Over 50% of the hepatocellular carcinomas (HCCs) arising in the livers of woodchucks with persistent woodchuck hepatitis virus (WHV) infection contain integrations of WHV DNA within, or immediately adjacent to, a unique and functional N-myc 2 retroposon [G. Fourel et al., Nature (Lond.), 347: 294-298, 1990; Y. Wei et al., J. Virol., 66: 5265-5276, 1992]. The integrations are believed to activate the expression of N-myc 2 by an enhancer insertion mechanism [Y. Wei et al., J. Virol., 66: 5265-5276, 1992]. Since the fetal growth factor insulin-like growth factor II (IGF-II) is also expressed in woodchuck HCCs [X. X. Fu et al., J. Virol., 62: 3422-3430, 1988; D. Yang and C. E. Rogler, Carcinogenesis (Lond.), 12: 1893-1901, 1991] we sought to determine the earliest stage in hepatocarcinogenesis at which overexpression of N-myc and IGF-II could be detected. The earliest precancerous lesions so far identified in woodchucks are altered hepatic foci (AHFs) [K. Abe et al., Jpn. J. Cancer Res., 79: 466-472, 1988; H. Popper et al., Hepatology (Baltimore), 1: 91-98, 1981]. Using in situ hybridization, we have demonstrated that both the N-myc and IGF-II genes are coordinately overexpressed in nearly all AHFs in precancerous woodchuck livers. In contrast, WHV replication was either repressed or undetectable in the same AHFs. The use of probes selective for N-myc 2 versus N-myc 1 (the normal mammalian homologue) revealed nearly exclusive expression of N-myc 2 in AHFs. Cells within AHFs were generally slow growing, as determined by frequency of histone III-expressing hepatocytes; however, a few fast-growing AHFs, with growth rates nearly equivalent to those of HCCs, were identified. Furthermore, very highly elevated N-myc 2 or IGF-II expression was detected in a few subregions within AHFs which otherwise exhibited a uniformly moderate expression, suggesting that selection for higher levels of N-myc or IGF-II expression may occur within AHFs. These data suggest that coordinate expression of N-myc 2 and IGF-II and repression of WHV replication may be functionally involved in the development of AHFs and that cells expressing very high levels of N-myc and IGF-II may be selectively enriched as AHFs progress to HCC, since high levels of N-myc and IGF-II are common in HCCs.