UPDATE 2-Obama seeks US FDA budget hike, generic drug fees

* Proposal calls for FDA budget topping $3 bln

* Seeks funds to get cheaper medications to market (Adds background, DeLauro comment, details of budget proposal)

WASHINGTON, May 7 (Reuters) - President Barack Obama proposed on Thursday a 19 percent hike in the Food and Drug Administration’s budget to strengthen inspections and increase the number of generic drugs on the U.S. market.

The increase would give the FDA $3.2 billion in fiscal year 2010, which starts Oct. 1, compared with $2.7 billion in 2009.

The FDA regulates products that make up about one-quarter of the U.S. economy and also deals with food safety issues, tainted drugs and drug side effects.

It has been stretched because of increased responsibilities, outdated technology and not enough staff.

Obama’s plan must now be considered by Congress, which has increased funding in recent months while insisting that the FDA do a better job of protecting the public.

Nearly $260 million of the budget would go toward regulating the U.S. food supply.

“Significant work remains in strengthening the FDA, and this budget provides a positive step forward in the long journey toward that goal,” said Connecticut Democrat Rep. Rosa DeLauro, who heads the U.S. House of Representatives’ agriculture-FDA appropriations subcommittee.

The proposal calls for additional industry fees to help clear the backlog of generic drugs awaiting review. It seeks $36 million from manufacturers to review generic versions of human drugs under the FDA’s generic drug office, which is slated to receive up to $70.7 million.

Generic drugmakers are willing to pay fees in exchange for improving the review process, said Generic Pharmaceutical Association President Kathleen Jaeger. She urged Congress to boost generic drug funding while the fees are worked out.

Obama’s proposal repeats a call to give the FDA power to clear cheaper generic versions of biotechnology drugs that can be difficult to make and cost tens of thousands of dollars a year.

It also includes $5 million for the FDA “to develop policies to allow Americans to buy drugs approved in other countries.” Prices for medications are often cheaper in Canada and other countries than in the United States. (Reporting by Susan Heavey and Lisa Richwine; Editing by Gerald E. McCormick, Toni Reinhold)