RALEIGH, N.C. – Salix Pharmaceuticals, strengthened by a profitable fourth quarter that beat Wall Street expectations and a new $100 million line of credit, is expanding its gastrointestinal product line through a deal with drug giant Merck.

Salix will pay Merck $55 million up front plus milestone payments of up to $6 million for rights to the intestinal drugs known as Pepcid Oral Suspension and Diuril Oral Suspension. The Pepcid product produced $20 million in revenue in 2006, Salix said, and both drugs compete in a market worth $150 million.

“These marketed products should generate immediate revenue while requiring minimal promotional expense,” said Salix Chief Executive Officer Carolyn Logan.

The drugs, which are prescription only, are for treatment of various gastrointestinal ailments such as two types of ulcers and gastroesophageal reflux disease.

To help finance the deal, Salix secured a $100 million line of credit.

The drug deals and the quarterly and annual earnings reports helped send Salix (NASDAQ: SLXP) stock up 89 cents, or nearly 6 percent, to a close of $14.21 on Wednesday.

Salix reported fourth-quarter earnings of $13.9 million, or 29 cents per share. Analysts polled by First Call and Thomson Financial had estimated earnings of 26 cents. Revenues of $62.6 million beat estimates by some $4 million and were nearly $12 million higher for the same quarter in 2005.

For the year, Salix reported a profit of $31.5 million, or 65 cents per share.