DexCom, Inc. (DXCM) Earnings Call Transcript & Summary

All right. Sorry if there was a bit of delay there. I'm Robbie Marcus, the med tech analyst at JPMorgan. Very happy to have the next session, which is DexCom. Have Kevin Sayer, the CEO; and Quentin Blackford, the CFO. Just a few quick housekeeping items before we jump into the presentation. You can follow along with slides that you can get from the JPMorgan Healthcare website. Feel free on that website to also submit a question. It goes directly to me and no one else and I can ask it for you, or feel free to chat me on Bloomberg or send me an e-mail and I'm happy to try and ask as many questions during the Q&A session. So with that, Kevin, I'm going to turn it over to you, and I'll join you afterwards for question and answer.

Thank you, Robbie. And as you can see, we have our safe harbor slide. So let's get right into talking about a recap of 2020 on Slide #3, for those of you following along. 2020 was an amazing year for our company. During a year of incredible uncertainty, we had another very strong year of growth in some many ways. Our preliminary revenue for the year are going to come in at $19.25 billion (sic) [ $1.925 billion], up more than 30% for the year. Q4 is expected to meet or exceed $567 million, our biggest quarter ever, up 23% over 2019. Our growth came from all parts of the business. Especially strong dollar growth OUS this quarter and a very strong U.S. quarter as well, particularly on the volume side. Our new patient numbers for October and November were very good. We haven't settled everything out for the last months of the year yet. We also made a lot of progress in the fourth quarter in moving more of our business over to the pharmacy channel, which resulted in some lower revenue per patient on an annual basis, but all moves that we want to make. We didn't just grow on a revenue basis this year. And I think it's important that our operating leverage isn't overlooked. If you just go back to the third quarter, we had gross margins for 9 months of 65% in a time when we doubled our manufacturing capacity and were having lower revenue per patient on an annual basis. That's a huge win. Our operating cash flows have more than doubled from where they were a year ago. Revenue growing 30%, operating cash flows more than doubling, that's some very strong leverage within a business. We haven't done that at the cost of our future. We've made great progress on G7, one of our pivotal studies. We've made an unplanned investment in the hospital market, which gave us a whole bunch of data. And we very, very much continue to invest on the commercial front on our DTC campaigns, and we've rolled out our expansion for 2021. As we move on to slide 4 and the outlook for next year, we're very confident about 2021. And as we've done recently, we are projecting guidance in the 15% to 20% range for 2021 over 2020. That's a revenue number of $2.21 billion to $2.31 billion, and the growth will come from all segments of our business, the U.S. commercial and Medicare and Medicaid segments, OUS, our direct and our distributor channels. We've got a lot of things contemplated in that year we've got a very strong DTC campaign lined up. We're continuing to drive awareness, drive access. We want to create more opportunities for CGM users and expand reimbursement. We expect to see more maturation of the channel over time. Again, meaning more business goes to the pharmacy, and average revenue per patient continues to come down, but We're okay with that. We have some very well-defined objectives that you'll see in the financial results but not necessarily see day-to-day. And again, that's -- the distribution channel is one big one. Another one is getting the type 2 market more well-defined and some big wins on the type 2 nonintensive insulin side. And finally, we got to keep G7 into overdrive. But we'll have more on those efforts later in the presentation. As we go to the next slide, every company has to answer a question at the start. And it's very simple, and the guys are tired of me asking that question here, what problem are we trying to solve? Well, as you can see on this slide, we know what we're trying to solve. Diabetes has become a worldwide economic and health care crisis. In spite of all the new drugs, all the technologies, all the software, all the algorithms, everything we've done, costs continue to rise and patients continue to be plagued with this condition. And this cost number at the far right, that's not total cost, that's just diabetes costs related to these patients. The total cost of these patients are what's higher. One of the big reasons it remains such a big problem, you can see on slide 6, and this slide has been in our presentation for years. People have been treating diabetes without enough information. You take 4 fingersticks a day and you're basically guessing. Person with type 1 diabetes, trying to count cards, calculate boluses, guess the effect of stress, exercise, everything else, pretty tough. The type 2 nonintensive insulin have the same problem. What did that meal do to me? Should I exercise? Should I -- it's more than just eat less, exercise more and take your meds. A few points a day is not enough for somebody to manage their condition. So we know what problem we're solving at DexCom. We're providing patients, caregivers and going forward algorithms, payers and programs and other systems, the information necessary to manage diabetes. If you look at the CGM data of our sample patient on Slide 7, these are the types of events that occurred during the course of a day, dangerous lows, unhealthy highs and average glucose value that will ultimately lead to the dreaded long-term complications of diabetes that can have horrible consequences over the long haul. We know that CGM technology can deliver the information to patients, to minimize those lows, to drive down those highs and also maybe get that average glucose value down to a point where they can live a healthier lifestyle over time. And that's what we do. We're building on a growth strategy over the next several years, and that growth strategy, as we talked about at our Investor Day, is based on 3 basic pillars. We're going to continue to expand in the U.S. market our intensive insulin therapy. We've grown this market significantly over the past several years in the type 1 and now the type 2 space. We believe CGM is well on the way to becoming the standard of care in this patient group. Our second pillar is the nonintensive type 2 patient, and that is a huge opportunity here in the U.S., literally 7x more patients than there are in the intensive insulin space. And if you add to that prediabetes and diabetes prevention, the number of opportunities to serve patients in this market just becomes massive. And then finally, we're really just commencing our worldwide journey. We've made a lot of investments over the past several years in the U.S. primarily. It's really now time to focus more internationally and get ourselves on an even playing field internationally and go after some of these markets. So we're very excited about these pillars. And we're still laying a foundation to do other things, not just these 3. Starting with our first growth pillar on slide 9. The U.S intensive market has been our bread and better, it's where we build our business. In today's health care environment, products and drugs, you're going to have to have proven cost outcomes and proven outcomes that be continued to use and prescribe. Outcomes related to our CGM are very well documented. No competitor, no one in our industry has been able to document the outcomes that we have with real-time, clinically accurate CGM. And these real-life outcomes, even though we try and document them in studies, they are mostly not documentable as we get continual testimonies -- testimonials from our patients of DexCom saving our lives and doing all these things to keep us going. Type 2 patients using insulin are also going to be very important to us going forward. The CMS approval of CGM in 2017 for type 2 insulin-using patients was a catalyst that drove this. We said at our Investor Day, more than 25% of our patients are type 2s now, and expansion of this segment is going to be critical to us. Outcomes are very, very feasible here. I'd like to share a quick story that -- an e-mail I got over the holidays from one of our clinicians, and this clinician says "I'm taking a little time off over the holidays. I've had some time to reflect on some truly momentous changes that have occurred in the world of diabetes over my nearly 30 years in the field. The use of CGM has been a game changer for so many patients and caretakers. I just want to take a moment and share a message I recently received from one of my patients. I'm sure you hear these stories often, but this really captures the meaning of CGM for so many individuals." And then here's what the patient said: "DexCom has been a life changer for me, and I accredit their technology and you for much of what educated me about the changes I needed to make. If DexCom ever needs another testimonial, I'd love to give one for them." She then added this patient has a grade A1C and has dropped 60 pounds based on the CGM data. We have the right product to serve these patients since they deliver the outcomes that we need. We're providing our patients with their glucose house information in this market where they want it, their phone, their programmer, their pub, whatever. If we go to slide 10 and how we're addressing this market, you can see the connected solutions we've talked about for a very long time becoming a major part of our business, and this is happening as we speak. Tandem's t:slim is the most visible connected product in our portfolio right now, and their growth and success has been remarkable ever since their algorithm and the G6 sensor have teamed up for this opportunity, and we're very happy with the results there. A key 2021 milestone for us is going to be the launch of Insulet's Horizon system. We've been working with Insulet for a very long time, and we share many, many patients across the board. This will be a great solution for patients. And if we look to the future, we've invested in connectivity everywhere, connecting to pens other pumps, algorithms, software systems. We will continue to be committed to connectivity. And our patients are going to have fantastic options, hopefully, all powered by DexCom's CGM. Turning to slide 11. We've talked a lot about the importance of moving to the pharmacy and getting into this channel, as it can be a key factor in growing our business. As you see here, nearly 50% -- approximately 50% of our U.S. commercial business is going through that channel now. In all of our market research, with health care providers, with patients, with everybody, one of the things we continually hear is your product is too hard to get. And while this is largely geographical, it still is. I was recently talking with one of my wife's childhood friend who's just a little younger than me but he's got type 2 diabetes and he's on insulin. He heard about DexCom. He went to his primary care doctor and said I want to get a DexCom. And before the doctor -- before he could hear an answer from the doctor, the doctor just said, I won't fill out that paperwork. I've got -- I'll get you something else, but I'm not going to go through that hassle. Over the short term, this decreases average revenue per patient, but over the long term, it provides a better profitability solution for us in this much more efficient business as we start shipping product in pallets to distributors who send it to the pharmacy rather than to individual patients 1 by 1 and dealing with them and their problems. As you can see on our next slide, on Slide 12, patient -- people have been asking us, what are you going to do? Are you going to run out of patients? No, we're not going to run out of patients. We're in a very good position. This opportunity is great. We are doubling the size of our field sales force. Many of the patients available in this patient group are not seeing endocrinologists now. We've got to expand and see more primary care doctors. The doubling of the sales force is almost done will and be completed by the end of the first quarter. Moving on to our next pillar of growth on Slide 13 is type 2 nonintensive, and we're going to attack this from 4 different fronts. Providers, health care professionals are often the gatekeeper. We have to continue to work with them. Arrangements like our united -- I mean our Intermountain Healthcare arrangement have been very productive here. But we also need to educate physicians more and give them better tools and easier tools to deal with this population. We have to get reimbursement with the payers. We need to continue to provide evidence to them. Our type 1 reimbursement has been a very successful journey but it's been a long one. We've been after it for quite some period of time. We need to be able to demonstrate the types of outcomes that will drive these payers to cover it. Next is programs, the Onduo program, WellDoc, Livongo, providing CGM data to these programs so if they can develop a better solution than us software wise, more power to them. We want to empower it. But finally, and this is very important, we believe, our type 1 business and our intensive insulin business, we did all these things in the past, but when it became patient-driven, when patients demanded this technology, everybody followed. We need to create a solution that will get patients to drive this. I frequently told our team when this market goes, it's going to explode. It's not going to be small and it's not going to be slow. This Slide 14 shows one of the reasons I believe this to be true. There's often a perception that type 2 patients don't want the data that a type 1 patient wants. But as you look at our market research, absolutely the same number of patients, the same percentage want to get into CGM and want to use it. We very frequently get asked the question by the financial community, how are we going to model this? We don't have the answers to the models yet, but we know that there is a wonderful financial model to be built over time. I believe personally at the right price with the right solution, patients will use it all the time. I recently had a discussion with a rep in one of our offices. She had run into a patient in a clinic who is involved in an intermittent use study with type 2 nonintensive patients. And she asked this patient, how is it going? And the patient laughed. He goes, "They think they're going to take this away from me in a month, no way. I'm going to keep it and use it forever." We think it will be a great market, and there will be a lot of good business here. There are really 3 things we have to do as you look at Slide 15, in summary, to get into this market. We have to have strong user engagement. There has to be outcomes. Obviously, A1C is one, but over time, other outcomes will be defined, such as medication effectiveness, weight loss, things of that nature. And finally, there's got to be cost reduction. And as you can see on our next slide, we're doing very well with this. We had our own pilot program on the user engagement side. All the patients say it's easy -- much easier to change my behavior and control my diabetes with data from a CGM. As we Look at the outcomes of the level 2 program, A1C reduction, prescription is eliminated, time and range of 76%. And for type 2 patients who go high so frequently in their current lives, this is a remarkable number. And finally, the return on investment at Intermountain Healthcare, $417 a month for the type 2 patient. That's more cost savings than any drug that's ever been introduced into the system. In fact, that's what one of the doctors said at our recent Investor Day, if this were a drug, it had been on the market years ago. We think it's going to be a tremendous product for us. Talk a bit about our digital health programs on Slide 17. We're going to bring type -- our CGM to the type 2 nonintensive community through a number of solutions, including these digital health programs. Digital health programs are going to go through all channels. You've got -- and we're now furthering out our relationship with Teladoc Livongo today. They're going to run a pilot program with WellDoc and programs. Onduo has just published a lot of results recently as well. We're often asked the question, well, why are you partnering with those -- all these people? Why don't you just do all this yourself? We have a great appreciation for what these guys have done. They've developed a lot of consumer support tools that we think will be very, very good in the environment and with all the people involved. What we want to do is be the engine that drives them. And to the extent that we have our own systems and own situations, that is great. But as world shifts away from fingersticks, we don't think we can have the exclusive one-size-fit-all customer experience answer there is. As we move to the next slide, our third growth pillar on Slide 18 focuses on the U.S. business. We've made tremendous progress on the international front over the past several years. Over a 5-year period, we've grown from $76 million and, I think, 3 employees internationally to more than $450 million in 2020, a compounded to growth rate far exceeding 40%. It's a new high watermark for us, international revenues was here in the fourth quarter. We initially approached -- this was strictly for a distributor market. Now we're direct in Germany, the U.K. and Canada. We've made great progress in all these core markets going forward. But a couple of important things about this map. There's a lot that's not green here, and there's a lot of CGM to be sold in these markets. We believe it's taken us a number of years to really get positioned to go after the international opportunity. We have a very strong balance sheet now. I couldn't have said that 3 years ago. Our operational scale from a manufacturing perspective and manufacturing capacity to systems, to customer support and everything had to be stronger and bigger before we go after some of these things. It's there. And finally, the product pipeline we have under development with our G6 platform and soon-to-come G7 is the right product to go after these markets at the right time. One key event for next year to look forward to, we will launch G6 in Japan with our partner, Terumo, and we're very excited for that. And we have several areas of focus to extend our growth in the international opportunity. As we look at slide 19, you can see what we're focused on. Every time we have a big international increase in the geography, access simplifies. As we get reimbursement, as we get coverage and is paid for in the system, our growth explodes. We've seen that in Germany, we've seen that literally in Scandinavia, we see that happening in the U.K. as reimbursements increases there, all over the world. We've developed an e-commerce platform that's helped us where reimbursement isn't quite as simple as it should be, where patients can go out and procure their product easily and get reimbursement later. We're driving awareness more in these markets. We've rolled out our DTC campaigns in Germany and the U.K. We're now rolling out our sample program in these countries, very successful results so far. We also look at geographies where we could possibly go direct. For example, at the end of the year, we closed the acquisition of our Benelux distributor. We'll be directing those markets now, adding to Germany and U.K. and Europe and then Canada here in North America. And then ultimately, we have to continue to build the evidence that persuades reimbursement authorities in these geographies to go ahead and use and prescribe DexCom. As you can see on Slide 20, outside our core markets where we are today, we've got a long way to go. There are 13 -- more than 13 million patients using mealtime insulin in the other markets where we're not there yet. We'll explore the same opportunities we have in the past with distribution, but we'll also look at some partnerships that may, in fact, put us in a better place. We're taking some other steps to go to these geographies. For example, we announced earlier this year the establishment of the second service center in Lithuania to match what we're doing in the Philippines. And we're expanding and investing more in the Philippines, so we have more capability to handle these patients. We've started a very large manufacturing project in Malaysia to build another factory, not only giving us more capacity but making logistics in these other markets much easier to deal with and putting us in a better place. If we go to Slide 21, we're talking about G7. When I came to this conference in 2018, part of my remarks were -- we were so excited about G6 that we said this is the right product. This is the product that patients need, this is what will drive us. With no calibrations and easier insertion, easier to use, we were convinced. Boy, were we right? As you look at the revenues we've generated from G6 in 2.5 years, it's 1.5x the revenue we generated in the previous 10. That product really spurred the growth in our business. I believe that G7 has a similar effect, at least on the patient experience side, it's that much better. Everything we love about G6 gets better with G7, the size, the insertion, the user interface, the app, the connectivity, everything we do well with G6, we believe we're going to do better with G7. We know that switch over to G7 is going to be rapid. It's going to be quick. People are not going to hold on to their transmitters in G6, they're going to want G7 almost immediately. And we're scaling up with automated manufacturing lines being stood up as we speak and producing product right now. Consistent with our previous statements, I'm not going to give you a bunch of launch dates, a bunch of timing. There's still a lot of variables. We're in the clinic in pivotal studies. We've got some data back. We feel very good about that. We'll give you more data when it's appropriate. But it's a very exciting time for G7. This will be a very exciting thing for us to do in 2021, and we're looking forward to that launch in multiple geographies. If you look at Slide 2022, we have significant upside in other places, too. We've talked about pregnancy forever. There are some approvals in other geographies outside the U.S. for pregnancy now and studies all over the world. Prediabetes, you see these apps everywhere for health and wellness, that's been very strong. In the hospital, where we've made significant investment this year and gained that market when given the opportunity by the FDA, couldn't have gone better from a learning perspective. We know the product works. We know that it will deliver good outcomes, but we have to invest in the time and effort to make exactly the right configuration to go to. I think the best way to describe our hospital experience is with a quote from a paper published by our neighbors here at Scripps Whittier Diabetes institute published in Diabetes Care where the author concluded: "Continuous streaming glucose readings may be the fifth vital sign." We look forward to the day when CGM becomes the primary tool in all glucose management across the board. Finally, again, what problem do we solve? This is ours. We have enhanced the lives of so many people with this technology. And we look at the world and we look at the conditions out there, and we see nothing but a great opportunity to enrich people's lives by providing a technology that can make them healthier and let them live better, stronger lives. Thank you. Now I'll turn it over to Robbie for Q&A.

All right. Well, great. Thanks, Kevin, and I think -- there we go. We've got Quentin joining as well. I think everybody is -- as much as there is to talk about the future, the opportunity, the total addressable market expansion, I think everybody today is much more interested in your fourth quarter results and your 2020 guidance, so maybe we could start there. You put up in the $15 million to $20 million range beat. It doesn't look like you have the full numbers locked and set in stone yet, but it looks to be -- during the pandemic, honestly, a good quarter here. Growth of at least 23% with international sales of 33%, in the U.S., up 20%. Quentin, you and I were talking about this a bit offline before, but I think it'd be great if you could just start off giving us some color on the U.S. experience in the quarter and some of the puts and takes that ended up driving these results.

Sure. Thanks, Robbie. Look, I think overall, we were very pleased with the result in the fourth quarter, particularly given some of the conditions that we're operating within, no question. You look at the overall quarter from a consolidated worldwide basis, we were up $105 million year-over-year, very consistent with what we've seen in the prior quarter as well. It's just the growth rate gets impacted by the law of larger numbers. So I think overall, the momentum continues to be there. If you look at the U.S. business, the one thing that did transact over the course of the quarter a bit differently than what we might have expected is the continued shift into the pharmacy. It just continues to happen at a very quick pace, and it was much more quick in the fourth quarter than what we had originally anticipated, which means several of those new patients came in at a lower revenue per patient price point than what we had originally expected as well as we saw some of the existing patients moving into the pharmacy channel as well. All the right things for us long term. That's where we want them to be. We know that profitability in the pharmacy channel on a per-patient basis is better than what it is in the DME channel, but you saw that play out a bit in the fourth quarter. So the revenue headwinds that we've talked around the channel mix as we move from DME to pharmacy was a bit heavier in that fourth quarter than what we anticipated. Unit volume was actually well ahead of what we anticipated. So very happy with what we're seeing there. And I'll just hit on the international business for a second as well. You saw that growth accelerate back up into the mid-30s. A lot of things that we put in place over the course of the year, while they were muted a bit in the mid- part of the year with COVID kind of ramping the way that it was, we saw them start to have some benefit in the fourth quarter. DTC efforts, for example, in many of our markets, the ability to sample in many of those markets, the continued rollout of e-commerce and seeing the benefits of that all fueled the growth there. So overall, very happy with what we saw in the fourth quarter and certainly ahead of the expectations we had for the business.

So Quentin, in the third quarter call, you actually gave us a number on volume approaching 40%, if I remember off the top of my head. What was it in fourth quarter here, if you could tell us?

Yes. It was approaching roughly the same thing, the same figure. A bit light of 40%, but certainly in the upper 30s, for sure. We continue to work through all the price/mix analysis, but we know that it was in the high 30s, for sure.

Wow. So if we take a step back and we look to 2021, at the Analyst Day in early December, you said you were approaching 50% in the pharmacy. It probably sounds like maybe you're on the other side of that metric now given your comments. But if your target is 75% in the pharmacy based on where you think contracting can go, if this was next year, we probably would be exiting 2021 with closer to a 30% revenue rate, right, all things considered in this quarter given that you'll probably be done with most of the conversion to pharmacy at that point?

Well, look, in our guidance, I think you should expect there's roughly 10 points of those channel mix headwinds that continue to play in there. So we guided 15% to 20%. If you put 10 points back in there for the channel mix headwinds, your volume growth is in that mid- 20s to close to 30%, what you're alluding to, that's right.

Got it. So maybe I'll take it a year out further. You shouldn't have much more in 2022. Is that the year we should see volume more closely aligned with sales growth?

Yes, Robbie, it's hard to predict exactly when you get through all of it. Look, we've put 75% out there. We think that's ultimately where it gets to. We know there are some payers who just will not go to the pharmacy channel. They're going to continue to see it as DME. We're going to continue to push hard to move as many folks, as many payers to pharmacy as we possibly can. Again, the financial model is much better in that scenario. The profit dollars per patient are much better. The ease of getting patients on to the product is a whole lot easier, both for the patient and the prescriber. So we're going to continue to push that. But to tell you exactly what it looks like in '22, I can't do that for you. I think that we've said there's a couple of years of channel mix headwinds here as we continue to navigate through it. I think that continues to be the right way to think about it. Once you get through that, I do think the unit volume growth is going to be much more reflective of the overall growth in the business.

Great. A couple of questions here from the audience. The price headwind, or I guess, we're calling it the channel mix shift, I think, is a much more appropriate...

That's much more accurate, Robbie.

What?

That's much more accurate.

Yes. Because it's not price. It's not like-for-like price it sounds like, it's mix. What was that number if you look back on 2020 here?

Well, we had guided, if you recall, in the Q3 call, roughly $175 million. It's going to -- I think it's going to be $10 million or so higher than that. We continue to do the work, but we know that we're heavier there. So I can't give you a final figure just yet. We'll be prepared to talk about that on the Q4 call, but at least $10 million of headwinds there.

Great. And the international number, getting some questions on that. It was a good step-up from what we'd seen recently. Any comments around the strength there?

Go ahead. Q.B.

Okay. Yes, jump in where you want. Look, I think you saw strength continuing to build across really the entire portfolio of that international business. Certainly, those markets where we have the e-commerce opportunities continue to perform very well. And frankly, they've performed well over the course of the year. But in some of these other markets where we don't have that built out yet, we spoke about the difficulty of the inpatient clinic visits having some impact in the mid- part of the year. We've navigated through parts of that. We've ramped up DTC. We've ramped up sampling in some of those markets. We saw the momentum continue to build in those spaces. Think of that as a Germany, for example, here over the course of the fourth quarter. So I would tell you, it was really very broad based. It wasn't any 1 particular market that drove it relative to another like maybe we saw in some prior quarters. We actually saw all regions really performing well here.

Got it. And last fourth quarter question here. Quentin, can you talk about what you -- or Kevin, if you want to take it, what did new patient growth look like? That's obviously -- sales is great, but new patient growth is the metric of the future growth. So how should we think about new patient growth in the fourth quarter here?

One of the things about the pharmacy channel, it takes us a while to gather all the new patient numbers. We're not done with December yet. October and November were very strong. We have every reason to believe December will look good as well. Don't have that closed out yet, but we're comfortable with the numbers as we saw them in the first 2 months of the quarter.

Got it. Before we jump to guidance, Kevin, there was one question I wanted to pose to you. I think it was asked at the Analyst day, and to me, it's one of the key fundamental ideas of DexCom that investors really need to pay attention to and buy into for the longer term, and that's really where is all the R&D dollars going that you spend? We see it on G7, but you guys dropped little hints and bits here and there. I think Quentin last year at some point mentioned something about sepsis detection at a conference somewhere. What are all -- how do we think about where all the R&D dollars are going? And I'd love to get your thoughts on data because DexCom has so much data that a lot of your competitors don't have, particularly Abbott, with all the sensor data going through Bluetooth that you've collected over the years. So what's really out there that investors don't know about yet?

Well, that is a great question, Robbie. Obviously, you heard Quentin mentioned sepsis. We are working on other analyte measurement, that's going to be a ways out there. Certainly, there will be sensors that come after G7. And -- but we're attacking things from really a much different perspective. For example, are there material changes we can make in the material science area that put us in a different position rather than being dependent upon the materials we use today that will take costs out of this. We have different electronics configurations coming, literally a couple of them in the works. We certainly look at form factor. We made a statement at this conference a few years ago. We look at 4 things on the R&D side whenever we do anything, and we have to answer these questions and be good at least a couple of them before we start a project. It's got to reduce costs. It has got to provide good outcomes and good -- outcomes are actually the fourth one. It's got to perform well. And really, I think the one in the middle now that's most important for us is the experience. We have to engage more people. I think you'll see our R&D dollars shift over the years as we get closer on sensor performance. I can't say sensor perfection, I wish I could, but the sensor performance. Then you'll see us shift dollars to the -- more to the software side. But are we kind of making it smaller? Sure. Are we working on other ways and other things to do? Absolutely. We are working on literally -- it's amazing to go over there and talk to these guys. And Robbie, the most fascinating thing I'd share and then I'll leave it alone, I've been looking at glucose sensors since the mid-90s. I learned more about measuring glucose in 2020 than all the other years put together. And while I'm not a scientist, I'm telling you, we are learning things we never knew before that will make this product and make us just much better over time. I couldn't be happier and prouder of the team than I am today.

Great, great. And I look forward to hearing all of those exciting new products coming from DexCom over time. Maybe just to redirect back to the 2020 (sic) [ 2021 ] guidance here. And I'm sure you'll give us a lot more on the earnings call, but I just want to make sure you have the opportunity to lay out for investors. And some Street models do this well, some maybe don't do the best job, but it's a pretty simple issue of lower new patient growth in 2020 leads to a little less new sales growth in 2021. So you've had some pretty great growth numbers given the pandemic, but maybe, Kevin or Quentin, you can just walk us through how that rolls through the model? And anything you want people to be aware of as they set expectations here?

Quentin, I'll start big picture, and you can get maybe into some more detail?

Sure.

There's a couple of things, Robbie, we have to put into this. Obviously, we have a new patient number coming in, how many we're going to add to the funnel. You offset that with how many you think you lose or how many are going to stay. We've had great retention, patient retention during 2020. I'd say the best we've ever had by a long ways. But if that variable tweaks, certainly if it tweaks up, there's upside. So we factor both of those things in on a worldwide basis as we take a look at that. We take a look at the number of addressable markets and addressable patients coming with those new patient numbers. So it's very much calculated. We very much monitor it regularly. And that's the start of how we go. The rest of it, the other piece that is really interesting is the channel shift. We need to accelerate the channel shift to be where we need to be long term. The flip side of that is that leads to lower revenue. So we plan the channel shift as best we can in our guidance. We may overestimate the shift, we may underestimate the shift. As Quentin said earlier, we had more shift in the fourth quarter than we've had in others, than we possibly planned on and we're thrilled with that. But that's a variable in this. And again, our volume growth much more exceeds the dollar growth. Quentin, I'll let you take some more of that.

Yes. No, I think you hit the nail on the head pretty well. I think as we go into '21, our expectation is that new patient growth is going to be similar to what we saw in '20. We do know that we're going to continue to move the existing patient base out of the DME channel into pharmacy. That's an important part of the long-term strategic pathway for us to continue to grow and scale this business. And again, I'll reiterate, the profit dollars in that model are much more attractive to us than what they are in the DME model. And then I think you look at the incremental investment in the sales force that we've put together as we head into '21, the majority of those folks are going to be targeted in the primary care physician office. Those primary care physicians are going to write scripts in the pharmacy channel. That's what most new patients are going to come to us through versus the past where it was still coming through DME. So the revenue per patient that comes in from a new patient in '21, I expect, is going to be less on an annual basis than what we've seen historically. So we're trying to contemplate all of that in the guide. Look, we're incredibly excited about '21. I'll tell you, we just started the launch -- the sampling opportunity in the U.S. in the very back part of '20. We'll see how that plays out over the course of '21. We're excited about it, but we want to see those results play in before we really get ahead of ourselves there. We're going to continue to turn up efforts on DTC. I think the important thing is the company has never been positioned in a better way to really aggressively pursue growth like we can in '21 from an inventory perspective, from a unit build capacity perspective in our plants, it's never been higher, continues to grow; and from a financial resource perspective, we're as solid as we've ever been. So I think we're all very excited and bullish on '21. We're not trying to signal anything, but we also aren't going to get ahead of ourselves here.

Understood. Well, unfortunately, I could go on for a lot longer, but we're out of time here. Kevin and Quentin, thank you so much for joining. Appreciate it. And I'm really excited for what's on tap here at DexCom for 2021. Appreciate it.

Thanks, Robbie.

Take care.

All right. Thanks everyone.

Bye-bye.