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Recombinant human erythropoietin produced by mammalian cells contains about 40% carbohydrates which maintain its stability and long residence in body. However, mammalian derived Epo has low yields and high costs of production. In this article, a cost-effective strategy of producing non-glycosylated Epo from Escherichia coli and then PEGylating it to replace the role of sugar chains was investigated. Recombinant human non-glycosylated erythropoietin (rh-ngEpo) was overexpressed as inclusion body in E. coli. As the routine inclusion body washing step resulted in poor protein recovery and purity, a new process scheme of using strong ion-exchange chromatography to purify denatured rh-ngEpo from inclusion body before refolding was developed. The purity of the denatured rh-ngEpo was increased from 59% to over 90%. Rh-ngEpo was then refolded and subsequently purified by one step of weak cation-exchange chromatography to 98% pure. Final protein yield was 129 mg/l, a significant improvement from 49 mg/l obtained via the conventional practice. The in vitro bioactivity of purified rh-ngEpo was comparable with the CHO-expressed Epo and the formation of native secondary structure was also confirmed by CD spectra. Rh-ngEpo was then modified by a 20 kDa methoxy polyethylene glycol (PEG) succinimidyl carbonate. The monoPEGylated protein, which retained 68% bioactivity, had enhanced thermal stability and a remarkably prolonged circulating half-life in rats as compared with that of the unmodified protein. These studies demonstrated the feasibility of PEGylating rh-ngEpo as a promising way for the development of new Epo drugs.