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CORRESP
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  Novartis AG

  Postfach

  4002 Basel

  Switzerland

May 11,
2010

BY
FACSIMILE AND REGULAR MAIL

Mr. Jim
B. Rosenberg

Senior
Assistant Chief Accountant

US
Securities and Exchange Commission

100
F Street, N.E.

Washington,
DC  20549

Re:                              Novartis AG

Form 20-F
for Fiscal Year Ended December 31, 2009

Filed
January 26, 2010

File
No. 001-15024

Dear
Mr. Rosenberg:

This
is in response to your letter addressed to Raymund Breu, our former Chief
Financial Officer, dated April 30, 2010 setting forth comments regarding our
filing, and seeking certain information.
For ease of reference, we set forth your comments below, followed by our
responses.

Item 5.
Operating and Financial Review and Prospects

Item
5.A Operating Results

CORE
RESULTS AS DEFINED BY NOVARTIS, page 98

SEC Comment 1

We do not believe it is appropriate to present an entire
non-IFRS income statement in an attempt to reconcile non-IFRS measures to IFRS
measures since this gives undue prominence to the non-IFRS information.
Therefore please revise your disclosure to reconcile each non-IFRS measure
separately. Please refer to Question 102.10 of the Compliance and Disclosure
Interpretations related to non-GAAP Financial Measures.

Novartis response

We have reviewed your comment and are aware of the
applicable rules, and of the interpretation contained in Question 102.10 of the
Compliance and Disclosure Interpretations related to non-GAAP Financial
Measures.

In our view, our presentation of the reconciliation of
IFRS measures to “core” measures on pages 98 and following of our Form 20-F
is in compliance with the letter and the spirit of these requirements.  First, Item 10 of Regulation S-K requires us
to disclose “a reconciliation (by schedule or other clearly understandable
method)” (emphasis added).  Given the nature
of the core measures we disclose, including the fact that reconciling

adjustments exist on numerous line items on our income
statement, we believe the presentation we provide is the most clearly
understandable format among the available alternatives.  In our view, investor transparency is better
served by the more comprehensive reconciliation we have given than through a
disaggregated line-by-line approach to reconciliation, which we believe could
lead to investor confusion.

We are aware of the staff’s view, set forth in Question
102.10 of the Compliance and Disclosure Interpretations related to non-GAAP
Financial Measures, that, under certain circumstances, particular methods of
presenting a full non-GAAP income statement for purposes of reconciling
non-GAAP measures “may attach undue prominence to the non-GAAP information” —
i.e., may cause the non-GAAP measures to be given greater prominence than the
GAAP measures, in violation of Item 10 of Regulation S-K.

Nonetheless, while that may be the case under certain
methods of presenting such reconciliation statements, we believe that the
specific presentation of our reconciliation of IFRS measures to core measures
does not give the core measures greater prominence over the IFRS measures.  Rather, we believe the IFRS measures are
given equal or greater prominence over the core measures, and therefore are in
compliance with Item 10 of Regulation S-K.

To begin with, on page 98 of our Form 20-F, we
describe the concept of our core results.
We define the measures, explain why they provide useful supplemental
information for investors, clarify that these core measures are not presented
as IFRS measures, and caution investors that they should not be viewed as a
substitute for IFRS measures as follows:

Despite the importance of these measures to
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.(1)

Following this introduction, we present two tables that
reconcile IFRS results to core results.
In a brief introduction to the tables, and in the headings of the
tables, the term “IFRS results” comes before the term “core results,” thus in
our view giving the “IFRS results” at least equal, if not greater prominence
over the “core results.”  Similarly, in
the tables themselves, the IFRS results and core results are clearly labeled,
and widely separated.  Reading left to
right, the IFRS results are presented first — on the left — again giving the
IFRS results at least equal prominence with the core results.  For this reason, in our view, our

(1) Even
though Novartis called these core measures non-IFRS measures, on reflection we
believe that under IFRS, these adjustments could be segregated in an IFRS
income statement under IAS 1.

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presentation on pages 99-104 of our Form 20-F
is in compliance with Item 10 of Regulation S-K.

As a result of the above considerations we believe that
our present reconciliation format is consistent with the Commission’s rules and
guidance in this area, and enhances investors’ ability to understand our
presentation.

SEC Comment 2

Please expand your disclosure to include how the tax
effect on the adjustments between IFRS and core results was calculated. Please
refer to Question 102.11 of the Compliance and Disclosure Interpretations
related to non-GAAP Financial Measures.

Novartis
Response

We have reviewed your comment and are aware of the
interpretation contained in Question 102.11 of the Compliance and Disclosure
Interpretations related to non-GAAP Financial Measures.  In preparing our 2009 Form 20-F, we used
the alternate method, expressly permitted in the response to Question 102.11,
of presenting the tax effect in one line in the reconciliation.  As a result, we believe that the guidance
set forth in the response to question 102.11 is adequately addressed in our
current disclosure.  However, to improve
the existing disclosures, in response to the Staff’s comment, we plan to expand our disclosure on how the tax calculation
is performed in the respective footnote commencing with our filing of
our Form 20-F for 2010 as follows:

Taxes on the adjustments between IFRS and core results
take into account for each individual item included in the adjustment, the tax
rate that is applicable to the item in the jurisdiction where the adjustment
arises.

Item
18. Financial Statements

Notes to the consolidated financial statements

1. Accounting Policies

Equity-based
compensation, page F-16

SEC Comment 3

Please disclose the nature of your relationship with the
market maker that calculates the fair value of the options and include the
procedures you perform to validate the fair value information you receive.

Novartis response

Question
3 of your comment letter refers to our accounting policy paragraph on page F-16
of our Form 20-F entitled “Equity-based compensation.”  We have reviewed your question and the
disclosure on page F-16, as well as a related disclosure on page 119,
and it is our view after this further review that the disclosure on page F-16
unnecessarily focuses on the role of the market maker, rather than on our
accounting policy with respect to Equity-based compensation.  While it is correct that an independent
third-party market maker

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initially
calculates the fair value of our options, we subsequently take a series of
steps to validate the market maker’s valuation.
As a result, the valuation which results should be viewed as our
own.  For these reasons, we will enhance
the clarity of our disclosure on page F-16 commencing with the filing of
our Form 20-F for 2010 by changing our disclosure as follows:

Equity-based compensation

The fair value of Novartis shares, Novartis American
Depositary Shares (ADSs) and related options granted to associates as
compensation are recognized as an expense over the related vesting or service
period, adjusted to reflect actual and expected vesting levels. The charge for
equity-based compensation is included in personnel expenses which are allocated
to our functional costs. Novartis shares and ADSs are valued using the market
value on grant date.  An option’s fair
value at grant date is calculated using the trinomial valuation method.
Accurately measuring the value of share options is difficult and requires an
estimate of factors used in the valuation model. These key factors involve
uncertain future events, expected share price volatility and expected dividend
yield.

Research & development, page F-17:

SEC Comment 4

Refer to your policy for accounting for “upfront and
milestone payments” in your other intangible assets accounting policy on page F-12
and your research and development accounting policy on page F-17. Please
revise your disclosure to clarify how you determine whether an upfront or
milestone payment represents a payment to a third party for research and/or
development services, a payment for research and development assets, or both.
For example, if the licensor to which you make an upfront or milestone payment
was also obligated to perform research and/or development services related to
the license (i.e. the research and development asset) you acquired, how under
your accounting policy would you determine to what each upfront and milestone
payment relates? If a payment, or a portion thereof, is for research and
development services, please ensure your revised disclosure clarifies how you
determine whether the payment is for services already received or for services
to be received in the future and your accounting treatment.

Novartis
response

Question
4 of your comment letter refers to the portion of our Research &
development accounting policy regarding “upfront and milestone payments.”  In response to your question we will enhance
the clarity of our disclosure commencing with the filing of our Form 20-F
for 2010 by expanding our disclosure as follows:

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Page F-12

Other intangible assets

All identifiable intangible assets acquired in a
business combination are recognized at their fair value. Furthermore, all
acquired R&D assets, including upfront and milestone payments on licensed
or acquired compounds which are deemed to enhance the intellectual property of
Novartis, are capitalized as intangible assets, even if uncertainties exist as
to whether the R&D projects will ultimately be successful in producing a
commercial product.

Page F-17

Payments made to third parties in order to in-license or
acquire intellectual property rights, compounds and products (In-Process
Research & Development assets, “IPR&D”), including initial upfront
and subsequent milestone payments, are capitalized, as are payments for other
assets, such as core technologies to be used in R&D activities. If
additional payments are made to the originator company to continue to perform
R&D activities, an evaluation is made as to the nature of the payments.
Such additional payments will be expensed if such additional payments are
deemed to be compensation for subcontracted R&D services not resulting in
an additional transfer of intellectual property rights to Novartis.  By contrast, such additional payments will be
capitalized if these additional payments are deemed to be compensation for the
transfer to Novartis of additional intellectual property developed at the risk
of the originator company. Subsequent internal R&D costs in relation to
IPR&D and other assets are expensed, since the technical feasibility of the
internal R&D activity can only be demonstrated by the receipt of marketing
approval for a related product from a regulatory authority in a major market.
Costs for post-approval studies performed to support the continued or expanded
registration of a marketed product are recognized as marketing expenses.

SEC Comment
5

In your policy you state: “Costs of activities that are
required by regulatory authorities as a condition for approval are charged to
development expenses as they are incurred, unless the activities are conducted
beyond the sale period. In this case the total estimated post-approval costs
are expensed over the period in which related product sales are made.” As
drafted the policy suggests that “beyond the sale period” activities necessary
for approval may be capitalized and other activities necessary for approval are
expensed as incurred, but does not clarify why. It is also unclear what the
phrase “beyond the sale period” means, how it relates to the timing of “approval,”
and to what “approval” you are referring. Please revise your disclosure to
clearly articulate your policy. If your policy is to capitalize an “estimate”
of post-approval costs, please ensure your disclosure explains the triggering
event and criteria for capitalization and provide to us an accounting analysis
with specific citations to relevant authoritative literature that supports your
accounting policy.

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Novartis response

In
response to Question 5 of your comment letter we will enhance the clarity of
our disclosure commencing with the filing of our Form 20-F for 2010 by
expanding our disclosure as follows:

Costs for activities that are required by regulatory authorities as a
condition for obtaining marketing approval are charged as development expenses
as they are incurred in cases where it is anticipated that the related product
will be sold over a longer period than the activities required to be performed
to obtain the marketing approval. In the rare cases where costs related to the
conditional approval need to be incurred over a period beyond that of the
anticipated product sales, then the expected costs of these activities will be
expensed over the shorter period of the anticipated product sales.

For
the avoidance of doubt, all activities necessary as a condition to maintain a
received approval, whether conditional or not, are expensed.

*       *       *

The Company acknowledges
that:

·                  the Company is
responsible for the adequacy and accuracy of the disclosure in the filing;

·                  staff comments
or changes to disclosure in response to staff comments do not foreclose the
Commission from taking any action with respect to the filing; and

·                  the Company may
not assert staff comments as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the United
States.

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We trust that this letter responds to the issues
raised in your comment letter.  If you
have additional questions, please do not hesitate to contact us.

  Respectfully submitted,

  Novartis AG

  /s/ JONATHAN SYMONDS

  /s/ THOMAS WERLEN

  Jonathan Symonds

  Thomas Werlen

  Chief Financial Officer

  General Counsel

  Novartis
  Group

  Novartis
  Group

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