The goal of this research was to develop a strategy to couple stem cell and gene therapy for in vivo delivery of erythropoietin (Epo) for treatment of anemia of ESRD. It was shown previously that autologous bone marrow stromal cells (MSCs) can be genetically engineered to secrete pharmacologic amounts of Epo in normal mice. Therefore, whether anemia in mice with mild to moderate chronic renal failure (CRF) can be improved with Epo gene-modified MSCs (Epo+MSCs) within a subcutaneous implant was examined. A cohort of C57BL/6 mice were rendered anemic by right kidney electrocoagulation and left nephrectomy. In these CRF mice, the hematocrit (Hct) dropped from a prenephrectomy baseline of approximately 55% to 40% after induction of renal failure. MSCs from C57BL/6 donor mice were genetically engineered to secrete murine Epo at a rate of 3 to 4 units of Epo/10(6) cells per 24 h, embedded in a collagen-based matrix, and implanted subcutaneously in anemic CRF mice. It was observed that Hct increased after administration of Epo+MSCs, according to cell dose. Implants of 3 million Epo+MSCs per mouse had no effect on Hct, whereas 10 million led to a supraphysiologic effect. The Hct of CRF mice that received 4.5 or 7.5 million Epo+MSCs rose to a peak 54+/-4.0 or 63+/-5.5%, respectively, at 3 wk after implantation and remained above 48 or 54% for >19 wk. Moreover, mice that had CRF and received Epo+MSCs showed significantly greater swimming exercise capacity. In conclusion, these results demonstrate that subcutaneous implantation of Epo-secreting genetically engineered MSCs can correct anemia that occurs in a murine model of CRF.