More Than Skin Deep
Understanding the massive growth in Dermatology-related VC investment
A study released out of NYU in the Journal of Investigative Dermatology last month estimates that $9.1 billion of venture capital was invested in dermatology-focused companies from 2002 to 2021, while a study released out of Harvard in the JAAD earlier last year estimated $9.3 billion of VC investment from 2011 to 2021.
This begs the question – “Why Dermatology?” What is it about the field that has made it such an attractive area for investors, and why do many project continued growth in the space?
As I finish residency training in Dermatology this year, I am no stranger to the question “Why Dermatology,” having answered it more times than I can count on the residency interview trail a few years prior. More recently, however, I have joined Gore Range Capital – a venture capital firm focused on Dermatology and skin health, aging, and wellness more broadly – as Entrepreneur in Residence. In this role, I am evaluating the question of “Why Dermatology” from a different lens. Specifically, why is Dermatology and its broader ecosystem an optimal space in which to invest, providing access points to nearly all aspects of the future of not only healthcare, but also adjacent fields such as health tech, wellness, and aesthetics?
When selecting my specialty of choice, I was attracted to the fact that Dermatology touches nearly all aspects of medicine. Dermatologists work in outpatient offices, inpatient consult environments, and surgical suites. They are trained end-to-end in the diagnosis and management of their conditions, from medical evaluation to surgical biopsy to pathologic interpretation to medical and/or surgical treatment. Companies with a foothold in the field therefore have access to each of these touchpoints in healthcare, providing an incredibly wide range of ways within which to participate in the field.
The areas Dermatologists treat also represent some of the largest and fastest-growing areas of medicine. Most of their time is spent managing inflammatory conditions, oncologic conditions and their side effects, preventative care, aesthetics, and/or quality of life. Their patients range from young healthy patients whose only touchpoint with the healthcare system may be their Dermatologist, to some of the sickest patients in the hospital facing cutaneous manifestations of systemic disease or side effects of immunosuppressive or oncologic drugs. The Dermatologist’s toolkit spans the full spectrum of treatment modalities, ranging from topical medications that often minimize systemic adverse effects, to surgical treatment, to laser therapies, to systemic immunomodulators, among others.
With this context, it is no surprise that Dermatology represents one of the hottest areas of investment and growth within medicine. Many of the most successful drugs in recent years involve the treatment of inflammatory dermatologic conditions, with 3 of the top 8 best-selling drugs in 2020 – Humira (#1), Dupixent (#7), and Stelara (#8) – serving as mainstays in Dermatology and representing a combined total annual sales of $35.6 billion. Systemic treatments of psoriasis and eczema are only seeing further growth as they become increasingly targeted, and other inflammatory conditions such as hidradenitis suppurativa (affecting up to 4% of the population), vitiligo, and various forms of alopecia (hair loss) represent large unmet needs receiving significant investment attention. Unsurprisingly, the global market for dermatology-specific pharmaceuticals is expected to grow 12.9% annually from 2020 to 2027, well above the overall global pharmaceutical market (7.0%).
Even beyond dermatologic conditions, many other inflammatory and oncologic therapies indirectly touch dermatology. Treatments of rheumatologic disease, Crohn disease, and ulcerative colitis, for example, share inflammatory pathways with dermatologic conditions and hence are treated with many of the same drugs such as TNF inhibitors, IL-12/23 inhibitors, and increasingly JAK inhibitors. Checkpoint inhibitors – which represent one of the most significant advancements in the history of Oncology and include blockbuster drugs such as Keytruda (#2 in 2020 sales) and Opdivo (#10) – are a mainstay of melanoma treatment, and even when used for non-dermatologic malignancies (e.g., small cell lung cancer) frequently affect the skin, with the skin being the most common organ experiencing adverse effects. The field of Dermatology therefore directly or indirectly touches an impressive share of the most successful drugs in recent years, and those with expertise in the field therefore have a leg up in evaluating a wide range of hot areas for growth.
At the other end of the spectrum, topical therapies represent a significant area of interest given their ability to target the organ of interest (the skin) while minimizing systemic absorption and adverse effects. Beyond strictly medical dermatologic applications, the massive cosmetics industry ($532 billion in 2017) and the rapidly-growing neutraceuticals, clean beauty, anti-aging, and wellness industries are closely intertwined with Dermatology, putting those with a footprint in the industry in prime position to participate.
Dermatology's therapeutic reach also extends well beyond pharmaceuticals and topicals. Most laser therapies were born out of Dermatology, and much of the innovation in non-surgical enhancement via fillers and neuromodulators (e.g., Botox®) has been driven by the field. Patients are increasingly looking for less invasive and more natural-appearing options to enhance their appearance, which may explain why minimally-invasive procedures made up over 85% of total cosmetic procedures in 2019, growing by nearly 200% since 2000. The out-of-pocket nature and recurring revenue of these treatments makes them attractive to practitioners and manufacturers alike, particularly given their >80% gross margin.
The fact that Dermatology touches both traditional medicine and more consumer-facing areas also allows it to function as a pioneering field for many technological advancements within medicine:
Telehealth: many of the most successful early indications for telehealth fell within the realm of Dermatology, with unicorn telehealth companies such as Keeps and Hims seeing much of their success driven by dermatologic indications such as hair loss, acne, and skincare
Artificial intelligence: the visual nature of Dermatology lends itself to photography-driven machine learning. The use of AI for melanoma screenings has been an active area of research, and more broadly one could easily envision a future in which AI is incorporated into dermatologic practice (both in-office and at home) years ahead of other fields of medicine
Consumer apps: as evidenced by the $100 billion dollar skincare industry worldwide, people care about their skin. Whereas most physicians often face issues with adherence in patients trying to control their blood glucose or blood pressure (because patients often cannot "see" the effects of such conditions on, say, their kidneys in the immediate term), Dermatology sees incredibly high rates of adherence due to the readily apparent nature of its conditions. Dermatology patients are typically highly motivated, and are therefore readily willing to engage with treatments. By bringing a level of engagement typically reserved for consumer spaces to healthcare, Dermatology serves as an optimal field within which to pioneer new strategies for patient engagement through technology. Telehealth (discussed above) is just one example of this, with a long and growing list of consumer apps aimed at engaging the field's highly motivated patients and consumers
Perhaps most importantly, the patient population served by the field of Dermatology is seeing massive growth. Patients historically underserved by Dermatology are receiving increased attention from the field in recent years, as evidenced by the significant focus on providing improved training and photography of dermatologic conditions in skin of color. As the population in the U.S. becomes increasingly diverse, the expansion of training and treatment options for patients with skin of color likewise significantly expands the market to include a higher proportion of these patients. If this weren't enough, younger patients are also becoming increasingly focused on cosmetic concerns, as are men, and cosmetic treatments are becoming increasingly socially acceptable. Given the aesthetics market is currently significantly underpenetrated at an estimated 5 to 10%, these groups represent major opportunities for rapid growth.
With this combination of strong fundamental market characteristics and rapidly growing underlying population of patients served, it is no wonder that venture capital has rightly shifted its attention and dollars towards investment in the field. I, for one, am incredibly excited to participate in the future of the field, particularly knowing that it serves as a frontrunner of trends in medicine more broadly.
Dr. Hashemi is a final-year Dermatology resident at Harvard Medical School, and Entrepreneur in Residence at Gore Range Capital. He previously completed internship training at Memorial Sloan Kettering Cancer Center in New York City, and prior to medical school served as an Engagement Manager in management consulting and Director of Corporate Strategy at a Fortune 500 entertainment company. He holds an MD from the University of Pennsylvania, an MBA from the Stanford Graduate School of Business, a post-baccalaureate certificate from Johns Hopkins University, and an undergraduate degree in Economics Phi Beta Kappa from the University of Chicago. He has published numerous articles in such influential dermatology journals as JAMA Dermatology, JAAD, and Dermatologic Surgery, and has lectured on medical, surgical, and cosmetic dermatology. He has a particular interest in innovation within Dermatology and healthcare more broadly.
