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FY 2004 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 fees were to be used 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 more quickly. 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 amount is set in statute, and then adjusted each year for both cumulative inflation and changes in drug review workload. Since FY 2004 is the first year of the program, there are no adjustments for workload or inflation on the revenue amounts. However, these adjustments will be made to the statutory revenue amounts each year after FY 2004. ADUFA authorizes FDA to set fees for each fiscal year so that the total revenue FDA receives from each category equals the statutory amount after the 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 2004 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 FDA's FY 2004 ADUFA Financial Report, covering the period of October 1, 2003, through September 30, 2004.

As required by statute, this report presents the legal conditions (or "triggers") that must be satisfied before FDA can collect and spend the fees, and FDA's calculations showing how those conditions were met for FY 2004 (Appendix A). This report also describes (Appendix D) the process for the review of animal drug applications, as defined in ADUFA — a process that includes portions of activities in FDA's Center for Veterinary Medicine (CVM), Office of the Commissioner, and Office of Regulatory Affairs. This report presents FY 2004 revenues and obligations from user fees, and a summary statement of user fees by sources (application, establishment, product, and sponsor fees). The total costs of the process for the review of animal drug applications, as defined in ADUFA, are also presented — both the costs paid from fee revenues and the costs paid from appropriations.

In keeping with the requirements of the Chief Financial Officers Act of 1990, the Office of the Inspector General (OIG), Department of Health and Human Services, audits FDA's annual financial statements. The audit covers all of FDA's financial systems and funds, including ADUFA revenues and expenses. The OIG issued unqualified audit opinions on FDA's financial statements for fiscal years 2003 and 2004. This is the most favorable category of audit opinion.

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MEETING THE LEGAL CONDITIONS FOR USER FEES IN FY 2004

 

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 2004 are summarized below and explained in greater detail in Appendix A.

The first condition is that FDA's overall Salaries and Expenses Appropriation (excluding user fees) must meet or exceed FDA's overall FY 2003 Salaries and Expenses Appropriation (excluding user fees and adjusted for inflation). In FY 2004, FDA's overall Salaries and Expenses Appropriation totaled $1,386,962,000, exclusive of user fees. FDA's FY 2003 total Salaries and Expenses Appropriation, excluding user fees, was $1,382,702,000. Since the FY 2004 amount is greater than the FY 2003 amount, the first condition was met.

The second condition is that the amount of user fees collected each year must be specifically included in the Appropriation Acts. For FY 2004, FDA's Appropriation Act specified that $5,000,000 would come from ADUFA fees, in addition to sums provided in regular appropriations. The Appropriation Act specified that the fees collected could remain available until expended. Therefore, the second condition was met.

The third condition is that user fees may be collected and used only in years when FDA also uses a specified minimum amount of appropriated funds for the review of animal drug applications. The specified minimum is the amount FDA spent on the review of animal drug applications from appropriations (exclusive of user fees) in FY 2003, adjusted for inflation. Under ADUFA, this condition is considered met if costs funded by appropriations in any year are not more than 3 percent below the specified minimum. The specified minimum, adjusted for inflation for FY 2004, is $32,748,388. In FY 2004, FDA obligated $31,773,867 from appropriated funds for the reviews of animal drug applications, which is 2.97 percent less than the trigger. Since 2.97 percent is less than 3 percent, the third condition has been met.

Appendix A provides more details on the calculations of how these statutory conditions were met.

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USER FEE REVENUES

 

ADUFA specifies that fee revenues shall be collected from application, product, establishment, and sponsor fees. The statute specifies the revenue amount for each of these categories. Since FY 2004 is the first year of the program, there are no adjustments for workload or inflation on the revenue amounts. However, these adjustments will be made to the statutory revenue amounts each year after FY 2004.

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 year is covered in the section on carryover balances beginning on page 6.

FOOD AND DRUG ADMINISTRATION
STATEMENT OF ADUFA USER FEE REVENUES BY FEE SOURCE
As of September 30, 2004

User Fee Revenues FY 2004
Fees Collected:  
Product Fees $1,340,489
Establishment Fees $1,317,249
Sponsor Fees $988,737
Application Fees $1,220,000
TOTAL FEES COLLECTED: $4,866,475
   
Fees Receivable:  
Product Fees $0
Establishment Fees $0
Sponsor Fees $30,900
Application Fees $0
TOTAL FEES COLLECTED: $30,900
   
Total User Fee Revenues: $4,897,375

Note that user fee revenues are reported in the year the fee was originally due — referred to as the cohort year. For example, a fee due in 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 (as of September 30th), but do not take into account any refunds that may be made after September 30th. Information on the number of application fees received in FY 2004 is provided in Appendix B.

The fees receivable of $30,900 is due to unpaid invoices for two sponsor fees that were due in June 2004. The fees receivable are over 90 days old, and both have been turned over to a collection agency. A summary of FY 2004 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 2004, FDA obligated $1,083,300 from animal drug user fee revenues.

FOOD AND DRUG ADMINISTRATION
STATEMENT OF ADUFA USER FEE OBLIGATIONS
BY EXPENSE CATEGORY
As of September 30, 2004

Expense Category FY 2004
Personnel Compensation and Benefits $308,328
Travel and Transportation $1,534
Rent $100,000
Communications $25,012
Contract Services $281,421
Equipment and Supplies $362,849
Other $4,156
TOTAL OBLIGATIONS $1,083,300

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 was performed using data from CVM's Activity Time Reporting (ATR) System, during a part of FY 2004, 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 facilitated 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.

For FY 2004, FDA dedicated 204 staff-years to the process for the review of animal drug applications. The implementation of ADUFA, which began subsequent to appropriation of the user fees in late January, facilitated the recruitment of over 20 new staff resulting in approximately 7 more staff-years than in FY 2003. Most of CVM's additional staff were hired toward the end of FY 2004. The impact of their full-year costs will not be incurred until FY 2005. In FY 2005, FDA expects to utilize about 30more staff years than in FY 2003, as the Agency further increases its staffing to the levels that will be necessary to meet the ADUFA performance goals, which become increasingly more stringent each year.

As indicated in the table above, the remaining expenses were devoted to FTE support in the reviewing organizations within CVM and new staff start-up expenses such as space, computers, furniture, supplies, rent, and other infrastructure needs.

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CARRYOVER BALANCES

 

Under ADUFA, any fees collected and appropriated but not obligated by the end of a fiscal year continue to remain available to FDA in future fiscal years. These revenues are referred to as carryover balances. Operations in FY 2004 resulted in a net carryover balance of $3,783,175.

The table below captures the carryover balance for FY 2004, and will be updated in future fiscal years.

FOOD AND DRUG ADMINISTRATION
STATEMENT OF ADUFA COLLECTIONS, OBLIGATIONS, AND
CARRYOVER BALANCES BY FISCAL YEAR
As of September 30, 2004

Fiscal Year Beginning Carryover Net Collections Obligations Year-End Carryover
2004 - $4,866,475 $1,083,300 $3,783,175
2005 $3,783,175      

The balances above reflect cumulative cash at the beginning/end of each fiscal year, and net cash collected during each fiscal year for all cohort years. The figures do not include the accounts receivables.

 

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 2004's net collections, collection ceilings specified in the appropriation, and amounts that may be used to offset future collections.

FOOD AND DRUG ADMINISTRATION
STATEMENT OF ADUFA FEES COLLECTED, COLLECTION CEILING,
AND AMOUNTS TO OFFSET FUTURE COLLECTIONS
As of September 30, 2004

Fiscal Year Collections Realized Collection Ceiling Amounts to Offset
Future Collections
2004 $4,866,475 $5,000,000 -
    Total: -

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TOTAL COSTS OF THE PROCESS FOR THE REVIEW OF ANIMAL DRUG APPLICATIONS

 

The following table demonstrates the costs for the review of animal drug applications for FY 2004 by organizational components. It depicts the full cost of the process for the review of animal drug applications, including costs paid from both appropriations and user fee revenues. The amounts are based upon obligations recorded as of the end of FY 2004, which FDA believes is an accurate measure of costs.

FOOD AND DRUG ADMINISTRATION
PROCESS FOR THE REVIEW OF ANIMAL DRUG APPLICATIONS
TOTAL COST
As of September 30, 2004

FDA Component FY 2003 FY 2004
Center for Veterinary Medicine Costs (CVM) $28,683,712 $28,707,661
Field Inspection and Investigation Costs (ORA) $1,820,921 $1,873,743
Agency General and Administrative Costs (OC) $2,243,755 $2,275,763

 

 

Total Process Costs $32,748,388 $32,857,167
Amount from Appropriations $32,748,388 $31,773,867
Amount from Fees 0 $1,083,300

 

In FY 2004, all costs were slightly increased for FDA Components. In FY 2004, appropriations for the Animal Drugs and Feeds program, exclusive of user fees, were $84.2 million — down from $87.7 million in FY 2003. As a result, spending from appropriations on the animal drug review process was still slightly lower than in FY 2003. We are encouraged that, in part as a result of ADUFA, appropriated budget authority for Animal Drugs and Feeds in FY 2005 is $90.5 million, assuring adequate resources for this program in FY 2005.

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MANAGEMENT CHALLENGES FOR FY 2005

 

As part of ADUFA implementation in this initial year, the Agency 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. The Agency, 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 year under ADUFA was highly productive and successful, many challenges and much work remain to complete the building process begun in FY 2004. In FY 2005, FDA plans to do the following:

  • Continue hiring additional staff necessary to achieve ADUFA performance goals for FY 2005 and subsequent years.
  • Continue work already begun on management initiatives (including quality business systems and new information technology systems and solutions).
  • Develop improved standard operating procedures for review processes and improved scientific policies for review staff.
  • Issue guidance to the industry to clarify current Agency thinking.
  • Direct and target training and educational opportunities for staff and management to improve the knowledge base of the review organization.
  • Sustain the infrastructure supporting the review program.

The Agency is committed to improving the efficiency, quality, and predictability of the new animal drug application 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 will make possible in the coming years.

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