Sorrento Therapeutics (NASDAQ:SRNE) has been one of the best-performing small-cap biotechs this year: In three months ended June 5, its shares rose by almost 87%. So what does the company have in its pipeline that is generating such enthusiasm among investors?

Currently, the company's pipeline is heavily focused on pain management and is still in early stages of clinical studies. However, investors are largely excited about Sorrento's potential with regard to developing neutralizing antibodies for COVID-19. Upon deeper analysis, it appears neither of the company's pipeline indications is particularly promising, which places Sorrento's stock in a high-risk category.

Young man visiting doctor.

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An investigative pain relief alternative

The company's flagship product is resiniferatoxin, a chemical compound found in cactus-like plants that grow in Morocco. It's chemically similar to capsaicin, which is the compound in chili peppers that creates a burning sensation. Currently, resiniferatoxin is being tested in clinical trials for two indications: knee osteoarthritis pain relief and treatment of terminal cancer pain.

The goal of the resiniferatoxin study is to investigate whether it can deliver the same pain relief as opioids do without their addictive properties. Both clinical trials have completed phase 1 and are set to advance into phase 2 by the end of the year.

How does the data look?

In the advanced-stage cancer pain study, three out of 14 patients who took resiniferatoxin reported significant improvement in their symptoms on the 10-point Numeric Pain Rating Scale. All three patients said their NPRS fell from higher than six to below two or three after their course of treatment. There were two treatment-related adverse events, such as back pain and high blood pressure. It is worth noting the drug has not yet been tested against placebo, but the study did involve patients who had either taken opioids and witnessed no effect or refused treatment with opioids.

Interestingly, resiniferatoxin has been tested in clinical trials as a treatment for terminal cancer pain since 2009; the compound came to Sorrento through an acquisition. In 2015, 10 patients with terminal cancer pain were enrolled in a phase 1 clinical trial. The fact that its early clinical study took such a long period of time even to produce results cast a shadow on the company's track record.

Resinifertoxin's other clinical trial may have a clouded outlook as well. In the phase 1 trial, 94 patients with knee osteoarthritis took it, and it was well-tolerated with no dose-limiting toxicities. While a "therapeutic signal" was discovered during that study, it's unclear what kind of pain reduction it translated to. Previously, the only clinical study that confirmed resiniferatoxin's efficacy in treating knee arthritis took place in rats.

The company does have another clinical candidate, and its efficacy has been somewhat confirmed in human studies. In phase 2, Sorrento's steroid injection SP-102 demonstrated a 100% response in patients with sciatica pain (pain running along the sciatic nerve), with a median pain reduction of 50%. While these results may sound promising, the trial itself was problematic in ways similar to Sorrento's previous studies. First of all, SP-102 was not tested against placebo in phase 2. Secondly, the study only enrolled 19 patients, which is too small a group for meaningful statistical analysis to be conducted on the results. For these reasons, I don't see a high chance of success for SP-102's phase 3 trial, results of which are expected later this year.

Is Sorrento's stock a bad risk?

Unfortunately, the issues surrounding the company's clinical investigations do not paint a bright picture for the future of its stock. Those problems are further compounded by Sorrento's recent announcements that it had developed an antibody and a protein that were 100% effective in inhibiting SARS-CoV-2 infection. These efficacy claims were preclinical, with the treatments being tested in cells in a lab. They had not yet been tested in humans.

In another article, I discussed some surprising statements CEO Henry Ji made on Fox News regarding its preclinical COVID-19 antibodies, such as "We want to emphasize there is a cure. There is a solution that works 100 percent." There are now multiple class action lawsuits against Sorrento alleging the company greatly inflated the results of its scientific findings.

Overall, I expect by next year, Sorrento stock will be trading back down in the range where it was before it announced that it had developed miracle antibodies that could fight off COVID-19. The biotech is just too low on cash, and the outcomes of its clinical studies are too uncertain to justify its $830 million valuation. This is a stock biotech investors may wish to pass on. Indeed, there are much better options to choose from for investors interested in either pain management or coronavirus stocks.  

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.