43 | 2,160,000 | 5,076 | 5,468 | |||||||||||
Feb. 1–28 | 7,505,191 | 100.25 | 2,100,000 | 4,878 | 5,145 | |||||||||||
Mar. 1–31 | 2,969,714 | 98.99 | 2,340,000 | 4,650 | 4,792 | |||||||||||
Apr. 1–30 | 2,379,328 | 103.16 | 2,040,000 | 4,448 | 4,726 | |||||||||||
May 1–31 | 2,009,752 | 102.56 | 1,840,000 | 4,271 | 4,508 | |||||||||||
Jun. 1–30 | 2,353,429 | 101.67 | 2,270,000 | 4,056 | 4,348 | |||||||||||
Jul. 1–31 | 6,904,824 | 102.67 | 6,685,000 | 3,402 | 3,529 | |||||||||||
Aug. 1–31 | 6,479,905 | 101.30 | 6,305,000 | 2,784 | 2,894 | |||||||||||
Sep. 1–30 | 6,854,308 | 95.09 | 6,755,000 | 2,159 | 2,215 | |||||||||||
Oct. 1–31 | 6,902,592 | 92.38 | 6,830,000 | 1,548 | 1,568 | |||||||||||
Nov. 1–30 | 8,078,310 | 87.78 | 6,629,280 | 958 | 931 | |||||||||||
Dec. 1–31 | 7,212,944 | 85.89 | 3,923,900 | 623 | 630 | |||||||||||
| | | | | | | | | | | | | | | | |
Total | 63,587,998 | 95.94 | 49,878,180 | |||||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Item 16F. Change in Registrant's Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
Novartis ADSs are listed on the NYSE. Refer to "Item 6. Directors, Senior Management and Employees—Item 6.C Board Practices—Our corporate governance practices differ from those followed by domestic companies as required under the listing standards of the NYSE in that our shareholders do not receive written reports from committees of the Board of Directors. Also, our external auditors are appointed by our shareholders at the Annual General Meeting, as opposed to being appointed by the Audit and Compliance Committee. In addition, while our shareholders cannot vote on all equity compensation plans, they are entitled to hold a consultative vote on the compensation system of Novartis. The vote takes place before every significant change to the compensation system, but at least every third Annual General Meeting. Our Board of Directors has set up a separate Risk Committee that is responsible for risk oversight, as opposed to delegating this responsibility to the Audit and Compliance Committee. The Chairman of the Board of Directors and the Audit and Compliance Committee share responsibility for and authority to supervise the internal audit function. The full Board of Directors has responsibility for setting the objectives relevant to the compensation of the Chief Executive Officer, and for the evaluation of the performance of the Chief Executive Officer.Corporate Governance Framework."
Item 16H. Mine Safety Disclosure
Not applicable.
See "Item 18. Financial Statements."
The following financial statements are filed as part of this annual report on Form 20-F.
| Page | |||
---|---|---|---|---|
Index to consolidated financial statements | F-1 | |||
Report of PricewaterhouseCoopers AG | F-2 | |||
Consolidated income statements | F-4 | |||
Consolidated statements of comprehensive income | F-5 | |||
Consolidated statements of changes in equity | F-6 | |||
Consolidated balance sheets | F-7 | |||
Consolidated cash flow statements | F-8 | |||
Notes to the consolidated financial statements | F-9 |
1.1 | Articles of Incorporation of Novartis AG, as amended February | ||
1.2 | Regulations of the Board and Committee Charters of Novartis AG, as amended | ||
2.1 | Amended and Restated Deposit Agreement, dated as of May 11, 2000 among Novartis AG, JPMorgan Chase Bank (fka Morgan Guaranty Trust Company of New York), as depositary, and all holders from time to time of ADRs issued thereunder (incorporated by reference to Exhibit | ||
Amendment No. 1 to the Amended and Restated Deposit Agreement (incorporated by reference to Exhibit (a)(2) to Post-Effective Amendment No. 1 to Novartis AG's registration statement on Form F-6 (File No. 333-11758) as filed with the SEC on September 8, 2000). | |||
2.3 | Amendment No. 2 to the Amended and Restated Deposit Agreement (incorporated by reference to Exhibit (a)(3) to Novartis AG's registration statement on Form F-6 (File No. 333-13446) as filed with the SEC on May 7, 2001). | ||
2.4 | Restricted Issuance Agreement dated as of January 11, 2002 among Novartis AG, J.P. Morgan Chase | ||
Letter Agreement dated December 14, 2007 between Novartis AG and JPMorgan Chase Bank, as depositary (incorporated by reference to Exhibit 2.4 to the Form 20-F for the year ended December 31, 2007 as filed with the SEC on January 28, 2008). | |||
2.7 | The total amount of long-term debt securities authorized under any instrument does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. We hereby agree to furnish to the SEC, upon its request, a copy of any instrument defining the rights of holders of long-term debt of the Company or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed. | ||
4.1 | Implementation Agreement made on April 22, 2014, and amended and restated on May 29, 2014, between GlaxoSmithKline plc and Novartis AG. (Incorporated by reference to Exhibit 4.1 of the Form 20-F for the year ended December | ||
4.2 | Contribution Agreement relating to the Consumer Healthcare Joint Venture made on April 22, 2014, as amended and restated on May 29, 2014 and March 1, 2015, between Novartis AG, GlaxoSmithKline plc and GlaxoSmithKline Consumer Healthcare Holdings Limited (formerly known as Leo Constellation Limited). Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC. | ||
4.3 | Share and Business Sale Agreement relating to the Vaccines Group made on April 22, 2014, as amended and restated on May 29, 2014, as further amended on October 9, 2014, and as further amended and restated on March 1, 2015, between Novartis AG and GlaxoSmithKline plc. Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC. |
4.4 | Sale and Purchase Agreement in relation to the Oncology Business made on April 22, 2014, as amended and restated on May 29, 2014, November 21, 2014 and March 1, 2015, between GlaxoSmithKline plc and Novartis AG. Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC. | ||
4.5 | Put Option Deed relating to all or part of the Influenza Business of the Novartis Group made on April 22, 2014, and amended and restated on May 29, 2014, between Novartis AG and GlaxoSmithKline plc. Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC. (Incorporated by reference to Exhibit 4.5 of the Form 20-F for the year ended December 31, 2014, as filed with the SEC on January 27, 2015.) | ||
4.6 | Stock and Asset Purchase Agreement made on April 22, 2014, as amended on December 17, 2014, between Novartis AG and Eli Lilly and Company. Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC. (Incorporated by reference to Exhibit 4.6 of the Form 20-F for the year ended December 31, 2014, as filed with the SEC on January 27, 2015.) | ||
4.7 | Share and Business Sale Agreement relating to the Flu Group made on October 26, 2014, as amended and restated on July 31, 2015, between Novartis AG and CSL Limited. Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC. | ||
4.8 | Shareholders' Agreement relating to GlaxoSmithKline Consumer Healthcare Holdings Limited made on March 2, 2015, between GlaxoSmithKline Consumer Healthcare Holdings Limited, GlaxoSmithKline plc, Setfirst Limited, Novartis AG, Novartis Holding AG and Novartis Finance Corporation. Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC. | ||
6.1 | For earnings per share calculation, see "Item 18. Financial Statements— | ||
8.1 | For a list of all of our principal Group subsidiaries and associated companies, see "Item 18. Financial Statements— | ||
12.1 | Certification of Joseph Jimenez, Chief Executive Officer of Novartis AG, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
12.2 | Certification of | ||
13.1 | Certification of Joseph Jimenez, Chief Executive Officer of Novartis AG, pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
13.2 | Certification of | ||
Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers AG, to the incorporation by reference of the audit report contained in this Form 20-F into Novartis AG's Registration |
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
NOVARTIS AG | ||||
By: | /s/ Name: Title:Chief Financial Officer, Novartis Group | |||
By: | /s/ FELIX R. EHRAT Name: Felix R. Ehrat Title:General Counsel, Novartis Group |
Date: January 23, 201327, 2016
NOVARTIS GROUP
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |
---|---|---|
Index to consolidated financial statements | ||
Report of PricewaterhouseCoopers AG | F-2 | |
Consolidated income statements | F-4 | |
Consolidated statements of comprehensive income | F-5 | |
Consolidated statements of changes in equity | F-6 | |
Consolidated balance sheets | F-7 | |
Consolidated cash flow statements | F-8 | |
Notes to the consolidated financial statements | F-9 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Novartis AG, Basel
We have completed integrated audits of Novartis AG and its consolidated subsidiaries (Novartis Group) consolidated financial statements and of Novartis Groups' internal control over financial reporting as of December 31, 2012. Our opinions, based on In our integrated audits, are presented below.
Consolidated financial statements
We have auditedopinion, the accompanying consolidated financial statements ofbalance sheets and the Novartis Group as of December 31, 2012 and 2011, and for each of the three years in the period ended December 31, 2012 (comprisingrelated consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity, consolidated balance sheets, consolidated cash flow statements and notes) as set out on pagesnotes (pages F-4 through F-106F-118 in this Form 20-F.
These consolidated financial statements are the responsibility of the Board of Directors and management. Our responsibility is to express an opinion on these consolidated financial statements based on our integrated audits.
We conducted our audits in accordance with Swiss Auditing Standards, International Standards on Auditing and the standards of the Public Company Accounting Oversight Board of the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit of consolidated financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements20-F) present fairly, in all material respects, the financial position of the Novartis GroupAG and its consolidated subsidiaries (Group or Company) at December 31, 20122015 and 2011,December 31, 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20122015 in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
Internal control over financial reporting
We have also audited Also in our opinion, the effectiveness of the Novartis Group'sCompany maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012,2015, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Novartis' Board of Directors and management of the Group are responsible for these financial statements, for maintaining effective internal control over financial reporting and management is responsible for theits assessment of the effectiveness of internal control over financial reporting, included in the accompanying"Report of Novartis Management on Internal Control Over Financial Reporting" appearing under Item 15(b). Our responsibility is to express an opinionopinions on these financial statements and on the Novartis Group'sCompany's internal control over financial reporting based on our integrated audit.
audits. We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board of the United States of America. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. AnOur audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting includesincluded obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditaudits also includesincluded performing such other procedures as we considerconsidered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinion.
Table of Contentsopinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.IFRS. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,IFRS, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Novartis Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established inInternal Control—Integrated Framework issued by the COSO.
PricewaterhouseCoopers AG | ||
/s/ Audit expert Auditor in charge | /s/ Global relationship partner | |
Basel, January |
NOVARTIS GROUP CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENTS
(For the years ended December 31, 2012, 20112015, 2014 and 2010)2013)
| Note | 2012 | 2011 | 2010 | Note | 2015 | 2014 | 2013 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | $ m | $ m | $ m | | $ m | $ m | $ m | ||||||||||||||||||
Net sales | 3 | 56,673 | 58,566 | 50,624 | ||||||||||||||||||||||
Net sales to third parties from continuing operations | 3 | 49,414 | 52,180 | 51,869 | ||||||||||||||||||||||
Sales to discontinued segments | 26 | 239 | 221 | |||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Net sales from continuing operations | 3 | 49,440 | 52,419 | 52,090 | ||||||||||||||||||||||
Other revenues | 888 | 809 | 937 | 947 | 1,215 | 626 | ||||||||||||||||||||
Cost of goods sold | (18,756 | ) | (18,983 | ) | (14,488 | ) | (17,404 | ) | (17,345 | ) | (16,579 | ) | ||||||||||||||
Gross profit | 38,805 | 40,392 | 37,073 | |||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Gross profit from continuing operations | 32,983 | 36,289 | 36,137 | |||||||||||||||||||||||
Marketing & Sales | (14,353 | ) | (15,079 | ) | (13,316 | ) | (11,772 | ) | (12,377 | ) | (12,638 | ) | ||||||||||||||
Research & Development | (9,332 | ) | (9,583 | ) | (9,070 | ) | (8,935 | ) | (9,086 | ) | (9,071 | ) | ||||||||||||||
General & Administration | (2,937 | ) | (2,970 | ) | (2,481 | ) | (2,475 | ) | (2,616 | ) | (2,603 | ) | ||||||||||||||
Other income | 1,187 | 1,354 | 1,234 | 2,049 | 1,391 | 1,205 | ||||||||||||||||||||
Other expense | (1,859 | ) | (3,116 | ) | (1,914 | ) | (2,873 | ) | (2,512 | ) | (2,047 | ) | ||||||||||||||
Operating income | 3 | 11,511 | 10,998 | 11,526 | ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Operating income from continuing operations | 3 | 8,977 | 11,089 | 10,983 | ||||||||||||||||||||||
Income from associated companies | 4 | 552 | 528 | 804 | 4 | 266 | 1,918 | 599 | ||||||||||||||||||
Interest expense | 5 | (724 | ) | (751 | ) | (692 | ) | 5 | (655 | ) | (704 | ) | (683 | ) | ||||||||||||
Other financial income and expense | 5 | (96 | ) | (2 | ) | 64 | 5 | (454 | ) | (31 | ) | (92 | ) | |||||||||||||
Income before taxes | 11,243 | 10,773 | 11,702 | |||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Income before taxes from continuing operations | 8,134 | 12,272 | 10,807 | |||||||||||||||||||||||
Taxes | 6 | (1,625 | ) | (1,528 | ) | (1,733 | ) | 6 | (1,106 | ) | (1,545 | ) | (1,498 | ) | ||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Net income from continuing operations | 7,028 | 10,727 | 9,309 | |||||||||||||||||||||||
Net income/(loss) from discontinued operations | 30 | 10,766 | (447 | ) | (17 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Net income | 9,618 | 9,245 | 9,969 | 17,794 | 10,280 | 9,292 | ||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
| | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Attributable to: | ||||||||||||||||||||||||||
Shareholders of Novartis AG | 9,505 | 9,113 | 9,794 | 17,783 | 10,210 | 9,175 | ||||||||||||||||||||
Non-controlling interests | 113 | 132 | 175 | 11 | 70 | 117 | ||||||||||||||||||||
Basic earnings per share ($) | 7 | 3.93 | 3.83 | 4.28 | ||||||||||||||||||||||
Diluted earnings per share ($) | 7 | 3.89 | 3.78 | 4.26 | ||||||||||||||||||||||
Basic earnings per share ($) from continuing operations | 2.92 | 4.39 | 3.76 | |||||||||||||||||||||||
Basic earnings per share ($) from discontinued operations | 4.48 | (0.18 | ) | 0.00 | ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Total basic earnings per share ($) | 7 | 7.40 | 4.21 | 3.76 | ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Diluted earnings per share ($) from continuing operations | 2.88 | 4.31 | 3.70 | |||||||||||||||||||||||
Diluted earnings per share ($) from discontinued operations | 4.41 | (0.18 | ) | 0.00 | ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Total diluted earnings per share ($) | 7 | 7.29 | 4.13 | 3.70 | ||||||||||||||||||||||
| | | | | | | | | | | | |
The accompanying notesNotes form an integral part of the consolidated financial statements.
NOVARTIS GROUP CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(For the years ended December 31, 2012, 20112015, 2014 and 2010)2013)
| Note | 2012 | 2011 | 2010 | Note | 2015 | 2014 | 2013 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | $ m | $ m | $ m | | $ m | $ m | $ m | ||||||||||||||||||
Net income | 9,618 | 9,245 | 9,969 | 17,794 | 10,280 | 9,292 | ||||||||||||||||||||
Fair value adjustments on financial instruments, net of taxes | 8.1 | 116 | 21 | (33 | ) | |||||||||||||||||||||
Actuarial losses from defined benefit plans, net of taxes | 8.2 | (1,811 | ) | (1,421 | ) | (685 | ) | |||||||||||||||||||
Other comprehensive income to be eventually recycled into the consolidated income statement: | ||||||||||||||||||||||||||
Fair value adjustments on marketable securities, net of taxes | 8.1 | 28 | 89 | 132 | ||||||||||||||||||||||
Fair value adjustments on deferred cash flow hedges, net of taxes | 8.1 | 20 | 21 | 41 | ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Total fair value adjustments on financial instruments, net of taxes | 8.1 | 48 | 110 | 173 | ||||||||||||||||||||||
Novartis share of other items recorded in comprehensive income recognized by associated companies, net of taxes | 8.3 | (107 | ) | 1 | (94 | ) | 8.2 | (48 | ) | (5 | ) | 5 | ||||||||||||||
Currency translation effects | 8.4 | 808 | (559 | ) | 554 | 8.3 | (1,662 | ) | (2,220 | ) | 676 | |||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Total of items to eventually recycle | (1,662 | ) | (2,115 | ) | 854 | |||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Other comprehensive income never to be recycled into the consolidated income statement: | ||||||||||||||||||||||||||
Actuarial (losses)/gains from defined benefit plans, net of taxes | 8.4 | (147 | ) | (822 | ) | 1,504 | ||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Total comprehensive income | 8,624 | 7,287 | 9,711 | 15,985 | 7,343 | 11,650 | ||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
| | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Attributable to: | ||||||||||||||||||||||||||
Shareholders of Novartis AG | 8,512 | 7,171 | 9,524 | 15,977 | 7,274 | 11,538 | ||||||||||||||||||||
Continuing operations | 5,238 | 7,820 | 11,512 | |||||||||||||||||||||||
Discontinued operations | 10,739 | (546 | ) | 26 | ||||||||||||||||||||||
Non-controlling interests | 112 | 116 | 187 | 8 | 69 | 112 |
The accompanying notesNotes form an integral part of the consolidated financial statements.
NOVARTIS GROUP CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(For the years ended December 31, 2012, 20112015, 2014 and 2010)2013)
| Note | Share capital | Treasury shares | Share premium | Retained earnings | Total value adjustments | Total reserves | Non- controlling interests | Total equity | Note | Share capital | Treasury shares | Retained earnings | Total value adjustments | Issued share capital and reserves attributable to Novartis shareholders | Non- controlling interests | Total equity | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||||||||||||||||
Total equity at January 1, 2010 | 957 | (132 | ) | 198 | 55,096 | 1,268 | 56,562 | 75 | 57,462 | ||||||||||||||||||||||||||||||||||||||||||||
Total equity at January 1, 2013 | 1,001 | (92 | ) | 70,220 | (1,992 | ) | 69,137 | 126 | 69,263 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
Net income | 9,794 | 9,794 | 175 | 9,969 | 9,175 | 9,175 | 117 | 9,292 | |||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 8 | (94 | ) | (176 | ) | (270 | ) | 12 | (258 | ) | 8 | 5 | 2,358 | 2,363 | (5 | ) | 2,358 | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||
Total comprehensive income | 9,700 | (176 | ) | 9,524 | 187 | 9,711 | 9,180 | 2,358 | 11,538 | 112 | 11,650 | ||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||
Dividends | 9.1 | (4,486 | ) | (4,486 | ) | (4,486 | ) | 9.1 | (6,100 | ) | (6,100 | ) | (6,100 | ) | |||||||||||||||||||||||||||||||||||||||
Sale of treasury shares, net | 9.2 | 4 | 338 | 338 | 342 | ||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of treasury shares | 9.2 | (22 | ) | (2,968 | ) | (2,990 | ) | (2,990 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Increase in equity from exercise of options and employee transactions | 9.5 | 19 | 1,672 | 1,691 | 1,691 | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity-based compensation | 9.4 | 3 | 596 | 596 | 599 | 9.6 | 6 | 1,071 | 1,077 | 1,077 | |||||||||||||||||||||||||||||||||||||||||||
Impact of change of ownership of Alcon, Inc. | 9.8 | (74 | ) | (74 | ) | (74 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Excess of consideration exchanged for acquiring non-controlling interest compared to the recorded amounts | 9.6 | (96 | ) | (96 | ) | (96 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Impact of change in ownership of consolidated entities | 9.8 | (10 | ) | (10 | ) | (10 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Changes in non-controlling interests | 9.5 | 6,311 | 6,311 | 9.7 | (109 | ) | (109 | ) | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||
Total of other equity movements | 7 | (3,722 | ) | (3,722 | ) | 6,311 | 2,596 | 3 | (6,335 | ) | (6,332 | ) | (109 | ) | (6,441 | ) | |||||||||||||||||||||||||||||||||||||
Total equity at December 31, 2010 | 957 | (125 | ) | 198 | 61,074 | 1,092 | 62,364 | 6,573 | 69,769 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
Total equity at December 31, 2013 | 1,001 | (89 | ) | 73,065 | 366 | 74,343 | 129 | 74,472 | |||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
Net income | 9,113 | 9,113 | 132 | 9,245 | 10,210 | 10,210 | 70 | 10,280 | |||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 8 | 1 | (1,943 | ) | (1,942 | ) | (16 | ) | (1,958 | ) | 8 | (5 | ) | (2,931 | ) | (2,936 | ) | (1 | ) | (2,937 | ) | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||
Total comprehensive income | 9,114 | (1,943 | ) | 7,171 | 116 | 7,287 | 10,205 | (2,931 | ) | 7,274 | 69 | 7,343 | |||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||
Dividends | 9.1 | (5,368 | ) | (5,368 | ) | (5,368 | ) | 9.1 | (6,810 | ) | (6,810 | ) | (6,810 | ) | |||||||||||||||||||||||||||||||||||||||
Purchase of treasury shares, net | 9.2 | (31 | ) | (3,429 | ) | (3,429 | ) | (3,460 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Purchase of treasury shares | 9.2 | (43 | ) | (6,883 | ) | (6,926 | ) | (6,926 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Increase of Treasury share repurchase obligation under a share buy-back trading plan | 9.4 | (658 | ) | (658 | ) | (658 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Increase in equity from exercise of options and employee transactions | 9.5 | 23 | 2,377 | 2,400 | 2,400 | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity-based compensation | 9.4 | 4 | 802 | 802 | 806 | 9.6 | 6 | 1,137 | 1,143 | 1,143 | |||||||||||||||||||||||||||||||||||||||||||
Excess of consideration exchanged for acquiring non-controlling interest compared to the recorded amounts | 9.6 | (5,664 | ) | (5,664 | ) | (5,664 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Changes in non-controlling interests | 9.5 | (6,593 | ) | (6,593 | ) | 9.7 | (120 | ) | (120 | ) | |||||||||||||||||||||||||||||||||||||||||||
Fair value of Novartis shares used to acquire outstanding non-controlling interests in Alcon, Inc. | 9.7 | 59 | 31 | 9,073 | 9,073 | 9,163 | |||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||
Total of other equity movements | 59 | 4 | (4,586 | ) | (4,586 | ) | (6,593 | ) | (11,116 | ) | (14 | ) | (10,837 | ) | (10,851 | ) | (120 | ) | (10,971 | ) | |||||||||||||||||||||||||||||||||
Total equity at December 31, 2011 | 1,016 | (121 | ) | 198 | 65,602 | (851 | ) | 64,949 | 96 | 65,940 | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
Total equity at December 31, 2014 | 1,001 | (103 | ) | 72,433 | (2,565 | ) | 70,766 | 78 | 70,844 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
Net income | 9,505 | 9,505 | 113 | 9,618 | 17,783 | 17,783 | 11 | 17,794 | |||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 8 | (107 | ) | (886 | ) | (993 | ) | (1 | ) | (994 | ) | 8 | (48 | ) | (1,758 | ) | (1,806 | ) | (3 | ) | (1,809 | ) | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||
Total comprehensive income | 9,398 | (886 | ) | 8,512 | 112 | 8,624 | 17,735 | (1,758 | ) | 15,977 | 8 | 15,985 | |||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||
Dividends | 9.1 | (6,030 | ) | (6,030 | ) | (6,030 | ) | 9.1 | (6,643 | ) | (6,643 | ) | (6,643 | ) | |||||||||||||||||||||||||||||||||||||||
Sale of treasury shares, net | 9.2 | 2 | (91 | ) | (91 | ) | (89 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Purchase of treasury shares | 9.2 | (33 | ) | (6,086 | ) | (6,119 | ) | (6,119 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Reduction of share capital | 9.3 | (15 | ) | 21 | (6 | ) | (6 | ) | 9.3 | (10 | ) | 15 | (5 | ) | |||||||||||||||||||||||||||||||||||||||
Decrease of treasury share repurchase obligation under a share buy-back trading plan | 9.4 | 658 | 658 | 658 | |||||||||||||||||||||||||||||||||||||||||||||||||
Increase in equity from exercise of options and employee transactions | 9.5 | 14 | 1,578 | 1,592 | 1,592 | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity-based compensation | 9.4 | 6 | 850 | 850 | 856 | 9.6 | 6 | 809 | 815 | 815 | |||||||||||||||||||||||||||||||||||||||||||
Changes in non-controlling interests | 9.5 | (82 | ) | (82 | ) | 9.7 | (10 | ) | (10 | ) | |||||||||||||||||||||||||||||||||||||||||||
Fair value adjustments related to divestments | 8 | (100 | ) | 100 | |||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
Total of other equity movements | (15 | ) | 29 | (5,277 | ) | (5,277 | ) | (82 | ) | (5,345 | ) | (10 | ) | 2 | (9,789 | ) | 100 | (9,697 | ) | (10 | ) | (9,707 | ) | ||||||||||||||||||||||||||||||
Total equity at December 31, 2012 | 1,001 | (92 | ) | 198 | 69,723 | (1,737 | ) | 68,184 | 126 | 69,219 | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
Total equity at December 31, 2015 | 991 | (101 | ) | 80,379 | (4,223 | ) | 77,046 | 76 | 77,122 | ||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notesNotes form an integral part of the consolidated financial statements.
NOVARTIS GROUP CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(At December 31, 20122015 and 2011)2014)
| Note | 2012 | 2011 | Note | 2015 | 2014 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | $ m | $ m | | $ m | $ m | ||||||||||||||
Assets | ||||||||||||||||||||
Non-current assets | ||||||||||||||||||||
Property, plant & equipment | 10 | 16,939 | 15,627 | 10 | 15,982 | 15,983 | ||||||||||||||
Goodwill | 11 | 31,090 | 29,943 | 11 | 31,174 | 29,311 | ||||||||||||||
Intangible assets other than goodwill | 11 | 30,331 | 31,969 | 11 | 34,217 | 23,832 | ||||||||||||||
Investments in associated companies | 4 | 8,840 | 8,622 | 4 | 15,314 | 8,432 | ||||||||||||||
Deferred tax assets | 12 | 7,390 | 5,857 | 12 | 8,957 | 7,994 | ||||||||||||||
Financial assets | 13 | 1,117 | 938 | 13 | 2,466 | 1,720 | ||||||||||||||
Other non-current assets | 13 | 505 | 456 | 13 | 601 | 554 | ||||||||||||||
Total non-current assets | 96,212 | 93,412 | ||||||||||||||||||
| | | | | | | | | | |||||||||||
Total non-current assets related to continuing operations | 108,711 | 87,826 | ||||||||||||||||||
| | | | | | | | | | |||||||||||
Current assets | ||||||||||||||||||||
Inventories | 14 | 6,744 | 5,930 | 14 | 6,226 | 6,093 | ||||||||||||||
Trade receivables | 15 | 10,051 | 10,323 | 15 | 8,180 | 8,275 | ||||||||||||||
Marketable securities and derivative financial instruments | 16 | 2,567 | 1,366 | |||||||||||||||||
Marketable securities, commodities, time deposits and derivative financial instruments | 16 | 773 | 839 | |||||||||||||||||
Cash and cash equivalents | 16 | 5,552 | 3,709 | 16 | 4,674 | 13,023 | ||||||||||||||
Other current assets | 17 | 3,090 | 2,756 | 17 | 2,992 | 2,530 | ||||||||||||||
| | | | | | | | | | |||||||||||
Total current assets related to continuing operations | 22,845 | 30,760 | ||||||||||||||||||
Assets related to discontinued operations | 30 | 0 | 6,801 | |||||||||||||||||
| | | | | | | | | | |||||||||||
Total current assets | 28,004 | 24,084 | 22,845 | 37,561 | ||||||||||||||||
| | | | | | | | | | |||||||||||
Total assets | 124,216 | 117,496 | 131,556 | 125,387 | ||||||||||||||||
| | | | | | | | | | |||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |||||||||||
Equity and liabilities | ||||||||||||||||||||
Equity | ||||||||||||||||||||
Share capital | 18 | 1,001 | 1,016 | 18 | 991 | 1,001 | ||||||||||||||
Treasury shares | 18 | (92 | ) | (121 | ) | 18 | (101 | ) | (103 | ) | ||||||||||
Reserves | 68,184 | 64,949 | 76,156 | 69,868 | ||||||||||||||||
| | | | | | | | | | |||||||||||
Issued share capital and reserves attributable to Novartis AG shareholders | 69,093 | 65,844 | 77,046 | 70,766 | ||||||||||||||||
Non-controlling interests | 126 | 96 | 76 | 78 | ||||||||||||||||
| | | | | | | | | | |||||||||||
Total equity | 69,219 | 65,940 | 77,122 | 70,844 | ||||||||||||||||
| | | | | | | | | | |||||||||||
Liabilities | ||||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||
Financial debt | 19 | 13,781 | 13,855 | |||||||||||||||||
Financial debts | 19 | 16,327 | 13,799 | |||||||||||||||||
Deferred tax liabilities | 12 | 7,286 | 6,761 | 12 | 6,355 | 6,099 | ||||||||||||||
Provisions and other non-current liabilities | 20 | 9,879 | 7,792 | 20 | 8,044 | 7,672 | ||||||||||||||
Total non-current liabilities | 30,946 | 28,408 | ||||||||||||||||||
| | | | | | | | | | |||||||||||
Total non-current liabilities related to continuing operations | 30,726 | 27,570 | ||||||||||||||||||
| | | | | | | | | | |||||||||||
Current liabilities | ||||||||||||||||||||
Trade payables | 5,593 | 4,989 | 5,668 | 5,419 | ||||||||||||||||
Financial debt and derivative financial instruments | 21 | 5,945 | 6,374 | |||||||||||||||||
Financial debts and derivative financial instruments | 21 | 5,604 | 6,612 | |||||||||||||||||
Current income tax liabilities | 2,070 | 1,706 | 1,717 | 2,076 | ||||||||||||||||
Provisions and other current liabilities | 22 | 10,443 | 10,079 | 22 | 10,719 | 10,448 | ||||||||||||||
| | | | | | | | | | |||||||||||
Total current liabilities related to continuing operations | 23,708 | 24,555 | ||||||||||||||||||
Liabilities related to discontinued operations | 30 | 0 | 2,418 | |||||||||||||||||
| | | | | | | | | | |||||||||||
Total current liabilities | 24,051 | 23,148 | 23,708 | 26,973 | ||||||||||||||||
| | | | | | | | | | |||||||||||
Total liabilities | 54,997 | 51,556 | 54,434 | 54,543 | ||||||||||||||||
| | | | | | | | | | |||||||||||
Total equity and liabilities | 124,216 | 117,496 | 131,556 | 125,387 | ||||||||||||||||
| | | | | | | | | | |||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | |
The accompanying notesNotes form an integral part of the consolidated financial statements.
NOVARTIS GROUP CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOW STATEMENTS
(For the years ended December 31, 2012, 20112015, 2014 and 2010)2013)
| Note | 2015 | 2014 | 2013 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | $ m | $ m | $ m | |||||||||
Net income from continuing operations | 7,028 | 10,727 | 9,309 | ||||||||||
Reversal of non-cash items | 23.1 | 9,070 | 6,725 | 7,179 | |||||||||
Dividends received from associated companies and others | 432 | 479 | 444 | ||||||||||
Interest received | 34 | 35 | 40 | ||||||||||
Interest paid | (646 | ) | (668 | ) | (609 | ) | |||||||
Other financial receipts | 714 | 553 | 55 | ||||||||||
Other financial payments | (23 | ) | (24 | ) | (22 | ) | |||||||
Taxes paid(1) | (2,454 | ) | (2,179 | ) | (2,054 | ) | |||||||
| | | | | | | | | | | | | |
Cash flows before working capital and provision changes from continuing operations | 14,155 | 15,648 | 14,342 | ||||||||||
Payments out of provisions and other net cash movements in non-current liabilities | (1,207 | ) | (1,125 | ) | (947 | ) | |||||||
Change in net current assets and other operating cash flow items | 23.2 | (863 | ) | (625 | ) | (778 | ) | ||||||
| | | | | | | | | | | | | |
Cash flows from operating activities from continuing operations | 12,085 | 13,898 | 12,617 | ||||||||||
Cash flows used in/from operating activities from discontinued operations(1) | (188 | ) | (1 | ) | 557 | ||||||||
| | | | | | | | | | | | | |
Total cash flows from operating activities | 11,897 | 13,897 | 13,174 | ||||||||||
| | | | | | | | | | | | | |
Purchase of property, plant & equipment | (2,367 | ) | (2,624 | ) | (2,903 | ) | |||||||
Proceeds from sales of property, plant & equipment | 237 | 60 | 48 | ||||||||||
Purchase of intangible assets | (1,138 | ) | (780 | ) | (475 | ) | |||||||
Proceeds from sales of intangible assets | 621 | 246 | 96 | ||||||||||
Purchase of financial assets | (264 | ) | (239 | ) | (152 | ) | |||||||
Proceeds from sales of financial assets | 166 | 431 | 313 | ||||||||||
Purchase of other non-current assets | (82 | ) | (60 | ) | (38 | ) | |||||||
Proceeds from sales of other non-current assets | 1 | 2 | 15 | ||||||||||
Divestments/acquisitions of interests in associated companies | 1,370 | (52 | ) | ||||||||||
Acquisitions of businesses | 23.3 | (16,507 | ) | (331 | ) | (42 | ) | ||||||
Purchase of marketable securities and commodities | (595 | ) | (169 | ) | (278 | ) | |||||||
Proceeds from sales of marketable securities and commodities | 262 | 2,086 | 249 | ||||||||||
| | | | | | | | | | | | | |
Cash flows used in investing activities from continuing operations | (19,666 | ) | (8 | ) | (3,219 | ) | |||||||
Cash flows from/used in investing activities from discontinued operations(1) | 23.4 | 8,882 | 889 | (133 | ) | ||||||||
| | | | | | | | | | | | | |
Total cash flows used in/from investing activities | (10,784 | ) | 881 | (3,352 | ) | ||||||||
| | | | | | | | | | | | | |
Dividends paid to shareholders of Novartis AG | (6,643 | ) | (6,810 | ) | (6,100 | ) | |||||||
Acquisition of treasury shares | (6,071 | ) | (6,915 | ) | (2,930 | ) | |||||||
Proceeds from exercise options and other treasury share transactions | 1,581 | 2,400 | 1,693 | ||||||||||
Increase in non-current financial debts | 4,596 | 6,024 | 93 | ||||||||||
Repayment of non-current financial debts | (3,086 | ) | (2,599 | ) | (2,022 | ) | |||||||
Change in current financial debts | 451 | (107 | ) | 596 | |||||||||
Impact of change in ownership of consolidated entities | 4 | ||||||||||||
Dividends paid to non-controlling interests and other financing cash flows | (4 | ) | (140 | ) | (103 | ) | |||||||
| | | | | | | | | | | | | |
Cash flows used in financing activities | (9,176 | ) | (8,147 | ) | (8,769 | ) | |||||||
| | | | | | | | | | | | | |
Net effect of currency translation on cash and cash equivalents | (286 | ) | (295 | ) | 82 | ||||||||
| | | | | | | | | | | | | |
Net change in cash and cash equivalents | (8,349 | ) | 6,336 | 1,135 | |||||||||
Cash and cash equivalents at January 1 | 13,023 | 6,687 | 5,552 | ||||||||||
| | | | | | | | | | | | | |
Cash and cash equivalents at December 31 | 4,674 | 13,023 | 6,687 | ||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Note | 2012 | 2011 | 2010 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | $ m | $ m | $ m | |||||||||
Net income | 9,618 | 9,245 | 9,969 | ||||||||||
Reversal of non-cash items | 23.1 | 7,838 | 9,300 | 6,162 | |||||||||
Dividends received from associated companies and others | 426 | 404 | 571 | ||||||||||
Interest received | 49 | 66 | 170 | ||||||||||
Interest paid | (594 | ) | (640 | ) | (525 | ) | |||||||
Other financial receipts | 214 | ||||||||||||
Other financial payments | (22 | ) | (47 | ) | (145 | ) | |||||||
Taxes paid | (2,022 | ) | (2,435 | ) | (2,616 | ) | |||||||
Cash flows before working capital and provision changes | 15,507 | 15,893 | 13,586 | ||||||||||
Restructuring payments and other cash payments from provisions | (1,173 | ) | (1,471 | ) | (1,281 | ) | |||||||
Change in net current assets and other operating cash flow items | 23.2 | (140 | ) | (113 | ) | 1,762 | |||||||
Cash flows from operating activities | 14,194 | 14,309 | 14,067 | ||||||||||
Purchase of property, plant & equipment | (2,698 | ) | (2,167 | ) | (1,678 | ) | |||||||
Proceeds from sales of property, plant & equipment | 92 | 61 | 36 | ||||||||||
Purchase of intangible assets | (370 | ) | (220 | ) | (554 | ) | |||||||
Proceeds from sales of intangible assets | 163 | 643 | 545 | ||||||||||
Purchase of financial assets | (180 | ) | (139 | ) | (124 | ) | |||||||
Proceeds from sales of financial assets | 221 | 59 | 66 | ||||||||||
Purchase of other non-current assets | (57 | ) | (48 | ) | (15 | ) | |||||||
Proceeds from sales of other non-current assets | 18 | 5 | 3 | ||||||||||
Acquisitions of interests in associated companies | (12 | ) | |||||||||||
Acquisitions and divestments of businesses | 23.3 | (1,741 | ) | (569 | ) | (26,666 | ) | ||||||
Purchase of marketable securities | (1,639 | ) | (1,750 | ) | (40,569 | ) | |||||||
Proceeds from sales of marketable securities | 516 | 3,345 | 53,200 | ||||||||||
Cash flows used in investing activities | (5,675 | ) | (792 | ) | (15,756 | ) | |||||||
Acquisition of treasury shares | (505 | ) | (3,628 | ) | (311 | ) | |||||||
Disposal of treasury shares | 414 | 159 | 711 | ||||||||||
Increase in non-current financial debt | 1,979 | 281 | 5,674 | ||||||||||
Repayment of non-current financial debt | (704 | ) | (28 | ) | (5 | ) | |||||||
Change in current financial debt | (1,737 | ) | (3,054 | ) | 2,610 | ||||||||
Proceeds from issuance of share capital to third parties | 4 | 19 | |||||||||||
Acquisition of non-controlling interests | (6 | ) | (3,187 | ) | (32 | ) | |||||||
Dividends paid to non-controlling interests and other financing cash flows | (86 | ) | (203 | ) | (64 | ) | |||||||
Dividends paid to shareholders of Novartis AG | (6,030 | ) | (5,368 | ) | (4,486 | ) | |||||||
Cash flows used in financing activities | (6,675 | ) | (15,024 | ) | 4,116 | ||||||||
Net effect of currency translation on cash and cash equivalents | (1 | ) | (103 | ) | (2 | ) | |||||||
Net change in cash and cash equivalents | 1,843 | (1,610 | ) | 2,425 | |||||||||
Cash and cash equivalents at January 1 | 3,709 | 5,319 | 2,894 | ||||||||||
Cash and cash equivalents at December 31 | 5,552 | 3,709 | 5,319 | ||||||||||
The accompanying notesNotes form an integral part of the consolidated financial statements.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
The Novartis Group (Group(Novartis or 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 and also including eye care products and cost saving generic pharmaceuticals. It is headquartered in Basel, Switzerland.
The consolidated financial statements of the Group complyare prepared in accordance with the International Financial Reporting Standards (IFRS) as publishedissued by the International Accounting Standards Board (IASB). They are prepared in accordance with the historical cost convention except for items that are required to be accounted for at fair value.
The Group's financial year endyear-end is December 31 which is also the annual closing date of the individual entityentities' financial statements incorporated into the Group's consolidated financial statements.
The preparation of financial statements requires management to make certain estimates and other judgmentsassumptions, either at the balance sheet date or during the year that affect the reported amounts of assets and liabilities, (includingincluding any contingent amounts)amounts, as well as of revenues and expenses. Actual outcomes and results could differ from those estimates.estimates and assumptions.
Listed below are accounting policies of significance to Novartis or, in cases where IFRS provides alternatives, the option adopted by Novartis.
The consolidated financial statements include all entities, thatincluding structured entities, over which Novartis AG, Basel, Switzerland, directly or indirectly controlshas control (generally as a result of owning more than 50% of the entity's voting interest). Special purpose entities, irrespective of their legal structure, are consolidated in instances where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from their activities. Consolidated entities are also referred to as "subsidiaries".
WhereIn cases where Novartis does not fully own a subsidiary it has elected to value any remaining outstanding non-controlling interest at the time of acquiring control of the subsidiary at its proportionate share of the fair value of the net identified assets.
The contribution of a business to an associate or joint venture is accounted for by applying the option under IFRS that permits the accounting for the retained interest of the business contributed at its net book value at the time of the contribution.
Investments in associated companies (generally defined as investments in entities in which Novartis holds between 20% and 50% of voting shares or over which it otherwise has significant influence) and joint ventures are accounted for using the equity method.method except for selected venture fund investments for which the Group has elected to apply the method of fair value through the consolidated income statement.
The consolidated financial statements of Novartis are presented in US dollars ($). The functional currency of subsidiaries is generally the local currency of the respective entity. The functional currency used for the reporting of certain Swiss and foreign finance entities is $ instead of their respective local currencies. This reflects the fact that the cash flows and transactions of these entities are primarily denominated in these currencies.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
For subsidiaries not operating in hyperinflationary economies, the subsidiary's results, financial position and cash flows that do not have $ as their functional currency are translated into $ using the following exchange rates:
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
The only hyperinflationary economy applicable to Novartis is Venezuela. The financial statements of the major subsidiaries in this country are first adjusted for the effect of inflation and then translated into $ at the year-end exchange rate with any gain or loss on the net monetary position recorded in the related functional lines in the consolidated income statement.statement and then translated into $.
Acquired assets are initially recognized on the balance sheet at cost if they meet the criteria for capitalization. If acquired as part of a business combination, the fair value of identified assets represents the cost for these assets. If separately acquired, the cost of the asset includes the purchase price and any directly attributable costs for bringing the asset into the condition to operate as intended. Expected costs for obligations to dismantle and remove property, plant and equipment when it is no longer used are included in their cost.
Property, plant and equipment are depreciated on a straight-line basis in the consolidated income statement over their estimated useful lives. Leasehold land is depreciated over the period of its lease whereas freehold land is not depreciated. Property, plant and equipment is assessed for impairment whenever there is an indication that its balance sheet carrying amount may not be recoverable. The related depreciation expense is included in the costs of the functions using the asset.
Property, plant and equipment are assessed for impairment whenever there is an indication that the balance sheet carrying amount may not be recoverable using cash flow projections for the useful life.
The following table shows the respective useful lives for property, plant and equipment:
| Useful life | |||
---|---|---|---|---|
Buildings | 20 to 40 years | |||
Machinery and other equipment | ||||
Machinery and equipment | 7 to 20 years | |||
Furniture and vehicles | 5 to 10 years | |||
Computer hardware | 3 to 7 years |
Government grants obtained for construction activities, including any related equipment, are deducted from the gross acquisition cost to arrive at the balance sheet carrying value of the related assets.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
Goodwill and Intangible Assets
Goodwill
Goodwill arises in a business combination and is the excess of the consideration transferred to acquire a business over the underlying fair value of the net identified assets acquired. It is allocated to groups of cash generating units (CGUs) which are usually represented by the reported segments. For Consumer Health each division is a separate CGU. Goodwill is tested for impairment annually at the CGU level and any impairment charges are recorded under "Other Expense" in the consolidated income statement.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
Intangible Assets Available for UseAvailable-for-Use
Novartis has the following classes of available-for-use intangible assets other than goodwill:assets: Currently marketed products; Marketing know-how; Technologies; Other intangible assets (including computer software) and the Alcon brand name.
Currently marketed products represent the composite value of acquired intellectual property, patents, and distribution rights and product trade names.
Marketing know-how represents the value attributable to the expertise acquired for marketing and distributing Alcon surgical equipment.
Technologies represent identified and separable acquired know-how used in the research, development and production processes.
Significant investments in internally developed and acquired computer software are capitalized and included in the "Other" category and amortized once available for use.
The Alcon brand name is shown separately as it is the only Novartis intangible asset that is available for use with an indefinite useful life. Novartis considers that it is appropriate that the Alcon brand name has an indefinite life since Alcon has a history of strong revenue and cash flow performance, and Novartis has the intent and ability to support the brand with spending to maintain its value for the foreseeable future.
Except for the Alcon brand name, intangible assets available for use are amortized over their estimated useful lives on a straight-line basis and testedevaluated for potential impairment whenever facts and circumstances indicate that their carrying value may not be recoverable. The Alcon brand name is not amortized, but testedevaluated for potential impairment annually.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
The following table shows the respective useful lives for available for useavailable-for-use intangible assets and the location in the consolidated income statement in which the respective amortization and any potential impairment charge is recognized:
| Useful life | Income statement location for amortization and impairment charges | ||
---|---|---|---|---|
Currently marketed products | 5 to 20 years | "Cost of goods sold" | ||
| 25 years | "Cost of goods sold" | ||
Technologies | 10 to 30 years | "Cost of goods sold" or "Research and Development" | ||
Other (including computer software) | 3 to 5 years | In the respective functional expense | ||
Alcon brand name | Not applicable |
Intangible Assets Not Yet Available for UseAvailable-for-Use
Acquired research and development intangible assets, which are still under development and have accordingly not yet obtained marketing approval, are recognized as In-Process Research & Development (IPR&D). IPR&D assets are only capitalized if they are deemed to enhance the intellectual property of
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
Novartis and include items such as initial upfront and milestone payments on licensed or acquired compounds.
IPR&D is not amortized, but testedevaluated for potential impairment on an annual basis or when facts and circumstances warrant an impairment test.warrant. Any impairment charge is recorded in the consolidated income statement under "Research & Development". Once a project included in IPR&D has been successfully developed it is transferred to the "Currently marketed product" category mentioned above.category.
Impairment of Goodwill and Intangible Assets and Property, Plant and Equipment
An asset is generally considered impaired when its balance sheet carrying amount exceeds its estimated recoverable amount, which is defined as the higher of its fair value less costs to sellof disposal and its value in use. Usually, Novartis adoptsapplies the fair value less costs to sellof disposal method for its impairment tests.assessment. In most cases no directly observable market inputs are available to measure the fair value less cost to sell, thereforecosts of disposal. Therefore, an estimate is derived indirectly and is based on net present value techniques utilizing post-tax cash flows and discount rates. In the limited cases where the value in use method iswould be applied, net present value techniques are utilizedwould be applied using pre-tax cash flows and discount rates.
Fair value less costs of disposal reflects estimates of assumptions that market participants would be expected to use when pricing the asset or CGU, and for this purpose management considers the range of economic conditions that are expected to exist over the remaining useful life of the asset.
The estimates used in calculating the net present values are highly sensitive and depend on assumptions specific to the nature of the Group's activities with regard to:
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
Generally, for intangible assets and property, plant and equipment with a definite useful life Novartis uses cash flow projections for the whole useful life of these assets, and for goodwill and the Alcon brand name, Novartis utilizes cash flow projections for a five-year period based on management forecasts, with a terminal value based on salescash flow projections usually in line with or lower than inflation rates for later periods. Probability-weighted scenarios are typically used.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
Discount rates used are based on the Group's estimated weighted average cost of capital adjusted for specific country and currency risks associated with cash flow projections as an approximation of the weighted average cost of capital of a comparable market participant.
Due to the above factors, actual cash flows and values could vary significantly from forecasted future cash flows and related values derived using discounting techniques.
Impairment of Associated Companies Accounted For at Equity
Novartis considers investments in associated companies for impairment testingevaluation whenever there is a quoted share price and when this hasindicating a fair value less than the per shareper-share balance sheet carrying value for the investment. For unquoted investments in associated companies recent financial information is taken into account to assess whether an impairment testingevaluation is necessary.
If the recoverable amount of the investment is estimated to be lower than the balance sheet carrying amount an impairment charge is recognized for the difference in the consolidated income statement under "Income from associated companies".
Cash and Cash Equivalents,equivalents, Marketable Securities, Commodities, Derivative Financial Instruments and Non-Current Financial Assets
Cash and cash equivalents include highly liquid investments with original maturities of three months or less which are readily convertible to known amounts of cash. Bank overdrafts are usually presented within "Currentcurrent financial debt"debts on the consolidated balance sheet except in cases where a right of offset has been agreed with a bank which then allows for presentation on a net basis.
The Group defines "marketable securities" as those financial itemsassets which are managed by the Group's Corporate Treasury activity and consist principally of quoted equity and quoted debt securities as well as fund investments which are principally traded in liquid markets. Certain financial assetsmarketable securities are managed independently of Corporate Treasury, and these are typically are held for long-term strategic purposes and are therefore classified as non-current financial assets. They include equity securities and fund investments.
Financial assetsMarketable securities are initially recorded at fair value on their trade date.date which is different from the settlement date when the transaction is ultimately effected. Quoted securities are re-measured at each
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
reporting date to fair value based on current market prices. If the market for a financial asset is not active or no market is available, fair values are established using valuation techniques. These include the use of dataApart from the most recent arm's length relevant transactions, such as new financing rounds or partial disposals; reference to other instruments that are substantially the same; a discounted cash flow analysis;analysis and other pricing models, that make maximum usefor the majority of observable market data.investments in what is known as the "Level 3" hierarchy, the valuation is based on the acquisition cost as the best approximation of the fair value of the investee. This is adjusted for a higher or lower valuation in connection with a partial disposal, a new round of financing and for the investee's performance below or above expectations. The fair value of investments in "Level 3" is reviewed regularly for a possible diminution in value.
The Group has classified all its equity and quoted debt securities as well as fund investments as available-for-sale, as they are not acquired to generate profit from short-term fluctuations in price. Unrealized gains, except exchange gains related to quoted debt instruments, are recorded as a fair value adjustment in the consolidated statement of comprehensive income. They are recognized in the consolidated income statement when the financial asset is sold at which time the gain is transferred either to "Other financial income and expense" for the marketable securities managed by the Group's Corporate Treasury activity or to "Other income" in the consolidated income statement for all other equity securities
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
and fund investments. Exchange gains related to quoted debt instruments are immediately recognized in the consolidated income statement under "Other financial income and expense".
A security is assessed for impairment when its market value at the balance sheet date is less than initial cost reduced by any previously recognized impairment. Impairments on equity securities, quoted debt securities and fund investmentinvestments, and exchange rate gains and losses on quoted debt securities in a foreign currency which are managed by the Group's Corporate Treasury activity are immediately recorded in "Other financial income and expense" and impairments. Impairments are recorded for all other equity securities and other fund investments in "Other expense" or "Other income" in the consolidated income statement.
Commodities include gold bullion or coins which are valued at the lower of cost or fair value using current market prices. The changes in fair value below cost are immediately recorded in "Other financial income and expense".
Other non-current financial assets including loans are carried at either amortized cost, which reflects the time value of money, or cost adjusted for any accrued interest, less any allowances for uncollectable amounts. Impairments and exchange rate gains and losses on other non-current financial assets, including loans, as well as interest income using the effective interest rate method, are immediately recorded in "Other income" or "Other expense" in the consolidated income statement.
Derivative financial instruments are initially recognized in the balance sheet at fair value and are re-measured to their current fair value at the end of each subsequent reporting period. The valuation of a forward exchange rate contract is based on the discounted cash flow model, using interest curves and spot rates at the reporting date as observable inputs.
Options are valued based on a modified Black-Scholes model using volatility and exercise prices as major observable inputs.
The Group utilizes derivative financial instruments for the purpose of hedging to reduce the volatility in the Group's performance due to the exposure to various types of business risks which the Group may face.risks. The Group, therefore, enters into certain derivative financial instruments which provide effective economic hedges under the Group's policies.hedges. The risk reduction is obtained because the derivative's value or cash flows are expected, wholly or partly, to move inversely to the hedged item and, therefore, offset changes in the value or cash flows of the hedged item. The Group's overall hedging strategy is aiming to mitigate the currency and interest exposure risk of positions
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
which are contractually agreed and to partially hedge the exposure risk of selected anticipated transactions. However, the Group generally does not hedge the translation risk related to its foreign investments.
Not all of the financial impact of derivative financial instruments can be matched with the financial impact of the economically hedged item. A pre-requisiteprerequisite for obtaining this accounting hedgeaccounting-hedge relationship is extensive documentation on inception and proving on a regular basis that the economic hedge is effective for accounting purposes. Changes in the fair value of any derivative instruments that do not qualify for cash flow hedge accounting are recognized immediately in "Other financial income and expense" in the consolidated income statement.
Inventory is valued at acquisition or production cost determined on a first-in first-out basis, and thisbasis. This value is used for the "Cost of goods sold" in the consolidated income statement. Unsalable inventory is fully written off in the consolidated income statement under "Cost of goods sold".
Trade receivables are initially recognized at their invoiced amounts including any related sales taxes less adjustments for estimated revenue deductions such as rebates, chargebacks and cash discounts.
Provisions for doubtful trade receivables are established once there is an indication that it is likely that a loss will be incurred andincurred. These provisions represent the difference between the trade receivable's carrying amount in
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
the consolidated balance sheet and the estimated net collectible amount. Significant financial difficulties of a customer, such as probability of bankruptcy, or financial reorganization, default or default/delinquency in payments are considered indicators that recovery of the trade receivable is doubtful. Charges for doubtful trade receivables are recognized in the consolidated income statement within "Marketing & Sales" expenses.
Legal and Environmental Liabilities
SubsidiariesNovartis and its subsidiaries are subject to contingencies arising in the ordinary course of business such as patent litigation, environmental remediation liabilities and other product-related litigations,litigation, commercial litigations, proceedingslitigation, and governmental investigations.investigations and proceedings. Provisions are made where a reliable estimate can be made of the probable outcome of legal or other disputes including related fees and expenses against the subsidiary. Novartis believes that its total provisions are adequate based upon currently available information, however, given the inherent difficulties in estimating liabilities in this area, Novartis may incur additional costs beyond the amounts provided. Management believes that such additional amounts, if any, would not be material to the Group's financial condition but could be material to the results of operations or cash flows in a given period.
In a business combination or divestment of a business, it is necessary to recognize contingent future payments to previous or from new owners representing contractually defined potential amounts as a liability.liability or asset. Usually for Novartis, these are linked to milestone or royalty payments related to intangiblecertain assets and are recognized as a financial liability or asset at their fair value which is then re-measured at
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
each subsequent reporting date. These usuallyestimations typically depend on factors such as technical milestones or market performance and are adjusted for the probability of their likelihood of payment and if material, appropriately discounted to reflect the impact of time. Changes in the fair value of contingent paymentsliabilities in subsequent periods are recognized in the consolidated income statement.statement in "Cost of goods sold" for currently marketed products and in "Research & Development" for IPR&D. Changes in contingent assets are recognized in "Other income" or "Other expense". The effect of unwinding the discount over time is recognized in "Interest expense" in the consolidated income statement. When Novartis acquires assets subject todoes not recognize contingent paymentsconsideration associated with asset purchases outside of a business combination that are conditional upon future events which are within its control until such time as there is an unconditional obligation. If the contingent payments are onlyconsideration is outside the control of Novartis, a liability is recognized when theyonce it becomes probable that the contingent consideration will become unconditional when they are included in the cost of the related assets.due. In both cases, if appropriate, a corresponding asset is recorded.
Defined Benefit Pension Plans and Other Post-Employment Benefits
The liability in respect of defined benefit pension plans and other post-employment benefits is the defined benefit obligation calculated annually by independent actuaries using the projected unit credit method. The current service cost for such post-employment benefit plans is included in the personnel expenses of the various functions where the associates are employed, while the expected returnnet interest on plan assets and interest expense arethe net defined benefit liability or asset is recognized as "Other income"expense" or "Other expense"income".
The effects of changes in actuarial assumptions and experience adjustments on the value of plan assets and liabilities of defined benefit plans are immediately recognized in the consolidated balance sheet with a corresponding movement in the consolidated statement of comprehensive income.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
Treasury shares are initially recorded at fair value on their trade date which is different from the settlement date when the transaction is ultimately effected. Treasury shares are deducted from consolidated equity at their nominal value of CHF 0.50 per share. Differences between thisthe nominal amount and the transaction price on purchases or sales of treasury shares with third parties, or the value of services received for the shares allocated to associates as part of share-based compensation arrangements, are recorded in "Retained earnings" in the consolidated statement of changes in equity.
Revenue
Revenue is recognized on the sale of Novartis Group products and services and recorded as "Net sales" in the consolidated income statement when there is persuasive evidence that a sales arrangement exists, title and risks and rewards for the products are transferred to the customer, the price is determinable and collectability is reasonably assured. WhereWhen contracts contain customer acceptance provisions, sales are recognized upon the satisfaction of acceptance criteria which for surgical equipment is when title and risk and rewards are transferred after installation and any required training has been completed.criteria. If products are stockpiled at the request of the customer, revenue is only recognized once the products have been inspected and accepted by the customer and there is no right of return or replenishment on product expiry and cost of storage will be paid by the customer on normal commercial terms.expiry.
Provisions for rebates and discounts granted to government agencies, wholesalers, retail pharmacies, managed carehealthcare organizations and other customers are recorded as a reduction ofdeduction from revenue at the time the related revenues are recorded or when the incentives are offered. They are calculated on the basis of historical experience and the specific terms in the individual agreements. Provisions for refunds granted to healthcare providers under innovative pay for performancepay-for-performance agreements are recorded as a reduction of revenue deduction at the time the related revenuessales are recorded. They are calculated on the basis of historical
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
experience and clinical data available for the product as well as the specific terms in the individual agreements. In cases where historical experience and clinical data are not sufficient for a reliable estimation of the outcome, revenue recognition is deferred until such history is available.
Cash discounts are offered to customers to encourage prompt payment and are recorded as revenue deductions. Wholesaler shelf-inventory adjustments are granted toFollowing a decrease in the price of a product, we generally grant customers based on thea "shelf stock adjustment" for a customer's existing inventory of a productfor the involved product. Provisions for shelf stock adjustments, which are primarily relevant within the Sandoz Division, are determined at the time of decreases in the invoice or contract price of a productdecline or at the point of sale, if the impact of a price decline ison the products sold can be reasonably estimable. Whereestimated based on the customer's inventory levels of the relevant product. When there is historical experience of Novartis agreeing to customer returns orand Novartis can otherwise reasonably estimate expected future returns, Novartis records a provision is recorded for estimated sales returns. In doing so it applies the estimated rate of return is applied, determined based on historical experience of customer returns orand considering any other relevant factors,factors. This is applied to the amounts invoiced also considering the amount of returned products to be destroyed versus products that can be placed back in inventory for resale. Where shipments are made on a re-sale or return basis, without sufficient historical experience for estimating sales returns, revenue is only recorded when there is evidence of consumption or when the right of return has expired.
Provisions for revenue deductions are adjusted to actual amounts as rebates, discounts and returns are processed. The provision represents estimates of the related obligations, requiring the use of judgment when estimating the effect of these sales deductions.
TableRevenue from Lease Arrangements
For surgical equipment, in addition to cash and instalment sales, revenue is recognized under finance and operating lease arrangements. An arrangement that is not in the legal form of Contentsa lease is accounted for as a lease if it is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Arrangements in which Novartis transfers substantially all the risks and rewards incidental to ownership to the customer are treated as finance lease arrangements. Revenue from finance lease arrangements is recognized at amounts equal to the fair values of the equipment, which approximate the present values of the minimum lease payments under the arrangements. As interest rates embedded in lease arrangements are approximately market rates, revenue under finance lease arrangements is comparable to revenue for outright sales. Finance income for arrangements in excess of twelve months is deferred and subsequently recognized based on a pattern that approximates the use of the effective interest method and recorded in "Other income". Operating lease revenue for equipment rentals is recognized on a straight-line basis over the lease term.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
Other Revenue
Royalty income is reported under "Other revenue" inincludes royalty income and revenue from activities such as manufacturing services or other services rendered to the consolidated income statement and recognized on an accruals basis in accordance with the substance of the relevant agreements.extent such revenue is not recorded under net sales.
Internal Research & Development (R&D) costs are fully charged to "Research & Development" in the consolidated income statement in the period in which they are incurred. The Group considers that regulatory and other uncertainties inherent in the development of new products preclude the capitalization of internal development expenses as an intangible asset until marketing approval from a
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
regulatory authority is obtained in a major market such as the United States, the European Union, Switzerland or Japan.
Payments made to third parties in compensation for subcontracted R&D, such as contract research and development organizations, that is deemed not to enhance the intellectual property of Novartis such as contract research and development organizations are expensed as internal R&D expenses in the period in which they are incurred. Such payments are only capitalized if they meet the criteria for recognition of an internally generated intangible asset, usually when marketing approval has been achieved from a regulatory authority in a major market.
Payments made to third parties in order to in-license or acquire intellectual property rights, compounds and products, (IPR&D), including initial upfront and subsequent milestone payments, are capitalized as are payments for other assets, such as technologies to be used in R&D activities. If additional payments are made to the originator company to continue to perform R&D activities, an evaluation is made as to the nature of the payments. Such additional payments will be expensed if they are deemed to be compensation for subcontracted R&D services not resulting in an additional transfer of intellectual property rights to Novartis. By contrast, such additional payments will be capitalized if they are deemed to be compensation for the transfer to Novartis of additional intellectual property developed at the risk of the originator company. Subsequent internal R&D costs in relation to IPR&D and other assets are expensed since the technical feasibility of the internal R&D activity can only be demonstrated by the receipt of marketing approval for a related product from a regulatory authority in a major market.
Costs for post-approval studies performed to support the continued registration of a marketed product are recognized as marketing expenses. Costs for activities that are required by regulatory authorities as a condition for obtaining marketing approval are charged as development expenses as they are incurred, in cases where it is anticipated that the related product will be sold over a longer period than the activities required to be performed to obtain the marketing approval. In the rare cases where costs related to the conditional approval need to be incurred over a period beyond that of the anticipated product sales, then the expected costs of these activities will be expensed over the shorter period of the anticipated product sales. As a result, all activities necessary as a condition to maintain a received approval, whether conditional or not, are expensed in the consolidated income statement.
IPR&D assets are transferred to "Currently marketed products" once the related project has been successfully developed and then are amortized straight-line in the consolidated income statement over their useful life. Other acquired technologies included in intangible assets are amortized straight-line in the consolidated income statement over their estimated useful lives.
Inventory produced ahead of regulatory approval is provisioned against and the charge is included in "Other expense" in the consolidated income statement as its ultimate use cannot be assured. If this
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
inventory can be subsequently be sold, the provision is released to "Other income" in the consolidated income statement either on approval by the appropriate regulatory authority or, exceptionally in Europe, on recommendation by the Committee for Medicinal Products for Human Use (CHMP) if approval is virtually certain.
Vested Novartis shares and ADRs which are granted as compensation are valued at their market value on the grant date and are immediately expensed in the consolidated income statement.
The fair valuevalues of Novartis shares,unvested restricted shares, restricted share units (RSU)(RSUs) and performance share units (PSUs) in Novartis shares and American Depositary Shares (ADS)Receipts (ADRs) and related options granted to associates as compensation isare recognized as an expense over the related vesting period. The expense
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
recorded in the consolidated income statement is included in the personnel expenses of the various functions where the associates are employed. Assumptions
Unvested restricted shares, restricted ADRs and RSUs and any related options are made concerningonly conditional on the forfeiture rateprovision of not meetingservices by the plan participant during the vesting conditions whichperiod. As a result, restricted shares, restricted ADRs, RSUs and any related options are adjustedvalued using their market value on the grant date. The value of these grants, after making adjustment for assumptions related to their forfeiture during the vesting period, so thatare expensed on a straight-line basis over the respective vesting period.
PSUs require the plan participant to not only provide services during the vesting period but they are also subject to certain performance criteria being achieved during the vesting period. PSUs granted under plans defined as "Long-Term Performance Plans" are subject to performance criteria based on Novartis internal performance metrics. The expense is determined taking into account assumptions concerning performance during the period against targets and expected forfeitures due to plan participants not meeting their service conditions. These assumptions are periodically adjusted. Any change in estimates for past services are recorded immediately as an expense or income in the consolidated income statement and amounts for future periods are expensed over the remaining vesting period. As a result, at the end of the vesting period, therethe total charge during the whole vesting period represents the amount which will finally vest. The number of equity instruments that finally vest is determined at the vesting date.
In 2014, a Long-Term Relative Performance Plan (LTRPP) was introduced. PSUs granted under this plan are not only conditional on the provision of services by the plan participant during the vesting period but are also conditional on the Total Shareholder Return (TSR) performance of Novartis relative to a charge for vested amounts.specific peer group of companies over the vesting period. These performance conditions are based on variables which can be observed in the market. IFRS requires that these observations are taken into account in determining the fair value of these PSUs at the date of grant. Novartis has determined the fair value of these PSUs at the date of grant using a "Monte Carlo" simulation model. The total fair value of this grant is expensed on a straight-line basis over the vesting period. Adjustments to the number of equity instruments granted are only made if a plan participant does not fulfill the service conditions.
If a plan participant leaves Novartis, for reasons other than retirement, disability or death, then unvested restricted shares, ADSs,restricted ADRs, RSUs and related share options and PSUs are forfeited, unless determined otherwise by the provision of the plan rules or by the Compensation Committee, (forfor example, in connection with a reorganization or divestment).divestment.
An option'sMeasuring the fair values of PSUs granted under the LTRPP and share and ADR options granted under other plans, requires an estimation of the probability of uncertain future events and various other factors used in the valuation models. The Monte Carlo simulation used for determining the fair value atof the PSUs related to the LTRPP requires as input parameters the probability of factors related to uncertain future events; the term of the award; grant date isprice of underlying shares or ADRs; expected volatilities; expected correlation matrix of the underlying equity instruments with those of the peer group of companies and the risk free interest rate. The fair values of options on Novartis shares and ADRs are calculated using the trinomial valuation method. Accurately measuringmethod and has as input parameters the value of share options is difficult and requires an estimate of factors used in the valuation model. These key factors involve uncertain future events, such as expected dividend yield and expected share price volatility. Expected volatilities are based on those implied from listed warrantsfinancial instruments on Novartis shares, and—to the extent that equivalent optionsvalues are not available—a future extrapolation based on historical volatility. Novartis shares, restricted shares, RSUs and ADSs are valued using the market value on the grant date.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
Grants from governments or similar organizations are recognized at their fair value wherewhen there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.
Government grants related to income are deferred and recognized in the consolidated income statement over the period necessary to match them with the related costs which they are intended to compensate.
The accounting policy for property, plant and equipment describes the treatment of any related grants.
Charges to increase restructuring provisions are included in "Other expense" in the consolidated income statements. Corresponding releases are recorded in "Other income" in the consolidated income statement.
Taxes on income are provided in the same periods as the revenues and expenses to which they relate and include any interest and penalties incurred during the period. Deferred taxes are determined using
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
the comprehensive liability method and are calculated on the temporary differences that arise between the tax base of an asset or liability and its carrying value in the entity's balance sheet prepared for consolidation purposes, except for those temporary differences related to investments in subsidiaries and associated companies, where the timing of their reversal can be controlled and it is probable that the difference will not reverse in the foreseeable future. Furthermore, withholding or other taxes on eventual distribution of a subsidiary's retained earnings are only taken into account wherewhen a dividend has been planned since generally the retained earnings are reinvested.
The estimated amounts for current and deferred tax assets or liabilities, including any amounts related to any uncertain tax positions, are based on currently known facts and circumstances. Tax returns are based on an interpretation of tax laws and regulations and recordreflect estimates based on these judgments and interpretations. The tax returns are subject to examination by the competent taxing authorities which may result in an assessment being made requiring payments of additional tax, interest or penalties. Inherent uncertainties exist in the estimates of the tax positions.
Non-Current Assets Held for Sale or Related to Discontinued Operations
Non-current assets are classified as assets held for sale or related to discontinued operations when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell. Assets held for sale or included within a disposal group are not depreciated or amortized.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
Status of Adoption of Significant New or Amended IFRS Standards or Interpretations
The followingadoption of new or amended standards and interpretations which are effective for the financial year beginning on January 1, 2015 did not have a material impact on the Group's consolidated financial statements.
The following new IFRS standards will, based on a Novartis analysis, be of significance to the Group, but have not yet been early adopted.adopted:
In 2011, IAS 19 revised onEmployee Benefits was issued, for adoption by January 1, 2013. The principal impact for Novartis will be that the concepts of expected return on plan assets and interest expense on the defined benefit obligation as separate components of defined benefit cost will be replaced by a concept that interest will be calculated on the net surplus/deficit of the defined benefit obligation and the assets which fund the post-employment obligation, generally using an interest rate reflecting market yields of high quality corporate bonds in deep markets. If this concept had been adopted by Novartis in 2012, it is estimated that the principal effect in the Group's consolidated financial statements would be on operating income which would have been lower by approximately $310 million. Novartis, as required by the standard, will retrospectively adopt the standard on January 1, 2013 by restating its consolidated income statements for 2012.
The following additional new standards will also be effective from January 1, 2013:
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (Continued)
Novartis has concluded that on adoption on January 1, 2013 none of these newThere are no other IFRS standards willor interpretations which are not yet effective which would be expected to have a significantmaterial impact on the Group's consolidated financial statements.Group.
2. Significant Transactions
The following acquisitions, business combinations or other significant transactions occurred during 2012, 2011 and 2010. See notes 3 and 24 for further details of the impact of these transactions on the consolidated financial statements.
Significant Transaction in 2012
Sandoz—Acquisition of Fougera Pharmaceuticals, Inc.
On July 20, 2012, Sandoz completed the acquisition of 100% of Fougera Pharmaceuticals, Inc., a specialty dermatology generics company based in Melville, New York, for $1.5 billion in cash. The acquisition of Fougera Pharmaceuticals, Inc. creates another strong global growth platform for Sandoz. Fougera has strong dermatology development and manufacturing expertise and employs approximately 700 people.
The final purchase price allocation resulted in net identified assets of $0.6 billion (excluding acquired cash) and goodwill of $0.9 billion. Results of operations since the acquisition date were not material.
Significant Transactions in 20112015
Portfolio Transformation Transactions
Alcon majority control in 2010; full ownershipTransaction with Eli Lilly and merger in 2011Company
On August 25, 2010,January 1, 2015, Novartis completed the acquisitionclosed its transaction with Eli Lilly and Company, USA (Lilly) announced in April 2014 to divest its Animal Health business for $5.4 billion in cash. This resulted in a pre-tax gain of a further 52% interest$4.6 billion which is recorded in Alcon, Inc. (Alcon) following onoperating income from the January 4, 2010 announcement that Novartis had exercised its call option to acquire Nestlé's remaining 52% Alcon interest for approximately $28.3 billion or $180 per share. The overall purchase price of $38.7 billion included certain adjustments for Alcon dividends and interest due. This increased the interest in Alcon to a 77% controlling interest as Novartis had already acquired an initial 25% Alcon interest from Nestlé for $10.4 billion or $143 per share in July 2008.
On December 14, 2010, Novartis entered into a definitive agreement to merge Alcon into Novartis in consideration for Novartis shares and a Contingent Value Amount. The acquisition of the remaining outstanding non-controlling interests in Alcon were separate transactions following the previous acquisition of majority ownership in Alcon by Novartis in 2010.discontinued operations.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Significant Transactions (Continued)
Transactions with GlaxoSmithKline plc
On March 2, 2015, Novartis closed its transactions with GlaxoSmithKline plc, Great Britain (GSK) announced in April 8, 2011 a2014, with the following consequences:
Pharmaceuticals—Acquisition of GSK oncology products
Novartis Extraordinary General Meeting approvedacquired GSK's oncology products and certain related assets for an aggregate cash consideration of $16.0 billion. Up to $1.5 billion of this cash consideration at the mergeracquisition date is contingent on certain development milestones. The fair value of Alcon, Inc. with Novartis AG leading tothis potentially refundable consideration is $0.1 billion. In addition, under the creationterms of the Alcon Division which becameagreement, Novartis is granted a right of first negotiation over the fifth reported segment in Novartis' strategically diversified healthcare portfolio.co-development or commercialization of GSK's current and future oncology R&D pipeline, excluding oncology vaccines. The Extraordinary General Meeting also authorized the issuanceright of 108 million new shares. Alcon shareholders received 2.9228 Novartis shares (which includedfirst negotiation is for a dividend adjustment) and $8.20 in cash for each shareperiod of Alcon, resulting in a total consideration of $168.00 per share.
For business combinations achieved in stages, IFRS requires that any previously held interest of an acquirer in an acquiree is adjusted to its fair value through the consolidated income statement as of12.5 years from the acquisition closing date. The agreement that Novartis entered into with Nestlé in 2008 specified an averagepurchase price allocation of up to $168 per share for all of the approximately 77% interest in Alcon held by Nestlé, including $143 per share for the initial 25% interest acquired by Novartis in 2008, and a maximum of $181 per share for the remaining 52%, including a premium for the change of majority ownership.
Novartis reassessed the fair value of the initial 25% non-controlling interestconsideration of $15.9 billion resulted in Alcon itnet identified assets of $13.5 billion and goodwill of $2.4 billion. Since the acquisition the business generated net sales of $1.8 billion. Management estimates net sales for the entire year 2015 would have amounted to $2.1 billion had the Oncology products been acquired at the beginning of the 2015 reporting period. The net results from Nestléoperations on a reported basis since the acquisition date were not material.
Vaccines—Divestment
Novartis has divested its Vaccines business (excluding its Vaccines influenza business) to GSK for up to $7.1 billion plus royalties. The $7.1 billion consists of $5.25 billion paid at closing and up to $1.8 billion in 2008. In 2010, Novartis recognized a revaluation gain of $378 million on its initial 25% equity-method investment in Alcon upon acquiring a 52% controlling interest in the second-stage purchase from Nestlé on August 25, 2010. This gain was based on Novartis concluding that thefuture milestone payments. The fair value of that interest had a corresponding per-share value of $139. On this date the quoted market price of Alcon on the NYSE was $160. Novartis measured this revaluation gain based on the estimated current fair value of its investment in Alcon, with the assistance of outside specialist investment bank advisors. This valuation demonstrated that, as at August 25, 2010, the quoted price for Alcon was affected by an anticipated premium on Novartis' eventual purchase of the 23% not owned at that time. Novartis concluded that this "premium" should not be included in the valuation of the previously held equity interest.
This gain was reduced by $43 million of accumulated losses recorded in the consolidated statement of comprehensive income of Novartis since the July 2008 acquisition date of the initial interest. These accumulated losses were recorded under the equity accounting method, which requires such accumulated losses to be recycled into the consolidated income statement at the time of acquiring majority ownership. The net amount of $335 million was recorded as a gain under "Income from Associated Companies".
At December 31, 2010 Novartis recorded the outstanding non-controlling interests in Alcon at their proportionate share of identifiable net assets which amounted to $6.3 billion. After the acquisition of majority ownership in Alcon, Inc. on August 25, 2010, Alcon contributed in 2010 net sales $2.4contingent future milestones and royalties is $1.0 billion, and operating income of $323 million to the 2010 consolidated income statement.
During 2011, prior to the merger on April 8, 2011, 4.8% of the non-controlling interests in Alcon, Inc. were acquired for $2.4 billion. Completion of the acquisition of the outstanding 18.6% of Alcon Inc. on April 8, 2011 and subsequent merger, resulted in the issuance of Novartis shares with a fair value of $9.2 billion and a payment in cash of $0.5 billion to the Alcon, Inc. shareholders.
The final purchase price allocation was completed in 2011 and resultedresulting in a fair value of net identifiable assetsconsideration received of $27.0 billion and goodwill$6.25 billion. Included in this amount, is a $450 million milestone payment received in late March 2015. The sale of $18.0 billion. The excess of the value exchanged for the non-controlling interests in Alcon Inc, in 2011 over its recorded value together with merger related transaction coststhis business resulted in a reductionpre-tax gain of $2.8 billion which is recorded in operating income from discontinued operations.
Novartis's Vaccines influenza business is excluded from the GSK Vaccines business acquisition. However, GSK has entered into a future option arrangement with Novartis in relation to the Vaccines influenza business, pursuant to which Novartis could have unilaterally required GSK to acquire the entire or certain parts of its Vaccines influenza business for consideration of up to $250 million (the Influenza Put Option) if the divestment to CSL Limited, Australia (CSL), discussed below, had not been completed. The option period was 18 months from the closing date of the GSK transaction, but terminated with the sale of the Vaccines influenza business to CSL on July 31, 2015. Novartis paid GSK a fee of $5 million in consideration for the grant of the Influenza Put Option.
Consumer Health—Combination of Novartis OTC with GSK consumer healthcare in a joint venture
Novartis and GSK have agreed to create a combined Consumer Healthcare business through a joint venture between Novartis OTC and GSK Consumer Healthcare. On March 2, 2015, a new entity was formed via contribution of businesses from both Novartis and GSK. Novartis has a 36.5% interest in the newly created entity. Novartis consolidated equityhas valued the contribution of $5.7 billion.63.5% of its OTC Division in exchange for 36.5% of the GSK Consumer Healthcare business at fair value. Based on the estimates of fair values exchanged, an investment in an associated company of $7.6 billion was recorded. The resulting pre-tax gain, net of transaction related costs, of $5.9 billion is recorded in operating income from discontinued operations.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Significant Transactions (Continued)
Novartis has four of eleven seats on the joint venture entity's Board of Directors. Furthermore, Novartis has customary minority rights and also exit rights at a pre-defined, market based pricing mechanism.
The investment is accounted for using the equity method of accounting using estimated results for the last quarter of the year. Any differences between this estimate and actual results, when available, will be adjusted in the Group's 2016 consolidated financial statements.
Additional GSK related costs
The GSK transaction resulted in $0.6 billion of additional transaction-related costs that were expensed.
Transaction with CSL
On October 26, 2014, Novartis entered into an agreement with CSL to sell its Vaccines influenza business to CSL for $275 million. Entering into the separate divestment agreement with CSL resulted in the Vaccines influenza business being classified as a separate disposal group consisting of a group of cash generating units within the Vaccines Division, requiring the performance of a separate valuation of the Vaccines influenza business net assets. This triggered the recognition of an exceptional impairment charge in 2014 of $1.1 billion as the estimated net book value of the Vaccines influenza business net assets was above the $275 million consideration. The transaction with CSL was completed on July 31, 2015, resulting in a partial reversal of the impairment recorded in 2014 in the amount of $0.1 billion, which is included in operating income from discontinued operations.
Other Significant Transactions in 2015
Pharmaceuticals—Acquisition of Genoptix,Spinifex Pharmaceuticals, Inc.
On March 7, 2011June 29, 2015 Novartis completed the acquisition of 100% of Genoptix,entered into an agreement to acquire Spinifex Pharmaceuticals, Inc. (Spinifex), a specialized laboratory providing personalized diagnostic servicesUS and Australian-based, privately held development stage company, focused on developing a peripheral approach to United States community-based hematologiststreat neuropathic pain. The transaction closed on July 24, 2015, and oncologists for $458the total purchase consideration was $312 million. The amount consisted of an initial cash payment of $196 million in cash. Genoptix employed approximately 500 people.
and the net present value of the contingent consideration of $116 million due to previous Spinifex shareholders, which they are eligible to receive upon achievement of specified development and commercialization milestones. The final purchase price allocation resulted in net identifiedidentifiable assets of $237$263 million and goodwill of $221$49 million. Results of operations since the acquisition date in 2011of acquisition were not material.
Significant Transactions in 2010 (additional to the Alcon transaction described above)
Pharmaceuticals—Acquisition of CortheraAdmune Therapeutics LLC
On February 3, 2010October 16, 2015, Novartis completed the 100% acquisition (announced on December 23, 2009) of theacquired Admune Therapeutics LLC (Admune), a US-based, privately held US-based Corthera Inc., gaining worldwide rights to relaxin for the treatmentcompany, broadening Novartis' pipeline of acute decompensated heart failure and assumed full responsibility for development and commercialization for acancer immunotherapies. The total purchase consideration of $327amounted to $258 million. This amount consists of an initial cash payment of $120$140 million and $207 million of deferred contingent consideration. The deferred contingent consideration initially recognized represented the net present value of the additional milestone paymentscontingent consideration of $118 million due to Corthera'sAdmune's previous shareholdersowners, which they are eligible to receive contingent upon the achievement of specified development and commercialization milestones. The final purchase price allocation resulted in net identifiedidentifiable assets of $309 million and goodwill of $18 million. Results of operations since the acquisition date were not material.
Sandoz—Acquisition of Oriel Therapeutics
On June 1, 2010 Sandoz completed the 100% acquisition of the privately held US-based Oriel Therapeutics Inc., to broaden its portfolio of projects in the field of respiratory drugs for a total purchase consideration of $332 million. This amount consists of an initial cash payment of $74 million and $258 million of deferred contingent consideration. Oriel's previous shareholders are eligible to receive milestone payments, which are contingent upon the company achieving future development steps, regulatory approvals and market launches, and sales royalties. The total $258 million of deferred contingent consideration initially recognized represented the net present value of expected milestone and royalty payments. The final purchase price allocation, including the valuation of the contingent payment elements of the purchase price, resulted in net identified assets of $281 million and goodwill of $51 million. Results of operations since the acquisition date were not material.
Pharmaceuticals—Divestment of Enablex®
On October 18, 2010 Novartis finalized the sale of the US rights for Enablex® (darifenacin) to Warner Chilcott Plc for $400 million and recognized a gain of $392 million.
Corporate—Change of pension plan in Switzerland
On April 23, 2010 the Board of Trustees of the Novartis Swiss Pension Fund agreed to amend the conditions and insured benefits of the current Swiss pension plan with effect from January 1, 2011. These amendments do not have an impact on existing pensions in payment or on plan members born before January 1, 1956. Under the previous rules, benefits from the plan are primarily linked to the level of salary
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Significant Transactions (Continued)
$258 million. No goodwill was recognized. Results of operations since the date of acquisition were not material.
Significant Transaction in 2014
Vaccines—Divestment of Blood Transfusion Diagnostic Unit
On January 9, 2014, Novartis completed the years prior to retirement while under the new rules benefits are also partially linkeddivestment of its blood transfusion diagnostics unit announced on November 11, 2013 to the levelSpanish company Grifols S.A., for $1.7 billion in cash. The pre-tax gain on this transaction is approximately $0.9 billion and was recorded in operating income from discontinued operations.
Pharmaceuticals—Acquisition of contributions made by the members during their active service period up to their retirement. This has led to changes in the amounts that need to be included in the Group's consolidated financial statements prepared using IFRS in respectCoStim Pharmaceuticals Inc.
On February 17, 2014, Novartis acquired all of the Swiss Pension Fund.outstanding shares of CoStim Pharmaceuticals Inc., a Cambridge, Massachusetts, US-based, privately held biotechnology company focused on harnessing the immune system to eliminate immune-blocking signals from cancer, for a total purchase consideration of $248 million (excluding cash acquired). This amount consists of an initial cash payment and the net present value of contingent consideration of $153 million due to previous CoStim shareholders, which they are eligible to receive upon the achievement of specified development and commercialization milestones. The purchase price allocation resulted in net identified assets of $152 million (excluding cash acquired) and goodwill of $96 million. Results of operations since the acquisition were not material.
Pharmaceuticals—Divestment of Idenix Pharmaceuticals Inc. (Idenix) Shareholding
As part of this change, Novartis, supported by the Swiss Pension Fund, will make transitional payments, which vary according to the member's age and years of service.On August 5, 2014, Merck & Co., USA completed a tender offer for Idenix. As a result, it is estimated that additional payments will be made overNovartis divested its 22% shareholding in Idenix and realized a ten-year period of up to approximately $481 million (CHF 453 million) depending on whether or not all current members affected by the change remain in the plan over this ten-year period.
The accounting consequence of this change in the Swiss pension plan rules results in the Group's consolidated financial statements prepared under IFRS reflecting a net pre-tax curtailment gain of $265 million (CHF 283 million)approximately $0.8 billion which was recorded in 2010. This calculation only takes into account the discounted valueincome from associated companies.
Alcon—Acquisition of transition payments of $202 million (CHF 219 million) attributed to already completed years of serviceWaveTec Vision Systems, Inc. (WaveTec)
On October 16, 2014, Alcon acquired all of the affected plan members as calculatedoutstanding shares of WaveTec, a privately held company, for $350 million in accordance with IFRS requirements. It doescash. The purchase price allocation resulted in net identified assets of $180 million and goodwill of $170 million. Results of operations since the acquisition were not take into account any amount for transitional payments related to their future yearsmaterial.
Corporate—Divestment of service.LTS Lohmann Therapie-Systeme AG (LTS) Shareholding
On November 5, 2014, Novartis divested its 43% shareholding in LTS and realized a gain of approximately $0.4 billion which was recorded in income from associated companies.
Significant Transaction in 2013
There were no significant acquisition or divestment transactions during 2013.
3. Segmentation of Key Figures 2012, 20112015, 2014 and 20102013
Reporting segments are presented in a manner consistent with the internal reporting to the chief operating decision maker which is the Executive Committee of Novartis. It is responsible for allocating resources and assessing the performance of the reporting segments.
The businesses of Novartis are divided operationally on a worldwide basis into fivethree reporting segments: Pharmaceuticals, Alcon, Sandoz, Vaccines and Diagnostics and Consumer Health.segments. In addition, we separately report Corporate activities. Following the full acquisition of Alcon, Inc., on April 8, 2011 a new divisional segment allocation was introduced. As a result, the Alcon Division includes CIBA Vision and certain Pharmaceuticals Division ophthalmology products. Falcon, the US generics business of Alcon, Inc. was transferred to the Sandoz Division. Certain residual operational costs incurred for the Consumer Health Division headquarters were transferred to Corporate and Corporate R&D was transferred to the Pharmaceuticals Division. All segment results for 2010, 2011 and 2012 use this new allocation. Except for Consumer Health, these segments reflect the Group's internal management structures. These segments are managed separately, including the two divisions of the Consumer Health segment, because they research, develop, manufacture, distribute, and sell distinct products which require differing marketing strategies. In the case of Consumer Health, the segment comprises two divisions which are also managed separately, however, neither of these two divisions is material enough to the Group to be disclosed separately as a reporting segment. The reporting segments are as follows:
Pharmaceuticals researches, develops, manufactures, distributes and sells patented prescription medicines and is organized in the following business franchises: Oncology; Primary Care, consisting of Primary Care medicines and Established Medicines; and Specialty Care, consisting of Ophthalmology, Neuroscience, Integrated Hospital Care, and Critical Care medicines. Novartis Oncology is organized as a business unit, responsible for the global development and marketing of oncology products. The Novartis Oncology Business Unit is not required to be disclosed separately as a segment since it shares common
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Segmentation of Key Figures 2012, 20112015, 2014 and 20102013 (Continued)
long-term economic perspectives, customers, research, development, production, distribution and regulatory factors Reporting segments are presented in a manner consistent with the restinternal reporting to the chief operating decision maker which is the Executive Committee of Novartis. The reporting segments are managed separately because they each research, develop, manufacture, distribute, and sell distinct products that require differing marketing strategies.
The Executive Committee of Novartis is responsible for allocating resources and assessing the performance of the division.reporting segments.
The reporting segments are as follows:
Pharmaceuticals researches, develops, manufactures, distributes and sells patented prescription medicines. The Pharmaceuticals Division is organized into global business franchises responsible for the commercialization of various products. These franchises are: Oncology, Neuroscience, Retina, Immunology and Dermatology, Respiratory, Cardio-Metabolic, Established Medicines and Cell and Gene Therapies.
Alcon researches, discovers, develops, manufactures, distributes and sells eye care products. The Alcon Division is the global leader in eye care with product offerings in Surgical, Ophthalmic Pharmaceuticalssurgical, ophthalmic pharmaceuticals and Vision Care.vision care. The Alcon Division is organized globally in three global business franchises as follows: In Surgical, Alcon develops, manufactures, distributes and sells ophthalmic surgical equipment, instruments, disposable products and intraocular lenses. In Ophthalmic Pharmaceuticals, Alcon discovers, develops, manufactures, distributes and sells medicines to treat chronic and acute diseases of the eye, as well as over-the-counter medicines for the eye. In Vision Care, Alcon develops, manufactures, distributes and sells contact lenses and lens care products.
Sandoz 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 has activitiesDivision is organized globally in three franchises, Retail Generics, Anti-Infectives and Biopharmaceuticals & Oncology Injectables. In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of pharmaceuticals to third parties. Retail Generics includes the areas of dermatology, respiratory and ophthalmics, as well as cardiovascular, metabolism, central nervous system, pain, gastrointestinal, and hormonal therapies. Finished dosage form anti-infectives sold to third parties are also part of Retail Generics. In Anti-Infectives, Sandoz manufactures active pharmaceutical ingredients and intermediates—mainly antibiotics—antibiotics- for internal use by Retail Generics and for sale to third-partythird party customers. In Biopharmaceuticals, Sandoz develops, manufactures and markets protein- or other biotechnology-based products (knownknown as biosimilars or follow-on biologics) and sellsprovides biotechnology manufacturing services to other companies. In Oncology Injectables, Sandoz develops, manufacturers,manufactures and markets cytotoxic products for the hospital market. Sandoz Ophthalmics, which was formed through
Income and expenses relating to Corporate include the integrationcosts of Alcon's generic division Falcon, develops, manufacturesthe Group headquarters and markets generic ophthalmic and otic products.those of corporate coordination functions in major countries. In addition, Sandoz expanded its presenceCorporate includes other items of income and expense which are not attributable to specific segments such as certain expenses related to post-employment benefits, environmental remediation liabilities, charitable activities, donations and sponsorships. Usually, no allocation of Corporate items is made to the segments. As a result, Corporate assets and liabilities principally consist of net liquidity (cash and cash equivalents, marketable securities less financial debts), investments in Respiratory through the acquisition of Oriel Therapeutics in 2010,associated companies and expanded its presence in Dermatology through the acquisition of specialty dermatology company Fougera Pharmaceuticals, Inc. in 2012.
Vaccinescurrent and Diagnostics consists of two activities: Vaccinesdeferred taxes and Diagnostics. Vaccines researches, develops, manufactures, distributesnon-segment specific environmental remediation and sells human vaccines worldwide. Diagnostics researches, develops, distributes and sells blood testing and molecular diagnostics products.
Consumer Health consists of two divisions: OTC (over-the-counter medicines) and Animal Health. OTC offers readily available consumer medicine. Animal Health provides veterinary products for farm and companion animals.post-employment benefit liabilities.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Segmentation of Key Figures 2012, 20112015, 2014 and 20102013 (Continued)
Our divisions are supported by the Novartis Institutes for BioMedical Research and by Novartis Business Services.
Following the Portfolio Transformation transactions described in Note 2, Novartis has separated the Group's reported financial data for the current and prior year into "continuing" operations and "discontinued" operations:
Continuing operations comprise:
Discontinued operations comprise:
A summary of the above restatements on 2010 net sales and operating income is as follows:
| 2010 | ||||||
---|---|---|---|---|---|---|---|
Segment | Net sales | Operating income | |||||
| $m | $m | |||||
Pharmaceuticals | (252 | ) | (327 | ) | |||
Alcon | 2,020 | 473 | |||||
Sandoz | 74 | 49 | |||||
Consumer Health | (1,842 | ) | (375 | ) | |||
Corporate | 180 | ||||||
Total | 0 | 0 | |||||
The accounting policies mentioned abovein Note 1 are used in the reporting of segment results. Inter-segmental sales are made at amounts which are considered to approximate arm's length transactions. The Executive Committee of Novartis evaluates segmental performance and allocates resources among the segments based on a number of measures including net sales, operating income and net operating assets. Segment net operating assets consist primarily of property, plant and equipment, intangible assets, inventories and trade and other operating receivables less operating liabilities.
Income and expenses relating to Corporate include the costs of the Group headquarters and those of corporate coordination functions in major countries. In addition, Corporate includes other items of income and expense which are not attributable to specific segments such as certain expenses related to post-employment benefits, environmental remediation liabilities, charitable activities, donations and sponsorships.
Usually, no allocation of Corporate items is made to the segments. As a result, Corporate assets and liabilities principally consist of net liquidity (cash and cash equivalents, marketable securities less financial debt), investments in associated companies and current and deferred taxes and non-segmental specific environmental remediation and post-employment benefit liabilities.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Segmentation of Key Figures 20122015, 2014 and 20112013 (Continued)
SEGMENTATION—CONSOLIDATED INCOME STATEMENTS 2015 and 2014
| Pharmaceuticals | Alcon | Sandoz | Vaccines and Diagnostics | Consumer Health | Corporate (including eliminations) | Total Group | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In $ m) | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||||||||||||
Net sales to third parties | 32,153 | 32,508 | 10,225 | 9,958 | 8,702 | 9,473 | 1,858 | 1,996 | 3,735 | 4,631 | 56,673 | 58,566 | |||||||||||||||||||||||||||||||
Sales to other segments | 277 | 244 | 56 | 22 | 279 | 319 | 44 | 73 | 18 | 15 | (674 | ) | (673 | ) | |||||||||||||||||||||||||||||
Net sales of segments | 32,430 | 32,752 | 10,281 | 9,980 | 8,981 | 9,792 | 1,902 | 2,069 | 3,753 | 4,646 | (674 | ) | (673 | ) | 56,673 | 58,566 | |||||||||||||||||||||||||||
Other revenues | 471 | 453 | 53 | 43 | 12 | 9 | 331 | 295 | 26 | 24 | (5 | ) | (15 | ) | 888 | 809 | |||||||||||||||||||||||||||
Cost of goods sold | (6,578 | ) | (6,573 | ) | (4,618 | ) | (4,566 | ) | (5,126 | ) | (5,445 | ) | (1,478 | ) | (1,410 | ) | (1,729 | ) | (1,735 | ) | 773 | 746 | (18,756 | ) | (18,983 | ) | |||||||||||||||||
Gross profit | 26,323 | 26,632 | 5,716 | 5,457 | 3,867 | 4,356 | 755 | 954 | 2,050 | 2,935 | 94 | 58 | 38,805 | 40,392 | |||||||||||||||||||||||||||||
Marketing & Sales | (8,568 | ) | (8,929 | ) | (2,462 | ) | (2,537 | ) | (1,561 | ) | (1,591 | ) | (324 | ) | (363 | ) | (1,442 | ) | (1,674 | ) | 4 | 15 | (14,353 | ) | (15,079 | ) | |||||||||||||||||
Research & Development | (6,918 | ) | (7,232 | ) | (975 | ) | (892 | ) | (695 | ) | (640 | ) | (453 | ) | (523 | ) | (291 | ) | (296 | ) | (9,332 | ) | (9,583 | ) | |||||||||||||||||||
General & Administration | (1,061 | ) | (1,047 | ) | (510 | ) | (509 | ) | (350 | ) | (369 | ) | (136 | ) | (150 | ) | (271 | ) | (291 | ) | (609 | ) | (604 | ) | (2,937 | ) | (2,970 | ) | |||||||||||||||
Other income | 577 | 697 | 49 | 262 | 74 | 88 | 23 | 18 | 75 | 91 | 389 | 198 | 1,187 | 1,354 | |||||||||||||||||||||||||||||
Other expense | (755 | ) | (1,825 | ) | (353 | ) | (309 | ) | (244 | ) | (422 | ) | (115 | ) | (185 | ) | (73 | ) | (38 | ) | (319 | ) | (337 | ) | (1,859 | ) | (3,116 | ) | |||||||||||||||
Operating income | 9,598 | 8,296 | 1,465 | 1,472 | 1,091 | 1,422 | (250 | ) | (249 | ) | 48 | 727 | (441 | ) | (670 | ) | 11,511 | 10,998 | |||||||||||||||||||||||||
Income from associated companies | (2 | ) | (3 | ) | 16 | 5 | 4 | 3 | 2 | 530 | 525 | 552 | 528 | ||||||||||||||||||||||||||||||
Interest expense | (724 | ) | (751 | ) | |||||||||||||||||||||||||||||||||||||||
Other financial income and expense | (96 | ) | (2 | ) | |||||||||||||||||||||||||||||||||||||||
Income before taxes | 11,243 | 10,773 | |||||||||||||||||||||||||||||||||||||||||
Taxes | (1,625 | ) | (1,528 | ) | |||||||||||||||||||||||||||||||||||||||
Group net income | 9,618 | 9,245 | |||||||||||||||||||||||||||||||||||||||||
Attributable to: | |||||||||||||||||||||||||||||||||||||||||||
Shareholders of Novartis AG | 9,505 | 9,113 | |||||||||||||||||||||||||||||||||||||||||
Non-controlling interests | 113 | 132 | |||||||||||||||||||||||||||||||||||||||||
Included in net income are: | |||||||||||||||||||||||||||||||||||||||||||
Interest income | 50 | 62 | |||||||||||||||||||||||||||||||||||||||||
Depreciation of property, plant & equipment | (825 | ) | (870 | ) | (305 | ) | (306 | ) | (287 | ) | (303 | ) | (135 | ) | (115 | ) | (47 | ) | (50 | ) | (105 | ) | (84 | ) | (1,704 | ) | (1,728 | ) | |||||||||||||||
Amortization of intangible assets | (324 | ) | (423 | ) | (1,926 | ) | (1,928 | ) | (368 | ) | (383 | ) | (215 | ) | (231 | ) | (57 | ) | (59 | ) | (4 | ) | (4 | ) | (2,894 | ) | (3,028 | ) | |||||||||||||||
Impairment charges on property, plant & equipment | (25 | ) | (403 | ) | (5 | ) | (3 | ) | (1 | ) | (6 | ) | (2 | ) | (3 | ) | (2 | ) | (2 | ) | (39 | ) | (413 | ) | |||||||||||||||||||
Impairment charges on intangible assets | (211 | ) | (552 | ) | (17 | ) | (20 | ) | (43 | ) | (25 | ) | (5 | ) | (8 | ) | (7 | ) | (14 | ) | (283 | ) | (619 | ) | |||||||||||||||||||
Impairment charges on financial assets | (2 | ) | (30 | ) | (4 | ) | (1 | ) | (135 | ) | (31 | ) | (23 | ) | (34 | ) | (192 | ) | |||||||||||||||||||||||||
Additions to restructuring provisions | (190 | ) | (265 | ) | (23 | ) | (74 | ) | (28 | ) | (4 | ) | (24 | ) | (7 | ) | (12 | ) | (281 | ) | (346 | ) | |||||||||||||||||||||
Equity-based compensation of Novartis and Alcon equity plans | (641 | ) | (648 | ) | (113 | ) | (113 | ) | (41 | ) | (33 | ) | (37 | ) | (38 | ) | (45 | ) | (61 | ) | (126 | ) | (122 | ) | (1,003 | ) | (1,015 | ) | |||||||||||||||
Total assets | 24,956 | 24,111 | 45,166 | 46,065 | 19,938 | 17,965 | 5,713 | 5,764 | 2,644 | 2,684 | 25,799 | 20,907 | 124,216 | 117,496 | |||||||||||||||||||||||||||||
Total liabilities | (10,673 | ) | (10,415 | ) | (2,578 | ) | (2,273 | ) | (3,208 | ) | (2,742 | ) | (736 | ) | (697 | ) | (883 | ) | (960 | ) | (36,919 | ) | (34,469 | ) | (54,997 | ) | (51,556 | ) | |||||||||||||||
Total equity | 14,283 | 13,696 | 42,588 | 43,792 | 16,730 | 15,223 | 4,977 | 5,067 | 1,761 | 1,724 | (11,120 | ) | (13,562 | ) | 69,219 | 65,940 | |||||||||||||||||||||||||||
Net debt | 11,607 | 15,154 | 11,607 | 15,154 | |||||||||||||||||||||||||||||||||||||||
Net operating assets | 14,283 | 13,696 | 42,588 | 43,792 | 16,730 | 15,223 | 4,977 | 5,067 | 1,761 | 1,724 | 487 | 1,592 | 80,826 | 81,094 | |||||||||||||||||||||||||||||
Included in total assets and total liabilities are: | |||||||||||||||||||||||||||||||||||||||||||
Total property, plant & equipment | 8,723 | 8,071 | 2,274 | 2,056 | 3,103 | 2,824 | 1,581 | 1,535 | 457 | 431 | 801 | 710 | 16,939 | 15,627 | |||||||||||||||||||||||||||||
Additions to property, plant & equipment(1) | 1,334 | 1,041 | 529 | 354 | 462 | 335 | 165 | 192 | 76 | 74 | 188 | 190 | 2,754 | 2,186 | |||||||||||||||||||||||||||||
Total goodwill and intangible assets | 6,056 | 6,244 | 38,913 | 40,542 | 12,881 | 11,356 | 2,724 | 2,883 | 829 | 867 | 18 | 20 | 61,421 | 61,912 | |||||||||||||||||||||||||||||
Additions to goodwill and intangible assets(1) | 165 | 219 | 130 | 80 | 22 | 24 | 33 | 6 | 24 | 4 | 6 | 3 | 380 | 336 | |||||||||||||||||||||||||||||
Total investment in associated companies | 1 | 3 | 18 | 22 | 18 | 2 | 4 | 8,815 | 8,579 | 8,840 | 8,622 | ||||||||||||||||||||||||||||||||
Additions to investment in associated companies | 5 | 3 | 36 | 24 | 36 | 32 | |||||||||||||||||||||||||||||||||||||
Cash, marketable securities and derivative financial instruments | 8,119 | 5,075 | 8,119 | 5,075 | |||||||||||||||||||||||||||||||||||||||
Financial debt and derivative financial instruments | 19,726 | 20,229 | 19,726 | 20,229 | |||||||||||||||||||||||||||||||||||||||
Current income tax and deferred tax liabilities | 9,356 | 8,467 | 9,356 | 8,467 |
| Pharmaceuticals | Alcon | Sandoz | Corporate (including eliminations) | Group | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
($ m) | 2015 | 2014 | 2015 | 2014 | 2015 | �� | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||
Net sales to third parties from continuing operations | 30,445 | 31,791 | 9,812 | 10,827 | 9,157 | 9,562 | 49,414 | 52,180 | |||||||||||||||||||||||
Sales to other segments | 137 | 262 | 45 | 49 | 128 | 286 | (284 | ) | (358 | ) | 26 | 239 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales from continuing operations | 30,582 | 32,053 | 9,857 | 10,876 | 9,285 | 9,848 | (284 | ) | (358 | ) | 49,440 | 52,419 | |||||||||||||||||||
Other revenues | 790 | 629 | 25 | 34 | 25 | 12 | 107 | 540 | 947 | 1,215 | |||||||||||||||||||||
Cost of goods sold | (7,379 | ) | (6,889 | ) | (5,153 | ) | (5,193 | ) | (5,325 | ) | (5,751 | ) | 453 | 488 | (17,404 | ) | (17,345 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit from continuing operations | 23,993 | 25,793 | 4,729 | 5,717 | 3,985 | 4,109 | 276 | 670 | 32,983 | 36,289 | |||||||||||||||||||||
Marketing & Sales | (7,789 | ) | (8,178 | ) | (2,398 | ) | (2,474 | ) | (1,585 | ) | (1,725 | ) | (11,772 | ) | (12,377 | ) | |||||||||||||||
Research & Development | (7,232 | ) | (7,331 | ) | (926 | ) | (928 | ) | (777 | ) | (827 | ) | (8,935 | ) | (9,086 | ) | |||||||||||||||
General & Administration | (937 | ) | (1,009 | ) | (544 | ) | (613 | ) | (346 | ) | (376 | ) | (648 | ) | (618 | ) | (2,475 | ) | (2,616 | ) | |||||||||||
Other income | 1,145 | 734 | 58 | 79 | 109 | 97 | 737 | 481 | 2,049 | 1,391 | |||||||||||||||||||||
Other expense | (1,583 | ) | (1,538 | ) | (125 | ) | (184 | ) | (381 | ) | (190 | ) | (784 | ) | (600 | ) | (2,873 | ) | (2,512 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income from continuing operations | 7,597 | 8,471 | 794 | 1,597 | 1,005 | 1,088 | (419 | ) | (67 | ) | 8,977 | 11,089 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income from associated companies | 812 | 2 | 4 | 264 | 1,102 | 266 | 1,918 | ||||||||||||||||||||||||
Interest expense | (655 | ) | (704 | ) | |||||||||||||||||||||||||||
Other financial income and expense | (454 | ) | (31 | ) | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before taxes from continuing operations | 8,134 | 12,272 | |||||||||||||||||||||||||||||
Taxes | (1,106 | ) | (1,545 | ) | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income from continuing operations | 7,028 | 10,727 | |||||||||||||||||||||||||||||
Net income/(loss) from discontinued operations | 10,766 | (447 | ) | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | 17,794 | 10,280 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attributable to: | |||||||||||||||||||||||||||||||
Shareholders of Novartis AG | 17,783 | 10,210 | |||||||||||||||||||||||||||||
Non-controlling interests | 11 | 70 | |||||||||||||||||||||||||||||
Included in net income from continuing operations are: | |||||||||||||||||||||||||||||||
Interest income | 33 | 33 | |||||||||||||||||||||||||||||
Depreciation of property, plant & equipment | (796 | ) | (856 | ) | (280 | ) | (307 | ) | (277 | ) | (317 | ) | (117 | ) | (106 | ) | (1,470 | ) | (1,586 | ) | |||||||||||
Amortization of intangible assets | (1,305 | ) | (287 | ) | (2,079 | ) | (2,080 | ) | (362 | ) | (403 | ) | (9 | ) | (5 | ) | (3,755 | ) | (2,775 | ) | |||||||||||
Impairment charges on property, plant & equipment, net | 39 | (15 | ) | (1 | ) | 1 | (97 | ) | (7 | ) | (21 | ) | (23 | ) | (80 | ) | (44 | ) | |||||||||||||
Impairment charges on intangible assets, net | (19 | ) | (231 | ) | (120 | ) | (7 | ) | (27 | ) | (39 | ) | (166 | ) | (277 | ) | |||||||||||||||
Impairment charges and fair value gains on financial assets, net | (32 | ) | (20 | ) | (1 | ) | (72 | ) | (48 | ) | (104 | ) | (69 | ) | |||||||||||||||||
Additions to restructuring provisions | (206 | ) | (433 | ) | (51 | ) | (64 | ) | (93 | ) | (4 | ) | (49 | ) | (3 | ) | (399 | ) | (504 | ) | |||||||||||
Equity-based compensation of Novartis and Alcon equity plans | (600 | ) | (685 | ) | (86 | ) | (92 | ) | (53 | ) | (51 | ) | (164 | ) | (179 | ) | (903 | ) | (1,007 | ) |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Segmentation(1) of Key Figures 20112015, 2014 and 20102013 (Continued)
SEGMENTATION—CONSOLIDATED INCOME STATEMENTS 2014 and 2013
| Pharmaceuticals | Alcon | Sandoz | Vaccines and Diagnostics | Consumer Health | Corporate (including eliminations) | Total Group | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In $ m) | 2011 | 2010 | 2011 | 2010(2) | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
Net sales to third parties | 32,508 | 30,306 | 9,958 | 4,446 | 9,473 | 8,592 | 1,996 | 2,918 | 4,631 | 4,362 | 58,566 | 50,624 | |||||||||||||||||||||||||||||||
Sales to other segments | 244 | 157 | 22 | 14 | 319 | 267 | 73 | 60 | 15 | 35 | (673 | ) | (533 | ) | |||||||||||||||||||||||||||||
Net sales of segments | 32,752 | 30,463 | 9,980 | 4,460 | 9,792 | 8,859 | 2,069 | 2,978 | 4,646 | 4,397 | (673 | ) | (533 | ) | 58,566 | 50,624 | |||||||||||||||||||||||||||
Other revenues | 453 | 422 | 43 | 34 | 9 | 16 | 295 | 433 | 24 | 34 | (15 | ) | (2 | ) | 809 | 937 | |||||||||||||||||||||||||||
Cost of Goods Sold | (6,573 | ) | (5,272 | ) | (4,566 | ) | (1,760 | ) | (5,445 | ) | (4,878 | ) | (1,410 | ) | (1,551 | ) | (1,735 | ) | (1,560 | ) | 746 | 533 | (18,983 | ) | (14,488 | ) | |||||||||||||||||
Gross profit | 26,632 | 25,613 | 5,457 | 2,734 | 4,356 | 3,997 | 954 | 1,860 | 2,935 | 2,871 | 58 | (2 | ) | 40,392 | 37,073 | ||||||||||||||||||||||||||||
Marketing & Sales | (8,929 | ) | (8,663 | ) | (2,537 | ) | (1,299 | ) | (1,591 | ) | (1,450 | ) | (363 | ) | (338 | ) | (1,674 | ) | (1,569 | ) | 15 | 3 | (15,079 | ) | (13,316 | ) | |||||||||||||||||
Research & Development | (7,232 | ) | (7,276 | ) | (892 | ) | (352 | ) | (640 | ) | (658 | ) | (523 | ) | (523 | ) | (296 | ) | (261 | ) | (9,583 | ) | (9,070 | ) | |||||||||||||||||||
General & Administration | (1,047 | ) | (919 | ) | (509 | ) | (255 | ) | (369 | ) | (350 | ) | (150 | ) | (149 | ) | (291 | ) | (269 | ) | (604 | ) | (539 | ) | (2,970 | ) | (2,481 | ) | |||||||||||||||
Other income | 697 | 687 | 262 | 7 | 88 | 77 | 18 | 35 | 91 | 38 | 198 | 390 | 1,354 | 1,234 | |||||||||||||||||||||||||||||
Other expense | (1,825 | ) | (971 | ) | (309 | ) | (39 | ) | (422 | ) | (295 | ) | (185 | ) | (273 | ) | (38 | ) | (32 | ) | (337 | ) | (304 | ) | (3,116 | ) | (1,914 | ) | |||||||||||||||
Operating income | 8,296 | 8,471 | 1,472 | 796 | 1,422 | 1,321 | (249 | ) | 612 | 727 | 778 | (670 | ) | (452 | ) | 10,998 | 11,526 | ||||||||||||||||||||||||||
Income from associated companies | (3 | ) | (16 | ) | 4 | 3 | 2 | 7 | 525 | 810 | 528 | 804 | |||||||||||||||||||||||||||||||
Interest expense | (751 | ) | (692 | ) | |||||||||||||||||||||||||||||||||||||||
Other financial income and expense | (2 | ) | 64 | ||||||||||||||||||||||||||||||||||||||||
Income before taxes | 10,773 | 11,702 | |||||||||||||||||||||||||||||||||||||||||
Taxes | (1,528 | ) | (1,733 | ) | |||||||||||||||||||||||||||||||||||||||
Group net income | 9,245 | 9,969 | |||||||||||||||||||||||||||||||||||||||||
Attributable to: | |||||||||||||||||||||||||||||||||||||||||||
Shareholders of Novartis AG | 9,113 | 9,794 | |||||||||||||||||||||||||||||||||||||||||
Non-controlling interests | 132 | 175 | |||||||||||||||||||||||||||||||||||||||||
Included in net income are: | |||||||||||||||||||||||||||||||||||||||||||
Interest income | 62 | 103 | |||||||||||||||||||||||||||||||||||||||||
Depreciation of property, plant & equipment | (870 | ) | (726 | ) | (306 | ) | (127 | ) | (303 | ) | (285 | ) | (115 | ) | (100 | ) | (50 | ) | (46 | ) | (84 | ) | (79 | ) | (1,728 | ) | (1,363 | ) | |||||||||||||||
Amortization of intangible assets | (423 | ) | (457 | ) | (1,928 | ) | (65 | ) | (383 | ) | (293 | ) | (231 | ) | (259 | ) | (59 | ) | (61 | ) | (4 | ) | (3,028 | ) | (1,135 | ) | |||||||||||||||||
Impairment charges on property, plant & equipment | (403 | ) | 4 | (5 | ) | (1 | ) | (2 | ) | (14 | ) | (2 | ) | (413 | ) | (10 | ) | ||||||||||||||||||||||||||
Impairment charges on intangible assets | (552 | ) | (894 | ) | (20 | ) | (25 | ) | (11 | ) | (8 | ) | (14 | ) | (6 | ) | (619 | ) | (911 | ) | |||||||||||||||||||||||
Impairment charges on financial assets | (30 | ) | (41 | ) | (4 | ) | (135 | ) | (98 | ) | (23 | ) | (19 | ) | (192 | ) | (158 | ) | |||||||||||||||||||||||||
Additions to restructuring provisions | (265 | ) | (133 | ) | (74 | ) | (66 | ) | (62 | ) | (7 | ) | (346 | ) | (261 | ) | |||||||||||||||||||||||||||
Equity-based compensation of Novartis and Alcon equity plans | (648 | ) | (559 | ) | (113 | ) | (30 | ) | (33 | ) | (23 | ) | (38 | ) | (34 | ) | (61 | ) | (53 | ) | (122 | ) | (142 | ) | (1,015 | ) | (841 | ) | |||||||||||||||
Total assets | 24,111 | 24,681 | 46,065 | 47,775 | 17,965 | 18,552 | 5,764 | 5,631 | 2,684 | 2,708 | 20,907 | 23,971 | 117,496 | 123,318 | |||||||||||||||||||||||||||||
Total liabilities | (10,415 | ) | (9,469 | ) | (2,273 | ) | (1,522 | ) | (2,742 | ) | (2,976 | ) | (697 | ) | (827 | ) | (960 | ) | (879 | ) | (34,469 | ) | (37,876 | ) | (51,556 | ) | (53,549 | ) | |||||||||||||||
Total equity | 13,696 | 15,212 | 43,792 | 46,253 | 15,223 | 15,576 | 5,067 | 4,804 | 1,724 | 1,829 | (13,562 | ) | (13,905 | ) | 65,940 | 69,769 | |||||||||||||||||||||||||||
Net debt | 15,154 | 14,853 | 15,154 | 14,853 | |||||||||||||||||||||||||||||||||||||||
Net operating assets | 13,696 | 15,212 | 43,792 | 46,253 | 15,223 | 15,576 | 5,067 | 4,804 | 1,724 | 1,829 | 1,592 | 948 | 81,094 | 84,622 | |||||||||||||||||||||||||||||
Included in total assets and total liabilities are: | |||||||||||||||||||||||||||||||||||||||||||
Total property, plant & equipment | 8,071 | 8,360 | 2,056 | 2,060 | 2,824 | 2,925 | 1,535 | 1,453 | 431 | 415 | 710 | 627 | 15,627 | 15,840 | |||||||||||||||||||||||||||||
Additions to property, plant & equipment(3) | 1,041 | 777 | 354 | 193 | 335 | 307 | 192 | 159 | 74 | 64 | 190 | 153 | 2,186 | 1,653 | |||||||||||||||||||||||||||||
Total goodwill and intangible assets | 6,244 | 6,696 | 40,542 | 42,410 | 11,356 | 11,886 | 2,883 | 2,973 | 867 | 938 | 20 | 20 | 61,912 | 64,923 | |||||||||||||||||||||||||||||
Additions to goodwill and intangible assets(3) | 219 | 414 | 80 | 20 | 24 | 32 | 6 | 9 | 4 | 14 | 3 | 6 | 336 | 495 | |||||||||||||||||||||||||||||
Total investment in associated companies | 3 | 2 | 18 | 17 | 18 | 16 | 4 | 8 | 8,579 | 8,342 | 8,622 | 8,385 | |||||||||||||||||||||||||||||||
Additions to investment in associated companies | 5 | 3 | 24 | 23 | 32 | 23 | |||||||||||||||||||||||||||||||||||||
Cash, marketable securities and derivative financial instruments | 5,075 | 8,134 | 5,075 | 8,134 | |||||||||||||||||||||||||||||||||||||||
Financial debt and derivative financial instruments | 20,229 | 22,987 | 20,229 | 22,987 | |||||||||||||||||||||||||||||||||||||||
Current income tax and deferred tax liabilities | 8,467 | 9,399 | 8,467 | 9,399 |
| Pharmaceuticals | Alcon | Sandoz | Corporate (including eliminations) | Group | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In $ m) | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
Net sales to third parties from continuing operations | 31,791 | 32,214 | 10,827 | 10,496 | 9,562 | 9,159 | 52,180 | 51,869 | |||||||||||||||||||||||
Sales to other segments | 262 | 202 | 49 | 50 | 286 | 294 | (358 | ) | (325 | ) | 239 | 221 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales from continuing operations | 32,053 | 32,416 | 10,876 | 10,546 | 9,848 | 9,453 | (358 | ) | (325 | ) | 52,419 | 52,090 | |||||||||||||||||||
Other revenues | 629 | 497 | 34 | 27 | 12 | 18 | 540 | 84 | 1,215 | 626 | |||||||||||||||||||||
Cost of goods sold | (6,889 | ) | (6,655 | ) | (5,193 | ) | (4,900 | ) | (5,751 | ) | (5,476 | ) | 488 | 452 | (17,345 | ) | (16,579 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit from continuing operations | 25,793 | 26,258 | 5,717 | 5,673 | 4,109 | 3,995 | 670 | 211 | 36,289 | 36,137 | |||||||||||||||||||||
Marketing & Sales | (8,178 | ) | (8,514 | ) | (2,474 | ) | (2,452 | ) | (1,725 | ) | (1,672 | ) | (12,377 | ) | (12,638 | ) | |||||||||||||||
Research & Development | (7,331 | ) | (7,242 | ) | (928 | ) | (1,042 | ) | (827 | ) | (787 | ) | (9,086 | ) | (9,071 | ) | |||||||||||||||
General & Administration | (1,009 | ) | (1,051 | ) | (613 | ) | (589 | ) | (376 | ) | (374 | ) | (618 | ) | (589 | ) | (2,616 | ) | (2,603 | ) | |||||||||||
Other income | 734 | 699 | 79 | 79 | 97 | 106 | 481 | 321 | 1,391 | 1,205 | |||||||||||||||||||||
Other expense | (1,538 | ) | (774 | ) | (184 | ) | (437 | ) | (190 | ) | (240 | ) | (600 | ) | (596 | ) | (2,512 | ) | (2,047 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income from continuing operations | 8,471 | 9,376 | 1,597 | 1,232 | 1,088 | 1,028 | (67 | ) | (653 | ) | 11,089 | 10,983 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income from associated companies | 812 | 4 | 2 | 1,102 | 597 | 1,918 | 599 | ||||||||||||||||||||||||
Interest expense | (704 | ) | (683 | ) | |||||||||||||||||||||||||||
Other financial income and expense | (31 | ) | (92 | ) | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before taxes from continuing operations | 12,272 | 10,807 | |||||||||||||||||||||||||||||
Taxes | (1,545 | ) | (1,498 | ) | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income from continuing operations | 10,727 | 9,309 | |||||||||||||||||||||||||||||
Net loss from discontinued operations | (447 | ) | (17 | ) | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | 10,280 | 9,292 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attributable to: | |||||||||||||||||||||||||||||||
Shareholders of Novartis AG | 10,210 | 9,175 | |||||||||||||||||||||||||||||
Non-controlling interests | 70 | 117 | |||||||||||||||||||||||||||||
Included in net income are: | |||||||||||||||||||||||||||||||
Interest income | 33 | 34 | |||||||||||||||||||||||||||||
Depreciation of property, plant & equipment | (856 | ) | (822 | ) | (307 | ) | (319 | ) | (317 | ) | (307 | ) | (106 | ) | (106 | ) | (1,586 | ) | (1,554 | ) | |||||||||||
Amortization of intangible assets | (287 | ) | (284 | ) | (2,080 | ) | (1,999 | ) | (403 | ) | (411 | ) | (5 | ) | (4 | ) | (2,775 | ) | (2,698 | ) | |||||||||||
Impairment charges on property, plant & equipment, net | (15 | ) | (29 | ) | 1 | (4 | ) | (7 | ) | 3 | (23 | ) | (17 | ) | (44 | ) | (47 | ) | |||||||||||||
Impairment charges on intangible assets, net | (231 | ) | (29 | ) | (7 | ) | (57 | ) | (39 | ) | (20 | ) | (277 | ) | (106 | ) | |||||||||||||||
Impairment charges/fair value gains on financial assets | (20 | ) | (16 | ) | (1 | ) | (48 | ) | (41 | ) | (69 | ) | (57 | ) | |||||||||||||||||
Additions to restructuring provisions | (433 | ) | (88 | ) | (64 | ) | (71 | ) | (4 | ) | (3 | ) | (3 | ) | (1 | ) | (504 | ) | (163 | ) | |||||||||||
Equity-based compensation of Novartis and Alcon equity plans | (685 | ) | (610 | ) | (92 | ) | (105 | ) | (51 | ) | (38 | ) | (179 | ) | (139 | ) | (1,007 | ) | (892 | ) |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Segmentation of Key Figures 2015, 2014 and 2013 (Continued)
SEGMENTATION—CONSOLIDATED BALANCE SHEETS
| Pharmaceuticals | Alcon | Sandoz | Corporate (including eliminations) | Group | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
($ m) | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||||
Assets related to continuing operations | 41,552 | 25,657 | 40,330 | 42,494 | 17,688 | 18,771 | 31,986 | 31,664 | 131,556 | 118,586 | |||||||||||||||||||||
Assets related to discontinued operations | 6,801 | ||||||||||||||||||||||||||||||
Total assets | 41,552 | 25,657 | 40,330 | 42,494 | 17,688 | 18,771 | 31,986 | 31,664 | 131,556 | 125,387 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities related to continuing operations | (10,798 | ) | (10,532 | ) | (2,403 | ) | (2,709 | ) | (3,545 | ) | (3,449 | ) | (37,688 | ) | (35,435 | ) | (54,434 | ) | (52,125 | ) | |||||||||||
Liabilities related to discontinued operations | (2,418 | ) | |||||||||||||||||||||||||||||
Total liabilities | (10,798 | ) | (10,532 | ) | (2,403 | ) | (2,709 | ) | (3,545 | ) | (3,449 | ) | (37,688 | ) | (35,435 | ) | (54,434 | ) | (54,543 | ) | |||||||||||
Total equity | 77,122 | 70,844 | |||||||||||||||||||||||||||||
Net debt | 16,484 | 6,549 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net operating assets | 30,754 | 15,125 | 37,927 | 39,785 | 14,143 | 15,322 | 93,606 | 77,393 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Included in assets and liabilities related to continuing operations(1) are: | |||||||||||||||||||||||||||||||
Total property, plant & equipment | 9,985 | 9,732 | 2,504 | 2,413 | 2,788 | 3,123 | 705 | 715 | 15,982 | 15,983 | |||||||||||||||||||||
Additions to property, plant & equipment(2) | 1,309 | 1,676 | 565 | 517 | 421 | 531 | 224 | 180 | 2,519 | 2,904 | |||||||||||||||||||||
Total goodwill and intangible assets | 21,345 | 6,096 | 33,604 | 35,642 | 10,410 | 11,378 | 32 | 27 | 65,391 | 53,143 | |||||||||||||||||||||
Additions to goodwill and intangible assets(2) | 994 | 493 | 110 | 192 | 44 | 110 | 11 | 4 | 1,159 | 799 | |||||||||||||||||||||
Total investment in associated companies | 8 | 11 | 15 | 16 | 15,291 | 8,405 | 15,314 | 8,432 | |||||||||||||||||||||||
Additions to investment in associated companies(2) | 5 | 9 | 57 | 44 | 62 | 53 | |||||||||||||||||||||||||
Cash and cash equivalents, marketable securities, commodities, time deposits and derivative financial instruments | 5,447 | 13,862 | 5,447 | 13,862 | |||||||||||||||||||||||||||
Financial debts and derivative financial instruments | 21,931 | 20,411 | 21,931 | 20,411 | |||||||||||||||||||||||||||
Current income tax and deferred tax liabilities | 8,072 | 8,175 | 8,072 | 8,175 |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Segmentation of Key Figures 2012, 20112015, 2014 and 20102013 (Continued)
The following table shows countries that accounted for more than 5% of at least one of the respective Group totals and regional information for the years ended December 31, 2012, 20112015, 2014 and 2010:2013:
| Net sales(1) | Total of selected non-current assets(2) | Net sales(1) | Total of selected non-current assets(2) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
$ m | 2015 | % | 2014 | % | 2013 | % | 2015 | % | 2014 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Country | 2012 | % | 2011 | % | 2010 | % | 2012 | % | 2011 | % | 2010 | % | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||
| $ m | | $ m | | $ m | | $ m | | $ m | | $ m | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Switzerland | 706 | 1 | 726 | 1 | 608 | 1 | 37,579 | 43 | 38,827 | 45 | 40,246 | 45 | 774 | 2 | 658 | 1 | 625 | 1 | 47,054 | 49 | 34,399 | 44 | ||||||||||||||||||||||||||||||||||||||||||||||
United States | 18,592 | 33 | 19,225 | 33 | 16,893 | 33 | 31,559 | 36 | 30,061 | 35 | 30,377 | 34 | 18,079 | 37 | 17,337 | 33 | 17,257 | 33 | 28,677 | 30 | 28,329 | 37 | ||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom | 1,277 | 3 | 1,379 | 3 | 1,267 | 2 | 7,769 | 8 | 612 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Germany | 3,797 | 7 | 4,362 | 7 | 3,999 | 8 | 4,242 | 5 | 4,214 | 5 | 4,267 | 5 | 3,262 | 7 | 3,742 | 7 | 3,628 | 7 | 2,908 | 3 | 3,365 | 4 | ||||||||||||||||||||||||||||||||||||||||||||||
France | 2,269 | 5 | 2,638 | 5 | 2,779 | 5 | 188 | 228 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Japan | 5,361 | 9 | 5,281 | 9 | 4,288 | 8 | 188 | 204 | 153 | 3,163 | 6 | 3,781 | 7 | 4,412 | 9 | 142 | 141 | |||||||||||||||||||||||||||||||||||||||||||||||||||
France | 2,709 | 5 | 2,848 | 5 | 2,460 | 5 | 301 | 299 | 317 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 25,508 | 45 | 26,124 | 45 | 22,376 | 45 | 13,331 | 16 | 12,556 | 15 | 13,788 | 16 | 20,590 | 40 | 22,645 | 44 | 21,901 | 43 | 9,949 | 10 | 10,484 | 14 | ||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||
Group | 56,673 | 100 | 58,566 | 100 | 50,624 | 100 | 87,200 | 100 | 86,161 | 100 | 89,148 | 100 | 49,414 | 100 | 52,180 | 100 | 51,869 | 100 | 96,687 | 100 | 77,558 | 100 | ||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||
Region | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Europe | 19,708 | 35 | 21,507 | 37 | 19,169 | 38 | 50,566 | 58 | 51,101 | 59 | 53,461 | 60 | 16,472 | 33 | 18,690 | 36 | 18,421 | 36 | 63,681 | 66 | 45,040 | 58 | ||||||||||||||||||||||||||||||||||||||||||||||
Americas | 24,029 | 42 | 24,705 | 42 | 21,545 | 43 | 34,611 | 40 | 33,211 | 39 | 33,868 | 38 | 22,414 | 45 | 22,218 | 43 | 21,984 | 42 | 30,375 | 31 | 30,074 | 39 | ||||||||||||||||||||||||||||||||||||||||||||||
Asia / Africa / Australasia | 12,936 | 23 | 12,354 | 21 | 9,910 | 19 | 2,023 | 2 | 1,849 | 2 | 1,819 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asia/Africa/Australasia | 10,528 | 22 | 11,272 | 21 | 11,464 | 22 | 2,631 | 3 | 2,444 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||
Group | 56,673 | 100 | 58,566 | 100 | 50,624 | 100 | 87,200 | 100 | 86,161 | 100 | 89,148 | 100 | 49,414 | 100 | 52,180 | 100 | 51,869 | 100 | 96,687 | 100 | 77,558 | 100 | ||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Group's largest, customer accounts for approximately 10% of net sales, and the second and third largest customer accountaccounts for 9%approximately 14%, 11% and 8%5% of net sales, (2011: 9%respectively (2014: 12%, 7%11% and 7%5%; 2010: 8%2013: 15%, 8%10% and 7% respectively). No other customer accounted for 4%5% or more of net sales, in anyeither year.
The highest amounts of trade receivables outstanding were for these same three customers. They amounted to 8%13%, 7%9% and 6%, respectively, of the Group's trade receivables at December 31, 2012 (2011: 10%2015 (2014: 13%, 6%9% and 6%; 2010: 9%, 5% and 6% respectively)).
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Segmentation of Key Figures 2012, 20112015, 2014 and 20102013 (Continued)
Pharmaceuticals Business Franchise Net Sales PHARMACEUTICALS BUSINESS FRANCHISE NET SALES
Business Franchise | 2012 | 2011 | Change (2012 to 2011) | 2010 | Change (2011 to 2010) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ % | $ m | $ % | |||||||||||
Primary care | ||||||||||||||||
Hypertension medicines | ||||||||||||||||
Diovan | 4,417 | 5,665 | (22 | ) | 6,053 | (6 | ) | |||||||||
Exforge | 1,352 | 1,209 | 12 | 904 | 34 | |||||||||||
Subtotal Valsartan Group | 5,769 | 6,874 | (16 | ) | 6,957 | (1 | ) | |||||||||
Tekturna/Rasilez | 383 | 557 | (31 | ) | 438 | 27 | ||||||||||
Subtotal Hypertension | 6,152 | 7,431 | (17 | ) | 7,395 | 0 | ||||||||||
Galvus | 910 | 677 | 34 | 391 | 73 | |||||||||||
Arcapta Neohaler/Onbrez Breezhaler | 134 | 103 | 30 | 33 | nm | |||||||||||
Other | 3 | 0 | nm | 0 | 0 | |||||||||||
Total strategic franchise products | 7,199 | 8,211 | (12 | ) | 7,819 | 5 | ||||||||||
Established medicines | 1,532 | 1,795 | (15 | ) | 2,263 | (21 | ) | |||||||||
Total Primary Care products | 8,731 | 10,006 | (13 | ) | 10,082 | (1 | ) | |||||||||
Oncology | ||||||||||||||||
Gleevec/Glivec | 4,675 | 4,659 | 0 | 4,265 | 9 | |||||||||||
Tasigna | 998 | 716 | 39 | 399 | 79 | |||||||||||
Subtotal Bcr-Abl franchise | 5,673 | 5,375 | 6 | 4,664 | 15 | |||||||||||
Sandostatin | 1,512 | 1,443 | 5 | 1,291 | 12 | |||||||||||
Zometa | 1,288 | 1,487 | (13 | ) | 1,511 | (2 | ) | |||||||||
Exjade | 870 | 850 | 2 | 762 | 12 | |||||||||||
Afinitor/Votubia | 797 | 443 | 80 | 243 | 82 | |||||||||||
Femara | 438 | 911 | (52 | ) | 1,376 | (34 | ) | |||||||||
Other | 173 | 163 | 6 | 181 | (10 | ) | ||||||||||
Total Oncology products | 10,751 | 10,672 | 1 | 10,028 | 6 | |||||||||||
Specialty—Neuroscience | ||||||||||||||||
Gilenya | 1,195 | 494 | 142 | 15 | nm | |||||||||||
Exelon/Exelon Patch | 1,050 | 1,067 | (2 | ) | 1,003 | 6 | ||||||||||
Comtan/Stalevo | 530 | 614 | (14 | ) | 600 | 2 | ||||||||||
Extavia | 159 | 154 | 3 | 124 | 24 | |||||||||||
Other (includingFanapt) | 62 | 46 | 35 | 32 | 44 | |||||||||||
Total strategic franchise products | 2,996 | 2,375 | 26 | 1,774 | 34 | |||||||||||
Established medicines | 483 | 547 | (12 | ) | 567 | (4 | ) | |||||||||
Total Neuroscience products | 3,479 | 2,922 | 19 | 2,341 | 25 | |||||||||||
| 2015 | 2014 | Change (2014 to 2015) | 2013 | Change (2013 to 2014) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ % | $ m | $ % | |||||||||||
Oncology | ||||||||||||||||
Gleevec/Glivec | 4,658 | 4,746 | (2 | ) | 4,693 | 1 | ||||||||||
Tasigna | 1,632 | 1,529 | 7 | 1,266 | 21 | |||||||||||
| | | | | | | | | | | | | | | | |
Subtotal Bcr-Abl franchise | 6,290 | 6,275 | 0 | 5,959 | 5 | |||||||||||
Sandostatin | 1,630 | 1,650 | (1 | ) | 1,589 | 4 | ||||||||||
Afinitor/Votubia | 1,607 | 1,575 | 2 | 1,309 | 20 | |||||||||||
Exjade | 917 | 926 | (1 | ) | 893 | 4 | ||||||||||
Votrient | 565 | 0 | nm | 0 | nm | |||||||||||
Tafinlar/Mekinist | 453 | 0 | nm | 0 | nm | |||||||||||
Jakavi | 410 | 279 | 47 | 163 | 71 | |||||||||||
Revolade/Promacta | 402 | 0 | nm | 0 | nm | |||||||||||
Femara | 304 | 380 | (20 | ) | 384 | (1 | ) | |||||||||
Zykadia | 79 | 31 | 155 | 0 | nm | |||||||||||
Other | 819 | 587 | 40 | 919 | (36 | ) | ||||||||||
| | | | | | | | | | | | | | | | |
Total Oncology | 13,476 | 11,703 | 15 | 11,216 | 4 | |||||||||||
| | | | | | | | | | | | | | | | |
Neuroscience | ||||||||||||||||
Gilenya | 2,776 | 2,477 | 12 | 1,934 | 28 | |||||||||||
Exelon/Exelon Patch | 728 | 1,009 | (28 | ) | 1,032 | (2 | ) | |||||||||
Comtan/Stalevo | 294 | 371 | (21 | ) | 401 | (7 | ) | |||||||||
Other | 141 | 243 | (42 | ) | 237 | 3 | ||||||||||
| | | | | | | | | | | | | | | | |
Total Neuroscience | 3,939 | 4,100 | (4 | ) | 3,604 | 14 | ||||||||||
| | | | | | | | | | | | | | | | |
Retina | ||||||||||||||||
Lucentis | 2,060 | 2,441 | (16 | ) | 2,383 | 2 | ||||||||||
Other | 50 | 63 | (21 | ) | 61 | 3 | ||||||||||
| | | | | | | | | | | | | | | | |
Total Retina | 2,110 | 2,504 | (16 | ) | 2,444 | 2 | ||||||||||
| | | | | | | | | | | | | | | | |
Immunology and Dermatology | ||||||||||||||||
Neoral/Sandimmun(e) | 570 | 684 | (17 | ) | 750 | (9 | ) | |||||||||
Myfortic | 441 | 543 | (19 | ) | 637 | (15 | ) | |||||||||
Zortress/Certican | 335 | 327 | 2 | 249 | 31 | |||||||||||
Cosentyx | 261 | 0 | nm | 0 | nm | |||||||||||
Ilaris | 236 | 199 | 19 | 119 | 67 | |||||||||||
Other | 160 | 173 | (8 | ) | 169 | 2 | ||||||||||
| | | | | | | | | | | | | | | | |
Subtotal Immunology and Dermatology excluding Everolimus stent drug | 2,003 | 1,926 | 4 | 1,924 | 0 | |||||||||||
Everolimus stent drug | 134 | 205 | (35 | ) | 247 | (17 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Total Immunology and Dermatology | 2,137 | 2,131 | 0 | 2,171 | (2 | ) | ||||||||||
| | | | | | | | | | | | | | | | |
nm—nm = not meaningful
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Segmentation of Key Figures 2012, 20112015, 2014 and 20102013 (Continued)
PHARMACEUTICALS BUSINESS FRANCHISE NET SALES (Continued)
Business Franchise | 2012 | 2011 | Change (2012 to 2011) | 2010 | Change (2011 to 2010) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ % | $ m | $ % | |||||||||||
Specialty—Ophthalmics | ||||||||||||||||
Lucentis | 2,398 | 2,050 | 17 | 1,533 | 34 | |||||||||||
Other | 88 | 113 | (22 | ) | 158 | (28 | ) | |||||||||
Total Ophthalmics products | 2,486 | 2,163 | 15 | 1,691 | 28 | |||||||||||
Specialty—Integrated Hospital Care (IHC)(1) | ||||||||||||||||
Neoral/Sandimmun | 821 | 903 | (9 | ) | 871 | 4 | ||||||||||
Myfortic | 579 | 518 | 12 | 444 | 17 | |||||||||||
Zortress/Certican | 210 | 187 | 12 | 144 | 30 | |||||||||||
Ilaris | 72 | 48 | 50 | 26 | 85 | |||||||||||
Other | 398 | 363 | 10 | 293 | 24 | |||||||||||
Total strategic franchise products | 2,080 | 2,019 | 3 | 1,778 | 14 | |||||||||||
Everolimus stent drug | 256 | 256 | 0 | 240 | 7 | |||||||||||
Established medicines | 1,160 | 1,220 | (5 | ) | 1,251 | (2 | ) | |||||||||
Total IHC products | 3,496 | 3,495 | 0 | 3,269 | 7 | |||||||||||
Specialty—Critical Care | ||||||||||||||||
Xolair | 504 | 478 | 5 | 369 | 30 | |||||||||||
TOBI | 317 | 296 | 7 | 279 | 6 | |||||||||||
Total Critical Care products | 821 | 774 | 6 | 648 | 19 | |||||||||||
Additional products | ||||||||||||||||
Voltaren (excl. OTC) | 759 | 794 | (4 | ) | 791 | 0 | ||||||||||
Ritalin/Focalin | 554 | 550 | 1 | 464 | 19 | |||||||||||
Tegretol | 348 | 364 | (4 | ) | 355 | 3 | ||||||||||
Trileptal | 279 | 263 | 6 | 253 | 4 | |||||||||||
Foradil | 240 | 312 | (23 | ) | 353 | (12 | ) | |||||||||
Other | 209 | 193 | 8 | 31 | nm | |||||||||||
Total additional products | 2,389 | 2,476 | (4 | ) | 2,247 | 10 | ||||||||||
Total strategic franchise products | 26,333 | 26,214 | 0 | 23,738 | 10 | |||||||||||
Total established medicines and additional products | 5,820 | 6,294 | (8 | ) | 6,568 | (4 | ) | |||||||||
Total Division net sales | 32,153 | 32,508 | (1 | ) | 30,306 | 7 | ||||||||||
| 2015 | 2014 | Change (2014 to 2015) | 2013 | Change (2013 to 2014) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ % | $ m | $ % | |||||||||||
Respiratory | ||||||||||||||||
Ultibro Breezhaler | 260 | 118 | 120 | 6 | nm | |||||||||||
Onbrez Breezhaler/Arcapta Neohaler | 166 | 220 | (25 | ) | 192 | 15 | ||||||||||
Seebri Breezhaler | 150 | 146 | 3 | 58 | 152 | |||||||||||
| | | | | | | | | | | | | | | | |
Subtotal COPD(1) portfolio | 576 | 484 | 19 | 256 | 89 | |||||||||||
Xolair(2) | 755 | 777 | (3 | ) | 613 | 27 | ||||||||||
Other | 263 | 320 | (18 | ) | 428 | (25 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Total Respiratory | 1,594 | 1,581 | 1 | 1,297 | 22 | |||||||||||
| | | | | | | | | | | | | | | | |
Cardio-Metabolic | ||||||||||||||||
Galvus | 1,140 | 1,224 | (7 | ) | 1,200 | 2 | ||||||||||
Entresto | 21 | 0 | nm | 0 | nm | |||||||||||
Other | 0 | 8 | nm | 0 | nm | |||||||||||
| | | | | | | | | | | | | | | | |
Total Cardio-Metabolic | 1,161 | 1,232 | (6 | ) | 1,200 | 3 | ||||||||||
| | | | | | | | | | | | | | | | |
Established medicines | ||||||||||||||||
Diovan | 1,284 | 2,345 | (45 | ) | 3,524 | (33 | ) | |||||||||
Exforge | 1,047 | 1,396 | (25 | ) | 1,456 | (4 | ) | |||||||||
Voltaren | 558 | 632 | (12 | ) | 675 | (6 | ) | |||||||||
Ritalin/Focalin | 365 | 492 | (26 | ) | 594 | (17 | ) | |||||||||
Other | 2,774 | 3,675 | (25 | ) | 4,033 | (9 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Total Established Medicines | 6,028 | 8,540 | (29 | ) | 10,282 | (17 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Total Division net sales | 30,445 | 31,791 | (4 | ) | 32,214 | (1 | ) | |||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
nm = not meaningful(1) includes Transplantation
The product portfolio of other segments is widely spread in 2015, 2014 and none of the products or product ranges exceed 5% of the net sales of the Group in 2012, 2011 and 2010.2013.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Associated Companies
Novartis has a significant investmentinvestments in Roche Holding AG, Basel (Roche) and Alcon, Inc., prior to Novartis acquiring a 77% interest in 2010, andGlaxoSmithKline Consumer Healthcare Holdings Ltd, Brentford, Middlesex, UK as well as certain other smaller investments which are accounted for as associated companies:
| Balance sheet value | Net income statement effect | Balance sheet value | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | 2010 | 2015 | 2014 | ||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||
Roche Holding AG, Switzerland | 8,588 | 8,362 | 538 | 499 | 380 | 7,919 | 8,159 | ||||||||||||||||
Alcon Inc., Switzerland | 433 | ||||||||||||||||||||||
GlaxoSmithKline Consumer Healthcare Holdings Ltd., UK | 7,194 | ||||||||||||||||||||||
Others | 252 | 260 | 14 | 29 | (9 | ) | 201 | 273 | |||||||||||||||
| | | | | | | | ||||||||||||||||
Total | 8,840 | 8,622 | 552 | 528 | 804 | 15,314 | 8,432 | ||||||||||||||||
| | | | | | | | ||||||||||||||||
| | | | | | ||||||||||||||||||
| | | | | | | |
| Net income statement effect | Other comprehensive income effect | Total comprehensive income effect | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||||||||
Roche Holding AG, Switzerland | 343 | 599 | 604 | (149 | ) | (51 | ) | (37 | ) | 194 | 548 | 567 | ||||||||||||||||
GlaxoSmithKline Consumer Healthcare Holdings Ltd., UK | (79 | ) | (4 | ) | (83 | ) | ||||||||||||||||||||||
Idenix Pharmaceuticals Inc., US | 812 | 812 | ||||||||||||||||||||||||||
LTS Lohmann Therapie-Systeme AG, Germany | 436 | 31 | (6 | ) | 436 | 25 | ||||||||||||||||||||||
Others | 2 | 71 | (36 | ) | 20 | 11 | 2 | 91 | (25 | ) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Associated companies related to continuing operations | 266 | 1,918 | 599 | (153 | ) | (31 | ) | (32 | ) | 113 | 1,887 | 567 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Group's holding in Roche voting shares was 33.3% at December 31, 2012, 20112015, 2014 and 2010.2013. This investment represents approximately 6.4%6.3% of Roche's total outstanding voting and non-voting equity instruments at December 31, 2012,2015, 2014 and approximately 6.3% at December 31, 2011 and 2010.2013.
Since up-to-datefull-year 2015 financial data for Roche are not available when Novartis produces its consolidated financial results, a survey of analyst estimates is used to estimate the Group's share of Roche's net income in Roche.income. Any differences between these estimates and actual results will be adjusted in the Group's 20132016 consolidated financial statements when available.
The following table shows summarized financial information of Roche for the year ended December 31, 2011 and for the six months ended June 30, 2012 since full year 2012 data is not yet available:
| Asset | Liabilities | Revenue | Net income | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CHF billions | CHF billions | CHF billions | CHF billions | |||||||||
December 31, 2011 | 61.6 | 47.1 | 44.1 | 9.5 | |||||||||
June 30, 2012 | 59.6 | 47.5 | 23.3 | 4.4 |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Associated Companies (Continued)
The following tables show summarized financial information of Roche, including current values of fair value adjustments made at the time of the acquisition of the shares, for the year ended December 31, 2014 and for the six months ended June 30, 2015 since full year 2015 data is not yet available:
| Current assets | Non-current assets | Current liabilities | Non-current liabilities | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CHF billions | CHF billions | CHF billions | CHF billions | |||||||||
December 31, 2014 | 31.1 | 63.5 | 23.1 | 31.0 | |||||||||
June 30, 2015 | 25.2 | 61.3 | 21.7 | 28.0 |
| Revenue | Net income | Other comprehensive income | Total comprehensive income | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CHF billions | CHF billions | CHF billions | CHF billions | |||||||||
December 31, 2014 | 47.5 | 7.3 | (2.3 | ) | 5.0 | ||||||||
June 30, 2015 | 23.6 | 4.1 | (1.1 | ) | 3.0 |
A purchase price allocation was performed on the basis of publicly available information at the time of acquisition of the investment. The December 31, 20122015 balance sheet value allocation is as follows:
| $ m | |||
---|---|---|---|---|
Novartis share of Roche's estimated net assets | ||||
Novartis share of re-appraised intangible assets | ||||
Implicit Novartis goodwill | ||||
| | | | |
Current value of share in net identifiable assets and goodwill | ||||
Accumulated equity accounting adjustments and translation effects less dividends received | ||||
| | | | |
December 31, | ||||
| | | | |
| | | | |
| | | | |
The identified intangible assets principally relate to the value of currently marketed products and are amortized on a straight-line basis over their estimated average useful life of 20 years.
The consolidatedIn 2015, dividends received from Roche in relation to the distribution of its 2014 net income statement effects from applying Novartis accounting principles for this investmentamounted to $429 million (2014: $473 million in 2012, 2011 and 2010 are as follows:
| 2012 | 2011 | 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Novartis share of Roche's estimated current-year consolidated net income(1) | 691 | 661 | 516 | |||||||
Amortization of fair value adjustments relating to intangible assets, net of taxes of $45 million (2011: $47 million, 2010: $41 million) | (153 | ) | (162 | ) | (136 | ) | ||||
Net income effect | 538 | 499 | 380 | |||||||
The publicly quoted market value of the Novartis interest in Roche (Reuters symbol: RO.S) at December 31, 2012, was $10.9 billion (2011: $9.5 billion).
Alcon, Inc.
The Group's initial holding in Alcon voting shares was acquired on July 7, 2008. In 2010, the Group completed its purchase of an additional 52% of Alcon resulting in approximately 77% ownership. As from August 25, 2010 Alcon is fully consolidated and no longer accounted for as an associated company. The2013 net income).
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Associated Companies (Continued)
impact on the Group's The consolidated income statement effects from applying Novartis accounting principles for this investment in 2015, 2014 and 2013 are as follows:
| 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Novartis share of Roche's estimated current-year consolidated net income | 650 | 813 | 817 | |||||||
Prior-year adjustment | (157 | ) | (56 | ) | (59 | ) | ||||
Amortization of fair value adjustments relating to intangible assets, net of taxes of $41 million (2014: $45 million, 2013: $45 million) | (150 | ) | (158 | ) | (154 | ) | ||||
| | | | | | | | | | |
Net income effect | 343 | 599 | 604 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The publicly quoted market value of the periodNovartis interest in Roche (Reuters symbol: RO.S) at December 31, 2015, was $14.9 billion (2014: $14.4 billion).
GlaxoSmithKline Consumer Healthcare Holdings Ltd
On March 2, 2015, Novartis closed its transactions with GlaxoSmithKline plc, Great Britain (GSK) announced in April 2014. As part of these transactions, Novartis and GSK have agreed to create a combined consumer healthcare business through a joint venture between Novartis OTC and GSK Consumer Healthcare. On March 2, 2015, a new entity GlaxoSmithKline Consumer Healthcare Holdings Ltd (GSK Consumer Healthcare) was formed via contribution of businesses from January 1, 2010 to August 25, 2010both Novartis and GSK.
At December 31, 2015, Novartis has a 36.5% interest in GSK Consumer Healthcare and four of eleven seats on the joint venture entity's Board of Directors. Furthermore, Novartis has customary minority rights and also exit rights at a pre-defined, market based pricing mechanism.
Novartis has valued the contribution of 63.5% of its OTC Division in exchange for 36.5% of the GSK Consumer Healthcare business at fair value. Based on the estimates of values exchanged, an investment in associated company of $7.6 billion was recorded on March 2, 2015.
The December 31, 2015 balance sheet value allocation is as follows:
| ||||
---|---|---|---|---|
Novartis share of GSK Consumer Healthcare's estimated net assets | 957 | |||
Novartis share of re-appraised intangible assets | 4,273 | |||
Implicit Novartis goodwill | 1,941 | |||
| | | | |
Current value of share in net identifiable assets and goodwill | 7,171 | |||
Accumulated equity accounting adjustments and translation effects | 23 | |||
| | | | |
December 31, 2015 balance sheet value | 7,194 | |||
| | | | |
| | | | |
| | | | |
The identified intangible assets principally relate to the value of the indefinite life GSK Consumer Healthcare intangible assets. The identified intangible assets with a definite life are amortized on a straight-line basis over their estimated average useful life of 20 years.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Associated Companies (Continued)
The following tables show interim unaudited financial information of GSK Consumer Healthcare, including current values of fair value adjustments made at the time of acquisition, for the seven months ended September 30, 2015 since full year 2015 data is not yet available:
| Current assets | Non-current assets | Current liabilities | Non-current liabilities | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| GBP billions | GBP billions | GBP billions | GBP billions | |||||||||
September 30, 2015 | 3.3 | 21.3 | 1.8 | 2.1 |
| Revenue | Net income | Other comprehensive income | Total comprehensive income | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| GBP millions | GBP millions | GBP millions | GBP millions | |||||||||
September 30, 2015 | 3,241 | 4 | (44 | ) | (40 | ) |
Since full-year 2015 financial data for GSK Consumer Healthcare are not available when Novartis produces its consolidated financial results, a projection of the latest internal management reporting is used to estimate the Group's share of GSK Consumer Healthcare's net result for the year. Any differences between this estimate and actual results will be adjusted in the Group's 2016 consolidated financial statements when available.
The consolidated income statement effects from applying Novartis accounting principles for this investment in 2015 are as follows:
2015 | ||||
---|---|---|---|---|
| $ m | |||
Novartis share of | ||||
| ||||
| ||||
| ( | ) | ||
Amortization of fair value adjustments relating to intangible assets and inventory, net of taxes of | ( | ) | ||
| | | | |
Net income effect | ) | |||
| | | | |
| | | | |
| | | | |
Other Associated Companies
During 2014, the shareholdings of 22% in Idenix Pharmaceuticals Inc. and 43% in LTS Lohmann Therapie-Systeme AG were sold realizing pre-tax gains of $812 million and $421 million, respectively. Others include a gain of $64 million recorded on investments in associated companies held by the Novartis Venture Funds, which are accounted at fair value from January 1, 2014 onwards, consistent with other investments held by these Funds.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Interest Expense and Other Financial Income &and Expense
| 2012 | 2011 | 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Interest expense | (655 | ) | (699 | ) | (615 | ) | ||||
Expense due to discounting long-term liabilities | (69 | ) | (52 | ) | (77 | ) | ||||
Total interest expense | (724 | ) | (751 | ) | (692 | ) | ||||
Interest income | 50 | 62 | 103 | |||||||
Dividend income | 1 | 1 | 3 | |||||||
Net capital (losses)/gains on available-for-sale securities | (6 | ) | 2 | |||||||
Net capital gains/(losses) on cash and cash equivalents | 47 | (124 | ) | |||||||
Income on forward contracts and options | 86 | 192 | 66 | |||||||
Expenses on forward contracts and options | (129 | ) | (67 | ) | (38 | ) | ||||
Impairment of available-for-sale securities | (3 | ) | (4 | ) | ||||||
Other financial expense | (20 | ) | (19 | ) | (22 | ) | ||||
Monetary loss from hyperinflation accounting | (19 | ) | (19 | ) | (17 | ) | ||||
Currency result, net | (106 | ) | (27 | ) | (27 | ) | ||||
Total other financial (expense)/income | (96 | ) | (2 | ) | 64 | |||||
| 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Interest expense | (669 | ) | (701 | ) | (664 | ) | ||||
Income/(expense) due to discounting long-term liabilities | 14 | (3 | ) | (19 | ) | |||||
| | | | | | | | | | |
Total interest expense | (655 | ) | (704 | ) | (683 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Other Financial Income and Expense
| 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Interest income | 33 | 33 | 34 | |||||||
Dividend income | 1 | 1 | 1 | |||||||
Net capital (losses)/gains on available-for-sale securities | (8 | ) | (2 | ) | 28 | |||||
Net capital losses on cash and cash equivalents | (1 | ) | ||||||||
Income on forward contracts and options | 1 | 1 | 2 | |||||||
Impairment of commodities and available-for-sale securities | (132 | ) | (14 | ) | ||||||
Other financial expense | (23 | ) | (25 | ) | (20 | ) | ||||
Monetary loss from hyperinflation accounting | (72 | ) | (61 | ) | (32 | ) | ||||
Currency result, net | (254 | ) | 22 | (90 | ) | |||||
| | | | | | | | | | |
Total other financial income and expense | (454 | ) | (31 | ) | (92 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
6. Taxes
| 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||
Switzerland | 5,277 | 2,993 | 4,679 | 5,765 | 5,245 | 5,435 | ||||||||||||||
Foreign | 5,966 | 7,780 | 7,023 | 2,369 | 7,027 | 5,372 | ||||||||||||||
| | | | | | | | | | | ||||||||||
Income before taxes from continuing operations | 8,134 | 12,272 | 10,807 | |||||||||||||||||
Income/(loss) before taxes from discontinued operations | 12,479 | (351 | ) | (72 | ) | |||||||||||||||
| | | | | | | | | | | ||||||||||
Total income before taxes | 11,243 | 10,773 | 11,702 | 20,613 | 11,921 | 10,735 | ||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Taxes (Continued)
Current and Deferred Income Tax Expense
| 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||
Switzerland | (530 | ) | (488 | ) | (425 | ) | (317 | ) | (661 | ) | (524 | ) | ||||||||
Foreign | (1,806 | ) | (2,182 | ) | (1,749 | ) | (1,333 | ) | (1,952 | ) | (1,793 | ) | ||||||||
Total current income tax expense | (2,336 | ) | (2,670 | ) | (2,174 | ) | ||||||||||||||
| | | | | | | | | | | ||||||||||
Current income tax expense from continuing operations | (1,650 | ) | (2,613 | ) | (2,317 | ) | ||||||||||||||
| | | | | | | | | | | ||||||||||
Switzerland | 220 | 161 | (94 | ) | (68 | ) | 309 | 160 | ||||||||||||
Foreign | 491 | 981 | 535 | 612 | 759 | 659 | ||||||||||||||
Total deferred tax income | 711 | 1,142 | 441 | |||||||||||||||||
| | | | | | | | | | | ||||||||||
Deferred tax income from continuing operations | 544 | 1,068 | 819 | |||||||||||||||||
| | | | | | | | | | | ||||||||||
Income tax expense from continuing operations | (1,106 | ) | (1,545 | ) | (1,498 | ) | ||||||||||||||
Income tax (expense)/income from discontinued operations | (1,713 | ) | (96 | ) | 55 | |||||||||||||||
| | | | | | | | | | | ||||||||||
Total income tax expense | (1,625 | ) | (1,528 | ) | (1,733 | ) | (2,819 | ) | (1,641 | ) | (1,443 | ) | ||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |
The main elements contributing to the difference between the Group's overall expected tax rate (which can change each year since it is calculated as the weighted average tax rate based on pre-tax income of each subsidiary) and the effective tax rate are:
| 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| % | % | % | % | % | % | ||||||||||||||
Expected tax rate | 13.7 | 15.5 | 15.8 | 12.4 | 11.7 | 12.9 | ||||||||||||||
Effect of disallowed expenditures | 2.9 | 2.5 | 3.0 | 3.5 | 2.9 | 3.4 | ||||||||||||||
Effect of utilization of tax losses brought forward from prior periods | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.2 | ) | (0.3 | ) | (0.1 | ) | ||||||||
Effect of income taxed at reduced rates | (0.3 | ) | (0.3 | ) | (0.6 | ) | (0.1 | ) | ||||||||||||
Effect of tax credits and allowances | (1.7 | ) | (2.4 | ) | (2.1 | ) | (2.7 | ) | (1.8 | ) | (2.0 | ) | ||||||||
Effect of write-off of deferred tax assets | 0.1 | |||||||||||||||||||
Effect of tax rate change on opening balance | (0.5 | ) | (0.2 | ) | ||||||||||||||||
Effect of tax benefits expiring in 2017 | (0.8 | ) | (0.7 | ) | (0.4 | ) | (0.4 | ) | (0.8 | ) | (0.7 | ) | ||||||||
Effect of write-down of investments in subsidiaries | (0.5 | ) | (0.7 | ) | ||||||||||||||||
Effect of non-deductible losses in Venezuela | 1.2 | |||||||||||||||||||
Effect of write down and reversal of write-down of investments in subsidiaries | (0.9 | ) | 0.9 | |||||||||||||||||
Prior year and other items | 0.8 | (0.1 | ) | (0.7 | ) | 1.5 | 0.6 | 0.6 | ||||||||||||
| | | | | | | | | | | ||||||||||
Effective tax rate for continuing operations | 13.6 | 12.6 | 13.9 | |||||||||||||||||
Effective tax rate for discontinued operations | 13.7 | (27.4 | ) | 76.4 | ||||||||||||||||
| | | | | | | | | | | ||||||||||
Effective tax rate | 14.5 | 14.2 | 14.8 | 13.7 | 13.8 | 13.4 | ||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |
The utilization of tax-loss carry-forwards lowered the tax charge by $11$15 million $6in 2015 and by $34 million and $17$13 million in 2012, 20112014 and 20102013 respectively.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Earnings per Share
Basic earnings per share (EPS) is calculated by dividing net income attributable to shareholders of Novartis AG by the weighted average number of shares outstanding in a reporting period. This calculation excludes the average number of issued shares purchased by the Group and held as treasury shares.
| 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Basic earnings per share | ||||||||||||||||||||
Weighted average number of shares outstanding (in millions) | 2,418 | 2,382 | 2,286 | 2,403 | 2,426 | 2,441 | ||||||||||||||
Net income attributable to shareholders of Novartis AG ($ m) | 9,505 | 9,113 | 9,794 | |||||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | | ||||||||||
Net income/(loss) attributable to shareholders of Novartis AG ($ m) | ||||||||||||||||||||
— Continuing operations | 7,025 | 10,654 | 9,189 | |||||||||||||||||
— Discontinued operations | 10,758 | (444 | ) | (14 | ) | |||||||||||||||
| | | | | | | | | | | ||||||||||
— Total | 17,783 | 10,210 | 9,175 | |||||||||||||||||
| | | | | | | | | | | ||||||||||
Basic earnings per share ($) | 3.93 | 3.83 | 4.28 | |||||||||||||||||
— Continuing operations | 2.92 | 4.39 | 3.76 | |||||||||||||||||
— Discontinued operations | 4.48 | (0.18 | ) | 0.00 | ||||||||||||||||
| | | | | | | | | | | ||||||||||
— Total | 7.40 | 4.21 | 3.76 | |||||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |
For diluted EPS, the weighted average number of shares outstanding is adjusted to assume the vesting of all restricted shares and the conversion of all potentially dilutive shares arising from options on Novartis shares that have been issued.
| 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Diluted earnings per share | ||||||||||||||||||||
Weighted average number of shares outstanding (in millions) | 2,418 | 2,382 | 2,286 | 2,403 | 2,426 | 2,441 | ||||||||||||||
Adjustment for vesting of restricted shares and dilutive shares from options (in millions) | 27 | 31 | 15 | 35 | 44 | 38 | ||||||||||||||
| | | | | | | | | | | ||||||||||
Weighted average number of shares for diluted earnings per share (in millions) | 2,445 | 2,413 | 2,301 | 2,438 | 2,470 | 2,479 | ||||||||||||||
Net income attributable to shareholders of Novartis AG ($ m) | 9,505 | 9,113 | 9,794 | |||||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | | ||||||||||
Net income/(loss) attributable to shareholders of Novartis AG ($ m) | ||||||||||||||||||||
— Continuing operations | 7,025 | 10,654 | 9,189 | |||||||||||||||||
— Discontinued operations | 10,758 | (444 | ) | (14 | ) | |||||||||||||||
| | | | | | | | | | | ||||||||||
— Total | 17,783 | 10,210 | 9,175 | |||||||||||||||||
| | | | | | | | | | | ||||||||||
Diluted earnings per share ($) | 3.89 | 3.78 | 4.26 | |||||||||||||||||
— Continuing operations | 2.88 | 4.31 | 3.70 | |||||||||||||||||
— Discontinued operations | 4.41 | (0.18 | ) | 0.00 | ||||||||||||||||
| | | | | | | | | | | ||||||||||
— Total | 7.29 | 4.13 | 3.70 | |||||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |
Options equivalent to 77.2 million shares (2011: 78.0 million, 2010: 82.9 million)No options were excluded from the calculation of diluted EPS since theyin 2013, 2014 or 2015, as all options were not dilutive.dilutive in both years.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Changes in Consolidated Statements of Comprehensive Income
The consolidated statements of comprehensive income include the Group's net income for the year as well as all other valuation adjustments recorded in the Group's consolidated balance sheet but which under IFRS are not recorded in the consolidated income statement. These include fair value adjustments to financial instruments, actuarial gains or losses on defined benefit pension and other post-employment plans revaluations of previously held equity interests (up to December 31, 2009 when the applicable accounting standard changed) and currency translation effects, net of tax. These amounts are subject to significant volatility outside of the control of management due to such factors as share price, foreign currency and interest rate movements.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Changes in Consolidated Statements of Comprehensive Income (Continued)
The following table summarizes these value adjustments and currency translation effects attributable to Novartis shareholders:
| Fair value adjustments on marketable securities | Fair value adjustments on deferred cash flow hedges | Actuarial losses from defined benefit plans | Cumulative currency translation effects | Total value adjustments | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Fair value adjustments at January 1, 2013 | 212 | (100 | ) | (6,048 | ) | 3,944 | (1,992 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Fair value adjustments on financial instruments | 132 | 41 | 173 | |||||||||||||
Net actuarial gains from defined benefit plans(1) | 1,504 | 1,504 | ||||||||||||||
Currency translation effects(2) | 681 | 681 | ||||||||||||||
| | | | | | | | | | | | | | | | |
Total fair value adjustments in 2013 | 132 | 41 | 1,504 | 681 | 2,358 | |||||||||||
| | | | | | | | | | | | | | | | |
Fair value adjustments at December 31, 2013 | 344 | (59 | ) | (4,544 | ) | 4,625 | 366 | |||||||||
| | | | | | | | | | | | | | | | |
Fair value adjustments on financial instruments | 89 | 21 | 110 | |||||||||||||
Net actuarial losses from defined benefit plans(1) | (822 | ) | (822 | ) | ||||||||||||
Currency translation effects(2) | (2,219 | ) | (2,219 | ) | ||||||||||||
| | | | | | | | | | | | | | | | |
Total fair value adjustments in 2014 | 89 | 21 | (822 | ) | (2,219 | ) | (2,931 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Fair value adjustments at December 31, 2014 | 433 | (38 | ) | (5,366 | ) | 2,406 | (2,565 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Fair value adjustments on financial instruments | 28 | 20 | 48 | |||||||||||||
Net actuarial losses from defined benefit plans(1) | (147 | ) | (147 | ) | ||||||||||||
Currency translation effects(2) | (1,659 | ) | (1,659 | ) | ||||||||||||
| | | | | | | | | | | | | | | | |
Total value adjustments in 2015 | 28 | 20 | (147 | ) | (1,659 | ) | (1,758 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Fair value adjustments related to divestments | 100 | 100 | ||||||||||||||
| | | | | | | | | | | | | | | | |
Value adjustments at December 31, 2015 | 461 | (18 | ) | (5,413 | ) | 747 | (4,223 | ) | ||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Fair value adjustments to marketable securities | Fair value adjustments of deferred cash flow hedges | Actuarial losses from defined benefit plans | Revaluation of previously held equity interests | Cumulative currency translation effects | Total value adjustments | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Value adjustments at January 1, 2010 | 231 | (223 | ) | (2,560 | ) | 685 | 3,135 | 1,268 | |||||||||||
Fair value adjustments on financial instruments | (73 | ) | 41 | (32 | ) | ||||||||||||||
Net actuarial losses from defined benefit plans | (678 | ) | (678 | ) | |||||||||||||||
Currency translation effects | 534 | 534 | |||||||||||||||||
Total value adjustments in 2010 | (73 | ) | 41 | (678 | ) | 534 | (176 | ) | |||||||||||
Value adjustments at December 31, 2010 | 158 | (182 | ) | (3,238 | ) | 685 | 3,669 | 1,092 | |||||||||||
Fair value adjustments on financial instruments | (21 | ) | 41 | 20 | |||||||||||||||
Net actuarial losses from defined benefit plans | (1,429 | ) | (1,429 | ) | |||||||||||||||
Currency translation effects | (534 | ) | (534 | ) | |||||||||||||||
Total value adjustments in 2011 | (21 | ) | 41 | (1,429 | ) | (534 | ) | (1,943 | ) | ||||||||||
Value adjustments at December 31, 2011 | 137 | (141 | ) | (4,667 | ) | 685 | 3,135 | (851 | ) | ||||||||||
Value adjustments on financial instruments | 75 | 41 | 116 | ||||||||||||||||
Net actuarial losses from defined benefit plans | (1,811 | ) | (1,811 | ) | |||||||||||||||
Currency translation effects | 809 | 809 | |||||||||||||||||
Total value adjustments in 2012 | 75 | 41 | (1,811 | ) | 809 | (886 | ) | ||||||||||||
Value adjustments at December 31, 2012 | 212 | (100 | ) | (6,478 | ) | 685 | 3,944 | (1,737 | ) | ||||||||||
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Changes in Consolidated Statements of Comprehensive Income (Continued)
8.1)The 2012, 20112015, 2014 and 20102013 changes in the fair value of financial instruments were as follows:
| Fair value adjustments to marketable securities | Fair value adjustments of deferred cash flow hedges | Total | Fair value adjustments on marketable securities | Fair value adjustments on deferred cash flow hedges | Total | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||
Fair value adjustments at January 1, 2012 | 137 | (141 | ) | (4 | ) | |||||||||||||||
Fair value adjustments at January 1, 2015 | 433 | (38 | ) | 395 | ||||||||||||||||
| | | | | | | | | | | ||||||||||
Changes in fair value: | ||||||||||||||||||||
—Available-for-sale marketable securities | 20 | 20 | ||||||||||||||||||
—Available-for-sale financial investments | 41 | 41 | ||||||||||||||||||
—Associated companies' movements in comprehensive income | 5 | 5 | ||||||||||||||||||
Realized net losses/(gains) transferred to the consolidated income statement: | ||||||||||||||||||||
—Marketable securities sold | 3 | 3 | ||||||||||||||||||
—Other financial assets sold | (19 | ) | (19 | ) | ||||||||||||||||
— Available-for-sale marketable securities | (130 | ) | (130 | ) | ||||||||||||||||
— Available-for-sale financial investments | 80 | 80 | ||||||||||||||||||
— Associated companies' movements in comprehensive income | (8 | ) | (8 | ) | ||||||||||||||||
Realized net gains transferred to the consolidated income statement: | ||||||||||||||||||||
— Marketable securities sold | (1 | ) | (1 | ) | ||||||||||||||||
— Other financial assets sold | (103 | ) | (103 | ) | ||||||||||||||||
Amortized net losses on cash flow hedges transferred to the consolidated income statement | 44 | 44 | 21 | 21 | ||||||||||||||||
Impaired financial assets transferred to the consolidated income statement | 35 | 35 | 194 | 194 | ||||||||||||||||
Deferred tax on above items | (10 | ) | (3 | ) | (13 | ) | (4 | ) | (1 | ) | (5 | ) | ||||||||
| | | | | | | | | | | ||||||||||
Fair value adjustments during the year | 75 | 41 | 116 | 28 | 20 | 48 | ||||||||||||||
Attributable to: | ||||||||||||||||||||
Shareholders of Novartis AG | 75 | 41 | 116 | |||||||||||||||||
Non-controlling interests | ||||||||||||||||||||
Fair value adjustments at December 31, 2012 | 212 | (100 | ) | 112 | ||||||||||||||||
| | | | | | | | | | | ||||||||||
Fair value adjustments at December 31, 2015 | 461 | (18 | ) | 443 | ||||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | �� | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Changes in Consolidated Statements of Comprehensive Income (Continued)
| Fair value adjustments to marketable securities | Fair value adjustments of deferred cash flow hedges | Total | Fair value adjustments on marketable securities | Fair value adjustments on deferred cash flow hedges | Total | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||
Fair value adjustments at January 1, 2011 | 157 | (182 | ) | (25 | ) | |||||||||||||||
Fair value adjustments at January 1, 2014 | 344 | (59 | ) | 285 | ||||||||||||||||
| | | | | | | | | | | ||||||||||
Changes in fair value: | ||||||||||||||||||||
—Available-for-sale marketable securities | (32 | ) | (32 | ) | ||||||||||||||||
—Available-for-sale financial investments | (141 | ) | (141 | ) | ||||||||||||||||
—Associated companies' movements in comprehensive income | (8 | ) | (8 | ) | ||||||||||||||||
Realized net (gains) transferred to the consolidated income statement: | ||||||||||||||||||||
—Marketable securities sold | (13 | ) | (13 | ) | ||||||||||||||||
—Other financial assets sold | (13 | ) | (13 | ) | ||||||||||||||||
— Available-for-sale marketable securities | (3 | ) | (3 | ) | ||||||||||||||||
— Available-for-sale financial investments | 91 | 91 | ||||||||||||||||||
— Associated companies' movements in comprehensive income | 5 | 5 | ||||||||||||||||||
Realized net gains transferred to the consolidated income statement: | ||||||||||||||||||||
— Marketable securities sold | (4 | ) | (4 | ) | ||||||||||||||||
— Other financial assets sold | (81 | ) | (81 | ) | ||||||||||||||||
Amortized net losses on cash flow hedges transferred to the consolidated income statement | 44 | 44 | 23 | 23 | ||||||||||||||||
Impaired marketable securities and other financial assets transferred to the consolidated income statement | 192 | 192 | ||||||||||||||||||
Impaired financial assets transferred to the consolidated income statement | 87 | 87 | ||||||||||||||||||
Deferred tax on above items | (5 | ) | (3 | ) | (8 | ) | (6 | ) | (2 | ) | (8 | ) | ||||||||
| | | | | | | | | | | ||||||||||
Fair value adjustments during the year | (20 | ) | 41 | 21 | 89 | 21 | 110 | |||||||||||||
Attributable to: | ||||||||||||||||||||
Shareholders of Novartis AG | (21 | ) | 41 | 20 | ||||||||||||||||
Non-controlling interests | 1 | 1 | ||||||||||||||||||
Fair value adjustments at December 31, 2011 | 137 | (141 | ) | (4 | ) | |||||||||||||||
| | | | | | | | | | | ||||||||||
Fair value adjustments at December 31, 2014 | 433 | (38 | ) | 395 | ||||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Changes in Consolidated Statements of Comprehensive Income (Continued)
| Fair value adjustments to marketable securities | Fair value adjustments of deferred cash flow hedges | Total | Fair value adjustments on marketable securities | Fair value adjustments on deferred cash flow hedges | Total | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||
Fair value adjustments at January 1, 2010 | 231 | (223 | ) | 8 | ||||||||||||||||
Fair value adjustments at January 1, 2013 | 212 | (100 | ) | 112 | ||||||||||||||||
| | | | | | | | | | | ||||||||||
Changes in fair value: | ||||||||||||||||||||
—Available-for-sale marketable securities | 19 | 19 | ||||||||||||||||||
—Available-for-sale financial investments | (226 | ) | (226 | ) | ||||||||||||||||
—Associated companies' movements in comprehensive income | (5 | ) | (5 | ) | ||||||||||||||||
Realized net (gains) transferred to the consolidated income statement: | ||||||||||||||||||||
—Marketable securities sold | (39 | ) | (39 | ) | ||||||||||||||||
—Other financial assets sold | (15 | ) | (15 | ) | ||||||||||||||||
— Available-for-sale marketable securities | 3 | 3 | ||||||||||||||||||
— Available-for-sale financial investments | 204 | 204 | ||||||||||||||||||
— Associated companies' movements in comprehensive income | 7 | 7 | ||||||||||||||||||
Realized net gains transferred to the consolidated income statement: | ||||||||||||||||||||
— Marketable securities sold | (46 | ) | (46 | ) | ||||||||||||||||
— Other financial assets sold | (74 | ) | (74 | ) | ||||||||||||||||
Amortized net losses on cash flow hedges transferred to the consolidated income statement | 44 | 44 | 44 | 44 | ||||||||||||||||
Impaired marketable securities and other financial assets transferred to the consolidated income statement | 164 | 164 | ||||||||||||||||||
Impaired financial assets transferred to the consolidated income statement | 65 | 65 | ||||||||||||||||||
Deferred tax on above items | 28 | (3 | ) | 25 | (27 | ) | (3 | ) | (30 | ) | ||||||||||
| | | | | | | | | | | ||||||||||
Fair value adjustments during the year | (74 | ) | 41 | (33 | ) | 132 | 41 | 173 | ||||||||||||
Attributable to: | ||||||||||||||||||||
Shareholders of Novartis AG | (73 | ) | 41 | (32 | ) | |||||||||||||||
Non-controlling interests | (1 | ) | (1 | ) | ||||||||||||||||
Fair value adjustments at December 31, 2010 | 157 | (182 | ) | (25 | ) | |||||||||||||||
| | | | | | | | | | | ||||||||||
Fair value adjustments at December 31, 2013 | 344 | (59 | ) | 285 | ||||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |
8.2) Actuarial gains and losses from defined benefit plans arise as follows:
| 2012 | 2011 | 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Defined benefit pension plans before tax | (2,371 | ) | (1,876 | ) | (832 | ) | ||||
Other post-employment benefit plans before tax | 27 | (55 | ) | (24 | ) | |||||
Taxation on above items | 533 | 510 | 171 | |||||||
Total after tax | (1,811 | ) | (1,421 | ) | (685 | ) | ||||
Attributable to: | ||||||||||
Shareholders of Novartis AG | (1,811 | ) | (1,429 | ) | (678 | ) | ||||
Non-controlling interests | 8 | (7 | ) |
8.3) The Group has investments in associated companies, principally Roche Holding AG.AG and GlaxoSmithKline Consumer Healthcare Holdings Ltd. The Group's share in movements in these companies' other comprehensive income are recognized directly in the respective categories of the Novartis consolidated statement of comprehensive income, net of tax. The
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Changes in Consolidated Statements of Comprehensive Income (Continued)
currency translation effects and fair value adjustments of associated companies are included in the corresponding Group amounts. All other movements in these companies' statements of comprehensive income are recognized directly in the consolidated statement of comprehensive income under "Novartis share of other items recorded in comprehensive income recognized by associated companies, net of taxes". These amounted to a loss of $107$48 million in 2012 (2011:(2014: loss of $5 million, 2013: income of $5 million).
8.3) In 2015, cumulative currency translation losses of $10 million have been recycled through the income statement as a result of the divestments of subsidiaries (2014: nil, 2013: gain of $1 million 2010: loss of $94 million).
Alcon, Inc. was accounted for as an associated company until August 25, 2010, when Novartis acquired an approximate 77% majority ownership and, as a result, Alcon has been fully consolidated from that date. $43 million of losses accumulated in the consolidated statement of comprehensive income since accounting as an associated company using the equity method began in July 2008, have been recycled into the consolidated income statement as of the date of obtaining majority ownership.
8.4) As a result of the liquidation of a subsidiary, $6subsidiary).
Currency translation losses of associated companies of $97 million were recognized in 2015 (2014: loss of cumulative currency translation gains have been transferred into financial income$31 million, 2013: loss of $43 million).
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Changes in 2012 (2011 and 2010: nil).Consolidated Statements of Comprehensive Income (Continued)
8.4) Remeasurements from defined benefit plans arise as follows:
| 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Defined benefit pension plans before tax | (252 | ) | (999 | ) | 1,977 | |||||
Other post-employment benefit plans before tax | 168 | (235 | ) | 163 | ||||||
Taxation on above items | (63 | ) | 412 | (636 | ) | |||||
| | | | | | | | | | |
Total after tax | (147 | ) | (822 | ) | 1,504 | |||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
8.5) The following table shows contributions of associated companies to other comprehensive income:
| Note | 2015 | 2014 | 2013 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | $ m | $ m | $ m | |||||||||
Fair value adjustments attributable to associated companies | (8 | ) | 5 | 6 | |||||||||
Novartis share of other items recorded in comprehensive income recognized by associated companies, net of taxes. | 8.2 | (48 | ) | (5 | ) | 5 | |||||||
Currency translation adjustments | (97 | ) | (31 | ) | (43 | ) | |||||||
| | | | | | | | | | | | | |
Other comprehensive income attributable to associated companies | 4 | (153 | ) | (31 | ) | (32 | ) | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
9. Changes in Consolidated Equity
9.1) At the 2012 Annual General meeting, aA dividend of CHF 2.252.60 per share was approved thatat the 2015 Annual General meeting for the year ended December 31, 2014, resulting in a total dividend payment of $6.6 billion in 2015. (2014: the CHF 2.45 per share dividend amounted to $6.0$6.8 billion, and was paid in 2012 (2011:2013: the CHF 2.202.30 per share dividend payment that amounted to $5.4 billion, 2010: CHF 2.10 per share dividend payment that amounted to $4.5$6.1 billion). The amount available for distribution as a dividend to shareholders is based on the available distributable retained earnings of Novartis AG determined in accordance with the legal provisions of the Swiss Code of Obligation.Obligations.
9.2) In 2012, 3.4 million shares, net were exchanged resulting in a net reduction of equity of $89 million (2011: 54.7 million shares for $3.5 billion, 2010: 8.4 million shares for $342 million). In 2012, via the first trading line of the SIX Swiss Exchange a total of 4.6During 2015, 63.6 million shares were purchased for $240 million with the intention of retaining in Group Treasury (2011: 20.4$6.1 billion (2014: 79.2 million shares for $1.1$6.9 billion, 2010: 3.32013: 40.3 million shares for $179 million) and 6.3$3.0 billion). These share purchases comprise of 9.6 million shares which were sold on the first trading linerepurchased for $295$897 million (2011: nil, 2010: 2.9 million shares for $161 million). In addition 4.0 million shares were acquired from associates for $265 million and 5.7 million shares were distributed to associates for $121 million due to exercise of options held by associates with strike prices substantially lower than the market price of Novartis shares on the exercise date during 2012 (2011: 5.1 million shares for $31 million, 2010: 8.8 million shares for $360 million). In 2011, an additional 39.4 million shares were acquired via the second trading line on the SIX Swiss Exchange first trading line (2014: 46.8 million shares for $4.1 billion, 2013: 33.3 million shares for $2.5 billion), 4.1 million shares were acquired for $417 million from employees which were previously granted to them under the respective programs (2014: 5.4 million shares for $473 million, 2013: 4.8 million shares for $356 million), and in addition, Novartis repurchased 49.9 million shares for $4.8 billion on the SIX Swiss Exchange second trading line under the $5 billion share buy-back announced in November 2013, which was completed in November 2015, and also to offset the dilutive impact from equity-based participation plans (2014: 27.0 million shares for $2.4 billion, with the intention of cancellation.2013: 2.2 million shares for $170 million).
9.3) In 20122015, Novartis reduced its share capital by cancelling a total of 39.429.2 million shares which were repurchased during 2013 and 2014 on the SIX Swiss Exchange second trading line. In 2014 and 2013, no shares were cancelled. These
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Changes in Consolidated Equity (Continued)
9.4) In 2014, Novartis has entered into an irrevocable, non-discretionary arrangement with a bank to repurchase Novartis own shares have been repurchased viaon the second trading line under its $5 billion share buy-back as well as to mitigate dilution from equity-based participation plans. The commitment under this arrangement amounted to $658 million as of December 31, 2014 (2013: nil), reflecting the expected purchases by the bank under such trading plan over a rolling 90 days period. This trading plan was fully executed and has expired. As a result, there is no contingent liability related to this plan as of December 2015.
9.5) 27.0 million shares were delivered as a result of options being exercised related to equity-based participation plans and delivery of treasury shares, which contributed $1.6 billion (2014: 41.4 million shares for $2.4 billion, 2013: 34.3 million shares for $1.7 billion). The average share price of the SIX Swiss Exchange in 2011. No shares were cancelled in 2011 and 2010.delivered was significantly below market price reflecting the strike price of the options exercised.
9.4) 9.6) Equity-settled share-based compensation is expensed in the consolidated income statement in accordance with the vesting period of the share-based compensation plans. The value for the shares and options granted including associated tax, is credited to consolidated equity over the respective vesting period. In 2012, 10.62015, 11.9 million shares were transferred to associates as part of equity-based compensation. The resulting expense amounted to $856 million including a tax benefit of $108 million (2011: 7.2equity-settled compensation (2014: 10.3 million shares, at a total amount of $8062013: 11.5 million including ashares). In addition, tax benefit of $44 million, 2010: 6.7 million shares at a total amount of $599 million including abenefits arising from tax benefit of $7 million).
Table of Contentsdeductible amounts exceeding the expense recognized in the income statement are credited to equity.
NOTES TO THE NOVARTIS GROUP9.7)
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Changes in Consolidated Equity (Continued)
9.5) Changes in non-controlling interests amounted to a reduction of $82 million (2011: reduction of $6.6 billion driven by the acquisition of the remaining outstanding non-controlling interests in Alcon, Inc., 2010: increase of $6.3 billion due to full consolidation of Alcon, Inc. from August 25, 2010).
9.6) The excess of the consideration exchanged by Novartis to acquire the additional non-controlling interestssubsidiaries resulted in Alcon, Inc. over the carrying value of the related outstanding non-controlling interests of Alcon, Inc. was recognized against consolidated equity. In 2011, this led to a reduction in equity of $5.7 billion (2010: $96 million, mainly due to the acquisition of additional shares in Alcon, Inc.).
9.7) In 2011, a total of 164.7 million Novartis shares with a fair value of $9.2 billion were exchanged on April 8, 2011 to acquire the outstanding non-controlling interests in Alcon, Inc. These shares consisted of 108 million newly issued shares and 56.7 million treasury shares.
9.8) In 2010 a reduction in consolidated equity attributable to Novartis of $74$10 million arose from a dilution(2014: reduction of $120 million, 2013: reduction of $109 million).
9.8) In 2013 additional interests in subsidiaries were acquired. The reduction in equity of $10 million represents the excess of the Novartis interest in Alcon, Inc. since obtaining majority control on August 25, 2010. This was due to an increase in Alcon's outstanding shares, principally due toamount paid over the issuance of new sharesamount recognized for the acquired non-controlling interest. In 2015 and the use of Alcon treasury shares to satisfy conversion of Alcon's equity-based instruments held by associates.2014 no such transaction took place.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Property, Plant & Equipment Movements
2012 | Land | Buildings | Construction in progress | Machinery & other equipment | Total | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2015 | Land | Buildings | Construction in progress | Machinery & other equipment | Total | |||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||||||
January 1 | 831 | 11,429 | 2,164 | 15,511 | 29,935 | 744 | 11,312 | 3,985 | 15,387 | 31,428 | ||||||||||||||||||||||
Impact of business combinations | 10 | 76 | 12 | 28 | 126 | |||||||||||||||||||||||||||
Reclassifications(1) | 11 | 296 | (1,226 | ) | 919 | 12 | 1,833 | (2,601 | ) | 756 | ||||||||||||||||||||||
Additions | 5 | 105 | 2,117 | 527 | 2,754 | 4 | 408 | 1,665 | 442 | 2,519 | ||||||||||||||||||||||
Disposals and derecognitions(2) | (5 | ) | (54 | ) | (14 | ) | (523 | ) | (596 | ) | (41 | ) | (332 | ) | (59 | ) | (704 | ) | (1,136 | ) | ||||||||||||
Currency translation effects | 15 | 177 | 60 | 301 | 553 | (31 | ) | (364 | ) | (180 | ) | (788 | ) | (1,363 | ) | |||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
December 31 | 867 | 12,029 | 3,113 | 16,763 | 32,772 | 688 | 12,857 | 2,810 | 15,093 | 31,448 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||||||||||
January 1 | (22 | ) | (4,646 | ) | (10 | ) | (9,630 | ) | (14,308 | ) | (30 | ) | (5,093 | ) | (37 | ) | (10,285 | ) | (15,445 | ) | ||||||||||||
Depreciation charge | (4 | ) | (465 | ) | (1,235 | ) | (1,704 | ) | (3 | ) | (462 | ) | (1,005 | ) | (1,470 | ) | ||||||||||||||||
Depreciation on disposals and derecognitions(2) | 2 | 35 | 462 | 499 | ||||||||||||||||||||||||||||
Accumulated depreciation on disposals and derecognitions(2) | 2 | 246 | 32 | 594 | 874 | |||||||||||||||||||||||||||
Impairment charge | (20 | ) | (19 | ) | (39 | ) | (12 | ) | (37 | ) | (4 | ) | (82 | ) | (135 | ) | ||||||||||||||||
Reversal of impairment charge | 9 | 46 | 55 | |||||||||||||||||||||||||||||
Currency translation effects | (1 | ) | (80 | ) | (200 | ) | (281 | ) | 3 | 149 | 2 | 501 | 655 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
December 31 | (25 | ) | (5,176 | ) | (10 | ) | (10,622 | ) | (15,833 | ) | (40 | ) | (5,188 | ) | (7 | ) | (10,231 | ) | (15,466 | ) | ||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Net book value at December 31 | 842 | 6,853 | 3,103 | 6,141 | 16,939 | 648 | 7,669 | 2,803 | 4,862 | 15,982 | ||||||||||||||||||||||
Insured value at December 31 | 37,405 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Net book value of property, plant & equipment under finance lease contracts | 1 | 85 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||||
Commitments for purchases of property, plant & equipment | 755 | 359 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | |
The Group was awarded government grants in the United States for the construction of a manufacturing facilityBorrowing costs on new additions to produce flu vaccines. The contracts included a maximum of $330 million cost reimbursement for construction activitiesproperty, plant and equipment of which $240eligible for capitalization have been capitalized and amounted to $21 million was received by December 31, 2012 (2011: $223in 2015 (2014: $20 million). These grants are deducted in arriving atThe capitalization rate used to determine the balance sheet carrying valueamount of borrowing costs eligible for capitalization is 25% (2014: 25%) and the assets since the receipt of the respective government grantinterest rate used is reasonably assured. There are no onerous contracts or unfulfilled conditions in connection with this grant.4% (2014: 4%).
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Property, Plant & Equipment Movements (Continued)
Borrowing costs on new additions to property, plant and equipment have been capitalized and amounted to $4 million in 2012 (2011: $1 million, 2010: $1 million).
2011 | Land | Buildings | Construction in progress | Machinery & other equipment | Total | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2014 | Land | Buildings | Construction in progress | Machinery & other equipment | Total | |||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||||||
January 1 | 827 | 10,674 | 2,327 | 15,129 | 28,957 | 920 | 12,933 | 3,635 | 17,813 | 35,301 | ||||||||||||||||||||||
Acquisition and divestment of consolidated business | 12 | 20 | 9 | 41 | ||||||||||||||||||||||||||||
Cost of assets related to discontinued operations | (115 | ) | (1,175 | ) | (445 | ) | (1,597 | ) | (3,332 | ) | ||||||||||||||||||||||
Reclassifications(1) | 888 | (1,688 | ) | 800 | 455 | (1,291 | ) | 836 | ||||||||||||||||||||||||
Additions | 2 | 105 | 1,616 | 463 | 2,186 | 5 | 113 | 2,397 | 389 | 2,904 | ||||||||||||||||||||||
Disposals and derecognitions | (3 | ) | (148 | ) | (21 | ) | (638 | ) | (810 | ) | (8 | ) | (127 | ) | (15 | ) | (544 | ) | (694 | ) | ||||||||||||
Currency translation effects | (7 | ) | (110 | ) | (70 | ) | (252 | ) | (439 | ) | (58 | ) | (887 | ) | (296 | ) | (1,510 | ) | (2,751 | ) | ||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
December 31 | 831 | 11,429 | 2,164 | 15,511 | 29,935 | 744 | 11,312 | 3,985 | 15,387 | 31,428 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||||||||||
January 1 | (19 | ) | (4,318 | ) | (6 | ) | (8,774 | ) | (13,117 | ) | (29 | ) | (5,560 | ) | (29 | ) | (11,486 | ) | (17,104 | ) | ||||||||||||
Depreciation on divested consolidated business | 3 | 6 | 9 | |||||||||||||||||||||||||||||
Reclassifications(1) | (3 | ) | 3 | |||||||||||||||||||||||||||||
Depreciation charge | (3 | ) | (438 | ) | (1,287 | ) | (1,728 | ) | ||||||||||||||||||||||||
Depreciation on disposals and derecognitions(2) | 117 | 575 | 692 | |||||||||||||||||||||||||||||
Accumulated depreciation on assets related to discontinued operations | 1 | 377 | 4 | 827 | 1,209 | |||||||||||||||||||||||||||
Depreciation charge(4) | (3 | ) | (450 | ) | (1,133 | ) | (1,586 | ) | ||||||||||||||||||||||||
Accumulated depreciation on disposals and derecognitions(3) | 1 | 91 | 464 | 556 | ||||||||||||||||||||||||||||
Impairment charge | (55 | ) | (4 | ) | (354 | ) | (413 | ) | (1 | ) | (10 | ) | (37 | ) | (18 | ) | (66 | ) | ||||||||||||||
Reversal of impairment charge | 21 | 1 | 22 | |||||||||||||||||||||||||||||
Currency translation effects | 48 | 201 | 249 | 1 | 459 | 4 | 1,060 | 1,524 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
December 31 | (22 | ) | (4,646 | ) | (10 | ) | (9,630 | ) | (14,308 | ) | (30 | ) | (5,093 | ) | (37 | ) | (10,285 | ) | (15,445 | ) | ||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Net book value at December 31 | 809 | 6,783 | 2,154 | 5,881 | 15,627 | 714 | 6,219 | 3,948 | 5,102 | 15,983 | ||||||||||||||||||||||
Insured value at December 31 | 34,483 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Net book value of property, plant & equipment under finance lease contracts | 4 | 1 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||||
Commitments for purchases of property, plant & equipment | 583 | 826 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Goodwill and Intangible AssetAssets Movements
2012 | Goodwill | Acquired research & development | Alcon brand name | Technologies | Currently marketed products | Marketing know-how | Other intangible assets | Total of intangible assets other than goodwill | ||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2015 | Goodwill | Acquired research & development | Alcon brand name | Technologies | Currently marketed products | Marketing know-how | Other intangible assets | Total of intangible assets other than goodwill | ||||||||||||||||||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||||||||||||||||||||||||
January 1 | 30,451 | 3,091 | 2,980 | 6,681 | 23,040 | 5,960 | 1,222 | 42,974 | 29,737 | 2,843 | 2,980 | 6,658 | 20,916 | 5,960 | 1,251 | 40,608 | ||||||||||||||||||||||||||||||||||
Impact of business combinations | 1,026 | 173 | 371 | 521 | 1,065 | 2,438 | 730 | 12,970 | 15 | 13,715 | ||||||||||||||||||||||||||||||||||||||||
Reclassifications(1) | (574 | ) | 574 | (36 | ) | 5 | 31 | |||||||||||||||||||||||||||||||||||||||||||
Additions | 175 | 136 | 69 | 380 | 881 | 217 | 61 | 1,159 | ||||||||||||||||||||||||||||||||||||||||||
Disposals and derecognitions(2) | (34 | ) | (19 | ) | (10 | ) | (63 | ) | (294 | ) | (26 | ) | (4 | ) | (324 | ) | ||||||||||||||||||||||||||||||||||
Currency translation effects | 128 | 26 | 27 | 160 | 22 | 235 | (590 | ) | (5 | ) | (95 | ) | (697 | ) | (13 | ) | (810 | ) | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
December 31 | 31,605 | 2,857 | 2,980 | 7,079 | 24,412 | 5,960 | 1,303 | 44,591 | 31,585 | 4,119 | 2,980 | 6,563 | 33,385 | 5,960 | 1,341 | 54,348 | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
Accumulated amortization | ||||||||||||||||||||||||||||||||||||||||||||||||||
January 1 | (508 | ) | (461 | ) | (950 | ) | (8,535 | ) | (238 | ) | (821 | ) | (11,005 | ) | (426 | ) | (685 | ) | (2,539 | ) | (11,684 | ) | (954 | ) | (914 | ) | (16,776 | ) | ||||||||||||||||||||||
Reclassifications(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization charge | (590 | ) | (1,959 | ) | (238 | ) | (107 | ) | (2,894 | ) | (580 | ) | (2,848 | ) | (238 | ) | (89 | ) | (3,755 | ) | ||||||||||||||||||||||||||||||
Amortization on disposals and derecognitions(2) | 34 | 17 | 10 | 61 | ||||||||||||||||||||||||||||||||||||||||||||||
Accumulated amortization on disposals and derecognitions(2) | 68 | 241 | 4 | 313 | ||||||||||||||||||||||||||||||||||||||||||||||
Impairment charge | (107 | ) | (172 | ) | (7 | ) | (286 | ) | (33 | ) | (164 | ) | (9 | ) | (206 | ) | ||||||||||||||||||||||||||||||||||
Reversal of impairment charge | 3 | 3 | 40 | 40 | ||||||||||||||||||||||||||||||||||||||||||||||
Currency translation effects | (7 | ) | (12 | ) | (11 | ) | (101 | ) | (15 | ) | (139 | ) | 15 | 49 | 194 | 10 | 253 | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||
December 31 | (515 | ) | (543 | ) | (1,551 | ) | (10,750 | ) | (476 | ) | (940 | ) | (14,260 | ) | (411 | ) | (650 | ) | (3,070 | ) | (14,221 | ) | (1,192 | ) | (998 | ) | (20,131 | ) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
Net book value at December 31 | 31,090 | 2,314 | 2,980 | 5,528 | 13,662 | 5,484 | 363 | 30,331 | 31,174 | 3,469 | 2,980 | 3,493 | 19,164 | 4,768 | 343 | 34,217 | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Goodwill and Intangible AssetAssets Movements (Continued)
Segmentation of Goodwill and Intangible Assets
The net book values at December 31, 20122015 of goodwill and intangible assets are allocated to the Group's cash generating unitsreporting segments as summarized below:below.
| Goodwill | Acquired research & development | Alcon brand name | Technologies | Currently marketed products | Marketing know-how | Other intangible assets | Total of intangible assets other than goodwill | Goodwill | Acquired research & development | Alcon brand name | Technologies | Currently marketed products | Marketing know-how | Other intangible assets | Total of intangible assets other than goodwill | ||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||||||||||||||
Pharmaceuticals | 3,139 | 1,037 | 19 | 1,694 | 167 | 2,917 | 5,530 | 2,511 | 13 | 13,151 | 140 | 15,815 | ||||||||||||||||||||||||||||||||||||||
Alcon | 17,776 | 650 | 2,980 | 4,400 | 7,584 | 5,484 | 39 | 21,137 | 17,947 | 461 | 2,980 | 2,850 | 4,435 | 4,768 | 163 | 15,657 | ||||||||||||||||||||||||||||||||||
Sandoz | 8,740 | 613 | 911 | 2,610 | 7 | 4,141 | 7,690 | 490 | 630 | 1,578 | 22 | 2,720 | ||||||||||||||||||||||||||||||||||||||
Vaccines and Diagnostics | 1,198 | 10 | 198 | 1,199 | 119 | 1,526 | ||||||||||||||||||||||||||||||||||||||||||||
Consumer Health | 230 | 3 | 575 | 21 | 599 | |||||||||||||||||||||||||||||||||||||||||||||
Corporate | 7 | 1 | 10 | 11 | 7 | 7 | 18 | 25 | ||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
Total | 31,090 | 2,314 | 2,980 | 5,528 | 13,662 | 5,484 | 363 | 30,331 | 31,174 | 3,469 | 2,980 | 3,493 | 19,164 | 4,768 | 343 | 34,217 | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
Potential impairment charge, if any, if discounted cash flows fell by 5% | 9 | 6 | 4 | |||||||||||||||||||||||||||||||||||||||||||||||
Potential impairment charge, if any, if discounted cash flows fell by 10% | 19 | 12 | 9 |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Goodwill and Intangible Asset Movements (Continued)
2011 | Goodwill | Acquired research & development | Alcon brand name | Technologies | Currently marketed products | Marketing know-how | Other intangible assets | Total of intangible assets other than goodwill | ||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2014 | Goodwill | Acquired research & development | Alcon brand name | Technologies | Currently marketed products | Marketing know-how | Other intangible assets | Total of intangible assets other than goodwill | ||||||||||||||||||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||||||||||||||||||||||||
January 1 | 30,261 | 4,627 | 2,980 | 6,699 | 22,740 | 5,960 | 1,135 | 44,141 | 31,554 | 2,648 | 2,980 | 7,104 | 24,160 | 5,960 | 1,479 | 44,331 | ||||||||||||||||||||||||||||||||||
Cost of assets related to discontinued operations | (1,222 | ) | (25 | ) | (346 | ) | (2,833 | ) | (359 | ) | (3,563 | ) | ||||||||||||||||||||||||||||||||||||||
Impact of business combinations | 303 | 7 | 3 | 101 | 1 | 112 | 131 | 248 | 234 | 482 | ||||||||||||||||||||||||||||||||||||||||
Reclassifications(1) | (255 | ) | 260 | (5 | ) | (139 | ) | (125 | ) | 95 | 169 | |||||||||||||||||||||||||||||||||||||||
Additions(2) | 69 | 122 | 43 | 102 | 267 | 405 | 125 | 216 | 53 | 799 | ||||||||||||||||||||||||||||||||||||||||
Disposals and derecognitions(3) | (48 | ) | (1,420 | ) | (19 | ) | (4 | ) | (1,443 | ) | (159 | ) | (286 | ) | (18 | ) | (463 | ) | ||||||||||||||||||||||||||||||||
Currency translation effects | (134 | ) | 10 | (21 | ) | (85 | ) | (7 | ) | (103 | ) | (726 | ) | (135 | ) | (100 | ) | (670 | ) | (73 | ) | (978 | ) | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
December 31 | 30,451 | 3,091 | 2,980 | 6,681 | 23,040 | 5,960 | 1,222 | 42,974 | 29,737 | 2,843 | 2,980 | 6,658 | 20,916 | 5,960 | 1,251 | 40,608 | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
Accumulated amortization | ||||||||||||||||||||||||||||||||||||||||||||||||||
January 1 | (569 | ) | (1,565 | ) | (370 | ) | (6,254 | ) | (721 | ) | (8,910 | ) | (528 | ) | (575 | ) | (2,168 | ) | (11,953 | ) | (715 | ) | (1,079 | ) | (16,490 | ) | ||||||||||||||||||||||||
Amortization charge | (589 | ) | (2,090 | ) | (238 | ) | (111 | ) | (3,028 | ) | ||||||||||||||||||||||||||||||||||||||||
Amortization on disposals and derecognitions(3) | 48 | 1,420 | 19 | 4 | 1,443 | |||||||||||||||||||||||||||||||||||||||||||||
Accumulated amortization of assets related to discontinued operations | 61 | 13 | 167 | 1,369 | 213 | 1,762 | ||||||||||||||||||||||||||||||||||||||||||||
Amortization charge(4) | (587 | ) | (1,868 | ) | (239 | ) | (81 | ) | (2,775 | ) | ||||||||||||||||||||||||||||||||||||||||
Accumulated amortization on disposals and derecognitions(3) | 159 | 283 | 17 | 459 | ||||||||||||||||||||||||||||||||||||||||||||||
Impairment charge | (338 | ) | (287 | ) | (2 | ) | (627 | ) | (271 | ) | (46 | ) | (30 | ) | (347 | ) | ||||||||||||||||||||||||||||||||||
Reversal of impairment charge | 8 | 8 | 70 | 70 | ||||||||||||||||||||||||||||||||||||||||||||||
Currency translation effects | 13 | 22 | 9 | 69 | 9 | 109 | 41 | (11 | ) | 49 | 461 | 46 | 545 | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||
December 31 | (508 | ) | (461 | ) | (950 | ) | (8,535 | ) | (238 | ) | (821 | ) | (11,005 | ) | (426 | ) | (685 | ) | (2,539 | ) | (11,684 | ) | (954 | ) | (914 | ) | (16,776 | ) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
Net book value at December 31 | 29,943 | 2,630 | 2,980 | 5,731 | 14,505 | 5,722 | 401 | 31,969 | 29,311 | 2,158 | 2,980 | 4,119 | 9,232 | 5,006 | 337 | 23,832 | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Goodwill and Intangible AssetAssets Movements (Continued)
The Pharmaceuticals, Alcon and Sandoz divisions' cash generating units, to which indefinite life intangibles and/or goodwill are allocated, each comprise a group of smaller cash generating units. The valuation method of the recoverable amount of a cash-generating unit and relatedthe cash generating units, to which indefinite life intangibles and/or goodwill are allocated, is usually based on the fair value less costs to sell valuation method.of disposal. The following assumptions are used in the calculations:
| Pharmaceuticals | Alcon | Sandoz | Vaccines and Diagnostics | Consumer Health | Pharmaceutical | Alcon | Sandoz | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| % | % | % | % | % | % | % | % | ||||||||||||||||||
Sales growth rate assumptions after forecast period | 1.6 | 3 | 0 to 2 | 0.5 | 0 to 2 | |||||||||||||||||||||
Cash flows growth rate assumptions after forecast period | 1 | 3 | 0 to 2 | |||||||||||||||||||||||
Discount rate (post-tax) | 7 | 7 | 7 | 7 | 7 | 6 | 6 | 6 |
In 2012,2015, intangible asset impairment charges for continuing operations of $286$206 million were recognized. These relate torecognized, of which $120 million were recorded in the Alcon Division and $86 million in total in the Pharmaceuticals and Sandoz divisions.
In 2014, intangible asset impairment charges of $211in continuing operations amounted to $347 million ($302 million in the Pharmaceuticals Division and $75$45 million in all other divisions.
In 2011, intangible asset impairment charges of $627 million were recorded. $552 million of these arosetotal in the Pharmaceuticals Division, principally due to the expected reduction in demand forTekturna/Rasilez (aliskiren) and discontinuation of PRT128 (elinogrel), SMC021 (oral calcitonin), PTK796 and AGO178 (agomelatine) development programs. $75 million of impairment charges arose in all other Divisions.
In 2010, Novartis recorded impairment charges totaling $1.0 billion. These relate to impairment charges of $356 million forMycograb, $250 million for PTZ601, $228 million for albinterferon alfa-2b and $120 million for ASA404 as Novartis decided to discontinue the related development projects. Additonally, $40 million were recorded for various other impairment charges in the Pharmaceuticals Division. Novartis also recorded various impairment charges of $24 million in Sandoz and Consumer Health.Alcon divisions).
ReversalIn 2015 the reversal of prior year impairment charges amounted to $3$40 million (2011: $8 million, 2010: $107(2014: $70 million).
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Deferred Tax Assets and Liabilities
| Property, plant & equipment | Intangible assets | Pensions and other benefit obligations of associates | Inventories | Tax loss carryforwards | Other assets, provisions and accruals | Valuation allowance | Total | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||||||
Gross deferred tax assets at January 1, 2012 | 157 | 234 | 1,576 | 2,020 | 201 | 2,221 | (32 | ) | 6,377 | ||||||||||||||||
Gross deferred tax liabilities at January 1, 2012 | (947 | ) | (5,168 | ) | (373 | ) | (225 | ) | (13 | ) | (555 | ) | (7,281 | ) | |||||||||||
Net deferred tax balance at January 1, 2012 | (790 | ) | (4,934 | ) | 1,203 | 1,795 | 188 | 1,666 | (32 | ) | (904 | ) | |||||||||||||
At January 1, 2012 | (790 | ) | (4,934 | ) | 1,203 | 1,795 | 188 | 1,666 | (32 | ) | (904 | ) | |||||||||||||
Credited/(charged) to income | 16 | 347 | (27 | ) | 464 | 12 | (100 | ) | (1 | ) | 711 | ||||||||||||||
Credited to equity | 49 | 49 | |||||||||||||||||||||||
Credited/(charged) to other comprehensive income | 533 | (11 | ) | 522 | |||||||||||||||||||||
Impact of business combinations | (3 | ) | (326 | ) | 29 | (6 | ) | 5 | 71 | (230 | ) | ||||||||||||||
Other movements | (10 | ) | (46 | ) | (29 | ) | (11 | ) | (6 | ) | 36 | 22 | (44 | ) | |||||||||||
Net deferred tax balance at December 31, 2012 | (787 | ) | (4,959 | ) | 1,709 | 2,242 | 199 | 1,711 | (11 | ) | 104 | ||||||||||||||
Gross deferred tax assets at December 31, 2012 | 163 | 301 | 2,138 | 2,689 | 215 | 2,258 | (11 | ) | 7,753 | ||||||||||||||||
Gross deferred tax liabilities at December 31, 2012 | (950 | ) | (5,260 | ) | (429 | ) | (447 | ) | (16 | ) | (547 | ) | (7,649 | ) | |||||||||||
Net deferred tax balance at December 31, 2012 | (787 | ) | (4,959 | ) | 1,709 | 2,242 | 199 | 1,711 | (11 | ) | 104 | ||||||||||||||
After offsetting $363 millions of deferred tax assets and liabilities within the same tax jurisdiction the balance amounts to: | |||||||||||||||||||||||||
Deferred tax assets at December 31, 2012 | 7,390 | ||||||||||||||||||||||||
Deferred tax liabilities at December 31, 2012 | (7,286 | ) | |||||||||||||||||||||||
Net deferred tax balance at December 31, 2012 | 104 | ||||||||||||||||||||||||
Gross deferred tax assets at January 1, 2011 | 131 | 251 | 1,086 | 1,792 | 241 | 2,007 | (19 | ) | 5,489 | ||||||||||||||||
Gross deferred tax liabilities at January 1, 2011 | (951 | ) | (5,689 | ) | (409 | ) | (253 | ) | (10 | ) | (626 | ) | (7,938 | ) | |||||||||||
Net deferred tax balance at January 1, 2011 | (820 | ) | (5,438 | ) | 677 | 1,539 | 231 | 1,381 | (19 | ) | (2,449 | ) | |||||||||||||
At January 1, 2011 | (820 | ) | (5,438 | ) | 677 | 1,539 | 231 | 1,381 | (19 | ) | (2,449 | ) | |||||||||||||
Credited/(charged) to income | 68 | 350 | 28 | 418 | (28 | ) | 322 | (16 | ) | 1,142 | |||||||||||||||
Credited to equity | 22 | 22 | |||||||||||||||||||||||
Credited/(charged) to other comprehensive income | 510 | (32 | ) | 478 | |||||||||||||||||||||
Impact of business combinations | (9 | ) | (9 | ) | |||||||||||||||||||||
Other movements | (38 | ) | 154 | (12 | ) | (162 | ) | (15 | ) | (18 | ) | 3 | (88 | ) | |||||||||||
Net deferred tax balance at December 31, 2011 | (790 | ) | (4,934 | ) | 1,203 | 1,795 | 188 | 1,666 | (32 | ) | (904 | ) | |||||||||||||
Gross deferred tax assets at December 31, 2011 | 157 | 234 | 1,576 | 2,020 | 201 | 2,221 | (32 | ) | 6,377 | ||||||||||||||||
Gross deferred tax liabilities at December 31, 2011 | (947 | ) | (5,168 | ) | (373 | ) | (225 | ) | (13 | ) | (555 | ) | (7,281 | ) | |||||||||||
Net deferred tax balance at December 31, 2011 | (790 | ) | (4,934 | ) | 1,203 | 1,795 | 188 | 1,666 | (32 | ) | (904 | ) | |||||||||||||
After offsetting $520 millions of deferred tax assets and liabilities within the same tax jurisdiction the balance amounts to: | |||||||||||||||||||||||||
Deferred tax assets at December 31, 2011 | 5,857 | ||||||||||||||||||||||||
Deferred tax liabilities at December 31, 2011 | (6,761 | ) | |||||||||||||||||||||||
Net deferred tax balance at December 31, 2011 | (904 | ) | |||||||||||||||||||||||
| Property, plant & equipment | Intangible assets | Pensions and other benefit obligations of associates | Inventories | Tax loss carryforwards | Other assets, provisions and accruals | Valuation allowance | Total | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||||||
Gross deferred tax assets at January 1, 2015 | 268 | 214 | 1,749 | 3,470 | 85 | 2,601 | (14 | ) | 8,373 | ||||||||||||||||
Gross deferred tax liabilities at January 1, 2015 | (639 | ) | (4,242 | ) | (410 | ) | (578 | ) | (3 | ) | (606 | ) | (6,478 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net deferred tax balance at January 1, 2015 | (371 | ) | (4,028 | ) | 1,339 | 2,892 | 82 | 1,995 | (14 | ) | 1,895 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
At January 1, 2015 | (371 | ) | (4,028 | ) | 1,339 | 2,892 | 82 | 1,995 | (14 | ) | 1,895 | ||||||||||||||
Credited/(charged) to income | (57 | ) | 296 | 83 | 376 | (22 | ) | (129 | ) | (3 | ) | 544 | |||||||||||||
Charged to equity | (216 | ) | (216 | ) | |||||||||||||||||||||
(Charged)/credited to other comprehensive income | (63 | ) | 29 | (34 | ) | ||||||||||||||||||||
Impact of business combinations | 390 | (13 | ) | 377 | |||||||||||||||||||||
Other movements | 5 | (9 | ) | (30 | ) | (12 | ) | (3 | ) | 73 | 12 | 36 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net deferred tax balance at December 31, 2015 | (423 | ) | (3,351 | ) | 1,329 | 3,256 | 57 | 1,739 | (5 | ) | 2,602 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Gross deferred tax assets at December 31, 2015 | 216 | 611 | 1,730 | 3,821 | 62 | 2,871 | (5 | ) | 9,306 | ||||||||||||||||
Gross deferred tax liabilities at December 31, 2015 | (639 | ) | (3,962 | ) | (401 | ) | (565 | ) | (5 | ) | (1,132 | ) | (6,704 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net deferred tax balance at December 31, 2015 | (423 | ) | (3,351 | ) | 1,329 | 3,256 | 57 | 1,739 | (5 | ) | 2,602 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
After offsetting $349 million of deferred tax assets and liabilities within the same tax jurisdiction the balance amounts to: | |||||||||||||||||||||||||
Deferred tax assets at December 31, 2015 | 8,957 | ||||||||||||||||||||||||
Deferred tax liabilities at December 31, 2015 | (6,355 | ) | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net deferred tax balance at December 31, 2015 | 2,602 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Gross deferred tax assets at January 1, 2014 | 159 | 270 | 1,515 | 3,026 | 142 | 2,651 | (22 | ) | 7,741 | ||||||||||||||||
Gross deferred tax liabilities at January 1, 2014 | (886 | ) | (4,796 | ) | (448 | ) | (514 | ) | (4 | ) | (622 | ) | (7,270 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net deferred tax balance at January 1, 2014 | (727 | ) | (4,526 | ) | 1,067 | 2,512 | 138 | 2,029 | (22 | ) | 471 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
At January 1, 2014 | (727 | ) | (4,526 | ) | 1,067 | 2,512 | 138 | 2,029 | (22 | ) | 471 | ||||||||||||||
Net deferred tax balance related to discontinued operations | 39 | 92 | (73 | ) | (40 | ) | (19 | ) | (93 | ) | (94 | ) | |||||||||||||
Credited/(charged) to income | 256 | 525 | 17 | 395 | (60 | ) | (60 | ) | (5 | ) | 1,068 | ||||||||||||||
Credited to equity | 157 | 157 | |||||||||||||||||||||||
Credited/(charged) to other comprehensive income | 389 | (8 | ) | 381 | |||||||||||||||||||||
Impact of business combinations | (159 | ) | 30 | (1 | ) | (130 | ) | ||||||||||||||||||
Other movements | 61 | 40 | (61 | ) | 25 | (7 | ) | (29 | ) | 13 | 42 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net deferred tax balance at December 31, 2014 | (371 | ) | (4,028 | ) | 1,339 | 2,892 | 82 | 1,995 | (14 | ) | 1,895 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Gross deferred tax assets at December 31, 2014 | 268 | 214 | 1,749 | 3,470 | 85 | 2,601 | (14 | ) | 8,373 | ||||||||||||||||
Gross deferred tax liabilities at December 31, 2014 | (639 | ) | (4,242 | ) | (410 | ) | (578 | ) | (3 | ) | (606 | ) | (6,478 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net deferred tax balance at December 31, 2014 | (371 | ) | (4,028 | ) | 1,339 | 2,892 | 82 | 1,995 | (14 | ) | 1,895 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
After offsetting $379 million of deferred tax assets and liabilities within the same tax jurisdiction the balance amounts to: | |||||||||||||||||||||||||
Deferred tax assets at December 31, 2014 | 7,994 | ||||||||||||||||||||||||
Deferred tax liabilities at December 31, 2014 | (6,099 | ) | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net deferred tax balance at December 31, 2014 | 1,895 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Deferred Tax Assets and Liabilities (Continued)
A reversal of valuation allowance could occur when circumstances make the realization of deferred taxes probable. This would result in a decrease in the Group's effective tax rate.
Deferred tax assets of $3.3$3.9 billion (2011: $2.3(2014: $3.6 billion) and deferred tax liabilities of $6.9$5.8 billion (2011: $6.5(2014: $5.6 billion) are expected to have an impact on current taxes payable after more than twelve months.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Deferred Tax Assets and Liabilities (Continued)
At December 31, 2012,2015, unremitted earnings of $45$65 billion (2011: $51(2014: $55 billion) have been retained by consolidated entities for reinvestment. Therefore, no provision is made for income taxes that would be payable upon the distribution of these earnings. If these earnings were remitted, an income tax charge could result based on the tax statutes currently in effect.
| 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | ||||||||||
Temporary differences on which no deferred tax has been provided as they are permanent in nature related to: | ||||||||||||||
—Investments in subsidiaries | 5,777 | 4,782 | 2,644 | 7,802 | ||||||||||
—Goodwill from acquisitions | (26,097 | ) | (25,089 | ) | (28,202 | ) | (28,567 | ) |
The gross value of tax-loss carry-forwards that have, or have not, been capitalized as deferred tax assets, with their expiry dates is as follows:
| Not capitalized | Capitalized | 2012 total | Not capitalized | Capitalized | 2015 total | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||
One year | 178 | 28 | 206 | 22 | 39 | 61 | ||||||||||||||
Two years | 175 | 23 | 198 | 80 | 25 | 105 | ||||||||||||||
Three years | 76 | 61 | 137 | 37 | 6 | 43 | ||||||||||||||
Four years | 78 | 26 | 104 | 54 | 7 | 61 | ||||||||||||||
Five years | 116 | 32 | 148 | 222 | 222 | |||||||||||||||
More than five years | 268 | 1,010 | 1,278 | 465 | 712 | 1,177 | ||||||||||||||
| | | | | | | | | | | ||||||||||
Total | 891 | 1,180 | 2,071 | 880 | 789 | 1,669 | ||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |
In 2012, $752015, $13 million (2011: $155(2014: $14 million, 2010: $112013: $181 million) of tax-loss carry-forwards expired.
| Not capitalized | Capitalized | 2011 total | Not capitalized | Capitalized | 2014 total | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||
One year | 81 | 2 | 83 | 12 | 3 | 15 | ||||||||||||||
Two years | 171 | 4 | 175 | 22 | 26 | 48 | ||||||||||||||
Three years | 175 | 38 | 213 | 14 | 14 | |||||||||||||||
Four years | 72 | 29 | 101 | 13 | 5 | 18 | ||||||||||||||
Five years | 63 | 100 | 163 | 52 | 8 | 60 | ||||||||||||||
More than five years | 419 | 443 | 862 | 345 | 396 | 741 | ||||||||||||||
| | | | | | | | | | | ||||||||||
Total | 981 | 616 | 1,597 | 458 | 438 | 896 | ||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Deferred Tax Assets and Liabilities (Continued)
Deferred tax assets related to taxable losses of relevant Group entities are recognized to the extent it is considered probable that future taxable profits will be available against which such losses can be utilized in the foreseeable future.
13. Financial and Other Non-Current Assets
| 2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Available-for-sale long-term financial investments | 1,263 | 1,008 | |||||
Long-term receivables from customers | 317 | 334 | |||||
Minimum lease payments from finance lease agreements | 216 | 199 | |||||
Contingent consideration receivables | 550 | ||||||
Long-term loans, advances and security deposits | 120 | 179 | |||||
| | | | | | | |
Total financial assets | 2,466 | 1,720 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| 2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Deferred compensation plans | 409 | 381 | |||||
Prepaid post-employment benefit plans | 36 | 37 | |||||
Other non-current assets | 156 | 136 | |||||
| | | | | | | |
Total other non-current assets | 601 | 554 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Minimum Finance Lease Payments
The following table shows the receivables of the gross investments in finance leases and the net present value of the minimum lease payments, as well as unearned finance income. The finance income is recorded in "Other income".
| 2015 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
$ m | Total future payments | Unearned interest income | Present value | Provision | Net book value | |||||||||||
Not later than one year(1) | 89 | (6 | ) | 83 | (1 | ) | 82 | |||||||||
Between one and five years | 221 | (17 | ) | 204 | (10 | ) | 194 | |||||||||
Later than five years | 61 | (5 | ) | 56 | (34 | ) | 22 | |||||||||
| | | | | | | | | | | | | | | | |
Total | 371 | (28 | ) | 343 | (45 | ) | 298 | |||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Financial and Other Non-Current Assets
| 2014 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
$ m | Total future payments | Unearned interest income | Present value | Provision | Net book value | |||||||||||
Not later than one year(1) | 50 | (3 | ) | 47 | (1 | ) | 46 | |||||||||
Between one and five years | 149 | (8 | ) | 141 | (6 | ) | 135 | |||||||||
Later than five years | 69 | (5 | ) | 64 | 64 | |||||||||||
| | | | | | | | | | | | | | | | |
Total | 268 | (16 | ) | 252 | (7 | ) | 245 | |||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| 2012 | 2011 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Available-for-sale long-term financial investments | 674 | 604 | |||||
Long-term loans and receivables, advances and security deposits | 443 | 334 | |||||
Total financial assets | 1,117 | 938 | |||||
| 2012 | 2011 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Deferred compensation plans | 315 | 264 | |||||
Prepaid post-employment benefit plans | 55 | 38 | |||||
Other non-current assets | 135 | 154 | |||||
Total other non-current assets | 505 | 456 | |||||
14. Inventories
| 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | ||||||||||
Raw material, consumables | 955 | 930 | 658 | 756 | ||||||||||
Finished products | 5,789 | 5,000 | ||||||||||||
Finished products and work in progress | 5,568 | 5,337 | ||||||||||||
| | | | | | | | |||||||
Total inventories | 6,744 | 5,930 | 6,226 | 6,093 | ||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
The amount of inventory recognized as an expense in "Cost of goods sold" in the consolidated income statementstatements during 20122015 amounted to $12.9$10.5 billion (2011: $13.1(2014: $11.6 billion, 2010: $11.62013: $13.3 billion). The group recognized inventory provisions amounting to $356 billion (2014: $1.1 billion, 2013: $1.4 billion) and reversed inventory provisions amounting to $148 million (2014: $379 million, 2013: $474 million).
The following summarizes movements in inventory write-downs deductedreversals mainly result from inventory categories. Reversalsthe release of inventory provisions mainly resultproducts initially requiring additional quality control inspections and from the reassessment of inventory values manufactured prior to regulatory approval but for which approval was subsequently received:received.
15. Trade Receivables
| 2012 | 2011 | 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
January 1 | (741 | ) | (879 | ) | (653 | ) | ||||
Impact of business combinations | (19 | ) | (101 | ) | ||||||
Inventory write-downs charged to the consolidated income statement | (1,430 | ) | (1,554 | ) | (1,106 | ) | ||||
Utilization of inventory provisions | 585 | 921 | 593 | |||||||
Reversal of inventory provisions | 723 | 738 | 396 | |||||||
Currency translation effects | (22 | ) | 33 | (8 | ) | |||||
December 31 | (904 | ) | (741 | ) | (879 | ) | ||||
| 2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Total gross trade receivables | 8,322 | 8,431 | |||||
Provisions for doubtful trade receivables | (142 | ) | (156 | ) | |||
| | | | | | | |
Total trade receivables, net | 8,180 | 8,275 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Trade Receivables (Continued)
| 2012 | 2011 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Total gross trade receivables | 10,268 | 10,542 | |||||
Provisions for doubtful trade receivables | (217 | ) | (219 | ) | |||
Total trade receivables, net | 10,051 | 10,323 | |||||
The following table summarizes the movement in the provision for doubtful trade receivables:
| 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||
January 1 | (219 | ) | (221 | ) | (143 | ) | (156 | ) | (195 | ) | (217 | ) | ||||||||
Impact of business combinations | (1 | ) | (9 | ) | (56 | ) | ||||||||||||||
Provisions for doubtful trade receivables related to discontinued operations | 15 | 1 | ||||||||||||||||||
Provisions for doubtful trade receivables charged to the consolidated income statement | (107 | ) | (116 | ) | (76 | ) | (68 | ) | (92 | ) | (98 | ) | ||||||||
Utilization or reversal of provisions for doubtful trade receivables | 111 | 121 | 56 | 71 | 101 | 120 | ||||||||||||||
Currency translation effects | (1 | ) | 6 | (2 | ) | 11 | 15 | (1 | ) | |||||||||||
| | | | | | | | | | | ||||||||||
December 31 | (217 | ) | (219 | ) | (221 | ) | (142 | ) | (156 | ) | (195 | ) | ||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |
The following sets forth details of the age of trade receivables that are not overdue as specified in the payment terms and conditions established with Novartis customers as well as an analysis of overdue amounts and related provisions for doubtful trade receivables:
| 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | ||||||||||
Not overdue | 8,584 | 8,967 | 7,318 | 7,406 | ||||||||||
Past due for not more than one month | 552 | 498 | 265 | 334 | ||||||||||
Past due for more than one month but less than three months | 321 | 295 | 255 | 275 | ||||||||||
Past due for more than three months but less than six months | 301 | 249 | 193 | 174 | ||||||||||
Past due for more than six months but less than one year | 205 | 228 | 156 | 102 | ||||||||||
Past due for more than one year | 305 | 305 | 135 | 140 | ||||||||||
Provisions for doubtful trade receivables | (217 | ) | (219 | ) | (142 | ) | (156 | ) | ||||||
| | | | | | | | |||||||
Total trade receivables, net | 10,051 | 10,323 | 8,180 | 8,275 | ||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
Trade receivable balances include sales to drug wholesalers, retailers, private health systems, government agencies, managed care providers, pharmacy benefit managers and government-supported healthcare systems. Novartis continues to monitor sovereign debt issues and economic conditions in Greece, Italy, Portugal, Spain (GIPS) and other countries in Europe and evaluates accounts receivable in these countries for potential collection risks. Substantially all ofwhere the outstanding trade receivables from such countries are due directly from local governments or from government-funded entities.entities, and evaluates trade receivables in these countries for potential collection risks. Deteriorating credit and economic conditions and other factors in these countries have resulted in, and may continue to result in an increase in the average length of time that it takes to collect these accounts receivabletrade receivables and may require Novartis to re-evaluate the collectability of these trade receivables in future periods.
With regard to the GIPS countries, the majority of the outstanding trade receivables from these countries are due directly from local governments or from government-funded entities. The gross trade receivables from GIPS countries at December 31, 2015 amount to $920 million (2014: $915 million), of which $58 million are past due for more than one year (2014: $69 million) and for which provisions of $37 million have been recorded (2014: $48 million). At December 31, 2015 amounts past due for more than one year are not significant in any of the GIPS countries on a standalone basis.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Trade Receivables (Continued)
With regard to the GIPS countries, the country with the largest outstanding trade receivables exposure is Italy. Substantially all of the outstanding trade receivables from this country are due directly from local governments or from government-funded entities. A summary of the outstanding trade receivables from this country and related provision at December 31, 2012 and 2011 is as follows:
| 2012 | 2011 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Gross trade receivables at December 31 | 712 | 761 | |||||
Past due for more than one year at December 31 | 68 | 91 | |||||
Provision at December 31 | 37 | 28 |
Novartis does not expect to write off trade receivable amounts that are not past due nor unprovided for.
Trade receivables include amounts denominated in the following major currencies:
Currency | 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | ||||||||||
CHF | 307 | 288 | 124 | 184 | ||||||||||
CNY | 244 | 238 | ||||||||||||
EUR | 2,482 | 2,636 | 1,536 | 1,562 | ||||||||||
GBP | 136 | 139 | 187 | 184 | ||||||||||
JPY | 1,765 | 1,929 | 740 | 951 | ||||||||||
$ | 2,650 | 2,865 | 3,311 | 3,059 | ||||||||||
Other | 2,711 | 2,466 | 2,038 | 2,097 | ||||||||||
| | | | | | | | |||||||
Total trade receivables, net | 10,051 | 10,323 | 8,180 | 8,275 | ||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
Novartis has several significant irrevocable factoring arrangements. As a result $557 million (2011: $538 million) of trade receivables have been sold and derecognized in 2012.
16. Marketable Securities, Commodities, Time Deposits, Derivative Financial Instruments and Cash and Cash Equivalents
Marketable Securities and Derivative Financial Instruments | 2012 | 2011 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Marketable Securities, Commodities, Time Deposits and Derivative Financial Instruments | 2015 | 2014 | ||||||||||||
| $ m | $ m | $ m | $ m | ||||||||||
Debt securities | 1,084 | 1,131 | 339 | 327 | ||||||||||
Equity securities | 68 | 73 | 6 | 15 | ||||||||||
Fund investments | 23 | 32 | 33 | 35 | ||||||||||
| | | | | | | | |||||||
Total available-for-sale marketable securities | 1,175 | 1,236 | 378 | 377 | ||||||||||
Commodities | 86 | 97 | ||||||||||||
Time deposits with original maturity more than 90 days | 1,240 | 164 | 6 | |||||||||||
Derivative financial instruments | 140 | 118 | 143 | 356 | ||||||||||
Accrued interest on debt securities and time deposits | 12 | 12 | 2 | 3 | ||||||||||
Total marketable securities, time deposits and derivative financial instruments | 2,567 | 1,366 | ||||||||||||
| | | | | | | | |||||||
Total marketable securities, commodities, time deposits and derivative financial instruments | 773 | 839 | ||||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
At December 31, 2015 all debt securities are denominated in $ except for $22 million in EUR (2014: $25 million). In addition, at December 31, 2014 debt securities of $1 million are denominated in CHF.
Cash and Cash Equivalents | 2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Current accounts | 3,074 | 3,607 | |||||
Time deposits and short-term investments with original maturity less than 90 days | 1,600 | 9,416 | |||||
| | | | | | | |
Total cash and cash equivalents | 4,674 | 13,023 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Marketable Securities, Derivative Financial Instruments and Cash and Cash Equivalents (Continued)
At December 31, 2012 all debt securities are denominated in $ except for $645 million in CHF (2011: $694 million) and $26 million in EUR (2011: $26 million), respectively.
Cash and Cash Equivalents | 2012 | 2011 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Current accounts | 2,323 | 1,877 | |||||
Time deposits and short-term investments with original maturity less than 90 days(1) | 3,229 | 1,832 | |||||
Total cash and cash equivalents | 5,552 | 3,709 | |||||
17. Other Current Assets
| 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | ||||||||||
VAT receivable | 1,250 | 1,070 | 609 | 509 | ||||||||||
Withholding tax recoverable | 167 | 173 | 97 | 144 | ||||||||||
Income tax receivables | 171 | 202 | ||||||||||||
Reimbursements from insurers | 87 | |||||||||||||
Prepaid expenses | ||||||||||||||
—Third parties | 602 | 694 | 617 | 547 | ||||||||||
—Associated companies | 6 | 12 | 4 | 3 | ||||||||||
Other receivables | ||||||||||||||
—Third parties | 1,057 | 794 | 1,463 | 1,033 | ||||||||||
—Associated companies | 8 | 13 | 31 | 5 | ||||||||||
| | | | | | | | |||||||
Total other current assets | 3,090 | 2,756 | 2,992 | 2,530 | ||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
18. Details of Share Capital and Share Movements
The following table shows the movement in the share capital:
| Dec 31, 2013 | Movement in year | Dec 31, 2014 | Movement in year | Dec 31, 2015 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Share capital | 1,001 | 1,001 | (10 | ) | 991 | |||||||||||
Treasury shares | (89 | ) | (14 | ) | (103 | ) | 2 | (101 | ) | |||||||
| | | | | | | | | | | | | | | | |
Outstanding share capital | 912 | (14 | ) | 898 | (8 | ) | 890 | |||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The following table shows the movement in the shares:
| Number of shares(1) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2013 | Movement in year | Dec 31, 2014 | Movement in year | Dec 31, 2015 | |||||||||||
Total Novartis shares | 2,706,193,000 | 2,706,193,000 | (29,200,000 | ) | 2,676,993,000 | |||||||||||
Total treasury shares | (280,108,692 | ) | (27,458,051 | ) | (307,566,743 | ) | 4,468,560 | (303,098,183 | ) | |||||||
| | | | | | | | | | | | | | | | |
Total outstanding shares | 2,426,084,308 | (27,458,051 | ) | 2,398,626,257 | (24,731,440 | ) | 2,373,894,817 | |||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
In 2015, Novartis reduced its share capital by cancelling a total of 29.2 million shares which were repurchased during 2013 and 2014 on the SIX Swiss Exchange second trading line.
During 2015, 38.9 million treasury shares were delivered as a result of options being exercised and physical share deliveries related to equity-based participation plans (2014: 51.7 million shares). 9.6 million shares were repurchased on the SIX Swiss Exchange first trading line (2014: 46.8 million). 4.1 million
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Details of SharesShare Capital and Share Capital Movements (Continued)
| Number of shares(1) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2010 | Movement in year | Dec 31, 2011 | Movement in year | Dec 31, 2012 | |||||||||||
Total Novartis shares | 2,637,623,000 | 108,000,000 | 2,745,623,000 | (39,430,000 | ) | 2,706,193,000 | ||||||||||
Total treasury shares | (348,177,822 | ) | 9,248,679 | (338,929,143 | ) | 53,356,317 | (285,572,826 | ) | ||||||||
Total outstanding shares | 2,289,445,178 | 117,248,679 | 2,406,693,857 | 13,926,317 | 2,420,620,174 | |||||||||||
$ m | $ m | $ m | $ m | $ m | ||||||||||||
Share capital | 957 | 59 | 1,016 | (15 | ) | 1,001 | ||||||||||
Treasury shares | (125 | ) | 4 | (121 | ) | 29 | (92 | ) | ||||||||
Outstanding share capital | 832 | 63 | 895 | 14 | 909 | |||||||||||
In 2012, 39.4 million shares were cancelled that had been acquired in 2011 under the share buy-back program via the second trading line of the SIX Swiss Exchange. In 2011, following the Extraordinary General Meeting of Novartis AG on April 8, 2011, 108 million new Novartis shares were issued.
In 2012, 4.6 million shares were acquired with the intention of retaining in Group Treasury. 8.0 million shares, netfrom employees which were sold or exchanged with associates, mainly duepreviously granted to options being exercised and 10.6 million shares were transferred to associates as part of equity-based compensation. Including the 39.4 million shares that have been cancelled, this led to a decrease of 53.4 million of the treasury shares in 2012. As a consequence, outstanding shares increased by 13.9 million shares.
In 2011, a total of 54.7 million shares were purchased, including 39.4 million shares that were acquiredthem under the repurchase program via the second trading linerespective programs (2014: 5.4 million). In addition, Novartis repurchased 49.9 million shares on the SIX Swiss Exchange second trading line under the $5 billion share buy-back announced in November 2013, which was completed in November 2015, and 7.2also to offset the dilutive impact from equity-based participation plans (2014: 27.0 million shares). With these transactions, the total number of shares outstanding was reduced by 24.7 million shares were transferred to associates as partin 2015 (2014: reduction of equity-based compensation. 56.727.5 million treasury shares, together withshares) and the 108 million newly issued shares, were exchanged for the outstanding interests in Alcon, Inc.,sixth share buy-back program which was then merged into Novartis AG onapproved by the same day. These movements led to a decrease inshareholders at the treasury shares of 9.2AGM 2008 has been completed. The market maker has acquired 7 million in 2011.
There are outstanding written call options, on Novartis shares of 48 million originally issued as part of the share-based compensation of associates. The market maker has acquired these options but theyfor associates that have not yet been exercised. The weighted average exercise price of these options is $51.66$58.27 and they have contractual lives of up to 10 years.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. Non-Current Financial Debt
| 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | ||||||||||
Straight bonds | 14,783 | 13,483 | 17,193 | 15,982 | ||||||||||
Liabilities to banks and other financial institutions(1) | 1,004 | 1,146 | 706 | 803 | ||||||||||
Finance lease obligations | 3 | 4 | 87 | 3 | ||||||||||
Total (including current portion of non-current financial debt) | 15,790 | 14,633 | ||||||||||||
| | | | | | | | |||||||
Total, including current portion of non-current financial debt | 17,986 | 16,788 | ||||||||||||
Less current portion of non-current financial debt | (2,009 | ) | (778 | ) | (1,659 | ) | (2,989 | ) | ||||||
Total non-current financial debt | 13,781 | 13,855 | ||||||||||||
| | | | | | | | |||||||
Total non-current financial debts | 16,327 | 13,799 | ||||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | | |||||||
Straight bonds | ||||||||||||||
3.625% CHF 800 million bond 2008/2015 of Novartis AG, Basel, Switzerland, issued at 100.35% | 869 | 844 | 807 | |||||||||||
3.5% CHF 700 million bond 2008/2012 of Novartis Securities Investment Ltd., Hamilton, Bermuda, issued at 100.32% | 744 | |||||||||||||
5.125% $3,000 million bond 2009/2019 of Novartis Securities Investment Ltd., Hamilton, Bermuda, issued at 99.822% | 2,988 | 2,986 | 2,993 | 2,991 | ||||||||||
4.125% $2,000 million bond 2009/2014 of Novartis Capital Corporation, New York, United States, issued at 99.897% | 1,998 | 1,996 | ||||||||||||
4.25% EUR 1,500 million bond 2009/2016 of Novartis Finance S.A., Luxembourg, Luxembourg, issued at 99.757% | 1,974 | 1,935 | 1,639 | 1,821 | ||||||||||
1.9% $2,000 million bond 2010/2013 of Novartis Capital Corporation, New York, United States, issued at 99.867% | 1,999 | 1,998 | ||||||||||||
2.9% $2,000 million bond 2010/2015 of Novartis Capital Corporation, New York, United States, issued at 99.522% | 1,993 | 1,990 | 1,999 | |||||||||||
4.4% $1,000 million bond 2010/2020 of Novartis Capital Corporation, New York, United States, issued at 99.237% | 991 | 990 | 994 | 993 | ||||||||||
2.4% $1,500 million bond 2012/2022 of Novartis Capital Corporation, New York, United States, issued at 99.225% | 1,483 | 1,488 | 1,486 | |||||||||||
3.7% $500 million bond 2012/2042 of Novartis Capital Corporation, New York, United States, issued at 98.325% | 488 | 488 | 488 | |||||||||||
3.4% $2,150 million bond 2014/2024 of Novartis Capital Corporation, New York, United States, issued at 99.287% | 2,130 | 2,128 | ||||||||||||
4.4% $1,850 million bond 2014/2044 of Novartis Capital Corporation, New York, United States, issued at 99.196% | 1,823 | 1,823 | ||||||||||||
0.75% EUR 600 million bond 2014/2021 of Novartis Finance S.A., Luxembourg, Luxembourg, issued at 99.134% | 650 | 721 | ||||||||||||
1.625% EUR 600 million bond 2014/2026 of Novartis Finance S.A., Luxembourg, Luxembourg, issued at 99.697% | 652 | 725 | ||||||||||||
0.25% CHF 500 million bond 2015/2025 of Novartis AG, Basel, Switzerland, issued at 100.64% | 507 | |||||||||||||
0.625% CHF 550 million bond 2015/2029 of Novartis AG, Basel, Switzerland, issued at 100.502% | 557 | |||||||||||||
1.050% CHF 325 million bond 2015/2035 of Novartis AG, Basel, Switzerland, issued at 100.479% | 329 | |||||||||||||
3.0% $1,750 million bond 2015/2025 of Novartis Capital Corporation, New York, United States, issued at 99.010% | 1,726 | |||||||||||||
4.0% $1,250 million bond 2015/2045 of Novartis Capital Corporation, New York, United States, issued at 98.029% | 1,217 | |||||||||||||
| | | | | | | | |||||||
Total straight bonds | 14,783 | 13,483 | 17,193 | 15,982 | ||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. Non-Current Financial Debt (Continued)
The following tables provide a breakdown of total non-current financial debt, including current portion by maturity and currency:
| 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | ||||||||||
Breakdown by maturity | ||||||||||||||
2012 | 778 | |||||||||||||
2013 | 2,009 | 2,029 | ||||||||||||
2014 | 2,713 | 2,789 | ||||||||||||
2015 | 3,110 | 3,108 | 2,989 | |||||||||||
2016 | 1,987 | 1,948 | 1,659 | 1,838 | ||||||||||
2017 | 19 | 3 | 170 | 175 | ||||||||||
After 2017 | 5,952 | 3,978 | ||||||||||||
2018 | 335 | 342 | ||||||||||||
2019 | 3,161 | 3,068 | ||||||||||||
2020 | 998 | 1,004 | ||||||||||||
After 2020 | 11,663 | 7,372 | ||||||||||||
| | | | | | | | |||||||
Total | 15,790 | 14,633 | 17,986 | 16,788 | ||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
| 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | ||||||||||
Breakdown by currency | ||||||||||||||
$ | 11,943 | 9,962 | 12,946 | 11,912 | ||||||||||
EUR | 2,043 | 2,042 | 2,981 | 3,329 | ||||||||||
JPY | 929 | 1,031 | 665 | 669 | ||||||||||
CHF | 869 | 1,589 | 1,393 | 807 | ||||||||||
Others | 6 | 9 | 1 | 71 | ||||||||||
| | | | | | | | |||||||
Total | 15,790 | 14,633 | 17,986 | 16,788 | ||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
Fair value comparison | 2012 Balance sheet | 2012 Fair values | 2011 Balance sheet | 2011 Fair values | 2015 Balance sheet | 2015 Fair values | 2014 Balance sheet | 2014 Fair values | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||
Straight bonds | 14,783 | 16,130 | 13,483 | 14,794 | 17,193 | 17,770 | 15,982 | 17,013 | ||||||||||||||||||
Others | 1,007 | 1,007 | 1,150 | 1,150 | 793 | 793 | 806 | 806 | ||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Total | 15,790 | 17,137 | 14,633 | 15,944 | 17,986 | 18,563 | 16,788 | 17,819 | ||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | |
The fair values of straight bonds are determined by quoted market prices. Other financial debts are recorded at notional amounts which are a reasonable approximation of the fair values.
Collateralized non-current financial debt and pledged assets | 2012 | 2011 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Total amount of collateralized non-current financial debt | 12 | 7 | |||||
Total net book value of property, plant & equipment pledged as collateral for non-current financial debt | 136 | 100 |
Collateralized non-current financial debt and pledged assets | 2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Total amount of collateralized non-current financial debts | 7 | 1 | |||||
Total net book value of property, plant & equipment pledged as collateral for non-current financial debts | 112 | 184 |
The Group's collateralized non-current financial debt consists of loan facilities at usual market conditions.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. Non-Current Financial Debt (Continued)
The Group's collateralized non-current financial debt consists of loan facilities at usual market conditions.
The percentage of fixed rate financial debt to total financial debt was 80%82% at December 31, 2012,2015 and 72% at the end of 2011.December 31, 2014.
Financial debt,debts, including current financial debt,debts, contain only general default covenants. The Group is in compliance with these covenants.
The average interest rate on total financial debt in 20122015 was 2.9% (2011: 2.7%(2014: 3.4%, 2010: 3.1%2013: 3.3%).
20. Provisions and Other Non-Current Liabilities
| 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | ||||||||||
Accrued liability for employee benefits: | ||||||||||||||
—Defined benefit pension plans | 5,296 | 2,991 | ||||||||||||
—Other long-term employee benefits and deferred compensation | 631 | 600 | ||||||||||||
—Other post-employment benefits | 1,104 | 1,098 | ||||||||||||
Defined benefit pension plans | 3,952 | 3,839 | ||||||||||||
Other long-term employee benefits and deferred compensation | 507 | 518 | ||||||||||||
Other post-employment benefits | 960 | 1,054 | ||||||||||||
Environmental remediation provisions | 1,001 | 1,059 | 791 | 828 | ||||||||||
Provisions for product liabilities, governmental investigations and other legal matters | 630 | 777 | 451 | 521 | ||||||||||
Contingent consideration | 573 | 482 | 712 | 465 | ||||||||||
Other non-current liabilities | 644 | 785 | 671 | 447 | ||||||||||
| | | | | | | | |||||||
Total | 9,879 | 7,792 | 8,044 | 7,672 | ||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
Environmental Remediation Provisions
The material components of the environmental remediation provisions consist of costs to sufficiently clean and refurbish contaminated sites to the extent necessary and to treat and where necessary continue surveillance at sites where the environmental remediation exposure is less significant. The provision recorded at December 31, 20122015 totals $1.1$0.9 billion (2011: $1.1(2014: $0.9 billion) of which $119$80 million (2011: $59(2014: $95 million) is current.
A substantial portion of the environmental remediation provision relatesprovisions relate to the remediation of Basel regional landfills in the adjacent border areas in Switzerland, Germany and France following internal and external investigations completed during 2007 and the subsequent creation of an environmental remediation provision.France. The provisions have beenare re-assessed during 2012on a yearly basis and are adjusted as a result adjusted.necessary.
In the United States, Novartis has been named under federal legislation (the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended) as a potentially responsible party (PRP) in respect of certain sites. Novartis actively participates in, or monitors, the clean-up activities at the sites in which it is a PRP. The provision takes into consideration the number of other PRPs at each site and the identity and financial position of such parties in light of the joint and several nature of the liability.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Provisions and Other Non-Current Liabilities (Continued)
The following table shows the movements in the environmental liability provisions during 2012, 20112015, 2014 and 2010:2013:
| 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||
January 1 | 1,118 | 1,126 | 1,010 | 923 | 1,061 | 1,120 | ||||||||||||||
Cash payments | (30 | ) | (29 | ) | (20 | ) | (52 | ) | (33 | ) | (68 | ) | ||||||||
Releases | (39 | ) | (8 | ) | (2 | ) | (5 | ) | (6 | ) | (19 | ) | ||||||||
Interest expense arising from discounting provisions | 33 | 29 | 39 | |||||||||||||||||
Additions | 10 | 6 | 2 | 2 | ||||||||||||||||
Currency translation effects | 28 | 99 | (1 | ) | (101 | ) | 26 | |||||||||||||
| | | | | | | | | | | ||||||||||
December 31 | 1,120 | 1,118 | 1,126 | 871 | 923 | 1,061 | ||||||||||||||
Less current liability | (119 | ) | (59 | ) | (60 | ) | ||||||||||||||
Non-current environmental remediation liability provisions at December 31 | 1,001 | 1,059 | 1,066 | |||||||||||||||||
Less current provision | (80 | ) | (95 | ) | (100 | ) | ||||||||||||||
| | | | | | | | | | | ||||||||||
Non-current environmental remediation provisions at December 31 | 791 | 828 | 961 | |||||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |
The expected timing of the related cash outflows as of December 31, 20122015 is currently projected as follows:
| Expected cash outflows | |||
---|---|---|---|---|
| $ m | |||
Due within two years | ||||
Due later than two years, but | ||||
Due later than five years but | ||||
Due after ten years | ||||
| | | | |
Total environmental remediation liability provisions | ||||
| | | | |
| | | | |
| | | | |
Provisions for Product Liabilities, Governmental Investigations and Other Legal Matters
Novartis has established provisions for certain product liabilities, governmental investigations and other legal matters, including provisions for expected legal costs.costs where a potential cash outflow is probable and Novartis can make a reliable estimate of the amount of the outflow. These provisions represent the Group's current best estimate of the total financial effect for the matters listed below and for other less significant matters where there ismatters. Potential cash outflows reflected in a probable potential cash outflow. Such potential cash outflowsprovision might be fully or partially off-set by insurance in certain instances. Of the matters listed below in which the Group has an adverse damage award, no provision has been made for the $30 million Mississippi Chancery Court Average Wholesale Price verdict since, per the Group's current best estimate based on its views as to the merits of the case and its experience in such matters, Novartis currently believes that it ultimately will prevail in the case on appeal.circumstances. Novartis has also not established provisions for potential damage awards for certain additional legal mattersclaims against our subsidiaries which have not yet gone to trial, sinceif Novartis currently believes that it ultimately will prevail in them. Thesea payment is either not probable or cannot be reliably estimated. In total, these not-provisioned-for matters include morefewer than 700500 individual product liability cases and certain other legal matters. Plaintiffs' alleged claims in these matters, amountwhich Novartis does not believe to anbe entirely remote but which do not fulfill the conditions for the establishment of provisions, currently aggregate ofto, according to Novartis' current best belief, approximately $1$1.2 billion. In addition, in some of these matters there are claims for punitive or multiple (treble) damages, civil penalties and disgorgement of profits that in Novartis' view are either wholly or partially unspecified or wholly or partially unquantifiable at present; the Group believes that
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Provisions and Other Non-Current Liabilities (Continued)
damagesinformation about these amounts claimed by plaintiffs generally is not meaningful for purposes of determining a reliable estimate of a loss that are partially unspecified and partially currently unquantifiable.is probable or more than remote. A number of other legal matters are in such early stages or the issues presented are such that the Group has not made any provisions other than for legal fees since it cannot currently estimate either a potential outcome or the amount of any potential outcomelosses. For these reasons, among others, the Group generally is unable to make a reliable estimate of thesepossible loss with respect to such cases. It is therefore not practicable to provide information about the potential financial impact of those cases. There might also be cases and potential losses.for which the Group was able to make a reliable estimate of the possible loss or the range of possible loss, but the Group believes that publication of such information on a case-by-case basis would seriously prejudice the Group's position in ongoing legal proceedings or in any related settlement discussions. Accordingly, in such cases, information has been disclosed with respect to the nature of the contingency, but no disclosure is provided as to an estimate of the possible loss or range of possible loss.
A number of Novartis subsidiariescompanies are, and will likely continue to be, subject to various legal proceedings and investigations that arise from time to time, including proceedings regarding product liability, sales and marketing practices, commercial disputes, employment, and wrongful discharge, antitrust, securities, sales and marketing practices, health and safety, environmental, tax, international trade, privacy, and intellectual property matters. As a result, the Group may become subject to substantial liabilities that may not be covered by insurance and could affect our business and reputation. While Novartis does not believe that any of these legal proceedings will have a material adverse effect on its financial position, litigation is inherently unpredictable and large judgments sometimes occur. As a consequence, Novartis may in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations or cash flows.flow.
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,pricing, corruption, trade restrictions, embargo legislation, insider trading, antitrust, cyber security and data privacy. Further, when one government or regulatory authority undertakes an investigation, it is not uncommon for other governments or regulators to undertake investigations regarding the same or similar matters. 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 United StatesUS and other countries, and may lead to (or arise from) litigation. These factors have contributed to decisions by Novartis and other companies in the healthcare 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.authorities or a court. Those government settlements have involved and may continue to involve, in current government investigations and proceedings, large cash payments, sometimes in the hundreds of millions of dollars or more, including the potential repayment of amounts allegedly obtained improperly and other penalties, including treble damages. In addition, settlements of government healthcare fraud cases often require companies to enter into corporate integrity agreements, which are intended to regulate company behavior for a period of years. Our affiliate Novartis Pharmaceuticals Corporation is a party to such an agreement, which will expire in 2020. Also, matters underlying governmental investigations and settlements may be the subject of separate private litigation.
Below is a summary of significant legal proceedings to which Novartis or its subsidiaries are a party or were a party and which were concluded in 2012.
Governmental Investigations
Western District of New York (WDNY) investigation
In 2010, NPC became aware of an investigation by the USAO for the WDNY into informed consent issues relating to clinical trials in China and into marketing practices, including the remuneration of healthcare providers, in connection with a number of Novartis products. NPC is cooperating with the investigation which is civil in nature. In the fourth quarter of 2012, the Company learned that the Government is not pursuing further informed consent issues relating to clinical trials in China. The Government continues to investigate marketing practices, including marketing practices concerningZometa.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Provisions and Other Non-Current Liabilities (Continued)
The following is a summary of significant legal proceedings to which Novartis or its subsidiaries are a party or were a party and that concluded in 2015.
Investigations and related litigations
Southern District of New York (SDNY) marketing practices investigation and litigation
In 2011,April 2013, the US government filed a civil complaint in intervention to an individualqui tam action against Novartis Pharmaceuticals Corporation (NPC) receivedin the United States District Court (USDC) for the SDNY involving several of NPC's cardiovascular medications. The suit is related to a subpoena frompreviously disclosed 2011 investigation of the United States Attorney's Office (USAO) for the SDNY requesting the production of documents relating to marketing practices, including the remuneration of healthcare providers, in connection with three NPC products (Lotrel,Starlix andValturna). The complaint, as subsequently amended, asserts federal False Claims Act and common law claims with respect to speaker programs and other promotional activities for certain NPC is cooperatingcardiovascular medications allegedly serving as mechanisms to provide kickbacks to healthcare professionals. It seeks unspecified damages, which according to the complaint are "substantial", including treble damages and maximum civil penalties per claim, as well as disgorgement of Novartis profits from the alleged unlawful conduct. In August 2013, New York State filed a civil complaint in intervention asserting similar claims. Neither government complaint in intervention adopted the individual relator's claims with respect to off-label promotion ofValturna, which were subsequently dismissed with prejudice by the investigation which is civilcourt. The individual relator continues to litigate the kickback claims on behalf of other states and criminal in nature.municipalities. NPC vigorously contests the SDNY, New York State and individual claims, both as to alleged liability and amount of damages and penalties.
NorthernSDNY / Western District of Georgia (NDGA)New York healthcare fraud investigation
In 2011, Alcon Laboratories, Inc. (Alcon)(ALI) received a subpoena from the United States Department of Health & Human Services relating to an investigation into allegations of healthcare fraud. The subpoena requests the production of documents relating to marketing practices, including the remuneration of healthcare providers, in connection with certain AlconALI products (Vigamox,Nevanac,Omnipred,Econopred; surgical equipment). Alcon is cooperating with the investigation which is civil in nature and led by the NDGA.
Western District of Kentucky (WDKY) investigation
In 2012, NPC received a subpoena from the USAO for the WDKY requesting the production of documents relating to marketing practices, including remuneration of healthcare providers, in connection with certain NPC products (includingTekturna and its combination products). NPC is cooperating with the investigation, which is civil and criminal in nature.
SDNY Specialty Pharmacy investigation
In 2012, NPC received a civil investigative demand from the USAO for the SDNY requesting information regarding its interactions with specialty pharmacies concerning certain NPC products (includingGleevec andGilenya). NPCALI is cooperating with the investigation, which is civil in nature.
Northern District of Texas (NDTX) investigation
In 2012, Alcon was notified that the USAO for the NDTX is conducting an investigation relating to the export of Alcon products to various countries subject to United States trade sanctions, including Iran, allegedly in violation of applicable trade sanctions, and received a grand jury subpoena requesting the production of documents for a period beginning in 2005 relating to this investigation. Alcon is cooperating with the investigation.
European Commission (EC) Dawn Raid at Sandoz FranceSDNY Gilenya investigation
In 2009,2013, NPC received a civil investigative demand from the EC searchedUSAO for the officesSDNY requesting the production of Sandoz S.A.S.documents and information relating to marketing practices forGilenya, including the remuneration of healthcare providers in France (Sandoz France), alleging that Sandoz France entered into anti-competitive price coordination practices with other generic pharmaceutical companies and via the French trade association for generic pharmaceutical companies. Sandoz Franceconnection therewith. NPC is cooperating with the EC. No follow-up requests have been received from the EC so far.
EC Fentanyl investigation
In 2010, the EC conducted dawn raids at the Dutch and German offices of Sandoz. On October 18, 2011, the EC decided to initiate proceedings against Sandoz BV, Novartis AG, Janssen-Cilag BV and Johnson & Johnson to assess whether contractual arrangements between Janssen-Cilag BV, Hexal BV and
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Provisions and Other Non-Current Liabilities (Continued)
Sandoz BV may have had the object or effect of hindering the entry of generic Fentanyl patches in the Netherlands. The Commission issued a press release announcing the adoption of its decision to initiate proceedings on October 21, 2011. Sandoz BV and Novartis AG are cooperating with the EC.
Product liability matters
Zometa/Aredia product liability litigation
NPC and other Novartis subsidiaries are defendants in approximately 700 cases brought in United States courts, in which plaintiffs claim to have experienced osteonecrosis of the jaw after treatment withZometa orAredia, which are used to treat patients whose cancer has spread to the bones.
The majority of the United States cases are consolidated in two venues—a federal multidistrict litigation proceeding and a separate state court proceeding in New Jersey. The first trial out of the state court consolidated proceedings was held in New Jersey in September and October 2010 and resulted in a defense verdict in favor of NPC. On June 13, 2012, the New Jersey Court of Appeals affirmed the judgment in favor of NPC. Plaintiffs petitioned the New Jersey Supreme Court for further review and their petition was subsequently denied. The judgment in favor of NPC is final.
A prior state court case unrelated to the consolidated proceedings held in October 2009 resulted in a plaintiff's verdict, which the Montana Supreme Court affirmed on appeal in December 2010.
The first federal trial took place in November 2010 in the United States District Court for the Middle District of North Carolina and resulted in a plaintiffs' verdict. NPC filed an appeal against this verdict which remains pending. The second federal trial took place in May 2011 in the United States District Court for the Eastern District of New York (EDNY) and resulted in a defense verdict in favor of NPC. Plaintiff filed an appeal against this verdict, and on August 29, 2012, the United States Court of Appeals for the Second Circuit affirmed the verdict in favor of NPC, which is final.
The next federal trial began in the United States District Court for the WDKY on January 9, 2012. On January 31, 2012, the jury returned a verdict in favor of NPC, which was not appealed by plaintiff and which is therefore final. A further federal trial began in the United States District Court for the Eastern District of Missouri on January 23, 2012. On February 1, 2012, the jury returned a verdict in favor of NPC. On March 5, 2012, plaintiff filed a notice of appeal. On April 11, 2012, the United States Court of Appeals for the Eighth Circuit dismissed the appeal; judgment has been entered for NPC, which is final. The next federal trial began in the United States District Court for the Western District of Missouri on March 20, 2012. On April 6, 2012, it resulted in a plaintiff's verdict for compensatory damages of $0.2 million. No punitive damages were awarded. NPC filed a motion for judgment as a matter of law on May 7, 2012, which was subsequently denied. On August 31, 2012, NPC filed an appeal against the verdict with the United States Court of Appeals for the Eighth Circuit, which remains pending. A further federal trial started in the United States District Court for the Eastern District of North Carolina on September 19, 2012. On September 21, 2012, this case was dismissed with prejudice by plaintiff. This dismissal is therefore final. On October, 3, 2012, a further federal trial started in the United States District Court for the EDNY. On November 2, 2012, the jury returned a verdict in plaintiff's favor and awarded plaintiff $0.45 million in compensatory damages and $10 million in punitive damages. The Court has not yet entered judgment. The punitive damages award will be capped by statute at five times the compensatory damages award, and NPC believes that as a matter of law plaintiff is not entitled to punitive damages. On November 30, 2012, NPC filed a motion to further reduce the punitive damages award. On December 20,
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Provisions and Other Non-Current Liabilities (Continued)
2012, NPC filed a motion for mistrial (seeking a new trial) based on the jury's consideration of evidence outside the record. NPC will continue to challenge the verdict in its entirety and intends to file additional post-trial motions and an appeal if necessary.
The next federal trial is scheduled to begin in the United States District Court for the Middle District of Florida on February 11, 2013.
Further trials are scheduled for 2013.
Hormone Replacement Therapy product liability litigation
NPC and other Novartis subsidiaries are defendants, along with various other pharmaceutical companies in the United States, in more than 30 cases brought in United States courts in which plaintiffs claim to have been injured by hormone replacement therapy products. Discovery is ongoing, but currently inactive as to NPC.
Elidel® product liability litigation
NPC and other Novartis subsidiaries are defendants in more than 20 cases brought in United States courts in which plaintiffs claim to have experienced injuries, mainly various types of cancer, after having been treated with Elidel® a medicine for atopic dermatitis.
Other matters
Average Wholesale Price litigation
Claims have been brought against various pharmaceutical companies, including certain Sandoz entities and NPC, alleging that they fraudulently overstated the Average Wholesale Price (AWP) which is or has been used by state Medicaid agencies to calculate reimbursements to healthcare providers.
In 2011, Sandoz Inc. (Sandoz) reached an agreement in principle to settle the state portion of the New York City and New York Counties federal and state court cases for $22 million and the state portion of the Iowa case for $3 million. The settlement amount of $25 million for the Iowa and the New York settlements together was fully provisioned for in the fourth quarter of 2011. The settlement agreements have been executed by all parties and payments of the Iowa and the New York settlements were made in the first half of 2012. All related cases have been dismissed.
A bench trial against Sandoz in Mississippi Chancery Court ended on April 15, 2011. On September 2, 2011, the court rendered an opinion in favor of Sandoz on the false claims, conspiracy, and anti-kickback provisions but against Sandoz on the other causes of action and awarded plaintiff a total of $38.2 million ($23.7 million in compensatory damages, $2.7 million in civil penalties and $11.8 million in punitive damages). On October 4, 2011, the court granted Sandoz' motion to amend the opinion and withdrew the punitive damages award. On March 30, 2012, an evidentiary hearing took place in order to determine whether punitive damages are appropriate and, if so, in what amount punitive damages should be awarded. On June 19, 2012, the court limited the punitive damages award to $3.75 million. Judgment was entered on August 7, 2012. On August 17, 2012, the State filed a motion to alter the judgment. On August 30, 2012, the court denied the State's request to alter the judgment. On September 27, 2012, Sandoz filed its notice of appeal. On October 11, 2012, the State filed a notice of cross-appeal.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Provisions and Other Non-Current Liabilities (Continued)
On July 13, 2012, the Alabama Supreme Court rendered judgment in Sandoz' favor and overturned the February 2009 Montgomery County, Alabama Circuit Court jury verdict against Sandoz in the amount of $78 million (compensatory damages of $28 million and punitive damages of $50 million). This judgment in favor of Sandoz is final.
On October 12, 2012, the Kentucky Court of Appeals ruled in Sandoz' favor and reversed the Franklin Circuit Court's 2009 jury verdict and judgment against Sandoz in the amount of $27 million (compensatory damages of $16 million and penalties of $11 million). The Court of Appeals remanded the case to the Franklin Circuit Court with directions to enter judgment for Sandoz. On November 13, 2012, the Commonwealth of Kentucky filed a petition seeking discretionary review from the Kentucky Supreme Court, which remains pending.
Further trials, including Sandoz and NPC, are currently scheduled for 2013.
Concluded legal matters
Wage and Hour litigation
In 2006, certain pharmaceutical sales representatives filed suit in a state court in California and in the United States District Court for the SDNY against NPC alleging that NPC violated wage and hour laws by misclassifying the pharmaceutical sales representatives as "exempt" employees, and by failing to pay overtime compensation. These actions were part of a number of lawsuits against pharmaceutical companies that challenge the industry's long-term practice of treating pharmaceutical sales representatives as salaried employees. NPC agreed with the plaintiffs to end the ongoing proceedings and to provide a payment of up to $99 million for eligible class members; the full amount of $99 million was provisioned for in the third quarter of 2011 and in the first quarter of 2012. This settlement resolves the wage and hour claims brought in 2006, as well as additional wage and hour claims covering a more recent time period. On May 31, 2012, the judge granted final approval of the settlement and dismissed the case with prejudice.
Lucentis patent litigation
Novartis Group companies were sued by and sued MedImmune in several European countries, including the United Kingdom, Germany, Switzerland, France and the Netherlands. MedImmune alleged that the sale ofLucentis in these countries infringed its patents and its rights under its Supplementary Protection Certificates (SPC).
In the United Kingdom, a trial took place in May 2011. On July 5, 2011, the United Kingdom court issued its decision and held that Novartis did not infringe MedImmune's patents and that MedImmune's patents were invalid. MedImmune filed an appeal against this decision. A separate trial to hear Novartis' challenge against the validity of MedImmune's United Kingdom SPC took place on February 3, 2012, and the United Kingdom court found the SPC to be invalid. MedImmune appealed this decision. On July 11, 2012, the United Kingdom Court of Appeal held that MedImmune's patent was invalid (and thereby also the SPC extension), upholding the first instance decision. In Germany, the infringement trial took place on October 18, 2011. On November 10, 2011, the German court found that the import and sale ofLucentis infringes one of the two MedImmune patents in dispute and the related SPC right in Germany. This decision was appealed. The German invalidity trial on the other MedImmune patent took place on January 24, 2012, and the Federal Patent Court found this patent to be invalid. The trial on the validity ofinvestigation.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Provisions and Other Non-Current Liabilities (Continued)
MedImmune's German SPC took placeNew York state investigation
In November 2014, ALI received a civil subpoena from the New York state attorney general relating to an investigation into a unilateral pricing policy program. ALI is cooperating with this civil investigation.
Lucentis/Avastin®matters in Italy and France
In 2013, the Italian Competition Authority (ICA) opened an investigation to assess whether Novartis Farma S.p.A., Novartis AG (NAG), F. Hoffmann-La Roche AG, Genentech Inc. and Roche S.p.A. colluded to artificially preserve the market positions of Avastin® andLucentis. In March 2014, the ICA imposed a fine equivalent to $125 million on NAG and Novartis Farma S.p.A. and a fine on F. Hoffmann-La Roche AG and Roche S.p.A. equivalent to $122 million. As required by Italian law, Novartis has paid the ICA fine, subject to the right to later claim recoupment. In February 2015, Novartis appealed at the council of state the decision of the Tribunale amministrativo regionale (TAR) del Lazio which had upheld the fines. The decision is pending. Novartis' appeal of a decision by the Italian Medicines Agency to include Avastin® in a list of drugs to be reimbursed off-label for age-related macular degeneration (AMD) was rejected by the TAR Lazio in January 2016. Novartis will appeal this decision. In the second quarter of 2014, the Italian Ministry of Health (MoH) indicated in a letter that it intended to seek a total equivalent of approximately $1.3 billion in damages from Novartis and Roche entities based on the above allegations, and in the first quarter of 2015 the Lombardia region sent a payment request equivalent to approximately $63 million. Novartis vigorously contests the MoH and Lombardia claims.
In France, Novartis' appeal is pending against an inspection in April 2014 by the French Competition Authority on the premises of Novartis Groupe France and Roche with respect to the French market for anti-vascular endothelial growth factor (VEGF) products indicated for the treatment of wet AMD. Also in France, Novartis is appealing a temporary recommendation of use and reimbursement of off-label Avastin® for neovascular AMD by hospital ophthalmologists, in force since September 2015, as well as the decree on which the recommendation is based. In both Italy and France, Novartis believes that allowing the widespread off-label use and reimbursement of Avastin®, despite the presence of available licensed alternatives, would result in a breach of applicable regulations.
Japan investigation
In December 2015, trial started against a former Novartis Pharma K.K. (NPKK) employee, and also NPKK under the dual liability concept in Japanese law, over allegations brought by the Tokyo District Public Prosecutor Office in two counts for alleged manipulation of data in sub-analysis publications of the Kyoto Heart Study regarding valsartan. The charges against NPKK are subject to a maximum total fine of JPY 4 million.
In February 2015, the Japanese Ministry of Health, Labor and Welfare (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 has implemented a corrective and preventive action plan in response to a business improvement order and instruction issued by the MHLW in the fourth quarter of 2015 regarding additional instances of delayed adverse events reporting.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Provisions and Other Non-Current Liabilities (Continued)
Internal travel agencies investigation
After reports of Chinese government investigations of competitors for alleged improper use of certain China-based travel agencies to reward healthcare providers, Novartis commenced an internal investigation in 2013 concerning its local affiliates' relationships with China-based travel agencies (and other vendors). Novartis is communicating with the US Securities and Exchange Commission (SEC) about this internal investigation.
Italy MF59 investigation
In May 2014, the public prosecutor of Siena initiated a criminal investigation with respect to allegations that the transfer price of the adjuvantMF59 was unlawfully marked up. The investigation concerns whether theFocetria andFluad vaccines sold to the government were over-priced and whether the Italian Ministry of Health paid an inflated amount in a dispute settlement relating to the supply ofFocetria during the 2009 pandemic.
Product liability matters
Reclast/Aclasta product liability litigation
NPC is a defendant in 21 US product liability actions involvingReclast and alleging atypical femur fracture injuries, most of which are in New Jersey state or federal court coordinated with claims against other bisphosphonate manufacturers. There are also three Canadian putative class actions brought against numerous bisphosphonate manufacturers including NPC, Novartis Pharmaceuticals Canada Inc. and Novartis International AG in Quebec, Alberta and Saskatchewan. All claims are being vigorously contested.
Metoclopramide product liability litigation
Sandoz is a defendant, along with numerous manufacturers of brand pharmaceuticals, in 395 product liability actions in the state courts in Pennsylvania and California claiming that the use of metoclopramide, the generic version of the brand name drug Reglan®, caused personal injuries including tardive dyskinesia. Sandoz denies the allegations and is vigorously contesting the claims.
Tekturna/Rasilez/Valturna product liability litigation
NPC and certain other Novartis affiliates are defendants in 12 individual lawsuits pending in the USDC for the District of New Jersey (DNJ), and one in Alberta, Canada, claiming that treatment withTekturna,Rasilez and/orValturna caused renal failure, kidney disease or stroke. The claims are being vigorously contested.
Arbitration
Equa arbitration
In 2013, Sanofi K.K. (Sanofi) commenced an arbitration against NPKK relating to the termination of a co-promotion agreement in Japan ofEqua (Galvus), which is used to treat type 2 diabetes. Sanofi seeks an award equivalent to $356 million, at a minimum, together with a request for payment of additional
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Provisions and Other Non-Current Liabilities (Continued)
interest and expenses as well as legal and other costs of the proceedings. NPKK is vigorously defending the action as well as prosecuting a counterclaim against Sanofi.
Other matters
Average Wholesale Price (AWP) litigation
Claims have been brought by various US state governmental entities against various pharmaceutical companies, including certain Sandoz entities and NPC, alleging that they fraudulently overstated the AWP that is or has been used by payors, including state Medicaid agencies, to calculate reimbursements to healthcare providers. NPC and Sandoz reached settlements in the first, third, and fourth quarters of 2015 of the Wisconsin and Utah claims against them for amounts that are not material to Novartis. Sandoz has filed a motion for reconsideration against a Mississippi Supreme Court decision which in the fourth quarter of 2015 upheld the $30 million Chancery Court verdict against it. NPC remains a defendant in an action brought by the state of Illinois and in a putative class action brought by private payors in New Jersey. The claims are being vigorously contested.
Qui tam actions
NPC is a defendant in a relator'squi tam action in the USDC for the Eastern District of Pennsylvania asserting federal and state False Claims Act claims relating to certain alleged marketing practices involving Elidel®. The federal government and several states declined to intervene in the relator's action. NPC is vigorously contesting the claims.
In 2006, 2010 and 2012,qui tam complaints were filed in the District of Massachusetts (D. Mass.) asserting various federal False Claims Act and state claims relating to certain alleged improper marketing practices involvingXolair against various Novartis, Genentech and Roche entities. In 2011, the US and various state governments declined to intervene in the relators' actions, and closed their investigations. In June 2014, the relator in the 2010 action voluntarily dismissed his complaint with prejudice; the US and various states subsequently consented to the dismissal. In the first quarter of 2015, the USDC for the D. Mass. dismissed with prejudice all claims in connection with alleged improper marketing practices asserted by the relators and dismissed without prejudice all claims asserted in the name of the federal and various state governments. The relators have appealed. Novartis continues to vigorously contest the claims.
Antitrust class actions
Since the third quarter of 2013, approximately sixteen putative class action complaints have been filed against manufacturers of the brand drug Solodyn® and its generic equivalents, including Sandoz Inc. The cases have been consolidated and transferred for pretrial purposes to a federal district court in Massachusetts. The plaintiffs purport to represent direct and indirect purchasers of Solodyn® branded products and assert violations of federal and state antitrust laws, including allegations in connection with separate settlements by Medicis with each of the other defendants, including Sandoz Inc., of patent litigation relating to generic Solodyn®. Sandoz is vigorously contesting the claims.
Since March 2015, more than 50 putative class action complaints have been filed in several courts across the US naming contact-lens manufacturers, including ALI, and alleging violations of federal antitrust law as well as state antitrust, consumer protection and unfair competition laws of various states in
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Provisions and Other Non-Current Liabilities (Continued)
connection with the sale of contact lenses. The cases have been consolidated in the Middle District of Florida by the Judicial Panel on Multidistrict Litigation and the Federal Patentclaims are being vigorously contested.
Since June 2015, NPC, Novartis Corporation (NC) and NAG have been sued in five putative class action complaints brought in federal district court in Massachusetts on behalf of proposed classes of all direct and indirect purchasers, including end-payors, ofGleevec. The complaints assert violations of federal antitrust law and various state laws, and seek to prevent Novartis from enforcing a previously reported 2014 agreement under which Sun Pharmaceuticals agreed not to launch a generic version ofGleevec, until February 1, 2016, as well as damages and other relief. The claims are being vigorously contested.
In October 2015, Sandoz and Momenta Pharmaceuticals were sued in a putative antitrust class action in federal court in Tennessee alleging that Momenta and Sandoz engaged in anticompetitive conduct with regard to sales of enoxaparin, and the same allegations were made by Amphastar in a lawsuit filed in federal court in California (Sandoz, Momenta Pharmaceuticals and Amphastar are currently engaged in litigation concerning certain enoxaparin patents in federal court in Massachusetts). The claims are being vigorously contested.
Oriel litigation
In October 2013, Shareholder Representative Services LLC filed a complaint in New York State Court foundagainst Sandoz Inc., two affiliates and two former officers of Sandoz AG asserting various common law and statutory contract, fraud and negligent misrepresentation claims arising out of the SPCSandoz Inc. purchase of Oriel Therapeutics, Inc. In March 2015, the court dismissed all claims except a breach of contract claim against Sandoz Inc. Sandoz Inc. continues to vigorously contest the claim.
Eye drop products consumer class actions
Since November 2012, six putative consumer fraud class action litigations were commenced against Alcon (and in four cases Sandoz) in federal courts in the Southern Districts of Illinois (S.D. Ill.) and Florida and the Districts of Missouri, Massachusetts and New Jersey. They claim that Alcon's, Sandoz's and many other manufacturers defendants' eye drop products were deceptively designed so that the drop dosage is more than necessary to be invalid. On June 26,absorbed in the eye or there is too much solution in each bottle for the course of the treatment, leading to wastage and higher costs to patient consumers. Three cases remain pending in the S.D. Ill., D. Mass. and DNJ. Novartis is vigorously contesting the claims.
Employment action
In March 2015, ALI and NC were sued in an individual and collective action filed in the SDNY. The parties negotiated a class settlement and a settlement for the individual plaintiffs (excluding one plaintiff) for an amount that is not material to Novartis, which settlements and amended complaint were filed with the court for approval in December 2015. The claims assert inter alia gender discrimination, pay discrimination and retaliation at Alcon. The one remaining individual claim continues to be vigorously contested.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Provisions and Other Non-Current Liabilities (Continued)
Concluded legal matters
Western District of Kentucky (WDKY) investigation
In 2012, NPC received a subpoena from the European Patent OfficeUSAO for the WDKY requesting the production of documents relating to marketing practices, including alleged remuneration of healthcare providers and off-label promotion, in connection with certain NPC products (includingTekturna,Valturna,Reclast,Exelon Patch and other products). In the third quarter of 2015, the USAO declined to intervene in the relators' complaint and has closed the investigation.
SDNY specialty pharmacies investigation and litigation
In April 2013, the US government filed a civil complaint in intervention to aqui tam action against NPC in the USDC for the SDNY. The complaint, as subsequently amended, asserted federal False Claims Act and state law claims related to alleged unlawful contractual discounts and rebates to specialty pharmacies in connection withMyfortic, and alleged unlawful contractual discounts, rebates and patient referrals to one specialty pharmacy in connection withExjade. In January 2014, eleven states filed three complaints in intervention asserting similar claims related toExjade; and thequi tam relator served on NPC an amended complaint also heldasserting similar claims with respect toMyfortic andExjade, as well as claims involvingTasigna,Gleevec andTOBI that the MedImmune patent,federal and various state governments declined to pursue. 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 formswere either part of the basisrelator's complaint, or which reimbursed prescriptions ofMyfortic andExjade during the relevant time period), the District of Columbia and thequi tam relator. This resolves all the above-described claims related toMyfortic,Exjade,Tasigna,Gleevec andTOBI. 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.
DNJ investigation
In late September 2014, ALI received a subpoena from the USAO for the SPCs, is invalid.DNJ relating to an investigation of Alcon sales practices. In the third quarter of 2015, the USAO declined to proceed, and no charges were brought or sanctions imposed. The parties agreedrelator dismissed the complaint voluntarily.
Italy Sandostatin investigation
In January 2014, the ICA opened an investigation to assess whether Novartis Farma S.p.A. and Italfarmaco S.p.A. colluded on the supply of octreotide acetate (Sandostatin LAR and Longastatina® LAR, respectively). In consideration of commitments to amend certain provisions of the co-marketing agreement with Italfarmaco, the ICA decided to close the investigation with no finding of an infringement and thus without a confidential settlement on November 6, 2012fine. The decision became final in October 2015.
Zometa/Aredia product liability litigation
NPC had been a defendant in more than 880 cases brought in US courts in which plaintiffs generally claimed to have experienced osteonecrosis of the jaw or atypical femur fracture after treatment withZometa orAredia, which are used to treat patients whose cancer has spread to the bones. Nearly all the
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Provisions and all actionsOther Non-Current Liabilities (Continued)
cases have been dismissed.resolved through voluntary dismissals, pre-trial motion practice, trial, or settlements, the payments of which were not material to Novartis. Three cases where NPC prevailed at the trial level remain on appeal, and one other case remains pending. The remaining claims are being vigorously contested, but they are not material to Novartis.
Solodyn®Federal Trade Commission (FTC) investigation
The conduct challenged in the above-described Solodyn® antitrust class actions has also been the subject of an FTC investigation. In the fourth quarter of 2015, the FTC closed the investigation with no finding of an infringement or a fine. This matter is therefore concluded.
Excedrin consumer class actions
Four putative class actions were brought in December 2013 and January 2014 against Novartis and its consumer health unit. They generally claim that it was a deceptive practice to sellExcedrin Migraine at a higher price thanExcedrin Extra Strength when the two have the same active ingredients, even though the products have different labels and clearly disclose their active ingredients. In 2014, three of the four putative class actions were dismissed; the remaining one is not material to Novartis.
Summary of Product Liabilities,Liability, Governmental Investigations and Other Legal Matters Provision Movements:
| 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||
January 1 | 1,182 | 1,384 | 1,542 | 849 | 924 | 998 | ||||||||||||||
Impact of business combinations | 60 | 15 | ||||||||||||||||||
Provisions related to discontinued operations | (37 | ) | ||||||||||||||||||
Cash payments | (362 | ) | (772 | ) | (669 | ) | (256 | ) | (454 | ) | (373 | ) | ||||||||
Releases of provisions | (262 | ) | (16 | ) | (53 | ) | (223 | ) | (135 | ) | (184 | ) | ||||||||
Additions to provisions | 389 | 584 | 541 | 832 | 549 | 499 | ||||||||||||||
Currency translation effects | (9 | ) | 2 | 8 | (8 | ) | 2 | (16 | ) | |||||||||||
| | | | | | | | | | | ||||||||||
December 31 | 998 | 1,182 | 1,384 | 1,194 | 849 | 924 | ||||||||||||||
Less current liability | (368 | ) | (405 | ) | (691 | ) | ||||||||||||||
Less current portion | (743 | ) | (328 | ) | (461 | ) | ||||||||||||||
| | | | | | | | | | | ||||||||||
Non-current product liabilities, governmental investigations and other legal matters provisions at December 31 | 630 | 777 | 693 | 451 | 521 | 463 | ||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |
Novartis believes that its total provisions for investigations, product liability, governmental investigationsarbitration and other legal matters are adequate based upon currently available information. However, given the inherent difficulties in estimating liabilities, it cannotthere can be guaranteedno assurance that additional liabilities and costs will not be incurred beyond the amounts provided.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. Current Financial Debt and Derivative Financial Instruments
| 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | ||||||||||
Interest-bearing accounts of associates | 1,541 | 1,357 | ||||||||||||
Interest-bearing accounts of associates payable on demand | 1,645 | 1,651 | ||||||||||||
Bank and other financial debt | 1,270 | 2,053 | 1,185 | 1,272 | ||||||||||
Commercial paper | 963 | 2,156 | 1,085 | 648 | ||||||||||
Current portion of non-current financial debt | 2,009 | 778 | 1,659 | 2,989 | ||||||||||
Fair value of derivative financial instruments | 162 | 30 | 30 | 52 | ||||||||||
Total current financial debt | 5,945 | 6,374 | ||||||||||||
| | | | | | | | |||||||
Total current financial debt and derivative financial instruments | 5,604 | 6,612 | ||||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
The consolidated balance sheet valuesamounts of current financial debt, other than the current portion of non-current financial debt, approximate the estimated fair value due to the short-term nature of these instruments.
The weighted average interest rate on the bank and other current financial debt (including employee deposits from the compensation of associates employed by Swiss entities) was 2.1%2.7% in 20122015 and 1.7%2.6% in 2011.
Table of Contents2014.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued) Details on commercial papers are provided in Note 29—Liquidity risk.
22. Provisions and Other Current Liabilities
| 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | ||||||||||
Taxes other than income taxes | 561 | 578 | 551 | 549 | ||||||||||
Restructuring provisions | 221 | 349 | 260 | 333 | ||||||||||
Accrued expenses for goods and services received but not invoiced | 576 | 678 | 1,124 | 1,076 | ||||||||||
Provisions for royalties | 452 | 443 | ||||||||||||
Accruals for royalties | 550 | 561 | ||||||||||||
Provisions for revenue deductions | 4,072 | 3,742 | 3,790 | 3,533 | ||||||||||
Provisions for compensation and benefits including social security | 2,222 | 2,116 | ||||||||||||
Accruals for compensation and benefits including social security | 1,932 | 1,968 | ||||||||||||
Environmental remediation liabilities | 119 | 59 | 80 | 95 | ||||||||||
Deferred income | 71 | 70 | 385 | 329 | ||||||||||
Provision for product liabilities, governmental investigations and other legal matters | 368 | 405 | 743 | 328 | ||||||||||
Accrued share-based payments | 262 | 217 | 209 | 248 | ||||||||||
Contingent considerations | 78 | 291 | ||||||||||||
Commitment for repurchase of own shares (see Note 9) | 658 | |||||||||||||
Other payables | 1,519 | 1,422 | 1,017 | 479 | ||||||||||
| | | | | | | | |||||||
Total provisions and other current liabilities | 10,443 | 10,079 | 10,719 | 10,448 | ||||||||||
| | | | | | | | |||||||
| | | | | | |||||||||
| | | | | | | |
Provisions are based upon management's best estimate and adjusted for actual experience. Such adjustments to the historic estimates have not been material.
Provision for Deductions from Revenue
The following table shows the movement of the provision for deductions from revenue:
| 2012 | 2011 | 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
January 1 | 3,742 | 3,097 | 2,094 | |||||||
Impact of business combinations | 174 | 379 | ||||||||
Additions | 12,150 | 11,713 | 8,752 | |||||||
Payments/utilizations | (11,938 | ) | (10,749 | ) | (8,172 | ) | ||||
Changes in offset against gross trade receivables | (90 | ) | (227 | ) | 68 | |||||
Currency translation effects | 34 | (92 | ) | (24 | ) | |||||
December 31 | 4,072 | 3,742 | 3,097 | |||||||
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22. Provisions and Other Current Liabilities (Continued)
Provision for Deductions from Revenue
The following table shows the movement of the provision for deductions from revenue:
| 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
January 1 | 3,533 | 4,182 | 4,072 | |||||||
Provisions related to discontinued operations | (234 | ) | ||||||||
Impact of business combinations | 3 | |||||||||
Additions | 15,603 | 14,119 | 13,095 | |||||||
Payments/utilizations | (15,218 | ) | (13,907 | ) | (12,762 | ) | ||||
Changes in offset against gross trade receivables | 50 | (420 | ) | (224 | ) | |||||
Currency translation effects | (181 | ) | (207 | ) | 1 | |||||
| | | | | | | | | | |
December 31 | 3,790 | 3,533 | 4,182 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Restructuring Provision Movements
| $ m | |||
---|---|---|---|---|
January 1, | ||||
Additions | ||||
Cash payments | ( | ) | ||
Releases | ( | ) | ||
Transfers | (42 | ) | ||
Currency translation effects | 1 | |||
| | | | |
December 31, 2013 | 174 | |||
Provisions related to discontinued operations | (4 | ) | ||
Additions | 504 | |||
Cash payments | (295 | ) | ||
Releases | (52 | ) | ||
Currency translation effects | 6 | |||
| | | | |
December 31, 2014 | 333 | |||
Additions | 399 | |||
Cash payments | (435 | ) | ||
Releases | (36 | ) | ||
Currency translation effects | ( | ) | ||
| | | | |
December 31, | ||||
| | | | |
| | | ||
| | | ||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
In 2012,2015, additions to provisions of $281$399 million in continuing operations were incurredto a large extent related to reorganizations in the Pharmaceuticals Division marketing & sales organizationDivision. Thereby two initiatives totaling $106 million were targeted at efficiency gains in conjunction with the anticipation of patent expirations, in Alcon as a result of its continuing integrationbusiness franchises other than Oncology and in Sandoz due to theCell and Gene Therapies. The integration of the recentlyOncology business acquired company Fougera. Other Group initiativesfrom GSK resulted in restructuring expenses of $78 million. Alcon extended its initiative to further simplify the organization were mainly related to Consumer Health and Sandoz.
In 2011, additions to provisions of $346 million were incurred in the Pharmaceuticals Division in conjunction with the transfer, outsourcing, closure of selected research operations, as well as simplifying and streamlining of certain development and support functions and in Alcon in conjunction with its integration. Other initiatives mainly includes costs incurred in conjunction with the Group-wide review of its manufacturing sites, mainly in Switzerland, United Kingdom, United States, Italy and Puerto Rico.realize productivity opportunities ($45 million). Finally group
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22. Provisions and Other Current Liabilities (Continued)
wide initiatives to simplify the organizational structure ($159 million), mainly related to the manufacturing footprint and support services as well as a NIBR initiative ($11 million) resulted in an increase of the provision.
In 2014, additions to provisions of $504 million in continuing operations were mainly related to reorganizations in the Pharmaceuticals Division. In Pharmaceuticals an initiative in Development totaling $72 million was targeted at establishing an organizational model for the development activities which allows for greater focus on high priority programs in specialty medicines, more flexibility to adapt to changes in the portfolio, and which strengthens operational excellence. Activities in the Pharmaceuticals Division were also subject to a restructuring program totaling $286 million which was targeted at increasing operational leverage. Alcon has established a $56 million initiative to realize productivity opportunities.
In 2013, additions to provisions of $175 million in the Group were mainly related to reorganizations of the Pharmaceuticals research and development activities and the integration of Alcon.
The releases to income in 20122015 of $36 million in continuing operations, in 2014 of $52 million in continuing operations and 2011$5 million in discontinued operations and in 2013 of $115$47 million and $37 million, respectively,for the entire Group, were mainly due to settlement of liabilities at lower amounts than originally anticipated.
| Additions to provision | Termination costs | Third party costs(1) | Number of employees affected | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Initiative | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | | | |||||||||||||||||
Pharmaceuticals Research & Development | 151 | 139 | 12 | 1,000 | |||||||||||||||||||||
Pharmaceuticals Marketing & Sales organization | 190 | 181 | 9 | 1,850 | |||||||||||||||||||||
Alcon integration | 32 | 62 | 31 | 47 | 1 | 15 | 320 | 300 | |||||||||||||||||
Fougera integration | 18 | 15 | 3 | 140 | |||||||||||||||||||||
Various Group initiatives to simplify organizational structure—including manufacturing sites | 41 | 133 | 28 | 113 | 13 | 20 | 150 | 1,300 | |||||||||||||||||
Total | 281 | 346 | 255 | 299 | 26 | 47 | 2,460 | 2,600 | |||||||||||||||||
| Third party costs(1) | Termination costs | Additions to provision | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Restructuring initiatives | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Pharmaceuticals—Research & Development | 11 | 72 | 11 | 72 | |||||||||||||||
Pharmaceuticals—Business Franchises | 8 | 106 | 278 | 106 | 286 | ||||||||||||||
Pharmaceuticals—GSK Oncology Integration | 78 | 78 | |||||||||||||||||
Alcon initiative to increase operating leverage | 45 | 56 | 45 | 56 | |||||||||||||||
Various Group initiatives to simplify organizational structure—including manufacturing sites and support services | 31 | 1 | 128 | 89 | 159 | 90 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total | 31 | 9 | 368 | 495 | 399 | 504 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. Details to the Consolidated Cash Flow Statements
23.1) ReversalAdjustments for Non-Cash Items from Continuing Operations
| 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Taxes | 1,106 | 1,545 | 1,498 | |||||||
Depreciation, amortization and impairments on: | ||||||||||
Property, plant & equipment | 1,550 | 1,630 | 1,601 | |||||||
Intangible assets | 3,921 | 3,052 | 2,804 | |||||||
Financial assets(1) | 104 | 69 | 57 | |||||||
Income from associated companies | (266 | ) | (1,918 | ) | (599 | ) | ||||
Gains on disposal of property, plant & equipment, intangible, financial and other non-current assets, net | (869 | ) | (622 | ) | (347 | ) | ||||
Equity-settled compensation expense | 773 | 744 | 654 | |||||||
Change in provisions and other non-current liabilities | 1,642 | 1,490 | 736 | |||||||
Net financial income | 1,109 | 735 | 775 | |||||||
| | | | | | | | | | |
Total | 9,070 | 6,725 | 7,179 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
In 2015, the Group acquired property, plant and equipment of Non-Cash$85 million through finance lease contracts.
23.2) Cash Flows from Changes in Working Capital and Other Operating Items Included in Operating Cash Flow from Continuing Operations
| 2012 | 2011 | 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Taxes | 1,625 | 1,528 | 1,733 | |||||||
Depreciation, amortization and impairments on | ||||||||||
Property, plant & equipment | 1,743 | 2,141 | 1,373 | |||||||
Intangible assets | 3,177 | 3,647 | 2,046 | |||||||
Financial assets | 34 | 192 | 158 | |||||||
Income from associated companies | (552 | ) | (528 | ) | (804 | ) | ||||
Gains on disposal of property, plant & equipment, intangible, financial and other non-current assets, net | (294 | ) | (518 | ) | (429 | ) | ||||
Equity-settled compensation expense | 746 | 790 | 655 | |||||||
Change in provisions and other non-current liabilities | 539 | 1,295 | 802 | |||||||
Net financial income | 820 | 753 | 628 | |||||||
Total reversal of non-cash items | 7,838 | 9,300 | 6,162 | |||||||
| 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
(Increase) in inventories | (482 | ) | (506 | ) | (454 | ) | ||||
(Increase) in trade receivables | (513 | ) | (367 | ) | (548 | ) | ||||
Increase in trade payables | 378 | 142 | 414 | |||||||
Change in other net current assets and other operating cash flow items | (246 | ) | 106 | (190 | ) | |||||
| | | | | | | | | | |
Total | (863 | ) | (625 | ) | (778 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. Details to the Consolidated Cash Flow Statements (Continued)
23.2) Cash Flows from Changes in Working Capital and Other Operating Items included in Operating Cash Flow
| 2012 | 2011 | 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
(Increase) / decrease in inventories | (701 | ) | 45 | 965 | ||||||
Decrease / (increase) in trade receivables | 369 | (732 | ) | 26 | ||||||
Increase in trade payables | 515 | 195 | 490 | |||||||
Change in other net current assets and other operating cash flow items | (323 | ) | 379 | 281 | ||||||
Total | (140 | ) | (113 | ) | 1,762 | |||||
23.3) Cash Flow arisingArising from Acquisitions and Divestments of Businesses
The following is a summary of the cash flow impact of thoseacquisitions and divestments. The most significant transactions are described in note 2 and other smaller transactions:Note 2.
| 2015 Acquisitions | 2015 Divestments | 2014 Acquisitions | 2014 Divestments | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | |||||||||
Property, plant & equipment | 1,000 | 145 | |||||||||||
Currently marketed products | (12,970 | ) | 646 | (234 | ) | 91 | |||||||
(Acquired)/divested research & development | (730 | ) | 13 | (248 | ) | ||||||||
Technologies | 113 | ||||||||||||
Other intangible assets | (15 | ) | 86 | ||||||||||
Financial and other assets including deferred tax assets(1) | (555 | ) | 40 | (53 | ) | 7 | |||||||
Inventories | 893 | (1 | ) | 87 | |||||||||
Trade receivables and other current assets | (3 | ) | 529 | (3 | ) | 159 | |||||||
Cash and cash equivalents | (25 | ) | 311 | (2 | ) | ||||||||
Current and non-current financial debts | (601 | ) | |||||||||||
Trade payables and other liabilities including deferred tax liabilities | 212 | (841 | ) | 186 | (50 | ) | |||||||
| | | | | | | | | | | | | |
Net identifiable assets (acquired) or divested | (14,086 | ) | 2,189 | (355 | ) | 439 | |||||||
Currency translation effects | 98 | (3 | ) | ||||||||||
Acquired/(divested) liquidity | 25 | (479 | ) | 2 | |||||||||
| | | | | | | | | | | | | |
Subtotal | (14,061 | ) | 1,808 | (353 | ) | 436 | |||||||
Refinancing of intercompany financial debt, net | 578 | ||||||||||||
Goodwill(1) | (2,438 | ) | 1,042 | (131 | ) | 267 | |||||||
Divestment gain | 7,401 | 876 | |||||||||||
Taxes paid and other portfolio transformation related cash flows | (1,337 | ) | (566 | ) | |||||||||
Receivables and payables contingent consideration, net | (8 | ) | (519 | ) | 153 | ||||||||
Prepaid/deferred portion of sales price(2) | (49 | ) | 47 | ||||||||||
| | | | | | | | | | | | | |
Net cash flow | (16,507 | ) | 8,924 | (331 | ) | 1,060 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Of which: | |||||||||||||
Net cash flow from discontinued operations | 8,924 | 1,060 | |||||||||||
Net cash flow used in continuing operations | (16,507 | ) | (331 | ) |
| 2012 Acquisitions | 2011 Acquisitions | 2011 Divestments | 2010 Acquisitions | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | |||||||||
Property, plant & equipment | (126 | ) | (66 | ) | 16 | (1,419 | ) | ||||||
Currently marketed products | (521 | ) | (101 | ) | (10,561 | ) | |||||||
Marketing know-how | (5,960 | ) | |||||||||||
Alcon brand name | (2,980 | ) | |||||||||||
Acquired research & development | (173 | ) | (7 | ) | (1,418 | ) | |||||||
Technologies | (371 | ) | (3 | ) | (5,460 | ) | |||||||
Software and other intangible assets | (1 | ) | (44 | ) | |||||||||
Financial and other assets including deferred tax assets | (165 | ) | (7 | ) | (904 | ) | |||||||
Inventories | (88 | ) | (15 | ) | 8 | (1,112 | ) | ||||||
Trade accounts receivables and other current assets | (90 | ) | (52 | ) | 5 | (1,696 | ) | ||||||
Marketable securities and cash | (167 | ) | (186 | ) | 1 | (3,130 | ) | ||||||
Long-term and short-term financial debt | 4 | 384 | |||||||||||
Trade payables and other liabilities including deferred tax liabilities | 747 | 66 | (7 | ) | 6,626 | ||||||||
Net identifiable assets acquired or divested | (950 | ) | (372 | ) | 23 | (27,674 | ) | ||||||
Acquired / divested liquidity | 167 | 63 | (1 | ) | 2,176 | ||||||||
Non-controlling interest | 29 | 19 | 6,338 | ||||||||||
Fair value of previously held equity interests | 22 | 10,320 | |||||||||||
Sub-total | (732 | ) | (290 | ) | 22 | (8,840 | ) | ||||||
Goodwill | (1,026 | ) | (303 | ) | (17,986 | ) | |||||||
Deferred consideration | 17 | 2 | 160 | ||||||||||
Net cash flow | (1,741 | ) | (591 | ) | 22 | (26,666 | ) | ||||||
There were no significant acquisitions or divestments which had an impact on the cash flow statement in 2013, however $42 million were paid for contingent considerations regarding acquisitions from previous years.
Notes 2 and 24 provide further information regarding acquisitions and divestments of businesses. All acquisitions were for cash.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. Details to the Consolidated Cash Flow Statements (Continued)
Note 223.4) Cash Flow From Discontinued Operations
| 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Cash flows used in/from operating activities | (188 | ) | (1 | ) | 557 | |||||
Purchase of property, plant & equipment | (41 | ) | (223 | ) | (161 | ) | ||||
Proceeds from sales of property, plant & equipment | 1 | 4 | 12 | |||||||
Purchase of intangible assets | (18 | ) | (32 | ) | ||||||
Proceeds from sales of intangible assets | 79 | 58 | ||||||||
Purchase of financial and other non-current assets, net | (2 | ) | (13 | ) | (10 | ) | ||||
Divestments of businesses(1) | 8,924 | 1,060 | ||||||||
| | | | | | | | | | |
Cash flows from/used in investing activities | 8,882 | 889 | (133 | ) | ||||||
| | | | | | | | | | |
Total net cash flows from discontinued operations | 8,694 | 888 | 424 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
24. Acquisitions of Businesses
Assets and Liabilities Arising from Acquisitions
Fair value | 2015 | 2014 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Currently marketed products | 12,970 | 234 | |||||
Acquired research & development | 730 | 248 | |||||
Other intangible assets | 15 | ||||||
Deferred tax assets(1) | 555 | 53 | |||||
Inventories | 1 | ||||||
Trade receivables and other current assets | 3 | 3 | |||||
Cash and cash equivalents | 25 | 2 | |||||
Payables and other liabilities including deferred tax liabilities | (212 | ) | (186 | ) | |||
| | | | | | | |
Net identifiable assets acquired | 14,086 | 355 | |||||
Acquired liquidity | (25 | ) | (2 | ) | |||
Goodwill(1) | 2,438 | 131 | |||||
| | | | | | | |
Net assets recognized as a result of business combinations | 16,499 | 484 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Fair value | 2012 | 2011 | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Property, plant & equipment | 126 | 66 | |||||
Currently marketed products | 521 | 101 | |||||
Acquired research & development | 173 | 7 | |||||
Technologies | 371 | 3 | |||||
Software and other intangible assets | 1 | ||||||
Financial and other assets including deferred tax assets | 165 | 7 | |||||
Inventories | 88 | 15 | |||||
Trade accounts receivable and other current assets | 90 | 52 | |||||
Marketable securities and cash | 167 | 186 | |||||
Long-term and short-term financial debt | (4 | ) | |||||
Trade payables and other liabilities including deferred tax liabilities | (747 | ) | (66 | ) | |||
Net identifiable assets acquired | 950 | 372 | |||||
Acquired liquidity | (167 | ) | (63 | ) | |||
Non-controlling interest | (29 | ) | (19 | ) | |||
Goodwill | 1,026 | 303 | |||||
Net assets recognized as a result of business combinations | 1,780 | 593 | |||||
Note 2 details significant acquisitionsacquisition of businesses.businesses, which in 2015, were the GSK Oncology products, Spinifex and Admune. The 2012 and 2011 goodwill arising out of these acquisitions is attributable to buyer specific synergies, assembled workforce and to the acquisitions reflects mainly the value of future products andaccounting for deferred tax liabilities on the acquired assembled workforce.assets. Goodwill of $2.4 billion is tax deductible. In 2014 the significant transactions related to CoStim Pharmaceuticals and WaveTec.
There were no significant acquisitions in 2013.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
25. Post-Employment Benefits offor Associates
Apart fromIn addition to the legally required social security schemes, the Group has numerous independent pension and other post-employment benefit plans. In most cases these plans are externally funded in vehiclesentities which are legally separate from the Group. For certain Group companies, however, no independent plan assets exist for the pension and other long-termpost-employment benefit obligations of associates. In these cases the related unfunded liability is included in the balance sheet.
Defined benefit pension plans cover a significant number of the Group's associates. The defined benefit obligations and related plan assets(DBO) of all major pension and other post-employment benefit plans are reappraised annually by independent actuaries. Plan assets are recordedrecognized at fair valuevalue. The major plans are based in Switzerland, United States, United Kingdom, Germany and their actual return in 2012 was a gainJapan, which represent 95% of $1,508 million (2011: loss of $129 million)the Group's total DBO for pension plans. Details of the plans in the two most significant countries of Switzerland and the US are provided below.
Swiss-based pension plans represent the most significant portion of the Group's total DBO and plan assets. For the active insured members born on or after January 1, 1956, or having joined the plans after December 31, 2010 the benefits are partially linked to the contributions paid into the plan. Certain features of Swiss pension plans required by law preclude the plans being categorized as defined contribution plans. These factors include a minimum interest guarantee on retirement savings accounts, a pre-determined factor for converting the accumulated savings account balance into a pension and embedded death and disability benefits.
All benefits granted under Swiss pension plans are vested and Swiss legislation prescribes that the employer has to contribute a fixed percentage of an associate's pay to an external pension fund. Additional employer's contributions may be required whenever the plan's statutory funding ratio falls below a certain level. The associate also contributes to the plan. The pension plans are run by separate legal entities, each governed by a Board of Trustees which for the principal plans consists of representatives nominated by Novartis and by the active insured associates. The Boards of Trustees are responsible for the plan design and the asset investment strategy.
In June 2015 the Board of Trustees of the Novartis Swiss Pension Fund agreed to adjust the annuity conversion rate at retirement with effect from January 1, 2016. This amendment does not have an impact on existing members receiving benefits or on plan members, born before January 1, 1956. This amendment resulted in a net pre-tax curtailment gain of $110 million (CHF 103 million).
The US pension plans represent the second largest component of the Group's total DBO and plan assets. The principal plans (Qualified Plans) are funded whereas plans providing additional benefits for executives (Restoration Plans) are unfunded. Employer contributions are required for Qualified Plans whenever the statutory funding ratio falls below a certain level. Furthermore, associates in the US are covered under other post-employment benefit plans and post-retirement medical plans.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
25. Post-Employment Benefits for Associates (Continued)
The following tables are a summary of the funded and unfunded defined benefit obligation for pension and other post-employment benefit plans of unfunded pension plans was $1,282 millionassociates at December 31, 2012 (2011: $1,120 million)2015 and for unfunded other post-employment plans $862 million (2011: $870 million).2014:
| Pension plans | Other post-employment benefit plans | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | |||||||||
| $ m | $ m | $ m | $ m | |||||||||
Benefit obligation at January 1 | 24,178 | 24,801 | 1,253 | 1,069 | |||||||||
Benefit obligations related to discontinued operations | (848 | ) | (21 | ) | |||||||||
Current service cost | 451 | 418 | 32 | 35 | |||||||||
Interest cost | 399 | 654 | 46 | 49 | |||||||||
Past service costs and settlements | (138 | ) | 6 | (89 | ) | ||||||||
Administrative expenses | 23 | 21 | |||||||||||
Remeasurement (gains)/losses arising from changes in financial assumptions | (16 | ) | 2,129 | (34 | ) | 164 | |||||||
Remeasurement (gains)/losses arising from changes in demographic assumptions | (41 | ) | 229 | (30 | ) | 121 | |||||||
Experience related remeasurement losses/(gains) | 56 | (14 | ) | (110 | ) | (22 | ) | ||||||
Currency translation effects | (358 | ) | (2,156 | ) | (14 | ) | (5 | ) | |||||
Benefit payments | (1,406 | ) | (1,282 | ) | (50 | ) | (48 | ) | |||||
Contributions of associates | 223 | 210 | |||||||||||
Effect of acquisitions, divestments or transfers | 31 | 10 | 39 | ||||||||||
| | | | | | | | | | | | | |
Benefit obligation at December 31 | 23,402 | 24,178 | 1,132 | 1,253 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Fair value of plan assets at January 1 | 20,434 | 21,481 | 199 | 209 | |||||||||
Plan assets related to discontinued operations | (530 | ) | |||||||||||
Interest income | 300 | 550 | 6 | 10 | |||||||||
Return on plan assets excluding interest income | (286 | ) | 1,442 | (6 | ) | 28 | |||||||
Currency translation effects | (223 | ) | (1,917 | ) | |||||||||
Novartis Group contributions | 494 | 485 | 23 | ||||||||||
Contributions of associates | 223 | 210 | |||||||||||
Settlements | (3 | ) | (9 | ) | |||||||||
Benefit payments | (1,406 | ) | (1,282 | ) | (50 | ) | (48 | ) | |||||
Effect of acquisitions, divestments or transfers | 3 | 4 | |||||||||||
| | | | | | | | | | | | | |
Fair value of plan assets at December 31 | 19,536 | 20,434 | 172 | 199 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Funded status | (3,866 | ) | (3,744 | ) | (960 | ) | (1,054 | ) | |||||
Limitation on recognition of fund surplus at January 1 | (58 | ) | (45 | ) | |||||||||
Change in limitation on recognition of fund surplus (incl. exchange rate differences) | 12 | (9 | ) | ||||||||||
Interest income on limitation of fund surplus | (4 | ) | (4 | ) | |||||||||
| | | | | | | | | | | | | |
Limitation on recognition of fund surplus at December 31 | (50 | ) | (58 | ) | |||||||||
| | | | | | | | | | | | | |
Net liability in the balance sheet at December 31 | (3,916 | ) | (3,802 | ) | (960 | ) | (1,054 | ) | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
25. Post-Employment Benefits offor Associates (Continued)
The following table is a summaryreconciliation of the funded and unfunded pension and other post-employment benefit plans of associates atnet liability from January 1 to December 31 2012 and 2011:is as follows:
| Pension plans | Other post-employment benefit plans | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |||||||||
| $ m | $ m | $ m | $ m | |||||||||
Benefit obligation at January 1 | 21,730 | 20,568 | 1,241 | 1,247 | |||||||||
Service cost | 395 | 423 | 44 | 60 | |||||||||
Interest cost | 665 | 732 | 48 | 60 | |||||||||
Actuarial losses/(gains) | 3,080 | 822 | (14 | ) | 37 | ||||||||
Plan amendments | (6 | ) | 18 | (3 | ) | (46 | ) | ||||||
Currency translation effects | 488 | (92 | ) | 2 | (3 | ) | |||||||
Benefit payments | (1,223 | ) | (1,231 | ) | (50 | ) | (47 | ) | |||||
Contributions of associates | 189 | 187 | 3 | 3 | |||||||||
Effect of acquisitions, divestments or transfers | 185 | 303 | (70 | ) | |||||||||
Benefit obligation at December 31 | 25,503 | 21,730 | 1,271 | 1,241 | |||||||||
Fair value of plan assets at January 1 | 18,826 | 19,265 | 222 | 228 | |||||||||
Expected return on plan assets | 829 | 909 | 14 | 15 | |||||||||
Actuarial gains/(losses) | 679 | (1,038 | ) | 13 | (18 | ) | |||||||
Currency translation effects | 408 | (2 | ) | ||||||||||
Novartis Group contributions | 497 | 367 | 35 | 50 | |||||||||
Contributions of associates | 189 | 187 | 3 | 3 | |||||||||
Plan amendments | (2 | ) | (2 | ) | |||||||||
Benefit payments | (1,223 | ) | (1,231 | ) | (50 | ) | (47 | ) | |||||
Effect of acquisitions, divestments or transfers | 79 | 371 | (9 | ) | |||||||||
Fair value of plan assets at December 31 | 20,282 | 18,826 | 237 | 222 | |||||||||
Funded status | (5,221 | ) | (2,904 | ) | (1,034 | ) | (1,019 | ) | |||||
Unrecognized past service cost | 1 | 2 | (70 | ) | (79 | ) | |||||||
Limitation on recognition of fund surplus | (21 | ) | (51 | ) | |||||||||
Net liability in the balance sheet at December 31 | (5,241 | ) | (2,953 | ) | (1,104 | ) | (1,098 | ) | |||||
Amounts recognized in the consolidated balance sheet | |||||||||||||
Prepaid benefit cost | 55 | 38 | |||||||||||
Accrued benefit liability | (5,296 | ) | (2,991 | ) | (1,104 | ) | (1,098 | ) |
| Pension plans | Other post- employment benefit plans | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | |||||||||
| $ m | $ m | $ m | $ m | |||||||||
Net liability at January 1 | (3,802 | ) | (3,365 | ) | (1,054 | ) | (860 | ) | |||||
Less: Net liability related to discontinued operations | 318 | 21 | |||||||||||
Current service cost | (451 | ) | (418 | ) | (32 | ) | (35 | ) | |||||
Net interest expense | (103 | ) | (108 | ) | (40 | ) | (39 | ) | |||||
Administrative expenses | (23 | ) | (21 | ) | |||||||||
Past service costs and settlements | 135 | (15 | ) | 89 | |||||||||
Remeasurements | (285 | ) | (902 | ) | 168 | (235 | ) | ||||||
Currency translation effects | 135 | 239 | 14 | 5 | |||||||||
Novartis Group contributions | 494 | 485 | 23 | ||||||||||
Effect of acquisitions, divestments or transfers | (28 | ) | (6 | ) | (39 | ) | |||||||
Change in limitation on recognition of fund surplus | 12 | (9 | ) | ||||||||||
| | | | | | | | | | | | | |
Net liability at December 31 | (3,916 | ) | (3,802 | ) | (960 | ) | (1,054 | ) | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Amounts recognized in the consolidated balance sheet | |||||||||||||
Prepaid benefit cost | 36 | 37 | |||||||||||
Accrued benefit liability | (3,952 | ) | (3,839 | ) | (960 | ) | (1,054 | ) |
The following table shows a breakdown of the DBO for pension plans by geography and type of member and the breakdown of plan assets into the geographical locations in which they are held.
| 2015 $ m | 2014 $ m | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Switzerland | US | Rest of the World | Total | Switzerland | US | Rest of the World | Total | |||||||||||||||||
Benefit obligation at December 31 | 15,453 | 3,783 | 4,166 | 23,402 | 15,578 | 4,092 | 4,508 | 24,178 | |||||||||||||||||
Thereof unfunded | 736 | 466 | 1,202 | 820 | 484 | 1,304 | |||||||||||||||||||
By type of member | |||||||||||||||||||||||||
Active | 6,196 | 990 | 1,392 | 8,578 | 6,268 | 1,182 | 1,502 | 8,952 | |||||||||||||||||
Deferred pensioners | 909 | 1,489 | 2,398 | 947 | 1,499 | 2,446 | |||||||||||||||||||
Pensioners | 9,257 | 1,884 | 1,285 | 12,426 | 9,310 | 1,963 | 1,507 | 12,780 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at December 31 | 14,347 | 2,358 | 2,831 | 19,536 | 14,869 | 2,521 | 3,044 | 20,434 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Funded Status | (1,106 | ) | (1,425 | ) | (1,335 | ) | (3,866 | ) | (709 | ) | (1,571 | ) | (1,464 | ) | (3,744 | ) | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
25. Post-Employment Benefits offor Associates (Continued)
The net periodic benefit cost recorded in the consolidated income statement consists of the following components:
| Pension plans | Other post-employment benefit plans | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Components of net periodic benefit cost | |||||||||||||||||||
Service cost | 395 | 423 | 350 | 44 | 60 | 58 | |||||||||||||
Interest cost | 665 | 732 | 667 | 48 | 60 | 45 | |||||||||||||
Expected return on plan assets | (829 | ) | (909 | ) | (778 | ) | (14 | ) | (15 | ) | (5 | ) | |||||||
Recognized past service cost | 1 | 3 | 2 | (12 | ) | (5 | ) | (5 | ) | ||||||||||
Curtailment and settlement losses/(gains) | (4 | ) | 18 | (270 | ) | ||||||||||||||
Net periodic benefit cost/(income) | 228 | 267 | (29 | ) | 66 | 100 | 93 | ||||||||||||
The following table shows the principal actuarial weighted average actuarial assumptions used for calculating defined benefit plans and other post-employment benefits of associates:
| Pension plans | Other post-employment benefit plans | Pension plans | Other post-employment benefit plans | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||
| % | % | % | % | % | % | % | % | % | % | % | % | ||||||||||||
Weighted average assumptions used to determine benefit obligations at December 31 | ||||||||||||||||||||||||
Discount rate | 2.4% | 3.2% | 3.5% | 3.6% | 4.3% | 5.3% | 1.8% | 1.8% | 2.9% | 4.4% | 3.8% | 4.7% | ||||||||||||
Expected rate of pension increase | 0.9% | 0.9% | 0.9% | 0.4% | 0.4% | 1.1% | ||||||||||||||||||
Expected rate of salary increase | 3.3% | 3.3% | 3.5% | 2.9% | 3.2% | 3.5% | ||||||||||||||||||
Interest on savings account | 1.6% | 2.5% | 2.8% | 0.8% | 0.9% | 2.1% | ||||||||||||||||||
Current average life expectancy for a 65-year-old male/female | 21/23 years | 20/22 years | 19/22 years | 19/21 years | 20/22 years | 19/21 years | 21/24 years | 21/24 years | 21/23 years | 21/23 years | 22/24 years | 19/21 years | ||||||||||||
Weighted average expected return on assets for the period | 4.6% | 4.6% | 4.6% |
Defined benefitChanges in the above-mentioned actuarial assumptions can result in significant volatility in the accounting for the Group's pension plans in Switzerland, United States, United Kingdom, Germany and Japan represent about 95% ofthe consolidated financial statements. This can result in substantial changes in the Group's total defined benefitother comprehensive income, long-term liabilities and prepaid pension obligation. In all of these countries the defined benefit pension obligationassets.
The DBO is significantly impacted by assumptions regarding the rate that is used to discount the actuarially determined post-employment benefit liability. This rate is based on yields of high quality corporate bonds in the country of the plan. Decreasing corporate bond yields decrease the discount rate, so that the DBO increases and the funded status decreases.
In Switzerland an increase in the DBO due to lower discount rates is slightly offset by lower future benefits expected to be paid on the associate's savings account where the assumption on interest accrued changes in line with the discount rate.
The impact of decreasing interest rates on a plan's assets is more difficult to predict. A significant part of the plan assets is invested in bonds. Bond values usually rise when interest rates decrease and may therefore partially compensate for the decrease in the funded status. Furthermore, pension assets also include significant holdings of equity instruments. Share prices tend to rise when interest rates decrease and therefore often counteract the negative impact of the rising defined benefit obligation on the funded status although correlation of interest rates with equities is not as strong as with bonds, especially in the short term.
The expected rate for pension increases significantly affects the valueDBO of most plans in Switzerland, Germany and the United Kingdom. Such pension increases also decrease the funded status although there is no strong correlation between the value of the plan assets and pension/inflation increases.
Assumptions regarding life expectancy significantly impact the DBO. An increase in longevity increases the DBO. There is no offsetting impact from the plan assets as no longevity bonds or swaps are held by the pension funds. Generational mortality tables are used where this data is available.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
25. Post-Employment Benefits offor Associates (Continued)
The following table shows the sensitivity of the defined benefit pension obligation to the principal actuarial assumptions for the major plans in Switzerland, United States, United Kingdom, Germany and Japan:Japan on an aggregated basis:
| Change in year end defined benefit pension obligation | |||
---|---|---|---|---|
| $ m | |||
25 basis point increase in discount rate | ( | ) | ||
25 basis point decrease in discount rate | ||||
1 year increase in life expectancy | ||||
25 basis point increase in rate of pension increase | ||||
25 basis point decrease in rate of pension increase | ( | ) | ||
25 basis point increase of interest on savings account | ||||
25 basis point decrease of interest on savings account | ( | ) | ||
25 basis point increase in rate of salary increase | ||||
25 basis point decrease in rate of salary increase | ( | ) |
The following table shows a five-year summary reflecting the funding of defined benefit pensions and the impact of historical deviations between expected and actual return on plan assets and experience adjustments on defined benefit pension obligations.healthcare cost trend rate assumptions for other post-employment benefits are as follows:
| 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Plan assets | 20,282 | 18,826 | 19,265 | 17,611 | 16,065 | |||||||||||
Defined benefit obligations | (25,503 | ) | (21,730 | ) | (20,568 | ) | (18,009 | ) | (17,643 | ) | ||||||
Deficit | (5,221 | ) | (2,904 | ) | (1,303 | ) | (398 | ) | (1,578 | ) | ||||||
Differences between expected and actual return on plan assets | 679 | (1,038 | ) | (164 | ) | 981 | (3,006 | ) | ||||||||
Experience adjustments on defined benefit obligation | (16 | ) | 18 | 26 | 12 | (72 | ) |
Healthcare cost trend rate assumptions used | 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Healthcare cost trend rate assumed for next year | 7.5% | 7.0% | 7.0% | |||||||
Rate to which the cost trend rate is assumed to decline | 5.0% | 5.0% | 5.0% | |||||||
Year that the rate reaches the ultimate trend rate | 2022 | 2021 | 2021 |
The following table shows the weighted average plan asset allocation of funded defined benefit pension plans at December 31, 2015 and 2014:
| Pension plans | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Long-term target | 2015 | 2014 | |||||||
| % | % | % | |||||||
Equity securities | 15–40 | 34 | 35 | |||||||
Debt securities | 20–60 | 35 | 34 | |||||||
Real estate | 5–20 | 14 | 13 | |||||||
Alternative investments | 0–20 | 14 | 10 | |||||||
Cash and other investments | 0–15 | 3 | 8 | |||||||
| | | | | | | | | | |
Total | 100 | 100 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Cash, as well as most of the equity and debt securities have a quoted market price in an active market. Real estate and alternative investments, which include hedge fund and private equity investments usually do not have a quoted market price.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
25. Post-Employment Benefits offor Associates (Continued)
The following table shows the weighted average plan assetstrategic allocation of funded defined benefitassets of the different pension plans at December 31, 2012 and 2011:
| Pension plans | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Long-term target | 2012 | 2011 | |||||||
| % | % | % | |||||||
Equity securities | 15–35 | 29 | 25 | |||||||
Debt securities | 30–65 | 43 | 49 | |||||||
Real estate | 5–20 | 13 | 13 | |||||||
Alternative investments | 0–20 | 9 | 9 | |||||||
Cash and other investments | 0–15 | 6 | 4 | |||||||
Total | 100 | 100 | ||||||||
Strategic pension plan asset allocations are determined with the objective of achieving an investment return which, together with the contributions paid by the Group and its associates, is sufficient to maintain reasonable control over the various funding risks of the plans. Based upon the market and economic environments, actual asset allocations may periodicallytemporarily be permitted to deviate from policy targets. Expected return assumptions are reviewed periodically andThe asset allocation currently includes investments in shares of Novartis AG which totaled at December 31, 2015, 11 million shares with a market value of $1.0 billion (2014: 11 million shares with a market value of $1.0 billion). The weighted average duration of the defined benefit obligation is 14.1 years (2014: 14.3 years). The Group's ordinary contribution to the various pension plans are based on each plan's strategic plan asset mix. Factors considered in the estimate of the expected return on plan assets are the risk free interest rate together with risk premiums on the plan assetsrules of each pension plan. Additional contributions are made whenever this is required by statute or law; i.e. usually when statutory funding levels fall below pre-determined thresholds. The only significant plans that are foreseen to require additional funding are those in UK.
The expected future cash flows in respect of pension and other post-employment benefit plans at December 31, 20122015 were as follows:
| Pension plans | Other post-employment benefit plans | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Novartis Group contributions | |||||||
2013 (estimated) | 463 | 42 | |||||
Expected future benefit payments | |||||||
2013 | 1,323 | 55 | |||||
2014 | 1,329 | 57 | |||||
2015 | 1,347 | 60 | |||||
2016 | 1,355 | 62 | |||||
2017 | 1,365 | 64 | |||||
2018–2022 | 6,933 | 356 |
| Pension plans | Other post-employment benefit plans | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Novartis Group contributions | |||||||
2016 (estimated) | 531 | 58 | |||||
Expected future benefit payments | |||||||
2016 | 1,201 | 58 | |||||
2017 | 1,232 | 61 | |||||
2018 | 1,239 | 64 | |||||
2019 | 1,243 | 66 | |||||
2020 | 1,236 | 68 | |||||
2021-2025 | 6,113 | 361 |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
25. Post-Employment Benefits of Associates (Continued)
The healthcare cost trend rate assumptions for other post-employment benefits are as follows:
Healthcare cost trend rate assumptions used | 2012 | 2011 | 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Healthcare cost trend rate assumed for next year | 7.1% | 7.7% | 7.9% | |||||||
Rate to which the cost trend rate is assumed to decline | 5.0% | 5.0% | 5.0% | |||||||
Year that the rate reaches the ultimate trend rate | 2020 | 2020 | 2019 |
A one percentage point change in the assumed healthcare cost trend rates compared to those used for 2012 would have had the following effects:
| 1% point increase | 1% point decrease | |||||
---|---|---|---|---|---|---|---|
| $ m | $ m | |||||
Effects on total of service and interest cost components | 14 | (11 | ) | ||||
Effect on post-employment benefit obligations | 195 | (157 | ) |
The number of Novartis AG shares held by pension and similar benefit funds at December 31, 2012 was 19.8 million shares with a market value of $1.2 billion (2011: 19.8 million shares with a market value of $1.1 billion).
In many subsidiaries associates are covered by defined contribution plans and other long-term benefits.plans. Contributions charged to the 20122015 consolidated income statement for the defined contribution plans were $345$359 million (2011: $337(2014: $348 million, 2010: $2692013: $332 million). The 2015 amount excludes $1 million (2014: $14 million, 2013: $19 million) related to discontinued operations.
26. Equity-Based Participation Plans offor Associates
The expense related to all equity-based participation plans in the 20122015 consolidated income statement was $1.0$968 million (2014: $1.1 billion, (2011: $1.0 billion, 2010: $8412013 $987 million) resulting in a total carrying amount for liabilities arising from share-basedequity-based payment transactions of $262$209 million (2011: $217(2014: $277 million 2010: $200of which $248 million were recognized in continuing operations, 2013: $255 million). Out of the total expense, an amount of $903 million (2014: $1.0 billion, 2013: $892 million) was recognized in continuing operations and $65 million (2014: $124 million, 2013: $95 million) was recognized in discontinued operations.
Equity-based participation plans can be separated into the following plans.
The Equity Plan "Select" is a global equity incentive plan under which eligible associates, including Executive Committee members, may annually be awarded a grant capped at 200% of target. The equity-based long-term incentive is subject to the achievement of predetermined business and individual performance objectives at grant. No awards are granted for performance ratings below a certain threshold.
The Equity Plan "Select" allows its participants to choose the form of their equity compensation in restricted shares (or, in some jurisdictions, restricted share units (RSUs)), tradable share options, or a combination of both. The vesting period for the plan is three years except for grants prior to 2012 in Switzerland which had a two years vesting period.
In some jurisdictions, RSUs are granted rather than shares. Each RSU is equivalent in value to one Novartis share and is converted into one share at the vesting date. RSUs do not carry any voting or
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
26. Equity-Based Participation Plans offor Associates (Continued)
dividend rights, except Annual Incentive
The Annual Incentive of the CEO and other key executives is paid 50% in cash in February or March of the year following the performance period, and 50% in Novartis restricted shares or Restricted Share Units (RSUs) that are deferred and restricted for the United States where employees receive a dividend equivalent during the vesting period for the 2010 grants.three years. Each restricted share is entitled to voting rights and payment of dividends during the vesting period. Each RSU is equivalent in value to one Novartis share and is converted into one share at the vesting date. RSUs do not carry any dividend, dividend equivalent or voting rights. The executives may elect to also receive their cash incentive partially or fully in shares which will not be subject to vesting conditions. In 2015, 14 executives received 0.1 million restricted shares and RSUs.
A number of associates in certain countries and certain key executives worldwide are encouraged to invest their Annual Incentive, and in the United Kingdom also their salary, in a share savings plan. Under the share savings plan, participants may elect to receive their Annual Incentive fully or partially in Novartis shares in lieu of cash. As a reward for their participation in the share savings plan, at no additional cost to the participant, Novartis matches their investments in shares after a holding period of three or five years.
Novartis currently has three share savings plans:
Following the introduction of the new compensation programs in 2014, the CEO and the other Executive Committee members are no longer eligible to participate in the share savings plans.
Associates may only participate in one of these plans in any given year.
During 2015, a total of 4.1 million shares (2014: 4.8 million shares) were delivered to associates in lieu of their annual incentive (in the UK, also their salary).
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
26. Equity-Based Participation Plans for Associates (Continued)
The Equity Plan "Select" is a global equity incentive plan under which eligible associates, including Executive Committee members up to performance year 2013, may annually be awarded a grant subject to a three year vesting period. For certain associates the grant is subject to the achievement of predetermined business and individual performance objectives typically set at the start of the calendar year prior to the date of grant. For these associates the Select award is capped at 200% of target. No awards are granted for performance ratings below a certain threshold.
The Equity Plan "Select" currently allows its participants in Switzerland to choose the form of their equity compensation in restricted shares or restricted share units (RSUs). In all other jurisdictions, RSUs are typically granted. Until 2013, participants could also choose to receive part or the entire grant in the form of tradable share options.
Tradable share options expire on their 10th anniversary from the grant date. Each tradable share option granted to associates entitles the holder to purchase after vesting (and before the 10th anniversary from the grant date) one Novartis share at a stated exercise price that equals the closing market price of the underlying share at the grant date.
The terms and conditions of the Novartis Equity Plan "Select" outside North America are substantially equivalent to the Novartis Equity Plan "Select" for North America. Share options of the Novartis Equity Plan "Select" for North America have only been tradable since 2004.
Novartis Equity Plan "Select" outside North America
The expense recorded in the 2012 consolidated income statement relating to both shares and share options under this plan amounted to $122 million (2011: $158 million, 2010: $149 million). Participants in this plan were granted in 20122015 a total of 2.41.7 million restricted shares and RSUs at CHF 54.20 (2011: 2.284.75 (2014: 2.1 million restricted shares and RSUs at CHF 54.70)73.75).
The following table shows the assumptions on which the valuation of share options granted during the period was based:
| Novartis Equity Plan "Select" outside North America | |||
---|---|---|---|---|
| 2012 | 2011 | ||
Valuation date | January 19, 2012 | January 19, 2011 | ||
Expiration date | January 19, 2022 | January 19, 2021 | ||
Closing share price on grant date | CHF 54.20 | CHF 54.70 | ||
Exercise price | CHF 54.20 | CHF 54.70 | ||
Implied bid volatility | 14.85% | 14.90% | ||
Expected dividend yield | 4.82% | 4.82% | ||
Interest rate | 0.94% | 2.06% | ||
Market value of option at grant date | CHF 4.30 | CHF 5.06 |
The following table shows the activity associated with the share options during the period. The weighted average prices in the table below are translated from Swiss Francs into $ at historical rates forrates.
| 2015 | 2014 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Options | Weighted average exercise price | Options | Weighted average exercise price | |||||||||
| (millions) | ($) | (millions) | ($) | |||||||||
Options outstanding at January 1 | 16.1 | 59.2 | 26.4 | 57.3 | |||||||||
Sold or exercised | (4.1 | ) | 56.7 | (9.8 | ) | 54.0 | |||||||
Forfeited or expired | (0.3 | ) | 66.0 | (0.5 | ) | 62.2 | |||||||
| | | | | | | | | | | | | |
Outstanding at December 31 | 11.7 | 59.9 | 16.1 | 59.2 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Exercisable at December 31 | 7.4 | 56.4 | 7.0 | 55.0 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
All share options were granted at an exercise price which was equal to the closing market price of the Group's shares at the grant date. The weighted average exercise price during the period the options were sold or exercised in 2015 was $56.74. The weighted average share price at the dates of sale was $97.89.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
26. Equity-Based Participation Plans offor Associates (Continued)
the granted, sold, and forfeited or expired figures. The year-end prices are translated using the corresponding year-end rates.following table summarizes information about share options outstanding at December 31, 2015:
| 2012 | 2011 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Options | Weighted average exercise price | Options | Weighted average exercise price | |||||||||
| (millions) | ($) | (millions) | ($) | |||||||||
Options outstanding at January 1 | 35.5 | 53.5 | 34.7 | 52.3 | |||||||||
Granted | 5.4 | 57.6 | 5.7 | 57.0 | |||||||||
Sold | (6.3 | ) | 50.8 | (3.9 | ) | 46.4 | |||||||
Forfeited or expired | (1.4 | ) | 57.5 | (1.0 | ) | 56.6 | |||||||
Outstanding at December 31 | 33.2 | 54.5 | 35.5 | 53.5 | |||||||||
Exercisable at December 31 | 24.4 | 53.5 | 22.2 | 52.4 | |||||||||
| Options outstanding | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Range of exercise prices ($) | Number outstanding | Average remaining contractual life | Weighted average exercise price | |||||||
| (millions) | (years) | ($) | |||||||
45–49 | 0.8 | 3.0 | 46.8 | |||||||
50–54 | 1.6 | 3.1 | 54.4 | |||||||
55–59 | 4.6 | 4.1 | 57.8 | |||||||
65–70 | 4.7 | 7.0 | 66.0 | |||||||
| | | | | | | | | | |
Total | 11.7 | 5.1 | 59.9 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Novartis Equity Plan "Select" for North America
Participants in this plan were granted a total of 3.9 million RSUs at $98.75 (2014: 5.1 million RSUs at $80.79).
The following table shows the activity associated with the American Depositary Receipts (ADR) options during the period:
| 2015 | 2014 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ADR options | Weighted average exercise price | ADR options | Weighted average exercise price | |||||||||
| (millions) | ($) | (millions) | ($) | |||||||||
Options outstanding at January 1 | 44.4 | 59.6 | 58.8 | 58.9 | |||||||||
Sold or exercised | (11.8 | ) | 57.8 | (12.2 | ) | 55.5 | |||||||
Forfeited or expired | (0.7 | ) | 63.3 | (2.2 | ) | 62.6 | |||||||
| | | | | | | | | | | | | |
Outstanding at December 31 | 31.9 | 60.2 | 44.4 | 59.6 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Exercisable at December 31 | 19.2 | 56.3 | 16.3 | 54.7 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
All shareADR options were granted at an exercise price which was equal to the closing market price of the Group's shares at the grant date and for 2002 and 2003 was greater than the market price of the Group's sharesADRs at the grant date. The weighted average exercise price during the period the ADR options were sold or exercised in 20122015 was $50.79.$57.75. The weighted average shareADR price at the dates of sale or exercise was $55.56.
The following table summarizes information about share options outstanding at December 31, 2012:
| Options outstanding | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Range of exercice prices ($) | Number outstanding | Average remaining contractual life | Weighted average exercise price | |||||||
| (millions) | (years) | ($) | |||||||
45–49 | 7.1 | 4.4 | 46.9 | |||||||
50–54 | 9.0 | 6.0 | 54.4 | |||||||
55–59 | 17.1 | 6.5 | 57.8 | |||||||
Total | 33.2 | 5.9 | 54.5 | |||||||
Novartis Equity Plan "Select" for North America
The expense recorded in the 2012 consolidated income statement relating to both shares and share options under this plan amounted to $297 million (2011: $263 million, 2010: $237 million). Participants in this plan were granted a total of 5.1 million restricted shares and RSUs at $58.33 (2011: 4.1 million restricted shares and RSUs at $57.07).$100.58.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
26. Equity-Based Participation Plans of Associates (Continued)
The following table shows the assumptions on which the valuation of share options granted during the period was based:
| Novartis Equity Plan "Select" for North America | |||
---|---|---|---|---|
| 2012 | 2011 | ||
Valuation date | January 19, 2012 | January 19, 2011 | ||
Expiration date | January 19, 2022 | January 19, 2021 | ||
Closing ADS price on grant date | $58.33 | $57.07 | ||
Exercise price | $58.33 | $57.07 | ||
Implied bid volatility | 12.20% | 13.80% | ||
Expected dividend yield | 4.82% | 4.83% | ||
Interest rate | 2.09% | 3.50% | ||
Market value of option at grant date | $4.14 | $5.94 | ||
The following table shows the activity associated with the share options during the period:
| 2012 | 2011 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ADS options | Weighted average exercise price | ADS options | Weighted average exercise price | |||||||||
| (millions) | ($) | (millions) | ($) | |||||||||
Options outstanding at January 1 | 58.5 | 52.1 | 60.0 | 51.1 | |||||||||
Granted | 18.5 | 58.3 | 11.8 | 57.1 | |||||||||
Sold or exercised | (17.0 | ) | 48.3 | (10.2 | ) | 52.2 | |||||||
Forfeited or expired | (3.7 | ) | 56.1 | (3.1 | ) | 51.6 | |||||||
Outstanding at December 31 | 56.3 | 55.1 | 58.5 | 52.1 | |||||||||
Exercisable at December 31 | 19.0 | 51.9 | 19.6 | 52.6 | |||||||||
All share options were granted at an exercise price which was equal to the market price of the American Depositary Shares (ADSs) at the grant date. The weighted average exercise price during the period the share options were sold or exercised in 2012 was $48.25. The weighted average share price at the dates of sale or exercise was $58.48.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
26. Equity-Based Participation Plans offor Associates (Continued)
The following table summarizes information about ADSADR options outstanding at December 31, 2012:2015:
| ADS options outstanding | ADR options outstanding | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of exercice prices ($) | Number outstanding | Average remaining contractual life | Weighted average exercise price | |||||||||||||||||
Range of exercise prices ($) | Number outstanding | Average remaining contractual life | Weighted average exercise price | |||||||||||||||||
| (millions) | (years) | ($) | (millions) | (years) | ($) | ||||||||||||||
35–39 | 0.5 | 0.1 | 36.3 | |||||||||||||||||
45–49 | 8.7 | 4.9 | 46.6 | 2.4 | 3.0 | 46.4 | ||||||||||||||
50–54 | 13.2 | 6.5 | 53.8 | 3.1 | 3.5 | 53.8 | ||||||||||||||
55–59 | 33.9 | 7.8 | 57.9 | 12.7 | 5.0 | 58.0 | ||||||||||||||
65–69 | 13.7 | 7.0 | 66.1 | |||||||||||||||||
| | | | | | | | | | | ||||||||||
Total | 56.3 | 6.9 | 55.1 | 31.9 | 5.6 | 60.2 | ||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |
Long-Term Performance PlanPlans
The Long-Term Performance Plan (LTPP) is an equity planIn 2014, a new LTPP was introduced for the CEO and other key executives designed to fosternot only drive long-term commitment by aligning the incentives ofshareholder value, but also innovation. From 2015 onwards, this LTPP was extended to all key executives who previously participated in the now discontinued Old LTPP (OLTPP).
The rewards of the LTPP are based on three year performance objectives focused on financial and innovation measures. The financial measure is Novartis Cash Value Added (NCVA). The weighting of this measure is 75%. The NCVA target is approved by the Board of Directors.
The innovation measure is based on a holistic approach under which divisional innovation targets are set at the beginning of the cycle, comprised of up to ten target milestones that represent the most important research and development project milestones for each division. At the end of the performance period, the Research & Development Committee assists the Board of Novartis.Directors and the Compensation Committee in evaluating performance against the innovation targets at the end of the cycle. The LTPPweighting of this measure is offered to selected executives, who are in25%.
Until 2014 (2013 for the CEO and other key positions and have a significant impact onexecutives), the long-term success of Novartis. It is capped at 200% of target.OLTPP was available. The rewards are based on rolling three year global performance objectives focused on the Novartis Economic Value Added (NVA) measured annually.. The NVA is calculated based on Group operating income and income from associated companies adjusted for interest, taxes and cost of capital charge. The performance realization of a plan cycle is obtained right after the end of the third plan year by adding together the annual NVA realizations of all plan years of the plan cycle. The performance ratio for a plan cycle is obtained by dividing the performance realization for the plan cycle with the performance target for the plan cycle, expressing the result as a percentage. The LTPPOLTPP only allows a payout if the actual NVA exceeds predetermined target thresholds. The payout is capped at 200% of target.
AtUnder the LTPP and OLTPP, participants are granted a target number of Performance Share Units (PSUs) at the beginning of every performance period, plan participants are granted RSUs, which are converted into Novartis shares after the performance period. PSUs do not carry voting rights, but do carry dividend equivalents that are reinvested in additional PSUs and paid at vesting to the extent that performance conditions have been met. PSUs granted under the OLTPPs do not carry any dividend, dividend equivalent or voting rights.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
26. Equity-Based Participation Plans for Associates (Continued)
At the end of the three-year performance period, the Compensation Committee adjusts the target number of RSUsPSUs earned based on actual performance. RSUsPSUs are converted into unrestricted Novartis shares without an additional vesting period.
In the United States, awards may also be delivered2015, 0.4 million LTPP PSUs (2014: 0.3 million LTPP PSUs) based on achieving 100% of target were granted to 164 key executives. No PSUs were granted in cash2015 under the United States deferred compensation plan.OLTPP (2014: 0.2 million OLTPP PSUs).
Long-Term Relative Performance Plan (LTRPP)
The expense recordedLong-Term Relative Performance Plan, was introduced in 2014, and is an equity plan for the CEO and other key executives. The target incentive is 100% of base compensation for the CEO and ranges from 30% to 90% for other key executives. It is capped at 200% of target. LTRPP is based on the achievement of long-term Group Total Shareholder Return (TSR) versus our peer group of 12 companies in the 2012 consolidated income statement relatedhealthcare industry over rolling three-year performance periods. TSR is calculated in $ as share price growth plus dividends over the three-year performance period. The calculation will be based on Bloomberg standard published TSR data, which is publicly available. The position in the peer group determines the payout range.
The fair value of the LTRPP award was determined to this plan amounted to $34 million (2011: $40 million, 2010: $32 million). On January 19, 2012be CHF 48.58 and $56.60 as of the grant date. In 2015, a total of 0.40.1 million RSUs (2011: 0.4LTRPP PSUs (2014: 0.1 million RSUs)LTRPP PSUs) based on achieving 100% of target were granted to 139 key executives participating in this plan.12 executives.
Selected associates, excluding the Executive Committee members, may exceptionally receive special awardsSpecial Share Awards of restricted shares or RSUs. These specialSpecial Share Awards provide an opportunity to reward outstanding achievements or exceptional performance and aim at retaining key contributors. They are based on a formal internal selection process, in which the individual performance of each candidate is thoroughly assessed at several management
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
26. Equity-Based Participation Plans of Associates (Continued)
levels. Special Share Awards generally have a five-year vesting period. In exceptional circumstances, special equity grantsSpecial Share Awards may be rewarded to attract special expertise and new talents into the organization. These grants are consistent with market practice and Novartis' philosophy to attract, retain and motivate best in classbest-in-class talents around the world.
Restricted special awards generally have a five-year vesting period. Worldwide 787848 associates at different levels in the organization were awarded restricted shares in 2012. The expense recorded for such special share awards in the 2012 income statement amounted to $24 million (2011: $27 million, 2010: $33 million). During 2012, a total of 0.8 million restricted shares and RSUs (2011: 1.5in 2015 (2014: 0.8 million restricted shares and RSUs) were granted to executives and selected associates..
In addition, in 2012,2015, Board members received 0.2 million32,087 unrestricted shares with a market value of $12 million as part of their remuneration.
Leveraged Share Savings Plans
A number of associates in certain countries and certain key executives worldwide are encouraged to invest their annual incentive in a share savings plan, which is capped at 200% of target. Under the share savings plan, they will receive their annual incentive awards fully or partially in Novartis shares in lieu of cash. As a reward for their participation in the share savings plan, Novartis matches their investments in shares after a holding period of three or five years.
Novartis currently has three share savings plans:
Associates may only participate in one of these plans in any given year.
The expense recorded in the 2012 income statement related to these plans amounted to $459 million (2011: $429 million, 2010: $366 million). During 2012, a total of 5.7 million shares (2011: 5.4 million shares) were granted to participants of these plans.regular compensation.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
26. Equity-Based Participation Plans offor Associates (Continued)
Summary of non-vested share movements
The table below provides a summary of non-vested share movements (restricted shares, RSUs and ADSs)PSUs) for all plans:
| 2012 | 2011 | 2015 | 2014 | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number of shares in millions | Fair value in $ m | Number of shares in millions | Fair value in $ m | Number of shares in millions | Fair value in $ m | Number of shares in millions | Fair value in $ m | ||||||||||||||||||
Non-vested shares at January 1 | 20.8 | 1,180.1 | 17.7 | 1,015.7 | 24.2 | 1,702.5 | 23.1 | 1,370.6 | ||||||||||||||||||
Granted | 16.3 | 935.3 | 14.3 | 823.9 | 12.4 | 1,157.0 | 14.5 | 1,153.4 | ||||||||||||||||||
Vested | (12.0 | ) | (701.2 | ) | (10.0 | ) | (590.1 | ) | (14.4 | ) | (968.9 | ) | (11.5 | ) | (709.2 | ) | ||||||||||
Forfeited | (1.4 | ) | (84.5 | ) | (1.2 | ) | (69.4 | ) | (2.1 | ) | (139.6 | ) | (1.9 | ) | (112.3 | ) | ||||||||||
| | | | | | | | | | | | | | |||||||||||||
Non-vested shares at December 31 | 23.7 | 1,329.7 | 20.8 | 1,180.1 | 20.1 | 1,751.0 | 24.2 | 1,702.5 | ||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | | |
Alcon, Inc., Equity Plans grantedGranted to associates priorAssociates Prior to the mergerMerger
The expense recorded in the 2012 consolidated income statement relating to equity-based compensation awards granted to Alcon, Inc., associates prior to the merger on April 8, 2011 amounted to $55 million (2011: $98 million). There were no grants in 2012 (2011: 1.9 million converted into Novartis RSUs).
At the completion of the merger of Alcon, Inc., into Novartis on April 8, 2011, all awards outstanding under the Alcon equity plans were converted into awards based upon Novartis shares with a conversion factor of 3.0727 as defined in the Merger Agreement. There were no grants in 2015 and 2014, although certain of the unvested awards under the Alcon equity plans continued to have expense in 2014.
Share options and share settledshare-settled appreciation rights
Share options entitle the recipient to purchase Novartis shares at the closing market price of the former Alcon, Inc., share on the day of grant divided by the conversion factor.
Share-settled appreciation rights (SSAR) entitle the participant to receive, in the form of Novartis shares, the difference between the values of the former Alcon, Inc., share at the date of grant, converted into Novartis shares using the conversion factor, and the Novartis share price at the date of exercise.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
26. Equity-Based Participation Plans offor Associates (Continued)
The following table shows the activity associated with the converted Novartis share options and SSARs during 20122015 and 2011:2014:
| Number of options | Weighted average exercise price | Number of SSARs | Weighted average exercise price | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (millions) | ($) | (millions) | ($) | |||||||||
Outstanding at January 1, 2011 | 9.7 | 22.0 | 11.7 | 36.3 | |||||||||
Exercised | (5.2 | ) | 20.7 | (3.3 | ) | 41.8 | |||||||
Outstanding at December 31, 2011 | 4.5 | 23.5 | 8.4 | 34.2 | |||||||||
Exercisable at December 31, 2011 | 4.0 | 22.9 | 3.3 | 43.4 | |||||||||
Outstanding at January 1, 2012 | 4.5 | 23.5 | 8.4 | 34.2 | |||||||||
Exercised | (2.5 | ) | 20.9 | (4.6 | ) | 31.9 | |||||||
Outstanding at December 31, 2012 | 2.0 | 26.7 | 3.8 | 36.3 | |||||||||
Exercisable at December 31, 2012 | 1.9 | 26.7 | 3.8 | 36.3 | |||||||||
| Number of options | Weighted average exercise price | Number of SSARs | Weighted average exercise price | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (millions) | ($) | (millions) | ($) | |||||||||
Outstanding at January 1, 2014 | 1.2 | 27.7 | 3.1 | 36.3 | |||||||||
Exercised | (0.5 | ) | 24.4 | (0.7 | ) | 38.7 | |||||||
| | | | | | | | | | | | | |
Outstanding at December 31, 2014 | 0.7 | 30.1 | 2.4 | 35.6 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Exercisable at December 31, 2014 | 0.7 | 30.1 | 2.4 | 35.6 | |||||||||
| | | | | | | | | | | | | |
Outstanding at January 1, 2015 | 0.7 | 30.1 | 2.4 | 35.6 | |||||||||
Exercised | (0.5 | ) | 27.4 | (0.6 | ) | 32.5 | |||||||
| | | | | | | | | | | | | |
Outstanding at December 31, 2015 | 0.2 | 36.8 | 1.8 | 36.6 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Exercisable at December 31, 2015 | 0.2 | 36.8 | 1.8 | 36.6 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Restricted share units
Restricted Share Units (RSUs) entitle the recipient to receive a specified number of Novartis shares on the date of vesting. RSUs will vest and become transferable upon satisfaction of the conditions set forth in the restricted share unit award agreements, generally three years following the grant date. The compensation expense is recognized over the required service period, generally three years following the day of grant. Holders of RSUs have no voting rights and receive dividend equivalents prior to vesting.
At December 31, 2012, there were 3.4 million Novartis RSUs outstanding27. Transactions with a fair value of $218 million.
27. Related Parties
Novartis has two agreements with Genentech, Inc., USA, a subsidiary of Roche Holding AG which is indirectly included in the consolidated financial statements using equity accounting since Novartis holds 33.3% of the outstanding voting shares of Roche.
Lucentis
Novartis has licensed the exclusive rights to develop and marketLucentis outside the United States for indications related to diseases of the eye. As part of this agreement, Novartis paid Genentech/Roche an initial milestone and shared the cost for the subsequent development by making additional milestone payments upon the achievement of certain clinical development points and product approval. Novartis also pays royalties on the net sales ofLucentis products outside the United States. In 2015,Lucentis sales of $2.1 billion (2014: $2.4 billion, (2011: $2.0 billion, 2010: $1.52013: $2.4 billion) have been recognized by Novartis.
In November 2015, Genentech/Roche entered into an agreement with Novartis resulting from an opt-in right related to Novartis entering into a Licensing and Commercialization agreement with Ophthotech Corporation to commercialize pegpleranib (otherwise known asFovista and OAP030) to treat wet age-related macular degeneration (AMD) and various presentations or combinations with pegpleranib outside of the United States. Pursuant to the agreement, Novartis and Genentech/Roche will share in some development costs related to pegpleranib and if development is successful, Novartis will pay royalties on the net sales of pegpleranib outside of the United States.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
27. Transactions with Related Parties (Continued)
Xolair
In February 2004, Novartis Pharma AG, Genentech, Inc., and Tanox, Inc., finalized a three-party collaboration to govern the development and commercialization of certain anti-IgE antibodies includingXolair and TNX-901. Under this agreement, all three parties co-developedXolair. On August 2, 2007, Genentech, Inc. completed the acquisition of Tanox, Inc. and has taken over its rights and obligations. Novartis and Genentech/Roche are co-promotingXolair in the United States where Genentech/Roche records all sales. Novartis records sales outside of the United States.
Novartis marketsXolair and records all sales and related costs outside the United States as well as co-promotion costs in the United States. Genentech/Roche and Novartis share the resulting profits from sales in the United States, Europe and other countries, according to agreed profit-sharing percentages. In 2012,2015, Novartis recognized total sales ofXolair of $504$755 million (2011: $478(2014: $777 million, 2010: $3692013: $613 million) including sales to Genentech/Rochethem for the United States market.
The net expense for royalties, cost sharing and profit sharing arising out of theLucentis andXolair agreements with Genentech/Roche totaled $514$309 million in 2012 (2011: $3962015 (2014: $536 million, 2010: $3002013: $570 million).
Furthermore, Novartis has several patent license, supply and distribution agreements with Roche and several Novartis entities hold Roche bonds totaling $20 million at December 31, 2012 (2011: $20 million, 2010: $17 million).Roche.
Executive Officer and Non-Executive Director Compensation
During 2012,2015, there were 1211 Executive Committee members and Permanent Attendees ("Executive Officers"), including those who stepped down (12during the year (14 members in 20112014 also including those who stepped down, 1412 members in 20102013 also including those who stepped down).
The total compensation for members of the Executive Committee and the 12 Non-Executive Directors (11(14 in 2011, 122014, 15 in 2010)2013) using the Group's accounting policies for equity-based compensation and pension benefits was as follows:
| Executive Officers | Non-Executive Directors | Total | Executive Officers | Non-Executive Directors | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||||||||||||||||||
Short-term benefits other than equity-based amounts | 14.2 | 13.7 | 14.8 | 8.1 | 11.7 | 9.5 | 22.3 | 25.4 | 24.3 | |||||||||||||||||||||||||||||||||||||||||||||||
Benefits other than equity-based amounts | 17.1 | 18.3 | 16.0 | 4.7 | 6.2 | 8.6 | 21.8 | 24.5 | 24.6 | |||||||||||||||||||||||||||||||||||||||||||||||
Post-employment benefits | 2.1 | 1.9 | 1.3 | 0.2 | 0.2 | 0.2 | 2.3 | 2.1 | 1.5 | 1.9 | 2.1 | 1.9 | 0.1 | 1.4 | 1.9 | 2.2 | 3.3 | |||||||||||||||||||||||||||||||||||||||
Termination benefits | 2.2 | 5.1 | 7.9 | 2.2 | 5.1 | 7.9 | 4.0 | 4.0 | �� | |||||||||||||||||||||||||||||||||||||||||||||||
Equity-based compensation | 54.5 | 53.3 | 63.6 | 16.4 | 28.2 | 8.2 | 70.9 | 81.5 | 71.8 | 52.9 | 81.7 | 46.5 | 4.4 | 4.9 | 5.7 | 57.3 | 86.6 | 52.2 | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
Total | 73.0 | 74.0 | 87.6 | 24.7 | 40.1 | 17.9 | 97.7 | 114.1 | 105.5 | 71.9 | 102.1 | 68.4 | 9.1 | 11.2 | 15.7 | 81.0 | 113.3 | 84.1 | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
During 2015, there was a decrease in the IFRS compensation expense for Executive Committee members compared to 2015, mainly due to the decrease in number of Executive Committee members.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
27. Transactions with Related Parties (Continued)
During 2014, there was an increase in the IFRS expense, compared to 2013, for equity-based compensation for Executive Committee members principally due to the following factors:
The annual incentive award, which is fully included in equity-based compensation even when paid out in cash, is granted in January in the year following the reporting period.
Transactions with Former Members of the Board of Directors
During 2015 and 2014, no payments (or waivers of claims) were made to former Board members or to "persons closely" linked to them, except for the following amounts:
Prof. Dr. William R. Brody and Prof. Dr. Rolf M. Zinkernagel, who stepped down from the Board of Directors at the 2014 AGM, received delegated Board membership fees for their work on the Boards of the Novartis Institute for Tropical Diseases (Prof. Dr. Zinkernagel) and the Genomics Institute of the Novartis Research Foundation (Prof. Dr. Brody and Prof. Dr. Zinkernagel). During 2015, an amount of CHF 100,000 and CHF 200,000 was paid to Prof. Dr. Brody and Prof. Dr. Zinkernagel, respectively, for their work on these Boards. Their mandate on the Board of the Genomics Institute of the Novartis Research Foundation ended as of November 19, 2015.
Dr. Alex Krauer, Honorary Chairman, is entitled to an amount of CHF 60,000 for annual periods from one AGM to the next. This amount was fixed in 1998 upon his departure from the Board in 1999, and has not been revised since that date. An amount of CHF 60,000 was paid to Dr. Krauer during 2015. Due to a change in the timing of payments, an amount of CHF 45,000 was paid to Dr. Krauer, during 2014.
In 2015, Dr. Daniel Vasella, Honorary Chairman, received the contractual minimum compensation of $250,000 (2014: $363,552) under an agreement which became effective on November 1, 2013 and will last until the end of 2016. Under this agreement, Dr. Vasella is compensated at a rate of $25,000 per day, with an annual guaranteed minimum fee of $250,000. This amount is in line with compensation practices at other large companies when retired Chairmen or CEOs were retained in consulting agreements after leaving the board of directors.
In 2014, Dr. Vasella acquired an asset from a consolidated entity at fair value and exercised an option to acquire, at a future date, real estate in Risch, Zug, Switzerland. The real estate transaction closed in 2015 and Dr. Vasella acquired the Group assets from a consolidated entity for an arm's length transaction price determined on the basis of two independent external assessments.
In 2013, Dr. Vasella received a total amount of CHF 5.1 million from the date of the AGM, when he stepped down as Chairman and Board member, to December 31, 2013.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
27. Transactions with Related Parties (Continued)
Transactions with a Future Executive Officer
As announced on September 24, 2015, Dr. James E. Bradner will succeed Dr. Mark Fishman as President of the Novartis Institutes for BioMedical Research (NIBR) and member of the ECN with effect from March 1, 2016. In 2015, a subsidiary acquired Dr. Bradner's 10 million shares (7% interest) in a non-material entity for $10 million. The arm's length transaction price was determined based on the most recent round of financing of this entity.
The above table excludes amounts for any grantsdisclosures related to Dr. Vasella and Dr. Bradner are made to any of the current Executive Officers and non-Executive Directors by Alcon, Inc., prior to its merger into Novartis AG on April 8, 2011, since these were granted by this company's independent Compensation Committee.
During 2012, a non-executive director has exercised an option and acquired Group assets at fair market values, based on independent external valuation reports, of CHF 11.6 million (approximately $12.0 million).voluntary basis.
28. Commitments and Contingencies
The Group has entered into various fixed term operational leases, mainly for cars and real estate. As of December 31, 20122015 the Group's commitments with respect to these leases, including estimated payment dates, were as follows:
| 2012 | 2015 | ||||||
---|---|---|---|---|---|---|---|---|
| $ m | $ m | ||||||
2013 | 372 | |||||||
2014 | 283 | |||||||
2015 | 184 | |||||||
2016 | 169 | 273 | ||||||
2017 | 124 | 202 | ||||||
2018 | 133 | |||||||
2019 | 103 | |||||||
2020 | 104 | |||||||
Thereafter | 2,013 | 2,181 | ||||||
| | | | | ||||
Total | 3,145 | 2,996 | ||||||
| | | | | ||||
| | | | |||||
| | | | | ||||
Expense of current year | 394 | 313 | ||||||
| | | | | ||||
| | | | |||||
| | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
28. Commitments and Contingencies (Continued)
Research & Development Commitments
The Group has entered into long-term research agreements with various institutions which provide for potential milestone payments and other payments by Novartis that may be capitalized. As of
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
28. Commitments and Contingencies (Continued)
December 31, 20122015 the Group's commitments to make payments under those agreements, and their estimated timing, were as follows:
| Unconditional commitments 2012 | Potential milestone payments 2012 | Total 2012 | Unconditional commitments | Potential milestone payments | Total 2015 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||
2013 | 48 | 456 | 504 | |||||||||||||||||
2014 | 41 | 312 | 353 | |||||||||||||||||
2015 | 38 | 214 | 252 | |||||||||||||||||
2016 | 33 | 329 | 362 | 88 | 601 | 689 | ||||||||||||||
2017 | 26 | 437 | 463 | 61 | 343 | 404 | ||||||||||||||
2018 | 86 | 438 | 524 | |||||||||||||||||
2019 | 65 | 152 | 217 | |||||||||||||||||
2020 | 200 | 474 | 674 | |||||||||||||||||
Thereafter | 33 | 266 | 299 | 150 | 397 | 547 | ||||||||||||||
| | | | | | | | | | | ||||||||||
Total | 219 | 2,014 | 2,233 | 650 | 2,405 | 3,055 | ||||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |
The Novartis Group entered into various purchase commitments for services and materials as well as for equipment in the ordinary course of business. These commitments are generally entered into at current market prices and reflect normal business operations.
Group companies have to observe the laws, government orders and regulations of the country in which they operate.
The Group's potential environmental remediation liability is assessed based on a risk assessment and investigation of the various sites identified by the Group as at risk for environmental remediation exposure. The Group's future remediation expenses are affected by a number of uncertainties. These uncertainties include, but are not limited to, the method and extent of remediation, the percentage of material attributable to the Group at the remediation sites relative to that attributable to other parties, and the financial capabilities of the other potentially responsible parties.
A number of Group companies are currently involved in administrative proceedings, litigations and investigations arising out of the normal conduct of their business. These litigations include certainproduct liabilities, governmental investigations and other legal and product liability claims. Whilstmatters. While provisions have been made for probable losses, thatwhich management deems to be reasonable or appropriate, there are uncertainties connected with these estimates.
Note 20 contains a more extensive discussion of these matters.
A number of Group companies are involved in legal proceedings concerning intellectual property rights. The inherent unpredictability of such proceedings means that there can be no assurances as to their ultimate outcome. A negative result in any such proceeding could potentially adversely affect the ability of certain Novartis companies to sell their products or require the payment of substantial damages or royalties.
In the opinion of management, however, the outcome of these actions will not materially affect the Group's financial position but could be material to the results of operations or cash flow in a given period.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures
Balance Sheet Disclosures | Note | 2012(1) | 2011(1) | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Note | 2015(1) | 2014(1) | |||||||||||||||||
| | $ m | $ m | | $ m | $ m | ||||||||||||||
Cash and cash equivalents | 16 | 5,552 | 3,709 | 16 | 4,674 | 13,023 | ||||||||||||||
Financial assets—measured at fair value through other comprehensive income | ||||||||||||||||||||
Available-for-sale marketable securities | ||||||||||||||||||||
Debt securities | 16 | 1,084 | 1,131 | 16 | 339 | 327 | ||||||||||||||
Equity securities | 16 | 68 | 73 | 16 | 6 | 15 | ||||||||||||||
Fund investments | 16 | 23 | 32 | 16 | 33 | 35 | ||||||||||||||
| | | | | | | | | | |||||||||||
Total available-for-sale marketable securities | 1,175 | 1,236 | 378 | 377 | ||||||||||||||||
| | | | | | | | | | |||||||||||
Available-for-sale long-term financial investments | ||||||||||||||||||||
Equity securities | 13 | 661 | 592 | 13 | 1,173 | 937 | ||||||||||||||
Fund investments | 13 | 13 | 12 | 13 | 90 | 71 | ||||||||||||||
Contingent consideration receivables | 13 | 550 | ||||||||||||||||||
| | | | | | | | | | |||||||||||
Total available-for-sale long-term financial investments | 674 | 604 | 1,813 | 1,008 | ||||||||||||||||
| | | | | | | | | | |||||||||||
Total financial assets—measured at fair value through other comprehensive income | 1,849 | 1,840 | 2,191 | 1,385 | ||||||||||||||||
Financial assets—measured at amortized cost | ||||||||||||||||||||
| | | | | | | | | | |||||||||||
Financial assets—measured at amortized costs | ||||||||||||||||||||
Trade receivables and other current assets (excluding pre-payments) | 15/17 | 12,533 | 12,373 | 15/17 | 10,551 | 10,255 | ||||||||||||||
Accrued interest on debt securities and time deposits | 16 | 12 | 12 | 16 | 2 | 3 | ||||||||||||||
Time deposits with original maturity more than 90 days | 16 | 1,240 | 16 | 164 | 6 | |||||||||||||||
Long-term loans and receivables, advances, security deposits | 13 | 443 | 334 | |||||||||||||||||
Total financial assets—measured at amortized cost | 14,228 | 12,719 | ||||||||||||||||||
Long-term loans and receivables from customers and finance lease, advances, security deposits | 13 | 653 | 712 | |||||||||||||||||
| | | | | | | | | | |||||||||||
Total financial assets—measured at amortized costs | 11,370 | 10,976 | ||||||||||||||||||
| | | | | | | | | | |||||||||||
Financial assets—measured at fair value through the consolidated income statement | ||||||||||||||||||||
Associated companies at fair value through profit and loss | 181 | 234 | ||||||||||||||||||
Derivative financial instruments | 16 | 140 | 118 | 16 | 143 | 356 | ||||||||||||||
| | | | | | | | | | |||||||||||
Total financial assets—measured at fair value through the consolidated income statement | 140 | 118 | 324 | 590 | ||||||||||||||||
| | | | | | | | | | |||||||||||
Total financial assets | 21,769 | 18,386 | 18,559 | 25,974 | ||||||||||||||||
Financial liabilities—measured at amortized cost | ||||||||||||||||||||
| | | | | | | | | | |||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | | |||||||||||
Financial liabilities—measured at amortized costs | ||||||||||||||||||||
Current financial debt | ||||||||||||||||||||
Interest bearing accounts of associates | 21 | 1,541 | 1,357 | |||||||||||||||||
Interest bearing accounts of associates payable on demand | 21 | 1,645 | 1,651 | |||||||||||||||||
Bank and other financial debt | 21 | 1,270 | 2,053 | 21 | 1,185 | 1,272 | ||||||||||||||
Commercial paper | 21 | 963 | 2,156 | 21 | 1,085 | 648 | ||||||||||||||
Currrent portion of non-current debt | 21 | 2,009 | 778 | |||||||||||||||||
Current portion of non-current debt | 21 | 1,659 | 2,989 | |||||||||||||||||
| | | | | | | | | | |||||||||||
Total current financial debt | 5,783 | 6,344 | 5,574 | 6,560 | ||||||||||||||||
| | | | | | | | | | |||||||||||
Non-current financial debt | ||||||||||||||||||||
Straight bonds | 19 | 14,783 | 13,483 | 19 | 17,193 | 15,982 | ||||||||||||||
Liabilities to banks and other financial institutions | 19 | 1,004 | 1,146 | 19 | 706 | 803 | ||||||||||||||
Finance lease obligations | 19 | 3 | 4 | 19 | 87 | 3 | ||||||||||||||
Current portion on non-current debt | 19 | (2,009 | ) | (778 | ) | |||||||||||||||
Current portion of non-current debt | 19 | (1,659 | ) | (2,989 | ) | |||||||||||||||
| | | | | | | | | | |||||||||||
Total non-current financial debt | 13,781 | 13,855 | 16,327 | 13,799 | ||||||||||||||||
Trade payables | 5,593 | 4,989 | ||||||||||||||||||
Total financial liabilites—measured at amortized cost | 25,157 | 25,188 | ||||||||||||||||||
| | | | | | | | | | |||||||||||
Trade payables and commitment for repurchase of own shares (see Note 22) | 5,668 | 6,077 | ||||||||||||||||||
| | | | | | | | | | |||||||||||
Total financial liabilites—measured at amortized costs | 27,569 | 26,436 | ||||||||||||||||||
| | | | | | | | | | |||||||||||
Financial liabilities—measured at fair value through the consolidated income statement | ||||||||||||||||||||
Contingent consideration | 20 | 573 | 482 | |||||||||||||||||
Contingent consideration (see Note 20/22) and other financial liabilities | 1,105 | 756 | ||||||||||||||||||
Derivative financial instruments | 21 | 162 | 30 | 21 | 30 | 52 | ||||||||||||||
| | | | | | | | | | |||||||||||
Total financial liabilities—measured at fair value through the consolidated income statement | 735 | 512 | 1,135 | 808 | ||||||||||||||||
| | | | | | | | | | |||||||||||
Total financial liabilities | 25,892 | 25,700 | 28,704 | 27,244 | ||||||||||||||||
| | | | | | | | | | |||||||||||
| | | | | | | | |||||||||||||
| | | | | | | | | |
Derivative Financial Instruments
The following tables show the contract or underlying principal amounts and fair values of derivative financial instruments analyzed by type of contract at December 31, 2015 and 2014. Contract or underlying principal amounts indicate the volume of business outstanding at the consolidated balance sheet date and
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
do not represent amounts at risk. The fair values are determined by reference to market prices or standard pricing models that use observable market inputs at December 31, 2015 and 2014.
| Contract or underlying principal amount | Positive fair values | Negative fair values | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Currency related instruments | |||||||||||||||||||
Forward foreign exchange rate contracts | 8,795 | 10,072 | 142 | 283 | (30 | ) | (52 | ) | |||||||||||
Over-the-Counter currency options | 459 | 1,715 | 1 | 73 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total of currency related instruments | 9,254 | 11,787 | 143 | 356 | (30 | ) | (52 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Total derivative financial instruments included in marketable securities and in current financial debts | 9,254 | 11,787 | 143 | 356 | (30 | ) | (52 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
The following table shows by currency contract or underlying principal amount the derivative financial instruments at December 31, 2015 and 2014:
December 31, 2015 | EUR | $ | JPY | Other | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Currency related instruments | ||||||||||||||||
Forward foreign exchange rate contracts | 2,828 | 4,713 | 42 | 1,212 | 8,795 | |||||||||||
Over-the-Counter currency options | 459 | 459 | ||||||||||||||
| | | | | | | | | | | | | | | | |
Total of currency related instruments | 3,287 | 4,713 | 42 | 1,212 | 9,254 | |||||||||||
| | | | | | | | | | | | | | | | |
Total derivative financial instruments | 3,287 | 4,713 | 42 | 1,212 | 9,254 | |||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
December 31, 2014 | EUR | $ | JPY | Other | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Currency related instruments | ||||||||||||||||
Forward foreign exchange rate contracts | 3,681 | 3,159 | 38 | 3,194 | 10,072 | |||||||||||
Over-the-Counter currency options | 1,215 | 500 | 1,715 | |||||||||||||
| | | | | | | | | | | | | | | | |
Total of currency related instruments | 4,896 | 3,659 | 38 | 3,194 | 11,787 | |||||||||||
| | | | | | | | | | | | | | | | |
Total derivative financial instruments | 4,896 | 3,659 | 38 | 3,194 | 11,787 | |||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Derivative financial instruments effective for hedge accounting purposes
At the end of 2015 and 2014, there were no open hedging instruments for anticipated transactions.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
Derivative Financial Instruments
The following tables show the contract or underlying principal amounts and fair values of derivative financial instruments analyzed by type of contract at December 31, 2012 and 2011. Contract or underlying principal amounts indicate the volume of business outstanding at the consolidated balance sheet date and do not represent amounts at risk. The fair values are determined by reference to market prices or standard pricing models that used observable market inputs at December 31, 2012 and 2011.
| Contract or underlying principal amount | Positive fair values | Negative fair values | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | |||||||||||||
Currency related instruments | |||||||||||||||||||
Forward foreign exchange rate contracts | 10,517 | 6,456 | 120 | 105 | (160 | ) | (12 | ) | |||||||||||
Over-the-Counter currency options | 2,644 | 2,102 | 20 | 13 | (1 | ) | (18 | ) | |||||||||||
Total of currency related instruments | 13,161 | 8,558 | 140 | 118 | (161 | ) | (30 | ) | |||||||||||
Interest rate related instruments | |||||||||||||||||||
Interest rate swaps | 33 | (1 | ) | ||||||||||||||||
Total of interest rate related instruments | 33 | (1 | ) | ||||||||||||||||
Total derivative financial instruments included in marketable securities and in current financial debt | 13,194 | 8,558 | 140 | 118 | (162 | ) | (30 | ) | |||||||||||
The following table shows by currency contract or underlying principal amount the derivative financial instruments at December 31, 2012 and 2011:
December 31, 2012 | EUR | $ | JPY | Other | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Forward foreign exchange rate contracts | 3,760 | 3,169 | 704 | 2,884 | 10,517 | |||||||||||
Over-the-Counter currency options | 2,125 | 519 | 2,644 | |||||||||||||
Total of currency related instruments | 3,760 | 5,294 | 704 | 3,403 | 13,161 | |||||||||||
Interest rate related instruments | ||||||||||||||||
Interest rate swaps | 33 | 33 | ||||||||||||||
Total of interest rate related instruments | 33 | 33 | ||||||||||||||
Total derivative financial instruments | 3,760 | 5,294 | 704 | 3,436 | 13,194 | |||||||||||
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
December 31, 2011 | EUR | $ | JPY | Other | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Currency related instruments | ||||||||||||||||
Forward foreign exchange rate contracts | 3,706 | 1,746 | 255 | 749 | 6,456 | |||||||||||
Over-the-Counter currency options | 2,000 | 102 | 2,102 | |||||||||||||
Total of currency related instruments | 3,706 | 3,746 | 255 | 851 | 8,558 | |||||||||||
Total derivative financial instruments | 3,706 | 3,746 | 255 | 851 | 8,558 | |||||||||||
Derivative financial instruments effective for hedge accounting purposes
At the end of 2012 and 2011, there were no open hedging instruments for anticipated transactions.
Fair value by hierarchy
As required by IFRS, financial assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. There are three hierarchical levels, based on an increasing amount of subjectivity associated with the inputs to derive fair valuation for these assets and liabilities, which are as follows:
The types of assets carried at Level 1 fair value are equity and debt securities listed in active markets.
The assets generally included in Level 2 fair value hierarchy are foreign exchange and interest rate derivatives and certain debt securities. Foreign exchange derivatives and interest rate derivatives are valued using corroborated market data. The liabilities generally included in this fair value hierarchy consist of foreign exchange and interest rate derivatives.
Level 3 inputs are unobservable for the asset or liability. The assets generally included in thisLevel 3 fair value hierarchy are various investments in hedge funds and unquoted equity security investments of the
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
Novartis Venture Funds investment activities. There were no liabilitiesinvestments. Contingent consideration carried at fair value is included in this category.
2012 | Level 1 | Level 2 | Level 3 | Valued at amortized cost | Total | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2015 | Level 1 | Level 2 | Level 3 | Valued at amortized cost | Total | |||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||
Available-for-sale marketable securities | ||||||||||||||||||||||||||||||||
Financial assets | ||||||||||||||||||||||||||||||||
Debt securities | 1,056 | 28 | 1,084 | 316 | 23 | 339 | ||||||||||||||||||||||||||
Equity securities | 45 | 23 | 68 | 6 | 6 | |||||||||||||||||||||||||||
Fund investments | 23 | 23 | 29 | 4 | 33 | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||
Total available-for-sale marketable securities | 1,101 | 28 | 46 | 1,175 | 351 | 23 | 4 | 378 | ||||||||||||||||||||||||
Time deposits with original maturity more than 90 days | 1,240 | 1,240 | 164 | 164 | ||||||||||||||||||||||||||||
Derivative financial instruments | 140 | 140 | 143 | 143 | ||||||||||||||||||||||||||||
Accrued interest on debt securities | 12 | 12 | 2 | 2 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Total marketable securities, time deposits and derivative financial instruments | 1,101 | 168 | 46 | 1,252 | 2,567 | 351 | 166 | 4 | 166 | 687 | ||||||||||||||||||||||
Financial investments and long-term loans | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Available-for-sale financial investments | 302 | 359 | 661 | 700 | 473 | 1,173 | ||||||||||||||||||||||||||
Fund investments | 13 | 13 | 90 | 90 | ||||||||||||||||||||||||||||
Long-term loans and receivables, advances, security deposits | 443 | 443 | ||||||||||||||||||||||||||||||
Total financial investments and long-term loans | 302 | 372 | 443 | 1,117 | ||||||||||||||||||||||||||||
Contingent consideration receivables | 550 | 550 | ||||||||||||||||||||||||||||||
Long-term loans and receivables from customers and finance lease, advances, security deposits | 653 | 653 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||
Financial investments and long-term loans | 700 | 1,113 | 653 | 2,466 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||
Associated companies at fair value through profit and loss | 181 | 181 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||||
Financial liabilities | ||||||||||||||||||||||||||||||||
Contingent consideration payables | (790 | ) | (790 | ) | ||||||||||||||||||||||||||||
Other financial liabilities | (315 | ) | (315 | ) | ||||||||||||||||||||||||||||
Derivative financial instruments | (162 | ) | (162 | ) | (30 | ) | (30 | ) | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||||||
Total financial liabilities at fair value | (162 | ) | (162 | ) | (30 | ) | (1,105 | ) | (1,135 | ) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
2011 | Level 1 | Level 2 | Level 3 | Valued at amortized cost | Total | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2014 | Level 1 | Level 2 | Level 3 | Valued at amortized cost | Total | |||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||
Available-for-sale marketable securities | ||||||||||||||||||||||||||||||||
Financial assets | ||||||||||||||||||||||||||||||||
Debt securities | 1,103 | 28 | 1,131 | 301 | 26 | 327 | ||||||||||||||||||||||||||
Equity securities | 53 | 20 | 73 | 15 | 15 | |||||||||||||||||||||||||||
Fund investments | 32 | 32 | 29 | 6 | 35 | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||
Total available-for-sale marketable securities | 1,156 | 28 | 52 | 1,236 | 345 | 26 | 6 | 377 | ||||||||||||||||||||||||
Time deposits with original maturity more than 90 days | 6 | 6 | ||||||||||||||||||||||||||||||
Derivative financial instruments | 118 | 118 | 356 | 356 | ||||||||||||||||||||||||||||
Accrued interest on debt securities | 12 | 12 | 3 | 3 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Total marketable securities, time deposits and derivative financial instruments | 1,156 | 146 | 52 | 12 | 1,366 | 345 | 382 | 6 | 9 | 742 | ||||||||||||||||||||||
Financial investments and long-term loans | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Available-for-sale financial investments | 261 | 331 | 592 | 605 | 332 | 937 | ||||||||||||||||||||||||||
Fund investments | 12 | 12 | 71 | 71 | ||||||||||||||||||||||||||||
Long-term loans and receivables, advances, security deposits | 334 | 334 | ||||||||||||||||||||||||||||||
Total financial investments and long-term loans | 261 | 343 | 334 | 938 | ||||||||||||||||||||||||||||
Long-term loans and receivables from customers and finance lease, advances, security deposits | 712 | 712 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||||
Financial investments and long-term loans | 605 | 403 | 712 | 1,720 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||||
Associated companies at fair value through profit and loss | 66 | 168 | 234 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||||||
Financial liabilities | ||||||||||||||||||||||||||||||||
Contingent consideration payables | (756 | ) | (756 | ) | ||||||||||||||||||||||||||||
Derivative financial instruments | (30 | ) | (30 | ) | (52 | ) | (52 | ) | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||||||
Total financial liabilities at fair value | (30 | ) | (30 | ) | (52 | ) | (756 | ) | (808 | ) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | |
The analysis above includes all financial instruments including those measured at amortized cost or at cost.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
The change in carrying values associated with levelLevel 3 financial instruments using significant unobservable inputs during the year ended December 31 are set forth below:
2012 | Equity securities | Fund investments | Available- for-sale financial investments | Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | |||||||||
January 1 | 20 | 44 | 331 | 395 | |||||||||
Gains recognized in the consolidated income statement | 101 | 101 | |||||||||||
Impairments and amortizations | (1 | ) | (29 | ) | (30 | ) | |||||||
Gains/(losses) recognized in the consolidated statement of comprehensive income | 2 | 2 | (13 | ) | (9 | ) | |||||||
Purchases | 1 | 99 | 100 | ||||||||||
Proceeds from sales | (10 | ) | (150 | ) | (160 | ) | |||||||
Reclassification | 17 | 17 | |||||||||||
Currency translation effects | 1 | 3 | 4 | ||||||||||
December 31 | 23 | 36 | 359 | 418 | |||||||||
Total of gains and impairments, net recognized in the consolidated income statement for assets held at December 31, 2012 | (1 | ) | 72 | 71 |
2011 | Equity securities | Fund investments | Available- for-sale financial investments | Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | |||||||||
January 1 | 20 | 67 | 348 | �� | 435 | ||||||||
Gains recognized in the consolidated income statement | 1 | 23 | 24 | ||||||||||
Impairments and amortizations | (3 | ) | (24 | ) | (27 | ) | |||||||
Gains/(losses) recognized in the consolidated statement of comprehensive income | 1 | 2 | (7 | ) | (4 | ) | |||||||
Purchases | 74 | 74 | |||||||||||
Redemptions | (24 | ) | (24 | ) | |||||||||
Proceeds from sales | (1 | ) | (82 | ) | (83 | ) | |||||||
Currency translation effects | 1 | (1 | ) | ||||||||||
December 31 | 20 | 44 | 331 | 395 | |||||||||
Total of gains and impairments, net recognized in the consolidated income statement for assets held at December 31, 2011 | (2 | ) | (1 | ) | (3 | ) |
2015 | Associated Companies at fair value through profit and loss | Fund investments | Available- for-sale financial investments | Contingent Consideration Receivables and other current financial assets | Contingent consideration payables and other financial liabilities | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
January 1 | 168 | 77 | 332 | 756 | ||||||||||||
Impact of business combinations | 75 | |||||||||||||||
Fair value gains and other adjustments, including from divestments recognized in the consolidated income statement | 9 | 7 | 41 | 1,000 | ||||||||||||
Fair value losses (including impairments and amortizations) and other adjustments recognized in the consolidated income statement | (25 | ) | (1 | ) | (35 | ) | (75 | ) | 644 | |||||||
Gains recognized in the consolidated statement of comprehensive income | 17 | 22 | ||||||||||||||
Purchases | 62 | 24 | 142 | 255 | ||||||||||||
Cash receipts and payments | (450 | ) | (550 | ) | ||||||||||||
Proceeds from sales | (15 | ) | (56 | ) | ||||||||||||
At equity investments reclassified due to loss of significant influence | 18 | |||||||||||||||
Reclassification | (33 | ) | (15 | ) | 9 | |||||||||||
Currency translation effects | ||||||||||||||||
| | | | | | | | | | | | | | | | |
December 31 | 181 | 94 | 473 | 550 | 1,105 | |||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total of fair value gains and losses recognized in the consolidated income statement for assets and liabilities held at December 31, 2015 | (16 | ) | 6 | 6 | 925 | 644 |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
Gains
2014 | Associated Companies at fair value through profit and loss | Equity securities | Fund investments | Available- for-sale financial investments | Contingent consideration payables | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
January 1 | 0 | 26 | 63 | 366 | 572 | |||||||||||
Fair value gains recognized in the consolidated income statement | 12 | 2 | 17 | 51 | ||||||||||||
Fair value losses (including impairments and amortizations) recognized in the consolidated income statement | (24 | ) | (51 | ) | (20 | ) | ||||||||||
Gains recognized in the consolidated statement of comprehensive income | 3 | 3 | 7 | |||||||||||||
Purchases | 27 | 7 | 140 | 153 | ||||||||||||
Proceeds from sales | (26 | ) | (9 | ) | (23 | ) | ||||||||||
Reclassification | 179 | (29 | ) | 16 | (114 | ) | ||||||||||
Currency translation effects | (5 | ) | (10 | ) | ||||||||||||
| | | | | | | | | | | | | | | | |
December 31 | 168 | 0 | 77 | 332 | 756 | |||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total of fair value gains and losses recognized in the consolidated income statement for assets and liabilities held at December 31, 2014 | (12 | ) | 2 | (34 | ) | 31 |
No significant transfers from one level to the other occurred during the reporting period. Realized gains and losses associated with levelLevel 3 available-for-sale marketable securities are recorded in the consolidated income statement under "Other financial income and expense" and gains and losses associated with levelLevel 3 available-for-sale financial investments are recorded in the consolidated income statement under "Other expense"income" or "Other income"expense", respectively.
If the pricing parameters for the levelLevel 3 input were to change for associated companies at fair value through profit and loss, equity securities, and fund investments by 5% and for available-for-sale financial investments by 10% positively or negatively, respectively, this would change the amounts recorded in the consolidated statement of comprehensive income by $3 million$75 million.
For the determination of the fair value of a contingent consideration various unobservable inputs are used. A change in these inputs might result in a significantly higher or $36 million, respectively (2011: $3lower fair value measurement. The significance and usage of these inputs may vary amongst the existing contingent considerations due to differences in the triggering events for payments or in the nature of the asset the contingent consideration relates to. Amongst others, the inputs used are the probability of success, sales forecast and assumptions regarding the discount rate, timing and different scenarios of triggering events. The inputs are interrelated. If the most significant parameters for the Level 3 input were to change by 10% positively or negatively, or where the probability of success (POS) is the most significant input parameter 10% were to be added or deducted from the applied POS for contingent consideration payables and other financial liabilities and contingent consideration receivables and other current financial assets, this would change
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
the amounts recorded in the consolidated income statement by $201 million and $33 million).$196 million, respectively.
Nature and extentExtent of risks arising from financial instrumentsRisks Arising From Financial Instruments
Market Risk
Novartis is exposed to market risk, primarily related to foreign currency exchange rates, interest rates and the market value of the investments of liquid funds. The Group actively monitors and seeks to reduce, where it deems it appropriate to do so, fluctuations in these exposures. It is the Group's policy and practice to enter into a variety of derivative financial instruments to manage the volatility of these exposures and to enhance the yield on the investment of liquid funds. It does not enter any financial transactions containing a risk that cannot be quantified at the time the transaction is concluded. In addition, it does not sell short assets it does not have, or does not know it will have, in the future. The Group only sells existing assets or enters into transactions and future transactions (in the case of anticipatory hedges) that it confidently expects it will have in the future, based on past experience. In the case of liquid funds, the Group writes call options on assets it has or it writes put options on positions it wants to acquire and has the liquidity to acquire. The Group expects that any loss in value for these instruments generally would be offset by increases in the value of the underlying transactions.
Foreign Currencycurrency Exchange Rate Risk
The Group uses the $ as its reporting currency. As a result, the Group is exposed to foreign currency exchange movements, primarily in European, Japanese and emerging market currencies. Fluctuations in the exchange rates between the US dollar and other Asiancurrencies can have a significant effect on both the Group's results of operations, including reported sales and Latin Americanearnings, as well as on the reported value of our assets, liabilities and cash flows. This in turn may significantly affect the comparability of period-to-period results of operations.
Because our expenditures in Swiss francs are significantly higher than our revenues in Swiss francs, volatility in the value of the Swiss franc can have a significant impact on the reported value of our earnings, assets and liabilities, and the timing and extent of such volatility can be difficult to predict. In addition, there is a risk that certain countries could take other steps which could significantly impact the value of their currencies. Consequently, it enters
The Group is exposed to a potential adverse devaluation risk on its intercompany funding and total investment in certain subsidiaries operating in countries with exchange controls. The most significant country in this respect is Venezuela, where the Group has an equivalent of approximately $0.2 billion of cash in local currency, which is only slowly being approved for remittance outside of the country. As a result, the Group is exposed to a potential devaluation loss in the income statement on its total intercompany balances with its subsidiaries in Venezuela, which at December 31, 2015 amounted to $0.3 billion.
In 2014 and through October 2015, the exchange rate used by the Group for consolidation of the financial statements of its Venezuela subsidiaries was the official exchange rate for the Venezuela bolivar (VEF) of VEF 6.3/$, which is available for imports of specific goods and services of national priority, including medicines and medical supplies, as published by the Centro Nacional de Comercio Exterior (CENCOEX, formerly CADIVI).
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
In November 2015, a Venezuela subsidiary of the Group agreed with CENCOEX to settle a substantial part of our intercompany trade payables dated on or before December 31, 2014 in a transaction that required the Venezuela subsidiary to purchase a $ denominated bond at par value issued by Petróleos de Venezuela (PDVSA), with a coupon rate of 6% per annum maturing in 2024. In Venezuela there are differing official exchange rates against the $ and for the settlement of these intercompany trade payables, through the purchase of the $ bond, CENCOEX set the exchange rate at VEF 11.0/$. As a result, from November 2015 the Group changed its exchange rate used for consolidation of the financial statements of its Venezuela subsidiaries. The use of the new exchange rate by the Venezuela subsidiaries resulted in a $211 million loss from the re-measurement of the intra-Group and third party liabilities.
Novartis seeks to manage currency exposure by engaging in hedging transactions where management deems appropriate. Novartis may enter into various contracts that reflect the changes in the value of foreign currency exchange rates to preserve the value of assets, commitments and anticipated transactions. Novartis also uses forward contracts and foreign currency option contracts to hedge certain anticipated net revenues in foreign currencies.hedge.
Net investments in subsidiaries in foreign countries are long-term investments. Their fair value changes through movements of foreign currency exchange rates. The Group only hedges the net investments in foreign subsidiaries in exceptional cases.
Commodity Price Risk
The Group has only a very limited exposure to price risk related to anticipated purchases of certain commodities used as raw materials by the Group's businesses. A change in those prices may alter the gross margin of a specific business, but generally by not more than 10% of the margin and thus below the Group's risk management tolerance levels. Accordingly, the Group does not enter into significant commodity futures, forward and option contracts to manage fluctuations in prices of anticipated purchases.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
Interest Rate Risk
The Group addresses its net exposure to interest rate risk mainly through the ratio of its fixed rate financial debt to variable rate financial debt contained in its total financial debt portfolio. To manage this mix, Novartis may enter into interest rate swap agreements, in which it exchanges periodic payments based on a notional amount and agreed upon fixed and variable interest rates.
Equity Risk
The Group purchasesmay purchase equities as investments of its liquid funds. As a policy, it limits its holdings in an unrelated company to less than 5% of its liquid funds. Potential investments are thoroughly analyzed. Call options are written on equities that the Group owns, and put options are written on equities which the Group wants to buy and for which cash has been reserved.is available.
Credit Risk
Credit risks arise from the possibility that customers may not be able to settle their obligations as agreed. To manage this risk the Group periodically assesses the financial reliability of customers, taking
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
into account their financial position, past experience and other factors. Individual risk limits are set accordingly.
The Group's largest customer accounts for approximately 10%14% of net sales, and the second and third largest customercustomers account for 9%11% and 8%5% of net sales, (2011: 9%respectively (2014: 12%, 7%11% and 7%,5% respectively). No other customer accountsaccounted for 4%5% or more of net sales, in either year.
The highest amounts of trade receivables outstanding were for these same three customers. They amounted to 8%13%, 7%9% and 6%, respectively, of the Group's trade receivables at December 31, 2012.2015. There is no other significant concentration of credit risk (2011: 10%(2014: 13%, 6%9% and 6%5% respectively).
Counterparty Risk
Counterparty risk encompasses issuer risk on marketable securities settlement risk on derivative and money market contracts andinstruments, credit risk on cash, time deposits and time deposits.derivatives as well as settlement risk for different instruments. Issuer risk is reduced by only buying securities which are at least AA-A- rated. Settlement andCounterparty credit risk isand settlement risk are reduced by thea policy of entering into transactions with counterparties that are usually at least AA- rated banks(banks or financial institutions.institutions) that feature a strong credit rating. For short-term investments of less than six months of maturity, the counterparty must be at least A-1/P-1/F-1 rated. Exposure to these risks is closely monitored and kept within predetermined parameters. Novartis has policies that limit the amount of credit exposure to any financial institution. The limits are regularly assessed and determined based upon credit analysis including financial statement and capital adequacy ratio reviews. In addition, reverse repurchasing agreements are contracted.contracted and Novartis has entered into credit support agreements with various banks for derivative transactions.
The Group's cash and cash equivalents are held with major regulated financial institutions, the three largest ones hold approximately 19.8%21.8%, 15.5%9.6% and 10.9%8.6%, respectively (2011: 31.8%(2014: 11.8%, 12.5%7.7% and 12.1%7.7%, respectively).
The Group does not expect any losses from non-performance by these counterparties and does not have any significant grouping of exposures to financial sector or country risk.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
Liquidity Risk
Liquidity risk is defined as the risk that the Group could not be able to settle or meet its obligations on time or at a reasonable price. Group Treasury is responsible for liquidity, funding as well as settlement management. In addition, liquidity and funding risks, related processes and policies are overseen by management. Novartis manages its liquidity risk on a consolidated basis based on business needs, tax, capital or regulatory considerations, if applicable, through numerous sources of financing in order to maintain flexibility. Management monitors the Group's net debt or liquidity position through rolling forecasts on the basis of expected cash flows.
Novartis has two US commercial paper programs under which it can issue up to $9 billion in the aggregate of unsecured commercial paper notes. Novartis also has a Japanese commercial paper program under which it can issue up to JPY 150 billion (approximately $1.25 billion) of unsecured commercial paper notes. Commercial paper notes totaling $1.1 billion under these three programs were outstanding as per December 31, 2015. Novartis further has a committed credit facility of $6 billion, entered into on September 23, 2015. This credit facility is provided by a syndicate of banks and is intended to be used as a backstop for the US commercial paper programs. It matures in September 2020 and was undrawn as per December 31, 2015.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
The following table sets forth how management monitors net debt or liquidity based on details of the remaining contractual maturities of current financial assets and liabilities excluding trade receivables and payables and contingent considerations at December 31, 20122015 and 2011:2014:
December 31, 2012 | Due or due within one month | Due later than one month but less than three months | Due later than three months but less than one year | Due later than one year but less than five years | Due after five years | Total | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2015 | Due within one month | Due later than one month but less than three months | Due later than three months but less than one year | Due later than one year but less than five years | Due after five years | Total | ||||||||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||||||||||||||
Marketable securities and time deposits | 1,240 | 26 | 543 | 606 | 2,415 | 22 | 11 | 200 | 247 | 62 | 542 | |||||||||||||||||||||||||||
Commodities | 86 | 86 | ||||||||||||||||||||||||||||||||||||
Derivative financial instruments and accrued interest | 36 | 106 | 10 | 152 | 40 | 67 | 38 | 145 | ||||||||||||||||||||||||||||||
Cash and cash equivalents | 3,852 | 1,700 | 5,552 | 4,674 | 4,674 | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Total current financial assets | 3,888 | 3,046 | 36 | 543 | 606 | 8,119 | 4,736 | 78 | 238 | 247 | 148 | 5,447 | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||||||||||||||||||||
Financial debt | (7,829 | ) | (5,952 | ) | (13,781 | ) | (4,664 | ) | (11,663 | ) | (16,327 | ) | ||||||||||||||||||||||||||
Financial debt—undiscounted | (7,848 | ) | (6,002 | ) | (13,850 | ) | (4,676 | ) | (11,797 | ) | (16,473 | ) | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Total non-current financial debt | (7,829 | ) | (5,952 | ) | (13,781 | ) | (4,664 | ) | (11,663 | ) | (16,327 | ) | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||||||||||||
Financial debt | (2,607 | ) | (764 | ) | (2,412 | ) | (5,783 | ) | (3,258 | ) | (289 | ) | (2,027 | ) | (5,574 | ) | ||||||||||||||||||||||
Financial debt—undiscounted | (2,607 | ) | (764 | ) | (2,413 | ) | (5,784 | ) | (3,258 | ) | (289 | ) | (2,028 | ) | (5,575 | ) | ||||||||||||||||||||||
Derivative financial instruments | (60 | ) | (54 | ) | (48 | ) | (162 | ) | (8 | ) | (20 | ) | (2 | ) | (30 | ) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Total current financial debt | (2,667 | ) | (818 | ) | (2,460 | ) | (5,945 | ) | (3,266 | ) | (309 | ) | (2,029 | ) | (5,604 | ) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Net debt | 1,221 | 2,228 | (2,424 | ) | (7,286 | ) | (5,346 | ) | (11,607 | ) | 1,470 | (231 | ) | (1,791 | ) | (4,417 | ) | (11,515 | ) | (16,484 | ) | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
December 31, 2011 | Due or due within one month | Due later than one month but less than three months | Due later than three months but less than one year | Due later than one year but less than five years | Due after five years | Total | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2014 | Due within one month | Due later than one month but less than three months | Due later than three months but less than one year | Due later than one year but less than five years | Due after five years | Total | ||||||||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||||||||||||||
Marketable securities | 36 | 638 | 562 | 1,236 | ||||||||||||||||||||||||||||||||||
Derivative financial instruments and accrued interest on derivative financial instruments | 61 | 15 | 54 | 130 | ||||||||||||||||||||||||||||||||||
Marketable securities and time deposits | 21 | 68 | 37 | 181 | 76 | 383 | ||||||||||||||||||||||||||||||||
Commodities | 97 | 97 | ||||||||||||||||||||||||||||||||||||
Derivative financial instruments and accrued interest | 161 | 126 | 72 | 359 | ||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 3,709 | 3,709 | 9,623 | 3,400 | 13,023 | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Total current financial assets | 3,770 | 15 | 90 | 638 | 562 | 5,075 | 9,902 | 3,594 | 109 | 181 | 76 | 13,862 | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||||||||||||||||||||
Financial debt | (9,874 | ) | (3,981 | ) | (13,855 | ) | (5,423 | ) | (8,376 | ) | (13,799 | ) | ||||||||||||||||||||||||||
Financial debt—undiscounted | (9,904 | ) | (4,005 | ) | (13,909 | ) | (5,434 | ) | (8,470 | ) | (13,904 | ) | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Total non-current financial debt | (9,874 | ) | (3,981 | ) | (13,855 | ) | (5,423 | ) | (8,376 | ) | (13,799 | ) | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||||||||||||
Financial debt | (4,039 | ) | (1,100 | ) | (1,205 | ) | (6,344 | ) | (2,678 | ) | (335 | ) | (3,547 | ) | (6,560 | ) | ||||||||||||||||||||||
Financial debt—undiscounted | (4,039 | ) | (1,100 | ) | (1,205 | ) | (6,344 | ) | (2,678 | ) | (335 | ) | (3,549 | ) | (6,562 | ) | ||||||||||||||||||||||
Derivative financial instruments | (7 | ) | (7 | ) | (16 | ) | (30 | ) | (18 | ) | (32 | ) | (2 | ) | (52 | ) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Total current financial debt | (4,046 | ) | (1,107 | ) | (1,221 | ) | (6,374 | ) | (2,696 | ) | (367 | ) | (3,549 | ) | (6,612 | ) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Net debt | (276 | ) | (1,092 | ) | (1,131 | ) | (9,236 | ) | (3,419 | ) | (15,154 | ) | 7,206 | 3,227 | (3,440 | ) | (5,242 | ) | (8,300 | ) | (6,549 | ) | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
The consolidated balance sheet amounts of financial liabilities included in the above analysis are not materially different to the contractual amounts due on maturity. The positive and negative fair values on derivative financial instruments represent the net contractual amounts to be exchanged at maturity.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
The Group's contractual undiscounted potential cash flows from derivative financial instruments to be settled on a gross basis are as follows:
December 31, 2012 | Due or due within one month | Due later than one month but less than three months | Due later than three months but less than one year | Total | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2015 | Due within one month | Due later than one month but less than three months | Due later than three months but less than one year | Total | ||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||
Derivative financial instruments and accrued interest on derivative financial instruments | ||||||||||||||||||||||||||
Potential outflows in various currencies—from financial derivative liabilities | (3,483 | ) | (3,691 | ) | (2,330 | ) | (9,504 | ) | (1,418 | ) | (2,800 | ) | (1,602 | ) | (5,820 | ) | ||||||||||
Potential inflows in various currencies—from financial derivative assets | 3,458 | 3,714 | 2,285 | 9,457 | 1,448 | 2,819 | 1,601 | 5,868 |
December 31, 2011 | Due or due within one month | Due later than one month but less than three months | Due later than three months but less than one year | Total | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2014 | Due within one month | Due later than one month but less than three months | Due later than three months but less than one year | Total | ||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||
Derivative financial instruments and accrued interest on derivative financial instruments | ||||||||||||||||||||||||||
Potential outflows in various currencies—from financial derivative liabilities | (4,315 | ) | (738 | ) | (1,208 | ) | (6,261 | ) | (3,549 | ) | (3,695 | ) | (2,527 | ) | (9,771 | ) | ||||||||||
Potential inflows in various currencies—from financial derivative assets | 4,366 | 738 | 1,241 | 6,345 | 3,688 | 3,780 | 2,646 | 10,114 |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
Other contractual liabilities which are not part of management's monitoring of the net debt or liquidity consist of the following items:
December 31, 2012 | Due later than one month but less than three months | Due later than three months but less than one year | Due later than one year but less than five years | Due after five years | Total | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2015 | Due later than one month but less than three months | Due later than three months but less than one year | Due later than one year but less than five years | Due after five years | Total | |||||||||||||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||||||||||
Contractual interest on non-current liabilities | (236 | ) | (275 | ) | (1,368 | ) | (1,082 | ) | (2,961 | ) | (104 | ) | (499 | ) | (1,878 | ) | (4,332 | ) | (6,813 | ) | ||||||||||||
Trade payables | (5,593 | ) | (5,668 | ) | (5,668 | ) |
December 31, 2011 | Due later than one month but less than three months | Due later than three months but less than one year | Due later than one year but less than five years | Due after five years | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Contractual interest on non-current liabilities | (236 | ) | (247 | ) | (1,410 | ) | (637 | ) | (2,530 | ) | ||||||
Trade payables | (4,989 | ) | (4,989 | ) |
December 31, 2014 | Due later than one month but less than three months | Due later than three months but less than one year | Due later than one year but less than five years | Due after five years | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | $ m | |||||||||||
Contractual interest on non-current liabilities | (154 | ) | (436 | ) | (1,778 | ) | (3,087 | ) | (5,455 | ) | ||||||
Trade payables and commitment for repurchase of own shares (see Note 22) | (6,077 | ) | (6,077 | ) |
Novartis strives to maintain a strong credit rating. In managing its capital, Novartis focuses on maintaining a strong balance sheet. Credit agencies in 2012 maintained their ratings for Novartis. Moody's rated the Group as Aa2Aa3 for long-term maturities and P-1 for short-term maturities and Standard & Poor's had a rating of AA- for long-term and A-1+ for short-term maturities. Fitch had a long-term rating of AA and a short-term rating of F1+.
The 2012 year-end debt/equity ratio decreased to 0.28:1 from 0.31:at December 31, 2015 compared to 0.29:1 in 2011 principally due to less current financial debt being outstanding underat the commercial paper programs.beginning of the year.
The Group uses a value at risk (VAR) computation to estimate the potential ten-day loss in the fair value of its financial instruments.
A 10-day period is used because of an assumption that not all positions could be undone in one day given the size of the positions. The VAR computation includes the Group's financial debt, short-term and long-term investments, foreign currency forwards, swaps and options as well as anticipated transactions. Foreign currency trade payables and receivables as well as net investments in foreign subsidiaries are included in the computation, however contingent consideration, finance lease obligations and other current assets are excluded.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
A ten-day period is used because of an assumption that not all positions could be undone in one day given the size of the positions. Apart from contingent consideration, finance lease obligations, and long-term loans and receivables, advances and security deposits the VAR computation includes all financial assets and financial liabilities as set forth above in this Note. Trade payables and receivables are considered only to the extent they comprise a foreign currency exposure. In addition, commodities are included in the computation.
The VAR estimates are made assuming normal market conditions, using a 95% confidence interval. The Group uses a "Delta Normal" model to determine the observed inter-relationships between movements in interest rates, stock markets and various currencies. These inter-relationships are determined by observing interest rate, stock market movements and forward foreign currency rate movements over a 60 daysixty-day period for the calculation of VAR amounts.
The estimated potential 10-dayten-day loss in pre-tax income from the Group's foreign currency instruments, the estimated potential 10-dayten-day loss of its equity holdings, and the estimated potential 10-dayten-day loss in fair value of its interest rate sensitive instruments (primarily financial debt and investments of liquid funds under normal market conditions) as calculated in the VAR model are the following:
| 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | ||||||||||
All financial instruments | 183 | 235 | 387 | 272 | ||||||||||
Analyzed by components: | ||||||||||||||
Instruments sensitive to foreign currency exchange rates | 61 | 145 | 224 | 272 | ||||||||||
Instruments sensitive to equity market movements | 40 | 56 | 50 | 48 | ||||||||||
Instruments sensitive to interest rates | 86 | 102 | 353 | 254 |
The average, high, and low VAR amounts are as follows:
2012 | Average | High | Low | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2015 | Average | High | Low | |||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||
All financial instruments | 262 | 351 | 183 | 337 | 387 | 237 | ||||||||||||||
Analyzed by components: | ||||||||||||||||||||
Instruments sensitive to foreign currency exchange rates | 141 | 255 | 61 | 313 | 418 | 173 | ||||||||||||||
Instruments sensitive to equity market movements | 41 | 59 | 30 | 55 | 111 | 33 | ||||||||||||||
Instruments sensitive to interest rates | 93 | 129 | 57 | 294 | 380 | 251 |
2011 | Average | High | Low | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2014 | Average | High | Low | |||||||||||||||||
| $ m | $ m | $ m | $ m | $ m | $ m | ||||||||||||||
All financial instruments | 214 | 281 | 180 | 240 | 306 | 193 | ||||||||||||||
Analyzed by components: | ||||||||||||||||||||
Instruments sensitive to foreign currency exchange rates | 98 | 219 | 50 | 154 | 272 | 83 | ||||||||||||||
Instruments sensitive to equity market movements | 49 | 74 | 28 | 32 | 48 | 18 | ||||||||||||||
Instruments sensitive to interest rates | 154 | 190 | 96 | 177 | 254 | 96 |
The VAR computation is a risk analysis tool designed to statistically estimate the maximum potential ten day loss from adverse movements in foreign currency exchange rates, equity prices and interest rates
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
under normal market conditions. The computation does not purport to represent actual losses in fair value on earnings to be incurred by the Group, nor does it consider the effect of favorable changes in market rates. The Group cannot predict actual future movements in such market rates and it does not claim that these VAR results are indicative of future movements in such market rates or to be
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
29. Financial Instruments—Additional Disclosures (Continued)
representative of any actual impact that future changes in market rates may have on the Group's future results of operations or financial position.
In addition to these VAR analyses, the Group uses stress testing techniques that aim to reflect a worst case scenario on the financial assetsmarketable securities which are monitored by Group Treasury. For these calculations, the Group uses the six-monthssix-month period with the worst performance observed over the past 20twenty years in each category. For 20122015 and 2011,2014, the worst case loss scenario was calculated as follows:
| 2012 | 2011 | 2015 | 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | $ m | ||||||||||
All financial instruments | 284 | 406 | 12 | 16 | ||||||||||
Analyzed by components: | ||||||||||||||
Instruments sensitive to foreign currency exchange rates | 212 | 328 | 1 | 1 | ||||||||||
Instruments sensitive to equity market movements | 26 | 31 | 4 | 8 | ||||||||||
Instruments sensitive to interest rates | 46 | 47 | 7 | 7 |
In the Group's risk analysis, Novartis considered this worst case scenario acceptable as it could reduce income, but would not endanger the solvency or the investment grade credit standing of the Group.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
30. Discontinued Operations
Discontinued Operations Consolidated Income Statement Segmentation
| Vaccines | Consumer Health(1) | Corporate (including eliminations) | Total discontinued operations | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
($ m) | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||
Net sales to third parties of discontinued operations | 145 | 1,537 | 456 | 4,279 | 601 | 5,816 | |||||||||||||||||||
Sales to continuing segments | 18 | 65 | 1 | 13 | 19 | 78 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales of discontinued operations | 163 | 1,602 | 457 | 4,292 | 620 | 5,894 | |||||||||||||||||||
Other revenues | 18 | 32 | 5 | 33 | 23 | 65 | |||||||||||||||||||
Cost of goods sold | (192 | ) | (1,336 | ) | (184 | ) | (1,737 | ) | (376 | ) | (3,073 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit of discontinued operations | (11 | ) | 298 | 278 | 2,588 | 267 | 2,886 | ||||||||||||||||||
Marketing & Sales | (57 | ) | (280 | ) | (187 | ) | (1,532 | ) | (244 | ) | (1,812 | ) | |||||||||||||
Research & Development | (151 | ) | (545 | ) | (30 | ) | (312 | ) | (181 | ) | (857 | ) | |||||||||||||
General & Administration | (26 | ) | (118 | ) | (32 | ) | (313 | ) | (58 | ) | (431 | ) | |||||||||||||
Other income | 2,870 | 905 | 10,558 | 99 | (8 | ) | 3 | 13,420 | 1,007 | ||||||||||||||||
Other expense | (57 | ) | (812 | ) | (14 | ) | (60 | ) | (656 | ) | (274 | ) | (727 | ) | (1,146 | ) | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income/(loss) of discontinued operations | 2,568 | (552 | ) | 10,573 | 470 | (664 | ) | (271 | ) | 12,477 | (353 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Income from associated companies | 2 | 2 | 2 | 2 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Income/(loss) before taxes of discontinued operations | 12,479 | (351 | ) | ||||||||||||||||||||||
Taxes | �� | (1,713 | ) | (96 | ) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net income/(loss) of discontinued operations | 10,766 | (447 | ) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
30. Discontinued Operations (Continued)
Discontinued Operations Consolidated Income Statement Segmentation (Continued)
| Vaccines(1) | Consumer Health(2) | Transfers to continuing Corporate(3) | Corporate (including eliminations) | Total discontinued operations | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In $ m) | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
Net sales to third parties of discontinued operations | 1,537 | 1,987 | 4,279 | 4,064 | 5,816 | 6,051 | |||||||||||||||||||||||||
Sales to continuing segments | 65 | 61 | 13 | 11 | 78 | 72 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales of discontinued operations | 1,602 | 2,048 | 4,292 | 4,075 | 5,894 | 6,123 | |||||||||||||||||||||||||
Other revenues | 32 | 333 | 33 | 36 | (84 | ) | 65 | 285 | |||||||||||||||||||||||
Cost of goods sold | (1,336 | ) | (1,578 | ) | (1,737 | ) | (1,751 | ) | 7 | (3,073 | ) | (3,322 | ) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit of discontinued operations | 298 | 803 | 2,588 | 2,360 | (77 | ) | 2,886 | 3,086 | |||||||||||||||||||||||
Marketing & Sales | (280 | ) | (334 | ) | (1,532 | ) | (1,577 | ) | (1,812 | ) | (1,911 | ) | |||||||||||||||||||
Research & Development | (545 | ) | (476 | ) | (312 | ) | (305 | ) | (857 | ) | (781 | ) | |||||||||||||||||||
General & Administration | (118 | ) | (140 | ) | (313 | ) | (316 | ) | (1 | ) | (431 | ) | (457 | ) | |||||||||||||||||
Other income | 905 | 70 | 99 | 79 | 3 | 25 | 1,007 | 174 | |||||||||||||||||||||||
Other expense | (812 | ) | (88 | ) | (60 | ) | (63 | ) | 4 | (274 | ) | (37 | ) | (1,146 | ) | (184 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating (loss)/income of discontinued operations | (552 | ) | (165 | ) | 470 | 178 | (73 | ) | (271 | ) | (13 | ) | (353 | ) | (73 | ) | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income from associated companies | 2 | 1 | 2 | 1 | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss before taxes of discontinued operations | (351 | ) | (72 | ) | |||||||||||||||||||||||||||
Taxes | (96 | ) | 55 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss of discontinued operations | (447 | ) | (17 | ) | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
30. Discontinued Operations (Continued)
The following are included in net income from discontinued operations:
| 2015 | 2014 | 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| $ m | $ m | $ m | |||||||
Depreciation of property, plant & equipment | (66 | ) | (201 | ) | ||||||
Amortization of intangible assets | (77 | ) | (278 | ) | ||||||
Impairment charges on property, plant & equipment, net | 83 | (736 | ) | (33 | ) | |||||
Impairment charges on intangible assets, net | (405 | ) | (8 | ) | ||||||
Impairment charges on financial assets | (8 | ) | ||||||||
Additions to restructuring provisions | (1 | ) | (14 | ) | (12 | ) | ||||
Equity-based compensation of Novartis equity plans | (65 | ) | (124 | ) | (95 | ) |
Discontinued Operations Consolidated Balance Sheet
2014 | ||||
---|---|---|---|---|
$ m | ||||
Assets of disposal groups classified as discontinued operations | ||||
Property, plant and equipment | 1,411 | |||
Goodwill | 1,119 | |||
Intangible assets other than goodwill | 1,343 | |||
Investments in associated companies | 1 | |||
Deferred tax assets | 304 | |||
Other non-current assets | 47 | |||
Inventories | 1,155 | |||
Trade receivables | 1,085 | |||
Other current assets | 336 | |||
| | | | |
Total | 6,801 | |||
| | | | |
| | | | |
| | | | |
Liabilities of disposal groups classified as discontinued operations | ||||
Deferred tax liabilities | 209 | |||
Provisions and other non-current liabilities | 497 | |||
Trade payables | 612 | |||
Current income tax liabilities | 176 | |||
Provisions and other current liabilities | 924 | |||
| | | | |
Total | 2,418 | |||
| | | | |
| | | | |
| | | | |
31. Events Subsequent to the December 31, 20122015 Consolidated Balance Sheet Date
Dividend proposal for 20122015 and approval of the Group's 20122015 consolidated financial statements
On January 22, 2013,26, 2016, the Novartis AG Board of Directors proposed the acceptance of the 20122015 consolidated financial statements of the Novartis Group for the approval by the Annual General Meeting on February 22, 2013.23, 2016. Furthermore, also on January 17, 2013,26, 2016, the Board proposed a dividend of CHF 2.302.70 per share to be approved at the Annual General Meeting on February 22, 2013.23, 2016. If approved, total dividend payments would amount to approximately $6.2$6.6 billion (2011: $6.0(2014: $6.6 billion). using the CHF/$ December 31, 2015 exchange rate.
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
31.32. Principal Group Subsidiaries and Associated Companies
The following table lists the principal subsidiaries controlled by Novartis and associated companies in which Novartis is deemed to have significant influence. The equity interest percentage shown in the table also represents the share in voting rights in those entities, except where explicitly noted.
As at December 31, 2012 | Share/paid-in capital(1) | Equity interest % | Activities | |||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
As at December 31, 2015 | Share/paid-in capital(1) | Equity interest % | Activities | |||||||||||||||||||||||||||||||
Algeria | ||||||||||||||||||||||||||||||||||
Société par actions SANDOZ, Algiers | DZD | 650.0 m | 100 | ‹*› | \*/ | |||||||||||||||||||||||||||||
Argentina |
| |||||||||||||||||||||||||||||||||
Novartis Argentina S.A., Buenos Aires | ARS | 231.3 m | 100 | ‹*› | /*\ | ARS | 246.3 m | 100 | ‹*› | ▲ | ||||||||||||||||||||||||
Alcon Laboratorios Argentina S.A., Buenos Aires | ARS | 80.0 m | 100 | ‹*› | ARS | 83.9 m | 100 | ‹*› | ||||||||||||||||||||||||||
Sandoz S.A., Buenos Aires | ARS | 131.8 m | 100 | ‹*› | \*/ | ARS | 88.0 m | 100 | ‹*› | |||||||||||||||||||||||||
Australia |
| |||||||||||||||||||||||||||||||||
Novartis Australia Pty Ltd., North Ryde, NSW | AUD | 11.0 m | 100 | /*/ | AUD | 11.0 m | 100 | /*/ | ||||||||||||||||||||||||||
Novartis Pharmaceuticals Australia Pty Ltd., North Ryde, NSW | AUD | 3.8 m | 100 | ‹*› | /*\ | AUD | 3.8 m | 100 | ‹*› | ▲ | ||||||||||||||||||||||||
Alcon Laboratories (Australia) Pty Ltd., Frenchs Forest, NSW | AUD | 2.6 m | 100 | ‹*› | AUD | 2.6 m | 100 | ‹*› | ||||||||||||||||||||||||||
CIBA Vision Australia Pty Ltd., Bella Vista, NSW | AUD | 3.0 m | 100 | ‹*› | ||||||||||||||||||||||||||||||
Sandoz Pty Ltd., North Ryde, NSW | AUD | 11.6 m | 100 | ‹*› | AUD | 11.6 m | 100 | ‹*› | ||||||||||||||||||||||||||
Novartis Consumer Health Australasia Pty Ltd., Melbourne, Victoria | AUD | 7.6 m | 100 | ‹*› | \*/ | |||||||||||||||||||||||||||||
Novartis Animal Health Australasia Pty Ltd., North Ryde, NSW | AUD | 3.0 m | 100 | ‹*› | /*\ | |||||||||||||||||||||||||||||
Austria |
| |||||||||||||||||||||||||||||||||
Novartis Austria GmbH, Vienna | EUR | 1.0 m | 100 | /*/ | EUR | 1.0 m | 100 | /*/ | ||||||||||||||||||||||||||
Novartis Pharma GmbH, Vienna | EUR | 1.1 m | 100 | ‹*› | EUR | 1.1 m | 100 | ‹*› | ||||||||||||||||||||||||||
Alcon Ophthalmika GmbH, Vienna | EUR | 36,336.4 | 100 | ‹*› | ||||||||||||||||||||||||||||||
Sandoz GmbH, Kundl | EUR | 32.7 m | 100 | /*/ | ‹*› | \*/ | /*\ | EUR | 32.7 m | 100 | /*/ | ‹*› | \*/ | ▲ | ||||||||||||||||||||
EBEWE Pharma Ges.m.b.H Nfg., Unterach am Attersee | EUR | 1.0 m | 100 | ‹*› | \*/ | /*\ | EUR | 1.0 m | 100 | ‹*› | \*/ | ▲ | ||||||||||||||||||||||
Bangladesh |
| |||||||||||||||||||||||||||||||||
Novartis (Bangladesh) Limited, Dhaka | BDT | 162.5 m | 60 | ‹*› | \*/ | |||||||||||||||||||||||||||||
Novartis (Bangladesh) Limited, Gazipur | BDT | 162.5 m | 60 | ‹*› | \*/ | |||||||||||||||||||||||||||||
Belgium |
| |||||||||||||||||||||||||||||||||
N.V. Novartis Pharma S.A., Vilvoorde | EUR | 7.1 m | 100 | ‹*› | EUR | 7.1 m | 100 | ‹*› | ||||||||||||||||||||||||||
S.A. Alcon-Couvreur N.V., Puurs | EUR | 360.6 m | 100 | ‹*› | \*/ | EUR | 360.6 m | 100 | ‹*› | \*/ | ||||||||||||||||||||||||
N.V. Alcon S.A., Vilvoorde | EUR | 141,856 | 100 | ‹*› | EUR | 141,856 | 100 | ‹*› | ||||||||||||||||||||||||||
N.V. Sandoz S.A., Vilvoorde | EUR | 19.2 m | 100 | ‹*› | EUR | 19.2 m | 100 | ‹*› | ||||||||||||||||||||||||||
N.V. Novartis Consumer Health S.A., Vilvoorde | EUR | 4.3 m | 100 | ‹*› | ||||||||||||||||||||||||||||||
Bermuda |
| |||||||||||||||||||||||||||||||||
Triangle International Reinsurance Ltd., Hamilton | CHF | 1.0 m | 100 | /*/ | CHF | 1.0 m | 100 | /*/ | ||||||||||||||||||||||||||
Novartis Securities Investment Ltd., Hamilton | CHF | 30,000 | 100 | /*/ | CHF | 30,000 | 100 | /*/ | ||||||||||||||||||||||||||
Novartis International Pharmaceutical Ltd., Hamilton | CHF | 20,000 | 100 | /*/ | ‹*› | \*/ | /*\ | CHF | 100,000 | 100 | /*/ | ‹*› | \*/ | ▲ | ||||||||||||||||||||
Trinity River Insurance Co.Ltd., Hamilton | USD | 370,000 | 100 | /*/ | ||||||||||||||||||||||||||||||
Trinity River Insurance Co. Ltd., Hamilton | $ | 370,000 | 100 | /*/ | ||||||||||||||||||||||||||||||
Novartis Investment Limited, Hamilton | $ | 30,000 | 100 | /*/ | ||||||||||||||||||||||||||||||
Novartis Pharmaceutical Proprietary Ltd., Hamilton | CHF | 100,000 | 100 | /*/ | ‹*› | \*/ | ▲ | |||||||||||||||||||||||||||
Brazil |
| |||||||||||||||||||||||||||||||||
Novartis Biociências S.A., São Paulo | BRL | 265.0 m | 100 | ‹*› | \*/ | BRL | 265.0 m | 100 | ‹*› | \*/ | ||||||||||||||||||||||||
Sandoz do Brasil Indústria Farmacêutica Ltda., Cambé | BRL | 190.0 m | 100 | ‹*› | \*/ | /*\ | ||||||||||||||||||||||||||||
Novartis Saúde Animal Ltda., São Paulo | BRL | 50.7 m | 100 | ‹*› | \*/ | |||||||||||||||||||||||||||||
Sandoz do Brasil Indústria Farmacêutica Ltda., Cambé, PR | BRL | 190.0 m | 100 | ‹*› | \*/ | ▲ | ||||||||||||||||||||||||||||
Canada |
| |||||||||||||||||||||||||||||||||
Novartis Pharmaceuticals Canada Inc., Dorval/Quebec | CAD | 0 | (2) | 100 | ‹*› | /*\ | CAD | 0 | (2) | 100 | ‹*› | ▲ | ||||||||||||||||||||||
Alcon Canada Inc., Mississauga, Ontario | CAD | 0 | (2) | 100 | ‹*› | CAD | 0 | (2) | 100 | ‹*› | ||||||||||||||||||||||||
CIBA Vision Canada Inc., Mississauga, Ontario | CAD | 1 | 100 | ‹*› | \*/ | CAD | 1 | 100 | \*/ | |||||||||||||||||||||||||
Sandoz Canada Inc., Boucherville, Quebec | CAD | 76.8 m | 100 | ‹*› | \*/ | /*\ | CAD | 76.8 m | 100 | ‹*› | \*/ | ▲ | ||||||||||||||||||||||
Novartis Consumer Health Canada Inc., Mississauga, Ontario | CAD | 2 | 100 | ‹*› | ||||||||||||||||||||||||||||||
Novartis Animal Health Canada Inc., Charlottetown, Prince Edward Island | CAD | 2 | 100 | ‹*› | /*\ | |||||||||||||||||||||||||||||
Chile |
| |||||||||||||||||||||||||||||||||
Novartis Chile S.A., Santiago de Chile | CLP | 2.0 bn | 100 | ‹*› | ||||||||||||||||||||||||||||||
Alcon Laboratorios Chile Limitada, Santiago de Chile | CLP | 2.0 bn | 100 | ‹*› |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
31.32. Principal Group Subsidiaries and Associated Companies (Continued)
As at December 31, 2012 | Share/paid-in capital(1) | Equity interest % | Activities | |||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Chile | ||||||||||||||||||||||||||||||||||
Novartis Chile S.A., Santiago de Chile | CLP | 2.0 bn | 100 | ‹*› | ||||||||||||||||||||||||||||||
Alcon Laboratorios Chile Limitada, Santiago de Chile | CLP | 2.0 bn | 100 | ‹*› | ||||||||||||||||||||||||||||||
As at December 31, 2015 | Share/paid-in capital(1) | Equity interest % | Activities | |||||||||||||||||||||||||||||||
China | ||||||||||||||||||||||||||||||||||
Beijing Novartis Pharma Co., Ltd., Beijing | USD | 30.0 m | 100 | ‹*› | \*/ | $ | 30.0 m | 100 | ‹*› | \*/ | ||||||||||||||||||||||||
Novartis Pharmaceuticals (HK) Limited, Hong Kong | HKD | 200 | 100 | ‹*› | HKD | 200 | 100 | ‹*› | ||||||||||||||||||||||||||
China Novartis Institutes for BioMedical Research Co. Ltd., Shanghai | USD | 133.0 m | 100 | /*\ | ||||||||||||||||||||||||||||||
Suzhou Novartis Pharma Technology Co. Ltd., Changshu | USD | 97.4 m | 100 | \*/ | ||||||||||||||||||||||||||||||
China Novartis Institutes for BioMedical Research Co., Ltd., Shanghai | $ | 260.0 m | 100 | ▲ | ||||||||||||||||||||||||||||||
Suzhou Novartis Pharma Technology Co., Ltd., Changshu | $ | 103.4 m | 100 | \*/ | ||||||||||||||||||||||||||||||
Shanghai Novartis Trading Ltd., Shanghai | USD | 2.5 m | 100 | ‹*› | $ | 3.1 m | 100 | ‹*› | \*/ | |||||||||||||||||||||||||
Alcon Hong Kong Limited, Hong Kong | HKD | 77,000 | 100 | ‹*› | HKD | 77,000 | 100 | ‹*› | ||||||||||||||||||||||||||
Alcon (China) Ophthalmic Product Co., Ltd., Beijing | USD | 2.2 m | 100 | ‹*› | $ | 2.2 m | 100 | ‹*› | ||||||||||||||||||||||||||
Sandoz (China) Pharmaceutical Co., Ltd., Zhongshan | USD | 22.0 m | 100 | ‹*› | \*/ | $ | 36.5 m | 100 | ‹*› | \*/ | ||||||||||||||||||||||||
Novartis Vaccines and Diagnostics (HK) Ltd., Hong Kong | HKD | 80.0 m | 100 | ‹*› | \*/ | |||||||||||||||||||||||||||||
Zhejiang Tianyuan Bio-Pharmaceutical Co., Ltd., Hangzhou | CNY | 46.8 m | 85 | ‹*› | \*/ | |||||||||||||||||||||||||||||
Shanghai Novartis Animal Health Co., Ltd., Shanghai | CHF | 21.6 m | 100 | ‹*› | \*/ | |||||||||||||||||||||||||||||
Colombia |
| |||||||||||||||||||||||||||||||||
Novartis de Colombia S.A., Santafé de Bogotá | COP | 7.9 bn | 100 | ‹*› | \*/ | COP | 7.9 bn | 100 | ‹*› | |||||||||||||||||||||||||
Laboratorios Alcon de Colombia S.A., Santafé de Bogotá | COP | 20.9 m | 100 | ‹*› | COP | 20.9 m | 100 | ‹*› | ||||||||||||||||||||||||||
Croatia |
| |||||||||||||||||||||||||||||||||
Sandoz d.o.o., Zagreb | HRK | 25.6 m | 100 | ‹*› | HRK | 25.6 m | 100 | ‹*› | ||||||||||||||||||||||||||
Czech Republic |
| |||||||||||||||||||||||||||||||||
Novartis s.r.o., Prague | CZK | 51.5 m | 100 | ‹*› | CZK | 51.5 m | 100 | ‹*› | ||||||||||||||||||||||||||
Sandoz s.r.o., Prague | CZK | 44.7 m | 100 | ‹*› | CZK | 44.7 m | 100 | ‹*› | ||||||||||||||||||||||||||
Alcon Pharmaceuticals (Czech Republic) s.r.o., Prague | CZK | 31.0 m | 100 | ‹*› | ||||||||||||||||||||||||||||||
Denmark |
| |||||||||||||||||||||||||||||||||
Novartis Healthcare A/S, Copenhagen | DKK | 14.0 m | 100 | ‹*› | DKK | 14.0 m | 100 | ‹*› | ||||||||||||||||||||||||||
Alcon Nordic A/S, Copenhagen | DKK | 0.5 m | 100 | ‹*› | ||||||||||||||||||||||||||||||
Sandoz A/S, Copenhagen | DKK | 8.0 m | 100 | ‹*› | DKK | 10.0 m | 100 | ‹*› | ||||||||||||||||||||||||||
Ecuador |
| |||||||||||||||||||||||||||||||||
Novartis Ecuador S.A., Quito | USD | 4.0 m | 100 | ‹*› | $ | 4.0 m | 100 | ‹*› | ||||||||||||||||||||||||||
Egypt |
| |||||||||||||||||||||||||||||||||
Novartis Pharma S.A.E., Cairo | EGP | 33.8 m | 99 | ‹*› | \*/ | EGP | 33.8 m | 99 | ‹*› | \*/ | ||||||||||||||||||||||||
Sandoz Egypt Pharma S.A.E., New Cairo | EGP | 250,000 | 100 | ‹*› | ||||||||||||||||||||||||||||||
Finland |
| |||||||||||||||||||||||||||||||||
Novartis Finland Oy, Espoo | EUR | 459,000 | 100 | ‹*› | EUR | 459,000 | 100 | ‹*› | ||||||||||||||||||||||||||
Alcon Finland Oy, Vantaa | EUR | 84,094 | 100 | ‹*› | ||||||||||||||||||||||||||||||
France |
| |||||||||||||||||||||||||||||||||
Novartis Groupe France S.A., Rueil-Malmaison | EUR | 103.0 m | 100 | /*/ | EUR | 103.0 m | 100 | /*/ | ||||||||||||||||||||||||||
Novartis Pharma S.A.S., Rueil-Malmaison | EUR | 43.4 m | 100 | ‹*› | \*/ | /*\ | EUR | 43.4 m | 100 | ‹*› | \*/ | ▲ | ||||||||||||||||||||||
Laboratoires Alcon S.A., Rueil-Malmaison | EUR | 12.9 m | 100 | ‹*› | \*/ | EUR | 12.9 m | 100 | ‹*› | \*/ | ||||||||||||||||||||||||
Sandoz S.A.S., Levallois-Perret | EUR | 5.4 m | 100 | ‹*› | EUR | 5.4 m | 100 | ‹*› | ▲ | |||||||||||||||||||||||||
Novartis Vaccines and Diagnostics S.A.S., Suresnes | EUR | 1.5 m | 100 | ‹*› | ||||||||||||||||||||||||||||||
Novartis Santé Familiale S.A.S., Rueil-Malmaison | EUR | 21.9 m | 100 | ‹*› | \*/ | |||||||||||||||||||||||||||||
Novartis Santé Animale S.A.S., Rueil-Malmaison | EUR | 900,000 | 100 | ‹*› | \*/ | |||||||||||||||||||||||||||||
Germany |
| |||||||||||||||||||||||||||||||||
Novartis Deutschland GmbH, Wehr | EUR | 155.5 m | 100 | /*/ | ||||||||||||||||||||||||||||||
Novartis Pharma GmbH, Nuremberg | EUR | 25.6 m | 100 | ‹*› | ▲ | |||||||||||||||||||||||||||||
Novartis Pharma Produktions GmbH, Wehr | EUR | 2.0 m | 100 | \*/ | ||||||||||||||||||||||||||||||
Alcon Pharma GmbH, Freiburg | EUR | 512,000 | 100 | ‹*› | ||||||||||||||||||||||||||||||
WaveLight GmbH, Erlangen | EUR | 6.6 m | 100 | ‹*› | ||||||||||||||||||||||||||||||
CIBA Vision GmbH, Grosswallstadt | EUR | 15.4 m | 100 | ‹*› | \*/ | ▲ | ||||||||||||||||||||||||||||
Sandoz International GmbH, Holzkirchen | EUR | 100,000 | 100 | /*/ | ||||||||||||||||||||||||||||||
Sandoz Industrial Products GmbH, Frankfurt a. M. | EUR | 2.6 m | 100 | ‹*› | \*/ | |||||||||||||||||||||||||||||
1 A Pharma GmbH, Oberhaching | EUR | 26,000 | 100 | ‹*› | ||||||||||||||||||||||||||||||
Salutas Pharma GmbH, Barleben | EUR | 42.1 m | 100 | ‹*› | \*/ | |||||||||||||||||||||||||||||
Hexal AG, Holzkirchen | EUR | 93.7 m | 100 | /*/ | ‹*› | \*/ | ▲ | |||||||||||||||||||||||||||
Gibraltar |
| |||||||||||||||||||||||||||||||||
Novista Insurance Limited, Gibraltar | CHF | 130.0 m | 100 | /*/ |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
31.32. Principal Group Subsidiaries and Associated Companies (Continued)
As at December 31, 2012 | Share/paid-in capital(1) | Equity interest % | Activities | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Germany | |||||||||||||||||
Novartis Deutschland GmbH, Wehr | EUR | 155.5 m | 100 | /*/ | |||||||||||||
Novartis Pharma GmbH, Nuremberg | EUR | 25.6 m | 100 | ‹*› | /*\ | ||||||||||||
Novartis Pharma Produktions GmbH, Wehr | EUR | 2.0 m | 100 | \*/ | |||||||||||||
Alcon Pharma GmbH, Freiburg | EUR | 511,292 | 100 | ‹*› | |||||||||||||
WaveLight GmbH, Erlangen | EUR | 6.6 m | 100 | ‹*› | |||||||||||||
CIBA Vision GmbH, Grosswallstadt | EUR | 15.4 m | 100 | ‹*› | \*/ | /*\ | |||||||||||
Sandoz International GmbH, Holzkirchen | EUR | 100,000 | 100 | /*/ | |||||||||||||
Sandoz Pharmaceuticals GmbH, Holzkirchen | EUR | 5.1 m | 100 | ‹*› | |||||||||||||
Sandoz Industrial Products GmbH, Frankfurt a. M. | EUR | 2.6 m | 100 | ‹*› | \*/ | ||||||||||||
1 A Pharma GmbH, Oberhaching | EUR | 26,000 | 100 | ‹*› | |||||||||||||
Salutas Pharma GmbH, Barleben | EUR | 42.1 m | 100 | ‹*› | \*/ | ||||||||||||
Hexal AG, Holzkirchen | EUR | 93.7 m | 100 | /*/ | ‹*› | \*/ | /*\ | ||||||||||
Novartis Vaccines and Diagnostics GmbH, Marburg | EUR | 5.0 m | 100 | ‹*› | \*/ | /*\ | |||||||||||
Novartis Vaccines Vertriebs GmbH, Holzkirchen | EUR | 25,564 | 100 | ‹*› | |||||||||||||
Novartis Consumer Health GmbH, Munich | EUR | 14.6 m | 100 | ‹*› | \*/ | /*\ | |||||||||||
Novartis Tiergesundheit GmbH, Munich | EUR | 256,000 | 100 | ‹*› | |||||||||||||
LTS Lohmann Therapie-Systeme AG, Andernach | EUR | 31.2 m | 43 | /*/ | |||||||||||||
Gibraltar | |||||||||||||||||
Novista Insurance Limited, Gibraltar | CHF | 130.0 m | 100 | /*/ | |||||||||||||
Greece | |||||||||||||||||
Novartis (Hellas) S.A.C.I., Metamorphosis/Athens | EUR | 23.4 m | 100 | ‹*› | |||||||||||||
Alcon Laboratories Hellas Commercial & Industrial S.A., Maroussi/Athens | EUR | 5.7 m | 100 | ‹*› | |||||||||||||
Hungary | |||||||||||||||||
Novartis Hungary Healthcare Limited Liability Company, Budapest | HUF | 545.6 m | 100 | ‹*› | |||||||||||||
Sandoz Hungary Limited Liability Company, Budapest | HUF | 883.0 m | 100 | ‹*› | |||||||||||||
India | |||||||||||||||||
Novartis India Limited, Mumbai | INR | 159.8 m | 76 | ‹*› | \*/ | ||||||||||||
Novartis Healthcare Private Limited, Mumbai | INR | 60.0 m | 100 | /*\ | |||||||||||||
Alcon Laboratories (India) Private Limited, Bangalore | INR | 1.1 bn | 100 | ‹*› | |||||||||||||
Sandoz Private Limited, Mumbai | INR | 32.0 m | 100 | ‹*› | \*/ | ||||||||||||
Indonesia | |||||||||||||||||
PT Novartis Indonesia, Jakarta | IDR | 7.7 bn | 100 | ‹*› | \*/ | ||||||||||||
PT CIBA Vision Batam, Batam | IDR | 11.9 bn | 100 | \*/ | |||||||||||||
Ireland | |||||||||||||||||
Novartis Ireland Limited, Dublin | EUR | 25,000 | 100 | ‹*› | |||||||||||||
Novartis Ringaskiddy Limited, Ringaskiddy, County Cork | EUR | 2.0 m | 100 | \*/ | |||||||||||||
Alcon Laboratories Ireland Limited, Cork City | EUR | 541,251 | 100 | \*/ | |||||||||||||
Italy | |||||||||||||||||
Novartis Farma S.p.A., Origgio | EUR | 18.2 m | 100 | /*/ | ‹*› | \*/ | /*\ | ||||||||||
Alcon Italia S.p.A., Milan | EUR | 1.3 m | 100 | ‹*› | |||||||||||||
CIBA Vision S.r.l., Marcon | EUR | 2.4 m | 100 | ‹*› | |||||||||||||
Sandoz S.p.A., Origgio | EUR | 679,900 | 100 | ‹*› | |||||||||||||
Sandoz Industrial Products S.p.A., Rovereto | EUR | 2.6 m | 100 | \*/ | |||||||||||||
Novartis Vaccines and Diagnostics S.r.l., Siena | EUR | 41.5 m | 100 | ‹*› | \*/ | /*\ | |||||||||||
Novartis Consumer Health S.p.A., Origgio | EUR | 2.9 m | 100 | ‹*› |
As at December 31, 2015 | Share/paid-in capital(1) | Equity interest % | Activities | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Greece | |||||||||||||||||
Novartis (Hellas) S.A.C.I., Metamorphosis/Athens | EUR | 23.4 m | 100 | ‹*› | |||||||||||||
Alcon Laboratories Hellas Commercial & Industrial S.A., Maroussi/Athens | EUR | 5.7 m | 100 | ‹*› | |||||||||||||
Hungary |
| ||||||||||||||||
Novartis Hungary Healthcare Limited Liability Company, Budapest | HUF | 545.6 m | 100 | ‹*› | |||||||||||||
Sandoz Hungary Limited Liability Company, Budapest | HUF | 883.0 m | 100 | ‹*› | |||||||||||||
India |
| ||||||||||||||||
Novartis India Limited, Mumbai | INR | 159.8 m | 75 | ‹*› | |||||||||||||
Novartis Healthcare Private Limited, Mumbai | INR | 60.0 m | 100 | ‹*› | ▲ | ||||||||||||
Alcon Laboratories (India) Private Limited, Bangalore | INR | 1.1 bn | 100 | ‹*› | |||||||||||||
Sandoz Private Limited, Mumbai | INR | 32.0 m | 100 | ‹*› | \*/ | ||||||||||||
Indonesia |
| ||||||||||||||||
PT Novartis Indonesia, Jakarta | IDR | 7.7 bn | 100 | ‹*› | \*/ | ||||||||||||
PT CIBA Vision Batam, Batam | IDR | 11.9 bn | 100 | \*/ | |||||||||||||
Ireland |
| ||||||||||||||||
Novartis Ireland Limited, Dublin | EUR | 25,000 | 100 | ‹*› | |||||||||||||
Novartis Ringaskiddy Limited, Ringaskiddy, County Cork | EUR | 2.0 m | 100 | \*/ | |||||||||||||
Alcon Laboratories Ireland Limited, Cork City | EUR | 541,251 | 100 | \*/ | |||||||||||||
Israel |
| ||||||||||||||||
Novartis Israel Ltd., Petach Tikva | ILS | 1,000 | 100 | ‹*› | ▲ | ||||||||||||
Italy |
| ||||||||||||||||
Novartis Farma S.p.A., Origgio | EUR | 18.2 m | 100 | /*/ | ‹*› | \*/ | ▲ | ||||||||||
Alcon Italia S.p.A., Milan | EUR | 3.7 m | 100 | ‹*› | |||||||||||||
Sandoz S.p.A., Origgio | EUR | 1.7 m | 100 | ‹*› | |||||||||||||
Sandoz Industrial Products S.p.A., Rovereto | EUR | 2.6 m | 100 | \*/ | |||||||||||||
Japan |
| ||||||||||||||||
Novartis Holding Japan K.K., Tokyo | JPY | 10.0 m | 100 | /*/ | |||||||||||||
Novartis Pharma K.K., Tokyo | JPY | 6.0 bn | 100 | ‹*› | ▲ | ||||||||||||
Alcon Japan Ltd., Tokyo | JPY | 500.0 m | 100 | ‹*› | |||||||||||||
Sandoz K.K., Tokyo | JPY | 100.0 m | 100 | ‹*› | \*/ | ▲ | |||||||||||
Luxembourg |
| ||||||||||||||||
Novartis Investments S.à r.l., Luxembourg-Ville | $ | 100.0 m | 100 | /*/ | |||||||||||||
Novartis Finance S.A., Luxembourg-Ville | $ | 100,000 | 100 | /*/ | |||||||||||||
Malaysia |
| ||||||||||||||||
Novartis Corporation (Malaysia) Sdn. Bhd., Kuala Lumpur | MYR | 3.3 m | 100 | ‹*› | |||||||||||||
Alcon Laboratories (Malaysia) Sdn. Bhd., Petaling Jaya | MYR | 1.0 m | 100 | ‹*› | |||||||||||||
CIBA Vision Johor Sdn. Bhd., Gelang Patah | MYR | 5.0 m | 100 | \*/ | |||||||||||||
Mexico |
| ||||||||||||||||
Novartis Farmacéutica, S.A. de C.V., Mexico City | MXN | 205.0 m | 100 | ‹*› | \*/ | ||||||||||||
Alcon Laboratorios, S.A. de C.V., Mexico City | MXN | 5.9 m | 100 | ‹*› | \*/ | ||||||||||||
Sandoz, S.A. de C.V., Mexico City | MXN | 468.2 m | 100 | ‹*› | \*/ | ||||||||||||
Morocco |
| ||||||||||||||||
Novartis Pharma Maroc SA, Casablanca | MAD | 80.0 m | 100 | ‹*› | \*/ |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
31.32. Principal Group Subsidiaries and Associated Companies (Continued)
As at December 31, 2012 | Share/paid-in capital(1) | Equity interest % | Activities | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Japan | |||||||||||||||||
Novartis Holding Japan K.K., Tokyo | JPY | 10.0 m | 100 | /*/ | |||||||||||||
Novartis Pharma K.K., Tokyo | JPY | 6.0 bn | 100 | ‹*› | /*\ | ||||||||||||
Alcon Japan Ltd., Tokyo | JPY | 500.0 m | 100 | ‹*› | |||||||||||||
CIBA Vision K.K., Tokyo | JPY | 100.0 m | 100 | ‹*› | |||||||||||||
Sandoz K.K., Tokyo | JPY | 100.0 m | 100 | ‹*› | \*/ | /*\ | |||||||||||
Novartis Animal Health K.K., Tokyo | JPY | 50.0 m | 100 | ‹*› | /*\ | ||||||||||||
Luxembourg | |||||||||||||||||
Novartis Investments S.à r.l., Luxembourg-Ville | USD | 2.6 bn | 100 | /*/ | |||||||||||||
Novartis Finance S.A., Luxembourg-Ville | USD | 100,000 | 100 | /*/ | |||||||||||||
Malaysia | |||||||||||||||||
Novartis Corporation (Malaysia) Sdn. Bhd., Kuala Lumpur | MYR | 3.3 m | 100 | ‹*› | |||||||||||||
Alcon Laboratories (Malaysia) Sdn. Bhd., Petaling Jaya | MYR | 1.0 m | 100 | ‹*› | |||||||||||||
CIBA Vision Johor Sdn. Bhd., Gelang Patah | MYR | 5.0 m | 100 | \*/ | |||||||||||||
Mexico | |||||||||||||||||
Novartis Farmacéutica, S.A. de C.V., Mexico City | MXN | 205.0 m | 100 | ‹*› | \*/ | ||||||||||||
Alcon Laboratorios, S.A. de C.V., Mexico City | MXN | 5.9 m | 100 | ‹*› | \*/ | ||||||||||||
Sandoz S.A. de C.V., Mexico City | MXN | 468.2 m | 100 | ‹*› | \*/ | ||||||||||||
Netherlands | |||||||||||||||||
Novartis Netherlands B.V., Arnhem | EUR | 1.4 m | 100 | /*/ | |||||||||||||
Novartis Pharma B.V., Arnhem | EUR | 4.5 m | 100 | ‹*› | |||||||||||||
Alcon Nederland B.V., Breda | EUR | 18,151 | 100 | ‹*› | |||||||||||||
Sandoz B.V., Almere | EUR | 907,570 | 100 | ‹*› | \*/ | ||||||||||||
Novartis Consumer Health B.V., Breda | EUR | 23,830 | 100 | ‹*› | \*/ | ||||||||||||
New Zealand | |||||||||||||||||
Novartis New Zealand Ltd., Auckland | NZD | 820,000 | 100 | ‹*› | |||||||||||||
Norway | |||||||||||||||||
Novartis Norge AS, Oslo | NOK | 1.5 m | 100 | ‹*› | |||||||||||||
Pakistan | |||||||||||||||||
Novartis Pharma (Pakistan) Limited, Karachi | PKR | 1.8 bn | 100 | ‹*› | \*/ | ||||||||||||
Panama | |||||||||||||||||
Novartis Pharma (Logistics), Inc., Ciudad de Panama | USD | 10,000 | 100 | ‹*› | |||||||||||||
Peru | |||||||||||||||||
Novartis Biosciences Peru S.A., Lima | PEN | 6.1 m | 100 | ‹*› | |||||||||||||
Philippines | |||||||||||||||||
Novartis Healthcare Philippines, Inc., Makati/Manila | PHP | 298.8 m | 100 | ‹*› | |||||||||||||
Sandoz Philippines Corporation, Manila | PHP | 30.0 m | 100 | ‹*› | \*/ | ||||||||||||
Poland | |||||||||||||||||
Novartis Poland Sp. z o.o., Warszawa | PLN | 44.2 m | 100 | ‹*› | |||||||||||||
Alcon Polska Sp. z o.o., Warszawa | PLN | 750,000 | 100 | ‹*› | |||||||||||||
Sandoz Polska Sp. z o.o., Warszawa | PLN | 25.6 m | 100 | ‹*› | |||||||||||||
Lek S.A., Strykow | PLN | 11.4 m | 100 | ‹*› | \*/ |
As at December 31, 2015 | Share/paid-in capital(1) | Equity interest % | Activities | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Netherlands | |||||||||||||||||
Novartis Netherlands B.V., Arnhem | EUR | 1.4 m | 100 | /*/ | |||||||||||||
Novartis Pharma B.V., Arnhem | EUR | 4.5 m | 100 | ‹*› | ▲ | ||||||||||||
Alcon Nederland B.V., Breda | EUR | 18,151 | 100 | ‹*› | |||||||||||||
Sandoz B.V., Almere | EUR | 907,560 | 100 | ‹*› | \*/ | ||||||||||||
New Zealand |
| ||||||||||||||||
Novartis New Zealand Ltd., Auckland | NZD | 820,000 | 100 | ‹*› | |||||||||||||
Norway |
| ||||||||||||||||
Novartis Norge AS, Oslo | NOK | 1.5 m | 100 | ‹*› | ▲ | ||||||||||||
Pakistan |
| ||||||||||||||||
Novartis Pharma (Pakistan) Limited, Karachi | PKR | 3.9 bn | 100 | ‹*› | |||||||||||||
Panama |
| ||||||||||||||||
Novartis Pharma (Logistics), Inc., Ciudad de Panama | $ | 10,000 | 100 | ‹*› | |||||||||||||
Alcon Centroamerica S.A., Ciudad de Panama | PAB | 1,000 | 100 | ‹*› | |||||||||||||
Philippines |
| ||||||||||||||||
Novartis Healthcare Philippines, Inc., Makati/Manila | PHP | 298.8 m | 100 | ‹*› | |||||||||||||
Sandoz Philippines Corporation, Manila | PHP | 30.0 m | 100 | ‹*› | \*/ | ||||||||||||
Alcon Laboratories (Philippines), Inc., Manila | PHP | 16.5 m | 100 | ‹*› | |||||||||||||
Poland |
| ||||||||||||||||
Novartis Poland Sp. z o.o., Warszawa | PLN | 44.2 m | 100 | ‹*› | ▲ | ||||||||||||
Alcon Polska Sp. z o.o., Warszawa | PLN | 750,000 | 100 | ‹*› | |||||||||||||
Sandoz Polska Sp. z o.o., Warszawa | PLN | 25.6 m | 100 | ‹*› | |||||||||||||
Lek S.A., Strykow | PLN | 11.4 m | 100 | ‹*› | \*/ | ||||||||||||
Portugal |
| ||||||||||||||||
Novartis Portugal SGPS Lda., Porto Salvo | EUR | 500,000 | 100 | /*/ | |||||||||||||
Novartis Farma—Produtos Farmacêuticos S.A., Porto Salvo | EUR | 2.4 m | 100 | ‹*› | |||||||||||||
Alcon Portugal-Produtos e Equipamentos Oftalmologicos Lda., Porto Salvo | EUR | 4.5 m | 100 | ‹*› | |||||||||||||
Sandoz Farmacêutica Lda., Porto Salvo | EUR | 499,900 | 100 | ‹*› | |||||||||||||
Puerto Rico |
| ||||||||||||||||
Alcon (Puerto Rico) Inc., Catano | $ | 15.5 | 100 | ‹*› | |||||||||||||
Romania |
| ||||||||||||||||
Sandoz S.R.L., Targu-Mures | RON | 105.2 m | 100 | ‹*› | \*/ | ||||||||||||
Novartis Pharma Services Romania S.R.L., Bucharest | RON | 3.0 m | 100 | ‹*› | |||||||||||||
Alcon Romania S.R.L., Bucharest | RON | 10.8 m | 100 | ‹*› | |||||||||||||
Russian Federation |
| ||||||||||||||||
Novartis Pharma LLC, Moscow | RUB | 20.0 m | 100 | ‹*› | |||||||||||||
Alcon Farmacevtika LLC, Moscow | RUB | 44.1 m | 100 | ‹*› | |||||||||||||
ZAO Sandoz, Moscow | RUB | 57.4 m | 100 | ‹*› | |||||||||||||
Novartis Neva LLC, St. Petersburg | RUB | 1.3 bn | 100 | \*/ | |||||||||||||
Saudi Arabia |
| ||||||||||||||||
Saudi Pharmaceutical Distribution Co. Ltd., Riyadh | SAR | 26.8 m | 75 | ‹*› | |||||||||||||
Singapore |
| ||||||||||||||||
Novartis (Singapore) Pte Ltd., Singapore | SGD | 100,000 | 100 | ‹*› | |||||||||||||
Novartis Singapore Pharmaceutical Manufacturing Pte Ltd., Singapore | SGD | 45.0 m | 100 | \*/ | |||||||||||||
Novartis Asia Pacific Pharmaceuticals Pte Ltd., Singapore | SGD | 39.0 m | 100 | ‹*› | \*/ |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
31.32. Principal Group Subsidiaries and Associated Companies (Continued)
As at December 31, 2012 | Share/paid-in capital(1) | Equity interest % | Activities | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Portugal | |||||||||||||||||
Novartis Portugal SGPS Lda., Sintra | EUR | 500,000 | 100 | /*/ | |||||||||||||
Novartis Farma—Produtos Farmacêuticos S.A., Sintra | EUR | 2.4 m | 100 | ‹*› | |||||||||||||
Alcon Portugal-Produtos e Equipamentos Oftalmologicos Lda., Paco d'Arcos | EUR | 4.5 m | 100 | ‹*› | |||||||||||||
Sandoz Pharmacéutica Ltd., Sintra | EUR | 5.0 m | 100 | ‹*› | |||||||||||||
Novartis Consumer Health—Produtos Farmacêuticos e Nutrição Lda., Sintra | EUR | 100,000 | 100 | ‹*› | |||||||||||||
Puerto Rico | |||||||||||||||||
Ex-Lax, Inc., Humacao | USD | 10,000 | 100 | \*/ | |||||||||||||
Alcon (Puerto Rico) Inc., Catano | USD | 15.5 | 100 | ‹*› | |||||||||||||
Romania | |||||||||||||||||
Sandoz S.R.L., Targu-Mures | RON | 105.2 m | 100 | ‹*› | \*/ | ||||||||||||
Russian Federation | |||||||||||||||||
Novartis Pharma LLC, Moscow | RUB | 20.0 m | 100 | ‹*› | |||||||||||||
Alcon Farmacevtika LLC, Moscow | RUB | 44.1 m | 100 | ‹*› | |||||||||||||
ZAO Sandoz, Moscow | RUB | 57.4 m | 100 | ‹*› | |||||||||||||
Novartis Neva LLC, St. Petersburg | RUB | 500.0 m | 100 | \*/ | |||||||||||||
Novartis Consumer Health LLC, Moscow | RUB | 80.0 m | 100 | ‹*› | |||||||||||||
Saudi Arabia | |||||||||||||||||
Saudi Pharmaceutical Distribution Co. Ltd., Riyadh | SAR | 26.8 m | 75 | ‹*› | |||||||||||||
Singapore | |||||||||||||||||
Novartis (Singapore) Pte Ltd., Singapore | SGD | 100,000 | 100 | ‹*› | |||||||||||||
Novartis Singapore Pharmaceutical Manufacturing Pte Ltd., Singapore | SGD | 45.0 m | 100 | \*/ | |||||||||||||
Novartis Asia Pacific Pharmaceuticals Pte Ltd., Singapore | SGD | 1.0 m | 100 | ‹*› | |||||||||||||
Novartis Institute for Tropical Diseases Pte Ltd., Singapore | SGD | 2,004 | 100 | /*\ | |||||||||||||
Alcon Singapore Manufacturing Pte Ltd., Singapore | SGD | 101,000 | 100 | \*/ | |||||||||||||
CIBA Vision (Singapore) Pte Ltd., Singapore | SGD | 400,000 | 100 | ‹*› | |||||||||||||
CIBA Vision Asian Manufacturing and Logistics Pte Ltd., Singapore | SGD | 1.0 m | 100 | \*/ | |||||||||||||
Slovakia | |||||||||||||||||
Novartis Slovakia s.r.o., Bratislava | EUR | 2.0 m | 100 | ‹*› | |||||||||||||
Slovenia | |||||||||||||||||
Lek Pharmaceuticals d.d., Ljubljana | EUR | 48.4 m | 100 | /*/ | ‹*› | \*/ | /*\ | ||||||||||
Sandoz Pharmaceuticals d.d., Ljubljana | EUR | 1.5 m | 100 | ‹*› | |||||||||||||
South Africa | |||||||||||||||||
Novartis South Africa (Pty) Ltd., Kempton Park | ZAR | 86.3 m | 100 | ‹*› | |||||||||||||
Alcon Laboratories (South Africa) (Pty) Ltd., Bryanston, Gauteng | ZAR | 201,820 | 100 | ‹*› | |||||||||||||
Sandoz South Africa (Pty) Ltd., Kempton Park | ZAR | 3.0 m | 100 | ‹*› | \*/ | ||||||||||||
South Korea | |||||||||||||||||
Novartis Korea Ltd., Seoul | KRW | 24.5 bn | 99 | ‹*› | |||||||||||||
Alcon Korea Ltd., Seoul | KRW | 33.8 bn | 100 | ‹*› |
As at December 31, 2015 | Share/paid-in capital(1) | Equity interest % | Activities | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Novartis Institute for Tropical Diseases Pte Ltd., Singapore | SGD | 2,004 | 100 | ▲ | |||||||||||||
Alcon Singapore Manufacturing Pte Ltd., Singapore | SGD | 101,000 | 100 | \*/ | |||||||||||||
CIBA Vision Asian Manufacturing and Logistics Pte Ltd., Singapore | SGD | 1.0 m | 100 | \*/ | |||||||||||||
Alcon Pte Ltd, Singapore | SGD | 164,000 | 100 | ‹*› | |||||||||||||
Slovakia |
| ||||||||||||||||
Novartis Slovakia s.r.o., Bratislava | EUR | 2.0 m | 100 | ‹*› | |||||||||||||
Slovenia |
| ||||||||||||||||
Lek Pharmaceuticals d.d., Ljubljana | EUR | 48.4 m | 100 | /*/ | ‹*› | \*/ | ▲ | ||||||||||
Sandoz Pharmaceuticals d.d., Ljubljana | EUR | 1.5 m | 100 | ‹*› | |||||||||||||
South Africa |
| ||||||||||||||||
Novartis South Africa (Pty) Ltd., Kempton Park | ZAR | 86.3 m | 100 | ‹*› | |||||||||||||
Alcon Laboratories (South Africa) (Pty) Ltd., Bryanston, Gauteng | ZAR | 201,820 | 100 | ‹*› | |||||||||||||
Sandoz South Africa (Pty) Ltd., Kempton Park | ZAR | 3.0 m | 100 | ‹*› | ▲ | ||||||||||||
South Korea |
| ||||||||||||||||
Novartis Korea Ltd., Seoul | KRW | 24.5 bn | 99 | ‹*› | |||||||||||||
Alcon Korea Ltd., Seoul | KRW | 33.8 bn | 100 | ‹*› | |||||||||||||
Sandoz Korea Ltd., Seoul | KRW | 17.8 bn | 100 | ‹*› | |||||||||||||
Spain |
| ||||||||||||||||
Novartis Farmacéutica, S.A., Barcelona | EUR | 63.0 m | 100 | /*/ | ‹*› | \*/ | |||||||||||
Alcon Cusi S.A., El Masnou | EUR | 11.6 m | 100 | ‹*› | \*/ | ▲ | |||||||||||
Sandoz Farmacéutica, S.A., Madrid | EUR | 270,450 | 100 | ‹*› | |||||||||||||
Sandoz Industrial Products, S.A., Les Franqueses del Vallés/Barcelona | EUR | 9.3 m | 100 | ‹*› | \*/ | ▲ | |||||||||||
Sweden |
| ||||||||||||||||
Novartis Sverige AB, Täby/Stockholm | SEK | 5.0 m | 100 | ‹*› | |||||||||||||
Switzerland |
| ||||||||||||||||
Novartis International AG, Basel | CHF | 10.0 m | 100 | /*/ | |||||||||||||
Novartis Holding AG, Basel | CHF | 100.2 m | 100 | /*/ | |||||||||||||
Novartis Research Foundation, Basel | CHF | 29.3 m | 100 | /*/ | |||||||||||||
Novartis Foundation for Management Development, Basel | CHF | 100,000 | 100 | /*/ | |||||||||||||
Novartis Foundation for Employee Participation, Basel | CHF | 100,000 | 100 | /*/ | |||||||||||||
Novartis Sanierungsstiftung, Basel | CHF | 2.0 m | 100 | /*/ | |||||||||||||
Novartis Pharma AG, Basel | CHF | 350.0 m | 100 | /*/ | ‹*› | \*/ | ▲ | ||||||||||
Novartis Pharma Services AG, Basel | CHF | 20.0 m | 100 | ‹*› | |||||||||||||
Novartis Pharma Schweizerhalle AG, Schweizerhalle | CHF | 18.9 m | 100 | \*/ | |||||||||||||
Novartis Pharma Stein AG, Stein | CHF | 251,000 | 100 | \*/ | ▲ | ||||||||||||
Novartis Pharma Schweiz AG, Rotkreuz | CHF | 5.0 m | 100 | ‹*› | ▲ | ||||||||||||
Alcon Switzerland SA, Rotkreuz | CHF | 100,000 | 100 | ‹*› | |||||||||||||
Alcon Pharmaceuticals Ltd., Fribourg | CHF | 200,000 | 100 | /*/ | ‹*› | \*/ | ▲ | ||||||||||
ESBATech, a Novartis Company GmbH, Schlieren | CHF | 14.0 m | 100 | ▲ | |||||||||||||
Sandoz AG, Basel | CHF | 5.0 m | 100 | /*/ | ‹*› | \*/ | ▲ | ||||||||||
Sandoz Pharmaceuticals AG, Risch | CHF | 100,000 | 100 | ‹*› | |||||||||||||
Roche Holding AG, Basel | CHF | 160.0 m | 33/6 | (3) | /*/ | ||||||||||||
Taiwan |
| ||||||||||||||||
Novartis (Taiwan) Co., Ltd., Taipei | TWD | 170.0 m | 100 | ‹*› |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
31.32. Principal Group Subsidiaries and Associated Companies (Continued)
As at December 31, 2012 | Share/paid-in capital(1) | Equity interest % | Activities | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Spain | |||||||||||||||||
Novartis Farmacéutica, S.A., Barcelona | EUR | 63.0 m | 100 | /*/ | ‹*› | \*/ | |||||||||||
Alcon Cusi S.A., El Masnou | EUR | 11.6 m | 100 | ‹*› | \*/ | ||||||||||||
CIBA Vision, S.A., Barcelona | EUR | 1.4 m | 100 | ‹*› | |||||||||||||
Sandoz Farmacéutica, S.A., Madrid | EUR | 270,450 | 100 | ‹*› | |||||||||||||
Sandoz Industrial Products, S.A., Les Franqueses del Vallés/Barcelona | EUR | 9.3 m | 100 | ‹*› | \*/ | /*\ | |||||||||||
Bexal Farmacéutica, S.A., Madrid | EUR | 1.0 m | 100 | ‹*› | |||||||||||||
Novartis Vaccines and Diagnostics, S.L., Barcelona | EUR | 675,450 | 100 | ‹*› | |||||||||||||
Novartis Consumer Health, S.A., Barcelona | EUR | 876,919 | 100 | ‹*› | |||||||||||||
Sweden | |||||||||||||||||
Novartis Sverige Participations AB, Täby/Stockholm | SEK | 1.0 m | 100 | /*/ | |||||||||||||
Novartis Sverige AB, Täby/Stockholm | SEK | 5.0 m | 100 | ‹*› | |||||||||||||
Alcon Sverige AB, Bromma | SEK | 100,000 | 100 | ‹*› | |||||||||||||
CIBA Vision Nordic AB, Askim/Göteborg | SEK | 2.5 m | 100 | ‹*› | |||||||||||||
Switzerland | |||||||||||||||||
Novartis International AG, Basel | CHF | 10.0 m | 100 | /*/ | |||||||||||||
Novartis Holding AG, Basel | CHF | 100.2 m | 100 | /*/ | |||||||||||||
Novartis Research Foundation, Basel | CHF | 29.3 m | 100 | /*/ | |||||||||||||
Novartis Foundation for Management Development, Basel | CHF | 100,000 | 100 | /*/ | |||||||||||||
Novartis Foundation for Employee Participation, Basel | CHF | 100,000 | 100 | /*/ | |||||||||||||
Novartis Sanierungsstiftung, Basel | CHF | 2.0 m | 100 | /*/ | |||||||||||||
Novartis Pharma AG, Basel | CHF | 350.0 m | 100 | /*/ | ‹*› | \*/ | /*\ | ||||||||||
Novartis Pharma Services AG, Basel | CHF | 20.0 m | 100 | ‹*› | |||||||||||||
Novartis Pharma Schweizerhalle AG, Muttenz | CHF | 18.9 m | 100 | \*/ | |||||||||||||
Novartis Pharma Stein AG, Stein | CHF | 251,000 | 100 | \*/ | /*\ | ||||||||||||
Novartis Pharma Schweiz AG, Bern | CHF | 5.0 m | 100 | ‹*› | /*\ | ||||||||||||
Alcon Switzerland SA, Hünenberg | CHF | 100,000 | 100 | ‹*› | |||||||||||||
Alcon Pharmaceuticals Ltd., Fribourg | CHF | 200,000 | 100 | /*/ | ‹*› | ||||||||||||
ESBATech, a Novartis Company GmbH, Schlieren | CHF | 14.0 m | 100 | /*\ | |||||||||||||
Sandoz AG, Basel | CHF | 5.0 m | 100 | /*/ | ‹*› | /*\ | |||||||||||
Sandoz Pharmaceuticals AG, Steinhausen | CHF | 100,000 | 100 | ‹*› | |||||||||||||
Novartis Vaccines and Diagnostics AG, Basel | CHF | 800,000 | 100 | /*/ | /*\ | ||||||||||||
Novartis Vaccines and Diagnostics Services AG, Basel | CHF | 100,000 | 100 | /*/ | \*/ | ||||||||||||
Novartis Consumer Health S.A., Nyon | CHF | 30.0 m | 100 | /*/ | ‹*› | \*/ | /*\ | ||||||||||
Novartis Consumer Health Schweiz AG, Bern | CHF | 250,000 | 100 | ‹*› | |||||||||||||
Novartis Animal Health AG, Basel | CHF | 101,000 | 100 | /*/ | ‹*› | \*/ | /*\ | ||||||||||
Novartis Centre de Recherche Santé Animale S.A., St. Aubin | CHF | 250,000 | 100 | /*\ | |||||||||||||
Roche Holding AG, Basel | CHF | 160.0 m | 33/6 | (3) | /*/ | ||||||||||||
Taiwan | |||||||||||||||||
Novartis (Taiwan) Co., Ltd., Taipei | TWD | 170.0 m | 100 | ‹*› | \*/ | ||||||||||||
Thailand | |||||||||||||||||
Novartis (Thailand) Limited, Bangkok | THB | 230.0 m | 100 | ‹*› | |||||||||||||
Alcon Laboratories (Thailand) Ltd., Bangkok | THB | 2.1 m | 100 | ‹*› | |||||||||||||
Turkey | |||||||||||||||||
Novartis Saglik, Gida ve Tarim Ürünleri Sanayi ve Ticaret A.S., Istanbul | TRY | 98.0 m | 100 | ‹*› | \*/ | ||||||||||||
Alcon Laboratuvarlari Ticaret A.S., Istanbul | TRY | 25.2 m | 100 | ‹*› | |||||||||||||
Sandoz Ilaç Sanayi ve Ticaret A.S., Istanbul | TRY | 160.0 m | 100 | ‹*› | \*/ |
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
31. Principal Group Subsidiaries and Associated Companies (Continued)
As at December 31, 2012 | Share/paid-in capital(1) | Equity interest % | Activities | |||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
As at December 31, 2015 | Share/paid-in capital(1) | Equity interest % | Activities | |||||||||||||||||||||||||||||||
Thailand |
| |||||||||||||||||||||||||||||||||
Novartis (Thailand) Limited, Bangkok | THB | 302.0 m | 100 | ‹*› | ||||||||||||||||||||||||||||||
Alcon Laboratories (Thailand) Ltd., Bangkok | THB | 228.1 m | 100 | ‹*› | ||||||||||||||||||||||||||||||
Turkey | ||||||||||||||||||||||||||||||||||
Novartis Saglik, Gida ve Tarim Ürünleri Sanayi ve Ticaret A.S., Istanbul | TRY | 98.0 m | 100 | ‹*› | \*/ | |||||||||||||||||||||||||||||
Alcon Laboratuvarlari Ticaret A.S., Istanbul | TRY | 25.2 m | 100 | ‹*› | ||||||||||||||||||||||||||||||
Sandoz Ilaç Sanayi ve Ticaret A.S., Istanbul | TRY | 165.2 m | 100 | ‹*› | \*/ | |||||||||||||||||||||||||||||
United Arab Emirates |
| |||||||||||||||||||||||||||||||||
Novartis Middle East FZE, Dubai | AED | 7.0 m | 100 | ‹*› | ||||||||||||||||||||||||||||||
United Kingdom |
| |||||||||||||||||||||||||||||||||
Novartis UK Limited, Frimley/Camberley | GBP | 25.5 m | 100 | /*/ | GBP | 25.5 m | 100 | /*/ | ||||||||||||||||||||||||||
Novartis Pharmaceuticals UK Limited, Frimley/Camberley | GBP | 5.4 m | 100 | ‹*› | \*/ | /*\ | GBP | 5.4 m | 100 | ‹*› | \*/ | ▲ | ||||||||||||||||||||||
Novartis Grimsby Limited, Frimley/Camberley | GBP | 230 m | 100 | \*/ | GBP | 250.0 m | 100 | \*/ | ||||||||||||||||||||||||||
Alcon Laboratories (UK) Limited, Frimley/Camberley | GBP | 9.1 m | 100 | ‹*› | ||||||||||||||||||||||||||||||
Alcon Eye Care (UK) Limited, Frimley/Camberley | GBP | 550,000 | 100 | ‹*› | GBP | 550,000 | 100 | ‹*› | ||||||||||||||||||||||||||
Sandoz Limited, Frimley/Camberley | GBP | 2.0 m | 100 | ‹*› | GBP | 2.0 m | 100 | ‹*› | ||||||||||||||||||||||||||
Novartis Vaccines and Diagnostics Limited, Frimley/Camberley | GBP | 100 | 100 | ‹*› | \*/ | |||||||||||||||||||||||||||||
Novartis Consumer Health UK Limited, Horsham | GBP | 25,000 | 100 | ‹*› | \*/ | |||||||||||||||||||||||||||||
Novartis Animal Health UK Limited, Frimley/Camberley | GBP | 100,000 | 100 | ‹*› | /*\ | |||||||||||||||||||||||||||||
Glaxosmithkline Consumer Healthcare Holdings Limited, Brentford, Middlesex | GBP | 100,000 | 36.5 | /*/ | ||||||||||||||||||||||||||||||
United States of America |
| |||||||||||||||||||||||||||||||||
Novartis Corporation, East Hanover, NJ | USD | 98.6 m | 100 | /*/ | $ | 72.2 m | 100 | /*/ | ||||||||||||||||||||||||||
Novartis Finance Corporation, New York, NY | USD | 2.0 bn | 100 | /*/ | $ | 1,002 | 100 | /*/ | ||||||||||||||||||||||||||
Novartis Capital Corporation, New York, NY | USD | 1 | 100 | /*/ | $ | 1 | 100 | /*/ | ||||||||||||||||||||||||||
Novartis Pharmaceuticals Corporation, East Hanover, NJ | USD | 5.2 m | 100 | ‹*› | \*/ | /*\ | $ | 5.2 m | 100 | ‹*› | \*/ | ▲ | ||||||||||||||||||||||
Novartis Institutes for BioMedical Research, Inc., Cambridge, MA | USD | 1 | 100 | /*\ | $ | 1 | 100 | ▲ | ||||||||||||||||||||||||||
CoStim Pharmaceuticals, Inc., Cambridge, MA | $ | 1 | 100 | ▲ | ||||||||||||||||||||||||||||||
Novartis Institute for Functional Genomics, Inc., San Diego, CA | USD | 21,000 | 100 | /*\ | $ | 21,000 | 100 | ▲ | ||||||||||||||||||||||||||
Genoptix, Inc., Carlsbad, CA | USD | 1 | 100 | ‹*› | /*\ | $ | 1 | 100 | ‹*› | ▲ | ||||||||||||||||||||||||
Alcon Laboratories, Inc., Fort Worth, TX | USD | 1,000 | 100 | /*/ | ‹*› | \*/ | $ | 1,000 | 100 | /*/ | ‹*› | \*/ | ||||||||||||||||||||||
Alcon Refractive Horizons, LLC, Fort Worth, TX | USD | 10 | 100 | \*/ | $ | 10 | 100 | \*/ | ||||||||||||||||||||||||||
Alcon Research, Ltd., Fort Worth, TX | USD | 2.5 bn | 100 | \*/ | /*\ | $ | 12.5 | 100 | \*/ | ▲ | ||||||||||||||||||||||||
Alcon LenSx, Inc., Alisio Viejo, CA | USD | 100 | 100 | \*/ | $ | 100 | 100 | \*/ | ||||||||||||||||||||||||||
CIBA Vision Corporation, Duluth, GA | USD | 301.3 m | 100 | /*/ | ‹*› | \*/ | /*\ | |||||||||||||||||||||||||||
WaveTec Vision Systems, Inc., Alisio Viejo, CA | $ | 1 | 100 | ‹*› | \*/ | ▲ | ||||||||||||||||||||||||||||
Sandoz Inc., Princeton, NJ | USD | 25,000 | 100 | ‹*› | \*/ | /*\ | $ | 25,000 | 100 | ‹*› | \*/ | ▲ | ||||||||||||||||||||||
Fougera Pharmaceuticals, Inc., Melville, NY | USD | 1 | 100 | ‹*› | /*\ | $ | 1 | 100 | ‹*› | \*/ | ▲ | |||||||||||||||||||||||
Eon Labs, Inc., Princeton, NJ | USD | 1 | 100 | ‹*› | \*/ | $ | 1 | 100 | ‹*› | \*/ | ||||||||||||||||||||||||
Falcon Pharmaceuticals, Ltd., Forth Worth, TX | USD | 10 | 100 | ‹*› | ||||||||||||||||||||||||||||||
Novartis Vaccines and Diagnostics, Inc., Cambridge, MA | USD | 3.0 | 100 | ‹*› | \*/ | /*\ | $ | 3.0 | 100 | ‹*› | ||||||||||||||||||||||||
Novartis Consumer Health, Inc., Parsippany, NJ | USD | 0 | (2) | 100 | ‹*› | \*/ | /*\ | |||||||||||||||||||||||||||
Novartis Animal Health US, Inc., Greensboro, NC | USD | 100 | 100 | ‹*› | \*/ | /*\ | ||||||||||||||||||||||||||||
Idenix Pharmaceuticals, Inc., Cambridge, MA | USD | 133,883 | 25 | /*/ | ||||||||||||||||||||||||||||||
Novartis Services, Inc., East Hanover, NJ | $ | 1 | 100 | /*/ | ||||||||||||||||||||||||||||||
Venezuela |
| |||||||||||||||||||||||||||||||||
Novartis de Venezuela, S.A., Caracas | VEF | 1.4 m | 100 | ‹*› | VEF | 1.4 m | 100 | ‹*› | ||||||||||||||||||||||||||
Alcon Pharmaceutical, C.A., Caracas | VEF | 5.5 m | 100 | ‹*› | VEF | 5.5 m | 100 | ‹*› |
In addition, the Group is represented by subsidiaries and associated companies or joint ventures in the following countries: Algeria, Bosnia/Herzegovina, Bulgaria, Cayman Islands, Costa Rica, Dominican Republic, Guatemala, the Former Yugoslav Republic of Macedonia, Morocco,Peru, Ukraine and Uruguay.
m = million; bn = billion
NOTES TO THE NOVARTIS GROUP
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
31.32. Principal Group Subsidiaries and Associated Companies (Continued)
The following describe the various types of entities within the Group:
/*/ | Holding/Finance: This entity is a holding company and/or performs finance functions for the Group. | |
‹*› | Sales: This entity performs sales and marketing activities for the Group. | |
\*/ | Production: This entity performs manufacturing and/or production activities for the Group. | |