HIMS: "A Bridge Too Far"
Why we've decided to flip short on Hims and Hers Health (HIMS)
For those of you reading our work for the first time, or have read our work in the past regarding HIMS, here’s a fresh reminder of the disclaimers before you read on.
I, Paul Cerro, am very knowledgeable of the business HIMS is in because I previously worked for Ro (their competitor) before, during, and partially after COVID (2019 - beginning 2022).
I was a part of the strategy team that helped decide which conditions we launched next with weight loss and GLP-1s being one of them. Since then, I have had no relation to Ro, or know of their plans, strategy, goals, etc but as a former employee, I hold equity and have mentioned this in prior reports.
None of our work/thoughts/opinions should be taken as advice or an extension of anything to do with Ro.
Lastly, if you’re a student, you can get the student discount by clicking here.
Foreword
You can skip this part if you don’t want title context and go directly to “Background” (next section).
During WW2, the Allies were making great progress against the Axis powers by the end of summer in 1944. To speed up the advance, General Montgomery of the 21st British Army Group proposed to Eisenhower (supreme allied commander) a battle plan that would shock the German army in northern Europe. Believed to be made up of old men and kids, the Allies would secure key bridges in the Netherlands along the Rhine and wait for the British and American armored divisions to rendezvous with the Allied paratroopers and create a path to attack northern Germany.
This was called, “Operation Market Garden.”
This all seemed good on paper but there were flaws. The German army in the Netherlands was not made up of “old men and kids” and were in fact, well trained and well equipped.
Bogged down by intensive fighting, the Allied armor divisions could not punch through fast enough to regroup with the Allied paratroopers which had already secured the bridges and dug in to be reinforced.
Outgunned and outmanned, the paratroopers eventually surrendered to the German army, and the operation failed to meet its key objective of securing the Rhine crossing at Arnhem.
Out of the 41,000 paratroopers deployed, between 6,000 and 13,000 were killed or wounded (14% - 31%) and an unknown total were captured and the Allies didn’t successfully take the Rhine until 7 months later in April of 1945.
This was portrayed in the classic movie, “A Bridge Too Far” with Sean Connery.
The reason we bring this up is because this is what we believe is the case with HIMS. The company had great plans for its GLP-1 weight loss offering by capitalizing on the shortage and offering compounded versions to fill the void.
However, the company’s ambitions are too great and while they think they are prepared for what’s about to happen, their views on being able to continue compounding will end up becoming their bridge too far which will result in failed primary objectives and unnecessary losses for shareholders.
Below we’ll go into the background context and the case we’re making for why we’ve turned bearish short-term.
Background
As some of you may know, we extensively covered Hims and Hers Health (HIMS) in 2024 with 8 separate reports/mentions.
We won’t highlight all our research but you can find them using our table of contents here and our most recent earnings update below.
The short story is that we’re bullish on telehealth and the cash-pay model that aims to disrupt the current hellish American healthcare system. This has always been a no-brainer for us as a thematic investment.
However, along the way, as I’m sure you know, there has been quite a lot of volatility (both positive and negative) over the last six months. Headline moves in this stock can send it +/-10% in a single day which has made it a trader’s paradise.
We’ve sat through painful 40% drawdowns and reassured our paid investors via our research that the ship was still sound but don’t expect the waves to subside any time soon. This has benefitted us greatly as up until the FOMC meeting, the position in the portfolio was up >100% in ~7 months. We navigated the recent FDA decision and explained why we couldn’t sell when it blew past $30/share.
The problem we’ve been mulling over the last six months is when the shortage will end which will effectively curtail HIMS ability to sell compounded GLP-1s significantly. We’ve pounded the desk consistently since August when Andrew (CEO) said they’ll continue to sell compounded even after the shortage is over. 🚩
It’s a matter of ‘when’ not ‘if’ this happens and if the recent FDA decision on Tirzepatide highlights anything, it’s that the end is closer than we thought back in November.
We’ve thought long and hard about how to handle this risk going forward. In our Q4 letter, we highlighted that we were still long the shares but bought additional protection on the name. This net long exposure effectively would offset losses on the initial drop but would most certainly still lead to a negative unrealized loss for 2025 but keep intact our path to long-term capital gains tax basis.
As part of our investing journey, we’ve learned the hard way of prioritizing a tax strategy over realizing gains when presented and we’ve concluded that our initial strategy does not fit into how CGC risk management should be handled.
As of this morning, we’ve flipped from a net long position to shorting HIMS.
Below, we’ll explain our reasoning, the new developments with ad policy, and the scenarios that will affect the company's value, just as we have in the past.