There are pros and cons to investing in biotech stocks. One of the advantages is that shares of drugmakers can explode in a short period, especially following regulatory or clinical wins. On the other hand, the industry tends to be volatile, which may not suit some people's investment styles.

Even so, there are great biotech companies out there that are worth stashing in your portfolio for years, even if they go through volatile periods. Let's look at two examples: Axsome Therapeutics (AXSM 1.54%) and Exelixis (EXEL -1.00%).

AXSM Chart

AXSM data by YCharts.

1. Axsome Therapeutics

Axsome Therapeutics focuses on developing treatments for disorders of the central nervous system. The biotech is currently launching Auvelity, a depression medicine that earned approval in August. This therapy has a large addressable market; the number of people with depressive symptoms soared during the pandemic. There's a dire need for new treatments in this area, and Auvelity provides an effective, fast-acting option.

The drugmaker's portfolio also includes Sunosi, a therapy that treats excessive daytime sleepiness in patients with narcolepsy or obstructive sleep apnea; the company acquired Sunosi in May. These two products should help Axsome generate some revenue and get closer to profitability.

Axsome's top line in the second quarter came in at $8.8 million versus the year-ago period when it did not report any revenue. Its net loss during the second quarter came in at $41.4 million, compared to a net loss of $32.3 million a year ago.

Axsome is working on other programs to help beef up its pipeline. It's developing Auvelity as a treatment for agitation associated with Alzheimer's disease (AD), and started a phase 3 study in September. AD affects about 6.5 million Americans (a number that's growing), up to 70% of whom suffer from agitation. This could be a massive opportunity for Axsome.

Elsewhere, the biotech is working on earning approval for AXS-07, a potential treatment for acute migraines. Regulators in the U.S. declined to approve this medicine in May due to manufacturing issues. But following successful rounds of discussions with the U.S. Food and Drug Administration, Axsome plans on resubmitting an application for the medicine in the third quarter of 2023 without having to run additional clinical trials. The company sees a potential market of 37 million people in this area.

Axsome Therapeutics has several other candidates under its belt, and within half a decade, should have a much broader lineup of drugs. This biotech stock looks like a solid long-term bet for investors.

2. Exelixis

Exelixis focuses on oncology. It's been successful thanks to its crown jewel, Cabometyx, which treats renal cell carcinoma (kidney cancer) and hepatocellular carcinoma (liver cancer). Cabometyx has been extremely valuable because it has continued to grind out approval after approval, leading to higher revenue for Exelixis.

Still, the biotech is currently looking to diversify its lineup with several pipeline programs on the way. It's working on several potential cancer medicines that are in early-stage studies.

Its most advanced non-Cabometyx project is XL092, a potential treatment for metastatic colorectal cancer, the third-leading cause of cancer death in the U.S. The later it's caught, the harder it is to treat. The five-year survival rate when at a localized stage is 91%, but that metric drops to 15% at the metastatic stage. Clearly, there's a dire need for new therapeutic options that can help colorectal cancer patients whose illnesses have metastasized. Exelixis started a phase 3 study for XL092 in June; it still has to prove effective in clinical trials.

In the meantime, the company is still racking up wins with Cabometyx and delivering solid financial results. In the second quarter, Exelixis' top line came in at $419.4 million, about 9% higher than in the year-ago period.

The biotech's net income of $70.7 million decreased compared to the bottom line of $96.1 million reported in last year's second quarter. That wasa due to an increase in expenses, partly related to a license agreement it signed with another biotech company.

The company also ended the second quarter with $2 billion in cash and equivalents, slightly higher than the $1.9 billion it had at the end of 2021.

While over-reliance on a single drug may be a worry, Exelixis has proven its ability to develop successful cancer therapies. With a portfolio of exciting candidates and the funds to push these programs through the pipeline, Exelixis still looks like a good stock to buy and hold.