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

 2/04/05  Novartis AG                       6-K         2/04/05    1:272                                    Merrill Corp/New/- FA

Document/Exhibit                   Description                      Pages   Size 

 1: 6-K         Report of a Foreign Private Issuer                  HTML  1,913K 

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 4, 2005
(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

Enclosure:

Novartis AG Annual Report 2004 to Shareholders

   
Our Mission

We want to discover, develop and successfully market innovative products to cure diseases, to ease suffering and to enhance the quality of life.

We also want to provide a shareholder return that reflects outstanding performance and to adequately reward those who invest ideas and work in our company.

GROUP OVERVIEW

FINANCIAL OVERVIEW

1

   
Financial Highlights

Key figures

Share information

*

Average number of shares outstanding in 2004: 2 447 954 717 (2003: 2 473 522 565)

2

3

   
News in 2004

Group Performance

Novartis delivers record net sales and net income. Group net sales grow 14% (+9% in local currencies) and net income 15%, driven by strong organic growth at both Pharmaceuticals and Consumer Health.

Pharmaceuticals

Double-digit net sales growth continues to outpace the market. Further market share gains registered in key countries. Operating income expands faster than net sales due to strong organic growth and productivity improvements.

Consumer Health

Net sales advance 10% (+5% in local currencies), driven by focus on strategic brands and new product launches, particularly at OTC and CIBA Vision. Sandoz performance adversely affected by comparison with strong 2003, and by price competition.

Pipeline

Novartis leads pharmaceutical industry with 13 regulatory approvals in US since 2000. Seven approvals in major markets in 2004. Industry-leading pipeline with 75 projects in clinical development, of which 52 in Phase II, Phase III or in registration.

Research

Novartis Institutes of BioMedical Research double scientific staff at Cambridge headquarters, with emphasis on biology of diseases with high unmet medical need, and strong commitment to external collaboration and strategic partnerships.

Corporate Citizenship

In 2004, Novartis is able to contribute USD 570 million to patients in need through access to medicine programs.

Dividend

A dividend increase to CHF 1.05 per share (+5%) will be proposed to shareholders, reflecting the strong organic net sales growth and improved profitability.

4

   
Letter From Daniel Vasella

Dear Shareholder:

I am pleased to report strong business performance in our ninth business year, which ended with yet another record result and market share gains.

Let me summarize the key 2004 figures:

•

Group net sales increased 14% (9% in local currencies) to USD 28.2 billion



—

Pharmaceuticals net sales rose 15% (10% in local currencies)



—

Consumer Health net sales gained 10% (5% in local currencies)



•

Group operating income advanced to USD 6.5 billion (+11%)



•

Net income growth of 15% to USD 5.8 billion



•

Earnings per share USD 2.36 (+16%)

Innovation and a focus on patients, core elements of our strategy, resulted in another record performance

These record results reflect our emphasis on sustainable, organic growth, a product of our consistent innovation strategy and the skills and commitment of over 81 000 associates worldwide.

The Pharmaceuticals division, again led by our cancer and cardiovascular franchises, posted a double-digit rise in sales, with market share expanding globally. These successes were realized in a challenging health-care market characterized by cost-containment measures in many parts of the world.

In 2004, we increased overall R&D investments by 12% to USD 4.2 billion

Our pharmaceutical research and development (R&D) expenditure ranked as one of the highest in the industry, relative to sales (18.8%), with outlays of USD 3.5 billion. This investment allowed us to complete construction of new laboratories, and hire more than 800 scientists at our new research headquarters in Cambridge, MA. New or enhanced platforms in biology and chemistry, paired with scientific leadership, not only fortified fundamental and applied research but also improved the compound selection process, speeding up pipeline throughput.

The Novartis Institutes for BioMedical Research (NIBR) continue to focus their efforts on tractable biological targets and selected disease areas with high unmet medical needs, striving to bring novel medicines rapidly to patients. To achieve this objective, we are intensifying our efforts to elucidate the function of specific human genes identified by the Human Genome Project. While structural blueprints for these genes are now available, in most cases the genes' primary role in the body and their potential involvement in disease remain unknown. "Functionalizing" the genome is a vast undertaking—one beyond the means and resources of any single company. Accordingly, we have forged dozens of collaborations, completing 48 alliances with industry and 100 with academia.

Pipeline of new drugs is one of the industry's strongest

Our pharmaceutical development pipeline is one of the best with 75 compounds, 52 of which are in advanced development or registration. Over the past few years, Novartis has maintained its leading position in R&D productivity. Novartis has received 13 US approvals since 2000, the highest figure of any Top Ten global pharmaceutical company. Of particular importance are first-in-class compounds and, currently, 7 of our 10 highly innovative compounds in mid-to-late-stage development belong to this group.

5

Among these are:

•

LAF237, the first of a new class of "incretin enhancers," oral antidiabetic agents that indirectly increase the blood glucose regulating hormone GLP-1. Phase III trial data for LAF237 are expected during the latter part of 2005.



•

SPP100 is the first in a new antihypertensive class called "renin inhibitors." Elevated renin levels increase the risk of myocardial infarction and renal damage. So, SPP100 has the potential for improved end-organ protection. Phase III data are expected in 3Q 2005.



•

FTY720, an immunomodulator with a novel mechanism of action, has recently completed Phase II studies as an oral treatment for multiple sclerosis, showing a reduction of brain lesions and a significantly reduced relapse rate for MS patients treated.



•

PTK787 is an anticancer drug that inhibits all known angiogenesis factors involved in cancer. Submission for US regulatory approval is planned for the second half of 2005.



•

AMN107 is our new, most selective BCR-ABL inhibitor, a potentially more effective follow-up compound for our revolutionary medicine Gleevec/Glivec. Phase II studies will begin in the first half of 2005.

Promising new compounds bring hope to patients

As a physician, I often witnessed the hope that R&D brought to patients, especially in life-threatening situations. New treatments that can reduce suffering and high health-care costs are needed for the more than 10 million people diagnosed with cancer annually, and for those suffering from incapacitating Alzheimer's dementia, diabetes and cardiovascular disease, all on the rise.

It is a fact that a good profit outlook is a precondition for any industrial R&D activities. In turn intellectual property protection is the only way to ensure the open sharing of research findings without fear of copying, and to be certain that there is a potential to earn an adequate return from successful projects. Therefore strong intellectual property rights are a foundation for sustained innovation and allow us to continue to invest in R&D despite long lead times of 12-15 years. In this context I welcome the decision by India to introduce patent protection in 2005, which, I believe will accelerate development of an innovative domestic Indian pharmaceutical industry and encourage direct investment by international companies in local drug discovery and clinical research. Let's remember that overall the pharmaceutical industry invests nearly USD 50 billion a year in research and development, the single most important source of investment in health research.

Drugs effectively fight disease and reduce overall health-care costs

On a macro level, it is clear that the need for novel medicines will rise as the population ages. The United Nations Population Division reports that in North America, 16% of the population was over 60 years of age in 2000. By the year 2025, it projects this percentage will rise to 25%; in Europe, the corresponding figure will be even higher. The increased life expectancy is primarily a consequence of the tremendous advances we have made in medical knowledge. For example: Over the last 40 years mortality as a consequence of hypertensive heart disease dropped by 67%, the death rate for GI ulcers declined by 61%, and for emphysema by 31%, and infant mortality dropped by a staggering 80%.

6

Of course, this is not just due to better drug therapies but, also, to better diagnostics, surgery and care. But there is no doubt, for example, that modern pharmacotherapy played a major role in the 60% drop in mortality over the past 25 years for children who suffer from cancer. Since I became a physician, I have witnessed how new medicines have revolutionized many medical fields, such as transplantation, ulcer therapy, cancer therapy, the treatment of ischemic heart disease and the therapy for schizophrenia, to name just a few. New treatments have also helped reduce chronic disability, which dropped by 25% over the past 20 years in people over 60. So people on average not only live longer, but also better. Furthermore, studies demonstrate that rational drug therapy shortens hospital stays, creating significant system savings. These savings by far exceed the incremental costs of modern drug therapy.

A medicine-based business portfolio

As a company, we want to discover, develop and market medicines that are best suited for specific conditions. This includes innovative prescription medicines, which sometimes are breakthroughs and have the power to change the way medicine is practiced. A recent example is Gleevec/Glivec for the treatment of chronic myeloid leukemia; another is Neoral, which revolutionized the field of organ transplantation. But our medicine-based business portfolio not only includes innovative medicines, but also provides generics and self-medication drugs.

Generics play an important role in times of rising healthcare costs, providing cost-effective treatment options. Our generics business unit, Sandoz, offers best quality and attractively priced medicines. After a dynamic internal and external growth phase over the past few years, the 2004 performance of our Generics business in the US and German markets was disappointing. Price competition and delays of new product launches had a negative impact. As a consequence, we are focusing our efforts on building a cost-competitive structure on a global scale and investing to speed up our development efforts. Following our strategy we pursue organic growth complemented by external growth. In 2004, we participated in the ongoing consolidation of the generics industry by acquiring Sabex Holding in Canada and Durascan in Denmark.

At Novartis Consumer Health, the OTC, Animal Health, Medical Nutrition and Infant & Baby business units all outperformed their markets, reflecting the division's strategic focus on Consumer and Customer Excellence. Dedicated customer teams formed last year to serve key accounts such as Wal-Mart Stores, Inc., are pooling efforts across business units and drawing on cross- functional capabilities to generate synergies and further growth.

Providing access for patients in need

Today, many speak about the right to health as a basic human right. We support this concept as an aspirational objective, realizing that no single party will ever be able to cover the many needs of patients who do not have the financial means to buy healthcare services and drugs. All the various actors, primarily governments, but also international organizations, companies and civil society, have a role to play. But thanks to our strong financial results in 2004, we were able to expand our "access to medicines" programs for uninsured and indigent patients suffering from leprosy, malaria, tuberculosis, chronic myeloid leukemia and other diseases, all part of our important worldwide corporate citizenship program. Currently we are also scaling up production capacity for Coartem, our novel antimalarial medicine, in response to rapid changes in treatment policies in malaria-endemic countries. The Novartis Foundation for Sustainable Development, which celebrated its 25th anniversary in 2004, is an outstanding example of how we actively shoulder our social responsibility to alleviate the immense poverty and associated human misery in the developing world.

7

The most innovative initiative, however, is our research center for tropical diseases, The Novartis Institute for Tropical Diseases (NITD), which we recently inaugurated in Singapore. NITD, managed on a not-for-profit basis, focuses on finding new therapies for Dengue fever and Tuberculosis, both neglected diseases that are gaining in importance, especially in developing countries.

All told, in 2004, we donated USD 570 million through various corporate citizenship programs. This is the Novartis contribution to the most needy patients in the world.

The solution to future health-care challenges is an undiminished commitment to innovation

        At present, a number of parties are attacking the pharmaceutical industry. Some of this critique is valid. But often, the public unfortunately ignores or forgets the immense progress achieved in medical practice thanks to modern pharmacotherapy. In the past, money was often not a key factor when the health or even the life of a patient was at stake. It appears today that costs can be a primary concern for many people. Steps taken to lower costs, such as continuous, imposed price reductions, have had a deeply negative effect on the pharmaceutical research base in certain countries, especially in Europe. Proposals to break patents would have an even more devastating consequence, as this would destroy the foundation for R&D investment. Keeping the pharmaceutical industry profitable is a safeguard for our children and grandchildren, so that they will be able to continue to benefit from the advances of innovative medicines that treat the unavoidable burden of disease.

Let me finish my letter by emphasizing that we are determined to run our business not only according to all regulatory and legal requirements but, also, in an ethical way. We have therefore adapted our control environment, dedicating additional resources in order to comply with the US Sarbanes-Oxley Act. In 2004, we have not only enforced guidelines regarding internal conduct in our business activities but, also, started to report on cases of misconduct that we do discover, as transparency combined with adequate training is the most effective way to discourage misbehavior.

I am grateful to our associates, who have done an outstanding job during the past year, allowing Novartis to achieve excellent results and to improve the lives of many patients across the globe. I'd particularly like to mention the efforts of our associates to aid emergency relief programs following the recent earthquake and tsunamis that caused such immense destruction and suffering in Southeast Asia and the eastern coast of Africa. During the coming months, we will continue to cooperate closely with governments and non-governmental organizations to insure that our medicines and donations reach people in need in the affected areas.

I also wish to thank you, our Novartis shareholders, for your continued confidence in us.

Sincerely,

Daniel Vasella, M.D.
Chairman and Chief Executive Officer

8

   
Pharmaceuticals

Key figures

9

Double-digit Pharmaceuticals Growth

Pharmaceuticals Division outpaces the global market with double-digit net sales growth of 15% (+10% in local currencies). Global market share increases to 4.50% from 4.42%.

Positive Margin Development

Operating income expands faster than net sales as operating margin expands 0.8 percentage point, to 28.4% of net sales. Strong organic growth and productivity initiatives continue to support improved profitability.

Five Blockbuster Brands

Five top-ranked medicines in key market segments achieve net sales of more than USD 1 billion in 2004, led by Diovan, Gleevec/Glivec and Zometa. Novartis on track to deliver seven blockbusters by 2008 through dynamic growth of young product portfolio.

Cardiovascular and Oncology Driving Growth

Novartis ranks as one of the largest and fastest-growing pharmaceutical companies in oncology, while Diovan and Lotrel are leading medicines in the fight against high blood pressure.

Highly Rated Pipeline

Strategically balanced development portfolio focuses on promising therapeutic areas, both in terms of innovative compounds and new indications for in-market products.

Strong Patent Position

Novartis is consistently ranked as having one of the industry's lowest exposures to competition from generics during the next five years, reflecting the launch of 13 new medicines in the US since 2000.

10

   
Research

A New Frontier in Drug Discovery

"The greatest opportunities in science today, its very frontier, lie in the discovery of new medicines," says Mark C. Fishman, M.D., the cardiologist and geneticist who is President of the Novartis Institutes for BioMedical Research (NIBR). "Using the words revealed through modern genetics and chemistry, we can today begin to write the new grammar for drug discovery."

The need is certainly great. Although the average American's lifespan has increased by two years since 1986, with modern medications accounting for over 40 percent of the improvement and raising the quality of life for millions⁽¹⁾, all physicians are keenly aware of the extreme limitations of their pharmaceutical armamentarium in treating their patients effectively and safely. NIBR scientists have the core goal of helping these patients, and the core belief that the time is now.

(1)

Source: Frank Lichtenberg. National Bureau of Economic Research, 2003

NIBR encompasses the global research activities of Novartis. Primary NIBR sites include Basel, Switzerland; Horsham, UK; Vienna, Austria; Tsukuba, Japan; and the new global headquarters in Cambridge, Massachusetts, US. These sites function as a single scientific institute, because modern science reveals that apparently distinct diseases share fundamental causes, e.g., a medicine designed for transplantation therapy may well have important uses in cancer. Our scientific organization reflects the essential unity of scientific mechanisms. For example, in 2004, we integrated the groups that focus on diseases with similar immunological mechanisms to create a new Autoimmunity & Transplantation group.

In 2004, the Cambridge headquarters saw the completion of its flagship building and the doubling of its scientific staff. Recruiting top talent at all our global sites has proven easier than expected, due to a gratifying interest in the scientific vision and mission of NIBR.

In addition to successful recruiting and building, NIBR refocused research to take advantage of its talent and to align with the cutting edge of scientific insight into basic human biology and disease. The new organization reflects this continued emphasis on the biology of particular diseases, coupled with a firm commitment to designing, both internally and in collaboration with strategic partners, the scientific approaches that will define tomorrow's new "grammar" for drug discovery.

Integrated Programs: Diabetes and Heart Disease

More than 100 million patients worldwide suffer from a combined disorder characterized by insulin resistance and the presence of obesity, abdominal fat, high blood sugar and triglycerides, high blood cholesterol, and high blood pressure. This disorder is so common that it has been given its own name: metabolic syndrome. The blood vessels in such patients are inflamed, and vessel obstruction with heart attack or stroke, is common. Lipids in their blood are abnormal, which exacerbates the vessel disease.

Such patients are one focus of efforts in both the Cardiovascular and Diabetes disease areas. The Cardiovascular group is directed by Seigo Izumo, M.D., a cardiologist and molecular biologist recruited to NIBR last year from Harvard Medical School. The Diabetes group is led by Dr. Thomas Hughes, an expert in metabolic diseases, diabetes, and lipid disorders, who already has an impressive track record in bringing new medicines to the clinic.

11

Together these scientists and their colleagues are using molecular understanding of the control of lipid metabolism, vessel biology, and atherosclerosis to design a repertoire of new medicines that can treat the underlying causes of metabolic syndrome. They and their teams, working near each other in the Cambridge laboratories, share experiences learned from their very different backgrounds in academia, biotech, and pharmaceutical discovery.

In addition to metabolic syndrome, each group has other specialized, targeted research programs. For example, Dr. Izumo's group is engaged in an effort designed specifically for discovery of medicines to treat hypertension. Despite therapy, nearly 50% of patients today do not have their blood pressure controlled sufficiently to lower their risk of heart disease and stroke. The Cardiovascular group, using new knowledge of genes involved in hypertension, is investigating the possibility of an entire new range of antihypertensive agents. In this effort, Dr. Izumo is joined by a fundamental research program in Basel, led by Dr. Sylvain Cottens, a chemist experienced in the use of crystallography to guide design of medicines by understanding the atomic structure of the target protein, and by the medicinal chemists at the NIBR site in Tsukuba, Japan.

When the heart fails to pump adequately, whether because of heart attacks, hypertension or other causes, today's medicines offer only limited palliation. Yet we do know that the heart normally can adapt to such stresses. The transition from adaptation to failure is accompanied by essential molecular changes in the heart; and through an integrated program with the biotechnology company Myogen, Dr. Izumo and his team are exploring how to restore the pump function.

Dr. Hughes, in seeking novel therapies for diabetes, can examine the individual role of nearly every one of our 24 000 or so genes, in controlling cellular metabolism, using the genomic tools established by Dr. Dalia Cohen and her Functional Genomics group at NIBR. In addition, Dr. Hughes is looking to a future of medicines better tuned to individuals, through his new collaborative human gene discovery program with scientists from the adjacent Eli and Edythe Broad Institute of Harvard and MIT (see below).

These are only some examples of the breadth and depth of NIBR's scientific programs. As is evident, NIBR scientists identify strategic external opportunities that enhance their internal work, as well as expanding into additional areas of unmet medical need.

Strategic Partners

Through the Strategic Alliances group headed by Dr. Jeremy Levin, NIBR are now a global partner of choice for biotechnology companies and academic centers seeking to discover and develop drugs for a range of inadequately treated diseases. In the past year NIBR have established strong alliances with 150 partners, both academic and industrial, across the world. The location of the global NIBR headquarters in Cambridge, a world-leading center of biotechnology and academic medicine, has not only aided in recruiting world-class talent, but has led directly to innovative new research collaborations.

For example, in late 2004 NIBR announced a unique alliance with the Eli and Edythe Broad Institute of Harvard and MIT, a new academic research institute aimed at realizing the promise of the human genome to revolutionize clinical medicine, and to make knowledge widely available to scientists around the world. This new venture will establish a world-leading center of diabetes research, seeking to understand the genetic contribution to type 2 diabetes and its complications, in order to provide information relevant to clinical decisions and to pharmaceutical discovery. In this new paradigm for public-private collaboration, all data obtained will be made publicly available. In addition, NIBR scientists will work to develop and select medicines appropriate for patients based on the knowledge gained from this collaboration.

12

In May 2004, NIBR announced a significant strategic collaboration with the biotech company MorphoSys to discover and develop antibody-based biopharmaceuticals as therapeutic agents across a variety of diseases. "Novartis is committed to therapeutic antibodies as key weapons in the medical armamentarium alongside small-molecule drugs," says Dr. Fishman, adding that these antibodies will become increasingly important components of the already strong Novartis pipeline.

Other notable collaborations announced or refocused this year include Cubist Pharmaceuticals and Idenix (infectious disease), Vertex (oncology), and Xenon (metabolic syndrome).

All of these scientific efforts, whether internal or in collaboration with external partners, find their beginning and their end in the clinic, where patients need better therapeutic options, and need them quickly.

Translation to the clinic

Drug discovery science is fundamentally clinical science. As part of its new focus, NIBR have enhanced the role of clinician-scientists and clinical considerations in the discovery process. Newly recruited clinical experts now help examine projects from very early discovery to decide what patients might benefit most, how the new medicines might be tested safely in the clinic, and how early clinical trials might be performed expeditiously.

The Exploratory Clinical Development (ECD) group, headed by Trevor Mundel since early 2004, has worked closely with NIBR scientists to develop this new paradigm. "I was attracted to Novartis by their desire to take some of the directions in industry and academia to a logical conclusion, and work without preconceptions to find ways to improve delivery of novel therapies," he says.

Dr. Donald Johns, who joined ECD in mid-2004 as Head of Translational Medicine, Neuroscience and Ophthalmology, says he was drawn to this opportunity because of the "commitment of NIBR to translating the recent explosion in understanding of the brain into great new medicines for patients suffering neurological or psychiatric illness."

Looking Ahead

In coming years NIBR aim to keep the Novartis pipeline full through internal programs and external collaborations, as their scientists work to devise the new grammar for drug discovery, one that will capture the promise of the genome and of other major advances in the fundamental and medical sciences.

13

   
Development

The Novartis pipeline holds a broad stream of promising future products, with 52 projects in Phase II and beyond as of December 2004, including both new molecular entities and additional indications or formulations for marketed products.

Glossary of terms:

Compound

Molecular 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

(1)

NAVIGATOR trial examining combination therapy of Diovan and Starlix.

(2)

Gastroenteropancreatic.

(3)

Chronic obstructive pulmonary disease.

(4)

Age-related macular degeneration.

(5)

Hormone replacement therapy.

(6)

Zoledronic acid (5mg) is authorized to be marketed under the name Aclasta in Europe and is awaiting US approval of the name.

15

16

  FTY720

FTY720 is the first immunomodulator (S1P-R agonist⁽¹⁾) that works by reversibly sequestering lymphocytes away from blood and susceptible target organs, including the central nervous system, without compromising the functional immune response.

(1)

Sphingosine-1-phosphate receptor agonist.

FTY720 is being tested in Phase III clinical studies for the prevention of acute rejection in kidney transplantation. Its mode of action suggests that FTY720 is synergistic with traditional immunosuppressants, paving the way to combinations which may allow for reductions of dosages and minimization of side effects.

FTY720 is also being tested in multiple sclerosis, a devastating and common neurological disease, in which lymphocytes attack the coating that surrounds and protects nerve fibers. As a once-daily capsule, FTY720 offers an exciting new approach to MS. The medicine has demonstrated efficacy in a Phase II clinical study evaluating its effect on MRI lesion parameters. Based on these encouraging results, Novartis will launch its Phase III clinical trial program in 2005.

ICL670

ICL670 is an iron chelator used to treat iron overload, a frequent and serious side effect of regular blood transfusions. More than 250 000 people worldwide are estimated to require frequent blood transfusions to treat conditions such as thalassemia, sickle cell disease and myelodysplastic syndrome. Of this patient group, more than 100 000 people require an iron chelator to avoid dangerous iron overload.

Desferal, a Novartis treatment, has been the gold standard of iron chelation for decades. However, Desferal is burdensome to administer—requiring infusions via a portable pump for up to 12 hours a day, five to seven days per week. Many patients are unable to adhere to such a demanding, lifelong treatment regimen.

ICL670 is a dispersible tablet, administered once daily. By offering patients greater convenience, the new therapy could increase treatment compliance, leading to better health outcomes and overall patient quality of life.

Results from Phase II and Phase III clinical studies showed that once-daily ICL670, at doses of 20 and 30 mg/kg, is effective at maintaining or reducing liver-iron content in patients undergoing regular transfusions.

ICL670 was generally well tolerated in these studies and no unmanageable toxicities were observed.

17

LAF237

LAF237 is the first of a new class of "incretin enhancers"—oral antidiabetic agents that act by inhibiting an enzyme called dipeptidyl peptidase-4 or DPP-4. Now undergoing Phase III trials for the treatment of type 2 diabetes, LAF237 has the potential to modify the disease.

Already considered an epidemic in the US, diabetes is on the rise globally among men and women of all ages, ethnic groups and levels of education. The World Health Organization estimates that 170 million people currently suffer from diabetes. Prevalence is expected to double, to 366 million people, by 2030.

Type 2 diabetes is a disorder leading to elevated levels of glucose in the blood. Glucose is the principal source of energy for cellular metabolism. Normally, as blood glucose levels climb after a meal, insulin is secreted by pancreatic beta cells to absorb glucose into cells and return levels in blood to the normal range. In people with type 2 diabetes, this uptake of glucose into cells is impaired—either as a result of insufficient insulin production, or because tissue in muscle develops abnormal resistance to insulin.

Incretins are hormones that play a critical role in regulation of insulin—and hence blood glucose. Following a meal, the incretin hormones GLP-1 (glucagon-like peptide 1) and GIP (gastric inhibitor polypeptide) are secreted from the intestine and stimulate secretion of insulin by beta cells. In healthy people, GLP-1 triggers the release of enough insulin to restore blood sugar levels to normal. The feedback system controlling insulin release is exquisitely sensitive—after a half-life of only 90 seconds, GLP-1 is degraded by the DPP-4 enzyme.

However, people with type 2 diabetes need GLP-1 and insulin to last longer to decrease elevated glucose levels in their blood. LAF237 works by inhibiting DPP-4, to delay degradation of GLP-1, and extend the action of insulin.

Phase II data presented at last year's annual meeting of the American Diabetes Association showed that LAF237 significantly improved blood glucose control when added to metformin, a standard treatment for type 2 diabetes. The significant decrease in HbA1c, the primary measure of blood glucose control, was maintained for one year.

Phase III trials are studying LAF237 as both monotherapy and in combinations. Initial data from the Phase III studies are expected during the latter part of 2005.

LAF237 also has a disease-modifying potential through its beneficial effects on pancreatic beta cells. In animal studies, LAF237 has shown a positive effect on insulin secretion by increasing the genesis, proliferation and differentiation of beta cells, while inhibiting apoptosis, or programmed death, of these cells.

LDT600

LDT600 is an oral, once-daily treatment now in Phase III clinical trials for treatment of infections by the hepatitis B virus (HBV). LDT600 is a joint development program with Idenix Pharmaceuticals Inc., a Novartis affiliate based in Cambridge, MA.

18

Hepatitis B is a major disease and serious global public health problem. Despite global immunization programs against HBV, the World Health Organization estimates that more than 350 million people are chronically infected. China is the country hardest hit by HBV—with an estimated 120 million chronic carriers of the virus.

Chronic hepatitis B infection can lead to cirrhosis, liver failure and liver cancer. According to the WHO, more than a million people die each year from HBV-related chronic liver disease, underscoring the urgent need for new treatments.

Results of a Phase IIB study presented last year showed that patients treated with LDT600 achieved significantly greater reduction of HBV replication compared with lamivudine, the current gold standard of treatment. Study data also indicated a correlation between rapid and significant antiviral activity seen in patients treated with LDT600, and markers of improved clinical benefit at one year.

The ongoing Phase III trial, called GLOBE, also is a head-to-head comparision against lamivudine. With the participation of more than 1 350 patients at sites in more than 20 countries, including China, GLOBE is the biggest hepatitis B registration trial to date. Patient enrollment was completed ahead of schedule in April 2004, and worldwide regulatory applications are expected to be filed by the end of this year.

QAB149

QAB149 is a long-acting beta-2 agonist under development for treatment of asthma and chronic obstructive pulmonary disease (COPD), a progressive disease of the airways that is one of the leading causes of disability and death worldwide.

In Phase II trials, QAB149 demonstrated strong efficacy in both asthma and COPD; onset of action was rapid, i.e., within 5 minutes. Duration of efficacy was also strong. In asthma and COPD patients, bronchodilation was maintained for 24 hours on a single dose, and efficacy was not diminished by repeated administration. Safety was comparable to placebo.

PTK787

PTK787 is an oral, targeted inhibitor of angiogenesis, the creation of new blood vessels that is essential for growth of tumors and metastasis, or spread of malignant cells to distant parts of the body. PTK787 has been designed to enhance survival in patients with colorectal cancer.

A joint development with Schering AG of Germany, PTK787 is currently in Phase III development for first-line and second-line metastatic colorectal cancer. In 2000, colorectal cancer was the third most commonly reported cancer, accounting for nearly a million cases worldwide.

PTK787 has the potential to be a highly effective inhibitor of angiogenesis by its unique mechanism of action—blocking the action of all known forms of vascular endothelial growth factor (VEGF), a known regulator of angiogenesis. Levels of VEGF are more frequently elevated in metastatic cancers, indicating a poorer disease prognosis.

19

PTK787 also selectively targets platelet-derived growth factor (PDGF), another regulator of angiogenesis found frequently in malignant tumors.

The ongoing Phase III clinical trials, involving nearly 2 000 patients, are known as the CONFIRM studies and compare PTK787 combined with the emerging standard chemotherapy of oxaliplatin/5FU/Lv (FOLFOX) versus FOLFOX alone.

CONFIRM 1 is testing PTK787 as first-line treatment, with endpoints of progression-free survival, and overall survival. In CONFIRM 2, PTK787 is being used as second-line treatment of colorectal cancer, with overall survival as the primary endpoint.

Data on progression-free survival in CONFIRM 1 are expected during mid-2005.

Novartis and Schering agreed in 2004 to develop PTK787 for the treatment of "wet" age-related macular degeneration (AMD), an eye condition that can cause vision loss.

(Note: vatalanib is also known by the research number ZK222584)

SPP100

SPP100 is a first-in-class, oral renin inhibitor currently in Phase III clinical trials for treatment of hypertension. In addition to use as monotherapy, SPP100 is also being studied as a combination therapy with Diovan. Renin inhibition—the first new mechanism in the treatment of hypertension in a decade—targets the renin-angiotensin system, a chemical cascade that functions as a key regulator of blood pressure in the body. SPP100 acts at an earlier stage of the renin-angiotensin cascade—and affects different biological components—than either angiotensin II receptor blockers (ARBs) or ACE inhibitors, two successful classes of antihypertensive medicines.

There still is considerable unmet medical need in treatment of hypertension, and a large and growing patient population. Less than half of people with hypertension receive treatment and only about one-third effectively control their blood pressure with medication.

SPP100 could be of benefit to patients by reducing feedback mechanisms associated with existing classes of antihypertensives. It could also complement existing treatments with different mechanisms of action—and provide additional benefits when used in combinations.

In contrast to other antihypertensives, SPP100 lowers the activity of the enzyme renin in the bloodstream, and may have the potential to better protect patients from heart attacks.

In a Phase II/III study, SPP100 has confirmed its competitive efficacy, and data suggest benefits of the combination of SPP100 and Diovan.

Gleevec/Glivec

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AMN107

Since its maiden approval for treatment of chronic myeloid leukemia (CML) in 2001, our breakthrough, targeted anti-cancer treatment Gleevec/Glivec has improved the prognosis of patients with CML, as well as certain forms of gastrointestinal stromal tumor (GIST).

The average daily dose of Gleevec/Glivec in treatment of CML has climbed steadily, reflecting clinical data demonstrating that patients receiving 800 mg/day for one year achieved higher rates of complete cytogenetic responses than patients given the standard 400 mg/day dose. A complete cytogenetic response is the elimination of cells containing the genetic abnormality that characterizes most cases of CML. That response is a major goal of therapy. Last year, a large trial demonstrated that patients receiving an 800 mg daily dose of Gleevec/Glivec for treatment of certain forms of GIST had significantly longer progression-free survival than patients taking the standard 400 mg daily dose. In GIST, Gleevec/Glivec targets the overactive, uncontrolled mutant form of the KIT enzyme which triggers runaway growth of GIST tumor cells.

Preclinical research has validated the mechanism of action and demonstrated the efficacy of Gleevec/Glivec against several other molecular targets related to cancers. For these targets, Gleevec/Glivec either blocks signal transduction in tumor cells, or alters the tumor environment, e.g., by lowering tumor interstitial fluid pressure to increase uptake of chemotherapeutic agents.

Phase II clinical trials are underway testing Gleevec/Glivec in combination therapies as treatment for several hematological cancers and solid tumors. Current experience shows that Gleevec/Glivec is well tolerated in combination with docetaxel in the treatment of hormone-refractory prostate cancer. In addition, evaluation of a combination of Gleevec/Glivec and hydroxyurea in treatment of refractory glioblastoma, or brain cancer, is ongoing.

Separately, AMN107, a next-generation tyrosine kinase inhibitor, has entered development. AMN107 has shown efficacy in treatment of patients with CML resistant to Gleevec.

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  Extending Hope for Breast Cancer Survivors

It takes time and tenacity to translate the results of a clinical trial into new medical practice and, ultimately, a bona fide public health benefit. Even a landmark study like MA-17 is no exception.

MA-17 made headlines in October 2003. Results published in the New England Journal of Medicine showed Femara had reduced the risk of tumor relapse by 43% in postmenopausal women with hormone-receptor-positive breast cancer who had completed five years of post-surgery treatment with tamoxifen.

Last year, grassroots education and advocacy campaigns on both sides of the Atlantic raised awareness about "extended adjuvant" therapy with Femara, and the possibility for women to stay cancer-free. This new indication has been approved in major markets including the US, the UK and Switzerland—but the outreach to patients and physicians is still picking up momentum.

Sandra Hazra, M.D., is a medical oncologist and hematologist. She is Senior Attending Physician at Akron General Medical Center in Akron, Ohio—as well as Assistant Professor of Medicine at Northeastern Ohio University College of Medicine.

Dr. Hazra is also a breast cancer survivor—and one of more than 5 000 women who participated in the MA-17 study. That unusual status as both patient and physician gives her a special perspective on the study—and the new treatment option.

First and foremost, there is elation over the positive outcome. "The fact that I have less chance of having a relapse thanks to this drug helps me to put my diagnosis in the background—and not have to hold it in my consciousness all the time," Dr. Hazra says. "And being a breast cancer survivor has allowed me to work a little differently with my patients than I could have without this experience."

Yet the pursuit of science isn't always an easy sell—and Dr. Hazra considers the decision to join MA-17 one of the most difficult she has ever made. To document the effect of treatment with Femara, MA-17 was "placebo-controlled"—which means that only half of participants received the active drug while the other half took sugar pills. "It was so difficult because I know the science; obviously we think the drug is better, yet here I may be taking a sugar pill. Was there a comfort level? No."

In the end, like thousands of other women who took part in MA-17, she was swayed by the opportunity to advance knowledge about the disease. "Everything that I do every day with patients I treat—every life that I've saved or prolonged, including my own—is based on data generated by a clinical trial. So when they asked me to participate, I knew I had to do it. That's how we advance."

Science Underpinning Hope

The results of MA-17 hold promise for hundreds of thousands of breast cancer survivors around the world who complete tamoxifen therapy every year.

"This was science finally underpinning hope," says Deborah Dunsire, M.D., Senior Vice President and North American region head at Novartis Oncology. "Any woman who had finished five years of tamoxifen before MA-17 had no further treatment options available. All she had left was hope."

The initial challenge after publication of MA-17 was to gain regulatory approval for the new indication. Since Femara was already approved in most major markets for treatment of advanced postmenopausal breast cancer, physicians could prescribe the drug for medically appropriate uses—including extended adjuvant treatment.

"We saw—even before approval—that the need was great and usage of Femara rose very rapidly as physicians began to prescribe it in the extended adjuvant setting," Dr. Dunsire says.

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To fulfill the promise of MA-17, Novartis development and regulatory teams raced to assemble study data into a format required for authorities to approve the new, "extended adjuvant" indication. Novartis Oncology submitted simultaneous worldwide filings for the new indication of Femara by April—months earlier than expected.

The US Food and Drug Administration responded by granting a priority review and, in October, approving Femara for extended adjuvant treatment of postmenopausal women with early breast cancer who have received adjuvant tamoxifen therapy for five years. Approval by remaining European Union member states is expected during 2005.

Leap of Faith

With a totally new treatment option on the horizon, healthcare professionals and advocacy groups began spreading the message of MA-17 beyond the rarified circles of key opinion leaders at renowned teaching hospitals, to physicians and patients at the community level.

MA-17 posed some special challenges. The significant reduction in breast cancer recurrence—and how soon the difference became apparent in the MA-17 study—surprised many investigators. "I thought it would be a trial that would take many, many years to produce results," says Ian Smith, Professor of Cancer Medicine and Head of the Breast Unit at London's Royal Marsden Hospital.

"It was quite a leap of faith when MA-17 was set up," he adds. Prior evidence suggested that there was no medical therapy after standard tamoxifen that would further reduce the risk of recurrence.

In fact, MA-17 surpassed its clinical objectives nearly two years ahead of schedule, prompting an independent Data, Safety and Monitoring Committee to recommend that the trial be modified immediately for ethical reasons. Nearly 2 600 participants in the trial's placebo arm were offered a chance to "cross over" to treatment with Femara.

The mechanism of action of Femara differs from that of tamoxifen. Femara belongs to a class of compounds called aromatase inhibitors that block the action of the enzyme responsible for converting androgen to estrogen in cells. In postmenopausal women, this conversion of androgen is the primary source of estrogen, the hormone that spurs growth of estrogen-receptor-positive tumors.

Aromatase inhibitors can decrease levels of circulating estrogen in postmenopausal women by up to 90%, making the new medicines more effective than tamoxifen.

Yet, until the aromatase inhibitors proved their mettle in clinical trials, not much attention was devoted to recurrence of breast cancer following standard tamoxifen treatment. According to Dr. Smith, breast cancer specialists "have not quite appreciated how big the risk of recurrence actually is." He cites studies showing that there are just as many relapses after five years of treatment with tamoxifen as during the standard five years of postsurgery adjuvant therapy.

"As long as we didn't have any solution to the problem, we certainly didn't make a big issue of it," Dr. Smith adds. "There was no point in just worrying patients."

Careful Explanation—and Science

Dr. Hazra has found her patients curious and anxious to learn—but the need for information is still great. "It takes patient explanation—and it takes science," she says.

A small proportion of her patients—roughly 5%—approach Dr. Hazra with questions about extended adjuvant therapy. Roughly a quarter of patients have at least heard about the new treatment option. But a clear majority aren't yet familiar with the MA-17 study, or extended adjuvant therapy. And sometimes, Dr. Hazra says, patients are reluctant to consider further treatment.

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"We're expressing a concern to these women that they still have risk—and that reawakens fear and apprehensions," she adds. "Even though we've now got a good way to prolong survival, some don't want to deal with it again and simply refuse to consider further treatment."

Once the true benefit is carefully explained, however, "most women are reassured that this is a positive thing and not something to fear. And they are grateful for the chance to take Femara and diminish their risk by this really enormous amount," Dr. Hazra says.

Patient Advocacy

Novartis has worked closely with health professionals and patient advocacy groups around the world to provide information about the MA-17 study—and extended adjuvant therapy. Teleconferences hosted by US patient organizations such as Living Beyond Breast Cancer and Cancer Care have reached thousands of women—presenting the data from MA-17 and addressing some of the most common questions about extended adjuvant therapy.

Novartis also forged an important partnership with the Avon Foundation to support awareness of breast cancer. The agreement included the launch of Ribbon of Pink, a web-based educational program, as well as national sponsorship of Avon Walk for Breast Cancer fundraising events.

Avon launched its Breast Cancer Crusade in 1992 and supports breast cancer programs in more than 50 countries today. It has raised and awarded more than USD 350 million to fund research, provide access to care and support the medically underserved. Novartis and Avon are exploring possibilities to expand Ribbon of Pink into Russia, and other countries as well.

Thousands of physicians across Europe have attended medical education programs devoted to the MA-17 study and extended adjuvant therapy. There has been a special focus on office-based gynecologists, who often are responsible for post-surgery treatment of breast cancer patients in countries ranging from Spain and France, to Germany and Switzerland.

National treatment guidelines issued by the German Cancer Society now recommend use of Femara in extended adjuvant treatment after the standard five-year treatment with tamoxifen. The influential Danish Breast Cancer Study Group also has issued new guidelines, recommending that Femara treatment be used for at least 2.5 years after the standard five years of tamoxifen to prevent recurrence of breast cancer.

In the US, the National Comprehensive Cancer Network (NCCN) and the American Society of Clinical Oncology (ASCO) have issued guidelines that support the use of Femara in the extended adjuvant setting.

In June, Novartis hosted the first global breast advocacy summit in Milan, attended by patient groups from more than 40 countries. Patient advocacy in Europe is becoming increasingly effective through regional organizations like Europa Donna, a coalition of 32 national breast cancer groups across Europe. Like its American cousins, Europa Donna is beginning to play a more active role in breast cancer research, for example as a member of steering committees for major clinical studies.

Disease-free Survival Benefit

Meanwhile, the trans-Atlantic network of cooperative clinicaltrial groups that conducted MA-17 continues to treat participants, as well refining analysis of data from the study.

At a special Best of Oncology session of the 2004 ASCO annual meeting, Paul Goss, M.D., the international chair of MA-17, presented data based on median 2.5-year follow-up. While there was no overall survival advantage, there was a significant survival benefit in a subset analysis of node-positive patients. (Node-positive patients had tumors which had spread to the lymph nodes by the time of diagnosis.)

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It was the first time that a survival difference had been shown with any anticancer agent after five years of tamoxifen.

The lymph-node-positive group comprised about 50% of all MA-17 participants and the survival benefit observed seemed to result from a significant 40% reduction of distant breast cancer recurrences following extended adjuvant therapy. Distant metastases are a well-established risk factor for breast cancer death.

"So now we already have a very hard endpoint—a proportion of women live longer when they have treatment versus when they do not," Dr. Dunsire says. "And that, ultimately, is the goal of every oncologist. Despite the fact that MA-17 was modified, you can see the continued benefit of treatment."

Novartis and the cooperative clinical trial groups are planning an extension of the original study to determine optimal duration of post-tamoxifen treatment with Femara. Participants who complete five years of extended adjuvant therapy with Femara—ten years of hormonal treatment overall—will be re-randomized to either continued Femara treatment or a placebo group.

And while definitive results of the MA-17 "re-randomization" study probably won't be available for several more years, data are expected this year from another landmark trial with Femara.

Known as BIG 1-98 and involving more than 8 000 patients, that study is a head-to-head comparison of Femara and tamoxifen in "early adjuvant" therapy, the initial five-year treatment period after surgery, where tamoxifen has long been considered the gold standard. BIG 1-98 also is testing sequential variations of Femara and tamoxifen during the five-year treatment period.

Encouraging results from MA-17 and other recent clinical trials involving aromatase inhibitors have intensified interest in their usage in early adjuvant therapy, as well as the optimal duration and sequence of treatment.

"Femara is the only aromatase inhibitor to have consistently superior data in certain measures, compared to tamoxifen," says Brian Gladsden, Global Brand Leader for Femara. "The BIG 1-98 trial will provide further support that Femara is the best aromatase inhibitor—and will ultimately tell us in what sequence Femara should be used to achieve the best outcome."

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  Blood Pressure in the Control Zone

Hypertension is a public health crisis, affecting roughly 65 million people in the US and an estimated 1 billion people worldwide.

The relationship between high blood pressure and risks of other cardiovascular events is well established. New US government guidelines—known as JNC7—acknowledge the serious risks of even slight elevations in blood pressure and recommend earlier and more aggressive treatment.

Yet only about one-third of Americans with hypertension have their condition under control—even though effective medications are available.

Last year, Novartis and allies including the American Society of Hypertension (ASH) and the American Nurses Association (ANA) launched a national education and awareness campaign, challenging patients and physicians across America to "Take Action for Healthy Blood Pressure."

"Failure to take action is no longer an option," says Paulo Costa, Head of Novartis Pharmaceutical Region Americas and Chief Executive Officer of Novartis Pharmaceuticals Corp., our US unit. "Take Action for Healthy BP is a national initiative to fundamentally change the way blood pressure is perceived in America."

There is a pressing need for change. One American dies every 12 minutes as a direct result of high blood pressure, and 30 Americans die every hour from complications of hypertension.

Yet effective blood pressure control can be achieved in most patients. And in clinical trials, antihypertensive therapy has been associated with average reductions of up to 40% in the incidence of stroke, 25% in the incidence of heart attacks and up to 50% in the incidence of heart failure.

Novartis is ideally positioned to lead the charge. Diovan and Lotrel are two of the most effective and fastest-growing antihypertensive therapies available in the US. Reflecting another JNC7 recommendation—that a majority of patients with high blood pressure will require two or more antihypertensive drugs to achieve effective control—the franchises of Diovan and Lotrel include increasingly popular combination treatments with at least four different mechanisms of action. (While these Novartis medicines are indicated for the treatment of hypertension, they are not approved to treat heart attacks, strokes or renal disease.)

Changing Perceptions

The primary focus of the Take Action for Healthy BP program is patient education—seeking to change perceptions about high blood pressure, and to promote early diagnosis and effective treatment of the "silent killer." The broad scope of activities is as diverse as the millions of patients Novartis and its partners are trying to reach.

From late September through November, the ANA embarked on a 10-city bus tour, crisscrossing America from Seattle to Tampa and Phoenix to Philadelphia, to provide free blood pressure screening and counseling on the new JNC7 treatment guidelines to more than 4 000 consumers. More than 350 nurse volunteers donated their time—and shared their passion about achieving a healthy blood pressure goal.

Susan Krupnick, President of the Massachusetts Association of Registered Nurses and a volunteer during the ANA tour's two-day stint in Boston, has hypertension herself. She is convinced that greater compliance with JNC7 guidelines is needed throughout the country.

"Nurses felt this was a really great opportunity to get out and make people aware that they should be partners in their health care—not just passive victims any more," Ms. Krupnick says.

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Novartis supported the ANA tour and other disease awareness projects in conjunction with the Take Action for Healthy BP program. But at the same time, the company is attempting to remove other types of barriers to treatment. More than 170 000 patients who have enrolled in the program received a free 30-day supply of Diovan, Diovan HCT, or Lotrel. Participants are entitled to a money-back guarantee covering all out-of-pocket expenses if, after taking the maximum dose of Diovan HCT or Lotrel for at least 30 days, their blood pressure isn't controlled to the target level set by their health care professional. "There's nothing for a patient to lose by trying," Mr. Costa says.

One of the first enrollees was Matthew Russomanno, a retired high school teacher and guidance counselor from Newark, New Jersey. "Take Action for Healthy BP has definitely made me more aware of my blood pressure—and what I can do about it," Mr. Russomanno says.

"One thing the program emphasizes is exercise for at least 30 minutes a day—which I do. I also monitor my blood pressure at home and keep a diary of the results, which I discuss with my family physician."

Many of Mr. Russomanno's friends fret about their blood pressure, "and I suggest sometimes that they get involved in Take Action for Healthy BP," he adds. And though Mrs. Russomanno doesn't have hypertension, she tracks her blood pressure regularly with the Omron® blood pressure monitor that her husband obtained with a rebate through the program.

The participation of both ANA and ASH in Take Action for Healthy BP is solely educational and does not imply either organization's endorsement of any specific medication, equipment or company.

But the partners clearly share a sense of urgency about the mounting prevalence of hypertension in the US, a trend likely to continue as the population ages. "I think the program has been one of the real milestone developments in trying to re-interest people in blood pressure," says Thomas D. Giles, M.D., President of ASH and a Professor of Medicine and Director of Cardiovascular Research at Louisiana State University.

"The program addresses an incredibly important issue and it has been done in a way that brings credit to Novartis and to the pharmaceutical industry as a whole," Dr. Giles adds. "Industry, government and learned societies are natural allies and we can move things forward when we consolidate our efforts."

Traffic Ticket

Take Action for Healthy BP builds on insights collected by Novartis during more than 3 000 in-depth interviews with physicians and patients. The challenge of hypertension starts with diagnosis—many people don't realize they have high blood pressure because the disorder is effectively asymptomatic.

"This is a disease that doesn't have any apparent symptoms. People don't feel bad and consequently they don't have the same motivation to seek treatment for hypertension as for some other diseases," Mr. Costa says.

The absence of symptoms helps explain another perplexing feature of hypertension—many patients resist treatment after being diagnosed. "We began to realize that patients, especially Baby Boomers, were pushing back because they felt they were 15 to 20 years younger than they really are, and that the threat of stroke or heart attack seems to be something too far into the future to impact them personally," Mr. Costa muses. "They see a prescription almost like getting a traffic ticket—that they are being penalized for not exercising, or losing the weight they'd been told to lose."

John Wood, M.D., a family practitioner based in Richardson, Texas, has made similar observations. "I see a lot of denial in our practice—patients in their 40s or 50s who say hypertension is an illness their parents, or even their grandparents, have," Dr. Wood says. "They have a perception that they can feel their bodies—and that they don't need medication. It's an educational gap."

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That gap can have severe consequences. Uncontrolled blood pressure takes an immediate toll on blood vessels that lead to eyes, the kidneys, the brain and other organs. The JNC7 guidelines caution that in people 40–70 years of age, each increase of 20/10 mm of mercury (Hg) from blood pressure of 115/75 doubles the risk of cardiovascular disease, including heart attack, stroke or kidney disease.

"We need to start early with patients, before they get to an advanced stage of disease—utilizing medications that slow progression and perhaps, to some degree, reverse some of the cardiovascular remodeling that goes on in people who have chronic elevations of blood pressure," Dr. Giles, the ASH President, says. "Once patients realize there's a return on investment—this great benefit in (reducing) morbidity and mortality—they'll start cooperating with physicians to control blood pressure."

Still, adhering to treatment can be as big a challenge as starting in the first place, and a significant proportion of hypertensive patients abandon therapy after roughly six months. A recent study tracking more than 14 000 patients treated for high blood pressure in Ravenna, Italy, found that only 31% were still taking the same medicine a year after their initial prescription, while 60% of patients had discontinued therapy.

The Take Action for Healthy BP program provides tools to improve patient compliance. Market research conducted by Novartis showed that specific treatment goals were seldom set at the outset of treatment, and physicians normally settled for incremental improvements in blood pressure to avoid potential confrontations resulting from pushing patients too hard. The program encourages open discussions between physicians and patients, and use of specific goals to ensure that treatment attains the JNC7 target for normal blood pressure—less than 120/80 mm Hg for most adults.

Dr. Wood, who has enrolled dozens of his patients in Take Action for Healthy BP, is convinced that self-monitoring of blood pressure by patients at home can strengthen motivation and reinforce compliance. "We don't send a patient with diabetes home without a glucometer," he says. "I think blood pressure has got to be the same way."

By offering patients a blood pressure cuff at preferential price, he adds, the program empowers patients to see the actual outcome of treatment. "It's a way to make patients aware of their blood pressure—so it's no longer an unknown quantity."

Motivating Patients

Nurse practitioners play a critical role in supporting and motivating hypertensive patients. "A nurse is often the first health-care professional to realize that blood pressure is elevated, and to talk to a patient about the condition," says Barbara Blakeney, M.S., R.N., President of the ANA. Nurses also understand the importance of getting, and keeping, patients motivated about treatment, she adds.

"You're telling people that they have a chronic condition—that they'll be taking medication and need to be careful for the rest of their life," Ms. Blakeney says. "And because they aren't symptomatic, they find it hard to believe. It's not something they want to hear—they get angry about it."

In today's health-care environment, the vast majority of people with hypertension can be successfully treated, Ms. Blakeney says. "The issue is helping patients understand the things they need to do—how to fit treatment and new healthy habits into their lives."

That was the prime objective of Ms. Krupnick and fellow volunteers when the ANA Take Action for Healthy BP tour bus opened for business in early October in Copley Square, a fashionable district of Boston known for gourmet restaurants, art galleries and the Boston Public Library. More than 600 consumers—ranging from business people and construction workers, to police, park rangers and even foreign tourists staying at nearby hotels—lined up for free blood pressure screenings. Nurses fluent in Spanish, as well as sign language, handled the screening and counseling about the JNC7 guidelines.

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A husband and wife from the UK, already under treatment for hypertension but far from attaining goal blood pressure, took home brochures about JNC7 to show their primary care physician. Ms. Krupnick estimates that about one-third of people screened in Boston had blood pressure that clearly indicated a need for treatment.

"People were looking for prevention and information," she adds. "And on the tour, all the right forces convened at the right time. It's something that nurses themselves could get behind in a big way because we see so much high blood pressure. And with these new treatment standards, there's an incredible opportunity to get hypertension back in the spotlight."

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  A New Advance for Paget's Disease

When Dom DiMaggio was diagnosed with Paget's disease in 1967, the famed American baseball star had never heard of the chronic bone disorder that can lead to serious complications such as deformities and fractures if not properly treated. Mr. DiMaggio later crossed the Atlantic for treatment and got his disease under control—but even today, Paget's disease remains under-diagnosed and poorly treated.

A new medicine from Novartis—called Aclasta⁽¹⁾ (zoledronic acid 5 mg)—is shaping up as an important advance in the treatment of Paget's disease, and spearheads the company's pipeline of innovative new medicines against major bone disorders, including osteoporosis.

(1)

Zoledronic acid (5 mg) is authorized to be marketed under the name Aclasta in Europe and is awaiting US approval of the name.

"We stumbled onto my condition during a routine examination and I remember that only a handful of doctors at the time really knew what Paget's disease was," Mr. DiMaggio recalls. In fact, Paget's disease is the second most common bone disorder after osteoporosis, afflicting one million individuals in the US and an estimated 4 million people worldwide.

Paget's disease progresses slowly, but by the late 1980s, Mr. DiMaggio was increasingly frustrated by the limited relief his therapy was able to provide. So when he heard about a promising new class of drugs, available in the Netherlands but not yet approved by the US Food and Drug Administration, he crossed the Atlantic for treatment. His disease went into remission and Mr. DiMaggio, who is 87 years of age today, hasn't required further treatment.

That medicine he received was part of the class of drugs called bisphosphonates, an important advance in treatment of Paget's disease. But patients still need to be as tenacious as Mr. DiMaggio to make sure they receive the best care available.

"Paget's disease is poorly understood and not often recognized—so a lot of people are going to be missed," says Ethel Siris, M.D., the Madeline C. Stabile Professor of Clinical Medicine at Columbia University and one of America's leading authorities on bone disorders. "Even if a case is bad enough to be picked up—if a patient has a deformed tibia or breaks a bone—then the diagnosis will get made, but it still might not occur to anybody to treat it medically," Dr. Siris adds.

That could change, however, now that Novartis is poised to introduce the next important advance in treatment of Paget's disease. Regulatory applications for Aclasta are under review in Europe, the US and globally. In November, the US Food and Drug Administration designated Aclasta for priority review, a status granted to products considered to be a potential therapeutic advance over existing therapies, and one that usually leads to action by the FDA within six months.

"The launch of Aclasta will put Paget's disease on the radar for a lot of general practitioners, with a level of outreach and education that's never happened before," says Charlene Waldman, Executive Director of the Paget Foundation, a New York-based voluntary health agency. "A whole new era in the disease is coming."

Normalizing Bone Turnover

Regulatory applications for Aclasta are based on head-to-head clinical trials against risedronate, a current gold standard of treatment. In the studies, roughly 95% of patients who received Aclasta showed a significant therapeutic response, compared to 75% for risedronate.

With Aclasta, levels of serum alkaline phosphatase (SAP), a key biochemical marker for Paget's disease, returned to the normal range in about 90% of patients treated in the studies; the comparable figure for risedronate was about 60%.

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"So we see the vast majority of patients treated with Aclasta normalizing their bone turnover, which predictably should lead to a lower incidence of long-term complications," says John Orloff, M.D., Vice President for Clinical Development and Medical Affairs at the Novartis business franchise for Arthritis, Bone and Women's Health.

Full details of the studies will be published in a leading medical journal later this year, Dr. Orloff adds.

Paget's disease is expected to be the first approved indication for Aclasta—but the medicine is also in development for use in other bone disorders, including osteoporosis.

A Phase II study in osteoporosis, published in the New England Journal of Medicine in 2002, showed that once-yearly treatment with zoledronic acid, the active ingredient in Aclasta, significantly increased bone density in women with postmenopausal osteoporosis. Despite intervals of up to one year between doses, zoledronic acid produced an increase in bone mineral density in the spine and hip as great as that seen with oral daily or weekly dosing of other bisphosphonates.

Ongoing Phase III trials of Aclasta in the treatment of osteoporosis should be completed by 2006—and submission of regulatory applications in major markets is expected during the following year. Stringent regulatory requirements make osteoporosis studies long and demanding. Phase III trials of Aclasta now in progress involve nearly 10 000 patients who receive extensive x-ray examinations and bone scans as part of a follow-up period of up to three years.

Long-term Commitment

That significant investment of time and money underscores a longstanding commitment to bone disorders at Novartis. The company was a pioneer in development of bisphosphonates as well as Miacalcic, a synthetic salmon calcitonin that is approved for treatment of both Paget's disease and osteoporosis.

Complementing Aclasta, Novartis also has one of the pharmaceutical industry's strongest pipelines of innovative new treatments for bone disorders—an area of rapidly expanding medical need.

According to the US Surgeon General's first-ever report on bone health and osteoporosis, published last year, an estimated 10 million Americans over age 50 have osteoporosis while another 34 million are at risk. Each year an estimated 1.5 million people in the US suffer an osteoporotic fracture, which often leads to a downward spiral in physical and mental health. About 20% of senior citizens who suffer a hip fracture die within one year.

The annual economic burden of osteoporotic fractures in the US is at least USD 18 billion, greater than either asthma or breast cancer. And the Surgeon General warns that the number of hip fractures in the US could double, or even triple, by the year 2020.

Both Paget's disease and osteoporosis are disorders stemming from the constant preventive maintenance performed on the human skeleton by specialized bone cells. Osteoclasts are the cells that periodically remove old, worn bone. Osteoblasts, another class of cells, rebuild healthy new bone to fill holes dug by the osteoclasts.

An entire adult skeleton is replaced every 7–10 years, but the pace of this dynamic process varies with age. During childhood and adolescence, new bone is added faster than old bone is removed—but after maximum bone density is reached around age 30, bone removal begins to outpace bone formation.

Bone loss in women is most rapid in the first few years after menopause but persists into the postmenopausal years. Bone loss is primarily age-related in men, who account for about 20% of osteoporosis cases, and 30% of all hip fractures worldwide.

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In Paget's disease, for reasons that still aren't well understood, bone removal accelerates dramatically at affected sites in the skeleton—usually the skull, the spine, the pelvic area or a leg. Genetic predisposition is believed to play a role in the disease—and some studies suggest that Paget's disease may result from a "slow virus" infection.

Once Paget's disease is active, the sites of involvement become overwhelmed by swarms of aggressive osteoclasts. In a desperate attempt to keep pace with this destruction, the osteoblasts, or bone-forming cells, lay down more new bone than normal—but it is of increasingly poor quality and prone to fractures, leading to painful skeletal deformities and other complications.

Regular SAP Tests

The Surgeon General's report underscores the significant progress in bone health achieved in recent decades. According to the report, "Thirty years ago, both osteoporosis and the fractures that go along with it were thought of as an inevitable part of old age. But today advances in scientific knowledge have ushered in a new era in bone health."

At the same time, the Surgeon General cautions that much of what could be done to reduce the burden of bone disease still isn't happening. "Many in the medical community still aren't aware of the need to take action to prevent, assess and treat bone disease throughout life," the Surgeon General says.

Paget's disease is a case in point. Pagetic bone lesions are asymptomatic and consequently undetected by healthcare professionals, the Surgeon General's report notes. SAP blood tests are a key diagnostic tool in Paget's disease and, underscoring the importance of early treatment, the US National Institutes of Health recommend that siblings and children of someone with Paget's disease may wish to have an SAP test every two to three years after age 40. If the SAP level is above normal, other tests—including a bone scan or x-ray—can be performed, the NIH advise.

Yet SAP tests, which used to be a standard part of patient examinations, are used far less frequently today, to save money. To remedy that deficiency, the Paget Foundation and opinion leaders like Dr. Siris are pushing for better diagnosis. They are also calling for more aggressive treatment of patients who haven't yet developed symptoms, but have elevated SAP levels, and Paget's disease in parts of the body that eventually could lead to serious complications.

"If it's in the skull, you worry about hearing loss," Dr. Siris says. "In the pelvis area near the hip, you worry about deformity of the hip joint and a possible hip replacement late in life. In the tibia or the femur, there is potential for a bowing deformity that causes pain, makes you limp and may make you more susceptible to fracture."

Kenneth Halstead, a resident of Raleigh, North Carolina, was diagnosed with Paget's disease in 1960, at the age of 36. For more than 30 years, he's tried virtually every new drug that's become available, hoping to find at least one or two that he could use. In all that time, however, he's never managed to bring his SAP count within the normal range.

"Physicians have an inkling now but they still don't know the damage it can cause," says Mr. Halstead, who has Paget's in his skull, spine, both hips and both legs and regularly speaks at universities near his home to improve awareness of the disorder. He says he's eager to try Aclasta as soon as the new medicine is available in the US.

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Affinity for Bone

Aclasta and other bisphosphonates have a very high affinity for bone, and once in the body, they home in on sites of osteoclast activity. The mechanism of action takes advantage of osteoclasts' voracious appetite: as osteoclasts dig pits in bone, they bind to bisphosphonate-coated crystals on the bone surface. Ingesting enough of those crystals incapacitates the osteoclast, and prevents further deterioration of the bone.

Aclasta is the first of a new generation of bisphosphonates so effective that one or two treatments have the potential to arrest progression of Paget's disease. Moreover, a single yearly dose for patients with osteoporosis can boost bone density and may reduce the risk of fractures.

The pivotal Phase III fracture trial of Aclasta currently underway is testing the drug's ability to reduce the frequency of vertebral and hip fractures. If successful, the once-yearly injection of Aclasta would offer patients unsurpassed convenience.

Patient compliance is another potential benefit of treatment with Aclasta. Data from health-care providers in the US indicate that half of patients prescribed oral bisphosphonates only adhere to treatment for seven months, too short a duration to derive the full benefits of the medication.

Another Phase III study is evaluating Aclasta in the prevention of clinical fractures in both women and men who suffered a recent hip fracture and have undergone surgery. "We know that these patients are at higher risk for developing other fractures, either of the hip or other sites. This study is designed to demonstrate the potential of Aclasta to prevent recurrent fracture in such patients," Dr. Orloff says.

Bone Quality

While the beneficial effect of bisphosphonates on bone density is mainly the result of reduced osteoclast activity, bisphosphonates also dampen activity of bone-formation cells. Some researchers believe even more effective therapy will be possible in the future by developing new medicines with more potent, but selective, effects on bone formation and bone removal. More selective agents could also be used as fixed-dose combinations, researchers predict.

One example of this new approach is AAE581, a Novartis compound in Phase II development. AAE581 works by inhibiting cathepsin K, an enzyme secreted by osteoclasts to dissolve the collagen, or organic matrix inside bone.

By preventing removal of bone without actually killing osteoclasts, the drug could trigger net formation of new bone and at the same time offer physicians greater flexibility as a complement to bisphosphonates. Because of the long registration trials required in osteoporosis, however, AAE581 isn't likely to reach the market before the end of this decade.

Another major trend in osteoporosis research emphasizes the importance of bone quality, or microarchitecture, as a complement to increasing bone quantity. This qualitative focus reflects the fact that some existing treatments, including Miacalcic, significantly decrease the risk of osteoporotic fractures without increasing bone mineral density as effectively as bisphosphonates.

It isn't clear exactly how Miacalcic reduces fractures. Some researchers believe the drug somehow prevents perforations in the spongy bone found in the hip or spine, areas where osteoporotic fractures are common.

In an attempt to unravel the underlying mechanisms of bone loss, Novartis has launched some visionary scientific collaborations. One is a partnership with the biomedical research arm of NASA, America's space agency. Loss of bone density accelerates dramatically under the weightless conditions of space travel. American astronauts and Russian cosmonauts have lost up to 2% of their bone mass per month. Six months in space can wipe out as much bone mass as a postmenopausal woman loses in a decade.

Clearly, some form of treatment will be necessary to guarantee the health of crews traveling to distant planets over long periods of time. One potential result of the Novartis-NASA collaboration could be the use of Aclasta by crews on future flights of the Space Shuttle.

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Consumer Health

Key figures

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Sandoz

Facing a competitive industry environment—pricing pressure in the US and Germany—and a challenging year-on-year comparison with a strong 2003 performance, Sandoz achieves a 5% increase in net sales (–1% in local currencies).

Over the Counter (OTC)

Net sales advance 11% (+5% in local currencies) due to focus on six strategic brands and introduction of innovative products such as Theraflu/Triaminic Thin Strips in the US.

Animal Health

Companion animal health products drive net sales growth of 11% (+5% in local currencies) amid ongoing success of recent product launches, particularly Deramaxx, Milbemax and Atopica.

Medical Nutrition

Net sales growth of 38% (+31% in local currencies) is supported by continued focus on disease-specific platforms, such as oncology and diabetes, and successful integration of Mead Johnson adult nutrition business.

Infant & Baby

High brand recognition of Gerber baby foods, as well as penetration of new market segments with toddler products and convenience of new plastic packaging, leads to net sales growth of 6% (+6% in local currencies).

CIBA Vision

Net sales rise 8% (+2% in local currencies) on the solid performance of DAILIES and NIGHT & DAY contact lenses, while specialty and frequent-replacement lenses decline. The O₂Optix brand is successfully launched.

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The Customer is King

The biggest and most successful retailers offer exceptional growth prospects for Novartis. To capitalize on that opportunity, Novartis Consumer Health is redesigning its sales force and creating customer teams dedicated to key accounts—starting with Wal-Mart Stores, Inc., the world's biggest retailer.

Wal-Mart and its retailing peers are more sophisticated, and more demanding of their suppliers. Novartis customer teams meet that challenge by providing nimble, high-caliber service. By pooling efforts of business units and drawing on cross-functional capabilities, the Wal-Mart Customer Team is generating synergies, and additional sales.

Building business across a broader front is expected to add more than USD 100 million in new revenue for 2005—pushing annual Novartis sales to Wal-Mart over USD 1 billion for the first time.

In the brave new world of retailing, industry leaders like Wal-Mart are rewriting the rules of the game. A recent report on the global consumer business by consulting firm Deloitte cited Wal-Mart's pursuit of price leadership—passed on to consumers in the form of rock-bottom prices—as "the driving force in a value revolution in retailing."

Suppliers are keeping pace with change by scrapping their traditional sales organizations and dedicating large, cross-functional teams to key accounts. In May of last year, Novartis Consumer Health unveiled its first customer excellence team, to handle the business of Wal-Mart. The new team and Wal-Mart have developed a three-year strategic plan establishing ambitious growth targets.

Buoyed by success at Wal-Mart, Novartis Consumer Health is forming similar customer teams to serve additional key accounts: CVS Corp. and Walgreen Co., two of America's leading drugstore chains.

"The biggest, most successful companies are growing at a disproportionately rapid rate—at the expense of the rest of the retailing community," says Jim Shad, Chief Customer Officer at Novartis Consumer Health. "You've got to fish where the fish are—and win with the winners."

Big Customers—Big Challenges

Every week, more than 110 million shoppers walk through the doors of Wal-Mart's 3 200 stores across the US. The biggest stores pile up annual sales of more than $150 million each—more than the entire annual sales of many well-known retail companies not too many years ago.

A key factor in the success of Wal-Mart's price leadership strategy is its legendary supply-chain excellence. Wal-Mart pioneered innovations such as global sourcing, just-in-time delivery and "cross-docking," or delivery of finished goods to the customer directly from the factory, to trim handling and inventory expense.

With some trusted suppliers—including the Infant & Baby business unit of Novartis Consumer Health—Wal-Mart dispenses with the red tape of purchase orders and hands over full responsibility for supply-chain management, according to pre-set criteria.

Wal-Mart maintains high standards. But key suppliers are virtually guaranteed rapid growth—and other indirect benefits. "Working with the best, most efficient customers drives the manufacturing community that serves them to become even more efficient," Mr. Shad says.

From a base in Wal-Mart's home town of Bentonville, Arkansas, the new Novartis customer team has uncovered business opportunities that individual Novartis business units hadn't previously been able to exploit. The team comprises members from the Pharmaceuticals Division as well as Sandoz and our other Consumer Health Business Units—plus functions ranging from finance and supply chain to logistics, marketing and sales.

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Providing a single Novartis face to key accounts "allows them to do business with us in a simpler way," Mr. Shad says. "The team speaks the language of the customer—and synergies and scale generate opportunities for new revenue."

Shopper Insights

Key suppliers like Novartis share access to the mountain of sophisticated data Wal-Mart assembles from its daily operations. Traditional retailers built their businesses by establishing personal relationships and catering to preferences of shoppers. That's simply not feasible in the mega-volume world of modern retailing.

Wal-Mart stays in touch with its customers by collecting detailed data on products, inventory and shifts in shopping trends. In one example last year, the Novartis customer team mined Wal-Mart data to develop key insights about shopper preferences in digestive and nutritional health—boosting sales of Benefiber, the all-natural, powdered-fiber supplement that is a key strategic brand for Novartis Consumer Health.

Wal-Mart shoppers tend to make a single, major monthly shopping trip, usually when the paycheck arrives. That's a distinctly different cycle than convenience purchases made on an as-needed basis—so Wal-Mart encourages suppliers to design packaging in line with habits of its shoppers.

Yet the biggest canister of Benefiber available early last year held only a 22-day supply, while competitors offered jumbo packages that lasted up to 90 days. Wal-Mart suggested launching a jumbo Benefiber pack and the Novartis team followed that advice, introducing a new 30-day supply that has become the top-selling Benefiber product at Wal-Mart.

Along with data from inside its stores, Wal-Mart assembles detailed knowledge of local shopper demographics in surrounding neighborhoods. Analysis of that data showed that a large number of Wal-Mart's top-selling Benefiber stores are clustered in Florida and have a high proportion of elderly shoppers. So Novartis began to focus sampling of Benefiber line extensions in those top stores, before rolling out the new products nationally.

Sales of Benefiber also benefited from Wal-Mart's penchant for in-store sampling. Doling out samples of Benefiber, mixed with apple juice or water, to shoppers on Saturdays and Sundays was a new twist for Novartis—but it worked. Delving deep into Wal-Mart data, the Novartis customer team analyzed Benefiber sales which Wal-Mart tracks hour-by-hour during the shopping day. Sampling was fine-tuned to match peak flows of Benefiber buyers, increasing the rate of return on in-store activities.

"It shows how Wal-Mart has a propensity to expand categories, if you use their tools," says Matt Lucas, leader of the Wal-Mart Customer Excellence Team.

Wal-Mart's detailed knowledge of shopper demographics aided another promising initiative from the Novartis customer team—this time targeting Latino shoppers. Latinos are America's biggest ethnic segment today. And, because of growing disposable income as well as loyalty to established brands from their home countries, they are an attractive group for retailers.

Marketing representatives on the Wal-Mart customer team identified the cross-border potential of several Novartis products—beginning with TesaCof, the leading cough and cold franchise in Mexico. Working with Wal-Mart data, the Novartis team selected 400 stores with a high proportion of Latino shoppers as the platform for a US launch of TesaCof. Other international brands from Novartis may also find their way to Wal-Mart shelves.

"Attractive Novartis brands from other geographies can speak uniquely to customer groups and allow Wal-Mart to better serve its shoppers," Mr. Lucas says.

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Healthy Heart

Wal-Mart has grown steadily through its focus on price leadership—but the company also continuously responds to the needs of customers in new regions, and in retailing categories not yet fully exploited. Novartis has emerged as a crucial partner in one such category: carrying a more direct health-care message to Wal-Mart customers.

Over the past 18 months, more than 450 000 Wal-Mart shoppers have received free blood-pressure screenings through nationwide "Healthy Heart" events co-sponsored by Novartis and Wal-Mart. Disease information about hypertension available at the "Healthy Heart" events raised awareness about the "silent killer" that affects an estimated 60 million Americans.

When shoppers discover that their blood pressure is above the norm, and that they need to see a doctor and get it checked, they are likely to remember Wal-Mart as a catalyst of treatment. They would also be more likely to fill an eventual prescription at a Wal-Mart pharmacy.

In the OTC, or self-medication category, Wal-Mart claims a market segment share exceeding 25%. Its pharmacy business, however, is still much weaker than major rivals.

Strengthening the pharmacy business would add revenue, of course. Equally important, it's an opportunity for Wal-Mart to improve access to health care for many of its shoppers—buttressing their loyalty, as well as bonds with local communities where Wal-Mart operates.

"Our strategies blended perfectly in the screening program to raise awareness of hypertension, which is poorly controlled in the US," Mr. Shad says.

In-store screenings by Novartis have rapidly expanded beyond "Healthy Heart" events. More than 200 000 Wal-Mart shoppers had their cholesterol tested last year. Novartis also joined nearly two dozen other Wal-Mart suppliers in a nationwide Diabetes Awareness Day in September.

Along with sponsoring free blood-glucose and blood-pressure screening for shoppers, Novartis featured recommendations from the Start Healthy campaign on childhood nutrition, developed by the Gerber Products unit. In-store sampling showed shoppers how better nutrition can help reduce risks of diabetes for adults, as well as children.

Another co-promotion linked Benefiber and Zelnorm, a prescription-only medication available in the US for the treatment of irritable bowel syndrome with constipation, a disorder that afflicts millions of American women.

Sandoz, the Novartis generics business, has worked with Wal-Mart on a program explaining the use of cost-effective generics medicines. When used appropriately, generics should offer attractive savings to Wal-Mart shoppers, who tend to have lower family incomes and less access to health care.

"We're still just scratching the surface," Mr. Shad says. "Wal-Mart and other major customers have a profound impact on the way our brands go to market. They influence what customers buy through recommendations to purchase, pricing, merchandising and shelving. Novartis, in turn, brings innovation to the party and can help make them a better retailer. We're beginning to show we can share in each other's success."

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March to Global Leadership

The Sandoz brand stands for high quality, global presence and innovation—including worldwide development and production platforms.

By combining strong organic growth and strategic acquisitions, Sandoz has reached a No. 2 global ranking—and is closing in on its goal of generic-industry leadership. Proven prowess in digesting acquisitions leaves Sandoz in a position of strength as competitive pressures intensify, and the industry is expected to consolidate to a handful of global giants.

At Novartis, generic products complement the branded, patent-protected medicines that are discovered, developed and marketed by our flagship Pharmaceuticals Division. Low-cost, high-quality generics save money, which health-care systems can redeploy to increase purchases of the newer, innovative drugs that many patients require.

Our strategy has been reinforced by the reorganization of Sandoz. Sandoz will report as a separate division from January 1, 2005. The reorganization allows an even sharper focus on generics under the Novartis umbrella, enabling Sandoz to meet intense competition by improving overall cost-competitiveness and accelerating growth.

Sandoz will continue to expand through acquisitions as well as organic growth—as it showed last year with the USD 565 million purchase of Canada's Sabex Holding. Sabex had twin attractions: along with added clout in Canada, a well established generic market, the acquisition gave Sandoz a stronger foothold in sterile injectables.

Sandoz has pushed aggressively into injectables, particularly injectable antibiotics, where stringent production standards required by regulators diminish the number of potential competitors, compared to many mainstream product areas in generics. Sandoz had strengthened the foundations of its bulk antibiotics business in 2003 with the acquisition of Amifarma, a Spanish generic company that also specialized in antibiotics.

Focused expansion has allowed Sandoz to absorb more than a dozen rivals over the past five years. Some of those purchases brought access to key technologies, while others provided additional production capacity or popular products to open new markets targeted for expansion.

"We have implemented global processes—something that's easier said than done," says Dr. Arnim Jost, head of Global Marketing and Sales Services at Sandoz. "We have a global development and registration network—and a global production system that enables us to benefit from low-cost production sites in India and other countries around the world."

Sandoz is present in more than 100 countries—more than any generic competitor. And a broad product range, including more than 400 compounds in more than 5 000 preparations, enables Sandoz to spread the risks of setbacks for individual products or markets. "Key accounts can rely on us to be nimble, among the first companies to launch a new product—but also remaining in the market after others fail to cope with the fierce competition, and bail out," Dr. Jost says.

A second strategic pillar—production of active ingredients—adds flexibility in negotiations with wholesalers and large pharmacy chains that often are interested in Sandoz as a potential supplier for private brands, in addition to generic, and over-the-counter products, carrying the Sandoz brand.

Then too, critical mass allows Sandoz to invest more than rivals in promising areas of future growth. One research focus is follow-on biologics, second and subsequent versions of recombinant DNA-derived protein products that depend on the same mechanism of action, and are used in the same indications, as the originator product.

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Rapid Growth

Industry analysts expect growth rates of about 10% per annum for generics over the next five years, outpacing projected growth of branded, patent-protected medicines during the same period. A key growth driver will be the steady stream of blockbuster drugs expected to lose patent protection; branded medicines with aggregate sales of more than $20 billion face patent expiry between 2004 and 2006.

At the same time, cash-strapped governments and other health-care payors are encouraging greater use of generics as a way to contain costs. In mature markets such as the US, the UK, Germany and Canada, generics already represent more than 30% of total prescription volume, according to industry consultant IMS Health. Traditionally, European countries such as France and Spain shunned generics—but that's changing fast.

A cost-containment commitment by general practitioners in France to write 10% of their prescriptions generically has increased penetration—and the French government has targeted a 25% market share, by volume, for generics in 2007. Meanwhile, the Spanish government wants generics to reach a 15% market share.

While chemically identical versions of medicines that have lost patent protection are still the mainstay of the generic industry, fierce competition is clouding the future of small and mid-size generic firms. In the first year after patent expiry, it's not unusual for up to 15 different products from generic manufacturers to enter the market virtually simultaneously. Many subsequently drop out in the face of cutthroat pricing, however, and ultimately the market may stabilize with a half dozen rival products and somewhat firmer prices. Bigger companies increasingly are eyeing niches like novel drug delivery forms that reward specialist know-how with better margins.

Meanwhile, generic manufacturers from low-cost countries such as India are expanding into the US and Europe. Sandoz has responded by establishing its own production base in low-cost countries. The 2002 takeover of Lek, Slovenia's biggest pharmaceuticals company, gave Sandoz a manufacturing platform in eastern Europe, which was further expanded last year with the opening of new plants in Strykow, Poland, and Targu Mures, Romania.

Sandoz also opened a new factory in Mumbai, India, which is expected to be approved by both the US Food and Drug Administration and European Union regulators this year. As well as gaining access to the same low labor and production costs as local rivals, Sandoz won time by locating the new plant in India. Starting from scratch, the plant was completed in just 16 months, much faster than would have been possible in most other countries.

Umbrella Brand

Usage of generics may be climbing throughout Europe, but the pace of development and local regulations vary from country to country and markets remain highly fragmented. Substitution—the right of pharmacists to dispense cost-effective generics even when physicians prescribe more costly, brand-name medicines—is well established in the UK, the Netherlands and Germany and is expanding rapidly in France, Spain and Italy.

That uneven pace of evolution exerts a major impact on marketing strategy at Sandoz. "The more you go toward substitution and prescribing of generics, the more important a corporate brand becomes as a powerful way to differentiate your products and services," says Andreas Rummelt, Chief Executive Officer of Sandoz. In 2003, Sandoz moved to consolidate more than a dozen local or regional brands under an umbrella corporate brand—and by the end of last year more than 80% of all legal entities had been rebranded under the Sandoz flag.

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Legal Challenges

Another distinctive trend among generic companies in recent years has been aggressive legal challenges to patents on established drugs. Legislation in the US encourages such challenges by offering six-month periods of market exclusivity to generic companies that dislodge patents in the courts. Successful challenges against blockbusters such as the antidepressant Prozac® have produced giant financial windfalls for generic manufacturers.

Sandoz strives to remain competitive in markets where it is active—while at the same time respecting the legitimate intellectual property rights of innovator companies. It is difficult to predict the outcome or timing of legal battles, which can cause volatility in generic companies' financial results.

In 2003, Sandoz sales were fueled by buoyant demand for AmoxC, a generic version of the antibiotic Augmentin®. The sales windfall followed a US court ruling that invalidated certain Augmentin® patents challenged by Sandoz. Last year, with no corresponding legal victory, sales growth slowed because of the demanding year-on-year comparison. "To assess this performance appropriately, you have to understand the volatility of the generics business," Dr. Jost says.

Follow-on Biologics

In September, Australia became the first country to approve Omnitrope, a human growth hormone developed by Sandoz and produced by recombinant DNA technology.

Aging populations in Europe and the US are fueling increased demand for health-care services and drug therapy—creating an imperative to curb costs, while preserving ample resources for innovative, patent-protected medicines. Sandoz is pioneering regulatory policy for the emerging field of biopharmaceuticals. It remains determined to contribute to the availability of safe and effective "follow-on biologics" and will work closely with regulatory authorities to identify the most effective approval route that provides adherence to impeccable standards.

In the US, approval of most follow-on biologics will require new legislation to insure that the FDA is able to fulfill its mission to assure safety and efficacy for patients. In September, the FDA said it was "unable to reach a decision" on whether to approve an application submitted by Novartis for Omnitrope, "due to uncertainty regarding scientific and legal issues."

Meanwhile the Committee for Medicinal Products for Human Use (CHMP), the key scientific advisory panel to the European Commission, issued a positive opinion on Omnitrope in 2003. The decision appeared to be a major step toward approval.

However, the European Commission later announced it did not intend to continue the approval process under the chosen regulatory pathway. Sandoz challenged that decision, and discussions with the European Commission are currently underway to make Omnitrope available to patients in Europe.

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Corporate Citizenship

Corporate Citizenship at Novartis means sustainable commitments to:

PATIENTS
OUR PEOPLE
HEALTH, SAFETY AND ENVIRONMENT
BUSINESS CONDUCT
CORPORATE GOVERNANCE

"Corporate Citizenship implies many things, but in a way describes a responsible behavior of a company within society. In the end, doing the right thing also makes business sense." Daniel Vasella, M.D.

Innovation is the driving force of our company. The creativity and motivation of our people respond to the call of making a difference for patients, by addressing disease and unmet medical need.

Novartis aspires to responsible global citizenship based on our people and our corporate values, the foundations of commercial success and our high standards of business conduct. We operate within both the spirit and the letter of the law and we refuse to tolerate illegal or unethical dealings in our daily activities anywhere in the world.

We foster teamwork and trust, promoting interaction across functions and regions. We establish ambitious targets and recognize and reward high performance.

Thanks to our good results, our Corporate Citizenship program reaches millions of patients worldwide. We bring the revolution in biomedical research to bear on diseases of the developing world, and provide medicines at cost—or sometimes free—to patients who otherwise would not have had access to treatment.

Shared values and a common mission and strategy unite our 81 400 associates, and our 200 operational companies and business operations in more than 140 countries. Our progress last year—as well as our aspirations and targets for 2005—is reported in the following section.

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  Commitment to Patients

Novartis endorses the right to health. We believe that each sphere of society—from government and charitable organizations, to medical professionals and business—has a role to play in support of the right to health.

Our primary and most important contribution to society is to discover, develop, produce and distribute high quality health-care products, addressing unmet medical need.

Our commitment to patients leads us to maintain one of the highest levels of research and development investment in the pharmaceutical industry, measured as a percentage of sales. Our drug development has been among the most productive of any top-tier pharmaceutical company in recent years, with 13 new medicines approved by the US Food and Drug Administration since 2000. Our development pipeline is widely considered one of the industry's strongest, and key development projects are on track to meet milestones in 2005.

At the same time, Novartis offers one of the broadest ranges of drug treatment options—from patent-protected, life-saving prescription medicines, to cost-effective generic products of growing importance to health-care systems, and leading self-medication brands to enhance overall health and well-being.

Medicines from Novartis help patients avoid costly hospitalization, and ease their return to normal, productive work. We enable children afflicted by disease to play with their friends again—and grandparents to hold grandchildren they might never have met without effective medical treatments.

An increasing focus on the cost of health care tends to overshadow recognition of the huge value that individuals, and society, realize from modern medicine through longer life expectancy, lower rates of infant mortality and reduced illness and disability. Novartis has embarked on a program of rigorous economic analysis to document the value of our medicines—and the scope and significance of the benefits they provide for patients and society.

As we strive to be a leading company in health care, we recognize that all our commercial activities must be pursued in a responsible way. Success in business depends on maintaining the trust of commercial partners, government authorities, patients, health-care professionals and other essential stakeholders. Our Code of Conduct is fundamental to the task of creating and maintaining such trust.

Patients in Need

Thanks to our good results, we also try to help where there is immediate need with products, funds and other supportive measures, on a case-by-case basis. Our Corporate Citizenship program reaches millions of patients worldwide each year.

The Novartis Institute for Tropical Diseases—based in Singapore—is bringing the ongoing revolution in biomedical science and technology to bear on diseases of the developing world, initially tuberculosis and dengue fever (see page 48).

We provide medicines at cost—or sometimes free—to patients in the developing world afflicted by diseases such as leprosy, malaria and tuberculosis. We also offer discounts and support programs to patients without medical insurance or other financial resources in industrialized countries (see table on page 47).

Our public-private partnership with the World Health Organization (WHO) provides Coartem, our medicine against malaria, to millions of Africans at a time when the emergence of resistant strains of parasites has rendered existing medicines ineffective (see page 51).

For 25 years, the Novartis Foundation for Sustainable Development has made significant contributions to the health of needy people in the developing world (see "Tuberculosis" on pages 45-46).

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Novartis welcomes dialogue, and cooperation, with relevant stakeholders in conjunction with activities relating to the right to health.

In recognition of our commitment to patients, Daniel Vasella, M.D., Chairman and Chief Executive Officer of Novartis, received the FIRST Award for Responsible Capitalism in 2003. The FIRST Award honors business leaders who have excelled in both commercial success and social responsibility.

In his acceptance speech Dr. Vasella acknowledged that at Novartis, "We have debated the company's role and sometimes disagreed on the limit of our responsibility." Novartis believes the State bears the primary responsibility to address the main causes of premature mortality and preventable morbidity among its citizens. "But a company can't remain passive—it is imperative that we give support," Dr. Vasella added.

"The fact is that no single player can resolve the complex problems of poor countries. Far-reaching success can only be achieved through the constructive collaboration of many well-intentioned parties."

Gleevec/Glivec

        Often, reaching patients in distant corners of the globe requires the same creativity and tenacity that drives scientists in our research labs. For the breakthrough cancer therapy Gleevec/Glivec, Novartis cooperated with the Max Foundation to develop one of the most generous and far-reaching patient assistance programs yet implemented on a global scale. These patient assistance initiatives in more than 70 countries have provided Gleevec/Glivec free of charge to more than 10 000 people who otherwise would not have had access to the drug to treat their life-threatening disease.

The Gleevec/Glivec International Patient Assistance Program (GIPAP), established for patients outside North America, is based on a "patient-direct" approach—ensuring deliveries to patients through a network of more than 500 registered physicians and more than 130 qualified treatment centers worldwide. The Max Foundation serves as administrator for GIPAP.

In India, GIPAP had to navigate financial, regulatory, legal and importation barriers to reach the eligible patient population. More than 3 000 people—an estimated 98% of patients who receive Gleevec/Glivec in India—have obtained the drug at no cost through the GIPAP program.

By contrast, Argentina's national health-care reimbursement scheme ensures full coverage for oncology treatment. However, patients still face life-threatening delays during the months needed to approve insurance reimbursement applications. Novartis has partnered with physicians—and Argentina's Ministry of Health—to provide eligible patients with interim access to Gleevec/Glivec until reimbursement is processed and approved. About 20% of the country's CML and GIST patients⁽¹⁾ have been unable to obtain Gleevec/Glivec in a timely manner through their healthcare provider, and turned to GIPAP for support.

(1)

Chronic myeloid leukemia (CML), gastrointestinal stromal tumor (GIST).

Leprosy

Since 2000, Novartis has provided free treatment for all leprosy patients in the world through a public-private partnership with the WHO. The face of leprosy in countries like India has changed thanks to educational programs to increase awareness of the disease, and comprehensive, effective treatment with multi-drug therapy (MDT) that has cured more than 3 million patients.

A group of WHO physicians got firsthand evidence of the transformation last year when they visited an outdoor market in Vondrozo, a town on the east coast of Madagascar. Janine, a young woman selling vegetables, proudly took out her MDT blister pack and told the physicians: "I have leprosy—but I am on treatment and I know that I'll be cured." Another merchant, named Monique, showed the visitors a small insensitive area of skin on her back and confidently predicted that her disease would be cured.

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Perhaps even more surprisingly, customers in the market were unconcerned about the presence of two women with leprosy in their midst. That's a dramatic shift from the intense fear and prejudice that once prevailed. In Madagascar, people with leprosy used to be denied a wake—or burial in their ancestral tombs—for fear that their bones might spread the disease. As communities witness the positive impact of diagnosis and effective MDT, old prejudices have faded.

In Sri Lanka, the Novartis Foundation for Sustainable Development supported a disease awareness program where the Ministry of Health urged people to check their skin for insensitive patches and seek treatment. Young people have been the most attentive audience.

Karima, a 22-year-old woman, accompanied her mother to a routine appointment at a local clinic—and also took the opportunity to see a medical officer in "Room 21" about the insensitive patch of skin on her right shoulder. Karima had heard information about leprosy—and Room 21—during radio broadcasts. The doctor confirmed Karima's suspicions and initiated a six-month course of MDT to cure the ailment.

Tragically, delay in diagnosis and commencement of treatment still leads to the severe disabilities traditionally associated with leprosy. Mrs. Kalpana, a 56-year-old Indian woman, developed leprosy in the mid-1980s. Despite being cured through MDT, she was still left with an intractable foot ulcer.

"I went everywhere to find a cure for my ulcer—including well-known physicians in our country—but nothing helped," Mrs. Kalpana says. "I got depressed; the ulcer became worse and began to smell; and I was so ashamed that I stopped attending family events."

Ultimately, Mrs. Kalpana contacted a Comprehensive Leprosy Care Project (CLCP), operated by the Novartis Foundation in Mumbai to help patients care for leprosy-related disabilities. A self-care kit from the CLCP enabled Mrs. Kalpana and her husband to clean and treat her foot ulcer effectively enough to make corrective surgery possible. Today, following a successful operation, she attends family functions again.

Tuberculosis

The initial deliveries from Novartis of a specially packaged, gold-standard treatment against tuberculosis (TB) reached Sri Lanka in November of last year.

Under a five-year agreement with the World Health Organization, Novartis is providing fixed-combination tablets to treat 500 000 tuberculosis patients in the world's poorest countries with Directly Observed Therapy Short-course, or DOTS.

The spread of drug-resistant TB is one of the world's most pressing public health challenges, and DOTS has emerged in recent years as the most effective response. The approach requires TB patients to swallow their medicines under the direct observation of a health worker or community volunteer.

Clinical studies have shown DOTS can produce cure rates as high as 95%—but the roll-out of DOTS in developing countries has been sluggish. The WHO has turned to major pharmaceutical companies for assistance—seeking donations to its Global Drug Facility, which has provided medicines and procurement support to more than 3 million TB patients in 65 countries.

The formulations from Novartis reduce the number of tablets patients need to take during the intensive phase of treatment to two to three per day, from more than a dozen tablets previously required. In addition, the duration of therapy is shortened to six months from eight months—which promises to improve patient compliance and significantly reduce the risk of developing drug-resistant TB.

45

Novartis earmarks its DOTS donation to poor countries eligible for support from the Global Fund to Fight AIDS, TB and Malaria. To qualify for the donation, each country must submit its treatment program for review and approval by a technical advisory committee at the WHO. Fixed-dose combinations simplify logistics by lowering the risk of stockouts of any individual drug, and reducing prescription errors in poor countries.

Novartis is tackling other hurdles to effective treatment that are beyond patients' control in the developing world. It's difficult for the poorest patients—particularly women and children—to make long daily journeys to a health facility, as required under the DOTS regimen. The Novartis Foundation for Sustainable Development is working with Ministries of Health to allow patients greater choice in where they receive treatment—including at home, with a personal observer in place of supervision at a health facility. Besides eliminating taxing journeys, use of an observer could provide additional support to patients that is crucial to compliance—and successful treatment.

46

Novartis Access to Medicine Projects 2004

Note: Blank signifies not applicable.

(1)

In addition, the NFSD reached an estimated 600 000 people during 2004 through health support and more than 10 000 AIDS orphans in Sub-Saharan and Southern Africa.

(2)

During 2004, 1 660 new patients were approved by the Gleevec US PAP.

(3)

Includes 70 patients from Canada's Glivec PAP which is administered independently. During 2004, 5 384 new patients were approved by the Glivec Global PAP.

(4)

Multi-drug therapy.

(5)

Many research projects currently planned at the NITD would not gain funding, by normal commercial standards.

(6)

Estimate.

(7)

Deliveries of tuberculosis treatments began in November 2004.

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  NITD: A Research Role Model for the Developing World

"It's not often that you get to build a research center that is the first of its kind," says Alex Matter, Director of the Novartis Institute for Tropical Diseases (NITD).

NITD is off to a flying start. Staff has grown rapidly at the Singapore-based research center that is focusing initially on the "neglected" diseases of tuberculosis (TB) and dengue fever.

Scientific collaborations have sprouted with key research institutions in Singapore and around the world. And with other Novartis research centers contributing technology and promising leads, NITD expects to have two compounds in clinical testing by 2008, and its first novel medicine available to patients by 2012.

NITD is a wholly owned Novartis affiliate, also supported by Singapore's Economic Development Board (EDB). The institute is a core element of the Novartis Corporate Citizenship program. Medicines discovered at NITD will be made available on a nonprofit basis to patients in those countries where the drugs are most needed.

"Many diseases of the developing world haven't profited from the revolution in biomedical science and technology we've seen in recent years," says Paul Herrling, Head of Corporate Research at Novartis. "Novartis would like to apply this leading-edge science and technology to address the medical needs of poor patients in the tropics," he adds.

"We want NITD to be a role model in all aspects of drug discovery—including training of students from developing countries in the special skills needed to translate basic science into actual drugs," Dr. Herrling says. "Our task is to come up with new drugs, based on new targets, with new modes of action."

That's a critical mission, considering the relentless spread of both TB and dengue fever worldwide. An estimated 2 billion people, one-third of the world's population, are infected with TB; every year eight million of these people develop the disease, and two million die of TB.

Moreover, the number of drug-resistant strains of the TB bacillus has exploded in recent years, due to inappropriate treatment of the disease. The World Health Organization has declared drug-resistant TB an urgent health threat, but there has been little research into new treatments for decades.

Dengue fever, a viral disease spread by mosquitoes, usually triggers symptoms similar to a severe form of flu, but in a small percentage of patients, mainly children, it progresses to a life-threatening form called dengue hemorrhagic fever. The disease causes an estimated 50 million infections, 500 000 hospitalizations and more than 25 000 deaths every year.

While dengue fever used to be concentrated in a handful of countries, it now has spread throughout the entire tropical world, and epidemics have become more common. No specific treatment for dengue fever is available, and NITD will be the biggest drug discovery center in the world focusing on the disease.

Promising Projects

In July, NITD moved to permanent premises in the Biopolis science park in Singapore. The new home is within walking distance of neighbors such as the Singapore Institute for Molecular and Cell Biology, and similar institutes for genomics and bioinformatics. Five local neighbors have joined forces with NITD to form the Singapore Dengue Consortium. NITD is also coordinating expanded drug-discovery collaborations with the Global Alliance for TB Drug Development, a public-private partnership.

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For Singapore, NITD is an important part of the campaign to foster development of a local biomedical industry and reduce dependence on electronics as the prime engine of economic growth. An island- state located at the tip of the Malay Peninsula with a population of 4.2 million, Singapore is a former British Crown Colony that became internally self-governing in 1959. With one of the world's highest levels of per-capita Gross National Product, Singapore is widely considered a success model for the region.

Solid intellectual property protection made Singapore an attractive site for NITD. The country also offers proximity to patients with TB and dengue fever, as well as experienced treating physicians. "TB and dengue fever aren't diseases that occur in environments where we normally operate. If you don't really understand what a disease is, it's very difficult to make an appropriate medicine," Dr. Herrling says.

Mountain of Pills

At the official opening ceremony for NITD's new home last summer, Daniel Vasella, MD, Chairman and Chief Executive Officer of Novartis, shared some deeply personal memories from his youth to explain the decision to create the new research center. At the age of eight, Dr. Vasella was infected with tuberculosis and his life was saved thanks to a quick diagnosis, and effective medication during an extended stay in a Swiss hospital.

He still has vivid memories of injections "and an amount of drugs to swallow that seemed unlimited. In life it's important to experience your own fragility so one can relate to the fragility of others," Dr. Vasella muses. "So empathy is the first, and an essential reason, for creating the NITD.

That mountain of pills and injections remains equally formidable for TB patients today, says Clifton Barry, M.D., a section chief for tuberculosis research at the US National Institutes of Health. "If anything, patients today have even worse prospects," Dr. Barry sighs. "Most children who face TB do so in an infrastructure where they have little access to appropriate diagnosis—or the constant supervision it takes to complete the six to eight months of therapy required to cure them."

Dissecting Pathways

Along with cutting-edge tools and top scientific talent, NITD also has inherited the Novartis research philosophy that puts a premium on identifying and attacking the underlying causes of a disease, not just treating symptoms.

Advanced technologies have made it easier to dissect "pathways"—networks of genes that function as a unit in biological systems. Better understanding of pathways allows NITD scientists to maximize the therapeutic effect of new medicines while minimizing side effects.

"Ten years ago, our approach to target finding centered around one single target at a time," says Dr. Matter, who headed Oncology research at Novartis before moving to NITD. "Today we can look at all the genes in a bacillus, a virus or a cell at the same time. It's huge progress."

In the case of TB, Dr. Matter and NITD scientists are attacking from two different directions. Mycobacterium tuberculosis, the bacterium that causes the original infection, has a phenomenal capacity to adopt a dormant state and hide in the body, impervious to drugs, for months, years or even decades. But if the host's immune system is weakened—for example, as a result of HIV infection—those latent bugs suddenly come out of hiding and reactivate TB.

NITD scientists are racing to unravel the genes responsible for latency, and to design drugs to flush M. tuberculosis out of hiding. Another key objective is to develop more effective new medicines that can shorten the current treatment regimen, which requires daily medication for up to nine months.

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Dengue fever, in turn, is an infection triggered by a virus closely related to viruses responsible for diseases ranging from yellow fever and West Nile fever, to Japanese encephalitis and hepatitis C.

The primary goal of NITD's dengue research program is to prevent progression of the disease to the more serious, potentially deadly dengue hemorrhagic fever. It isn't known why dengue fever progresses in some patients—but NITD scientists suspect misfiring of the body's immune defenses may be a key factor.

Along with compounds that target the immune system, NITD scientists are working on potential medicines that block action of an enzyme essential for replication by the dengue virus. "These are biological targets we know how to deal with," Dr. Matter says, citing as an example so-called protease inhibitors that have revolutionized treatment of AIDS

Yet even if NITD researchers decode the science, additional hurdles loom for new medicines destined for use in poor, tropical countries. Drugs used in the tropics must maintain stability under severe conditions of humidity and heat. They should be simple and inexpensive to manufacture.

They also must be very well tolerated. Physicians can't easily monitor use by patients who live far from clinics or hospitals. And many patients are being treated for several different disorders simultaneously, raising the potential risk of drug-drug interactions, Dr. Matter says.

Still, leads contributed by other Novartis research centers have given NITD a head start, one reason Dr. Matter predicts that two compounds will begin clinical testing by 2008, with the first novel medicine from NITD available to patients by 2012.

"NITD is a relatively small institution, and we wouldn't get very far working alone," he says with a smile. "Luckily we can leverage this institute within the world of pharmaceuticals, and access 2 700 research colleagues at Novartis."

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Rolling Back Malaria: Zambia

At Chongwe District Health Center, a row of cramped, single-story buildings hugging a dusty highway about 50 kilometers outside Zambia's capital city Lusaka, a young mother named Mimi Matibenga holds her son Layton, and talks about malaria.

Malaria kills hundreds of thousands of infants and young children in Africa every year. Layton caught the disease when he was a year old—a dangerously vulnerable age in malaria-endemic areas like Zambia. Infants are no longer protected by immunity from their mothers, but they haven't yet built their own immune defenses.

For several frightening weeks, Ms. Matibenga says, Layton failed to recover, despite treatment with chloroquine, the drug Africa has relied on for decades to treat malaria. The danger finally passed, she says, when Layton was given a new antimalarial medicine—Coartem, from Novartis.

It's a familiar story in Zambia, which adopted Coartem as the country's new first-line therapy against malaria two years ago. The emergence of drug-resistant strains of malaria had rendered chloroquine increasingly ineffective; at the time of the policy change, less than half of patients treated with chloroquine were being cured. Both the number of malaria cases reported, and associated deaths, were rising rapidly.

Today, the tide is turning. Speaking late last year at a conference organized by Novartis, Zambia's Minister of Health, Dr. Brian Chituwo, said "Preliminary observational studies show positive strides in terms of increased community acceptance—and reduced incidence of malaria morbidity and mortality."

Still, Dr. Chituwo didn't hide his frustration over the human cost of malaria—or his determination to achieve even more rapid progress. In Zambia, he mused, malaria remains the leading cause of morbidity and mortality, even amid concurrent epidemics of HIV/AIDS and tuberculosis.

"Sadly, a large proportion of these malaria cases represents the fertile segment of our population: pregnant women and children under five," he added. "This is totally unacceptable, considering that malaria is completely preventable and curable."

That sense of urgency is widely shared by health officials throughout Africa. "This isn't only a challenge for the region that has got the endemic malaria. It's a challenge for the whole world," says Professor Ronald Green-Thompson, head of the Department of Health in South Africa's KwaZulu-Natal province.

KwaZulu-Natal and Zambia are pioneering radically new tactics against malaria. Their approach combines effective new medicines like Coartem with large-scale prevention programs, including insecticide spraying and use of insecticide-treated bed nets, to battle deadly, drug-resistant forms of the disease. Access to these new tools has been galvanized by public-private partnerships between companies like Novartis, international organizations such as the World Health Organization and financial donors such as the fledgling Global Fund to Fight AIDS, Tuberculosis and Malaria.

More than 20 African countries are in the process of adopting similar malaria-control models. This year tens of millions of patients could be treated with effective new drugs—and tens of thousands of lives could be saved, thanks to the new treatment guidelines.

Clearly, additional resources are needed. But Nick White, Professor of Tropical Medicine at Oxford University and a world authority on malaria, insists that combating the disease actually represents a very good bargain. "We could have a dramatic effect on the number of people who die and suffer from malaria with a relatively small international investment," Dr. White says. "That would have a huge and beneficial impact on the health of the developing world—and also have a remarkable economic benefit for those countries."

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Surging Demand

Access to health care in the developing world is one of the most urgent challenges in public health today, and Novartis has created a portfolio of programs targeting "neglected" diseases.

We're already making a difference in the battle against malaria with Coartem, the prototype of a new generation of antimalarial treatments known as artemisinin-based combination therapies, or ACTs. Coartem is recommended by the WHO for use in endemic countries experiencing high levels of resistance to conventional medicines.

Under a public-private partnership with the WHO formed in 2001, Novartis provides Coartem, at no profit, for public-sector use in developing countries where malaria is endemic. Since 2002, more than six million treatments have been provided through the WHO under the pact.

According to Professor Richard Feachem, the Global Fund's Executive Director, the commitment by Novartis "to provide, at cost, an extremely effective new drug against a killer disease is translating into lives saved across the world." That wouldn't be possible, however, without the parallel efforts of both the WHO and the Global Fund.

The WHO provides technical advice to countries, based on surveillance of drug resistance, and guides countries on policy, including when to change to ACTs. WHO officials also help countries to make proper use of the new drugs when they arrive in the field.

The Global Fund has become the world's largest financier of malaria programs and is the main financial engine behind the rapid shift from existing antimalarial agents to Coartem and other ACTs. Commitments to date exceed USD 1 billion over five years to finance malaria-control activities in more than 70 countries. The Global Fund also is reprogramming grants to several countries from earlier funding rounds—redirecting money to ACTs where appropriate, and meeting the need for additional funds to implement ACTs where required.

The ACT bandwagon is gaining momentum, creating a surge of new demand. The WHO estimates that demand for ACTs will rise exponentially in 2005, to at least 130 million treatments, from about 30 million treatments in 2004.

Not surprisingly, the rapid scale-up is creating challenges for manufacturers. Artemisinin, a key component of Coartem and other ACTs, is a plant-derived product. Crops of Artemisia annua must be planted one growing season ahead of harvesting and extraction for use in production, and the process chain for manufacturing ACTs is complex and time consuming. The recent surge in demand has created temporary bottlenecks in the availability of raw materials from Chinese suppliers, who currently dominate the world market.

Novartis has expanded production capacity for Coartem to the level of 60 million treatments per year. Final Coartem production in 2005 is highly dependent on the timely delivery of key raw materials; based on current supplier agreements, production is likely to reach 30 million Coartem treatments this year.

Global Effort

Artemisinin has been used for centuries in traditional Chinese medicine to treat fevers, including malaria. But the promise of Coartem, and other ACTs, reflects the synthesis of that traditional know-how with modern pharmacology. Coartem is a fixed combination of artemether, a chemical derivative of artemisinin, and lumefantrine, a synthetic compound. ACTs are the most potent killers of malaria parasites yet discovered; artemether starts working quickly, while lumefantrine acts more slowly, but gives an excellent long-term cure rate.

52

In 1994, Novartis licensed worldwide marketing rights to Coartem outside China. It became the first drug based on Chinese traditional medicine to obtain broad international patent coverage, and following clinical trials involving more than 3 000 patients won regulatory approval in 1998. Today, Coartem tablets are produced at a Novartis pharmaceutical plant outside Beijing, using artemether manufactured by a Chinese company and lumefantrine imported from Switzerland.

Combination therapy delays the development of resistance because there is a greatly reduced probability of parasites being simultaneously resistant to two active ingredients, with independent mechanisms of action, and different biochemical targets. Coartem achieved impressive cure rates of up to 95% in clinical trials—but the first demonstration of the drug's effectiveness under real-life conditions came in KwaZulu-Natal.

Following a severe malaria epidemic in 1999–2000, KwaZulu-Natal adopted Coartem as first-line therapy. Both the total number of malaria cases, and associated deaths reported in the province, declined by more than 90% during the next two years.

Zambia became the first country in Africa to adopt Coartem as first-line therapy in national treatment guidelines. It was a controversial step, however, opposed by a number of key international donors, who argued that a country as poor as Zambia could not sustain such a costly treatment option. Considering that half of Zambia's national budget for health is donor-financed, such opposition was cause for concern.

But with financial support from the Global Fund, Zambia has confounded skeptics. Dr. Naawa Sipilanyambe, Zambia's Malaria Control Program Manager, insists that poor countries like Zambia with weak health systems have to use a multipronged approach when introducing ACT. "We've learned very quickly that ACTs can work," Dr. Sipilanyambe says. "But it's not just a matter of buying drugs and bringing them in. We also have to invest in capacity building—in training and in logistics management, and other types of technical expertise."

Beyond the Traditional Role

Going beyond the traditional role of drug supplier, Novartis is supporting many of those capacity-building initiatives in Zambia. One example is a Malaria Case Management Educational Program held in Lusaka in September, attended by more than 350 health care professionals from around the country. Novartis also is assisting with stock management and forecasting programs—and "operational research," to monitor and evaluate the new malaria policy.

At the same time, Novartis is racing to improve the availability and convenience of Coartem for the most vulnerable groups of malaria patients—young children and pregnant women. In October, Swiss regulatory authorities approved the use of Coartem in infants with bodyweight as low as five kilograms, based on positive results of recent clinical trials using the well-established six-dose regimen. Previously, Coartem had only been approved for treatment of children weighing 10 kilograms or more. Regulatory authorities throughout Africa are expected to quickly adopt the new, lower bodyweight limit, significantly increasing the number of children who can be treated with Coartem.

In 2005, Novartis also will continue with the development of a new pediatric formulation of Coartem, in collaboration with Medicines for Malaria Venture (MMV), a nonprofit foundation dedicated to developing affordable new antimalarials. At the moment, parents crush adult Coartem tablets and give that crushed powder to young children.

Because of the bitter taste, however, children tend to spit out the medicine, so a more palatable pediatric form could improve compliance.

The crisis of "neglected" diseases in the developing world is so immense that making a difference for patients requires the combined efforts of unusual allies.

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Developing a uniquely effective medicine, and making it available at no profit to millions of patients, paired an invention by scientists in China with the technical prowess of a Swiss pharmaceuticals company. The project benefited from influential endorsements from international organizations like the WHO, and nongovernmental organizations such as MMV. Coartem received critical financial backing from major international donors. And last but not least, bold policy changes were made by government officials across Africa.

Despite progress so far, we have barely scratched the surface in the challenge of rolling back malaria. Scaling up must continue—with new partners and donors joining our efforts.

According to Dr. Sipilanyambe, the lifeline of effective tools is rekindling a fighting spirit among Zambia's hard-pressed health workers. "In the past, health providers gave up and just accepted malaria as something we couldn't do anything about," she says. "Now we're trying to get health workers to take malaria as a challenge—and to believe it's something that can be fought, and actually defeated, if we work together."

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Commitment to Our People

To remain one of the most respected health-care companies in the world, Novartis must continue to attract the best talent available across all our businesses. Our people must be constantly nurtured to develop their full potential and grow as business leaders—with clear career paths to success.

There's no better symbol of the success of our recruiting efforts than the Novartis Institutes for BioMedical Research (NIBR). During the past 18 months, hundreds of the world's top scientists have joined NIBR's bold bid to establish a world-class US research center, deploying cutting-edge tools of biology, chemistry and genomics, at the frontier of science and medicine.

We have a permanent commitment to provide the best available training to Novartis managers worldwide, on a continuous basis. Last year, more than 3 000 Novartis managers—or roughly two of every five managers at the first, middle and senior levels—took part in corporate learning programs.

They were able to choose from a rich menu of programs targeting external focus, innovation, people and performance. And faculty was best-in-class. Building on the success of our initial strategic partnership with Harvard Business School, corporate learning collaborations today also include INSEAD, Stanford Business School and London Business School.

Novartis Corporate Learning is distinctive for its close integration with career development paths, focused support for group business goals, and active personal involvement of senior management. One example is the Business Leadership Program, or M3, a five-day forum at Harvard Business School that helps senior Novartis executives improve their leadership through better understanding of global challenges that impact the health-care industry. The faculty is headed by Thomas J. DeLong, the Philip J. Stomberg Professor of Management Practice at Harvard Business School. Internal speakers include Daniel Vasella, M.D., Chairman and Chief Executive Officer of Novartis; Mark Fishman, M.D., Head of Biomedical Research; and, Juergen Brokatzky-Geiger, Head of Human Resources.

"Identifying and developing talents is one of our most important priorities," Dr. Vasella says. "Better people produce better results. This belief and the corresponding action must be deeply embedded within Novartis."

A Marketing Excellence program was rolled out between 2000 and 2002 to strengthen marketing and sales, develop skills and drive a competitive spirit in the organization. Nomination to the Marketing Excellence Program remains an important step in career development for sales, marketing and brand managers—in part because of intense interactions with senior group managers such as Thomas Ebeling, Head of Pharmaceuticals; David Epstein, Head of Specialty Medicines and the Oncology Business Unit; and Kurt Graves, Head of General Medicines and Chief Marketing Officer of Pharmaceuticals.

This year, a new Innovation Leadership Program will be rolled out in partnership with London Business School—further improving the capacity of Novartis managers and associates to drive bold initiatives, and thus sustainable growth.

Active personal involvement of top managers in training; an innovative financing model; and the high degree of integration between training programs and formal career planning were all strengths cited by the European Foundation for Management Development last year, when Novartis became the first pharmaceutical company to win EFMD accreditation for the Group's corporate learning program.

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Staff fluctuations 2004

The high caliber of training also was a key factor last year when Fortune magazine named Novartis one of the "10 Great Companies to Work for in Europe."

NIBR

The rapid expansion of NIBR is building on a large base of scientific excellence that already existed at established Novartis research sites around the world. But new hires—like established Novartis researchers—respond to the call of making a difference by addressing human disease and unmet medical need, says Lynne Cannon, Global Head of Human Resources for NIBR. "The ability to make a difference is by far our most effective recruiting tool," she adds.

During the past 18 months, NIBR's Human Resources group has filled more than 800 positions—almost two hires per business day.

To open opportunities for new recruits to reach full potential, NIBR strives to provide maximum support to scientists in both their work and their private lives—insuring a healthy balance, and thus the emotional and intellectual energy needed to drive innovation. That support takes the form of ongoing education, attention to personal benefits and careful assessment of the resources needed to translate raw talent into professional success.

Succession Planning

Novartis continued to reinforce management "bench strength" last year in line with two prime objectives: insuring that two "ready now" successors are available for each top leadership position, and that at least 70% of these leadership vacancies are filled by internal candidates.

Those are demanding targets: previously a single "ready now" successor was identified for senior management posts. And the proportion of leadership vacancies filled internally reached 64% in 2004, compared to 51% a year earlier, but only 21% in the year 2000.

To support the new management succession objectives, Novartis has launched the Accelerated Development Program (ADP), designed to groom high-potential executives for challenging new roles throughout the global organization. Senior executives chosen for the ADP are considered likely candidates for promotion to posts such as divisional country heads in Top Ten markets within the coming five years.

Each ADP participant maps out a five-year personal development plan to complement and deepen experience. So far, almost 180 executives from Pharmaceuticals, Consumer Health, Finance, Development and Human Resources have been nominated to ADP—and several participants have won promotions in line with their career development plans.

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Employees by Region and Business per December 31, 2004

(1)

Figures represent headcount.

About 90 new participants will be selected for ADP in 2005—but this time candidates will be drawn from a more diverse mix of business units and global line functions.

As a complement to ADP, top group managers have introduced a mentoring program that reaches deeper into the organization to provide exposure to a more junior group of 30–40 high-potential executives. The mentoring program involves several focused days of interaction per year—a significant time commitment by mentors. Participants are selected to reflect a balance of geography and experience—as well as diversity in gender and ethnicity.

Diversity and Inclusion

In 2004, the Pharmaceuticals Division launched a Diversity & Inclusion initiative that aims to recognize and promote a greater diversity of talent throughout the organization and optimize our share of available talent world-wide, to the ultimate benefit of our business performance. Driven by a Diversity Council—comprising members of executive management from across the global Pharmaceuticals business—the long-term goal of the initiative is to consolidate competitive advantage in the market for talent, in the market for innovative ideas that deliver novel products, and in the commercial markets where Novartis seeks to serve its customers with excellence.

Those objectives will be achieved through a dual strategy of internal talent development and external hiring. This commitment to Diversity & Inclusion will become embedded in the organization through the objective-setting process for individual leaders. In 2005, the initiative will be rolled out across countries and global line functions. Management will identify local diversity priorities and opportunities, and develop action plans to address them.

We will gauge progress in Diversity & Inclusion through measurable results. We believe that long-term benefits will be seen in sustained high performance and success.

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  Commitment to Health, Safety and Environment

Novartis has built a leading position in Health, Safety and Environment (HSE) by managing risks proactively, applying sound science and technology, and fostering cooperation and deployment of uniform corporate standards at sites around the world. We communicate our objectives to external stakeholders and report on our performance each year in the Annual Report.

As in recent years, HSE activities during 2004 focused on reducing carbon dioxide (CO₂) emissions and improving energy efficiency; limiting water consumption; and continuing to lower the number of industrial accidents, as well as promoting the health of our associates. This section of the Annual Report describes the most important measures taken during the year to fulfill our ambitious HSE targets.

In 2001, Novartis set a target of reducing Group CO₂ emissions by 3% by the end of 2003. The actual reduction achieved by the end of 2003 was 2.8%—in spite of 4.8% growth of production during the period. Our level of CO₂ emissions relative to sales is well below the pharmaceutical industry average.

The integration of Lek Pharmaceuticals, the leading drug company in Slovenia acquired by Sandoz two years ago, allowed steady progress in reducing CO₂ emissions, as well as water consumption. Lek sites obtained ISO 14001 recertification in 2004—an important validation of the quality of HSE management.

While Novartis remains committed to further reduction of CO₂ emissions—and will report absolute levels of CO₂ emissions annually—HSE activities relating to energy have entered a new phase. The Group has adopted energy-efficiency targets for 2004–06, calling for each business unit to improve energy efficiency by 2% a year. Half of this reduction, 1% of annual consumption, should come from concrete energy-saving projects.

Relatively modest improvements in energy-intensive processes like fermentation can generate large savings. This year Sandoz will continue to redesign its mainstream fermentation operations, incorporating advanced technology in line with the Group-wide energy-efficiency objectives.

Many other Novartis facilities around the world have had a continuous focus on energy efficiency for years. Further improvement toward the new energy-efficiency target will require deployment of a number of separate programs, together delivering significant energy savings.

During 2004, the Pharmaceuticals Division completed energy audits at larger energy-consuming sites and proposed a range of projects to be implemented in 2005–06.

Risk Portfolios

Each year, the sites develop risk portfolios, which are consolidated at Group level. The portfolio, and a list of priority risks warranting action, are presented to the Executive Committee. During 2004, Group sites eliminated 24 of the year's priority risks through measures ranging from better earthquake protection in Japan and improved fire protection at plants in Switzerland and Brazil, to upgrading cooling systems to reduce risks of ammonia leaks at facilities in the US, Costa Rica and Poland.

All Divisions, Business Units and the Research Organizations have started to implement Business Continuity Management. In particular, vulnerability studies for defined key business processes have been conducted, and appropriate strategies elaborated. The implementation of preventive actions and measures is ongoing. The development of Business Continuity Plans has been initiated and will continue through 2005–06.

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The assessment and safeguarding of chemical landfills from company activities several decades ago is a continuing task of risk reduction. In response to requests from authorities in Germany, France and Switzerland, the local chemical and pharmaceutical companies in the Basel region—including Novartis—have formed a consortium to assess all former landfills, and to seek timely solutions to the possible consequences of past disposal practices.

Considerable progress has already been made regarding the cluster of landfills in the Basel region, and the aim of concluding all risk assessments by 2007 is in sight. Discussions with the respective authorities are at an advanced stage, or have already culminated in formal agreements. The risk assessments being conducted by external specialists in this field will allow the authorities to determine if remediation is needed—and if so, to establish details of the subsequent remediation program.

The Lost-Time Accident Rate (LTAR) is one of the most tangible measures of employee safety on the job. For the seventh consecutive year Novartis lowered the Group's LTAR, reaching in 2004 the longstanding goal of 0.5 accidents per 200 000 person-hours. That performance compared with LTARs of 0.7 in 2003, and 1.62 in 1997.

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HSE Objectives and Achievements for 2004-2005

BU—Business Unit; HSE—Health, Safety and Environment; LTAR—Lost-Time Accident Rate (per 200 000 person-hours); VOC—Volatile organic compounds; NIBR—Novartis Institutes for BioMedical Research; CC—Corporate Citizenship.

(1)

Energy-efficiency based on most representative denominator (e.g. sales, production, employee)

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While many Novartis sites are located in water-rich areas, ample supplies of water loom as a key environmental issue of the future. Benchmarking studies have shown that Novartis consumes more water than major pharmaceutical-industry peers—reflecting heavy demand for cooling water at Sandoz factories as well as in the production of contact lenses at the CIBA Vision business unit. Both business units have stepped up investments in recycling technologies to reduce water consumption; the significant decrease in this area achieved by CIBA Vision's contact lens plant in Johns Creek offers an example of best practice for other Group units around the world.

As a leading health-care company, Novartis is known for maintaining and restoring health; this commitment is equally applicable to the health and well being of associates working for the company.

Additional details on HSE activities can be found at www.novartis.com/hse.

Energy-efficient Fermentation: Kundl, Austria

At the main Sandoz production site in Kundl, Austria, energy-intensive fermentation processes for the manufacture of antibiotics account for a large proportion of total energy consumption. When Kundl embarked on an energy reduction program in 1999, fermentation was a prime target.

The result was a new process that increased productivity by about 20%, while reducing CO₂ emissions by 22 000 tons per year and annual energy consumption by 86 GWh. The USD 13 million investment saves USD 3.9 million per annum. Ongoing activities are expected to further reduce long-term energy requirements.

Kundl's giant fermenters, with a capacity of up to 250 000 liters per reactor, require vast amounts of energy to feed raw materials and cooling water, as well as for stirring the culture broth. Steam is also needed for the inactivation of foreign organisms that could contaminate production.

Kundl's new process incorporates novel design features such as a computer-supervised control system for optimized operation of steam boilers. Lowering the inflow temperature to air compressors made it possible to achieve higher compression efficiency—and decrease power consumption in the air pressure system. Efficiency of feed pumps was increased by reducing system pressure in both main cooling systems.

Water Recycling Plant: Atlanta, Georgia

Water is a critical element in virtually every step of production of CIBA Vision's Focus DAILIES contact lenses, from the mixing of the raw material polymer to high-pressure washing of the lens production molds.

However, water is a limited resource in Atlanta. The Chattahoochee River, which supplies 70% of nearby Atlanta's water, is the smallest watershed of its kind in the United States, yet it supplies the largest water demand of any metropolitan region in the country. Alarmingly, the Chattahoochee has been listed twice among the most endangered US rivers—reflecting repeated raw-sewage spills into the river from the Atlanta sewer system, which has failed to keep pace with the city's explosive growth.

By the time CIBA Vision's Johns Creek plant reached full capacity utilization in 2002, daily water demand was expected to approach 7 600 cubic meters. Nevertheless, the final water permit issued in March 2001 allowed daily discharge of only 3 200 cubic meters—58% below the plant's projected demand. So some form of water recycling became a business-critical requirement to meet the needs of the manufacturing operations.

CIBA Vision responded with a plant reengineering plan, cutting water consumption through operational efficiencies, and the construction of an on-site water recycling and purification system to permit reuse of wastewater.

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It proved to be an economic windfall, as well as an environmental success story. The recycling plant cost USD 2.2 million to build and install, but since start-up of the system in September 1999, cumulative savings have reached USD 1.5 million.

Recycling of wastewater, combined with a careful reassessment of all water use at the site, enabled Johns Creek to cut discharge of water dramatically to 300 cubic meters per day.

The Johns Creek water recycling system also has lowered the risk of contamination of process water supply, improving lens quality and reducing the number of product recalls.

Bagasse Renewable Fuel: Mahad, India

Two fuel-oil-fired boilers, used to generate steam at a Sandoz production facility in Mahad, India, were a prime target for the energy-efficiency program. The boilers consumed 4.5 tons of fuel oil per day, an expensive energy source as the price of oil climbed relentlessly, but even more importantly, the boilers emitted 21 tons of SO₂, a primary cause of acid rain. In fact, SO₂ emissions from the two Mahad boilers represented one-sixth of the Novartis Group's total annual SO₂emissions.

In April of last year, the Mahad plant completed installation of a new boiler using bagasse, fibrous waste from sugar cane that is a by-product of sugar production. Bagasse is a promising source of renewable energy in countries ranging from India and Pakistan to Costa Rica and Brazil. The new boiler design will save an estimated USD 150 000 per year—and lead to a significant 40% reduction in emissions of SO₂.

In an added benefit to Mahad employees, the conversion to bagasse reduces risks associated with the transportation and handling of fuel oil. And at a time of volatile sugar prices and growing economic pressures on cane producers, use of bagasse as a renewable energy source can provide a stable, additional revenue stream. At the same time, Thurbe, our second chemical site in India, is now using a low-sulphur furnace oil with a sulphur content of less than 2% w/w., i.e., 50% less sulphur at marginally higher cost.

NIBR Headquarters Building: Cambridge, MA

The Novartis Institutes for BioMedical Research (NIBR) in Cambridge, MA, overcame potential environmental concerns in transforming a 46 500 m² former candy factory, dating from the 1920s, into a state-of-the-art research laboratory that opened in April of last year.

The metamorphosis began with only the frame of the former New England Confectionery Co. (NECCO) building standing—and involved removal and disposal of asbestos and PCB ballasts/transformers, lead-based paints, surfaces with potential to cause microbiological growth and soils on the property impacted with petroleum and small amounts of other hazardous substances. This extensive remediation of the property has resulted in an environmentally friendlier space for the community, as well as the associates working in the building.

The new building will ultimately be home to more than 700 scientists. It was designed to achieve a high energy efficiency standard relative to local requirements, with installation of laboratory hood exhaust controls, high-performance chillers, high-performance lighting and a heat recovery system.

A new air humidification system reduced safety risks associated with static electricity, and the fire protection systems are state of the art. As a result, the new building will receive the 2005 Novartis Risk Quality Award for achieving 100% of the maximum achievable risk rating. These investments will lead to estimated CO₂ emission savings of 4 500 tons per year—and an annualized cost saving of USD 1.2 million.

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Health Promotion: Switzerland and Costa Rica

Two years ago, the Pharma Affairs function launched a Health Promotion program for associates based at sites in Basel. Convenient activities available to associates range from smoking-cessation counseling and dietary programs, to skin cancer screening and flu shots.

During 2004, more than 1 000 associates received health check-ups, screened their blood pressure, sought medical counseling or participated in the site's yearly Non-Smoking Day. More than 100 associates were screened for skin cancer—with two early-stage, malignant skin cancers detected and successfully treated. More than 400 people attended Healthy Nutrition events, and roughly 13% of daily lunches served at the Basel staff restaurants are fit@work lunches—containing less than 500 calories—to help associates shed extra pounds without depriving themselves of sound nutrition.

At the Group's industrial sites around the world, ergonomics is a key dimension of health protection. For the past five years, hundreds of banana peelers at a Gerber Products baby food factory in Cartago, Costa Rica, have followed a physical therapy program to avert cumulative trauma syndrome (CTS).

A disorder that results from accelerated or aggravated repetitive movement or poor working postures, CTS can lead to severe symptoms such as tendonitis, and muscle contractures. Cartago's mandatory, collective exercise program employs special equipment and postures to build strength, flexibility and resistance to CTS. All peelers repeat the collective program at least every two weeks. In addition, therapists work out individual exercise programs for peelers for recovery during short production breaks or unscheduled stops.

Correct posture—and constantly switching between standing and resting positions—helps to minimize fatigue during working hours. Peelers also learn to alternate hands when peeling bananas; to grab the fruit so that their whole palm and fingers make contact with the fruit's surface; and to rest their bodies on the leg opposite the peeling hand.

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Health, Safety and Environment 2004 Data