Biotech stocks can be risky buys as they're often unprofitable and it may be years before they start generating positive cash flow. But one stock that may be a bit safer these days is Axsome Therapeutics (AXSM -2.03%).

Although it remains unprofitable, sales have been growing. The company has a couple of promising assets in its portfolio and there's reason for optimism that its financials will be stronger in the future. Has the stock become a no-brainer buy?

Sales have gone from $0 to $50 million in a year

A big risk when investing in biotech stocks is that the underlying businesses are bleeding cash and wildly unprofitable, since they aren't generating much -- if any -- revenue in their early stages.

But last year, the U.S. Food and Drug Administration granted approval for Auvelity, Axsome's treatment for major depressive disorder. It's a big deal as Auvelity is a potential blockbuster that has some analysts projecting it to generate nearly $2 billion in revenue at its peak. The healthcare company also acquired narcolepsy medication Sunosi from Jazz Pharmaceuticals last year.

As a result, with a couple of promising assets bringing in sales, Axsome reported revenue of just over $50 million in 2022, with $5.2 million of that coming from Auvelity (it launched in October 2022), and the balance coming from Sunosi. In the previous year, Axsome reported no revenue.

However, as a result of the growth and more overhead, its operating expenses also ballooned from $124.7 million in 2021 to $229.8 million last year, resulting in a steeper net loss of $187.1 million in 2022 (versus a loss of $130.4 million a year earlier). The company warns that operating expenses are likely to climb as it invests more money into commercializing Sunosi and Auvelity, along with trying to develop its pipeline.

Risk of dilution appears low

Although losses are rising, what's encouraging for investors is that the company's cash and cash equivalents balance as of the end of last year totaled $200.8 million -- more than double the $86.5 million it reported a year earlier. And with a term loan facility that it can tap into, management believes that its liquidity is strong and "sufficient to fund anticipated operations into cash flow positivity."

That's a positive sign for investors, because dilution has been a problem for Axsome in the past.

Chart showing Axsome Therapeutics' shares outstanding rising since 2019.

AXSM Shares Outstanding data by YCharts

Now that the company has a more promising future and some solid assets to build around, the risk of dilution is lower than what it was even a year or two ago. That should give investors some confidence in being able to invest in the stock for the long haul, especially if positive cash flow could be on the horizon. Over the trailing 12 months, Axsome's operating cash burn totaled $116.5 million. 

Has the stock become a great buy?

In the past 12 months, shares of Axsome have risen by more than 40% due to the approval of Auvelity and adding Sunosi into the mix, which has helped to jump-start the company's top line. But many analysts still see even more upside for the stock, with the consensus analyst price target being just under $104, and the most bullish one calling for a price as high as $200.

There's still some risk with the stock, so I wouldn't call it a no-brainer buy just yet (perhaps once its cash flow turns positive). But it's definitely a great option for biotech investors to consider adding to their portfolios right now.