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:

 

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

 

 

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Consolidated income statements  (unaudited)

Second quarter

		Q2 2010		Q2 2009		Change
		USD m		USD m		USD m		%
Net sales		11 716		10 546		1 170		11
Other revenues		205		196		9		5
Cost of Goods Sold		-3 206		-2 824		-382		14
Of which amortization and impairments of product and patent rights and trademarks		-258		-233		-25		11
Gross profit		8 715		7 918		797		10
Marketing & Sales		-3 145		-2 990		-155		5
Research & Development		-1 893		-1 802		-91		5
General & Administration		-543		-542		-1		0
Other income		389		180		209		116
Other expense		-562		-400		-162		41
Operating income		2 961		2 364		597		25
Income from associated companies		158		124		34		27
Financial income		14		91		-77		-85
Interest expense		-175		-136		-39		29
Income before taxes		2 958		2 443		515		21
Taxes		-521		-399		-122		31
Net income		2 437		2 044		393		19
Attributable to:
Shareholders of Novartis AG		2 417		2 035		382		19
Non-controlling interests		20		9		11		122
Average number of shares outstanding – Basic (million)		2 287.7		2 263.3		24.4		1
Basic earnings per share (USD)1		1.06		0.90		0.16		18
Average number of shares outstanding – Diluted (million)		2 297.0		2 279.6		17.4		1
Diluted earnings per share (USD)1		1.05		0.89		0.16		18
1 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG

Consolidated income statements  (unaudited)

First half

		H1 2010		H1 2009		Change
		USD m		USD m		USD m		%
Net sales		23 847		20 255		3 592		18
Other revenues		430		413		17		4
Cost of Goods Sold		-6 302		-5 409		-893		17
Of which amortization and impairments of product and patent rights and trademarks		-420		-456		36		-8
Gross profit		17 975		15 259		2 716		18
Marketing & Sales		-6 159		-5 711		-448		8
Research & Development		-3 930		-3 496		-434		12
General & Administration		-1 113		-1 047		-66		6
Other income		569		351		218		62
Other expense		-870		-645		-225		35
Operating income		6 472		4 711		1 761		37
Income from associated companies		261		207		54		26
Financial income		63		43		20		47
Interest expense		-308		-222		-86		39
Income before taxes		6 488		4 739		1 749		37
Taxes		-1 103		-720		-383		53
Net income		5 385		4 019		1 366		34
Attributable to:
Shareholders of Novartis AG		5 350		3 997		1 353		34
Non-controlling interests		35		22		13		59
Average number of shares outstanding – Basic (million)		2 282.8		2 264.9		17.9		1
Basic earnings per share (USD)1		2.34		1.76		0.58		33
Average number of shares outstanding – Diluted (million)		2 293.4		2 281.4		12.0		1
Diluted earnings per share (USD)1		2.33		1.75		0.58		33
1 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG

Consolidated statements of comprehensive income  (unaudited)

Second quarter

		Q2 2010 USD m		Q2 2009 USD m		Change USD m
Net income		2 437		2 044		393
Fair value adjustments on financial instruments, net of taxes		-29		79		-108
Net actuarial losses/gains from defined benefit plans, net of taxes		-972		610		-1 582
Novartis share of equity recognized by associated companies, net of taxes		-10		-19		9
Translation effects		-882		1 415		-2 297
Comprehensive income		544		4 129		-3 585
Attributable to:
Shareholders of Novartis AG		526		4 108		-3 582
Non-controlling interests		18		21		-3

First half

		H1 2010 USD m		H1 2009 USD m		Change USD m
Net income		5 385		4 019		1 366
Fair value adjustments on financial instruments, net of taxes		-24		36		-60
Net actuarial losses from defined benefit plans, net of taxes		-1 150		-55		-1 095
Novartis share of equity recognized by associated companies, net of taxes		-58		-86		28
Translation effects		-1 879		12		-1 891
Comprehensive income		2 274		3 926		-1 652
Attributable to:
Shareholders of Novartis AG		2 240		3 896		-1 656
Non-controlling interests		34		30		4

Condensed consolidated balance sheets

		June 30, 2010 (unaudited) USD m		Dec 31, 2009 (audited) USD m		Change USD m		June 30, 2009 (unaudited) USD m
Assets
Non-current assets
Property, plant & equipment		13 165		14 075		-910		13 445
Goodwill		11 294		12 039		-745		11 381
Intangibles other than goodwill		10 245		10 331		-86		9 259
Financial and other non-current assets		23 553		25 369		-1 816		23 017
Total non-current assets		58 257		61 814		-3 557		57 102
Current assets
Inventories		5 540		5 830		-290		6 130
Trade receivables		7 798		8 310		-512		7 167
Other current assets		2 331		2 102		229		2 060
Cash, short-term deposits and marketable securities		22 998		17 449		5 549		11 815
Total current assets		38 667		33 691		4 976		27 172
Total assets		96 924		95 505		1 419		84 274
Equity and liabilities
Total equity		55 816		57 462		-1 646		50 488
Non-current liabilities
Financial debts		13 235		8 675		4 560		9 196
Other non-current liabilities		10 044		9 898		146		9 232
Total non-current liabilities		23 279		18 573		4 706		18 428
Current liabilities
Trade payables		3 509		4 012		-503		3 320
Financial debts and derivatives		5 408		5 313		95		4 673
Other current liabilities		8 912		10 145		-1 233		7 365
Total current liabilities		17 829		19 470		-1 641		15 358
Total liabilities		41 108		38 043		3 065		33 786
Total equity and liabilities		96 924		95 505		1 419		84 274

Condensed consolidated changes in equity  (unaudited)

Second quarter

		Q2 2010 USD m		Q2 2009 USD m		Change USD m
Consolidated equity at April 1		55 216		46 228		8 988
Comprehensive income		544		4 129		-3 585
Purchase/sale of treasury shares, net		-60		44		-104
Equity-based compensation		143		128		15
Dividends		-18				-18
Changes in non-controlling interests		-9		-41		32
Consolidated equity at June 30		55 816		50 488		5 328

First half

		H1 2010 USD m		H1 2009 USD m		Change USD m
Consolidated equity at January 1		57 462		50 437		7 025
Comprehensive income		2 274		3 926		-1 652
Sale/purchase of treasury shares, net		306		-196		502
Equity-based compensation		284		298		-14
Dividends		-4 486		-3 941		-545
Changes in non-controlling interests		-24		-36		12
Consolidated equity at June 30		55 816		50 488		5 328

Condensed consolidated cash flow statements  (unaudited)

Second quarter

		Q2 2010 USD m		Q2 2009 USD m		Change USD m
Net income		2 437		2 044		393
Reversal of non-cash items
Taxes		521		399		122
Depreciation, amortization and impairments		665		550		115
Change in provisions and other non-current liabilities		283		156		127
Net financial expense/income		161		45		116
Other		-42		47		-89
Net income adjusted for non-cash items		4 025		3 241		784
Interest and other financial receipts		609		237		372
Interest and other financial payments		-128		-106		-22
Taxes paid		-979		-591		-388
Cash flow before working capital changes		3 527		2 781		746
Payments out of provisions and other net cash movements in non-current liabilities		-273		-160		-113
Change in net current assets and other operating cash flow items		-298		-3		-295
Cash flow from operating activities		2 956		2 618		338
Investments in property, plant & equipment		-355		-485		130
Investments in intangible, financial and other non-current assets		-293		-234		-59
Sale of property, plant & equipment, intangible, financial and other non-current assets		60		17		43
Acquisitions of subsidiaries		-86		-31		-55
Increase in marketable securities		-2 697		-1 999		-698
Cash flow used for investing activities		-3 371		-2 732		-639
Change in current and non-current financial debts		947		1 943		-996
Dividends paid to shareholders of Novartis AG		-18		-10		-8
Treasury share transactions		-61		44		-105
Other financing cash flows		82		78		4
Cash flow from financing activities		950		2 055		-1 105
Translation effect on cash and cash equivalents		-43		74		-117
Change in cash and cash equivalents		492		2 015		-1 523
Cash and cash equivalents at April 1		5 066		1 575		3 491
Cash and cash equivalents at June 30		5 558		3 590		1 968

Condensed consolidated cash flow statements  (unaudited)

First half

		H1 2010 USD m		H1 2009 USD m		Change USD m
Net income		5 385		4 019		1 366
Reversal of non-cash items
Taxes		1 103		720		383
Depreciation, amortization and impairments		1 426		1 098		328
Change in provisions and other non-current liabilities		472		235		237
Net financial expense/income		245		179		66
Other		33		107		-74
Net income adjusted for non-cash items		8 664		6 358		2 306
Interest and other financial receipts		949		570		379
Interest and other financial payments		-265		-135		-130
Taxes paid		-1 448		-928		-520
Cash flow before working capital changes		7 900		5 865		2 035
Payments out of provisions and other net cash movements in non-current liabilities		-400		-422		22
Change in net current assets and other operating cash flow items		-1 237		-872		-365
Cash flow from operating activities		6 263		4 571		1 692
Investments in property, plant & equipment		-659		-853		194
Investments in intangible, financial and other non-current assets		-437		-370		-67
Sale of property, plant & equipment, intangible, financial and other non-current assets		104		74		30
Acquisitions of subsidiaries		-499		-31		-468
Increase in marketable securities		-3 016		-4 394		1 378
Cash flow used for investing activities		-4 507		-5 574		1 067
Change in current and non-current financial debts		5 181		6 648		-1 467
Dividends paid to shareholders of Novartis AG		-4 486		-3 941		-545
Treasury share transactions		307		-196		503
Other financing cash flows		-30		-4		-26
Cash flow from financing activities		972		2 507		-1 535
Translation effect on cash and cash equivalents		-64		48		-112
Change in cash and cash equivalents		2 664		1 552		1 112
Cash and cash equivalents at January 1		2 894		2 038		856
Cash and cash equivalents at June 30		5 558		3 590		1 968

Notes to the Condensed Interim Consolidated Financial Statements for the three- and six-month periods ended June 30, 2010 (unaudited)

1. Basis of preparation

These Condensed Interim Consolidated Financial Statements for the three- and six-month periods ended June 30, 2010, were prepared in accordance with International Accounting Standard 34 InterimFinancial Reporting and accounting policies set out in the 2009 Annual Report published on January 26, 2010, except as indicated below. As of January 1, 2010, the Group adopted IFRS 3 (revised)“Business Combinations.” The revised standard requires Novartis to include in the purchase consideration the estimated amount of any contingent considerations and the measurement to fair value, through the income statement of any interest in an acquired company that had been previously held. Furthermore, transaction costs are expensed as incurred and no longer form part of the acquisition price. The Group also adopted amendments to IAS 27: “Consolidated and Separate Financial Statements.” This requires that the result of changes in the Novartis ownership percentage that do not result in a loss of control will be accounted for in equity. The Group also adopted amendments to IAS 39: “Financial instruments: Recognition and Measurement.” This revised standard requires that any options, including those concerning Alcon, related to acquisitions up to December 31, 2009, that did not require recognition, are recorded at their fair values, initially in opening equity at January 1, 2010, with subsequent fair value adjustments recorded in the income statement. These new accounting standards did not have a significant impact on the Group’s Condensed Interim Consolidated Financial Statements.

2. Selected critical accounting policies

The Group’s principal accounting policies are set out in note 1 to the Consolidated Financial Statements in the 2009 Annual Report and conform with International Financial Reporting Standards (IFRS). The presentation of financial statements requires management to make subjective and complex judgments that affect the reported amounts. Because of the inherent uncertainties, actual outcomes and results may differ from management’s assumptions and estimates. In particular, as discussed in notes 4 and 11 of the 2009 Annual Report, investments in associated companies and intangible assets (including goodwill and acquired In-Process Research & Development projects) are reviewed for impairment at least annually, or whenever an event or decision occurs that raises concern about their balance sheet carrying value. The amount of investments in associated companies, goodwill and other intangible assets on the Group’s consolidated balance sheet has risen significantly in recent years, primarily from recent acquisitions. Impairment testing under IFRS may lead to potentially significant impairment charges in the future that could have a materially adverse impact on the Group’s financial results. The determination of the contingent consideration in respect of acquisitions made during 2010 also requires management to make assumptions on the probability and amount of potential payments due to previous owners. If actual payments are different to the estimated amounts recorded for contingent consideration there could be a significant impact, either positive or negative, on the Group’s financial results. This accounting policy was applied for the first time in the second quarter of 2010 for the Corthera Inc., and Oriel Therapeutics Inc., acquisitions discussed in note 3 below.

3. Acquisitions, divestments and significant transactions

The following significant transactions occurred during 2010 and 2009:

Acquisitions in 2010

Corporate – Alcon
In 2008, Novartis entered into an agreement to purchase Nestle’s 77% stake in Alcon Inc. for up to USD 38.5 billion, or an average price of USD 168 per share. Under the terms of the agreement, Novartis acquired a 25% Alcon stake from Nestlé in 2008 for USD 10.4 billion, or USD 143 per share. The purchase of the 25% stake was financed from internal cash reserves and external short-term financing.



On January 4, 2010, Novartis exercised its call option to acquire Nestlé’s remaining 52% Alcon stake for approximately USD 28 billion or USD 180 per share. Upon completion of this transaction, Novartis will own a 77% majority stake in Alcon. The purchase of the 52% stake, which is subject to required regulatory approvals, is expected to be completed in the second half of 2010. Novartis will not control Alcon prior to the closing of the purchase of the 52% stake. This purchase will be funded from available liquidity and external debt financing.

On January 4, 2010 Novartis also announced its proposal, upon completion of the Nestlé transaction, to enter into an all-share direct merger with Alcon for the remaining 23% minority stake. Novartis believes this merger, which is governed under the Swiss Merger Act, is in the interest of all stakeholders and will provide the needed clarity on Alcon’s future. Novartis proposed a fixed exchange ratio of 2.80 Novartis shares for each remaining Alcon share. The merger would be conditional on the closing of the 52% stake purchase from Nestlé and would require approval by the Boards of Directors of Novartis and Alcon. The merger would also require two-thirds approval by the shareholders of Novartis and Alcon voting at their respective meetings. Under Swiss law, Novartis has the right to vote its Alcon stake in favor of the proposed merger.

Pharmaceuticals – Corthera
On February 3, Novartis completed the acquisition of the privately held US based Corthera Inc., gaining worldwide rights to Relaxin for the treatment of acute decompensated heart failure and assumed full responsibility for development and commercialization for a total purchase consideration of USD 327 million. This amount consists of an initial cash payment of USD 120 million and USD 207 million of deferred contingent consideration. The deferred contingent consideration is the net present value of the additional milestone payments due to Corthera’s previous shareholders which they are eligible to receive contingent upon the achievement of specified development and commercialization milestones. The final purchase price allocation was completed in the second quarter of 2010 and resulted in identified net assets of USD 309 million and goodwill of USD 18 million. Results of operations since the acquisition date were not material.

Sandoz – Oriel Therapeutics
On June 1, Sandoz completed the acquisition of the privately held US based Oriel Therapeutics Inc., to broaden its portfolio of projects in the field of respiratory drugs for a total purchase consideration of USD 329 million. This amount consists of an initial cash payment of USD 74 million and USD 255 million of deferred contingent consideration. Oriel’s previous shareholders are eligible to receive milestone payments, which are contingent upon the company achieving future development steps, regulatory approvals and market launches, and sales royalties. The total USD 255 million of deferred contingent consideration represents the net present value of expected milestone and royalty payments. The purchase price allocation, including the valuation of the contingent payment elements of the purchase price, identified net assets of USD 281 million and goodwill of USD 48 million and is still preliminary. Results of operations since the acquisition date were not material.

Acquisitions in 2009

Sandoz – EBEWE Pharma
On September 22, Sandoz completed the acquisition of the specialty generic injectables business of EBEWE Pharma. The final amount paid in cash for this business after adjusting for the net debt assumed was EUR 0.8 billion (USD 1.2 billion). The first payment of EUR 0.6 billion (USD 0.9 billion) was made in 2009, with the balance paid in 2010. Based on a final purchase price allocation, EBEWE’s identified net assets were USD 0.7 billion and goodwill was USD 0.5 billion. Results of operations from this acquisition, which were not material in 2009, were included from the completion date of this transaction.

Vaccines and Diagnostics – Zhejiang Tianyuan
On November 4, Novartis announced a definitive agreement to acquire an 85% stake in the Chinese vaccines company Zhejiang Tianyuan Bio-Pharmaceutical Co., Ltd. Terms call for Novartis to purchase an 85% majority interest for approximately USD 125 million in cash. The transaction, which is expected to be completed in 2010, is subject to certain closing conditions, including receipt of government and regulatory approvals in China.



Other significant transactions in 2010

Corporate – Issuance of bond in US dollars
On March 9, Novartis issued a three-tranche bond totaling USD 5 billion registered with the US Securities and Exchange Commission as part of a shelf registration statement filed by Novartis in 2008. A 1.9% three-year tranche totaling USD 2 billion, a 2.9% five-year tranche totaling USD 2 billion and a 4.4% 10-year tranche totaling USD 1 billion were issued by the Group’s US entity, Novartis Capital Corp. All tranches are unconditionally guaranteed by Novartis AG.

Corporate – Change of pension plan in Switzerland
On April 23, the Board of Trustees of the Novartis Swiss Pension Fund agreed to amend the conditions and insured benefits of the current Swiss pension plan with effect from January 1, 2011. These amendments do not have an impact on existing pensions in payment or on plan members born before January 1, 1956. Under the previous rules, benefits from the plan are primarily linked to the level of salary in the years prior to retirement while under the new rules benefits are also partially linked to the level of contributions made by the members during their active service period up to their retirement. This has led to changes, recorded in the second quarter of 2010, in the amounts that need to be included in the Group’s consolidated financial statements prepared using IFRS in respect of the Swiss Pension Fund.

As part of this change, Novartis, supported by the Swiss Pension Fund, will make transitional payments, which vary according to the member’s age and years of service. As a result, it is estimated that exceptional payments will be made over a ten-year period of up to approximately USD 418 million (CHF 453 million) depending on whether or not all current members affected by the change remain in the plan over this ten-year period.

The accounting consequence of this change in the Swiss pension plan rules results in the Group’s consolidated financial statements prepared under IFRS reflecting a net pre-tax curtailment gain of USD 265 million (CHF 283 million) in the second quarter of 2010. This calculation only takes into account the discounted value of transition payments of USD 202 million (CHF 219 million) attributed to already completed years of service of the affected plan members as calculated in accordance with IFRS requirements. It does not take into account any amount for transitional payments related to their future years of service.

Other significant transactions in 2009

Corporate – Issuance of bond in US dollars
On February 5, Novartis issued a two-tranche bond totaling USD 5 billion registered with the US Securities and Exchange Commission as part of a shelf registration statement filed by Novartis in 2008. A 4.125% five-year tranche totaling USD 2 billion was issued by the Group’s US entity, Novartis Capital Corp., while a 5.125% 10-year tranche totaling USD 3 billion was issued by the Group’s Bermuda unit, Novartis Securities Investment Ltd. Both tranches are unconditionally guaranteed by Novartis AG.

Corporate – Issuance of bond in euros
On June 2, Novartis issued a EUR 1.5 billion bond (approximately USD 2.1 billion) with a coupon of 4.25% under its EUR 15 billion Euro Medium Term Note Programme. The seven-year bond, issued by Novartis Finance S.A., Luxembourg, has a maturity date of June 15, 2016, and is guaranteed by Novartis AG.

Corporate – Novartis India Ltd.
On June 8, Novartis completed a tender offer to acquire additional shares from public shareholders and increased its stake in the majority-owned Indian subsidiary, Novartis India Ltd., to 76.4% from 50.9% for approximately INR 3.8 billion (USD 80 million). Almost all large institutional investors and quasi-institutional shareholders participated in the offer. This transaction resulted in USD 57 million of goodwill.



Pharmaceuticals – Idenix
On August 5, Novartis did not participate in an underwritten public offering by Idenix Pharmaceuticals, which reduced the Group’s stake to 47% from the pre-offering level of 53%. As a result of this offering, Novartis no longer controls this company, so Idenix was deconsolidated with effect from September 1. Idenix has been accounted for on an equity basis since this date, which had no material impact on the Group’s consolidated income statement.

4. Principal currency translation rates

Second quarter

		Average rates Q2 2010 USD		Average rates Q2 2009 USD		Period-end rates June 30, 2010 USD		Period-end rates June 30, 2009 USD
1 CHF		0.902		0.899		0.923		0.926
1 EUR		1.273		1.361		1.222		1.412
1 GBP		1.492		1.548		1.505		1.670
100 JPY		1.085		1.028		1.129		1.048

First half

		Average rates H1 2010 USD		Average rates H1 2009 USD		Period-end rates June 30, 2010 USD		Period-end rates June 30, 2009 USD
1 CHF		0.924		0.885		0.923		0.926
1 EUR		1.329		1.332		1.222		1.412
1 GBP		1.527		1.491		1.505		1.670
100 JPY		1.094		1.049		1.129		1.048

5. Consolidated income statements – Divisional segmentation – Second quarter  (unaudited)

		Pharmaceuticals				Vaccines and Diagnostics				Sandoz				Consumer Health				Total of operating divisions				Corporate (incl. eliminations)				Total Group
		Q2 2010 USD m		Q2 2009 USD m		Q2 2010 USD m		Q2 2009 USD m		Q2 2010 USD m		Q2 2009 USD m		Q2 2010 USD m		Q2 2009 USD m		Q2 2010 USD m		Q2 2009 USD m		Q2 2010 USD m		Q2 2009 USD m		Q2 2010 USD m		Q2 2009 USD m
Net sales to third parties		7 670		7 115		564		247		1 973		1 774		1 509		1 410		11 716		10 546						11 716		10 546
Sales to other Divisions		36		47		12		5		56		65		13		13		117		130		-117		-130
Sales of Divisions		7 706		7 162		576		252		2 029		1 839		1 522		1 423		11 833		10 676		-117		-130		11 716		10 546
Other revenues		111		84		72		95		4		2		18		15		205		196						205		196
Cost of Goods Sold		-1 344		-1 180		-334		-241		-1 116		-995		-538		-516		-3 332		-2 932		126		108		-3 206		-2 824
Of which amortization and impairments of product and patent rights and trademarks		-108		-82		-60		-71		-66		-58		-24		-22		-258		-233						-258		-233
Gross profit		6 473		6 066		314		106		917		846		1 002		922		8 706		7 940		9		-22		8 715		7 918
Marketing & Sales		-2 188		-2 106		-84		-72		-345		-324		-528		-488		-3 145		-2 990						-3 145		-2 990
Research & Development		-1 489		-1 441		-115		-103		-159		-143		-85		-86		-1 848		-1 773		-45		-29		-1 893		-1 802
General & Administration		-204		-205		-37		-43		-84		-91		-94		-89		-419		-428		-124		-114		-543		-542
Other income		67		85		8		14		8		7		9		24		92		130		297		50		389		180
Other expense		-322		-186		-128		-69		-48		-48		-10		-12		-508		-315		-54		-85		-562		-400
Amortization and impairments of capitalized intangible assets included in above function costs		-15		-27		-4		-6		-3		-3						-22		-36		-1		-1		-23		-37
Operating income		2 337		2 213		-42		-167		289		247		294		271		2 878		2 564		83		-200		2 961		2 364
as % of net sales		30.5%		31.1%		-7.4%		-67.6%		14.6%		13.9%		19.5%		19.2%		24.6%		24.3%						25.3%		22.4%
Income from associated companies		-6		-2						2		2						-4				162		124		158		124
Financial income																										14		91
Interest expense																										-175		-136
Income before taxes																										2 958		2 443
Taxes																										-521		-399
Net income																										2 437		2 044
Additions to:
– Property, plant and equipment 1		157		247		41		135		61		63		28		35		287		480		59		18		346		498
– Goodwill and other intangible assets 1		127		19		1		7		9		11		5		65		142		102				48		142		150
1 Excluding impact of business acquisitions

Consolidated income statements – Divisional segmentation – First half  (unaudited)

		Pharmaceuticals				Vaccines and Diagnostics				Sandoz				Consumer Health				Total of operating divisions				Corporate (incl. eliminations)				Total Group
		H1 2010 USD m		H1 2009 USD m		H1 2010 USD m		H1 2009 USD m		H1 2010 USD m		H1 2009 USD m		H1 2010 USD m		H1 2009 USD m		H1 2010 USD m		H1 2009 USD m		H1 2010 USD m		H1 2009 USD m		H1 2010 USD m		H1 2009 USD m
Net sales to third parties		14 961		13 548		1 925		494		3 974		3 500		2 987		2 713		23 847		20 255						23 847		20 255
Sales to other Divisions		74		92		29		15		130		128		30		23		263		258		-263		-258
Sales of Divisions		15 035		13 640		1 954		509		4 104		3 628		3 017		2 736		24 110		20 513		-263		-258		23 847		20 255
Other revenues		195		186		195		192		8		6		32		29		430		413						430		413
Cost of Goods Sold		-2 550		-2 268		-726		-467		-2 234		-1 947		-1 056		-977		-6 566		-5 659		264		250		-6 302		-5 409
Of which amortization and impairments of product and patent rights and trademarks		-94		-162		-136		-141		-142		-112		-48		-41		-420		-456						-420		-456
Gross profit		12 680		11 558		1 423		234		1 878		1 687		1 993		1 788		17 974		15 267		1		-8		17 975		15 259
Marketing & Sales		-4 224		-4 004		-162		-131		-705		-620		-1 068		-956		-6 159		-5 711						-6 159		-5 711
Research & Development		-3 097		-2 784		-250		-191		-320		-284		-171		-162		-3 838		-3 421		-92		-75		-3 930		-3 496
General & Administration		-417		-399		-75		-76		-175		-182		-190		-170		-857		-827		-256		-220		-1 113		-1 047
Other income		187		206		26		17		33		14		14		37		260		274		309		77		569		351
Other expense		-465		-302		-165		-87		-112		-77		-20		-31		-762		-497		-108		-148		-870		-645
Amortization and impairments of capitalized intangible assets included in above function costs		-276		-52		-8		-12		-14		-6						-298		-70		-2		-2		-300		-72
Operating income		4 664		4 275		797		-234		599		538		558		506		6 618		5 085		-146		-374		6 472		4 711
as % of net sales		31.2%		31.6%		41.4%		-47.4%		15.1%		15.4%		18.7%		18.7%		27.8%		25.1%						27.1%		23.3%
Income from associated companies		-12		-3						2		3						-10				271		207		261		207
Financial income																										63		43
Interest expense																										-308		-222
Income before taxes																										6 488		4 739
Taxes																										-1 103		-720
Net income																										5 385		4 019
Additions to:
– Property, plant and equipment 1		293		406		99		226		111		115		46		59		549		806		72		30		621		836
– Goodwill and other intangible assets 1		270		146		3		12		19		12		11		68		303		238		3		48		306		286
1 Excluding impact of business acquisitions

6. Legal proceedings update

A number of Novartis subsidiaries are, and will likely continue to be, subject to various legal proceedings that arise from time to time. As a result, the Group may become subject to substantial liabilities that may not be covered by insurance. Litigation is inherently unpredictable and large verdicts do occur. As a result, Novartis 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. See note 20 in the Group’s Consolidated Financial Statements in the 2009 Annual Report for a summary of major legal proceedings. The following is a non-exhaustive list relating to some cases reported in the 2009 Annual Report and other cases of significance, and includes information as of July 15, 2010:

Governmental investigations
In 2005 the US Attorney’s Office for the Eastern District of Pennsylvania (EDPA) served an administrative subpoena pursuant to the Health Insurance Portability and Accountability Act (HIPAA) on Novartis Pharmaceuticals Corporation (NPC). NPC has been cooperating with parallel civil and criminal investigations by the EDPA into allegations of potential off-label marketing and promotion of the epilepsy therapy Trileptal as well as certain payments made to healthcare providers in connection with this medicine. Earlier this year, NPC entered into a plea agreement with the EDPA, which is contingent on court approval, to resolve criminal allegations. Pursuant to the plea agreement, NPC will plead guilty to a misdemeanor violation of the US Food, Drug and Cosmetic Act and pay a fine of USD 185 million. NPC is currently negotiating with the EDPA to resolve civil claims relating to Trileptal. NPC is also cooperating with an investigation by the EDPA regarding potential off-label marketing and promotion as well as payments made to healthcare providers in connection with five other products, i.e. Diovan, Exforge, Sandostatin, Tekturna and Zelnorm (Five Products), and is currently negotiating with the EDPA, with which certain states are coordinating, to resolve this investigation. Total provisions at June 30, 2010, for the civil and criminal Trileptal investigations and the Five Products investigation amounted to USD 422.5 million, including an addition to the provision in the second quarter of 2010 of USD 25.5 million. Any settlement may include NPC entering into a Corporate Integrity Agreement with the Office of Inspector General of the U.S. Department of Health and Human Services.

The US Attorney’s Office for the Northern District of California in 2007 served an administrative subpoena pursuant to HIPAA covering several Novartis subsidiaries. The subpoena covered information regarding potential off-label marketing and promotion of TOBI (tobramycin), a treatment for patients with cystic fibrosis acquired through the purchase of Chiron Corporation in mid-2006. In September 2009, Novartis subsidiaries reached an agreement in principle with the US Department of Justice to pay USD 72.5 million to resolve all federal civil claims and state Medicaid claims relating to this investigation. On April 29, 2010, the settlement agreement with the relevant federal government offices was executed.

Zometa/Aredia product liability litigation
NPC is a defendant in approximately 680 cases brought in US courts in which plaintiffs claim to have experienced osteonecrosis of the jaw after treatment with Zometa or Aredia, which are used to treat patients whose cancer has spread to the bones. All purported class actions have been dismissed. A trial that began in Montana in October 2009 resulted in a plaintiff’s verdict, and this verdict is currently under appeal. The next trial is currently scheduled to begin in state court in New Jersey in September 2010 and will be followed by two trials scheduled for November 2010 in federal courts in North Carolina and in California.

Zelnorm product liability litigation
NPC and other Novartis subsidiaries are defendants in approximately 135 cases brought in US and Canadian courts in which plaintiffs claim to have experienced cardiovascular injuries after being treated with Zelnorm, a medicine for irritable bowel syndrome and chronic constipation. A purported national class action was filed against a Novartis subsidiary in Canada. A statement to defend was filed in this action. In May 2010, NPC has reached a tentative agreement to settle 124 cases, which is contingent on the consents from the individual plaintiffs. The first trial in the US, which was expected to begin in Virginia in June 2010, has therefore been postponed.



Contact lenses patent litigation
In the US, Johnson & Johnson (J&J) filed suits seeking a declaration that their Oasys^® and Advance^® products do not infringe CIBA Vision’s (CV) silicone hydrogel patents (JUMP patents). CV filed counter-claims for infringement of its JUMP patents. In August 2009, after the US trial court had rendered a decision finding the JUMP patents valid, enforceable and infringed, CV moved for permanent injunction. J&J has appealed the decision of the US trial court. On April 29, 2010, CV’s motion for permanent injunction was denied by the trial court.

There is also ongoing patent litigation in several European countries including, inter alia, France, Germany, the Netherlands, the United Kingdom and Spain. Courts in the Netherlands (February 2009) and France (March 2009) issued rulings holding that CV’s JUMP patents were valid and infringed by J&J, whereas the trial courts in the UK (July 2009) and in Germany (December 2009) held that the JUMP patents were invalid. These rulings are currently all on appeal. The next trial will take place in Spain in the second half of 2010.

Famvir patent litigation
In February 2010, Novartis and Teva reached a settlement ending the US patent litigation between them relating to Famvir after a trial against Teva in November 2009 had resulted in a jury verdict in favor of Novartis. After the expiration of the regulatory settlement review period, this case was dismissed with prejudice. However, Famvir is still the subject of ongoing patent litigation against Roxane and Macleods in the US. The compound patent, which covers the active ingredient, expires in March 2011 and a method of use patent expires in 2015, including pediatric extensions. Roxane could launch at risk in March 2011 and Macleods in August 2012.

Zometa/Reclast patent litigation
Novartis and Teva have reached an agreement in the patent infringement litigation regarding the Zometa (zoledronic acid 4mg) and Reclast (zoledronic acid 5mg) Injection patent. Teva has dropped the challenge against the Novartis patent and will not launch zoledronic acid in the US until after the Zometa and Reclast patent expires in March 2013. The case has now been dismissed.

Average Wholesale Price litigation
Claims have been brought against various pharmaceutical companies, including NPC and certain Sandoz entities, alleging that they fraudulently overstated the Average Wholesale Price and “best price”, which are, or have been, used by the US federal and state governments in the calculation of, respectively, Medicare reimbursements and Medicaid rebates. In some cases, motions to dismiss or (cross-) motions for summary judgment in other cases have been made and are currently pending.

Sandoz Inc. (Sandoz) was a defendant in a trial in Alabama in 2009. The jury rendered a verdict against it and awarded compensatory damages of USD 28 million and punitive damages of USD 50 million. Sandoz has appealed the verdict in January 2010. The appeal is fully briefed and a decision is expected in due course. The second trial involving Sandoz took place in Kentucky in June 2009. The jury rendered a verdict against it and imposed USD 16 million of compensatory damages and the Court awarded USD 13.6 million in penalties. No punitive damages were awarded. Sandoz filed a notice of appeal in March 2010. In Texas, Sandoz entities have reached an agreement in principle to settle all of the State’s claims against them. This agreement, which is still contingent on US Department of Justice approval, resulted in a provision of USD 38 million in the first quarter of 2010, which remains unchanged as per June 30, 2010. The next trials against Sandoz are currently scheduled to begin in Mississippi in December 2010 and in Idaho in February 2011.

Wage and Hour litigation
Certain pharmaceutical sales representatives filed suit in a US state court in California and in a US federal district court for the Southern District of New York (SDNY) against NPC alleging that NPC violated wage and hour laws by misclassifying the pharmaceutical sales representatives as “exempt” employees, and by failing to pay overtime compensation. These lawsuits are part of a number of actions pending against pharmaceutical companies that challenge the industry’s long-term practice of treating pharmaceutical sales representatives as salaried employees. They were consolidated and certified as a class action. In January 2009, the SDNY held that the pharmaceutical sales representatives were not entitled to overtime pay under the federal Fair Labor Standards Act and corresponding state wage and hour laws. Plaintiffs have appealed the judgment. Amicus briefs



supporting the plaintiffs’ position were filed by the National Employment Lawyers Association and by the US Department of Labor. The US Chamber of Commerce filed a brief in support of NPC on November 5, 2009. The US Court of Appeals for the Second Circuit (Second Circuit) heard argument on the appeal in February 2010. On July 6, 2010, the Second Circuit vacated the judgment of the SDNY and remanded the case to the SDNY for further proceedings.

Gender discrimination litigation
In November 2004, certain female pharmaceutical sales representatives brought a class action lawsuit in the SDNY against NPC, Novartis Corporation and a Novartis executive alleging claims of past gender discrimination during the period of 2002 to 2007. Novartis Corporation and the Novartis executive were subsequently dismissed from the lawsuit. The trial against NPC began as scheduled in April 2010. On May 17 and 19, 2010, the jury rendered a liability verdict and awarded USD 3.4 million in individual compensatory damages to the class members testifying at trial and USD 250 million in punitive damages.

The SDNY preliminarily approved a class action settlement agreement between NPC and the plaintiffs to end the ongoing proceedings. According to the agreement, which remains subject to final approval by the SDNY, NPC will make monetary payments to eligible class members for backpay and compensatory damages in the amount of up to USD 152.5 million and will fund, over three years, improvements to policies and programs valued at an estimated USD 22.5 million. As part of the measures, NPC will enhance many of its ongoing commitments to all employees and will add additional programs and initiatives to further strengthen its commitment to a diverse and inclusive environment. NPC will for example revise its sexual harassment policy and training, strengthen its complaint process to ensure employees can safely raise concerns and that those concerns will be addressed in a timely and thorough fashion, retain an external specialist to conduct adverse impact analyses aimed at identifying and remedying, with recommendations from plaintiffs’ counsel, unjustified gender disparities and it will revise its performance management process to ensure it is fair to all employees.

Dispute with an inventor
An inventor of certain patents of Novartis Vaccines & Diagnostics Inc. (V&D) sued V&D in the SDNY for breach of a consulting contract and claimed he was entitled to at least a portion of settlement proceeds from arbitration proceedings relating to these patents. After the trial of this case in April 2009, the SDNY entered judgment in favor of the inventor. In July 2009, V&D filed an appeal in the Second Circuit. In May 2010, V&D and the inventor agreed to settle their dispute for a payment of USD 80 million to the inventor and a contribution of USD 20 million to a non-profit research organization to be established by the inventor.

Alcon minority shareholder litigation
As from January 7, 2010, shareholder class action complaints relating to the Alcon transactions announced on January 4, 2010, were filed inter alia against Novartis AG by minority shareholders of Alcon. These actions were filed in the SDNY, in the US federal district courts for the Eastern District of New York (EDNY) and the Northern District of Texas (NDTX) and in several Texas state courts. The case in the EDNY was voluntarily dismissed without prejudice by the plaintiffs on March 18, 2010. The case in the NDTX was transferred to the SDNY and formally consolidated with the actions pending there on June 25, 2010. The actions pending in Texas state courts were consolidated for pre-trial discovery in Multi District Litigation proceedings on April 16, 2010. Novartis AG’s motion to dismiss the consolidated Texas state court actions based on the doctrine of forum non conveniens (FNC) was filed on June 30, 2010. In the SDNY, Novartis AG’s motion to dismiss all cases pending there based on FNC was granted and the case was dismissed on July 2, 2010. On July 14, 2010, the plaintiffs in the dismissed SDNY actions filed a notice of appeal to the Second Circuit.



Supplementary information

Non-IFRS disclosures
Net liquidity/debt and free cash flow are non-IFRS financial measures, which means they should not be interpreted as measures determined under IFRS. Net liquidity/debt is presented as additional information because management believes it is a useful supplemental indicator of the Group’s ability 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 usage of existing cash. Free cash flow is a measure of the net cash generated that is available for debt repayment and investment in strategic opportunities. Novartis uses free cash flow in internal comparisons of results from the Group’s divisions and business units. Free cash flow of the divisions and business units uses the same definition as for the Group. No dividends, tax or financial receipts or payments are included in the division and business unit calculations. The definition of free cash flow used by Novartis does not include amounts related to changes in investments in associated companies nor related to acquisitions or divestments of subsidiaries. Free cash flow is not intended to be a substitute measure for cash flow from operating activities as determined under IFRS.

Condensed consolidated change in net liquidity/debt (unaudited)

Second quarter

		Q2 2010 USD m		Q2 2009 USD m		Change USD m
Change in cash and cash equivalents		492		2 015		-1 523
Change in marketable securities, financial debt and financial derivatives		1 894		-456		2 350
Change in net liquidity/debt		2 386		1 559		827
Net liquidity/debt at April 1		1 969		-3 613		5 582
Net liquidity/debt at June 30		4 355		-2 054		6 409

First half

		H1 2010 USD m		H1 2009 USD m		Change USD m
Change in cash and cash equivalents		2 664		1 552		1 112
Change in marketable securities, financial debt and financial derivatives		-1 770		-2 359		589
Change in net liquidity/debt		894		-807		1 701
Net liquidity/debt at January 1		3 461		-1 247		4 708
Net liquidity/debt at June 30		4 355		-2 054		6 409

Free cash flow  (unaudited)

Second quarter

		Q2 2010 USD m		Q2 2009 USD m		Change USD m
Cash flow from operating activities		2 956		2 618		338
Purchase of property, plant & equipment		-355		-485		130
Purchase of intangible, financial and other non-current assets		-293		-234		-59
Sale of property, plant & equipment, intangible, financial and other non-current assets		60		17		43
Free cash flow before dividends		2 368		1 916		452
Dividends		-18		-10		-8
Free cash flow		2 350		1 906		444

First half

		H1 2010 USD m		H1 2009 USD m		Change USD m
Cash flow from operating activities		6 263		4 571		1 692
Purchase of property, plant & equipment		-659		-853		194
Purchase of intangible, financial and other non-current assets		-437		-370		-67
Sale of property, plant & equipment, intangible, financial and other non-current assets		104		74		30
Free cash flow before dividends		5 271		3 422		1 849
Dividends		-4 486		-3 941		-545
Free cash flow		785		-519		1 304

Share information  (unaudited)

		June 30, 2010		June 30, 2009
Number of shares outstanding (million)		2 287.5		2 264.8
Registered share price (CHF)		52.60		44.04
ADS price (USD)		48.32		40.79
Market capitalization (USD billion)		111.1		92.4
Market capitalization (CHF billion)		120.3		99.7

Core results

The Group’s core results – including core operating income, core net income and core earnings per share – exclude the amortization of intangible assets, impairment charges, expenses relating to the integration of acquisitions as well as other items over a USD 25 million threshold that management deems exceptional. Novartis believes investor understanding of the Group’s performance is enhanced by disclosing these supplemental performance measures.

Novartis uses these core measures as important factors in assessing the Group’s performance in conjunction with other performance metrics. 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 that include targets 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, they 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 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 or amortization of purchased intangible assets.



CORE RESULTS
Reconciliation from IFRS results to core results – Group – Second quarter 2010  (unaudited)

		Q2 2010 IFRS results		Amortization of intangible assets1		Impairments2		Acquisition-related restructuring and integration items		Exceptional items3		Q2 2010 Core results		Q2 2009 Core results6
		USD m		USD m		USD m		USD m		USD m		USD m		USD m
Net sales to third parties		11 716										11 716		10 546
Other revenues		205										205		196
Cost of Goods Sold		-3 206		258								-2 948		-2 591
Gross profit		8 715		258								8 973		8 151
Marketing & Sales		-3 145										-3 145		-2 990
Research & Development		-1 893		16		7				8		-1 862		-1 765
General & Administration		-543										-543		-542
Other income		389				-1				-303		85		169
Other expense		-562				76				254		-232		-360
Operating income		2 961		274		82				-41		3 276		2 663
Income from associated companies		158		141								299		264
Financial income		14										14		91
Interest expense		-175										-175		-136
Income before taxes		2 958		415		82				-41		3 414		2 882
Taxes4		-521										-643		-488
Net income		2 437										2 771		2 394
EPS (USD)5		1.06										1.20		1.05
1 Amortization of intangible assets: Cost of Goods Sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; R&D includes the recurring amortization of acquired rights for core technology platforms; Income from associated companies includes the recurring amortization of the purchase price allocation related to intangible assets, primarily for the Roche and Alcon investments.
2 Impairments: R&D includes write-offs related to in-process R&D; Other income includes the reversal of impairments, primarily for property, plant & equipment; Other expense includes impairments, mainly a charge of USD 71 million in Vaccines and Diagnostics for a financial asset.
3 Exceptional items: R&D includes an expense for termination of a co-development contract; Other income includes mainly a Swiss pension curtailment gain of USD 265 million in Corporate and a divestment gain of USD 33 million for Tofranil in Pharmaceuticals; Other expense includes a USD 152.5 million provision for a gender discrimination case in the US in Pharmaceuticals, USD 45 million for a legal settlement in Vaccines and Diagnostics, a USD 26 million charge for restructuring in the US in Pharmaceuticals as well as a USD 25.5 million provision in connection with a government investigation in the US in Pharmaceuticals.
4 Taxes on the adjustments between IFRS and core results take into account the tax rate applicable in the jurisdiction where the adjustment arises.
5 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
6 Detailed reconciliation information for the 2009 period from IFRS results to core results has been published on the Group’s website at www.novartis.com.

CORE RESULTS
Reconciliation from IFRS results to core results – Group – First half 2010  (unaudited)

		H1 2010 IFRS results		Amortization of intangible assets1		Impairments2		Acquisition-related restructuring and integration items3		Exceptional items4		H1 2010 Core results		H1 2009 Core results7
		USD m		USD m		USD m		USD m		USD m		USD m		USD m
Net sales to third parties		23 847										23 847		20 255
Other revenues		430										430		413
Cost of Goods Sold		-6 302		520		-100		4				-5 878		-4 953
Gross profit		17 975		520		-100		4				18 399		15 715
Marketing & Sales		-6 159										-6 159		-5 711
Research & Development		-3 930		33		169				18		-3 710		-3 424
General & Administration		-1 113										-1 113		-1 047
Other income		569				-5				-345		219		339
Other expense		-870				83				292		-495		-598
Operating income		6 472		553		147		4		-35		7 141		5 274
Income from associated companies		261		283						43		587		486
Financial income		63										63		43
Interest expense		-308										-308		-222
Income before taxes		6 488		836		147		4		8		7 483		5 581
Taxes5		-1 103										-1 403		-885
Net income		5 385										6 080		4 696
EPS (USD)6		2.34										2.65		2.06
1 Amortization of intangible assets: Cost of Goods Sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; R&D includes the recurring amortization of acquired rights for core technology platforms; Income from associated companies includes the recurring amortization of the purchase price allocation related to intangible assets, primarily for the Roche and Alcon investments.
2 Impairments: Cost of Goods Sold includes impairment charges for acquired rights to in-market products and production-related impairment charges, including an additional reversal of USD 100 million in pharmaceuticals for an impairment taken in 2007 for Famvir; R&D includes write-offs related to in-process R&D, mainly an impairment charge of USD 152 million in Pharmaceuticals for termination of the PTZ601 development project; Other income includes the reversal of impairments, primarily for property, plant & equipment; Other expense includes impairments, mainly a charge of USD 75 million in Vaccines and Diagnostics for a financial asset
3 Acquisition-related restructuring and integration items: Cost of Goods Sold includes charges of USD 4 million related to business acquisitions in Sandoz.
4 Exceptional items: Other income includes mainly a Swiss pension curtailment gain of USD 265 million in Corporate, proceeds of USD 42 million from a legal settlement in Pharmaceuticals with Teva regarding Famvir and a divestment gain of USD 33 million for Tofranil in Pharmaceuticals; Other expense includes a USD 152.5 million provision for a gender discrimination case in the US in Pharmaceuticals, a USD 26 million charge for restructuring in the US in Pharmaceuticals, a USD 25.5 million provision in connection with a government investigation in the US in Pharmaceuticals, a USD 45 million charge for a legal settlement in Vaccines and Diagnostics, and a USD 38 million charge for a legal settlement in Sandoz; Income from associated companies reflects an additional charge of USD 43 million for the Novartis share of Roche’s restructuring charges for Genentech taken in the second half of 2009.
5 Taxes on the adjustments between IFRS and core results take into account the tax rate applicable in the jurisdiction where the adjustment arises.
6 Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
7 Detailed reconciliation information for the 2009 period from IFRS results to core results has been published on the Group’s website at www.novartis.com.

CORE RESULTS – Reconciliation from IFRS results to core results – Pharmaceuticals  (unaudited)

Second quarter 2010

		Q2 2010 IFRS results		Amortization of intangible assets1		Impairments2		Acquisition-related restructuring and integration items		Exceptional items3		Q2 2010 Core results		Q2 2009 Core results4
		USD m		USD m		USD m		USD m		USD m		USD m		USD m
Net sales to third parties		7 670										7 670		7 115
Sales to other divisions		36										36		47
Other revenues		111										111		84
Cost of Goods Sold		-1 344		108								-1 236		-1 098
Gross profit		6 473		108								6 581		6 148
Marketing & Sales		-2 188										-2 188		-2 106
Research & Development		-1 489		7		8						-1 474		-1 414
General & Administration		-204										-204		-205
Other income		67								-38		29		84
Other expense		-322				5				209		-108		-189
Operating income		2 337		115		13				171		2 636		2 318
1 Amortization of intangible assets: Cost of Goods Sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; R&D includes the recurring amortization of acquired rights for core technology platforms.
2 Impairments: R&D includes write-offs related to in-process R&D; Other expense includes impairments, primarily for financial assets.
3 Exceptional items: Other income includes a divestment gain of USD 33 million for Tofranil; Other expense includes a USD 152.5 million provision for a gender discrimination case in the US, a USD 26 million charge for restructuring in the US as well as a USD 25.5 million provision in connection with a government investigation in the US.
4 Detailed reconciliation information for the 2009 period from IFRS results to core results has been published on the Group’s website at www.novartis.com.

CORE RESULTS – Reconciliation from IFRS results to core results – Pharmaceuticals  (unaudited)

First half 2010

		H1 2010 IFRS results		Amortization of intangible assets1		Impairments2		Acquisition-related restructuring and integration items		Exceptional items3		H1 2010 Core results		H1 2009 Core results4
		USD m		USD m		USD m		USD m		USD m		USD m		USD m
Net sales to third parties		14 961										14 961		13 548
Sales to other divisions		74										74		92
Other revenues		195										195		186
Cost of Goods Sold		-2 550		194		-100						-2 456		-2 106
Gross profit		12 680		194		-100						12 774		11 720
Marketing & Sales		-4 224										-4 224		-4 004
Research & Development		-3 097		15		163						-2 919		-2 732
General & Administration		-417										-417		-399
Other income		187				-4				-80		103		205
Other expense		-465				6				209		-250		-301
Operating income		4 664		209		65				129		5 067		4 489
1 Amortization of intangible assets: Cost of Goods Sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; R&D includes the recurring amortization of acquired rights for core technology platforms.
2 Impairments: Cost of Goods Sold includes impairment charges for acquired rights to in-market products and other production-related impairment charges, including an additional reversal of USD 100 million for an impairment taken in 2007 for Famvir; R&D includes write-offs related to in-process R&D, mainly a net pre-tax impairment charge of USD 152 million (USD 250 million related to the value of the intangible asset offset by a release of a USD 98 million liability related to the estimated value of a contingent milestone consideration) for termination of the PTZ601 development project; Other income includes the reversal of impairments, primarily for financial assets; Other expense includes impairments, primarily for financial assets.
3 Exceptional items: Other income reflects proceeds of USD 42 million from a legal settlement with Teva regarding Famvir and a divestment gain of USD 33 million for Tofranil; Other expense includes a USD 152.5 million provision for a gender discrimination case in the US, a USD 26 million charge for restructuring in the US as well as a USD 25.5 million provision in connection with a government investigation in the US.
4 Detailed reconciliation information for the 2009 period from IFRS results to core results has been published on the Group’s website at www.novartis.com.

CORE RESULTS – Reconciliation from IFRS results to core results – Vaccines and Diagnostics  (unaudited)

Second quarter 2010

		Q2 2010 IFRS results		Amortization of intangible assets1		Impairments2		Acquisition-related restructuring and integration items		Exceptional items3		Q2 2010 Core results		Q2 2009 Core results4
		USD m		USD m		USD m		USD m		USD m		USD m		USD m
Net sales to third parties		564										564		247
Sales to other divisions		12										12		5
Other revenues		72										72		95
Cost of Goods Sold		-334		60								-274		-170
Gross profit		314		60								374		177
Marketing & Sales		-84										-84		-72
Research & Development		-115		4								-111		-97
General & Administration		-37										-37		-43
Other income		8										8		14
Other expense		-128				71				45		-12		-24
Operating income		-42		64		71				45		138		-45
1 Amortization of intangible assets: Cost of Goods Sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; R&D includes the recurring amortization of acquired rights for core technology platforms.
2 Impairments: Other expense represents a charge of USD 71 million for a financial asset.
3 Exceptional items: Other expense of USD 45 million for a legal settlement.
4 Detailed reconciliation information for the 2009 period from IFRS results to core results has been published on the Group’s website at www.novartis.com.

First half 2010

		H1 2010 IFRS results		Amortization of intangible assets1		Impairments2		Acquisition-related restructuring and integration items		Exceptional items3		H1 2010 Core results		H1 2009 Core results4
		USD m		USD m		USD m		USD m		USD m		USD m		USD m
Net sales to third parties		1 925										1 925		494
Sales to other divisions		29										29		15
Other revenues		195										195		192
Cost of Goods Sold		-726		136								-590		-326
Gross profit		1 423		136								1 559		375
Marketing & Sales		-162										-162		-131
Research & Development		-250		8								-242		-179
General & Administration		-75										-75		-76
Other income		26										26		17
Other expense		-165				75				45		-45		-42
Operating income		797		144		75				45		1 061		-36
1 Amortization of intangible assets: Cost of Goods Sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; R&D includes the recurring amortization of acquired rights for core technology platforms.
2 Impairments: Other expense includes a charge of USD 75 million for a financial asset.
3 Exceptional items: Other expense of USD 45 million for a legal settlement.
4 Detailed reconciliation information for the 2009 period from IFRS results to core results has been published on the Group’s website at www.novartis.com.

CORE RESULTS – Reconciliation from IFRS results to core results – Sandoz  (unaudited)

Second quarter 2010

		Q2 2010 IFRS results		Amortization of intangible assets1		Impairments2		Acquisition-related restructuring and integration items		Exceptional items3		Q2 2010 Core results		Q2 2009 Core results4
		USD m		USD m		USD m		USD m		USD m		USD m		USD m
Net sales to third parties		1 973										1 973		1 774
Sales to other divisions		56										56		65
Other revenues		4										4		2
Cost of Goods Sold		-1 116		66								-1 050		-937
Gross profit		917		66								983		904
Marketing & Sales		-345										-345		-324
Research & Development		-159		4		-1				8		-148		-140
General & Administration		-84										-84		-91
Other income		8				-1						7		5
Other expense		-48				-1						-49		-47
Operating income		289		70		-3				8		364		307
1 Amortization of intangible assets: Cost of Goods Sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; R&D includes the recurring amortization of acquired rights for core technology platforms.
2 Impairments: R&D includes the reversal of write-offs related to in-process R&D; Other income includes the reversal of impairments, primarily for property, plant & equipment; Other expense includes the reversal of impairments, primarily for property, plant & equipment.
3 Exceptional items: R&D includes an expense for termination of a co-development contract.
4 Detailed reconciliation information for the 2009 period from IFRS results to core results has been published on the Group’s website at www.novartis.com.

CORE RESULTS – Reconciliation from IFRS results to core results – Sandoz  (unaudited)

First half 2010

		H1 2010 IFRS results		Amortization of intangible assets1		Impairments2		Acquisition-related restructuring and integration items3		Exceptional items4		H1 2010 Core results		H1 2009 Core results5
		USD m		USD m		USD m		USD m		USD m		USD m		USD m
Net sales to third parties		3 974										3 974		3 500
Sales to other divisions		130										130		128
Other revenues		8										8		6
Cost of Goods Sold		-2 234		142				4				-2 088		-1 835
Gross profit		1 878		142				4				2 024		1 799
Marketing & Sales		-705										-705		-620
Research & Development		-320		8		6				18		-288		-278
General & Administration		-175										-175		-182
Other income		33				-1						32		11
Other expense		-112								38		-74		-76
Operating income		599		150		5		4		56		814		654
1 Amortization of intangible assets: Cost of Goods Sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; R&D includes the recurring amortization of acquired rights for core technology platforms.
2 Impairments: R&D includes write-offs related to in-process R&D; Other income includes the reversal of impairments, primarily for property, plant & equipment.
3 Acquisition-related restructuring and integration items: Cost of Goods Sold includes charges of USD 4 million related to business acquisitions.
4 Exceptional items: R&D includes an expense for termination of a co-development contract; Other expense represents a USD 38 million charge for a legal settlement in the US.
5 Detailed reconciliation information for the 2009 period from IFRS results to core results has been published on the Group’s website at www.novartis.com.

CORE RESULTS – Reconciliation from IFRS results to core results – Consumer Health  (unaudited)

Second quarter 2010

		Q2 2010 IFRS results		Amortization of intangible assets1		Impairments		Acquisition-related restructuring and integration items		Exceptional items		Q2 2010 Core results		Q2 2009 Core results2
		USD m		USD m		USD m		USD m		USD m		USD m		USD m
Net sales to third parties		1 509										1 509		1 410
Sales to other divisions		13										13		13
Other revenues		18										18		15
Cost of Goods Sold		-538		24								-514		-494
Gross profit		1 002		24								1 026		944
Marketing & Sales		-528										-528		-488
Research & Development		-85										-85		-86
General & Administration		-94										-94		-89
Other income		9										9		24
Other expense		-10										-10		-12
Operating income		294		24								318		293
1 Amortization of intangible assets: Cost of Goods Sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets.
2 Detailed reconciliation information for the 2009 period from IFRS results to core results has been published on the Group’s website at www.novartis.com.

First half 2010

		H1 2010 IFRS results		Amortization of intangible assets1		Impairments		Acquisition-related restructuring and integration items		Exceptional items		H1 2010 Core results		H1 2009 Core results2
		USD m		USD m		USD m		USD m		USD m		USD m		USD m
Net sales to third parties		2 987										2 987		2 713
Sales to other divisions		30										30		23
Other revenues		32										32		29
Cost of Goods Sold		-1 056		48								-1 008		-936
Gross profit		1 993		48								2 041		1 829
Marketing & Sales		-1 068										-1 068		-956
Research & Development		-171										-171		-162
General & Administration		-190										-190		-170
Other income		14										14		37
Other expense		-20										-20		-31
Operating income		558		48								606		547
1 Amortization of intangible assets: Cost of Goods Sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets.
2 Detailed reconciliation information for the 2009 period from IFRS results to core results has been published on the Group’s website at www.novartis.com.

CORE RESULTS
Reconciliation of operating income to core operating income and net income – Second quarter  (unaudited)

		Pharmaceuticals				Vaccines and Diagnostics				Sandoz				Consumer Health				Corporate				Total
		Q2 2010 USD m		Q2 2009 USD m		Q2 2010 USD m		Q2 2009 USD m		Q2 2010 USD m		Q2 2009 USD m		Q2 2010 USD m		Q2 2009 USD m		Q2 2010 USD m		Q2 2009 USD m		Q2 2010 USD m		Q2 2009 USD m
Operating income		2 337		2 213		-42		-167		289		247		294		271		83		-200		2 961		2 364
Amortization of intangible assets		115		95		64		77		70		61		24		22		1		1		274		256
Impairments
Intangible assets		8		14						-1												7		14
Property, plant & equipment				-4						-2		-1										-2		-5
Financial assets		5				71												1		-11		77		-11
Total impairment charges		13		10		71				-3		-1						1		-11		82		-2
Acquisition-related restructuring and integration items (including acquisition- related accounting impact of inventory adjustments), net
Exceptional items
Exceptional gains from divesting brands, subsidiaries and financial investments		-33																				-33
Other restructuring expenses		26																				26
Legal provisions, litigations and exceptional settlements		178				45		45		8												231		45
Swiss pension curtailment gain																		-265				-265
Total exceptional items		171				45		45		8								-265				-41		45
Total adjustments		299		105		180		122		75		60		24		22		-263		-10		315		299
Core operating income		2 636		2 318		138		-45		364		307		318		293		-180		-210		3 276		2 663
as % of net sales		34.4%		32.6%		24.5%		-18.2%		18.4%		17.3%		21.1%		20.8%						28.0%		25.3%
Income from associated companies		-6		-2						2		2						162		124		158		124
Recurring amortization, exceptional impairments and restructuring expenses related to income from associated companies, net of tax																						141		140
Financial income																						14		91
Interest expenses																						-175		-136
Taxes (adjusted for above items)																						-643		-488
Core net income																						2 771		2 394
Core net income attributable to shareholders																						2 751		2 385
Core EPS (USD)																						1.20		1.05

CORE RESULTS
Reconciliation of operating income to core operating income and net income – First half  (unaudited)

		Pharmaceuticals				Vaccines and Diagnostics				Sandoz				Consumer Health				Corporate				Total
		H1 2010 USD m		H1 2009 USD m		H1 2010 USD m		H1 2009 USD m		H1 2010 USD m		H1 2009 USD m		H1 2010 USD m		H1 2009 USD m		H1 2010 USD m		H1 2009 USD m		H1 2010 USD m		H1 2009 USD m
Operating income		4 664		4 275		797		-234		599		538		558		506		-146		-374		6 472		4 711
Amortization of intangible assets		209		190		144		153		150		118		48		41		2		2		553		504
Impairments
Intangible assets		63		24						6												69		24
Property, plant & equipment		-4		-1						-1		-2										-5		-3
Financial assets		6		1		75												2		-8		83		-7
Total impairment charges		65		24		75				5		-2						2		-8		147		14
Acquisition-related restructuring and integration items (including acquisition- related accounting impact of inventory adjustments), net										4												4
Exceptional items
Exceptional gains from divesting brands, subsidiaries and financial investments		-33																				-33
Other restructuring expenses		26																				26
Legal provisions, litigations and exceptional settlements		136				45		45		56												237		45
Swiss pension curtailment gain																		-265				-265
Total exceptional items		129				45		45		56								-265				-35		45
Total adjustments		403		214		264		198		215		116		48		41		-261		-6		669		563
Core operating income		5 067		4 489		1 061		-36		814		654		606		547		-407		-380		7 141		5 274
as % of net sales		33.9%		33.1%		55.1%		-7.3%		20.5%		18.7%		20.3%		20.2%						29.9%		26.0%
Income from associated companies		-12		-3						2		3						271		207		261		207
Recurring amortization, exceptional impairments and restructuring expenses related to income from associated companies, net of tax																						326		279
Financial income																						63		43
Interest expenses																						-308		-222
Taxes (adjusted for above items)																						-1 403		-885
Core net income																						6 080		4 696
Core net income attributable to shareholders																						6 045		4 674
Core EPS (USD)																						2.65		2.06

Supplementary tables: Second quarter 2010 – Net sales of top 20 pharmaceutical products  (unaudited)

				US				Rest of world				Total
Brands				USD m		% change in constant currencies		USD m		% change in constant currencies		USD m		% change in USD		% change in constant currencies
Diovan/Co–Diovan		Hypertension		657		0		895		2		1 552		1		1
Gleevec/Glivec		Chronic myeloid leukemia		319		19		756		4		1 075		9		8
Zometa		Cancer complications		184		6		194		6		378		5		6
Lucentis		Age-related macular degeneration						377		29		377		28		29
Femara		Breast cancer		163		16		175		7		338		9		10
Sandostatin		Acromegaly and neuroendocrine tumors		125		12		187		10		312		11		11
Exelon/Exelon Patch		Alzheimer's disease		103		17		149		5		252		8		9
Exforge		Hypertension		72		26		155		43		227		35		37
Neoral/Sandimmun		Transplantation		20		0		197		-5		217		-4		-5
Voltaren (excl. OTC)		Inflammation/pain						200		2		200		1		2
Top ten products total				1 643		8		3 285		7		4 928		7		7
Exjade		Iron chelator		70		-7		122		25		192		11		11
Comtan/Stalevo		Parkinson’s disease		60		11		90		8		150		9		9
Reclast/Aclasta		Osteoporosis		99		24		43		22		142		23		23
Ritalin/Focalin		Attention Deficit/Hyperactivity Disorder		89		7		31		16		120		9		8
Lescol		Cholesterol reduction		25		-17		87		-26		112		-24		-24
Myfortic		Transplantation		40		18		68		19		108		20		18
Tekturna/Rasilez		Hypertension		50		25		53		98		103		54		56
Tegretol		Epilepsy		19		-5		72		-2		91		0		-1
Foradil		Asthma		10		400		78		-8		88		0		2
Xolair		Asthma		8		-62		82		47		90		14		18
Top 20 products total				2 113		8		4 011		8		6 124		8		8
Rest of portfolio				459		0		1 087		12		1 546		9		8
Total Division sales				2 572		7		5 098		9		7 670		8		8

Supplementary tables: First half 2010 – Net sales of top 20 pharmaceutical products  (unaudited)

				US				Rest of world				Total
Brands				USD m		% change in constant currencies		USD m		% change in constant currencies		USD m		% change in USD		% change in constant currencies
Diovan/Co–Diovan		Hypertension		1 245		0		1 749		0		2 994		2		0
Gleevec/Glivec		Chronic myeloid leukemia		605		18		1 502		5		2 107		12		8
Zometa		Cancer complications		362		3		391		8		753		7		5
Lucentis		Age-related macular degeneration						741		35		741		42		35
Femara		Breast cancer		322		18		360		8		682		14		13
Sandostatin		Acromegaly and neuroendocrine tumors		247		13		375		11		622		15		12
Exelon/Exelon Patch		Alzheimer's disease		201		21		302		8		503		15		13
Exforge		Hypertension		138		30		293		44		431		42		39
Neoral/Sandimmun		Transplantation		42		-9		387		-7		429		-4		-7
Voltaren (excl. OTC)		Inflammation/pain		1		-50		384		2		385		3		2
Top ten products total				3 163		9		6 484		7		9 647		10		8
Exjade		Iron chelator		132		12		239		30		371		26		23
Comtan/Stalevo		Parkinson’s disease		114		9		177		9		291		11		9
Reclast/Aclasta		Osteoporosis		178		28		87		36		265		33		31
Ritalin/Focalin		Attention Deficit/Hyperactivity Disorder		179		2		60		17		239		7		5
Lescol		Cholesterol reduction		49		-20		178		-24		227		-21		-23
Myfortic		Transplantation		77		22		131		22		208		28		22
Tekturna/Rasilez		Hypertension		93		27		99		111		192		61		60
Tegretol		Epilepsy		37		-29		142		0		179		-4		-8
Foradil		Asthma		15		150		160		-11		175		-2		-5
Xolair		Asthma		8		-79		162		59		170		21		20
Top 20 products total				4 045		8		7 919		8		11 964		11		8
Rest of portfolio				907		0		2 090		8		2 997		9		6
Total Division sales				4 952		7		10 009		8		14 961		10		8

Pharmaceutical net sales by therapeutic area – Second quarter  (unaudited)

		Q2 2010 USD m		Q2 2009 USD m		% change USD		% change cc
Cardiovascular and Metabolism
Diovan		1 552		1 533		1		1
Exforge		227		168		35		37
Tekturna/Rasilez		103		67		54		56
Subtotal		1 882		1 768		6		6
Galvus		90		39		131		136
Lotrel		71		86		-17		-17
Total strategic franchise products		2 043		1 893		8		8
Mature products (including Lescol)		277		346		-20		-20
Total Cardiovascular and Metabolism products		2 320		2 239		4		4
Oncology
Gleevec/Glivec		1 075		990		9		8
Zometa		378		359		5		6
Femara		338		310		9		10
Sandostatin		312		281		11		11
Exjade		192		173		11		11
Tasigna		89		53		68		73
Afinitor		55		11		nm		nm
Other		41		60		-32		-31
Total Oncology products		2 480		2 237		11		11
Neuroscience and Ophthalmics
Lucentis		377		294		28		29
Exelon/Exelon Patch		252		233		8		9
Comtan/Stalevo		150		138		9		9
Extavia		38		9		nm		nm
Other		107		118		-9		-10
Total strategic franchise products		924		792		17		17
Mature products		149		150		-1		-3
Total Neuroscience and Ophthalmics products		1 073		942		14		14
Respiratory
Xolair		90		79		14		18
TOBI		72		69		4		4
Other		6		2		nm		nm
Total strategic franchise products		168		150		12		15
Mature products		40		43		-7		-5
Total Respiratory products		208		193		8		11
Immunology and Infectious Diseases
Neoral/Sandimmun		217		227		-4		5
Reclast/Aclasta		142		115		23		23
Myfortic		108		90		20		18
Certican		36		27		33		33
Ilaris		6		0		nm		nm
Other		73		57		28		30
Total strategic franchise products		582		516		13		12
Mature products		217		237		-8		-10
Total Immunology and Infectious Diseases products		799		753		6		5
Additional products
Voltaren (excluding OTC)		200		198		1		2
Ritalin/Focalin		120		110		9		8
Tegretol		91		91		0		-1
Foradil		88		88		0		2
Trileptal		63		77		-18		-18
Everolimus sales to stent manufacturers		71		47		51		47
Other		157		140		12		13
Total additional products		790		751		5		5
Total strategic franchise products		6 197		5 588		11		11
Total mature and additional products		1 473		1 527		-4		-4
Total Division net sales		7 670		7 115		8		8
nm – Not meaningful

Pharmaceutical net sales by therapeutic area – First half  (unaudited)

		H1 2010 USD m		H1 2009 USD m		% change USD		% change cc
Cardiovascular and Metabolism
Diovan		2 994		2 935		2		0
Exforge		431		304		42		39
Tekturna/Rasilez		192		119		61		60
Subtotal		3 617		3 358		8		6
Galvus		166		65		155		152
Lotrel		144		169		-15		-15
Total strategic franchise products		3 927		3 592		9		7
Mature products (including Lescol)		572		677		-16		-18
Total Cardiovascular and Metabolism products		4 499		4 269		5		3
Oncology
Gleevec/Glivec		2 107		1 884		12		8
Zometa		753		701		7		5
Femara		682		596		14		13
Sandostatin		622		539		15		12
Exjade		371		295		26		23
Tasigna		164		88		86		84
Afinitor		96		12		nm		nm
Other		90		119		-24		-27
Total Oncology products		4 885		4 234		15		13
Neuroscience and Ophthalmics
Lucentis		741		523		42		35
Exelon/Exelon Patch		503		436		15		13
Comtan/Stalevo		291		261		11		9
Extavia		58		12		nm		nm
Other		232		235		-1		-5
Total strategic franchise products		1 825		1 467		24		20
Mature products		282		281		0		-5
Total Neuroscience and Ophthalmics products		2 107		1 748		21		16
Respiratory
Xolair		170		140		21		20
TOBI		137		143		-4		-5
Other		8		1		nm		nm
Total strategic franchise products		315		284		11		10
Mature products		89		96		-7		-11
Total Respiratory products		404		380		6		5
Immunology and Infectious Diseases
Neoral/Sandimmun		429		448		-4		-7
Reclast/Aclasta		265		200		33		31
Myfortic		208		163		28		22
Certican		70		50		40		35
Ilaris		10		0		nm		nm
Other		140		103		36		32
Total strategic franchise products		1 122		964		16		13
Mature products		424		457		-7		-11
Total Immunology and Infectious Diseases products		1 546		1 421		9		5
Additional products
Voltaren (excluding OTC)		385		372		3		2
Ritalin/Focalin		239		223		7		5
Tegretol		179		187		-4		-8
Foradil		175		179		-2		-5
Trileptal		127		147		-14		-16
Everolimus sales to stent manufacturers		134		116		16		10
Other		281		272		3		1
Total additional products		1 520		1 496		2		-1
Total strategic franchise products		12 074		10 541		15		12
Total mature and additional products		2 887		3 007		-4		-7
Total Division net sales		14 961		13 548		10		8
nm – Not meaningful

Net sales by region¹ (unaudited)

Second quarter

		Q2 2010		Q2 2009		% change				Q2 2010		Q2 2009
		USD m		USD m		USD		cc		% of total		% of total
Pharmaceuticals
US		2 572		2 412		7		7		34		34
Europe		2 672		2 594		3		8		35		36
Asia/Africa/Australasia		1 688		1 502		12		7		22		21
Canada and Latin America		738		607		22		15		9		9
Total		7 670		7 115		8		8		100		100
Vaccines and Diagnostics
US		166		95		75		76		29		38
Europe		141		87		62		75		25		35
Asia/Africa/Australasia		190		54		252		257		34		22
Canada and Latin America		67		11		509		495		12		5
Total		564		247		128		135		100		100
Sandoz
US		594		433		37		37		30		25
Europe		989		1 013		-2		2		50		57
Asia/Africa/Australasia		243		199		22		21		12		11
Canada and Latin America		147		129		14		4		8		7
Total		1 973		1 774		11		13		100		100
Consumer Health
US		499		447		12		12		33		32
Europe		629		620		1		5		42		44
Asia/Africa/Australasia		253		224		13		7		17		16
Canada and Latin America		128		119		8		-1		8		8
Total		1 509		1 410		7		7		100		100
Group
US		3 831		3 387		13		13		33		32
Europe		4 431		4 314		3		8		38		41
Asia/Africa/Australasia		2 374		1 979		20		15		20		19
Canada and Latin America		1 080		866		25		17		9		8
Total		11 716		10 546		11		12		100		100
1 Net sales from operations by location of third party customer

Net sales by region¹ (unaudited)

First half

		H1 2010		H1 2009		% change				H1 2010		H1 2009
		USD m		USD m		USD		cc		% of total		% of total
Pharmaceuticals
US		4 952		4 648		7		6		34		35
Europe		5 427		4 928		10		9		36		36
Asia/Africa/Australasia		3 198		2 857		12		5		21		21
Canada and Latin America		1 384		1 115		24		13		9		8
Total		14 961		13 548		10		8		100		100
Vaccines and Diagnostics
US		728		182		300		302		38		37
Europe		467		192		143		142		24		39
Asia/Africa/Australasia		479		95		404		388		25		19
Canada and Latin America		251		25		904		899		13		5
Total		1 925		494		290		287		100		100
Sandoz
US		1 111		880		26		26		28		25
Europe		2 113		2 001		6		4		53		57
Asia/Africa/Australasia		470		370		27		21		12		11
Canada and Latin America		280		249		12		0		7		7
Total		3 974		3 500		14		11		100		100
Consumer Health
US		967		868		11		11		32		32
Europe		1 297		1 207		7		5		44		45
Asia/Africa/Australasia		472		418		13		5		16		15
Canada and Latin America		251		220		14		1		8		8
Total		2 987		2 713		10		7		100		100
Group
US		7 758		6 578		18		18		33		32
Europe		9 304		8 328		12		10		39		42
Asia/Africa/Australasia		4 619		3 740		24		17		19		18
Canada and Latin America		2 166		1 609		35		24		9		8
Total		23 847		20 255		18		15		100		100
1 Net sales from operations by location of third party customer

Quarterly analysis  (unaudited)

Key figures by quarter

		Q2 2010		Q1 2010		Change
		USD m		USD m		USD m		%
Net sales		11 716		12 131		-415		-3
Operating income		2 961		3 511		-550		-16
Financial income		14		49		-35		-71
Interest expense		-175		-133		-42		32
Taxes		-521		-582		61		-10
Net income		2 437		2 948		-511		-17

Net sales by region

		Q2 2010		Q1 2010		Change
		USD m		USD m		USD m		%
US		3 831		3 927		-96		-2
Europe		4 431		4 873		-442		-9
Asia/Africa/Australasia		2 374		2 245		129		6
Canada and Latin America		1 080		1 086		-6		-1
Total		11 716		12 131		-415		-3

Net sales by division

		Q2 2010		Q1 2010		Change
		USD m		USD m		USD m		%
Pharmaceuticals		7 670		7 291		379		5
Vaccines and Diagnostics		564		1 361		-797		-59
Sandoz		1 973		2 001		-28		-1
Consumer Health		1 509		1 478		31		2
Total		11 716		12 131		-415		-3

Core operating income by division

		Q2 2010		Q1 2010		Change
		USD m		USD m		USD m		%
Pharmaceuticals		2 636		2 431		205		8
Vaccines and Diagnostics		138		923		-785		-85
Sandoz		364		450		-86		-19
Consumer Health		318		288		30		10
Corporate Income & Expense, net		-180		-227		47		-21
Core operating income		3 276		3 865		-589		-15