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Vernix, or vernix caseosa, is a cheesy substance covering the newborn, especially if born before a full 40 weeks gestation. It is mainly comprised of sebum1, the oily material secreted by the sebaceous glands of the skin. It has recently been shown to contain certain peptides (short chains of amino acids) that have antibacterial activity - natural antibiotics.2 It is ordinarily removed at Baby's first bath; some people advocate leaving it on the skin until it flakes off of its own accord. I doubt it matters.
1. A complex oily substance composed of triglycerides and diglycerides, fatty acids, wax esters, squalene, and sterols.
2. British Journal of Dermatology. 2002;147:1127-1134.