KalVista Pharmaceuticals, a small Cambridge biotech with a pair of rare disease treatments in early-stage studies, saw its market value soar  after announcing that drug giant Merck has taken a 10 percent stake in the company.

KalVista said it had struck a deal with Merck under which the companies will collaborate to develop treatments for diabetic macular edema, or DME, a complication of diabetes in which fluid builds up in the retina. Under the agreement, KalVista will get a $37 million upfront fee, and is also eligible to receive up to $715 million in milestone payments. In exchange, Merck will have an option to acquire the experimental drugs.

“We have always believed that development and commercialization of our DME therapies would require the resources of a large pharmaceutical company, and we believe Merck has the wherewithal and resources to help us advance development of our DME drug candidates,” KalVista CEO Andrew Crockett said in a statement.

The company’s lead drug for DME is slated to enter a mid-stage study by the end of the year. KalVista is also developing a potential treatment for hereditary angioedema, a rare disorder characterized by swelling under the skin.

Source: Boston Business Journal