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Life Sciences Power Breakfast transcript

May 10, 2014

Indianapolis Business Journal gathered leaders in the state's life sciences industry for a Power Breakfast panel discussion April 24.

Panel members included Wayne C. Burris, senior vice president and chief financial officer of Roche Diagnostics Corp.; Elizabeth Hagerman, vice president of Rose-Hulman Ventures; Kristin Jones, president and CEO, Indiana Health Industry Forum; Oscar Morales, managing director of VisionTech Partners 1 and VisionTech Angels; and Joe Muldoon, CEO of FAST BioMedical.

IBJ.COM EXTRA
To see videos from the power breakfast,
click here.

The discussion was led by IBJ reporter J.K. Wall.

The following is an unedited transcript of the discussion.


                           WALL:  I'm going to start with an observation

                   and a comparison, a comparison that I hope is

                   somewhat provocative to get everybody talking.  It's

                   often said that Indiana has great life sciences

                   assets with companies like Roche, Lilly, Cook, Zimmer

                   and Biomet, IU and Purdue, but it has some

                   disadvantages on the entrepreneurial part of life

                   sciences, particularly compared with the coasts, it

                   doesn't have oceans or mountains or decades of kind

                   of risk-taking entrepreneurial clusters in life

                   sciences, and that's probably true.  What's

                   interesting or puzzling to me is that by some

                   measures, like amount of capital raised, Indiana even

                   lags some of its midwestern peers even on a per-

                   person basis in the number of deals and dollars, so

                   I'm curious since other midwestern states have the

                   same disadvantages that Indiana does, lack of oceans

                   or mountains, what is it that the state doesn't have

                   or isn't doing or is doing that it should stop doing

                   that even just midwestern peers seem to be doing a

                   bit better?  I'm going to throw that out to Oscar

                   Moralez first and get things started.

                           MORALEZ:  So why do I get picked on first?

                           WALL:  Because you're a good sport.

                           MORALEZ:  Well, that's a good question.  You
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                   know, I think there's a lot of answers and we could

                   probably spend 30 minutes and I've already been told

                   that you won't let me do that.

                           WALL:  You can pass the torch and then jump

                   back in later.

                           MORALEZ:  I think, briefly, the big issues

                   that I think are related to the fact that we don't

                   see the funding in Indiana that we do in the other

                   midwest states, in particular Ohio and Michigan, I

                   think for a long time they've had these really nice

                   technology clusters around the Cleveland area, for

                   example, in Minneapolis-St. Paul, and those clusters

                   are areas where innovation occurs.  Quite frankly, I

                   don't think that we in Indiana have had something

                   similar.  But it's exciting.  As Wayne mentioned

                   earlier, this Indiana Bioscience Research Institute

                   and the project and the objectives of that initiative

                   I think are going to continue to pull together and

                   build this cluster of technology that hopefully will

                   lead to more innovation, better innovation and

                   following that would be the capital dollars that we

                   all want to see.

                           WALL:  Who else has thoughts on this,

                   Kristin?

                           JONES:  Yeah, I think there's absolutely a
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                   question of economies of scale in those cases, too.

                   You look at some of the other states around us, the

                   Illinois and Ohio, you mentioned those, the size of

                   the industry clusters in those areas are much larger

                   than what we have here in Indiana, so while we have a

                   very sizable group here, a lot of it's happening in

                   those areas, just from the state scale perspective

                   it's a little different.  We shouldn't sell ourselves

                   short, I think we have a lot of assets here that

                   certainly make Indiana just as much of an attractive

                   place as either of the coasts and certainly the cost

                   of doing business in the midwest is one that is very

                   hard to compete with for groups in either of those

                   areas.  I think that one of the perceptions that we

                   also have to struggle with is the state investment in

                   this.  Ohio's an interesting case right now because

                   the state which has historically contributed a lot to

                   the life sciences and supporting the life science

                   industry across the state of Ohio, that's in fact

                   what they've been doing over there, and you're

                   starting to see some of the effects of some of those

                   technology clusters that have been receiving a lot of

                   state funding that are having to cut back on

                   programming and cut back on what they're doing, and

                   what the impacts of that are going to be 10 years out
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                   on the innovation support that they've been used to

                   getting is going to be very different.  I think that

                   we have a perception issue of the state support for

                   life sciences in Indiana and I think that we're

                   starting to grapple with the same kind of pullback

                   issues that maybe that they've already or they're

                   just starting to.

                           WALL:  Does anyone else have thoughts on

                   this?

                           MULDOON:  I'd agree with Kristin, I mean

                   money talks, and when you look at what some of the

                   other regions have done, there's opportunities in

                   Indiana yet.  Cleveland Clinic I think realized that

                   they're in a position to see where there are

                   significant unmet medical needs and actually play a

                   role from a capital standpoint and from an

                   identification standpoint of which technologies might

                   succeed and filling those needs, so that might be an

                   opportunity for us.  Also, I think there's cultural

                   issues.  Sometimes in life your strength is your

                   weakness and as Hoosiers maybe we need to take it

                   down a couple notches on the humility level and take

                   it up a couple notches on the risk tolerance level.

                           WALL:  Anyone else want to jump in here?

                           BURRIS:  I think it's the reason IBRI was put
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                   together, though, right, because even though we're

                   pretty strong I think in terms of technologies and

                   even scientific talent, we're not as good when it

                   comes to the commercialization side, but I think over

                   time money will follow the results.

                           WALL:  So you mean if there are success

                   stories, and certainly there have been, but as there

                   are more, then there will be more money to follow?

                           MORALEZ:  And I think, too, to Joe's point,

                   in these clusters like Cleveland Clinic you are

                   having I think a more cohesive alignment of all the

                   partners or the stakeholders that should be involved

                   in that ecosystem, so you have the medical

                   institutions who are the ones that recognize the

                   issues on the medical side and you have them

                   partnering with industry to really help understand

                   kind of that commercialization path and provide the

                   resources and in some cases maybe even funding to

                   help get to that endpoint, so those are the clusters

                   I think that we may not have as well developed, but

                   certainly over the last five years I personally have

                   seen a lot of that kind of coming together in a more

                   cohesive way.

                           JONES:  I think Indiana has done a really

                   good job of benchmarking against places that do have
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                   a lot of infrastructure and do provide a lot of

                   support and figuring out kind of where the gaps are,

                   where we can start to fill those, and the programming

                   is coming together around that, absolutely.

                           WALL:  Oscar, Kristin, can you offer a more

                   concrete example of what you were just saying, I mean

                   things that are exciting or encouraging to you that

                   are happening?

                           JONES:  Yeah, one of the examples I'm

                   thinking of, one of the programs that we've been

                   looking at quite a bit is a group out of Akron, it's

                   the Akron Biomedical Innovation something, A, ABIA.

                   Basically it is a group of hospitals that have come

                   together around medical device product development

                   and they have put together from an idea-mining

                   perspective within the hospital networks to a

                   prototype development, to a testing, to a clinical

                   research, to a spin-out process that is really

                   comprehensive, really interesting from a how do we

                   maybe replicate that or how do we work with that here

                   in Indiana perspective and I think it's something I

                   think that we could look at, adapt and very easily

                   bring to fruition with a little bit of coordination

                   and some support for it.  I think there are lots of

                   opportunities for modelling things that have already
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                   been created out there without having to reinvent the

                   wheel every single time ourselves.

                           MORALEZ:  I think from the angel perspective

                   some of the things that we've seen and that we're

                   trying to, to take Kristin's comment, benchmark

                   against is, you know, some of the other angel groups

                   in the midwest who are finding success in different

                   ways besides capital invested, we've only been around

                   for five years, so we've spent a lot of time looking

                   around to see who else is successful and why they're

                   successful and what we need to be doing as an angel

                   network to be successful as well.  So I'll use Hyde

                   Park Angels as an example of a group up in Chicago, a

                   group of angel investors up in Chicago who have

                   really taken a pretty significant leap in terms of

                   their recognition and their visibility in the

                   country, across the country.  They do some things

                   that are really unique that we try to model against

                   and in doing that it enables us to come closer

                   together with them, look at deals and cosyndicating

                   investment opportunities, looking at some of the best

                   practices that they have, and so from the investor

                   side there are things that we're doing to try to

                   improve and see what else is working across the

                   midwest.
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                           WALL:  Go ahead, Joe.

                           MULDOON:  J.K., I can give you another

                   example, it might be a little bit further outside of

                   the area we're focused on, but if the question is

                   what's working while here, you've got a great example

                   sitting at this table in Rose-Hulman Ventures.  For a

                   company like ours your challenge is to make progress

                   in the right direction as capital efficient as you

                   can.  To have a resource like Rose-Hulman Ventures

                   that can do the lion's share of the device component

                   of the development work that they've done for us,

                   they've done it for Suros, they've done it for NICO,

                   with global expertise on a very capital efficient

                   basis with a group that's easy to work with, it's

                   huge, it's a huge advantage.

                           HAGERMAN:  Thank you.

                           WALL:  Elizabeth, would you like to talk

                   briefly about what you do and what your approach is

                   there?

                           HAGERMAN:  Sure.  So we operate within Rose-

                   Hulman Institute of Technology as an engineering

                   consulting firm, so the way we work is we have

                   external clients like FAST BioMedical, like Suros,

                   like NICO, who come to us with a very specific

                   technical challenge in their product development
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                   cycle, so they are looking to commercialize a

                   product, they need that technical, some people think

                   of it as R&D, some people think of it as product

                   development, they need that piece solved for them and

                   that's what we do, we do the design work, we do the

                   development, we deliver that product to them, they

                   take it to the next steps of commercialization.  Some

                   of the advantages that we offer is that we can work

                   very quickly, very iteratively.  One of the things

                   that makes us successful, though, is when we have a

                   great client as a partner who really sees where

                   they're going from a business perspective, so I think

                   some of what we'll talk about in the rest of the

                   discussions is some of the challenges associated with

                   health care and there are some maybe extra difficult

                   business hurdles in this field and to have a client

                   who sees that strategy, knows where they want to go,

                   to help direct the technical development is a huge

                   help to someone who is working on that technological

                   product development.

                           WALL:  Oscar, I'm going to go back to you,

                   you mentioned your work developing networks of angel

                   investors in the last five years and there has been

                   what seems to me a real kind of flowering of angel

                   investment in life sciences that has helped fill some
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                   of the gap created by other sources, particularly for

                   early-stage companies.  Can you describe what's

                   happened there in the last few years, how that's

                   changed the funding landscape for particularly early

                   life sciences companies?

                           MORALEZ:  Yeah, it's funny because Kristin

                   and I were talking about that over breakfast.  So

                   this is my perspective, I think the life sciences

                   companies, and Joe will probably attest to this, are

                   finding it more difficult to find capital I think for

                   a number of reasons.  I think there's been a huge

                   shift, of course, and everybody knows about the shift

                   in Series A capital, you know, it's to create this

                   bigger void of institutional or next stage capital

                   that especially life sciences companies really,

                   really rely on.  I mean angel capital for a med

                   device company or a biotech company can only get you

                   so far and it's not very far at all, so this big void

                   that exists has continued to create a lot of pressure

                   on life sciences companies to find those capital

                   dollars that they need to continue their development.

                   What's happened is you've heard angels and angel

                   groups coming together, more and more angel groups

                   co-investing together trying to pull these capital

                   dollars together to make bigger raises and leverage
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                   the size of those investments and that'll continue to

                   happen, but something that's also started to happen

                   is angel groups themselves starting to kind of take

                   on more of a venture capital role, so you see more

                   and more angel groups starting to raise smaller

                   funds, more committed funds, pooled capital funds to

                   start to fill that void a little bit, and then you're

                   also seeing some angel groups raise more significant

                   size funds, 20 to 30 million dollar funds, again in

                   an effort to try to fill that void.  So I think those

                   are some of the trends that are happening, they're

                   going to take awhile to kind of develop, and until

                   then I think the life sciences companies are going to

                   continue to struggle and have a hard time finding

                   capital.  The other thing that I'll mention real

                   quick is that the other pressure I think that's

                   really weighing heavily on life sciences companies is

                   just the deal flow.  I think a function of groups, of

                   angels that come together, is the ability for those

                   groups to look at other sectors outside of life

                   sciences, for example, and our group is a perfect

                   example, now we're starting to look, as we bring on

                   new members that have different areas of domain

                   experience, we're starting to look at deals outside

                   of life sciences, quite frankly, that are less
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                   capital intensive, potentially earlier to exit, the

                   dollars that the companies need are significantly

                   less and so it's kind of an opportunity cost in some

                   cases, so I think those are some of the dynamics that

                   are making it quite challenging.

                           WALL:  Joe, do you have anything to add?

                   You're an entrepreneur who's been swimming in this

                   environment.  What does it look like from your

                   vantage point?

                           MULDOON:  To no surprise to you, I do have

                   something to add.  The increase in angel activity for

                   FAST BioMedical has been transformative, it's really

                   filled the gap, and the early-stage life sciences

                   community in Indianapolis is pretty small, so we all

                   know each other, and I can tell you there are several

                   other companies that feel the same way.  There is a

                   gap between seed and Series B and angels have stepped

                   up to fill that gap, along with BioCrossroads, Rose-

                   Hulman Ventures, 21st Century Fund, Elevate Ventures.

                   The vast majority of our 17 million has come from

                   high net worth angels and as we go into due diligence

                   with venture funds what they are surprised to learn

                   is our angel investments haven't been $5000 from "my

                   Uncle Harry that thinks I'm a nice kid and, you know,

                   good luck," it's a quarter million up from usually
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                   entrepreneurs, many of them created their wealth in

                   life sciences either as executives in large companies

                   or as entrepreneurs themselves, many of them

                   management has had somewhere between a 10 and 20 year

                   relationship with personally so they know whose

                   throat to come choke if things go off, and it's

                   really been transformative.  We've seen the

                   sophistication level continue to increase, we've seen

                   groups like VisionTech form that take you through a

                   pretty robust and a pretty sophisticated due

                   diligence process, and I've got to tip my hat to the

                   state on something that they've done incredibly well

                   is the Venture Capital Tax Credit Program, that 20

                   percent tax credit that you can offer angel investors

                   has really been a difference-maker.

                           WALL:  That's interesting.  Anyone else have

                   thoughts on how the environment's changed with angel

                   investors?  All right, well, one of the things that I

                   would like to get into is this whole discussion, of

                   course, is happening in the midst of a lot of change

                   in just the broader health care sector and life

                   sciences companies are usually trying to solve some

                   sort of problem in health care.  I'm going to throw

                   this out to Wayne Burris first, but can you talk

                   about how or give some examples of how life sciences
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                   companies trying to develop new technologies are

                   either helped or threatened by the changes that are

                   flowing from the Affordable Care Act either directly

                   from the law or just some of the attendant changes

                   that are coming with it?

                           BURRIS:  Yes.  So first I think we put too

                   much responsibility or change on the Affordable Care

                   Act because I think health care was reforming before

                   that, but what we see happening is kind of a

                   reluctancy to fund innovation, to really pay for

                   innovation, and so a lot of the kind of marginal

                   improvements in products that historically companies

                   got rewarded for, they're kind of discontinuing those

                   kind of activities and focusing more on, I mean which

                   is in a good way, more innovation, frankly, to

                   address more unmet needs, which is higher risk and

                   takes longer to do, is definitely more challenging.

                   Reimbursement is a huge challenge I think impacting

                   life science, and as we were talking earlier, people

                   tend to associate, and because it's near and dear to

                   us, we think of diabetes care, we think, God, you

                   know, they got a 70 percent hair cut in reimbursement

                   a couple of years ago, that's it, but reimbursement

                   changes are happening across all the segments of

                   diagnostics testing and even impacting drugs as well,
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                   and so it's forcing companies for the most part to

                   really rethink what they're investing.  So if you

                   look in the US, for example, absolute dollars spent

                   in R&D in the pharma industry is actually down and

                   it's down because they are trying to manage short-

                   term profits, they are rethinking what's the best way

                   to be successful on the innovation side and, frankly,

                   they're collaborating more and taking more R&D

                   outside of their traditional internal structures and

                   yet if you look now at where they're spending their

                   money at, a lot of them are getting into more of a I

                   call it the high-risk areas in terms of where they're

                   investing because they see the returns, so you don't

                   see as many companies chasing the next cholesterol-

                   lowering drug, I mean they are really migrating

                   toward more higher return, high-risk areas to get

                   rewarded for innovation that they won't get if they

                   continue to focus on kind of modest improvements to

                   what already exists today.

                           HAGERMAN:  I can add to that from a product

                   development standpoint.  We see, and this goes back a

                   bit to some of my Baxter experience, but it used to

                   be that you could walk into a hospital and sell to

                   your end user, the physician or the surgeon, whatever

                   your product was aimed towards, and tell them about
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                   the newest improvement, maybe it's incremental,

                   "Here's the new color, here's the new way that you

                   hold it in your hand" and that's all you had to do.

                   Very quickly that has gone to now you walk in and you

                   sell to the hospital purchasing committee, they have

                   an oversight of what the hospital will buy and

                   they're not looking at the same kind of data "It's

                   easier to use, it's flashier, it is the next best

                   thing," they want to see if there's pharmacoeconomic

                   data that goes with that product, so patient data is

                   not enough, they also need to see how that patient

                   data impacted the economics of the hospital.  That

                   data takes longer to collect, you spend more money

                   collecting it, it's a much more involved process.  So

                   it kind of goes back to my earlier statement, it's

                   not just about creating the next best technological

                   thing in your device or your drug, you really have to

                   see the path forward that fits into this hospital

                   purchasing system.  In some ways, like Wayne was

                   saying, you can think that large companies are taking

                   those bigger leaps towards bigger innovation but it

                   is going to take longer.  We're probably missing out

                   on those incremental changes that lead to overall

                   change because a hospital will no longer pay a

                   premium for a small change from the last iteration of
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                   the device, so it's interesting from say the Rose-

                   Hulman Ventures or the product development

                   perspective is that it's very easy to develop

                   whatever technology the customer is asking for but

                   now what the customer is asking for is a much bigger

                   problem than just what we can build that day.

                           WALL:  So that has lengthened timelines and

                   raised risk and probably call for more capital to

                   develop those solutions.  Is there a way, someone

                   from the audience asked this, to create what they

                   call an efficient market for discovering

                   opportunities and making advances in basic research

                   and development and then translating them into

                   products in the life sciences?  This happens, of

                   course, I think the emphasis on it is on efficient

                   market in this question, that would require

                   conversations and relationships that currently don't

                   happen on a broad scale.  Can the panelists talk

                   about to what extent that kind of market does exist

                   here in Indiana and ways in which it could be more

                   efficient or more vibrant?

                           MORALEZ:  I can mention a little bit about

                   some models that we've looked at that I think create

                   some of that efficiency and it all goes back to

                   bringing in the right stakeholders at the right time,
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                   so, for example, accelerators and incubators and some

                   of these terms that you all have heard are really

                   kind of a way to bring some technologies in to kind

                   of a cordoned-off environment and help develop those

                   technologies or those products.  I think what's kind

                   of been missing in the past that folks have kind of

                   gravitated or continued to gravitate towards is,

                   again, bringing the industry partners, so instead of

                   developing a technology or a product and then hoping

                   on the back-end that there's a market for it, bring

                   the strategics, the industry partners as early on as

                   possible to validate that there is a need in the

                   market for something like that.  So I think to

                   Elizabeth's comments about these devices not being

                   able to very easily get into the hospital systems,

                   well, the fact is Dan Evans, if you've heard him talk

                   about thousands and thousands and thousands of

                   devices and products that they have to review every

                   year, I mean there's so much noise in there and

                   having industry partners kind of help you filter

                   through that noise and select those technologies that

                   you want to put your resources behind and your

                   capital behind I think is a great way to make it more

                   efficient and I think that we're starting to see some

                   of that.  We're certainly seeing it in other areas
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                   and other pockets, RTP is one that's done I think a

                   very good job of some of that, on the ag side

                   especially, but, again, I think some of these

                   initiatives like IBRI are going to kind of pull all

                   of that together and make it hopefully more

                   efficient.

                           HAGERMAN:  We see that routinely in all

                   business arenas that we play in is that the quicker

                   you can get the customer feedback the faster your

                   product development cycle will be, and I think what

                   Oscar is describing is exactly that, the quicker you

                   can get the end users and the hospitals to be engaged

                   in that product development cycle probably you will

                   get lots of good results from end products that are

                   faster to market and it helps the entrepreneurs as

                   well.

                           MORALEZ:  But you also see that on the

                   venture capital or on the institutional side, you

                   know, whereas in the past they would be kind of the

                   hand-off person once this angel capital phase, once

                   you got through that and you were ready for

                   institutional capital, you had a situation where VC

                   was ready to then write the check for the next round.

                   Well, now VC wants to see industry partnerships,

                   strategic partnerships that have validated the
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                   product and the technology and also validated the

                   market and the acceptance, and so there's a lot -- I

                   think there's a lot of new hurdles that companies

                   have to kind of jump through and get through, and

                   even angel groups are starting to -- part of the

                   value-add they are starting to bring to the table is

                   some of those relationships with those industry

                   partners and bringing in those industry partners as

                   early as possible to help them select the right

                   technologies.

                           BURRIS:  Joe and I were talking about this

                   earlier before we came on the panel, but I think now

                   it's really incumbent that you collaborate earlier,

                   that, you know, your technology, the business model

                   for where you think your product is going to go, it's

                   validated earlier than it used to be because if not,

                   you know, I think money is less a way to gamble on

                   kind of the hope for a product that the market is

                   looking for, they're looking for world confirmation

                   that you have confirmed that there really is an

                   opportunity for that product much earlier in the

                   process.

                           JONES:  I'm just back from a meeting with all

                   of my counterparts from around the country and we get

                   together a couple times a year and we talk about best
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                   practices and what programs are really working and

                   you see the things people are really talking about

                   right now is how do you engage your industry members,

                   again, earlier in the process, exactly what you were

                   saying, but also bring academia into that

                   conversation and make sure that what they're doing is

                   tailored to the needs that are going to be needed in

                   the market, just getting it there earlier is really

                   the key, getting that first fast-to-fail decision,

                   you know, don't invest millions of dollars in it if

                   it's not going to go anywhere, make that quick

                   decision earlier in the process.

                           WALL:  This is really helpful.  Joe, I have

                   to have you come in here because in your own company

                   you did some of this and I think it paid off in not

                   only validating what you were working on but in fact

                   opening up a new area you didn't know about.  Talk

                   about that for bit.

                           MULDOON:  I will.  We believe in the

                   efficiency of markets, so there have been a lot of

                   changes and those changes present somewhere between

                   medium size and enormous challenges for us, but I

                   think a lot of these things are happening for a

                   reason and some of the reasons are pretty good, so

                   maybe historically it was too easy to sell a device
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                   into a hospital and that might have been for the

                   collective good not a benefit.  It's arguable that

                   the bar might be dysfunctionally high now but if

                   there's a trade-off it's also more specific, so

                   technologies have to prove that they are clinically

                   actionable, that because that technology exists it

                   gives a clinician information or a tool to do

                   something different to drive a demonstrable outcome,

                   and the challenge is really to build the health

                   economics case and build it earlier.  The tough part

                   of that is there's nothing that builds a health

                   economics case like human data and human data is

                   really expensive to create, so prior to lots of human

                   data, it's hypothesis, it's talking with key opinion

                   leaders in the space, it's talking with hospital

                   administrators in the space, and what's hard is it's

                   really hard to get access to them, they're all under

                   incredible pressure on their own and everybody is

                   trying to talk to them about their technology.  We've

                   been very fortunate, we've been at it awhile, to get

                   access to some of those folks, and in doing that we

                   determined that one of the metrics we're producing

                   with our technology, plasma volume, actually had a

                   significant role in being a clinically-actionable

                   metric in its own right.  Now, the reason we were
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                   calculating plasma volume was so we could put it into

                   the formula and have a quicker test on measuring

                   kidney function and then because we did broad enough

                   and deep enough market research with different

                   clinicians, some of them were stopping us at plasma

                   volume, they said "You can measure plasma volume?"

                   We're like "Yeah, but that's not important" and they

                   go "Yeah, it's really important," and so we've kind

                   of pivoted a little bit and we lead more with the

                   plasma volume measurement than we do the renal

                   function measurement because the health economics

                   case is a bit more straightforward and it's easier to

                   build.

                           MORALEZ:  I think, too, though, there's a

                   fine balance between trying to get all the answers

                   and validate technologies and make sure that you have

                   all the answers and I think the reality is you're not

                   going to have all the answers, so there's still some

                   level of risk that investors have to be willing to

                   take, and I think kind of the missing piece there is

                   that really, really helps to kind of cement that or

                   to bridge that, rather, the relationship that you

                   have with the team and the confidence that you have

                   in that team, so sometimes you don't have all the

                   answers on the validation side and on the commercial
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                   acceptance side, but that team really does make that

                   difference in making it possible to get comfortable

                   with the investment.

                           WALL:  I'll move on to the next question, but

                   this has been a helpful discussion.  Does anyone else

                   have anything to add to what we were just talking

                   about?  Well, we have a relatively diagnostic heavy

                   panel and I think that's good, sometimes we've had

                   more of a pharma-leaning panel.  I'm curious, five

                   years ago Clayton Christensen wrote a book called the

                   "Innovator's Prescription" and one of his predictions

                   in there was that diagnostics would become more

                   valuable, actually, than probably therapeutics over

                   time and had various reasons for that prediction, and

                   that hasn't happened in five years.  I don't know

                   that he thought that it would in five years.  But,

                   Wayne Burris, I'd like to have you talk about do you

                   believe that prediction that's where things are going

                   and why hasn't it happened now and what would need to

                   happen to make that come about?

                           BURRIS:  Yes, somebody once told me a

                   forecast is always accurate as long as you're able to

                   put a time limit on it, but I think diagnostics and

                   pharma, you know, we've invested a lot in the

                   strategy of companion diagnostics where you marry a
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                   diagnostics and a pharmaceutical drug together and,

                   you know, you can stratify a population, you can

                   really make sure that the drug is targeted toward a

                   person where the therapy's actually going to work,

                   but if you really look back over the last hundred

                   years, right, I mean there's been hundreds and

                   millions of dollars spent in both the diagnostics and

                   pharmaceutical side and realistically what have we

                   really cured?  You know, two or three diseases over

                   that hundred years, and really the biggest

                   improvement in both the length and quality of life

                   has come through a combination of early detection and

                   early intervention on the drug side and even when you

                   combine the two of those, right, they're like 17

                   percent of total health care spending, though they

                   tend to get a lot of focus.  I think they both will

                   remain important separately and have more value

                   coming together as well, but that combination of

                   coming together as well is probably more valuable

                   from the patient side, frankly, than it will be for

                   the pure economic side, for example, for the

                   diagnostics company because if you think about a

                   companion diagnostics drug, I only need to use it

                   once to diagnose you and then after that that

                   business model of revenue for the diagnostics company
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                   no longer exists.  I think they will both continue to

                   be important going forward.  Diagnostic tests are

                   involved in 70 percent plus of every therapeutic

                   decision made from the physician side, so that just

                   kind of tells you you need it, right, and we'll

                   continue to invest in it, but it exceeding pharma in

                   terms of importance, I think they're both equally

                   important for different reasons.

                           WALL:  What can you talk about Roche and its

                   business, certain parts of it, and you mentioned this

                   earlier, frequently dealing with reimbursement

                   challenges, many of those come from Medicare, many

                   from commercial payers.  Talk about some of what

                   you've seen recently and whether that's good, bad or

                   indifferent.

                           BURRIS:  And again our conversation of the

                   reimbursement discussion was focused on diabetes, but

                   we see reimbursement across, frankly, almost every

                   part of diagnostics being challenged.  I'll give an

                   example of coming into 2014 tissue diagnostics,

                   certain codes within this diagnostics test were

                   reduced by 20 percent and if you think about what's

                   near and dear to most of the population in the US is

                   cancer and yet you've got kind of a leading part of

                   diagnosing cancer being cut with respect to
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                   reimbursement and even being challenged with respect

                   to protocol of which tests are ran because it's one

                   thing to just have a reimbursement cut, it's another

                   one to say "I'm not going to pay for all of these

                   tests on the panel," the result is still the same,

                   it's a decline in revenue, and I see that's going to

                   continue, I mean there's already scheduled cuts for

                   '15 and '16 already in the system.  Now, you know,

                   the industry is really lobbying to try to control

                   that, but I think the diagnostics industry in

                   particular we should take the responsibility that

                   some of that's our own fault because I don't think

                   we've done a very good job of really selling the

                   value that diagnostics brings to overall health care,

                   and so until we do a better job of that I think we

                   will be under the threat of future reimbursement

                   cuts.  I mean it's still a big market and it's highly

                   profitable, but it will be a challenge for the

                   diagnostics industry.

                           WALL:  Joe, you are in both of these, you've

                   got what is regulated as a drug and a test.  What do

                   you think about Clayton Christensen's prediction, why

                   hasn't it come true and what do you see coming

                   forward?

                           MULDOON:  I'm a fan of the book.  I'm trying
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                   to recall the overall framework he put it in, but I

                   think his point was there's overcapacity in the

                   system, especially on the therapy procedure side, and

                   that part of the answer is consolidating that

                   infrastructure so that if you need to get your knee

                   scoped, you go to the place that does 200 of them a

                   day, it's the highest throughput, it's the lowest

                   cost, it's the best outcomes, but before you can do

                   that the diagnosis has to be done correctly and so

                   value needs to flow into the diagnosis.  I think he

                   was speaking of the clinicians that do it as well as

                   the tools that do it.  We see some of it on the

                   companion diagnostics side, so we fish for capital in

                   a couple pools, one of them is big pharma, a lot of

                   big pharma companies have now created venture funds

                   that they invest out of and we've seen an awareness

                   and a value assigned to if you have a technology that

                   can help you bring a therapeutic to market because it

                   better targets those patients that are most likely to

                   respond to that therapeutic, which we might have in

                   renal disease, both for chronic and acute kidney

                   failure, that there's real value to that.  We've even

                   seen that they apply value on the clinical trial side

                   because in the renal area the tools they have are so

                   poor that it's even harder to figure out who you
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                   should put in your clinical trial to show that the

                   drug might work.  After you get out of that pool

                   there's not a lot of value we're seeing being

                   assigned to diagnostics.  When we talk to traditional

                   financial venture funds, there is not a lot of money

                   in diagnostics and there's not even that much money

                   in devices.  The majority of it is focused on the

                   pharmaceutical side.

                           BURRIS:  And I think one of the shifts you're

                   seeing in that model for the companion diagnostics is

                   pharma is having to fund even the diagnostics test

                   development because there's not a huge incentive for

                   the diagnostics company to do it, particularly when

                   you think of the high failure rate of the drugs

                   getting through the process, so even pharma now is

                   starting to fund that diagnostics in those particular

                   examples.

                           WALL:  Does anyone else have thoughts on this

                   topic?  Well, I'll ask a question about pharma, this

                   comes from the audience as well.  How will big data

                   and digital health technologies influence drug

                   development?  Who wants to tackle that one?

                           BURRIS:  The real answer is who knows, right?

                   I mean everybody is on the big data wagon right now

                   and investing in it and trying to understand what it
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                   means.  I don't know what it means.  I think early on

                   what it might do is it may allow you to eliminate

                   certain compounds of consideration very early in the

                   process.  It might even, in fact, allow you to kind

                   of simulate the development of a compound without

                   actually doing development to kind of increase your

                   chances for success, and then down the road I think

                   it will allow you to better stratify which patients

                   will lend themselves to responding to certain drugs,

                   but it's wide open in terms of what I think what the

                   impact will be on the industry.

                           WALL:  If anyone wants to broaden this out to

                   device development or just other parts of life

                   sciences, feel free to do that, how you think big

                   data might affect them.

                           JONES:  Well, it's all getting down to the

                   data at this point, whether it's comparative

                   effectiveness, whether it is post-market

                   surveillance, whether it is patient information from

                   your clinical research, it is all about the data, it

                   is all about what can you demonstrate and prove, what

                   do the numbers show about how effective your product

                   is, whether device or therapeutic, there is obviously

                   a big and growing role for digital health information

                   and applications for interpreting it, using it,
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                   whatever the case.

                           MULDOON:  And the data is so expensive to

                   create --

                           BURRIS:  Exactly.

                           MULDOON:  -- at a time where there is

                   incredible pressure on capital efficiency.  The more

                   it can be shared as opposed to siloed, the better the

                   system operates, but I think the key question is so

                   does every individual participant in the system feel

                   they're going to benefit enough to share it.

                           WALL:  That's a big question.  Well, I'll

                   throw a question back at you, Kristin.  We've talked

                   about a variety of things, but one of the efforts

                   that's been underway for very many years in Indiana

                   is just to get more life sciences companies launched.

                   The universities obviously play a big role in that.

                   What would you say is the biggest barrier to

                   launching more life sciences companies here?

                           JONES:  Aside from the money part, or have we

                   beat a dead horse enough already?

                           WALL:  These conversations usually come back

                   to money.

                           JONES:  Money is always good, the more the

                   better.  With that being said, we have great

                   technologies, we have good people, we have a caring
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                   and supportive community.  I think there are always

                   opportunities to pull out more mentor-leaders into

                   those conversations to get people more engaged and

                   congregated around these businesses.  You know, we

                   said the earlier the better for engagement from

                   everybody and that's bringing industry to the table,

                   whether that is bringing past entrepreneurs who are

                   able to bring their experiences and their capital and

                   just all of their personal network to bear on folks

                   who are going through it for the first or maybe

                   second time.  We've been at this awhile now, we're

                   starting to see that second crop of entrepreneurs

                   kind of come to the surface.  There are people who

                   have gone out there and done it and are coming back

                   to try it again.  We need to be very supportive of

                   these folks for having the willingness to stick it

                   out here and give back to their community, so I think

                   building that leadership, building that community I

                   think is really important.  We're on a good track for

                   it.  I think there's always more we can do to help

                   bring those people together earlier around it.  That

                   being said, I would also add facilities to that.  As

                   a resident of the IU Emerging Technology Center or

                   Innovation Center in Indianapolis right now I'm

                   really concerned about the disposition of that
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                   building.  If we lose the lab space that's in there,

                   that's going to be a big blow to our life sciences

                   community, where are those folks going to go and what

                   are we going to replace that wet lab research space

                   that's out there, so facilities are also a concern.

                           HAGERMAN:  I can also add to that.  We in our

                   product development capacity always have, I'll say

                   physicians, but people in the life science

                   communities coming to us with ideas and typically

                   they're the end users and they're always extremely

                   stimulating conversations, it's always exciting, I

                   was just in one last week and you can see the

                   passion, you can see where this would affect a

                   patient, you can see why everyone would want it, and

                   unfortunately so often the conversation stops there

                   because that person who had the idea who sees the

                   need and would be the end user doesn't have the

                   ability to gather the right business strategist,

                   gather the right funding, all of those things, so

                   it's hard to pull all of those pieces together

                   currently that would be able to successfully launch

                   that idea into a business or a product, and so I

                   think if there is a way to help and where we see the

                   gap often is the business strategy piece of it, no

                   one's lacking the passion, no one's lacking the
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                   ability to even create that technology, it's figuring

                   out the best way to get that to the market, so if

                   there is a way to tap into that resource wherever it

                   is, that would be a huge help from our standpoint.

                           WALL:  Who else has thoughts on this?

                           MULDOON:  I think there's a real opportunity

                   to try and take all the efforts from the universities

                   to take discoveries and turn them into businesses and

                   mix them with some entrepreneurial business talent or

                   perspective earlier and I don't really see an effort

                   underway to do that, it's more "Well, let's take the

                   scientists and teach them business stuff."  In my

                   mind what a horrible waste of a scientist's time

                   because business guys like me will never have a

                   scientific discovery, so we ought to keep them

                   focused on the next discovery and try and mix them

                   with the business and entrepreneurial talent.

                           MORALEZ:  I think you're starting to see some

                   of that coming together, though, with the

                   universities matching mentors and folks that are

                   experienced and who've done this with technologies.

                   It's not happening fast enough, unfortunately, but it

                   is I think starting to occur.  And even, for example,

                   for VisionTech Angels we see a lot of really great

                   technologies, but it's clearly a lack of experience
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                   and business savvy that cause us to shy away from

                   particular deals, so one of the things that we're

                   looking at currently is a program where we would

                   match an angel that is a good potential match with a

                   specific technology or company to see if there's an

                   opportunity for us to get somebody who wants to be

                   involved, wants to be active and wants to help a

                   company move along that way along some path that

                   leads to a higher probability or potential for

                   funding.  It may be a situation that the company is

                   not ready for angel funding, but with a little bit of

                   work and a little bit of hand-holding they can get

                   there and that's hopefully one of our goals because

                   there are some pretty neat ideas out there, it's just

                   they need somebody to help move that along.

                           WALL:  We were talking about big data and the

                   expense of collecting it.  Indiana does have an

                   unusual resource in the Indiana Network for Patient

                   Care, this clinical data that's been collected for

                   decades in some cases by local hospitals.  Why isn't

                   that being used more for life sciences research, or

                   maybe it is and you can cite some examples, can

                   anyone comment on that?

                           MULDOON:  No.

                           WALL:  "No."  All right.
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                           HAGERMAN:  I think it's hard to make the

                   connection sometimes, so, for instance, I am aware of

                   that wealth of data that is out there and you could

                   use it to solve problem A, B or C and once you've

                   chosen A, B or C, now you have to choose all the

                   people around that certain field, and so just drawing

                   all of those connections seems to me to take a lot of

                   time and it's hard to get the right people in the

                   right place and then they can take advantage of that

                   data and solve the next problem.  I know someone gave

                   the example of monitoring the infection rate for

                   central line placement, so that's a current problem

                   in health care and that's something they want to

                   study and now it's up to them to find all the big

                   data to support what procedures could change or what

                   they can come up with to solve that problem using the

                   data that exists, so gathering the people interested,

                   gathering the data that supports answers to that

                   problem and then gathering people who can implement

                   the change is quite a task, I think.

                           MORALEZ:  I think there is, obviously, a ton

                   of data out there but it's a challenge for companies

                   to figure out how to use that data and how to make

                   money out of that data, especially for investors to

                   get a return, so when you're talking about funding
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                   life sciences companies, clearly from an investor

                   standpoint there's got to be a business model that

                   surrounds that and I think when you're talking about

                   these data companies, I mean there's so many of them

                   and some of the really, really large ones have some

                   very deep resources, very deep pockets, and so

                   carving out a niche in big data is I think pretty

                   challenging in terms of developing a viable

                   commercial model, and that's something that we've

                   seen numerous times, and people try to plug in a data

                   aspect or a data piece or a component to a device or

                   something that's a little bit more tangible and

                   that's a challenge as well, but if they can figure it

                   out and convince the investors that there's really a

                   business there, then I think they will find some

                   capital.

                           MULDOON:  I think another challenge is some

                   clinical data has the shelf-life of lettuce.  By the

                   time you spend enough time to collect it it's so old

                   it doesn't matter anymore because the standard of

                   care in some areas is rapidly changing, so you can't

                   apply a hypothesis to data that's even three years

                   old and happen to be credible.

                           WALL:  That's interesting.

                           BURRIS:  I think also you're forced into kind
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                   of investing in multiple databases because from a

                   regulatory standpoint when you go to file for

                   approval of your product, very rarely, for example,

                   will Europe just take US data, so you're kind of

                   forced to supplement it with local data, so you have

                   to invest in multiple databases.

                           WALL:  Okay, so it's never free no matter

                   which way you go.  Since we've been talking about

                   research here recently, I'd be interested to hear the

                   panel's opinion on whether you just think Indiana has

                   a large enough research base to create a meaningful

                   number of start-ups.  Some people point out to me

                   that the state of Ohio has six or seven medical

                   schools and Indiana had until just recently one.  Is

                   there a gap there or do you think, no, we've got

                   plenty of research going on, it's just more this

                   translation of getting the science connected with

                   entrepreneurs and getting it developed and

                   commercialized?

                           JONES:  Nobody else is jumping forward on

                   this, I see.  Discovery is coming from all sorts of

                   places, not just out of the IU School of Medicine,

                   although they are a fabulous generator of that

                   technology.  We look at the universities like Rose-

                   Hulman, Notre Dame, Purdue, we have really great
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                   research institutions that are churning out a lot of

                   interesting new things, and it's the coordinated

                   effort between all of those institutions I think that

                   we need to be looking at more critically and being

                   more supportive of those cases.  Innovation out of

                   industry, what's going to be coming out of Roche,

                   what's coming out of Cook, what's coming out of Lilly

                   and Elanco and all of our major players in those

                   cases, that's a huge driver of innovation as well.

                   Our service network here in Indiana that is

                   supporting a lot of this, it is doing a lot of the

                   contract research work, a lot of the contract

                   discovery work that's going on out there as well.

                   Innovation is in a lot of places and in a lot of

                   pockets across the state, we should not sell

                   ourselves short on that or look at a number or metric

                   of medical schools as a measurement for that.

                           BURRIS:  I mean I think the Patel (phonetic)

                   study confirmed I think we have a sufficient base to

                   be successful, I mean to your point, it's bigger than

                   just what happens at IU.  I mean look at Covance, I

                   mean they're one of the world leaders in terms of

                   clinical trials and all the information that comes

                   out of that, so I personally feel if we harvest

                   what's available in our total base I feel we have
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                   enough.

                           JONES:  A lot of places out there would love

                   to have what we have, a lot of places are making due

                   with, you know, and I look at some of our counter-

                   parts from around the midwest, you know, they have

                   maybe one mid-size ag-biotech company and a

                   university and that's the base of their life science

                   initiative, so we have a wealth of resources and a

                   wealth of companies that other places would kill to

                   have.

                           MULDOON:  I think the focus ought to be on

                   improving the rate of what we have first and I go

                   back to capital, again, we need more capital

                   availability, it needs to be deployed more quickly

                   and on terms that make sense that are not so onerous

                   you're not going to be able to do a round after that,

                   and so this is a high mortality business and it's

                   always going to be.  A lot of these companies are

                   going to fail.  We want to create an environment

                   where they fail fast, so the worst thing I think that

                   can happen for the ecosystem is this idea that seems

                   like it might be good that kind of gets a little bit

                   of funding that trudges on for four years before it

                   fails because nobody really needed the product in the

                   market.  We need to have an ecosystem and a capital
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                   base that takes interesting ideas and if they're

                   going to fail helps them fail fast.

                           WALL:  Well, we're getting near the end of

                   our time.  Perhaps as a conclusion I would be curious

                   to see if anyone has any thoughts on the Zimmer-

                   Biomet deal, whether that's good, bad or indifferent,

                   or the orthopedics cluster?

                           MORALEZ:  I think Joe said all of a sudden I

                   should have some more angels up there in Warsaw.

                           WALL:  Yeah, you might.

                           MORALEZ:  I have to go to Warsaw right after

                   this.

                           JONES:  We all do.

                           MORALEZ:  Yeah.  I don't know, it's going to

                   be interesting.  That's shocking, I didn't really see

                   that coming.  We just had our investor meeting in

                   Warsaw a couple nights ago.  None of the Zimmer folks

                   or Biomet folks gave us a heads-up.

                           MULDOON:  That's good and bad.  I mean, deals

                   are good, right, it's activity, somebody's seeing

                   value, probably some wealth is going to be created

                   which might create some angels, it might motivate

                   people to jump off and advance another idea.  The

                   downside of it is there's a lot of consolidation that

                   continues to go on in the industry and if you're
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                   growing a life sciences technology company you

                   ultimately have to figure out who you're going to

                   exit it to, who you're going to sell that business

                   to, and the people you talk to keeps going down

                   because of the consolidation, there's fewer people to

                   talk to about their interest in the asset.

                           MORALEZ:  The orthopedic market in general is

                   relatively flat or just growing very, very modestly,

                   so this could be a way for one, the acquired, to take

                   out some of the products and make it less

                   competitive, I guess, out there and grow some of the

                   market share, by market share, I guess.  It'll be

                   interesting.

                           HAGERMAN:  That's exactly my take on it, too,

                   the orthopedic industry is one of those where it

                   really was in many cases to the point where you

                   change the color of a screw and sell it as a new

                   product and it was harder and harder and harder to

                   differentiate yourself in the market.  I was involved

                   in bone graft substitutes and I think there were 125

                   on the market and we were pointing to the slimmest

                   margins of data and so I think you're exactly right,

                   this is an attempt to sort of narrow the field.

                           BURRIS:  The track record for giant

                   companies, though, merging is not very good, I mean
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                   in terms of really inking out the value of the two

                   companies combined, but yet if you look in the ortho

                   industry I think it's rapidly moving towards

                   standardization, so I think rationalization of

                   products across the two companies will happen.

                           WALL:  And, Oscar, Elizabeth, if you have any

                   insight on this, are the structures, culture in place

                   there that as people come out of this combined

                   company that may get turned into new companies or new

                   innovations that are around orthopedics?

                           MORALEZ:  Yeah, well, I think Warsaw

                   because -- you know, so we've been there for four

                   years now as an angel, one of our chapters, and it's

                   a very dynamic group, and despite being a part of a

                   large company, they think pretty innovative, and

                   we've actually invested in one company in particular

                   that came out of Zimmer executives, so I think

                   they're a pretty entrepreneurial group and I think

                   that we could very well see some new technologies.

                   Clearly, orthopedics needs kind of some new stuff

                   because it's been kind of boring for a while.

                           WALL:  All right, well, I think we'll end it

                   there.

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