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FY 2006 Financial Report: Main Report

<< Return to FY 2006 ADUFA Financial Report: Table of Contents View the Report's Appendices >>

 

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Background

 

The Animal Drug User Fee Act of 2003 (ADUFA), Public Law 108-130, authorizes the Food and Drug Administration (FDA) to collect fees from the animal pharmaceutical industry to augment appropriations spent on FDA’s animal drug review process.  FDA spends the collected fees to hire and support additional staff for the review of animal drug applications to ensure safe and effective drug products to reach the American public more quickly. 

ADUFA was patterned in part after the Prescription Drug User Fee Act.  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 2006 is the third year of the ADUFA program.  After FY 2004, fees are subject each year to adjustments for inflation and workload.  FDA set fees for FY 2006 with an 8.29 percent adjustment for cumulative inflation.  Changes in workload in FY 2005 and FY 2006 resulted in no adjustment based on workload provision in ADUFA. ADUFA authorizes FDA to set fees for each fiscal year so that the total revenue FDA receives in each category equals the statutory amount after adjustments for inflation and workload.

ADUFA requires FDA to submit two reports to Congress in each fiscal year: 1) a performance report sent within 60 days of the end of the fiscal year, and 2) a financial report sent within 120 days of the end of the fiscal year. The FY 2006 ADUFA Performance Report, that describes FDA’s progress in meeting the goals referred to in ADUFA, is being transmitted separately to Congress.  This report is the FY 2006 ADUFA Financial Report that addresses the implementation and use of animal drug user fees by FDA during the period of October 1, 2005 through September 30, 2006.

As required by ADUFA, this report also discusses the legal conditions that FDA must satisfy before it can collect and spend the animal drug user fees each year.  Please refer to Appendix A for calculations and explanations of how FDA satisfied the legal conditions in FY 2006.  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 the Center for Veterinary Medicine (CVM), the Office of the Commissioner (OC), and the Office of Regulatory Affairs (ORA) in FDA.  In addition, this report presents summary statements of FY 2006 fee collections, carryover cash balances, obligations from fees, and total costs of the process for the review of animal drug applications from both fees and appropriations.

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Meeting the Legal Conditions for User Fees in FY 2006

 

ADUFA imposes three legal conditions that must be satisfied in each fiscal year before FDA can collect and spend animal drug user fees.  A summary of how each of these legal conditions was satisfied in FY 2006 are shown below.  Detailed explanations and calculations are described 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), including an adjustment for inflation.  In FY 2006, FDA’s budget authority appropriation for salaries and expenses was $1,486,801,000, excluding user fees.  FDA’s FY 2003 salaries and expenses appropriation, excluding user fees and then adjusted for inflation, was $1,454,432,777.  Because $1,486,801,000 is greater than $1,454,432,777, the first legal condition was satisfied.

The second legal condition.  The amount of user fees collected for each fiscal year must be specified in that year’s Appropriation Acts.  For FY 2006, FDA’s Appropriation Act specified that $11,318,000 shall be derived from animal drug user fees.  The Appropriation Act also specified that the fees collected by FDA remain available to FDA until expended. Therefore, the second legal condition for FY 2006 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 level for FY 2006 after the adjustment for inflation is $34,672,257.  In FY 2006, FDA obligated $36,636,831 from appropriations for the reviews of animal drug applications.  Because FDA spent more in FY 2006, the third legal condition was satisfied. 

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User Fee Collections

 

ADUFA specifies that the user fees shall be collected for certain animal drug applications and supplements, products, establishments, and sponsors.  The statute also specifies the amount FDA is allowed to collect for each of these categories, and how the fee rates should be adjusted in each fiscal year for inflation and increases in workload.

Under ADUFA, fees collected and appropriated, but not spent by the end of a fiscal year; continue to remain available for FDA to spend in future fiscal years. The balances carried forward from year to year are described on page 7.

The following table provides a breakout of user fees collected and receivables by fee sources during the past two fiscal years.

Food and Drug Administration
Statement of Animal Drug User Fees Revenues
By Fee Sources
As of September 30, 2006

 
FY 2005
FY 2006
Fees Collected
Application Fees
$1,371,950
$2,049,300
Product Fees
$2,455,658
$2,885,770
Establishment Fees
$2,598,600
$2,853,600
Sponsor Fees
$2,121,851
$2,664,000
TOTAL COLLECTIONS
$8,548,059
$10,452,670
  
Fees Receivables
Product Fees
$0
$3,905
Establishment Fees
$0
$61,255
Sponsor Fees
$160,750
$355,200
TOTAL RECEIVABLES
$160,750
$420,360

User fee collections are reported in the year the fee was originally due – referred to as cohort years. For example, a fee originally due in FY 2005, even if it is received in FY 2006, is attributed to FY 2005 collections.  In FY 2006, FDA received $580,608 that was attributed to FY 2005 collections.  Therefore, FDA increased its FY 2005 fee collections of $7,967,451 reported from last year to $8,548,059. 

The receivables for FY 2005 and FY 2006 are from uncollected product, establishment, and sponsor fees.  FDA has turned these receivables over to a collection agency.

Totals reported for each fiscal year are net of any refunds for that year.  In order to ensure the quality of the information provided in this financial report, FDA updates prior year collections and receivables each year.

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Obligation of User Fee Collections

 

User fees 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 identified in Appendix D. 

In FY 2006, FDA obligated $9,675,678 from animal drug user fees.  The following table provides a breakout of user fee obligations by expense categories during the past 2 fiscal years.

Food and Drug Administration
Statement of Animal Drug User Fees Obligations
By Expense Category
As of September 30, 2006

Expense Category
FY 2005
FY 2006
Personnel Compensation and Benefits
$4,777,716
$6,725,480
Travel and Transportation
$133,247
$158,106
Rent
$567,000
$627,500
Communications
$66,114
$218,917
Contract Services
$2,683,345
$1,732,132
Equipment and Supplies
$237,247
$179,293
Other (Other includes expenses from categories such as rent payments to others, printing & reproduction, and; other miscellaneous expenses)
$24,331
$34,251
Total Obligations
$8,489,000
$9,675,678

The overall ADUFA process spending of the user fees increased by 14 percent.  The largest increase is in the personnel compensation and benefits category, which reflects the significant progress made in hiring additional review staff.  See the section Total Cost of the Process for the Review of Animal Drug Applications, on page 9, for more discussion on the total process costs for ADUFA.

FDA is working to strengthen and expand its 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.

In FY 2006, FDA dedicated a total of 258 full time equivalent (FTE) positions to the process for the review of animal drug applications, of which 58 were funded by animal drug user fees. The ADUFA program facilitated the recruitment of 17 new review staff in FY 2006 to enhance the animal drug review process.  In addition to funding 58 FTEs in FY 2006, animal drug user fees supported other operational expenses such as computers, furniture, supplies, rent, and other infrastructure needs.  During FY 2007, FDA expects to continue to enhance the review program and recruit additional review staff necessary to meet the challenging performance goals associated with this program in FY 2007 and beyond.

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Carryover Balances

 

Under ADUFA, fees collected, appropriated, and not obligated at the end of a fiscal year remain available to the FDA in future fiscal years.  These funds are referred to as carryover balances.  The operations in FY 2006 resulted in a net carryover balance of $4,937,876.

Food and Drug Administration
Statement of Animal Drug User Fees Collections,
Obligations, And Carryover Balances By Fiscal Year
As of September 30, 2006

Fiscal
Year
Beginning
Carryover
Net
Collection
Obligation
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
$11,017,828
$9,675,678
$4,937,876
2007
$4,937,876
 
 
 
 
 
 

Please note that the balances in the table reflect the 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 account receivables.

 

Collection Ceilings and Surpluses

Under ADUFA, the collections in excess of the fee amounts specified in the Appropriation Act may be kept and used to reduce the fee rates in a later fiscal year.  The following table depicts FY 2006 collections realized 1, collection ceilings specified in the Appropriation Act, 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, 2006

Fiscal
Year
Collections Realized
Collection Ceiling
Amount to Offset Future Collections
2004
$5,154,700
$5,000,000
$154,700
2005
$8,548,059
$8,354,000
$194,059
2006
$10,452,670
$11,318,000
-
  
Total:
$348,759

$348,759 may also be subject to further reduction as a result of potential Fees Exceed Costs Waiver determinations by FDA.

As discussed earlier on page 3, FY 2005 collections realized has been updated from $7,967,451 in last year’s report to $8,548,059.  The update reflects an additional $580,608 in FY 2005 cohort year fees collected by FDA subsequent to September 30, 2005.  Additional 2006 cohort year fees collected subsequent to September 30, 2007 will be reported in the FY 2007 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 during the past 2 fiscal years by FDA organizational components.  It depicts the full costs of the process for the review of animal drug applications paid from appropriations and user fees.  The amounts are based upon obligations recorded at the end of FY 2006.

Food and Drug Administration
Process for the Review of Animal Drug Applications — Total Cost
As of September 30, 2006

FDA Component
FY 2005
FY 2006
Center for Veterinary Medicine
$37,956,690
$40,975,359
Field Inspection and Investigation
$2,185,865
$2,298,089
Agency General and Administrative Costs
$2,754,149
$3,039,062
Total Process Costs
$42,896,704
$46,312,509
Obligations from Appropriations
$34,407,704
$36,636,831
Obligations from Animal Drug User Fees
$8,489,000
$9,675,678

In FY 2006, the FDA experienced increased costs in all components of the process to review animal drug applications.  This increase is a result of progress made by FDA to ensure the enhancement of the animal drug review performance in FY 2006 and beyond.

A time reporting analysis is performed each year using data from FDA’s CVM Activity Time Reporting System to determine the percentage of time each organizational component within CVM 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 field inspection and investigation are pre-approval inspections of manufacturing facilities, investigations of clinical studies, and analytical testing of samples that are counted for the review process for animal drug applications.  FDA’s ORA captures time spent in its field inspection and investigation by using the Field Accomplishments and Compliance Tracking System.

The development of the costs associated with the process for the review of animal drug applications is described in more detail in Appendix E.

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Management plans for FY 2007

 

FDA’s first 3 years under ADUFA have been highly productive and successful. Since FY 2004, FDA has met or exceeded all of the review performance goals established under ADUFA. This has been accomplished by such measures as hiring a substantial number of additional FDA staff, staff development activities, and the development and dissemination of guidance, policy, and procedural documents. These actions are an integral part of FDA’s commitment to improving the efficiency, quality, and predictability of the new animal drug review process to meet more demanding review time goals established under ADUFA for FY 2007 and FY 2008.

In FY 2007, FDA plans to build on its accomplishments to:

  • Advance progress already made on management initiatives (including quality business systems).
  • Refine, update, and develop new standard operating procedures for review and scientific processes.
  • Issue guidance to industry to explain current FDA thinking related to the new animal drug review process.
  • Provide training and educational opportunities for FDA staff to enhance the knowledge base of the review organization.

FDA is committed to improving the efficiency, quality, and predictability of the new animal drug review process. The agency is dedicated to exploring new approaches and technologies that offer high quality and cost-effective improvements in FDA’s review of new animal drug applications and submissions. FDA looks forward to the continued success and significant improvements in the animal drug review process that ADUFA will help make achievable.

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Footnote

 

1 Collections realized are the same as the net collections in the collection table on page 3.

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