Cash rules the drug-development world. Companies should grab it anyway they can, and investors should take notice when they do.

Ariad Pharmaceuticals (Nasdaq: ARIA) could certainly use some; the company ended last year with just $40 million in the bank and had a cash spend of $75 million in 2009. Fortunately partner Merck (NYSE: MRK) was willing to oblige, helping the company boost its cash and lower its spending.

Merck and Ariad were already partners on cancer drug ridaforolimus. The old partnership had Ariad paying a portion of clinical trial costs while retaining half of the U.S. marketing rights. Under the new deal, Merck gets worldwide rights, but has to pay for all the clinical trial costs.

In exchange for giving up its half of the U.S. rights, Ariad will get a $50 million payment and another $19 million to reimburse the company for costs incurred since the beginning of the year. Instead of getting half the U.S. profits and royalties elsewhere, Ariad will now receive tiered double-digit royalties everywhere, but the rate is higher than the old ex-U.S. royalty rate.

And there's still more cash on the table. The new deal calls for $514 regulatory and sales milestones including $25 million when the Food and Drug Administration accepts the marketing application for ridaforolimus. That could come as early as next year as the company expects to get an interim look at the data for ridaforolimus' phase 3 trial this quarter. Hopefully by then they'll have a brand name for ridaforolimus that doesn't sound like Snuffleupagus' little brother on Sesame Street.

The infusion of cash and lower costs should extend Ariad's runway into second half of 2011 even if it doesn't get any milestones. The cash will help it start a phase 2 trial for another cancer drug, AP24534, in the second half of the year and perhaps put it in a better bargaining position for potential partners for its pipeline. The company has already licensed ridaforolimus for use in two drug-eluting stents. The correlation between cancer and drug-eluting stents isn't that farfetched; Novartis' (NYSE: NVS) cancer drug Afinitor is used in Abbott Labs' (NYSE: ABT) Xience V.

Until they're cash flow positive, drugmakers should always make sure they have enough cash to tide themselves over. You didn't hear me belittling Dendreon (Nasdaq: DNDN) when it grabbed cash while it waited for an FDA decision -- even though it would have been cheaper to grab it now. All it takes is one tragedy like InterMune (Nasdaq: ITMN) experienced to make it even more expensive later.

The deal will look like a stupid move by Ariad if ridaforolimus becomes a megablockbuster in the U.S., but at this point, living to see that day is much more important.

Jim Royal reminds us that not all cash machines are created equal.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Novartis is a Motley Fool Global Gains recommendation. The Fool has a disclosure policy.