Down almost 25% , major source of recent momentum for HIMS is down the toilet. This is enough for me to get out.
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I will be waiting for HIMS comments in their investor relations page. I have sold many times in a hurry, but also stayed many times when I had to sell - so prefer to set emotions aside and give a few days for HIMS to respond.
With -30% market took most of what it wanted so if HIMS takes the chance to build back the confidence - in no time the price will be recovered.
Let’s see.
HIMS was 12.8% of my portfolio before the massacre.
Now it is 9%.
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I am curious are you out because of the stock price dropping or the amount of sales that HIMS will lose because of the deal ending? Because Novo Nordisk was a small amount of sales for HIMS. Novo Nordisk even said that HIMS was selling the other products more than their product.
If I did not have a large position that I was planning on trimming before this happened, I would be looking at buying more. In fact its showing the strength of what HIMS is offering that it beats out the name brand. We are at an inflection point in the medical industry at the moment. HIMS is selling personalized medication to help each individual patient. Why would you want a standardized dose, when you can get get a personalized compounded dose that has lower side effects? You work with a doctor who specializes in the issue and drugs available that would work best with you.
This has been a loophole in the medical industry for a while but technology is allowing HIMS and doctors to bring it to the masses. The question is what regulators will do about this? Will they deny the population access to cheaper medicine and lower side effects of compounding medicine to keep traditional pharmacy companies happy or will they side with patient side lobbyists like AARP.
This has been the one of my strongest investing thesis in HIMS. That personalized compounded medicine is better than standard doses for a significant portion of the US population. I think it will be hard for regulators to close this loop hole and raise medical costs for the American people any time soon. Its also the largest risk with this position is that regulators would change the rules on compounding medicine.
Drew,
Long HIMS
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All good points Drew but watch for the shorts to start piling on with short reports. This is a very controversial company, as you probably know, and many people are short it. It will not matter in the very long term but in the short term this stock could go down much further and be held down longer than you might think.
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The attack by Novo is blistering! Here are just a few words.
Novo says Hims "failed to adhere to the law which prohibits mass sales of compounded drugs under the false guise of ‘personalization.’ " The drugmaker also accused Hims of “disseminating deceptive marketing that puts patients at risk.”
Novo Nordisk says companies in China are making the compounded semaglutide. The FDA has never authorized or approved the manufacturing process used by any foreign suppliers that make semaglutide. Further, many were never inspected by the FDA. Those that were had drug quality assurance violations, Novo said, citing a report from the Brookings Institute.
Novo Will Work With Some Telehealth Names
Dave Moore, Novo’s executive vice president of U.S. operations, says the company will still work with some telehealth companies to provide direct access to Wegovy.
“When companies engage in illegal sham compounding that jeopardizes the health of Americans, we will continue to take action,” he said in a statement.
I do not think HIMS can say anything to help in the short term. Long term civil suits will drag on. I just sold 70% of my HIMS as I still have a small profit. Gosh this is about as bad as it can get on a partnership gone bad. Ugggggly.
-zane
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A statement of the obvious, but this is a very high risk stock. As I mentioned in my last post when the shortage was declared over (I sold the same day), the GLP-1 situation has morphed from a tailwind to a headwind as a result of that decision.
I wasn’t sure what HIMS strategy was here. They seemed to be saying that they would continue to supply compounded semaglutide even though the shortage was declared to be over (which presumably involved complicated legal arguments which may or may not hold). Then they announced the Novo deal, and I assumed this was all part of their plan – to try to transition their order book to NVO and cease compounding. I am guessing that is how they sold it to NVO which looked like an intelligent way for NVO to get a lot of customers, and for HIMS creating the best possible hand even though overall a bad situation.
Here is the fundamental problem. If you buy a one year subscription to compounded semaglutide from HIMS, the recent price was $169 a month. A lot of people can afford that price in my opinion. The price from NVO was $549 a month for a six month supply. Now this isn’t quite apples to apples (one year versus 6 months) but that is more than a 3x price increase.
My guess is that HIMS learned that customers will not transition for this price. As such, the strategy with Novo failed to take hold, and thus HIMS planned to offer Wegovy to the high-end customer, but the bulk of their supply would continue to be compounded semaglutide. If they could build enough of an order book for Wegovy, it may insulate them from legal action from Novo.
Obviously this isn’t going to be acceptable to Novo, because the whole reason they did the deal was to get those customers from HIMS’s compounded product and to jump on HIMS’s distribution rocket ship.
My thoughts on investing (or staying invested) in HIMS is you have to convince yourself that the semaglutide business will keep growing (and not fall off a cliff) AND you have to convince yourself that the company will continue to exploit excellent growth drivers in other areas of Telehealth. I personally believe the second (based on track record alone), but I am very skeptical about the first.
I am guessing that the ending of this relationship is the first step in the initiation of a legal process where NVO goes after HIMs for patent infringement. Maybe some of you know enough about patent law and compounding to make a reasonable bet, but I personally do not know enough about that (and I know quite a bit about patent law).
HIMS forecasts 2.3B in revenue this year for 60+% growth. GLP-1 revenue is forecasted to triple year over year to be $725M of that 2.3B. It just feels like a lot of risk to me. I think there are better bets.
Best of luck to the longs,
Rob
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I worked in the nutritional supplement space for several years and I see a bit of same pattern here as was rife in supplements.
On one side you have the righteous indignation group (RIG), aka product sellers, that say they are under the thumb of The Man and are being unfairly restricted in giving the people what they want at the price they want it. In too many cases, health and safety of the end users be damned.
On the other side you have the group in power, typically federal agencies (MAN), that often restricts supply based on claims of safety and efficacy problems.
RIG claims that MAN is beholden to the rich multi-national corporations ($$$). MAN claims that they are upholding the safety and efficacy and keeping the snake oil out of the market.
It seems that efficacy isn’t at issue here. GLP-1 products work. If RIG is using unapproved, raw materials from China, they are akin to the worst of the supplement manufacturers. In supplements, it was not uncommon for Chinese manufacturers or raw material suppliers to RIG to sell unsafe materials that contain things such as heavy metals or other nasty contaminants. Not all Chinese supplements and raw materials sold to/through RIG were unsafe, but a high enough number of them were unsafe to cause MAN to step in.
If what Novo is saying is true, it looks like HIMS has some ‘splaining to do. If not, then Novo will be at risk of unfair practice lawsuits. My experience is that the truth almost always falls somewhere in the middle. Who wins in the middle? Why $$$ of course.
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HIMS was 13% of my portfolio. I trimmed it down to 2% in pre-market at $49, and then added back another 2% at $43.5. I will add more if the share price continues to drop, but my target position size will be capped at 5-7% because it’s no longer a high conviction stock for me.
Here are my thoughts:
- We should remember that the company’s full year guidance was given before the Novo partnership. So although the partnership ends, HIMS will still deliver substantial revenue growth. So investment case is not entirely broken.
- I would expect a lawsuit from Novo soon, so I think I should be able to get back some shares at a much lower price.
- The biggest damage caused by the end of partnership was not revenue, but the damage to the brand IMO. As a customer, I would be hesitating to trust HIMS’s personalized doses if I know the warning from Novo or Lily about the safety concens. In fact, HIMS is currently promoting compound GLP1 to customers for which the personalization may not be necessary based on some anecdotal experience shared on the internet.
Just my two cents.
Luffy
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After reading the comments above I decided to do more research on the law code they are using. I then went through the process on HIMS website. My quick thoughts is they are definitely operating in a gray area of the law. Grayer than I originally thought and I’m going to have to sleep on it now.
21 U.S. Code § 353a - Pharmacy compounding
Sections 351(a)(2)(B), 352(f)(1), and 355 of this title shall not apply to a drug product if the drug product is compounded for an identified individual patient based on the receipt of a valid prescription order or a notation, approved by the prescribing practitioner, on the prescription order that a compounded product is necessary for the identified patient, if the drug product meets the requirements of this section, and if the compounding
Then I went to HIMS website and asked for A GLP-1 injection. Then I went through the steps up and was recommended compounded Semaglutide. I figured out how HIMS steers customers towards their compounds over NOVO. By law they can not advertise the individual compound.
How HIMS steers people to their compound semaglutide is the medical history you fill out and which side effects you would like to minimize as well as how much those side effects would impact you. Which is a valid reason to use personalized compounding medicine. My main problem is they had the computer spit out that I want a compound semaglutide before I even communicated with a doctor. Which probably the main complaint that Novo has with HIMS.
I am not concerned about the safety of the medicine especially, because 503A requires it be made by state-licensed pharmacies. I think its unlikely a company would use 503A as their ability to sell the drug and then not follow the requirements of 503A. HIMS also bought peptides plants and pharmacies in the US.
TL;DR
HIMS is operating under 503A which requires it to be made by state-licensed pharmacies. They funnel people into the compounding semaglutide by focusing on side effects before you talk to a doctor. Very much a gray area of the law and making me rethink my position.
Drew
Rethinking position
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Drew,
Thanks for sharing the law and your analysis. Of course, they can’t get a doctor involved before they have an order from the customer (and have set the price). Because they can’t afford to pay a fee to a doctor to someone who may or may not even buy the product. So they have no practical alternative to do what they are doing to make the business model work (that I can see anyway).
Maybe you could ask the consumer to pay for the doctor consult out of pocket up-front, before you quote a price, but that would cause at least some consumers to fall out (who aren’t willing to pay until they know what the product costs).
As Wegovy is supplied in 0.25mg to 2.4mg dose levels I think any argument around personalization is going to be a bit unreasonable without a lot of evidence. With compounded semaglutide, you can have a continuous dose range, but how valuable that is in comparison to 5 dose steps is debatable. I am not aware of any studies (but I am not by any means an expert in this space).
Thanks,
Rob
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Rob,
Thanks for the economic thoughts on why the system is the way it is. HIMS is all in on lower side effects, where they compound in things to mitigate the side effects. So if medicine in the past gave you an upset stomach they might put something in that helps mitigate that when you take this medicine.
Drew
1 Like
This is a very interesting and informative discussion. I don’t hold a big position in HIMS (now somewhat smaller), but it’s big enough to hurt when the stock drops +33%.
I can’t help but to think that what’s going on right now is a major overreaction. How much of the business is tied to Wegovy/semaglutide? I mean this isn’t their entire business, right? They also have ED treatments. Do they have other weight loss options? Do they provide additional medical services? I should know the answers to these questions. Obviously, I’ve not done adequate research on this one. But I’m very confident that this one treatment is not the whole business. I just don’t know what percentage revenue comes from this weight loss therapy.
As for legal jeopardy - I am not an attorney, so in all honesty I have only an uninformed opinion, but given that, I think they really don’t have much exposure. Compounding pharmacies are a legitimate thing. They exist all over the country. The accusation of sourcing ingredients from unapproved Chinese companies - give me a break. Specifying Chinese is mostly shock value, would it be any different if it were an unapproved Japanese company? How about Indian? South Korean? Israeli? You get the point.
Luffy pointed out that the most harm will be to the brand, I agree. As a former Boeing employee, I am painfully aware of how drastic an impact can result from a tarnished brand. But, that will take some time to get sorted out in this case. It’s not the same as having planes fall out of the sky, or having a door plug blown off mid flight. Again, I have an opinion, I don’t think this will badly cripple the company.
In other words, I’m not doing anything at present. I’m not selling, but I’m not adding either.
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@brittlerock I’m in the same camp. It was my top position before today so it hurt, although only at ~13%. Yes, they sell plenty of other medications, and I believe they are a legitimate disruptor to the pharma industry more broadly than just the GLP-1 craze. So I am still holding for the longer term until the actual results tell me something different.
Also, does anyone else think it’s a bit fishy that a big pharma company chose to partner with a disruptive threat to their business, only to pull out and smear them before it even got off the ground? Last time I checked, big pharma was not known for their ethics, but most people are assuming that HIMS is the bad actor here.
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Call me a cynic, but I smell a rat here. Novo very publicly enters into an arrangement with an erstwhile competitor, then in very short order (and in the most sensational way) severs the partnership, stating that it was shocked, SHOCKED, to find Hims to be doing exactly what it already knew Hims was doing.
It sounds a lot like deep pocket pharma playing hardball.
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All, I should have said, I really empathize with the longs. Nothing can be more terrible on a bad down day than to hear others criticize your holding (which is also an implicit criticism of your process, I guess). So first my empathy is with all longs and I don’t mean any hard feelings. I know well what it feels like to have this happen and it’s terrible. I should have led with that.
Drew said that they compound in things to mitigate side effects. Well I certainly hope they do not do that. They should be making the exact same thing unless they disclose exactly what they put in and show the data associated with that. I would be very dubious that a compounding pharmacy would have the skill set to “augment” an approved drug to “make it better”. My sense is they are absolutely not doing that. I am presently taking the HIMS supplied compounded semaglutide and I would consider that to be a major breach of protocol and it would be concerning to me.
The side effects were very bad the first 2 months as I was ramping up dosing. I got sick the first 24 hours almost all the time after dosing, but I was able to work so it wasn’t that bad. I am now a bit under 6 months in and I really don’t have any side effects that I can tell.
brittlerock talked about how much of the business is semaglutide. I mentioned in my post it was 750M of 2.3B FY forecast or 32%. If that 32% is not growing it’s quite a boat anchor on a growth stock. If it shrinks, it almost disastrous.
Look no further than teledoc for what happens to a Telehealth company with a narrow moat stops growing. Why do I say narrow moat? Almost anything you get from HIMS you can get from another company (take Ro for instance). I considered Ro before going with HIMS but Ro couldn’t supply to California at that time, and HIMS price was lower. So I went with HIMS. But is that a durable advantage?
Or consider ED medications, many of which are off patent. Many patients can go to their grocery store and get 30 day prescriptions filled with goodRx for less than $15. HIMS charged $30-50 per month last time I looked. Now HIMS avoids the awkward conversation with your doctor, but is that worth double the price?
All this said, HIMS has done remarkably well for a long time. I threw out the Teledoc comparison which is a bit unfair — HIMS is dramatically more profitable. It’s an interesting company, but I think it doesn’t have a strong competitive edge. I think they do a very good job on website/app, and provider integration. Clearly their supply chain of intermediates is exceptional as they tend to have the lowest prices. These aren’t nothing but I don’t know how durable those advantages are.
As I said, there’s risk. Management has a great track record so far (but, so did Teladoc at the peak — sorry I threw that in again).
Good luck to the longs.
Rob
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I have the same take that something seems real fishy here. They just signed a partnership with HIMS and only one month later are putting out a statement that includes falsehoods like this,
Novo knows full well compounded and “knock-off” mean very different things. From what I know about HIMS sourcing, I was under the impression it is all US-based out of Arizona and Ohio which sources the material through FDA approved suppliers. One of the reasons I have a high confidence in HIMS is because of their sourcing arrangements where they acquired some pharmacies years back to control the supply chain.
The other interesting thing I have not seen it mentioned too much is that the competitors like Ro and LifeMD (LFMD) seem to be continuing on with their partnerships with Novo. LFMD was up 5% on the news, so this does seem like a direct confrontation with HIMS while playing favorites with the other providers.
It just seems like bad business from Novo no matter what the outcome. Their stock is down over 5% on the day as well, possibly because it shows what a threat HIMS is to their business model.
One last point is that the GLP liraglutide is in generic form and sold on Hims platform. There is nothing Novo or Lilly can do to stop that, so there will be some GLP offerings even if Hims lost in court.
As others have pointed out, GLP is a portion of their business but not all of it. Losing a third of their value on this news seems like an overreaction. Since it’s already down this much and a lower allocation now, I’m planning to hold and see how it looks with the next earnings report.
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Maybe an overreaction, maybe not. How is/was HIMS being valued? Was the expected future revenue stream from this portion of their business a key driver in the current DCF valuation? The high growth companies we invest in are quite sensitive to perceived increases or decreases in future revenue growth, these share price hops and drops happen all of the time.
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There is some great points being made in this thread already. Since HIMS was my highest allocation, wanted to add a few points:
- HIMS core business if you strip away all of GLP business is still growing nearly 30%. So that’s your revenue growth base case. I would think if they re-directed the dollars going to GLP marketing to their other businesses and add to that there will be weight loss, ex GLP business always (oral offering), they will most likely to 35-40% growth
- Oral GLP (not under NOVO legal issue) is growing 300% YoY and has a price tag of $69 a month
- Novo clearly is feeling the pressure. This battle was going to happen at some point. This was always the biggest risk hanging. I am glad it’s now out in the open. The last two times this was insinuated the stock went from $25 to $14 and then from $71 to $25. So I think this plays out for a few weeks until earnings are almost here. That’s about one more month of drama.
- I feel HIMS beats next quarter’s earnings but if HIMS has to lower it’s guide, it really comes down to by how much. For me, that’s going to be the key factor for the next earnings again. Below 40% NTM growth and I will be concerned. Otherwise, this is going to be a good risk/reward scenario in the long run.
For the long run, my take is HIMS will have to be evaluated as a technology platform business that connects customers to healthcare services. And not as a healthcare provider that is a small fish in big pharma world.
I sold some puts (not my thing but experimental) - have enough shares already. For now, staying the course. Will re-evaluate once I hear some hard number projections post earnings.
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Small but important note: they are not selling Oral GLP-1. They are selling oral medication kits that include many generic drugs that are FDA-approved off-label for weight loss, although they have significantly less weight loss effects compared to GLP-1s.
https://www.hims.com/weight-loss/oral-weight-loss-medication-kits
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Just an anecdote here, but I’m a customer of HIMS through two separate products and I would cancel my Netflix long before I cancel either of my HIMS products. I’ve tried other pharmacies, too, like HenryMeds and Ro. Nothing compares to the user experience of HIMS. It’s fast, completely transparent, has great customer service, their app is phenomenal, and the products work really well.
I couldn’t care less about some headline about Novo.
Eric
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