The FDA Loses its Cell Surgical Network Summary Judgment Motion: Why That Could be a Big Deal

Published on Jan 29, 2020

A district court judge in the Cell Surgical Network case handed the stem cell network a legal victory late Monday. What does this mean? Does it support the idea that CSN will be able to use fat-based stem cell treatments to treat multiple incurable conditions? My take is that it’s a bigger deal than most have so far recognized. Let’s review.

What is US v California Stem Cell Treatment Center?

This is a legal case where the FDA has filed for a permanent injunction to stop the Cell Surgical Network from using a fat-based stem cell treatment. The FDA has taken the position that taking a patient’s fat and digesting it with an enzyme to isolate the stem cell fraction creates a biologic drug that requires full FDA approval. There were several companies that were offering this technology without FDA approval that had injunctions filed against them. One was US Stem Cell in Florida and the FDA won that case easily on summary judgment. The other was the Cell Surgical Network of California (California Stem Cell Treatment Center). I’ll refer to the US v California Stem Cell Treatment Center case as “The CSN Case”.

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What Happened in the CSN Case on Monday

Late Monday, a California district court judge (Jesus Bernal) denied FDA’s request for summary judgment in the CSN case, which was similar in it’s facts to the Florida based US Stem Cell case where the FDA won at summary judgment. The difference may be that there is a new supreme court ruling that questions the concept of automatic agency deference and a rare judge who is willing to dissect the medicine and science himself. Let’s dig in.

What is Summary Judgement?

Summary judgment is a concept that occurs at the very beginning of a case where one side can ask the court to end the proceedings without a trial. Basically, they must argue that there is nothing for the fact-finder (the judge) to decide because it’s arguments are so iron-clad that there is no chance of the other side winning. In the normal world of court cases, summary judgment is rarely granted because there’s usually some dispute between the parties that the judge feels should be adjudicated. However, in the world of the US government and FDA bringing cases against companies, it’s much more commonly granted as it was in the Florida US Stem Cell case.

What is Regulatory Deference?

Deference is often the key that unlocks the FDA’s or another regulatory agency’s motion for summary judgment. It means that the trial court must defer to the regulatory agency on things like interpreting its own rules. In this case, CSN had questioned whether the FDA’s interpretation of its 21 CFR 1271 regulations (herein referred to as 1271) governing the use of HCT/Ps (cell-based therapies) was correct. If the judge had granted deference to the FDA on that topic, then the case would have gone the direction of the US Stem Cell case with the FDA winning at summary judgment. If not, then this case was likely going to trial.

Auer and Chevron

The idea of legal deference to federal agencies has been dueling back and forth for decades. One of those court cases settled in the 90s is called “Auer”. It was about cops and overtime pay that went against a labor law enacted as part of the New Deal, but more importantly it cemented the idea that a federal agency should be given a wide berth by judges when interpreting its own regulations. In legalese, this is called Auer deference.

So you thought Chevron was just a local gas station? Guess again. The idea that you can challenge a regulatory agency on the interpretation of its own regulations began in a 1980s case commonly called “Chevron” (Chevron U.S.A., Inc. v. Natural Resources Defense Council). This pivotal supreme court case created a legal test that judges can use to determine if they should or shouldn’t grant deference to a government agency’s interpretation of a statute that it administers. Let’s dig in.

If you remember your high school civics, congress determines the laws (statutes) and the regulatory agency creates regulations based on those laws. There is an intense process for creating those regulations involving public notice and comment with many steps that have to be followed (referred to legally as “notice-and-comment rulemaking”). In addition, the scope of any regulation can’t exceed what congress authorized. Hence, one way to take down a regulation is to attack how it was made and whether the agency created a regulation that was beyond the scope that Congress authorized.

The key to that regulation busting legal strategy has traditionally been invoking Chevron. Here, you request that the judge use a specific test from the Chevron supreme court case to determine if you are permitted to question the regulation. This test is usually hard to pass, all but guaranteeing that most regulations can’t be challenged. However, there’s now a new wrinkle.

The New Wrinkle that May Have Helped CSN-Kisor Deference

Prior to a recent supreme court ruling this summer, all judges were instructed to give wide deference to the regulatory agency on interpreting its own rules. The idea was that the agency had more subject matter expertise and unless a Chevron test was passed (tough to do), then the agency got the benefit of the doubt. However, that changed a bit in a recent case called Kisor (Kisor v. Wilkie). This basically gives judges more leeway. Now a prior court ruling in the agency’s favor on that regulation is required to grant the agency deference. There is no such ruling here regarding 1271 that has ever been litigated. Meaning the two times it’s been challenged (Regenerative Sciences and US Stem Cell) the court granted the FDA summary judgment by giving it deference.

If you want to dive into how the judge used Kisor to brush away the FDA’s request for deference, look no further than this paragraph from the ruling:

” While the Court cites the SSP Exception Guidance for illustrative purposes, the FDA’s interpretation of the SSP Exception advanced therein, specifically that the SVF Process does not fall within the SSP Exception, is not entitled to deference. First, as explained above, the SSP Exception is unambiguous. See Kisor v. Wilkie, 139 S. Ct. 2400, 2414 (2019)”

Another Problem for FDA-Challenging FDA’s Interpretation of the Same Surgical Procedure Exemption

The judge throughout most of the ruling appears to be attacking the FDA’s interpretation of the same surgical procedure exemption. What’s that?

The same surgical procedure exemption (21 CFR 1271.15(b)) allows a doctor to take autologous tissue from a patient and reuse it during the same surgical procedure without creating a drug. In CSN’s case, they took fat from the patient and broke that fat down with an enzyme to get the stem cell fraction out which creates a product called “SVF” (Stromal Vascular Fraction). This is then used in the same patient. The FDA contended that this changes the tissue, which means that the same surgical procedure exemption doesn’t apply. The judge is focused on the idea that it’s what’s produced (the SVF itself) which is what the FDA must prove is altered by this isolation method.

There are then two places where the FDA now becomes vulnerable if this proceeds to court. One the judge didn’t mention in this motion (but sure to be featured by the CSN defense team) and one the judge did mention above. The first one is in the creation of the 1271 regs themselves and the second is the same surgical procedure exemption. Let’s dig deeper.

The Creation of 1271 Had Issues

Prior to 2004, 1271 only applied to allogeneic therapies (someone else’s tissue). Then the agency, without any required “notice-and-comment rulemaking” suddenly made a one-word change in the regulation which caused it to apply to autologous therapies as well. This literally happened by the FDA placing the new rule (with the one-word change) in the Federal Register, a publication that provides notice of federal agency rule changes. Only the most ardent and fastidious federal regulation watchers would have ever noticed the change because it was simply substituting the word “a” for the word “another”. Meaning prior to the one-word change the regulation read “into another human” and now it suddenly read “into a human”. That one-word change dramatically altered the meaning of the regulation. Dramatically changing the scope of any regulation normally requires an extensive period of “notice-and-comment rulemaking”.

Challenging the Core of the Same Surgical Procedure Exemption

Frankly, as I read the ruling this morning, it’s not good for the FDA. They have a judge here due to Kisor who has jumped right into the medicine and science of the regulations. So instead of avoiding all of that by granting the agency deference, he’s inserted himself right into the middle of it all. That means that the FDA is now on the defense as this case goes into a courtroom and not on offense.

This judge is knee-deep into the same surgical procedure exemption and it’s clear he’s not drinking the FDA Kool-aid. He questioned whether the FDA’s interpretation makes sense as it relates to surgeries. This has always been an Achilles heel of the FDA’s application of the same surgical procedure exemption. For example, a surgeon can take a vein out of its normal infrastructure, change its shape and then use it as an artery in a heart bypass surgery. Now that vein serves a different purpose in the body than it once did and it will change over time in the body to act as an artery. Those changes are at the cellular level. Hence removing fat and isolating stem cells and reinserting those cells should be the same.

The FDA and advocates for turning autologous cell procedures into drugs will argue that simply making the SVF changes the cells. However, anything you do to tissue changes cells. Gene expression is dynamic and constantly changing. Taking that vein out and using it as an artery also changes cells. In fact, there are cellular changes and responses to cutting and shaping. So that argument isn’t logical.

The judge ultimately concludes that one issue the trial will hinge on is whether the cells in SVF remain the same once they are isolated from adipose tissue and implanted back into the patient. On that issue, he may have telegraphed his punches here:

” …it makes no logical sense assert that the SSP Exception applies to a procedure where physical cutting is necessary to isolate needed tissue but not to a procedure where chemical “cutting” is necessary to isolate needed cells—especially given the use of both “cells” and “tissue” in the SSP Exception.”

Meaning the FDA and its experts will make the argument at trial that because an enzyme is required to isolate the cells in making SVF, then those cells are changed by the enzyme. For those not familiar with how SVF is made, a chemical enzyme is used to separate the cells from the collagen in which they are trapped so that they can be isolated by centrifugation. This is the chemical cutting to which the judge refers. Given that he has stated here that chemical cutting should be no different than the physical cutting of tissue, he has telegraphed here that he won’t buy an argument from an FDA expert that using the enzyme changes the cells, as physical cutting also changes cells.

Who Will Win in Court?

I’m not a legal expert, but only a doctor who has lots of direct experience in these battles. However, I would say that because of the way that 1271 was changed suddenly by the agency, the FDA may have problems there. In addition, the fact that the judge included a detailed discussion of whether the same surgical procedure exemption applies here means to me that he will dive deeper into this issue at some point in the trial. If he issues an eventual ruling that the FDA has interpreted 21 CFR 1271.15(b) incorrectly, then that changes half a decade worth of FDA’s interpretation of this and other regulations. Why? Quite a few FDA rules that intersect with the practice of medicine revolve around the idea that the agency can create a drug out of autologous tissue merely by someone breaking that tissue down or altering its structure.

To use a football analogy, the FDA was playing offense about to score on the other team’s 5-yard line and just had the quarterback’s pass intercepted. The other team then ran that back for a 95-yard ‘pick-six”. The FDA will now be playing on defense for the remainder of this trial.

The upshot? While not being granted summary judgment is usually not a big deal for most litigants (as it’s hard to get), for the government, not getting it here is a potential problem. It seems like this new supreme court ruling in Kisor may have opened the door for district court judges and others to begin to take a closer look at how regulations are made and the regulations themselves. That gives CSN a reasonable shot of having a judge look at whether the current version of 1271 was lawfully created in the first place or whether the agency has accurately interpreted its own regulations. Pay close attention to this case, as it may change everything.