The Virus-Killer's Killer Quarter

What do you get when you combine swine-flu-boosted royalties with drugs that patients can't stop taking, even in a recession? One profitable company.

Gilead Sciences (Nasdaq: GILD  ) closed out 2009 with a solid 42% increase in revenue in the fourth quarter, thanks to its HIV drugs. Atripla, which is a combination of Gilead's Truvada and Bristol-Myers Squibb's (NYSE: BMY  ) Sustiva, finally passed Truvada for the top spot after a 50% increase in sales. Sales of Truvada still held their own with a solid 19% year-over-year increase. Gilead's royalties from Tamiflu, which is sold by Roche, suddenly became the third-biggest revenue source for the quarter. With the swine flu waning, royalties at this level aren't likely to last, but for now they're boosting the top line substantially.

Those royalties are a great driver for earnings, because the margins are incredible -- how much does it cost to cash a check? Excluding acquisition and restructuring-related costs, earnings per share were up 52%. Like I said, one profitable company.

Looking ahead, Gilead expects product sales to increase 17% to 19% this year. Add that to research and development and selling, general, and administrative expenses that aren't expected to grow as fast, and you've got a company that's still growing like gangbusters.

Its dominant HIV franchise puts Gilead in the driver's seat, and companies will have to partner up, the way Johnson & Johnson (NYSE: JNJ  ) did, or be stuck catering primarily to patients who have failed first-line treatments. Pfizer (NYSE: PFE  ) and GlaxoSmithKline (NYSE: GSK  ) have teamed up to try to take on Gilead, but I think it can handle the pressure; Gilead has come up with a quad pill on its own that could be the next growth driver for it.