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

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

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

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

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)

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

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

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).

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

Challenges in the Flu Vaccine Market  Vaccine Supply  Vaccine Demand  Vaccine Allocation

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

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

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

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

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

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)

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

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

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

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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