Short Sellers Target Hims & Hers Amid Regulatory and Legal Challenges

Recent data reveals a significant buildup in bearish bets against Hims & Hers Health, Inc. well before a series of adverse developments began to pressure the company's stock. Institutional investors appear to have anticipated headwinds in the digital health firm's compounded GLP-1 medication business, positioning themselves for a potential decline.

According to a report citing Hazeltree data, hedge funds substantially increased their short positions in January. During that period, approximately 65% of the shares available for trading were reportedly on loan to facilitate short selling. This figure, noted as the highest level in at least a year, indicates that major investors harbored serious doubts about the sustainability of growth in the market for compounded GLP-1 offerings even before recent events unfolded.

The Catalysts: Regulatory Scrutiny and a Key Product Discontinuation

The pressure on the equity intensified shortly after this buildup. A central development was the company's decision to discontinue its compounded semaglutide pill, which had been marketed as a lower-cost alternative to branded weight-loss drugs.

This move coincided with a stricter stance from the U.S. Food and Drug Administration (FDA) regarding unapproved copycat versions of weight-management medications. The agency promised "decisive steps" against such products, creating a regulatory environment that significantly clouds the outlook for the compounded GLP-1 segment.

Should investors sell immediately? Or is it worth buying Hims & Hers?

Legal Action Adds a New Layer of Risk

Compounding these regulatory challenges is fresh legal uncertainty. Novo Nordisk has filed a patent infringement lawsuit against the company. The pharmaceutical giant alleges that certain offerings violate patents related to its blockbuster drugs Wegovy and Ozempic.

From the market's perspective, this legal action meaningfully alters the risk profile. Beyond existing regulatory pressures, the company now faces potential litigation risks, including the possibility of restrictions on its related product offerings.

All Eyes on the Forthcoming Earnings Report

Market participants are now focused on the upcoming fourth-quarter financial report. This release is expected to provide crucial details on the financial impact of the recent strategic shifts. Furthermore, analysts will be listening closely for management's plan to navigate the business through a suddenly more complex and challenging regulatory landscape.