In early 2020, people around the world experienced a life-changing event as the COVID-19 pandemic struck.
One of the biggest byproducts of that crisis was a near-overnight shift from the office to work from home. This dynamic followed social-distancing protocols issued by the Centers for Disease Control and Prevention (CDC). With many in the general population adopting this new way of working, it wasn't long before other aspects of everyday life followed suit.
Naturally, the means by which people sought patient care changed dramatically, too. The healthcare industry experienced a sharp rise in demand for telemedicine services -- and one company in particular got an unparalleled boost: Teladoc Health.
Shares of Teladoc soared from roughly $80 at the beginning of 2020 to as high as $294 in 2021. But as vaccines from Moderna, Pfizer, Johnson & Johnson, and other pharmaceutical companies earned approval from the Food and Drug Administration and became widely available, and lockdowns ended, Teladoc's business model lost its mojo. Today, its shares trade for just $7.20 -- 74% below their initial public offering price, and down 97% from their all-time high.
As is often the case with investing (and in life), a new player has entered the telemedicine arena: Hims & Hers Health(NYSE: HIMS). Could Hims & Hers Health be a lucrative investment for the long haul, or is the company destined to end up in the same position as its pandemic darling peer?
The rise of Hims & Hers Health
Founded in 2017, Hims & Hers originally specialized in selling over-the-counter medications and personal care products through its online platform as well as brick-and-mortar retailers such as Target. It began trading on the New York Stock Exchange in 2021 after going public via a reverse merger with a special purpose acquisition company (SPAC).
You may be wondering how Hims & Hers differentiates itself from other online pharmacies. After all, the healthcare industry is intensely competitive, and Hims & Hers is much smaller than other publicly traded healthcare providers.
However, there are some pockets of the healthcare market that are ripe for disruption. In particular, mental health services and prescription weight loss medications are not easily accessible to everyone who needs them. Sometimes this can be due to a lack of coverage in a patient's health insurance plan, leaving a person with hefty out-of-pocket expenses.
Hims & Hers identified this opening and during the past few years has ventured into areas such as behavioral health and weight loss. On the surface, this might look like a strategy that Teladoc never took -- giving the impression that Hims & Hers is about to revolutionize patient care. Before reaching such a bullish conclusion, let's take a look at the company's strategic roadmap.
Image Source: Getty Images
To buy the dip, or not to buy the dip?
So far in 2024, Hims & Hers shares have gained 63%, absolutely trouncing the S&P 500. However, more recent price action could suggest something is afoot. Since mid-June, the shares have declined about 40%.
I do not find it coincidental that this sell-off reflects the company's entrance into weight loss. To be specific, Hims & Hers is offering alternatives to popular diabetes and obesity care medications developed by big pharma -- namely in the form of compounded semaglutide (the main ingredient in Novo Nordisk's Ozempic and Wegovy).
At the time of the company's second-quarter earnings report, management materially increased its 2024 revenue and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) projections -- suggesting strong demand for its services. While this may inspire confidence, I question whether the company's entrances into weight loss and other hot areas of healthcare are going to serve as drivers of sustained growth or merely provide a short-lived jolt to the business.
Considering that Eli Lillyjust slashed prices for its blockbuster obesity care drug, Zepbound, I'm hesitant to believe that Hims & Hers will be successful in luring diabetes and chronic weight management patients away from big pharma and converting them into recurring customers on its platform.
To me, the jury is out on whether Hims & Hers can keep up its current momentum and compete with big pharma. For that reason, I can't help but see a parallel between Teladoc and Hims & Hers.
Ultimately, I think the company's strategy of identifying emerging areas in healthcare that may not be accessible to all patients and offering lower-cost solutions in the hopes of building a substantial user base is a lofty ambition with dubious prospects. At the end of the day, I think Hims & Hers will become something akin to Teladoc, and I do not see the company's recent sell-off as an opportunity to buy the dip.
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Adam Spatacco has positions in Eli Lilly and Novo Nordisk. The Motley Fool has positions in and recommends Pfizer, Target, and Teladoc Health. The Motley Fool recommends Johnson & Johnson, Moderna, and Novo Nordisk. The Motley Fool has a disclosure policy.
