Hims & Hers Health Inc. (HIMS) experienced a sharp 6.21% decline in after-hours trading on Wednesday, as investors reacted to news that could significantly impact the company's weight-loss drug business. The sell-off comes amid major developments in the broader weight-loss drug market that are likely to reshape competition in the sector.

The primary catalyst for the stock's plunge appears to be the U.S. Food and Drug Administration's (FDA) decision to end its policy allowing compounded copies of popular weight-loss drugs like Wegovy and Zepbound on May 22. This policy had previously benefited companies like Hims & Hers, which saw soaring sales of these compounded versions while the brand-name drugs were in shortage. The imminent policy change threatens to cut off a significant revenue stream for Hims & Hers and other similar companies that have capitalized on the recent shortages of these popular medications.

Adding to the competitive pressure, health insurance giant Cigna announced on Wednesday that it will cap out-of-pocket costs at $200 per month for patients using brand-name Wegovy and Zepbound through an add-on to its pharmacy benefit management plans. This move could make the original drugs more accessible to consumers, potentially further eroding demand for compounded alternatives offered by companies like Hims & Hers. As the landscape of the weight-loss drug market rapidly evolves, investors appear to be reassessing the growth prospects of Hims & Hers Health Inc., leading to the significant after-hours stock decline.