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Ovine pulmonary adenocarcinoma is caused by jaagsiekte sheep retrovirus. To gain insight into the histogenesis and viral pathogenesis of this neoplasm, the tumor cell phenotypes and differentiation state were correlated with the distribution of jaagsiekte sheep retrovirus capsid protein in neoplastic and normal cells of the lung in nine naturally occurring and 12 experimentally induced cases of ovine pulmonary adenocarcinoma. Overall, 82% of tumor cells had ultrastructural features consistent with alveolar type II cells, 7% of tumor cells had features of Clara cells, and 11% of tumor cells were insufficiently differentiated to classify. The proportion of the neoplastic cell phenotypes varied within tumors, and no tumor consisted of a morphologically uniform cell population. To further characterize the neoplastic cell population, sections of tumors were immunostained with antibodies to surfactant protein A, surfactant protein C, and Clara cell 10-kd protein. Overall, surfactant proteins A and C were expressed in 70% and 80% of tumor cells, respectively, whereas Clara cell 10-kd protein was expressed in 17% of tumor cells. Jaagsiekte sheep retrovirus capsid protein was detected in 71% of tumor cells and in macrophages (5/21 tumors examined) and in nonneoplastic alveolar and bronchiolar cells (6/14 tumors). Expression of this viral protein in neoplastic cells, classified morphologically and by immunophenotyping primarily as of the alveolar type II lineage, implies an important role for specific virus-cell interactions in the pathogenesis of ovine pulmonary adenocarcinoma.