Hims & Hers: Legal Crossroads or Contrarian Opportunity?

The saga of Hims & Hers Health (NYSE: HIMS) has taken a dramatic turn in 2025, with its stock price plummeting 35% in June following the abrupt termination of its partnership with Novo Nordisk. This split, rooted in accusations of "illegal mass compounding" and regulatory noncompliance, has thrust the company into the spotlight of securities fraud investigations and regulatory scrutiny. Yet, beneath the turmoil lies a complex story of strategic pivots, untapped markets, and lingering growth opportunities. Is the current valuation a contrarian buy, or does the legal overhang warrant caution? Let's dissect the risks and rewards.

The Legal Gauntlet: Fraud Allegations and Regulatory Risks

The partnership with Novo Nordisk, which granted Hims access to Wegovy (semaglutide), collapsed after just eight weeks due to a fierce clash over drug compounding practices. Novo accused Hims of violating FDA guidelines by mass-producing compounded versions of semaglutide—a practice Novo claims bypassed regulatory oversight. Hims defended its actions, citing the FDA's "personalization exemption," which permits compounded drugs for patients who cannot tolerate branded medications.

However, the FDA has since clarified that compounded drugs must be tailored to individual patients, not sold en masse. This has fueled two class-action lawsuits: Sookdeo v. Hims & Hers and Yaghsizian v. Hims & Hers, alleging the company misled investors about the stability of its Novo partnership and its compliance with FDA rules. Settlements could range from $50–$100 million—a significant hit for a firm with just $274 million in cash.

The stakes are further elevated by the FDA's broader scrutiny of compounded GLP-1 drugs. A $28.00–$85.00 price target range (per analyst forecasts) underscores the uncertainty. If regulators crack down, Hims could lose its compounded semaglutide revenue stream—15% of its 2024 income—forcing a pivot to lower-margin services.

Strategic Opportunities: Beyond the GLP-1 Market

While the Novo partnership's collapse is devastating, Hims is not without avenues for growth.

1. Canadian Expansion and Generic Semaglutide

With Novo's Canadian patent expired, Hims plans to enter the $4.03 billion Canadian GLP-1 market by 2026. By partnering with approved manufacturers, it aims to offer generic semaglutide at prices undercutting branded drugs. This move capitalizes on a region where 30% of consumers are price-sensitive but demand access to weight-loss therapies.

2. Diversification into Non-GLP-1 Services

Over 80% of Hims' 2024 revenue came from non-GLP-1 segments like mental health, dermatology, and sexual health. Its AI-driven telehealth platform, MedMatch, and international expansion via Zava's European operations, are also growth levers. These segments are less crowded and less litigation-prone, with global digital health spending projected to hit $500 billion by 2030.

3. Regulatory and Legal Resilience

Hims' defense hinges on its adherence to FDA guidelines for personalized care. If it can demonstrate compliance—e.g., by showing compounded semaglutide is reserved for patients with documented allergies to Wegovy—the lawsuits could fizzle.

Valuation Analysis: Is the Stock a Contrarian Buy?

At $51.24 as of July 2025 (with a $10.96 billion market cap), Hims trades at 71x trailing earnings—a premium to its five-year average of 30x. However, the stock's volatility (beta of 2.87) and recent 151% annual surge suggest it's priced for perfection.

Bear Case:
- Legal Settlements: A $100 million settlement would erode 13% of its market cap.
- Regulatory Clampdown: Loss of compounded semaglutide sales could cut 2025 revenue projections by up to $389 million.
- Competitive Saturation: The GLP-1 market is flooded with generics and biosimilars, compressing margins.

Bull Case:
- Canada Play: Generic semaglutide could add $200–$300 million in annual revenue by 2026.
- Non-GLP-1 Growth: Its mental health and AI tools are undervalued in a $500 billion digital health market.
- Technical Patterns: Analysts cite a "cup & handle" setup targeting $73.88 by year-end.

The Verdict: Proceed with Caution, but Consider the Long Game

Hims' stock is a high-risk, high-reward bet. While the legal overhang and regulatory uncertainty are formidable, the company's pivot to Canada and its non-GLP-1 services offer a path to recovery. For contrarians, the $51.24 price—down 40% from February's $72.98 high—could be a buying opportunity if:

1. Legal Risks Mitigate: Settlements stay below $50 million, and the FDA permits limited compounded sales.
2. Canada Launch Succeeds: Early traction in Canada validates its pricing strategy.
3. Non-GLP-1 Growth Accelerates: Mental health and AI-driven services scale profitably.

Investment Recommendation:
- Aggressive Investors: Allocate 2–5% of a portfolio to HIMS at current levels, with a stop-loss below $40.
- Conservative Investors: Wait for clearer legal outcomes and Q3 earnings (August 2025) before committing.

In conclusion, Hims & Hers is at a crossroads—its future hinges on navigating litigation, regulatory hurdles, and market competition. While risks are substantial, the post-crash valuation leaves room for a rebound if strategic pivots succeed. For those with a long-term horizon and appetite for volatility, now is a time to watch closely, but for the cautious, patience is prudent.

Data as of July 2025. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.