Hims & Hers' Fraud Allegations: A Wake-Up Call for Investors in Telehealth's Regulatory Risks

The sudden 32% plunge in Hims & Hers Health, Inc. (NYSE: HIMS) stock price following its partnership termination with Novo Nordisk (not Novartis) in June 2025 has exposed critical vulnerabilities in telehealth companies' operational integrity. This collapse, driven by allegations of illegal mass compounding of drugs and deceptive marketing, serves as a stark reminder for investors to scrutinize corporate partnerships and regulatory compliance in the fast-growing telehealth sector. Below, we dissect the red flags that led to Hims' crisis and outline actionable lessons for investors.

The Partnership Red Flag: When Compliance Fails

The partnership between Hims & Hers and Novo Nordisk, announced in April 2025, aimed to expand access to Wegovy®, Novo's FDA-approved weight-loss drug. However, Novo abruptly terminated the collaboration on June 23, 2025, citing Hims' illegal mass production of compounded Wegovy® alternatives. Compounded drugs are legally permitted only for individualized patient needs (e.g., during shortages or for specific prescriptions), not for mass distribution. By allegedly bypassing this rule, Hims violated FDA guidelines, risking patient safety and regulatory penalties.

This incident highlights a critical red flag: partnerships with pharmaceutical giants can collapse instantly if one party fails to meet strict compliance standards. Investors should ask: Does the company's business model rely on practices that skirt legal boundaries? Are its partnerships contingent on adherence to rigorous regulatory frameworks?

Regulatory Compliance Red Flags: The Cost of Cutting Corners

Hims' alleged use of unapproved, foreign-sourced ingredients from Chinese manufacturers—never inspected by the FDA—is a major compliance breach. A Brookings Institute report cited by Novo Nordisk revealed these suppliers had documented quality control violations, raising risks of contaminated or ineffective drugs.

Telehealth firms like Hims often leverage compounded drugs to bypass FDA approval processes, but this strategy is inherently risky. Investors should scrutinize:
- Supply chain transparency: Are ingredients sourced from FDA-authorized suppliers?
- FDA warnings: Has the company received regulatory scrutiny or lawsuits over non-compliance?
- Revenue dependency: What percentage of revenue comes from compounded drugs versus FDA-approved products?

For Hims, the answer to the last question is alarming: Compounded drugs may account for 40% of revenue, a figure now under threat as the FDA could impose penalties like injunctions or fines.

Marketing Deception: The Illusion of Growth

Hims' aggressive marketing tactics—including a Super Bowl ad omitting required risk disclosures for compounded GLP-1 drugs—exposed another red flag: overhyping unproven treatments to inflate short-term growth. The company allegedly promoted knockoff Wegovy® as safe alternatives to the FDA-approved version, despite Novo's warnings about unregulated ingredients.

Investors must ask: Does the company's marketing align with FDA guidelines? Are its claims about drug efficacy or safety backed by clinical data? Deceptive advertising not only risks lawsuits but also erodes long-term trust with regulators and consumers.

Investment Implications: Due Diligence Over Growth Hype

The Hims case underscores the need for investors to prioritize regulatory rigor over growth metrics in telehealth stocks. Key due diligence steps include:
1. Audit partnerships: Ensure collaborations with pharmaceutical firms or pharmacies are based on strict compliance terms.
2. Assess revenue streams: Avoid companies overly reliant on legally ambiguous practices like mass compounding.
3. Review FDA interactions: Check for warning letters, lawsuits, or recalls tied to non-compliance.
4. Scrutinize marketing claims: Verify that promotions align with FDA-approved uses and include proper risk disclosures.

Telehealth stocks like Teladoc (TDOC) or Ro (RO)*, which focus on FDA-approved treatments and transparent partnerships, contrast sharply with Hims' risk profile.

Conclusion: The Telehealth Regulatory Tipping Point

Hims & Hers' 32% stock plunge is not just a company-specific crisis but a sector-wide cautionary tale. Investors must recognize that regulatory risks in telehealth—particularly around compounded drugs, supply chains, and marketing—are now front-and-center.

The road ahead for Hims is fraught with lawsuits, potential FDA penalties, and a damaged reputation. For investors, this episode reinforces a clear message: In telehealth, compliance is not optional—it's the foundation of sustainable growth. Proceed with caution in companies that prioritize speed over integrity, and allocate capital to firms that build trust with regulators and patients alike.

Risk Warning: Past performance is not indicative of future results. Consult a financial advisor before making investment decisions.