(Bloomberg) -- Hims & Hers Health Inc. plans to buy a compounding pharmacy to make knockoff weight-loss drugs, doubling down on one of the hottest markets in health care as questions swirl about its long-term potential.
Hims said in a filing it agreed in July to pay about $31 million in cash and stock for a US-based compounding pharmacy, which can make copycat versions of the weight-loss drugs and other medicines. Hims declined to disclose the name of the facility. The company started selling versions of Novo Nordisk A/S’s blockbuster drugs made by a different compounding pharmacy in May.
While Novo and rival Eli Lilly & Co. have struggled to produce enough of their drugs to meet demand, both manufacturers have made progress. Lilly’s chief executive officer said last week its products will be out of shortage very soon. That could impact sales of the copycat compounds, which can be more easily sold when the brand name drugs are in formal shortage.
The weight-loss medicines have quickly made an impact at Hims. The company’s second-quarter sales beat Wall Street’s expectations on surging demand for the medicines, which brought in about $15 million to $16 million, Chief Executive Officer Andrew Dudum said. The company raised its 2024 forecast and said it’s committed to the space.
“We see thousands of patients still coming every day, struggling to get access to that medication,” Dudum said in an interview, referring specifically to Lilly’s medicines.
The big question facing Hims is how long its compounding business will be sustainable, Jefferies analyst Glen Santangelo wrote in a note to clients Monday. The so-called GLP-1 treatments, including Lilly’s Zepbound and Novo’s Wegovy, will eventually be removed from the Food and Drug Administration’s shortage list. It’s not clear what will happen then, according to Santangelo.
Hims shares, which have doubled since the start of the year, gyrated wildly in after hours trading before settling to largely unchanged.
Dudum said the company plans to remain in the space. It will be able to offer some compounded weight-loss drugs “indefinitely,” even after the shortages end, as long as they are customized for each patient, he said.
The new facility will further enhance the durability of the company’s supply chain for GLP-1s in the near term, Dudum said on a conference call following the company’s second-quarter earnings release.
Revenue was $315.6 million in the second quarter, ahead of the average Wall Street estimate of $301.3 million. The company expects sales of $1.37 billion to $1.4 billion for 2024, up from an earlier forecast of $1.2 billion to $1.23 billion.
The telehealth company known for treating erectile dysfunction and hair loss and started selling access to copycat versions of Novo’s best-sellers Ozempic and Wegovy partway through the quarter, a move that added nearly $900 million to its market value in one day. The cost of Hims’ drugs start at $199 a month, while Novo’s products can be over $1,000.
--With assistance from Damian Garde.
(Adds CEO comment in the fourth paragraph and updates throughout.)
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