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We have characterised the transdifferentiation of human HepG2 (hepatoma) cells to pancreatic cells following introduction of an activated version of the pancreatic transcription factor Pdx1 (XlHbox8-VP16). The following questions are addressed: (1) are all types of pancreatic cells produced? (2) is the requirement for expression of the transgene temporary or permanent? (3) are the transdifferentiated beta-cells responsive to physiological stimuli? The results showed that both pancreatic exocrine cells (by detection of amylase protein), and endocrine cells (by detecting insulin, glucagon and somatostatin proteins) are induced after XIHbox8VP16 transfection. Moreover, the hepatic phenotype becomes suppressed during transdifferentiation of hepatocytes to pancreatic cells. Requirement for the transgene is only temporary and it is no longer required once the pancreatic differentiation program is activated. Finally, we provided results to suggest that the transdifferentiated cells are functional by detecting: (1) functional markers for pancreatic beta-cells including prohormone convertase 1/3 (PC 1/3), insulin C-peptide and glucagon-like peptide I receptor (GLP-IR), (2) increased insulin mRNA expression after treatment of cells with GLP-1 and betacellulin, physiological stimuli that regulate pancreatic function and (3) elevated insulin secretion after glucose challenge. The transdifferentiation of hepatic to pancreatic cells represents one possible source of P-cells for human islet transplantation and this study shows that such a transdifferentiation can be achieved in vitro.