Uy NOVARTIS
`
`:
`
`|AnnualReport
`70,
`
`U.S. Pat. 9,254,338, Exhibit 2230
`
`Exhibit 2230
`Page 001 of 300
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`Mylan v. Regeneron, IPR2021-00881
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`Exhibit 2230
`Page 001 of 300
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`

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`Exhibit 2230
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`Page 002 of 300
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`Exhibit 2230
`Page 002 of 300
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`

`

`
`Annual Report
`Annual Report
`2020
`2020
`
`Exhibit 2230
`
`Page 003 of 300
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`Exhibit 2230
`Page 003 of 300
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`

`

`
`
`Chairman’s letter
`
`global health efforts and strengthened our governance
`framework. We consider these steps essential to con-
`tribute to efforts led by the United Nations to fight pov-
`erty and climate change, and work toward the creation
`of more equitable societies.
`
`With the goal of strengthening our reputation and pro-
`tecting the interests of patients, stakeholders and share-
`holders, we also overhauled our third-party risk manage-
`ment to establish stricter controls of our supplier network.
`Our new Code of Ethics, crowdsourced by associates
`and rolled out in 2020, is aimed at integrating ethics more
`closely into business decision-making. These steps are
`helping Novartis make progress to ward its ambition to be
`one of the world’s most trusted healthcare partners.
`
`I thank you for the confidence you have placed in our
`company and am pleased to be able to propose a divi-
`dend in crease of 2% to CHF 3.00 at the next Annual Gen-
`eral Meeting.
`
`
`Sincerely,
`
`Joerg Reinhardt
`Chairman of the Board of Directors
`
` I
`
`The COVID-19 pandemic in 2020 created massive soci-
`etal, economic and healthcare challenges. Novartis took
`careful steps to protect our associates, maintain supplies
`of medicines to pa tients and ensure business continuity,
`helping us also meet the needs and in terests of our
`healthcare partners, stake holders and shareholders.
`
`These actions enabled Novartis to na vi gate the pandemic
`and paved the way for future growth. We increased sales
`and operating profit in 2020, generated good cash flows
`and continued to innovate. We absorbed the economic
`shock without resorting to government support or divi-
`dend cuts, and we committed to no COVID-19-related
`job losses during the year. Our performance de monstrates
`our strong operational resilience and ability to cater to
`diverse patient needs in challenging situations.
`
`Even as the healthcare landscape changed, we launched
`new pro ducts and strengthened our foothold in the bio-
`similars arena. Our new launches included the multiple
`sclerosis medicine Kesimpta and the lung cancer treat-
`ment Tabrecta. We supported these market entries through
`digital platforms. Biosimilars, meanwhile, benefited from
`increased demand amid a continued focus on healthcare
`costs.
`
`Our research and development acti vities remained
`robust. We leveraged remote monitoring technology to
`en sure patient safety while keeping the majority of our
`clinical trials on track. We also enhanced internal and
`external collaboration to bolster our medical pipe line.
`Going forward, we will continue to pursue our sci-
`ence-based innovation strategy, focusing on fast-grow-
`ing areas of healthcare, including oncology, cardiology
`and lung diseases.
`
`We also participated in cross-industry collaborations to
`fight the pandemic and took steps to support patients in
`low-income and lower-middle-income countries through
`a dedicated generic medicines portfolio as well as the
`creation of a relief fund for affected communities. These
`efforts are designed to help mitigate the effects of the
`pandemic in the months and years to come, especially in
`the most vulnerable re gions of the world, where
`healthcare- related challenges can have undue long-term
`societal and economic consequences.
`
`Demonstrating the Board of Directors’ and manage-
`ment’s attention to the growing importance of our
`environ mental, social and governance (ESG) agenda, we
`further reduced our environmental footprint, expanded our
`
`Exhibit 2230
`Page 004 of 300
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`

`

`CEO’s letter
`
`2020 wasa unique yearin the long history of Novartis,
`as the COVID-19 pandemic challenged usto deliver on
`our purpose despite immense challengesto healthcare
`systems and society. Our company has the utmost
`respect and gratitude for healthcare professionals
`around the world whoare caring for patients, as well as
`for scientists who are finding ways to end the pandemic.
`
`As we review our performance for the year, | feel proud
`of the resilience and agility of our people who continued
`to make progressin reimagining medicine. In challenging
`circumstances, they maintained the supply of Novartis
`medicines to patients around the world while advancing
`our pipeline and pivoting to new ways of engaging with
`customers and eachother.
`
`
`
`We continued to make progresson our strategic priori-
`ties. We delivered new innovative medicinesfor patients,
`including a treatmentfor relapsing formsof multiple scle-
`I'm also proud of the ways Novartis contributed to the
`
`rosis andafirst-in-class siRNA cholesterol-lowering global pandemic response. Through Sandoz, Novartis
`treatment. We continued to develop and build out our
`wasthe first company to commit to keeping the prices
`pipeline, which remains one of the most valuable in the
`of essential generic medicines stable. We launched a
`industry. We're especially optimistic about our mid- to
`first-of-its-kind not-for-profit portfolio of medicines to
`late-stage pipeline, tracking five promising assets in our
`treat symptoms of COVID-19. And we played our partin
`the scientific effort to find treatments for the disease.
`Oncology pipeline, six in our Pharmaceuticals pipeline,
`and an additionalfive medicinesthat are already approved
`Acrossthe industry, we are sharing our scientific find-
`and that we believe can be further applied to expanded
`ings and our research and manufacturing capacity while
`areas of treatment.
`committing to equitable distribution of diagnostics, ther-
`apeutics and vaccines. Many more responseefforts are
`outlined in this report.
`
`Our ongoing commitments to operational excellence and
`our digital transformation werecritical to our success.
`We manageddisruptions to our development programs,
`with our early investments in data science and technol-
`ogy helping to keep the majority of our clinical trials on
`track. As most of the world wentinto lockdown, we mit-
`igated the disruption as much as we could byshifting to
`digital launches. We kept our supply stable while continu-
`ing to transform our production network to prepare for
`As|write this letter at the end of 2020, the world remains
`future growth.
`in the grip of COVID-19. Yet we have reasonsto be opti-
`mistic. The pandemic has demonstrated whatis possible
`when humanresilience and collaborative sciencerise to
`the occasion. Novartis will continue to deliver on our pur-
`pose to reimagine medicine by developing transforma-
`tive newtreatments andfinding innovative solutionsto the
`world’s mostpressing healthcare challenges.
`
`Delivering on our strategy supported our financial per-
`formance in 2020. Although the pandemic affected
`demand in sometherapeutic areas, strength in key prod-
`ucts helped us postnet sales of USD 48.7billion, up 3%,
`measured in constant currencies (cc). Our core operat-
`ing income rose 13% (cc) to USD 15.4 billion.
`
`Wealso continued to make progressin building trust with
`society. We announced new,ambitious targets regarding
`access to medicine and global health, and we issued a
`sustainability-linked bond to reinforce our commitmentto
`achieving them. Wealso strengthened our environmental
`targets, launched a new Code of Ethics, and followed
`through on our promiseto settle legacy legal matters from
`yearsprior.
`
`Sincerely,
`
`A V
`
`as Narasimhan
`Chief Executive Officer
`
`Culture underpinnedall of our efforts. The pandemic con-
`nected associates even more strongly to our purpose,
`created new demandsfor learning, and demonstrated
`the benefits of empowered working. We launched a new
`working model in 2020 designed to provide associates
`with greater flexibility while ensuring we continueto drive
`innovation and performance.
`
`Exhibit 2230
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`Page 005 of 300
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`Exhibit 2230
`Page 005 of 300
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`

`

`Table of contents
`
`Table of contents
`
`Introduction and use of certain terms .................................................................................................................................................................4
`Forward-looking statements ...................................................................................................................................................................................5
`PART I
`7
`Item 1.
`Identity of Directors, Senior Management and Advisers ...................................................................................................7
`Item 2. Offer Statistics and Expected Timetable ...................................................................................................................................8
`Item 3.
`Key Information ........................................................................................................................................................................................9
`
`3.A Selected financial data .........................................................................................................................................................................9
`
`3.B Capitalization and indebtedness ..................................................................................................................................................10
`
`3.C Reasons for the offer and use of proceeds ...........................................................................................................................10
`
`3.D Risk factors .............................................................................................................................................................................................11
`Item 4.
`Information on the Company ..........................................................................................................................................................23
`
`4.A History and development of Novartis ........................................................................................................................................23
`*
`
`4.B Business overview ...............................................................................................................................................................................23
`
`
`Innovative Medicines ..........................................................................................................................................................................24
`
`
`Sandoz ...................................................................................................................................................................................................... 43
`
`4.C Organizational structure .................................................................................................................................................................. 48
`
`4.D Property, plants and equipment .................................................................................................................................................. 48
`Item 4A. Unresolved Staff Comments ..........................................................................................................................................................50
`*
`Item 5. Operating and Financial Review and Prospects ..................................................................................................................51
`
`5.A Operating results..................................................................................................................................................................................51
`
`5.B Liquidity and capital resources .....................................................................................................................................................77
`
`5.C Research and development, patents and licenses .............................................................................................................86
`
`5.D Trend information .................................................................................................................................................................................86
`
`5.E Off-balance sheet arrangements ................................................................................................................................................86
`
`5.F Tabular disclosure of contractual obligations .......................................................................................................................87
`Item 6. Directors, Senior Management and Employees ..................................................................................................................88
`
`6.A Directors and senior management .............................................................................................................................................88
`
`6.B Compensation .......................................................................................................................................................................................89
`
`6.C Board practices..................................................................................................................................................................................125
`
`6.D Employees ............................................................................................................................................................................................161
`
`6.E Share ownership................................................................................................................................................................................161
`Item 7. Major Shareholders and Related Party Transactions ....................................................................................................162
`
`7.A Major shareholders ..........................................................................................................................................................................162
`
`7.B Related party transactions ...........................................................................................................................................................163
`
`7.C
`Interests of experts and counsel ..............................................................................................................................................163
`Item 8.
`Financial Information .......................................................................................................................................................................164
`
`8.A Consolidated statements and other financial information ...........................................................................................164
`
`8.B Significant changes .........................................................................................................................................................................165
`Item 9.
`The Offer and Listing ......................................................................................................................................................................166
`
`9.A Offer and listing details ..................................................................................................................................................................166
`
`9.B Plan of distribution ............................................................................................................................................................................166
`
`9.C Markets ...................................................................................................................................................................................................166
`
`9.D Selling shareholders ........................................................................................................................................................................166
`
`9.E Dilution ....................................................................................................................................................................................................166
`
`9.F Expenses of the issue ....................................................................................................................................................................166
`Item 10. Additional Information .....................................................................................................................................................................167
`
`10.A Share capital ........................................................................................................................................................................................167
`
`10.B Memorandum and articles of association ............................................................................................................................167
`
`10.C Material contracts .............................................................................................................................................................................170
`
`10.D Exchange controls............................................................................................................................................................................ 171
`
`10.E Taxation .................................................................................................................................................................................................. 171
`
`10.F Dividends and paying agents ...................................................................................................................................................... 174
`
`* “Item 5. Operating and Financial Review and Prospects” together with the sections on compounds in development and selected development projects of our divisions
`(see “Item 4. Information on the Company—Item 4.B Business overview”) constitute the Operating and Financial Review (“Lagebericht”), as defined by the Swiss Code of
`Obligations.
`
` 2
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`Exhibit 2230
`Page 006 of 300
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`

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`Table of contents
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`10.G Statement by experts ..................................................................................................................................................................... 175
`
`10.H Documents on display .................................................................................................................................................................... 175
`
`10.I Subsidiary information .................................................................................................................................................................... 175
`
`Item 11. Quantitative and Qualitative Disclosures About Market Risk .................................................................................... 176
`Item 12. Description of Securities Other Than Equity Securities...............................................................................................177
`
`12.A Debt securities ...................................................................................................................................................................................177
`
`12.B Warrants and rights..........................................................................................................................................................................177
`
`12.C Other securities .................................................................................................................................................................................177
`
`12.D American Depositary Shares ......................................................................................................................................................177
`PART II
`179
`Item 13. Defaults, Dividend Arrearages and Delinquencies ..........................................................................................................179
`Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds .............................................180
`Item 15. Controls and Procedures ..............................................................................................................................................................181
`Item 16A. Audit Committee Financial Expert ...........................................................................................................................................182
`Item 16B. Code of Ethics ....................................................................................................................................................................................183
`Item 16C. Principal Accountant Fees and Services ..............................................................................................................................184
`Item 16D. Exemptions from the Listing Standards for Audit Committees ................................................................................185
`Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers .............................................................186
`Item 16F. Change in Registrant’s Certifying Accountant ..................................................................................................................187
`Item 16G. Corporate Governance ..................................................................................................................................................................188
`Item 16H. Mine Safety Disclosure ..................................................................................................................................................................189
`PART III
`190
`Item 17. Financial Statements.......................................................................................................................................................................190
`Item 18. Financial Statements.......................................................................................................................................................................191
`Item 19. Exhibits ...................................................................................................................................................................................................192
`
` 
`
` 3
`
`Exhibit 2230
`Page 007 of 300
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`

`

`Introduction and use of certain terms
`
`Introduction and use of certain terms
`
`Novartis AG and its consolidated affiliates publish consolidated financial statements expressed in US dollars. Our
`consolidated financial statements responsive to Item 18 of this Annual Report on Form 20-F (Annual Report) are
`prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International
`Accounting Standards Board (IASB). “Item 5. Operating and Financial Review and Prospects,” together with the
`sections on products in development and key development projects of our businesses (see “Item 4. Information on
`the Company—Item 4.B. Business overview”), constitute the Operating and Financial Review (“Lagebericht”), as
`defined by the Swiss Code of Obligations.
`Unless the context requires otherwise, the words “we,” “our,” “us,” “Novartis,” “Group,” “Company,” and similar
`words or phrases in this Annual Report refer to Novartis AG and its consolidated affiliates. However, each Group
`company is legally separate from all other Group companies and manages its business independently through its
`respective board of directors or similar supervisory body or other top local management body, if applicable. Each
`executive identified in this Annual Report reports directly to other executives of the Group company that employs
`the executive, or to that Group company’s board of directors.
`In this Annual Report, references to “US dollars,” “USD” or “$” are to the lawful currency of the United States of
`America, references to “CHF” are to Swiss francs, and references to “euro” or “EUR” are to the lawful currency of
`27 member states participating in the European Union; 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 27 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 “SEC” are to the US Securities and Exchange Commission; references to the “FDA”
`are to the US Food and Drug Administration; references to the “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 “SIX” are to the SIX Swiss Exchange; references to “ECN” are to the Executive Com-
`mittee of Novartis; references to “GSK” are to GlaxoSmithKline plc, references to “AAA” are to Advanced Acceler-
`ator Applications S.A., references to “Novartis Gene Therapies” are to Novartis Gene Therapies, Inc. (formerly
`AveXis), and references to “Endocyte” are to Endocyte, Inc.
`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 and are the prop-
`erty of their respective owners.
`
`
` 4
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`Exhibit 2230
`Page 008 of 300
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`

`

`Forward-looking statements
`
`Forward-looking statements
`
`This Annual Report contains certain forward-looking statements within the meaning of Section 27A of the Securi-
`ties Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
`Act”), and the United States Private Securities Litigation Reform Act of 1995, as amended. Other written materials
`filed with or furnished to the SEC by Novartis, as well as other written and oral statements made to the public, may
`also contain forward-looking statements. Forward-looking statements can be identified by words such as “poten-
`tial,” “expected,” “will,” “planned,” “pipeline,” “outlook,” “may,” “could,” “would,” “anticipate,” “seek,” or similar terms,
`or by express or implied discussions regarding potential new products, potential new indications for existing prod-
`ucts, or regarding potential future revenues from any such products; or regarding the potential outcome, or finan-
`cial or other impact on Novartis, of the acquisition of The Medicines Company, and other transactions described;
`or regarding the potential impact of share buybacks; or regarding potential future sales or earnings of the Group
`or any of its divisions or potential shareholder returns; or regarding potential future credit ratings of the Group; or
`by discussions of strategy, plans, expectations or intentions. Such forward-looking statements are based on the
`current beliefs and expectations of management regarding future events, and are subject to significant known and
`unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should under-
`lying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking
`statements. You should not place undue reliance on these statements.
`
`In particular, our expectations could be affected by, among other things:
`
`• Uncertainties regarding the success of key products and commercial priorities;
`
`• Global trends toward healthcare cost-containment, including ongoing government, payer and general public pric-
`ing and reimbursement pressures and requirements for increased pricing transparency;
`
`• Uncertainties in the research and development of new healthcare products, including clinical trial results and
`additional analysis of existing clinical data;
`
`• Our ability to obtain or maintain proprietary intellectual property protection, including the ultimate extent of the
`impact on Novartis of the loss of patent protection and exclusivity on key products that commenced in prior years
`and is expected to continue this year;
`
`• The potential that the strategic benefits, operational efficiencies or opportunities expected from our recent trans-
`actions or our organizational, structural and cultural transformations may not be realized or may take longer to
`realize than expected;
`
`• Our performance on environmental, social and governance measures;
`
`• Uncertainties in the development or adoption of potentially transformational technologies and business models;
`
`• Uncertainties regarding potential significant breaches of information security or disruptions of our information
`technology systems;
`
`• Our reliance on outsourcing key business functions to third parties;
`
`• Our ability to attract, integrate and retain key personnel and qualified individuals;
`
`• Uncertainties regarding actual or potential legal proceedings, including, among others, litigation and other legal
`disputes with respect to our recent transactions, product liability litigation, litigation and investigations regarding
`sales and marketing practices, intellectual property disputes and government investigations generally;
`
` • Regulatory actions or delays or government regulation generally, including potential regulatory actions or delays
`with respect to the development of the products described in this Annual Report;
`
`• Our ability to comply with data privacy laws and regulations, and uncertainties regarding potential significant
`breaches of data privacy;
`
` • Safety, quality, data integrity or manufacturing issues;
`
` 5
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`Exhibit 2230
`Page 009 of 300
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`

`

`Forward-looking statements
`
`• General political, economic and business conditions, including the effects of and efforts to mitigate pandemic
`diseases such as COVID-19;
`
`• The impact of pandemic diseases such as COVID-19 on enrollment in, initiation and completion of our clinical tri-
`als in the future, and research and development timelines;
`
`• Uncertainties involved in predicting shareholder returns;
`
`• Uncertainties regarding the effects of recent and anticipated future changes in tax laws and their application to
`us;
`
`• Uncertainties regarding future global exchange rates; and
`
`• Uncertainties regarding future demand for our products.
`
`Some of these factors are discussed in more detail in this Annual Report, including under “Item 3. Key Information—
`Item 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 Annual Report as anticipated, believed,
`estimated or expected. We provide the information in this Annual Report as of the date of its filing. We do not intend,
`and do not assume any obligation, to update any information or forward-looking statements set out in this Annual
`Report as a result of new information, future events or otherwise.
`
` 6
`
`Exhibit 2230
`Page 010 of 300
`
`

`

`Item 1. Identity of Directors, Senior Management and Advisers
`
`PART I
`
`Item 1. Identity of Directors,
`Senior Management and Advisers
`
`Not applicable.
`
` 7
`
`Exhibit 2230
`Page 011 of 300
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`

`

`Item 2. Offer Statistics and Expected Timetable
`
`Item 2. Offer Statistics and Expected
`Timetable
`
`Not applicable.
`
` 8
`
`Exhibit 2230
`Page 012 of 300
`
`

`

`Item 3. Key Information
`
`Item 3. Key Information
`3.A Selected financial data
`
`The selected financial information set out below has
`been extracted from our consolidated financial state-
`ments prepared in accordance with International Finan-
`cial Reporting Standards (IFRS) as issued by the Inter-
`national Accounting Standard Board (IASB). Our
`consolidated financial statements for the years ended
`
`December 31, 2020, 2019 and 2018, are included in “Item
`18. Financial Statements” in this Form 20-F.
`All financial data should be read in conjunction with
`“Item 5. Operating and Financial Rev