Hello Hims House!
This article serves to enhance your understanding of the recent Hims & Hers Health sell off following the news that the FDA officially removed Eli Lilly's Zepbound and Mounjaro (generic version Tirzepatide) from its shortage list.
In short, the sell off is totally irrational:
- Hims does not currently offer the compounded (i.e., generic) version of Zepbound (Tirzepatide); instead, it offers the compounded version of Novo Nordisk's Semaglutide.
- Hims' business does not rely on GLP-1s in any remote sense. While it would be nice for Hims to stand up a sustainable GLP-1s business, it is entirely unnecessary for this to occur for the thesis to work. Here is the data illustrating why:
Hims has generated free cash flow in six of its last six quarters, and in seven of its last eight, and it has done so without contributions from GLP-1s.
Hims & Hers Health Free Cash Flow, Operating Cash Flow, And Cash Balance By Quarter Since Q3'22
Hims has grown free cash flow per share substantially without contributions from GLP-1s.
Hims & Hers Health Free Cash Flow Per Share vs. Share Price
The difference between Hims nominal gross profit and sales & marketing expense, which is the truest north star for the company's overall health, has never been higher than at the end of Q2'24.
Gross Profit TTM vs. Sales & Marketing Expense TTM
Hims & Hers Health Gross Profit Margin (Quarterly) vs. Sales & Marketing As a Percent Of Revenue
In every conceivable regard, it makes no sense for the market to panic about the recent Eli Lilly news.
Hims does not offer Eli Lilly's GLP-1s. And even if it did, the thesis does not hinge on GLP-1s.
Hims has grown its weight loss business exceptionally without GLP-1s, alongside its series of other products, and it will continue to do so with or without GLP-1s.
“In the fourth quarter of last year, we launched our weight loss specialty with personalized oral-based solutions. This offering utilizes different combinations of personalized compounds to address the underlying conditions clinically tied to obesity, including metabolic disorders, depression and overeating habits. It has been incredibly successful. Within less than a year, it has scaled to a run rate of $100 million in annual revenue, becoming our fastest specialty ever to do so.”
Andrew Dudum, CEO, Hims & Hers Health Q2'24 Earnings Call
Concluding Thoughts
Hims does not need GLP-1s to be a successful business over time, and it did not even sell the GLP-1s that came off the shortage list. Sure, GLP-1s would be a nice addition to the business, and to be sure, they will be sold on the platform over the long run.
To this end, it's worth noting that Hims recently brought onto its board of directors Kare Schultz, the former COO and president of Novo Nordisk (whose GLP-1 generic version, i.e., Semaglutide, Hims does sell). Schultz is also the former CEO of Teva Pharmaceuticals, one of the largest generic drug manufacturers on earth.
Many bears suggest Hims does not know what it's doing offering GLP-1s, but I would argue that those bears display an arrogance in their thinking: How can they say they know better than arguably the most knowledgeable man on earth as it relates to GLP-1s and their generic version, Kare Schultz? This man consults CEO Andrew Dudum directly, so Mr. Dudum has the best of the best information about GLP-1s and their generic versions.
Again, GLP-1s are nice, and, over time, Hims will sell them comprehensively on its platform, in both generic and branded formats.
However, they are not necessary for the thesis to work out, and the data provided above resoundingly confirms this notion.