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I Want to Start a Stem Cell Distribution Business…Now What?

By: Matthew Fischer

Jumping into the stem cell industry can be an exciting venture.  However, with this emerging industry comes a mine field of legal pitfalls and potential problems.  The keys to a successful business not only include selecting a strong product and building strong relationships with clients but being able to navigate the regulatory framework that accompanies this type of product.

FDA regulations require establishments that perform one or more steps in the manufacturing process of HCT/Ps (i.e. Human Cells, Tissues, and Cellular and Tissue-Based Products) to register and submit a list of products with the agency.  If so, you have five days to register after beginning operations.  When I mention “manufacturing” to clients they usually interject with “I only want to distribute.”  Good point.  However, the FDA defines “manufacture” as any or all steps in the recovery, processing, storage, labeling, packaging, or distribution of any human cell or tissue.  These registrations must be updated annually and in the event of a change of ownership, within 30 days of the change. 

Apart from the federal regulatory concerns is also the importance of having a strong distribution agreement.  A distribution agreement is among the most vital contracts the business will enter into.  When negotiating the terms, a distributor needs to ensure they address all the major issues.  Some of these issues are: the product (e.g. does the agreement cover all the products or just one and what about new products in the future); trademarks (e.g. what rights will the distributor have and are these rights limited to advertising); territory (e.g. is the territory exclusive / what happens if you sell outside the territory / may the manufacturer make direct sales); competitor products (e.g. may the distributor handle other products and if so, what are the restrictions); warranties (e.g. does the manufacturer warrant to the distributor or the end user); minimum purchases (e.g. monthly or annual quantity requirements); and most importantly, termination which is usually the reason for most litigation (e.g. fixed term / term with renewal / automatic renewal / may either party terminate without cause).

The legal requirements for properly establishing this type of business are numerous and complex.  The requirements can easily become a distraction from routine business operations if not handled properly.  That’s why working with an attorney knowledgeable in these issues is essential as you can focus on developing a client base versus dealing with what seem to be a never-ending array of legal issues.