HealthQuest Beats Target, Raises $440 Million for Third Medical Fund - Wall Street Journal

Article originally appeared on the Wall Street Journal.

California firm is bankrolling growth-stage health-care companies


Brian Gormley

April 3, 2019 6:17 p.m. ET

HealthQuest Capital has raised $440 million for its third fund, beating the $300 million target for its latest vehicle aimed at investing in growth-stage health-care companies.

HealthQuest Capital Fund III LP began fundraising in December and closed at its hard cap in March, said Garheng Kong, founder and managing partner of the firm.

Limited partners include pensions, strategic health-care organizations, foundations and family offices from Europe, Asia and the U.S., the firm said.

The Belmont, Calif.-based firm backs medical companies specializing in improving patient outcomes, lowering costs and wringing more efficiency out of the health system, investing in diagnostics, digital health, medical technology and other medical services. The firm typically invests $10 million to $40 million per company.

Medical companies serve three main constituents: patients, health-care providers and insurers. Frequently, a medical product appeals initially to two of those groups. When evaluating investments, HealthQuest considers how long it will take to also win the backing of the third, said Dr. Kong.

Castle Biosciences Inc., a HealthQuest portfolio company, offers a molecular test to gauge the risk that melanoma will spread. It is more expensive than conventional diagnostic tools, such as a cholesterol test, and payers resisted initially, Dr. Kong said. The company over time has won their support as it has further demonstrated the test’s value, he said.

HealthQuest’s successful investments include acute-care telehealth company Avizia Inc., acquired last year by American Well Corp.; and medical-device company Spirox Inc., purchased by Entellus Medical Inc. in 2017.