6-K - NVS - Equibles

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 July 21, 2020

(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: x	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: x

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: x

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: x

Exhibits:

99.1 Financial Report Q2 2020

99.2 Interim Financial Report

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Novartis AG
Date:<br>July 21, 2020	By:	/s/ PAUL PENEPENT
	Name:		Paul Penepent
	Title:		Head Group Financial Reporting and Accounting

99.1 Financial Report Q2 2020

<br><br><br><br><br><br><br><br>FINANCIAL RESULTS	RÉSULTATS FINANCIERS	FINANZERGEBNISSE	Novartis International AG<br><br>Novartis Global Communications<br><br>CH-4002 Basel<br><br>Switzerland<br><br><br><br>http://www.novartis.com

Novartis delivered strong H1 performance. FY 2020 guidance confirmed at higher end for core operating income and lower end for sales.

·	Due to COVID-19 first half results are more representative of underlying performance than Q2, sales growth of 6% (cc^1^, +3% USD) and core¹ operating income growth of 19% (cc, +14% USD):
o	Innovative Medicines grew sales 7% (cc, +5% USD) and core operating income 16% (cc, +11% USD)
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o	Sandoz grew sales 1% (cc, -2% USD) and core operating income 26% (cc, +19% USD)
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·	Net sales in Q2 from continuing operations^2^ declined 1% (cc, -4% USD) largely reversing forward purchasing from Q1:
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o	Key products continue growth, despite COVID-19, including: Zolgensma USD 205 million, Entresto USD 580 million (+40% cc), Cosentyx USD 944 million (+12% cc), Promacta/Revolade USD 422 million (+23% cc), Piqray USD 79 million and Kymriah USD 118 million (+103% cc)
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o	Sandoz Biopharmaceuticals grew 19% (cc, +16% USD), with double digit growth in the EU and US
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o	COVID-19 negatively impacted demand, particularly: Lucentis and mature ophthalmology (approximately USD 0.3 billion), new patient starts in dermatology and Sandoz retail
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·	Q2 core operating income grew 6% (cc, +1% USD) due to lower spending and improved gross margin, driven by productivity and product mix, partly offset by lower sales
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·	Q2 net income declined 4% (cc, -11% USD) mainly due to higher impairments
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·	Q2 free cash flow^1^ of USD 3.6 billion (+1%), as favorable working capital offset divestments in prior year
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·	Key Innovation Milestones:
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o	Tabrecta approved in US for treatment of metastatic NSCLC with exon 14 skipping mutation
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o	Cosentyx approved in EU and US for treatment of active nr-axSpA
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o	Zolgensma IV conditionally approved in EU for SMA children up to 21kg
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o	Enerzair received EC approval for treatment of uncontrolled asthma
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o	Entresto, Tabrecta, Mayzent, Enerzair and Atectura simultaneously approved in Japan
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·	Resolved legacy legal matters, including the settlements related to FCPA and US speaker programs
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·	2020 guidance^3^ for continuing operations tightened within prior guidance ranges – Net sales expected to grow mid single digit; core operating income expected to grow low double digit
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Basel, July 21, 2020 - commenting on the quarter, Vas Narasimhan, CEO of Novartis, said:

“Novartis performed strongly in the first half, despite the impact from COVID-19, demonstrating the resilience and agility of our associates and operations. We continued to advance our broad range of efforts to support the COVID-19 pandemic response. Our growth drivers and launches continue their strong momentum, with Cosentyx and Entresto increasing market share in the US. We are on track to deliver on our commitment to drive consistent margin expansion and are excited by the progress of our deep mid to late stage pipeline to drive long-term growth”.

Key Figures	Continuing Operations
	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USD m	USD m	USD	cc	USD m	USD m	USD	cc
Net sales	11 347	11 764	-4	-1	23 630	22 870	3	6
Operating income	2 352	2 663	-12	-4	5 096	4 905	4	11
Net income	1 867	2 109	-11	-4	4 040	3 977	2	9
EPS (USD)	0.82	0.91	-10	-3	1.77	1.72	3	11
Free cash flow	3 631	3 612	1		5 652	5 481	3
Core operating income	3 669	3 648	1	6	7 846	6 902	14	19
Core net income	3 108	3 096	0	5	6 657	5 907	13	18
Core EPS (USD)	1.36	1.34	1	6	2.92	2.55	15	19

^1^ Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 54 of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year. ^2^Refers to continuing operations as defined on page 42 of the Condensed Interim Financial Report, excludes Alcon, includes the businesses of Innovative Medicines and Sandoz, as well as the continuing corporate functions. ^3^Please see detailed guidance assumptions on page 8 including the forecast assumption that we see a continuation of the return to normal global healthcare systems including prescription dynamics, particularly ophthalmology, in H2 2020. In addition, we assume that no Gilenya and no Sandostatin LAR generics enter in 2020 in the US.

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COVID-19 Update

The COVID-19 situation continues to evolve and is taking differing courses across the multitude of geographies that Novartis operates in. Our primary concerns remain the health and safety of our associates and patients while we also continue to take strong actions to help address the pandemic.

During the second quarter, COVID-19 had an impact on our business with forward purchasing from the first quarter largely reversing. Despite this our operations remain stable with record high customer service levels. Our cash collections continue to be according to our normal trade terms, and days sales outstanding at normal levels. Our product portfolio remains resilient despite COVID-19 negatively impacting sales in April and May, particularly: Lucentis and mature ophthalmology, new patient starts in dermatology and Sandoz retail. Sales were mostly affected by lower new patient starts and significant reduction in patient visits to physicians. This impact showed improvement in the latter part of the quarter. Novartis is closely monitoring the situation and will provide an update with Q3 results. We implemented and embraced new ways of working, which include less travel and meeting costs. Novartis remains well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities.

At present drug development operations are continuing with manageable disruptions, with our SENSE and Site Cockpit digital technologies allowing us to proactively manage our clinical trials portfolio and rapidly mitigate site-level disruptions. Thus far, these measures have limited COVID-related impacts to our expected submission timelines over the next several years. Phase III clinical trials evaluating canakinumab in patients with pneumonia as a result of SARS-CoV-2 infection, and ruxolitinib in combination with standard of care compared to SoC alone, in collaboration with Incyte, are continuing. Data readouts from these studies are expected in the second half of 2020. We continue to support 35+ ongoing investigator-initiated trials involving 10 Novartis medicines.

In July, Novartis launched a first-of-its-kind not-for-profit portfolio of medicines for symptomatic treatment of COVID-19. The new portfolio of 15 medicines from the Sandoz division addresses urgent unmet needs of low and lower middle income countries to treat patients with COVID-19 symptoms. The portfolio will be sold at no profit to governments in up to 79 eligible low and lower middle income countries during the pandemic and until a vaccine or curative treatment is available.

Resolving legacy legal matters

We are continuing our long term journey to build trust with society and during the second quarter we resolved some of our legacy compliance issues. We finalized our USD 678 million settlement relating to a civil suit challenging speaker programs and other promotional events conducted in the US (2002 - 2011) as well as USD 51 million related to the company’s support of certain independent charitable co-pay foundations (2010 - 2014). Provisions for these settlements were previously made. Novartis has agreed to new corporate integrity obligations with the US Department of Health & Human Services that will mean we will continue to evolve our approach to peer-to-peer medical education. Such education will transition towards a digital format in keeping with the changes that we have made and seen to be effective in recent months. All Foreign Corrupt Practices Act (FCPA) investigations into Novartis are now closed with the settlement that we have reached with the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC). As part of the settlements, Novartis and certain of its current and former subsidiaries agreed to pay USD 234 million to the DOJ and USD 113 million to the SEC.

Financials

In order to comply with International Financial Reporting Standards (IFRS), Novartis has separated the Group’s reported financial data into “continuing” and “discontinued” operations. The results of the Alcon business in 2019 are reported as discontinued operations. See page 42 and Notes 2, 3 and 10 in the Condensed Interim Financial Report for a full explanation.

The commentary below focuses on continuing operations including the businesses of Innovative Medicines and Sandoz, as well as the continuing Corporate functions. We also provide information on discontinued operations.

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Continuing operations second quarter

Net sales were USD 11.3 billion (-4%, -1% cc) in the second quarter. Volume contributed 5 percentage points to sales growth driven by Entresto, Zolgensma and Cosentyx, partly offset by the impacts of COVID-19. Volume growth was offset by price erosion of 3 percentage points and negative impact from generic competition of 3 percentage points.

Operating income was USD 2.4 billion (-12%, -4% cc) mainly due to lower sales and higher impairments partly offset by lower spending and improved gross margin.

Net income was USD 1.9 billion (-11%, -4% cc) mainly due to lower operating income. EPS was USD 0.82 (-10%, -3% cc), decreasing less than net income benefiting from lower weighted average number of shares outstanding.

Core operating income was USD 3.7 billion (+1%, +6% cc) due to lower spending and improved gross margin, driven by productivity and product mix, partly offset by lower sales. Core operating income margin was 32.3% of net sales, increasing by 1.3 percentage points (+2.1 percentage points cc).

Core net income was USD 3.1 billion (0%, +5% cc) mainly driven by growth in core operating income. Core EPS was USD 1.36 (+1%, +6% cc), growing faster than core net income benefiting from lower weighted average number of shares outstanding.

Free cash flow from continuing operations amounted to USD 3.6 billion (+1%), broadly in line with the prior year quarter, as favorable working capital was offset by lower divestment proceeds.

Innovative Medicines net sales were USD 9.2 billion (-1%, +1% cc). Pharmaceuticals BU sales grew 1% (cc), as the launch uptake of Zolgensma and continuing momentum on Entresto and Cosentyx were mostly offset by the negative impact of the COVID-19 pandemic, particularly in ophthalmology and new patient starts in dermatology. Oncology BU grew 1% (cc) as the continuing momentum on Promacta/Revolade, Kymriah, Kisqali and Tafinlar + Mekinist as well as the launch uptake of Piqray was mostly offset by generic competition for Afinitor and Exjade and the negative impact of the COVID-19 pandemic, particularly in radioligand therapy. Generic competition had a negative impact of 4 percentage points, mainly driven by Afinitor, Exjade and Travatan, and net pricing had a negative impact of 4 percentage points. Volume contributed 9 percentage points to sales growth.

Sandoz net sales were USD 2.2 billion (-11%, -9% cc) as volume declined 9 percentage points (cc) and pricing was in line with prior year, benefiting from favorable revenue deduction adjustments. The sales decline was due to COVID-19 negative impacts, mainly the reversal of Q1 forward purchasing and lower retail demand, some contract discontinuations in the US and a higher prior year base that included several first to market launches. The decline was partly offset by global sales of Biopharmaceuticals growing 19% (cc), driven by double digit growth in Europe and the US.

Continuing operations first half

Net sales were USD 23.6 billion (+3%, +6% cc) in the first half mainly driven by Entresto, Zolgensma and Cosentyx. Volume contributed 11 percentage points to sales growth, despite being impacted by COVID-19. Strong volume growth was partly offset by price erosion of 3 percentage points and negative impact from generic competition of 2 percentage points.

Operating income was USD 5.1 billion (+4%, +11% cc) mainly driven by sales growth and lower legal expenses, partly offset by higher amortization and lower divestments.

Net income was USD 4.0 billion (+2%, +9% cc) mainly driven by higher operating income, partly offset by higher financial expenses. EPS was USD 1.77 (+3%, +11% cc), growing faster than net income benefiting from lower weighted average number of shares outstanding.

Core operating income was USD 7.8 billion (+14%, +19% cc) mainly driven by higher sales and improved gross margin, partly offset by launch investments. Core operating income margin was 33.2% of net sales, increasing by 3.0 percentage points (+3.8 percentage points cc).

Core net income was USD 6.7 billion (+13%, +18% cc) mainly driven by growth in core operating income. Core EPS was USD 2.92 (+15%, +19% cc), growing faster than core net income benefiting from lower weighted average number of shares outstanding.

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Free cash flow from continuing operations amounted to USD 5.7 billion (+3%) compared to USD 5.5 billion in the prior year period. This increase was mainly driven by higher operating income adjusted for non-cash items and other adjustments, partly offset by lower divestment proceeds.

Innovative Medicines net sales were USD 18.9 billion (+5%, +7% cc). Pharmaceuticals BU grew 8% (cc) driven by Entresto (+50% cc), Zolgensma (USD 0.4 billion), Cosentyx (+15% cc) and the Xiidra acquisition, partly offset by declines in Lucentis and other ophthalmology products, driven mainly by lower demand due to COVID-19. Oncology BU grew 6% (cc) driven by Promacta/Revolade (+28% cc), Piqray (USD 0.2 billion) and Kisqali (+64% cc). Volume contributed 13 percentage points to sales growth. Generic competition had a negative impact of 3 percentage points. Net pricing had a negative impact of 3 percentage points.

Sandoz net sales were USD 4.7 billion (-2%, +1% cc). Volume growth of 3 percentage points (cc), partially offset by 2 percentage points (cc) of price erosion, benefiting from favorable revenue deduction adjustments. Sales in Europe grew 5% (cc), while sales in the US declined 12%, driven by oral solids. Global sales of Biopharmaceuticals grew 25% (cc), driven by strong double digit growth in Europe and the US.

Discontinued operations

Discontinued operations include the business of Alcon and certain corporate costs directly attributable to Alcon up to the spin-off date. As the Alcon spin-off was completed on April 9, 2019, the first half of the prior year includes three months of operating results of the divested business.

In the first half of 2020, there were no activities related to discontinued operations. In the first half of 2019, discontinued operations net sales were USD 1.8 billion, operating income amounted to USD 71 million and net income from discontinued operations was USD 4.6 billion, including the non-taxable non-cash net gain on distribution of Alcon Inc. to Novartis AG shareholders which amounted to USD 4.7 billion. For further details see Note 2 “Distribution of Alcon Inc. to Novartis AG shareholders”, Note 3 “Significant transactions – Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis AG shareholders” and Note 10 “Discontinued operations”.

Total Group first half

For the total Group, net income amounted to USD 4.0 billion compared to USD 8.6 billion in prior year, including the non-taxable non-cash net gain on distribution of Alcon Inc. Basic earnings per share was USD 1.77 compared to USD 3.70 in prior year. Cash flow from operating activities for the total Group amounted to USD 6.5 billion and free cash flow to USD 5.7 billion.

Key growth drivers

Underpinning our financial results in the quarter is a continued focus on key growth drivers (ranked in order of contribution to Q2 growth) including:

Zolgensma	(USD 205 million) driven by US sales as newborn screening continues to progress with 28 states representing 60% of newborns. Additional growth was driven by geographic expansion outside of US.
Entresto	(USD 580 million, +40% cc) delivered sustained growth and increased market share, driven by demand as the essential first choice therapy for HF patients.
Cosentyx	(USD 944 million, +12% cc) continued growth across indications and grew market share in the US. Growth was impacted by COVID-19 related disruption to dermatology and rheumatology practices.
Promacta/Revolade	(USD 422 million, +23% cc) grew at a double digit rate in most regions driven by increased use in chronic immune thrombocytopenia (ITP) and as first-line treatment for severe aplastic anemia (SAA) in the US.
Xiidra	(USD 79 million) was impacted by COVID-19 related disruption as ophthalmology visits declined significantly.
Piqray	(USD 79 million) grew in the US driven by strong demand.
Kymriah	(USD 118 million, +103% cc) grew strongly in Europe and US. More than 240 qualified treatment centers and 25 countries have coverage for at least one indication. The EMA approved manufacturing at Novartis owned facilities in Stein, Switzerland.

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Kisqali	(USD 159 million, +49% cc) continued strong double-digit growth driven by demand in all geographies, benefiting from the impact of positive overall survival data from two pivotal Phase III trials (MONALEESA-7 and MONALEESA-3).
Tafinlar + Mekinist	(USD 371 million, +12% cc) continued to show growth driven by demand in adjuvant melanoma as well as NSCLC.
Beovu	(USD 34 million) is approved in more than 30 countries. Post marketing cases termed as “retinal vasculitis” and/or “retinal vascular occlusion” that may result in severe vision loss, typically associated with intraocular inflammation and the current COVID-19 situation had an unfavorable impact on US sales.
Mayzent	(USD 34 million) grew vs. Q1’20 despite new patients starts being impacted by COVID-19. Patient uptake showed signs of improvement towards the end of Q2.
Adakveo	(USD 21 million) US launch is progressing well, with close to 100% brand awareness among hematologists. Payer coverage is expanding, including published Medicaid policies in 19 states and 85% coverage among commercial plans. The permanent J-code took effect July 1.
Biopharmaceuticals	(USD 466 million, +19% cc) driven by continued double digit growth in Europe and the US (Biosimilars, biopharmaceutical contract manufacturing and Glatopa).
Emerging Growth Markets	Which comprises all markets except the US, Canada, Western Europe, Japan, Australia and New Zealand, sales grew 5% (cc) including China (USD 625 million), which grew 20% (cc).

Net sales of the top 20 Innovative Medicines products in 2020

	Q2 2020	% change		H1 2020	% change
	USD m	USD	cc	USD m	USD	cc
Cosentyx	944	10	12	1 874	14	15
Gilenya	738	-11	-9	1 510	-5	-4
Entresto	580	38	40	1 149	48	50
Tasigna	480	3	5	967	7	9
Lucentis	401	-25	-24	888	-17	-15
Promacta/Revolade	422	21	23	825	26	28
Tafinlar + Mekinist	371	9	12	737	16	19
Sandostatin	341	-15	-13	715	-10	-8
Jakavi	310	9	14	628	16	20
Gleevec/Glivec	288	-11	-8	617	-2	0
Galvus Group	279	-13	-8	617	-3	1
Xolair	289	0	4	596	4	8
Afinitor/Votubia	266	-34	-33	562	-27	-26
Diovan Group	268	-5	0	542	0	4
Exforge Group	238	-10	-5	496	-7	-3
Ilaris	200	21	23	413	31	33
Zolgensma	205	nm	nm	375	nm	nm
Exjade/Jadenu	163	-36	-35	335	-32	-31
Votrient	162	-16	-14	328	-14	-12
Kisqali	159	43	49	320	58	64
Top 20 products total	7 104	0	2	14 494	6	8

nm = not meaningful

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R&D Update - key developments from the second quarter

New approvals and regulatory update

Zolgensma<br><br><br><br><br><br><br><br>IV formulation<br><br><br><br><br><br><br><br><br><br><br><br>IT formulation	Received EU conditional approval for patients with SMA and a clinical diagnosis of Type 1 or SMA patients with up to three copies of the SMN2 gene. The approval covers babies and young children with SMA up to 21 kg. Commercial product was made available in the EU from July 1.<br><br><br><br><br><br><br><br>Continued dialogue with FDA on partial clinical hold. Plan to approach FDA for pre-BLA meeting with a BLA submission in 2021.
Tabrecta<br><br><br><br>(Capmatinib)	Tabrecta (formerly INC280) is the first and only therapy approved by the FDA to specifically target metastatic NSCLC with a mutation that leads to MET exon 14 skipping (METex14). Approximately 4,000-5,000 patients are diagnosed with METex14 metastatic NSCLC each year in the US and may face poor prognoses due to presence of the mutation.
Enerzair Breezhaler (QVM149)	Received EC approval in July, as the first-in-class inhaled LABA/LAMA/ICS combination for uncontrolled asthma, including the first digital companion that can be prescribed with a treatment for uncontrolled asthma in the EU.
Cosentyx	Received US and EU approval for treatment of patients with non-radiographic axSpA, the fourth indication after moderate to severe plaque psoriasis, psoriatic arthritis and ankylosing spondylitis.<br><br><br><br>Cosentyx also received a positive CHMP opinion for the treatment of pediatric psoriasis.<br><br><br><br>China health authority NMPA approved Cosentyx for the treatment of adults with ankylosing spondylitis.
Piqray	Piqray in combination with fulvestrant received a positive CHMP opinion to treat HR+/HER2- advanced breast cancer with a PIK3CA mutation.
Ilaris	Granted a new indication in the US for active Still’s disease including Adult-Onset Still’s Disease (AOSD). This is the first FDA-approved treatment for AOSD.
Xolair	Received a positive CHMP opinion for treatment of adults with severe chronic rhinosinusitis with nasal polyps (CRSwNP) inadequately controlled with intranasal corticosteroids.
Beovu	FDA approved label update to include additional safety information. The update includes characterization of adverse events, retinal vasculitis and retinal vascular occlusion, as part of the spectrum of intraocular inflammation observed in the HAWK and HARRIER trials and noted in the original prescribing information.
Ofatumumab	FDA extended its review of the sBLA for ofatumumab, a self-administered, targeted B-cell therapy for patients with relapsing multiple sclerosis. Regulatory action is now expected in September 2020.
Entresto<br><br><br><br>Tabrecta<br><br><br><br>Mayzent<br><br><br><br>Enerzair<br><br><br><br>Atectura	Japan MHLW simultaneously approved five new treatments for Japanese patients.<br><br><br><br>Entresto in chronic heart failure<br><br><br><br>Tabrecta for METex14 mutation-positive advanced and/or recurrent unresectable NSCLC<br><br><br><br>Mayzent in secondary progressive MS<br><br><br><br>Enerzair (glycopyrronium bromide, indacaterol acetate, mometasone furoate)<br><br><br><br>Atectura (indacaterol acetate, mometasone furoate) in different forms of asthma.

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Regulatory submissions and filings

Entresto HFpEF	File accepted in the US.
Xiidra EU	Filing has been withdrawn following objections raised by the CHMP during the application process that Novartis recognized could not be resolved within the available timeframe.

Results from ongoing trials and other highlights

Beovu	A post-hoc analysis presented at ARVO showed that lower levels of any fluid (intra-retinal fluid, sub-retinal fluid or pigment-epithelial detachment volume) were associated with better visual outcomes, suggesting that all three fluids are relevant for visual outcomes in wet AMD. In the post-hoc analysis, more patients on Beovu experienced reduced levels of fluid.
Cosentyx	Phase III PREVENT data show Cosentyx 150 mg provided significant and sustained improvement in signs and symptoms of non-radiographic axial spondyloarthritis (nr-axSpA) up to Week 52.
Ofatumumab	A post hoc analysis presented at European Academy of Neurology showed 47.0% and 87.8% of patients treated with ofatumumab achieved no evidence of disease activity (NEDA-3) within the first (0–12 months) and second year (12–24 months) of treatment, respectively.
Kisqali	MONALEESA-7 and MONALEESA-3 subgroup analysis presented during the 2020 ASCO Virtual Scientific Program showed Kisqali plus endocrine therapy extended life compared to endocrine therapy for patients with liver metastases – showing ~47% and 37% reduction in the risk of death in M7 and M3, respectively.
Tafinlar + Mekinist	5-year data presented at the 2020 ASCO Virtual Scientific Program showed more than half of patients with BRAF-mutated advanced melanoma taking Tafinlar + Mekinist were alive and free of a relapse.
Enerzair Breezhaler (QVM149)	Phase IIIb ARGON study met primary endpoint, demonstrating non-inferiority in improving quality of life in people with uncontrolled asthma compared to a free combination of two existing inhaled treatments, twice-daily Sal/Flu plus once-daily tiotropium (Tio).
Adriforant<br><br><br><br>(ZPL389)	Based on a full review of an interim analysis of the Phase IIb ZEST trial, the efficacy data did not meet the pre-specified criteria to pursue adriforant (ZPL389) clinical trials in atopic dermatitis. The recommendation to stop the trial was not based on any safety concerns.

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Capital structure and net debt

Retaining a good balance between investment in the business, a strong capital structure and attractive shareholder returns remains a priority.

During the first half of 2020, 25.6 million shares (for an equity value of USD 1.2 billion) were delivered as a result of options exercised and share deliveries related to participation plans of associates. In the same period, 1.6 million shares (for an equity value of USD 0.1 billion) were repurchased from associates. Consequently, the total number of shares outstanding increased by 24.0 million versus December 31, 2019. Novartis aims to offset the dilutive impact from equity based participation plans of associates over the remainder of the year. These treasury share transactions resulted in an equity increase of USD 1.1 billion and a net cash inflow of USD 0.7 billion, mainly related to option proceeds.

In the second quarter of 2020, Novartis repaid the USD 1.0 billion, 4.4% coupon bond issued in March 2010 at maturity.

As of June 30, 2020, the net debt increased by USD 10.6 billion to USD 26.5 billion versus December 31, 2019. The increase was mainly driven by the acquisition of The Medicines Company for USD 9.6 billion and the USD 7.0 billion annual dividend payment, partly offset by USD 5.7 billion free cash flow during the first half of 2020.

As of Q2 2020, the long-term credit rating for the company is A1 with Moody’s Investors Service and AA- with S&P Global Ratings.

The Group has not experienced liquidity or cash flow disruptions during the first half of 2020 due to the COVID-19 pandemic. We believe that Novartis is well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities.

2020 Outlook

Barring unforeseen events

Continuing operations (Excluding Alcon from both 2019 and 2020)

Net Sales	Expected to grow mid single digit (cc)<br><br><br><br>From a divisional perspective, we expect net sales performance (cc) in 2020 to be as follows:<br><br><br><br>• Innovative Medicines: expected to grow mid single digit<br><br><br><br>• Sandoz: expected to grow low single digit
Core operating income	Expected to grow low double digit (cc)

Our guidance assumes that we see a continuation of the return to normal global healthcare systems including prescription dynamics, particularly ophthalmology, in H2 2020. In addition, we assume that no Gilenya and no Sandostatin LAR generics enter in 2020 in the US.

Foreign exchange impact

If mid-July exchange rates prevail for the remainder of 2020, the foreign exchange impact for the year would be negative 1 to 2 percentage points on net sales and negative 4 percentage points on core operating income. The estimated impact of exchange rates on our results is provided monthly on our website.

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Key Figures

Continuing operations¹ ²	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USDm	USDm	USD	cc	USDm	USDm	USD	cc
Net sales	11 347	11 764	-4	-1	23 630	22 870	3	6
Operating income	2 352	2 663	-12	-4	5 096	4 905	4	11
As a % of sales	20.7	22.6			21.6	21.4
Core operating income	3 669	3 648	1	6	7 846	6 902	14	19
As a % of sales	32.3	31.0			33.2	30.2
Net income	1 867	2 109	-11	-4	4 040	3 977	2	9
EPS (USD)	0.82	0.91	-10	-3	1.77	1.72	3	11
Core net income	3 108	3 096	0	5	6 657	5 907	13	18
Core EPS (USD)	1.36	1.34	1	6	2.92	2.55	15	19
Cash flows from<br><br> operating activities	3 961	3 111	27		6 489	5 445	19
Free cash flow	3 631	3 612	1		5 652	5 481	3
Innovative Medicines	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USDm	USDm	USD	cc	USDm	USDm	USD	cc
Net sales	9 188	9 326	-1	1	18 943	18 106	5	7
Operating income	2 033	2 564	-21	-15	4 788	4 673	2	9
As a % of sales	22.1	27.5			25.3	25.8
Core operating income	3 301	3 306	0	5	6 908	6 228	11	16
As a % of sales	35.9	35.4			36.5	34.4
Sandoz	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USDm	USDm	USD	cc	USDm	USDm	USD	cc
Net sales	2 159	2 438	-11	-9	4 687	4 764	-2	1
Operating income	321	282	14	25	276	555	-50	-40
As a % of sales	14.9	11.6			5.9	11.6
Core operating income	475	501	-5	1	1 148	962	19	26
As a % of sales	22.0	20.5			24.5	20.2
Corporate	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USDm	USDm	USD	cc	USDm	USDm	USD	cc
Operating loss / income	-2	-183	nm	nm	32	-323	nm	nm
Core operating loss	-107	-159	33	34	-210	-288	27	28
Discontinued operations	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USDm	USDm	USD	cc	USDm	USDm	USD	cc
Net sales						1 777
Operating income						71
Core operating income						350
Net Income		4 691				4 590
Total Group	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USDm	USDm	USD	cc	USDm	USDm	USD	cc
Net income	1 867	6 800	-73	-70	4 040	8 567	-53	-49
EPS (USD)	0.82	2.94	-72	-70	1.77	3.70	-52	-49
Core net income	3 108	3 096	0	5	6 657	6 185	8	12
Core EPS (USD)	1.36	1.34	1	6	2.92	2.67	9	14
Cash flows<br><br> from operating activities	3 961	3 111	27		6 489	5 523	17
Free cash flow	3 631	3 612	1		5 652	5 419	4
nm = not meaningful

^1^ Continuing operations include the businesses of Innovative Medicines and Sandoz Division including the US generic oral solids and dermatology portfolio as well as the continuing corporate functions and discontinued operations include the business of Alcon. See page 42 of the Condensed Interim Financial Report for full explanation.

^2^Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 54 of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.

Detailed financial results accompanying this press release are included in the Condensed Interim Financial Report at the link below:

https://ml-eu.globenewswire.com/resource/download/bed749ce-ebd9-4018-ab0d-27d775c7c2c8

____

Disclaimer

This press release contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, that can generally be identified by words such as “continue,” “growth,” “expected,” “to grow,” “demonstrating,” “to advance,” “to support,” “increasing,” “to deliver,” “to drive,” “to evolve,” “remain,” “taking,” “to take,” “to help,” “trends,” “continuing,” “allowing,” “to start,” “ evaluating,” “will,” “until,” “to build,” “evolve,” “launch,” “continued,” “continues,” “to progress,” “may,” “retaining,” “remains,” “believe,” “including,” “can,” “to create,” “to find,” “estimated,” “impact,” “ongoing,” “submissions,” “focus,” “launches,” “launch investments,” “innovation,” “potential,” “guidance,” “commitment,” “pipeline,” “aims,” “momentum,” “could,” “would,” “launched,” “on track,” “growing,” “progressing,” “expanding,” “pending,” “strongly,” “priority,” “filings,” “outlook,” “unforeseen,” “forecast,” “prevail,” “enter,” “to improve,” “transformative,” “innovative,” “inventive,” “manageable disruptions,” “expect,” “planned,” “working,” “monitoring,” “anticipated,” “continuously,” “on track,” or similar expressions, or by express or implied discussions regarding potential new products, potential new indications for existing products, potential product launches, or regarding potential future revenues from any such products; or regarding our estimates of the impact of past and future COVID-19 related forward purchasing on sales and on our performance; or regarding the impact of the COVID-19 pandemic on clinical trials, and research and development timelines; or regarding potential future, pending or announced transactions; regarding potential future sales or earnings of the Group or any of its divisions; or by discussions of strategy, plans, expectations or intentions; or regarding the Group’s liquidity or cash flow positions and its ability to meet its ongoing financial obligations and operational needs; or regarding efforts to provide a not-for-profit portfolio of medicines for symptomatic treatment of COVID-19. Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. You should not place undue reliance on these statements. In particular, our expectations could be affected by, among other things: liquidity or cash flow disruptions affecting our ability to meet our ongoing financial obligations and to support our ongoing business activities; the impact of the COVID-19 pandemic on enrollment in, initiation and completion of our clinical trials in the future, and research and development timelines; the impact of a partial or complete failure of the return to normal global healthcare systems including prescription dynamics, particularly ophthalmology, in the second half of 2020; global trends toward healthcare cost containment, including ongoing government, payer and general public pricing and reimbursement pressures and requirements for increased pricing transparency; uncertainties regarding potential significant breaches of data security or data privacy, or disruptions of our information technology systems; regulatory actions or delays or government regulation generally, including potential regulatory actions or delays with respect to the development of the products described in this press release; the potential that the strategic benefits, synergies or opportunities expected from the transactions described, may not be realized or may be more difficult or take longer to realize than expected; the uncertainties in the research and development of new healthcare products, including clinical trial results and additional analysis of existing clinical data; our ability to obtain or maintain proprietary intellectual property protection, including the ultimate extent of the impact on Novartis of the loss of patent protection and exclusivity on key products that commenced in prior years and is expected to continue this year; safety, quality, data integrity, or manufacturing issues; uncertainties involved in the development or adoption of potentially transformational technologies and business models; uncertainties regarding actual or potential legal proceedings, investigations or disputes; our performance on environmental, social and governance measures; general political, economic and business conditions, including the effects of and efforts to mitigate pandemic diseases such as COVID-19; uncertainties regarding future global exchange rates; uncertainties regarding future demand for our products; and other risks and factors referred to in Novartis AG’s current Form 20-F on file with the US Securities and Exchange Commission. Novartis is providing the information in this press release as of this date and does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise.

All product names appearing in italics are trademarks owned by or licensed to Novartis Group companies.

____

About Novartis

Novartis is reimagining medicine to improve and extend people’s lives. As a leading global medicines company, we use innovative science and digital technologies to create transformative treatments in areas of great medical need. In our quest to find new medicines, we consistently rank among the world’s top companies investing in research and development. Novartis products reach nearly 800 million people globally and we are finding innovative ways to expand access to our latest treatments. About 110,000 people of more than 145 nationalities work at Novartis around the world. Find out more at https://www.novartis.com.

Novartis will conduct a conference call with investors to discuss this news release today at 14:00 Central European time and 8:00 Eastern Time. A simultaneous webcast of the call for investors and other interested parties may be accessed by visiting the Novartis website. A replay will be available after the live webcast by visiting. https://www.novartis.com/investors/event-calendar

Detailed financial results accompanying this press release are included in the condensed interim financial report at the link below. Additional information is provided on Novartis divisions and pipeline of selected compounds in late stage development and a copy of today's earnings call presentation can be found at. https://www.novartis.com/investors/event-calendar

Important dates

September 01, 2020	ESG investor day
October 27, 2020	Third quarter results 2020
November 24, 2020	Capital Markets day

____

99.2 Interim Financial Report

Novartis Second Quarter and Half Year 2020

Condensed interim financial report – Supplementary Data

Novartis Global Communications

____

Novartis Second Quarter and Half Year 2020

Condensed Interim Financial Report – Supplementary Data

INDEX	Page
GROUP AND DIVISIONAL OPERATING PERFORMANCE
Group	3
Innovative Medicines	8
Sandoz	14
CASH FLOW AND GROUP BALANCE SHEET	16
INNOVATION REVIEW	20
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Consolidated income statements	24
Consolidated statements of comprehensive income	26
Consolidated balance sheets	27
Consolidated statements of changes in equity	28
Consolidated statements of cash flows	31
Notes to condensed consolidated interim financial statements, including update on legal proceedings	33
SUPPLEMENTARY INFORMATION	54
CORE RESULTS
Reconciliation from IFRS to core results	55
Group	57
Innovative Medicines	59
Sandoz	60
Corporate	61
Discontinued operations	62
ADDITIONAL INFORMATION
Income from associated companies	63
Condensed consolidated changes in net debt / Share information	63
Free cash flow	64
Effects of currency fluctuations	66
DISCLAIMER	68

____

Novartis Second Quarter and Half Year 2020

Condensed Interim Financial Report – Supplementary Data

Group

Key figures 1	Q2 2019	% change		H1 2020	H1 2019	% change
	USDm	USD	cc^2^	USDm	USDm	USD	cc^2^
Net sales to third parties from continuing operations	11 764	-4	-1	23 630	22 870	3	6
Divisional operating income from continuing operations	2 846	-17	-11	5 064	5 228	-3	4
Corporate income and expense, from continuing operations, net	-183	nm	nm	32	-323	nm	nm
Operating income from continuing operations	2 663	-12	-4	5 096	4 905	4	11
As % of net sales	22.6			21.6	21.4
Income from associated companies	176	4	5	306	256	20	20
Interest expense	-205	-7	-10	-459	-431	-6	-8
Other financial income and expense	0	nm	nm	-34	44	nm	nm
Taxes	-525	20	13	-869	-797	-9	-17
Net income from continuing operations	2 109	-11	-4	4 040	3 977	2	9
Net income from discontinued operations	4 691				4 590
Net income	6 800	-73	-70	4 040	8 567	-53	-49
Basic earnings per share from continuing operations ()	0.91	-10	-3	1.77	1.72	3	11
Basic earnings per share from discontinued operations ()	2.03				1.98
Basic earnings per share ()	2.94	-72	-70	1.77	3.70	-52	-49
Cash flows from operating activities from continuing operations	3 111	27		6 489	5 445	19
Free cash flow from continuing operations	3 612	1		5 652	5 481	3
Core
Core operating income from continuing operations	3 648	1	6	7 846	6 902	14	19
As % of net sales	31.0			33.2	30.2
Core net income from continuing operations	3 096	0	5	6 657	5 907	13	18
Core net income from discontinued operations					278
Core net income	3 096	0	5	6 657	6 185	8	12
Core basic earnings per share from continuing operations ()	1.34	1	6	2.92	2.55	15	19
Core basic earnings per share from discontinued operations ()					0.12
Core basic earnings per share ()	1.34	1	6	2.92	2.67	9	14
nm = not meaningful

All values are in US Dollars.

^1^ Continuing operations include the businesses of Innovative Medicines and Sandoz Division including the US generic oral solids and dermatology portfolio and Corporate activities and discontinued operations include the business of Alcon. See page 42 for full explanation.

^2^ Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 54. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.

COVID-19 Impacts

·	First half results, sales grew 6% (cc) and core operating income grew 19% (cc), are more representative of performance than Q2 as Q1 forward purchasing largely reversed.
·	Our operations remain stable with record high customer service levels. Product flow across country borders is working smoothly.
---	---
·	Our cash collections continue to be according to our normal trade terms and days sales outstanding remains at normal levels.
---	---
·	Our product portfolio remains resilient despite COVID-19 negatively impacting demand in April and May, particularly: Lucentis and mature ophthalmology (approximately USD 0.3 billion in Q2), new
---	---

____

patient starts in dermatology and Sandoz retail. There was some increase in demand for oral chronic treatments.
·	Sales were mostly affected by lower new patient starts and significant reduction in patient visits to physicians. This impact showed improvement in the latter part of the quarter. Novartis is closely monitoring the situation and will provide an update with Q3 results.
---	---
·	We implemented and embraced new ways of working, which include less travel and meeting costs.
---	---
·	At present drug development operations are continuing with manageable disruptions. Thus far, these measures have limited COVID-19 related impacts to our expected submission timelines over the next several years.
---	---
·	Novartis is well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business dynamics.
---	---
·	First half dynamics are reflected in our full year guidance, which assumes that we see a continuation of the return to normal global healthcare systems including prescription dynamics, particularly ophthalmology, in H2 2020.
---	---

Financials

Continuing operations second quarter

Net sales

Corporate income and expense, net

Corporate income and expense, which includes the cost of Group headquarter and coordination functions, amounted to an expense of USD 2 million compared to an expense of USD 183 million in the second quarter of 2019, mainly driven by favorable contributions from the Novartis Venture Fund.

Operating income

Operating income was USD 2.4 billion (-12%, -4% cc) mainly due to lower sales and higher impairments, partly offset by lower spending and improved gross margin.

Income from associated companies

Income from associated companies increased from USD 176 million in prior year to USD 183 million in the second quarter of 2020 driven by a higher estimated share of income from Roche Holding AG.

Core income from associated companies increased from USD 253 million in prior year to USD 272 million in the second quarter of 2020 driven by a higher estimated core income contribution from Roche Holding AG for the current period.

____

Interest expense and other financial income/expense

Interest expense amounted to USD 220 million compared to prior year interest expense of USD 205 million. Other financial income and expense amounted to a loss of USD 27 million compared to prior year when they were negligible mainly due to lower interest income for the current period.

Taxes

The tax rate for continuing operations in the second quarter was 18.4% compared to 19.9% in the prior year. The second quarter tax rate was negatively impacted by the effect of adjusting to the updated estimated full year tax rate. The prior year second quarter tax rate was impacted by the Swiss federal tax reform and a change to uncertain tax positions.

Excluding these impacts, the second quarter tax rate would have been 16.8% compared to 15.4% in the prior year. The increase from prior year was mainly the result of a change in profit mix.

The core tax rate for continuing operations was 16.0% compared to 16.7% in prior year.

Net income, EPS and Free cash flow

Free cash flow from continuing operations amounted to USD 3.6 billion (+1%), broadly in line with the prior year quarter, as favorable working capital was offset by lower divestment proceeds.

Continuing operations first half

Net sales

Corporate income and expense, net

Corporate income and expense, which includes the cost of Group headquarter and coordination functions, amounted to an income of USD 32 million, compared to an expense of USD 323 million in the first half of 2019, mainly driven by royalty settlement gain related to intellectual property rights and favorable contributions from the Novartis Venture Fund.

Operating income

Operating income was USD 5.1 billion (+4%, +11% cc) mainly driven by sales growth and lower legal expenses, partly offset by higher amortization and lower divestments.

Income from associated companies

Income from associated companies amounted to USD 306 million in the first half compared to USD 256 million in the prior year.

____

The share of income from Roche was USD 308 million compared to USD 257 million in the prior year. The estimated income for Roche Holding AG, net of amortization, was USD 372 million compared to USD 343 million in the prior year. This was partly offset by the negative prior year true up of USD 64 million in the first quarter of 2020, compared to a negative prior year true up of USD 129 million recognized in the first quarter of 2019. In addition, a USD 43 million income from the revaluation of the deferred tax liability, recognized upon initial accounting for the Roche investment, was recorded in the first quarter of 2019, following a change in the enacted tax rate in February 2019, of the Swiss Canton Basel-Stadt, effective January 1, 2019.

Core income from associated companies in the first half increased to USD 580 million compared to USD 531 million in prior year driven by a higher estimated core income contribution from Roche Holding AG. The core income contribution from Roche Holding AG increased to USD 582 million from USD 532 million in the prior year, driven by a higher estimated core income contribution from Roche for the current period. In addition a favorable prior year core income true up of USD 38 million was recorded in the first quarter of 2020, compared to a favorable true up of USD 32 million in the first quarter of 2019.

Interest expense and other financial income/expense

Interest expense increased to USD 459 million from USD 431 million in the prior year, mainly due to an increase in interest expense from discounting long term liabilities.

Other financial income and expense amounted to a loss of USD 34 million compared to an income of USD 44 million in prior year mainly due to lower interest income for the current period.

Taxes

The tax rate for continuing operations in the first half was 17.7% compared to 16.7% in the prior year. The tax rate was negatively impacted by the effect of non-deductible legal settlement expenses in the first half and the impact of Swiss tax reform in the prior year.

Excluding these impacts, the first half tax rate would have been 16.8% compared to 15.4% in the prior year. The increase from prior year was mainly the result of a change in profit mix.

The core tax rate for continuing operations was 16.0% compared to 16.4% in prior year.

Net income, EPS and Free cash flow

Discontinued operations

____

“Significant transactions – Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis AG shareholders” and Note 10 “Discontinued operations”.

Total Group first half

____

Innovative Medicines

	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USD m	USD m	USD	cc	USD m	USD m	USD	cc
Net sales	9 188	9 326	-1	1	18 943	18 106	5	7
Operating income	2 033	2 564	-21	-15	4 788	4 673	2	9
As % of net sales	22.1	27.5			25.3	25.8
Core operating income	3 301	3 306	0	5	6 908	6 228	11	16
As % of net sales	35.9	35.4			36.5	34.4

COVID-19 Impacts

First half results are more representative of performance as Q1 forward purchasing largely reversed in Q2. In Q2 there was significant disruption to practices limiting patient access to treatments, particularly in our ophthalmology and dermatology businesses. New patient starts slowed in most therapeutic areas. Sales were mostly affected in April and May, and showed improvement in June. Despite this, H1 sales grew 7% (cc) with core operating income growing 16% (cc) driven by the launch uptake of Zolgensma and Piqray as well as continuing momentum on Entresto, Cosentyx Promacta/Revolade, Kisqali, Kymriah and Tafinlar + Mekinist. Spending was lower in Q2 due to the pandemic, as we implemented and embraced new ways of working, which include lower travel and meeting costs. We will closely monitor the impact of these trends on future quarters.

Second quarter

Net sales

Net sales were USD 9.2 billion (-1%, +1% cc) as continued uptake in launches and growth drivers were offset by the impact of the COVID-19 pandemic, particularly in ophthalmology and new patient starts in dermatology. Generic competition had a negative impact of 4 percentage points, mainly due to Afinitor, Exjade and Travatan and net pricing had a negative impact of 4 percentage points. Volume contributed 9 percentage points to sales growth.

In the US (USD 3.5 billion) sales grew 5% driven by Zolgensma, Entresto, Cosentyx and Piqray. In Europe (USD 3.0 billion, -8%, -5% cc) sales declined despite continued strong performance of Entresto, Kymriah, Promacta and Kisqali. Japan sales were USD 0.6 billion (-8%, -10% cc). Emerging Growth Markets grew 1% (+9% cc), including double digit growth in China, with the launches of Entresto and Cosentyx.

Pharmaceuticals BU sales were broadly in line with prior year (USD 5.6 billion, -1%, +1% cc). Continued growth momentum from Zolgensma (USD 205 million), Entresto (USD 580 million, +38%, +40% cc) and Cosentyx (USD 944 million, +10%, +12% cc) was offset by the negative impact of the COVID-19 pandemic, particularly in Lucentis and mature ophthalmology (approximately USD 0.3 billion) and new patient starts in dermatology.

Oncology BU sales were also broadly in line with prior year (USD 3.5 billion, -2%, +1% cc). Strong performance of Promacta/Revolade (USD 422 million, +21%, +23% cc), Piqray (USD 79 million), Kymriah (USD 118 million, +103%, +103% cc) and Kisqali (USD 159 million, +43%, +49% cc) was offset by generic competition for Afinitor and Exjade and the negative impact of the COVID-19 pandemic, particularly in radioligand therapy.

Operating income

Operating income was USD 2.0 billion (-21%, -15% cc) mainly due to lower divestment gains and higher impairments, partly offset by lower legal expenses. Operating income margin was 22.1% of net sales decreasing 5.4 percentage points (-4.2 percentage points in cc).

____

Core adjustments were USD 1.3 billion, mainly due to USD 0.7 billion for amortization. Core adjustments increased compared to prior year mainly due to lower divestment income and higher impairments and amortization, partly offset by lower legal provisions.

Core operating income was USD 3.3 billion (0%, +5% cc) mainly driven by lower spending. Core operating income margin was 35.9% of net sales, increasing 0.5 percentage points (+1.3 percentage points cc). Core gross margin increased by 0.4 percentage points (cc). Core R&D expenses as a percentage of net sales decreased by 0.7 percentage points (cc) mainly driven by productivity, portfolio prioritization and COVID-19 related spending impacts. Core SG&A expenses declined by 1.0 percentage points (cc) benefiting from COVID-19 related spending impacts. Core Other Income and Expense net decreased the margin by 0.8 percentage points (cc), mainly due to the Zolgensma pre-launch inventory provision release in prior year.

First half

Net sales

Net sales were USD 18.9 billion (+5%, +7% cc). Pharmaceuticals BU grew 5% (+8% cc) driven by Entresto (USD 1.1 billion, +48%, +50% cc), Zolgensma (USD 0.4 billion), Cosentyx (USD 1.9 billion, +14%, +15% cc) and the Xiidra acquisition, partly offset by declines in Lucentis and other ophthalmology products, driven mainly by lower demand due to COVID-19. Oncology BU grew 4% (+6% cc) driven by Promacta/Revolade (USD 0.8 billion, +26%, +28% cc), Piqray (USD 0.2 billion) and Kisqali (USD 0.3 billion, +58%, +64% cc). Volume contributed 13 percentage points to sales growth. Generic competition had a negative impact of 3 percentage points. Net pricing had a negative impact of 3 percentage points.

The US (USD 7.1 billion, +12%) delivered strong performance of Zolgensma, Cosentyx and Entresto. Europe sales (USD 6.4 billion, 0%, +3% cc) grew driven by Entresto, Jakavi, Kymriah and Kisqali. Japan sales were USD 1.2 billion (0%, -2% cc). Emerging Growth Markets sales grew (+5%, +11% cc), led by double digit growth in China, including the launches of Cosentyx and Entresto.

Operating income

Operating income was USD 4.8 billion (+2%, +9% cc), mainly driven by sales growth and lower legal expenses, partly offset by higher amortization and lower divestment gains. Operating income margin was 25.3% of net sales, decreasing 0.5 percentage points (+0.4 percentage points cc).

Core adjustments were USD 2.1 billion, mainly due to USD 1.4 billion of amortization. Core adjustments increased compared to prior year mainly due to lower divestment income and higher amortization, partly offset by lower legal expenses.

Core operating income was USD 6.9 billion (+11%, +16% cc) mainly driven by sales growth and lower spending due to COVID-19 impacts, partly offset by launch investments. Core operating income margin was 36.5% of net sales, increasing 2.1 percentage points (+2.8 percentage points cc). Core gross margin increased by 0.7 percentage points (cc) mainly driven by productivity. Core R&D expenses as a percentage of net sales decreased by 1.3 percentage points (cc) mainly driven by the higher net sales, productivity and portfolio prioritization. Core SG&A expenses declined by 1.2 percentage points (cc) benefiting from COVID-19 related spending impacts. Core Other Income and Expense net decreased the margin by 0.4 percentage points (cc).

____

ONCOLOGY BUSINESS UNIT

	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USD m	USD m	USD	cc	USD m	USD m	USD	cc
Tasigna	480	468	3	5	967	902	7	9
Promacta/Revolade	422	349	21	23	825	656	26	28
Tafinlar + Mekinist^1^	371	340	9	12	737	637	16	19
Sandostatin	341	403	-15	-13	715	795	-10	-8
Jakavi	310	284	9	14	628	542	16	20
Gleevec/Glivec	288	323	-11	-8	617	630	-2	0
Afinitor/Votubia	266	401	-34	-33	562	774	-27	-26
Exjade/Jadenu	163	253	-36	-35	335	491	-32	-31
Votrient	162	193	-16	-14	328	380	-14	-12
Kisqali	159	111	43	49	320	202	58	64
Lutathera	105	109	-4	-3	217	215	1	1
Kymriah	118	58	103	103	211	103	105	106
Piqray	79	6	nm	nm	153	6	nm	nm
Adakveo	21		nm	nm	36		nm	nm
Other	263	308	-15	-13	545	594	-8	-6
Total Oncology business unit	3 548	3 606	-2	1	7 196	6 927	4	6

^1^Majority of sales for Mekinist and Tafinlar are combination, but both can be used as monotherapy

nm = not meaningful

Tasigna (USD 480 million, +3%, +5% cc) grew due to a strong performance in key markets including the US and China, partly offset by a decline in Europe.

Promacta/Revolade (USD 422 million, +21%, +23% cc) grew at a double digit rate in most regions driven by increased use in chronic immune thrombocytopenia (ITP) and as first-line treatment for severe aplastic anemia (SAA) in the US.

Tafinlar + Mekinist (USD 371 million, +9%, +12% cc), the worldwide leader in BRAF/MEK-inhibition, continued to show growth driven by demand in adjuvant melanoma as well as NSCLC.

Sandostatin (USD 341 million, -15%, -13% cc) sales declined due to competitive pressure in Europe, US and Japan. The brand was also impacted by generic competition in Europe and the COVID-19 pandemic in the US.

Jakavi (USD 310 million, +9%, +14% cc) grew in all regions, driven by demand in the myelofibrosis and polycythemia vera indications.

Gleevec/Glivec (USD 288 million, -11%, -8% cc) declined due to increased generic competition.

Afinitor/Votubia (USD 266 million, -34%, -33% cc) declined due to generic competition in the US, Europe and Emerging Growth Markets.

Exjade/Jadenu (USD 163 million, -36%, -35% cc) declined due to pressure from generic competition in the US and other regions.

Votrient (USD 162 million, -16%, -14% cc) declined due to increased competition in Europe and the US.

Kisqali (USD 159 million, +43%, +49% cc) continued strong double digit growth driven by demand in the US, strong uptake in Europe and other regions benefiting from the ongoing impact of positive overall survival data from two pivotal Phase III trials (MONALEESA-7 and MONALEESA-3).

Lutathera (USD 105 million, -4%, -3% cc) declined versus prior year due to the negative impact of the COVID-19 pandemic. There are almost 350 total centers now actively treating patients. Sales from all AAA brands (including Lutathera and radiopharmaceutical diagnostic products) were USD 153 million.

Kymriah (USD 118 million, +103%, +103% cc) grew strongly in Europe and US. More than 240 qualified treatment centers and 25 countries have coverage for at least one indication. The EMA approved commercial manufacturing of Kymriah at the Novartis-owned facilities in Stein, Switzerland which will support existing manufacturing at the facility in Morris Plains, New Jersey, US.

Piqray (USD 79 million) grew in the US driven by strong demand. Piqray in combination with fulvestrant received a positive CHMP opinion to treat HR+/HER2- advanced breast cancer with a PIK3CA mutation.

____

Piqray is the first and only therapy specifically for the approximately 40% of HR+/HER2- advanced breast cancer patients who have a PIK3CA mutation, which is associated with poor prognosis.

Adakveo (USD 21 million) US launch is progressing well, with close to 100% brand awareness among hematologists. Payer coverage decisions are expanding, including published Medicaid policies in 19 states and 85% coverage among commercial plans to date. The permanent J-code took effect July 1, which provides more confidence around the billing process. Adakveo was approved by the FDA following priority review as the first and only monthly therapy to reduce the frequency of pain crises, or vaso-occlusive crises (VOCs), in adults and pediatric patients aged 16 years and older with sickle cell disease.

PHARMACEUTICAL BUSINESS UNIT

IMMUNOLOGY, HEPATOLOGY and DERMATOLOGY

	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USD m	USD m	USD	cc	USD m	USD m	USD	cc
Cosentyx	944	858	10	12	1 874	1 649	14	15
Ilaris	200	165	21	23	413	316	31	33
Total Immunology, Hepatology and Dermatology	1 144	1 023	12	13	2 287	1 965	16	18

Xolair sales for all indications are reported in the Respiratory franchise

Cosentyx (USD 944 million, +10%, +12% cc) continued growth across indications and grew market share in the US. Growth was impacted by significant disruption to dermatology and rheumatology practices due to the COVID-19 pandemic. US sales grew 15% based on broad first line access across psoriasis, psoriatic arthritis and ankylosing spondylitis (AS). In April and June, respectively, Cosentyx received approval and launched in the EU and US for non-radiographic axial spondyloarthritis (nr-axSpA), its fourth major indication, which is now already launched in major markets including the US and Germany. In April, Cosentyx also became the first IL17A inhibitor approved in China for the treatment of AS. Cosentyx also received a positive CHMP opinion for pediatric psoriasis, reinforcing its strong safety profile.

Ilaris (USD 200 million, +21%, +23% cc) sales were driven by strong double digit volume growth, particularly in Europe and the US. In June, Ilaris was granted a new indication in the US for active Still’s disease including Adult-Onset Still’s Disease (AOSD); this is in addition to its previously-granted indication for systemic juvenile idiopathic arthritis (SJIA). Ilaris is the first FDA-approved treatment for AOSD.

OPHTHALMOLOGY

	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USD m	USD m	USD	cc	USD m	USD m	USD	cc
Lucentis	401	536	-25	-24	888	1 069	-17	-15
Xiidra	79		nm	nm	169		nm	nm
Beovu	34		nm	nm	102		nm	nm
Other	423	638	-34	-32	974	1 266	-23	-21
Total Ophthalmology	937	1 174	-20	-18	2 133	2 335	-9	-7

nm = not meaningful

Lucentis (USD 401 million, -25%, -24% cc) declined double digit versus prior year, as did the market, due to the negative impact of the COVID-19 pandemic, which has significantly disrupted ophthalmology practices and limited patient access to treatment of retinal diseases. Lucentis sales started to recover in May with confirmed positive trend in June.

Xiidra (USD 79 million) was impacted by COVID-19 as ophthalmology visits declined significantly. In the latter part of the quarter, the US dry eye market began to rebound as eye care practices began opening. A significant direct to consumer campaign was launched in the US in May with a new professional campaign rolling out over the summer. In an effort to support and expand patient access to care in the US, a new telemedicine program and new zero copay program launched at the end of June. Novartis has informed the European Medicines Agency of its decision to withdraw the centralized application for Marketing Authorization of Xiidra.

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Beovu (USD 34 million) is now approved in more than 30 countries. Launches progress despite the operational challenges coming from the COVID-19 pandemic. Post marketing cases termed as “retinal vasculitis” and/or “retinal vascular occlusion” that may result in severe vision loss, typically associated with intraocular inflammation and the current COVID-19 situation had an unfavorable impact on US sales. Novartis initiated its own internal review of these post-marketing safety case reports including the establishment of an external Safety Review Committee (SRC) to provide an independent, objective review of these cases and a comparison with events seen in the brolucizumab Phase III trials (HAWK and HARRIER). Novartis also initiated a safety information update to Beovu prescribing information worldwide and in June 2020, the FDA approved a label update for Beovu to include additional safety information. Novartis has established a fully dedicated internal team collaborating with a coalition of top global experts to examine the root causes, risk factors, mitigation and potential treatment protocols. Novartis continues to believe Beovu represents an important treatment option for patients with wet AMD, with an overall favorable benefit-risk profile.

Other ophthalmology products declined due to the negative impact of the COVID-19 pandemic and generic impacts in the US, primarily for Travatan.

NEUROSCIENCE

	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USD m	USD m	USD	cc	USD m	USD m	USD	cc
Gilenya	738	825	-11	-9	1 510	1 591	-5	-4
Zolgensma	205	15	nm	nm	375	15	nm	nm
Aimovig	33	24	38	45	69	42	64	72
Mayzent	34	5	nm	nm	64	5	nm	nm
Other	15	17	-12	-26	27	30	-10	-15
Total Neuroscience	1 025	886	16	17	2 045	1 683	22	23

nm = not meaningful

Gilenya (USD 738 million, -11%, -9% cc) sales declined due to the impacts of the COVID-19 pandemic and increased competition. Gilenya remains the top prescribed high efficacy therapy in 40 countries around the world and the only one approved to treat pediatric RMS. Novartis is in US ANDA litigations with a generic manufacturer. In parallel, an appeal against a USPTO decision upholding the dosage regimen patent in IPR proceedings is ongoing.

Zolgensma (USD 205 million) newborn screening in the US continues to progress with 28 states representing 60% of newborns. Additional growth was driven by geographic expansion outside of the US. This includes the recent approval in Japan, with unrestricted reimbursement in place directly following approval by end of May; and approval in the EU, with immediate access to label in France (cohort ATU) and Germany, with the product in market as of July 1 and ~90% of patients covered through agreements already in place with sickness funds. We are in dialogue with all EU markets regarding our Day One access program, and have confidential agreements in place with five additional markets.

Mayzent (USD 34 million) grew versus the first quarter despite new patients starts being impacted by COVID-19. Patient uptake is showing signs of improvement towards the end of Q2. Uptake is driven by important unmet needs in patients showing signs of progression despite being on other treatments. Mayzent is the first and only oral DMT studied and proven to delay disease progression in a broad SPMS patient population. In addition to the US and EU experience, Mayzent is now approved in Australia, Canada, China and Japan, and could be approved in Switzerland.

Aimovig (USD 33 million, +38%, +45% cc) is the most prescribed anti-CGRP worldwide, with more than 440,000 patients prescribed worldwide in the post-trial setting. It has now been launched for the preventive treatment of migraine in 44 countries and additional launches are underway. Aimovig is co-commercialized with Amgen in the US, where Amgen records sales and Novartis has exclusive rights in all ex-US territories excluding Japan. The collaboration continues during the litigation between the companies and will remain in force until a final court resolution.

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CARDIOVASCULAR, RENAL AND METABOLISM

	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USD m	USD m	USD	cc	USD m	USD m	USD	cc
Entresto	580	421	38	40	1 149	778	48	50
Other		6	nm	nm	1	12	-92	-98
Total Cardiovascular, Renal & Metabolism	580	427	36	38	1 150	790	46	48

nm = not meaningful

Entresto (USD 580 million, +38%, +40% cc) delivered sustained growth and increased market share, driven by demand as the essential first choice therapy for HF patients. Entresto was approved in Japan on June 29 and launch is expected in H2 2020 while in the US Entresto filed with the FDA on April 22 an additional indication to treat HFpEF with a decision anticipated in Q1 2021. Novartis is in US ANDA litigation with generic manufacturers.

RESPIRATORY

	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USD m	USD m	USD	cc	USD m	USD m	USD	cc
Xolair	289	290	0	4	596	571	4	8
Ultibro Group	149	166	-10	-7	309	323	-4	-1
Other	6	5	20	-10	10	12	-17	-18
Total Respiratory	444	461	-4	0	915	906	1	5

Xolair sales for all indications are reported in the Respiratory franchise

Xolair (USD 289 million, 0%, +4% cc) continued growth in constant currency in both indications, Severe Allergic Asthma (SAA) and Chronic Spontaneous Urticaria (CSU). Novartis co-promotes Xolair with Genentech in the US and share a portion of operating income, but we do not record any US sales.

Ultibro Group (USD 149 million, -10%, -7% cc) sales declined due to competitive pressures in all regions. Ultibro Group consists of inhaled COPD therapies Ultibro Breezhaler, Seebri Breezhaler and Onbrez Breezhaler.

ESTABLISHED MEDICINES

	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USD m	USD m	USD	cc	USD m	USD m	USD	cc
Galvus Group	279	320	-13	-8	617	635	-3	1
Diovan Group	268	283	-5	0	542	544	0	4
Exforge Group	238	264	-10	-5	496	531	-7	-3
Zortress/Certican	106	124	-15	-12	233	240	-3	0
Neoral/Sandimmun(e)	96	110	-13	-11	197	213	-8	-5
Voltaren/Cataflam	82	95	-14	-11	174	208	-16	-15
Other	441	553	-20	-16	958	1 129	-15	-12
Total Established Medicines	1 510	1 749	-14	-9	3 217	3 500	-8	-5

Galvus Group (USD 279 million, -13%, -8% cc) declined primarily due to price reduction and inventory transfer cycle related to our co-promotion in Japan as well as generic competition in India.

Diovan Group (USD 268 million, -5%, 0% cc) declined in Europe and Japan, partly offset by growth in Emerging Growth Markets.

Exforge Group (USD 238 million, -10%, -5% cc) declined in Europe due to generic competition, partly compensated by growth in Emerging Growth Markets.

Zortress/Certican (USD 106 million, -15%, -12% cc) declined mainly due to generic competition in the US.

Neoral/Sandimmun(e) (USD 96 million, -13%, -11% cc) declined mainly due to generic competition and mandatory price reductions.

Voltaren/Cataflam (USD 82 million, -14%, -11% cc) declined mainly due to generic competition.

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Sandoz

	Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
	USD m	USD m	USD	cc	USD m	USD m	USD	cc
Net sales	2 159	2 438	-11	-9	4 687	4 764	-2	1
Operating income	321	282	14	25	276	555	-50	-40
As % of net sales	14.9	11.6			5.9	11.6
Core operating income	475	501	-5	1	1 148	962	19	26
As % of net sales	22.0	20.5			24.5	20.2

COVID-19 Impacts

First half results are more representative of performance as Q1 forward purchasing largely reversed in Q2. In Q2 there was significant disruption to practices limiting patient access to treatments, especially to our retail business. Despite this, H1 sales grew 1% (cc) and core operating income grew 26% (cc). Spending was lower in both quarters as we implemented and embraced new ways of working, which include lower travel and meeting costs, as well as lower promotional activities. We will closely monitor the impact of these trends on future quarters.

Second quarter

Net sales

Sandoz net sales were USD 2.2 billion (-11%, -9% cc) in the second quarter with volume decline of 9 percentage points (cc) and pricing was in line with prior year, benefiting from favorable revenue deduction adjustments. The sales decline was due to COVID-19 negative impacts, mainly the reversal of Q1 forward purchasing and lower retail demand, some contract discontinuations in the US and a higher prior year base that included several first to market launches. The decline was partly offset by global sales of Biopharmaceuticals growing 19% (cc), driven by double digit growth in Europe and the US.

Sales in Europe were USD 1.1 billion (-11%, -8% cc), impacted by COVID-19. Sales in the US were USD 508 million (-21%), impacted by the oral solids decline as well as US first-to-market launches in prior year. Sales in Asia / Africa / Australasia were USD 341 million (+2%, +4% cc) including the contribution from the Aspen Japan acquisition. Sales in Canada and Latin America were USD 180 million (-7%, +5% cc).

Global sales of Biopharmaceuticals (biosimilars, biopharmaceutical contract manufacturing and Glatopa) grew to USD 466 million (+16%, +19% cc), driven by continued strong double-digit growth in Europe from Hyrimoz (adalimumab), Erelzi (etanercept) and Zessly (infliximab) and growth from Omnitrope (somatropin). Launch roll-outs in other geographies also contributed to growth.

Retail sales were USD 1.6 billion (-17%, -14% cc), impacted by COVID-19. Total Anti-Infectives franchise sales were USD 251 million (-22%, -19% cc), including finished dosage forms sold under the Sandoz name (USD 134 million, -28%, -24% cc) and Anti-Infectives sold to third parties for sale under their own name (USD 117 million, -13%, -12% cc).

Operating income

Operating income was USD 321 million (+14%, +25% cc), mainly driven by lower restructuring expenses, continued gross margin improvements and lower costs, partly offset by the lower sales. Operating income margin increased by 4.3 percentage points in constant currencies; currency had a negative impact of 1.0 percentage points, resulting in a net increase of 3.3 percentage points to 14.9% of net sales.

Core adjustments were USD 154 million, including USD 70 million of amortization. Prior year core adjustments were USD 219 million. The change in core adjustments compared to prior year was driven by lower net restructuring expenses from Sandoz Transformation.

Core operating income was USD 475 million (-5%, +1% cc) as lower spending linked to COVID-19, cost discipline and gross margin improvements were mostly offset by sales decline. Core operating income

____

margin improved by 2.2 percentage points in constant currencies, currency had a negative impact of 0.7 percentage points, resulting in a net increase of 1.5 percentage points to 22.0% of net sales. Core gross margin as a percentage of net sales increased by 2.0 percentage points (cc), driven by favorable product and geographic mix, ongoing productivity improvements and lower price erosion. Core R&D expenses increased by 1.1 percentage points (cc). Core SG&A expenses decreased by 0.4 percentage points (cc). Core Other Income and Expense decreased by 0.9 percentage points (cc), mainly due to lower net legal settlement provisions.

First half

Net sales

Net sales were USD 4.7 billion (-2%, +1% cc) with volume growth of 3 percentage points (cc) partially offset by 2 percentage points (cc) of price erosion, benefiting from favorable revenue deduction adjustments. Excluding the US, net sales grew (+2%, +6% cc).

Sales in Europe were USD 2.6 billion (+2%, +5% cc). Sales in the US were USD 1.1 billion (-12%), due to the volume decline in oral solids. Sales in Asia / Africa / Australasia were USD 675 million (+4%, +5% cc) including the contribution from the Aspen Japan acquisition. Sales in Canada and Latin America were USD 376 million (+1%, +12% cc).

Global sales of Biopharmaceuticals (biosimilars, biopharmaceutical contract manufacturing and Glatopa) grew to USD 916 million (+22%, +25% cc), driven by continued strong double digit growth in Europe and the US. Launch roll-outs in other geographies also contributed to growth.

Retail sales were USD 3.5 billion (-6%, -3% cc) as declines in the US were partly offset by growth in Europe. Total Anti-Infectives franchise sales were USD 582 million (-10%, -8% cc), including finished dosage forms sold under the Sandoz name (USD 356 million, -9%, -5% cc) and Anti-Infectives sold to third parties for sale under their own name (USD 226 million, -13%, -11% cc), which were impacted by a planned contract discontinuation.

Operating income

Operating income was USD 276 million (-50%, -40% cc), impacted by USD 0.4 billion legal provisions and cumulative depreciation and amortization from the termination of the planned Aurobindo transaction. Operating income margin decreased by 4.7 percentage points in constant currencies; currency had a negative impact of 1.0 percentage points, resulting in a net decrease of 5.7 percentage points to 5.9% of net sales.

Core adjustments were USD 0.9 billion, including USD 0.2 billion of amortization and USD 0.4 billion legal settlements charges and provisions. Prior year core adjustments were USD 0.4 billion, which were impacted by net restructuring expenses from Sandoz Transformation.

Core operating income was USD 1.1 billion (+19%, +26% cc), driven by gross margin improvements, lower spending linked to COVID-19, cost discipline and sales growth. Core operating income margin was 24.5% of net sales, increasing 4.3 percentage points (4.9 percentage points cc). Core gross margin increased by 2.3 percentage points (cc), driven by favorable product and geographic mix along with ongoing productivity improvements and lower price erosion. Core R&D expenses increased by 0.1 percentage points (cc). Core SG&A expenses decreased by 2.0 percentage points (cc). Core Other Income and Expense decreased by 0.7 percentage points (cc), mainly due to lower net legal settlement provisions.

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GROUP CASH FLOW AND BALANCE SHEET

Cash flow

Second quarter

Net cash flows from operating activities from continuing operations amounted to USD 4.0 billion, compared to USD 3.1 billion in the prior year quarter. This increase was mainly driven by favorable working capital and lower taxes paid, partly offset by higher provision payments including legal settlements.

Net cash outflows from investing activities from continuing operations amounted to USD 0.3 billion, compared to net cash inflows of USD 0.2 billion in the prior year quarter.

The current year quarter cash outflows were mainly driven by USD 0.5 billion for the purchase of property, plant and equipment, intangible assets, financial assets and other non-current assets. These were partly offset by cash inflows of USD 0.2 billion mainly from the sale of financial and intangible assets.

In the prior year quarter, net cash inflows of USD 0.2 billion from investing activities from continuing operations were mainly related to USD 1.0 billion in proceeds from the sale of property, plant and equipment (including the proceeds from the sale and leaseback of real estate), intangible assets and financial assets. These were partly offset by cash outflows of USD 0.5 billion for the purchase of property, plant and equipment, intangible assets and financial assets. Cash outflows for acquisitions and divestments of business, net, amounted to USD 0.3 billion (acquisition of IFM Tre, Inc.).

Net cash flows used in investing activities from discontinued operations amounted to USD 0.1 billion compared to USD 0.7 billion in the prior year quarter. The current year period includes payments related to the portfolio transformation transactions and payments attributable to the spin-off of the Alcon business. The prior year quarter mainly included the cash outflow of USD 0.6 billion due to the derecognized cash and cash equivalent following the completion of the spin-off of the Alcon business.

Net cash flows used for financing activities from continuing operations amounted to USD 2.2 billion, compared to USD 2.7 billion in the prior year quarter.

The current year quarter cash outflows includes mainly USD 1.2 billion from the net decrease in current financial debts and the repayment of a US dollar bond of USD 1.0 billion at maturity.

In the prior year quarter, net cash outflows of USD 2.7 billion from financing activities from continuing operations mainly included the cash outflows for net treasury share transactions of USD 2.4 billion, the net repayment of financial debts of USD 0.8 billion, partly offset by other net financing cash inflows of USD 0.5 billion.

Net cash inflows from financing activities from discontinued operations in the prior year quarter amounted to USD 2.7 billion, which included mainly the cash inflows of USD 3.2 billion from Alcon borrowings, partly offset by USD 0.1 billion in payments for Alcon transaction costs.

Free cash flow from continuing operations amounted to USD 3.6 billion (+1%), broadly in line with the prior year quarter, as favorable working capital was offset by lower divestment proceeds.

First half

Net cash flows from operating activities from continuing operations amounted to USD 6.5 billion, compared to USD 5.4 billion in the prior year period. This increase was driven by higher net income adjusted for non-cash items and other adjustments, including divestment gains, partly offset by higher provision payments including legal settlements.

Net cash outflows from investing activities from continuing operations amounted to USD 10.5 billion, compared to net cash inflows of USD 2.0 billion in the prior year period.

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The current year period cash outflows were mainly driven by the USD 9.9 billion used for the acquisitions and divestments of businesses, net (including the acquisition of The Medicines Company for USD 9.5 billion, net of cash acquired USD 0.1 billion, and the acquisition of Japanese business of Aspen Global Incorporated for USD 0.3 billion). Other investing activities cash outflows were USD 1.1 billion for the purchase of property, plant and equipment, intangible assets, financial assets and other non-current assets. These were partly offset by cash inflows of USD 0.5 billion mainly from the sale of financial assets (including the USD 0.2 billion proceeds from the sale of Alcon Inc. shares), of intangible assets and from the net proceeds from sales and purchases of marketable securities and commodities.

In the prior year period, net cash inflows of USD 2.0 billion from investing activities from continuing operations were mainly related to USD 2.3 billion from the net sale of marketable securities and commodities, and of USD 1.3 billion in proceeds from the sale of property, plant and equipment (including the proceeds from the sale and leaseback of real estate), intangible assets and financial assets. These were partly offset by cash outflows of USD 1.2 billion for the purchase of property, plant and equipment, intangible assets and financial assets. Cash outflows for acquisitions and divestments of business, net, amounted to USD 0.4 billion including the acquisition of IFM Tre, Inc. (USD 0.3 billion).

Net cash flows used in investing activities from discontinued operations amounted to USD 0.1 billion compared to USD 1.1 billion in the prior year period. The current year period includes payments related to the portfolio transformation transactions and payments attributable to the spin-off of the Alcon business.

The prior year period includes mainly the cash outflow for the acquisition of PowerVision, Inc. of USD 0.3 billion and USD 0.6 billion due to the derecognized cash and cash equivalent following the completion of Alcon spin-off, on April 9, 2019.

Net cash flows used in financing activities from continuing operations amounted to USD 1.1 billion, compared to USD 13.0 billion in the prior year period.

The current year period includes net cash inflows of USD 0.7 billion from net treasury share transactions and USD 5.4 billion from current and non-current financial debt; consisting of USD 4.9 billion from issuance of bonds denominated in US dollars (notional amount of USD 5.0 billion), USD 2.5 billion from the net increase in current financial debts and the repayment of two US dollar bonds totaling USD 2.0 billion at maturity. These net cash inflows were offset by cash outflows of USD 7.0 billion for the dividend payment and USD 0.3 billion for the net payments for lease liabilities and other financing cash flows.

In the prior year period, net cash outflows of USD 13.0 billion from financing activities from continuing operations mainly included the cash outflows of USD 6.6 billion for the dividend payment, the repayment of a US dollar bond of USD 3.0 billion and for the net treasury share transactions of USD 2.4 billion. The net repayments of current financial debts amounted to USD 0.9 billion.

Net cash inflows from financing activities from discontinued operations in the prior year period amounted to USD 3.3 billion, which included mainly the cash inflows of USD 3.5 billion from Alcon borrowings, partly offset by USD 0.2 billion payments for transaction costs.

Balance sheet

In December 31, 2019, the assets and liabilities of the Sandoz US generic oral solids and dermatology businesses were reported as current assets and liabilities held for sale in the consolidated balance sheet. Novartis decided to retain the Sandoz US generic oral solids and dermatology businesses in March 2020, after mutual agreement with Aurobindo to terminate the transaction. This decision was taken as approval from the U.S. Federal Trade Commission for the transaction was not obtained within the agreed timelines. As such, these assets and liabilities are reclassified to their respective consolidated balance sheet lines as from March 31, 2020, the prior year consolidated balance sheet is not restated (see Notes 2 and 3).

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Assets

Total non-current assets of USD 99.9 billion at June 30, 2020, increased by USD 11.0 billion compared to December 31, 2019. Intangible assets other than goodwill increased by USD 7.9 billion mainly due to the acquisitions of The Medicines Company and of the Japanese business of Aspen Global Incorporated, net additions and the reclassification of the intangible assets of the disposal group held for sale of USD 0.3 billion, partially offset by amortization and impairments. Goodwill increased by USD 2.6 billion and deferred tax assets by USD 0.7 billion mainly due to the acquisition of The Medicines Company. Property, plant and equipment decreased by USD 0.1 billion, as the increase due to net additions and the reclassification of the property, plant and equipment of the disposal group held for sale of USD 0.1 billion were more than offset by depreciation. Investments in associated companies and financial assets decreased by USD 0.1 billion in total, while other non-current assets increased by USD 0.1 billion mainly due to an increase in the prepaid benefit costs of USD 0.1 billion, mainly resulting from actuarial losses primarily from changes in discount rates used to calculate the actuarial defined benefit obligations and valuation impact on plan assets. Right-of-use assets were broadly in line with December 31, 2019.

Total current assets of USD 23.9 billion at June 30, 2020, decreased by USD 5.6 billion compared to December 31, 2019. This was mainly driven by a decrease in cash and cash equivalents of USD 5.2 billion. Inventories increased by USD 0.9 billion, partly due to the reclassification of the inventory of the disposal group held for sale. Trade receivables decreased by USD 0.7 billion to USD 7.6 billion. Income tax receivables, other current assets and marketable securities, commodities, time deposits, and derivative financial instruments remained broadly in line with December 31, 2019.

Liabilities

Total non-current liabilities of USD 40.5 billion increased by USD 5.9 billion compared to December 31, 2019. Long-term financial debts increased by USD 3.6 billion, mainly driven by the issuance of US dollar denominated bonds for a notional amount of USD 5.0 billion, partly offset by the reclassification from non-current to current financial debt of EUR 1.3 billion (USD 1.4 billion) bonds due in 2021. Deferred tax liabilities increased by USD 1.6 billion mainly due to the acquisition of The Medicines Company. Provisions and other non-current liabilities increased by USD 0.7 billion, principally due to an increase in pension liabilities of USD 0.6 billion, mainly resulting from actuarial losses primarily from changes in discount rates used to calculate the actuarial defined benefit obligations and valuation impact on plan assets. Lease liabilities were broadly in line compared to December 31, 2019.

Total current liabilities of USD 29.4 billion increased by USD 1.1 billion compared to December 31, 2019. Financial debts and derivative financial instruments increased by USD 1.8 billion, due to the reclassification from non-current to current financial debt of EUR 1.3 billion (USD 1.4 billion) bonds due in 2021 and higher short-term borrowings, partly offset by the repayment at maturity of two US dollar bonds, totaling USD 2.0 billion. Current income tax liabilities increased by USD 0.4 billion. This net increase was partially offset by a decrease of USD 0.6 billion in trade payables and a decrease of USD 0.5 billion in provisions and other current liabilities. Lease liabilities were broadly in line compared to December 31, 2019.

Group equity

The Group’s equity decreased by USD 1.7 billion to USD 53.9 billion at June 30, 2020 compared to December 31, 2019. This decrease was mainly due to the cash-dividend payment of USD 7.0 billion, net actuarial losses of USD 0.3 billion and purchase of treasury shares of USD 0.1 billion. This was partially offset by net income of USD 4.0 billion, the net effect of the exercise of options and employee transactions of USD 0.8 billion, equity-based compensation of USD 0.4 billion, favorable currency translation differences of USD 0.4 billion and the net favorable effect of fair value adjustments on financial instruments of USD 0.1 billion.

Net debt and debt/equity ratio

The Group’s liquidity amounted to USD 6.3 billion at June 30, 2020, compared to USD 11.4 billion at December 31, 2019. Total non-current and current financial debts, including derivatives, amounted to USD 32.8 billion at June 30, 2020, compared to USD 27.4 billion at December 31, 2019. The debt/equity

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ratio increased to 0.61:1 at June 30, 2020, compared to 0.49:1 at December 31, 2019. The net debt increased to USD 26.5 billion at June 30, 2020, compared to USD 15.9 billion at December 31, 2019.

Group liquidity

We continuously track our liquidity positions and assets / liabilities profile. We have a strong balance sheet and related funding capabilities to meet our funding needs. The Group has not experienced liquidity or cash flow disruptions during the first half of 2020 due to COVID-19 pandemic, and maintains a cash and cash equivalents position of USD 5.9 billion as per June 30, 2020. We believe that our strong credit rating allows for continued access to short term funding in the US commercial paper market. The Group further has a committed credit facility of USD 6.0 billion as a backstop for the US commercial paper program, which was undrawn as of June 30, 2020, providing a further source of liquidity if needed. Novartis is well positioned to meet its ongoing financial obligations and has sufficient liquidity to support our normal business activities.

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Innovation Review

Benefiting from our continued focus on innovation, Novartis has one of the industry’s most innovative and inventive pipelines with more than 160 projects in clinical development.

Selected Innovative Medicines approvals: US, EU and Japan in Q2

Product	Active ingredient/<br><br> Descriptor	Indication	Region
Atectura Breezhaler<br><br><br><br>(QMF149)	indacaterol/mometasone fuorate	Asthma	EU – May<br><br><br><br>JP – June
Cosentyx	secukinumab	Non-radiographic axial spondyloarthritis	EU – April<br><br><br><br>US – June
Enerzair Breezhaler (QVM149)	indacaterol acetate + mometasone fuorate + glycopyrronium bromide	Asthma	EU – July<br><br><br><br>JP – June
Entresto	valsartan/sacubitril	Chronic heart failure	JP - June
Mayzent	siponimod	SPMS	JP - June
Tabrecta	capmatinib	NSCLC (cMET amp and mut)^1^	US – May<br><br><br><br>JP – June
Zolgensma		Spinal Muscular Atrophy<br><br><br><br>(IV formulation)	EU – May conditional approval

^1^ indication is approved under accelerated approval based on overall response rate and duration of response. Continued approval for this indication may be contingent upon verification and description of clinical benefit in confirmatory trial(s).

Selected Innovative Medicines projects awaiting regulatory decisions

		Completed submissions
Product	Indication	US	EU	Japan	News update
BYL719<br><br><br><br>(Piqray in US, alpelisib)	PIK3CA mutant HR+, HER2 (-) postmenopausal adv BC 2nd line (+fulv)	Approved	Q4 2018		- CHMP positive opinion – May 2020
Cosentyx	Non-radiographic axial spondyloarthritis	Approved	Approved	Q4 2019	- Phase III PREVENT data show significant and sustained improvement in signs and symptoms of non-radiographic axial spondyloarthritis (nr-axSpA) up to week 52
Entresto	Chronic heart failure with preserved ejection fraction	Q2 2020			- Filing accepted by FDA in June 2020
KJX839<br><br><br><br>(inclisiran)	Hyperlipidemia	Q4 2019	Q1 2020
OMB157<br><br><br><br>(ofatumumab)	Relapsing Multiple Sclerosis	Q4 2019	Q1 2020		- FDA extend BLA review – regulatory action date September 2020
SEG101<br><br><br><br>(Adakveo in US)	Sickle cell disease	Approved	Q2 2019
Xolair	Nasal polyps	Q3 2019	Q4 2019		- CHMP positive opinion received – June 2020

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Selected Innovative Medicines pipeline projects

Project/ <br><br> Compound	Potential indication/ <br><br> Disease area	First planned <br><br> submissions	Current <br><br> Phase	News update
ABL001	Chronic myeloid leukemia 3^rd^ line	2021	III
ACZ885<br><br> (canakinumab)	Adjuvant NSCLC	2023	III	- Enrollment ongoing
	1^st^ line NSCLC	2021	III	- Completed enrollment in Jan 2020
	2^nd^ line NSCLC	2021	III	- Enrollment complete
Aimovig	Pediatric migraine	≥2024	III
AVXS-101 IT	Spinal Muscular Atrophy<br><br><br><br>(IT formulation)	2021	I / II	- Continued dialogue with FDA on partial clinical hold<br><br><br><br>- Plan to approach FDA for pre-BLA meeting, with a BLA submission in 2021
AVXS-201	Rett Syndrome	2023	I
BYL719<br><br><br><br>(alpelisib)	PROS (PIK3CA-related overgrowth spectrum)	2020	II	- Potential US filing in 2020 based on RWE data
	HER2+ adv breast cancer	2023	III
	Triple negative breast cancer	2023	III	- Trial enrolled first patient in June 2020
	Head and neck squamous cell carcinoma	≥2024	III
	Ovarian Cancer	2023	III
CEE321	Atopic dermatitis	≥2024	I
CFZ533<br><br><br><br>(iscalimab)	Renal Tx	2023	II
	Liver Tx	≥2024	II
	Sjögren’s syndrome	≥2024	II
Coartem	Malaria uncomplicated, <5kg patients	2023	III
Cosentyx	Ankylosing spondylitis head-to-head vs. adalimumab	2022	III
	Hidradenitis suppurativa	2022	III
	Axial spondyloarthritis IV regimen	2022	III
	Giant cell arteritis	≥2024	II
	Lichen Planus	≥2024	II
	Lupus Nephritis	≥2024	II
CPK850	Retinitis pigmentosa	≥2024	II
CSJ117	Asthma	≥2024	II
ECF843	Dry eye	2023	II
Entresto	Post-acute myocardial infarction	2021	III
INC280<br><br><br><br>(capmatinib)	Solid Tumors	≥2024	II
Jakavi	Acute graft-versus-host disease (GvHD)	2021	III	- Phase III results published in NEJM, confirming significant improvement in overall response
	Chronic graft-versus-host disease (GvHD)	2021	III	- Readout is on track for 2020
KAE609<br><br><br><br>(cipargamin)	Malaria uncomplicated	≥2024	II
	Malaria severe	≥2024	II
KAF156<br><br><br><br>(ganaplacide)	Malaria uncomplicated	≥2024	II

____

Project/ <br><br> Compound	Potential indication/ <br><br> Disease area	First planned <br><br> submissions	Current <br><br> Phase	News update
Kisqali<br><br><br><br>+ endocrine therapy	HR+/HER2- early BC (adjuvant)	2022	III	- Potential for registration as early as 2022 assuming positive, pre-planned interim analysis
KJX839<br><br><br><br>(inclisiran)	ORION-4: Secondary prevention of cardiovascular events in patients with elevated levels of LDLC	≥2024	III	- Acquired from The Medicines Company in Jan 2020
	ORION-5: Evaluate inclisiran in subjects with a rare genetic condition: homozygous familial hypercholesterolemia (n=56)		III	- July 2020: Preliminary analysis completed. Results inconclusive due to confounding factors. Trial continues with planned protocol amendment. Trial continues. Full results to be available in H2 2021<br><br><br><br>- No impact on ongoing submissions
Kymriah (tisagenlecleucel)	r/r Follicular lymphoma	2021	II
	r/r DLBCL in 1^st^ relapse	2021	III
+ pembrolizumab	r/r DLBCL	≥2024	II
LAM320	Multi-drug resistant tuberculosis	2021	III	- WHO qualification only / US registration will not be pursued
LJC242<br><br><br><br>(tropifexor + cenicriviroc)	Non-alcoholic steatohepatitis (NASH)	≥2024	II
LJN452<br><br><br><br>(tropifexor)	Non-alcoholic steatohepatitis (NASH)	≥2024	II	- FDA Fast Track designation
LMI070	Spinal Muscular Atrophy	≥2024	II	- FDA Orphan designation, EMA Orphan status obtained<br><br><br><br>- Dose ranging study ongoing
LNA043	Osteoarthritis	≥2024	II
LNP023	Paroxysmal nocturnal hemoglobinuria	2023	II
	IgA nephropathy	2023	II
	Membranous nephropathy	≥2024	II
	C3 glomerulopathy	2023	II	- US orphan designation received
	Atypical haemolytic uraemic syndrome	2023	II
LOU064<br><br><br><br>(remibrutinib)	Chronic Spontaneous Urticaria	2023	II	- Readout expected in 2021
	Sjögren’s syndrome	≥2024	II
Lutathera	GEP-NET 1L G3	2023	III
^177^Lu-PSMA-617	Metastatic castration-resistant prostate cancer	2021	III	- Event driven trial. H1 2021 readout
^177^Lu-PSMA-R2	Prostate cancer	≥2024	I
^177^Lu-NeoB	Multiple Solid Tumor	≥2024	I
LXE408	Visceral leishmaniosis	≥2024	II
MBG453	Myelodysplastic syndrome	2021	III	- Study initiated in June 2020
	Unfit AML	≥2024	II	- Study expected to start in 2020
PDR001 + Tafinlar + Mekinist	Metastatic BRAF V600+ melanoma	2020	III	- Expected submission in H2 2020
PDR001 Combo	Malignant melanoma	≥2024	II	- Enrollment ongoing
QBW251	COPD	≥2024	II	- Phase IIb recruitment ongoing

____

Project/ <br><br> Compound	Potential indication/ <br><br> Disease area	First planned <br><br> submissions	Current <br><br> Phase	News update
QGE031<br><br><br><br>(ligelizumab)	Chronic Spontaneous Urticaria / Chronic<br><br><br><br>Idiopathic Urticaria	2021	III	Enrollment on track to complete in 2020
RTH258 (brolucizumab)	Diabetic macular edema	2021	III	- Expected readout in H2 2020
	Retinal vein occlusion	2023	III
	Diabetic retinopathy	2023	III
SAF312	Chronic ocular surface pain	≥2024	II
TQJ230	Secondary prevention of cardiovascular events in patients with elevated levels of lipoprotein(a)	≥2024	III	- Trial initiated, FPFV in Q4 2019
UNR844	Presbyopia	≥2024	II
VAY736<br><br><br><br>(ianalumab)	Auto-immune hepatitis	≥2024	II
	Primary Sjögren’s syndrome	≥2024	II	- FDA Fast Track designation
VPM087	1st line colorectal cancer / 1st line renal cell carcinoma	≥2024	I
Xolair	Food Allergy	2022	III
ZPL389<br><br><br><br>(adriforant)	Atopic dermatitis	≥2024	II	- Project discontinued

Selected Sandoz approvals and pipeline projects

Project/ Compound	Potential indication/<br><br> Disease area	News update
GP2411 (denosumab)	Osteoporosis, skeletal-related in bone met. pts (same as originator)	- In Phase III<br><br><br><br>- First patient enrolled July 2019
Insulin glargine, lispro, aspart	Diabetes	- Collaboration with Gan & Lee
natalizumab	Multiple sclerosis and Crohn’s disease	- Collaboration Polpharma Biologics
trastuzumab	HER2-positive cancer tumors	- Collaboration EirGenix

____

Condensed interim consolidated financial statements

Consolidated income statements

Second quarter (unaudited)

( millions unless indicated otherwise)	Q2 2020	Q2 2019
Net sales to third parties from continuing operations	11 347	11 764
Other revenues	275	260
Cost of goods sold	-3 429	-3 406
Gross profit from continuing operations	8 193	8 618
Selling, general and administration	-3 368	-3 585
Research and development	-2 441	-2 051
Other income	432	989
Other expense	-464	-1 308
Operating income from continuing operations	2 352	2 663
Income from associated companies	183	176
Interest expense	-220	-205
Other financial income and expense	-27	0
Income before taxes from continuing operations	2 288	2 634
Taxes	-421	-525
Net income from continuing operations	1 867	2 109
Gain on distribution of Alcon Inc. to Novartis AG shareholders		4 691
Net income from discontinued operations		4 691
Net income	1 867	6 800
Attributable to:
Shareholders of Novartis AG	1 867	6 799
Non-controlling interests	0	1
Weighted average number of shares outstanding – Basic (million)	2 289	2 310
Basic earnings per share from continuing operations () 1	0.82	0.91
Basic earnings per share from discontinued operations () 1		2.03
Total basic earnings per share () 1	0.82	2.94
Weighted average number of shares outstanding – Diluted (million)	2 304	2 333
Diluted earnings per share from continuing operations () 1	0.81	0.90
Diluted earnings per share from discontinued operations () 1		2.01
Total diluted earnings per share () 1	0.81	2.91
1 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.

All values are in US Dollars.

Consolidated income statements

First half (unaudited)

( millions unless indicated otherwise)	H1 2020	H1 2019
Net sales to third parties from continuing operations	23 630	22 870
Sales to discontinued segment		53
Net sales from continuing operations	23 630	22 923
Other revenues	700	556
Cost of goods sold	-7 151	-6 657
Gross profit from continuing operations	17 179	16 822
Selling, general and administration	-6 854	-6 915
Research and development	-4 501	-4 350
Other income	693	1 192
Other expense	-1 421	-1 844
Operating income from continuing operations	5 096	4 905
Income from associated companies	306	256
Interest expense	-459	-431
Other financial income and expense	-34	44
Income before taxes from continuing operations	4 909	4 774
Taxes	-869	-797
Net income from continuing operations	4 040	3 977
Net loss from discontinued operations before gain on distribution of Alcon Inc. to Novartis AG shareholders		-101
Gain on distribution of Alcon Inc. to Novartis AG shareholders		4 691
Net income from discontinued operations		4 590
Net income	4 040	8 567
Attributable to:
Shareholders of Novartis AG	4 043	8 565
Non-controlling interests	-3	2
Weighted average number of shares outstanding – Basic (million)	2 281	2 312
Basic earnings per share from continuing operations () 1	1.77	1.72
Basic earnings per share from discontinued operations () 1		1.98
Total basic earnings per share () 1	1.77	3.70
Weighted average number of shares outstanding – Diluted (million)	2 299	2 336
Diluted earnings per share from continuing operations () 1	1.76	1.70
Diluted earnings per share from discontinued operations () 1		1.96
Total diluted earnings per share () 1	1.76	3.66
1 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.

All values are in US Dollars.

Consolidated statements of comprehensive income

Second quarter (unaudited)

( millions)	Q2 2019
Net income	6 800
Other comprehensive income to be eventually recycled into the consolidated income statement:
Fair value adjustments on debt securities, net of taxes
Total fair value adjustments on financial instruments, net of taxes
Net investment hedge	-27
Currency translation effects 1	525
Total of items to eventually recycle	498
Other comprehensive income never to be recycled into the consolidated income statement:
Actuarial gains/(losses) from defined benefit plans, net of taxes	-387
Fair value adjustments on equity securities, net of taxes	-21
Total of items never to be recycled	-408
Total comprehensive income	6 890
Attributable to:
Shareholders of Novartis AG	6 888
Continuing operations	2 298
Discontinued operations	4 590
Non-controlling interests	2
1 In Q2 2019, cumulative currency translation gains of 123 million were recycled into the consolidated income statement as a result of the Alcon spin-off (see Notes 2, 3 and 10).

All values are in US Dollars.

First half (unaudited)

( millions)	H1 2019
Net income	8 567
Other comprehensive income to be eventually recycled into the consolidated income statement:
Fair value adjustments on debt securities, net of taxes	1
Fair value adjustments on deferred cash flow hedges, net of taxes	1
Total fair value adjustments on financial instruments, net of taxes	2
Novartis share of other comprehensive income recognized by associated companies, net of taxes	-54
Net investment hedge	12
Currency translation effects 1	189
Total of items to eventually recycle	149
Other comprehensive income never to be recycled into the consolidated income statement:
Actuarial losses from defined benefit plans, net of taxes 2	-890
Fair value adjustments on equity securities, net of taxes	74
Total of items never to be recycled	-816
Total comprehensive income	7 900
Attributable to:
Shareholders of Novartis AG	7 898
Continuing operations	3 321
Discontinued operations	4 577
Non-controlling interests	2
1 In H1 2019, cumulative currency translation gains of 123 million were recycled into the consolidated income statement as a result of the Alcon spin-off (see Notes 2, 3 and 10).
2 Included in H1 2019 is a -358 million impact related to the revaluation of deferred tax assets on Swiss pension plans that were previously recognized through other comprehensive income. This revaluation resulted from the Swiss canton Basel-Stadt tax reform, enacted in February 2019.

All values are in US Dollars.

Consolidated balance sheets

(USD millions)	Note	Jun 30, <br> 2020<br> (unaudited)	Dec 31, <br> 2019<br> (audited)
Assets
Non-current assets
Property, plant and equipment	9	11 955	12 069
Right-of-use assets		1 640	1 677
Goodwill	9	29 100	26 524
Intangible assets other than goodwill	9	36 669	28 787
Investments in associated companies		8 575	8 644
Deferred tax assets		8 601	7 909
Financial assets		2 475	2 518
Other non-current assets		866	738
Total non-current assets		99 881	88 866
Current assets
Inventories		6 904	5 982
Trade receivables		7 644	8 301
Income tax receivables		308	254
Marketable securities, commodities, time deposits and derivative financial instruments		376	334
Cash and cash equivalents		5 917	11 112
Other current assets		2 733	2 680
Total current assets without disposal group		23 882	28 663
Assets of disposal group held for sale	3		841
Total current assets		23 882	29 504
Total assets		123 763	118 370
Equity and liabilities
Equity
Share capital		913	936
Treasury shares		-37	-80
Reserves		52 936	54 618
Issued share capital and reserves attributable to Novartis AG shareholders		53 812	55 474
Non-controlling interests		73	77
Total equity		53 885	55 551
Liabilities
Non-current liabilities
Financial debts		23 955	20 353
Lease liabilities		1 698	1 703
Deferred tax liabilities		7 499	5 867
Provisions and other non-current liabilities		7 344	6 632
Total non-current liabilities		40 496	34 555
Current liabilities
Trade payables		4 820	5 424
Financial debts and derivative financial instruments		8 875	7 031
Lease liabilities		258	246
Current income tax liabilities		2 571	2 194
Provisions and other current liabilities		12 858	13 338
Total current liabilities without disposal group		29 382	28 233
Liabilities of disposal group held for sale	3		31
Total current liabilities		29 382	28 264
Total liabilities		69 878	62 819
Total equity and liabilities		123 763	118 370

Consolidated statements of changes in equity

Second quarter (unaudited)

(USD millions)	Share<br> capital	Treasury<br> shares	Retained<br> earnings	Total value<br> adjustments	Issued share <br> capital and <br> reserves <br> attributable <br> to Novartis <br> shareholders	Non-<br> controlling<br> interests	Total<br> equity
Total equity at April 1, 2020	936	-68	55 356	-5 321	50 903	74	50 977
Net income			1 867		1 867	0	1 867
Other comprehensive income				836	836	-1	835
Total comprehensive income			1 867	836	2 703	-1	2 702
Purchase of treasury shares		0	-9		-9		-9
Reduction of share capital	-23	31	-8
Equity-based compensation		0	203		203		203
Shares delivered to Alcon employees <br>as a result of the Alcon spin-off		0	8		8		8
Fair value adjustments on financial assets sold			74	-74
Other movements			4		4		4
Total of other equity movements	-23	31	272	-74	206		206
Total equity at June 30, 2020	913	-37	57 495	-4 559	53 812	73	53 885
( millions)	Share<br> capital	Treasury<br> shares	Retained<br> earnings	Total value<br> adjustments	Issued share <br> capital and <br> reserves <br> attributable <br> to Novartis <br> shareholders	Non-<br> controlling<br> interests	Total<br> equity
---	---	---	---	---	---	---	---
Total equity at April 1, 2019	944	-63	51 518	-5 170	47 229	78	47 307
Net income			6 799		6 799	1	6 800
Other comprehensive income				89	89	1	90
Total comprehensive income			6 799	89	6 888	2	6 890
Dividend in kind			2 927		2 927		2 927
Purchase of treasury shares		-16	-2 754		-2 770		-2 770
Reduction of share capital	-8	12	-4
Equity-based compensation			175		175		175
Shares delivered to Alcon employees as a result of the Alcon spin-off			32		32		32
Taxes on treasury share transactions 1			-185		-185		-185
Increase of treasury share repurchase obligation under a share buyback trading plan			-2 573		-2 573		-2 573
Transaction costs, net of taxes 2			-301		-301		-301
Fair value adjustments on financial assets sold			3	-3
Fair value adjustments related to divestments			4	-4
Impact of change in ownership of consolidated entities			-3		-3	-2	-5
Other movements			7		7		7
Total of other equity movements	-8	-4	-2 672	-7	-2 691	-2	-2 693
Total equity at June 30, 2019	936	-67	55 645	-5 088	51 426	78	51 504
1 Included in Q2 2019 is a 69 million impact related to the revaluation of deferred tax liability on treasury shares that are recognized through retained earnings. This revaluation resulted from the Swiss Federal tax reform enacted in May 2019, effective January 1, 2020.
2 Transaction costs directly attributable to the distribution (spin-off) of the Alcon business to Novartis AG shareholders.

All values are in US Dollars.

Consolidated statements of changes in equity

First half 2020 (unaudited)

(USD millions)	Share<br> capital	Treasury<br> shares	Retained<br> earnings	Total value<br> adjustments	Issued share <br> capital and <br> reserves <br> attributable <br> to Novartis <br> shareholders	Non-<br> controlling<br> interests	Total<br> equity
Total equity at January 1, 2020	936	-80	59 275	-4 657	55 474	77	55 551
Net income			4 043		4 043	-3	4 040
Other comprehensive income			-12	188	176	-1	175
Total comprehensive income			4 031	188	4 219	-4	4 215
Dividends			-6 987		-6 987		-6 987
Purchase of treasury shares		-1	-149		-150		-150
Reduction of share capital	-23	31	-8
Exercise of options and employee transactions		8	815		823		823
Equity-based compensation		5	360		365		365
Shares delivered to Alcon employees <br>as a result of the Alcon spin-off		0	29		29		29
Taxes on treasury share transactions			30		30		30
Fair value adjustments on financial assets sold			90	-90
Other movements			9		9		9
Total of other equity movements	-23	43	-5 811	-90	-5 881		-5 881
Total equity at June 30, 2020	913	-37	57 495	-4 559	53 812	73	53 885

Consolidated statements of changes in equity

First half 2019 (unaudited)

(USD millions)	Note	Share<br> capital	Treasury<br> shares	Retained<br> earnings	Total value<br> adjustments	Issued share <br> capital and <br> reserves <br> attributable <br> to Novartis <br> shareholders	Non-<br> controlling<br> interests	Total<br> equity
Total equity at January 1, 2019, as previously reported		944	-69	82 191	-4 452	78 614	78	78 692
Impact of change in accounting policies	4			3		3		3
Restated equity at January 1, 2019		944	-69	82 194	-4 452	78 617	78	78 695
Net income				8 565		8 565	2	8 567
Other comprehensive income				-54	-613	-667		-667
Total comprehensive income				8 511	-613	7 898	2	7 900
Dividends				-6 645		-6 645		-6 645
Dividend in kind	2, 3			-23 434		-23 434		-23 434
Purchase of treasury shares			-17	-2 955		-2 972		-2 972
Reduction of share capital		-8	12	-4
Exercise of options and employee transactions			3	197		200		200
Equity-based compensation			4	443		447		447
Shares delivered to Alcon employees <br>as a result of the Alcon spin-off				32		32		32
Taxes on treasury share transactions	4			-185		-185		-185
Increase of treasury share repurchase obligation <br>under a share buyback trading plan				-2 289		-2 289		-2 289
Transaction costs, net of taxes	4			-253		-253		-253
Fair value adjustments on financial assets sold				19	-19
Fair value adjustments related to divestments				4	-4
Impact of change in ownership of<br>consolidated entities				-3		-3	-2	-5
Other movements				13		13		13
Total of other equity movements		-8	2	-35 060	-23	-35 089	-2	-35 091
Total equity at June 30, 2019		936	-67	55 645	-5 088	51 426	78	51 504

Consolidated statements of cash flows

Second quarter (unaudited)

(USD millions)	Note	Q2 2020	Q2 2019
Net income from continuing operations		1 867	2 109
Adjustments to reconcile net income from continuing operations to net cash flows from operating activities from continuing operations
Reversal of non-cash items and other adjustments	6.1	2 345	2 085
Dividends received from associated companies and others		2	3
Interest received		5	55
Interest paid		-227	-239
Other financial receipts		52	10
Other financial payments		-10	28
Taxes paid	6.2	-303	-560
Net cash flows from operating activities from continuing operations before working capital <br>and provision changes		3 731	3 491
Payments out of provisions and other net cash movements in non-current liabilities		-420	-323
Change in net current assets and other operating cash flow items		650	-57
Net cash flows from operating activities from continuing operations		3 961	3 111
Total net cash flows from operating activities		3 961	3 111
Purchases of property, plant and equipment		-238	-279
Proceeds from sale of property, plant and equipment		1	648
Purchases of intangible assets		-214	-161
Proceeds from sale of intangible assets		49	210
Purchases of financial assets		-38	-45
Proceeds from sale of financial assets		117	142
Purchases of other non-current assets		-7	-14
Acquisitions and divestments of interests in associated companies, net		-2	-1
Acquisitions and divestments of businesses, net	6.3	0	-286
Purchases of marketable securities and commodities		-74	-75
Proceeds from sale of marketable securities and commodities		72	69
Net cash flows used in/from investing activities from continuing operations		-334	208
Net cash flows used in investing activities from discontinued operations	10	-91	-682
Total net cash flows used in investing activities		-425	-474
Acquisitions of treasury shares		-9	-2 368
Proceeds from exercised options and other treasury share transactions		30
Repayments of non-current financial debts		-1 002	-7
Change in current financial debts		-1 169	-793
Payment of lease liabilities, net		-74	-69
Impact of change in ownership of consolidated entities			-5
Other financing cash flows, net		52	532
Net cash flows used in financing activities from continuing operations		-2 172	-2 710
Net cash flows used in/from financing activities from discontinued operations	10	-13	2 682
Total net cash flows used in financing activities		-2 185	-28
Net change in cash and cash equivalents before effect of exchange rate changes		1 351	2 609
Cash and cash equivalents of discontinued operations at March 31, 2019	6.4		499
Effect of exchange rate changes on cash and cash equivalents		38	76
Total net change in cash and cash equivalents		1 389	3 184
Cash and cash equivalents at April 1		4 528	6 807
Cash and cash equivalents at June 30		5 917	9 991

Consolidated statements of cash flows

First half (unaudited)

(USD millions)	Note	H1 2020	H1 2019
Net income from continuing operations		4 040	3 977
Adjustments to reconcile net income from continuing operations to net cash flows from operating activities from continuing operations
Reversal of non-cash items and other adjustments	6.1	5 202	4 101
Dividends received from associated companies and others		489	463
Interest received		37	140
Interest paid		-321	-406
Other financial receipts		261	10
Other financial payments		-19	-16
Taxes paid	6.2	-899	-960
Net cash flows from operating activities from continuing operations before working capital <br>and provision changes		8 790	7 309
Payments out of provisions and other net cash movements in non-current liabilities		-824	-516
Change in net current assets and other operating cash flow items		-1 477	-1 348
Net cash flows from operating activities from continuing operations		6 489	5 445
Net cash flows from operating activities from discontinued operations			78
Total net cash flows from operating activities		6 489	5 523
Purchases of property, plant and equipment		-475	-561
Proceeds from sale of property, plant and equipment		4	812
Purchases of intangible assets		-460	-498
Proceeds from sale of intangible assets		105	281
Purchases of financial assets		-90	-154
Proceeds from sale of financial assets		359	177
Purchases of other non-current assets		-48	-24
Proceeds from sale of other non-current assets		0	3
Acquisitions and divestments of interests in associated companies, net		-4	-3
Acquisitions and divestments of businesses, net	6.3	-9 901	-382
Purchases of marketable securities and commodities		-345	-120
Proceeds from sale of marketable securities and commodities		394	2 428
Net cash flows used in/from investing activities from continuing operations		-10 461	1 959
Net cash flows used in investing activities from discontinued operations	10	-105	-1 105
Total net cash flows used in/from investing activities		-10 566	854
Dividends paid to shareholders of Novartis AG		-6 987	-6 645
Acquisitions of treasury shares		-150	-2 590
Proceeds from exercised options and other treasury share transactions		846	200
Increase in non-current financial debts		4 945
Repayments of non-current financial debts		-2 002	-3 008
Change in current financial debts		2 486	-942
Payment of lease liabilities, net		-142	-91
Impact of change in ownership of consolidated entities			-5
Other financing cash flows, net		-142	71
Net cash flows used in financing activities from continuing operations		-1 146	-13 010
Net cash flows used in/from financing activities from discontinued operations	10	-26	3 299
Total net cash flows used in financing activities		-1 172	-9 711
Net change in cash and cash equivalents before effect of exchange rate changes		-5 249	-3 334
Effect of exchange rate changes on cash and cash equivalents		54	54
Total net change in cash and cash equivalents		-5 195	-3 280
Cash and cash equivalents at January 1		11 112	13 271
Cash and cash equivalents at June 30		5 917	9 991

Notes to the Condensed Interim Consolidated Financial Statements for the three-month and six-month period ended June 30, 2020 (unaudited)

Basis of preparation

These Condensed Interim Consolidated Financial Statements for the three-month and six-month period ended June 30, 2020, were prepared in accordance with International Accounting Standard 34 Interim Financial Reporting and accounting policies set out in the 2019 Annual Report published on January 29, 2020.

Selected critical accounting policies

The Group’s principal accounting policies are set out in Note 1 to the Consolidated Financial Statements in the 2019 Annual Report and conform with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

The preparation of ﬁnancial statements requires management to make certain estimates and assumptions, either at the balance sheet date or during the year, which affect the reported amounts of assets and liabilities, including any contingent amounts, the distribution liability recognized in connection with the distribution of Alcon Inc. to Novartis AG shareholders, as well as of revenues and expenses. Actual outcomes and results could differ from those estimates and assumptions.

As disclosed in the 2019 Annual Report, goodwill, and acquired In-Process Research & Development projects are reviewed for impairment at least annually and these, as well as all other investments in intangible assets, are reviewed for impairment whenever an event or decision occurs that raises concern about their balance sheet carrying value. The amount of goodwill and other intangible assets on the Group’s consolidated balance sheet has risen significantly in recent years, primarily from acquisitions. Impairment testing may lead to potentially significant impairment charges in the future that could have a materially adverse impact on the Group’s results of operations and financial condition.

Non-current assets held for sale or held for distribution to owners

Non-current assets are classified as assets held for sale or related to discontinued operations when their carrying amount is to be recovered principally through a sale transaction or distribution to owners and a sale or distribution to owners is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell with any resulting impairment recognized. Assets related to discontinued operations and assets of disposal group held for sale are not depreciated or amortized. The prior year consolidated balance sheet is not restated.

If in a subsequent period, the criteria for classification as held for sale are no longer met, the recoverable amount of assets and liabilities are reclassified out of assets held for sale into the respective balance sheet lines, prior year consolidated balance sheet is not restated. The cumulative amount of depreciation and amortization not recorded since the date of their classification to assets held for sale, and any required adjustments to the recoverable amounts of assets are recognized in the consolidated income statement.

Distribution of Alcon Inc.

to Novartis AG shareholders

During the first quarter of 2019, at the Annual General Meeting (AGM) of Novartis AG shareholders, held on February 28, 2019, the Novartis AG shareholders approved a special distribution by way of a dividend in kind to effect the spin-off of Alcon Inc.

The February 28, 2019, shareholder approval for the spin-off required the Alcon Division and selected portions of corporate activities attributable to Alcon’s business (the “Alcon business”) to be reported as discontinued operations.

The shareholder approval to spin off the Alcon business also required the recognition of a distribution liability at the fair value of the Alcon business. The Group elected to measure the distribution liability at the fair value of the Alcon business net assets taken as a whole. The distribution liability was recognized through a reduction in retained earnings. It was required to be adjusted at each balance sheet date for changes in its estimated

fair value, up to the date of the distribution to shareholders through retained earnings. Any resulting impairment of the business assets to be distributed would have been recognized in the consolidated income statements in “Other expense” of discontinued operations, at the date of initial recognition of the distribution liability or at subsequent dates resulting from changes of the distribution liability valuation. At the April 8, 2019 distribution settlement date, the resulting gain, which was measured as the excess amount of the distribution liability over the then-carrying value of the net assets of the business distributed, was recognized on the line “Gain on distribution of Alcon Inc. to Novartis AG shareholders” in the income statement of discontinued operations.

The recognition of the distribution liability required the use of valuation techniques for purposes of impairment testing of the Alcon business’ assets to be distributed and for the measurement of the fair value of the distribution liability. These valuations required the use of management assumptions and estimates related to the Alcon business’ future cash flows, market multiples to estimate day one market value, and control premiums to apply in estimating the Alcon business fair value. These fair value measurements were classified as “Level 3” in the fair value hierarchy. The section “—Impairment of goodwill and intangible assets” in Note 1 to the Consolidated Financial Statements of the 2019 Annual Report provides additional information on key assumptions that are highly sensitive in the estimation of fair values using valuation techniques.

Transaction costs that were directly attributable to the distribution (spin-off) of Alcon to the Novartis shareholders, and that would otherwise have been avoided, were recorded as a deduction from equity.

For additional disclosures, refer to Notes 3 and 10.

New IFRS standard effective as of January 1, 2020

IFRS 3 Business Combination amendments

The IASB issued amendments to IFRS 3 Business Combinations that revised the definition of a business, which assist entities with the evaluation of when an asset or group of assets acquired or disposed of should be considered a business. This amended standard has been applied to transactions entered into on or after January 1, 2020. The amended standard allows an entity to apply an optional concentration test, on a transaction-by-transaction basis, to evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If this optional concentration test is met, the entity may choose to consider the transaction an acquisition of an asset or set of assets. The adoption of this amended standard on January 1, 2020 did not have a significant impact on our consolidated financial statements and is not expected to have a significant impact in future periods. However, this will depend on the facts and circumstances of future transactions and if the Group decides to apply the optional concentration test in the assessment of whether an acquired set of activities and assets is or is not a business.

There are no other IFRS standards or interpretations not yet effective that would be expected to have a material impact on the Group.

Significant transactions

Significant transactions in 2020

Innovative Medicines – acquisition of The Medicines Company

On November 23, 2019, Novartis entered into an agreement and plan of merger (the Merger Agreement) with The Medicines Company, a US-based pharmaceutical company headquartered in Parsippany, New Jersey USA. Pursuant to the Merger Agreement, on December 5, 2019, Novartis, through a subsidiary, commenced a tender offer to acquire all outstanding shares of The Medicines Company for USD 85 per share, or a total consideration of approximately USD 9.6 billion in cash on a fully diluted basis, including the equivalent share value related to The Medicines Company’s convertible notes, in accordance with their terms. The tender offer expired on January 3, 2020, and on January 6, 2020, the acquiring subsidiary merged with and into The Medicines Company, resulting in The Medicines Company becoming an indirect wholly owned subsidiary of Novartis. Novartis financed the transaction through available cash, and short- and long-term borrowings.

The Medicines Company is focused on the development of inclisiran, a potentially first-in-class, twice yearly therapy that allows administration during patients’ routine visits to their healthcare professionals and will potentially contribute to improved patient adherence and sustained lower LDL-C levels.

The fair value of the total purchase consideration was USD 9.6 billion. The preliminary purchase price allocation resulted in net identifiable assets of approximately USD 7.1 billion, consisting of USD 8.5 billion intangible assets, USD 1.4 billion net deferred tax liabilities and goodwill of approximately USD 2.5 billion.

Results of operations since the date of acquisition were not material.

Sandoz – acquisition of the Japanese business of Aspen Global Incorporated

On November 11, 2019, Sandoz entered into an agreement for the acquisition of the Japanese business of

Aspen Global Incorporated (AGI), a wholly owned subsidiary of Aspen Pharmacare Holdings Limited. Under the agreement, Sandoz acquired the shares in Aspen Japan K.K. and associated assets held by AGI. The transaction closed on January 31, 2020.

Aspen’s portfolio in Japan consists of off-patent medicines with a focus on anesthetics and specialty brands. The acquisition will enable Sandoz to expand its presence in the third-largest worldwide generics marketplace.

The purchase price consist of EUR 300 million (USD 331 million) upfront payment, less customary purchase price adjustment of EUR 27 million (USD 30 million), plus potential milestone payments of up to EUR 120 million (USD 132 million), which AGI is eligible to receive upon the achievement of specified milestones.

The fair value of the total purchase consideration was EUR 345 million (USD 381 million). The amount consisted of an initial cash payment of EUR 273 million (USD 301 million) and the fair value of contingent consideration of EUR 72 million (USD 80 million), which AGI is eligible to receive upon the achievement of specified milestones. The purchase price allocation resulted in net identifiable assets of approximately USD 309 million, consisting of USD 269 million intangible assets, USD 26 million other net assets, USD 14 million net deferred tax assets and goodwill of approximately USD 72 million. Results of operations since the date of acquisition were not material.

Sandoz – retention of US dermatology business and generic US oral solids portfolio, previously planned to be divested

On September 6, 2018, Novartis announced that it entered into a stock and asset purchase agreement (SAPA) with Aurobindo Pharma USA Inc. (Aurobindo) for the sale of selected portions of its Sandoz US portfolio, specifically the Sandoz US dermatology business and generic US oral solids portfolio, for USD 0.8 billion in cash and potential earnouts. The closing was conditional on obtaining regulatory approval.

In March 2020, Novartis took the decision to retain the Sandoz US generic oral solids and dermatology businesses and entered into a mutual agreement with Aurobindo to terminate the transaction. The decision was taken as regulatory approval from the US Federal Trade Commission was not obtained within the SAPA agreed timelines.

The cumulative amount of the depreciation on property, plant and equipment and amortization on intangible assets, not recorded in the consolidated income statement since the date of classification as held for sale, amounting to USD 38 million and USD 102 million, respectively, was recognized in the consolidated income statement in the first quarter of 2020. In addition, an impairment of currently marketed products of USD 42 million was recognized in the first quarter of 2020 consolidated income statement.

As at March 31, 2020, the assets and liabilities of the Sandoz US generic oral solids and dermatology businesses were reclassified out of assets and liabilities of disposal group held for sale. The prior year balance sheet is not required to be restated.

In the Group’s consolidated balance sheet at December 31, 2019, the assets and liabilities classified as disposal group assets and liabilities held for sale consisted of the following:

(USD millions)	Dec 31, <br> 2019
Assets of disposal group classified as held for sale
Property, plant and equipment	169
Intangible assets other than goodwill	475
Deferred tax assets	11
Other non-current assets	2
Inventories	181
Other current assets	3
Total	841
Liabilities of disposal group classified as held for sale
Deferred tax liabilities	2
Provisions and other non-current liabilities	4
Provisions and other current liabilities	25
Total	31

There are no cumulative income or expenses included in other comprehensive income relating to the disposal group.

Significant transactions in 2019

Completion of the spin-off of the Alcon business through a dividend in kind distribution to Novartis AG shareholders

On June 29, 2018, Novartis announced its intention to seek shareholder approval for the spin-off of the Alcon business into a separately traded standalone company, following the complete structural separation of the Alcon business into a standalone company (the Alcon business or Alcon Inc.).

The Novartis AG shareholders approved the spin-off of the Alcon business at the 2019 Annual General Meeting held on February 28, 2019, subject to completion of certain conditions precedent to the distribution. Upon shareholder approval, the Alcon business was reported as discontinued operations, and the fair value of the Alcon business exceeded the carrying value of its net assets.

The conditions precedent to the spin-off were met and on April 8, 2019 the spin-off of the Alcon business was effected by way of a distribution of a dividend in kind

of Alcon Inc. shares to Novartis AG shareholders and ADR (American Depositary Receipt) holders (the Distribution), which amounted to USD 23.4 billion and is recognized as a reduction to retained earnings. Through the Distribution, each Novartis AG shareholder received one Alcon Inc. share for every five Novartis AG shares/ADRs they held on April 8, 2019, close of business. As of April 9, 2019, the shares of Alcon Inc. are listed on the SIX Swiss Exchange (SIX) and on the New York Stock Exchange (NYSE) under the symbol “ALC.”

The dividend in kind distribution liability to effect the spin-off of the Alcon business (the distribution liability) amounted to USD 26.4 billion at March 31, 2019, unchanged from its initial recognition on February 28, 2019, and was in excess of the carrying value of the Alcon business net assets as of February 28, 2019, and as of March 31, 2019. The net assets of the Alcon business amounted to USD 23.1 billion as at March 31, 2019.

On March 6, 2019, Alcon entered into financing arrangements with a syndicate of banks under which it borrowed on April 2, 2019, a total amount of USD 3.2 billion. These borrowings consisted of approximately USD 2.8 billion and the equivalent of USD 0.4 billion in EUR in bridge and other term loans under such Alcon facilities agreement. In addition, approximately USD 0.3 billion of borrowings under a number of local bilateral facilities in different countries, with the largest share of borrowings in Japan, were raised. This resulted in a total gross debt of USD 3.5 billion. These outstanding borrowings of the Alcon legal entities were recorded in the balance sheet and financing cash flow from discontinued operations. Prior to the spin-off, through a series of intercompany transactions, Alcon legal entities paid approximately USD 3.1 billion in cash to Novartis and its affiliates.

At the April 8, 2019 Distribution, the fair value of the distribution liability of the Alcon business amounted to USD 23.4 billion, a decrease of USD 3.0 billion from March 31, 2019. As mentioned above, prior to the spin-off, through a series of intercompany transactions, Alcon legal entities incurred additional net financial debt and paid approximately USD 3.1 billion in cash to Novartis and its affiliates. This additional net debt and transactions resulted in a decrease in Alcon’s net assets to USD 20.0 billion at the date of the Distribution of the dividend in kind to Novartis AG shareholders on April 8, 2019. The distribution liability at April 8, 2019, remained in excess of the then-carrying value of the Alcon business net assets.

Certain consolidated foundations own Novartis AG dividend-bearing shares restricting their availability for use by the Group. These Novartis AG shares are accounted for as treasury shares. Through the Distribution, these foundations received Alcon Inc. shares representing an approximate 4.7% equity interest in Alcon Inc. Upon the loss of control of Alcon Inc. through the Distribution, the financial investment in Alcon Inc. was recognized at its fair value based on the opening traded share price of Alcon Inc. on April 9, 2019 (a Level 1 hierarchy valuation). At initial recognition, its fair value of USD 1.3 billion was reported on the Group’s consolidated balance sheet as a financial asset. Management has designated this investment at fair value through other comprehensive income.

The total non-taxable, non-cash gain recognized at the distribution date of the spin-off of the Alcon business amounted to USD 4.7 billion consisting of:

(USD millions)	April 8,<br> 2019
Net assets derecognized^1^	-20 025
Derecognition of distribution liability	23 434
Difference between net assets and distribution liability	3 409
Recognition of Alcon Inc. shares obtained <br>through consolidated foundations	1 273
Currency translation gains recycled into the <br>consolidated income statement	123
Transaction costs recognized in the consolidated income statement	-114
Gain on distribution of Alcon Inc. to Novartis AG shareholders	4 691
^1^ See Note 10 for additional information.

For additional disclosure on discontinued operations, refer to Note 10.

Innovative Medicines – acquisition of IFM Tre, Inc.

On May 7, 2019, Novartis acquired IFM Tre, Inc., a privately held, US-based biopharmaceutical company focused on developing anti-inflammatory medicines targeting the NLRP3 inflammasome. The acquisition gives Novartis full rights to IFM Tre, Inc.’s portfolio of NLRP3 antagonists. The NLRP3 antagonists portfolio consists of one clinical program and two preclinical programs: IFM-2427, a first-in-class, clinical-stage systemic antagonist for an array of chronic inflammatory disorders, including atherosclerosis and nonalcoholic steatohepatitis (NASH); a preclinical-stage gutdirected molecule for the treatment of inflammatory bowel disease; and a preclinical-stage central nervous system (CNS)-penetrant molecule.

The previously held interest of 9% was adjusted to its fair value of USD 33 million through the consolidated income statement at acquisition date. This remeasurement resulted in a gain of USD 14 million. The fair value of the total purchase consideration for acquiring the 91% stake Novartis did not already own amounted to USD 361 million. The amount consisted of an initial cash payment of USD 285 million, and the fair value of the contingent consideration of USD 76 million due to the IFM Tre, Inc. shareholders, which they are eligible to receive upon the achievement of specified development and commercialization milestones. The purchase price allocation resulted in net identifiable assets of USD 355 million, mainly intangibles, and goodwill of USD 39 million. The 2019 results of operations since the date of acquisition were not material.

Innovative Medicines – acquisition of Xiidra

On May 8, 2019, Novartis entered into an agreement with Takeda Pharmaceutical Company Limited (Takeda) to acquire the assets associated with Xiidra (lifitegrast ophthalmic solution) 5% worldwide. Xiidra is the first and only prescription treatment approved to treat both signs and symptoms of dry eye by inhibiting inflammation caused by the disease. The transaction bolsters the Novartis front-of-the-eye portfolio and ophthalmic leadership. The transaction closed on July 1, 2019. The purchase

price consists of a USD 3.4 billion upfront payment, customary purchase price adjustments of USD 0.1 billion, and the potential milestone payments of up to USD 1.9 billion, which Takeda is eligible to receive upon the achievement of specified commercialization milestones.

The fair value of the total purchase consideration was USD 3.7 billion. The amount consists of an initial cash payment of USD 3.5 billion, and the fair value of the contingent consideration of USD 0.2 billion, which Takeda is eligible to receive upon the achievement of specified commercialization milestones.

The purchase price allocation resulted in net identifiable assets of approximately USD 3.6 billion, consisting mainly of intangible assets of USD 3.6 billion, and goodwill amounted to approximately USD 0.1 billion. In 2019, from the date of acquisition, the business generated net sales of USD 0.2 billion. Management estimated that net sales for the entire year of 2019 would have amounted to USD 0.3 billion, had the business been acquired at the beginning of the 2019 reporting period. The 2019 results of operations since the date of acquisition were not material.

Summary of equity attributable to Novartis AG shareholders

		Issued share capital and reserves attributable to Novartis AG shareholders (in millions)
	2019	H1 2020
Balance at beginning of year	2 311.2	55 474
Impact of change in accounting policy 1
Restated equity at January 1		55 474
Shares acquired to be cancelled	-32.8
Other share purchases	-1.6	-150
Exercise of options and employee transactions	5.5	823
Equity-based compensation	9.5	365
Shares delivered to Alcon employees as a result of the Alcon spin-off		29
Taxes on treasury share transactions 2		30
Increase of treasury share repurchase obligation under a share buyback trading plan
Dividends to shareholders of Novartis AG		-6 987
Dividend in kind to effect the spin-off of Alcon Inc. 3
Net income of the period attributable to shareholders of Novartis AG		4 043
Other comprehensive income attributable to shareholders of Novartis AG		176
Transaction costs, net of taxes 4
Impact of change in ownership of consolidated entities
Other movements 5		9
Balance at June 30	2 291.8	53 812
1 In H1 2019, the impact of change in accounting policy includes 3 million related to the implementation of IFRS 16 Leases.
2 Included in H1 2019 is a 69 million impact related to the revaluation of deferred tax liability on treasury shares that are recognized through retained earnings. This revaluation resulted from the Swiss Federal tax reform enacted in May 2019, effective January 1, 2020.
3 Fair value of the dividend in kind of Alcon Inc. shares to Novartis AG shareholders (see Notes 2 and 3 for further details).
4 In H1 2019, Transaction costs directly attributable to the distribution (spin-off) of the Alcon business to Novartis AG shareholders.
5 Impact of hyperinflationary economies

All values are in US Dollars.

Financial instruments

Fair value by hierarchy

The following table illustrates the three hierarchical levels for valuing financial instruments at fair value as of June 30, 2020 and December 31, 2019. For additional information on the hierarchies and other matters, please refer to the Consolidated Financial Statements in the 2019 Annual Report, published on January 29, 2020.

	Level 1		Level 2		Level 3		Total
(USD millions)	Jun 30, <br> 2020	Dec 31, <br> 2019	Jun 30, <br> 2020	Dec 31, <br> 2019	Jun 30, <br> 2020	Dec 31, <br> 2019	Jun 30, <br> 2020	Dec 31, <br> 2019
Marketable securities
Debt securities			24	24			24	24
Fund investments	33	37					33	37
Total marketable securities	33	37	24	24			57	61
Derivative financial instruments			136	102			136	102
Total marketable securities and derivative financial instruments	33	37	160	126			193	163
Long-term financial investments
Debt and equity securities	904	976			539	581	1 443	1 557
Fund investments					235	233	235	233
Contingent consideration receivables					444	399	444	399
Total long-term financial investments	904	976			1 218	1 213	2 122	2 189
Associated companies at fair value through profit or loss					175	186	175	186
Contingent consideration payables					-1 039	-1 036	-1 039	-1 036
Other financial liabilities					-20	-29	-20	-29
Derivative financial instruments			-126	-185			-126	-185
Total financial liabilities at fair value			-126	-185	-1 059	-1 065	-1 185	-1 250

During the first half of 2020, there were no significant transfers from one level to the other and no significant transactions associated with level 3 financial instruments. During the second quarter of 2020, there were two non-significant transfers of equity securities from level 3 to level 1 for USD 26 million due to Initial Public Offerings.

The fair value of straight bonds amounted to USD 27.7 billion at June 30, 2020 (USD 23.7 billion at December 31, 2019) compared to the balance sheet value of USD 25.2 billion at June 30, 2020 (USD 22.2 billion at December 31, 2019). For all other financial assets and liabilities, the carrying amount is a reasonable approximation of the fair value. The carrying amount of financial assets included in the line total long-term financial investments of USD 2.1 billion at June 30, 2020 (USD 2.2 billion at December 31, 2019) is included in line “Financial and other non-current assets” of the consolidated balance sheets.

In accordance with the consolidated foundations Alcon Inc. share divestment plans, Alcon Inc. shares with a fair value of USD 287 million were sold, or otherwise disposed of, in the first half of 2020 and the USD 16 million gain on disposal was transferred from other comprehensive income to retained earnings (second quarter : nil).

The Group’s exposure to financial risks has not changed significantly during the period and there have been no major changes to the risk management department or in any risk management policies.

Non-current financial debt – issuance of bonds

On February 11, 2020, Novartis issued the following straight bonds:

Coupon	Currency	Nominal amount<br> (USD millions)	Maturity year	Issuer	Issue price	Carrying value<br> Jun 30, 2020<br> (USD millions)
1.75%	USD	1 000	2025	Novartis Capital Corporation, New York, United States	99.852%	996
2.00%	USD	1 250	2027	Novartis Capital Corporation, New York, United States	99.909%	1 245
2.20%	USD	1 500	2030	Novartis Capital Corporation, New York, United States	99.869%	1 492
2.75%	USD	1 250	2050	Novartis Capital Corporation, New York, United States	97.712%	1 213

Details to the consolidated statements of cash flows

6.1. Reversal of non-cash items and other adjustments from continuing operations

(USD millions)	Q2 2020	Q2 2019
Depreciation, amortization and impairments on:
Property, plant and equipment	319	371
Right-of-use assets	78	74
Intangible assets	1 306	601
Financial assets^1^	-166	-32
Change in provisions and other non-current liabilities	118	958
Losses/gains on disposal and other adjustments on property, plant and equipment; intangible assets; <br>financial assets; and other non-current assets, net	6	-615
Equity-settled compensation expense	199	174
Income from associated companies	-183	-176
Taxes	421	525
Net financial expense	247	205
Total	2 345	2 085
^1^ Includes fair value adjustments
(USD millions)	H1 2020	H1 2019
---	---	---
Depreciation, amortization and impairments on:
Property, plant and equipment	700	719
Right-of-use assets	154	149
Intangible assets	2 259	1 619
Financial assets^1^	-127	-20
Change in provisions and other non-current liabilities	838	1 018
Gains on disposal and other adjustments on property, plant and equipment; intangible assets; <br>financial assets; and other non-current assets, net	-55	-684
Equity-settled compensation expense	377	372
Income from associated companies	-306	-256
Taxes	869	797
Net financial expense	493	387
Total	5 202	4 101
^1^ Includes fair value adjustments

6.2. Total amount of taxes paid

During the first half of 2020, the total amount of taxes paid was USD 987 million (Q2 2020: USD 391 million), of which USD 899 million (Q2 2020: USD 303 million) was included within “Net cash flows from operating activities from continuing operations”, and USD 88 million (Q2 2020: USD 88 million) was included within “Net cash flows used in investing activities from discontinued operations.”

During the first half of 2019, the total amount of taxes paid was USD 998 million (Q2 2019: USD 560 million), of which USD 960 million (Q2 2019: USD 560 million) was included within “Net cash flows from operating activities from continuing operations” and USD 38 million (Q2 2019: nil) was included within “Net cash flows from operating activities from discontinued operations.”

6.3. Cash flows arising from acquisitions and divestments of businesses, net

( millions)	Q2 2019	H1 2020	H1 2019
Net assets recognized as a result of business combinations	-407	-10 030	-486
Fair value of previously held equity interests	34		34
Receivables and payables contingent consideration, net	88	77	88
Payments, deferred consideration and other adjustments, net	-3	65	-3
Cash flows used for acquisitions of businesses	-288	-9 888	-367
Cash flows from/used for divestments of businesses, net 1	2	-13	-15
Cash flows used for acquisitions and divestments of businesses, net	-286	-9 901	-382
1 In the second quarter of 2020 and 2019, the 2 million represented the net cash inflows for previous years divestments.During the first half of 2020, the 13 million included 15 million net cash outflows for previous years divestments (H1 2019: 15 million) and a prepaid sales price of 2 million for a business divestment.

All values are in US Dollars.

Notes 3 and 7 provide further information regarding acquisitions and divestments of businesses. All acquisitions were for cash.

6.4. Cash and cash equivalents of discontinued operations at March 31, 2019

Cash and cash equivalents of discontinued operations at March 31, 2019,represents the amount of the Alcon business cash and cash equivalents included in the March 31, 2019, consolidated balance sheets in the line “Assets related to discontinued operations.”

For net cash flows used in investing activities from discontinued operations, see Note 10.

Acquisition of businesses

Fair value of assets and liabilities arising from acquisitions:

(USD millions)	H1 2020	H1 2019
Property, plant and equipment	26	44
Right-of-use assets	32
Currently marketed products	269
Acquired research and development	8 602	449
Deferred tax assets	470	20
Financial and other assets	49
Inventories	84	6
Trade receivables, marketable securities <br>and other current assets	109	4
Cash and cash equivalents	76
Deferred tax liabilities	-1 928	-101
Current and non-current financial debts	-32	-2
Current and non-current lease liabilities	-44
Trade payables and other liabilities	-144	-9
Net identifiable assets acquired	7 569	411
Acquired cash and cash equivalents	-76
Goodwill	2 537	75
Net assets recognized as a result of business combinations	10 030	486

Note 3 details significant acquisitions of businesses, specifically, The Medicines Company and the Japanese business of AGI in 2020, and IFM Tre, Inc. in 2019. The goodwill arising out of these acquisitions is attributable to the buyer specific synergies, the assembled workforce, and the accounting for deferred tax liabilities on the acquired assets. Goodwill of USD 59 million in 2020 (2019: nil) is tax deductible.

Legal proceedings update

A number of Novartis companies are, and will likely continue to be, subject to various legal proceedings, including litigations, arbitrations and governmental investigations, that arise from time to time. Legal proceedings are inherently unpredictable. As a result, the Group may become subject to substantial liabilities that may not be covered by insurance and may in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations or cash flow. Note 20 to the Consolidated Financial Statements in our 2019 Annual Report and 2019 Form 20-F contains a summary as of the date of these reports of significant legal proceedings to which Novartis or its subsidiaries were a party. The following is a summary as of July 20, 2020 of significant developments in those proceedings, as well as any new significant proceedings commenced since the date of the 2019 Annual Report and 2019 Form 20-F.

Investigations and related litigations

Government generic pricing antitrust investigations, antitrust class actions

Since 2016, Sandoz Inc. received grand jury subpoenas and a civil investigative demand and interrogatories from the Antitrust and Civil Divisions of the US Department of Justice (DOJ) in connection with alleged price fixing and market allocation of generic drugs in the US market as well as alleged False Claims Act violations. Sandoz Inc. reached a resolution with the DOJ Antitrust Division, pursuant to which Sandoz Inc. agreed to pay USD 195 million and entered into a deferred prosecution agreement. The Sandoz resolution related to instances of misconduct at the company between 2013 and 2015 with regard to certain generic drugs sold in the United States. Under the terms of that agreement, Sandoz Inc. will continue to take steps to enhance its compliance program, employee training and monitoring, and will continue to cooperate with the US government’s ongoing investigation into the generic pharmaceutical industry. Sandoz Inc. is also in negotiations with the DOJ Civil Division to resolve potential related claims and has recorded a provision of USD 186 million.

Southern District of New York (S.D.N.Y.) marketing practices investigation and litigation

In 2013, the US government filed a civil complaint in intervention to an individual qui tam action against Novartis Pharmaceuticals Corporation (NPC) in the United States District Court (USDC) for the S.D.N.Y. The complaint, as subsequently amended, asserted federal False Claims Act (FCA) and common law claims with respect to speaker programs and other promotional activities for certain NPC cardiovascular medications (Lotrel, Starlix and Valturna) allegedly serving as mechanisms to provide kickbacks to healthcare professionals (HCPs). Also in 2013, New York State filed a civil complaint in

intervention asserting similar claims. In July 2020, Novartis finalized its settlement agreement with the S.D.N.Y, the New York State Attorney General and the individual relator to resolve their claims. As part of this settlement, Novartis will pay USD 0.7 billion, and has agreed to new corporate integrity obligations with the Office of Inspector General of the US Department of Health & Human Services. As of June 30, a provision in the amount of USD 0.7 billion remained accrued in the Innovative Medicines Division for this matter. As of July 20, 2020, USD 0.6 billion have been paid out of this provision.

U.S. Government Foreign Corrupt Practices Act (FCPA) investigations

In June 2020, Novartis reached settlements with the DOJ and the US Securities and Exchange Commission (SEC) resolving all Foreign Corrupt Practices Act (FCPA) investigations into historical conduct by Novartis and its subsidiaries. These investigations were previously disclosed in Note 20 to the Consolidated Financial Statements in our 2019 Annual Report and 2019 Form 20-F under the headings “Greece investigation,” “South Korea investigation” and “Asia/Russia investigation.” As part of the coordinated resolution of these investigations, Novartis and certain of its current and former subsidiaries agreed to pay USD 0.3 billion. As of June 30, 2020, a provision in the amount of USD 0.1 billion remained accrued. As of July 20, 2020, USD 0.1 billion have been paid out of this provisions. To resolve the DOJ investigation, Novartis Hellas S.A.C.I. entered into a deferred prosecution agreement (“Novartis Hellas DPA”) pertaining to inappropriate economic benefits provided to Greek healthcare professionals from 2012 to 2015 in connection with the ophthalmology product Lucentis. The Novartis Hellas DPA also covers books and records issues pertaining to the Lucentis conduct and to conduct related to a 2009 epidemiological study. The resolutions contain no allegations relating to any bribery of Greek politicians, which is consistent with what Novartis found in its own internal investigation. Alcon Pte Ltd, a former Novartis subsidiary, has entered into a separate deferred prosecution agreement with the DOJ (“Alcon DPA”) pertaining to inappropriate economic benefits provided to Vietnamese healthcare professionals and books and records violations from 2011 to 2014 in Vietnam. This conduct related to a consultancy program run by a distributor in Vietnam. To resolve the SEC investigation, Novartis AG reached an agreement pertaining to internal controls and books and records violations in Greece, Vietnam and South Korea. The violations in Greece pertain to the Lucentis-related conduct covered in the Novartis Hellas DPA as well as controls issues with Novartis Hellas post-approval studies identified by internal review in 2012 and resolved by 2013. In Vietnam, the violations relate to the activities involving an Alcon distributor that are the subject of the Alcon DPA. In South Korea, the violations relate to conduct for which Novartis has already taken responsibility in South Korea, where Novartis is in the final stages of resolving these issues with the local authorities. The SEC agreement also addresses certain internal controls and books and records issues related to Alcon China’s placement of surgical devices.

In addition to the matters described above, there have been other developments in the other legal matters described in Note 20 to the Consolidated Financial Statements contained in our 2019 Annual Report and 2019 Form 20-F.

Novartis believes that its total provisions for investigations, product liability, arbitration and other legal matters are adequate based upon currently available information. However, given the inherent difficulties in estimating liabilities, there can be no assurance that additional liabilities and costs will not be incurred beyond the amounts provided.

Segmentation of key figures

The businesses of Novartis are divided operationally on a worldwide basis into two identified reporting segments, Innovative Medicines and Sandoz. In addition, we separately report Corporate activities.

Reporting segments are presented in a manner consistent with the internal reporting to the chief operating decision maker which is the Executive Committee of Novartis. The reporting segments are managed separately because they each research, develop, manufacture, distribute and sell distinct products that require differing marketing strategies.

The Executive Committee of Novartis is responsible for allocating resources and assessing the performance of the reporting segments.

The reporting segments are as follows:

Innovative Medicines researches, develops, manufactures, distributes and sells patented prescription medicines. The Innovative Medicines Division is organized into two global business units: Novartis Oncology and Novartis Pharmaceuticals. Novartis Oncology consists of the global business franchise Oncology, and Novartis Pharmaceuticals consists of the global business franchises Ophthalmology; Immunology, Hepatology and Dermatology; Neuroscience; Respiratory; Cardiovascular, Renal and Metabolism; and Established Medicines.

Sandoz develops, manufactures and markets finished dosage form medicines as well as intermediary products including active pharmaceutical ingredients. Sandoz is organized globally into three franchises: Retail Generics, Anti-Infectives and Biopharmaceuticals. In Retail Generics, Sandoz develops, manufactures and markets active ingredients and finished dosage forms of small molecule pharmaceuticals to third parties across a broad range of therapeutic areas, as well as finished dosage form of anti-infectives sold to third parties. In Anti-Infectives,

Sandoz manufactures and supplies active pharmaceutical ingredients and intermediates, mainly antibiotics, for internal use by Retail Generics and for sale to third-party customers. In Biopharmaceuticals, Sandoz develops, manufactures and markets protein- or other biotechnology-based products, including biosimilars, and provides biotechnology manufacturing services to other companies.

The divisions are supported by Novartis Institutes for BioMedical Research, Global Drug Development, Novartis Technical Operations and Novartis Business Services. Corporate includes the costs of the Group headquarters and those of corporate coordination functions in major countries, and items that are not specific to one segment. Further details are provided in Note 3 to the Consolidated Financial Statements of the 2019 Annual Report.

Following the February 28, 2019, shareholders’ approval of the spin-off of the Alcon business, the Group reported its financial results as “continuing operations” and “discontinued operations” (refer to Notes 2, 3 and 10 for further details).

Continuing operations comprise the activities of Innovative Medicines and Sandoz Divisions and the continuing Corporate activities.

Discontinued operations included in 2019 the operational results from the Alcon eye care devices business and certain Corporate activities attributable to the Alcon business prior to the spin-off, the gain on distribution of Alcon Inc. to Novartis AG shareholders, and certain other expenses related to the Distribution (see Notes 2, 3 and 10).

Segmentation – Consolidated income statement

Second quarter

	Innovative Medicines		Sandoz		Corporate (including eliminations)		Group
(USD millions)	Q2 2020	Q2 2019	Q2 2020	Q2 2019	Q2 2020	Q2 2019	Q2 2020	Q2 2019
Net sales to third parties from continuing operations	9 188	9 326	2 159	2 438			11 347	11 764
Sales to continuing segments	219	177	43	37	-262	-214
Net sales from continuing operations	9 407	9 503	2 202	2 475	-262	-214	11 347	11 764
Other revenues	251	250	22	6	2	4	275	260
Cost of goods sold	-2 554	-2 327	-1 158	-1 315	283	236	-3 429	-3 406
Gross profit from continuing operations	7 104	7 426	1 066	1 166	23	26	8 193	8 618
Selling, general and administration	-2 764	-2 911	-496	-550	-108	-124	-3 368	-3 585
Research and development	-2 240	-1 853	-201	-198			-2 441	-2 051
Other income	154	847	17	45	261	97	432	989
Other expense	-221	-945	-65	-181	-178	-182	-464	-1 308
Operating income from continuing operations	2 033	2 564	321	282	-2	-183	2 352	2 663
as % of net sales	22.1%	27.5%	14.9%	11.6%			20.7%	22.6%
Income from associated companies	1	1	1	1	181	174	183	176
Interest expense							-220	-205
Other financial income and expense, net							-27	0
Income before taxes from continuing operations							2 288	2 634
Taxes							-421	-525
Net income from continuing operations							1 867	2 109
Gain on distribution of Alcon Inc. to Novartis AG shareholders								4 691
Net income from discontinued operations								4 691
Net income							1 867	6 800

First half

	Innovative Medicines		Sandoz		Corporate (including eliminations)		Group
(USD millions)	H1 2020	H1 2019	H1 2020	H1 2019	H1 2020	H1 2019	H1 2020	H1 2019
Net sales to third parties from continuing operations	18 943	18 106	4 687	4 764			23 630	22 870
Sales to continuing and discontinued segments	409	426	92	76	-501	-449		53
Net sales from continuing operations	19 352	18 532	4 779	4 840	-501	-449	23 630	22 923
Other revenues	507	511	35	34	158	11	700	556
Cost of goods sold	-5 080	-4 551	-2 614	-2 591	543	485	-7 151	-6 657
Gross profit from continuing operations	14 779	14 492	2 200	2 283	200	47	17 179	16 822
Selling, general and administration	-5 621	-5 564	-1 016	-1 112	-217	-239	-6 854	-6 915
Research and development	-4 106	-3 958	-395	-392			-4 501	-4 350
Other income	326	922	49	82	318	188	693	1 192
Other expense	-590	-1 219	-562	-306	-269	-319	-1 421	-1 844
Operating income from continuing operations	4 788	4 673	276	555	32	-323	5 096	4 905
as % of net sales	25.3%	25.8%	5.9%	11.6%			21.6%	21.4%
Income from associated companies	1	1	1	1	304	254	306	256
Interest expense							-459	-431
Other financial income and expense, net							-34	44
Income before taxes from continuing operations							4 909	4 774
Taxes							-869	-797
Net income from continuing operations							4 040	3 977
Net loss from discontinued operations before gain <br>on distribution of Alcon Inc. to Novartis AG shareholders								-101
Gain on distribution of Alcon Inc. to Novartis AG shareholders								4 691
Net income from discontinued operations								4 590
Net income							4 040	8 567

Segmentation – Additional consolidated balance sheet and income statement disclosure

	Innovative Medicines		Sandoz		Corporate (including eliminations)		Group
(USD millions)	Jun 30, <br> 2020	Dec 31, <br> 2019	Jun 30, <br> 2020	Dec 31, <br> 2019	Jun 30, <br> 2020	Dec 31, <br> 2019	Jun 30, <br> 2020	Dec 31, <br> 2019
Total assets	81 373	71 225	16 229	16 468	26 161	30 677	123 763	118 370
Total liabilities	-14 690	-15 332	-3 681	-3 804	-51 507	-43 683	-69 878	-62 819
Total equity							53 885	55 551
Net debt					26 537	15 938	26 537	15 938
Net operating assets	66 683	55 893	12 548	12 664	1 191	2 932	80 422	71 489
Included in net operating assets are:
Property, plant and equipment	9 485	9 632	1 943	1 888	527	549	11 955	12 069
Goodwill	21 257	18 750	7 835	7 767	8	7	29 100	26 524
Intangible assets other than goodwill	34 877	27 586	1 674	1 125	118	76	36 669	28 787

The following table shows the intangible asset impairment charges for continuing operations:

( millions)	Q2 2019	H1 2020	H1 2019
Innovative Medicines 1	-20	-509	-466
Sandoz	-2	-42	-12
Total	-22	-551	-478
1 Q2 2020 and H1 2020 include an impairment of 485 million related to the write-down of IPR&D related to cessation of clinical development program ZPL389 for atopic dermatitis. H1 2019 includes an impairment of 416 million related to the write-down of IPR&D acquired through the 2015 Spinifex Pharmaceuticals Inc. acquisition.

All values are in US Dollars.

Segmentation – Net sales by region^1^

Second quarter

	Q2 2020<br> USD m	Q2 2019<br> USD m	% change<br> USD	% change<br> cc^2^	Q2 2020<br> % of total	Q2 2019<br> % of total
Innovative Medicines
Europe	2 964	3 218	-8	-5	32	35
US	3 515	3 336	5	5	38	36
Asia/Africa/Australasia	2 123	2 106	1	2	23	23
Canada and Latin America	586	666	-12	5	7	6
Total	9 188	9 326	-1	1	100	100
Of which in Established Markets	6 909	7 071	-2	-2	75	76
Of which in Emerging Growth Markets	2 279	2 255	1	9	25	24
Sandoz
Europe	1 130	1 269	-11	-8	52	52
US	508	642	-21	-21	24	26
Asia/Africa/Australasia	341	333	2	4	16	14
Canada and Latin America	180	194	-7	5	8	8
Total	2 159	2 438	-11	-9	100	100
Of which in Established Markets	1 621	1 796	-10	-9	75	74
Of which in Emerging Growth Markets	538	642	-16	-9	25	26
Continuing operations
Europe	4 094	4 487	-9	-6	36	38
US	4 023	3 978	1	1	35	34
Asia/Africa/Australasia	2 464	2 439	1	2	22	21
Canada and Latin America	766	860	-11	5	7	7
Total	11 347	11 764	-4	-1	100	100
Of which in Established Markets	8 530	8 867	-4	-3	75	75
Of which in Emerging Growth Markets	2 817	2 897	-3	5	25	25
^1^ Net sales from operations by location of third-party customer. Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand.
^2^ Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54.

Segmentation – Net sales by region^1^

First half

	H1 2020<br> USD m	H1 2019<br> USD m	% change<br> USD	% change<br> cc^2^	H1 2020<br> % of total	H1 2019<br> % of total
Innovative Medicines
Europe	6 366	6 352	0	3	34	35
US	7 057	6 329	12	12	37	35
Asia/Africa/Australasia	4 301	4 123	4	6	23	23
Canada and Latin America	1 219	1 302	-6	8	6	7
Total	18 943	18 106	5	7	100	100
Of which in Established Markets	14 266	13 638	5	6	75	75
Of which in Emerging Growth Markets	4 677	4 468	5	11	25	25
Sandoz
Europe	2 558	2 510	2	5	55	53
US	1 078	1 232	-12	-12	23	26
Asia/Africa/Australasia	675	651	4	5	14	14
Canada and Latin America	376	371	1	12	8	7
Total	4 687	4 764	-2	1	100	100
Of which in Established Markets	3 466	3 491	-1	1	74	73
Of which in Emerging Growth Markets	1 221	1 273	-4	2	26	27
Continuing operations
Europe	8 924	8 862	1	4	38	39
US	8 135	7 561	8	8	34	33
Asia/Africa/Australasia	4 976	4 774	4	6	21	21
Canada and Latin America	1 595	1 673	-5	9	7	7
Total	23 630	22 870	3	6	100	100
Of which in Established Markets	17 732	17 129	4	5	75	75
Of which in Emerging Growth Markets	5 898	5 741	3	9	25	25
^1^ Net sales from operations by location of third-party customer. Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand.
^2^ Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54.

Segmentation – Net sales by business franchise

Innovative Medicines Division net sales by business franchise

Second quarter

	Q2 2020	Q2 2019	% change	% change
	USD m	USD m	USD	cc^1^
Oncology
Tasigna	480	468	3	5
Promacta/Revolade	422	349	21	23
Tafinlar + Mekinist	371	340	9	12
Sandostatin	341	403	-15	-13
Jakavi	310	284	9	14
Gleevec/Glivec	288	323	-11	-8
Afinitor/Votubia	266	401	-34	-33
Exjade/Jadenu	163	253	-36	-35
Votrient	162	193	-16	-14
Kisqali	159	111	43	49
Lutathera	105	109	-4	-3
Kymriah	118	58	103	103
Piqray	79	6	nm	nm
Adakveo	21		nm	nm
Other	263	308	-15	-13
Total Novartis Oncology business unit	3 548	3 606	-2	1
Immunology, Hepatology and Dermatology
Cosentyx	944	858	10	12
Ilaris	200	165	21	23
Total Immunology, Hepatology and Dermatology	1 144	1 023	12	13
Ophthalmology
Lucentis	401	536	-25	-24
Xiidra	79		nm	nm
Beovu	34		nm	nm
Other	423	638	-34	-32
Total Ophthalmology	937	1 174	-20	-18
Neuroscience
Gilenya	738	825	-11	-9
Zolgensma	205	15	nm	nm
Aimovig	33	24	38	45
Mayzent	34	5	nm	nm
Other	15	17	-12	-26
Total Neuroscience	1 025	886	16	17
Cardiovascular, Renal and Metabolism
Entresto	580	421	38	40
Other		6	nm	nm
Total Cardiovascular, Renal and Metabolism	580	427	36	38
Respiratory
Xolair	289	290	0	4
Ultibro Group	149	166	-10	-7
Other	6	5	20	-10
Total Respiratory	444	461	-4	0
Established Medicines
Galvus Group	279	320	-13	-8
Diovan Group	268	283	-5	0
Exforge Group	238	264	-10	-5
Zortress/Certican	106	124	-15	-12
Neoral/Sandimmun(e)	96	110	-13	-11
Voltaren/Cataflam	82	95	-14	-11
Other	441	553	-20	-16
Total Established Medicines	1 510	1 749	-14	-9
Total Novartis Pharmaceuticals business unit	5 640	5 720	-1	1
Total division net sales	9 188	9 326	-1	1
^1^ Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54.
nm = not meaningful

Innovative Medicines Division net sales by business franchise

First half

	H1 2020	H1 2019	% change	% change
	USD m	USD m	USD	cc^1^
Oncology
Tasigna	967	902	7	9
Promacta/Revolade	825	656	26	28
Tafinlar + Mekinist	737	637	16	19
Sandostatin	715	795	-10	-8
Jakavi	628	542	16	20
Gleevec/Glivec	617	630	-2	0
Afinitor/Votubia	562	774	-27	-26
Exjade/Jadenu	335	491	-32	-31
Votrient	328	380	-14	-12
Kisqali	320	202	58	64
Lutathera	217	215	1	1
Kymriah	211	103	105	106
Piqray	153	6	nm	nm
Adakveo	36		nm	nm
Other	545	594	-8	-6
Total Novartis Oncology business unit	7 196	6 927	4	6
Immunology, Hepatology and Dermatology
Cosentyx	1 874	1 649	14	15
Ilaris	413	316	31	33
Total Immunology, Hepatology and Dermatology	2 287	1 965	16	18
Ophthalmology
Lucentis	888	1 069	-17	-15
Xiidra	169		nm	nm
Beovu	102		nm	nm
Other	974	1 266	-23	-21
Total Ophthalmology	2 133	2 335	-9	-7
Neuroscience
Gilenya	1 510	1 591	-5	-4
Zolgensma	375	15	nm	nm
Aimovig	69	42	64	72
Mayzent	64	5	nm	nm
Other	27	30	-10	-15
Total Neuroscience	2 045	1 683	22	23
Cardiovascular, Renal and Metabolism
Entresto	1 149	778	48	50
Other	1	12	-92	-98
Total Cardiovascular, Renal and Metabolism	1 150	790	46	48
Respiratory
Xolair	596	571	4	8
Ultibro Group	309	323	-4	-1
Other	10	12	-17	-18
Total Respiratory	915	906	1	5
Established Medicines
Galvus Group	617	635	-3	1
Diovan Group	542	544	0	4
Exforge Group	496	531	-7	-3
Zortress/Certican	233	240	-3	0
Neoral/Sandimmun(e)	197	213	-8	-5
Voltaren/Cataflam	174	208	-16	-15
Other	958	1 129	-15	-12
Total Established Medicines	3 217	3 500	-8	-5
Total Novartis Pharmaceuticals business unit	11 747	11 179	5	8
Total division net sales	18 943	18 106	5	7
^1^ Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54.
nm = not meaningful

Net sales of the top 20 Innovative Medicines Division products in 2020

Second quarter

			US		Rest of world			Total
Brands	Business franchise	Key indication	USD m	% <br> change<br> USD/cc^1^	USD m	% <br> change<br> USD	% <br> change<br> cc^1^	USD m	% <br> change<br> USD	% <br> change<br> cc^1^
Cosentyx	Immunology,<br> Hepatology and<br> Dermatology	Psoriasis, ankylosing <br> spondylitis and <br> psoriatic arthritis<br> and non-radiographic<br> axial spondyloarthritis	614	15	330	2	6	944	10	12
Gilenya	Neuroscience	Relapsing multiple sclerosis	416	-6	322	-16	-13	738	-11	-9
Entresto	Cardiovascular,<br> Renal and <br> Metabolism	Chronic heart failure	308	39	272	36	41	580	38	40
Tasigna	Oncology	Chronic myeloid leukemia	221	8	259	-2	2	480	3	5
Lucentis	Ophthalmology	Age-related <br> macular degeneration			401	-25	-24	401	-25	-24
Promacta/Revolade	Oncology	Immune <br> thrombocytopenia (ITP), <br> severe aplastic anemia (SAA)	212	25	210	17	22	422	21	23
Tafinlar + Mekinist	Oncology	BRAF V600+ metastatic <br> and adjuvant melanoma; <br> advanced non-small cell <br> lung cancer (NSCLC)	147	20	224	3	8	371	9	12
Sandostatin	Oncology	Carcinoid tumors<br> and acromegaly	200	-8	141	-24	-19	341	-15	-13
Jakavi	Oncology	Myelofibrosis (MF), <br> polycytomia vera (PV)			310	9	14	310	9	14
Gleevec/Glivec	Oncology	Chronic myeloid<br> leukemia and GIST	70	-27	218	-4	0	288	-11	-8
Galvus Group	Established Medicines	Diabetes			279	-13	-8	279	-13	-8
Xolair	Respiratory	Severe Allergic Asthma (SAA) <br> and Chronic Spontaneous <br> Urticaria (CSU)			289	0	4	289	0	4
Afinitor/Votubia	Oncology	Breast cancer/TSC	163	-37	103	-27	-24	266	-34	-33
Diovan Group	Established Medicines	Hypertension	34	21	234	-8	-2	268	-5	0
Exforge Group	Established Medicines	Hypertension	2	-50	236	-9	-5	238	-10	-5
Ilaris	Immunology,<br> Hepatology and<br> Dermatology	Auto-inflammatory (CAPS,<br> TRAPS, HIDS/MKD, FMF,<br> SJIA, AOSD and gout)	95	23	105	19	22	200	21	23
Zolgensma	Neuroscience	Spinal muscular atrophy<br> (SMA)	105	nm	100	nm	nm	205	nm	nm
Exjade/Jadenu	Oncology	Chronic iron overload	34	-71	129	-4	-3	163	-36	-35
Votrient	Oncology	Renal cell carcinoma	72	-17	90	-15	-12	162	-16	-14
Kisqali	Oncology	HR+/HER2- metastatic breast cancer	79	36	80	51	63	159	43	49
Top 20 products total			2 772	5	4 332	-3	1	7 104	0	2
Rest of portfolio			743	8	1 341	-13	-9	2 084	-6	-4
Total division sales			3 515	5	5 673	-5	-1	9 188	-1	1
^1^ Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54.
nm = not meaningful

Net sales of the top 20 Innovative Medicines Division products in 2020

First half

		US		Rest of world			Total
Brands	Key indication	USD m	% <br> change<br> USD/cc^1^	USD m	% <br> change<br> USD	% <br> change<br> cc^1^	USD m	% <br> change<br> USD	% <br> change<br> cc^1^
Cosentyx	Psoriasis, ankylosing <br> spondylitis and <br> psoriatic arthritis<br> and non-radiographic<br> axial spondyloarthritis	1 190	18	684	7	11	1 874	14	15
Gilenya	Relapsing multiple sclerosis	804	-3	706	-7	-4	1 510	-5	-4
Entresto	Chronic heart failure	601	43	548	53	58	1 149	48	50
Tasigna	Chronic myeloid leukemia	424	10	543	5	9	967	7	9
Lucentis	Age-related <br> macular degeneration			888	-17	-15	888	-17	-15
Promacta/Revolade	Immune <br> thrombocytopenia (ITP), <br> severe aplastic anemia (SAA)	399	25	426	26	30	825	26	28
Tafinlar + Mekinist	BRAF V600+ metastatic <br> and adjuvant melanoma; <br> advanced non-small cell <br> lung cancer (NSCLC)	279	21	458	13	17	737	16	19
Sandostatin	Carcinoid tumors<br> and acromegaly	413	-5	302	-17	-12	715	-10	-8
Jakavi	Myelofibrosis (MF), <br> polycytomia vera (PV)			628	16	20	628	16	20
Gleevec/Glivec	Chronic myeloid<br> leukemia and GIST	174	-1	443	-3	1	617	-2	0
Galvus Group	Diabetes			617	-3	1	617	-3	1
Xolair	Severe Allergic Asthma (SAA) <br> and Chronic Spontaneous <br> Urticaria (CSU)			596	4	8	596	4	8
Afinitor/Votubia	Breast cancer/TSC	332	-33	230	-18	-15	562	-27	-26
Diovan Group	Hypertension	60	33	482	-3	2	542	0	4
Exforge Group	Hypertension	6	-14	490	-6	-3	496	-7	-3
Ilaris	Auto-inflammatory (CAPS,<br> TRAPS, HIDS/MKD, FMF,<br> SJIA, AOSD and gout)	183	29	230	32	36	413	31	33
Zolgensma 2	Spinal muscular atrophy<br> (SMA)	231	nm	144	nm	nm	375	nm	nm
Exjade/Jadenu	Chronic iron overload	78	-66	257	-1	1	335	-32	-31
Votrient	Renal cell carcinoma	136	-21	192	-8	-5	328	-14	-12
Kisqali	HR+/HER2- metastatic breast cancer	153	37	167	86	97	320	58	64
Top 20 products total		5 463	9	9 031	4	8	14 494	6	8
Rest of portfolio		1 594	21	2 855	-7	-4	4 449	1	4
Total division sales		7 057	12	11 886	1	5	18 943	5	7
1 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54.
2 Includes a reclassification of export sales from the US into rest of the world in the amount of 44 million that were in Q1 2020 classified within US net sales. This reclassification has no impact on the reported Q1 2020 total Zolgensma net sales.
nm = not meaningful

All values are in US Dollars.

Sandoz Division net sales by business franchise

Second quarter

	Q2 2019	% change	% change
	USD m	USD	cc^2^
Retail Generics 1	1 903	-17	-14
Biopharmaceuticals	401	16	19
Anti-Infectives	134	-13	-12
Total division net sales	2 438	-11	-9
1 Of which 134 million (2019: 186 million) represents Anti-Infectives sold under Sandoz name
2 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54.

All values are in US Dollars.

First half

	H1 2019	% change	% change
	USD m	USD	cc^2^
Retail Generics 1	3 753	-6	-3
Biopharmaceuticals	752	22	25
Anti-Infectives	259	-13	-11
Total division net sales	4 764	-2	1
1 Of which 356 million (2019: 390 million) represents Anti-Infectives sold under Sandoz name
2 Constant currencies (cc) is a non-IFRS measure. A definition of non-IFRS measures used by Novartis can be found starting on page 54.

All values are in US Dollars.

The product portfolio of Sandoz is widely spread in 2020 and 2019.

Segmentation – Other revenue

Second quarter

	Innovative Medicines		Sandoz		Corporate		Group
(USD millions)	Q2 2020	Q2 2019	Q2 2020	Q2 2019	Q2 2020	Q2 2019	Q2 2020	Q2 2019
Profit sharing income	209	181		1			209	182
Royalty income	24	15	5	4	2	6	31	25
Milestone income	5	47	11				16	47
Other^1^	13	7	6	1		-2	19	6
Total other revenues	251	250	22	6	2	4	275	260
^1^ Other includes revenue from activities such as manufacturing or other services rendered, to the extent such revenue is not recorded under net sales.

First half

	Innovative Medicines		Sandoz		Corporate		Group
(USD millions)	H1 2020	H1 2019	H1 2020	H1 2019	H1 2020	H1 2019	H1 2020	H1 2019
Profit sharing income	407	350		1			407	351
Royalty income	54	49	13	7	158	13	225	69
Milestone income	25	98	11	23			36	121
Other^1^	21	14	11	3		-2	32	15
Total other revenues	507	511	35	34	158	11	700	556
^1^ Other includes revenue from activities such as manufacturing or other services rendered, to the extent such revenue is not recorded under net sales.

Discontinued operations

The Alcon eye care devices business researched, discovered, developed, manufactured, distributed and sold a broad range of eye care products. Alcon was organized into two global business franchises, Surgical and Vision Care. Alcon also provided services, training, education and technical support for both the Surgical and Vision Care businesses.

Consolidated income statement

(USD millions)	Q2 2019^1^	H1 2019
Net sales to third parties from discontinued <br>operations		1 777
Sales to continuing segments		32
Net sales from discontinued operations		1 809
Cost of goods sold		-860
Gross profit from discontinued operations		949
Selling, general and administration		-638
Research and development		-142
Other income		15
Other expense		-113
Operating income from discontinued operations		71
as % of net sales		4.0%
Interest expense		-10
Other financial income and expense		-3
Income before taxes from discontinued operations		58
Taxes		-159
Net loss from discontinued operations before gain on distribution of Alcon Inc. to Novartis AG shareholders		-101
Gain on distribution of Alcon Inc. to Novartis AG shareholders^2^	4 691	4 691
Net income from discontinued operations^2^	4 691	4 590
^1^ As the Alcon spin-off was completed on April 9, 2019, the Q2 2019 results of operations from the Alcon business were not material.
^2^ See Note 3 for further details on the non-taxable non-cash gain on distribution of Alcon Inc. to Novartis AG shareholders recognized on April 8, 2019, date of Distribution.

Supplemental disclosures related to the Alcon business distributed to Novartis AG shareholders

Cash flows used in investing activities from discontinued operations

Cash flows used in investing activities from discontinued operations include the investing activities of the Alcon business in all periods.

(USD millions)	Q2 2020	Q2 2019	H1 2020	H1 2019
Payments attributable to the spin-off of the Alcon business	-3	-14	-17	-14
Divested cash and cash equivalents		-628		-628
Cash flows attributable to the spin-off of the Alcon business	-3	-642	-17	-642
Other cash flows used in investing activities, net	-88	-40	-88	-463
Net cash flows used in investing activities from discontinued operations	-91	-682	-105	-1 105

Cash flows from financing activities from discontinued operations

During the first half of 2020, the net cash outflows from financing activities from discontinued operations of USD 26 million (Q2 2020: USD 13 million) was for transaction cost payments directly attributable to the distribution (spin-off) of the Alcon business to Novartis shareholders.

During the first half of 2019, the net cash inflows from financing activities from discontinued operations of USD 3.3 billion (Q2 2019: USD 2.7 billion) included mainly USD 3.5 billion (Q2 2019: USD 3.2 billion) from Alcon borrowings, partly offset by USD 0.2 billion (Q2 2019: USD 0.1 billion) transaction cost payments directly attributable to the distribution (spin-off) of the Alcon business to Novartis shareholders (see Note 3).

Significant transaction closed in 2019

In March 2019, Alcon acquired PowerVision, Inc. (PowerVision), a privately-held, US-based medical device

development company focused on developing accommodative, implantable intraocular lenses. The fair value of the total purchase consideration was USD 424 million. The amount consisted of an initial cash payment of USD 289 million and the net present value of the contingent consideration of USD 135 million, due to PowerVision shareholders, which they are eligible to receive upon the achievement of specified regulatory and commercialization milestones. The purchase price allocation resulted in net identifiable assets of USD 418 million, consisting of intangible assets, of USD 505 million, net deferred tax liabilities of USD 93 million, other net assets of USD 6 million, and goodwill of USD 6 million. The 2019 results of operations since the date of the acquisition were not material.

For additional information related to the distribution (spin-off) of the Alcon business to Novartis AG shareholders, effected through a dividend in kind distribution that was completed on April 8, 2019, refer to Note 3.

Events subsequent to the June 30, 2020, consolidated balance sheet date

In July 2020, Novartis paid USD 0.7 billion out of certain legal provisions. For additional information see Note 8.

Supplementary information (unaudited)

Non-IFRS disclosures

Core results

The Group’s core results –including core operating income, core net income and core earnings per share – exclude fully the amortization and impairment charges of intangible assets, excluding software, net gains and losses on fund investments and equity securities valued at fair value through profit and loss, and certain acquisition and divestment related items. The following items that exceed a threshold of USD 25 million are also excluded: integration and divestment related income and expenses, divestment gains and losses, restructuring charges/releases and related items, legal related items, impairments of property, plant and equipment and financial assets, as well as income and expense items that management deems exceptional and that are or are expected to accumulate within the year to be over a USD 25 million threshold.

Novartis believes that investor understanding of the Group’s performance is enhanced by disclosing core measures of performance because, since they exclude items which can vary significantly from year to year, the core measures enable better comparison of business performance across years. For this same reason, Novartis uses these core measures in addition to IFRS and other measures as important factors in assessing the Group’s performance.

The following are examples of how these core measures are utilized:

• In addition to monthly reports containing financial information prepared under International Financial Reporting Standards (IFRS), senior management receives a monthly analysis incorporating these core measures.

• Annual budgets are prepared for both IFRS and core measures.

Despite the use of these measures by management in setting goals and measuring the Group’s performance, these are non-IFRS measures that have no standardized meaning prescribed by IFRS. As a result, such measures have limits in usefulness to investors.

Because of their non-standardized definitions, the core measures (unlike IFRS measures) may not be comparable to the calculation of similar measures of other companies. These core measures are presented solely to permit investors to more fully understand how the Group’s management assesses underlying performance. These core measures are not, and should not be viewed as, a substitute for IFRS measures.

As an internal measure of Group performance, these core measures have limitations, and the Group’s performance management process is not solely restricted to these metrics. A limitation of the core measures is that they provide a view of the Group’s operations without including all events during a period, such as the effects of an acquisition, divestment, or amortization/impairments of purchased intangible assets and restructurings.

Constant currencies

Changes in the relative values of non-US currencies to the US dollar can affect the Group’s financial results and financial position. To provide additional information that may be useful to investors, including changes in sales volume, we present information about our net sales and various values relating to operating and net income that are adjusted for such foreign currency effects.

Constant currency calculations have the goal of eliminating two exchange rate effects so that an estimate can be made of underlying changes in the consolidated income statement excluding the impact of fluctuations in exchanges rates:

• The impact of translating the income statements of consolidated entities from their non-USD functional currencies to USD; and

• The impact of exchange rate movements on the major transactions of consolidated entities performed in currencies other than their functional currency.

We calculate constant currency measures by translating the current year’s foreign currency values for sales and other income statement items into USD using the average exchange rates from the prior year and comparing them to the prior year values in USD.

We use these constant currency measures in evaluating the Group’s performance, since they may assist us in evaluating our ongoing performance from year to year. However, in performing our evaluation, we also consider equivalent measures of performance which are not affected by changes in the relative value of currencies.

Growth rate calculation

For ease of understanding, Novartis uses a sign convention for its growth rates such that a reduction in operating expenses or losses compared to the prior year is shown as a positive growth.

Net debt and free cash flow

Net debt and free cash flow are non-IFRS financial measures, which means they should not be interpreted as measures determined under IFRS. Net debt is presented as additional information because management believes it is a useful supplemental indicator of the Group’s ability to pay dividends, to meet financial commitments and to invest in new strategic opportunities, including strengthening its balance sheet. Free cash flow is presented as additional information because management believes it is a useful supplemental indicator of the Group’s ability to operate without reliance on additional borrowing or use of existing cash. Free cash flow is a measure of the net cash generated that is available for debt repayment, investment in strategic opportunities and for returning to shareholders. Cash flows in connection with the acquisition or divestment of subsidiaries, associated companies and non-controlling interests in subsidiaries are not taken into account to determine free cash flow. Free cash flow is not intended to be a substitute measure for net cash flows from operating activities as determined under IFRS.

CORE RESULTS – Reconciliation from IFRS results to core results – Group

Second quarter

		Sandoz		Corporate		Group
( millions unless indicated otherwise)	Q2 2019	Q2 2020	Q2 2019	Q2 2020	Q2 2019	Q2 2020	Q2 2019
IFRS operating income from continuing operations	2 564	321	282	-2	-183	2 352	2 663
Amortization of intangible assets	521	70	81			784	602
Impairments
Intangible assets	-17		2			500	-15
Property, plant and equipment related to the Group-wide rationalization of manufacturing sites	30		5				35
Other property, plant and equipment			6				6
Total impairment charges	13		13			500	26
Acquisition or divestment of businesses and related items
- Income	-4			-17	-38	-19	-42
- Expense	10	11		24	37	65	47
Total acquisition or divestment of businesses and related items, net	6	11		7	-1	46	5
Other items
Divestment gains	-598			24	5	16	-593
Financial assets - fair value adjustments	-22			-167	-10	-166	-32
Restructuring and related items
- Income	-15	-2	-1	-2	-1	-9	-17
- Expense	151	42	127	21	19	170	297
Legal-related items
- Income			-31				-31
- Expense	682	7	27			7	709
Additional income	-57		-3	-4	-5	-90	-65
Additional expense	61	26	6	16	17	59	84
Total other items	202	73	125	-112	25	-13	352
Total adjustments	742	154	219	-105	24	1 317	985
Core operating income from continuing operations	3 306	475	501	-107	-159	3 669	3 648
as % of net sales	35.4%	22.0%	20.5%			32.3%	31.0%
Income from associated companies	1	1	1	181	174	183	176
Core adjustments to income from associated companies, net of tax				89	77	89	77
Interest expense						-220	-205
Other financial income and expense						-27
Core adjustments to other financial income and expense						7	20
Taxes, adjusted for above items (core taxes)						-593	-620
Core net income from continuing operations						3 108	3 096
Core net income from discontinued operations 1
Core net income						3 108	3 096
Core net income attributable to shareholders of Novartis AG						3 108	3 095
Core basic EPS from continuing operations () 2						1.36	1.34
Core basic EPS from discontinued operations () 2
Core basic EPS () 2						1.36	1.34
1 For details on discontinued operations reconciliation from IFRS to core net income, please refer to page 61.
2 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.

All values are in US Dollars.

CORE RESULTS – Reconciliation from IFRS results to core results – Group

First half

		Sandoz		Corporate		Group
( millions unless indicated otherwise)	H1 2019	H1 2020	H1 2019	H1 2020	H1 2019	H1 2020	H1 2019
IFRS operating income from continuing operations	4 673	276	555	32	-323	5 096	4 905
Amortization of intangible assets	978	233	160			1 665	1 138
Impairments
Intangible assets	429	42	12			551	441
Property, plant and equipment related to the Group-wide rationalization of manufacturing sites	34	10	8			20	42
Other property, plant and equipment	1	2	6			2	7
Total impairment charges	464	54	26			573	490
Acquisition or divestment of businesses and related items
- Income	-5			-53	-39	-56	-44
- Expense	26	22		61	39	157	65
Total acquisition or divestment of businesses and related items, net	21	22		8		101	21
Other items
Divestment gains	-624			22	2	-126	-622
Financial assets - fair value adjustments	-8			-152	-12	-127	-20
Restructuring and related items
- Income	-23	-12	-1	-2	-2	-25	-26
- Expense	228	136	179	25	32	379	439
Legal-related items
- Income			-31				-31
- Expense	688	392	72	-26		453	760
Additional income	-253	-1	-4	-140	-6	-231	-263
Additional expense	84	48	6	23	21	88	111
Total other items	92	563	221	-250	35	411	348
Total adjustments	1 555	872	407	-242	35	2 750	1 997
Core operating income from continuing operations	6 228	1 148	962	-210	-288	7 846	6 902
as % of net sales	34.4%	24.5%	20.2%			33.2%	30.2%
Income from associated companies	1	1	1	304	254	306	256
Core adjustments to income from associated companies, net of tax				274	275	274	275
Interest expense						-459	-431
Other financial income and expense						-34	44
Core adjustments to other financial income and expense						-8	20
Taxes, adjusted for above items (core taxes)						-1 268	-1 159
Core net income from continuing operations						6 657	5 907
Core net income from discontinued operations 1							278
Core net income						6 657	6 185
Core net income attributable to shareholders of Novartis AG						6 660	6 183
Core basic EPS from continuing operations () 2						2.92	2.55
Core basic EPS from discontinued operations () 2							0.12
Core basic EPS () 2						2.92	2.67
1 For details on discontinued operations reconciliation from IFRS to core net income, please refer to page 62.
2 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.

All values are in US Dollars.

CORE RESULTS – Reconciliation from IFRS results to core results – Group

Second quarter

( millions unless indicated otherwise)	Amortization <br> of intangible<br> assets^1^	Impairments^2^	Acquisition<br> or divestment<br> of businesses<br> and related<br> items^3^	Other <br> items^4^	Q2 2020<br> Core results	Q2 2019<br> Core results
Gross profit from continuing operations	773		22	70	9 058	9 277
Operating income from continuing operations	784	500	46	-13	3 669	3 648
Income before taxes from continuing operations	873	500	46	-6	3 701	3 716
Taxes from continuing operations 5					-593	-620
Net income from continuing operations					3 108	3 096
Net income from discontinued operations 6
Net income					3 108	3 096
Basic EPS from continuing operations () 7					1.36	1.34
Basic EPS from discontinued operations () 7
Basic EPS () 7					1.36	1.34
The following are adjustments to arrive at core gross profit
Cost of goods sold	773		22	70	-2 564	-2 723
The following are adjustments to arrive at core operating income
Selling, general and administration			5	45	-3 318	-3 515
Research and development	11	500	3	-83	-2 010	-2 054
Other income			-19	-223	190	214
Other expense			35	178	-251	-274
The following are adjustments to arrive at core income before taxes
Income from associated companies	89				272	253
Other financial income and expense				7	-20	20
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to in-market products and other production-related intangible assets; research and development includes the amortization of acquired rights for technologies; income from associated companies includes 89 million for the Novartis share of the estimated Roche core items
2 Impairments: research and development includes impairment charges related to intangible assets
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold, selling, general and administration, research and development and other expense include net charges related to acquisitions; other income and other expense include transitional service-fee income and expenses related to the Alcon distribution
4 Other items: cost of goods sold and other expense include restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold, selling, general and administration, other income and other expense include other restructuring income and charges and related items; selling, general and administration and other expense also include expenses related to COVID-19 donations; selling, general and administration also includes adjustments to provisions; research and development includes adjustments to contingent considerations; other income and other expense include fair value adjustments and divestment gains and losses on financial assets; other expense includes legal-related items; other financial income and expense includes a revaluation impact of a financial liability incurred through the Alcon distribution
5 Taxes on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will finally be applicable to the item based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for items arising from legal settlements in certain jurisdictions. Adjustments related to income from associated companies are recorded net of any related tax effect. Due to these factors and the differing effective tax rates in the various jurisdictions, the tax on the total adjustments of 1.4 billion to arrive at the core results before tax amounts to 172 million. The average tax rate on the adjustments is 12.2%, since the estimated quarterly core tax charge of 16.0% has been applied to the pre-tax income of the period.
6 For details on discontinued operations reconciliation from IFRS to core net income please refer to page 61.
7 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.

All values are in US Dollars.

CORE RESULTS – Reconciliation from IFRS results to core results – Group

First half

( millions unless indicated otherwise)	Amortization <br> of intangible <br> assets^1^	Impairments^2^	Acquisition <br> or divestment<br> of businesses<br> and related <br> items^3^	Other <br> items^4^	H1 2020<br> Core results	H1 2019<br> Core results
Gross profit from continuing operations	1 640	42	45	36	18 942	18 049
Operating income from continuing operations	1 665	573	101	411	7 846	6 902
Income before taxes from continuing operations	1 939	573	101	403	7 925	7 066
Taxes from continuing operations 5					-1 268	-1 159
Net income from continuing operations					6 657	5 907
Net income from discontinued operations 6						278
Net income					6 657	6 185
Basic EPS from continuing operations () 7					2.92	2.55
Basic EPS from discontinued operations () 7						0.12
Basic EPS () 7					2.92	2.67
The following are adjustments to arrive at core gross profit
Other revenues				-136	564	490
Cost of goods sold	1 640	42	45	172	-5 252	-5 364
The following are adjustments to arrive at core operating income
Selling, general and administration			14	67	-6 773	-6 835
Research and development	25	509	3	-80	-4 044	-4 018
Other income			-56	-406	231	334
Other expense		22	95	794	-510	-628
The following are adjustments to arrive at core income before taxes
Income from associated companies	274				580	531
Other financial income and expense				-8	-42	64
1 Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to in-market products and other production-related intangible assets; research and development includes the amortization of acquired rights for technologies; income from associated companies includes 274 million for the Novartis share of the estimated Roche core items
2 Impairments: cost of goods sold and research and development include impairment charges related to intangible assets; other expense includes impairment charges related to property, plant and equipment
3 Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold, selling, general and administration, research and development and other expense include net charges related to acquisitions; other income and other expense include transitional service-fee income and expenses related to the Alcon distribution
4 Other items: other revenues includes a settlement of royalties; cost of goods sold includes the cumulative amount of the depreciation up to December 31, 2019, recognized with the reclassification of property, plant and equipment out of assets of disposal group held for sale (see Note 3); cost of goods sold, other income and other expense include restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold, selling, general and administration, research and development, other income and other expense include other restructuring income and charges and related items; selling, general and administration and other expense also include expenses related to COVID-19 donations; selling, general and administration also includes adjustments to provisions; research and development includes adjustments to contingent considerations; other income and other expense include fair value adjustments and divestment gains and losses on financial assets; other income also includes net gains from the divestment of products; other expense also includes a legal provision and legal-related items; other financial income and expense includes a revaluation impact of a financial liability incurred through the Alcon distribution
5 Taxes on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will finally be applicable to the item based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for items arising from legal settlements in certain jurisdictions. Adjustments related to income from associated companies are recorded net of any related tax effect. Due to these factors and the differing effective tax rates in the various jurisdictions, the tax on the total adjustments for continuing operations of 3.0 billion to arrive at the core results before tax amounts to 399 million. The average tax rate on the adjustments is 13.2%, since the estimated full year core tax charge of 16.0% has been applied to the pre-tax income of the period.
6 For details on discontinued operations reconciliation from IFRS to core net income please refer to page 62.
7 Earnings per share (EPS) is calculated on the amount of net income, attributable to shareholders of Novartis AG.

All values are in US Dollars.

CORE RESULTS – Reconciliation from IFRS results to core results – Innovative Medicines

Second quarter

(USD millions)	Q2 2020<br> IFRS results	Amortization<br> of intangible<br> assets^1^	Impairments^2^	Acquisition<br> or divestment<br> of businesses<br> and related<br> items^3^	Other <br> items^4^	Q2 2020<br> Core results	Q2 2019<br> Core results
Gross profit	7 104	703		11	47	7 865	7 962
Operating income	2 033	714	500	28	26	3 301	3 306
The following are adjustments to arrive at core gross profit
Cost of goods sold	-2 554	703		11	47	-1 793	-1 767
The following are adjustments to arrive at core operating income
Selling, general and administration	-2 764			5	22	-2 737	-2 848
Research and development	-2 240	11	500	3	-83	-1 809	-1 856
Other income	154			-2	-19	133	163
Other expense	-221			11	59	-151	-115
^1^ Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to in-market products and other production-related intangible assets; research and development includes the amortization of acquired rights for technologies
^2^ Impairments: research and development includes impairment charges related to intangible assets
^3^ Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold, selling, general and administration, research and development and other expense include net charges related to acquisitions; other income and other expense include transitional service-fee income and expenses related to the Alcon spin-off
^4^ Other items: cost of goods sold and other expense include restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold, selling, general and administration, other income and other expense include other restructuring income and charges and related items; selling, general and administration includes expenses related to COVID-19 donations and adjustments to provisions; research and development includes adjustments to contingent considerations; other income and other expense include fair value adjustments on financial assets; other income also includes net gains from the divestment of financial assets

First half

(USD millions)	H1 2020<br> IFRS results	Amortization<br> of intangible<br> assets^1^	Impairments^2^	Acquisition<br> or divestment<br> of businesses<br> and related<br> items^3^	Other <br> items^4^	H1 2020<br> Core results	H1 2019<br> Core results
Gross profit	14 779	1 407		23	93	16 302	15 471
Operating income	4 788	1 432	519	71	98	6 908	6 228
The following are adjustments to arrive at core gross profit
Cost of goods sold	-5 080	1 407		23	93	-3 557	-3 506
The following are adjustments to arrive at core operating income
Selling, general and administration	-5 621			14	43	-5 564	-5 494
Research and development	-4 106	25	509	3	-80	-3 649	-3 626
Other income	326			-3	-174	149	199
Other expense	-590		10	34	216	-330	-322
^1^ Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to in-market products and other production-related intangible assets; research and development includes the amortization of acquired rights for technologies
^2^ Impairments: research and development includes impairment charges related to intangible assets; other expense includes impairment charges related to property, plant and equipment
^3^ Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold, selling, general and administration, research and development and other expense include net charges related to acquisitions; other income and other expense include transitional service-fee income and expenses related to the Alcon spin-off
^4^ Other items: cost of goods sold and other expense include restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold, selling, general and administration, research and development, other income and other expense include other restructuring income and charges and related items; selling, general and administration includes expenses related to COVID-19 donations and adjustments to provisions; research and development includes adjustments to contingent considerations; other income and other expense include fair value adjustments on financial assets; other income also includes net gains from the divestment of products and financial assets; other expense includes legal-related items

CORE RESULTS – Reconciliation from IFRS results to core results – Sandoz

Second quarter

(USD millions)	Q2 2020<br> IFRS results	Amortization<br> of intangible<br> assets^1^	Acquisition<br> or divestment<br> of businesses<br> and related<br> items^2^	Other <br> items^3^	Q2 2020<br> Core results	Q2 2019<br> Core results
Gross profit	1 066	70	11	23	1 170	1 289
Operating income	321	70	11	73	475	501
The following are adjustments to arrive at core gross profit
Cost of goods sold	-1 158	70	11	23	-1 054	-1 192
The following are adjustments to arrive at core operating income
Selling, general and administration	-496			23	-473	-543
Other income	17			-2	15	12
Other expense	-65			29	-36	-59
^1^ Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to in-market products and other production-related intangible assets
^2^ Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold includes net charges related to an acquisition
^3^ Other items: cost of goods sold and other expense include restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold, other income and other expense include restructuring income and charges and related items; selling, general and administration includes expenses related to COVID-19 donations and adjustments to provisions; other expense includes legal-related items

First half

(USD millions)	H1 2020<br> IFRS results	Amortization<br> of intangible<br> assets^1^	Impairments^2^	Acquisition<br> or divestment<br> of businesses<br> and related<br> items^3^	Other <br> items^4^	H1 2020<br> Core results	H1 2019<br> Core results
Gross profit	2 200	233	42	22	79	2 576	2 531
Operating income	276	233	54	22	563	1 148	962
The following are adjustments to arrive at core gross profit
Cost of goods sold	-2 614	233	42	22	79	-2 238	-2 343
The following are adjustments to arrive at core operating income
Selling, general and administration	-1 016				24	-992	-1 102
Other income	49				-12	37	49
Other expense	-562		12		472	-78	-124
^1^ Amortization of intangible assets: cost of goods sold includes the amortization of acquired rights to in-market products and other production-related intangible assets
^2^ Impairments: cost of goods sold includes impairment charges related to intangible assets, other expense includes impairment charges related to property, plant and equipment
^3^ Acquisition or divestment of businesses and related items, including restructuring and integration charges: cost of goods sold includes net charges related to an acquisition
^4^ Other items: cost of goods sold includes the cumulative amount of the depreciation up to December 31, 2019, recognized with the reclassification of property, plant and equipment out of assets of disposal group held for sale (see Note 3); cost of goods sold, other income and other expense include restructuring and other charges related to the Group-wide rationalization of manufacturing sites; cost of goods sold, selling, general and administration, other income and other expense include other restructuring income and charges and related items; selling, general and administration also includes expenses related to COVID-19 donations and adjustments to provisions; other expense includes a legal provision and legal-related items

CORE RESULTS – Reconciliation from IFRS results to core results – Corporate

Second quarter

(USD millions)	Q2 2020<br> IFRS results	Acquisition<br> or divestment<br> of businesses<br> and related<br> items^1^	Other <br> items^2^	Q2 2020<br> Core results	Q2 2019<br> Core results
Gross profit	23			23	26
Operating loss	-2	7	-112	-107	-159
The following are adjustments to arrive at core operating income
Other income	261	-17	-202	42	39
Other expense	-178	24	90	-64	-100
^1^ Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income and other expense include transitional service fee income and expenses related to the Alcon spin-off
^2^ Other items: other income and other expense include fair value adjustments and divestment gains and losses on financial assets, and restructuring income and charges and related items; other expense also includes expenses related to COVID-19 donations

First half

(USD millions)	H1 2020<br> IFRS results	Acquisition<br> or divestment<br> of businesses<br> and related<br> items^1^	Other <br> items^2^	H1 2020<br> Core results	H1 2019<br> Core results
Gross profit	200		-136	64	47
Operating income/loss	32	8	-250	-210	-288
The following are adjustments to arrive at core gross profit
Other revenues	158		-136	22	11
The following are adjustments to arrive at core operating income
Other income	318	-53	-220	45	86
Other expense	-269	61	106	-102	-182
^1^ Acquisition or divestment of businesses and related items, including restructuring and integration charges: other income and other expense include transitional service fee income and expenses related to the Alcon spin-off
^2^ Other items: other revenues includes a settlement of royalties; other income and other expense include fair value adjustments and divestment gains and losses on financial assets, and restructuring income and charges and related items; other expense also includes adjustments to legal provisions and expenses related to COVID-19 donations

CORE RESULTS – Reconciliation from IFRS results to core results – Discontinued operations 2019

Second quarter

(USD millions)	Q2 2019<br> IFRS results	Acquisition<br> or divestment<br> of businesses<br> and related<br> items^1^
Net income from discontinued operations<br>before gain on distribution of Alcon Inc.<br>to Novartis AG shareholders^2^
Gain on distribution of Alcon Inc. to Novartis AG shareholders	4 691	-4 691
Net income from discontinued operations	4 691
Basic EPS (USD)^3^	2.03
^1^ Acquisition or divestment of businesses and related items represents the non-taxable non-cash gain related to the distribution (spin-off) of Alcon Inc. to Novartis AG shareholders
^2^ As the Alcon spin-off was completed on April 9, 2019, the Q2 results of operations from the Alcon business were not material.
^3^ Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.

First half

( millions)	Amortization<br> of intangible<br> assets^1^	Acquisition<br> or divestment<br> of businesses<br> and related<br> items^2^	Other <br> items^3^	H1 2019<br> Core results
Gross profit	165		9	1 123
Operating income of discontinued operations	167		112	350
Income before taxes of discontinued operations				337
Taxes 4				-59
Net loss/income from discontinued operationsbefore gain on distribution of Alcon Inc.to Novartis AG shareholders				278
Gain on distribution of Alcon Inc. to Novartis AG shareholders		-4 691
Net income from discontinued operations				278
Basic EPS () 5				0.12
The following are adjustments to arrive at core gross profit
Cost of goods sold	165		9	-686
The following are adjustments to arrive at core operating income
Selling, general and administration			14	-624
Research and development	2		4	-136
Other income			-3	12
Other expense			88	-25
1 Amortization of intangible assets: cost of goods sold includes amortization of acquired rights to in-market products and other production-related intangible assets; research and development includes the amortization of acquired rights for technologies
2 Acquisition or divestment of businesses and related items represents the non-taxable non-cash gain related to the distribution of Alcon Inc. (spin-off) to Novartis AG shareholders
3 Other items: cost of goods sold, selling, general and administration, research and development and other expense include other restructuring charges and related items; research and development also includes amortization of option rights and the fair value adjustment of a contingent consideration liability; other income includes fair value adjustments on a financial asset; other expense also includes legal-related items
4 Taxes on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will finally be applicable to the item based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for items arising from legal settlements in certain jurisdictions. Due to these factors and the differing effective tax rates in the various jurisdictions, the tax on the total adjustments, excluding the non-taxable non-cash gain on the distribution (spin-off) of Alcon Inc. to Novartis AG shareholders of 279 million to arrive at the core results before tax amounts to 100 million. The 2019 core tax rate excluding the effect of the gain on distribution of Alcon Inc. to Novartis AG shareholders is 17.5%.
5 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.

All values are in US Dollars.

Income from associated companies

(USD millions)	Q2 2020	Q2 2019	H1 2020	H1 2019
Share of estimated Roche reported results	225	206	455	412
Prior-year adjustment			-64	-129
Amortization of additional intangible assets <br>recognized by Novartis on initial accounting <br>for the equity interest	-41	-29	-83	-69
Partial release of deferred tax liability recognized				43
Net income effect from Roche Holding AG	184	177	308	257
Others	-1	-1	-2	-1
Income from associated companies	183	176	306	256

Core income from associated companies

(USD millions)	Q2 2020	Q2 2019	H1 2020	H1 2019
Income from associated companies	183	176	306	256
Share of estimated Roche core adjustments	89	77	172	114
Roche prior year adjustment			102	161
Core income from associated companies	272	253	580	531

Condensed consolidated changes in net debt

Second quarter

(USD millions)	Q2 2020	Q2 2019
Change in cash and cash equivalents	1 389	3 184
Change in marketable securities, commodities, financial debts and financial derivatives	1 857	471
Reduction in net debt	3 246	3 655
Net debt at April 1	-29 783	-21 541
Net debt at June 30	-26 537	-17 886

First half

(USD millions)	H1 2020	H1 2019
Change in cash and cash equivalents	-5 195	-3 280
Change in marketable securities, commodities, financial debts and financial derivatives	-5 404	1 578
Increase in net debt	-10 599	-1 702
Net debt at January 1	-15 938	-16 184
Net debt at June 30	-26 537	-17 886

Components of net debt

(USD millions)	Jun 30, <br> 2020	Jun 30, <br> 2019
Non-current financial debts	-23 955	-20 364
Current financial debts and derivative financial instruments	-8 875	-7 857
Total financial debt	-32 830	-28 221
Less liquidity:
Cash and cash equivalents	5 917	9 991
Marketable securities, commodities, time deposits and derivative financial instruments	376	344
Total liquidity	6 293	10 335
Net debt at June 30	-26 537	-17 886

Share information

	Jun 30, <br> 2019
Number of shares outstanding	2 291 765 401
Registered share price (CHF)	89.20
ADR price ()	91.31
Market capitalization ( billions) 1	209.7
Market capitalization (CHF billions) 1	204.4
1 Market capitalization is calculated based on the number of shares outstanding (excluding treasury shares). Market capitalization in is based on the market capitalization in CHF converted at the quarter end CHF/ exchange rate.

All values are in US Dollars.

Free cash flow

Second quarter

(USD millions)	Q2 2020	Q2 2019
Operating income from continuing operations	2 352	2 663
Adjustments for non-cash items
Depreciation, amortization and impairments	1 537	1 014
Change in provisions and other non-current liabilities	118	958
Other	205	-441
Operating income adjusted for non-cash items	4 212	4 194
Dividends received from associated companies and others	2	3
Interest and other financial receipts	57	65
Interest and other financial payments	-237	-211
Taxes paid	-303	-560
Payments out of provisions and other net cash movements in non-current liabilities	-420	-323
Change in inventory and trade receivables less trade payables	354	-609
Change in other net current assets and other operating cash flow items	296	552
Net cash flows from operating activities from continuing operations	3 961	3 111
Purchases of property, plant and equipment	-238	-279
Proceeds from sale of property, plant and equipment	1	648
Purchases of intangible assets	-214	-161
Proceeds from sale of intangible assets	49	210
Purchases of financial assets	-38	-45
Proceeds from sale of financial assets	117	142
Purchases of other non-current assets	-7	-14
Free cash flow from continuing operations	3 631	3 612
Total free cash flow	3 631	3 612

Free cash flow

First half

( millions)	H1 2019
Operating income from continuing operations	4 905
Adjustments for non-cash items
Depreciation, amortization and impairments	2 467
Change in provisions and other non-current liabilities	1 018
Other	-312
Operating income adjusted for non-cash items	8 078
Dividends received from associated companies and others	463
Interest and other financial receipts	150
Interest and other financial payments	-422
Taxes paid	-960
Payments out of provisions and other net cash movements in non-current liabilities	-516
Change in inventory and trade receivables less trade payables	-1 306
Change in other net current assets and other operating cash flow items	-42
Net cash flows from operating activities from continuing operations	5 445
Purchases of property, plant and equipment	-561
Proceeds from sale of property, plant and equipment	812
Purchases of intangible assets	-498
Proceeds from sale of intangible assets	281
Purchases of financial assets	-154
Proceeds from sale of financial assets 1	177
Purchases of other non-current assets	-24
Proceeds from sale of other non-current assets	3
Free cash flow from continuing operations	5 481
Free cash flow from discontinued operations 2	-62
Total free cash flow	5 419
1 For the first half of 2020 free cash flow, proceeds from the sales of financial assets excludes the cash inflows from the sale of a portion of the Alcon Inc. shares recognized by certain consolidated foundations through the Alcon spin-off, which amounted to 232 million (H1 2019: nil). See Note 3.
2 In the first half of 2019, the free cash flow from discontinued operation was a cash outflow of 62 million consisting of 78 million net cash inflows from operating activities from discontinued operations, 1.1 billion net cash flows used in investing activities from discontinued operations adjusted by 283 million of net cash outflows for acquisitions and divestments of businesses, by 642 million of cash outflows attributable to the spin-off of the Alcon business and by 40 million of other net investing cash outflows.

All values are in US Dollars.

Effects of currency fluctuations

Principal currency translation rates

(USD per unit)	Average <br> rates<br> Q2 2020	Average <br> rates<br> Q2 2019	Average <br> rates<br> H1 2020	Average <br> rates<br> H1 2019	Period-end <br> rates<br> Jun 30, <br> 2020	Period-end <br> rates<br> Jun 30, <br> 2019
1 CHF	1.037	0.998	1.035	1.000	1.050	1.026
1 CNY	0.141	0.147	0.142	0.147	0.141	0.146
1 EUR	1.101	1.124	1.101	1.130	1.121	1.138
1 GBP	1.241	1.285	1.260	1.294	1.228	1.268
100 JPY	0.930	0.910	0.924	0.909	0.929	0.929
100 RUB	1.382	1.548	1.444	1.533	1.424	1.583

Currency impact on key figures

The following table provides a summary of the currency impact on key Group figures due to their conversion into US dollars, the Group’s reporting currency, of the financial data from entities reporting in non-US dollars. Constant currency (cc) calculations apply the exchange rates of the prior year period to the current period financial data for entities reporting in non-US dollars.

Second quarter

	Change in<br> USD %<br> Q2 2020	Change in<br> constant<br> currencies %<br> Q2 2020	Percentage<br> point currency<br> impact<br> Q2 2020	Change in<br> USD %<br> Q2 2019	Change in<br> constant<br> currencies %<br> Q2 2019	Percentage<br> point currency<br> impact<br> Q2 2019
Total Group – Continuing operations
Net sales to third parties	-4	-1	-3	4	8	-4
Operating income	-12	-4	-8	10	17	-7
Net income	-11	-4	-7	-73	-71	-2
Basic earnings per share (USD)	-10	-3	-7	-73	-71	-2
Core operating income	1	6	-5	14	20	-6
Core net income	0	5	-5	13	19	-6
Core basic earnings per share (USD)	1	6	-5	14	20	-6
Innovative Medicines
Net sales to third parties	-1	1	-2	5	9	-4
Operating income	-21	-15	-6	14	22	-8
Core operating income	0	5	-5	16	22	-6
Sandoz
Net sales to third parties	-11	-9	-2	-1	3	-4
Operating income	14	25	-11	-14	-7	-7
Core operating income	-5	1	-6	4	10	-6
Corporate
Operating loss	nm	nm	nm	-23	-28	5
Core operating loss	33	34	-1	-25	-28	3
nm = not meaningful

Currency impact on key figures

First half

	Change in<br> USD %<br> H1 2020	Change in<br> constant<br> currencies %<br> H1 2020	Percentage<br> point currency<br> impact<br> H1 2020	Change in<br> USD %<br> H1 2019	Change in<br> constant<br> currencies %<br> H1 2019	Percentage<br> point currency<br> impact<br> H1 2019
Total Group – Continuing operations
Net sales to third parties	3	6	-3	3	8	-5
Operating income	4	11	-7	2	11	-9
Net income	2	9	-7	-59	-56	-3
Basic earnings per share (USD)	3	11	-8	-59	-55	-4
Core operating income	14	19	-5	12	19	-7
Core net income	13	18	-5	9	16	-7
Core basic earnings per share (USD)	15	19	-4	9	17	-8
Innovative Medicines
Net sales to third parties	5	7	-2	5	10	-5
Operating income	2	9	-7	7	15	-8
Core operating income	11	16	-5	14	21	-7
Sandoz
Net sales to third parties	-2	1	-3	-4	1	-5
Operating income	-50	-40	-10	-25	-17	-8
Core operating income	19	26	-7	-2	6	-8
Corporate
Operating loss/income	nm	nm	nm	0	-4	4
Core operating loss	27	28	-1	-4	-8	4
nm = not meaningful

Disclaimer

All product names appearing in italics are trademarks owned by or licensed to Novartis Group companies.

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About Novartis

Important dates

September 01, 2020	ESG investor day
October 27, 2020	Third quarter results 2020
November 24, 2020	Capital Markets day

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