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As filed with the Securities and Exchange Commission on January 25, 201724, 2018

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

FORM 20-F

Commission file number 1-15024

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

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

Switzerland
(Jurisdiction of incorporation or organization)

Lichtstrasse 35
4056 Basel, Switzerland

(Address of principal executive offices)

Felix R. Ehrat
Group General Counsel
Novartis AG

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

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

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:

2,374,059,0132,317,456,499 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

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý    No o

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

Large accelerated filer ý                        Accelerated filer o                        Non-accelerated filer o                        Emerging growth company o

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. o

† The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

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

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

Item 17 o         Item 18 o

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

Yes o    No ý

*

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

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INTRODUCTION AND USE OF CERTAIN TERMS

        Novartis AG and its consolidated affiliates publish consolidated financial statements expressed in US dollars. Our consolidated financial statements responsive to 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).

        Pursuant to Rule 12b-23 of the Securities Exchange Act of 1934, as amended, we incorporate information for certain items of this Form 20-F by reference to the "Excerpts from Novartis Annual Report 2016"2017" included as Exhibit 99.1 to Form 6-K furnished to the SEC on January 25, 2017.24, 2018 (the Annual Report Excerpts). Therefore the information in this Form 20-F should be read in conjunction with the "Excerpts from Novartis Annual Report 2016," as furnished to the SEC on Form 6-K on January 25, 2017.Excerpts. References to content not contained within the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on January 25, 2017,Excerpts shall not be deemed to be incorporated by reference.

        Unless the context requires otherwise, the words "we," "our," "us," "Novartis," "Group," "Company," and similar words or phrases in this Form 20-F refer to Novartis AG and its consolidated affiliates. However, each Group company is legally separate from all other Group companies and manages its business independently through its respective board of directors or similar supervisory body or other top local management body, if applicable. 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"dollars," "USD" 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.companies and are the property of their respective owners.

FORWARD-LOOKING STATEMENTS

        This Form 20-F contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Other written materials filed with or furnished to the US Securities and Exchange Commission (SEC) by Novartis, as well as other written and oral statements made to the public, may also contain forward-looking statements. Forward-looking statements can be identified by words such as "potential," "expected," "will," "planned," "pipeline," "outlook," or similar terms, or by express or implied discussions regarding potential new products, potential new indications for existing products, or regarding potential future revenues from any such products; potential shareholder returns or credit ratings; or regarding the potential outcome, or financial or other impact on Novartis, of the announcedstrategic review of options being undertaken to maximize shareholder value of the Alcon Division; or regarding the potential financial or other impact on Novartis or any of our divisions of the significant reorganizations of recent years, including the creation of the Pharmaceuticals and Oncology business units to form the Innovative Medicines Division, the creation of the Global Drug Development organization and Novartis Operations (including Novartis Technical Operations and Novartis Business Services), the transfer of the Ophthalmic Pharmaceuticals products of our Alcon Division to the Innovative Medicines Division, the transfer of selected mature, non-promoted pharmaceutical products from the Innovative Medicines Division to the Sandoz Division, and the transactions

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with GSK, Lillythe significant acquisitions and CSL;reorganizations of recent years; or regarding the potential impact of the share buyback plan; or regarding potential future sales or earnings of the Novartis Group or any of its divisions;divisions or potential shareholder returns; or by discussions of strategy, plans, expectations or intentions. You should not place undue reliance on these statements.

        Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. There can be no guarantee that any new products will be approved for sale in any market, or that any new indications will be approved for any existing products in any market, or that any approvals which are obtained will be obtained at any particular time, or that any such products will achieve any particular revenue levels. NorNeither can there be any guarantee that the strategic review of options being undertaken to maximize shareholder value of the Alcon Division will reach any particular results, or at any particular time. Neithertime, or that the result of the strategic review will in fact maximize shareholder value. Nor can there be any guarantee that Novartis will be able to realize any of the potential strategic benefits, synergies or opportunities as a result of the significant acquisitions and reorganizations of recent years, including the creation of the Pharmaceuticals and Oncology business units to form the Innovative Medicines Division, the creation of the Global Drug Development organization and Novartis Operations (including Novartis Technical Operations and Novartis Business Services), the transfer of the Ophthalmic Pharmaceuticals products of our Alcon Division to the Innovative Medicines Division, the transfer of selected mature, non-promoted pharmaceutical products from the Innovative Medicines Division to the Sandoz Division, and the transactions with GSK, Lilly and CSL.years. Neither can there be any guarantee that shareholders will achieve any particular level of shareholder returns. Nor can there be any guarantee that the Group, or any of its divisions, will be commercially successful in the future, or achieve any particular credit rating or financial results.

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

•

global trends toward health care cost containment, including ongoing government, payor and general public pricing and reimbursement pressures, such as from increased publicity on pharmaceuticals pricing, and requirements for increased pricing transparency;



•

regulatory actions or delays or government regulation generally;



•

the potential that the strategic benefits, synergies or opportunities expected from the significant acquisitions and reorganizations of recent years including the creation of the Pharmaceuticals and Oncology business units to form the Innovative Medicines Division, the creation of the Global Drug Development organization and Novartis Operations (including Novartis Technical Operations and Novartis Business Services), the transfer of the Ophthalmic Pharmaceuticals products of our Alcon Division to the Innovative Medicines Division, the transfer of selected mature, non-promoted pharmaceutical products from the Innovative Medicines Division to the Sandoz Division, and the transactions with GSK, Lilly and CSL may not be realized or may take longer to realize than expected;



•

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



•

the uncertainties inherent 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 which commenced in prior years and will continue this year;



•

safety, quality or manufacturing issues;



•

global trends toward health care cost containment, including ongoing pricing and reimbursement pressures, such as from increased publicity on pharmaceuticals pricing, including in certain large markets;



•

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



•

uncertainties involved in the development or adoption of potentially transformational technologies and business models;



•

general economicpolitical and industryeconomic conditions, including uncertainties regarding the effects of ongoing instability in various parts of the persistently weak economic and financial environment in many countries;world;



•

uncertainties regarding future global exchange rates;



•

uncertainties regarding future demand for our products; and

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•

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

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

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PART I

Item 1.    Identity of Directors, Senior Management and Advisers

        Not applicable.

Item 2.    Offer Statistics and Expected Timetable

        Not applicable.

Item 3.    Key Information

3.A    Selected Financial Data

        The selected financial information set out below has been extracted from our consolidated financial statements prepared in accordance with IFRS as issued by the IASB. Our consolidated financial statements for the years ended December 31, 2017, 2016 2015 and 2014,2015, are included under "Novartis Group consolidated financial statements" on pages 178186 to 247254 of the "Excerpts from Novartis Annual Report 2016"2017" furnished to the SEC on Form 6-K on January 25, 2017,24, 2018, and in "Item 18. Financial Statements" in this Form 20 F.20-F.

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

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Cash Dividends per Share

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

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Exchange Rates

        The following table shows, for the years and dates indicated, certain information concerning the rate of exchange of US dollar per Swiss franc based on exchange rate information found on Bloomberg Market System. The exchange rate in effect on January 17, 2017,18, 2018, as found on Bloomberg Market System, was CHF 1.00 = $0.99.$1.04.

3.B    Capitalization and Indebtedness

        Not applicable.

3.C    Reasons for the offer and use of proceeds

        Not applicable.

3.D    Risk Factors

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

Risks Facing Our Business

Our products face important patent expirations and losses of intellectual property protection.

        Major products of our Innovative Medicines and Alcon Divisions,Division, as well as certain products of our Sandoz Division,and Alcon Divisions, are protected by patent and other intellectual property rights, which provide us with exclusive rights to market the products, and give us an opportunity to recoup our investments in research and development. However, the strength and duration of those intellectual property rights can vary significantly from product to product and country to country.country, and they may be successfully challenged by

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third parties or regulatory authorities. Loss of market exclusivity for one or more important products has had, and can be expected to continue to have a material adverse effect on our results of operations.

        The introduction of generic competition for a patented branded medicine typically results in a significant and rapid reduction in net sales and netoperating income for the patentedbranded product because generic manufacturers typically offer their unpatented versions at sharply lower prices. Such competition can occur after successful challenges to intellectual property rights or the regular expiration of the term of the patent or other intellectual property rights. Such competition can also result from the entry of generic versions of another medicine in the same therapeutic class as

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one of our drugs or in another competing therapeutic class, from a Declaration of Public Interest or the compulsory licensing of our drugs by governments, or from a general weakening of intellectual property laws in certain countries around the world. In addition, generic manufacturers sometimes take an aggressive approach to challenging patents,intellectual property rights, including 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 or our other protective measures should fail, then our contractual or other remedies may not be adequate to cover our losses.

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

•

We faced generic competition in the US, Japan and some EU countries for ourOur formerly best-selling productGleevec/Glivec during most of 2016. In the remaining EU countries, certain of ourGlivec intellectual property rights expired in December 2016,faces continued and increasing generic competition there has begun.in the US, EU and Japan.



•

Patent protection for the marketed forms of ourSandostatin products has expired. Generic versions ofSandostatin SC are available in the US, EU and Japan. ThereWhile there is currently no generic competition in the US, EU or Japan forSandostatin LAR, the long-acting version ofSandostatin which represents the majority of ourSandostatin sales.sales, such generic competition may arise in the future.



•

Diovan andCo-Diovan/Diovan HCT, which had long been our best-selling product, has generic competitors in the US, EU and Japan. In addition, the single pill combination productsExforge andExforge HCT, which contain valsartan, the active ingredient inDiovan, face generic competition despite the existence of separate intellectual property covering those products.Exforge has generic competition in the US, EU and Japan, andJapan.Exforge HCT, which is not marketed in Japan, has generic competition in the US. GenericUS and may face additional generic competition forExforge began in some countries in Europe in January 2017.the future.



•

Certain intellectualIntellectual property protecting oura number of additional major products is either being challenged or will expire at various times in the coming years, raising the possibility of generic competition. Among these products that may begin to face generic competition in one or more major markets during the next three years areAfinitorGilenya, our everolimus products (Afinitor/Votubia andGilenyaCertican/Zortress),Exjade/Jadenu will expire in 2018, 2019 and 2020. In addition, some of the patents protecting these products are being challenged in the US, raising the possibility of an earlier entry of generic competition.Lucentis.

        For more information on the patent status of our Innovative Medicines Division's products see "Item 4. Information on the Company—Item 4.B Business Overview—Innovative Medicines—Intellectual Property."

        In 2017,2018, we expect an impact on our net sales of about $2.5$1.5 billion as a result of the loss of intellectual property protection for our products, includingGleevec/Glivec.products. Because we typically have substantially reduced marketing and research and development expenses related to products that are in their final year of exclusivity, we expect that this loss of intellectual property protection also will have an impact on our 20172018 operating income in an amount corresponding to a significant portion of the products' lost sales. The magnitude of the impact of generic competition could depend on a number of factors, including the time of year at which such exclusivity would be lost;the

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

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

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Our financial performance depends on the commercial success of key products.

        Our financial performance, including our ability to replace revenue and income lost to generic and other competition and to grow our business, depends heavily on the commercial success of certain key products, known as our Growth Products. We consider our Growth Products to be an indicator of the rejuvenation of our portfolio of products. Growth Products consist of products launched in a key market (EU, US, Japan) in 2011 or later, or products with exclusivity in key markets until at least 2020 (except Sandoz, which includes only products launched in the last 24 months). In 2016, our Growth Products contributed $17.1 billion, or 35% of our total net sales.

If these products or any of our other major products were to become subject to problems such as changes in prescription growth rates, unexpected side effects, loss of intellectual property protection, supply chain issues or other product shortages, regulatory proceedings, changes in labeling, publicity affecting doctor or patient confidence in the product, material product liability litigation, or pressure from new or existing competitive products, the adverse impact on our revenue and profit could be significant. In addition, our revenue and profit could be significantly impacted by the timing and rate of commercial acceptance of key new products. See also "—Our business is affected by pressures on pricing and reimbursement for our products," below, with regard to the impact of pricing and reimbursement issues on the commercial success of our products.

        All of our businesses are broadly faced with intense competition from new products and technological advances from competitors, including new competitors from other industries such as Alphabet and IBM that are entering the healthcare field. Physicians,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 our Growth Products or other major products, are launched from time to time. We cannot predict with accuracy the timing of the introduction of such competitive products or their possible effect on our sales. However, products significantly competitive to our major products, includingCosentyx, Lucentis, Gilenya, Sandostatin, Tasigna andAfinitor, have been launched.are on the market, and others are in development. In addition, numerous companies are seeking to enter the healthcare field to take advantage of their expertise in digital and other new technologies. See "—We may fail to develop or take advantage of transformational technologies and business models," below. We may also face new competitors from different regions of the world, including China, which is moving aggressively to expand its role in the sciences and in many industries. Such new competitors may successfully develop products and otheror technologies which could make products of ours uncompetitive or obsolete.

        Such competitive products could significantly affect the revenue from our products and our results of operations. In addition, theThis impact on our results of operations could also be compounded to the extent such competition results in us making significant additional investments in marketing and sales.sales, or in research and development.

        Similarly,In particular, our Alcon Division a leader in the eye care industry,and our US Sandoz business each has suffered decliningdeclines in sales and profits in recent years due at least in part to increased competition for its products. To counter this, we are continuing effortsproducts, although Alcon's results improved in 2017, returning to improvegrowth. There can be no certainty either that Sandoz US sales will recover, or that Alcon's improved results will be repeated in the division's revenues and profits. Our efforts under this plan are expected to take time to succeed. As a result,coming years. In any event, such competition and the costs of our efforts to improve Alcon'sthese businesses' performance, as well as other factors, can be expected to affect Alcon'sthe business, financial condition or results of operations of these organizations, at least in the near term. In addition, despite the devotion of significant resources to our efforts to improve Alcon'sthe performance of Alcon and Sandoz US, those efforts may ultimately prove insufficient. Should our efforts fail to accomplish their goals, or fail to do so in a timely manner, it could have a material

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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,in a cost-efficient manner, or in a manner sufficient to grow our business, replace lost revenue and income and take advantage of new technologies," below, and the discussion of the impact of"—Intense competition on our Sandoz Division in "—Failurefrom patented and generic pharmaceuticals companies, as well as failure to obtain marketing exclusivity periods for new generic products, or to successfully develop biosimilars and other differentiated products, as well as intense competition from patented and generic pharmaceuticals companies, may have ana material adverse effect on the success of our Sandoz Division," below.

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

        Our ability to continue to maintain and grow our business, to replace sales lost due to competition, entry of generics or other reasons, and to bring to market products and medical advances that take advantage of new, and potentially disruptive technologies depends in significant part upon the success of our research and development activities in identifying, and successfully and cost-effectively developing new products that address unmet medical needs, are accepted by patients and physicians, and are reimbursed by payors.payors, and are commercially successful. To accomplish this, we commit substantial effort, funds and other resources to research and development, both through our own dedicated resources and through collaborations with third parties. DevelopingHowever, 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 viablesuccessful new products that will enable us to replace revenue and income lost to generic and other competition and to grow our business. See also "—We may not successfully achieve our goals in strategic transactions or reorganizations," below, with regard to our recent reorganization of our pharmaceutical product development organization.

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        Using the products of our Innovative Medicines Division as an example, the research and development process for a new product can take up to 15 years, or even longer, from discovery to commercial product launch—and with limited available intellectual property protections, the longer it takes to develop a product, the less time there willmay be for us to recoup our research and development costs. New products must undergo intensive preclinical and clinical testing, and must be approved by means of highly complex, lengthy and expensive approval processes which can vary from country to country.

        During each stage, there is a substantial risk that we will encounter serious obstacles that will further delay us and add substantial expense, that we will develop a product with limited potential for commercial success, or that we will be forced to abandon a product in which we have invested substantial amounts of time and money. These risks may include failure of the product candidate in preclinical studies, difficulty enrolling patients in clinical trials, clinical trial holds or other delays in completing clinical trials, delays in completing formulation and other testing and work necessary to support an application for regulatory approval, adverse reactions to the product candidate or other safety concerns, insufficient clinical trial data to support the safety or efficacy of the product candidate or to differentiate our product candidate from competitors, an inability to manufacture sufficient quantities of the product candidate for development or commercialization activities in a timely and cost-effective manner, and failure to obtain, or delays in obtaining, the required regulatory approvals for the product candidate or the facilities in which it is manufactured.

        In addition, following the "Brexit" vote in the UK, the EU has decided to move the headquarters of the EU's health authority, the EMA, from the UK to the Netherlands by March 2019. It is expected that a seriessignificant percentage of widely publicized issues, health regulators have increased their focus on product safety. Governmentalthe current employees of the EMA will decide not to make the move to the Netherlands. This raises the possibility that new drug approvals in the EU could be delayed as a result.

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        Further, in recent years, in order to achieve approvals of and reimbursement for new products and new indications, governmental authorities and payors around the world have also paid increased attention to whether new products offer a significant benefit over other products in the same therapeutic class. These developments have led to requests forincreasingly required more clinical trial data forthan they had in the past, the inclusion of significantly higher numbers of patients in clinical trials, and for more detailed analyses of the trials. As a result, despite significant efforts by health authorities such as the FDA to accelerate the development of new drugs, the already lengthy and expensive process of obtaining regulatory approvals and reimbursement for pharmaceutical products has in many cases become even more challenging.

        There is also the risk that we may fail to identify significant new product candidates for development or potentially disruptive new technologies, and so may fail to take advantage of a potential new wave of innovation.

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

        There is also the risk that we may fail to identify significant new product candidates for development or potentially disruptive new technologies, and so may fail to take advantage of a potential new wave of innovation.

Our Alcon Division faces similar challenges in developingbringing new products to market, including both the products and bringing them to market.components that have been developed in house, as well as those that have been acquired from third parties. Alcon's Surgical and Vision Care products face medical device development and approval processes that are often similarly difficult.as difficult as those faced by our Innovative Medicines Division. For example, the new EU Medical Devices Regulation could bring substantial changes to the way medical device manufacturers bring new products to the European market, including with respect to labelling, technical documentation and quality management systems. Alcon is takinghas taken steps to increase its innovation power and the success of its research and development efforts. But this can be expected to bethese efforts are 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.

        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, including those 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 often significantly more costly and complex than those for non-differentiated generic products. In addition, despite significant efforts by us and others, to date many countries do not yet have fully-developed legislative or regulatory pathways to facilitate the development of biosimilars and permit biosimilars to be sold in a manner in which the biosimilar product would be readily substitutable for the originator product. Further delays in the development and completion of such regulatory pathways, or any significant impediments that may ultimately be built into such pathways, or any other significant difficulties that may arise in the development or marketing of biosimilars or other differentiated products, could put at risk the significant investments that Sandoz has made, and will continue to make, in the development of differentiated products in general, and in its biopharmaceuticals business in particular, and could have a material

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adverse effect on the long-term success of the Sandoz Division and the Group as a whole. See also "—FailureIntense competition from patented and generic pharmaceuticals companies, as well as failure to obtain marketing exclusivity periods for new generic products, or to successfully develop biosimilars and other differentiated products, as well as intense competition from patented and generic pharmaceuticals companies, may have ana material adverse effect on the success of our Sandoz Division," below.

        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, data privacy, Good Clinical Practices requirements, data integrity requirements, the fair treatment of patients

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in developing countries, and animal welfare requirements. Should we fail to properly manage such issues, we risk injury to third parties, damage to our reputation, negative financial consequences as a result of potential claims for damages, sanctions and fines, and the potential that our investments in research and development activities could have no benefit to the Group.

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

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

        Our businesses are operating in an ever more challenging environment, with significant pressures on the pricing of our products and on our ability to obtain and maintain satisfactory rates of reimbursement for our products by governments, insurers and other payors. 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 than in the past. These pressures are particularly strong given the persistently weak economic and financial environment in many countries and the increasing demand for healthcare resulting from the aging of the global population and associated increases in non-communicable diseases.diseases, and the resulting impact on healthcare budgets. These pressures are further compounded by consolidation among distributors, retailers, private insurers, managed care organizations and other private payors, which can increase their negotiating power.power, particularly with respect to our generic drugs. In addition, these pressures are augmented by significant controversies and intense publicity regarding the pricing ofabout prices for pharmaceuticals by our competitors,that some consider excessive, as well as government investigations and legal proceedings regarding pharmaceutical pricing practices.

        As a result, even though the pharmaceutical industry's share of overall healthcare costs is comparatively low, we face numerous cost-containment measures by governments and other payors, including government-imposed industry-wide price reductions, mandatory pricing systems, reference pricing systems, payors limiting access to treatments based on cost-benefit analyses, an increase in imports of drugs from lower-cost countries to higher-cost countries, shifting of the payment burden to patients through higher co-payments, limiting physicians' ability to choose among competing medicines, mandatory substitution of generic drugs for the patented equivalent, and growing pressure on physicians to reduce the prescribing of patented prescription medicines.medicines, the imposition or threat of imposition of compulsory licensing or Declarations of Public Interest, and requirements for increased transparency on pricing. For more information on such price controls see "Item 4. Information on the Company—Item 4.B Business Overview—Innovative Medicines—Price Controls." See also "—Ongoing consolidation among our distributors and retailers is increasing both the purchasing leverage of key customers and the concentration of credit risk," below, with regard to the impact on pricing of the consolidation among our customers, and "—The persistently weak globalPolitical and economic and financial environment in many countries and increasing political and social instability may have a material adverse effect on our results," below, with regard to the impact of economic conditions on our pricing. These factors may materially affect our ability to achieve an acceptable return on our investments in the development of our products, and may impact our ability to invest in the research and development of new products.

        We expect these challenges to continue—and potentially to increase in 20172018 and following years—as political pressures mount, and healthcare payors around the globe, including government-controlled health authorities, insurance companies and managed care organizations, step up initiatives to reduce the overall cost of healthcare, restrict access to higher-priced new medicines, increase the use of generics and impose overall price cuts. Such pressures could have a material adverse impact on our business, financial condition or results of operations, as well as on our reputation.

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

        We are obligated to comply with the laws of all of the countries around the world in which we operate and sell products with respect to an extremely wide and growing range of activities. Such legal requirements can vary from country to country and new requirements may be imposed on us from time to time as government and public expectations regarding acceptable corporate behavior change.

        For example, we are faced with increasing pressures, including new laws and regulations from around the world, to be more transparent with respect to how we do business, including with respect to our interactions with healthcare professionals and organizations. These laws and regulations include requirements that we disclose payments or other transfers of value made to healthcare professionals and organizations, as well as proposals that we be requiredwith regard to disclose the methods that we use to set the prices for our products.

        In addition, we have significant activities in a number of developing countries around the world, both through our own employees, and through third parties retained to assist us. In some of these countries, a culture of compliance with law may not be as fully developed as in other countries.

        To help us in our efforts to comply with the many requirements that impact us, we have a significant global ethics and compliance program in place, and we devote substantial time and resources to efforts to ensure that our business is conducted in a lawful and publicly acceptable manner. Nonetheless, despite our efforts, any actual or alleged failure to comply with law or with heightened public expectations could lead to substantial liabilities that may not be covered by insurance, or to other significant losses, and could affect our business, financial position and reputation.

        In particular, in recent years, there has been a trend of increasing government investigations, legal proceedings and law enforcement activities against companies and executives operating in our industry, both in the US and in countries around the world. Increasingly, such activities can involve criminal proceedings.proceedings, and can retroactively challenge practices previously considered to be legal. A number of our subsidiaries across each of our divisions are, or may in the future be subject to various investigations and legal proceedings that arise or may arise from time to time, such as proceedings regarding sales and marketing practices, pricing, corruption, trade regulation and embargo legislation, product liability, commercial disputes, employment and wrongful discharge, antitrust (including for so-called "pay for delay" patent settlements), securities, insider trading, occupational health and safety, environmental, tax, cybersecurity, data privacy and intellectual property matters. For information on significant legal matters pending against us see "Note 19. Provisions and are increasingly challenging practices previously consideredother non-current liabilities" and "Note 27. Commitments and contingencies" in the "Excerpts from Novartis Annual Report 2017" furnished to be legal.the SEC on Form 6-K on January 24, 2018. See also "—Our reliance on outsourcing key business functions to third parties heightens the risks faced by our businesses," below.

        Such proceedings are inherently unpredictable, and large judgments sometimes occur. As a consequence, we may in the future incur judgments that could involve large cash payments, including the potential repayment of amounts allegedly obtained improperly, and other penalties, including treble damages. In addition, such proceedings may affect our reputation, create a risk of potential exclusion from government reimbursement programs in the US and other countries, and may lead to civil litigation. As a result, having taken into account all relevant factors, we have in the past and may again in the future enter into major settlements of such claims without bringing them to final legal adjudication by courts or other such bodies, despite having potentially significant defenses against them, in order to limit the risks they pose to our business and reputation. Such settlements may require us to pay significant sums of money, and to enter into corporate integrity or similar agreements, which are intended to regulate company behavior for a period of years.

        Any such judgments or settlements, and any accruals that we may take with respect to potential judgments or settlements, could have a material adverse impact on our business, financial condition or results of operations, as well as on our reputation.

        Our businesses are and have been subject to a number of these types of cases and governmental investigations. For example, in 2013, the US government filed a civil complaint in intervention to an individualqui tam action against our affiliate Novartis Pharmaceuticals Corporation (NPC) in the United States District Court for the Southern District of New York (SDNY) involving several of NPC's cardiovascular medications. 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 cardiovascular 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 2013, New York State filed a civil complaint in intervention asserting similar claims. The individual relator continues to litigate the kickback claims on behalf of other states and municipalities.

        See also "Note 20. Provisions and other non-current liabilities" and "Note 28. Commitments and contingencies" in the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on

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January 25, 2017 for information on other significant legal matters also are pending against us, and see "—Our reliance on outsourcing and third parties for the performance of key business functions heightens the risks faced by our businesses" below.

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

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

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

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

        If weAny significant failure by us or our third-party suppliers fail to comply fully with these requirements andor the health authorities' expectations, then we could be requiredmay cause us to shut down ourthe production facilities or production lines,lines. Alternately, we may be forced to shut them down by a government health authority, 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. 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.

        In addition to these regulatory requirements, the technically complex manufacturing processes required to manufacture many of our products increase the risk of production failures, and can increase the cost of producing our goods. For example, we manufacture and sell a number of sterile products, including oncology products, which require sophisticated environmental controls. In addition, a significant number of our products 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 that meet all regulatory requirements is especially complex. Even slight deviations at any point in the production process may lead to production failures or recalls. In addition, because the production process involves living plant or animal micro-organisms, the process could be affected by contaminants that could impact those micro-organisms. Further, for our new oncology productKymriah, each dose must be separately produced, using the individual patient's own cells as a basis, without contingencies for production failures. As a result, because the production process for many of our products is so complex and sensitive, the cost of production and the chance of production failures and lengthy supply interruptions is increased.

        In order to meet increasing health authority expectations and our own high quality standards, we are devoting substantial time and resources to remediate issues, improve quality and assure consistency of product supply at our manufacturing sites and third party suppliers around the world. Ultimately,However, there can be no guarantee ofas to the outcome of these efforts. Nor can there be any guaranteeefforts, or that we or our third parties suppliers will not again face significant manufacturing issues, or that we will successfully manage such issues when they arise. For example, our Sandoz Division has been unable to launch itsGlatopa 40mg product due to a Warning Letter received from the FDA by our third party supplier with respect to its manufacturing facility.

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        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 of our products and raw materials, we may rely on a single source of supply. Because of these complexities,As a result, we are required to plan our production activities well in advance. If we should suffer from product shortages, including as a result of a natural disaster at a production facility, or if we should underestimate market demand for a product, or should fail to accurately predict when the product would be approved for sale, then we may not be able to increase production sufficientlyproduce sufficient product to meet demand. Alternately, if we overestimate the quantity or timing of product to be produced, then we may be required to dispose of excess product, which would result not only in the loss of the product, but also the resources spent to produce it.

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

        We also manufacture and sell a number of sterile products, including oncology products, which are technically complex to manufacture, and require sophisticated environmental controls. Because the production

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process for such products is so complex and sensitive, the chance of production failures and lengthy supply interruptions is increased.

        In addition,Further, because our products are intended to promote the health of patients, for some of our products, a supply disruption or other production issue could endanger our reputation and subject us to lawsuits or to allegations that the public health, or the health of individuals, has been harmed.

        In sum, aThus, complex production processes and compliance with regulatory requirements can increase our cost of producing our products, and any significant disruption in the supply of certain key products—whether as a resultour products could impact our sales, either 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—which could have a material adverse effect on our business, financial condition or results of operations, as well as our reputation. See also "—We may not successfully achieve our goals in strategic transactions or reorganizations," below, with regard to our recent reorganization of our product manufacturing organization, and "—Extreme weather events, earthquakes and other natural disasters could adversely affect our business," below.

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

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

        In addition to ordinary market risk, there is a risk that countries could take affirmative 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 orfacing local financial difficulties, including countries experiencing high inflation rates and highly indebted countries facing large capital outflows, may experience periodsimpose controls on the exchange of high inflation. This could lead these countries to devalue their currencies, and to setforeign currency. Such exchange controls as, for example, Venezuela has done. Such steps taken by Venezuela have impactedcould limit our financial results.ability to distribute retained earnings from our local affiliates, or to pay intercompany payables due from those countries.. See "—The persistently weak globalPolitical and economic and financial environment in many countries and increasing political and social instability may have a material adverse effect on our results" above. Ongoing conditions in Venezuela and other such countries could continue to lead to further devaluations of their currencies, which could in turn result in significant additional financial losses to the Group in the future.results," below.

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

        For more information on the effects of currency fluctuations on our consolidated financial statements and on how we manage currency risk, see "Item 5. Operating and Financial Review and Prospects—Item 5.B Liquidity and Capital Resources—Effects of Currency Fluctuations" "Item 11. Quantitative and Qualitative Disclosures about Market Risk", and "Note 29.28. Financial Instruments—Additional Disclosures"instruments—additional disclosures" in the "Excerpts from Novartis Annual Report 2016"2017" furnished to the SEC on Form 6-K on January 25, 2017.24, 2018.

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We may not successfully achieve our goals in transactions or reorganizations.

        As part of our strategy, from time to time we evaluateacquire and pursue potential business acquisitions and divestituresdivest products or entire businesses, in order to expand or complement our existing businesses, or to enable us to focus more sharply on our strategic businesses. WeFor example, we recently completed the acquisition of Advanced Accelerator Applications, a radiopharmaceutical company that develops, produces and commercializes molecular nuclear medicines includingLutathera, a first-in-class radioligand therapy product for neuroendocrine tumors.

        Despite expending significant efforts and resources in this area, we cannot ensure that we will identify products or businesses that are suitable for acquisition. In addition, acquisition candidates will be identified. Acquisition activities can be thwarted by governmental regulation, including market concentration limitations, political interference, overtures from competitors for the targeted assets, potentially increasing prices demanded by sellers, and other issues. 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 develop and market acquired products, including products acquired by Alcon, or to integrate the acquired business may not meet expectations, or may otherwise not be successful, as a result of differences in corporate culture, difficulties in retaining key personnel, customers and suppliers, difference in

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corporate culture, standards, controls, processes and policies, or other reasons. Acquisitions and divestments can also divert management's attention from our existing businesses, and could result in the existing businesses failing to achieve expected results, or in liabilities being incurred that were not known at the time of acquisition, or the creation of tax or accounting issues.

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

        In 2015, For example, in early 2017, we completedannounced a seriesstrategic review of transactions intendedthe Alcon Division in order to transformexplore all options to maximize value for our portfolioshareholders. Key criteria for a final decision and timing remain continued Alcon sales growth and margin improvement which need to be demonstrated for multiple quarters leading to potential action not likely before the first half 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 expected to achieve certain strategic benefits, synergies and opportunities, including certain financial results. There2019. But there can be no certainty that such expected benefitsthe strategic review will be fully realizedreach any particular results, or that they will be realized at any particular time.time, or that it will in fact maximize shareholder value.

        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 May 2016,October 2017, we announced changes to focus our former Pharmaceuticals Division by creating two business units: Novartis Pharmaceuticalsthat certain over-the-counter and Novartis Oncology. These business units formeddiagnostic ophthalmic products would be moved from the Innovative Medicines Division of Novartis, reporting to the CEOAlcon Division effective January 1, 2018, where we believe the products will create the most value. We expect this and other similar actions, including our prior move of Novartis. Similarly, in January 2016 we announced a series of strategic actions intended to further focus our divisions, including focusingprescription ophthalmic pharmaceutical products from our Alcon Division on its Surgical and Vision Care franchises, strengthening our ophthalmic medicines business by transferring Alcon's Ophthalmic Pharmaceuticals products to our Innovative Medicines Division, and shifting selected mature pharmaceutical products from our Innovative Medicines Division into Sandoz. We also announced steps during the course of 2016 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. 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 Innovative Medicines Global Business Services. We expect these actions tohelp 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 thesesuch reorganizations 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 or that key personnel will be retained. Disruption from the reorganizations may make it more difficult to maintain relationships with customers, employees or suppliers, and the reorganizations may result in the Group not achieving the expected productivity and financial benefits, shortfalls in program oversight, or, potentially, sales declines and lost profits.

        Both with respect to the transactions and reorganizations previously announced, and to potential future transactions and reorganizations, if we fail to timely recognize or address these risks, or to devote

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adequate resources to them, we may fail to achieve our strategic objectives, including our growth strategy, or otherwise may not realize the intended benefits of the acquisition, divestiture or reorganization.

Significant breaches of data security or disruptions of information technology systems and the use of Internet, social media and mobile technologies could adversely affect our business and breach the privacy rights of third parties.expose people's personal information.

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

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        The size and complexity of our information technology systems, and, in some instances, their age, make them potentially vulnerable to external or internal security breaches,incidents, breakdowns, malicious intrusions, cybercrimes, including State-sponsored cybercrimes, malware, misplaced or lost data, programming or human errors, or other similar events. Although we have devoted and continue to devote significant resources and management attention to the protection of our datacybersecurity and information technology,to business continuity efforts, like many companies, we have experienced suchcertain of these events and expect to continue to experience them in the future.future, as the external cyber-attack threat only keeps growing. We believe that the information security breachesincidents we have experienced to date have not resulted in significant disruptions to our operations, and willhave not havehad a significant adverse effect on our current or future results of operations.operations, or on third parties. However, we may not be able to prevent future breakdowns or breaches in our systems that could haveand we may not be able to prevent such events from having a material adverse effect on our business, financial condition, results of operation or reputation.

        Any such eventsevent 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.activities, including our employees' ability to communicate with one another and with third parties. Such potential information technology issues could also lead to the loss of important information such as trade secrets or other intellectual property and could accelerate the development or manufacturing of competing products by third parties. In addition, malfunctions in software or in devices that make significant use of information technology, including our Alcon surgical equipment, could lead to a risk of harm to patients.

        OurIn addition, our routine business operations, including through the use of information technologies includingsuch as the Internet, social media, mobile technologies, and technology-based medical devices, as well as other routine business operations, sometimesincreasingly involve our gathering personal information (including sensitive personal information) regarding ourabout patients, vendors, customers, employees, collaborators and others. Breaches of our systems or those of our third-party contractors, or other failures to protect such information, could expose thesuch people's personal information of third parties to unauthorized persons. Any such information or other privacy breachesevent could give rise to significant potential liability and reputational harm. In addition, weharm, including potentially substantial monetary penalties. We also make substantialsignificant efforts to ensure that any international transfers of personal data are done in compliance with applicable law. Any restrictionsadditional restraints that may be placed on our ability to transfer such data could have a material adverse effect on our business, financial condition, results of operations and reputation.

        In addition, weWe also use Internet, social media and mobile tools as a means to communicate with the public, including about our products or about the diseases our products are intended to treat. However, such uses riskcreate risks, such as the loss of trade secrets or other intellectual property. In addition, there continuecontinues 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

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comply with applicable rules, there is a significant risk that our use of Internet, social media and mobile technologies for such purposes may cause us to nonetheless be found in violation of them.

        Our dependence upon information technology, including any breaches of data security, technology disruptions, privacy violations, or other uses of interconnected technologies could give rise to the loss of trade secrets or other intellectual property, to the public exposure of personal information, and to interruptions to our operations, and could result in enforcement actions or liability, including potential government fines, claims for damages, and shareholders' litigation, whichlitigation. Any such events could require us to expend significant resources beyond those we already invest to continue tofurther modify or enhance our protective measures, and to remediate any damage.damage, and to enable the continuity of our business. Such events could have a material adverse effect on our business, financial condition, results of operations and reputation.

We may fail to develop or take advantage of transformational technologies and business models.

        Rapid progress in digital technologies and in the development of sometimes radical new business models is substantially transforming numerous industries around the world, creating new businesses and new opportunities for revenue and profit, while sometimes quickly rendering established businesses uncompetitive or obsolete. The potential exists for such transformations, both positive and negative, to impact the pharmaceutical industry, and numerous companies from the digital technology and other industries are seeking to enter the healthcare field.

        To take advantage of these opportunities, Novartis has embarked upon a digital transformation strategy, with the goal of making Novartis an industry leader in leveraging advanced analytics and other new technologies. As part of this effort, we have created a new role of Chief Digital Officer, reporting directly to the CEO, charged with creating and executing a company-wide digital strategy, to be led by the Executive Committee of Novartis.

        In order to reach our goal, we expect to invest substantial resources into efforts to improve the way we use data in drug discovery and development, to improve the ways we engage with patients, doctors and other stakeholders, and to automate business processes. With our commitment to using science-based innovation to deliver better outcomes for patients, together with our expertise and the valuable data we have and continue to amass, we believe that we have an opportunity to transform our business model using digital technologies.

        There is no guarantee that our efforts toward a digital transformation will succeed, or that we will successfully transform our business model, or that we will be able to do so at any particular cost or any particular time. In order to succeed, we will be required to encourage a cultural change amongst our employees, attract and retain employees with appropriate skills and mindset, and successfully innovate across a variety of technology fields, while other companies, including both specialized start-up organizations and established technology companies such as IBM, with its Watson project, and Alphabet, with its subsidiary Verily, aggressively move forward in this field.

        At the same time, there is a risk that other companies with specialized expertise or business models may enter the healthcare field, potentially disrupting our relationships with patients, healthcare professionals, customers, distributors and suppliers, with unknown potential consequences for us. For example, new entrants may seek to enter the pharmaceutical distribution field.

        If we should fail to succeed in our efforts at a digital transformation of our company, then there is a risk that we may fail to create the innovative new products, tools or techniques that such technologies may make possible, or may fail to create them as quickly and efficiently as such technologies may enable. We may also lose opportunities to engage with our stakeholders and to profit from improved business processes, and may lose the resources devoted to these efforts to transform our business. At the same time, should third parties successfully enter the healthcare field with disruptive new technologies or business models, then we potentially may see our business supplanted in whole or in part by these new

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entrants. Any such events could have a material adverse effect on our business, financial condition or results of operations.

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

        We carry a significant amount of goodwill and other intangible assets on our consolidated balance sheet, primarily due to acquisitions, including, in particular, substantial goodwill and other intangible assets obtained as a result of our acquisitions of Alcon and the oncology assets from GSK. As a result, we may incur significant impairment charges in the future if the expected fair value of the goodwillintangible assets and other intangible assetsthe groupings of cash generating units containing goodwill 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, intangible assets with an indefinite useful life, acquired research and development,projects not ready for use, 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

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impairment charges could have a material adverse effect on our results of operations and financial condition. In 2016,2017, for example, we recorded intangible asset impairment charges of $591 million.$0.7 billion. For a detailed discussion of how we determine whether an impairment has occurred, what factors could result in an impairment and the impact of impairment charges on our results of operations, see "Item 5. Operating and Financial Review and Prospects—Item 5.A Operating Results—Critical Accounting Policies and Estimates—Impairment of Goodwill, Intangible Assets and Property, Plant and Equipment" and "Note 1. Significant Accounting Policies"accounting policies" and "Note 11.10. Goodwill and Intangible Assets Movements"intangible assets" in the "Excerpts from Novartis Annual Report 2016"2017" furnished to the SEC on Form 6-K on January 25, 2017.24, 2018.

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

        ManyUnpredictable political conditions currently exist in various parts of the world's largest economiesworld, including a backlash in certain areas against free trade, anti-immigrant sentiment, social unrest, the refugee crisis, fears of terrorism and financial institutions continuethe risk of direct conflicts between nations. In the US, the current presidential administration's opposition to free trade agreements could cause barriers to be impacted byraised to international trade, and the elimination of the Affordable Care Act's individual mandate could have a weak ongoing global economicnegative impact on individuals' ability to afford health insurance. Similarly, there is a risk that barriers to free trade and financial environment,the free movement of people may rise in Europe following the UK's "Brexit" vote and the rise of nationalist, separatist and populist sentiment in various countries. And significant conflicts continue in parts of the Middle East, including conflicts involving Saudi Arabia and Iran, and with some continuingrespect to face financial difficulty, liquidity problemsplaces such as North Korea. Collectively, such difficult conditions could, among other things, disturb the international flow of goods and limited availabilityincrease the costs and difficulties of credit.international transactions.

        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 particular, financial weakness in certain countries has increased pressures on those countries, and on payors in those countries, to force healthcare companies to decrease the prices at which we may sell them our products. See also "Item 4. Information on the Company—Item 4.B Business Overview—Innovative Medicines—Price Controls." Concerns continue that payors and customers in some countries, including Greece, Italy, Portugal, Spain, Brazil, Russia and Saudi Arabia 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 with our subsidiaries in the country. The Group's subsidiaries in Venezuela are experiencing a significant reduction in approvals for remittance of US dollars outside the country at the exchange rate available for imports of specific goods and services of national priority, including medicines and medical supplies. As a result, in November 2016, the Group changed the exchange rate applied to translate the financial statements of its Venezuelan subsidiaries to the floating rate of DICOM (Systema de Divisa Complementaria) which was VEF 658 per US dollar as of November 1, 2016. A corresponding $0.3 billion revaluation loss on the outstanding intercompany balances was recognized in the fourth quarter of 2016. Due to the recorded reserves against the intercompany balances, the net outstanding intercompany payable balance of Venezuela subsidiaries reduced to an insignificant amount as per December 31, 2016.

        Ongoing conditions in Venezuela and other such countries could continue to lead to further devaluations of their currencies, which could in turn result in significant additional financial losses to the Group in the future. See also "Item 5. Operating and Financial Review and Prospects—Item 5.B Liquidity and Capital Resources—Effects of Currency Fluctuations" and "—Condensed Consolidated Balance Sheets," and "Note 15. Trade Receivables" and "Note 29. Financial Instruments—Additional Disclosures" in the "Excerpts from Novartis Annual Report 2016" furnished to the SEC on Form 6-K on January 25, 2017.

        Currentlocal economic conditions may also adversely affect the ability of payors, as well as 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.us. 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 fiscally-challenged government payors, or with third parties with substantial operations in countries where current economic conditions are the most severe, particularly whereexposure to such third parties are themselves exposed to payment risks from business interactions directly with fiscally-challenged government payers.payors. See also "—Our reliance on outsourcing and third parties for the performance of key business functions to third parties heightens the risks faced by our businesses"businesses," below.

        In addition,Financial market issues may also result in a lower return on our financial investments, and a lower value on some of our assets. Alternately, inflation could accelerate, which could lead to higher interest rates, increasing our costs of raising capital. Uncertainties around future central bank and other economic

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policies in the varying effects of difficultUS and EU, as well as high debt levels in certain other countries, could also impact world trade. Sudden increases in economic, times on the economies, currencies andcurrency or financial markets ofmarket volatility in different countries hashave also impacted, and may continue to unpredictably impact, our business and results

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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,above, 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 ourthe amount we pay toward pension-related costsexpenses in the future," below. In addition,See also "—Our business is affected by pressures on pricing and reimbursement for our products," above, and "Item 5. Operating and Financial Review and Prospects—Item 5.B Liquidity and Capital Resources—Effects of Currency Fluctuations."

        There is also a risk that countries facing local financial difficulties, including countries experiencing high inflation rates and highly indebted countries facing large capital outflows, may impose controls on the financial situationexchange of foreign currency. Such exchange controls could limit our ability to distribute retained earnings from our local affiliates, or to pay intercompany payables due from those countries. See also "Item 5. Operating and Financial Review and Prospects—Item 5.B Liquidity and Capital Resources—Condensed Consolidated Balance Sheets," and "Note 14. Trade receivables" and "Note 28. Financial instruments—additional disclosures" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.

        Similarly, increased scrutiny of corporate taxes and executive pay may also result in a lower return on our financial investments, and a lower value on some of our assets. Alternately, inflation could accelerate, which could lead to higher interest rates, which would increasesignificant business disruptions or other adverse business conditions, and may interfere with our costsability to attract and retain qualified personnel. See "—Changes in tax laws or their application could adversely affect our results of raising capital.operations" and "—An inability to attract and retain qualified personnel could adversely affect our business" below.

        To the extent that the economic and financial conditions directly affect consumers, some of our businesses, including the elective surgical and contact lens businesses of our Alcon Division, may be particularly sensitive to declines in consumer spending. In addition, our Innovative Medicines and Sandoz Divisions may not be immune to declines in consumer spending, particularly given the increasing requirements in certain countries that patients directly pay a largeran increasingly large contribution toward their own healthcare costs. As a result, there is a risk that consumers may cut back on prescription drugs and medical devices to help cope with rising costs and difficult economic times.

        These issues may be further impacted by unpredictable political conditions currently existing in various parts of the world, including a backlash in certain areas against free trade, the ongoing refugee crisis, anti-immigrant sentiment, social unrest and fears of terrorism. In the US, opposition to free trade agreements was a significant issue in the recent presidential election. Similarly, uncertainties remain in Europe following the UK's "Brexit" vote and the rise of populist movements in various EU countries. And significant conflicts continue in parts of the Middle East and places such as Ukraine.

        Collectively, such difficult conditions can, among other things, interfere with free trade in goods, increase the costs and difficulties of international transactions and potentially disturb the international flow of goods, and thus 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.costs.

        At the same time, significant changes and potential future 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 scrutinySeparately and collectively, such factors may have a material adverse effect on our revenues, results of corporate taxesoperations, financial condition and, executive pay may lead to significant business disruptions or other adverse business conditions, and may interfere withif circumstances worsen, 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.raise capital at reasonable rates.

Our indebtedness could adversely affect our operations.

        As of December 31, 20162017 we had $17.9$23.2 billion of non-current financial debt and $5.9$5.3 billion of current financial debt. Our current and long-term debt requires us to dedicate a portion of our cash flow to service interest and principal payments and, if interest rates rise, this amount may increase. In addition, our existing debt may limit our ability to engage in transactions or otherwise may place us at a competitive disadvantage relative to competitors that have less debt. We may also have difficulty refinancing our

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existing debt or incurring new debt on terms that we would consider to be commercially reasonable, if at all.

Our reliance on outsourcing key business functions to third parties heightens the risks faced by our businesses.

        We invest a significant amount of effort and resources into outsourcingoutsource the performance of certain key business functions to third parties, includingand invest a significant amount of effort and resources into doing so. Such outsourced functions can include research and development collaborations, manufacturing operations, warehousing and distribution activities, certain finance functions, marketing activities, data management and others. In particular, in many developing countries, we rely heavily on third party distributors and other agents for the sales, marketing and distribution of our products. Similarly, we often obtain the intermediate and raw materials used in the manufacture of our products from third parties located in developing countries.

        Our reliance on outsourcing and third parties for certain functions, such as the research and development or manufacturing of our products, may limitreduce the potential profitability of such products.

        In addition, despitegovernments and the public are increasingly placing pressure on major corporations, including Novartis, to take responsibility for compliance with human rights and appropriate environmental practices, as well as other actions, of their third party contractors around the world. Examples of this include the Conflict Minerals rule in the US, and the UK Modern Slavery Act.

        We place strict contractual relationshipsrequirements on such contractors to comply with law and with our high standards. We also expend significant resources on efforts to screen out inappropriate contractors, to monitor the activities of those we have retained, and to seek their compliance with the third partieslaw and our expectations. Nonetheless, many of these companies have limited resources, and, in particular, do not have internal compliance resources comparable 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

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to us. If        Ultimately, if the third parties fail to meet their obligations or to comply with the law,us, 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 or should they act inappropriately 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, andtheir acts, that our reputation may suffer.suffer, and that penalties may be imposed upon us. Any such failures by third parties could have a material adverse effect on our business, financial condition, results of operations or reputation.

        In particular, in many countries, including many developing markets, we rely heavily on third party distributorsIntense competition from patented 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 detect cases of potential misconduct fail, we could be held responsible for the noncompliance of these third parties with applicable laws and regulations, which may have a material adverse effect on our reputation and on our business, financial condition or results of operations.

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

        At a time of slowing growth in sales of healthcare products in industrialized countries, many emerging markets have in recent years experienced proportionately higher sales growth and an increasing contribution to the industry's global performance. In 2016, our Continuing Operations generated $11.9 billion, or approximately 25% (2015: 25%) of our net sales from Emerging Growth Markets—which comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand—generic pharmaceuticals companies, as compared with $36.6 billion, or approximately 75% (2015: 75%) of our net sales, in the Established Markets. However, combined net sales in the Emerging Growth Markets grew 4% in constant currencies in 2016, compared to –1% sales growth in constant currencies in the Established Markets during the same period. As a result of this trend, we continue to take steps to increase our activities in the Emerging Growth Markets, and have been making significant investments in our businesses in those countries.

        In the past two years, however, certain of these Emerging Growth Market countries, including Brazil, India, China and Russia, have experienced economic slowdowns. As a result, there can be no guarantee that our efforts to expand our sales in these countries will succeed, or that these countries will once again experience growth rates significantly in excess of the world's largest markets. In particular, some Emerging Growth Market countries may be especially vulnerable to the effects of the persistently weak global financial environment, may have very limited resources to spend on healthcare or may be susceptible to political and social instability. See "—The persistently weak global economic and financial environment in many countries and increasing political and social instability may have a material adverse effect on our results" above. Many of these countries are subject to increasing political and social pressures, including 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 suchwell as ours. See "—An inability to attract and retain qualified personnel could adversely affect our business" below. In some Emerging Growth Market countries, a culture of compliance with law may not be as fully developed as in the Established Markets—China's investigations of the activities of multinational healthcare companies, for example, have been well publicized—standards of acceptable behavior may be lower than such standards in Established Markets, or we may be required to rely on third-party agents, in each case putting us at risk of liability and reputational damage. See "—Failure to comply with law, and resulting investigations and legal proceedings may have a significant negative effect on our results of operations," and "—Our reliance on outsourcing and third parties for the performance of key business functions heightens the risks faced by our businesses," above.

        In addition, many of these countries have currencies that may fluctuate substantially. If these currencies devalue significantly against the US dollar and we cannot offset the devaluations with price increases, then our products may become less profitable, or may otherwise impact our reported financial results. Currency devaluation risk may also exist in countries with high inflation economies. Should these countries take steps that cause their currencies to be devalued, we may realize a significant financial loss. See "—The persistently weak global economic and financial environment in many countries and increasing political and social instability may have a material adverse effect on our results" and "—Foreign exchange fluctuations may adversely affect our