Hims & Hers Health: Navigating Litigation Storms for Value Amid Regulatory Fallout

The collapse of Hims & Hers Health's (NASDAQ: HIMS) partnership with Novo Nordisk in late June 2025 has ignited a firestorm of legal disputes, regulatory scrutiny, and reputational damage. While the stock has plummeted over 30% since the partnership's termination, investors now face a paradox: a company in freefall due to its own missteps may also harbor litigation-driven opportunities. This article dissects the risks and potential rewards for investors seeking value in this high-stakes scenario.

The Partnership's Downfall: A Recipe for Disaster

Hims & Hers' collaboration with Novo Nordisk, launched in April 2025, aimed to provide access to Wegovy® (semaglutide) through NovoCare® Pharmacy. However, Novo terminated the deal on June 23, 2025, accusing Hims of selling knockoff versions of Wegovy® compounded with unapproved APIs from Chinese suppliers. These actions violated FDA regulations, which had already declared the Wegovy® shortage resolved by February 2025, requiring compounded semaglutide sales to cease by May 22.

The fallout has been swift and severe:
- Stock Price Impact:

- Legal Headwinds: Two securities class actions allege Hims misled investors about its compliance and the stability of its Novo partnership, inflating its stock price.

The Litigation Landscape: Opportunities and Pitfalls

The lawsuits, Sookdeo v. Hims & Hers and Yaghsizian v. Hims & Hers, hinge on three key claims:
1. Mass Compounding Fraud: Hims allegedly violated FDA rules by selling compounded semaglutide en masse, a practice reserved for individual patient needs.
2. Misleading Disclosures: The company failed to disclose its ongoing sale of unapproved compounded drugs post-shortage resolution, inflating investor confidence.
3. CEO Defiance: CEO Andrew Dudum's defense—claiming Novo prioritized profits over patient access—may backfire, as courts scrutinize whether this justification negates fraud allegations.

Investment Implications:
- Deadline Alert: The August 25, 2025, lead plaintiff deadline for the class actions creates a timeline for resolution. If plaintiffs secure a settlement or judgment, Hims shareholders who purchased shares between April 29 and June 23 could recover losses.
- Stock Volatility: Legal outcomes could trigger short-term rebounds if settlements offset losses, but prolonged litigation may keep the stock depressed.

Regulatory and Reputational Risks: A Double-Edged Sword

Beyond litigation, Hims faces systemic challenges:
- FDA Precedent: The case may prompt stricter enforcement against compounded drugs, eroding a key revenue stream for telehealth firms.
- Reputation Damage: The company's February 2025 Super Bowl ad, which critics called misleading about GLP-1 risks, now amplifies reputational harm.
- Financial Fragility: Analysts warn of valuation multiple compression, with HIMS trading at a P/S ratio of ~2.5x (historically high for the sector).

The Investment Thesis: Proceed with Caution

Bull Case:
- A settlement in the class actions could stabilize investor sentiment, especially if terms avoid costly penalties.
- If Hims pivots to FDA-compliant products or new partnerships, its existing telehealth infrastructure may retain long-term value.

Bear Case:
- Regulatory fines, loss of future partnerships, and sustained reputational damage could render Hims a “value trap.”
- The stock's current price (as of June 2025) already reflects some risk, but further declines are possible if liabilities mount.

Strategic Recommendations

1. Litigation-Driven Plays:
2. Consider purchasing shares ahead of the August 25 deadline if you believe the class actions will succeed, though this requires accepting high risk.

3. Monitor settlement negotiations; a $50–$100M payout (if within cash reserves) might not destroy Hims's equity.

4. Avoid the “Hope Trade”:

5. Avoid Hims unless you can withstand 50%+ downside risk. The company's business model—reliant on controversial compounded drugs—is under existential threat.

6. Alternative Plays:

7. Short sellers should target Hims if regulatory penalties escalate.
8. Look to competitors like Teladoc Health (TDOC) or Amwell (AMWL) for safer telehealth exposure.

Conclusion

Hims & Hers Health sits at the intersection of litigation risk and potential recovery, but the path to value creation is fraught with uncertainty. While the class actions offer a speculative opportunity, the broader regulatory and reputational headwinds suggest caution. Investors should proceed only if they can withstand a prolonged period of volatility—and be prepared to capitalize on a resolution that's favorable to shareholders.

Final Take: Hims's stock may offer a “distressed value” opportunity for litigation-savvy investors, but the risks of permanent impairment remain acute. Proceed with eyes wide open.