The Spac Phenomenon

Approximately five years ago, special purpose acquisition companies (Spacs) surged in popularity as a method for startups to go public. These entities enabled companies, often far from profitability, to merge with existing cash shells. Recent data from ListingTrack reveals that a staggering 92% of Spacs now trade below their initial public offering (IPO) prices, showcasing a significant downturn in this financial strategy.

A Bright Spot: Hims & Hers Health

Among the few success stories is Hims & Hers Health, a direct-to-consumer digital health platform. Initially focused on erectile dysfunction and hair-loss treatments, the company merged with a Spac associated with Oaktree Capital Management in 2021. Since then, Hims & Hers has seen its share price increase by five times, contrasting sharply with companies like Playboy, which has experienced nearly a 90% decline in value since a similar merger announcement.

Driving Factors of Success

The catalyst for Hims’ notable performance is attributed to its foray into weight-loss medications, specifically GLP-1 drugs. In May 2024, the company introduced compounded versions of semaglutide, the active ingredient in Novo Nordisk’s successful weight-loss injection, Wegovy, and the diabetes medication, Ozempic. The adoption of this alternative has spurred investor interest, significantly boosting the stock price.

Notably, the firm reported a remarkable 69% increase in revenue, reaching nearly $1.5 billion last year, alongside its first annual profit.

Regulatory Challenges Ahead

However, there are critical vulnerabilities within Hims’ business model. Compounded drugs are subject to regulatory restrictions and are typically approved only during shortages of branded drugs. This became a concern when, in February, the Food and Drug Administration announced that shortages of Wegovy and Ozempic had been resolved, leading to a decline in Hims’ stock price.

Future Prospects for Hims & Hers

Despite recent challenges, Hims has formed a partnership with Novo Nordisk to distribute Wegovy, projecting total group revenue to rise by 63%, forecasting between $2.3 billion and $2.4 billion for this fiscal year. Furthermore, the company has set an ambitious target of achieving at least $6.5 billion in revenue by 2030, anticipating average annual growth of approximately 22% from 2026 to 2030.

Strategies for Sustained Growth

To realize these goals, Hims must evolve beyond simply becoming a distributor of Wegovy. Competing telehealth platforms such as Ro and LifeMD are also securing agreements with Novo for distributing this drug. It remains uncertain whether Hims customers, who have become accustomed to lower-priced alternatives, will transition to pricier branded options.

The company may also consider diversifying its offerings by cross-selling complementary services, like skincare, to new clients, thereby leveraging its innovative strategies to enhance market position. Hims has demonstrated resilience, becoming one of the top performers amongst Spac entities, a rarity in the current landscape.