Marksman Monday Update

We’re starting a new series here at Marksman Research (on a new platform as well).

We’re excited to be moving over to beehiiv to launch our new series where we provide bite-sized content that helps our readers stay in touch with the stocks we love as news changes.

We’re starting with Hims & Hers (HIMS).

Hims is well-prepared to navigate recent FDA regulatory changes affecting compounded GLP-1 weight loss medications, thanks to its diversified healthcare portfolio and strong subscription model. While GLP-1 treatments currently represent a small portion of Hims' revenue, the company’s focus on expanding infrastructure, increasing customer retention, and investing in new services positions it to adapt and capture growth across multiple segments. Even if compounded GLP-1 products face stricter regulations, Hims' resilient business model and strategic investments ensure it remains well-positioned for continued growth in the tele-health and weight loss markets.

Glucagon-Like Peptide-1 drugs (GLP-1) are a class of medications used to treat type 2 diabetes and obesity. By mimicking the effects of endogenous GLP-1, which stimulates the pancreas to release insulin, these medications help lower blood sugar levels, slow stomach emptying, and increase feeling of fullness. Some examples of GLP-1 drugs include Bydureon, BCise, Ozempic,  Rybelsus, and Wegovy. “Compounded” GLP-1 drugs are copies of FDA-approved GLP-1’s, but not FDA approved themselves. They are typically sold by special pharmacies that combine safe ingredients to create a custom medication, making them cheaper but not nearly as safe. 

The increased compounding of GLP-1s has piqued the FDA’s interest. Name-brand versions of drugs are now more widely available as recent shortages have eased. The FDA recently restricted the compounding of GLP-1’s made from semaglutide salts, a modified form of the active ingredient, as it lacks the testing of FDA-approved versions. However, pharmacies can still compound GLP-1 drugs from bulk active ingredients under strict conditions, mainly for patients with unique needs unmet by commercial products.  

With this, Eli Lilly recently sent cease-and-desist letters to 100s of compounding pharmacies, telehealth companies, and medical spas making & selling “compounded” versions of Tirzepatide - the active ingredient in diabetes and weight loss medications. This regulatory change ensures patents receive effective GLP-1 treatments and reduces reliance on less-tested compounded alternatives. On the surface this hurts Hims.

In Q2, Hims reported a total revenue of $315.6 million, but only $15 million of this came from GLP-1 medications. Therefore, ~5% of their revenue comes from weight loss. They launched this program in December of 2023, and it is expected to surpass $100 million in revenue by 2025. Hims and Hers is growing at a quick rate, so it is difficult to estimate their expected revenue in 2025 with or without GLP-1s. Some estimated peg their weight loss drugs at up to ~10- 15% of their revenue in the future. If weight loss drugs were to be discontinued this would result in major revenue loss. 

With this being said, if weight loss products were to be discontinued, Hims has still positioned itself well for adaptabilit.. Hims invests substantial resources in researching and developing new ideas. Hims is in the process of developing a new service called MedMatch, which uses artificial intelligence and machine learning to deliver a more personalized service for patients. With high cash flow, Hims will be able to develop new services and goods similar to MedMatch, attracting growth opportunities in the future beyond GLP-1s which seems to be the markets main focus right now. 

To this point, Hims and Hers already has a diversified stream of products. The company offers different prescription medications, including those for erectile dysfunction,  skincare treatments for acne, wrinkles, and sun damage, hair regrowth supplements, and oral  anxiety medications. These products mostly rely on a subscription-based model. Currently, Hims and Hers boasts a subscriber base of 1.8 million, reflecting a 20% increase since the end of  last year. Additionally, their Monthly Online Revenue Per Average Subscriber has risen to 57,000, an 8% growth from the previous year. In other words, its core business is working and growing. 

Hims is well-positioned to withstand the recent regulatory changes impacting compounded GLP-1 medications, with a diversified portfolio and strong infrastructure investments providing other growth avenues. Although compounded GLP-1 treatments represent a small portion of the company’s revenue, the proactive steps Hims has taken to expand infrastructure, invest in new services, and drive customer retention ensure that it can adapt to shifts in the market. Even if GLP-1 offerings face stricter regulation, the company’s robust subscription model and high customer loyalty will support continued growth across various healthcare segments. 

Earnings are later today. While we are no weather forecasters (and have no opinion on where the stock will go this quarter after earnings) we continue to believe the story remains intact.

Disclosure: At the time of this publication some members affiliated with Marksman Research own stock, options or other interest in HIMS.