Arcato Labs, a Durham startup, is taking a new route raising growth capital to commercialize a product that reduces the discomfort of braces. Founded in 2011, the company raised $250,000 from Golden Pine Ventures and its team and hopes to raise $1 million to $1.5 million through new rules allowing the public solicitation of investors.

CEO Chris Meldrum tells WRAL TechWire the company, which shares an office with Golden Pine in Durham’s Underground at Main hub for entrepreneurs, was created by a Kentucky pharmacist, Dr. Michael Jay, who is also Fred Eshelman Chair and distinguished professor of molecular pharmaceutics at the University of North Carolina at Chapel Hill, and is an expert on drug delivery and formulations.

It plans to commercialize a patented wax with a time-released pain killer that can give braces wearers a break from the discomfort of first putting them on or adjustment.

Direct solicitation of investors

“We have reached certain internal mileposts in our development,” said Meldrum. “We need growth capital to fuel our growth and continue the process of commercializing our proprietary methods of sustained-release of anesthetics.

“We decided to raise capital under the new provisions that allow a company to issue securities directly to investors,” said Medrum. “We have established an automated, online due diligence process leading to an automated escrow and closing process, directed by Walter Daniels, our securities attorney.”

“Investors who may have an interest in exploring the offering can begin their investigation on the company’s investor relations page,” said Thomas Vass, the investment advisor to the company. We have an easy-to-understand due diligence process for investors on our platform, The Private Capital Market.

Vass says Arcato may be the first company in North Carolina to use this new fund raising method under regulation 506-c, the public solicitation of investors. “It’s a dramatically different model,” Vass said. “We’re doing totally Internet-based escrow and closing. It’s all based on computerized book entry.”

Liquidity in a secondary market

Computerized book entry allows for the development of a secondary market in private securities, Vass added, which creates liquidity for investors without requiring a company to exit via IPO or acquisition first, Vass explained.

“When you get liquidity in a secondary market, you have the chance to raise a lot more capital, “ Vass said.

The market for the oral wax Arcato wants to commercialize is not huge, so the company could have trouble raising money through more traditional angel and venture capital means. There are about four million new brace wearers, 80-percent under 18.

Based on the frequency of orthodontist visits for brace patients, Arcato estimates a total untapped market for a brace discomfort product such as OraWax, which will cost about $200 per adjustment, is greater than $350 million per year.

According to the company’s “Quick Deal overview,” OraWax is a wax-based product that has an over-the-counter anesthetic (benzocaine) incorporated into its matrix, which provides sustained release over a period of several hours. In a controlled clinical study in patients who were being fitted with braces for the first time, OraWax was compared to regular, unmedicated orthodontic wax.

The control group received regular, unmedicated wax, and the experimental group received the medicated OraWax. Patients using OraWax experienced a four-fold decrease in reported pain. The differences in pain relief were seen as early as one hour after administration, and for as long as 56 hours.

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