Summary of Key Points
In the second quarter of 2026, the US pharmaceutical e-commerce company Hims&Hers (HIMS) saw a 38% increase in revenue, as well as growth in both user numbers and average revenue per user (ARPU). However, the company incurred a net loss of $178 million (approximately 1.2 billion RMB) for the half-year. The reason for this is that the transition from its "lightweight" business model to the more complex healthcare industry encountered several significant challenges: soaring costs, declining gross margins, compliance fines, and increased financial burdens. Essentially, the growth logic of the internet industry collided with the strict constraints of the healthcare sector, including regulatory requirements, supply chain complexities, and capital needs.
1. Switching to Brand-Name Drugs Led to Increased Costs
HIMS previously generated profits by selling self-developed GLP-1 weight loss drugs, which were low in cost and high in gross margin. In March 2026, the company decided to shift to selling brand-name, original research drugs (such as Novo Nordisk's Wegovy). This change resulted in significant cost increases:
- One-time inventory losses: Unsold stocks of the self-developed drugs were destroyed, costing $28.46 million.
- Doubling of procurement prices: Brand-name drugs are much more expensive than the self-developed ones, leading to a sharp rise in purchase costs.
- Frequent deliveries: To retain customers, HIMS introduced a subscription-based system, which increased delivery frequency from quarterly to monthly, significantly boosting logistics and packaging expenses.
As a result, while revenue grew by 38%, main business costs rose by 112% ($272 million), with the cost increase being three times that of revenue.
2. Declining Gross Margins and Higher Customer Acquisition Costs
HIMS's gross margin once reached 76% (retaining 76% of profits for every $100 earned), but it has now dropped to 64%, a decrease of 12 percentage points. Moreover, customer acquisition costs have increased:
- The company spent $420 million on marketing and advertising (digital ads, social media platforms, etc.) in the first half of the year, an increase of $32 million compared to last year.
With lower gross margins, it is harder to cover these costs. For example, what used to take half a year to recover from customer acquisition expenses now may take a whole year, increasing the pressure to generate revenue.
3. Compliance Issues and Financial Losses
HIMS's previous lightweight business model concealed several compliance issues, which erupted in 2026:
- Difficulties with cancellations: The US FTC accused the company of deliberately making it difficult for customers to cancel subscriptions, resulting in a provision for a $62.5 million fine.
- Issues with self-developed drugs: The FDA warned that HIMS' GLP-1 products were unapproved, and the Department of Justice even initiated a criminal investigation (potentially involving fraud).
- Chain reactions: This led to consumer class actions and SEC investigations, pushing compliance costs from the background to the forefront and eroding profits.
These are challenges unique to the healthcare industry that internet companies rarely face. Violating regulatory requirements in healthcare can result in substantial financial losses.
4. Expanding with Heavy Asset Acquisition
To maintain growth, HIMS has adopted a more capital-intensive strategy:
- Overseas acquisitions: It spent $960 million to acquire the Australian healthcare platform Eucalyptus, turning its operating cash surplus of $360 million into a deficit of nearly $100 million.
- Rapid debt accumulation: The company issued $1.4 billion in convertible bonds with zero interest but requiring repayment of principal upon maturity. It also negotiated with JPMorgan Chase to sell its accounts receivable for cash at a discount.
- Heavy asset investments: HIMS has acquired companies specializing in testing technologies and active pharmaceutical ingredients, which not only require significant investment but also comply with strict regulatory requirements (such as FDA's GMP standards). Any misstep could lead to regulatory issues.
From a lightweight e-commerce company, HIMS has transformed into a healthcare firm with substantial debt and regulatory obligations, requiring continuous funding.
5. Lessons for Chinese Digital Health Companies
HIMS' story highlights the misconception that the healthcare industry can be solely driven by internet models based on "traffic and subscriptions." The healthcare sector faces three major constraints:
1. High supply chain costs: Original research drugs, logistics, and inventory require substantial investment, unlike the low-cost scalability of the internet.
2. Strict compliance requirements: Pharmaceuticals, data, and cancellation policies are subject to strict regulations, with violations resulting in fines or business closures.
3. Heavy capital needs: Controlling the supply chain (e.g., active pharmaceutical ingredients and testing) requires significant capital investment, which is faster-consuming than in other industries.
Many Chinese companies are exploring "AI + healthcare" approaches, but AI can only reduce some costs (e.g., improving consultation efficiency). Compliance, supply chain management, and capital requirements cannot be ignored. To achieve long-term profitability, companies must carefully consider the additional expenses associated with these factors.
Conclusion: Growth is just the starting point; the real challenge is to sustain profitability in the face of the healthcare industry's unique constraints. HIMS' losses serve as a reminder that any company aiming to transform healthcare through digital technology must be prepared to address these challenges.