GARHENG kONG, MD, PhD, MBA
FOUNDER/MANAGING PARTNER
HEALTHQUEST CAPITAL
Garheng founded HealthQuest Capital in 2012 to improve people’s lives through improving healthcare on a significant scale. His vision was to build a best-in-class team of the highest talent and integrity to work with outstanding entrepreneurs to transform healthcare through high growth companies while generating outsized risk adjusted returns for investors.
A physician, scientist, and engineer by training, Garheng has over two decades of experience investing in innovative healthcare companies with a long list of successes (24 IPO/M&A exits). He has represented HealthQuest on the boards of Ajax I, Ajax II, Ajax III, Alcresta, Avedro, Avizia, BardyDx, Castle Biosciences, CleanSlate, Etairos, HealthChannels, Magnolia Medical, Perspectum, Pulmonx, Spirox, TigerConnect, Trice Medical, Venus Concept, and CareMetx/VirMedica.
Some of his notable past successes include IPO’s with Avedro (AVDR), Castle Biosciences (CSTL), Cempra (CEMP), Alimera (ALIM), Applied Genetic Technology Corp. (AGTC), AmWell (AMWL), Proteon (PRTO), Pulmonx (LUNG), Histogenics (HSGX), TransEnterix (TRXC) and Venus Concept (VERO). His investments going on to successful M&A transactions include: Ajax I (Medtronic), Avedro (Glaukos), Avizia (AmWell), Calibra Medical (J&J), Cellective (AstraZeneca), Serenex (Pfizer), Athenix (Bayer), NovaMin (GSK), Aldagen (Cytomedix), Salveo Specialty Pharmacy (United Health), SARCode (Shire), Spirox (Stryker), and Virmedica (CareMetx).
HTA - Tell us about your personal and professional background?
My entire career and educational background have been in science and healthcare, and my interest in the field started young – everyone in my family is a doctor (in fact, while trained as an MD, I am the only non-practicing physician in my family, which we joke makes me the “odd duck”.) I received undergraduate degrees in both Chemical Engineering and Biological Sciences from Stanford, while on a volleyball scholarship (I still play occasionally now – in non-COVID times - but it’s a bit tougher to find time with three small children). As for graduate school, I earned an MD, PhD and MBA degree from Duke University.
Since my stint as a “professional student”, I’ve worked in almost every role possible in healthcare – first in operational/consulting roles at GlaxoSmithKline and at McKinsey, then as CEO and founder of two successful early stage healthcare companies. I always knew that investing in healthcare companies would grant me the opportunity to impact larger populations than either practicing medicine or operating a single healthcare company at a time, and so I’ve dedicated the remainder of my career (25 years and counting) to healthcare investing.
I started investing at Intersouth and as a general partner at Sofinnova, and started HealthQuest in 2013, which has been a terrific combination of identifying and catalyzing incredible healthcare companies and entrepreneurs, while remaining somewhat of an entrepreneur myself in building a team and longstanding investment platform. I’m blessed to be married to an amazing woman (a “real” physician) and have 3 fantastic kids.
HTA - Who were your early mentors, and how did they impact your career?
I have been extremely fortunate to have had fantastic mentors along the way. While in medical school at Duke, the Chancellor of the Medical Center was Dr. Ralph Snyderman. Dr. Snyderman was unique in that he had been a senior executive at Genentech prior to his role as the leader of a prominent academic medical center. He made time to mentor me despite his busy schedule and exposed me to the idea of using a medical degree outside of clinical practice.
My PhD advisor was Dr. Mark Dewhirst and he too was very forward thinking. He was a successful translational researcher and collaborated with industry frequently such that when I considered a career path outside of traditional academia, he was very supportive and allowed me time to pursue that in parallel with my research activities. To this day, I benefit from a small group of mentors that include investors, CEOs, and life-long friends.
HTA - What surprises you about the Healthcare Industry?
No one is surprised by the complexity of the healthcare system in the US anymore, but it is staggering how much ‘wasted’ annual spend exists in the system. The complexities of the healthcare system have led to misdiagnoses, unnecessary infrastructure spending, extended hospital stays, increased administrative overhead…the list goes on and sometimes it does seem bleak (especially this year, where the COVID-19 pandemic continues to highlight the fragmentation and constraints of the system).
Nonetheless, I’m constantly surprised and impressed by the innovation that a suboptimized and inefficient healthcare system can spur, and am very excited about advancing this innovation with capital and operational support like we do at HealthQuest. The companies that we see (and we’ve seen thousands), are incredible – many take novel approaches to solving pain points in the system, or have proven to increase accuracy in treatment and care, or aim to improve overall efficiency or experience; and there has never been a more important time in healthcare to develop these companies so they can start to address these problems.
HTA - What prompted you to create HealthQuest Capital and what’s your investment philosophy?
Given my background, I’ve always been passionate about investing in healthcare and the scope and reach of doing so to impact patient lives and outcomes. I started my career focused more on investing in biotech, and my investing experience led me to start HealthQuest as a platform to invest more broadly in healthcare without being constrained to a specific subsector (e.g., pharma, drugs, devices). At HealthQuest, we only invest with one thing in mind – does the company or innovation improve patient outcomes and/or decrease healthcare cost? Beyond that, we remain agnostic to the underlying subsector. We subscribe to this philosophy for a few reasons:
First, care is not delivered in silos – physicians often reach across subsectors to provide the best care for a patient (a combination of diagnostics, drugs, services, technology)
Second, healthcare is increasingly convergent and an understanding of innovation occurring in other subsectors is vital for understanding risks and opportunities in others. For example, will a developing drug ultimately be a competitor to an existing device (prescribed in lieu of), or a complementary opportunity (prescribed alongside of)?
Finally, increasingly, innovation is occurring at the intersection of subsectors. Where years ago, a medical device was a highly mechanical innovation, nowadays, devices can also have pharma components and/or technological components (connected devices, patient monitors) as well.
HTA - How has due diligence changed during this pandemic season?
Our team is pretty distributed (we have presence in California, Florida, Georgia, Texas), so internally, our diligence process and team communication has always been heavily virtual (and we’ve streamlined our interconnected team processes even more during the pandemic) When it comes to meeting with companies, it has definitely been an adjustment to not meet with management teams in person.
Fortunately, we have a robust sourcing pipeline, and many of the deals we invested in this year we’ve been tracking for several years prior, so somewhere along the way, we had already met these teams in person. At some point, as the pandemic continues, in the absence of meeting teams in person, we may have to lean more heavily on virtual meetings/diligence, and references by trusted co-investors and our network.
HTA - You have had two decades of successful investing with 24 IPO/M&A exits. What type of metrics did they share as a company?
Phenomenal management – I’ve seen some companies migrate from an early stage company to becoming publicly-traded with the same management team, while others require slightly different leadership as the company grows. The individual that is a terrific CEO at early stage might not be the right fit for a company further down the road – but attitude, vision and humility are traits we look for in management teams from the get go so that they’re prepared to handle both the growth trajectory and team transitions as the company grows. Since healthcare is a dynamic sector and high growth companies are constantly undergoing significant change, we value CEOs who are comfortable and flexible dealing with ambiguity.
Understanding the unique dynamic of the healthcare industry to really drive adoption: Healthcare has three stakeholders—patients, providers, and payors and companies that thrive understand the often competing demands of each of the stakeholders, and demonstrate value to each of them (i.e., concurrently, the innovation or service creates real savings for the payor, the provider is incentivized to use the innovation or service, and it will improve patient outcomes or experience).
Flexibility/Ability to pivot: we witnessed this with our companies this year in light of the pandemic. At the beginning of the year, every company had a plan to grow 50-100% this year, and when COVID hit, we quickly realized that such growth may not be possible. While many of our businesses are medically essential, they weren’t necessarily medically “urgent” in light of an escalating world-wide public health crisis, and some of our businesses’ sales would be delayed by months or quarters.
Our companies and CEOs were quick to overhaul their 2020 business plans to adapt to this rapidly changing environment—for example, by drawing down incremental liquidity, reducing costs, converting to virtual care, etc., to prepare themselves for the worst case scenario. These expeditiously enacted proactive measures later enabled many of them to rebound as facilities gradually reopened and patient visits resumed.
HTA - You recently relocated to Austin from Silicon Valley? Can you share some details about that decision?
Austin is a growing and vibrant ecosystem of entrepreneurs, technology, and burgeoning healthcare. The culture here is collaborative and the environment encourages business. People here work together and help each other in a very positive way. I wanted to be part of that and contribute to furthering it. Our strategy leads us to partner with companies throughout the country and all over the world. Austin is 2-3 hours from each coast in terms of travel and being in the central time zone is also certainly advantageous when our activities span across multiple time zones. Plus, Austin is just a beautiful place to live with great outdoor spaces, an exciting food and arts scene, and lots of wonderful people and opportunities.
HTA - What are some of your favorite things about being a new Austin resident?
The folks who live in Austin are warm and welcoming. We’ve found true community at our church, in our neighborhood, and among our friends. My wife and I also love the breadth of BBQ, fried chicken, and food trucks. And the parks and recreational spaces are plentiful, excellent and provide an endless wonderland for our young children.
HTA - How can Austin become known as an epicenter for Health Tech?
Austin has several advantages: it is a well-recognized technology hub which is half the equation for health tech. The innovative entrepreneurial spirit already exists here in spades; and people love living here, which enables us to attract top talent. A focus on healthcare technology has been more recent, but the catalysts are coming together. We need to add more experienced growth executives and capital here. My hope is that HealthQuest can contribute on both fronts.
Often, investors in healthcare identify Silicon Valley, New York and Boston as the sole epicenters for healthcare innovation—I think that is more relevant when addressing the biopharma sector where the proximity to what some investors would deem a highly technical lab/academic setting may actually be a prerequisite for starting a successful company.
However, the types of health tech, or health innovation that HealthQuest invests in represents a huge and underinvested sector with abundant opportunities that address significant unmet medical needs and simply require a terrific founding team with a track record of growth and these individuals and ideas can be found all over the country—especially in a vibrant, dynamic city like Austin.
HTA - How did your career as a nationally ranked volleyball player, help develop your mindset for investing in companies and building relationships?
Volleyball is truly a team sport. A single superstar will not win the match since it requires three people to touch the ball every time it comes over the net. Unlike basketball, you can’t just give the ball to MJ or Lebron and clear out of the way. This mentality influences the way our team works with entrepreneurs and companies. We need to do it together. Everyone has a role andalso provides expertise and specialization in critical aspects of the business. If you look at HealthQuest, we’ve built a team that is experienced but has two other key tenets: culture and complementarity.
We only recruit colleagues who are naturally team players and our team possesses diverse backgrounds by design. Members of our team have been entrepreneurs, CEOs, CFOs, attorneys, engineers, physicians, investment bankers, consultants, inventors, and even professional athletes. Our goal at HealthQuest is to be the best partner, best teammate to anyone with whom we are involved.