Hims & Hers: A Case Study in Governance and Partnership Risks in the Digital Health Sector

The digital health sector has long been a magnet for innovation and speculation, but recent events involving Hims & Hers Health (HIMS) underscore how governance failures and regulatory missteps can amplify short seller activity. As the company grapples with the fallout from its terminated partnership with Novo Nordisk and a wave of legal challenges, short sellers are capitalizing on a narrative of corporate recklessness and regulatory vulnerability. This case study offers critical insights into how governance and partnership risks are being weaponized in the market—and what investors should consider in a sector where trust is as valuable as technology.

The Unraveling of a Strategic Partnership

Hims & Hers' collaboration with Novo Nordisk, announced in late 2024, was initially hailed as a win-win. The partnership allowed Hims & Hers to offer Wegovy—a flagship GLP-1 weight-loss drug—at a discounted price, while Novo Nordisk gained access to a scalable telehealth platform. However, the alliance collapsed in June 2025 after Novo Nordisk accused Hims & Hers of "illegal mass compounding" and deceptive marketing. The core issue? Hims & Hers was promoting compounded versions of semaglutide (Wegovy's active ingredient) sourced from unapproved foreign suppliers, a practice the FDA deemed unsafe and unregulated.

This partnership loss was not an isolated incident but a symptom of deeper governance flaws. Internal communications revealed that Hims & Hers executives were aware of regulatory risks yet continued to market the compounded drugs as "personalized" alternatives. Such opacity eroded trust with both regulators and investors, culminating in a 34.6% stock price drop over three days in June 2025.

Short Sellers and the Amplification of Risk

Short sellers have seized on these vulnerabilities. As of July 31, 2025, HIMS had a short interest of 33.44% of its float—a level typically associated with extreme bearishness. This figure dwarfs the average short interest of its healthcare peers (e.g., 8.03% for Guardant Health) and reflects a market that views Hims & Hers as a high-risk, low-transparency bet.

The institutional short positions are equally telling. Firms like Hudson Bay Capital Management, Sculptor Capital, and JPMorgan Chase have all disclosed short stakes in HIMS, signaling a coordinated effort to exploit governance weaknesses. These positions are not speculative gambles but calculated bets on a company struggling to navigate a tightening regulatory environment.

Regulatory Scrutiny and the Cost of Non-Compliance

The FDA's revocation of its temporary allowance for compounded GLP-1 drugs in February 2025 was a pivotal moment. By closing this loophole, the agency forced Hims & Hers to pivot—or face existential risks. Yet the company's response—deflecting blame onto Novo Nordisk and framing its actions as "patient-centric innovation"—only deepened the regulatory backlash.

The consequences are financial and reputational. Hims & Hers now faces three lawsuits: two class actions and a derivative suit alleging securities fraud and misrepresentation. These legal battles, combined with a quarterly burn rate of $30 million and a cash balance of $120 million, raise questions about the company's ability to survive without a strategic pivot.

Implications for the Digital Health Sector

Hims & Hers' struggles highlight a broader tension in the digital health space: the clash between rapid innovation and regulatory rigor. Telehealth platforms often operate in gray areas, leveraging direct-to-consumer marketing to bypass traditional healthcare gatekeepers. However, as GLP-1 drugs become a $100 billion market, regulators are tightening oversight, and investors are demanding clearer governance frameworks.

For short sellers, this environment is fertile ground. Governance lapses, regulatory missteps, and opaque business models create asymmetric risks—where the potential for losses far outweighs the upside. Hims & Hers' case demonstrates how short sellers can exploit these dynamics, using lawsuits, regulatory actions, and declining investor confidence to drive down stock prices.

Investment Advice: Navigating the Risks

For investors, the Hims & Hers saga offers two key lessons:
1. Prioritize Governance Over Growth: In high-regulation sectors, robust corporate governance is non-negotiable. Companies that cut corners on compliance—whether in marketing, partnerships, or financial reporting—risk catastrophic short-term losses.
2. Diversify Exposure to Digital Health: While the sector holds promise, over-reliance on a single company's ability to navigate regulatory hurdles is perilous. Investors should seek firms with diversified revenue streams and a track record of regulatory adaptability.

Hims & Hers' stock remains volatile, with a short interest ratio of 2.0 and a looming lead plaintiff deadline for lawsuits (August 25, 2025). A short squeeze is possible if the company pivots to FDA-approved therapies or secures new partnerships, but the path to recovery is fraught.

In the broader market, this case underscores the importance of aligning investment strategies with long-term resilience. Short sellers will continue to exploit governance and partnership risks, but for those willing to look beyond the noise, the digital health sector still offers opportunities—for those who approach it with caution and clarity.