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Here’s a quiz: Which obesity drug has been the best-performing in the last 12 months? The obvious answer would be Novo Nordisk or Eli Lilly. But you’d be wrong.
Those two companies, which dominate the GLP-1 weight-loss treatment field, are doing well. But Hims & Hers Health, a telemedicine company that has begun selling synthetic, or knockoff, versions of those drugs, is doing even better. Shares of the San Francisco-based startup are up more than 120% since last August. Eli Lilly is up 67%, and Novo is up 44%.
To be sure, Hims, which started out selling erectile dysfunction and hair loss medications, is a much smaller company with a market capitalization of less than $3.5 billion, and its stock price has risen from low levels. Eli Lilly is worth $876 billion, and Novo is worth more than 3 trillion Danish kroner ($443 billion).
Still, Hims’s share price surge highlights how explosive demand, combined with tight supply of Wegobee, Ozempic, Zepbound and other GLP-1 drugs, is creating a huge business opportunity for compounding drug makers and distributors.
Compounding drugs aren’t generics, they’re copies: made with the same basic ingredients as brand-name drugs but produced by specialty pharmacies rather than drug companies. They aren’t approved by the Food and Drug Administration and, as rival digital health startup Ro explains in a disclaimer on its website, “are not subject to safety, efficacy or manufacturing review.”
But production is permitted when there is a shortage, as is the case with GLP-1 weight-loss drugs, which mimic a hormone produced in the gut to suppress appetite and regulate blood sugar levels.
Hims was founded in 2017 and went public via a SPAC transaction just four years later. The company is yet to turn a profit; it posted a net loss of $23.5 million last year on revenue of $872 million. The company’s shares have traded below its original price of $10 through 2021 and 2023.
But shares soared after the company announced in May that it would begin selling a different version of Wegovy. Earlier this month, the company broke news that it was acquiring compounding pharmacies to secure supplies, much to investors’ delight. Demand for GLP-1 drugs seems insatiable. Hims’ version starts at just $199 per month, significantly cheaper than the $1,000+ out-of-pocket costs for the branded version.
It’s a controversial area, with safety and efficacy being major concerns. Novo and Lilly have filed numerous lawsuits trying to block sales of compounded versions of their drugs. Plus, there are questions about what will happen once the brand-name drug shortages ease. Investors who bought into the stock at high prices this year could be on the hook for losses.
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