Novartis : Annual Report 2022 (SIX filing)

Annual Report 2022

Annual Report 2022



Chair's letter

Medical progress and innovation are evolving with impressive speed even in a world of increasing volatility and ­uncertainty. In 2022, we initiated a major ­transformation of our organization to further improve our innovation capabilities and align with our growth strategy as a pure-play medicines company.

We expect these changes to simplify our business, enhance accountabilities and strengthen our commercial activities by enabling us to better focus on our in-market products and high-value pipeline assets. Overall, our efforts are set to support our long-term sales and profit growth and help us create sustainable shareholder value.

As part of this transformation, which includes our intention to spin off our Sandoz generics and biosimilars Divi- sion, we merged our Oncology and Pharmaceuticals commercial organizations and created a new Operations organization that combines our manufacturing and services activities. Besides substantial­ cost savings, we expect these steps to increase our operational agility and strengthen our business in key markets such as the United States and China.

The organizational changes, which we expect to finalize in 2023, complete the portfolio shift we started in 2014. Over this time, we have divested several non-core businesses and spun off our eye-care division Alcon. With a view to boosting our innovation power, we have also made substantial investments in cutting-edge technology plat- forms, including gene and cell therapy, radioligand therapy and RNA technology.

Novartis delivered on its sales and operating profit targets in 2022 despite the challenges­ of a volatile macroeconomic environment and while executing on our ongoing transformation, which entailed job reductions due to structural changes. This performance was supported by cost discipline and continued operational streamlining, as well as the strong uptake of recently launched medicines, such as multiple sclerosis treatment Kesi- mpta, and continued strong demand for our cardiovascular medicine Entresto and psoriasis treatment Cosentyx.

Last year also saw new leadership at the Novartis Institutes for BioMedical Research and our Global Drug Development organization, the research and development (R&D) engines of Novartis, and a renewed focus on improving governance and speeding up the transition between early drug discovery and clinical development. These measures should help further strengthen our portfolio of medicines, which we have consistently broadened in recent years with launches including cancer treatments Pluvicto and Scemblix.

We have also further intensified our efforts to integrate our environmental, social and governance (ESG) activities into our daily business, which we believe is vital for the success of Novartis. Among a variety of steps aimed at reaching as many patients as possible, we renewed our commitment to continue our R&D efforts in neglected tropical diseases and to work further toward the elimination of malaria. In addition, we are partnering with the American Society of Hematology to deepen our efforts to fight against sickle cell disease in Africa.

The Board of Directors also remained vigilant in its governance oversight efforts by putting added emphasis on values such as integrity as Novartis pivots towards becoming a high-performance,pure-play medicines company. Likewise, the Executive Committee and the Board of Directors are keeping up the intensive dialogue with stakeholder­ groups and working towards achieving our vision to be the most valued and trusted medicines companies in the world.

I thank you for the confidence you have placed in our company and am pleased to be able to propose a dividend increase of 3.2% to CHF 3.20 at the next Annual General Meeting.

Sincerely,

Chair of the Board of Directors



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CEO's letter

2022 was a year of transformation for Novartis. After more than USD 100 billion in acquisitions and divestures over the last several years, our structural transformation from a diversified healthcare conglomerate into a focused, innovative medicines company will be largely complete after the planned spin-off of Sandoz in 2023.

We also begin 2023 with a simplified organizational structure that will spur innovation and give us a stronger foundation for growth in a rapidly changing global business environment.

While Novartis has pursued bold portfolio change, core elements of our company remain the same. Our vision is to become the most trusted and valued medicines company in the world - valued not only for our business per- formance, but also for the difference our innovation makes for patients and society.

The world is counting on us to succeed. Fewer than 10% of diseases known to affect humans are currently treat- able, and globally, people live an average of 10 years with a disease or disability. Yet new treatments broadly still reach only a fraction of eligible patients, and manageable conditions like heart disease cause millions of avoidable deaths each year.

Our performance in 2022 showed that we are making progress in addressing society's greatest disease bur- dens. Our focus on cardiovascular disease, for example, gives countries and healthcare systems solutions to address the world's leading cause of death and disability. Entresto, our medicine for heart failure and hypertension, is estimated to be treating around 10 million patients worldwide, while our cholesterol-lowering siRNA treatment Leqvio is now approved in 70 countries.

We saw robust growth momentum across our in-market medicines. This includes stronger-than-expected uptake in the US for Pluvicto, our novel radioligand therapy for advanced prostate cancer, highlighting our ability to turn the promise of next-generation medicines into a reality for patients.

Despite challenging macroeconomic conditions and an unstable geopolitical environment, we delivered a solid financial performance that underscores the progress we are making, with 4% growth in net sales in constant currencies (cc) and 8% growth (cc) in core operating income compared with the previous year. Looking ahead, we aim to generate sales growth of 4% CAGR over the next five years, and grow above peer median beyond 2027.

Our investments in R&D are key to achieving these ambi- tions. In 2022, we saw a positive Phase III readout for ipta- copan, which was discovered at NIBR, in a rare and deadly blood disorder. We saw an important positive Phase III result for Pluvicto in earlier lines of prostate cancer. And

we also reported positive Phase III results for Cosentyx in hidradenitis suppurativa, offering the potential to expand one of our most successful medicines and bring a new treatment option to patients with this painful skin disease.

As we continue innovating for patients, millions around the world are still without proper access to healthcare. Translating the latest science into lasting progress requires us to work with healthcare systems and other stakeholders to advance access for underserved patients in low- and middle -income countries, while also tackling access barriers in some of the wealthiest countries in the world.

In the US, for example, we expanded our 10-year Beacon of Hope initiative, which seeks to address racial disparities in healthcare, including by increasing diversity among clinical trial participants and investigators. We also pledged to invest USD 250 million in R&D for the treatment of malaria and neglected tropical diseases, building on our decades-long commitment to global health priorities. We continue to make progress in other aspects of our ESG agenda, including reducing greenhouse gas emissions from our own operations by nearly half since 2016.

As we look to the future as a focused medicines company, our dedication to innovation and excellence will drive us forward. We have set clear growth ambitions and we are confident we will meet them. Through reshaping Novartis, we are set to reimagine medicine for decades to come.

Sincerely,

Vas Narasimhan

Chief Executive Officer



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