Hims & Hers Health saw a significant opportunity in the growing market for weight-loss drugs like Wegovy and Zepbound. The company leveraged a loophole in Food & Drug Administration (FDA) regulations to introduce its own versions of these popular drugs, avoiding the costly and lengthy clinical trials required of pharmaceutical giants. While this move quickly boosted sales and gave Hims & Hers a foothold in a lucrative market, its stock is now taking a hit. After a meteoric rise over the past year and a half, shares have plummeted 43% from their peak, with further declines possibly on the horizon.
The core issue appears to be Eli Lilly’s aggressive pricing strategy, which has severely undercut Hims & Hers’ competitive advantage of offering weight-loss drugs at a lower price. Weight-loss drugs, alongside artificial intelligence, have been a dominant market trend for the past two years. The blockbuster success of Novo Nordisk’s drugs, Wegovy and Ozempic, sparked a wave of interest in glucagon-like peptide-1 (GLP-1) drugs, originally developed to treat diabetes but later found to be highly effective in promoting weight loss.
Novo Nordisk’s GLP-1 treatments, driven by the active ingredient semaglutide, generated $14 billion in sales from Ozempic and $4.5 billion from Wegovy in 2023. The momentum continued into 2024, with the company posting $8.4 billion in Ozempic sales and $3.1 billion from Wegovy in the first half of the year alone.
Building on this trend, Eli Lilly launched its own GLP-1 drugs, Mounjaro and Zepbound, using tirzepatide as the active ingredient. Although Eli Lilly entered the market later, it still recorded $5.2 billion in sales for Mounjaro last year and $176 million for Zepbound, which debuted in November. For 2024, the sales momentum has surged to $4.9 billion and $1.8 billion, respectively. Analysts predict that Lilly could soon dominate the GLP-1 market, projecting $30 billion in sales for its two treatments by 2026, compared to Novo Nordisk’s anticipated $40 billion.
Against this backdrop, Hims & Hers’ forecast of $100 million in sales for its compounded GLP-1 treatments seems modest. Yet, given the company’s smaller scale, it represents a significant achievement and potential for growth. Hims & Hers has been able to capitalize on the FDA’s regulatory framework for compounding pharmacies, which allows them to produce and sell their own versions of drugs if there is a shortage. The soaring demand for Wegovy and Zepbound has stretched the capacity of their manufacturers, enabling Hims & Hers to sell treatments for $199 per month—much lower than the typical $1,000 price tag.
However, Eli Lilly’s new pricing strategy could abruptly end Hims & Hers’ growth trajectory. The company plans to sell Zepbound directly to consumers for $399 per month, significantly undercutting Hims & Hers’ price advantage. Additionally, Lilly will offer the drug in vials instead of the more expensive injector pens, making it more affordable and accessible.
Moreover, there are concerns about the nature of the drugs Hims & Hers sells. According to the FDA, the compounded semaglutide in the market is often formulated with different salts, such as semaglutide sodium or acetate, which are not the same as the active ingredients in Novo Nordisk’s or Eli Lilly’s approved drugs. This has led to reports of adverse reactions, and Eli Lilly’s direct-to-consumer strategy could reduce the demand for these unapproved formulations.
Adding to the pressure, a recent report from HunterBrook, a media outlet known for its investigative reporting and financial strategies, cast doubt on Hims & Hers’ supplier, citing unreported ties to fraud and bankruptcy. HunterBrook has a reputation for uncovering potentially damaging information and has financial incentives through its associated investment arm, which could exacerbate negative sentiment around Hims & Hers.
Overall, Eli Lilly’s strategic pricing move and questions around Hims & Hers’ supplier may have undermined the smaller company’s growth potential. For investors, the 43% drop in HIMS stock may only be the beginning of a longer decline, especially if these challenges persist.
