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Denmark Faces Nokia Moment

Denmark is facing its “Nokia moment”; drugmaker Novo Nordisk has ballooned into a $100-billion giant, dominating its home stock market just as the Finnish firm did at the height of the 1990s tech boom.

General view of Novo Nordisk headquarters in Bagsaerd (Reuters)

While the mobile phone maker’s market value eventually slumped, there is a reason for thinking that Novo can remain a growth engine for the Danish economy for years to come.

While the mobile phone maker’s market value eventually slumped, there is a reason for thinking that Novo can remain a growth engine for the Danish economy for years to come – even though it has created a lopsided bourse that a new stock index aims to rectify from next week.

Novo is the biggest producer of insulin and as the world suffers from an epidemic of type 2 diabetes, demand for its products has propelled double-digit sales growth for a decade. That epidemic, linked to over-eating and lack of exercise, is expected to last for decades.

The drugmaker has overtaken Norway’s Statoil as the Nordic region’s biggest company by market capitalisation, after a near 40 per cent surge in its share price last year.

Denmark is increasingly reliant on the biomedical sector as its shipping and financial industries stall, and the winning streak in medicine has eased the pain for a $333-billion economy that has been on the brink of recession for several quarters. “Norway has its oil, Sweden its industry, the Finns have basic materials and we have pharma,” said Morten Kongshaug, a strategist at Danske Bank.

Denmark’s biomedical industry is thriving in the wake of Novo’s success, although the soaring share price is a headache for the Copenhagen bourse which wants a balanced market. With Novo making up nearly half the top 20 Copenhagen benchmark index – eclipsing shipping giant A.P. Moller-Maersk’s 11 per cent – the stock exchange will change the benchmark from next week to a new index that caps Novo’s weighting at 20 per cent.

Similar changes were made in 1995 when Nokia’s weighting reached 47 per cent of the Helsinki index, and again in 2001, as well as for Sweden’s Ericsson in 2000.


Novo’s success in insulin can be traced back to two things which have long been abundant in Denmark: beer and pigs. The group was formed in 1989 by the merger of Novo and Nordisk which had been separate companies since the 1920s.

Denmark’s brewing industry, made famous by Carlsberg, helped Novo’s technical expertise in production and fermentation, while an ample supply of pig pancreases made the country an ideal place to study insulin. In the 1980s the world’s first insulin preparation which is structurally identical to human insulin was launched in the United States. It is extracted from the pancreas of pigs and converted to human insulin chemically for treating diabetes.

Denmark has long been a major bacon producer, meaning there was no shortage of pigs – today there are almost 20 million, far outnumbering the human population of 5.6 million. The biomedical sector now accounts for the biggest chunk of Danish exports – 10 per cent – and numbers employed in the highly skilled industry almost match those in shipping, making it one of the country’s top employers, counting related industries.

“When Novo does well, Denmark does well,” Novo’s chief executive, Lars Rebien Sorensen, said this week. It is often said that anyone in Denmark’s biomedical sector has either worked at Novo or has some kind of link to the firm, and the knock-on effect has helped give the country the third-largest new drug pipeline in Europe, according to Ernst & Young.

“Novo Nordisk is actually feeding the life science engine in Denmark,” said Anders Hinsby, chief executive of Orphazyme, which is hunting for new drugs for rare genetic diseases. Hinsby works in Copenhagen’s Bio Science Park, a cluster of biotech firms that will double in size this year, helped by start-up funds and tax incentives to attract foreign scientists.

Today Novo stands out in a global drugs industry that is struggling with falling sales, thanks to its focus on diabetes. Its shares trade on 22 times expected earnings, nearly double the multiple of other European drugmakers, and its market value puts it among the top eight drugmakers worldwide.

The company’s performance has raised some eyebrows. “It is a small country, a small market, with a very successful company,” Kongshaug said. “That’s a recipe for something that could potentially go wrong and Nokia went wrong.” Nokia’s market value has slumped from $300-billion to just $15-billion today as many buyers look elsewhere for smartphones, but Novo seems to be keeping its grip on the insulin market.

Investors are banking on U.S. approval for Novo’s new insulin Tresiba and a rejection, while unlikely, would be a serious blow. Still, Kongshaug thinks a major setback is unlikely and Novo faces no immediate threats to its main products. Goldman Sachs added the stock this week to its “Conviction Buy List”.


Sorensen predicted last year that Novo could become one of the world’s largest drugmakers by market value, although it still has a way to go to catch Pfizer on $200-billion. Nonetheless, Novo plans to stick close to its Danish roots, rather than having corporate centres around the world.

“We see ourselves more like BMW or Apple, in that we have a strong core location in a centralised governance centre, in our case Copenhagen,” he told Reuters. “We are also skewed in leadership to one nationality, in the same way that BMW is very German and Apple is quite American.”

While rivals such as Novartis, Sanofi and AstraZeneca have brought in outsiders as chief executives, Sorensen and all four members of his top executive team are Danish. As the Novo Foundation controls about 73 per cent of votes – despite owning only 26 per cent of capital – Novo can get on with its business without worrying about takeover threats.

Expanding the business will get more difficult as annual sales approach $15-billion, but the need for diabetes care shows no sign of waning. The International Diabetes Federation says 371 million people have the disease worldwide and predicts the figure will reach 552 million by 2030.

“It is getting more difficult, I have to say, (but) the fundamentals are there on the demand side,” Sorensen said.