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FY 2007 PDUFA Financial Report: Main Report

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Background

 

Enacted in 1992, PDUFA authorized FDA to collect fees from the pharmaceutical industry to be spent on drug review, in addition to minimum amounts that must continue to be spent from appropriations.  FDA used these additional resources to hire and support additional staff for the review of human drug applications, so that safe and effective drug products would reach the American public more quickly.  PDUFA was a very successful program.  With the support of the pharmaceutical industry, other stakeholders, and the Administration, Congress amended and extended PDUFA in 1997 (PDUFA II) and 2002 (PDUFA III).  FY 2007 was the last year of PDUFA III, although the program was reauthorized for another 5 years (PDUFA IV) in 2007.

Under PDUFA, application fees, establishment fees, and product fees each contribute one-third of the total fee revenues in a fiscal year.  An application fee must be submitted when certain new drug applications (NDAs) or biologic license applications (BLAs) are submitted.  Product and establishment fees are due annually on October 1.  The total revenue amounts derived from each of the categories (application fees, product fees, and establishment fees) are set by the statute for each fiscal year.  These statutory amounts must be adjusted for cumulative inflation since FY 2003, and for changes in drug review workload in each fiscal year.  PDUFA III authorizes FDA to set user fees in each fiscal year, so that the total revenue that FDA receives from each fee category approximates the statutory amounts after the adjustments for inflation and the workload.

PDUFA III also requires FDA to submit two reports to Congress each fiscal year.  A performance report is to be sent within 60 days after the end of a fiscal year, and a financial report is to be sent within 120 days.  The FY 2007 PDUFA Performance Report, which discusses FDA’s progress in meeting the goals referred in PDUFA III, is being transmitted separately to Congress.  This report is FDA’s FY 2007 PDUFA Financial Report, covering the period from October 1, 2006, to September 30, 2007.

As required by the statute, this report presents the legal conditions or “triggers” that must be satisfied before FDA can collect and spend the fees, and the calculations on how these conditions were met in FY 2007.  This report also presents summary statements of FY 2007, earned revenue by fee source, and fee obligations by expense category.  This report also presents the total costs, from both fee revenues and appropriation, of the process for the review of human drug applications, as defined in PDUFA.

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Meeting the Legal Conditions for User Fees in FY 2007

 

PDUFA III imposes three legal conditions or “triggers” that FDA must satisfy each year before the agency can collect and spend user fees.  The calculations on how these conditions were met in FY 2007 are summarized below, and are 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 1997 Salaries and Expenses Appropriation (excluding user fees and adjusted for inflation).  In FY 2007, FDA’s overall Salaries and Expenses Appropriation (excluding user fees and excluding rent to the U.S. General Services Administration (GSA), which was also not included in the FY 1997 Appropriation amount) totaled $1,442,373,000.  FDA’s FY 1997 total Salaries and Expenses appropriation (excluding user fees) and adjusted as required by the statute, and rounded to the nearest thousand dollars, was $1,031,360,000.  Therefore, since the FY 2007’s amount is greater, the first condition was met.

The second condition is that the amount of user fees collected in each year must be specified in Appropriation Acts.  The President signed the Appropriation Act (Public Law 110-5) specifying amounts collectable from fees during FY 2007, on February 15, 2007.  It provided for $352,200,000 to come from prescription drug user fees.  The Appropriation Act specified that the fees collected could remain available until expended.  Thus, the second condition was met.

The third condition is that FDA may collect and spend user fees only in years when FDA also uses a specified minimum amount of appropriated funds for the review of human drug applications.  The specified minimum is the amount FDA spent on the review of human drug applications from appropriations (exclusive of user fees) in FY 1997, adjusted for inflation.  That amount, adjusted for inflation, is $186,103,687.  In FY 2007, FDA obligated $254,576,372 from the appropriated funds for the review process of human drug applications. Since this amount exceeds the specified minimum amount, the third condition has been met. 

Appendix A provides a more detailed calculation and explains how FDA met each of these three statutory conditions.

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User Fee Revenues

 

PDUFA III specifies that FDA shall collect fee revenues from establishment, product, and application fees.  The statute specifies revenue amounts for each of these categories and specifies that the statutory amounts are to be adjusted in each fiscal year for both inflation and workload.  FDA then establishes fees at the beginning of each fiscal year so that the total revenue collected approximates the adjusted statutory total fee amount.

Under PDUFA, 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 over from year to year are described in the section on carryover balances.

The following table provides a breakout of user fees collected by fee category during the past two fiscal years, and also reflects estimates of receivables.

Food and Drug Administration
Statement of PDUFA User Fee Revenues by Fee Source

As of September 30, 2007
  Fiscal Year 2006 Fiscal Year 2007
Fees Collected:    
Application Fees $102,661,542 $126,414,551
Establishment Fees $110,518,981 $125,368,514
Product Fees $101,363,865 $108,405,265
Total Fees Collected: $314,544,388 $360,188,330
Fee Receivables:    
Application Fees $0 $448,100
Establishment Fees $396,000 $782,750
Product Fees $379,170 $398,000
Total Fees Receivable: $775,170 $1,628,850
Total User Fee Revenues: $315,319,558 $361,817,180

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 in FY 2006, even if it is received in FY 2007, is attributed to FY 2006 revenues.  Totals reported for each year are net of any refunds for that year.

FDA bills the uncollected fees twice a year — August and November.  In order to ensure the quality of the information provided in this financial report, FDA updates prior year numbers each year.

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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 human drug applications, as defined in PDUFA.  Allowable and excludable costs for the process for the review of human drug applications are defined in Appendix C.  In FY 2007, FDA obligated $320,429,620 from user fee revenues.

Food and Drug Administration
Statement of PDUFA Fee Obligations by Expense Category

As of September 30, 2006 and 2007
Expense Category FY 2006 FY 2007
Personnel Compensation and Benefits $188,550,842 $200,031,909
Travel and Transportation $3,109,474 $4,304,157
Rent $14,100,000 $9,001,000
Communications $4,377,218 5,218,200
Contract Services $87,831,998 $86,710,548
Equipment and Supplies $6,782,580 $11,956,385
Other $892,025 $3,207,421
TOTAL OBLIGATIONS: $305,644,137 $320,429,620

FDA dedicated 1,277 staff-years to the review of human drug applications in FY 1992, before PDUFA was enacted.  FDA conducted a time reporting study in 1993 to determine the percentage of time each organizational component devoted to user fee related activities.  The data from this study allowed FDA to calculate the personnel-related costs of the drug review process.  The percentages are updated regularly through additional time surveys, which parallel the method used by independent consultants in FY 1993.  More detailed information about the development of the costs associated with the review of human drug applications can be found in Appendix D.

In FY 2007, PDUFA fees and appropriations paid for 1,461 more staff-years than were used in FY 1992 for the review process of human drug applications.  Employee salary and benefits paid from user fees in FY 2007 totaled about 60 percent of the obligations.  This includes all pay and benefits for the additional personnel. 

During FY 2007, both CBER and CDER fully automated the electronic submission process by implementing automated systems to expedite the processing and increase the availability of properly formatted FDA Electronic Submissions Gateway (ESG) submissions. The ESG received and processed over 147,000 pre-market and post-market submissions.  Most of these submissions were post-marketing safety reports.  During the last 6 months of FY 2007, the ESG was processing over 13,800 post-market safety reports per month.  In the pre-market area, the ESG was averaging over 1100 submissions per month.  More information about ESG process and requirements is available online.  The electronic submission process encompasses the receipt, acknowledgment of receipt, and any processing errors (to the sender), routing, notification (to a receiving Center or Office), and providing access to the review team of the electronic submission.  The implementation of the ESG enabled CBER and CDER to establish a common process in the exchange of secure e-mail.  The FDA eCTD (Electronic Common Technical Document) review system was enhanced to provide integration with the CBER and CDER tracking systems.  In FY 2007, there was a dramatic increase in the number of eCTD submissions with over 8,000 eCTD submissions received.  Since FY2003, CBER and CDER have received over 14,000 eCTD submissions.  The eCTD guidance and specifications are available online.  These major initiatives enabled FDA to meet the electronic application and submission commitments under PDUFA that are designed to increase the number of electronic submissions and to provide FDA reviewers with an electronic standardized format for the review of PDUFA regulatory submissions.

CDER and CBER also collaborated on an information management system development effort to integrate electronic workflow and tracking information to process and manage regulatory submissions.  The initial release handled therapeutic IND submissions.  In early FY2008, the system will be expanded to include all CDER INDs.  Future releases will incorporate CDER and CBER marketing applications and CBER INDs.  In addition, FDA continues to make progress in the consolidation of information technology (IT) infrastructure through collaboration with the Department of Health and Human Services (HHS).  In FY2007, the FDA successfully completed implementation of HHS Enterprise E-mail System (EES).  The EES consolidated the various email systems throughout HHS into a single enterprise e-mail and calendaring system.

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Carryover Balances

Under PDUFA, 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.  The net result of operations in FY 2007 increased the carryover balances by $55,167,653.  Much of this increase was the result of the final year adjustment to PDUFA fees made to assure that FDA would have at least 3 months of operating reserves at the end of FY 2007, when the PDUFA III authorization law expired.

The table below captures the changes in carryover balances from FY 1993.

Food and Drug Administration
Statement of Collections, Obligations, and Carryover Balances by Fiscal Year 

As of the end of each fiscal year shown, and not including payments for next fiscal year
Fiscal
Year
Beginning
Carryover
Net
Collections
 Obligations Year-End
Carryover
1993 - $28,531,996 $8,949,000 $19,582,996
1994 $19,582,996 $53,730,244 $39,951,020 $33,362,220
1995 $33,362,220 $70,953,500 $74,064,015 $30,251,705
1996 $30,251,705 $82,318,400 $85,053,030 $27,517,075
1997 $27,517,075 $93,234,125 $84,289,046 $36,462,154
1998 $36,462,154 $132,671,143 $101,615,000 $67,518,297
1999 $67,518,297 $126,580,456 $122,515,000 $71,583,753
2000 $71,583,753 $133,060,339 $147,276,000 $57,368,092
2001 $57,368,092 $138,761,294 $160,713,000 $35,416,386
2002 $35,416,386 $149,078,939 $161,812,100 $22,683,225
2003 $22,683,224 $209,667,051 $200,154,500 $32,159,776
2004 $32,195,776 $251,617,821 $232,081,500 $51,732,097
2005 $51,732,097 $282,860,095 $269,433,800 $65,158,392
2006 $65,789,792 $315,502,786 $305,644,137 $75,648,440
2007 $75,648,440 $375,597,273 $320,429,620 $130,816,093
2008 $130,816,093      

The balances above reflect cumulative cash at the beginning/end of each fiscal year, and the net cash collected during each fiscal year for all cohort years, but do not reflect any cash received for future fiscal year cohorts.  The figures do not include accounts receivable.  The net collections balance shown above for FY 2007 of $375,597,273 is greater than the FY 2007 collections balance on page three ($360,188,330).  This is because the FY 2007 net collections figure also includes some prior years’ receivables that FDA collected in FY 2007. There are also a number of claims on these carryover funds.  These claims are explained below. 

 

Collection Ceilings, Potential Refunds and Offsets

PDUFA prohibited FDA from keeping fees in excess of the amount specified in appropriations (collection ceiling) each fiscal year through FY 1997.  Amounts collected that exceed collection ceilings through FY 1997 were required to be refunded.  A total of
$6.3 million surplus collections from this period were refunded in FY 2000 and FY 2001.

Under PDUFA II and III, collections in excess of fee amounts appropriated after FY 1997 may be kept and used to reduce fees that would otherwise be assessed in a later fiscal year.  The first such offset (for excess collections in 1998 and 2004) was made when fees were set for FY 2007, as reflected in the table below. At the time fees were set for 2007 (August 2006), there were no excess collections for other years.  Collections since then have resulted in additional excess collections.  The following table depicts the net collections, the collection ceilings specified in appropriations, and the amounts that FDA may either refund or use to offset future collections.  Under the provisions of PDUFA IV, the next offset for additional excess collections will be made when fees are set for FY 2012.

Food and Drug Administration
Statement of Fees Collected, Collection Ceilings, and Potential Refunds 

 As of September 30, 2007
Fiscal Year Collections
 Realized
Collection
Ceiling
Potential
Refund
Potential Offset to
Future Collections
1993 $35,973,500 $36,000,000 -  
1994 $56,284,277   $56,284,000 $277  
1995   $77,498,800   $79,423,000 -  
1996   $84,726,488   $84,723,000 $3,488  
1997   $87,756,811 $87,528,000 $228,811  
1998 $117,849,016 $117,122,000   $727,016
1999 $125,729,367 $132,273,000   -
2000 $141,134,682 $145,434,000   -
2001 $138,421,429 $149,273,000   -
2002 $141,408,975 $161,716,000   -
2003 $218,302,684 $222,900,000   -
2004 $258,316,700 $249,825,000   $8,491,700
2005 $287,178,231 $284,394,000   $2,784,231
2006 $314,544,388 $305,332,000   $9,212,388
2007 $360,188,388 $305,332,000   $7,988,330
    Total: $232,576 $29,203,665
Amount Offset When Fees for FY 2007 Were Determined $7,957,922
Balance Remaining to be Offset When fees are set for 2012 $21,245,743

 

Reserve for Refunds and Offset for Future Collections

The net collections exceeded the appropriations in FY 1994 ($277), FY 1996 ($3,488), and FY 1997 ($228,811), and could be potentially refunded.  Further refunds of remaining pre-1998 balances will not be made until all pending appeals from this period are resolved.  In addition, a number of other requests for refunds or waivers are pending.  Until refund and waiver requests are settled, however, FDA will keep $2,500,000 in reserve as an offset for future refunds.

FY 1998 collections exceeded the appropriations limit by $727,016.  In FY 2004, collections exceeded the appropriation limit by $8,491,700; in FY 2005 collections exceeded the appropriation limit by $2,784,231; in FY 2006 collections exceeded appropriations by a total of $9,212,388; and in FY 2007 collections exceeded appropriations by a total of $7,988,330.  Since 1998, collections have exceeded appropriations by a total of $29,203,665.  When FDA set fees for FY 2007 in August of 2006, the amount of fees established for FY 2007 was offset by $7,957,922 of collections in excess of appropriations.  A total of $21,245,743 remains to be offset.  Under PDUFA IV, an offset will be made when fees are set in 2012 for the cumulative amount of excess collections, through FY 2010 and projected through 2011.  In the meantime, this $21,245,743 must be held in reserve for an offset in FY 2012, unless collections in the years from 2008 through 2011 should fall below amounts appropriated for user fees in those years.  The amount to be held in reserve for future offset will be recalculated in the annual financial report each year.

 

Other 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. 

Due to a change in PDUFA III law requiring establishment and product fees to be paid for FY 2003 and subsequent years by the first of the fiscal year, FDA no longer needs to have a 3-month reserve for future operations at the end of each fiscal year — at least until the end of FY 2012.  The carryover amount shown as available for allocation in the table below ($107,070,350) is enough to fund estimated FY 2008 operations for approximately 2.8 months.

Food and Drug Administration
Summary Statement of Carryover Balance

As of September 30, 2007
Status of Carryover Funds Amount
Reserve for Refunds $2,500,000
Reserve for Future Collection Offset $21,245,743
Available for Allocation $107,070,350
TOTAL Carryover Balance $130,816,093

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Total Cost of the Process for the Review of Human Drug Applications

 

The following table presents the costs for the review of human drug applications for FY 2006 and FY 2007 by organizational components.  It indicates the full cost of the process for the review of human drug applications, including costs paid both from appropriations and from user fee revenues.  The amounts are based upon the obligations recorded at the end of each fiscal year.  In the past, over 81 percent of amounts obligated are expended within 1 year, and 96 percent within 2 years.  Thus, obligations represent an accurate measure of costs.

Food and Drug Administration
Process for the Review of Human Drug Applications – Total Costs

As of September 30, 2007
FDA Component FY 2006 FY 2007
Center for Drug Evaluation and Research (CDER) $363,449,183 $385,939,977
Center for Biologics Evaluation and Research (CBER) $103,800,146 $122,871,873
Field Inspection and Investigation Costs (ORA) $23,260,052 $25,860,072
Agency General and Administrative Costs (OC) $33,793,942 $40,334,070
Total Process Costs $524,303,323 $575,005,992
Amount from Appropriations $218,659,186 $254,576,372
Amount from Fees $305,644,137 $320,429,620

Of the total of $575,005,992 obligated in support of the process for the review of human drug applications as defined in PDUFA, about 56 percent came from PDUFA fees and about 44 percent came from appropriations.  The costs for all components increased in FY 2007.  The increases in expenditures primarily reflect mandatory pay increases for all Federal employees and increased employee benefit costs. In FY 2007, a total of 2,738 FTEs were expended in support of the process for the review of human drug applications as defined in PDUFA.

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Management Plans for FY 2008

 

Since 1990, FDA has cut in half the time it takes to evaluate new drugs, while still maintaining its traditional rigorous standards for drug safety and effectiveness.  This improvement, coupled with other attractive features of the U.S. market, has led to an increase in the number of new drugs launched first in the United States before they are available in other countries, making most new therapies available first to Americans.  This is a dramatic shift from the previous 20 years, in which most new drugs were available in the United States years after they were available in other countries.  Without the funds derived from PDUFA fees, the substantial progress FDA has achieved in improving and expediting the review of human drug applications would not have been possible.

2008 will be the first year of PDUFA IV.  FDA will have a more stable revenue structure and increased revenue stream to provide FDA with the resources needed to meet PDUFA IV performance goals and to embark on several new PDUFA IV initiatives aimed at further enhancing the drug review program.

In FY 2008, FDA will focus on developing the PDUFA IV IT Plan that will be published for public comment before finalizing the PDUFA IV IT Plan by May 30, 2008.  With the expansion of the PDUFA program into the post-market area, FDA will focus efforts on improving the post-market IT systems. The improvement of the drug safety IT systems is part of an agency project to consolidate the reporting of product safety information.  FDA will continue to move forward with the development of a common PDUFA information management system to integrate electronic workflow and tracking information to process and manage regulatory submissions. 

FDA will also continue to move forward with IT infrastructure consolidation and modernization.  It is critical for FDA to modernize the underlying IT infrastructure so that it can continue to make progress in providing a standardized electronic review environment for its reviewers.  The construction of the White Oak Data Center will replace existing computer facilities that maintain database, application, web, storage and network servers, minicomputers and telecommunication equipment.  The data center consolidation will facilitate server consolidation efforts, which will allow FDA to realize savings on hardware and software licensing, hardware and software maintenance, systems support and training, and on hardware through purchase consolidation.  The data center is scheduled to be completed in the latter part of 2008.

In FY 2008, FDA will continue to be challenged by the need to hire and train additional reviewers and support staff as well as by the need to retain qualified reviewers.  A large number of FDA’s experienced reviewers are nearing or entering retirement eligibility and their historical knowledge and expertise needs to be retained and passed on.  In addition, their skills are in demand and many have excellent employment opportunities available to them.  FDA’s ability to attract and retain the best and the brightest in medicine and science is critical to maintaining the agency’s recognized gold standard in new product safety. 

In FY 2008, FDA will also be challenged with implementing the many important new provisions of the FDA Amendments Act (FDAAA) of 2007.  Signed into law on September 27, 2007, FDAAA provides the agency with new authorities to ensure drug safety and new responsibilities to disseminate more timely and comprehensive drug information to the public.  The new law adds user fee funding to support these important new activities.  FDA must develop the procedures, guidance, and information infrastructure, and engage both public and private stakeholders in new partnerships, to perform this work in the most effective way to ensure both the availability and safe use of new drug products. Continued PDUFA funding is essential to assure the effective implementation of these important provisions and related public health initiatives.

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