Hims & Hers Health: Governance Failures and Regulatory Nightmares Spell Trouble for Investors

The termination of Hims & Hers Health, Inc.'s (NYSE: HIMS) partnership with Novo Nordisk in June 2025 has exposed a web of corporate governance failures, regulatory violations, and potential securities fraud that could redefine the company's trajectory—and its viability as an investment. This article dissects how Hims & Hers' alleged deceptive practices, non-compliance with FDA guidelines, and misleading disclosures have created a toxic brew of legal, financial, and reputational risks for shareholders.

The Partnership Collapse: A Catalyst for Crisis

The collaboration with Novo Nordisk, which began in April 2025, aimed to expand access to Wegovy® (semaglutide), a weight-loss drug in high demand. However, Novo Nordisk abruptly terminated the partnership on June 23, 2025, accusing Hims & Hers of “illegal mass compounding” of knockoff versions of Wegovy. The company allegedly sold these unapproved drugs using active pharmaceutical ingredients (APIs) sourced from unregulated Chinese suppliers, violating FDA rules that permit compounding only for specific patient needs or during shortages.

The FDA had already declared the Wegovy shortage resolved in April 2025, making Hims & Hers' mass sales of compounded drugs unlawful. Compounding pharmacies are legally restricted from producing drugs on a large scale, yet Hims & Hers marketed these knockoffs as “personalized” treatments—a deceptive tactic that endangered patient safety. A Brookings Institute report highlighted that many of the Chinese suppliers lacked FDA oversight, raising red flags about drug quality and safety.

Corporate Governance Failures: A Recipe for Disaster

The allegations underscore systemic governance failures at Hims & Hers:
1. Regulatory Blind Spots: The company appears to have ignored FDA regulations, prioritizing profit over patient safety. Compounding drugs without individual prescriptions or proper oversight violates federal law, yet Hims & Hers allegedly treated it as a business strategy.
2. Misleading Disclosures: Investors were likely misled about the legality and risks of the partnership. If Hims & Hers downplayed regulatory hurdles or failed to disclose the FDA's stance on compounded Wegovy, it could constitute material misstatements under securities laws.
3. Conflict of Interest: The partnership's abrupt termination suggests Hims & Hers prioritized short-term gains over long-term compliance, risking its credibility with regulators and partners.

Legal Exposure: Class Action and Regulatory Risks

The fallout has already triggered two major investigations:
- Block & Leviton LLP: Probing potential securities fraud for misleading investors about the partnership's risks and the legality of its operations.
- Hagens Berman: Investigating whether Hims & Hers violated federal securities laws by concealing material information about its compliance practices.

The stock plummeted 31.7% the day the partnership was terminated, and volatility remains elevated. Investors who purchased shares ahead of the announcement may qualify for recovery through class actions, but the broader implications are dire:
- Fines and Penalties: The FDA or Department of Justice could impose fines for selling unapproved drugs.
- Litigation Costs: Defending against class actions and regulatory probes will drain resources and distract management.
- Loss of Partnerships: Trust in Hims & Hers' operations is shattered, making future collaborations with reputable firms unlikely.

Investment Implications: A High-Risk, Low-Return Proposition

The combination of legal, financial, and reputational risks makes Hims & Hers a high-risk investment, particularly for long-term holders. Key concerns include:
1. Stock Volatility: The June 23 collapse (and subsequent dips) signal ongoing uncertainty. Without clarity on settlements or regulatory outcomes, share prices could remain unstable.
2. Reputational Damage: The scandal has tarnished Hims & Hers' brand, potentially deterring patients and investors alike.
3. Strategic Stalemate: With Novo Nordisk's exit and the FDA's crackdown on compounded GLP-1 drugs, the company's growth engine—weight-loss telehealth—is now crippled.

Investment Recommendation: Sell or Avoid

Given the mounting evidence of governance failures and legal exposure, investors should consider the following:
- Immediate Action: Sell existing holdings to limit losses, as the stock faces further downside from pending litigation and regulatory scrutiny.
- Avoid New Positions: Until Hims & Hers demonstrates transparency, resolves legal disputes, and rebuilds compliance protocols, the risks far outweigh any potential upside.
- Due Diligence: Monitor developments, including SEC filings, FDA actions, and settlements with law firms.

Conclusion: A Warning for the Telehealth Sector

Hims & Hers' crisis is a cautionary tale for the telehealth industry. Companies operating in regulated spaces must prioritize compliance and transparency to avoid becoming casualties of overreach. For investors, this case reinforces the importance of scrutinizing corporate governance practices and regulatory exposure—especially in sectors where innovation meets stringent oversight. Until Hims & Hers proves it can navigate these challenges, the stock remains a gamble with few safeguards against catastrophic losses.

Final Verdict: Sell or Avoid. The risks are too severe, and the path to recovery is too uncertain.

This analysis is based on publicly available information as of June 2025. Investors should conduct their own due diligence.