If Gilead Sciences' (Nasdaq: GILD) pipeline was firing on all cylinders maybe investors could have overlooked its disappointing first-quarter earnings report. But the pipeline is stumbling, and investors certainly haven't overlooked it: Shares of the drugmaker are down 10% today.

Relative to the year-ago quarter, product sales didn't look all that bad -- up 24% -- but they still missed analysts' expectations. Like Eli Lilly (NYSE: LLY) earlier this week, Gilead said it will be hurt by the recently passed health-care reform bill, which will increase rebates that Medicaid receives. Gilead lowered its sales guidance for this year to a range of $7.4 billion to $7.5 billion -- about a $200 million decrease.

While some drugmakers would be envious of 24% growth, investors are rightfully skeptical that Gilead can keep it up with the current offerings. And besides, the sales will be lost to generics eventually. In order to satisfy investors, Gilead has to make progress developing new drugs.

Unfortunately, it looks like another one may be biting the dust. On Monday, Gilead said that it was stopping a phase 2 trial testing its hepatitis C drug, GS 9450, because of high undisclosed adverse events, which seem to be backed up by laboratory data. The company hasn't made a final decision about the drug, but things aren't looking particularly good for the compound.

The hepatitis C drug failure follows Gilead's attempt to diversify into heart drugs with its blood-pressure drug candidate, darusentan. The drug seemed to work in a phase 3 trial although the side effect profile was questionable. After a second phase 3 trial failed to meet its efficacy endpoint, Gilead decided it had had enough and dropped the program.

The only thing that seems to be going well for Gilead's pipeline is its mainstay HIV drugs. A partnership to develop a cocktail drug with Johnson & Johnson (NYSE: JNJ) seems to be proceeding well, and the company recently started a phase 3 trial for its quad pill, from which Gilead will be able to keep all the revenue; it currently shares revenue from its top-selling drug, Atripla, with Bristol-Myers Squibb (NYSE: BMY).

Those HIV drugs should help Gilead stay ahead of competitors in the HIV space. Remember, GlaxoSmithKline (NYSE: GSK) and Pfizer (NYSE: PFE) have teamed up forming a joint venture which could create combination drugs like Gilead sells. However, Gilead's HIV drugs in trials won't give the company any diversification, like the failed blood pressure or hepatitis drugs would have.

Fortunately Gilead is still a cash-generating machine with $670 million in operating cash flow during the quarter. The $4.6 billion it has in the bank is more than enough to buy a few pipeline candidates and try its hand at diversification again.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of GlaxoSmithKline and has a disclosure policy.