After 100 years of relatively quiet existence as a diabetes drug maker, Danish company Novo Nordisk has suddenly grown enormously and is reshaping Denmark's economy.
Why: Two drugs manufactured by Novo Nordisk, Ozempic and Wigovy, have been declared revolutionary in the field of obesity.
The company's rapid growth now accounts for almost all of Denmark's recent economic growth, with soaring overseas sales of the drug prompting Denmark's central bank to keep interest rates lower than usual, economists say. say: In the past few weeks, Novo Nordisk's market value has exceeded the size of the Danish economy. The soaring share price has made it Europe's second most valuable listed company after luxury goods group LVMH.
The company's shadow is so pervasive that Danish economists are now debating whether the country should publish separate economic statistics that exclude Novo Nordisk. In other words, there is Novo Nordisk and there are other economies as well.
Denmark, with a population of less than 6 million people, is well known to be home to globally important companies such as Lego and shipping giant Maersk, but economists say Novo Nordisk's impact on economic statistics is unique. says.
“Never before have we seen a situation like Denmark, where a single company has played such a big role,'' said Danske Bank economist Jens Nervig Pedersen.
Jonas Dan Petersen, chief advisor at Denmark's National Statistics Office, said two-thirds of Denmark's economic growth last year could be attributed to the pharmaceutical industry, but the agency does not provide company-specific data. do not have.
And the impact has become even more pronounced. “Without the pharmaceutical industry, there would be very little growth.”” Petersen added that economic output grew in the first quarter of this year compared to the same period last year. The Danish economy during this period grew by 1.9%, of which pharmaceuticals contributed 1.7 percentage points.
Denmark is also home to other pharmaceutical companies, but Novo Nordisk is far superior to them. The company's sales last year were about 10 times that of Lundbeck, the next largest Danish pharmaceutical company.
Novo Nordisk has long been almost exclusively focused on tackling diabetes. But the new drug is now being prescribed in large quantities for weight loss, especially in the United States. The U.S. Food and Drug Administration approved Ozempic as a diabetes treatment in 2017. The agency approved Wegovy in 2021.
Novo Nordisk's profits surged 45% in the first half to Danish kroner 39 billion (about $5.7 billion), driven by demand for the drug. It's been so successful that the company has struggled to keep up with demand, limiting supply in the U.S. while trying to expand production.
Economists at Statistics Denmark began taking a closer look at the impact of the pharmaceutical industry in the spring when they were analyzing gross domestic product data for the fourth quarter of 2022 and confirmed its large impact.
Petersen said that when the agency releases detailed economic output data for the second quarter later this week, it will for the first time include a special section detailing the economic impact of the pharmaceutical industry.
Despite Denmark's pharmaceutical industry having a significant impact on economic growth data, there has been no corresponding increase in employment. Over the past five years, the industry has increased Denmark's growth by 3.4 percentage points, but employment has increased by only 0.1 percentage points, Petersen said. That's why it would be helpful to provide additional breakdowns of economic indicators, he said.
“This is very difficult, especially for economists trying to analyze business cycles,” he added. That's because it means the GDP data is not a “good signal” for Denmark's overall business cycle.
One reason for this is that much of Novo Nordisk's production occurs overseas, such as in the United States. Still, there are wide-ranging benefits for Danish citizens. Novo Nordisk is the largest contributor to corporate tax in Denmark, benefiting the country's finances.
And with so many potential patients, the company is expected to continue to grow. According to the Centers for Disease Control and Prevention, more than 100 million American adults are obese.
This month, results from a five-year clinical trial found Wegovy reduced the risk of serious heart disease, a finding that will increase pressure on insurers to further expand coverage. there's a possibility that.
With so much gold created and expected to be created in the United States, economists say it will have an impact on Denmark's currency.
“When you have companies like Novo Nordisk that have a growing need to convert foreign currencies into Danish krone, that starts to put upward pressure on the Danish krone,” Danske Bank's Pedersen said. But Denmark pegs the krone to the euro, so if the value of the krone increases, “the central bank has to react,” he added.
The central bank spends krone to buy foreign currency and build up foreign exchange reserves. With these purchases, the central bank also widened the gap between Danish interest rates and those set by the European Central Bank. Keeping Danish interest rates slightly lower than euro zone rates (currently 0.4 percentage points lower than ECB rates) should deter foreign investors from holding krone.
The central bank declined to comment for this article.
Some Danish economists worry that the country will become too dependent on Novo Nordisk, compared to the fate of the Finnish economy when Nokia loses its dominance in the mobile phone industry. . Helge J. Pedersen, chief economist at Nordea, said there were also concerns that the so-called Dutch disease could be brought to Denmark, referring to an economic phenomenon in which countries suddenly experience large increases in income, which at first glance He said it looks like good economic news. But it actually has a negative impact on other parts of the economy.
The term arose after the Netherlands discovered vast natural gas reserves, and exports increased significantly in the 1960s. This caused the country's currency to appreciate, making other exports expensive and uncompetitive in the process, hurting the Dutch economy as a whole.
“There is also a Denmark without Novo Nordisk. We need to take that into account when making recommendations for economic policy and wage agreements,” Nordea's Pedersen said. “Many Danish companies also face tough competition from abroad, so we have to be quite humble.”
However, he believes there are more positives than negatives for the Danish people when it comes to Novo Nordisk. The company's popularity could not only increase the government's soft power, but also draw attention to the country, its education system, and the medical industry. If it helps maintain Denmark's high-wage economy, it will also encourage other companies to become more innovative and efficient in order to remain competitive.
Pedersen grew up when the country had a current account deficit and recalled the government's dire fiscal policies to combat it. “Those were tough times,” he said. The current situation “gives a lot of freedom to economic policy, there's no question about that.””
Jasmina Nielsen contributed to research.
