SecProbe.io

June 19, 2013

Via E-mail
Mr. Jonathan Symonds
Chief Financial  Officer
Novartis AG
CH-4056 Basel
Switzerland

Re: Novartis  AG
  Form 20-F for Fiscal Year Ended December 31, 201 2
  Filed January 23, 2013
File No. 001-15024

Dear  Mr. Symonds :

We have reviewed your May 22 , 2013 response to our Ma y 3, 2013 letter and have
the following comments.

Please respond to this letter within 10 business days by providing the requested
information or by advising us when you will provide the requested response. If you do not
believe a comment applies to your facts and circumstances, please tell us why in your
response. Please furnish us a letter on EDGAR under the form type label CORRESP that
keys your responses to our comments.

After reviewing the information provided, we may raise additional comments and/or
request that you amend your filing .

Item 18. Fi nancial Statements
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Intangible Assets Available For Use, page F-11

1. We require additional information about the discussion on page 6 of your
response, particularly the last paragr aph, in order to evaluate the new disclosure
you propose at the bottom of page 7, which describes your accounting policies
related to the determination of the  fair value of inventory and intangible assets
acquired in a business combination and the commence ment of amortization o f
those acquired intangibles. We find the last paragraph of page 6 confusing.
Please help us understand i f the following summary of your response is correct:
 You measure the fair value of finished goods inventory at the estimated
selling prices  of the inventor y, less  the sum of (i) costs  of disposal and  (ii) a

Mr. Jonathan Symonds
Novartis AG
June 19, 201 3
Page 2

 reasonable  profit margin for  the selling  effort all determined using market
participant assumptions. That is, the reference you make to “normal
distributor’s margin” means a reasonable profit margin for the selling effort.
 An acquiree, like Alcon, may have profit margins on the selling effort of their
products that are disproportionate to those of their competitors because of the
existence of internally generated intangible as sets, which the competitors do
not have, that support profit margins in excess of their competitors.
 In order to achieve a margin upon the post -acquisition sale of the inventory
that is consistent with the margin of a market participant without the benefit  of
the internally generated intangible asset, it would be necessary to measure the
fair value of the acquired inventory at the acquisition date using a profit
margin that contemplates the ability to leverage the internally generated
intangible (i.e., a  h igher profit margin) because the  amortization of the
intangible asset recognized at the acquisition date and that is required under
IAS 38, paragraph 97 to commence at the acquisition date will reduce the
post-acquisition profit on the sale of product tha t contemplates leveraging
those intangible assets to the margin of a market participant without the
benefit of those assets.
 Your response implies that rather than use a profit margin that contemplates
the ability to leverage the internally generated intangible asset, you used a
profit margin of a market participant without the benefit of the internally
generated intangible asse t (i.e., the profit margin you used is less than the
profit margin that contemplates the ability to leverage the internally generated
intangible asset).   It also implies that you believe that the profit margin of a
market participant without the benefit of  the internally generated intangible
assets contemplates a charge for the use of those assets and therefore you
recognized the intangible assets at an amount less than their fair value (i.e.,
fair value less the charge)   and did not commence amortization o f the
intangible assets as of the acquisition date, as required under IAS 38,
paragraph 97, but instead waited until the inventory on hand was sold.

If the summary above is correct, it appears that the fair value of inventory and the
fair value of the i ntangibles may be misstated at the acquisition date by equal and
offsetting amounts depending on the appropriateness of your reasonableness
check described on page 7.   Our basis for suggesting this is twofold.   First, the fair
value of the intangible asset  is not dependent on the fair value of the
inventory.    In fair valuing the intangible asset, a market participant would
contemplate all expected future sales, as you did, but would not reduce the
amount determined on that basis by the amount of the charge  described in the
fourth bullet above because to do so would result in a measurement that does not
contemplate all expected future sales.  Second, the acquired inventory
contemplates the use of the intangibles (e.g., the product brand name).   We would
appreciate your views on each of these points.   We would also appreciate your
views as to whether in fair valuing the inventory the use of a profit margin that

Mr. Jonathan Symonds
Novartis AG
June 19, 201 3
Page 3

 contemplates the ability to leverage the intangible assets is consistent with the
requirement to use  market participant rather than entity specific assumptions and
if not whether the implication is that you believe it is not possible to comply with
the requirement to fair value both the intangible asset and the inventory using
market participant assumpti ons because to do so would double count the charge
for the intangible assets thereby having the effect of recognizing, on a post -
acquisition basis, a margin that is less than that of a market participant without the
benefit of the intangibles.

2. We also r equire additional information to evaluate your reasonableness check on
page 7.  Please help us understand what the $467 million adjustment to acquired
inventory represents and why it is appropriate  to compare the $467 million to the
approximately $640 mill ion that would have been amortized in 2010 if you
acquired no inventory from Alcon .  When explaining what the $467 million
represents, please tell us whether (A) it is the difference between the market
participant profit margin (on selling effort) that con templates the ability to
leverage the internally generated intangible assets and a market participant profit
margin (on selling effort) that does not contemplate the ability to leverage the
internally generated intangible assets or (B) it is equal to the s tep-up from Alcon’s
book value necessary to achieve the acquisition date fair value.   We note that if
the $467 million equals the step -up, then it does not appear appropriate to
compare the $467 million to the $640 million because the step -up is not limit ed to
the charge for the use of those assets.

Please contact Frank Wyman, Staff Accountant, at (202) 551 -3660  or Mark
Brunhofer, Senior Staff Accountant , at (202) 551 -3638 if you have any questions
regarding th e comment s. In this regard, do not hesitate to contact me at (202) 551 -3679.

Sincerely,

        /s/ Jim B. Rosenberg

Jim B. Rosenberg
Senior Assistant Chief
Accountant