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How Ozempic is Currently Breaking the Stock Market (and Denmark’s Economy)


8m read
·Nov 7, 2024

If you look at Europe's largest companies, you get some familiar names: Accenture, Hermes, L'Oreal, semiconductor manufacturer ASML, and the luxury goods behemoth that is LVMH. But another name that is very quickly charged its way to the top of the list is a business called Novo Nordisk, a pharmaceutical company that specializes in diabetes medication. In fact, just last week, they did briefly overtake Louis Vuitton to become Europe's largest company. But most people have never heard of it.

What you might have heard of, however, are the two new drugs they sell: Ozempic and Wegovy. These drugs most certainly help diabetics but are currently blowing up around social media for different reasons. They're being hailed as new miracle drugs for weight loss and are now facing shortages around the world. But interestingly, the story goes a little bit further than simply the success of two new drugs, as Novo Nordisk's meteoric rise is now having a major impact on Denmark's entire economy.

Novo Nordisk's shares have been on a tear the last few months; drug sales surged to more than a billion dollars. The finance community is exuberant about the potential of these drugs, hoping they have two of the biggest selling drugs that we've ever seen. I don't know this; the share price has roughly tripled in the past three years. The Danish company is now worth more than the Danish economy, and still, healthcare analysts think it could go higher from here.

Ozempic was approved by the FDA in 2017 as a medication to treat type 2 diabetes. It's a weekly injection you administer yourself, and it helps lower your blood sugar levels by helping the pancreas make more insulin. And that's all the drug was originally designed for. But as patients began to use the drug, a common side effect was discovered: people using it were losing weight. This effect quickly spread throughout medical circles and even swept through social media, exploding the popularity of what could be a new era of weight loss medications.

This was originally developed to treat diabetes by Danish pharmaceutical giant Novo Nordisk. This class of drugs has taken the pharmaceutical world by storm. There are more than one billion people clinically obese globally. It's a race in the healthcare industry, and celebrities are starting to talk about these drugs a lot. It's effective, and it's really easy to take; really, the holy grail.

Soon doctors were prescribing the drug not just for diabetes but also to help patients with weight loss, and the evidence started to stack up. In 2021, a major study published in the New England Journal of Medicine showed that patients taking a weekly dose of 2.4 milligrams of semaglutide, the generic name for Ozempic, had an average reduction in body weight of 14.9 percent after 68 weeks, compared to 2.4 percent for the placebo group which just participated in lifestyle intervention.

Now, while that study was funded by Novo Nordisk, the makers of Ozempic, nobody could deny that in the real world, real patients were really losing weight. But why did it have this effect? When you eat, your body releases a number of hormones that aid in digestion. One of them is called GLP-1. Now, without getting too into the weeds, it's one of the hormones that helps us know when we're feeling full.

Now, semaglutide is a protein designed to mimic GLP-1. It's used in patients with diabetes as, just like GLP-1, semaglutide stimulates the pancreas to produce insulin, which helps to lower blood sugar levels. But that's not the only organ semaglutide affects; it also slows gastric emptying from the stomach, which helps you stay fuller for longer, and in the brain, it tells the hypothalamus to reduce your appetite, so you don't feel hungry anymore.

It's genius, and it's being hailed as a miracle drug, sparking a weight loss revolution. Let's just say that if anything, it has at least been a miracle drug for Novo Nordisk. Ozempic sales started in the U.S. in 2018, bringing in roughly 269 million U.S. dollars; in 2022, Ozempic sales hit nearly 9 billion USD, and in 2023, sales have already hit 6.2 billion dollars.

People are catching on that Ozempic does a lot more than just help the pancreas create insulin, and so are doctors. According to Dr. Jeffrey Mechanic, an endocrinologist at Mount Sinai's Icon School of Medicine, doctors were prescribing it off label for those that didn't even have diabetes. But this is where things get tricky for Novo Nordisk: they knew they were onto something, but despite Ozempic's success and despite its effectiveness for reducing obesity, it didn't have FDA approval for use in weight loss. This restricted how they could market the drug, so they were ultimately leaving a lot of money on the table.

So what did they do? You guessed it: Novo Nordisk quickly got back to the lab and created a brand new drug called Wegovy. Okay, look, they make it sound like Wegovy is this brand new drug, but at the end of the day, it's still semaglutide. They just needed a new drug so they could resubmit to the FDA to get it approved for weight loss.

But yes, after days, weeks, months, years of toiling and testing in a lab, working late nights on weekends, doing experiment after experiment, finally the scientists figured out how to remove the Ozempic labels from the pens and replace them with the big fat Wegovy ones—no pun intended. But now, with an effective weight-loss drug under their belt that can actually be sold as a weight-loss drug, Novo Nordisk could really ramp up the marketing campaign.

And while it did take time to catch on, because Ozempic was already so successful, finally Wegovy has now surpassed its predecessor. The New York Times notes that in July, doctors in the U.S. wrote about 94,000 prescriptions a week for Wegovy compared to about 62,000 a week for Ozempic. Even Elon Musk has taken to using the new drug alongside intermittent fasting to help control his weight.

And now that Novo Nordisk's shackles are off, investors have been getting very excited over the new drug. In Wegovy's first year of sales, the drug brought in 208 million dollars in revenue; in 2022, that rose to 928 million. Now, year to date, Wegovy’s sales have already doubled that 2022 total, coming in at 1.8 billion. The drug is catching on so quickly that the company is struggling to keep up.

While the company is ramping up production, they've limited the availability to just four markets: Norway, Denmark, Germany, and the United States. And at pharmacies in those countries, shortages are frequent. But with over 764 million people globally suffering from obesity and 42.4 percent of Americans falling into that categorization, investors aren't so much worried about the short-term supply problems but rather the long-term potential of this new drug category.

Since 2018, the first year of Ozempic sales, Novo Nordisk's shares have risen exponentially, now sitting at a rough 300% gain, giving the company a 415 billion U.S. dollar market cap. This has now given Novo Nordisk the title of the second largest company in Europe, behind Louis Vuitton.

But one particular beneficiary of Novo Nordisk's success has been Denmark itself. According to The New York Times, the company's recent success accounts for nearly all of Denmark's economic growth. The surge in overseas sales is even prompting the Danish Central Bank to keep interest rates lower than it otherwise would.

Unbelievably, in recent weeks, Novo Nordisk's market cap has now surged larger than the GDP of Denmark itself, and it's getting so large that economists are now debating whether the country needs to publish another set of economic statistics that strips out Novo Nordisk in much the same way that core inflation strips out food and energy.

And while Denmark is no stranger to large companies—think shipping company Maersk and even Lego—this situation has definitely had a much larger and more sudden impact on the Danish economy. But it isn't all sunshine and rainbows. According to Jonah Stamp-Petersen, a chief advisor at Denmark's National Statistics Agency, even though Denmark's pharmaceutical industry was responsible for over two-thirds of the country's economic growth last year, there hasn't really been a corresponding increase in employment.

Over the past five years, the industry has added 3.4 percentage points to Denmark's growth but just 0.1 percent to employment. This is largely due to the fact that much of Novo Nordisk's production takes place overseas, such as in the United States. But it is a mixed bag because, although it may not be boosting employment in Denmark, there are still many broad benefits for the Danish population.

The biggest and most obvious is corporate tax. Novo Nordisk is actually surprisingly open and honest when talking about their tax management. The company notes they choose not to use shell companies or tax havens to reduce their tax bill, and their goal is to not only comply with the letter of the law but also the underlying intent. But the result is Novo Nordisk is the biggest contributor of corporation tax in Denmark, which, as you might be able to guess, is very helpful for the country's public finances and has a flow-on effect to its citizens.

Another big plus for the Danish economy is the future outlook for these new medications. Not only is Novo Nordisk boosting Denmark now, it's also expected to grow a lot further due to the total addressable market of these new medications. Even just looking at the United States, more than a hundred million adults are obese, according to the Centers for Disease Control and Prevention.

But there is one more positive effect that directly impacts Danish citizens, and that is low interest rates. Because Novo Nordisk is pulling huge amounts of money from overseas back to Danish Krona, economists have started to see upward pressure on the currency. But because the Danish Krona is pegged to the Euro, when the Krone rises, the Danish Central Bank has to lower interest rates to discourage foreign investors from holding the currency. As a result, the Danish interest rate is slightly lower than the one in the Eurozone, currently 0.4 percentage points lower than the ECB's rate, which is helpful for citizens looking to access loans.

So, the positives certainly far outweigh the negatives. The main concern in Denmark right now is the potential for the country to become too reliant on Novo Nordisk and thus suffer what's colloquially known as the Nokia effect. Nokia contributed a quarter of Finland's growth from 1998 to 2007, and in the decade to 2007, they were sometimes paying as much as 23 percent of all Finnish corporation tax. But as Nokia has declined into irrelevance over the years, this has also affected forecasts of the Finnish economy moving forward.

Now, this is a concern to some Danish officials. However, it seems as though they are keeping their feet well on the ground by analyzing economic data without the Novo Nordisk impact. Time will tell if Denmark can use Novo Nordisk as a welcome boost to their economy or if they just end up reliant on the pharmaceutical giant.

But with that said, that is the story of Europe's first or second largest company, depending on when you watch this, that being Novo Nordisk and its effect on the Danish economy. Please leave a like on this video if you did enjoy it. Make sure you subscribe if you like videos like this, and with that said, guys, I will see you all in the next video.

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