HealthQuest Capital Raises $110M for Debut Fund with Medtech Focus

8/19/14Follow @bvbigelow

HealthQuest Capital, founded last year by Sofinnova Ventures partner Garheng Kong, says it has raised $110 million for its debut fund and already has invested in several medical technology and patient care products.

While HealthQuest is staying close to Sofinnova—sharing its Menlo Park, CA, office and back office resources—Kong says the firm has a different strategy.

Where Sofinnova has raised nearly $1 billion for its two most recent funds to invest mainly in biopharmaceuticals, HealthQuest set out to raise just $50 million for its first fund to invest in medical devices, diagnostics, health IT, mobile health, consumer over-the-counter products, and patient care products—especially where innovation can improve both patient care and healthcare costs. “Nowadays, innovation has to be cost-effective” as well as improve patient outcomes, Kong said, “so healthcare companies want to know how much cost you’re taking out of the system.”

The combination of team and strategy resonated with investors, Kong said, and he closed fund-raising at $110 million for HealthQuest’s inaugural fund. While there was some overlap with Sofinnova’s investors, he said HealthQuest’s limited partners are mostly different, and include pension plans, endowments, family offices, and individual investors. A HealthQuest spokeswoman declined to say whether Sofinnova itself has invested in the new fund, saying, “We aren’t providing any detail on underlying investors or economics.”

David Kabakoff, a San Diego-based partner with Sofinnova Ventures since 2007, will continue to play a role in both worlds. Kabakoff, who has had both operational and investment roles in the life sciences, will be making medtech investments for HealthQuest and placing bets on new drug therapies for Sofinnova.

HealthQuest intends to target areas where there are clear unmet clinical needs for innovation as well as undercapitalized geographies. “A lot of these companies are quite capital efficient,” Kong said. “The deal sets are equally likely to be spread across the country as they are to be in the Bay Area or Boston. We’re open-minded about where these companies can be and need to be formed. If your business is focused on hospitals, you’re likely to be in Nashville, TN. If you’re focused on orthopedics, you’re probably in Warsaw, IN.”

The fund was created last fall and has invested in the following companies:

—Orlando, FL-based Vestagen Technical Textiles, which specializes in fabrics and apparel for healthcare workers that are comfortable, designed to repel liquids, and engineered with anti-microbial properties to minimize the chances of spreading infections. HealthQuest invested more than $3 million in Vestagen, Kong said.

—Burlingame, CA-based First Aid Shot Therapy, which has been developing over-the-counter remedies formulated as a liquid shot to treat everyday conditions such as pain and upset stomach. HealthQuest invested about $15 million in the company, also known as F.A.S.T.

—Friendswood, TX-based Castle Biosciences has been developing molecular diagnostic tests to help doctors determine the optimal treatment for patients with uveal melanoma, cutaneous melanoma, esophageal cancer, thymic cancers, mesothelioma and gliomas. HealthQuest led an $11.8 million round that included Mountain Group Capital and Longfellow Venture Partners.

Kong, was previously a general partner at Sofinnova Ventures, and will continue to manage some Sofinnova investments. But as the founder and managing partner at HealthQuest, he will not be making any new investments for Sofinnova. Some of his deals include Cellective Therapeutics (acquired by AstraZeneca), Novamin Technologies (acquired by GlaxoSmithKline), Cempra Pharmaceuticals (Nasdaq: CEMP), Serenex (acquired by Pfizer) and Alimera Sciences (Nasdaq: ALIM). Kong also sits on the board of Laboratory Corporation of America (NYSE: LH) and the Duke University Medical Center Board of Visitors.

Oher members of the HealthQuest investing team are partner Randy Scott, a medical technology entrepreneur based in Gainesville, FL, and venture partner Tom Callaway of Atlanta, GA, who founded a life sciences executive search firm in Atlanta.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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