Hims & Hers’ New Path For Growth Comes From The Heart

The trajectory of well-known health and wellness platform Hims & Hers is one that most entrepreneurs and investors would hope for. Not even six years old, the company has for the most part experienced hockey-stick customer and revenue growth since its inception by offering consumers telehealth-based access to care for historically stigmatized conditions like sexual health and hair loss. With its catchy advertising, relatable brand messaging and prolific marketing machine, hundreds of thousands of consumers were flocking to the marketplace platform by early 2020, eschewing the traditional ways that people access health services.

Then the pandemic happened, and the virtual care market exploded with startups and competitors quickly flooding onto the scene. While Hims & Hers wasn’t operating alone in its market before Covid-19, the venture dollars pouring into the sector meant that pathways to growth and differentiation for its core business would become more challenging. However, Hims & Hers forged on, responding by launching multiple new services lines in 2020 within months of each other, including primary care and mental health.

Despite the emerging competition from well-capitalized peers, the company continued to grow, ultimately riding the pandemic-fueled digital-health wave to a $1.6 billion IPO in January 2021 via a merger with a special purpose acquisition company (SPAC).

But then the brand encountered some brisk headwinds – both from difficulties of the digital-to-consumer (DTC) healthcare sector itself and from general investor hesitation around companies that took the SPAC route. The market became more crowded for all of its offerings, and the company’s customer acquisition costs continued to be high. By Q1 2022, Hims & Hers was still reporting solid revenue growth, but that growth was expensive, with marketing accounting for ~50% of its total revenue, which in part contributed to its share price dipping below $4. Hims & Hers wasn’t the only one taking a hit at the time, as pretty much every public digital health company (and the broader tech market) was experiencing a beating, but its stock did see a precipitous drop from its post-IPO high.

However, since those lows, Hims & Hers appears to be doing an about face while the broader market is still mired in recovery pains. Each quarterly earnings has bested expectations with the brand achieving EBITDA profitability in Q4 2022. The share price tripled from its lows for a time before settling just above double as of today. Now the company wants to turn another corner by touching an area it hasn’t before – preventive care – and more specifically preventive cardiovascular health.

It’s a timely move because some financial analysts have been calling for meaningful innovation from Hims & Hers. The company can’t expect the same approaches and competitive differentiators to keep driving quarterly subscriber growth that effectively doubles year on year while marketing costs continue to hover around 50% of revenue – even if it maintains its 70-80% gross margins. One can look to consumer entertainment powerhouse Netflix after its perpetual subscriber growth came to a screeching halt, even temporarily retreating.

While Hims & Hers has struck deals with retailers like Walgreens and Target for its growing set of over-the-counter products, subscriptions for access to clinical services, especially for men, still make up the overwhelming bulk of its revenue. Yes, there have been new prescription-based options recently launched, but they don’t seem to represent the dramatic TAM expansion opportunities that Wall Street always expects. So now the company aims to expand by introducing its new approach, Heart Health by Hims.

Getting to the “Heart” of the Matter

Starting with the larger brand of the two the company operates (Hims), Heart Health by Hims is the company’s first answer to one of the most devastating healthcare problems globally, cardiovascular disease (CVD). CVD is the leading killer of people across the globe and is both an incredibly complex problem and a massive market, notably in America. Peer-reviewed research suggests that the U.S. spends more than $300 billion, or 15% of total health expenditures, on managing and treating CVD.

Among men, one in every four deaths can be attributed to the disease, which is why Hims & Hers Co-founder and CEO Andrew Dudum feels his company should be well-positioned to have an impact.

“Cardiovascular disease may be one of our biggest opportunities yet,” said Dudum. “While everyone is trying to solve the problem, what’s most exciting to me is that we can leverage what we’ve been doing over the last six years to attack the issue in an interesting way. We already have tens of thousands of men coming to us every week for one of the more noticeable indicators of cardiovascular disease, which is erectile dysfunction.”

There are plenty of well-known risk factors and symptoms that suggest someone may have an elevated risk of developing CVD, but clinical studies have shown that erectile dysfunction (ED) can be an early indicator. As a result, given Hims’ existing large footprint in sexual health, the company is taking what it calls a “dual-action approach” where providers on the platform can “personalize” treatments that combine sexual health and heart health together. Using information from customer intake forms, Hims engages with ED patients who present with other CVD risk factors to educate them, while also informing their provider on the platform that they could be eligible for treatment.

If the provider determines that treatment is clinically appropriate after a consultation, the patient is prescribed a customized formulation of a treatment, which would include different dosages of ingredients found in common ED medications and statins in one tablet. The idea is that men who are interested in improving their sexual health learn about their CVD risk factors and gain access to a treatment that also has a heart health benefit. And since men on ED medications often have a greater desire to stay adherent, there is the potential to improve adherence to preventive statin therapy, which is notoriously poor. Research published in 2019 from the Journal of the American Heart Association concluded “persistence with and adherence to statin therapy remain low.”

“About 30% of the men that come to our platform are at risk of developing cardiovascular disease. Prevention is key, but those at risk may be asymptomatic for the most part. They look in the mirror and don’t see anything wrong,” said Dudum. “By leveraging our brand and the pipeline of men visiting us, we can proactively help them take preventive measures. There’s a real chance that we can bend the curve on deaths over the next five to 10 years.”

Heart in the Right Place

On its face, Heart Health by Hims represents an interesting approach that makes some business sense. Effectively the brand is taking what it’s good at and offering a value-add benefit that deepens relationships with its customers. Compare that to other digital health brands that often scramble to tack on new services that are not in their core expertise and require different staff and/or clinical protocols. They end up burning millions of dollars in the hopes their customers automatically parlay their interest in one thing to another.

However, Hims & Hers does have to confront some of those issues, even if it’s to a lesser extent. While the first Heart Health by Hims approach does involve sexual health, where hundreds of thousands of men clearly already trust the brand, convincing them to trust it with a heart health issue is not automatic.

In response, Dudum believes that the “thoughtful” and “systematic” way his company has expanded will translate into consumer trust for cardiovascular issues. He also said the company has been working towards this expansion for years by amping up its technology and pharmacy capabilities via the previous Apostrophe acquisition and through investments in “hard infrastructure” that includes affiliate pharmacies in Arizona and Ohio.

“This has been a part of the plan, and we’ve worked hard to demonstrate our clinical excellence and safety. From our incredible in-house medical team and advisory board to our external partners, we have clinical standards that are equal to or even better than traditional brick-and-mortar providers,” said Dudum. “Add in the experience our customers receive – with the speed at which they see providers, the quality of the treatment, the level of communication, and the medication adherence rates we’re seeing – and we feel we’ve earned that right to have their trust.”

One of the external partners Dudum is referring to is the American College of Cardiology (ACC), with which Hims & Hers also announced a strategic collaboration. The company reported that its own clinical protocols that guide the Heart Health by Hims approach were partly based on the ACC’s cardiovascular disease risk estimator. Additionally, the ACC will make its own materials available to the company’s customers as part of the formal agreement.

“We are furthering our mission to transform cardiovascular care and improve heart health for all by potentially reducing the risk of heart disease for an at-risk population. Making people aware of their cardiovascular risk and taking steps to prevent disease through diet, exercise, and medication can change the course of the next several decades for these individuals and their loved ones,” said Dr. Ami Bhatt, American College of Cardiology Chief Innovation Officer. “Engaging people in settings where they may discuss their conditions openly but discreetly will hopefully increase the number of people who make reducing their risk of heart disease a regular habit. “Through this collaboration, we’re reaching people with a known increased risk for cardiovascular disease and offering them guidance and education without waiting for them to make a separate appointment to see their doctor.

Hims & Hers also added a formal partnership with nationwide diagnostics provider Labcorp whereby Heart Health by Hims customers can schedule certain labs. Results from the testing could be incorporated into Hims’ EMR, which the company says helps inform provider judgment when and if they want to make any adjustments to treatment.

A Heart Hopefully Made of Gold

Hims & Hers hopes this new cardiovascular approach will build lasting relationships with customers and will be a competitive differentiator to fuel continued subscriber growth, especially since the cost for access to the combined treatments is only nominally higher than the existing ED support. However, Dudum expressed intent to bring a similar approach to other areas like hair loss, mental health and across the Hers brand. Until then, the combined ED and heart support approach will serve as a nice testing ground to evaluate how consumers respond.

While Hims & Hers doesn’t appear to be accepting insurance in the near future, its cash-pay prices generally rival – or are sometimes below – the out-of-pocket costs for consumers when they combine their copays for both a provider visit and a prescription. And customers know the cost of care upfront, which is more transparent than many parts of healthcare, despite valiant price transparency policy efforts.

On the other end, the company is looking to deepen its relationships with traditional providers. Hims & Hers previously has announced partnerships with some health systems, including Privia, ChristianaCare, and even one with another healthcare disruptor, primary care upstart Carbon Health. These co-referral relationships will be increasingly important as its heart health approach scales, because patients the brand can’t handle should have a place to go – especially for cardiology care.

The bottom line is Hims & Hers was bound to make the leap into some form of preventive care, and apparently did so on its own time rather than rush to launch something. It seems this might be a recurring theme for Dudum as the digital health universe expands. While other players have gone all in on the weight loss category with GLP-1s, he recently provided three reasons why his company wasn’t one of them … yet.

Regardless of the time it took to get here, the approach the company is taking with Heart Health by Hims is still rather bold and will have both a high ceiling and a lot of challenges. However, if the strategy ends up being successful, then the hearts of millions of Americans and its Wall Street investors will be at greater ease.