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Soaring sales of celebrity-endorsed drugs have stoked fears that Denmark’s economy could face a similar fate to Nordic Finland, where overreliance on Nokia caused a reversal of fortunes for the phone maker, leading to the “Lost Ten” Year”.
Diabetes drug Ozempic and anti-obesity drug Wegovy, which celebrities use to lose weight, have propelled Novo Nordisk into Europe’s most valuable company and single-handedly prevented Denmark from slipping into recession.
Novo Nordisk’s market value now stands at $410 billion, surpassing Denmark’s GDP of $400 billion last year, raising concerns among officials and business people that the country’s wealth has become too closely tied to one company.
“We think the economy in Denmark has two speeds: pharmaceuticals and other industries,” said Thomas Harr, chief economist at Denmark’s central bank. “The risk is that you think the economy is doing better than it actually is.”
“Novo has been a huge success, which is a good thing for it and its shareholders. But for Denmark, I worry about what will happen if something goes wrong,” said a leading business executive. “When Nokia ran into problems, Finland ended a lost decade.”
After succeeding in the first wave of mass mobile phone adoption, phone maker Nokia’s profits began to plummet following the release of Apple’s iPhone in the 2000s.
At its peak, the company contributed a quarter of Finland’s corporate tax revenue and accounted for 4% of GDP. With this number falling sharply, the Nordic economies struggled to grow in the 2010s.
Novo Nordisk has been one of Denmark’s largest companies for more than a decade, thanks to its focus on diabetes drugs. But its valuation, profits and sales have soared in recent years — first with the success of Ozempic and then with Wegovy, which directly targets the obesity problem.
Compared with the same period in 2022, the Danish economy grew by 1.7% in the first half of this year. But if the pharmaceutical industry dominated by Novo Nordisk is excluded, GDP will fall by 0.3%.
Third-quarter gross domestic product data will be released on Friday.
Its impact on GDP is so widely recognized that the country’s statistical agency provides data both with and without the pharmaceutical industry. But others believe the Danish economy will prove resilient even as the popularity of Novo Nordisk’s best-selling drug wanes.
The main reason is that Novo Nordisk’s impact on GDP comes largely from the drugmaker’s overseas production rather than domestic production.
Jonas Dan Peterson, chief adviser on national accounts at the Office for National Statistics, said: “The huge income is reflected in gross domestic product, but it does not have such an explosive impact on employment.”
Danish Deputy Prime Minister and Economic Affairs Minister Jakob Ellemann-Jensen also noted that there were “significant differences” between Denmark’s current predicament and those faced by Nokia and Finland.
Helge Pedersen, chief economist at Nordea’s largest bank, said he believed the success of Novo Nordisk and other Danish pharmaceutical groups was a “huge benefit” and would not create “over-reliance.”
Olli Rehn, who is taking a leave of absence from his post as Bank of Finland governor to run for president, called this a “relevant issue”.
But he added that Denmark has a “more diversified industrial structure and (small and medium-sized enterprise) dominance”.
However, Novo Nordisk’s roots in Denmark are strong. About 40% of the workforce is based there. Last year, the company created 3,500 new jobs in Denmark, bringing the total number of jobs to 21,000.
The drugmaker also invested more than DKK 10 billion ($1.4 billion) in production in the country last year and paid more than DKK 15 billion in taxes, or about 1% The total amount collected in the country in 2020.
Pedersen said the biggest risk is that policymakers may ignore the performance of companies outside the pharmaceutical industry.
“There are companies that are struggling. You should not forget about these companies when thinking about fiscal or labor market policies. Most Danish companies are not very competitive,” he said.
Alex Stubb, Finland’s former prime minister and another presidential candidate, said there was little Copenhagen could do about the risks.
“All you can do is stay away. When Nokia handheld phones started crashing, the government was aware of it,” he said. “But there’s not much you can really do. You welcome the tax revenue. But if you start interfering with the company’s work, you’re not doing your job.”
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