Merck in cancer drug deal with Ariad

NEW YORK (CNNMoney.com) -- Pharmaceutical giant Merck signed a deal with drugmaker Ariad to co-develop the smaller company's experimental cancer drug.

Ariad Pharmaceuticals' (up $0.06 to $6.11, Charts) stock initially jumped 4 percent before losing momentum to show more than 2-percent gain after the companies announced the $1 billion-plus deal Thursday. Merck & Co.'s (up $0.36 to $49.26, Charts, Fortune 500) stock edged up slightly.

Merck agreed to give Ariad an up-front payment of $75 million, plus milestone payments that could exceed $1 billion, to co-develop a potential cancer drug called AP23573. The companies are expected to begin late-stage testing this quarter for the drug as a treatment in cancer of soft tissues like muscle, tendons, fat and blood vessels.