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Capstone Presentation Prepared for Dr. Ian Lee and the Strategic Management Class of Fall 2003 Carleton University. Introduction. Invitrogen is a manufacturer of biotech equipment and supplies used by academic, government and corporate researchers. Part I Macro Environment.

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Capstone Presentation

Prepared for Dr. Ian Lee and the Strategic Management Class of Fall 2003

Carleton University


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Introduction

  • Invitrogen is a manufacturer of biotech equipment and supplies used by academic, government and corporate researchers.


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Part I Macro Environment

  • A. Technological Environment

  • B. Economic Environment

  • C. Socio-Cultural Environment

  • D. Political-Legal Environment


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Technological Environment

  • Nanotechnology

    • Development of super small products

    • Technology still in its infancy

    • Currently 100 startups

    • Nanobiotechnology, most promising for the Biotech industry

    • Creation of drugs as well as diagnostic tools

  • Gene Chip

    • Ability to store entire human genome onto a single chip

    • Technology still in its infancy, 5 years old

    • Making personalized medicine a reality

    • Ability to expand the biotech industry


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Technological Environment

  • Gene Testing

    • Direct analysis of DNA molecules

    • Newborn screening, prenatal diagnostic testing, risk analysis of adult cancers

    • Few tests exist today, many waiting to be discovered


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Source: U. S. Food and Drug Administration (FDA)

Technological Environment

  • Gene Therapy

    • Correct defective genes

    • Replacing, repairing, regulating non-functional genes

    • Technology still in an experimental stage

    • FDA has placed a temporary ban on gene therapy


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Technological Environment

  • DNA Computing

    • Developed in 1994, by L.M. Adleman

    • Information density greater then that of silicon

    • Allowing large mathematical calculations to be performed

    • DNA is nature’s hard drive

    • Extension of current industry

  • Bioterrorism

    • Increasing bioterrorism, using sophisticated technologies, Anthrax, Sarin gas

    • Provides demand for remedies


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Economic Environment

Source: The Statistical Yearbook of the Economic Commission for Europe 2003


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Economic Environment

Source: The Statistical Yearbook of the Economic Commission for Europe 2003


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Economic Environment

Source: The Statistical Yearbook of the Economic Commission for Europe 2003


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Economic Environment

  • Beyond 2003

SOURCES: Congressional Budget Office; Department of Commerce, Bureau of Economic Analysis; Department of Labor, Bureau of Labor Statistics; Federal Reserve Board.


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Source: Ernst & Young

Economic Environment

  • Biotechnology Industry

    • North America accounts for 77% of global biotech revenues


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Socio-Cultural Environment

  • Aging Demographic

    • North American and European Population is aging

    • The elderly population will require proper diagnostic tools, as well as various treatments

    • Increased demand for the industry

  • Health Care Expenditure

    • Increasing trend

    • 58% increase in spending since 1990

    • Increase in spending for Prescription drugs by 17%


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Socio-Cultural Environment

  • Increasing Death Due to Illness

    • Increasing trend for the population over the age of 44

    • Opportunity for innovation, and development of remedies


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Political-Legal Environment

  • Heavily regulated, largely to benefit the industry

  • North American states are attempting to lure the industry

  • Large number of regulating bodies around the world,

    • APHIS, EPA, FDA, DFO



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Biopharmaceuticals

Amgen Inc.

Genentech

Chiron

Biogen

Medimmune

Biopharma R&D

IDEC

Celltech

Imclone

Corixa

Protein Design Labs

Level ofIntegration

Biotech Equipment/Supplies

Applera

Invitrogen

BD Biosciences

Qiagen

Affymetrix

Molecular Devices

Ciphergen

Emerging Genomics & Bioinformatics

Exelixis

Lexicon Genetics

LION Biosciences

CuraGen

DeltaGen Inc.

Innovativeness

Strategic Group Map





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Market Capitalization (Nov.10, 2003)


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Five Force Analysis

  • Threat of Direct Competitors : 9

  • Threat of Entry : 3

  • Substitutes : 5

  • Suppliers : 2

  • Buyers : 9

  • Average : 5.6 / 10


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Direct Competitors (9)

  • Many Competitors.

  • Technologies can be rendered obsolete!


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Threat of New Entrants (3)

  • Many competitors.

  • High costs: R&D, HR.

  • Strategic Alliances, Patents.



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Market Capitalization

Market Capitalization



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Threat of Substitutes (5)

  • Moderate.

  • New Technologies being developed.

  • Biochemical markets secure.


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Power of Suppliers (2)

  • Low.

  • Numerous suppliers for most inputs.

  • Outsourcing.

  • FBS.


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Power of Buyers (9)

  • High.

  • Biopharmas faced with high costs.

  • New entrants = more buyers = lower buyer power.


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Five Forces Summary

  • Moderately Unattractive Industry.

  • Major forces: buyers, competitors.

  • Profitability Measures.





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Key Success Factors Engineering, and Life Sciences

  • Human Resources.

  • Networking and alliances.

  • Access to capital.

  • National Policies.

  • Product Strategy.


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Driving Forces Engineering, and Life Sciences

  • Success of Biopharmaceuticals.

  • Government policy.

  • Bioterrorism defense spending.

  • IP


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Industry Summary Engineering, and Life Sciences

  • A moderately unattractive industry.

  • Profitability is negative.

  • Capital markets are volatile.

  • But…Growth is high!


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Firm Analysis Engineering, and Life Sciences

  • Listed on the Nasdaq, Invitrogen has a market capitalization of about $3 billion.

  • They offer an integrated technology platform to support their customers’ efforts in molecular and cell biology research, drug discovery, and commercial biomolecule production.


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Firm Analysis – 2002 Summary Engineering, and Life Sciences

  • Wide-ranging plan of new product innovation.

  • Emphasis on high growth, high margin products.

  • Revenues increased to $649 million

  • Pro forma EPS grew to $1.81.

  • Over $1 billion in cash puts Invitrogen in strong position for further investment.


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Employees Engineering, and Life Sciences

  • At the end of 2002, Invitrogen had 2744 employees, 916 of whom were employed outside the United States.

  • Strong competition for talented employees in the industry.

  • Continues success dependant on ability to attract and retain qualified employees.


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Value Creating Activities Engineering, and Life Sciences

  • Research & Development

  • Sales & Marketing

  • Technology Licensing

  • Patents and Proprietary Technologies

  • Suppliers


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Research & Development Engineering, and Life Sciences

  • Invitrogen has 213 employees principally engaged in R&D.

  • 5.20%, 6.06% and 9.59% were the percentage of revenues spent on R&D in 2002, 2001, and 2000 respectively

  • 2002 was a transition year; R&D was co-located with marketing and manufacturing facilities in Carlsbad to improve speed and efficiency of product development.


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Sales & Marketing Engineering, and Life Sciences

  • Invitrogen sells directly in 24 countries

  • Sell through agents and distributors in 45 additional countries

  • There are 893 employees in the Sales and Marketing group

  • They employ scientists as their technical sales representatives.

  • Marketing departments across the globe

  • Comprehensive website


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Technology Licensing Engineering, and Life Sciences

  • Many products are manufactured or sold under terms of licensing agreements.

  • Most expire at various times over the next 15 years.

  • Must pay royalties to licensors based upon a percentage of sales which involve licensed product.

  • Renewing licenses involves significant risk.


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Patents and Proprietary Technologies Engineering, and Life Sciences

  • Company protects proprietary technology using patents, licenses, copyrights, and trademarks.

  • Invitrogen enters into confidentiality agreements with third parties, employees, and consultants.

  • In U.S. alone, Invitrogen has over 100 patents, which tend to last for 20 years.


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Suppliers Engineering, and Life Sciences

  • Materials are bought from many different suppliers.

  • The company is not dependant on any one supplier or group of suppliers.

  • Raw materials, with the exception of fetal bovine serum (FBS) are available from multiple suppliers.

  • Invitrogen acquired Serum Technologies which provides the company with its own source of FBS from Australia.


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Emerging Market Opportunities Engineering, and Life Sciences

  • Invitrogen has developed a reputation as a pioneer for developing new technologies and packaging them into kit format.

  • Currently refocusing beyond individual products to develop application-centered technology platforms to address an emerging market opportunity.

  • They hope to become a total integrated solutions provider to their customers.


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Core Competencies Engineering, and Life Sciences

  • Large amounts of valuable intellectual property is one of Invitrogen’s strengths.

  • Currently owns over 125 patents in the U.S., and has almost 300 licenses covering 400 patents.

  • A strong line of products is another strength, with a catalogue of over 10000 products.


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Strategic Acquisitions and Mergers Engineering, and Life Sciences

  • An important component of Invitrogen’s business strategy is identifying growing or emerging markets, and entering these markets through strategic acquisitions.

  • Invitrogen uses strategic acquisitions to improve its market share and acquire new technologies.


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Summary of Value Adding Factors Engineering, and Life Sciences

  • Brand Leadership

  • Commitment to Innovation

  • Strategic Acquisitions

  • Emphasis on Customer Service and Product Quality

  • Strong Global Presence

  • Constant Improvement of Operational Efficiency and Financial Performance


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Financial Analysis Engineering, and Life Sciences

  • Cash represented 20% of total assets.

  • Liabilities represent 37% of total assets.


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Financial Analysis Engineering, and Life Sciences

  • 2002 was the first time in 3 years Invitrogen had a positive net income (7.35% of revenues)

  • 2001 and 2000 had net losses, mainly due to restructuring and large acquisitions.

  • 2002 shows that this restructuring and acquisitions are paying off.


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Financial Analysis Engineering, and Life Sciences


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Financial Analysis Engineering, and Life Sciences


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Corporate Strategy Engineering, and Life Sciences

  • Current Strategies.

  • Strategy Analysis.

  • Recommendations.


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Vertical Positioning Engineering, and Life Sciences


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Core Business Engineering, and Life Sciences

  • Molecular Biology (NAICS 325414 Biological Product (except Diagnostic) Manufacturing).

  • 66% of Revenues.


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Horizontal Diversification Engineering, and Life Sciences

  • Cell Culture (NAICS 335416 Analytical Laboratory Instrument Manufacturing).

  • 34% of Revenues.

  • Highly Related.


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Life Technologies Merger Engineering, and Life Sciences

  • Spawned creation of two segments.

  • Combined income in 1999: 477.9 million.

  • Invitrogen revenue in 2001: 629.3 million.

  • A 31% increase.

  • Staff reduction: 2,981 to 2,744.

  • Pro forma income reporting.


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Regional Revenue Engineering, and Life Sciences


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Asset Allocation Engineering, and Life Sciences


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Subsidiaries Engineering, and Life Sciences

  • Serum Technologies Pty Ltd.

  • Informax

  • Invitrogen B.V.

  • Research Genetics

  • Ethrog Biotechnologies

  • Gene Express Inc.


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Corporate Strategy Analysis Engineering, and Life Sciences

  • Global International Strategy.

  • Growth Strategy.

  • Informax

  • PanVera LLC, Molecular Probes


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Selected CPI Data Engineering, and Life Sciences


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Relative Labour Wages Engineering, and Life Sciences


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Recommendations Engineering, and Life Sciences

  • Manufacturing Abroad.

  • Slow rate of acquisition.

  • Reduce Debt/Increase Flexibility.


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A New Strategy Engineering, and Life Sciences

  • Gateway Technology Open Architecture®

  • Open licensing, Market driven pricing.

  • Enables sharing of information amongst researchers.

  • Speeds research / drug development.

  • Creates a bigger market for equipment and supplies!


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Business Strategy Engineering, and Life Sciences

  • Invitrogen currently employs a differentiation strategy.

  • This means they offer something which their competitors can not provide, and which their customers are willing to pay for.

  • Invitrogen differentiates itself by refocusing beyond individual products.


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Differentiation Engineering, and Life Sciences

  • Invitrogen has over 10,000 products, which is not itself a source of differentiation.

  • What is unique about Invitrogen’s strategy is that they are developing and optimizing application-centered technology platforms.


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Differentiation Engineering, and Life Sciences

  • Instead of presenting their customers with the list of their many products, Invitrogen, through these technology platforms, is positioning themselves as an integrated solutions provider.

  • The value of these platforms is greater then the sum of its parts.


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Differentiation Engineering, and Life Sciences

  • Many of Invitrogen’s competitors offer substitutes to the over 10,000 products which Invitrogen offers.

  • However none of the competitors are providing these products in the form of application-centred technology platforms.

  • This is one area that differentiates Invitrogen.


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Differentiation Engineering, and Life Sciences

  • These platforms are unique, and customers are willing to pay for the value they provide.

  • Invitrogen can offer custom solutions or a complete package, and combined with Invitrogen’s solid reputation, Invitrogen’s customers know they are getting good value for their money.


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Differentiation Engineering, and Life Sciences

  • Another area in which Invitrogen differentiates themselves from their competitors is through their strong customer relations.

  • Invitrogen creates a competitive advantage through their relationships with their customers through the dimensions of richness, reach and affiliation.


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Reach Engineering, and Life Sciences

  • This refers to a firm’s access and connections to customers.

  • With a presence in over 75 countries, marketing centres in U.S., Europe, and the Asia-Pacific, and a comprehensive website, Invitrogen has good reach with its customers


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Richness Engineering, and Life Sciences

  • Richness is concerned with the depth and detail of the two-way flow of information between the firm and the customer.

  • Sales force of almost 900 is composed of scientists with extensive backgrounds in biology and molecular biology.

  • They are able to provide provide meaningful answers and information to customers.


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Affiliation Engineering, and Life Sciences

  • Affiliation is concerned with facilitating useful interactions with customers

  • Invitrogen's direct sales presence in 24 countries gives them strong affiliation.

  • Their affiliation is further improved by their on-line catalogue on the Invitrogen website.


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Business Strategy Analysis Engineering, and Life Sciences

  • For differentiation to succeed, all functional level strategies must support the business level strategy.

  • The company must ensure it is aware of and able to respond to competitors threats to their business strategy.

  • Company must be able to adapt to ensure strategy remains effective.


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Competitor Threats to Business Strategy Engineering, and Life Sciences

  • Any strategy can lose its effectiveness.

  • Because of this, it is important to closely monitor the activities throughout the value chain to ensure that they are continuing to add value and have not become obsolete

  • It is also important to closely monitor the actions of competitors.


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Competitor Threats to Business Strategy Engineering, and Life Sciences

  • Competitors could offer a good substitute at a lower price.

  • Competitor could develop products which render Invitrogen’s products obsolete.


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Research & Development Engineering, and Life Sciences

  • Invitrogen’s functional R&D strategy corresponds to the business-level differentiation strategy.

  • To be an integrated solutions provider, Invitrogen must be on the cutting edge of product development.

  • Failure to continue to develop new products could result in failure of diffentiation strategy and loss of market share.


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Sales and Marketing Engineering, and Life Sciences

  • For differentiation to be successful, customers must perceieve value for which they are willing to pay.

  • Invitrogen’s large and highly qualified sales and marketing staff help make the differentiation strategy successful.


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Licensing Engineering, and Life Sciences

  • Invitrogen’s differentiation strategy consists of offering complete solutions to meet customer needs.

  • Because needs vary greatly, Invitrogen cannot meet customer needs exclusively with internally developed products.

  • For this reason, licensing is an important part of the success of Invitrogen’s differentiation strategy.


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Patents and Proprietary Technology Engineering, and Life Sciences

  • For the differentiation strategy to be successful, Invitrogen’s products must offer added value compared to the products of competitors.

  • Patents and proprietary technologies help to prevent competitors from copying Invitrogen, and as such, protect Invitrogen’s source of differentiation.


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Business Strategy Recommendations Engineering, and Life Sciences

  • The corporate level strategy of acquiring new technologies and entering new markets through acquisitions has been complemented by the business level strategy of differentiation.

  • Because of this, there is no reason for any dramatic changes to Invitrogen’s business strategy.


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Business Strategy Recommendations Engineering, and Life Sciences

  • It is important to be flexible and to adapt to an ever changing market.

  • For this reason, it is important that Invitrogen does not become complacent and continues to refine and improve.

  • Monitoring the external environment and competitors is essential.


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Closely Monitor Competitors Engineering, and Life Sciences

  • Invitrogen must be aware if its products are becoming obsolete.

  • It also must ensure that its customers are willing to pay a premium for the unique features Invitrogen offers.

  • Must be aware if competitors are offering similar products at lower price.

  • Invitrogen must be ready to quickly respond if any of these things occur.


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Continue to Improve Customer Relations Engineering, and Life Sciences

  • For continued success, strong customer relations are successful.

  • A good product is useless if customers don’t trust Invitrogen.

  • Invitrogen does well in this area, but must continue to seek new ways to improve access and connections with customers.


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Move Away from Licensing Engineering, and Life Sciences

  • Although licensing is important to the business strategy, it brings high risk.

  • As much as possible, Invitrogen should move away from licensing and increase internal product development.

  • By doing so, Invitrogen ensures it is responsible for its own fate, and cannot be held hostage by licensors.


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Be a Moving Target Engineering, and Life Sciences

  • It is only a matter of time before competitors copy the features that make Invitrogen unique.

  • For this reason, Invitrogen must continue to focus on innovation and the development of new products and technologies.

  • They must stay one step ahead of competitors to maintain competitive advantage.


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