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A federal advisory panel on Tuesday rejected the experimental drug, ridaforolimus, created by Ariad Pharma (NASDAQ:ARIA) and partnered with Merck & Co. (NYSE:MRK), for use in patients with soft-tissue or bone sarcomas

The panel had concerns ridaforolimus didn't work well enough to offset potentially serious side effects while backing GlaxoSmithKline's (NYSE:GSK) drug Votrient for the same treatment.

This news is devastating for Ariad, as the company is far away from bringing its other clinical drugs to market. Ariad already is not in a good cash position, and like most developmental smaller bio pharmas, it loses money. We can expect a big haircut in the Ariad stock price today, as I fear institutions will be running for the exits today along with retail traders, while shorts pile on.

Merck has placed a large bet on ridaforolimus, which as of this moment, it has lost that bet. Merck is a pharma giant, and can sustain this type of failure, Ariad cannot. Ariad needed ridaforolimus to be approved in order to confirm its technology platform to the market. While I personally feel Ariad has a good technology platform, the majority of investors will see this set back as a failure of Ariad's technology platform. I hate to see this happen to small companies, but this is the reality of the speculative bio pharma sector.

I recently wrote about Acadia Pharma (NASDAQ:ACAD) being undervalued and similar to Ariad in terms of price action and potential stock run up as we saw Ariad enjoy in the last 3 years. Acadia still has plenty of room for its stock price to appreciate, and is worth the gamble at this time in my opinion.

Sadly, Ariad has already seen a massive run-up, so its stock price has nowhere to go but down, and down hard. I originally wrote about Ariad having great potential, and mentioned it is the other drugs in its pipeline that impress me the most. Again, I still feel this way, but the stock is going to have to take a beating first before appreciating in the future.

For the reasons above, this is why I have my largest bet on Antares Pharma (AIS) moving forward. Antares carries about 80% less risk than companies like Ariad because of its platform.

Yesterday's closing stock price of Ariad was $15.05.

Source: Ariad Pharma Sees Huge Setback In Its Sarcoma Maintenance Drug Ridaforolimus