Why the Novo Nordisk and Hims & Hers Deal Is a Win for Both Stocks

To say that pharmaceutical giant Novo Nordisk (NYSE: NVO) has had a tumultuous relationship with telehealth company Hims & Hers Health (NYSE: HIMS) in the past year would be a bit of an understatement. The two companies have gone from working together to Novo Nordisk suing Hims & Hers.

Most recently, however, they have announced a deal where Hims & Hers Health will be able to sell Novo Nordisk's popular GLP-1 drugs, Ozempic and Wegovy. Finally, it looks as though the drama involving the two companies may be ending. And here's why that can be great news for investors in both of these companies.

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The arrangement makes sense for both sides

Under the new agreement, Hims & Hers will be able to sell Ozempic and Wegovy to its customers, including the recently approved Wegovy pill. Previously, it had been selling compounded versions of these drugs, which the Food and Drug Administration (FDA) has not approved. The FDA has been paying more attention to these compounded drugs of late, and a crackdown could have jeopardized a big growth opportunity for Hims & Hers Health, given the growing demand for GLP-1 drugs. Thus, by now being able to sell FDA-approved GLP-1 drugs, the telehealth company puts itself in a much better position moving forward.

Meanwhile, on the other side, Novo Nordisk has been struggling to grow its sales. It has slashed its guidance for the year ahead due to competition. Not only has it had to worry about Eli Lilly's GLP-1 treatments, which are taking significant market share, but also from patients turning to compounded versions of its drugs, in an effort to save money. Reaching this agreement with Hims & Hers Health could improve Novo's growth rate for the year ahead.

Both stocks have been struggling this year, but Novo Nordisk is the safer option overall

Entering trading this week, shares of both Novo Nordisk and Hims & Hers Health are down more than 20%. The more volatile of the two, however, has been Hims & Hers Health, which at one point was down as much as 55%. It has spiked significantly as a result of this agreement, but this is arguably the riskier healthcare stock to own, as its margins are light, and it's a much smaller company, with its market cap being around just $6 billion.

Novo Nordisk, meanwhile, with a valuation of nearly $170 billion, is a much more established company with stronger financials. The big knock on the business these days is its slowing growth and uncertainty ahead. But overall, its business is still strong, and it makes for a fairly safer investment to hang on to.

David Jagielski, CPA has positions in Novo Nordisk. The Motley Fool has positions in and recommends Hims & Hers Health. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.