Minimal Manipulation: MiMedx and Section 361

There is a funny thing about the Food and Drug Administration: they really want you to follow their rules. Considering that they are responsible for protecting the public health by ensuring the safety, efficacy, and security of human and veterinary drugs, biological products, and medical devices, it's probably best for all of us when companies do follow their rules.

As far as their current set of rules are concerned, next week, the FDA will significantly change their directives when it formally ends it's policy of  enforcement discretion regarding human cell, tissue, and cellular and tissue-based products(HCT/Ps) compliance. 

The Federal Regulations

Part 1271 of Title 21 of the US Code of Federal Regulations is the rulebook by which the FDA regulates the use of HCT/P's and in July of 2020, the FDA released their final industry guidance document that formalizes the agency's view of how they interpret the rules in 21 CFR Part 1271.

For HCT/P manufacturers to comply with the rules they have to pay careful attention to Section 1271.3 which sets forth the necessary definitions that the agency and HCT/P manufacturers are relying on. There is a carve out in 1271 (1271.10(a)) regarding the regulation and pre-market approval for products that are referred to as 361 HCT/Ps. Broadly speaking, if your product meets the criteria as outlined in 1271.10(a) you've got yourself a Section 361 HCT/P. If you don't meet that criteria (and you don't fulfill some extremely narrow exceptions in 1271.15) you don't qualify as a Section 361 HCT/P and you've got a heavily regulated approval process ahead of you under section 351. Section 361 is important because it allows manufacturers of certain types of biologics to market their products without filing a Biologics License Application (BLA) and seeking express marketing approval from the FDA. If a manufacturer's product is appropriately qualified it literally saves years and millions upon millions of dollars. It is a very useful carve out that relies on the FDA's risk-based approach to the approval process.

The previous policy of enforcement discretion had allowed for manufactures of HCT/Ps to continue marketing products while they worked to formalize the FDA's classification of their particular products as either a 361 HCT/P or to submit a BLA. Generally speaking to comply with the CFRs as a 361 HCT/P the product must be "minimally manipulated" and for "homologous use". 

There are some narrow exceptions, but generally if your product does not meet these requirements then your product is not a 361 HCT/P and as of June 1, 2021 illegal to sell without the approval and express marketing authorization of the FDA. I've highlighted the most important parts of the CFRs below:

The really important parts of 1271.3 are below(highlight added):

The following definitions apply only to this part:
(a) Autologous use means the implantation, transplantation, infusion, or transfer of human cells or tissue back into the individual from whom the cells or tissue were recovered.
(b) Establishment means a place of business under one management, at one general physical location, that engages in the manufacture of human cells, tissues, and cellular and tissue-based products. "Establishment" includes:
(1) Any individual, partnership, corporation, association, or other legal entity engaged in the manufacture of human cells, tissues, and cellular and tissue-based products; and
(2) Facilities that engage in contract manufacturing services for a manufacturer of human cells, tissues, and cellular and tissue-based products.
(c) Homologous use means the repair, reconstruction, replacement, or supplementation of a recipient's cells or tissues with an HCT/P that performs the same basic function or functions in the recipient as in the donor.
(d) Human cells, tissues, or cellular or tissue-based products (HCT/Ps) means articles containing or consisting of human cells or tissues that are intended for implantation, transplantation, infusion, or transfer into a human recipient. Examples of HCT/Ps include, but are not limited to, bone, ligament, skin, dura mater, heart valve, cornea, hematopoietic stem/progenitor cells derived from peripheral and cord blood, manipulated autologous chondrocytes, epithelial cells on a synthetic matrix, and semen or other reproductive tissue.

The really important parts of 1271.10 are below(highlight added):

(a) An HCT/P is regulated solely under section 361 of the PHS Act and the regulations in this part if it meets all of the following criteria:
(1) The HCT/P is minimally manipulated;
(2) The HCT/P is intended for homologous use only, as reflected by the labeling, advertising, or other indications of the manufacturer's objective intent;
(3) The manufacture of the HCT/P does not involve the combination of the cells or tissues with another article, except for water, crystalloids, or a sterilizing, preserving, or storage agent, provided that the addition of water, crystalloids, or the sterilizing, preserving, or storage agent does not raise new clinical safety concerns with respect to the HCT/P; and
(4) Either:
(i) The HCT/P does not have a systemic effect and is not dependent upon the metabolic activity of living cells for its primary function; or
(ii) The HCT/P has a systemic effect or is dependent upon the metabolic activity of living cells for its primary function, and:
(a ) Is for autologous use;
(b ) Is for allogeneic use in a first-degree or second-degree blood relative; or
(c ) Is for reproductive use.
(b) If you are a domestic or foreign establishment that manufactures an HCT/P described in paragraph (a) of this section:
(1) You must register with FDA;
(2) You must submit to FDA a list of each HCT/P manufactured; and
(3) You must comply with the other requirements contained in this part.

How Enforcement Discretion Expiration Could Negatively Impact MiMedx

That brings us to MiMedx($MDXG). As best as I can tell, it seems that starting next Tuesday, almost all of MiMedx's current products and their marketing could be deemed illegal until approved under a BLA. Despite their former CEO being sent to prison for fraud, MiMedx has put out some very questionable guidance in recent regulatory filings. 

In their Q1 2021 10-Q (filed 4/28/21) the company seems to disclaim the potential effects of the enforcement discretion's expiration while implying that it's somehow limited to "micronized products and certain other products".

It's noteworthy that this 10-Q was filed after the Director of @FDACBER Peter Marks, very publicly reiterated the FDA's decision to end HCT/P enforcement discretion; a statement which the company even incorporated by reference in their 10-Q and Q1 2021 investor call.

In his remarks Dr. Marks firmly stated the agencies commitment to eliminating the illegal marketing of unapproved products.

"Despite all of the FDA’s efforts to engage industry, there continues to be broad marketing of these unapproved products for the treatment or cure of a wide range of diseases or medical conditions. Many of these unapproved products appear to be HCT/Ps that are regulated as drugs, devices and/or biological products subject to premarket approval requirements. The wide extent of the marketing of such unapproved products is evidenced by their inappropriate advertisement in various media and by the number of consumer complaints about them submitted to the FDA. 

These regenerative medicine products are not without risk and are often marketed by clinics as being safe and effective for the treatment of a wide range of diseases or conditions, even though they haven’t been adequately studied in clinical trials. We’ve said previously and want to reiterate here – there is no room for manufacturers, clinics, or health care practitioners to place patients at risk through products that violate the law, including by not having an IND in effect or an approved biologics license. We will continue to take action regarding unlawfully marketed products. Our oversight of cellular and related products has included taking compliance actions, including numerous warning and untitled letters, and pursuing enforcement action for serious violations of the law.

Since December 2019, the agency has issued more than 350 letters to manufacturers, clinics, and health care providers, noting that it has come to our attention that they may be offering unapproved regenerative medicine products and reiterating the FDA’s compliance and enforcement policy."

As a result of the enforcement period's expiration and lack of documentation demonstrating their compliance with Section 361, I believe that MiMedx is actually in much greater peril of enforcement action than either they perceive or are disclosing. MiMedx has disclosed to investors that their micronized products do not meet the definitions of minimal manipulation based on FDA guidance and that they will cease marketing those products when enforcement discretion ends.

"we have continued to market our micronized and particulate products during the period of enforcement discretion, but must cease to do so after May 31, 2021 until the FDA approves a Biologics License Application for a specific product and indication."

This conclusion is supported by the FDA's final guidance which contains a relevant example regarding what is acceptable for minimal manipulation of structural tissues such as amniotic membrane. Based on this guidance I think any rational person would agree that processing the amniotic membrane to remove the chorion meets the definition of minimally manipulated but also that micronization disqualifies a product as minimally manipulated.

The narrative that MiMedx seems to be pushing however is that other parts of their business are somehow immune from the enforcement discretion expiration. To comply with section 361 the product must be "minimally manipulated", and for "homologous use" and I do not agree with the proposition that their other products are "minimally manipulated" or for "homologous use". You may interpret FDA Example 10-2 (above) to indicate that MiMedx's sheet products are minimally manipulated, however MiMedx dHACM products are more extensively processed than the above example. The technical distinction(and the FDA loves technical distinctions) between the above example and other products in the market is that MiMedx dHACM products are actually sheets comprised of placental tissue wherein the amnion and chorion have been separated from one another, cleaned and then laminated back together prior to dehydration. The FDA may very well take the position that the separation and lamination steps do not meet the criteria for "minimal manipulation" and "combination". In 2013, the FDA had previously challenged whether MiMedx's micronized products complied with section 361, taking the position that these products did not meet the "minimal manipulation" standard.  Although it's certainly true that the FDA chose to focus on the micronized products, the agency's lack of action against the sheet products doesn't provide any cover for MiMedx either. In the FDA's untitled letter the agency expressly disclaimed the possibility the letter was "intended to be an all-inclusive review of the products that your firm markets." Although the FDA has not yet challenged MiMedx's other products, the FDA also has not provided any public guidance to indicate whether MiMedx's practices are acceptable within the context of 361 HCT/Ps nor has MiMedx publicly disclosed any designations they might have received from the FDA's Tissue Reference Group, which is particularly troubling. Despite having many years of opportunity to unequivocally determine whether their core products are compliant under 361, MiMedx has never disclosed any formal designation for their products issued by the TRG. In 2015, Parker Petit effectively acknowledged the lack of designation when he explained the company's basis for marketing their products as HCT/Ps:

"Amniotic membrane has been used in numerous wound covering and wound healing applications for over 100 years.  These applications have been highly publicized over a long period of time and have been repeatedly referenced by the FDA.  These references form the basis for MiMedx's position on marketing, labeling and intended use."

Why "form a basis" for marketing when you could definitively receive an opinion from the TRG? Perhaps the company was fearful that the TRG would determine that MiMedx products did not meet the standards under section 361 for any one of a number of reasons.

Another troubling aspect of Parker's 2015 statement was that it came more than a year after the company denied in court that they never sought a determination from the TRG. In re MiMedx Group, Inc. Securities (13-cv-03074-TWT) the plaintiffs alleged that MiMedx had never sought a determination from the TRG to base their assertion that their processing technique constituted "minimal manipulation", which the company subsequently denied in September 2014.

Again this begs the question as to why MiMedx would ever have to "form a basis" for their products' marketing, labeling, intended use, or compliance under section 361? It's incredible that the company would deny such an allegation a year prior and subsequently make statements about their opinion. If they actually had a designation from the TRG, wouldn't it be in your shareholder's best interest to simply disclose your unequivocal designation by the TRG as 361 compliant? That's precisely what other companies have done. In their most recent 10-K filed February 24, 2021, Xtant Medical Holdings had this to say about some of their products:

"Several of our products, including OsteoSponge and OsteoWrap, are regulated as HCT/Ps because they meet these four criteria. The FDA’s Tissue Reference Group confirmed this in non-binding recommendations provided to us."[emphasis added]

PolarityTE, on the other hand basically took a NWA approach in their most recent 10-K:

"Product manufacturers are not required to consult with the TRG or OCP and instead can market their products based on their own conclusion that the product meets the 361 HCT/P criteria. We have not consulted the TRG or sought a formal designation from the OCP, though we have had informal interactions with OCP."

To their credit at least PolarityTE made a reference to the TRG, but oddly enough, if you perform a full text search of EDGAR, you'll note that the search terms "Tissue Reference Group", "TRG", "Request for Designation", "RFD", "TRIP" and "Rapid Inquiry" simply do not appear in any MiMedx filing with the SEC over the past ten years despite the company's public reference to the TRG. Strange.

Homologous Use

Even if one were to assume that MiMedx's products are compliant within the "minimal manipulation" and "combination" standards, are they really intended for homologous use? The answer isn't always crystal clear and it depends on the tissue's original functions in the body when compared to it's intended function in the recipient. In an effort to clarify whether products met these requirements the FDA also provided illustrative examples of what qualified as homologous use in the final guidance document(red box bad, green box good). 

Again assuming MiMedx products meet the the "minimal manipulation" and "combination" guidance, I think it's fairly safe to interpret the FDA guidance such that EpiFix, AmnioFix, and EpiBurn would satisfy the homologous use guidelines provided that they are being applied *only* as a protective covering. In fact, the FDA's footnote to the above example seems to question the validity of MiMedx's entire business model and marketing strategy by specifically noting that:

"Reducing scarring, angiogenesis, and inflammation are potential clinical effects in the recipient but are not basic functions of amniotic membrane in the donor; therefore, they are not considered homologous uses of amniotic membrane."

By MiMedx's own admission(10-K) the "guidance documents confirmed that sheet forms of amniotic membrane generally are appropriately regulated as solely Section 361 HCT/Ps when intended for use as a barrier or covering" [emphasis added], despite subsequently detailing in their most recent 10-Q that:

"Our EpiFix and EpiCord sheet product lines are promoted for external use, such as in advanced wound care applications, while our AmnioFix, AmnioCord and AmnioFill products are positioned for surgical applications, including lower extremity repair, plastic surgery, vascular surgery and multiple orthopedic repairs and reconstructions."[emphasis added]

The above description seems to fly directly in the face of what the FDA considers to be "homologous use."

MiMedx also disclosed in their 2020 10-K that ~20% of their 2020 sales were products they either knew to be subject or believed that they could be subject to enforcement action(micronized products, EpiCord and AmnioCord). Strangely in the 2020 10-K the company seems to paint a target on the back of their umbilical cord derived products: 

"Also, the Company currently markets EpiCord and AmnioCord, tissue products derived from human umbilical cord, as providing a protective environment or as a barrier. The Company has become aware that the FDA may view the basic function of human umbilical cord as a conduit, based on warning letters to several companies marketing human umbilical cord derived products for a variety of uses, which raises the risk that the FDA will take the position that MiMedx’s marketing of human umbilical cord products may not be a homologous use. To our knowledge, the FDA has not indicated this publically or to MiMedx however, if FDA determines that EpiCord and AmnioCord do not meet the requirements for regulation solely under Section 361, then pre-market clearance or approval under Section 351 will be required."

Unnecessary Uncertainty

I can only imagine how frustrating the uncertainty is for MiMedx shareholders, which is made all the more irksome by the fact MiMedx could have received detailed guidance from the FDA on the future regulatory status of all of their products. Even though the TRG has been around for 20+ years, as a part of the FDA's commitment to stakeholders, the FDA created and launched a Tissue Reference Group Rapid Inquiry Program (TRIP) that allowed manufactures of HCT/Ps like MiMedx to seek and receive a "rapid, preliminary, informal, non-binding assessment from the FDA regarding how specific HCT/Ps are regulated". This program operated from June 2019 through March 31, 2021. In effect, MiMedx was able to submit product information to the FDA and receive enough feedback to know whether their products could be marketed after May 31, 2021 as a 361 HCT/P or whether they would need to file BLAs. No guesswork needed.

It almost seems that MiMedx is attempting to be willfully ignorant of how the FDA will regulate their products despite the FDA providing ample opportunity to submit product specific inquiries to the TRIPs program. The TRIPs program was not overly complicated and facile enough that even a tiny, resource constrained competitor of MiMedx did just that. Earlier this year BioStem Technologies disclosed that they had received a TRIP response indicating that their VENDAJE product did "meet the criteria in 21 CFR 1271.10(a) for regulation solely under Section 361 of the Public Health Service Act and 21 CFR 1271." VENDAJE is an amniotic derived wound covering, which is similar to the MiMedx products, however it is comprised solely of the amnion layer, and not laminated dHACM, so we can't reliably conclude that VENDAJE's TRIP response provides safe harbor to MiMedx products. Furthermore the two companies' marketing materials are vastly different. VENDAJE marketing goes no further than stating it is intended as a protective covering for wounds. 

MiMedx's marketing materials however are directed toward advanced wound care applications, with "semi-permeable protective barriers" that "supports the healing cascade and protects the wound bed to aid in the development of granulation tissue" or are directed toward surgical applications such as "tendon, bone or hardware coverage".

In addition to potential action by the FDA, the company's current marketing practices will also put them squarely at odds with the expectations they disclosed to investors in their most recent 10-K.

"Under the Guidance, we expect that the FDA will continue to regulate our amniotic membrane sheet products (AmnioFix, EpiFix, EpiBurn and EpiXL) as Section 361 HCT/Ps so long as the claims we make for them are consistent with the Section 361 framework."[emphasis added]

For the sake of their shareholders, I hope that MiMedx uses their annual meeting to clarify the precise TRG designation status for all of their products, whether they participated in the TRIPs program, as well as the significant changes to their sales and marketing activities which will likely be warranted starting June 1st when enforcement discretion ends. As responsible fiduciaries, if they haven't already done so, the company should immediately take all steps necessary to submit multiple Requests for Designation to the TRG and disclose the outcome of those requests so that the veil of uncertainty surrounding their products can be lifted for the sake of consumers and the company's shareholders.