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FY 2008 PDUFA Financial Report

required by the Prescription Drug User Fee Act, as amended
Food and Drug Administration
Department Of Health And Human Services

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Executive Summary

The Prescription Drug User Fee Amendments of 2007 require the Food and Drug Administration (FDA or the agency) to report annually on the financial aspects of its implementation of the Prescription Drug User Fee Act (PDUFA), as amended.  This report covers fiscal year (FY) 2008.

PDUFA specifies that the following three conditions must be satisfied each year in order for FDA to collect and spend PDUFA fees:

  1. FDA’s overall Salaries and Expenses Appropriation, excluding fees, must exceed FDA’s overall FY 1997 salaries and expenses appropriation, excluding fees and adjusted for inflation.
  2. Fee revenues collected must be specified in Appropriation Acts.
  3. FDA must spend at least as much from appropriated funds for the review of human drug applications as it spent in FY 1997, adjusted for inflation, within certain tolerances.

This report describes how FDA met those specific statutory conditions during
FY 2008.  The statements and tables included in this report also provide the user fee revenues and expenditures in FY 2008, the carryover balance, and comparative data for earlier periods.

In FY 2008, FDA collected $485 million in fees, including fees collected for earlier periods.  This is more than the $459 million FDA projected at the beginning of the year when fees for FY 2008 were established.  The higher revenue is attributable to receiving a greater than anticipated number of fee-paying applications, and receipt of additional FY 2007 product fees and establishment fees in the first quarter of FY 2008. 

In FY 2008, FDA obligated $451 million from PDUFA fee revenues.  This accounted for about 63 percent of all funds obligated by FDA from all sources in support of the process for the review of human drug applications.  This $451 million was about $34 million less than net collections for the year, increasing the balance of funds collected and appropriated in previous years, and still available for obligation, to $165 million at the end of FY 2008.  Of this $165 million, there are commitments for all but about $79 million.  About 58 percent of funds obligated from all sources were for employee salaries and benefits, and the balance were for costs necessary to support and maintain those employees. 

Challenges facing FDA in FY 2009 include hiring and training of additional staff and maintaining existing staff to assure that FDA meets the PDUFA IV goals as well as meeting increased post-approval responsibilities and the challenges of an industry with increasing overseas manufacturing and clinical trial sites.


 Contents

Background 
Meeting the Legal Conditions for User Fees in FY 2008 
User Fee Revenues 
Obligation of User Fee Revenues 
Carryover Balances
Total Costs of the Process for the Review of Human Drug Applications 
Management Challenges for FY 2009

Appendices

Appendix A: Conditions for Assessment and Use of Fees
Appendix B: Exemptions and Waivers
Appendix C: Allowable and Excluded Costs for the Process for the Review of Human Drug Applications
Appendix D: Development of Costs for the Process for the Review of Human Drug Applications


 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), 2002 (PDUFA III) and 2007 (PDUFA IV).

Under PDUFA IV, 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 annual fee revenue amounts set in statute for PDUFA IV, after a base workload adjustment, must be adjusted for annual changes in drug review workload for cumulative inflation since FY 2008.  PDUFA IV authorizes FDA to set user fees in each fiscal year, so that the total revenue that FDA receives from each fee category (application fees, product fees, and establishment fees) approximates one-third of the estimated revenue amount after adjustments for workload and inflation.

PDUFA IV 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 2008 PDUFA Performance Report, which discusses FDA’s progress in meeting the goals set for FDA in PDUFA IV, is being transmitted separately to Congress.  This report is FDA’s FY 2008 PDUFA Financial Report, covering the period from October 1, 2007, to September 30, 2008.

As required by the statute, this report presents the legal conditions that must be satisfied before FDA can collect and spend the fees, and the calculations on how these conditions were met in FY 2008.  This report also presents summary statements of FY 2008, earned revenue by fee source, and fee obligations by expense category.  Finally, this report also presents the total costs in FY 2008, from both fee revenues and appropriations, 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 2008

PDUFA imposes three legal conditions that FDA must satisfy each year before the agency may collect and spend user fees.  The calculations on how these conditions were met in FY 2008 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 2008, 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 $1,761,623,000.  FDA’s FY 1997 total Salaries and Expenses Appropriation (excluding user fees) multiplied by the FY 2008 adjustment factor as required by the statute, and rounded to the nearest thousand dollars, was $1,045,463,000.  Therefore, since the FY 2008 appropriated 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 FY 2008 Consolidated Appropriations Act (Public Law 110-161) specifying amounts collectable from fees during FY 2008, on December 26, 2007.  It provided for $459,412,000 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 for FY 2008 and rounded to the nearest thousand dollars, is $188,649,000.  In FY 2008, FDA obligated $263,113,555 from 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 explanation of how FDA met each of these three statutory conditions.

 User Fee Revenues

PDUFA IV 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 inflation, workload, and statutory drug safety increases.  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.

Food and Drug Administration
Statement of PDUFA User Fee Revenues by Fee Source 
As of September 30, 2008
 

Fiscal YearFY 2007FY 2008
Fees Collected:  
Application Fees$123,277,851$166,238,950
Establishment Fees$130,664,664$160,596,629
Product Fees$118,604,015$146,057,404
Total Fees Collected:$372,546,530 $472,892,983
Fee Receivables:  
Application Fees$448,100$281,800
Establishment Fees$782,750$1,178,100
Product Fees$447,750$520,240
Total Fees Receivable:$1,678,600$1,980,140
Total User Fee Revenues:$374,225,130$474,873,123

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 2007, even if it is received in FY 2008, is attributed to FY 2007 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 of the review of human drug applications are defined in Appendix C.  In FY 2008, FDA obligated $450,786,835 from user fee revenues.

Food and Drug Administration
Statement of PDUFA Fee Obligations by Expense Category
As of September 30, 2007 and 2008

Expense CategoryFY 2007FY 2008
Personnel Compensation and Benefits$200,031,909$247,753,981
Travel and Transportation$4,304,157$6,753,378
Rent$9,001,000$12,682,864
Communications$5,218,200$9,203,524
Contract Services$86,710,548$160,945,543
Equipment and Supplies$11,956,385$12,592,575
Other$3,207,421$854,970
TOTAL OBLIGATIONS:$320,429,620$450,786,835

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 2008, PDUFA fees and appropriations paid for 1,649 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 2008 totaled about 55 percent of the obligations.  This includes all pay and benefits for the additional personnel. 

In FY 2008, FDA developed and published the PDUFA IV 5 Year IT Plan.  The plan was published in draft form for public comment in December 2007.  Comments were reviewed and the plan was revised.  The plan was then published on June 27, 2008.

In FY 2008, FDA also completed significant steps in the development of new systems or consolidation of legacy information systems.  The following were the most significant.

  1. Common Electronic Document Room (cEDR) - The FDA cEDR project was established to consolidate agency component electronic document repositories into an agency-wide shared repository.  Contracts were awarded to support business process modeling and provide technical services for this project in September 2008.
  2. Information and Computer Technologies for the 21st Century (ICT-21) - The ICT-21 initiative was established to standardize and consolidate FDA’s IT environment to reduce costs and to facilitate the development of shared applications and services across the agency.
  3. Janus Data Warehouse - The Janus initiative was established to consolidate and allow uniform access to clinical data.
  4. Regulated Product Submission (RPS) - In 2008 FDA participated in the requirements phase of RPS Release 2 to enable two-way exchange of information. 

In FY 2008, FDA expanded the capability of its secure electronic gateway by participating in the requirements-development phase of RPS Release 2, which will include two-way communication through the FDA gateway.  FDA also expanded capability for the electronic exchange of human-drug labeling by adopting the HL7 Structured Product Labeling (SPL) standard to support the future capability to exchange labeling information and enable revision tracking.  FDA tested a prototype of a collaboration portal system that would support the SPL standard in January, 2008.

FDA also expanded its capability to collect and evaluate post-market safety data.  In March 2008, FDA awarded a contract to support the MedWatch Plus initiative which will develop a portal through which reports of adverse product events based on the HL7 ICSR standard will be received and evaluated by the FDA Adverse Event Reporting System (FAERS).  In May 2008, FDA launched the Sentinel Initiative, which will enable FDA to query multiple medical product safety data sources. FDA hosted several public information-sharing meetings regarding the Sentinel Initiative in FY 2008 with external stakeholders.

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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 2008 increased the carryover balances by $34,378,394.  Much of this increase was the result of receiving more applications than anticipated in FY 2008, and of receiving additional FY 2007 fees in the first quarter of FY 2008.

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
Fee Revenue
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$283,491,495$269,433,800$65,789,792
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$485,165,229$450,786,835$165,194,487
2009$165,194,487   

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 2008 of $485,165,229 is greater than the FY 2008 cohort year collections balance on page three ($472,892,983).  This is because the FY 2008 net collections figure above also includes some prior years’ receivables that FDA collected in FY 2008. 

There are also a number of claims on these carryover funds.  These claims are explained below. 

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 Collection Ceilings, Potential Refunds and Offsets

PDUFA I prohibited FDA from keeping fees in excess of the amount specified in appropriations (collection ceiling) each fiscal year through FY 1997.  Amounts collected that exceeded 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 FY 2007 (August 2006), there were no excess collections for other years.  Collections since then have resulted in additional excess collections. 

Under the provisions of PDUFA IV, if cumulative collections through FY 2010 and estimated for FY 2011 exceed cumulative fee appropriations for the same period, FDA will reduce fees when fees are set for FY 2012 by the cumulative amount by which fees collected over this period exceed fees appropriated over the same period.

The following table depicts the net collections, the collection amounts specified in appropriations, and the amounts that FDA may have to use to offset future collections in FY 2012.

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

 As of September 30, 2008

Fiscal YearCollections
 Realized
Collection
Ceiling
Potential Offset to Future Collections
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$313,702,118$305,332,000$8,370,118
2007$372,546,230$352,200,000$20,346,230
2008$472,546,530$459,412,000$13,134,530
Total:$53,853,825
Amount offset when fees for FY 2007 were set$7,957,922
Balance remaining to be offset when FY 2012 fees are set$45,895,903

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 Reserve for Refunds and Offset for Future Collections

Total fees collected exceeded the appropriations limit: in FY 1998, by $727,016; in FY 2004, by $8,491,700; in FY 2005, by $2,784,231; in FY 2006, $8,370,118; in FY 2007, by $20,346,230; and in FY 2008, by $13,134,530.  Since FY 1998, collections have exceeded appropriations by a total of $53,853,825.  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 $45,895,903 remains to be offset.  Under PDUFA IV, an offset will be made when fees are set for FY 2012 for the cumulative amount of excess collections through FY 2010 and projected through FY 2011.  In the meantime, this $45,895,903 must be held in reserve for an offset in FY 2012, unless collections in the years from FY 2009 through FY 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.

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 Other Reserves and Balance Available for Allocation

The table below provides a summary of carryover balances as of September 30, 2008, and anticipated claims on those balances. 

Due to a change in PDUFA 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 ($78,902,584) is enough to fund estimated FY 2013 operations for approximately 1.4 months.

Food and Drug Administration
Summary Statement of Carryover Balance

As of September 30, 2008

Status of Carryover FundsAmount
Reserve for Refunds$2,500,000
Reserve for Future Collection Offset$45,895,903
Reserve for CBER move to White Oak$37,896,000
Available for Allocation$78,902,584
TOTAL Carryover Balance$165,194,487

 

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 Total Costs 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 2007 and FY 2008 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, 2008

FDA ComponentFY 2007FY 2008
Center for Drug Evaluation and Research (CDER)$385,939,977 $493,748,819
Center for Biologics Evaluation and Research (CBER)$122,871,873 $145,080,623
Field Inspection and Investigation Costs (ORA)$25,860,072 $27,811,039
Agency General and Administrative Costs (OC)$40,334,070 $47,259,909
Total Process Costs$575,005,992$713,900,390
Amount from Appropriations$254,576,372$263,113,555
Amount from Fees$320,429,620$450,786,835

Of the total of $713,900,390 obligated in support of the process for the review of human drug applications as defined in PDUFA, about 60 percent came from PDUFA fees and about 40 percent came from appropriations.  The costs for all components increased in FY 2008.  The increases in expenditures primarily reflect mandatory pay increases for all Federal employees, increased employee benefit costs, and additional FTE added under PDUFA IV. In FY 2008, a total of 2,926 FTEs were expended in support of the process for the review of human drug applications as defined in PDUFA.

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 Management Challenges for FY 2009

Since the implementation of PDUFA I, FDA has utilized PDUFA resources to significantly reduce the time it takes to evaluate new drugs without compromising the FDA’s rigorous standards for safety and efficacy.  This has allowed the American people to gain quicker access to valuable therapies and has increased the economic incentive for sponsors to develop innovative drug and biological products.  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.

PDUFA IV enters its second year in FY 2009.  Re-authorized as Title I of the Food and Drug Administration Amendments Act of 2007 (FDAAA), PDUFA IV expands user-fee funding to cover post-market safety activities.  FDAAA also expanded requirements under the re-authorized Pediatric Research Equity Act (Title IV) and the Best Pharmaceuticals for Children Act (Title V).  In addition FDAAA Title IX gave FDA substantially expanded responsibilities and authorities regarding the post-market safety of drugs.  For example, FDA can now implement risk evaluation and mitigation strategies for approved drug products, require sponsors to conduct post-market studies, and require safety labeling changes to address new safety information for marketed drugs.  FDA is also tasked with developing systems capable of performing active post-market risk identification and analysis.  These new provisions greatly strengthen FDA’s ability to perform its mission of ensuring the availability of safe and effective drugs and biologics, but they also place increasing workload demands on FDA.  The added responsibilities of FDAAA Titles IV, V and IX pertaining to new drugs and biologics are now part of the process for the review of human drugs.

While FDA made great strides in FY 2008 staffing up and implementing the new provisions of FDAAA, these increased resource demands were not anticipated or met with a proportional increase in PDUFA funding.  Further, while a significant number of new staff have been hired, the influx of new reviewers has created a short-term drain on experienced reviewer and manager time as they work to train these new staff.  In FY 2009, FDA will focus on further training and integrating the new staff into the review process and continuing to develop, implement, and streamline the processes and policies required by FDAAA, while maintaining a high level of performance and efficiency of the core review work.

Globalization trends have also presented new challenges for the human drug review program. In recent years, manufacturing and clinical trials have increasingly shifted to sites overseas. This trend increases workload demands as FDA inspectors must spend more time traveling abroad and handling a new set of logistical issues in addition to the traditional science underlying their inspection work.  In FY 2009, FDA will work to expand capacity to address these realities, in order to continue to ensure the quality of new drugs and the integrity of clinical data submitted in new drug and biologic licensing applications. 

FDA will also continue to modernize its IT infrastructure.  This modernization is crucial so that FDA can continue making progress toward providing a more comprehensive and efficient review enabled by a fully-electronic environment.  FDA is currently in the process of migrating its servers to the White Oak Data Center.  The data center migration will facilitate server consolidation efforts, which will allow FDA to realize savings on hardware and software licensing, maintenance and purchasing, and systems support and training.  FDA is also in the planning stages of the development of a CDER Computational Science Center (CSC).  The CSC will provide FDA reviewers, statisticians, and scientists with cutting-edge scientific and computing tools to advance FDA’s mission to the American people.

PDUFA funding will continue to ensure that FDA rises to the challenge to meet the evolving demands of protecting the public health and the realities of the global situation.

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 Appendix A
Conditions for Assessment and Use of Fees

The Federal Food, Drug, and Cosmetic Act (the Act) specifies three major conditions that must be met each year before prescription drug user fees may be collected and spent.  A summary of these conditions and how FDA met them appears on page two.  A more detailed description of each of these conditions is provided below, with an explanation of how FDA met the condition in FY 2008.

For making the calculations 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 October of the preceding fiscal year divided by such Index for October 1996.

The consumer price index for October 2006, the October of the fiscal year preceding FY 2008, was 201.8.  The consumer price index for October 1996 was 158.3.  The result of dividing 201.8 by 158.3 is an adjustment factor of 1.275 for FY 2008. 

The first condition is based on Section 736(f)(1) of the Act.  It states:

In general, fees under subsection (a) shall be refunded 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 the 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 provision does not allow FDA to collect or spend user fees unless FDA’s total Salaries and Expenses Appropriation (excluding user fees) each year are greater than or equal to FDA’s FY 1997 Salaries and Expenses Appropriation (excluding user fees) multiplied by 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 1.275, an adjusted FY 1997 Salaries and Expenses Appropriation (excluding user fees, and rounded to the nearest thousand dollars) is $1,045,463,000, rounded to the nearest thousand dollars.

In FY 2008, 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 $1,761,623,000.  Because the FY 2008 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 Consolidated Appropriations Act that specified the amounts from prescription drug user fees in FY 2008 ($459,412,000) on December 26, 2007 (Public Law 110-161).  Therefore, the second condition was met.

The third condition in Section 736(g)(2)(A)(ii), states that 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 process for the review 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 FY 2008 adjustment factor of 1.275, FDA’s 1997 adjusted minimum spending for the human drug applications review process from appropriations (exclusive of user fees) was $188,649,000, rounded to the nearest thousand dollars, in FY 2008. 

In FY 2008, FDA obligated $263,113,555 from appropriations for the human drug applications review process.  Because $263,113,555 is greater than $188,649,000, the third condition was met.

The table below provides the amounts that FDA spent on the review process of human drug applications in FY 2007 and FY 2008, 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, 2008

 FY 1997 Adjusted for FY 2008FY 2007FY 2008
From Appropriations$188,649,000$254,576,372$263,113,555
From User Fee Revenues $320,429,620$450,786,835
Total Obligations $575,005,992$713,900,390

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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 application 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, of the full application fee for the first application submitted.  Before FY 1998, only half of the application fee was waived for small businesses.

The increased number of exemptions required by PDUFA II reduced the number of applications that pay 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.

Beginning in FY 2008, PDUFA IV also provided exemptions for product fees and establishment fees for certain approved orphan products (See 21 USC 379h (k)).

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, 2008
Does not Include Data on FY 2009 Waivers Granted in FY 2008

Exempted Application Fees 1

 FY 2004FY 2005FY 2006FY 2007FY 2008
Orphan Product19.528.523.821.327.8
Previously Submitted8.03.56.04.54.0
Total Exemptions27.532.029.825.831.8
Total Value of Exemptions$15,771,250$21,504,000$22,830,150$23,077,150$37,401,500

Exempted Orphan Product and Establishment Fees (new in FY 2008)

 FY 2004FY 2005FY 2006FY 2007FY 2008
Orphan Product Fee Exemptions    12
Value of Product Fee Exemptions    $780,360
Orphan Establishment Fee Exemptions    5.04
Value of Establishment Fee Exemptions    $1,978,604
Total Value of Product and Establishment Fee Exemptions$2,758,964

Waived Fees

Applications 2

 FY 2004FY 2005FY 2006FY 2007FY 2008
Small Business Waivers16.312.011.014.022.0
Miscellaneous Waivers (Includes PEPFAR)1.012.013.014.020.0
Value of Waivers Approved$9,892,875$16,128,000$18,417,600$25,093,600$49,476,000

Products

 FY 2004FY 2005FY 2006FY 2007FY 2008
Waivers Approved50.027.017.016.08.0
Value of Waivers Approved$1,804,000$1,126,170$716,210$796,000520,240

Establishments

 FY 2004FY 2005FY 2006FY 2007FY 2008

Waivers Approved

22.016.511.710.15.0

Value of Waivers Approved

$4,989,600$4,322,891$3,091,704$3,153,5431,963,500

 

 FY 2004FY 2005FY 2006FY 2007FY 2008
TOTAL Value of Waivers Granted$16,686,475$21,577,061$22,225,514$29,043,143$51, 959,740

 

 FY 2004FY 2005FY 2006FY 2007FY 2008
GRAND TOTAL -- Exemptions & Waivers$32,457,725$43,081,061$45,055,664$52,120,293$92,120,204

Source: Periodic waiver reports and application counts compiled by the CDER Associate Director for Policy

1 Actual number of Exempted Applications received in full fee equivalents.
2 Actual number of Application Fee Waivers Granted--number of waived applications actually received may have been smaller.

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

Over 96 percent of amounts FDA obligates (contractually promises to pay) each year are expended within 2 years.  Therefore, obligations represent an accurate measure of costs and are the basis of the costs reported in this document.

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

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 NDAs, BLAs, including supplements 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 FDA 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; and
  • Postmarket safety activities with respect to drugs approved under human drug applications or supplements, including the following activities:  collecting, developing, and reviewing safety information on approved drugs, including adverse event reports; developing and using improved adverse event data-collection systems, including information technology systems; developing and using improved analytical tools to assess potential safety problems, including access to external data bases; implementing and enforcing Section 505(o) (relating to postapproval studies and clinical trials and labeling changes) and Section 505(p) (relating to risk evaluation and mitigation strategies); and carrying out section 505(k)(5) (relating to adverse event reports and postmarket safety activities).

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:

(A) officers and employees of the FDA, contractors of the FDA, advisory committees, and costs related to such officers, employees, committees and contracts; 
(B) management of information, and the acquisition, maintenance, and repair of computer resources;
(C) leasing, maintenance, renovation, and repair of facilities and acquisition, maintenance, and repair of fixtures, furniture, scientific equipment, and other necessary materials and supplies; and
(D) 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 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 parenteral drug products 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 not related to Sections 505(o) and (p) of the Act
  • Post-approval compliance activities not related to the enforcement of Sections 505(o) and (p) of the Act
  • Advertising review activities once marketing of the product has begun
  • Inspections unrelated to the review of covered applications, unless undertaken for the enforcement of Sections 505(o) and (p) of the Act
  • 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), the 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 CategoryFDA Organization
Costs for the Review of New Drug Applications (NDAs), Biologic License Applications (BLAs), and SupplementsCDER
Costs for the Review of BLAs and SupplementsCBER
Field Inspection and Investigation CostsORA
Agency General and Administrative CostsOC

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 8 weeks during FY 2008 in activities 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 each PDUFA reauthorization, so that time could be reported in activities 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 explained 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 & Company.  The CBER time reporting system collects on-line time reports for all employees other than management and administrative support personnel for a 2-week period each quarter of the fiscal year.  The enhanced system reports time for 58 possible functional activities, by 7 product classes. 

CDER also conducts an on-line time reporting survey.  It captures the expenditure of time by all employees, other than management and administrative support personnel, on activities that are part of the process for the review of human drug applications and all CDER mission-oriented activities of each employee within the Center for two 4-week periods—one in each half of the fiscal year.

FDA Centers are payroll-intensive organizations – about 60 percent of all FDA funds pay for employee salaries and benefits, and almost all other costs are directly supporting these employees.  Thus the average percentage of time reported each year during this 8-week period (2 weeks each quarter for CBER, and 4 weeks semiannually for CDER) as having been expended on drug review process activities for each cost center is then applied to all costs incurred for that cost center for the entire fiscal year.  This provides an estimate of 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 Business Process Support, the Office of Management, the Office of Training and Communications, the Office of Medical Policy, the Office of Executive Programs, and the Office of Compliance.  In CBER, these components include portions of the Office of the Center Director, Office of Management, Office of Information Management, and the Office of Communications, Training, and Manufacturers Assistance.  Most employees of these components do not report their time.

The time of the management and administrative support personnel supporting the process for the review of human drug applications is assumed to be the average percentage time of all Center employees in direct review and laboratory components who reported their time.  Thus the total average percentage of time reported each year during this 8-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 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 time-reporting component costs for the process for the review of human drug applications divided by the total costs of these components.

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 2008 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 2008 report comparable with the reports of previous years. 

Center Time Reporting Results for FY 2008

The time reporting systems operated by CBER and CDER indicated that 68 percent of all time spent in CBER and 78 percent of all time spent in CDER in FY 2008 was dedicated to the process for the review of human drug applications as defined in PDUFA.

Field Inspection and Investigation Costs 

ORA incurs all field inspection and investigation costs.  ORA costs are incurred in both district offices (the "field") and headquarters support offices and are tracked 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 FY 2007 and FY 2008.

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

As of September 30, 2007 and 2008

Cost ComponentFY 2007FY 2008
Staff Years Utilized144146
ORA Average Salary and Benefits$104,700$109,685
Salary and Benefits$15,076,800$16,014,010
Operations, Rent, and Shared Services$10,783,272$11,797,029
TOTAL$25,860,072$27,811,039

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 OC.  At the end of FY 2008, OC was comprised of the following offices:

  • Immediate Office of the Commissioner
  • Office of the Chief Counsel
  • Office of the Chief of Staff
  • Office of the Administrative Law Judge
  • Office of Equal Employment and Diversity Management
  • Office of International and Special Programs
  • Office of Operations
  • Office of Policy, Planning and Preparedness
  • Office of Scientific and Medical Programs

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 Assistant Secretary for Resources and Technology, Office of the Secretary, HHS.  The method uses the percentage derived by dividing total OC costs by the total salary obligations of the agency, excluding the OC.  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, $40,334,070 and $47,259,909 in general and administrative obligations were dedicated to the human drug review process in FY 2007 and FY 2008, respectively.   They are the total costs, including the funds obligated both from appropriations and user fees.  The agency general and administrative obligations in FY 2008 accounted for about 6.6 percent of the total costs of the human drug application review process.  This is about the same percent as in FY 2005 and FY 2006, and down from the 7 percent reported for FY 2007.  This percentage has declined significantly from the high point of 10.4 percent reported in the
FY 1998 PDUFA Financial Report.

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