On Wednesday, drug developer ViroPharma (NASDAQ:VPHM) announced its fourth-quarter financial results, closing out a tumultuous year. Shares whipsawed down 33% last March over fears of generic competition for its lead antibiotic compound, Vancocin. But the stock later rebounded as the company posted strong Vancocin sales and made solid progress in advancing its drug pipeline.

For the year, Vancocin sales increased 32% to $167 million, hitting slightly above the midpoint of ViroPharma's previous guidance. Gross margins improved 290 basis points to 88.6%, thanks partly to the benefit of higher Vancocin pricing. Operating income rose 12%, despite ramped-up R&D spending for ViroPharma's two development-stage compounds, and earnings came in at $0.95 a share for the year.

Sales of Vancocin actually fell nearly 5% in the fourth quarter, but that resulted from the timing of wholesaler stocking of the drug, not any immediate decrease in demand for Vancocin. The drug's prescriptions grew 19% compared to last year's fourth quarter, and 23% for the year.

ViroPharma already issued its 2007 financial forecast back in January, but it reiterated this guidance in its earnings release, while shedding more light on its expense structure for the year. I'd previously calculated around $75 million in net income for this year, excluding options expense. It looks like that reasonable estimate should hold, barring any generic Vancocin entrants.

In 2007, investors should especially watch for the release of Genzyme's (NASDAQ:GENZ) phase 3 study comparing its investigational antibiotic Tolevamer to Vancocin. This is actually an even bigger threat than the possibility of generic versions of Vancocin entering the market. The clinical trial results will be released in the second half of the year. If Genzyme's drug outperforms Vancocin, ViroPharma's product could have a formidable competitor on the market in 2008.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.