Navigating the Storm: Hims & Hers' Legal Resilience in the Telehealth and Compounded Drug Sector

The telehealth and compounded drug sectors are undergoing a seismic shift as regulatory scrutiny intensifies. From Eli Lilly’s aggressive litigation against telehealth companies for unapproved GLP-1 drug sales to the Federal Trade Commission’s (FTC) crackdown on deceptive marketing, the landscape is fraught with legal and compliance risks. Yet, within this turbulence lies an opportunity for companies that can adapt swiftly and strategically. Hims & Hers Health (HIMS), a prominent player in the direct-to-consumer (DTC) healthcare space, offers a compelling case study in resilience.

The Regulatory Tightrope

The sector’s challenges are epitomized by Eli Lilly’s lawsuits against telehealth firms like Fella Health and Mochi Health, which were accused of marketing compounded tirzepatide as “personalized” alternatives to FDA-approved drugs like Zepbound and Mounjaro. These cases highlight a broader regulatory focus on corporate practice of medicine (CPOM) violations, deceptive advertising, and the safety risks of untested compounded drugs [1]. Similarly, the FTC’s proposed settlement against NextMed for fabricated reviews and exaggerated weight loss claims underscores the growing emphasis on transparency and accountability [2].

For Hims & Hers, the stakes were particularly high. The company faced a 34.6% stock price plunge in 2025 after its partnership with Novo Nordisk collapsed over allegations of “deceptive promotion” of unapproved Wegovy knockoffs. This, coupled with the FDA’s revocation of its temporary allowance for compounded GLP-1 drugs, exposed vulnerabilities in its business model [3]. Class-action lawsuits and an FTC investigation into its advertising and subscription cancellation practices further compounded the risks [5].

Strategic Adaptation: From Compliance to Innovation

Hims & Hers’ response to these challenges reveals a strategic pivot toward sustainability and differentiation. The company has shifted from relying on compounded drugs to sourcing FDA-approved medications, a move that aligns with regulatory expectations while preserving its core offerings. This transition, however, has come at a cost: Q2 2025 results showed free cash flow turning negative at -$69.4 million, reflecting the financial burden of compliance and litigation [1].

Yet, Hims & Hers has not merely retreated into compliance. The company is leveraging its strengths in personalization and digital infrastructure to expand into high-margin verticals such as longevity care, mental health, and lab testing. Its AI-driven MedMatch system, currently in beta for mental health services, uses anonymized data to tailor treatment plans, enhancing both patient outcomes and operational efficiency [4]. This innovation, combined with a 31% growth in subscribers (reaching nearly 1.5 million customers) and a 73% increase in Q2 2025 revenue, demonstrates its ability to adapt while maintaining growth [3].

Navigating Uncertainty: Risks and Opportunities

Despite these strides, Hims & Hers remains exposed to regulatory and legal headwinds. The FTC’s ongoing investigation into its advertising practices and the potential for a $100 million litigation settlement pose significant risks [1]. Moreover, the broader telehealth sector faces uncertainty as Medicare’s extended flexibilities (e.g., home-based telehealth access) approach their expiration in September 2025, raising questions about long-term policy stability [5].

However, Hims & Hers’ strategic diversification and focus on high-touch specialties position it to weather these storms. Its expansion into international markets and exploration of tax benefits under the One Big Beautiful Bill Act (OBBBA) further illustrate a proactive approach to mitigating risks [3]. For investors, the key question is whether the company can balance compliance costs with innovation to sustain its competitive edge.

Conclusion: A Model for Resilience

Hims & Hers’ journey through regulatory and legal challenges offers valuable lessons for the telehealth sector. While the path has been rocky—marked by lawsuits, stock volatility, and compliance costs—the company’s pivot to FDA-compliant sourcing, AI-driven personalization, and diversified service offerings underscores its resilience. For investors, the case of Hims & Hers illustrates that survival in this high-growth market requires not just compliance but also innovation and strategic agility. As the sector continues to evolve, companies that can navigate the regulatory tightrope while delivering value will emerge as leaders.

Source:
[1] Hims & Hers Health: Navigating Regulatory Storms to Test Resilience of DTC Healthcare Model [https://www.ainvest.com/news/hims-health-navigating-regulatory-storms-test-resilience-dtc-healthcare-model-2508/]
[2] FTC's NextMed Settlement Signals Enforcement Against Telemedicine Companies Making False or Misleading Drug Claims [https://www.frierlevitt.com/articles/ftcs-nextmed-settlement-signals-enforcement-against-telemedicine-companies-making-false-or-misleading-drug-claims/]
[3] Hims & Hers Health (HIMS): Navigating Legal and Regulatory Risks in Shifting Telehealth Landscape [https://www.ainvest.com/news/hims-health-hims-navigating-legal-regulatory-risks-shifting-telehealth-landscape-2507/]
[4] Investing in the Future of Healthcare [https://news.hims.com/newsroom/investing-in-the-future-of-healthcare]
[5] Medicare Telehealth Flexibilities Extended through September 30, 2025 [https://www.healthlawdiagnosis.com/2025/03/medicare-telehealth-flexibilities-extended-through-september-30-2025/]