What happened

Investors delighted with clinical trial results drove Dermira (DERM) stock 62.3% higher in March, according to data from S&P Global Market Intelligence. A failed asthma candidate that Dermira bought less than two years ago could be worth a lot more than expected.

So what 

Over the past couple of years, Dermira has given at least $190 million to Roche (RHHBY -1.20%) for rights to develop and commercialize lebrikizumab, an IL-13/IL-4 inhibitor that failed a clinical trial with asthma patients in 2016. It seemed like an odd investment two years ago because another treatment from the same class, Dupixent, had already scored high marks during asthma studies that led to its approval. 

Smiling man wearing a vest and tie is doing a double fist pump.

Image source: Getty Images.

The stock jumped last month because it looks like lebrikizumab could become another option for patients with a different problem, moderate-to-severe eczema. Lebrikizumab leans toward the IL-13 protein receptor while Dupixent is more attracted to IL-4, and the difference could be more important for eczema patients than expected.

Comparisons based on results from different populations should be taken lightly, but it appears that lebrikizumab may end up competing with Dupixent for eczema patients. During a phase 2 study, 45% of patients treated with lebrikizumab achieved complete or nearly complete skin clearance, compared to just 15% of the placebo group. During a trial leading to its approval, 36% of patients treated with Dupixent reached the same goal compared to 9% of the placebo group.

Now what

Dupixent, which Sanofi (SNY -1.44%) and Regeneron (REGN -1.70%) launched in 2017, finished 2018 on pace to generate $1.3 billion annually. Because the indication requires a long-term treatment that could be taken by millions of fairly healthy people, a winning safety profile is crucial. Dupixent led to a lot of eye infections during trials leading to its approval, but this doesn't appear to be an issue for Dermira's candidate.

Dermira launched a treatment that inhibits underarm sweating, but sales haven't been too encouraging. Despite lebrikizumab's apparent potential, it's probably a good idea to watch this company's story unfold from a safe distance

Dermira finished December with $313 million in cash and investments after losing $222 million last year. A secondary offering added another $150 million, before fees, to Dermira's coffers in March. The company will probably need to visit the equity tap at least once more before it can send an application to the Food and Drug Administration, assuming lebrikizumab makes it that far.