After 100 years of relatively quiet existence as a maker of diabetes drugs, Danish company Novo Nordisk has suddenly grown to such size that it is reshaping the Danish economy.
The reason: Ozempic and Wegovy, two weight loss drugs manufactured by Novo Nordisk and declared revolutionary in the field of obesity.
The company’s runaway success now explains almost all of Denmark’s recent economic growth, and rising drug sales abroad prompt the Danish central bank to keep interest rates lower than it would otherwise, say economists. Over the past few weeks, the market value of Novo Nordisk has exceeded the size of the Danish economy. The surge in its share price has made it the second most valuable public company in Europe, after the luxury group LVMH.
The corporate shadow is so Danish economists are now debating whether the country should release another round of economic statistics that would exclude Novo Nordisk. In other words, there’s Novo Nordisk and the rest of the economy.
Although Denmark, a country of less than six million people, is no stranger to globally significant companies, such as 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 before, where a single company has played such an important role,” said Jens Naervig Pedersen, an economist at Danske Bank.
Last year, two-thirds of Denmark’s economic growth could be attributed to the pharmaceutical industry, said Jonas Dan Petersen, a senior adviser at Denmark’s national statistics agency, which does not provide company-specific data. .
And the impact became even more striking: by comparing economic output in the first quarter of this year whereas 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 1.7 percentage points came from the pharmaceutical sector.
Denmark is home to other pharmaceutical companies, but Novo Nordisk has far exceeded other Danish drug manufacturers. The company’s turnover last year was approximately 10 times that of the second largest Danish pharmaceutical company, Lundbeck. For a long time, Novo Nordisk was almost resolved to focus on the fight against diabetes. But his new weight-loss drugs are now widely prescribed, especially in the United States. The United States Food and Drug Administration approved Ozempic as a diabetes drug in 2017; the agency approved Wegovy in 2021.
Novo Nordisk’s profits jumped 45 percent to 39 billion Danish kroner, or about $5.7 billion, in the first half, driven by demand for the drugs. Their success is such that the company is struggling to meet demand and is limiting its supplies to the United States, while trying to increase production.
Economists at Denmark’s Statistics Agency began looking closely at the pharmaceutical industry’s influence in the spring, when they analyzed gross domestic product data for the fourth quarter of 2022 and found the significant impact.
Later this week, when the agency releases detailed economic data for the second quarter, it will, for the first time, include a special section detailing the pharmaceutical industry’s impact on the economy, Petersen said.
Even though the Danish pharmaceutical industry, led by Novo Nordisk, had a substantial impact on economic growth data, there was no corresponding increase in employment. Over the past five years, industry has added 3.4 percentage points to Denmark’s growth, but only 0.1 percentage points to employment, Mr Petersen said. That’s why it’s useful to provide additional breakdowns in economic data, he said.
“It’s very difficult, especially for 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.
This is partly because much of Novo Nordisk’s production takes place overseas, for example in the United States. Nevertheless, the Danish population derives many advantages from it. Novo Nordisk is Denmark’s largest corporation tax contributor, a boon for the country’s public finances.
And the business will only grow, because there are many potential patients. More than 100 million American adults suffer from obesity, according to the Centers for Disease Control and Prevention.
With all that money being made, and should be, in the United States, economists say there is an influence on the Danish currency.
“You have companies, like Novo Nordisk, that have a greater need to exchange foreign currency for Danish kroner, and then you start to see upward pressure emerging on the Danish krone,” Pedersen said. Danske Bank. But Denmark keeps the krone pegged to the euro, and so when the value of the krone rises, “the central bank has to react,” he added.
The central bank spent kroner to buy foreign currency and build up reserves. As a result of these purchases, the central bank also increased the spread between Denmark’s interest rates and those set by the European Central Bank. By keeping the Danish interest rate slightly lower than the euro zone rate – currently 0.4 percentage points lower than the ECB rate – this should discourage foreign investors from holding the krone.
The central bank declined to comment for this article.
Some Danish economists fear the country is becoming too dependent on Novo Nordisk, with uneasy comparisons to the fate of Finland’s economy when Nokia lost its dominance in the mobile phone industry. There are also fears that so-called Dutch disease is taking hold in Denmark, said Helge J. Pedersen, chief economist at Nordea, referring to the economic phenomenon when a country suddenly experiences a sharp increase in income. , which seems like good economic news. but it actually has a negative effect on the rest of the economy.
The term originated after the Dutch discovered vast reserves of natural gas, leading to a surge in exports in the 1960s. This caused the country’s currency to skyrocket, making other exports expensive and uncompetitive. and hampering the Dutch economy as a whole.
“There is a Denmark without Novo Nordisk, and that must be taken into account when making recommendations on economic policy and wage agreements,” said Mr Pedersen of Nordea. “We have to stay relatively small, as many Danish companies also face strong competition from abroad. »
However, he sees more positives than negatives for the Danish people when it comes to Novo Nordisk. The company’s popularity could draw attention to the country, its education system and its medical industry, while increasing the government’s soft power. While this helps keep the Danish high-wage economy going, it will also push other companies to be more innovative and efficient to stay competitive.
Mr Pedersen grew up at a time when the country was running a current account deficit and remembers the government’s painful fiscal policies to combat it. “It was a tough time,” he said. The current situation “gives great freedom of economic policy, there is no doubt about it..”
Jasmina Nielsen contributed research from Copenhagen.