Hims & Hers Health Stock Surges After Novo Nordisk Partnership

(Bloomberg) — Shares of Hims & Hers Health saw an impressive rise this week, hitting their highest level ever after the company announced a partnership with Novo Nordisk A/S, bringing fresh optimism regarding its future in weight-loss medications.

The San Francisco-based firm experienced a 57% increase in stock value over the week, managing to climb in four of the last five trading sessions.

Earlier this week, Hims revealed that it would collaborate with Novo to market its popular products, Ozempic and Wegovy, through its platform. This development effectively resolves previous tensions between the two companies. Additionally, Novo decided to retract a lawsuit it had filed against Hims just last month. Hims, in exchange, will cease promoting a combined version of Novo’s medication while still offering Ozempic and Wegovy if doctors prescribe them for patients.

Ryan MacDonald, an analyst at Needham & Company, expressed in an interview that this deal alleviates immediate worries and significantly places Hims back on a promising path for sustainable growth alongside its brand partners.

Investors appear hopeful that the partnership with Novo will drive growth and set a clearer direction for the telemedicine company, which has faced various legal and regulatory challenges. This sentiment seems fairly justified.

Novo had initially ended its partnership with Hims in June, alleging “deceptive marketing” practices. At that time, Novo’s executives stated that Hims hadn’t moved far enough away from selling compounded versions of weight-loss drugs. This led to a downturn in Hims’ stock as concerns mounted about its weight-loss business and potential legal actions from the Danish company.

The drop in stock value was worsened by a lawsuit from Novo against Hims earlier this year for launching a copy of its Wigovy tablets, which Hims quickly withdrew from the market following regulatory warnings. Moreover, Hims reported a first-quarter profit outlook that was below expectations, resulting in a 46% decline in February—a record slump for that month. Before the partnership announcement, the stock had plummeted by 52% since the start of the year, erasing roughly $3.8 billion in market value.

MacDonald noted that with Novo back in the picture and Hims altering its compounding strategy, a more optimistic long-term future now seems plausible for the company, prompting him to upgrade his rating on the stock.

Regarding future prospects, at least four analysts increased their ratings for the stock this week. However, Wall Street remains largely cautious, with only five out of 17 analysts recommending that investors buy the stock, while about 11 others suggest holding onto it.

Daniel Grosswright, a research analyst at Citigroup, expects that the new partnership will lead to a “significant reduction” in revenue and adjusted EBITDA, as it will require Hims to halt the sale of personalized versions of its obesity medications. Nevertheless, this step alleviates some risks for Hims, leading Grosswright to revise his outlook to neutral from sell.

Hims indicated it’s making a “strategic shift” in the way its obesity drugs are marketed due to regulatory pressures. The company also appointed Kathryn Beiser, who previously directed communications at Eli Lilly & Company, as its chief communications officer.

MacDonald from Needham sees this as a “transitional period” for Hims, as it moves towards selling branded medications and away from promoting personalized GLP-1 formulations. He added that it’s unclear what effect this will have on revenue and profits, especially concerning existing subscribers of personalized GLP-1s. “That’s the biggest variable here,” he concluded.