Why Hims & Hers Stock Just Collapsed

Source The Motley Fool

Hims & Hers Health (NYSE: HIMS) stock took a tumble Thursday morning, falling 9.2% through 11:40 a.m. ET on some (vicariously) bad news out of the Great State of Texas.

The U.S. District Court for the Northern District of Texas just ruled in a lawsuit related to GLP-1 weight loss drugs, and the ruling has negative implications for Hims & Hers' business.

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All the Texas news that's fit to print

The story goes like this. Deep in the heart of Texas, the Outsourcing Facilities Association, or OFA, filed suit against the FDA, aiming to prevent the FDA from saying there's no longer a shortage of tirzepatide, the active ingredient in Eli Lilly's Zepbound weight loss drug -- much like semaglutide is the active ingredient in Novo Nordisk's Ozempic.

This shortage is the essential thing permitting drug compounders like OFA (and Hims & Hers Health, too) to make and sell their own GLP-1 drugs. Long story short, if there's a shortage, Hims & Hers (and OFA) can keep selling GLP-1 drugs that mimic Lilly's drug. But if the FDA says the shortage is over, they can't. And as we saw last month when the FDA declared an end to the shortage of semaglutide, declaring an end to the shortage of tirzepatide could further erode Hims & Hers' business.

Well, today, the District Court ruled that OFA can't force the FDA to not say the shortage is over. Which means the FDA can say the shortage is over.

What this means for Hims & Hers Health stock

Now, the Texas lawsuit is ongoing, but as of today, there's no injunction forbidding the FDA from saying the shortage of Zepbound is over, like it already called an end to the Ozempic shortage. So as things stand, there's a very real risk that the FDA will be allowed to call an end to all GLP-1 shortages. If that happens, Hims & Hers' future GLP-1 sales will suffer, and the stock is likely to take a big hit.

In fact, as we're seeing today, it already is.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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