Stem Cell Litigation Update: FDA Won the Latest Battle, but the Future of HCT/P Enforcement Remains Unclear

On September 27, 2024, the U.S. Court of Appeals for the Ninth Circuit reversed the district court’s decision in U.S. v. California Stem Cell Treatment Center, Inc. (“California Stem Cell”), holding that a clinic’s stem cell treatment was not covered by the “same surgical procedure” exception (“SSP Exception”) and is, therefore, subject to regulation as a drug by the U.S. Food & Drug Administration (“FDA”).¹ As explained in a prior Ropes & Gray Alert, an increasing number of medical clinics have attempted to rely on the SSP Exception to avoid FDA oversight and enforcement over treatments involving the administration of clinician-created therapies using stem cells derived from adipose (fat) tissue extracted from the patient and injected back into the patient during the same procedure. In California Stem Cell, the Ninth Circuit joined the Eleventh Circuit in concluding that clinics that offer treatments involving the creation and administration of such therapeutic products are not exempt from FDA regulation as drugs. Although this Ninth Circuit ruling reinforced FDA’s authority to regulate stem cell therapies and other human cells, tissues, and cellular and tissue-based products (“HCT/Ps”), the incoming administration may choose not to prioritize enforcement in this area. Additionally, recent jurisprudential trends may increase the likelihood of future administrative law challenges to the underlying FDA regulations.

This Alert summarizes the potential impact of the California Stem Cell holding on medical clinics that offer stem cell treatments and other stakeholders in the regenerative medicine industry.

Analysis of California Stem Cell

In California Stem Cell, the government sought to enjoin California Stem Cell Treatment Center from administering certain types of stem cell treatments, one of which involved extracting adipose tissue from a patient, using enzymatic digestion to isolate stem cells from the surrounding fat tissue, and injecting the resulting mixture, called stromal vascular fraction (“SVF”), back into the patient. The clinic advertised these stem cell mixtures as a treatment for a wide variety of serious medical conditions, including Alzheimer’s disease, arthritis, asthma, cancer, Crohn’s disease, Parkinson’s disease, and erectile dysfunction. Arguing the SVF procedures were completely exempt from FDA regulation and enforcement, defendants claimed, and the U.S. District Court for the Central District of California agreed, that (A) their same-day procedure was covered by the SSP Exception and (B) none of their SVF procedures were subject to the Federal Food, Drug, and Cosmetic Act’s (“FDCA”) adulteration and misbranding provisions because defendants were engaged in the practice of medicine, not the manufacture of “drugs.” On September 27, 2024, the Ninth Circuit reversed the district court’s ruling on both points.

A. Defendants do not qualify for the SSP Exception because the implanted SVF is not the same as the removed adipose tissue.

Under 21 C.F.R. § 1271.15(b), establishments that “remove[] HCT/P’s from an individual and implant[] such HCT/P’s into the same individual during the same surgical procedure” are wholly exempt from FDA regulation under the SSP Exception, but FDA has explained in guidance that the SSP Exception is “narrow” and only applies when the HCT/Ps at issue are removed and implanted “without intervening processing steps beyond rinsing, cleansing, sizing, or shaping” because the communicable disease and safety risks associated with covered procedures should generally be the same as those associated with conventional surgery.”²

The Central District of California ruled that defendants qualified for the SSP Exception, but the Ninth Circuit disagreed with the district court’s construction of the SSP Exception and reversed its decision. While acknowledging that the requirement of “minimal manipulation” was not included in the text of 21 C.F.R. § 1271.15(b), the Ninth Circuit concluded that FDA’s risk-based approach to regulating HCT/Ps establishes that procedures covered by the SSP Exception “should not involve significant processing.” According to the panel, a contrary construction of 21 C.F.R. § 1271.15(b) would contradict the structure and purpose of the HCT/P regulation by potentially allowing clinics to perform procedures that introduce “far greater” risks to patients than those associated with conventional surgery without any FDA oversight.

The Ninth Circuit held that “[w]hen determining whether a surgical procedure ‘removes HCT/P’s and implants such HCT/P’s,’ the removed HCT/P must be viewed as a whole, before any significant processing.” Applying this rule, the Ninth Circuit concluded that defendants were ineligible for the SSP Exception because their same-day procedure, which involved enzymatic digestion, so significantly processed the SVF that the resulting product was no longer “such HCT/P” as the adipose tissue that had been previously removed. In a footnote, the Ninth Circuit noted its agreement with the U.S. Court of Appeals for the Eleventh Circuit’s decision in U.S. v. U.S. Stem Cell Clinic LLC (“US Stem Cell”), “an exceedingly similar case” wherein the Eleventh Circuit determined that the SSP Exception did not apply to a similar SVF treatment offered by a Florida-based medical clinic.³

Of note, the Ninth Circuit endorsed FDA’s reading of the SSP Exception in California Stem Cell without resorting to Auer deference. Although the concurring judge would have deferred to FDA’s regulatory interpretation of 21 C.F.R. § 1271.15(b), the majority of the panel decided there was no need for Auer deference because the traditional tools of construction resolved the “seeming textual ambiguity.”

B. Defendants’ SVF is a “drug,” and FDA’s regulation of this product does not intrude upon the “practice of medicine.”

Defendants argued that even if they were not wholly exempt from FDA oversight, their SVF treatments were not required to comply with the FDCA’s drug adulteration and misbranding provisions because the SVF used was not a “drug” within the meaning of 21 U.S.C. § 321(g)(1). The Ninth Circuit disagreed, ruling that the SVF was a “drug” based on the plain text of the FDCA because defendants “administer a particular thing” with the “undisputed intent, as reflected in their marketing, to treat a long list of diseases and to affect structures of the body, such as to regenerate cartilage.” The panel rejected arguments for a narrow, nonliteral reading of the statute, citing the U.S. Supreme Court’s 1969 pronouncement that the FDCA’s drug definition is “as broad as its literal language indicates.”⁴

The Ninth Circuit swiftly dismissed defendants’ assertion that permitting FDA oversight of their treatment would “impermissibly intrude upon the practice of medicine,” finding this practice-of-medicine argument foreclosed by the court’s 2016 rejection of “essentially the same argument” in U.S. v. Kaplan (“Kaplan”).⁵ In Kaplan, the Ninth Circuit cited U.S. v. Regenerative Sciences (“Regenerative Sciences”), in which the U.S. Court of Appeals for the D.C. Circuit rejected the practice-of-medicine argument advanced by a Colorado-based stem cell clinic, emphasizing that the focus of the FDA’s regulation was the stem cell mixture being injected, not the performance of the procedures used to administer it.⁶ Adopting the reasoning in Regenerative Sciences, the Ninth Circuit in Kaplan found the doctor’s practice-of-medicine arguments to be “wide of the mark,” foreclosing similar arguments in California Stem Cell.

Finally, the Ninth Circuit declined to apply the “major questions doctrine” to require FDA to point to clear congressional authorization for their ability to regulate defendants’ SVF as a drug, concluding that California Stem Cell was unlike the situations in which the major questions doctrine had been historically applied. (For an overview of how courts have relied on the major questions doctrine in disputes involving FDA authority, see this recent Ropes & Gray Podcast.) Specifically, the panel did not find the interpretive questions to constitute an “extreme matter of ‘economic and political significance,’” and did not see FDA’s regulation of HCT/Ps as representing a “sudden assertion or ‘transformative expansion’ of authority.” Instead, the Ninth Circuit found that regulation of “SVF fits comfortably within the FDCA because it is sold and administered to patients for therapeutic purposes” and there was no reason to think that Congress intended this sort of product to be outside the scope of the FDCA.

Implications for Oversight & Enforcement Involving HCT/Ps

Regulators have become increasingly concerned with the proliferation of stem cell therapies marketed as cures for a variety of serious health conditions and diseases. While the holding in California Stem Cell provides additional support for continued enforcement efforts, federal scrutiny of the regenerative medicine industry could wane as enforcement priorities change with a new administration and as agencies weigh the risks of potential litigation challenging their administrative interpretations in the future.

A. FDA Enforcement of Stem Cell Treatments

Over the last decade, FDA and the U.S. Department of Justice (“DOJ”) have taken civil and criminal enforcement action against numerous entities marketing unproven and unapproved stem cell treatments.

California Stem Cell could bolster similar injunction actions filed against medical clinics marketing unproven and unapproved stem cell treatments, especially when those treatments involve SVF created via enzymatic digestion of adipose tissue. It remains to be seen whether FDA will subject clinics that administer substances derived from adipose tissue produced by mechanical means other than enzymatic digestion, such as centrifugation, to similar scrutiny. For example, FDA has cleared several medical devices for the purpose of harvesting, concentrating, and transferring autologous adipose tissue for use in certain surgical procedures—some of which do so in ways that arguably enable the tissue to retain its original characteristics. Use of such devices in connection with a patient surgery may provide a stronger argument for the applicability of the SSP. However, if such treatments are marketed as safe and effective for a variety of diseases and conditions without adequate evidence, those claims of safety and efficacy may be scrutinized by regulators.

California Stem Cell may also lay the groundwork for future criminal prosecutions involving unapproved clinician-created stem cell therapies. Such prosecutions would be more likely where the government can marshal evidence of fraud on patients and patient harm. In U.S. v. Kosolcharoen (“Kosolcharoen”), for example, the government successfully prosecuted an executive under the FDCA for his role in marketing and distributing non-autologous injectable stem cell products made from human umbilical cord blood (“HUCB”).⁷ Specifically—after receiving two warning letters describing observed noncompliance with current good manufacturing practices and current good tissue practices and a failure to obtain the appropriate marketing authorizations—Kosolcharoen continued to manufacture and distribute these allegedly violative products. The defendant pleaded guilty in July 2024 to one felony count of introducing an unapproved new drug into interstate commerce and admitted, among other things, that the marketing materials contained multiple false and misleading statements about (1) the products’ purported safety and effectiveness; (2) the cause and severity of adverse events allegedly caused by the products; and (3) the results of an FDA inspection. The Kosolcharoen charging document alleged that based on 21 C.F.R. § 1271.10(a), defendant’s HUCB products should be regulated as drugs. Additionally, the government asserted that his firm was not eligible for an exemption from FDA regulation under 21 C.F.R. § 1271.15(a) because the HUCB products at issue were not intended for use solely for non-clinical scientific or educational purposes. On September 30, 2024, the U.S. District Court for the Central District of California sentenced Kosolcharoen to 36 months in prison.

FDA has previously expressed its intention to focus enforcement efforts on products that pose the most significant health and safety risks, based on their route of administration and intended use. However, changing FDA and DOJ enforcement priorities in a new administration could alter FDA’s enforcement approach to stem cell therapies.

B. FTC Enforcement of Stem Cell Treatments

FDA is not the only regulator to scrutinize the regenerative medicine industry. The Federal Trade Commission (“FTC”) has also taken action against false and misleading advertising practices regarding stem cell products. In 2020, FTC issued at least seven letters to firms and practitioners making unsubstantiated claims that their stem cell treatments could treat or prevent COVID-19.

FTC has also filed civil suits against individuals and companies for deceptively advertising stem cell therapies. In 2019, for example, FTC obtained a permanent injunction and monetary judgment in FTC v. Regenerative Medical Group, Inc., which facilitated the return of nearly $515,000 to consumers who paid for “amniotic stem therapy” marketed and sold by a California-based company.⁸ The court concluded defendants had deceptively marketed stem cell products derived from amniotic fluid as a treatment for a range of diseases and conditions without scientific evidence to support these promotional claims. Similarly, this past April, a district court granted summary judgment to the FTC and the State of Georgia in a case brought against a company’s executives for deceptively marketing stem cell therapy to seniors as an effective treatment for orthopedic conditions.⁹

C. Potential APA Challenges to FDA Statutory and Regulatory Interpretations

While this Alert primarily focuses on arguments raised by defendants in enforcement actions, recent administrative law jurisprudence may prompt FDA-regulated parties to bring Administrative Procedure Act (“APA”) challenges to FDA’s statutory and regulatory interpretations. For example, in Corner Post, Inc. v. Board of Governors of the Federal Reserve System (“Corner Post”), the Supreme Court opened the door for new industry entrants to challenge longstanding federal rules, holding that the six-year statute of limitations for APA lawsuits does not begin to run until the plaintiff is injured by the challenged agency action.¹⁰ In Loper Bright Enterprises v. Raimondo (“Loper Bright”), the Supreme Court overruled the landmark Chevron decision, which required that federal courts defer to federal agency interpretations of ambiguous statutory provisions.¹¹ (For additional background on these cases and their implications on administrative law, review this prior Ropes & Gray Podcast.) Because FDA oversight of stem cell clinics relies in large part on its interpretations of the HCT/P regulations promulgated pursuant to the Public Health Service Act (“PHSA”), Corner Post and Loper Bright may increase the likelihood of APA lawsuits and embolden future defendants (or those seeking to avoid FDA oversight) to bring facial challenges to FDA’s longstanding HCT/P regulations.

Conclusion

Now that two federal appellate courts have found that SSP exception does not apply to same day procedures in which physicians create SVF from patients’ adipose tissue and administer it to those same patients to treat a variety of diseases, it will be more difficult for clinics marketing similar stem cell-based therapies to argue they can rely on the exception. To do so successfully, stem cell clinics will need much stronger arguments that their therapies involve implantation of the same cells or tissue that were removed from patients. While California Stem Cell does provide additional support for FDA’s regulatory authority over the regenerative medicine industry, it remains to be seen if this win will lead to greater enforcement against unapproved stem cell therapies or if the agency’s enforcement focus will shift due to changing priorities and increased litigation risk.

Ropes & Gray will continue to monitor developments in this area. If you have any questions regarding this Alert, please reach out to any of the attorneys listed below or your usual Ropes & Gray advisor.