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FY 2007 ADUFA Financial Report: Main Report

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Background

 

ADUFA, Public Law 108-130, authorizes 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 reach the American public more quickly.

ADUFA was patterned in part after the Prescription Drug User Fee Act. Under ADUFA, approximately one fourth of the revenues are derived from animal drug applications and supplemental animal drug applications (for which safety or effectiveness data are required), approximately one fourth of the revenues are derived from annual animal drug product fees, approximately one fourth of the revenues are derived from annual animal drug establishment fees, and approximately one fourth of the fees are derived from annual animal drug sponsor fees. The aggregate fee revenue amount, and amounts for each type of fee, are set in statute, and after FY 2004 are adjusted in each fiscal year for both cumulative inflation and changes in drug review workload. FY 2007 is the fourth year of the ADUFA program. FDA set fees for FY 2007 with a 12.97 percent adjustment for cumulative inflation. Changes in workload in FY 2005 to FY 2007 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 is estimated to equal 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 2007 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 2007 ADUFA Financial Report that addresses the implementation and use of animal drug user fees by FDA during the period of October 1, 2006 through September 30, 2007.

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. In addition, this report presents summary statements of FY 2007 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 2007

 

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 2007 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 2007, FDA's budget authority appropriation for salaries and expenses was $1,569,244,000, excluding user fees. FDA's FY 2003 salaries and expenses appropriation, excluding user fees and then adjusted for inflation, was $1,506,003,107. Because $1,569,244,000 is greater than $1,506,003,107, 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 2007, FDA's Appropriation Act specified that $11,604,000 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 2007 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 2007 after the adjustment for inflation is $35,901,632. In FY 2007, FDA obligated $37,318,801 from appropriations for the reviews of animal drug applications. Because FDA spent more than the specified minimum amount from appropriations in FY 2007, 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 upon their submission, and annual fees shall be collected for certain 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 receivable by fee source during each of the past 2 fiscal years.

 

Food and Drug Administration
Statement of Animal Drug User Fee Collections 
and Receivables by Fee Sources
As of September 30, 2007

Fees Collected FY 2006 FY 2007
Application Fees $1,973,400 $4,552,200
Product Fees $3,061,520 $2,921,650
Establishment Fees $2,952,000 $2,721,550
Sponsor Fees $2,958,946 $2,751,115
TOTAL COLLECTIONS $10,945,866 $12,946,515


Fees Receivable FY 2006 FY 2007
Product Fees $0 $0
Establishment Fees $49,200 $0
Sponsor Fees $149,029 $179,400
TOTAL RECEIVABLES $198,229 $179,400

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 2006, even if it is received in FY 2007, is attributed to FY 2006 collections. In FY 2007, FDA received $493,196 that was attributed to FY 2006 collections. Therefore, FDA increased its FY 2006 fee collections of $10,452,670 reported from last year to $10,945,866.

The receivables for FY 2006 and FY 2007 are from uncollected 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 described in Appendix D.

In FY 2007, FDA obligated $12,270,000 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 Fee Obligations by Expense Categories
As of September 30, 2007

Expense Category FY 2006 FY 2007
Personnel Compensation and Benefits $6,725,480 $6,656,238
Travel and Transportation $158,106 $167,641
Rent $627,500 $675,400
Communications $218,917 $52,065
Contract Services $1,732,132 $4,456,947
Equipment and Supplies $179,293 $196,41
Other* $34,251 $65,294
Total Obligations $9,675,679 $12,270,000

*Other includes expenses from categories such as rent payments to others, printing & reproduction, and other miscellaneous expenses.

The overall ADUFA process spending from user fees increased 27 percent in FY 2007. The largest increase is in the contract services category, which reflects investments in efforts to gain further efficiencies in the review process. 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 2007, FDA dedicated a total of 255 full time equivalent (FTE) positions to the process for the review of animal drug applications, of which 55 were funded by animal drug user fees. In addition to funding 55 FTEs in FY 2007, animal drug user fees supported other operational expenses such as computers, furniture, supplies, rent, and other infrastructure needs. During FY 2008, 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 2008.

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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 2007 resulted in a net carryover balance of $6,139,736.

Food and Drug Administration
Statement of Animal Drug User Fee Collections, 
obligations, and carryover Balances by Fiscal Year
As of September 30, 2007

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 $13,471,861 $12,270,000 $6,139,736
2008 $6,139,736      

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 accounts receivable.

 

Collections Ceilings and Surplus

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 2007 fee collections realized 1, collection ceilings specified in the Appropriation Act, and amounts that must be set aside to be used to offset future collections.

 Food and Drug Administration
Statement of Animal Drug User Fee Collected, Collections 
Ceiling, and Amounts to Offset Future Collections
As of September 30, 2007

Fiscal Year Collections Realized Collection Ceiling Amount to Offset Future Collections
2004 $5,154,700 $5,000,000 $154,700
2005 $8,519,101 $8,354,000 $165,101
2006 $10,945,866 $11,318,000 $0
2007 $12,946,515 $11,604,000 $1,342,515
Total: $1,662,316
Amount Offset When Fees for FY 2008 Were Determined: $320,000
Balance to be Offset in a Subsequent Fiscal Year $1,342,316

As discussed earlier on page 3, FY 2005 and FY 2006 collections realized have been updated from last year's report. The update reflects net collections through September 30, 2007. Additional FY 2007 cohort year fees collected subsequent to September 30, 2007 will be reported in the FY 2008 financial report.

 

Reserves and Balance Available for Allocation

The table below provides a summary of carryover balances as of September 30, 2007, and anticipated claims on those balances.

The first anticipated claim is the reserve for future offsets of $1,342,316 shown above. In addition, prudent operations require that a reserve be kept aside for other potential refunds. For that purpose a total of $500,000 is being set aside. That leaves a total of $4,297,420 available for allocation in FY 2008. This is dependent upon user fee revenue for approximately 4 months.

Food and Drug Administration 
Summary Statement of Carryover Balance
As of September 30, 2007

Status of Carryover Funds Amount
Reserve for Future Collection Offset $1,342,316
Reserve for Refunds $500,000
Available for Allocation $4,297,420
TOTAL Carryover Balance $6,139,736

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Total Cost 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 2007.

Food and Drug Administration
Process for the Review of Animal Drug Applications – Total Cost
As of September 30, 2007

FDA Component FY 2006 FY 2007
Center for Veterinary Medicine (CVM) $40,975,359 $43,622,984
Field Inspection and Investigation $2,298,089 $2,520,695
Agency General and Administrative Costs $3,039,062 $3,445,122
Total Process Costs $46,312,510 $49,588,801
Obligations from Appropriations $36,636,831 $37,318,801
Obligations from Animal Drug User Fees $9,675,678 $12,270,000

In FY 2007, 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 2007 and beyond.

A time reporting analysis is performed each year using data from FDA's CVM Activity Time Reporting (ATR) 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 Office of Regulatory Affairs (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 2008

 

FDA's first 4 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; developing staff; and, developing and disseminating 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 the progressive and more demanding review time goals established under ADUFA in FY 2008, FDA plans to:

  • Continue progress on management initiatives that include development of standard operating procedures for review processes, scientific policies for review staff, and implementation of a quality business system.
  • Maintain staffing necessary to help FDA meet ADUFA review time goals.
  • Develop and 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. We are dedicated to exploring new approaches and technologies that offer high quality and cost-effective improvements in FDA's review of new animal drug applications (NADA) and submissions. FDA looks forward to the continued success and significant improvements in the animal drug review process that ADUFA will help make achievable.

Most importantly, FDA is committed to working with the Department and the Administration to provide whatever assistance may be requested by Congress to assure that this crucial legislation, which will otherwise sunset on September 30, 2008, is reauthorized for another 5 years.

 


 

Footnote

 

1. Collections Realized in this table are the same as the Total Collections in this table.

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