Embed operational excellence

In 2022, we introduced a new operating model to make our organization more agile and efficient in support of our strategy. We also took further steps to transform our manufacturing network, improve supply chain management and reduce our environmental footprint.

2022 highlights

Focusing our organization

In recent years, we have evolved from being a diversified healthcare conglomerate to a focused, innovative medicines company. Announced in April 2022, our new organizational structure aligns the way we operate with this strategy.

We integrated our former Novartis Pharmaceuticals and Oncology units under our Innovative Medicines Division with separate US and international commercial organizational units. We also integrated our manufacturing and business services teams into a single Operations organization and integrated our corporate functions.

These changes – part of our Transforming for Growth initiative – are designed to power our next phase of innovation, growth and productivity by sharpening our focus on our core business. Creating a simpler, more agile organization will enable us to take quicker decisions and scale the use of new technologies, while reducing duplications in our marketing and sales activities and introducing more efficient end-to-end management across our research, development and commercial operations.

This new structure became fully operational in January 2023. We estimate these changes will result in cost savings of approximately USD 1.5 billion by 2024, freeing up resources for investment in research and development (R&D) and delivering returns to shareholders. In the short term, we expect the impact of these productivity gains to help offset moderately rising energy costs and inflationary pressures in our supply chain.

Savings of ~USD 1.5bn to be fully embedded by 2024

Excellence in manufacturing

In 2022, we worked to further increase efficiency across our manufacturing sites. We introduced new innovative manufacturing techniques, such as continuous manufacturing, based on an end-to-end, uninterrupted production line. We also automated more processes, such as packaging lines and inspection of prefilled syringes, and introduced 3D printing for spare parts. At the same time, we switched more of our production to cleaner energy and improved our environmental performance.

In recent years, we have been adapting our sites, consolidating production where possible, particularly in small molecules and generics where we face most competition. Since 2019, we have closed, exited or sold 17 manufacturing sites and have announced the closure, exit or sale of nine additional sites.

In parallel, we have been expanding capacity in strategic focus areas such as biopharmaceuticals and advanced technology platforms such as radioligand therapy. In 2022, we were given approval for a new 16 000m² facility in Durham, North Carolina, to produce Zolgensma, our gene therapy for spinal muscular atrophy. We also began operations at a new, state-of-the-art biopharmaceuticals plant in Austria that uses continuous and automated process technologies. In addition, we began siRNA drug substance production for our cholesterol drug Leqvio in Switzerland, expanded radioligand therapy (RLT) production in the US and Europe, and continued work on our new RLT facility in Indiana, US, which is due to come into operation in 2023.

These changes mirror developments in our product mix and help us retain flexibility, so we maintain supplies and react quickly to fluctuations in demand. We increased production of Cosentyx and Tafinlar across various sites after the two medicines were added to China’s national reimbursement list. Overall, we produced approximately 72.5 billion treatments in 2022, ensuring a continuous and reliable supply of our medicines to patients worldwide.

During the year, we also stepped up our contract manufacturing business, through which we leverage our manufacturing facilities and expertise, including in gene and cell therapy, to produce medicines for third-party customers alongside our own. Our sites in Singapore, the US and Europe are producing medicines and vaccines for other pharmaceutical companies. Contract manufacturing means we can increase capacity utilization at our sites while giving customers access to high-quality manufacturing expertise.

Investing in early-stage technical development

In September, we announced a USD 300 million investment in early technical development capabilities for next-generation biotherapeutics at facilities in Switzerland, Slovenia and Austria. Biotherapeutics currently account for around half of all new drug approvals and have enormous potential to treat unmet patient needs across a range of diseases. Spanning both drug substance and drug product development, this investment is expected to lead to faster transition times from pre-clinical to first-in-human studies, helping to put Novartis at the forefront of biotherapeutic development.

Supply chain management

We work with thousands of external partners worldwide, from suppliers in our R&D organization to wholesalers and distributors, who ensure our medicines reach patients. The diversity and geographic spread of our supply chain makes it highly resilient, even in times of pandemic or other economic shocks.

We contractually oblige third-party suppliers to abide by our standards on quality, ethics, and human rights. To support this approach, we carry out regular risk assessments and audits in risk areas including health and safety, labor rights, information security and anti-bribery and corruption. We also work with suppliers to reduce their environmental impact (see section below).

In 2022, we extended our third-party risk assessments downstream to include wholesalers and distributors of our medicines, and updated our expectations for suppliers to carry out due diligence on human rights.

Over the past three years, we have assessed nearly 97% of our tier one suppliers in Operations that play a critical role in our supply chain. Of these, only around 1% were considered high-risk.

Sustainability in our supply chain

Environmental sustainability criteria have been integrated in supply contracts covering more than a third of our Scope 3 supplier emissions. Our plan is to increase this to all suppliers by 2025. To support our approach, we are engaging with suppliers to develop sustainability roadmaps – part of our goal to achieve carbon neutrality across our value chain by 2030 and to be net zero by 2040. More than 90% of carbon emissions associated with our business are generated outside our own operations.

Protecting patient health and safety

Patient health and safety is fundamental to our business. We cannot deliver on our purpose if we do not provide safe, high-quality medicines. Our activities are focused on three areas: manufacturing safe medicines (product quality); ensuring these medicines remain safe and that we identify possible adverse events to minimize risks to patients (pharmacovigilance); and combating falsified medicines, which can pose a serious threat to human health.

Product quality

All our facilities operate under strict regulations from regulatory health authorities. Health authorities regularly inspect our facilities to ensure we are complying with all relevant laws and standards. In 2022, health authorities, including the European Medicines Agency (EMA), Swissmedic and the US Food and Drug Administration (FDA), carried out a total of 139 inspections. Of these, 100% were found to be acceptable, up from 99.2% in 2021. Novartis also routinely audits suppliers and other partners to ensure quality standards are maintained.

We carry out thorough investigations into safety issues with our products, and act quickly to address any concerns. For example, in May we suspended production of our Pluvicto radioligand therapy for prostate cancer at two sites in Italy and the US to address quality concerns in their manufacture. After remediating the issues, we restarted production in June and resumed delivery of doses to patients. These issues did not affect patient safety, and no risk to patients from the doses previously produced at these sites was identified.

During the year, we had 19 recalls – 7 for IM and 12 for Sandoz. None were related to Class I, where medicines in question could result in serious health problems. Recalls are carried out in agreement with the relevant health authorities.

Pharmacovigilance

Effective pharmacovigilance relies on timely assessment and reporting of adverse events and is critical to ensuring patient safety. We maintain a high level of compliance to regulatory requirements for both individual case safety reports and periodic benefit-risk assessments.

Reports of adverse events from various sources, including clinical studies and spontaneous reports, are used to evaluate and optimize risk management actions for the proper use of our medicines. As an example, following two patient fatalities we updated the label for Zolgensma, in alignment with health authorities, to specify that fatal acute liver failure had been reported. While this is clinically important safety information, it is not a new safety signal, and we firmly believe in the overall favorable risk-benefit profile of Zolgensma, which has been used to treat more than 2 500 patients worldwide. We notified health authorities in all markets where Zolgensma is used, and communicated to healthcare professionals as an additional step in markets where this action is supported by health authorities.

In 2022, we continued to support education programs for patients, providers and pharmacists. Our pharmacovigilance team also supported a program with the UK regulatory authority to provide early access to two cancer medicines – Scemblix and Pluvicto – for patients with clear unmet medical need before marketing approval was received later in the year.

Combating falsified medicines

The illicit trade in falsified medicines is a threat to patient safety and an increasingly significant issue for health systems around the world. The Pharmaceutical Security Institute reported a 38% increase in pharmaceutical crime incidents between 2016 and 2021, leading to an all-time high in 2021.

Our strategy is focused on two areas: the quick authentication and reporting of falsified medicines, as well as collective action to address the issue. In 2022, we investigated 213 incidents in 48 countries and worked closely with law enforcement on 74 enforcement actions which led to the seizure of approximately 1.2 million units of falsified medicines. Since 2017, our efforts have prevented serious safety risks for an estimated 1.8 million patients.

We plan to roll out 250 Authentifield sensors in 75 countries in May 2023. These sensors enable our Innovative Medicines employees to rapidly authenticate (solid) drug products, which is vital in preventing falsified medicines reaching patients. Meanwhile, our MoVe internal mobile application, which enables employees to quickly verify the authenticity of secondary packaging of any Novartis product, is now active in 49 countries.

In 2022, Novartis also engaged over 8 100 key stakeholders across 27 countries on topics including public awareness, policy, and capacity-building. We voluntarily reported 100% of confirmed incidents to the WHO, 95% within the recommended 10-day timeframe.

Environmental sustainability

We continue to reduce emissions, water consumption and waste sent for disposal in our own operations, in line with our 2025 targets. In 2022, we also introduced environmental sustainability criteria into suppliers’ contracts and started engaging with them to define actions to reduce emissions in our supply chain.

Our environmental sustainability strategy and engagement activities are consistent with limiting global warming to below 1.5°C compared to pre-industrial levels in line with the goals of the Paris Agreement. We committed to the Science Based Targets Initiative (SBTi) to develop science-based targets in accordance with the SBTi Net Zero standard. We also joined The Climate Pledge which is working toward net-zero by 2040, in line with our own target.

To accelerate progress across the pharmaceutical sector and other industries, we work closely with organizations such as the AMR (antimicrobial resistance) Industry Alliance, Pharmaceutical Environmental Group, World Business Council for Sustainable Development and the Pharmaceutical Supply Chain Initiative.

See here for our Task Force on Climate-related Financial Disclosures (TCFD) statement.

Climate

In 2022, we reduced our Scope 1 and 2 emissions by 23% from the prior year, representing a reduction of 49% compared with our 2016 baseline. We have been steadily reducing our emissions for several years, mainly through energy efficiency, increased use of renewables and new manufacturing technologies.

We are committed to using 100% renewable electricity across our operations by 2025. In 2022, we had renewable power purchase agreements in place to cover electricity consumption across our operations in Europe and North America.

Currently, 20 of our manufacturing sites are certified under ISO 14001 (Environmental Management) or the EU’s Eco-Management and Audit Scheme – equivalent to about half of our total production by volume.

Our Scope 3 emissions increased by 20% from the prior year, driven primarily by purchased goods and services and, to a lesser extent, by increased business travel following the pandemic. The calculation of emissions from purchased goods and services is based on proxy (spending) data and statistical modelling. The resulting figure provides an approximate reflection of emissions based on industry averages. Over time, we plan to move to a calculation based on primary activity data, which we expect will give a more accurate representation of our Scope 3 emissions and better highlight our efforts to engage with our suppliers on environmental sustainability.

Waste

In 2022, we continued efforts to reduce waste sent for disposal. We have introduced sustainable design guidelines for our products, devices and packaging. Where feasible, we are switching to recycled plastics, cutting back on the use of blister packs and increasing the use of reusable shipping boxes. Since 2016, we have reduced the amount of waste sent for disposal by 59%.

Water

We have continued to reduce our water consumption by using more recycled water (where local regulations allow) and adopting less water-intensive production techniques. Since 2016, our water use has reduced by 42%.

In 2022, we began to classify our facilities based on whether they are in areas affected by water scarcity. The initial results showed that 36 locations contributing approximately 11% of our water consumption are in areas of high risk or very high risk as defined by the WWF Water Risk Filter. During 2023 we plan to conduct operational water risk assessments at 15 priority locations with the highest water consumption to determine actions needed to ensure we become water neutral at these locations. We aim to be water neutral at all our locations by 2030.

Pharmaceuticals in the environment

We seek to minimize discharge of active pharmaceutical ingredients (APIs) into water systems and do not dispose of waste containing APIs in landfill. We regularly measure air and water quality to make sure we remain within safe limits. We also evaluate the potential impact of new medicines on human and environmental health during the R&D process. See our position statement on pharmaceuticals in the environment for more information. In 2022, we engaged with more than 100 priority suppliers to assess their effluent load of active pharmaceutical ingredients in water streams against standards from the AMR Industry Alliance framework.

Supporting global efforts to combat climate change

Healthcare contributes almost 5% to global greenhouse gas emissions¹. But the effects of climate change cut both ways: rising temperatures and air pollution are also harming human health and, in some cases, changing disease patterns. Reducing greenhouse gases lies at the heart of the UN Sustainable Development Goals and the Paris Climate Agreement, which aims to achieve net-zero emissions by 2050.

Many countries around the world are decarbonizing their healthcare systems. So far, 50 have made the pledge, including Germany, the US, the UK and emerging markets such as Indonesia and Egypt. If we want retain our position in these markets, we must show progress with our own decarbonization program.

At Novartis, we aim to be net zero by 2040. Over the past two years, we have also started introducing environmental sustainability criteria into our supplier contracts, extending this to wholesalers and distributors in 2022.

¹ Source: Decarbonising healthcare – a discussion paper (published in April 2022 jointly by The Health Policy Partnership and AstraZeneca).

UN SDG target 13.2 reads: Integrate climate change measures into national policies, strategies and planning.

Please see "Measuring our impact" for more information on our impact on the SDGs