Pfizer (NYSE:PFE) acquired Anacor Pharmaceuticals ( NASDAQ:ANAC) in 2016 for over $5.2 billion, or $99.95 per share. Anacor had completed Phase III trials at that time for their drug Eucris (tm) (crisaborole), an alternative to topical corticosteroids in the treatment of eczema, and has now received FDA approval. At the time of acquisition, Pfizer estimated peak annual sales of Eucrisa(tm) at $2 billion in 2014.

Spanish leading drugmaker Almirall (ALM:MC)(LBTSF) divested its respiratory business to AstraZeneca (LSE:AZN ) for up to $1.2 billion and refocused on dermatology. This is due to having acquired German company Hernall, and subsequently American company Acqua. The latter was acquired for up to $402M based on sales of $127M. Eduardo Sanchiz,  Almirall's CEO, has since continued its string of dermatological acquisition with products from Stiefel, a division of GSK and the Poli Group.

In addition, Leo Pharma, a private Danish company that has become a global leader in dermatology, acquired the dermatology portfolio of Astellas for $725M in 2015. Leo is cash rich and is expected to continue to acquire innovative drugs in its sector. Other potential acquirers include Galderma, now part of Nestle, and France's Pierre Fabre Laboratories.

Regeneron (NASDAQ:REGN ), who is partnered with Sanofi (NYSE:SNY) is a major new player in dermatology with their biologic drug, dipulimab, that reported recently stellar Phase III results in severe eczema, a condition that affects over 1M adults and several millions of younger patents in the US. Analysts expect Dipulimab to reach $2-3B in sales.

The severe eczema market is expected to follow the trends of a psoriasis market that has skyrockted from $700M to over $5B, with biologics such as Abbvie's Humira and Novartis's Cosentyx.

Among the smaller independent companies, we should look at Dermira (NASDAQ:DERM), Foamix ( NASDAQ: FOMX) and Immune Pharmaceuticals (NASDAQ:IMNP ).

Dermira has a market cap of $1.4B and has licensed from UCB the right of their drug, Cimzia, for psoriasis. UCB will continue to market Cimzia for rheumatoid arthritis and Crohn's disease. Foamix has a market cap of $363M and uses a foam formulation for drugs like minocycline that treat acne.

Immune Pharmaceuticals, with a market cap of $30M, appeared to be under the radar with its biologic drug, Bertilimumab, which reported last month at the American Academy of Dermatology early positive data in a rare auto-immune disease, bullous pemphigoid. It has also announced another Phase II trial in severe eczema, where it has the potential to compete with Regeneron's Dupilumab. Additionally, Immune Pharma is developing a topical nano-formulated version of Novartis's gold standard oral drug cyclosporin for patients with psoriasis and eczema. Both drugs have sales potential in the billions of dollars and should be strong candidates for acquisition by larger companies.

In summary, we believe that dermatology specialty pharmaceuticals are highly attractive for investors with more limited development risk than other disease areas like cancer or neurological disorders. The sector includes targeted marketing with dermatology specialists, high demand for innovative drugs and a strong M&A market.