Is Hims & Hers rally at risk as GLP-1 shortages ease?

Hims & Hers (NYSE:HIMS), the telehealth platform that offers compounded versions of weight loss drugs, dropped more than 10% on Thursday after the FDA confirmed that Eli Lilly’s (LLY) GLP-1 tirzepatide was no longer in shortage.

The update is the latest overhang on a stock that has more than doubled in value during the past 12 months. That includes an over 20% rise on a single day in May when the company announced plans to launch compounded versions of Novo Nordisk’s (NVO) weight loss product semaglutide at a sharp discount.

The stock has lost ~9% since then as weight loss drugmakers took steps to improve GLP-1 shortages and widen their market reach while the FDA continued to issue warnings on compounded GLP-1s.

The agency’s latest update on tirzepatide was no exception. “Compounded drugs are not approved by the FDA. FDA-approved drugs go through FDA’s rigorous review for safety, effectiveness, and quality as part of the premarket approval process,” the regulator said.

Meanwhile, drugmakers adopted novel tactics to ease the shortages and improve GLP-1s’ market access. LLY’s recent decision to slash prices of the two lowest dosing strengths of tirzepatide sent HIMS shares sharply lower in late August.

Novo Holdings, the investment arm of Novo Nordisk’s (NVO) controlling investor, is expected to close its $16.5B acquisition of contract drug manufacturer Catalent (CTLT) this year, a move expected to ease semaglutide shortages and hurt Hims’ (HIMS) compounding business.

However, HIMS continues to see prospects in a post-shortage scenario thanks to tweaked versions of the drug.

“Even in a post-shortage world, we expect the continued expansion of our product portfolio in this category, particularly personalized treatments, to create an offering that is safe, accessible, and durable in the long term,” a company spokesperson told Barron’s.

Meanwhile, Seeking Alpha analyst Michael Wiggins De Oliveira continues to see value in HIMS despite looming risks and over ~91% rally this year. “I’m holding firm despite the uncertainties around Hims & Hers’ ability to sell weight loss drugs once shortages end,” the analyst wrote, reaffirming his strong buy on the stock.

With no downgrades on the stock since August, Wall Street analysts agree. “HIMS is not just a GLP-1 story,” Needham argued recently, launching its coverage with a Buy recommendation and a $24 target.