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 15, 2010

(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:

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):

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):

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.

- Investor Relations Release -

Novartis delivers strong financial performance in second quarter, underpinned by increased momentum in innovation

·                  Double-digit growth in the second quarter with excellent contributions from all divisions

·                  Net sales up 11% (+12% in constant currencies, or cc) to USD 11.7 billion; first half up 18% (+15% cc) to USD 23.8 billion

·                  Operating income grows 25% (+24% cc) to USD 3.0 billion; core operating income up 23% (+23% cc) to USD 3.3 billion

·                  Core margin improves by 2.7 percentage points to 28% of net sales

·                  EPS up 18% (+17% cc) to USD 1.06; core EPS rises 14% (+14% cc) to USD 1.20

·                  Free cash flow before dividends up 24% (USD 2.4 billion); first half free cash flow up 54% to USD 5.3 billion

·                  Strong performance driven by continued portfolio rejuvenation and innovation

·                  Unanimous FDA Advisory Committee recommendation for FTY720 approval as therapy for multiple sclerosis

·                  US approval of Tasigna as first-line therapy for chronic myeloid leukemia

·                  Group’s recently launched products contribute 21% of net sales (USD 2.4 billion); USD 5.5 billion for first half

·                  Oncology franchise showcased at ASCO with 170 abstracts highlighting investigational uses of current therapies and new agents

Key figures

(1) Before dividends

(2) Core results for operating income, net income and earnings per share (EPS) eliminate the amortization of intangible assets, the impact of acquisition-related factors and other significant exceptional items. See page 44 for further information.

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

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Basel, July 15, 2010 — Commenting on the results, Joseph Jimenez, CEO of Novartis, said: “I am pleased that Novartis once again delivered strong above-market, double-digit growth in the second quarter of 2010. Our results were driven by our success in innovation across the portfolio, as recently launched products comprised 21% of Group sales. We are making great progress on all three strategic priorities of innovation, growth and productivity.”

GROUP REVIEW

Second quarter

Novartis delivered a strong performance in the second quarter of 2010 — with the rapid expansion of recently launched products and important regulatory approvals achieved for new medicines — as the Group made progress on its agenda on innovation, growth and productivity.

Net sales rose 11% (+12% cc) to USD 11.7 billion with currency movements depressing the result by 1 percentage point. Rejuvenation of the portfolio continued with recently launched products generating sales of USD 2.4 billion — 21% of total sales including A(H1N1) pandemic vaccines. For the Group, volume grew by 12 percentage points, price was a negative 1 percentage point and acquisitions contributed 1 percentage point. Pharmaceuticals (USD 7.7 billion, +8% cc) advanced in all regions and maintained solid volume growth. Vaccines and Diagnostics (USD 0.6 billion, +135% cc) achieved considerable gains, including USD 0.2 billion from recognition of A(H1N1) pandemic vaccine sales. Sandoz (USD 2.0 billion, +13% cc) grew on successful new product launches and the contribution of EBEWE Pharma. All Consumer Health businesses (USD 1.5 billion, +7% cc) had strong performances.

Operating income rose 25% (+24% cc) to USD 3.0 billion including 1 percentage point from favorable currency movements. Operating income includes a pension gain of USD 265 million, offset by provisions for litigation and legal settlements of USD 231 million and impairments of assets of USD 82 million. The operating income margin improved 2.9 percentage points to 25.3% of net sales from 22.4% in the 2009 period. Core operating income, which excludes exceptional items and amortization of intangible assets in both periods, rose 23% (+23% cc) to USD 3.3 billion, and the core operating income margin rose 2.7 percentage points to 28.0% of net sales.

Earnings per share (EPS) increased 18% (+17% cc) to USD 1.06 while core EPS was up 14% (14% cc) in the second quarter to USD 1.20.

First half

In the first half of the year, Novartis Group net sales rose by 18% (+15% cc) to USD 23.8 billion. Recently launched products generated sales of USD 5.5 billion, 23% of net sales. Sales benefitted from 3 percentage points in currency movements. Volume grew by 16 percentage points, price was negative 2 percentage points and acquisitions contributed 1 percentage point. All regions of our Pharmaceuticals organization advanced (USD 15 billion, +8% cc) and maintained solid volume growth. Recognition of A(H1N1) pandemic vaccine sales provided USD 1.3 billion for Vaccines and Diagnostics, which achieved significant growth overall (USD 1.9 billion, +287% cc). Sandoz had a strong first half and grew (USD 4.0 billion, +11% cc) due to the successful launch of new products and the acquisition of EBEWE Pharma. All Consumer Health businesses (USD 3.0 billion, +7% cc) outperformed their markets.

Operating income rose 37% (+33% cc) to USD 6.5 billion including 4 percentage points of favorable currency movements. Included in operating income is a one-time pension gain of USD 265 million offset by litigation charges totaling USD 237 million and impairments totaling USD 147 million. The first half of 2010 operating income margin improved 3.8 percentage points to 27.1% of net sales, up from 23.3% in the first half of 2009. Core operating income, which excludes exceptional items and amortization of intangible assets in both periods, rose 35% (+32% cc) to USD 7.1 billion. The first half of 2010 core operating income margin rose 3.9 percentage points to 29.9% of net sales.

Earnings per share (EPS) in the first half of 2010 increased by 33% (+28% cc) to USD 2.34, while core EPS was up 29% (+24% cc) to USD 2.65 in the first half of 2010.

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Delivering innovation, growth and productivity

Our above-market success in the second quarter of 2010 reinforces our focus on three strategic priorities, which together enable us to deliver life-saving medicines for patients and greater value for investors. These priorities are: (1) extending our lead in innovation by focusing on diseases with significant unmet need and delivering positive patient outcomes; (2) accelerating growth across all divisions through tailored commercial models that leverage our broad portfolio and expansion in emerging markets; and (3) driving productivity across our business to continue improving margins and reinvesting for future growth.

By focusing on these three areas, Novartis achieved strong growth in the second quarter despite challenges and volatility in the external environment. The diversity of our portfolio and our capacity to innovate across it provides a degree of insulation from dynamics such as the debt crisis and the increasing drive by governments toward healthcare cost containment.

Novartis has continued to deliver above-market growth by capturing the opportunities of rising global demand for medicines. At the core of this success is a sustained commitment to innovation, which has resulted in breakthrough products across our portfolio offering patients opportunities for improved health outcomes. Our ability to thrive in a challenging environment is consistent with our goal of becoming the world’s most successful and respected healthcare company.

Extending our lead in innovation

Consistent R&D investment, differentiated new medicines and an industry-leading number of product approvals are the drivers of innovation at Novartis. We continue to strengthen our pipeline and have 58 new molecular entities in development.

We are encouraged by the recent unanimous recommendation by the US FDA Advisory Committee for approval of FTY720, an oral therapy for the treatment of multiple sclerosis, a life-long debilitating disease affecting 2.5 million patients worldwide. Clinical trials demonstrated the efficacy and safety of FTY720, with participants showing reduced relapses and delayed disease progression.

Our oncology franchise continues to strengthen its competitive position — 170 abstracts were presented at the American Society of Clinical Oncology (ASCO) meeting — demonstrating the scale and breadth of our portfolio. Tasigna, our second drug under priority review by the FDA this year, was approved for first-line treatment of newly diagnosed chronic myeloid leukemia (CML), providing a major advance for patients with blood cancer. At ASCO, we presented strong data that showed Tasigna surpassing Glivec in slowing disease progression for newly diagnosed CML patients. Demonstrating the potential efficacy of Afinitor against multiple cancers, a study presented at ASCO showed successful reduction of benign brain tumors (subependymal giant cell astrocytomas) associated with tuberous sclerosis in 75% of patients, which led to filing in the US and priority review designation. Separate Phase III study data released July 1, 2010 showed that Afinitor more than doubles the time without tumor growth in advanced pancreatic neuroendocrine tumor patients. Additionally, RADIANT 2, a placebo-controlled Phase III study of Afinitor in combination with Sandostatin LAR versus Sandostatin LAR alone in patients with advanced carcinoid tumors missed the primary endpoint by a very small statistical margin (progression-free survival Hazard Ratio = 0.77 in favor of Afinitor, p = 0.026 versus p=0.024 predefined). An imbalance in baseline between the two treatment arms was observed and will be further investigated. Full data will be discussed with the Health Authorities in the context of the upcoming submission. Another key ASCO study demonstrated that the addition of Zometa to first-line chemotherapy treatment improved survival by 16% for newly diagnosed patients with multiple myeloma.

Our research strategy utilizes a unique disease pathways approach that can lead to the discovery of medicines effective across many therapeutic areas. This strategy generally starts with small indications where the pathway is best characterized before branching out into commercially larger fields. Consistent with this focused research strategy, new Phase II data demonstrates that ACZ885, currently marketed as Ilaris for the rare disease cryopyrin-associated periodic syndrome (CAPS), provided highly statistically significant risk reduction of acute flares in gout patients compared to the anti-inflammatory standard of care.

Sandoz continues to have success expanding its pipeline and portfolio of differentiated products. In the second quarter, Sandoz completed the acquisition of Oriel Therapeutics, providing exclusive rights to three promising projects for asthma and chronic obstructive pulmonary disease (COPD) as well as access to their novel FreePath™ drug delivery technology and Solis™ dry powder inhaler. Completion of the EBEWE acquisition last year has also positioned Sandoz to play a leading role in the rapidly growing market for generic oncology injectables.

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Sandoz is the only generics company with 3 biosimilar products on the market providing invaluable insight into the successful exploitation of this major strategic opportunity: Zarzio, a treatment for low white blood cell count associated with chemotherapy treatment or advanced HIV infection, which was most recently launched in France, extending Sandoz’s presence in biosimilars; Omnitrope, a treatment for children and adults with growth hormone deficiency, and Binocrit, a life-saving anemia medicine for patients suffering from kidney failure or undergoing chemotherapy. Sales of biosimilars grew by 66% in the second quarter.

In Vaccines and Diagnostics, we held positive discussions with the EMA regarding our multi-component meningococcal B vaccine (MenB) submission and are on track for filing, while in the US discussions with the FDA regarding the Phase III trial continue. MenB is important for Novartis, as the global meningitis market is large (USD 1.1 billion) and growing (expected to reach USD 2.7 billion by 2016). More importantly, the vaccine, developed via Novartis’ pioneering “reverse vaccinology,” has the potential, when approved, to fill a major unmet need for a broadly protective vaccine for children and infants two months and older.

Accelerating growth

Our momentum in innovation will sustain growth, with 21% of Group sales coming from recently launched products, already exceeding the anticipated loss of sales from products whose patents will be expiring over the next few years. As these products and the pipeline develop, the Novartis portfolio will increasingly become comprised of specialty care medicines.

To continue to win in a challenging environment with new pricing pressures, we are tailoring our commercial model and leveraging our broad portfolio to address the needs of and provide value to customers and patients in each market. We are also developing new ways of partnering with governments and large payors to realize shared objectives and improved patient outcomes.

Pharmaceuticals grew 8% (+8% cc) in the second quarter — growth in volume was 9% with an overall price effect of negative 1 percentage point. The rejuvenation of the product portfolio continues strongly, with growth of recently launched products reaching USD 1.6 billion, representing 43% growth over the second quarter of 2009. In Europe, where pricing pressures have been most intense, overall growth was 8 %, with volume gains of 12 percentage points demonstrating the quality of the new product portfolio.

Sandoz continued to build momentum in the second quarter, achieving robust double-digit growth in constant currencies. Much of the global growth was due to strong performance by the recent launches of losartan and metaxalone and the continued performance from tacrolimus. We also had particularly notable success in the US this quarter, where growth was up 37%, representing a significant turnaround from negative growth numbers in 2008. A key driver of growth for Sandoz was our ongoing global strength in biosimilars; sales in the second quarter were up 66% over the previous year.

While global sales of (A)H1N1 vaccines are now largely complete, our vaccines business is maintaining momentum with the launch of Menveo, a vaccine for meningococcal disease. In the second quarter, Menveo gained access to a majority of public accounts in the US, resulting in promising early uptake. In Europe, where Menveo is predominantly a travel vaccine, the first positive policy recommendations were received within a few months of approval. Additional approvals were achieved in Latin America and the first Asian markets.  Indication expansions are on track to further strengthen the brand in 2011.

The Novartis Consumer Health businesses continue to be driven by strong growth of key brands. The Novartis Over-the-Counter (OTC) business unit generated positive growth with pain medications including Voltaren, a treatment for joint and muscle pain, which in the second quarter reached record market share as the second largest in the German OTC market. The second quarter launch of Pantoloc Control in 11 European countries combined with the Prevacid24HR achievement of a 25% share of the fast-growing proton pump inhibitors (PPI) market segment with sales now annualizing in excess of USD 200 million, will help further establish our gastrointestinal franchise. CIBA Vision, the fastest-growing lens care business, continues its strong performance with AirOptix and its expansion in all regions.

At the same time, all divisions are seeking to expand in emerging markets where growth in the second quarter was 16%, with particularly strong performances in South Korea (23%) and Russia (41%). In Russia, our Pharmaceuticals business experienced dynamic performance (42%) in specialty areas and new launches. Sandoz in Russia has been a key driver of generics growth in the second quarter (40%).

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Driving productivity

In order to free up resources to improve margins and assure continued investment in innovation and growth, we are focused on improving efficiency and reducing costs across the whole business. Second quarter productivity initiatives added around 2 percentage points of margin improvement, of which approximately half was reinvested. In Cost of Goods Sold solid productivity improvements were made particularly in Sandoz and Consumer Health, but were insufficient overall to offset the impact of price decreases and inventory reductions. Good progress continues to be made with Sales & Marketing productivity initiatives, especially in Pharmaceuticals, where productivity gains exceed reinvestment.

Cash flow

The sustainability of our strategy lies with the generation of cash flow which provides the resources for reinvestment and creates shareholder return. Free cash flow before dividends generated in the quarter totaled USD 2.4 billion, an increase of 24% over the previous year, and for the six months amounted to USD 5.3 billion, rising 54% over the previous year.

Cash flow continues to be driven by increasing focus on the cash conversion cycle and operational cash flow improvements. Cash flow from operating activities increased to USD 3.0 billion in the second quarter (25.2% of net sales and an increase of 13% over 2009) and in the first half increased to USD 6.3 billion (26.3% of net sales and an increase of 37% over 2009).

Alcon

We continue to make progress with the required regulatory approvals around the world. As a result, closing of the acquisition of 77% majority ownership of Alcon could be completed late in the third quarter or the fourth quarter of 2010. During the second quarter, an expanded commercial paper program was put in place to complete the preparatory steps for financing the acquisition.

2010 outlook

(Barring unforeseen events)

Based on the strong first half, we are raising our sales guidance for the full year. Novartis expects to deliver constant currency Group sales growth at mid- to high-single-digits (excluding Alcon). This expectation includes sales of A(H1N1) pandemic flu vaccines, which, year over year, is broadly neutral to overall sales growth.

Group operating margin and core operating margin are expected to increase in 2010 following continued business expansion and sustained productivity improvement. Sales of (A)H1N1 vaccines added around 1.5 margin points in both 2009 and 2010.

Reported sales and operating profit are affected by the current volatility in exchange rates. The impact of 2010 rates on sales in the first quarter was positive (+7%), the second quarter impact was slightly negative (-1%) and if exchange rates remain where they are for the remainder of the year the impact on the second half is expected to be negative. Overall for the year a small negative impact is expected. As a result of the natural hedging effect that partially exists between revenues and costs, the impact on operating income of current rates, if they prevail for the remainder of the year, is expected to be broadly neutral.

No account has been taken in these expectations for the acquisition of Alcon. Modeling assumptions for the inclusion of Alcon will be clarified at the point of completion.

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HEALTHCARE BUSINESS REVIEW

Pharmaceuticals

Second quarter

Net sales

Net sales expanded 8% to USD 7.7 billion (+8% cc) driven by 9 percentage points volume expansion, partly offset by government cost-containment measures in Europe and the biannual price cut in Japan. Recently launched products provided USD 1.6 billion of net sales in the 2010 period, representing 21% of net sales compared to 16% in the 2009 quarter. Products launched since 2007 — which include Lucentis, Exforge, Exelon Patch, Exjade, Reclast/Aclasta, Tekturna/Rasilez, Tasigna, Afinitor, Onbrez Breezhaler, Ilaris and Fanapt — grew by 43% compared to the same period last year.

All regions continued to benefit from the product portfolio rejuvenation, particularly Europe (USD 2.7 billion, +8% cc), generating 27% of its net sales from recently launched products. Volume growth in Europe was 12 percentage points with a negative price effect of 4 percentage points due to recent government cost-containment measures. The US (USD 2.6 billion, +7% cc), as well as Latin America and Canada (USD 0.7 billion, +15% cc), maintained solid growth rates. Japan performance (USD 0.9 billion, +8% cc) was driven by strong momentum from the regulatory approvals of the 9 new medicines launched since 2009. The six top emerging markets (USD 775 million, +11% cc) were led by double-digit gains in Russia, India and South Korea, more than offsetting the impact of recent cost-containment measures in Turkey, as well as slower growth in China due to stock-in-trade adjustments and the implementation of the new regional structure.

All therapeutic areas contributed to the business expansion. Oncology (USD 2.5 billion, +11% cc), the largest franchise, was led by sustained growth of Gleevec/Glivec (USD 1.1 billion, +8% cc), Femara (USD 338 million, +10% cc), and Sandostatin (USD 312 million, +11% cc), and important contributions from the recently launched products Exjade (USD 192 million, +11% cc), Tasigna (USD 89 million, +73% cc) and Afinitor (USD 55 million). Cardiovascular and Metabolism (USD 2.0 billion, +8% cc) maintained strong momentum supported by Exforge (USD 227 million, +37% cc), Tekturna (USD 103 million, +56% cc) and Galvus (USD 90 million, +136% cc). Diovan sales (USD 1.6 billion, +1% cc) also held up well, despite CozaarÒ generic entry in the US and the angiotensin II receptor blocker (ARB) market slowdown in Japan. Neuroscience and Ophthalmics (USD 924 million, +17% cc) saw rapid growth from Lucentis (USD 377 million, +29% cc) and Exelon Patch (USD 168 million, +41% cc).

Operating income

Operating income rose 6% (+5% cc) to USD 2.3 billion. The operating income margin of 30.5% of net sales declined by 0.6 percentage points, primarily impacted by litigation charges of USD 178 million.

Core operating income grew 14% (+14% cc) to USD 2.6 billion. The core operating income margin of 34.4% of net sales improved 1.8 percentage points compared to the same period in 2009. Cost of Goods Sold (-0.7 percentage points) was impacted by lower fixed overhead absorption, in addition to higher Lucentis royalties. R&D improved 0.7 percentage points, mainly driven by phasing of clinical trial activities. Marketing & Sales expenses fell 1.1 percentage points to 28.5% of net sales and General & Administration expenses improved by 0.2 percentage points, both benefiting from continuing productivity efforts. Other Income & Expense improved by 0.5 percentage points.

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First half

Net sales

Net sales expanded 10% to USD 15.0 billion (+8% cc, driven by 9 percentage points volume expansion). Recently launched products provided USD 3.1 billion of net sales in the 2010 period, representing 20% of net sales compared to 15% in the 2009 period.

Operating income

Operating income rose 9% (+6% cc) to USD 4.7 billion. The operating income margin of 31.2% of net sales was impacted by litigation charges of USD 178 million in the second quarter, and in the first quarter by a PTZ601 impairment charge of USD 152 million, in addition to the Famvir settlement with Teva which included an asset write-up of USD 100 million and an exceptional settlement gain of USD 42 million.

Core operating income grew 13% (+10% cc) to USD 5.1 billion. The core operating income margin of 33.9% of net sales improved by 0.8 percentage points, including lower sales to other divisions (-0.2 percentage points) as well as higher Cost of Goods Sold (-0.9 percentage points). R&D improved 0.7 percentage points, mainly driven by phasing of clinical trial activities. Marketing & Sales expenses (+1.4 percentage points) and General & Administration costs (+0.1 percentage points) were driven by continuing productivity improvements. Higher net costs from Other Income & Expense (-0.3 percentage points) were mainly due to the first quarter in the 2009 period benefiting from provision reversals related to launch product inventories.

Pharmaceuticals product review

Cardiovascular and Metabolism

An expanding portfolio of high blood pressure medicines (USD 1.9 billion, +6% cc) has enabled Novartis to continue to drive sales while increasing its leadership of the global branded hypertension market segment, achieving a 15.9% share by April 2010 compared to 14.4% during the same period last year (Source: IMS Health). Single-pill combinations based on valsartan (Diovan) and aliskiren (Tekturna/Rasilez) now provide over half of these sales, reflecting the continuing shift toward use of combination therapies.

Diovan (USD 1.6 billion, +1% cc) sales increased in the second quarter 2010 versus last year. In the US, Diovan reached sales of USD 657 million (+0% cc), maintaining its leadership of the ARB segment with a 40.03% share by April 2010 (+0.06 percentage points compared to April year-to-date 2009; source: IMS Health). Diovan is the only medicine in the ARB class approved to treat the three major cardiovascular indications: high blood pressure, high-risk heart attack and heart failure. In April, Diovan gained approval of a new indication from the European Commission for the treatment of children and adolescents (ages 6 to 18) with high blood pressure.

Exforge (USD 227 million, +37% cc) maintained solid growth in the second quarter fueled by continued geographic expansion and the launch of Exforge HCT, which adds a diuretic in a single pill, in the US and Europe. Exforge, a single-pill combination of Diovan (valsartan) and the calcium channel blocker amlodipine, has delivered consistent and sustained growth since its launch in 2007.

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Tekturna/Rasilez (USD 103 million, +56% cc) maintained a solid growth rate driven by single-pill combinations Tekturna/Rasilez HCT and Valturna in the US. Tekturna/Rasilez, the only approved high blood pressure therapy known as a direct renin inhibitor, was also approved in China in April for use alone or in combination with other blood pressure medications. Other single-pill combinations in development are a combination of aliskiren and amlodipine, currently under regulatory review in the US and Europe, and a triple-combination therapy with aliskiren, amlodipine and a diuretic, expected to be submitted for US regulatory approval this year.

Galvus/Eucreas (USD 90 million, +136% cc), oral treatments for type 2 diabetes, delivered very strong growth in many markets, particularly Spain, Greece, Germany, Portugal, France, South Korea and India. Galvus was launched in Japan in April under the brand name Equa.

Oncology

nm — Not meaningful

Gleevec/Glivec (USD 1.1 billion, +8% cc) has sustained growth through continued expansion in chronic myeloid leukemia (CML) as well as adjuvant (post-surgery) treatment of gastrointestinal stromal tumors (GIST). Gleevec/Glivec, a targeted therapy for certain forms of CML and GIST, was approved in 2009 for use in adjuvant GIST and has since received approvals for this indication in more than 55 countries.

Tasigna (USD 89 million, +73% cc) has been growing rapidly through geographic and market expansion with approvals in more than 80 countries as a second-line therapy for patients with certain forms of CML resistant or intolerant to prior therapy including Gleevec/Glivec. In June, following priority review, the US FDA approved Tasigna for the treatment of adult patients with newly diagnosed CML in the chronic phase. Regulatory submissions for Tasigna in first-line indication are underway worldwide, with applications currently filed in the EU, Switzerland and Japan. Trials are also underway examining the use of Tasigna in CML patients with suboptimal response to Glivec and in patients with metastatic GIST.

Zometa (USD 378 million, +6% cc) expansion has come from improved compliance and increased use of this intravenous bisphosphonate therapy in patients with certain types of cancer which have spread to the bone. New data presented at ASCO showed that the addition of Zometa to chemotherapy significantly improved overall survival by 16% (p = 0.0118) in newly diagnosed multiple myeloma patients. This survival advantage was also observed in addition to, and independent of, the drug’s effects on skeletal related events (SREs). The potential use of Zometa for adjuvant breast cancer in premenopausal women is being reviewed by US and European regulatory authorities with feedback anticipated by year end. Zoledronic acid, the active ingredient in Zometa, is also available under the trade names Reclast/Aclasta for use in non-oncology indications.

Femara (USD 338 million, +10% cc) achieved ongoing double-digit growth on market share gains in the US and other key markets, including Germany, France, Japan, the UK and the Nordic countries. The US prescribing information for Femara was updated to include long-term (73-month) follow-up data from the BIG 1-98 study comparing Femara with tamoxifen in the initial adjuvant setting. The study confirmed a significant benefit for Femara versus tamoxifen in reducing the risk of distant metastases and the overall risk of breast cancer recurrence.

Sandostatin (USD 312 million, +11% cc) benefited from increasing use of Sandostatin LAR in treating the symptoms of neuroendocrine tumors (NET).

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Exjade (USD 192 million, +11% cc) has continued to expand with strong double-digit growth on increased average dosing and improved adherence to therapy in the US and key markets around the world. Exjade, currently approved in more than 100 countries as the only once-daily oral therapy for transfusional iron overload, received regulatory approvals in 2009 in the US, Europe, Switzerland and other countries, extending the dose range to 40 mg/kg. In June 2010, Exjade received regulatory approval in China.

Afinitor (USD 55 million) received priority review status by the US FDA for the treatment of patients with subependymal giant cell astrocytomas (SEGA) associated with tuberous sclerosis (TS). An FDA decision is expected by the end of the year with regulatory submissions underway in TS in the EU. Regulatory filings are expected this year in pancreatic neuroendocrine tumors (pNET) following data showing Afinitor met the primary endpoint of progression-free survival in a Phase III study of pNET. RADIANT 2, a placebo-controlled Phase III study of Afinitor in combination with Sandostatin LAR versus Sandostatin LAR alone in patients with advanced carcinoid tumors missed the primary endpoint by a very small statistical margin (progression-free survival Hazard Ratio = 0.77 in favor of Afinitor, p = 0.026 vs p=0.024 predefined). An imbalance in baseline between the two treatment arms was observed and will be further investigated. Full data will be discussed with the Health Authorities in the context of the upcoming submission. Afinitor, an oral inhibitor of the mTOR pathway, is an approved treatment for advanced renal cell carcinoma (kidney cancer) following VEGF-targeted therapy. Afinitor is also being studied in other tumor types with Phase III trials underway in tuberous sclerosis, breast cancer, gastric cancer, hepatocellular carcinoma and lymphoma. Everolimus, the active ingredient in Afinitor, is also available under the trade names Certican/Zortress for use in non-oncology indications.

Neuroscience and Ophthalmics

nm — Not meaningful

Lucentis (USD 377 million, +29% cc) has maintained strong growth reflecting its position as the only approved medicine to significantly improve vision in patients with wet age-related macular degeneration (AMD). Two clinical studies recently confirmed rapid and sustained improvement in vision with Lucentis in another debilitating eye condition, visual impairment due to diabetic macular edema (DME), currently under regulatory review in the EU. In the US, where Genentech holds the rights to Lucentis, the treatment of macular edema following retinal vein occlusion (RVO) was approved in June. Novartis plans to file for approval in this indication in the EU and other markets by the end of 2010.

Exelon/Exelon Patch (USD 252 million, +9% cc) has continued to grow based on increasing demand for Exelon Patch, with the transdermal form of the medicine generating more than 67% of total Exelon sales in the second quarter compared to 52% in the same period in 2009. Exelon Patch is approved for the treatment of mild to moderate Alzheimer’s disease dementia in more than 75 countries, including more than 20 countries where it is also approved for dementia associated with Parkinson’s disease.

Extavia (USD 38 million) continued to grow from geographic expansion in key markets, notably Germany, Russia, Italy, Spain and the US. Extavia, the Novartis-branded version of Betaferon®/Betaseron® for relapsing forms of multiple sclerosis, was launched in the US in 2009, and since then has been approved in over 20 other countries.

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Respiratory

nm — Not meaningful

Xolair (USD 90 million, +18% cc) has continued to grow strongly in major European countries and Latin America. In the US, Novartis co-promotes Xolair with Genentech and shares a portion of the US operating income. In the first half of 2010, US sales to Genentech were lower than in the same period of 2009 due to a change in ordering processes. Xolair, a biotechnology drug for moderate to severe persistent allergic asthma in the US and severe persistent allergic asthma in Europe, has approvals in more than 80 countries. Plans to commence Phase III trials in China to support regulatory submissions there remain on track for this year.

Onbrez Breezhaler (USD 5 million) has demonstrated strong performance following EU approval and since first launching in late 2009 in Germany for adult patients with chronic obstructive pulmonary disease (COPD). Onbrez Breezhaler has since been launched in Ireland and Denmark in March 2010 with additional launches expected this year in 20 markets, including the UK, Spain, Brazil and Mexico. Regulatory submissions also are planned this year in Japan and China. In the US, all clinical studies to support resubmission continue on track with re-filing expected by year end.

Immunology and Infectious Diseases

nm — Not meaningful

Reclast/Aclasta (USD 142 million, +23% cc), the only once-yearly osteoporosis treatment available in over 90 countries, maintained a steady pace of growth. Approved in up to six indications worldwide, Reclast/Aclasta provides fracture protection to a broad spectrum of patients ranging from those diagnosed with early bone loss to patients with more severe forms of the disease and has been used in more than one million infusions. It is also the only bisphosphonate proven to reduce fracture risk and mortality after a low-trauma hip fracture. Zoledronic acid, the active ingredient in Reclast/Aclasta, is also available under the trade name Zometa for use in oncology indications.

Certican/Zortress (USD 36 million, +33% cc) is now available in more than 80 countries to prevent organ rejection in adult kidney transplantation, heart transplantation, or both. In April, it was approved in the US under the brand name Zortress (everolimus) for adult kidney transplantation. Everolimus is currently in two Phase III studies: heart transplantation in the US, and a worldwide study for liver transplantation. Everolimus, the active ingredient in Certican/Zortress, is also available under the trade name Afinitor for use in an oncology indication.

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Ilaris (ACZ885) (USD 6 million), is the first medicine to treat adults and children aged four years and older suffering cryopyrin-associated periodic syndrome (CAPS), a group of rare auto-inflammatory disorders that affect one in one million people. Ilaris selectively blocks the inflammatory protein interleukin-1 beta. Following US and European regulatory approvals in 2009, it is now approved in 40 countries to treat CAPS. Two Phase III trials are underway studying ACZ885 in the treatment of acute flares associated with gouty arthritis. Trials are also ongoing in other diseases in which IL-1 beta may play an important role, including type 2 diabetes and systemic juvenile idiopathic arthritis (SJIA).

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Vaccines and Diagnostics

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Second quarter

Net sales

Net sales were USD 564 million for the second quarter (+135% cc) compared with USD 247 million in the prior period. Revenue of approximately USD 200 million was recognized in the period relating to A(H1N1) pandemic flu contracts (mainly Japan and US Health and Human Services), largely completing the campaign. Excluding the impact of A(H1N1) pandemic, the business experienced strong growth (+46% cc) driven by the expansion of the vaccines business in emerging markets and the first sales of Menveo in the US.

The launch of Menveo represents an important step in building a meningitis franchise. MenB vaccine is on track to be filed in Europe by the end of 2010 and discussions regarding the phase III trial continue with the FDA. Based on the unique reverse vaccinology technology, MenB has the potential to address a major unmet need for a protective vaccine especially in Europe, Australia, South America and Canada.

In April, Novartis signed a contract in Brazil forming a strategic partnership with FUNED (Fundação Ezequiel Dias) to deliver MenC vaccines to children under the age of two. In 2009 Novartis announced an agreement to acquire an 85% stake in the Chinese vaccines company Zhejiang Tianyuan Bio-Pharmaceuticals Co., Ltd. The transaction is on track for completion later in 2010.

Operating income

Operating loss was USD 42 million for the second quarter of 2010 (+72% cc) compared to a USD 167 million loss for the second quarter of 2009, improved by the strong sales performance. The quarter included an impairment charge of USD 71 million related to a financial asset as well as a legal settlement which resulted in a final additional charge of USD 45 million.

Core operating income for the period was USD 138 million compared to a core operating loss of USD 45 million in the prior year.

First half

Net sales

Net sales were USD 1.9 billion for the first half of the year (+287% cc) compared to USD 494 million for the year-ago period. Deliveries for supply contracts with governments around the world for A(H1N1) pandemic flu vaccines and adjuvants generated net sales of USD 1.3 billion, significantly driving the increase over the year-ago period. Excluding the impact of A(H1N1) pandemic, the business showed strong growth (+22% cc).

Operating income

Operating income in the period was USD 797 million compared to an operating loss of USD 234 million in the year-ago period, driven substantially by contributions of A(H1N1) pandemic vaccines.

Core operating income was USD 1.1 billion, driven by a strong sales performance, up from a core operating loss of USD 36 million for the same period in 2009.

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Sandoz

Second quarter

Net sales

Sandoz accelerated its growth (USD 2.0 billion, +11%, +13% cc) versus prior year as 20 percentage points of volume expansion from new product launches, the inclusion of EBEWE Pharma’s specialty generics business (contributing 5 percentage points in the quarter) and continued strong results from the US, Canada, Russia, Italy, Japan and biosimilars more than offset price erosion of 7 percentage points.

US retail generics and biosimilars (+43% cc) continued to deliver strong growth due to successful recent first-to-market launches including tacrolimus, lansoprazole, losartan and metaxalone. German retail generics and biosimilars (-5% cc) declined compared to the prior year as a result of negative market growth driven by the  impact of statutory health insurance tenders, but Sandoz expanded its leadership position in the German generics market. Emerging markets growth accelerated, particularly in Asia-Pacific (+25% cc) and Central and Eastern Europe (+17% cc).  Biosimilars (+66% cc) continued to achieve strong momentum, with key launches in the oncology indications of Binocrit (epoetin alfa) and Zarzio (filgrastim) as well as continued growth in Omnitrope (human growth hormone).

Operating income

Operating income grew 17% to USD 289 million, as the operating income margin improved 0.7 percentage points to 14.6% of net sales.  The lower improvement of the operating margin as compared to the core operating margin increase of 1.1 percentage points reflected one-time charges related to the termination of a co-development agreement and purchase price accounting for EBEWE Pharma.

Core operating income rose 19% to USD 364 million, resulting in the core operating margin increase of 1.1 percentage points to 18.4% of net sales including lower sales to other divisions (-0.9 percentage points), other revenues (+0.1 percentage points) and Cost of Goods Sold increased 0.4 percentage points as price erosion, inventory write-offs and the impact of increased sales of lower margin products more than offset continued Cost of Goods Sold productivity improvements. Marketing & Sales costs (17.5% of net sales, +0.8 percentage points) rose slower than sales due to productivity improvements, while fully funding investments behind growing businesses. R&D costs (7.5% of net sales) decreased slightly (+0.4 percentage points) as a percentage of sales as productivity savings funded the continued investments in the development of differentiated generics, such as biosimilar, oncological injectable and respiratory products. General & Administration costs (4.3% of net sales, +0.8 percentage points) decreased due to ongoing cost-containment measures. Other Income & Expense improved (2.1%, +0.3 percentage points) due to lower legal fees.

On June 1, Sandoz completed the acquisition of Oriel Therapeutics, a privately held US pharmaceuticals company. The closure gives Sandoz rights to several promising development projects, as well as to the novel FreePath™ drug delivery system and Solis™ multi-dose dry powder inhaler. Regulatory approvals, if achieved, would broaden access to affordable, high-quality respiratory medicines and further reinforce Sandoz’s position as a leader in differentiated generics.

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First half

Net sales

Sandoz achieved double-digit sales growth in the first six months (USD 4.0 billion, +14%, +11% cc) versus prior year supported by strong growth in US retail generics and biosimilars (+31% cc) and in emerging markets such as Central and Eastern Europe (+11% cc), Asia-Pacific (+21% cc) and Middle East, Turkey and Africa (+10% cc). Sales volumes expanded 18 percentage points due to new product launches, the inclusion of EBEWE Pharma’s specialty generics business (contributing 5 percentage points in the half year) and continued strong results from biosimilars more than compensating price erosion of 7 percentage points.

Operating income

Operating income in the first half grew 11% versus prior year to USD 599 million. The operating margin declined by -0.3 points to 15.1% of net sales. The reduction of the operating margin in the period as compared to the growth in core operating margin reflected the acquisition-related charges for the EBEWE Pharma integration, one-time charges for the termination of a co-development agreement and provisions for legal settlements.

Core operating income rose 24% to USD 814 million, as the core operating margin improved by 1.8 percentage points to 20.5% of net sales, including lower sales to other divisions (-0.4 percentage points), other revenues (0.1 percentage points), and higher Cost of Goods Sold (-0.2 percentage points). R&D costs decreased 0.7 percentage points as productivity savings funded continued investment in the development of differentiated generics. General & Administration costs decreased (0.8 percentage points) due to ongoing cost reduction measures. Other Income & Expense were positive at 0.8 percentage points.

15

Consumer Health

Second quarter

Net sales

All three Consumer Health businesses — OTC, Animal Health and CIBA Vision — contributed to higher net sales in the second quarter of 2010 versus prior year (USD 1.5 billion, +7%, +7% cc), as the three businesses continued growing ahead of their respective markets.

Pain medicines were key growth contributors in OTC. In the US, Excedrin and Triaminic gained share as a result of successful advertising and promotional campaigns. In Europe, Voltaren was the key growth driver. In Germany, Voltaren achieved a record 44% share in the topical analgesic category and currently ranks as the second-largest brand in the German OTC market.

Novartis OTC is strengthening its portfolio by building a gastrointestinal franchise in the fast-growing PPI category. Prevacid24HR achieved a 25% year-to-date share of the US PPI category, which has grown 39% this year. Pantoloc Control, a PPI to which Novartis acquired European marketing rights in late 2009, was launched in 11 European markets in the PPI category during the second quarter.

CIBA Vision continued its growth momentum, expanding in all regions, underpinned by new product launches. In the US, AirOptix achieved a record 26% share of its category.

Novartis Animal Health is one of the fastest-growing companies in the market, mainly led by strong performance in the US business. Interceptor and Sentinel gained market share and strengthened their positions within the heartworm and flea categories. In Europe the new Milbemax chewable formulation is leading growth.

In the US, the Consumer Health Division delivered strong performance (USD 0.5 billion, +12%) and gained share, while in Europe (USD 0.6 billion, +5% cc) solid growth was achieved, most notably in France, the UK and Germany. All top six emerging markets grew and together achieved 26% (+19% cc) net sales growth.

Operating income

Operating income rose 8% (+10% cc) to USD 294 million with operating income margin improving by 0.3 percentage points in the second quarter of 2010 to 19.5% of net sales from the 2009 period.

Core operating income grew 9% (+10% cc) to USD 318 million, increasing the operating income margin 0.3 percentage points in the second quarter of 2010 to 21.1% of net sales. The core gross margin (68.0% of net sales, +1.0 percentage points) improved as a result of productivity gains and product pricing. Marketing & Sales expenses (35.0% of net sales, -0.4 percentage points), were higher than the prior year primarily driven by promotional support for new product launches as well as sales force expansion across all of the businesses. R&D (5.6% of net sales, +0.5 percentage points) remained largely unchanged in US dollars to support product development across all Consumer Health businesses. General & Administration costs (6.2% of net sales, +0.1 percentage points) were largely unchanged versus prior year and Other Income & Expense (-0.1% of net sales, -0.9 percentage points) rose as a result of a one-off provision reversal in 2009.

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First half

Net sales

Sales grew 10% (+7% cc) to USD 3.0 billion and all Consumer Health businesses delivered good growth, outperforming their respective markets.

OTC grew on the back of Prevacid24HR and Excedrin in the US and Voltaren in Europe. Animal Health growth was mainly led by the strong performance of Interceptor and Sentinel in the US and Milbemax in Europe. CIBA Vision grew in all regions led by new product launches.

Operating income

Operating income rose 10% (+7% cc) to USD 558 million, with the operating margin stable at 18.7% of net sales versus the same period in 2009.

Core operating income grew 11% (+8% cc) to USD 606 million, representing a faster pace of growth than net sales. The operating income margin rose 0.1 percentage points to 20.3% of net sales versus the same period in 2009. Gross margin improvements from productivity gains have been mostly reinvested to support the Prevacid24HR launch in the US and sales force expansion across all businesses.

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FINANCIAL REVIEW

Second quarter and first half