In recent years, few products have had the immense impact of the diabetes medication Ozempic and weight-loss drug Wegovy, both manufactured by Danish company Novo Nordisk. These drugs have not only improved the lives of millions of individuals by helping them control their appetite, but they have also propelled Novo Nordisk from a second-tier drugmaker to the most valuable company in Europe.
Their influence extends beyond individual lives, permeating the business world. Industries like snack and soda makers are questioning their strategies in a world where demand for their products has diminished. Some stock analysts even suggest that the popularity of these drugs could boost airline profits due to future lighter passengers.
Ozempic and Wegovy have also significantly impacted Denmark, boosting the country’s GDP. The billions of dollars in profits brought in by Novo Nordisk have increased the value of the Danish krone, allowing Denmark’s central bank to maintain lower interest rates. Additionally, Novo Nordisk has become Denmark’s largest taxpayer, contributing billions in corporate tax.
However, despite the apparent benefits, concerns have arisen regarding the risks that Novo Nordisk’s success poses to the Danish economy. Last year, two-thirds of the country’s GDP growth came from the pharmaceutical industry, with Novo Nordisk being the dominant player. In the first quarter of this year, pharmaceuticals accounted for 89% of Denmark’s economic growth. This dependence on a single industry is seen as risky and puts the entire country at stake if Ozempic and Wegovy lose popularity or face competition.
This situation is commonly referred to as the “Nokia trap,” referencing the Finnish company Nokia, which experienced a rapid decline after failing to adapt to changes in the mobile-phone business. Despite these concerns, Denmark may not face the same fate due to the early stage of the Ozempic and Wegovy market and patent protections for Novo Nordisk.
Moreover, while a rough patch for the company would impact the Danish economy, the overall success of Novo Nordisk remains beneficial. Like Nokia in Finland, the benefits of Novo Nordisk’s ascendancy outweigh any potential costs. For Finland, Nokia played a crucial role in revitalizing the economy after a period of stagnation. The analogy to the NBA underscores the idea that having a star player, even if they leave later, is still advantageous.
It is essential for policymakers to avoid being lulled into complacency by a single profitable company, falsely equating its success with the overall economic health. Finland’s sluggish response to Nokia’s decline serves as a cautionary tale. Fortunately, Danish policymakers are aware of the divergence between the pharmaceutical industry and the rest of the economy. The Danish government even publishes GDP numbers with and without the pharmaceutical industry to emphasize this separation.
This awareness of the potential Nokia trap is valuable, enabling policymakers to take proactive measures. In the meantime, Denmark stands to gain from the continued success of Novo Nordisk, and the notion of intervening to develop alternative industries is unrealistic. While diversification can benefit an economy, specialization in the global economy offers unique advantages for small countries like Denmark.
Ultimately, having a company like Novo Nordisk succeed is a positive problem to have for the economy. Denmark should embrace this gift and recognize its value without attempting to reject it.
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