After 100 years of relatively quiet existence as a manufacturer of diabetes medicines, the Danish company Novo Nordisk has suddenly grown so big that the company is reshaping the Danish economy.
The reason: Ozempic and Wegovy, two weight loss drugs from Novo Nordisk that are considered revolutionary in the field of obesity.
The company’s booming success now explains almost all of Denmark’s recent economic growth, and the surge in overseas sales of the drugs is prompting Denmark’s central bank to keep interest rates lower than it otherwise would, economists say. In recent weeks, Novo Nordisk’s market value has exceeded the size of the Danish economy. Its soaring share price has made it the second most valuable listed company in Europe after luxury goods group LVMH.
The company’s shadow is so large that Danish economists are now debating whether the country needs to release another set of economic statistics excluding Novo Nordisk. In other words, there’s Novo Nordisk and the rest of the economy.
While Denmark, a country of fewer than six million people, is no stranger to global giants like shipping giant Maersk and toymaker Lego, Novo Nordisk’s impact on economic statistics is unique, say economists.
“We have never been in a situation like this in Denmark, where a single company has played such a big role,” said Jens Naervig Pedersen, economist at Danske Bank.
Last year, two-thirds of Denmark’s economic growth was due to the pharmaceutical industry, said Jonas Dan Petersen, chief adviser at Denmark’s national statistics agency, which does not provide company-specific data.
And the effects have become even clearer: If you compare economic output in the first quarter of this year with that of a year ago, “without the pharmaceutical industry there was almost no growth.”,, Mr. Petersen added. The Danish economy grew by 1.9 percent during this period, of which the pharmaceutical industry accounted for 1.7 percentage points.
Denmark is home to other pharmaceutical companies, but Novo Nordisk has far surpassed other Danish drugmakers. The company’s sales last year were about 10 times that of the next largest Danish pharmaceutical company, Lundbeck. For a long time, Novo Nordisk focused almost exclusively on fighting diabetes. However, the new weight-loss drugs are now being heavily prescribed, particularly in the United States. The U.S. Food and Drug Administration approved Ozempic as a diabetes drug in 2017; The agency approved Wegovy in 2021.
Novo Nordisk’s profit soared 45 percent to 39 billion Danish kroner, about $5.7 billion, in the first half of the year, boosted by demand for the drugs. They’re so successful that the company is struggling to keep up with demand and is limiting supply in the United States while trying to ramp up production.
Economists at the Danish Statistics Agency began scrutinizing the influence of the pharmaceutical industry in the spring when they analyzed the gross domestic product data for the fourth quarter of 2022 and saw the big effect.
When the agency releases detailed economic output data for the second quarter later this week, it will, for the first time, include a dedicated section detailing the impact of the pharmaceutical industry on the economy, Petersen said.
Although the Danish pharmaceutical industry, led by Novo Nordisk, had a significant impact on the economic growth data, there was no corresponding increase in employment. In the last five years, the industry has contributed 3.4 percentage points to Denmark’s growth, but only 0.1 percentage point to employment, said Petersen. Therefore, it makes sense to further break down the economic data, he said.
“It’s very difficult, especially for the economists trying to analyze the business cycle,” he added, because it means the GDP data is not a “good signal” for the overall business cycle in Denmark.
One reason is that much of Novo Nordisk’s production takes place abroad, for example in the United States. Nevertheless, there are far-reaching benefits for the Danish population. Novo Nordisk is the largest corporate tax payer in Denmark, a boon for the country’s public finances.
And the company is expected to keep growing because there are a lot of potential patients. According to the Centers for Disease Control and Prevention, more than 100 million American adults suffer from obesity.
Because so much money is being made and expected to be made in the United States, economists say there is an impact on Denmark’s currency.
“There are companies like Novo Nordisk that have a greater need to exchange foreign currency into Danish kroner and then upward pressure on the Danish kroner starts to appear,” said Danske Bank’s Mr Pedersen. But Denmark keeps the krone pegged to the euro and if the krone appreciates, “the central bank has to react,” he added.
The central bank has issued kroner to buy foreign exchange and build up reserves. Because of these purchases, the central bank has also widened the differential between Denmark’s interest rates and those of the European Central Bank. By keeping the Danish interest rate slightly lower than that in the eurozone – currently 0.4 percentage point lower than the ECB rate – this should discourage foreign investors from holding the krona.
The central bank declined to comment on the article.
Some economists in Denmark fear the country could become overly dependent on Novo Nordisk, drawing galling comparisons to the fate of the Finnish economy when Nokia lost its dominance in the mobile industry. There are also concerns that the so-called Dutch disease could reach Denmark, said Helge J. Pedersen, chief economist at Nordea, citing the economic phenomenon when a country suddenly experiences a sharp increase in income, which appears to be good economic news. But it actually has a negative impact on the rest of the economy.
The term came about after the Dutch discovered vast reserves of natural gas, which led to a sharp increase in exports in the 1960s. This caused the country’s currency to rise, making other exports expensive and uncompetitive, and affecting the overall Dutch economy.
“There is a Denmark without Novo Nordisk and that has to be taken into account when making recommendations on economic policy and collective agreements,” said Nordea’s Mr Pedersen. “We have to be somewhat modest, because many Danish companies also face strong competition from abroad.”
However, he sees more positive than negative aspects for the Danish people when it comes to Novo Nordisk. The company’s popularity could draw attention to the country, its education system and medical industry, and bolster government soft power. If it helps maintain Denmark’s high-wage economy, it will also push other companies to be more innovative and efficient to remain competitive.
Mr. Pedersen grew up when the country ran a current account deficit and recalls the government’s painful fiscal policies to combat it. “Those were tough times,” he said. The current situation “gives a lot of economic freedom, there is no doubt about that.”
Jasmina Nielsen contributed research results from Copenhagen.