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FY 2006 PDUFA Financial Report: Main Report

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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 and again in 2002.  The current program (PDUFA III) expires at the end of FY 2007.

Under PDUFA III, 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 2006 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 2006 PDUFA Financial Report, covering the period from October 1, 2005, to September 30, 2006.

As required by the statute, this report will present 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 2006.  This report also presents summary statements of FY 2006, 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 III.

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Meeting the Legal Conditions for User Fees in FY 2006


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 2006 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 2006, 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 $1,370,398,000.  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 $996,019,000.  Therefore, since the FY 2006'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 109-97) specifying amounts collectable from fees during FY 2006, on November 10, 2005.  It provided for $305,332,000 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 $179,726,634.  In FY 2006, FDA obligated $218,659,212 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 User Fee Revenues by Fee Source

As of September 30, 2006
  Fiscal Year 2005 Fiscal Year 2006
Fees Collected:    
Application Fees
$81,969,485 $104,388,192
Establishment Fees
$103,782,226 $103,258,983
Product Fees
$99,895,450 $92,600,810
Total Fees Collected:
$278,647,161 $300,247,985
Fee Receivables:    
Application Fees
$336,000 $383,700
Establishment Fees
$131,100 $274,434
Product Fees
$250,260 $337,040
Total Fees Receivable:
$717,360 $995,174
Total User Fee Revenues:
$286,364,521 $301,243,159

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 2005, even if it is received in FY 2006, is attributed to FY 2005 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 III.  Allowable and excludable costs for the process for the review of human drug applications are defined in Appendix C.  In FY 2006, FDA obligated $305,644,137 from user fee revenues.

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

As of September 30, 2005 and 2006
Expense Category FY 2005 FY 2006
Personnel Compensation and Benefits
$169,050,442 $188,550,842
Travel and Transportation
$3,866,739 $3,109,474
$11,212,000 $14,100,000
$2,059,157 $4,377,218
Contract Services
$66,343,864 $87,831,998
Equipment and Supplies
$15,849,032 $6,782,580
$1,052,566 $892,025
$269,433,800 $305,644,137

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.  The report describes the development of the costs associated with the review of human drug applications in more detail in Appendix D.

In FY 2006, PDUFA fees and appropriations paid for 1,414 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 2006 totaled about 62 percent of the obligations.  This includes all pay and benefits for the additional personnel. 

In May 2006, the FDA Electronic Submissions Gateway (ESG) went into production.  FDA ESG is an FDA-wide solution that enables the secure submission of electronic regulatory submissions.  It is the central transmission or single point of entry for sending PDUFA regulatory submissions electronically to FDA.  The electronic submission process encompasses the receipt, acknowledgment of receipt (to the sender), routing, and notification (to a receiving Center or Office) of the delivery of an electronic submission.  By the end of FY 2006, the ESG had received and processed over 33,000 pre-marketing and post-marketing submissions. Information on the ESG process and requirements is available online.  The FDA also enhanced the e-CTD (Electronic Common Technical Document) review system to provide reviewers with additional search capabilities and to track the progress of the e-CTD submission review at the section level.  In FY 2006, there was a dramatic increase in the number of e-CTD submissions with approximately 4,000 e-CTD submissions received.  Since FY 2003 the Center for Biologics Evaluation and Research (CBER) and the Center for Drug Evaluation and Research (CDER) have received over 5,000 e-CTD submissions.  The eCTD guidance and specifications are available online.  Both of these major initiatives enabled the 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.

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 FY 2006, FDA moved over 2,000 CDER staff to the White Oak campus, migrated CDER staff to the HHS email environment, and consolidated the FDA extranet environment as part of the ESG project.  FDA extranet is an infrastructure or system that FDA shares with external stakeholders using the internet.  FDA continued to strengthen and improve IT project management capabilities to ensure that all IT projects follow standardized industry best practices.  FDA has established project review guidelines, conducted stage gate reviews, conducted post-implementation lessons-learned sessions for each major IT investment, and requires earned value management reporting on all IT investments.

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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 2006 increased the carryover balances by $9,858,648.

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
 Obligations Year-End
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      

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 2006 of $315,502,786 is greater than the FY 2006 collections balance on page 3 ($300,247,985).  This is because the FY 2006 net collections figure also includes some prior years' receivables that FDA collected in FY 2006.

In FY 2006, FDA made a correction to FY 2005 year-end carryover balance because of miscalculation.  FDA kept FY 2005 year-end carryover as shown in last year's financial report ($65,158,392), and recorded the correct amount in FY 2006 beginning carryover  balance ($65,789,792).  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 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.

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

As of September 30, 2006
Fiscal Year Collections
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   $87,654,312 $87,528,000 $126,312  
1998 $117,849,016 $117,122,000   $727,016
1999 $125,729,367 $132,273,000   -
2000 $140,991,812 $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 $257,636,300 $249,825,000   $7,811,300
2005 $285,647,161 $284,394,000   $1,253,161
2006 $300,247,985 $305,332,000    
    Total: $130,077 $9,791,477
Amount Offset When Fees for FY 2007 Were Determined $7,957,922
Balance Remaining to be Offset in the Future $1,833,555


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 ($126,312), 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.  However, FDA must keep $130,077 in reserve until the agency resolves appeals or makes refunds.

FY 1998 collections exceeded the appropriations limit by $727,016.  In FY 2004 collections exceeded the appropriation limit by $7,811,300 and in FY 2005 collections exceeded the appropriation limit by $1,253,161, for a total of $9,791,477 in excess collections.  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 $1,833,555 remains to be offset in a future year. 

Some requests for refunds or waivers for these years are still pending.  Until refund and waiver requests are settled, however, FDA will keep $2,000,000 in reserve as an offset for future refunds.


Other Reserves and Balance Available for Allocation

The table below provides a summary of carryover balances as of September 30, 2006, and anticipated claims on those balances.  Included in those claims is also a requirement, from the agency's FY 2007 appropriation request, to spend $8,188,000 of the carryover funds to support consolidation into the new White Oak facility in FY 2007. 

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 2007.  The carryover amount shown as available for allocation in the table below ($63,496,808) is enough to fund estimated FY 2007 operations for approximately 2½ months.

Food and Drug Administration
Summary Statement of Carryover Balance

As of September 30, 2006
Status of Carryover Funds Amount
Reserve for Refunds
Reserve for Future Collection Offset
Reserve White Oak Consolidation in FY 2007
Available for Allocation
TOTAL Carryover Balance

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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 2005 and FY 2006 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, 2006
FDA Component FY 2005 FY 2006
Center for Drug Evaluation and Research (CDER)
Center for Biologics Evaluation and Research (CBER)
Field Inspection and Investigation Costs (ORA)
Agency General and Administrative Costs (OC)
Total Process Costs
Amount from Appropriations
Amount from Fees

The costs for all components rose in FY 2006.  The increased expenditures primarily reflect mandatory pay increases for all federal employees, increased employee benefit costs, the costs of moving many of the CDER review staff to the new White Oak facility, and an increase in total staff for the review process — from a total of 2,545 Full-time employee equivalents (FTEs) in FY 2005, to a total of 2,691 FTEs in FY 2006.

The Agency General and Administrative Costs have declined steadily over the last 5 years as a percent of total spending on the drug review process.  About 7.2 percent of drug review process costs were devoted to agency general and administrative costs in FY 2004, and that declined to 6.5 percent in FY 2005 and 6.4 percent in FY 2006.

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Management Plans for FY 2007


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.

Under PDUFA III, a more stable revenue structure and increased revenue stream provide FDA with the resources needed to meet PDUFA III performance goals and to embark on several new PDUFA III initiatives aimed at further enhancing the drug review program.

In FY 2007, FDA will continue to build on successes of the PDUFA III IT program by expanding the use of the eCTD format and the FDA ESG.  The implementation of the FDA ESG will enable the Centers to standardize the secure e-mail process to provide industry with additional process standardization, as called for in the PDUFA III Electronic Applications and Submission Goals.  FDA will also continue to move forward with IT infrastructure consolidation and modernization under the IT Infrastructure Transformation Program.  It is critical for FDA to modernize the underlying IT infrastructure so that FDA can continue to make progress in providing a standardized electronic review environment for FDA reviewers.

FDA will continue to be challenged by the need to hire, train, and retain qualified reviewers in FY 2007.  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 January 2007, in response to the IOM report, "The Future of Drug Safety: Promoting and Protecting the Health of the Public," FDA reaffirmed its commitment to drug safety.  FDA's response outlined a comprehensive approach to strengthening the drug safety system, including enhancing the science of drug safety throughout the product life cycle, improving communication among all stakeholders engaged in promoting the safe use of drugs, and improving agency operations and management.  Continued PDUFA funding is essential to assure the full implementation of these urgent public health initiatives. 

In FY 2007, FDA will complete its work with stakeholders on the development of the terms of draft legislation to reauthorize PDUFA for another 5 years after PDUFA III sunsets at the end of FY 2007.  FDA held a public meeting in February 2007, to discuss proposals developed for reauthorization of PDUFA for another 5 years.  FDA submitted its proposals to Congress in March 2007, and is ready to discuss these proposals with Congress.  Early enactment of PDUFA reauthorization, by early to mid-summer 2007, is crucial to assure stable continuity of operations at FDA and to prevent unwanted staff attrition if employees become concerned about their job security, which is so dependent on the continuation of PDUFA funding.

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