U.S. pharmaceutical company Merck & Co. is set to buy SmartCells Inc, a privately held biotechnology firm in the early stages of developing a new diabetes drug, the Wall Street Journal reported.

The deal for SmartCells would exceed $500 million if various milestones for development, regulatory approval and sales were met and could be announced as early as Thursday, a person familiar with the matter told the Journal.

A SmartCells deal would expand Merck's treatment offerings for diabetes. It already has two top-selling drugs for Type 2 diabetics in its portfolio.

Merck could not be reached for comment.