Image source: Getty Images.

Gilead Sciences (NASDAQ:GILD) disappointed investors in the first quarter of 2016. The biotech disappointed again in the second quarter. A pattern seems to be emerging here. When Gilead announces its third-quarter results on Nov. 1, will the disappointments continue or is a positive surprise in store? It depends heavily on the answers to these three questions.

1. How much did Harvoni sales slow down?

After storming out of the gate following its commercial launch in late 2014, blockbuster hepatitis C drug Harvoni has lost a good bit of steam. In the second quarter, sales for Harvoni declined nearly 29% year over year. No one is expecting Harvoni sales to rebound in the third quarter, but the market is anxious to find out how steep the decline might be.

There are three main reasons behind the waning sales for the hep C drug. Competition is probably the most important. AbbVie's (NYSE:ABBV) Viekira and Merck's (NYSE:MRK) Zepatier go head-to-head with Harvoni. Gilead seems to have fended off AbbVie pretty well, although Viekira is claiming its fair share of the market. Merck, however, changed the game by launching Zepatier at a significantly lower price.

Merck's move helped bring about the second main reason Harvoni's sales are slowing down. Payers are demanding -- and getting -- rebates and steep price discounts. Gilead reported much-lower average selling prices in the second quarter due to these concessions.

The other factor behind Harvoni's sales decline relates to the hepatitis C patient population. When Harvoni was first launched, physicians prescribed the drug for a huge wave of patients with the most serious cases of hep C. Because Harvoni is so effective, many of those patients are now cured of the disease. Newer patients taking the drug tend to have less severe cases of hep C and can get by with shorter treatment periods. That reduces the sales volume for Harvoni.

None of these things changed in the third quarter. We'll find out soon if the worst of the impact is over. 

2. Did new drugs outperform expectations?

Gilead rolled out a crop of impressive new drugs over the past year. Genvoya was launched in November 2015. The TAF-based HIV drug saw sales of $360 million in the first half of 2016.

A couple of other TAF-based HIV drugs are also coming on strong. Descovy was launched in April 2016. Odefsey was launched in the U.S. a month earlier but didn't win European approval until June. 

Possibly the biggest potential winner of the group, though, is Epclusa. The hepatitis C drug, which is the first to treat all genotypes of hep C, gained FDA approval in late June. With only three days of sales in the second quarter, Epclusa generated revenue of $64 million. The addition of Epclusa to its lineup should help Gilead battle more effectively against AbbVie and Merck.

Gilead should see great numbers in the third quarter from all four of these newer drugs. If those numbers are even better than great, combined with Harvoni's sales coming in higher than expected, Gilead could have a nice quarter.

3. Will any hints be given about potential deals?

At the end of the second quarter, Gilead sat on a cash stockpile totaling $24.6 billion (including cash, cash equivalents, and marketable securities). Inquiring minds want to know what the biotech will do with that money.

Some of it will go to share buybacks. However, Gilead CFO Robin Washington noted in her second-quarter earnings call comments that the company would probably slow down repurchases in the second half of the year. Some will also go to pay out dividends, but Gilead spent only $1.2 billion on dividends in the first six months of the year.

The only acquisition Gilead has made so far in 2016 is the purchase of Nimbus Apollo, in May. Gilead spent $400 million up front in the buyout. That amounts to pocket change for the biotech.

Gilead has a lot of cash that it could use to forge a deal to bolster its pipeline. Any news (actually, any hint) that it is looking to make a smart strategic acquisition should be good for the stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.