Shares of Hims & Hers Health (HIMS 5.01%) surged on Tuesday, closing the session up 5.25% after having been up by as much as 14% earlier. That jump came as the S&P 500 and Nasdaq Composite showed more modest movements.
The day’s gain was powered by the telehealth company’s announcement of plans to sell the blockbuster weight loss drug Zepbound on its platform.
Back in the weight loss drug business
Hims & Hers revealed Tuesday that it will begin offering branded versions of Eli Lilly‘s tirzepatide — the active ingredient in weight loss drug Zepbound and diabetes medicine Mounjaro. The company will also offer biosimilar versions of Novo Nordisk‘s diabetes drug liraglutide. It joins competitors Teladoc and LifeMD in offering Zepbound.
Hims & Hers had previously offered compounded versions of semaglutide — the GLP-1 drug marketed as Ozempic and Wegovy — which it and other compounding pharmacies were allowed to do legally because semaglutide was officially in a shortage. Thanks to that loophole, Hims & Hers’ revenues surged. But last month, the Food and Drug Administration (FDA) declared that the shortage was over, which compelled them to bring those sales to a close.
Hims & Hers is well positioned in a growing market
The loss of its semaglutide revenue hit Hims & Hers hard, and the ability to again offer a similar drug should be a boon to its top line. That being said, the margins on those branded drugs will be much tighter, and their higher retail prices mean that the company will likely struggle to sell as much of them.
Still, the rest of the business is strong, and Hims & Hers has a level of brand recognition and market positioning that makes it the envy of its peers. There are valuation issues, however, even after the significant decline in the stock price following the loss of its ability to compound semaglutide. Before making an investment in the stock, I would wait to see how much of its previous weight loss drug business the company can recover.
Johnny Rice has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
