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FY 2005 ADUFA Financial Report: Main Report

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Background

 

ADUFA authorized FDA to collect fees from the animal pharmaceutical industry to augment appropriations spent on animal drug review. The collected fees were spent to hire and support additional staff for the review of animal drug applications so that safe and effective drug products would reach the American public promptly. ADUFA was patterned in part after the very successful Prescription Drug User Fee Act (PDUFA).

Under ADUFA, fees are derived from animal drug applications, supplemental animal drug applications (for which safety or effectiveness data are required), animal drug products, animal drug establishments, and animal drug sponsors. The aggregate fee revenue is set in statute, and then adjusted in each fiscal year for both cumulative inflation and changes in drug review workload. FY 2005 is the second year of the program. After FY 2004, fees are subject to adjustments of inflation and workload. In FY 2005, FDA set fees with a 4.42 percent adjustment for inflation, applying the appropriate provisions of the Act. Following the statutory provisions, no workload adjustment was applied. ADUFA authorizes FDA to set fees for each fiscal year to assure that the total revenue FDA receives from each category equals the statutory amount after the allowable adjustments for inflation and workload.

ADUFA requires FDA to submit two reports to Congress in each fiscal year. A performance report is to be sent within 60 days of the end of the fiscal year, and a financial report is to be sent within 120 days. The FY 2005 ADUFA Performance Report, which discusses FDA's progress in meeting the goals referred to in ADUFA, is being transmitted separately to Congress. This report is the FY 2005 ADUFA Financial Report that addresses the implementation and use of animal drug user fees by FDA during the period of October 1, 2004 through September 30, 2005.

As required by the statute, this report discusses the legal conditions (or "triggers") that must be satisfied before FDA can collect and spend the fees. See Appendix A for calculations and explanations of how the legal conditions were met in FY 2005. Furthermore, this report describes (in Appendix D) the process for the review of animal drug applications, as defined in ADUFA — a process that includes portions of activities in Center for Veterinary Medicine (CVM), Office of the Commissioner (OC), and Office of Regulatory Affairs (ORA) in FDA. In addition, this report presents summary statements of FY 2005 fee revenues earned, expenses obligated from animal drug user fees, and total costs of the process for the review of animal drug applications paid by fees and appropriations.

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Meeting the Legal Conditions for User Fees in FY 2005

 

ADUFA imposes three legal conditions (or "triggers") that must be satisfied each year before FDA can collect and spend user fees. The calculations on how these conditions were met in FY 2005 are summarized below and explained in more detail in Appendix A.

The first legal condition. FDA's budget authority appropriation for salaries and expenses (excluding user fees) must meet or exceed FDA's FY 2003 salaries and expenses appropriation (excluding user fees) with the inflation adjustment. In FY 2005, FDA's budget authority appropriation for salaries and expenses was $1,450,098,000 exclusive of user fees. FDA's FY 2003 total salaries and expenses appropriation, excluding user fees and applying a statutory adjustment for inflation (1.0229), was $1,405,104,635. Since $1,450,098,000 is greater than $1,405,104,635, the first legal condition was satisfied.

The second legal condition. The amount of user fees collected for each fiscal year must be specifically stated in that year's Appropriation Acts. For FY 2005, FDA's Appropriation Act specified that $8,354,000 shall be derived from animal drug user fees, in addition to sums provided in regular appropriations. The Appropriation Act specified that the fees collected remain available until expended. Therefore, the second legal condition was satisfied.

The third legal condition. User fees may be collected and used only in years when FDA spends at least as much from appropriated funds (excluding user fees) on the process for the review of animal drug applications as it did in FY 2003 adjusted for inflation. This is referred to as the specified minimum in this report. Under ADUFA, the condition is considered met if the total review expense funded by appropriations in any year is no more than 3 percent below the specified minimum. The specified minimum for FY 2005 after the adjustment for inflation is $33,496,322. In FY 2005, FDA obligated $34,407,704 from appropriated funds for the reviews of animal drug applications. Since FDA spent more in FY 2005, the third legal condition was satisfied.

Appendix A provides a more detailed explanation on how FDA met each of these three statutory conditions.

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User Fee Revenues

 

ADUFA specifies that fee revenues shall be collected for certain animal drug applications, products, establishments, and sponsors. The statute also specifies the amount FDA is allowed to collect for each of these categories, and how they should be adjusted in each fiscal year for inflation and increases in workload. By following the law, FDA is able to establish fees in an effort to assure that the total revenue collected approximates the adjusted statutory total fee amount. The inflation adjustment for FY 2005 was 4.42 percent. This is the greater of the CPI increase during the 12-month period ending June 30, 2004 (3.27 percent) or the increase in pay for FY 2004 for Federal employees stationed in Washington, DC (4.42 percent). Specified review workload has not increased during the most recent 3 year average compared with the average of the base years. ADUFA specifies that the workload adjuster may not result in fees that are less than the inflation-adjusted revenue amount. For this reason, the workload adjustment was not applied in FY 2005. Therefore, FDA set the fees in FY 2005 with a 4.42 percent inflation adjustment and no adjustment for workload.

Under ADUFA, any fees collected and appropriated but not spent by the end of a fiscal year continue to remain available to FDA to spend in future fiscal years. The balance carried forward to the next fiscal year is covered in the section titled Carryover Balances beginning on page 6.

Food and Drug Administration
Statement of Animal Drug User Fees Revenues
By Fee Sources
As of September 30, 2005

 
FY 2004
FY 2005
Fees Collected:  
Product Fees
$1,422,750
$2,282,900
Establishment Fees
$1,460,950
$2,470,800
Sponsor Fees
$1,096,950
$1,961,101
Application Fees
$1,189,500
$1,252,650
TOTAL COLLECTIONS:
$5,170,150
$7,967,451
     
Fees Receivables:  
Product Fees
-
-
Establishment Fees
-
-
Sponsor Fees
$15,450
$96,450
Application Fees
-
-
TOTAL RECEIVABLES:
$15,450
$96,450
     
TOTAL REVENUES
$5,185,600
$8,063,901

Note that user fee revenues are reported in the year the fee was originally due—referred to as cohort years. For example, a fee due for FY 2004, even if it is received in FY 2005, is attributed to FY 2004 revenues. Totals reported for each year are net of any refunds for that year.

The receivables for FY 2004 and FY 2005 are from uncollected sponsor fees, which were turned over to a collection agency. In order to ensure the quality of the information provided in this financial report, FDA updates prior year numbers each year. A summary of FY 2005 waived or reduced fees is provided in Appendix C.

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Obligation of User Fee Revenues

 

User fee revenues are expended only for costs necessary to support the process for the review of animal drug applications, as defined in ADUFA. Allowable and excludable costs for the process for the review of animal drug applications are defined in Appendix D. In FY 2005, FDA obligated $8,489,000 from animal drug user fee revenues.

Food and Drug Administration
Statement of Animal Drug User Fees Obligations
By Expense Category
As of September 30, 2005

Expense Category
FY 2005
Personnel Compensation and Benefits
$4,777,716
Travel and Transportation
$133,247
Rent
$567,000
Communications
$66,114
Contract Services
$2,683,345
Equipment and Supplies
$237,247
Other
$24,331
TOTAL OBLIGATIONS
$8,489,000

FDA is working to strengthen and expand our capacities to conduct efficient and timely reviews, and to ensure the safety and effectiveness of the new animal drugs. FDA dedicated 197 staff-years to the process for the review of animal drug applications in FY 2003, before ADUFA was enacted. A time reporting analysis is performed each year using data from CVM's Activity Time Reporting (ATR) System to determine the percentage of time each organizational component devoted to activities that are included in the process for the review of animal drug applications, as defined in ADUFA. This facilitates the calculation of process costs. The development of the costs associated with the process for the review of animal drug applications is described in more detail in Appendix E. The time percentages will be recalculated regularly in future years based on process data from CVM's ATR System.

In FY 2005, FDA dedicated a total of 259 full time equivalent staff years to the process for the review of animal drug applications, of which 217 were funded by non fee appropriations and 42 were funded by animal drug user fees. The ADUFA program facilitated the recruitment of 27 new review staff in FY 2005 to enhance the animal drug review process. In addition to funding 42 full time equivalent (FTE) staff years in FY 2005, animal drug user fees supported other operational expenses such as computers, furniture, supplies, rent, and other infrastructure needs. During FY 2006, FDA expects to spend user fees to continue enhancing the review program and recruit the additional review staff necessary to meet the challenging performance goals associated with this program in FY 2006 and beyond.

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Carryover Balances

 

Under ADUFA, fees collected and appropriated but not obligated by the end of a fiscal year continue to remain available to FDA in future fiscal years. They are referred to as carryover balances. Operations in FY 2005 resulted in a net carryover balance of $3,595,726.

Food and Drug Administration
Statement of Animal Drug User Fees Collections,
Obligations, And Carryover Balances By Fiscal Year
As of September 30, 2005

Fiscal
Year
Beginning Carryover
Net
Collections
Obligations
Year-End Carryover
2004
-
$4,866,475
$1,083,300
$3,783,175
2005
$3,783,175
$8,301,551
$8,489,000
$3,595,726
2006
$3,595,726
 
 
 


The balances above reflect cumulative cash from the beginning to the end of each fiscal year, and net cash collected during each fiscal year for all cohort years. The numbers do not include any accounts receivable.

 

Collection Ceilings and Surpluses

Under ADUFA, the collections in excess of the fee amounts appropriated may be kept and used to reduce fees that would otherwise be assessed in a later fiscal year. The following table depicts FY 2005 net collections, collection ceilings specified in the appropriation, and amounts that may be used to offset future collections.

FOOD AND DRUG ADMINISTRATION
STATEMENT OF ANIMAL DRUG USER FEES COLLECTED, COLLECTION CEILING, AND AMOUNTS TO OFFSET FUTURE COLLECTIONS
As of September 30, 2005

Fiscal Year
Collections Realized
Collection Ceiling
Amounts to Offset Future Collections
2004
$5,170,150
$5,000,000
$170,150*
2005
$7,967,451
$8,354,000
-
 
 
Total:
$170,150

* Subject to further reduction as a result of potential Fees Exceed Costs Waiver determinations.

As discussed earlier on page 3, FY 2004 collections realized has been updated from $4,866,475 in last year's report to $5,170,150. The update reflects an additional $303,675 in 2004 fees invoiced and collected by FDA subsequent to September 30, 2004. Additional 2005 fees collected subsequent to September 30, 2005 will be presented in the FY 2006 financial report.

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Total Costs of the Process for the Review
of Animal Drug Applications

 

The table below shows the costs for the review of animal drug applications for FY 2005 by organizational components. It depicts the full costs of the process for the review of animal drug applications paid from both appropriations and user fee revenues. The amounts are based upon obligations recorded at the end of FY 2005.

Food and Drug Administration
Process for the Review of Animal Drug Applications — Total Cost
As of September 30, 2005

FDA Component
FY 2004
FY 2005
Center for Veterinary Medicine Costs (CVM)
$28,707,661
$37,956,690
Field Inspection and Investigation Costs (ORA)
$1,873,743
$2,185,865
Agency General and Administrative Costs (OC)
$2,275,763
$2,754,149
 
Total Process Costs
$32,857,167
$42,896,704
Amount from Appropriations
$31,773,867
$34,407,704
Amount from Fees
$1,083,300
$8,489,000

In FY 2005, FDA experienced increased costs in all components of the process to review animal drug applications. CVM, for example, experienced a 32 percent increase in its process costs reflecting significant progress in hiring the review staff necessary to enhance animal drug review performance in FY 2006 and beyond.

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Management Challenges for FY 2006

 

With the second year operating under ADUFA, FDA has improved the review process for new animal drug applications, established the financial program envisioned in the Act, hired additional FDA staff, and prepared guidance for the industry and staff. FDA, working collaboratively with the industry, has also reached beyond the established ADUFA performance goals to reduce the frequency of multiple review cycles in the new animal drug application process.

While FDA's first two years under ADUFA have been highly productive and successful, there are still improvements to make in order to reach the level that will enable us to obtain the comprehensive set of review goals and commitments.

In FY 2006, FDA plans to build on its accomplishments and continue to:

  • Hire additional staff necessary to achieve the review capacity specified by ADUFA performance goals for FY 2006 and beyond.
  • Advance the work already started on management initiatives (including quality business systems and new information technology systems and solutions).
  • Develop improved standard operating procedures for review processes and develop scientific policies for review staff.
  • Issue guidance to the industry to clarify current FDA thinking.
  • Direct and target training and educational opportunities for staff and management to improve the knowledge base of the review organization.

FDA is committed to improving the efficiency, quality, and predictability of the new animal drug review process. We are dedicated to exploring new approaches and technologies that offer high quality, cost-effective improvements in FDA's review of new animal drug applications and submissions. Under the leadership of the President, and in collaboration with the Congress and industry, the FDA looks forward to the continued success and significant improvements in the animal drug review process that ADUFA makes possible.

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