Over the past two decades, extensive research and development have led to new prescription drug therapies and improvements over existing therapies, and the number of prescription drugs on the market has increased dramatically. Some of these therapies can at times replace other health care interventions, and as a result, the importance of prescription drugs as part of health care has grown. Consequently, Americans are using a greater number of pharmaceuticals than ever before. According to the National Institute for Health Care Management, pharmacists dispensed 3.1 billion prescriptions in the United States in 2001, up from 1.9 billion in 1992 and 2.4 billion in 1997. In addition to ensuring that new drugs and biologics are safe and effective and that applications for their approval are reviewed timely, FDA is also responsible for monitoring drugs and biologics for continued safety after they are in use. Within FDA, CDER and CBER are responsible for reviewing applications for new drugs and biologics, respectively. The centers also are responsible for reviewing efficacy supplements, manufacturing supplements, labeling supplements, and investigational new drugs. Efficacy supplements are applications for new or expanded uses of already approved products, including addition of a new indication, a change in the dosing regimen such as increase or decrease in daily dosage, or a change in the patient population. Manufacturing supplements to new drug applications are used to notify the centers in advance of certain drug manufacturing changes. Investigational new drug applications are submitted for new drugs or new indications for already approved drugs that are to be used in clinical investigations. The review process for both centers requires evaluating scientific and clinical data submitted by manufacturers to determine whether the products meet the agency’s standards for approval. The first decision a center must make in its review process is whether to accept a new drug application (NDA) or biologics license application (BLA). FDA can issue one of several action letters. If the application is not sufficiently complete to allow a substantive review, the center issues a “refuse-to-file” letter. Once the center has accepted the application, it designates the product as either “priority,” for products that would provide significant therapeutic gains compared to any existing products on the market, or “standard,” for products that would provide no significant therapeutic advantage over other drugs already on the market. After a thorough assessment of the information in the application and any supplemental information requested, the center decides whether to approve the drug based on the product’s intended use, effectiveness, and the risks and benefits for the intended population. All medical products are associated with some level of risk, and a product is considered safe if its risks are determined to be reasonable given the magnitude of the benefit expected. For decisions on drugs, CDER may approve the product for marketing (in an “approval letter”) or it may indicate (in an “approvable letter”) that it can approve the drug if the sponsor resolves certain issues. Alternatively, it may issue a “nonapprovable letter” that specifies the issues that make the application ineligible for FDA approval. The review process is similar for biologics; however, CBER issues a “complete response letter” that specifies all outstanding issues that would need to be addressed by the sponsor to be considered for FDA approval. The review process may consist of more than one review cycle. The first review cycle begins when an NDA or a BLA is initially submitted to FDA, and it ends when FDA has completely reviewed the application and issued some form of an action letter. If the application is approved in the first cycle, the “approval time” is recorded as the length of that cycle. The next cycle of review, if necessary, begins when the application is resubmitted to FDA. If the review process takes two or more cycles to reach approval, the length of the approval time is recorded as the total of the length of the review cycles plus any subsequent time during which a sponsor is addressing the issues raised by FDA. Under PDUFA, companies pay three types of user fees to FDA— application fees, establishment fees, and product fees. In most cases, a company seeking to market a new drug or biologic in the United States must pay an application fee to support the agency’s review process. Generally, companies also pay an annual establishment fee for each facility in which their products subject to PDUFA are manufactured and an annual product fee for marketed drugs for which no generic versions are available. FDA is expected to use funds received under PDUFA to meet certain performance goals. Under the framework established by PDUFA, FDA works with various stakeholders, including representatives from consumer, patient, and health provider groups and the pharmaceutical and biotechnology industries, to develop performance goals. The Secretary of Health and Human Services (HHS) then transmits these goals in a letter to the Congress. Under PDUFA I, the performance goals applied to length of review time; the performance goals in PDUFA II further shortened the review time and added new performance goals associated with reviewer responsibilities for interacting with the manufacturer, or sponsor, during drug development. For example, PDUFA II required FDA to schedule meetings and respond to various manufacturer requests within specified time frames. To collect and spend user fees under PDUFA I, each year FDA had to spend from its annual appropriation for salaries and expenses at least as much, adjusted for inflation, on the human drug and biologic review process as it had spent on for this process in fiscal year 1992. Under PDUFA II, each year FDA has to spend at least as much, adjusted for inflation, as it did in fiscal year 1997. The user fees collected under PDUFA cover only those CDER or CBER activities that are included in the human drug review process. The fees do not fund other CDER or CBER activities and do not fund the programs of the other FDA centers, that is, the Center for Food Safety and Applied Nutrition, Center for Veterinary Medicine, Center for Devices and Radiological Health, and National Center for Toxicological Research. FDA designates the programs of these centers as non-PDUFA programs or other activities. PDUFA has provided FDA with additional resources that have helped the agency make new drugs available to the U.S. health system more quickly, but biologic approval times have varied. FDA has used PDUFA funds to increase the number of medical and scientific reviewers to assess the applications for new products by about 77 percent. Since 1993, FDA median approval times for standard drugs decreased from about 27 months in 1993 to about 14 months in 2001. However, in recent years, median approval times for standard NMEs have increased. In contrast, median approval times for biologic applications have fluctuated since 1993, ranging from a low of 12 months to a high of about 32 months. In all but 2 years since 1993, approval times for biologics have been longer than for drugs. For example, in 2001, the median approval time for biologics was about 22 months, while median approval times for priority and standard drugs were about 6 months and 14 months, respectively. The fluctuation in BLA approval time is due, in part, to the small number of submissions each year. Since the implementation of the PDUFA program, user fees have grown steadily and represent an increasing share of FDA’s funds for the review of new drug and biologic applications. From fiscal year 1993 through fiscal year 2001, FDA obligated $825 million from user fees for the drug and biologic review processes, in addition to $1.3 billion from its annual appropriation for salaries and expenses (see fig. 1). While user fees funded 7 percent of drug and biologic review obligations in fiscal year 1993, user fees accounted for nearly 50 percent of the total funds obligated for the drug and biologic review processes in fiscal year 2001. In fiscal year 2002, FDA expects to obligate about $170 million in user fees, or 51 percent of the $332 million that FDA expects to spend on its drug and biologic review processes. From fiscal year 1993 to fiscal year 2001, user fees allowed FDA to increase the personnel assigned to review new drug and biologic applications from about 1,300 to about 2,300 full-time equivalents (FTE), an increase of about 77 percent. Despite the growth of user fees, user fee revenues under PDUFA II fell short of FDA’s estimates, while reviewer workload increased. FDA’s estimate of how much the agency would receive from user fees fell short because FDA received fewer submissions than expected. From fiscal year 1998 through fiscal year 2002, FDA collected about $57 million less in user fees that it initially estimated. At the same time, the workload of FDA reviewers increased under PDUFA II. As a result, during the last 2 years of PDUFA II, FDA had to spend unobligated user fees that had been carried over from previous years to maintain its reviewer workforce. Under PDUFA III, FDA will be better able to ensure the stability of user fee revenues. Overall, the median approval time for new drugs has dropped since the implementation of PDUFA. From 1993 to 2001, the median approval time for standard new drug applications dropped from about 27 months to about 14 months (see fig. 2). During the same period, the median approval time for priority new drugs also dropped, from about 21 months to about 6 months. Since 1995, approval times for priority new drugs have been relatively constant. While, in general, approval times for new drugs have dropped significantly, the median approval time for standard NMEs, a subset of standard drugs, has increased in recent years. The approval time for standard NMEs reached a low of about 13 months in 1998 before rising to about 20 months in 2000 and 2001. The median approval time for priority NMEs has remained stable at about 6 months since 1997.