Invitae Corporation (NYSE:NVTA) 41st Annual JPMorgan Healthcare Conference January 11, 2023 12:00 PM ET
Company Participants
Kenneth Knight – Chief Executive Officer
Dr. Bob Nussbaum – Chief Medical Officer
Roxi Wen – Chief Financial Officer
Dr. Valerie Montgomery Rice – President and CEO, Morehouse School of Medicine
Conference Call Participants
Julia Qin – JPMorgan Chase
Julia Qin
All right. Good morning, everyone. Welcome to day three of the JPMorgan Healthcare Conference. I’m Julia Qin, lead analyst covering life science tools and diagnostics at JPMorgan, and it’s my great pleasure to introduce you to our next company presentation by Invitae.
So Ken, the stage is yours.
Kenneth Knight
Thank you, Julia, and I appreciate the opportunity to join everyone today, and thanks to you and your team, by the way. I think you’re putting together another great conference.
Good morning, everyone, and thank you for joining us. With me today is Dr. Bob Nussbaum, our Chief Medical Officer; and Roxi Wen, our Chief Financial Officer. They’re excited to be here, as you can tell by looking at them.
Looking back to 2022, it was a year of significant changes in foundational progress at Invitae. And I appreciate the opportunity to update the investment community on our story as we begin a new year.
Before I start, though, please note that we will be making forward-looking statements about our business. And as such, please refer to the safe harbor statement here for more details. As a reminder, our mission is to bring comprehensive genomic genetic testing information into mainstream medicine to improve health care for billions of people. That mission is bold and has long been our purpose. It’s our why, and we remain very much committed to it.
Now looking at the industry today, I think it’s hard to overstate just how impactful genetic information has been in multiple clinical areas with oncology and rare disease as prime examples of benefactors. Our work is already led to improve health care and improve outcomes for millions of patients, which is why the Invitae team and our partners are working tirelessly to deliver that information every day.
What we’ve been building for more than a decade is nothing short of the future of health care, a future that focuses on prevention, better outcomes and the potential for disease eradication. Now all of these are fueled by knowing more about the patient at the individual and genomic level than we knew before. And tomorrow’s discoveries will require, knowing even more. Invitae is poised and determined to architect that future.
So yes, we’re still early on this journey, but I’m so proud of our team for what we’ve accomplished in leading this shift because it takes courage to grab the tip of that spear. I’m also excited about where we are headed. For years, we’ve talked about the idea of genomics-based solutions delivering the fundamental knowledge of the human genome into healthcare throughout life from inception to new birth through the golden years of old age.
We still have our eyes on the value of genetic information at each step of human development. And today, we provide that information at many points, including our products and services and support of hereditary cancer, rare disease and pediatrics, pharmacogenomics and women’s health before and food pregnancy. And we’re super excited about our recent entrant into personalized cancer monitoring and surveillance.
Each engagement generates data and insights at different stages of life and by way of different patient needs. Aggregating these data and insights into solutions for providers, patients, policymakers and other partners is where the next phase of transformation will occur. Our plan to lead and guide this transformation has not changed as we have realigned our company. What has changed is how we will converge our focus and strategy to deliver sustainable growth as we go about reaching our goals.
Invitae has been a pioneer and leader in genetic testing at scale, and we aim to maintain that leadership position going forward. Now looking at our track record, what has been built over the last 10 years is really impressive. Invitae has become a trusted and reliable provider in genetic testing. We’ve served over 3 million patients. And over 2 million of those patients have entrusted us to responsibly share their information, enabling additional research.
The depth of our genetic data, along with the longitudinal focus of our patient network are leading to insights, which could provide further benefit to the lives of those patients, their families and the healthcare ecosystem. So yes, volume growth for Invitae has been impressive and has come organically as well as through acquisition. The mechanism to guide and inform our approach to growth has historically been highlighted by our growth flywheel.
But you know a flywheel is a dynamic system with reinforcing nodes or levers, like the number of patients served and the impact of insights and solutions, which drive momentum and acceleration. And just as importantly, flywheels need balancing nodes, like adoption and customer experience, to provide feedback and protect against unintended side effects.
Now our prior version of the flywheel was built to drive volume growth. And this, our updated version is built to drive profitable growth. So Invitae is evolving from a company with an almost singular focus on volume growth to an organization driven to continue to use science and technology to deliver clinical genetics alongside a unique customer experience that leverages a more connected portfolio of products.
The experience for patients, customers and partners are key to accelerating the momentum needed to transform the adoption and utility of our integrated solutions — excuse just a second, and we are driven to scale our growth in a profitable manner with operational excellence and cash generation to fuel our future.
So let’s dive into a key few elements of the renewed flywheel. We see customer experience as an integral and long-term growth strategy as an underutilized catalyst to move genetics in the mainstream medicine. Great service, ease of use, such as efficient ordering, comprehensive choices and reliable turnaround time are important for physicians. This is particularly true in encouraging adoption for the non-genetic expert, who like all of us, are time constrained and likely to benefit from others’ learning and expertise.
We need to help them keep up with the rapidly expanding best practices and treatment options. Expanding adoption is not a hope. It is actionable. And there are new levers for us to discover that will move the needle such building a more connected customer experience will be a focus of investment for us.
Now make no mistake, the upper node of the flywheel creates positive and reinforcing momentum, resulting in high growth in the number of tests performed. As our network continues to scale, we will lower our operating costs and increase our margins while continuing our pursuit of low prices to drive accessibility and affordability of genetic information; high volumes, good margins, low prices is a winning combination, when executed well.
However, our ability to sustainably lower our prices will also be balanced by our success in improving reimbursements and cash collection. This balancing node simply demands that we are unapologetic and our expectation to be fairly compensated for the tremendous value we deliver. To achieve this, our team is focusing on generating scientific evidence and proactively engaging with stakeholders to prompt better payment and additional coverage.
The final component of the flywheel that I want to highlight is our insights and solutions in parallel with our internal R&D spending to bring new tools and products to market. We know that our unique and deep combination of genotypic and phenotypic insights also makes our partners more nimble and precise as they bring their own insights and solutions forward.
I think of it like this, we can solve more puzzles together than any of us can do alone. More solutions feed improve customer experiences, which in turn, feed more answers per patient, which feed greater adoption, which brings on more partners and the flywheel spends on.
So if there are three things I would want you to take away from today, they would be the following: First, Invitae is moving from a broad, somewhat disconnected, portfolio of individual test to an integrated and connected portfolio of solutions. In that regard, patient service valuable and rich data, sales and marketing synergies are how we are building our competitive advantage.
Secondly, our business model is evolving to unlock profitable growth. With customer experience adoption, partnership value and clinical insights and solutions as growth levers, balanced against reimbursement cash flow and affordability. What’s great is our team is up to the challenge and early results are demonstrating that we are all in and making great progress.
Finally, we have an incredibly talented group of engineers and scientists at Invitae, who, when focused, have shown they can do big things. Moving forward, our innovation efforts will focus on offering integrated solutions for our customers in addition to going after big bed opportunities with the potential for long-term growth and healthy margin profile for the Company. So strategically, this probably makes sense.
But a question might be, how are you executing against your road map? Well, we rolled out our realignment plan in July 2022, and we continue to be on track for the cash burn reduction and gross margin objectives we laid out. Our portfolio is stabilizing. And we’re moving on from the business lines that we had planned to exit. Profitable growth is the foundation on which we built our plans for 2023 and beyond.
Next, we’re doubling down on our oncology franchise, combining our industry-leading genetic hereditary cancer testing with our recently launched personalized cancer monitoring product. We’re expanding call points and will enable broader adoption. And by the way, we also like the growth opportunities of our data and patient network for long-term value generation.
And then lastly, when we enter our acceleration phase, we will have implemented the differentiated technology and service elements needed to fully enable our major growth opportunities. We will be valued for our ability to help put the puzzle pieces together for the patient journey, and we also expect to be generating positive cash flow.
Now here you can see our current and upcoming core products within each of our business areas, which showcase the versatility of our pipeline to fuel long-term growth, along with the importance we’re placing on our customer workflow and tools. So let’s drill down into a couple of product areas.
One of the prime examples of a connected portfolio will be found within our oncology franchise. We will have one of the most comprehensive offerings for a physician who is considering options for an individual at risk or diagnosed with cancer. Our portfolio will uniquely deliver the ability to determine individual’s comprehensive genomic risk of cancer and serve as a prognosis.
It will inform options for personalized therapy selection based on both germline and somatic profiles and will detect therapy responses and recurrence well before the current modes of imaging through our proprietary patient-specific MRD assay, and we all know that early detection saves lives.
Additionally, we plan to overlay our pharmacogenomics offering to inform clinicians and patients of potentially dangerous drug-drug and drug-gene interactions, which can send many cancer patients to the ER unnecessarily. An example of this is the use of 5-FU, which is an often used therapy for colorectal cancer. Patients with certain variants in the DPYD gene can carry a 25x greater risk for 5-FU related mortality when these variants are present.
To drive this connectivity, we are introducing additional digital tools to help walk both clinicians and patients through the journey of diagnosis and treatment of the disease. And at every step, we are able to collect the most enriched data, fueling our data and patient network value proposition with multiple partners, including academic medical centers.
Now as shown on our flywheel, the effort at improving accessibility to genetics is a reinforcing mechanism in support of our goal to serve more patients. While many talk a lot about the healthcare disparities among underrepresented groups, we are taking intentional action through various programs.
And one of those programs is a unique partnership with the Morehouse School of Medicine, where Dr. Valerie Montgomery Rice is the President and CEO; and Dr. Montgomery Rice has been kind enough to join us today. She’s in the audience, thank you, Valerie.
The initial phase of this partnership will provide Invitae hereditary cancer testing to both patients with cancer and to healthy individuals. Participants will also be enlisted in the Invitae data platform for real-world monitoring of outcomes. And over time, the program is also expected to expand and utilize the full power of our portfolio. And we look forward to providing more details in the near future.
This is a meaningful step toward delivering precision medicine to historically underrepresented communities and populations. And I would also point out that this work may also bring much-needed patient diversity into the drug discovery and development ecosystem. As we move on to women’s health since early 2022, we made dramatic improvement in transforming this business from negative gross margins into a solidly contributing area.
We’ve worked to improve performance at the account level and have enacted better reimbursement practices. In the U.S., things like average risk coverage of our non-invasive prenatal screening test by major payers Things like better product positioning for different customers and improvement in COGS have all helped us to achieve better gross margins, and we’re just getting started. We expect those margins will improve even further going forward.
And last but not least, in light of recent market consolidation, we have won new business. And I’m confident that we have a good shot at winning additional healthy volume. And I say healthy because that’s the approach for this business for us. In our data segment, our success goes beyond just the number of tests performed.
We find that our unique capability to both provide genetic testing and third-party patient data produces a uniquely rich data set that is highly attractive to biopharma as well as patient adversely groups. This combination produces a more complete picture of the patients, to aid our partners in researching fundamental drivers of disease and its progression. We are, after all, puzzle solvers.
And it’s important to note that this data set is differentiated from others as our patient population often includes patients with disease, the main focus for our biopharma partners. It’s also notable that our data set is linkable to sources such as claims and prescription data, demonstrating a long-standing tenant of ours that data is more valuable when it’s shared. And more importantly, our real world data is patient-owned and controlled. It’s a critical nuance that we think is important for people to understand that the patients are willing to share their data.
Now this data business is just starting to ramp. And as we continue to bring in partners, we’ll be able to maximize the number of solutions that impact the highest numbers of patients in turn, attracting more partners powering our flywheel. And here’s a few examples of some recent partnerships that we’ve announced with biopharma companies and patient advice groups that come in to us because of the richness of our data, especially in rare disease. And they’re leveraging our data and capabilities to identify and recruit patients, enable IND filings, structure clinical trials and eventually bring new therapies to market faster. Patients win, our partners win and we win.
Taking a quick look at our financial performance. Despite second half of 2022 carrying some expected volume downside from the realignment activities like the exit of business lines and territories. Our company executed well in Q4. For full year 2022, we generated approximately $516 million of revenue, representing about 12% growth year-over-year. Importantly, we have decreased our quarterly cash burn to less than $80 million in Q4. This is a continuous trend that began more than a year ago.
So overall, we continue to make great progress. According to our plan, and I’m really grateful for the hard work inside of Invitae that has driven this result. So finally, in closing, I’m optimistic about Invitae’s future and feel good that we have a solid plan in place for our genomic testing model to translate into a profitable and growing company.
Currently, we’re setting up our business to evolve from one patient, one test which is the norm that the foundation of the industry has. And with integration connectivity and refined go-to-market strategies, we are shifting to a scenario where each patient test provides many opportunities to deliver solutions for them, for their families and for others in the ecosystem.
And then moving beyond that, the ability to leverage the data from our integrated network will allow for collective insights for many patients to provide multiple solutions for multiple use cases and customer types from one patient, one test to many patients, multiple solutions.
As a network effect gains traction, we will see leverage from each test and can generate a multiplying value proposition. And we are uniquely positioned to do this, not simply because we think it makes sense, but because patients will demand it.
So we’re just getting after it. So again, our same mission, new path, this is the recipe for the next chapter for Invitae. And I want to thank you for your attention today and look forward to some questions and answer.
Thank you.
Question-and-Answer Session
Q – Julia Qin
Thank you, Ken, for the great overview. There are a number of interesting topics to discuss, but maybe starting with some near-term dynamics congrats on the solid preannouncement of 4Q results. Perhaps you can talk about are there any noteworthy trends or developments to call out? What are the drivers of strength and what surprised the upside or downside?
Kenneth Knight
Yes. I mean I’d say that the business has been covering really well. We made some decisions that were necessary to be made in July of last year. And as we’ve exited territories and exited countries, again, we were selling our products in over 120 countries. Now that number is less than a dozen. We stabilized our portfolio. We really feel good about our plan and it’s executing to our expectations.
As we’ve also seen that our customers have continued to support Invitae. It’s something special about having a brand that is based upon the patient at its core and a belief that we are determined to do the things that are best for patients, and we’ve had a really strong response from our customer base who are pulling for us to continue to provide the services and products that we have in the past. So I’d say we feel good about where we are.
Julia Qin
Great. Now for the hereditary oncology part of your portfolio, Invitae has been a very active for us in kind of trying to push for a guideline expansion for germline testing more oncology patients. How meaningful do you think this trend will be for Invitae over the near to medium term? How quickly will payers and physicians follow suit, if we have those guidelines in place? And how to think about the degree of penetration you think you can achieve in these oncology patients?
Kenneth Knight
Yes, that’s a great question. I mean I think there’s a couple of trends that we’re seeing is that, if you look back over the last decade, the time from guideline expansion to adoption to reimbursement, it’s been years and maybe five years in some cases. What we’re seeing is that, that timeline is compressing as guidelines are coming into play. The path from guideline to adoption to reimbursement is shrinking.
So that’s, I think, a good news. That’s a tailwind for our business. But the other part of our growth story is not just hoping for more guideline expansion is also to grow the pie. If you think about our hereditary cancer business, we are a leader in that space, but we also know Dr. Bob often reminds me that less than half the patients who are diagnosed with cancer actually received hereditary cancer screen.
And so expanding the pie is part of our strategy for 2023, and that means expanding call points and reaching into community health settings more than we have in the past. And we think interlocking our customer experience is going to be an accelerator, a catalyst for our ability to expand access to genetic testing outside of the traditional paths that they’re in today. This is still a nascent industry, and the ability for us to expand adoption of tests that are already properly reimbursed is also part of our strategy.
Julia Qin
Great.
Kenneth Knight
Yes, please, Bob.
Dr. Bob Nussbaum
If I just add one another comment. For example, the work we’ve done with the Mayo Clinic and with a number of other collaborators, showing that essentially patients who don’t meet guidelines have almost the same level of hereditary cancer pathogenic variants as to families and patients do. The family history is insensitive and that it is time actually to get rid of what are essentially old legacy guidelines.
The paper that we just recently published in the Journal of Clinical Oncology Precision Oncology was one of the most highly mentioned papers of 2022. In that paper, we demonstrated that restricting germline testing owned to those patients, who meet legacy guidelines, deprives large numbers of patients from information that they and their families need.
Julia Qin
Excellent. Just sticking on that topic, how many of your existing germline testing volume is for these kind of oncology patients already that are not reimbursed? And then how should we think about the ASP potential if and when those guidelines are in place.
Kenneth Knight
I’m not sure I have that number right at my fingertips. What we find is that most of the patients that we test in our hereditary cancer franchise are patients diagnosed with cancer. And the quality of reimbursement in that franchise is really strong. And there are still tumor areas that can get better. I mean — and NCC and guidelines are expanding, and they’re going to help us with that. But the reimbursement rate in our hereditary cancer business is very small.
Julia Qin
Great. I’ll switch into the somatic part of oncology, which is a much more exciting growth driver for you going forward. Can you give us a sense of how much of your somatic franchises, therapy selection versus MRD and in terms of where future growth will come from, like which part of the portfolio plays a bigger role.
Kenneth Knight
Yes. So our initial entrant into the somatic offering is, in fact, our MRD product, PCM. And so right now, we’re getting great uptake from a fee-for-service standpoint. So we’re working with biopharma partners, and we have a pipeline that is driving revenue for our PCM product. And as we look at our big bet that we’re making in MRD, we’re putting human and financial capital behind, continuing to get clinical validation of our product, getting acceptance and adoption and then driving revenue recognition through reimbursement. And so for us, the — our entrance into somatic is focused on our MRD product. Therapy guidance will come at a later date.
Julia Qin
Can you give us a sense of for MRD, how is the test currently doing volume-wise? And how much traction are you getting from pharma versus clinical?
Kenneth Knight
Yes. I mean, so we’re pleased with the uptake and the support we’re getting from our biopharma partners. I’m not going to share the revenue numbers. We don’t break out our oncology franchise that way. We, kind of, summarize it in totality, but we’re pleased with the uptake that we’re getting. And the work to getting the kind of commercial revenue for the product, as I said before, clinical data validation, adoption and reimbursement, is an ongoing process, and we are all in to make that happen.
We have resources that are committed to doing that. We have a market access team that is working on it day and night. And so more to come as to when we will share what the revenue implications are. We’ve not built a 2023 plan that is dependent upon a high amount of revenue from a commercial standpoint for our MRD product. So, we recognize this is a little bit of a journey, but we like what we hear right now.
Julia Qin
Got it. I think we can all appreciate that especially with guideline endorsement coming MRD is a vast market, whether there’s any opportunities and especially for Invitae, a long runway ahead. But at the same time, we’re all seeing the competitive landscape evolving. So, I guess an interesting question is, how do you see PCM positioned competitively in this market? What really differentiates this product versus other movers who have a first mover advantage ahead of you guys?
Kenneth Knight
Yes. I’ll let Dr. Bob add some color to that, too. I mean, first of all, our product is patient specific and it’s tumor-specific is tumor informed and patient informed. And when we — our analytical studies have shown that the performance of our product is in line with is as good, if not better than anybody else’s. And so we’re looking forward to getting clinical validation to confirm that, but I think the patient and tumor-specific aspects of what we’re doing with MRD is a differentiator. Now time will tell if the market believes that as well and — but we believe it, and so that’s the bet we’re making that patient and tumor-specific provides more precision in the treatment of that patient and better outcomes. And so, Dr. Bob?
Dr. Bob Nussbaum
I would just add that we’re very confident that we have an extremely sensitive test and also that it is a highly specific test. And so, the false positive rates will not be problem in these patients and that false negatives will be minimized. As we all know, not all cancer shed ctDNA to the same level. But if it’s there, we feel comfortable that we will see it.
Julia Qin
Great. So is it fair to say that before you have more clinical validation data readout the PCM franchise is more driven by biopharma activities? And then how should we think about the timeline of going those trials and reimbursement in place?
Kenneth Knight
Yes. I think what we would say is that the timelines are somewhat difficult to predict, but the effort is predictable. And so, we’re working extremely hard to get clarity in those timelines. As I said, we built a business plan for ’23 that anticipates there’s going to be some work to do on getting commercial revenue from the product, but we also have seen extremely positive response from the biopharma community, and we’ve got solid revenue coming in from that path.
Julia Qin
Great. Looking forward to stay in tune.
Kenneth Knight
There’s a question out there.
Julia Qin
Oh, yes, please.
Unidentified Analyst
Thank you. I was trying to get your attention, but you saw me. Earlier, you had mentioned engaging community providers, so I was wondering, if you could talk a little bit about challenges with penetrating that market?
Kenneth Knight
Can you say a little bit louder, please?
Unidentified Analyst
Sure. I was wondering if you could talk a little bit about challenges with penetrating that market. So thinking about have you seen any pushback with respect to disruption to physician workflow, things like that? And how do you think about overcoming those challenges?
Kenneth Knight
Yes. I mean, I think first of all, in many cases, the community setting is especially for hereditary cancer, let’s say, there’s not enough genetic counsels to go around. And so in many cases, the connection point is a different connection point. And we believe to enhancing our customer experiences and our ordering workflows and the way we present our information is going to be helpful.
And actually, I’d say the partnership with Dr. Montgomery Rice and the Morehouse School of Medicine is a perfect example of how you can’t take a traditional approach to the community health setting that we’ve done with the maybe larger academic medical centers. And so, I think that’s going to be — that’s an example of how we are innovating and creating different paths to take the offerings that we have and the value that we can bring to the health of those communities in a different path. And so go ahead, Dr. Rice, please.
Dr. Valerie Montgomery Rice
Yes. So, if I make comment about [indiscernible] one of the reasons that we are partnering with Invitae because they created an opportunity for us to co-create a solution of how we were going to engage the community. So, our teams have been working together over a year to work and to co-create what is the right solution so that we do not disrupt the workflow for the providers, bringing in the providers and saying, okay, how do we get permission upfront to get more patients who are interested in understanding hereditary cancer and that they should at least consider screening, right?
So that begins with while patients are sitting in a waiting room and listening to infocommercials. They listen to info-commercials that educated them on about hereditary cancer. We’re doing the right type of family screening, which enables them to ask the question, well, have you considered me for this type of study when I am being diagnosed with the disease, but it really is increasing the database of information that we have on diverse populations to ensure that when we are offering precision medicine, it is actually precise because when we currently look at the current genome, only 2.4% of it includes ancestry from African descent.
And so, I’m not quite sure it’s going to be as precise as we need to. So, we need to include and increase the reference genomes that we are using, but then we also need to co-create solutions that don’t disrupt the workflow, and that is bringing in providers and also then going out into the community. So one of the things that we also saw was that when we went out to the community and started to do webinars and focus groups, et cetera, what we found was they were very receptive to this when they were asked. But about 30% of the time, you will see that persons of color are not asked to participate in research trials or they are not asked also to consider genetic testing for their tumors.
Julia Qin
So, we have a question over here.
Unidentified Analyst
Can I just ask two separate questions? One, just on the renewed focus on certain business areas of hereditary, for example, are you starting to take share from competitors like Myriad and Natera? And then secondly, very good results in the fourth quarter on cash burn. It makes me think that you could potentially do better than the $250 million to $300 million cash burn in ’23. And I just want to know if that’s a possibility in your mind as of now?
Kenneth Knight
Yes, I’ll start with the first one, and I’ll let Roxi answer the second one. I mean, look, our hereditary cancer business is growing year-over-year. I think some of our competitors have indicated that they’ve had negative share growth or volume growth. And so I think you can interpolate if we’re growing year-over-year, and they’re not, especially in the somewhat constrained marketplace of genetic counselor prescribing of hereditary cancer screening, we can interpolate that we are taking share.
But again, I want to focus on — that’s important, and that’s a success. That’s a win for us. One of our themes for 2022 — 2023 is the stack wins, by the way. So that’s a win, and we’ll take it. But the other aspect of this is growing the pie and expanding adoption and broader adoption. So, I wanted to answer your question. I think we are taking share, but the bigger picture is how do we get more than the less than 50% of cancer patients to be screened with hereditary cancer testing, and that’s what we’re going after wholeheartedly.
Roxi, why don’t you take the cash flow question?
Roxi Wen
Sure. Thanks for the question. So we’re very encouraged by the Q4 performance, especially our cash — continued cash burn reduction since the beginning of the year when it was approaching $200 million. And so as far as next year’s guidance, we will be providing specific guidance at the end of February when we do our 2022 whole year financial review with the Street, including our cash burn. So, we’re not updating guidance today here.
But again, we’re encouraged by our performance, and we — the previous guidance 225 to 275 range continue to be a comfortable range for us. And we are importantly to point out here that we’re running a business. So running a business, you need to plan for upside and downside. So that range is good for us to continue to provide to The Street. And yes, we — less than $80 million cash burn in Q4 is a good outcome, but we will also continue the trend and execute the growth path for the business that Ken point out.
Julia Qin
And with that, we are out of time. Big thanks to the Invitae management team. Thank you everyone.
Kenneth Knight
Thank you all.
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