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Type 2 diabetes ultimately results from pancreatic β-cell failure. Abnormally elevated intracellular regeneration of glucocorticoids by the enzyme 11β-hydroxysteroid dehydrogenase type 1 (11β-HSD1) in fat or liver may underlie pathophysiological aspects of the metabolic syndrome. Elevated 11β-HSD1 is also found in pancreatic islets of obese/diabetic rodents and is hypothesized to suppress insulin secretion and promote diabetes. To define the direct impact of elevated pancreatic β-cell 11β-HSD1 on insulin secretion, we generated β-cell-specific, 11β-HSD1-overexpressing (MIP-HSD1) mice on a strain background prone to β-cell failure. Unexpectedly, MIP-HSD1(tg/+) mice exhibited a reversal of high fat-induced β-cell failure through augmentation of the number and intrinsic function of small islets in association with induction of heat shock, protein kinase A, and extracellular signal-related kinase and p21 signaling pathways. 11β-HSD1(-/-) mice showed mild β-cell impairment that was offset by improved glucose tolerance. The benefit of higher β-cell 11β-HSD1 exhibited a threshold because homozygous MIP-HSD1(tg/tg) mice and diabetic Lep(db/db) mice with markedly elevated β-cell 11β-HSD1 levels had impaired basal β-cell function. Optimal elevation of β-cell 11β-HSD1 represents a novel biological mechanism supporting compensatory insulin hypersecretion rather than exacerbating metabolic disease. These findings have immediate significance for current therapeutic strategies for type 2 diabetes.