Novartis (NVS) Risk Analysis

Failure to competitively discover and develop innovative medicines in our core therapeutic areas and leverage our technology platforms We engage in extensive and costly research and development activities, both through our own internal resources and through collaborations with third parties, in an effort to identify and develop new products and new indications for existing products that address unmet, ever-changing medical needs, while ensuring commercial viability and success. Our product candidates are subject to the high rate of failure inherent in pharmaceutical research and development. Failure can occur at any point, including after significant investments have been made in a product candidate. Our ability to grow our business and our product pipeline, to replace sales lost due to branded competition, entry of generics, or other factors, and to bring products to market that take advantage of new technologies - including AI as well as cell, gene and radioligand therapies - depends in significant part on the success of these efforts. Failure to successfully develop our pipeline products is typically the result of the inherent uncertainty of science, suboptimal internal execution, or both. Key elements of internal execution include our ability to: prioritize our investments in our highest potential value assets; optimize the transition of assets from research to development; integrate externally acquired assets in an efficient way; and execute the steps in our drug development process that enable our assets to be approved and reimbursed in a timely manner to positively impact clinical practice. We cannot guarantee that we will prioritize investment of resources into assets optimally to achieve commercial success or that our product candidates currently under development will be approved or launched. Further, a failure to successfully implement AI as part of our R&D strategy may put us at a competitive disadvantage and impact our productivity and pipeline value. For more information, see also "Item 4. Information on the Company-Item 4.B Business overview-Research and development." Our new products must undergo intensive preclinical and clinical testing and are approved by means of a highly complex, lengthy, and expensive approval process that varies substantially from country to country and may have specific requirements for the recruitment of patients for clinical trials. Additionally, if we fail to successfully progress late-stage assets and the core elements of drug development for key programs, this could have a negative impact on the development of our product pipeline, and ultimately on the success of our business and our financial results. We may be unable to develop the necessary clinical evidence to support the desired indications and product profile for a particular disease that is needed to drive clinical adoption of our new products, and to thereby achieve the full potential of our assets (also known as the "target product profile"). It is increasingly challenging to adequately recruit a sufficient number of patients in the US for clinical trials due to competition from other clinical trials, and the cost and effort associated with expanding our operations for the recruitment of patients into such trials. Similarly, the post-approval regulatory burden has also increased, and may continue to increase, as regulators are increasingly focused on long-term data. For example, certain of our products have received, and in the future may receive, accelerated approvals that are contingent upon confirmatory studies, including data that continues to demonstrate clinical benefit or safety. These requirements make the maintenance of regulatory approvals and label expansions for our products increasingly expensive, and further heighten the risk of recalls, product withdrawals, changes to product specifications, loss of market share, and loss of revenue and profitability. The clinical testing, regulatory processes and post-approval activities described above have become, and may in the future continue to become, more difficult during pandemics and periods of geopolitical and economic uncertainty. This is due to challenges related to recruiting, enrolling and treating patients in clinical trials, as well as to ensuring the supply of trial materials. Furthermore, our research and development activities must be conducted in an ethical and compliant manner. Among other things, we are concerned with patient safety (both pre- and post-product approval), data privacy, current Good Clinical Practices (cGCP) requirements, data integrity, the fair treatment of patients, broad representation in the recruitment of patients to clinical trials, and animal welfare. If we fail to properly manage such issues, we risk injury to third parties, damage to our reputation, negative financial consequences as a result of potential claims for damages, sanctions and fines, and the potential that investments in research and development activities may not bring the expected benefits to us. For a further description of the research and development of, and approval processes for, our products, see "Research and development" and "Regulation" under "Item 4. Information on the Company-Item 4.B Business overview."

Expiry, assertion or loss of intellectual property protection Many of our products are protected by intellectual property rights, including patents and regulatory exclusivities, which may provide us with exclusive rights to market those products for a limited time, to enable our purpose of reimagining medicine by sustainably financing our research and development. However, the strength and duration of those rights can vary significantly from product to product and from country to country, and they may be successfully challenged by third parties or governmental authorities. If we fail to obtain and maintain adequate intellectual property protection, we may not be able to prevent third parties from launching generic or biosimilar versions of our branded products or from using our proprietary technologies. Intellectual property protection related to particular compound forms, uses, formulations, or processes may not preclude third parties from designing around our rights to compete with our products. Loss of intellectual property protection and the introduction of generic or biosimilar competition for a patented branded medicine in a country typically result in a significant reduction in net sales and operating income for the branded product. In any given year, we may experience a potentially significant impact on our net sales from products that have already lost intellectual property protection, as well as products that may lose protection during the year. Such competition can occur after successful challenges to intellectual property rights or the regular expiration of the patent term or other intellectual property rights. Such competition can also result from the entry of generic or biosimilar versions of another medicine in the same therapeutic class as one of our drugs or in a competing therapeutic class, from a Declaration of Public Interest or the compulsory licensing of our intellectual property by governmental authorities, or as a result of a general weakening of intellectual property and governing laws in certain countries around the world. In addition, generic or biosimilar manufacturers may sometimes launch products "at risk" before the final resolution of legal proceedings concerning the infringement or validity of relevant patents or regulatory exclusivities. For example, we lost market exclusivity for Entresto in the US in July 2025, and thereafter experienced a substantial decline in Entresto sales in that market during the second half of 2025. Our regulatory data protection for Entresto in Europe expires in November 2026, and revenues will decline substantially thereafter unless we are successful in appropriately asserting our intellectual property rights that expire later. Further, certain of our other products may face significant generic competition as we anticipate the expiration of certain patent-based or regulatory exclusivities in the coming years for certain of our key marketed products. For more information on the patent and generic competition status of our products, see "Item 4. Information on the Company-Item 4.B Business overview-Intellectual property." We also rely across all aspects of our businesses on unpatented proprietary technology, know-how, trade secrets, and other confidential information. We seek to protect these through various measures, including confidentiality agreements with employees, licensees, third-party collaborators, contractors, and consultants who may have had access to such information. If these agreements are breached or our other protective measures should fail, we may not be able to prevent a third party from copying or otherwise obtaining and using our trade secrets or other intellectual property without authorization, and our contractual or other remedies may not be adequate to cover our losses. Further, others may independently and lawfully develop substantially similar or identical products that circumvent our intellectual property by means of alternative designs or processes or otherwise. In addition, third parties may claim that our products or business infringe, misappropriate or otherwise violate patents or other intellectual property rights held by them. Claims of intellectual property infringement, misappropriation or other violations can be costly and time-consuming to resolve and may delay or prevent product launches. If successful, these actions may involve payment of future royalties or damages (including treble damages on US sales if we are found to have willfully infringed valid patent rights of a third party) and may also involve injunctive relief requiring the removal of one or more dosage strengths of a product from the market (or removal of a therapeutic indication from the product's approved labeling) for a period of time or throughout the life of the asserted intellectual property right. Such damages or such an injunction may have a material impact on our operating income and net sales. A third party may also claim that our owned or licensed patent rights are not infringed or are invalid or unenforceable in a litigation. The outcome following such legal assertions is unpredictable, and the loss of patent rights as a result of such assertions could result in the introduction of generic or biosimilar competition for, and reduction in sales of, the branded product covered by such patent rights. The outcome may also result in our inability to obtain fair value for the use of our patents, or to obtain an injunction preventing the unlicensed practice of our patents. In addition, intellectual property protection in certain jurisdictions outside the EU and US may be weaker, and we may face heightened risks to our intellectual property rights in these jurisdictions, including competition with generic, infringing or counterfeit versions of our products at or after launch. Because we may have substantially reduced marketing and research and development expenses related to products that are in their final years of exclusivity, the initial loss of protection for a product during a given year could also have an impact on our operating income for that year in an amount corresponding to a significant portion of the product's lost sales. The magnitude of the impact of generic or biosimilar competition on our income could depend on a number of factors. These include: with respect to income in a given year, the time of year at which the generic or biosimilar competitor is launched; the ease or difficulty of manufacturing a competitor product and obtaining regulatory approval to market it; the number of generic or biosimilar competitor products approved, including whether, in the US, a single competitor is granted an exclusive marketing period; whether an authorized generic is launched; the geographies in which generic or biosimilar competitor products are approved, including the strength of the market for generic or biosimilar pharmaceutical products in such geographies, and the comparative profitability of branded pharmaceutical products in such geographies; and our ability to successfully develop and launch new products for patients that may also offset the income lost to generic or biosimilar competition.

Risk description Cybersecurity breaches, data loss and catastrophic loss of IT systems We are heavily dependent on critical, complex and interdependent information technology (IT) systems, including internet-based systems to support our business processes. We also outsource significant parts of our IT infrastructure to third-party providers, including those who provide AI services and technology, and currently use these providers to perform business-critical IT and non-IT services for us. We are therefore vulnerable to cybersecurity attacks and incidents on such networks and systems - whether our own or those of the third-party providers that we contract - and we have experienced, and may in the future experience, such cybersecurity threats and attacks. Cybersecurity threats and attacks take many forms, and the size, age and complexity of our IT systems make them potentially vulnerable to external and internal security threats; outages; malicious intrusions and attacks; cybercrimes, including state-sponsored cybercrimes; malware; ransomware; misplaced or exposed data, lost data or data errors; programming or human errors; or other similar events, and may remain undetected for significant periods of time. We may not be able to anticipate all types of security threats, and we may not be able to implement preventive measures that are effective against all such security threats. The risk of such threats and attacks has increased in part due to the rise of AI, and as virtual and remote working have become more common, and sensitive data is accessed by employees working in less secure, home-based environments. In addition, due to our reliance on third-party providers, we have experienced, and may in the future experience, interruptions, delays or outages in IT service availability due to a variety of factors outside our control, including technical failures, natural disasters, fraud, or security attacks experienced by or caused by third-party providers. Interruptions in the service provided by these third parties could affect our ability to perform critical tasks. Further, businesses we acquire may be more vulnerable to cybersecurity attacks and we may be unable to address such deficiencies immediately after acquisition. A significant information security or other event, such as a disruption or loss of availability of one or more of our IT systems, whether managed by us or a third-party service provider, has previously and could in the future negatively impact important business processes. These include the conduct of scientific research and clinical trials, the submission of data and information to health authorities, our manufacturing and supply chain processes, our shipments to customers, our compliance with legal obligations, and communication between employees and with third parties. In the ordinary course of business, we collect, store and transmit confidential information (including but not limited to intellectual property, proprietary business information, and personal information). IT issues have previously led to, and could in the future lead to, the compromise of trade secrets, confidential information or other intellectual property that could be sold and used by competitors to accelerate the development or manufacturing of competing products; the compromise of personal financial and health information; and the compromise of IT security data such as usernames, passwords and encryption keys, as well as security strategies and information about network infrastructure, which could allow unauthorized parties to gain access to additional systems or data. In addition, malfunctions in software or medical devices that make significant use of IT could lead to a risk of direct harm to patients. The costs related to significant security breaches or disruptions could be material and any cybersecurity insurance that we may have in place may not cover such expenses. If the information technology systems of our third-party providers become subject to disruptions or security breaches, we may have insufficient recourse against such third parties and we may have to expend significant resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring. The occurrence of any of the events described above in the future could disrupt our business operations and result in enforcement actions or liability, including potential government fines and penalties, claims for damages, and shareholder litigation or allegations that the public health, or the health of individuals, has been harmed. Any significant events of this type could require us to expend significant resources beyond those we already invest to remediate any damage, to further modify or enhance our protective measures, and to enable the continuity of our business.

Impact of falsified medicines on patient safety, and reputational and financial harm to us and our products Context and potential impact We continue to be challenged by the vulnerability of distribution channels to falsified medicines, which, as defined by the WHO, include counterfeit, stolen, tampered and illegally diverted medicines. Falsified medicines pose patient safety risks and can be seriously harmful or life-threatening. Reports of adverse events related to falsified medicines and increased levels of falsified medicines in the healthcare system affect patients' confidence in genuine medicines and in healthcare systems in general. These events could also cause us substantial reputational and financial harm, and could potentially lead to litigation if the adverse event from a falsified medicine is mistakenly attributed to our products. Stolen or illegally diverted medicines that are not properly stored and are later sold through unauthorized channels could adversely impact patient safety, our reputation, and our business. Furthermore, falsified medicines can lead to direct financial losses through social security fraud, recalls, or declines in sales of our legitimate products.

Negative effect on financial results due to foreign currency exchange rate fluctuations Changes in exchange rates between the US dollar, which is our reporting currency, and other currencies have previously resulted in, and in the future may result in, significant increases or decreases in our reported sales, costs, and earnings as expressed in US dollars, as well as in the reported value of our assets, liabilities and cash flows. In addition to ordinary market risk, there is a risk that countries could take affirmative steps that could significantly impact the value of their currencies. Such steps could include unconventional monetary policies, tariffs, and potential withdrawals by countries from common currencies. In addition, countries facing local financial difficulties, including countries experiencing high inflation rates, and highly indebted countries facing large capital outflows, may impose controls on the exchange of foreign currency. Currency exchange controls and sanctions could limit our ability to distribute retained earnings from our local affiliates, or to pay intercompany payables due from those countries. Despite measures undertaken to reduce or hedge against foreign currency exchange risks, as a significant portion of our earnings and expenditures are in currencies other than the US dollar, including expenditures in Swiss francs that are significantly higher than our revenue in Swiss francs, any such exchange rate volatility may negatively and materially impact our results of operations and financial condition, and may impact the reported value of our net sales, earnings, assets, and liabilities. In addition, the timing and extent of such volatility can be difficult to predict. Furthermore, depending on the movements of particular foreign exchange rates, we may be materially adversely affected at a time when the same currency movements are benefiting some of our competitors. For more information on the effects of currency fluctuations on our consolidated financial statements and on how we manage currency risk, see "Item 5. Operating and Financial Review and Prospects-Item 5.B Liquidity and capital resources-Effects of currency fluctuations" and "Item 18. Financial Statements-Note 28. Financial instruments – additional disclosures."

Goodwill and intangible assets other than goodwill resulting in significant impairment charges We carry a significant amount of goodwill and intangible assets other than goodwill on our consolidated balance sheet. These include, in particular, substantial goodwill and intangible assets other than goodwill obtained through acquisitions, including most recently through our acquisitions of Anthos Therapeutics, Regulus Therapeutics, and Tourmaline Bio, and through long-term research and development agreements with various third parties. As a result, we have incurred, and may in the future incur further, significant impairment charges if the fair value of the intangible assets other than goodwill and the groupings of cash-generating units containing goodwill would be less than their carrying value on our consolidated balance sheet at any point in time. We regularly review our intangible and tangible assets for impairment, including identifiable intangible assets and goodwill. If one or more events occur that would cause us to revise our estimates and assumptions used in analyzing the value of our goodwill and intangible assets other than goodwill, such revision could result in an impairment charge in the period in which it occurs. Any significant impairment charges could have a material adverse effect on our results of operations and financial condition. In 2025, for example, we recorded impairment charges of USD 557 million on intangible assets other than goodwill. For a detailed discussion about how we determine whether an impairment has occurred, what factors could result in an impairment, and the impact of impairment charges on our results of operations, see "Item 18. Financial Statements-Note 1. Accounting policies" and "Item 18. Financial Statements-Note 11. Goodwill and intangible assets other than goodwill."

Our indebtedness could adversely affect our operations As of December 31, 2025, we had USD 27.9 billion of non-current financial debt, and USD 5.6 billion of current financial debt. Our current and long-term debt requires us to dedicate a portion of our cash flow to service interest and principal payments, and, if interest rates rise, this amount may increase. As a result, our existing debt may limit our ability to use our cash flow to fund capital expenditures, to engage in transactions, or to meet other capital needs, or otherwise may place us at a competitive disadvantage relative to competitors that have less debt. Our debt could also limit our flexibility to plan for and react to changes in our business or industry, and increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates or a downturn in our business or the economy. We may also have difficulty refinancing our existing debt or incurring new debt on terms that we would consider to be commercially reasonable, if at all.

Failure to identify, execute or realize the expected benefits from our external business opportunities As part of our strategy as a focused innovative medicines company, we routinely evaluate external opportunities that could strengthen our portfolio by acquiring and divesting products, entering new areas of business, or entering into strategic alliances and collaborations. Additionally, strategic deals with early stage companies or involving new technology platforms contribute to our innovation. For example, in 2025, we closed the acquisitions of Anthos Therapeutics, Regulus Therapeutics, and Tourmaline Bio, announced the proposed acquisition of Avidity Biosciences, and entered into several strategic partnerships for the development and commercialization of innovative products across our core therapeutic areas and technology platforms. This strategy relies on our ability to identify strategic external business opportunities, which may be limited, in a highly competitive environment, including assessing the value of early stage companies, and to close transactions with third parties on mutually acceptable terms and timelines. The market for clinical-stage assets and cutting-edge technology platforms within our core therapeutic areas is highly competitive and we may be unsuccessful in acquiring businesses or assets or entering into strategic partnerships that may complement our existing portfolio. Once the key terms of a strategic transaction have been agreed with a third party, we may not be able to reach final agreement on the transaction as a result of, among other things, disagreement on the contractual terms or negative due diligence results. In addition, we cannot be sure that pre-transaction due diligence will identify all possible issues that might arise during and after the transaction. Further, regulatory scrutiny of business acquisitions in our industry, including by competition authorities across jurisdictions globally, could delay, jeopardize or increase the costs of our business development activities. Our efforts on such transactions can also divert management's attention from our existing businesses and pursuing multiple transactions at the same time may impact our ability to efficiently conduct appropriate levels of pre-transaction technical due diligence, and to consummate such transactions. After a transaction is closed, efforts to develop and commercialize acquired or licensed products, to integrate the acquired business or to achieve expected synergies may fail or may not fully meet expectations. This may occur due to difficulties in retaining key personnel, customers and suppliers; failure to obtain marketing approval or reimbursement within expected timeframes or at all; differences in corporate culture, standards, controls, processes and policies; or other factors. Transactions can also result in liabilities being incurred that were not known at the time of acquisition, or the creation of tax or accounting issues. Acquired businesses are not always in full compliance with legal, regulatory or Novartis standards, including, for example, current Good Manufacturing Practices (cGMP) or cGCP standards, which can be costly and time-consuming to remediate. Furthermore, our strategic alliances and collaborations with third parties may not achieve their intended goals and objectives within expected time frames, or at all. For more information about recent business acquisitions, see "Item 18. Financial Statements-Note 2. Significant acquisitions of businesses and spin-off of Sandoz business." Similarly, we cannot ensure that we will be able to successfully divest or spin off businesses or other assets that we have identified for this purpose; or that any completed divestment or spin-off will achieve the expected strategic benefits, operational efficiencies or opportunities; or that the divestment or spin-off will ultimately maximize shareholder value.

Risk description Failure to deliver key commercial priorities and successfully launch new products ahead of competitors Context and potential impact We operate in a highly competitive and rapidly changing industry, and our ability to maintain and grow our business and to replace revenue and income lost to generic, biosimilar, and other competition depends heavily on the commercial success of our new or existing key products. The commercial success of these products could be impacted at any time by a number of factors, including pressure from new or existing competitive products, changes in the prescribing habits of healthcare professionals, slower than expected post-launch adoption, unexpected side effects or safety signals, supply chain issues or other product shortages, pricing pressure, regulatory proceedings, changes in labeling, loss of intellectual property protection, or global pandemics. Healthcare professionals, patients and payers may choose competitors' products instead of ours for various reasons, including if they perceive them to be better in terms of efficacy, safety, cost, convenience or other reasons. The commercial success of our key products and launches in the face of increasing competition requires significant attention, management focus and resource allocation. Such competition could significantly affect the revenue from our products and our results of operations. This impact could also be compounded to the extent that such competition results in us making significant additional investments in research and development, marketing or sales. The continual development and utilization of new technologies for new products and product enhancements is an important way in which we deliver our key commercial priorities and remain competitive. If we fail to keep pace with technological changes in our industry, such as AI, we may experience lower revenues and lower margins. Furthermore, we regularly reassess how our business is organized to help ensure that we have the optimal structure with which to execute our strategy. An inability to successfully optimize our capability and operating model could have a material adverse effect on our results of operations and financial condition.

Concentration among our key customers Context and potential impact A significant portion of our global sales is to a small number of drug wholesalers, retail chains, governments, and other purchasing organizations. For example, our three largest customers globally accounted for approximately 18%, 13% and 7%, respectively, of net sales in 2025. The top three largest customers' trade receivables outstanding amounted to 16%, 12% and 6%, respectively, of the trade receivables at December 31, 2025. Historically, there has been a trend of consolidation among our customer base, which may continue in the future. As a result, we are exposed to a concentration of credit risk among our key customers. If one or more of our major customers experienced financial difficulties, the effect on us would be material, and would result in a substantial loss of sales and an inability to collect amounts owed to us.