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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 2/07/03  Novartis AG                       6-K         2/07/03    1:251                                    Merrill Corp/New/- FA

Document/Exhibit                   Description                      Pages   Size 

 1: 6-K         Report of a Foreign Private Issuer                  HTML  1,720K 

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934

Report on Form 6-K dated February 7, 2003
(Commission File No. 1-15024)

Novartis AG
(Name of Registrant)

Lichtstrasse 35
4056 Basel
Switzerland
(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F: ý        Form 40-F: o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes: o        No: ý

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes: o        No: ý

Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes: o        No: ý

Enclosures: Novartis AG Annual Report 2002 to Shareholders

   
Contents

1

   
Financial Highlights

(1)

Excluding discontinued Novartis Agribusiness

(2)

Before acquisition of product and marketing rights and Roche Holding AG voting shares

Key ratios

Share information

(3)

2002: Proposal to the shareholders' meeting

2

   
News in 2002

•

Strong volume growth in Pharmaceuticals and Generics: Group sales up 11% in local currencies (+2% in CHF)



•

Pharmaceuticals steadily gaining market share in all major markets, with sales growth of 13% in local currencies (+4% in CHF), driven by the Cardiovascular and Oncology franchises



•

Registration dossiers for 18 new drugs, indications and formulations were submitted



•

Group operating income climbs 8%, spurred by strong top line growth and enhanced productivity



•

Net income up 4%, due to strong operating performance and an attractive level of financial income amid adverse market conditions



•

Earnings per share rise 7%, supported by share buy-back program



•

Based on solid performance, a dividend increase of 6% to CHF 0.95 per share will be proposed to shareholders

3

   
Letter from Daniel Vasella

Dear Shareowner

In these times of economic uncertainty and volatility, it gives me pleasure to present another year of record results and consistent growth—the sixth year since Novartis was formed from the merger of Ciba and Sandoz in 1996.

Let me summarize the key achievements which contributed to our success in 2002:

•

Double-digit growth was achieved in group sales, which totaled CHF 32.4 billion (+11% in local currencies).



•

Operating income was up 8% to CHF 7.9 billion, net income rose 4% to CHF 7.3 billion, and earnings per share increased by 7% to CHF 2.91.



•

Gains in market share were achieved by virtually all of our business franchises.



•

11 approvals were obtained for new pharmaceutical products, indications and formulations in major markets around the world, marking another industry-leading achievement.



•

18 registration dossiers for new drugs and indications were submitted for regulatory approval.



•

In the US, pharmaceutical sales grew by 12%, making Novartis one of the fastest-growing major pharmaceutical companies. Altogether, the US market accounted for 42% of our global pharmaceutical business sales.



•

Our oncology (+28%) and cardiovascular (+40%) businesses were successfully expanded, with significant rejuvenation of our product portfolio.



•

The Consumer Health Division was refocused, with the establishment of global business units and the sale of Ovaltine/Ovomaltine, Caotina and Lacovo to Associated British Foods.



•

Our Generics business was strengthened by the acquisition of the Slovenian generics company Lek.



•

Net financial income reached CHF 949 million despite the difficult stock market conditions.



•

Our financial investment in Roche was increased to 32.7% of the voting shares.



•

We expanded our programs designed to facilitate the supply of drugs to indigent patients suffering from leprosy, malaria, tuberculosis and chronic myeloid leukemia (CML).

These good results are the fruits of a shared focus on clear, unchanged strategic goals and of the positive attitude and high level of commitment of our associates. I would like to take this opportunity to express my sincere thanks to all those who contributed to this year's success.

Similarly, in the year ahead we will continue pursuing a strategy oriented towards sustainable growth. Strategic focus, the capacity for innovation, successful marketing and enhanced productivity remain key success factors. In addition to the quality of our staff and products, the size and strength of our pharmaceutical business, particularly in the US market, is of crucial importance. The focus on these priorities led, among other criteria, to the decision last year to divest our Health & Functional Food operations. Part of this business, as mentioned above, has been sold to Associated British Foods, and the remainder will be disposed of once an attractive bid is received. At the same time, we have further strengthened our Generics business, which also achieved dynamic organic growth, by acquiring the Slovenian company Lek. The latter's strong position in Central and Eastern Europe and its attractive product portfolio will enable the Generics Business Unit—to be rebranded under the established Sandoz name—to become a global market leader. Given the growing numbers of elderly patients requiring healthcare services and drugs, the role of low-cost generics will become even more important

4

in future. The savings achieved as a result can then be used to finance innovative new drugs with improved efficacy and safety profiles benefitting the patient.

Innovation and new products will thus remain our company's lifeblood. For this reason, we have decided to set up a new research headquarters in Cambridge, Massachusetts, under the direction of our new Global Head of Research, Professor Mark Fishman. As President of the new institute, Professor Fishman plans to incorporate new insights from the fields of genetics and molecular biology into our research in a systematic manner and to draw on the rich pool of young scientists from the local network of universities and hospitals in and around Boston. This research initiative will involve substantial levels of investment, which will have an appreciable impact in the coming year. However, in view of our strategy of innovation and our long-term growth aspirations, we believe that these investments are justified and that they will result in important new medicines for patients in the years ahead.

In 2002, we further expanded our share in various segments of the US market and successfully launched two new drugs. After a regulatory setback in 2001, Zelnorm/Zelmac was approved earlier than expected by the FDA for patients with constipation-related irritable bowel syndrome and is now available in many countries. Elidel, a non-steroid cream for the treatment of atopic dermatitis, became the leading product in its segment only a few months after its introduction. The antihypertensives Diovan and Lotrel and the anticancer agents Zometa and Gleevec/Glivec continue to grow dynamically. Gleevec/Glivec, our breakthrough drug, received approval as first-line therapy for chronic myeloid leukemia (CML) in several markets, enabling patients to receive treatment immediately upon the diagnosis of their disease, improving their chances of survival and providing new hope for patients and families.

However, as expenditures on sales and marketing remain at a high level, it is not surprising that cost pressures will persist into the future. As far as possible, these will be counteracted through productivity programs, since it is rarely possible to increase prices. On the contrary, governments and insurers are constantly calling for price reductions and discounts. At the same time, certain developing countries and groups of activists are seeking to systematically undermine intellectual property rights. If the World Trade Organization were to yield rashly to this pressure, the long-term result would be a continuous decline in investments in R&D, as there would be little prospect of achieving a reasonable return for our shareholders. Our position is one of unequivocal support for patents that are strong but apply only for a limited period. At the same time, we advocate that these patents should not be applicable for the 49 poorest countries with regard to life-saving drugs used to treat diseases such as AIDS, malaria and tuberculosis. We also continue to support the World Health Organization (WHO) by donating drugs for leprosy and tuberculosis and by supplying our innovative antimalarial agent Coartem at cost. It should be mentioned, too, that our new institute, The Novartis Institute for Tropical Diseases, dedicated to research on tropical diseases, will be opening in Singapore early in 2003. While we are aware that a lack of medicines is only one of the problems afflicting many developing countries, we trust that our efforts can make a substantial contribution to improving healthcare in these regions. In industrialized nations, we have also launched a number of programs for the benefit of uninsured and needy patients (for a summary, see p. 37).

Unfortunately, the past year will also be remembered as one of corporate scandals, challenging the credibility and integrity of many executives. Novartis did constantly strengthen its Corporate Governance in the past and will comply with new Swiss and foreign legislation and regulations but more importantly aspire to match the absolute highest standards. This commitment to progressive corporate governance structure and processes will lead to an increase in the responsibilities and tasks of the Board of Directors and its committees—especially in the case of the Audit and Compliance Committee.

5

This Annual Report fully responds to the widespread calls for greater transparency. It should enable you to form a realistic assessment of your company's current financial position and future growth prospects. This is the last Annual Report in which our results will be reported in Swiss francs. Because an ever-increasing proportion of our revenues are generated in the dollar zone, we have decided to present our future financial reporting in the US currency. This will also facilitate fairer comparisons with our—predominantly American—competitors, and I trust that these comparisons will further our recognition as a leading global pharmaceutical company dedicated to the discovery of innovative medicines for patients.

To you, our shareowners, I wish to express my gratitude for your loyalty and confidence.

Sincerely,

Daniel Vasella, MD
Chairman and CEO

6

      Amazing Patient Stories
by Lisa Melton, PhD

Patients' Perspectives: Barbara Howell

Barbara should have died a long time ago. In 1998, the 53-year-old businesswoman from San Diego was lying immobile in a hospital bed, her bones packed with tumors—too many to even count. She was suffering from breast cancer that had spread to the bones. Her arms, legs, spine and skull were obliterated by cancer cells and the bone was crumbling. "I had tumors everywhere," she recalls. "My condition was so serious that my husband contacted our son asking him to come home because he may not have another chance." But drugs saved Barbara's life. "Something incredible happened, I started getting better. I wouldn't believe this story if somebody told me, except that I lived through it," she says.

Barbara's first brush with cancer came as a young woman. At 36, she had a breast tumor removed and for more than a decade she was healthy, until new problems erupted. "It started with an ache, and from one moment to the next I could not pick up my arm, it just hung there," says Barbara. Within two days, she could no longer eat, walk or even sit up in bed. The cancer had spread to her bones and the pain was excruciating. "I only had a wafer-thin strip of bone left in my arm, my legs were also a mess and a tumor on my skull grew so fast you could actually watch it getting bigger." Barbara had emergency surgery to place rods in both her legs. Another grueling operation was planned to strengthen her spine with "chicken wire" because doctors feared it would buckle under the weight of her head.

Fortunately, Barbara never had to face such an ordeal. The drugs alone did the trick. In a double-pronged strategy, Barbara took Aredia (pamidronate sodium), a Novartis drug, to prevent her bones from breaking, and tamoxifen (from another company) to stop the cancer cells from growing. Within three months Barbara's recovery was spectacular. "To everyone's amazement, the bone grew back. The doctor had tears in his eyes. He admitted he had never seen anything like it before," she says. Today, she is back at work, walks three miles a day, enjoys hiking on weekends with her husband and tackles comfortably two flights of steps at home. "I'm doing much better than they ever imagined I would," she exults. "My life expectancy at the time was six months, and here I am, five years later."

Yet nobody can predict how long Barbara's health will hold out. To improve her chances of a sustained recovery, she recently changed her bone medication to Novartis' newly released Zometa. The prospects are good. Zometa belongs to a family of drugs, the biphosphonates, that have long been used to prevent bone complications in cancer patients. But Zometa (zoledronic acid) is much more potent than any compound that has gone before. By developing a different molecule, Novartis' team of chemists produced a medication that offers a 6% lower risk of developing bone complications in some cancers than Aredia.

Even in healthy people, bone is constantly breaking down and being rebuilt. Zometa interferes with this natural cycle by stopping osteoclasts, the cells engaged in demolishing bone, allowing bone density to increase. Bone complications in cancer patients are very common. In fact, bone metastases occur in 65 to 75% of all advanced breast and prostate cancer patients and in up to 40% of all lung cancer patients. Since each year, worldwide, 1.2 million women are diagnosed with breast cancer alone, this new treatment has the potential to help millions of cancer patients suffering from debilitating and painful bone complications.

Patients' Perspectives: Gerd Goldhammer

Three years ago, Gerd, a fleet manager from Eisleben, Germany, was shocked to discover that his constant abdominal cramps were caused by a large tumor. "I had never been ill in my entire life," says the 60-year-old man, who found the diagnosis hard to believe. But the tumor was as big as a fist and surgeons removed it, together with 35 cm of intestine. Unfortunately, 18 months later, the tumors returned, this time in the membrane that envelops the abdomen, the peritoneum. His prospects were bleak. Gerd was suffering from a lethal form of gastrointestinal cancer called gastrointestinal stromal

7

tumor (GIST) that resists every form of therapy. Further surgery was planned to eradicate the new tumor, and Gerd had no option but to brave it.

Just then his luck changed. One of his doctors heard of Gleevec/Glivec (imatinib mesylate), a new cancer treatment by Novartis which was achieving some spectacular successes. The drug was being tested in a clinical trial in Berlin, and without hesitation Gerd packed his bags and drove 300 km to the hospital. Once there, instead of surgery, he was asked to take four capsules of Gleevec/Glivec a day. To his delight the tumor began to shrink, and he now hopes that his next scan will show it has become even smaller.

Gerd's recovery is nothing short of miraculous. Today he works full-time, feels fit, and the pains that once plagued him never returned. "I am so happy about the tablets that helped me avoid further surgery. Now my wife, daughter and I, are a happy family again," he enthuses.

And Gerd is not alone. Gleevec/Glivec has brought thousands of people back from the brink of death. "Gleevec/Glivec is a groundbreaking drug," enthuses Peter Reichardt, MD, the oncologist at the Virchow Clinics, Berlin, who conducted the trial and witnessed Gerd's response. "GIST patients went from having nothing to having an extremely active treatment. We see tumors melt away in only two or three months." In 70% of GIST patients the tumors shrivel, eventually to nothing. And although GIST is considered a rare form of cancer, with approximately 12 000 new cases worldwide each year, the impact is enormous. "Before, when we had a sarcoma patient, we always hoped it would not be GIST," Peter Reichardt, MD, admits. "Now we carefully re-examine the histology just to check whether it might be GIST because we can now offer an extremely active treatment. Things have changed a lot."

Novartis' breakthrough drug is at the cutting-edge of cancer treatment. Gleevec/Glivec is one of the first drugs to inhibit the growth of malignant cells while having a limited effect on healthy tissue, usually without the distressing hair loss, sickness and weakened immune system that accompany conventional cancer therapies.

Gleevec/Glivec was originally developed to treat a rare type of blood cancer called chronic myeloid leukemia (CML). Although the treatment was designed to be specific for CML, researchers soon realized that Gleevec/Glivec could also target tumor cells in GIST patients, and they are studying it as a potential treatment for other forms of cancer. In all, hundreds of thousands of lives could be transformed by this revolutionary drug.

Patients' Perspectives: Laura Brizar

Laura was only a baby when she joined the clinical trial for Elidel (pimecrolimus). "I could see how much she was suffering. She looked exhausted, she barely slept," recalls Diamant Thaci, MD. The seven-month-old child from a small town in central Germany was ill, not with a life-threatening disease, but with eczema. Yet her young life was in shambles. "The skin on her face, neck and behind her knees was red, dry and itchy. Despite putting gloves on her little hands, Laura could not stop scratching so her skin was broken and weepy. It looked awful. On the street, strangers would ask me what was wrong with her." Laura's mother rejected reverting to corticosteroids, the only previously effective treatment, because they can cause skin thinning, especially of the face, with prolonged use. None of the other treatments helped and Laura's mother was in despair.

Their visit to Dr. Thaci changed all that. The senior dermatologist at the Dermatological University Clinic in Frankfurt am Main, Germany, enrolled Laura in a clinical trial for the Novartis drug Elidel. "We used this wonder cream," says Laura's mother, "and after two weeks her condition had noticeably improved. After a month her skin had made a remarkable recovery. By her first birthday you could hardly see any marks at all." Dr. Thaci who has followed Laura's progress, is equally elated. "We were the last resort for the mother and the child. Every time the child came through the door, I was curious: had the situation improved? It was a joy to witness what happened," he says.

Elidel is derived from a natural substance produced by a fungus, Streptomyces hygroscopicus. It was discovered by scientists at the Novartis Research Institute in Vienna who were looking for a medicine that would prevent T-cells from churning out chemicals known as cytokines that trigger skin inflammation. Elidel reduces the severity of eczema by an average of 64% compared to a 12% reduction in patients using a control cream. More than 4 000 patients have now been treated with

8

Elidel in clinical trials and the most frequently observed side effect is a mild feeling of warmth when the cream is applied. As eczema typically begins in childhood and commonly occurs on the face, no doubt physicians will welcome a non-steroid cream that can be used on any skin.

Making a Real Difference

New medicines such as Gleevec/Glivec, Elidel and Zometa, are making a real difference in the lives of millions of families living with disease. These outstanding medicines have provided the impetus for Novartis to make a huge and exciting investment into research and development. In 2003, a new institute for research, based in Cambridge, Massachusetts, will open under the name of the Novartis Institutes for Biomedical Research, Inc. (NIBRI). The aim is to strengthen Novartis' position as a leader in pharmaceutical innovation.

Researchers in laboratories across Europe, the US and Japan will be looking towards Cambridge to follow the leadership of top scientist Professor Mark Fishman who will be heading the global research effort of Novartis, at the new Cambridge site.

Professor Fishman is a physician, a Harvard medical school professor, and was chief of cardiology at Massachusetts General Hospital. He was responsible for transforming research in his field by introducing the zebra fish as a model organism for understanding new genes and pathways in cardiovascular disease. He has every intention of applying the same up-beat, revolutionary strategies to drug discovery (see interview, page 10).

"Our establishment, NIBRI in Cambridge, in the midst of one of the world's most impressive pools of scientific talent, outstanding academic institutions, and large patient populations, will help us to attract the best researchers," says Daniel Vasella, MD, Chairman and CEO of Novartis AG. The new research facility will open in March 2003 with an initial 28 000 m² of lab space which will accommodate 400 scientists. In April 2004, Novartis will take over an additional 56 000 m² of laboratories in a renovated building which abuts the MIT campus. When the institute is fully staffed, it is expected that almost 1 000 Novartis scientists will be working in Cambridge, complementing the 1 500 scientists who are now located in Basel. With an initial investment of USD 250 million, the focus will be on the discovery of new drugs for oncology, diabetes, cardiovascular and infectious diseases, as well as for fundamental molecular and genetic studies that bring about a quantum leap in the pace and predictability of drug discovery.

To Professor Fishman, a key to success is to forge close partnerships between the institute, academia and the biotech community. For this, Cambridge provides the perfect environment. "The institute had to be strategically situated in an area where the best academic institutions and hospitals with large patient networks are located," he says.

Inspired by Success

While NIBRI gears up to open its doors, Barbara plans to attend her son's wedding and PhD graduation in a year's time, and Gerd's life is back to normal. Laura's mother is grateful that her toddler can finally sleep comfortably.

For a pharmaceutical company, it is being able to have an impact on people's lives through its discoveries that provides the impetus to produce more and better medicines. "One of the most motivating things that happens to us as scientists is to hear people's amazing stories," enthuses Alex Matter, MD, Global Head of Translational Research at Novartis. "People whose lives have improved are our best advocates."

9

Interview with Prof. Mark Fishman, MD

Is drug discovery in need of a radical shake up?

There remain many illnesses without effective therapy. As we unravel the genome and learn how to put function to the genes, we will generate a foundation for mechanistic explanation of disease and acquire many new potential targets for medicines. To give you an idea of how early we are in the process, all medicines from all companies today hit only about 120 targets. Since there are in the order of 30 000 genes and 200 000 proteins, many of which could be involved in illness, clearly we are missing great opportunities for discovery. The trick will be to decipher which genes are critical. This will be a long-term project, in part because different patients with the same illness may actually have different underlying causes because of genetic predisposition. In the future, medicines may well be directed by the patient's genetic make-up and more attuned to patient-specific mechanisms of disease. For this reason Novartis has elected to ensure that we engage in activities at the frontier, in order to be prepared for this sea-change.

Will the newly sequenced human genome feature heavily in the new institute's agenda?

Currently the genome is pretty much a list of genes by sequence. To increase the pace and predictability of discovery of new drugs we need to unravel the function of these genes. Of course, this is a mammoth task, with implications for all of science and medicine, and we cannot, and should not, go it alone. To do so, we need to form ventures and partnerships with our colleagues in academia and in biotech.

Will the marriage of pharma and academia pan out, or is it just pie in the sky?

The two already are engaged. Over the last years it has become clear that many academics would dearly like to make medicines, in some cases as a vindication for their fundamental work. The support from academia for the opening of NIBRI in Cambridge has been uniformly positive and strong precisely because many desire such involvement. There are real issues, of course, around intellectual property, for example, but in many cases we can break through these barriers by common sense and asking where lies the real value. It will benefit no one if the walls get higher and barriers more impregnable, least of all our patients who have the right to full benefit of the fundamental discoveries now coming forth at an ever-increasing pace.

What is your biggest challenge?

To assemble a system that delivers medicines continuously, keeping an eye on the horizon for the sweeping changes while, in a practical way, using each day's knowledge to generate drugs. Science is a moving target, and no assumptions today can be confidently predicted to hold in 5 years … except that most of today's predictions will be wrong.

Are some traditional research methods flawed?

One major assumption that clearly needs to be challenged is that two patients with apparently the same disease, by today's definition—be it diabetes, heart failure, or leukemia—have the same cause for that disease, and therefore will benefit equally from the same drugs. We therefore will need better to attune drugs to individuals, in order to increase efficacy and decrease toxicity. In addition, we can utilize new model organisms in the discovery process. Much is shared, in terms of essential molecular pathways, the biological building blocks. For example, one pathway essential to making the fruitfly wing, when perturbed in humans, causes cancer. On the flip side, we need to recognize that in many ways man is different, and so need to examine how to change these model systems to make them better predictors of the human response to drugs.

What does the new Novartis Institutes for Biomedical Research Inc. (NIBRI) offer ordinary citizens?

The mission is to discover medicines at an increasing pace and with even greater specificity, to better treat those now suffering disease, and to improve the process so effectively over the coming years that our children look back with disbelief, surprised that such diseases ever were untreatable.

10

   
Pharmaceuticals

The Novartis Pharmaceuticals Division is a world leader in the discovery, development, manufacture and marketing of prescription medicines. Our goal is to provide a broad portfolio of innovative, effective and safe products and services to patients through healthcare professionals around the world. This goal is supported by a dedicated organization operating in more than 140 countries through approximately 80 affiliates.

(1)

Before acquisition of product and marketing rights

11

NA—Not applicable as insignificant prior year sales

12

Key Marketed Products

(1)

Co-Diovan/Diovan HCT in the USA

(2)

In the US, Neoral approved for severe psoriasis and rheumatoid arthritis

(3)

Vivelle, Vivelledot

(4)

Also approved for suicide prevention in the US

13

  Compounds in development

The Novartis pipeline holds a broad stream of promising future products, with 52 projects in Phase II and beyond as of December 2002, including both new molecular entities and additional indications or formulations for marketed products.

Compound

Molecular chemical entity.

Generic name

Designation assigned to compound.

Indication

A disease or condition for which a particular drug is believed to be an appropriate therapy.

Phase II

Clinical trials in patients to determine dose ranging, safety and efficacy.

Phase III

Large clinical trials to determine definitive safety and efficacy in patients.

Filed

In registration.

14

*

Navigator trial examining combination therapy of Starlix and Diovan.

(1)

Amyotrophic lateral sclerosis

(2)

Chronic obstructive pulmonary disease

(3)

Seasonal allergic rhinitis

(4)

Age-related macular degeneration

15

16

The Novartis Pharmaceuticals Division achieved double-digit sales growth throughout 2002, to post full-year sales of CHF 21.0 billion, an increase of 13% in local currencies or 4% in Swiss francs. By comparison, the world pharmaceutical market grew around 8% over the same period.

The strong performance was driven by increased market share in all of the Division's major markets. The Cardiovascular and Oncology franchises sustained dynamic momentum, widely exceeding overall growth in their respective market segments. For the second consecutive year, Novartis was among the most successful companies in the industry regarding FDA approvals. 2002 saw the successful US and European launches of Elidel, an innovative non-steroidal cream for treating eczema, and Zelnorm/Zelmac, a treatment for constipation-prone irritable bowel syndrome (IBS) in women. Zometa gained US and EU approvals for treating bone metastases in a broad range of cancers. Diovan, our flagship drug for lowering blood pressure, won approval in the US for treatment of heart failure in patients intolerant of ACE inhibitors, making it the first and only drug in its class to be approved by the FDA for this application.

Based on impressive results in a clinical study of patients with early stage chronic myeloid leukemia (CML), Gleevec/Glivec received approval as first line therapy in the US and, early in 2003, in the EU. The FDA also approved Gleevec as the first drug for the treatment of GIST, a rare type of stomach tumor, in patients for whom surgery is not an option.

The new products and additional indications for recently launched products contributed to further rejuvenation of the portfolio. As a result, the proportion of sales generated by patented products rose 6 percentage points to 61%.

Marketing & Distribution investments increased to drive the US and EU launches of Elidel and Zelnorm. Implementation of the new research strategy and the establishment of the new Boston facility to power future innovation led to a 4% increase in Research & Development investments, which were maintained at 17% of sales.

Regionally, sales in the US, the biggest single market, rose 12% to CHF 8.9 billion. The US now accounts for 42% of Pharmaceuticals' sales, up nine percentage points over the past five years. Elidel became America's number-one branded product in treatment of atopic dermatitis, or eczema, with more than double the share of new prescriptions of its closest rival. Furthermore, the US field force considerably improved its rankings in the Scott-Levine surveys, a highly regarded independent annual measure of customer satisfaction.

Double-digit sales growth was achieved in all major regions, with Latin America (17%) and Japan (15%) leading the way, despite government mandated price decreases. In Europe, strong performances in Spain and France offset the effects of pricing pressures in several countries, mandatory generic substitution in Germany, and the effects of parallel imports both in Germany and the UK.

Business Unit Product Reviews

Primary Care

Primary Care continued to surpass industry growth, as 2002 sales climbed 13% in local currencies. Primary Care includes a wide range of products for the treatment of cardiovascular diseases, central nervous system disorders and dermatological conditions (including fungal infections, eczema, psoriasis and genital herpes).

In 2002, Diovan/Co-Diovan (valsartan/valsartan+ HCT) extended its category leadership in the US and became Novartis' best selling product ever, with sales growing 49% in local currencies. Backed by the Val-Heft study data showing improved survival in certain patient treatment groups and reduced hospitalization and cost-effectiveness benefits, Diovan became the first and only drug of its kind to gain an approval for heart failure patients. To complement the broad choice and flexibility for patients and

17

physicians, a new strength of Co-Diovan (Diovan combined with a diuretic) was launched under the name of Diovan HCT in the US.

Lotrel (benazepril+amlodipine), another Novartis flagship antihypertensive, increased sales by 35%, supported by new data showing that patients switched from Norvasc® (a Pfizer product) experienced better blood pressure control with less edema. A new dosage strength was launched in mid-year in the US and others were filed in December for FDA approval.

Lescol (fluvastatin), a lipid-lowering drug (statin) grew strongly (18%), reflecting its positive risk/benefit profile and convenient extended-release formulation.

The Lescol Intervention Prevention Study (LIPS) published last year was the first prospective study to evaluate the effects of a statin exclusively in patients who have undergone percutaneous coronary intervention (PCI) procedures such as angioplasty. These patients are at a high risk of a second major adverse cardiac event.

The LIPS findings showed that Lescol 80 mg significantly reduced major adverse cardiac events by 22%, even in patients with normal cholesterol levels. Moreover benefits of Lescol were even more profound in high-risk patients with diabetes and multi-vessel disease. Novartis has filed regulatory applications for the additional indication of secondary prevention of cardiovascular events in patients who have undergone PCI procedures. If approved, Lescol could help the 1.8 million patients worldwide who undergo angioplasty procedures annually.

Lamisil (terbinafine), used in the treatment of fungal infections of the nails, extended its share of US prescriptions to more than 80% and achieved a 4% increase in a declining market.

Elidel (pimecrolimus) was launched in 13 countries, including the US. Sales reached CHF 148 million, and within just six months this highly effective, non-steroid cream became the number-one branded treatment for eczema in the US.

Exelon (rivastigmine) for the treatment of Alzheimer's disease posted strong sales growth of 26%, lifted by the European approval of a labeling expansion to include the product's unique property of inhibiting two enzymes believed to be related to the cause Alzheimer's disease.

During 2002, European regulatory officials approved the additional labeling of Exelon as an inhibitor of both acetylcholinesterase (AChE) and butyrylcholinesterase (BuChE). Recent research suggests that BuChE may play an increasingly important role in regulating brain acetyl-choline levels as Alzheimer's disease progresses and that the dual inhibitory action of Exelon may provide additional treatment benefits for patients with the disorder. This makes Exelon unique in its class as the other cholinesterase inhibitors commonly used to treat Alzheimer's disease, such as donepezil and galantamine, inhibit only AChE.

Trileptal (oxcarbazepine), used in the treatment of epilepsy, continued to post substantial sales growth (91%), supported by increased use as a monotherapy and by launches in Canada and Australia.

Zelnorm/Zelmac (tegaserod/tegaserod maleate), a drug for constipation-related irritable bowel syndrome in women, gained approval in the US in September, and sales reached CHF 70 million.

Oncology

Novartis Oncology continued to outperform industry growth rates, gaining further market share and posting strong sales growth of 28% in local currencies. Novartis is now the fastest growing of the world's top five oncology companies.

Gleevec/Glivec (imatinib mesylate), our breakthrough treatment for chronic myeloid leukemia and gastrointestinal stromal tumors, continued to bring benefits to thousands of patients in more than 80 countries. Sales exceeded CHF 950 million, making it Novartis' fifth biggest product. Gleevec/Glivec was

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awarded the prestigious international Prix Galien and is currently under investigation for additional uses in more than 100 clinical trials.

Zometa (zoledronic acid) gained approvals for use in bone metastases in a broad range of cancers and posted sales of CHF 758 million, making it the world's most prescribed intravenous bisphosphonate for bone metas-tases. More potent and convenient than its predecessor, Aredia, it is approaching or has exceeded the previous sales level of Aredia in many markets.

Sandostatin (octreotide), used in the treatment of acromegaly and carcinoid syndrome, continued to post substantial double-digit growth, with sales up 23%.

Femara (letrozole), an oral aromatase inhibitor for first-line therapy of advanced breast cancer in postmenopausal women, posted a 37% rise in sales. Having demonstrated superiority to the previous standard therapy, tamoxifen, Femara is rapidly growing in the US in the first-line metastatic cancer setting.

Ophthalmics

Ophthalmics continued to surpass industry growth, as 2002 sales climbed 7% in local currencies, driven by Visudyne.

Visudyne (verteporfin), the innovative treatment in macular degeneration (dry), achieved sales growth of 27%, and has now been approved in more than 65 countries for its main indication and in more than 45, including the EU, US and Canada, for additional indications.

Transplantation

Neoral/Sandimmun (cyclosporine) remains a cornerstone of immunosuppression and continues to compete strongly against branded and generic competition, owing to a reluctance among physicians to switch patients who are stable and doing well on it.

Simulect (basiliximab), designed to prevent early rejection and optimize clinical outcomes, posted a 21% rise in sales following its successful launch in Japan and continued market segment share gains from established competitor brands in most regions.

Myfortic (mycophenolate sodium), gained first approval in Switzerland, Brazil, India and Australia for preventing organ rejection in kidney transplantation, while Certican (everolimus), a novel drug that targets primary therapy of chronic rejection, was submitted for approval in the EU and US.

Mature Products

This business unit attempts to enhance the value of brands at late stages of their product cycles. Often its brands have lost patent protection and face strong generic competition. By pioneering low-cost marketing activities, ranging from e-marketing to extensive use of external field forces, Mature Products maximizes cash generation while at the same time ensuring a sharper strategic focus on older products than they would receive as part of growth businesses such as Primary Care, Oncology or Ophthalmics.

Of the mature brands, the anti-inflammatory Voltaren continued to compete well against generics and the COX-2 inhibitor class of drugs, while the antihypertensive Cibacen/Cibadrex (Lotensin/Lotensin HTC in US) delivered a 9% increase in sales, mainly as a result of renewed external field-force support in the US.

Business Development and Licensing

During 2002, Novartis acquired rights to develop and commercialize several early-stage compounds targetting major diseases. Novartis and Dainippon Pharmaceutical Co. reached a license agreement for

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AC-5216, a pre-clinical compound for treatment of anxiety. The transaction gave Novartis exclusive worldwide rights outside Japan and certain Asian countries. AC-5216 is a so-called mitochondrial benzodiazepine receptor ligand, a novel class of compounds which has demonstrated a rapid onset of action.

Under an agreement with Tanabe Seiyaku Co., Novartis received a license to develop and market any of Tanabe's LFA-1 antagonists in the US, Europe and many other countries. The LFA-1 antagonists block a key cell-adhesion molecule expressed on the surface of white blood cells and may have therapeutic potential in the treatment of autoimmune disorders such as rheumatoid arthritis and psoriasis, as well as prevention of graft rejection in organ transplants.

Novartis also reached an agreement with India's Torrent Pharmaceuticals Ltd. regarding global rights to an early-stage development compound known as an "AGE-breaker,"under investigation for potential use in the treatment of heart disease.

Several promising compounds already in clinical testing are expected to reach key milestones during 2003.

FTY720, a novel selective immunosuppressant, is being evaluated for prevention of acute rejection and graft loss in kidney transplant patients. Currently in Phase II, it has been shown to protect the transplanted organ against T-cells without changing the host's ability to respond to antigens.

ICL670, an oral iron chelating compound for the treatment of iron overload in transfusion-dependent anemias, will begin Phase III trials early in 2003. With once-daily administration, ICL670 is expected to eventually replace the currently available treatment, Desferal.

PTK787, an angiogenesis inhibitor which works through the VEGF pathway to block blood vessels that supply tumors, is expected to begin Phase III testing early this year. PTK787 could be the first oral drug of its kind to reach the market.

AAG561 could be the first in class among the corti-cotropin-releasing factor 1 antagonists, a novel concept in the treatrment of depression and anxiety which encompasses huge patient populations. Phase II trials are expected to start during 2003.

AAE581, an innovative inhibitor of the cathepsin K enzyme which degrades bone matrix, is also scheduled to begin Phase II this year. Inhibition of cathepsin K in osteoclasts leads to reduced collagen breakdown and decreased bone resorption.

SAB378, a cannabinoid (CB1) agonist, represents a novel concept in treating pain which, on the basis of preclinical results, could be more potent than major current treatments. Results of proof of efficacy studies are expected during 2003.

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Joining Forces in the Quest for Cures by Stephen Moore

Novartis works closely with many of the world's leading clinicians to develop innovative approaches to intractable diseases and satisfy unmet medical needs.

These partnerships can stretch over many years—sometimes even decades. But breakthroughs in the US for two Novartis drugs last year show that rewards can be worth the wait.

In July the US Food and Drug Administration (FDA) approved Zelnorm, an exciting new treatment for the constipation-predominant form of irritable bowel syndrome or IBS in women. So far, Novartis is one of the few pharmaceutical companies willing to tackle IBS, a debilitating disorder affecting millions of people around the world but one that is difficult to define and diagnose.

Pioneering research by academic allies and development of tools to refine diagnosis of IBS speeded the development of Zelnorm/Zelmac. In addition, bold endorsements of the drug's potential by outside experts helped rescue Zelnorm/Zelmac during early stages of development when its future was in doubt.

Another Novartis product that notched a major regulatory breakthrough last year was Clozaril, a well-known drug used to treat schizophrenia patients who fail to respond to two standard antipsychotic therapies. Shortly before Christmas, the FDA approved Clozaril for the treatment of recurrent suicidal behavior in patients with schizophrenia or schizoaffective disorder. It was the first time that any medication had won FDA approval for use in treating suicidal behavior.

Suicide is a silent epidemic that takes a daunting toll among people with schizophrenia. Roughly 10% of schizophrenia patients die as a result of suicide and about 40% attempt suicide at some point during the course of their disease.

Herbert Meltzer, MD, the Bixler Professor of Psychiatry at Vanderbilt University School of Medicine and a longtime Novartis advisor, was one of the first clinicians to recognize and demonstrate the potential of Clozaril to reduce suicidal behavior. Over the past four years, Dr. Meltzer was the driving force behind the International Suicide Prevention Trial, or InterSePT, a landmark study which provided compelling evidence for the FDA's approval of the additional Clozaril indication.

"Novartis took quite a risk in doing the study and the potential benefits may be life-saving," Dr. Meltzer says. "It's almost like a fairy tale."

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"A Truly Historic Step."

The InterSePT trial epitomizes the long-term commitment Novartis makes to core therapeutic areas such as schizophrenia and other mental disorders, cardiovascular disease or cancer. In recent years, research and development spending has been focused increasingly on these core areas, which are considered to have superior growth prospects. Sometimes, however, the interests of patients or the company's medical pedigree outweigh commercial considerations.

When InterSePT was initially proposed, Clozaril was already poised to lose patent protection in most major markets. Novartis officials agreed to invest millions of dollars in the study—knowing that even if it was a success, any potential financial benefit would be shared with producers of generic versions of clozapine, the generic name for Clozaril.

Ironically, the FDA approved the first generic version of clozapine in November 1997—the same day Novartis Chairman and CEO Daniel Vasella, MD, had invited dozens of international investigators associated with InterSePT to a kick-off meeting in the Swiss Alps. "We were all crestfallen," Dr. Meltzer recalls. "I was absolutely convinced that it would be the end of the study."

Dr. Vasella never wavered. "We felt a responsibility to physicians and patients to see if Clozaril really could reduce suicidal behavior," he says. "Nobody else was going to finance any new study—generics were riding on our back."

That decision was even more remarkable because the pharmaceutical industry had traditionally avoided the treatment of suicide—and systematically excluded suicidal patients from clinical trials for fear of potential legal liabilities if patients took their own lives while receiving an experimental therapy.

In a letter to Dr. Vasella last year, Richard Nakamura, Acting Director of the National Institute of Mental Health, "strongly commended Novartis and investigators associated with the InterSePT study" for efforts which, he said, could "lead to a new phase in suicide prevention research." Dr. Nakamura added he was "very much aware of the many methodological and legal challenges that have served as barriers to the development of clinical trials focused on reducing suicidality. For industry to take the lead in seeking an indication for suicide risk reduction is "... a truly historic step."

A More General Phenomenon

Helping such patients was a distant dream back in the 1980s when Dr. Meltzer made his initial observations about the benefit Clozaril seemed to provide by reducing suicidal thoughts and behavior. A pair of patients stand out in his memory: one woman who had made multiple suicide attempts and was tormented by hallucinations directing her to try again, and another woman who had made repeated suicide attempts prior to trying Clozaril. It quelled their symptoms so effectively, Dr. Meltzer says, "it made me wonder if this was a more general phenomenon."

The question took more than a decade to answer. The delay stemmed from the turbulent history of Clozaril as a drug associated with serious adverse events as well as major benefits. As the first in a new class of "atypical" antipsychotics, Clozaril had such positive effects on cognition that it enabled many patients to leave institutionalized care and hold a job or return to school. Moreover, Clozaril was apparently not associated with many vexing side effects associated with earlier "neuroleptic" schizophrenia treatments—from muscle spasms, tremors and erratic body contortions, to facial tics and involuntary movements of the neck and tongue.

However, Clozaril posed other safety concerns in a small proportion of patients. The biggest worry was agranulocytosis, a blood disorder where sudden declines of white blood cells could leave patients vulnerable to infections. Physicians weren't able to predict which patients were likely to develop agranulocytosis, and in 1975, after eight Finnish patients taking Clozaril developed agranulocytosis and died, the drug was pulled from markets worldwide.

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Once a medicine is withdrawn for safety reasons it rarely returns—but, once again, Clozaril proved an exception. Physicians and patients who couldn't find an effective replacement prodded regulatory authorities to allow Clozaril back on the market and the drug made a stunning comeback during the late 1980s and early 1990s, including first-ever approvals in the US, the UK and certain other countries.

Still, because of lingering safety concerns, regulators restricted use of Clozaril to patients who had failed to respond to other treatments. Even those patients had to take extra precautions—including mandatory weekly blood tests. The "no blood, no drug" policy was designed to catch adverse reactions early enough to head off severe cases of agranulocytosis.

Clozaril vs. Zyprexa®

In the meantime, Dr. Meltzer had tested his initial hypothesis about a possible positive effect on suicidal behavior by treating dozens of patients with Clozaril. In 1995, he and research assistant Ghadeer Okayli published a landmark paper showing that Clozaril actually did decrease suicidal ideation in patients. A similar positive effect was later reported by other researchers—which set the stage for InterSePT.

Criteria for enrollment included previous suicide attempts or severe suicidal ideation shortly before admission to the study. For ethical reasons, investigators felt that such severely ill schizophrenia patients couldn't be deprived of medication by assignment to a "placebo" arm receiving inactive sugar pills as treatment. So InterSePT was designed as a head-to-head test of two active comparator drugs—Clozaril against Zyprexa®, another "atypical" antipsychotic from Eli Lilly & Co. Besides being one of the most widely used treatments for schizophrenia, Zyprexa® had shown some hints of efficacy in reducing suicidal behavior.

In all, 980 patients began the two-year InterSePT study; 490 participants were treated with Clozaril and the remaining 490 patients with Zyprexa®. Results were unequivocal: compared to Zyprexa®, Clozaril reduced the risk of significant suicide attempts, and hospitalizations to prevent suicide by 26%.

During the study and one-month safety follow-up period, 10 participants committed suicide—six of them patients who had received Clozaril and the remaining four Zyprexa®. For such a high-risk population, says Dr. John Kane, MD, Chairman of the Department of Psychiatry at Long Island Jewish Medical Center and head of the InterSePT study's steering committee, the number of suicides was extremely low and the difference in completed suicides between Clozaril and Zyprexa® wasn't statistically significant. It should be noted that death was not an endpoint in the InterSePT study because, in order to demonstrate a reduction in suicide, over 20 000 patients would have had to have been enrolled.

Although there were no cases of agranulocytosis during interSePT, the adverse event profile was generally consistent with the market experience of Clozaril. But in calculations assuming the historical incidence of serious side effects such as agranulocytosis or myocarditis, the risk-benefit ratio suggested by InterSePT was striking. For every 1 000 patients treated for two years with Clozaril, about 4.5 patients would experience a serious side effect (agranulocytosis or myocarditis) while 77 patients would be prevented from a suicide attempt or hospitalization to prevent suicide.

The impressive percentage of patients who completed the trial—and the unexpected low number of deaths—underscored the quality of care provided by investigators despite challenging circumstances. At a meeting with an FDA Advisory Committee late last year, Dr. Kane noted that suicidal behavior is the most frequent source of litigation against psychiatrists.

"Many of us are extremely uncomfortable treating a few individuals at this high a risk—knowing that in schizophrenia, suicide attempts can be very unpredictable and very lethal," he added. "There's anxiety on the part of clinicians to make sure they get it right—above and beyond anything to do with the research."

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"Every Clinician's Nightmare"

The upbeat news from InterSePT comes amid mounting concern about suicide. Healthcare authorities ranging from the US Surgeon General and Britain's Ministry of Health to the Geneva-based World Health Organization (WHO) have launched anti-suicide campaigns in recent years.

The Surgeon General's office observes that about 30 000 Americans take their own life every year, more than the annual number of homicides across the US. The WHO estimates that more than 800 000 people worldwide commit suicide. At least 80% of those victims suffer from a mental disorder or substance abuse, WHO officials note.

Meanwhile, about 500 000 people in America per year require emergency room treatment as a result of attempted suicide. On top of thousands of dollars in direct hospital bills, an unsuccessful attempt can lead to physical impairment—from gunshot wounds to overdoses that cause permanent organ damage.

With FDA approval of the new Clozaril indication, patients will be the big winners. Dr. Kane predicts that several hundred thousand patients (of the estimated 2 million Americans living with schizophrenia) "would be candidates for any treatment that might help reduce the risk of suicide."

"A patient who has psychosis and also has made suicidal acts in the past is every clinician's nightmare," says Delbert Robinson, MD, a research psychiatrist at Hillside Hospital in New York and an investigator who treated patients during InterSePT. "They're the ones you worry about at night."

They're also the patients InterSePT aimed for—and the ones Clozaril can do most to help. Dr. Ranga Krishnan, MD, a Professor of Psychiatry at Duke University and chairman of the InterSePT suicide monitoring board, looked behind dry statistics to give a fuller description of the kind of patients which InterSePT attracted during his presentation to the FDA Advisory Panel meeting.

"These individuals were very, very ill," Dr. Krishnan said. Prior to enrollment or during the study, he said that there were incidences of patients jumping off bridges, trying to hang themselves or taking overdoses—all of which underscored the lack of support systems as well as chronicity of illness of participants. "The stories were striking," he said.

While formal FDA approval will make physicians more comfortable in prescribing Clozaril for the new indication, additional support may come from guidelines covering the treatment of prevention of suicide which the American Psychiatric Association is considering.

Still, Dr. Meltzer cautions that uptake of InterSePT findings into clinical practice probably will be relatively slow. "Within six to 18 months, there should be a clear signal of the use of Clozaril for this purpose," he says.

But he expects InterSePT to spur research in related mental disorders, such as psychotic depression and bipolar disease, where suicide is even more of a problem than in schizophrenia.

Zelnorm/Zelmac: The Road to Relief

In June 1995, a group of US gastroenterologists journeyed to Jackson Hole, Wyoming, to discuss a promising new medicine from Sandoz, a predecessor company to Novartis, against irritable bowel syndrome, or IBS.

The hand-picked group functioned as a scientific sounding board to Dr. Vasella, who at that time was still a pharmaceutical-division executive. He was irked by sluggish progress of the experimental IBS compound known by its generic name tegaserod but not yet its ultimate brand names Zelnorm in the US and Zelmac everywhere else. He recalled too well from his clinical experience the suffering of patients with severe IBS.

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"Nobody was interested in pushing it—apart from a team of preclinical scientists," Dr. Vasella recalls. "I needed to build credibility for the project—and have key people inside the company hear from outside experts that this was exciting.'

He got the endorsement he was after. One participant at the Jackson Hole meeting—Dr. Chung Owyang, MD, of the University of Michigan Medical School—recalls that the experts "argued for a whole afternoon" and finally agreed "that tegaserod looked very positive based on what we knew about the properties of the compound." However the group also warned that development wouldn't be easy.

Their prediction was on target—and the road to approval has been a memorable one. "Zelnorm was in the coffin several times—but we always managed to pull it out at the last minute," Dr. Vasella says with a wry smile.

As occurs so often in pioneering research, Zelnorm/ Zelmac found its way from the laboratory to pharmacy shelves because a handful of people were convinced that the new medicine offered patients real benefits. The strength of their conviction sustained the Zelnorm/ Zelmac development team through years of shoestring budgets and a brutal pruning of research projects.

Yet, because Novartis lacked first-hand experience in IBS, it continued to rely heavily on contributions from these advisors and other outside experts. That cooperation is set to continue as Novartis steps up an education and awareness drive aimed to broaden understanding of IBS beyond the ranks of specialists.

"Treating IBS has been a frustrating experience both for patients and from our side because we haven't had anything really effective to offer them," Dr. Owyang says. "Now we need to educate primary care physicians that IBS isn't a single disease entity and that they need to identify subgroups of patients that will best respond to a specific drug. That education has to be done at a grassroots level."

Little Compassion

The biggest obstacle to the development of Zelnorm/ Zelmac was the nature of IBS itself. Characterized by chronic, episodic abdominal pain and discomfort, bloating and altered bowel function (constipation and/or diarrhea), the disorder lacked well-accepted diagnostic criteria. IBS also has no clear biological disease marker or structural abnormality that easily identifies affected individuals. And although IBS is a chronic condition, the symptoms wax and wane, presenting a potential pitfall to researchers attempting to design clinical trials testing the safety and efficacy of new treatments.

One of the most common gastrointestinal (GI) disorders, IBS is estimated to affect up to one in five Americans. It occurs in both men and women; however, the prevalence appears to be greater in women. The condition is a leading cause of workplace absenteeism, second only to the common cold, and accounts for approximately 12% of all visits to primary care physicians and 28% of visits to gastroenterologists.

Though many people with IBS are ashamed to discuss their condition, the disorder has a significant impact on their daily lives. "There is little compassion when it comes to understanding IBS and its impact," Nancy Norton, founder and president of the International Foundation for Functional Gastrointestinal Disorders, told an FDA advisory panel three years ago.

"The feelings of fullness and bloating, the pressure that begins in your rib cage, the distension in your stomach, the ache through your midsection and the cramping in your abdomen that causes people with IBS to double over in pain can be debilitating," she added. "Many sufferers are afraid just to eat in a restaurant or go to a movie, for fear that their condition could flare at any time."

The medical community has recognized that therapies traditionally used to treat the abdominal pain/discomfort, bloating and constipation of IBS have been generally ineffective and poorly tolerated. At the June 2000 meeting at which an FDA advisory panel reviewed Zelnorm, Dr. Arnold Wald, MD, of

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the University of Pittsburgh Medical Center, listed multiple medications, from tricyclic antidepressants and anticholinergic agents, to bulking agents and laxatives, which physicians traditionally have prescribed to treat IBS. "There are no supporting data that suggest efficacy for any one of these agents, or a combination," Dr. Wald said.

Secrets of Serotonin

First synthesized in 1989, Zelnorm/Zelmac was designed to stimulate activity of a serotonin receptor subtype called 5-HT4. Serotonin is a chemical messenger also found in the brain where it is believed to affect moods—but 95% of serotonin in the body is localized in the GI tract, where it regulates motility and influences the perception of pain and discomfort.

Zelnorm/Zelmac is the first agent in a new class of drugs called serotonin-4 receptor agonists (5-HT4 agonist). By activating 5-HT4 receptors, Zelnorm/Zelmac stimulates the peristaltic reflex and normalizes impaired motility in the GI tract. Based on this effect, it was identified early as a potential treatment not only for IBS but also for a range of GI problems, such as chronic constipation and functional dyspepsia.

The development program for Zelnorm/Zelmacwas officially started in 1991 and within months survived its first close call when Sandoz, Novartis' predecessor, overhauled research programs and narrowed its focus to fewer disease areas. As a result, all but the most promising in-house research in GI diseases was halted; development of Zelnorm/Zelmac was allowed to continue with limited resources.

Personal sacrifices made by the drug's few champions helped keep the development program moving. Hans-Juergen Pfannkuche, MD, a pharmacologist who was one of the earliest members of the development team, moved on to respiratory research when the GI research program was halted, but he continued to work on Zelnorm/Zelmac part time. "Zelnorm was showing so much potential, I maintained research on it on top of regular business—it became a sort of hobby," he says. Other researchers divided their time between Zelnorm/Zelmac and day jobs in the dermatology, transplantation and cardiovascular disease areas.

The outlook for Zelnorm/Zelmac brightened following Dr. Vasella's conference in Jackson Hole. Members of his sounding board offered to help Dr. Pfannkuche and improve understanding of Zelnorm/Zelmac by testing the drug in their own labs using their own models.

Another key breakthrough about the same time was improved design of clinical trials made possible by new diagnostic tools. Earlier trials, which produced inconclusive results, had involved patients with a wide range of IBS symptoms. Research advances showed that IBS actually comprised a heterogenous group of patients—and that to be effective, clinical trials would have to match new drugs more selectively with subgroups of patients most likely to respond.

The scientific tools needed for more selective diagnosis became available when a group of experts issued guidelines called the "Rome Criteria" in 1994. The Rome Criteria, which are modelled on the so-called DSM classification system created for psychiatric disorders, were updated in 1999, and a third revision is currently underway and expected to be completed by 2006, according to Douglas A. Drossman, MD, co-director of the Center for Functional GI and Motility Disorders at the University of North Carolina and initiator of the Rome guideline program.

"By giving physicians a means with which to make the diagnosis, the Rome guidelines have helped to standardize and, in many ways, to legitimize the field of IBS," Dr. Drossman says. "And by making IBS easier to understand and diagnose, the Rome Criteria make pharmaceutical products more acceptable because the physicians know what they are dealing with."

"Functional GI disorders may not have a structural basis that's easily identified," Dr. Drossman says. "But they're real, just like migraine headaches or problems of that sort."

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Not Over Yet

Before putting the new diagnostic tools to work, the Zelnorm/Zelmac development team had to surmount several additional pitfalls. When the Phase II trial program was completed in February 1996, Sandoz research management put the project on hold due to resource limitations. Later, when Ciba and Sandoz slashed the number of drugs in their combined research and development pipelines as a result of their merger, Zelnorm/Zelmac once again seemed in jeopardy. Although the project ultimately was continued, funding for Phase III trials remained tight.

Nevertheless, by the time those Phase III trials neared completion in 1999, Zelnorm/Zelmac had enough support at Novartis to become a "heavyweight project," a designation given to the most promising drugs in the pipeline. The budget was increased and preparations began to test safety and efficacy in additional GI disorders, including chronic constipation and functional dyspepsia. Clinical testing in these new GI disorders continues today.

The FDA approval of Zelnorm/Zelmac is based on clinical trials that show the drug provides relief of abdominal pain and discomfort, bloating and constipation in women with IBS. In three multicenter, double-blind placebo-controlled studies, 2 470 women with at least a three-month history of IBS symptoms prior to the study baseline period that included abdominal pain, bloating and constipation, received either Zelnorm 6mg/b.i.d. or placebo.

Each week, participants rated their response to the "Subject's Global Assessment of Relief," a measurement tool that takes into account overall well-being, symptoms of abdominal pain and discomfort, and altered bowel function. Based on this assessment, more patients on Zelnorm/Zelmac experienced relief than patients on placebo. In addition, it was shown to provide relief of the individual symptoms of abdominal pain/discomfort, bloating, and constipation.

Initially, Zelnorm/Zelmac was designated a priority review product by the FDA. After reviewing the application, the FDA requested additional data, and the Novartis US affiliate company worked closely with the FDA to provide the necessary data and finally bring the product to approval.

Approvals have been received in more than 25 other countries, where the drug is marketed under the brand name Zelmac.

After devoting more than a decade to the compound, Dr. Pfannkuche is eager to tackle unanswered questions about the drug. One key project will study genetic patterns among patients in hopes of identifying sub-groups more likely to respond to treatment with Zelnorm/Zelmac. After coming so far, he says, "we haven't seen the end of the story yet."

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Consumer Health

Shaping Consumer Health

Creating, developing, manufacturing and marketing a wide range of competitively differentiated products that restore, maintain or improve the health and well-being of our customers. Creating strong, consumer-oriented and trustworthy brands. This best describes the focus of our reshaped Consumer Health Division, which since July 2002 includes our Generics, OTC self-medication, Animal Health, Medical Nutrition (including our Nutrition et Santé franchise), Infant & Baby, and our CIBA Vision business units. Each business unit has a leading market position in growth-orientated healthcare segments beyond our core pharmaceuticals business—thereby also providing essential, high quality health-related products.

In the dynamic world of consumer healthcare—the growth of which is driven variously by "mega trends" such as aging population, scientific advances, broadening healthcare knowledge and overall economic momentum—the success of each Business Unit depends upon its ability to anticipate and meet the needs of consumers and health professionals worldwide.

Consumer Health Division Overview

In late 2002, the Business Unit Heads launched a number of shared business initiatives, which will extend throughout 2003 and from which we expect considerable synergies. After the sale of the Food & Beverages business to Associated British Foods plc., the remaining Health Food & Slimming and Sports Nutrition businesses have been reorganized as a stand-alone unit, Nutrition & Santé, which for external reporting purposes will be consolidated into our Medical Nutrition business.

(1)

Including Nutrition & Santé

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Key Marketed Products

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Novartis Generics—a Global Supplier to be Reckoned With

Generics continued to outperform industry growth rates with 2002 sales, rising 25% in local currencies (15% in CHF) to CHF 2.8 billion. Novartis Generics focuses on off-patent medicines, so-called generic versions, that are pharmaceutically equivalent to the original branded drug, but can be provided to the customer without the high costs of initial research and development. Retail pharmaceuticals (finished dosage forms) manufactured by Novartis Generics are sold to pharmacies, hospitals and other healthcare providers, while the industrial business produces bulk ingredients and intermediates, both for supply to our retail business, as well as for sale to third parties.

In 2002, Generics extended its core competence further beyond the manufacturing and sale of anti-infectives, looking for additional hard-to-make active substances, while simultaneously expanding many of its production facilities. Our new Biopharmaceuticals franchise provides high-tech compounds such as human proteins. Such "endogenous modulators" can exert a powerful therapeutic effect even at very low doses and are manufactured almost exclusively using gene technology and modern biotechnological methods. Building on its strengths, the fast development and industrial production of complex biotech compounds, Novartis Generics is in a position to manufacture these modern, mostly recombinant products reliably and at optimal quality. Parallel to the new organizational structure into three business franchises, Generics moved its headquarters to Vienna, Austria.

Sales were driven by the strong performance of Geneva Pharmaceuticals in the US, the launch of amoxicillin clavulanate potassium in July, as well as strong sales of finished dosage forms such as fluoxetine and omeprazole. Double digit growth rates were achieved in a number of key European countries (UK, France, Italy, Netherlands and Belgium), strongly supported by the launches of omeprazole and fluoxetine.

The growing demand for high quality and attractively priced medications, as well as patent expiries of major products in the years ahead, present substantial opportunities for our Generics business. The acquisition of Lek d.d. in the fourth quarter of 2002, a leading regional pharmaceutical player with strong positions in the growing markets of Central and South Eastern Europe, provides considerable new expansion opportunities for current Novartis products. In addition to complementary market coverage, the combined businesses have a broad product range covering various therapeutic areas such as anti-infectives, cardiovascular and gastrointestinal tract medicines, as well as combined strengths in the production of active ingredients. Equally, access to the powerful Novartis marketing and sales organization to distribute Lek products in the US and EU presents further growth potential. Thus in 2003, the strongly reinforced Novartis Generics organization will have a formidable presence in the major generics markets.

With new momentum derived from the successful launch of the Biopharmaceuticals franchise, the acquisition of Lek and the ongoing modernization of our generics production facilities we expect further growth of our Generics Business Unit above the markets. Furthermore, we expect substantial synergies and new impetus from our new initiative to consolidate our various Generics operations under one brand: the well-established name of Sandoz.

Lek

Based in Ljubljana, Slovenia, Lek is an international group of generics companies and ranks among the leading pharmaceutical businesses in Eastern Europe, while having a broader international presence in several specific product lines. Lek is active in pharmaceuticals and veterinary products. In pharmaceuticals, it has a wide-ranging product portfolio, with substantial expertise in many domains such as cardiovascular and gastrointestinal tract products. The Lek Group employs about 2 580 people in Slovenia and 1 325 abroad. It achieved total sales of SIT 78.5 billion (CHF 544 million), operating income of SIT 9.6 billion (CHF 67 million) and net income of SIT 8.2 billion (CHF 57 million) in 2001.
  
For further information please consult http://www.Lek.si

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OTC—Focusing on Core Brands

In 2002, Over-the-Counter (OTC) Business Unit sales declined 1% in local currencies (-7% in CHF) to CHF 2.4 billion due to the discontinuation of several businesses. Excluding these, on a comparable basis, OTC outperformed its industry with a 3% sales growth. The OTC Business Unit manufactures and sells products for the treatment and prevention of a broad range of medical conditions and ailments to enhance people's overall health and well being.

The OTC business is ranked as the number six global self-medication business with strong positions in Europe (number 2) and North America (number 7), as well as having a growing presence in Latin America.

Novartis has leading brand positions in a number of important and growing category segments, most notably in topical analgesics, athlete's foot and nasal decongestants.

In 2002, OTC had a number of significant achievements following a renewed focus on core brands, innovation led by consumer insight and the successful implementation of our Rx to OTC switch global roll-out program.

Lamisil, the one-week treatment for athlete's foot, added 32% to sales in Western Europe, resulting in a global sales increase of 10% versus 2001.

Voltaren Emulgel, a topical analgesic for muscle pain and the largest OTC brand in the portfolio, reported a solid 5% sales uplift driven by further Rx to OTC switch roll-outs and product innovation. This brand has developed into the number one worldwide in its category.

Otrivin nasal decongestant benefited from the introduction of new moisturizing and allergy formulations which supported the outstanding 11% rise in sales.

Nicotinell/Habitrol, the smoking cessation franchise, grew sales 31% in 2002 driven by the introduction of consumer preferred chewing gums and major private label gains in North America and Asia.

A large proportion of the Novartis OTC portfolio is targeted at the seasonal cough and cold market. The 2002 season was mild in comparison to previous years and impacting total OTC sales performance, which would otherwise have been even better.

Novartis Animal Health

Animal Health outperformed the market with a 10% local currency sales growth (+1% in CHF), increasing sales to CHF 971 million. Our Animal Health business focuses on the well being of companion animals and on the health and productivity of farm animals. Our product range provides solutions for the treatment and prevention of various widespread animal diseases and parasite infestations. The majority of these products are available by prescription through veterinarians.

Animal Health sales outpaced a slowly growing and highly competitive market. Given this challenging environment, new product introductions are the main growth drivers. In the companion animal market, we entered two new indication areas, pain and allergy, introducing several new key brands in 2002:

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Atopica is a novel treatment for dogs effected by atopic dermatitis (AD), an allergic skin disease triggered by house dust mites or pollen. Approximately 10% of dogs show some signs of AD. Effected animals most typically respond to this itchy disease with extensive scratching, leading to further aggravation of skin lesions, secondary infections and hair loss. In such patients, treatment with Atopica leads to a marked improvement in quality of life, as it effectively relieves the symptoms of AD without the long-term side effects often encountered with corticosteroids. Based on cyclosporine A, Atopica is another example of advancing therapeutic options in veterinary medicine through synergies with our pharmaceuticals business.



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Deramaxx (deracoxib) is the first and only COX-2 class drug licensed for the control of pain and inflammation associated with osteoarthritis and orthopedic surgery in veterinary medicine. The product now launched in the US targets COX-2 and spares COX-1 enzymes, thus offering a new therapeutic option to the veterinarian.

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In addition, Milbemax, another new brand for companion animals was launched in 2002. This new product for the control of a broad spectrum of intestinal parasites in cats and dogs greatly facilitates pilling for both the pets and their owners.

In the Farm Animal franchise, Animal Health achieved double-digit growth primarily by moving into the dynamically expanding vaccines business and the growing sales of therapeutic antimicrobials. We also introduced our new product for a season-long protection of sheep against blowfly strikes, Clik, in Europe.

The major pleuromutilin brands, Tiamutin (tiamulin) and Econor (valnemulin), contributed significantly to the strong growth of the Farm Animal franchise. Indicated for the treatment of microbial infections in pig and poultry, they are based on a highly effective class of drugs exclusively used in animals.

In January 2002, Novartis acquired Grand Laboratories Inc. and ImmTech Biologics Inc., two US companies specialized in the development, manufacture and marketing of vaccines for cattle and pigs. The acquisitions provided Animal Health with an immediate entry into the world's largest farm animal vaccine market, the USA. The two acquisitions are part of the strategic expansion into the vaccine market that Animal Health has pursued to broaden its business base in recent years.

Medical Nutrition—Focusing on Health Benefits

Medical Nutrition including Nutrition & Santé posted sales growth of 4% (-1% in CHF) with sales of CHF 1.1 billion for its ongoing activities. Novartis Medical Nutrition is a leader in its market and offers a complete range of enteral and oral nutrition products and devices tailored to the varying needs of patients and healthcare professionals.

Following the Consumer Health Division strategy of reshaping its product mix to focus on the growth-oriented healthcare businesses in which it has strong competitive advantages, the business unit successfully divested its Food & Beverage business in November 2002 when Ovaltine/Ovomaltine, Caotina and Lacovo were sold to Associated British Foods plc. This divestment provides our former brands with the opportunity to enjoy accelerated growth in a strategically better matched company.

At the same time it allows us to focus on our core market, increasing awareness among healthcare specialists of the importance of optimum nutrition, especially post-operatively and in long-term care for elderly patients. 2002 saw strong performance of Isosource and Novasource, enteral nutrition products containing specific blends of essential minerals and nutrients, as well as additional sales impetus coming from Resource, a range of specific medical food formulations, which continued to benefit from the expansion of the homecare channel.

Medical Nutrition will continue to build its business by further leveraging efficient management of outpatients via the home care channel and strengthen its focus on disease-and-age-specific platforms. One example of this target-specific approach is the increasingly recognized importance of immunonutrition. There is now considerable evidence suggesting that adapting and improving the nutrition status of patients in hospital can speed up recovery, help prevent future health problems and reduce healthcare costs. For critically ill patients, disease-specific nutritional support includes the administration of specific nutrients known to have immune-modulating qualities, thus often improving clinical outcomes. Impact is an immune-supportive enteral nutrition formula containing a unique combination of ingredients demonstrated to boost the immune system response. Perioperative use of Impact provides optimal support of surgical patients with improved outcomes.

Similarly, clinical and health economic studies have shown improved outcomes with the use of our medical nutrition products. Patients in specific disease states, including oncology, diabetes, digestive health and wound care, can have more cost effective and improved health outcomes (i.e. fewer complications, shorter hospital stays) through the supportive care that nutritional products provide to standard treatment regimen. These beneficial clinical effects of nutrition will help support total disease management of patients in the years to come.

Our reorganized Nutrition & Santé business, with its headquarters in Revel, France, has strong brands in the area of Health Food & Slimming including Céréal, Gerblé, Gerlinéa, Modifast, Dietisa, Pesoforma,

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Lecinova and Milical, and, in the area of Sports Nutrition, brands include Isostar, Powerplay and Mineralplus. The management team, under its new CEO Alain Chatillon, will be empowered to reorganize and develop the business to increase competitiveness and profitability—providing a consistent approach across geographies and improving focus and efficiency. Nutrition & Santé will continue to build value with its assets and will succeed in the marketplace.

Infant & Baby

Infant & Baby 2002 sales rose 3% in local currencies (-7% in CHF) to CHF 2.1 billion. The major contributor was the US Gerber business, spurred by innovations in the Juice, Graduates, and Tender Harvest lines. The conversion of the juices and purees range into plastic packaging, and the successful launch of Lil' Entrées, a new line of wholesome ready-to-serve meals, were the main drivers of this growth. In the rapidly growing toddlers segment, which offers products for two to three year-olds, revenues were up 5%.

The Baby Care Franchise achieved record market share at year end despite intense competition, with innovations in spill-proof cups. The Gerber Wellness franchise posted outstanding sales growth of 7% with the relaunch of its infant skin care line.

For 75 years, the Gerber Products Company has been committed to helping parents raise happy, healthy babies. Through extensive research aimed at understanding and improving infant and toddler nutrition and development Gerber is the leading baby food brand in the USA with more than 200 food products.

In 2002, we increased our market share. The major contributor to the Infant & Baby Business Unit's solid performance was the USA, spurred by overall innovations and especially the introduction of our new microwavable ready-to-serve meals in trays. These Lil' Entrées are specially designed convenient and nutritious meals for toddlers "on the go" with their families.

During the past year, US media has been reporting on the "epidemic" of childhood obesity. Recognizing its role as a leader in infant nutrition and using its 75 years of baby food experience, Gerber launched a consumer education campaign to help combat this national health problem. The campaign called "Start Healthy" aims to enhance awareness among parents and health professionals of the importance of a healthy nutritional diet early in a child's life to avoid serious health consequences such as obesity during adulthood.

"Start Healthy" began on August 19, 2002, with an advertisement in TIME Magazine, propagating the message that "now is the time to teach your baby good eating habits for life." So far, the "Start Healthy" campaign has reached 500 000 consumers and medical professionals via a new brochure, which offers tips and data on appropriate nutrition for infants and toddlers. In October, Gerber and the prestigious American Dietetic Association (ADA) announced that they would collaborate under the "Start Healthy" umbrella to develop a broad consumer education campaign in 2003. As a first step, the ADA and Gerber have invited nationally renowned experts to join a nutrition panel, which will develop dietary guidelines for children 6 to 24 months of age.

The public reaction to the "Start Healthy" initiative has been extremely positive, beginning with consumer response to the TIME Magazine advertisement. Both consumers and professionals have demonstrated interest and support in direct contacts with Gerber through its call-in center and professional resource line. US Secretary of Health and Human Services Tommy Thompson endorses the campaign and participated with Gerber and the ADA in a "Start Healthy" media briefing.

The Wall Street Journal and other US national media have covered Gerber's nutrition initiative, and media interest continues with more than 20 million media impressions recorded in just three months.

During 2003, "Start Healthy" will add a grassroots campaign and disseminate important information from Gerber-sponsored research on the topic of infant and toddler nutrition to professionals and parents.

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CIBA Vision—Visualizing the Future

CIBA Vision continued to grow with a 6% sales growth in local currencies (-1% in CHF), achieving CHF 1.8 billion in sales. CIBA Vision is a global leader in the research, development and manufacturing of optical and ophthalmic products, including contact lenses, lens care and ophthalmic surgical products.

Focus DAILIES, our one-day disposable contact lenses, and Focus NIGHT & DAY, our lenses for up to 30 days and nights continuous wear, continue to lead the contact lens industry in the daily disposable and continuous wear categories, respectively.

The tremendous success of Focus DAILIES worldwide has led to the introduction of line extensions including Focus DAILIES Progressives for correction of presbyopia and, the latest innovation, Focus DAILIES Toric, daily disposable lenses for correction of astigmatism. Astigmatism is a common vision condition, which is caused when the front surface of the eye is not perfectly spherical, making vision correction a challenge.

Substantial new opportunities emerged in 2002 for our Focus NIGHT & DAY lenses, boosted by legal proceedings against Bausch & Lomb which led to the withdrawal of the only other continuous wear product on the US market.

In the cosmetic contact lens category, the FreshLook line was expanded with FreshLook Radiance lenses, four new lenses that follow the latest trends in cosmetics by adding shimmer and shine to illuminate light or dark natural eye colors.

Important innovations in lens care include advanced solutions, such as AOSept Clear Care/AOSept Plus, representing a new category in lens care with the proven effectiveness of peroxide, but without the added preservatives found in many all-in-one solutions, as well as AQuify, used for dry eyes and as a lens drop, and FreshLook Care, developed to provide best possible disinfection of color or cosmetic contact lenses.

CIBA Vision is also working on novel approaches in ophthalmic surgery and has acquired the rights in the US and Canada for the Ex-PRESS mini glaucoma shunt, a unique, minimally invasive approach for the surgical treatment of glaucoma. Also recently introduced in Europe is an entirely new product for cataract surgery called VisThesia, a combination of viscoelastic to replace eye fluid during surgery and anesthetic for pain. Products under development include a sub-epithelial separator, a medical device that may substantially improve the outcome of laser surgery, and scleral expansion implants, which have shown promising initial results in the treatment of presbyopia, as well as in the treatment of ocular hypertension and primary open angle glaucoma.

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Corporate Citizenship

Making Things Happen

In our previous Corporate Citizenship reporting we focused extensively on explaining the reasons for our social, humanitarian and ecological commitment and describing the processes we initiated to fulfil our pledges. These mainly revolved around ascertaining our performance in the relevant areas, developing policies and guidelines, and defining targets. We also reported on our many implementation programs and awareness campaigns aimed at incorporating our Corporate Citizenship principles into our business activities. At the time we had few tangible results to show for all our new endeavors.

This year, based on the feedback we have received from stakeholders, we have tried to focus more on describing the tangible results of our activities and on discussing both our successes and shortcomings. We believe that this new reporting attitude reflects a new level of corporate maturity.

To us, Corporate Citizenship builds on three pillars: active engagement in society in areas were we are competent; helping where we can and where help is needed most; establishing and implementing transparent, ethical corporate standards and policies.

Humanitarian Focus

Access to Medicine: Leprosy in Sri Lanka

Since 2000, the Novartis Foundation for Sustainable Development continues to pursue an active agenda in dispelling the stigma of leprosy and improving patients' access to treatment. Novartis and its Foundation provide free leprosy treatment through the World Health Organization (WHO) in order to help eliminate leprosy as a public health problem.

Less than a generation ago the implications of contracting leprosy in Sri Lanka were disastrous. The population believed that leprosy was highly contagious and incurable. Sufferers became the victims of both ignorance and the disease. Unable to work, often shunned by family, neighbors and friends, lepers were outcast and left to suffer disability, deformity and the ignominy of the leper colony. Sri Lanka is one of the countries in which Novartis has been supporting the local Health Ministry and the WHO in fighting leprosy and providing reliable and sustainable services which are integrated into the General Health Service. Results have been astonishing. The disease now has a prevalence rate of less than 1 in 10 000. More importantly, ignorance has been conquered, too.

Priyantha and Nihal are two brothers from Polonnaruwa, a rural district of Sri Lanka. About a year ago, Nihal noticed a strange patch on the skin of his right leg with no sensation. He didn't pay much attention to it until he noticed a similar patch on his elder brother's chest. "We just took it lightly and even teased each other by scratching each other's patches."

Their mother walked in one evening and saw what was going on. She looked at their skin and was alerted at once. She had seen a TV advertisement in which people were told to get such patches checked by a doctor, and sent Nihal to the hospital at Polonnaruwa the next day while his brother was at work.

"The doctor at the hospital told me that what I have is leprosy. He filled out a form and told me that I have to take the treatment for six months. He also gave me a booklet with a picture of a bride on the cover and instructed me to read it very carefully and conscientiously."

Nihal collected his medicine, was shown how to take the pills, given the first dose and asked to come back for the next packet in one months' time. But he did better than that. The very next day he returned with his elder brother and a friend who had similar skin patches. Both were promptly diagnosed and also given medication and booklets. Sri Lanka's health authorities were able to provide the drugs free of charge due to the support of the WHO and of Novartis. "Our parents would have had to spend a lot of money to have us treated. That could have affected our entire families."

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The boys completed the treatment, and the episode is already pretty much forgotten. For the younger generation leprosy no longer holds any fear.

But Nihal and Priyantha were conscious of the very different outcome this story might have had only a few years ago. "They sent people with this disease to the jungle in the good old days," Nihal smiles wryly.

The program in Sri Lanka is considered a best-practice example as it shows ways for public authorities and private enterprises to combine their knowledge and credibility in an effective manner.

Novartis Access to Medicine Projects

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Fighting Malaria

Large parts of the world continue to be ravaged by malaria. A joint public/private partnership between Novartis and the World Health Organization (WHO) has been established to provide Coartem, an innovative malaria drug developed by Novartis together with Chinese scientists, at cost to patients in developing countries.

The project with the WHO started slower than anticipated. Unfortunately, very little Coartem has actually been distributed to patients so far, due to inadequate medical support infrastructure or the inability of governments to redirect funds for malaria-related projects.

In 2002, the WHO published the procurement process for governments of developing countries for Coartem. It was also decided to develop a pediatric formulation of the drug in cooperation with Medicines for Malaria Venture.

The Novartis Pharmaceuticals Division this year integrated tropical medicines into its Primary Care Business Unit. One of the problems we are facing in several developing countries is that there are many older and cheaper medicines available as alternatives to Coartem, and they are increasingly facing resistance problems which reduce their efficacy.

Tuberculosis (TB) and Dengue Fever

TB and Dengue fever are two tropical diseases that do not attract sufficient research funding in our market-driven world. The Novartis Institute for Tropical Diseases (NITD) in Singapore, established in 2001, was created to address such situations. Its costs of CHF 180 million for the next 10 years are being funded by Novartis in cooperation with the Singapore Development Board.

In 2002, we began with the recruitment process. So far, we have received more than 1 000 local job applications for the six positions advertised. The new institute will employ 60-70 professionals, 14 of whom will be principal scientists and a part of an international tropical disease research network. Two laboratories housed in temporary accommodation will become operational in early 2003. The permanent facility "Biopolis" is expected to be ready in early 2004.

On January 22, 2003, NITD staged its inaugural symposium in Singapore in combination with a high caliber path-finding workshop, "New Avenues," bringing together Nobel laureates such as Rolf Zinkernagel and some of the world's most promising pioneering scientists in their disease areas. Paul Herrling, President of the NITD, watched over the 60 participants engaging in a compelling, cutting-edge debate that will give some decisive impulses towards areas where our research can provide maximum benefit.

Blindness

The populations of Nepal, Tibet, Bhutan and Northern India show high rates of blindness caused by cataracts. Affiliates of CIBA Vision, a Novartis Business Unit, have donated 11 000 intraocular lenses to the Himalayan Cataract Project. The initiative teaches physicians in these countries to perform extracapsular cataract surgeries with intraocular lens implantation. With the lenses donated by CIBA Vision, the operations can be performed at no cost to the patients.

Patient Assistance Programs and CareCard/Together Rx Card

In 2002, the Novartis Foundation for Sustainable Development supported the creation of a locally managed micro-health care insurance in the rural Municipality of Cinzana, in the African nation Mali. The objectives are to protect people living in poverty against high financial costs due to health problems, and to improve their access to basic healthcare services.

The problem of affordability also effects population segments of industrialized countries. In the USA, for instance, approximately 40 million people are without health insurance. Among elderly people with Medicare coverage, about 14 million people are without insurance for prescription drugs. Legislative

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efforts are under way to include a prescription drug benefit in Medicare, but Congress hasn't agreed on a solution to date. Recognizing the gap in insurance coverage, Novartis developed the CareCard, introduced in 2001, which provides substantial discounts to Medicare patients whose drug purchases are not reimbursed.

In 2002, Novartis continued to develop the concept. In cooperation with other leading pharmaceutical companies, we issued the Together Rx Card which provides discounts on a broader range of pharmaceuticals from many manufacturers. The total volume of discounts provided by Novartis under the Together Rx Card program amounted to about CHF 40 million in 2002.

The introduction of Gleevec/Glivec, our innovative cancer drug, raised another issue related to affordability. Gleevec/Glivec is a life-saving drug for a form of leukemia and for a form of gastrointestinal tumor.

The number of patients is relatively small and the price of the drug is very high. In countries which do not provide comprehensive insurance coverage for their population, some patients are faced with the stark choice of spending their entire annual income to pay for the drug or accept the prospect of death. We cannot accept this. In response, Novartis has established patient assistance programs to provide coverage in situations where patients simply cannot afford the drug. Novartis' patient assistance programs for Gleevec/Glivec supplied patients with medicines that would have cost about CHF 110 million at the prevailing market price.

It is the responsibility of governments to provide access to drugs, but in this particular situation and others, we felt that we could not let patients suffer for government's inability to act.

Marketing Practices by Business

Marketing Practices by Region

Access to Treatment Program for Employees

In our companies operating in developing countries with insufficient health insurance, Novartis launched an internal program providing for prevention, diagnosis, treatment and counseling to all

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employees and their immediate families for HIV/AIDS, TB and malaria. In 2002, implementation started and once fully realized, this program will provide coverage to about 14 000 employees and their immediate families.

Societal Focus

Three years ago, Novartis was one of the first corporations to commit itself to the Global Compact, a remarkable initiative sponsored by United Nations Secretary General Kofi Annan. It is based on a very simple notion: whether or not required by law, corporations should enforce basic human rights and accepted labor and environmental standards in all their business activities to counterbalance possible negative effects of globalization.

At Novartis, Corporate Citizenship is firmly anchored at the Board level. The Audit and Compliance Committee of the Board of Directors oversees the implementation of Corporate Citizenship as part of the commitment to the Global Compact. Our Corporate Citizenship Policy laid down the principles of how we conduct our business. These were then further refined into guidelines addressing key aspects:

•    Management of Corporate Citizenship

This guideline defines responsibilities, management process and mechanisms for conflict resolution and complaints ("whistle-blowing"). It is very important that discrepancies between financial performance objectives and Corporate Citizenship goals are openly discussed. It is also essential that employees are able to raise issues with senior management without fear of reprisal.

•    Fair Working Conditions

This guideline focuses on the well-being of our employees. It explains our policies on paying a living wage, maintaining reasonable working hours, avoiding forced and child labor, prohibiting discrimination and respecting our employees' freedom of association.

•    Bribery, Gifts and Entertainment

This guideline deals with business ethics. Specifically, it defines a minimum standard of fair marketing practices that we enforce in markets around the world. Marketing practices vary from country to country. In the USA, for instance, the industry has articulated a strict code of behavior, whereas in other countries the rules of fair marketing are less precisely defined. This guideline prohibits bribery and excessive marketing expenses. To enforce this, it makes sure that no payments can take place off the record. It also mandates that gifts and entertainment for physicians should not be lavish and should primarily have an educational content or a strong focus on patients.

Working Conditions by Business

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Working Conditions by Region

•    Human Rights and Engagement in Society

This guideline addresses the difficulties of dealing with governments and officials who may be violating human rights in some countries. This guideline makes it our policy to provide support for and to protect internationally accepted human rights. The guideline also instructs our local managers to take an active interest in the affairs of the country and to maintain a good dialogue with the relevant stakeholders.

A fifth guideline on how to engage contractors, suppliers and other third parties in line with our Corporate Citizenship principles will be finalized in the course of 2003.

Implementation

In 2002, we launched a comprehensive training program to ensure that everyone in the Novartis Group is made familiar with the principles and rules of Corporate Citizenship. We expect to reach most employees by mid-year of 2003. Starting with senior management, we are gradually involving employees at all levels. About 1 000 executives have already participated in an educational workshop. The Corporate Citizenship Policy and the accompanying operational guidelines have been received by about 91% of the entire management population of 11 000.

All the units in all the countries in which we operate participated in a structured annual Corporate Citizenship reporting process for the first time in 2002. Almost 300 units were asked to report data on a variety of parameters. More than 90% of all reporting units supplied the necessary figures and analyses (see tables). Although there is no accounting standard established for Corporate Citizenship and the data quality is not yet beyond all doubt, the survey gives an overview of our global status and clear indications of possible issues.

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Corporate Citizenship—Goals and Results

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Corporate Citizenship—Goals and Results

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Regional Corporate Citizenship Status