Shares in KalVista Pharmaceuticals have surged on news of a deal with Merck & Co potentially worth more than $750 million.

Under the deal, Merck, which is known as MSD outside of the US and Canada, is paying KalVista $37 million upfront and taking a 9.9 percent stake in the firm in return for access to its experimental diabetic macular oedema drug KVD001.

KalVista has granted to Merck certain rights including an option to acquire KVD001 through a period following completion of the Phase II proof-of-concept trial that KalVista intends to commence later this year.

Merck also has a similar option to acquire investigational orally delivered molecules for DME that KalVista will continue to develop as part of its ongoing research and development activities.

KalVista also stands to bank further payments associated with the exercise of the options by Merck and the achievement of milestones for each programme potentially totalling up to $715 million.

“The KalVista team has already made important progress in advancing this candidate into the clinic. At Merck, we look forward to the opportunity to apply our expertise and resources upon the achievement of proof of concept for KVD001,” said Ben Thorner, senior vice president and Head of Business Development & Licensing Merck Research Laboratories, explaining the firm’s interest in the deal.