2010

IBS

Affordability & Innovative Medicines
A study on Dr.Reddys Laboratories

Group members (Sec: B): Rajnikanth Rajhans 09BSHYD Rahul T Santosh M 09BSHYD1108 09BSHYD0737

Jitendu kumar Dixit 09BSHYD Namitha 09BSHYD

by value ................................................................................... 4 India pharmaceutical market segmentation: %share.................................................................................................................................................................................................... 7 Geographic presence: ................................................... 5 Company analysis ............................................................................................................................................................................................ 9 The DNA of sustainability ........................... 4 Industry structure (segmentation) ..................................................................................... 3 Scenario of the Indian pharmaceutical market: ............................................................................................................................ 5 Macro economic factors influencing the industry ................................... 15 Strategic positioning: SWOT analysis .............................................................. 5 The PESTEL framework ............................................................................................................................................................................................................... 3 The global scenario: ................................................................................. 7 Company overview ................................................................................................ 7 Introduction ...................................................................................................................................................... 10 Strategy ........................................................................ 1 The pharmaceutical market: An introduction ................................................................................................. 17 .....................Table of contents Table of contents .........................................................................................

diabetes. By 2017. acquisitions and strategic partnerships are here to stay: In line with recovery from the global economic downturn. towards targeting specialist secondary care indications through the use of high-value biologic therapies. branded and off-patent medicines will continue to dominate. Mergers. However. In oncology. Switzerland when dyestuffs were found to have antiseptic properties. Therapy area growth dynamics will be driven by innovation cycles and unmet needs: As the pharmaceutical industry¶s research and development (R&D) programs adjust to creating low-cost generic options in many chronic therapy areas. IMS forecasts revenues from emerging markets at US$ 290 billion to US$ 320 billion. The global scenario: Emerging markets are set to play a pivotal role in future pharmaceutical success: Currently. the number of M&A and strategic deals has been on the rise throughout the second half of 2009. the industry is perceptibly moving away from the small molecule driven sales model. with medicines for infectious diseases and endocrine / metabolic disorder experiencing the largest growth. Rapidly growing economies. Primary care drugs will still drive sales in these markets. these partnerships and mergers will offer improved profitability because of higher combined sales. While neither M&A nor strategic partnerships can totally offset sales declines from the impending patent cliff of 2011. their rapid growth vis-à-vis the more regulated markets make them attractive prospects for the pharmaceutical industry. or the expansion of Biologics in developed markets. and branded and off-patent small molecule medicines in fast growing emerging markets: In the developed markets of the US.The pharmaceutical market: An introduction The modern pharmaceutical industry is a highly competitive non-assembled global industry. increasing population and greater health awareness combined with larger incomes to spend on healthcare will drive the growth of pharmaceuticals in emerging markets. with a CAGR of 12% to 15%. annual growth is expected to exceed 10% right up to 2014. The key driver of sales growth up to year 2014 will be injectable biologic therapies for the treatment of more secondary care indications. Transition from small molecules to big molecules. higher growth will occur in those areas where there is significant unmet clinical need. emerging pharmaceutical markets are typically small. as new drugs are brought to market. cost saving opportunities and operational synergies. multiple sclerosis and HIV. Europe and Japan. patient access is expanded and funding is redirected from other areas where lower-cost generics take over. . In emerging markets. Its origins can be traced back to the nascent chemical industry of the late nineteenth century in the Upper Rhine Valley near Basel. with occasional breakthroughs and revenue spikes coming from Biologics.

7 India. positioning India as a key provider of contract research and manufacturing services. neuropsychiatry and oncology drugs are likely to gain significance. coronary heart disease. 7. cardiac by 21% and CNS by 20%. The chronic segment has registered a growth of 21%. The domestic pharmaceutical industry grew by 18% in March 2010 (ORG¶s moving annual total. The Government of India¶s Vision 2015 statement indicates an 18% plus CAGR for the pharmaceutical sector.1 Japan. Anti-infectives grew by 14%. By 2015.6 China. respiratory and dermatology by 21%. and are exploiting the low cost base and pool of highly skilled labour in their market to develop a thriving outsourcing industry. or MAT) versus 10% in March 2009. Growing lifestyle disorders. The Indian pharmaceutical market has seen a CAGR of about 14% in the last five years.8% of the Indian pharmaceutical market¶s overall revenues. 53. with a share of over 75% of the total market value. cardiovascular. According to this report.% Share South Korea. particularly metabolic disorders like diabetes. generics exports. versus 16% in the acute segment.8 China Rest Of Asia Pacific India South Korea Scenario of the Indian pharmaceutical market: Indian companies have recognized the opportunity presented by western pharma in search of lower costs and higher profits. 19. It continues to be highly fragmented and dominated by Indian companies.7 Japan Rest Of Asia Pacific. translating to a doubling of revenues over the next five years. Acute therapy dominates. Industry structure (segmentation) Alimentary/Metabolism sales generated 13. the report expects specialty and super-specialty therapies to account for 45% of the market. Cardiovascular sales generated 11. growth will be driven by all verticals: domestic formulations. . and outsourcing. 10. obesity and hypertension.9% of the market¶s aggregate revenues. 8.

socio-cultural.80 11. economic.CATEGORY Other therapeutic purposes Alimentary/Metabolism Cardiovascular Respiratory Central Nervous Oncology Total %SHARE 54. In this method of analysis.0% India pharmaceutical market segmentation: %share.10 3. by value Oncology Central Nervous 3% System 6% Respiratory 10% % Share Cardiovascular 12% Other therapeutic purposes 55% Alimentry/Metab olism 14% Macro economic factors influencing the industry The effect of macro economic variables on the industry can be better understood by carrying out the PESTEL analysis. we would be understanding the political.00 6.70 13. environmental and legal aspects which would impact the industry.90 10.50 100. The PESTEL framework .

Also. Political interest has also been generated because of the increasing social and financial burden of healthcare. this tends to restrict its dynamism. increasing population. Socio cultural factors In India people prefer using household treatments handed down for generations for common ailments.Political factors Over the years. As a result there are immense legal. it is not completely wiped out yet. The use of magic/tantrics/ozhas/hakims is prevalent in many under developed rural areas. increase in pollution have resulted in increased health problems. the industry has witnessed increased political attention due to increased recognition of the economic importance of healthcare as a component of social welfare. Legal factors The pharmaceutical industry is a highly regulated and compliance enforcing industry. Also. But the effect of intense media and political attention has resulted in increased industry efforts to cater to all segments of the population. Technological advances Newer medications for various ailments have been discovered due to improvements in technology which has led to more efficient research and development. Therefore different brands of the same medicine were truly different. . in the past decade. Also. In India. the Indian products have started to cater to global markets as well. Hence. The patent act has also impacted the pharmaceutical industry. the pharmaceutical industry has witnessed high value mergers and acquisitions. This has led to rapid development of the industry. New molecules and active ingredients have been discovered. regulatory and compliance overheads which the industry has to absorb. Economic factors The per capita income of the people determines the extent to which people are willing to spend on healthcare. In most of the cases. Many companies are looking at African countries as a key strategic market for pharmaceuticals. Only very few percentage of people visit doctors for regular health check ups. Though this practice has seen drastic decline in the recent past. uncertainty in the political environment also impacts the investments and the investor confidence. majority of people visit doctors only in case of emergency.

2009-10 revenue was US$ 1. which includes branded and unbranded prescription and over-thecounter (OTC) drug products. Differentiated Formulations and a dermatology focused specialty company ± Promius TM Pharma. New Chemical Entities (NCEs). Russia. Romania and certain CIS countries Company overview FINANCIAL HIGHLIGHTS y Consolidated revenues for 2009-10 were Rs. Dr. the United Kingdom. Return on Capital Employed (RoCE) at 17% for 2009-10 as against 14% in 2008-09. comprising Generic Biopharmaceuticals. 70. comprising Active Pharmaceutical Ingredients and Custom Pharmaceutical Services. Reddy¶s Laboratories (µDr.  Rationalization of business model. This increase is attributable to:  Core business growth of India. as well as in emerging markets including India. 15. The Company has a strong presence ² in highly regulated markets such as the United States. Reddy¶s¶ or µthe Company¶) is an integrated global pharmaceutical company committed to providing affordable and innovative medicines through its three core businesses: y Global Generics. Russia and North America.37 billion in the previous year. It may be noted that the Company¶s revenue has been rising at a CAGR of 23% over the last 10 years. Adjusted EBITDA of Rs.56 billion. Germany.828 million is highest among pharmaceutical companies in India in the year 2009-10. Reddy¶s Authorized Generic version of Imitrex® which was launched in 2008-09 ² the Company¶s overall revenue grew by 9%. and  Cost optimization and restructuring initiatives. In US dollar terms. Excluding revenues from sumatriptan ²Dr. Pharmaceutical Services and Active Ingredients (PSAI). y y .Company analysis Introduction Established in 1984. compared to US$ 1. Venezuela.277 million. y Proprietary Products.

registered impressive performance. 2009 saw Dr. Reddy¶s longer term target of becoming a leading generics player in the US. the Company¶s growth in the US generics market was one percentage point higher than the average growth recorded by all the generic firms in the industry. At 6. Reddy¶s revenues grew by 25% ² out-performing market growth of 8% in value terms . thereby resulting in the Company recording an impairment loss of:  Rs. branded formulation revenues grew by 20% to Rs.158 million. In Russia. India & Russia. In 2009-10.BUSINESS HIGHLIGHTS y In the US market. In doing so.1% to 2.In India. 2. This is a significant milestone. Germany-Ongoing healthcare reforms and changing market dynamics continue to cause pricing pressures.7%. Moreover. both key emerging markets for the Company. the Company has rationalized its field force and moved towards a lean operating model. and y y . the results of additional tenders in Germany led to further deterioration in the market dynamics. and corroborates Dr. Reddy¶s enter the list of the Top 10 generic companies. 10. 5.147 million towards carrying value of goodwill.  Rs. New product revenues contributed to 5% of total revenues from India formulations. including one over the counter (OTC) product.The Company has broken into the Top 10 league by improving its market share from 2. omeprazole magnesium (OTC). To remain competitive in this scenario. 912 million related to termination benefits payable to a set of identified employees.5%. the Company recorded a one-time charge of Rs.112 million for the product related intangibles. metformin glyburide and fluoxetine DR. leading to low margins. Dr. The key launches include nateglinide. The Company¶s new product rank improved from 25th in 2008-09 to 8th in 2009-10. Reddy¶s achieved a prescription growth of 40%. Dr. Nine new products were launched in the US generics market in 2009-10.

Reddy¶s and Rheoscience announced the first Phase III clinical trial of Balaglitazone(DRF 2593) with results of significant reductionin HbA1c (glycosylated haemoglobin) and improved safety profile.  It has filed 19 Drug Master Files (DMFs) in the US during the year. Reddy¶s markets its products in approximately 100 countries. which forms a significant portion of the betapharm cash generating unit. eight in Europe. focusing on the US. and four in the Rest of the World(RoW).y y  Rs. India and Russia. . Europe. taking the total filings to156.211 million towards the trademark /brand. Geographic presence: Dr. Reddy¶s has generated a sound near-term pipeline of limited competition / high margin opportunities of generic products and biosimilars.  In addition. of which 38 are Para-IV filings and 12 have the status of µfirst to file¶. Successful audits of the Company¶s formulations and chemical plants 2009-10 saw successful US Food and Drug Authority (USFDA) audits of the Company¶s formulation plants at Bachupally. 1. µbeta¶. Dr. Hyderabad and Vishakapatnam.  Dr. As on 31 March 2010. there were 73 ANDAs pending approval at the USFDA. Product pipeline continues to show impressive growth potential  The Company has filed 158 cumulative Abbreviated New Drug Applications (ANDAs) up to date. the ANVISA audit of the formulation plant at Vishakapatnam and the MHRA audit of the chemical plants. It also filed five DMFs in Canada.

Ireland. Dr Reddy's Laboratories in other EU Countries Apart from subsidiaries in Germany. which is used for the treatment of asthma and chronic obstructive pulmonary disease (COPD) patients. Reddy¶s. Reddy¶s emerge as one of the leading generics players in Europe. Betapharm. a pharmaceutical company based in Netherlands. which accounted for 18 per cent of the company¶s total revenue. for EUR 14. ‡ Ireland: Dr. Rheoscience will hold this product¶s marketing rights for the EU and China. and it¶s wholly owned subsidiary Meridian Healthcare. Doxofylline. Reddy¶s entered into a 10-year agreement with Rheoscience A/S of Denmark for the joint development and commercialization of Balaglitazone (DRF-2593). Reddy¶s acquired BMS Laboratories. Dr. Dr. social impact of their products. Betapharm has a reputed team of experienced regulatory experts who maintain harmonious relationship with EU authorities. The acquisition of this company is expected to help Dr. Reddy¶s has agreements in the following EU countries: ‡ Denmark: Dr. Reddy¶s. Reddy¶s conducted clinical trials of its cardiovascular drug RUS 3108 in Belfast. These companies deal in oral solids. It commands a share of approximately 3. with manufacturing facilities in London and Beverley in the UK. Dr Reddy's Laboratories in Germany In March 2006. a private drug development company based in the UK. Recently. Reddy¶s entered into a marketing agreement with Eurodrug Laboratories. which is intended for the treatment of atherosclerosis.Reddy¶s entered into an R&D and commercialization agreement with Argenta Discovery Ltd. This is one of the largest-ever foreign acquisitions by an Indian pharmaceutical company. Dr. for improving its product portfolio for respiratory diseases. health and environment (SHE) management. Its turnover amounted to EUR 186 million in 2005. a major cause of cardiovascular disorders. for the treatment of COPD. patient centric programs.81 million. liquids and packaging. Dr. a molecule for the treatment of type-2 diabetes. and the UK. Germany¶s fourth-largest generics pharmaceutical company employs more than 350 personnel. Dr Reddy's Laboratories in the UK In March 2002.5 per cent in the German pharmaceutical market. ‡ The Netherlands: Dr. It is a broad concept which encompasses how they value their employees.Dr Reddy's Laboratories in the European Union (EU): In 2005-06. in 2005. proactive safety. . The DNA of sustainability At Dr. while the rights for the US and the rest of the world will be held by Dr. Reddy¶s generated a revenue of EUR 80. Sustainability is a way of life and is embedded in their purpose. Reddy¶s acquired Betapharm Arzneimittel GmbH from 3i for EUR 480 million.The trials were conducted to study the safety and the pharmacokinetic profiles of the drug. Beverley. Dr.27 million from Europe. It introduced a second-generation xanthine bronchodilator.

sustainable sourcing and product responsibility. Reddy¶s. and customer service with execution excellence to provide affordable and innovative medicines for healthier lives´ will help them focus on the right areas. In practicing sustainability. Today. environmental management and climate change. they have a serious responsibility ± to help reduce the burden of disease on individuals and on the world. y PROVIDING AFFORDABLE AND INNOVATIVE MEDICINES At Dr. purpose and planet approach. a company with a significant global footprint. while considering issues that are of significance to their stakeholders as well as to the organization. product offering. caring for communities. being an employer of choice. As their organization evolved. while being good at most activities that they do. They believe that their strategy of ³Leveraging industry-leading science & technology. so has been their sustainability thinking. they have to be distinctive in a few areas. Their awareness of sustainability originates from the social benefits of their business. They have come to understand the interdependence (as against independence) of their stakeholders and this has encouraged their simultaneous pursuit of a people.implementation of community development projects and voluntary engagement with the society to address larger social concerns like livelihood and education. their initial efforts were focused on environment management and safety & health at the workplace. they have arrived at a robust sustainability framework with six key focus areas± Providing affordable and innovative medicines. They achieve this by leveraging their proficiency in science and technology to innovate at . For their organization to be truly sustainable.

collectively ideating. control on generation. Their mandate now. innovating and interacting. water conservation.every stage of their processes. they offer a conducive working environment that taps one¶s potential to the . use of renewable sources of energy. disposal of hazardous waste and green chemistry. They work as One Team. which calls upon them to engage ethically with their stakeholders and to do everything in their power to reduce their ecological footprint. high quality alternatives while their Proprietary Products business addresses unmet and poorly met medical needs. Efforts are on to achieve a suitable blend of energy conservation. At Dr. y ENVIRONMENTAL MANAGEMENT & CLIMATE CHANGE They are working towards maintaining a harmonious relationship with the environment. is µevery new product should have a sensible footprint¶. y BEING AN EMPLOYER OF CHOICE They believe collaboration and teamwork enhances performance and drives innovation. Reddy¶s. Their Pharmaceutical Services and Active Ingredients (PSAI) and Global Generics businesses focus on affordability by providing lower cost.

However. product safety requirements and putting in stringent procedures for packaging to protect patient safety.fullest while offering them the freedom to question. ethics. y SUSTAINABLE SOURCING Their Business Partners are important stakeholders and working with them provides them operational flexibility and cost advantage. regulatory compliance. They ensure there is µNo scope for error in anything they do¶ by addressing quality management. Through sustainable sourcing. Their . economic and environmental impacts of their entire value chain. they are the ones responsible for social. health & safety. environment and other related management systems. This has gone a long way in earning them the trust of their employees and in making their employees proud to work with them. Their aim is to ensure that every step in their process is done µfirst time right¶. innovate and find that µbetter way¶. They are adopting a Quality by Design (QbD) approach where it is no longer enough to do a quality check at the end of the process. they try to influence them to adhere to best practices in human rights. y PRODUCT RESPONSIBILITY The trust of patients and doctors is crucial to their business.

Reddy¶s Foundation (DRF). and let them grow¶. . address health education needs and patient care activities through Dr. y CARING FOR COMMUNITIES µTo progress and provide for the community around them¶ and µto benefit individuals and society at large¶ are their focus areas in sustainable community development. They channel their wide network of social activities through Dr. Caring for communities is a part of their values statement.mantra has been µnurture them. as ultimately their growth is linked to theirs. Reddy¶s Foundation for Heath Education (DRFHE) and create positive impact on communities through Corporate Social Responsibility (CSR) teams in each location.

Vertical integration and process innovation ensures that the Company¶s products remain competitive. coupled with the will to make a difference drives 2. Stamlo (Amlodipine). They have the necessary expertise for customer-specific packaging.It aims to ensure that its customers ²pharmacy chains and distributors ² are µfirst to market¶ the Company¶s products. Brands like Omez (Omeprazole). formulation development. Reddy¶s strategy include: y STRENGTHENING OF SCIENCE AND TECHNOLOGY The Company¶s strengths in science and technology range from synthetic organic chemistry.The Company seeks to have a portfolio that is strongly differentiated and offers compelling advantages to doctors and patients. Over 1. The key elements of Dr. Enam (Enalapril) and Ketorol (Ketorolac) are leaders in their category in several countries.000 doctors and 115.Strategy The Company¶s strategy is to combine industry leading science and technology. cost containment.000-strong field force to reach out to over 210. PSAI PSAI (Pharmaceuticals Services and Active Ingredients) business.000 pharmacies in more than 40 countries across the world  Unbranded Generics.5 million patients across the world take µOmez¶ for their acid peptic disorders every single day! Entrepreneurship. product offering and customer service with execution excellence to provide affordable and innovative medicines for healthier lives. OFFERINGS Global Generics Geographic diversification.  Dr. Reddy¶s are strong in all these aspects in the generics space. and that they have high product availability combined with low inventories resulting in superior inventory turns while addressing the customer¶s needs. Reddy¶s brands are today recognized and trusted across several continents. and anti-counterfeit packaging  Branded Generics. Such expertise enables the creation of unique competitive advantages with an industry leading Intellectual Property (IP) and technology leveraged product portfolio. They are now the fourth largest player in Germany after the acquisition of betapharm. we y . Nise (Nimesulide). with many of them being used by more patients than use the innovator¶s product. compliance packaging. which comprises the Active Pharmaceutical Ingredients (API) and Custom Pharmaceutical Services (CPS)businesses. strengthening the product portfolio and building scale ± at Dr. and are constantly looking for opportunities to maximize the potential of current and future portfolio in different territories across the US and EU. Ciprolet (Ciprofloxacin). biologics development to small molecule based drug discovery.

speedy product development and cost-effective manufacturing services to our customers . Our goal is always to enable our customers to be the first to launch a generic product and to provide value added services to help them remain competitive and profitable for the entire life cycle of the product.offer Intellectual Property advantaged. CPS offers a service mix covering the entire pharmaceutical value chain. Dr.The Company¶s emerging Differentiated Products portfolio. Reddy's API business is supported by their technologically advanced Product Development infrastructure. Rather than just being a chemical provider. Their initial global therapeutic area focus is on dermatology and oncology. and full compliance with regulatory and quality requirements.Reddy¶s Specialty Pharmaceuticals business deals with assets like acquired proprietary technologies. A team of experienced project managers ensures smooth progress of projects from initiation to closure in order to avoid any cost and time overruns. internally developed proprietary drug-delivery platforms. the Centre¶s of Excellence and IP teams help create value through Intellectual Property and proactive patenting. including niches like oncology and hormones.  Differentiated Formulations. A key component of the strategy in this area is a strong. which identifies new products and is engaged every step of the way. Active pharmaceutical ingredients: Dr. technology leadership.both generic companies and innovators. The Product Delivery Teams. Reddy's offers an unparalleled portfolio to their clients. Proprietary Products Dr. product development. breakthrough product delivery. synergistic combinations as well . With a strong product portfolio of more than 140 products. it is little wonder that they are today the third ranked API player globally. and current internal compounds under preclinical and clinical development. A highly skilled global team focuses on timely delivery of products. targeted business development effort to accelerate market entry. cost competitiveness. and provide them with cGMP-compliant products manufactured in FDA-inspected. We have built the capabilities to consistently deliver on this promise in scale and across the largest product range. from the conceptual stage to delivery of drugs to the market place. the highest levels of customer service. They execute cost-effective and time-bound projects for customers. CPS stands out because of understanding of the pharmaceutical business and the associated expertise needed. and by delivering cost leadership in API. ISO-certified facilities. which comprises of new. early development work on certain promising molecules. and their ³first in. last out´ approach. two therapeutic areas that best leverage their internal assets. CUSTOM PHARMACEUTICAL SERVICES: In an industry cluttered with chemical manufacturers. who include innovators and generic formulators worldwide.

as technologies that improve safety and / or efficacy by modifying pharmacokinetics of existing medicines. Strategic positioning: SWOT analysis STRENGHTS Wholly owned subsidiaries in US and Europe Joint ventures in China and South Africa Markets pharmaceutical products in 115 countries Partnerships with global pharmaceutical companies like Novartis. Strong product portfolio Manufacture and market over 250 medicines targeting a wide range of therapies Wide range of anti-cancer drugs developed Over 100 APIs developed Six New Chemical Entities Low cost base contributes to company¶s high profit margin of around 34% of sales Partnerships with key players in the market keeps its cost base down Research Driven & Global Talent Expertise in developing innovative product formulations 6120 employees worldwide including 951 scientists in which 323 are dedicated towards new drug discovery research y y y y y y y y y y y y y y . etc. The Company is also investigating new indications for existing medicines. and commercialization of novel small molecule agents in therapeutic areas of bacterial infections.  Generic Biopharmaceuticals-The Company aims to deliver equivalents of proprietary biopharmaceuticals as affordable alternatives through process development as well as relevant clinical research. is focused on significant clinically unmet needs.The Company is also focused in the discovery. metabolic disorders. where currency is much more stable than the Indian Rupee . May loose out to western world. development.a rich source of Active Pharmaceutical Ingredients (APIs). and pain / inflammation. WEAKNESSES: y y High amount of revenues from overseas India . NOVO Nordisk.  New Chemical Entities (NCEs). especially Europe. hence major source of revenue is exports of APIs.

Product Portfolio: The group¶s major product lines include antibiotics. In biologics.y y y y y y Over-reliance on partnerships In order to compete effectively in global markets. ulcer medicines. y THREATS: y y y y y y y y y Health care reforms across the globe. rising audit burdens. that are all well-suited to Western and middle-income markets. strategic partnerships required to develop products. the niche segment of Indian business the company is planning to launch new products. antidepressants and cardiovascular drugs. The company is expected to see growth in sales due to implementation of replenishment based supply chain model.e. OPPORTUNITIES: y In global generics segment. pain relievers. the US generic business is expected to deliver stronger performance with at least one µlimited competition¶ product opportunity expected to come up each year. inspections and fines Proprietary products Generics Foreign exchange fluctuations Launch at risk . Cipla and Matrix. Dr Reddy¶s does not produce a significant ARV portfolio. Germany¶s tender model US healthcare reforms in the biologics space Russia reference pricing Price controls in India Regulatory and compliance (i. and in this sense lags behind Indian rivals such as Ranbaxy. Lack of resources similar to US and Europe based competitors to develop a drug to marketing stage Generic drugs smallest focus Smallest portion of revenues from generics at around 20% Lack of patent legislation in India harms sales of its products .

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