To The Moon

$Hims & Hers Health Inc.(HIMS)$

HIMS stock closed down 26% after the FDA announced that semaglutide is no longer on its shortage list. Semaglutide, the active ingredient in Ozempic, has gained massive popularity as a weight-loss drug. While it was on the shortage list, companies like HIMS were able to compound and sell their own versions to meet demand. However, now that the shortage is over, the FDA generally prohibits third-party compounding, which is why the market is reacting negatively.

HIMS’s semaglutide offering has been a major driver of growth, estimated to contribute 177% of the company's total revenue last quarter. If HIMS can no longer sell it, revenue growth and profitability could take a hit. However, there are a few key points to consider:

• The removal of semaglutide from the shortage list was expected—it was always a matter of when, not if.

• HIMS only launched its semaglutide product in May 2024, meaning the company was thriving without it before and could continue to do so.

• There is a strong argument that HIMS can still legally compound and sell semaglutide under certain FDA guidelines.

FDA’s Stance on Compounded Semaglutide

According to the FDA’s announcement, compounders have a 60-90 day transition period before they must cease production. However, there’s a potential loophole: The FDA allows compounding if the compounded version provides a “significant difference” in patient outcomes compared to the commercially available drug.

HIMS’s CEO has argued that their compounded semaglutide leads to better patient adherence and reduced side effects. While traditional GLP-1 drugs see long-term adherence rates of just 10-15%, HIMS reports a 70% retention rate. This suggests their version may offer meaningful improvements, potentially allowing continued sales.

Even if compounding is eventually restricted, HIMS has other growing weight-loss offerings, including a non-GLP-1 pill that reached a $100M run rate faster than any prior product. Additionally, the company’s non-GLP-1 business was already growing at 40% YoY before launching semaglutide.

HIMS’s CEO also emphasized that demand remains high, and supply constraints could lead to future shortages, creating another opportunity for compounding. The company has stated it will continue to offer personalized treatments as allowed by law.

Ultimately, while today’s sell-off reflects investor uncertainty, HIMS appears confident in its long-term growth strategy, with or without compounded semaglutide.

HIMS’s Future Beyond GLP-1 Drugs

HIMS’s total revenue from 2021 to the second quarter of 2024—before launching its GLP-1 offering—demonstrates that the business was already experiencing strong growth. While it’s evident that the GLP-1 launch significantly boosted revenue in Q3 2024, the company was thriving even before introducing these drugs. In fact, HIMS reported that its non-GLP-1 business grew by 46% year-over-year in the third quarter, reinforcing the idea that the company’s success is not solely dependent on GLP-1 treatments.

My main point is that HIMS’s future does not hinge entirely on GLP-1 drugs. While its GLP-1 segment may not continue at the same scale as before, I believe the company will still offer these treatments to some extent, based on FDA regulations. This is why I don’t see this development as a make-or-break moment for the business.

Stock Price and Market Reaction

I understand why the stock dropped 26% today, but when looking at the bigger picture, the stock is still up 71% over the past month. A correction was inevitable, and this news simply provided the market with an excuse to sell off HIMS stock. However, if the stock had gradually climbed to $50 instead of spiking to $70 before pulling back, there likely wouldn’t be as much concern. The broader trend remains positive, and I’m still holding significant gains on my position, so I’m not worried.

I also think the market is overreacting to the GLP-1 situation. On top of that, HIMS recently announced two new acquisitions, further demonstrating its commitment to growth and expansion. While I won’t go into detail about those acquisitions here, they reinforce my confidence that the company is well-positioned for long-term success, with or without GLP-1 revenue.

Valuation

To wrap things up, I ran a DCF (discounted cash flow) calculation to assess how today’s stock drop affects HIMS’s valuation. The market is currently pricing in 15% annual free cash flow growth with a 25x price-to-free cash flow multiple. Given HIMS’s history of 40%+ annual revenue growth—and the fact that non-GLP-1 revenue still increased by 46% in the latest quarter—this 15% assumption seems overly conservative. If the company manages to grow free cash flow at 25% annually over the next five years, the fair value of the stock could be around $76 per share, suggesting it’s still undervalued despite today’s drop.

Conclusion

For now, I don’t plan to buy any HIMS shares. My approach is to wait through earnings and reassess once the company reports its results on Monday. I’ll be doing a full breakdown of their earnings, so make sure to subscribe and turn on notifications if you want to see that analysis.

Ultimately, I believe the market’s reaction today is not surprise given that we are in the era of Bubble. HIMS’s long-term growth potential extends beyond GLP-1 drugs, and the company is still expanding into new verticals. With strong profitability potential and a solid trajectory, I remain confident in the business’s future.

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Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.