The process of growing from a specialty boutique pharmaceutical with one or two lead drugs to a diversified drug giant almost always involves as many smart acquisitions as intelligent in-house drug pipeline decisions. For the past year, biopharmaceutical company Gilead Sciences (NASDAQ:GILD) has been attempting to make this transition, with mixed success.

After Gilead's third-quarter results were announced yesterday, it's clear that even if all the acquisitions don't pan out, Gilead's core HIV franchise drugs are experiencing such explosive growth that the company makes a good investment on their strength alone.

Gilead's total revenues for the quarter increased 52% to $749, and net income came in at $303 million and $0.64 per share. Any investment in Gilead at this point is primarily a bet on its HIV franchise, since these drugs accounted for 74% of its revenues, and revenue growth for these HIV combination therapies has been robust for the past several quarters.

HIV Franchise Sales

Year-Over-Year Growth

Q3 06

$557

53%

Q2 06

$475

38%

Q1 06

$451

50%

Q4 05

$385

47%

Q3 05

$364

59%
All sales numbers in millions.

The other major source of revenue for Gilead was royalties from the sales of the Roche-marketed influenza drug, Tamiflu. Tamiflu royalties came in at $62.7 million, due to the huge worldwide demand for the drug because of the bird flu scare. With Roche's sales of Tamiflu up 88% in this most recent quarter, Gilead should show a huge increase in Tamiflu royalties next quarter (since these revenues are recognized with a one-quarter lag).

As my Foolish colleague Brian Gorman pointed out last month, the big news for Gilead this quarter was its agreement to acquire biotech company Myogen (NASDAQ:MYOG) for $2.5 billion. I wasn't surprised to see Gilead make an acquisition, since I predicted one when I wrote about its second-quarter results in July. Now that the company has exhausted most of its cash (it will only have around $700 million in the bank after the acquisition), it will probably be a little while before Gilead decides to undertake another acquisition on such a large scale.

Whether you think the Myogen acquisition was a good deal for Gilead or not really depends on how you think its lead drug, Ambrisentan, will fare against its competitors in the pulmonary arterial hypertension marketplace. Some Fool analysts liked the deal, but I think it was a terrible waste of cash for Gilead with so many other competitors in this market.

Only time will tell if the Myogen acquisition was overpriced or not, but Gilead's management is at least trying to move in the right direction by spending its cash on acquisitions.

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