Nestle SA (ADR) (OTCMKTS:NSRGY) subsidiary Galderma just announced that it would be taking the reigns on one of Chugai Pharmaceutical’s lead AD development candidates, nemolizumab. Chugai, a subsidiary of Roche Holding Ltd. (ADR) (OTCMKTS:RHHBY) that operates primarily in Japan, has not disclosed exactly what it’s getting out of the deal, but we know that the Japanese drug maker is set to receive an upfront payment from Galderma, and going forward, milestone and royalty payments related to development and commericailzation checkpoints.

The drug is a biologic, which is a break from the norm at Galderma, and so is something of a gamble. Having said this, if it can carry the candidate through to commercialization, it would mark an important step forward for the company into a market that’s already worth hundreds of billions of dollars, and is set to grow rapidly over the coming decade. Biologics are big business, and Galderma wants a piece of the action.

With this in mind, let’s take a look at what the company is getting for its money, and what reaching commericailzation might mean going forward?

First, what are biologics? Simply, they are any drug that is isolated form a living organism, rather than a known chemical structure. They are far more complex than chemically synthesized drugs, and far bigger in relative size. As mentioned, this particular biologic is called nemolizumab, and it’s an atopic dermatitis target. That is, initially it is dermatitis candidate, but it specifically goes after what’s called the itch-scratch cycle, which is an exasperating factor in a number of skin conditions. As such, if approved in this indication, we will likely see some extensions pretty soon after the first green light.

It’s what’s called an anti-IL-31 receptor A humanized monoclonal antibody. IL-31 is a cytokine that, when binded to its complementary receptor (the already, and aptly, mentioned IL-31 receptor, induces an inflammatory response. This response causes itching, and kicks off the itch-scratch cycle. The patient scratches the itch, which exasperates the inflammation, which makes the skin itch more, etc. Nemolizumab binds to the IL-31 receptors, but since it’s not the receptors’ complimentary cytokine, doesn’t activate them. A receptor that is bound to nemolizumab can’t bind to IL-31, and so doesn’t get activated at all. No activation, no inflammation – simple.

Chugai announced phase II data for the drug back in March, and it looks as though it works pretty well. The percent change in pruritus (which is another way of saying severe itching) across three increasing doses of nemolizumab came in at -41.5, -61.2 and -60.5 (low to high dose) after twelve weeks of treatment. The comparable figure for a placebo arm was -20.1. The trial also hit on a couple of secondary endpoints, primarily related to improved sleep quality. Safety and tolerability looked to be no issue, with nasopharyngitis (just another word for sneezing and runny nose) reported as the primary treatment related adverse event.

So what’s next? Well, now Galderma has the responsibility for development of the drug, so the assumption is that the company will carry it into a phase III pivotal in an attempt to gather some NDA-worthy data. Exactly when this will be is not clear, but we don’t expect the company to drag its heels. Chances are we will see some advance across the coming quarter, with a view to enrollment before the close of the year.

And what’s the market for this sort of drug? Analysts put the entire atopic dermatitis market at a little over $5.6 billion annually by the end of 2022. Looking at this drug specifically, if it can beat out competition from Leo Pharma in the injectable AD space, then there’s a good chance Galderma can bring in $1 billion plus revenues annually from nemolizumab, assuming approval. Exactly how much of this goes to Chugai, we will have to wait and see.

Immediate catalysts, therefore, are the announcing of a phase III initiation, and interim/topline from the study. NDA submission beyond that (possibly as soon as mid to late 2017) and – assuming everything runs smoothly – marketing by early to mid 2018.