While biohybrid therapy shows promise, their further development into an "artificial pancreatic" system in diabetics also requires the management of the related immuneresponse triggered by such cellular therapies. Ideally this should be on a local level within the biohybrid device. This study relates to the design of sustained release formulations of the glucocorticoid soft drug loteprednol etabonate (LE) that are intended to locally suppress the immune response within the biohybrid devices, thereby warranting high local activity and reduced systemic side effects. Poly(D,L-lactic) acid (PLA) and poly(D,L-lactic glycolic acid (PLGA) microspheres of the soft corticosteroid loteprednol etabonate (LE) were prepared by solvent evaporation. A range of particles differing in particle size, nature of the polymer, emulsification method, and emulsifier were prepared and characterized. These results showed that the approach is able to customize slow release particles with predictable release characteristics over a period of days to month. Preliminary studies were performed with particles of a drug loading of 3.9 (+/- 0.2) %, and a mean particle diameter of 5 microm. In-vitro release studies indicated that these particles released drug over a period of three months. In vitro cell toxicity studies suggested that at higher concentrations (> 1 microM), unencapsulated LE showed some effect on the viability of the MIN-6 insuloma cell line, while the sustained release microspheres showed no cytotoxicity. The ability of these microspheres to provide localized immunosuppression has been evaluated in a set of early exploratory experiments with diabetic rats receiving islet transplantation. Animals treated using a biohybrid device loaded with microspheres showed improved results compared to those treated by delivery in solution form with an osmotic mini-pump. These results show the promise of localized glucocorticoid treatment by sustained release microspheres as a possible form of localized immunosuppression regimen. However, further confirmation is required before use in cell or organ transplantation.