Here’s a provocative thought: Hims & Hers Health, the telehealth darling, should seriously consider pulling the plug on its GLP-1 weight loss drug venture entirely. The foray into this high-profile market has become more of a millstone than a growth engine, dragging focus away from the company’s core strengths and muddying its investment narrative. Let’s unpack why this distraction could be costing more than just market multiples, and why a strategic retreat might be the bold reset HIMS needs in today’s choppy healthcare landscape.
The GLP-1 Misstep: A Strategic Quagmire
When Hims & Hers announced its entry into the GLP-1 market, collaborating with heavyweights like Novo Nordisk and later introducing plans for generic versions, the market initially cheered. The allure was obvious: tap into the explosive demand for weight loss drugs like Wegovy, a sector projected to balloon to over $100 billion by the end of the decade. Yet, what looked like a shrewd diversification has morphed into a textbook case of overreach. The company’s core business, built on discreet, subscription-based telehealth for personal care, thrived on simplicity and niche focus. Introducing a complex, highly scrutinised product line like GLP-1 drugs has not only stretched operational bandwidth but also invited regulatory and competitive headwinds that HIMS was ill-prepared to weather.
Recent developments underscore the strain. Reports indicate Novo Nordisk has terminated direct sales agreements for Wegovy with HIMS, a move that sent shares tumbling as investors recalibrated expectations. Compounded versions of these drugs, while a cheaper alternative, have drawn ire from both regulators and Big Pharma, with public backlash over direct-to-consumer advertising tactics adding fuel to the fire. This isn’t just a PR hiccup; it’s a structural misfit for a company that once charmed investors with predictable, high-margin growth.
Valuation Drag and Opportunity Costs
Before GLP-1s entered the picture, HIMS was on a steady path to becoming a quiet compounder. Granted, its multiples were lower, trading at a forward EV/EBITDA of around 15x compared to telehealth peers hovering closer to 20x, but the business was carving out a defensible moat in personalised care. Post-GLP-1, the stock has been on a volatility rollercoaster, swinging wildly with each headline about drug partnerships or regulatory murmurs. Data from recent quarters shows revenue growth remains robust, with a 77% year-on-year jump in Q3 2024 as reported on financial platforms, but much of this is now discounted by a market wary of headline risk.
What’s less discussed is the opportunity cost. Capital and management attention tied up in GLP-1 skirmishes could have been funnelled into expanding core offerings or doubling down on mental health and dermatology verticals, areas where HIMS has proven execution. Instead, we’re seeing a classic case of mission creep, where a growth story gets bogged down by a shiny but ultimately misaligned tangent. As macro thinkers like Zoltan Pozsar often remind us, overextension in pursuit of the ‘next big thing’ can erode the very foundations of a business model.
Second-Order Effects: Sentiment and Competitive Positioning
Digging deeper, the GLP-1 saga has shifted market sentiment in subtle but meaningful ways. Institutional investors, who once viewed HIMS as a steady play on digital health adoption, now grapple with a narrative of uncertainty. Are they a telehealth pure-play or a quasi-pharma disruptor? This identity crisis risks a rotation out of HIMS into cleaner stories within the sector, like Teladoc or Amwell, especially as rates stay elevated and capital allocators grow pickier.
Competitively, HIMS is caught in a vice. On one side, giants like Novo Nordisk wield unmatched R&D and lobbying power; on the other, nimbler telehealth rivals are sticking to their knitting, avoiding the GLP-1 quagmire altogether. The asymmetric risk here is clear: persist with GLP-1s, and HIMS could face escalating legal or regulatory costs; withdraw, and they might take a short-term hit but regain strategic clarity. The second-order effect could be a re-rating of the stock as a focused growth play, particularly if management signals discipline over distraction.
Forward Guidance and a Speculative Bet
So, what’s the trade here? For investors with a 12-month horizon, a contrarian stance might be to accumulate HIMS on any dips tied to GLP-1 noise, but only if there’s a clear pivot back to core verticals. Watch for management commentary in the next earnings call; any hint of de-emphasising weight loss drugs could trigger a relief rally, especially if paired with strong subscription metrics. Conversely, if they double down on compounded GLP-1s despite regulatory pushback, expect more pain as the market prices in protracted uncertainty.
As a speculative hypothesis to chew on, consider this: what if HIMS not only exits GLP-1 but spins off its entire weight loss segment into a separate entity, allowing a pure-play telehealth business to shine while letting a specialised partner handle the drug market’s volatility? It’s a long shot, but in an era where spin-offs are unlocking value (think GE’s healthcare split), it could be the kind of bold restructuring that turns HIMS from a distracted contender into a focused champion. Stranger things have happened in the markets, and sometimes, the best growth story is the one you choose not to tell.
