Modernizing the Nuclear Security Enterprise: Uranium Processing Facility Is on Schedule and Budget, and NNSA Identified Additional Uranium Program Costs

A supply of enriched uranium is crucial to support the nation's nuclear weapons stockpile and the U.S. Navy, but the infrastructure of several U.S. uranium-processing facilities is outdated. In 2014, NNSA began plans to meet the nation's uranium needs by redirecting processing capabilities to the UPF and to other existing buildings NNSA plans to upgrade at Y-12 in Oak Ridge, Tennessee.

The National Defense Authorization Act for Fiscal Year 2013, as amended, includes a provision for GAO to periodically review the UPF. Also, a Senate report accompanying the National Defense Authorization Act bill for fiscal year 2012 provides for GAO to review the independent cost estimates for the UPF.

This report, which is GAO's sixth on the UPF, examines (1) the status of the UPF project and plans for starting UPF operations; (2) the extent to which NNSA has followed requirements to obtain independent cost estimates for the UPF, and how NNSA has used information from those estimates; and (3) the extent to which NNSA has made progress in developing uranium program management information since GAO's September 2017 report. GAO reviewed project and program documents on planning, schedule, cost, and implementation, and interviewed program officials.

National Nuclear Security Administration (NNSA) documents and officials reported that the new Uranium Processing Facility (UPF) is on schedule and within budget. As of December 2019, three of the seven UPF subprojects were complete, and four were ongoing. NNSA officials told GAO they estimate that construction of the UPF will be complete in 2022 and that they expect to meet NNSA's goal of completing the UPF project for $6.5 billion by the end of 2025. As required, NNSA and its contractor developed a plan for starting operations at the UPF, which officials stated will likely occur in 2026. According to NNSA's plan, attaining full UPF operational capability will be the final step to enable NNSA to stop certain operations in Building 9212—the oldest building with the highest nuclear safety risk at the Y-12 National Security Complex (Y-12)—and turn it over to the Department of Energy (DOE) for final disposition by 2035.

In managing the UPF project, NNSA obtained independent cost estimates for the four largest UPF subprojects whose total estimated costs exceeded $100 million. Such estimates are required by DOE policy and to satisfy limitations in appropriations laws. Moreover, based on its review of NNSA documents, GAO found NNSA used those estimates to help inform the UPF's approved cost and schedule baseline estimates. NNSA officials stated that they used information from the independent cost estimate and other sources to help negotiate remaining work with the contractor and finalize the overall UPF's baseline estimates before starting construction.

Since GAO last reported on NNSA's broader uranium program in September 2017, NNSA identified and made progress in implementing the uranium program's scope of work that includes capabilities and other activities that are not part of the UPF project but are needed for weapons program. Specifically, NNSA made progress in the following areas:

1. developing process technologies that are expected to increase the efficiency and effectiveness of certain uranium processing capabilities;

2. investing in infrastructure to extend the operational lives of older uranium facilities; and

3. reducing the amount of uranium stored and used in these older uranium facilities.

NNSA has also made progress in implementing GAO's 2017 recommendation to develop key management information for the uranium program. Specifically, NNSA developed an integrated master schedule covering the scope of work for the program through fiscal year 2035 and a life-cycle cost estimate that includes program costs through fiscal year 2026. NNSA estimated that, in addition to completing the UPF project for $6.5 billion, the uranium program will spend over $850 million from fiscal years 2016 through 2026 to support modernizing other needed uranium processing capabilities and transitioning out of Building 9212.

A supply of uranium is crucial to support the nation’s nuclear weapons  stockpile and the U.S. Navy, but the infrastructure of several U.S.  uranium-processing facilities is outdated. The National Nuclear Security  Administration (NNSA), a separately organized agency within the U.S.  Department of Energy (DOE), is responsible for meeting national needs  for enriched uranium. NNSA conducts the vast majority of its uranium  processing at the Y-12 National Security Complex in Oak Ridge,  Tennessee. Several of Y-12’s uranium processing facilities are  deteriorating to the point that they may pose risks to safety and NNSA’s  future ability to meet its missions. For example, Building 9212, which  houses many key uranium processing operations (e.g., uranium  purification and casting), was built in 1945 and does not meet modern  nuclear safety requirements to withstand a seismic event (i.e., earthquake  and aftershock activity) or high-wind event. According to a 2015 Defense  Nuclear Facilities Safety Board report and a 2016 DOE Office of Inspector  General report, an earthquake and aftershocks could result in the release  of radiological material, exposing Y-12 workers and the public.

To address these and other infrastructure needs, NNSA began planning  in 2004 to replace four uranium processing facilities at Y-12 and relocate  key processing equipment and capabilities into a single new structure— the Uranium Processing Facility (UPF) project. However, NNSA identified  scope, schedule, and cost issues with the UPF, and an October 2013  external review estimated that the cost could be as much as $11 billion.

As we have previously found, NNSA has experienced ongoing issues in  contract and project management, including in its modernization of  uranium processing capabilities. Because of these issues, we have long  designated these activities as at high risk of waste, fraud, abuse, and  mismanagement.

To control for these cost and scheduling issues, NNSA reduced the scope  of the UPF project in 2014. In doing so, it redirected some processing  equipment and capabilities initially planned for the UPF to existing Y-12  buildings, which NNSA intended to upgrade. NNSA shifted the work and  costs of needed repairs and upgrades for these existing Y-12 buildings  into its broader uranium program rather than including them as part of the  UPF project. NNSA’s uranium program consists of the following elements:  (1) new construction with the re-scoped UPF project; (2) technology  development projects that are expected to increase the efficiency and  effectiveness of uranium processing capabilities; (3) infrastructure  investments to extend the lives of its older facilities—which NNSA calls  extended life programs; and (4) reduction of the amount of uranium  stored and used in its older facilities—which NNSA calls a reduction in  material at risk.

According to NNSA’s high-level strategic plan for the uranium program,  NNSA’s overarching objectives for the uranium program are to complete  the re-scoped UPF project for $6.5 billion by the end of 2025 and phase  out mission dependency on Building 9212—the oldest building with the  highest nuclear safety risk. For capital asset projects with a total cost of  $100 million or more, which includes the UPF project, a DOE order  requires that NNSA have its cost and schedule baseline estimates  verified and validated through independent cost estimates before  approving the start of construction. Additionally, the order and a DOE  memorandum require NNSA to develop and implement a plan for the  transition from project construction to facility operations and to attain full  operational capability. In September 2017, we reported that NNSA had  made progress in managing the UPF project but had not made a  commensurate level of progress in managing the rest of its overall  uranium program.

A Senate report accompanying the National Defense Authorization Act bill  for fiscal year 2012 provides for GAO to review the independent cost  estimates for the UPF. Additionally, section 3123(f) of the National  Defense Authorization Act for Fiscal Year 2013, as amended by section  3126 of the National Defense Authorization Act for Fiscal Year 2014 and  section 3118 of the Carl Levin and Howard P. “Buck” McKeon National  Defense Authorization Act for Fiscal Year 2015, includes a provision for  us to periodically review the new UPF, including any other issues that we  determine appropriate with respect to the requirements, cost, schedule, or  technology readiness levels of the project. This is our sixth report in  response to section 3123(f), as amended. This report examines (1) the  status of NNSA’s UPF project and plans for starting UPF operations; (2)  the extent to which NNSA has followed requirements to obtain  independent cost estimates for the UPF project, and how NNSA has used  information from those estimates; and (3) the extent to which NNSA has  made progress in developing uranium program management information  since we last reported on the UPF and NNSA’s uranium program in 2017.

To examine the status of NNSA’s UPF project and plans for starting UPF  operations, we reviewed DOE’s policies NNSA is to follow when  managing capital asset projects such as the UPF project. We also  reviewed NNSA documentation of the project’s critical decisions, such as  those approving cost and schedule baseline estimates and start of  construction. We reviewed the most recent DOE project status reports  and NNSA budget information at the time of our review for specific cost  and schedule information for the UPF project. We also reviewed NNSA’s  plans to complete construction, start operations, and attain full operational  capability for the UPF project. We interviewed NNSA officials from the  Office of Defense Programs’ uranium program, Office of Acquisition and  Project Management, and UPF project office, as well as representatives  from the Y-12 contractor, to discuss the UPF project’s status and to  discuss NNSA’s plan for completing the project’s construction, starting its  operations, and attaining full operational capability for the UPF. We also  visited Y-12 to observe the status of the UPF project’s construction.

To examine the extent to which NNSA has followed requirements to  obtain independent cost estimates for the UPF project and how NNSA  has used that information, we reviewed DOE and NNSA’s policies and  procedures that NNSA is to follow when having independent cost estimates conducted and reconciled with its own cost and schedule  estimates as well as our best practices for cost estimating and  scheduling. We reviewed the DOE Office of Project Management’s  (DOE-PM) independent cost estimate reports and the external  independent review report for the UPF. We did not assess DOE-PM’s  compliance with our best practices for this review. We also reviewed  NNSA’s negotiation strategy to examine how NNSA used information  from the independent cost estimates and other independent reviews.  We interviewed officials from DOE-PM to discuss their process for  conducting independent cost estimates or other independent reviews of  the UPF project and for reconciling those estimates with NNSA’s project  estimates. We also interviewed NNSA UPF project officials and contractor  representatives about how they used any information from the  independent cost estimates to develop the final overall UPF project cost  and schedule baseline estimates.

To examine NNSA’s progress in developing uranium program  management information since 2017, we reviewed documentation on how  NNSA is managing the programmatic activities and projects that will  provide essential capabilities to its overall uranium mission. These  documents included the program’s high-level strategic plan, program’s  schedule and cost estimate, and various other program and planning  documents. During our interviews with NNSA officials from the uranium  program and during our visit to Y-12, we discussed and observed the  status of key efforts to extend the life of various buildings at Y-12 and to  develop and complete uranium processing technology projects. In  addition, we met with officials from the Defense Nuclear Facilities Safety  Board and reviewed its reports regarding facility safety and other issues  at Y-12. According to NNSA officials, the UPF was intended to replace  enriched uranium processing capabilities and was not intended to replace  depleted uranium facilities. We are not including NNSA’s management of  depleted uranium in this review of the UPF project and the uranium  program.

We conducted this performance audit from March 2019 to March 2020 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

NNSA is responsible for managing national nuclear security missions:  ensuring a safe, secure, and reliable nuclear deterrent; supplying nuclear  fuel to the Navy; and supporting the nation’s nuclear nonproliferation  efforts. NNSA largely relies on management and operating contractors to  carry out these missions and to manage the day-to-day operations at  eight sites collectively known as NNSA’s nuclear security enterprise.  The Y-12 National Security Complex in Tennessee is the primary site  among these with enriched uranium capabilities. Y-12’s primary mission  is processing and storing uranium, processing uranium for naval reactors  for the Navy, and developing associated technologies, including  technologies to produce uranium-related components for nuclear  warheads and bombs.

According to NNSA documents, Y-12’s enriched uranium operations have  key shortcomings, including an inefficient workflow, continually rising  operations and maintenance costs stemming from facility age, and  hazardous processes that could expose workers to radiological  contamination. To address these shortcomings, NNSA developed plans  to replace aging infrastructure at Y-12 and relocate key processing  equipment without jeopardizing uranium production operations.

In 2004, NNSA initially proposed relocating Y-12’s main uranium  processing equipment into a new facility referred to as the UPF. NNSA  planned to construct this single, consolidated facility that would reduce  the overall size of existing uranium processing facilities, reduce operating  costs by using modern equipment, and increase worker and  environmental health and safety.

NNSA estimated in 2007 that the UPF would cost approximately $1.4  billion to $3.5 billion to design and construct. In June 2012, the Deputy  Secretary of Energy approved an updated cost estimate range for the  UPF of $4.2 billion to $6.5 billion, with the latter being the project’s  maximum allowable cost. However, by August 2012, the UPF contractor  concluded that the UPF as designed would not provide enough space to  house all of the uranium processing and other equipment. In October  2013, an external review estimated that the UPF project could cost as  much as $11 billion.

In 2014, because of the high cost and scheduling concerns of a solution  focused solely on constructing new buildings, NNSA established its  uranium program within its Office of Defense Programs. NNSA also  prepared a high-level strategic plan based on its objectives of 1)  completing the UPF project with a reduced scope within the cost and  schedule limits established for the original UPF project and 2) phasing out  mission dependency on Building 9212.

Under NNSA’s revised approach, the agency plans to transition  production operations out of Building 9212 and into the re-scoped UPF or  existing buildings at Y-12 after they have been upgraded as described in  further detail below.

Building 9212. Constructed in 1945, the building’s design predates  modern nuclear safety codes. It consists of a number of  interconnected buildings that contain capabilities for uranium  purification and casting, among other things. One of NNSA’s key  goals is to shut down the Building 9212 operations that have the  highest nuclear safety risks. Because of these risks, NNSA is  implementing a four-phase exit strategy to systematically phase out  mission dependency on Building 9212. According to NNSA’s  September 2018 implementation plan for the exit strategy, the first  three phases focus on reducing inventory, system isolation and clean  out, and relocating capabilities from Building 9212 to other existing Y- 12 facilities or to the UPF once startup is complete. Building 9212 will  then enter a phase of post-operational clean out, during which  operations will be limited to simple processing, recovery, and  inventory accountability. By about 2035, management of the building  will transition to DOE’s Office of Environmental Management for  decontamination and decommissioning activities.

Building 9215. Constructed in the 1950s, the building’s design  predates modern nuclear safety codes. It consists of three main  structures, and its current primary function is fabrication, which  involves metal machining operations for enriched uranium. As part of  the Building 9212 exit strategy, NNSA plans to move capabilities into  Building 9215, such as the uranium purification and the processing of  uranium metal scraps resulting from machining operations. The  uranium program is managing the development and deployment of  new technologies to increase the efficiency and effectiveness of these  capabilities. NNSA initially intended to house these two capabilities in  the UPF before re-scoping the project to meet its cost and schedule  goals. According to NNSA documents, NNSA is identifying and  prioritizing infrastructure investments for Building 9215 that are to  ensure its reliability through the 2040s.

Building 9995. Constructed in the mid-1950s, this building’s design  predates modern nuclear safety codes. It consists of a laboratory with  capabilities for analytical chemistry operations, which can sample  enriched uranium for material assay, chemistry content, and  metallography in support of production. NNSA initially intended to  house the analytical chemistry capabilities to support enriched  uranium processing and material characterization in the UPF before  re-scoping the project to meet its cost and schedule goals. According  to NNSA documents, NNSA is identifying and prioritizing infrastructure  investments for Building 9995 that are to ensure its reliability through  the 2040s and its continued analytical chemistry support for the UPF  and Y-12 more broadly.

Building 9204-2E. Constructed in the late 1960s, this building’s  design predates modern nuclear safety codes. It consists of a three- story, reinforced concrete frame structure that includes capabilities for  assembly and disassembly of enriched uranium components with  other materials. According to NNSA officials, the agency installed its  radiography capability in Building 9204-2E in April 2017. According  to NNSA documents, NNSA is identifying and prioritizing infrastructure  investments for Building 9204-2E that are to ensure its reliability  through the 2040s.

Highly Enriched Uranium Materials Facility (HEUMF) (also called  Building 9720-82). Beginning operations in January 2010, this  building was built to modern nuclear safety codes. It is a reinforced  concrete and steel structure that provides long-term storage of  enriched uranium materials and accepts the transfer of some legacy  enriched uranium from older facilities. HEUMF is the central repository  for highly enriched uranium.

Figure 1 shows NNSA’s planned relocation of uranium processing  capabilities out of Building 9212 and into the re-scoped UPF and existing  Y-12 facilities. The figure also indicates which existing facilities will  require infrastructure investments to support enriched uranium  operations.

Under the new approach, the re-scoped UPF will be smaller than the UPF  project’s original design and will house capabilities for casting, oxide  production, and salvage and accountability of enriched uranium. NNSA  has stated that the re-scoped UPF is to be built for no more than $6.5  billion by the end of 2025 through seven subprojects, described below.

Site Readiness. This subproject included work to relocate an existing  road, construct a new bridge, and extend an existing haul road.

Site Infrastructure and Services. This subproject included  demolition, excavation, and construction of a parking lot, security  portal, concrete batch plant, and support building.

Substation. This subproject included construction of an electrical  power substation to provide power to the UPF and Y-12, replacing an  existing substation at Y-12.

Process Support Facilities. This subproject includes work to provide  chilled water and storage of chemical and gas supplies for the UPF.

Salvage and Accountability Building. This subproject includes  construction of a nuclear facility for the decontamination of wastes  and recovery of chemicals associated with uranium processing.

Main Process Building. This subproject includes construction of the  main nuclear facility to contain casting and special oxide production  capabilities and a secure connecting portal to the HEUMF.

Mechanical Electrical Building. This subproject includes  construction of a building to house mechanical, electrical, heating,  ventilation, air conditioning, and utility equipment for the Salvage and  Accountability Building and Main Process Building.

Requirements and Best Practices for Project Management and Technology Readiness Assessments

NNSA is required to manage construction of capital asset projects with a  total project cost of greater than $50 million, such as the UPF, in  accordance with DOE Order 413.3B. NNSA’s Office of Acquisition and  Project Management manages the UPF project under DOE Order 413.3B  with funding from NNSA’s Office of Defense Programs through the  uranium program. DOE Order 413.3B requires that the project go  through five management reviews and approvals, called “critical  decisions” (CD), as the project moves from planning and design to  construction and operation. (See fig. 2.) DOE Order 413.3B also requires  that, before project completion (CD-4), NNSA issue a transition-to- operations plan, which is to ensure efficient and effective management as  a project becomes operational and provide a basis for attaining initial and  full operational capability.

For projects likely to have an extended period of transition to the start of  operations, an August 2016 memorandum from DOE requires that NNSA  develop a more detailed plan to attain full operational capability. The  plan must be developed earlier in the project management process— before start of construction (CD-3). In addition, NNSA must provide quarterly updates to DOE’s Project Management Risk Committee after  completing construction until full operational capability is attained. The  memorandum notes that DOE’s complex nuclear facilities can have  significant risks that continue after project completion. These ongoing  risks may impact achievement of full operational capability and thus  require more efficient management. In September 2019, we reported that  DOE officials stated that the August 2016 memorandum was largely  created in response to experience with the Integrated Waste Treatment  Unit facility at Idaho National Laboratory. This facility, which is intended  to treat two forms of nuclear waste, is not operating as expected  approximately 7 years after the completion of its construction.

DOE Order 413.3B also states that projects with a total estimated cost of  more than $100 million should have an independent cost estimate and  external independent review prior to approval of the project’s performance  baselines for cost and schedule (CD-2). Further, appropriations acts since  fiscal year 2012 have included a limitation that prohibits the use of funds  to approve CD-2 (approval of the project’s performance baselines for cost  and schedule) or CD-3 (approval to start construction) for capital asset  projects where total project costs exceed $100 million until a separate  independent cost estimate has been developed. According to DOE’s  standard operating procedure for conducting independent cost estimates,  an independent cost estimate is prepared by an organization independent  of the project sponsor—DOE-PM, in this case—using the same detailed  technical and procurement information that was used to make the initial  project estimate. The purpose of the estimate is to validate the project’s  performance baselines—which include cost and schedule estimates—to  determine these estimates’ accuracy and reasonableness. DOE-PM may  use the independent cost estimate as supporting information in  developing the external independent review. The external independent  review is a broader analysis of the project to provide an unbiased  assessment of whether NNSA can execute the project within the  proposed scope, schedule, and cost commitments while meeting key  performance requirements and fulfilling the mission need.

Many of the federal government’s more costly and complex capital asset  projects, including the UPF, require the development of cutting-edge  technologies and integration of those technologies into large and complex  systems. For example, DOE and NNSA use a systematic approach for  assessing how far a technology has matured to evaluate the technology’s  readiness to be integrated into a system—Technology Readiness Levels  (TRL). This approach is intended to ensure that new technologies are  sufficiently mature in time to be used successfully when a project is  completed. TRLs progress from the least mature level, in which the basic  technology principles are observed (TRL-1), to the highest maturity level,  in which the total system is used successfully in project operations (TRL- 9). DOE Order 413.3B requires that each critical technology item or  system on which a project depends must be demonstrated as a prototype  in an operational environment (TRL-7) before the project’s performance  baselines are approved (CD-2). According to our guide on evaluating  technology readiness, assessing technology readiness does not eliminate  the risk of relying on new technology but can identify concerns and serve  as the basis for realistic discussions on how to mitigate potential risks  associated with the project’s scope, for example.

Requirements and Best Practices for Program Management

According to the Project Management Institute, Inc. (PMI), effective  program management, in addition to effective project management, is  important to the success of efforts such as NNSA’s uranium program.  According to PMI’s standard for program management, effective program  management helps ensure that a group of related projects and program  activities are managed in a coordinated way to obtain benefits not  available from managing them individually. Program management  involves aligning multiple components to achieve the program’s goals.

Other general standards relevant to program management for the  uranium program include our cost-estimating guide and schedule  assessment guide. In March 2009, we issued our cost-estimating guide to  provide a consistent methodology that is based on cost-estimating best  practices and that can be used across the federal government for  developing, managing, and evaluating program cost estimates. The  methodology outlined in the guide is a compilation of best practices that  federal cost-estimating organizations and industry use to develop and  maintain reliable cost estimates throughout the life of a government  acquisition program. According to the guide, developing accurate life- cycle cost estimates has become a high priority for agencies in properly  managing their portfolios of capital assets and in decision-making  throughout the process. A life-cycle cost estimate provides an exhaustive  and structured accounting of all resources and associated cost elements  required to develop, produce, deploy, and sustain a particular program.  The guide also states that a reliable cost estimate reflects all costs  associated with a program—meaning that the estimate must be based on  a complete scope of work—and the estimate should be updated to reflect  changes in requirements (which may affect the scope of work).

In December 2015, we issued our schedule guide, which develops the  scheduling concepts introduced in our cost-estimating guide and presents  them as best practices associated with developing and maintaining a  reliable, high-quality schedule. According to the schedule guide, a well- planned schedule is a fundamental management tool that can help government programs use funds effectively by specifying when work will  be performed and by measuring program performance against an  approved plan. An integrated master schedule integrates all of the  planned work in the program, the resources necessary to accomplish that  work, and the associated budget, and it should be the focal point for  program management. This schedule can show, for example, the  completion dates for all activities leading up to major events or  milestones, which can help determine if the program’s parameters are  realistic and achievable. An integrated master schedule may consist of  several or several hundred individual project or other activity schedules  that represent the various efforts within a program. It should include the  entire known scope of work, including the effort necessary from all  government, contractor, and other key parties for a program’s successful  execution.

In addition, NNSA has various program management policies and  guidance that apply to uranium program efforts that are not capital asset  projects and that fall outside of DOE Order 413.3B. For example:

NNSA issued a program management policy in January 2017 that  defines general roles and responsibilities for the program managers  for all of its strategic materials, such as uranium. This policy broadly  outlines the managers’ authority and responsibilities for managing the  strategic materials; these responsibilities include developing program  documentation and managing risk.

NNSA issued a program management policy in February 2019 that  states program managers should establish and document the  requirements for scope, schedule, and cost management using a  tailored approach to their program. These requirements include the  development of schedule and cost estimates that cover the life cycle  of a program where appropriate, among other things.

NNSA’s program guidance—applicable to the uranium program and  others that fall under the Office of Defense Programs—recommends  the development of an integrated master schedule and states that  having one supports effective management of a program’s scope,  risk, and day-to-day activities. Specifically, the guidance states that  during the initial phases of a program, an integrated master schedule  provides an early understanding of the required scope of work, key  events, accomplishment criteria, and the likely program structure by  depicting the progression of work through the remaining phases. The  guidance allows for tailoring of the agency’s management approach  based on the particular program being managed.

NNSA Reports That the UPF Project Is on Schedule and within Budget and Likely to Start Operations in 2026

According to NNSA documents and officials, the UPF project is on  schedule and within budget, and NNSA has developed a plan to receive  start-up authorization for UPF operations in 2025 and attain full  operational capability in 2026.

NNSA Reports That the UPF Project Is Currently on Schedule and within Budget

NNSA documents and officials reported that the UPF project is on track to  meet its cost and schedule baseline estimates, and thus is expected to be  constructed for $6.5 billion by the end of 2025. According to DOE’s  project report and NNSA officials, three of the seven UPF subprojects are  complete and four are ongoing as of December 2019. When we last  reported in September 2017, NNSA had completed the Site Readiness  subproject. In February 2018, NNSA completed the Site Infrastructure  and Services subproject—about 2 months early and about $18 million  under budget. In December 2019, NNSA completed the Substation  subproject—about 6 months early and $13 million under budget. As  shown in table 1, by March 2018 all UPF subprojects’ formal scopes of  work and cost and schedule baseline estimates were approved (CD-2),  and NNSA gained approval to start construction on them (CD-3). Since  establishing these cost and schedule baseline estimates, NNSA officials  stated that they have not made any significant changes that would require  DOE executive-level approval. According to DOE policy, changes that  affect the project’s ability to satisfy the mission need or that increase  costs by the lesser of $100 million or half the project costs must be  approved by the DOE Deputy Secretary as DOE’s Chief Executive for  Project Management.

According to DOE’s project report and NNSA officials, the four ongoing  subprojects were progressing on schedule and within budget as of  December 2019. NNSA officials stated that they expect these subprojects  to meet their respective cost and schedule performance baselines and  that the overall UPF project will be constructed for $6.5 billion by the end  of 2025. (See fig. 3 for photograph of Main Process Building and  Salvage and Accountability Building’s construction progress as of  September 2019.)

NNSA Plans to Start UPF Operations in 2025 and Reach Full Operational Capability in 2026

NNSA and its contractor for Y-12 have developed a plan to receive start- up authorization for UPF operations in 2025 and then will likely attain full  operational capability for the UPF in 2026, according to NNSA officials  and contractor representatives. DOE and NNSA approved this plan,  which is required by DOE policy, in February 2018. This plan outlines  three major risks associated with the UPF project that NNSA will need to  address so that the project can attain full operational capability:  1.  Capabilities and systems integration within the UPF. Addressing  this risk includes actions to ensure that all of the UPF’s systems, and  the capabilities that those systems provide (e.g., casting, oxide  production), can function together as designed through testing.  2.  Process prove-in and design authority qualification. Addressing  this risk includes actions to ensure that the UPF’s systems meet  certain metrics and are qualified for mission work. Aspects of this  include laboratory analysis, statistical validation of repeatability, and  engineering evaluations.  3.  Integration of UPF with other facilities. Addressing this risk  includes actions to ensure that the UPF systems can interface with  other facilities’ systems (e.g., those in Buildings 9215, 9204-2E, and  9995) as designed and that all systems are able to support full-scale  operations.

NNSA officials estimated that construction of the UPF will be completed in  2022. According to the plan, the UPF will then go through various  preoperational testing and operational readiness reviews to demonstrate  the capabilities using nonhazardous surrogate material. Following testing  and readiness reviews, the UPF will gain startup authorization, go through  additional testing and first use, and then attain full operational capability— also referred to as “operational release.” NNSA officials and contractor  representatives stated in June 2019 that the UPF should receive startup  authorization sometime in 2025, before the project’s estimated completion  (CD-4) date of December 2025. These officials and representatives  estimated that the UPF would attain full operational capability about a  year from receiving that startup authorization—that is, sometime in 2026.  (See fig. 4.)

NNSA officials stated in October 2019 that in fiscal year 2020 they will  update the plan to attain full operational capability to include a schedule  with more specific time frames for startup authorization, hot functional  testing, first use, and operational release, among other things.  According to NNSA’s plan, attaining full operational capability for the UPF  is the final step that will ultimately lead to and enable the cessation of  uranium operations in Building 9212, which could then be turned over to  DOE Office of Environmental Management for final disposition in 2035.

NNSA Obtained Independent Cost Estimates as Required and Used Them to Inform Contractor Negotiations and Baseline Estimates

NNSA followed requirements to obtain independent cost estimates for the  UPF (i.e., the four largest UPF subprojects) whose total estimated costs  exceeded $100 million. NNSA then used those estimates to help  negotiate with contractors and inform baseline estimates.

NNSA Had UPF Cost and Schedule Baseline Estimates Validated through Reconciled Independent Cost Estimates for the Four Largest Subprojects

NNSA obtained independent cost estimates from DOE-PM for the four  UPF subprojects for which total costs exceeded $100 million. As noted  above, projects with total costs that exceed $100 million are subject to an  appropriations limitation unless independent cost estimates are obtained,  and DOE policy requires such estimates for such projects. DOE-PM, an  office independent from NNSA and its management of the UPF project,  conducted the independent cost estimates for the four larger subprojects:  the Mechanical Electrical Building, Process Support Facilities, Salvage  and Accountability Building, and Main Process Building subprojects. In  addition, NNSA officials stated that they obtained independent reviews for  the three subprojects for which costs did not exceed $100 million. DOE  policy does not require independent cost estimates for projects whose  total estimated costs are less than the $100 million threshold. However, a  NNSA policy states that NNSA should obtain an independent cost  estimate or independent cost review to validate a project’s cost baselines  for those projects for which estimated costs are between $20 million and  $100 million.

NNSA organized the independent cost estimates for the four larger  subprojects so that some of the independent cost estimates included  work for more than one subproject. Specifically, DOE-PM completed two  estimates—one in March 2016 and one in December 2016—that included  site preparation work and long lead procurements for the Salvage and  Accountability Building and Main Process Building subprojects. In  November 2016, DOE-PM completed the independent cost estimate for  the Mechanical Electrical Building, which was the only estimate to include  a single UPF subproject. NNSA officials explained that they handled the  estimate for this subproject differently because work for the Mechanical  Electrical Building could be separated easily from the other subprojects,  and it was largely designed as a commercial-grade building. Lastly, in  November 2017, DOE-PM completed the independent cost estimate for  the majority of the work for the Process Support Facilities, Salvage and  Accountability Building, and Main Process Building subprojects. NNSA  officials stated they organized the independent cost estimates in this way  to meet DOE requirements and appropriations limitations but still be able  to begin work on the aspects of the overall UPF project that need to be  completed earliest.

DOE-PM conducted the four UPF subprojects’ independent cost and  schedule estimates using our cost estimating and scheduling best  practices, according to DOE-PM’s independent cost estimate reports.  DOE-PM reviewed the project’s key cost drivers—elements whose  sensitivity significantly affects the total project cost. The DOE-PM team  then established independent estimates for those cost drivers, which may  include vendor quotes for major equipment and detailed estimates for  other materials, labor, and subcontracts. The team also prepared an  independently generated resource-loaded schedule that allowed them to  check for adequate funding compared with the project’s funding profile  developed by the project team. DOE-PM’s analyses are based on their  review of the UPF project’s work breakdown structure and associated  documents, which include all of the activities that make up the project’s  scope. DOE-PM also compared the UPF project estimates with our cost  estimating and scheduling best practices, according to DOE-PM’s  independent cost estimate reports. For example, DOE-PM’s November  2017 report found that the three larger UPF subproject’s cost and  schedule estimates partially met the best practices and recommended  some changes to the contractor to address those estimates that did not.

DOE-PM reconciled the results of its independent cost estimates with the  initial project estimates, as required by DOE’s standard operating  procedure and NNSA’s business operating procedure for conducting  independent cost estimates. During the reconciliation, DOE-PM worked  with the UPF project team to adjust both the initial project estimates and  its own independent cost estimates to correct any errors or  misinterpretations of project requirements, according to the independent  cost estimate reports. Under DOE’s and NNSA’s independent cost  estimate procedures and according to DOE-PM officials, any remaining  differences should be identified and explained, but estimates should not  be changed. DOE-PM drew from the independent cost estimates for the  Mechanical Electrical Building subproject to complete an external  independent review of that subproject in November 2016. Then, DOE-PM  drew from the independent cost estimates that included work for the Main  Process Building, Salvage and Accountability Building, and Process  Support Facilities subprojects to complete its external independent review  of the UPF project in March 2018.

NNSA Used Information from the Independent Cost Estimates and External Independent Reviews to Inform the UPF’s Cost and Schedule Baseline Estimates

NNSA officials stated that they used information from DOE-PM’s  independent cost estimate and external independent review reports to  help negotiate remaining work with the contractor and finalize the overall  UPF project’s baseline estimates before starting construction. In June  2018, NNSA prepared a strategy to guide its negotiation of the remaining  UPF project work that had not yet been priced with the contractor. Based  on our review of NNSA’s negotiation strategy, we found that NNSA used  DOE-PM’s independent cost estimate and external independent review  reports to negotiate at least 14 of the 22 major and minor issues identified  for discussion. These 14 issues included, for example, reducing concrete  and freight direct costs, reducing the margin added to cover any increase  in design scope, reducing subcontractor indirect costs, and increasing  accuracy of other cost and schedule estimates.

DOE approved NNSA’s cost and schedule baseline estimates (CD-2) and  start of construction (CD-3) in March 2018 for three UPF subprojects.  (See table 2 for the recommended cost and schedule baselines from the  external independent review report and the final cost and schedule  baseline estimates for all UPF subprojects.) In five of the seven  subprojects, the final cost baseline estimates were close to or below the  recommended baselines from DOE-PM’s external independent review.  Also, in four of the seven subprojects, the final schedule baseline  estimates were close to the recommended baselines. According to NNSA  officials, the UPF project final baseline cost estimate includes cost  contingency, and the December 2025 final schedule baseline estimate  includes a year of schedule contingency. NNSA officials stated that, if  necessary, they could use available funds to expedite the schedule.  NNSA officials also expressed confidence that the UPF project will meet  its goal of construction for $6.5 billion by the end of 2025.

NNSA Has Made Progress Implementing the Uranium Program’s Scope of Work and Recently Developed a Program Schedule and Cost Estimate

Since we last reported in September 2017, NNSA identified and made  progress in implementing the uranium program’s scope of work and  developed an integrated master schedule and life-cycle cost estimate— key management information for the program. The uranium program’s  integrated master schedule extends through fiscal year 2035, and the life- cycle cost estimate includes the $7.4 billion in program costs from fiscal  years 2016 through 2026.

NNSA Has Identified and Made Progress in Implementing the Uranium Program’s Scope of Work

Since we last reported in September 2017, NNSA identified the uranium  program’s scope of work and made progress in carrying out key activities.  Specifically, NNSA identified the uranium program’s scope of work as  required under NNSA program management policy and which we  identified as a leading practice in our cost estimating and schedule  guides. According to NNSA documents we reviewed and officials we  interviewed, NNSA developed the uranium program’s scope of work in a  work breakdown structure, which defines in detail the work or activities  necessary to accomplish the program’s objectives. NNSA officials stated  that the uranium program’s scope of work includes the UPF project as  well as the capabilities and other activities necessary for the overall  modernization effort that are not part of the UPF project. NNSA made  progress implementing the following three main areas of the uranium  program’s scope of work:

Process Technology Development. Since we last reported in  September 2017, NNSA’s uranium program has made progress in  three of the four process technology projects that it manages to  develop new uranium processing capabilities. According to NNSA  officials, these capabilities are not included in the UPF project but are  necessary to complete the suite of uranium capabilities required to  meet weapons program needs.

NNSA approved the electrorefining project’s cost and schedule  performance baselines and start of construction (CD-2/3) in  February 2019. This project, along with the direct chip melt  projects discussed further below, are designed to provide a  capability that was scoped out of the UPF project. Specifically, the  electrorefining project is to provide the capability to purify uranium  metal.

NNSA officials stated that the calciner project will have its cost  and schedule baselines and start of construction approved (CD- 2/3) in May 2020. This project is to provide the capability to  convert uranium-bearing solutions to uranium oxide (a dry solid)  so that it can be stored pending further processing in the future.  The project will be located in Building 9212 and supports the exit  of that building by enabling the processing of certain uranium- bearing solutions (such as the solutions resulting from cleaning  out the building’s pipes and vessels) into a dry solid oxide that can  be stored pending further processing.

According to NNSA officials, the direct chip melt projects  include two related efforts—a front-loading furnace and a bottom- loading furnace—that will provide the capability to process  uranium scrap metal. Officials stated that the front-loading furnace  direct chip melt project received approval to start work in  September 2019 and has an estimated project completion of May  2021. This will provide near-term capability to process uranium  scrap metal until the bottom-loading furnaces are designed and  constructed. Officials said NNSA initiated the bottom-loading  furnace direct chip melt project in July 2019 and expects to start  construction in January 2021. Because the direct chip melt  projects fall below the $50 million threshold for management  under DOE Order 413.3B, they do not have CD dates. However,  NNSA officials stated they will manage and oversee the bottom- loading furnace project under the Office of Defense Programs’  authorization-to-proceed memorandum and follow the sound  project management principles outlined in the order.

NNSA officials stated that the agency requires an oxide-to-metal  conversion capability. In June 2019, NNSA issued a Notice of  Intent to enter into a sole-source contract to provide the uranium  oxide to metal conversion capability. According to NNSA officials,  this potential sole-source contract is a near-term strategy that  could cover any gap caused by phasing out operations in Building  9212. According to NNSA, under this contract the contractor  could provide conversion services in 2023, effectively covering  any gap caused by phasing out conversion operations in Building  9212. NNSA officials stated that the agency intends to continue  pursuing the direct electrolytic reduction technology to provide the  oxide-to-metal conversion capability after the sole-source contract,  but the technology has not progressed since we last reported in  2017.

Extended Life Programs. In December 2017, NNSA developed the  implementation plan for the extended life programs for Buildings 9215  and 9204-2E. NNSA also developed an extended life program for  Building 9995 in November 2017 and the implementation plan for that  program in September 2018. NNSA updated both of these  implementation plans in September 2019. Further, in September  2018, NNSA developed an implementation plan for its strategy to stop  operations in Building 9212 and begin post-operations clean-out  activities. These implementation plans identify a specific scope of  work, and the necessary funding, that NNSA must execute in order to  extend the operational lives of Buildings 9215, 9204-2E, and 9995  through the 2040s.

Reducing Material at Risk in Older Buildings. Since we last  reported in September 2017, NNSA has made progress in its efforts  to move uranium materials out of older facilities and into the HEUMF.  Specifically, NNSA officials said in November 2019 that they were  about 77 percent done with this effort and had moved more than 50  metric tons of uranium out of older facilities and into the HEUMF since  fiscal year 2015. In June 2019, NNSA officials said that their current  strategy focuses on incorporating near-just-in-time inventory practices  and further reducing material at risk by 2023. According to NNSA  officials, this strategy is to further minimize the amount of material that  is staged in Y-12’s older buildings. Also, according to NNSA officials,  NNSA achieved a target working inventory of material in Building  9215 in 2016 and in Building 9204-2E in 2019. NNSA officials stated  that, as of November 2019, they were on schedule to complete the  remaining efforts by their estimated time frames.

NNSA officials stated that the program’s scope of work includes elements  for which additional analyses may be required and that any additional  program work identified by those analyses will be incorporated into the  scope of work, as appropriate. For example, NNSA identified the  additional environmental and seismic analyses necessary to develop the  scope of work for addressing certain structural deficiencies in Buildings  9215 and 9204-2E. NNSA is under a court order to complete additional  environmental and seismic risk analyses following a 2014 update in the  seismic hazard map for the area, which showed a greater risk than the  previous version. According to Defense Nuclear Facilities Safety Board  officials, in response to its 2015 report, NNSA identified their approach for  re-evaluating the facilities’ conditions and risks and addressing some of  the board’s seismic-related concerns. According to board officials,  NNSA plans to start the re-evaluation of these structures in early fiscal  year 2020. NNSA officials stated that if the additional analyses identify  additional necessary work for the uranium program, NNSA will update the  scope of work and revise the extended life program implementation plans  to include that work.

NNSA Has Developed an Integrated Master Schedule and a Life-Cycle Cost Estimate to Manage Its Uranium Program

In December 2019, NNSA developed an integrated master schedule  through fiscal year 2035 and a life-cycle cost estimate for the program  through fiscal year 2026 that includes over $850 million in costs in  addition to the UPF project. Successful management of federal  acquisition programs, such as NNSA’s uranium program, partly depends  on developing this key management information, as stated in our cost  estimating and schedule guides. In September 2017, we found that  NNSA had not yet developed an integrated master schedule or life-cycle  cost estimate for the uranium program and recommended that NNSA set  a time frame for doing so. NNSA agreed with this recommendation and  has made progress in implementing it. A complete scope of work is  required to develop an integrated master schedule and life-cycle cost  estimate. (See fig. 5.)

NNSA Developed an Integrated Master Schedule to Help Manage Its Uranium Program

In December 2019, NNSA developed an integrated master schedule  based on the uranium program’s scope of work to help manage its  uranium program, as recommended in NNSA’s program guidance as well  as our schedule guide and other best practices. According to PMI’s  Program Management Standard, a program-integrated master schedule  is the top-level planning document that includes individual program  elements’ schedules and defines their dependencies among those  required to achieve the program’s goals. According to NNSA officials,  NNSA included all of the uranium program’s capabilities and elements  that make up its scope of work, as well as other work that may affect the  program, through fiscal year 2035.

NNSA officials stated that the schedule includes the key milestones for  each uranium program capability and element, such as project completion  (CD-4) and operational release, since these key milestones are important  for tracking the uranium program’s critical path of activities and for overall  program management. NNSA officials stated that they will start  reporting the uranium program’s progress against this integrated master  schedule beginning in 2020. NNSA officials stated that they expect the  integrated master schedule to be iterative and that they will update it to  capture any changes or additions to the program’s scope of work.

NNSA’s Life-Cycle Cost Estimate Identified Additional Costs for Uranium Program

In December 2019, NNSA developed a life-cycle cost estimate through  fiscal year 2026 for the uranium program, as called for in our cost  estimating guide and other best practices. NNSA estimated that the  uranium program will spend a total of approximately $7.4 billion from  fiscal years 2016 through 2026 to support its uranium processing  modernization efforts. Specifically, NNSA officials stated that the life-cycle  cost estimate includes $6.5 billion in UPF project costs and over $850  million in program costs that include developing the uranium processing  capabilities that are not part of the UPF project, integrating those  capabilities with the UPF, improving the infrastructure of existing  buildings, and transitioning out of Building 9212.

NNSA officials stated that they estimated uranium program life-cycle  costs from fiscal years 2016 through 2026 because they could not  accurately estimate some of the activities in the program’s scope of work  that are enduring for the nuclear security enterprise rather than specific  projects with finite schedules for construction. According to our cost- estimating guide, a reliable cost estimate reflects all costs associated with  a program’s scope of work, and the estimate should be updated to reflect  any changes in requirements—that is, a life-cycle cost estimate can be  iterative. NNSA officials stated that they expect to update the life-cycle  cost estimate with additional program costs, once known, and will include  any additional future scope added to the program.

Schedule milestones and cost estimates included in NNSA’s integrated  master schedule and life-cycle cost estimate for the uranium program are  summarized in table 3.

We are encouraged that NNSA may be able to better manage the day-to- day activities of the uranium program and mitigate any risks associated  with integrating the UPF project with other aspects of the program  through its development of key program management information—a  scope of work, an integrated master schedule, and a life-cycle cost  estimate. Successful program management through the life of a program  depends in part on all of these efforts and may provide decision makers  such as Congress with needed information on the program’s complete  scope of work, key events, and expected long-term program costs.

We provided DOE and NNSA with a draft of this report for review and  comment. NNSA provided technical comments, which we incorporated as  appropriate.

We are sending copies of this report to the appropriate congressional  committees, the Secretary of Energy, the Administrator of the National  Nuclear Security Administration, and other interested parties. In addition,  the report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-3841 or trimbled@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix I.

Appendix I: GAO Contact and Staff Acknowledgments

In addition to the individual mentioned above, Jonathan Gill (Assistant  Director), Elizabeth Luke (Analyst in Charge), Danny Baez, John  Bauckman, Brian Bothwell, Juaná Collymore, Jennifer Echard, Justin  Fisher, Juan Garay, William Gerard, Cynthia Norris, Dan Royer, and Kiki  Theodoropoulos made key contributions to this report.

Uranium must be processed to use it in nuclear weapons or reactors. The National Nuclear Security Administration knows its uranium processing facilities are outdated and deteriorating.

As part of its overall uranium program, NNSA expects to complete a new processing facility for $6.5 billion by 2025—on budget and on time. In addition, the agency will modernize some, and transition out of other, deteriorating facilities in Oak Ridge, TN, for more than $850 million through 2026.

NNSA has made progress implementing our 2017 recommendation to better manage uranium program activities, such as developing a scope of work, cost estimate, and schedule.


Drug Development: FDA's Priority Review Voucher Programs

Few drugs are currently available to treat certain tropical and rare pediatric diseases and to use as medical countermeasures, given their small market or potentially limited profitability. To help provide incentives for the development of such drugs, Congress created three PRV programs, which award PRVs to drug sponsors that develop drugs for tropical diseases, rare pediatric diseases, and medical countermeasures (e.g., drugs to mitigate harm from biological, chemical, radiological, or nuclear agents). FDA, an agency within the Department of Health and Human Services (HHS), administers these programs.

The 21st Century Cures Act included a provision for GAO to study the PRV programs. GAO examined the number of PRVs awarded and redeemed and the drugs for which they were awarded or redeemed, and what is known about the extent to which the PRVs provide incentives for developing drugs to meet unmet needs. GAO analyzed FDA data on awarded and redeemed PRVs for fiscal years 2009 through 2019 and other publicly available information on their transfers and sales. GAO conducted a literature review of peer-reviewed articles published from January 2009 through May 2019 that examined the PRV programs and interviewed FDA officials. GAO also interviewed seven stakeholder groups, seven academic researchers, and seven drug sponsors selected based on factors such as familiarity with PRV programs or drug development.

HHS provided technical comments on a draft of this report, which were incorporated as appropriate.

The Food and Drug Administration (FDA) awards priority review vouchers (PRV) to drug sponsors that develop drugs for tropical diseases or rare pediatric diseases or to use as medical countermeasures. The PRV—which can be sold to another drug sponsor—may be redeemed later to receive priority review from FDA with a targeted review time of 6 months, rather than the 10-month standard review, for a drug application of the PRV holder's choice. The potential for additional revenue from either marketing a drug about 4 months sooner or from selling the PRV could provide an incentive for drug sponsors to develop drugs for these diseases or conditions. From fiscal year 2009, when the first PRV was awarded, through fiscal year 2019, FDA awarded 31 PRVs, mostly for drugs to treat rare pediatric diseases. Of the 31 PRVs awarded by FDA,17 were sold to another drug sponsor for prices ranging from about $67 million to $350 million, according to available data. As of September 30, 2019, available data show that drug sponsors had redeemed 16 of the 31 PRVs to obtain a shorter FDA review time for drugs to treat conditions and diseases such as human immunodeficiency virus (HIV), type 2 diabetes, and different forms of arthritis. These drug applications may not otherwise qualify for priority review.

GAO found few studies that examined the PRV programs, and those that did found the programs had little or no effect on drug development. However, all seven drug sponsors GAO spoke with stated that PRVs were a factor in drug development decisions—six sponsors said they were one of a number of factors, while one sponsor said they were pivotal in its development of a drug. Some academic researchers and stakeholders expressed concerns about the PRVs as incentives for drug development, including the potential for the expected revenue from the sale of a PRV to decline as more are awarded and available for sale.

Few drugs are available for certain tropical diseases, rare pediatric  diseases, and material threat medical countermeasures (medical  countermeasures), despite their potential to affect millions of people.  Drug sponsors—facing a lengthy and expensive drug development  process—may be reluctant to develop treatments for these diseases or  conditions given the small markets or potentially limited profitability for  them. Other challenges can make drug development for tropical  diseases, rare pediatric diseases, and medical countermeasures more  difficult than for other drugs. Specifically, tropical diseases often affect  people living in low-income areas outside of the United States, making it  difficult for drug sponsors to recover drug development costs; rare  pediatric diseases affect a limited number of children, making it difficult to  identify and recruit sufficient numbers of patients to include in studies;  and medical countermeasures treat high-priority threats that affect health  security, making it difficult to test the drugs because exposing study  volunteers to such threats would be an unethical and unacceptable risk.

To encourage the development of drugs to treat tropical diseases, treat  rare pediatric diseases, and use as medical countermeasures, Congress  established three priority review voucher (PRV) programs under which  the Food and Drug Administration (FDA) awards a PRV to a drug sponsor  upon approval of that sponsor’s drug in one of these three areas. A drug  sponsor can later redeem the PRV when submitting a future drug  application to treat any disease or condition, or sell or transfer it to  another drug sponsor. When redeemed, a PRV entitles a drug sponsor to  priority review by FDA—which has a goal of a 6-month review, rather than  the 10-month goal for a standard review. The potential for additional  revenue that comes from marketing a drug approximately 4 months  sooner—or the proceeds that may come from selling the PRV to another  drug sponsor—could provide an incentive for drug sponsors to develop  drugs for tropical diseases, rare pediatric diseases, or medical  countermeasures.

The 21st Century Cures Act included a provision for us to review and  report on the PRV programs. This report examines  1.  the number of PRVs that have been awarded, and what is known  about them and about the drugs for which they were awarded;  2.  the number of PRVs that have been redeemed, and what is known  about them and about the drugs for which they were redeemed; and  3.  what is known about the extent to which PRV programs provide  incentives for drug development to meet unmet needs.

To determine how many PRVs have been awarded and redeemed, as  well as what is known about the drugs for which they were awarded or  redeemed, we examined FDA information and publicly available  information for all PRVs from the date of each program’s inception  through fiscal year 2019. Publicly available information included PRV  sales (including sales prices), transfers, purchases, and redemptions  reported by drug sponsors in documents such as press releases and  Securities and Exchange Commission filings. We compared the FDA  data to FDA approval letters, press releases, and other publicly available  sources and determined these data were sufficiently reliable for our  purposes.

To examine what is known about the extent to which PRV programs  provide incentives for drug development to meet unmet needs, we  conducted a literature review of relevant articles published in peer- reviewed and other publications from January 2009 through May 2019.  We reviewed these articles for information related to the PRV programs,  including the extent to which PRVs are incentives for drug development  and alternative incentives to the PRV programs for developing drugs for  tropical diseases, rare pediatric diseases, and medical countermeasures.

For all three objectives, we interviewed FDA officials; representatives  from seven stakeholder groups, including trade associations, patient  advocates, and organizations that partner with or provide funding to drug  sponsors and are familiar with the PRV programs (hereafter,  stakeholders); seven academic researchers with expertise in drug  development, drug pricing, or the PRV programs (hereafter, researchers);  and representatives from seven drug sponsors that have been awarded,  purchased, or redeemed a PRV. We conducted these interviews to  obtain information on (1) PRV awards and sales and insights into the  characteristics of awarded PRVs and trends in PRV sales; (2) redemption  data, reasons why a drug sponsor might redeem a PRV, and the effect  the PRV redemptions have had on FDA resources; and (3) what is known  about the extent to which PRV programs provide incentives for drug  development to meet unmet needs. The perspectives of selected  stakeholders, researchers, and drug sponsors are not generalizable.

We conducted this performance audit from February 2019 to January  2020 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.

Priority and Standard Review  For a priority review, the Food and Drug  Administration (FDA) directs its resources to  applications for new drugs that prevent,  diagnose, or treat a serious condition and, if  approved, would provide significant  improvements in safety or effectiveness  compared to available drugs. A drug may also  receive priority review if the drug sponsor  redeems a priority review voucher, among  other things. FDA’s goal is to complete the  review of a priority application within 6  months.  Drugs that do not receive priority review  receive standard review. FDA’s goal is to  complete the review of a standard application  within 10 months.

FDA, an agency within the Department of Health and Human Services  (HHS), is responsible for overseeing the safety and efficacy of drugs and  biological products, such as vaccines, sold in the United States. Before a  drug sponsor can market a new drug, it generally must submit evidence  of the drug’s safety and effectiveness to FDA in a new drug application or  biologics license application. While FDA reviews most drug applications  using its standard review process, FDA’s priority review designation is  intended to reduce the review time needed to bring a drug to market for  certain drugs that treat serious conditions. A drug application typically  receives a priority review designation if the drug would provide a  significant improvement in the safety or effectiveness of the prevention,  diagnosis, or treatment of a serious condition when compared to available  drugs, among other things (see sidebar). FDA reviews all applications to  determine if they qualify for priority review.

FDA is also responsible for the implementation of the three PRV  programs, which are intended to encourage development of drugs for  tropical diseases, rare pediatric diseases, and medical  countermeasures. Qualifying diseases and conditions for the tropical  disease PRV program and criteria for the rare pediatric disease PRV  program are set forth in statute—though the list of eligible tropical  diseases can be updated by order of the Secretary of HHS. For the  medical countermeasure PRV program, HHS publishes a list of high- priority threats that qualify for a PRV, including those that the Department  of Homeland Security determines to pose a material threat sufficient to  affect national security. (See table 1 for the types of drugs eligible for a  PRV.)

In order to be awarded a PRV, drug applications must meet additional  criteria. For example, for all three PRV programs, the drug application  must be eligible for priority review and a drug may be disqualified if its  active ingredient has been previously approved by FDA in another drug  application. If a drug application meets the eligibility criteria for one of  the PRV programs, the drug sponsor can include a request for a PRV in  its application, including supporting documentation demonstrating how  the application meets the PRV eligibility criteria. Once FDA receives a  sponsor’s drug application and PRV request, it reviews the information  and considers whether the drug should be approved. If FDA approves the  drug application, it includes its decision regarding whether to award a  PRV in its approval letter.

Once FDA awards a PRV to a drug sponsor, the sponsor can redeem the  PRV with the submission of a future drug application for a drug intended  to treat any disease or condition, shortening FDA’s targeted review time  from the 10-month standard review to 6 months, even if the drug in that  future application would not qualify for priority review on its own merits.  The drug sponsor also has the option of selling or transferring the PRV to  another drug sponsor, which may then choose to use it or similarly sell or  transfer it. PRVs may be transferred any number of times before they  are used. When the drug sponsor possessing the PRV ultimately  decides to redeem it, the sponsor must notify FDA at least 90 days in  advance of submitting its drug application that is using the PRV. Figure 1  provides a general overview of the PRV programs.

The drug sponsor redeeming a PRV must also pay a PRV user fee (about  $2.5 million in fiscal year 2019), in addition to other user fees required for  all drug applications. Because drug applications submitted to FDA with  a PRV would not otherwise qualify for priority review, PRV user fees are  intended to cover FDA’s additional costs incurred when reviewing new  drug applications with a PRV. When a drug sponsor notifies FDA of its  intent to redeem a PRV, its notification serves as a legally binding  commitment to pay the PRV user fee.

Of the three PRV programs, two—the rare pediatric disease and the  medical countermeasure PRV programs—are set to expire in the coming  years, unless they are reauthorized by Congress. The rare pediatric  disease PRV program will begin to expire on September 30, 2020, and  the program will end in September 2022. The medical countermeasure  PRV program will expire on October 1, 2023. After these end dates, FDA  could no longer award a PRV for a rare pediatric disease or a medical  countermeasure; however, the expiration dates do not affect PRV  redemptions, as drug sponsors may redeem PRVs earned at any point in  the future.

Most of the 31 PRVs Awarded by FDA Were for Drugs to Treat Rare Pediatric Diseases

As of September 30, 2019, FDA awarded 31 PRVs across the three PRV  programs, with the majority being awarded through the rare pediatric  disease PRV program (see fig. 2). According to FDA, all PRVs were  awarded for drugs that met unmet medical needs. The 31 PRVs were  awarded to 26 different drug sponsors; three sponsors were awarded two  PRVs each and one sponsor was awarded three PRVs. FDA awarded the  31 PRVs for drugs that treat 27 different diseases. For five diseases— malaria, tuberculosis, smallpox, spinal muscular atrophy, and Duchenne  muscular dystrophy—FDA awarded PRVs to two different drugs for their  treatment, and FDA awarded one PRV for a drug that prevents two  different diseases. (See appendix I for more information about the drugs  for which FDA awarded PRVs.)

The first PRV was awarded in fiscal year 2009, 2 years after the start of  the tropical disease PRV program, and none were awarded in fiscal years  2010 through 2012. The first rare pediatric disease PRV was awarded in  fiscal year 2014—about 2 years after that PRV program was authorized— and, beginning in fiscal year 2015, the majority of PRVs awarded were for  rare pediatric diseases. In fiscal year 2018, FDA awarded eight PRVs,  including the first medical countermeasure PRV, the most awarded in a  single fiscal year (see fig. 3).

Of the 31 PRVs that FDA awarded to drug sponsors, available data  indicate 17 PRVs were subsequently sold to another drug sponsor,  providing revenue to the sponsor selling the PRV. For 14 of these 17  PRVs, we were able to determine a sales price, which ranged from $67.5  million for a PRV sold in fiscal year 2014 to $350 million for a PRV sold in  fiscal year 2015. However, the available sales prices of the PRVs sold  since February 2017 have varied less than those sold previously, ranging  from $80 to $130 million (see fig. 4). Because drug sponsors are only  required to notify FDA of sales of rare pediatric disease PRVs at the time  the sale occurs, additional transfers or sales of PRVs may have  occurred.

The drug sponsors, stakeholders, and researchers we interviewed noted  that several factors could influence whether a drug sponsor keeps a PRV  for future use, sells the PRV to another drug sponsor, or purchases a  PRV to use on a drug that would not otherwise qualify for priority review.  The PRV programs allow PRVs to be transferred multiple times, and  according to stakeholders and drug sponsors we spoke with, the revenue  gained from such sales may be a motivating factor for drug sponsors to  sell them. For example, three stakeholders we interviewed said they  believe drug sponsors consider the drugs in their development pipeline  when deciding to keep, sell, or purchase a PRV, and one stated that drug  sponsors need to determine if they would benefit more from using the  PRV or the money they could make from selling it. One researcher  commented that price variation for PRVs can affect how a drug sponsor  perceives the incentive and that low prices for PRVs may signify the need  for additional incentives for drug development. However, two drug  sponsors told us that they would continue to pursue PRVs as long as they  were available and useful for a particular drug in their pipeline.

More than Half of the PRVs Awarded Have Been Redeemed for Drugs Treating a Variety of Conditions

As of September 30, 2019, drug sponsors redeemed 16 of the 31 PRVs— that is, they submitted the PRV to obtain priority review for a drug  application for a drug that would not otherwise qualify for a priority  review. The drugs for which the PRVs were redeemed treat or prevent a  variety of conditions and diseases, including human immunodeficiency  virus (HIV), type 2 diabetes, and different forms of arthritis. (See appendix  II for a complete list of PRV redemptions.)

The first PRV was redeemed in fiscal year 2011, about 2 years after the  first PRV was awarded, and the second PRV was redeemed in fiscal year  2015. Since 2017, drug sponsors have redeemed between three and six  PRVs each year (see fig. 5).

The 16 PRVs were redeemed by 10 different drug sponsors. Twelve of  the 16 redeemed PRVs were purchased and redeemed by a drug  sponsor different from the original PRV awardee. All 16 redeemed  PRVs were redeemed within 4 years of FDA awarding them (see fig. 6).

Of the 15 PRVs that were not redeemed as of September 30, 2019, 12  were awarded in fiscal years 2018 or 2019, and one was awarded in early  fiscal year 2016. (See fig. 7.)

Drug sponsors we contacted told us that decisions on when to redeem  PRVs are largely strategic and take into consideration their drug  development pipeline and market competition. For example, three of the  drug sponsors told us they might choose to redeem a PRV to help a drug  reach the market faster than a competitor’s drug, and two drug sponsors  told us they may hold a PRV to use to obtain priority review for a  particular drug that is in development. Another drug sponsor told us it  considers the likelihood of a drug receiving approval from FDA when  deciding when to use a PRV (since the PRV only affects the time frames  for FDA’s review and does not guarantee approval), and if a drug in its  pipeline could receive priority review from FDA on its own merit.

Almost half of the awarded PRVs had not been redeemed as of the end  of fiscal year 2019, which may affect FDA’s ability to forecast resources  needed in the future. In 2016, we reported that FDA told us that the rare  pediatric disease PRV program placed a substantial strain on its  workload, explaining that performing a priority review on a drug that would  otherwise merit a standard review requires the agency to conduct  significant work in a compressed time frame. Between fiscal years 2011  and 2018, PRV redemptions have accounted for less than 1 percent of  FDA’s reviews in any given year, according to FDA. While FDA receives  90 days’ notice of a PRV redemption, the notice period may not be  enough time to ensure the appropriate staff are available to review a drug  application that the agency does not consider to be a public health  priority, according to FDA. However, one researcher noted that this  uncertainty exists for all drug applications, as FDA cannot know in a given  year how many drug applications will be submitted in any particular  therapeutic area or how many of these applications will qualify for priority  review. Furthermore, two drug sponsors, one researcher, and one  stakeholder we spoke with noted that FDA collects additional user fees  for PRV redemptions specifically to support the priority review for a drug  that would not normally qualify for one. Since fiscal year 2011, FDA has  collected almost $44 million in PRV user fees for the 16 redeemed  PRVs.

FDA does not track the resources it uses specifically for the PRV  programs, so the agency cannot determine if the PRV user fees paid  when PRVs are redeemed cover the associated costs. According to FDA,  the agency cannot anticipate the therapeutic area for which a PRV will be  redeemed, so PRV user fees may not ameliorate the effect of PRV  redemptions on the review divisions or provide for rapid hiring of  additional review staff with relevant experience and technical expertise.  FDA officials told us that each new PRV program—and changes made to  existing PRV programs—requires additional resources to implement. The  agency reports that the services of over 11 offices within FDA are  required to work on some aspect of the PRV programs, which may at  times require FDA to shift resources from its public health priorities.  According to FDA, the PRV programs also expend and divert agency  resources to draft and revise PRV-related guidance; update webpages;  research, draft, and publish notices and orders to add or decline to add  diseases to the list of eligible tropical diseases; respond to inquiries from  sponsors, potential sponsors, investors, attorneys, and other interested  individuals; and respond to requests for a rare pediatric disease  designation.

The Few Studies That Examined PRV Programs Found Little or No Effect on Drug Development; Improvements and Alternatives Were Suggested

The Few Studies Examining PRV Programs Found Little or No Effect on Drug Development and Views of the Programs Are Mixed

Our literature review found three studies—one for each of the PRV  programs—that examined and drew conclusions about how PRV  programs affect drug development; of these, one study found evidence of  an effect of a PRV program on drug development. Specifically, it found  that drugs to treat rare pediatric diseases, which could be eligible for a  rare pediatric disease PRV, were more likely to advance from phase I to  phase II clinical trials when compared to rare adult disease drugs. The  studies examining the other two PRV programs did not find an effect on  drug development.

Rare pediatric disease PRV program. A 2019 study found that the  rare pediatric disease PRV program was not associated with an  increase in the number or rate of new pediatric disease drugs that  started or completed clinical trials. However, the study found that,  after the creation of the rare pediatric disease PRV program, drugs  the study authors determined could be eligible for a rare pediatric  disease PRV were more likely to advance from phase I to phase II  clinical trials compared to rare adult disease drugs, which are not  eligible for a PRV under this program. Additionally, the study found  the time it took for drugs to progress to the next stage of development  was shorter among drugs eligible for a rare pediatric disease PRV  compared to drugs for rare adult diseases, across all three phases of  clinical development.

Tropical diseases PRV program. A 2017 study found that this PRV  program was not associated with an increase in tropical disease drugs  starting clinical testing. The study found the proportion of tropical  disease drugs among all drugs in development decreased slightly  after the PRV program was created. Study authors suggested the  relatively small number of approved tropical disease products in the  last decade indicates the PRV program did not serve as a stimulus for  completing late-stage drug development.

Medical countermeasure PRV program. A 2018 study reported that  25 of 26 medical countermeasures undergoing clinical trials received  direct or indirect public support, such as funding from the Department  of Defense. Authors stated that, given the extent to which  development of medical countermeasures already occurs via direct or  indirect federal funding, alternatives other than the PRV program  could better stimulate development of medical countermeasures.

While the few studies of the PRV program found little to no effect on drug  development, the seven drug sponsors we contacted told us the PRV  programs were an incentive—that is, a factor in their decisionmaking—for  drug development. In contrast, the seven researchers and seven  stakeholders we contacted reported mixed views of the PRV programs as  an incentive for drug development.

Drug sponsors. All seven drug sponsors told us the PRV programs  were a factor in drug development decisions—six sponsors said it was  one of a number of factors, and one sponsor said it was pivotal in its  development of a drug. For example, three drug sponsors told us  PRVs were important to help fund drug development and one of these  drug sponsors told us the PRV program supported its decision to  move a drug already under development to market. Four drug  sponsors told us PRV programs may be a more significant incentive  for small drug sponsors, with one small, nonprofit drug sponsor noting  that it entirely relied on the profits from the sale of its PRV to ensure  its drug would become available to those who need it. Additional  factors drug sponsors reported considering included whether the  sponsor has a drug in their development pipeline that could  particularly benefit from a PRV, and whether its drug development  program has public financial support, such as direct federal funding.

Researchers. The seven researchers reported mixed views of the  PRV programs as an incentive for drug development, and their  perceptions of the three programs varied. For example, when asked  to describe the incentive for drug development provided by the  tropical disease PRV program, two researchers described it as “not  significant,” and two researchers described it as “somewhat  significant.” However, one of these researchers told us the tropical  disease PRV program encouraged drug development, particularly for  diseases such as tuberculosis and malaria for which a drug is  potentially more commercially viable. Regarding the rare pediatric  disease PRV program, three researchers told us they have heard  anecdotally that the program is an incentive to develop or continue  development of rare pediatric disease drugs. In contrast, one  researcher told us many drug sponsors have received a rare pediatric  disease PRV for drugs they would have produced anyway, and  another told us he did not believe the rare pediatric disease PRV  provided an adequate incentive for adding new drugs into a drug  sponsor’s pipeline. Finally, four researchers told us it was too early to  evaluate the medical countermeasure PRV program as an incentive.

Stakeholders. The seven stakeholders also reported mixed views on  the PRV programs as an incentive for drug development. For  example, one stakeholder told us that drug sponsors have entered  particular drug development areas because of the PRV programs, and  the PRV program has been pivotal to the financial planning of small  drug sponsors working in the medical countermeasures and rare  pediatric disease spaces. In contrast, two other stakeholders told us  the PRV programs are an incentive to obtain FDA approval for a drug  that has already been developed and marketed outside of the United  States but are not an incentive for developing new drugs. One of  these stakeholders and an additional stakeholder also noted that  PRVs are often a source of additional revenue to drug sponsors that  would have developed their PRV drug anyway and did not need the  PRV to finance drug development.

The number of PRVs awarded by FDA could influence the effectiveness  of the PRV programs as incentives, according to several drug sponsors,  researchers, and stakeholders we contacted. Specifically, some indicated  that the potential revenue from the sale of a PRV could decline if more  PRVs are awarded, and there is an increased supply of PRVs available  for sale. Specific comments included the following:

One drug sponsor told us that, while the number of PRVs on the  market was a concern, they have remained valuable. Another drug  sponsor told us it was not concerned with the relative value of PRVs,  because it did not plan to sell its remaining PRVs and would purchase  more in the future if PRVs would benefit drugs in its pipeline.

One researcher told us lower prices for PRVs merited concern,  because the PRV alone might not be sufficient to motivate drug  development. The researcher indicated that a drug would also need  either sufficient sales or additional government incentives.

Two stakeholders told us the sales prices of PRVs (and potential  revenue from selling them) might be more of a concern for small drug  sponsors than large drug sponsors, as these stakeholders told us  small drug sponsors are more likely to sell their PRV instead of using  it for another drug in their portfolio.

Drug sponsors, researchers, and stakeholders we contacted also  reported mixed views on whether the rare pediatric disease and medical  countermeasure PRV programs—set to expire by 2022 and 2023, respectively—should be reauthorized. While FDA officials reported that,  as of April 2019, the agency does not have a position on the  reauthorization of these two PRV programs, drug sponsors generally  indicated support for their reauthorizations, with some noting that PRV  program expirations may negatively affect overall drug development and  the willingness of drug sponsors to work in these areas. The researchers  we contacted offered mixed opinions on reauthorization. For example,  one recommended reauthorizing both PRV programs, but indicated that  his opinion could change if a better incentive was developed. In contrast,  another researcher supported the expiration of these two programs,  noting that their expiration could ultimately raise the potential revenue  from the sale of an available PRV and could also make the tropical  disease PRV program, which does not require reauthorization, more  popular to encourage drug development. Most stakeholders we contacted  did not offer a clear opinion on reauthorization; those that did generally  supported reauthorization.

Drug Sponsors, Researchers, and Stakeholders Suggested Improvements and Alternatives to the PRV Programs

Drug sponsors, researchers, and stakeholders we contacted suggested  several improvements to the PRV programs, including those described  below.

Require innovation for PRV-eligible drugs. Two researchers and  two stakeholders noted that the PRV programs, particularly the  tropical disease PRV program, have been criticized for not providing  incentives for innovation and suggested PRV awards be limited to  drugs new to the global market. Currently, drug sponsors can  receive a PRV for a drug that has already been developed and  marketed outside of the United States, but which qualifies for a PRV  because the drug has not been approved for marketing in the United  States. One researcher suggested the federal government should  not provide an incentive, like a PRV, for drugs already in existence  outside of the United States, for which most research and  development was already completed. However, one drug sponsor told  us that requiring a tropical disease drug to be approved first in the  United States to qualify for a PRV would delay entry of the drug into  the international markets that need it the most. Additionally, two  stakeholders told us that drugs that have already been developed  may have significant benefits to patients when combined or used to  treat other diseases.

Require drug sponsors to guarantee access to PRV-eligible  drugs. One researcher and two stakeholders suggested drug  sponsors submit an access plan to help ensure the drug reaches the  populations in need of the treatment, and one drug sponsor  suggested they supply at cost the drugs for which the PRV was  awarded. One of these stakeholders noted that a weakness of the  PRV program is that drug sponsors awarded a PRV have no  obligation to make the approved drug available at an affordable price.  It suggested that requiring an access plan may result in drugs for  which a PRV was awarded being more available and accessible to the  populations that need them. However, three stakeholders noted that  FDA may not have the resources or authority to enforce such access  commitments.

Limit PRVs to drug sponsors with financial need. One drug  sponsor and one researcher suggested awarding a PRV only to drug  sponsors that financially require it to develop their drug, such as a  nonprofit organization that must leverage potential revenue from the  PRV to help offset drug development costs.

Make administrative changes. One drug sponsor told us FDA’s  process for determining the list of tropical diseases eligible for a PRV  was not transparent and wanted clarification on FDA’s timeline for  editing this list. Another drug sponsor told us it wanted clarification  on whether a drug would merit priority review on its own, so the  sponsor could determine whether to redeem a PRV for that drug.

In addition to suggesting improvements to the PRV programs, drug  sponsors, researchers, and stakeholders we contacted, as well as our literature review, identified potential alternatives to the PRV programs that  provide incentives for drug development (see table 2).

We provided a draft of this report to HHS for review and comment. HHS  provided technical comments, which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional  committees, the Secretary of Health and Human Services, and other  interested parties. In addition, the report is available at no charge on  GAO’s website at http://www.gao.gov/.

If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or dickenj@gao.gov. Contact points for our Office  of Congressional Relations and Office of Public Affairs can be found on  the last page of this report. Other major contributors to this report are  listed in appendix IV.

Appendix I: Priority Review Vouchers (PRV) Awarded by the Food and Drug Administration

Novartis  Pharmaceuticals  Corporation  Dengvaxia  Sanofi  Pretomanid  The Global Alliance  for TB Drug  Development (TB  Alliance)

Treatment of  mucopolysaccharidosis  type IVA (MPS IVA;  Morquio A syndrome)

PRV   Sale   date  purchaser  August 2015  AbbVie Inc.

Drug name   Drug sponsor  Unituxin  United Therapeutics  Corporation  Cholbam  Asklepion  Pharmaceuticals,  LLC  Xuriden  Wellstat  Therapeutics  Corporation  Strensiq  Alexion  Pharmaceuticals Inc.  Kanuma  Alexion  Pharmaceuticals Inc.  Exondys 51  Sarepta  Therapeutics, Inc.

Treatment of Duchenne  muscular dystrophy (DMD)

Treatment of tripeptidyl  peptidase 1 (TPP1)  deficiency (Batten disease)

Marathon  Pharmaceuticals,  LLC  Brineura  BioMarin  Pharmaceutical Inc.  Kymriah  Novartis  Pharmaceuticals  Corporation  Mepsevii  Ultragenyx  Pharmaceutical Inc.

Vertex  Pharmaceuticals Inc.  Crysvita  Ultragenyx  Pharmaceutical Inc.  Epidiolex  GW Research, Ltd.

Treatment of X-linked  hypophosphatemia (XLH)

Treatment of seizures  associated with Lennox  Gastaut-Syndrome and  Dravet syndrome  Treatment of adenosine  deaminase-severe  combined  immunodeficiency (ADA- SCID)  Treatment of primary  hemophagocytic  lymphohistiocytosis (HLH)  Treatment of pediatric  patients with spinal  muscular atrophy (SMA)

Legend: ✓ = transferred from original drug sponsor; ✗ = no public announcement of transfer; — = not applicable.

Appendix II: Redeemed Priority Review  Vouchers (PRV)

Appendix III: Key Milestones of the Priority Review Voucher Programs

Appendix III: Key Milestones of the Priority  Review Voucher Programs FDA may not award any rare pediatric disease priority review vouchers after September 30, 2020,  unless the drug has received a rare pediatric disease designation by that date, and FDA has  approved the drug application by September 30, 2022.

Appendix IV: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Kim Yamane (Assistant Director),  Erin C. Henderson (Analyst-in-Charge), Kaitlin Farquharson, Laurie  Pachter, Vikki Porter, Helen Sauer, Meghan Shrewsbury, and Merrile  Sing made key contributions to this report. Also contributing were Leia  Dickerson, Hayden Huang, and Yesook Merrill.

Drugs that treat certain tropical diseases, rare pediatric diseases and illnesses related to public health emergencies are essential—but they may not be the most profitable to make.

When drug developers make these kinds of drugs, FDA can award them “priority review vouchers.” Drug developers can redeem a voucher to speed up FDA review of a future—potentially more profitable—drug. Vouchers can also be sold to other developers.

Some studies found that these vouchers had little or no effect on drug development, but all 7 drug developers we spoke to indicated that the vouchers were a factor in their decisions.