Gilead's Gold Mine

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The heart of any pharmaceutical company is the patent portfolio protecting its drugs. Losing the marketing exclusivity and monopolistic profits for these pieces of intellectual property can be ruinous for a drug company's top line. Shareholders of drugmaker Gilead Sciences (Nasdaq: GILD) won't have these worries for many years yet, though. Key patents for its top drugs, such as the flu treatment Tamiflu and the HIV treatment Viread, won't expire until 2016 and 2017, respectively.

Last week, Gilead reported its fourth-quarter financial results. Revenue rose 48% year over year to $900 million, and the company posted gross margins of 83%. Its key HIV drug franchise sales gained 67% in the quarter, now accounting for more than 70% of all revenue. In that light, it's fortunate that Gilead has a lengthy amount of patent protection on these products.

Gilead's big move for the quarter was its acquisition of Myogen back in October. Because of the various charges associated with this acquisition, earnings were negative for the fourth quarter. But if you ignore these one-time charges and the costs of stock options, earnings jumped 44% to $0.78 per share.

Investors won't have to wait long to see whether the Myogen acquisition pays off. The most notable pipeline development this quarter was the submission of an FDA marketing application for Myogen's pulmonary arterial hypertension drug ambrisentan. Considering the review time the FDA has taken for competing drugs, Gilead will most likely receive a 10-month review period for ambrisentan, putting the PDUFA date (by which the FDA tries to render an opinion on the drug) around October.

Gilead's management's drug development and marketing prowess have already been proven, but the outcome of the FDA's decision on ambrisentan later this year will be the first test of its deal-making ability. With $1.2 billion in operating cash flow last year and an even higher amount expected this year, there will undoubtedly be more acquisitions in the coming years. Since Gilead appears to prefer the acquisition route to returning cash to shareholders via dividends, investors should pay close attention to how the Myogen acquisition improves its operations in the long run.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article.