What happened

Shares of Editas Medicine (NASDAQ:EDIT) and Beam Therapeutics (NASDAQ:BEAM) rose as much as 23% and 29%, respectively, today after the pair were rumored to be considering a merger. Although investors shouldn't invest based on speculation, a merger would make sense on multiple fronts.

The duo already have an agreement in place to collaborate on genetic medicines, but the struggling pipeline of Editas Medicine could receive a significant boost from Beam Therapeutics. It would also allow Editas shareholders to avoid many of the technical pitfalls of first-generation CRISPR gene-editing tools, which have yet to be adequately reflected in stock prices. Of course, the flip side is that the merger doesn't make as much sense for Beam Therapeutics.

As of 12:50 p.m. EDT, both small-cap stocks had settled to gains of about 14%.

An arrow bouncing up shelves on a wall.

Image source: Getty Images.

So what

There are multiple reasons a merger makes sense. Consider that:

  • Both Editas Medicine and Beam Therapeutics can trace their roots to the Broad Institute. A combination would reduce the legal red tape for sharing and licensing intellectual property and could reduce financial burdens for internal and external licensing and royalty agreements.
  • As is often the case in genetic medicines, there's considerable overlap in the pipelines of Editas Medicine and Beam Therapeutics. Consolidating those efforts would allow for the best product candidates to move forward, rather than create unnecessary competition in a crowded field.
  • Although both companies loosely fall under the CRISPR umbrella, Editas Medicine is developing drug candidates based on CRISPR gene editing, whereas Beam Therapeutics is running with CRISPR base editing. The latter faces significantly reduced technical obstacles and is closer to an ideal genetic medicine platform. First-generation CRISPR gene-editing tools -- such as those wielded by Editas Medicine -- are almost certainly not the future of the field. A merger would avoid that risk for shareholders.

Now what

There's not much to the report that Editas Medicine and Beam Therapeutics are considering a merger. Only one digital publication mentions "chatter" without providing any follow-up details. The rumors are at least plausible given the ties to the Broad Institute and overlap of the scientific founders, but investors simply don't have much to go on. That said, a merger would make more sense for Editas Medicine than Beam Therapeutics, as the latter has a much stronger technical foundation to lean on for the long haul.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.