Beauty & Wellness Briefing: Brands are rushing to dermatology offices for distribution

November 29, 2022 Mary

This week, I dive into the dermatologist-dispensed beauty category to understand why brands are clamoring to penetrate the space. Scroll down to use Glossy+ Comments, giving the Glossy+ community the opportunity to join discussions around industry topics.

The professional beauty channel, specifically dermatology offices and medspas, has quietly become one of the most active distribution spaces within the skin-care industry.

Since 2021, there have been a slew of acquisitions by strategic acquirers scooping up brands distributed in derm offices, as well as expansions from existing brands into the space. A June 2022 study from Global Industry Analyst estimates that the global market for physician-dispensed cosmeceuticals will be $18 billion in 2022, increasing to approximately $26 billion by 2026.

Most recently, in September, L’Oréal acquired the American brand Skinbetter Science, which is distributed through an undisclosed network of dermatology, plastic surgery and medical aesthetics practices throughout the United States. In a press release announcing the acquisition, David Greenberg, CEO of L’Oréal USA and president of the North American region, said L’Oréal views the North America dermatological beauty business as an area with “dynamic growth potential.”

Skinbetter Science earned nearly $95 million in revenue in the 12-month period ending August 31, 2022. The terms of the deal were not disclosed.

Before this, another deal in the derm-dispensed space took place when the SPAC Waldencast Acquisition Corp. merged with Obagi, founded in 1988, and Milk Makeup in July 2022. The combined companies went public in July, as Waldencast plc. Additionally, pharmaceutical company Galderma acquired Alastin Skincare in Dec. 2021. Founded in 2015, Alastin Skincare focuses on products that optimize aesthetic injectables and non-invasive skin procedures. According to Glossy reporting on the acquisition, the brand was distributed through 3,000 U.S. physician offices and direct-to-consumer e-commerce at the time of sale. Comparatively, Galderma brands, including Dysport and Restylane, are cumulatively distributed in approximately 20,000 physician offices. Terms of the deal were not disclosed, but Alastin Skincare expected to earn $50 million in 2021 sales, according to Diane Goostree, president and CEO of Alastin Skincare.

Goostree said Alastin Skincare was developed in response to an increase in minimally invasive procedures but a lack of appropriate pre- and post-care products. For Alastin, a benefit of the Galderma acquisition is that it will have a better seat at the table to gain access to dispensing physicians at industry conferences, she said. She attributed the activity in the derm-dispensed space as a result of the “Zoom Boom” in 2020, when physicians saw more opportunities to bundle services and products per patient.

Meanwhile, Joanna Zucker, CEO of EltaMD, said she attributes the growth to more dermatologists selling products in their offices. EltaMD is owned by Colgate-Palmolive, which bought the brand in 2017 alongside the professional brand PCA Skin. The terms of the deal were not disclosed, but the two brands earned an estimated $100 million in 2017 net sales. EltaMD is distributed exclusively through an undisclosed number of dermatology offices and medspas, and focuses on sunscreen.

“Historically, it was a 50-50 shot whether a dermatologist would embrace aesthetics or not, or [focus exclusively on] medical dermatology, like diseases,” said Zucker. “If you’re doing aesthetics, you have clientele that wants to be able to buy in your medical office. And as a doctor, you want to ensure they’re going home with the products they need.”

A 2019 Kline study affirms this growth in the dispensing dermatology space. A survey of over 250 skin-care physicians found that 40% had been dispensing skin-care products for more than 10 years, while 70% had been dispensing for more than five years, suggesting a recent increase. That’s not to mention the untethering of services like aesthetic treatments from derm offices, leading to additional retail space for clinical brands. And it seems patients are asking for this, or at least receptive. Another 2019 Kline report titled Professional Skin Care: U.S. Consumer Attitudes and Behaviors Survey found that 70% of aesthetic medical care providers’ consumers are highly motivated to purchase a product at a physician’s office if they are offered a sample for take-home use.

A 2021 study by a series of universities on physician and patient perceptions of office-based dispensing found that, for the most part, patients do not purchase directly from physicians because of convenience — more patients found it inconvenient versus convenient. Instead, they do so because of their perception of their physician’s knowledge and their trust for their physician. The study also examined, in part, the thorny ethical questions of whether dermatologists should be in the business of selling products.

“What’s driving this is the consumer; it always comes back to the consumer,” said Zucker. “Predominantly female [patients] in the U.S. and globally are saying, ‘My skin care, my looks and my body are part of my wellness. It impacts how I feel and my confidence, and I’m going to invest in that.’”

An inherent challenge with retailing in a dermatologist’s office is the select number of brands an office may carry. Unlike typical beauty retailers with hundreds of brands and SKUs, derm offices offer fewer brands and products. Heritage brand EltaMD, launched in 2007, has worked on developing relationships with residents, fellows and newly licensed dermatologists to get in the door early. Over the past two years, EltaMD has invested in hosting lunch-and-learn sessions and happy hours at medical universities. It has also developed a three-person academic team dedicated to developing and maintaining relationships with universities and medical residency programs. That way, when newly licensed dermatologists open their practices, they are already familiar with and even preferential toward EltaMD.

According to the industry publication Practical Dermatology, citing Allergan Practice Consulting benchmark data from 2018, retail sales should be 8-15% of a practice’s overall revenue. The median is 7%. Practices within the 90th percentile of retail sales had about $1.4 million in retail revenue per year in 2017. In 2016, that number was $600,000, according to the benchmark data.

Dermatology trade shows and conferences are also a big space for brand awareness. Opportunities include operating a tradeshow booth or presenting studies and publications in front of conference audiences. EltaMD attends many conferences, including the American Academy of Dermatology, the American Society of Dermatological Surgery, and Vegas Cosmetic Surgery & Aesthetic Dermatology, to name a few. In May, La Mer presented its own research at the Society of Investigative Dermatology to demonstrate to dermatologists that La Mer products are helpful to patients post-procedure.

Codex Labs, formerly Codex Beauty, gave a presentation at the 2021 Integrative Dermatology Symposium based on the clinical results from its Antü Skin Barrier Serum. The presentation was well received, according to Dr. Barb Paldus, founder and CEO of Codex Labs. That spurred the brand into diving deeper into the OTC space, another clinical area of intense interest to the beauty industry. Codex Labs is exiting retail by February 2023 and becoming exclusive to dermatology offices and pharmacies.

“We found that retailers have a tough time explaining our products to people because they are so technical, whereas a pharmacist or a dermatologist or even a naturopathic doctor immediately understands what we’ve created,” said Paldus. “The professional channels are far more selective. We don’t even get a foot through the door for many of them until we send them our technical deck.”