Investor Insights - Issue 5

March 26, 2013

Investor Perspective: Building Momentum for the Next Phase of Growth

In 2012, Novartis met its previously-stated external financial commitments, including Group sales in line with 2011 (+0.1%), Group core operating income margin slightly below 2011 (-0.7%), and broadly flat pharmaceuticals sales growth (+2.2%). Novartis also continued execution on its three core strategic focus areas of innovation, growth and productivity. Growth from recently launched products (2012 sales of USD 16.3 billion, or 29% of Group sales), helped to fully offset the USD 1.9 billion impact of generic competition. In addition, Novartis obtained 17 major approvals across Divisions in 2012, including Afinitor® in advanced breast cancer in the US and EU and a positive CHMP opinion for Bexsero® (meningococcal serogroup B vaccine). 2012 also saw continued strong performance from our emerging markets, which generated USD 13.8 billion, or 24% of Group net sales for the full year (+6% in constant currencies). We generated productivity savings in 2012 amounting to 4.9% of Group net sales.

Industry Leading Pipeline

Outlook for 2013 (barring unforeseen events):

• Group net sales expected to be in line with 2012 (cc)
• Group Core operating income expected to decline in mid-single digits (cc)

Building off the strong 2012 performance, Novartis is well-positioned to commence its next phase of growth. In 2013, Novartis must absorb generic erosion that could amount to as much as USD 3.5 billion for the full year, approaching double the generic impact felt in 2012. The estimate of generic impact for 2013 still depends to some degree on Ranbaxy's ability to launch Diovan Mono. We've included some Diovan Mono in our outlook for 2013, but we'll just have to see how it develops week by week. This is why we say the generic impact could be up to $3.5 billion. Notwithstanding this, Novartis expects 2013 Group net sales to be in line with 2012, and 2013 core operating income to decline in mid-single digits. Excluding the impact of generic competition, 2013 Group net sales would grow at least in mid-single digits, and 2013 core operating income is expected to grow ahead of underlying sales.

Outlook for 2013 takes into account the increasing impact of generics, along with the offsetting effect of strong volume growth from our existing product portfolio. 2013 currency impact is expected to be broadly neutral on the top-line and slightly negative on the bottom line.

See updated pipeline chart on page 6

Entering the Next Phase of Growth, Outlook to 2015

In the two years following 2013, Novartis exposure to generic competition is expected to decline to approximately 2-3% of total revenues. Our guidance assumes Gleevec® loses exclusivity in some markets (e.g. Canada, Russia, smaller East European countries) in 2012/2013, Japan in 2014, US in mid 2015 and EU in 2016. Sales erosion for Gleevec® is therefore expected to be gradual. Despite this, the Oncology business unit believes it could grow over the next five years.

In Oncology, the main growth drivers are expected to be Afinitor®, Tasigna® and Jakavi®. Growth drivers in specialty and primary care are expected to include Gilenya®, Xolair®, Galvus® and the Q-Family (Onbrez®, Seebri®, QVA149). Our 2015 sales projections derive largely from products that are already approved, which removes development and regulatory risks from the expectation. This underscores the confidence that we have in our current product portfolio.

We also expect there may be potential upside beyond the current market and portfolio due to a fairly broad set of incremental pipeline opportunities (See Issue 4 of Investor Insights for further details on the outlook provided for key products at our R&D Day in November 2012: http://www.novartis.com/investors/latest-news/investor-insights-issue04.shtml)

Delivering Attractive Shareholder Returns

The sustainability of our strategy lies with the generation of cash flow that provides the resources for appropriate reinvestment and returns to shareholders. Our 2012 free cash flow of USD 11.4 billion was strong, allowing us to invest in the business and decrease our debt by $3.6 billion in 2012. Additionally shareholders approved a dividend payment of CHF 2.30 per share for 2012, up 2% from CHF 2.25 per share in 2011, representing the 16th consecutive dividend increase since the inception of Novartis in 1996. The 2012 payout ratio as a percentage of net income is expected to decrease from 66 % to 65%.

Recap of Key Recent Announcements

Disclaimer

The following presentations contain forward-looking statements that can be identified by terminology such as such as "outlook," "expect," "expected," "would," "will," "projected," "potential," "planned," "well-positioned," or similar expressions, or by express or implied discussions regarding potential new products, potential new indications for existing products, or regarding potential future revenues from any such products; or regarding potential future sales or earnings of the Group or any of its divisions in the near- and long-term; or by discussions of strategy, plans, expectations or intentions. You should not place undue reliance on these statements. Such forward-looking statements reflect the current views of the Group regarding future events, and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. There can be no guarantee that any new products will be approved for sale in any market, or that any new indications will be approved for any existing products in any market, or that any approvals which are obtained will be obtained at any particular time, or that any such products will achieve any particular revenue levels. Neither can there be any guarantee that the Group, or any of its divisions, will achieve any particular financial results, either in the near-term or in the long-term. In particular, management's expectations could be affected by, among other things, unexpected regulatory actions or delays or government regulation generally; unexpected clinical trial results, including additional analyses of existing clinical data or unexpected new clinical data; the Group's ability to obtain or maintain patent or other proprietary intellectual property protection, including the ultimate extent of the impact on the Group of the loss of patent protection on key products which commenced last year and will continue this year; unexpected product manufacturing and quality issues, including the potential outcomes of our efforts at the Sandoz and Alcon sites that are subject to Warning Letters, and with respect to our efforts to restart production of products formerly produced at the Consumer Health manufacturing facility at Lincoln, Nebraska; government, industry, and general public pricing pressures; uncertainties regarding actual or potential legal proceedings, including, among others, actual or potential product liability litigation, litigation and investigations regarding sales and marketing practices, shareholder litigation, government investigations and intellectual property disputes; competition in general; uncertainties regarding the effects of the ongoing global financial and economic crisis, including the financial troubles in certain Eurozone countries; uncertainties regarding future global exchange rates; uncertainties regarding future demand for our products; uncertainties necessarily involved in long-term financial projections; uncertainties involved in the development of new healthcare products; the impact that the foregoing factors could have on the values attributed to the Group's assets and liabilities as recorded in the Group's consolidated balance sheet; and other risks and factors referred to in Novartis AG's current Form 20-F on file with the US Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. Novartis is providing the information in these presentations 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.