On this picture illustration, packing containers of the diabetes drug Ozempic relaxation on a pharmacy counter on April 17, 2023, in Los Angeles. Ozempic was initially authorized 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 pounds.
Mario Tama/Getty Photos/Getty Photos North America
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Mario Tama/Getty Photos/Getty Photos North America
What in case your whole 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 remedy that’s now extensively utilized by shoppers to drop pounds.
Ozempic is proving to be a robust development engine. Its worldwide gross sales have elevated by over 60% up to now yr alone. In the US, which is one in all its largest markets, prescriptions for Ozempic and related medicine 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 numerous worth on the one hand, however an imbalanced economic system on the opposite.
You may need heard of “petrostates,” nations the place fossil gasoline extraction dominates the economic system. By that measure, you may 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 yr was at Novo. And that is simply instantly. In case you additionally embrace 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 — practically half of all private-sector nonfarm jobs created in Denmark might be traced again to Novo.
Greater than that, Denmark’s gross home product would have shrunk final yr 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 large firm driving your whole 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 factor can generally be a nasty factor. One such case is a phenomenon known as Dutch illness, named after the expertise of the Netherlands within the Sixties. And a few economists fear that Novo Nordisk’s rise could trigger Denmark to endure from it too (for extra on Dutch illness, take heed 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 potential. The excessive exports elevated demand for the Dutch foreign money, the guilder, which prompted 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 in the end decimated the manufacturing sector and raised unemployment within the nation. Paradoxically, the large windfall ended up hurting the economic system.
Dutch illness is often related to the invention of pure sources like oil or gasoline, however it might probably occur from any growth that causes a spike in world demand for a foreign money. Similar to: the invention of a miraculous weight reduction drug that everybody on this planet needs to purchase.
Certainly, Novo’s surging drug gross sales have boosted Danish exports and introduced numerous overseas foreign money into Denmark. As an illustration, the majority of Novo’s gross sales come from North America. Novo then has to trade a considerable amount of the overseas foreign money it earned overseas into Danish kroner to pay its staff’ salaries and its taxes in Denmark, broaden its factories there and so forth. This places stress on the krone to extend in worth relative to different currencies, just like the greenback.
Nonetheless, the krone is not allowed to extend a lot in worth as a result of Denmark retains its trade charge fastened to the euro. To offset the strengthening impact on the foreign money, Denmark’s central financial institution has needed to reply by maintaining rates of interest low. “It could appear unusual that weight reduction drugs impacts rates of interest in Denmark, nevertheless it does,” Jens Nærvig Pedersen, director of overseas trade market and charges technique at Danske Financial institution, informed Bloomberg.
Novo’s actions have had a noticeable impact on the krone, however the central financial institution’s interventions have been ample to maintain its worth secure. Although a set trade charge cannot all the time prevent from Dutch illness, Denmark has managed to keep away from it thus far, and it continues to export all kinds of products at the moment. And the central financial institution continues to observe Novo’s impact on the foreign money.
The brand new Nokia
The dominance of Novo Nordisk within the Danish economic system has prompted many to warning Denmark towards falling into the identical entice that its Nordic neighbor Finland fell sufferer to years in the past: the Nokia entice.
Again within the early 2000s, Nokia, a telecommunications firm, was the most well liked recreation on the town. The attraction of its iconic brick cellphone has lengthy since been forgotten within the shadow of a brand new era 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 dwelling nation: In its heyday, Nokia was answerable 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 identical 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 state of affairs elevate a query: Is Denmark in peril of falling into the Nokia entice too?
As is usually the case with economics, the true reply is complicated. To begin, Nokia’s circumstances had been fairly excessive. It is perhaps uncommon to have an organization of Nokia’s dimension in a small open economic system like Finland, nevertheless it’s much more uncommon to have an organization go from being the worldwide market chief to reducing tens of hundreds of jobs and getting acquired by one other firm throughout the area of some years.
The truth that the worldwide monetary disaster occurred on the identical 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 answerable for, nevertheless it’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 would hamper its development sooner or later. Nations are already speaking about implementing stricter value controls on Novo’s medicine, and Novo’s patents on Ozempic expire inside a decade, at which level it’ll in all probability must combat towards a wave of competitors from generic-drug producers. And as we see from the info, if Novo stops rising, Denmark probably stops rising too. That is the Nokia entice for Denmark.
The easiest way to keep away from this may be for different Danish firms to develop sooner and generate extra worth, in order that financial development within the nation turns into pushed by many firms quite than one. However that is simpler mentioned than achieved, particularly given Europe’s stagnant financial surroundings.
The opposite side of the Nokia entice is that Denmark may turn into complacent, equating Novo’s success with the success of its economic system as a complete. However partly as a result of they’ve Finland’s expertise to study from, Danish policymakers are rigorously monitoring the economic system for indicators of underlying weaknesses which may get masked by the “Novo impact.” The nation’s nationwide statistical company just lately printed GDP figures with and with out the contribution of the pharmaceutical business, and the financial ministry referenced the corporate 31 occasions in its latest financial report.
If handled rigorously, Denmark’s drawback could be 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 factor. For now, it looks as if they do.