Denmark’s economy runs on Novo. Will the drugmaker’s troubles slim it down?

(Bloomberg) — Denmark’s status as one of the few countries in Europe with an expanding economy rests in part on the success of its homegrown hero, Novo Nordisk A/S (NVO). Thanks to the pharmaceutical giant’s astronomical rise, the country enjoyed growth of 3.5% last year, outpacing most nations in the region. But after a series of stumbles, Novo is struggling to retain its edge in the cutthroat US weight-loss market.

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That, in turn, is generating concern about whether the company’s troubles could lead to mass layoffs or become a drag on the broader Danish economy.

Novo’s market value shrunk by almost $100 billion this week after the company cut its profit outlook on Tuesday, citing intensifying competition and copycat drugs in the US. It marked the second time this year that the drugmaker pared back its earning projections. Shares plunged 23% — the steepest single-day drop on record — and its stock has continued to slide in the days since.

Novo’s bad news translated into an immediate financial blow to Danish households. Outside of pension savings, Danes lost 38 billion kroner ($5.8 billion) in regular stock portfolios on Tuesday alone, according to estimates by Sydbank A/S. That’s the equivalent of almost 3% of total annual private consumption.

“There will be shareholders who have lost rather large amounts,” said Mikael Bak, chief executive officer of the Danish Shareholders’ Association. “It’s quite conceivable that we’ll see some Danish investors holding back on things like buying a new car or booking an expensive vacation.”

Given Novo’s size, the damage could ripple beyond the stock market. Economists have warned that a prolonged Novo slump could drag on the country’s exports — a concern shared by the state’s financial watchdog, which slashed its export forecast in May following a profit warning from Novo — and even influence interest rates.

Moreover, since the drugmaker’s production counts toward Denmark’s gross domestic product, any roll-back of expectations will “almost mechanically” impact the country’s growth numbers, said Las Olsen, chief economist at Danske Bank A/S, Denmark’s largest lender.

“Lower growth in Novo means lower GDP growth in Denmark, it’s as simple as that,” said Olsen.

A decline in drug sales did cause the Danish economy to shrink slightly in the first quarter, according to Statistics Denmark, and second-quarter GDP numbers will be released on Aug. 20. Novo is still growing, Olsen stressed, but if it were to flatline completely, Denmark would cease to be among Europe’s highest growth economies.

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Soren Kristensen, chief economist at Sydbank, cautioned against reading too deeply into Novo’s dip. Analysts predict the company’s revenue and profit growth will continue through the end of the decade, and Kristensen emphasized that so long as the firm’s earnings are increasing, the Danish economy will benefit. Still, he added, Novo is “in a slightly more vulnerable position” than previously assumed.

“If things were to take a turn for the worse,” he said, “the effects would show up in quite a few areas.” He pointed to the country’s industrial production and exports as most exposed.

Novo’s vast output has helped drive Denmark’s large surplus and bolstered the krone. That has made it necessary for the Danish central bank to maintain a lower interest rate than the European Central Bank’s to defend the currency peg. Should exports take a major hit, however, Kristensen said that Denmark might need to reverse course and raise its rates.

Within Denmark, a sustained Novo slowdown could also limit funding increases in scientific research, healthcare and social programs, Olsen said. That’s because the Novo Nordisk Foundation, which owns a controlling stake in the company, has significantly ramped up its grantmaking in these areas on the back of soaring profits from blockbuster drugs Wegovy and Ozempic. The foundation supports the work and salaries of around 9,500 scientists.

Photo illustration of Ozempic and Wegovy with weight scale. Both are injectable prescription weight loss medicines. (Photo by: Michael Siluk/UCG/Universal Images Group via Getty Images)

Novo’s Ozempic and Wegovy have contributed to soaring profits for the company (Photo by: Michael Siluk/UCG/Universal Images Group via Getty Images) · UCG via Getty Images

Novo’s rise in recent years has fueled broader concern about Denmark becoming overly reliant on a single company. To those worried about the drugmaker’s outsized role in the country, its setbacks this week evoked specters of Nokia Oyj, the Finnish telecommunications giant whose slump in the early 2000s dragged down Finland’s entire economy.

Denmark’s Prime Minister Mette Frederiksen admitted in an interview last year that officials need to keep an eye on the risks linked to Novo’s dominant position, but brushed off Nokia comparisons, noting that the economy’s strengths aren’t concentrated in the pharmaceutical sector alone.

Olsen from Danske Bank takes a similar view. He noted that Novo is still growing, while Nokia underwent a serious contraction, and argued that even if Novo were to experience a similar downturn, Denmark’s economy would be better positioned to absorb the shock. For all its growth, he said, the drugmaker has a limited impact on national employment and wages — both of which remain resilient — and the Danish economy is more flexible on account of its adaptive wage structures and rules that make it easier to fire employees. Denmark also relies on large inflows of foreign labor to meet workforce needs, which can be adjusted as needed.

Still, the company directly employs more than 30,000 people in Denmark. If layoffs are in the offing, as new CEO Maziar Mike Doustdar has hinted, key Novo hubs such as Kalundborg and Bagsvaerd are likely to take a hit.

Outside of the agricultural industry, Novo was responsible for half of all private-sector job growth in Denmark between early 2023 and 2024, according to the state’s fiscal watchdog.

“Locally, it could feel quite severe, even if it doesn’t show up strongly in national figures,” Kristensen said, especially as cuts and investment reductions are likely to reverberate through Novo’s network of suppliers and contractors.

Nowhere in Denmark have Novo’s rising fortunes registered more strongly than in Kalundborg, home to the company’s main production facilities. As corporate tax revenue from Novo has surged more than tenfold since 2011, unemployment has dropped to record lows and the town has experienced a boom. Novo’s factory expansions and rapid hiring have bolstered local businesses, universities and research programs have flocked to the town, and investment is flowing into housing and infrastructure.

“What’s been the impact of the massive growth in Novo Nordisk?” Olsen said. “It’s delivered GDP growth, shareholder returns, extra tax revenue and a current account surplus. So if the situation were to go the other way, all of those effects would naturally reverse.”

Denmark’s economy runs on Novo. Will the drugmaker’s troubles slim it down?

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