Why Hims & Hers shares tumbled on Tuesday

Actions of His and hers (HE -7.54%) fell as much as 8% on Tuesday and closed at a low for the day after the news broke Eli Lilly (LLY 0.42%) has dropped the price of a key weight loss drug.

Eli Lilly struck at Hims & Hers

The big news on Tuesday was the announcement that Eli Lilly will sell weight loss drug Zepbound through its direct-to-consumer website at a 50 percent discount from its previous price. A single-dose vial of 2.5 milligrams will cost $399 for one month, while a 5-milligram dose will cost $549 per month.

This is the first branded GLP-1 weight loss treatment that is so cheap, without using the shortage exemption that Hims & Hers uses to sell a combination version of the drugs. Today, investors believe this is a threat to a key growth path for the company.

Good news for him and her

As much as the market sees this as bad news, I think it’s the opposite. Hims & Hers is as much a customer acquisition platform and distributor of branded products as it is a compound of treatments under its own brand name. So the company would probably be happy to offer the Zepbound treatment at that price.

GLP-1 Hims & Hers currently retails for $199 per month, so it’s still significantly cheaper than this deal. And we’re only a few months away from Hims & Hers even offering a GLP-1, so this won’t be a big loss to existing sales, even if some customers move to Eli Lilly’s direct site.

The market reacted strongly to this news today, but I don’t think it will have much of an impact on Hims & Hers growth in the long term.