Andrew Dudum always thought he would take direct-to-consumer healthcare startup Hims & Hers public via a traditional IPO. Around 18 months ago, the cofounder and CEO of the San Francisco,California-based company began preparing for the inevitable investor presentations, roadshow, meetings with investment bankers, and everything else. But six months in, a new possibility popped up on his radar: a special purpose acquisition company or SPAC.
Using a SPAC to go public has become increasingly popular as these so-called blank check companies allow founders and investors to retain more control instead of leaving pricing at the mercy of bankers. “We ultimately felt that it was more advantageous,” says Dudum, whose company will begin trading on the New York Stock Exchange on Thursday morning under the ticker HIMS.
“The SPAC allows for more appropriate market pricing, as opposed to the middleman dynamic that takes place with a traditional IPO,” he adds. The completion of the reverse merger comes just under four months after Oaktree Acquisition Corp. announced it would take Hims public, valuing the three-year-old company at $1.6 billion.
The deal, which was led by co-chairman of Oaktree Capital Management Howard Marks, includes proceeds of around $280 million—$204.5 million in cash and $75 million from private placement investors, including Franklin Templeton and other Oaktree Clients. The company’s venture investors range from Founders Fund to the Canada Pension Plan Investment Board to Atomic.
Launched in 2017, Hims was initially geared towards helping men with issues like erectile dysfunction and hair loss from the comfort of their couch through online consultations with doctors and prescriptions discreetly shipped to their doors. It has since grown to include a women’s health division, known as Hers, developed its own electronic medical record, and added an online pharmacy. All told, the company now works with patients to treat around 100 different healthcare issues. The goal, Dudum says, is to “be the front door to the health care system.”
The company has performed nearly 3 million telemedicine consultations since inception, says Dudum. Teladoc Health, the biggest public player in the space, performed 2.6 million visits in 2020, but took nearly two decades to reach that number. Hims also offers various specialty services, such as dermatology and behavioral health.
While competitors have seen huge spikes in demand on account of the Covid-19 pandemic, the company’s growth has been on a steady upward trajectory. Revenue increased 67% year-over-year, from $83 million in 2019 to an estimated $138 million in 2020. More than 90% of that is recurring revenue from around 260,000 subscribers. Its profit margin was up 71% year-over-year, but the company is not profitable, recording a net loss of $69 million in 2019. The company expects to continue losing money in the near-term as it continues investing in growing the platform, customer base, provider network and pharmacy system, according to its S-4 filing.
Hims’ biggest draw so far has been its brand identity and popularity among the millennial crowd. Hims has also been entirely “cash pay,” meaning it doesn’t accept insurance. Members pay a subscription of around $20-30 per month to have 24/7 access to online physician consultation and steady supplies of generic medications.
As the company grows, Dudum is setting his sights on new markets, including partnerships with self-insured employers and health systems. Teladoc and Amwell have dominated these spaces so far, but the services they offer to employers and health systems are unbranded. Hims is taking a different approach, whereby it will retain its own brand identity and partner with providers, such as Ochsner Health, Mount Sinai Health System and Privia Health, sending them patients who require more complex care that can’t be dealt with over video or chat. “The real vision is access and a brand that people love and trust and have loyalty to when it comes to taking care of their health and wellness,” says Dudum.
Hims is also planning to branch out into working with insurers. Dudum gives the example of Truvada, a drug manufactured by Gilead that helps reduce the risk of contracting HIV, which can cost around $2,000 per month at cash price. Hims wants to contract with insurers to be able to offer Truvada and other expensive drugs “where there’s not an affordable cash-pay option.”
More than 80% percent of the company’s pharmacy business comes from prescription drugs. Even so, Hims & Hers will continue to offer over-the-counter products, like vitamins and shampoo, says Dudum, and the company has launched into stores like Target. The main customer demographic “has no loyalty to the existing health care system,” says Dudum. “Healthcare to them doesn’t just mean pharmaceuticals. And it doesn’t just mean doctor visits. It means things like coaching, therapy, vitamins, supplements, yoga and meditation” he adds. The company is also starting to expand overseas and building up operations in the United Kingdom.
Since inception, Hims has frequently been compared to Ro, which similarly operates on a cash-pay model with a business line for men called Roman and for women called Rory, along with a digital pharmacy. (Disclosure: Forbes Media has a small investment in Ro.) Now both startups are having to contend with tech giants like Amazon entering the pharmacy business.
Dudum says he’s not worried and there’s plenty of room. “I think the beautiful part about the digital healthcare space is you’re talking about a $4 trillion market that really has yet to be touched by technology,” he says. “Over the next 5 to 10 years, the entire industry is going to be rebuilt and redesigned with the consumer in control and in the driver’s seat.”