Q1 2012 Thera Technologies Earnings Conference Call
Apr 13, 2012 AM EDT
Thomson Reuters StreetEvents Event Transcript
E D I T E D V E R S I O N
TH.TO - Theratechnologies Inc
Q1 2012 Thera Technologies Earnings Conference Call
Apr 13, 2012 / 12:30PM GMT
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Corporate Participants
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* Denis Boucher
National Public Relations - IR
* John Huss
Theratechnologies Inc - President and CEO
* Luc Tanguay
Theratechnologies Inc - SEVP & CFO
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Conference Call Participants
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* Pooya Hemami
Desjardins Securities - Analyst
* Adnan Butt
RBC Capital Markets - Analyst
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Presentation
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Operator [1]
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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Theratechnologies earnings conference call and webcast for the first quarter of 2012. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time to queue up for questions. (Operator Instructions). I would like to remind everybody that this conference is being recorded today, Friday, April 13, at 8.30 AM Eastern time. I would now like to turn the conference over to Denis Boucher from National Public Relations. Mr. Boucher, please go ahead, sir.
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Denis Boucher, National Public Relations - IR [2]
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Thank you, and welcome. Speakers on today's call include John Huss, President and Chief Executive Officer of Theratechnologies, and Luc Tanguay, Senior Executive Vice President and Chief Financial Officer of Theratechnologies. Their presentations will be followed by a Q&A period, which will be opened exclusively to financial analysts.
Before we start, I've been asked by Theratechnologies to read the following message regarding forward-looking statements. I would like to remind everyone that Theratechnologies' remarks today may contain forward-looking statements about its current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements, or other forward future events or developments. Several assumptions were made by Theratechnologies in preparing these forward-looking statements, and there are risks that actual results will differ materially from those contemplated by the forward-looking statements. As a result, the Company cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on these forward-looking statements.
Theratechnologies refers current and potential investors to the risk factors section of its annual information form, dated February 27, 2012, available at www.SEDAR.com, and at www.SEC.gov, under Theratechnologies public filings. Forward-looking statements represent Theratechnologies' expectations as of April 13, 2012. Except as may be required by securities laws, Theratechnologies does not undertake any obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. I would now like to turn the conference over to Mr. Huss.
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John Huss, Theratechnologies Inc - President and CEO [3]
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Thank you, Denis. Welcome everyone and thank you for joining us today for our first quarter of 2012 earnings call. I will provide you with a brief overview of our activity since our last call, and then turn it over to Luc who will take you through our first-quarter results.
In terms of activities during the quarter, we continued to assist our commercial partners, Sanofi and Ferrer, as they pursue regulatory applications in their respective jurisdictions. Applications in several key markets are progressing well. With Ferrer, the Europe file continues to take its due course. As a result of our agreements, we have regulatory applications pending in Israel, Brazil, Argentina, Mexico, as well as in the 27 member states of the European Union, and in Iceland, Liechtenstein and Norway. We also expect filings in Venezuela and Colombia in the coming weeks.
As you know, we also have a regulatory application under way in Canada. You may recall that Theratechnologies undertook this application, as we didn't yet find a suitable commercial partner in this territory. In February of this year, we were very pleased to announce that we signed a commercialization agreement with Actelion for Tesamorelin in Canada. Actelion has exclusive commercialization rights to Tesamorelin in Canada, and is now responsible for the remaining regulatory activities, as well as reimbursement and commercialization. This is reflective of all other commercialization agreements we have signed with our partners.
Actelion represents an ideal partner for Theratechnologies in Canada, with a sales force already in place, and trained in the commercialization of specialty treatments, Actelion will be in a position to effectively market Tesamorelin, if approved. We look forward to tapping into their sales and marketing expertise as well as their extensive knowledge of the Canadian reimbursement system. That summarizes our activities on the regulatory front and the geographic expansion of Tesamorelin's footprint.
Turning to our new GRF peptide. Our feasibility studies to explore potential new modes of administration with our new growth hormone-releasing factor were still in progress during the first quarter, and these studies are still ongoing. As mentioned, this new GRF peptide may provide to be suitable for a treatment of a broader range of medical indications, using methods of administration that are more patient-friendly than Tesamorelin. I'd also like to remind you that we have filed patent applications that, if granted, will provide protection beyond 2030.
Finally, looking at commercial activities in the US, as stated during our last conference call, we are not in a position to give sales guidance for the coming year. The discrepancy between IMS data and the data from EMD Serono is still too volatile and fluctuates too much to try to make any kind of prediction. However, in terms of US revenues, royalties increased 26% compared to the previous quarter. While we are pleased to see progress, we are counting on our partner, EMD Serono, to do even more to accelerate market penetration in this territory. I would like to turn the call over to Luc, who will discuss our financial results.
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Luc Tanguay, Theratechnologies Inc - SEVP & CFO [4]
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Thank you, John. Now for an overview of our financial results for the quarter. Consolidated revenues for the three-month period ended February 29, 2012 amounted to CAD3.2 million, compared to CAD3.5 million for the same period in 2011. The important factor to consider here are the following. First, sales of EGRIFTA to EMD Serono for resale were down compared to the same period last year, from CAD1.8 million to CAD1.3 million, because of the initial build-up of stocks in 2011 by EMD Serono in preparation for the public launch in the US market.
Second, royalties, which are almost entirely derived from the sales of EGRIFTA and are paid quarterly in arrears, based on the calendar year, were up significantly, reaching CAD841,000, compared to CAD9,000 in first quarter of last year. As mentioned by John, they were also up significantly over the last quarter. And third, the decrease in the amortization amount for the current quarter of CAD1 million from CAD1.7 million for the same period in 2011 reflects a change in the service period attributed to the initial payment. At February 29, the remaining deferred revenue related to this transaction recorded, on the Statement of Financial Position amounted to almost CAD7.5 million. (inaudible) sales of EGRIFTA are down significantly to about CAD1.3 million from CAD2.6 million for the same comparable period last year.
Turning to expenses. First-quarter results are starting to reflect cost savings from last year's restructuring initiatives. Excluding the impact of the restructuring costs, which I will address in a minute, our expenses are significantly lower across the board. Compared to the same period last year, R&D expenses decreased by 56% to CAD1.3 million. Selling and market development expenses decreased by 45% to CAD261,000. And finally, G&A decreased by 36% to CAD2 million.
As mentioned during our last call, we are registering in Q1 the bulk of the costs related to our December restructuring initiatives. At that time, we announced that we were discontinuing our COPD program, resulting in the layoff of 34 employees. This gave rise to the restructuring costs of CAD6.1 million, which includes CAD4.1 million on the risk release provision, based on the Company now occupying only about 50% of its leased premises. This provision, which is a non-cash item, takes into account potential future lease costs of the vacant portion of the premises, net of estimated sublease rental that could be reasonably obtained. It's based on management's best estimate of potential sublease rates, the timing of the sublease, discount rates, and other factors. In light of this provision, the liability related to the deferred lease inducement has been reduced by 400 to CAD1,000.
Now, the cash portion of the restructuring costs includes employee termination benefits of about CAD1.2 million, costs associated with terminating the COPD clinical program of CAD1 million, and other fees of CAD285,000. Taking into account the revenue and expenses described above, we recorded a net loss of CAD7.5 million or CAD0.12 per share per quarter -- this quarter, including the restructuring costs of CAD6.1 million. Use of cash from operating activities was CAD7.9 million compared to CAD7.8 million for the comparable period. It's important to note that the current quarter amount includes the cash impact of the December 2011 restructuring, as well as a raw material inventory buildup of CAD3.2 million in preparation for potential regulatory approvals in territories outside the US. Finally, liquidities at quarter end amount to almost CAD29 million. In conclusion, from an expense perspective, we are on track with the forecast made earlier for 2012. We continue to be well-financed and keep managing our use of cash carefully.
With that, I will now turn the call back over to John for closing remarks.
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John Huss, Theratechnologies Inc - President and CEO [5]
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Thank you, Luc. Following our restructuring efforts late last year, much to our satisfaction, the transition period has gone exceptionally well. I'd like to take this opportunity to thank our employees for their continued commitment and dedication. We're now well positioned, as we continue to move forward with our business plan for 2012. While the US is currently the only market where EGRIFTA is being commercialized, we're advancing very well in other countries in an effort to increase EGRIFTA's geographic footprint, working with our partners.
We're on track with all our regulatory applications, and expect as previously disclosed, decisions in Europe, Canada and certain Latin American countries beginning in the second half of 2012. Our priority continues to be to assist our commercial partners and support them as needed throughout the regulatory process. Our new GRF peptide is showing good progress too, and we will be able to decide in June what modes of administration we will move forward with. And last, but not least, from a financial point of view, we should end the year with over CAD20 million in liquidities, which will enable us to pursue the development of our new GRF peptide.
In closing, I'd like to thank you for joining the call today, and we will now take questions from financial analysts.
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Questions and Answers
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Operator [1]
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Thank you. (Operator Instructions). Our first question comes from Pooya Hemami of Desjardins Securities. Please go ahead.
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Pooya Hemami, Desjardins Securities - Analyst [2]
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I guess my first question would be, John, you mentioned a bit about, you're wanting EMD Serono to do more to promote the product. Can you give us any details on what you think they should be doing? And I guess as a follow-up to that, do you have any concerns that Serono could be promoting Serostim ahead of EGRIFTA?
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John Huss, Theratechnologies Inc - President and CEO [3]
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We're in pretty direct contact with EMD Serono, and I can assure you, they continue to put a lot of effort in this. We're really happy to see that the royalties have increased 26% in the last quarter versus the previous one, and continue to follow closely their activities. They are dedicating a lot of time right now to gain new patients and to maintain the patients they have on drug. And no, I don't think they are promoting Serostim ahead of EGRIFTA, actually I'm convinced of the opposite. They have had significant trouble for off-label promotion in the past and they're clever enough not to repeat the mistake. There's no question that they're dedicated and motivated, and I think they've analyzed the issues and are working on a pretty good action plan right now.
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Pooya Hemami, Desjardins Securities - Analyst [4]
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Do you have any, I guess additional hints of any activities they may be doing which may cause any sort of a bump in the rate of prescriptions?
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John Huss, Theratechnologies Inc - President and CEO [5]
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Not other than the items we've been discussing so far. They're continuing the DTC campaign. We have seen results where in pilot territories, this has led to an increase in new prescriptions and they continue to be -- they haven't reduced any activity. They're continuing to push the product and I hope we'll see results in the near future.
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Pooya Hemami, Desjardins Securities - Analyst [6]
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Okay. And then just as another question on the new GRF, you're saying that you're going to maybe finish the feasibility work by June, and determine a new mode of administration. Can you just maybe give us a bit on the time line from then to when we will see an IND and new clinical trial on that product?
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John Huss, Theratechnologies Inc - President and CEO [7]
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Yes. So we'll be able to decide what we bring forward. We're starting to slowly see results that are pretty promising, so we know we will be going forward with the monitoring. We'll probably finish the -- the next steps will be going through toxicology in pre-clinical, obviously in animals. We should have the results by the beginning of next year and have an IND filed sometime by mid next year.
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Pooya Hemami, Desjardins Securities - Analyst [8]
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Okay. Thank you very much.
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Operator [9]
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Thank you. (Operator Instructions). Our next question comes from Adnan Butt of RBC Capital. Please go ahead.
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Adnan Butt, RBC Capital Markets - Analyst [10]
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First one, John, can you share with us, or will you be able to share with us some time what actual sales were in 2011, how many patients were on drug and what compliance has been like?
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John Huss, Theratechnologies Inc - President and CEO [11]
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Sales for 2011 from EMD Serono were around CAD24 million. We don't have any compliance data, and I'm currently working with EMD Serono management to be able to get the data and to communicate it to you. So at this point in time, we don't have any detailed data, but as soon as we have it, we will be able to communicate it.
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Adnan Butt, RBC Capital Markets - Analyst [12]
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Okay. And in terms of -- I think in the past, you've given some metrics as to how many doctors are targeted, and how many are writing prescriptions. Is there any update on that?
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John Huss, Theratechnologies Inc - President and CEO [13]
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No, we don't. We still have around 1,000 prescribers, so that is stable since the last figure I've given you. I don't have any numbers on intensity of prescriptions, and I do expect to get them sometime during the summer.
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Adnan Butt, RBC Capital Markets - Analyst [14]
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Okay. NRxs do show an interesting trend. They're up sequentially, quite noticeably. Don't see the same thing in TRx. Do you attribute that rise to the DTC campaign and will the campaign be expanded? Are there any thoughts around that? Secondly, when do you expect TRxs to catch up with the NRx trend?
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John Huss, Theratechnologies Inc - President and CEO [15]
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That's a great point, Adnan. It's pretty encouraging to see the bump in NRxs, both at the end of last year and at the beginning of this year, and more noticeably in the first quarter of 2012. Two things. You remember that with time, NRxs will also include repeat scripts. So this is not a good prediction of number of patients being put on the drug, but number of patients being put on the drug and patients coming back on the drug. I already mentioned to you that I believe this drug could have some cycle to it, and that patients would probably discontinue sometime around in the winter and pick up again early in the year. And I think this is what's happening.
I don't have any more data than what you have seen and what you have just mentioned to my reasoning here, but my gut feel is what we're seeing is new patients coming back on the drug, which in turn will have an impact on TRxs in the future. So as you have mentioned, increase in NRxs is very encouraging. TRxs are bit flat to my licking, and we're discussing this with the EMD Serono management. But I do expect the NRxs to have an impact on TRxs in the coming quarter.
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Adnan Butt, RBC Capital Markets - Analyst [16]
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In terms of approvals that are expected this year, are you able to specify the sequence and timing of the different territories and where in the EU regulatory cycle is your partner?
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John Huss, Theratechnologies Inc - President and CEO [17]
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So we're working very closely with Ferrer right now in the European file, so we've answered questions. We're in active discussions with the authorities, and we will get a decision in the back half of the year. Now, again, we're talking about regulatory bodies here, and these fluctuate, so I'm not going to he predict an exact date but we're still in line to meet the second half as previously mentioned.
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Adnan Butt, RBC Capital Markets - Analyst [18]
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A question for Luc, if I may. Is expense guidance unchanged, Luc? And secondly, when in 2012 do you expect the cost of sales to kind of normalize?
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Luc Tanguay, Theratechnologies Inc - SEVP & CFO [19]
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Okay. For your first question, our forecast for the expenses are still the same, around CAD15 million, before restructuring costs. And that CAD15 million, of course will be partially offset by revenues. But we're still in line with what we gave you as guidance at the beginning of the year. In terms of your second question was for the -- can you repeat, sorry, for the second --
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Adnan Butt, RBC Capital Markets - Analyst [20]
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The cost of sales.
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Luc Tanguay, Theratechnologies Inc - SEVP & CFO [21]
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Cost of sales are composed of two things. First, the cost of the drug itself. So as soon as our inventory -- old inventory will be depleted, it will have an effect on the cost of sales. We're already seeing that today, and the duration will be depleted by this year in 2012. You have to also take into consideration, in that amount the consolidation of second suppliers. So that might fluctuate from quarter-to-quarter, but in terms of old inventory, should be depleted by year end.
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Adnan Butt, RBC Capital Markets - Analyst [22]
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Okay. Thanks. I'll get back in queue.
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Operator [23]
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Thank you. Mr. Boucher, there are no further questions at this time. I'll turn the conference back over to you.
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Denis Boucher, National Public Relations - IR [24]
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Thank you. I think that there might be an additional question from Adnan Butt?
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Operator [25]
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Mr. Butt has just requeued. Give me a moment. Please go ahead, sir, your line is open.
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Adnan Butt, RBC Capital Markets - Analyst [26]
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I'll ask a couple more. One for you, John. In terms of new mode of administration, what are you looking at? What do you think it might end up being, or is it too early to tell for the new GRF?
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John Huss, Theratechnologies Inc - President and CEO [27]
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I think it's too early to tell what we're going to go forward with. I just told you I will announce that in June. We're mid-April, so give me a few weeks and I'll get back with news. And you know what we're testing, since I have disclosed that numerous times, so we're looking at oral right now, we're looking at nasal, we're looking at patches, we're looking at subcutaneous. I'm pretty confident that we'll take something forward.
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Adnan Butt, RBC Capital Markets - Analyst [28]
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Then one for Luc. A simple one. Are there any additional restructuring charges that are expected to be recognized in 2012, or is that pretty much done?
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Luc Tanguay, Theratechnologies Inc - SEVP & CFO [29]
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Most of the costs, restructuring costs happened this quarter. We might have, but it will be in the order of CAD100,000 for next quarter. So most of it is in Q1.
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Adnan Butt, RBC Capital Markets - Analyst [30]
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Okay. Thank you.
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Operator [31]
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Thank you, gentlemen, there are no further questions at this time.
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John Huss, Theratechnologies Inc - President and CEO [32]
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Wonderful. Well, since there are no further questions, I'd like to thank everyone for taking part in this conference call this morning. I wish you a very good day, and talk to you soon. Goodbye.
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Operator [33]
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Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect all lines. Thank you, and have a good day.
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