On this photograph illustration, bins of the diabetes drug Ozempic relaxation on a pharmacy counter on April 17, 2023, in Los Angeles. Ozempic was initially permitted by the Meals and Drug Administration to deal with individuals with Kind 2 diabetes, and it is now additionally utilized by many individuals to drop extra pounds.
Mario Tama/Getty Pictures/Getty Pictures North America
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Mario Tama/Getty Pictures/Getty Pictures North America
What in case your complete economic system was based mostly on one product? TV commercials joke that America runs on Dunkin’, however for all intents and functions, Denmark fairly actually runs on Ozempic, a diabetes treatment that’s now extensively utilized by shoppers to drop extra pounds.
Ozempic is proving to be a robust development engine. Its worldwide gross sales have elevated by over 60% previously 12 months alone. In the USA, which is considered one of its largest markets, prescriptions for Ozempic and related medication quadrupled between 2020 and 2022. And even with these blockbuster gross sales, demand is so excessive that there was a persistent scarcity of Ozempic within the U.S. for a big a part of the previous few years.
Ozempic’s producer, the Danish firm Novo Nordisk, is reaping the fruits of the craze. Its web revenue greater than doubled between 2019 and 2023, and its inventory has soared to new heights. On the finish of 2023, Novo grew to become the biggest firm in Europe. And its rise has eclipsed the Danish economic system, creating a whole lot of worth on the one hand, however an imbalanced economic system on the opposite.
You might need heard of “petrostates,” international locations the place fossil gas extraction dominates the economic system. By that measure, you would possibly name Denmark a pharmastate, as a result of Novo now dominates the Danish economic system.
Practically 1 out of each 5 Danish jobs created final 12 months was at Novo. And that is simply instantly. In the event you additionally embody the roles that Novo has created not directly — like, for instance, at its suppliers, or from all of the newly rich Novo staff spending their cash at outlets and eating places — almost half of all private-sector nonfarm jobs created in Denmark could be traced again to Novo.
Greater than that, Denmark’s gross home product would have shrunk final 12 months with out the contribution of the pharma sector. In different phrases, the corporate has virtually single-handedly rescued the nation from a recession.
Novo Nordisk’s meteoric trajectory raises a query about financial development that is a lot larger than simply Denmark: Specifically, what are the dangers of getting one big firm driving your complete economic system? And crucially, what occurs if that firm’s fortunes take a flip for the more severe?
Danish illness
In economics, an excessive amount of of a great factor can typically be a foul factor. One such case is a phenomenon referred to as Dutch illness, named after the expertise of the Netherlands within the Nineteen Sixties. And a few economists fear that Novo Nordisk’s rise might trigger Denmark to endure from it too (for extra on Dutch illness, hearken to this episode of The Indicator from Planet Cash).
When the Dutch found huge pure gasoline deposits in Groningen in 1959, they began extracting and exporting the gasoline as quick as doable. The excessive exports elevated demand for the Dutch forex, the guilder, which triggered its worth to skyrocket relative to different currencies. And that in flip made different, non-gas Dutch exports too costly to compete on worldwide markets. This finally decimated the manufacturing sector and raised unemployment within the nation. Paradoxically, the massive windfall ended up hurting the economic system.
Dutch illness is often related to the invention of pure sources like oil or gasoline, however it will probably occur from any improvement that causes a spike in world demand for a forex. Corresponding to: the invention of a miraculous weight reduction drug that everybody on this planet desires to purchase.
Certainly, Novo’s surging drug gross sales have boosted Danish exports and introduced a whole lot of overseas forex into Denmark. As an example, the majority of Novo’s gross sales come from North America. Novo then has to change a considerable amount of the overseas forex it earned overseas into Danish kroner to pay its staff’ salaries and its taxes in Denmark, increase its factories there and so forth. This places stress on the krone to extend in worth relative to different currencies, just like the greenback.
Nevertheless, the krone is not allowed to extend a lot in worth as a result of Denmark retains its change fee fastened to the euro. To offset the strengthening impact on the forex, Denmark’s central financial institution has needed to reply by holding rates of interest low. “It could appear unusual that weight reduction medication impacts rates of interest in Denmark, but it surely does,” Jens Nærvig Pedersen, director of overseas change market and charges technique at Danske Financial institution, advised Bloomberg.
Novo’s actions have had a noticeable impact on the krone, however the central financial institution’s interventions have been enough to maintain its worth secure. Although a set change fee cannot all the time prevent from Dutch illness, Denmark has managed to keep away from it up to now, and it continues to export all kinds of products immediately. And the central financial institution continues to watch Novo’s impact on the forex.
The brand new Nokia
The dominance of Novo Nordisk within the Danish economic system has prompted many to warning Denmark in opposition to falling into the identical lure that its Nordic neighbor Finland fell sufferer to years in the past: the Nokia lure.
Again within the early 2000s, Nokia, a telecommunications firm, was the most popular recreation on the town. The enchantment of its iconic brick cellphone has lengthy since been forgotten within the shadow of a brand new technology of smartphones, however within the early 2000s, Nokia was the world’s largest maker of cellphones. And like Novo Nordisk, it was a enterprise behemoth in its residence nation: In its heyday, Nokia was liable for virtually 1 / 4 of Finnish development and generated over 20% of Finland’s exports.
However then catastrophe struck: Within the mid-to-late 2000s, Nokia began quickly shedding market share to Apple and different smartphone producers. The worldwide monetary disaster hit on the similar time, and Finland’s economic system was despatched right into a tailspin. In contrast with its Nordic neighbors, Finland’s financial decline was steeper, and its post-crisis restoration was a lot slower.
The widespread notion was that Nokia’s downfall took the Finnish economic system down. “Steve Jobs took our jobs,” the then-prime minister mentioned in an interview. The geographic proximity and financial similarity of the scenario increase a query: Is Denmark in peril of falling into the Nokia lure too?
As is usually the case with economics, the actual reply is complicated. To start out, Nokia’s circumstances had been fairly excessive. It may be uncommon to have an organization of Nokia’s dimension in a small open economic system like Finland, but it surely’s much more uncommon to have an organization go from being the worldwide market chief to chopping tens of hundreds of jobs and getting acquired by one other firm inside the house of some years.
The truth that the worldwide monetary disaster occurred on the similar time additionally meant that lots of the elements on the root of Finland’s financial troubles had been unrelated to Nokia. The Analysis Institute of the Finnish Financial system estimated that Nokia’s direct contribution accounted for over 30% of the GDP decline and 20% of the employment decline between 2008 and 2014. That’s an astounding quantity for one firm to be liable for, but it surely’s nowhere close to the bulk.
Whereas it is unlikely that Novo will endure from a Nokia-style collapse quickly, some obstacles are on the horizon that might hamper its development sooner or later. International locations are already speaking about implementing stricter worth controls on Novo’s medication, and Novo’s patents on Ozempic expire inside a decade, at which level it can most likely must struggle in opposition to a wave of competitors from generic-drug producers. And as we see from the info, if Novo stops rising, Denmark possible stops rising too. That is the Nokia lure for Denmark.
One of the simplest ways to keep away from this may be for different Danish firms to develop quicker and generate extra worth, in order that financial development within the nation turns into pushed by many firms fairly than one. However that is simpler mentioned than completed, particularly given Europe’s stagnant financial setting.
The opposite side of the Nokia lure is that Denmark would possibly grow to be complacent, equating Novo’s success with the success of its economic system as an entire. However partly as a result of they’ve Finland’s expertise to be taught from, Danish policymakers are rigorously monitoring the economic system for indicators of underlying weaknesses that may get masked by the “Novo impact.” The nation’s nationwide statistical company just lately revealed GDP figures with and with out the contribution of the pharmaceutical trade, and the financial ministry referenced the corporate 31 instances in its current financial report.
If handled rigorously, Denmark’s drawback generally is a good one to have. Novo Nordisk’s astounding success is nice for the Danish economic system, after all, however provided that policymakers perceive the dangers that include having an excessive amount of of a great factor. For now, it looks as if they do.
