🚨 SPECIAL REPORT: GLP-1s and the FDA Personalized Compounding Exemption
Why Hims is on solid legal ground to continue selling GLP-1s even after the shortage is over
This report is about why Hims is on solid legal ground to continue selling GLP-1s — even after the semaglutide shortage ends. I decided to make it free because I think it’s important. If you enjoyed it, please consider upgrading to a paid subscription.
Summary
Hims expects $2.3-2.4 billion in revenue for 2025, with $725 million from weight loss
The decision to continue compounding semaglutide (GLP-1s) is controversial given the FDA has declared the shortage over
Hims is likely operating within the law and should be able to defend itself against potential FDA actions and third-party litigation
On February 24, 2025, Hims & Hers Health, Inc. (HIMS) provided guidance during its latest earnings release and call (2024-Q4) that indicate it expects $2.3-2.4 billion in revenue in calendar year 2025. This full-year guidance includes $725 million in expected revenue from its weight loss specialty, some of which is likely to come from personalized compounding of GLP-1 drugs, including semaglutide.
The decision by Hims and (reportedly) other telehealth companies to do substantial compounding of GLP-1 drugs after the semaglutide shortage has ended is controversial. Several analysts have suggested that this decision may draw adverse legal and/or enforcement actions from the FDA and Novo Nordisk, manufacturer of the brand name semaglutide drugs Ozempic and Wegovy.
This analysis reviews existing federal law, regulations, and guidance to assess the risks associated with this decision. It concludes that while there is risk, on balance it appears that Hims is operating within the law and it will be in a strong position to defend its decision against potential FDA enforcement actions and third-party litigation.
Disclaimer: This analysis is based on the author’s best understanding of existing federal law and related regulations and guidance at the time it was written. Although I am a lobbyist on HHS issues, including Medicaid and other health-related issues, I do not work professionally on FDA issues and I am not an attorney. This analysis may contain errors and is subject to possible corrections and updates.
This analysis is for informational purposes only and does not constitute legal, tax, investment, financial, or other advice. I am not a qualified licensed investment advisor. As always, do your own due diligence and check multiple sources of information before making any investment decisions. At the time this analysis was written, I held a long position in HIMS.
Background
Hims’ 2025 revenue guidance has raised concerns that it’s become over-reliant on compounded semaglutide
Critics question the sustainability of this business model now that the FDA has ended the semaglutide shortage
On February 24, Hims & Hers management released aggressive full year guidance for 2025 that assumed $2.3-2.4 billion in revenue, an increase of nearly 60 percent compared to the prior year.
Although the company’s 2025 guidance was quite strong, some analysts have questioned whether it relies too heavily upon sales of compounded GLP-1s, especially after the FDA declared the semaglutide shortage over on February 21. These sentiments were echoed in a March 6 story in Barron’s.
Now that the products are on their way out, Hims & Hers faces a dilemma—justifying a stock price that soared on the massive opportunity in weight loss. Shares peaked near $73 in February. Today, Hims stock is trading around $41, with a market value of roughly $9 billion.
Before the company’s pivot to weight loss, shares of Hims traded around $15, for a market value of $3.1 billion. Without the ability to sell compounded semaglutide in bulk, those $6 billion in market value gains are at risk, as the company is forced to look elsewhere for growth, including older weight-loss treatments.
It is worth noting the relatively small role that personalized semaglutide would play in its 2025 revenue projections. As Hims’ CFO Yemi Okupe stated during the February 24 earnings call:
[W]e see our steady state weight loss offering being primarily composed of our evolving oral based solutions as well as liraglutide later this year. Personalized semaglutide dosages will supplement these core offerings for the subset of consumers for whom it is a clinical necessity. (emphasis added)
It is also worth noting that the decision is unlikely to have been made without substantial legal review. The company employs a chief legal officer with decades of healthcare law experience, both at Google and at a private firm where she represented digital health companies, hospitals, health systems and other healthcare and life sciences companies. She heads a team of in-house lawyers who cover a wide range of corporate and regulatory issues.
Nevertheless, while the financial contribution of personalized semaglutide may be relatively small and the decision was undoubtedly heavily reviewed by the Hims legal team, it has nevertheless drawn questions from critics and (reportedly) short sellers who believe that Hims is opening itself up to substantial legal jeopardy. The remainder of this analysis will review the law and risks related to this decision.
The Personalized Compounding Exemption
Federal law allows compounding for individual patients when a prescriber determines it's necessary
While FDA guidance is more restrictive than the law, it still provides a path for personalized GLP-1 dosages
Hims appears to be following the legal framework by offering semaglutide doses different from commercial options
The principal legal basis for personalized compounding of GLP-1 drugs can be found in the Food, Drug, and Cosmetics Act (FDCA), specifically in 21 U.S. Code § 353a, which covers the basic legal requirements of 503A compounding facilities. Hims has two 503A compounding facilities, one in Arizona and another in Ohio.
Language authorizing personalized compounding in these facilities can be found in the following parts of the law.
21 U.S. Code § 353a (a): This section of the law authorizes drug products “compounded for an identified individual patient based on the receipt of a valid prescription order or a notation, approved by the prescribing practitioner, on the prescription order that a compounded product is necessary for the identified patient.”
21 U.S. Code § 353a (b)(2): This section of the law exempts personalized compounded drugs from limitations on compounding “regularly or in inordinate amounts” for “drug products that are essentially copies of a commercially available drug product.” It does so by excluding “a drug product in which there is a change, made for an identified individual patient, which produces for that patient a significant difference, as determined by the prescribing practitioner, between the compounded drug and the comparable commercially available drug product.” [Other limitations on inordinate compounding are discussed below.]
FDA guidance, which is not legally binding, is more restrictive in its language, limiting such prescriptions to “individual patients whose medical needs cannot be met by commercially available drug products.” (emphasis added)
This non-binding guidance goes on to give examples that suggest that such compounding should only be used in seemingly rare cases such as “a patient who has an allergy and needs a medication to be made without a certain dye, an elderly patient who cannot swallow a pill and needs a medicine in a liquid form that is not otherwise available, or a child who needs a drug in a strength that is lower than that of the commercially available product.”
Combined, the non-binding guidance appears to establish a higher threshold than the underlying law upon which it is based, which clearly defers to the prescribing practitioner’s judgment and only requires that the practitioner believe the compounded drug is “necessary” and produces “a significant difference” for the identified patient.
Despite being generally more restrictive than the underlying law, the guidance seems to provide Hims with a certain degree of safe harbor with respect to GLP-1s and personalized dosing. The guidance specifically excludes drugs that do not use the same, similar, or an easily substitutable dosage strength from the definition of a commercially available drug. It further defines a “similar” dosage as one that is within 10% of the dosage strength of the commercially available drug.
Wegovy, Novo Nordisk’s brand name weight loss version of semaglutide, is currently manufactured in the following five doses.
Wegovy, Injection, 0.25 mg/0.5 mL
Wegovy, Injection, 0.5 mg/0.5 mL
Wegovy, Injection, 1 mg/0.5 mL
Wegovy, Injection, 1.7 mg/0.75 mL
Wegovy, Injection, 2.4 mg/0.75 mL
These commercially available doses, even with the +/- 10% dosage window, leave significant gaps that personalized compounding can fill. For now, it appears that this is the primary basis of the Hims GLP-1 personalization strategy. More specifically, it seems to be a combination of:
documenting the medical needs of patients (probably through intake forms) who are experiencing or have experienced nausea, vomiting, or other drug tolerance-related issues associated with GLP-1s (which are discussed in this Hims paper), and
providing personalized compounded semaglutide in doses outside the 10% threshold to address those documented medical needs.
Based on this analysis, the Hims personalization GLP-1 strategy appears to be clearly operating within the existing legal framework, even under the more restrictive (but not legally binding) FDA guidance.
Restrictions on Compounding “Inordinate” and “Regular” Amounts
Critics claim personalized compounding shouldn't allow mass production, but the law actually exempts personalized drugs from the "inordinate amounts" restriction
The FDA's agreements with states to limit "inordinate" compounding have not been finalized
Even if new limits are established, they wouldn't take effect for at least a year
Some critics argue that while personalized compounding may be allowable, it is only intended for relatively unique patient situations such as those described in the guidance. They argue that Congress did not intend to create a loophole that allowed mass compounding of commercial drugs. Whatever Congress’s intention, however, such assertions with respect to personalized compounded drugs are not supported by the law or related FDA guidance.
Current law governing 503A pharmacies (21 U.S. Code § 353a) addresses “regular” and/or “inordinate” compounding in two places. The first (in § 353a(b)(1)(D)) limits such compounding to a licensed pharmacist or licensed physician that “does not compound regularly or in inordinate amounts (as defined by the Secretary) any drug products that are essentially copies of a commercially available drug product.”
This limit is essentially voided for personalized compounding, however, in the very next paragraph of the law:
For purposes of paragraph (1)(D), the term “essentially a copy of a commercially available drug product” does not include a drug product in which there is a change, made for an identified individual patient, which produces for that patient a significant difference, as determined by the prescribing practitioner, between the compounded drug and the comparable commercially available drug product. (§ 353a(b)(2))
The related guidance, which extensively covers “inordinate” and “regular” compounding (on pp. 9-11) clearly states this as well. "It is important to note that the regularly or in inordinate amounts provision is not implicated if the compounded drug is not essentially a copy of a commercially available drug product.” (p. 10)
“[A] compounded drug product is not essentially a copy of a commercially available drug product if a prescriber has determined that the compounded drug has a change that produces a significant difference for a patient." (p. 11)
The second mention in the law (§ 353a(b)(3)(B)) limits “inordinate” compounding through memoranda of understanding (MOUs) negotiated between the FDA and the states. The FDA has yet to finalize its standard MOU, however. The latest draft MOU was published in 2020, but it was subsequently blocked by a federal court. The FDA has indicated it will not enforce these legislative limits until after a new version of the MOU has been published in the Federal Register.
It is unclear when that will happen, but even if it were soon, it would not pose much of an obstacle. The latest draft from 2020 did not set numerical limits on “inordinate” compounding, it only established “a threshold for triggering information gathering.” (p. 68079) Even then, it would not become effective until a year after it was finalized.
Third-Party Lawsuits Based on FDA Laws and Guidance
Novo Nordisk cannot directly sue Hims for FDA violations; only the FDA has enforcement authority
Novo could potentially sue the FDA, but not Hims, for failure to enforce the law
Novo Nordisk has used aggressive legal tactics to defend its patents (discussed more below), but it would not be able to sue Hims directly for perceived violations of the Food, Drug, and Cosmetics Act.
The reason, as specified in 21 U.S.C. § 337(a), is that the FDCA includes no private right of action. Apart from a few limited exceptions for state enforcement, the FDA has exclusive enforcement authority with respect to the FDCA’s provisions.
If Novo Nordisk sued Hims to compel compliance, the case would be thrown out on these grounds. The FDA’s exclusive enforcement authority has been upheld repeatedly by the courts.
However, Novo could sue the FDA if it did not believe it was using its enforcement authority in a manner consistent with the law.
Intellectual Property Issues
Novo could potentially sue Hims for patent infringement, but these cases are risky for both sides
Some legal experts believe compounding pharmacies are exempt from patent infringement claims
A Novo lawsuit against Hims for patent infringement could backfire by exposing its semaglutide patents to the risk of invalidation
Any potential Novo patent litigation against Hims is highly likely to be settled out of court
Some analysts have reportedly begun to question whether Hims may be vulnerable to being sued on intellectual property grounds, where a court finding of willful disregard of patent protections could potentially result in up to treble damages. (35 U.S.C. § 284) Unlike lawsuits based on FDCA violations, Novo could sue Hims based on patent infringement claims. This possibility is reportedly a major reason why some short sellers are continuing to hold a large short position in Hims. If so, it is hardly a slam dunk.
There are three basic forms of intellectual property that are relevant here — patents, trademarks, and trade secrets. Trade secrets are not something Hims would have access to. It is not apparent that Hims has abused the trademarks of Novo Nordisk or any other company (although other companies besides Hims may have crossed those lines). So for the purposes of this analysis, we will focus on patent rights.
Let’s begin with the possibility of enhanced (up to treble) damages for willful misconduct. Although the Supreme Court recently loosened the requirements for enhanced penalties for egregious patent violations (in Halo Electronics, Inc. v. Pulse Electronics, Inc.), such punitive damages still generally require a showing of bad faith.
As Chief Justice John Roberts wrote in the Halo decision, "Awards of enhanced damages under the Patent Act over the past 180 years establish that they are not to be meted out in a typical infringement case, but are instead designed as a “punitive” or “vindictive” sanction for egregious infringement behavior.”
An analysis of lower court decisions after the Halo decision found that “Although not required, district courts commonly consider the factors the Federal Circuit laid out in Read Corp. v. Portec, Inc. to determine when an infringer’s misconduct merits the enhancement of damages.” The factors include "[W]hether the infringer, when he knew of the other’s patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed." This is a step that Hims has almost certainly taken, either through its internal legal team or outside legal counsel.
In fact, at least one law firm that specializes in healthcare and pharmacy law cases believes that the FDCA “preempts 503A compounding patent infringement claims.” This conclusion, which was reiterated in a February 2025 webinar, is based on the fact that compounding 503A pharmacies are specifically exempted from the only section of FDCA that deals with patents (21 U.S. Code § 355), thus implying congressional intent that FDCA-compliant compounders are exempt from patent law and that FDCA enforcement is the exclusive purview of the FDA, per 21 U.S.C. § 337(a) (as described above).
A separate recent (2024) law review article that examined recent court cases also found that:
There have been “no examples of patent infringement lawsuits brought by drug manufacturers against compounding pharmacies that have reached trial or substantive judgments by courts.”
“Most litigation against pharmacies compounding semaglutide during the shortage has focused on trademark law and unfair competition,” the latter of which has included “claims for deceptive business practices under state law and for false advertising under the Lanham Act (15 U.S.C. § 1125(a)).”
“So far, these lawsuits have largely been dismissed, with courts holding that there is no private right of action to enforce the FDCA.”
However, this law review article draws different conclusions about the likelihood of success of a patent infringement claim. According to the author, “Unfortunately, the FDA has no jurisdiction over patent law and no power to immunize compounding pharmacies from liability for patent infringement—the Patent Act grants patentees a private right to enforce their patents and a remedy for infringement.”
In short, the likelihood of success for a patent infringement case appears to be in dispute, especially given that this is a largely untested line of attack that pharmaceutical companies have not traditionally taken against compounders thus far.
Novo’s uncharacteristic reticence on this legal strategy casts light on its potential drawbacks. Critically, one of the likely reasons for this hesitation is the potential risks that such cases pose to the pharmaceutical companies themselves. If Novo were to lose such a case based on a judgment of patent invalidity, it could potentially lose its exclusive rights to semaglutide, meaning that others (not just Hims) would be free to use, make, and sell it without infringing. Such an outcome would be a disaster for Novo Nordisk.
According to Gautham Bodepudi, an IP expert with more than two decades of experience with patents and patent-related litigation, a corporation defending itself against such lawsuits “has 17 validity defenses to invalidate your patent, two enforceability defenses to render it unenforceable, four damages defenses to prevent you from recovering the money you want and four infringement defenses to be excused for infringing. If you drop the ball on any one of the 27 defenses, then you lose and the defendant wins.” Based on patent litigation studies by Price Waterhouse Coopers (PwC) and others, he estimated the chance of winning at every stage of patent litigation -- including pretrial motions, trial, and appeal – at just 9-14 percent.
Furthermore, there is good reason to think that Novo Nordisk’s patents on semaglutide may be vulnerable. Last year, the Federal Trade Commission (FTC) challenged what it called "junk patent listings" by several pharmaceutical companies, including Novo Nordisk for its patent listing for Ozempic, Saxenda, and Victoza. "We have availed ourselves of the FDA’s regulatory process and submitted patent listing dispute communications to the FDA regarding the listings," the FTC wrote in an April 30, 2024 letter to Novo Nordisk’s general counsel.
In 2023, the U.S. Patent and Trademark Office (USPTO) agreed to review the validity of a Novo Nordisk patent on Ozempic and Wegovy at the request of generic drug maker Mylan Pharmaceuticals. The USPTO's Patent Trial and Appeal Board subsequently said that Mylan had shown a “reasonable likelihood that it would prevail" on a Novo patent covering dosage regimes for the drugs. As is usually the case, the dispute was ultimately settled. Although details of the settlement are confidential, they reportedly gave Mylan significant advantages in the race to develop generic versions of semaglutide.
While Novo Nordisk is a large company with substantial financial and legal resources, Hims is as well. If Novo Nordisk chose to target Hims, it would do so knowing that Hims would use every legal avenue available to defend itself, including challenging Novo Nordisk’s patents.
Many current short sellers may be banking on a coming Novo patent infringement lawsuit once the current FDA deadline for non-enforcement ends on April 22. Given that this would be a risky strategy, not just for Hims but also for Novo Nordisk, it is not clear that such a lawsuit will actually happen.
Even if it did, any subsequent drop in Hims stock price may prove short-lived. Patent infringement lawsuits typically take 3-5 years to be completed and the vast majority (95-97%) result in a private settlement where the details are not disclosed due to confidentiality clauses. Novo Nordisk’s patent disputes with generic drug makers (Viatris, its subsidiary Mylan, and Natco Pharma) ended this way in 2024. If such a lawsuit did happen, both Hims and Novo Nordisk would have every incentive to quietly settle the case in exactly the same way.
Conclusion
Concerns about Hims' GLP-1 strategy appear largely overblown
The company is likely operating within legal boundaries and has a strong legal team
Even if Novo sued for patent infringement, the most likely outcome would be a settlement with minimal negative impact
In sum, it appears that concerns over the decision by Hims to continue to compound personalized versions of GLP-1 weight loss drugs past the enforcement deadlines set by the FDA are misplaced.
As stated during its February 24 earnings conference call, personalized compounded GLP-1s will only supplement the company’s “steady state” weight loss offering. The decision was undoubtedly heavily reviewed by the Hims in-house legal team and the company appears to be operating within the legal boundaries set by the Food, Drug, and Cosmetic Act, including related FDA guidance.
While it is possible that Novo Nordisk may sue Hims based on alleged patent infringement after the April 22 FDA enforcement deadline for 503A compounding facilities, this would be a risky decision that could backfire on Novo. If history is any guide, including the results of similar litigation brought by Novo against generic drug manufacturers, such litigation will most likely end in a settlement, with minimal if any negative consequences for Hims.
Related Resources
FDA Web Pages
U.S. Department of Health and Human Services, Food and Drug Administration, Human Drug Compounding, updated 12/18/2024.
U.S. Department of Health and Human Services, Food and Drug Administration, Compounding and the FDA: Questions and Answers, updated 11/15/2024.
FDA Guidance
U.S. Department of Health and Human Services, Food and Drug Administration, Pharmacy Compounding of Human Drug Products Under Section 503A of the Federal Food, Drug, and Cosmetic Act, June 2016, Revision 2.
U.S. Department of Health and Human Services, Food and Drug Administration, Compounded Drug Products That Are Essentially Copies of a Commercially Available Drug Product Under Section 503A of the Federal Food, Drug, and Cosmetic Act, January 2018.
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