A Potential Influenza Pandemic: Possible Macroeconomic Effects and Policy Issues

Julie SomersCongressional 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

techniquesAdjuvantsDNA-based vaccines

Requires on-going government supportUniversal vaccination against seasonal fluStockpiles of prepandemic vaccineProvide seasonal flu vaccine to developing

countries

Congressional Budget Office

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