GLP-1 Sector Under Scrutiny: Hims & Hers' Crisis and the Future of Investor Trust

The GLP-1 sector, once a beacon of innovation in weight management and metabolic health, is now grappling with a perfect storm of regulatory scrutiny, legal battles, and eroding investor confidence. At the center of this turmoil is Hims & Hers Health (NYSE: HIMS), whose legal and reputational crisis has exposed the fragility of a business model built on compounded drug sales and aggressive telehealth-driven marketing. For investors, the fallout from this crisis offers a stark lesson: in a sector where regulatory boundaries are still being defined, the line between innovation and illegality is razor-thin.

The Hims & Hers Collapse: A Case Study in Regulatory Risk

Hims & Hers' partnership with Novo Nordisk, the manufacturer of Wegovy® and Ozempic®, was initially seen as a strategic coup. The collaboration allowed the company to bundle Novo's FDA-approved semaglutide with its own compounded versions, creating a dual-revenue stream. But this strategy unraveled in June 2025 when Novo Nordisk terminated the partnership, citing “illegal mass compounding and deceptive marketing.” The termination triggered a 34% single-day drop in Hims & Hers' stock price and set off a chain reaction of lawsuits and regulatory investigations.

The core issue? Compounding. While compounding pharmacies have long operated under the premise of tailoring medications to individual patient needs, Hims & Hers' approach—selling “personalized” versions of Wegovy®—was deemed a legal and ethical overreach. The FDA and state regulators clarified that compounding is only permissible when medically necessary, not as a means to circumvent patent protections or mass-produce unapproved drugs. Novo Nordisk's public rebuke of Hims & Hers' practices underscored the growing consensus that such activities pose risks to patient safety and undermine the integrity of the drug approval process.

Securities Class Actions: A Harbinger of Sector-Wide Litigation

Two securities class action lawsuits—Sookdeo v. Hims & Hers and Yaghsizian v. Hims & Hers—have since been filed, alleging that the company and its executives misled investors by downplaying the risks of its compounding strategy and overstating the stability of its Novo Nordisk partnership. These suits, which hinge on the Private Securities Litigation Reform Act of 1995, could set a precedent for future litigation in the GLP-1 sector. If successful, they would not only result in financial penalties for Hims & Hers but also send a warning to other companies relying on similar business models.

The lawsuits highlight a critical vulnerability in the sector: the disconnect between corporate messaging and regulatory reality. Hims & Hers' stock price plummeted after the Novo Nordisk termination, but the broader GLP-1 market has also felt the ripple effects. Investors are now hyper-aware of the risks associated with compounded drugs, particularly as state and federal regulators tighten oversight. For example, Ohio's Board of Pharmacy issued detailed FAQs in July 2025, emphasizing that compounding must involve “significant, identifiable changes” for individual patients—not mass production of “essentially copies” of FDA-approved drugs.

Regulatory Risks: A Sector in Transition

The GLP-1 sector's regulatory landscape is evolving rapidly. The FDA's decision to remove semaglutide from its drug shortage database in April 2025 effectively ended the legal basis for mass compounding of GLP-1 drugs. Yet many compounding pharmacies continued operations, leading to a surge in adverse event reports. As of July 31, 2025, the FDA had documented 605 adverse events linked to compounded semaglutide and 545 for tirzepatide, including cases of incorrect dosing and injection site complications. These incidents have intensified calls for stricter enforcement of compounding laws, including the 5% shipping limit for 503A pharmacies and standardized state oversight agreements (MOUs).

For investors, the regulatory risks are twofold. First, companies that rely on compounded GLP-1 drugs face existential threats if regulators crack down further. Second, the sector's growth narrative—built on the premise of democratizing access to weight-loss medications—now competes with a growing chorus of voices advocating for stricter safety standards. This tension is evident in Connecticut's Attorney General's June 2025 warning against “unfair and deceptive practices” in GLP-1 compounding, a move that signals a broader regulatory shift toward patient safety over profit.

Investor Trust: A Fragile Metric

Hims & Hers' financial performance underscores the fragility of investor trust in the GLP-1 sector. The company reported a 7% sequential revenue drop in Q2 2025, with GLP-1 drug revenue falling from $230 million to $190 million. Revenue per subscriber also declined to $74 from $84, as the company offboarded subscribers who had switched to FDA-approved alternatives. These metrics, combined with the stock's volatility, have led to a reevaluation of the sector's long-term viability.

The erosion of trust is not limited to Hims & Hers. The broader GLP-1 market is now under a microscope, with investors scrutinizing companies for compliance with compounding regulations and transparency in their business practices. Telehealth platforms that rely on direct-to-consumer (DTC) advertising for compounded drugs, for instance, are facing heightened skepticism. A recent survey found that 85% of physicians believe compounded GLP-1 drugs pose a higher risk of adverse events than FDA-approved alternatives, a sentiment that could influence prescribing patterns and, by extension, market demand.

The Path Forward: Innovation vs. Compliance

For the GLP-1 sector to recover, companies must navigate a delicate balance between innovation and compliance. Hims & Hers, for example, has pivoted to smaller, personalized doses of GLP-1 drugs and plans to expand into hormone health and preventive care. While these moves are promising, they must be paired with a renewed focus on regulatory alignment. The same applies to other players in the space: companies that can demonstrate adherence to FDA and state guidelines while maintaining patient-centric care will likely outperform those that prioritize speed to market over safety.

Investors, meanwhile, should adopt a cautious approach. The GLP-1 sector's growth potential remains intact, but the risks are now more pronounced. Key metrics to monitor include:
- Regulatory updates: Track FDA and state actions on compounding guidelines.
- Lawsuit outcomes: The resolution of Sookdeo and Yaghsizian could set legal precedents.
- Subscriber retention: Companies with declining revenue per user may struggle to maintain margins.
- Adverse event reports: A spike in safety concerns could trigger further regulatory action.

In the end, the Hims & Hers crisis is a cautionary tale for the GLP-1 sector. While the demand for weight-loss and metabolic therapies is unlikely to wane, the path to sustainable growth will require a commitment to transparency, patient safety, and regulatory compliance. For investors, the lesson is clear: in a sector where the rules are still being written, the best strategy is to bet on companies that play by them.