FY 2005 PDUFA Financial Report: Main Report
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- Meeting the Legal Conditions for User Fees in FY 2005
- User Fee Revenues
- Obligation of User Fee Collections
- Carryover Balances
- Total Cost of the Process for the Review of Human Drug Applications
- Management Challenges for FY 2006
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 spend 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 2005 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 2005 PDUFA Financial Report, covering the period from October 1, 2004 to September 30, 2005.
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 2005. This report also presents summary statements of FY 2005 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.
Meeting the Legal Conditions for User Fees in FY 2005
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 2005 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 2005, FDA's overall Salaries and Expenses Appropriation (excluding user fees and excluding rent to GSA, which was also not included in the FY 1997 Appropriation amount) totaled $1,336,619,000. 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 $962,263,000. Therefore, since the FY 2005'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 108-447) specifying amounts collectable from fees during FY 2005, on December 8, 2004. It provided for $284,394,000 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 $173,630,695. In FY 2005, FDA obligated $211,518,383 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.
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 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 beginning on page 6.
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.
|FY 2004||FY 2005|
Total Fees Collected:
Total Fees Receivable:
|Total User Fee Revenues:||$257,765,070||$274,286,527|
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 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.
The receivables for FY 2004 and FY 2005 are from uncollected product and establishment fees. 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.
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 2005, FDA obligated $269,433,801 from user fee revenues.
|Expense Category||FY 2004||FY 2005|
|Personnel Compensation and Benefits||$149,446,313||$169,050,442|
|Travel and Transportation||$4,233,473||$3,866,739|
|Equipment and Supplies||$8,575,391||$15,849,032|
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 2005, PDUFA fees and appropriations paid for 1,269 more staff-years than were used in 1992 for the review process of human drug applications. Employee salary and benefits paid from user fees in FY 2005 totaled over 62 percent of the obligations. This includes all pay and benefits for the additional personnel.
In FY 2005, the FDA started development of the Electronic Submissions Gateway (ESG). The ESG is an FDA-wide solution for accepting electronic regulatory submissions and will provide a single point of entry for the secure submission of regulatory information to the FDA. By the end of the fiscal year the FDA had completed the setup and internal (FDA) testing of the Gateway infrastructure and software. Phase 1 of the FDA ESG will support the receipt of electronic regulatory submissions for CBER and CDER, including the receipt and processing of electronic Common Technical Document (eCTD) submissions. In FY 2005, CBER and CDER received over 1,000 eCTD submissions, including over 800 submissions crossing over 79 marketing applications (NDA and BLA) and over 200 submissions crossing over 24 INDs. Both of these capabilities will allow the FDA to meet the electronic applications and submissions commitments under PDUFA III that were designed to improve the overall application review process.
FDA continues to make progress in the consolidation of its information technology (IT) infrastructure through collaboration with the Department of Health and Human Services (HHS) in achieving its "One HHS" goals and objectives and ongoing efforts to accomplish the IT consolidation goals as part of PDUFA. To meet these goals and requirements, the CIO established the IT Infrastructure Transformation Program to manage the various IT consolidation projects. The FDA also continues to strengthen and improve the FDA's IT project management capabilities. The Project Management Office further standardized systems development in the FDA and initiated project stage gate reviews to ensure conformance. The FDA also continued the project management certification training program and by the end of FY 2005, over 25 project managers had received their Project Management Professional Certification.
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 2005 increased the carryover balances by $13,426,295.
The table below captures the changes in carryover balances from FY 1993.
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 2005 of $282,860,095 is greater than the FY 2005 collections balance on page 3 ($272,863,725). This is because the FY 2005 net collections figure also includes some prior years' receivables that FDA collected in FY 2005.
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.
|Fiscal Year||Collections Realized||Collection Ceiling||Potential Refund||Potential Offset
to Future Collections
Reserve for Refunds and Offset for Future Collections
The net collections exceeded the appropriations in FY's 1994 ($277), 1996 ($3,488), and 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, and FY 2004 collections exceeded the appropriation limit by $7,230,906. Some requests for refunds or waivers for these years are still pending. Given the size of this overage, FDA will take these excess collections into consideration when it sets fees for FY 2007. Until refund and waiver requests are settled, however, FDA will keep $1,000,000 in reserve as an offset for future refunds.
Reserve for Future Operations
The table below provides a summary of carryover balances as of September 30, 2005, and anticipated claims on those balances. Included in those claims is also a requirement, from the Congressional action on the Agency's FY 2005 appropriation, to spend $6,913,100 of the carryover funds to support a move of CDER drug review staff into the new White Oak facility in FY 2006. This is the remainder of the $15.1 million directed to be obligated for this purpose in FY 2005; it will be obligated in FY 2006.
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 FY 2007. The carryover amount shown as available for allocation in the table below is enough to fund estimated FY 2006 operations for approximately 2 months.
|Status of Carryover Funds||Amount|
|Reserve for Refunds||$1,130,077|
|Reserve for Future Collection Offset||$6,957,922|
|Reserve for Move to White Oak in FY 2006||$6,913,100|
|Available for Allocation||$50,157,293|
|TOTAL Carryover Balance||$65,158,392|
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 2004 and FY 2005 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 one year, and 96 percent within two years. Thus, obligations represent an accurate measure of costs.
|FDA Component||FY 2004||FY 2005|
|Center for Drug Evaluation and Research (CDER)||$293,991,408||$332,515,484|
|Center for Biologics Evaluation and Research (CBER)||$91,905,443||$94,765,165|
|Field Inspection and Investigation Costs (ORA)||$19,646,087||$22,590,258|
|Agency General and Administrative Costs (OC)||$31,313,598||$31,081,277|
|Total Process Costs||$436,856,536||$480,952,183|
|Amount from Appropriations||$$204,775,036||$$211,518,383|
|Amount from Fees||$232,081,500||$269,433,800|
The costs for all components, except for the Office of the Commissioner, rose in FY 2005, even though there was a slight decrease in staffing levels in each Center and office in 2005. The increased expenditures primarily reflect mandatory pay raises for all federal employees, increased employee benefit costs, and the costs of moving many of the CDER review staff to the new White Oak facility.
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.
Management Plans for FY 2006
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 2006, a major PDUFA IT investment will be the implementation of the FDA Electronic Submissions Gateway (ESG) for CBER and CDER. The ESG will allow both Centers to receive electronic submissions over a secure internet connection. The implementation of ESG will enable the Centers to standardize the secure email process to provide industry with additional process standardization, as called for in the PDUFA III Electronic Applications and Submission Goals. The 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 2006. 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. The Agency's ability to attract and retain the best and the brightest in medicine and science is critical to maintaining FDA's recognized gold standard in new product safety. During FY 2005, the number of staff dedicated to the drug review process declined slightly, rather than increasing as planned. A major goal in FY 2006 will be to reverse this trend and to increase staffing to levels originally planned.
In FY 2006 FDA will 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 expects to publish a draft legislative proposal for public review and comment shortly after the end of FY 2006, as required under provisions of PDUFA III.