US Stem Cell Loses Appeal

Published on Jun 4, 2021

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US Stem Cell has been featured many times on this blog. In an unsurprising move, an appeals court just upheld a lower court decision on the concept that adipose stromal vascular fraction prepared in a doctor’s office is a drug that can be regulated by the FDA. This ruling also contains an interesting easter egg and could have a chilling effect on a federal judge who is heading the Cell Surgical Network case in California. Let’s dive in.

The Regulatory History of SVF

SVF stands for stromal vascular fraction. It’s what you get when you digest fat tissue with an enzyme and then centrifuge it to concentrate the cells. The FDA has made it very clear for almost a decade that if you do this to fat in a doctor’s office, this is regulated as a drug that requires extensive clinical trials before use. Two companies shave asserted for some time that this shouldn’t be the case. One of them, called US Stem Cell lost its Florida district court case with the FDA, the other company, Cell Surgical Network had some hopeful signs from its California federal court case. US Stem Cell appealed and the whole regenerative medicine industry has waited for some time to see the outcome of the appeal. What happened?

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The Federal Appeals Case

The appeal for US Stem Cell questioned whether the FDA had the authority to declare a procedure in a doctor’s office that processed the patient’s own fat tissue a drug that required FDA approval. On June 2nd, that appeal was decided by the 11th circuit. That court upheld the lower courts ruling that the FDA has the authority to regulate this as a drug. Here is the main conclusion of the 11th circuit:

“The procedure does not fall within the first exception because the biological material implanted into the patient is not the same as that removed and the procedure does not fall within the second exception because the Clinic intends the stem cells to perform functions after the procedure beyond the basic functions the stem cells performed prior to the procedure. We therefore affirm the judgment of the district court.”

A Critical Easter Egg?

Is there an earth-shattering easter egg in the US Stem Cell decision? As it turns out, IMHO there is one surrounding the definition of homologous use. This is the concept that the tissue taken from a patient must serve the same function when returned back into the patient in order to be considered surgery and not a drug.

In reading the entire decision, the appeals court did buy US Stem Cell’s argument that since fat serves a regenerative function as it exists in the body, it should mean that “homologous use” would allow the SVF to serve the same regenerative function as a treatment.

From the appeals case:

“On appeal, the Clinic adequately restates its position that the proper benchmark is the basic function of the stromal-vascular fraction in adipose tissue (viz., “regeneration and repair”). We agree. Unlike the same surgical procedure exception, the 361 HCT/P exception and definition of homologous use do not require that an establishment remove an HCT/P from a patient and reimplant “such HCT/P” into the same patient. There is no reason, therefore, the court should not compare stem cells to stem cells.”

That’s an interesting opening for the homologous use argument in that this appeals court has it much broader than FDA’s interpretation for fat as only serving a “cushioning” and “structural” function. Meaning the FDA has stated that fat taken from one part of the body must serve a cushioning or structural function where it’s intended to be used in treatment in order for it to be “homologous use”. The clinic’s interpretation was that fat tissue in the body does help with local regeneration and repair so that if it’s transplanted to another spot for tissue repair, that should be homologous use.

However, where the court lost its appetite for siding with US Stem Cell was on the issue of the clinic using SVF to treat a panoply of diseases. For example, one deep dive into the clinic’s marketing showed that they advertised the SVF as an anti-inflammatory as well. So could they have won on the homologous use issue if they had kept the marketing to regeneration and repair?

How this Could Impact the Cell Surgical Network Case

Remember that last year, the same case in California headed up by Cell Surgical Network seemed to be headed in a different direction. In that case, the judge seemed to buy into the doctor’s argument that this was a surgical procedure and therefore could not be regulated by the FDA as a drug. That case seems to have been mentioned in the US Stem Cell appeal courts ruling:

“The Clinic next draws our attention to the opinion of a district court in California that, in a similar suit against a clinic offering a similar procedure, rejected the FDA’s interpretation under the canon against surplusage – the idea that a reading of a statute or regulation which gives each word independent meaning is generally to be preferred over a reading that makes some words superfluous…That court reasoned that through its use of the word “HCT/Ps,” § 1271.15(b) refers to the removal and reimplantation of both cells and tissues: “Because cells make up tissues and organs, cells can only be removed from a patient along with those larger systems.”…Therefore, the court concluded, the FDA’s characterization would “eliminate[] the possibility of a cell removal and implantation,” and thus fail to give “full effect to all words” in the regulation.”

This is interesting as from speaking with legal experts this week, they tell me that this mention of the California case in the Appeals decision puts pressure on the California district court judge to explain his position relative to this new ruling. So will the Cell Surgical Network case be impacted?

The upshot? It’s not surprising that the US Stem Cell appeal went down in flames. However, there are some interesting tidbits in this case, both on homologous use and on how it may impact the Cell Surgical Network case.