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Here’s a rapid loss of index weight:
The share price shown is for Hims & Hers, an NYSE-listed online doctor’s surgery. We did a detailed post a month ago about how US telemedicine companies including Hims were threading a regulatory loophole to keep selling generic versions of Novo Nordisk’s Wegovy, aka semaglutide, in spite of the expiration of an emergency order to ease shortages of the weight-loss injection.
Before the waiver expired, Hims pivoted to selling semaglutide in non-standard doses, having used an online enrolment questionnaire to check whether patients like to vomit:
Meanwhile, Novo had agreed supply deals with Hims and several of its larger rivals. The idea was to give their existing semaglutide patients an easy on-ramp to branded Wegovy. Branded resale was never going to be a big money-spinner for Hims, but it was read by some in the market as a ceasefire signal.
There was no let-up in Novo’s legal threats, however. Custom-dose compounding remained a red line for Novo management. And today, that line was crossed:
Novo Nordisk terminates collaboration with Hims & Hers Health, Inc. due to concerns about their illegal mass compounding and deceptive marketing
• Collaboration of over one month has ended based on Hims & Hers deceptive promotion and selling of illegitimate, knockoff versions of Wegovy® that put patient safety at risk
• Novo Nordisk won’t stop taking action to protect Americans from the dangers of illicit foreign active pharmaceutical ingredients in knock-off drugs
• Efforts will continue to make authentic, FDA-approved Wegovy® directly available through NovoCare® Pharmacy to select telehealth organizations that share our commitment to safe and effective medical treatment for patients living with chronic diseases
Hims has never given clear guidance on how much its future revenue would be from personalised semaglutide jabs, as the company says it can direct current and prospective weight-loss patients towards oral drug prescriptions that it bundles into subscription packages that include advice on healthy eating and keep-fit. However, Morgan Stanley estimated that the “personalised” compounds account for half of Hims’ 2025 weight loss revenue target of $725mn.
The strength of Novo’s statement now raises the prospect of show-trial litigation to stamp out what may be widespread abuse of regulations around drug personalisation.
MS analysts last week reported back from a tour of compounding pharmacies, which suggested many pharmacies were slow to wind down production of Wegovy clones. As we reported in May, custom compounds need to be made for an individual prescription and can’t be pre-made in batches, so production now requires lots of paperwork:
Leadership at one facility commented that among the 15 compounding pharmacies that operate in 30+ states, they are one of only three that have ceased compounding semaglutide. [ . . . ]
Despite published rules and regulations, the industry is not operating in a black and white space, with “personalization” and IP protection key areas to watch.
Both operators that we visited have hired legal counselors to advise them on the risks related to claims of false marketing or patent infringement. [ . . . ] To stay clear of legal actions, compounding pharmacies will require extensive documentation from the prescriber in the case of auditing from regulators. There are also many parties involved in the sourcing and repackaging of [active pharmaceutical ingredients] that originate mostly from China.
Pharmacy operators were also getting worried about the number of telemedicine companies, MS noted. Customer acquisition costs are rising and patient safety checks may be compromised, particularly if proposals to ban direct-to-consumer advertising lead companies to drive prescription volumes in other ways:
One operator cautioned that DTC strategies from drug manufacturers may come at a detriment, whereby pharmacists who would otherwise have greater insight into patients (including nuanced medical history and adverse drug interactions) are cut out of the loop.
A reasonable estimate for Hims’ second-half personalised semaglutide sales is now zero, with a ripple effect for group margins as cross-selling routes to its highest spending customers are curtailed.
With industry checks appearing to support Novo’s concerns, and Novo making no secret of its intention to litigate, the only mystery is why Hims’ shares closed Friday near a record high. But when the stock is a push-pull between day-trading degens and hedge funds who have approximately a fifth of the equity on loan, maybe the occasional puke is an inevitable side effect.
Further reading:
— Novo Nordisk ends Hims & Hers tie-up over copycat Wegovy drugs (FT)
