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To assess Pseudomonas exotoxin A (ETA) compartmentalization, processing and cytotoxicity in vivo, we have studied the fate of internalized ETA with the use of the in vivo rodent liver model following toxin administration, cell-free hepatic endosomes, and pure in vitro protease assays. ETA taken up into rat liver in vivo was rapidly associated with plasma membranes (5–30 min), internalized within endosomes (15–60 min), and later translocated into the cytosolic compartment (30–90 min). Coincident with endocytosis of intact ETA, in vivo association of the catalytic ETA-A subunit and low molecular mass ETA-A fragments was observed in the endosomal apparatus. After an in vitro proteolytic assay with an endosomal lysate and pure proteases, the ETA-degrading activity was attributed to the luminal species of endosomal acidic cathepsins B and D, with the major cleavages generated in vitro occurring mainly within domain III of ETA-A. Cell-free endosomes preloaded in vivo with ETA intraluminally processed and extraluminally released intact ETA and ETA-A in vitro in a pH-dependent and ATP-dependent manner. Rat hepatic cells underwent in vivo intrinsic apoptosis at a late stage of ETA infection, as assessed by the mitochondrial release of cytochrome c, caspase-9 and caspase-3 activation, and DNA fragmentation. In an in vitro assay, intact ETA induced ADP-ribosylation of EF-2 and mitochondrial release of cytochrome c, with the former effect being efficiently increased by a cathepsin B/cathepsin D pretreatment. The data show a novel processing pathway for internalized ETA, involving cathepsins B and D, resulting in the production of ETA fragments that may participate in cytotoxicity and mitochondrial dysfunction.