Analysis-Hims & Hers says its weight-loss business can grow as US market changes

Hims & Hers Health faces challenges as the FDA ends the allowance for compounded versions of weight-loss drugs like Wegovy due to resolved supply constraints, causing a 14% stock drop and raising concerns about future growth. Analysts question Hims' strategy of selling "personalized" dosages without engaging with insurers, unlike competitors Ro and Noom, especially as CVS and Cigna introduce strategies that may limit the need for cash-pay options. The company's reliance on cash-pay customers and compounded semaglutide could also strain its new partnership with Novo Nordisk, potentially leading to litigation or termination of the agreement.

Analysis

Hims & Hers Health (HIMS) faces significant headwinds following the U.S. Food and Drug Administration's (FDA) May 22 deadline halting the sale of compounded weight-loss drugs, such as semaglutide (Wegovy's active ingredient), which were previously permitted due to supply shortages. This regulatory shift directly challenges Hims' recent growth strategy, which heavily relied on cheaper, compounded versions of these popular drugs. The market has reacted negatively, with HIMS shares declining 14% in the week after the FDA's deadline and approximately 18% from their February peak. While Hims states it is now offering "personalized" dosages of branded Wegovy starting at $165/month and generic liraglutide, analysts question the validity of the "personalized" claim and express concern over potential legal challenges from Novo Nordisk (NVO), which has already filed numerous lawsuits against sellers of knockoff drugs. This strategy could also jeopardize Hims' new partnership allowing subscribers access to NovoCare, Novo Nordisk's direct-pay pharmacy. The company's reluctance to engage with insurers, a path taken by competitors Ro and Noom, further compounds risks, especially as major players like CVS Health (CVS) and Cigna (CI) are implementing strategies to expand insurance coverage and reduce out-of-pocket costs for branded weight-loss drugs (e.g., Cigna's Express Scripts offering Wegovy for a $200 co-pay). Leerink analyst Michael Cherny highlights that broader insurance coverage could diminish the cash-pay market, potentially stymying Hims' growth and its ambitious $6.5 billion revenue target by 2030. Despite these challenges, analysts forecast Hims' 2025 revenue at $2.4 billion, up from $1.5 billion in 2024, with earnings of $0.65 per share, and Hims projected at least $725 million in Q1 2025 sales from GLP-1 drugs. The company is also pursuing diversification through new treatments (low testosterone, menopause) and international expansion.

Key Decisions for Investors

• Investors should closely monitor Hims & Hers Health's ability to transition its weight-management business away from compounded drugs following the FDA's recent regulatory change, and scrutinize the sustainability of its "personalized" branded drug offerings.
• Assess the escalating risk from increased insurance coverage for weight-loss drugs by major PBMs like CVS Caremark and Cigna's Express Scripts, which could erode Hims' target cash-pay market and impact its growth projections.
• Evaluate the potential for litigation from Novo Nordisk and the stability of the NovoCare partnership, given Hims' continued, albeit modified, involvement with semaglutide products.
• Consider the competitive disadvantage stemming from Hims' decision not to work with insurers, unlike key rivals, and weigh this against its diversification efforts into new therapeutic areas and international markets.