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Business Observer Thursday, Apr. 23, 2009 13 years ago

Capital Bite

For startup companies, the toughest part of their job isn't finding new customers or selling more products. Their biggest challenge is finding capital.
by: Jean Gruss Contributing Writer

For startup companies, the toughest part of their job isn't finding new customers or selling more products. Their biggest challenge is finding capital. One promising Naples-based company is finding out how tough it really is.

Randall Wall spent decades running medical manufacturing companies, including some of the biggest ones in the world.

Despite millions of dollars and years of research, none was able to create clear braces that could be as strong and flexible as metal wires. Then, a few years ago, Wall came across the holy grail of dental braces when a team of engineers in
Singapore showed him samples of the clear wires they had developed.

Wall had retired to Naples and wasn't about to launch into a new venture, but when he discovered what three Singapore engineers had developed he was hooked. Through family and friends, Wall raised $1.6 million to start manufacturing the translucent orthodontic wires. The Naples-based company is called BioMers Products, a name that combines the words biology and polymers.

Now, just as the company's product is taking off, the venture-capital markets have frozen. Wall pitched his company in January to more than 200 venture capitalists at the Florida Venture Forum in Naples, but so far none has invested the
$3 million Wall says the company needs to expand. “All your venture funds are loaded with money because they're not doing deals,” Wall complains.

One Naples venture-capital investor who attended the forum says the market for acquisitions and initial public offerings has dried up, which means there's no way for venture capitalists to make money on their investments in early stage companies. With the exits closed, that has halted the entire venture-capital process all the way down the funding chain.

That's exactly the situation Wall and other potentially worthy companies are facing now. “There's no hurry for a venture company to fund right now,” he says.
Instead of venture capital, Wall says tapping private angel investors may be the way to go. Still, many wealthy individuals have seen their investment portfolios shrink by as much as 50%. “It's very difficult to raise money,” Wall says.

Lengthy track record
Wall is no neophyte to medical manufacturing. He was the president of Unitek Corp., a $100 million orthodontic subsidiary of giant drug company Bristol-Myers Squibb until 3M bought the company in the late 1980s.

Subsequently, Wall grew a California-based company that made injectable pharmaceutical products and was the fourth-largest morphine producer, later selling the company for $60 million.

Then, Wall became chairman and chief executive officer of Cima Labs, another pharmaceutical company. He took it public in 1994 on the Nasdaq stock exchange, raising $20 million, a considerable sum back then. “That was one of the biggest health care deals in the summer of '94,” Wall says. Cima was sold in 2004 for $585 million.

Wall moved to Naples in 2000, taking over a short stint as president and chief executive officer of Genetics & IVF Institute, the largest provider of infertility treatments. When that job ended in 2005, Wall started to worry he was spending too much time playing golf and eating lunch. “We're going to atrophy,” he recalls telling his wife.

You've got mail
One day in early 2006, a message popped into Wall's e-mail box from three engineers in Singapore who had tracked him down. They claimed to have worked seven years to successfully develop clear braces.

At first, Wall didn't think it was possible to make clear wires. Much larger pharmaceutical companies had spent millions of dollars and years of research to make a clear wire that was flexible enough but could maintain rigidity like a metal wire.

Wall won't say how the Singapore engineers make the clear wires, except to say the material they use is made of glass fiber and resin. There is one essential material that the company uses to make the wires (Wall won't say what it is, of course) and BioMers has an exclusive agreement with the producer to use it. The National University of Singapore holds the patent, but BioMers has the exclusive worldwide license on the remaining 15-year life of the patent.

The Singapore engineers — Mervyn Fathianathan, George Aliphtiras and Renuga Gopal — had no experience building a large company and they asked Wall to become the chief executive officer of BioMers. Wall agreed, earning stock instead of a salary, and launched the company in the fall of 2006.

Wall helped raise the initial $1.6 million to start production of the clear wires in Singapore and get approval from the Food and Drug Administration and their counterparts in Europe and Japan. “We built from the ground up an approved medical-device company,” Wall says.

BioMers launched the clear braces in late 2008 and is now selling them in 40 countries through agreements with orthodontics distributors such as TP Orthodontics, one of the largest distributors in the world.

BioMers braces cost twice as much as metal braces, betting that dentists and consumers will pay more for the translucent kind for aesthetic reasons. Wall says the company is expecting $6 million to $7 million in revenues in 2009. “We should be profitable this year,” he says. By 2012, Wall says BioMers' annual revenues should hit $30 million to $40 million.

Orthodontics are more resistant to economic downturns because of the importance Americans and others put on dental health. The industry has grown at a 7.5% annual rate over the last nine years. In 2007, Americans spent $2.75 billion on cosmetic dentistry. Worldwide, the market for braces is $2 billion a year, Wall says.

Raising more money
Now, Wall and his team of engineers hope to raise another $3 million to expand the business. “We are going to create new products, increase marketing, automate manufacturing and build inventory,” Wall says.

Some of the new products include colored braces and using the technology to make guide wires for surgeons.

The manufacturing plant is in Singapore, where labor is less expensive. However, the company is based in Naples. “Without the Internet, we couldn't have ever done this,” Wall says. “The market's in the U.S. and the capital is here.”

But so far it seems the capital is sitting on the sidelines during this period of uncertainty. BioMers is among the hundreds of companies seeking venture funding.

“What we tell investors is that the five-year plan is to sell the company,” Wall says. If that doesn't happen, BioMers will distribute dividends to investors.
Wall knows that the company's future depends on access to capital. “If you don't get capital, you don't survive,” he says. “I can't control that market out there.”

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