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Geron Corp. (GERN) agreed to provide stem cells to General Electric Co.'s (GE) GE Healthcare for use in tools that test drug treatments for their toxic effects on the body, particularly the heart and liver.

Financial terms were not disclosed, but the news sent shares of biotech company Geron up $1.18, or 17.7%, to $7.88 Tuesday. Investors applauded the support of a deep-pocketed company like GE Healthcare, the possibility of Geron securing a royalty stream and the potential use for Geron's stem cell platform. GE's shares were down 6 cents to $11.70.

"We had an asset that we were not able to exploit fully," said David Earp, Geron's senior vice president for business development and chief patents counsel.

Konstantin Fiedler, GE Healthcare's cell-technologies general manager, said he expects the market for toxicity testing under the deal to be in the low hundreds of millions of dollars. Analysts expect Geron to begin receiving royalties as early as next year.

In January, Geron received clearance from the U.S. Food and Drug Administration for the first-ever human trial of a medical treatment derived from embryonic stem cells.

Tuesday, Geron said it is giving GE Healthcare an exclusive license regarding the growth and differentiation of the cells. Scientists from both companies will work on the project, with GE Healthcare funding research and development and being responsible for any manufacturing, sales and distribution of products developed under the deal.

Shares of other stem-cell companies rose. StemCells Inc. (STEM) added 2.4% to $1.72, Aastrom Biosciences Inc. (ASTM) rose 4% to 42 cents and Neostem Inc. (NBS) gained 16% to $2.05.

Joe Pantginis, an analyst at Merriman Curham Ford, said Geron shares rose on the likelihood of near-term royalty payments plus on the research and development and manufacturing heft that GE provides. Needham analyst Mark Monane also pointed to the fact that the companies expect the first product by early 2010.

For GE, the announcement comes as the conglomerate aims to both reposition its health-care group as well as to align its business units to benefit from White House priorities.

About two months ago, GE unveiled a campaign focused on how GE is improving access and quality to health care globally while lowering costs, The Wall Street Journal reported. Most of GE Healthcare's revenue now comes from diagnostic and imaging equipment, but sales are under pressure as public and private insurers try to reduce health-care costs.

-By Brendan Conway, Dow Jones Newswires; 212-416-2670; brendan.conway@dowjones.com

(Mike Barris contributed to this report.)