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Using a dipeptidyl dipeptidase IV genetic marker system to follow the fate of transplanted cells in conjunction with albumin gene expression, we provide conclusive evidence that, after transplantation to the liver, epithelial progenitor cells from the pancreas differentiate into hepatocytes, express liver-specific proteins, and become fully integrated into the liver parenchymal structure. These studies demonstrate the presence of multipotent progenitor cells in the adult pancreas and establish a role for the liver microenvironment in the terminal differentiation of epithelial cells of foregut origin. 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