H. Lundbeck A/S (HLUNB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Lundbeck Fiscal Year 2020 Results Conference Call. [Operator Instructions] Today, I'm pleased to present Deborah Dunsire, President and CEO; Anders Götzsche, Executive Vice President and CFO; and Johan Luthman, Executive Vice President of Research and Development. Speakers, please begin.

Hello, everyone, and welcome to the Lundbeck Full Year 2020 Results Conference. As you've heard, I'm joined today by Anders and Johan, but also have Jacob Tolstrup, our Head of Commercial Operations; and Peter Anastasiou, our Head of North American Operations with us to answer your questions. Next slide, please. You've seen this disclaimer many times before. I won't read through it. So let's go to the next slide. 2020 is a year that I am extremely proud to be part of Lundbeck. We have accomplished so much in the midst of a global pandemic and faced with significant currency headwinds. Our employees came together to ensure seamless delivery of all our products around the world throughout the year, and that enabled us in spite of the challenges to deliver revenue growth within our guidance range of plus 4% and reaching DKK 17.7 billion, in line with our guidance. We also were able to save during the year. We weren't able to promote normally. And that resulted in savings that we could bring to the bottom line. Our core EBIT improved to DKK 4.4 billion with a margin of 25.1%. We grew our brands. Our strategic brands grew in total 13%. And we launched Vyepti in the U.S. in the midst of the pandemic, and we're able to move that brand forward, not as we would have liked, indeed, but to get a lot done during the year. We've also had additional approvals in Canada and the UAE. and initiated the regulatory review in Europe. Rexulti is on track for the interim readout of the Phase III study in agitation in Alzheimer's disease, and that will come in Q2. So it was great to be able to get the patients in for that interim analysis even in spite of the difficulties that pandemic has implemented on our clinical trials. The COVID-19 impact has been across the business in many, many different ways, limiting patients from seeing physicians, limiting our promotion around the world, limiting our clinical trials. But the people of Lundbeck came together to make things happen, and we've been able to move forward regardless. We couldn't unfortunately do anything about the significant currency headwinds in the second half of the year, and that has had an impact, that Anders will go through in more detail. But it is a year we're very, very proud of. Next slide, please. When we look at the underlying performance for the major strategic brands, Brintellix/Trintellix grew to DKK 3.1 billion, and you can see that it grew 13% versus full year '19, so at a slower rate. And you see the impact of the first and second half. Very strong growth in the first half, and the impact of the pandemic restrictions impacting the second half. But the market shares have been stable and in some markets even increasing. Rexulti also had a very strong growth year and achieved DKK 2.6 billion. We've continued to launch that brand in other markets, recently launching in Brazil and Italy. The biggest business, of course, is still in the U.S. and also Canada where we have the major depressive disorder indication as an adjunct therapy. Abilify Maintena was very resilient through the COVID pandemic and grew well, achieving DKK 2.2 billion in sales. The LAI market, I think, has been growing well in the pandemic, as LAIs allow patients to come in less frequently. So Abilify Maintena benefited from that. And we shouldn't forget Northera, achieving DKK 2.5 billion in sales with a growth of 10%. Next slide, please. Focusing a little bit more on Vyepti. Fourth quarter demand doubled compared to third quarter demand, showing that this brand is continuing its momentum even though it is challenged by the limitations of the pandemic. We've had very, very positive testimonials from both patients and the physicians providing Vyepti to their patients that it really delivers on that powerful, fast and sustained relief from chronic and episodic -- and frequent episodic migraine. The work we did in our U.S. operations to really get the bedrock of reimbursement in place for Vyepti was quite remarkable in a virtual setting. We've had -- the average sales price is now published, and the J -- permanent J code was effective from October 1. We had, by the end of the year, 130 million Americans covered lives by their insurance, providing access to Vyepti with no branded step edits. And we've seen utilization not only in those people, but in people whose plans required branded step edits. They had to go through other brands because Vyepti can deliver relief where other brands have failed. So we also see the -- at the end of this graph here, the normal reset at the beginning of a year as the deductible resets for people in their new insurance year. So we're confident that Vyepti has the potential we expected when we made the acquisition of Alder. But of course, it has been impacted by the pandemic. Moving to the next slide, please. This is a brand that we own globally. And the global rollout is beginning, and we're also rolling this brand into different indications. There's a very big market for prophylactic migraine treatments around the world, and we expect it to grow considerably in the coming years. It's a market that has been served by older generic therapies for so long and they are inadequate. So we do anticipate that there is a lot of headroom for growth in the prevention of migraine market. We -- as I said, we've achieved approval in 3 markets, the U.S., Canada and UAE. And actually updating today, we have now submitted for approval in 12 markets around the world, the latest being Thailand. We importantly submitted to the European Medicines Agency in December, right on track, and they have accepted the Lundbeck's application for the marketing authorization, and we anticipate that approval in the first quarter of '22. We've started the trial ALLEVIATE for the second indication in episodic cluster headache, and Johan will talk about -- a bit more about that, and got also our Asian development activities underway with trials starting in China and pharmacokinetic trials starting in Japan. So we're very excited about the potential for Vyepti to expand globally and then expand into further indications. Next slide, please. Anders, over to you?

Thank you, Deborah. Our 5 largest products have been quite resilient, growing 10% in 2020. And that is indeed a strong achievement considering the pandemic, but also the currency headwinds we have experienced during the year. The 4 key product delivered double-digit growth in 2020 despite the impact from the limitations we have seen due to the pandemic. There has been less patient interactions with health care providers, and we also have had a reduced ability to conduct normal promotional activities. The lower activity level and the patient interactions with health care give us -- health care providers has reduced the new-to-brand prescriptions, which has impacted the growth negatively, especially in the second half, as Deborah also alluded to in the previous slides. It is important to highlight that we have seen strong recovery and also uptick in periods where countries have opened up and society has been more back to normal. Next slide, please. For 2020, the growth in net sales amounted to 4%. And thereby, we are actually meeting the expectations that we laid out in the market in the beginning of the year before the pandemic actually started. So to achieve 4% in an unprecedented year is -- we are super happy with that. The core gross margin increased with 1 percentage point during the year to approximately 86%. The reported gross margin was a bit lower than we expected, and that is, of course, due to the additional amortizations on the Rexulti of approximately DKK 300 million. The increase in SG&A and also R&D is a consequence of 2 things: the foliglurax write-down of DKK 800 million, as you're aware of; and then investments in additional clinical trials for Vyepti, and also additional sales and promotion activities as we started the launch of Vyepti in April 2020. If we adjust for this, then the cost development would have been flat between 2019 and 2020. So when we look at the underlying performance without these investments and the write-down, our reported EBIT margin would actually have been above 25%. It's also important to emphasize that we delivered a very solid core EBIT of DKK 4.6 billion, which is also the reason for the strong cash flow, which I will come back to in a minute. The effective tax rate for 2020 has been a positive surprise as it ended much lower than anticipated due to a couple of positive impacts. It was increase in Danish R&D tax incentives. It was faster integration of the acquisition and faster utilization of NOLs. And also a positive tax impact on transfers of IP rights to Denmark. Overall, we are pleased with the financial performance for 2020, which is also seen in this slide. So please turn to Slide 9. As you know, Lundbeck has more than 50% of our business in the U.S. We have 24% in international markets and then the rest is coming from Europe. Our main currencies are U.S. dollar, Chinese yuan, Canadian dollar. These 3 exchange rate together constitutes about 70% of our currency exposure. We have seen declines across all these, including some very steep depreciations on some of the more exotic currencies during the year. The impact on sales from depreciations in currencies was very visible in the fourth quarter. Reported revenue from the U.S. was negatively impacted with 7 percentage points. And in international markets, the impact was negatively -- or was an impact of 9 percentage points negatively. The depreciation of currencies is expected to impact Lundbeck's revenue with approximately DKK 800 million in 2021. It's also important to highlight that our assessment based on the currency rates we have now is that a 5% change in the U.S. dollar will impact Lundbeck's revenue by approx -- in a range between DKK 250 million to DKK 300 million. Next slide, please. As you can see from the left-hand side of the slide, free cash flow in 2020 was very solid and is a testament to the strong underlying growth and performance by the business. To the right-hand side -- to the right of the slide, you can see that acquisitions made in 2019 increased the net debt to around DKK 6.6 billion. Net debt has, during 2020, due to the strong cash flow, been reduced to DKK 4.1 billion at the end of 2020, leading to a net debt-to-EBITDA ratio a bit less than 1. We expect that net debt during the year will end -- or at the end of '21 will end in a range between DKK 3 billion to DKK 3.5 billion. Next slide, please. We believe that 2021 will continue to be impacted by the pandemic, and we assume a gradual return to a more normal market situation by mid-2021. So we expect to regain momentum with double-digit growth for the key brands during the second half of 2021. We delivered approximately DKK 17.7 billion in 2020 for -- of -- revenue of DKK 17.7 billion. And in 2021, we expect revenue to be in a range between 16.3% and 16.9%. And we have tried to illustrate the moving parts in the bottom of the slide. And as you can see, we have maintained our expectation around 50% decline in Northera sales due to loss of exclusivity, which is approximately a decline of DKK 1.3 billion. The other key brands are expected to show high single-digit to double-digit growth during '21. And then we expect that the mature brands will decline around 10%, and that is due to 2 things: it's continued generic erosion and then it's VBP in China. The net effect of that is a total growth in revenue of around DKK 900 million -- DKK 800 million, DKK 900 million for the key brands and the mature brands in local currency. We assume, as I said before, negative currency effect of around DKK 800 million and a hedging effect that goes in the opposite direction of DKK 200 million, which means the net effect will be around DKK 600 million in 2021. Reported EBIT, we guide DKK 1.8 billion to DKK 2.3 billion, despite having elevated investments both from SG&A perspective, but also from an R&D perspective in 2021 compared to 2020 -- or last year. For the full year, you should expect financial items to be a net expense of DKK 250 million to DKK 350 million, depending on currency development. With that, I will like to hand over to Johan for going through the R&D pipeline.

Thank you, Anders. Please turn to Slide 12. While we continue to maximize our brands, including by running critical life cycle activities, we are simultaneously focused on filling the pipeline with innovative programs with an increasing focus on niche and rare diseases affecting more defined subpopulations of people, where the unmet medical need is the highest. With regards to Vyepti, some of the recent activities I'd like to highlight are that we started a Phase III clinical study in episodic cluster headache. We also submitted, by the end of the last year, the European marketing authorization application for the preventive treatment of margarine in adults, which means that we can expect the CHMP review by end of the year and the formal EU commission approval of Vyepti in Europe around a year from now. By the end of last year, Vyepti was approved in UAE as our second approved market, followed by the very recent approval in Canada. In addition to the present 3 approvals, we have to date submitted Vyepti to 12 regulatory authorities for review, and we plan to submit to over 10 other authorities during 2021. For brexpiprazole, in agitation in Alzheimer's disease, we have, as communicated earlier, somewhat changed the study with the introduction of an interim analysis. We have completed the recruitment of the patients needed for this planned interim analysis, and it's on track for the second quarter. I'll come back to some more details of that program in a minute. We continue to progress innovative programs in our research organizations in Valby and La Jolla to build up a steady and dynamic early-stage pipeline. While our early development programs are armed with a systematic experimental medicine approach, we also diligently swiftly closed down less promising programs, if we do not see what we expect to see. We continue to see a very fluid situation related to the COVID-19 pandemic. Many of our trial sites closed initially, then opened up, and now some are closing down again. This is primarily impacting study starts, especially in the early development studies where we depend on very few sites. Nevertheless, overall, we have a strong sustainable Phase I set of assets. For example, we have a strong momentum in the PACAP and MAGLipase inhibitor programs. Next slide, please. As I mentioned previously, in the ongoing agitation in Alzheimer's study, we have recruited 255 subjects needed for the interim analysis. And I'm, therefore, confident that we can conduct the planned interim analysis sometime during the second quarter. The main analysis is a pooled analysis of the 2 and 3 milligram doses. With the upcoming analysis, it might be worthwhile to recap on what has been published prior from the 2 conducted Phase III studies on brexpiprazole in patients with agitation in Alzheimer's dementia. The program was initiated to assess the efficacy of brexpiprazole on agitation measures as well as safety and tolerability in 2 12-week randomized, double-blind, placebo-controlled parallel arm studies. One of these studies, Study 283, was a fixed-dose study conducted at 81 sites and in 7 countries and recruited 433 patients. The second study, Study 284, was a flexible dose study with 0.5 to 2 milligram per day of placebo -- of brexpiprazole or placebo, and conducted at 62 sites in 9 countries, recruiting 270 patients in a care facility or community-based setting. In Study 283, brexpiprazole 2 milligram per day demonstrated statistically significant greater improvement in the Cohen-Mansfield Agitation Inventory, total score from baseline to week 12 compared to placebo, at a level that is also considered to be clinically meaningful. In Study 284, brexpiprazole 0.5 to 2 milligram per day did not achieve statistical superiority over placebo. However, the benefit was observed in the post hoc analysis among patients titrated to the maximum brexpiprazole dose of 2 milligram per day compared with placebo patients. Combined with our broad knowledge about the molecule, it's therefore my view that brexpiprazole has the potential to be efficacious, safe and well tolerated in the treatment of agitation in Alzheimer's disease. Next slide, please. This is our current pipeline. We have aligned the products according to our strategically prioritized biological clusters. In the development, we are currently active in 3 out of 4 of those clusters. During the second half of 2021, we plan to start Phase II programs, one on PACAP in migraine and another planned on 82422, our alpha-synuclein monoclonal antibody in multiple system atrophy, or MSA for short. We also expect to have Phase I readout or [ exciting ] borderline personality disorder in the second half. With that, I'd like to turn over to Deborah again.

Thanks, Johan. Next slide, please. As you know, at Lundbeck, our purpose is to tirelessly dedicate ourselves to restoring brain health so every person can be their best. While we do that, we want to do it as part of a global community committed to moving the world forward. We support the sustainable development goals, and we make an impact on a number of them. A very important one that we are focusing on is our commitment to carbon neutrality, and we have committed to the Paris Climate Agreement and aim to be carbon neutral definitely before 2050 -- by 2050 or before. And we have new science-based targets approved that we're talking about in our sustainability report to keep moving us along that journey. In 2020, we made significant progress, reducing our CO2 emissions in spite of the fact that we are increasing production volumes, a 14% cut in the carbon emissions from our production versus 2019 even. And we've over exceeded our annual target by 4%. So we're a company that's working hard to become carbon neutral. And we did -- we made these reductions even without purchase certificates of origin in 2020, and it's our goal to continue to do that. We also have made progress through -- in creating a workforce that's even more diverse and an environment where people can be their best. That is inclusive of all as we make progress against the sustainable development goals, 5 and 10, looking at gender equality and the reduction of inequalities generally. We're a company where discrimination is not tolerated. We've also formed a donation partnership with International Health Partners to help bring our medicines to places that don't have access to medicines for brain disease or mental health. And we're constantly looking to reduce the stigma associated with mental health so that people facing brain disease can get equal parity of care. Next slide, please. We released today our sustainability report for 2020, and you'll find that on our website. And you'll see that Lundbeck has significantly improved our ESG ratings during 2020. In this new reporting format, we list our information on what we're doing according to the task force on climate-related financial disclosures, the TCFD Reference Index, so that you, as investors can easily track our commitments and our goals regarding sustainability. We were very proud this year to be listed for the fifth year in a row as an A list company by the carbon disclosure project for our work on climate. Next slide, please. Turning to looking into the future, we've made significant progress on our Expand and Invest To Grow journey. And you know that we expanded our disease operating space in 2019. During 2020, focused our internal discovery in 4 very promising areas of biology to yield new medicines for neuroscience. And in the future, where we'd like to go with that is always addressing the highest unmet medical needs, which are typically specialist indications. And we want to be able to bring that innovation forward for patients in those select segments that allow us to bring transformative improvement in brain health. We want to do it in selected patient populations where we've got biomarkers to measure the progress and give us predictability or where we may be able to use a biomarker to select a group of patients where we can focus a medicine on that disease. That gives us more tractability in development and helps us reduce the size of our development programs. When we focus on bringing forward transformative medicines in these niche psychiatry, niche neurology indications, we also know that it helps us have a focused footprint around the world. And as a midsized company, it enables us to be able to afford the commercial footprint to bring those medicines as Lundbeck around the world. And we're looking to be able to bring our medicines to all countries given the transformation that we're looking for. You know that we have great medicines. Just -- Trintellix is a phenomenal drug. But there are some countries we can't launch it because we can't get pricing, and we want to change that as we go into the future. Next slide, please. So here's the trajectory, expanding the disease operating space; focusing our internal discovery in the most promising areas; and then focusing as we develop medicines in indications in niche neurology, rare disease neurology and niche psychiatry. Next slide, please. We're on a journey, and we are very ambitious. We look to be #1 in brain health, and that will come through -- providing those transformative outcomes to patients in the most high unmet medical need areas in neurology and psychiatry. We want to be recognized by patients and other stakeholders as their partner -- their #1 partner in brain health. We want to be recognized for having a pipeline filled with premier neuroscience and having a commercial organization that partners with health care providers and patients around the world on those targeted areas of niche neurology, niche psychiatry and rare disease neurology. We're working to become a more digitally enabled company to be able to use data and digital to improve patient outcomes. Never forgetting that we're part of a global community, we need to be on track to being carbon neutral by 2050, and deliver sustainable growth in revenue and profitability so that we can address all our stakeholders' needs. So we look forward to working to communicating with you over the years ahead on our journey to be #1 in brain health. Next slide, please. When we look at the news flow coming this year, the first half, we've already achieved 1 goal, which was the Canadian approval of Vyepti. We're looking forward to the next after -- in the middle of the year, Australia, the interim analysis for Rexulti in Alzheimer's agitation in Q2. In the second half of the year, the MSA trial with aSyn-mAb, the alpha-synuclein antibody kicking off. We'll start the Phase II with our PACAP antibody in migraine, and then hope to finalize the study with Rexulti and borderline personality disorder as long as clinical trials can accelerate the accrual and -- as the pandemic lifts. First half of '22, it will be a big milestone to have Vyepti approval in the U.S. -- in the EU, and then finalizing the post-traumatic stress disorder trial with Rexulti. Next slide, please. I think we probably are done with presenting, and now we can go to your questions.

[Operator Instructions] First question is from Wimal Kapadia from Bernstein.

Wimal Kapadia from Bernstein. Can I just ask about the upcoming interim for Rexulti in Alzheimer's agitation. So firstly, what is the bar at interim? I'm assuming reasonably high. And just tied to that, what are management expecting in terms of primary outcome in terms of CMAI reduction? Is it a good benchmark, the previous fixed-dose study where we saw close to 20-point change? And secondly, can I just push a little bit on the target population? Clearly, there are a lot of large number of patients. But how do Lundbeck think which are the most likely to receive the product? I'm really just curious to hear how you think about the dynamics, both in the care home, institutionalized setting where on-label drug uses are important, but also in the community setting, where carriers are really trying to delay institutionalization? And then my second question is just on Vyepti. You flagged in your release that the manufacturing has been shown to be more cost effective, and thus production costs will be lower going forward. Could you just help us better understand that in terms of accretion dilution versus the group COGS? And what that could mean moving forward in terms of benefit?

Okay. Wimal, that sounded like a lot more than 2 questions, but let's -- I'll kick off with the target population and hand over to Johan to talk about the trial. We know that agitation is the symptom that causes people to have to move out of community care into care homes, and it's very difficult to manage even in those settings. So we'd anticipate that this would be able to be used in both settings. We showed a very good tolerability profile in the previous 2 studies. And so we anticipate it could be used in the community to maybe enable people to stay with their families for longer, but also be used in the care homes to make the management of patients much better, both for patient and staff in those settings. So we really look across both. And then Johan, perhaps you can comment on the other parts of the question.

Yes. Just one more word about the population. So the population we're studying in this particular trial that's ongoing is actually the same population we studied in the 2 previous trials. And this is a mix of about 50-50 into people that are institutionalized in nursing homes, primarily, and people that are outpatients living at home. So that is the population we're targeting also in the trial and document in this trial work. In terms of the interim, obviously, this is a very classical interim. There are 3 possibilities here: success, fatality or trial continues. And as you may recall, we talked about the trial going out to 330 subjects now. The interim is at 255 subjects. The bar, we don't go into details of the statistics here. But the fatality bar is set pretty high because there is really no reason to believe that we will hit fatality. We have previous data from the 2 previous trials. In terms of the primary outcome measure and the size effect, we're actually aiming for similar effect as in the previous trials. And the effect size is what is considered, as I mentioned before, clinically meaningful effect. And the effect -- absolute effect is also similar to what you saw in the previous trial. So that's what we're aiming for. We are going to see the results by Q2. And obviously, we can only communicate details, whether it's a progression of the trial or to a different outcome success and fatality at that time point.

On the Vyepti question, perhaps, Anders, you can?

Yes. So what we have said before is that we have had a pretty nice improvement in our COGS for producing Vyepti. But of course, it's not something that we are willing to go into if it changes accretion dilution. What we can say is that -- what we have said in the past is that the gross margin that we have for Lundbeck around 78% to 80%, that will not be changed by launching Vyepti. So that is the indication we have said before.

Next question is from James Gordon from JPMorgan.

This is James Gordon from JPMorgan. One on the Alzheimer's agitation, and also just one on description trends in U.S. growth. So on Alzheimer's agitation, if you repeated the efficacy you saw in the previous 2 Phase III's with the 2 leg dose in Phase III, would it be fair to assume that, that would clear the statistical hurdle that you have at the interim? And also, could you just remind us -- I think one of the interesting differences is that the current Phase III has a different geographic enrollment. You've taken out the Russian enrollment. There was a bit of an issue in the 2 previous trials. If you look at the previous trials, and you did take out the Russian enrollment, how much better does the efficacy look there? Do you still think that is a big compounder for those previous trials, please? And the second question was just Rexulti and Trintellix, and the post COVID-19 rebound. So I know there was a bit of an issue from COVID-19 in 2020 for these drugs in the U.S. But earlier this year, it sounded like you were seeing some encouraging trends. So have those continued? And could they be double-digit growers in the U.S. again this year?

Great, James, thanks for the questions. I'll have Johan start with the Alzheimer's agitation, and then I will move to Peter for the commentary on what we saw in the fourth quarter and what we're seeing in the first.

Yes. If I got your question right, you're really after, would it be sufficient at the interim with progressing, for example, with filing? And we have a good understanding with the regulators that this would be the case. This, as I said, it's a pooled analysis of 2 and 3 milligram. And we have, as I said, 255 subjects. It's 2:1. So we have sufficient subjects dosed at that time point, including the critical 3-milligram dose that is there really to create a headroom for safety. So I -- probably, that's what you're asking if I got your question right. Can you confirm that was what you were after?

Yes. That's correct because I'm aware that when you take an interim, there can be a statistical penalty. So even it's not just how many patients you've got, but if you're splitting the alpha and sometimes the regulator or the company themselves, so it's a higher hurdle for success at interim versus the final result. So my question is do you need be effective? Do you need even better efficacy than you saw previously because it's an interim or the extra patient you enrolled the power sufficiently that even at the interim, you only just need to repeat what you showed in previous trials for 2 mg?

No. So without going into details there, we expect -- we're looking for the same treatment effect across the study, at the total end, 330 and at the interim. That's as much as I can comment on that bit.

So the bar is higher.

The bar is higher, yes.

Yes, the bar is higher at the...

And obviously, with fewer subjects, you have more variability, and that's taken into account. So it's a pretty robust approach to the interim as well as the final readout if we have to go that far.

And the geography, taking...

Yes. Geography. Yes. You're aware about that we had the Russian sites in the previous program. We don't have that now. This is a U.S. and Ukraine-based study, where we have experience. In terms of taking out different subgroups, et cetera, in the previous study, obviously, Russia is a well-known problem in Alzheimer trials. So if you look at the totality of the data versus taking out the Russian sites, there are differences. But I think the most important thing is now with the ongoing trial, we have a good set of sites, high-quality sites, and we have experience with those sites before from the 2 previous trials. So we're pretty confident that we're picking the right geographies this time.

Yes. And to put a fine point on it, the flexible dose trial from 0.5 to 2 milligrams without the Russian sites, the overall intent to treat was positive. But that's a post hoc analysis. So we can't claim anything from that. But we have excluded the Russian sites. And then, Peter, would you take the question on what we saw when the society was opening up in the fourth quarter and then what we're seeing in the first?

Yes. Thanks for the question, James. The short answer to your question is, yes, we believe we will get back to double-digit growth with those brands. But it's very dependent on COVID about when that happens. And as Deborah mentioned, in Q3, Q4, where we saw the lockdowns ease, patient volumes were coming back, our reps were getting close to -- back to full promotion, although about 1/3 of those calls were coming from virtual versus face-to-face, where we were approximating some normality. We saw the NBRx trends go back to their pre-COVID levels. So that's why we have the confidence that as this thing lifts, that those brands are going to recover. The big question is when.

And I think in the first quarter, we've seen a much lower ability than the fourth quarter to be able to be outpromoting, and that's also, of course, affecting patients' willingness to come into physicians and physicians offices being open. So I think we're seeing not as deeper impact in the first quarter as the second quarter of '20, where it was a much harder lockdown, but it is less -- we have less availability to go out than we did in the fourth quarter.

So if I can add then. So when you look at the phasing of the growth for the strategic brands in '21, you should definitely expect also due to the strong currency or the strong dollar in the beginning of the year that the growth will be muted and -- in the first couple of quarters, and then it will gain momentum in the second half of '21.

And next question is from Trung Huynh from Crédit Suisse.

Trung from Crédit Suisse. I have a few on guidance and then just one on the Trintellix patent proceedings. So on guidance, if you have a look at the '21 guidance, at the sales level, it looks quite conservative. So I was just wondering what the pushes or pulls you expect to get to that upper end, but more importantly, that lower end of your guidance? And for '21, what are your expectations for that other pharma portfolio? Looks like consensus has a decline of 8%. Do you think that's an appropriate decline? And then on the EBIT level, just touching on Wimal's question, there's clearly an increase in costs coming through here. I wonder if you could just take us through some of those other aspects of the cost structure beyond COGS that we should expect to the group in '21? And then on the Trintellix patent infringement proceedings, I see they've started. You've settled with 8 people. There's a remaining 6. I was previously expecting a decision in the first half of this year. But your release today suggests a decision within 7 months after the trial. So is an expectation for that decision in the second half of this year now or even in 2022? And is there any comment you can make about the case?

Okay. Anders will take all the numbers questions, and I'll take...

Okay. So our expectations for the cost ratios in '21 is that we anticipate that the cost of sales will be in a range of 20% to 23%. We anticipate that the SG&A will be in a range of 41% to 46%, and then that R&D will be between 22% to 24%. And it is important to say when you look at the -- and then you can take the midrange and then you get kind of what is the mid of the guidance we are giving here. So if you look into the SG&A costs, we will use more money on Vyepti in '21 compared to '20, but then we will make some savings on other costs. So Vyepti is basically the only reason for increase in SG&A. The rest will be absorbed by efficiencies. When you look into R&D, it's pretty straightforward that if you compare with 2020, then if you take out the foliglurax, then you are more or less on the midst of the ratio. And then within the portfolio, then there will be a substantial additional spend for Vyepti due to cluster headache, the trial for that, the deliver study, and then we will reduce the spending on other programs. So I assume you asked about -- did you ask about other revenue or other pharmaceuticals?

Other pharmaceuticals?

Other pharma?

Yes. We had anticipated to be declining a bit more than what you -- more than 10%. And that is, of course, due to pricing. But what we have seen in '20 is, of course, a mature brand showed a really, really strong performance. And it is a bit difficult to predict what will the performance in '21 be. The underlying structural performance should indicate 5% to 10% decline because you will see generics coming in. But then, of course, you also have the VBP in China. That is taking out some DKK 20 million -- DKK 150 million or something like that. That is definitely meaning that the mature brand portfolio will have a decline around 10% or more, and the totality of the mature brand portfolio will decline 10% because we have the VBP on top. Did I cover all the financing questions?

Guidance?

Yes. What...

We hit the top and hit the bottom end, what are the puts and takes?

Thanks, Deborah. So it's definitely to go to the bottom of the revenue guidance, then -- or the lower end, then it's -- we will be hit more by the pandemic. That we will not regain momentum. That the pandemic will not lift in the second quarter, and we will not see a rebound into single-digit, double-digit growth in the second half. That is, of course -- that could be a reason. A reason could also be if Northera is declining more than 50%, and that is basically the 2 biggest uncertainties. As Peter alluded to, we have seen a very, very strong uptake when we are back in the market and in the field, then NBRX is regaining momentum immediately. And that is also why we have a strong belief that we will regain double-digit growth with the key brands because there's a strong need for the products in the market.

Great. I think the other thing we don't hope that we'll see more of this currency decline, but that's another wildcard.

Yes. And that's also why we gave you some indication of what is the change in dollar actually meaning with the 5% sensitivity. And then it's also important that you -- the hedging we have -- guidance we have given you, of course, the hedging will impact Q1 and Q2 mostly because that is where we had high U.S. dollar rates last year.

Right. And then to the Trintellix patent. Obviously, the most -- the strongest patent for any product is the compound patent, and that's the 2026 -- '27 expiry. The court case, if we are litigating the other very important innovations that we've put around Trintellix, and so the outcome of that is what being litigated in the court case. We don't provide guidance on ongoing litigation. But we have innovated around Trintellix, and so we will defend those patents accordingly. As to when we'll see an outcome of that, we can't tell. We do know that there had been delays because of the pandemic leading up to this, and there may be more. So I wouldn't really hazard a guess as to whether we'll see it this year or early next.