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Edited Transcript of ABUS.OQ earnings conference call or presentation 6-Nov-19 1:45pm GMT

Q3 2019 Arbutus Biopharma Corp Earnings Call

Nov 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Arbutus Biopharma Corp earnings conference call or presentation Wednesday, November 6, 2019 at 1:45:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David C. Hastings

Arbutus Biopharma Corporation - CFO & CAO

* Gaston Picchio

Arbutus Biopharma Corporation - Chief Development Officer

* Michael J. Sofia

Arbutus Biopharma Corporation - Chief Scientific Officer

* Pam Murphy

Arbutus Biopharma Corporation - IR Consultant

* William H. Collier

Arbutus Biopharma Corporation - President, CEO & Director

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Conference Call Participants

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* Keay Thomas Nakae

Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics

* Neil Panchal

JMP Securities LLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Arbutus Biopharma Corporation 2019 Third Quarter Financial Results and Corporate Update. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Pam Murphy, with Investor Relations.

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Pam Murphy, Arbutus Biopharma Corporation - IR Consultant [2]

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Good morning. On the call from the Arbutus Executive Team are Bill Collier, President and Chief Executive Officer; Dave Hastings, Chief Financial Officer; Dr. Gaston Picchio, Chief Development Officer; and Dr. Mike Sofia, Chief Scientific Officer. Bill will begin with a review of corporate objectives and clinical developments, followed by Dave, who will provide a review of the company's third quarter financial results. We'll then open up the call for Q&A. Gaston and Mike will be available to address research and clinical development-related questions.

Before we begin, we'd like to remind you that some of the statements made during the call today are forward-looking statements, including statements regarding expectations for Arbutus' proprietary [hepatitis B] pipeline, including potential clinical results and timelines for AB-729 and AB-452 and future compounds and potential for drug candidates to improve upon standard of care and contribute to a curative combination regimen for HBV. These forward-looking statements are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those described in our most recent annual report on 10-K, quarterly report on Form 10-Q and other periodic reports filed with the SEC.

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William H. Collier, Arbutus Biopharma Corporation - President, CEO & Director [3]

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Okay. Thank you, Pam. This is Bill Collier, and thank you, everyone, for joining us on the call today. I hope you can hear us loud and clear. We appreciate that this is obviously a very busy time for many of you, and so we'll keep our comments this morning succinct and to the point.

Now as many of you know, in early October, we announced our decision to discontinue the clinical development of AB-506, our lead oral capsid inhibitor. That particular project was in Phase Ia/Ib clinical trials for the treatment of chronic hepatitis B. Now this decision was based on the fact that we observed 2 cases of acute hepatitis in a Phase Ia 28-day clinical trial in healthy volunteers. Now importantly, the 2 subjects concerned have experienced resolution of their acute hepatitis. We wanted to let you know that we will present results from both the healthy volunteer 28-day study as well as the AB-506 Phase Ia/Ib clinical trial in a late-breaker poster session at the upcoming AASLD meeting on November 11. And for those of you at the meeting, it will be held at 8 a.m. in Hall B, and the title of the poster is Safety, Tolerability, Pharmacokinetics and Antiviral Activity of the Capsid Inhibitor AB-506 in Healthy Subjects and Chronic Hepatitis B Subjects.

Now despite these unexpected results for AB-506, our mission at Arbutus remains unchanged, and that is to improve upon the existing standard of care in hepatitis B by developing a curative combination regimen that includes several different mechanisms of action.

So right now, we're focused on 4 areas. We're focused, first of all, on completing the Phase Ia/Ib clinical trial of AB-729, our proprietary GalNac-delivered RNAi compound. Second, we're focused on selecting a next-generation capsid inhibitor for IND-enabling studies. Thirdly, we're focused on announcing a go/no-go decision on our RNAi -- sorry, RNA destabilizer, AB-452. And fourthly, we're focused on advancing our research efforts for oral compounds that inhibit PD-L1.

So let me add a little more detail on each one of these areas. Regarding AB-729, we've completed dosing in the healthy subject portion of the ongoing Phase Ia/Ib clinical trial, and we're now in the process of dosing and evaluating single-dose cohorts in chronic hepatitis B subjects. We intend to report preliminary safety and efficacy results from this portion of the Phase Ia/Ib clinical trial in the first quarter of 2020.

Turning now to our capsid inhibitor program. We have a number of oral next-generation compounds with chemical scaffolds that are distinct from AB-506 and other competitive compounds that we believe have the potential to contribute to the inhibition of HBV replication as part of a combination regimen. Now these compounds are substantially more potent than 506. We're presenting a poster at the AASLD meeting, detailing these next-generation capsid compounds. The poster is entitled Novel HBV Capsid Inhibitor Compound Series Demonstrates Improved Inhibition of HBV, WT, T33N and I105T Core Protein Variance and Shows a Unique Binding Mode to Core Protein. And again, for those of you who are going to the meeting, that poster will be presented on November 8 at 8 a.m. in Hall B in the session entitled Hepatitis B Therapeutics, New Agents.

I want to let you all know that our objective is to select one of these compounds for IND-enabling studies by December of this year. Now as you're likely aware, AB-452 is our oral RNA destabilizer, which leads to reductions in all HBV proteins, including S-antigen, and we continue to expect announcing a go/no-go decision in early 2020.

In addition to our capsid and RNA destabilizer programs, we continue to make progress with our oral, small molecule PD-L1 program. We still believe that immune reawakening will be an important element in developing a curative combination, and we hope to select a compound in this area for IND-enabling studies by the end of 2020.

So now let me turn the call over to Dave, our CFO, for his summary of our most recent financial results. Over to you, Dave.

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David C. Hastings, Arbutus Biopharma Corporation - CFO & CAO [4]

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Thanks, Bill, and good morning, everybody. I'll start today by discussing the company's cash position and runway. And as a reminder, cash and cash used are our most important financial metrics. So at September 30, 2019, we had a cash and investment balance of $90.1 million versus a balance of $124.6 million at December 31, 2018. Our cash used in operating activities during the first 9 months of 2019 was $57.7 million. Now this was partially offset by $20 million in nonrefundable gross proceeds, $18.5 million net, from the sale of a portion of our royalty entitlement on net sales of ONPATTRO in the third quarter of 2019 and $4.7 million in net proceeds from the issuance of shares under our ATM program earlier in the year. Also included in the $57.7 million used in operating activities is a $5.9 million payment to settle the arbitration proceeding with the University of British Columbia, and we paid that in the third quarter of 2019. We now believe that our current cash is sufficient to fund operations into early 2021.

I would also like to point out that included in our net loss this quarter were noncash charges of $43.8 million related to the impairment of an in-process research and development and tangible asset and $22.5 million for the impairment of goodwill. Now the impairment of the in-process R&D related to an early-stage program, and it reflects our focus on development of our later-stage programs, and the charge related to goodwill is a result of our market capitalization. Both of these charges reduced the carrying amounts of these assets to 0.

And finally, I want to discuss the accounting treatment of the sale of a portion of our royalty entitlement on net sales of ONPATTRO. Now the counterparty to this transaction has assumed all of the risk of collecting up to $30 million of future royalty payments. And under no circumstances is the gross proceeds of $20 million refundable back to the counterparty. Now that said, the standard accounting treatment for these transactions calls for us to record an initial liability equal to the $18.5 million of net proceeds received. The difference between the $18.5 million in net proceeds and the $30 million in future royalty payments to be received by the counterparty is accounted for the debt discounts -- at a debt discount, and we'll amortize that to noncash interest expense using the effective interest rate method. We will continue to record noncash revenue for royalties paid to the counterparty with an offset to the liability.

So with that, Bill, I'll turn it back to you.

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William H. Collier, Arbutus Biopharma Corporation - President, CEO & Director [5]

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Thank you, Dave. Very good. And just to remind everyone, we have myself, Dave but also Mike Sofia and Gaston Picchio on the line to help answer your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we have a question from Mayank Mamtani with B. Riley.

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Unidentified Analyst, [2]

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This is [Wei] on for Mayank, and congrats on the result. And I have 3 questions. The first one is could you review the preclinical observations for AB-729 RNAi program and perhaps help compare how that data stacks up relative to the similar programs, for instance, the candidates from Alnylam or Dicerna?

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William H. Collier, Arbutus Biopharma Corporation - President, CEO & Director [3]

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Okay. So I will address each of your questions one at a time. So...

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Unidentified Analyst, [4]

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Yes. Okay.

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William H. Collier, Arbutus Biopharma Corporation - President, CEO & Director [5]

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Yes? Is that easier? Fine.

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Unidentified Analyst, [6]

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Yes. That's the first question.

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William H. Collier, Arbutus Biopharma Corporation - President, CEO & Director [7]

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So, Mike, do you want to handle that one, the preclinical results for 729 versus any of the competitors?

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Michael J. Sofia, Arbutus Biopharma Corporation - Chief Scientific Officer [8]

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Sure. So just to recap, AB-729, which is our GalNac-conjugated, liver-targeted RNAi agent, we have demonstrated and reported that this molecule demonstrates a multi-log, dose-dependent reduction in HBV S-antigen in animal models -- of HBV mouse model, specifically AAV mouse model. This compares very favorably to our competitor reported data. Now very hard to do a direct head-to-head comparison with competitor compounds. But looking at their data and comparing it to ours and the various parameters used, we feel that we're very competitive to the other molecules that have been described out there in the literature. This molecule, we believe, is going to provide a once-monthly dosing based on the data that we've generated. It also demonstrates the knockdown of HBV DNA and e-antigen in the animal models that we -- in RNA, HBV RNAs in the animal model that we've looked at. We also can see reductions in not only serum levels of those markers, but we also see reductions in the liver levels of those markers in the animal model. So overall, we're pretty bullish on this molecule and expect it to perform well clinically.

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William H. Collier, Arbutus Biopharma Corporation - President, CEO & Director [9]

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And do you want to ask your follow-up 2 questions?

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Unidentified Analyst, [10]

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Yes. The second is what do you believe success looks like in 1Q '20 readout from HBV patient cohort? Could you remind us the different dose levels you're studying in this Phase I trial?

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William H. Collier, Arbutus Biopharma Corporation - President, CEO & Director [11]

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Okay. Gaston, do you want to comment on that? I mean we've said and you've heard in the presentation today that we expect preliminary results in Q1 of 2020. But Gaston, I'll hand that one over to you.

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Gaston Picchio, Arbutus Biopharma Corporation - Chief Development Officer [12]

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Yes, sure. Thanks. So we pointed out before, our starting dose in healthy was 60 milligrams, and we've been doing some dose ascending. We haven't really revealed the next doses, but we'll be presenting all of that data within the first quarter of 2020.

And in terms of what do we believe success will look like, well, I think, obviously, we're looking very interested in seeing the magnitude of our surface antigen decay, but importantly, not only the magnitude, but the consistency across different patient types. So that is another important aspect for us that we're going to be looking at.

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Unidentified Analyst, [13]

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Okay. And my last question is after seeing the J&J-Arrowhead RNAi capsid inhibitor and combination data at upcoming AASLD conference, what is the incremental value you see of having a core capsid inhibitor? And in making portfolio prioritization choices, is that still high on the list relative to, say, earlier programs, such as the one targeted at reawakening the immune systems to attain functional cure?

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William H. Collier, Arbutus Biopharma Corporation - President, CEO & Director [14]

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Okay. So you're making reference, I think, to some of the data that's been previewed at AASLD. So again, Mike, Gaston, do you want to take that one?

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Michael J. Sofia, Arbutus Biopharma Corporation - Chief Scientific Officer [15]

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Sure. I'll start off.

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Gaston Picchio, Arbutus Biopharma Corporation - Chief Development Officer [16]

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I'll make a quick comment.

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William H. Collier, Arbutus Biopharma Corporation - President, CEO & Director [17]

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Go ahead, Mike.

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Michael J. Sofia, Arbutus Biopharma Corporation - Chief Scientific Officer [18]

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So just to start off there, I think, look, our strategy still is the belief that you need to do multiple things to affect a functional cure for HBV patients. Now that one being that you have to completely suppress viral replication and replenishment of cccDNA pools, and we believe a capsid inhibitor, plus a new combination, is going to be critical to doing that. And this whole idea of knocking down S-antigen is -- part of the overall strategy of trying to reawaken the immune response that you're going to need to address the S-antigen load first and then hopefully, either spontaneously, reawaken the immune response. And if that doesn't necessarily happen spontaneously, you're going to have to address it directly with some kind of immune activation. And in our case, we're betting on the PD-L1 approach there. So the data that J&J has showed, at least reported in the abstract, which is not the full set of information, but in the data that they have, does not rule out the still -- the viability of the strategy because the immune piece needs to still be added in.

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Operator [19]

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And we have a question from the line of Liisa Bayko with JMP Securities.

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Neil Panchal, JMP Securities LLC, Research Division - Research Analyst [20]

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Neil on for Liisa. Just 2 questions. One, what are your thoughts on the Roche-Dicerna deal? And then, two, anything else you can say a little bit more on your next-generation capsids?

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William H. Collier, Arbutus Biopharma Corporation - President, CEO & Director [21]

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Okay. 2 good questions there. I'll let Mike Sofia talk about the next-generation capsids in a moment. On the Roche-Dicerna deal, I think I'd say 2 things. I mean, first of all, as you've heard this morning, we do believe strongly that Arbutus -- we want to develop a range of portfolio of different assets with different mechanisms of action that actually contribute to a functional cure. That is still our mission. That's our goal. But having said that, I think the second thing I'd add is we certainly wouldn't rule out potential partnerships which help us achieve that vision and are beneficial to Arbutus shareholders in fulfilling the ultimate goal that we have.

So before I hand over to Mike. Dave, anything else you'd like to add on that?

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David C. Hastings, Arbutus Biopharma Corporation - CFO & CAO [22]

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No. I think you've covered it. We're gratified that big pharmas still obviously has a big interest in our field.

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William H. Collier, Arbutus Biopharma Corporation - President, CEO & Director [23]

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Yes. So Mike, the next-generation capsids?

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Michael J. Sofia, Arbutus Biopharma Corporation - Chief Scientific Officer [24]

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Sure. I mean I think Bill alluded to some of this in his earlier comments. Look, this molecule is much more potent, so in the sort of single digit in animal or EC50 range. So we targeted that and relative to 506 and other competitors out there because we do believe potency is going to be critical here, especially when you go into combination therapy. So this molecule is substantially more potent. It also comes from a novel chemical series distinct from AB-506 and other competitor compound, so we're hopeful that the issues we saw with 506 will not raise their head in this new molecule series that we're looking at. That's confirmed by the fact that when you look at cocrystal structures of our new molecules with core protein, it binds the dimer:dimer interface, but access is a novel binding site that provides its enhanced potency and distinct characteristic over other molecules. And it has all the other characteristics that we were wanting, meaning QD dosing -- potentially QD dosing. Also a critical aspect is this issue with regard to resistance. We believe that in any direct-acting antiviral resistance could be an issue going forward. We've gone to work on this problem, and we believe that we have a potential way to address the key resistant variants in the capsid space with these new molecules going forward. So we're pretty bullish on this molecule. We believe it will be very competitive in the space, and we're driving it to clinical entry.

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Operator [25]

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(Operator Instructions) Our next question is from Keay Nakae with Chardan.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [26]

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Yes. Wondering if you can give us your best estimate of when you might commence Phase I studies for your next-gen capsid inhibitor and your RNA destabilizer.

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William H. Collier, Arbutus Biopharma Corporation - President, CEO & Director [27]

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Yes. Thank you for the question. We've not been specific on an actual start date. I think you've heard this morning on when we intend to make those decisions. I think that, at that point, we may be able to be a little clearer. So again, Mike or Gaston, if you want to add any details, but I think we probably said as much as we can say there in the guidance in the call earlier on today.

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Gaston Picchio, Arbutus Biopharma Corporation - Chief Development Officer [28]

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I agree, Bill.

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Michael J. Sofia, Arbutus Biopharma Corporation - Chief Scientific Officer [29]

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Yes. No additional for me.

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Operator [30]

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And I'm not showing any further questions in the queue. I would like to turn the call back to Bill Collier for his final remarks.

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William H. Collier, Arbutus Biopharma Corporation - President, CEO & Director [31]

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All right. Thank you very much. Thank you for those questions, and we do appreciate you joining us this morning and for your interest in Arbutus. We look forward to seeing some of you at the AASLD meeting in Boston, but we also look forward to keeping you updated in the future as we report results from the 729 Phase Ia/Ib study and as we make decisions regarding the nomination of our next-generation capsid inhibitor and also the go/no-go development decision on AB-452.

So thank you very much, indeed, for your time this morning, and that concludes our call.

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Operator [32]

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Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.