Hims & Hers Health (HIMS): Legal Headwinds and Lost Partnerships Cast a Shadow Over Growth Prospects

The sudden termination of its high-profile partnership with Novo Nordisk and the subsequent securities class action lawsuits have thrown Hims & Hers Health (NYSE: HIMS) into a volatile crossroads. While the company boasts robust subscriber growth and cash reserves, the legal and operational risks now overshadow its ability to sustain the aggressive growth trajectory investors once celebrated.

The Legal Quagmire: Class Actions and Regulatory Uncertainty

Hims & Hers faces two securities class action lawsuits, Sookdeo v. Hims & Hers and Yaghsizian v. Hims & Hers, alleging that executives misled investors about the stability of its collaboration with Novo Nordisk. Plaintiffs argue that the company failed to disclose its alleged deceptive marketing of knockoff versions of Wegovy—a weight-loss drug developed by Novo Nordisk—and violations of FDA regulations regarding compounded drugs. The lawsuits, filed in June 2025, seek to represent investors who bought shares between April 29 and June 23, 2025, a period during which the stock plummeted 34% after Novo Nordisk terminated the partnership.

The legal risks are twofold:
1. Securities Litigation: If plaintiffs prevail, Hims & Hers could face significant financial penalties or settlements, diverting resources from growth initiatives.
2. FDA Scrutiny: The FDA's stance on compounded drugs remains a wildcard. Compounded semaglutide (the active ingredient in Wegovy) accounts for 15% of Hims & Hers' 2024 revenue. However, the FDA has increasingly restricted mass compounding of such drugs, citing safety concerns. A crackdown could force the company to pivot its core offerings.

Operational Challenges: Losing Novo Nordisk's Momentum

The partnership with Novo Nordisk was a linchpin of Hims & Hers' growth strategy. By leveraging Novo's Wegovy, the company aimed to tap into the booming weight-loss drug market, which accounted for a growing portion of its revenue. The abrupt termination in June 2025, following accusations of “illegal mass compounding,” stripped Hims & Hers of a critical advantage.

Without Novo's support, Hims & Hers must now rely entirely on its own compounded versions of semaglutide. This creates two immediate risks:
1. Regulatory Blowback: Novo's allegations of “sham compounding” (selling compounded drugs as a cheaper substitute for Wegovy) could draw further scrutiny from regulators.
2. Market Saturation: Competitors like Weight Watchers and traditional pharmacies are also ramping up access to FDA-approved weight-loss drugs, potentially crowding out Hims & Hers' niche.

Financial Resilience: Cash Reserves vs. Growth Pressures

Hims & Hers enters Q2 2025 with a seemingly strong balance sheet:
- Q1 2025 Revenue: $586 million (+111% YoY).
- Cash Reserves: $274 million as of March 31, 2025, up from $221 million at year-end.
- Subscriber Growth: 2.4 million users (+38% YoY), with average revenue per user rising to $84/month.

However, these figures mask vulnerabilities:
- Dependence on Compounded Drugs: Revenue from weight-loss products, now entirely reliant on compounded semaglutide, faces existential risks from FDA actions.
- Margin Pressures: Gross margins dipped 3% QoQ in Q1 2025 due to scaling GLP-1 (a class of drugs including Wegovy) sales.

Strategic Shifts: Can AI and Diversification Save the Day?

To offset lost momentum, Hims & Hers is doubling down on its telehealth platform and AI-driven tools:
- MedMatch: An AI system that aggregates clinical data to aid personalized treatment recommendations.
- New Markets: Expanding into menopause, low testosterone, and chronic condition management.

The company also acquired Zava, a European telemedicine firm, to boost international revenue. These moves aim to reduce reliance on the U.S. weight-loss market. Yet, execution risks loom large:
- Competitive Landscape: Telehealth is crowded, with giants like Teladoc and established pharmacies offering similar services.
- AI Adoption: MedMatch's success hinges on proving measurable outcomes, which could take time.

Valuation and Investment Considerations

Hims & Hers' stock trades at a 17% discount to its consensus price target of $48.50, reflecting investor skepticism. Key questions for investors:
1. Legal Resolution: Will the class actions settle, and at what cost? A $100 million settlement could dent profits but not cripple the company.
2. Regulatory Survival: Can Hims & Hers navigate FDA rules while maintaining compounded drug sales? A ban could slash revenue by 10–15%.
3. New Revenue Streams: Will Zava and AI initiatives deliver enough growth to offset lost momentum?

The Bottom Line: Proceed with Caution

Hims & Hers' near-term future hinges on managing legal risks and regulatory compliance while proving its diversification strategies can drive sustainable growth. For now, the stock's volatility and high-risk profile make it a speculative bet. Investors should wait for clarity on the Novo Nordisk lawsuits and FDA actions before committing capital.

Investment Advice:
- Hold: For investors with a high-risk tolerance, HIMS could offer asymmetric upside if legal risks subside and diversification succeeds.
- Avoid: Until regulatory and legal uncertainties are resolved, the stock's downside risks outweigh its growth potential.

The road ahead is fraught with obstacles, but Hims & Hers' pivot to AI and international markets could redefine its trajectory—if it survives the storm.