Novo Nordisk, Hims & Hers End Partnership Amid Dispute Over Compounded Drugs

In a surprising turn of events, Novo Nordisk and Hims & Hers, two prominent players in the growing weight loss market, abruptly ended their collaboration just two months after announcing their partnership in April. The sudden split has left industry observers shocked and puzzled.

Hims & Hers has long relied on compounded medications, which accounted for 15% of its revenue last year, as a key part of its growth narrative for investors. The company accused Novo Nordisk of pressuring it to "steer" patients towards the branded drug Wegovy, while Novo Nordisk countered that Hims & Hers was directing patients to unapproved compounded or "counterfeit" medications.

In a post on the social media platform X, the chief executive of Hims & Hers stated, "Over the past few weeks, Novo Nordisk's business team has increasingly pressured us to control clinical standards and steer patients towards Wegovy. We refuse to be coerced by any pharmaceutical company's anti-competitive demands." The executive added, "We will not compromise our platform's integrity to appease a third party or maintain a partnership."

The U.S. Food and Drug Administration (FDA) initially allowed compounded products to be marketed when both Eli Lilly and Novo Nordisk faced supply shortages and were unable to produce enough GLP-1 class drugs. However, in recent months, as the supply issues were resolved, the FDA classified compounded formulations as illegal.

Compounding pharmacies, however, claim that they still have the right to produce these medications if patients cannot use branded drugs due to allergy or tolerance issues, falling under the "personalized" drug category as per FDA regulations.

Novo Nordisk, in an email statement, explained that the termination of the partnership was due to compounded semaglutide, which are generic versions of Wegovy containing the same key ingredient but with added excipients. Novo Nordisk accused Hims & Hers of "failing to comply with the law that prohibits the mass sale of compounded drugs under the guise of 'personalized' and engaging in deceptive marketing, putting patient safety at risk."

According to the medical mergers and acquisitions director at the consulting firm West Monroe, when patients seek GLP-1 class drugs on the Hims & Hers website, the company still asks if they are interested in "personalized" treatment. This is the basis for Novo Nordisk's decision to terminate the partnership.

However, the chief executive of Hims & Hers claimed that Novo Nordisk was aware from the outset in April that Hims & Hers would continue to sell generic drugs. During a May earnings call, the executive stated, "We continue to expect personalized semaglutide on our platform. This is what we shared in the last earnings call and what we had previously communicated to Novo Nordisk."

Novo Nordisk launched the collaboration through Humana's mail-order pharmacy CenterWell, which distributes medications prescribed by three telemedicine providers, one of which is Hims & Hers. Novo Nordisk confirmed that the agreement did not require Hims & Hers to stop selling compounded semaglutide, and Hims & Hers never indicated that it would cease selling generic drugs.

In April, Hims & Hers began adding "branded tirzepatide" to its platform, noting that these are products "in addition to oral medication kits, compounded semaglutide, and branded semaglutide." Branded tirzepatide drugs include Eli Lilly's weight loss drug Zepbound and diabetes drug Mounjaro. Although Hims & Hers is not part of Eli Lilly's direct-to-consumer telemedicine services, it can sell these injectables through the normal wholesale procurement process like other medications.

During a May earnings call, the chief executive of Hims & Hers mentioned discussing platform integration with Eli Lilly but did not succeed. This move marks a significant milestone for Hims & Hers, which started as a telemedicine platform in 2017, meeting men's health needs through non-patented products like hair loss and erectile dysfunction. The executive hinted that this could open doors to more branded pharmaceutical collaborations.

The executive stated, "Over time, we expect to engage in broader collaborations across the industry, from pharmaceutical companies and leaders in diagnostic and preventive testing innovations to world-class medical service providers. We look forward to providing updates on the future as this collaboration and similar ones continue to develop."

The future of Hims & Hers' growth is under pressure due to this dispute with Novo Nordisk. The medical mergers and acquisitions director at the consulting firm West Monroe suggested that this move could indicate that the executive is either firmly committed to the company's roots as a low-cost drug access point or believes that compounded GLP-1 drugs may still be more profitable than selling branded drugs, despite regulatory constraints.

The executive stated, "If you were in his position, you would try to achieve some escape velocity here. In the long run, he must know that you cannot become a fully mature company through compounded formulations."

In April, a Jefferies analyst noted in a report to clients that increased collaboration with branded drugs is positive. However, the analyst also pointed out that Hims & Hers' prospects remain unclear. The analyst stated, "A review of the weight loss products on the HIMS website indicates a shift towards branded GLP-1 drugs... and a reduced focus on personalized compounded formulations. We believe this is a necessary step to avoid getting caught in the crossfire of regulatory/ intellectual property issues. This shift has already started to impact website traffic. While the first quarter seemed good, we have noticed a slowdown in traffic since the Super Bowl, raising questions about (long-term forecasts)."

Given the current public dispute between Hims & Hers and Novo Nordisk, its performance remains to be seen. The medical mergers and acquisitions director at the consulting firm West Monroe stated, "If he is pushed out of the compounded formulations business in this manner, many of their growth projections will become very difficult."