Risks in focus

The table below provides an overview of our seven strategic risks. For more information on our full risk portfolio, please see Item 3.D (“Risk factors”) in the Novartis Annual Report.

Risk

Context

Actions

Deliver transformative innovation

Research and development

Failure or delay in the research and development of new products or new indications for existing products

We engage in costly, lengthy and uncertain R&D activities, both independently and in collaboration with third parties, to identify and develop new products and new indications for existing products. Failure can occur at any point, including after substantial investment. New products must undergo intensive preclinical and clinical testing. Further, regulatory authorities continue to establish new and increasingly rigorous requirements for approval and reimbursement. The post-approval regulatory burden has also increased.

  • Enter into agreements with other pharmaceutical and biotechnology companies and with academic and other institutions to develop new products

  • Accelerate the use of data science and digital technology to make the drug discovery and development process more efficient and effective

 

Embrace operational excellence

Key products and commercial priorities

Failure to deliver key commercial priorities and successfully launch new products

Our ability to grow our business depends on the commercial success of key products. Their success could be impacted by a number of factors, including pressure from new or existing competitive products; changes in the prescribing habits of healthcare professionals; unexpected side effects or safety signals; supply chain issues or other product shortages; pricing pressures; regulatory proceedings; changes in labeling; loss of intellectual property protection; and global pandemics.

  • Pursue a “launch excellence” strategy in commercial execution, including investing earlier in pre-launch activities and using data science to test and learn from new commercial models

  • Accelerate the implementation of a new customer engagement model, which combines traditional face-to-face visits with virtual engagements with healthcare professionals. We are similarly changing our approach to partnering with healthcare systems, payers and other healthcare providers.

Alliances, acquisitions and divestments

Failure to identify external business opportunities or realize the expected benefits from our strategic acquisitions or divestments

As part of our strategy, we acquire and divest products or entire businesses, and enter into strategic alliances and collaborations. This strategy depends in part on our ability to identify and move forward with strategic opportunities. Efforts to develop and market acquired products, to integrate acquired businesses or to achieve expected synergies may fail or may not fully meet expectations. Also, our strategic alliances and collaborations with third parties may not achieve their intended goals and objectives.

  • Establish an enterprise-wide business development strategy to identify external opportunities that align with and advance our corporate strategy

  • Enhance our risk-based due diligence approach through end-to-end risk management

Sandoz business transformation

Inability to drive sustainable growth mid-term by pursuing biosimilars and inorganic growth opportunities

Our Sandoz Division faces competition and pricing pressures as it seeks to increase its market share and achieve sustainable and profitable growth mid-term. Our strategy for Sandoz focuses on accelerating biosimilars growth in the long term; rebuilding the Sandoz US business; and achieving inorganic growth by identifying and successfully executing on merger and acquisition and strategic in-licensing partnership opportunities. Failure to achieve these goals may have a material adverse effect on the success of the Sandoz Division and the Group as a whole, as well as potentially on our results of operations and financial condition.

  • Accelerate biosimilars growth

  • Rebuild the US business by increasing loss-of-exclusivity coverage and enhancing our pipeline with first-to-file launches

  • Pursue inorganic growth opportunities, for example through bolt-on acquisitions and in-licensing

Go big on data and digital

Emerging business models

Missed opportunities in digitalization and emerging business models

Rapid adoption of digital technology is transforming our industry. There is a risk of Novartis missing the opportunity while other companies with specialized expertise or business models may enter the healthcare field, potentially disrupting our relationships with patients, healthcare professionals, customers, distributors and suppliers.

  • Develop a digital operating model to enable faster innovation, simplify our operations and improve productivity

  • Accelerate the implementation of a new customer engagement model, which combines traditional face-to-face visits with virtual engagements with healthcare professionals. We are similarly changing our approach to partnering with healthcare systems, payers and other healthcare providers.

Build trust with society

Pricing, reimbursement and access

Pricing and reimbursement pressure, including access to healthcare

We experience significant pressures on the pricing of our products and on our ability to obtain and maintain satisfactory rates of reimbursement from governments, insurers and other payers. These pressures have many sources, including rising healthcare costs (exacerbated by the COVID-19 pandemic); funding restrictions and policy changes; and public controversies, debate, investigations and legal proceedings around pharmaceutical pricing. Such pressures may impact product pricing and market access. We also face price controls and other measures imposed by governments and other payers. In addition, our Sandoz Division faces continued price erosion in the generics and biosimilars segment.

  • Establish dedicated teams that actively seek to optimize patient access, including formulary positions, for our products

  • Increase efforts to enable patient access through innovative pricing and access initiatives in the US, Europe and other markets, including contract structures such as pay-over-time and outcome-based agreements

  • Continue to execute against access-to-medicine and global health targets. These targets are backed by a sustainability-linked bond, which embeds them into the core of our business operations.

Environmental, social and governance matters

Failure to meet increasingly challenging environmental, social and governance expectations

Increasingly, in addition to their financial performance, companies are being judged on their performance on a variety of environmental, social and governance (ESG) matters. A variety of organizations measure the performance of companies on ESG topics, and the results of these assessments are widely publicized. In addition, investment in funds that specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of such ESG measures in making their investment decisions. An inability to successfully perform on ESG matters and meet societal expectations can result in negative impacts to our reputation, recruitment, retention, operations, financial results and share price.

  • Further develop the Novartis ESG strategy based on the results of the 2021 global materiality assessment

  • Revisit and further strengthen our environmental target for full carbon neutrality by 2030 by committing to achieve net zero across the Novartis value chain by 2040