Novartis (NYSE: NVS) and Lubris BioPharma, a tiny, privately-held biotech developing a treatment for dry eye announced the deal on Thursday without disclosing the financial terms. However, according to a person familiar with the matter, the upfront payment to Lubris, combined with potential milestone payments and royalties if the drug hits the market, has the potential to surpass $1 billion.

Written by John Carroll (ENDpts.com)

Under the deal announced on Thursday, Novartis will in-license the technology for eye-related indications worldwide, except for in Europe, where Lubris has already licensed the technology to Italian pharmaceutical company Dompe. Lubris will retain commercial rights for other potential indications, such as osteoarthritis.

Lubris’ big idea was to take a natural lubricant — lubricin — that is found just about wherever two tissues in the bodies meet and industrialize it, turning it into a replacement protein therapy dubbed ECF843. Last year they tested it in a small Phase II dry eye study with 40 moderate to severe patients, putting it up against sodium hyaluronate (HA), which figures prominently in a slew of over-the-counter artificial tear products like Blink.

Here’s what they found in humans:

Lubricin demonstrated statistically significant improvements against HA in the following objective signs of dry eye: corneal fluorescein staining (OD/OS: 43.8%, 50.0%, vs. 26.5%, 23.3%, p<.0398, p<.0232), TFBUT (p<.010), eyelid erythema (p<0.004), conjunctival erythema (p<.0013).

Symptoms of the disease dropped 70% from baseline and CEO Ed Truitt tells me that when the study transitioned to self-application Lubricin patients used much less of it to get better results.

Now that Novartis has put money into the company, CEO Ed Truitt believes Lubris has a “substantial runway” to go after the next set of non-eye targets starting with dry mouth…and interstitial cystitis  Truitt is also happy to note that his protein therapy could be used in place of HA for a long list of products, and maybe more partners will line up for these other indications as they continue to work on new human studies…