Securities Litigation and the Health-Tech Sector: Lessons from Hims & Hers

The recent class-action lawsuit against Hims & Hers Health, Inc. has reignited debates about securities litigation risks in the health-tech sector. The case, which centers on allegations of deceptive marketing and regulatory non-compliance, offers a microcosm of the challenges facing companies that blend digital innovation with pharmaceutical commerce. For investors, the fallout from this lawsuit—and its broader implications—demands a closer look at how litigation shapes sector valuations and investor sentiment.

The Hims & Hers Case: A Catalyst for Scrutiny

Hims & Hers' partnership with Novo Nordisk, announced in April 2025, initially seemed to validate its business model. The collaboration promised to bring Wegovy®—a flagship weight-loss drug—to a broader audience. However, the partnership unraveled in June 2025 when Novo Nordisk cited “deceptive promotion of knockoff Wegovy” and non-compliance with FDA rules on compounded drugs. The stock plummeted 34% in two days, erasing $22.24 per share in value.

The lawsuit, Sookdeo v. Hims & Hers, alleges that the company misled investors by overstating the legality and safety of its drug offerings. This case is emblematic of a growing trend: health-tech firms facing litigation for misaligned promises and regulatory missteps.

Broader Trends in Health-Tech Litigation

Over the past five years, the health-tech sector has seen a surge in securities class actions, particularly those tied to AI overhyping and product performance. In 2024 alone, AI-related lawsuits in the sector doubled compared to 2023, with plaintiffs targeting companies that exaggerated AI capabilities in diagnostics, drug development, and customer engagement tools. Courts have increasingly scrutinized such claims, dismissing cases where plaintiffs failed to prove material misstatements or scienter.

For example, in Innodata Inc. (2024), a health-tech firm was sued for falsely branding itself as an AI leader. The case highlights the risks of “AI washing”—a practice where companies inflate their technological prowess to attract investors. While courts often dismiss these cases early, the reputational and financial toll of litigation remains significant.

Market Impacts and Investor Confidence

The health-tech sector's volatility is no secret. Litigation often follows sharp stock price declines triggered by regulatory actions or failed product launches. In 2024, 43% of life sciences lawsuits stemmed from business setbacks like poor sales or regulatory issues, rather than pre-approval missteps. This shift reflects investor skepticism toward companies that fail to meet commercial or regulatory benchmarks.

Post-litigation outcomes also reveal a pattern: while courts dismiss many cases, the mere threat of litigation can erode investor confidence. For instance, the median time to resolve a health-tech securities case is 2.7 years, during which companies face heightened scrutiny and capital outflows. The Hims & Hers case, with its high-profile termination and stock collapse, could amplify these effects, particularly for telehealth firms that rely on partnerships with pharmaceutical giants.

Long-Term Implications for the Sector

The Hims & Hers litigation underscores the need for health-tech firms to align their disclosures with regulatory realities. Courts have shown a preference for dismissing speculative claims, but companies that ignore compliance risks—such as those involving compounded drugs or AI capabilities—invite prolonged legal battles.

For investors, the lesson is clear: due diligence must extend beyond financial metrics. Scrutinizing a company's regulatory posture, transparency in AI claims, and alignment with FDA guidelines is critical. The health-tech sector's growth hinges on trust, and litigation—whether successful or not—can erode that trust.

Investment Advice: Navigating the Risks

1. Prioritize Governance and Compliance: Favor companies with robust regulatory frameworks and transparent communication. Firms that proactively address FDA feedback or revise risk disclosures are less likely to face litigation.
2. Monitor AI Claims: Avoid companies that overstate AI capabilities without verifiable data. Look for firms with clear, incremental AI integration rather than grandiose promises.
3. Diversify Exposure: Given the sector's litigation risks, diversify across health-tech subsectors (e.g., telehealth, diagnostics, drug delivery) to mitigate sector-wide shocks.

Conclusion

The Hims & Hers case is a cautionary tale for health-tech firms and a wake-up call for investors. While litigation is a tool for accountability, it also highlights the sector's vulnerability to misaligned expectations and regulatory missteps. As the industry evolves, companies that prioritize compliance and transparency will likely outperform those that rely on aggressive, unverified claims. For investors, the path forward lies in balancing optimism with skepticism—a strategy that rewards patience and prudence in an increasingly litigious landscape.