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FY 2004 PDUFA Financial Report: Main Report

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(PDF version of the entire FY 2004 PDUFA Financial Report - 507 KB)

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Enacted in 1992, PDUFA authorized FDA to collect fees from the pharmaceutical industry to augment appropriations spent on drug review. 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 it on 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 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 2004 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 2004 PDUFA Financial Report, covering the period from October 1, 2003 to September 30, 2004.

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 2004. This report also presents summary statements of FY 2004 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.

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 PDUFA revenues and expenses. The OIG issued unqualified audit opinions on FDA's financial statements for fiscal years 1998 through 2004. This is the most favorable category of audit opinion.

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Meeting the Legal Conditions for User Fees in FY 2004


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 2004 are summarized below.

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 2004, 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 $1,267,368,000. 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 $940,753,000. Therefore, since the FY 2004'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. For FY 2004, FDA's Appropriation Act, signed by the President on January 23, 2004, specified that $249,825,000 would come from PDUFA fees, in addition to sums provided in regular appropriations. 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 $169,754,151. In FY 2004, FDA obligated $204,775,036 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 how they are adjusted in each year for inflation and workload. FDA then establishes fees in an effort to assure 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, 2004
Fee Category FY 2003 FY 2004
Fees Collected:
Product Fees $76,852,785 $76,453,520
Establishment Fees $78,209,219 $82,318,894
Application Fees $62,684,550 $87,693,991
 Total Fees Collected: $217,746,554 $246,466,405
Fees Receivables:
Product Fees $194,400 $252,560
Establishment Fees $314,850 $348,345
Application Fees - -
Total Fees Receivables: $509,250 $600,905
 Total User Fee Revenues: $218,255,804 $247,067,310

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 2003, even if it is received in FY 2004, is attributed to FY 2003 revenues. Totals reported for each year are net of any refunds for that year.

The receivables for FY 2003 and FY 2004 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.

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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 2004, FDA obligated $232,081,500 from user fee revenues.

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

As of September 30, 2004
Expense Category FY 2003 FY 2004
Personnel Compensation and Benefits $130,939,056 $149,446,313
Travel and Transportation $4,527,825 $4,233,473
Rent $8,719,000 $6,146,584
Communications $1,284,635 $2,462,652
Contract Services $43,500,289 $60,829,302
Equipment and Supplies $10,246,121 $8,575,391
Other $937,574 $387,785
TOTAL OBLIGATIONS: $200,154,500 $232,081,500

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 2004, PDUFA fees and appropriations paid for 1,284 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 2004 totaled over 60 percent of the obligations. This includes all pay and benefits for the additional personnel.

In FY 2004, FDA continued to mature its formal Agency IT investment governance process with direct involvement of the FDA's Management Council and with the establishment of an Agency Enterprise Architecture Review Board (EARB). Specifically, the Agency integrated the PDUFA IT investment governance process with the Agency IT investment process to ensure alignment and linkage to Agency strategic goals. To assist the governance process FDA implemented an Agency IT Portfolio Management System to document and track IT investments starting with the FY 2005 budget cycle. Since the initial implementation, FDA has enhanced the Portfolio Management tool to incorporate Department, Agency, and Center tracking and reporting requirements. The Portfolio Management tool is used throughout the investment process to validate and track the IT investment portfolio in support of the FDA mission and enterprise architecture target, and to facilitate prioritizing, approving, and monitoring IT investments for the entire Agency.

In March 2004, all Center, ORA and OC IT Directors and their supporting staff started reporting directly to the CIO. Through this framework the CIO is able to work more closely with IT Directors and their customers to ensure their service demands are met, while consistently meeting the demands of FDA, HHS and OMB. It provides a means to drive technology change in a uniform way through direct communication and for ensuring that all IT infrastructure and IT investments support the Agency's common IT goals, fit into a common computing environment and follow good IT management practices.

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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 2004 increased the carryover balances by $212,991,344.

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
$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      

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 2004 of $251,617,821 is greater than the FY 2004 collections balance on page 3 ($246,466,405). This is because $251,617,821 contains some prior years' receivables that FDA collected in FY 2004.

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 must 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, 2004
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 $125,593,226 $132,273,000   -
2000 $141,335,631 $145,434,000   -
2001 $138,779,097 $149,273,000   -
2002 $142,000,268 $161,716,000   -
2003 $217,746,554 $222,900,000   -
2004 $246,466,405 $249,825,000   -
    Total: $130,077 $727,016


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.

Furthermore, FY 1998's collections exceeded the appropriations limit by $727,016. The requests for refunds or waivers of this amount are still pending. If the net collections still continue to exceed the appropriation limit after the requests are settled, FDA will reduce future fees to offset the surpluses. However, until the requests are settled, FDA must keep $727,016 in reserve as an offset for future collections.


Reserve for Future Operations

The table below provides a summary of carryover balances as of September 30, 2004, 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 $15.1 million of

the carryover funds to support a move of CDER drug review staff into the new White Oak facility in FY 2005.

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 2005 operations for approximately 1.7 months.

Food and Drug Administration
Summary Statement of Carryover Balance

As of September 30, 2004
Status of Carryover Funds Amount
Reserve for Refunds of Excess Collections $130,077
Reserve for Future Collection Offset $727,016
Reserve for Move to White Oak in FY 2005 $15,092,000
Available for Allocation $35,783,004
TOTAL Carryover Balance $51,732,097

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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 2003 and FY 2004 by organizational components. It indicates the full cost of the process for the review of human drug applications, including costs paid from both appropriations and user fee revenues. The amounts are based upon the obligations recorded as of 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.

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

As of September 30, 2004
FDA Component FY 2003 FY 2004
Center for Drug Evaluation and Research (CDER) $250,370,170 $293,991,408
Center for Biologics Evaluation and Research (CBER) $110,132,866 $91,905,443
Field Inspection and Investigation Costs (ORA) $19,098,382 $19,646,087
Agency General and Administrative Costs (OC) $29,840,492 $31,313,598
Total Process Cost $409,441,910 $436,856,536
Amount from Appropriations $$209,287,410 $$204,775,036
Amount from Fees $200,154,500 $232,081,500

The costs for all components, except for CBER, rose in FY 2004. The increased expenditures primarily reflect the additional personnel hired by the organizations in FY 2004 and the mandatory pay raise for all federal employees. The reason for the decrease in CBER and the increase in CDER is because of the transfer of certain therapeutic biologics from CBER to CDER in FY 2004.

The Agency General and Administrative Costs, though up slightly from FY 2003 levels, have declined over the last 5 years as a percent of total spending on the drug review process. Only about 7 percent of drug review process costs were devoted to Agency general and administrative costs in FY 2004.

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Management Plans for FY 2005


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 U. S. 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 America 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 fee structure and increased fee revenues 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.

It will be a substantial challenge both to restructure the delivery of administrative services and to consolidate information technology agency-wide. The FY 2005 Performance Plan assumes increased efficiencies through administrative reforms. If these efficiencies do not materialize as planned, FDA's ability to maintain the very high performance levels of the past several years will be challenged. Given the magnitude of the savings planned, managing the PDUFA program without compromising staffing and performance levels will be a challenge.

In FY 2005, a major PDUFA IT investment is the development of the electronic submissions gateway solution for CBER and CDER. The submissions gateway will allow both Centers to receive electronic submissions over a secure internet connection. This will enable the Centers to standardize the submission process and provide industry with a single point of entry into the FDA, as called for in the PDUFA III Electronic Applications and Submission Goals. The FDA also wants to enhance the Electronic Viewer System (EVS). This system provides the FDA reviewers with the capability of reviewing submissions in the electronic Common Technical Document (eCTD) format.

FDA will continue to be challenged by the need to hire, train, and retain qualified reviewers in FY 2005. A large number 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 the FDA's recognized gold standard in new product safety.

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