By Elsa Ohlen

Weight-loss drug maker Novo Nordisk has an outsized impact on Denmark's economy -- that's been a good thing, up until now. The country reported its first quarterly economic contraction in more than two years on Tuesday and blamed the pharmaceutical industry.

That's a bit harsh given Denmark's strong growth compared with neighboring countries over the past few years has been largely driven by the success of the company.

But that reliance always came with risks, as Barron's argued last month. Early Tuesday, Statistics Denmark, said seasonally adjusted GDP growth fell by 0.5% in the first three months of the year, in line with expectations, according to FactSet consensus. Compared with the same quarter last year, however, the economy still grew by 3.6%.

Excluding the pharma sector, the overall economy grew by 1% as measured by gross value added.

It's been a similar story for Novo's sales, which fell 9% in the first quarter compared with the fourth quarter of 2024, but were up 19% year-over-year.

Last week Novo Nordisk ousted CEO Lars Fruergaard Jørgensen following what the company referred to as "recent market challenges" and "the development of the company's share price since mid-2024." The search for a new CEO is ongoing.

Since July 2024, the shares are down 55% amid increasing competition from U.S. rival Eli Lilly and compounding pharmacies selling copycat versions of Ozempic and Wegovy, Novo's big blockbuster drugs for weight-loss and diabetes.

During Jørgensen's eight-year tenure, Novo's sales grew from about $17 billion to $42 billion and its share price rose by 240%, even when taking into account the past year's slump.

Las Olsen, Chief Economist at Danske Bank, Denmark's largest bank, however urged caution in drawing conclusions about the quarterly GDP figure. The contraction should be seen in the context of a strong fourth quarter, and the two periods combined, it still looks pretty good, he told Barron's Tuesday.

An economy contracting 0.5% would be a big deal in a larger country, but for a small economy like Denmark it isn't that unusual to have these volatile quarters, Olsen said.

Earlier this month, Novo cut its expected sales growth for the current full year to between 13% to 21% at a constant exchange rate, down from its prior estimate for 16% to 24% growth, citing competition from compounders.

"This revision in itself will have a negative impact on Danish GDP growth, maybe in the magnitude of a quarter of a percentage point or so, " Olsen said. Novo Nordisk declined to comment.

On Monday, the European Commission released its spring 2025 economic forecast. The body still predicts the Danish economy will grow by 3.6% in 2025, outperforming all other European Union countries apart from Malta. It expects the EU's 27 member countries to grow on average 1.1% in the year.

Pharmaceuticals has been an important growth driver in Denmark for a long time, but now, as much as half of the past year's growth can be traced back to the industry.

Even as one quarterly data readout doesn't give a full picture, Novo Nordisk's new CEO will have a bigger task on their hands than just getting the beaten-down stock back on track -- to uphold the Danish economy.

Write to Elsa Ohlen at elsa.ohlen@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

May 20, 2025 10:08 ET (14:08 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.