Both type 1 and type 2 diabetes involve loss of insulin-producing pancreatic ?-cells resulting in inadequate insulin secretion to control blood glucose. Eventually, daily injections of insulin are required to avoid the constellation of pathologies that arise from hyperglycemia. While transplantation of cadaveric pancreatic islets that contain ? -cells has been successful for treating a small number of patients the supply is fa too limited. Production of functional ? -cells from embryonic stem cells remains an exciting possibility for future treatments but will still involve transplantation with immune protection unless patient-specific ? -cells can be produced. Induction of proliferation in remaining ? -cell has progressed in rodent studies but has not yet been successfully adapted for human ?-cells. Expansion of endogenous ?-cell mass, such as through transdifferentiation of ? -cells into functional ? -cells represent appealing potential therapeutic solutions to restoring glucose control. Our prior research has identified the activin signaling pathway and its regulation by a natural antagonist, FSTL3, as having influence on islet cell fate such that loss of FSTL3 (FSTL3 KO mouse) results in expansion of ? -cell mass and islet size, resulting in improved glucose regulation. Preliminary results suggests that this ? -cell expansion is due, at least in part, to increased ?- to ? -cell transdifferentiation. Therefore, the long term goal of Fairbanks Pharmaceuticals is to identify antagonists of FSTL3 that will replicate the phenotype of the FSTL3 KO mouse and thus have therapeutic potential. The research proposed here will address the clinical need for new diabetes therapies by developing a new FSTL3 antagonist (Specific Aim 1) as well as characterizing this antagonist for site-specific interactions with FSTL3 that lead to its neutralization (Specific Aim 2). The net effect of FSTL3 neutralization will be increased activin bioactivity which will be detected using an in vitro bioassay in which luciferase expression is enhanced in the presence of activin signaling. This will facilitate screening panels of inhibitors to identify candidates with the desired characteristics and thus, the highest probability for in vivo activity. Together, the two Specific Aims will identify the top 2 to 3 candidate FSTL3 neutralizing compounds that will be tested in animal models of diabetes in vivo as well as on human islets in a Phase 2 application. Successful FSTL3 antagonists can then be tested in clinical trials for effectiveness in treating diabetes in humans during Phase 3 activitie. The ultimate goal is to produce a new diabetes therapy that can increase the number of a patient's own ? -cells that will restore glucose control and thus, prevent development of diabetes.