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FY 2004 PDUFA Financial Report: Appendices

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Appendix A: Conditions for Assessment and Use of Fees

 

The Food, Drug, and Cosmetic Act (the Act) specifies three major conditions that must be met each year before prescription drug user fees can be collected and spent. A summary of these conditions and how FDA met them appears on page 2. A more detailed description of each of these conditions is provided below, with an explanation of how FDA met the condition in FY 2004.

For making the comparisons to determine if statutory conditions are met, an adjustment factor must be used. It is defined in section 735(8) of the Act, as follows:

The term 'adjustment factor' applicable to a fiscal year is the Consumer Price Index for all urban consumers (all items; United States city average) for April of the preceding fiscal year divided by such Index for April 1997.

The consumer price index for April 2003, the fiscal year preceding FY 2004, is 183.8. The consumer price index for April 1997 is 160.2. The result of this dividing 183.8 by 160.2 is an adjustment factor of 1.1473 for FY 2004.

The first condition comes from section 736(f)(1) of the Act. It states:

Fees may not be assessed under subsection (a) for a fiscal year beginning after FY 1997 unless appropriations for salaries and expenses of the Food and Drug Administration for such fiscal year (excluding the amount of fees appropriated for such fiscal year) are equal to or greater than the amount of appropriations for the salaries and expenses of the Food and Drug Administration for fiscal year 1997 (excluding the amount of fees appropriated for such fiscal year) multiplied by the adjustment factor applicable to the fiscal year involved.

This statement requires FDA's total Salaries and Expenses appropriation (excluding user fees) each year to be greater than or equal to FDA's FY 1997 Salaries and Expenses appropriation (excluding user fees) that multiplies the adjustment factor. FDA's total FY 1997 Salaries and Expenses appropriation (excluding user fees) was $819,971,000. Multiplying this amount by the adjustment factor of 1.1473, an adjusted FY 1997 Salaries and Expenses Appropriation (excluding user fees, and rounded to the nearest thousand dollars) is $940,753,000.

In FY 2004, FDA's total Salaries and Expenses appropriation (excluding user fees and excluding rent to GSA, which was also not included in the FY 1997 appropriation amount) was $1,267,368,000. Since the FY 2004 appropriation exceeded the FY 1997 adjusted amount, the first condition was met.

The second condition is stated in Section 736(g)(2)(A)(i): that fees "shall be retained in each fiscal year in an amount not to exceed the amount specified in appropriation acts, or otherwise made available for obligation, for such fiscal year. "

The President signed the Appropriation Act that specified the amounts collectable from user fees in FY 2004 ($249,825,000) on January 23, 2004 (Public Law 108-199). Therefore, the second condition was met.

The third condition in Section 736(g)(2)(A)(ii), states:

Fees shall only be collected and available to defray increases in the costs of the resources allocated for the process for the review of human drug applications (including increases in such costs for an additional number of full-time equivalent positions in the Department of Health and Human Services to be engaged in such process) over such costs, excluding costs paid from fees collected under this section, for fiscal year 1997 multiplied by the adjustment factor.

In FY 1997, FDA's actual obligation for the review process of human drug applications (excluding obligations paid from user fees) was $147,959,689, as reported in the FY 1997 Financial Report to Congress. Multiplying this amount by the adjustment factor of 1.1473, FDA's 1997 adjusted minimum spending for the human drug applications review process from appropriations (exclusive of user fees) must be $169,754,151 in FY 2004.

In FY 2004, FDA obligated $204,775,036 from appropriations for the human drug applications review process. Since $204,775,036 is greater than $169,754,151, the third condition was met.

The table below demonstrates the amounts that FDA spent on the review process of human drug applications in FY 2003 and 2004 and the adjusted FY 1997 amount that had to be spent from appropriations. It also provides the amounts of these costs derived from appropriations and from user fees in each fiscal year.

Food and Drug Administration
Obligations for the Process for the Review of Human Drug Applications

As of September 30, 2004
 
FY 1997
Adjusted for FY 2004
FY 2003
FY 2004
From Appropriations
$169,754,151
$209,287,410
$204,775,036
From User Fee Revenues  
$200,154,500
$232,081,500
Total Obligations  
$409,441,910
$436,856,536

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Appendix B: Exemptions and Waivers

 

Beginning in FY 1993, PDUFA directed FDA to waive or reduce fees in five different circumstances:

  • when a waiver is necessary to protect the public health;
  • when a fee is a significant barrier to innovation;
  • when the fees paid exceed FDA's costs of reviewing a firm's human drug applications;
  • when imposition of the fee creates an inequity between certain 505(b)(1) and 505(b)(2) human drug applications (This waiver provision was deleted in PDUFA III); and,
  • when a sponsor withdraws a pending human drug application after FDA has filed it, but before FDA has performed substantial work on the marketing application.

In addition, under PDUFA II new exemptions from fees were added beginning in FY 1998. These specific exemptions are automatic and do not require a waiver request. They include:

  • human drug applications only for designated orphan products (designated for rare diseases or conditions affecting fewer than 200,000 patients in the United States);
  • supplemental applications for pediatric indications for use. (Statutorily repealed by section 5 of Public Law 107-109, effective January 4, 2002).

Beginning in FY 1998, PDUFA II also provided a waiver for certain small businesses for the full application fee for the first application submitted. Before FY 1998, only half of the application fee was waived for small businesses.

The additional statutory exemptions in FY 1998 resulted in a loss of revenue. The increased number of exemptions required by PDUFA II reduced the number of applications that paid fees.

Fees may be waived or reduced under the waiver provisions of the statute. Many of the application fee waiver requests FDA received through FY 1997 pertained to orphan products; since designated orphan products are now given automatic exemptions, the number of waiver requests for application fees has decreased substantially.

The tables on the following page summarize the exemption and waiver actions taken by FDA for fees payable in the five most recent fiscal years.

Exemptions and Waivers as of September 30, 2004
Does not Include Data on FY 2005 Waivers Granted in FY 2004
Exemption & Waiver Actions FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 footnotes
Exempted Application Fees1
  Orphan Products 16.3 14.5 10.0 13.5 19.5  
  Pediatric  Supplements 12.6 19.0 4.5     2
  Previously  Submitted     7.5 3.0 8.0 3
Total Exemptions 28.9 33.5 22.0 16.5 27.5  
TOTAL Value of Exemptions $8,250,743 $10,373,175 $6,893,040 $8,801,100 $15,771,250  
 
Waived Fees
APPLICATIONS1            
  Small Business  Waivers 8.3 12.0 6.0 14.3 15.3 4
  Miscellaneous Waivers 8.3 10.3 1.0 1.0 1.0 5
Value of Waivers Approved $4,714,710 $6,889,646 $2,193,240 $8,134,350 $9,319,375  
             
PRODUCTS            
Waivers Approved 22.0 17.9 11.0 31.9 41.0  
Value of Waivers Approved $439,098 $391,867 $237,930 $1,033,560 $1,479,280  
             
ESTABLISHMENTS            
Waivers Approved 13.5 10.4 8.3 17.5 17.0  
Value of Waivers Approved $1,916,609 $1,516,242 $1,155,899 $3,673,250 $3,855,600  
             
TOTAL VALUE —
All Waivers Granted
$7,070,417 $8,797,754 $3,587,069 $12,841,160 $14,654,255  

1   Applications counted in full fee equivalents.

2   The exemption for pediatric supplements was repealed by P. L. 107-109 effective January 4, 2002.

3   Prior to FY 2002 these were included in the total for Miscellaneous waivers.

4   Prior to FY 2002 this category was included in counts of applications for which fees were exempted.

5   Prior to FY 2002 this category also included counts of applications for which fees were exempted because applications had been submitted previously or which were not included in the definition of applications that paid fees.

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Appendix C: Allowable and Excluded Costs for the Process for the Review of Human Drug Applications

 

PDUFA and the related House of Representatives Reports 102-895 and 107-481 ("House Reports"), defines the process for the review of human drug applications and the costs that may be included in that process. Using these definitions (and further refinements identified below) and the methodologies described in this report, the Agency identified those activities that were applicable to the process for the review of human drug applications.

Over 96 percent of amounts obligated are expended within two years. Therefore, obligations represent an accurate measure of costs.


User Fee Related Costs

Section 735(6) of the Act defines in general terms the activities necessary for the review of human drug applications (the "human drug review process"). In summary, costs related to the following process activities have been attributed to the process for the review of human drug applications:

  • All investigational new drug (IND) review activities, including amendments
  • All review activities for new drug applications (NDAs), biologic license applications (BLAs), and product license applications (PLAs), including supplements and amendments and biologic establishment license applications (ELAs) and amendments
  • Regulation and policy development activities related to the review of human drug applications
  • Development of product standards for products subject to review and evaluation
  • Meetings between the Agency and the sponsor of a covered application or supplement
  • Review of labeling prior to approval of a covered application or supplement and the review of the initial pre-launch advertising
  • Review of post-marketing studies that have been agreed to by sponsors as a condition for approval
  • Inspections of facilities undertaken as part of the review of pending applications or supplements
  • Lot release activities for covered biological products
  • Assay development and validation to ensure batch-to-batch consistency and reliability for covered biological products
  • Monitoring of clinical and other research conducted in connection with the review of human drug applications
  • User Fee Act implementation activities
  • Research related to the human drug review process — although under PDUFA II FDA agreed to phase out research supported by fee revenues, and
  • In the case of drugs approved after October 1, 2002, under human drug applications or supplements: collecting, developing, and reviewing safety information on the drugs, including adverse event reports, during a period of time after approval of such applications or supplements, not to exceed three years —added under PDUFA III.

All user-fee related costs represented by the above activities are collectively referred to in this report as costs for the process for the review of human drug applications.

Section 735(7) of the Act defines the "costs of resources allocated for the process for the review of human drug applications" as the expenses incurred in connection with this process for:

  1. officers and employees of the FDA, contractors of the FDA, advisory committees, and costs related to such officers, employees, committees and contracts;
  2. management of information, and the acquisition, maintenance, and repair of computer resources;
  3. leasing, maintenance, renovation, and repair of facilities and acquisition, maintenance, and repair of fixtures, furniture, scientific equipment, and other necessary materials and supplies; and
  4. collecting user fees under section 736 of the Act and accounting for resources allocated for the review of human drug applications and supplements.


User Fee Excluded Costs

The User Fee Act excludes costs related to the following:

Excluded Products

  • Generic drugs
  • Over-the-counter drugs not associated with an NDA or NDA supplement
  • Large volume parenterals approved before 9/1/92
  • Allergenic extract products
  • Whole blood or a blood component for transfusion
  • In vitro diagnostic biologic products
  • Certain drugs derived from bovine blood

Excluded Process Activities

  • Enforcement policy development
  • Post-approval compliance activities
  • Advertising review activities once marketing of the product has begun
  • Inspections unrelated to the review of covered applications
  • Research unrelated to the human drug review process

These inclusions and exclusions required accounting for a newly created subset of FDA activities after the fact. It was necessary to develop and implement a methodology that would allow the Agency retrospectively to capture the FY 1992 costs for the newly defined "process for the review of human drug applications," and apply that same methodology for future years. In 1995, Arthur Andersen & Company independently reviewed FDA procedures in doing this and found the methodologies reasonable.

 

User Fee Excluded Costs

The Act excludes costs related to the following:

Excluded Products

  • Generic drugs
  • Over-the-counter drugs not associated with an NDA or NDA supplement
  • Large volume parenterals approved before September 1, 1992
  • Allergenic extract products
  • Whole blood or a blood component for transfusion
  • In vitro diagnostic biologic products
  • Certain drugs derived from bovine blood

Excluded Process Activities

  • Enforcement policy development
  • Post-approval compliance activities
  • Advertising review activities once marketing of the product has begun
  • Inspections unrelated to the review of covered applications
  • Research unrelated to the human drug review process

These inclusions and exclusions required accounting for a newly created subset of FDA activities after the fact. It was necessary to develop and implement a methodology that would allow the Agency retrospectively to capture the FY 1992 costs for the newly defined "process for the review of human drug applications," and apply that same methodology for future years. In 1995, Arthur Andersen & Company independently reviewed FDA procedures for doing this and found the methodologies reasonable.

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Appendix D: Development of Costs for the Process for the Review of Human Drug Applications

 

General Methodology

The costs associated with the process for the review of human drug applications are based on obligations recorded within FDA's Center for Drug Evaluation and Research (CDER), the Center for Biologics Evaluation and Research (CBER), Office of Regulatory Affairs (ORA), and the Office of the Commissioner (OC). These organizations correspond to the cost categories presented on the Statement of Costs for the Process for the Review of Human Drug Applications as follows:

Cost Category FDA Organization
Costs for the Review of New Drug Applications (NDAs),
Biologic License Applications (BLAs), and Supplements
CDER
Costs for the Review of BLAs and Supplements
CBER
Field Inspection and Investigation Costs
ORA
Agency General and Administrative Costs
OC

The costs were accumulated using time reporting systems in CDER, CBER, and ORA, and were extrapolated for OC. Using the definitions of costs and activities included in the "process for the review of human drug applications" in the Act, a portion of the costs within each of the four organizations listed above was identified as part of the human drug review process.


Center Costs

Costs are accumulated in CDER and CBER in cost centers corresponding to the organizational components (usually divisions) within the Centers. Most FDA components involved in the human drug review process perform a mixture of activities — some included in the definition of the process for the review of human drug applications, and some not included. These components fall into three categories: 1) direct review and laboratory components; 2) indirect review and support components; and 3) center-wide expenses. The allocation of costs for the three categories is discussed below.

Direct Review and Laboratory Components

Employees in all components of CDER and CBER, other than those noted below as center indirect review and support components, reported their time for eight weeks in FY 2004 in categories that could be used to differentiate between time spent on the process for the review of human drug applications and all other time.

Both CDER and CBER time reporting systems were modified after the enactment of PDUFA, so that time could be reported in categories that could be separated into allowable and excluded activities with respect to the process for the review of human drug applications, as defined in PDUFA and as further defined in Appendix C. This method for determining allowable and excluded costs for PDUFA direct review and laboratory costs has been used consistently, with only minor modifications, since 1993 when costs were initially measured by Arthur Andersen. Beginning in FY 1996, the CBER time reporting system was enhanced to collect on-line time reports for all employees for a two-week period each quarter of the year. The enhanced system reports time for 70 possible functional activities, by 10 product classes.

In November 1997, CDER initiated an on-line time reporting survey of each employee within the Center. Beginning in FY 2001, this survey captures the expenditure of time on activities that are part of the process for the review of human drug applications and all other CDER mission-oriented activities for two four-week periods — one in each half of the fiscal year.

A similar procedure was used in CBER's direct review and laboratory components to measure costs for the process for the review of human drug applications. CBER's time reporting system was validated by studies done just after PDUFA was initiated. That system collects time reports on-line from all employees other than management and administrative support personnel for a two-week period during each quarter of the fiscal year.

FDA Centers are very payroll-intensive organizations — 60 percent of all FDA funds go to pay for employee salaries and benefits, and almost all other costs are directly supporting these employees. Thus the average percent of time reported each year during this eight-week period as having been expended on drug review process activities for each cost center is then applied to all costs incurred for each cost center for the entire fiscal year to estimate the costs for each cost center that were part of the process for the review of human drug applications.

Center Indirect Review and Support Components

Indirect review and support components provide the infrastructure for the review process. In CDER, these components include portions of the Office of the Center Director, the Office of Regulatory Policy, the Office of Information Technology, the Office of Management, the Office of Training and Communications, the Office of Medical Policy, the Office of Executive Programs, the Office of Information Management, and the Office of Compliance. In CBER, these components include portions of the Office of the Center Director, Office of Management, Office of Information Technology Management, and the Office of Communications, Training, and Manufacturers Assistance. Most employees of these components do not report their time.

Instead, the time of the management and administrative support personnel is assumed to be the average percent time of all center employees in direct review and laboratory components who reported their time. Thus the average percent of time reported each year during this eight-week period as having been expended on drug review process activities for all direct review and laboratory components was then applied to all costs incurred for the entire fiscal year by the indirect review and support components.

Center-Wide Expenses

A number of center-wide expenses are paid from central FDA accounts rather than being charged directly to a specific center. These costs include rent for facilities that house drug review staff, telecommunications and utility costs, some computer equipment and support costs, facilities repair and maintenance, and some extramural and service contracts. Many of these costs were traced back to the specific division that generated the cost and were assigned the user fee percentage calculated for the division to which the expenditure related. For the costs that benefited the center as a whole and could not be traced to a specific division, a weighted average user fee percentage was calculated based on the level of user fee related costs to total costs in the center.

In support of the President's Management Agenda and Secretarial Goal of "One-HHS," FDA consolidated administrative functions from the Centers and the Office of Management (including facilities, procurement, finance, EEO, and IT services) into the Office of Shared Services in FY 2004. The goal of implementing the Office of Shared Services is to keep the administrative functions related to the review costs more efficient.

In the FY 2004 financial report, the resources that were previously provided by the Centers, but are now provided by the Office of Shared Services, are reported as if they were still performed by the centers, in order to make the FY 2004 report comparable with the reports of previous years. 


Center Research Covered by the Prescription Drug User Fee Act

Research activities supporting the process for the review of human drug applications were included when FDA originally calculated base costs for the process for the review of human drug applications for FY 1992 and 1993. Under PDUFA I, from FY 1993 through FY 1997, both appropriated funds and user fee revenues were used to fund research activities supporting the drug review process, just as was the case with all other PDUFA activities. During informal discussions that led to PDUFA II, FDA agreed to phase out the use of fee revenues to support these research costs. The phase-out was complete in FY 2001. The remaining research related to the drug review process is now supported solely by appropriated funds, just as it was prior to FY 1993.


Center Time Reporting Results for FY 2004

The time reporting systems operated by CBER and CDER indicated the 62 percent of all time spent in CBER and 79 percent of all time spent in CDER in FY 2004 was dedicated to the process for the review of human drug applications as defined in PDUFA.


Field Inspection and Investigation Costs

FDA's Office of Regulatory Affairs (ORA) incurs all field inspection and investigation costs. ORA costs are incurred in both district offices (the "field") and headquarters support offices. In FY 2002 the Agency began tracking accumulated ORA costs through the use of the Field Accomplishment and Compliance Tracking System [FACTS]. FACTS is a time and activity tracking system which captures time in a variety of categories, including pre-approval inspections of manufacturing facilities, investigations of clinical studies, and analytical testing of samples — which are included in the process for the review of human drug applications.

Total direct hours reported in FACTS are used to calculate the total number of staff-years required by ORA to perform these activities. In addition to the direct time, an allocation of support time is also included to represent the work done by the ORA administrative and management personnel. The Agency then applies the total number of user fee related staff years to the average salary cost in ORA to arrive at ORA user fee related salary costs. The final step is to allocate ORA obligations for operations and rent to the human drug review process based upon the ratio of user fee related staff years to total ORA staff years. The following table summarizes the calculation of ORA costs for the review of human drug applications for the Fiscal Years 2003 and 2004.

Food and Drug Administration
Office of Regulatory Affairs
Costs of the Process for the Review of Human Drug Applications

As of September 30, 2003 and 2004
Cost Component FY 2003 FY 2004
Staff Years Utilized 147 147
ORA Average Salary & Benefits $79,696 $86,376
Salary and Benefits $11,715,260 $12,697,262
Operations, Rent and Shared Services $7,383,122 $6,948,825
Total $19,098,382 19,646,087

The ORA costs for the process for the review of human drug applications described above include total process costs, including costs paid from appropriations and costs paid from fee revenues.


Agency General and Administrative Costs

The Agency general and administrative costs are incurred in the FDA's Office of the Commissioner (OC). During most of FY 2004, OC was comprised of the following offices:

  • Immediate Office of the Commissioner
  • Office of the Chief Counsel
  • Office of Equal Employment Opportunity and Diversity Management
  • Office of the Administrative Law Judge
  • Office of Science and Health Coordination
  • Office of International Activities and Strategic Initiatives
  • Office of Crisis Management
  • Office of Legislation
  • Office of External Relations
  • Office of Policy and Planning
  • Office of Management

The OC costs applicable to the process for the review of human drug applications were calculated using a method prescribed by the Division of Cost Determination Management, Office of Finance, Office of the Secretary, Department of Health and Human Services. The method uses the percentage derived by dividing total Office of the Commissioner costs by the total salary obligations of the Agency, excluding the Office of the Commissioner. That percentage is then multiplied by the total salaries (excluding benefits) applicable to the process for the review of human drug applications in CDER, CBER, and ORA to arrive at the total General and Administrative Costs.

Using this process, $29,840,492 and $31,313,598 in general and administrative obligations were dedicated to the human drug review process in FY's 2003 and 2004, respectively. They are the total costs, including the funds obligated both from appropriations and user fees. The Agency general and administrative obligations in FY 2004 accounted for about 7.2 percent of the total FY 2004 costs of the human drug applications review process, which is very similar to FY 2003 (7.3 percent).

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