A Potential Influenza Pandemic: Possible Macroeconomic Effects and Policy Issues

1. A Potential Influenza Pandemic: Possible Macroeconomic Effects and Policy Issues Julie Somers Congressional Budget Office Prepared for the Ninth Annual Pipeline Project Conference, July 15, 2006

2. CBO’s Mission • Budget projections under current laws and policies • Analysis of the President’s budgetary proposals • Estimates of budgetary costs of legislation approved by Congressional committees • Reports that analyze issues that are significant for the budget

3. CBO’s Work on Pandemic Influenza • December 2005 with update May 2006 • Requested by Senate Majority Leader, Frist • Update requested by Frist and Senator Gregg, Chairman of the Senate Budget Committee

4. Pandemic Influenza Background • Influenza pandemics - caused by new flu viruses that have adapted to efficient human to human transmission • Three pandemics occurred in previous century • “Spanish Influenza” in 1918 • “Asian Influenza” in 1957 • “Hong Kong Influenza” in 1968

5. Avian Influenza Background • Avian Influenza – large group of different flu viruses that primarily affects birds • H5N1 strain has pandemic potential • In 1997, H5N1 jumped to humans – 18 cases; 6 deaths • Since then, H5N1 has spread among birds throughout Asia, to Europe and Africa (229 human cases and 131 deaths)

6. Possible Macroeconomic Effects: Assumptions • Severe Scenario • Comparable to pandemic of 1918 • Attack Rate = 30%; Case Fatality Rate = 2.5% • 90 million infected; 2 million deaths • Mild Scenario • Comparable to pandemics of 1957 and 1968 • Attack Rate = 25%; Case Fatality Rate = ~0.1% • 75 million infected; 100,000 deaths

7. Possible Macroeconomic Effects: Results • Severe Scenario – GDP declines 5%, relative to baseline • Supply-Side: workers who take ill miss 3 weeks of work. • Demand-Side: 80% falloff in entertainment industries (for one quarter); 10% for retail trade and manufacturing • Mild Scenario – GDP declines 1.5%, relative to baseline • Supply-Side: workers who take ill miss ~4 days of work • Demand-Side: 20% falloff in entertainment industries; 3% for retail trade and manufacturing

8. Options to Prevent or Mitigate Flu Pandemic • Options fall into Four Broad Categories • Detecting and controlling viruses at their source, • Developing and using vaccines, • Developing and using antiviral drugs and other medications, and • Building the capacity of the health care system (facilities, equipment, and people).

9. Options to Prevent or Mitigate Flu Pandemic • Risk of Inaction and Risk of Action • Risk of Inaction: Pandemic occurs that could have been prevented or mitigated • Risk of Action: Cost, diverts resources from other priorities, and could be damaging by itself

10. Challenges in the Flu Vaccine Market • Vaccine Supply • Vaccine Demand • Vaccine Allocation

11. Challenges in the Flu Vaccine Market • Vaccine Supply • Declining numbers of manufacturers, shortages, slow pace of technical improvement • Egg-based production process requires 6-9 month • Production cannot be scaled up quickly

12. Challenges in the Flu Vaccine Market • Vaccine Supply • Vaccines are biologics (made from living cells), production process vulnerable to contamination • High regulatory costs • Vaccine non storable – flu strains change from year to year

13. Challenges in the Flu Vaccine Market • Vaccine Demand • Hard to predict from year to year • Smaller than socially optimal • Vaccine Allocation • Priority Groups • CDC rather than market incentives allocates flu vaccine in times of shortage discouraging the establishment of reserve capacity

14. Threat of a pandemic exacerbates challenges • U.S. demand will jump from ~86 million to ~300 million • Current U.S. domestic production capacity could produce pandemic vaccine for only 8 million people, less than 3% of the population. • Production lag → vaccinating survivors

15. Administration’s plan • Requested $7.1 billion (FY06 – FY08) • Congress provided • $3.8 billion for FY2006 • $2.3 billion for FY2007 • ?? FY2008

16. Administration’s plan • Stockpile prepandemic vaccines adequate to immunize 20 million persons against influenza strains that present a pandemic threat (Address production lag) • Develop domestic production capacity by 2011 sufficient to provide vaccine for the entire U.S. population within 6 months of a pandemic outbreak (Address capacity limitation)

17. Stockpiling Prepandemic Vaccines • 8 million doses purchased for $240 million • Not a perfect match, hope for cross-protection • Increase manufacturers’ experience • Rate of stockpiling slow • Shelf life 12 to 18 months – restocked or used

18. Develop Domestic Production Capacity • Egg-Based Vaccine Production • Goal - 20% of future capacity • Would have to increase sevenfold • $531 million of FY2006 funds

19. Develop Domestic Production Capacity • Cell-Based Vaccine Production • Goal – 80% of future capacity • Readily scalable • ~$1 billion of FY2006 funds • Future funding to companies successful in first round

20. Develop Domestic Production Capacity • Cell-Based Vaccine Production • May take much longer to develop • May delay adoption of better techniques • Adjuvants • DNA-based vaccines • Requires on-going government support • Universal vaccination against seasonal flu • Stockpiles of prepandemic vaccine • Provide seasonal flu vaccine to developing countries

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