Hims & Hers Faces Regulatory and Legal Headwinds: Valuation Risks and Investor Implications Post-Lawsuit

The termination of Hims & Hers' collaboration with Novo Nordisk in June 2025 has exposed the telehealth firm to severe regulatory scrutiny and a burgeoning securities class-action lawsuit, raising critical questions about its valuation and long-term viability. Investors must now weigh the risks of a stock that has already lost nearly 30% of its value in days, against the potential fallout from legal penalties, lost partnerships, and a deteriorating business model.

Regulatory Crisis and Legal Fallout

Hims & Hers' troubles stem from its alleged illegal mass compounding of Novo Nordisk's Wegovy® (semaglutide), a drug used for weight management. The collaboration was terminated because Hims violated FDA rules by distributing compounded versions of the drug under the guise of “personalized prescriptions,” a practice reserved for individual patients. Compounding pharmacies are prohibited from mass-producing drugs for general sale, yet Hims allegedly used this loophole to undercut the cost of Wegovy®, which requires a doctor's prescription.

The FDA's April 2025 resolution of the Wegovy® shortage further undermined Hims' strategy, as Novo Nordisk prioritized direct distribution to compliant telehealth partners. Hims' reliance on unapproved active pharmaceutical ingredients (APIs) from Chinese manufacturers—never inspected by the FDA—adds another layer of risk. These knockoff drugs pose safety hazards, including inconsistent dosages and contamination, which Novo Nordisk highlighted as a breach of patient safety protocols.

The Rosen Law Firm's investigation into Hims' securities disclosures now threatens to compound these challenges. The lawsuit alleges Hims misled investors about its regulatory compliance and the risks of its compounding practices. With Hims' stock plunging 28% on June 23, 2025, the market has already priced in immediate penalties, but the legal battle could escalate.

Valuation Under Siege

Hims' valuation has long been contingent on its ability to scale telehealth services while navigating regulatory gray areas. The stock's June 2025 drop—now sitting at a 52-week low—reflects investor skepticism about its future. Key risks include:

1. Legal Penalties and Settlement Costs: If the class-action lawsuit succeeds, Hims could face penalties or settlements similar to Novo Nordisk's $100 million 2022 settlement. For a company with a $750 million market cap as of June 2025, such costs would be devastating.

2. Loss of Partnerships: Novo Nordisk's termination signals broader industry distrust. Other pharmaceutical giants may avoid collaborations with firms relying on unapproved APIs or compounding, limiting Hims' access to high-margin drugs.

3. Reputational Damage: The FDA's crackdown on compounding pharmacies and media scrutiny of unsafe knockoff drugs could deter patients and healthcare providers from using Hims' services.

4. Operational Costs: Transitioning to FDA-approved drugs would require retooling its supply chain, which may not be feasible without infringing on Novo's patents or facing further lawsuits.

Investment Implications

Investors should treat Hims & Hers as a high-risk, speculative play. The stock's current valuation assumes a recovery in telehealth demand and a successful defense against legal claims—both unlikely scenarios.

• Near-Term Risks: Regulatory fines, loss of revenue streams, and ongoing lawsuits could trigger further declines. The 28% drop in June 2025 may pale compared to potential losses if the FDA or courts impose stricter penalties.
• Long-Term Viability: Hims' business model is inherently at odds with FDA regulations. Without access to discounted, compounded drugs, its cost advantage evaporates. Competitors like Teledoc Health (TELD) or BetterHelp, which focus on licensed therapies, may outperform.
• Investment Advice: Avoid Hims & Hers until the legal and regulatory landscape stabilizes. The stock's valuation appears overly optimistic given its operational and legal headwinds. Short sellers or investors seeking downside protection may find opportunities here, but retail investors should proceed with caution.

Conclusion

Hims & Hers' stock is now a cautionary tale of regulatory overreach and the dangers of bending compliance rules for short-term gains. With legal costs mounting and its core business model under existential threat, the stock's valuation risks far outweigh potential rewards. Investors would be wise to steer clear until the company can demonstrate compliance with FDA standards—or pivot to a sustainable, regulation-friendly strategy.

The path forward for Hims is fraught with uncertainty. For now, the market's verdict is clear: the risks of this stock outweigh its prospects.