United States v. California Stem Cell Treatment Center
Anne K. Walsh*
I. Why It Made the List
Any case that FDA loses is significant. But this case is extra special because it tees up a potential circuit split that could jeopardize FDA’s regulatory authority over regenerative medicines. FDA has appealed this decision, so next year’s publication may include a sequel to this matter.
In United States v. California Stem Cell Treatment Center, FDA sought to stop a stem cell clinic from performing various stem cell treatments on patients on the ground that the stem cells were drugs that required FDA approval before they could be sold. FDA argued that the stem cells constituted human cells, tissues, and cellular or tissue-based products (HCT/Ps), and that the exemptions for premarket review set forth in Section 361 of the Public Health Service Act did not apply. The clinic argued that the products were not drugs and not subject to premarket review. The district court in California sided with the clinic and held that two of the clinic’s procedures were subject to an exemption from FDA regulation. In short, the court determined that these products were not drugs and not subject to FDA premarket review, in almost direct conflict with a 2021 decision from the Eleventh Circuit, United States v. U.S. Stem Cell Clinic, LLC, 998 F.3d 1302 (11th Cir. 2021).
A. Regulatory Background
Although the practice of medicine is generally known to be outside the scope of FDA’s jurisdiction, FDA has sought to curb physicians from conducting procedures that involve the use of stem cells to treat a variety of conditions. FDA’s position is that the physician’s removal of cells from a patient, processing of those cells, and reinsertion of those cells, involves the creation of a “drug” within the meaning of the Federal Food, Drug, and Cosmetic Act (FDCA). In 2017, FDA set forth a framework for determining whether HCT/Ps are a “drug” that requires premarket review and approval before they can be marketed. Industry was given until May 2021 to align its practices with the new requirements.
HCT/Ps are defined in Section 1271.3(d) as “articles containing or consisting of human cells or tissues that are intended for implantation, transplantation, infusion, or transfer into a human recipient.” HCT/Ps that meet the requirements set forth in Section 361 of the Public Health Service Act (PHSA) and corresponding regulations are not regulated as “drugs” and do not require FDA premarket approval. Among other criteria, the HCT/P cannot be more than “minimally manipulated” and it must be intended for “homologous use.” Most of the questions related to HCT/P regulation surround whether a product is for “homologous use,” meaning that the procedure is for the “repair, construction, replacement, or supplementation of a recipient’s cells or tissues with an HCT/P that performs the same basic function or functions in the recipients as in the donor.”
HCT/Ps that do not meet the 361 criteria are regulated under Section 351 of the PHSA and require FDA approval before marketing. These products are subject to other FDA requirements for registration, listing, and compliance with good manufacturing practices.
There are some exceptions to the HCT/P regulations. The SSP Exception exempts from FDA oversight any “establishment that removes HCT/Ps from an individual and implants such HCT/Ps into the same individual during the same surgical procedure.” In creating this exemption, FDA determined that the risk to a patient for removal and reimplantation of the patient’s own cells did not increase risks beyond those typically associated with surgery.
B. Factual Background
The U.S. Department of Justice (DOJ) filed a complaint in May 2018 seeking to permanently enjoin California Stem Cell Treatment Center, Cell Surgical Network Corporation, and two physicians (Elliot Lander and Mark Berman) from performing various stem cell treatments on patients. The government alleged that the treatments violated the FDCA by causing the adulteration and misbranding of drugs and the receipt of misbranded drugs. The alleged violative products all were derived from Stromal Vascular Fraction (SVF) cells taken from a patient’s adipose (fat) tissue. These SVF cells were used in three different procedures:
(1) SVF Surgical Procedures—These procedures involve the collection of a patient’s SVF cells through liposuction of adipose tissue, mechanical separation of the cells from the tissue, filtration, suspension in a saline solution, and reinsertion into the same patient’s body. The purpose of the procedure is to increase the number of available SVF cells in circulation around an injured area.
(2) Expanded MSC Surgical Procedures—In these procedures, the physician collects a patient’s adipose tissue and sends it to a tissue bank to isolate the mesenchymal stem cells (MSC). The tissue bank then places the MSC cells in a culture that causes then to naturally replicate (“expand”), so that the cells can be used in multiple treatments for a patient who is unable to undergo multiple liposuctions to remove tissue. The cells are intended for autologous use (meaning that the cells are returned “back into the individual from whom the cells or tissue were recovered”).
(3) SVF/ACAM2000 Treatment—ACAM2000 is an FDA-approved vaccine, and this treatment was used on patients with terminal cancer to deliver the ACAM2000 to the area of the cancer cells. The physician removed the adipose tissue and prepared the SVF cells, and added the ACAM2000 to the SVF cells before deploying them into the same patient’s body.
After a bench trial, Judge Jesus Bernal of the Central District of California made specific rulings about each of the treatments at issue.
For the SVF Surgical Procedure, the court ruled that the SVF cells were HCT/Ps, that they were not regulated as “drugs” within the meaning of the FDCA, and that the procedure satisfied the “same surgical procedure” exception. The court focused on the “same surgical procedure” exception, which provided a complete defense to the DOJ’s claims because it removed the procedures from FDA jurisdiction. According to the court, the “same surgical procedure” exception “unambiguously” states that the focus is on the target of the removal, and that cells can only be removed from a patient along with larger systems, such as the tissues. The court rejected FDA’s argument that the “tissue” being removed from the patient was not the same as the “cells” that were reinserted, and reasoned that FDA’s interpretation eliminated the word “cells” from the definition of HCT/P. The court ruled that the removal and reinsertion of the SVF cells satisfied the “same surgical procedure” exception to apply to these products.
Even though unnecessary to the exception, the court also examined whether the SVF surgical procedure fundamentally changed the cells. It found that the reinserted cells were the same autologous cells removed from, belonging to, and returned back to the patient. Therefore, the court concluded that the SVF Surgical Procedure was not governed by the FDCA.
For the Expanded MSC Procedure, the court ruled that the cells involved were not drugs. “They are human cells removed from patients and then reintroduced into those same patients. They are not fungible goods that can be sold, mass produced, or patented.” The court concluded that the defendants were engaged in the practice of medicine, which is carved out from FDA statutory authority, and not the manufacture of drugs.
Last, the court ruled that the SVF/ACAM2000 Treatment did involve a “drug” under the FDCA, but that injunctive relief was not warranted because the defendants had discontinued the treatment before initiation of the litigation.
The court declined to award defendants’ attorneys fees because the United States had a reasonable basis to commence the lawsuit. The court noted that other courts have concluded that the procedures can be regulated by FDA, citing a 2019 case in Florida involving a similar stem cell clinic and procedures.
III. Impact of the Decision
As of May 31, 2021, FDA “expects all establishments that manufacture HCT/Ps regulated as drugs or biological products to have an approved biologics license application (BLA) or an investigational new drug application (IND) in effect.” This case directly challenges whether certain products qualify as HCT/Ps that require premarket approval, thus undermining FDA’s oversight of these regenerative medicine products.
As reported in last year’s Top Food and Drug Cases publication, the Eleventh Circuit upheld a lower court’s holding that a clinic conducting similar SVF procedures were subject to FDA regulation. Unlike the California court, the Eleventh Circuit found that the products did not meet the “same surgical procedure” exemption nor did they meet the criteria to be marketed as 361 HCT/Ps. At the time, the Eleventh Circuit decision was touted as a big victory for FDA and its enforcement efforts against stem cell clinics. Now, with the California verdict going the opposite way, providers of stem cell therapies are betwixt and between conflicting findings on essentially identical treatments and issues.
FDA filed its notice of appeal in October 2022, and the latest briefing schedule requires the United States to file its opening brief by April 25, the clinics and the individuals to file their briefs by May 25, 2023, and an optional reply brief to be filed twenty-one days after service of the answering brief. Parties completed initial briefing by March 8, 2023. Stay tuned for the 2023 edition of the Top Food and Drug Cases publication for the fall-out from that appeal.
* Anne Walsh is a Director at Hyman, Phelps & McNamara, P.C. Her practice focuses on advising drug and medical device companies with compliance and enforcement matters, including injunction actions brought by FDA and DOJ. Prior to joining HPM, Ms. Walsh served as an Associate Chief Counsel at FDA.
 United States v. Cal. Stem Cell Treatment Ctr., No. EDCV 18-1005 JGB, 2022 U.S. Dist. LEXIS 156714 (C.D. Cal. Aug. 30, 2022).
 21 C.F.R. § 1271.3(d).
 42 U.S.C. § 264.
 21 C.F.R. § 1271.3(c).
 21 C.F.R. § 1271.15.
 U.S. Food & Drug Admin., Same Surgical Procedure Exception under 21 CFR 1271.15(b): Questions and Answers Regarding the Scope of the Exception: Guidance for Industry (Nov. 2017), https://www.fda.gov/media/89920/download.
 21 C.F.R. § 1271.3(a).
 Cal. Stem Cell Treatment Ctr., 2022 U.S. Dist. LEXIS 156714, at *23.
 United States v. U.S. Stem Cell Clinic, LLC, 403 F. Supp. 3d 1279 (S.D. Fla. 2019).
 Questions and Answers Regarding the End of the Compliance and Enforcement Policy for Certain Human Cells, Tissues, or Cellular or Tissue-Based Products (HCT/Ps), U.S. Food & Drug Admin. (July 9, 2021), https://www.fda.gov/vaccines-blood-biologics/cellular-gene-therapy-products/questions-and-answers-regarding-end-compliance-and-enforcement-policy-certain-human-cells-tissues-or.
 Naomi Igra & Emily Marden, United States v. U.S. Stem Cell Clinic, LLC, in Top Food and Drug Cases, 2021, & Cases to Watch 2022 (Food & Drug Law Inst., May 2022), https://www.fdli.org/wp-content/uploads/2022/07/United-States-v.-US-Stem-Cell-Clinic-LLC.pdf.
 United States v. U.S. Stem Cell Clinic, LLC, 998 F.3d 1302 (11th Cir. 2021).