Merck & Co (NYSE:MRK) and Seattle Genetics (NASDAQ:SGEN) have agreed to terms in a licensing and equity-investment deal that could be worth $4.2 billion to Seattle Genetics.

Specifically, Merck's paying $600 million upfront and up to $2.6 billion in progress-determined milestone payments for global co-development and co-commercial rights to Seattle Genetics ladiratuzumab vedotin, an antibody-drug conjugate targeting various cancer indications. Merck's also acquiring $1 billion in shares in Seattle Genetics at $200 per share, which is a significant premium to Seattle Genetics' $150 closing price on Friday.

Two business people shaking hands.

IMAGE SOURCE: GETTY IMAGES.

The healthcare companies plan to evaluate ladiratuzumab vedotin as monotherapy and in combination with Merck's mega-blockbuster anti-PD-1 therapy, Keytruda, in triple-negative breast cancer, hormone receptor-positive breast cancer, and other solid tumor cancers.

Separately, Merck also obtained certain ex-U.S. rights to Tukysa, a HER2-positive breast cancer drug, from Seattle Genetics for $125 million upfront and $65 million in potential milestone payments. Merck will pay $85 million in prepaid research and development costs and tiered royalties on sales within its licensed territories outside the U.S., Canada, and Europe.

In April, Tukysa won FDA approval for use alongside Herceptin and Xeloda in previously treated metastatic HER2-positive breast cancer. In clinical trials, adding Tukysa to Herceptin and Xeloda improved progression-free survival and overall survival in previously treated metastatic HER2-positive breast cancer patients. Seattle Genetics reported Tukysa sales of $16 million in the second quarter.

Overall, the deal provides Seattle Genetics with significant financial flexibility and marketing might. For perspective, its three commercial-stage drugs -- Adcetris, Padcev, and Tukysa -- contributed $240.5 million in revenue in the second quarter, up 51% from last year.