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Nasopharyngeal carcinoma (NPC) is a distinct type of head and neck cancer which is prevalent in southern China, south-east Asia and northern Africa. The development and stepwise progression of NPC involves accumulation of multiple gross genetic changes during the clonal expansion of Epstein–Barr virus (EBV)-infected nasopharyngeal epithelial cell population. Here, using paired-end whole-transcriptome sequencing, we discovered a number of chimeric fusion transcripts in a panel of EBV-positive tumour lines. Among these transcripts, a novel fusion of ubiquitin protein ligase E3 component n-recognin 5 (UBR5) on 8q22.3 and zinc finger protein 423 (ZNF423) on 16q12.1, identified from the NPC cell line C666-1, was recurrently detected in 12/144 (8.3%) of primary tumours. The fusion gene contains exon 1 ofUBR5and exons 7–9 ofZNF423and produces a 94 amino acid chimeric protein including the original C-terminal EBF binding domain (ZF29-30) of ZNF423. Notably, the growth of NPC cells withUBR5–ZNF423rearrangement is dependent on expression of this fusion protein. Knock-down ofUBR5–ZNF423by fusion-specific siRNA significantly inhibited the cell proliferation and colony-forming ability of C666-1 cells. The transforming ability ofUBR5–ZNF423fusion was also confirmed in NIH3T3 fibroblasts. Constitutive expression ofUBR5–ZNF423in NIH3T3 fibroblasts significantly enhanced its anchorage-independent growth in soft agar and induced tumour formation in a nude mouse model. These findings suggest that expression of UBR5–ZNF423 protein might contribute to the transformation of a subset of NPCs, possibly by altering the activity of EBFs (early B cell factors). Identification of the oncogenicUBR5–ZNF423provides new potential opportunities for therapeutic intervention in NPC. © 2013 The Authors. Journal of Pathology published by John Wiley & Sons Ltd on behalf of Pathological Society of Great Britain and Ireland.