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Lipopolysaccharides (LPS) of the outer membrane of Gram-negative bacteria represent a primary target for innate immune responses. We demonstrate here that the antimicrobial/anti-neutrophil elastase full-length elafin (FL-EL) is able to bind both smooth and rough forms of LPS. The N-terminus was shown to bind both forms of LPS more avidly. We demonstrate that the lipid A core-binding proteins polymyxin B (PB) and LPS-binding protein (LBP) compete with elafin for binding, and that LBP is able to displace prebound elafin from LPS. When PB, FL-EL, N-EL, and C-EL were pre-incubated with LPS before addition to immobilized LBP, PB was the most potent inhibitor of LPS transfer to LBP. These data prompted us to examine the biological consequences of elafin binding to LPS, using tumor necrosis factor (TNF)-α release by murine macrophages. In serum-containing conditions, N-EL had no effect, whereas both C-EL and FL-EL inhibited TNF-α production. In serum-free conditions, however, all moieties had a stimulatory activity on TNF-α release, with C-EL being the most potent at the highest concentration. The differential biological activity of elafin in different conditions suggests a role for this molecule in either LPS detoxification or activation of innate immune responses, depending on the external cellular environment.