After 100 years of relatively quiet existence as a maker of diabetes drugs, the Danish firm Novo Nordisk has suddenly grown so big that the company is reshaping the Danish economy.
The reason: Ozempic and Wegovy, two weight loss drugs made by Novo Nordisk that have been proclaimed as 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 in the drugs is prompting the Danish central bank to keep interest rates lower than it otherwise would, economists say. In the past few 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 public company in Europe, after the luxury goods group LVMH.
The company’s shadow is so expansive that Danish economists are now debating whether the country needs to publish another set of economic statistics that strips out Novo Nordisk. In other words, there’s Novo Nordisk, and there’s the rest of the economy.
While Denmark, a country of under six million people, is no stranger to globally significant companies, such as the shipping giant Maersk and the toy company Lego, the impact of Novo Nordisk on economic statistics is unique, economists say.
“We’ve never been in a situation like this in Denmark before where one single company has played such a large 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 chief adviser at Denmark’s national statistics agency, which doesn’t provide company-specific data.
And the impact has grown even more stark: When comparing economic output in the first quarter of this year with a year ago, “without the pharmaceutical industry, there was almost no growth,” Mr. Petersen added. The Danish economy grew 1.9 percent over that period, with 1.7 percentage points of that contributed by pharma.
Denmark is the home of other pharmaceutical companies, but Novo Nordisk has far outpaced other Danish drug makers. The company’s revenue last year was about 10 times that of the next largest Danish pharmaceutical company, Lundbeck. For a long time, Novo Nordisk was almost single-minded in its focus on tackling diabetes. But its 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 medication in 2017; the agency approved Wegovy in 2021.
Novo Nordisk’s profit surged 45 percent to 39 billion Danish kroner, about $5.7 billion, in the first half of the year, driven by demand for the drugs. They are so successful that the company is struggling to keep up with the demand and is limiting supplies in the United States, while it tries to ramp up production.
Economists at the Danish statistics agency started looking closely at the influence of the pharmaceutical industry in the spring, when they were analyzing the gross domestic product data for the fourth quarter of 2022 and saw the large effect.
Later this week, when the agency publishes detailed economic output data for the second quarter, it will include, for the first time, a special section detailing the impact of the pharmaceutical industry on the economy, Mr. Petersen said.
Even though Denmark’s pharmaceutical industry, led by Novo Nordisk, has had a substantial impact on economic growth data, there hasn’t been a corresponding increase in employment. Over the past five years, the industry has added 3.4 percentage points to Denmark’s growth, but just 0.1 percentage points to employment, Mr. Petersen said. That’s why its useful to provide the additional breakdowns in the economic data, he said.
“Especially for the economists who are trying to analyze the business cycle, this is very hard for them,” he added, because it means the G.D.P. data isn’t a “good signal” for the overall business cycle in Denmark.
Part of the reason is that much of Novo Nordisk’s production takes place overseas, for example in the United States. Still, there are broad benefits for the Danish population. Novo Nordisk is the biggest contributor of corporation tax in Denmark, a boon for the country’s public finances.
And the company is expected to only grow, because there are plenty of potential patients. More than 100 million American adults have obesity, according to the Centers for Disease Control and Prevention.
With all this money being made, and expected to be made, in the United States, economists say there is an influence on Denmark’s currency.
“You have companies, such as Novo Nordisk, that have a greater need for exchanging foreign currency into Danish kroner, then you start to see an upward pressure emerge on the Danish krone,” Mr. Pedersen of Danske Bank said. But Denmark keeps the krone pegged to the euro, and so when the krone rises in value, “the central bank has to respond,” he added.
The central bank has been spending kroner to purchase foreign exchange and building up reserves. Because of these purchases, the central bank has also increased the gap between Denmark’s interest rates and the ones set by the European Central Bank. By keeping the Danish interest rate slightly lower than the one in the eurozone — currently 0.4 percentage point lower than the E.C.B.’s rate — it should discourage foreign investors from holding the krone.
The central bank declined to comment for this article.
Some economists in Denmark worry that the country could become too dependent on Novo Nordisk, with fretful comparisons to the fate of the Finnish economy when Nokia lost its dominance in the cellphone industry. There are also concerns that so-called Dutch disease could come to Denmark, said Helge J. Pedersen, the chief economist at Nordea, referring to the economic phenomenon when a country suddenly experiences a large increase in income, which is seemingly good economic news, but it actually has a negative effect on the rest of the economy.
The term originated after the Dutch discovered vast natural gas reserves, leading to a large increase in exports in the 1960s. It caused the country’s currency to soar, in the process making other exports expensive and uncompetitive and hampering the overall Dutch economy.
“There is a Denmark without Novo Nordisk, and that has to be taken into consideration when coming with recommendations to economic policy and wage agreements,” Mr. Pedersen of Nordea said. “We need to be fairly modest because many Danish companies are also facing severe competition from abroad.”
He sees more positives, however, 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 medical industry, as well as increasing the government’s soft power. If it helps maintain Denmark’s high-wage economy, it will also push other companies to be more innovative and efficient to stay competitive.
Mr. Pedersen grew up when the country had a current account deficit and recalls painful government fiscal policies to combat it. “Those were harsh times,” he said. The current situation “gives a lot of economic policy freedom, no doubt about that.”
Jasmina Nielsen contributed research from Copenhagen.
