Avalon Pharmaceuticals ( AVRX) was soaring some 30% in extended trading Tuesday after it struck a deal to develop cancer drugs with pharmaceutical giant Merck ( MRK).

Avalon will conduct preclinical screening with its drug-discovery platform in order to develop "inhibitors for an undisclosed target" important in cancer development. In exchange, it may receive milestone payments in excess of $200 million, as well as royalties on any resultant products.

Merck will take care of any and all clinical trials and commercialization. Avalon shares were up $1.35 to $5.98. Merck stock was unchanged after closing the regular session up 42 cents, or 1%, at $44.67.

Optimal Group ( OPMR), a Canadian company that provides payment-processing systems, jumped after fourth-quarter adjusted profit totaled $5.7 million, or 23 cents a share. That smashed two analysts' 4-cent estimates, according to Thomson Financial. A year ago, Optimal earned $4.8 million, or 18 cents a share. Revenue sank 35% to $33.9 million, but this still tops three analysts' $31.7 million expectations. Shares were up $1.10, or 14.1%, to $8.90.

Payless Shoesource ( PSS), a discount shoe-store chain, gained after it swung to a 16-cents-per-share profit, excluding items, that powered past Wall Street's estimates of 7 cents. Last year, the Topeka, Kan., company lost a penny a share. Same-store sales were up 6.8% from a year ago, and overall revenue climbed 13% to $693 million. Shares were up $1.97, or 6.3%, to $33.40.

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