Health Law Daily Wrap Up, ADMINISTRATION OF FDC ACT—9th Cir.: Court holds stem cell mixture was a ‘drug,’ reverses trial judgment, (Oct 2, 2024)

By Justin Marcus Smith, J.D.

In addition, because the stem cell isolation procedure removed fat tissue but implanted a processed result, the procedure was not exempt from regulation under the “same surgical procedure” exception.

The FDA could regulate a processed stem cell mixture derived from fat tissue because it qualified as a “drug” under the federal Food, Drug, and Cosmetic Act (FDC Act), despite re-implantation into the same patient in a same-day procedure, held the United States Court of Appeals for the Ninth Circuit, in reversing a trial court judgment. The FDC Act’s definition of “drug” was necessarily broad to allow the FDA to protect public health. The FDA was attempting to regulate the “drugs” that doctors prescribe, not how they perform medical procedures. With respect to the “same surgical procedure” (SSP) exception, the majority held the FDA had the more sensible interpretation, in light of the degree of processing, that the procedure was not exempt from regulation under the SSP exception. The minority concurrence reached the same conclusion on the different basis that the court owed Auer deference to the FDA’s reasonable interpretation of its regulations (U.S. v. California Stem Cell Treatment Center, Inc., No. 22-56014 (9th Cir. Sept. 27, 2024)).

Background. The FDA sued two California-licensed physicians and the California corporate entities they co-founded, the California Stem Cell Treatment Center, Inc. (SCTC) and the Cell Surgical Network Corp. (CSNC). The FDA claimed the stem cell providers violated the FDC Act in connection with the clinics’ concentrated stem cell mixtures known as stromal vascular fractions (SVFs). The clinics made the SVFs for patients by concentrating stem cells from the patients’ own fat tissue. The resulting SVFs were a mixture of stem cells, other cells, and cell debris. The stem cell providers would then re-inject the patients with their own SVF. The stem cell providers advertised SVF treatment for a host of medical conditions, e.g., to regenerate cartilage.

The FDA inspectors concluded that the clinics were manufacturing and administering unapproved drugs. They allegedly found violations of FDA manufacturing requirements and a lack of adverse health event tracking for the SVF treatments.

After a seven-day bench trial, the district court entered judgment for the clinics (see Removal and reimplantation of stem cells did not violate FDC Act requirements, September 8, 2022). It held the SVF treatments were not subject to FDA regulation because the SVF treatments were the practice of medicine and did not involve a “drug” under federal law. More specifically, the court found creation of the SVFs did not alter the cells involved and did not create any new material or introduce any foreign article into the body.

The FDA timely appealed. On appeal, the stem cell providers argued their SVF product was either not a “drug” within the meaning of the FDC Act or else fell under an FDA exception for certain surgical procedures. The court applied de novo review to the district court’s conclusions of law. It applied clear error review to the district court’s findings of fact.

Cellular products. The Ninth Circuit noted that the FDA has a tiered, risk-based approach to regulating human cells, tissues, and cellular and tissue-based products (HCT/Ps). An FDA regulation defines HCT/Ps as articles involving human cells or tissues intended for placement into a human recipient. 21 C.F.R. §1271.3(d). Relevant to this case, the bottom tier of HCT/P regulation pertains to HCT/Ps removed from and implanted into the same patient during the same surgical procedure. Id. §1271.15(b).

The court said the D.C. Circuit, in considering a similar stem cell treatment, held that the FDC Act’s wide-ranging definition of a “drug” compelled the conclusion that the re-injected stem cell mixture in that case was a “drug” for FDC Act purposes. United States v. Regenerative Sciences, LLC, 741 F.3d 1314 (D.C. Cir. 2014). The instant SVF treatments, in contrast, did not involve an antibiotic and did not always involve culturing, but such differences were not relevant to the D.C. Circuit’s holding.

The court perceived that the clinics viewed the “capacious” FDC Act language as intolerable in practice, but it noted how the Supreme Court instructed it would be error not to read the FDC Act’s language liberally, in other words, more broadly than any strict medical definition. The clinics argued that the results could be absurd, for example, if one were to construe a vein graft as a “drug,” but the court said extreme hypotheticals were not a reason to infer that the SVFs were not an FDC Act “drug.”

The court also rejected the clinics’ argument that interpreting the SVFs as drugs would intrude on the state regulation of the practice of medicine. The court said it had already rejected that argument in United States v. Kaplan, 836 F.3d 1199 (9th Cir. 2016), where a physician misused a needle guide in a way that threatened the public health. By extension, although the FDC Act was not meant to regulate the practice of medicine, it was meant to control the availability of drugs for physician prescription. Kaplan also invoked the D.C. Circuit’s decision in Regenerative Sciences that the FDA focused on the stem cell mixture in that matter, not doctor performance of any procedure.

Last, the clinics invoked the major questions doctrine, but the court said this was not an extreme economic or political case that called for application of the doctrine. The FDA was not asserting authority over surgery. It was only asserting authority over doctor creation or use of FDC Act “drugs.” The court also said there was no mismatch between the clinics’ SVF and the FDC Act statutory scheme, and recent legislation even suggested that Congress presupposes the FDA regulates stem cell therapies.

SSP exception. The court held the FDA was correct in interpreting that the “same surgical procedure” (SSP) exception for HCT/Ps did not pertain to the clinics’ SVF, even though the SVF was a “same-day” treatment. The parties agreed on several points, perhaps most importantly, that the fat tissue removed from patients and the SVF for implantation were not “the same” for SSP exception purposes. The FDA saw that as an easy distinction for concluding that the SSP exception would not apply, but the clinics pointed out, and the FDA did not dispute, that the cells the clinics extracted from the fat tissue were also definitionally HCT/Ps. So, the SVF process appeared to involve two different kinds of HCT/Ps: 1) fat tissue; and 2) the cells within that fat tissue.

The clinics urged that the SSP exception required the court to compare the implanted HCT/P with the HCT/P that was the target of removal from the fat cells, “rather than the largest system removed,” to conclude they were “the same” for SSP exception purposes, despite intervening processing. The FDA urged that the court had to look at the removed HCT/P fat tissue as a whole, before undergoing any significant processing, as a different HCT/P from the isolated stem cells. Each party relied on the regulatory text, but neither party had an argument that fully resolved interpretation of the text.

The clinics’ reading of the text was plausible, so the court turned to SSP exception context and structure. The court reasoned that the SSP exception was part of a broader framework regulating the “manufacture” of HCT/Ps that were more than “minimally manipulated,” so, conversely, the exception should not apply to substantially manipulated HCT/Ps. Here, the clinics pointed to the SSP exception being available to implantation back into the same patient, but the court said the FDA’s view made more sense. Although the regulations defined “minimal manipulation” differently for structural tissue, which included fat tissue, and although the district court found the procedure did not biologically alter the cells, the court still had to decide whether the fat tissue or the cells were the right comparator.

To find the right comparator, the court again turned to the regulatory purpose and history, especially the evolved tiered approach that addresses recent developments in cell and tissue manipulation. Originally, the communicable disease risk was low with implantation into the same patient, as with a vein or skin graft, i.e., conventional surgery, but any additional processing of the material to be implanted would increase the communicable disease risk. The FDA’s interpretation of the SSP exception was not only more consistent with the exception’s plain meaning, but it also fit the tiered, risk-based framework and its purpose and history.

In conclusion, the removed HCT/P must be viewed as a whole, in this case, as fat tissue, not cells, before any significant processing. Because the SVF procedure removed fat tissue but implanted processed SVF, the procedure was not exempt from regulation under the SSP exception.

Concurrence. Judge Friedland said she concurred with the majority that the SVF treatment did not fall under the SSP exception, but for a different reason: she reasoned the SSP exception was ambiguous, hence the court should defer to the FDA’s reasonable interpretation under Auer v. Robbins, 519 U.S. 452 (1997).

The case is No. 22-56014.

Judge: Friedland, M. and Sung, J.

Attorneys: Natalie Sanders, U.S. Department of Justice, for the U.S. Celeste M. Brecht (Jones Day) for California Stem Cell Treatment Center, Inc., Cell Surgical Network Corp., Elliott B. Lander and Mark Berman.

Companies: California Stem Cell Treatment Center, Inc.

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