Hims & Hers Health (NYSE:HIMS) stock has been one of the market’s strongest performers this year. Even after pulling back significantly from the year’s earlier highs, the shares are still up by 37% on a year-to-date basis.
23% of those gains were accrued in Tuesday’s session following the announcement of a long-term collaboration with Novo Nordisk, the maker of popular weight-loss drug Wegovy – the brand-name form of semaglutide used for treating obesity.
The partnership will kick off with HIMS offering Wegovy auto-injector pens at a flat rate of $599 per month, regardless of dosage. This price also covers access to HIMS’ network of physicians and additional services like continuous clinical support and nutritional counseling.
Bank of America analyst Allen Lutz looks on the partnership in a favorable light given two main reasons: “1) it creates a mutually beneficial relationship between HIMS and Novo Nordisk that could de-risk litigation risk by the brand manufacturer; and 2) shifting patients from compounded semaglutide to branded Wegovy could be gross profit dollar neutral for HIMS on a per patient basis.”
Recall, the FDA declared the shortage of semaglutide resolved in February. This decision means that pharmacies and telehealth providers must cease producing compounded versions of semaglutide unless they meet specific exemptions. Essentially, HIMS can continue to provide customized, compounded doses in certain medically justified cases. But now the partnership gives HIMS a good reason to move patients from its own compounded semaglutide to Novo Nordisk’s Wegovy. Since both sides benefit from this setup, as noted above, Lutz thinks it could help prevent Novo Nordisk from taking legal action against HIMS.
Lutz’s initial take on the partnership suggests that, on a per-patient basis, HIMS could see a similar gross profit contribution compared to its previous compounded semaglutide offering. For instance, the analyst had estimated that HIMS earned a 50–60% gross margin on its $165 annual subscription, billed monthly at around $90. Assuming HIMS keeps roughly 90% of the subscription revenue—about $100—that translates to $90 in gross profit without handling the medication directly. The announcement also provides “further validation of HIMS’ direct-to-consumer model as a platform for broader drug partnerships.”
While seeing this latest development as a positive one, it is not enough for Lutz to shed the bear suit. Due to “weakening consumer trends and growth rates exiting March,” Lutz’ rating remains an Underperform (i.e., Sell) although his price objective is bumped from $22 to $26. Nevertheless, there’s still a downside of 21% from the current share price. (To watch Lutz’s track record, click here)
One other analyst joins Lutz in the bear camp and with an additional 7 Holds and 4 Buys, the consensus view is that this stock is a Hold (i.e., Neutral). However, going by the $41.67 average price target, a year from now, shares will be changing hands for a ~26% premium. (See HIMS stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.