Shares of FoxHollow, a far smaller company which is based in Redwood City, California, surged 21 percent in afternoon trading.

"We now know that plaques have the same makeup whether they're in the heart, the kidneys or legs," Duke Rohlen, president of strategic operations for FoxHollow, said in an interview.

The companies together will sponsor clinical trials on patients with clogged leg arteries to better understand plaque, and thereby develop new drugs to treat plaque that clogs heart arteries.

Under the expanded partnership, Merck said it would pay FoxHollow $40 million over four years in return for the smaller company collaborating exclusively with Merck in specified disease areas.

Merck said it would also pay FoxHollow at least $60 million over the first three years of the four-year expanded deal for research under Merck's direction, including removal of atherosclerotic plaque from patient arteries for analysis, and for performing clinical trials of potential drugs.

"FoxHollow will receive milestone payments on successful development of drug products or diagnostic tests utilizing results from the collaboration, as well as royalties," the companies said in a joint press release.

Merck, which is based in Whitehouse Station, New Jersey, said it will buy FoxHollow's stock at $29.63 per share. That represents an 8.7 percent premium to FoxHollow's closing share price on Tuesday of $27.25.

The original deal between the two companies was struck in September 2005 and entitled FoxHollow to annual payments of $10 million for up to three years, Rohlen said.

"Going forward, the value to us could rise to $300 million," Rohlen said, including $100 million in additional payments from Merck if the collaboration lasts a full 15 years.

FoxHollow sells devices used by doctors to cut fatty deposits from leg arteries of patients with peripheral artery disease. If not cleared, the plaque can cut off blood flow to the legs and lead to amputations.

In Europe, the company also sells a product called Coronary Hawk that cuts plaque from arteries of the heart, an alternative to angioplasties and stents that clear blocked arteries through other means.

Rohlen said it will take another two years or longer for the FoxHollow heart product to be approved in the United States.

FoxHollow was up $5.76 to $33.01 on the Nasdaq, after reaching $35.72 earlier in the day. Merck was up 49 cents to $42.25 on the New York Stock Exchange.