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GW Pharmaceuticals PLC (NASDAQ:GWPH)
Q4 2019 Earnings Call
Feb 25, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the GW Pharmaceuticals Fourth Quarter and Year End 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now pleasure to introduce your host, Steve Schultz, Vice President of Investor Relations. Thank you, sir. You may begin.

Stephen Schultz -- Vice President of Investor Relations

Welcome all of you, and thank you for joining us today for our fourth quarter, year end results call for our 2019 financial year. Again, I am Steve Schultz, Vice President of Investor Relations at GW.

Today I'm joined by Justin Gover, GW's Chief Executive Officer; Darren Cline, U.S. Chief Commercial Officer; Chris Tovey, our Chief Operating Officer; Dr. Volker Knappertz, Chief Medical Officer; and Scott Giacobello, our Chief Financial Officer.

We hope you've had a chance to review our press release issued a short while ago. We expect to file our Form 10-Q later this week. As a reminder, during today's call, we'll be making certain forward-looking statements. These statements reflect GW's current expectations regarding future events, including but not limited to statements regarding financial performance, clinical and regulatory activities, patent applications, timing of product launches, and statements relating to market acceptance and commercial potential.

Forward-looking statements involve risks and uncertainties, and actual events could differ materially from those projected herein. A list and description of risks and uncertainties associated with an investment in GW can be found in the company's filings with the U.S. Securities and Exchange Commission. These forward-looking statements speak only as of today's date, February 25th, 2020. Finally, an archive of today's call will be posted to the GW website in the Investor Relations section.

I now turn the call over to Justin Gover, GW's Chief Executive Officer.

Justin Gover -- Chief Executive Officer

Thank you, Steve, and welcome to all those who have joined us today. 2019 was an exceptional and transformative year for GW Pharmaceuticals. Our success was underpinned by the first full year of Epidiolex sales of nearly $300 million. In Europe, we obtained approval for Epidiolex and are now entering the launch phase.

Our experiences in 2019 confirm that Epidiolex is a medicine that is in high demand by patients with major unmet needs, warmly welcomed by physicians and one that payers recognize as providing meaningful value.

In a moment, Darren will provide more details on the US commercial opportunity as it moves into its second year. I've also asked Chris to review the European launch status.

Beyond our initial Epidiolex indications, the positive Phase 3 trial in Tuberous Sclerosis Complex reported in 2019, has now led to submission of the TSC supplemental NDA earlier this month. This approval would broaden the label to another 50,000 diagnosed patients and would confirm the broad anti-seizure properties of this medicine.

We also continue to make progress in relation to Epidiolex exclusivity. Beyond the nine Orange Book listed patents, we now have an additional two new allowed patents that broadly cover use in LGS and Dravet syndrome. We also have two pending applications in patent families related to TSC data, and in addition we are prosecuting a patent application protecting the composition of Epidiolex. We are also advancing a number of additional patent applications in relation to Epidiolex.

Beyond Epidiolex, we spent 2019 further investing in and progressing our pipeline and notably finalizing plans to bring nabiximols to the United States. Although this product was first approved outside the US some time ago, our most recent US market research has demonstrated that this product, to which we expect strong regulatory protection, presents -- represents a compelling commercial opportunity.

We have an abridged route to market in MS spasticity and also plan on a series of additional indications, each of which represent major market expansion opportunities. Volker will review nabiximols and the pipeline with you later on this call. Finally on this call, Scott will review our financial results.

Let me begin by asking Darren to provide a US commercial update. Darren?

Darren Cline -- U.S. Chief Commercial Officer

Thank you, Justin. Epidiolex 2019 net product sales were $296.4 million, which included Q4 global Epidiolex net product sales of $104.5 million. In the US, net Epidiolex product sales in Q4 were $100.2 million. This performance is one that we are all exceptionally proud of.

Market research conducted during the fourth quarter indicated continued high satisfaction by physicians and patients and an intention to prescribe to more patients in their practice. These dynamics were echoed through our many physician interactions during the American Epilepsy Society meeting in December.

Beyond the positive impact that Epidiolex is having with their patients and families, additional feedback from this meeting included a high level of satisfaction with payer coverage in LGS and Dravet syndrome. We also heard examples of their ability to access Epidiolex for other intractable epilepsies.

We see many opportunities for growth in 2020. In LGS and Dravet, even with our successful adoption to-date, we believe that we are still penetrated less than 50% of the market, leaving significant room for growth in our indicated population.

In terms of physicians, as a normal in the first year of a new AED launch, a concentrated number of specialist and institutions represented the majority of prescriptions. We therefore see significant opportunity in 2020 to accelerate adoption across a wider prescriber base.

A key priority this year will be to spend more time, effort and resources expanding on our solid base of specialist physicians with targets consisting of mainly adult neurologists, nurse practitioners and physician assistants, who see diagnosed and undiagnosed LGS and DS patients among a wide spectrum of epilepsy patients.

An additional layer of opportunity in 2020 is to service patients who reside in long-term care facilities. These individuals are living with developmental delays generally in group homes or skilled nursing care facilities and many suffer from refractory seizures, including those associated with LGS and Dravet syndrome. We believe that within these settings, the majority of these individuals can be impacted with a small and highly focused team. We're beginning deployment of dedicated resources to the long-term care segment in this first quarter.

We also continue to prepare for an expected TSC launch later this year. The effectiveness of Epidiolex in the TSC population greatly expands our understanding of the drug's potential to treat a broad spectrum of both focal and generalized seizure types associated with these rare epilepsy syndromes, which we believe will be an important driver of Epidiolex peak sales potential. Our team is readying promotional materials and excited to begin outreach in this patient population.

Finally, further expansion of payer coverage is a key priority for 2020. Payer coverage in 2019 was already strong. For instance, one year post launch, open access reimbursement is already available to over 15% of covered lives. This means that no prior authorizations are required if Epidiolex is prescribed by an epilepsy physician. A further 70% of covered lives require a prior authorization to indication and we believe there is an opportunity for a portion of this coverage to move toward open access.

As we look to increase awareness of and expand on that coverage, we are putting in place a new reimbursement team that can support patients in accessing Epidiolex. The role will focus on communicating the evolving payer coverage of Epidiolex, developing strategies to address access and reimbursement needs and enhancing awareness and utilization of Epidiolex patient access services.

My confidence in our ability to widen access comes from the following observations from 2019. First, patient compliance is high, indicating a strong clinical response. Second, prescriptions are predominately written by our epileptology and neurology targets, thereby reassuring payers that Epidiolex has been prescribed by appropriate physicians for appropriate patients. Third, restrictive utilization management has an adverse impact on patient outcomes and costs associated with uncontrolled epilepsy. Fourth, we have data to demonstrate that use of Epidiolex has a favorable impact on medical costs. Fifth, the average price of Epidiolex is consistent with what we guided payers before launch and considered reasonable, providing a positive value proposition for the plan and their patients. And finally, we know that physicians want to utilize Epidiolex to treat other rare intractable epilepsy patients, for whom no approved treatment exists. Upon appeal, payers often approve Epidiolex based on medical necessity. Overall, these factors, we believe, position Epidiolex well in 2020.

In closing, let me comment on what we expect in the upcoming quarter. While we don't have a good comparator, as Q1 last year was the first full quarter of our launch, we do expect that Epidiolex may experience the seasonality influences you see in many other medicines. As we stated in January at the JPMorgan Conference, as you model this upcoming quarter, we would expect Q1 sales performance to be consistent with that of Q4.

Now I'd like to turn the call over to Chris to provide an update on our progress in Europe. Chris?

Chris Tovey -- Chief Operating Officer

Thank you, Darren. Following European approval for Epidiolex in late September last year, we're now in the early launch phase, focused on the five major European markets of Germany, UK, France, Italy and Spain. The first commercial launch took place in Germany during the fourth quarter of 2019. Building on the experience developed through our early access program, it's clear that Epidiolex is being warmly welcomed by German physicians and patients alike.

In the UK, during November, Epidiolex was recommended by England's National Institute for Health and Care Excellence, NICE, to receive routine NHS reimbursement. Epidiolex was formally launched in the UK in late January with centralized funding by NHS England.

In France, Epidiolex is being made available and reimbursed by the National ATU program, which supports early patient access to important new medicines and serious diseases. In parallel, the formal reimbursement process is ongoing. The outcome of which is expected later in 2020. Only at this time will formal launch activities in France commence. Similarly, in Spain and Italy, launches are expected later this year once appropriate pricing and reimbursement negotiations are finalized. Our market feedback continues to suggest that we are launching into a receptive environment where there is clear unmet need. Research tells us that physicians are eager to have access to new therapy to treat these difficult cases and there is a high level of awareness among patients.

With that said, as you know, the pace of launches of new medicines in Europe is of course traditionally slower than that in the US. Beyond the five major European markets, we're submitting pricing and reimbursement dossiers in many other European countries, with a view to launching next year. We're also starting to look beyond Europe. And I've been able to provide early access to Epidiolex in a range of countries across the world.

Moving away from commercialization activities, our global commercial manufacturing and supply chain, which also falls under my responsibility, continues to run smoothly. In addition, our longer-term future capacity manufacturing expansion plans are on track to service what we expect to be robust long-term demand.

Thank you. And let me now hand the call to Volker for his update.

Dr. Volker Knappertz -- Chief Medical Officer

Thank you, Chris and good day everyone. Looking first at the Epidiolex program in TSC, the supplemental New Drug Application for this indication was recently submitted. We do not yet have a formal PDUFA date, so current guidance is to expect approval in the second half of 2020.

On the heels of this US TSC submission, the European filing of the TSC data is expected by the end of the first quarter this year. We believe that the addition of seizures associated with Tuberous Sclerosis Complex, which are predominantly focal in onset, will be important new features in the prescribing information.

In Rett syndrome, our placebo-controlled Phase 3 trial is actively recruiting. This trial is different from the five previous pivotal Epidiolex trials and we have focused our investigations on the non-seizure aspects of this disease.

Beyond Epidiolex, we are now significantly increasing our investment in the development of nabiximols in the US. We believe the fastest route to market for this product is to the indication already approved in Europe, namely for the treatment of spasticity due to multiple sclerosis.

We have had several interactions with the FDA in the last year regarding this product. As a result, our plan for MS spasticity is to bridge from the previously conducted positive Phase 3 trials in Europe by adding a new Phase 3 placebo-controlled trial with approximately 450 patients in a number of smaller mechanistic studies. We expect this clinical program to commence in the second quarter of this year.

It is important to emphasize that other elements necessary for an NDA submission are largely in place. For example, we have nearly 100,000 patient years of safety data, as well as a regulatorily [Phonetic] approved commercial scale manufacturing process that has been in place for many years.

Spasticity associated with multiple sclerosis is a common symptom, which significantly impacts patients' quality of life. There has not been any significant advancement in oral anti-spasticity treatment options for over 20 years. Approximately one-third of MS patients live with uncontrolled spasticity and we believe a quarter to half currently self-medicate with unapproved cannabis-derived products in the United States.

Recent market research from our US commercial team indicates that both physicians and patients are eager for the availability of an FDA-approved cannabinoid product, such as nabiximols. We very much see nabiximols as a pipeline in the product. As we think about the life-cycle for nabiximols beyond MS spasticity, there are real opportunities within the broader spasticity market as there are around 3 million patients in the United States with spasticity associated with various conditions. To this end, we are planning a clinical program in spasticity due to spinal cord injury.

Beyond spasticity, we have selected post-traumatic stress disorder, PTSD, as a new target indication for this product. We expect to commence these clinical programs later this year with a view to achieve a series of approved indications for nabiximols over the coming years. Furthermore, due to the product's significant complexity, we believe that nabiximols will benefit from strong long-term market regulatory protection.

Moving to autism. Our clinical program with CBDV includes a 30-patient open label study, as well as an investigator-led 100-patient placebo-controlled trial; both of which are ongoing.

In schizophrenia, we are also advancing a clinical development program in area which GW has been researching for approximately a decade. In particular, GW previously conducted a Phase 2 study in 88 subjects with schizophrenia, demonstrating that a CBD-containing product significantly reduced positive symptoms and significantly improved the clinical global impression of improvement compared to placebo.

We are now moving forward with a follow-on Phase 2 study. The study aims to further estimate the magnitude of the treatment effect of an investigational CBD-containing product on positive, negative and general symptoms of schizophrenia. We expect to initiate enrollment in mid-2020.

Finally, we have commenced a safety study of our intravenous CBD formulation in Neonatal Hypoxic-Ischemic Encephalopathy or NHIE and expect to treat the first patient at any time. There are currently no FDA-approved medicines indicated for NHIE. Clearly, a product to address this patient population would represent a major breakthrough and we look forward to advancing this program.

Thank you. Let me now hand the call to Scott Giacobello to provide the financial review.

Scott Giacobello -- Chief Financial Officer

Thanks, Volker and good afternoon. I'll now provide some high level comments on financial results for the quarter and year ended December 31st, 2019. A more detailed discussion of results will be provided in our 10-K to be filed with the SEC later this week.

I'll start with revenue. Total revenue for the quarter was $109.1 million compared to $6.7 million in the prior year quarter. This increase is due primarily to global Epidiolex net sales of $104.5 million in the quarter.

Total deductions from gross sales for allowances were $22.6 million for the quarter related mainly to Epidiolex. Gross to net is in line with our expectations at this point in the launch.

For the year, total revenue was $311.3 million, driven mainly by global Epidiolex net sales of $296.4 million. Cost of sales for the year ended December 31st amounted to $27.2 million or 9% of net product sales compared to $6.6 million or 45% of net product sales in the prior year. This improvement is due to the substantial increase in Epidiolex sales over the prior year. Cost of sales is favorably impacted by Epidiolex inventory produced prior to approval, which was expensed in accordance with accounting guidelines.

Moving to R&D spend. Total research and development expense for the quarter increased to $43.5 million from $29.1 million in the prior year quarter. This increase reflects expenses related to the ongoing Epidiolex development program, including preparation of the supplemental NDA for TSC, as well as advancing the nabiximols clinical program and our other pipeline programs.

For the year, research and development expense was $142.7 million compared to $146.6 million in the prior year. This slight decrease is mainly due to costs related to Epidiolex growing and inventory build, prior to regulatory approval, which were expensed as incurred in the prior year.

Turning to SG&A. Selling, general and administrative expenses for the quarter increased to $78.4 million from $49.1 million in the same period in 2018. For the year, SG&A expenses were $259.9 million compared to $165.7 million in the prior year. This increase is primarily due to costs related to the launch of Epidiolex in the US and the build-out of our commercial operations in Europe.

The resulting net loss for the quarter was $24.9 million compared to a net loss of $71.9 million in the prior year quarter. For the year, net loss was $9 million compared to a net loss of $305.3 million in the prior year, including the net gain on the sale of our priority review voucher of $104.1 million.

Moving to cash flow. Net cash used in operating activities for the year ended December 31 amounted to $123.5 million compared to $254.8 million for the prior year. Net cash provided by investing activities for the year was $61.6 million compared to net cash used in investing activities of $42.9 million for the prior year. The current year amount includes net proceeds from the sale of our priority review voucher.

Capital expenditure for 2019 amounted to $42.5 million compared to $43.4 million for the prior year, reflecting continued investments in the expansion of our cannabinoid production facilities.

Resulting net decrease in cash and cash equivalents for the year amounted to $54.6 million. For the quarter, the net decrease in cash and cash equivalents was $17.7 million. We ended 2019 cash and cash equivalents of $536.9 million.

Turning to guidance. R&D and SG&A expenses for the quarter ended December 31, 2019 amounted to $122 million. For the year ended December 31, 2020, we expect R&D and SG&A expenses in the range of $530 million to $560 million, reflecting continued investment in Epidiolex in the US, the commercial launch in Europe and investments in our R&D portfolio. We also anticipate capital expenditure in the range of $30 million to $40 million related mainly to manufacturing expansion.

Thank you. And I'll now hand the call back to Justin.

Justin Gover -- Chief Executive Officer

Thank you, Scott. In closing, as we move into the second year of Epidiolex commercial availability, we have an established and growing base of patients and prescribers and see major growth opportunities in 2020 and beyond, as more and more patients gain access to this important medication.

We believe that Epidiolex has a long commercial life ahead and we continue to invest in multiple exclusivity and life-cycle management strategies. We also expect 2020 to be an important year for our pipeline. Nabiximols is an exciting late-stage program for GW in the United States. Although it was first developed outside the US some time ago, we strongly believe that now is the ideal time for these products to emerge into the US and believe that it can meet patient needs across multiple indications in the coming years. Beyond these exciting programs, there is a growing pipeline of earlier-stage products in multiple indications.

GW's world leadership position in cannabinoid science has not happened overnight and with over 20 years of research behind us, we believe that the next chapter will be even more exciting. We are intensely focused on ensuring Epidiolex reaches its potential, while advancing our pipeline.

Thank you for your time today and I look forward to updating you on progress in 2020. I would now like to open the call for a few questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is coming from Marc Goodman with SVB Leerink. Please proceed.

Roanna Ruiz -- SVB Leerink LLC -- Analyst

Hi. This is Roanna on the line for Marc. So I was curious could you maybe qualitatively talk a bit about the dynamic we might see with Epidiolex transitioning from first quarter to second quarter. I know you mentioned seasonality effects, but I'm wondering if that could sort of be made back up in second quarter.

Darren Cline -- U.S. Chief Commercial Officer

Hi, it's Darren. Thanks for the question. I think you know in Q1, you'll see these seasonality things. But as we've stated, 2020, we're -- there's several drivers of the business that we think will propel us into 2020; Epidiolex clinical performance. We still look to opportunity we have within LGS and Dravet and as we spoken about the TSC approval in the latter half of 2020, it sets us up for a really nice 2020.

Roanna Ruiz -- SVB Leerink LLC -- Analyst

Okay. Got it. And one more question if I may. Could you remind us what the split is in patients for Epidiolex between children and adults, and if that still looks like it's upticking in the last quarter?

Darren Cline -- U.S. Chief Commercial Officer

Stayed still at 60-40.

Roanna Ruiz -- SVB Leerink LLC -- Analyst

Okay, great. Thanks.

Darren Cline -- U.S. Chief Commercial Officer

You're welcome.

Operator

Thank you. Our next question is coming from David Lebowitz with Morgan Stanley. Please proceed.

David Lebowitz -- Morgan Stanley & Co. -- Analyst

Thank you very much for taking my question. Could you run us through the process that a payer goes through in determining when to move to open access? And I guess what the trajectory was like to get to the initial 15% that you have at this point and how you expect it might evolve as you move through 2020?

Justin Gover -- Chief Executive Officer

Yeah. Thanks for the question. As we've said, we're very pleased with the coverage we had in the first year with Epidiolex. It sets a great foundation for us in 2020 and beyond. We're in those discussions now with the payers regarding their current utilization and their policies. Consistent with our previous remarks at AES and JPMorgan, we do expect to see real progress in 2020. But these discussions require some time and I expect progress to be steady during the course of this year. It remains our goal to see more open access, much like ESI, which we had out of the gate and I see it as very realistic for us.

David Lebowitz -- Morgan Stanley & Co. -- Analyst

Thanks for taking my question.

Justin Gover -- Chief Executive Officer

You're welcome.

Operator

Thank you. Our next question comes from Tazeen Ahmad with Bank of America. Please proceed.

Tazeen Ahmad -- Bank of America Merrill Lynch -- Analyst

Okay. I think that's me. So, hi guys. Just wanted to ask if you can give us some color about how to think about the cadence of the launch in the European countries. We understand that it's going to be staggered throughout the course of the year. But for modeling purposes, how should we think about comparing, I guess, the trajectory of that launch versus what you saw in the US and I guess when you might be in a position where you would be able to break out going forward US and ex-US sales? Thanks.

Chris Tovey -- Chief Operating Officer

Tazeen, I'll let Justin, Scott answer the second part of the question. I think everybody's aware that the European launch is very, very different to US launch. I think we were -- obviously the drug was approved late in September and the first country to get approval where we have a genuinely commercial launch ongoing is Germany. And then the end of January, following NICE and reimbursement being put in place for the UK, a late January launch for the UK. So two markets started, but two months, three months apart.

France, we still don't have a full commercial launch. Spain and Italy, we talk about reimbursement in the second half of the year. So we would hope that we would have all five countries up by the end of the year Tazeen with reimbursement, and a good price. So it's really going to be a much slower cadence in Europe and it will be bitty because it will be one country coming on at a time as we go through this year.

Scott Giacobello -- Chief Financial Officer

And thanks, Chris. Tazeen for your last point, I mean, I think we do definitely see Epidiolex as a single global brand, which is kind of why we headlined it in this way. We -- Darren did mention and you'll see in the K that we're filing a geographic split out, so the Q4 US revenue was just over $100 million. And so there is -- we are able in this quarter at least to show you what the ex-US revenue was.

Tazeen Ahmad -- Bank of America Merrill Lynch -- Analyst

And do you expect that to continue?

Scott Giacobello -- Chief Financial Officer

Something we're looking at.

Tazeen Ahmad -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from Cory Kasimov with JPMorgan. Please proceed.

Cory Kasimov -- JPMorgan Chase & Co. -- Analyst

Hey. Good afternoon, guys. Thank you for taking my question. Wanted to see if you could talk more about how you see the IP positioning for Epidiolex. I think a lot of people simply assume you get your orphan exclusivity, but don't really give you credit for the patents out to 2035 and even potentially beyond.

So can you just remind us of the significance of those patents and your level of confidence as to whether they can confer protection for the product that far into the future? Thanks.

Justin Gover -- Chief Executive Officer

Thanks, Cory. It clearly recognizes an area of ongoing sort of debate, but -- and we saw [Phonetic] unusual position because of the lack of [Technical Issues] protection here. But I think I appreciate the opportunity to reinforce the fact that the strategy that we've adopted here is one that was started many years ago, has led to a wealth of filings and granted patents that really are designed very specifically to match the key features of the label; nine already in place, two new allowed patents, two coming for TSC more on their way. So you will see over the -- even over the next couple of years, more additional patents into the Orange Book with this 2035 timeline.

I think on top of that, we briefly alluded toward the end of last year about a new composition like patent, which is going through prosecution right now. It's a different approach, compliments very much the use of IP, but were that to grant and were that to emerge the way we hope really puts us in a very different position as it relates to protection beyond use and more directly to the product itself.

So I appreciate there is a journey to go through here, but I'm very comfortable saying that investors should recognize there is a lot of work that's gone on already, a lot of investment going on and more to come, in addition, of course, with formulations as well. So I think this is a story that is not -- really hasn't yet begun and will play out over many years.

Cory Kasimov -- JPMorgan Chase & Co. -- Analyst

Okay. Thank you. Appreciate the thoughtful answer.

Operator

Thank you. Our next question is coming from the line of Phil Nadeau with Cowen and Company. Please proceed with your question.

Phil Nadeau -- Cowen and Company -- Analyst

Good afternoon. Congrats on the progress. Couple of questions on the TSC market. You mentioned that that is what could be a growth driver in 2020, particularly once the label is expanded to include TSC. Could you give us some sense of what penetration you have of TSC patients today and whether Epidiolex is being used in some patients who predominately have focal seizures?

Darren Cline -- U.S. Chief Commercial Officer

Hey, Phil it's Darren. So regarding current utilization, we think it's very minimal. As you recall, we had the top-line results press release in 2019. The data were presented for the first time at AES in December. And so, that data has not been disseminated, as you know, as you alluded to. We don't promote to it because it's not on our label just yet.

But when we look at where TSC is being treated, most of these patients are across 40 or so institutions in the US. There is some overlap with our current treating physician base. So upon the label expansion and the launch of this, as we alluded in our remarks, our preparation is well under way. We know what our targets are. We anticipate getting out of the gates pretty swiftly to communicate this data to them.

Phil Nadeau -- Cowen and Company -- Analyst

And what is your current understanding of the average dose that's used? And how do you think that could change, assuming you get the higher doses on the label with the TSC label expansion?

Justin Gover -- Chief Executive Officer

Yeah, we don't disclose the exact dose, but we have said over the last 12 months, it's been creeping up toward the middle of that dose range Phil. So that's kind of the guidance we give there.

As it relates to TSC, obviously the label is likely to include reference to the 25 milligram per kilogram, so there may well be some effect on the average dose at that point in time. Obviously, we'll have much better when we see the -- better idea when we see the label.

Phil Nadeau -- Cowen and Company -- Analyst

Perfect. Thanks for taking my questions.

Operator

Thank you. Our next question comes from Paul Matteis with Stifel. Please proceed.

Stifel -- Analyst

Hi. This is Alex on for Paul. Just one question here. So you mentioned that you're still less than about 50% penetrated in LGS and Dravet and just wondering how much of that you think you can close the gap on with payer access that you're kind of improving this year, and what else do you think you can do to close that? Thanks.

Darren Cline -- U.S. Chief Commercial Officer

Its Darren. I'll take. I think closing the gap when we think about first of all the LGS, Dravet on label reimbursement is very good, again, which sets a strong foundation for us moving forward. When we think about market penetration, it's the available patients within the US that are diagnosed with Dravet and LGS that are currently on Epidiolex or have seen Epidiolex.

So we feel confident there's plenty of growth available there within that label population, and then as we've talked about the TSC label expansion in the second half of the year.

Stifel -- Analyst

All right. Thanks.

Operator

Thank you. The next question comes from Salveen Richter with Goldman Sachs. Please proceed with your question.

Goldman Sachs -- Analyst

Hey. Thanks for taking the questions. This is Roth on for Salveen. Can you guys just highlight and talk a little bit more about the long-term care segment. What is the patient numbers here look like, how big is this opportunity and then some of the barriers that are likely to exist to penetrate this market?

Darren Cline -- U.S. Chief Commercial Officer

Yeah. It's Darren. Thanks for the question. So the long-term care segment, which encompasses group homes, facilities that obviously patients cannot care for themselves. We think there's about 300,000 beds in the United States and we think about a quarter to a third of the patients have some form of seizure, and so there is a tremendous opportunity there. We've looked at analogs, other AEDs within the class and other of our peer groups that have worked within the long-term care facilities.

So we think our approach with a small dedicated team to work within the buying groups, educating the pharmacist, complement our neurology account management team, we're currently calling on physicians to generate the demand. So we think in 2020 it's a nice opportunity for us.

Goldman Sachs -- Analyst

Great. And then I guess just lastly here, if you can talk to any changes in the discontinuation rates or patterns you're seeing in the US that these rates have gone -- or still consistent with what you're seeing in the clinical trials.

Darren Cline -- U.S. Chief Commercial Officer

Yeah, still consistent. Consistency [Phonetic] has we think become a strength of the brand.

Goldman Sachs -- Analyst

Great. Thanks.

Darren Cline -- U.S. Chief Commercial Officer

You're welcome.

Operator

Thank you. Our next question comes from Charles Duncan with Cantor Fitzgerald. Please proceed with your question.

Maria Skobeleva -- Cantor Fitzgerald -- Analyst

Hi. This is Maria on for Charles. Thank you for taking my questions and congratulations on a great year. My question has to do with the ongoing Phase 3 Rett study that you launched in May of 2019. Could you maybe provide some more color on how enrollment is going and would you expect to complete the enrollment? And also if you have any insight into expected timing of near-term readouts or if and when you plan to present baseline data for the study. Thank you.

Justin Gover -- Chief Executive Officer

Yeah. Hi. Thanks for the question. I mean, we don't generally update on ongoing studies in terms of enrollment. I mean this is not a study expected to report out in 2020. So I think we'll just have a much better view later this year, as to -- and be able to give you more precise guidance. But it's not a 2020 item.

Maria Skobeleva -- Cantor Fitzgerald -- Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from Esther Rajavelu with Oppenheimer and Company. Please proceed with your question.

Esther Rajavelu -- Oppenheimer and Company -- Analyst

Hey, guys. Thanks. So in terms of the label expansion for TSC, you're doing a lot of legwork right now to expand access and I'm kind of wondering what happens whether you can leverage that work when your label expands to TSC or would you have to sort of renegotiate the contracts at that point?

Darren Cline -- U.S. Chief Commercial Officer

It's Darren. Thanks for the question. We -- the TSC -- in our discussions with payers, we talk about LGS, Dravet, but also payers want to know what's next. So we're starting to discuss what those data look like.

And I think when the payers are now, as I alluded to in my remarks, evaluating their utilization data, they'll take this into account. But I go back to the value proposition we have for LGS and Dravet is, we believe, strengthened by the addition of TSC on the label.

Esther Rajavelu -- Oppenheimer and Company -- Analyst

Got you. And then in the composition patent that you have recently submitted, when do you anticipate a decision on the patent?

Justin Gover -- Chief Executive Officer

We'll go through prosecution for this year, so it will either be toward the end of this year or early next.

Esther Rajavelu -- Oppenheimer and Company -- Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from Yatin Suneja with Guggenheim Partners. Please proceed with your question.

Yatin Suneja -- Guggenheim Partners LLC -- Analyst

Hey, guys. Thank you for taking my questions and congrats on a good quarter. Just on the Q1 comment that you made. I think you said that performance should be consistent. So just trying to understand some of the pushes and pull in Q1. You don't expect a down quarter, right? And then in terms of channel inventory dynamics, anything in 4Q or Q1 that we need to keep an eye on?

Justin Gover -- Chief Executive Officer

Thanks for the question. I'll take the first part and let Scott talk about the second. Regarding this Q1, we really don't have a good comparative to last year, as I stated, because it was the first full launch here in 2019. But much like our peer companies, we're seeing resetting of deductibles, co-pays, insurance and those types of things that other folks experience.

But of course, we plan for those things in Q1 and we have a good team to minimize the impact. But the issue remains for us as it does for everyone else and we continue to work through it.

Scott Giacobello -- Chief Financial Officer

And then Yatin, it's Scott, I'll take the second part of the question on inventory. There are no inventory dynamics that would be impacting the quarter. I mean, one thing I would remind everyone is that Epidiolex is a scheduled drug, and for that reason, the ability for there to be much inventory in channel is very limited. So quarter-to-quarter dynamics from an inventory perspective are not significant.

Yatin Suneja -- Guggenheim Partners LLC -- Analyst

Okay. And then just quickly one more question. Could you maybe give us a sense where you ended 2019 on the average price and what sort of estimate you have on the average price that helps [Phonetic] you in 2020? Thank you.

Justin Gover -- Chief Executive Officer

Yeah, when we launched -- this is Justin, Yatin. When we launched, we stated that we expected by the end of the first year to be around an average growth of $32,500 per patient. Looked at across the patient population, I think we ended up really pretty close to that actually. So I think our assumptions ended up being correct.

And so as we move into this year, we've taken a modest price increase, but of course, the net effect of that is less than the actual increase itself. So there's no material shift in terms of how we expect the average price to pan out in 2020.

Yatin Suneja -- Guggenheim Partners LLC -- Analyst

Great. Thank you very much.

Operator

Thank you. Our next question is from Douglas Tsao with H.C. Wainwright. Please proceed with your question.

Douglas Tsao -- H. C. Wainwright & Co., LLC -- Analyst

Hi. Good afternoon. Thanks for the question. Just if you could provide some perspective on the current access for focal onset seizures and how do you expect that will change with the approval for TSC later this year?

Darren Cline -- U.S. Chief Commercial Officer

Hi. It's Darren. I'll take the question. While focal is a predominant seizure type within TSC, I think that's how you have to view it. Physicians will diagnose TSC, which is a very specific diagnosis and focal seizures being the primary one. And so that's how we look at it. But again something that we won't be promoting till we have that label expansion in the latter half of 2020.

Justin Gover -- Chief Executive Officer

But the product is not indicated in the broad adult focal onset seizure market, nor is -- we are expecting that to be a driver of utilization. It's not within our indications, so it's a different part of the market.

Douglas Tsao -- H. C. Wainwright & Co., LLC -- Analyst

And just -- so as a follow up, would you expect the reimbursement will remain limited for focal onset seizures focused on -- associated with TSC?

Justin Gover -- Chief Executive Officer

I think once we have that label expansion, I think they'll look at the Phase 3 data and evaluate utilization based on what we just -- how I described how focal is a part of the primary seizure type within TS.

Douglas Tsao -- H. C. Wainwright & Co., LLC -- Analyst

Okay, great. Thank you.

Operator

Thank you. The next question is from Danielle Brill with Piper Sandler. Please proceed.

Danielle Brill -- Piper Sandler Companies -- Analyst

Hi, guys. Thanks for the questions. I guess as a follow up to that last one, are you seeing any reimbursement -- off-label reimbursement for focal seizure types? Generally, what types of seizures are being reimbursed? And then I have a quick follow-up.

Justin Gover -- Chief Executive Officer

I think we're struggling Danielle, it's Justin here with the kind of -- if the question is about like treatment refractory patients that -- beyond Dravet and LGS, for which, have been through multiple AEDs, etc., highly refractory, then as Darren said, we have experience of those scripts getting through and if access widens, then more of those scripts will go through.

I think we're just trying to make sure that this is -- Epidiolex is not an adult focal seizure drug in the way of Keppra and other drugs. So just trying to make sure that we're not straying into that territory when answering these questions. But when we think about access and how physicians are prescribing this medication and wanting to use it, it's very much within the treatment-resistant setting and some of those patients may well have focal seizures, of course.

Danielle Brill -- Piper Sandler Companies -- Analyst

I see. Okay. Thanks for clarifying. And then in 4Q, did you have the same run rate as you quoted last quarter? I think you said about 3,000 new patient adds. And do you expect this rate to continue in the US moving forward?

Justin Gover -- Chief Executive Officer

Yeah, so we've -- as you know and everyone is aware, we've -- kind of that metric is something that is not something we're using in 2020. It was very much just for the launch. So qualitatively, there were no material sort of changes in patent in -- in the sort of patents that we saw in Q4 versus Q3.

Danielle Brill -- Piper Sandler Companies -- Analyst

Got it. Thanks for the questions.

Operator

Thank you. Our next question is from David Kideckel with AltaCorp Capital. Please proceed with your question.

David Kideckel -- AltaCorp Capital Inc. -- Analyst

Hi, good evening. Congrats on the quarter and thanks for taking my question. I have a couple of them. The first is more around your nabiximols and Sativex program with your Phase 3, in the US in particular.

Now given that there's been, I guess, relatively little revenue contribution across Europe with Sativex in particular, how should we be thinking about Sativex in the US? Do you expect this as a more of a potential label expansion or within spasticity due to MS? Is it something that you feel will be fundamentally different in the US as opposed to Europe?

Darren Cline -- U.S. Chief Commercial Officer

Yeah. David, It's Darren. Thanks for the question. I think when we look at nabiximols in the US, the opportunity initially will be in the MS spasticity. And as we've spoken to at JPMorgan, the spasticity in the larger context, there are quite a few other diseases like spinal cord injury.

So those are the initial areas and I think when you look at market research in patients currently with MS spasticity and how they currently self-medicate with cannabis-based products, there's -- the time is right. Both physicians and patients, both would like an FDA-approved therapy to treat their spasticity.

Justin Gover -- Chief Executive Officer

I think David just to add color from kind of ex-US perspective going into the present day, when that product was launched a decade ago, it was a very different world. We were overcoming a lot of sort of societal hurdles. Symptomatic relief was generally not something that's been a focus in Europe for payers.

And I think this is truly a new and very different opportunity from the US market compared with a decade ago in Europe, which was a very different world actually at that point.

David Kideckel -- AltaCorp Capital Inc. -- Analyst

Okay. That's very good and encouraging to hear. Thanks for that color Darren and Justin. My last question just has to go -- just going back to your long-term care segment with Epidiolex in particular, how do we view this, I guess, as far as payer reimbursement here? Is this more of a refractory type epilepsy? And what are the sort of timelines you expect with reimbursement on this patient segment?

Darren Cline -- U.S. Chief Commercial Officer

Hey, David. It's Darren. I think when you look -- I would view the long-term care segment around who the payer is for some of the patients and it's predominately Medicaid and Medicare, where depending on the state for Medicaid, will depend on that, what that Epidiolex policy is, which is currently in place, as well as Medicare plan.

So I think we're well-positioned regardless of the payer throughout the US. For us, the primary objective is identifying patients within these settings and then generating demand. And we think that the payer landscape supports that.

David Kideckel -- AltaCorp Capital Inc. -- Analyst

Okay. Thanks very much and congrats on the quarter.

Operator

Thank you. Our next question is from Serge Belanger with Needham and Company. Please proceed.

Serge Belanger -- Needham and Company -- Analyst

Thanks for taking my questions. Just one for Scott related to the opex guidance. Just wondering [Phonetic] if you can give us additional color maybe on the progression and the split between R&D and SGA [Phonetic]. And I think you also mentioned there was $30 million to $40 million for manufacturing expansion. Where are we in this manufacturing expansion process and is this the last year of -- we'll see this expense on -- as part of opex?

Scott Giacobello -- Chief Financial Officer

So let me take the first question on the split between SG&A and R&D. I would just -- I think the split you would see in the financials would be a good starting point of reasonable split. But I would -- we would expect R&D as a percentage to tick up a little bit compared to that, but I think that would at least be a good starting point.

I think the second question, we continue to make investments in our manufacturing facilities and so I wouldn't say that this is the last year. But it could probably continue into 2021 and then beyond that, hard to say depending on how the business evolves.

Serge Belanger -- Needham and Company -- Analyst

Thanks.

Operator

Thank you. We have reached the end of our question-and-answer session. So I'd like to pass the floor back over to management for any additional concluding comments.

Justin Gover -- Chief Executive Officer

Great. Thank you very much for your time today and we look forward to updating you on the progress with our Q1 results later in the year. So thank you very much for your time and good evening, good afternoon.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Stephen Schultz -- Vice President of Investor Relations

Justin Gover -- Chief Executive Officer

Darren Cline -- U.S. Chief Commercial Officer

Chris Tovey -- Chief Operating Officer

Dr. Volker Knappertz -- Chief Medical Officer

Scott Giacobello -- Chief Financial Officer

Roanna Ruiz -- SVB Leerink LLC -- Analyst

David Lebowitz -- Morgan Stanley & Co. -- Analyst

Tazeen Ahmad -- Bank of America Merrill Lynch -- Analyst

Cory Kasimov -- JPMorgan Chase & Co. -- Analyst

Phil Nadeau -- Cowen and Company -- Analyst

Stifel -- Analyst

Goldman Sachs -- Analyst

Maria Skobeleva -- Cantor Fitzgerald -- Analyst

Esther Rajavelu -- Oppenheimer and Company -- Analyst

Yatin Suneja -- Guggenheim Partners LLC -- Analyst

Douglas Tsao -- H. C. Wainwright & Co., LLC -- Analyst

Danielle Brill -- Piper Sandler Companies -- Analyst

David Kideckel -- AltaCorp Capital Inc. -- Analyst

Serge Belanger -- Needham and Company -- Analyst

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