UPDATE 1-Galapagos partners with Merck, shares jump

* Galapagos to get 1.5 mln euros in upfront fees

* Total payments could exceed 170 mln euros

* Programme to identify new obesity, diabetes targets

* Shares up 12 percent

(Adds CEO, analyst comment, shares)

AMSTERDAM, Jan 9 (Reuters) - Shares in biotech company Galapagos (GLPG.BR) rose on Friday after it signed a multi-year deal with Merck & Co (MRK.N) to develop new obesity and diabetes treatments, with an upfront payment of 1.5 million euros. In addition to the upfront fee, the dual Dutch- and Belgian-listed Galapagos (GLPG.AS) is eligible to receive discovery, development and regulatory milestone payments that could potentially exceed 170 million euros ($233 million).

Shares in Galapagos, which have risen 44 percent in the past three months, rose in morning trade and were up 12.3 percent at 5.19 euros at 1040 GMT, the top gainer in Amsterdam in a flat market.

KBC analyst Jan de Kerpel said that as Merck has the right to licence and develop a candidate drug in the pre-clinical stage, Galapagos' involvement might be restricted to pre-clinical studies, limiting its milestone payments.

However, he welcomed the fact the company is moving into new treatment areas.

"There is only a limited chance of success starting at such an early discovery that a drug will make it the market, but the the company is aware of that and is working in different areas to spread the risk," De Kerpel said.

Chief Executive Van de Stolpe told reporters modest milestone payments will start this year and will increase over time. He did not outline when milestone payments will be made.

Van de Stolpe added it will take up to 14 years for a drug to be developed and released onto the market. The company will be paid sales milestones and royalties upon commercialisation of a drug.

Galapagos is a drug discovery company focusing on treatments for bone and joint diseases and is partnering GlaxoSmithKline (GSK.L) to develop treatments against osteoarthritis and anti-infectives, while it is partnering Johnson & Johnson (JNJ.N) on a rheumatoid arthritis programme. ($1=.7312 Euro) (Reporting by Aaron Gray-Block; editing by Simon Jessop)