Did Eli Lilly destroy him and them?

Capitalizing on the popularity of weight loss drugs like Wegovy and Zepbound, His and her health (NYSE:HIMS) exploited a loophole in Food & Drug Administration regulations to bring similar drugs to market without undergoing the rigors of clinical trials that pharmaceutical giants must follow.

The effect was to rapidly increase sales and gain a foothold in an incredibly profitable market. However, after tripling in value over the past year and a half, HIMS shares are falling sharply. The stock is down 43% from its peak and the decline may not be over.

The main reason for the sale could be because Eli Lilly (NYSE:LLY) cut the knees out from under Hims & Hers’ biggest selling point: selling weight loss pills at a deep discount.

Key points about this article:

• His and her health enjoyed a major boost to its stock due to the sale of a copycat version of its anti-obesity drug at significant discounts.
• HIMS shares stagnated and fell as a rival Eli Lilly plans to offer its FDA-approved version at a deep discount. Hims & Hers is also reported to be using a vendor with a checkered past.
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The hottest weight loss trend

Person standing on a scale

Along with artificial intelligence, weight loss drugs have been one of the most popular market trends in the last couple of years. His immense popularity Novo Nordisk( NYSE:NVO )’s Wegovy and Ozempic injections have sparked a frenzy of interest in glucagon-like peptide-1 (GLP-1) drugs, a diabetes treatment that has been shown to have a tremendous impact on obesity.

Semaglutide, the active ingredient in Wegovy and Ozempic, increases insulin levels in the body and helps control blood sugar. Novo Nordisk has generated $14 billion in sales in 2023 for Ozempic and another $4.5 billion from Wegovy. Sales are up to $8.4 billion and $3.1 billion, respectively. in the first six months from 2024.

Following the success of the Danish drugmaker’s therapies, Eli Lilly introduced its own GLP-1 drugs, Mounjaro and Zepbound. Its active ingredient is tirzepitide. Although well over a year behind Novo Nordisk, the US pharmaceutical company made $5.2 billion in sales for Mounjaro last year and $176 million for Zepbound, but it only launched last November.

So far this year, however, sales are up to $4.9 billion and $1.8 billionrespectively. Analysts now expect Lilly to eventually become the dominant player in the market. They forecast $30 billion in sales for twin treatments from 2026, just short of $40 billion in sales for Novo Nordisk.

A final regulatory oversight

Person receiving an injection in the arm

Obviously, such numbers pale in comparison to the $100 million in sales Hims & Hers Health estimates it will generate from its GLP-1 mimic treatments. However, as a small company compared to global pharma stocks, it’s a major achievement that could lead to higher sales.

Hims was able to do this by looping around FDA regulations that allow so-called compounding pharmacies to sell their own versions of drugs if there are shortages. Excessive demand for both Wegovy and Zepbound maxed out pharmacies’ capacity to produce them.

Selling treatments that typically cost $1,000 a month for just $199, Hims & Hers could steal a lot of business from industry leaders. But that kind of traction might come to an abrupt end. Eli Lilly is about to sell Zepbound for $399 per month directly to consumers.

Usually sold in more expensive injection pens, Lilly is offering the drug in vials to bring Zepbound to customers faster and at a lower cost. This could stunt the growth of Hims & Hers.

There is no need to take undue risks

Sketch lab setup

What Hims & Hers sells to consumers is not the same medicine that Novo Nordisk or Eli Lilly sell. According to the FDA, compound semaglutide on the market it is often made with salts, usually semaglutide sodium and semaglutide acetate. The agency notes that these are different active ingredients than the approved drugs, and many people have reported adverse reactions from taking them. By selling the real thing directly to consumers, Eli Lilly negates the need to resort to untested, unapproved treatments.

Furthermore, new media outlet HunterBrook has questioned the vendor that Hims & Hers uses. The site, which often partners with its investment arm HunterBrook Capital to leverage its reporting (ie, shorting stocks it reports negatively on), says Unique supplier of Hims & Hers has “previously unreported links to fraud and bankruptcy”.

In short, Eli Lilly may have destroyed the upside potential for Hims & Hers stock by undercutting the rationale for using copycat formulations. Coupled with reports suggesting the healthcare company’s provider has a troubled past, the substantial declines seen in HIMS stock could be just the beginning.

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