Healthcare stocks, in general, and biopharmas, in particular, have seen some of their best returns in decades, fueled mainly by a wave of new drugs gaining approval and an aging population in the U.S. The growth story of specialty and generic drugmaker Actavis plc (NYSE:AGN), though, has a slightly different underlying catalyst that has now driven shares up approximately 55% in the past year:

ACT Chart

Specifically, the company has been buying smaller specialty pharma companies in bulk lately in order to round out its branded drug portfolio. New products are coming online from earlier acquisitions, and even more buyouts took place last quarter. Let's take a deeper look at Actavis' third-quarter earnings report to see if the company can continue its stellar growth trend.

Actavis's third quarter was strong -- acquisitions fueled earnings and debt
On a non-GAAP basis, Actavis beat consensus for diluted earnings per share and revenue. Namely, the company reported non-GAAP diluted earnings per share of $3.19 for the three-month period, topping the Street's estimate by $0.09. Net revenue also came in stronger than expected, at $3.7 billion, beating consensus by $7 million. Overall, non-GAAP diluted EPS grew by 53%, and net revenue by 83%, relative to the same period a year ago.

On the back of these better than expected numbers, Actavis decided to raise its full year non-GAAP guidance to $13.51-$13.61, up from $13.02-$13.32. This is the second time in three months that the company has revised its full-year guidance upwards, largely reflecting the acquisitions of Warner Chilcott and Forest Laboratories. 

It wasn't all good news for the specialist drugmaker in the third quarter. On a GAAP-basis, the company actually lost $1.04 billion, or $3.95 per share for the quarter due to its bevy of recent acquisitions that included antibiotic drugmaker Durata Therapeutics. The company also used a noteworthy $750 million during the quarter to help pay off its outstanding debts from prior acquisitions. 

North American branded product sales are soaring
For the quarter, Actavis saw sales in its North American branded product segment rise by a whopping 1,073%, to $1.608 billion, compared to the same period a year ago. This meteoric rise was driven mainly by the acquisitions of Warner Chilcott and Forest, and subsequently strong sales of products such as Namenda, Bystolic, Linzess, among others.

Even so, SG&A expenses skyrocketed in the quarter, to $1.27 billion, up from $456 million a year ago. Actavis said that most of this dramatic increase in SG&A expense was tied to the integration of Warner Chilcott and Forest into the North American Branded products unit. 

North American generics and international segments lagging behind
Although not nearly as impressive as the growth in its branded products segment, Actavis still reported a 5.5% annual increase in combined sales for North American generics and international drug sales, to $1.61 billion. The company said that increased generic competition to Lidoderm and Concerta negatively affected sales last quarter in its North American generics unit. Unfortunately, the company didn't provide much color regarding the magnitude of rival generics on these two products.

Even so, we can learn from the press release that most of this growth among non-North American brands can be attributed to International sales of branded, branded generic, and OTC drugs, not North American generics. During the quarter, for example, international sales rose by a healthy 15%, to $660.7 million. 

Foolish wrap-up
Like its competitor Teva Pharmaceutical Industries Ltd. (NYSE:TEVA), Actavis is seeing the bulk of its growth come from branded specialty products these days. While this trend is partly due to an influx of generic competitors negatively impacting sales, it also reflects the heavier emphasis these companies have placed on their branded product lines in the last few years. 

Actavis' management has clearly staked the future of the company on acquiring high-impact branded products, even taking on massive amounts of debt to do so. Going forward, I think the company will continue on the same aggressive M&A path, perhaps culminating in a megadeal with the likes of Allergan. All told, management's acquisition strategy has paid off handsomely for investors thus far, making this growth stock one to keep a close watch on moving forward.