The news: Hims & Hers reported a $92 million Q1 net loss, driven by a $33 million write-down related to its compounded GLP-1 business. This compares with a net income of $49.5 million a year earlier.

Digging into the details: In Q1, Hims began its pivot from offering compounded weight loss drugs to brand-name forms via its Novo Nordisk partnership. While Hims didn’t disclose exact financial details, this shift likely pressured margins: Hims’ compounded GLP-1s are sourced from owned or affiliated pharmacies, while brand-name drugs position the company as a distributor between manufacturers and patients—possibly yielding lower revenue and margins per prescription.

Why it matters: Despite consumer interest in lower-cost compounded GLP-1s, Hims is phasing out the business, which “now faces risk of obsolescence,” CFO Yemi Okupe said on the earnings call. Hims also said on its call that “almost all” new weight loss customers are now on branded products, with most former compounded product subscribers transitioning after the Novo tie-up. Hims will still offer copycat GLP-1s, but only to a limited subset of patients who meet specific clinical criteria.

Hims prudently chose a pharma partnership rather than continuing to prescribe compounded versions. This was likely driven by the desire to avoid a potential messy lawsuit from Novo and increased federal scrutiny of its compounded GLP-1 business. It’s a smart play, even as it pressures near-term margins and requires a transition period to refine its strategy for marketing and selling brand-name drugs.

Implications for telehealth companies and the weight loss drug market: There is a robust market of consumers willing to pay for weight loss drugs out of pocket. Despite margin pressures, Hims noted that it has shipped more than 125,000 Wegovy shots and pills in just six weeks, and that it’s projected to add 100,000 new weight loss subscribers per month.

At the same time, most telehealth players that have partnered with Novo or Lilly offer largely indistinguishable weight loss drug options. There’s no guarantee new subscribers will remain loyal or won’t cycle between providers. To sustain growth, online healthcare companies must deliver high-quality patient management for weight loss customers, while expanding into adjacent, high-demand prescription categories such as HRT, testosterone therapy, and—pending regulatory clarity—peptides.

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