By Susan Heavey

WASHINGTON, June 13 (Reuters) - The U.S. Food and Drug Administration failed to review on time nearly half the applications from generic drug makers seeking approval to sell cheaper versions of brand-name pharmaceuticals, according to a government report released on Friday.

The report, by the Department of Health and Human Service's Inspector General, also found the FDA approved or tentatively approved 4 percent of generic applications reviewed in 2006, rejecting the majority because they did not meet the agency's standards.

The inspector's office looked at the FDA's review times in 2006 for 989 generic drug applications and found that 46 percent of them were not fully evaluated within the 180-day period allowed by law.

Among a sample of 105 delayed applications, the agency did not even begin to review 70 percent of them until after the 180-day period had ended, the report found.

Part of the problem, the inspector said, is the way FDA officials prioritize applications. The agency reviews them on a "first-in, first-reviewed" policy rather than first tackling clear-cut applications that are not bogged down with patents or exclusivity issues that complicate the process.

The inspector, Daniel Levinson, also noted that generic drug applications have grown more than twice as fast as FDA funding and staffing levels during the past five years.

It takes the FDA a median time of nearly 17 months to approve generic applications, according to the report.

"We recommend that FDA assign priority to and meet review timeframes for consults based on whether the ANDAs (abbreviated new drug applications) are close to approval," Levinson wrote.

The FDA, in comments submitted to Levinson, said the agency was already implementing some of the report's recommendations to improve its review process. It also said it was working with the industry to have drug makers submit more easily reviewed applications.

Top generic drugmakers include Teva Pharmaceuticals Industries Ltd <TEVA.O>, Mylan Inc <MYL.N>, Ranbaxy Laboratories Ltd <RANB.BO>, Watson Pharmaceuticals Inc <WPI.N> Novartis AG's <NOVN.VX> <NVS.N> Sandoz unit and Barr Pharmaceuticals Inc <BRL.N>. (Reporting by Susan Heavey; Editing by Brian Moss)

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