Hims & Hers: How Compounding Could Rewrite the Rules of Healthcare

The "Not Dying as a Service" Business Model Explained

Hims & Hers (HIMS) isn't just another telemedicine company peddling generic Viagra through a slick app. Beneath the millennial-friendly branding lies a far more ambitious bet: that compounding—the centuries-old practice of custom-mixing medications—can be industrialized, weaponized, and scaled into a moat that traditional pharmacies and big pharma can't easily replicate.

This isn't about convenience. It's about fundamentally changing what a "pharmacy" does—from dispensing standardized pills to manufacturing personalized treatments. If HIMS succeeds, they become the Netflix of healthcare: a subscription service where the product is a continuously optimized protocol to keep you alive, rather than just a digital storefront for someone else's drugs.

Here's how their compounding strategy works, why it matters, and where it could all go wrong.

The Secret Sauce: What Is Compounding?

Traditionally, pharmacies have been middlemen. You get a prescription, they count out pills manufactured by Pfizer or Teva in fixed doses (10mg, 20mg), slap a label on the bottle, and hand it over. Zero value creation. Pure distribution.

Compounding flips this model. It's the process of mixing, combining, or altering drug ingredients to create medications tailored to individual patients. Instead of selling you separate pills for hair loss (Finasteride) and topical hair growth (Minoxidil), HIMS manufactures a single "Hybrid Chew"—a mint-flavored lozenge combining both active ingredients plus Biotin.

Why this matters:

• For the customer: One tasty mint instead of three pills. Less "pill fatigue," better adherence.

• For HIMS: They own the formulation. You can't get that specific mint at CVS or Amazon Pharmacy. This creates defensibility in an otherwise commoditized market.

The Strategic Pivot: Mass Personalization at Industrial Scale

HIMS is attempting to do for medicine what Spotify did for music—moving from "buying the album" (standardized drugs) to "curated playlists" (personalized blends).

This requires two critical pieces of infrastructure:

1. 503B Outsourcing Facilities

HIMS acquired MedisourceRx, a 503B outsourcing facility. Here's why that designation matters:

• A regular compounding pharmacy (503A) makes medications one patient at a time—literally mixing ingredients in the back room.

• A 503B facility is FDA-approved to manufacture in bulk, allowing HIMS to produce custom blends at industrial scale while still legally calling them "compounded."

This is the operational engine. It lets them manufacture thousands of personalized formulations without needing FDA approval for each one as a "new drug."

2. MedMatch AI

HIMS uses an AI system called MedMatch to analyze subscriber data and predict optimal formulations. If you're a 45-year-old male with high blood pressure and anxiety, MedMatch might recommend a hair loss spray with a lower dose of Minoxidil (to protect cardiovascular health) mixed with a calming agent—rather than the standard maximum-strength dose that could spike your heart rate.

Whether this is sophisticated machine learning or glorified decision trees remains an open question. But the principle is sound: use data to micro-dose and combine treatments in ways that improve outcomes and reduce side effects.

The Killer App: Compounded GLP-1s (Weight Loss Drugs)

This is where compounding transitions from "interesting business model" to "potential regulatory minefield with massive upside."

The Setup:

• Brand-name GLP-1 drugs like Ozempic and Wegovy (Semaglutide) cost $1,000+ per month and have been in chronic shortage.

• When a drug is on the FDA's "Shortage List," compounding pharmacies are legally allowed to manufacture copies of it.

HIMS' Move: They began mass-producing compounded Semaglutide for ~$199/month, democratizing access to obesity treatment for millions who couldn't afford or find the brand-name version.

This is the "Not Dying as a Service" thesis in its purest form. Obesity drives metabolic syndrome, diabetes, heart disease, and premature death. By making weight loss drugs affordable and accessible, HIMS positions itself as a longevity company, not just a men's wellness brand.

The Bull Case: A New Healthcare Paradigm

If executed successfully, compounding moves healthcare from reactive and standardized to proactive and personalized.

Precision Dosing

Standard healthcare is binary: take the 10mg pill or don't. Compounding enables micro-titration—starting at 2.5mg, ramping to 3.0mg, then 3.5mg—smoothing the curve and minimizing side effects. This is especially critical for drugs with narrow therapeutic windows.

Adherence Through Convenience

By combining heart meds, ED treatments, and vitamins into a single "Hard Mint," HIMS solves the adherence problem. Non-adherence kills more people than almost any disease. If your meds are annoying to take, you stop taking them. If they taste like mint and feel like a treat, you don't.

Bypassing the Middlemen

By manufacturing compounds in-house, HIMS cuts out Pharmacy Benefit Managers (PBMs) and insurance companies entirely. They sell directly to consumers at cash prices often lower than insurance copays plus deductibles. This disintermediates one of the most hated and inefficient layers of American healthcare.

The Bear Case: Regulatory Tightrope

The entire compounding thesis rests on regulatory arbitrage. And regulatory arbitrage has a bad habit of disappearing when regulators notice you're making too much money.

The "Shortage" Cliff

HIMS' ability to compound GLP-1s depends on the FDA declaring a shortage. If Eli Lilly or Novo Nordisk ramps up production and the shortage ends, HIMS may be legally required to stop selling compounded Semaglutide immediately. This is binary risk: one FDA announcement could vaporize a massive revenue stream overnight.

The "Mass Personalization" Paradox

Regulators could argue that manufacturing thousands of identical "personalized" formulations is just an end-run around FDA approval requirements. If a 503B facility is making the same blend for 10,000 people, is it really "compounded" or is it an unapproved new drug?

Safety Perception

Compounded drugs don't undergo the rigorous clinical trials required for FDA-approved medications. A single contamination event or adverse reaction scandal could destroy consumer trust and invite regulatory crackdown. In 2012, a compounding pharmacy's contaminated steroid injections killed 64 people and sparked a national crisis. The FDA has a long memory.

The Verdict: High Risk, High Reward

HIMS is attempting something genuinely novel: industrializing personalization. They're betting they can navigate the regulatory maze, build a defensible moat through proprietary formulations, and transform from a middleman (selling other people's drugs) to a manufacturer (selling their own optimized health solutions).

If they succeed, they become a fundamentally different kind of healthcare company—one that continuously iterates on your treatment protocol the way Spotify iterates on your playlists. If they fail, they're just another DTC brand that grew too fast and collapsed under regulatory scrutiny.

The compounding strategy is the difference between those two outcomes. It's why HIMS deserves attention beyond the memes and TikTok ads. This is a serious attempt to change how medicine works.

The question isn't whether compounding is a good idea. The question is whether HIMS can execute it before the regulators, the incumbents, or their own operational complexity catches up with them.

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About Axum Holdings: Axum Holdings is a proprietary research-driven investment firm focused on macroeconomics, market structure, and quantitative insights. Our mission is to simplify complex market narratives and deliver clear, data-backed analysis that empowers long-term decision making. We approach every topic—from Federal Reserve policy to emerging technological trends—with intellectual rigor and a commitment to cutting through noise.