Hims & Hers (HIMS) is NOT a Generics Company – Here's Why

This article was originally posted on X as a thread on September 12, 2024.

One of the most common misconceptions about Hims & Hers is that it is just a "generics" company.

Let's break this down by exploring the key distinctions between compounded medications, generics, biosimilars, and where HIMS fits in.

Generic Medications

• A generic drug is a bioequivalent version of a brand-name drug, meaning it contains the same active ingredients, strength, dosage form, and administration route as the original, but it's marketed after the patent of the brand-name drug expires.

• Regulation: Heavily regulated by the FDA to ensure they meet the same standards of efficacy, safety, and quality as the branded versions.

Biosimilars

These are copycat versions of biologic drugs, which are made from living cells (like treatments for cancer or autoimmune diseases). Biosimilars are very similar to the original biologic drug but not identical because biologics are complex and made from living organisms.

• Difference from Generics: Generic drugs are exact copies of simpler, chemical-based drugs (like aspirin or ibuprofen). They’re identical to the brand-name drug in ingredients and effects, while biosimilars are just "close" because of how complicated the original biologic drugs are to make.

• Regulation: Biosimilars are strictly regulated by the FDA and must prove they are highly similar to an already approved biologic drug, with no meaningful differences in safety or effectiveness. They undergo extensive testing to confirm they match the original biologic's effects, even though they're not identical due to the complexity of biologics.

Compounded Medications

These are custom-made drugs, created by pharmacists based on a doctor's specific prescription. They’re made to fit a patient’s unique needs, like changing the dosage, removing allergens, or turning a pill into a cream (changing the way you take the medicine).

• Difference from Generics: Compounded medications aren’t mass-produced like generics. Each batch is made for an individual patient. Generics, on the other hand, are standardized copies of a brand-name drug.

• Difference from Biosimilars: Biosimilars are still factory-made and regulated, similar to generics, but compounding is more personalized and created on a smaller scale for individual use.

• Regulation: Compounded medications are regulated differently. They are made by licensed pharmacists based on specific patient prescriptions and are not subject to the same pre-market approval or testing as mass-produced drugs. The FDA oversees the practice to ensure safety and quality, but compounded drugs are more flexible and tailored to individual needs. This is why HIMS can develop new products and launch new treatments in a short period of time.

Where Does HIMS Fit In?

Hims & Hers fits into the space of compounded medications, which is why it's incorrect to label it as a "generics company".

The company provides customized treatments that involve compounded medications, meaning these medications are specifically made for an individual based on their unique needs. For instance, if a patient requires a particular blend of ingredients for hair loss, skincare, or any other condition the company offers, HIMS can create a compounded version that adjusts the dosage or format to suit the person better, such as turning a pill into a cream or vice-versa.

Furthermore, HIMS has the flexibility to create compounded medications that aren't available as generics, offering a level of personalization that a typical generics company does not. Their real value lies in providing personalized healthcare solutions that extend far beyond what a generics company typically offers.

It's worth noting that this personalization is aimed at improving the treatments' effectiveness and minimizing side effects.

While compounded medications have long existed in the U.S., Hims & Hers has found a way to distribute them like no one else, and being the first mover has been crucial for staying ahead of the competition. It also helps a lot to have a brilliant and aligned management team.

As of the last quarter, 42.1% of customers were using a personalized solution, up from 14.5% less than two years ago. This number is expected to exceed 80% in the short term. HIMS believes that this will significantly help improve retention rates, which is one of the most important areas to focus on.

Here's HIMS’ share of multi-30 day subscribers.

This is another key aspect in improving retention rates and is driven by the company’s pricing strategy, passing its gradual cost efficiencies to customers through more affordable long-term solutions.

Before ending this article, I would like to correct those who say HIMS provides medicines to everyone without regard for their safety.

For example, in the case of GLP-1s, the company's intake form is extensive. The process varies depending on the patient's home state but typically includes a list of up to 100 questions reviewed by a licensed provider and, in certain cases, a video call. I've seen a few people on Reddit complain that they couldn't join the program.

The company also offers educational resources and has a support team available seven days a week to help patients with correct dosage administration.

Andrew Dudum has already explained that every drug they sell must pass several third-party tests before being offered to customers. Safety is the number one priority because otherwise, the company could quickly cease to exist, as healthcare is a highly regulated space. Also, it is one of the key aspects that customers value.

In every category HIMS serves, a licensed provider is always involved in the treatment process for each customer.

Recent Acquisition

Hims & Hers has recently acquired a 503B compounding pharmacy to verticalize its supply chain and strengthen its infrastructure capabilities, further enhancing its competitive advantages over its peers.

Here's everything you need to know about it:

Like 503A compounding pharmacies, 503Bs can compound medications based on a prescription. However, they can also compound sterile medications in large amounts and sell them to outsourcing facilities, such as HIMS’ platform in this case.

How is it different from a traditional pharmacy?

Essentially, it has special equipment and certifications to make more complex medications, which is crucial for the personalization offered in Hims' solutions. Regular pharmacies, like those in the community or hospitals, can mix basic creams or liquid medicines but can't handle more complicated tasks. Also, specific federal and state laws control what compounding pharmacies can do, which are different from the rules for regular pharmacies.

How would Hims & Hers benefit from owning a 503B compounding pharmacy?

• First, it will help serve the strong demand for weight loss solutions, namely GLP-1s.

By providing personalized compounded GLP-1 solutions, the company believes it will still be able to sell these drugs even after the current shortage ends, without infringing any patents. Hims is taking weight loss very seriously, as it was the fastest segment ever to reach $100M in annual run rate.

• Second, it positions the company to launch new categories in the future.

This includes hormonal therapy or menopause treatments, which require sterile medications. These are significant markets that Hims has always wanted to enter — this acquisition may accelerate their launch.

• Third, it’s the first step in verticalizing this part of its supply chain, thus improving margins.

All in all, $HIMS is investing in its infrastructure to continue building its moat through affordable and personalized solutions, providing a frictionless experience for customers.

The company already has 1.9M subscribers and is still growing at an impressive rate. Andrew Dudum is preparing it to supply tens of millions of customers, as we are still in the early days of adoption in this industry.

That's it! Thanks for reading.

You might have doubts about HIMS’ business model or the company's ability to continue executing as they have. You might also question HIMS’ moat and believe that Amazon or another large company will overtake them. But Hims & Hers is not a generics company.